NELNET INC - Annual Report: 2006 (Form 10-K)
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þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | 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 | 68508 | |
LINCOLN, NEBRASKA | (Zip Code) | |
(Address of principal executive offices) |
TITLE OF EACH CLASS
Class A Common Stock, Par Value $0.01 per Share
New York Stock Exchange
None
FORM 10-K
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As of December 31, 2006 | As of December 31, 2005 | |||||||||||||||
Dollars | Percent | Dollars | Percent | |||||||||||||
Federally insured: |
||||||||||||||||
Stafford |
$ | 5,724,586 | 24.1 | % | $ | 6,434,655 | 31.8 | % | ||||||||
PLUS/SLS |
365,112 | 1.5 | 376,042 | 1.8 | ||||||||||||
Consolidation |
17,127,623 | 72.0 | 13,005,378 | 64.2 | ||||||||||||
Non-federally insured |
197,147 | 0.8 | 96,880 | 0.5 | ||||||||||||
Total |
23,414,468 | 98.4 | 19,912,955 | 98.3 | ||||||||||||
Unamortized premiums and deferred
origination costs |
401,087 | 1.7 | 361,242 | 1.8 | ||||||||||||
Allowance for loan losses: |
||||||||||||||||
Allowance federally insured |
(7,601 | ) | | (98 | ) | | ||||||||||
Allowance non-federally insured |
(18,402 | ) | (0.1 | ) | (13,292 | ) | (0.1 | ) | ||||||||
Net |
$ | 23,789,552 | 100.0 | % | $ | 20,260,807 | 100.0 | % | ||||||||
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Year ended December 31, | ||||||||
2006 | 2005 | |||||||
Beginning balance |
$ | 19,912,955 | 13,299,094 | |||||
Direct channel: |
||||||||
Consolidation loan originations |
5,299,820 | 4,037,366 | ||||||
Less consolidation of existing portfolio |
(2,643,880 | ) | (1,966,000 | ) | ||||
Net consolidation loan originations |
2,655,940 | 2,071,366 | ||||||
Stafford/PLUS loan originations |
1,035,695 | 720,545 | ||||||
Branding partner channel |
910,756 | 657,720 | ||||||
Forward flow channel |
1,600,990 | 1,153,125 | ||||||
Other channels |
492,737 | 796,886 | ||||||
Total channel acquisitions |
6,696,118 | 5,399,642 | ||||||
Repayments, claims, capitalized interest, and other |
(1,332,086 | ) | (1,002,260 | ) | ||||
Consolidation loans lost to external parties |
(1,114,040 | ) | (855,000 | ) | ||||
Loans acquired in portfolio and business acquisitions |
| 3,071,479 | ||||||
Loans sold |
(748,479 | ) | | |||||
Ending balance |
$ | 23,414,468 | 19,912,955 | |||||
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Year ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
(dollars in thousands) | ||||||||||||
Balance at beginning of period |
$ | 13,390 | 7,272 | 16,026 | ||||||||
Provision for loan losses: |
||||||||||||
Federally insured loans |
9,268 | 280 | (7,639 | ) | ||||||||
Non-federally insured loans |
6,040 | 6,750 | 7,110 | |||||||||
Total provision for loan losses |
15,308 | 7,030 | (529 | ) | ||||||||
Charge-offs, net of recoveries: |
||||||||||||
Federally insured loans |
(1,765 | ) | (299 | ) | (1,999 | ) | ||||||
Non-federally insured loans |
(930 | ) | (613 | ) | (6,226 | ) | ||||||
Net charge-offs |
(2,695 | ) | (912 | ) | (8,225 | ) | ||||||
Balance at end of period |
$ | 26,003 | 13,390 | 7,272 | ||||||||
Allocation of the allowance for loan losses: |
||||||||||||
Federally insured loans |
$ | 7,601 | 98 | 117 | ||||||||
Non-federally insured loans |
18,402 | 13,292 | 7,155 | |||||||||
Total allowance for loan losses |
$ | 26,003 | 13,390 | 7,272 | ||||||||
Net loan charge-offs as a percentage of average student loans |
0.012 | % | 0.006 | % | 0.070 | % | ||||||
Total allowance as a percentage of average student loans |
0.120 | % | 0.085 | % | 0.062 | % | ||||||
Total allowance as a percentage of ending balance of student loans |
0.111 | % | 0.067 | % | 0.055 | % | ||||||
Non-federally insured allowance as a percentage of the ending
balance of non-federally insured loans |
9.334 | % | 13.720 | % | 7.914 | % | ||||||
Average student loans |
$ | 21,696,466 | 15,716,388 | 11,809,663 | ||||||||
Ending balance of student loans |
23,414,468 | 19,912,955 | 13,299,094 | |||||||||
Ending balance of non-federally insured loans |
197,147 | 96,880 | 90,405 |
Higher education enrollment (In million)
|
Annual cost of Education ($ thousands)(1) | |
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|
Source: U.S. Department of Education, | Source: The College Board, New York, NY. | |
National Center for Education Statistics | (1) Annual average tuition at private, four-year institutions using constant 2006 dollars. |
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Top FFELP Loan Holders | ||||
Rank | Name | $ billions | ||
1 |
Sallie Mae | $102.3 | ||
2 |
Citigroup | 24.6 | ||
3 |
Nelnet | 15.8 | ||
4 |
Wachovia | 10.7 | ||
5 |
Wells Fargo | 9.6 | ||
6 |
Brazos Group | 9.0 | ||
7 |
College Loan Corp. | 7.8 | ||
8 |
JPMorgan Chase | 7.5 | ||
9 |
PHEAA | 6.8 | ||
10 |
Goal Financial | 5.3 |
Top FFELP Stafford and PLUS Originators | ||||
Rank | Name | $ billions | ||
1 |
JPMorgan Chase | $5.4 | ||
2 |
Sallie Mae | 5.0 | ||
3 |
Nelnet | 4.1 | ||
4 |
Citigroup | 3.3 | ||
5 |
Bank of America | 2.9 | ||
6 |
Wells Fargo | 2.3 | ||
7 |
Wachovia | 2.1 | ||
8 |
College Loan Corp. | 1.2 | ||
9 |
U.S. Bancorp | 1.1 | ||
10 |
Access Group | 1.1 |
Top FFELP Consolidators | ||||
Rank | Name | $ billions | ||
1 |
Sallie Mae | $19.3 | ||
2 |
Citigroup | 4.8 | ||
3 |
Nelnet | 4.1 | ||
4 |
JPMorgan Chase | 2.2 | ||
5 |
SunTrust | 1.9 | ||
6 |
Northstar | 1.7 | ||
7 |
Goal Financial | 1.7 | ||
8 |
College Loan Corp. | 1.6 | ||
9 |
Brazos Group | 1.6 | ||
10 |
PHEAA | 1.6 |
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2. Origination and servicing of non-federally insured student loans (5.1%);
3. Servicing and support outsourcing for guaranty agencies (23.9% ); and
4. Origination and servicing of loans under the Canadian government-sponsored student loan program (36.2%).
2006 | 2005 | |||||||||||||||||||||||
Company | Third party | Total | Company | Third party | Total | |||||||||||||||||||
(dollars in millions) | (dollars in millions) | |||||||||||||||||||||||
FFELP loans |
$ | 21,869 | 8,725 | 30,594 | $ | 16,969 | 10,020 | 26,989 | ||||||||||||||||
Canadian loans (in U.S. $) |
| 9,043 | 9,043 | | 8,139 | 8,139 | ||||||||||||||||||
Total |
$ | 21,869 | 17,768 | 39,637 | $ | 16,969 | 18,159 | 35,128 | ||||||||||||||||
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Number of Third-party | ||
Product Type | Servicing Customers | |
FFELP |
126 | |
Private |
15 | |
Guaranty |
27 | |
Canadian |
3 | |
Total |
171 | |
Top FFELP Loan Servicers | ||||
Rank | Name | $ billions | ||
1 |
Sallie Mae | $107.3 | ||
2 |
PHEAA | 28.4 | ||
3 |
Nelnet | 24.4 | ||
4 |
ACS | 23.7 | ||
5 |
Great Lakes | 23.3 | ||
6 |
Citigroup | 19.5 | ||
7 |
JPMorgan Chase | 10.7 | ||
8 |
Wells Fargo | 8.9 | ||
9 |
Edfinancial | 5.3 | ||
10 |
KHEAA | 4.5 |
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| Test preparation study guides and online courses; | ||
| Admissions consulting; | ||
| College planning resource center; | ||
| Licensing of scholarship data; | ||
| Essay and resume editing services; | ||
| Financial aid products; | ||
| Student recognition publications; | ||
| Vendor lead management system; | ||
| Pay per click management; | ||
| Email marketing; | ||
| Admissions lead generation; | ||
| List marketing services; and | ||
| Call center services. |
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| HELMS/HELM-Net, STAR, and SLSS, systems which are used in the full servicing of FFELP, private, consolidation, and Canadian loans; | ||
| Mariner, which is used for consolidation loan origination; | ||
| InfoCentre, which is a data warehouse and analysis tool for educational loans; and | ||
| Uconnect, a tool to facilitate information sharing between different applications. |
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| reducing special allowance payments to lenders; | ||
| reducing default insurance rates (including reducing default insurance rates for lenders/servicers with an Exceptional Performer designation) and the possible elimination of the Exceptional Performer program); | ||
| increasing lender origination fees on consolidation loans; | ||
| reduction of guaranty agency collection retention; | ||
| changing the way guaranty agency account fees are charged; | ||
| requiring disclosures relating to placement on preferred lender lists and various arrangements between lenders and schools; | ||
| banning lenders from offering certain gifts to school employees; | ||
| encouraging borrowers to maximize their borrowing through government loan programs prior to private loan programs with higher interest rates; | ||
| increasing annual and aggregate loan limits for certain Stafford loans; | ||
| reducing interest rates for subsidized Stafford loans; | ||
| encouraging schools to participate in the FDL Program through increased federal scholarship funds; and | ||
| increasing the consolidation rebate fees for certain lenders. |
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121 South 13th Street, Suite 201
Lincoln, Nebraska 68508
Attention: Secretary
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| breaches of the Companys internal control systems, such as a failure to adjust manual or automated servicing functions following a change in regulatory requirements; | ||
| technological defects, such as a malfunction in or destruction of the Companys computer systems; or | ||
| fraud by the Companys employees or other persons in activities such as borrower payment processing. |
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| declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment regarding, any of the Companys 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 indenture relating to the Hybrid Securities, make |
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any payment of principal of, or interest or premium, if any, on, or repay, repurchase or redeem any of the Companys debt securities that rank pari passu with or junior to the Hybrid Securities; or | |||
| make any guaranty payments regarding any guaranty by the Company of the subordinated debt securities of any of the Companys subsidiaries if the guaranty ranks pari passu with or junior in interest to the Hybrid Securities. |
| pay dividends or distributions in additional shares of the Companys 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. |
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| loan origination volume with borrowers attending certain schools; | ||
| loan origination volume generated by some of the Companys branding and forward flow partners; | ||
| loan and guaranty servicing volume generated by some of the Companys loan servicing and guaranty agency customers; and | ||
| software licensing volume generated by some of the Companys licensees. |
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================================================================================
Lease | ||||||||
Approximate | expiration | |||||||
Location | Primary Function or Segment | square feet | date | |||||
Jacksonville, FL.
|
Student Loan and Guaranty Servicing, Software and Technical Services | 109,000 | January 2014 | |||||
Aurora, CO
|
Asset Generation and Management, Student Loan and Guaranty Servicing, Software and Technical Services | 114,000 | February 2008 | |||||
Mississauga, Ontario
|
Student Loan Servicing | 113,000 | August 2009 | |||||
Lincoln, NE.
|
Corporate Headquarters, Asset Generation and Management, Student Loan and Guaranty Servicing | 109,000 | | |||||
Indianapolis, IN
|
Asset Generation and Management, Student Loan and Guaranty Servicing | 62,000 | February 2008 | |||||
Lawrenceville, NJ.
|
Enrollment Services and List Management | 62,000 | April 2011 |
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2006 | 2005 | |||||||||||||||||||||||||||||||
1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | |||||||||||||||||||||||||
High |
$ | 43.19 | $ | 42.97 | $ | 40.65 | $ | 30.79 | $ | 34.75 | $ | 38.12 | $ | 38.01 | $ | 40.68 | ||||||||||||||||
Low |
40.00 | 36.04 | 28.52 | 25.24 | 26.27 | 31.00 | 33.65 | 35.99 |
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AMONG NELNET, INC., THE DOW JONES US TOTAL MARKET INDEX,
AND THE DOW JONES US FINANCIAL SERVICES INDEX
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Company/Index | 12/11/2003 | 12/31/2003 | 12/31/2004 | 12/31/2005 | 12/31/2006 | |||||||||||||||
Nelnet, Inc. |
$ | 100.00 | $ | 102.75 | $ | 123.53 | $ | 186.61 | $ | 125.50 | ||||||||||
Dow Jones U.S. Total Market Index |
$ | 100.00 | $ | 103.71 | $ | 116.17 | $ | 123.52 | $ | 142.75 | ||||||||||
Dow Jones U.S. Financial Services Index |
$ | 100.00 | $ | 103.63 | $ | 118.41 | $ | 128.33 | $ | 163.95 |
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) | ||||||||||||
October 1 - October 31, 2006 |
| $ | | | 4,401,512 | |||||||||||
November 1 - November 30, 2006 |
90,684 | 25.60 | 90,684 | 4,467,944 | ||||||||||||
December 1 - December 31, 2006 |
| | | 4,418,535 | ||||||||||||
Total |
90,684 | $ | 25.60 | 90,684 | ||||||||||||
(1) | The total number of shares includes: (i) shares purchased pursuant to the 2006 Plan discussed in footnote (2) below, of which there were none for the months of October, November, and December; and (ii) shares repurchased pursuant to the 2006 ESLP discussed in footnote (3) below. |
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(2) | On May 25, 2006, the Company publicly announced that its Board of Directors had authorized a stock repurchase program to buy back up to a total of five million shares of the Companys Class A Common Stock (the 2006 Plan). The 2006 Plan has an expiration date of May 24, 2008 (not January 31, 2008 as indicated in the press release dated May 25, 2006 which announced the program). On February 7, 2007, the Companys Board of Directors increased the total shares the Company is allowed to buy back to 10 million. No shares were repurchased by the Company during October, November, and December 2006 under the 2006 Plan. | |
(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 Companys 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. All of the shares repurchased by the Company during October, November, and December 2006 were repurchased under the 2006 ESLP. | |
(4) | The maximum number of shares that may yet be purchased under the plans is calculated below. In February 2007, the Company repurchased 3,059,800 shares under the 2006 Plan, including 2,725,000 shares repurchased from certain members of management of the Company, for $75.4 million ($24.65 per share). 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. |
(B / C) | (A + D) | |||||||||||||||||||
Approximate dollar | Closing price on | Approximate | Approximate | |||||||||||||||||
Maximum number of | value of shares that | the last trading | numberof shares | number of shares | ||||||||||||||||
shares that may yet be | may yet be | day of the | that may yet be | that may yet be | ||||||||||||||||
purchased under the | purchased under | Company's Class | purchased under | purchased under | ||||||||||||||||
2006 Plan | the 2006 ESLP | A Common Stock | the 2006 ESLP | the 2006 Plan and | ||||||||||||||||
As of | (A) | (B) | (C) | (D) | 2006 ESLP | |||||||||||||||
October 31, 2006
|
3,059,800 | $ | 39,500,000 | $ | 29.44 | 1,341,712 | 4,401,512 | |||||||||||||
November 30, 2006
|
3,059,800 | 37,175,000 | 26.40 | 1,408,144 | 4,467,944 | |||||||||||||||
December 31, 2006
|
3,059,800 | 37,175,000 | 27.36 | 1,358,735 | 4,418,535 |
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Year ended Decmber 31, | ||||||||||||||||||||
2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||
(dollars in thousands, except share data) | ||||||||||||||||||||
Income Statement Data: |
||||||||||||||||||||
Net interest income |
$ | 308,692 | 329,097 | 398,166 | 171,722 | 185,029 | ||||||||||||||
Less provision (recovery) for loan losses |
15,308 | 7,030 | (529 | ) | 11,475 | 5,587 | ||||||||||||||
Net interest income after provision
(recovery) for loan losses |
293,384 | 322,067 | 398,695 | 160,247 | 179,442 | |||||||||||||||
Other income |
332,131 | 204,962 | 124,529 | 121,976 | 127,941 | |||||||||||||||
Derivative market value, foreign currency,
and put option adjustments |
(31,075 | ) | 96,227 | (11,918 | ) | (1,183 | ) | 2,962 | ||||||||||||
Derivative settlements, net |
23,432 | (17,008 | ) | (34,140 | ) | (1,601 | ) | (3,541 | ) | |||||||||||
Salaries and benefits |
(246,116 | ) | (172,732 | ) | (133,667 | ) | (124,273 | ) | (106,874 | ) | ||||||||||
Amortization of intangible assets |
(25,122 | ) | (9,479 | ) | (8,768 | ) | (12,766 | ) | (22,214 | ) | ||||||||||
Impairment expense |
(31,090 | ) | | | | | ||||||||||||||
Other operating expenses |
(208,675 | ) | (140,092 | ) | (100,316 | ) | (96,111 | ) | (101,875 | ) | ||||||||||
Income before income taxes and
minority interest |
106,869 | 283,945 | 234,415 | 46,289 | 75,841 | |||||||||||||||
Net income |
68,155 | 181,122 | 149,179 | 27,103 | 48,538 | |||||||||||||||
Earnings per share, basic and diluted |
$ | 1.27 | 3.37 | 2.78 | 0.60 | 1.08 | ||||||||||||||
Weighted average shares outstanding |
53,593,056 | 53,761,727 | 53,648,605 | 45,501,583 | 44,971,290 | |||||||||||||||
Other Data: |
||||||||||||||||||||
Origination and acquisition volume (a) |
$ | 6,696,118 | 8,471,121 | 4,070,529 | 3,093,014 | 1,983,403 | ||||||||||||||
Average student loans |
$ | 21,696,466 | 15,716,388 | 11,809,663 | 9,316,354 | 8,171,898 | ||||||||||||||
Student loans serviced (at end of period) |
$ | 39,636,502 | 35,127,452 | 28,288,622 | 18,773,899 | 17,863,210 | ||||||||||||||
Ratios: |
||||||||||||||||||||
Core student loan spread |
1.42 | % | 1.51 | % | 1.66 | % | 1.78 | % | 1.65 | % | ||||||||||
Net loan charge-offs as a percentage of
average student loans |
0.012 | % | 0.006 | % | 0.070 | % | 0.080 | % | 0.047 | % | ||||||||||
Shareholders equity to total assets
(at end of period) |
2.51 | % | 2.85 | % | 3.01 | % | 2.56 | % | 1.12 | % | ||||||||||
As of December 31, | ||||||||||||||||||||
2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||
Balance Sheet Data: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 106,086 | 103,650 | 39,989 | 198,423 | 40,155 | ||||||||||||||
Student loans receivables, net |
23,789,552 | 20,260,807 | 13,461,814 | 10,455,442 | 8,559,420 | |||||||||||||||
Goodwill and intangible assets |
354,414 | 252,652 | 20,509 | 11,630 | 23,909 | |||||||||||||||
Total assets |
26,796,873 | 22,798,693 | 15,169,511 | 11,932,831 | 9,766,583 | |||||||||||||||
Bonds and notes payable |
25,562,119 | 21,673,620 | 14,300,606 | 11,366,458 | 9,447,682 |
(a) | Initial loans originated or acquired through various channels, including originations through the direct channel; acquisitions through the branding partner channel, the forward flow channel, and the secondary market (spot purchases); and loans acquired in portfolio and business acquisitions. |
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![(BAR CHART)](https://www.sec.gov/Archives/edgar/data/0001258602/000095013707003140/c12806c1280609.gif)
| On February 8, 2006, the Higher Education Reconciliation Act (HERA) of 2005 was enacted into law. One of the provisions of HERA reduced guarantee rates on FFELP loans. As a result, in February 2006, the Company recorded an expense of $6.9 million ($4.3 million after tax) to increase the Companys allowance for loan losses. | ||
| The Company experienced compression of its core student loan yield primarily due to changes in portfolio mix and a reduction of floor income earned on its fixed rate portfolio. The Companys portfolio of consolidation student loan assets was 72.0% as of December 31, 2006 compared to 64.2% as of December 31, 2005. In addition rising interest rates reduced the amount of floor income earned by the Company on loans earning at fixed rates, however, the Company had hedged a substantial portion of this risk. | ||
| Beginning in the third quarter 2006, the Company sold student loans to an unrelated party. Loans sold were not serviced by the Company and, as such, management believed these loans were at a greater risk of being consolidated away from the Company by third parties. These loan sales resulted in a $14.0 million gain. | ||
| In December 2006, EDULINX, a subsidiary of the Company, was notified that the Government of Canada had decided to award its contract to another service provider upon the expiration of the contract with EDULINX on March 31, 2008. As a result, the Company recognized a $9.4 million impairment charge on long-lived assets. See Recent Developments for additional information about this event. | ||
| In January 2007, the Company entered into a Settlement Agreement with the Department that resulted in the elimination of 9.5% special allowance payments and recognized a charge of $21.7 million in 2006 as a result of the Agreement. See Recent Developments for additional information about the Settlement Agreement. | ||
| During 2006, the Company repurchased and retired 1,940,200 shares of Class A Common Stock for $62.4 million. |
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Year ended | ||||||||||||
December 31, | December 31, | |||||||||||
2006 | 2005 | $ Change | ||||||||||
(dollars in thousands) | ||||||||||||
Interest income: |
||||||||||||
Loan interest |
$ | 1,455,715 | 904,949 | 550,766 | ||||||||
Investment interest |
94,151 | 44,259 | 49,892 | |||||||||
Total interest income |
1,549,866 | 949,208 | 600,658 | |||||||||
Interest expense: |
||||||||||||
Interest on bonds and notes payable |
1,241,174 | 620,111 | 621,063 | |||||||||
Net interest income |
308,692 | 329,097 | (20,405 | ) | ||||||||
Provision for loan losses |
15,308 | 7,030 | 8,278 | |||||||||
Net interest
income after provision for loan losses |
$ | 293,384 | 322,067 | (28,683 | ) | |||||||
Year ended | ||||||||||||
December 31, | December 31, | |||||||||||
2006 | 2005 | $ Change | ||||||||||
(dollars in thousands) | ||||||||||||
Loan and guaranty servicing income |
$ | 190,563 | 152,493 | 38,070 | ||||||||
Other fee-based income |
102,318 | 35,641 | 66,677 | |||||||||
Software services income |
15,890 | 9,169 | 6,721 | |||||||||
Other income |
23,360 | 7,659 | 15,701 | |||||||||
Derivative market value, foreign currency,
and put option adjustments |
(31,075 | ) | 96,227 | (127,302 | ) | |||||||
Derivative settlements, net |
23,432 | (17,008 | ) | 40,440 | ||||||||
Total other income |
$ | 324,488 | 284,181 | 40,307 | ||||||||
35
Table of Contents
Net change | ||||||||||||||||
Year ended | Impact of | after | Year ended | |||||||||||||
December 31, 2005 | acquisitions | acquistions | December 31, 2006 | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Salaries and benefits |
$ | 172,732 | 60,222 | 13,162 | 246,116 | |||||||||||
Other expenses |
140,092 | 65,709 | 2,874 | 208,675 | ||||||||||||
Amortization of intangible assets |
9,479 | 17,641 | (1,998 | ) | 25,122 | |||||||||||
Impairment expense |
| | 31,090 | 31,090 | ||||||||||||
Total operating expenses |
$ | 322,303 | 143,572 | 45,128 | 511,003 | |||||||||||
Year ended | ||||||||||||
December 31, | December 31, | |||||||||||
2005 | 2004 | $ Change | ||||||||||
(dollars in thousands) | ||||||||||||
Interest income: |
||||||||||||
Loan interest |
$ | 904,949 | 635,014 | 269,935 | ||||||||
Investment Interest |
44,259 | 17,762 | 26,497 | |||||||||
Total interest income |
949,208 | 652,776 | 296,432 | |||||||||
Interest expense: |
||||||||||||
Interest on bonds and notes payable |
620,111 | 254,610 | 365,501 | |||||||||
Net interest income |
329,097 | 398,166 | (69,069 | ) | ||||||||
Provision (recovery) for loan losses |
7,030 | (529 | ) | 7,559 | ||||||||
Net interest
income after provision (recovery) for loan losses |
$ | 322,067 | 398,695 | (76,628 | ) | |||||||
36
Table of Contents
Year ended | ||||||||||||
December 31, | December 31, | |||||||||||
2005 | 2004 | $ Change | ||||||||||
(dollars in thousands) | ||||||||||||
Loan and guaranty servicing income |
$ | 152,493 | 100,130 | 52,363 | ||||||||
Other fee-based income |
