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• | Servicing FFELP loans |
• | Originating and servicing non-federally insured student loans |
• | Servicing federally-owned student loans for the Department of Education |
• | Servicing and outsourcing services for guaranty agencies |
• | Providing student loan servicing software and other information technology products and services |
|
• | Reclassifying “software services revenue” to “loan and guaranty servicing revenue." |
• | Reclassifying “professional and other services,” “occupancy and communications,” “postage and distribution,” “advertising and marketing,” and “trustee and other debt related fees” to “other” operating expenses. |
• | Reclassifying student list amortization, which was previously included in “advertising and marketing” to “depreciation and amortization.” |
• | Level 1: Quoted prices for identical instruments in active markets. The types of financial instruments included in Level 1 are highly liquid instruments with quoted prices. |
• | Level 2: Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose primary value drivers are observable. |
• | Level 3: Instruments whose primary value drivers are unobservable. Inputs are developed based on the best information available; however, significant judgment is required by management in developing the inputs. |
• | Loan and guaranty servicing fees – Loan servicing fees are determined according to individual agreements with customers and are calculated based on the dollar value of loans, number of loans, or number of borrowers serviced for each customer. Guaranty servicing fees, generally, are calculated based on the number of loans serviced, volume of loans serviced, or amounts collected. Revenue is recognized when earned pursuant to applicable agreements, and when ultimate collection is assured. |
• | Software services revenue – Software services revenue is determined from individual agreements with customers and includes license and maintenance fees associated with student loan software products. Computer and software consulting and remote hosting revenues are recognized over the period in which services are provided to customers. |
• | Interactive marketing - Interactive marketing revenue is derived primarily from fees which are earned through the delivery of qualified inquiries or clicks. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is reasonably assured. Delivery is deemed to have occurred at the time a qualified inquiry or click is delivered to the customer provided that no significant obligations remain. From time to time, the Company may agree to credit certain inquiries or clicks if they fail to meet the contractual or other guidelines of a particular client. The Company has established a sales reserve based on historical experience. To date, such credits have been immaterial and within management's expectations. |
• | List marketing - Revenue from the sale of lists is generally earned and recognized, net of estimated returns, upon delivery. |
• | Publishing services - Revenue from the sale of print products is generally earned and recognized, net of estimated returns, upon shipment or delivery. |
• | Resource centers - Resource centers services include online courses, scholarship search and selection data, career planning, and online information about colleges and universities. The majority of these services are sold based on subscriptions and/or are performance based. Revenues from sales of subscription and performance based services are recognized ratably over the term of the contract as earned. Subscription and performance based revenues received or receivable in advance of the delivery of services is included in deferred revenue. |
• | Management, having the authority to approve the action, commits to a plan of termination; |
• | The plan of termination identifies the number of employees to be terminated, their job classifications or functions, and their locations and the expected completion date; |
• | The plan of termination establishes the terms of the benefit arrangement, including the benefits that employees will receive upon termination, in sufficient detail to enable employees to determine the type and amount of benefits they will receive if they are involuntarily terminated; and |
• | Actions required to complete the plan of termination indicate that it is unlikely that significant changes to the plan of termination will be made or that the plan of termination will be withdrawn. |
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As of December 31, | |||||||||
2011 | 2010 | ||||||||
Held for investment | Held for investment | Held for sale (a) | |||||||
Federally insured loans | $ | 24,332,709 | 23,757,699 | — | |||||
Non-federally insured loans | 26,916 | 26,370 | 84,987 | ||||||
24,359,625 | 23,784,069 | 84,987 | |||||||
Unamortized loan premiums/discounts and deferred origination costs, net | (13,267 | ) | 207,571 | — | |||||
Allowance for loan losses – federally insured loans | (37,205 | ) | (32,908 | ) | — | ||||
Allowance for loan losses – non-federally insured loans | (11,277 | ) | (10,718 | ) | — | ||||
$ | 24,297,876 | 23,948,014 | 84,987 | ||||||
Allowance for federally insured loans as a percentage of such loans | 0.15 | % | 0.14 | % | |||||
Allowance for non-federally insured loans as a percentage of such loans | 41.90 | % | 40.64 | % |
(a) | On January 13, 2011, the Company sold a portfolio of non-federally insured loans for proceeds of $91.3 million (100% of par value). The Company retained credit risk related to this portfolio and will pay cash to purchase back any loans which become 60 days delinquent. As of December 31, 2010, the Company classified this portfolio as held for sale and the loans were carried at fair value. |
Year ended December 31, | |||||||||
2011 | 2010 | 2009 | |||||||
Balance at beginning of period | $ | 43,626 | 50,887 | 50,922 | |||||
Provision for loan losses: | |||||||||
Federally insured loans | 20,000 | 18,700 | 20,000 | ||||||
Non-federally insured loans | 1,250 | 4,000 | 9,000 | ||||||
Total provision for loan losses | 21,250 | 22,700 | 29,000 | ||||||
Charge-offs: | |||||||||
Federally insured loans | (17,166 | ) | (18,603 | ) | (14,954 | ) | |||
Non-federally insured loans | (4,147 | ) | (7,282 | ) | (5,304 | ) | |||
Total charge-offs | (21,313 | ) | (25,885 | ) | (20,258 | ) | |||
Recoveries - non-federally insured loans | 1,310 | 1,263 | 1,543 | ||||||
Purchase (sale) of loans, net: | |||||||||
Federally insured loans | 1,463 | 2,710 | (520 | ) | |||||
Non-federally insured loans | — | 220 | — | ||||||
Reserve related to loans reclassified to held for sale | — | (6,269 | ) | — | |||||
Transfer to/from repurchase obligation related to loans sold/purchased, net | 2,146 | (2,000 | ) | (9,800 | ) | ||||
Balance at end of period | $ | 48,482 | 43,626 | 50,887 | |||||
Allocation of the allowance for loan losses: | |||||||||
Federally insured loans | $ | 37,205 | 32,908 | 30,102 | |||||
Non-federally insured loans | 11,277 | 10,718 | 20,785 | ||||||
Total allowance for loan losses | $ | 48,482 | 43,626 | 50,887 |
Year ended December 31, | |||||||||
2011 | 2010 | 2009 | |||||||
Beginning balance | $ | 12,600 | 10,600 | — | |||||
Repurchase obligation transferred to/from the allowance for loan losses related to loans purchased/sold, net | (2,146 | ) | 2,000 | 9,800 | |||||
Repurchase obligation associated with loans sold (a) | 6,269 | — | — | ||||||
