Sprint - Nextel 2007 Annual Report Download - page 102

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SPRINT NEXTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Severance and Exit Costs
We recognize liabilities for severance and exit costs based upon the nature of the cost to be incurred. For
involuntary separation plans that are completed within the guidelines of our written involuntary separation plan,
we record the liability when it is probable and reasonably estimable in accordance with SFAS No. 112,
Employers’ Accounting for Postemployment Benefits. For voluntary separation plans, or VSP, the liability is
recorded in accordance with SFAS No. 88, Employers’ Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits, when the VSP is accepted by the employee. For one-time
termination benefits, such as additional severance pay or benefit payouts, and other exit costs, such as lease
termination costs, the liability is measured and recognized initially at fair value in the period in which the
liability is incurred, with subsequent changes to the liability recognized as adjustments in the period of change, in
accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. When a
business combination has occurred, we record severance and lease exit costs as part of the purchase price
allocation in accordance with EITF Issue No. 95-3, Recognition of Liabilities in Connection with a Purchase
Business Combination. See note 6 for additional information.
Earnings (Loss) per Common Share
Basic earnings (loss) per common share is calculated by dividing income (loss) available to common
shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings
(loss) per common share adjusts basic earnings (loss) per common share for the effects of potentially dilutive
common shares. Potentially dilutive common shares include the dilutive effects of shares issuable under our
equity plans computed using the treasury stock method, and the dilutive effects of shares issuable upon the
conversion of our convertible senior notes computed using the if-converted method.
Shares issuable under our equity plans were antidilutive in 2007 because we incurred a net loss from
continuing operations. Although not used in the determination of earnings (loss) per common share for 2007, we
had about 39 million dilutive shares issuable under the equity plans . All 11 million shares issuable upon the
assumed conversion of our convertible senior notes could potentially dilute earnings per common share in the
future, however, they were excluded from the calculation of diluted earnings per common share in 2007 due to
their antidilutive effects. As of December 31, 2007, there were about 124 million average shares issuable under
the equity plans that could also potentially dilute earnings per common share in the future that had exercise prices
that exceeded the average market price during this period.
Dilutive shares issuable under our equity plans used in calculating earnings per common share were about
22 million shares for 2006. All 11 million shares issuable upon the assumed conversion of our convertible senior
notes could potentially dilute earnings per common share in the future, however, they were excluded from the
calculation of diluted earnings per common share for 2006 due to their antidilutive effects. Additionally, about
115 million average shares issuable under the equity plans that could also potentially dilute earnings per common
share in the future were excluded from the calculation of diluted earnings per common share in 2006 as the
exercise prices exceeded the average market price during this period.
Dilutive shares issuable under our equity plans used in calculating earnings per common share were about
21 million shares for 2005. As of December 31, 2005, there were 11 million shares issuable upon the assumed
conversion of our convertible senior notes that could have potentially diluted earnings per common share in the
future, but were excluded from the calculation of diluted earnings per common share for 2005 due to their
antidilutive effects. Additionally, as of December 31, 2005, there were about 66 million average shares issuable
F-17