35,641 | 7,027 | 28,614 | |||||||||
Software services income |
9,169 | 8,051 | 1,118 | |||||||||
Other income |
7,659 | 9,321 | (1,662 | ) | ||||||||
Derivative market value, foreign currency,
and put option adjustments |
96,227 | (11,918 | ) | 108,145 | ||||||||
Derivative settlements, net |
(17,008 | ) | (34,140 | ) | 17,132 | |||||||
Total other income |
$ | 284,181 | 78,471 | 205,710 | ||||||||
Net change | ||||||||||||||||
Year ended | Impact of | after | Year ended | |||||||||||||
December 31, 2004 | acquisitions | acquistions | December 31, | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Salaries and benefits |
$ | 133,667 | 43,909 | (4,844 | ) | 172,732 | ||||||||||
Other expenses |
100,316 | 36,620 | 3,156 | 140,092 | ||||||||||||
Amortization of intangible assets |
8,768 | 7,782 | (7,071 | ) | 9,479 | |||||||||||
Total operating expenses |
$ | 242,751 | 88,311 | (8,759 | ) | 322,303 | ||||||||||
37
Table of Contents
As of December 31, | Change | |||||||||||||||
2006 | 2005 | $ Change | % Change | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Assets: |
||||||||||||||||
Student loans receivable, net |
$ | 23,789,552 | 20,260,807 | 3,528,745 | 17.4 | % | ||||||||||
Cash, cash equivalents, and investments |
1,777,494 | 1,645,797 | 131,697 | 8.0 | ||||||||||||
Goodwill |
191,420 | 99,535 | 91,885 | 92.3 | ||||||||||||
Intangible assets, net |
162,994 | 153,117 | 9,877 | 6.5 | ||||||||||||
Fair value of derivative instruments |
146,099 | 82,837 | 63,262 | 76.4 | ||||||||||||
Other assets |
729,314 | 556,600 | 172,714 | 31.0 | ||||||||||||
Total assets |
$ | 26,796,873 | 22,798,693 | 3,998,180 | 17.5 | % | ||||||||||
Liabilities: |
||||||||||||||||
Bonds and notes payable |
$ | 25,562,119 | 21,673,620 | 3,888,499 | 17.9 | % | ||||||||||
Fair value of derivative instruments |
27,973 | 71 | 27,902 | 39,298.6 | ||||||||||||
Other liabilities |
534,931 | 474,884 | 60,047 | 12.6 | ||||||||||||
Total liabilities |
26,125,023 | 22,148,575 | 3,976,448 | 18.0 | ||||||||||||
Minority interest |
| 626 | (626 | ) | 100.0 | |||||||||||
Shareholders equity |
671,850 | 649,492 | 22,358 | 3.4 | ||||||||||||
Total liabilities and shareholders equity |
$ | 26,796,873 | 22,798,693 | 3,998,180 | 17.5 | % | ||||||||||
38
Table of Contents
Year ended December 31, 2006 | ||||||||||||||||||||||||||||||||||||||||||
Student | Tuition | Enrollment | Base net | |||||||||||||||||||||||||||||||||||||||
Asset | Loan | Payment | Services | Software | Corporate | income | ||||||||||||||||||||||||||||||||||||
Generation | and | Processing | and | and | Activity | Eliminations | Adjustments | GAAP | ||||||||||||||||||||||||||||||||||
and | Guaranty | and Campus | List | Technical | Total | and | and | to GAAP | Results of | |||||||||||||||||||||||||||||||||
Management | Servicing | Commerce | Management | Services | Segments | Overhead | Reclassifications | Results | Operations | |||||||||||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||
Total interest income |
$ | 1,534,423 | 9,190 | 4,029 | 531 | 105 | 1,548,278 | 4,446 | (2,858 | ) | | 1,549,866 | ||||||||||||||||||||||||||||||
Interest expense |
1,215,529 | | 8 | | | 1,215,537 | 28,495 | (2,858 | ) | | 1,241,174 | |||||||||||||||||||||||||||||||
Net interest income |
318,894 | 9,190 | 4,021 | 531 | 105 | 332,741 | (24,049 | ) | | | 308,692 | |||||||||||||||||||||||||||||||
Less provision for loan losses |
15,308 | | | | | 15,308 | | | | 15,308 | ||||||||||||||||||||||||||||||||
Net interest income after provision
for loan losses |
303,586 | 9,190 | 4,021 | 531 | 105 | 317,433 | (24,049 | ) | | | 293,384 | |||||||||||||||||||||||||||||||
Other income (expense): |
||||||||||||||||||||||||||||||||||||||||||
Loan and guarantee servicing income |
| 190,563 | | | | 190,563 | | | | 190,563 | ||||||||||||||||||||||||||||||||
Other fee-based income |
11,867 | | 35,090 | 55,361 | | 102,318 | | | | 102,318 | ||||||||||||||||||||||||||||||||
Software services income |
238 | 5 | | 157 | 15,490 | 15,890 | | | | 15,890 | ||||||||||||||||||||||||||||||||
Other income |
19,966 | 92 | | | | 20,058 | 3,302 | | | 23,360 | ||||||||||||||||||||||||||||||||
Intersegment revenue |
| 63,545 | 503 | 1,000 | 17,877 | 82,925 | 662 | (83,587 | ) | | | |||||||||||||||||||||||||||||||
Derivative market value, foreign currency,
and put option adjustments |
| | | | | | | | (31,075 | ) | (31,075 | ) | ||||||||||||||||||||||||||||||
Derivative settlements, net |
18,381 | | | | | 18,381 | 5,051 | | | 23,432 | ||||||||||||||||||||||||||||||||
Total other income (expense) |
50,452 | 254,205 | 35,593 | 56,518 | 33,367 | 430,135 | 9,015 | (83,587 | ) | (31,075 | ) | 324,488 | ||||||||||||||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||||||||||||||||||||
Salaries and benefits |
53,036 | 115,430 | 17,607 | 15,510 | 22,063 | 223,646 | 32,977 | (12,254 | ) | 1,747 | 246,116 | |||||||||||||||||||||||||||||||
Impairment expense |
21,687 | 9,403 | | | | 31,090 | | | | 31,090 | ||||||||||||||||||||||||||||||||
Other expenses |
51,085 | 56,240 | 8,371 | 30,854 | 3,238 | 149,788 | 58,887 | | 25,122 | 233,797 | ||||||||||||||||||||||||||||||||
Intersegment expenses |
52,857 | 12,577 | 1,025 | 17 | | 66,476 | 4,857 | (71,333 | ) | | | |||||||||||||||||||||||||||||||
Total operating expenses |
178,665 | 193,650 | 27,003 | 46,381 | 25,301 | 471,000 | 96,721 | (83,587 | ) | 26,869 | 511,003 | |||||||||||||||||||||||||||||||
Income (loss) before income taxes |
175,373 | 69,745 | 12,611 | 10,668 | 8,171 | 276,568 | (111,755 | ) | | (57,944 | ) | 106,869 | ||||||||||||||||||||||||||||||
Income tax expense (benefit) (a) |
63,134 | 25,108 | 4,540 | 3,840 | 2,942 | 99,564 | (40,836 | ) | | (20,256 | ) | 38,472 | ||||||||||||||||||||||||||||||
Net income (loss) before minority interest |
112,239 | 44,637 | 8,071 | 6,828 | 5,229 | 177,004 | (70,919 | ) | | (37,688 | ) | 68,397 | ||||||||||||||||||||||||||||||
Minority interest in subsidiary income |
| | (242 | ) | | | (242 | ) | | | | (242 | ) | |||||||||||||||||||||||||||||
Net income (loss) |
$ | 112,239 | 44,637 | 7,829 | 6,828 | 5,229 | 176,762 | (70,919 | ) | | (37,688 | ) | 68,155 | |||||||||||||||||||||||||||||
Total assets |
$ | 26,174,592 | 798,248 | 177,105 | 152,962 | 29,359 | 27,332,266 | 37,268 | (572,661 | ) | | 26,796,873 |
(a) | Income taxes are based on a percentage of net income before tax for the individual operating segment. |
39
Table of Contents
Year ended December 31, 2005 | ||||||||||||||||||||||||||||||||||||||||||
Student | Tuition | Enrollment | Base net | |||||||||||||||||||||||||||||||||||||||
Asset | Loan | Payment | Services | Software | Corporate | income | ||||||||||||||||||||||||||||||||||||
Generation | and | Processing | and | and | Activity | Eliminations | Adjustments | GAAP | ||||||||||||||||||||||||||||||||||
and | Guaranty | and Campus | List | Technical | Total | and | and | to GAAP | Results of | |||||||||||||||||||||||||||||||||
Management | Servicing | Commerce | Management | Services | Segments | Overhead | Reclassifications | Results | Operations | |||||||||||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||
Total interest income |
$ | 940,390 | 4,678 | 1,384 | 165 | 21 | 946,638 | 2,615 | (45 | ) | | 949,208 | ||||||||||||||||||||||||||||||
Interest expense |
609,863 | | | | | 609,863 | 10,293 | (45 | ) | | 620,111 | |||||||||||||||||||||||||||||||
Net interest income |
330,527 | 4,678 | 1,384 | 165 | 21 | 336,775 | (7,678 | ) | | | 329,097 | |||||||||||||||||||||||||||||||
Less provision for loan losses |
7,030 | | | | | 7,030 | | | | 7,030 | ||||||||||||||||||||||||||||||||
Net interest income after provision
for loan losses |
323,497 | 4,678 | 1,384 | 165 | 21 | 329,745 | (7,678 | ) | | | 322,067 | |||||||||||||||||||||||||||||||
Other income (expense): |
||||||||||||||||||||||||||||||||||||||||||
Loan and guarantee servicing income |
| 152,493 | | | | 152,493 | | | | 152,493 | ||||||||||||||||||||||||||||||||
Other fee-based income |
9,053 | | 14,239 | 12,349 | | 35,641 | | | | 35,641 | ||||||||||||||||||||||||||||||||
Software services income |
127 | | | | 9,042 | 9,169 | | | | 9,169 | ||||||||||||||||||||||||||||||||
Other income |
3,596 | 14 | | | | 3,610 | 4,049 | | | 7,659 | ||||||||||||||||||||||||||||||||
Intersegment revenue |
| 42,798 | | 139 | 5,848 | 48,785 | 408 | (49,193 | ) | | | |||||||||||||||||||||||||||||||
Derivative market value, foreign currency,
and put option adjustments |
| | | | | | | | 96,227 | 96,227 | ||||||||||||||||||||||||||||||||
Derivative settlements, net |
(17,008 | ) | | | | | (17,008 | ) | | | | (17,008 | ) | |||||||||||||||||||||||||||||
Total other income (expense) |
(4,232 | ) | 195,305 | 14,239 | 12,488 | 14,890 | 232,690 | 4,457 | (49,193 | ) | 96,227 | 284,181 | ||||||||||||||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||||||||||||||||||||
Salaries and benefits |
39,482 | 92,804 | 7,065 | 3,081 | 7,197 | 149,629 | 33,555 | (10,452 | ) | | 172,732 | |||||||||||||||||||||||||||||||
Other expenses |
39,659 | 46,913 | 3,815 | 3,512 | 968 | 94,867 | 45,225 | | 9,479 | 149,571 | ||||||||||||||||||||||||||||||||
Intersegment expenses |
33,070 | 5,196 | 99 | | (8 | ) | 38,357 | 384 | (38,741 | ) | | | ||||||||||||||||||||||||||||||
Total operating expenses |
112,211 | 144,913 | 10,979 | 6,593 | 8,157 | 282,853 | 79,164 | (49,193 | ) | 9,479 | 322,303 | |||||||||||||||||||||||||||||||
Income (loss) before income taxes |
207,054 | 55,070 | 4,644 | 6,060 | 6,754 | 279,582 | (82,385 | ) | | 86,748 | 283,945 | |||||||||||||||||||||||||||||||
Income tax expense (benefit) (a) |
74,539 | 19,825 | 1,672 | 2,181 | 2,431 | 100,648 | (31,251 | ) | | 32,823 | 102,220 | |||||||||||||||||||||||||||||||
Net income (loss) before minority interest |
132,515 | 35,245 | 2,972 | 3,879 | 4,323 | 178,934 | (51,134 | ) | | 53,925 | 181,725 | |||||||||||||||||||||||||||||||
Minority interest in subsidiary income |
| | (603 | ) | | | (603 | ) | | | | (603 | ) | |||||||||||||||||||||||||||||
Net income (loss) |
$ | 132,515 | 35,245 | 2,369 | 3,879 | 4,323 | 178,331 | (51,134 | ) | | 53,925 | 181,122 | ||||||||||||||||||||||||||||||
Total assets |
$ | 22,327,023 | 505,957 | 90,794 | 41,649 | 23,178 | 22,988,601 | 58,173 | (248,081 | ) | | 22,798,693 |
(a) | Income taxes are based on a percentage of net income before tax for the individual operating segment. |
40
Table of Contents
Year ended December 31, 2004 | ||||||||||||||||||||||||||||||||||||||||||
Student | Tuition | Enrollment | Base net | |||||||||||||||||||||||||||||||||||||||
Asset | Loan | Payment | Services | Software | Corporate | income | ||||||||||||||||||||||||||||||||||||
Generation | and | Processing | and | and | Activity | Eliminations | Adjustments | GAAP | ||||||||||||||||||||||||||||||||||
and | Guaranty | and Campus | List | Technical | Total | and | and | to GAAP | Results of | |||||||||||||||||||||||||||||||||
Management | Servicing | Commerce | Management | Services | Segments | Overhead | Reclassifications | Results | Operations | |||||||||||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||
Total interest income |
$ | 649,629 | 1,377 | | | 7 | 651,013 | 1,509 | (94 | ) | 348 | 652,776 | ||||||||||||||||||||||||||||||
Interest expense |
254,353 | | | | | 254,353 | 351 | (94 | ) | | 254,610 | |||||||||||||||||||||||||||||||
Net interest income |
395,276 | 1,377 | | | 7 | 396,660 | 1,158 | | 348 | 398,166 | ||||||||||||||||||||||||||||||||
Less provision for loan losses |
(529 | ) | | | | | (529 | ) | | | | (529 | ) | |||||||||||||||||||||||||||||
Net interest income after provision
for loan losses |
395,805 | 1,377 | | | 7 | 397,189 | 1,158 | | 348 | 398,695 | ||||||||||||||||||||||||||||||||
Other income (expense): |
||||||||||||||||||||||||||||||||||||||||||
Loan and guarantee servicing income |
32 | 99,890 | | | | 99,922 | 208 | | | 100,130 | ||||||||||||||||||||||||||||||||
Other fee-based income |
7,027 | | | | | 7,027 | | | | 7,027 | ||||||||||||||||||||||||||||||||
Software services income |
| | | | 8,051 | 8,051 | | | | 8,051 | ||||||||||||||||||||||||||||||||
Other income |
3,867 | | | | | 3,867 | 5,454 | | | 9,321 | ||||||||||||||||||||||||||||||||
Intersegment revenue |
| 36,707 | | | 3,932 | 40,639 | 640 | (41,279 | ) | | | |||||||||||||||||||||||||||||||
Derivative market value, foreign currency,
and put option adjustments |
| | | | | | | | (11,918 | ) | (11,918 | ) | ||||||||||||||||||||||||||||||
Derivative settlements, net |
(34,140 | ) | | | | | (34,140 | ) | | | | (34,140 | ) | |||||||||||||||||||||||||||||
Total other income (expense) |
(23,214 | ) | 136,597 | | | 11,983 | 125,366 | 6,302 | (41,279 | ) | (11,918 | ) | 78,471 | |||||||||||||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||||||||||||||||||||
Salaries and benefits |
37,111 | 67,266 | | 667 | 6,066 | 111,110 | 31,838 | (9,281 | ) | | 133,667 | |||||||||||||||||||||||||||||||
Other expenses |
35,169 | 24,246 | | 132 | 705 | 60,252 | 40,064 | | 8,768 | 109,084 | ||||||||||||||||||||||||||||||||
Intersegment expenses |
28,284 | 3,617 | | | | 31,901 | 97 | (31,998 | ) | | | |||||||||||||||||||||||||||||||
Total operating expenses |
100,564 | 95,129 | | 799 | 6,771 | 203,263 | 71,999 | (41,279 | ) | 8,768 | 242,751 | |||||||||||||||||||||||||||||||
Income (loss) before income taxes |
272,027 | 42,845 | | (799 | ) | 5,219 | 319,292 | (64,539 | ) | | (20,338 | ) | 234,415 | |||||||||||||||||||||||||||||
Income tax expense (benefit) (a) |
98,913 | 15,579 | | (291 | ) | 1,898 | 116,099 | (23,135 | ) | | (7,728 | ) | 85,236 | |||||||||||||||||||||||||||||
Net income (loss) before
minority interest |
173,114 | 27,266 | | (508 | ) | 3,321 | 203,193 | (41,404 | ) | | (12,610 | ) | 149,179 | |||||||||||||||||||||||||||||
Minority interest in subsidiary income |
| | | | | | | | | | ||||||||||||||||||||||||||||||||
Net income (loss) |
$ | 173,114 | 27,266 | | (508 | ) | 3,321 | 203,193 | (41,404 | ) | | (12,610 | ) | 149,179 | ||||||||||||||||||||||||||||
Total assets |
$ | 14,819,857 | 320,309 | | | 5,893 | 15,146,059 | 62,665 | (39,213 | ) | | 15,169,511 |
(a) | Income taxes are based on a percentage of net income before tax for the individual operating segment. |
41
Table of Contents
42
Table of Contents
Year ended December 31, 2006 | ||||||||||||||||||||||||||||
Student | Tuition | Enrollment | ||||||||||||||||||||||||||
Asset | Loan | Payment | Services | Software | Corporate | |||||||||||||||||||||||
Generation | and | Processing | and | and | Activity | |||||||||||||||||||||||
and | Guaranty | and Campus | List | Technical | and | |||||||||||||||||||||||
Management | Servicing | Commerce | Management | Services | Overhead | Total | ||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||||
Derivative market value, foreign currency, and
put option adjustments |
$ | (5,483 | ) | | | | | (25,592 | ) | (31,075 | ) | |||||||||||||||||
Amortization of intangible assets |
(7,617 | ) | (5,701 | ) | (5,968 | ) | (4,573 | ) | (1,263 | ) | | (25,122 | ) | |||||||||||||||
Non-cash stock based compensation related
to business combinations |
| | | | | (1,747 | ) | (1,747 | ) | |||||||||||||||||||
Variable-rate floor income |
| | | | | | | |||||||||||||||||||||
Net tax effect (a) |
4,978 | 2,166 | 2,268 | 1,738 | 480 | 8,626 | 20,256 | |||||||||||||||||||||
Total adjustments to GAAP |
$ | (8,122 | ) | (3,535 | ) | (3,700 | ) | (2,835 | ) | (783 | ) | (18,713 | ) | (37,688 | ) | |||||||||||||
Year ended December 31, 2005 | ||||||||||||||||||||||||||
Student | Tuition | Enrollment | ||||||||||||||||||||||||
Asset | Loan | Payment | Services | Software | Corporate | |||||||||||||||||||||
Generation | and | Processing | and | and | Activity | |||||||||||||||||||||
and | Guaranty | and Campus | List | Technical | and | |||||||||||||||||||||
Management | Servicing | Commerce | Management | Services | Overhead | Total | ||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||
Derivative market value, foreign currency, and
put option adjustments |
$ | 95,854 | | | | | 373 | 96,227 | ||||||||||||||||||
Amortization of intangible assets |
(1,840 | ) | (2,410 | ) | (2,350 | ) | (2,032 | ) | (847 | ) | | (9,479 | ) | |||||||||||||
Non-cash stock based compensation related
to business combinations |
| | | | | | | |||||||||||||||||||
Variable-rate floor income |
| | | | | | | |||||||||||||||||||
Net tax effect (a) |
(35,726 | ) | 916 | 893 | 772 | 322 | | (32,823 | ) | |||||||||||||||||
Total adjustments to GAAP |
$ | 58,288 | (1,494 | ) | (1,457 | ) | (1,260 | ) | (525 | ) | 373 | 53,925 | ||||||||||||||
Year ended December 31, 2004 | ||||||||||||||||||||||||||||
Student | Tuition | Enrollment | ||||||||||||||||||||||||||
Asset | Loan | Payment | Services | Software | Corporate | |||||||||||||||||||||||
Generation | and | Processing | and | and | Activity | |||||||||||||||||||||||
and | Guaranty | and Campus | List | Technical | and | |||||||||||||||||||||||
Management | Servicing | Commerce | Management | Services | Overhead | Total | ||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||||
Derivative market value, foreign currency, and
put option adjustments |
$ | (11,918 | ) | | | | | | (11,918 | ) | ||||||||||||||||||
Amortization of intangible assets |
(395 | ) | (1,353 | ) | | | (7,020 | ) | | (8,768 | ) | |||||||||||||||||
Non-cash stock based compensation related
to business combinations |
| | | | | | | |||||||||||||||||||||
Variable-rate floor income |
348 | | | | | | 348 | |||||||||||||||||||||
Net tax effect (a) |
4,546 | 514 | | | 2,668 | | 7,728 | |||||||||||||||||||||
Total adjustments to GAAP |
$ | (7,419 | ) | (839 | ) | | | (4,352 | ) | | (12,610 | ) | ||||||||||||||||
(a) | Tax effect computed at 38%. The change in the value of the put option (included in Corporate Activity and Overhead) is not tax effected as this is not deductible for income tax purposes. |
43
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44
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As of December 31, 2006 | As of December 31, 2005 | As of December 31, 2004 | ||||||||||||||||||||||
Dollars | Percent | Dollars | Percent | Dollars | Percent | |||||||||||||||||||
Federally insured: |
||||||||||||||||||||||||
Stafford |
$ | 5,724,586 | 24.1 | % | $ | 6,434,655 | 31.8 | % | $ | 5,047,487 | 37.5 | % | ||||||||||||
PLUS/SLS |
365,112 | 1.5 | 376,042 | 1.8 | 252,910 | 1.9 | ||||||||||||||||||
Consolidation |
17,127,623 | 72.0 | 13,005,378 | 64.2 | 7,908,292 | 58.7 | ||||||||||||||||||
Non-federally insured |
197,147 | 0.8 | 96,880 | 0.5 | 90,405 | 0.7 | ||||||||||||||||||
Total |
23,414,468 | 98.4 | 19,912,955 | 98.3 | 13,299,094 | 98.8 | ||||||||||||||||||
Unamortized premiums and deferred
origination costs |
401,087 | 1.7 | 361,242 | 1.8 | 169,992 | 1.3 | ||||||||||||||||||
Allowance for loan losses: |
||||||||||||||||||||||||
Allowance federally insured |
(7,601 | ) | | (98 | ) | | (117 | ) | | |||||||||||||||
Allowance non-federally insured |
(18,402 | ) | (0.1 | ) | (13,292 | ) | (0.1 | ) | (7,155 | ) | (0.1 | ) | ||||||||||||
Net |
$ | 23,789,552 | 100.0 | % | $ | 20,260,807 | 100.0 | % | $ | 13,461,814 | 100.0 | % | ||||||||||||
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Table of Contents
Year ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
Beginning balance |
$ | 19,912,955 | 13,299,094 | 10,314,874 | ||||||||
Direct channel: |
||||||||||||
Consolidation loan originations |
5,299,820 | 4,037,366 | 3,060,427 | |||||||||
Less consolidation of existing portfolio |
(2,643,880 | ) | (1,966,000 | ) | (1,427,200 | ) | ||||||
Net consolidation loan originations |
2,655,940 | 2,071,366 | 1,633,227 | |||||||||
Stafford/PLUS loan originations |
1,035,695 | 720,545 | 279,885 | |||||||||
Branding partner channel (a) |
910,756 | 657,720 | 989,867 | |||||||||
Forward flow channel |
1,600,990 | 1,153,125 | 780,803 | |||||||||
Other channels |
492,737 | 796,886 | 250,609 | |||||||||
Total channel acquisitions |
6,696,118 | 5,399,642 | 3,934,391 | |||||||||
Repayments, claims, capitalized interest, and other |
(1,332,086 | ) | (1,002,260 | ) | (570,509 | ) | ||||||
Consolidation loans lost to external parties |
(1,114,040 | ) | (855,000 | ) | (515,800 | ) | ||||||
Loans acquired in portfolio and business acquisitions |
| 3,071,479 | 136,138 | |||||||||
Loans sold |
(748,479 | ) | | | ||||||||
Ending balance |
$ | 23,414,468 | 19,912,955 | 13,299,094 | ||||||||
(a) | Included in the branding partner channel are private loan originations of $120.6 million, $13.4 million, and $9.8 million for the years ended December 31, 2006, 2005, and 2004, respectively. |
46
Table of Contents
Year ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
Balance at beginning of period |
$ | 13,390 | 7,272 | 16,026 | ||||||||
Provision for loan losses: |
||||||||||||
Federally insured loans |
9,268 | 280 | (7,639 | ) | ||||||||
Non-federally insured loans |
6,040 | 6,750 | 7,110 | |||||||||
Total provision for loan losses |
15,308 | 7,030 | (529 | ) | ||||||||
Charge-offs, net of recoveries: |
||||||||||||
Federally insured loans |
(1,765 | ) | (299 | ) | (1,999 | ) | ||||||
Non-federally insured loans |
(930 | ) | (613 | ) | (6,226 | ) | ||||||
Net charge-offs |
(2,695 | ) | (912 | ) | (8,225 | ) | ||||||
Balance at end of period |
$ | 26,003 | 13,390 | 7,272 | ||||||||
Allocation of the allowance for loan losses: |
||||||||||||
Federally insured loans |
$ | 7,601 | 98 | 117 | ||||||||
Non-federally insured loans |
18,402 | 13,292 | 7,155 | |||||||||
Total allowance for loan losses |
$ | 26,003 | 13,390 | 7,272 | ||||||||
Net loan charge-offs as a percentage of average student loans |
0.012 | % | 0.006 | % | 0.070 | % | ||||||
Total allowance as a percentage of average student loans |
0.120 | % | 0.085 | % | 0.062 | % | ||||||
Total allowance as a percentage of ending balance of student loans |
0.111 | % | 0.067 | % | 0.055 | % | ||||||
Non-federally
insured allowance as a percentage of the ending balance of non-federally insured loans |
9.334 | % | 13.720 | % | 7.914 | % | ||||||
Average student loans |
$ | 21,696,466 | 15,716,388 | 11,809,663 | ||||||||
Ending balance of student loans |
23,414,468 | 19,912,955 | 13,299,094 | |||||||||
Ending balance of Non-federally insured loans |
197,147 | 96,880 | 90,405 |
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Table of Contents
As of December 31, 2006 | As of December 31, 2005 | |||||||||||||||
Dollars | Percent | Dollars | Percent | |||||||||||||
Federally Insured Loans: |
||||||||||||||||
Loans in-school/grace/deferment(1) |
$ | 6,271,558 | $ | 5,512,448 | ||||||||||||
Loans in forebearance(2) |
2,318,184 | 2,160,577 | ||||||||||||||
Loans in repayment status: |
||||||||||||||||
Loans current |
12,944,768 | 88.5 | % | 10,790,625 | 88.9 | % | ||||||||||
Loans delinquent 31-60 days(3) |
623,439 | 4.3 | 526,044 | 4.3 | ||||||||||||
Loans delinquent 61-90 days(3) |
299,413 | 2.0 | 236,117 | 1.9 | ||||||||||||
Loans delinquent 91 days or greater(4) |
759,959 | 5.2 | 590,264 | 4.9 | ||||||||||||
Total loans in repayment |
14,627,579 | 100.0 | % | 12,143,050 | 100.0 | % | ||||||||||
Total federally insured loans |
$ | 23,217,321 | $ | 19,816,075 | ||||||||||||
Non-Federally Insured Loans: |
||||||||||||||||
Loans in-school/grace/deferment(1) |
$ | 83,973 | $ | 27,709 | ||||||||||||
Loans in forebearance(2) |
6,113 | 2,938 | ||||||||||||||
Loans in repayment status: |
||||||||||||||||
Loans current |
101,084 | 94.4 | % | 61,079 | 92.2 | % | ||||||||||
Loans delinquent 31-60 days(3) |
2,681 | 2.5 | 2,059 | 3.1 | ||||||||||||
Loans delinquent 61-90 days(3) |
1,233 | 1.2 | 1,301 | 2.0 | ||||||||||||
Loans delinquent 91 days or greater(4) |
2,063 | 1.9 | 1,794 | 2.7 | ||||||||||||
Total loans in repayment |
107,061 | 100.0 | % | 66,233 | 100.0 | % | ||||||||||
Total non-federally insured loans |
$ | 197,147 | $ | 96,880 | ||||||||||||
(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 which 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. |
Year ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
Student loan yield (a) |
7.85 | % | 6.90 | % | 6.55 | % | ||||||
Consolidation rebate fees |
