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
(State or other jurisdiction of incorporation or organization)
|
84-0748903
(I.R.S. Employer Identification No.)
|
121 SOUTH 13TH STREET, SUITE 201
LINCOLN, NEBRASKA
(Address of principal executive offices)
|
68508
(Zip Code)
|
Item 1.
|
Financial Statements
|
2
|
||||||||
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
24
|
||||||||
Item 3.
|
Quantitative and Qualitative Disclosures about Market Risk
|
62
|
||||||||
Item 4.
|
Controls and Procedures
|
67
|
||||||||
PART II. OTHER INFORMATION
|
||||||||||
Item 1.
|
Legal Proceedings
|
68
|
||||||||
Item 1A.
|
Risk Factors
|
69
|
||||||||
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
69
|
||||||||
Item 5.
|
Other Information
|
70
|
||||||||
Item 6.
|
Exhibits
|
71
|
||||||||
Signatures
|
72
|
As of
|
As of
|
|||||||
March 31, 2011
|
December 31, 2010
|
|||||||
(unaudited)
|
||||||||
Assets:
|
||||||||
Student loans receivable (net of allowance for loan losses of
|
||||||||
$41,097 and $43,626 respectively)
|
$ | 23,536,415 | 23,948,014 | |||||
Student loans receivable - held for sale
|
— | 84,987 | ||||||
Cash and cash equivalents:
|
||||||||
Cash and cash equivalents - not held at a related party
|
8,915 | 6,952 | ||||||
Cash and cash equivalents - held at a related party
|
39,222 | 276,849 | ||||||
Total cash and cash equivalents
|
48,137 | 283,801 | ||||||
Investments - trading securities
|
37,719 | 43,236 | ||||||
Restricted cash and investments
|
796,229 | 668,757 | ||||||
Restricted cash - due to customers
|
63,292 | 88,528 | ||||||
Accrued interest receivable
|
308,484 | 318,152 | ||||||
Accounts receivable (net of allowance for doubtful accounts of
|
||||||||
$1,577 and $1,221, respectively)
|
52,812 | 52,614 | ||||||
Goodwill
|
117,118 | 117,118 | ||||||
Intangible assets, net
|
34,736 | 38,712 | ||||||
Property and equipment, net
|
31,440 | 30,573 | ||||||
Other assets
|
98,812 | 101,054 | ||||||
Fair value of derivative instruments
|
169,505 | 118,346 | ||||||
Total assets
|
$ | 25,294,699 | 25,893,892 | |||||
Liabilities:
|
||||||||
Bonds and notes payable
|
$ | 24,066,092 | 24,672,472 | |||||
Accrued interest payable
|
15,587 | 19,153 | ||||||
Other liabilities
|
181,335 | 191,017 | ||||||
Due to customers
|
63,292 | 88,528 | ||||||
Fair value of derivative instruments
|
13,026 | 16,089 | ||||||
Total liabilities
|
24,339,332 | 24,987,259 | ||||||
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 36,983,557 shares as of March 31,
|
||||||||
2011 and 36,846,353 shares as of December 31, 2010
|
370 | 368 | ||||||
Class B, convertible, $0.01 par value. Authorized 60,000,000 shares;
|
||||||||
issued and outstanding 11,495,377 shares as of March 31,
|
||||||||
2011 and December 31, 2010
|
115 | 115 | ||||||
Additional paid-in capital
|
73,502 | 76,263 | ||||||
Retained earnings
|
882,550 | 831,057 | ||||||
Employee notes receivable
|
(1,170 | ) | (1,170 | ) | ||||
Total shareholders' equity
|
955,367 | 906,633 | ||||||
Commitments and contingencies
|
||||||||
Total liabilities and shareholders' equity
|
$ | 25,294,699 | 25,893,892 |
Three months
|
||||||||
ended March 31,
|
||||||||
2011
|
2010
|
|||||||
Interest income:
|
||||||||
Loan interest
|
$ | 137,358 | 134,967 | |||||
Investment interest
|
726 | 1,001 | ||||||
Total interest income
|
138,084 | 135,968 | ||||||
Interest expense:
|
||||||||
Interest on bonds and notes payable
|
52,307 | 50,859 | ||||||
Net interest income
|
85,777 | 85,109 | ||||||
Less provision for loan losses
|
3,750 | 5,000 | ||||||
Net interest income after provision for loan losses
|
82,027 | 80,109 | ||||||
Other income (expense):
|
||||||||
Loan and guaranty servicing revenue
|
35,636 | 36,394 | ||||||
Tuition payment processing and campus commerce revenue
|
19,369 | 17,382 | ||||||
Enrollment services revenue
|
33,868 | 33,271 | ||||||
Software services revenue
|
4,777 | 4,344 | ||||||
Other income
|
6,492 | 7,260 | ||||||
Gain on sale of loans and debt repurchases
|
8,307 | 10,177 | ||||||
Derivative market value and foreign currency
|
||||||||
adjustments and derivative settlements, net
|
(3,036 | ) | 1,682 | |||||
Total other income
|
105,413 | 110,510 | ||||||
Operating expenses:
|
||||||||
Salaries and benefits
|
43,912 | 40,644 | ||||||
Cost to provide enrollment services
|
22,839 | 22,025 | ||||||
Depreciation and amortization
|
6,776 | 10,783 | ||||||
Restructure expense
|
— | 1,197 | ||||||
Other
|
26,105 | 29,055 | ||||||
Total operating expenses
|
99,632 | 103,704 | ||||||
Income before income taxes
|
87,808 | 86,915 | ||||||
Income tax expense
|
(32,928 | ) | (32,593 | ) | ||||
Net income
|
$ | 54,880 | 54,322 | |||||
Earnings per common share:
|
||||||||
Net earnings - basic
|
$ | 1.13 | 1.09 | |||||
Net earnings - diluted
|
$ | 1.13 | 1.08 | |||||
Dividends paid per common share
|
$ | 0.07 | 0.07 | |||||
Weighted average common shares outstanding:
|
||||||||
Basic
|
48,171,317 | 49,716,696 | ||||||
Diluted
|
48,363,035 | 49,912,589 |
Preferred
|
Common stock |
Class A
|
Class B
|
Additional
|
Employee
|
Total
|
|||||||||||||||||||||||||
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 December 31, 2009
|
— | 38,396,791 | 11,495,377 | $ | — | 384 | 115 | 109,359 | 676,154 | (1,449 | ) | 784,563 | |||||||||||||||||||
Comprehensive income:
|
|||||||||||||||||||||||||||||||
Net income
|
— | — | — | — | — | — | — | 54,322 | — | 54,322 | |||||||||||||||||||||
Cash dividend on Class A and Class B
common stock - $0.07 per share
|
— | — | — | — | — | — | — | (3,494 | ) | — | (3,494 | ) | |||||||||||||||||||
Issuance of common stock, net of forfeitures
|
— | 203,438 | — | — | 2 | — | 3,532 | — | — | 3,534 | |||||||||||||||||||||
Compensation expense for stock based awards
|
— | — | — | — | — | — | 325 | — | — | 325 | |||||||||||||||||||||
Repurchase of common stock
|
— | (12,936 | ) | — | — | — | — | (236 | ) | — | — | (236 | ) | ||||||||||||||||||
Reduction of employee stock notes receivable
|
— | — | — | — | — | — | — | — | 199 | 199 | |||||||||||||||||||||
Balance as of March 31, 2010
|
— | 38,587,293 | 11,495,377 | $ | — | 386 | 115 | 112,980 | 726,982 | (1,250 | ) | 839,213 | |||||||||||||||||||
Balance as of December 31, 2010
|
— | 36,846,353 | 11,495,377 | $ | — | 368 | 115 | 76,263 | 831,057 | (1,170 | ) | 906,633 | |||||||||||||||||||
Comprehensive income:
|
|||||||||||||||||||||||||||||||
Net income
|
— | — | — | — | — | — | — | 54,880 | — | 54,880 | |||||||||||||||||||||
Cash dividend on Class A and Class B
common stock - $0.07 per share
|
— | — | — | — | — | — | — | (3,387 | ) | — | (3,387 | ) | |||||||||||||||||||
Contingency payment related to business combination
|
— | — | — | — | — | — | (5,893 | ) | — | — | (5,893 | ) | |||||||||||||||||||
Issuance of common stock, net of forfeitures
|
— | 151,669 | — | — | 2 | — | 3,087 | — | — | 3,089 | |||||||||||||||||||||
Compensation expense for stock based awards
|
— | — | — | — | — | — | 355 | — | — | 355 | |||||||||||||||||||||
Repurchase of common stock
|
— | (14,465 | ) | — | — | — | — | (310 | ) | — | — | (310 | ) | ||||||||||||||||||
Balance as of March 31, 2011
|
— | 36,983,557 | 11,495,377 | $ | — | 370 | 115 | 73,502 | 882,550 | (1,170 | ) | 955,367 |
Three months ended March 31,
|
||||||||
2011
|
2010
|
|||||||
Net income
|
$ | 54,880 | 54,322 | |||||
Adjustments to reconcile income to net cash provided by operating
activities, net of business acquisition:
|
||||||||
Depreciation and amortization, including loan premiums/discount
and deferred origination costs
|
18,964 | 29,156 | ||||||
Provision for loan losses
|
3,750 | 5,000 | ||||||
Derivative market value adjustment
|
(66,450 | ) | 67,570 | |||||
Foreign currency transaction adjustment
|
65,334 | (71,675 | ) | |||||
Proceeds to terminate and/or amend derivative instruments
|
12,369 | 855 | ||||||
Payments to terminate and/or amend derivative instruments
|
(141 | ) | — | |||||
Gain on sale of loans
|
(1,345 | ) | — | |||||
Gain from debt repurchases
|
(6,962 | ) | (10,177 | ) | ||||
Change in investments - trading securities, net
|
5,517 | (52,899 | ) | |||||
Deferred income tax expense
|
100 | 7,509 | ||||||
Non-cash compensation expense
|
557 | 523 | ||||||
Other non-cash items
|
(189 | ) | 254 | |||||
Decrease (increase) in accrued interest receivable
|
9,668 | (6,929 | ) | |||||
Increase in accounts receivable
|
(198 | ) | (18,661 | ) | ||||
Decrease (increase) in other assets
|
1,016 | (464 | ) | |||||
Decrease in accrued interest payable
|
(3,566 | ) | (3,017 | ) | ||||
(Decrease) increase in other liabilities
|
(11,637 | ) | 1,319 | |||||
Net cash provided by operating activities
|
81,667 | 2,686 | ||||||
Cash flows from investing activities, net of business acquisition:
|
||||||||
Originations and purchases of student loans, including loan
premiums/discounts and deferred origination costs
|
(235,599 | ) | (1,027,883 | ) | ||||
Purchases of student loans, including loan premiums, from a related party
|
(29 | ) | (535,907 | ) | ||||
Net proceeds from student loan repayments, claims,
capitalized interest, participations, and other
|
630,606 | 615,431 | ||||||
Proceeds from sale of student loans
|
95,131 | 20,032 | ||||||
Purchases of property and equipment, net
|
(2,992 | ) | (2,883 | ) | ||||
Increase in restricted cash and investments, net
|
(127,472 | ) | (102,366 | ) | ||||
Business acquisitions, net of cash acquired, including contingency payments
|
(7,193 | ) | (3,000 | ) | ||||
Net cash provided by (used in) investing activities
|
352,452 | (1,036,576 | ) | |||||
Cash flows from financing activities:
|
||||||||
Payments on bonds and notes payable
|
(1,090,797 | ) | (1,028,622 | ) | ||||
Proceeds from issuance of bonds and notes payable
|
533,097 | 2,061,893 | ||||||
Payments on bonds payable due to a related party
|
(107,050 | ) | — | |||||
Payments of debt issuance costs
|
(1,460 | ) | (4,069 | ) | ||||
Dividends paid
|
(3,387 | ) | (3,494 | ) | ||||
Repurchases of common stock
|
(310 | ) | (236 | ) | ||||
Proceeds from issuance of common stock
|
124 | 117 | ||||||
Payments received on employee stock notes receivable
|
— | 199 | ||||||
Net cash (used in) provided by financing activities
|
(669,783 | ) | 1,025,788 | |||||
Net decrease in cash and cash equivalents
|
(235,664 | ) | (8,102 | ) | ||||
Cash and cash equivalents, beginning of period
|
283,801 | 338,181 | ||||||
Cash and cash equivalents, end of period
|
$ | 48,137 | 330,079 | |||||
Supplemental disclosures of cash flow information:
|
||||||||
Interest paid
|
$ | 53,674 | 49,777 | |||||
Income taxes paid, net of refunds
|
$ | 32,293 | 25,123 |
·
|
Reclassifying “professional and other services,” “occupancy and communications,” “postage and distribution,” “advertising and marketing,” and “trustee and other debt related fees” to “other” operating expenses.
|
·
|
Reclassifying student list amortization, which was previously included in “advertising and marketing,” to “depreciation and amortization.”
|
As of March 31, 2011
|
As of December 31, 2010
|
|||||||||||
Held for investment
|
Held for investment
|
Held for sale (a)
|
||||||||||
Federally insured loans
|
$ | 23,367,707 | 23,757,699 | — | ||||||||
Non-federally insured loans
|
23,489 | 26,370 | 84,987 | |||||||||
23,391,196 | 23,784,069 | 84,987 | ||||||||||
Unamortized loan premiums/discounts and deferred origination costs, net
|
186,316 | 207,571 | — | |||||||||
Allowance for loan losses – federally insured loans
|
(31,553 | ) | (32,908 | ) | — | |||||||
Allowance for loan losses – non-federally insured loans
|
(9,544 | ) | (10,718 | ) | — | |||||||
$ | 23,536,415 | 23,948,014 | 84,987 | |||||||||
Allowance for federally insured loans as a percentage of such loans
|
0.14 | % | 0.14 | % | ||||||||
Allowance for non-federally insured loans as a percentage of such loans
|
40.63 | % | 40.64 | % |
(a)
|
On January 13, 2011, the Company sold a portfolio of non-federally insured loans for proceeds of $91.3 million (100% of par value). The Company retained credit risk related to this portfolio and will pay cash to purchase back any loans which become 60 days delinquent. As of December 31, 2010, the Company classified this portfolio as held for sale and the loans were carried at fair value.
