x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
|
¨
|
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 | |
LINCOLN, NEBRASKA | 68508 |
(Address of principal executive offices)
|
(Zip Code)
|
PART I. FINANCIAL INFORMATION
|
||||||||||
Item 1.
|
Financial Statements
|
2
|
||||||||
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
31
|
||||||||
Item 3.
|
Quantitative and Qualitative Disclosures about Market Risk
|
73
|
||||||||
Item 4.
|
Controls and Procedures
|
79
|
||||||||
PART II. OTHER INFORMATION
|
||||||||||
Item 1.
|
Legal Proceedings
|
79
|
||||||||
Item 1A.
|
Risk Factors
|
80
|
||||||||
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
81
|
||||||||
Item 6.
|
Exhibits
|
83
|
||||||||
Signatures
|
84
|
NELNET, INC. AND SUBSIDIARIES
|
CONSOLIDATED BALANCE SHEETS
|
(Dollars in thousands, except share data)
|
As of
|
As of
|
|||||||
June 30, 2010
|
December 31, 2009
|
|||||||
(unaudited)
|
||||||||
Assets:
|
||||||||
Student loans receivable (net of allowance for loan losses of
|
||||||||
$50,797 and $50,887 respectively)
|
$ | 24,746,932 | 23,926,957 | |||||
Student loans receivable - held for sale
|
1,995,869 | — | ||||||
Cash and cash equivalents:
|
||||||||
Cash and cash equivalents - not held at a related party
|
10,968 | 12,301 | ||||||
Cash and cash equivalents - held at a related party
|
263,793 | 325,880 | ||||||
Total cash and cash equivalents
|
274,761 | 338,181 | ||||||
Investments - trading securities
|
31,017 | — | ||||||
Restricted cash and investments
|
669,889 | 625,492 | ||||||
Restricted cash - due to customers
|
37,076 | 91,741 | ||||||
Accrued interest receivable
|
397,495 | 329,313 | ||||||
Accounts receivable (net of allowance for doubtful accounts of
|
||||||||
$819 and $1,198, respectively)
|
57,436 | 42,043 | ||||||
Goodwill
|
143,717 | 143,717 | ||||||
Intangible assets, net
|
48,708 | 53,538 | ||||||
Property and equipment, net
|
27,397 | 26,606 | ||||||
Other assets
|
102,372 | 104,940 | ||||||
Fair value of derivative instruments
|
35,354 | 193,899 | ||||||
Total assets
|
$ | 28,568,023 | 25,876,427 | |||||
Liabilities:
|
||||||||
Bonds and notes payable
|
$ | 27,428,772 | 24,805,289 | |||||
Accrued interest payable
|
22,362 | 19,831 | ||||||
Other liabilities
|
179,722 | 172,514 | ||||||
Due to customers
|
37,076 | 91,741 | ||||||
Fair value of derivative instruments
|
26,146 | 2,489 | ||||||
Total liabilities
|
27,694,078 | 25,091,864 | ||||||
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 37,995,006 shares as of June 30,
|
||||||||
2010 and 38,396,791 shares as of December 31, 2009
|
380 | 384 | ||||||
Class B, convertible, $0.01 par value. Authorized 60,000,000 shares;
|
||||||||
issued and outstanding 11,495,377 shares as of June 30,
|
||||||||
2010 and December 31, 2009
|
115 | 115 | ||||||
Additional paid-in capital
|
101,232 | 109,359 | ||||||
Retained earnings
|
773,468 | 676,154 | ||||||
Employee notes receivable
|
(1,250 | ) | (1,449 | ) | ||||
Total shareholders' equity
|
873,945 | 784,563 | ||||||
Commitments and contingencies
|
||||||||
Total liabilities and shareholders' equity
|
$ | 28,568,023 | 25,876,427 | |||||
See accompanying notes to consolidated financial statements.
|
NELNET, INC. AND SUBSIDIARIES
|
CONSOLIDATED STATEMENTS OF INCOME
|
(Dollars in thousands, except share data)
|
(unaudited)
|
Three months
|
Six months
|
|||||||||||||||
ended June 30,
|
ended June 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Interest income:
|
||||||||||||||||
Loan interest
|
$ | 155,353 | 160,413 | 290,320 | 331,332 | |||||||||||
Investment interest
|
1,304 | 2,776 | 2,305 | 6,867 | ||||||||||||
Total interest income
|
156,657 | 163,189 | 292,625 | 338,199 | ||||||||||||
Interest expense:
|
||||||||||||||||
Interest on bonds and notes payable
|
59,243 | 106,082 | 110,102 | 252,584 | ||||||||||||
Net interest income
|
97,414 | 57,107 | 182,523 | 85,615 | ||||||||||||
Less provision for loan losses
|
6,200 | 8,000 | 11,200 | 15,500 | ||||||||||||
Net interest income after provision for loan losses
|
91,214 | 49,107 | 171,323 | 70,115 | ||||||||||||
Other income (expense):
|
||||||||||||||||
Loan and guaranty servicing revenue
|
36,652 | 28,803 | 73,046 | 55,274 | ||||||||||||
Tuition payment processing and campus commerce revenue
|
12,795 | 11,848 | 30,177 | 27,386 | ||||||||||||
Enrollment services revenue
|
35,403 | 28,747 | 68,674 | 57,518 | ||||||||||||
Software services revenue
|
5,499 | 6,119 | 9,843 | 11,824 | ||||||||||||
Other income
|
8,496 | 5,665 | 15,756 | 14,452 | ||||||||||||
Gain on sale of loans and debt repurchases, net
|
8,759 | 5,666 | 18,936 | 13,535 | ||||||||||||
Derivative market value and foreign currency
|
||||||||||||||||
adjustments and derivative settlements, net
|
(10,608 | ) | (24,478 | ) | (8,926 | ) | (5,000 | ) | ||||||||
Total other income
|
96,996 | 62,370 | 207,506 | 174,989 | ||||||||||||
Operating expenses:
|
||||||||||||||||
Salaries and benefits
|
41,034 | 40,180 | 82,675 | 78,406 | ||||||||||||
Other operating expenses:
|
||||||||||||||||
Cost to provide enrollment services
|
24,111 | 18,092 | 46,136 | 35,885 | ||||||||||||
Professional and other services
|
15,151 | 7,721 | 26,392 | 13,798 | ||||||||||||
Depreciation and amortization
|
8,282 | 9,527 | 16,773 | 19,610 | ||||||||||||
Occupancy and communications
|
3,652 | 5,588 | 7,240 | 10,942 | ||||||||||||
Postage and distribution
|
2,708 | 2,274 | 5,577 | 5,142 | ||||||||||||
Advertising and marketing
|
2,524 | 1,986 | 5,983 | 3,696 | ||||||||||||
Trustee and other debt related fees
|
1,146 | 2,444 | 2,348 | 5,100 | ||||||||||||
Other
|
9,613 | 9,544 | 18,801 | 17,348 | ||||||||||||
Total other operating expenses
|
67,187 | 57,176 | 129,250 | 111,521 | ||||||||||||
Total operating expenses
|
108,221 | 97,356 | 211,925 | 189,927 | ||||||||||||
Income before income taxes
|
79,989 | 14,121 | 166,904 | 55,177 | ||||||||||||
Income tax expense
|
(29,996 | ) | (5,918 | ) | (62,589 | ) | (21,519 | ) | ||||||||
Net income
|
$ | 49,993 | 8,203 | 104,315 | 33,658 | |||||||||||
Earnings per common share:
|
||||||||||||||||
Net earnings - basic
|
$ | 1.00 | 0.16 | 2.08 | 0.68 | |||||||||||
Net earnings - diluted
|
$ | 0.99 | 0.16 | 2.08 | 0.68 | |||||||||||
Dividends paid per common share
|
$ | 0.07 | — | 0.14 | — | |||||||||||
Weighted average common shares outstanding:
|
||||||||||||||||
Basic
|
49,735,398 | 49,534,413 | 49,726,099 | 49,339,451 | ||||||||||||
Diluted
|
49,934,648 | 49,733,561 | 49,923,680 | 49,543,461 | ||||||||||||
See accompanying notes to consolidated financial statements.
|
NELNET, INC. AND SUBSIDIARIES
|
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
|
(Dollars in thousands, except share data)
|
(unaudited)
|
Preferred
|
Class A
|
Class B
|
Additional
|
Employee
|
Total
|
||||||||||||||||
stock
|
Common stock shares
|
Preferred
|
common
|
common
|
paid-in
|
Retained
|
notes
|
shareholders’
|
|||||||||||||
shares
|
Class A
|
Class B
|
stock
|
stock
|
stock
|
capital
|
earnings
|
receivable
|
equity
|
||||||||||||
Balance as of March 31, 2009
|
— | 38,276,870 | 11,495,377 | $ | — | 383 | 115 | 106,678 | 565,976 | (1,550 | ) | 671,602 | |||||||||
Comprehensive income:
|
|||||||||||||||||||||
Net income
|
— | — | — | — | — | — | — | 8,203 | — | 8,203 | |||||||||||
Issuance of common stock, net of forfeitures
|
— | 51,951 | — | — | — | — | 953 | — | — | 953 | |||||||||||
Compensation expense for stock based awards
|
— | — | — | — | — | — | 353 | — | — | 353 | |||||||||||
Repurchase of common stock
|
— | (3,329 | ) | — | — | — | — | (25 | ) | — | — | (25 | ) | ||||||||
Reduction of employee stock notes receivable
|
— | — | — | — | — | — | — | — | 101 | 101 | |||||||||||
Balance as of June 30, 2009
|
— | 38,325,492 | 11,495,377 | $ | — | 383 | 115 | 107,959 | 574,179 | (1,449 | ) | 681,187 | |||||||||
Balance as of March 31, 2010
|
— | 38,587,293 | 11,495,377 | $ | — | 386 | 115 | 112,980 | 726,982 | (1,250 | ) | 839,213 | |||||||||
Comprehensive income:
|
|||||||||||||||||||||
Net income
|
— | — | — | — | — | — | — | 49,993 | — | 49,993 | |||||||||||
Cash dividend on Class A and Class B
common stock - $0.07 per share
|
— | — | — | — | — | — | — | (3,507 | ) | — | (3,507 | ) | |||||||||
Issuance of common stock, net of forfeitures
|
— | 71,156 | — | — | 1 | — | 701 | — | — | 702 | |||||||||||
Compensation expense for stock based awards
|
— | — | — | — | — | — | 366 | — | — | 366 | |||||||||||
Repurchase of common stock
|
— | (663,443 | ) | — | — | (7 | ) | — | (12,815 | ) | — | — | (12,822 | ) | |||||||
Balance as of June 30, 2010
|
— | 37,995,006 | 11,495,377 | $ | — | 380 | 115 | 101,232 | 773,468 | (1,250 | ) | 873,945 | |||||||||
Balance as of December 31, 2008
|
— | 37,794,067 | 11,495,377 | $ | — | 378 | 115 | 103,762 | 540,521 | (1,550 | ) | 643,226 | |||||||||
Comprehensive income:
|
|||||||||||||||||||||
Net income
|
— | — | — | — | — | — | — | 33,658 | — | 33,658 | |||||||||||
Issuance of common stock, net of forfeitures
|
— | 538,534 | — | — | 5 | — | 3,298 | — | — | 3,303 | |||||||||||
Compensation expense for stock based awards
|
— | — | — | — | — | — | 961 | — | — | 961 | |||||||||||
Repurchase of common stock
|
— | (7,109 | ) | — | — | — | — | (62 | ) | — | — | (62 | ) | ||||||||
Reduction of employee stock notes receivable
|
— | — | — | — | — | — | — | — | 101 | 101 | |||||||||||
Balance as of June 30, 2009
|
— | 38,325,492 | 11,495,377 | $ | — | 383 | 115 | 107,959 | 574,179 | (1,449 | ) | 681,187 | |||||||||
Balance as of December 31, 2009
|
— | 38,396,791 | 11,495,377 | $ | — | 384 | 115 | 109,359 | 676,154 | (1,449 | ) | 784,563 | |||||||||
Comprehensive income:
|
|||||||||||||||||||||
Net income
|
— | — | — | — | — | — | — | 104,315 | — | 104,315 | |||||||||||
Cash dividend on Class A and Class B
common stock - $0.14 per share
|
— | — | — | — | — | — | — | (7,001 | ) | — | (7,001 | ) | |||||||||
Issuance of common stock, net of forfeitures
|
— | 274,594 | — | — | 3 | — | 4,233 | — | — | 4,236 | |||||||||||
Compensation expense for stock based awards
|
— | — | — | — | — | — | 691 | — | — | 691 | |||||||||||
Repurchase of common stock
|
— | (676,379 | ) | — | — | (7 | ) | — | (13,051 | ) | — | — | (13,058 | ) | |||||||
Reduction of employee notes receivable
|
— | — | — | — | — | — | — | — | 199 | 199 | |||||||||||
Balance as of June 30, 2010
|
— | 37,995,006 | 11,495,377 | $ | — | 380 | 115 | 101,232 | 773,468 | (1,250 | ) | 873,945 | |||||||||
See accompanying notes to consolidated financial statements.
|
NELNET, INC. AND SUBSIDIARIES
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(Dollars in thousands)
|
(unaudited)
|
Six months ended June 30,
|
||||||||
2010
|
2009
|
|||||||
Net income
|
$ | 104,315 | 33,658 | |||||
Adjustments to reconcile income to net cash provided by operating activities, net of business acquisition:
|
||||||||
Depreciation and amortization, including loan premiums and deferred origination costs
|
50,193 | 57,890 | ||||||
Provision for loan losses
|
11,200 | 15,500 | ||||||
Derivative market value adjustment
|
168,201 | 22,270 | ||||||
Foreign currency transaction adjustment
|
(165,075 | ) | 16,623 | |||||
Proceeds to terminate and/or amend derivative instruments
|
14,764 | 1,432 | ||||||
Payments to terminate and/or amend derivative instruments
|
(763 | ) | (11,710 | ) | ||||
Gain from repurchase of bonds and notes payable
|
(18,936 | ) | (13,937 | ) | ||||
Loss on sale of loans
|
— | 402 | ||||||
Change in investments - trading securities, net
|
(31,017 | ) | (678 | ) | ||||
Deferred income tax expense (benefit)
|
7,229 | (26,864 | ) | |||||
Non-cash compensation expense
|
1,119 | 1,371 | ||||||
Other non-cash items
|
495 | 8,692 | ||||||
(Increase) decrease in accrued interest receivable
|
(68,182 | ) | 86,720 | |||||
Increase in accounts receivable
|
(15,393 | ) | (10,018 | ) | ||||
Decrease in other assets
|
4,036 | 10,714 | ||||||
Increase (decrease) in accrued interest payable
|
2,531 | (46,665 | ) | |||||
(Decrease) increase in other liabilities
|
(3,306 | ) | 10,616 | |||||
Net cash provided by operating activities
|
61,411 | 156,016 | ||||||
Cash flows from investing activities, net of business acquisition:
|
||||||||
Originations and purchases of student loans, including loan premiums/discounts and deferred origination costs
|
(2,936,134 | ) | (1,467,312 | ) | ||||
Purchases of student loans from a related party
|
(988,998 | ) | (20,392 | ) | ||||
Net proceeds from student loan repayments, claims, capitalized interest, participations, and other
|
1,049,712 | 1,177,455 | ||||||
Proceeds from sale of student loans
|
21,036 | 341 | ||||||
Proceeds from sale of student loans to a related party
|
— | 40,033 | ||||||
Purchases of property and equipment, net
|
(4,670 | ) | (444 | ) | ||||
Increase in restricted cash and investments, net
|
(44,397 | ) | (85,208 | ) | ||||
Business acquisition, net of cash acquired
|
(3,000 | ) | — | |||||
Net cash used in investing activities
|
(2,906,451 | ) | (355,527 | ) | ||||
Cash flows from financing activities:
|
||||||||
Payments on bonds and notes payable
|
(1,778,360 | ) | (2,205,629 | ) | ||||
Proceeds from issuance of bonds and notes payable
|
4,586,636 | 2,584,680 | ||||||
Payments of debt issuance costs
|
(7,043 | ) | (2,830 | ) | ||||
Dividends paid
|
(7,001 | ) | — | |||||
Repurchases of common stock
|
(13,058 | ) | (62 | ) | ||||
Proceeds from issuance of common stock
|
247 | 231 | ||||||
Payments received on employee stock notes receivable
|
199 | 101 | ||||||
Net cash provided by financing activities
|
2,781,620 | 376,491 | ||||||
Net (decrease) increase in cash and cash equivalents
|
(63,420 | ) | 176,980 | |||||
Cash and cash equivalents, beginning of period
|
338,181 | 189,847 | ||||||
Cash and cash equivalents, end of period
|
$ | 274,761 | 366,827 | |||||
Supplemental disclosures of cash flow information:
|
||||||||
Interest paid
|
$ | 102,783 | 294,041 | |||||
Income taxes paid, net of refunds | $ | 51,887 | 30,299 | |||||
See accompanying notes to consolidated financial statements. |
As of June 30, 2010
|
As of December 31, 2009
|
|||||||||||
Held for investment
|
Held for sale
|
Held for investment
|
||||||||||
Federally insured loans
|
$ | 24,408,131 | 1,970,516 | 23,472,553 | ||||||||
Non-federally insured loans
|
137,141 | — | 163,321 | |||||||||
24,545,272 | 1,970,516 | 23,635,874 | ||||||||||
Unamortized loan premiums/discounts and deferred origination costs, net
|
252,457 | 25,353 | 341,970 | |||||||||
Allowance for loan losses – federally insured loans
|
(32,972 | ) | — | (30,102 | ) | |||||||
Allowance for loan losses – non-federally insured loans
|
(17,825 | ) | — | (20,785 | ) | |||||||
$ | 24,746,932 | 1,995,869 | 23,926,957 | |||||||||
Allowance for federally insured loans - held for investment as a percentage of such loans
|
0.14 | % | 0.13 | % | ||||||||
Allowance for non-federally insured loans as a percentage of such loans
|
13.00 | % | 12.73 | % |
Three months ended June 30,
|
Six months ended June 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Beginning balance
|
$ | 49,400 | 48,497 | 50,887 | 50,922 | |||||||||||
Provision for loan losses
|
6,200 | 8,000 | 11,200 | 15,500 | ||||||||||||
Loans charged off, net of recoveries
|
(7,023 | ) | (5,197 | ) | (12,220 | ) | (9,102 | ) | ||||||||
Purchase of loans
|
2,220 | — | 2,930 | — | ||||||||||||
Sale of loans
|
— | (1,300 | ) | (2,000 | ) | (7,320 | ) | |||||||||
Ending balance
|
$ | 50,797 | 50,000 | 50,797 | 50,000 |
Three months ended June 30,
|
Six months ended June 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Beginning balance
|
$ | 12,600 | 5,500 | 10,600 | — | |||||||||||
Transfer from allowance for loan losses
|
— | 1,300 | 2,000 | 6,800 | ||||||||||||
Reserve for repurchase of delinquent loans (a)
|
— | 800 | — | 800 | ||||||||||||
Ending balance
|
$ | 12,600 | 7,600 | 12,600 | 7,600 |
(a)
|
The reserve for repurchase of delinquent loans is included in "other" under other operating expenses in the accompanying consolidated statements of income.
