Earthlink 2008 Annual Report Download - page 70

Table of Contents
EARTHLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table sets forth the computation for basic and diluted net income per share for the years ended December 31, 2006 and 2008.
The Company has not included the effect of Common Stock Equivalents in the calculation of diluted EPS for the year ended December 31, 2007
because such inclusion would have an anti-dilutive effect due to the Company's net loss.
During the years ended December 31, 2006 and 2008, approximately 21.2 million and 8.4 million, respectively, options, warrants and
restricted stock units were excluded from the calculation of diluted EPS because the exercise prices plus the amount of unrecognized
compensation cost attributed to future services exceeded the Company's average stock price during the respective years. Approximately
28.4 million shares that underlie the Company's convertible debt instruments were also excluded from the calculation of diluted EPS because the
exercise price exceeded the Company's average stock price during the period. These securities could be dilutive in future periods. As of
December 31, 2007, the Company had 13.4 million options outstanding, 28.4 million warrants outstanding and 2.1 million restricted stock units
and phantom share units outstanding.
Stock-Based Compensation
As of December 31, 2008, EarthLink had various stock-based compensation plans, which are more fully described in Note 12, "Stock-
Based Compensation." The Company accounts for stock-based compensation pursuant to SFAS No. 123(R), "Share-
Based Payment," which
requires measurement of compensation cost for all stock awards at fair value on the date of grant and recognition of compensation expense over
the requisite service period for awards expected to vest. The Company estimates the fair value of stock options using the Black-
Scholes
valuation model, and determines the fair value of restricted stock units based on the number of shares granted and the quoted price of EarthLink's
common stock on
66
Year Ended December 31,
2006 2008
(in thousands, except per share data)
Numerator
Income from continuing operations
$
24,986
$
198,118
Loss from discontinued operations
(19,999
)
(8,506
)
Net income
$
4,987
$
189,612
Denominator
Basic weighted average common shares outstanding
128,790
109,531
Dilutive effect of Common Stock Equivalents
1,793
1,520
Diluted weighted average common shares outstanding
130,583
111,051
Basic net income per share
Continuing operations
$
0.19
$
1.81
Discontinued operations
(0.16
)
(0.08
)
Basic net income per share
$
0.04
$
1.73
Diluted net income per share
Continuing operations
$
0.19
$
1.78
Discontinued operations
(0.15
)
(0.08
)
Diluted net income per share
$
0.04
$
1.71