FairPoint Communications 2005 Annual Report Download - page 90

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At December 31, 2005, the Company had federal and state net operating loss carryforwards of $291.9 million that will expire in 2019 to 2025. At
December 31, 2005, the Company has alternative minimum tax credits of $1.4 million that may be carried forward indefinitely. The Company completed an
initial public offering on February 8, 2005, which resulted in an “ownership change” within the meaning of the U.S. Federal income tax laws addressing net
operating loss carryforwards, alternative minimum tax credits, and other similar tax attributes. As a result of such ownership change, there are specific
limitations on the Company’s ability to use its net operating loss carryfowards and other tax attributes however, it is the Company’s belief that it can use the
net operating losses even with these restrictions in place because of net unrealized built in gains.
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On February 8, 2005, the Company consummated its initial public offering of 25,000,000 shares of common stock, par value $.01 per share. At
December 31, 2005, there were 35,021,335 shares of common stock outstanding and 200,000,000 shares of common stock were authorized.
On January 28, 2005, the board of directors approved a 5.2773714 for 1 reverse stock split of the Company’s common stock, which has been given
retroactive effect in the accompanying financial statements. In connection with the Company’s initial public offering in February 2005, the Company
reclassified all of its class A common stock and class C common stock on a one-for-one basis into a single class of common stock of which 200 million
shares are authorized. After the stock split but prior to the issuance of any new shares in the offering, 9,451,719 shares of common stock were outstanding.
All common stock issued and outstanding has a $0.01 par value.
At December 31, 2004, there were 8,643,000 shares of Class A voting stock outstanding. The Class A voting stock had a par value of $0.01 per shares
and 44,757,000 shares were authorized. In addition, at December 31, 2004, there were 809,000 shares of Class C nonvoting, convertible stock outstanding.
The Class C nonvoting, convertible stock had a par value of $0.01 per share and 2,615,000 shares were authorized.
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(a) Compensation Expense
For the twelve months ended December 31, 2005, 2004 and 2003, the Company, in total, has recorded stock-based compensation expense of
$2.4 million, $49,000 and $15,000, respectively.
On October 1, 2004, the Company extended the exercise period on 18,013 options under the FairPoint Communications, Inc. (formerly MJD
Communications, Inc.) 1995 Stock Option Plan (the 1995 Plan). The Company recognized a compensation charge of $0.3 million related to the modification
of these options during 2004.
Certain principal shareholders of the Company granted stock appreciation rights to certain members of management. In connection with the stock
appreciation rights, the Company recognized a benefit of $0.4 million in 2004 as the value associated with the stock appreciation rights declined. No additional
charges were recognized in the year ended December 31, 2005 associated with stockholder appreciation rights. There were no adjustments to the stock
appreciation rights in the year ended December 31, 2003, as the fair market value per share of the Company’s common stock remained flat during the year. All
outstanding stock appreciation rights were settled by the Company in 2005.
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