x
|
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF
1934
|
¨
|
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
|
NEBRASKA
|
84-0748903
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
121
SOUTH 13TH STREET, SUITE 201
LINCOLN,
NEBRASKA
|
68508
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Large
accelerated filer x
|
Accelerated
filer o
|
|
Non-accelerated
filer o
|
Smaller
reporting company o
|
2
|
|||
29
|
|||
65
|
|||
71
|
|||
71
|
|||
73
|
|||
74
|
|||
76
|
|||
77
|
|||
78
|
As of
|
As of
|
||||||
June 30, 2008
|
December 31, 2007
|
||||||
(unaudited)
|
|||||||
Assets:
|
|||||||
Student
loans receivable (net of allowance for loan losses of $47,909 and
$45,592,
respectively)
|
$
|
25,993,307
|
26,736,122
|
||||
Cash
and cash equivalents:
|
|||||||
Cash
and cash equivalents - not held at a related party
|
15,629
|
38,305
|
|||||
Cash
and cash equivalents - held at a related party
|
122,825
|
73,441
|
|||||
Total
cash and cash equivalents
|
138,454
|
111,746
|
|||||
Restricted
cash
|
912,252
|
842,020
|
|||||
Restricted
investments
|
95,061
|
85,227
|
|||||
Restricted
cash - due to customers
|
29,543
|
81,845
|
|||||
Accrued
interest receivable
|
501,544
|
593,322
|
|||||
Accounts
receivable, net
|
45,986
|
49,084
|
|||||
Goodwill
|
175,178
|
164,695
|
|||||
Intangible
assets, net
|
90,163
|
112,830
|
|||||
Property
and equipment, net
|
46,429
|
55,797
|
|||||
Other
assets
|
108,662
|
107,624
|
|||||
Fair
value of derivative instruments
|
295,346
|
222,471
|
|||||
Total
assets
|
$
|
28,431,925
|
29,162,783
|
||||
Liabilities:
|
|||||||
Bonds
and notes payable
|
$
|
27,530,237
|
28,115,829
|
||||
Accrued
interest payable
|
86,496
|
129,446
|
|||||
Other
liabilities
|
162,761
|
220,899
|
|||||
Due
to customers
|
29,543
|
81,845
|
|||||
Fair
value of derivative instruments
|
38,846
|
5,885
|
|||||
Total
liabilities
|
27,847,883
|
28,553,904
|
|||||
Shareholders'
equity:
|
|||||||
Preferred
stock, $0.01 par value. Authorized 50,000,000 shares;no shares issued
or
outstanding
|
—
|
—
|
|||||
Common
stock:
|
|||||||
Class
A, $0.01 par value. Authorized 600,000,000 shares; issued and outstanding
37,952,246 shares as of June 30, 2008 and 37,980,617 shares as of
December
31, 2007
|
380
|
380
|
|||||
Class
B, convertible, $0.01 par value. Authorized 60,000,000 shares; issued
and
outstanding 11,495,377 shares as of June 30, 2008 and December 31,
2007
|
115
|
115
|
|||||
Additional
paid-in capital
|
99,854
|
96,185
|
|||||
Retained
earnings
|
485,739
|
515,317
|
|||||
Employee
notes receivable
|
(2,046
|
)
|
(3,118
|
)
|
|||
Total
shareholders' equity
|
584,042
|
608,879
|
|||||
Commitments
and contingencies
|
|||||||
Total
liabilities and shareholders' equity
|
$
|
28,431,925
|
29,162,783
|
Three
months
|
Six
months
|
||||||||||||
ended
June 30,
|
ended
June 30,
|
||||||||||||
2008
|
2007
|
2008
|
2007
|
||||||||||
Interest
income:
|
|||||||||||||
Loan
interest
|
$
|
296,686
|
417,086
|
626,672
|
814,140
|
||||||||
Investment
interest
|
9,116
|
18,783
|
20,796
|
40,208
|
|||||||||
Total
interest income
|
305,802
|
435,869
|
647,468
|
854,348
|
|||||||||
Interest
expense:
|
|||||||||||||
Interest
on bonds and notes payable
|
232,464
|
367,893
|
557,605
|
718,388
|
|||||||||
Net
interest income
|
73,338
|
67,976
|
89,863
|
135,960
|
|||||||||
Less
provision for loan losses
|
6,000
|
2,535
|
11,000
|
5,288
|
|||||||||
Net
interest income after provision for loan losses
|
67,338
|
65,441
|
78,863
|
130,672
|
|||||||||
Other
income (expense):
|
|||||||||||||
Loan
and guaranty servicing income
|
24,904
|
31,610
|
51,017
|
62,076
|
|||||||||
Other
fee-based income
|
40,817
|
38,262
|
86,730
|
78,291
|
|||||||||
Software
services income
|
4,896
|
5,848
|
11,648
|
11,596
|
|||||||||
Other
income
|
1,646
|
1,927
|
3,056
|
7,020
|
|||||||||
Gain
(loss) on sale of loans
|
48
|
1,010
|
(47,426
|
)
|
2,796
|
||||||||
Derivative
market value, foreign currency, and put option adjustments and derivative
settlements, net
|
20,192
|
10,743
|
3,594
|
2,853
|
|||||||||
Total
other income
|
92,503
|
89,400
|
108,619
|
164,632
|
|||||||||
Operating
expenses:
|
|||||||||||||
Salaries
and benefits
|
43,549
|
59,761
|
97,392
|
121,465
|
|||||||||
Other
operating expenses:
|
|||||||||||||
Impairment
expense
|
—
|
—
|
18,834
|
—
|
|||||||||
Advertising
and marketing
|
16,143
|
15,456
|
32,346
|
29,449
|
|||||||||
Depreciation
and amortization
|
10,603
|
10,647
|
21,437
|
21,657
|
|||||||||
Professional
and other services
|
8,478
|
10,514
|
16,585
|
18,883
|
|||||||||
Occupancy
and communications
|
4,914
|
5,032
|
10,755
|
10,251
|
|||||||||
Postage
and distribution
|
2,743
|
5,624
|
6,560
|
10,143
|
|||||||||
Trustee
and other debt related fees
|
2,464
|
2,785
|
4,854
|
5,628
|
|||||||||
Other
|
9,028
|
10,827
|
17,996
|
24,399
|
|||||||||
Total
other operating expenses
|
54,373
|
60,885
|
129,367
|
120,410
|
|||||||||
Total
operating expenses
|
97,922
|
120,646
|
226,759
|
241,875
|
|||||||||
Income
(loss) before income taxes
|
61,919
|
34,195
|
(39,277
|
)
|
53,429
|
||||||||
Income
tax expense (benefit)
|
19,195
|
13,306
|
(12,176
|
)
|
20,570
|
||||||||
Income
(loss) from continuing operations
|
42,724
|
20,889
|
(27,101
|
)
|
32,859
|
||||||||
Income
(loss) from discontinued operations, net of tax
|
981
|
(6,135
|
)
|
981
|
(3,325
|
)
|
|||||||
Net
income (loss)
|
$
|
43,705
|
14,754
|
(26,120
|
)
|
29,534
|
|||||||
Earnings
(loss) per share, basic and diluted:
|
|||||||||||||
Income
(loss) from continuing operations
|
0.87
|
0.42
|
(0.55
|
)
|
0.66
|
||||||||
Income
(loss) from discontinued operations
|
0.02
|
(0.12
|
)
|
0.02
|
(0.07
|
)
|
|||||||
Net
income (loss)
|
$
|
0.89
|
0.30
|
(0.53
|
)
|
0.59
|
Accumulated
|
||||||||||||||||||||||||||||||||||
Preferred
|
Class
A
|
Class
B
|
Additional
|
Employee
|
other
|
Total
|
||||||||||||||||||||||||||||
stock
|
Common stock shares
|
Preferred
|
common
|
common
|
paid-in
|
Retained
|
notes
|
comprehensive
|
shareholders’
|
|||||||||||||||||||||||||
shares
|
Class
A
|
Class
B
|
stock
|
stock
|
stock
|
capital
|
earnings
|
receivable
|
income
|
equity
|
||||||||||||||||||||||||
Balance
as of March 31, 2007
|
—
|
38,097,623
|
11,495,377
|
$
|
—
|
381
|
115
|
105,345
|
507,596
|
(2,701
|
)
|
382
|
611,118
|
|||||||||||||||||||||
Comprehensive
income:
|
||||||||||||||||||||||||||||||||||
Net
income
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
14,754
|
—
|
—
|
14,754
|
|||||||||||||||||||||||
Other
comprehensive income:
|
||||||||||||||||||||||||||||||||||
Foreign
currency translation
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(574
|
)
|
(574
|
)
|
|||||||||||||||||||||
Non-pension
postretirement benefit plan
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
192
|
192
|
|||||||||||||||||||||||
Total
comprehensive income
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
14,372
|
|||||||||||||||||||||||
Cash
dividend on Class A and Class B common stock - $0.07 per
share
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(3,440
|
)
|
—
|
—
|
(3,440
|
)
|
|||||||||||||||||||||
Issuance
of common stock, net of forfeitures
|
—
|
39,182
|
—
|
—
|
1
|
—
|
880
|
—
|
—
|
—
|
881
|
|||||||||||||||||||||||
Compensation
expense for stock based awards
|
—
|
—
|
—
|
—
|
—
|
—
|
772
|
—
|
—
|
—
|
772
|
|||||||||||||||||||||||
Repurchase
of common stock
|
—
|
(998
|
)
|
—
|
—
|
—
|
—
|
(22
|
)
|
—
|
—
|
—
|
(22
|
)
|
||||||||||||||||||||
Acquisition
of enterprise under common control
|
—
|
(474,426
|
)
|
—
|
—
|
(5
|
)
|
—
|
(12,502
|
)
|
—
|
—
|
—
|
(12,507
|
)
|
|||||||||||||||||||
Reduction
of employee stock notes receivable
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
4
|
—
|
4
|
|||||||||||||||||||||||
Balance
as of June 30, 2007
|
—
|
37,661,381
|
11,495,377
|
$
|
—
|
377
|
115
|
94,473
|
518,910
|
(2,697
|
)
|
—
|
611,178
|
|||||||||||||||||||||
Balance
as of March 31, 2008
|
—
|
37,912,773
|
11,495,377
|
$
|
—
|
379
|
115
|
97,875
|
442,034
|
(2,296
|
)
|
—
|
538,107
|
|||||||||||||||||||||
Comprehensive
income:
|
||||||||||||||||||||||||||||||||||
Net
income
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
43,705
|
—
|
—
|
43,705
|
|||||||||||||||||||||||
Total
comprehensive income
|
43,705
|
|||||||||||||||||||||||||||||||||
Issuance
of common stock, net of forfeitures
|
—
|
53,467
|
—
|
—
|
1
|
—
|
310
|
—
|
—
|
—
|
311
|
|||||||||||||||||||||||
Compensation
expense for stock based awards
|
—
|
—
|
—
|
—
|
—
|
—
|
1,848
|
—
|
—
|
—
|
1,848
|
|||||||||||||||||||||||
Repurchase
of common stock
|
—
|
(13,994
|
)
|
—
|
—
|
—
|
—
|
(179
|
)
|
—
|
—
|
—
|
(179
|
)
|
||||||||||||||||||||
Reduction
of employee stock notes receivable
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
250
|
—
|
250
|
|||||||||||||||||||||||
Balance
as of June 30, 2008
|
—
|
37,952,246
|
11,495,377
|
$
|
—
|
380
|
115
|
99,854
|
485,739
|
(2,046
|
)
|
—
|
584,042
|
|||||||||||||||||||||
Balance
as of December 31, 2006
|
—
|
39,035,169
|
13,505,812
|
$
|
—
|
390
|
135
|
177,678
|
496,341
|
(2,825
|
)
|
131
|
671,850
|
|||||||||||||||||||||
Comprehensive
income:
|
||||||||||||||||||||||||||||||||||
Net
income
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
29,534
|
—
|
—
|
29,534
|
|||||||||||||||||||||||
Other
comprehensive income:
|
||||||||||||||||||||||||||||||||||
Foreign
currency translation
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(322
|
)
|
(322
|
)
|
|||||||||||||||||||||
Non-pension
postretirement benefit plan
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
191
|
191
|
|||||||||||||||||||||||
Total
comprehensive income
|
29,403
|
|||||||||||||||||||||||||||||||||
Cash
dividend on Class A and Class B common stock - $0.14 per
share
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(6,904
|
)
|
—
|
—
|
(6,904
|
)
|
|||||||||||||||||||||
Adjustment
to adopt provisions of
|
||||||||||||||||||||||||||||||||||
FASB
Interpretation No. 48
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(61
|
)
|
—
|
—
|
(61
|
)
|
|||||||||||||||||||||
Issuance
of common stock, net of forfeitures
|
—
|
152,273
|
—
|
—
|
2
|
—
|
3,219
|
—
|
—
|
—
|
3,221
|
|||||||||||||||||||||||
Compensation
expense for stock based awards
|
—
|
—
|
—
|
—
|
—
|
—
|
1,530
|
—
|
—
|
—
|
1,530
|
|||||||||||||||||||||||
Repurchase
of common stock
|
—
|
(3,062,070
|
)
|
—
|
—
|
(30
|
)
|
—
|
(75,452
|
)
|
—
|
—
|
—
|
(75,482
|
)
|
|||||||||||||||||||
Conversion
of common stock
|
—
|
2,010,435
|
(2,010,435
|
)
|
—
|
20
|
(20
|
)
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||
Acquisition
of enterprise under common control
|
—
|
(474,426
|
)
|
—
|
—
|
(5
|
)
|
—
|
(12,502
|
)
|
—
|
—
|
—
|
(12,507
|
)
|
|||||||||||||||||||
Reduction
of employee stock notes receivable
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
128
|
—
|
128
|
|||||||||||||||||||||||
Balance
as of June 30, 2007
|
—
|
37,661,381
|
11,495,377
|
$
|
—
|
377
|
115
|
94,473
|
518,910
|
(2,697
|
)
|
—
|
611,178
|
|||||||||||||||||||||
Balance
as of December 31, 2007
|
—
|
37,980,617
|
11,495,377
|
$
|
—
|
380
|
115
|
96,185
|
515,317
|
(3,118
|
)
|
—
|
608,879
|
|||||||||||||||||||||
Comprehensive
income:
|
||||||||||||||||||||||||||||||||||
Net
loss
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(26,120
|
)
|
—
|
—
|
(26,120
|
)
|
|||||||||||||||||||||
Total
comprehensive income (loss)
|
(26,120
|
)
|
||||||||||||||||||||||||||||||||
Cash
dividend on Class A and Class B common stock - $0.07 per
share
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(3,458
|
)
|
—
|
—
|
(3,458
|
)
|
|||||||||||||||||||||
Issuance
of common stock, net of forfeitures
|
—
|
33,687
|
—
|
—
|
—
|
—
|
1,073
|
—
|
—
|
—
|
1,073
|
|||||||||||||||||||||||
Compensation
expense for stock based awards
|
—
|
—
|
—
|
—
|
—
|
—
|
3,263
|
—
|
—
|
—
|
3,263
|
|||||||||||||||||||||||
Repurchase
of common stock
|
—
|
(62,058
|
)
|
—
|
—
|
—
|
—
|
(667
|
)
|
—
|
—
|
—
|
(667
|
)
|
||||||||||||||||||||
Reduction
of employee stock notes receivable
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
1,072
|
—
|
1,072
|
|||||||||||||||||||||||
Balance
as of June 30, 2008
|
—
|
37,952,246
|
11,495,377
|
$
|
—
|
380
|
115
|
99,854
|
485,739
|
(2,046
|
)
|
—
|
584,042
|
Six
months ended June 30,
|
|||||||
2008
|
2007
|
||||||
Net
income (loss)
|
$
|
(26,120
|
)
|
29,534
|
|||
Income
(loss) from discontinued operations
|
981
|
(3,325
|
)
|
||||
Income
(loss) from continuing operations
|
(27,101
|
)
|
32,859
|
||||
Adjustments
to reconcile income from continuing operations to net cash provided
by
operating activities, net of business acquisitions:
|
|||||||
Depreciation
and amortization, including loan premiums and deferred origination
costs
|
74,312
|
150,465
|
|||||
Derivative
market value adjustment
|
(47,462
|
)
|
(20,374
|
)
|
|||
Foreign
currency transaction adjustment
|
88,530
|
24,974
|
|||||
Change
in value of put options issued in business acquisitions
|
538
|
1,983
|
|||||
Proceeds
from termination of derivative instruments
|
7,547
|
—
|
|||||
Payments
to terminate floor contracts
|
—
|
(8,100
|
)
|
||||
Impairment
expense
|
18,834
|
—
|
|||||
Loss
on sale of business
|
—
|
9,041
|
|||||
Loss
(gain) on sale of student loans
|
47,426
|
(2,796
|
)
|
||||
Non-cash
compensation expense
|
4,372
|
2,591
|
|||||
Deferred
income tax benefit
|
(24,237
|
)
|
(921
|
)
|
|||
Provision
for loan losses
|
11,000
|
5,288
|
|||||
Other
non-cash items
|
344
|
(2,906
|
)
|
||||
Decrease
(increase) in accrued interest receivable
|
91,778
|
(81,421
|
)
|
||||
Decrease
(increase) in accounts receivable
|
3,098
|
(6,698
|
)
|
||||
Decrease
in other assets
|
9,419
|
6,491
|
|||||
Decrease
in accrued interest payable
|
(42,950
|
)
|
(1,545
|
)
|
|||
(Decrease)
increase in other liabilities
|
(28,351
|
)
|
5,667
|
||||
Net
cash flows from operating activities - continuing
operations
|
187,097
|
114,598
|
|||||
Net
cash flows from operating activities - discontinued
operations
|
—
|
(4,467
|
)
|
||||
Net
cash provided by operating activities
|
187,097
|
110,131
|
|||||
Cash
flows from investing activities, net of business
acquisitions:
|
|||||||
Originations,
purchases, and consolidations of student loans, including loan premiums
and deferred origination costs
|
(1,480,305
|
)
|
(3,390,016
|
)
|
|||
Purchases
of student loans, including loan premiums, from a related
party
|
(212,888
|
)
|
(191,003
|
)
|
|||
Net
proceeds from student loan repayments, claims, capitalized interest,
participations, and other
|
1,061,510
|
1,060,117
|
|||||
Proceeds
from sale of student loans
|
1,267,826
|
89,311
|
|||||
Purchases
of property and equipment, net
|
(3,721
|
)
|
(13,830
|
)
|
|||
(Increase)
decrease in restricted cash
|
(70,232
|
)
|
279,349
|
||||
Purchases
of restricted investments
|
(170,512
|
)
|
(239,691
|
)
|
|||
Proceeds
from maturities of restricted investments
|
160,678
|
261,597
|
|||||
Purchases
of equity method investments
|
(2,988
|
)
|
—
|
||||
Distributions
from equity method investments
|
—
|
434
|
|||||
Business
acquisitions, net of cash acquired
|
(18,000
|
)
|
2,211
|
||||
Proceeds
from sale of business, net of cash sold
|
—
|
7,551
|
|||||
Net
cash flows from investing activities - continuing
operations
|
531,368
|
(2,133,970
|
)
|
||||
Net
cash flows from investing activities - discontinued
operations
|
—
|
(294
|
)
|
||||
Net
cash provided by (used in) investing activities
|
531,368
|
(2,134,264
|
)
|
||||
Cash
flows from financing activities:
|
|||||||
Payments
on bonds and notes payable
|
(5,444,408
|
)
|
(1,435,054
|
)
|
|||
Proceeds
from issuance of bonds and notes payable
|
4,761,143
|
3,601,480
|
|||||
Proceeds
(payments) from issuance of notes payable due to a related party,
net
|
9,269
|
(55,715
|
)
|
||||
Payments
of debt issuance costs
|
(14,634
|
)
|
(5,899
|
)
|
|||
Dividends
paid
|
(3,458
|
)
|
(6,904
|
)
|
|||
Proceeds
from issuance of common stock
|
423
|
951
|
|||||
Repurchases
of common stock
|
(667
|
)
|
(75,482
|
)
|
|||
Payments
received on employee stock notes receivable
|
575
|
128
|
|||||
Net
cash flows from financing activities - continuing
operations
|
(691,757
|
)
|
2,023,505
|
||||
Net
cash flows from financing activities - discontinued
operations
|
—
|
—
|
|||||
Net
cash (used in) provided by financing activities
|
(691,757
|
)
|
2,023,505
|
||||
Effect
of exchange rate fluctuations on cash
|
—
|
548
|
|||||
Net
increase (decrease) in cash and cash equivalents
|
26,708
|
(80
|
)
|
||||
Cash
and cash equivalents, beginning of period
|
111,746
|
106,086
|
|||||
Cash
and cash equivalents, end of period
|
$
|
138,454
|
106,006
|
||||
Supplemental
disclosures of cash flow information:
|
|||||||
Interest
paid
|
$
|
589,578
|
630,175
|
||||
Income
taxes paid, net of refunds
|
$
|
14,126
|
12,130
|
Three
months ended June 30,
|
Six
months ended June 30,
|
||||||||||||
2008
|
2007
|
2008
|
2007
|
||||||||||
Operating
income of discontinued operations
|
$
|
—
|
4,864
|
—
|
9,278
|
||||||||
Income
tax on operations
|
—
|
(1,958
|
)
|
—
|
(3,562
|
)
|
|||||||
Gain
(loss) on disposal
|
1,966
|
(8,151
|
)
|
1,966
|
(8,151
|
)
|
|||||||
Income
tax on disposal
|
(985
|
)
|
(890
|
)
|
(985
|
)
|
(890
|
)
|
|||||
Income
(loss) from discontinued operations, net of tax
|
$
|
981
|
(6,135
|
)
|
981
|
(3,325
|
)
|
Three months ended
|
Six months ended
|
||||||
June 30, 2007
|
June 30, 2007
|
||||||
Net
interest income
|
$
|
53
|
124
|
||||
Other
income
|
12,480
|
31,511
|
|||||
Operating
expenses
|
(7,669
|
)
|
(22,357
|
)
|
|||
Income
before income taxes
|
4,864
|
9,278
|
|||||
Income
tax expense
|
1,958
|
3,562
|
|||||
Operating
income of discontinued operations, net of tax
|
$
|
2,906
|
5,716
|
Employee
|
||||||||||
termination
|
Lease
|
|||||||||
benefits
|
terminations
|
Total
|
||||||||
Restructuring
accrual as of December 31, 2007
|
$
|
1,193
|
3,682
|
4,875
|
||||||
Adjustment
from initial estimated charges
|
(191
|
)
|
—
|
(191
|
)
|
|||||
Cash
payments
|
(868
|
)
|
(358
|
)
|
(1,226
|
)
|
||||
Restructuring
accrual as of March 31, 2008
|
134
|
3,324
|
3,458
|
|||||||
Cash
payments
|
(134
|
)
|
(45
|
)
|
(179
|
)
|
||||
Restructuring
accrual as of June 30, 2008
|
$
|
—
|
3,279
|
3,279
|
Employee
|
|||||||||||||
termination
|
Lease
|
Write-down
|
|||||||||||
benefits
|
terminations
|
of
assets
|
Total
|
||||||||||
Restructuring
costs recognized during the three month period ended March 31,
2008
|
$
|
6,095
|
(a)
|
1,573
|
(b)
|
18,834
|
(c)
|
26,502
|
|||||
Write-down
of assets to net realizable value
|
—
|
—
|
(18,834
|
)
|
(18,834
|
)
|
|||||||
Cash
payments
|
(4,952
|
)
|
—
|
—
|
(4,952
|
)
|
|||||||
Restructuring
accrual as of March 31, 2008
|
1,143
|
1,573
|
—
|
2,716
|
|||||||||
Adjustment
from initial estimated charges
|
(190)
|
(a)
|
(175)
|
(b)
|
—
|
(365
|
)
|
||||||
Cash
payments
|
(792
|
)
|
(369
|
)
|
—
|
(1,161
|
)
|
||||||
Restructuring
accrual as of June 30, 2008
|
$
|
161
|
1,029
|
—
|
1,190
|
Restructuring costs
|
||||||||||||||||||||||
recognized during
|
Adjustment
|
|||||||||||||||||||||
the three month
|
Write-down of
|
Restructuring
|
from initial
|
Restructuring
|
||||||||||||||||||
period ended
|
assets to net
|
Cash
|
accrual as of
|
estimated
|
Cash
|
accrual as of
|
||||||||||||||||
Operating segment
|
March 31, 2008
|
realizable value
|
payments
|
March 31, 2008
|
charges
|
payments
|
March 31, 2008
|
|||||||||||||||
Student
Loan and Guaranty Servicing
|
$
|
6,010
|
(5,074
|
)
|
(430
|
)
|
506
|
(104
|
)
|
(352
|
)
|
50
|
||||||||||
Tuition
Payment Processing and Campus Commerce
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||
Enrollment
Services and List Management
|
312
|
—
|
(291
|
)
|
21
|
(15
|
)
|
(19
|
)
|
(13
|
)
|
|||||||||||
Software
and Technical Services
|
518
|
—
|
(472
|
)
|
46
|
(8
|
)
|
—
|
38
|
|||||||||||||
Asset
Generation and Management
|
11,287
|
(9,351
|
)
|
(1,806
|
)
|
130
|
(52
|
)
|
(72
|
)
|
6
|
|||||||||||
Corporate
Activity and Overhead
|
8,375
|
(4,409
|
)
|
(1,953
|
)
|
2,013
|
(186
|
)
|
(718
|
)
|
1,109
|
|||||||||||
$
|
26,502
|
(18,834
|
)
|
(4,952
|
)
|
2,716
|
(365
|
)
|
(1,161
|
)
|
1,190
|
·
|
Increases
statutory limits on annual and aggregate borrowing for FFELP loans;
and
|
·
|
Allows
the Department to act as a secondary market and enter into forward
purchasing agreements with lenders.