(0.72 | ) | (0.65 | ) | (0.58 | ) | ||||||
Premium and deferred origination costs amortization (b) |
(0.39 | ) | (0.49 | ) | (0.60 | ) | ||||||
Student loan net yield |
6.74 | 5.76 | 5.37 | |||||||||
Student loan cost of funds (c) |
(5.12 | ) | (3.75 | ) | (2.25 | ) | ||||||
Student loan spread |
1.62 | 2.01 | 3.12 | |||||||||
Special
allowance yield adjustment, net of settlements on derivatives (d) |
(0.20 | ) | (0.50 | ) | (1.46 | ) | ||||||
Core student loan spread |
1.42 | % | 1.51 | % | 1.66 | % | ||||||
Average balance of student loans (in thousands) |
$ | 21,696,466 | 15,716,388 | 11,809,663 | ||||||||
Average balance of debt outstanding (in thousands) |
23,379,258 | 16,759,511 | 12,822,524 |
(a) | The student loan yield for the year ended December 31, 2006 does not include the $2.8 million charge to write off accounts receivable from the Department related to third quarter 9.5% special allowance payments that will not be received under the Companys previously disclosed Settlement Agreement with the Department. The $2.8 million relates to loans earning 9.5% special allowance payments that were not subject to the OIG audit. | |
(b) | Premium and deferred origination costs amortization for the year ended December 31, 2006 excludes fourth quarter premium amortization related to the Companys portfolio of 9.5% loans purchased in October 2005 as part of the LoanSTAR acquisition. |
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Table of Contents
(c) | The student loan cost of funds includes the effects of net settlement costs on the Companys derivative instruments (excluding the $2.0 million settlement related to the derivative instrument entered into in connection with the issuance of the junior subordinated hybrid securities and the net settlements of $7.0 million for the year ended December 31, 2006 on those derivatives no longer hedging student loan assets). | |
(d) | The special allowance yield adjustments represent the impact on net spread had loans earned at statutorily defined rates under a taxable financing. The special allowance yield adjustments include net settlements on derivative instruments that were used to hedge this loan portfolio earning the excess yield. As previously disclosed, on January 19, 2007, the Company entered into a Settlement Agreement with the Department to resolve the audit by the OIG of the Companys portfolio of student loans receiving 9.5% special allowance payments. Under the terms of the Agreement, all 9.5% special allowance payments were eliminated for periods on and after July 1, 2006. The Company had been deferring recognition of 9.5% special allowance payments related to those loans subject to the OIG audit effective July 1, 2006 pending satisfactory resolution of this issue. |
Year ended | ||||||||||||
December 31, | December 31, | |||||||||||
2006 | 2005 | $ Change | ||||||||||
(dollars in thousands) | ||||||||||||
Net interest income after the provision
for loan losses |
$ | 303,586 | 323,497 | (19,911 | ) | |||||||
Other fee-based income |
11,867 | 9,053 | 2,814 | |||||||||
Software services income |
238 | 127 | 111 | |||||||||
Other income |
19,966 | 3,596 | 16,370 | |||||||||
Derivative settlements, net |
18,381 | (17,008 | ) | 35,389 | ||||||||
Total other income |
50,452 | (4,232 | ) | 54,684 | ||||||||
Salaries and benefits |
53,036 | 39,482 | 13,554 | |||||||||
Other expenses |
72,772 | 39,659 | 33,113 | |||||||||
Intersegment expenses |
52,857 | 33,070 | 19,787 | |||||||||
Total operating expenses |
178,665 | 112,211 | 66,454 | |||||||||
Base net income before income taxes |
175,373 | 207,054 | (31,681 | ) | ||||||||
Income tax expense |
63,134 | 74,539 | (11,405 | ) | ||||||||
Base net income |
$ | 112,239 | 132,515 | (20,276 | ) | |||||||
After Tax Operating Margin |
31.7 | % | 41.5 | % |
49
Table of Contents
Year ended December 31, | Change | |||||||||||||||
2006 | 2005 | Dollars | Percent | |||||||||||||
Loan interest, excluding special
allowance yield adjustment |
$ | 1,675,399 | 989,523 | 685,876 | 69.3 | % | ||||||||||
Special allowance yield adjustment |
24,460 | 94,655 | (70,195 | ) | (74.2 | ) | ||||||||||
Consolidation rebate fees |
(156,751 | ) | (102,699 | ) | (54,052 | ) | (52.6 | ) | ||||||||
Amortization of loan premiums and
deferred origination costs |
(87,393 | ) | (76,530 | ) | (10,863 | ) | (14.2 | ) | ||||||||
Total loan interest |
1,455,715 | 904,949 | 550,766 | 60.9 | ||||||||||||
Investment interest |
78,708 | 35,441 | 43,267 | 122.1 | ||||||||||||
Total interest income |
1,534,423 | 940,390 | 594,033 | 63.2 | ||||||||||||
Interest on bonds and notes payable |
1,213,446 | 609,830 | 603,616 | 99.0 | ||||||||||||
Intercompany interest |
2,083 | 33 | 2,050 | 6,212.1 | ||||||||||||
Provision for loan losses |
15,308 | 7,030 | 8,278 | 117.8 | ||||||||||||
Net interest income after provision for
loan losses |
$ | 303,586 | 323,497 | (19,911 | ) | (6.2 | ) | |||||||||
| The average student loan portfolio increased $6.0 billion, or 38%, for the year ended December 31, 2006 compared to 2005. Student loan yield, excluding the special allowance yield adjustment, increased to 7.72% in 2006 from 6.30% in 2005. The increase in student loan yield is a result of a rising interest rate environment and is offset by an increase in the percentage of lower yielding consolidation loans to the total portfolio. In addition, as a result of the Companys Settlement Agreement with the Department, during the third and fourth quarters of 2006, the Company did not recognize any 9.5% special allowance payments on loans not subject to the OIG audit. Loan interest income, excluding the special allowance yield adjustment, increased $685.9 million as a result of these factors. | ||
| The special allowance yield adjustment decreased $70.2 million for 2006 compared to 2005 primarily as a result of the Settlement Agreement with the Department, an increase in interest rates, which decreases the excess special allowance payments over the statutorily defined rates under a taxable financing, and a decrease in the portfolio of loans earning the special allowance yield adjustment. | ||
| Consolidation rebate fees increased due to the $4.1 billion increase in the consolidation loan portfolio. | ||
| Amortization of loan premiums and deferred origination costs increased as a result of the growth in the student loan portfolio. | ||
| Investment interest income has increased as a result of an increase in cash, cash equivalents, and investments from student loan growth and business combinations, and as a result of the rising interest rate environment. |
50
Table of Contents
| Servicing fees expense increased $4.4 million for the year ended December 31, 2006 compared to 2005 as a result of the acquisition of the Chela portfolio of loans which were not serviced by the Company. | ||
| Advertising and marketing expenses increased $2.8 million as a result of the increased sales and marketing efforts. | ||
| Trustee and other debt related fees increased $1.8 million, or approximately 19%, related to the $6.6 billion, or 39.5%, increase in average debt outstanding. The Companys trustee and other debt-related fees did not increase at the same rate as the increase in average debt outstanding due to a reduction in fee rates paid by the Company. |
Year ended | ||||||||||||
December 31, | December 31, | |||||||||||
2005 | 2004 | $ Change | ||||||||||
(dollars in thousands) | ||||||||||||
Net interest income after the provision
for loan losses |
$ | 323,497 | 395,805 | (72,308 | ) | |||||||
Loan and guaranty servicing income |
| 32 | (32 | ) | ||||||||
Other fee-based income |
9,053 | 7,027 | 2,026 | |||||||||
Software services income |
127 | | 127 | |||||||||
Other income |
3,596 | 3,867 | (271 | ) | ||||||||
Derivative settlements, net |
(17,008 | ) | (34,140 | ) | 17,132 | |||||||
Total other income |
(4,232 | ) | (23,214 | ) | 18,982 | |||||||
Salaries and benefits |
39,482 | 37,111 | 2,371 | |||||||||
Other expenses |
39,659 | 35,169 | 4,490 | |||||||||
Intersegment expenses |
33,070 | 28,284 | 4,786 | |||||||||
Total operating expenses |
112,211 | 100,564 | 11,647 | |||||||||
Base net income before income taxes |
207,054 | 272,027 | (64,973 | ) | ||||||||
Income tax expense |
74,539 | 98,913 | (24,374 | ) | ||||||||
Base net income |
$ | 132,515 | 173,114 | (40,599 | ) | |||||||
After Tax Operating Margin |
41.5 | % | 46.5 | % |
51
Table of Contents
Year ended December 31, | Change | |||||||||||||||
2005 | 2004 | Dollars | Percent | |||||||||||||
Loan interest, excluding special
allowance yield adjustment |
$ | 989,523 | 569,657 | 419,866 | 73.7 | % | ||||||||||
Special allowance yield adjustment |
94,655 | 203,486 | (108,831 | ) | (53.5 | ) | ||||||||||
Consolidation rebate fees |
(102,699 | ) | (68,107 | ) | (34,592 | ) | (50.8 | ) | ||||||||
Amortization of loan premiums and
deferred origination costs |
(76,530 | ) | (70,370 | ) | (6,160 | ) | (8.8 | ) | ||||||||
Total loan interest |
904,949 | 634,666 | 270,283 | 42.6 | ||||||||||||
Investment interest |
35,441 | 14,963 | 20,478 | 136.9 | ||||||||||||
Total interest income |
940,390 | 649,629 | 290,761 | 44.8 | ||||||||||||
Interest on bonds and notes payable |
609,830 | 254,259 | 355,571 | 139.8 | ||||||||||||
Intercompany interest |
33 | 94 | (61 | ) | (64.9 | ) | ||||||||||
Provision for loan losses |
7,030 | (529 | ) | 7,559 | (1,428.9 | ) | ||||||||||
Net interest income after provision for
loan losses |
$ | 323,497 | 395,805 | (72,308 | ) | (18.3 | ) | |||||||||
| The average student loan portfolio increased $3.9 billion, or 33%, for the year ended December 31, 2005 compared to 2004. The student loan yield, excluding the special allowance yield adjustment, increased to 6.30% in 2005 from 4.83% in 2004. The increase in student loan yield is a result of a rising interest rate environment and is offset by an increase in the percentage of lower yielding consolidation loans to the total portfolio. Loan interest income, excluding the special allowance yield adjustment, increased $419.9 million as a result of these factors. | ||
| The special allowance yield adjustment decreased $108.8 million to $94.7 million for 2005 compared to $203.5 million in 2004. This decrease is due to an increase in interest rates, which decreases the excess special allowance payments over the statutorily defined rates under a taxable financing, and a decrease in the portfolio of loans earning the special allowance yield adjustment. In addition, the 2004 special yield adjustment included approximately $42.9 million that was previously deferred. | ||
| Consolidation rebate fees increased $34.6 million in 2005 compared to 2004. This is a result of the increase in the consolidation loan portfolio to $13.0 billion at December 31, 2005 compared to $7.9 billion at December 31, 2004. | ||
| Amortization of loan premiums and deferred origination costs increased as a result of the growth in the student loan portfolio. | ||
| Investment interest income has increased as a result of an increase in cash, cash equivalents, and investments as a result of the rising interest rate environment. |
52
Table of Contents
1. | Origination and servicing of FFEL Program loans (34.8% and 46.2%); | ||
2. | Origination and servicing of non-federally insured student loans (5.1% and 0.9%); | ||
3. | Servicing and support outsourcing for guaranty agencies (23.9% and 14.1%); and | ||
4. | Origination and servicing of loans under the Canadian government sponsored student loan program (36.2% and 38.8%). |
As of December 31, | ||||||||||||||||||||||||
2006 | 2005 | |||||||||||||||||||||||
Company | Third party | Total | Company | Third party | Total | |||||||||||||||||||
(dollars in millions) | ||||||||||||||||||||||||
FFELP and private loans |
$ | 21,869 | 8,725 | 30,594 | 16,969 | 10,020 | 26,989 | |||||||||||||||||
Canadian loans (in U.S. $) |
| 9,043 | 9,043 | | 8,139 | 8,139 | ||||||||||||||||||
Total |
$ | 21,869 | 17,768 | 39,637 | 16,969 | 18,159 | 35,128 | |||||||||||||||||
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Table of Contents
Year ended | ||||||||||||
December 31, | December 31, | |||||||||||
2006 | 2005 | $ Change | ||||||||||
(dollars in thousands) | ||||||||||||
Net interest income after the provision
for loan losses |
$ | 9,190 | 4,678 | 4,512 | ||||||||
Loan and guaranty servicing income |
190,563 | 152,493 | 38,070 | |||||||||
Software services income |
5 | | 5 | |||||||||
Other income |
92 | 14 | 78 | |||||||||
Intersegment revenue |
63,545 | 42,798 | 20,747 | |||||||||
Total other income |
254,205 | 195,305 | 58,900 | |||||||||
Salaries and benefits |
115,430 | 92,804 | 22,626 | |||||||||
Other expenses |
65,643 | 46,913 | 18,730 | |||||||||
Intersegment expenses |
12,577 | 5,196 | 7,381 | |||||||||
Total operating expenses |
193,650 | 144,913 | 48,737 | |||||||||
Base net income before income taxes |
69,745 | 55,070 | 14,675 | |||||||||
Income tax expense |
25,108 | 19,825 | 5,283 | |||||||||
Base net income |
$ | 44,637 | 35,245 | 9,392 | ||||||||
After Tax Operating Margin |
17.0 | % | 17.6 | % |
Year ended December 31, 2005 |
$ | 152,493 | ||
Acquisition of private loan servicing operations |
8,290 | |||
Expansion of guaranty servicing operations |
24,029 | |||
Increase in Canadian loan servicing revenue (a) |
9,808 | |||
Decrease in U.S. loan servicing revenue (b) |
(4,011 | ) | ||
Other |
(46 | ) | ||
Year ended December 31, 2006 |
$ | 190,563 | ||
(a) | The increase in loan servicing revenue includes $4.4 million of performance based revenue for meeting certain servicing criteria under the Companys agreement with the Government of Canada to provide financial and related administrative services to support the CSLP. The remaining $5.4 million increase is the result of an increase in volume of loans serviced and an increase in certain servicing rates effective in April 2006. As noted under Recent Developments in this Report, the Companys CSLP contract will expire in March 2008 and will not be renewed. | |
(b) | The decrease in loan servicing revenue from U.S. operations is the result of the Company acquiring loans from third party lenders that were serviced by the Company prior to the acquisition of such loans. This decrease is offset by servicing volume added as a result of the acquisitions of LoanSTAR, CAN, and Chela. |
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Table of Contents
Year ended | ||||||||||||
December 31, | December 31, | |||||||||||
2005 | 2004 | $ Change | ||||||||||
(dollars in thousands) | ||||||||||||
Net interest income after the provision
for loan losses |
$ | 4,678 | 1,377 | 3,301 | ||||||||
Loan and guaranty servicing income |
152,493 | 99,890 | 52,603 | |||||||||
Other income |
14 | | 14 | |||||||||
Intersegment revenue |
42,798 | 36,707 | 6,091 | |||||||||
Total other income |
195,305 | 136,597 | 58,708 | |||||||||
Salaries and benefits |
92,804 | 67,266 | 25,538 | |||||||||
Other expenses |
46,913 | 24,246 | 22,667 | |||||||||
Intersegment expenses |
5,196 | 3,617 | 1,579 | |||||||||
Total operating expenses |
144,913 | 95,129 | 49,784 | |||||||||
Base net income before income taxes |
55,070 | 42,845 | 12,225 | |||||||||
Income tax expense |
19,825 | 15,579 | 4,246 | |||||||||
Base net income |
$ | 35,245 | 27,266 | 7,979 | ||||||||
After Tax Operating Margin |
17.6 | % | 19.8 | % |
Year ended December 31, 2004 |
$ | 99,890 | ||
Acquisition of Canadian servicing operations |
54,524 | |||
Expansion of guaranty servicing operations |
3,807 | |||
Acquisition of private loan servicing operations |
1,379 | |||
Decrease in U.S. loan servicing revenue (a) |
(5,922 | ) | ||
Loss of guaranty servicing customer |
(2,690 | ) | ||
Other |
1,505 | |||
Year ended December 31, 2005 |
$ | 152,493 | ||
(a) | The decrease in U.S. loan servicing revenue is the result of a decrease in average loans serviced by the Company. |
55
Table of Contents
Year ended | ||||||||||||
December 31, | December 31, | |||||||||||
2006 | 2005 | $ Change | ||||||||||
(dollars in thousands) | ||||||||||||
Net interest income after the provision
for loan losses |
$ | 4,021 | 1,384 | 2,637 | ||||||||
Other fee-based income |
35,090 | 14,239 | 20,851 | |||||||||
Intersegment revenue |
503 | | 503 | |||||||||
Total other income |
35,593 | 14,239 | 21,354 | |||||||||
Salaries and benefits |
17,607 | 7,065 | 10,542 | |||||||||
Other expenses |
8,371 | 3,815 | 4,556 | |||||||||
Intersegment expenses |
1,025 | 99 | 926 | |||||||||
Total operating expenses |
27,003 | 10,979 | 16,024 | |||||||||
Base net income before income taxes |
12,611 | 4,644 | 7,967 | |||||||||
Income tax expense |
4,540 | 1,672 | 2,868 | |||||||||
Base net income before minority interest |
8,071 | 2,972 | 5,099 | |||||||||
Minority interest |
(242 | ) | (603 | ) | 361 | |||||||
Base net income |
$ | 7,829 | 2,369 | 5,460 | ||||||||
After Tax Operating Margin |
20.4 | % | 19.0 | % |
Year ended December 31, 2005 |
$ | 14,239 | ||
Acquisition of tuition payment processing and campus commerce operations |
18,722 | |||
Increase in tuition payment plan fees |
2,129 | |||
Year ended December 31, 2006 |
$ | 35,090 | ||
56
Table of Contents
Year ended | ||||||||||||
December 31, | December 31, | |||||||||||
2005 | 2004 | $ Change | ||||||||||
(dollars in thousands) | ||||||||||||
Net interest income after the provision
for loan losses |
$ | 1,384 | | 1,384 | ||||||||
Other fee-based income |
14,239 | | 14,239 | |||||||||
Intersegment revenue |
| | | |||||||||
Total other income |
14,239 | | 14,239 | |||||||||
Salaries and benefits |
7,065 | | 7,065 | |||||||||
Other expenses |
3,815 | | 3,815 | |||||||||
Intersegment expenses |
99 | | 99 | |||||||||
Total operating expenses |
10,979 | | 10,979 | |||||||||
Base net income before income taxes |
4,644 | | 4,644 | |||||||||
Income tax expense |
1,672 | | 1,672 | |||||||||
Base net income before minority interest |
2,972 | | 2,972 | |||||||||
Minority interest |
(603 | ) | | (603 | ) | |||||||
Base net income |
$ | 2,369 | | 2,369 | ||||||||
After Tax Operating Margin |
19.0 | % | 0.0 | % |
57
Table of Contents
Year ended | ||||||||||||
December 31, | December 31, | |||||||||||
2006 | 2005 | $ Change | ||||||||||
(dollars in thousands) | ||||||||||||
Net interest income after the provision
for loan losses |
$ | 531 | 165 | 366 | ||||||||
Other fee-based income |
55,361 | 12,349 | 43,012 | |||||||||
Software services income |
157 | | 157 | |||||||||
Intersegment revenue |
1,000 | 139 | 861 | |||||||||
Total other income |
56,518 | 12,488 | 44,030 | |||||||||
Salaries and benefits |
15,510 | 3,081 | 12,429 | |||||||||
Other expenses |
30,854 | 3,512 | 27,342 | |||||||||
Intersegment expenses |
17 | | 17 | |||||||||
Total operating expenses |
46,381 | 6,593 | 39,788 | |||||||||
Base net income before income taxes |
10,668 | 6,060 | 4,608 | |||||||||
Income tax expense |
3,840 | 2,181 | 1,659 | |||||||||
Base net income |
$ | 6,828 | 3,879 | 2,949 | ||||||||
After Tax Operating Margin |
12.0 | % | 30.7 | % |
Year-ended December 31, 2005
|
$ | 12,349 | ||
Acquisition of SMG |
4,624 | |||
Acquisition of NHR |
1,092 | |||
Acquisition of Cunet |
20,415 | |||
Acquisition of Petersons |
14,520 | |||
Increased list sales |
2,564 | |||
Decreased merchandise sales |
(203 | ) | ||
Year-ended December 31, 2006 |
$ | 55,361 | ||
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Table of Contents
Year ended | ||||||||||||
December 31, | December 31, | |||||||||||
2005 | 2004 | $ Change | ||||||||||
(dollars in thousands) | ||||||||||||
Net interest income after the provision
for loan losses |
$ | 165 | | 165 | ||||||||
Other fee-based income |
12,349 | | 12,349 | |||||||||
Intersegment revenue |
139 | | 139 | |||||||||
Total other income |
12,488 | | 12,488 | |||||||||
Salaries and benefits |
3,081 | 667 | 2,414 | |||||||||
Other expenses |
3,512 | 132 | 3,380 | |||||||||
Total operating expenses |
6,593 | 799 | 5,794 | |||||||||
Base net income before income taxes |
6,060 | (799 | ) | 6,859 | ||||||||
Income tax expense |
2,181 | (291 | ) | 2,472 | ||||||||
Base net income |
$ | 3,879 | (508 | ) | 4,387 | |||||||
After Tax Operating Margin |
30.7 | % | 0.0 | % |
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Table of Contents
Year ended | ||||||||||||
December 31, | December 31, | |||||||||||
2006 | 2005 | $ Change | ||||||||||
(dollars in thousands) | ||||||||||||
Net interest income after the provision
for loan losses |
$ | 105 | 21 | 84 | ||||||||
Software services income |
15,490 | 9,042 | 6,448 | |||||||||
Intersegment revenue |
17,877 | 5,848 | 12,029 | |||||||||
Total other income |
33,367 | 14,890 | 18,477 | |||||||||
Salaries and benefits |
22,063 | 7,197 | 14,866 | |||||||||
Other expenses |
3,238 | 968 | 2,270 | |||||||||
Intersegment expenses |
| (8 | ) | 8 | ||||||||
Total operating expenses |
25,301 | 8,157 | 17,144 | |||||||||
Base net income before income taxes |
8,171 | 6,754 | 1,417 | |||||||||
Income tax expense |
2,942 | 2,431 | 511 | |||||||||
Base net income |
$ | 5,229 | 4,323 | 906 | ||||||||
After Tax Operating Margin |
15.6 | % | 29.0 | % |
Year ended | ||||||||||||
December 31, | December 31, | |||||||||||
2005 | 2004 | $ Change | ||||||||||
(dollars in thousands) | ||||||||||||
Net interest income after the provision
for loan losses |
$ | 21 | 7 | 14 | ||||||||
Software services income |
9,042 | 8,051 | 991 | |||||||||
Intersegment revenue |
5,848 | 3,932 | 1,916 | |||||||||
Total other income |
14,890 | 11,983 | 2,907 | |||||||||
Salaries and benefits |
7,197 | 6,066 | 1,131 | |||||||||
Other expenses |
968 | 705 | 263 | |||||||||
Intersegment expenses |
(8 | ) | | (8 | ) | |||||||
Total operating expenses |
8,157 | 6,771 | 1,386 | |||||||||
Base net income before income taxes |
6,754 | 5,219 | 1,535 | |||||||||
Income tax expense |
2,431 | 1,898 | 533 | |||||||||
Base net income |
$ | 4,323 | 3,321 | 1,002 | ||||||||
After Tax Operating Margin |
29.0 | % | 27.7 | % |
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61
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62
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Interest rate | ||||||||||||||||
Carrying | Percent of | range on | Final | |||||||||||||
amount | total | carrying amount | maturity | |||||||||||||
Variable-rate bonds and notes (a): |
||||||||||||||||
Bond and notes based on indices (b) |
$ | 16,622,385 | 65.0 | % | 3.63% - 6.08 | % | 02/26/07 - 05/01/42 | |||||||||
Bond and notes based on auction |
2,671,370 | 10.5 | 3.63% - 5.45 | % | 11/01/09 - 07/01/43 | |||||||||||
Total variable-rate bonds and notes |
19,293,755 | 75.5 | ||||||||||||||
Commerical paper and other |
5,173,723 | 20.2 | 5.26% - 5.62 | % | 05/11/07 - 10/17/08 | |||||||||||
Fixed-rate bonds and notes (a) |
403,431 | 1.6 | 5.20% - 6.68 | % | 11/01/09 - 05/01/29 | |||||||||||
Unsecured fixed-rate debt |
475,000 | 1.9 | 5.13% - 7.40 | % | 06/01/10 - 09/29/36 | |||||||||||
Unsecured line of credit |
103,000 | 0.4 | 5.69% - 8.25 | % | 08/19/10 | |||||||||||
Other borrowings |
113,210 | 0.4 | 5.10% - 5.78 | % | 06/29/07 - 11/01/15 | |||||||||||
Total |
$ | 25,562,119 | 100.0 | % | ||||||||||||
(a) | Issued in securitization transactions. | |
(b) | Includes 773.2 million Euro Notes re-measured to $1.0 billion U.S. dollars as of December 31, 2006. |
Less than | More than | |||||||||||||||||||
Total | 1 year | 1 to 3 years | 3 to 5 years | 5 years | ||||||||||||||||
Bonds and notes payable |
$ | 25,562,119 | 5,386,480 | 184,790 | 504,993 | 19,485,856 | ||||||||||||||
Operating lease obligations |
32,243 | 9,470 | 13,393 | 6,062 | 3,318 | |||||||||||||||
Other |
27,081 | 4,950 | 11,052 | 11,079 | | |||||||||||||||
Total |
$ | 25,621,443 | 5,400,900 | 209,235 | 522,134 | 19,489,174 | ||||||||||||||
| LoanSTAR Commitment to sell student loans to the Texas Foundation on a quarterly basis. | ||
| SMG/NHR Contingent payments of $4.0 million to $24.0 million payable in annual installments through April 2008 based on the operating results of SMG and NHR. As of December 31, 2006, the Company has made payments of $3.0 million related to this contingency and has accrued an additional $9.9 million which is included in the table above. | ||
