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)
|
PART
I. FINANCIAL INFORMATION
|
|||||
Item
1.
|
Financial
Statements
|
2
|
|||
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
32
|
|||
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
76
|
|||
Item
4.
|
Controls
and Procedures
|
81
|
|||
PART
II. OTHER INFORMATION
|
|||||
Item
1.
|
Legal
Proceedings
|
81
|
|||
Item
1A.
|
Risk
Factors
|
83
|
|||
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
83
|
|||
Item
6.
|
Exhibits
|
85
|
|||
Signatures
|
86
|
||||
NELNET,
INC. AND SUBSIDIARIES
|
||||||||
CONSOLIDATED
BALANCE SHEETS
|
||||||||
(Dollars
in thousands, except share data)
|
||||||||
As
of
|
As
of
|
|||||||
September
30, 2009
|
December
31, 2008
|
|||||||
(unaudited)
|
||||||||
Assets:
|
||||||||
Student
loans receivable (net of allowance for loan losses of
|
||||||||
$50,120
and $50,922, respectively)
|
$ | 23,764,263 | 25,413,008 | |||||
Student
loans receivable - held for sale
|
1,627,794 | — | ||||||
Cash
and cash equivalents:
|
||||||||
Cash
and cash equivalents - not held at a related party
|
15,077 | 13,129 | ||||||
Cash
and cash equivalents - held at a related party
|
319,216 | 176,718 | ||||||
Total
cash and cash equivalents
|
334,293 | 189,847 | ||||||
Restricted
cash and investments
|
798,636 | 997,272 | ||||||
Restricted
cash - due to customers
|
50,783 | 160,985 | ||||||
Accrued
interest receivable
|
389,238 | 471,878 | ||||||
Accounts
receivable (net of allowance for doubtful accounts of
|
||||||||
$1,506
and $1,005, respectively)
|
49,268 | 42,088 | ||||||
Goodwill
|
175,178 | 175,178 | ||||||
Intangible
assets, net
|
59,803 | 77,054 | ||||||
Property
and equipment, net
|
28,116 | 38,747 | ||||||
Other
assets
|
104,333 | 113,666 | ||||||
Fair
value of derivative instruments
|
210,157 | 175,174 | ||||||
Total
assets
|
$ | 27,591,862 | 27,854,897 | |||||
Liabilities:
|
||||||||
Bonds
and notes payable
|
$ | 26,586,093 | 26,787,959 | |||||
Accrued
interest payable
|
24,859 | 81,576 | ||||||
Other
liabilities
|
193,055 | 179,336 | ||||||
Due
to customers
|
50,783 | 160,985 | ||||||
Fair
value of derivative instruments
|
8,998 | 1,815 | ||||||
Total
liabilities
|
26,863,788 | 27,211,671 | ||||||
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 38,349,461 shares as of September 30,
|
||||||||
2009
and 37,794,067 shares as of December 31, 2008
|
383 | 378 | ||||||
Class
B, convertible, $0.01 par value. Authorized 60,000,000
shares;
|
||||||||
issued
and outstanding 11,495,377 shares as of September 30,
|
||||||||
2009
and December 31, 2008
|
115 | 115 | ||||||
Additional
paid-in capital
|
108,442 | 103,762 | ||||||
Retained
earnings
|
620,583 | 540,521 | ||||||
Employee
notes receivable
|
(1,449 | ) | (1,550 | ) | ||||
Total
shareholders' equity
|
728,074 | 643,226 | ||||||
Commitments
and contingencies
|
||||||||
Total
liabilities and shareholders' equity
|
$ | 27,591,862 | 27,854,897 | |||||
See
accompanying notes to consolidated financial statements.
|
NELNET,
INC. AND SUBSIDIARIES
|
||||||||||||||||
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
||||||||||||||||
(Dollars
in thousands, except share data)
|
||||||||||||||||
(unaudited)
|
Three
months
|
Nine
months
|
|||||||||||||||
ended
September 30,
|
ended
September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Interest
income:
|
||||||||||||||||
Loan
interest
|
$ | 143,255 | 284,468 | 474,587 | 911,140 | |||||||||||
Investment
interest
|
1,943 | 9,118 | 8,810 | 29,914 | ||||||||||||
Total
interest income
|
145,198 | 293,586 | 483,397 | 941,054 | ||||||||||||
Interest
expense:
|
||||||||||||||||
Interest
on bonds and notes payable
|
76,016 | 234,016 | 328,600 | 791,621 | ||||||||||||
Net
interest income
|
69,182 | 59,570 | 154,797 | 149,433 | ||||||||||||
Less
provision for loan losses
|
7,500 | 7,000 | 23,000 | 18,000 | ||||||||||||
Net
interest income after provision for loan losses
|
61,682 | 52,570 | 131,797 | 131,433 | ||||||||||||
Other
income (expense):
|
||||||||||||||||
Loan
and guaranty servicing revenue
|
26,006 | 29,691 | 81,280 | 78,173 | ||||||||||||
Tuition
payment processing and campus commerce revenue
|
12,987 | 11,863 | 40,373 | 35,980 | ||||||||||||
Enrollment
services revenue
|
30,670 | 29,858 | 88,188 | 83,148 | ||||||||||||
Software
services revenue
|
4,600 | 5,159 | 16,424 | 19,342 | ||||||||||||
Other
income
|
11,094 | 5,408 | 39,483 | 17,787 | ||||||||||||
Gain
(loss) on sale of loans, net
|
8,788 | — | 8,386 | (47,426 | ) | |||||||||||
Derivative
market value, foreign currency,
|
||||||||||||||||
and
put option adjustments and derivative
|
||||||||||||||||
settlements,
net
|
7,740 | 6,874 | 2,740 | 10,468 | ||||||||||||
Total
other income
|
101,885 | 88,853 | 276,874 | 197,472 | ||||||||||||
Operating
expenses:
|
||||||||||||||||
Salaries
and benefits
|
37,810 | 44,739 | 116,216 | 142,131 | ||||||||||||
Other
operating expenses:
|
||||||||||||||||
Cost
to provide enrollment services
|
20,323 | 17,904 | 56,208 | 48,062 | ||||||||||||
Depreciation
and amortization
|
8,769 | 10,781 | 28,379 | 32,218 | ||||||||||||
Professional
and other services
|
6,584 | 10,185 | 20,382 | 25,409 | ||||||||||||
Occupancy
and communications
|
5,122 | 4,194 | 16,064 | 14,949 | ||||||||||||
Trustee
and other debt related fees
|
2,387 | 2,423 | 7,487 | 7,277 | ||||||||||||
Postage
and distribution
|
1,958 | 2,576 | 7,100 | 8,691 | ||||||||||||
Advertising
and marketing
|
1,936 | 1,712 | 5,632 | 5,706 | ||||||||||||
Impairment
expense
|
— | — | — | 18,834 | ||||||||||||
Other
|
7,773 | 9,155 | 25,121 | 27,151 | ||||||||||||
Total
other operating expenses
|
54,852 | 58,930 | 166,373 | 188,297 | ||||||||||||
Total
operating expenses
|
92,662 | 103,669 | 282,589 | 330,428 | ||||||||||||
Income
(loss) before income taxes
|
70,905 | 37,754 | 126,082 | (1,523 | ) | |||||||||||
Income
tax expense
|
(24,501 | ) | (13,969 | ) | (46,020 | ) | (1,793 | ) | ||||||||
Income
(loss) from continuing operations
|
46,404 | 23,785 | 80,062 | (3,316 | ) | |||||||||||
Income
from discontinued operations, net of tax
|
— | — | — | 981 | ||||||||||||
Net
income (loss)
|
$ | 46,404 | 23,785 | 80,062 | (2,335 | ) | ||||||||||
Earnings
(loss) per share, basic and diluted:
|
||||||||||||||||
Income
(loss) from continuing operations
|
$ | 0.93 | 0.48 | 1.60 | (0.07 | ) | ||||||||||
Income
from discontinued operations
|
— | — | — | 0.02 | ||||||||||||
Net
income (loss)
|
$ | 0.93 | 0.48 | 1.60 | (0.05 | ) | ||||||||||
See
accompanying notes to consolidated financial statements.
