Sallie Mae 2006 Annual Report Download - page 49

The management reporting process measures the performance of the Company’s operating segments based
on the management structure of the Company as well as the methodology used by management to evaluate
performance and allocate resources. In accordance with the Rules and Regulations of the Securities and
Exchange Commission (“SEC”), we prepare financial statements in accordance with generally accepted
accounting principles in the United States of America (“GAAP”). In addition to evaluating the Company’s
GAAP-based financial information, management, including the Company’s chief operation decision maker,
evaluates the performance of the Company’s operating segments based on their profitability on a basis that, as
allowed under SFAS No. 131, differs from GAAP. We refer to management’s basis of evaluating our segment
results as “Core Earnings” presentations for each business segment and we refer to these performance
measures in our presentations with credit rating agencies and lenders. Accordingly, information regarding the
Company’s reportable segments is provided herein based on “Core Earnings,” which are discussed in detail
below.
Our “Core Earnings” are not defined terms within GAAP and may not be comparable to similarly titled
measures reported by other companies. “Core Earnings” net income reflects only current period adjustments to
GAAP net income as described below. Unlike financial accounting, there is no comprehensive, authoritative
guidance for management reporting and as a result, our management reporting is not necessarily comparable
with similar information for any other financial institution. Our operating segments are defined by the products
and services they offer or the types of customers they serve, and they reflect the manner in which financial
information is currently evaluated by management. Intersegment revenues and expenses are netted within the
appropriate financial statement line items consistent with the income statement presentation provided to
management. Changes in management structure or allocation methodologies and procedures may result in
changes in reported segment financial information.
“Core Earnings” are the primary financial performance measures used by management to develop the
Company’s financial plans, track results, and establish corporate performance targets and incentive compensa-
tion. While “Core Earnings” are not a substitute for reported results under GAAP, we rely on “Core Earnings”
in operating our business because “Core Earnings” permit management to make meaningful period-to-period
comparisons of the operational and performance indicators that are most closely assessed by management.
Management believes this information provides additional insight into the financial performance of the core
business activities of our operating segments. Accordingly, the tables presented below reflect “Core Earnings”
which is reviewed and utilized by management to manage the business for each of our reportable segments. A
further discussion regarding “Core Earnings” is included under “Limitations of ‘Core Earnings’” and “Pre-tax
Differences between ‘Core Earnings’ and GAAP by Business Segment.”
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