|
Three months ended March 31,
|
||||||||
2011
|
2010
|
|||||||
Balance at beginning of period
|
$ | 43,626 | 50,887 | |||||
Provision for loan losses:
|
||||||||
Federally insured loans
|
3,500 | 4,000 | ||||||
Non-federally insured loans
|
250 | 1,000 | ||||||
Total provision for loan losses
|
3,750 | 5,000 | ||||||
Charge-offs:
|
||||||||
Federally insured loans
|
(4,855 | ) | (4,068 | ) | ||||
Non-federally insured loans
|
(994 | ) | (1,380 | ) | ||||
Total charge-offs
|
(5,849 | ) | (5,448 | ) | ||||
Recoveries:
|
||||||||
Non-federally insured loans
|
370 | 251 | ||||||
Total recoveries
|
370 | 251 | ||||||
Purchase (sale) of federally insured loans, net
|
— | 710 | ||||||
Purchase (sale) of non-federally insured loans, net
|
(800 | ) | (2,000 | ) | ||||
Balance at end of period
|
$ | 41,097 | 49,400 | |||||
Allocation of the allowance for loan losses:
|
||||||||
Federally insured loans
|
$ | 31,553 | 30,744 | |||||
Non-federally insured loans
|
9,544 | 18,656 | ||||||
Total allowance for loan losses
|
$ | 41,097 | 49,400 | |||||
Allowance for federally insured loans as a percentage of such loans
|
0.14 | % | 0.13 | % | ||||
Allowance for non-federally insured loans as a percentage of such loans
|
40.63 | % | 13.43 | % |
Three months ended March 31,
|
||||||||
2011
|
2010
|
|||||||
Beginning balance
|
$ | 12,600 | 10,600 | |||||
Estimated repurchase obligation related to loans sold, net
|
6,876 | - | ||||||
Estimated repurchase obligation related to loans participated, net
|
194 | 2,000 | ||||||
Ending balance
|
$ | 19,670 | 12,600 |
As of March 31, 2011
|
As of December 31, 2010
|
|||||||||||||||
Dollars
|
Percent
|
Dollars
|
Percent
|
|||||||||||||
Federally Insured Loans:
|
||||||||||||||||
Loans in-school/grace/deferment (a)
|
$ | 4,332,130 | $ | 4,358,616 | ||||||||||||
Loans in forebearance (b)
|
3,086,292 | 2,984,869 | ||||||||||||||
Loans in repayment status:
|
||||||||||||||||
Loans current
|
13,933,107 | 87.3 | % | 14,309,480 | 87.2 | % | ||||||||||
Loans delinquent 31-60 days (c)
|
595,386 | 3.7 | 794,140 | 4.8 | ||||||||||||
Loans delinquent 61-90 days (c)
|
392,008 | 2.5 | 306,853 | 1.9 | ||||||||||||
Loans delinquent 91 days or greater (d)
|
1,028,784 | 6.5 | 1,003,741 | 6.1 | ||||||||||||
Total loans in repayment
|
15,949,285 | 100.0 | % | 16,414,214 | 100.0 | % | ||||||||||
Total federally insured loans
|
$ | 23,367,707 | $ | 23,757,699 | ||||||||||||
Non-Federally Insured Loans:
|
||||||||||||||||
Loans in-school/grace/deferment (a)
|
$ | 3,069 | $ | 3,500 | ||||||||||||
Loans in forebearance (b)
|
239 | 292 | ||||||||||||||
Loans in repayment status:
|
||||||||||||||||
Loans current
|
16,564 | 82.1 | % | 16,679 | 73.9 | % | ||||||||||
Loans delinquent 31-60 days (c)
|
363 | 1.8 | 1,546 | 6.8 | ||||||||||||
Loans delinquent 61-90 days (c)
|
692 | 3.4 | 1,163 | 5.2 | ||||||||||||
Loans delinquent 91 days or greater
|
2,562 | 12.7 | 3,190 | 14.1 | ||||||||||||
Total loans in repayment
|
20,181 | 100.0 | % | 22,578 | 100.0 | % | ||||||||||
Total non-federally insured loans
|
$ | 23,489 | $ | 26,370 | ||||||||||||
(a)
|
Loans for borrowers who still may be attending school or engaging in other permitted educational activities and are not yet required to make payments on the loans,
e.g.
, residency periods for medical students or a grace period for bar exam preparation for law students.
|
(b)
|
Loans for borrowers who have temporarily ceased making full payments due to hardship or other factors, according to a schedule approved by the servicer consistent with the established loan program servicing procedures and policies.
|
(c)
|
The period of delinquency is based on the number of days scheduled payments are contractually past due and relate to repayment loans, that is, receivables not charged off, and not in school, grace, deferment, or forbearance.
|
(d)
|
Loans delinquent 91 days or greater include federally insured loans in claim status, which are loans that have gone into default and have been submitted to the guaranty agency.
|
As of March 31, 2011
|
|||||||||
Carrying
|
Interest rate
|
||||||||
amount
|
range
|
Final maturity
|
|||||||
Variable-rate bonds and notes (a):
|
|||||||||
Bonds and notes based on indices
|
$ | 20,124,373 | 0.32% - 6.90% |
5/26/14 - 7/27/48
|
|||||
Bonds and notes based on auction or remarketing
|
858,375 | 0.23% - 1.51% |
5/1/11 - 7/1/43
|
||||||
Total variable-rate bonds and notes
|
20,982,748 | ||||||||
Commercial paper - FFELP warehouse facility
|
257,121 | 0.28% - 0.32% |
7/29/13
|
||||||
Department of Education Conduit
|
2,585,955 | 0.32% |
5/8/14
|
||||||
Unsecured line of credit
|
125,000 | 0.69% |
5/8/12
|
||||||
Unsecured debt - Junior Subordinated Hybrid Securities
|
100,697 | 7.40% |
9/15/61
|
||||||
Other borrowings
|
14,571 | 3.56% - 5.10% |
11/14/11 - 11/11/15
|
||||||
$ | 24,066,092 |
As of December 31, 2010
|
|||||||||
Carrying
|
Interest rate
|
||||||||
amount
|
range
|
Final maturity
|
|||||||
Variable-rate bonds and notes (a):
|
|||||||||
Bonds and notes based on indices
|
$ | 20,170,217 | 0.30% - 6.90% |
5/26/14 - 7/27/48
|
|||||
Bonds and notes based on auction or remarketing
|
944,560 | 0.24% - 1.51% |
5/1/11 - 7/1/43
|
||||||
Total variable-rate bonds and notes
|
21,114,777 | ||||||||
Commercial paper - FFELP warehouse facility
|
108,381 | 0.29% - 0.35% |
7/29/13
|
||||||
Department of Education Conduit
|
2,702,345 | 0.31% |
5/8/14
|
||||||
Unsecured line of credit
|
450,000 | 0.79% |
5/8/12
|
||||||
Unsecured debt - Junior Subordinated Hybrid Securities
|
163,255 | 7.40% |
9/15/61
|
||||||
Related party debt
|
107,050 | 0.53% |
5/20/11
|
||||||
Other borrowings
|
26,664 | 0.26% - 5.10% |
1/1/11 - 11/11/15
|
||||||
$ | 24,672,472 |
(a)
|
Issued in asset-backed securitizations
|
·
|
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 March 31,
|
||||||||
2011
|
2010
|
|||||||
Gain on sale of loans
|
$ | 1,345 | — | |||||
Gain from debt repurchases (a)
|
6,962 | 10,177 | ||||||
$ | 8,307 | 10,177 |
(a)
|
The activity included in “Gain from debt repurchases” is detailed below.
|
Three months ended March 31, 2011
|
Three months ended March 31, 2010
|
|||||||||||||||||||||||
Notional amount
|
Purchase price
|
Gain
|
Notional amount
|
Purchase price
|
Gain
|
|||||||||||||||||||
Unsecured debt - Junior Subordinated Hybrid Securities
|
$ | 62,558 | 55,651 | 6,907 | — | — | — | |||||||||||||||||
Asset-backed securities (1)
|
600 | 545 | 55 | 274,250 | 264,073 | 10,177 | ||||||||||||||||||
$ | 63,158 | 56,196 | 6,962 | 274,250 | 264,073 | 10,177 |
(1)
|
For accounting purposes, the asset-backed securities repurchased by the Company are effectively retired and are not included on the Company’s consolidated balance sheet. However, as of March 31, 2011, the Company has purchased a cumulative amount of $61.7 million of these securities that remain legally outstanding at the trust level and the Company could sell these notes to third parties or redeem the notes at par as cash is generated by the trust estate. Upon a sale to third parties, the Company would obtain cash proceeds equal to the market value of the notes on the date of such sale. The par value of these notes ($61.7 million as of March 31, 2011) may not represent market value of such securities.
|
As of March 31, 2011
|
||||||||
Weighted
|
||||||||
average fixed
|
||||||||
Notional
|
rate paid by
|
|||||||
Maturity
|
Amount
|
the Company (a)
|
||||||
2011
|
$ | 3,800,000 | 0.54 | % | ||||
2012
|
950,000 | 1.08 | ||||||
2013
|
650,000 | 1.07 | ||||||
2015
|
100,000 | 2.26 | ||||||
2020
|
50,000 | 3.23 | ||||||
$ | 5,550,000 | 0.75 | % |
As of December 31, 2010
|
||||||
Weighted
|
||||||
average fixed
|
||||||
Notional
|
rate paid by
|
|||||
Maturity
|
Amount
|
the Company (a)
|
||||
2011
|
$ | 4,300,000 | 0.53 | % | ||
2012
|
3,950,000 | 0.67 | ||||
2013
|
650,000 | 1.07 | ||||
2015
|
100,000 | 2.26 | ||||
2020
|
50,000 | 3.23 | ||||
$ | 9,050,000 | 0.66 |
%
|
|||
(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)
|
||||
$ | 100,000 | 4.27 | % |
(a)
|
The effective start date on $75 million (notional amount) of the derivatives outstanding is March 2012 with a maturity date of September 29, 2036. $25 million (notional amount) of the derivatives outstanding are cancelable on September 29, 2011 at the Company’s discretion. If this one time option to cancel is not exercised by the Company, the maturity date will be September 29, 2036.
|
(b)
|
For all interest rate derivatives, the Company receives discrete three-month LIBOR.
|
Three months ended March 31,
|
||||||||
2011
|
2010
|
|||||||
Re-measurement of Euro Notes
|
$ | (65,334 | ) | 71,675 | ||||
Change in fair value of cross currency interest rate swaps
|
62,532 | (59,075 | ) | |||||
Total impact to statements of income - income (expense)
|
$ | (2,802 | ) | 12,600 |
Fair value of asset derivatives
|
Fair value of liability derivatives
|
|||||||||||||||
As of March 31, 2011
|
As of December 31, 2010
|
As of March 31, 2011
|
As of December 31, 2010
|
|||||||||||||
1:3 basis swaps
|
$ | 6,554 | 10,489 | 319 | 44 | |||||||||||
T-Bill/LIBOR basis swaps
|
— | — | 172 | 201 | ||||||||||||
Interest rate swaps - floor income hedges
|
3,361 | 10,569 | 12,517 | 15,372 | ||||||||||||
Interest rate swaps - hybrid debt hedges
|
2,109 | 1,132 | — | 470 | ||||||||||||
Cross-currency interest rate swaps
|
157,450 | 94,918 | — | — | ||||||||||||
Other
|
31 | 1,238 | 18 | 2 | ||||||||||||
Total
|
$ | 169,505 | 118,346 | 13,026 | 16,089 |
Three months ended March 31,
|
||||||||
Derivatives not designated as hedging
|
2011
|
2010
|
||||||
Settlements:
|
||||||||
1:3 basis swaps
|
$ | 208 | 131 | |||||
T-Bill/LIBOR basis swaps
|
(129 | ) | — | |||||
Interest rate swaps - floor income hedges
|
(6,218 | ) | (3,856 | ) | ||||
Interest rate swaps - hybrid debt hedges
|
(246 | ) | — | |||||
Cross-currency interest rate swaps
|
2,109 | 1,302 | ||||||
Other
|
124 | — | ||||||
Total settlements - (expense) income
|
(4,152 | ) | (2,423 | ) | ||||
Change in fair value:
|
||||||||
1:3 basis swaps
|
(4,210 | ) | (546 | ) | ||||
T-Bill/LIBOR basis swaps
|
29 | 45 | ||||||
Interest rate swaps - floor income hedges
|
6,395 | (7,538 | ) | |||||
Interest rate swaps - hybrid debt hedges
|
1,448 | — | ||||||
Cross-currency interest rate swaps
|
62,532 | (59,075 | ) | |||||
Other
|
256 | (456 | ) | |||||
Total change in fair value - (expense) income
|
66,450 | (67,570 | ) | |||||
Re-measurement of Euro Notes (foreign currency
|
||||||||
transaction adjustment) - (expense) income
|
(65,334 | ) | 71,675 | |||||
Derivative market value and foreign currency adjustments
|
||||||||
and derivative settlements - (expense) income
|
$ | (3,036 | ) | 1,682 |
6.
|
Investments
|
7.
|
Intangible Assets
|
Weighted
|
|||||||||||
average
|
|||||||||||
remaining
|
|||||||||||
useful life as of
|
As of
|
As of
|
|||||||||
March 31,
|
March 31,
|
December 31,
|
|||||||||
2011 (months)
|
2011
|
2010
|
|||||||||
Amortizable intangible assets:
|
|||||||||||
Customer relationships (net of accumulated amortization of $52,479
|
|||||||||||
and $49,743, respectively)
|
71 | $ | 25,840 | 28,576 | |||||||
Computer software (net of accumulated amortization of $3,079
|
|||||||||||
and $2,419, respectively)
|
22 | 4,839 | 5,499 | ||||||||
Trade names (net of accumulated amortization of $7,536 and
|
|||||||||||
$6,956, respectively)
|
21 | 4,057 | 4,637 | ||||||||
Total - amortizable intangible assets
|
59 | $ | 34,736 | 38,712 |
2011 (April 1 - December 31)
|
$ | 11,808 | ||
2012
|
15,269 | |||
2013
|
2,024 | |||
2014
|
1,298 | |||
2015
|
925 | |||
2016 and thereafter
|
3,412 | |||
$ | 34,736 |
8.
|
Goodwill
|
Student Loan and Guaranty Servicing
|
$
|
8,596
|
||
Tuition Payment Processing and Campus Commerce
|
58,086
|
|||
Enrollment Services
|
8,553
|
|||
Asset Generation and Management
|
41,883
|
|||
$
|
117,118
|
Three months ended March 31,
|
||||||||
2011
|
2010
|
|||||||
Net income attributable to Nelnet, Inc.
