Sprint - Nextel 2005 Annual Report Download - page 157

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SPRINT NEXTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(1) Includes North Supply, which in prior years had been included in the Other segment for segment reporting
purposes. However, due to the planned spin-off of Embarq, which is expected to include North Supply, the
North Supply operations have been reclassified to the Local segment for all periods presented.
(2) Revenues eliminated in consolidation consist primarily of local access charged to Long Distance by Local,
Long Distance services provided to Wireless for resale to Wireless customers and for internal business use,
caller ID services provided by Local to Wireless, handset purchases from Wireless and access to the
Wireless network.
Note 21. Recently Issued Accounting Pronouncements
SFAS No. 123R
In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment. This statement requires an entity to
recognize the cost of employee services received in share-based payment transactions, through the use of fair-
value-based methods of recognizing cost. This statement is effective for us as of January 1, 2006.
We voluntarily adopted fair value accounting for share-based payments effective January 1, 2003, under
SFAS No. 123 as amended by SFAS No. 148, using the prospective method. Upon adoption, we began expensing
the fair value of stock-based compensation for all grants, modifications or settlements made on or after
January 1, 2003. In connection with the tracking stock recombination, as required by SFAS No. 123, we
accounted for the conversion of PCS stock options to FON stock options as a modification and accordingly
applied stock option expensing to FON stock options resulting from the conversion of PCS stock options granted
before January 1, 2003. Further, in connection with the Nextel merger, we accounted for the conversion of Nextel
stock options to Sprint Nextel stock options as a modification and accordingly applied stock option expensing to
the unvested stock options beginning on the merger date.
The revised standard will require us to begin to recognize compensation cost for unvested common stock options
granted to our employees before January 1, 2003, which are outstanding as of January 1, 2006. This requirement
to recognize expense on these unvested grants is expected to be immaterial to us.
SFAS No. 151
In November 2004, the FASB issued SFAS No. 151, Inventory Costs—an amendment of ARB No. 43, Chapter 4.
This statement requires that items such as idle facility expense, excessive spoilage, double freight, and rehandling
costs be recognized as current-period charges regardless of whether they meet the definition of abnormal
provided in ARB No. 43, Chapter 4, Inventory Pricing. The statement is effective for inventory costs incurred
during fiscal years beginning after June 15, 2005. We do not expect the adoption of this standard to have a
material impact on our financial statements.
Note 22. Quarterly Financial Data (Unaudited)
Quarter
1st 2nd 3rd 4th
(in millions, except per share data)
2005
Net operating revenues ................................. $ 6,936 $ 7,113 $ 9,335 $ 11,296
Operating income ..................................... 1,036 1,196 923 671
Income from continuing operations ....................... 472 600 516 213
Net income .......................................... 472 600 516 197
Basic earnings per common share from continuing operations . . 0.32 0.40 0.23 0.07
Diluted earnings per common share from continuing
operations ......................................... 0.31 0.40 0.23 0.07
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