|
As of June 30, 2010
|
||||||||
Carrying
|
Interest rate
|
|||||||
amount
|
range
|
Final maturity
|
||||||
Variable-rate bonds and notes (a):
|
||||||||
Bonds and notes based on indices
|
$ | 20,338,114 | 0.31% - 6.90% |
05/26/14 - 11/25/43
|
||||
Bonds and notes based on auction or remarketing
|
1,251,910 | 0.30% - 1.85% |
05/01/11 - 07/01/43
|
|||||
Total variable-rate bonds and notes
|
21,590,024 | |||||||
Commercial paper - FFELP facility (b)
|
63,367 | 0.33% - 0.48% |
07/29/13
|
|||||
Unsecured debt - Junior Subordinated Hybrid Securities
|
198,250 | 7.40% |
09/15/61
|
|||||
Unsecured line of credit
|
691,500 | 0.85% |
05/08/12
|
|||||
Department of Education Participation
|
1,949,130 | 0.71% |
10/15/10
|
|||||
Department of Education Conduit
|
2,910,565 | 0.38% |
05/08/14
|
|||||
Other borrowings
|
25,936 | 0.35% - 5.10% |
11/14/10 - 11/01/15
|
|||||
$ | 27,428,772 |
As of December 31, 2009
|
|||||||||
Carrying
|
Interest rate
|
||||||||
amount
|
range
|
Final maturity
|
|||||||
Variable-rate bonds and notes (a):
|
|||||||||
Bonds and notes based on indices
|
$ | 20,187,356 | 0.26% - 6.90% |
05/26/14 - 04/25/42
|
|||||
Bonds and notes based on auction or remarketing
|
1,726,960 | 0.21% - 3.73% |
05/01/11 - 07/01/43
|
||||||
Total variable-rate bonds and notes
|
21,914,316 | ||||||||
Commercial paper - FFELP facility (b)
|
305,710 | 0.21% - 0.32% |
08/03/12
|
||||||
Fixed-rate bonds and notes (a)
|
8,940 | 6.15% - 6.34% |
07/02/20 - 05/01/29
|
||||||
Unsecured debt - Senior Notes
|
66,716 | 5.125% |
06/01/10
|
||||||
Unsecured debt - Junior Subordinated Hybrid Securities
|
198,250 | 7.40% |
09/15/61
|
||||||
Unsecured line of credit
|
691,500 | 0.73% |
05/08/12
|
||||||
Department of Education Participation
|
463,912 | 0.79% |
09/30/10
|
||||||
Department of Education Conduit
|
1,125,929 | 0.27% |
05/08/14
|
||||||
Other borrowings
|
30,016 | 0.24% - 5.10% |
01/01/10 - 11/01/15
|
||||||
$ | 24,805,289 |
|
(a)
|
Issued in asset-backed securitizations
|
|
(b)
|
Loan warehouse facility
|
|
·
|
A minimum consolidated net worth
|
|
·
|
A minimum adjusted EBITDA to corporate debt interest (over the last four rolling quarters)
|
|
·
|
A limitation on subsidiary indebtedness
|
|
·
|
A limitation on the percentage of non-guaranteed loans in the Company’s portfolio
|
Three months ended June 30, 2010
|
Six months ended June 30, 2010
|
|||||||||||||
Notional
amount
|
Purchase
price
|
Gain
|
Notional
amount
|
Purchase
price
|
Gain
|
|||||||||
Asset-backed securities
|
$ | 117,775 | 109,016 | 8,759 | 392,025 | 373,089 | 18,936 |
Three months ended June 30, 2009
|
Six months ended June 30, 2009
|
|||||||||||||
Notional
amount
|
Purchase
price
|
Gain
|
Notional
amount
|
Purchase
price
|
Gain
|
|||||||||
Unsecured debt - Senior Notes due 2010
|
$ | 35,520 | 31,080 | 4,440 | 70,386 | 57,871 | 12,515 | |||||||
Unsecured debt - Junior Subordinated Hybrid Securities
|
1,750 | 350 | 1,400 | 1,750 | 350 | 1,400 | ||||||||
Asset-backed securities
|
1,100 | 1,078 | 22 | 1,100 | 1,078 | 22 | ||||||||
$ | 38,370 | 32,508 | 5,862 | 73,236 | 59,299 | 13,937 |
|
·
|
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 and pays one-month LIBOR plus or minus a spread as defined in the agreements (the “1/3 Basis Swaps”)
|
As of June 30, 2010
|
||||||
Notional Amounts
|
||||||
1/3 Basis Swaps
|
T-Bill/LIBOR
Basis Swaps
|
|||||
Maturity
|
||||||
2011
|
$ | — | 225,000 |
(a)
|
||
2021
|
250,000 | — | ||||
2023
|
1,250,000 | — | ||||
2024
|
250,000 | — | ||||
2028
|
100,000 | — | ||||
2039
|
150,000 | — | ||||
2040
|
200,000 | — | ||||
$ | 2,200,000 | 225,000 |
As of December 31, 2009
|
||||||||
Notional Amounts
|
||||||||
1/3 Basis Swaps
|
T-Bill/LIBOR
Basis Swaps
|
|||||||
Maturity
|
||||||||
2010
|
$ | 1,000,000 | — | |||||
2011
|
— | 225,000 |
(a)
|
|||||
2013
|
500,000 | — | ||||||
2014
|
500,000 | — | ||||||
2018
|
1,300,000 | — | ||||||
2019
|
500,000 | — | ||||||
2021
|
250,000 | — | ||||||
2023
|
1,250,000 | — | ||||||
2024
|
250,000 | — | ||||||
2028
|
100,000 | — | ||||||
2039
|
150,000 | — | ||||||
$ | 5,800,000 | 225,000 |
|
(a)
|
These derivatives have forward effective start dates of October 2010 ($75 million), November 2010 ($75 million), and December 2010 ($75 million).
|
As of June 30, 2010
|
||||||||
Weighted
|
||||||||
average fixed
|
||||||||
Notional
|
rate paid by
|
|||||||
Maturity
|
Amount
|
the Company (a)
|
||||||
2010
|
$ | 4,500,000 | 0.52 | % | ||||
2011
|
2,000,000 | 0.65 | ||||||
2012
|
950,000 | 1.08 | ||||||
2013
|
150,000 | 1.44 | ||||||
2015
|
100,000 | 2.26 | ||||||
2020
|
100,000 | 3.23 | ||||||
$ | 7,800,000 | 0.70 | % |
As of December 31, 2009
|
||||||||
Weighted
|
||||||||
average fixed
|
||||||||
Notional
|
rate paid by
|
|||||||
Maturity
|
Amount
|
the Company (a)
|
||||||
2010
|
$ | 4,750,000 | 0.54 | % | ||||
2011
|
150,000 | 1.03 | ||||||
$ | 4,900,000 | 0.55 | % | |||||
(a) For all interest rate derivatives, the Company receives
discrete three-month LIBOR.
|
Weighted
|
||||||
average fixed
|
||||||
Notional
|
rate paid by
|
|||||
Amount (a)
|
the Company (b)
|
|||||
As of June 30, 2010
|
$ | 75,000 | 4.28 | % | ||
As of December 31, 2009
|
$ |
25,000
|
4.36
|
% | ||
(a) For all interest rate derivatives, the effective start date is March 29, 2012 and the maturity is September 29, 2036.
|
||||||
(b) For all interest rate derivatives, the Company receives discrete three-month LIBOR.
|
Three months ended June 30,
|
Six months ended June 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Re-measurement of Euro Notes
|
$ | 93,401 | (63,865 | ) | 165,075 | (16,623 | ) | |||||||||
Change in fair value of cross currency interest rate swaps
|
(100,946 | ) | 41,209 | (160,021 | ) | (15,902 | ) | |||||||||
Total impact to statements of income - income (expense)
|
$ | (7,545 | ) | (22,656 | ) | 5,054 | (32,525 | ) |
Fair value of asset derivatives
|
Fair value of liability derivatives
|
||||||||||||||
As of June 30, 2010
|
As of December 31, 2009
|
As of June 30, 2010
|
As of December 31, 2009
|
||||||||||||
Average/discrete basis swaps
|
$ | — | — | — | — | ||||||||||
1/3 basis swaps
|
10,594 | 17,768 | 527 | — | |||||||||||
T-Bill/LIBOR basis swaps
|
136 | — | — | 259 | |||||||||||
Interest rate swaps - floor income hedges
|
2,459 | 4,497 | 7,740 | 2,230 | |||||||||||
Interest rate swaps - unsecured debt hedges
|
— | 1,817 | 4,359 | — | |||||||||||
Cross-currency interest rate swaps
|
22,009 | 169,817 | 12,214 | — | |||||||||||
Other
|
156 | — | 1,306 | — | |||||||||||
Total
|
$ | 35,354 | 193,899 | 26,146 | 2,489 |
Amount of gain (or loss) recognized
|
Amount of gain (or loss) recognized
|
|||||||||||||||
Derivatives not designated as hedging
|
in income on derivatives
|
in income on derivatives
|
||||||||||||||
Three months ended June 30,
|
Six months ended June 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Settlements:
|
||||||||||||||||
Average/discrete basis swaps
|
$ | — | 1,040 | — | 11,062 | |||||||||||
1/3 basis swaps
|
80 | 6,657 | 221 | 17,401 | ||||||||||||
Interest rate swaps - floor income hedges
|
(4,286 | ) | (11 | ) | (8,143 | ) | (11 | ) | ||||||||
Interest rate swaps - unsecured debt hedges
|
(79 | ) | — | (79 | ) | — | ||||||||||
Cross-currency interest rate swaps
|
917 | 1,849 | 2,219 | 5,441 | ||||||||||||
Other
|
(9 | ) | — | (18 | ) | — | ||||||||||
Total settlements - (expense) income
|
(3,377 | ) | 9,535 | (5,800 | ) | 33,893 | ||||||||||
Change in fair value:
|
||||||||||||||||
Average/discrete basis swaps
|
— | (6,682 | ) | — | (18,678 | ) | ||||||||||
1/3 basis swaps
|
6,300 | (7,118 | ) | 5,754 | 9,867 | |||||||||||
T-Bill/LIBOR basis swaps
|
190 | — | 236 | — | ||||||||||||
Interest rate swaps - floor income hedges
|
(9 | ) | 1,011 | (7,548 | ) | 1,011 | ||||||||||
Interest rate swaps - unsecured debt hedges
|
(5,377 | ) | — | (5,321 | ) | — | ||||||||||
Cross-currency interest rate swaps
|
(100,946 | ) | 41,209 | (160,021 | ) | (15,902 | ) | |||||||||
Other
|
(790 | ) | 1,432 | (1,301 | ) | 1,432 | ||||||||||
Total change in fair value - (expense) income
|
(100,632 | ) | 29,852 | (168,201 | ) | (22,270 | ) | |||||||||
Re-measurement of Euro Notes (foreign currency
|
||||||||||||||||
transaction adjustment) - (expense) income
|
93,401 | (63,865 | ) | 165,075 | (16,623 | ) | ||||||||||
Derivative market value and foreign currency adjustments
|
||||||||||||||||
and derivative settlements - (expense) income
|
$ | (10,608 | ) | (24,478 | ) | (8,926 | ) | (5,000 | ) |
|
·
|
Origination and servicing of FFELP loans
|
|
·
|
Origination and servicing of non-federally insured student loans
|
|
·
|
Servicing federally-owned student loans for the Department of Education
|
|
·
|
Servicing and support outsourcing for guaranty agencies
|
|
·
|
Student loan servicing software and other information technology products and services
|
Three months ended June 30, 2010
|
|||||||||||||||||||
Fee-Based
|
|||||||||||||||||||
Student
|
Tuition
|
"Base net
|
|||||||||||||||||
Loan
|
Payment
|
Asset
|
Corporate
|
income"
|
|||||||||||||||
and
|
Processing
|
Total
|
Generation
|
Activity
|
Eliminations
|
Adjustments
|
GAAP
|
||||||||||||
Guaranty
|
and Campus
|
Enrollment
|
Fee-
|
and
|
and
|
and
|
to GAAP
|
Results of
|
|||||||||||
Servicing
|
Commerce
|
Services
|
Based
|
Management
|
Overhead
|
Reclassifications
|
Results
|
Operations
|
|||||||||||
Total interest income
|
$ | 17 | 4 | — | 21 | 155,701 | 1,922 | (987 | ) | — | 156,657 | ||||||||
Interest expense
|
— | — | — | — | 54,105 | 6,125 | (987 | ) | — | 59,243 | |||||||||
Net interest income (loss)
|
17 | 4 | — | 21 | 101,596 | (4,203 | ) | — | — | 97,414 | |||||||||
Less provision for loan losses
|
— | — | — | — | 6,200 | — | — | — | 6,200 | ||||||||||
Net interest income (loss) after provision for loan losses
|
17 | 4 | — | 21 | 95,396 | (4,203 | ) | — | — | 91,214 | |||||||||
Other income (expense):
|
|||||||||||||||||||
Loan and guaranty servicing revenue
|
36,652 | — | — | 36,652 | — | — | — | — | 36,652 | ||||||||||
Tuition payment processing and campus commerce revenue
|
— | 12,795 | — | 12,795 | — | — | — | — | 12,795 | ||||||||||
Enrollment services revenue
|
— | — | 35,403 | 35,403 | — | — | — | — | 35,403 | ||||||||||
Software services revenue
|
5,499 | — | — | 5,499 | — | — | — | — | 5,499 | ||||||||||
Other income
|
295 | — | — | 295 | 4,636 | 3,565 | — | — | 8,496 | ||||||||||
Gain on sale of loans and debt repurchases, net
|
— | — | — | — | 8,759 | — | — | — | 8,759 | ||||||||||
Intersegment revenue
|
23,834 | 66 | 14 | 23,914 | — | 4,098 | (28,012 | ) | — | — | |||||||||
Derivative market value and foreign currency adjustments
|
— | — | — | — | — | — | — | (7,231 | ) | (7,231 | ) | ||||||||
Derivative settlements, net
|
— | — | — | — | (3,377 | ) | — | — | — | (3,377 | ) | ||||||||
Total other income (expense)
|
66,280 | 12,861 | 35,417 | 114,558 | 10,018 | 7,663 | (28,012 | ) | (7,231 | ) | 96,996 | ||||||||
Operating expenses:
|
|||||||||||||||||||
Salaries and benefits
|
23,327 | 6,594 | 6,447 | 36,368 | 1,286 | 3,808 | (428 | ) | — | 41,034 | |||||||||
Restructure expense- severance and contract terminination costs
|
84 | — | — | 84 | — | (12 | ) | (72 | ) | — | — | ||||||||
Cost to provide enrollment services
|
— | — | 24,111 | 24,111 | — | — | — | — | 24,111 | ||||||||||
Other expenses
|
19,825 | 2,611 | 4,065 | 26,501 | 2,992 | 7,351 | — | 6,232 | 43,076 | ||||||||||
Intersegment expenses
|
3,014 | 945 | 655 | 4,614 | 21,891 | 1,007 | (27,512 | ) | — | — | |||||||||
Total operating expenses
|
46,250 | 10,150 | 35,278 | 91,678 | 26,169 | 12,154 | (28,012 | ) | 6,232 | 108,221 | |||||||||
Income (loss) before income taxes and corporate overhead allocation
|
20,047 | 2,715 | 139 | 22,901 | 79,245 | (8,694 | ) | — | (13,463 | ) | 79,989 | ||||||||
Corporate overhead allocation
|
(1,484 | ) | (495 | ) | (495 | ) | (2,474 | ) | (2,473 | ) | 4,947 | — | — | — | |||||
Income (loss) before income taxes
|
18,563 | 2,220 | (356 | ) | 20,427 | 76,772 | (3,747 | ) | — | (13,463 | ) | 79,989 | |||||||
Income tax (expense) benefit (a)
|
(7,053 | ) | (844 | ) | 135 | (7,762 | ) | (29,173 | ) | 1,823 | — | 5,116 | (29,996 | ) | |||||
Net income (loss)
|
$ | 11,510 | 1,376 | (221 | ) | 12,665 | 47,599 | (1,924 | ) | — | (8,347 | ) | 49,993 | ||||||
(a) Income taxes are applied based on 38% of income (loss) before taxes for the individual operating segments.