Current period expense | 2,500 | — | 800 | ||||||
Ending balance | $ | 19,223 | 12,600 | 10,600 |
(a) | As discussed previously, on January 13, 2011, the Company sold a portfolio of loans and retained all credit risk related to this portfolio. These loans were classified as held for sale as of December 31, 2010 and the loans were carried at fair value. Upon sale, the Company established a repurchase obligation associated with those loans that are estimated to become 60 days delinquent. |
As of December 31, | |||||||||||||
2011 | 2010 | ||||||||||||
Dollars | Percent | Dollars | Percent | ||||||||||
Federally Insured Loans: | |||||||||||||
Loans in-school/grace/deferment (a) | $ | 3,664,899 | $ | 4,358,616 | |||||||||
Loans in forbearance (b) | 3,330,452 | 2,984,869 | |||||||||||
Loans in repayment status: | |||||||||||||
Loans current | 14,600,372 | 84.2 | % | 14,309,480 | 87.2 | % | |||||||
Loans delinquent 31-60 days (c) | 844,204 | 4.9 | 794,140 | 4.8 | |||||||||
Loans delinquent 61-90 days (c) | 407,094 | 2.3 | 306,853 | 1.9 | |||||||||
Loans delinquent 91-270 days (c) | 1,163,437 | 6.7 | 789,795 | 4.8 | |||||||||
Loans delinquent 271 days or greater (c)(d) | 322,251 | 1.9 | 213,946 | 1.3 | |||||||||
Total loans in repayment | 17,337,358 | 100.0 | % | 16,414,214 | 100.0 | % | |||||||
Total federally insured loans | $ | 24,332,709 | $ | 23,757,699 | |||||||||
Non-Federally Insured Loans: | |||||||||||||
Loans in-school/grace/deferment (a) | $ | 2,058 | $ | 3,500 | |||||||||
Loans in forbearance (b) | 371 | 292 | |||||||||||
Loans in repayment status: | |||||||||||||
Loans current | 16,776 | 68.5 | % | 16,679 | 73.9 | % | |||||||
Loans delinquent 31-60 days (c) | 706 | 2.9 | 1,546 | 6.8 | |||||||||
Loans delinquent 61-90 days (c) | 1,987 | 8.1 | 1,163 | 5.2 | |||||||||
Loans delinquent 91 days or greater (c) | 5,018 | 20.5 | 3,190 | 14.1 | |||||||||
Total loans in repayment | 24,487 | 100.0 | % | 22,578 | 100.0 | % | |||||||
Total non-federally insured loans | $ | 26,916 | $ | 26,370 |
(a) | 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. |
(b) | 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. |
(c) | 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. |
(d) | A portion of loans included in loans delinquent 271 days or greater include federally insured loans in claim status, which are loans that have gone into default and have been submitted to the guaranty agency. |
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As of December 31, 2011 | |||||||
Carrying amount | Interest rate range | Final maturity | |||||
Variable-rate bonds and notes (a): | |||||||
Bonds and notes based on indices | $ | 20,252,403 | 0.42% - 6.90% | 11/25/15 - 7/27/48 | |||
Bonds and notes based on auction or remarketing | 970,575 | 0.11% - 2.19% | 5/1/28 - 5/25/42 | ||||
Total variable-rate bonds and notes | 21,222,978 | ||||||
Commercial paper - FFELP warehouse facilities | 824,410 | 0.26% - 0.70% | 7/1/14 | ||||
Department of Education Conduit | 2,339,575 | 0.24% | 5/8/14 | ||||
Unsecured line of credit | 64,390 | 0.69% | 5/8/12 | ||||
Unsecured debt - Junior Subordinated Hybrid Securities | 100,697 | 3.95% | 9/15/61 | ||||
Other borrowings | 43,119 | 3.78% - 5.72% | 11/14/12 - 3/1/22 | ||||
24,595,169 | |||||||
Discount on bonds and notes payable | (160,629 | ) | |||||
Total | $ | 24,434,540 |
As of December 31, 2010 | |||||||
Carrying amount | Interest rate range | Final maturity | |||||
Variable-rate bonds and notes (a): | |||||||
Bonds and notes based on indices | $ | 20,170,217 | 0.30% - 6.90% | 5/26/14 - 7/27/48 | |||
Bonds and notes based on auction or remarketing | 944,560 | 0.24% - 1.51% | 5/1/11 - 7/1/43 | ||||
Total variable-rate bonds and notes | 21,114,777 | ||||||
Commercial paper - FFELP warehouse facility | 108,381 | 0.29% - 0.35% | 7/29/13 | ||||
Department of Education Conduit | 2,702,345 | 0.31% | 5/8/14 | ||||
Unsecured line of credit | 450,000 | 0.79% | 5/8/12 | ||||
Unsecured debt - Junior Subordinated Hybrid Securities | 163,255 | 7.40% | 9/15/61 | ||||
Related party debt | 107,050 | 0.53% | 5/20/11 | ||||
Other borrowings | 26,664 | 0.26% - 5.10% | 1/1/11 - 11/1/15 | ||||
$ | 24,672,472 |
(a) | Issued in asset-backed securitizations |
• | A minimum consolidated net worth |
• | A minimum adjusted EBITDA to recourse indebtedness (over the last four rolling quarters) |
• | A limitation on recourse indebtedness |
• | A limitation on the percentage of non-federally insured loans in the Company’s portfolio |
2012 | $ | 8,900 | ||
2013 | — | |||
2014 | 3,163,985 | |||
2015 | 209,172 | |||
2016 | 105,163 | |||
2017 and thereafter | 21,107,949 | |||
$ | 24,595,169 |
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Year ended December 31, | |||||||||
2011 | 2010 | 2009 | |||||||
Gain on sale of loans, net (a) | $ | 1,378 | 33,748 | 35,148 | |||||
Gain from debt repurchases (b) | 6,962 | 44,883 | 41,683 | ||||||
$ | 8,340 | 78,631 | 76,831 |
(a) | The majority of gains from the sale of loans included in the table above were the result of selling loans to the Department under a program established to provide liquidity to student loan lenders. During each of 2010 and 2009, the Company sold $2.1 billion (par value) of student loans to the Department and recognized a gain of $33.8 million and $36.6 million, respectively. |
(b) | The activity included in "Gain from debt repurchases" is detailed below: |
Year ended December 31, 2011 | Year ended December 31, 2010 | Year ended December 31, 2009 | |||||||||||||||||||||||||
Notional amount | Purchase price | Gain | Notional amount | Purchase price | Gain | Notional amount | Purchase price | Gain | |||||||||||||||||||
Gains on debt repurchases: | |||||||||||||||||||||||||||
Unsecured debt - Senior Notes due 2010 | $ | — | — | — | — | — | — | 208,284 | 196,529 | 11,755 | |||||||||||||||||
Junior Subordinated Hybrid Securities | 62,558 | 55,651 | 6,907 | 34,995 | 30,073 | 4,922 | 1,750 | 350 | 1,400 | ||||||||||||||||||
Asset-backed securities (1) | 12,254 | 12,199 | 55 | 690,750 | 650,789 | 39,961 | 348,155 | 319,627 | 28,528 | ||||||||||||||||||
$ | 74,812 | 67,850 | 6,962 | 725,745 | 680,862 | 44,883 | 558,189 | 516,506 | 41,683 |
(1) | For accounting purposes, the asset-backed securities repurchased by the Company are effectively retired and are not included on the Company’s consolidated balance sheets. However, as of December 31, 2011, the Company has purchased a cumulative amount of $72.5 million of these securities that remain legally outstanding at the trust level and the Company could sell these notes to third parties or redeem the notes at par as cash is generated by the trust estate. Upon a sale to third parties, the Company would obtain cash proceeds equal to the market value of the notes on the date of such sale. The par value of these notes ($72.5 million as of December 31, 2011) may not represent market value of such securities. |
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• | receives three-month LIBOR set discretely in advance and pays a daily weighted average three-month LIBOR less a spread as defined in the agreements (the “Average/Discrete Basis Swaps”) |
• | receives three-month LIBOR set discretely in advance and pays one-month LIBOR plus or minus a spread as defined in the agreements (the “1/3 Basis Swaps”) |
As of December 31, 2011 | ||||||||
Notional amounts | ||||||||
Maturity | 1:3 Basis Swaps | T-Bill/LIBOR Basis Swaps | ||||||
2021 | $ | 250,000 | — | |||||
2023 | 1,250,000 | — | ||||||