|
$ | 54,880 | 54,322 | |||||
Less earnings allocated to unvested restricted stockholders
|
346 | 339 | ||||||
Net income available to common stockholders
|
$ | 54,534 | 53,983 | |||||
Weighted average common shares outstanding - basic
|
48,171,317 | 49,716,696 | ||||||
Dilutive effect of the assumed vesting of restricted stock awards
|
191,718 | 195,893 | ||||||
Weighted average common shares outstanding - diluted
|
48,363,035 | 49,912,589 | ||||||
Basic earnings per common share
|
$ | 1.13 | 1.09 | |||||
Diluted earnings per common share
|
$ | 1.13 | 1.08 |
·
|
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
|
·
|
Income earned on certain investment activities
|
·
|
Interest expense incurred on unsecured debt transactions
|
·
|
Other products and service offerings that are not considered operating segments
|
Three months ended March 31, 2011
|
|||||||||||||||||||||||||||||||
Fee-Based
|
|||||||||||||||||||||||||||||||
Tuition
|
|||||||||||||||||||||||||||||||
Student
|
Payment
|
||||||||||||||||||||||||||||||
Loan
|
Processing
|
Asset
|
Corporate
|
||||||||||||||||||||||||||||
and
|
and |
Total
|
Generation
|
Activity
|
Eliminations
|
Base |
Adjustments
|
GAAP
|
|||||||||||||||||||||||
Guaranty
|
Campus
|
Enrollment
|
Fee-
|
and
|
and
|
and
|
net
|
to GAAP
|
Results of
|
||||||||||||||||||||||
Servicing
|
Commerce
|
Services
|
Based
|
Management
|
Overhead
|
Reclassifications
|
income
|
Results
|
Operations
|
||||||||||||||||||||||
Total interest income
|
$ | 15 | 6 | — | 21 | 137,639 | 1,146 | (722 | ) | 138,084 | — | 138,084 | |||||||||||||||||||
Interest expense
|
— | — | — | — | 49,716 | 3,313 | (722 | ) | 52,307 | — | 52,307 | ||||||||||||||||||||
Net interest income (loss)
|
15 | 6 | — | 21 | 87,923 | (2,167 | ) | — | 85,777 | — | 85,777 | ||||||||||||||||||||
Less provision for loan losses
|
— | — | — | — | 3,750 | — | — | 3,750 | — | 3,750 | |||||||||||||||||||||
Net interest income (loss) after provision for loan losses
|
15 | 6 | — | 21 | 84,173 | (2,167 | ) | — | 82,027 | — | 82,027 | ||||||||||||||||||||
Other income (expense):
|
|||||||||||||||||||||||||||||||
Loan and guaranty servicing revenue
|
35,636 | — | — | 35,636 | — | — | — | 35,636 | — | 35,636 | |||||||||||||||||||||
Intersegment servicing revenue
|
17,857 | — | — | 17,857 | — | — | (17,857 | ) | — | — | — | ||||||||||||||||||||
Tuition payment processing and campus commerce revenue
|
— | 19,369 | — | 19,369 | — | — | — | 19,369 | — | 19,369 | |||||||||||||||||||||
Enrollment services revenue
|
— | — | 33,868 | 33,868 | — | — | — | 33,868 | — | 33,868 | |||||||||||||||||||||
Software services revenue
|
4,777 | — | — | 4,777 | — | — | — | 4,777 | — | 4,777 | |||||||||||||||||||||
Other income
|
— | — | — | — | 4,136 | 2,356 | — | 6,492 | — | 6,492 | |||||||||||||||||||||
Gain on sale of loans and debt repurchases
|
— | — | — | — | 1,400 | 6,907 | — | 8,307 | — | 8,307 | |||||||||||||||||||||
Derivative market value and foreign currency adjustments
|
— | — | — | — | — | — | — | — | 1,116 | 1,116 | |||||||||||||||||||||
Derivative settlements, net
|
— | — | — | — | (4,038 | ) | (114 | ) | — | (4,152 | ) | — | (4,152 | ) | |||||||||||||||||
Total other income (expense)
|
58,270 | 19,369 | 33,868 | 111,507 | 1,498 | 9,149 | (17,857 | ) | 104,297 | 1,116 | 105,413 | ||||||||||||||||||||
Operating expenses:
|
|||||||||||||||||||||||||||||||
Salaries and benefits
|
25,388 | 7,152 | 6,257 | 38,797 | 778 | 4,337 | — | 43,912 | — | 43,912 | |||||||||||||||||||||
Cost to provide enrollment services
|
— | — | 22,839 | 22,839 | — | — | — | 22,839 | — | 22,839 | |||||||||||||||||||||
Depreciation and amortization
|
1,306 | 336 | 813 | 2,455 | — | 345 | — | 2,800 | 3,976 | 6,776 | |||||||||||||||||||||
Restructure expense
|
— | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||
Other
|
14,579 | 2,634 | 2,318 | 19,531 | 1,538 | 5,036 | — | 26,105 | — | 26,105 | |||||||||||||||||||||
Intersegment expenses, net
|
1,369 | 1,093 | 818 | 3,280 | 18,147 | (3,570 | ) | (17,857 | ) | — | — | — | |||||||||||||||||||
Total operating expenses
|
42,642 | 11,215 | 33,045 | 86,902 | 20,463 | 6,148 | (17,857 | ) | 95,656 | 3,976 | 99,632 | ||||||||||||||||||||
Income (loss) before income taxes and corporate overhead allocation
|
15,643 | 8,160 | 823 | 24,626 | 65,208 | 834 | — | 90,668 | (2,860 | ) | 87,808 | ||||||||||||||||||||
Corporate overhead allocation
|
(753 | ) | (251 | ) | (251 | ) | (1,255 | ) | (1,255 | ) | 2,510 | — | — | — | — | ||||||||||||||||
Income (loss) before income taxes
|
14,890 | 7,909 | 572 | 23,371 | 63,953 | 3,344 | — | 90,668 | (2,860 | ) | 87,808 | ||||||||||||||||||||
Income tax (expense) benefit
|
(5,658 | ) | (3,005 | ) | (217 | ) | (8,880 | ) | (24,302 | ) | (833 | ) | — | (34,015 | ) | 1,087 | (32,928 | ) | |||||||||||||
Net income (loss)
|
$ | 9,232 | 4,904 | 355 | 14,491 | 39,651 | 2,511 | — | 56,653 | (1,773 | ) | 54,880 |
Three months ended March 31, 2010
|
|||||||||||||||||||||||||||||||
Fee-Based
|
|||||||||||||||||||||||||||||||
Tuition
|
|||||||||||||||||||||||||||||||
Student
|
Payment
|
||||||||||||||||||||||||||||||
Loan
|
Processing
|
Asset
|
Corporate
|
||||||||||||||||||||||||||||
and
|
and |
Total
|
Generation
|
Activity
|
Eliminations
|
Base |
Adjustments
|
GAAP
|
|||||||||||||||||||||||
Guaranty
|
Campus
|
Enrollment
|
Fee-
|
and
|
and
|
and
|
net
|
to GAAP
|
Results of
|
||||||||||||||||||||||
Servicing
|
Commerce
|
Services
|
Based
|
Management
|
Overhead
|
Reclassifications
|
income
|
Results
|
Operations
|
||||||||||||||||||||||
Total interest income
|
$ | 13 | 8 | — | 21 | 135,262 | 1,598 | (913 | ) | 135,968 | — | 135,968 | |||||||||||||||||||
Interest expense
|
— | — | — | — | 45,656 | 6,116 | (913 | ) | 50,859 | — | 50,859 | ||||||||||||||||||||
Net interest income (loss)
|
13 | 8 | — | 21 | 89,606 | (4,518 | ) | — | 85,109 | — | 85,109 | ||||||||||||||||||||
Less provision for loan losses
|
— | — | — | — | 5,000 | — | — | 5,000 | — | 5,000 | |||||||||||||||||||||
Net interest income (loss) after provision for loan losses
|
13 | 8 | — | 21 | 84,606 | (4,518 | ) | — | 80,109 | — | 80,109 | ||||||||||||||||||||
Other income (expense):
|
|||||||||||||||||||||||||||||||
Loan and guaranty servicing revenue
|
36,648 | — | — | 36,648 | — | (254 | ) | — | 36,394 | — | 36,394 | ||||||||||||||||||||
Intersegment servicing revenue
|
21,580 | — | — | 21,580 | — | — | (21,580 | ) | — | — | — | ||||||||||||||||||||
Tuition payment processing and campus commerce revenue
|
— | 17,382 | — | 17,382 | — | — | — | 17,382 | — | 17,382 | |||||||||||||||||||||
Enrollment services revenue
|
— | — | 33,271 | 33,271 | — | — | — | 33,271 | — | 33,271 | |||||||||||||||||||||
Software services revenue
|
4,344 | — | — | 4,344 | — | — | — | 4,344 | — | 4,344 | |||||||||||||||||||||
Other income
|
224 | — | — | 224 | 4,768 | 2,268 | — | 7,260 | — | 7,260 | |||||||||||||||||||||
Gain on sale of loans and debt repurchases
|
— | — | — | — | 10,177 | — | — | 10,177 | — | 10,177 | |||||||||||||||||||||
Derivative market value and foreign currency adjustments
|
— | — | — | — | — | — | — | — | 4,105 | 4,105 | |||||||||||||||||||||
Derivative settlements, net
|
— | — | — | — | (2,423 | ) | — | — | (2,423 | ) | — | (2,423 | ) | ||||||||||||||||||
Total other income (expense) | 62,796 | 17,382 | 33,271 | 113,449 | 12,522 | 2,014 | (21,580 | ) | 106,405 | 4,105 | 110,510 | ||||||||||||||||||||
Operating expenses:
|
|||||||||||||||||||||||||||||||
Salaries and benefits
|
23,582 | 6,618 | 6,071 | 36,271 | 1,358 | 4,117 | (1,102 | ) | 40,644 | — | 40,644 | ||||||||||||||||||||
Cost to provide enrollment services
|
— | — | 22,025 | 22,025 | — | — | — | 22,025 | — | 22,025 | |||||||||||||||||||||
Depreciation and amortization
|
1,019 | 333 | 2,504 | 3,856 | 3 | 408 | — | 4,267 | 6,516 | 10,783 | |||||||||||||||||||||
Restructure expense
|
1,205 | — | — | 1,205 | — | (8 | ) | — | 1,197 | — | 1,197 | ||||||||||||||||||||
Other
|
14,500 | 2,108 | 2,558 | 19,166 | 4,218 | 5,671 | — | 29,055 | — | 29,055 | |||||||||||||||||||||
Intersegment expenses, net
|
1,843 | 774 | 433 | 3,050 | 20,825 | (3,397 | ) | (20,478 | ) | — | — | — | |||||||||||||||||||
Total operating expenses | 42,149 | 9,833 | 33,591 | 85,573 | 26,404 | 6,791 | (21,580 | ) | 97,188 | 6,516 | 103,704 | ||||||||||||||||||||
Income (loss) before income taxes and corporate overhead allocation | 20,660 | 7,557 | (320 | ) | 27,897 | 70,724 | (9,295 | ) | — | 89,326 | (2,411 | ) | 86,915 | ||||||||||||||||||
Corporate overhead allocation
|
(1,189 | ) | (396 | ) | (396 | ) | (1,981 | ) | (1,981 | ) | 3,962 | — | — | — | — | ||||||||||||||||
Income (loss) before income taxes
|
19,471 | 7,161 | (716 | ) | 25,916 | 68,743 | (5,333 | ) | — | 89,326 | (2,411 | ) | 86,915 | ||||||||||||||||||
Income tax (expense) benefit (a)
|
(7,400 | ) | (2,722 | ) | 273 | (9,849 | ) | (26,123 | ) | 2,463 | — | (33,509 | ) | 916 | (32,593 | ) | |||||||||||||||
Net income (loss) | $ | 12,071 | 4,439 | (443 | ) | 16,067 | 42,620 | (2,870 | ) | — | 55,817 | (1,495 | ) | 54,322 | |||||||||||||||||
Additional information:
|
|||||||||||||||||||||||||||||||
Net income (loss)
|
$ | 12,071 | 4,439 | (443 | ) | 16,067 | 42,620 | (2,870 | ) | — | 55,817 | (1,495 | ) | 54,322 | |||||||||||||||||
Plus: Restructure expense (a)
|
1,205 | — | — | 1,205 | — | (8 | ) | — | 1,197 | (1,197 | ) | — | |||||||||||||||||||
Less: Net tax effect
|
(458 | ) | — | — | (458 | ) | — | 3 | — | (455 | ) | 455 | — | ||||||||||||||||||
Net income (loss), excluding restructure expense
|
$ | 12,818 | 4,439 | (443 | ) | 16,814 | 42,620 | (2,875 | ) | — | 56,559 | (2,237 | ) | 54,322 |
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 March 31, 2011
|
||||||||||||||||||||||||
Derivative market value and foreign currency adjustments (a)
|
$ | — | — | — | 589 | (1,705 | ) | (1,116 | ) | |||||||||||||||
Amortization of intangible assets (b)
|
2,100 | 998 | 878 | — | — | 3,976 | ||||||||||||||||||
Net tax effect (c)
|
(798 | ) | (379 | ) | (334 | ) | (224 | ) | 648 | (1,087 | ) | |||||||||||||
Total adjustments to GAAP
|
$ | 1,302 | 619 | 544 | 365 | (1,057 | ) | 1,773 | ||||||||||||||||
Three months ended March 31, 2010
|
||||||||||||||||||||||||
Derivative market value and foreign currency adjustments (a)
|
$ | — | — | — | (4,561 | ) | 456 | (4,105 | ) | |||||||||||||||
Amortization of intangible assets (b)
|
2,236 | 1,925 | 2,355 | — | — | 6,516 | ||||||||||||||||||
Net tax effect (c)
|
(850 | ) | (732 | ) | (898 | ) | 1,733 | (169 | ) | (916 | ) | |||||||||||||
Total adjustments to GAAP
|
$ | 1,386 | 1,193 | 1,457 | (2,828 | ) | 287 | 1,495 |
(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)
|
Income taxes are applied based on 38% for the individual operating segments.
|
As of March 31, 2011
|
||||||||||||||||
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
Assets:
|
||||||||||||||||
Investments (a)
|
$ | 8,004 | — | 29,715 | 37,719 | |||||||||||
Fair value of derivative instruments (b)
|
— | 169,505 | — | 169,505 | ||||||||||||
Total assets
|
$ | 8,004 | 169,505 | 29,715 | 207,224 | |||||||||||
Liabilities:
|
||||||||||||||||
Fair value of derivative instruments (b)
|
$ | — | 13,026 | — | 13,026 | |||||||||||
Total liabilities
|
$ | — | 13,026 | — | 13,026 |
As of December 31, 2010
|
||||||||||||||||
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
Assets:
|
||||||||||||||||
Investments (a)
|
$ | 31,375 | — | 11,861 | 43,236 | |||||||||||
Fair value of derivative instruments (b)
|
— | 118,346 | — | 118,346 | ||||||||||||
Total assets
|
$ | 31,375 | 118,346 | 11,861 | 161,582 | |||||||||||
Liabilities:
|
||||||||||||||||
Fair value of derivative instruments (b)
|
$ | — | 16,089 | — | 16,089 | |||||||||||
Total liabilities
|
$ | — | 16,089 | — | 16,089 |
(a)
|
Investments represent investments classified by the Company as “trading securities” which are recorded at fair value on a recurring basis. Level 1 investments are measured based upon quoted prices and include investments traded on an active exchange, such as the New York Stock Exchange, and U.S. Treasury securities. Level 3 investments include student loan auction rate asset-backed securities. The fair value for the student loan auction rate asset-backed securities is determined using an income approach valuation technique (present value using the discount rate adjustment technique) that considers, among other things, rates currently observed in publicly traded debt markets for debt of similar terms to companies with comparable credit risk.
|
(b)
|
All derivatives are accounted for at fair value on a recurring basis. The fair 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.
|
Level 3
|
||||
Investments -
|
||||
trading securities
|
||||
Balance at December 31, 2010
|
$ | 11,861 | ||
Total realized and unrealized gains (losses) included in income, net (a)
|
(80 | ) | ||
Purchases
|
23,890 | |||
Sales
|
(5,956 | ) | ||
Balance at March 31, 2011
|
$ | 29,715 | ||
Total gains for the first quarter of 2011 included in income attributable
|
||||
to the change in unrealized gains relating to assets held at March 31, 2011 (a)
|
$ | 174 |
(a)
|
Realized and unrealized gains are included in “other income” in the Company’s consolidated statements of income.