|
|
·
|
Income earned on certain investment activities
|
|
·
|
Interest expense incurred on unsecured debt transactions
|
|
·
|
Other products and service offerings that are not considered operating segments
|
Student
|
Tuition
|
|||||||||||||||||
Loan
|
Payment
|
Asset
|
Corporate
|
|||||||||||||||
and
|
Processing
|
Generation
|
Activity
|
|||||||||||||||
Guaranty
|
and Campus
|
Enrollment
|
and
|
and
|
||||||||||||||
Servicing
|
Commerce
|
Services
|
Management
|
Overhead
|
Total
|
|||||||||||||
Three months ended June 30, 2010
|
||||||||||||||||||
Derivative market value and foreign currency adjustments (a)
|
$ | — | — | — | 550 | 6,681 | 7,231 | |||||||||||
Amortization of intangible assets (b)
|
2,114 | 1,591 | 2,527 | — | — | 6,232 | ||||||||||||
Compensation related to business combinations (c)
|
— | — | — | — | — | — | ||||||||||||
Variable-rate floor income, net of settlements on derivatives (d)
|
— | — | — | — | — | — | ||||||||||||
Net tax effect (e)
|
(803 | ) | (605 | ) | (958 | ) | (209 | ) | (2,541 | ) | (5,116 | ) | ||||||
Total adjustments to GAAP
|
$ | 1,311 | 986 | 1,569 | 341 | 4,140 | 8,347 | |||||||||||
Three months ended June 30, 2009
|
||||||||||||||||||
Derivative market value and foreign currency adjustments (a)
|
$ | — | — | — | 35,445 | (1,432 | ) | 34,013 | ||||||||||
Amortization of intangible assets (b)
|
1,215 | 1,869 | 2,701 | — | — | 5,785 | ||||||||||||
Compensation related to business combinations (c)
|
— | — | — | — | — | — | ||||||||||||
Variable-rate floor income, net of settlements on derivatives (d)
|
— | — | — | (6,042 | ) | — | (6,042 | ) | ||||||||||
Net tax effect (e)
|
(462 | ) | (710 | ) | (1,027 | ) | (11,173 | ) | (775 | ) | (14,147 | ) | ||||||
Total adjustments to GAAP
|
$ | 753 | 1,159 | 1,674 | 18,230 | (2,207 | ) | 19,609 | ||||||||||
Six months ended June 30, 2010
|
||||||||||||||||||
Derivative market value and foreign currency adjustments (a)
|
$ | — | — | — | (4,011 | ) | 7,137 | 3,126 | ||||||||||
Amortization of intangible assets (b)
|
4,350 | 3,516 | 4,882 | — | — | 12,748 | ||||||||||||
Compensation related to business combinations (c)
|
— | — | — | — | — | — | ||||||||||||
Variable-rate floor income, net of settlements on derivatives (d)
|
— | — | — | — | — | — | ||||||||||||
Net tax effect (e)
|
(1,653 | ) | (1,337 | ) | (1,858 | ) | 1,524 | (2,708 | ) | (6,032 | ) | |||||||
Total adjustments to GAAP
|
$ | 2,697 | 2,179 | 3,024 | (2,487 | ) | 4,429 | 9,842 | ||||||||||
Six months ended June 30, 2009
|
||||||||||||||||||
Derivative market value and foreign currency adjustments (a)
|
$ | — | — | — | 40,325 | (1,432 | ) | 38,893 | ||||||||||
Amortization of intangible assets (b)
|
2,440 | 3,756 | 5,743 | — | — | 11,939 | ||||||||||||
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)
|
(952 | ) | (1,465 | ) | (2,240 | ) | (12,800 | ) | 496 | (16,961 | ) | |||||||
Total adjustments to GAAP
|
$ | 1,488 | 2,291 | 3,503 | 20,023 | (777 | ) | 26,528 |
|
(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.
|
7.
|
Intangible Assets and Goodwill
|
Weighted
|
||||||||||||
average
|
||||||||||||
remaining
|
||||||||||||
useful life as of
|
As of
|
As of
|
||||||||||
June 30,
|
June 30,
|
December 31,
|
||||||||||
2010 (months)
|
2010
|
2009
|
||||||||||
Amortizable intangible assets:
|
||||||||||||
Customer relationships (net of accumulated amortization of $45,127
|
||||||||||||
and $38,785, respectively)
|
73 | $ | 34,649 | 40,991 | ||||||||
Computer software (net of accumulated amortization of $9,830
|
||||||||||||
and $8,915, respectively)
|
31 | 6,818 | 87 | |||||||||
Trade names (net of accumulated amortization of $10,614 and
|
||||||||||||
$9,101, respectively)
|
29 | 5,939 | 7,452 | |||||||||
Covenants not to compete (net of accumulated amortization of
|
||||||||||||
$22,815 and $20,372, respectively)
|
4 | 786 | 3,229 | |||||||||
Database and content (net of accumulated amortization of $8,964
|
||||||||||||
and $7,701, respectively)
|
5 | 516 | 1,779 | |||||||||
Total - amortizable intangible assets
|
60 | $ | 48,708 | 53,538 |
2010 (July 1 - December 31)
|
$ | 9,996 | ||
2011
|
15,784 | |||
2012
|
15,269 | |||
2013
|
2,024 | |||
2014
|
1,298 | |||
2015 and thereafter
|
4,337 | |||
$ | 48,708 |
Student Loan and Guaranty Servicing
|
$
|
8,596
|
||
Tuition Payment Processing and Campus Commerce
|
58,086
|
|||
Enrollment Services
|
35,152
|
|||
Asset Generation and Management
|
41,883
|
|||
$
|
143,717
|
As of June 30, 2010
|
||||||||||||
Level 1
|
Level 2
|
Total
|
||||||||||
Assets:
|
||||||||||||
Investments (a)
|
$ | 31,017 | — | 31,017 | ||||||||
Fair value of derivative instruments (b)
|
— | 35,354 | 35,354 | |||||||||
Total assets
|
$ | 31,017 | 35,354 | 66,371 | ||||||||
Liabilities:
|
||||||||||||
Fair value of derivative instruments (b)
|
$ | — | 26,146 | 26,146 | ||||||||
Total liabilities
|
$ | — | 26,146 | 26,146 |
As of December 31, 2009
|
||||||||||||
Level 1
|
Level 2
|
Total
|
||||||||||
Assets:
|
||||||||||||
Fair value of derivative instruments (b)
|
$ | — | 193,899 | 193,899 | ||||||||
Total assets
|
$ | — | 193,899 | 193,899 | ||||||||
Liabilities:
|
||||||||||||
Fair value of derivative instruments (b)
|
$ | — | 2,489 | 2,489 | ||||||||
Total liabilities
|
$ | — | 2,489 | 2,489 |
|
(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, and U.S. Treasury securities.
|
|
(b)
|
All derivatives are accounted for at fair value on a recurring basis. The fair values of derivative financial instruments are determined by derivative pricing models using the stated terms of the contracts and observable yield curves, forward foreign currency exchange rates, and volatilities from active markets. Fair value of derivative instruments is comprised of market value less accrued interest and excludes collateral.
|
As of June 30, 2010
|
As of December 31, 2009
|
|||||||||||||||
Fair value
|
Carrying value
|
Fair value
|
Carrying value
|
|||||||||||||
Financial assets:
|
||||||||||||||||
Student loans receivable
|
$ | 25,592,928 | 24,746,932 | 24,387,267 | 23,926,957 | |||||||||||
Student loans receivable - held for sale
|
2,028,608 | 1,995,869 | — | — | ||||||||||||
Cash and cash equivalents
|
274,761 | 274,761 | 338,181 | 338,181 | ||||||||||||
Investments – trading securities
|
31,017 | 31,017 | — | — | ||||||||||||
Restricted cash
|
386,603 | 386,603 | 318,530 | 318,530 | ||||||||||||
Restricted cash – due to customers
|
37,076 | 37,076 | 91,741 | 91,741 | ||||||||||||
Restricted investments
|
283,286 | 283,286 | 306,962 | 306,962 | ||||||||||||
Accrued interest receivable
|
397,495 | 397,495 | 329,313 | 329,313 | ||||||||||||
Derivative instruments
|
35,354 | 35,354 | 193,899 | 193,899 | ||||||||||||
Financial liabilities:
|
||||||||||||||||
Bonds and notes payable
|
27,396,628 | 27,428,772 | 24,741,306 | 24,805,289 | ||||||||||||
Accrued interest payable
|
22,362 | 22,362 | 19,831 | 19,831 | ||||||||||||
Due to customers
|
37,076 | 37,076 | 91,741 | 91,741 | ||||||||||||
Derivative instruments
|
26,146 | 26,146 | 2,489 | 2,489 |
Three months ended June 30,
|
Six months ended June 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Net income attributable to Nelnet, Inc.
|
$ | 49,993 | 8,203 | 104,315 | 33,658 | |||||||||||
Less earnings allocated to unvested restricted stockholders
|
315 | 52 | 653 | 219 | ||||||||||||
Net income available to common stockholders
|
$ | 49,678 | 8,151 | 103,662 | 33,439 | |||||||||||
Weighted average common shares outstanding - basic
|
49,735,398 | 49,534,413 | 49,726,099 | 49,339,451 | ||||||||||||
Dilutive effect of the assumed vesting of restricted stock awards
|
199,250 | 199,148 | 197,581 | 204,010 | ||||||||||||
Weighted average common shares outstanding - diluted
|
49,934,648 | 49,733,561 | 49,923,680 | 49,543,461 | ||||||||||||
Basic earnings per common share
|
$ | 1.00 | 0.16 | 2.08 | 0.68 | |||||||||||
Diluted earnings per common share
|
$ | 0.99 | 0.16 | 2.08 | 0.68 |
|
·
|
Grow and diversify revenue from fee based businesses
|
|
·
|
Manage operating costs
|
|
·
|
Maximize the value of existing portfolio
|
|
·
|
Use liquidity to capitalize on market opportunities
|
Three months ended June 30,
|
||||||||||||||||
2010
|
2009
|
$ Change
|
% Change
|
|||||||||||||
Student Loan and Guaranty Servicing (a)
|
$ | 42,463 | 35,565 | 6,898 | 19.4 | % | ||||||||||
Enrollment Services
|
35,403 | 28,747 | 6,656 | 23.2 | ||||||||||||
Tuition Payment Processing and Campus Commerce
|
12,799 | 11,859 | 940 | 7.9 | ||||||||||||
Total revenue from fee-based businesses
|
$ | 90,665 | 76,171 | 14,494 | 19.0 | % |
Six months ended June 30,
|
||||||||||||||||
2010
|
2009
|
$ Change
|
% Change
|
|||||||||||||
Student Loan and Guaranty Servicing (a)
|
$ | 83,692 | 68,301 | 15,391 | 22.5 | % | ||||||||||
Enrollment Services
|
68,674 | 57,518 | 11,156 | 19.4 | ||||||||||||
Tuition Payment Processing and Campus Commerce
|
30,189 | 27,427 | 2,762 | 10.1 | ||||||||||||
Total revenue from fee-based businesses
|
$ | 182,555 | 153,246 | 29,309 | 19.1 | % |
(a)
|
The Student Loan and Guaranty Servicing operating segment included $12.3 million and $5.8 million of revenue earned from rehabilitation collections on defaulted loans in the second quarters of 2010 and 2009, respectively, and $22.3 million and $6.2 million for the six months ended June 30, 2010 and 2009, respectively.
|
Three months ended June 30,
|
||||||||||||||||
2010
|
2009
|
$ Change
|
% Change
|
|||||||||||||
Salaries and benefits (a)
|
$ | 40,962 | 38,699 | 2,263 | 5.8 | % | ||||||||||
Other expenses (b)
|
34,933 | 34,824 | 109 | 0.3 | ||||||||||||
Operating expenses, excluding the cost
|
||||||||||||||||
to provide enrollment services, restructure expenses,
|
||||||||||||||||
and collection costs related to loan rehabilitation revenue
|
75,895 | 73,523 | $ | 2,372 | 3.2 | % | ||||||||||
Cost to provide enrollment services
|
24,111 | 18,092 | ||||||||||||||
Restructure expense (c)
|
72 | 3,288 | ||||||||||||||
Collection costs related to loan rehabilitation revenue (d)
|
8,143 | 2,453 | ||||||||||||||
Total operating expenses
|
$ | 108,221 | 97,356 |
Six months ended June 30,
|
||||||||||||||||
2010
|
2009
|
$ Change
|
% Change
|
|||||||||||||
Salaries and benefits (a)
|
$ | 81,606 | 76,925 | 4,681 | 6.1 | % | ||||||||||
Other expenses (b)
|
69,548 | 70,952 | (1,404 | ) | (2.0 | ) | ||||||||||
Operating expenses, excluding the cost
|
||||||||||||||||
to provide enrollment services, restructure expenses,
|
||||||||||||||||
and collection costs related to loan rehabilitation revenue
|
151,154 | 147,877 | $ | 3,277 | 2.2 | % | ||||||||||
Cost to provide enrollment services
|
46,136 | 35,885 | ||||||||||||||
Restructure expense (c)
|
1,269 | 3,288 | ||||||||||||||
Collection costs related to loan rehabilitation revenue (d)
|
13,366 | 2,877 | ||||||||||||||
Total operating expenses
|
$ | 211,925 | 189,927 |
(a)
|
Excludes restructure expenses related to employee termination costs.
|
(b)
|
Excludes costs to provide enrollment services, restructure expenses related to lease terminations, and collection costs related to loan rehabilitation revenue.
|
(c)
|
Restructure expense is included in “salaries and benefits” and “occupancy and communications” in the consolidated statements of income.
|
(d)
|
The Company incurred collection costs directly related to revenue earned from rehabilitation loans. These costs are included in “professional and other services” in the consolidated statements of income and are shown separately in the above table for comparability purposes for the periods shown.
|
|
(a)
|
The Company uses various assumptions, including prepayments and future interest rates, when preparing its cash flow forecast. These assumptions are further discussed below.
|
Notional
amount
|
Purchase
price
|
Gain
|
||||||||||
Three months ended March 31, 2010
|
$ | 274,250 | 264,073 | 10,177 | ||||||||
Three months ended June 30, 2010
|
117,775 | 109,016 | 8,759 | |||||||||
Six months ended June 30, 2010
|
$ | 392,025 | 373,089 | 18,936 |
|
·
|
Interactive Marketing
– Interactive marketing revenue is derived primarily from fees which are earned through the delivery of qualified leads 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 lead or click is delivered to the customer provided that no significant obligations remain. From time to time, the Company may agree to credit certain leads 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.
For a portion of its interactive marketing revenue, the Company has agreements with providers of online media or traffic (“Publishers”) used in the generation of leads or clicks. The Company receives a fee from its customers and pays a fee to Publishers either on a cost per lead, cost per click, or cost per number of impressions basis. The Company is the primary obligor in the transaction. As a result, the fees paid by the Company’s customers are recognized as revenue and the fees paid to its Publishers are included in “cost to provide enrollment services” in the Company’s consolidated statements of income.
|
|
·
|
Publishing and editing services -
Revenue from the sale of print products is generally earned and recognized, net of estimated returns, upon shipment or delivery. Revenue from the sale of editing services is generally recognized upon completion of providing the service.
|
|
·
|
Resource centers and list marketing –
Resource centers and list marketing services includes the sale of subscription and performance based products and services, as well as list sales. Revenues from sales of subscription and performance based products and services are recognized ratably over the term of the contract. Subscription and performance based revenues received or receivable in advance of the delivery of services is included in deferred revenue. Revenue from the sale of lists is generally earned and recognized, net of estimated returns, upon delivery.
|
Three months ended June 30,
|
Six months ended June 30,
|
|||||||||||||||||||||||||||||||
Change
|
Change
|
|||||||||||||||||||||||||||||||
2010
|
2009
|
$ | % | 2010 | 2009 | $ | % | |||||||||||||||||||||||||
Interest income:
|
||||||||||||||||||||||||||||||||
Loan interest
|
$ | 155,353 | 160,413 | (5,060 | ) | (3.2 | )% | $ | 290,320 | 331,332 | (41,012 | ) | (12.4 | ) % | ||||||||||||||||||
Investment interest
|
1,304 | 2,776 | (1,472 | ) | (53.0 | ) | 2,305 | 6,867 | (4,562 | ) | (66.4 | ) | ||||||||||||||||||||
Total interest income
|
156,657 | 163,189 | (6,532 | ) | (4.0 | ) | 292,625 | 338,199 | (45,574 | ) | (13.5 | ) | ||||||||||||||||||||
Interest expense:
|
||||||||||||||||||||||||||||||||
Interest on bonds and notes payable
|
59,243 | 106,082 | (46,839 | ) | (44.2 | ) | 110,102 | 252,584 | (142,482 | ) | (56.4 | ) | ||||||||||||||||||||
Net interest income
|
97,414 | 57,107 | 40,307 | 70.6 | 182,523 | 85,615 | 96,908 | 113.2 | ||||||||||||||||||||||||
Provision for loan losses
|
6,200 | 8,000 | (1,800 | ) | (22.5 | ) | 11,200 | 15,500 | (4,300 | ) | (27.7 | ) | ||||||||||||||||||||
Net interest income after
|
||||||||||||||||||||||||||||||||
provision for loan losses
|
91,214 | 49,107 | 42,107 | 85.7 | 171,323 | 70,115 | 101,208 | 144.3 | ||||||||||||||||||||||||
Derivative settlements, net (a)
|
(3,377 | ) | 9,535 | (12,912 | ) | (135.4 | ) | (5,800 | ) | 33,893 | (39,693 | ) | (117.1 | ) | ||||||||||||||||||
Net interest income after
|
||||||||||||||||||||||||||||||||
provision for loan losses (net of
|
||||||||||||||||||||||||||||||||
settlements on derivatives)
|
$ | 87,837 | 58,642 | 29,195 | 49.8 | % | $ | 165,523 | 104,008 | 61,515 | 59.1 | % |
|
(a)
|
The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. Management has structured the majority of the Company’s derivative transactions with the intent that each is economically effective; however, the Company’s derivative instruments do not qualify for hedge accounting. Derivative settlements for each applicable period should be evaluated with the Company’s net interest income.