2024 | 250,000 | — | ||||||
2026 | 800,000 | — | ||||||
2028 | 100,000 | — | ||||||
2036 | 700,000 | — | ||||||
2039 | (a) | 150,000 | — | |||||
2040 | (b) | 200,000 | — | |||||
$ | 3,700,000 | — |
As of December 31, 2010 | ||||||||
Notional amounts | ||||||||
1:3 Basis Swaps | T-Bill/LIBOR Basis Swaps | |||||||
Maturity | ||||||||
2011 | $ | — | 225,000 | |||||
2021 | 250,000 | — | ||||||
2023 | 1,250,000 | — | ||||||
2024 | 250,000 | — | ||||||
2028 | 100,000 | — | ||||||
2039 | (a) | 150,000 | — | |||||
2040 | (b) | 200,000 | — | |||||
$ | 2,200,000 | 225,000 |
As of December 31, 2011 | |||||||
Notional | Weighted average fixed rate paid by the Company (a) | ||||||
Maturity | amount | ||||||
2013 | $ | 2,150,000 | 0.85 | % | |||
2014 | 750,000 | 0.85 | |||||
2015 | 100,000 | 2.26 | |||||
2020 | 50,000 | 3.23 | |||||
$ | 3,050,000 | 0.87 | % |
As of December 31, 2010 | |||||||
Notional | Weighted average fixed rate paid by the Company (a) | ||||||
Maturity | amount | ||||||
2011 | $ | 4,300,000 | 0.53 | % | |||
2012 | 3,950,000 | 0.67 | |||||
2013 | 650,000 | 1.07 | |||||
2015 | 100,000 | 2.26 | |||||
2020 | 50,000 | 3.23 | |||||
$ | 9,050,000 | 0.66 | % |
As of December 31, 2011 | |||||
Notional amount (a) | Weighted average fixed rate paid by the Company (b) | ||||
$ | 75,000 | 4.28 | % | ||
As of December 31, 2010 | |||||
Notional amount (a) | Weighted average fixed rate paid by the Company (b) | ||||
$ | 100,000 | 4.27 | % |
(a) | The effective start date on $75 million (notional amount) of the derivatives outstanding is March 2012 with a maturity date of September 29, 2036. |
(b) | For all interest rate derivatives, the Company receives discrete three-month LIBOR. |
Year ended December 31, | |||||||||
2011 | 2010 | 2009 | |||||||
Re-measurement of Euro Notes | $ | 32,706 | 80,721 | (37,654 | ) | ||||
Change in fair value of cross currency interest rate swaps | (14,287 | ) | (74,899 | ) | 2,497 | ||||
Total impact to statements of income - income (expense) | $ | 18,419 | 5,822 | (35,157 | ) |
Fair value of asset derivatives | Fair value of liability derivatives | |||||||||||
As of | As of | As of | As of | |||||||||
December 31, 2011 | December 31, 2010 | December 31, 2011 | December 31, 2010 | |||||||||
Average/discrete basis swaps | $ | — | — | — | — | |||||||
1:3 basis swaps | 10,988 | 10,489 | 641 | 44 | ||||||||
T-Bill/LIBOR basis swaps | — | — | — | 201 | ||||||||
Interest rate swaps - floor income hedges | 592 | 10,569 | 18,384 | 15,372 | ||||||||
Interest rate swaps - hybrid debt hedges | — | 1,132 | 24,814 | 470 | ||||||||
Cross-currency interest rate swaps | 80,631 | 94,918 | — | — | ||||||||
Other | 8 | 1,238 | 1 | 2 | ||||||||
Total | $ | 92,219 | 118,346 | 43,840 | 16,089 |
Year ended December 31, | ||||||||||
Derivatives not designated as hedging | 2011 | 2010 | 2009 | |||||||
Settlements: | ||||||||||
Average/discrete basis swaps | $ | — | 140 | 11,483 | ||||||
1:3 basis swaps | 1,446 | 1,194 | 21,231 | |||||||
T-Bill/LIBOR basis swaps | (253 | ) | (47 | ) | — | |||||
Interest rate swaps - floor income hedges | (20,246 | ) | (19,618 | ) | (2,020 | ) | ||||
Interest rate swaps - hybrid debt hedges | (744 | ) | (495 | ) | — | |||||
Cross-currency interest rate swaps | 11,877 | 5,109 | 8,631 | |||||||
Other | 80 | (547 | ) | (39 | ) | |||||
Total settlements - (expense) income | (7,840 | ) | (14,264 | ) | 39,286 | |||||
Change in fair value: | ||||||||||
Average/discrete basis swaps | (148 | ) | 406 | (13,647 | ) | |||||
1:3 basis swaps | 1,114 | 6,133 | 12,587 | |||||||
T-Bill/LIBOR basis swaps | 201 | (101 | ) | (101 | ) | |||||
Interest rate swaps - floor income hedges | (12,169 | ) | (8,992 | ) | 2,267 | |||||
Interest rate swaps - hybrid debt hedges | (25,475 | ) | (301 | ) | 1,817 | |||||
Cross-currency interest rate swaps | (14,287 | ) | (74,899 | ) | 2,497 | |||||
Other | 251 | 620 | 1,432 | |||||||
Total change in fair value - (expense) income | (50,513 | ) | (77,134 | ) | 6,852 | |||||
Re-measurement of Euro Notes (foreign currency transaction adjustment) - (expense) income | 32,706 | 80,721 | (37,654 | ) | ||||||
Derivative market value and foreign currency adjustments and derivative settlements, net - (expense) income | $ | (25,647 | ) | (10,677 | ) | 8,484 |
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As of December 31, | ||||||
2011 | 2010 | |||||
Investments: | ||||||
Investments - trading securities (a) | ||||||
Student loan auction rate asset-backed securities | $ | 42,412 | 11,861 | |||
Equity securities | 6,847 | 6,250 | ||||
Debt securities (b) | 1,521 | 25,125 | ||||
Total investments - trading securities | $ | 50,780 | 43,236 | |||
Restricted Investments (c): | ||||||
Guaranteed investment contracts - held-to-maturity | $ | 236,899 | 215,009 |
(a) | The unrealized gain/loss on the Company's trading securities as of December 31, 2011 and 2010 was not significant. |
(b) | Debt securities include corporate, mortgage-backed security, and U.S. government bonds and U.S. Treasury securities. |
(c) | Restricted investments are included in "Restricted cash and investments" on the Company's consolidated balance sheets. |
Restricted investments | ||||
Year of Maturity: | ||||
2017-2021 | $ | 27,355 | ||
After 2021 | 209,544 | |||
Total | $ | 236,899 |
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Weighted average remaining useful life as of December 31, 2011 (months) | As of December 31, | ||||||||
2011 | 2010 | ||||||||
Amortizable intangible assets: | |||||||||
Customer relationships (net of accumulated amortization of $59,893 and $47,770, respectively) | 63 | $ | 23,240 | 28,576 | |||||
Computer software (net of accumulated amortization of $5,103 and $2,419, respectively) | 12 | 2,815 | 5,499 | ||||||
Trade names (net of accumulated amortization of $9,274 and $6,956, respectively) | 12 | 2,319 | 4,637 | ||||||
Total - amortizable intangible assets | 54 | $ | 28,374 | 38,712 |
2012 | $ | 18,632 | |
2013 | 3,399 | ||
2014 | 2,102 | ||
2015 | 829 | ||
2016 | 639 | ||
2017 and thereafter | 2,773 | ||
$ | 28,374 |
Student Loan and Guaranty Servicing | Tuition Payment Processing and Campus Commerce | Enrollment Services | Asset Generation and Management (a) | Total | |||||||||||
Balance as of December 31, 2008 | $ | 8,596 | 58,086 | 66,613 | 41,883 | 175,178 | |||||||||
Impairment charge | — | — | (31,461 | ) | — | (31,461 | ) | ||||||||
Balance as of December 31, 2009 | 8,596 | 58,086 | 35,152 | 41,883 | 143,717 | ||||||||||
Impairment charge | — | — | (26,599 | ) | — | (26,599 | ) | ||||||||
Balance as of December 31, 2010 and 2011 | $ | 8,596 | 58,086 | 8,553 | 41,883 | 117,118 |
(a) | As a result of the Reconciliation Act of 2010, the Company no longer originates new (first disbursement) FFELP loans and net interest income of the Company's existing FFELP loan portfolio will decline over time as the Company's portfolio pays down. As a result, as this revenue stream winds down, goodwill impairment will be triggered for the Asset Generation and Management reporting unit due to the passage of time and depletion of projected cash flows stemming from its FFELP student loan portfolio. Other than the Asset Generation and Management reporting unit, management believes the elimination of FFELP will not have an adverse impact on the fair value of the Company's other reporting units. |
Asset | Operating segment | Impairment charge | ||||
Amortizable intangible assets: | ||||||