| infiNET Stock price guarantee of $104.8375 per share on 95,380 shares of Class A Common Stock 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. | ||
| FACTS 238,237 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 beginning February 28, 2010, the holders of such shares can require the Company to repurchase all or part of the shares at a price of $83.95 per share. The value of this put option as of December 31, 2006 was $10.8 million and is included in other in the above table. | ||
| CUnet Contingent payments not to exceed $80.0 million due in annual installments through December 2010 based on the aggregate cumulative net income before taxes of CUnet. In partial satisfaction of the contingent consideration, the Company will issue shares of Class A Common Stock. These contingency payments are not included in the table above. |
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Table of Contents
| 5280 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 December 31, 2006 was $2.2 million and is included in other in the above table. |
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Table of Contents
| Clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133; | ||
| Establishes a requirement to evaluate interests in securitized financial assets to determine whether interests are freestanding derivatives or are hybrid financial instruments that contain an embedded derivative requiring bifurcation; | ||
| Clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives; and |
65
Table of Contents
| Amends SFAS No. 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest (that is itself a derivative instrument). |
| Requires an entity to recognize a servicing asset or liability each time it undertakes an obligation to service a financial asset as the result of i) a transfer of the servicers financial assets that meet the requirement for sale accounting; ii) a transfer of the servicers financial assets to a qualifying special-purpose entity in a guaranteed mortgage securitization in which the transferor retains all of the resulting securities and classifies them as either available-for-sale or trading securities in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities (SFAS No. 115); or iii) an acquisition or assumption of an obligation to service a financial asset that does not relate to financial assets of the servicer or its consolidated affiliates. | ||
| Requires all separately recognized servicing assets or liabilities to be initially measured at fair value, if practicable. | ||
| Permits an entity to either i) amortize servicing assets or liabilities in proportion to and over the period of estimated net servicing income or loss and assess servicing assets or liabilities for impairment or increased obligation based on fair value at each reporting date (amortization method); or ii) measure servicing assets or liabilities at fair value at each reporting date and report changes in fair value in earnings in the period in which the changes occur (fair value measurement method). The method must be chosen for each separately recognized class of servicing asset or liability. | ||
| At its initial adoption, permits a one-time reclassification of available-for-sale securities to trading securities by entities with recognized servicing rights, without calling into question the treatment of other available-for-sale securities under SFAS No. 115, provided that the available-for-sale securities are identified in some manner as offsetting the entitys exposure to changes in fair value of servicing assets or liabilities that a servicer elects to subsequently measure at fair value. | ||
| Requires separate presentation of servicing assets and liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing asset and liabilities. |
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As of December 31, 2006 | As of December 31, 2005 | |||||||||||||||
Dollars | Percent | Dollars | Percent | |||||||||||||
Fixed-rate loan assets |
$ | 787,378 | 3.4 | % | $ | 4,908,865 | 24.7 | % | ||||||||
Variable-rate loan assets |
22,627,090 | 96.6 | 15,004,090 | 75.3 | ||||||||||||
Total |
$ | 23,414,468 | 100.0 | % | $ | 19,912,955 | 100.0 | % | ||||||||
Fixed-rate debt instruments |
$ | 878,431 | 3.4 | % | $ | 794,086 | 3.7 | % | ||||||||
Variable-rate debt instruments |
24,683,688 | 96.6 | 20,879,534 | 96.3 | ||||||||||||
Total |
$ | 25,562,119 | 100.0 | % | $ | 21,673,620 | 100.0 | % | ||||||||
Borrower/ | Estimated | |||||||||||
lender | variable | Current | ||||||||||
Fixed interest | weighted | conversion | balance of | |||||||||
rate range | average yield | rate (a) | fixed rate assets | |||||||||
8.0 - 9.0% |
8.23 | % | 5.59 | % | $ | 377,489 | ||||||
> 9.0% |
9.05 | 6.41 | 409,889 | |||||||||
$ | 787,378 | |||||||||||
(a) | The estimated variable conversion rate is the estimated short-term interest rate at which loans would convert to variable rate. |
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Table of Contents
Weighted average | ||||||||
fixed rate paid by | ||||||||
Maturity | Notional values | the Company | ||||||
2006 (a) |
$ | 250,000 | 3.16 | % | ||||
2008 |
462,500 | 3.76 | ||||||
2009 |
312,500 | 4.01 | ||||||
Total |
$ | 1,025,000 | 3.69 | |||||
(a) | Expired on December 31, 2006 |
Weighted | Weighted | |||||||||||||||
average fixed | average fixed | |||||||||||||||
Notional | rate paid by | Notional | rate received by | |||||||||||||
Maturity | Amount | the Company | Amount | the Company | ||||||||||||
2007 |
$ | 512,500 | 3.42 | % | $ | 512,500 | 5.25% | (a) | ||||||||
2010 |
1,137,500 | 4.25 | 1,137,500 | 4.75 | ||||||||||||
2012 |
275,000 | 4.31 | 275,000 | 4.76 | ||||||||||||
2013 |
525,000 | 4.36 | 525,000 | 4.80 | ||||||||||||
$ | 2,450,000 | 4.11 | % | $ | 2,450,000 | 4.87 | % | |||||||||
(a) | The effective date of the 2007 derivatives in which the Company will receive a fixed rate is January 2, 2007. |
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Table of Contents
Year ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
(dollars in thousands) | ||||||||||||
Interest rate and basis swap derivatives- loan portfolio |
$ | 12,993 | (1,129 | ) | (2,980 | ) | ||||||
Interest rate swap derivatives- other (a) |
7,044 | | | |||||||||
Special allowance yield adjustment derivatives (a) |
19,794 | (15,879 | ) | (31,160 | ) | |||||||
Cross-currency interest rate swaps |
(14,406 | ) | | | ||||||||
Other (b) |
(1,993 | ) | | | ||||||||
Derivative settlements, net |
$ | 23,432 | (17,008 | ) | (34,140 | ) | ||||||
(a) | Derivative settlements for interest rate swaps other include settlements on the portfolio of derivatives that the Company had used to hedge 9.5% special allowance payments and the portfolio of off-setting interest rate swaps the Company entered into during the fourth quarter 2006. The new derivatives mirror the 9.5% special allowance payment derivatives. Settlements on the 9.5% special allowance derivatives were classified as special allowance yield adjustment derivatives through September 30, 2006. | |
(b) | During 2006, the Company issued junior subordinated hybrid securities and entered into a derivative instrument to economically lock into a fixed interest rate prior to the actual pricing of the transaction. Upon pricing of these notes, the Company terminated this derivative instrument. The consideration paid by the Company to terminate this derivative was $2.0 million. |
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Table of Contents
Year ended December 31, 2006 | ||||||||||||||||||||||||
Change from decrease of 100 | Change from increase of 100 | Change from increase of 200 | ||||||||||||||||||||||
basis points | basis points | 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 |
$ | 9,695 | 9.1 | % | 25,841 | 24.1 | % | 56,351 | 52.7 | % | ||||||||||||||
Impact of derivative settlements |
(12,875 | ) | (12.1 | ) | 12,875 | 12.1 | 25,750 | 24.1 | ||||||||||||||||
Increase (decrease) in net income before taxes |
$ | (3,180 | ) | (3.0) | % | 38,716 | 36.2 | % | 82,101 | 76.8 | % | |||||||||||||
Increase (decrease) in basic and diluted
earning per share |
$ | (0.04 | ) | 0.46 | 0.98 | |||||||||||||||||||
Year ended December 31, 2005 | ||||||||||||||||||||||||
Change from decrease of 100 | Change from increase of 100 | Change from increase of 200 | ||||||||||||||||||||||
basis points | basis points | 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 |
$ | 41,974 | 14.8 | % | (9,310 | ) | (3.3 | )% | (10,004 | ) | (3.5 | )% | ||||||||||||
Impact of derivative settlements |
(37,959 | ) | (13.4 | ) | 37,959 | 13.4 | 75,919 | 26.7 | ||||||||||||||||
Increase in net income before taxes |
$ | 4,015 | 1.4 | % | 28,649 | 10.1 | % | 65,915 | 23.2 | % | ||||||||||||||
Increase in basic and diluted
earning per share |
$ | 0.05 | 0.34 | 0.78 | ||||||||||||||||||||
Year ended December 31, 2004 | ||||||||||||||||||||||||
Change from decrease of 100 | Change from increase of 100 | Change from increase of 200 | ||||||||||||||||||||||
basis points | basis points | 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 |
$ | 69,617 | 29.7 | % | (36,312 | ) | (15.5 | )% | (66,882 | ) | (28.5 | )% | ||||||||||||
Impact of derivative settlements |
(60,177 | ) | (25.7 | ) | 60,177 | 25.7 | 120,355 | 51.3 | ||||||||||||||||
Increase in net income before taxes |
$ | 9,440 | 4.0 | % | 23,865 | 10.2 | % | 53,473 | 22.8 | % | ||||||||||||||
Increase in basic and diluted
earning per share |
$ | 0.11 | 0.28 | 0.63 | ||||||||||||||||||||
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DISCLOSURE
71
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March 1, 2007
72
Table of Contents
Number of shares remaining | ||||||||||||
Number of shares to be | available for future issuance | |||||||||||
issued upon exercise of | Weighted-average exercise | under equity compensation | ||||||||||
outstanding options, | price of outstanding options, | plans (excluding securities | ||||||||||
warrants, and rights | warrants, and rights | reflected in column (a)) | ||||||||||
Plan category | (a) | (b) | (c) | |||||||||
Equity compensation plans
approved by shareholders |
0 | $ | 0 | 2,722,366 | ||||||||
Equity compensation plans
not approved by shareholders |
0 | $ | 0 | 0 | ||||||||
Total |
0 | $ | 0 | 2,722,366 | (1) | |||||||
(1) | Includes 887,154, 50,443, 888,094, and 896,675 shares of Class A Common Stock remaining available for future issuance under the Nelnet, Inc. Restricted Stock Plan, Nelnet, Inc. Directors Stock Compensation Plan, Nelnet, Inc. Employee Share Purchase Plan, and Nelnet, Inc. Employee Stock Purchase Loan Plan. |
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Page | ||||
Report of Independent Registered Public Accounting Firm |
F-2 | |||
Consolidated Balance Sheets as of December 31, 2006 and 2005 |
F-3 | |||
Consolidated Statements of Income for the years ended December 31, 2006, 2005, and 2004 |
F-4 | |||
Consolidated Statements of Shareholders Equity and Comprehensive Income for the years ended
December 31, 2006, 2005, and 2004 |
F-5 | |||
Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005, and 2004 |
F-6 | |||
Notes to Consolidated Financial Statements |
F-7 |
74
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Exhibit | ||
No. | Description | |
2.1
|
Agreement for Purchase of LLC Membership Interest among David A. Hoeft, Todd J. Wolfe, Tina D. Mercer, Premiere Credit of North America, LLC and Nelnet, Inc., dated as of January 28, 2004. Incorporated by reference to Exhibit 2.17 to the registrants annual report for the year ended 2003, filed on Form 10-K. | |
2.2
|
Stock and Asset Purchase Agreement dated as of October 3, 2005 among Nelnet, Inc., NNI Acquisition Servicing Limited Partnership, Greater Texas Foundation, and LoanSTAR Systems, Inc., filed as Exhibit 2.1 to Nelnet, Inc.s Current Report on Form 8-K filed on October 3, 2005 and incorporated herein by reference. | |
2.3
|
Asset Purchase Agreement dated as of September 27, 2005, among Nelnet, Inc., Chela Education Financing, Inc. and The Education Financing Foundation of California, filed as Exhibit 2.2 to Nelnet, Inc.s Current Report on Form 8-K filed on October 26, 2005 and incorporated herein by reference. | |
3.1
|
Second Amended and Restated Articles of Incorporation of Nelnet, Inc. Incorporated by reference to Exhibit 3.1 to the registrants Form S-1 Registration Statement. | |
3.2
|
Second Amended and Restated Bylaws of Nelnet, Inc. Incorporated by reference to Exhibit 3.2 to the registrants Form S-1 Registration Statement. | |
3.3
|
Third Amended and Restated Bylaws of Nelnet, Inc. Incorporated by reference to Exhibit 3.1 to the registrants current report on Form 8-K filed on November 18, 2004. | |
3.4
|
Second Amended and Restated Articles of Incorporation of Nelnet, Inc., as amended, filed as Exhibit 3.1 to the registrants Quarterly Report for the period ended September 30, 2006, filed on Form 10-Q and incorporated by reference herein. | |
4.1
|
Form of Class A Common Stock Certificate of Nelnet, Inc. Incorporated by reference to Exhibit 4.1 to the registrants Form S-1 Registration Statement. | |
4.2
|
Indenture of Trust by and between NELNET Student Loan Corporation-2 and Zions First National Bank, as Trustee, dated as of June 1, 2000. Incorporated by reference to Exhibit 4.2 to the registrants Form S-1 Registration Statement. | |
4.3
|
Series 2000 Supplemental Indenture of Trust by and between NELNET Student Loan Corporation-2 and Zions First National Bank, as Trustee, authorizing the issuance of $1,000,000,000 NELNET Student Loan Corporation-2 Taxable Student Loan Asset-Backed Notes Series 2000, dated as of June 1, 2000. Incorporated by reference to Exhibit 4.3 to the registrants Form S-1 Registration Statement. | |
4.4
|
Indenture of Trust by and between Nelnet Student Loan Trust 2002-1 and Zions First National Bank, as Trustee, dated as of May 1, 2002. Incorporated by reference to Exhibit 4.4 to the registrants Form S-1 Registration Statement. | |
4.5
|
Indenture of Trust by and between Nelnet Student Loan Trust 2002-2 and Zions First National Bank, as Trustee, dated as of September 1, 2002. Incorporated by reference to Exhibit 4.5 to the registrants Form S-1 Registration Statement. | |
4.6
|
Indenture of Trust between Nelnet Student Loan Trust 2003-1 and Zions First National Bank, as Trustee, dated as of January 1, 2003. Incorporated by reference to Exhibit 4.6 to the registrants Form S-1 Registration Statement. | |
4.7
|
Indenture of Trust by and among Nelnet Education Loan Funding, Inc., Wells Fargo Bank Minnesota, National Association, as Indenture Trustee, and Wells Fargo Bank Minnesota, National Association, as Eligible Lender Trustee, dated as of June 1, 2003. Incorporated by reference to Exhibit 4.7 to the registrants Form S-1 Registration Statement. | |
4.8
|
Series 2003-1 Supplemental Indenture of Trust by and between Nelnet Education Loan Funding, Inc. and Wells Fargo Bank Minnesota, National Association, as Indenture Trustee, authorizing the issuance of $1,030,000,000 Nelnet Education Loan Funding, Inc. Student Loan Asset-Backed Notes Series 2003-1, dated as of June 1, 2003. Incorporated by reference to Exhibit 4.8 to the registrants Form S-1 Registration Statement. | |
4.9
|
Option Agreement, dated as of January 24, 2002, by and between NELnet, Inc. (subsequently renamed National Education Loan Network, Inc.) and Hilario Arguinchona. Incorporated by reference to Exhibit 4.10 to the registrants Form S-1 Registration Statement. | |
4.10
|
Registration Rights Agreement, dated as of December 16, 2003, by and among Nelnet, Inc. and the shareholders of Nelnet, Inc. signatory thereto. Incorporated by reference to Exhibit 4.11 to the registrants Form S-1 Registration Statement. | |
4.11
|
Indenture of Trust among Nelnet Education Loan Funding, Inc. and Wells Fargo Bank Minnesota, National Association, as Indenture Trustee and Eligible Lender Trustee, dated as of January 1, 2004. Incorporated by reference to Exhibit 4.11 to the registrants annual report for the year ended 2003, filed on Form 10-K. | |
4.12
|
Trust Agreement, dated as of April 1, 2001, among NELNET Student Loan Corporation-1, as Depositor, MELMAC LLC, as Depositor, NELnet, Inc. (subsequently renamed National Education Loan Network, Inc.), as Administrator, The Chase Manhattan Bank, as Collateral Agent, Note Registrar and Note Paying Agent, and Wilmington Trust Company, as Trustee, Certificate Registrar and Certificate Paying Agent. Incorporated by reference to Exhibit 10.59 to the registrants Form S-1 Registration Statement. |
75
Table of Contents
Exhibit | ||
No. | Description | |
4.13
|
Trust Agreement, dated as of December 1, 2001, among EMT Corp., as Depositor, NELnet, Inc. (subsequently renamed National Education Loan Network, Inc.), as Administrator, JPMorgan Chase Bank, as Collateral Agent, Note Registrar and Note Paying Agent, and Wilmington Trust Company, as Trustee, Certificate Registrar and Certificate Paying Agent. Incorporated by reference to Exhibit 10.60 to the registrants Form S-1 Registration Statement. | |
4.14
|
Indenture of Trust among Nelnet Education Loan Funding, Inc. and Wells Fargo Bank, National Association, as Indenture Trustee and Eligible Lender Trustee, dated as of April 1, 2004. Incorporated by reference to Exhibit 4.14 to the registrants quarterly report for the period ended March 31, 2004, filed on Form 10-Q. | |
4.15
|
Indenture of Trust, dated as of July 1, 2004, between Nelnet Student Loan Trust 2004-3 and Zions First National Bank, as eligible lender trustee and as indenture trustee. Incorporated by reference to Exhibit 4.15 to the registrants quarterly report for the period ended June 30, 2004, filed on Form 10-Q. | |
4.16
|
Indenture of Trust, dated as of September 1, 2004, between Nelnet Student Loan Trust 2004-4 and Zions First National Bank, as eligible lender trustee and as indenture trustee. Incorporated by reference to Exhibit 4.16 to the registrants quarterly report for the period ended September 30, 2004, filed on Form 10-Q. | |
4.17
|
Indenture of Trust, dated as of February 1, 2005, by and between Nelnet Student Loan Trust 2005-1 and Zions First National Bank, as Trustee and Eligible Lender Trustee. Incorporated by reference to Exhibit 4.17 to the registrants annual report for the year ended 2004, filed on Form 10-K. | |
4.18
|
Indenture of Trust, dated as of April 1, 2005, between Nelnet Student Loan Trust 2005-2 and Zions First National Bank, as trustee and as eligible lender trustee, filed as Exhibit 4.1 to Nelnet Student Loan Trust 2002-2s Current Report on Form 8-K filed on April 29, 2005 and incorporated herein by reference. | |
4.19
|
Indenture of Trust, dated as of July 1, 2005, between Nelnet Student Loan Trust 2005-3 and Zions First National Bank, as trustee and as eligible lender trustee, filed as Exhibit 4.1 to Nelnet Student Loan Trust 2005-3s Current Report on Form 8-K filed on August 1, 2005 and incorporated herein by reference. | |
4.20
|
Indenture of Trust by and between Nelnet Student Loan Trust 2005-4 and Zions First National Bank, dated as of November 1, 2005, filed as Exhibit 4.1 to Nelnet Student Loan Trust 2005-4s Current Report on Form 8-K filed on November 18, 2005 and incorporated herein by reference. | |
4.21
|
Indenture of Trust by and between Nelnet Student Loan Trust 2006-1 and Zions First National Bank, dated as of February 1, 2006, filed as Exhibit 4.1 to Nelnet Student Loan Trust 2006-1s Current Report on Form 8-K filed on February 24, 2006 and incorporated herein by reference. | |
4.22
|
Form of Nelnet, Inc. Senior Debt Securities Indenture. Incorporated by reference to Exhibit 4.1 to the registrants Amendment No. 1 to Form S-3 filed on May 12, 2005. | |
4.23
|
Indenture dated as of September 27, 2006 between Nelnet, Inc. and Deutsche Bank Trust Company Americas, filed as Exhibit 4.1 to the registrants Current Report on Form 8-K filed on September 28, 2006 and incorporated by reference herein. | |
4.24
|
Supplemental Indenture dated as of September 27, 2006 between Nelnet, Inc. and Deutsche Bank Trust Company Americas, filed as Exhibit 4.2 to the registrants Current Report on Form 8-K filed on September 28, 2006 and incorporated by reference herein. | |
4.25
|
Form of Junior Subordinated Hybrid Securities, filed as Exhibit 4.3 to the registrants Current Report on Form 8-K filed on September 28, 2006 and incorporated by reference herein. | |
4.26
|
Indenture of Trust by and between Nelnet Student Loan Trust 2006-3 and Zions First National Bank, dated as of December 1, 2006, filed as Exhibit 4.1 to Nelnet Student Loan Trust 2006-3s Current Report on Form 8-K filed on December 8, 2006 and incorporated by reference herein. | |
4.27
|
Indenture of Trust by and between Nelnet Student Loan Trust 2006-2 and Zions First National Bank, dated as of May 1, 2006, filed as Exhibit 4.1 to Nelnet Student Loan Trust 2006-2s Current Report on Form 8-K filed on May 23, 2006 and incorporated by reference herein. | |
10.1
|
Agreement to Terminate Stockholders Agreement, dated as of August 4, 2003, by and among Nelnet Loan Services, Inc. (f/k/a UNIPAC Service Corporation) (subsequently renamed Nelnet, Inc.) and those stockholders party to the Stockholders Agreement dated as of March 2, 2000. Incorporated by reference to Exhibit 10.2 to the registrants Form S-1 Registration Statement. | |
10.2
|
Warehouse Note Purchase and Security Agreement among Nelnet Education Loan Funding, as Borrower, Wells Fargo Bank Minnesota, National Association, as Trustee, Wells Fargo Bank Minnesota, National Association, as Eligible Lender Trustee, Quincy Capital Corporation, as Bank of America Conduit Lender, Bank of America, N.A., as Bank of America Alternate Lender, Bank of America, N.A., as Bank of America Facility Agent, Gemini Securitization Corp., as Deutsche Bank Conduit Lender , Deutsche Bank AG, New York Branch, as Deutsche Bank Alternate Lender, Deutsche Bank AG, New York Branch, as Deutsche Bank Facility Agent, Barton Capital Corporation, as Societe Generale Conduit Lender, Societe Generale, as Societe Generale Alternate Lender, Societe Generale, as Societe Generale Facility Agent, and Bank of America, N.A., as Administrative Agent, dated as of May 1, 2003. Incorporated by reference to Exhibit 10.16 to the registrants Form S-1 Registration Statement. | |
10.3+
|
Employment Contract, dated as of May 1, 2001, by and between NHELP, Inc. and Richard H. Pierce. Incorporated by reference to Exhibit 10.26 to the registrants Form S-1 Registration Statement. | |
10.4
|
Marketing Expense Reimbursement Agreement, dated as of January 1, 1999, by and between Union Bank and Trust Company and National Education Loan Network, Inc. Incorporated by reference to Exhibit 10.27 to the |
76
Table of Contents
Exhibit | ||
No. | Description | |
registrants Form S-1 Registration Statement. | ||
10.5
|
First Amendment of Marketing Expense Reimbursement Agreement, dated as of April 1, 2001, by and between Union Bank and Trust Company and NELnet, Inc. (f/k/a National Education Loan Network, Inc.) (subsequently renamed National Education Loan Network, Inc.). Incorporated by reference to Exhibit 10.28 to the registrants Form S-1 Registration Statement. | |
10.6
|
Second Amendment of Marketing Expense Reimbursement Agreement, dated as of December 21, 2001, by and between Union Bank and Trust Company and NELnet, Inc. (f/k/a National Education Loan Network, Inc.) (subsequently renamed National Education Loan Network, Inc.). Incorporated by reference to Exhibit 10.29 to the registrants Form S-1 Registration Statement. | |
10.7
|
Amended and Restated Participation Agreement, dated as of June 1, 2001, by and between NELnet, Inc. (subsequently renamed National Education Loan Network, Inc.) and Union Bank and Trust Company. Incorporated by reference to Exhibit 10.30 to the registrants Form S-1 Registration Statement. | |
10.8
|