|
·
|
Offers
to purchase loans from lenders for the 2008-2009 academic year and
offers
lenders access to short-term liquidity;
and
|
·
|
Commits
to continue working with the FFELP community to explore programs
to
reengage the capital markets in the
long-run.
|
·
|
Contains
lender and school code of conduct requirements applicable to
FFELP and
private education lenders;
|
·
|
Contains
additional provisions and reporting requirements for lenders
and schools
participating in preferred lender arrangements;
and
|
·
|
Contains
additional disclosures that FFELP lenders must make to borrowers
as well
as added FFELP loan servicing requirements for
lenders.
|
As of
|
As of
|
||||||
June 30, 2008
|
December 31, 2007
|
||||||
Federally
insured loans
|
$
|
25,332,173
|
26,054,398
|
||||
Non-federally
insured loans
|
279,953
|
274,815
|
|||||
25,612,126
|
26,329,213
|
||||||
Unamortized
loan premiums and deferred origination costs
|
429,090
|
452,501
|
|||||
Allowance
for loan losses - federally insured loans
|
(24,084
|
)
|
(24,534
|
)
|
|||
Allowance
for loan losses - non-federally insured loans
|
(23,825
|
)
|
(21,058
|
)
|
|||
$
|
25,993,307
|
26,736,122
|
|||||
Federally
insured allowance as a percentage of ending balance of federally
insured
loans
|
0.10
|
%
|
0.09
|
%
|
|||
Non-federally
insured allowance as a percentage of ending balance of non-federally
insured loans
|
8.51
|
%
|
7.66
|
%
|
|||
Total
allowance as a percentage of ending balance of total loans
|
0.19
|
%
|
0.17
|
%
|
Weighted
|
||||||||||
average
|
||||||||||
remaining
|
||||||||||
useful life as of
|
As of
|
As of
|
||||||||
June 30,
|
June 30,
|
December 31,
|
||||||||
2008
|
2008
|
2007
|
||||||||
Amortizable
intangible assets:
|
||||||||||
Customer
relationships (net of accumulated amortization of $25,048 and $20,299,
respectively)
|
112
|
$
|
55,312
|
60,061
|
||||||
Trade
names (net of accumulated amortization of $3,372 and $1,258,
respectively)
|
47
|
13,687
|
1,609
|
|||||||
Covenants
not to compete (net of accumulated amortization of $11,939 and $11,815,
respectively)
|
25
|
11,683
|
15,425
|
|||||||
Database
and content (net of accumulated amortization of $4,320 and $3,193,
respectively)
|
28
|
5,160
|
6,287
|
|||||||
Computer
software (net of accumulated amortization of $6,238 and $4,898,
respectively)
|
15
|
2,764
|
4,189
|
|||||||
Student
lists (net of accumulated amortization of $6,831 and $5,806,
respectively)
|
8
|
1,366
|
2,391
|
|||||||
Other
(net of accumulated amortization of $83 and $71,
respectively)
|
92
|
191
|
203
|
|||||||
Loan
origination rights (net of accumulated amortization of
$8,180)
|
—
|
—
|
8,473
|
|||||||
Total
- amortizable intangible assets
|
81
months
|
90,163
|
98,638
|
|||||||
Unamortizable
intangible assets - trade names
|
—
|
14,192
|
||||||||
|
$
|
90,163
|
112,830
|
Operating
|
Impairment
|
||||||
Asset
|
segment
|
charge
|
|||||
Amortizable
intangible assets:
|
|||||||
Covenants
not to compete
|
Student
Loan and Guaranty Servicing
|
$
|
4,689
|
||||
Covenants
not to compete
|
Asset
Generation and Management
|
336
|
|||||
Loan
origination rights
|
Asset
Generation and Management
|
8,336
|
|||||
Computer
software
|
Asset
Generation and Management
|
12
|
|||||
Goodwill
|
Asset
Generation and Management
|
667
|
|||||
Property
and equipment
|
Student
Loan and Guaranty Servicing
|
385
|
|||||
Property
and equipment
|
Corporate
activities
|
4,409
|
|||||
Total
impairment charge
|
$
|
18,834
|
2008
|
$
|
13,109
|
||
2009
|
22,319
|
|||
2010
|
15,985
|
|||
2011
|
10,031
|
|||
2012
|
9,029
|
|||
2013
and thereafter
|
19,690
|
|||
$
|
90,163
|
Tuition
|
|||||||||||||||||||
Payment
|
Enrollment
|
Software
|
Asset
|
||||||||||||||||
Student Loan
|
Processing
|
Services
|
and
|
Generation
|
|||||||||||||||
and Guaranty
|
and Campus
|
and List
|
Technical
|
and
|
|||||||||||||||
Servicing
|
Commerce
|
Management
|
Services
|
Management
|
Total
|
||||||||||||||
Balance
as of December 31, 2007
|
$
|
—
|
58,086
|
55,463
|
8,596
|
42,550
|
164,695
|
||||||||||||
Additional
contingent consideration paid (a)
|
—
|
—
|
11,150
|
—
|
—
|
11,150
|
|||||||||||||
Impairment
charge
|
—
|
—
|
—
|
—
|
(667
|
)
|
(667
|
)
|
|||||||||||
Balance
as of March 31, 2008 (b)
|
$
|
—
|
58,086
|
66,613
|
8,596
|
41,883
|
175,178
|
(a)
|
In
January 2008, the Company paid $18.0 million
(of which $6.8 million was
accrued as of December 31, 2007) of additional consideration related
to
its 2005 acquisitions of Student Marketing Group, Inc. and National
Honor
Roll, L.L.C. This payment satisfies all of the Company’s obligations
related to the contingencies per the terms of the purchase
agreement.
|
(b)
|
During
the quarter ended June 30, 2008, there was no change in
goodwill.
|
As of June 30, 2008
|
||||||||||
Carrying
|
Interest rate
|
|||||||||
amount
|
range
|
Final maturity
|
||||||||
Variable-rate
bonds and notes (a):
|
||||||||||
Bonds
and notes based on indices
|
$
|
21,339,035
|
2.65%
- 4.97
|
%
|
09/25/13
- 06/25/41
|
|||||
Bonds
and notes based on auction or remarketing
|
2,841,245
|
0.67%
- 7.00
|
%
|
11/01/09
- 07/01/43
|
||||||
Total
variable-rate bonds and notes
|
24,180,280
|
|||||||||
Commercial
paper - FFELP facility (b)
|
1,986,212
|
2.08%
- 2.91
|
%
|
05/09/10
|
||||||
Commercial
paper - private loan facility (b)
|
159,800
|
3.08
|
%
|
03/14/09
|
||||||
Fixed-rate
bonds and notes (a)
|
207,376
|
5.30%
- 6.68
|
%
|
11/01/09
- 05/01/29
|
||||||
Unsecured
fixed rate debt
|
475,000
|
5.13%
and 7.40
|
%
|
06/01/10
and 09/15/61
|
||||||
Unsecured
line of credit
|
450,000
|
2.90
|
%
|
05/08/12
|
||||||
Other
borrowings
|
71,569
|
3.19%
- 5.10
|
%
|
05/22/09
- 11/01/15
|
||||||
$
|
27,530,237
|
As of December 31, 2007
|
||||||||||
Carrying
|
Interest rate
|
|||||||||
amount
|
range
|
Final maturity
|
||||||||
Variable-rate
bonds and notes (a):
|
||||||||||
Bonds
and notes based on indices
|
$
|
17,508,810
|
4.73%
- 5.78
|
%
|
09/25/12
- 06/25/41
|
|||||
Bonds
and notes based on auction or remarketing
|
2,905,295
|
2.96%
- 7.25
|
%
|
11/01/09
- 07/01/43
|
||||||
Total
variable-rate bonds and notes
|
20,414,105
|
|||||||||
Commercial
paper - FFELP facility (b)
|
6,629,109
|
5.22%
- 5.98
|
%
|
05/09/10
|
||||||
Commercial
paper - private loan facility (b)
|
226,250
|
5.58
|
%
|
03/14/09
|
||||||
Fixed-rate
bonds and notes (a)
|
214,476
|
5.20%
- 6.68
|
%
|
11/01/09
- 05/01/29
|
||||||
Unsecured
fixed rate debt
|
475,000
|
5.13%
and 7.40
|
%
|
06/01/10
and 09/15/61
|
||||||
Unsecured
line of credit
|
80,000
|
5.40%
- 5.53
|
%
|
05/08/12
|
||||||
Other
borrowings
|
76,889
|
4.65%
- 5.20
|
%
|
09/28/08
- 11/01/15
|
||||||
$
|
28,115,829
|
(a) |
Issued
in asset-backed securitizations
|
(b) |
Loan
warehouse facilities
|
Weighted
|
|||||||
average fixed
|
|||||||
Notional
|
rate paid by
|
||||||
Maturity
|
Amount
|
the Company (a)
|
|||||
2008 (b)
|
$
|
2,000,000
|
4.18
|
%
|
|||
2009
|
500,000
|
4.08
|
|||||
2010
|
700,000
|
3.44
|
|||||
2011
|
500,000
|
3.57
|
|||||
2012
|
250,000
|
3.86
|
|||||
$
|
3,950,000
|
3.94
|
%
|
(a) |
For
all interest rate derivatives for which the Company pays a fixed
rate, the
Company receives discrete three-month
LIBOR.
|
(b)
|
The
maturity date on these derivatives is June 30, 2008. The Company
has
hedged a portion of its student loan portfolio in which the borrower
interest rate resets annually on July 1. These loans can generate
excess
spread income compared with the rate based on the special allowance
formula in declining interest rate environments. As discussed above,
the
Company refers to this additional income as variable-rate floor
income.
|
Notional
Amount (a)
|
||||||||||||||||
Maturity
|
Effective date in second
quarter 2007
|
Effective date in third
quarter 2007
|
Effective date in second
quarter 2008
|
Effective date in third
quarter 2008
|
Total
|
|||||||||||
2008
|
$
|
1,000,000
|
2,000,000
|
—
|
—
|
3,000,000
|
||||||||||
2009
|
2,000,000
|
4,000,000
|
—
|
3,000,000
|
(b)(f)
|
9,000,000
|
||||||||||
2010
|
500,000
|
2,000,000
|
(c)
|
2,000,000
|
1,000,000
|
5,500,000
|
||||||||||
2011
|
—
|
(d)
|
2,700,000
|
—
|
—
|
2,700,000
|
||||||||||
2012
|
—
|
(e)
|
1,000,000
|
(f)
|
800,000
|
1,600,000
|
3,400,000
|
|||||||||
$
|
3,500,000
|
11,700,000
|
2,800,000
|
5,600,000
|
23,600,000
|
(a)
|
All
basis swaps were executed by the Company during the second quarter
2007,
unless otherwise noted.
|
(b)
|
Executed
by the Company during the second quarter
2008.
|
(c)
|
In
March 2008, the Company terminated a basis swap with a notional amount
of
$1.0 billion, which is not included in the table
above.
|
(d)
|
In
March 2008, the Company terminated a basis swap with a notional amount
of
$1.35 billion, which is not included in the table
above.
|
(e)
|
In
March 2008, the Company terminated a basis swap with a notional amount
of
$0.5 billion, which is not included in the table
above.
|
(f)
|
In
July 2008, the Company terminated these basis
swaps.
|
As of
|
As of
|
||||||
June 30, 2008
|
December 31, 2007
|
||||||
Interest
rate swaps
|
$
|
1,403
|
(2,695
|
)
|
|||
Basis
swaps
|
(28,326
|
)
|
27,525
|
||||
Cross-currency
interest rate swaps
|
283,423
|
191,756
|
|||||
Net
fair value
|
$
|
256,500
|
216,586
|
Three months ended June 30,
|
Six months ended June 30,
|
||||||||||||
2008
|
2007
|
2008
|
2007
|
||||||||||
Interest
rate swaps
|
$
|
(7,842
|
)
|
7,576
|
(11,019
|
)
|
15,074
|
||||||
Basis
swaps
|
5,148
|
58
|
45,605
|
119
|
|||||||||
Cross-currency
interest rate swaps
|
7,131
|
(2,438
|
)
|
10,614
|
(5,757
|
)
|
|||||||
|
|||||||||||||
Derivative
settlements received, net
|
$
|
4,437
|
5,196
|
45,200
|
9,436
|
·
|
Level
1: Quoted prices for identical
instruments
in active markets. The types of financial instruments included in
Level 1
are highly liquid instruments with quoted prices.
|
·
|
Level
2: Quoted prices for similar
instruments
in active markets, quoted prices for identical or similar instruments
in
markets that are not active; and model derived valuations whose inputs
are
observable or whose primary value drivers are
observable.
|
·
|
Level
3: Instruments whose primary value drivers are unobservable.
Inputs are developed based on the best information available; however,
significant judgment is required by management in developing the
inputs.
|
As
of June 30, 2008
|
||||||||||
Level
1
|
Level
2
|
Total
|
||||||||
Assets:
|
||||||||||
Other
assets (a)
|
$
|
4,185
|
5,540
|
9,725
|
||||||
Fair
value of derivative instruments (b)
|
—
|
295,346
|
295,346
|
|||||||
Total
assets
|
$
|
4,185
|
300,886
|
305,071
|
||||||
Liabilities:
|
||||||||||
Fair
value of derivative instruments (b)
|
$
|
—
|
38,846
|
38,846
|
||||||
Other
liabilities (c)
|
—
|
6,655
|
6,655
|
|||||||
Total
liabilities
|
$
|
—
|
45,501
|
45,501
|
As of December 31, 2007
|
||||||||||
Level
1
|
Level
2
|
Total
|
||||||||
Assets:
|
||||||||||
Fair
value of derivative instruments (b)
|
$
|
—
|
222,471
|
222,471
|
||||||
Total
assets
|
$
|
—
|
222,471
|
222,471
|
||||||
Liabilities:
|
||||||||||
Fair
value of derivative instruments (b)
|
$
|
—
|
5,885
|
5,885
|
||||||
Other
liabilities (c)
|
—
|
6,117
|
6,117
|
|||||||
Total
liabilities
|
$
|
—
|
12,002
|
12,002
|
(a) |
Other
assets includes investments recorded at fair value on a recurring
basis.
Fair value measurement is based upon quoted prices. Level 1 investments
include investments traded on an active exchange, such as the New
York
Stock Exchange, and U.S. Treasury securities that are traded by dealers
or
brokers in active over-the-counter markets. Level 2 investments include
corporate debt securities.
|
(b)
|
All
derivatives are accounted for at fair value in the financial statements.
