Sprint - Nextel 2015 Annual Report Download - page 102

Table of Contents
Index to Consolidated Financial Statements
SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
the possibility that the market condition may not be satisfied. Assumptions used in the Monte Carlo valuation model are consistent with those we use to value stock
options and include a risk free interest rate from 1.20% to 1.66% , expected volatility from 53.7% to 70.8% , and expected dividend yield of 0% . The number of
restricted stock units that ultimately vest can vary significantly depending upon the performance of the specified market criteria and if below a certain threshold
price level, the award will be forfeited in its entirety. Compensation cost related to the share-based awards with market condition is recognized regardless of
whether the market condition is achieved.
Employees and directors who are granted restricted stock units are not required to pay for the shares but generally must remain employed with us, or
continue to serve as a member of our board of directors, until the restrictions lapse, which is typically three years for employees and one year for directors. Certain
restricted stock units outstanding as of March 31, 2016 , are entitled to dividend equivalents paid in cash, if dividends are declared and paid on common shares, but
performance-based restricted stock units are not entitled to dividend equivalent payments until the applicable performance and service criteria have been met.
During the Successor year ended March 31, 2016 , the Company granted approximately 28 million service only and performance-based restricted stock units,
including those with market conditions, with a weighted average grant date fair value of $3.06 per share. At March 31, 2016 , approximately 33 million restricted
stock unit awards were outstanding.
CompensationCosts
The cost of employee services received in exchange for share-based awards classified as equity is measured using the estimated fair value of the award
on the date of the grant, and that cost is recognized over the period that the award recipient is required to provide service in exchange for the award. Awards of
instruments classified as liabilities are measured at the estimated fair value at each reporting date through settlement.
Pre-tax share and non-share based compensation charges from our incentive plans included in net loss were $75 million , $86 million , $35 million and
$98 million for the Successor years ended March 31, 2016 and 2015 , the three-month transition period ended March 31, 2014 and the year ended December 31,
2013 , respectively, and $37 million and $17 million for the Predecessor 191-day period ended July 10, 2013 and unaudited three month-period ended March 31,
2013, respectively. The net income tax benefit (expense) recognized in the consolidated financial statements for share-based compensation awards was $20 million
, $34 million , $12 million and $34 million for the Successor years ended March 31, 2016 and 2015 , the three-month transition period ended March 31, 2014 and
year ended December 31, 2013 , respectively, and $2 million and $(1) million for the Predecessor 191-day period ended July 10, 2013 and unaudited three-month
period March 31, 2013, respectively. As of March 31, 2016 , there was $90 million of total unrecognized compensation cost related to non-vested incentive awards
that are expected to be recognized over a weighted average period of 2.62 years.
Advertising Costs
We recognize advertising expense when incurred as selling, general and administrative expense. Advertising expenses totaled $1.3 billion , $1.5 billion
, $408 million and $697 million for the Successor years ended March 31, 2016 and 2015 , the three-month transition period ended March 31, 2014 and year ended
December 31, 2013 , respectively, and $858 million and $409 million for the Predecessor 191-day period ended July 10, 2013 and the unaudited three-month
period March 31, 2013, respectively.
Variable Interest Entities (VIE)
VIEs are entities which lack sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other
parties, have equity investors which do not have the ability to make significant decisions relating to the entity's operations through voting rights, do not have the
obligation to absorb the expected losses, or do not have the right to receive the residual returns of the entity. A common type of VIE is a special purposes entity
(SPE). SPEs are commonly used in securitization transactions in order to isolate certain assets and distribute the cash flows from those assets to investors. SPEs are
generally structured to insulate investors from claims on the SPE's assets by creditors of other entities, including the creditors of the seller of the assets.
We are required to consolidate the assets and liabilities of VIEs when we are deemed to be the primary beneficiary. The primary beneficiary is the party
which has the power to make the decisions that most significantly affect the economic performance of the VIE and has the obligation to absorb losses or the right
to receive benefits that could potentially be significant to the VIE.
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