Customer relationships | Enrollment Services | $ | 584 | |||
Trade names | Enrollment Services | 506 | ||||
Covenants not to compete | Enrollment Services | 21 | ||||
Other | Enrollment Services | 156 | ||||
Goodwill | Enrollment Services | 31,461 | ||||
Total impairment charge | $ | 32,728 |
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As of December 31, | ||||||||
Useful life | 2011 | 2010 | ||||||
Computer equipment and software | 1-5 years | $ | 79,895 | 78,929 | ||||
Office furniture and equipment | 3-7 years | 10,607 | 10,481 | |||||
Leasehold improvements | 1-15 years | 7,321 | 8,037 | |||||
Transportation equipment | 3-10 years | 3,766 | 3,766 | |||||
Buildings | 5-39 years | 9,144 | 8,490 | |||||
Land | — | 700 | 700 | |||||
111,433 | 110,403 | |||||||
Accumulated depreciation | 76,614 | 79,830 | ||||||
$ | 34,819 | 30,573 |
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Year ended December 31, | ||||||
2011 | 2010 | |||||
Gross balance - beginning of year | $ | 10,546 | 8,629 | |||
Additions based on tax positions of prior years | 7,898 | 401 | ||||
Additions based on tax positions related to the current year | 4,359 | 2,383 | ||||
Settlements with taxing authorities | — | — | ||||
Reductions for tax positions of prior years | (417 | ) | (750 | ) | ||
Reductions based on tax positions related to the current year | — | — | ||||
Reductions due to lapse of applicable statute of limitations | (592 | ) | (117 | ) | ||
Gross balance - end of year | $ | 21,794 | 10,546 |
Year ended December 31, | |||||||||
2011 | 2010 | 2009 | |||||||
Current: | |||||||||
Federal | $ | 123,737 | 102,162 | 88,413 | |||||
State | 1,354 | 6,827 | 7,194 | ||||||
Foreign | 87 | 158 | 23 | ||||||
Total current provision | 125,178 | 109,147 | 95,630 | ||||||
Deferred: | |||||||||
Federal | (6,606 | ) | 272 | (15,947 | ) | ||||
State | (1,116 | ) | 4,009 | (3,111 | ) | ||||
Foreign | (4 | ) | (8 | ) | 1 | ||||
Total deferred (benefit) provision | (7,726 | ) | 4,273 | (19,057 | ) | ||||
Provision for income tax expense | $ | 117,452 | 113,420 | 76,573 |
Year ended December 31, | ||||||||
2011 | 2010 | 2009 | ||||||
Tax expense at federal rate | 35.0 | % | 35.0 | % | 35.0 | % | ||
Increase (decrease) resulting from: | ||||||||
State tax, net of federal income tax benefit | 0.9 | 2.2 | 1.9 | |||||
Provision of uncertain federal and state tax matters | 1.1 | 0.4 | — | |||||
Tax credits | (0.4) | (0.2) | (0.4) | |||||
Valuation allowance | (0.3) | 0.1 | (0.6) | |||||
Other | 0.2 | — | (0.4) | |||||
Effective tax rate | 36.5 | % | 37.5 | % | 35.5 | % |
As of December 31, | ||||||
2011 | 2010 | |||||
Deferred tax assets: | ||||||
Student loans | $ | 23,605 | 21,413 | |||
Intangible assets | 23,476 | 20,578 | ||||
Accrued expenses | 3,282 | 4,981 | ||||
Net operating loss carryforwards | 680 | 2,081 | ||||
Stock compensation | 867 | 899 | ||||
Deferred revenue | 2,625 | 734 | ||||
Foreign tax credit | 397 | 721 | ||||
Bond issuance costs | 656 | 667 | ||||
Other | — | 55 | ||||
Total gross deferred tax assets | 55,588 | 52,129 | ||||
Less valuation allowance | (250 | ) | (1,161 | ) | ||
Deferred tax assets | 55,338 | 50,968 | ||||
Deferred tax liabilities: | ||||||
Loan origination services | 31,576 | 36,878 | ||||
Debt repurchases | 30,637 | 33,391 | ||||
Basis in certain derivative contracts | 4,420 | 10,644 | ||||
Depreciation | 5,819 | 2,215 | ||||
Other | 454 | 53 | ||||
Deferred tax liabilities | 72,906 | 83,181 | ||||
Net deferred income tax liability | $ | 17,568 | 32,213 |
|
2009 Restructuring Plan | 2008 Restructuring Plan (a) | 2007 Restructuring Plan (b) | |||||||||||||
Employee termination benefits | Lease terminations | Lease terminations | Lease terminations | Total | |||||||||||
Restructuring accrual as of December 31, 2008 | $ | — | — | 589 | 2,891 | 3,480 | |||||||||
Restructuring costs recognized in 2009 | 4,247 | 3,031 | — | — | 7,278 | ||||||||||
Adjustment from initial estimate of charges | — | — | 12 | 692 | 704 | ||||||||||
Cash payments | (898 | ) | (605 | ) | (250 | ) | (650 | ) | (2,403 | ) | |||||
Restructuring accrual as of December 31, 2009 | 3,349 | 2,426 | 351 | 2,933 | 9,059 | ||||||||||
Restructuring costs recognized in 2010 | 1,069 | 3,360 | — | — | 4,429 | ||||||||||
Adjustment from initial estimate of charges | — | — | — | 1,639 | 1,639 | ||||||||||
Cash payments | (3,380 | ) | (2,332 | ) | (128 | ) | (1,207 | ) | (7,047 | ) | |||||
Restructuring accrual as of December 31, 2010 | 1,038 | 3,454 | 223 | 3,365 | 8,080 | ||||||||||
Cash payments | (683 | ) | (1,387 | ) | (223 | ) | (1,541 | ) | (3,834 | ) | |||||
Restructuring accrual as of December 31, 2011 | $ | 355 | 2,067 | — | 1,824 | 4,246 |
(a) | During, 2008, the Company announced a plan to reduce operating expenses related to its student loan origination and related businesses as a result of ongoing disruptions in the credit markets. This restructuring plan was completed during the second quarter of 2008. |
(b) | During 2007, the Company initiated a restructuring plan to modify its student loan business model in advance of the enactment of the College Cost Reduction Act, which impacted the FFEL Program. This restructuring plan was completed as of December 31, 2007. |
|
• | Income earned on certain investment activities |
• | Interest expense incurred on unsecured debt transactions |
• | Other products and service offerings that are not considered operating segments |
Year ended December 31, 2011 | ||||||||||||||||||||||||||||||
Fee-Based | ||||||||||||||||||||||||||||||
Student Loan and Guaranty Servicing | Tuition Payment Processing and Campus Commerce | Enrollment Services | Total Fee- Based | Asset Generation and Management | Corporate Activity and Overhead | Eliminations | Base Net Income | Adjustments to GAAP Results | GAAP Results of Operations | |||||||||||||||||||||
Total interest income | $ | 58 | 21 | — | 79 | 590,736 | 5,074 | (3,035 | ) | 592,854 | — | 592,854 | ||||||||||||||||||
Interest expense | — | — | — | — | 221,675 | 9,649 | (3,035 | ) | 228,289 | — | 228,289 | |||||||||||||||||||
Net interest income (loss) | 58 | 21 | — | 79 | 369,061 | (4,575 | ) | — | 364,565 | — | 364,565 | |||||||||||||||||||
Less provision for loan losses | — | — | — | — | 21,250 | — | — | 21,250 | — | 21,250 | ||||||||||||||||||||
Net interest income (loss) after provision for loan losses | 58 | 21 | — | 79 | 347,811 | (4,575 | ) | — | 343,315 | — | 343,315 | |||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||||||
Loan and guaranty servicing revenue | 175,657 | — | — | 175,657 | — | — | — | 175,657 | — | 175,657 | ||||||||||||||||||||
Intersegment servicing revenue | 69,037 | — | — | 69,037 | — | — | (69,037 | ) | — | — | — | |||||||||||||||||||
Tuition payment processing and campus commerce revenue | — | 67,797 | — | 67,797 | — | — | — | 67,797 | — | 67,797 | ||||||||||||||||||||
Enrollment services revenue | — | — | 130,470 | 130,470 | — | — | — | 130,470 | — | 130,470 | ||||||||||||||||||||
Other income | — | — | — | — | 15,416 | 14,097 | — | 29,513 | — | 29,513 | ||||||||||||||||||||
Gain on sale of loans and debt repurchases | — | — | — | — | 1,433 | 6,907 | — | 8,340 | — | 8,340 | ||||||||||||||||||||
Derivative market value and foreign currency adjustments | — | — | — | — | — | — | — | — | (17,807 | ) | (17,807 | ) | ||||||||||||||||||
Derivative settlements, net | — | — | — | — | (7,228 | ) | (612 | ) | — | (7,840 | ) | — | (7,840 | ) | ||||||||||||||||