The fair values of derivative financial instruments are determined
by
derivative pricing models using the stated terms of the contracts
and
observable yield curves, forward foreign currency exchange rates,
and
volatilities from active markets. It is the Company’s policy to compare
its derivative fair values to those received by its counterparties
in
order to validate the model’s outputs. Fair value of derivative
instruments is comprised of market value less accrued interest and
excludes collateral.
|
(c)
|
Other
liabilities includes put options valued using a Black-Scholes pricing
model using the stated terms of the contracts and observable inputs
including the Company’s common stock volatility and dividend yield and a
risk-free interest rate over the expected term of the option.
|
Three months ended June 30,
|
Six months ended June 30,
|
||||||||||||
2008
|
2007
|
2008
|
2007
|
||||||||||
Weighted
average shares outstanding
|
49,442,435
|
49,452,960
|
49,443,425
|
50,213,349
|
|||||||||
Less:
Nonvested restricted stock - vesting solely upon continued
service
|
347,282
|
—
|
369,845
|
—
|
|||||||||
Weighted
average shares outstanding used to compute basic EPS
|
49,095,153
|
49,452,960
|
49,073,580
|
50,213,349
|
|||||||||
Dilutive
effect of nonvested restricted stock
|
9,488
|
—
|
—
|
—
|
|||||||||
Weighted
average shares used to compute diluted EPS
|
49,104,641
|
49,452,960
|
49,073,580
|
50,213,349
|
·
|
Origination
and servicing of FFELP loans;
|
·
|
Servicing
of non-federally insured student loans;
and
|
·
|
Servicing
and support outsourcing for guaranty
agencies.
|
Three months ended June 30, 2008
|
|||||||||||||||||||||||||||||||
Fee-Based
|
|||||||||||||||||||||||||||||||
Student
|
Tuition
|
Enrollment
|
"Base net
|
||||||||||||||||||||||||||||
Loan
|
Payment
|
Services
|
Software
|
Asset
|
Corporate
|
income"
|
|||||||||||||||||||||||||
and
|
Processing
|
and
|
and
|
Total
|
Generation
|
Activity
|
Eliminations
|
Adjustments
|
GAAP
|
||||||||||||||||||||||
Guaranty
|
and Campus
|
List
|
Technical
|
Fee-
|
and
|
and
|
and
|
to GAAP
|
Results of
|
||||||||||||||||||||||
Servicing
|
Commerce
|
Management
|
Services
|
Based
|
Management
|
Overhead
|
Reclassifications
|
Results
|
Operations
|
||||||||||||||||||||||
Total
interest income
|
$
|
243
|
310
|
1
|
—
|
554
|
282,293
|
1,574
|
(546
|
)
|
21,927
|
305,802
|
|||||||||||||||||||
Interest
expense
|
—
|
—
|
1
|
—
|
1
|
222,402
|
10,607
|
(546
|
)
|
—
|
232,464
|
||||||||||||||||||||
Net
interest income (loss)
|
243
|
310
|
—
|
—
|
553
|
59,891
|
(9,033
|
)
|
—
|
21,927
|
73,338
|
||||||||||||||||||||
Less
provision for loan losses
|
—
|
—
|
—
|
—
|
—
|
6,000
|
—
|
—
|
—
|
6,000
|
|||||||||||||||||||||
Net
interest income (loss) after provision for loan losses
|
243
|
310
|
—
|
—
|
553
|
53,891
|
(9,033
|
)
|
—
|
21,927
|
67,338
|
||||||||||||||||||||
Other
income (expense):
|
|||||||||||||||||||||||||||||||
Loan
and guaranty servicing income
|
24,747
|
—
|
—
|
—
|
24,747
|
157
|
—
|
—
|
—
|
24,904
|
|||||||||||||||||||||
Other
fee-based income
|
—
|
10,292
|
26,067
|
—
|
36,359
|
4,458
|
—
|
—
|
—
|
40,817
|
|||||||||||||||||||||
Software
services income
|
—
|
—
|
—
|
4,896
|
4,896
|
—
|
—
|
—
|
—
|
4,896
|
|||||||||||||||||||||
Other
income
|
6
|
(21
|
)
|
—
|
—
|
(15
|
)
|
393
|
1,268
|
—
|
—
|
1,646
|
|||||||||||||||||||
Gain
on sale of loans
|
—
|
—
|
—
|
—
|
—
|
48
|
—
|
—
|
—
|
48
|
|||||||||||||||||||||
Intersegment
revenue
|
18,382
|
(76
|
)
|
—
|
1,517
|
19,823
|
—
|
13,960
|
(33,783
|
)
|
—
|
—
|
|||||||||||||||||||
Derivative
market value, foreign currency, and put option adjustments
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
15,755
|
15,755
|
|||||||||||||||||||||
Derivative
settlements, net
|
—
|
—
|
—
|
—
|
—
|
11,638
|
—
|
—
|
(7,201
|
)
|
4,437
|
||||||||||||||||||||
Total
other income (expense)
|
43,135
|
10,195
|
26,067
|
6,413
|
85,810
|
16,694
|
15,228
|
(33,783
|
)
|
8,554
|
92,503
|
||||||||||||||||||||
Operating
expenses:
|
|||||||||||||||||||||||||||||||
Salaries
and benefits
|
12,491
|
5,784
|
6,373
|
4,702
|
29,350
|
1,954
|
12,828
|
(1,333
|
)
|
750
|
43,549
|
||||||||||||||||||||
Restructure
expense - severance and contract termination costs
|
(104
|
)
|
—
|
(15
|
)
|
(8
|
)
|
(127
|
)
|
(52
|
)
|
(186
|
)
|
365
|
—
|
—
|
|||||||||||||||
Other
expenses
|
8,011
|
2,551
|
17,284
|
714
|
28,560
|
5,095
|
14,921
|
(764
|
)
|
6,561
|
54,373
|
||||||||||||||||||||
Intersegment
expenses
|
9,822
|
461
|
1,580
|
342
|
12,205
|
18,952
|
894
|
(32,051
|
)
|
—
|
—
|
||||||||||||||||||||
Total
operating expenses
|
30,220
|
8,796
|
25,222
|
5,750
|
69,988
|
25,949
|
28,457
|
(33,783
|
)
|
7,311
|
97,922
|
||||||||||||||||||||
Income
(loss) before income taxes
|
13,158
|
1,709
|
845
|
663
|
16,375
|
44,636
|
(22,262
|
)
|
—
|
23,170
|
61,919
|
||||||||||||||||||||
Income
tax expense (benefit) (a)
|
4,079
|
530
|
262
|
206
|
5,077
|
13,837
|
(6,902
|
)
|
—
|
7,183
|
19,195
|
||||||||||||||||||||
Net
income (loss) from continuing operations
|
9,079
|
1,179
|
583
|
457
|
11,298
|
30,799
|
(15,360
|
)
|
—
|
15,987
|
42,724
|
||||||||||||||||||||
Income
from discontinued operations, net of tax
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
981
|
981
|
|||||||||||||||||||||
Net
income (loss)
|
$
|
9,079
|
1,179
|
583
|
457
|
11,298
|
30,799
|
(15,360
|
)
|
—
|
16,968
|
43,705
|
Three months ended June 30, 2007
|
|||||||||||||||||||||||||||||||
Fee-Based
|
|||||||||||||||||||||||||||||||
Student
|
Tuition
|
Enrollment
|
"Base net
|
||||||||||||||||||||||||||||
Loan
|
Payment
|
Services
|
Software
|
Asset
|
Corporate
|
income"
|
|||||||||||||||||||||||||
and
|
Processing
|
and
|
and
|
Total
|
Generation
|
Activity
|
Eliminations
|
Adjustments
|
GAAP
|
||||||||||||||||||||||
Guaranty
|
and Campus
|
List
|
Technical
|
Fee-
|
and
|
and
|
and
|
to GAAP
|
Results of
|
||||||||||||||||||||||
Servicing
|
Commerce
|
Management
|
Services
|
Based
|
Management
|
Overhead
|
Reclassifications
|
Results
|
Operations
|
||||||||||||||||||||||
Total
interest income
|
$
|
1,181
|
670
|
93
|
—
|
1,944
|
433,404
|
554
|
(33
|
)
|
—
|
435,869
|
|||||||||||||||||||
Interest
expense
|
—
|
2
|
2
|
—
|
4
|
358,341
|
9,581
|
(33
|
)
|
—
|
367,893
|
||||||||||||||||||||
Net
interest income (loss)
|
1,181
|
668
|
91
|
—
|
1,940
|
75,063
|
(9,027
|
)
|
—
|
—
|
67,976
|
||||||||||||||||||||
Less
provision for loan losses
|
—
|
—
|
—
|
—
|
—
|
2,535
|
—
|
—
|
—
|
2,535
|
|||||||||||||||||||||
Net
interest income (loss) after provision for loan losses
|
1,181
|
668
|
91
|
—
|
1,940
|
72,528
|
(9,027
|
)
|
—
|
—
|
65,441
|
||||||||||||||||||||
Other
income (expense):
|
|||||||||||||||||||||||||||||||
Loan
and guaranty servicing income
|
31,492
|
—
|
—
|
—
|
31,492
|
118
|
—
|
—
|
—
|
31,610
|
|||||||||||||||||||||
Other
fee-based income
|
—
|
9,405
|
24,923
|
—
|
34,328
|
3,674
|
260
|
—
|
—
|
38,262
|
|||||||||||||||||||||
Software
services income
|
—
|
—
|
157
|
5,691
|
5,848
|
—
|
—
|
—
|
—
|
5,848
|
|||||||||||||||||||||
Other
income
|
5
|
25
|
—
|
—
|
30
|
105
|
1,792
|
—
|
—
|
1,927
|
|||||||||||||||||||||
Gain
on sale of loans
|
—
|
—
|
—
|
—
|
—
|
1,010
|
—
|
—
|
—
|
1,010
|
|||||||||||||||||||||
Intersegment
revenue
|
20,120
|
188
|
178
|
4,389
|
24,875
|
—
|
4,100
|
(28,975
|
)
|
—
|
—
|
||||||||||||||||||||
Derivative
market value, foreign currency, and put option adjustments
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
5,547
|
5,547
|
|||||||||||||||||||||
Derivative
settlements, net
|
—
|
—
|
—
|
—
|
—
|
(461
|
)
|
5,657
|
—
|
—
|
5,196
|
||||||||||||||||||||
Total
other income (expense)
|
51,617
|
9,618
|
25,258
|
10,080
|
96,573
|
4,446
|
11,809
|
(28,975
|
)
|
5,547
|
89,400
|
||||||||||||||||||||
Operating
expenses:
|
|||||||||||||||||||||||||||||||
Salaries
and benefits
|
22,023
|
5,082
|
9,022
|
5,857
|
41,984
|
7,167
|
12,272
|
(2,138
|
)
|
476
|
59,761
|
||||||||||||||||||||
Other
expenses
|
8,404
|
2,333
|
14,589
|
751
|
26,077
|
7,246
|
21,071
|
—
|
6,491
|
60,885
|
|||||||||||||||||||||
Intersegment
expenses
|
3,750
|
25
|
29
|
403
|
4,207
|
22,034
|
596
|
(26,837
|
)
|
—
|
—
|
||||||||||||||||||||
Total
operating expenses
|
34,177
|
7,440
|
23,640
|
7,011
|
72,268
|
36,447
|
33,939
|
(28,975
|
)
|
6,967
|
120,646
|
||||||||||||||||||||
Income
(loss) before income taxes
|
18,621
|
2,846
|
1,709
|
3,069
|
26,245
|
40,527
|
(31,157
|
)
|
—
|
(1,420
|
)
|
34,195
|
|||||||||||||||||||
Income
tax expense (benefit) (a)
|
7,076
|
1,082
|
649
|
1,167
|
9,974
|
15,400
|
(11,500
|
)
|
—
|
(568
|
)
|
13,306
|
|||||||||||||||||||
Net
income (loss) from continuing operations
|
11,545
|
1,764
|
1,060
|
1,902
|
16,271
|
25,127
|
(19,657
|
)
|
—
|
(852
|
)
|
20,889
|
|||||||||||||||||||
Loss
from discontinued operations, net of tax
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(6,135
|
)
|
(6,135
|
)
|
|||||||||||||||||||
Net
income (loss)
|
$
|
11,545
|
1,764
|
1,060
|
1,902
|
16,271
|
25,127
|
(19,657
|
)
|
—
|
(6,987
|
)
|
14,754
|
Six months ended June 30, 2008
|
|||||||||||||||||||||||||||||||
Fee-Based
|
|||||||||||||||||||||||||||||||
Student
|
Tuition
|
Enrollment
|
"Base net
|
||||||||||||||||||||||||||||
Loan
|
Payment
|
Services
|
Software
|
Asset
|
Corporate
|
income"
|
|||||||||||||||||||||||||
and
|
Processing
|
and
|
and
|
Total
|
Generation
|
Activity
|
Eliminations
|
Adjustments
|
GAAP
|
||||||||||||||||||||||
Guaranty
|
and Campus
|
List
|
Technical
|
Fee-
|
and
|
and
|
and
|
to GAAP
|
Results of
|
||||||||||||||||||||||
Servicing
|
Commerce
|
Management
|
Services
|
Based
|
Management
|
Overhead
|
Reclassifications
|
Results
|
Operations
|
||||||||||||||||||||||
Total
interest income
|
$
|
856
|
1,075
|
10
|
—
|
1,941
|
602,651
|
2,771
|
(640
|
)
|
40,745
|
647,468
|
|||||||||||||||||||
Interest
expense
|
—
|
—
|
2
|
—
|
2
|
538,417
|
19,826
|
(640
|
)
|
—
|
557,605
|
||||||||||||||||||||
Net
interest income (loss)
|
856
|
1,075
|
8
|
—
|
1,939
|
64,234
|
(17,055
|
)
|
—
|
40,745
|
89,863
|
||||||||||||||||||||
Less
provision for loan losses
|
—
|
—
|
—
|
—
|
—
|
11,000
|
—
|
—
|
—
|
11,000
|
|||||||||||||||||||||
Net
interest income (loss) after provision for loan losses
|
856
|
1,075
|
8
|
—
|
1,939
|
53,234
|
(17,055
|
)
|
—
|
40,745
|
78,863
|
||||||||||||||||||||
Other
income (expense):
|
|||||||||||||||||||||||||||||||
Loan
and guaranty servicing income
|
50,855
|
—
|
—
|
—
|
50,855
|
162
|
—
|
—
|
—
|
51,017
|
|||||||||||||||||||||
Other
fee-based income
|
—
|
24,114
|
53,289
|
—
|
77,403
|
9,327
|
—
|
—
|
—
|
86,730
|
|||||||||||||||||||||
Software
services income
|
—
|
—
|
37
|
11,611
|
11,648
|
—
|
—
|
—
|
—
|
11,648
|
|||||||||||||||||||||
Other
income
|
38
|
4
|
—
|
—
|
42
|
381
|
2,633
|
—
|
—
|
3,056
|
|||||||||||||||||||||
Loss
on sale of loans
|
—
|
—
|
—
|
—
|
—
|
(47,426
|
)
|
—
|
—
|
—
|
(47,426
|
)
|
|||||||||||||||||||
Intersegment
revenue
|
38,606
|
184
|
—
|
3,333
|
42,123
|
—
|
31,173
|
(73,296
|
)
|
—
|
—
|
||||||||||||||||||||
Derivative
market value, foreign currency, and put option adjustments
|
—
|
—
|
—
|
—
|
—
|
466
|
—
|
—
|
(42,072
|
)
|
(41,606
|
)
|
|||||||||||||||||||
Derivative
settlements, net
|
—
|
—
|
—
|
—
|
—
|
55,165
|
—
|
—
|
(9,965
|
)
|
45,200
|
||||||||||||||||||||
Total
other income (expense)
|
89,499
|
24,302
|
53,326
|
14,944
|
182,071
|
18,075
|
33,806
|
(73,296
|
)
|
(52,037
|
)
|
108,619
|
|||||||||||||||||||
Operating
expenses:
|
|||||||||||||||||||||||||||||||
Salaries
and benefits
|
26,489
|
11,214
|
12,896
|
9,870
|
60,469
|
4,178
|
27,419
|
3,280
|
2,046
|
97,392
|
|||||||||||||||||||||
Restructure
expense - severance and contract termination costs
|
747
|
—
|
282
|
510
|
1,539
|
1,844
|
3,729
|
(7,112
|
)
|
—
|
—
|
||||||||||||||||||||
Impairment
expense
|
5,074
|
—
|
—
|
—
|
5,074
|
9,351
|
4,409
|
—
|
—
|
18,834
|
|||||||||||||||||||||
Other
expenses
|
16,498
|
4,611
|
35,447
|
1,333
|
57,889
|
10,439
|
28,786
|
298
|
13,121
|
110,533
|
|||||||||||||||||||||
Intersegment
expenses
|
23,100
|
757
|
3,427
|
736
|
28,020
|
39,554
|
2,188
|
(69,762
|
)
|
—
|
—
|
||||||||||||||||||||
Total
operating expenses
|
71,908
|
16,582
|
52,052
|
12,449
|
152,991
|
65,366
|
66,531
|
(73,296
|
)
|
15,167
|
226,759
|
||||||||||||||||||||
Income
(loss) before income taxes
|
18,447
|
8,795
|
1,282
|
2,495
|
31,019
|
5,943
|
(49,780
|
)
|
—
|
(26,459
|
)
|
(39,277
|
)
|
||||||||||||||||||
Income
tax expense (benefit) (a)
|
5,719
|
2,727
|
397
|
774
|
9,617
|
1,842
|
(15,433
|
)
|
—
|
(8,202
|
)
|
(12,176
|
)
|
||||||||||||||||||
Net
income (loss) from continuing operations
|
12,728
|
6,068
|
885
|
1,721
|
21,402
|
4,101
|
(34,347
|
)
|
—
|
(18,257
|
)
|
(27,101
|
)
|
||||||||||||||||||
Income
from discontinued operations, net of tax
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
981
|
981
|
|||||||||||||||||||||
Net
income (loss)
|
$
|
12,728
|
6,068
|
885
|
1,721
|
21,402
|
4,101
|
(34,347
|
)
|
—
|
(17,276
|
)
|
(26,120
|
)
|
Six months ended June 30, 2007
|
|||||||||||||||||||||||||||||||
Fee-Based
|
|||||||||||||||||||||||||||||||
Student
|
Tuition
|
Enrollment
|
"Base net
|
||||||||||||||||||||||||||||
Loan
|
Payment
|
Services
|
Software
|
Asset
|
Corporate
|
income"
|
|||||||||||||||||||||||||
and
|
Processing
|
and
|
and
|
Total
|
Generation
|
Activity
|
Eliminations
|
Adjustments
|
GAAP
|
||||||||||||||||||||||
Guaranty
|
and Campus
|
List
|
Technical
|
Fee-
|
and
|
and
|
and
|
to GAAP
|
Results of
|
||||||||||||||||||||||
Servicing
|
Commerce
|
Management
|
Services
|
Based
|
Management
|
Overhead
|
Reclassifications
|
Results
|
Operations
|
||||||||||||||||||||||
Total
interest income
|
$
|
3,425
|
1,680
|
180
|
18
|
5,303
|
847,894
|
4,355
|
(3,204
|
)
|
—
|
854,348
|
|||||||||||||||||||
Interest
expense
|
—
|
7
|
4
|
—
|
11
|
699,999
|
21,582
|
(3,204
|
)
|
—
|
718,388
|
||||||||||||||||||||
Net
interest income (loss)
|
3,425
|
1,673
|
176
|
18
|
5,292
|
147,895
|
(17,227
|
)
|
—
|
—
|
135,960
|
||||||||||||||||||||
Less
provision for loan losses
|
—
|
—
|
—
|
—
|
—
|
5,288
|
—
|
—
|
—
|
5,288
|
|||||||||||||||||||||
Net
interest income (loss) after provision for loan losses
|
3,425
|
1,673
|
176
|
18
|
5,292
|
142,607
|
(17,227
|
)
|
—
|
—
|
130,672
|
||||||||||||||||||||
Other
income (expense):
|
|||||||||||||||||||||||||||||||
Loan
and guaranty servicing income
|
61,958
|
—
|
—
|
—
|
61,958
|
118
|
—
|
—
|
—
|
62,076
|
|||||||||||||||||||||
Other
fee-based income
|
—
|
21,176
|
49,870
|
—
|
71,046
|
6,985
|
260
|
—
|
—
|
78,291
|
|||||||||||||||||||||
Software
services income
|
—
|
—
|
287
|
11,309
|
11,596
|
—
|
—
|
—
|
—
|
11,596
|
|||||||||||||||||||||
Other
income
|
11
|
28
|
—
|
—
|
39
|
3,148
|
3,833
|
—
|
—
|
7,020
|
|||||||||||||||||||||
Gain
on sale of loans
|
—
|
—
|
—
|
—
|
—
|
2,796
|
—
|
—
|
—
|
2,796
|
|||||||||||||||||||||
Intersegment
revenue
|
36,584
|
340
|
928
|
8,221
|
46,073
|
—
|
6,116
|
(52,189
|
)
|
—
|
—
|
||||||||||||||||||||
Derivative
market value, foreign currency, and put option adjustments
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(6,583
|
)
|
(6,583
|
)
|
|||||||||||||||||||
Derivative
settlements, net
|
—
|
—
|
—
|
—
|
—
|
(885
|
)
|
10,321
|
—
|
—
|
9,436
|
||||||||||||||||||||
Total
other income (expense)
|
98,553
|
21,544
|
51,085
|
19,530
|
190,712
|
12,162
|
20,530
|
(52,189
|
)
|
(6,583
|
)
|
164,632
|
|||||||||||||||||||
Operating
expenses:
|
|||||||||||||||||||||||||||||||
Salaries
and benefits
|
45,027
|
10,000
|
18,391
|
12,332
|
85,750
|
14,446
|
24,978
|
(4,662
|
)
|
953
|
121,465
|
||||||||||||||||||||
Other
expenses
|
17,654
|
4,493
|
29,148
|
1,535
|
52,830
|
15,511
|
38,940
|
—
|
13,129
|
120,410
|
|||||||||||||||||||||
Intersegment
expenses
|
7,068
|
399
|
185
|
403
|
8,055
|
38,670
|
802
|
(47,527
|
)
|
—
|
—
|
||||||||||||||||||||
Total
operating expenses
|
69,749
|
14,892
|
47,724
|
14,270
|
146,635
|
68,627
|
64,720
|
(52,189
|
)
|
14,082
|
241,875
|
||||||||||||||||||||
Income
(loss) before income taxes
|
32,229
|
8,325
|
3,537
|
5,278
|
49,369
|
86,142
|
(61,417
|
)
|
—
|
(20,665
|
)
|
53,429
|
|||||||||||||||||||
Income
tax expense (benefit) (a)
|
12,247
|
3,164
|
1,344
|
2,006
|
18,761
|
32,734
|
(23,826
|
)
|
—
|
(7,099
|
)
|
20,570
|
|||||||||||||||||||
Net
income (loss) from continuing operations
|
19,982
|
5,161
|
2,193
|
3,272
|
30,608
|
53,408
|
(37,591
|
)
|
—
|
(13,566
|
)
|
32,859
|
|||||||||||||||||||
Loss
from discontinued operations, net of tax
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(3,325
|
)
|
(3,325
|
)
|
|||||||||||||||||||
Net
income (loss)
|
$
|
19,982
|
5,161
|
2,193
|
3,272
|
30,608
|
53,408
|
(37,591
|
)
|
—
|
(16,891
|
)
|
29,534
|
·
|
Income
earned on certain investment
activities;
|
·
|
Interest
expense incurred on unsecured debt
transactions;
|
·
|
Other
products and service offerings that are not considered operating
segments;
and
|
· |
Corporate
activities and overhead functions such as executive management, human
resources, accounting and finance, legal, marketing, and corporate
technology support.
