FairPoint Communications 2005 Annual Report Download - page 72

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No. 123 had been applied. The Company has elected to continue to apply the intrinsic-value-based method 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 (in thousands, except per share data):
  
Net income (loss), as reported $ 28,930 $ (23,682) $1,671
Stock-based compensation expense included in reported net income
(loss), net of related tax effect in 2005 of $0.9 million(1) 1,466 49 15
Stock-based compensation determined under fair value based method,
net of related tax effect in 2005 of $0.9 million (1,447)(656)(658)
Pro forma net income (loss) $28,949 $ (24,289) $ 1,028
Basic and diluted earnings per common share, as reported: $ 0.91 $ (2.50) $ (0.46)
Basic and diluted earnings per common share, proforma: $ 0.91 $ (2.57) $ (0.52)
(1) Amounts shown for 2004 and 2003 are not net of tax effect due to the recognition of a valuation allowance associated with net operating losses.
(o) 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 described as “preferred shares subject to
mandatory redemption” in the consolidated balance sheets as of December 31, 2004 and dividends and accretion on these shares are included in pretax income
prior to the repurchase of these shares whereas previously they were presented as a reduction to equity (a dividend) and, therefore, a reduction of net income
available to common shareholders.
(p) 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.
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(1)