Total other income (expense) | 244,694 | 67,797 | 130,470 | 442,961 | 9,621 | 20,392 | (69,037 | ) | 403,937 | (17,807 | ) | 386,130 | ||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||
Salaries and benefits | 102,878 | 30,070 | 25,155 | 158,103 | 2,791 | 17,057 | — | 177,951 | — | 177,951 | ||||||||||||||||||||
Cost to provide enrollment services | — | — | 86,548 | 86,548 | — | — | — | 86,548 | — | 86,548 | ||||||||||||||||||||
Depreciation and amortization | 6,843 | 1,174 | 3,204 | 11,221 | — | 1,398 | — | 12,619 | 17,125 | 29,744 | ||||||||||||||||||||
Other | 60,442 | 10,192 | 9,425 | 80,059 | 13,381 | 19,975 | — | 113,415 | — | 113,415 | ||||||||||||||||||||
Intersegment expenses, net | 4,776 | 4,714 | 3,521 | 13,011 | 70,018 | (13,992 | ) | (69,037 | ) | — | — | — | ||||||||||||||||||
Total operating expenses | 174,939 | 46,150 | 127,853 | 348,942 | 86,190 | 24,438 | (69,037 | ) | 390,533 | 17,125 | 407,658 | |||||||||||||||||||
Income (loss) before income taxes and corporate overhead allocation | 69,813 | 21,668 | 2,617 | 94,098 | 271,242 | (8,621 | ) | — | 356,719 | (34,932 | ) | 321,787 | ||||||||||||||||||
Corporate overhead allocation | (4,138 | ) | (1,379 | ) | (1,379 | ) | (6,896 | ) | (6,896 | ) | 13,792 | — | — | — | — | |||||||||||||||
Income (loss) before income taxes | 65,675 | 20,289 | 1,238 | 87,202 | 264,346 | 5,171 | — | 356,719 | (34,932 | ) | 321,787 | |||||||||||||||||||
Income tax (expense) benefit | (24,955 | ) | (7,709 | ) | (471 | ) | (33,135 | ) | (100,451 | ) | 2,860 | — | (130,726 | ) | 13,274 | (117,452 | ) | |||||||||||||
Net income (loss) | $ | 40,720 | 12,580 | 767 | 54,067 | 163,895 | 8,031 | — | 225,993 | (21,658 | ) | 204,335 | ||||||||||||||||||
Total assets | $ | 123,307 | 157,444 | 45,738 | 326,489 | 25,821,806 | 24,735 | (320,813 | ) | 25,852,217 | — | 25,852,217 |
Year ended December 31, 2010 | ||||||||||||||||||||||||||||||
Fee-Based | ||||||||||||||||||||||||||||||
Student Loan and Guaranty Servicing | Tuition Payment Processing and Campus Commerce | Enrollment Services | Total Fee-Based | Asset Generation and Management | Corporate Activity and Overhead | Eliminations | Base Net Income | Adjustments to GAAP Results | GAAP Results of Operations | |||||||||||||||||||||
Total interest income | $ | 62 | 32 | — | 94 | 600,098 | 8,109 | (4,370 | ) | 603,931 | — | 603,931 | ||||||||||||||||||
Interest expense | — | — | — | — | 215,339 | 21,891 | (4,370 | ) | 232,860 | — | 232,860 | |||||||||||||||||||
Net interest income (loss) | 62 | 32 | — | 94 | 384,759 | (13,782 | ) | — | 371,071 | — | 371,071 | |||||||||||||||||||
Less provision for loan losses | — | — | — | — | 22,700 | — | — | 22,700 | — | 22,700 | ||||||||||||||||||||
Net interest income (loss) after provision for loan losses | 62 | 32 | — | 94 | 362,059 | (13,782 | ) | — | 348,371 | — | 348,371 | |||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||||||
Loan and guaranty servicing revenue | 158,838 | — | — | 158,838 | — | (254 | ) | — | 158,584 | — | 158,584 | |||||||||||||||||||
Intersegment servicing revenue | 85,342 | — | — | 85,342 | — | (85,342 | ) | — | — | — | ||||||||||||||||||||
Tuition payment processing and campus commerce revenue | — | 59,824 | — | 59,824 | — | — | — | 59,824 | — | 59,824 | ||||||||||||||||||||
Enrollment services revenue | — | — | 139,897 | 139,897 | — | — | — | 139,897 | — | 139,897 | ||||||||||||||||||||
Other income | 519 | — | — | 519 | 18,639 | 12,152 | — | 31,310 | — | 31,310 | ||||||||||||||||||||
Gain on sale of loans and debt repurchases | — | — | — | — | 73,709 | 4,922 | — | 78,631 | — | 78,631 | ||||||||||||||||||||
Derivative market value and foreign currency adjustments | — | — | — | — | — | — | — | — | 3,587 | 3,587 | ||||||||||||||||||||
Derivative settlements, net | — | — | — | — | (13,336 | ) | (928 | ) | — | (14,264 | ) | — | (14,264 | ) | ||||||||||||||||
Total other income (expense) | 244,699 | 59,824 | 139,897 | 444,420 | 79,012 | 15,892 | (85,342 | ) | 453,982 | 3,587 | 457,569 | |||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||
Salaries and benefits | 95,293 | 27,180 | 24,827 | 147,300 | 4,524 | 15,849 | (1,662 | ) | 166,011 | — | 166,011 | |||||||||||||||||||
Cost to provide enrollment services | — | — | 91,647 | 91,647 | — | — | — | 91,647 | — | 91,647 | ||||||||||||||||||||
Depreciation and amortization | 5,179 | 1,333 | 7,359 | 13,871 | 3 | 1,826 | — | 15,700 | 22,744 | 38,444 | ||||||||||||||||||||
Impairment expense | — | — | 26,599 | 26,599 | — | — | — | 26,599 | — | 26,599 | ||||||||||||||||||||
Restructure expense | 6,040 | — | — | 6,040 | — | (20 | ) | — | 6,020 | — | 6,020 | |||||||||||||||||||
Litigation settlement | — | — | — | — | — | 55,000 | — | 55,000 | — | 55,000 | ||||||||||||||||||||
Other | 60,061 | 9,531 | 10,681 | 80,273 | 12,749 | 26,743 | — | 119,765 | — | 119,765 | ||||||||||||||||||||
Intersegment expenses, net | 5,221 | 3,579 | 2,461 | 11,261 | 85,278 | (12,859 | ) | (83,680 | ) | — | — | — | ||||||||||||||||||
Total operating expenses | 171,794 | 41,623 | 163,574 | 376,991 | 102,554 | 86,539 | (85,342 | ) | 480,742 | 22,744 | 503,486 | |||||||||||||||||||
Income (loss) before income taxes and corporate overhead allocation | 72,967 | 18,233 | (23,677 | ) | 67,523 | 338,517 | (84,429 | ) | — | 321,611 | (19,157 | ) | 302,454 | |||||||||||||||||
Corporate overhead allocation | (5,856 | ) | (1,952 | ) | (1,952 | ) | (9,760 | ) | (9,759 | ) | 19,519 | — | — | — | — | |||||||||||||||
Income (loss) before income taxes | 67,111 | 16,281 | (25,629 | ) | 57,763 | 328,758 | (64,910 | ) | — | 321,611 | (19,157 | ) | 302,454 | |||||||||||||||||
Income tax (expense) benefit | (25,502 | ) | (6,189 | ) | 9,740 | (21,951 | ) | (124,928 | ) | 26,179 | — | (120,700 | ) | 7,280 | (113,420 | ) | ||||||||||||||
Net income (loss) | $ | 41,609 | 10,092 | (15,889 | ) | 35,812 | 203,830 | (38,731 | ) | — | 200,911 | (11,877 | ) | 189,034 | ||||||||||||||||
Additional information: | ||||||||||||||||||||||||||||||
Net income (loss) | $ | 41,609 | 10,092 | (15,889 | ) | 35,812 | 203,830 | (38,731 | ) | — | 200,911 | |||||||||||||||||||
Plus: Litigation settlement | — | — | — | — | — | 55,000 | — | 55,000 | ||||||||||||||||||||||
Plus: Restructure expense | 6,040 | — | — | 6,040 | — | (20 | ) | — | 6,020 | |||||||||||||||||||||
Plus: Impairment expense | — | — | 26,599 | 26,599 | — | — | — | 26,599 | ||||||||||||||||||||||
Less: Net tax effect | (2,295 | ) | — | (10,108 | ) | (12,403 | ) | — | (20,892 | ) | — | (33,295 | ) | |||||||||||||||||
Net income (loss), excluding litigation settlement, restructure expense, and impairment expense | $ | 45,354 | 10,092 | 602 | 56,048 | 203,830 | (4,643 | ) | — | 255,235 | ||||||||||||||||||||
Total assets | $ | 133,103 | 121,817 | 52,999 | 307,919 | 26,008,867 | 11,970 | (434,864 | ) | 25,893,892 | — | 25,893,892 |
Year ended December 31, 2009 | ||||||||||||||||||||||||||||||
Fee-Based | ||||||||||||||||||||||||||||||
Student Loan and Guaranty Servicing | Tuition Payment Processing and Campus Commerce | Enrollment Services | Total Fee- Based | Asset Generation and Management | Corporate Activity and Overhead | Eliminations | Base Net Income | Adjustments to GAAP Results | GAAP Results of Operations | |||||||||||||||||||||
Total interest income | $ | 112 | 62 | — | 174 | 609,143 | 5,391 | (2,003 | ) | 612,705 | 7,502 | 620,207 | ||||||||||||||||||
Interest expense | — | — | — | — | 357,930 | 28,935 | (2,003 | ) | 384,862 | — | 384,862 | |||||||||||||||||||