|
Student
|
Tuition
|
Enrollment
|
||||||||||||||||||||
Loan
|
Payment
|
Services
|
Software
|
Asset
|
Corporate
|
|||||||||||||||||
and
|
Processing
|
and
|
and
|
Generation
|
Activity
|
|||||||||||||||||
Guaranty
|
and Campus
|
List
|
Technical
|
and
|
and
|
|||||||||||||||||
Servicing
|
Commerce
|
Management
|
Services
|
Management
|
Overhead
|
Total
|
||||||||||||||||
Three
months ended June 30, 2008
|
||||||||||||||||||||||
Derivative
market value, foreign currency, and put option adjustments
(1)
|
$
|
—
|
—
|
—
|
—
|
(15,866
|
)
|
111
|
(15,755
|
)
|
||||||||||||
Amortization
of intangible assets (2)
|
1,165
|
1,997
|
3,113
|
286
|
—
|
—
|
6,561
|
|||||||||||||||
Compensation
related to business combinations (3)
|
—
|
—
|
—
|
—
|
—
|
750
|
750
|
|||||||||||||||
Variable-rate
floor income, net of settlements on derivatives (4)
|
—
|
—
|
—
|
—
|
(14,726
|
)
|
—
|
(14,726
|
)
|
|||||||||||||
Income
from discontinued operations, net of tax (5)
|
(981
|
)
|
—
|
—
|
—
|
—
|
—
|
(981
|
)
|
|||||||||||||
Net
tax effect (6)
|
(361
|
)
|
(619
|
)
|
(965
|
)
|
(89
|
)
|
9,484
|
(267
|
)
|
7,183
|
||||||||||
Total
adjustments to GAAP
|
$
|
(177
|
)
|
1,378
|
2,148
|
197
|
(21,108
|
)
|
594
|
(16,968
|
)
|
|||||||||||
|
Three
months ended June 30, 2007
|
|||||||||||||||||||||
Derivative
market value, foreign currency, and put option adjustments
(1)
|
$
|
—
|
—
|
—
|
—
|
6,002
|
(11,549
|
)
|
(5,547
|
)
|
||||||||||||
Amortization
of intangible assets (2)
|
1,350
|
1,469
|
1,545
|
287
|
1,840
|
—
|
6,491
|
|||||||||||||||
Compensation
related to business combinations (3)
|
—
|
—
|
—
|
—
|
—
|
476
|
476
|
|||||||||||||||
Variable-rate
floor income, net of settlements on derivatives (4)
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||
Loss
from discontinued operations, net of tax (5)
|
6,135
|
—
|
—
|
—
|
—
|
—
|
6,135
|
|||||||||||||||
Net
tax effect (6)
|
(513
|
)
|
(558
|
)
|
(587
|
)
|
(109
|
)
|
(2,980
|
)
|
4,179
|
(568
|
)
|
|||||||||
Total
adjustments to GAAP
|
$
|
6,972
|
911
|
958
|
178
|
4,862
|
(6,894
|
)
|
6,987
|
|||||||||||||
|
Six
months ended June 30, 2008
|
|||||||||||||||||||||
Derivative
market value, foreign currency, and put option adjustments
(1)
|
$
|
—
|
—
|
—
|
—
|
41,534
|
538
|
42,072
|
||||||||||||||
Amortization
of intangible assets (2)
|
2,421
|
4,048
|
5,935
|
572
|
145
|
—
|
13,121
|
|||||||||||||||
Compensation
related to business combinations (3)
|
—
|
—
|
—
|
—
|
—
|
2,046
|
2,046
|
|||||||||||||||
Variable-rate
floor income, net of settlements on derivatives (4)
|
—
|
—
|
—
|
—
|
(30,780
|
)
|
—
|
(30,780
|
)
|
|||||||||||||
Income
from discontinued operations, net of tax (5)
|
(981
|
)
|
—
|
—
|
—
|
—
|
—
|
(981
|
)
|
|||||||||||||
Net
tax effect (6)
|
(750
|
)
|
(1,255
|
)
|
(1,840
|
)
|
(178
|
)
|
(3,378
|
)
|
(801
|
)
|
(8,202
|
)
|
||||||||
Total
adjustments to GAAP
|
$
|
690
|
2,793
|
4,095
|
394
|
7,521
|
1,783
|
17,276
|
||||||||||||||
|
Six
months ended June 30, 2007
|
|||||||||||||||||||||
Derivative
market value, foreign currency, and put option adjustments
(1)
|
$
|
—
|
—
|
—
|
—
|
12,216
|
(5,633
|
)
|
6,583
|
|||||||||||||
Amortization
of intangible assets (2)
|
2,394
|
2,938
|
3,355
|
617
|
3,825
|
—
|
13,129
|
|||||||||||||||
Compensation
related to business combinations (3)
|
—
|
—
|
—
|
—
|
—
|
953
|
953
|
|||||||||||||||
Variable-rate
floor income, net of settlements on derivatives (4)
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||
Loss
from discontinued operations, net of tax (5)
|
3,325
|
—
|
—
|
—
|
—
|
—
|
3,325
|
|||||||||||||||
Net
tax effect (6)
|
(910
|
)
|
(1,116
|
)
|
(1,275
|
)
|
(234
|
)
|
(6,096
|
)
|
2,532
|
(7,099
|
)
|
|||||||||
Total
adjustments to GAAP
|
$
|
4,809
|
1,822
|
2,080
|
383
|
9,945
|
(2,148
|
)
|
16,891
|
(1)
|
Derivative
market value, foreign currency, and put option adjustments: “Base net
income” excludes the periodic unrealized gains and losses that are caused
by the change in fair value on derivatives used in the Company’s risk
management strategy in which the Company does not qualify for “hedge
treatment” under GAAP. Included in “base net income” are the economic
effects of the Company’s derivative instruments, which includes any cash
paid or received being recognized as an expense or revenue upon actual
derivative settlements. “Base net income” also excludes the foreign
currency transaction gains or losses caused by the re-measurement
of the
Company’s Euro-denominated bonds to U.S. dollars and the change in fair
value of put options issued by the Company for certain business
acquisitions.
|
(2)
|
Amortization
of intangible assets: “Base net income” excludes the amortization of
acquired intangibles.
|
(3)
|
Compensation
related to business combinations: The Company has structured certain
business combinations in which the consideration paid has been dependent
on the sellers’ continued employment with the Company. As such, the value
of the consideration paid is recognized as compensation expense by
the
Company over the term of the applicable employment agreement. “Base net
income” excludes this expense.
|
(4)
|
Variable-rate
floor income: Loans that reset annually on July 1 can generate excess
spread income compared with the rate based on the special allowance
payment formula in declining interest rate environments. The Company
refers to this additional income as variable-rate floor income. The
Company excludes variable-rate floor income, net of settlements paid
on
derivatives used to hedge student loan assets earning variable-rate
floor
income, from its base net income since the timing and amount of
variable-rate floor income (if any) is uncertain, it has been eliminated
by legislation for all loans originated on and after April 1, 2006,
and it
is in excess of expected spreads. In addition, because variable-rate
floor
income is subject to the underlying rate for the subject loans being
reset
annually on July 1, it is a factor beyond the Company’s control which can
affect the period-to-period comparability of results of operations.
|
(5)
|
Discontinued
operations: In
May 2007, the Company sold EDULINX. As a result of this transaction,
the
results of operations for EDULINX are reported as discontinued operations
for all periods presented. The Company presents “base net income”
excluding discontinued operations since the operations and cash flows
of
EDULINX have been eliminated from the ongoing operations of the
Company.
|
(6)
|
Beginning
in 2008, tax effect is computed using the Company’s consolidated effective
tax rate for each applicable period. In prior periods, tax effect
was
computed at 38%. The change in the value of the put options for prior
periods (included in Corporate Activities and Overhead) was not tax
effected as this is not deductible for income tax
purposes.
|
·
|
Legislative
developments;
|
· |
Student
loan spread;
|
· |
Operating
expenses; and
|
· |
Fee-based
businesses.
|
·
|
Increases
statutory limits on annual and aggregate borrowing for FFELP loans;
and
|
·
|
Allows
the Department to act as a secondary market and enter into forward
purchasing agreements with lenders.
|
·
|
Offers
to purchase loans from lenders for the 2008-2009 academic year and
offers
lenders access to short-term liquidity;
and
|
·
|
Commits
to continue working with the FFELP community to explore programs
to
reengage the capital markets in the
long-run.
|
·
|
Reduced
special allowance payments to for-profit lenders and not-for-profit
lenders by 0.55 percentage points and 0.40 percentage points,
respectively, for both Stafford and Consolidation loans disbursed
on or
after October 1, 2007;
|
·
|
Reduced
special allowance payments to for-profit lenders and not-for-profit
lenders by 0.85 percentage points and 0.70 percentage points,
respectively, for PLUS loans disbursed on or after October 1, 2007;
|
·
|
Increased
origination fees paid by lenders on all FFELP loan types, from 0.5
percent
to 1.0 percent, for all loans first disbursed on or after October
1,
2007;
|
·
|
Eliminated
all provisions relating to Exceptional Performer status, and the
monetary
benefit associated with it, effective October 1, 2007;
and
|
·
|
Reduces
default insurance to 95 percent of the unpaid principal of such loans,
for
loans first disbursed on or after October 1,
2012.
|
Three months ended June 30,
|
Six months ended June 30,
|
||||||||||||||||||
2008
|
2007
|
$ Change
|
2008
|
2007
|
$ Change
|
||||||||||||||
Interest
income:
|
|||||||||||||||||||
Loan
interest
|
$
|
296,686
|
417,086
|
(120,400
|
)
|
626,672
|
814,140
|
(187,468
|
)
|
||||||||||
Investment
interest
|
9,116
|
18,783
|
(9,667
|
)
|
20,796
|
40,208
|
(19,412
|
)
|
|||||||||||
Total
interest income
|
305,802
|
435,869
|
(130,067
|
)
|
647,468
|
854,348
|
(206,880
|
)
|
|||||||||||
Interest
expense:
|
|||||||||||||||||||
Interest
on bonds and notes payable
|
232,464
|
367,893
|
(135,429
|
)
|
557,605
|
718,388
|
(160,783
|
)
|
|||||||||||
Net
interest income
|
73,338
|
67,976
|
5,362
|
89,863
|
135,960
|
(46,097
|
)
|
||||||||||||
Provision
for loan losses
|
6,000
|
2,535
|
3,465
|
11,000
|
5,288
|
5,712
|
|||||||||||||
Net
interest income after provision for loan losses
|
$
|
67,338
|
65,441
|
1,897
|
78,863
|
130,672
|
(51,809
|
)
|
·
|
Net
interest income decreased for the six months ended June 30, 2008
compared
to 2007 as a result of the compression in the core student loan
spread as
discussed in this Item 2 under “Asset Generation and Management Operating
Segment - Results of Operations.” The decrease in net interest income was
offset by $40.7 million of variable-rate floor income earned by
the
Company in 2008 and an increase in average student loans compared
to 2007.
Net interest income increased for the three months ended June 30,
2008
compared to the same period in 2007 as a result of an increase
in student
loan spread (including approximately $21.9 million of variable-rate
floor
income in 2008) and an increase in average student
loans.
|
·
|
The
provision for loan losses increased for the three and six months
ended
June 30, 2008 compared to 2007 due to an increase in risk share as
a
result of the elimination of the Exceptional Performer
program.
|
Three months ended June 30,
|
Six months ended June 30,
|
||||||||||||||||||
2008
|
2007
|
$ Change
|
2008
|
2007
|
$ Change
|
||||||||||||||
Loan and guaranty servicing
income
|
$
|
24,904
|
31,610
|
(6,706
|
)
|
51,017
|
62,076
|
(11,059
|
)
|
||||||||||
Other
fee-based income
|
40,817
|
38,262
|
2,555
|
86,730
|
78,291
|
8,439
|
|||||||||||||
Software
services income
|
4,896
|
5,848
|
(952
|
)
|
11,648
|
11,596
|
52
|
||||||||||||
Other
income
|
1,646
|
1,927
|
(281
|
)
|
3,056
|
7,020
|
(3,964
|
)
|
|||||||||||
Gain
(loss) on sale of loans
|
48
|
1,010
|
(962
|
)
|
(47,426
|
)
|
2,796
|
(50,222
|
)
|
||||||||||
Derivative
market value, foreign currency, and put option adjustments
|
15,755
|
5,547
|
10,208
|
(41,606
|
)
|
(6,583
|
)
|
(35,023
|
)
|
||||||||||
Derivative
settlements, net
|
4,437
|
5,196
|
(759
|
)
|
45,200
|
9,436
|
35,764
|
||||||||||||
Total
other income
|
$
|
92,503
|
89,400
|
3,103
|
108,619
|
164,632
|
(56,013
|
)
|
·
|
“Loan
and guaranty servicing income” decreased due to decreases in both FFELP
loan servicing income and guaranty servicing income as further discussed
in this Item 2 under “Student Loan and Guaranty Servicing Operating
Segment - Results of Operations.”
|
·
|
“Other
fee-based income” increased due to an increase in the number of managed
tuition payment plans and an increase in campus commerce and related
clients in the Tuition Payment Processing and Campus Commerce Operating
Segment, as well as an increase in lead generation sales volume in
the
Enrollment Services and List Management Operating
Segment.
|
·
|
The
Company recognized a loss of $47.5 million
during the first quarter of 2008 as a result of the sale of $1.3
billion
of
student loans as further discussed in this Item 2 under “Asset Generation
and Management Operating Segment - Results of
Operations.”
|
·
|
The
change in “derivative market value, foreign currency, and put option
adjustments” was caused by a change in the fair value of the Company’s
derivative portfolio and foreign currency rate fluctuations which
are
further discussed in Item 3, “Quantitative and Qualitative Disclosures
about Market Risk.”
|
·
|
The
change in derivative settlements is discussed in Item 3, “Quantitative and
Qualitative Disclosures about Market Risk.”
|
Net change
|
|||||||||||||
after impact of
|
|||||||||||||
Three months ended
|
Impact of restructuring
|
restructuring and
|
Three months ended
|
||||||||||
June 30, 2007
|
and impairment charges
|
impairment charges
|
June 30, 2008
|
||||||||||
Salaries
and benefits
|
$
|
59,761
|
(190
|
)
|
(16,022
|
)
|
43,549
|
||||||
Other
expenses
|
60,885
|
(175
|
)
|
(6,337
|
)
|
54,373
|
|||||||
Total
operating expenses
|
$
|
120,646
|
(365
|
)
|
(22,359
|
)
|
97,922
|
Net change
|
|||||||||||||
after impact of
|
|||||||||||||
Six months ended
|
Impact of restructuring
|
restructuring and
|
Six months ended
|
||||||||||
June 30, 2007
|
and impairment charges
|
impairment charges
|
June 30, 2008
|
||||||||||
Salaries
and benefits
|
$
|
121,465
|
5,714
|
(29,787
|
)
|
97,392
|
|||||||
Other
expenses
|
120,410
|
20,232
|
(11,275
|
)
|
129,367
|
||||||||
Total
operating expenses
|
$
|
241,875
|
25,946
|
(41,062
|
)
|
226,759
|
As of
|
As of
|
||||||||||||
June 30,
|
December 31,
|
Change
|
|||||||||||
2008
|
2007
|
Dollars
|
Percent
|
||||||||||
Assets:
|
|||||||||||||
Student
loans receivable, net
|
$
|
25,993,307
|
26,736,122
|
(742,815
|
)
|
(2.8
|
)%
|
||||||
Cash,
cash equivalents, and investments
|
1,175,310
|
1,120,838
|
54,472
|
4.9
|
|||||||||
Goodwill
|
175,178
|
164,695
|
10,483
|
6.4
|
|||||||||
Intangible
assets, net
|
90,163
|
112,830
|
(22,667
|
)
|
(20.1
|
)
|
|||||||
Fair
value of derivative instruments
|
295,346
|
222,471
|
72,875
|
32.8
|
|||||||||
Other
assets
|
702,621
|
805,827
|
(103,206
|
)
|
(12.8
|
)
|
|||||||
Total
assets
|
$
|
28,431,925
|
29,162,783
|
(730,858
|
)
|
(2.5
|
)%
|
||||||
Liabilities:
|
|||||||||||||
Bonds
and notes payable
|
$
|
27,530,237
|
28,115,829
|
(585,592
|
)
|
(2.1
|
)%
|
||||||
Fair
value of derivative instruments
|
38,846
|
5,885
|
32,961
|
560.1
|
|||||||||
Other
liabilities
|
278,800
|
432,190
|
(153,390
|
)
|
(35.5
|
)
|
|||||||
Total
liabilities
|
27,847,883
|
28,553,904
|
(706,021
|
)
|
(2.5
|
)
|
|||||||
Shareholders'
equity
|
584,042
|
608,879
|
(24,837
|
)
|
(4.1
|
)
|
|||||||
Total
liabilities and shareholders' equity
|
$
|
28,431,925
|
29,162,783
|
(730,858
|
)
|
(2.5
|
)%
|
Three months ended June 30, 2008
|
|||||||||||||||||||||||||||||||
Fee-Based
|
|||||||||||||||||||||||||||||||
Student
|
Tuition
|
Enrollment
|
"Base net
|
||||||||||||||||||||||||||||
Loan
|
Payment
|
Services
|
Software
|
Asset
|
Corporate
|
income"
|
|||||||||||||||||||||||||
and
|
Processing
|
and
|
and
|
Total
|
Generation
|
Activity
|
Eliminations
|
Adjustments
|
GAAP
|
||||||||||||||||||||||
Guaranty
|
and Campus
|
List
|
Technical
|
Fee-
|
and
|
and
|
and
|
to GAAP
|
Results of
|
||||||||||||||||||||||
Servicing
|
Commerce
|
Management
|
Services
|
Based
|
Management
|
Overhead
|
Reclassifications
|
Results
|
Operations
|
||||||||||||||||||||||
Total
interest income
|
$
|
243
|
310
|
1
|
—
|
554
|
282,293
|
1,574
|
(546
|
)
|
21,927
|
305,802
|
|||||||||||||||||||
Interest
expense
|
—
|
—
|
1
|
—
|
1
|
222,402
|
10,607
|
(546
|
)
|
—
|
232,464
|
||||||||||||||||||||
Net
interest income (loss)
|
243
|
310
|
—
|
—
|
553
|
59,891
|
(9,033
|
)
|
—
|
21,927
|
73,338
|
||||||||||||||||||||
Less
provision for loan losses
|
—
|
—
|
—
|
—
|
—
|
6,000
|
—
|
—
|
—
|
6,000
|
|||||||||||||||||||||
Net
interest income (loss) after provision for loan losses
|
243
|
310
|
—
|
—
|
553
|
53,891
|
(9,033
|
)
|
—
|
21,927
|
67,338
|
||||||||||||||||||||
Other
income (expense):
|
|||||||||||||||||||||||||||||||
Loan
and guaranty servicing income
|
24,747
|
—
|
—
|
—
|
24,747
|
157
|
—
|
—
|
—
|
24,904
|
|||||||||||||||||||||
Other
fee-based income
|
—
|
10,292
|
26,067
|
—
|
36,359
|
4,458
|
—
|
—
|
—
|
40,817
|
|||||||||||||||||||||
Software
services income
|
—
|
—
|
—
|
4,896
|
4,896
|
—
|
—
|
—
|
—
|
4,896
|
|||||||||||||||||||||
Other
income
|
6
|
(21
|
)
|
—
|
—
|
(15
|
)
|
393
|
1,268
|
—
|
—
|
1,646
|
|||||||||||||||||||
Gain
on sale of loans
|
—
|
—
|
—
|
—
|
—
|
48
|
—
|
—
|
—
|
48
|
|||||||||||||||||||||
Intersegment
revenue
|
18,382
|
(76
|
)
|
—
|
1,517
|
19,823
|
—
|
13,960
|
(33,783
|
)
|
—
|
—
|
|||||||||||||||||||
Derivative
market value, foreign currency, and put option adjustments
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
15,755
|
15,755
|
|||||||||||||||||||||
Derivative
settlements, net
|
—
|
—
|
—
|
—
|
—
|
11,638
|
—
|
—
|
(7,201
|
)
|
4,437
|
||||||||||||||||||||
Total
other income (expense)
|
43,135
|
10,195
|
26,067
|
6,413
|
85,810
|
16,694
|
15,228
|
(33,783
|
)
|
8,554
|
92,503
|
||||||||||||||||||||
Operating
expenses:
|
|||||||||||||||||||||||||||||||
Salaries
and benefits
|
12,491
|
5,784
|
6,373
|
4,702
|
29,350
|
1,954
|
12,828
|
(1,333
|
)
|
750
|
43,549
|
||||||||||||||||||||
Restructure
expense - severance and contract termination costs
|
(104
|
)
|
—
|
(15
|
)
|
(8
|
)
|
(127
|
)
|
(52
|
)
|
(186
|
)
|
365
|
—
|
—
|
|||||||||||||||
Other
expenses
|
8,011
|
2,551
|
17,284
|
714
|
28,560
|
5,095
|
14,921
|
(764
|
)
|
6,561
|
54,373
|
||||||||||||||||||||
Intersegment
expenses
|
9,822
|
461
|
1,580
|
342
|
12,205
|
18,952
|
894
|
(32,051
|
)
|
—
|
—
|
||||||||||||||||||||
Total
operating expenses
|
30,220
|
8,796
|
25,222
|
5,750
|
69,988
|
25,949
|
28,457
|
(33,783
|
)
|
7,311
|
97,922
|
||||||||||||||||||||
Income
(loss) before income taxes
|
13,158
|
1,709
|
845
|
663
|
16,375
|
44,636
|
(22,262
|
)
|
—
|
23,170
|
61,919
|
||||||||||||||||||||
Income
tax expense (benefit) (a)
|
4,079
|
530
|
262
|
206
|
5,077
|
13,837
|
(6,902
|
)
|
—
|
7,183
|
19,195
|
||||||||||||||||||||
Net
income (loss) from continuing operations
|
9,079
|
1,179
|
583
|
457
|
11,298
|
30,799
|
(15,360
|
)
|
—
|
15,987
|
42,724
|
||||||||||||||||||||
Income
from discontinued operations, net of tax
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
981
|
981
|
|||||||||||||||||||||
Net
income (loss)
|
$
|
9,079
|
1,179
|
583
|
457
|
11,298
|
30,799
|
(15,360
|
)
|
—
|
16,968
|
43,705
|
|||||||||||||||||||
(a)
Beginning in 2008, the consolidated effective tax rate is used to
calculate income taxes for each operating segment.