First Amendment of Amended and Restated Participation Agreement, dated as of December 19, 2001, by and between Union Bank and Trust Company and NELnet, Inc. (subsequently renamed National Education Loan Network, Inc.). Incorporated by reference to Exhibit 10.31 to the registrants Form S-1 Registration Statement. | |
10.9
|
Second Amendment of Amended and Restated Participation Agreement, dated as of December 1, 2002, by and between Union Bank and Trust Company and Nelnet, Inc. (f/k/a NELnet, Inc.) (subsequently renamed National Education Loan Network, Inc.). Incorporated by reference to Exhibit 10.32 to the registrants Form S-1 Registration Statement. | |
10.10
|
Alternative Loan Participation Agreement, dated as of June 29, 2001, by and between NELnet, Inc. (subsequently renamed National Education Loan Network, Inc.) and Union Bank and Trust Company. Incorporated by reference to Exhibit 10.33 to the registrants Form S-1 Registration Statement. | |
10.11
|
Amended and Restated Agreement, dated as of January 1, 1999, by and between Union Bank and Trust Company and National Education Loan Network, Inc. Incorporated by reference to Exhibit 10.34 to the registrants Form S-1 Registration Statement. | |
10.12
|
Guaranteed Purchase Agreement, dated as of March 19, 2001, by and between NELnet, Inc. (subsequently renamed National Education Loan Network, Inc.) and Union Bank and Trust Company. Incorporated by reference to Exhibit 10.36 to the registrants Form S-1 Registration Statement. | |
10.13
|
First Amendment of Guaranteed Purchase Agreement, dated as of February 1, 2002, by and between NELnet, Inc. (subsequently renamed National Education Loan Network, Inc.) and Union Bank and Trust Company. Incorporated by reference to Exhibit 10.37 to the registrants Form S-1 Registration Statement. | |
10.14
|
Second Amendment of Guaranteed Purchase Agreement, dated as of December 1, 2002, by and between Nelnet, Inc. (f/k/a/ NELnet, Inc.) (subsequently renamed National Education Loan Network, Inc.) and Union Bank and Trust Company. Incorporated by reference to Exhibit 10.38 to the registrants Form S-1 Registration Statement. | |
10.15
|
Agreement For Use of Revolving Purchase Facility, dated as of January 1, 1999, by and between Union Bank and Trust Company and National Education Loan Network, Inc. Incorporated by reference to Exhibit 10.78 to the registrants Form S-1 Registration Statement. | |
10.16+
|
Nelnet, Inc. Executive Officers Bonus Plan. Incorporated by reference to Exhibit 10.79 to the registrants Form S-1 Registration Statement. | |
10.17+
|
Share Retention Policy. Incorporated by reference to Exhibit 10.83 to the registrants Form S-1 Registration Statement. | |
10.18+
|
Nelnet, Inc. Restricted Stock Plan. Incorporated by reference to Exhibit 4.12 to the registrants Form S-1 Registration Statement. | |
10.19+
|
Nelnet, Inc. Directors Stock Compensation Plan. Incorporated by reference to Exhibit 4.13 to the registrants Form S-1 Registration Statement. | |
10.20+
|
Nelnet, Inc. Employee Share Purchase Plan. Incorporated by reference to Exhibit 4.14 to the registrants Form S-1 Registration Statement. | |
10.21
|
Guaranty Agreement, by and among Charter Account Systems, Inc., ClassCredit, Inc., EFS, Inc., EFS Services, Inc., GuaranTec LLP, Idaho Financial Associates, Inc., InTuition, Inc., National Higher Educational Loan Program, Inc., Nelnet Canada, Inc., Nelnet Corporation (subsequently renamed Nelnet Corporate Services, Inc.), Nelnet Guarantee Services, Inc., Nelnet Marketing Solutions, Inc., Student Partner Services, Inc., UFS Securities, LLC and Shockley Financial Corp., dated as of September 25, 2003. Incorporated by reference to Exhibit 10.86 to the registrants Form S-1 Registration Statement. | |
10.22
|
Letter Agreement by and between Nelnet Education Loan Funding, Inc. and Bank of America, N.A., dated as of June 25, 2003, relating to the increase of the Warehouse Note Purchase and Security Agreement dated as of May 1, 2003. Incorporated by reference to Exhibit 10.90 to the registrants Form S-1 Registration Statement. | |
10.23
|
Letter Agreement by and between Nelnet Education Loan Funding, Inc. and Deutsche Bank AG, New York Branch, dated as of June 25, 2003, relating to the increase of the Warehouse Note Purchase and Security Agreement dated as of May 1, 2003. Incorporated by reference to Exhibit 10.91 to the registrants Form S-1 Registration Statement. | |
10.24
|
Letter Agreement by and between Nelnet Education Loan Funding, Inc. and Societe Generale, dated as of June 25, 2003, relating to the increase of the Warehouse Note Purchase and Security Agreement dated as of May 1, 2003. Incorporated by reference to Exhibit 10.92 to the registrants Form S-1 Registration Statement. | |
10.25
|
Amendment to Application and Agreement for Standby Letter of Credit, Loan Purchase Agreements, and |
77
Table of Contents
Exhibit | ||
No. | Description | |
Standby Student Loan Purchase Agreements, dated effective October 21, 2003, by and among National Education Loan Network, Inc., Nelnet, Inc., Nelnet Education Loan Funding, Inc., Union Bank and Trust Company, and Bank of America, N.A. Incorporated by reference to Exhibit 10.94 to the registrants Form S-1 Registration Statement. | ||
10.26
|
Letter Agreement between Nelnet Education Loan Funding, Inc. and Deutsche Bank AG, dated as of February 20, 2004. Incorporated by reference to Exhibit 10.56 to the registrants annual report for the year ended 2003, filed on Form 10-K. | |
10.27
|
Letter Agreement between Nelnet Education Loan Funding, Inc. and Bank of America, N.A., dated as of February 20, 2004. Incorporated by reference to Exhibit 10.57 to the registrants annual report for the year ended 2003, filed on Form 10-K. | |
10.28
|
Letter Agreement between Nelnet Education Loan Funding, Inc. and Societe Generale, dated as of February 20, 2004. Incorporated by reference to Exhibit 10.58 to the registrants annual report for the year ended 2003, filed on Form 10-K. | |
10.29
|
Operating Agreement for Premiere Credit of North America, LLC among Nelnet, Inc., Todd J. Wolfe, David A. Hoeft, and Tina D. Mercer, dated as of January 28, 2004. Incorporated by reference to Exhibit 10.60 to the registrants annual report for the year ended 2003, filed on Form 10-K. | |
10.30
|
Third Amendment to Amended and Restated Participation Agreement between National Education Loan Network, Inc. and Union Bank and Trust Company, dated as of February 5, 2004. Incorporated by reference to Exhibit 10.61 to the registrants annual report for the year ended 2003, filed on Form 10-K. | |
10.31
|
February 2004 Amendment to Application and Agreement for Standby Letter of Credit, Loan Purchase Agreements and Standby Student Loan Purchase Agreements, dated as of February 20, 2004, among National Education Loan Network, Inc., Nelnet, Inc., Nelnet Education Loan Funding, Inc., Union Bank and Trust Company, and Bank of America, N.A. Incorporated by reference to Exhibit 10.62 to the registrants annual report for the year ended 2003, filed on Form 10-K. | |
10.32
|
Amendment to Application and Agreement for Standby Letter of Credit, Loan Purchase Agreements, and Standby Student Loan Purchase Agreements, dated effective November 20, 2003, by and among National Education Loan Network, Inc., Nelnet, Inc., Nelnet Education Loan Funding, Inc., Union Bank and Trust Company, and Bank of America, N.A. Incorporated by reference to Exhibit 10.63 to the registrants annual report for the year ended 2003, filed on Form 10-K. | |
10.33
|
Amendment to Application and Agreement for Standby Letter of Credit, Loan Purchase Agreements, and Standby Student Loan Purchase Agreements, dated effective December 19, 2003, by and among National Education Loan Network, Inc., Nelnet, Inc., Nelnet Education Loan Funding, Inc., Union Bank and Trust Company, and Bank of America, N.A. Incorporated by reference to Exhibit 10.64 to the registrants annual report for the year ended 2003, filed on Form 10-K. | |
10.34
|
April 2004 Amendment to Application and Agreement for Standby Letter of Credit, Loan Purchase Agreements, and Standby Purchase Agreements, dated effective April 15, 2004, among Bank of America, N.A., Nelnet Education Loan Funding, Inc., National Education Loan Network, Inc, Nelnet, Inc., and Union Bank and Trust Company. Incorporated by reference to Exhibit 10.67 to the registrants quarterly report for the period ended March 31, 2004, filed on Form 10-Q. | |
10.35
|
Loan Sale and Commitment Agreement among Union Bank and Trust Company and Student Loan Acquisition Authority of Arizona, dated as of April 1, 2002, relating to student loan sale terms. Incorporated by reference to Exhibit 10.68 to the registrants quarterly report for the period ended March 31, 2004, filed on Form 10-Q. | |
10.36
|
Letter Agreement among National Education Loan Network, Inc., Student Loan Acquisition Authority of Arizona, LLC, and Union Bank and Trust Company, dated as of April 19, 2004, relating to student loan sale terms. Incorporated by reference to Exhibit 10.69 to the registrants quarterly report for the period ended March 31, 2004, filed on Form 10-Q. | |
10.37
|
Agreement to Extend Termination Date for the Warehouse Note Purchase and Security Agreement, dated as of May 1, 2004, among Nelnet Education Loan Funding, Inc., Bank of America, N.A., Deutsche Bank AG, New York Branch, and Societe Generale. Incorporated by reference to Exhibit 10.71 to the registrants quarterly report for the period ended March 31, 2004, filed on Form 10-Q. | |
10.38
|
Stock Purchase Agreement, dated as of April 5, 2004, between National Education Loan Network, Inc. and infiNET Integrated Solutions, Inc. Incorporated by reference to Exhibit 10.72 to the registrants quarterly report for the period ended March 31, 2004, filed on Form 10-Q. | |
10.39
|
Line of Credit Agreement dated as of June 15, 2004, between National Education Loan Network, Inc. and Premiere Credit of North America, LLC. Incorporated by reference to Exhibit 10.76 to the registrants quarterly report for the period ended June 30, 2004, filed on Form 10-Q. | |
10.40
|
Promissory Note dated as of June 15, 2004, and executed by Premiere Credit of North America, LLC, in favor of National Education Loan Network, Inc. Incorporated by reference to Exhibit 10.77 to the registrants quarterly report for the period ended June 30, 2004, filed on Form 10-Q. | |
10.41
|
Security Agreement dated as of June 15, 2004, between National Education Loan Network, Inc. and Premiere Credit of North America, LLC. Incorporated by reference to Exhibit 10.78 to the registrants quarterly report for the period ended June 30, 2004, filed on Form 10-Q. | |
10.42
|
Real Estate Mortgage dated as of June 15, 2004, and executed by Premiere Credit of North America, LLC, in favor of National Education Loan Network, Inc. Incorporated by reference to Exhibit 10.79 to the registrants |
78
Table of Contents
Exhibit | ||
No. | Description | |
quarterly report for the period ended June 30, 2004, filed on Form 10-Q. | ||
10.43
|
Amendment of Agreements dated as of February 4, 2005, by and between National Education Loan Network, Inc. and Union Bank and Trust Company. Incorporated by reference to Exhibit 10.1 to the registrants current report on Form 8-K filed on February 10, 2005. | |
10.44
|
Aircraft Management Agreement, dated as of September 30, 2004, by and among Nelnet Corporate Services, Inc., Duncan Aviation, Inc., and Union Financial Services, Inc. Incorporated by reference to Exhibit 10.67 to the registrants annual report for the year ended 2004, filed on Form 10-K. | |
10.45
|
Aircraft Joint Ownership Agreement, dated as of September 30, 2004, by and between Nelnet Corporate Services, Inc. and Union Financial Services, Inc. Incorporated by reference to Exhibit 10.68 to the registrants annual report for the year ended 2004, filed on Form 10-K. | |
10.46
|
Aircraft Sales Agreement, dated as of October 1, 2004, by and among Nelnet Corporate Services, Inc., Union Financial Services, Inc., and Mobek Investments, LLC. Incorporated by reference to Exhibit 10.69 to the registrants annual report for the year ended 2004, filed on Form 10-K. | |
10.47+
|
Amended Nelnet, Inc. Executive Officers Bonus Plan. Incorporated by reference to Exhibit 10.1 to the registrants quarterly report for the period ended March 31, 2005, filed on Form 10-Q. | |
10.48+
|
Amended Nelnet, Inc. Employee Share Purchase Plan. Incorporated by reference to Exhibit 10.2 to the registrants quarterly report for the period ended March 31, 2005, filed on Form 10-Q. | |
10.49+
|
Summary of Named Executive Officer Compensation for 2005. Incorporated by reference to Exhibit 10.3 to the registrants quarterly report for the period ended March 31, 2005, filed on Form 10-Q. | |
10.50+
|
Summary of Non-Employee Director Compensation for 2005. Incorporated by reference to Exhibit 10.4 to the registrants quarterly report for the period ended March 31, 2005, filed on Form 10-Q. | |
10.51
|
Amendment of Agreements dated as of February 4, 2005, by and between Union Bank and Trust Company and National Education Loan Network, Inc., filed as Exhibit 10.1 to the registrants Current Report on Form 8-K filed on February 10, 2005 and incorporated herein by reference. | |
10.52+
|
Amended Nelnet, Inc. Employee Share Purchase Plan. Incorporated by reference to Exhibit 10.1 to the registrants quarterly report for the period ended September 30, 2005, filed on Form 10-Q. | |
10.53
|
Credit Agreement dated August 19, 2005, among Nelnet, Inc., JPMorgan Chase Bank, N.A. individually and as Administrative Agent, Citibank, N.A. individually and as Syndication Agent and various lender parties thereto, filed as Exhibit 99.1 to Nelnet, Inc.s Current Report on Form 8-K filed on August 25, 2005 and incorporated herein by reference. | |
10.54+
|
Summary of Named Executive Officer Compensation for 2006. Incorporated by reference to Exhibit 10.78 to the registrants annual report for the year ended December 31, 2005, filed on Form 10-K. | |
10.55+
|
Summary of Non-Employee Director Compensation for 2006. Incorporated by reference to Exhibit 10.79 to the registrants annual report for the year ended December 31, 2005, filed on Form 10-K. | |
10.56+
|
Amended Nelnet, Inc. Directors Stock Compensation Plan. Incorporated by reference to Exhibit 10.80 to the registrants annual report for the year ended December 31, 2005, filed on Form 10-K. | |
10.57+
|
Amended Nelnet, Inc. Restricted Stock Plan. Incorporated by reference to Exhibit 10.1 to the registrants quarterly report for the period ended June 30, 2006, filed on Form 10Q. | |
10.58
|
Agreement of Purchase and Sale dated as of May 25, 2006 between Mad Dog Guest Ranch LLC and Nelnet, Inc., filed as Exhibit 10.1 to Nelnet, Inc.s Current Report on Form 8-K filed on June 1, 2006 and incorporated herein by reference. | |
10.59
|
Replacement Capital Covenant of Nelnet, Inc. dated September 27, 2006, filed as Exhibit 10.1 to the registrants Current Report on Form 8-K filed on September 28, 2006 and incorporated by reference herein. | |
10.60
|
Amendment to Agreement of Purchase and Sale dated as of September 25, 2006 between Mad Dog Guest Ranch LLC and Nelnet, Inc. filed as Exhibit 10.2 to the registrants Current Report on Form 8-K filed on October 16, 2006 and incorporated by reference herein. | |
10.61
|
Office Building Lease dated June 21, 1996 between Miller & Paine and Union Bank and Trust Company, filed as Exhibit 10.3 to the registrants Current Report on Form 8-K filed on October 16, 2006 and incorporated by reference herein. | |
10.62
|
Amendment to Office Building Lease dated June 11, 1997 between Miller & Paine and Union Bank and Trust Company, filed as Exhibit 10.4 to the registrants Current Report on Form 8-K filed on October 16, 2006 and incorporated by reference herein. | |
10.63
|
Lease Amendment Number Two dated February 8, 2001 between Miller & Paine and Union Bank and Trust Company, filed as Exhibit 10.5 to the registrants Current Report on Form 8-K filed on October 16, 2006 and incorporated by reference herein. | |
10.64
|
Lease Amendment Number Three dated May 23, 2005 between Miller & Paine, LLC and Union Bank and Trust Company, filed as Exhibit 10.6 to the registrants Current Report on Form 8-K filed on October 16, 2006 and incorporated by reference herein. | |
10.65
|
Lease Agreement dated May 20, 2005 between Miller & Paine, LLC and Union Bank and Trust Company, filed as Exhibit 10.7 to the registrants Current Report on Form 8-K filed on October 16, 2006 and incorporated by reference herein. | |
10.66
|
Office Sublease dated April 30, 2001 between Union Bank and Trust Company and Nelnet, Inc., filed as Exhibit |
79
Table of Contents
Exhibit | ||
No. | Description | |
10.8 to the registrants Current Report on Form 8-K filed on October 16, 2006 and incorporated by reference herein. | ||
10.67+
|
Executive Officers Bonus Plan as amended, filed as Exhibit 10.1 to the registrants Current Report on Form 8-K filed on November 20, 2006 and incorporated herein by reference. | |
10.68
|
Settlement Agreement dated January 19, 2007 between Nelnet, Inc. and the United States Department of Education, filed as Exhibit 10.1 to the registrants Current Report on Form 8-K filed on January 19, 2007 and incorporated herein by reference. | |
10.69
|
Commercial Paper Dealer Agreement between Nelnet, Inc. and Banc of America Securities LLC. dated as of December 29, 2006, filed as Exhibit 10.2 to the registrants Current Report on Form 8-K filed on January 30, 2007 and incorporated herein by reference. | |
10.70
|
Commercial Paper Issuing and Paying Agent Agreement between Nelnet, Inc. and Deutsche Bank Trust Company Americas dated as of December 29, 2006, filed as Exhibit 10.3 to the registrants Current Report on Form 8-K filed on January 30, 2007 and incorporated herein by reference. | |
10.71
|
Commercial Paper Dealer Agreement between Nelnet, Inc. and SunTrust Capital Markets, Inc. dated as of December 29, 2006, filed as Exhibit 10.1 to the registrants Current Report on Form 8-K filed on January 30, 2007 and incorporated herein by reference. | |
10.72+*
|
Nelnet, Inc. Amended Share Retention Policy. | |
12.1*
|
Computation of Ratio of Earnings to Fixed Charges. | |
14.1
|
Nelnet, Inc. Code of Ethics. Incorporated by reference to Exhibit 14.1 to the registrants annual report for the year ended 2004, filed on Form 10-K. | |
14.2
|
Nelnet Education Loan Funding, Inc. Code of Ethics. Incorporated by reference to Exhibit 14.2 to the registrants annual report for the year ended 2004, filed on Form 10-K. | |
21.1*
|
Subsidiaries of Nelnet, Inc. | |
23.1*
|
Consent of KPMG LLP, Independent Registered Public Accounting Firm. | |
31.1*
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Co-Chief Executive Officer Michael S. Dunlap. | |
31.2*
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Co-Chief Executive Officer Stephen F. Butterfield. | |
31.3*
|
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. | |
99.1*
|
Response of Nelnet, Inc. to Final Audit Report, Special Allowance Payments to Nelnet for Loans Funded by Tax-Exempt Obligations. |
* | Filed herewith | |
** | Furnished herewith | |
+ | Indicates a compensatory plan or arrangement contemplated by Item 15(a)(3) of Form 10-K |
80
Table of Contents
NELNET, INC. |
||||
By: | /s/ MICHAEL S. DUNLAP | |||
Name: | Michael S. Dunlap | |||
Title: | Chairman and Co-Chief Executive Officer (Co-Principal Executive Officer) | |||
Signature | Title | Date | ||
/s/ MICHAEL S. DUNLAP
|
Chairman and Co-Chief Executive Officer (Co-Principal Executive Officer) | March 1, 2007 | ||
/s/ STEPHEN F. BUTTERFIELD
|
Vice Chairman and Co-Chief Executive Officer (Co-Principal Executive Officer) | March 1, 2007 | ||
/s/ TERRY J. HEIMES
|
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | March 1, 2007 | ||
/s/ DON R. BOUC
|
Director | March 1, 2007 | ||
/s/ JAMES P. ABEL
|
Director | March 1, 2007 | ||
/s/ THOMAS E. HENNING
|
Director | March 1, 2007 | ||
/s/ ARTURO MORENO
|
Director | March 1, 2007 | ||
/s/ BRIAN J. OCONNOR
|
Director | March 1, 2007 | ||
/s/ MICHAEL REARDON
|
Director | March 1, 2007 | ||
/s/ JAMES H. VANHORN
|
Director | March 1, 2007 |
81
Table of Contents
Page | ||||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
F-7 |
Table of Contents
Nelnet, Inc.:
March 1, 2007
F-2
Table of Contents
2006 | 2005 | |||||||
(Dollars in thousands, except share data) | ||||||||
Assets: |
||||||||
Student loans receivable (net of allowance for loan losses of $26,003 in 2006 and $13,390 in 2005) |
$ | 23,789,552 | 20,260,807 | |||||
Cash and cash equivalents: |
||||||||
Cash and cash equivalents not held at a related party |
38,705 | 49,863 | ||||||
Cash and cash equivalents held at a related party |
67,381 | 53,787 | ||||||
Total cash and cash equivalents |
106,086 | 103,650 | ||||||
Restricted cash |
1,388,719 | 1,228,570 | ||||||
Restricted investments |
129,132 | 160,479 | ||||||
Restricted cash due to customers |
153,557 | 153,098 | ||||||
Accrued interest receivable |
503,365 | 394,630 | ||||||
Accounts receivable, net |
64,859 | 36,331 | ||||||
Goodwill |
191,420 | 99,535 | ||||||
Intangible assets, net |
162,994 | 153,117 | ||||||
Property and equipment, net |
67,924 | 36,750 | ||||||
Other assets |
93,166 | 88,889 | ||||||
Fair value of derivative instruments |
146,099 | 82,837 | ||||||
Total assets |
$ | 26,796,873 | 22,798,693 | |||||
Liabilities: |
||||||||
Bonds and notes payable |
$ | 25,562,119 | 21,673,620 | |||||
Accrued interest payable |
120,211 | 94,281 | ||||||
Other liabilities |
261,163 | 227,505 | ||||||
Due to customers |
153,557 | 153,098 | ||||||
Fair value of derivative instruments |
27,973 | 71 | ||||||
Total liabilities |
26,125,023 | 22,148,575 | ||||||
Minority interest |
| 626 | ||||||
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
39,035,169 shares in 2006 and 40,040,841 shares in 2005 |
390 | 400 | ||||||
Class B, convertible, $0.01 par value. Authorized 60,000,000 shares; issued and outstanding
13,505,812 shares in 2006 and 13,962,954 shares in 2005 |
135 | 140 | ||||||
Additional paid-in capital |
182,846 | 220,432 | ||||||
Retained earnings |
496,341 | 428,186 | ||||||
Unearned compensation |
(5,168 | ) | (86 | ) | ||||
Employee notes receivable |
(2,825 | ) | | |||||
Accumulated other comprehensive income, net of taxes |
131 | 420 | ||||||
Total shareholders equity |
671,850 | 649,492 | ||||||
Commitments and contingencies |
||||||||
Total liabilities and shareholders equity |
$ | 26,796,873 | 22,798,693 | |||||
F-3
Table of Contents
2006 | 2005 | 2004 | ||||||||||
(Dollars in thousands, except share data) | ||||||||||||
Interest income: |
||||||||||||
Loan interest |
$ | 1,455,715 | 904,949 | 635,014 | ||||||||
Investment interest |
94,151 | 44,259 | 17,762 | |||||||||
Total interest income |
1,549,866 | 949,208 | 652,776 | |||||||||
Interest expense: |
||||||||||||
Interest on bonds and notes payable |
1,241,174 | 620,111 | 254,610 | |||||||||
Net interest income |
308,692 | 329,097 | 398,166 | |||||||||
Less provision (recovery) for loan losses |
15,308 | 7,030 | (529 | ) | ||||||||
Net interest income after provision (recovery) for loan losses |
293,384 | 322,067 | 398,695 | |||||||||
Other income: |
||||||||||||
Loan and guaranty servicing income |
190,563 | 152,493 | 100,130 | |||||||||
Other fee-based income |
102,318 | 35,641 | 7,027 | |||||||||
Software services income |
15,890 | 9,169 | 8,051 | |||||||||
Other income |
23,360 | 7,659 | 9,321 | |||||||||
Derivative market value, foreign currency, and put option adjustments
and derivative settlements, net |
(7,643 | ) | 79,219 | (46,058 | ) | |||||||
Total other income |
324,488 | 284,181 | 78,471 | |||||||||
Operating expenses: |
||||||||||||
Salaries and benefits |
246,116 | 172,732 | 133,667 | |||||||||
Other operating expenses: |
||||||||||||
Depreciation and amortization |
41,300 | 23,950 | 19,399 | |||||||||
Advertising and marketing |
39,917 | 15,218 | 9,677 | |||||||||