Net interest income (loss) | 112 | 62 | — | 174 | 251,213 | (23,544 | ) | — | 227,843 | 7,502 | 235,345 | |||||||||||||||||||
Less provision for loan losses | — | — | — | — | 29,000 | — | — | 29,000 | — | 29,000 | ||||||||||||||||||||
Net interest income (loss) after provision for loan losses | 112 | 62 | — | 174 | 222,213 | (23,544 | ) | — | 198,843 | 7,502 | 206,345 | |||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||||||
Loan and guaranty servicing revenue | 131,437 | — | — | 131,437 | — | (1,526 | ) | — | 129,911 | — | 129,911 | |||||||||||||||||||
Intersegment servicing revenue | 85,048 | — | — | 85,048 | — | — | (85,048 | ) | — | — | — | |||||||||||||||||||
Tuition payment processing and campus commerce revenue | — | 53,894 | — | 53,894 | — | — | — | 53,894 | — | 53,894 | ||||||||||||||||||||
Enrollment services revenue | — | — | 119,397 | 119,397 | — | — | — | 119,397 | — | 119,397 | ||||||||||||||||||||
Other income | 644 | — | — | 644 | 17,169 | 8,656 | — | 26,469 | — | 26,469 | ||||||||||||||||||||
Gain on sale of loans and debt repurchases | — | — | — | — | 63,676 | 13,155 | — | 76,831 | — | 76,831 | ||||||||||||||||||||
Derivative market value and foreign currency adjustments | — | — | — | — | — | — | — | — | (30,802 | ) | (30,802 | ) | ||||||||||||||||||
Derivative settlements, net | — | — | — | — | 39,286 | — | — | 39,286 | — | 39,286 | ||||||||||||||||||||
Total other income (expense) | 217,129 | 53,894 | 119,397 | 390,420 | 120,131 | 20,285 | (85,048 | ) | 445,788 | (30,802 | ) | 414,986 | ||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||
Salaries and benefits | 84,405 | 25,549 | 23,222 | 133,176 | 6,767 | 16,639 | (5,456 | ) | 151,126 | 159 | 151,285 | |||||||||||||||||||
Cost to provide enrollment services | — | — | 74,926 | 74,926 | — | — | — | 74,926 | — | 74,926 | ||||||||||||||||||||
Depreciation and amortization | 9,025 | 1,484 | 3,959 | 14,468 | 9 | 1,770 | — | 16,247 | 22,249 | 38,496 | ||||||||||||||||||||
Impairment expense | — | — | 32,728 | 32,728 | — | — | — | 32,728 | — | 32,728 | ||||||||||||||||||||
Restructure expense | 7,715 | — | — | 7,715 | — | 267 | — | 7,982 | — | 7,982 | ||||||||||||||||||||
Other | 41,708 | 8,158 | 9,267 | 59,133 | 19,557 | 21,526 | — | 100,216 | — | 100,216 | ||||||||||||||||||||
Intersegment expenses, net | 4,299 | 2,563 | 1,566 | 8,428 | 81,335 | (10,171 | ) | (79,592 | ) | — | — | — | ||||||||||||||||||
Total operating expenses | 147,152 | 37,754 | 145,668 | 330,574 | 107,668 | 30,031 | (85,048 | ) | 383,225 | 22,408 | 405,633 | |||||||||||||||||||
Income (loss) before income taxes and corporate overhead allocation | 70,089 | 16,202 | (26,271 | ) | 60,020 | 234,676 | (33,290 | ) | — | 261,406 | (45,708 | ) | 215,698 | |||||||||||||||||
Corporate overhead allocation | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||
Income (loss) before income taxes | 70,089 | 16,202 | (26,271 | ) | 60,020 | 234,676 | (33,290 | ) | — | 261,406 | (45,708 | ) | 215,698 | |||||||||||||||||
Income tax (expense) benefit | (26,636 | ) | (6,156 | ) | 9,984 | (22,808 | ) | (89,178 | ) | 19,186 | — | (92,800 | ) | 16,227 | (76,573 | ) | ||||||||||||||
Net income (loss) | $ | 43,453 | 10,046 | (16,287 | ) | 37,212 | 145,498 | (14,104 | ) | — | 168,606 | (29,481 | ) | 139,125 | ||||||||||||||||
Additional information: | ||||||||||||||||||||||||||||||
Net income (loss) | $ | 43,453 | 10,046 | (16,287 | ) | 37,212 | 145,498 | (14,104 | ) | — | 168,606 | |||||||||||||||||||
Plus: Restructure expense | 7,715 | — | — | 7,715 | — | 267 | — | 7,982 | ||||||||||||||||||||||
Plus: Impairment expense | — | — | 32,728 | 32,728 | — | — | — | 32,728 | ||||||||||||||||||||||
Less: Net tax effect | (2,932 | ) | — | (12,437 | ) | (15,369 | ) | — | 917 | — | (14,452 | ) | ||||||||||||||||||
Net income (loss), excluding restructure and impairment expense | $ | 48,236 | 10,046 | 4,004 | 62,286 | 145,498 | (12,920 | ) | — | 194,864 | ||||||||||||||||||||
Total assets | $ | 146,530 | 114,581 | 76,140 | 337,251 | 25,899,946 | 12,201 | (372,971 | ) | 25,876,427 | — | 25,876,427 |
Student Loan and Guaranty Servicing | Tuition Payment Processing and Campus Commerce | Enrollment Services | Asset Generation and Management | Corporate Activity and Overhead | Total | |||||||||||||
Year ended December 31, 2011 | ||||||||||||||||||
Derivative market value and foreign currency adjustments (a) | $ | — | — | — | (7,571 | ) | 25,378 | 17,807 | ||||||||||
Amortization of intangible assets (b) | 8,470 | 5,005 | 3,650 | — | — | 17,125 | ||||||||||||
Compensation related to business combinations (c) | — | — | — | — | — | — | ||||||||||||
Variable-rate floor income, net of settlements on derivatives (d) | — | — | — | — | — | — | ||||||||||||
Net tax effect (e) | (3,219 | ) | (1,902 | ) | (1,387 | ) | 2,877 | (9,643 | ) | (13,274 | ) | |||||||
Total adjustments to GAAP | $ | 5,251 | 3,103 | 2,263 | (4,694 | ) | 15,735 | 21,658 | ||||||||||
Year ended December 31, 2010 | ||||||||||||||||||
Derivative market value and foreign currency adjustments (a) | $ | — | — | — | (3,046 | ) | (541 | ) | (3,587 | ) | ||||||||
Amortization of intangible assets (b) | 8,576 | 5,756 | 8,412 | — | — | 22,744 | ||||||||||||
Compensation related to business combinations (c) | — | — | — | — | — | — | ||||||||||||
Variable-rate floor income, net of settlements on derivatives (d) | — | — | — | — | — | — | ||||||||||||
Net tax effect (e) | (3,259 | ) | (2,189 | ) | (3,199 | ) | 1,157 | 210 | (7,280 | ) | ||||||||
Total adjustments to GAAP | $ | 5,317 | 3,567 | 5,213 | (1,889 | ) | (331 | ) | 11,877 | |||||||||
Year ended December 31, 2009 | ||||||||||||||||||
Derivative market value and foreign currency adjustments (a) | $ | — | — | — | 34,569 | (3,767 | ) | 30,802 | ||||||||||
Amortization of intangible assets (b) | 4,848 | 7,440 | 9,961 | — | — | 22,249 | ||||||||||||
Compensation related to business combinations (c) | — | — | — | — | 159 | 159 | ||||||||||||
Variable-rate floor income, net of settlements on derivatives (d) | — | — | — | (7,502 | ) | — | (7,502 | ) | ||||||||||
Net tax effect (e) | (1,842 | ) | (2,827 | ) | (3,787 | ) | (10,285 | ) | 2,514 | (16,227 | ) | |||||||
Total adjustments to GAAP | $ | 3,006 | 4,613 | 6,174 | 16,782 | (1,094 | ) | 29,481 |
(a) | Derivative market value and foreign currency adjustments: “Base net income” excludes the periodic unrealized gains and losses that are caused by the change in fair value on derivatives used in the Company’s risk management strategy in which the Company does not qualify for “hedge treatment” under GAAP. Included in “base net income” are the economic effects of the Company’s derivative instruments, which includes any cash paid or received being recognized as an expense or revenue upon actual derivative settlements. “Base net income” also excludes the foreign currency transaction gains or losses caused by the re-measurement of the Company’s Euro-denominated bonds to U.S. dollars. |
(b) | Amortization of intangible assets: “Base net income” excludes the amortization of acquired intangibles. |
(c) | Compensation related to business combinations: The Company has structured certain business combinations in which the consideration paid has been dependent on the sellers' continued employment with the Company. As such, the value of the consideration paid is recognized as compensation expense by the Company over the term of the applicable employment agreement. The compensation expense related to existing agreements was fully expensed in 2009. “Base net income” excludes this expense. |
