Sallie Mae 2006 Annual Report Download - page 180

16. Stock-Based Compensation Plans (Continued)
The fair values of the options granted in the years ended December 31, 2006, 2005 and 2004 were
estimated as of the date of grant using a Black-Scholes option pricing model with the following weighted
average assumptions.
2006 2005 2004
Years Ended December 31,
Risk-free interest rate ................................... 4.75% 3.87% 2.59%
Expected volatility ...................................... 20.22% 21.48% 16.27%
Expected dividend rate .................................. 1.72% 1.58% 1.66%
Expected life of the option (in years) ........................ 3years 3 years 3 years
The expected life of the options is based on observed historical exercise patterns. Groups of employees
that have received similar option grant terms were considered separately for valuation purposes. The expected
volatility is based on implied volatility from publicly-traded options on the Company’s stock at the date of
grant and historical volatility of the Company’s stock. The risk-free interest rate is based on the U.S. Treasury
spot rate at the date of grant consistent with the expected term of the option. The dividend yield is based on
the projected annual dividend payment per share based on the current dividend amount, divided by the stock
price at the date of grant.
As of December 31, 2006, there was $41 million of unrecognized compensation cost related to stock
options, which is expected to be recognized over a weighted average period of 2.0 years.
The following table summarizes stock option activity for the year ended December 31, 2006.
Number of
Options
Weighted
Average
Exercise
Price per
Share
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
Outstanding at December 31, 2005......... 41,484,567 $34.52
Granted — direct options ................ 6,743,825 54.45
Granted — replacement options ........... 197,205 51.07
Exercised ........................... (5,939,149) 30.84
Canceled ............................ (1,463,570) 50.29
Outstanding at December 31, 2006
(1)
....... 41,022,878 $37.85 6.53 yrs $448 million
Exercisable at December 31, 2006 ......... 26,737,793 $30.38 5.38 yrs $492 million
(1)
Includes gross number of net-settled options awarded. Options granted in 2006 were granted as net-settled options. Also, certain tradi-
tional options outstanding at April 29, 2006 were converted to net-settled options in 2006. Upon exercise of a net-settled option,
employees are entitled to receive the spread shares only. The spread shares equal the gross number of options granted less shares for
the option cost. Shares for the option cost equal the option price multiplied by the number of gross options exercised divided by the
fair market value of SLM common stock at the time of exercise.
The weighted average fair value of options granted was $9.34, $8.69 and $5.12 for the years ended
December 31, 2006, 2005 and 2004, respectively. The total intrinsic value of options exercised was
$129 million, $158 million and $153 million for the years ended December 31, 2006, 2005 and 2004,
respectively.
F-61
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts, unless otherwise stated)