FairPoint Communications 2004 Annual Report Download - page 90

of accounting under APB No. 25 and has adopted the disclosure requirements of SFAS No. 123.
The Company calculates stock-based compensation pursuant to the disclosure provisions of SFAS No. 123 using the
straight-line method over the vesting period of the option. Had the Company determined compensation cost based on the fair
value at the grant date for its stock options under SFAS No. 123, the Company's net pro forma income (loss) would have been
(dollars in thousands):







Net income (loss), as reported $(23,682)1,671 13,239
Stock-based compensation expense included in
reported net income (loss) 49 15 1,260
Stock-based compensation determined under fair
value based method (656)(658)(1,387)
Pro forma net income (loss) $(24,289)1,028 13,112
Basic and diluted earnings per share, as reported $(2.50)(0.46)0.14
Basic and diluted earnings per share, pro forma $(2.57)(0.52)0.13
The pro forma effects are not representative of the effects on reported net income for future years.
(p) Certain Financial Instruments with Characteristics of Liabilities and Equity
The Company prospectively adopted SFAS No. 150 effective July 1, 2003. The SFAS No. 150 adoption had no impact on
net income (loss) attributed to common shareholders for any of the periods presented. SFAS No. 150 requires the Company to
classify as a long-term liability its series A preferred stock and to reclassify dividends and accretion from the series A preferred
stock as interest expense. Such stock is now described as "preferred shares subject to mandatory redemption" in the
consolidated balance sheets as of December 31, 2003 and 2004 and dividends and accretion on these shares are now included
in pretax income whereas previously they were presented as a reduction to equity (a dividend) and, therefore, a reduction of net
income available to common shareholders.
(q) Business Segments
Under the provisions of SFAS No. 131,  the
Company's only separately reportable business segment is its traditional telephone operations. The Company's traditional
telephone operations are conducted in rural, suburban, and small urban communities in various states. The operating income
of this segment is reviewed by the chief operating decision maker to assess performance and make business decisions. Due to
the sale of the Company's competitive communications operations, such operations (which were previously reported as a
separate segment) are classified as discontinued operations.
86