Frontier Communications 2004 Annual Report Download - page 56

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CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
F-12
1, 2005 (third quarter) and expect to recognize approximately $3,000,000 of expense for the last six months of
2005.
We provide pro forma net income (loss) and pro forma net income (loss) per common share disclosures for
employee stock option grants based on the fair value of the options at the date of grant (see Note 18). For purposes
of presenting pro forma information, the fair value of options granted is computed using the Black Scholes option-
pricing model.
Had we determined compensation cost based on the fair value at the grant date for the Management Equity Incentive
Plan (MEIP), Equity Incentive Plan (EIP), Employee Stock Purchase Plan (ESPP) and Directors’ Deferred Fee
Equity Plan, our pro forma net income (loss) and net income (loss) per common share available for common
shareholders would have been as follows:
2004 2003 2002
($ in thousands)
Net income (loss) available for common
shareholders As reported $ 72,150 $ 187,852 $ (682,897)
Add: Stock-based employee compensation
expense included in reported net income
(loss), net of related tax effects 29,381 6,014 4,899
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards, net
of related tax effects (38,312) (16,139) (16,990)
Pro forma $ 63,219 $ 177,727 $ (694,988)
Net income (loss) per common share As reported:
available for common shareholders Basic $ 0.24 $ 0.67 $ (2.43)
Diluted 0.23 0.64 (2.43)
Pro forma:
Basic $ 0.21 $ 0.63 $ (2.48)
Diluted 0.20 0.61 (2.48)
In connection with the payment of the special, non-recurring dividend of $2 per common share on September 2,
2004, the exercise price and number of all outstanding options was adjusted such that each option had the same
value to the holder after the dividend as it had before the dividend. In accordance with FASB Interpretation No.
44 (“FIN 44”), “Accounting for Certain Transactions Involving Stock Compensation” and EITF 00-23, “Issues
Related to the Accounting for Stock Compensation under APB No. 25 and FIN 44”, there is no accounting
consequence for changes made to the exercise price and the number of shares of a fixed stock option or award as
a direct result of the special, non-recurring dividend.
(l) Net Income (Loss) Per Common Share Available for Common Shareholders:
Basic net income (loss) per common share is computed using the weighted average number of common shares
outstanding during the period being reported on. Except when the effect would be antidilutive, diluted net income
per common share reflects the dilutive effect of the assumed exercise of stock options using the treasury stock
method at the beginning of the period being reported on as well as common shares that would result from the
conversion of convertible preferred stock. In addition, the related interest on preferred stock dividends (net of tax)
is added back to income since it would not be paid if the preferred stock was converted to common stock.