|
As of March 31, 2011
|
As of December 31, 2010
|
|||||||||||||||
Fair value
|
Carrying value
|
Fair value
|
Carrying value
|
|||||||||||||
Financial assets:
|
||||||||||||||||
Student loans receivable
|
$ | 24,356,412 | 23,536,415 | 24,836,538 | 23,948,014 | |||||||||||
Student loans receivable - held for sale
|
— | — | 84,987 | 84,987 | ||||||||||||
Cash and cash equivalents
|
48,137 | 48,137 | 283,801 | 283,801 | ||||||||||||
Investments - trading securities
|
37,719 | 37,719 | 43,236 | 43,236 | ||||||||||||
Restricted cash
|
514,398 | 514,398 | 453,748 | 453,748 | ||||||||||||
Restricted cash – due to customers
|
63,292 | 63,292 | 88,528 | 88,528 | ||||||||||||
Restricted investments
|
281,831 | 281,831 | 215,009 | 215,009 | ||||||||||||
Accrued interest receivable
|
308,484 | 308,484 | 318,152 | 318,152 | ||||||||||||
Derivative instruments
|
169,505 | 169,505 | 118,346 | 118,346 | ||||||||||||
Financial liabilities:
|
||||||||||||||||
Bonds and notes payable
|
24,054,953 | 24,066,092 | 24,651,191 | 24,672,472 | ||||||||||||
Accrued interest payable
|
15,587 | 15,587 | 19,153 | 19,153 | ||||||||||||
Due to customers
|
63,292 | 63,292 | 88,528 | 88,528 | ||||||||||||
Derivative instruments
|
13,026 | 13,026 | 16,089 | 16,089 |
·
|
Reclassifying “professional and other services,” “occupancy and communications,” “postage and distribution,” “advertising and marketing,” and “trustee and other debt related fees” to “other” operating expenses.
|
·
|
Reclassifying student list amortization, which was previously included in “advertising and marketing,” to “depreciation and amortization.”
|
·
|
risks related to the Company’s student loan portfolio, such as interest rate basis and repricing risk resulting from the fact that the interest rate characteristics of the Company’s student loan assets do not match the interest rate characteristics of the funding for those assets, the risk of loss of floor income on certain student loans originated under the Federal Family Education Loan Program (the “FFEL Program” or “FFELP”) of the U.S. Department of Education (the “Department”), risks related to the use of derivatives to manage exposure to interest rate fluctuations, and potential losses from loan defaults, changes in prepayment rates, guaranty rates, loan floor rates, and credit spreads;
|
·
|
risks related to the Company’s liquidity and funding requirements, including the Company’s ability to maintain credit facilities or obtain new facilities, the ability of lenders under the Company’s credit facilities to fulfill their lending commitments under these facilities, the Company’s ability to satisfy debt obligations secured by student loan assets and related collateral, and changes in the general interest rate environment and in the securitization markets for education loans which may increase the costs or limit the availability of financings necessary to purchase, refinance, or continue to carry education loans;
|
·
|
risks from changes in the student loan and educational credit and services marketplace resulting from the implementation of, or changes in, applicable laws and regulations, including the discontinuance of private sector student loan originations under the FFEL Program effective July 1, 2010, and the Company’s ability to maintain its loan servicing contract with the Department of Education to service federally-owned student loans and to comply with servicing agreements with third party customers for the service of loans under the Federal Direct Loan and FFEL Programs;
|
·
|
risks from changes in the demand or preferences for educational financing and related services by educational institutions, students, and their families;
|
·
|
uncertainties inherent in forecasting future cash flows from student loan assets and related asset-backed securitizations;
|
·
|
risks associated with litigation, complex government regulations, changes in general economic and credit market conditions, and related party transactions; and
|
·
|
uncertainties inherent in the estimates and assumptions about future events that management is required to make in the preparation of the Company’s consolidated financial statements.
|
·
|
Continue to grow and diversify fee-based revenue
|
·
|
Manage operating costs
|
·
|
Maximize the value of existing portfolio
|
·
|
Use liquidity to capitalize on market opportunities
|
Three months ended March 31,
|
||||||||||||||||
2011
|
2010
|
$ Change
|
% Change
|
|||||||||||||
Student Loan and Guaranty Servicing (a)
|
$ | 40,428 | 41,229 | (801 | ) | (1.9 | ) % | |||||||||
Tuition Payment Processing and Campus Commerce
|
19,375 | 17,390 | 1,985 | 11.4 | ||||||||||||
Enrollment Services (b)
|
33,868 | 33,271 | 597 | 1.8 | ||||||||||||
Total revenue from fee-based businesses
|
$ | 93,671 | 91,890 | 1,781 | 1.9 | % |
(a)
|
The Student Loan and Guaranty Servicing operating segment included $6.5 million and $10.0 million of revenue earned from
rehabilitation collections on defaulted loans in the first quarters of 2011 and 2010, respectively.
|
(b)
|
Growth in enrollment services revenue has been effected by the uncertainty in the for-profit college industry, as further discussed in this item 2 under "Student Loan and Guaranty Servicing Operating Segment - Results of Operations."
|
(a)
|
Excludes restructure and impairment expenses and a litigation settlement charge recognized in 2010. See the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 for additional information on total operating expenses by segment and these adjustments thereto.
|
(a)
|
The interest earned on the majority of the Company’s FFELP student loan assets is indexed to the three-month commercial paper indice. The Company funds the majority of its assets with three-month LIBOR indexed floating rate securities. The relationship between these two indices has a significant impact on student loan spread. This table (the right axis) shows the difference between the average three-month LIBOR and commercial paper indices by quarter.
|
Three months ended March 31,
|
||||||||
2011
|
2010
|
|||||||
Fixed rate floor income, gross
|
$ | 37,900 | 39,127 | |||||
Derivative settlements (a)
|
(6,218 | ) | (3,856 | ) | ||||
Fixed rate floor income, net
|
$ | 31,682 | 35,271 | |||||
Fixed rate floor income
|
||||||||
contribution to spread, net
|
0.55 | % | 0.59 | % |
(a)
|
The Company uses various assumptions, including prepayments and future interest rates, when preparing its cash flow forecast. These assumptions are further discussed below.
|
Three months ended March 31, 2011
|
||||||||||||
Notional amount
|
Purchase price
|
Gain
|
||||||||||
Unsecured debt - Junior Subordinated Hybrid Securities
|
$ | 62,558 | 55,651 | 6,907 | ||||||||
Asset-backed securities
|
600 | 545 | 55 | |||||||||
$ | 63,158 | 56,196 | 6,962 |
·
|
Interactive marketing
– Interactive marketing revenue is derived primarily from fees which are earned through the delivery of qualified inquiries or clicks. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is reasonably assured. Delivery is deemed to have occurred at the time a qualified inquiry or click is delivered to the customer provided that no significant obligations remain. From time to time, the Company may agree to credit certain inquiries or clicks if they fail to meet the contractual or other guidelines of a particular client. The Company has established a sales reserve based on historical experience. To date, such credits have been immaterial and within management’s expectations.
|
·
|
List marketing
- Revenue from the sale of lists is generally earned and recognized, net of estimated returns, upon delivery.
|
·
|
Publishing services -
Revenue from the sale of print products is generally earned and recognized, net of estimated returns, upon shipment or delivery.
|
·
|
Resource centers –
Resource centers services include online courses, scholarship search and selection data, career planning, and online information about colleges and universities. The majority of these services are sold based on subscriptions and/or are performance based. Revenues from sales of subscription and performance based services are recognized ratably over the term of the contract as earned. Subscription and performance based revenues received or receivable in advance of the delivery of services is included in deferred revenue.
|
Three months ended March 31,
|
||||||||||||||||
Change
|
||||||||||||||||
2011
|
2010
|
$ | % | |||||||||||||
Interest income:
|
||||||||||||||||
Loan interest
|
$ | 137,358 | 134,967 | 2,391 | 1.8 | % | ||||||||||
Investment interest
|
726 | 1,001 | (275 | ) | (27.5 | ) | ||||||||||
Total interest income
|
138,084 | 135,968 | 2,116 | 1.6 | ||||||||||||
Interest expense:
|
||||||||||||||||
Interest on bonds and notes payable
|
52,307 | 50,859 | 1,448 | 2.8 | ||||||||||||
Net interest income
|
85,777 | 85,109 | 668 | 0.8 | ||||||||||||
Provision for loan losses
|
3,750 | 5,000 | (1,250 | ) | (25.0 | ) | ||||||||||
Net interest income after
|
||||||||||||||||
provision for loan losses
|
82,027 | 80,109 | 1,918 | 2.4 | ||||||||||||
Derivative settlements, net (a)
|
(4,152 | ) | (2,423 | ) | (1,729 | ) | 71.4 | |||||||||
Net interest income after
|
||||||||||||||||
provision for loan losses (net of
|
||||||||||||||||
settlements on derivatives)
|
$ | 77,875 | 77,686 | 189 | 0.2 | % | ||||||||||
|
(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 March 31, |
Change
|
|||||||||||||||
2011
|
2010
|
$ | % | |||||||||||||
Variable student loan interest margin, net
|
||||||||||||||||
of settlements on derivatives (a)
|
$ | 52,530 | 52,530 | — | — | % | ||||||||||
Fixed rate floor income, net of
|
||||||||||||||||
settlements on derivatives (b)
|
31,682 | 35,271 | (3,589 | ) | (10.2 | ) | ||||||||||
Investment interest (c)
|
726 | 1,001 | (275 | ) | (27.5 | ) | ||||||||||
Corporate debt interest expense (d)
|
(3,313 | ) | (6,116 | ) | 2,803 | (45.8 | ) | |||||||||
Provision for loan losses (e)
|
(3,750 | ) | (5,000 | ) | 1,250 | (25.0 | ) | |||||||||
Net interest income after
|
||||||||||||||||
provision for loan losses (net of
|
||||||||||||||||
settlements on derivatives)
|
$ | 77,875 | 77,686 | 189 | 0.2 | % |
(a)
|
Variable student loan spread increased to 0.91% for the three months ended March 31, 2011 compared with 0.86% for the same period in 2010 offset by a decrease in the average balance of student loans 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)
|
Investment interest decreased for the three months ended March 31, 2011 compared with the same period in 2010 due to a decrease in average cash held.
|
(d)
|
Corporate debt interest expense includes interest expense incurred by the Company on its 5.125% Senior Notes due 2010 (the “Senior Notes”), Junior Subordinated Hybrid Securities, and its $750 million unsecured line of credit. Corporate debt interest expense decreased for the three months ended March 31, 2011 compared with the same period in 2010 due to a reduction in debt outstanding due to the purchase of Junior Subordinated Hybrid Securities, the maturity of the Senior Notes on June 1, 2010, and using excess cash to pay down a portion of the unsecured line of credit.
|
(e)
|
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 decreased during the three months ended March 31, 2011 compared to the same period in 2010, primarily due to a decrease in the dollar amount of the Company's student loan portfolio, including those loans in repayment and loans delinquent, as well as continued aging of the portfolio.
|
Three months ended March 31, |
Change
|
|||||||||||||||
2011
|
2010
|
$ | % | |||||||||||||
Loan and guaranty servicing revenue (a)
|
$ | 35,636 | 36,394 | (758 | ) | (2.1 | ) % | |||||||||
Tuition payment processing and campus commerce revenue (b)
|
19,369 | 17,382 | 1,987 | 11.4 | ||||||||||||
Enrollment services revenue (c)
|
33,868 | 33,271 | 597 | 1.8 | ||||||||||||
Software services revenue
|
4,777 | 4,344 | 433 | 10.0 | ||||||||||||
Other income (d)
|
6,492 | 7,260 | (768 | ) | (10.6 | ) | ||||||||||
Gain on sale of loans and debt repurchases, net (e)
|
8,307 | 10,177 | (1,870 | ) | (18.4 | ) | ||||||||||
Derivative market value and foreign currency adjustments (f)
|
1,116 | 4,105 | (2,989 | ) | (72.8 | ) | ||||||||||
Derivative settlements, net (g)
|
(4,152 | ) | (2,423 | ) | (1,729 | ) | 71.4 | |||||||||
Total other income
|
$ | 105,413 | 110,510 | (5,097 | ) | (4.6 | ) % |
(a)
|
“Loan and guaranty servicing revenue” decreased due to decreases in FFELP servicing and guaranty servicing revenue, partially offset by an increase in servicing revenue from the Department of Education. 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 customers 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, offset by a decrease in revenue from other enrollment products and services, as further discussed in this Item 2 under “Enrollment Services Operating Segment – Results of Operations.” Growth in enrollment services revenue has been effected by the uncertainty in the for-profit college industry.
|
(d)
|
The following table summarizes the components of “other income”.
|
Three months ended March 31,
|
||||||||
2011
|
2010
|
|||||||
Borrower late fee income
|
$ | 3,590 | 3,258 | |||||
Other
|
2,902 | 4,002 | ||||||
Other income
|
$ | 6,492 | 7,260 |
Three months ended March 31, 2011
|
Three months ended March 31, 2010
|
|||||||||||||||||||||||
Notional amount
|
Purchase price
|
Gain
|
Notional amount
|
Purchase price
|
Gain
|
|||||||||||||||||||
Gains on debt repurchases:
|
||||||||||||||||||||||||
Junior Subordinated Hybrid Securities
|
$ | 62,558 | 55,651 | 6,907 | — | — | — | |||||||||||||||||
Asset-backed securities
|
600 | 545 | 55 | 274,250 | 264,073 | 10,177 | ||||||||||||||||||
$ | 63,158 | 56,196 | 6,962 | 274,250 | 264,073 | 10,177 | ||||||||||||||||||
Gain on sale of loans
|
1,345 | — | ||||||||||||||||||||||
Gain on sale of loans and debt repurchases
|
$ | 8,307 | $ | 10,177 |
(f)
|
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 March 31,
|
||||||||
2011
|
2010
|
|||||||
Change in fair value of derivatives - income (expense)
|
$ | 66,450 | (67,570 | ) | ||||
Foreign currency transaction adjustment - income (expense)
|
(65,334 | ) | 71,675 | |||||
Derivative market value and foreign currency adjustments - income (expense)
|
$ | 1,116 | 4,105 |
(g)
|
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 March 31,
|
Change | |||||||||||||||
2011
|
2010
|
$
|
%
|
|||||||||||||
Salaries and benefits (a)
|
$ | 43,912 | 40,644 | 3,268 | 8.0 | % | ||||||||||
Cost to provide enrollment services (b)
|
22,839 | 22,025 | 814 | 3.7 | ||||||||||||
Depreciation and amortization (c )
|
6,776 | 10,783 | (4,007 | ) | (37.2 | ) | ||||||||||
Restructure expense (d)
|
— | 1,197 | (1,197 | ) | (100.0 | ) | ||||||||||
Other expenses (e)
|
26,105 | 29,055 | (2,950 | ) | (10.2 | ) | ||||||||||
Total operating expenses
|
$ | 99,632 | 103,704 | (4,072 | ) | (3.9 | % |
(a)
|
Salaries and benefits increased as a result of supporting the increase in government servicing volume in the Student Loan and Guaranty Servicing operating segment.
|
(b)
|
Cost to provide enrollment services increased as a direct result of the increase in interactive marketing revenue in the Enrollment Services operating segment.
|
(c)
|
Depreciation and amortization decreased due to decreases in the amortization of intangible assets and student list costs. In 2010, the Company accelerated amortization of student list costs to better reflect the pattern in which the economic benefit of this asset is used to generate revenue.