|
Three months ended June 30,
|
Six months ended June 30,
|
|||||||||||||||||||||||||||||||
Change
|
Change
|
|||||||||||||||||||||||||||||||
2010
|
2009
|
$ | % | 2010 | 2009 | $ | % | |||||||||||||||||||||||||
Student loan interest margin, net of
|
||||||||||||||||||||||||||||||||
settlements on derivatives (a)
|
$ | 67,804 | 28,936 | 38,868 | 134.3 | % | $ | 120,334 | 54,434 | 65,900 | 121.1 | % | ||||||||||||||||||||
Fixed rate floor income, net of
|
||||||||||||||||||||||||||||||||
settlements on derivatives (b)
|
31,054 | 37,054 | (6,000 | ) | (16.2 | ) | 66,325 | 67,339 | (1,014 | ) | (1.5 | ) | ||||||||||||||||||||
Variable-rate floor income, net of
|
||||||||||||||||||||||||||||||||
settlements on derivatives (c)
|
— | 6,042 | (6,042 | ) | (100.0 | ) | — | 7,502 | (7,502 | ) | (100.0 | ) | ||||||||||||||||||||
Investment interest (d)
|
1,304 | 2,776 | (1,472 | ) | (53.0 | ) | 2,305 | 6,867 | (4,562 | ) | (66.4 | ) | ||||||||||||||||||||
Corporate debt interest expense (e)
|
(6,125 | ) | (8,166 | ) | 2,041 | (25.0 | ) | (12,241 | ) | (16,634 | ) | 4,393 | (26.4 | ) | ||||||||||||||||||
Provision for loan losses (f)
|
(6,200 | ) | (8,000 | ) | 1,800 | (22.5 | ) | (11,200 | ) | (15,500 | ) | 4,300 | (27.7 | ) | ||||||||||||||||||
Net interest income after
|
||||||||||||||||||||||||||||||||
provision for loan losses (net of
|
||||||||||||||||||||||||||||||||
settlements on derivatives)
|
$ | 87,837 | 58,642 | 29,195 | 49.8 | % | $ | 165,523 | 104,008 | 61,515 | 59.1 | % |
|
(a)
|
Variable student loan spread increased to 1.06% and 0.96% for the three and six months ended June 30, 2010 compared with 0.60% and 0.54% for the same periods in 2009 as further discussed in this Item 2 under “Asset Generation and Management Operating Segment – Results of Operations – Student Loan Spread Analysis.”
|
|
(b)
|
The Company has a portfolio of student loans that are earning interest at a fixed borrower rate which exceeds the statutorily defined variable lender rate generating fixed rate floor income. See Item 3, “Quantitative and Qualitative Disclosures about Market Risk – Interest Rate Risk” for additional information.
|
|
(c)
|
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. A portion of the Company’s portfolio was earning variable-rate floor income during the first and second quarters of 2009. No variable-rate floor income was earned during 2010.
|
|
(d)
|
Investment interest decreased for the three and six months ended June 30, 2010 compared with the same periods in 2009 due to lower interest rates and a decrease in average cash held.
|
|
(e)
|
Corporate debt interest expense decreased for the three and six months ended June 30, 2010 compared with the same periods in 2009 due to a reduction in debt outstanding due to the purchase of unsecured fixed rate debt. During the first, second, and third quarters of 2009, the Company purchased $34.9 million, $35.5 million, and $137.9 million, respectively, of its 5.125% Senior Notes due 2010. The remaining balance outstanding on the Senior Notes, $66.7 million, was paid on June 1, 2010.
|
|
(f)
|
The provision for loan losses represents the periodic expense of maintaining an allowance sufficient to absorb losses inherent in the Company's portfolio of loans. The provision for loan losses recognized by the Company was larger during the three and six months ended June 30, 2009 compared with the same periods in 2010, primarily due to the provision related to the Company's non-federally insured student loan portfolio. During 2009, the Company increased its allowance for non-federally insured loans due to management's projected performance of the portfolio in light of economic conditions. As of June 30, 2010, the Company's non-federally insured student loan portfolio, including those loans in repayment and loans delinquent, decreased from the same period a year ago.
The Company believes these items, as well as continued aging of the portfolio, decreased the need to record additional provision expense related to the Company's non-federally insured portfolio.
|
Three months ended June 30,
|
Six months ended June 30,
|
|||||||||||||||||||||||||||||||
Change
|
Change
|
|||||||||||||||||||||||||||||||
2010
|
2009
|
$ | % | 2010 | 2009 | $ | % | |||||||||||||||||||||||||
Loan and guaranty servicing revenue (a)
|
$ | 36,652 | 28,803 | 7,849 | 27.3 | % | $ | 73,046 | 55,274 | 17,772 | 32.2 | % | ||||||||||||||||||||
Tuition payment processing and campus commerce revenue (b)
|
12,795 | 11,848 | 947 | 8.0 | 30,177 | 27,386 | 2,791 | 10.2 | ||||||||||||||||||||||||
Enrollment services revenue (c)
|
35,403 | 28,747 | 6,656 | 23.2 | 68,674 | 57,518 | 11,156 | 19.4 | ||||||||||||||||||||||||
Software services revenue (d)
|
5,499 | 6,119 | (620 | ) | (10.1 | ) | 9,843 | 11,824 | (1,981 | ) | (16.8 | ) | ||||||||||||||||||||
Other income (e)
|
8,496 | 5,665 | 2,831 | 50.0 | 15,756 | 14,452 | 1,304 | 9.0 | ||||||||||||||||||||||||
Gain on sale of loans and debt repurchases, net (f)
|
8,759 | 5,666 | 3,093 | 54.6 | 18,936 | 13,535 | 5,401 | 39.9 | ||||||||||||||||||||||||
Derivative market value and foreign currency adjustments (g)
|
(7,231 | ) | (34,013 | ) | 26,782 | (78.7 | ) | (3,126 | ) | (38,893 | ) | 35,767 | (92.0 | ) | ||||||||||||||||||
Derivative settlements, net (h)
|
(3,377 | ) | 9,535 | (12,912 | ) | (135.4 | ) | (5,800 | ) | 33,893 | (39,693 | ) | (117.1 | ) | ||||||||||||||||||
Total other income
|
$ | 96,996 | 62,370 | 34,626 | 55.5 | % | $ | 207,506 | 174,989 | 32,517 | 18.6 | % |
|
(a)
|
“Loan and guaranty servicing revenue” increased due to an increase in loan servicing revenue as a result of servicing loans for the Department, as well as an increase in guaranty servicing revenue as a result of recognizing $12.3 million and $22.3 million in revenue related to rehabilitation collections on defaulted loans in the three and six months ended June 30, 2010 compared with $5.8 million and $6.2 million for the same periods in 2009. This additional revenue was offset by a decrease in external FFELP servicing revenue due to the loss of servicing volume from third party customers as a result of these customers selling their portfolios to the Company and/or the Department under the Purchase Program. See Item 2 under “Student Loan and Guaranty Servicing Operating Segment – Results of Operations” for additional information.
|
|
(b)
|
“Tuition payment processing and campus commerce revenue” increased due to an increase in the number of managed tuition payment plans and an increase in campus commerce transactions processed as discussed in this Item 2 under “Tuition Payment Processing and Campus Commerce Operating Segment – Results of Operations.”
|
|
(c)
|
“Enrollment services revenue” increased due to an increase in interactive marketing revenue as further discussed in this Item 2 under “Enrollment Services Operating Segment – Results of Operations.”
|
|
(d)
|
“Software and technical services revenue” decreased due to a reduction in the number of projects for existing customers and the loss of customers due to the legislative developments in the student loan industry throughout 2009 and 2010 as discussed in this Item 2 under “Loan and Guaranty Servicing Operating Segment – Results of Operations.”
|
|
(e)
|
The following table summarizes the components of “other income”.
|
Three months ended June 30,
|
Six months ended June 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Borrower late fee income
|
$ | 2,979 | 2,758 | 6,237 | 5,788 | |||||||||||
Gain on sale of equity method investment
|
— | — | — | 3,500 | ||||||||||||
Other
|
5,517 | 2,907 | 9,519 | 5,164 | ||||||||||||
Other income
|
$ | 8,496 | 5,665 | 15,756 | 14,452 |
Three months ended June 30, 2010
|
Six months ended June 30, 2010
|
|||||||||||||||||||||||
Notional amount
|
Purchase price
|
Gain
|
Notional amount
|
Purchase price
|
Gain
|
|||||||||||||||||||
Gains on debt repurchases:
|
||||||||||||||||||||||||
Asset-backed securities
|
$ | 117,775 | 109,016 | 8,759 | $ | 392,025 | 373,089 | 18,936 |
Three months ended June 30, 2009
|
Six months ended June 30, 2009
|
|||||||||||||||||||||||
Notional amount
|
Purchase price
|
Gain
|
Notional amount
|
Purchase price
|
Gain
|
|||||||||||||||||||
Gains on debt repurchases:
|
||||||||||||||||||||||||
5.125% Senior Notes due 2010
|
$ | 35,520 | 31,080 | 4,440 | $ | 70,386 | 57,871 | 12,515 | ||||||||||||||||
Junior Subordinated Hybrid Securities
|
1,750 | 350 | 1,400 | 1,750 | 350 | 1,400 | ||||||||||||||||||
Asset-backed securities
|
1,100 | 1,078 | 22 | 1,100 | 1,078 | 22 | ||||||||||||||||||
$ | 38,370 | 32,508 | 5,862 | $ | 73,236 | 59,299 | 13,937 | |||||||||||||||||
Loss on sale of loans
|
(196 | ) | (402 | ) | ||||||||||||||||||||
Gain on sale of loans and debt repurchases, net
|
$ | 5,666 | $ | 13,535 |
(g)
|
The change in “derivative market value and foreign currency adjustments” is the result of the change in the fair value of the Company’s derivative portfolio and transaction gains/losses resulting from the re-measurement of the Company’s Euro-denominated bonds to U.S. dollars. These changes are summarized below.
|
Three months ended June 30,
|
Six months ended June 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Change in fair value of derivatives
|
$ | (100,632 | ) | 29,852 | (168,201 | ) | (22,270 | ) | ||||||||
Foreign currency transaction adjustment
|
93,401 | (63,865 | ) | 165,075 | (16,623 | ) | ||||||||||
Derivative market value and foreign currency adjustments
|
$ | (7,231 | ) | (34,013 | ) | (3,126 | ) | (38,893 | ) |
(h)
|
Further detail of the components of derivative settlements is included in Item 3, “Quantitative and Qualitative Disclosures about Market Risk.” The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. Management has structured the majority of the Company’s derivative transactions with the intent that each is economically effective; however, the Company’s derivative instruments do not qualify for hedge accounting. Derivative settlements for each applicable period should be evaluated with the Company’s net interest income.
|
Three months ended June 30,
|
||||||||||||||||
2010
|
2009
|
$ Change
|
% Change
|
|||||||||||||
Salaries and benefits (a)
|
$ | 40,962 | 38,699 | 2,263 | 5.8 | % | ||||||||||
Other expenses (b)
|
34,933 | 34,824 | 109 | 0.3 | ||||||||||||
Operating expenses, excluding the cost
|
||||||||||||||||
to provide enrollment services, restructure expenses,
|
||||||||||||||||
and collection costs related to loan rehabilitation revenue
|
75,895 | 73,523 | $ | 2,372 | 3.2 | % | ||||||||||
Cost to provide enrollment services
|
24,111 | 18,092 | ||||||||||||||
Restructure expense (c)
|
72 | 3,288 | ||||||||||||||
Collection costs related to loan rehabilitation revenue (d)
|
8,143 | 2,453 | ||||||||||||||
Total operating expenses
|
$ | 108,221 | 97,356 |
Six months ended June 30,
|
||||||||||||||||
2010
|
2009
|
$ Change
|
% Change
|
|||||||||||||
Salaries and benefits (a)
|
$ | 81,606 | 76,925 | 4,681 | 6.1 | % | ||||||||||
Other expenses (b)
|
69,548 | 70,952 | (1,404 | ) | (2.0 | ) | ||||||||||
Operating expenses, excluding the cost
|
||||||||||||||||
to provide enrollment services, restructure expenses,
|
||||||||||||||||
and collection costs related to loan rehabilitation revenue
|
151,154 | 147,877 | $ | 3,277 | 2.2 | % | ||||||||||
Cost to provide enrollment services
|
46,136 | 35,885 | ||||||||||||||
Restructure expense (c)
|
1,269 | 3,288 | ||||||||||||||
Collection costs related to loan rehabilitation revenue (d)
|
13,366 | 2,877 | ||||||||||||||
Total operating expenses
|
$ | 211,925 | 189,927 |
|
(a)
|
Excludes restructure expenses related to employee termination costs.
|
|
(b)
|
Excludes costs to provide enrollment services, restructure expenses related to lease terminations, and collection costs related to loan rehabilitation revenue.
|
|
(c)
|
Restructure expense is included in “salaries and benefits” and “occupancy and communications” in the consolidated statements of income.
|
|
(d)
|
The Company incurred collection costs directly related to revenue earned from rehabilitation loans. These costs are included in “professional and other services” in the consolidated statements of income and are shown separately in the above table for comparability purposes for the periods shown.
|
As of
|
As of
|
|||||||||||||||
June 30,
|
December 31,
|
Change
|
||||||||||||||
2010
|
2009
|
Dollars
|
Percent
|
|||||||||||||
Assets:
|
||||||||||||||||
Student loans receivable, net
|
$ | 24,746,932 | 23,926,957 | 819,975 | 3.4% | % | ||||||||||
Student loans receivable - held for sale
|
1,995,869 | — | 1,995,869 | 100.0 | ||||||||||||
Cash, cash equivalents, and investments
|
981,726 | 1,055,414 | (73,688 | ) | (7.0 | ) | ||||||||||
Goodwill
|
143,717 | 143,717 | — | — | ||||||||||||
Intangible assets, net
|
48,708 | 53,538 | (4,830 | ) | (9.0 | ) | ||||||||||
Fair value of derivative instruments
|
35,354 | 193,899 | (158,545 | ) | (82 | ) | ||||||||||
Other assets
|
615,717 | 502,902 | 112,815 | 22.4 | ||||||||||||
Total assets
|
$ | 28,568,023 | 25,876,427 | 2,691,596 | 10.4% | % | ||||||||||
Liabilities:
|
||||||||||||||||
Bonds and notes payable
|
$ | 27,428,772 | 24,805,289 | 2,623,483 | 10.6% | % | ||||||||||
Fair value of derivative instruments
|
26,146 | 2,489 | 23,657 | 950.5 | ||||||||||||
Other liabilities
|
239,160 | 284,086 | (44,926 | ) | (15.8 | ) | ||||||||||
Total liabilities
|
27,694,078 | 25,091,864 | 2,602,214 | 10.4 | ||||||||||||
Shareholders' equity
|
873,945 | 784,563 | 89,382 | 11.4 | ||||||||||||
Total liabilities and shareholders' equity
|
$ | 28,568,023 | 25,876,427 | 2,691,596 | 10.4% | % |
Three months ended June 30, 2010
|
|||||||||||||||||||
Fee-Based
|
|||||||||||||||||||
Student
|
Tuition
|
"Base net
|
|||||||||||||||||
Loan
|
Payment
|
Asset
|
Corporate
|
income"
|
|||||||||||||||
and
|
Processing
|
Total
|
Generation
|
Activity
|
Eliminations
|
Adjustments
|
GAAP
|
||||||||||||
Guaranty
|
and Campus
|
Enrollment
|
Fee-
|
and
|
and
|
and
|
to GAAP
|
Results of
|
|||||||||||
Servicing
|
Commerce
|
Services
|
Based
|
Management
|
Overhead
|
Reclassifications
|
Results
|
Operations
|
|||||||||||
Total interest income
|
$ | 17 | 4 | — | 21 | 155,701 | 1,922 | (987 | ) | — | 156,657 | ||||||||
Interest expense
|
— | — | — | — | 54,105 | 6,125 | (987 | ) | — | 59,243 | |||||||||
Net interest income (loss)
|
17 | 4 | — | 21 | 101,596 | (4,203 | ) | — | — | 97,414 | |||||||||
Less provision for loan losses
|
— | — | — | — | 6,200 | — | — | — | 6,200 | ||||||||||
Net interest income (loss) after provision for loan losses
|
17 | 4 | — | 21 | 95,396 | (4,203 | ) | — | — | 91,214 | |||||||||
Other income (expense):
|
|||||||||||||||||||
Loan and guaranty servicing revenue
|
36,652 | — | — | 36,652 | — | — | — | — | 36,652 | ||||||||||
Tuition payment processing and campus commerce revenue
|
— | 12,795 | — | 12,795 | — | — | — | — | 12,795 | ||||||||||
Enrollment services revenue
|
— | — | 35,403 | 35,403 | — | — | — | — | 35,403 | ||||||||||
Software services revenue
|
5,499 | — | — | 5,499 | — | — | — | — | 5,499 | ||||||||||
Other income
|
295 | — | — | 295 | 4,636 | 3,565 | — | — | 8,496 | ||||||||||
Gain on sale of loans and debt repurchases, net
|
— | — | — | — | 8,759 | — | — | — | 8,759 | ||||||||||
Intersegment revenue
|
23,834 | 66 | 14 | 23,914 | — | 4,098 | (28,012 | ) | — | — | |||||||||
Derivative market value and foreign currency adjustments
|
— | — | — | — | — | — | — | (7,231 | ) | (7,231 | ) | ||||||||
Derivative settlements, net
|
— | — | — | — | (3,377 | ) | — | — | — | (3,377 | ) | ||||||||
Total other income (expense)
|
66,280 | 12,861 | 35,417 | 114,558 | 10,018 | 7,663 | (28,012 | ) | (7,231 | ) | 96,996 | ||||||||
Operating expenses:
|
|||||||||||||||||||
Salaries and benefits
|
23,327 | 6,594 | 6,447 | 36,368 | 1,286 | 3,808 | (428 | ) | — | 41,034 | |||||||||
Restructure expense- severance and contract terminination costs
|
84 | — | — | 84 | — | (12 | ) | (72 | ) | — | — | ||||||||
Cost to provide enrollment services
|
— | — | 24,111 | 24,111 | — | — | — | — | 24,111 | ||||||||||
Other expenses
|
19,825 | 2,611 | 4,065 | 26,501 | 2,992 | 7,351 | — | 6,232 | 43,076 | ||||||||||
Intersegment expenses
|
3,014 | 945 | 655 | 4,614 | 21,891 | 1,007 | (27,512 | ) | — | — | |||||||||
Total operating expenses
|
46,250 | 10,150 | 35,278 | 91,678 | 26,169 | 12,154 | (28,012 | ) | 6,232 | 108,221 | |||||||||
Income (loss) before income taxes and corporate overhead allocation
|
20,047 | 2,715 | 139 | 22,901 | 79,245 | (8,694 | ) | — | (13,463 | ) | 79,989 | ||||||||
Corporate overhead allocation
|
(1,484 | ) | (495 | ) | (495 | ) | (2,474 | ) | (2,473 | ) | 4,947 | — | — | — | |||||
Income (loss) before income taxes
|
18,563 | 2,220 | (356 | ) | 20,427 | 76,772 | (3,747 | ) | — | (13,463 | ) | 79,989 | |||||||
Income tax (expense) benefit (a)
|
(7,053 | ) | (844 | ) | 135 | (7,762 | ) | (29,173 | ) | 1,823 | — | 5,116 | (29,996 | ) | |||||
Net income (loss)
|
$ | 11,510 | 1,376 | (221 | ) | 12,665 | 47,599 | (1,924 | ) | — | (8,347 | ) | 49,993 | ||||||
(a) Income taxes are applied based on 38% of income (loss) before taxes for the individual operating segments.
