Sprint - Nextel 2006 Annual Report Download - page 102

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Adoption of Statement of Financial Accounting Standards No. 123R
Effective January 1, 2006, we adopted SFAS No. 123R, Share-Based Payment, which revises SFAS No. 123.
SFAS No. 123R requires us to measure the cost of employee services received in exchange for an award of
equity-based securities using the fair value of the award on the date of grant, and we recognize that cost over
the period that the award recipient is required to provide service to us in exchange for the award. Any awards
of liability instruments to employees would be remeasured at fair value at each reporting date through
settlement.
We adopted SFAS No. 123R using the modified prospective transition method and, accordingly, the results of
prior periods have not been restated. This method requires that the provisions of SFAS No. 123R generally are
applied only to share-based awards granted, modified, repurchased, or cancelled on or after January 1, 2006.
As we voluntarily adopted fair value accounting for share-based awards 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, we measured the cost of share-based awards granted or modified
on or after January 1, 2003 using the fair value of the award and began recognizing that cost in our
consolidated statements of operations over the service period. We will recognize the remaining cost of these
awards over the remaining service period following the provisions of SFAS No. 123R. For those grants issued
prior to January 1, 2003 that were unvested and outstanding as of January 1, 2006, we started recognizing the
remaining cost of these awards over the remaining service period as required by the new standard. The
adoption of SFAS No. 123R did not have a material effect on our consolidated financial statements.
The following table illustrates the effect on net income (loss) and earnings (loss) per common share of share-
based awards included in net income (loss) and the effect on net income (loss) and earnings (loss) per common
share for grants issued prior to January 1, 2003, had we applied the fair value recognition provisions of
SFAS No. 123 to those grants in 2005 and 2004.
2005 2004
Year Ended
December 31,
(In millions)
Net income (loss), as reported ............................................ $1,785 $(1,012)
Add: share-based compensation expense, included in reported net income (loss), net of
income tax of $111 and $47 ............................................. 192 82
Deduct: total share-based compensation expense determined under fair value based
method for all awards, net of income tax of $117 and $64 ....................... (204) (111)
Net income (loss), pro forma ............................................. $1,773 $(1,041)
Earnings (loss) per common share
Basic, as reported ..................................................... $ 0.87 $ (0.71)
Basic, pro forma ..................................................... $ 0.87 $ (0.73)
Diluted, as reported ................................................... $ 0.87 $ (0.71)
Diluted, pro forma .................................................... $ 0.86 $ (0.73)
Share-based compensation cost charged against net income (loss) and charged against income (loss) from
continuing operations for our share-based award plans was $361 million and $338 million for 2006,
$303 million and $254 million for 2005 and $129 million and $85 million for 2004, respectively. Of the total
share-based compensation amounts, $234 million and $81 million in 2005 and 2004, respectively, related to
stock-based grants issued after December 31, 2002; $37 million and $48 million in 2005 and 2004,
respectively, related to the recombination of our two tracking stocks (note 16), and $32 million in 2005 related
to the separation of certain of our employees employed with us prior to the Sprint-Nextel merger.
F-25
SPRINT NEXTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)