|
(d)
|
Restructure expenses incurred in 2010 were related to a 2009 restructuring plan. This plan was completed during the third quarter of 2010.
|
(e)
|
Other expenses decreased due to a decrease in collection costs related to loan rehabilitation revenue.
|
As of
|
As of
|
|||||||||||||||
March 31,
|
December 31,
|
Change
|
||||||||||||||
2011
|
2010
|
Dollars
|
Percent
|
|||||||||||||
Assets:
|
||||||||||||||||
Student loans receivable, net
|
$ | 23,536,415 | 23,948,014 | (411,599 | ) | (1.7 | ) % | |||||||||
Student loans receivable - held for sale
|
— | 84,987 | (84,987 | ) | 100.0 | |||||||||||
Cash, cash equivalents, and investments
|
945,377 | 1,084,322 | (138,945 | ) | (12.8 | ) | ||||||||||
Goodwill
|
117,118 | 117,118 | — | — | ||||||||||||
Intangible assets, net
|
34,736 | 38,712 | (3,976 | ) | (10.3 | ) | ||||||||||
Fair value of derivative instruments
|
169,505 | 118,346 | 51,159 | 43.2 | ||||||||||||
Other assets
|
491,548 | 502,393 | (10,845 | ) | (2.2 | ) | ||||||||||
Total assets
|
$ | 25,294,699 | 25,893,892 | (599,193 | ) | (2.3 | ) % | |||||||||
Liabilities:
|
||||||||||||||||
Bonds and notes payable
|
$ | 24,066,092 | 24,672,472 | (606,380 | ) | (2.5 | ) % | |||||||||
Fair value of derivative instruments
|
13,026 | 16,089 | (3,063 | ) | (19.0 | ) | ||||||||||
Other liabilities
|
260,214 | 298,698 | (38,484 | ) | (12.9 | ) | ||||||||||
Total liabilities
|
24,339,332 | 24,987,259 | (647,927 | ) | (2.6 | ) | ||||||||||
Shareholders' equity
|
955,367 | 906,633 | 48,734 | 5.4 | ||||||||||||
Total liabilities and shareholders' equity
|
$ | 25,294,699 | 25,893,892 | (599,193 | ) | (2.3 | ) % |
Three months ended March 31, 2011
|
|||||||||||||||||||||||||||||||
Fee-Based
|
|||||||||||||||||||||||||||||||
|
Tuition
|
||||||||||||||||||||||||||||||
Student
|
Payment
|
|
|
||||||||||||||||||||||||||||
Loan
|
Processing
|
|
Asset
|
Corporate
|
|
|
|
||||||||||||||||||||||||
and
|
and |
Total
|
Generation
|
Activity
|
Eliminations
|
Base |
Adjustments
|
GAAP
|
|||||||||||||||||||||||
Guaranty
|
Campus
|
Enrollment
|
Fee-
|
and
|
and
|
and
|
net
|
to GAAP
|
Results of
|
||||||||||||||||||||||
Servicing
|
Commerce
|
Services
|
Based
|
Management
|
Overhead
|
Reclassifications
|
income
|
Results
|
Operations
|
||||||||||||||||||||||
Total interest income
|
$ | 15 | 6 | — | 21 | 137,639 | 1,146 | (722 | ) | 138,084 | — | 138,084 | |||||||||||||||||||
Interest expense
|
— | — | — | — | 49,716 | 3,313 | (722 | ) | 52,307 | — | 52,307 | ||||||||||||||||||||
Net interest income (loss)
|
15 | 6 | — | 21 | 87,923 | (2,167 | ) | — | 85,777 | — | 85,777 | ||||||||||||||||||||
Less provision for loan losses
|
— | — | — | — | 3,750 | — | — | 3,750 | — | 3,750 | |||||||||||||||||||||
Net interest income (loss) after provision for loan losses
|
15 | 6 | — | 21 | 84,173 | (2,167 | ) | — | 82,027 | — | 82,027 | ||||||||||||||||||||
Other income (expense):
|
|||||||||||||||||||||||||||||||
Loan and guaranty servicing revenue
|
35,636 | — | — | 35,636 | — | — | — | 35,636 | — | 35,636 | |||||||||||||||||||||
Intersegment servicing revenue
|
17,857 | — | — | 17,857 | — | — | (17,857 | ) | — | — | — | ||||||||||||||||||||
Tuition payment processing and campus commerce revenue
|
— | 19,369 | — | 19,369 | — | — | — | 19,369 | — | 19,369 | |||||||||||||||||||||
Enrollment services revenue
|
— | — | 33,868 | 33,868 | — | — | — | 33,868 | — | 33,868 | |||||||||||||||||||||
Software services revenue
|
4,777 | — | — | 4,777 | — | — | — | 4,777 | — | 4,777 | |||||||||||||||||||||
Other income
|
— | — | — | — | 4,136 | 2,356 | — | 6,492 | — | 6,492 | |||||||||||||||||||||
Gain on sale of loans and debt repurchases
|
— | — | — | — | 1,400 | 6,907 | — | 8,307 | — | 8,307 | |||||||||||||||||||||
Derivative market value and foreign currency adjustments
|
— | — | — | — | — | — | — | — | 1,116 | 1,116 | |||||||||||||||||||||
Derivative settlements, net
|
— | — | — | — | (4,038 | ) | (114 | ) | — | (4,152 | ) | — | (4,152 | ) | |||||||||||||||||
Total other income (expense)
|
58,270 | 19,369 | 33,868 | 111,507 | 1,498 | 9,149 | (17,857 | ) | 104,297 | 1,116 | 105,413 | ||||||||||||||||||||
Operating expenses:
|
|||||||||||||||||||||||||||||||
Salaries and benefits
|
25,388 | 7,152 | 6,257 | 38,797 | 778 | 4,337 | — | 43,912 | — | 43,912 | |||||||||||||||||||||
Cost to provide enrollment services
|
— | — | 22,839 | 22,839 | — | — | — | 22,839 | — | 22,839 | |||||||||||||||||||||
Depreciation and amortization
|
1,306 | 336 | 813 | 2,455 | — | 345 | — | 2,800 | 3,976 | 6,776 | |||||||||||||||||||||
Restructure expense
|
— | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||
Other
|
14,579 | 2,634 | 2,318 | 19,531 | 1,538 | 5,036 | — | 26,105 | — | 26,105 | |||||||||||||||||||||
Intersegment expenses, net
|
1,369 | 1,093 | 818 | 3,280 | 18,147 | (3,570 | ) | (17,857 | ) | — | — | — | |||||||||||||||||||
Total operating expenses
|
42,642 | 11,215 | 33,045 | 86,902 | 20,463 | 6,148 | (17,857 | ) | 95,656 | 3,976 | 99,632 | ||||||||||||||||||||
Income (loss) before income taxes and corporate overhead allocation
|
15,643 | 8,160 | 823 | 24,626 | 65,208 | 834 | — | 90,668 | (2,860 | ) | 87,808 | ||||||||||||||||||||
Corporate overhead allocation
|
(753 | ) | (251 | ) | (251 | ) | (1,255 | ) | (1,255 | ) | 2,510 | — | — | — | — | ||||||||||||||||
Income (loss) before income taxes
|
14,890 | 7,909 | 572 | 23,371 | 63,953 | 3,344 | — | 90,668 | (2,860 | ) | 87,808 | ||||||||||||||||||||
Income tax (expense) benefit
|
(5,658 | ) | (3,005 | ) | (217 | ) | (8,880 | ) | (24,302 | ) | (833 | ) | — | (34,015 | ) | 1,087 | (32,928 | ) | |||||||||||||
Net income (loss)
|
$ | 9,232 | 4,904 | 355 | 14,491 | 39,651 | 2,511 | — | 56,653 | (1,773 | ) | 54,880 | |||||||||||||||||||
Three months ended March 31, 2010
|
|||||||||||||||||||||||||||||||
Fee-Based
|
|||||||||||||||||||||||||||||||
|
Tuition
|
||||||||||||||||||||||||||||||
Student
|
Payment
|
|
|
||||||||||||||||||||||||||||
Loan
|
Processing
|
|
Asset
|
Corporate
|
|
|
|
||||||||||||||||||||||||
and
|
and |
Total
|
Generation
|
Activity
|
Eliminations
|
Base |
Adjustments
|
GAAP
|
|||||||||||||||||||||||
Guaranty
|
Campus
|
Enrollment
|
Fee-
|
and
|
and
|
and
|
net
|
to GAAP
|
Results of
|
||||||||||||||||||||||
Servicing
|
Commerce
|
Services
|
Based
|
Management
|
Overhead
|
Reclassifications
|
income
|
Results
|
Operations
|
||||||||||||||||||||||
Total interest income
|
$ | 13 | 8 | — | 21 | 135,262 | 1,598 | (913 | ) | 135,968 | — | 135,968 | |||||||||||||||||||
Interest expense
|
— | — | — | — | 45,656 | 6,116 | (913 | ) | 50,859 | — | 50,859 | ||||||||||||||||||||
Net interest income (loss)
|
13 | 8 | — | 21 | 89,606 | (4,518 | ) | — | 85,109 | — | 85,109 | ||||||||||||||||||||
Less provision for loan losses
|
— | — | — | — | 5,000 | — | — | 5,000 | — | 5,000 | |||||||||||||||||||||
Net interest income (loss) after provision for loan losses
|
13 | 8 | — | 21 | 84,606 | (4,518 | ) | — | 80,109 | — | 80,109 | ||||||||||||||||||||
Other income (expense):
|
|||||||||||||||||||||||||||||||
Loan and guaranty servicing revenue
|
36,648 | — | — | 36,648 | — | (254 | ) | — | 36,394 | — | 36,394 | ||||||||||||||||||||
Intersegment servicing revenue
|
21,580 | — | — | 21,580 | — | — | (21,580 | ) | — | — | — | ||||||||||||||||||||
Tuition payment processing and campus commerce revenue
|
— | 17,382 | — | 17,382 | — | — | — | 17,382 | — | 17,382 | |||||||||||||||||||||
Enrollment services revenue
|
— | — | 33,271 | 33,271 | — | — | — | 33,271 | — | 33,271 | |||||||||||||||||||||
Software services revenue
|
4,344 | — | — | 4,344 | — | — | — | 4,344 | — | 4,344 | |||||||||||||||||||||
Other income
|
224 | — | — | 224 | 4,768 | 2,268 | — | 7,260 | — | 7,260 | |||||||||||||||||||||
Gain on sale of loans and debt repurchases
|
— | — | — | — | 10,177 | — | — | 10,177 | — | 10,177 | |||||||||||||||||||||
Derivative market value and foreign currency adjustments
|
— | — | — | — | — | — | — | — | 4,105 | 4,105 | |||||||||||||||||||||
Derivative settlements, net
|
— | — | — | — | (2,423 | ) | — | — | (2,423 | ) | — | (2,423 | ) | ||||||||||||||||||
Total other income (expense)
|
62,796 | 17,382 | 33,271 | 113,449 | 12,522 | 2,014 | (21,580 | ) | 106,405 | 4,105 | 110,510 | ||||||||||||||||||||
Operating expenses:
|
|||||||||||||||||||||||||||||||
Salaries and benefits
|
23,582 | 6,618 | 6,071 | 36,271 | 1,358 | 4,117 | (1,102 | ) | 40,644 | — | 40,644 | ||||||||||||||||||||
Cost to provide enrollment services
|
— | — | 22,025 | 22,025 | — | — | — | 22,025 | — | 22,025 | |||||||||||||||||||||
Depreciation and amortization
|
1,019 | 333 | 2,504 | 3,856 | 3 | 408 | — | 4,267 | 6,516 | 10,783 | |||||||||||||||||||||
Restructure expense
|
1,205 | — | — | 1,205 | — | (8 | ) | — | 1,197 | — | 1,197 | ||||||||||||||||||||
Other
|
14,500 | 2,108 | 2,558 | 19,166 | 4,218 | 5,671 | — | 29,055 | — | 29,055 | |||||||||||||||||||||
Intersegment expenses, net
|
1,843 | 774 | 433 | 3,050 | 20,825 | (3,397 | ) | (20,478 | ) | — | — | — | |||||||||||||||||||
Total operating expenses | 42,149 | 9,833 | 33,591 | 85,573 | 26,404 | 6,791 | (21,580 | ) | 97,188 | 6,516 | 103,704 | ||||||||||||||||||||
Income (loss) before income taxes and corporate overhead allocation | 20,660 | 7,557 | (320 | ) | 27,897 | 70,724 | (9,295 | ) | — | 89,326 | (2,411 | ) | 86,915 | ||||||||||||||||||
Corporate overhead allocation
|
(1,189 | ) | (396 | ) | (396 | ) | (1,981 | ) | (1,981 | ) | 3,962 | — | — | — | — | ||||||||||||||||
Income (loss) before income taxes | 19,471 | 7,161 | (716 | ) | 25,916 | 68,743 | (5,333 | ) | — | 89,326 | (2,411 | ) | 86,915 | ||||||||||||||||||
Income tax (expense) benefit (a)
|
(7,400 | ) | (2,722 | ) | 273 | (9,849 | ) | (26,123 | ) | 2,463 | — | (33,509 | ) | 916 | (32,593 | ) | |||||||||||||||
Net income (loss) | $ | 12,071 | 4,439 | (443 | ) | 16,067 | 42,620 | (2,870 | ) | — | 55,817 | (1,495 | ) | 54,322 | |||||||||||||||||
Additional information:
|
|||||||||||||||||||||||||||||||
Net income (loss)
|
$ | 12,071 | 4,439 | (443 | ) | 16,067 | 42,620 | (2,870 | ) | — | 55,817 | (1,495 | ) | 54,322 | |||||||||||||||||
Plus: Restructure expense (a)
|
1,205 | — | — | 1,205 | — | (8 | ) | — | 1,197 | (1,197 | ) | — | |||||||||||||||||||
Less: Net tax effect
|
(458 | ) | — | — | (458 | ) | — | 3 | — | (455 | ) | 455 | — | ||||||||||||||||||
Net income (loss), excluding restructure expense
|
$ | 12,818 | 4,439 | (443 | ) | 16,814 | 42,620 | (2,875 | ) | — | 56,559 | (2,237 | ) | 54,322 |
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 March 31, 2011
|
||||||||||||||||||||||||
Derivative market value and foreign currency adjustments
|
$ | — | — | — | 589 | (1,705 | ) | (1,116 | ) | |||||||||||||||
Amortization of intangible assets
|
2,100 | 998 | 878 | — | — | 3,976 | ||||||||||||||||||
Net tax effect (a)
|
(798 | ) | (379 | ) | (334 | ) | (224 | ) | 648 | (1,087 | ) | |||||||||||||
Total adjustments to GAAP
|
$ | 1,302 | 619 | 544 | 365 | (1,057 | ) | 1,773 | ||||||||||||||||
Three months ended March 31, 2010
|
||||||||||||||||||||||||
Derivative market value and foreign currency adjustments
|
$ | — | — | — | (4,561 | ) | 456 | (4,105 | ) | |||||||||||||||
Amortization of intangible assets
|
2,236 | 1,925 | 2,355 | — | — | 6,516 | ||||||||||||||||||
Net tax effect (a)
|
(850 | ) | (732 | ) | (898 | ) | 1,733 | (169 | ) | (916 | ) | |||||||||||||
Total adjustments to GAAP
|
$ | 1,386 | 1,193 | 1,457 | (2,828 | ) | 287 | 1,495 |
(a)
|
Income taxes are applied based on 38% for the individual operating segments.