|
|||||||||||||||||||||||||||||||
Three
months ended June 30, 2008:
|
|||||||||||||||||||||||||||||||
Before
Tax Operating Margin -excluding restructure expense
|
30.1
|
%
|
16.3
|
%
|
3.2
|
%
|
10.2
|
%
|
18.8
|
%
|
63.2
|
%
|
|||||||||||||||||||
Three
months ended June 30, 2007:
|
|||||||||||||||||||||||||||||||
Before
Tax Operating Margin
|
35.3
|
%
|
27.7
|
%
|
6.7
|
%
|
30.4
|
%
|
26.6
|
%
|
52.7
|
%
|
Three months ended June 30, 2007
|
|||||||||||||||||||||||||||||||
Fee-Based
|
|||||||||||||||||||||||||||||||
Student
|
Tuition
|
Enrollment
|
"Base net
|
||||||||||||||||||||||||||||
Loan
|
Payment
|
Services
|
Software
|
Asset
|
Corporate
|
income"
|
|||||||||||||||||||||||||
and
|
Processing
|
and
|
and
|
Total
|
Generation
|
Activity
|
Eliminations
|
Adjustments
|
GAAP
|
||||||||||||||||||||||
Guaranty
|
and Campus
|
List
|
Technical
|
Fee-
|
and
|
and
|
and
|
to GAAP
|
Results of
|
||||||||||||||||||||||
Servicing
|
Commerce
|
Management
|
Services
|
Based
|
Management
|
Overhead
|
Reclassifications
|
Results
|
Operations
|
||||||||||||||||||||||
Total
interest income
|
$
|
1,181
|
670
|
93
|
—
|
1,944
|
433,404
|
554
|
(33
|
)
|
—
|
435,869
|
|||||||||||||||||||
Interest
expense
|
—
|
2
|
2
|
—
|
4
|
358,341
|
9,581
|
(33
|
)
|
—
|
367,893
|
||||||||||||||||||||
Net
interest income (loss)
|
1,181
|
668
|
91
|
—
|
1,940
|
75,063
|
(9,027
|
)
|
—
|
—
|
67,976
|
||||||||||||||||||||
Less
provision for loan losses
|
—
|
—
|
—
|
—
|
—
|
2,535
|
—
|
—
|
—
|
2,535
|
|||||||||||||||||||||
Net
interest income (loss) after provision for loan losses
|
1,181
|
668
|
91
|
—
|
1,940
|
72,528
|
(9,027
|
)
|
—
|
—
|
65,441
|
||||||||||||||||||||
Other
income (expense):
|
|||||||||||||||||||||||||||||||
Loan
and guaranty servicing income
|
31,492
|
—
|
—
|
—
|
31,492
|
118
|
—
|
—
|
—
|
31,610
|
|||||||||||||||||||||
Other
fee-based income
|
—
|
9,405
|
24,923
|
—
|
34,328
|
3,674
|
260
|
—
|
—
|
38,262
|
|||||||||||||||||||||
Software
services income
|
—
|
—
|
157
|
5,691
|
5,848
|
—
|
—
|
—
|
—
|
5,848
|
|||||||||||||||||||||
Other
income
|
5
|
25
|
—
|
—
|
30
|
105
|
1,792
|
—
|
—
|
1,927
|
|||||||||||||||||||||
Gain
on the sale of loans
|
—
|
—
|
—
|
—
|
—
|
1,010
|
—
|
—
|
—
|
1,010
|
|||||||||||||||||||||
Intersegment
revenue
|
20,120
|
188
|
178
|
4,389
|
24,875
|
—
|
4,100
|
(28,975
|
)
|
—
|
—
|
||||||||||||||||||||
Derivative
market value, foreign currency, and put option adjustments
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
5,547
|
5,547
|
|||||||||||||||||||||
Derivative
settlements, net
|
—
|
—
|
—
|
—
|
—
|
(461
|
)
|
5,657
|
—
|
—
|
5,196
|
||||||||||||||||||||
Total
other income (expense)
|
51,617
|
9,618
|
25,258
|
10,080
|
96,573
|
4,446
|
11,809
|
(28,975
|
)
|
5,547
|
89,400
|
||||||||||||||||||||
Operating
expenses:
|
|||||||||||||||||||||||||||||||
Salaries
and benefits
|
22,023
|
5,082
|
9,022
|
5,857
|
41,984
|
7,167
|
12,272
|
(2,138
|
)
|
476
|
59,761
|
||||||||||||||||||||
Other
expenses
|
8,404
|
2,333
|
14,589
|
751
|
26,077
|
7,246
|
21,071
|
—
|
6,491
|
60,885
|
|||||||||||||||||||||
Intersegment
expenses
|
3,750
|
25
|
29
|
403
|
4,207
|
22,034
|
596
|
(26,837
|
)
|
—
|
—
|
||||||||||||||||||||
Total
operating expenses
|
34,177
|
7,440
|
23,640
|
7,011
|
72,268
|
36,447
|
33,939
|
(28,975
|
)
|
6,967
|
120,646
|
||||||||||||||||||||
Income
(loss) before income taxes
|
18,621
|
2,846
|
1,709
|
3,069
|
26,245
|
40,527
|
(31,157
|
)
|
—
|
(1,420
|
)
|
34,195
|
|||||||||||||||||||
Income
tax expense (benefit) (a)
|
7,076
|
1,082
|
649
|
1,167
|
9,974
|
15,400
|
(11,500
|
)
|
—
|
(568
|
)
|
13,306
|
|||||||||||||||||||
Net
income (loss) from continuing operations
|
11,545
|
1,764
|
1,060
|
1,902
|
16,271
|
25,127
|
(19,657
|
)
|
—
|
(852
|
)
|
20,889
|
|||||||||||||||||||
Loss
from discontinued operations, net of tax
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(6,135
|
)
|
(6,135
|
)
|
|||||||||||||||||||
Net
income (loss)
|
$
|
11,545
|
1,764
|
1,060
|
1,902
|
16,271
|
25,127
|
(19,657
|
)
|
—
|
(6,987
|
)
|
14,754
|
Six months ended June 30, 2008
|
|||||||||||||||||||||||||||||||
Fee-Based
|
|||||||||||||||||||||||||||||||
Student
|
Tuition
|
Enrollment
|
"Base net
|
||||||||||||||||||||||||||||
Loan
|
Payment
|
Services
|
Software
|
Asset
|
Corporate
|
income"
|
|||||||||||||||||||||||||
and
|
Processing
|
and
|
and
|
Total
|
Generation
|
Activity
|
Eliminations
|
Adjustments
|
GAAP
|
||||||||||||||||||||||
Guaranty
|
and Campus
|
List
|
Technical
|
Fee-
|
and
|
and
|
and
|
to GAAP
|
Results of
|
||||||||||||||||||||||
Servicing
|
Commerce
|
Management
|
Services
|
Based
|
Management
|
Overhead
|
Reclassifications
|
Results
|
Operations
|
||||||||||||||||||||||
Total
interest income
|
$
|
856
|
1,075
|
10
|
—
|
1,941
|
602,651
|
2,771
|
(640
|
)
|
40,745
|
647,468
|
|||||||||||||||||||
Interest
expense
|
—
|
—
|
2
|
—
|
2
|
538,417
|
19,826
|
(640
|
)
|
—
|
557,605
|
||||||||||||||||||||
Net
interest income (loss)
|
856
|
1,075
|
8
|
—
|
1,939
|
64,234
|
(17,055
|
)
|
—
|
40,745
|
89,863
|
||||||||||||||||||||
Less
provision for loan losses
|
—
|
—
|
—
|
—
|
—
|
11,000
|
—
|
—
|
—
|
11,000
|
|||||||||||||||||||||
Net
interest income (loss) after provision for loan losses
|
856
|
1,075
|
8
|
—
|
1,939
|
53,234
|
(17,055
|
)
|
—
|
40,745
|
78,863
|
||||||||||||||||||||
Other
income (expense):
|
|||||||||||||||||||||||||||||||
Loan
and guaranty servicing income
|
50,855
|
—
|
—
|
—
|
50,855
|
162
|
—
|
—
|
—
|
51,017
|
|||||||||||||||||||||
Other
fee-based income
|
—
|
24,114
|
53,289
|
—
|
77,403
|
9,327
|
—
|
—
|
—
|
86,730
|
|||||||||||||||||||||
Software
services income
|
—
|
—
|
37
|
11,611
|
11,648
|
—
|
—
|
—
|
—
|
11,648
|
|||||||||||||||||||||
Other
income
|
38
|
4
|
—
|
—
|
42
|
381
|
2,633
|
—
|
—
|
3,056
|
|||||||||||||||||||||
Loss
on sale of loans
|
—
|
—
|
—
|
—
|
—
|
(47,426
|
)
|
—
|
—
|
—
|
(47,426
|
)
|
|||||||||||||||||||
Intersegment
revenue
|
38,606
|
184
|
—
|
3,333
|
42,123
|
—
|
31,173
|
(73,296
|
)
|
—
|
—
|
||||||||||||||||||||
Derivative
market value, foreign currency, and put option adjustments
|
—
|
—
|
—
|
—
|
—
|
466
|
—
|
—
|
(42,072
|
)
|
(41,606
|
)
|
|||||||||||||||||||
Derivative
settlements, net
|
—
|
—
|
—
|
—
|
—
|
55,165
|
—
|
—
|
(9,965
|
)
|
45,200
|
||||||||||||||||||||
Total
other income (expense)
|
89,499
|
24,302
|
53,326
|
14,944
|
182,071
|
18,075
|
33,806
|
(73,296
|
)
|
(52,037
|
)
|
108,619
|
|||||||||||||||||||
Operating
expenses:
|
|||||||||||||||||||||||||||||||
Salaries
and benefits
|
26,489
|
11,214
|
12,896
|
9,870
|
60,469
|
4,178
|
27,419
|
3,280
|
2,046
|
97,392
|
|||||||||||||||||||||
Restructure
expense - severance and contract termination costs
|
747
|
—
|
282
|
510
|
1,539
|
1,844
|
3,729
|
(7,112
|
)
|
—
|
—
|
||||||||||||||||||||
Impairment
expense
|
5,074
|
—
|
—
|
—
|
5,074
|
9,351
|
4,409
|
—
|
—
|
18,834
|
|||||||||||||||||||||
Other
expenses
|
16,498
|
4,611
|
35,447
|
1,333
|
57,889
|
10,439
|
28,786
|
298
|
13,121
|
110,533
|
|||||||||||||||||||||
Intersegment
expenses
|
23,100
|
757
|
3,427
|
736
|
28,020
|
39,554
|
2,188
|
(69,762
|
)
|
—
|
—
|
||||||||||||||||||||
Total
operating expenses
|
71,908
|
16,582
|
52,052
|
12,449
|
152,991
|
65,366
|
66,531
|
(73,296
|
)
|
15,167
|
226,759
|
||||||||||||||||||||
Income
(loss) before income taxes
|
18,447
|
8,795
|
1,282
|
2,495
|
31,019
|
5,943
|
(49,780
|
)
|
—
|
(26,459
|
)
|
(39,277
|
)
|
||||||||||||||||||
Income
tax expense (benefit) (a)
|
5,719
|
2,727
|
397
|
774
|
9,617
|
1,842
|
(15,433
|
)
|
—
|
(8,202
|
)
|
(12,176
|
)
|
||||||||||||||||||
Net
income (loss) from continuing operations
|
12,728
|
6,068
|
885
|
1,721
|
21,402
|
4,101
|
(34,347
|
)
|
—
|
(18,257
|
)
|
(27,101
|
)
|
||||||||||||||||||
Income
from discontinued operations, net of tax
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
981
|
981
|
|||||||||||||||||||||
Net
income (loss)
|
$
|
12,728
|
6,068
|
885
|
1,721
|
21,402
|
4,101
|
(34,347
|
)
|
—
|
(17,276
|
)
|
(26,120
|
)
|
|||||||||||||||||
(a)
Beginning in 2008, the consolidated effective tax rate is used to
calculate income taxes for each operating segment.
|
|||||||||||||||||||||||||||||||
Six
months ended June 30, 2008:
|
|||||||||||||||||||||||||||||||
Before
Tax Operating Margin - excluding restructure expense, impairment
expense,
and the loss on sale of loans during the first quarter of
2008
|
26.9
|
%
|
34.7
|
%
|
2.9
|
%
|
20.1
|
%
|
20.5
|
%
|
54.4
|
%
|
|||||||||||||||||||
Six
months ended June, 2007:
|
|||||||||||||||||||||||||||||||
Before
Tax Operating Margin
|
31.6
|
%
|
35.9
|
%
|
6.9
|
%
|
27.0
|
%
|
25.2
|
%
|
55.7
|
%
|
Six
months ended June 30, 2007
|
|||||||||||||||||||||||||||||||
Fee-Based
|
|||||||||||||||||||||||||||||||
Student
|
Tuition
|
Enrollment
|
"Base
net
|
||||||||||||||||||||||||||||
Loan
|
Payment
|
Services
|
Software
|
Asset
|
Corporate
|
income"
|
|||||||||||||||||||||||||
and
|
Processing
|
and
|
and
|
Total
|
Generation
|
Activity
|
Eliminations
|
Adjustments
|
GAAP
|
||||||||||||||||||||||
Guaranty
|
and
Campus
|
List
|
Technical
|
Fee-
|
and
|
and
|
and
|
to
GAAP
|
Results
of
|
||||||||||||||||||||||
Servicing
|
Commerce
|
Management
|
Services
|
Based
|
Management
|
Overhead
|
Reclassifications
|
Results
|
Operations
|
||||||||||||||||||||||
Total
interest income
|
$
|
3,425
|
1,680
|
180
|
18
|
5,303
|
847,894
|
4,355
|
(3,204
|
)
|
—
|
854,348
|
|||||||||||||||||||
Interest
expense
|
—
|
7
|
4
|
—
|
11
|
699,999
|
21,582
|
(3,204
|
)
|
—
|
718,388
|
||||||||||||||||||||
Net
interest income (loss)
|
3,425
|
1,673
|
176
|
18
|
5,292
|
147,895
|
(17,227
|
)
|
—
|
—
|
135,960
|
||||||||||||||||||||
Less
provision for loan losses
|
—
|
—
|
—
|
—
|
—
|
5,288
|
—
|
—
|
—
|
5,288
|
|||||||||||||||||||||
Net
interest income (loss) after provision for loan losses
|
3,425
|
1,673
|
176
|
18
|
5,292
|
142,607
|
(17,227
|
)
|
—
|
—
|
130,672
|
||||||||||||||||||||
Other
income (expense):
|
|||||||||||||||||||||||||||||||
Loan
and guaranty servicing income
|
61,958
|
—
|
—
|
—
|
61,958
|
118
|
—
|
—
|
—
|
62,076
|
|||||||||||||||||||||
Other
fee-based income
|
—
|
21,176
|
49,870
|
—
|
71,046
|
6,985
|
260
|
—
|
—
|
78,291
|
|||||||||||||||||||||
Software
services income
|
—
|
—
|
287
|
11,309
|
11,596
|
—
|
—
|
—
|
—
|
11,596
|
|||||||||||||||||||||
Other
income
|
11
|
28
|
—
|
—
|
39
|
3,148
|
3,833
|
—
|
—
|
7,020
|
|||||||||||||||||||||
Gain
on the sale of loans
|
—
|
—
|
—
|
—
|
—
|
2,796
|
—
|
—
|
—
|
2,796
|
|||||||||||||||||||||
Intersegment
revenue
|
36,584
|
340
|
928
|
8,221
|
46,073
|
—
|
6,116
|
(52,189
|
)
|
—
|
—
|
||||||||||||||||||||
Derivative
market value, foreign currency, and put option adjustments
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(6,583
|
)
|
(6,583
|
)
|
|||||||||||||||||||
Derivative
settlements, net
|
—
|
—
|
—
|
—
|
—
|
(885
|
)
|
10,321
|
—
|
—
|
9,436
|
||||||||||||||||||||
Total
other income (expense)
|
98,553
|
21,544
|
51,085
|
19,530
|
190,712
|
12,162
|
20,530
|
(52,189
|
)
|
(6,583
|
)
|
164,632
|
|||||||||||||||||||
Operating
expenses:
|
|||||||||||||||||||||||||||||||
Salaries
and benefits
|
45,027
|
10,000
|
18,391
|
12,332
|
85,750
|
14,446
|
24,978
|
(4,662
|
)
|
953
|
121,465
|
||||||||||||||||||||
Other
expenses
|
17,654
|
4,493
|
29,148
|
1,535
|
52,830
|
15,511
|
38,940
|
—
|
13,129
|
120,410
|
|||||||||||||||||||||
Intersegment
expenses
|
7,068
|
399
|
185
|
403
|
8,055
|
38,670
|
802
|
(47,527
|
)
|
—
|
—
|
||||||||||||||||||||
Total
operating expenses
|
69,749
|
14,892
|
47,724
|
14,270
|
146,635
|
68,627
|
64,720
|
(52,189
|
)
|
14,082
|
241,875
|
||||||||||||||||||||
Income
(loss) before income taxes
|
32,229
|
8,325
|
3,537
|
5,278
|
49,369
|
86,142
|
(61,417
|
)
|
—
|
(20,665
|
)
|
53,429
|
|||||||||||||||||||
Income
tax expense (benefit) (a)
|
12,247
|
3,164
|
1,344
|
2,006
|
18,761
|
32,734
|
(23,826
|
)
|
—
|
(7,099
|
)
|
20,570
|
|||||||||||||||||||
Net
income (loss) from continuing operations
|
19,982
|
5,161
|
2,193
|
3,272
|
30,608
|
53,408
|
(37,591
|
)
|
—
|
(13,566
|
)
|
32,859
|
|||||||||||||||||||
Loss
from discontinued operations, net of tax
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(3,325
|
)
|
(3,325
|
)
|
|||||||||||||||||||
Net
income (loss)
|
$
|
19,982
|
5,161
|
2,193
|
3,272
|
30,608
|
53,408
|
(37,591
|
)
|
—
|
(16,891
|
)
|
29,534
|
Student
|
Tuition
|
Enrollment
|
||||||||||||||||||||
Loan
|
Payment
|
Services
|
Software
|
Asset
|
Corporate
|
|||||||||||||||||
and
|
Processing
|
and
|
and
|
Generation
|
Activity
|
|||||||||||||||||
Guaranty
|
and Campus
|
List
|
Technical
|
and
|
and
|
|||||||||||||||||
Servicing
|
Commerce
|
Management
|
Services
|
Management
|
Overhead
|
Total
|
||||||||||||||||
Three months ended June 30, 2008
|
||||||||||||||||||||||
Derivative
market value, foreign currency, and put option adjustments
|
$
|
—
|
—
|
—
|
—
|
(15,866
|
)
|
111
|
(15,755
|
)
|
||||||||||||
Amortization
of intangible assets
|
1,165
|
1,997
|
3,113
|
286
|
—
|
—
|
6,561
|
|||||||||||||||
Compensation
related to business combinations
|
—
|
—
|
—
|
—
|
—
|
750
|
750
|
|||||||||||||||
Variable-rate
floor income, net of settlements on derivatives
|
—
|
—
|
—
|
—
|
(14,726
|
)
|
—
|
(14,726
|
)
|
|||||||||||||
Income
from discontinued operations, net of tax
|
(981
|
)
|
—
|
—
|
—
|
—
|
—
|
(981
|
)
|
|||||||||||||
Net
tax effect (a)
|
(361
|
)
|
(619
|
)
|
(965
|
)
|
(89
|
)
|
9,484
|
(267
|
)
|
7,183
|
||||||||||
Total
adjustments to GAAP
|
$
|
(177
|
)
|
1,378
|
2,148
|
197
|
(21,108
|
)
|
594
|
(16,968
|
)
|
|||||||||||
|
Three
months ended June 30, 2007
|
|||||||||||||||||||||
Derivative
market value, foreign currency, and put option adjustments
|
$
|
—
|
—
|
—
|
—
|
6,002
|
(11,549
|
)
|
(5,547
|
)
|
||||||||||||
Amortization
of intangible assets
|
1,350
|
1,469
|
1,545
|
287
|
1,840
|
—
|
6,491
|
|||||||||||||||
Compensation
related to business combinations
|
—
|
—
|
—
|
—
|
—
|
476
|
476
|
|||||||||||||||
Variable-rate
floor income, net of settlements on derivatives
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||
Loss
from discontinued operations, net of tax
|
6,135
|
—
|
—
|
—
|
—
|
—
|
6,135
|
|||||||||||||||
Net
tax effect (a)
|
(513
|
)
|
(558
|
)
|
(587
|
)
|
(109
|
)
|
(2,980
|
)
|
4,179
|
(568
|
)
|
|||||||||
Total
adjustments to GAAP
|
$
|
6,972
|
911
|
958
|
178
|
4,862
|
(6,894
|
)
|
6,987
|
|||||||||||||
|
Six
months ended June 30, 2008
|
|||||||||||||||||||||
Derivative
market value, foreign currency, and put option adjustments
|
$
|
—
|
—
|
—
|
—
|
41,534
|
538
|
42,072
|
||||||||||||||
Amortization
of intangible assets
|
2,421
|
4,048
|
5,935
|
572
|
145
|
—
|
13,121
|
|||||||||||||||
Compensation
related to business combinations
|
—
|
—
|
—
|
—
|
—
|
2,046
|
2,046
|
|||||||||||||||
Variable-rate
floor income, net of settlements on derivatives
|
—
|
—
|
—
|
—
|
(30,780
|
)
|
—
|
(30,780
|
)
|
|||||||||||||
Income
from discontinued operations, net of tax
|
(981
|
)
|
—
|
—
|
—
|
—
|
—
|
(981
|
)
|
|||||||||||||
Net
tax effect (a)
|
(750
|
)
|
(1,255
|
)
|
(1,840
|
)
|
(178
|
)
|
(3,378
|
)
|
(801
|
)
|
(8,202
|
)
|
||||||||
Total
adjustments to GAAP
|
$
|
690
|
2,793
|
4,095
|
394
|
7,521
|
1,783
|
17,276
|
||||||||||||||
|
Six
months ended June 30, 2007
|
|||||||||||||||||||||
Derivative
market value, foreign currency, and put option adjustments
|
$
|
—
|
—
|
—
|
—
|
12,216
|
(5,633
|
)
|
6,583
|
|||||||||||||
Amortization
of intangible assets
|
2,394
|
2,938
|
3,355
|
617
|
3,825
|
—
|
13,129
|
|||||||||||||||
Compensation
related to business combinations
|
—
|
—
|
—
|
—
|
—
|
953
|
953
|
|||||||||||||||
Variable-rate
floor income, net of settlements on derivatives
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||
Loss
from discontinued operations, net of tax
|
3,325
|
—
|
—
|
—
|
—
|
—
|
3,325
|
|||||||||||||||
Net
tax effect (a)
|
(910
|
)
|
(1,116
|
)
|
(1,275
|
)
|
(234
|
)
|
(6,096
|
)
|
2,532
|
(7,099
|
)
|
|||||||||
Total
adjustments to GAAP
|
$
|
4,809
|
1,822
|
2,080
|
383
|
9,945
|
(2,148
|
)
|
16,891
|
(a)
|
Beginning
in 2008, tax effect is computed using the Company’s consolidated effective
tax rate for each applicable period. In prior periods, tax effect
was
computed at 38%. The change in the value of the put options for prior
periods (included in Corporate Activity and Overhead) was not tax
effected
as this is not deductible for income tax
purposes.
