Frontier Communications 2006 Annual Report Download - page 60

CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
to value the stock. Under APB No. 25, we were not required to recognize compensation expense for the cost of
stock options issued under the Management Equity Incentive Plan (MEIP), 1996 Equity Incentive Plan (EIP) and
the Amended and Restated 2000 EIP stock plans.
Prior to 2006, we provided pro forma net income and pro forma net income per common share disclosures
for employee and non-employee director stock option grants based on the fair value of the options at the date of
grant (see Note 17). 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 Non-Employee
Directors’ Deferred Fee Equity Plan, our pro forma net income and net income per common share available for
common shareholders would have been as follows:
($ in thousands) 2006 2005 2004
(No Change)
Net income available for common shareholders ......... Asreported $ 202,375 $ 72,150
Add: Stock-based employee compensation expense
included in reported net income, net of related tax
effects ........................................ 5,267 29,381
Deduct: Total stock-based employee compensation
expense determined under fair value based method for
all awards, net of related tax effects ................. (8,165) (38,312)
Proforma $ 199,477 $ 63,219
Net income per common share available for common
shareholders ...................................
As reported:
Basic $ 0.60 $ 0.24
Diluted 0.60 0.23
Pro forma:
Basic $ 0.59 $ 0.21
Diluted 0.59 0.20
In connection with the payment of the special, non-recurring dividend of $2.00 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 No. 44), “Accounting for Certain Transactions Involving Stock Compensation” and
EITF No. 00-23, “Issues Related to the Accounting for Stock Compensation under APB No. 25 and FIN No. 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 Per Common Share Available for Common Shareholders:
Basic net income 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 (EPPICS). In addition, the related interest on debt (net of tax) is added
back to income since it would not be paid if the debt was converted to common stock.
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