Sallie Mae 2005 Annual Report Download - page 176

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts, unless otherwise stated)
F-54
14. Stockholders’ Equity (Continued)
In May 2003, the Company’s shareholders approved an increase in the number of shares of common
stock the Company is authorized to issue from 375 million shares to 1.1 billion shares. Subsequently, the
Board of Directors approved a three-for-one split of the Company’s common stock which was effected in
the form of a stock dividend on June 20, 2003, for all shareholders of record on June 6, 2003. All share and
per share amounts presented have been retroactively restated for the stock split. Stockholders’ equity has
been restated to give retroactive recognition to the stock split for all periods presented by reclassifying
from additional paid-in capital to common stock the par value of the additional shares issued as a result of
the stock split.
Common Stock Repurchase Program and Equity Forward Contracts
The Company regularly repurchases its common stock through both open market purchases and
settlement of equity forward contracts. At December 31, 2005, the Company had outstanding equity
forward contracts to purchase 42.7 million shares of its common stock at prices ranging from $54.74 to
$54.96 per share.
The equity forward contracts permit the counterparty to terminate a portion of the contracts prior to
their maturity date and force the Company to settle the contracts if the price of the Company’s common
stock falls below pre-determined levels as defined by the contract as the “initial trigger price.” The
counterparty can continue to terminate portions of the contract if the stock price continues to reach lower
pre-determined levels, until the price hits the “final trigger price” and the entire contract is terminated.
For equity forward contracts in effect as of December 31, 2005, the initial trigger price ranges from
approximately $27.37 to $35.58 and the final trigger price ranges from $24.63 to $27.37.
In addition, some of the Company’s equity forward contracts enable the counterparty to terminate all
outstanding equity forward contracts if the unsecured and unsubordinated long-term debt rating of the
Company falls to or below BBB- for S&P or Baa3 for Moody’s. This provision or one substantially the
same is contained in the contracts of eleven of the Company’s twelve equity forward counterparties with
outstanding positions.
The Company has negotiated with each of its equity forward counterparties a limit on the total
number of shares that can be required to be delivered to that counterparty in net share settlement of the
transactions. As of December 31, 2005 and 2004, the aggregate maximum number of shares that the
Company could be required to deliver was 330.3 million and 325.0 million, respectively.
During December 2005, September 2004 and November 2004, the Company amended substantially all
of its outstanding equity forward purchase contracts. The strike prices on these contracts were adjusted to
the then current market share prices of the common stock and the total number of shares under contract
was reduced from 46.5 million, 53.4 million and 49.0 million shares to 42.4 million, 46.7 million and 42.2
million shares, respectively. As a result of these amendments, the Company received a total of 4.1 million
and 13.4 million shares that settled in 2005 and 2004, respectively, in cashless transactions. This reduction
of shares covered by the equity forward contracts is shown on a net basis in the “exercises” row of the table
below.