EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share is computed using the two-class method by dividing net earnings (loss) attributable to common stock by the weighted average number of common shares outstanding during each period. The two-class method of computing earnings (loss) per share is required to be used since Forest has participating securities. The two-class method is an earnings allocation formula that determines earnings (loss) per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. Holders of restricted stock issued under Forest’s stock incentive plans have the right to receive non-forfeitable cash and certain non-cash dividends, participating on an equal basis with common stock. Holders of phantom stock units issued to directors under Forest’s stock incentive plans also have the right to receive non-forfeitable cash and certain non-cash dividends, participating on an equal basis with common stock, while phantom stock units issued to employees do not participate in dividends. Stock options issued under Forest’s stock incentive plans do not participate in dividends. Performance units issued under Forest’s stock incentive plans do not participate in dividends in their current form. Holders of performance units participate in dividends paid during the performance units’ vesting period only after the performance units vest with common shares being earned by the holders of the performance units. Performance units may vest with no common shares being earned, depending on Forest’s shareholder return over the performance units’ vesting period in relation to the shareholder returns of specified peers. See Note 3 for more information on Forest’s stock-based incentive awards. In summary, restricted stock issued to employees and directors and phantom stock units issued to directors are participating securities, and earnings are allocated to both common stock and these participating securities under the two-class method. However, these participating securities do not have a contractual obligation to share in Forest’s losses. Therefore, in periods of net loss, none of the loss is allocated to these participating securities.

Under the treasury stock method, diluted earnings (loss) per share is computed by dividing (a) net earnings (loss), adjusted for the effects of certain contracts that provide the issuer or holder with a choice between settlement methods, by (b) the weighted average number of common shares outstanding, adjusted for the dilutive effect, if any, of potential common shares (e.g., stock options, unvested restricted stock grants, unvested phantom stock units that may be settled in shares, and unvested performance units). No potential common shares are included in the computation of any diluted per share amount when a net loss exists, as was the case for the three and six months ended June 30, 2012. Unvested restricted stock grants were not included in the calculation of diluted earnings per share for the three and six months ended June 30, 2011 as their inclusion would have an antidilutive effect. Unvested performance stock units were not included in the calculation of diluted earnings per share for the three and six months ended June 30, 2011 as no shares would have been issuable under the performance stock unit agreements if June 30, 2011 had been the end of the contingency period under these agreements.

The following reconciles net earnings (loss) as reported in the Condensed Consolidated Statements of Operations to net earnings (loss) used for calculating basic and diluted earnings (loss) per share for the periods presented.



	Three Months Ended June 30,
	2012								2011
	Continuing Operations			Discontinued Operations		Total			Continuing Operations			Discontinued Operations			Total
	(In Thousands)
Net earnings (loss)	$	(511,173	)	$	—	$	(511,173	)	$	29,104		$	9,870		$	38,974
Net earnings attributable to noncontrolling interest	—			—		—			—			(64		)	(64		)
Net earnings attributable to participating securities	—			—		—			(542		)	(183		)	(725		)
Net earnings (loss) attributable to common stock for basic earnings per share	$	(511,173	)	$	—	$	(511,173	)	$	28,562		$	9,623		$	38,185
Adjustment for liability classified stock-based compensation awards	—			—		—			—			(145		)	(145		)
Net earnings (loss) for diluted earnings per share	$	(511,173	)	$	—	$	(511,173	)	$	28,562		$	9,478		$	38,040



	Six Months Ended June 30,
	2012								2011
	Continuing Operations			Discontinued Operations		Total			Continuing Operations			Discontinued Operations			Total
	(In Thousands)
Net earnings (loss)	$	(543,846	)	$	—	$	(543,846	)	$	19,183		$	16,461		$	35,644
Net earnings attributable to noncontrolling interest	—			—		—			—			(64		)	(64		)
Net earnings attributable to participating securities	—			—		—			(371		)	(316		)	(687		)
Net earnings (loss) attributable to common stock for basic earnings per share	$	(543,846	)	$	—	$	(543,846	)	$	18,812		$	16,081		$	34,893
Adjustment for liability classified stock-based compensation awards	—			—		—			—			(102		)	(102		)
Net earnings (loss) for diluted earnings per share	$	(543,846	)	$	—	$	(543,846	)	$	18,812		$	15,979		$	34,791

The following reconciles basic weighted average common shares outstanding to diluted weighted average common shares outstanding for the periods presented.



	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2012	2011	2012	2011
	(In Thousands)
Weighted average common shares outstanding during the period for basic earnings (loss) per share	115,107	111,636	114,464	111,490
Dilutive effects of potential common shares	—	540	—	570
Weighted average common shares outstanding during the period, including the effects of dilutive potential common shares, for diluted earnings (loss) per share	115,107	112,176	114,464	112,060