|
Student
|
Tuition
|
||||||||||||||||||||||
Loan
|
Payment
|
Asset
|
Corporate
|
||||||||||||||||||||
and
|
Processing
|
Generation
|
Activity
|
||||||||||||||||||||
Guaranty
|
and Campus
|
Enrollment
|
and
|
and
|
|||||||||||||||||||
Servicing
|
Commerce
|
Services
|
Management
|
Overhead
|
Total
|
||||||||||||||||||
Three months ended June 30, 2010
|
|||||||||||||||||||||||
Derivative market value and foreign currency adjustments
|
$ | — | — | — | 550 | 6,681 | 7,231 | ||||||||||||||||
Amortization of intangible assets
|
2,114 | 1,591 | 2,527 | — | — | 6,232 | |||||||||||||||||
Compensation related to business combinations
|
— | — | — | — | — | — | |||||||||||||||||
Variable-rate floor income, net of settlements on derivatives
|
— | — | — | — | — | — | |||||||||||||||||
Net tax effect (a)
|
(803 | ) | (605 | ) | (958 | ) | (209 | ) | (2,541 | ) | (5,116 | ) | |||||||||||
Total adjustments to GAAP
|
$ | 1,311 | 986 | 1,569 | 341 | 4,140 | 8,347 | ||||||||||||||||
Three months ended June 30, 2009
|
|||||||||||||||||||||||
Derivative market value and foreign currency adjustments
|
$ | — | — | — | 35,445 | (1,432 | ) | 34,013 | |||||||||||||||
Amortization of intangible assets
|
1,215 | 1,869 | 2,701 | — | — | 5,785 | |||||||||||||||||
Compensation related to business combinations
|
— | — | — | — | — | — | |||||||||||||||||
Variable-rate floor income, net of settlements on derivatives
|
— | — | — | (6,042 | ) | — | (6,042 | ) | |||||||||||||||
Net tax effect (a)
|
(462 | ) | (710 | ) | (1,027 | ) | (11,173 | ) | (775 | ) | (14,147 | ) | |||||||||||
Total adjustments to GAAP
|
$ | 753 | 1,159 | 1,674 | 18,230 | (2,207 | ) | 19,609 | |||||||||||||||
Six months ended June 30, 2010
|
|||||||||||||||||||||||
Derivative market value and foreign currency adjustments
|
$ | — | — | — | (4,011 | ) | 7,137 | 3,126 | |||||||||||||||
Amortization of intangible assets
|
4,350 | 3,516 | 4,882 | — | — | 12,748 | |||||||||||||||||
Compensation related to business combinations
|
— | — | — | — | — | — | |||||||||||||||||
Variable-rate floor income, net of settlements on derivatives
|
— | — | — | — | — | — | |||||||||||||||||
Net tax effect (a)
|
(1,653 | ) | (1,337 | ) | (1,858 | ) | 1,524 | (2,708 | ) | (6,032 | ) | ||||||||||||
Total adjustments to GAAP
|
$ | 2,697 | 2,179 | 3,024 | (2,487 | ) | 4,429 | 9,842 | |||||||||||||||
Six months ended June 30, 2009
|
|||||||||||||||||||||||
Derivative market value and foreign currency adjustments
|
$ | — | — | — | 40,325 | (1,432 | ) | 38,893 | |||||||||||||||
Amortization of intangible assets
|
2,440 | 3,756 | 5,743 | — | — | 11,939 | |||||||||||||||||
Compensation related to business combinations
|
— | — | — | — | 159 | 159 | |||||||||||||||||
Variable-rate floor income, net of settlements on derivatives
|
— | — | — | (7,502 | ) | — | (7,502 | ) | |||||||||||||||
Net tax effect (a)
|
(952 | ) | (1,465 | ) | (2,240 | ) | (12,800 | ) | 496 | (16,961 | ) | ||||||||||||
Total adjustments to GAAP
|
$ | 1,488 | 2,291 | 3,503 | 20,023 | (777 | ) | 26,528 |
|
(a)
|
Income taxes are applied based on 38% for the individual operating segments.
|
|
·
|
$9.7 million of government servicing revenue earned in 2010 and growth of number of borrowers to 1.5 million and loan volume to $12.9 billion under this contract.
|
|
·
|
$22.3
million of guaranty servicing revenue earned in 2010 from rehabilitation collections on defaulted loan assets.
|
Number of borrowers:
|
||||||||||||||||||||
Government
|
||||||||||||||||||||
servicing:
|
— | 22,478 | 441,913 | 1,055,896 | 1,530,308 | |||||||||||||||
FFELP
|
||||||||||||||||||||
servicing:
|
2,358,647 | 2,431,612 | 2,311,558 | 2,327,016 | 2,329,150 |
|
(a)
|
As of June 30, 2010, the Company was servicing $2.0 billion of loans owned by the Company and approximately $0.4 billion of loans for third parties that were disbursed on or after July 1, 2009 and may be eligible to be sold to the Department pursuant to its Loan Purchase Commitment Program. The Company expects to retain servicing on all loans sold to the Department which are currently being serviced by the Company.
|
Three months ended June 30,
|
Six months ended June 30,
|
||||||||||||||||||||||||||||||
Change
|
Change
|
||||||||||||||||||||||||||||||
2010
|
2009
|
$ | % | 2010 | 2009 | $ | % | ||||||||||||||||||||||||
Net interest income
|
$17 | 13 | 4 | 30.8 | % | $30 | 79 | (49 | ) | (62.0 | )% | ||||||||||||||||||||
Loan and guaranty servicing revenue
|
36,652 | 29,184 | 7,468 | 25.6 | 73,300 | 56,037 | 17,263 | 30.8 | |||||||||||||||||||||||
Software services revenue
|
5,499 | 6,119 | (620 | ) | (10.1 | ) | 9,843 | 11,824 | (1,981 | ) | (16.8 | ) | |||||||||||||||||||
Other income
|
295 | 249 | 46 | 18.5 | 519 | 361 | 158 | 43.8 | |||||||||||||||||||||||
Intersegment revenue
|
23,834 | 23,012 | 822 | 3.6 | 46,553 | 44,970 | 1,583 | 3.5 | |||||||||||||||||||||||
Total other income
|
66,280 | 58,564 | 7,716 | 13.2 | 130,215 | 113,192 | 17,023 | 15.0 | |||||||||||||||||||||||
Salaries and benefits
|
23,327 | 21,247 | 2,080 | 9.8 | 46,909 | 43,601 | 3,308 | 7.6 | |||||||||||||||||||||||
Restructure expense
|
84 | 3,257 | (3,173 | ) | (97.4 | ) | 1,289 | 3,257 | (1,968 | ) | (60.4 | ) | |||||||||||||||||||
Other expenses
|
19,825 | 15,103 | 4,722 | 31.3 | 35,344 | 27,977 | 7,367 | 26.3 | |||||||||||||||||||||||
Intersegment expenses
|
3,014 | 2,852 | 162 | 5.7 | 5,996 | 5,859 | 137 | 2.3 | |||||||||||||||||||||||
Total operating expenses
|
46,250 | 42,459 | 3,791 | 8.9 | 89,538 | 80,694 | 8,844 | 11.0 | |||||||||||||||||||||||
"Base net income" before income taxes and corporate overhead allocation
|
20,047 | 16,118 | 3,929 | 24.4 | 40,707 | 32,577 | 8,130 | 25.0 | |||||||||||||||||||||||
Corporate overhead allocation
|
(1,484 | ) | — | (1,484 | ) | (100.0 | ) | (2,673 | ) | — | (2,673 | ) | (100.0 | ) | |||||||||||||||||
"Base net income" before income taxes
|
18,563 | 16,118 | 2,445 | 15.2 | 38,034 | 32,577 | 5,457 | 16.8 | |||||||||||||||||||||||
Income tax expense
|
(7,053 | ) | (6,126 | ) | (927 | ) | 15.1 | (14,453 | ) | (12,381 | ) | (2,072 | ) | 16.7 | |||||||||||||||||
"Base net income"
|
$11,510 | 9,992 | 1,518 | 15.2 | % | $23,581 | 20,196 | 3,385 | 16.8 | % | |||||||||||||||||||||
Before Tax Operating Margin (a)
|
30.2 | % | 27.5 | % | 31.3 | % | 28.8 | % | |||||||||||||||||||||||
Before Tax Operating Margin (b)
|
29.6 | % | 30.4 | % | 30.6 | % | 30.3 | % |
|
(a)
|
Excludes corporate overhead allocation.
|
|
(b)
|
Excludes corporate overhead allocation, restructure expense, and the revenue and collection fees paid related to rehabilitation collections
|
Three months ended June 30,
|
|||||||||||||||||||||||||||||||
2010
|
2009
|
||||||||||||||||||||||||||||||
Origination revenue
|
Servicing revenue
|
Software services revenue and information technology
|
Total
revenue
|
Origination revenue
|
Servicing revenue
|
Software services revenue and information technology
|
Total
revenue
|
||||||||||||||||||||||||
FFELP servicing (a)
|
$ | 88 | 8,762 | — | 8,850 | 458 | 13,866 | — | 14,324 | ||||||||||||||||||||||
Private servicing
|
107 | 1,932 | — | 2,039 | 44 | 1,951 | — | 1,995 | |||||||||||||||||||||||
Government servicing (b)
|
— | 6,147 | — | 6,147 | — | — | — | — | |||||||||||||||||||||||
Guaranty servicing (c)
|
38 | 19,578 | 878 | 20,494 | 37 | 12,828 | 925 | 13,790 | |||||||||||||||||||||||
Other (d)
|
— | 295 | 4,621 | 4,916 | — | 249 | 5,194 | 5,443 | |||||||||||||||||||||||
Total third-party revenue
|
233 | 36,714 | 5,499 | 42,446 | 539 | 28,894 | 6,119 | 35,552 | |||||||||||||||||||||||
Intersegment revenue (e)
|
1,269 | 20,843 | 1,722 | 23,834 | 1,466 | 20,182 | 1,364 | 23,012 | |||||||||||||||||||||||
Total other income
|
$ | 1,502 | 57,557 | 7,221 | 66,280 | 2,005 | 49,076 | 7,483 | 58,564 |
|
a)
|
FFELP origination revenue decreased in 2010 compared with 2009 due to lenders exiting the FFELP marketplace as a result of legislative changes. FFELP servicing revenue decreased in 2010 due to the loss of servicing volume from third party customers as a result of these customers selling their portfolios to the Company and/or the Department under the Purchase Program.
|
|
b)
|
The Company began servicing loans for the Department in September 2009.
|
|
c)
|
Guaranty servicing revenue increased in 2010 due to $12.3 million in revenue earned from rehabilitation collections on defaulted loan assets in the second quarter of 2010. In the second quarter of 2009, revenue from rehabilitation collections on defaulted loans was $5.8 million.
|
|
d)
|
The decrease in software services revenue in 2010 compared to the same period in 2009 is the result of a reduction in the number of projects for existing external customers and the loss of external customers due to legislative developments in the student loan industry throughout 2009 and 2010.
|
e)
|
Intersegment servicing revenue increased in 2010 compared with the same period in 2009 as a result of an increase in the Company’s portfolio due to the Company’s loan purchases during 2010. |
Six months ended June 30,
|
|||||||||||||||||||||||||||||||
2010
|
2009
|
||||||||||||||||||||||||||||||
Origination revenue
|
Servicing revenue
|
Software services revenue and information technology
|
Total
revenue
|
Origination revenue
|
Servicing revenue
|
Software services revenue and information technology
|
Total
revenue
|
||||||||||||||||||||||||
FFELP servicing (a)
|
$ | 256 | 21,218 | — | 21,474 | 775 | 29,303 | — | 30,078 | ||||||||||||||||||||||
Private servicing
|
303 | 3,856 | — | 4,159 | 104 | 3,763 | — | 3,867 | |||||||||||||||||||||||
Government servicing (b)
|
— | 9,687 | — | 9,687 | — | — | — | — | |||||||||||||||||||||||
Guaranty servicing (c)
|
120 | 37,860 | 1,786 | 39,766 | 214 | 21,878 | 1,800 | 23,892 | |||||||||||||||||||||||
Other (d)
|
— | 519 | 8,057 | 8,576 | — | 361 | 10,024 | 10,385 | |||||||||||||||||||||||
Total third-party revenue
|
679 | 73,140 | 9,843 | 83,662 | 1,093 | 55,305 | 11,824 | 68,222 | |||||||||||||||||||||||
Intersegment revenue (e)
|
4,366 | 39,337 | 2,850 | 46,553 | 4,167 | 38,141 | 2,662 | 44,970 | |||||||||||||||||||||||
Total other income
|
$ | 5,045 | 112,477 | 12,693 | 130,215 | 5,260 | 93,446 | 14,486 | 113,192 |
|
(a)
|
FFELP origination revenue decreased in 2010 compared with 2009 due to lenders exiting the FFELP marketplace as a result of legislative changes. FFELP servicing revenue decreased in 2010 due to the loss of servicing volume from third party customers as a result of these customers selling their portfolios to the Company and/or the Department under the Purchase Program.
|
|
(b)
|
The Company began servicing loans for the Department in September 2009.
|
|
(c)
|
Guaranty servicing revenue increased in 2010 due to $22.3 million in revenue earned from rehabilitation collections on defaulted loan assets in 2010. In 2009, revenue from rehabilitation collections on defaulted loans was $6.2 million.
|
|
(d)
|
The decrease in software services revenue in 2010 compared to the same period in 2009 is the result of a reduction in the number of projects for existing external customers and the loss of external customers due to legislative developments in the student loan industry throughout 2009 and 2010.
|
|
(e)
|
Intersegment servicing revenue increased in 2010 compared with the same period in 2009 as a result of an increase in the Company’s portfolio due to the Company’s loan purchases during 2010.
|
|
·
|
$2.8 million (10%) increase in revenue from 2009 as a result of an increase in the number of managed tuition payment plans and campus commerce transactions processed.