|
As of
|
As of
|
||||||||||||
June 30,
|
June 30,
|
||||||||||||
2008
|
2007
|
||||||||||||
Dollar
|
Percent
|
Dollar
|
Percent
|
||||||||||
(dollars in millions)
|
|||||||||||||
Company
|
$
|
24,873
|
(a)
|
70.0
|
%
|
$
|
24,429
|
75.6
|
%
|
||||
Third
Party
|
10,680
|
(b)
|
30.0
|
7,884
|
24.4
|
||||||||
$
|
35,553
|
100.0
|
%
|
$
|
32,313
|
100.0
|
%
|
(a)
|
Approximately
$26 million
of these loans were disbursed on or after May 1, 2008 and are eligible
to
be sold to the Department of Education pursuant to its Purchase Commitment
Program. The Department obtains all rights to service loans which
it
purchases as part of this program.
|
(b)
|
Approximately
$145 million
of these loans were disbursed on or after May 1, 2008 and may be
eligible
to be sold to the Department of Education pursuant to its Purchase
Commitment Program. The Department obtains all rights to service
loans
which it purchases as part of this
program.
|
Three months
ended June 30,
|
Six
months ended June 30,
|
||||||||||||||||||
2008
|
2007
|
$
Change
|
2008
|
2007
|
$
Change
|
||||||||||||||
Net
interest income after the provision for loan losses
|
$
|
243
|
1,181
|
(938
|
)
|
856
|
3,425
|
(2,569
|
)
|
||||||||||
Loan
and guaranty servicing income
|
24,747
|
31,492
|
(6,745
|
)
|
50,855
|
61,958
|
(11,103
|
)
|
|||||||||||
Other
income
|
6
|
5
|
1
|
38
|
11
|
27
|
|||||||||||||
Intersegment
revenue
|
18,382
|
20,120
|
(1,738
|
)
|
38,606
|
36,584
|
2,022
|
||||||||||||
Total
other income
|
43,135
|
51,617
|
(8,482
|
)
|
89,499
|
98,553
|
(9,054
|
)
|
|||||||||||
Salaries
and benefits
|
12,491
|
22,023
|
(9,532
|
)
|
26,489
|
45,027
|
(18,538
|
)
|
|||||||||||
Restructure
expense - severance and contract termination costs
|
(104
|
)
|
—
|
(104
|
)
|
747
|
—
|
747
|
|||||||||||
Impairment
expense
|
—
|
—
|
—
|
5,074
|
—
|
5,074
|
|||||||||||||
Other
expenses
|
8,011
|
8,404
|
(393
|
)
|
16,498
|
17,654
|
(1,156
|
)
|
|||||||||||
Intersegment
expenses
|
9,822
|
3,750
|
6,072
|
23,100
|
7,068
|
16,032
|
|||||||||||||
Total
operating expenses
|
30,220
|
34,177
|
(3,957
|
)
|
71,908
|
69,749
|
2,159
|
||||||||||||
"Base
net income" before income taxes
|
13,158
|
18,621
|
(5,463
|
)
|
18,447
|
32,229
|
(13,782
|
)
|
|||||||||||
Income
tax expense
|
4,079
|
7,076
|
(2,997
|
)
|
5,719
|
12,247
|
(6,528
|
)
|
|||||||||||
"Base
net income"
|
$
|
9,079
|
11,545
|
(2,466
|
)
|
12,728
|
19,982
|
(7,254
|
)
|
||||||||||
Before
Tax Operating Margin
|
30.3
|
%
|
35.3
|
%
|
20.4
|
%
|
31.6
|
%
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before
Tax Operating Margin - excluding restructure expense and impairment
expense
|
30.1
|
%
|
35.3
|
%
|
26.9
|
%
|
31.6
|
%
|
Three
months ended June 30,
|
Six
months ended June 30,
|
||||||||||||||||||||||||
2008
|
2007
|
$
Change
|
%
Change
|
2008
|
2007
|
$
Change
|
%
Change
|
||||||||||||||||||
Origination
and servicing of FFEL Program loans
|
$
|
12,533
|
13,774
|
(1,241
|
)
|
(9.0
|
)%
|
$
|
24,812
|
27,904
|
(3,092
|
)
|
(11.1
|
)%
|
|||||||||||
Origination
and servicing of non-federally insured student loans
|
1,872
|
2,335
|
(463
|
)
|
(19.8
|
)
|
4,143
|
4,656
|
(513
|
)
|
(11.0
|
)
|
|||||||||||||
Servicing
and support outsourcing for guaranty agencies
|
10,342
|
15,383
|
(5,041
|
)
|
(32.8
|
)
|
21,900
|
29,398
|
(7,498
|
)
|
(25.5
|
)
|
|||||||||||||
Loan
and guaranty servicing income to external parties
|
$
|
24,747
|
31,492
|
(6,745
|
)
|
(21.4)
|
%
|
$
|
50,855
|
61,958
|
(11,103
|
)
|
(17.9)
|
%
|
·
|
FFELP
loan servicing income decreased due to new servicing contracts being
priced at lower rates following the legislative developments in September
2007. This decrease was partially offset by an increase in loan servicing
volume due to entering into new servicing contracts.
|
·
|
Servicing
and support outsourcing for guaranty agencies decreased due to the
termination of the Voluntary Flexible Agreement between the Department
of
Education and College Assist and the timing of certain activities
offset
by an increase in the volume of guaranteed loans serviced as well
as an
increase in collections due to utilizing an outside collection agency.
|
Three
months ended June 30,
|
Six
months ended June 30,
|
||||||||||||||||||
2008
|
2007
|
$
Change
|
2008
|
2007
|
$
Change
|
||||||||||||||
Net
interest income after the provision for loan losses
|
$
|
310
|
668
|
(358
|
)
|
1,075
|
1,673
|
(598
|
)
|
||||||||||
Other
fee-based income
|
10,292
|
9,405
|
887
|
24,114
|
21,176
|
2,938
|
|||||||||||||
Other
income
|
(21
|
)
|
25
|
(46
|
)
|
4
|
28
|
(24
|
)
|
||||||||||
Intersegment
revenue
|
(76
|
)
|
188
|
(264
|
)
|
184
|
340
|
(156
|
)
|
||||||||||
Total
other income
|
10,195
|
9,618
|
577
|
24,302
|
21,544
|
2,758
|
|||||||||||||
Salaries
and benefits
|
5,784
|
5,082
|
702
|
11,214
|
10,000
|
1,214
|
|||||||||||||
Other
expenses
|
2,551
|
2,333
|
218
|
4,611
|
4,493
|
118
|
|||||||||||||
Intersegment
expenses
|
461
|
25
|
436
|
757
|
399
|
358
|
|||||||||||||
Total
operating expenses
|
8,796
|
7,440
|
1,356
|
16,582
|
14,892
|
1,690
|
|||||||||||||
"Base
net income" before income taxes
|
1,709
|
2,846
|
(1,137
|
)
|
8,795
|
8,325
|
470
|
||||||||||||
Income
tax expense
|
530
|
1,082
|
(552
|
)
|
2,727
|
3,164
|
(437
|
)
|
|||||||||||
"Base
net income"
|
$
|
1,179
|
1,764
|
(585
|
)
|
6,068
|
5,161
|
907
|
|||||||||||
Before
Tax Operating Margin
|
16.3
|
%
|
27.7
|
%
|
34.7
|
%
|
35.9
|
%
|
Three months ended June 30,
|
Six months ended June 30,
|
||||||||||||||||||
2008
|
2007
|
$ Change
|
2008
|
2007
|
$ Change
|
||||||||||||||
Net interest income after the
provision for loan losses
|
$
|
—
|
91
|
(91
|
)
|
8
|
176
|
(168
|
)
|
||||||||||
Other
fee-based income
|
26,067
|
24,923
|
1,144
|
53,289
|
49,870
|
3,419
|
|||||||||||||
Software
services income
|
—
|
157
|
(157
|
)
|
37
|
287
|
(250
|
)
|
|||||||||||
Intersegment
revenue
|
—
|
178
|
(178
|
)
|
—
|
928
|
(928
|
)
|
|||||||||||
Total
other income
|
26,067
|
25,258
|
809
|
53,326
|
51,085
|
2,241
|
|||||||||||||
Salaries
and benefits
|
6,373
|
9,022
|
(2,649
|
)
|
12,896
|
18,391
|
(5,495
|
)
|
|||||||||||
Restructure
expense - severance and contract termination costs
|
(15
|
)
|
—
|
(15
|
)
|
282
|
—
|
282
|
|||||||||||
Other
expenses
|
17,284
|
14,589
|
2,695
|
35,447
|
29,148
|
6,299
|
|||||||||||||
Intersegment
expenses
|
1,580
|
29
|
1,551
|
3,427
|
185
|
3,242
|
|||||||||||||
Total
operating expenses
|
25,222
|
23,640
|
1,582
|
52,052
|
47,724
|
4,328
|
|||||||||||||
"Base
net income" before income taxes
|
845
|
1,709
|
(864
|
)
|
1,282
|
3,537
|
(2,255
|
)
|
|||||||||||
Income
tax expense
|
262
|
649
|
(387
|
)
|
397
|
1,344
|
(947
|
)
|
|||||||||||
"Base
net income"
|
$
|
583
|
1,060
|
(477
|
)
|
885
|
2,193
|
(1,308
|
)
|
||||||||||
Before
Tax Operating Margin
|
3.2
|
%
|
6.7
|
%
|
2.4
|
%
|
6.9
|
%
|
|||||||||||
Before
Tax Operating Margin - excluding restructure expense
|
3.2
|
%
|
6.7
|
%
|
2.9
|
%
|
6.9
|
%
|
Three months ended June 30,
|
Six months ended June 30,
|
||||||||||||||||||
2008
|
2007
|
$ Change
|
2008
|
2007
|
$ Change
|
||||||||||||||
Net interest income after the provision for loan losses
|
$
|
—
|
—
|
—
|
—
|
18
|
(18
|
)
|
|||||||||||
Software
services income
|
4,896
|
5,691
|
(795
|
)
|
11,611
|
11,309
|
302
|
||||||||||||
Intersegment
revenue
|
1,517
|
4,389
|
(2,872
|
)
|
3,333
|
8,221
|
(4,888
|
)
|
|||||||||||
Total
other income
|
6,413
|
10,080
|
(3,667
|
)
|
14,944
|
19,530
|
(4,586
|
)
|
|||||||||||
Salaries
and benefits
|
4,702
|
5,857
|
(1,155
|
)
|
9,870
|
12,332
|
(2,462
|
)
|
|||||||||||
Restructure
expense - severance and contract
|
|||||||||||||||||||
termination
costs
|
(8
|
)
|
—
|
(8
|
)
|
510
|
—
|
510
|
|||||||||||
Other
expenses
|
714
|
751
|
(37
|
)
|
1,333
|
1,535
|
(202
|
)
|
|||||||||||
Intersegment
expenses
|
342
|
403
|
(61
|
)
|
736
|
403
|
333
|
||||||||||||
Total
operating expenses
|
5,750
|
7,011
|
(1,261
|
)
|
12,449
|
14,270
|
(1,821
|
)
|
|||||||||||
"Base
net income" before income taxes
|
663
|
3,069
|
(2,406
|
)
|
2,495
|
5,278
|
(2,783
|
)
|
|||||||||||
Income
tax expense
|
206
|
1,167
|
(961
|
)
|
774
|
2,006
|
(1,232
|
)
|
|||||||||||
"Base
net income"
|
$
|
457
|
1,902
|
(1,445
|
)
|
1,721
|
3,272
|
(1,551
|
)
|
||||||||||
Before
Tax Operating Margin
|
10.3
|
%
|
30.4
|
%
|
16.7
|
%
|
27.0
|
%
|
|||||||||||
Before
Tax Operating Margin - excluding restructure expense
|
10.2
|
%
|
30.4
|
%
|
20.1
|
%
|
27.0
|
%
|
As of June 30, 2008
|
As of December 31, 2007
|
||||||||||||
Dollars
|
Percent
|
Dollars
|
Percent
|
||||||||||
Federally insured: (a) (b)
|
|||||||||||||
Stafford
|
|||||||||||||
Originated
prior to 10/1/07
|
$
|
6,668,100
|
25.6
|
%
|
$
|
6,624,009
|
24.8
|
%
|
|||||
Originated
on or after 10/1/07
|
386,669
|
1.5
|
101,901
|
0.4
|
|||||||||
PLUS/SLS
|
|||||||||||||
Originated
prior to 10/1/07
|
424,609
|
1.6
|
414,708
|
1.5
|
|||||||||
Originated
on or after 10/1/07
|
47,133
|
0.2
|
15,233
|
0.1
|
|||||||||
Consolidation
|
|||||||||||||
Originated
prior to 10/1/07
|
17,683,114
|
68.0
|
18,646,993
|
69.8
|
|||||||||
Originated
on or after 10/1/07
|
122,548
|
0.5
|
251,554
|
0.9
|
|||||||||
Non-federally
insured
|
279,953
|
1.1
|
274,815
|
1.0
|
|||||||||
Total
|
25,612,126
|
98.5
|
26,329,213
|
98.5
|
|||||||||
Unamortized
premiums and deferred origination costs
|
429,090
|
1.7
|
452,501
|
1.7
|
|||||||||
Allowance
for loan losses:
|
|||||||||||||
Allowance
- federally insured
|
(24,084
|
)
|
(0.1
|
)
|
(24,534
|
)
|
(0.1
|
)
|
|||||
Allowance
- non-federally insured
|
(23,825
|
)
|
(0.1
|
)
|
(21,058
|
)
|
(0.1
|
)
|
|||||
$
|
25,993,307
|
100.0
|
%
|
$
|
26,736,122
|
100.0
|
%
|
(a)
|
The
College Cost Reduction Act reduced the yield on federally insured
loans
originated on or after October 1, 2007. As of June 30, 2008 and December
31, 2007, $228.7 million and $278.9 million, respectively, of federally
insured student loans are excluded from the above table as these
loans are
accounted for as participation interests sold under an agreement
with
Union Bank which is further discussed in note 7 of the Company’s
consolidated financial statements included in this Quarterly Report.
As of
June 30, 2008, $197.5 million of the loans accounted for as participation
interests sold under this agreement were originated on or after October
1,
2007.
|
(b)
|
As
of June 30, 2008, approximately $27 million
of federally insured student loans were eligible to be sold or
participated to the Department under the Department’s Loan Purchase
Commitment and Participation
Programs.
|
Three months ended June 30,
|
Six months ended June 30,
|
||||||||||||
2008
|
2007
|
2008
|
2007
|
||||||||||
Beginning
balance
|
$
|
26,347,354
|
24,617,030
|
26,329,213
|
23,414,468
|
||||||||
Direct
channel:
|
|||||||||||||
Consolidation
loan originations
|
3,284
|
836,711
|
69,029
|
1,900,949
|
|||||||||
Less
consolidation of existing portfolio
|
(988
|
)
|
(438,993
|
)
|
(28,447
|
)
|
(912,788
|
)
|
|||||
Net
consolidation loan originations
|
2,296
|
397,718
|
40,582
|
988,161
|
|||||||||
Stafford/PLUS
loan originations
|
114,228
|
141,882
|
535,329
|
496,709
|
|||||||||
Branding
partner channel
|
127,929
|
255,703
|
601,307
|
457,993
|
|||||||||
Forward
flow channel
|
84,216
|
392,174
|
403,060
|
768,115
|
|||||||||
Other
channels
|
—
|
560,796
|
55,922
|
766,714
|
|||||||||
Total
channel acquisitions
|
328,669
|
1,748,273
|
1,636,200
|
3,477,692
|
|||||||||
Repayments,
claims, capitalized interest, participations, and other
|
(585,443
|
)
|
(397,556
|
)
|
(885,243
|
)
|
(633,363
|
)
|
|||||
Consolidation
loans lost to external parties
|
(46,849
|
)
|
(187,350
|
)
|
(176,267
|
)
|
(426,754
|
)
|
|||||
Loans
sold
|
(431,605
|
)
|
(34,397
|
)
|
(1,291,777
|
)
|
(86,043
|
)
|
|||||
Ending
balance
|
$
|
25,612,126
|
25,746,000
|
25,612,126
|
25,746,000
|
·
|
Increases
statutory limits on annual and aggregate borrowing for FFELP loans;
and
|
·
|
Allows
the Department to act as a secondary market and enter into forward
purchasing agreements with lenders.
|
·
|
Offers
to purchase loans from lenders for the 2008-2009 academic year and
offers
lenders access to short-term liquidity;
and
|
·
|
Commits
to continue working with the FFELP community to explore programs
to
reengage the capital markets in the
long-run.
|
Three months ended June 30,
|
Six months ended June 30,
|
||||||||||||
2008
|
2007
|
2008
|
2007
|
||||||||||
Balance
at beginning of period
|
$
|
46,137
|
26,224
|
45,592
|
26,003
|
||||||||
Provision
for loan losses:
|
|||||||||||||
Federally
insured loans
|
4,000
|
1,665
|
7,500
|
3,118
|
|||||||||
Non-federally
insured loans
|
2,000
|
870
|
3,500
|
2,170
|
|||||||||
Total
provision for loan losses
|
6,000
|
2,535
|
11,000
|
5,288
|
|||||||||
Charge-offs,
net of recoveries:
|
|||||||||||||
Federally
insured loans
|
(3,878
|
)
|
(1,330
|
)
|
(7,200
|
)
|
(2,525
|
)
|
|||||
Non-federally
insured loans
|
(350
|
)
|
(289
|
)
|
(733
|
)
|
(455
|
)
|
|||||
Net
charge-offs
|
(4,228
|
)
|
(1,619
|
)
|
(7,933
|
)
|
(2,980
|
)
|
|||||
Sale
of federally insured loans
|
—
|
—
|
(750
|
)
|
—
|
||||||||
Sale
of non-federally insured loans
|
—
|
—
|
—
|
(1,171
|
)
|
||||||||
Balance
at end of period
|
$
|
47,909
|
27,140
|
47,909
|
27,140
|
||||||||
Allocation
of the allowance for loan losses:
|
|||||||||||||
Federally
insured loans
|
$
|
24,084
|
8,194
|
24,084
|
8,194
|
||||||||
Non-federally
insured loans
|
23,825
|
18,946
|
23,825
|
18,946
|
|||||||||
Total
allowance for loan losses
|
$
|
47,909
|
27,140
|
47,909
|
27,140
|
||||||||
Net
loan charge-offs as a percentage of average student loans
|
0.066
|
%
|
0.026
|
%
|
0.060
|
%
|
0.025
|
%
|
|||||
Total
allowance as a percentage of average student loans
|
0.186
|
%
|
0.110
|
%
|
0.182
|
%
|
0.112
|
%
|
|||||
Total
allowance as a percentage of ending balance of student
loans
|
0.187
|
%
|
0.105
|
%
|
0.187
|
%
|
0.105
|
%
|
|||||
Non-federally
insured allowance as a percentage of the ending balance of non-federally
insured loans
|
8.510
|
%
|
8.061
|
%
|
8.510
|
%
|
8.061
|
%
|
|||||
Average
student loans
|
$
|
25,767,123
|
24,687,280
|
26,313,226
|
24,266,048
|
||||||||
Ending
balance of student loans
|
25,612,126
|
25,746,000
|
25,612,126
|
25,746,000
|
|||||||||
Ending
balance of non-federally insured loans
|
279,953
|
235,023
|
279,953
|
235,023
|
As of June 30, 2008
|
As of December 31, 2007
|
||||||||||||
Dollars
|
Percent
|
Dollars
|
Percent
|
||||||||||
Federally
Insured Loans:
|
|||||||||||||
Loans
in-school/grace/deferment(1)
|
$
|
7,352,864
|
$
|
7,115,505
|
|||||||||
Loans
in forebearance(2)
|
2,562,434
|
3,015,456
|
|||||||||||
Loans
in repayment status:
|
|||||||||||||
Loans
current
|
13,596,739
|
88.2
|
%
|
13,937,702
|
87.5
|
%
|
|||||||
Loans
delinquent 31-60 days(3)
|
550,423
|
3.6
|
682,956
|
4.3
|
|||||||||
Loans
delinquent 61-90 days(3)
|
327,090
|
2.1
|
353,303
|
2.2
|
|||||||||
Loans
delinquent 91 days or greater(4)
|
942,623
|
6.1
|
949,476
|
6.0
|
|||||||||
Total
loans in repayment
|
15,416,875
|
100.0
|
%
|
15,923,437
|
100.0
|
%
|
|||||||
Total
federally insured loans
|
$
|
25,332,173
|
$
|
26,054,398
|
|||||||||
Non-Federally
Insured Loans:
|
|||||||||||||
Loans
in-school/grace/deferment(1)
|
$
|
103,785
|
$
|
111,946
|
|||||||||
Loans
in forebearance(2)
|
11,659
|
12,895
|
|||||||||||
Loans
in repayment status:
|
|||||||||||||
Loans
current
|
156,341
|
95.0
|
%
|
142,851
|
95.3
|
%
|
|||||||
Loans
delinquent 31-60 days(3)
|
3,163
|
1.9
|
3,450
|
2.3
|
|||||||||
Loans
delinquent 61-90 days(3)
|
1,950
|
1.2
|
1,247
|
0.8
|
|||||||||
Loans
delinquent 91 days or greater(4)
|
3,055
|
1.9
|
2,426
|
1.6
|
|||||||||
Total
loans in repayment
|
164,509
|
100.0
|
%
|
149,974
|
100.0
|
%
|
|||||||
Total
non-federally insured loans
|
$
|
279,953
|
$
|
274,815
|
(1) |
Loans
for borrowers who still may be attending school or engaging in other
permitted educational activities and are not yet required to make
payments
on the loans, e.g.,
residency periods for medical students or a grace period for bar
exam
preparation for law students.