Professional and other services |
32,442 | 23,903 | 15,067 | |||||||||
Impairment expense |
31,090 | | | |||||||||
Occupancy and communications |
25,824 | 18,824 | 12,817 | |||||||||
Postage and distribution |
23,554 | 18,730 | 13,235 | |||||||||
Trustee and other debt related fees |
11,802 | 9,714 | 10,291 | |||||||||
Other |
58,958 | 39,232 | 28,598 | |||||||||
Total other operating expenses |
264,887 | 149,571 | 109,084 | |||||||||
Total operating expenses |
511,003 | 322,303 | 242,751 | |||||||||
Income before income taxes and minority interest |
106,869 | 283,945 | 234,415 | |||||||||
Income tax expense |
38,472 | 102,220 | 85,236 | |||||||||
Income before minority interest |
68,397 | 181,725 | 149,179 | |||||||||
Minority interest in subsidiary income |
(242 | ) | (603 | ) | | |||||||
Net income |
$ | 68,155 | 181,122 | 149,179 | ||||||||
Earnings per share, basic and diluted |
$ | 1.27 | 3.37 | 2.78 | ||||||||
F-4
Table of Contents
Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||
Preferred | Class A | Class B | Additional | Employee | other | Total | ||||||||||||||||||||||||||||||||||||||||||
stock | Common stock shares | Preferred | common | common | paid-in | Retained | Unearned | notes | comprehensive | shareholders | ||||||||||||||||||||||||||||||||||||||
shares | Class A | Class B | stock | stock | stock | capital | earnings | compensation | receivable | income | equity | |||||||||||||||||||||||||||||||||||||
(Dollars in thousands, except share data) | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2003 |
| 39,601,834 | 14,023,454 | $ | | 396 | 140 | 206,831 | 97,885 | | | 237 | 305,489 | |||||||||||||||||||||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||||||||||||||||||||||
Net income |
| | | | | | | 149,179 | | | | 149,179 | ||||||||||||||||||||||||||||||||||||
Other comprehensive income related to
cash flow hedge, net of tax |
| | | | | | | | | | 499 | 499 | ||||||||||||||||||||||||||||||||||||
Total comprehensive income |
149,678 | |||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock, net of forfeitures |
| 45,203 | | | 1 | | 1,084 | | (101 | ) | | | 984 | |||||||||||||||||||||||||||||||||||
Compensation expense for stock based awards |
| | | | | | | | 24 | | | 24 | ||||||||||||||||||||||||||||||||||||
Conversion of common stock |
| 40,000 | (40,000 | ) | | | | | | | | | | |||||||||||||||||||||||||||||||||||
Balance as of December 31, 2004 |
| 39,687,037 | 13,983,454 | | 397 | 140 | 207,915 | 247,064 | (77 | ) | | 736 | 456,175 | |||||||||||||||||||||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||||||||||||||||||||||
Net income |
| | | | | | | 181,122 | | | | 181,122 | ||||||||||||||||||||||||||||||||||||
Other comprehensive income: |
||||||||||||||||||||||||||||||||||||||||||||||||
Cash flow hedge, net of tax |
| | | | | | | | | | (736 | ) | (736 | ) | ||||||||||||||||||||||||||||||||||
Foreign currency translation |
| | | | | | | | | | 420 | 420 | ||||||||||||||||||||||||||||||||||||
Total comprehensive income |
180,806 | |||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock, net of forfeitures |
| 333,304 | | | 3 | | 12,517 | | (72 | ) | | | 12,448 | |||||||||||||||||||||||||||||||||||
Compensation expense for stock based awards |
| | | | | | | | 63 | | | 63 | ||||||||||||||||||||||||||||||||||||
Conversion of common stock |
| 20,500 | (20,500 | ) | | | | | | | | | | |||||||||||||||||||||||||||||||||||
Balance as of December 31, 2005 |
| 40,040,841 | 13,962,954 | | 400 | 140 | 220,432 | 428,186 | (86 | ) | | 420 | 649,492 | |||||||||||||||||||||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||||||||||||||||||||||
Net income |
| | | | | | | 68,155 | | | | 68,155 | ||||||||||||||||||||||||||||||||||||
Other comprehensive income related to
foreign currency translation |
| | | | | | | | | | (98 | ) | (98 | ) | ||||||||||||||||||||||||||||||||||
Total comprehensive income |
68,057 | |||||||||||||||||||||||||||||||||||||||||||||||
Adjustment to initially apply FASB Statement
No. 158, net of tax |
| | | | | | | | | | (191 | ) | (191 | ) | ||||||||||||||||||||||||||||||||||
Issuance of common stock, net of forfeitures |
| 477,386 | | | 4 | | 24,784 | | (7,267 | ) | | | 17,521 | |||||||||||||||||||||||||||||||||||
Compensation expense for stock based awards |
| | | | | | | | 2,185 | | | 2,185 | ||||||||||||||||||||||||||||||||||||
Repurchase of common stock |
| (1,940,200 | ) | | | (19 | ) | | (62,370 | ) | | | | | (62,389 | ) | ||||||||||||||||||||||||||||||||
Conversion of common stock |
| 457,142 | (457,142 | ) | | 5 | (5 | ) | | | | | | | ||||||||||||||||||||||||||||||||||
Loans to employees for purchases of
common stock |
| | | | | | | | | (2,825 | ) | | (2,825 | ) | ||||||||||||||||||||||||||||||||||
Balance as of December 31, 2006 |
| 39,035,169 | 13,505,812 | $ | | 390 | 135 | 182,846 | 496,341 | (5,168 | ) | (2,825 | ) | 131 | 671,850 | |||||||||||||||||||||||||||||||||
F-5
Table of Contents
2006 | 2005 | 2004 | ||||||||||
(Dollars in thousands) | ||||||||||||
Net income |
$ | 68,155 | 181,122 | 149,179 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities,
net of business acquisitions: |
||||||||||||
Depreciation and amortization, including amortization of loan premiums and deferred
origination costs |
169,066 | 109,077 | 96,725 | |||||||||
Derivative market value adjustment |
(43,941 | ) | (95,854 | ) | 11,918 | |||||||
Foreign currency transaction adjustment |
70,374 | | | |||||||||
Change in value of put options issued in business acquisitions |
4,640 | (373 | ) | | ||||||||
Proceeds from sale of floor contracts |
8,580 | | | |||||||||
Gain on sale of student loans |
(15,886 | ) | | | ||||||||
Non-cash compensation expense |
2,495 | 1,810 | 696 | |||||||||
Income from equity method investments |
(536 | ) | (1,637 | ) | (958 | ) | ||||||
Gain on sale of fixed asset |
| | (3,037 | ) | ||||||||
Deferred income tax expense (benefit) |
(6,380 | ) | 46,507 | 11,781 | ||||||||
Impairment expense |
31,090 | | | |||||||||
Provision (recovery) for loan losses |
15,308 | 7,030 | (529 | ) | ||||||||
Other non-cash items |
480 | 631 | 89 | |||||||||
Increase in accrued interest receivable |
(108,735 | ) | (126,202 | ) | (50,392 | ) | ||||||
Decrease (increase) in accounts receivable |
(16,858 | ) | (3,336 | ) | 1,332 | |||||||
Decrease (increase) in other assets |
9,176 | (3,532 | ) | 20,127 | ||||||||
Increase in accrued interest payable |
25,930 | 42,724 | 28,488 | |||||||||
Increase (decrease) in other liabilities |
2,284 | 1,141 | (24,337 | ) | ||||||||
Net cash provided by operating activities |
215,242 | 159,108 | 241,082 | |||||||||
Cash flows from investing activities, net of business acquisitions: |
||||||||||||
Originations, purchases, and consolidations of student loans, including loan premiums
and deferred origination costs |
(6,276,416 | ) | (6,716,276 | ) | (3,485,907 | ) | ||||||
Purchases of student loans, including loan premiums, from a related party |
(588,564 | ) | (1,102,699 | ) | (671,396 | ) | ||||||
Net proceeds from student loan repayments, claims, capitalized interest, and other |
2,446,126 | 1,857,260 | 1,223,184 | |||||||||
Proceeds from sale of student loans |
782,124 | | | |||||||||
Proceeds from sale of fixed asset |
| | 3,573 | |||||||||
Purchases of property and equipment, net |
(51,945 | ) | (19,195 | ) | (16,456 | ) | ||||||
Decrease (increase) in restricted cash |
(160,149 | ) | (383,308 | ) | 61 | |||||||
Purchases of restricted investments |
(765,817 | ) | (878,089 | ) | (954,489 | ) | ||||||
Proceeds from maturities of restricted investments |
797,164 | 999,439 | 853,348 | |||||||||
Purchase of equity method investments |
| | (10,110 | ) | ||||||||
Distributions from equity method investments |
149 | 625 | 970 | |||||||||
Purchase of loan origination rights |
| (9,280 | ) | (7,899 | ) | |||||||
Consideration paid to expand customer relationships |
| (41,282 | ) | | ||||||||
Business acquisitions, net of cash acquired |
(100,531 | ) | (225,991 | ) | (17,876 | ) | ||||||
Net cash used in investing activities |
(3,917,859 | ) | (6,518,796 | ) | (3,082,997 | ) | ||||||
Cash flows from financing activities: |
||||||||||||
Payments on bonds and notes payable |
(5,071,626 | ) | (460,885 | ) | (3,536,093 | ) | ||||||
Proceeds from issuance of bonds and notes payable |
8,751,908 | 6,905,000 | 6,234,813 | |||||||||
Proceeds from issuance of notes payable due to a related party, net |
108,089 | | | |||||||||
Payments of debt issuance costs |
(19,907 | ) | (22,002 | ) | (15,375 | ) | ||||||
Proceeds from issuance of common stock |
1,645 | 961 | 312 | |||||||||
Loans to employees for purchases of common stock |
(2,825 | ) | | | ||||||||
Repurchases of common stock |
(62,389 | ) | | | ||||||||
Net cash provided by financing activities |
3,704,895 | 6,423,074 | 2,683,657 | |||||||||
Effect of exchange rate fluctuations on cash |
158 | 275 | (176 | ) | ||||||||
Net increase (decrease) in cash and cash equivalents |
2,436 | 63,661 | (158,434 | ) | ||||||||
Cash and cash equivalents, beginning of year |
103,650 | 39,989 | 198,423 | |||||||||
Cash and cash equivalents, end of year |
$ | 106,086 | 103,650 | 39,989 | ||||||||
Supplemental disclosures of cash flow information: |
||||||||||||
Interest paid |
$ | 1,160,482 | 558,893 | 216,275 | ||||||||
Income taxes paid, net of refunds |
$ | 51,834 | 57,469 | 60,117 | ||||||||
Supplemental disclosures of noncash financing activities: |
||||||||||||
Note payable assumed in connection with purchase of property |
$ | 5,134 | | | ||||||||
Supplemental disclosures of noncash operating, investing, and financing activities regarding business acquisitions and the Companys cash flow hedge are contained in notes 4 and 8, respectively. |
F-6
Table of Contents
| Asset Generation and Management. The Asset Generation and Management segment includes the acquisition, management, and ownership of the Companys student loan assets. The Companys asset management business is its largest product and service offering and drives the majority of its earnings. The Company owns a large portfolio of student loan assets through a series of education lending subsidiaries. The Company obtains loans through direct origination or through acquisition of loans. The education lending subsidiaries primarily invest in student loans, through an eligible lender trustee, made under Title IV of the Higher Education Act of 1965, as amended (the Higher Education Act). Certain subsidiaries also invest in non-federally insured student loans. | |
Student loans beneficially owned by the education lending subsidiaries include those originated under the FFEL Program, including the Stafford Loan Program, the Parent Loan for Undergraduate Students (PLUS) program, the Supplemental Loans for Students (SLS) program, and loans that consolidate certain borrower obligations (Consolidation). Title to the student loans is held by eligible lender trustees under the Higher Education Act for the benefit of the education lending subsidiaries. The financed eligible loan borrowers are geographically located throughout the United States. The bonds and notes outstanding are payable primarily from interest and principal payments on the student loans, as specified in the resolutions authorizing the sale of the bonds and notes. |
| Student Loan and Guaranty Servicing. The Company services its student loan portfolio and the portfolios of third parties. The Company also provides servicing and support outsourcing for guaranty agencies. Servicing activities include application processing, underwriting, disbursement of funds, customer service, account maintenance, federal reporting and billing collections, payment processing, default aversion, claim filing, and recovery/collection services. These activities are performed internally for the Companys portfolio in addition to generating fee revenue when performed for third-party clients. In December 2004, the Company purchased EDULINX Canada Corporation (EDULINX). EDULINX is a Canadian corporation that services student loans in Canada. The following table summarizes the Companys loan servicing volumes as of December 31, 2006: |
Company | Third party | Total | ||||||||||
(dollars in millions) | ||||||||||||
FFELP and private loans |
$ | 21,869 | 8,725 | 30,594 | ||||||||
Canadian loans (in U.S. $) |
| 9,043 | 9,043 | |||||||||
Total |
$ | 21,869 | 17,768 | 39,637 | ||||||||
| Tuition Payment Processing and Campus Commerce. The Companys Tuition Payment Processing and Campus Commerce segment provides products and services to help institutions and education seeking families manage the payment of education costs during the pre-college and college stages of the education life cycle. The Company provides actively managed tuition payment solutions, online payment processing, detailed information reporting, and data integration services to K-12 and post-secondary educational institutions, families, and students. In addition, the Company provides financial needs analysis for students applying for aid in private and parochial K-12 schools. This segment also provides customer-focused electronic transactions, information sharing, and account and bill presentment to educational institutions. |
F-7
Table of Contents
Notes to Consolidated Financial Statements (Continued)
| Enrollment Services and List Management. The Companys Enrollment Services and List Management segment provides products and services to help institutions and education seeking families during primarily the pre-college phase of the education life cycle. The Company provides a wide range of direct marketing products and services to help schools and businesses reach the middle school, high school, college bound high school, college, and young adult market places. This segment also offers enrollment products and services that are focused on helping i) education seeking families plan for and prepare for college and ii) colleges recruit and retain students. | |
| Software and Technical Services. The Company uses internally developed student loan servicing software and also provides this software to third-party student loan holders and servicers. The Company also provides information technology products and services, with core areas of business in student loan software solutions for schools, lenders, and guarantors; technical consulting services; and enterprise content management. |
As of December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
Premiere Credit of North America, LLC |
50 | % | 50 | % | 50 | % | ||||||
infiNET Integrated Solutions, Inc. |
| 50 | 50 | |||||||||
5280 Solutions, Inc. |
| | 50 | |||||||||
FirstMark Services, LLC |
| | 50 |
F-8
Table of Contents
Notes to Consolidated Financial Statements (Continued)
F-9
Table of Contents
Notes to Consolidated Financial Statements (Continued)
F-10
Table of Contents
Notes to Consolidated Financial Statements (Continued)
F-11
Table of Contents
Notes to Consolidated Financial Statements (Continued)
| Borrower late fee income Borrower late fee income earned by the education lending subsidiaries is recognized when payments are collected from the borrower. | ||
| Payment management services Fees for payment management services are recognized over the period in which services are provided to customers. | ||
| List and print product sales Revenue from the sale of lists and print products is generally earned and recognized, net of estimated returns, upon shipment or delivery. | ||
| Subscription-based products and services Revenues from sales of subscription-based products and services are recognized ratably over the term of the subscription. Subscription revenue received or receivable in advance of the delivery of services is included in deferred revenue. |
F-12
Table of Contents
Notes to Consolidated Financial Statements (Continued)
F-13
Table of Contents
Notes to Consolidated Financial Statements (Continued)
F-14
Table of Contents
Notes to Consolidated Financial Statements (Continued)
Cash and cash equivalents |
$ | 277 | ||
Restricted cash |
97,864 | |||
Student loans and accrued interest |
146,173 | |||
Other assets |
133 | |||
Excess cost over fair value of net assets acquired (goodwill) |
5,971 | |||
Bonds and notes payable and accrued interest |
(238,645 | ) | ||
Other liabilities |
(667 | ) | ||
Total purchase price |
$ | 11,106 | ||
F-15
Table of Contents
Notes to Consolidated Financial Statements (Continued)
Cash and cash equivalents |
$ | 3,576 | ||
Restricted cash due to customers |
16,343 | |||
Accounts receivable |
558 | |||
Intangible assets |
4,172 | |||
Property and equipment |
134 | |||
Other assets |
630 | |||
Excess cost over fair value of net assets acquired (goodwill) |
12,247 | |||
Due to customers |
(16,343 | ) | ||
Other liabilities |
(2,334 | ) | ||
Previously recorded investment in equity interest |
(5,202 | ) | ||
$ | 13,781 | |||
F-16
Table of Contents
Notes to Consolidated Financial Statements (Continued)
Cash and cash equivalents |
$ | | ||
Accounts receivable |
11,273 | |||
Intangible assets |
7,246 | |||
Property and equipment |
5,464 | |||
Other assets |
1,180 | |||
Excess cost over fair value of net assets acquired (goodwill) |
2,996 | |||
Other liabilities |
(20,731 | ) | ||
Total purchase price |
$ | 7,428 | ||
F-17
Table of Contents
Notes to Consolidated Financial Statements (Continued)
Cash and cash equivalents |
$ | 157 | ||
Accounts receivable |
1,212 | |||
Intangible assets |
13,111 | |||
Property and equipment |
545 | |||
Other assets |
4,891 | |||
Excess cost over fair value of net assets acquired (goodwill) |
23,000 | |||
Other liabilities |
(2,991 | ) | ||
Total purchase price |
$ | 39,925 | ||
F-18
Table of Contents
Notes to Consolidated Financial Statements (Continued)
Initial 80% | Remaining 20% | Total | ||||||||||
Cash and cash equivalents |
$ | 2,466 | | 2,466 | ||||||||
Restricted cash due to customers |
11,034 | | 11,034 | |||||||||
Accounts receivable |
55 | | 55 | |||||||||
Intangible assets |
36,438 | 8,374 | 44,812 | |||||||||
Property and equipment |
321 | | 321 | |||||||||
Other assets |
24 | | 24 | |||||||||
Excess cost over fair value of net assets acquired
(goodwill) |
28,689 | 16,487 | 45,176 | |||||||||
Due to customers |
(11,034 | ) | | (11,034 | ) | |||||||
Other liabilities |
(11,901 | ) | (2,699 | ) | (14,600 | ) | ||||||
Minority interests ownership in net assets acquired |
(23 | ) | | (23 | ) | |||||||
Previously recorded minority interest |
| 868 | 868 | |||||||||
Total purchase price |
$ | 56,069 | 23,030 | 79,099 | ||||||||
Cash and cash equivalents |
$ | 15 | ||
Accounts receivable |
123 | |||
Intangible asset computer software |
85 | |||
Property and equipment |
15 | |||
Other assets |
1 | |||
Excess cost over fair value of net assets acquired (goodwill) |
668 | |||
Other liabilities |
(157 | ) | ||
Total purchase price |
$ | 750 | ||
F-19
Table of Contents
Notes to Consolidated Financial Statements (Continued)
Cash and cash equivalents |
$ | 22,441 | ||
Restricted cash |
113,196 | |||
Restricted cash due to customers |
3,649 | |||
Student loans and accrued interest |
937,645 | |||
Intangible assets |
46,443 | |||
Property and equipment |
641 | |||
Other assets |
6,662 | |||
Excess cost over fair value of net assets acquired (goodwill) |
35,913 | |||
Bonds and notes payable and accrued interest |
(931,908 | ) | ||
Due to customers |
(3,649 | ) | ||
Other liabilities |
(54,138 | ) | ||
Total purchase price |
$ | 176,895 | ||
F-20
Table of Contents
Notes to Consolidated Financial Statements (Continued)
Cash and cash equivalents |
$ | 1,845 | ||
Accounts receivable |
2,688 | |||
Intangible assets |
5,301 | |||
Property and equipment |
175 | |||
Other assets |
112 | |||
Excess cost over fair value of net assets acquired (goodwill) |
6,045 | |||
Other liabilities |
(3,542 | ) | ||
Previously recorded investment in equity interest |
(1,629 | ) | ||
Total purchase price |
$ | 10,995 | ||
F-21
Table of Contents
Notes to Consolidated Financial Statements (Continued)
Cash and cash equivalents |
$ | 396 | ||
Restricted cash due to customers |
1,640 | |||
Accounts receivable |
1,424 | |||
Intangible assets |
1,568 | |||
Property and equipment |
285 | |||
Other assets |
86 | |||
Other liabilities |
(528 | ) | ||
Due to customers |
(1,640 | ) | ||
Previously recorded investment in equity interest |
(831 | ) | ||
Total purchase price |
$ | 2,400 | ||
F-22
Table of Contents
Notes to Consolidated Financial Statements-(Continued)
Accounts receivable |
$ | 5,154 | ||
Intangible assets |
16,352 | |||
Property and equipment |
360 | |||
Other assets |
520 | |||
Excess cost over fair value of net assets acquired (goodwill) |
22,335 | |||
Other liabilities |
(4,633 | ) | ||
$ | 40,088 | |||
Accounts receivable |
$ | 7,055 | ||
Intangible assets |
4,309 | |||
Property and equipment |
1,746 | |||
Other assets |
2,493 | |||
Excess cost over fair value of net assets acquired (goodwill) |
37,081 | |||
Other liabilities |
(14,047 | ) | ||
$ | 38,637 | |||
F-23
Table of Contents
Notes to Consolidated Financial Statements-(Continued)
Pro forma | ||||||||
year ended | ||||||||
December 31, | ||||||||
2006 | 2005 | |||||||
(dollars in thousands, except share data) | ||||||||
(Unaudited) | ||||||||
Net interest income |
$ | 308,732 | 348,176 | |||||
Other income |
383,921 | 375,825 | ||||||
Net income |
66,437 | 179,915 | ||||||
Weighted average shares outstanding, basic and diluted |
53,621,391 | 54,354,104 | ||||||
Earnings per share, basic and diluted |
$ | 1.24 | 3.31 |
Weighted | ||||||||||
average | ||||||||||
remaining | ||||||||||
useful life | ||||||||||
as of | As of December 31, | |||||||||
December 31, 2006 | 2006 | 2005 | ||||||||
(dollars in thousands) | ||||||||||
Amortizable intangible assets: |
||||||||||
Customer relationships (net of accumulated amortization of $11,515
and $3,771, respectively) |
127 months | $ | 68,736 | 70,369 | ||||||
Covenants not to compete (net of accumulated amortization of $9,559
and $499, respectively) |
57 months | 37,573 | 3,874 | |||||||
Loan origination rights (net of accumulated amortization of $7,238
and $2,505, respectively) |
68 months | 27,571 | 49,694 | |||||||
Student lists (net of accumulated amortization of $3,757
and $1,708, respectively) |
26 months | 4,440 | 6,489 | |||||||
Trade names (net of accumulated amortization of $363
and $54, respectively) |
39 months | 1,746 | 767 | |||||||
Computer software (net of accumulated amortization of $1,759
and $656, respectively) |
16 months | 3,578 | 1,391 | |||||||
Other (net of accumulated amortization of $348 and $21, respectively) |
9 months | 2,251 | 253 | |||||||
Total amortizable intangible assets |
90 months | 145,895 | 132,837 | |||||||
Unamortizable intangible assets trade names |
17,099 | 20,280 | ||||||||
$ | 162,994 | 153,117 | ||||||||
F-24
Table of Contents
Notes to Consolidated Financial Statements-(Continued)
2007 |
$ | 28,851 | ||
2008 |
27,467 | |||
2009 |
23,566 | |||
2010 |
19,612 | |||
2011 |
13,913 | |||
2012 and thereafter |
32,486 | |||
$ | 145,895 | |||
Tuition | ||||||||||||||||||||||||
Asset | Student Loan | Payment | Enrollment | Software | ||||||||||||||||||||
Generation | and | Processing | Services | and | ||||||||||||||||||||
and | Guaranty | and Campus | and List | Technical | ||||||||||||||||||||
Management | Servicing | Commerce | Management | Services | Total | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Balance as of December 31, 2004 |
$ | 5,971 | | | | 2,551 | 8,522 | |||||||||||||||||
Goodwill acquired during the period |
30,053 | | 32,910 | 17,150 | 7,840 | 87,953 | ||||||||||||||||||
Goodwill from prior period acquisition
allocated during the period |
| 2,996 | | | | 2,996 | ||||||||||||||||||
Effect of foreign currency fluctuations |
| 64 | | | | 64 | ||||||||||||||||||
Balance as of December 31, 2005 |
$ | 36,024 | 3,060 | 32,910 | 17,150 | 10,391 | 99,535 | |||||||||||||||||
Goodwill acquired during the period |
| | 29,169 | 59,416 | | 88,585 | ||||||||||||||||||
Goodwill
from prior period acquisition
allocated during the period |
