Earthlink 2003 Annual Report Download - page 48

F-10
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.
No stock-based employee compensation cost related to stock options is reflected in net loss, as all options granted under stock-based
compensation plans had an exercise price equal to the market value of the underlying common stock on the grant date. Further, the ESPP
qualifies as a noncompensatory plan under APB Opinion No. 25, and, as such, no compensation cost was recognized for ESPP awards.
Compensation cost related to restricted stock units granted to non-employee directors in the year ended December 31, 2003 is reflected in net
loss as the deferred compensation is amortized over the vesting period. If the Company had elected to adopt the optional recognition provisions
of SFAS No. 123, which uses the fair value based method for stock-
based compensation, and amortized the fair value to compensation expense
on a straight-line basis over the vesting period, net loss attributable to common stockholders and basic and diluted net loss per share would
have been changed to the pro forma amounts indicated below:
The fair value of stock options used to compute pro forma net loss is the estimated fair value at the date of grant using the Black-Scholes
option-pricing model with the following assumptions:
For options granted during the years ended December 31, 2002 and 2003, the Company's assumption of expected volatility for valuing
options using the Black-Scholes model was based on the historical volatility of the Company's stock price for the period January 1, 2001
through the date of option grant because management believes the historical volatility since January 1, 2001 is more representative of
F-11
prospective volatility. Volatility estimates for options granted during the year ended December 31, 2001 were based on historical volatility over
periods of five to seven years.
Comprehensive Loss
Comprehensive loss as presented in the Consolidated Statements of Stockholders' Equity and Comprehensive Loss includes unrealized
Year Ended December 31,
2001 2002 2003
(in thousands, except per share data)
Net loss attributable to common stockholders, as reported
$
(370,941
)
$
(168,020
)
$
(66,780
)
Stock-based compensation expense determined using a fair
value based method for all awards
(57,603
)
(58,098
)
(40,681
)
Pro forma net loss attributable to common stockholders
$
(428,544
)
$
(226,118
)
$
(107,461
)
Basic and diluted net loss per share:
As reported
$
(2.73
)
$
(1.11
)
$
(0.42
)
Pro forma
$
(3.16
)
$
(1.49
)
$
(0.68
)
Year Ended December 31,
2001 2002 2003
Annual dividends
zero
zero
zero
Expected volatility
93
%
76
%
70
%
Risk free interest rate
4.63
%
3.69
%
3.35
%
Expected life
6.6 years
6.6 years
5.6 years