|
·
|
Servicing FFELP loans
|
·
|
Originating and servicing non-federally insured student loans
|
·
|
Servicing federally-owned student loans for the Department of Education
|
·
|
Servicing and outsourcing services for guaranty agencies
|
·
|
Student loan servicing software and other information technology products and services
|
·
|
Three metrics measure the satisfaction among separate customer groups, including borrowers, financial aid personnel at postsecondary schools participating in the federal student loan programs, and Federal Student Aid and other federal agency personnel or contractors who work with the servicers.
|
·
|
Two performance metrics measure the success of default prevention efforts as reflected by the percentage of borrowers and percentage of dollars in each servicer’s portfolio that go into default.
|
·
|
A decrease in FFELP servicing revenue due to the loss of servicing volume from third party customers.
|
·
|
An increase in government servicing revenue due to increased volume from the Department.
|
·
|
A decrease in guaranty servicing revenue due to a decrease in rehabilitation collection revenue and the amortization of the guaranty servicing portfolio.
|
·
|
A lower operating margin as the result of the growing government servicing portfolio as a percent of the Company’s total servicing portfolio.
|
Company Owned
|
$ | 23,139 | $ | 24,378 | $ | 26,351 | $ | 26,183 | $ | 23,727 | $ | 23,249 | ||||||||||||
% of total
|
61.6 | % | 56.7 | % | 55.3 | % | 47.0 | % | 38.6 | % | 34.2 | % | ||||||||||||
Number of borrowers:
|
||||||||||||||||||||||||
Government
|
||||||||||||||||||||||||
servicing:
|
441,913 | 1,055,896 | 1,530,308 | 2,510,630 | 2,804,502 | 2,814,142 | ||||||||||||||||||
FFELP
|
||||||||||||||||||||||||
servicing:
|
2,311,558 | 2,327,016 | 2,329,150 | 2,227,288 | 1,912,748 | 1,870,538 | ||||||||||||||||||
Total:
|
2,753,471 | 3,382,912 | 3,859,458 | 4,737,918 | 4,717,250 | 4,684,680 |
Three months ended March 31,
|
Change
|
|||||||||||||||
2011
|
2010
|
$ | % | |||||||||||||
Net interest income
|
$ | 15 | 13 | 2 | 15.4 | % | ||||||||||
Loan and guaranty servicing revenue
|
35,636 | 36,648 | (1,012 | ) | (2.8 | ) | ||||||||||
Intersegment servicing revenue
|
17,857 | 21,580 | (3,723 | ) | (17.3 | ) | ||||||||||
Software services revenue
|
4,777 | 4,344 | 433 | 10.0 | ||||||||||||
Other income
|
— | 224 | (224 | ) | (100.0 | ) | ||||||||||
Total other income
|
58,270 | 62,796 | (4,526 | ) | (7.2 | ) | ||||||||||
Salaries and benefits
|
25,388 | 23,582 | 1,806 | 7.7 | ||||||||||||
Depreciation and amortization
|
1,306 | 1,019 | 287 | 28.2 | ||||||||||||
Restructure expense
|
— | 1,205 | (1,205 | ) | (100.0 | ) | ||||||||||
Other expenses
|
14,579 | 14,500 | 79 | 0.5 | ||||||||||||
Intersegment expenses, net
|
1,369 | 1,843 | (474 | ) | (25.7 | ) | ||||||||||
Total operating expenses
|
42,642 | 42,149 | 493 | 1.2 | ||||||||||||
"Base net income" before income taxes and corporate overhead allocation
|
15,643 | 20,660 | (5,017 | ) | (24.3 | ) | ||||||||||
Corporate overhead allocation
|
(753 | ) | (1,189 | ) | 436 | (36.7 | ) | |||||||||
"Base net income" before income taxes
|
14,890 | 19,471 | (4,581 | ) | (23.5 | ) | ||||||||||
Income tax expense
|
(5,658 | ) | (7,400 | ) | 1,742 | (23.5 | ) | |||||||||
"Base net income"
|
$ | 9,232 | 12,071 | (2,839 | ) | (23.5 | ) % | |||||||||
Additional information:
|
||||||||||||||||
"Base net income"
|
$ | 9,232 | 12,071 | (2,839 | ) | (23.5 | ) % | |||||||||
Restructure expense
|
— | 1,205 | (1,205 | ) | (100.0 | ) | ||||||||||
Net tax effect
|
— | (458 | ) | 458 | (100.0 | ) | ||||||||||
"Base net income," excluding restructure expense
|
$ | 9,232 | 12,818 | (3,586 | ) | (28.0 | ) % | |||||||||
Before Tax Operating Margin, excluding restructure expense
|
25.5 | % | 32.9 | % |
Three months ended March 31,
|
||||||||||||||||||||||||
2011
|
2010
|
|||||||||||||||||||||||
Origination
|
Servicing
|
Total
|
Origination
|
Servicing
|
Total
|
|||||||||||||||||||
revenue
|
revenue
|
revenue
|
revenue
|
revenue
|
revenue
|
|||||||||||||||||||
FFELP servicing (a)
|
$ | — | 6,997 | 6,997 | $ | 168 | 12,456 | 12,624 | ||||||||||||||||
Private servicing
|
274 | 2,143 | 2,417 | 196 | 1,923 | 2,119 | ||||||||||||||||||
Government servicing (b)
|
— | 12,285 | 12,285 | — | 3,540 | 3,540 | ||||||||||||||||||
Guaranty servicing (c)
|
— | 13,937 | 13,937 | 82 | 18,283 | 18,365 | ||||||||||||||||||
Loan and guaranty servicing revenue
|
$ | 274 | 35,362 | 35,636 | $ | 446 | 36,202 | 36,648 |
a)
|
FFELP servicing revenue decreased during the first quarter of 2011 compared to the same period 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. Activity in the secondary market has increased as lender’s look to re-finance existing portfolios, sell portfolios to other lenders, or consolidate portfolios to a single servicer.
|
b)
|
The Company began servicing loans for the Department in September 2009. Government servicing revenue increased during the first quarter of 2011 compared to the same period in 2010 due to increased volume from the Department.
|
c)
|
Guaranty servicing revenue decreased in 2011 due to a reduction in revenue earned from rehabilitation collections on defaulted loan assets. For the three months ended March 31, 2011, the Company earned $6.5 million in revenue from rehabilitation collections compared to $10.0 million for the same period in 2010. Excluding the rehabilitation collection revenue, revenue from guaranty servicing decreased $0.9 million for the three months ended March 31, 2011 compared to the same period in 2010 due to the amortization of the guaranty servicing portfolio.
|
·
|
An increase in revenue as a result of an increase in the number of managed tuition payment plans and campus commerce transactions processed.
|
·
|
A consistent operating margin, which includes expenses related to continued investments in new products and services.
|
Three months ended March 31,
|
Change
|
|||||||||||||||
2011
|
2010
|
$ | % | |||||||||||||
Net interest income
|
$ | 6 | 8 | (2 | ) | (25.0 | )% | |||||||||
Tuition payment processing and campus commerce revenue
|
19,369 | 17,382 | 1,987 | 11.4 | ||||||||||||
Salaries and benefits
|
7,152 | 6,618 | 534 | 8.1 | ||||||||||||
Depreciation and amortization
|
336 | 333 | 3 | 0.9 | ||||||||||||
Other expenses
|
2,634 | 2,108 | 526 | 25.0 | ||||||||||||
Intersegment expenses, net
|
1,093 | 774 | 319 | 41.2 | ||||||||||||
Total operating expenses
|
11,215 | 9,833 | 1,382 | 14.1 | ||||||||||||
"Base net income" before income taxes and corporate overhead allocation
|
8,160 | 7,557 | 603 | 8.0 | ||||||||||||
Corporate overhead allocation
|
(251 | ) | (396 | ) | 145 | (36.6 | ) | |||||||||
"Base net income" before income taxes
|
7,909 | 7,161 | 748 | 10.4 | ||||||||||||
Income tax expense
|
(3,005 | ) | (2,722 | ) | (283 | ) | 10.4 | |||||||||
"Base net income"
|
$ | 4,904 | 4,439 | 465 | 10.5 | % | ||||||||||
Before Tax Operating Margin
|
40.8 | % | 41.2 | % | ||||||||||||
·
|
Minimal growth in revenue and a decrease in operating margin due to the effects from uncertainty in the for-profit college industry.
|
Three months ended March 31,
|
Change
|
|||||||||||||||
2011
|
2010
|
$ | % | |||||||||||||
Enrollment services revenue
|
$ | 33,868 | 33,271 | 597 | 1.8 | % | ||||||||||
Salaries and benefits
|
6,257 | 6,071 | 186 | 3.1 | ||||||||||||
Cost to provide enrollment services
|
22,839 | 22,025 | 814 | 3.7 | ||||||||||||
Depreciation and amortization
|
813 | 2,504 | (1,691 | ) | (67.5 | ) | ||||||||||
Other expenses
|
2,318 | 2,558 | (240 | ) | (9.4 | ) | ||||||||||
Intersegment expenses, net
|
818 | 433 | 385 | 88.9 | ||||||||||||
Total operating expenses
|
33,045 | 33,591 | (546 | ) | (1.6 | ) | ||||||||||
"Base net income" before income taxes and corporate overhead allocation
|
823 | (320 | ) | 1,143 | (357.2 | ) | ||||||||||
Corporate overhead allocation
|
(251 | ) | (396 | ) | 145 | (36.6 | ) | |||||||||
"Base net income" before income taxes
|
572 | (716 | ) | 1,288 | (179.9 | ) | ||||||||||
Income tax expense
|
(217 | ) | 273 | (490 | ) | (179.5 | ) | |||||||||
"Base net income"
|
$ | 355 | (443 | ) | 798 | (180.1 | ) % | |||||||||
Before Tax Operating Margin
|
1.7 | % | (2.2 | )% | ||||||||||||
Before Tax Operating Margin (a)
|
3.6 | % | 4.7 | % |
Three months ended March 31, 2011
|
||||||||||||||||||||
Resource
|
||||||||||||||||||||
centers
|
||||||||||||||||||||
Interactive
|
Publishing
|
and list
|
||||||||||||||||||
marketing (a)
|
services (b)
|
Subtotal
|
marketing
|
Total
|
||||||||||||||||
Enrollment services revenue
|
$ | 28,964 | 1,709 | 30,673 | 3,195 | 33,868 | ||||||||||||||
Cost to provide enrollment services
|
22,325 | 514 | 22,839 | |||||||||||||||||
Gross profit
|
$ | 6,639 | 1,195 | 7,834 | ||||||||||||||||
Gross profit %
|
22.9 | % | 69.9 | % | 25.5 | % |
Three months ended March 31, 2010
|
||||||||||||||||||||
Resource
|
||||||||||||||||||||
centers
|
||||||||||||||||||||
Interactive
|
Publishing
|
and list
|
||||||||||||||||||
marketing (a)
|
services (b)
|
Subtotal
|
marketing
|
Total
|
||||||||||||||||
Enrollment services revenue
|
$ | 27,767 | 2,394 | 30,161 | 3,110 | 33,271 | ||||||||||||||
Cost to provide enrollment services
|
21,198 | 827 | 22,025 | |||||||||||||||||
Gross profit
|
$ | 6,569 | 1,567 | 8,136 | ||||||||||||||||
Gross profit %
|
23.7 | % | 65.5 | % | 27.0 | % |
(a)
|
Interactive marketing revenue increased $1.2 million (4.3%) for the three months ended March 31, 2011 compared to the same period in 2010 as a result of an increase in interactive marketing services volume. The gross profit margin for the three months ended March 31, 2011 compared to 2010 decreased as a result of more competitive pricing. Revenue and profit margin have been affected by the uncertainty in the for-profit college industry.
|
(b)
|
Publishing services revenue decreased $0.7 million (28.6%) for the three months ended March 31, 2011 compared to the same period in 2010. The decrease is 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.
|
·
|
Continued recognition of significant fixed rate floor income due to historically low interest rates.
|
·
|
A decrease in the variable student loan spread as a result of a slight widening of the CP/LIBOR spread partially offset by a decrease in the amortization of loan premiums/discounts and deferred origination costs as a result of loans purchased at a discount.
|
·
|
The purchase of $241 million of FFELP student loans during the first three months of 2011 from various third parties.
|
·
|
The repurchase of $274.3 million of asset-backed securities resulting in a $10.2 million gain in the first quarter of 2010. Due to improvements in the capital markets, the opportunities for the Company to repurchase debt at less than par are becoming more limited. During the first quarter of 2011, the Company repurchased $0.6 million of its asset-based securities resulting in a gain of approximately $55,000.
|
As of March 31, 2011
|
As of December 31, 2010
|
|||||||||||
Held for investment
|
Held for investment
|
Held for sale (a)
|
||||||||||
Federally insured loans:
|
||||||||||||
Stafford and other
|
$ | 7,768,886 | 7,927,525 | — | ||||||||
Consolidation
|
15,598,821 | 15,830,174 | — | |||||||||
Total
|
23,367,707 | 23,757,699 | — | |||||||||
Non-federally insured loans
|
23,489 | 26,370 | 84,987 | |||||||||
23,391,196 | 23,784,069 | 84,987 | ||||||||||
Unamortized loan discount/premiums and deferred origination costs, net
|
186,316 | 207,571 | — | |||||||||
Allowance for loan losses – federally insured loans
|
(31,553 | ) | (32,908 | ) | — | |||||||
Allowance for loan losses – non-federally insured loans
|
(9,544 | ) | (10,718 | ) | — | |||||||
$ | 23,536,415 | 23,948,014 | 84,987 |
(a)
|
On January 13, 2011, the Company sold a portfolio of non-federally insured loans for proceeds of $91.3 million (100% of par value). The Company retained credit risk related to this portfolio and will pay cash to purchase back any loans which become 60 days delinquent. As of December 31, 2010, the Company classified this portfolio as held-for-sale and the loans were carried at fair value.