|
Three months ended June 30,
|
Six months ended June 30,
|
||||||||||||||||||||||||
Change
|
Change
|
||||||||||||||||||||||||
2010
|
2009
|
$ | % | 2010 | 2009 | $ | % | ||||||||||||||||||
Net interest income
|
$ | 4 | 11 | (7 | ) | (63.6 | )% | $ | 12 | 41 | (29 | ) | (70.7 | )% | |||||||||||
Tuition payment processing and campus commerce revenue
|
12,795 | 11,848 | 947 | 8.0 | 30,177 | 27,386 | 2,791 | 10.2 | |||||||||||||||||
Intersegment revenue
|
66 | 53 | 13 | 24.5 | 131 | 110 | 21 | 19.1 | |||||||||||||||||
Total other income
|
12,861 | 11,901 | 960 | 8.1 | 30,308 | 27,496 | 2,812 | 10.2 | |||||||||||||||||
Salaries and benefits
|
6,594 | 6,402 | 192 | 3.0 | 13,212 | 12,947 | 265 | 2.0 | |||||||||||||||||
Other expenses
|
2,611 | 2,339 | 272 | 11.6 | 5,052 | 4,747 | 305 | 6.4 | |||||||||||||||||
Intersegment expenses
|
945 | 669 | 276 | 41.3 | 1,784 | 1,292 | 492 | 38.1 | |||||||||||||||||
Total operating expenses
|
10,150 | 9,410 | 740 | 7.9 | 20,048 | 18,986 | 1,062 | 5.6 | |||||||||||||||||
"Base net income" before income taxes and corporate overhead allocation
|
2,715 | 2,502 | 213 | 8.5 | 10,272 | 8,551 | 1,721 | 20.1 | |||||||||||||||||
Corporate overhead allocation
|
(495 | ) | — | (495 | ) | (100.0 | ) | (891 | ) | — | (891 | ) | (100.0 | ) | |||||||||||
"Base net income" before income taxes
|
2,220 | 2,502 | (282 | ) | (11.3 | ) | 9,381 | 8,551 | 830 | 9.7 | |||||||||||||||
Income tax expense
|
(844 | ) | (951 | ) | 107 | (11.3 | ) | (3,566 | ) | (3,249 | ) | (317 | ) | 9.8 | |||||||||||
"Base net income"
|
$ | 1,376 | 1,551 | (175 | ) | (11.3 | )% | $ | 5,815 | 5,302 | 513 | 9.7 | % | ||||||||||||
Before Tax Operating Margin (a)
|
21.1 | % | 21.0 | % | 33.9 | % | 31.1 | % | |||||||||||||||||
|
·
|
$11.2 million (19%) increase in revenue as a result of an increase in interactive marketing services volume.
|
|
·
|
A decrease in gross profit margin for interactive marketing services due to more competitive pricing.
|
|
·
|
$2.4 million increase in operating expenses due to accelerating the amortization of student list costs in 2010.
|
Three months ended June 30,
|
Six months ended June 30,
|
||||||||||||||||||||||||||||||
Change
|
Change
|
||||||||||||||||||||||||||||||
2010
|
2009
|
$ | % | 2010 | 2009 | $ | % | ||||||||||||||||||||||||
Enrollment services revenue
|
$ | 35,403 | 28,747 | 6,656 | 23.2 | % | $ | 68,674 | 57,518 | 11,156 | 19.4 | % | |||||||||||||||||||
Intersegment revenue
|
14 | 277 | (263 | ) | (94.9 | ) | 31 | 277 | (246 | ) | (88.8 | ) | |||||||||||||||||||
Total other income
|
35,417 | 29,024 | 6,393 | 22.0 | 68,705 | 57,795 | 10,910 | 18.9 | |||||||||||||||||||||||
Salaries and benefits
|
6,447 | 5,863 | 584 | 10.0 | 12,518 | 11,958 | 560 | 4.7 | |||||||||||||||||||||||
Cost to provide enrollment services
|
24,111 | 18,092 | 6,019 | 33.3 | 46,136 | 35,885 | 10,251 | 28.6 | |||||||||||||||||||||||
Other expenses
|
4,065 | 3,041 | 1,024 | 33.7 | 9,127 | 6,336 | 2,791 | 44.0 | |||||||||||||||||||||||
Intersegment expenses
|
655 | 508 | 147 | 28.9 | 1,105 | 1,054 | 51 | 4.8 | |||||||||||||||||||||||
Total operating expenses
|
35,278 | 27,504 | 7,774 | 28.3 | 68,886 | 55,233 | 13,653 | 24.7 | |||||||||||||||||||||||
"Base net (loss) income" before income taxes and corporate overhead allocation
|
139 | 1,520 | (1,381 | ) | (90.9 | ) | (181 | ) | 2,562 | (2,743 | ) | (107.1 | ) | ||||||||||||||||||
Corporate overhead allocation
|
(495 | ) | — | (495 | ) | (100.0 | ) | (891 | ) | — | (891 | ) | (100.0 | ) | |||||||||||||||||
"Base net (loss) income" before income taxes
|
(356 | ) | 1,520 | (1,876 | ) | (123.4 | ) | (1,072 | ) | 2,562 | (3,634 | ) | (141.8 | ) | |||||||||||||||||
Income tax benefit (expense)
|
135 | (577 | ) | 712 | (123.4 | ) | 408 | (973 | ) | 1,381 | (141.9 | ) | |||||||||||||||||||
"Base net (loss) income"
|
$ | (221 | ) | 943 | (1,164 | ) | (123.4 | ) % | $ | (664 | ) | 1,589 | (2,253 | ) | (141.8 | ) % | |||||||||||||||
Before Tax Operating Margin (a)
|
0.4 | % | 5.2 | % | (0.3 | %) | 4.4 | % | |||||||||||||||||||||||
Before Tax Operating Margin (b)
|
4.5 | % | 7.8 | % | 5.2 | % | 6.8 | % |
Three months ended June 30, 2010
|
|||||||||||||||||||
Publishing
|
Resource
|
||||||||||||||||||
and
|
centers
|
||||||||||||||||||
Interactive
|
editing
|
and list
|
|||||||||||||||||
marketing (a)
|
services (b)
|
Subtotal
|
marketing (c)
|
Total
|
|||||||||||||||
Enrollment services revenue
|
$ | 30,507 | 1,792 | 32,299 | 3,104 | 35,403 | |||||||||||||
Cost to provide enrollment services
|
23,439 | 672 | 24,111 | ||||||||||||||||
Gross profit
|
$ | 7,068 | 1,120 | 8,188 | |||||||||||||||
Gross profit %
|
23.2 | % | 62.5 | % | 25.4 | % |
Three months ended June 30, 2009
|
|||||||||||||||||||
Publishing
|
Resource
|
||||||||||||||||||
and
|
centers
|
||||||||||||||||||
Interactive
|
editing
|
and list
|
|||||||||||||||||
marketing (a)
|
services (b)
|
Subtotal
|
marketing (c)
|
Total
|
|||||||||||||||
Enrollment services revenue
|
$ | 23,345 | 2,072 | 25,417 | 3,330 | 28,747 | |||||||||||||
Cost to provide enrollment services
|
17,136 | 956 | 18,092 | ||||||||||||||||
Gross profit
|
$ | 6,209 | 1,116 | 7,325 | |||||||||||||||
Gross profit %
|
26.6 | % | 53.9 | % | 28.8 | % | |||||||||||||
Six months ended June 30, 2010
|
|||||||||||||||||||
Publishing
|
Resource
|
||||||||||||||||||
and
|
centers
|
||||||||||||||||||
Interactive
|
editing
|
and list
|
|||||||||||||||||
marketing (a)
|
services (b)
|
Subtotal
|
marketing (c)
|
Total
|
|||||||||||||||
Enrollment services revenue
|
$ | 58,274 | 4,186 | 62,460 | 6,214 | 68,674 | |||||||||||||
Cost to provide enrollment services
|
44,637 | 1,499 | 46,136 | ||||||||||||||||
Gross profit
|
$ | 13,637 | 2,687 | 16,324 | |||||||||||||||
Gross profit %
|
23.4 | % | 64.2 | % | 26.1 | % | |||||||||||||
Six months ended June 30, 2009
|
|||||||||||||||||||
Publishing
|
Resource
|
||||||||||||||||||
and
|
centers
|
||||||||||||||||||
Interactive
|
editing
|
and list
|
|||||||||||||||||
marketing (a)
|
services (b)
|
Subtotal
|
marketing (c)
|
Total
|
|||||||||||||||
Enrollment services revenue
|
$ | 46,258 | 4,952 | 51,210 | 6,308 | 57,518 | |||||||||||||
Cost to provide enrollment services
|
33,750 | 2,135 | 35,885 | ||||||||||||||||
Gross profit
|
$ | 12,508 | 2,817 | 15,325 | |||||||||||||||
Gross profit %
|
27.0 | % | 56.9 | % | 29.9 | % |
|
(a)
|
Interactive marketing revenue increased $7.2 million (30.7%) and $12.0 million (26.0%) for the three and six months ended June 30, 2010 compared with the same periods in 2009, respectively, as a result of an increase in interactive marketing services volume. The gross profit margin for interactive marketing services decreased due to more competitive pricing.
|
|
(b)
|
Publishing and editing services revenue decreased $0.3 million (13.5%) and $0.8 million (15.5%) for the three and six months ended June 30, 2010 compared with the same periods in 2009, respectively, due to competition related to online delivery of similar products. The gross profit margin for publishing and editing services increased as a result of a shift in the mix of products sold.
|
|
(c)
|
Resource centers and list marketing revenue decreased $0.2 million (6.8%) and $0.1 million (1.5%) for the three and six months ended June 30, 2010 compared with the same periods in 2009, respectively. Resource centers and list marketing revenue decreased due to a decrease in list sales.
|
|
·
|
Significant tightening of the CP/LIBOR spread which has increased student loan spread.
|
|
·
|
A gain of $18.9 million in 2010 from the purchase of $392.0 million of the Company’s asset-backed securities.
|
|
·
|
The purchase of $1.9 billion of FFELP student loans in the second quarter from various third-parties.
|
|
·
|
Fixed rate floor income of $66.3 million in 2010 (net of settlement payments on derivatives used to hedge student loans earning floor income of $8.1 million) due to historically low interest rates.
|
As of June 30, 2010
|
As of December 31, 2009
|
||||||||||
Held for investment
|
Held for sale (a)
|
Held for investment
|
|||||||||
Federally insured loans
|
$ | 24,408,131 | 1,970,516 | 23,472,553 | |||||||
Non-federally insured loans
|
137,141 | — | 163,321 | ||||||||
24,545,272 | 1,970,516 | 23,635,874 | |||||||||
Unamortized loan discount/premiums and deferred origination costs, net
|
252,457 | 25,353 | 341,970 | ||||||||
Allowance for loan losses – federally insured loans
|
(32,972 | ) | — | (30,102 | ) | ||||||
Allowance for loan losses – non-federally insured loans
|
(17,825 | ) | — | (20,785 | ) | ||||||
$ | 24,746,932 | 1,995,869 | 23,926,957 |
|
(a)
|
2009-2010 Academic Year loans are eligible to be participated and sold to the Department under the Department’s Participation and Purchase Programs. As of June 30, 2010, these loans are classified as held for sale as they are expected to be sold to the Department under the Department’s Purchase Program during the fourth quarter of 2010.
|
Three months ended June 30,
|
Six months ended June 30,
|
||||||||||||||
2010
|
2009
|
2010
|
2009
|
||||||||||||
Beginning balance
|
$ | 24,551,152 | 25,274,173 | 23,635,874 | 25,061,049 | ||||||||||
Direct channel - Stafford/PLUS loan originations
|
201,491 | 256,844 | 788,974 | 798,436 | |||||||||||
Branding partner channel
|
254,401 | 183,258 | 539,520 | 595,571 | |||||||||||
Forward flow channel
|
15,088 | 51,044 | 107,306 | 51,044 | |||||||||||
Spot purchases
|
1,928,940 | 6,565 | 2,514,861 | 20,370 | |||||||||||
Total channel acquisitions
|
2,399,920 | 497,711 | 3,950,661 | 1,465,421 | |||||||||||
Repayments, claims, capitalized interest, participations, and other
|
(309,256 | ) | (370,541 | ) | (800,809 | ) | (936,968 | ) | |||||||
Consolidation loans lost to external parties
|
(125,024 | ) | (67,071 | ) | (248,902 | ) | (172,589 | ) | |||||||
Loans sold
|
(1,004 | ) | (34,733 | ) | (21,036 | ) | (117,374 | ) | |||||||
Ending balance
|
$ | 26,515,788 | 25,299,539 | 26,515,788 | 25,299,539 |
Three months ended June 30,
|
Six months ended June 30,
|
||||||||||||||
2010
|
2009
|
2010
|
2009
|
||||||||||||
Balance at beginning of period
|
$ | 49,400 | 48,497 | 50,887 | 50,922 | ||||||||||
Provision for loan losses:
|
|||||||||||||||
Federally insured loans
|
5,200 | 5,000 | 9,200 | 10,500 | |||||||||||
Non-federally insured loans
|
1,000 | 3,000 | 2,000 | 5,000 | |||||||||||
Total provision for loan losses
|
6,200 | 8,000 | 11,200 | 15,500 | |||||||||||
Charge-offs, net of recoveries:
|
|||||||||||||||
Federally insured loans
|
(4,971 | ) | (4,216 | ) | (9,039 | ) | (7,463 | ) | |||||||
Non-federally insured loans
|
(2,052 | ) | (981 | ) | (3,181 | ) | (1,639 | ) | |||||||
Net charge-offs
|
(7,023 | ) | (5,197 | ) | (12,220 | ) | (9,102 | ) | |||||||
Purchase (sale) of federally insured loans
|
2,000 | — | 2,710 | (520 | ) | ||||||||||
Purchase (sale) of non-federally insured loans
|
220 | (1,300 | ) | (1,780 | ) | (6,800 | ) | ||||||||
Balance at end of period
|
$ | 50,797 | 50,000 | 50,797 | 50,000 | ||||||||||
Allocation of the allowance for loan losses:
|
|||||||||||||||
Federally insured loans
|
$ | 32,972 | 28,093 | 32,972 | 28,093 | ||||||||||
Non-federally insured loans
|
17,825 | 21,907 | 17,825 | 21,907 | |||||||||||
Total allowance for loan losses
|
$ | 50,797 | 50,000 | 50,797 | 50,000 | ||||||||||
Allowance for federally insured loans as a percentage of
|
|||||||||||||||
such loans (excluding loans held-for-sale)
|
0.14 | % | 0.12 | % | 0.14 | % | 0.12 | % | |||||||
Allowance for non-federally insured loans as a percentage of such loans
|
13.00 | % | 10.91 | % | 13.00 | % | 10.91 | % |
Three months ended June 30,
|
Six months ended June 30,
|
||||||||||||||
2010
|
2009
|
2010
|
2009
|
||||||||||||
Beginning balance
|
$ | 12,600 | 5,500 | 10,600 | — | ||||||||||
Transfer from allowance for loan losses
|
— | 1,300 | 2,000 | 6,800 | |||||||||||
Reserve for repurchase of delinquent loans (a)
|
— | 800 | — | 800 | |||||||||||
Ending balance
|
$ | 12,600 | 7,600 | 12,600 | 7,600 |
|
(a)
|
The reserve for repurchase of delinquent loans is included in “other” under other operating expenses in the consolidated statements of income.
|
As of June 30, 2010
|
As of December 31, 2009
|
||||||||||||||
Dollars
|
Percent
|
Dollars
|
Percent
|
||||||||||||
Federally Insured Loans:
|
|||||||||||||||
Loans in-school/grace/deferment (a)
|
$ | 6,854,232 | $ | 5,783,648 | |||||||||||
Loans in forebearance (b)
|
3,069,770 | 2,495,672 | |||||||||||||
Loans in repayment status:
|
|||||||||||||||
Loans current
|
14,189,923 | 86.2 | % | 13,038,428 | 85.8 | % | |||||||||
Loans delinquent 31-60 days (c)
|
704,806 | 4.3 | 691,232 | 4.5 | |||||||||||
Loans delinquent 61-90 days (c)
|
432,215 | 2.6 | 314,265 | 2.1 | |||||||||||
Loans delinquent 91 days or greater (d)
|
1,127,701 | 6.9 | 1,149,308 | 7.6 | |||||||||||
Total loans in repayment
|
16,454,645 | 100.0 | % | 15,193,233 | 100.0 | % | |||||||||
Total federally insured loans
|
$ | 26,378,647 | $ | 23,472,553 | |||||||||||
Non-Federally Insured Loans:
|
|||||||||||||||
Loans in-school/grace/deferment (a)
|
$ | 24,617 | $ | 34,815 | |||||||||||
Loans in forebearance (b)
|
1,634 | 1,919 | |||||||||||||
Loans in repayment status:
|
|||||||||||||||
Loans current
|
104,204 | 94.0 | % | 118,761 | 93.8 | % | |||||||||
Loans delinquent 31-60 days (c)
|
2,149 | 1.9 | 3,023 | 2.4 | |||||||||||
Loans delinquent 61-90 days (c)
|
1,719 | 1.6 | 1,559 | 1.2 | |||||||||||
Loans delinquent 91 days or greater (d)
|
2,818 | 2.5 | 3,244 | 2.6 | |||||||||||
Total loans in repayment
|
110,890 | 100.0 | % | 126,587 | 100.0 | % | |||||||||
Total non-federally insured loans
|
$ | 137,141 | $ | 163,321 |
|
(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)
|
Loans delinquent 91 days or greater include loans in claim status, which are loans that 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.
