Sallie Mae 2005 Annual Report Download - page 42

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Years ended December 31, 2003-2005
(Dollars in millions, except per share amounts, unless otherwise stated)
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
Some of the statements contained in this annual report discuss future expectations and business
strategies or include other “forward-looking” information. Those statements are subject to known and
unknown risks, uncertainties and other factors that could cause the actual results to differ materially from
those contemplated by the statements. The forward-looking information is based on various factors and
was derived using numerous assumptions.
OVERVIEW
We are the largest source of funding, delivery and servicing support for education loans in the United
States. Our primary business is to originate, acquire and hold both federally guaranteed student loans and
Private Education Loans, which are not federally guaranteed. The primary source of our earnings is from
net interest income earned on those student loans as well as gains on the sales of such loans in
securitization transactions. We also earn fees for pre-default and post-default receivables management
services on student loans, such that we are engaged in every phase of the student loan life cycle—from
originating and servicing student loans to default prevention and ultimately the collection on defaulted
student loans. Through recent acquisitions, we have expanded our receivables management services to a
number of different asset classes outside of student loans. We also provide a wide range of other financial
services, processing capabilities and information technology to meet the needs of educational institutions,
lenders, students and their families, and guarantee agencies. SLM Corporation, more commonly known as
Sallie Mae, is a holding company that operates through a number of subsidiaries. References in this report
to the “Company” refer to SLM Corporation and its subsidiaries.
We have used both internal growth and strategic acquisitions to attain our leadership position in the
education finance marketplace. Our sales force, which delivers our products on campuses across the
country, is the largest in the student loan industry. The core of our marketing strategy is to promote our
on-campus brands, which generate student loan originations through our Preferred Channel. Loans
generated through our Preferred Channel are more profitable than loans acquired through other
acquisition channels because we own them earlier in the student loan’s life and generally incur lower costs
to acquire such loans. We have built brand leadership through the Sallie Mae name, the brands of our
subsidiaries and those of our lender partners. These sales and marketing efforts are supported by the
largest and most diversified servicing capabilities in the industry, providing an unmatched array of services
to financial aid offices.
In recent years, we have diversified our business through the acquisition of several companies that
provide receivables management and debt collections services, all of which are combined in our Debt
Management Operations (“DMO”) operating segment. Initially these acquisitions were concentrated in
the student loan industry, but through our acquisitions of AFS Holdings, LLC, the parent company of
Arrow Financial Services, LLC (collectively, “AFS”) in September 2004 and GRP/AG Holdings, LLC and
its subsidiaries (“GRP”) in August 2005, we expanded our capabilities to include purchasing portfolios and
collecting on debt in a number of different industries. The DMO business segment has been expanding
rapidly such that revenue grew 55 percent in the year ended December 31, 2005 compared to 2004, and we
now employ approximately 3,500 people in this segment.