|
Three months ended March 31,
|
||||||||
2011
|
2010
|
|||||||
Beginning balance (loans held for investment)
|
$ | 23,784,069 | 23,635,874 | |||||
Loan originations
|
— | 587,483 | ||||||
Loan acquisitions
|
240,733 | 963,258 | ||||||
Total originations and acquisitions
|
240,733 | 1,550,741 | ||||||
- | ||||||||
Repayments, claims, capitalized interest, participations, and other
|
(424,896 | ) | (491,553 | ) | ||||
Consolidation loans lost to external parties
|
(205,710 | ) | (123,878 | ) | ||||
Loans sold
|
(3,000 | ) | (20,032 | ) | ||||
Ending balance (loans held for investment)
|
$ | 23,391,196 | 24,551,152 |
Three months ended March 31,
|
||||||||
2011
|
2010
|
|||||||
Balance at beginning of period
|
$ | 43,626 | 50,887 | |||||
Provision for loan losses:
|
||||||||
Federally insured loans
|
3,500 | 4,000 | ||||||
Non-federally insured loans
|
250 | 1,000 | ||||||
Total provision for loan losses
|
3,750 | 5,000 | ||||||
Charge-offs:
|
||||||||
Federally insured loans
|
(4,855 | ) | (4,068 | ) | ||||
Non-federally insured loans
|
(994 | ) | (1,380 | ) | ||||
Total charge-offs
|
(5,849 | ) | (5,448 | ) | ||||
Recoveries:
|
||||||||
Non-federally insured loans
|
370 | 251 | ||||||
Total recoveries
|
370 | 251 | ||||||
Purchase (sale) of federally insured loans, net
|
— | 710 | ||||||
Purchase (sale) of non-federally insured loans, net
|
(800 | ) | (2,000 | ) | ||||
Balance at end of period
|
$ | 41,097 | 49,400 | |||||
Allocation of the allowance for loan losses:
|
||||||||
Federally insured loans
|
$ | 31,553 | 30,744 | |||||
Non-federally insured loans
|
9,544 | 18,656 | ||||||
Total allowance for loan losses
|
$ | 41,097 | 49,400 | |||||
Allowance for federally insured loans as a percentage of such loans
|
0.14 | % | 0.13 | % | ||||
Allowance for non-federally insured loans as a percentage of such loans (a)
|
40.63 | % | 13.43 | % |
(a)
|
The allowance for non-federally insured loans as a percentage of such loans at March 31, 2011 is significantly larger than prior periods. After selling $91.3 million of non-federally insured loans in January 2011, the remaining balance of non-federally insured loans at March 31, 2011 includes loans with higher credit risk.
|
Three months ended March 31,
|
||||||||
2011
|
2010
|
|||||||
Beginning balance
|
$ | 12,600 | 10,600 | |||||
Estimated repurchase obligation related to loans sold, net
|
6,876 | — | ||||||
Estimated repurchase obligation related to loans participated, net
|
194 | 2,000 | ||||||
Ending balance
|
$ | 19,670 | 12,600 |
As of March 31, 2011
|
As of December 31, 2010
|
|||||||||||||||
Dollars
|
Percent
|
Dollars
|
Percent
|
|||||||||||||
Federally Insured Loans:
|
||||||||||||||||
Loans in-school/grace/deferment (a)
|
$ | 4,332,130 | $ | 4,358,616 | ||||||||||||
Loans in forebearance (b)
|
3,086,292 | 2,984,869 | ||||||||||||||
Loans in repayment status:
|
||||||||||||||||
Loans current
|
13,933,107 | 87.3 | % | 14,309,480 | 87.2 | % | ||||||||||
Loans delinquent 31-60 days (c)
|
595,386 | 3.7 | 794,140 | 4.8 | ||||||||||||
Loans delinquent 61-90 days (c)
|
392,008 | 2.5 | 306,853 | 1.9 | ||||||||||||
Loans delinquent 91 days or greater (d)
|
1,028,784 | 6.5 | 1,003,741 | 6.1 | ||||||||||||
Total loans in repayment
|
15,949,285 | 100.0 | % | 16,414,214 | 100.0 | % | ||||||||||
Total federally insured loans
|
$ | 23,367,707 | $ | 23,757,699 | ||||||||||||
Non-Federally Insured Loans:
|
||||||||||||||||
Loans in-school/grace/deferment (a)
|
$ | 3,069 | $ | 3,500 | ||||||||||||
Loans in forebearance (b)
|
239 | 292 | ||||||||||||||
Loans in repayment status:
|
||||||||||||||||
Loans current
|
16,564 | 82.1 | % | 16,679 | 73.9 | % | ||||||||||
Loans delinquent 31-60 days (c)
|
363 | 1.8 | 1,546 | 6.8 | ||||||||||||
Loans delinquent 61-90 days (c)
|
692 | 3.4 | 1,163 | 5.2 | ||||||||||||
Loans delinquent 91 days or greater
|
2,562 | 12.7 | 3,190 | 14.1 | ||||||||||||
Total loans in repayment
|
20,181 | 100.0 | % | 22,578 | 100.0 | % | ||||||||||
Total non-federally insured loans
|
$ | 23,489 | $ | 26,370 |
|
(a)
|
Loans for borrowers who still may be attending school or engaging in other permitted educational activities and are not yet required to make payments on the loans,
e.g.
, residency periods for medical students or a grace period for bar exam preparation for law students.
|
|
(b)
|
Loans for borrowers who have temporarily ceased making full payments due to hardship or other factors, according to a schedule approved by the servicer consistent with the established loan program servicing procedures and policies.
|
|
(c)
|
The period of delinquency is based on the number of days scheduled payments are contractually past due and relate to repayment loans, that is, receivables not charged off, and not in school, grace, deferment, or forbearance.
|
|
(d)
|
Loans delinquent 91 days or greater include federally insured loans in claim status, which are loans that have gone into default and have been submitted to the guaranty agency.
|
Three months ended
|
||||||||||||
March 31,
|
December 31,
|
March 31,
|
||||||||||
2011
|
2010
|
2010
|
||||||||||
Variable student loan yield, gross
|
2.60 | % | 2.65 | % | 2.56 | % | ||||||
Consolidation rebate fees
|
(0.72 | ) | (0.69 | ) | (0.71 | ) | ||||||
Premium/discount and deferred origination costs amortization
|
(0.17 | ) | (0.17 | ) | (0.27 | ) | ||||||
Variable student loan yield, net
|
1.71 | 1.79 | 1.58 | |||||||||
Student loan cost of funds - interest expense
|
(0.83 | ) | (0.81 | ) | (0.75 | ) | ||||||
Student loan cost of funds - derivative settlements
|
0.03 | 0.03 | 0.03 | |||||||||
Variable student loan spread
|
0.91 | 1.01 | 0.86 | |||||||||
Fixed rate floor income,
|
||||||||||||
net of settlements on derivatives
|
0.55 | 0.52 | 0.59 | |||||||||
Core student loan spread
|
1.46 | % | 1.53 | % | 1.45 | % | ||||||
Average balance of student loans
|
$ | 23,586,250 | 24,287,779 | 24,080,805 | ||||||||
Average balance of debt outstanding
|
23,853,620 | 24,334,964 | 24,197,221 |
(a)
|
The interest earned on the majority of the Company’s FFELP student loan assets is indexed to the three-month commercial paper indice. The Company funds the majority of its assets with three-month LIBOR indexed floating rate securities. The relationship between these two indices has a significant impact on student loan spread. This table (the right axis) shows the difference between the average three-month LIBOR and commercial paper indices by quarter.
|
Three months ended
|
||||||||||||
March 31,
|
December 31,
|
March 31,
|
||||||||||
2011
|
2010
|
2010
|
||||||||||
Fixed rate floor income, gross
|
$ | 37,900 | 39,131 | 39,127 | ||||||||
Derivative settlements (a)
|
(6,218 | ) | (7,435 | ) | (3,856 | ) | ||||||
Fixed rate floor income, net
|
$ | 31,682 | 31,696 | 35,271 | ||||||||
Fixed rate floor income
|
||||||||||||
contribution to spread, net
|
0.55 | % | 0.52 | % | 0.59 | % |
(a)
|
Includes settlement payments on derivatives used to hedge student loans earning fixed rate floor income.
|
Three months ended March 31,
|
Change
|
|||||||||||||||
2011
|
2010
|
$ | % | |||||||||||||
Net interest income after provision
|
||||||||||||||||
for loan losses
|
$ | 84,173 | 84,606 | (433 | ) | (0.5 | )% | |||||||||
Other income
|
4,136 | 4,768 | (632 | ) | (13.3 | ) | ||||||||||
Gain on sale of loans and debt repurchases
|
1,400 | 10,177 | (8,777 | ) | (86.2 | ) | ||||||||||
Derivative settlements, net
|
(4,038 | ) | (2,423 | ) | (1,615 | ) | 66.7 | |||||||||
Total other income
|
1,498 | 12,522 | (11,024 | ) | (88.0 | ) | ||||||||||
Salaries and benefits
|
778 | 1,358 | (580 | ) | (42.7 | ) | ||||||||||
Other expenses
|
1,538 | 4,221 | (2,683 | ) | (63.6 | ) | ||||||||||
Intersegment expenses, net
|
18,147 | 20,825 | (2,678 | ) | (12.9 | ) | ||||||||||
Total operating expenses
|
20,463 | 26,404 | (5,941 | ) | (22.5 | ) | ||||||||||
"Base net income" before income taxes
|
||||||||||||||||
and corporate overhead allocation
|
65,208 | 70,724 | (5,516 | ) | (7.8 | ) | ||||||||||
Corporate overhead allocation
|
(1,255 | ) | (1,981 | ) | 726 | (36.6 | ) | |||||||||
"Base net income" before income taxes
|
63,953 | 68,743 | (4,790 | ) | (7.0 | ) | ||||||||||
Income tax expense
|
(24,302 | ) | (26,123 | ) | 1,821 | (7.0 | ) | |||||||||
"Base net income"
|
$ | 39,651 | 42,620 | (2,969 | ) | (7.0 | )% | |||||||||
Before Tax Operating Margin (a)
|
76.1 | % | 72.8 | % |
Three months ended March 31, |
Change
|
|||||||||||||||
2011
|
2010
|
$ | % | |||||||||||||
Variable student loan interest, net of settlements
|
||||||||||||||||
on derivatives (a)
|
$ | 153,411 | 155,801 | (2,390 | ) | (1.5 | )% | |||||||||
Consolidation rebate fees (b)
|
(41,784 | ) | (42,449 | ) | 665 | (1.6 | ) | |||||||||
Amortization of loan premiums/discounts and
|
||||||||||||||||
deferred origination costs (c)
|
(9,989 | ) | (16,080 | ) | 6,091 | (37.9 | ) | |||||||||
Interest on bonds and notes payable (d)
|
(48,994 | ) | (44,742 | ) | (4,252 | ) | 9.5 | |||||||||
Variable student loan interest margin, net of
|
||||||||||||||||
settlements on derivatives
|
52,644 | 52,530 | 114 | 0.2 | ||||||||||||
Fixed rate floor income, net of settlements
|
||||||||||||||||
on derivatives (e)
|
31,682 | 35,271 | (3,589 | ) | (10.2 | ) | ||||||||||
Investment interest
|
281 | 295 | (14 | ) | (4.7 | ) | ||||||||||
Intercompany interest
|
(722 | ) | (913 | ) | 191 | (20.9 | ) | |||||||||
Provision for loan losses (f)
|
(3,750 | ) | (5,000 | ) | 1,250 | (25.0 | ) | |||||||||
Net interest income after provision for loan
|
||||||||||||||||
losses (net of settlements on derivatives (g) )
|
$ | 80,135 | 82,183 | (2,048 | ) | (2.5 | )% |
(a)
|
Student loan interest, net of settlements on derivatives, decreased as a result of a decrease in the average student loan portfolio of $0.5 million (2.1%) for the three months ended March 31, 2011 compared to the same period in 2010. This decrease was offset by an increase in the yield earned on student loans, net of settlements on derivatives, to 2.63% for the three months ended March 31, 2011 from 2.59% compared to the same period in 2010.
|
(b)
|
Consolidation rebate fees decreased for the three months ended March 31, 2011 compared to the same period in 2010 due to a decrease in the average consolidation loan portfolio for which these fees are paid.
|
(c)
|
The amortization of loan premiums/discounts and deferred origination costs decreased as a result of the purchase of loans at a discount during 2010 and 2011 which has reduced the net costs being amortized.
|
(d)
|
Interest expense increased as a result of an increase in interest rates on the Company’s variable rate debt, which increased the Company’s cost of funds (excluding net derivative settlements) to 0.83% for the three months ended March 31, 2011 compared to 0.75% for the same period in 2010. This increase was offset by a decrease in average debt outstanding of $0.3 million (1.4%).
|
(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. A summary of fixed rate floor income follows.
|
Three months ended March 31,
|
||||||||
2011
|
2010
|
|||||||
Fixed rate floor income, gross
|
$ | 37,900 | 39,127 | |||||
Derivative settlements (a)
|
(6,218 | ) | (3,856 | ) | ||||
Fixed rate floor income, net
|
$ | 31,682 | 35,271 |
(a)
|
Includes settlement payments on derivatives used to hedge student loans earning fixed rate floor income.
|
(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 decreased during the three months ended March 31, 2011 compared to the same period in 2010 primarily due to a decrease in the dollar amount of the Company's student loan portfolio, including those loans in repayment and loans delinquent, as well as continued aging of the portfolio.
|
(g)
|
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 March 31,
|
||||||||
2011
|
2010
|
|||||||
Borrower late fee income
|
$ | 3,590 | 3,258 | |||||
Other
|
546 | 1,510 | ||||||
Other income
|
$ | 4,136 | 4,768 |
Three months ended March 31,
|
||||||||
2011
|
2010
|
|||||||
Gain on sale of loans
|
$ | 1,345 | — | |||||
Gain on debt repurchases - asset-backed securities (a)
|
55 | 10,177 | ||||||
Gain on sale of loans and debt repurchases
|
$ | 1,400 | 10,177 |
(a)
|
During the three months ended March 31, 2011 and 2010, the Company repurchased asset-backed securities of $0.6 million and $274.3 million, respectively. Due to improvements in the capital markets, the opportunities for the Company to repurchase debt at less than par are becoming more limited.
|
Carrying
|
Interest rate
|
|||||||
amount
|
range
|
Final maturity
|
||||||
Asset Generation and Management:
|
||||||||
Bonds and notes issued in asset-backed securitizations
|
$ | 20,982,748 | 0.23% - 6.90% |
5/1/11 - 7/27/48
|
||||
FFELP warehouse facility
|
257,121 | 0.28% - 0.32% |
7/29/13
|
|||||
Department of Education Conduit
|
2,585,955 | 0.32% |
5/8/14
|
|||||
Other borrowings
|
14,571 | 3.56% - 5.10% |
11/14/11 - 11/11/15
|
|||||
23,840,395 | ||||||||
Unsecured Corporate Debt:
|
||||||||
Unsecured line of credit
|
125,000 | 0.69% |
5/8/12
|
|||||
Junior Subordinated Hybrid securities
|
100,697 | 7.40% |
9/15/61
|
|||||
225,697 | ||||||||
$ | 24,066,092 |
·
|
Satisfy unsecured debt obligations, specifically its unsecured line of credit
|
·
|
Satisfy debt obligations secured by student loan assets and related collateral
|
Balance outstanding
|
||||
as of March 31, 2011
|
||||
Unsecured Corporate Debt:
|
||||
Unsecured line of credit - due May 2012
|
$ | 125,000 |
As of March 31, 2011
|
||||
Sources of primary liquidity:
|
||||
Cash and cash equivalents
|
$ | 48,137 | ||
Investments - trading securities
|
37,719 | |||
Unencumbered FFELP student loan assets
|
2,181 | |||
Unencumbered private student loan assets
|
13,689 | |||
Asset-backed security investments - Class B subordinated notes (a)
|
76,513 | |||
Asset-backed security investments (b)
|
61,650 | |||
Total sources of primary liquidity
|
$ | 239,889 |
(a)
|
As part of the Company’s issuance of asset-backed securitizations in 2008, due to credit market conditions when these notes were issued, the Company purchased the Class B subordinated notes of $76.5 million (par value). 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)
|
The Company has repurchased its own asset-backed securities (bonds and notes payable). For accounting purposes, these notes are effectively retired and are not included on the Company’s consolidated balance sheet. However, as of March 31, 2011, $61.7 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 March 31, 2011
|
|||||
Carrying
|
|||||
amount
|
Final maturity
|
||||
Asset Generation and Management:
|
|||||
Bonds and notes issued in asset-backed securitizations
|
$ | 20,982,748 |
5/1/11 - 7/27/48
|
||
FFELP warehouse facility
|
257,121 |
7/29/13
|
|||
Department of Education Conduit
|
2,585,955 |
5/8/14
|
|||
Other borrowings
|
14,571 |
11/14/11 - 11/11/15
|
|||
$ | 23,840,395 |
(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
|
Three months ended March 31, 2011
|
||||||||||||
Notional amount
|
Purchase price
|
Gain
|
||||||||||
Unsecured debt - Junior Subordinated Hybrid Securities
|
$ | 62,558 | 55,651 | 6,907 | ||||||||
Asset-backed securities
|
600 | 545 | 55 | |||||||||
$ | 63,158 | 56,196 | 6,962 |
As of March 31, 2011
|
||||||||||||||||||||
Total
|
Less than
1 year
|
1 to 3 years
|
3 to 5 years
|
More than
5 years
|
||||||||||||||||
Bonds and notes payable
|
$ | 24,066,092 | 56,500 | 382,121 | 2,909,321 | 20,718,150 | ||||||||||||||
Operating lease obligations (a)
|
18,213 | 6,101 | 10,337 | 1,775 | — | |||||||||||||||
Total
|
$ | 24,084,305 | 62,601 | 392,458 | 2,911,096 | 20,718,150 |
(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 $1.7 million in sublease arrangements.
