Sallie Mae 2006 Annual Report Download - page 178

15. Earnings per Common Share
Basic earnings per common share (“EPS”) is calculated using the weighted average number of shares of
common stock outstanding during each period. A reconciliation of the numerators and denominators of the
basic and diluted EPS calculations is as follows for the years ended December 31, 2006, 2005 and 2004:
2006 2005 2004
Years Ended December 31,
Numerator:
Net income attributable to common stock ............. $1,121,389 $1,360,381 $1,901,769
Adjusted for debt expense of convertible debentures
(“Co-Cos”), net of taxes
(1)
...................... 67,274 44,572 21,405
Adjusted for non-taxable unrealized gains on equity
forwards
(2)
.................................. (3,528) — —
Net income attributable to common stock, adjusted ...... $1,185,135 $1,404,953 $1,923,174
Denominator (shares in thousands):
Weighted average shares used to compute basic EPS ..... 410,805 418,374 436,133
Effect of dilutive securities:
Dilutive effect of Co-Cos ....................... 30,312 30,312 30,312
Dilutive effect of stock options, nonvested restricted
stock, restricted stock units, Employee Stock
Purchase Plan (“ESPP”) and equity forwards
(2)(3)(4)
. . 10,053 11,574 9,342
Dilutive potential common shares
(5)
................. 40,365 41,886 39,654
Weighted average shares used to compute diluted EPS . . . 451,170 460,260 475,787
Net earnings per share:
Basic EPS .................................... $ 2.73 $ 3.25 $ 4.36
Dilutive effect of Co-Cos
(1)
..................... (.03) (.11) (.23)
Dilutive effect of equity forwards
(2)(4)
.............. (.01) — —
Dilutive effect of stock options, nonvested restricted
stock, restricted stock units, and ESPP
(3)
.......... (.06) (.09) (.09)
Diluted EPS................................... $ 2.63 $ 3.05 $ 4.04
(1)
Emerging Issues Task Force (“EITF”) Issue No. 04-8, “The Effect of Contingently Convertible Debt on Diluted Earnings per
Share,” requires the shares underlying Co-Cos to be included in diluted EPS computations regardless of whether the market price
trigger or the conversion price has been met, using the “if-converted” method.
(2)
SFAS No. 128, “Earnings per Share,” and the additional guidance provided by EITF Topic No. D-72, “Effect of Contracts That
May Be Settled in Stock or Cash on the Computation of Diluted Earnings per Share,” require both the denominator and the
numerator to be adjusted in calculating the potential impact of the Company’s equity forward contracts on diluted EPS. Under
this guidance, when certain conditions are satisfied, the impact can be dilutive when the combination of the average share price
during the period is lower than the respective strike prices on the Company’s equity forward contracts, and the reversal of an
unrealized gain or loss on derivative and hedging activities related to its equity forward contracts results in a lower EPS
calculation.
(3)
Includes the potential dilutive effect of additional common shares that are issuable upon exercise of outstanding stock options,
nonvested restricted stock, restricted stock units, and the outstanding commitment to issue shares under the ESPP, determined by
the treasury stock method.
(4)
Includes the potential dilutive effect of equity forward contracts, determined by the reverse treasury stock method.
(5)
For the years ended December 31, 2006, 2005 and 2004, stock options and equity forwards of approximately 57 million shares,
30 million shares and 4 million shares, respectively, were outstanding but not included in the computation of diluted earnings per
share because they were antidilutive.
F-59
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts, unless otherwise stated)