Sprint - Nextel 2006 Annual Report Download - page 103

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The total income tax benefit recognized in the consolidated statements of operations for share-based award
compensation was $138 million for 2006, $111 million for 2005 and $47 million for 2004. The income tax
benefit recognized in the consolidated statements of operations related to continuing operations was $129 mil-
lion for 2006, $93 million for 2005 and $31 million for 2004.
As of December 31, 2006, there was $306 million of total unrecognized compensation cost related to our
share-based award plans that is expected to be recognized over a weighted average period of 1.68 years. Cash
received from exercise under all share-based payment arrangements was $405 million for 2006, $432 million
for 2005 and $1.9 billion for 2004. The actual tax benefit realized for the tax deductions from exercise of the
share-based payment arrangements totaled $6 million for 2006, $6 million for 2005 and $1 million for 2004.
Awards with graded vesting are recognized using the straight-line method. Forfeitures were estimated for
2006, 2005 and 2004 share-based awards using a 3% annual rate.
Options
The fair value of each option award is estimated on the grant date using the Black-Scholes option valuation
model and the assumptions noted in the following table. The risk-free rate used in 2006, 2005 and 2004 is
based on the zero-coupon U.S. Treasury bond, with a term equal to the expected term of the options. The
volatility used in 2006, 2005 and 2004 is the implied volatility from traded options on our common shares and
the historical volatility of our common shares, over a period that approximates the expected term of the
options. The expected dividend yield used in 2006, 2005 and 2004 is estimated based on our historical
dividend yields and other factors. The expected term of options granted in 2006, 2005 and 2004 is estimated
using the average of the vesting date and the contractual term. Our options include options granted under the
1997 Program, the MISOP and the Nextel Incentive Equity Plan, as discussed above.
2006
(1)
2005 2004
FON
(2)
Common Stock
PCS
(2)
Common Stock
Weighted average grant date fair
value .................... $ 6.97 $ 9.27 $ 6.42 $ 13.12
Risk free interest rate.......... 4.53% - 5.21% 3.60% - 4.54% 1.26% - 4.01% 1.23%-3.13%
Expected volatility
(3)
.......... 22.5% - 27.9% 18.8% - 58.8% 19.2% - 46.8% 54.2% - 88.3%
Weighted average expected
volatility
(3)
................ 24.7% 44.9% 45.1% 83.3%
Expected dividend yield ........ 0.44% - 0.58% 0.42% - 2.26% 0.00% - 2.90% —
Weighted average expected
dividend yield ............. 0.46% 2.06% 2.78% —
Expected term (years) ......... 6 6 6 6
Options granted (millions) ...... 14 8 5 5
(1) Values, other than the expected term and the risk free interest rate, have been adjusted for the spin-off of
Embarq based on the 1.0955 conversion rate.
(2) See note 16 for information regarding the recombination of our tracking stocks.
(3) In 2006, we based our estimate of expected volatility on the implied volatility of exchange traded options,
consistent with the guidance in SAB No. 107, Share-Based Payment. Previously, expected volatility was
based on our historical volatility.
F-26
SPRINT NEXTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)