|
NELNET,
INC. AND SUBSIDIARIES
|
|||||||||||||||||||||||||||||||
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(LOSS)
|
|||||||||||||||||||||||||||||||
(Dollars
in thousands, except share data)
|
|||||||||||||||||||||||||||||||
(unaudited)
|
|||||||||||||||||||||||||||||||
Preferred
|
Class
A
|
Class
B
|
Additional
|
Employee
|
Total
|
||||||||||||||||||||||||||
stock
|
Common
stock shares
|
Preferred
|
common
|
common
|
paid-in
|
Retained
|
notes
|
shareholders’
|
|||||||||||||||||||||||
shares
|
Class
A
|
Class
B
|
stock
|
stock
|
stock
|
capital
|
earnings
|
receivable
|
equity
|
||||||||||||||||||||||
Balance
as of June 30, 2008
|
— | 37,952,246 | 11,495,377 | $ | — | 380 | 115 | 99,854 | 485,739 | (2,046 | ) | 584,042 | |||||||||||||||||||
Comprehensive
income:
|
|||||||||||||||||||||||||||||||
Net
income
|
— | — | — | — | — | — | — | 23,785 | — | 23,785 | |||||||||||||||||||||
Total
comprehensive income
|
23,785 | ||||||||||||||||||||||||||||||
Issuance
of common stock, net of forfeitures
|
— | 49,650 | — | — | 1 | — | 960 | — | — | 961 | |||||||||||||||||||||
Compensation
expense for stock based awards
|
— | — | — | — | — | — | 1,045 | — | — | 1,045 | |||||||||||||||||||||
Repurchase
of common stock
|
— | (7,564 | ) | — | — | (1 | ) | — | (102 | ) | — | — | (103 | ) | |||||||||||||||||
Balance
as of September 30, 2008
|
— | 37,994,332 | 11,495,377 | $ | — | 380 | 115 | 101,757 | 509,524 | (2,046 | ) | 609,730 | |||||||||||||||||||
Balance
as of June 30, 2009
|
— | 38,325,492 | 11,495,377 | $ | — | 383 | 115 | 107,959 | 574,179 | (1,449 | ) | 681,187 | |||||||||||||||||||
Comprehensive
income:
|
|||||||||||||||||||||||||||||||
Net
income
|
— | — | — | — | — | — | — | 46,404 | — | 46,404 | |||||||||||||||||||||
Total
comprehensive income
|
46,404 | ||||||||||||||||||||||||||||||
Issuance
of common stock, net of forfeitures
|
— | 31,403 | — | — | 1 | — | 241 | — | — | 242 | |||||||||||||||||||||
Compensation
expense for stock based awards
|
— | — | — | — | — | — | 349 | — | — | 349 | |||||||||||||||||||||
Repurchase
of common stock
|
— | (7,434 | ) | — | — | (1 | ) | — | (107 | ) | — | — | (108 | ) | |||||||||||||||||
Balance
as of September 30, 2009
|
— | 38,349,461 | 11,495,377 | $ | — | 383 | 115 | 108,442 | 620,583 | (1,449 | ) | 728,074 | |||||||||||||||||||
Balance
as of December 31, 2007
|
— | 37,980,617 | 11,495,377 | $ | — | 380 | 115 | 96,185 | 515,317 | (3,118 | ) | 608,879 | |||||||||||||||||||
Comprehensive
income (loss):
|
|||||||||||||||||||||||||||||||
Net
loss
|
— | — | — | — | — | — | — | (2,335 | ) | — | (2,335 | ) | |||||||||||||||||||
Total
comprehensive income (loss)
|
(2,335 | ) | |||||||||||||||||||||||||||||
Cash
dividend on Class A and Class B
|
|||||||||||||||||||||||||||||||
common
stock - $0.07 per share
|
— | — | — | — | — | — | — | (3,458 | ) | — | (3,458 | ) | |||||||||||||||||||
Issuance
of common stock, net of forfeitures
|
— | 83,337 | — | — | 1 | — | 2,033 | — | — | 2,034 | |||||||||||||||||||||
Compensation
expense for stock based awards
|
— | — | — | — | — | — | 4,308 | — | — | 4,308 | |||||||||||||||||||||
Repurchase
of common stock
|
— | (69,622 | ) | — | — | (1 | ) | — | (769 | ) | — | — | (770 | ) | |||||||||||||||||
Reduction
of employee stock notes receivable
|
— | — | — | — | — | — | — | — | 1,072 | 1,072 | |||||||||||||||||||||
Balance
as of September 30, 2008
|
— | 37,994,332 | 11,495,377 | $ | — | 380 | 115 | 101,757 | 509,524 | (2,046 | ) | 609,730 | |||||||||||||||||||
Balance
as of December 31, 2008
|
— | 37,794,067 | 11,495,377 | $ | — | 378 | 115 | 103,762 | 540,521 | (1,550 | ) | 643,226 | |||||||||||||||||||
Comprehensive
income:
|
|||||||||||||||||||||||||||||||
Net
income
|
— | — | — | — | — | — | — | 80,062 | — | 80,062 | |||||||||||||||||||||
Total
comprehensive income
|
80,062 | ||||||||||||||||||||||||||||||
Issuance
of common stock, net of forfeitures
|
— | 569,937 | — | — | 6 | — | 3,539 | — | — | 3,545 | |||||||||||||||||||||
Compensation
expense for stock based awards
|
— | — | — | — | — | — | 1,310 | — | — | 1,310 | |||||||||||||||||||||
Repurchase
of common stock
|
— | (14,543 | ) | — | — | (1 | ) | — | (169 | ) | — | — | (170 | ) | |||||||||||||||||
Reduction
of employee stock notes receivable
|
— | — | — | — | — | — | — | — | 101 | 101 | |||||||||||||||||||||
Balance
as of September 30, 2009
|
— | 38,349,461 | 11,495,377 | $ | — | 383 | 115 | 108,442 | 620,583 | (1,449 | ) | 728,074 | |||||||||||||||||||
See
accompanying notes to consolidated financial statements.
