FairPoint Communications 2006 Annual Report Download - page 71
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exchange for employee services. Accordingly, for employee awards which are expected to vest, stock-based compensation cost is measured at the grant date,
based on the fair value of the award, and is recognized as expense on a straight-line basis over the requisite service period, which generally begins on the date
the award is granted through the date the award vests. The Company elected to adopt the provisions of SFAS No. 123(R) using the prospective application
method for awards granted prior to becoming a public company and valued using the minimum value method, and using the modified prospective application
method for awards granted subsequent to becoming a public company. There were no modifications to outstanding stock options prior to the adoption of SFAS
No. 123(R).
Prior to the adoption of SFAS No. 123(R), the Company accounted for its stock option plans using the intrinsic-value-based method prescribed by
Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. As such, compensation expense was
recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price.
(o) 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.
(p) Earnings Per Share
Earnings per share has been computed in accordance with SFAS No. 128, Basic earnings per share is computed by dividing net
income (loss) by the weighted average number of common shares outstanding for the period. Except when the effect would be anti-dilutive, the diluted earnings
per share calculation includes the impact of restricted units, restricted stock and shares that could be issued under outstanding stock options.
The number of potential common shares excluded from the calculation of diluted net income (loss) per share, prior to the application of the treasury stock
method, is as follows (in thousands):
Contingent stock options 833 833 833
Shares excluded as effect would be anti-dilutive:
Stock options 209 241 356
Restricted stock 543 471 —
Restricted units 25 34 26
1,610 1,579 1,215
(q) New Accounting Pronouncements
In July 2006, the FASB issued FASB Interpretation No. (FIN) 48, “Accounting for Uncertainty in Income Taxes.” FIN 48 requires applying a “more
likely than not” threshold to the recognition and de-
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