USA EDUCATION, INC. Supplemental Earnings Disclosure March 31, 2002 (Dollars in millions, except earnings per share) Quarters ended ------------------------------------- March 31, December 31, March 31, 2002 2001 2001 ---------- ------------ --------- Net income $ 422 $ 266 $ 30 "Core cash basis" net income * 170 163 145 Diluted earnings per share $ 2.63 $ 1.69 $ .16 "Core cash basis" diluted earnings per share 1.05 1.03 .84 Net interest margin 2.34% 2.18% 1.48% "Core cash basis" net interest margin 1.71 1.71 1.51 Return on assets 3.46% 2.11% .25% "Core cash basis" return on assets .87 .81 .74 Student loan spread 2.58% 2.50% 1.66% "Core cash basis" student loan spread 1.87 1.89 1.73 Average on-balance sheet student loans $ 42,357 $ 41,504 $ 38,709 Average off-balance sheet student loans 30,391 30,484 30,028 -------- -------- -------- Average managed student loans $ 72,748 $ 71,988 $ 68,737 ======== ======== ======== Ending on-balance sheet student loans $ 40,962 $ 41,001 $ 38,525 Ending off-balance sheet student loans 32,494 30,725 30,527 -------- -------- -------- Ending managed student loans $ 73,456 $ 71,726 $ 69,052 ======== ======== ======== * "Core cash basis" net income includes securitizations as financings and excludes the amortization and changes in market value of goodwill and acquired intangible assets, and non-recurring items such as floor income and the liquidation of investment securities and student loans. Effective January 1, 2001, the effects of SFAS 133 are excluded from "core cash basis" net income and the economic hedge effects of derivative instruments are recognized. USA EDUCATION, INC. Consolidated Statements of Income (In thousands, except per share amounts) Quarters ended ------------------------------------- March 31, December 31, March 31, 2002 2001 2001 ---------- ------------ --------- Interest income: Student loans $534,251 $548,554 $713,033 Warehousing advances/ academic facilities financings 18,915 20,085 28,787 Investments 44,811 60,080 132,853 -------- -------- -------- Total interest income 597,977 628,719 874,673 Interest expense 316,600 360,133 694,865 -------- -------- -------- Net interest income 281,377 268,586 179,808 Less: provision for losses 20,237 23,822 13,599 -------- -------- -------- Net interest income after provision for losses 261,140 244,764 166,209 -------- -------- -------- Other income: Gains on student loan securitizations 44,260 20,278 9,478 Servicing and securitization revenue 194,682 201,637 120,011 (Losses) on sales of securities (89,107) (74,580) (31,335) Guarantor servicing and collection fees 79,601 65,906 55,506 Derivative market value adjustment 288,351 151,687 (168,164) Other 42,385 (10,274) 68,982 -------- -------- -------- Total other income 560,172 354,654 54,478 Operating expenses 166,801 185,901 167,373 -------- -------- -------- Income before income taxes and minority interest in net earnings of subsidiary 654,511 413,517 53,314 Income taxes 232,167 145,522 20,839 Minority interest in net earnings of subsidiary - 2,050 2,674 -------- -------- -------- NET INCOME $422,344 $265,945 $ 29,801 Preferred stock dividends 2,875 2,875 2,875 -------- -------- -------- Net income attributable to common stock $419,469 $263,070 $ 26,926 ======== ======== ======== Basic earnings per share $ 2.70 $ 1.69 $ .17 ======== ======== ======== Average common shares outstanding 155,629 155,582 163,051 ======== ======== ======== Diluted earnings per share $ 2.63 $ 1.69 $ .16 ======== ======== ======== Average common and common equivalent shares outstanding 159,683 155,582 169,939 ======== ======== ======== USA EDUCATION, INC. Consolidated Balance Sheets (In thousands, except per share amounts) March 31, December 31, March 31, Assets 2002 2001 2001 ----------- ------------ ----------- Student loans, net $40,962,044 $41,000,870 $38,524,502 Warehousing advances/ academic facilities financings 1,680,623 1,768,147 1,850,918 Cash and investments 5,523,910 5,787,153 6,773,665 Residual interest and servicing assets 1,739,060 1,859,450 1,097,698 Other assets 2,538,798 2,458,339 2,621,846 ----------- ----------- ----------- Total assets $52,444,435 $52,873,959 $50,868,629 =========== =========== =========== Liabilities Short-term borrowings $30,745,072 $31,064,821 $37,473,211 Long-term notes 17,411,673 17,285,350 9,849,246 Other liabilities 2,333,604 2,851,326 1,912,111 ----------- ----------- ----------- Total liabilities 50,490,349 51,201,497 49,234,568 ----------- ----------- ----------- Commitments and contingencies * Minority interest in subsidiary - - 213,883 Stockholders' equity Preferred stock, par value $.20 per share, 20,000 shares authorized: 3,300; 3,300; and 3,300 shares, respectively, issued at stated value of $50 per share 165,000 165,000 165,000 Common stock, par value $.20 per share, 375,000 shares authorized: 204,357; 202,736; and 195,699 shares, respectively, issued 40,871 40,547 39,140 Additional paid-in capital 904,946 805,804 424,543 Unrealized gains on investments and derivatives, net of tax 560,148 670,199 440,228 Retained earnings 2,456,711 2,068,490 1,809,316 ----------- ----------- ----------- Stockholders' equity before treasury stock 4,127,676 3,750,040 2,878,227 Common stock held in treasury at cost: 49,022; 47,241; and 32,730 shares, respectively 2,173,590 2,077,578 1,458,049 ----------- ----------- ----------- Total stockholders' equity 1,954,086 1,672,462 1,420,178 ----------- ----------- ----------- Total liabilities and stockholders' equity $52,444,435 $52,873,959 $50,868,629 =========== =========== =========== * Commitments to purchase loans, lines of credit, letters of credit, and academic facilities financing letters of credit were $21.9 billion, $2.7 billion, $3.5 billion, and $45.5 million, respectively, at March 31, 2002. USA EDUCATION, INC. Pro-Forma "Core Cash Basis" Consolidated Statements of Income (In thousands, except per share amounts) Management believes that in addition to results of operations as reported in accordance with GAAP, another important measure is pro-forma results of operations under the assumptions that the securitization transactions are treated as financings, not sales, and thereby gains on such sales and subsequent servicing and securitization revenues are eliminated from net income. In addition, the effects of Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," are excluded from the pro-forma statements of income and the economic hedge effects of derivative instruments are recognized. The pro-forma statements of income also exclude the benefit of floor income, certain gains and losses on sales of investment securities and student loans, and the amortization and changes in market value of goodwill and acquired intangible assets. Management refers to these pro-forma results as "core cash basis" statements of income. Management monitors the periodic "core cash basis" earnings of the Company's managed student loan portfolio and believes that they assist in a better understanding of the Company's student loan business. Quarters ended -------------------------------------- March 31, December 31, March 31, 2002 2001 2001 --------- ------------ ---------- (Unaudited) (Unaudited) (Unaudited) Interest income: Student loans $805,049 $857,383 $1,270,628 Warehousing advances/ academic facilities financings 18,915 20,085 28,787 Investments 46,081 59,604 139,129 -------- ---------- ---------- Total interest income 870,045 937,072 1,438,544 Interest expense 536,454 595,899 1,142,889 -------- ---------- ---------- Net interest income 333,591 341,173 295,655 Less: provision for losses 26,849 30,320 19,134 -------- ---------- ---------- Net interest income after provision for losses 306,742 310,853 276,521 -------- ---------- ---------- Other income: Guarantor servicing and collection fees 79,601 65,906 55,506 Other 41,587 44,772 56,337 -------- ---------- ---------- Total other income 121,188 110,678 111,843 Operating expenses 161,187 169,933 159,090 -------- ---------- ---------- Income before income taxes and minority interest in net earnings of subsidiary 266,743 251,598 229,274 Income taxes 96,385 86,479 81,484 Minority interest in net earnings of subsidiary - 2,050 2,674 -------- ---------- ---------- NET INCOME 170,358 163,069 145,116 Preferred stock dividends 2,875 2,875 2,875 -------- ---------- ---------- Net income attributable to common stock $167,483 $ 160,194 $ 142,241 ======== ========== ========== Basic earnings per share $ 1.08 $ 1.03 $ .87 ======== ========== ========== Average common shares outstanding 155,629 155,582 163,051 ======== ========== ========== Diluted earnings per share $ 1.05 $ 1.03 $ .84 ======== ========== ========== Average common and common equivalent shares outstanding 159,683 155,582 169,939 ======== ========== ==========