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
||||||||
(Dollars
in thousands)
|
||||||||
(unaudited)
|
||||||||
Nine
months ended September 30,
|
||||||||
2009
|
2008
|
|||||||
Net
income (loss)
|
$ | 80,062 | (2,335 | ) | ||||
Income
from discontinued operations
|
— | 981 | ||||||
Income
(loss) from continuing operations
|
80,062 | (3,316 | ) | |||||
Adjustments
to reconcile income (loss) from continuing operations to net cash
provided
|
||||||||
by
operating activities:
|
||||||||
Depreciation
and amortization, including loan premiums and deferred origination
costs
|
88,118 | 107,944 | ||||||
Provision
for loan losses
|
23,000 | 18,000 | ||||||
Impairment
expense
|
— | 18,834 | ||||||
Derivative
market value adjustment
|
(19,912 | ) | 72,399 | |||||
Foreign
currency transaction adjustment
|
55,979 | (40,361 | ) | |||||
Change
in value of put options issued in business acquisitions
|
— | 3,483 | ||||||
Proceeds
to terminate and/or amend derivative instruments
|
3,820 | 15,403 | ||||||
Payments
to terminate and/or amend derivative instruments
|
(11,710 | ) | (3,679 | ) | ||||
Gain
from repurchase of bonds and notes payable
|
(19,185 | ) | — | |||||
Originations
and purchases of student loans-held for
sale
|
(13,345 | ) | — | |||||
(Gain)
loss on sale of loans, net
|
(8,386 | ) | 47,426 | |||||
Deferred
income tax benefit
|
(30,654 | ) | (23,979 | ) | ||||
Other
non-cash items
|
3,569 | 6,929 | ||||||
Decrease
in accrued interest receivable
|
82,640 | 63,220 | ||||||
(Increase)
decrease in accounts receivable
|
(7,180 | ) | 445 | |||||
Decrease
in other assets
|
9,976 | 13,928 | ||||||
Decrease
in accrued interest payable
|
(56,717 | ) | (37,334 | ) | ||||
Increase
(decrease) in other liabilities
|
34,575 | (1,765 | ) | |||||
Net
cash flows from operating activities - continuing
operations
|
214,650 | 257,577 | ||||||
Net
cash flows from operating activities - discontinued
operations
|
— | — | ||||||
Net
cash provided by operating activities
|
214,650 | 257,577 | ||||||
Cash
flows from investing activities:
|
||||||||
Originations,
purchases, and consolidations of student loans, including loan
premiums
|
||||||||
and
deferred origination costs
|
(2,104,234 | ) | (2,368,229 | ) | ||||
Purchases
of student loans, including loan premiums, from a related
party
|
(39,649 | ) | (212,888 | ) | ||||
Net
proceeds from student loan repayments, claims, capitalized interest,
participations, and other
|
1,507,981 | 1,538,134 | ||||||
Proceeds
from sale of student loans
|
550,176 | 1,267,826 | ||||||
Proceeds
from sale of student loans to a related party
|
61,452 | — | ||||||
Purchases
of property and equipment, net
|
(466 | ) | (5,094 | ) | ||||
Decrease
(increase) in restricted cash and investments, net
|
198,636 | (154,768 | ) | |||||
Purchases
of equity method investments
|
— | (2,988 | ) | |||||
Business
acquisition - contingent consideration
|
— | (18,000 | ) | |||||
Net
cash flows from investing activities - continuing
operations
|
173,896 | 43,993 | ||||||
Net
cash flows from investing activities - discontinued
operations
|
— | — | ||||||
Net
cash provided by investing activities
|
173,896 | 43,993 | ||||||
Cash
flows from financing activities:
|
||||||||
Payments
on bonds and notes payable
|
(3,978,507 | ) | (5,328,782 | ) | ||||
Proceeds
from issuance of bonds and notes payable
|
3,761,543 | 5,225,548 | ||||||
(Payments)
proceeds from issuance of notes payable due to a related party,
net
|
(21,520 | ) | 32,790 | |||||
Payments
of debt issuance costs
|
(5,876 | ) | (14,778 | ) | ||||
Dividends
paid
|
— | (3,458 | ) | |||||
Proceeds
from issuance of common stock
|
329 | 566 | ||||||
Repurchases
of common stock
|
(170 | ) | (770 | ) | ||||
Payments
received on employee stock notes receivable
|
101 | 575 | ||||||
Net
cash flows used in financing activities - continuing
operations
|
(244,100 | ) | (88,309 | ) | ||||
Net
cash flows used in financing activities - discontinued
operations
|
— | — | ||||||
Net
cash used in financing activities
|
(244,100 | ) | (88,309 | ) | ||||
Net
increase in cash and cash equivalents
|
144,446 | 213,261 | ||||||
Cash
and cash equivalents, beginning of period
|
189,847 | 111,746 | ||||||
Cash
and cash equivalents, end of period
|
$ | 334,293 | 325,007 | |||||
Supplemental
disclosures of cash flow information:
|
||||||||
Interest
paid
|
$ | 380,543 | 814,469 | |||||
Income
taxes paid, net of refunds
|
$ | 69,924 | 24,302 | |||||
See
accompanying notes to consolidated financial statements.
|
Employee
|
|||||||||
termination
|
Lease
|
||||||||
benefits
|
terminations
|
Total
|
|||||||
Restructuring
costs recognized during the
|
|||||||||
three
month period ended June 30, 2009
|
$ | 1,482 |
(a)
|
1,291 |
(b)
|
2,773 | |||
Cash
payments
|
(672 | ) | — | (672 | ) | ||||
Restructuring
accrual as of June 30, 2009
|
810 | 1,291 | 2,101 | ||||||
Restructuring
costs recognized during the
|
|||||||||
three
month period ended September 30, 2009
|
1,412 |
(a)
|
— | 1,412 | |||||
Adjustment
from initial estimate of charges
|
— | 1,786 |
(b)
|
1,786 | |||||
Cash
payments
|
(29 | ) | (381 | ) | (410 | ) | |||
Restructuring
accrual as of September 30, 2009
|
$ | 2,193 | 2,696 | 4,889 | |||||
(a)
Employee
termination benefits are included in "salaries and benefits" in the
consolidated statements of operations.
