Earthlink 2005 Annual Report Download - page 73

Download and view the complete annual report

Please find page 73 of the 2005 Earthlink annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 113

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113

EARTHLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
of common shares outstanding during a reported period. Diluted EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock, including stock options, warrants restricted stock units and phantom share units (collectively “
Common Stock
Equivalents”), were exercised or converted into common stock. The following table sets forth the computation for basic and diluted net income
per share for the years ended December 31, 2004 and 2005:
Common Stock Equivalents for the year ended December 31, 2004 included an average of 12.5 million options, warrants and restricted
stock units which had a dilutive effect based on application of the treasury stock method, but excluded 9.0 million average options, warrants
and restricted stock units outstanding which were deemed anti-dilutive because the exercise prices exceeded the Company’
s average stock price
during the year ended December 31, 2004.
Common Stock Equivalents for the year ended December 31, 2005 included an average of 11.2 million options, warrants, phantom share
units and restricted stock units which had a dilutive effect based on application of the treasury stock method, but excluded 9.9 million average
options, warrants and restricted stock units outstanding which were deemed anti-dilutive because the exercise prices exceeded the Company’s
average stock price during the year ended December 31, 2005, but these options, warrants and restricted stock units could be dilutive in future
periods.
The Company has not included the effect of Common Stock Equivalents in the calculation of diluted EPS for the year ended
December 31, 2003 because such inclusion would have an anti-dilutive effect due to the Company’s net loss. The Common Stock Equivalents
for the year ended December 31, 2003 would have included outstanding options and warrants with exercise prices less than the average closing
price of the Company’s common stock during the period, outstanding shares of Series A and Series B convertible preferred stock on an as
converted basis and restricted stock units.
Stock-Based Compensation
As of December 31, 2005, EarthLink had various stock-based compensation plans, which are more fully described in Note 11, “Stock
Compensation Plans and Warrants.” EarthLink accounts for those plans under the intrinsic value method, which follows the recognition and
measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and Financial
Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 44, “Accounting for Certain Transactions Involving Stock Compensation.”
Stock and other equity instruments issued to non-employees are accounted for in accordance with SFAS No. 123, “Accounting for Stock-
Based
Compensation,” and EITF Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services,” and are valued using the Black-Scholes model.
72
Year Ended December 31,
2004
2005
(in thousands, except
per share data)
Net income attributable to common stockholders (A)
$
111,009
$
142,780
Basic weighted average common shares outstanding (B)
154,233
137,080
Dilutive effect of Common Stock Equivalents
3,582
2,870
Diluted weighted average common shares outstanding (C)
157,815
139,950
Basic net income per share (A/B)
$
0.72
$
1.04
Diluted net income per share (A/C)
$
0.70
$
1.02