Sprint - Nextel 2010 Annual Report Download - page 86

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Options
The fair value of each option award is estimated on the grant date using the Black-Scholes option valuation model,
based on several assumptions including the risk-free interest rate, volatility, expected dividend yield and expected term. The
risk-free interest rate used 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. 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 as our historical data is not
expected to represent the future expected term of equity awards due to our severance activities over the last several years.
In the second quarter 2010, the Company completed an Exchange Offer in which certain outstanding vested options
could be exchanged for new options that were (i) granted under any plan prior to May 17, 2009, (ii) not scheduled to expire
before the Offer closed, (iii) had an exercise price greater than $6.54 per share and (iv) were outstanding and held by eligible
employees as defined in the Offer. Pre-established exchange ratios were determined in a manner intended to result in an
estimated fair value of the new options approximately equal, in the aggregate, to the estimated fair value of the eligible options
surrendered as of the date of the exchange. The Offer expired on June 16, 2010, resulting in the voluntary surrender and
cancellation of 27.6 million vested options in exchange for the issuance of 6.8 million unvested options. The exercise price of
the unvested options was $4.64 per share, with an estimated grant date fair value of $2.38 per option, subject to a two-year
vesting period and a contractual term of seven years. The exchange resulted in estimated additional compensation costs of
approximately $5 million to be recognized ratably over the two-year vesting period.
The following table provides the estimated fair value and assumptions used in determining the fair value of option
awards granted during 2010, 2009 and 2008:
Weighted average grant date fair value
Risk free interest rate
Volatility
Weighted average expected volatility
Expected dividend yield
Weighted average expected dividend yield
Expected term (years)
Options granted (millions)
2010
$ 1.97
2.71% - 2.74%
58.5%
58.5%
—%
—%
6.0 - 6.25
8
2009
$ 3.07
2.05% - 2.86%
72.0% - 126.2%
113.6%
—%
—%
6.25 - 6.5
28
2008
$ 4.59
2.76% - 3.30%
69.7% - 98.5%
77.3%
—%
—%
6.0 - 6.5
8
A summary of the status of the options under our option plans as of December 31, 2010, and changes during the year
ended December 31, 2010, is presented below:
Outstanding January 1, 2010
Granted
Issued in option exchange
Exercised
Forfeited/expired
Outstanding at December 31, 2010
Vested or expected to vest at December 31, 2010
Exercisable at December 31, 2010
Shares
Under
Option
(in millions)
108
8
7
(2)
(49)
72
67
39
Weighted
Average
per
Share
Exercise
Price
$ 16.42
$ 3.44
$ 4.64
$ 2.18
$ 21.65
$ 10.79
$ 11.33
$ 16.52
Weighted
Average Remaining
Contractual Term
(in years)
6.07
5.86
3.93
Aggregate
Intrinsic
Value
(in millions)
$ 20
$ 17
$ 4
Table of Contents SPRINT NEXTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-29