|
|||||||||
(b)
Lease
termination costs are included in "occupancy and communications" in the
consolidated statements of
operations.
|
Restructuring
costs
|
||||||||||||||||||||
recognized
during
|
Adjustment
|
|||||||||||||||||||
Restructuring
|
the
three month
|
from
initial
|
Restructuring
|
|||||||||||||||||
accrual
as of
|
period
ended
|
estimate
|
Cash
|
accrual
as of
|
||||||||||||||||
Operating
segment
|
June
30, 2009
|
September
30, 2009
|
of
charges
|
payments
|
September
30, 2009
|
|||||||||||||||
Student
Loan and Guaranty Servicing
|
$ | 1,812 | 860 | 1,786 | (410 | ) | 4,048 | |||||||||||||
Tuition
Payment Processing and
|
||||||||||||||||||||
Campus
Commerce
|
— | — | — | — | — | |||||||||||||||
Enrollment
Services
|
— | — | — | — | — | |||||||||||||||
Software
and Technical Services
|
149 | 292 | — | — | 441 | |||||||||||||||
Asset
Generation and Management
|
— | — | — | — | — | |||||||||||||||
Corporate
Activity and Overhead
|
140 | 260 | — | — | 400 | |||||||||||||||
$ | 2,101 | 1,412 | 1,786 | (410 | ) | 4,889 |
Restructuring
|
Remaining
|
|||||||||||
Estimated
|
costs
recognized
|
restructuring
costs
|
||||||||||
total
restructuring
|
through
|
expected
to be
|
||||||||||
Operating
segment
|
costs
|
September
30, 2009
|
recognized
|
|||||||||
Student
Loan and Guaranty Servicing
|
$ | 10,131 | 4,644 | 5,487 | ||||||||
Tuition
Payment Processing and
|
||||||||||||
Campus
Commerce
|
— | — | — | |||||||||
Enrollment
Services
|
— | — | — | |||||||||
Software
and Technical Services
|
1,078 | 714 | 364 | |||||||||
Asset
Generation and Management
|
— | — | — | |||||||||
Corporate
Activity and Overhead
|
1,763 | 613 | 1,150 | |||||||||
$ | 12,972 | 5,971 | 7,001 |
Restructuring
accrual as of December 31, 2008
|
$ | 3,480 | ||
Cash
payments
|
(228 | ) | ||
Restructuring
accrual as of March 31, 2009
|
3,252 | |||
Cash
payments
|
(228 | ) | ||
Adjustment
from initial estimate of charges
|
515 | |||
Restructuring
accrual as of June 30, 2009
|
3,539 | |||
Cash
payments
|
(229 | ) | ||
Adjustment
from initial estimate of charges
|
142 | |||
Restructuring
accrual as of September 30, 2009
|
$ | 3,452 |
As
of
|
As
of
|
|||||||||||
September
30, 2009
|
December
31, 2008
|
|||||||||||
Held-for-investment
|
Held-for-sale
|
Held-for-investment
|
||||||||||
Federally
insured loans
|
$ | 23,295,203 | 1,607,169 | 24,787,941 | ||||||||
Non-federally
insured loans
|
167,114 | — | 273,108 | |||||||||
23,462,317 | 1,607,169 | 25,061,049 | ||||||||||
Unamortized
loan premiums and deferred origination costs
|
352,066 | 20,625 | 402,881 | |||||||||
Allowance
for loan losses – federally insured loans
|
(29,015 | ) | — | (25,577 | ) | |||||||
Allowance
for loan losses – non-federally insured loans
|
(21,105 | ) | — | (25,345 | ) | |||||||
$ | 23,764,263 | 1,627,794 | 25,413,008 | |||||||||
Allowance
for federally insured loans - held-for-investment as a percentage of such
loans
|
0.12 | % | 0.10 | % | ||||||||
Allowance
for non-federally insured loans as a percentage of such
loans
|
12.63 | % | 9.28 | % | ||||||||
Total
allowance as a percentage of the ending balance of total loans (excluding
loans held-for-sale)
|
0.21 | % | 0.20 | % |
Three
months ended September 30,
|
Nine
months ended September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Beginning
balance
|
$ | 50,000 | 47,909 | 50,922 | 45,592 | |||||||||||
Provision
for loan losses
|
7,500 | 7,000 | 23,000 | 18,000 | ||||||||||||
Loans
charged off, net of recoveries
|
(4,380 | ) | (5,839 | ) | (13,482 | ) | (13,772 | ) | ||||||||
Sale
of loans
|
(3,000 | ) | — | (10,320 | ) | (750 | ) | |||||||||
Ending
balance
|
$ | 50,120 | 49,070 | 50,120 | 49,070 |
Three
months ended September 30,
|
Nine
months ended September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Department's
Purchase Program (a)
|
$ | 9,689 | — | 9,689 | — | |||||||||||
Private
loan participations (b)
|
(695 | ) | — | (695 | ) | — | ||||||||||
FFELP
loan sales to related parties (c)
|
(206 | ) | — | (608 | ) | — | ||||||||||
FFELP
loan sales to third parties (d)
|
— | — | — | (47,426 | ) | |||||||||||
Gain
(loss) on sale of loans, net
|
$ | 8,788 | — | 8,386 | (47,426 | ) |
(a)
|
During
the three months ended September 30, 2009, the Company sold $427.7 million
(par value) of student loans to the Department under the Purchase
Program.
|
(b)
|
During
the three and nine months ended September 30, 2009, the Company
participated $30.5 million and $95.5 million,
respectively, of non-federally insured loans to third parties. Loans
participated under these agreements have been accounted for by the Company
as loan sales. Accordingly, the participation interests sold are not
included on the Company’s consolidated balance sheet. Per the terms of the
servicing agreements, the Company’s servicing operations are obligated to
repurchase loans subject to the participation interests when such loans
become 60 or 90 days delinquent. The activity in the accrual account
related to this repurchase obligation, which is included in “other
liabilities” in the accompanying consolidated balance sheet, is detailed
below.
|
Three
months ended September 30,
|
Nine
months ended September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Beginning
balance
|
$ | 7,600 | — | — | — | |||||||||||
Transfer
from allowance for loan losses
|
3,000 | — | 9,800 | — | ||||||||||||
Reserve
for repurchase of delinquent loans (a)
|
— | — | 800 | — | ||||||||||||
Ending
balance
|
$ | 10,600 | — | 10,600 | — | |||||||||||
(a)
The reserve for repurchase of loans is included in "other" under other
operating expenses in the accompanying consolidated statements of
operations.