(d) | Variable-rate floor income: Loans that reset annually on July 1 can generate excess spread income compared with the rate based on the special allowance payment formula in declining interest rate environments. The Company refers to this additional income as variable-rate floor income. The Company excludes variable-rate floor income, net of settlements paid on derivatives used to hedge student loan assets earning variable-rate floor income, from its “base net income” since the timing and amount of variable-rate floor income (if any) is uncertain, it has been eliminated by legislation for all loans originated on and after April 1, 2006, and it is in excess of expected spreads. In addition, because variable-rate floor income is subject to the underlying rate for the subject loans being reset annually on July 1, it is a factor beyond the Company's control which can affect the period-to-period comparability of results of operations. |
(e) | Income taxes are applied based on 38% for the individual operating segments. |
|
|
2012 | $ | 6,787 | |
2013 | 5,708 | ||
2014 | 3,399 | ||
2015 | 1,656 | ||
2016 and thereafter | 1,664 | ||
$ | 19,214 |
|
|
Years ended December 31, | ||||||||
2011 | 2010 | 2009 | ||||||
Non-vested shares at beginning of year | 311,119 | 320,461 | 329,173 | |||||
Granted | 82,845 | 96,327 | 72,471 | |||||
Vested | (54,184 | ) | (48,523 | ) | (43,873 | ) | ||
Canceled | (54,062 | ) | (57,146 | ) | (37,310 | ) | ||
Non-vested shares at end of year | 285,718 | 311,119 | 320,461 |
2012 | $ | 952 | |
2013 | 680 | ||
2014 | 491 | ||
2015 | 349 | ||
2016 | 235 | ||
2017 and thereafter | 304 | ||
$ | 3,011 |
Shares issued - not deferred | Shares issued - deferred | Total | ||||||
Year ended December 31, 2011 | 13,059 | 20,843 | 33,902 | |||||
Year ended December 31, 2010 | 14,632 | 12,466 | 27,098 | |||||
Year ended December 31, 2009 | 7,143 | 36,078 | 43,221 |
|
|
As of December 31, 2011 | ||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||
Assets: | ||||||||||||
Investments - trading securities (a): | ||||||||||||
Student loan auction rate asset-backed securities | $ | — | 42,412 | — | 42,412 | |||||||
Equity securities | 6,847 | — | — | 6,847 | ||||||||
Debt securities | 1,521 | — | — | 1,521 | ||||||||
Total investments - trading securities | 8,368 | 42,412 | — | 50,780 | ||||||||
Fair value of derivative instruments (b) | — | 92,219 | — | 92,219 | ||||||||
Total assets | $ | 8,368 | 134,631 | — | 142,999 | |||||||
Liabilities: | ||||||||||||
Fair value of derivative instruments (b): | $ | — | 43,840 | — | 43,840 | |||||||
Total liabilities | $ | — | 43,840 | — | 43,840 | |||||||
As of December 31, 2010 | ||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||
Assets: | ||||||||||||
Investments - trading securities (a) | ||||||||||||
Student loan auction rate asset-backed securities | $ | — | — | 11,861 | 11,861 | |||||||
Equity securities | 6,250 | — | — | 6,250 | ||||||||
Debt securities | 25,125 | — | — | 25,125 | ||||||||
Total investments - trading securities | 31,375 | — | 11,861 | 43,236 | ||||||||
Fair value of derivative instruments (b) | — | 118,346 | — | 118,346 | ||||||||
Total assets | $ | 31,375 | 118,346 | 11,861 | 161,582 | |||||||
Liabilities: | ||||||||||||
Fair value of derivative instruments (b) | $ | — | 16,089 | — | 16,089 | |||||||
Total liabilities | $ | — | 16,089 | — | 16,089 |
(a) | Investments represent investments classified by the Company as trading securities which are recorded at fair value on a recurring basis. Level 1 investments are measured based upon quoted prices and include investments traded on an active exchange, such as the New York Stock Exchange, as well as corporate, mortgage-backed security, and U.S. government bonds and U.S. Treasury securities that trade in active markets. Level 2 and level 3 investments include student loan auction rate asset-backed securities. The fair value for the student loan auction rate asset-backed securities is determined using indicative quotes from broker dealers or an income approach valuation technique (present value using the discount rate adjustment technique) that considers, among other things, rates currently observed in publicly traded debt markets for debt of similar terms to companies with comparable credit risk. |
(b) | All derivatives are accounted for at fair value on a recurring basis. The fair value of derivative financial instruments is determined using a market approach in which derivative pricing models use the stated terms of the contracts and observable yield curves, forward foreign currency exchange rates, and volatilities from active markets. |
Level 3 | ||||
Balance at December 31, 2009 | $ | — | ||
Total realized and unrealized gains (losses) included in income, net (a) | 150 | |||
Purchases | 12,061 | |||
Redemptions/Sales | (350 | ) | ||
Balance at December 31, 2010 | 11,861 | |||
Total realized and unrealized gains (losses) included in income, net (a) | (78 | ) | ||
Purchases | 93,823 | |||
Redemptions/Sales | (63,194 | ) | ||
Transfers out of level 3 (b) | (42,412 | ) | ||
Balance at December 31, 2011 | $ | — | ||
Level 3 | |||||||||
2011 | 2010 | 2009 | |||||||
Goodwill (a) | $ | 117,118 | 117,118 | 143,717 | |||||
Intangible assets (b) | 28,374 | 38,712 | 53,538 | ||||||
$ | 145,492 | 155,830 | 197,255 |
(a) | Goodwill is reviewed annually for impairment and whenever triggering events or changes in circumstances indicate its carrying value may not be recoverable. |
(b) | Long-lived assets, such as purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. |
Year ended December 31, | ||||||
2010 | 2009 | |||||
Goodwill | $ | (26,599 | ) | (31,461 | ) | |
Intangible assets | — | (1,267 | ) | |||
$ | (26,599 | ) | (32,728 | ) |
As of December 31, 2011 | As of December 31, 2010 | |||||||||||
Fair value | Carrying value | Fair value | Carrying value | |||||||||
Financial assets: | ||||||||||||
Student loans receivable | $ | 23,894,005 | 24,297,876 | 24,836,538 | 23,948,014 | |||||||
Student loans receivable - held for sale | — | — | 84,987 | 84,987 | ||||||||
Cash and cash equivalents | 42,570 | 42,570 | 283,801 | 283,801 | ||||||||
Investments | 50,780 | 50,780 | 43,236 | 43,236 | ||||||||
Restricted cash | 377,423 | 377,423 | 453,748 | 453,748 | ||||||||
Restricted cash – due to customers | 109,809 | 109,809 | 88,528 | 88,528 | ||||||||
Restricted investments | 236,899 | 236,899 | 215,009 | 215,009 | ||||||||
Accrued interest receivable | 308,401 | 308,401 | 318,152 | 318,152 | ||||||||
Derivative instruments | 92,219 | 92,219 | 118,346 | 118,346 | ||||||||
Financial liabilities: | ||||||||||||
Bonds and notes payable | 23,003,453 | 24,434,540 | 24,651,191 | 24,672,472 | ||||||||
Accrued interest payable | 19,634 | 19,634 | 19,153 | 19,153 | ||||||||
Due to customers | 109,809 | 109,809 | 88,528 | 88,528 | ||||||||
Derivative instruments | 43,840 | 43,840 | 16,089 | 16,089 |
|
2011 | ||||||||||||
First quarter | Second quarter | Third quarter | Fourth quarter | |||||||||
Net interest income | $ | 85,777 | 88,736 | 96,761 | 93,291 | |||||||
Less provision for loan losses | 3,750 | 5,250 | 5,250 | 7,000 | ||||||||
Net interest income after provision for loan losses | 82,027 | 83,486 | 91,511 | 86,291 | ||||||||
Loan and guaranty servicing revenue | 40,413 | 41,735 | 42,549 | 50,960 | ||||||||
Tuition payment processing and campus commerce revenue | 19,369 | 14,761 | 16,774 | 16,893 | ||||||||
