Fannie Mae 2005 Annual Report Download - page 283

11. Earnings Per Share
The following table displays the computation of basic and diluted earnings per share of common stock.
2005 2004 2003
For the Year Ended
December 31,
(Dollars and shares in
millions, except per share
amounts)
Income before extraordinary gains (losses) and cumulative effect of change in
accounting principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,294 $4,975 $7,852
Extraordinary gains (losses), net of tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 (8) 195
Cumulative effect of change in accounting principle, net of tax effect . . . . . . . . . . — — 34
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,347 4,967 8,081
Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (486) (165) (150)
Net income available to common stockholders
(1)
. . . . . . . . . . . . . . . . . . . . . . . . . $5,861 $4,802 $7,931
Weighted-average common shares outstanding—basic . . . . . . . . . . . . . . . . . . . . . 970 970 977
Dilutive potential common shares
(2)
.................................. 28 3 4
Weighted-average common shares outstanding—diluted . . . . . . . . . . . . . . . . . . . . 998 973 981
Basic earnings per share:
Earnings before extraordinary gains (losses) and cumulative effect of change in
accounting principle
(3)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5.99 $ 4.96 $ 7.88
Extraordinary gains (losses), net of tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . 0.05 (0.01) 0.20
Cumulative effect of change in accounting principle, net of tax effect . . . . . . . . . — — 0.04
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6.04 $ 4.95 $ 8.12
Diluted earnings per share:
Earnings before extraordinary gains (losses) and cumulative effect of change in
accounting principle
(3)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5.96 $ 4.94 $ 7.85
Extraordinary gains (losses), net of tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . 0.05 — 0.20
Cumulative effect of change in accounting principle, net of tax effect . . . . . . . . . — — 0.03
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6.01 $ 4.94 $ 8.08
(1)
In the computation of diluted EPS for 2005, the convertible preferred stock dividends of $135 million are added back
to net income available to common stockholders since the assumed conversion of the preferred shares is dilutive and
assumed to be converted from the beginning of the period.
(2)
Amount for 2005 represents 27 million incremental shares from the assumed conversion of outstanding convertible pre-
ferred stock and approximately 1 million shares from in-the-money nonqualified stock options and other performance
awards. Weighted-average options to purchase approximately 20 million, 11 million, and 14 million shares of common
stock were outstanding in 2005, 2004, and 2003, respectively, but were excluded from the computation of diluted EPS
since they would have been anti-dilutive.
(3)
Amount is net of preferred stock dividends.
12. Stock-Based Compensation Plans
We have two stock-based compensation plans, the 1985 Employee Stock Purchase Plan and the Stock
Compensation Plan of 2003. Under these plans, we offer various stock-based compensation programs where
we provide employees an opportunity to purchase Fannie Mae common stock or we periodically make stock
awards to certain employees in the form of nonqualified stock options, performance share awards, restricted
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FANNIE MAE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)