|
(c)
|
During
the three and nine months ended September 30, 2009, the Company sold $21.4
million (par value) and $61.5 million (par value), respectively, of
federally insured student loans to Union Bank & Trust Company (“Union
Bank”), an entity under common control with the
Company.
|
(d)
|
During
March and April 2008, the Company sold $1.3 billion (par value) of
federally insured student loans in order to reduce the amount of student
loans remaining under the Company’s multi-year committed financing
facility for FFELP loans, which contained certain equity support
provisions (see note 4 for additional information related to the FFELP
warehouse facilities).
|
As
of September 30, 2009
|
||||||||
Carrying
|
Interest
rate
|
|||||||
amount
|
range
|
Final
maturity
|
||||||
Variable-rate
bonds and notes (a):
|
||||||||
Bonds
and notes based on indices
|
$ | 19,749,843 | 0.30% - 6.90% |
11/25/13
- 06/25/41
|
||||
Bonds
and notes based on auction or remarketing
|
2,247,420 | 0.33% - 3.75% |
11/01/09
- 07/01/43
|
|||||
Total
variable-rate bonds and notes
|
21,997,263 | |||||||
Commercial
paper - FFELP facility (b)
|
361,279 | 0.22% - 0.38% |
08/03/12
|
|||||
Fixed-rate
bonds and notes (a)
|
186,274 | 5.40% - 6.50% |
11/01/09
- 05/01/29
|
|||||
Unsecured
fixed rate debt
|
264,966 |
5.125%
and 7.40%
|
06/01/10
and 09/15/61
|
|||||
Unsecured
line of credit
|
691,500 | 0.73% - 0.79% |
05/08/12
|
|||||
Department
of Education Participation
|
1,902,909 | 0.91% |
10/15/09
and 09/30/10
|
|||||
Department
of Education Conduit
|
1,155,351 | 0.37% |
05/08/14
|
|||||
Other
borrowings
|
26,551 | 0.26% - 5.10% |
01/01/10
- 11/01/15
|
|||||
$ | 26,586,093 |
As
of December 31, 2008
|
||||||||
Carrying
|
Interest
rate
|
|||||||
amount
|
range
|
Final
maturity
|
||||||
Variable-rate
bonds and notes (a):
|
||||||||
Bonds
and notes based on indices
|
$ | 20,509,073 | 0.75% - 5.02% |
09/25/13
- 06/25/41
|
||||
Bonds
and notes based on auction or remarketing
|
2,713,285 | 0.00% - 6.00% |
11/01/09
- 07/01/43
|
|||||
Total
variable-rate bonds and notes
|
23,222,358 | |||||||
Commercial
paper - FFELP facility (b)
|
1,445,327 | 1.32% - 2.94% |
05/09/10
|
|||||
Commercial
paper - private loan facility (b)
|
95,020 | 2.49% |
03/14/09
|
|||||
Fixed-rate
bonds and notes (a)
|
202,096 | 5.30% - 6.68% |
11/01/09
- 05/01/29
|
|||||
Unsecured
fixed rate debt
|
475,000 |
5.125%
and 7.40%
|
06/01/10
and 09/15/61
|
|||||
Unsecured
line of credit
|
691,500 | 0.98% - 2.41% |
05/08/12
|
|||||
Department
of Education Participation
|
622,170 | 3.37% |
09/30/09
|
|||||
Other
borrowings
|
34,488 | 1.25% - 5.47% |
05/22/09
- 11/01/15
|
|||||
$ | 26,787,959 | |||||||
(a)
|
Issued
in asset-backed securitizations
|
(b)
|
Loan
warehouse facilities
|
·
|
In
March 2009, the Company completed a privately placed asset-backed
securitization of $294.6 million.
|
·
|
In
June 2009, the Company accessed the Department’s Conduit Program (as
further discussed below).
|
·
|
In
August 2009, the Company refinanced all remaining loans using the 2009
FFELP Warehouse Facility and terminated the prior FFELP
facility.
|
·
|
A
minimum consolidated net worth
|
·
|
A
minimum adjusted EBITDA to corporate debt interest (over the last four
rolling quarters)
|
·
|
A
limitation on subsidiary
indebtedness
|
·
|
A
limitation on the percentage of non-guaranteed loans in the Company’s
portfolio
|
5.125%
Senior Notes due 2010
|
Junior
Subordinated Hybrid Securities
|
Asset-backed
securities
|
||||||||||||||||||||||||||
Notional
|
Purchase
|
Gain
|
Notional
|
Purchase
|
Gain
|
Notional
|
Purchase
|
Gain
|
||||||||||||||||||||
amount
|
price
|
(loss)
|
amount
|
price
|
(loss)
|
amount
|
price
|
(loss)
|
||||||||||||||||||||
Three
months ended:
|
||||||||||||||||||||||||||||
March
31, 2009
|
$ | 34,866 | 26,791 | 8,075 | — | — | — | — | — | — | ||||||||||||||||||
June
30, 2009
|
35,520 | 31,080 | 4,440 | 1,750 | 350 | 1,400 | 1,100 | 1,078 | 22 | |||||||||||||||||||
September
30, 2009
|
137,898 | 138,505 | (607 | ) | — | — | — | 44,950 | 39,095 | 5,855 | ||||||||||||||||||
Nine
months ended September 30, 2009
|
208,284 | 196,376 | 11,908 | 1,750 | 350 | 1,400 | 46,050 | 40,173 | 5,877 | |||||||||||||||||||
Subsequent
to September 30, 2009
|
||||||||||||||||||||||||||||
through
November 9, 2009
|
— | — | — | — | — | — | 140,200 | 126,159 | 14,041 | |||||||||||||||||||
Total
debt repurchased
|
$ | 208,284 | 196,376 | 11,908 | 1,750 | 350 | 1,400 | 186,250 | 166,332 | 19,918 | ||||||||||||||||||
Balance
as of September 30, 2009
|
$ | 66,716 | $ | 198,250 |
5.
|
Derivative
Financial Instruments
|
As
of September 30, 2009
|
||||||||
Notional
Amount
|
||||||||
Maturity
|
Average/Discrete
Basis Swaps
|
1/3
Basis Swaps
|
||||||
2010
|
$ | — | 1,000,000 | |||||
2011
(a)
|
6,000,000 | — | ||||||
2013
|
— | 500,000 | ||||||
2014
|
— | 500,000 | ||||||
2018
|
— | 1,300,000 | ||||||
2019
|
— | 500,000 | ||||||
2021
|
— | 250,000 | ||||||
2023
|
— | 1,250,000 | ||||||
2024
|
— | 250,000 | ||||||
2028
|
— | 100,000 | ||||||
2039
|
— | 150,000 | ||||||
$ | 6,000,000 | 5,800,000 | ||||||
(a)
Certain of these derivatives have forward effective start dates of
January 2010 ($1.5 billion), February 2010 ($1.5 billion), and March
2010 ($1.5 billion).