|
Three months ended June 30,
|
Six months ended June 30,
|
||||||||||||||
2010
|
2009
|
2010
|
2009
|
||||||||||||
Variable student loan yield
|
2.72 | % | 2.94 | % | 2.64 | % | 3.10 | % | |||||||
Consolidation rebate fees
|
(0.67 | ) | (0.70 | ) | (0.69 | ) | (0.71 | ) | |||||||
Premium/discount and deferred origination costs amortization
|
(0.19 | ) | (0.27 | ) | (0.23 | ) | (0.28 | ) | |||||||
Variable student loan net yield
|
1.86 | 1.97 | 1.72 | 2.11 | |||||||||||
Student loan cost of funds - interest expense
|
(0.81 | ) | (1.52 | ) | (0.78 | ) | (1.84 | ) | |||||||
Student loan cost of funds - derivative settlements
|
0.01 | 0.15 | 0.02 | 0.27 | |||||||||||
Variable student loan spread
|
1.06 | 0.60 | 0.96 | 0.54 | |||||||||||
Variable rate floor income,
|
|||||||||||||||
net of settlements on derivatives
|
— | (0.10 | ) | — | (0.06 | ) | |||||||||
Fixed rate floor income,
|
|||||||||||||||
net of settlements on derivatives
|
0.48 | 0.59 | 0.53 | 0.54 | |||||||||||
Core student loan spread
|
1.54 | % | 1.09 | % | 1.49 | % | 1.02 | % | |||||||
Average balance of student loans
|
$ | 25,931,220 | 25,123,382 | 25,006,012 | 25,194,642 | ||||||||||
Average balance of debt outstanding
|
26,124,574 | 25,683,991 | 25,166,222 | 25,723,916 |
|
·
|
The tightening of the CP/LIBOR spread. Historically, the movement of the various interest rate indices received on the Company’s student loan assets, primarily three-month commercial paper, and paid on the debt to fund such loans, primarily LIBOR, was highly correlated. The short-term movement of these indices was dislocated beginning in August 2007 which negatively impacted the Company’s net interest income during the first six months of 2009. Beginning in the fourth quarter of 2009, the CP/LIBOR spread began to tighten to more historical levels, which has had a positive impact on spread. The CP/LIBOR spread during the first and second quarters of 2010 was 5 and 2 basis points compared with 52 and 45 basis points for the same periods in 2009, respectively.
|
|
·
|
A decrease in the amortization of loan premiums/discounts and deferred origination costs as a result of loans purchased at a discount, which has reduced the net costs being amortized.
|
Three months ended June 30,
|
Six months ended June 30,
|
||||||||||||||||||||||||||||||
Change
|
Change
|
||||||||||||||||||||||||||||||
2010
|
2009
|
$ | % | 2010 | 2009 | $ | % | ||||||||||||||||||||||||
Net interest income after provision
|
|||||||||||||||||||||||||||||||
for loan losses
|
$ | 95,396 | 49,895 | 45,501 | 91.2 | % | $ | 180,002 | 76,388 | 103,614 | 135.6 | % | |||||||||||||||||||
Other income
|
4,636 | 4,219 | 417 | 9.9 | 9,404 | 8,870 | 534 | 6.0 | |||||||||||||||||||||||
Gain (loss) on sale of loans and debt repurchases, net
|
8,759 | (174 | ) | 8,933 | (5,133.9 | ) | 18,936 | (380 | ) | 19,316 | (5,083.2 | ) | |||||||||||||||||||
Derivative settlements, net
|
(3,377 | ) | 9,535 | (12,912 | ) | (135.4 | ) | (5,800 | ) | 33,893 | (39,693 | ) | (117.1 | ) | |||||||||||||||||
Total other income
|
10,018 | 13,580 | (3,562 | ) | (26.2 | ) | 22,540 | 42,383 | (19,843 | ) | (46.8 | ) | |||||||||||||||||||
Salaries and benefits
|
1,286 | 1,735 | (449 | ) | (25.9 | ) | 2,644 | 3,510 | (866 | ) | (24.7 | ) | |||||||||||||||||||
Other expenses
|
2,992 | 5,875 | (2,883 | ) | (49.1 | ) | 7,213 | 10,834 | (3,621 | ) | (33.4 | ) | |||||||||||||||||||
Intersegment expenses
|
21,891 | 20,732 | 1,159 | 5.6 | 42,716 | 38,608 | 4,108 | 10.6 | |||||||||||||||||||||||
Total operating expenses
|
26,169 | 28,342 | (2,173 | ) | (7.7 | ) | 52,573 | 52,952 | (379 | ) | (0.7 | ) | |||||||||||||||||||
"Base net income" before income taxes
|
|||||||||||||||||||||||||||||||
and corporate overhead allocation
|
79,245 | 35,133 | 44,112 | 125.6 | 149,969 | 65,819 | 84,150 | 127.9 | |||||||||||||||||||||||
Corporate overhead allocation
|
(2,473 | ) | — | (2,473 | ) | (100.0 | ) | (4,454 | ) | — | (4,454 | ) | (100.0 | ) | |||||||||||||||||
"Base net income" before income taxes
|
76,772 | 35,133 | 41,639 | 118.5 | 145,515 | 65,819 | 79,696 | 121.1 | |||||||||||||||||||||||
Income tax expense
|
(29,173 | ) | (13,351 | ) | (15,822 | ) | 118.5 | (55,296 | ) | (25,012 | ) | (30,284 | ) | 121.1 | |||||||||||||||||
"Base net income"
|
$ | 47,599 | 21,782 | 25,817 | 118.5 | % | $ | 90,219 | 40,807 | 49,412 | 121.1 | % | |||||||||||||||||||
Three months ended June 30,
|
Six months ended June 30, | ||||||||||||||||||||||||
Change
|
Change
|
||||||||||||||||||||||||
2010
|
2009
|
$ | % | 2010 | 2009 | $ | % | ||||||||||||||||||
Student loan interest, net of settlements
|
|||||||||||||||||||||||||
on derivatives (a)
|
$ | 176,686 | 187,467 | (10,781 | ) | (5.8 | ) % | $ | 332,490 | 414,126 | (81,636 | ) | (19.7 | ) % | |||||||||||
Consolidation rebate fees (b)
|
(43,215 | ) | (43,827 | ) | 612 | (1.4 | ) | (85,665 | ) | (88,304 | ) | 2,639 | (3.0 | ) | |||||||||||
Amortization of loan premiums/discounts and
|
|||||||||||||||||||||||||
deferred origination costs (c)
|
(12,548 | ) | (16,789 | ) | 4,241 | (25.3 | ) | (28,630 | ) | (35,439 | ) | 6,809 | (19.2 | ) | |||||||||||
Interest on bonds and notes payable (d)
|
(53,118 | ) | (97,916 | ) | 44,798 | (45.8 | ) | (97,860 | ) | (235,949 | ) | 138,089 | (58.5 | ) | |||||||||||
Student loan interest margin, net of
|
|||||||||||||||||||||||||
settlements on derivatives
|
67,805 | 28,935 | 38,870 | 134.3 | 120,335 | 54,434 | 65,901 | 121.1 | |||||||||||||||||
Fixed rate floor income, net of settlements
|
|||||||||||||||||||||||||
on derivatives (e)
|
31,054 | 37,054 | (6,000 | ) | (16.2 | ) | 66,325 | 67,339 | (1,014 | ) | (1.5 | ) | |||||||||||||
Investment interest (f)
|
347 | 1,863 | (1,516 | ) | (81.4 | ) | 642 | 4,991 | (4,349 | ) | (87.1 | ) | |||||||||||||
Intercompany interest
|
(987 | ) | (422 | ) | (565 | ) | 133.9 | (1,900 | ) | (983 | ) | (917 | ) | 93.3 | |||||||||||
Provision for loan losses (g)
|
(6,200 | ) | (8,000 | ) | 1,800 | (22.5 | ) | (11,200 | ) | (15,500 | ) | 4,300 | (27.7 | ) | |||||||||||
Net interest income after provision for loan
|
|||||||||||||||||||||||||
losses (net of settlements on derivatives (h) )
|
$ | 92,019 | 59,430 | 32,589 | 54.8 | % | $ | 174,202 | 110,281 | 63,921 | 58.0 | % |
|
(a)
|
Student loan interest, net of settlements on derivatives, decreased as a result of a decrease in the yield earned on student loans to 2.72% and 2.64% for the three and six months ended June 30, 2010, respectively, compared with 2.84% and 3.04% for the same periods in 2009 due to lower interest rates.
|
|
(b)
|
Consolidation rebate fees decreased due to the $50.0 million (0.3%) and $302.0 million (1.8%) decrease in the average consolidation portfolio for the three and six months ended June 30, 2010, respectively, compared with the same periods in 2009.
|
|
(c)
|
The amortization of loan premiums/discounts and deferred origination costs decreased as a result of loans purchased at a discount which has reduced the net costs being amortized.
|
|
(d)
|
Interest expense decreased as a result of a decrease in interest rates on the Company’s variable rate debt which lowered the Company’s cost of funds (excluding net derivative settlements) to 0.81% and 0.78% for the three and six months ended June 30, 2010, respectively, compared with 1.52% and 1.84% for the same periods in 2009.
|
|
(e)
|
Depending on the type of loan and when it was originated, the borrower rate on student loans is either fixed to term or is reset to an annual rate each July 1. As a result, for loans where the borrower rate is fixed to term, the Company may earn floor income for an extended period of time, which the Company refers to as fixed rate floor income. During the three months ended June 30, 2010 and 2009, loan interest income includes $31.1 million (net of settlements on derivatives of $4.3 million) and $37.1 million, respectively, of fixed rate floor. During the six months ended June 30, 2010 and 2009, loan interest income includes $66.3 million (net of settlements on derivatives of $8.1 million) and $67.3 million, respectively, of fixed rate floor. The high levels of fixed rate floor income earned during 2009 and 2010 are due to historically low interest rates.
|
|
(f)
|
Investment income decreased as a result of lower interest rates and a decrease in average cash held for the three and six months ended June 30, 2010 compared with the same periods in 2009.
|
|
(g)
|
The provision for loan losses represents the periodic expense of maintaining an allowance sufficient to absorb losses inherent in the Company's portfolio of loans. The provision for loan losses recognized by the Company was larger during the three and six months ended June 30, 2009 compared with the same periods in 2010, primarily due to the provision related to the Company's non-federally insured student loan portfolio. During 2009, the Company increased its allowance for non-federally insured loans due to management's projected performance of the portfolio in light of economic conditions. As of June 30, 2010, the Company's non-federally insured student loan portfolio, including those loans in repayment and loans delinquent, decreased from the same period a year ago.
The Company believes these items, as well as continued aging of the portfolio, decreased the need to record additional provision expense related to the Company's non-federally insured portfolio.
|
|
(h)
|
The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. Management has structured the majority of the Company’s derivative transactions with the intent that each is economically effective; however, the Company’s derivative instruments do not qualify for hedge accounting. Derivative settlements for each applicable period should be evaluated with the Company’s net interest income.
|
Carrying
|
Interest rate
|
|||||||
amount
|
range
|
Final maturity
|
||||||
Asset Generation and Management:
|
||||||||
Bonds and notes issued in asset-backed securitizations
|
$ | 21,590,024 | 0.30% - 6.90% |
05/01/11 - 11/25/43
|
||||
Department of Education Participation
|
1,949,130 | 0.71% |
10/15/10
|
|||||
FFELP warehouse facility
|
63,367 | 0.33% - 0.48% |
07/29/13
|
|||||
Department of Education Conduit
|
2,910,565 | 0.38% |
05/08/14
|
|||||
Other borrowings
|
25,936 | 0.35% - 5.10% |
11/14/10 - 11/01/15
|
|||||
26,539,022 | ||||||||
Unsecured Corporate Debt:
|
||||||||
Unsecured line of credit
|
691,500 | 0.85% |
05/08/12
|
|||||
Junior Subordinated Hybrid securities
|
198,250 | 7.40% |
09/15/61
|
|||||
889,750 | ||||||||
$ | 27,428,772 |
·
|
Satisfy unsecured debt obligations, specifically its unsecured line of credit
|
·
|
Satisfy debt obligations secured by student loan assets and related collateral
|
·
|
Fund 2009-2010 academic year FFELP Stafford and PLUS loan originations and FFELP student loan acquisitions from third parties
|
As of June 30, 2010
|
||||
Unsecured Corporate Debt:
|
||||
Unsecured line of credit - due May 2012
|
$ | 691,500 |
As of June 30, 2010
|
||||
Sources of primary liquidity:
|
||||
Cash and cash equivalents
|
$ | 274,761 | ||
Investments - trading securities
|
31,017 | |||
Unencumbered FFELP student loan assets
|
1,654 | |||
Unencumbered private student loan assets
|
127,141 | |||
Asset-backed security investments - Class B subordinated notes (a)
|
77,000 | |||
Asset-backed security investments (b)
|
187,625 | |||
Total sources of primary liquidity
|
$ | 699,198 |
|
(a)
|
As part of the Company’s issuance of asset-backed securitizations in March 2008 and May 2008, due to credit market conditions when these notes were issued, the Company purchased the Class B subordinated notes of $36 million (par value) and $41 million (par value), respectively. These notes are not included on the Company’s consolidated balance sheet. If the credit market conditions continue to improve, the Company anticipates selling these notes to third parties. 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 amount included in the table above is the par value of these subordinated notes and may not represent market value upon sale of the notes.
|
|
(b)
|
To date, the Company has repurchased $740.2 million of its own asset-backed securities (bonds and notes payable). For accounting purposes, these notes were effectively retired and are not included on the Company’s consolidated balance sheet. However, $187.6 million of these securities are 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 amount included in the table above is the par value of these notes and may not represent market value upon sale of the notes.
|
As of June 30, 2010
|
|||||
Carrying
|
|||||
amount
|
Final maturity
|
||||
Asset Generation and Management:
|
|||||
Bonds and notes issued in asset-backed securitizations
|
$ | 21,590,024 |
05/01/11 - 11/25/43
|
||
Department of Education Participation
|
1,949,130 |
10/15/10
|
|||
FFELP warehouse facility
|
63,367 |
07/29/13
|
|||
Department of Education Conduit
|
2,910,565 |
05/08/14
|
|||
Other borrowings
|
25,936 |
11/14/10 - 11/01/15
|
|||
$ | 26,539,022 |
|
(a)
|
The Company uses various assumptions, including prepayments and future interest rates, when preparing its cash flow forecast. These assumptions are further discussed below.
|
|
·
|
A minimum consolidated net worth
|
|
·
|
A minimum adjusted EBITDA to corporate debt interest (over the last four rolling quarters)
|
|
·
|
A limitation on subsidiary indebtedness
|
|
·
|
A limitation on the percentage of non-guaranteed loans in the Company’s portfolio
|
As of June 30, 2010
|
|||||||||||||||||||
Total
|
Less than 1 year
|
1 to 3 years
|
3 to 5 years
|
More than 5 years
|
|||||||||||||||
Bonds and notes payable
|
$ | 27,428,772 | 2,016,927 | 754,867 | 3,174,988 | 21,481,990 | |||||||||||||
Operating lease obligations (a)
|
18,783 | 5,906 | 9,112 | 3,761 | 4 | ||||||||||||||
Other
|
11,035 | 11,035 | — | — | — | ||||||||||||||
Total
|
$ | 27,458,590 | 2,033,868 | 763,979 | 3,178,749 | 21,481,994 |
|
(a)
|
The Company is committed under noncancelable operating leases for certain office and warehouse space and equipment. Operating lease obligations are presented net of approximately $2.4 million in sublease arrangements.
|
|
·
|
Interactive marketing
– Interactive marketing services revenue is derived primarily from fees which are earned through the delivery of qualified leads 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 lead or click is delivered to the customer provided that no significant obligations remain. From time to time, the Company may agree to credit certain leads 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.
