Sprint - Nextel 2005 Annual Report Download - page 147

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SPRINT NEXTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of December 31, 2005, this plan authorized for purchase approximately 25.6 million shares, net of elections
made in 2005 by employees participating in the fourth quarter 2005 offering under the ESPP to purchase
approximately 720,000 common shares in the first quarter 2006. Employees purchased these shares for $21.11.
Fair Value Disclosures
In connection with the Nextel merger, Nextel stock options were converted into Sprint Nextel stock options with
the shares issuable and exercise prices of the options adjusted based on an exchange ratio of 1.3 shares of Sprint
Nextel common stock for each share of Nextel common stock. The value of these awards was calculated by
applying the fair value method under SFAS No. 123, as amended by SFAS No. 148. The fair value was
calculated on the stock options outstanding on the date of completion of the merger.
The following table reflects the weighted average fair value per option granted, as well as the significant
weighted average assumptions used in determining those fair values using the Black-Scholes pricing model for
the converted Nextel stock options, as well as the stock options issued under the 1997 Program. The following
information related to PCS common stock has not been adjusted to reflect the recombination of our tracking
stocks.
Year Ended December 31,
2005 2004 2003
Issued in
Nextel
Merger Other
FON
Common
Stock
PCS
Common
Stock
FON
Common
Stock
PCS
Common
Stock
Fair value on grant date ................. $ 12.60 $ 9.28 $ 6.43 $ 6.56 $ 3.58 $ 3.16
Risk-free interest rate ................... 4.07% 3.70% 3.13% 3.13% 2.93% 2.93%
Expected volatility ..................... 44.8% 44.9% 45.1% 83.30% 45.0% 87.20%
Expected dividend yield ................. 0.40% 2.06% 2.78% — 4.23% —
Expected life (years) .................... 3.466666
Options granted (millions) ............... 102.8 7.1 5.1 5.1 10.5 10.5
Restricted Stock Units
We granted 3.5 million restricted stock units in 2005, which vest after three years, and 1.1 million of these
restricted stock units are performance based. The weighted average fair value per unit was $24.76.
Employees Stock Purchase Plan
Prior to the Sprint-Nextel merger, Nextel employees elected, under the Nextel Associate Stock Purchase Plan, to
purchase approximately 244,000 shares of common stock. As a result of the Sprint-Nextel merger, we issued
these shares to the former Nextel employees. Using the Black-Scholes pricing model, the weighted average fair
value was $3.42 per share.
During the 2004 ESPP offering that ended in June 2005, employees elected to purchase approximately
3.6 million common shares. Using the Black-Scholes pricing model, the weighted average fair value was $3.19
per share.
During the 2003 ESPP offering that ended in June 2004, employees elected to purchase approximately
1.8 million FON and 7.2 million PCS shares. Using the Black-Scholes pricing model, the weighted average fair
value was $4.11 per share for each FON election and $2.52 per share for each PCS election. Because of the
recombination of the tracking stocks, the elections to purchase PCS shares were converted into elections to
purchase FON shares.
F-52