|
||||||||
As
of December 31, 2008
|
||||||||
Notional
amount
|
||||||||
Maturity
|
Average/Discrete
Basis Swaps
|
1/3
Basis Swaps
|
||||||
2010
|
$ | 4,500,000 | — | |||||
2011
|
2,700,000 | — | ||||||
2012
|
2,400,000 | — | ||||||
2018
|
— | 1,300,000 | ||||||
2023
|
— | 1,250,000 | ||||||
2028
|
— | 100,000 | ||||||
$ | 9,600,000 | 2,650,000 |
As
of September 30, 2009
|
||||||||
Weighted
|
||||||||
average
fixed
|
||||||||
Notional
|
rate
paid by
|
|||||||
Maturity
|
Amount
|
the
Company (a)
|
||||||
2010
|
$ | 1,000,000 | 0.76% | |||||
(a)
For all interest rate derivatives, the Company receives
discrete three-month
LIBOR.
|
Asset
derivatives
|
Liability
derivatives
|
|||||||||||||||
Fair
value as of
|
Fair
value as of
|
Fair
value as of
|
Fair
value as of
|
|||||||||||||
September
30, 2009
|
December
31, 2008
|
September
30, 2009
|
December
31, 2008
|
|||||||||||||
Interest
Rate swaps
|
$ | — | — | (1,812 | ) | — | ||||||||||
Average/discrete
basis swaps
|
— | 2,817 | (6,660 | ) | (1,800 | ) | ||||||||||
1/3
basis swaps
|
13,966 | 5,037 | (8 | ) | (15 | ) | ||||||||||
Cross-currency
interest rate swaps
|
196,191 | 167,320 | — | — | ||||||||||||
Other
|
— | — | (518 | ) | — | |||||||||||
Total
|
$ | 210,157 | 175,174 | (8,998 | ) | (1,815 | ) |
Derivatives
not designated
|
Amount
of gain (or loss)
|
Amount
of gain (or loss)
|
||||||||||||||
as
hedging instruments
|
recognized
on derivatives
|
recognized
on derivatives
|
||||||||||||||
Three
months ended September 30,
|
Nine
months ended September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Settlements:
|
||||||||||||||||
Interest
rate swaps
|
$ | (436 | ) | (3,175 | ) | $ | (447 | ) | (14,194 | ) | ||||||
Average/discrete
basis swaps
|
646 | (3,999 | ) | 11,707 | 40,711 | |||||||||||
1/3
basis swaps
|
3,071 | — | 20,473 | 894 | ||||||||||||
Cross-currency
interest rate swaps
|
1,633 | 7,963 | 7,074 | 18,578 | ||||||||||||
Other
|
— | — | — | — | ||||||||||||
Total
settlements
|
4,914 | 789 | 38,807 | 45,989 | ||||||||||||
Change
in fair value:
|
||||||||||||||||
Interest
rate swaps
|
(2,822 | ) | (1,335 | ) | (1,811 | ) | 2,763 | |||||||||
Average/discrete
basis swaps
|
1,864 | 10,390 | (16,813 | ) | (40,948 | ) | ||||||||||
1/3
basis swaps
|
(1,115 | ) | — | 8,751 | 2,568 | |||||||||||
Cross-currency
interest rate swaps
|
44,773 | (128,951 | ) | 28,871 | (37,283 | ) | ||||||||||
Other
|
(518 | ) | 35 | 914 | 501 | |||||||||||
Total
change in fair value
|
42,182 | (119,861 | ) | 19,912 | (72,399 | ) | ||||||||||
Total
impact to statements of operations
|
$ | 47,096 | (119,072 | ) | $ | 58,719 | (26,410 | ) |
Three
months ended September 30,
|
Nine
months ended September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Change
in fair value of derivatives
|
$ | 42,182 | (119,861 | ) | 19,912 | (72,399 | ) | |||||||||
Foreign
currency transaction adjustment
|
(39,356 | ) | 128,891 | (55,979 | ) | 40,361 | ||||||||||
Change
in fair value of put options
|
||||||||||||||||
issued
in business acquisitions
|
— | (2,945 | ) | — | (3,483 | ) | ||||||||||
Derivative
settlements, net
|
4,914 | 789 | 38,807 | 45,989 | ||||||||||||
Derivative
market value, foreign currency,
|
||||||||||||||||
and
put option adjustments and
|
||||||||||||||||
derivative
settlements, net
|
$ | 7,740 | 6,874 | 2,740 | 10,468 |
·
|
Origination
and servicing of FFELP loans
|
·
|
Origination
and servicing of non-federally insured student
loans
|
·
|
Servicing
and support outsourcing for guaranty
agencies
|
Three
months ended September 30, 2009
|
||||||||||||||||||||||||||||||
Fee-Based
|
||||||||||||||||||||||||||||||
Student
|
Tuition
|
"Base
net
|
||||||||||||||||||||||||||||
Loan
|
Payment
|
Software
|
Asset
|
Corporate
|
income"
|
|||||||||||||||||||||||||
and
|
Processing
|
and
|
Total
|
Generation
|
Activity
|
Eliminations
|
Adjustments
|
GAAP
|
||||||||||||||||||||||
Guaranty
|
and
Campus
|
Enrollment
|
Technical
|
Fee-
|
and
|
and
|
and
|
to
GAAP
|
Results
of
|
|||||||||||||||||||||
Servicing
|
Commerce
|
Services
|
Services
|
Based
|
Management
|
Overhead
|
Reclassifications
|
Results
|
Operations
|
|||||||||||||||||||||
Total
interest income
|
$ | 23 | 16 | — | — | 39 | 144,310 | 1,191 | (342 | ) | — | 145,198 | ||||||||||||||||||
Interest
expense
|
— | — | — | — | — | 69,914 | 6,444 | (342 | ) | — | 76,016 | |||||||||||||||||||
Net
interest income (loss)
|
23 | 16 | — | — | 39 | 74,396 | (5,253 | ) | — | — | 69,182 | |||||||||||||||||||
Less
provision for loan losses
|
— | — | — | — | — | 7,500 | — | — | — | 7,500 | ||||||||||||||||||||
Net
interest income (loss) after provision for loan losses
|
23 | 16 | — | — | 39 | 66,896 | (5,253 | ) | — | — | 61,682 | |||||||||||||||||||
Other
income (expense):
|
||||||||||||||||||||||||||||||
Loan
and guaranty servicing revenue
|
26,387 | — | — | — | 26,387 | — | (381 | ) | — | — | 26,006 | |||||||||||||||||||
Tuition
payment processing and campus commerce revenue
|
— | 12,987 | — | — | 12,987 | — | — | — | — | 12,987 | ||||||||||||||||||||