|
·
|
Interactive marketing
– Interactive marketing revenue is derived primarily from fees which are earned through the delivery of qualified inquiries or clicks. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is reasonably assured. Delivery is deemed to have occurred at the time a qualified inquiry or click is delivered to the customer provided that no significant obligations remain. From time to time, the Company may agree to credit certain inquiries or clicks if they fail to meet the contractual or other guidelines of a particular client. The Company has established a sales reserve based on historical experience. To date, such credits have been immaterial and within management’s expectations.
|
·
|
List marketing
- Revenue from the sale of lists is generally earned and recognized, net of estimated returns, upon delivery.
|
·
|
Publishing services -
Revenue from the sale of print products is generally earned and recognized, net of estimated returns, upon shipment or delivery.
|
·
|
Resource centers –
Resource centers services include online courses, scholarship search and selection data, career planning, and online information about colleges and universities. The majority of these services are sold based on subscriptions and/or are performance based. Revenues from sales of subscription and performance based services are recognized ratably over the term of the contract as earned. Subscription and performance based revenues received or receivable in advance of the delivery of services is included in deferred revenue.
|
As of March 31, 2011
|
As of December 31, 2010
|
|||||||||||||||
Dollars
|
Percent
|
Dollars
|
Percent
|
|||||||||||||
Fixed-rate loan assets
|
$ | 8,402,686 | 35.9 | % | $ | 8,525,279 | 35.7 | % | ||||||||
Variable-rate loan assets
|
14,988,510 | 64.1 | 15,343,777 | 64.3 | ||||||||||||
Total
|
$ | 23,391,196 | 100.0 | % | $ | 23,869,056 | 100.0 | % | ||||||||
Fixed-rate debt instruments
|
$ | 100,697 | 0.4 | % | $ | 163,255 | 0.7 | % | ||||||||
Variable-rate debt instruments
|
23,965,395 | 99.6 | 24,509,217 | 99.3 | ||||||||||||
Total
|
$ | 24,066,092 | 100.0 | % | $ | 24,672,472 | 100.0 | % |
Three months ended March 31,
|
||||||||
2011
|
2010
|
|||||||
Fixed rate floor income, gross
|
$ | 37,900 | 39,127 | |||||
Derivative settlements (a)
|
(6,218 | ) | (3,856 | ) | ||||
Fixed rate floor income, net
|
$ | 31,682 | 35,271 |
(a)
|
Includes settlement payments on derivatives used to hedge student loans earning fixed rate floor income.
|
Borrower/
|
Estimated
|
Balance of
|
||||||
Fixed
|
lender
|
variable
|
assets earning fixed-rate
|
|||||
interest
|
weighted
|
conversion
|
floor income as of
|
|||||
rate range
|
average yield
|
rate (a)
|
March 31, 2011
|
|||||
3.0 - 3.49%
|
3.21%
|
0.57%
|
|
$ |
1,769,435
|
|||
3.5 - 3.99%
|
3.65%
|
1.01%
|
1,809,996
|
|||||
4.0 - 4.49%
|
4.20%
|
1.56%
|
1,421,137
|
|||||
4.5 - 4.99%
|
4.72%
|
2.08%
|
788,625
|
|||||
5.0 - 5.49%
|
5.25%
|
2.61%
|
530,238
|
|||||
5.5 - 5.99%
|
5.67%
|
3.03%
|
320,270
|
|||||
6.0 - 6.49%
|
6.19%
|
3.55%
|
374,279
|
|||||
6.5 - 6.99%
|
6.70%
|
4.06%
|
333,440
|
|||||
7.0 - 7.49%
|
7.17%
|
4.53%
|
117,773
|
|||||
7.5 - 7.99%
|
7.71%
|
5.07%
|
206,234
|
|||||
8.0 - 8.99%
|
8.16%
|
5.52%
|
462,829
|
|||||
> 9.0%
|
9.04%
|
6.40%
|
268,430
|
|||||
|
$ |
8,402,686
|
|
(a)
|
The estimated variable conversion rate is the estimated short-term interest rate at which loans would convert to variable rate. As of March 31, 2011, the short-term interest rate was 25 basis points.
|
Weighted
|
||||||||
average fixed
|
||||||||
Notional
|
rate paid by
|
|||||||
Maturity
|
Amount
|
the Company (a)
|
||||||
2011
|
$ | 3,800,000 | 0.54 | % | ||||
2012
|
950,000 | 1.08 | ||||||
2013
|
650,000 | 1.07 | ||||||
2015
|
100,000 | 2.26 | ||||||
2020
|
50,000 | 3.23 | ||||||
$ | 5,550,000 | 0.75 | % |
(a)
|
For all interest rate derivatives, the Company receives discrete three-month LIBOR.
|
Index
|
Frequency of Variable Resets
|
Assets
|
Debt outstanding
that funded
student loan
assets (a)
|
|||||||
3 month H15 financial commercial paper (b)
|
Daily
|
$ | 22,374,556 | — | ||||||
3 month Treasury bill (c)
|
Varies
|
993,151 | — | |||||||
3 month LIBOR (d)
|
Quarterly
|
— | 19,403,791 | |||||||
1 month LIBOR
|
Monthly
|
— | 720,582 | |||||||
Auction-rate or remarketing (e)
|
Varies
|
— | 858,375 | |||||||
Asset-backed commercial paper (f)
|
Varies
|
— | 2,843,076 | |||||||
Other (g)
|
472,688 | 14,571 | ||||||||
$ | 23,840,395 | 23,840,395 |
(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 March 31, 2011:
|
Maturity
|
Notional 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 indice calculated on a 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. The following table summarizes these derivatives as of March 31, 2011:
|
Maturity
|
Notional Amount
|
|||
2011
|
$ | 225,000 |
(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 indice 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 March 31, 2011, the Company is sponsor on $592.5 million of Auction Rate Securities and $265.9 million of Variable Rate Demand Notes.
|
(f)
|
Asset-backed commercial paper consists of $257.1 million funded in the Company’s FFELP warehouse facility and $2.6 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 March 31,
|
||||||||
2011
|
2010
|
|||||||
Settlements:
|
||||||||
1:3 basis swaps
|
$ | 208 | 131 | |||||
T-Bill/LIBOR basis swaps
|
(129 | ) | — | |||||
Interest rate swaps - floor income hedges
|
(6,218 | ) | (3,856 | ) | ||||
Interest rate swaps - hybrid debt hedges
|
(246 | ) | — | |||||
Cross-currency interest rate swaps
|
2,109 | 1,302 | ||||||
Other
|
124 | — | ||||||
Total settlements - (expense) income
|
$ | (4,152 | ) | (2,423 | ) |
Three months ended March 31, 2011
|
||||||||||||||||||||||||||||||||
Interest Rates
|
Asset and funding indice 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:
|
||||||||||||||||||||||||||||||||
Decrease in pre-tax net income before
impact of derivative settlements
|
$ | (15,384 | ) | (17.5 | ) % | $ | (26,752 | ) | (30.5 | ) % | $ | (5,882 | ) | (6.7 | ) % | $ | (17,645 | ) | (20.1 | ) % | ||||||||||||
Impact of derivative settlements
|
18,897 | 21.5 | 56,692 | 64.6 | — | — | — | — | ||||||||||||||||||||||||
Increase (decrease) in net income before taxes
|
$ | 3,513 | 4.0 | % | $ | 29,940 | 34.1 | % | $ | (5,882 | ) | (6.7 | ) % | $ | (17,645 | ) | (20.1 | ) % | ||||||||||||||
Increase (decrease) in basic and diluted
earnings per share
|
$ | 0.05 | $ | 0.39 | $ | (0.08 | ) | $ | (0.23 | ) |
Three months ended March 31, 2010
|
||||||||||||||||||||||||||||||||
Interest Rates
|
Asset and funding indice 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:
|
||||||||||||||||||||||||||||||||
Decrease in pre-tax net income before
impact of derivative settlements
|
$ | (17,346 | ) | (19.9 | ) % | $ | (31,469 | ) | (36.2 | ) % | $ | (5,966 | ) | (6.9 | ) % | $ | (17,899 | ) | (20.6 | ) % | ||||||||||||
Impact of derivative settlements
|
12,368 | 14.2 | 37,105 | 42.7 | — | — | — | — | ||||||||||||||||||||||||
Increase (decrease) in net income before taxes
|
$ | (4,978 | ) | (5.7 | ) % | $ | 5,636 | 6.5 | % | $ | (5,966 | ) | (6.9 | ) % | $ | (17,899 | ) | (20.6 | ) % | |||||||||||||
Increase (decrease) in basic and diluted
earnings per share
|
$ | (0.06 | ) | $ | 0.07 | $ | (0.08 | ) | $ | (0.23 | ) |
Three Months Ended March 31,
|
||||||||
2011
|
2010
|
|||||||
Re-measurement of Euro Notes
|
$ | (65,334 | ) | 71,675 | ||||
Change in fair value of
|
||||||||
cross-currency derivatives
|
62,532 | (59,075 | ) | |||||
Total impact to statements of
|
||||||||
income - income (expense)
|
$ | (2,802 | ) | 12,600 |
Three Months Ended March 31,
|
||||||||
2011
|
2010
|
|||||||
Change in fair value of derivatives
|
$ | 66,450 | (67,570 | ) | ||||
Foreign currency transaction adjustment (Euro Notes)
|
(65,334 | ) | 71,675 | |||||
Derivative settlements, net
|
(4,152 | ) | (2,423 | ) | ||||
Derivative market value and foreign currency
|
||||||||
adjustments and derivative settlements, net
|
$ | (3,036 | ) | 1,682 |
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)
|
or programs
|
||||||||||||
January 1 - January 31, 2011
|
2,123 | $ | 23.49 | 1,034 | 2,983,918 | |||||||||||
February 1 - February 28, 2011
|
14 | 23.28 | 14 | 2,983,904 | ||||||||||||
March 1 - March 31, 2011
|
12,328 | 21.09 | 1,689 | 2,982,215 | ||||||||||||
Total | 14,465 | $ | 21.44 | 2,737 |
|
(1)
|
The total number of shares includes: (i) shares purchased pursuant to the 2006 Plan discussed in footnote (2) below; and (ii) shares owned and tendered by employees to satisfy tax withholding obligations upon the vesting of restricted shares. Shares of Class A common stock purchased pursuant to the 2006 Plan were 1,034 shares, 14 shares, and 1,689 shares in January, February, and March 2011, 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 1,089 shares and 10,639 shares in January and March 2011, 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.
|
·
|
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.
|
|
3.1
|
Sixth Amended and Restated Bylaws of Nelnet, Inc., as amended as of March 18, 2011. Incorporated by reference to Exhibit 3.1 to the registrant’s current report on Form 8-K filed on March 24, 2011.
|
|
10.1*
|
Cancellation of the Fifteenth Amendment of Amended and Restated Participation Agreement, dated as of March 16, 2011, by and between Union Bank and Trust Company and National Education Loan Network, Inc.
|
|
10.2*
|
First Amendment of Guaranteed Purchase Agreement, dated as of March 22, 2011, by and between Nelnet, Inc. and Union Bank and Trust Company.
|
|
10.3*
|
Management Agreement, dated effective as of May 1, 2011, by Whitetail Rock Capital Management, LLC and Union Bank and Trust Company.
|
|
10.4*+
|
Nelnet, Inc. Employee Share Purchase Plan, as amended through March 17, 2011.
|
|
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: May 10, 2011
|
By:
|
/s/ MICHAEL S. DUNLAP | |
Name: | Michael S. Dunlap | ||
Title: | Chairman and Chief Executive Officer | ||
Principal Executive Officer |
By:
|
/s/ TERRY J. HEIMES | ||
Name: | Terry J. Heimes | ||
Title: | Chief Financial Officer | ||
Principal Financial Officer and Principal Accounting Officer |
|
6.
|
Proprietary Information
.
|
|
(a)
|
If to Manager:
|
Whitetail Rock Capital Management, LLC | |||
By: | /s/ Thomas G. McCarley | ||
Title | President | ||
Date Signed: May 9, 2011 |
Union Bank and Trust Company | |||
By: | /s/ Mark Portz | ||
Title | Senior Vice President | ||
Date Signed: May 9, 2011 |
|
1.
|
The Manager shall furnish services in identifying Student Loan ABS for purchase or sale by the Trustee under the Trust Agreements.
|
|
2.
|
The Manager shall monitor performance and characteristics of the Student Loan ABS held by the Trustee in accordance with the Trust Agreements.
|
|
3.
|
The Manager shall perform such internal clerical, accounting and administrative services as may be required to carry out the services described herein.
|
|
4.
|
The Manager shall assist in preparing and maintaining financial records and accounts of the Trustee with respect to the Student Loan ABS.
|
|
5.
|
Custody of the Student Loan ABS shall be maintained by the Trustee. The Manager will not take custody of the Student Loan ABS. The Manager may issue instructions for the purchase or sale of Student Loan ABS under the Trust Agreements.
|
|
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: May 10, 2011
|
/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: May 10, 2011
|
/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: May 10, 2011
|
By:
|
/s/ MICHAEL S. DUNLAP | |
Name: | Michael S. Dunlap | ||
Title: | Chairman and Chief Executive Officer | ||
Principal Executive Officer |
By:
|
/s/ TERRY J. HEIMES | ||
Name: | Terry J. Heimes | ||
Title: | Chief Financial Officer | ||
Principal Financial Officer and Principal Accounting Officer |