6,526 | (1,661 | ) | (4,221 | ) | 5,850 | (1,795 | ) | 4,699 | |||||||||||||||
Effect of foreign currency fluctuations |
| 57 | | | | 57 | ||||||||||||||||||
Impairment charge |
| (1,456 | ) | | | | (1,456 | ) | ||||||||||||||||
Balance as of December 31, 2006 |
$ | 42,550 | | 57,858 | 82,416 | 8,596 | 191,420 | |||||||||||||||||
As of December 31, | ||||||||
2006 | 2005 | |||||||
(dollars in thousands) | ||||||||
Federally insured loans |
$ | 23,217,321 | 19,816,075 | |||||
Non-federally insured loans |
197,147 | 96,880 | ||||||
23,414,468 | 19,912,955 | |||||||
Unamortized loan premiums and deferred origination costs |
401,087 | 361,242 | ||||||
Allowance for loan losses federally insured loans |
(7,601 | ) | (98 | ) | ||||
Allowance for loan losses non-federally insured loans |
(18,402 | ) | (13,292 | ) | ||||
$ | 23,789,552 | 20,260,807 | ||||||
Non-federally insured allowance as a percentage of ending balance of non-federally insured loans |
9.33 | % | 13.72 | % | ||||
Total allowance as a percentage of ending balance of total loans |
0.11 | % | 0.07 | % |
F-25
Table of Contents
Notes to Consolidated Financial Statements-(Continued)
2006 | 2005 | 2004 | ||||||||||
(dollars in thousands) | ||||||||||||
Beginning balance |
$ | 13,390 | 7,272 | 16,026 | ||||||||
Provision (recovery) for loan losses |
15,308 | 7,030 | (529 | ) | ||||||||
Loans charged off, net of recoveries |
(2,695 | ) | (912 | ) | (8,225 | ) | ||||||
Ending balance |
$ | 26,003 | 13,390 | 7,272 | ||||||||
F-26
Table of Contents
Notes to Consolidated Financial Statements-(Continued)
As of December 31, 2006 | ||||||||
Carrying | Interest rate | |||||||
amount | range | Final maturity | ||||||
(dollars in | ||||||||
thousands) | ||||||||
Variable-rate bonds and notes (a): |
||||||||
Bonds and notes based on indices |
$ | 16,622,385 | 3.63% - 6.08% | 02/26/07 - 05/01/42 | ||||
Bonds and notes based on auction |
2,671,370 | 3.63% - 5.45% | 11/01/09 - 07/01/43 | |||||
Total variable-rate bonds and notes |
19,293,755 | |||||||
Commercial paper and other |
5,173,723 | 5.26% - 5.62% | 05/11/07 - 10/17/08 | |||||
Fixed-rate bonds and notes (a) |
403,431 | 5.20% - 6.68% | 11/01/09 - 05/01/29 | |||||
Unsecured fixed rate debt |
475,000 | 5.13% - 7.40% | 06/01/10 - 09/29/36 | |||||
Unsecured line of credit |
103,000 | 5.69% - 8.25% | 08/19/10 | |||||
Other borrowings |
113,210 | 5.10% - 5.78% | 06/29/07 - 11/01/15 | |||||
$ | 25,562,119 | |||||||
(a) | Issued in securitization transactions |
As of December 31, 2005 | ||||||||
Carrying | Interest rate | |||||||
amount | range | Final maturity | ||||||
(dollars in | ||||||||
thousands) | ||||||||
Variable-rate bonds and notes (a): |
||||||||
Bonds and notes based on indices |
$ | 12,813,137 | 2.85% - 4.94% | 04/01/07 - 05/01/42 | ||||
Bonds and notes based on auction |
3,159,570 | 3.15% - 4.60% | 11/01/09 - 07/01/43 | |||||
Total variable-rate bonds and notes |
15,972,707 | |||||||
Commercial paper and other |
4,816,827 | 4.24% - 4.31% | 05/12/06 - 09/02/09 | |||||
Fixed-rate bonds and notes (a) |
519,086 | 5.20% - 6.68% | 11/01/06 - 05/01/29 | |||||
Unsecured fixed rate debt |
275,000 | 5.13% | 06/01/10 | |||||
Unsecured line of credit |
90,000 | 4.56% - 4.81% | 08/19/10 | |||||
$ | 21,673,620 | |||||||
(a) | Issued in securitization transactions |
F-27
Table of Contents
Notes to Consolidated Financial Statements-(Continued)
F-28
Table of Contents
Notes to Consolidated Financial Statements (Continued)
2007 |
$ | 5,386,480 | ||
2008 |
76,800 | |||
2009 |
107,990 | |||
2010 |
392,349 | |||
2011 |
112,644 | |||
2012 and thereafter |
19,485,856 | |||
$ | 25,562,119 | |||
F-29
Table of Contents
Notes to Consolidated Financial Statements (Continued)
Weighted average | ||||||||
fixed rate paid by | ||||||||
Maturity | Notional values | the Company | ||||||
2006(a) |
$ | 250,000 | 3.16 | % | ||||
2008 |
462,500 | 3.76 | ||||||
2009 |
312,500 | 4.01 | ||||||
Total |
$ | 1,025,000 | 3.69 | |||||
(a) | Expired on December 31, 2006 |
Weighted | Weighted | |||||||||||||||
average fixed | average fixed | |||||||||||||||
Notional | rate paid by | Notional | rate received by | |||||||||||||
Maturity | Amount | the Company | Amount | the Company | ||||||||||||
2007 |
$ | 512,500 | 3.42 | % | $ | 512,500 | 5.25 | %(a) | ||||||||
2010 |
1,137,500 | 4.25 | 1,137,500 | 4.75 | ||||||||||||
2012 |
275,000 | 4.31 | 275,000 | 4.76 | ||||||||||||
2013 |
525,000 | 4.36 | 525,000 | 4.80 | ||||||||||||
$ | 2,450,000 | 4.11 | % | $ | 2,450,000 | 4.87 | % | |||||||||
(a) | The effective date of the 2007 derivatives in which the Company will receive a fixed rate is January 2, 2007. |
F-30
Table of Contents
Notes to Consolidated Financial Statements (Continued)
Amortizing | Floor strike | |||||
notional amount | rate | |||||
$ | 49,423 | 2.760 | % | |||
43,274 | 2.885 | % | ||||
36,833 | 3.010 | % | ||||
33,731 | 3.135 | % | ||||
45,690 | 3.260 | % | ||||
75,449 | 3.385 | % | ||||
49,469 | 3.510 | % | ||||
51,853 | 3.635 | % | ||||
45,191 | 3.760 | % | ||||
44,357 | 3.885 | % | ||||
39,637 | 4.010 | % | ||||
61,850 | 4.135 | % | ||||
24,044 | 4.460 | % | ||||
31,648 | 5.060 | % | ||||
37,103 | 5.510 | % | ||||
7,097 | 4.300 | % | ||||
21,968 | 4.550 | % | ||||
17,220 | 4.800 | % | ||||
62,466 | 5.550 | % | ||||
$ | 778,303 | |||||
F-31
Table of Contents
Notes to Consolidated Financial Statements (Continued)
2005 | 2004 | |||||||
(dollars in thousands) | ||||||||
Beginning balance |
$ | 736 | 237 | |||||
Change in fair value of cash flow hedge |
(753 | ) | 443 | |||||
Hedge ineffectiveness reclassified to earnings |
17 | 56 | ||||||
Total change in unrealized gain on derivative |
(736 | ) | 499 | |||||
Ending balance |
$ | | 736 | |||||
2006 | 2005 | 2004 | ||||||||||
(dollars in thousands) | ||||||||||||
Interest rate swaps |
$ | 40,476 | (13,723 | ) | (28,976 | ) | ||||||
Basis swaps |
(645 | ) | (3,200 | ) | (4,623 | ) | ||||||
Cross-currency interest rate swaps |
(14,406 | ) | | | ||||||||
Other (1) |
(1,993 | ) | (85 | ) | (541 | ) | ||||||
Derivative settlements, net |
$ | 23,432 | (17,008 | ) | (34,140 | ) | ||||||
F-32
Table of Contents
Notes to Consolidated Financial Statements (Continued)
(1) | In connection with the issuance of the Hybrid Securities during 2006 as described in note 7, the Company entered into a derivative instrument to economically lock into a fixed interest rate of 7.65% prior to the actual pricing of the transaction. Upon pricing of the Hybrid Securities, the Company terminated this derivative instrument. The consideration paid by the Company to terminate this derivative was $2.0 million. |
F-33
Table of Contents
Notes to Consolidated Financial Statements (Continued)
As of December 31, | ||||||||
2006 | 2005 | |||||||
(dollars in thousands) | ||||||||
Over 1 year through 5 years |
$ | 3,009 | 4,997 | |||||
After 5 years through 10 years |
33,817 | 20,382 | ||||||
After 10 years |
92,306 | 135,100 | ||||||
$ | 129,132 | 160,479 | ||||||
Useful | As of December 31, | |||||||||||
life | 2006 | 2005 | ||||||||||
(dollars in thousands) | ||||||||||||
Computer equipment and software |
2-7 years | $ | 83,222 | 58,644 | ||||||||
Office furniture and equipment |
3-10 years | 15,989 | 12,626 | |||||||||
Leasehold improvements |
1-10 years | 15,541 | 8,602 | |||||||||
Building |
39 years | 7,683 | | |||||||||
Transportation equipment |
3-10 years | 3,795 | 3,864 | |||||||||
Land |
| 700 | | |||||||||
126,930 | 83,736 | |||||||||||
Accumulated depreciation |
59,006 | 46,986 | ||||||||||
$ | 67,924 | 36,750 | ||||||||||
2006 | 2005 | 2004 | ||||||||||
(dollars in thousands) | ||||||||||||
Current: |
||||||||||||
Federal |
$ | 40,881 | 51,140 | 67,616 | ||||||||
State |
340 | 2,686 | 5,106 | |||||||||
Foreign |
1,256 | 1,887 | | |||||||||
Total current provision |
42,477 | 55,713 | 72,722 | |||||||||
Deferred: |
||||||||||||
Federal |
(4,708 | ) | 43,244 | 11,455 | ||||||||
State |
(276 | ) | 3,511 | 1,059 | ||||||||
Foreign |
979 | (248 | ) | | ||||||||
Total deferred provision (benefit) |
(4,005 | ) | 46,507 | 12,514 | ||||||||
Provision for income tax expense |
$ | 38,472 | 102,220 | 85,236 | ||||||||
F-34
Table of Contents
Notes to Consolidated Financial Statements (Continued)
2006 | 2005 | 2004 | ||||||||||
Tax expense at federal rate |
35.0 | % | 35.0 | % | 35.0 | % | ||||||
Increase (decrease) resulting from: |
||||||||||||
State tax, net of federal income tax benefit |
1.4 | 1.4 | 1.7 | |||||||||
Resolution of uncertain federal and state tax matters |
(3.3 | ) | | | ||||||||
Impairment charge |
0.5 | | | |||||||||
Other, net |
0.3 | (0.4 | ) | (0.3 | ) | |||||||
Put option |
2.1 | | | |||||||||
Effective tax rate |
36.0 | % | 36.0 | % | 36.4 | % | ||||||
As of December 31, | ||||||||
2006 | 2005 | |||||||
(dollars in thousands) | ||||||||
Deferred tax liabilities: |
||||||||
Loan origination services |
$ | 44,508 | 24,279 | |||||
Amortization |
32,031 | 39,764 | ||||||
Basis in swap contracts |
20,601 | 30,464 | ||||||
Prepaid expenses |
2,208 | 1,358 | ||||||
Certain equity method investments |
208 | 2,962 | ||||||
Depreciation |
| 687 | ||||||
Other |
100 | 100 | ||||||
Deferred tax liabilities |
99,656 | 99,614 | ||||||
Deferred tax assets: |
||||||||
Student loans |
9,044 | 6,114 | ||||||
Accrued expenses |
3,963 | 2,958 | ||||||
Deferred revenue |
658 | | ||||||
Net operating loss |
247 | | ||||||
Depreciation |
132 | | ||||||
Other |
168 | 609 | ||||||
Deferred tax assets |
14,212 | 9,681 | ||||||
Net deferred income tax liability |
$ | (85,444 | ) | (89,933 | ) | |||
F-35
Table of Contents
Notes to Consolidated Financial Statements (Continued)
As of December 31, | ||||||||||||||||
2006 | 2005 | |||||||||||||||
Fair value | Carrying value | Fair value | Carrying value | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Financial assets: |
||||||||||||||||
Student loans receivable |
$ | 24,514,443 | 23,789,552 | 20,802,495 | 20,260,807 | |||||||||||
Cash and cash equivalents |
106,086 | 106,086 | 103,650 | 103,650 | ||||||||||||
Restricted cash |
1,388,719 | 1,388,719 | 1,228,570 | 1,228,570 | ||||||||||||
Restricted investments |
129,132 | 129,132 | 160,479 | 160,479 | ||||||||||||
Restricted cash due to customers |
153,557 | 153,557 | 153,098 | 153,098 | ||||||||||||
Accrued interest receivable |
503,365 | 503,365 | 394,630 | 394,630 | ||||||||||||
Derivative instruments |
146,099 | 146,099 | 82,837 | 82,837 | ||||||||||||
Financial liabilities: |
||||||||||||||||
Bonds and notes payable |
25,583,865 | 25,562,119 | 21,691,103 | 21,673,620 | ||||||||||||
Accrued interest payable |
120,211 | 120,211 | 94,281 | 94,281 | ||||||||||||
Due to customers |
153,557 | 153,557 | 153,098 | 153,098 | ||||||||||||
Derivative instruments |
27,973 | 27,973 | 71 | 71 |
F-36
Table of Contents
Notes to Consolidated Financial Statements (Continued)
F-37
Table of Contents
Notes to Consolidated Financial Statements (Continued)
2007 |
$ | 9,470 | ||
2008 |
7,365 | |||
2009 |
6,028 | |||
2010 |
3,989 | |||
2011 |
2,073 | |||
2012 and thereafter |
3,318 | |||
$ | 32,243 | |||
F-38
Table of Contents
Notes to Consolidated Financial Statements (Continued)
F-39
Table of Contents
Notes to Consolidated Financial Statements (Continued)
F-40
Table of Contents
Notes to Consolidated Financial Statements (Continued)
| Origination and servicing of FFELP loans; | ||
| Origination and servicing of non-federally insured student loans; | ||
| Servicing and support outsourcing for guaranty agencies; and | ||
| Origination and servicing of loans under the Canadian government-sponsored student loan program. |
F-41
Table of Contents
Notes to Consolidated Financial Statements (Continued)
Year ended December 31, 2006 | ||||||||||||||||||||||||||||||||||||||||
Student | Tuition | Enrollment | Base net | |||||||||||||||||||||||||||||||||||||
Asset | Loan | Payment | Services | Software | Corporate | income | ||||||||||||||||||||||||||||||||||
Generation | and | Processing | and | and | Activity | Eliminations | Adjustments | GAAP | ||||||||||||||||||||||||||||||||
and | Guaranty | and Campus | List | Technical | Total | and | and | to GAAP | Results of | |||||||||||||||||||||||||||||||
Management | Servicing | Commerce | Management | Services | Segments | Overhead | Reclassifications | Results | Operations | |||||||||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||
Total interest income |
$ | 1,534,423 | 9,190 | 4,029 | 531 | 105 | 1,548,278 | 4,446 | (2,858 | ) | | 1,549,866 | ||||||||||||||||||||||||||||
Interest expense |
1,215,529 | | 8 | | | 1,215,537 | 28,495 | (2,858 | ) | | 1,241,174 | |||||||||||||||||||||||||||||
Net interest income |
318,894 | 9,190 | 4,021 | 531 | 105 | 332,741 | (24,049 | ) | | | 308,692 | |||||||||||||||||||||||||||||
Less provision for loan losses |
15,308 | | | | | 15,308 | | | | 15,308 | ||||||||||||||||||||||||||||||
Net interest income after provision
for loan losses |
303,586 | 9,190 | 4,021 | 531 | 105 | 317,433 | (24,049 | ) | | | 293,384 | |||||||||||||||||||||||||||||
Other income (expense): |
||||||||||||||||||||||||||||||||||||||||
Loan and guarantee servicing income |
| 190,563 | | | | 190,563 | | | | 190,563 | ||||||||||||||||||||||||||||||
Other fee-based income |
11,867 | | 35,090 | 55,361 | | 102,318 | | | | 102,318 | ||||||||||||||||||||||||||||||
Software services income |
238 | 5 | | 157 | 15,490 | 15,890 | | | | 15,890 | ||||||||||||||||||||||||||||||
Other income |
19,966 | 92 | | | | 20,058 | 3,302 | | | 23,360 | ||||||||||||||||||||||||||||||
Intersegment revenue |
| 63,545 | 503 | 1,000 | 17,877 | 82,925 | 662 | (83,587 | ) | | | |||||||||||||||||||||||||||||
Derivative market value, foreign currency,
and put option adjustments |
| | | | | | | | (31,075 | ) | (31,075 | ) | ||||||||||||||||||||||||||||
Derivative settlements, net |
18,381 | | | | | 18,381 | 5,051 | | | 23,432 | ||||||||||||||||||||||||||||||
Total other income (expense) |
50,452 | 254,205 | 35,593 | 56,518 | 33,367 | 430,135 | 9,015 | (83,587 | ) | (31,075 | ) | 324,488 | ||||||||||||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||||||||||||||||||
Salaries and benefits |
53,036 | 115,430 | 17,607 | 15,510 | 22,063 | 223,646 | 32,977 | (12,254 | ) | 1,747 | 246,116 | |||||||||||||||||||||||||||||
Impairment expense |
21,687 | 9,403 | | | | 31,090 | | | | 31,090 | ||||||||||||||||||||||||||||||
Other expenses |
51,085 | 56,240 | 8,371 | 30,854 | 3,238 | 149,788 | 58,887 | | 25,122 | 233,797 | ||||||||||||||||||||||||||||||
Intersegment expenses |
52,857 | 12,577 | 1,025 | 17 | | 66,476 | 4,857 | (71,333 | ) | | | |||||||||||||||||||||||||||||
Total operating expenses |
178,665 | 193,650 | 27,003 | 46,381 | 25,301 | 471,000 | 96,721 | (83,587 | ) | 26,869 | 511,003 | |||||||||||||||||||||||||||||
Income (loss) before income taxes |
175,373 | 69,745 | 12,611 | 10,668 | 8,171 | 276,568 | (111,755 | ) | | (57,944 | ) | 106,869 | ||||||||||||||||||||||||||||
Income tax expense (benefit) (a) |
63,134 | 25,108 | 4,540 | 3,840 | 2,942 | 99,564 | (40,836 | ) | | (20,256 | ) | 38,472 | ||||||||||||||||||||||||||||
Net income (loss) before minority interest |
112,239 | 44,637 | 8,071 | 6,828 | 5,229 | 177,004 | (70,919 | ) | | (37,688 | ) | 68,397 | ||||||||||||||||||||||||||||
Minority interest in subsidiary income |
| | (242 | ) | | | (242 | ) | | | | (242 | ) | |||||||||||||||||||||||||||
Net income (loss) |
$ | 112,239 | 44,637 | 7,829 | 6,828 | 5,229 | 176,762 | (70,919 | ) | | (37,688 | ) | 68,155 | |||||||||||||||||||||||||||
Total assets |
$ | 26,174,592 | 798,248 | 177,105 | 152,962 | 29,359 | 27,332,266 | 37,268 | (572,661 | ) | | 26,796,873 |
(a) | Income taxes are based on a percentage of net income before tax for the individual operating segment. |
F-42
Table of Contents
Notes to Consolidated Financial Statements (Continued)
Year ended December 31, 2005 | ||||||||||||||||||||||||||||||||||||||||
Student | Tuition | Enrollment | Base net | |||||||||||||||||||||||||||||||||||||
Asset | Loan | Payment | Services | Software | Corporate | income | ||||||||||||||||||||||||||||||||||
Generation | and | Processing | and | and | Activity | Eliminations | Adjustments | GAAP | ||||||||||||||||||||||||||||||||
and | Guaranty | and Campus | List | Technical | Total | and | and | to GAAP | Results of | |||||||||||||||||||||||||||||||
Management | Servicing | Commerce | Management | Services | Segments | Overhead | Reclassifications | Results | Operations | |||||||||||||||||||||||||||||||
(dollars in thousands) |
||||||||||||||||||||||||||||||||||||||||
Total interest income |
$ | 940,390 | 4,678 | 1,384 | 165 | 21 | 946,638 | 2,615 | (45 | ) | | 949,208 | ||||||||||||||||||||||||||||
Interest expense |
609,863 | | | | | 609,863 | 10,293 | (45 | ) | | 620,111 | |||||||||||||||||||||||||||||
Net interest income |
330,527 | 4,678 | 1,384 | 165 | 21 | 336,775 | (7,678 | ) | | | 329,097 | |||||||||||||||||||||||||||||
Less provision for loan losses |
7,030 | | | | | 7,030 | | | | 7,030 | ||||||||||||||||||||||||||||||
Net interest income after provision
for loan losses |
323,497 | 4,678 | 1,384 | 165 | 21 | 329,745 | (7,678 | ) | | | 322,067 | |||||||||||||||||||||||||||||
Other income (expense): |
||||||||||||||||||||||||||||||||||||||||
Loan and guarantee servicing income |
| 152,493 | | | | 152,493 | | | | 152,493 | ||||||||||||||||||||||||||||||
Other fee-based income |
9,053 | | 14,239 | 12,349 | | 35,641 | | | | 35,641 | ||||||||||||||||||||||||||||||
Software services income |
127 | | | | 9,042 | 9,169 | | | | 9,169 | ||||||||||||||||||||||||||||||
Other income |
3,596 | 14 | | | | 3,610 | 4,049 | | | 7,659 | ||||||||||||||||||||||||||||||
Intersegment revenue |
| 42,798 | | 139 | 5,848 | 48,785 | 408 | (49,193 | ) | | | |||||||||||||||||||||||||||||
Derivative market value, foreign currency,
and put option adjustments |
| | | | | | | | 96,227 | 96,227 | ||||||||||||||||||||||||||||||
Derivative settlements, net |
(17,008 | ) | | | | | (17,008 | ) | | | | (17,008 | ) | |||||||||||||||||||||||||||
Total other income (expense) |
(4,232 | ) | 195,305 | 14,239 | 12,488 | 14,890 | 232,690 | 4,457 | (49,193 | ) | 96,227 | 284,181 | ||||||||||||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||||||||||||||||||
Salaries and benefits |
39,482 | 92,804 | 7,065 | 3,081 | 7,197 | 149,629 | 33,555 | (10,452 | ) | | 172,732 | |||||||||||||||||||||||||||||
Other expenses |
39,659 | 46,913 | 3,815 | 3,512 | 968 | 94,867 | 45,225 | | 9,479 | 149,571 | ||||||||||||||||||||||||||||||
Intersegment expenses |
33,070 | 5,196 | 99 | | (8 | ) | 38,357 | 384 | (38,741 | ) | | | ||||||||||||||||||||||||||||
Total operating expenses |
112,211 | 144,913 | 10,979 | 6,593 | 8,157 | 282,853 | 79,164 | (49,193 | ) | 9,479 | 322,303 | |||||||||||||||||||||||||||||
Income (loss) before income taxes |
207,054 | 55,070 | 4,644 | 6,060 | 6,754 | 279,582 | (82,385 | ) | | 86,748 | 283,945 | |||||||||||||||||||||||||||||
Income tax expense (benefit) (a) |
74,539 | 19,825 | 1,672 | 2,181 | 2,431 | 100,648 | (31,251 | ) | | 32,823 | 102,220 | |||||||||||||||||||||||||||||
Net income (loss) before minority interest |
132,515 | 35,245 | 2,972 | 3,879 | 4,323 | 178,934 | (51,134 | ) | | 53,925 | 181,725 | |||||||||||||||||||||||||||||
Minority interest in subsidiary income |
| | (603 | ) | | | (603 | ) | | | | (603 | ) | |||||||||||||||||||||||||||
Net income (loss) |
$ | 132,515 | 35,245 | 2,369 | 3,879 | 4,323 | 178,331 | (51,134 | ) | | 53,925 | 181,122 | ||||||||||||||||||||||||||||
Total assets |
$ | 22,327,023 | 505,957 | 90,794 | 41,649 | 23,178 | 22,988,601 | 58,173 | (248,081 | ) | | 22,798,693 |
(a) | Income taxes are based on a percentage of net income before tax for the individual operating segment. |
F-43
Table of Contents
Notes to Consolidated Financial Statements (Continued)
Year ended December 31, 2004 | ||||||||||||||||||||||||||||||||||||||||
Student | Tuition | Enrollment | Base net | |||||||||||||||||||||||||||||||||||||
Asset | Loan | Payment | Services | Software | Corporate | income | ||||||||||||||||||||||||||||||||||
Generation | and | Processing | and | and | Activity | Eliminations | Adjustments | GAAP | ||||||||||||||||||||||||||||||||
and | Guaranty | and Campus | List | Technical | Total | and | and | to GAAP | Results of | |||||||||||||||||||||||||||||||
Management | Servicing | Commerce | Management | Services | Segments | Overhead | Reclassifications | Results | Operations | |||||||||||||||||||||||||||||||
(dollar in thousands) |
||||||||||||||||||||||||||||||||||||||||
Total interest income |
$ | 649,629 | 1,377 | | | 7 | 651,013 | 1,509 | (94 | ) | 348 | 652,776 | ||||||||||||||||||||||||||||
Interest expense |
254,353 | | | | | 254,353 | 351 | (94 | ) | | 254,610 | |||||||||||||||||||||||||||||
Net interest income |
395,276 | 1,377 | | | 7 | 396,660 | 1,158 | | 348 | 398,166 | ||||||||||||||||||||||||||||||
Less provision for loan losses |
(529 | ) | | | | | (529 | ) | | | | (529 | ) | |||||||||||||||||||||||||||
Net interest income after provision
for loan losses |
395,805 | 1,377 | | | 7 | 397,189 | 1,158 | | 348 | 398,695 | ||||||||||||||||||||||||||||||
Other income (expense): |
||||||||||||||||||||||||||||||||||||||||
Loan and guarantee servicing income |
32 | 99,890 | | | | 99,922 | 208 | | | 100,130 | ||||||||||||||||||||||||||||||
Other fee-based income |
7,027 | | | | | 7,027 | | | | 7,027 | ||||||||||||||||||||||||||||||
Software services income |
| | | | 8,051 | 8,051 | | | | 8,051 | ||||||||||||||||||||||||||||||
Other income |
3,867 | | | | | 3,867 | 5,454 | | | 9,321 | ||||||||||||||||||||||||||||||
Intersegment revenue |
| 36,707 | | | 3,932 | 40,639 | 640 | (41,279 | ) | | | |||||||||||||||||||||||||||||
Derivative market value, foreign currency,
and put option adjustments |
| | | | | | | | (11,918 | ) | (11,918 | ) | ||||||||||||||||||||||||||||
Derivative settlements, net |
(34,140 | ) | | | | | (34,140 | ) | | | | (34,140 | ) | |||||||||||||||||||||||||||
Total other income (expense) |
(23,214 | ) | 136,597 | | | 11,983 | 125,366 | 6,302 | (41,279 | ) | (11,918 | ) | 78,471 | |||||||||||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||||||||||||||||||
Salaries and benefits |
37,111 | 67,266 | | 667 | 6,066 | 111,110 | 31,838 | (9,281 | ) | | 133,667 | |||||||||||||||||||||||||||||
Other expenses |
35,169 | 24,246 | | 132 | 705 | 60,252 | 40,064 | | 8,768 | 109,084 | ||||||||||||||||||||||||||||||
Intersegment expenses |
28,284 | 3,617 | | | | 31,901 | 97 | (31,998 | ) | | | |||||||||||||||||||||||||||||
Total operating expenses |
100,564 | 95,129 | | 799 | 6,771 | 203,263 | 71,999 | (41,279 | ) | 8,768 | 242,751 | |||||||||||||||||||||||||||||
Income (loss) before income taxes |
272,027 | 42,845 | | (799 | ) | 5,219 | 319,292 | (64,539 | ) | | (20,338 | ) | 234,415 | |||||||||||||||||||||||||||
Income tax expense (benefit) (a) |
98,913 | 15,579 | | (291 | ) | 1,898 | 116,099 | (23,135 | ) | | (7,728 | ) | 85,236 | |||||||||||||||||||||||||||
Net income (loss) before minority interest |
173,114 | 27,266 | | (508 | ) | 3,321 | 203,193 | (41,404 | ) | | (12,610 | ) | 149,179 | |||||||||||||||||||||||||||
Minority interest in subsidiary income |
| | | | | | | | | | ||||||||||||||||||||||||||||||
Net income (loss) |
$ | 173,114 | 27,266 | | (508 | ) | 3,321 | 203,193 | (41,404 | ) | | (12,610 | ) | 149,179 | ||||||||||||||||||||||||||
Total assets |
$ | 14,819,857 | 320,309 | | | 5,893 | 15,146,059 | 62,665 | (39,213 | ) | | 15,169,511 |
(a) | Income taxes are based on a percentage of net income before tax for the individual operating segment. |
| 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. |
F-44
Table of Contents
Notes to Consolidated Financial Statements (Continued)
Year ended December 31, 2006 | ||||||||||||||||||||||||||||
Student | Tuition | Enrollment | ||||||||||||||||||||||||||
Asset | Loan | Payment | Services | Software | Corporate | |||||||||||||||||||||||
Generation | and | Processing | and | and | Activity | |||||||||||||||||||||||
and | Guaranty | and Campus | List | Technical | and | |||||||||||||||||||||||
