Sprint - Nextel 2005 Annual Report Download - page 59

Significant New Accounting Pronouncements
SFAS No. 123R
In December 2004, the Financial Accounting Standards Board, or 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, Accounting for Stock-Based Compensation—Transition and
Disclosure, 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 conversion of the PCS common stock into our common stock in the tracking stock recombination, as
required by SFAS No. 123, we accounted for the conversion of options to purchase PCS stock into options to
purchase our common stock as a modification and, accordingly, applied stock option expensing to the options
to acquire our common stock 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 our 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. The 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 Accounting Research
Bulletin, or 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.
Results of Operations
Consolidated
Year Ended December 31,
2005 2004 2003
(in millions)
Net operating revenues .............................. $ 34,680 $ 27,428 $ 26,197
Net income (loss) .................................. 1,785 (1,012) 1,290
The discussion of our results of operations for the year ended December 31, 2005 includes the financial results of
Nextel for the last 141 days of the year, consistent with generally accepted accounting principles, or GAAP. The
inclusion of these results renders direct comparisons with results for prior periods less meaningful. Accordingly,
the discussion below addresses, where appropriate, trends we believe are significant, separate and apart from the
impact of the merger with Nextel.
Net operating revenues increased 26% in 2005, reflecting growth in revenues of our Wireless and Local
segments, partially offset by declining revenues of our Long Distance segment.
Operating expenses increased 11% in 2005 primarily due to increases in the operating expenses of our Wireless
segment, partially offset by a decrease in the operating expenses of our Long Distance segment.
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