Enrollment services revenue | 33,868 | 32,315 | 35,505 | 28,782 | ||||||||
Other income | 6,492 | 6,826 | 3,931 | 12,264 | ||||||||
Gain on sale of loans and debt repurchases, net | 8,307 | — | — | 33 | ||||||||
Derivative market value and foreign currency adjustments and derivative settlements, net | (3,036 | ) | (20,335 | ) | (13,631 | ) | 11,355 | |||||
Salaries and benefits | (43,912 | ) | (42,881 | ) | (44,132 | ) | (47,026 | ) | ||||
Cost to provide enrollment services | (22,839 | ) | (22,140 | ) | (23,825 | ) | (17,744 | ) | ||||
Depreciation and amortization | (6,776 | ) | (6,769 | ) | (7,917 | ) | (8,282 | ) | ||||
Operating expenses - other | (26,105 | ) | (28,767 | ) | (28,904 | ) | (29,639 | ) | ||||
Income tax expense | (32,928 | ) | (21,106 | ) | (24,410 | ) | (39,008 | ) | ||||
Net income | $ | 54,880 | 37,125 | 47,451 | 64,879 | |||||||
Earnings per common share - basic | $ | 1.13 | 0.76 | 0.98 | 1.37 | |||||||
Earnings per common share - dilutive | $ | 1.13 | 0.76 | 0.98 | 1.37 |
2010 | ||||||||||||
First quarter | Second quarter | Third quarter | Fourth quarter | |||||||||
Net interest income | $ | 85,109 | 97,414 | 92,213 | 96,335 | |||||||
Less provision for loan losses | 5,000 | 6,200 | 5,500 | 6,000 | ||||||||
Net interest income after provision for loan losses | 80,109 | 91,214 | 86,713 | 90,335 | ||||||||
Loan and guaranty servicing revenue | 40,738 | 42,151 | 38,088 | 37,607 | ||||||||
Tuition payment processing and campus commerce revenue | 17,382 | 12,795 | 14,527 | 15,120 | ||||||||
Enrollment services revenue | 33,271 | 35,403 | 36,439 | 34,784 | ||||||||
Other income | 7,260 | 8,496 | 9,432 | 6,122 | ||||||||
Gain on sale of loans and debt repurchases, net | 10,177 | 8,759 | 9,885 | 49,810 | ||||||||
Derivative market value and foreign currency adjustments and derivative settlements, net | 1,682 | (10,608 | ) | (35,391 | ) | 33,640 | ||||||
Salaries and benefits | (40,644 | ) | (40,962 | ) | (41,085 | ) | (43,320 | ) | ||||
Cost to provide enrollment services | (22,025 | ) | (24,111 | ) | (23,709 | ) | (21,802 | ) | ||||
Depreciation and amortization | (10,783 | ) | (9,728 | ) | (9,025 | ) | (8,908 | ) | ||||
Impairment expense | — | — | — | (26,599 | ) | |||||||
Restructure expense | (1,197 | ) | (72 | ) | (4,751 | ) | — | |||||
Litigation settlement | — | — | (55,000 | ) | — | |||||||
Operating expenses - other | (29,055 | ) | (33,348 | ) | (26,717 | ) | (30,645 | ) | ||||
Income tax (expense) benefit | (32,593 | ) | (29,996 | ) | 226 | (51,057 | ) | |||||
Net income (loss) | $ | 54,322 | 49,993 | (368 | ) | 85,087 | ||||||
Earnings (loss) per common share - basic | $ | 1.09 | 1.00 | (0.01 | ) | 1.76 | ||||||
Earnings (loss) per common share - dilutive | $ | 1.08 | 0.99 | (0.01 | ) | 1.75 |
|
Balance Sheets | ||||||
(Parent Company Only) | ||||||
As of December 31, 2011 and 2010 | ||||||
2011 | 2010 | |||||
Assets: | ||||||
Cash and cash equivalents | $ | 15,598 | 164,429 | |||
Investments | 37,469 | 43,236 | ||||
Investment in subsidiary debt | 149,029 | 257,363 | ||||
Restricted cash | 34,176 | 20,604 | ||||
Restricted cash - due to customers | 40,768 | 51,257 | ||||
Investment in subsidiaries | 903,328 | 1,071,666 | ||||
Other assets | 191,757 | 108,261 | ||||
Fair value of derivative instruments | 11,586 | 23,426 | ||||
Total assets | $ | 1,383,711 | 1,740,242 | |||
Liabilities: | ||||||
Notes payable | $ | 165,087 | 613,255 | |||
Notes payable to related party | — | 107,050 | ||||
Accrued interest payable | 27 | 3,245 | ||||
Other liabilities | 67,784 | 42,713 | ||||
Due to customers | 40,768 | 51,257 | ||||
Fair value of derivative instruments | 43,840 | 16,089 | ||||
Total liabilities | 317,506 | 833,609 | ||||
Shareholders' equity: | ||||||
Common stock | 471 | 483 | ||||
Additional paid-in capital | 49,245 | 76,263 | ||||
Retained earnings | 1,017,629 | 831,057 | ||||
Employee notes receivable | (1,140 | ) | (1,170 | ) | ||
Total shareholders' equity | 1,066,205 | 906,633 | ||||
Total liabilities and shareholders' equity | $ | 1,383,711 | 1,740,242 |
Statements of Income | |||||||||
(Parent Company Only) | |||||||||
Years ended December 31, 2011, 2010, and 2009 | |||||||||
2011 | 2010 | 2009 | |||||||
Operating revenues | $ | 4,304 | 31,846 | 30,892 | |||||
Operating expenses | 6,634 | 5,839 | 4,428 | ||||||
Net operating (loss) income | (2,330 | ) | 26,007 | 26,464 | |||||
Net interest income | 2,970 | 5,779 | 4,680 | ||||||
Gain on purchase of debt | 7,255 | 26,129 | 26,137 | ||||||
Derivative market value and foreign currency adjustments and derivative settlements, net | (55,911 | ) | (21,415 | ) | 34,901 | ||||
Equity in earnings of subsidiaries | 256,299 | 188,738 | 101,373 | ||||||
Income tax expense | (3,948 | ) | (36,204 | ) | (54,430 | ) | |||
Net income | $ | 204,335 | 189,034 | 139,125 |
Statements of Cash Flows | |||||||||
(Parent Company Only) | |||||||||
Years ended December 31, 2011, 2010, and 2009 | |||||||||
2011 | 2010 | 2009 | |||||||
Net income | $ | 204,335 | 189,034 | 139,125 | |||||
Adjustments to reconcile income from continuing operations to net cash provided by operating activities: | |||||||||
Depreciation and amortization | 423 | 723 | 1,264 | ||||||
Derivative market value adjustment | 36,226 | 2,077 | (4,207 | ) | |||||
Proceeds from termination of derivative instruments | 13,607 | 12,783 | 3,870 | ||||||
Payments to terminate derivative instruments | (10,242 | ) | (763 | ) | (15,069 | ) | |||
Equity in earnings of subsidiaries | (256,299 | ) | (188,738 | ) | (101,373 | ) | |||
Gain on purchase of debt | (7,255 | ) | (26,129 | ) | (26,137 | ) | |||
Purchase of subsidiary debt, net | 108,334 | 3,055 | (183,905 | ) | |||||
Non-cash compensation expense | 2,029 | 2,280 | 2,644 | ||||||
Change in investments - trading securities, net | 5,767 | (43,236 | ) | 3,876 | |||||
Decrease in other assets | 341,412 | 361,020 | 310,328 | ||||||
Decrease in accrued interest payable | (3,218 | ) | (1,084 | ) | (903 | ) | |||
Increase (decrease) in other liabilities | 17,344 | 4,922 | (47,397 | ) | |||||
Net cash provided by operating activities | 452,463 | 315,944 | 82,116 | ||||||
Cash flows from investing activities, net of business acquisitions: | |||||||||
(Increase) decrease in restricted cash | (3,083 | ) | 11,313 | 66,769 | |||||
Capital contributions to/from subsidiary, net | — | — | 28,168 | ||||||
Business acquisition - contingent consideration | (5,893 | ) | — | — | |||||
Net cash (used in) provided by investing activities | (8,976 | ) | 11,313 | 94,937 | |||||
Cash flows from financing activities: | |||||||||
Payments on notes payable | (440,913 | ) | (317,081 | ) | (183,743 | ) | |||
Payments on notes payable due to a related party | (107,050 | ) | (111,675 | ) | — | ||||
Proceeds from issuance of notes payable due to a related party | — | 218,725 | — | ||||||
Dividends paid | (17,763 | ) | (34,131 | ) | (3,492 | ) | |||
Proceeds from issuance of common stock | 512 | 528 | 449 | ||||||
Repurchases of common stock | (27,134 | ) | (39,805 | ) | (430 | ) | |||
Payments received on employee stock notes receivable | 30 | 279 | 101 | ||||||
Net cash used in financing activities | (592,318 | ) | (283,160 | ) | (187,115 | ) | |||
Net (decrease) increase in cash and cash equivalents | (148,831 | ) | 44,097 | (10,062 | ) | ||||
Cash and cash equivalents, beginning of year | 164,429 | 120,332 | 130,394 | ||||||
Cash and cash equivalents, end of year | $ | 15,598 | 164,429 | 120,332 |