|
(2) |
Loans
for borrowers who have temporarily ceased making full payments due
to
hardship or other factors, according to a schedule approved by the
servicer consistent with the established loan program servicing procedures
and policies.
|
(3) |
The
period of delinquency is based on the number of days scheduled payments
are contractually past due and relate to repayment loans, that is,
receivables not charged off, and not in school, grace, deferment,
or
forbearance.
|
(4) |
Loans
delinquent 91 days or greater include loans in claim status, which
are
loans that have gone into default and have been submitted to the
guaranty
agency for FFELP loans, or, if applicable, the insurer for non-federally
insured loans, to process the claim for
payment.
|
|
Three months ended June 30,
|
Six months ended June 30,
|
|||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||
Student
loan yield
|
5.65
|
%
|
7.93
|
%
|
5.85
|
%
|
7.90
|
%
|
|||||
Consolidation
rebate fees
|
(0.74
|
)
|
(0.78
|
)
|
(0.74
|
)
|
(0.78
|
)
|
|||||
Premium
and deferred origination costs amortization
|
(0.36
|
)
|
(0.37
|
)
|
(0.37
|
)
|
(0.36
|
)
|
|||||
Student
loan net yield
|
4.55
|
6.78
|
4.74
|
6.76
|
|||||||||
Student
loan cost of funds (a)
|
(3.25
|
)
|
(5.50
|
)
|
(3.61
|
)
|
(5.48
|
)
|
|||||
Student
loan spread
|
1.30
|
1.28
|
1.13
|
1.28
|
|||||||||
Variable-rate
floor income, net of settlements on derivatives (b)
|
(0.23
|
)
|
—
|
(0.24
|
)
|
—
|
|||||||
Core
student loan spread
|
1.07
|
%
|
1.28
|
%
|
0.89
|
%
|
1.28
|
%
|
|||||
Average
balance of student loans
|
$
|
25,767,123
|
24,687,280
|
26,313,226
|
24,266,048
|
||||||||
Average
balance of debt outstanding
|
26,767,459
|
26,158,525
|
27,297,445
|
25,770,551
|
(a)
|
The
student loan cost of funds includes the effects of net settlement
costs on
the Company's derivative instruments (excluding the net settlements
of
$5.7
million and $10.3
million, for the three and six months ended June 30, 2007, respectively,
on those derivatives no longer hedging student loan
assets).
|
(b)
|
Variable-rate
floor income is calculated by the Company on a statutory basis. As
a
result of the disruptions in the debt and secondary capital markets
which
began in August 2007, the full benefit of variable-rate floor income
has
not been realized by the Company due to the widening of the spread
between
short term interest rate indices and the Company’s actual cost of funds.
The Company entered into interest rate swaps with effective dates
beginning in January 2008 to hedge a portion of the variable-rate
floor
income. Settlements on these derivatives are presented as part of
the
Company’s statutory calculation of variable-rate floor
income.
|
·
|
Historically,
the movement of the various interest rate indices received on the
Company’s student loan assets and paid on the debt to fund such loans was
highly correlated. As shown in Item 3, “Quantitative and Qualitative
Disclosures about Market Risk,” the short-term movement of the indices was
dislocated beginning in August 2007. This dislocation has had a negative
impact on the Company’s student loan net interest income.
|
·
|
The
spread to LIBOR on asset-backed securities transactions has increased
significantly since August 2007. Since August 2007, the Company
has issued
$6.0
billion of notes in asset-backed securities transactions ($1.5
billion in
August 2007, $1.2 billion in March 2008, $1.9 billion in April
2008, and
$1.3 billion in May 2008). The
increase in costs on these transactions from historical levels
have had
and will continue to have a negative impact on the Company’s student loan
net interest income. The increased spread to LIBOR on
asset-backed securities transactions is shown in the below table:
|
·
|
As
a result of the passage of the College Cost Reduction Act, the yield
on
FFELP loans originated after October 1, 2007 was reduced. As of June
30,
2008, the Company had $556.4 million
of FFELP loans originated after October 1, 2007. The core student
loan
spread on FFELP loans originated after October 1, 2007 for the second
quarter of 2008 was approximately 40 to 50
basis points.
|
Three months ended June 30,
|
Six months ended June 30,
|
||||||||||||||||||
2008
|
2007
|
$
Change
|
2008
|
2007
|
$
Change
|
||||||||||||||
Net
interest income after the provision for loan losses
|
$
|
53,891
|
72,528
|
(18,637
|
)
|
53,234
|
142,607
|
(89,373
|
)
|
||||||||||
Loan
and guaranty servicing income
|
157
|
118
|
39
|
162
|
118
|
44
|
|||||||||||||
Other
fee-based income
|
4,458
|
3,674
|
784
|
9,327
|
6,985
|
2,342
|
|||||||||||||
Other
income
|
393
|
105
|
288
|
381
|
3,148
|
(2,767
|
)
|
||||||||||||
Gain
(loss) on sale of loans
|
48
|
1,010
|
(962
|
)
|
(47,426
|
)
|
2,796
|
(50,222
|
)
|
||||||||||
Derivative
market value, foreign currency, and put option adjustments
|
—
|
—
|
—
|
466
|
—
|
466
|
|||||||||||||
Derivative
settlements, net
|
11,638
|
(461
|
)
|
12,099
|
55,165
|
(885
|
)
|
56,050
|
|||||||||||
Total
other income
|
16,694
|
4,446
|
12,248
|
18,075
|
12,162
|
5,913
|
|||||||||||||
Salaries
and benefits
|
1,954
|
7,167
|
(5,213
|
)
|
4,178
|
14,446
|
(10,268
|
)
|
|||||||||||
Restructure
expense - severance and contract termination costs
|
(52
|
)
|
—
|
(52
|
)
|
1,844
|
—
|
1,844
|
|||||||||||
Impairment
expense
|
—
|
—
|
—
|
9,351
|
—
|
9,351
|
|||||||||||||
Other
expenses
|
5,095
|
7,246
|
(2,151
|
)
|
10,439
|
15,511
|
(5,072
|
)
|
|||||||||||
Intersegment
expenses
|
18,952
|
22,034
|
(3,082
|
)
|
39,554
|
38,670
|
884
|
||||||||||||
Total
operating expenses
|
25,949
|
36,447
|
(10,498
|
)
|
65,366
|
68,627
|
(3,261
|
)
|
|||||||||||
"Base
net income (loss)" before income taxes
|
44,636
|
40,527
|
4,109
|
5,943
|
86,142
|
(80,199
|
)
|
||||||||||||
Income
tax expense (benefit)
|
13,837
|
15,400
|
(1,563
|
)
|
1,842
|
32,734
|
(30,892
|
)
|
|||||||||||
"Base
net income (loss)"
|
$
|
30,799
|
25,127
|
5,672
|
4,101
|
53,408
|
(49,307
|
)
|
|||||||||||
Before
Tax Operating Margin
|
63.2
|
%
|
52.7
|
%
|
8.3
|
%
|
55.7
|
%
|
|||||||||||
Before
Tax Operating Margin - excluding restructure expense, impairment
expense,
and the loss on sale of loans during the first quarter
2008
|
63.2
|
%
|
52.7
|
%
|
54.4
|
%
|
55.7
|
%
|
Three months ended June 30,
|
Change
|
||||||||||||
2008
|
2007
|
Dollars
|
Percent
|
||||||||||
Loan
interest
|
$
|
345,321
|
487,465
|
(142,144
|
)
|
(29.2)
|
%
|
||||||
Consolidation
rebate fees
|
(47,721
|
)
|
(47,745
|
)
|
24
|
0.1
|
|||||||
Amortization
of loan premiums and deferred origination costs
|
(22,841
|
)
|
(22,634
|
)
|
(207
|
)
|
(0.9
|
)
|
|||||
Total
loan interest
|
274,759
|
417,086
|
(142,327
|
)
|
(34.1
|
)
|
|||||||
Investment
interest
|
7,534
|
16,318
|
(8,784
|
)
|
(53.8
|
)
|
|||||||
Total
interest income
|
282,293
|
433,404
|
(151,111
|
)
|
(34.9
|
)
|
|||||||
Interest
on bonds and notes payable
|
221,856
|
358,308
|
(136,452
|
)
|
(38.1
|
)
|
|||||||
Intercompany
interest
|
546
|
33
|
513
|
1,554.5
|
|||||||||
Provision
for loan losses
|
6,000
|
2,535
|
3,465
|
136.7
|
|||||||||
Net
interest income after provision for loan losses
|
$
|
53,891
|
72,528
|
(18,637
|
)
|
(25.7)
|
%
|
·
|
The
average student loan portfolio increased $1.1 billion, or 4.4%, for
the
three months ended June 30, 2008 compared to the same period in 2007.
The
increase in average loans was offset by a decrease in the yield earned
on
student loans. Loan interest income decreased $142.1 million as a
result
of these factors.
|
·
|
Investment
income decreased as a result of an overall decrease in average cash
held
in 2008 as compared to 2007, as well as lower interest
rates.
|
·
|
Interest
expense decreased as a result of a decrease in interest rates on
the
Company’s variable rate debt which lowered the Company’s cost of funds
(excluding net derivative settlements) to 3.33% for the three months
ended
June 30, 2008 compared to 5.49% for the same period a year ago. This
was
offset by a $0.6 billion, or 2.3%, increase in average debt for the
three
months ended June 30, 2008 compared to the same period in 2007. Interest
expense was impacted in 2008 by credit market disruptions as further
discussed in this Report.
|
·
|
The
provision for loan loss increased due to an increase in risk share
as a
result of the elimination of the Exceptional Performer program in
the
third quarter of 2007.
|
Six months ended June 30,
|
Change
|
||||||||||||
2008
|
2007
|
Dollars
|
Percent
|
||||||||||
Loan
interest
|
$
|
731,747
|
951,998
|
(220,251
|
)
|
(23.1)
|
%
|
||||||
Consolidation
rebate fees
|
(97,575
|
)
|
(94,165
|
)
|
(3,410
|
)
|
(3.6
|
)
|
|||||
Amortization
of loan premiums and deferred origination costs
|
(48,245
|
)
|
(43,693
|
)
|
(4,552
|
)
|
(10.4
|
)
|
|||||
Total
loan interest
|
585,927
|
814,140
|
(228,213
|
)
|
(28.0
|
)
|
|||||||
Investment
interest
|
16,724
|
33,754
|
(17,030
|
)
|
(50.5
|
)
|
|||||||
Total
interest income
|
602,651
|
847,894
|
(245,243
|
)
|
(28.9
|
)
|
|||||||
Interest
on bonds and notes payable
|
537,777
|
696,795
|
(159,018
|
)
|
(22.8
|
)
|
|||||||
Intercompany
interest
|
640
|
3,204
|
(2,564
|
)
|
(80.0
|
)
|
|||||||
Provision
for loan losses
|
11,000
|
5,288
|
5,712
|
108.0
|
|||||||||
Net
interest income after provision for loan losses
|
$
|
53,234
|
142,607
|
(89,373
|
)
|
(62.7)
|
%
|
·
|
The
average student loan portfolio increased $2.0 billion,
or 8.4%, for the six months ended June 30, 2008 compared to the same
period in 2007. The increase in average loans was offset by a decrease
in
the yield earned on student loans. Loan interest income decreased
$220.3
million
as a result of these factors.
|
·
|
Consolidation
rebate fees increased due to the $0.8 billion,
or 4.6%, increase in the average consolidation loan
portfolio.
|
·
|
The
amortization of loan premiums and deferred origination costs increased
$4.6 million
as a result of an increase in the average student loan
portfolio.
|
·
|
Investment
income decreased as a result of an overall decrease in average cash
held
in 2008 as compared to 2007, as well as lower interest
rates.
|
·
|
Interest
expense decreased as a result of a decrease in interest rates on
the
Company’s variable rate debt which lowered the Company’s cost of funds
(excluding net derivative settlements) to 3.96% for the six months
ended
June 30, 2008 compared to 5.48% for the same period a year ago. This
was
offset by a $1.5 billion, or 5.9%, increase in average debt for the
six
months ended June 30, 2008 compared to the same period in 2007. Interest
expense was impacted in 2008 by credit market disruptions as further
discussed in this Report.
|
·
|
The
provision for loan loss increased due to an increase in risk share
as a
result of the elimination of the Exceptional Performer program in
the
third quarter of 2007.
|
As of June 30, 2008
|
||||||||||
Carrying
|
Interest rate
|
|||||||||
amount
|
range
|
Final maturity
|
||||||||
Variable-rate
bonds and notes (a):
|
||||||||||
Bonds
and notes based on indices
|
$
|
21,339,035
|
2.65%
- 4.97%
|
|
09/25/13
- 06/25/41
|
|||||
Bonds
and notes based on auction or remarketing
|
2,841,245
|
0.67%
- 7.00%
|
|
11/01/09
- 07/01/43
|
||||||
Total
variable-rate bonds and notes
|
24,180,280
|
|||||||||
Commercial
paper - FFELP facility (b)
|
1,986,212
|
2.08%
- 2.91%
|
|
05/09/10
|
||||||
Commercial
paper - private loan facility (b)
|
159,800
|
3.08%
|
|
03/14/09
|
||||||
Fixed-rate
bonds and notes (a)
|
207,376
|
5.30%
- 6.68%
|
|
11/01/09
- 05/01/29
|
||||||
Unsecured
fixed rate debt
|
475,000
|
5.13%
and 7.40%
|
|
06/01/10
and 09/15/61
|
||||||
Unsecured
line of credit
|
450,000
|
2.90%
|
|
05/08/12
|
||||||
Other
borrowings
|
71,569
|
3.19%
- 5.10%
|
|
05/22/09
- 11/01/15
|
||||||
$
|
27,530,237
|
(i)
|
A
minimum consolidated net worth;
|
(ii)
|
A
minimum adjusted EBITDA to corporate debt interest (over the last
four
rolling quarters);
|
(iii)
|
A
limitation on subsidiary indebtedness;
and
|
(iv)
|
A
limitation on the percentage of non-guaranteed loans in the Company’s
portfolio.
|
Sources
of primary liquidity: (a)
|
||||
Cash
and cash equivalents (b)
|
$
|
138,454
|
||
Unencumbered
student loan assets
|
6,858
|
|||
Unused
unsecured line of credit (c)
|
300,000
|
|||
Total
sources of primary liquidity
|
$
|
445,312
|
(a)
|
The
sources of primary liquidity table above does not include the following
items:
|
·
|
FFELP
warehouse facility
-
On July 31, 2008, the Company did not renew the liquidity provisions
of
this facility. Accordingly, on July 31, 2008, the facility became
a term
facility with a final maturity date of May 9, 2010. No new student
loan
originations can be funded under this
program.
|
·
|
Private
loan warehouse facility
-
As of June 30, 2008, the Company has $90.2 million
of capacity on this facility. However, in January 2008, the Company
suspended originating private loans. As such, the capacity on this
facility is not included in the above table. The Company’s private loan
warehouse facility expires on March 14, 2009.
|
·
|
Extendible
commercial paper warehouse program
-
The Company has $5.0 billion
authorized for future issuance under this facility. As a result of
the
disruption of the credit markets, there is no market for the issuance
of
notes under this facility. Management believes it is unlikely a market
will exist in the future.
|
·
|
Participation
agreement
-
The Company maintains an agreement with Union Bank, as trustee for
various
grantor trusts, under which Union Bank has agreed to purchase from
the
Company participation interests in student loans. The Company has
the
option to purchase the participation interests from the grantor trusts
at
the end of a 364-day term upon termination of the participation
certificate. As of June 30, 2008 and August 8, 2008, approximately
$228.7 million and $56.4 million,
respectively, of loans were subject to outstanding participation
interests
held by Union Bank, as trustee, under this agreement. The agreement
automatically renews annually and is terminable by either party upon
five
business days notice. This agreement provides beneficiaries of Union
Bank’s grantor trusts with access to investments in interests in student
loans, while providing liquidity to the Company on a short-term basis.
The
Company can participate loans to Union Bank to the extent of availability
under the grantor trusts, up to $750 million.
The Company does not include this participation agreement in the
table
above because the Company is limited to the amount they can participate
under this facility by the amount of investments in the grantor
trusts.
|
·
|
Department
of Education’s Loan Participation Program
-
On July 1, 2008, pursuant to HR 5715, the Department of Education
announced terms under which it will offer to purchase FFELP student
loans
and loan participations from FFELP lenders. Under the Participation
Program, the Department will provide interim short-term liquidity
to FFELP
lenders by purchasing participation interest in pools of FFELP loans.
FFELP lenders will be charged a rate of commercial paper plus 50
basis
points on the principal amount of participation interests outstanding.
Loans funded under the Participation Program must be either refinanced
by
the lender or sold to the Department prior to its expiration on September
30, 2009. To be eligible for purchase or participation under the
Department’s program, loans must be FFELP Stafford or PLUS loans made for
the academic year 2008-2009, first disbursed between May 1, 2008
and July
1, 2009, with eligible borrower benefits. The Company is in the process
of
completing and filing all relevant documents to participate in the
Department’s program and expects to utilize the Participation Program to
fund a significant portion of its loan originations for the 2008-2009
academic year.
|
·
|
Asset-backed
security investments
-
As part of the Company’s issuance of asset-backed securitizations in March
2008 and May 2008, due to credit market conditions when these notes
were
issued, the Company purchased the Class B subordinated notes of $36
million (par value) and $41 million (par value), respectively. These
notes
are not included on the Company’s consolidated balance sheet. If the
credit market conditions improve, the Company anticipates selling
these
notes to third parties. Upon a sale to third parties, the Company
would
obtain cash proceeds equal to the market value of the notes on the
date of
such sale. Upon sale, these notes would be shown as “bonds and notes
payable” on the Company’s consolidated balance sheet. Unless there is a
significant market improvement, the Company believes the market value
of
such notes will be less than par value. The difference between the
par
value and market value would be recognized by the Company as interest
expense over the life of the bonds.
|
(b)
|
The
Company also has restricted cash and investments, however, the Company
is
limited in the amounts of funds that can be transferred from its
subsidiaries through intercompany loans, advances, or cash dividends.
These limitations result from the restrictions contained in trust
indentures under debt financing arrangements to which the Company’s
education lending subsidiaries are parties. The Company does not
believe
these limitations will significantly affect its operating cash needs.
The
amounts of cash and investments restricted in the respective reserve
accounts of the education lending subsidiaries are shown on the balance
sheets as restricted cash and
investments.
|
(c)
|
As
of August 8, 2008, the unused unsecured line of credit was
$300.0
million.
|
Total
|
Less than
1 year
|
1 to 3 years
|
3 to 5 years
|
More than
5 years
|
||||||||||||
Bonds
and notes payable
|
$
|
27,530,237
|
2,227,217
|
390,173
|
513,847
|
24,399,000
|
||||||||||
Operating
lease obligations
|
41,571
|
9,032
|
16,201
|
11,449
|
4,889
|
|||||||||||
Other
|
7,675
|
7,355
|
320
|
—
|
—
|
|||||||||||
Total
|
$
|
27,579,483
|
2,243,604
|
406,694
|
525,296
|
24,403,889
|
·
|
LoanSTAR
Funding Group, Inc. (“LoanSTAR”) – As part of the agreement for the
acquisition of the capital stock of LoanSTAR from the Greater Texas
Foundation (“Texas Foundation”), the Company agreed to sell student loans
in an aggregate amount sufficient to permit the Texas Foundation
to
maintain a portfolio of loans equal to no less than $200 million
through
October 2010. The sales price for such loans is the fair value mutually
agreed upon between the Company and the Texas Foundation. To satisfy
this
obligation, the Company is obligated to sell loans to the Texas Foundation
on a quarterly basis; however, the Foundation recently has chosen
not to
purchase such loans.
|
·
|
infiNET
Integrated Solutions, Inc. (“infiNET”) – Stock price guarantee of
$104.8375 per share on 95,380 shares of Class A Common Stock (less
the
greater of $41.9335 or the gross sales price such seller obtains
from a
sale of the shares occurring subsequent to February 28, 2011 as defined
in
the agreement) issued as part of the original purchase price. The
obligation to pay this guaranteed stock price is due February 28,
2011 and
is not included in the table above. Based upon the closing sale price
of
the Company’s Class A Common Stock as of June 30, 2008 of
$11.23
per share, the Company’s obligation under this stock price guarantee would
have been $6.0 million (($104.8375 - $41.9335) x 95,380 shares).