Enrollment
services revenue
|
— | — | 30,670 | — | 30,670 | — | — | — | — | 30,670 | ||||||||||||||||||||
Software
services revenue
|
966 | — | — | 3,634 | 4,600 | — | — | — | — | 4,600 | ||||||||||||||||||||
Other
income
|
137 | — | — | — | 137 | 9,959 | 998 | — | — | 11,094 | ||||||||||||||||||||
Gain
(loss) on sale of loans, net
|
— | — | — | — | — | 8,788 | — | — | — | 8,788 | ||||||||||||||||||||
Intersegment
revenue
|
21,525 | 62 | 139 | 3,793 | 25,519 | — | 8,355 | (33,874 | ) | — | — | |||||||||||||||||||
Derivative
market value, foreign currency, and put option adjustments
|
— | — | — | — | — | — | — | — | 2,826 | 2,826 | ||||||||||||||||||||
Derivative
settlements, net
|
— | — | — | — | — | 4,914 | — | — | — | 4,914 | ||||||||||||||||||||
Total
other income (expense)
|
49,015 | 13,049 | 30,809 | 7,427 | 100,300 | 23,661 | 8,972 | (33,874 | ) | 2,826 | 101,885 | |||||||||||||||||||
Operating
expenses:
|
||||||||||||||||||||||||||||||
Salaries
and benefits
|
12,468 | 6,399 | 5,337 | 5,756 | 29,960 | 1,693 | 5,919 | 238 | — | 37,810 | ||||||||||||||||||||
Restructure
expense- severance and contract terminination costs
|
2,646 | — | — | 292 | 2,938 | — | 402 | (3,340 | ) | — | — | |||||||||||||||||||
Impairment
expense
|
— | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||
Cost
to provide enrollment services
|
— | — | 20,323 | — | 20,323 | — | — | — | — | 20,323 | ||||||||||||||||||||
Other
expenses
|
7,613 | 2,265 | 3,266 | 776 | 13,920 | 4,801 | 8,567 | 1,929 | 5,312 | 34,529 | ||||||||||||||||||||
Intersegment
expenses
|
9,398 | 670 | 550 | 786 | 11,404 | 20,764 | 533 | (32,701 | ) | — | — | |||||||||||||||||||
Total
operating expenses
|
32,125 | 9,334 | 29,476 | 7,610 | 78,545 | 27,258 | 15,421 | (33,874 | ) | 5,312 | 92,662 | |||||||||||||||||||
Income
(loss) before income taxes
|
16,913 | 3,731 | 1,333 | (183 | ) | 21,794 | 63,299 | (11,702 | ) | — | (2,486 | ) | 70,905 | |||||||||||||||||
Income
tax (expense) benefit (a)
|
(6,427 | ) | (1,418 | ) | (507 | ) | 70 | (8,282 | ) | (24,054 | ) | 6,976 | — | 859 | (24,501 | ) | ||||||||||||||
Net
income (loss) from continuing operations
|
10,486 | 2,313 | 826 | (113 | ) | 13,512 | 39,245 | (4,726 | ) | — | (1,627 | ) | 46,404 | |||||||||||||||||
Income
from discontinued operations, net of tax
|
— | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||
Net
income (loss)
|
$ | 10,486 | 2,313 | 826 | (113 | ) | 13,512 | 39,245 | (4,726 | ) | — | (1,627 | ) | 46,404 | ||||||||||||||||
(a)
Income taxes are applied based on 38% of income (loss) before income taxes
for the individual operating segments.
|
||||||||||||||||||||||||||||||
Three
months ended September 30, 2008
|
||||||||||||||||||||||||||||||||||||||||
Fee-Based
|
||||||||||||||||||||||||||||||||||||||||
Tuition
|
||||||||||||||||||||||||||||||||||||||||
Student
|
Payment
|
"Base
net
|
||||||||||||||||||||||||||||||||||||||
Loan
|
Processing
|
Software
|
Asset
|
Corporate
|
income"
|
|||||||||||||||||||||||||||||||||||
and
|
and
|
and
|
Total
|
Generation
|
Activity
|
Eliminations
|
Adjustments
|
GAAP
|
||||||||||||||||||||||||||||||||
Guaranty
|
Campus
|
Enrollment
|
Technical
|
Fee-
|
and
|
and
|
and
|
to
GAAP
|
Results
of
|
|||||||||||||||||||||||||||||||
Servicing
|
Commerce
|
Services
|
Services
|
Based
|
Management
|
Overhead
|
Reclassifications
|
Results
|
Operations
|
|||||||||||||||||||||||||||||||
Total
interest income
|
$ | 304 | 396 | 6 | — | 706 | 290,039 | 2,010 | (749 | ) | 1,580 | 293,586 | ||||||||||||||||||||||||||||
Interest
expense
|
— | — | 1 | — | 1 | 224,272 | 10,492 | (749 | ) | — | 234,016 | |||||||||||||||||||||||||||||
Net
interest income (loss)
|
304 | 396 | 5 | — | 705 | 65,767 | (8,482 | ) | — | 1,580 | 59,570 | |||||||||||||||||||||||||||||
Less
provision for loan losses
|
— | — | — | — | — | 7,000 | — | — | — | 7,000 | ||||||||||||||||||||||||||||||
Net
interest income (loss) after
|
||||||||||||||||||||||||||||||||||||||||
provision
for loan losses
|
304 | 396 | 5 | — | 705 | 58,767 | (8,482 | ) | — | 1,580 | 52,570 | |||||||||||||||||||||||||||||
Other
income (expense):
|
||||||||||||||||||||||||||||||||||||||||
Loan
and guaranty servicing revenue
|
29,827 | — | — | — | 29,827 | (136 | ) | — | — | — | 29,691 | |||||||||||||||||||||||||||||
Tuition
payment processing and campus commerce revenue
|
— | 11,863 | — | — | 11,863 | — | — | — | — | 11,863 | ||||||||||||||||||||||||||||||
Enrollment
services revenue
|
— | — | 29,858 | — | 29,858 | — | — | — | — | 29,858 | ||||||||||||||||||||||||||||||
Software
services revenue
|
942 | — | — | 4,217 | 5,159 | — | — | — | — | 5,159 | ||||||||||||||||||||||||||||||
Other
income
|
6 | — | — | — | 6 | 4,079 | 1,323 | — | — | 5,408 | ||||||||||||||||||||||||||||||
Intercompany
revenue
|
18,402 | 58 | 2 | 1,660 | 20,122 | — | 15,671 | (35,793 | ) | — | — | |||||||||||||||||||||||||||||
Derivative
market value, foreign
|
||||||||||||||||||||||||||||||||||||||||
currency,
and put option adjustments
|