Management | Servicing | Commerce | Management | Services | Overhead | Total | ||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||||
Derivative market value, foreign currency, and
put option adjustments (1) |
$ | (5,483 | ) | | | | | (25,592 | ) | (31,075 | ) | |||||||||||||||||
Amortization of intangible assets (2) |
(7,617 | ) | (5,701 | ) | (5,968 | ) | (4,573 | ) | (1,263 | ) | | (25,122 | ) | |||||||||||||||
Non-cash stock based compensation related
to business combinations (3) |
| | | | | (1,747 | ) | (1,747 | ) | |||||||||||||||||||
Variable-rate floor income (4) |
| | | | | | | |||||||||||||||||||||
Net tax effect (5) |
4,978 | 2,166 | 2,268 | 1,738 | 480 | 8,626 | 20,256 | |||||||||||||||||||||
Total adjustments to GAAP |
$ | (8,122 | ) | (3,535 | ) | (3,700 | ) | (2,835 | ) | (783 | ) | (18,713 | ) | (37,688 | ) | |||||||||||||
Year ended December 31, 2005 | ||||||||||||||||||||||||||||
Student | Tuition | Enrollment | ||||||||||||||||||||||||||
Asset | Loan | Payment | Services | Software | Corporate | |||||||||||||||||||||||
Generation | and | Processing | and | and | Activity | |||||||||||||||||||||||
and | Guaranty | and Campus | List | Technical | and | |||||||||||||||||||||||
Management | Servicing | Commerce | Management | Services | Overhead | Total | ||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||||
Derivative market value, foreign currency, and
put option adjustments (1) |
$ | 95,854 | | | | | 373 | 96,227 | ||||||||||||||||||||
Amortization of intangible assets (2) |
(1,840 | ) | (2,410 | ) | (2,350 | ) | (2,032 | ) | (847 | ) | | (9,479 | ) | |||||||||||||||
Non-cash stock based compensation related
to business combinations (3) |
| | | | | | | |||||||||||||||||||||
Variable-rate floor income (4) |
| | | | | | | |||||||||||||||||||||
Net tax effect (5) |
(35,726 | ) | 916 | 893 | 772 | 322 | | (32,823 | ) | |||||||||||||||||||
Total adjustments to GAAP |
$ | 58,288 | (1,494 | ) | (1,457 | ) | (1,260 | ) | (525 | ) | 373 | 53,925 | ||||||||||||||||
Year ended December 31, 2004 | ||||||||||||||||||||||||||||
Student | Tuition | Enrollment | ||||||||||||||||||||||||||
Asset | Loan | Payment | Services | Software | Corporate | |||||||||||||||||||||||
Generation | and | Processing | and | and | Activity | |||||||||||||||||||||||
and | Guaranty | and Campus | List | Technical | and | |||||||||||||||||||||||
Management | Servicing | Commerce | Management | Services | Overhead | Total | ||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||||
Derivative market value, foreign currency, and
put option adjustments (1) |
$ | (11,918 | ) | | | | | | (11,918 | ) | ||||||||||||||||||
Amortization of intangible assets (2) |
(395 | ) | (1,353 | ) | | | (7,020 | ) | | (8,768 | ) | |||||||||||||||||
Non-cash stock based compensation related
to business combinations (3) |
| | | | | | | |||||||||||||||||||||
Variable-rate floor income (4) |
348 | | | | | | 348 | |||||||||||||||||||||
Net tax effect (5) |
4,546 | 514 | | | 2,668 | | 7,728 | |||||||||||||||||||||
Total adjustments to GAAP |
$ | (7,419 | ) | (839 | ) | | | (4,352 | ) | | (12,610 | ) | ||||||||||||||||
(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 in which the Company does not qualify for hedge treatment under GAAP. Included in base net income are the economic effects of the Companys 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 Companys 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. |
F-45
Table of Contents
Notes to Consolidated Financial Statements (Continued)
(3) | Non-cash stock based compensation related to business combinations: As discussed in note 4, the Company has structured certain business combinations in which the stock 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 from its base net income since its timing and amount (if any) is uncertain and it is in excess of expected spreads. | |
(5) | Tax effect computed at 38%. The change in the value of the put option (included in Corporate Activity and Overhead) is not tax effected as this is not deductible for income tax purposes. |
2006 | ||||||||||||||||
First | Second | Third | Fourth | |||||||||||||
quarter | quarter | quarter | quarter | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Net interest income |
$ | 86,252 | 86,212 | 72,356 | 63,872 | |||||||||||
Less provision for loan losses |
9,618 | 2,190 | 1,700 | 1,800 | ||||||||||||
Net interest income after provision for loan losses |
76,634 | 84,022 | 70,656 | 62,072 | ||||||||||||
Other income |
70,625 | 67,040 | 97,699 | 96,767 | ||||||||||||
Derivative market value, foreign currency, and put option adjustments
and derivative settlements, net |
44,007 | 35,815 | (74,968 | ) | (12,497 | ) | ||||||||||
Operating expenses |
(108,247 | ) | (114,272 | ) | (128,842 | ) | (159,642 | ) | ||||||||
Income tax (expense) benefit |
(30,711 | ) | (26,852 | ) | 13,101 | 5,990 | ||||||||||
Minority interest in net earnings of subsidiaries |
(242 | ) | | | | |||||||||||
Net income (loss) |
$ | 52,066 | 45,753 | (22,354 | ) | (7,310 | ) | |||||||||
Earnings (loss) per share, basic and diluted |
$ | 0.96 | 0.84 | (0.42 | ) | (0.14 | ) | |||||||||
2005 | ||||||||||||||||
First | Second | Third | Fourth | |||||||||||||
quarter | quarter | quarter | quarter | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Net interest income |
$ | 86,802 | 82,017 | 78,998 | 81,280 | |||||||||||
Less provision for loan losses |
2,031 | 2,124 | 1,402 | 1,473 | ||||||||||||
Net interest income after provision for loan losses |
84,771 | 79,893 | 77,596 | 79,807 | ||||||||||||
Other income |
44,138 | 47,831 | 52,371 | 60,622 | ||||||||||||
Derivative market value, foreign currency, and put option adjustments
and derivative settlements, net |
50,204 | (57,373 | ) | 62,420 | 23,968 | |||||||||||
Operating expenses |
(71,388 | ) | (73,879 | ) | (78,935 | ) | (98,101 | ) | ||||||||
Income tax (expense) benefit |
(39,638 | ) | 1,755 | (41,091 | ) | (23,246 | ) | |||||||||
Minority interest in net earnings of subsidiaries |
| | (229 | ) | (374 | ) | ||||||||||
Net income (loss) |
$ | 68,087 | (1,773 | ) | 72,132 | 42,676 | ||||||||||
Earnings (loss) per share, basic and diluted |
$ | 1.27 | (0.03 | ) | 1.34 | 0.79 | ||||||||||
F-46
Table of Contents
Notes to Consolidated Financial Statements (Continued)
(Parent Company Only)
As of December 31, | ||||||||
2006 | 2005 | |||||||
(dollars in thousands) | ||||||||
Assets: |
||||||||
Cash and cash equivalents |
$ | 43,783 | 34,489 | |||||
Restricted cash due to loan program customers |
133,554 | 134,219 | ||||||
Investment in subsidiaries |
991,471 | 658,032 | ||||||
Intangible assets, net |
49,417 | 49,311 | ||||||
Accounts receivable |
26,066 | 24,315 | ||||||
Other assets |
595,814 | 278,777 | ||||||
Total assets |
$ | 1,840,105 | 1,179,143 | |||||
Liabilities: |
||||||||
Notes payable |
$ | 936,464 | 372,000 | |||||
Accrued interest payable |
7,046 | 1,780 | ||||||
Other liabilities |
91,191 | 21,652 | ||||||
Due to loan program customers |
133,554 | 134,219 | ||||||
Total liabilities |
1,168,255 | 529,651 | ||||||
Shareholders equity: |
||||||||
Common stock |
525 | 540 | ||||||
Additional paid-in capital |
182,846 | 220,432 | ||||||
Retained earnings |
496,341 | 428,186 | ||||||
Unearned compensation |
(5,168 | ) | (86 | ) | ||||
Employee notes receivable |
(2,825 | ) | | |||||
Accumulated other comprehensive income, net of taxes |
131 | 420 | ||||||
Total shareholders equity |
671,850 | 649,492 | ||||||
Total liabilities and shareholders equity |
$ | 1,840,105 | 1,179,143 | |||||
(Parent Company Only)
Year ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
(dollars in thousands) | ||||||||||||
Operating revenues |
$ | 206,528 | 190,373 | 161,988 | ||||||||
Operating expenses |
186,399 | 132,341 | 116,257 | |||||||||
Net operating income |
20,129 | 58,032 | 45,731 | |||||||||
Net interest income (expense) |
(16,001 | ) | (2,614 | ) | 1,505 | |||||||
Derivative market value, foreign currency, and put option adjustments
and derivative settlements, net |
11,497 | 79,707 | (39,705 | ) | ||||||||
Equity in earnings of subsidiaries |
59,837 | 96,264 | 147,909 | |||||||||
Income tax expense |
7,307 | 50,267 | 6,261 | |||||||||
Net income |
$ | 68,155 | 181,122 | 149,179 | ||||||||
F-47
Table of Contents
Notes to Consolidated Financial Statements (Continued)
(Parent Company Only)
Year ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
(dollars in thousands) | ||||||||||||
Cash flows from operating activities: |
||||||||||||
Net income |
$ | 68,155 | 181,122 | 149,179 | ||||||||
Adjustments to reconcile net income to net cash
provided by (used in) operating activities, net of business acquisitions: |
||||||||||||
Depreciation and amortization |
8,258 | 1,953 | 240 | |||||||||
Derivative market value adjustment |
21,761 | (97,004 | ) | 5,679 | ||||||||
Proceeds from sale of floor contracts |
8,580 | | | |||||||||
Ineffectiveness of cash flow hedge |
| 28 | 89 | |||||||||
Non cash compensation expense |
2,495 | 1,810 | 696 | |||||||||
Equity in earnings of subsidiaries |
(59,837 | ) | (96,264 | ) | (147,909 | ) | ||||||
(Income) loss from equity method investment |
(491 | ) | (91 | ) | 22 | |||||||
Increase in accounts receivable |
(1,751 | ) | (3,395 | ) | (206 | ) | ||||||
Decrease (increase) in other assets |
(316,679 | ) | (159,764 | ) | 14,697 | |||||||
Increase (decrease) in accrued interest payable |
5,266 | 1,780 | (23 | ) | ||||||||
Increase (decrease) in other liabilities |
29,511 | (1,115 | ) | (21,775 | ) | |||||||
Net cash provided by (used in) operating activities |
(234,732 | ) | (170,940 | ) | 689 | |||||||
Cash flows from investing activities: |
||||||||||||
(Increase) decrease in restricted cash |
| 10,018 | (10,018 | ) | ||||||||
Purchases of property and equipment, net |
| (3,760 | ) | | ||||||||
Purchase of loan origination rights |
| (9,020 | ) | | ||||||||
Business acquisitions, net of cash acquired |
(13,130 | ) | (92,231 | ) | | |||||||
Consideration paid to expand customer relationships with
College Access Network |
| (41,282 | ) | | ||||||||
Distribution from equity method investments |
149 | | | |||||||||
Purchase of equity method investment |
| | (5,250 | ) | ||||||||
Capital contributions to/from subsidiary, net |
(240,732 | ) | (37,703 | ) | (121,115 | ) | ||||||
Net cash flows used in investing activities |
(253,713 | ) | (173,978 | ) | (136,383 | ) | ||||||
Cash flows from financing activities: |
||||||||||||
Payments on note payable |
| | (12,662 | ) | ||||||||
Proceeds from issuance of notes payable |
564,464 | 372,000 | | |||||||||
Payment of debt issuance costs |
(3,156 | ) | (3,058 | ) | (175 | ) | ||||||
Repurchases of common stock |
(62,389 | ) | | | ||||||||
Loans to employees for purchases of common stock |
(2,825 | ) | | | ||||||||
Proceeds from issuance of common stock |
1,645 | 961 | 312 | |||||||||
Net cash flows provided by (used in) financing activities |
497,739 | 369,903 | (12,525 | ) | ||||||||
Net increase (decrease) in cash and cash equivalents |
9,294 | 24,985 | (148,219 | ) | ||||||||
Cash and cash equivalents, beginning of year |
34,489 | 9,504 | 157,723 | |||||||||
Cash and cash equivalents, end of year |
$ | 43,783 | 34,489 | 9,504 | ||||||||
Supplemental cash flow information: |
||||||||||||
Income taxes paid, net of refunds |
$ | (16,968 | ) | 28,525 | 17,056 | |||||||
Interest paid |
$ | 22,375 | 8,047 | 570 | ||||||||
F-48
Table of Contents
| has been accepted for enrollment or is enrolled in good standing at an eligible institution of higher education; | ||
| is carrying or planning to carry at least one-half the normal full-time workload, as determined by the institution, for the course of study the student is pursuing; | ||
| is not in default on any federal education loans; | ||
| has not committed a crime involving fraud in obtaining funds under the Higher Education Act, or if he or she has committed a crime, the funds have been fully repaid; and | ||
| meets other applicable eligibility requirements. |
| Subsidized Stafford Loans | ||
| Unsubsidized Stafford Loans | ||
| PLUS Loans | ||
| Consolidation Loans |
A-1
Table of Contents
| Original fixed interest rate of 8% for the first 48 months of repayment. Beginning on the first day of the 49th month of repayment, the interest rate increased to a fixed rate of 10% thereafter. Note that loans in this category were subject to excess interest rebates and have been converted to a variable interest rate based on the bond equivalent rate of the 91-day Treasury bill auctioned at the final auction before the preceding June 1, plus 3.25%. The variable interest rate is adjusted annually on July 1. The maximum interest rate for loans in this category is 10%. |
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| When the borrower is in school, in grace, or in an authorized period of deferment, the applicable interest rate is variable and is based on the bond equivalent rate of the 91-day Treasury bill auctioned at the final auction before the preceding June 1, plus 2.5%. The variable interest rate is adjusted annually on July 1. The maximum interest rate is 8.25%. | ||
| When the borrower is in repayment or in a period of forbearance, the applicable interest rate is variable and is based on the bond equivalent rate of the 91-day Treasury bill auctioned at the final auction before the preceding June 1, plus 3.1%. The variable interest rate is adjusted annually on July 1. The maximum interest rate is 8.25%. |
| When the borrower is in school, in grace, or in an authorized period of deferment, the applicable interest rate is variable and is based on the bond equivalent rate of the 91-day Treasury bill auctioned at the final auction before the preceding June 1, plus 1.7%. The variable interest rate is adjusted annually on July 1. The maximum interest rate is 8.25%. | ||
| When the borrower is in repayment or in a period of forbearance, the applicable interest rate is variable and is based on the bond equivalent rate of the 91-day Treasury bill auctioned at the final auction before the preceding June 1, plus 2.3%. The variable interest rate is adjusted annually on July 1. The maximum interest rate is 8.25%. |
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| Beginning July 1, 2001, the applicable interest rate is variable and is based on the weekly average one-year constant maturity Treasury yield for the last calendar week ending on or before June 26 preceding July 1 of each year, plus 3.1%. The variable interest rate is adjusted annually on July 1. The maximum interest rate is 11%. Prior to July 1, 2001, SLS Loans in this category had interest rates which were based on the 52-week Treasury bill auctioned at the final auction held prior to the preceding June 1, plus 3.1%. The annual (July 1) variable interest rate adjustment was applicable prior to July 1, 2001, as was the maximum interest rate of 11%. |
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| have outstanding indebtedness on student loans made under the Federal Family Education Loan Program and/or certain other federal student loan programs; and | ||
| be in repayment status or in a grace period on loans that are to be consolidated. |
| 9%, or | ||
| The weighted average of the interest rates on the loans being consolidated, rounded to the nearest whole percent. |
| For the portion of the Consolidation Loan which is comprised of FFELP, Direct, FISL, Perkins, HPSL, or NSL loans, the variable interest rate is based on the bond equivalent rate of the 91-day Treasury bills auctioned at the final auction before the preceding June 1, plus 3.1%. The variable interest rate for this portion of the Consolidation Loan is adjusted annually on July 1. The maximum interest rate for this portion of the Consolidation Loan is 8.25%. Note lenders that initially calculated a fixed interest rate for a Consolidation Loan for which the application was received between November 13, 1997, and September 30, 1998, inclusive, using the weighted average, as prescribed for Consolidation Loans disbursed on or after July 1, 1994, were required, no later than April 1, 1998, to recalculate the loans at the variable rate retroactively to the date the Consolidation Loan was disbursed, applying any credit to the borrowers account. | ||
| For the portion of the Consolidation Loan which is attributable to HEAL Loans (if applicable), the variable interest rate is based on the average of the bond equivalent rates of the 91-day Treasury bills auctioned for the quarter ending June 30, plus 3.0%. The variable interest rate for this portion of the Consolidation Loan is adjusted annually on July 1. There is no maximum interest rate for the portion of a Consolidation Loan that is represented by HEAL Loans. |
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| For the portion of the Consolidation Loan which is comprised of FFELP, Direct, FISL, Perkins, HPSL, or NSL loans, the applicable interest rate is fixed and is based on the weighted average of the interest rates on the non-HEAL loans being consolidated, rounded up to the nearest one-eighth of one percent. The maximum interest rate for this portion of the Consolidation Loan is 8.25%. | ||
| For the portion of the Consolidation Loan which is attributable to HEAL Loans (if applicable), the applicable interest rate is variable and is based on the average of the bond equivalent rates of the 91-day Treasury bills auctioned for the quarter ending June 30, plus 3.0%. The variable interest rate for this portion of the Consolidation Loan is adjusted annually on July 1. There is no maximum interest rate for the portion of the Consolidation Loan that is represented by HEAL Loans. |
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| during a period not exceeding three years while the borrower is a member of the Armed Forces, an officer in the Commissioned Corps of the Public Health Service or, with respect to a borrower who first obtained a student loan disbursed on or after July 1, 1987, or a student loan for a period of enrollment beginning on or after July 1, 1987, an active duty member of the National Oceanic and Atmospheric Administration Corps; | ||
| during a period not exceeding three years while the borrower is a volunteer under the Peace Corps Act; | ||
| during a period not exceeding three years while the borrower is a full-time paid volunteer under the Domestic Volunteer Act of 1973; | ||
| during a period not exceeding three years while the borrower is a full-time paid volunteer for an organization which is exempt from taxation under Section 501(c)(3) of the Internal Revenue Code; | ||
| during a period not exceeding two years while the borrower is serving an internship necessary to receive professional recognition required to begin professional practice or service, or a qualified internship or residency program; | ||
| during a period not exceeding three years while the borrower is temporarily totally disabled, as established by sworn affidavit of a qualified physician, or while the borrower is unable to secure employment because of caring for a dependent who is so disabled; | ||
| during a period not exceeding two years while the borrower is seeking and unable to find full-time employment; | ||
| during any period that the borrower is pursuing a full-time course of study at an eligible institution (or, with respect to a borrower who first obtained a student loan disbursed on or after July 1, 1987, or a student loan for a period of enrollment beginning on or after July 1, 1987, is pursuing at least a half-time course of study); | ||
| during any period that the borrower is pursuing a course of study in a graduate fellowship program; | ||
| during any period the borrower is receiving rehabilitation training services for qualified individuals, as defined by the Secretary of Education; | ||
| during a period not exceeding six months while the borrower is on parental leave; and | ||
| only with respect to a borrower who first obtained a student loan disbursed on or after July 1, 1987, or a student loan for a period of enrollment beginning on or after July 1, 1987, during a period not exceeding three years while the borrower is a full-time teacher in a public or nonprofit private elementary or secondary school in a teacher shortage area (as prescribed by the Secretary of Education), and during a |
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period not exceeding one year for mothers, with preschool age children, who are entering or re-entering the work force and who are paid at a rate of no more than $1 per hour more than the federal minimum wage. |
| during any period that the borrower is pursuing at least a half-time course of study at an eligible institution; | ||
| during any period that the borrower is pursuing a course of study in a graduate fellowship program; | ||
| during any period the borrower is receiving rehabilitation training services for qualified individuals, as defined by the Secretary of Education; | ||
| during a period not exceeding three years while the borrower is seeking and unable to find full-time employment; and | ||
| during a period not exceeding three years for any reason which has caused or will cause the borrower economic hardship. Economic hardship includes working full time and earning an amount that does not exceed the greater of the federal minimum wage or the poverty line for a family of two. Additional categories of economic hardship are based on the relationship between a borrowers educational debt burden and his or her income, the receipt of payments from a state or federal public assistance program, or service in the Peace Corps. |
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| 2% with respect to loans for which the first disbursement is made on or after July 1, 2006, and before July 1, 2007; | ||
| 1.5% with respect to loans for which the first disbursement is made on or after July 1, 2007, and before July 1, 2008; | ||
| 1.0% with respect to loans for which the first disbursement is made on or after July 1, 2008, and before July 1, 2009; | ||
| 0.5% with respect to loans for which the first disbursement is made on or after July 1, 2009, and before July 1, 2010; and | ||
| 0.0% with respect to loans for which the first disbursement is made on or after July 1, 2010. |
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Date of Loans | Annualized SAP Rate | |
On or after October 1, 1981
|
T-Bill Rate less Applicable Interest Rate + 3.5% | |
On or after November 16, 1986
|
T-Bill Rate less Applicable Interest Rate + 3.25% | |
On or after October 1, 1992
|
T-Bill Rate less Applicable Interest Rate + 3.1% | |
On or after July 1, 1995
|
T-Bill Rate less Applicable Interest Rate + 3.1%(1) | |
On or after July 1, 1998
|
T-Bill Rate less Applicable Interest Rate + 2.8%(2) | |
On or after January 1, 2000
|
3 Month Commercial Paper Rate less Applicable Interest Rate + 2.34%(3) |
(1) | Substitute 2.5% in this formula while such loans are in-school, grace or deferment status | |
(2) | Substitute 2.2% in this formula while such loans are in-school, grace or deferment status. | |
(3) | Substitute 1.74% in this formula while such loans are in-school, grace or deferment status. |
Date of Loans | Annualized SAP Rate | |
On or after October 1, 1992
|
T-Bill Rate less Applicable Interest Rate + 3.1% | |
On or after January 1, 2000
|
3 Month Commercial Paper Rate less applicable Interest Rate + 2.64% |
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| the applicable interest rate minus the special allowance support level for the loan, multiplied by | ||
| the average daily principal balance of the loan during the quarter, divided by | ||
| four |
2
| originated or acquired with funds obtained from the refunding of tax-exempt obligations issued prior to October 1, 1993, or | ||
| originated or acquired with funds obtained from collections on other loans made or purchased with funds obtained from tax-exempt obligations initially issued prior to October 1, 1993. |
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