Any cash
paid by the Company in consideration of satisfying the guaranteed
value of
stock issued for this acquisition would be recorded by the Company
as a
reduction to additional paid-in capital.
|
·
|
5280
Solutions, Inc. – 258,760 shares of Class A Common Stock issued as
part of the original purchase price is subject to a put option arrangement
whereby during the 30-day period ending November 30, 2008, the holders may
require the Company to repurchase all or part of the shares at a
price of
$37.10 per share. The value of this put option as of June 30, 2008
was
$6.7 million
and is included in “other” in the above
table.
|
As of June 30, 2008
|
As of December 31, 2007
|
||||||||||||
Dollars
|
Percent
|
Dollars
|
Percent
|
||||||||||
Fixed-rate
loan assets
|
$
|
2,391,089
|
9.3
|
%
|
$
|
1,136,544
|
4.3
|
%
|
|||||
Variable-rate
loan assets
|
23,221,037
|
90.7
|
25,192,669
|
95.7
|
|||||||||
Total
|
$
|
25,612,126
|
100.0
|
%
|
$
|
26,329,213
|
100.0
|
%
|
|||||
Fixed-rate
debt instruments
|
682,376
|
2.5
|
%
|
689,476
|
2.5
|
%
|
|||||||
Variable-rate
debt instruments
|
26,847,861
|
97.5
|
27,426,353
|
97.5
|
|||||||||
Total
|
$
|
27,530,237
|
100.0
|
%
|
$
|
28,115,829
|
100.0
|
%
|
Borrower/
|
Estimated
|
Balance of
|
||||||||
Fixed
|
lender
|
variable
|
assets earning fixed-rate
|
|||||||
interest
|
weighted
|
conversion
|
floor income as of
|
|||||||
rate range
|
average yield
|
rate (a)
|
June 30, 2008 (b)
|
|||||||
4.5
- 4.99%
|
4.88
|
%
|
2.24
|
%
|
$
|
942
|
||||
5.0
- 5.49%
|
5.09
|
%
|
2.45
|
%
|
1,046
|
|||||
5.5
- 5.99%
|
5.67
|
%
|
3.03
|
%
|
355,270
|
|||||
6.0
- 6.49%
|
6.19
|
%
|
3.55
|
%
|
425,480
|
|||||
6.5
- 6.99%
|
6.70
|
%
|
4.06
|
%
|
381,260
|
|||||
7.0
- 7.49%
|
7.17
|
%
|
4.53
|
%
|
132,967
|
|||||
7.5
- 7.99%
|
7.71
|
%
|
5.07
|
%
|
229,591
|
|||||
8.0
- 8.99%
|
8.16
|
%
|
5.52
|
%
|
532,306
|
|||||
>
9.0%
|
9.04
|
%
|
6.40
|
%
|
332,227
|
|||||
$
|
2,391,089
|
(a) |
The
estimated variable conversion rate is the estimated short-term interest
rate at which loans would convert to variable rate.
|
(b) |
As
of June 30, 2008, the Company had $206.7 million
of
fixed rate debt that was used by the Company to hedge fixed-rate
student
loan assets. The weighted average interest rate paid by the Company
on
this debt as of June 30, 2008 was 6.17%.
|
Weighted
|
|||||||
average fixed
|
|||||||
Notional
|
rate paid by
|
||||||
Maturity
|
Amount
|
the Company (a)
|
|||||
2009
|
$
|
500,000
|
4.08
|
%
|
|||
2010
|
700,000
|
3.44
|
|||||
2011
|
500,000
|
(b)
|
3.57
|
||||
2012
|
250,000
|
(c)
|
3.86
|
||||
$
|
1,950,000
|
3.69
|
%
|
(a)
|
For
all interest rate derivatives for which the Company pays a fixed
rate, the
Company receives discrete three-month
LIBOR.
|
(b) |
$250.0
million notional amount of derivatives have an effective start date
in the
first quarter of 2010.
|
(c) |
Derivatives
have an effective start date in the first quarter
2009.
|
Index (e)
|
Frequency of
Variable Resets
|
Assets
|
Debt
outstanding
that funded
student loan
assets (a)
|
|||||||
3
month H15 financial commercial paper (b)
|
Daily
|
$
|
23,962,096
|
—
|
||||||
3
month Treasury bill
|
Varies
|
1,370,077
|
—
|
|||||||
Private
student loans
|
279,953
|
—
|
||||||||
3
month LIBOR (c)
|
Quarterly
|
—
|
21,339,035
|
|||||||
Auction-rate
or remarketing
|
Varies
|
—
|
2,841,245
|
|||||||
Asset-backed
commercial paper
|
Varies
|
—
|
2,146,012
|
|||||||
Fixed
rate
|
—
|
207,376
|
||||||||
Other
(d)
|
921,542
|
—
|
||||||||
$
|
26,533,668
|
26,533,668
|
(a)
|
During
2007, the Company entered into basis swaps in which the Company receives
three-month LIBOR set discretely in advance and pays a daily weighted
average three-month LIBOR less a spread as defined in the individual
agreements. The Company entered into these derivative instruments
to
better match the interest rate characteristics on its student loan
assets
and the debt funding such assets. The following table summarizes
these
derivatives as of June 30, 2008:
|
Notional Amount
|
||||||||||||||||
Maturity
|
Effective date in second
quarter 2007
|
Effective date in third
quarter 2007
|
Effective date in second
quarter 2008
|
Effective date in third
quarter 2008
|
Total
|
|||||||||||
2008
|
$
|
1,000,000
|
2,000,000
|
—
|
—
|
3,000,000
|
||||||||||
2009
|
2,000,000
|
4,000,000
|
—
|
3,000,000
|
9,000,000
|
|||||||||||
2010
|
500,000
|
2,000,000
|
2,000,000
|
1,000,000
|
5,500,000
|
|||||||||||
2011
|
—
|
2,700,000
|
—
|
—
|
2,700,000
|
|||||||||||
2012
|
—
|
1,000,000
|
800,000
|
1,600,000
|
3,400,000
|
|||||||||||
$
|
3,500,000
|
11,700,000
|
2,800,000
|
5,600,000
|
23,600,000
|
(b)
|
The
Company’s FFELP student loans earn interest based on the daily average H15
financial commercial paper calculated on a fiscal
quarter.
|
(c)
|
The
Company has Euro-denominated notes that reprice on the EURIBOR index.
The
Company has entered into derivative instruments (cross-currency interest
rate swaps) that convert the EURIBOR index to 3 month LIBOR. As a
result,
these notes are reflected in the 3 month LIBOR category in the above
table. See “Foreign Currency Exchange
Risk.”
|
(d)
|
Assets
include restricted cash and investments, pre-funding on certain debt
transactions, and other assets.
|
(e)
|
Historically,
the movement of the various interest rate indices received on the
Company’s student loan assets and paid on the debt to fund such loans was
highly correlated. As shown below, the short-term movement of the
indices
was dislocated beginning in August 2007. This dislocation has had
a
negative impact on the Company’s student loan net interest
income.
|
Three months ended June 30,
|
Six months ended June 30,
|
||||||||||||
2008
|
2007
|
2008
|
2007
|
||||||||||
Interest
rate swaps - loan portfolio
|
$
|
(7,842
|
)
|
1,977
|
(11,019
|
)
|
4,872
|
||||||
Basis
swaps - loan portfolio
|
5,148
|
—
|
45,605
|
—
|
|||||||||
Interest
rate swaps - other (a)
|
—
|
5,657
|
—
|
10,321
|
|||||||||
Cross-currency
interest rate swaps
|
7,131
|
(2,438
|
)
|
10,614
|
(5,757
|
)
|
|||||||
Derivative
settlements received, net
|
$
|
4,437
|
5,196
|
45,200
|
9,436
|
(a)
|
During
the fourth quarter 2006, in consideration of not receiving 9.5% special
allowance payments on a prospective basis, the Company entered into
a
series of off-setting interest rate swaps that mirrored the $2.45
billion
in pre-existing interest rate swaps that the Company had utilized
to hedge
its loan portfolio receiving 9.5% special allowance payments against
increases in interest rates.
|
Three months ended June 30, 2008
|
|||||||||||||||||||
Change from decrease of 100
basis points
|
Change from increase of 100
basis points
|
Change from increase of 200
basis points
|
|||||||||||||||||
Dollar
|
Percent
|
Dollar
|
Percent
|
Dollar
|
Percent
|
||||||||||||||
(dollars in thousands)
|
|||||||||||||||||||
Effect
on earnings:
|
|||||||||||||||||||
Increase
(decrease) in pre-tax net income before impact of derivative
settlements
|
$
|
10,566
|
17.1
|
%
|
(10,566
|
)
|
(17.1)
|
%
|
(21,132
|
)
|
(34.1)
|
%
|
|||||||
Impact
of derivative settlements
|
(8,492
|
)
|
(13.7
|
)
|
8,492
|
13.7
|
16,984
|
27.4
|
|||||||||||
Increase
(decrease) in net income before taxes
|
$
|
2,074
|
3.4
|
%
|
(2,074
|
)
|
(3.4)
|
%
|
(4,148
|
)
|
(6.7)
|
%
|
|||||||
Increase
(decrease) in basic and diluted earning per share
|
$
|
0.03
|
(0.03
|
)
|
(0.06
|
)
|
Three months ended June 30, 2007
|
|||||||||||||||||||
Change from decrease of 100
basis points
|
Change from increase of 100
basis points
|
Change from increase of 200
basis points
|
|||||||||||||||||
Dollar
|
Percent
|
Dollar
|
Percent
|
Dollar
|
Percent
|
||||||||||||||
(dollars in thousands)
|
|||||||||||||||||||
Effect on earnings:
|
|||||||||||||||||||
Increase
in pre-tax net income before impact of derivative
settlements
|
$
|
6,519
|
21.1
|
%
|
535
|
1.7
|
%
|
2,192
|
7.1
|
%
|
|||||||||
Impact
of derivative settlements
|
(1,932
|
)
|
(6.3
|
)
|
1,932
|
6.3
|
3,864
|
12.5
|
|||||||||||
Increase
in net income before taxes
|
$
|
4,587
|
14.8
|
%
|
2,467
|
8.0
|
%
|
6,056
|
19.6
|
%
|
|||||||||
Increase
in basic and diluted earning per share
|
$
|
0.06
|
0.03
|
0.07
|
Six months ended June 30, 2008
|
|||||||||||||||||||
Change from decrease of 100
basis points
|
Change from increase of 100
basis points
|
Change from increase of 200
basis points
|
|||||||||||||||||
Dollar
|
Percent
|
Dollar
|
Percent
|
Dollar
|
Percent
|
||||||||||||||
(dollars in thousands)
|
|||||||||||||||||||
Effect on earnings:
|
|||||||||||||||||||
Increase
(decrease) in pre-tax net income before impact of derivative
settlements
|
$
|
22,151
|
56.4
|
%
|
(22,151
|
)
|
(56.4)
|
%
|
(42,560
|
)
|
(108.4)
|
%
|
|||||||
Impact
of derivative settlements
|
(14,785
|
)
|
(37.6
|
)
|
14,785
|
37.6
|
29,570
|
75.3
|
|||||||||||
Increase
(decrease) in net income before taxes
|
$
|
7,366
|
18.8
|
%
|
(7,366
|
)
|
(18.8)
|
%
|
(12,990
|
)
|
(33.1)
|
%
|
|||||||
Increase
(decrease) in basic and diluted earning per share
|
$
|
0.10
|
(0.10
|
)
|
(0.18
|
)
|
Six months ended June 30, 2007
|
|||||||||||||||||||
Change from decrease of 100
basis points
|
Change from increase of 100
basis points
|
Change from increase of 200
basis points
|
|||||||||||||||||
Dollar
|
Percent
|
Dollar
|
Percent
|
Dollar
|
Percent
|
||||||||||||||
(dollars in thousands)
|
|||||||||||||||||||
Effect
on earnings:
|
|||||||||||||||||||
Increase
in pre-tax net income before impact of derivative
settlements
|
$
|
10,733
|
19.7
|
%
|
3,558
|
6.5
|
%
|
9,357
|
17.1
|
%
|
|||||||||
Impact
of derivative settlements
|
(3,843
|
)
|
(7.1
|
)
|
3,843
|
7.1
|
7,686
|
14.1
|
|||||||||||
Increase
in net income before taxes
|
$
|
6,890
|
12.6
|
%
|
7,401
|
13.6
|
%
|
17,043
|
31.2
|
%
|
|||||||||
Increase
in basic and diluted earning per share
|
$
|
0.08
|
0.09
|
0.21
|
Total number of
|
Maximum number
|
||||||||||||
shares purchased
|
of shares that may
|
||||||||||||
Total number
|
Average
|
as part of publicly
|
yet be purchased
|
||||||||||
of shares
|
price paid
|
announced plans
|
under the plans
|
||||||||||
Period
|
purchased (1)
|
per share
|
or programs (2) (3)
|
or programs (4)
|
|||||||||
April
1 - April 30, 2008
|
11,358
|
$
|
12.81
|
11,358
|
7,478,139
|
||||||||
May
1 - May 31, 2008
|
1,162
|
13.83
|
1,162
|
7,390,551
|
|||||||||
June
1 - June 30, 2008
|
1,474
|
11.99
|
1,474
|
7,871,390
|
|||||||||
Total
|
13,994
|
$
|
12.80
|
13,994
|
(1)
|
The
total number of shares includes: (i) shares purchased pursuant to
the 2006
Plan discussed in footnote (2) below; and (ii) shares purchased pursuant
to the 2006 ESLP discussed in footnote (3) below, of which there
were none
for the months of April, May, or June 2008. Shares of Class A common
stock
purchased pursuant to the 2006 Plan included (i) 3,388 shares, 1,162
shares, and 1,474 shares in April, May, and June, respectively, that
had
been issued to the Company’s 401(k) plan and allocated to employee
participant accounts pursuant to the plan’s provisions for Company
matching contributions in shares of Company stock, and were purchased
by
the Company from the plan pursuant to employee participant instructions
to
dispose of such shares, and (ii) 7,970 shares purchased in April
2008 from
employees upon cancellation of loans associated with shares originally
acquired pursuant to the 2006 ESLP.
|
(2)
|
On
May 25, 2006, the Company publicly announced that its Board of Directors
had authorized a stock repurchase program to repurchase up to a total
of
five million shares of the Company’s Class A common stock (the “2006
Plan”). On February 7, 2007, the Company’s Board of Directors increased
the total shares the Company is allowed to repurchase to 10 million.
The
2006 Plan had an initial expiration date of May 24, 2008, which was
extended until May 24, 2010 by the Company’s Board of Directors on January
30, 2008.
|
(3)
|
On
May 25, 2006, the Company publicly announced that the shareholders
of the
Company approved an Employee Stock Purchase Loan Plan (the “2006 ESLP”) to
allow the Company to make loans to employees for the purchase of
shares of
the Company's Class A common stock either in the open market or directly
from the Company. A total of $40 million in loans may be made under
the
2006 ESLP, and a total of one million shares of Class A common stock
are
reserved for issuance under the 2006 ESLP. Shares may be purchased
directly from the Company or in the open market through a broker
at
prevailing market prices at the time of purchase, subject to any
conditions or restrictions on the timing, volume, or prices of purchases
as determined by the Compensation Committee of the Board of Directors
and
set forth in the Stock Purchase Loan Agreement with the participant.
The
2006 ESLP shall terminate May 25, 2016.
|
(4)
|
The
maximum number of shares that may yet be purchased under the plans
is
calculated below. There are no assurances that any additional shares
will
be repurchased under either the 2006 Plan or the 2006 ESLP. Shares
under
the 2006 ESLP may be issued by the Company rather than purchased
in open
market transactions.
|
As
of
|
Maximum number of
shares that may yet be
purchased under the
2006 Plan
(A)
|
Approximate dollar
value of shares that
may yet be
purchased under
the 2006 ESLP
(B)
|
Closing price on
the last trading
day of the
Company's Class
A Common Stock
(C)
|
(B / C)
Approximate
number of shares
that may yet be
purchased under
the 2006 ESLP
(D)
|
(A + D)
Approximate
number of shares
that may yet be
purchased under
the 2006 Plan and
2006 ESLP
|
|||||||||||
April 30, 2008
|
4,628,256
|
36,450,000
|
12.79
|
2,849,883
|
7,478,139
|
|||||||||||
May
31, 2008
|
4,627,094
|
36,450,000
|
13.19
|
2,763,457
|
7,390,551
|
|||||||||||
June
30, 2008
|
4,625,620
|
36,450,000
|
11.23
|
3,245,770
|
7,871,390
|
·
|
declare
or pay any dividends or distributions on, or redeem, purchase, acquire
or
make a liquidation payment regarding, any of the Company’s capital
stock;
|
·
|
except
as required in connection with the repayment of principal, and except
for
any partial payments of deferred interest that may be made through
the
alternative payment mechanism described in the Hybrid Securities
indenture, make any payment of principal of, or interest or premium,
if
any, on, or repay, repurchase, or redeem any of the Company’s debt
securities that rank pari
passu
with or junior to the Hybrid Securities;
or
|
·
|
make
any guarantee payments regarding any guarantee by the Company of
the
subordinated debt securities of any of the Company’s subsidiaries if the
guarantee ranks pari
passu
with or junior in interest to the Hybrid
Securities.
|
·
|
pay
dividends or distributions in additional shares of the Company’s capital
stock;
|
·
|
declare
or pay a dividend in connection with the implementation of a shareholders’
rights plan, or issue stock under such a plan, or redeem or repurchase
any
rights distributed pursuant to such a plan;
and
|
·
|
purchase
common stock for issuance pursuant to any employee benefit
plans.
|
1.
|
To
elect nine directors to serve on the Company’s Board of Directors for
one-year terms or until their successors are elected and qualified.
All
directors seeking election were in attendance at the annual meeting.
|
Number of Shares
|
||||||||||
Votes For
|
Votes Against
|
Abstain
|
||||||||
James P. Abel
|
149,084,383
|
1,000,456
|
107,672
|
|||||||
Stephen
F. Butterfield
|
149,907,990
|
186,362
|
98,158
|
|||||||
Michael
S. Dunlap
|
149,157,652
|
936,646
|
98,213
|
|||||||
Kathleen
A. Farrell
|
149,150,104
|
935,965
|
106,442
|
|||||||
Thomas
E. Henning
|
149,158,969
|
925,302
|
108,240
|
|||||||
Brian
J. O'Connor
|
149,155,801
|
928,320
|
108,390
|
|||||||
Kimberly
K. Rath
|
149,156,683
|
927,092
|
108,736
|
|||||||
Michael
D. Reardon
|
149,881,696
|
202,574
|
108,240
|
|||||||
James
H. Van Horn
|
149,965,815
|
120,736
|
105,960
|
2. |
To ratify
the appointment of KPMG LLP as independent auditors for
2008.
|
Number of Shares
|
|||||||
Votes For
|
Votes Against
|
Abstain
|
|||||
149,965,815
|
120,736
|
105,960
|
3.
|
To
approve an amendment to the Directors Stock Compensation Plan to
increase
the authorized number of shares of Class A common stock that may
be issued
under the plan from a total of 100,000 shares to a total of 400,000
shares.
|
Number of Shares
|
|||||||
Votes For
|
Votes Against
|
Abstain
|
|||||
145,532,849
|
1,073,119
|
111,764
|
4.1
|
Indenture
of Trust by and between Nelnet Student Loan Trust 2008-2 and Zions
First
National Bank, dated as of April 1, 2008, filed as Exhibit 4.1 to
Nelnet
Student Loan Trust 2008-2’s Current Report on Form 8-K filed on April 9,
2008 and incorporated herein by reference.
|
|
4.2
|
Indenture
of Trust by and between Nelnet Student Loan Trust 2008-3 and Zions
First
National Bank, dated as of April 15, 2008, filed as Exhibit 4.1 to
Nelnet
Student Loan Trust 2008-3’s Current Report on Form 8-K filed on April 30,
2008 and incorporated herein by reference.
|
|
4.3
|
Indenture
of Trust by and between Nelnet Student Loan Trust 2008-4 and Zions
First
National Bank, dated as of May 1, 2008, filed as Exhibit 4.1 to Nelnet
Student Loan Trust 2008-4’s Current Report on Form 8-K filed on May 23,
2008 and incorporated herein by reference.
|
|
10.1+
|
Nelnet,
Inc. Directors Stock Compensation Plan, as amended through April
18, 2008,
filed as Exhibit 99.1 to Nelnet, Inc.’s Registration Statement on Form S-8
filed on June 27, 2008 and incorporated herein by
reference.
|
|
10.2*
|
Seventh
Amendment of Amended and Restated Participation Agreement, dated
as of
July 1, 2008 by and between Union Bank and Trust Company and Nelnet,
Inc.
(f/k/a/ NELnet, Inc.) (subsequently renamed National Education Loan
Network, Inc.).
|
|
31.1*
|
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief
Executive Officer Michael S. Dunlap.
|
|
31.2*
|
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief
Financial Officer Terry J. Heimes.
|
|
32**
|
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002.
|
NELNET,
INC.
|
||
Date:
August 11, 2008
|
By:
|
/s/
MICHAEL S. DUNLAP
|
Name:
|
Michael
S. Dunlap
|
|
Title:
|
Chairman
and Chief Executive Officer
|
|
By:
|
/s/
TERRY J. HEIMES
|
|
Name:
|
Terry
J. Heimes
|
|
Title:
|
Chief
Financial Officer
|