Sprint - Nextel 2007 Annual Report Download - page 128

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SPRINT NEXTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Under our share-based payment plans, we had options, restricted stock units and nonvested shares
outstanding as of December 31, 2007. Awards with graded vesting are recognized using the straight-line method.
Forfeitures were estimated for 2007, 2006 and 2005 share-based awards using a 4% weighted average annual
rate.
Options
The fair value of each option award is estimated on the grant date using the Black-Scholes option valuation
model. The risk-free rate used in 2007, 2006, and 2005 is based on the zero-coupon U.S. Treasury bond with a
term equal to the expected term of the options. The volatility used is the implied volatility from traded options on
our common shares or the historical volatility of our common shares over a period that approximates the
expected term of the options. The expected dividend yield used is estimated based on our historical dividend
yield and other factors. The expected term of options granted is estimated using the simplified method, defined as
the average of the vesting term and the contractual term. Options outstanding as of December 31, 2007 include
options granted under the 2007 Plan, the 1997 Program, the Nextel Plan, and the MISOP as discussed above.
2007 2006(1) 2005
Weighted average grant date fair value ............... $ 6.05 $ 6.97 $ 9.27
Risk free interest rate ............................ 3.70% – 5.12% 4.53% –5.21% 3.60% –4.54%
Expected volatility(2) ............................. 26.6% – 38.3% 22.5% – 27.9% 18.8% – 58.8%
Weighted average expected volatility(2) .............. 29.0% 24.7% 44.9%
Expected dividend yield .......................... 0.46% – 0.72% 0.44% – 0.58% 0.42% – 2.26%
Weighted average expected dividend yield ............ 0.56% 0.46% 2.06%
Expected term (years) ............................ 6 6 6
Options granted (millions) ........................ 17 14 8
(1) Values, other than the risk free interest rate and the expected term, have been adjusted for the spin-off of
Embarq based on the 1.0955 conversion rate.
(2) In 2006 and 2007, 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. In 2005, expected volatility
was based on our historical volatility.
A summary of the status of the options under our option plans as of December 31, 2007, and changes during
the year ended December 31, 2007, is presented below:
Shares
Under
Option
Weighted
Average
per
Share
Exercise
Price
Weighted
Average Remaining
Contractual Term
Aggregate
Intrinsic
Value
(in millions) (in years) (in millions)
Outstanding January 1, 2007 ....................... 171 $23.33
Granted .................................... 17 18.50
Exercised .................................. (24) 14.26
Forfeited/expired ............................ (13) 29.73
Outstanding December 31, 2007 .................... 151 $23.71 4.83 $75
Vested or expected to vest at December 31, 2007 ....... 151 $23.74 4.80 $75
Exercisable at December 31, 2007 ................... 121 $24.81 3.90 $75
F-43