For a portion of its interactive marketing revenue, the Company has agreements with providers of online media or traffic (“Publishers”) used in the generation of leads or clicks. The Company receives a fee from its customers and pays a fee to Publishers either on a cost per lead, cost per click, or cost per number of impressions basis. The Company is the primary obligor in the transaction. As a result, the fees paid by the Company’s customers are recognized as revenue and the fees paid to its Publishers are included in “cost to provide enrollment services” in the Company’s consolidated statements of income.
|
|
·
|
Publishing and editing services -
Revenue from the sale of print products is generally earned and recognized, net of estimated returns, upon shipment or delivery. Revenue from the sale of editing services is generally recognized upon completion of providing the service.
|
|
·
|
Resource centers and list marketing –
Resource centers and list marketing services includes the sale of subscription and performance based products and services, as well as list sales. Revenues from sales of subscription and performance based products and services are recognized ratably over the term of the contract. Subscription and performance based revenues received or receivable in advance of the delivery of services is included in deferred revenue. Revenue from the sale of lists is generally earned and recognized, net of estimated returns, upon delivery.
|
As of June 30, 2010
|
As of December 31, 2009
|
|||||||||||||||
Dollars
|
Percent
|
Dollars
|
Percent
|
|||||||||||||
Fixed-rate loan assets
|
$ | 8,147,384 | 30.7 | % | $ | 10,305,622 | 43.6 | % | ||||||||
Variable-rate loan assets
|
18,368,404 | 69.3 | 13,330,252 | 56.4 | ||||||||||||
Total
|
$ | 26,515,788 | 100.0 | % | $ | 23,635,874 | 100.0 | % | ||||||||
Fixed-rate debt instruments
|
$ | 198,250 | 0.7 | % | $ | 273,906 | 1.1 | % | ||||||||
Variable-rate debt instruments
|
27,230,522 | 99.3 | 24,531,383 | 98.9 | ||||||||||||
Total
|
$ | 27,428,772 | 100.0 | % | $ | 24,805,289 | 100.0 | % |
Fixed
|
Borrower/
lender
|
Estimated
variable
|
Balance of
assets earning fixed-rate
|
|||||||||
interest
|
weighted
|
conversion
|
floor income as of
|
|||||||||
rate range
|
average yield
|
rate (a)
|
June 30, 2010
|
|||||||||
3.0 - 3.49%
|
3.28 | % | 0.57 | % | $ | 1,366,463 | ||||||
3.5 - 3.99%
|
3.65 | % | 1.01 | % | 1,878,739 | |||||||
4.0 - 4.49%
|
4.20 | % | 1.56 | % | 1,488,709 | |||||||
4.5 - 4.99%
|
4.72 | % | 2.08 | % | 826,557 | |||||||
5.0 - 5.49%
|
5.24 | % | 2.60 | % | 539,173 | |||||||
5.5 - 5.99%
|
5.67 | % | 3.03 | % | 322,856 | |||||||
6.0 - 6.49%
|
6.19 | % | 3.55 | % | 378,205 | |||||||
6.5 - 6.99%
|
6.70 | % | 4.06 | % | 336,379 | |||||||
7.0 - 7.49%
|
7.17 | % | 4.53 | % | 116,100 | |||||||
7.5 - 7.99%
|
7.71 | % | 5.07 | % | 196,903 | |||||||
8.0 - 8.99%
|
8.16 | % | 5.52 | % | 442,787 | |||||||
> 9.0%
|
9.04 | % | 6.40 | % | 254,513 | |||||||
$ | 8,147,384 |
|
(a)
|
The estimated variable conversion rate is the estimated short-term interest rate at which loans would convert to variable rate. As of June 30, 2010, the short-term interest rate was 41 basis points.
|
Index
|
Frequency of Variable Resets
|
Assets
|
Debt outstanding that funded student loan assets (a)
|
|||||||
3 month H15 financial commercial paper (b)
|
Daily
|
$ | 25,393,568 | 1,949,130 | ||||||
3 month Treasury bill (c)
|
Varies
|
985,079 | — | |||||||
3 month LIBOR (d)
|
Quarterly
|
— | 20,338,114 | |||||||
Auction-rate or remarketing (e)
|
Varies
|
— | 1,251,910 | |||||||
Asset-backed commercial paper (f)
|
Varies
|
— | 2,973,932 | |||||||
Other (g)
|
160,375 | 25,936 | ||||||||
$ | 26,539,022 | 26,539,022 |
(a)
|
The Company has certain basis swaps outstanding in which the Company receives three-month LIBOR and pays one-month LIBOR plus or minus a spread as defined in the agreements. The Company entered into these derivative instruments to better match the interest rate characteristics on its student loan assets and the debt funding such assets. The following table summarizes these derivatives as of June 30, 2010:
|
Maturity
|
National Amounts
|
|||
2021
|
$ | 250,000 | ||
2023
|
1,250,000 | |||
2024
|
250,000 | |||
2028
|
100,000 | |||
2039
|
150,000 | |||
2040
|
200,000 | |||
$ | 2,200,000 |
|
(b)
|
The Company’s FFELP student loans earn interest based on the daily average H15 financial commercial paper index calculated on a fiscal quarter. The Company’s funding includes FFELP student loans under the Department’s Participation Program. The interest rate on the principal amount of participation interests outstanding under the Department’s Participation Program is based on a rate of commercial paper plus 50 basis points, which is set a quarter in arrears, while the earnings on the student loans is based primarily on the daily average H15 financial commercial paper index calculated on the current fiscal quarter.
|
|
(c)
|
The Company has used derivative instruments to hedge both the basis and repricing risk on certain student loans in which the Company earns interest based on a treasury bill rate that resets daily and are funded with debt indexed to primarily three-month LIBOR. To hedge these loans, the Company has entered into basis swaps in which the Company receives three-month LIBOR set discretely in advance and pays a weekly treasury bill rate plus a spread as defined in the agreement (“T-BILL/LIBOR Basis Swaps”). The following table summarizes these derivatives as of June 30, 2010:
|
Maturity
|
Notional Amount
|
|||
2011
|
$ | 225,000 | (1) | |
(1) These derivatives have forward effective start dates of October 2010 ($75 million), November 2010 ($75 million), and December 2010 ($75 million).
|
|
(d)
|
The Company has Euro-denominated notes that reprice on the EURIBOR index. The Company has entered into derivative instruments (cross-currency interest rate swaps) that convert the EURIBOR index to three-month LIBOR. As a result, these notes are reflected in the three-month LIBOR category in the above table. See “Foreign Currency Exchange Risk.”
|
|
(e)
|
The interest rates on certain of the Company's asset-backed securities are set and periodically reset via a "dutch auction" (“Auction Rate Securities”) or through a remarketing utilizing remarketing agents (“Variable Rate Demand Notes”). As of June 30, 2010, the Company is sponsor on $1.0 billion of Auction Rate Securities and $0.3 billion of Variable Rate Demand Notes.
|
|
(f)
|
Asset-backed commercial paper consists of $63.4 million funded in the Company’s FFELP warehouse facility and $2.9 billion funded through the Department’s Conduit Program. Funding for the Conduit Program is provided by the capital markets at a cost based on market rates.
|
|
(g)
|
Assets include restricted cash and investments and other assets. Debt outstanding includes other debt obligations secured by student loan assets and related collateral.
|
Three months ended June 30,
|
Six months ended June 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Settlements:
|
||||||||||||||||
Average/discrete basis swaps
|
$ | — | 1,040 | — | 11,062 | |||||||||||
1/3 basis swaps
|
80 | 6,657 | 221 | 17,401 | ||||||||||||
Interest rate swaps - floor income hedges
|
(4,286 | ) | (11 | ) | (8,143 | ) | (11 | ) | ||||||||
Interest rate swaps - unsecured debt hedges
|
(79 | ) | — | (79 | ) | — | ||||||||||
Cross-currency interest rate swaps
|
917 | 1,849 | 2,219 | 5,441 | ||||||||||||
Other
|
(9 | ) | — | (18 | ) | — | ||||||||||
Total settlements - (expense) income
|
$ | (3,377 | ) | 9,535 | (5,800 | ) | 33,893 |
Three months ended June 30, 2010
|
|||||||||||||||||||||||
Interest Rates
|
Asset and funding index mismatches
|
||||||||||||||||||||||
Change from increase
of 100 basis points
|
Change from increase
of 300 basis points
|
||||||||||||||||||||||
Increase of 10 basis points
|
Increase of 30 basis points
|
||||||||||||||||||||||
Dollar
|
Percent
|
Dollar
|
Percent
|
Dollar
|
Percent
|
Dollar
|
Percent
|
||||||||||||||||
Effect on earnings:
|
|||||||||||||||||||||||
Increase (decrease) in pre-tax net income
|
|||||||||||||||||||||||
before impact of derivative settlements
|
$ | (14,475 | ) | (18.1 | )% | $ | (24,962 | ) | (31.2 | )% | $ | (6,513 | ) | (8.1 | )% | $ | (19,540 | ) | (24.4 | )% | |||
Impact of derivative settlements
|
15,396 | 19.2 | 46,188 | 57.7 | — | — | — | — | |||||||||||||||
Increase (decrease) in net income before taxes
|
$ | 921 | 1.1 | % | $ | 21,226 | 26.5 | % | $ | (6,513 | ) | (8.1 | )% | $ | (19,540 | ) | (24.4 | )% | |||||
Increase (decrease) in basic and diluted
|
|||||||||||||||||||||||
earnings per share
|
$ | 0.01 | $ | 0.27 | $ | (0.08 | ) | $ | (0.25 | ) |
Three months ended June 30, 2009
|
|||||||||||||||||||||||||||||||
Interest Rates
|
Asset and funding index mismatches | ||||||||||||||||||||||||||||||
Change from increase
of 100 basis points
|
Change from increase
of 300 basis points
|
Increase of 10 basis points
|
Increase of 30 basis points
|
||||||||||||||||||||||||||||
Dollar
|
Percent
|
Dollar
|
Percent
|
Dollar
|
Percent
|
Dollar
|
Percent
|
||||||||||||||||||||||||
Effect on earnings:
|
|||||||||||||||||||||||||||||||
Increase (decrease) in pre-tax net income
|
|||||||||||||||||||||||||||||||
before impact of derivative settlements
|
$ | (23,826 | ) | (168.7 | ) % | $ | (39,217 | ) | (277.7 | ) % | $ | (6,403 | ) | (45.3 | ) % | $ | (19,210 | ) | (136.0 | ) % | |||||||||||
Impact of derivative settlements
|
41 | 0.3 | 123 | 0.9 | — | — | — | — | |||||||||||||||||||||||
Increase (decrease) in net income before taxes
|
$ | (23,785 | ) | (168.4 | ) % | $ | (39,094 | ) | (276.8 | ) % | $ | (6,403 | ) | (45.3 | ) % | $ | (19,210 | ) | (136.0 | ) % | |||||||||||
Increase (decrease) in basic and diluted
|
|||||||||||||||||||||||||||||||
earnings per share
|
$ | (0.28 | ) | $ | (0.47 | ) | $ | (0.08 | ) | $ | (0.23 | ) | |||||||||||||||||||
Six months ended June 30, 2010
|
|||||||||||||||||||||||||||||||
Change from increase
of 100 basis points
|
Change from increase
of 300 basis points
|
Asset and funding index mismatches
|
|||||||||||||||||||||||||||||
Dollar
|
Percent
|
Dollar
|
Percent
|
Increase of 10 basis points
|
Increase of 30 basis points
|
||||||||||||||||||||||||||
Effect on earnings:
|
|||||||||||||||||||||||||||||||
Increase (decrease) in pre-tax net income
|
|||||||||||||||||||||||||||||||
before impact of derivative settlements
|
$ | (30,117 | ) | (18.0 | ) % | $ | (51,316 | ) | (30.7 | ) % | $ | (12,480 | ) | (7.5 | ) % | $ | (37,439 | ) | (22.4 | ) % | |||||||||||
Impact of derivative settlements
|
27,764 | 16.6 | 83,293 | 49.9 | — | — | — | — | |||||||||||||||||||||||
Increase (decrease) in net income before taxes
|
$ | (2,353 | ) | (1.4 | ) % | $ | 31,977 | 19.2 | % | $ | (12,480 | ) | (7.5 | ) % | $ | (37,439 | ) | (22.4 | ) % | ||||||||||||
Increase (decrease) in basic and diluted
|
|||||||||||||||||||||||||||||||
earning per share
|
$ | (0.03 | ) | $ | 0.40 | $ | (0.16 | ) | $ | (0.47 | ) | ||||||||||||||||||||
Six months ended June 30, 2009
|
|||||||||||||||||||||||||||||||
Change from increase
of 100 basis points
|
Change from increase
of 300 basis points
|
Asset and funding index mismatches
|
|||||||||||||||||||||||||||||
Dollar
|
Percent
|
Dollar
|
Percent
|
Increase of 10 basis points
|
Increase of 30 basis points
|
||||||||||||||||||||||||||
Effect on earnings:
|
|||||||||||||||||||||||||||||||
Increase (decrease) in pre-tax net income
|
|||||||||||||||||||||||||||||||
before impact of derivative settlements
|
$ | (44,732 | ) | (81.1 | ) % | $ | (70,683 | ) | (128.1 | ) % | $ | (12,756 | ) | (23.1 | ) % | $ | (38,269 | ) | (69.4 | ) % | |||||||||||
Impact of derivative settlements
|
41 | 0.1 | 123 | 0.2 | — | — | — | — | |||||||||||||||||||||||
Increase (decrease) in net income before taxes
|
$ | (44,691 | ) | (81.0 | ) % | $ | (70,560 | ) | (127.9 | ) % | $ | (12,756 | ) | (23.1 | ) % | $ | (38,269 | ) | (69.4 | ) % | |||||||||||
Increase (decrease) in basic and diluted
|
|||||||||||||||||||||||||||||||
earning per share
|
$ | (0.55 | ) | $ | (0.87 | ) | $ | (0.16 | ) | $ | (0.47 | ) |
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Re-measurement of Euro Notes
|
$ | 93,401 | (63,865 | ) | 165,075 | (16,623 | ) | |||||||||
Change in fair value of
|
||||||||||||||||
cross-currency derivatives
|
(100,946 | ) | 41,209 | (160,021 | ) | (15,902 | ) | |||||||||
Total impact to statements of
|
||||||||||||||||
income - income (expense)
|
$ | (7,545 | ) | (22,656 | ) | 5,054 | (32,525 | ) |
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Change in fair value of derivatives
|
$ | (100,632 | ) | 29,852 | (168,201 | ) | (22,270 | ) | ||||||||
Foreign currency transaction adjustment (Euro Notes)
|
93,401 | (63,865 | ) | 165,075 | (16,623 | ) | ||||||||||
Derivative settlements, net
|
(3,377 | ) | 9,535 | (5,800 | ) | 33,893 | ||||||||||
Derivative market value and foreign currency
|
||||||||||||||||
adjustments and derivative settlements, net
|
$ | (10,608 | ) | (24,478 | ) | (8,926 | ) | (5,000 | ) |
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)
|
||||||||||||
April 1 - April 30, 2010
|
3,683 | $ | 19.87 | 1,477 | 6,656,165 | |||||||||||
May 1 - May 31, 2010
|
1,298 | 19.18 | 437 | 6,670,485 | ||||||||||||
June 1 - June 30, 2010
|
658,462 | 19.32 | 658,434 | 6,061,702 | ||||||||||||
Total
|
663,443 | $ | 19.33 | 660,348 |
|
(1)
|
The total number of shares includes: (i) shares purchased pursuant to the 2006 Plan discussed in footnote (2) below; (ii) shares owned and tendered by employees to satisfy tax withholding obligations on the vesting of restricted shares; and (iii) shares purchased pursuant to the 2006 ESLP discussed in footnote (3) below, of which there were none for the months of April, May, or June 2010. Shares of Class A common stock purchased pursuant to the 2006 Plan included 1,477 shares, 437 shares, and 658,434 shares in April, May, and June, respectively. Included in the shares repurchased pursuant to the 2006 plan were 1,477 shares, 437 shares, and 1,734 shares, purchased in April, May, and June, respectively, that had been issued to the Company’s 401(k) plan and allocated to employee participant accounts pursuant to the plan’s provisions for Company matching contributions in shares of Company stock, and were purchased by the Company from the plan pursuant to employee participant instructions to dispose of such shares. Shares of Class A common stock tendered by employees to satisfy tax withholding obligations included 2,206 shares, 861 shares, and 28 shares in April, May and June, respectively. Unless otherwise indicated, shares owned and tendered by employees to satisfy tax withholding obligations were purchased at the closing price of the Company’s shares on the date of vesting.
|
|
(2)
|
The Company’s Board of Directors authorized a stock repurchase program to repurchase up to a total of ten million shares of the Company’s Class A common stock (the “2006 Plan”). The 2006 Plan has an expiration date of May 24, 2012. To facilitate repurchases under the stock repurchase program, the Company has adopted a plan under Rule 10b5-1 promulgated by the Securities and Exchange Commission. Under the Rule 10b5-1 plan, repurchases are executed whenever the price and other conditions of the plan are met, which may be at a time when the Company would not otherwise repurchase shares due to the Company’s securities trading policy blackout periods and other restrictions.
|
|
(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 Company's 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.
|
|
(4)
|
The maximum number of shares that may yet be purchased under the plans is calculated below. 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.
|
As of
|
Maximum number of shares that may yet be purchased under the 2006 Plan
(A)
|
Approximate dollar value of shares that may yet be purchased under the 2006 ESLP
(B)
|
Closing price on the last trading day of the Company's Class A Common Stock
(C)
|
(B / C)
Approximate number of shares that may yet be purchased under the 2006 ESLP
(D)
|
(A + D)
Approximate number of shares that may yet be purchased under the 2006 Plan and 2006 ESLP
|
|||||||||||||||
April 30, 2010
|
4,830,013 | 36,450,000 | 19.96 | 1,826,152 | 6,656,165 | |||||||||||||||
May 31, 2010
|
4,829,576 | 36,450,000 | 19.80 | 1,840,909 | 6,670,485 | |||||||||||||||
June 30, 2010
|
4,171,142 | 36,450,000 | 19.28 | 1,890,560 | 6,061,702 |
|
·
|
declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment regarding, any of the Company’s 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 Hybrid Securities indenture, make any payment of principal of, or interest or premium, if any, on, or repay, repurchase, or redeem any of the Company’s debt securities that rank
pari passu
with or junior to the Hybrid Securities
|
|
·
|
make any guarantee payments regarding any guarantee by the Company of the subordinated debt securities of any of the Company’s subsidiaries if the guarantee ranks
pari passu
with or junior in interest to the Hybrid Securities
|
|
·
|
pay dividends or distributions in additional shares of the Company’s 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
|
|
·
|
purchase common stock for issuance pursuant to any employee benefit plans
|
|
10.1*
|
Student Loan Servicing Contract between the United States Department of Education and Nelnet Servicing, LLC.
|
|
31.1*
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer Michael S. Dunlap.
|
|
31.2*
|
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.
|
NELNET, INC. | |||
Date: August 9, 2010
|
By:
|
/s/ MICHAEL S. DUNLAP | |
Name: Michael S. Dunlap | |||
Title: Chairman and Chief Executive Officer | |||
By: | /s/ TERRY J. HEIMES | ||
Name: Terry J. Heimes | |||
Title: Chief Financial Officer | |||
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
4.
|
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
|
5.
|
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: August 9, 2010
|
By:
|
/s/ MICHAEL S. DUNLAP | |
Michael S. Dunlap | |||
Chairman and Chief Executive Officer | |||
Principal Executive Officer |
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
4.
|
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
|
5.
|
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: August 9, 2010 |
By:
|
/s/ TERRY J. HEIMES | |
Terry J. Heimes | |||
Chief Financial Officer | |||
Principal Financial Officer and Principal Accounting Officer |
|
1.
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
|
2.
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date: August 9, 2010
|
By:
|
/s/ MICHAEL S. DUNLAP | |
Name: Michael S. Dunlap | |||
Title: Chairman and Chief Executive Officer | |||
/s/ TERRY J. HEIMES | |||
Name: Terry J. Heimes | |||
Title: Chief Financial Officer |