— | — | — | — | — | — | — | — | 6,085 | 6,085 | ||||||||||||||||||||||||||||||
Derivative
settlements, net
|
— | — | — | — | — | 789 | — | — | — | 789 | ||||||||||||||||||||||||||||||
Total
other income (expense)
|
49,177 | 11,921 | 29,860 | 5,877 | 96,835 | 4,732 | 16,994 | (35,793 | ) | 6,085 | 88,853 | |||||||||||||||||||||||||||||
Operating
expenses:
|
||||||||||||||||||||||||||||||||||||||||
Salaries
and benefits
|
13,876 | 6,236 | 5,805 | 4,138 | 30,055 | 1,980 | 14,179 | (1,952 | ) | 477 | 44,739 | |||||||||||||||||||||||||||||
Restructure
expense- severance and
|
||||||||||||||||||||||||||||||||||||||||
contract
terminination costs
|
— | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
Impairment
expense
|
— | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
Cost
to provide enrollment services
|
— | — | 17,904 | — | 17,904 | — | — | — | — | 17,904 | ||||||||||||||||||||||||||||||
Other
expenses
|
10,632 | 2,132 | 2,512 | 568 | 15,844 | 5,354 | 13,477 | (247 | ) | 6,598 | 41,026 | |||||||||||||||||||||||||||||
Intersegment
expenses
|
11,940 | 288 | 1,509 | 826 | 14,563 | 18,200 | 831 | (33,594 | ) | — | — | |||||||||||||||||||||||||||||
Total
operating expenses
|
36,448 | 8,656 | 27,730 | 5,532 | 78,366 | 25,534 | 28,487 | (35,793 | ) | 7,075 | 103,669 | |||||||||||||||||||||||||||||
Income
(loss) before income taxes
|
13,033 | 3,661 | 2,135 | 345 | 19,174 | 37,965 | (19,975 | ) | — | 590 | 37,754 | |||||||||||||||||||||||||||||
Income
tax (expense) benefit (a)
|
(4,823 | ) | (1,354 | ) | (790 | ) | (128 | ) | (7,095 | ) | (14,047 | ) | 7,391 | — | (218 | ) | (13,969 | ) | ||||||||||||||||||||||
Net
income (loss) from continuing operations
|
8,210 | 2,307 | 1,345 | 217 | 12,079 | 23,918 | (12,584 | ) | — | 372 | 23,785 | |||||||||||||||||||||||||||||
Income
from discontinued operations, net of tax
|
— | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
Net
income (loss)
|
$ | 8,210 | 2,307 | 1,345 | 217 | 12,079 | 23,918 | (12,584 | ) | — | 372 | 23,785 |
(a)
Income taxes are applied based on the consolidated effective tax rate to
income (loss) before income taxes.
|
Nine
months ended September 30, 2009
|
|||||||||||||||||||||||||||||||
Fee-Based
|
|||||||||||||||||||||||||||||||
Tuition
|
|||||||||||||||||||||||||||||||
Student
|
Payment
|
"Base
net
|
|||||||||||||||||||||||||||||
Loan
|
Processing
|
Software
|
Asset
|
Corporate
|
income"
|
||||||||||||||||||||||||||
and
|
and
|
and
|
Total
|
Generation
|
Activity
|
Eliminations
|
Adjustments
|
GAAP
|
|||||||||||||||||||||||
Guaranty
|
Campus
|
Enrollment
|
Technical
|
Fee-
|
and
|
and
|
and
|
to
GAAP
|
Results
of
|
||||||||||||||||||||||
Servicing
|
Commerce
|
Services
|
Services
|
Based
|
Management
|
Overhead
|
Reclassifications
|
Results
|
Operations
|
||||||||||||||||||||||
Total
interest income
|
$ | 102 | 57 | — | — | 159 | 473,130 | 3,930 | (1,324 | ) | 7,502 | 483,397 | |||||||||||||||||||
Interest
expense
|
— | — | — | — | — | 306,846 | 23,078 | (1,324 | ) | — | 328,600 | ||||||||||||||||||||
Net
interest income (loss)
|
102 | 57 | — | — | 159 | 166,284 | (19,148 | ) | — | 7,502 | 154,797 | ||||||||||||||||||||
Less
provision for loan losses
|
— | — | — | — | — | 23,000 | — | — | — | 23,000 | |||||||||||||||||||||
Net
interest income (loss) after provision for loan
losses
|
102 | 57 | — | — | 159 | 143,284 | (19,148 | ) | — | 7,502 | 131,797 | ||||||||||||||||||||
Other
income (expense):
|
|||||||||||||||||||||||||||||||
Loan
and guaranty servicing revenue
|
82,424 | — | — | — | 82,424 | — | (1,144 | ) | — | — | 81,280 | ||||||||||||||||||||
Tuition
payment processing and campus commerce revenue
|
— | 40,373 | — | — | 40,373 | — | — | — | — | 40,373 | |||||||||||||||||||||
Enrollment
services revenue
|
— | — | 88,188 | — | 88,188 | — | — | — | — | 88,188 | |||||||||||||||||||||
Software
services revenue
|
2,766 | — | — | 13,658 | 16,424 | — | — | — | — | 16,424 | |||||||||||||||||||||
Other
income
|
498 | — | — | — | 498 | 18,851 | 20,134 | — | — | 39,483 | |||||||||||||||||||||
Gain
(loss) on sale of loans, net
|
— | — | — | — | — | 8,386 | — | — | — | 8,386 | |||||||||||||||||||||
Intersegment
revenue
|
62,291 | 172 | 416 | 10,813 | 73,692 | — | 25,739 | (99,431 | ) | — | — | ||||||||||||||||||||
Derivative
market value, foreign currency,
|
|||||||||||||||||||||||||||||||
and
put option adjustments
|
— | — | — | — | — | — | — | — | (36,067 | ) | (36,067 | ) | |||||||||||||||||||
Derivative
settlements, net
|
— | — | — | — | — | 38,807 | — | — | — | 38,807 | |||||||||||||||||||||
Total
other income (expense)
|
147,979 | 40,545 | 88,604 | 24,471 | 301,599 | 66,044 | 44,729 | (99,431 | ) | (36,067 | ) | 276,874 | |||||||||||||||||||
Operating
expenses:
|
|||||||||||||||||||||||||||||||
Salaries
and benefits
|
40,527 | 19,346 | 17,295 | 16,656 | 93,824 | 5,203 | 18,420 | (1,390 | ) | 159 | 116,216 | ||||||||||||||||||||
Restructure
expense- severance and contract
|
|||||||||||||||||||||||||||||||
termination
costs
|
5,159 | — | — | 714 | 5,873 | — | 755 | (6,628 | ) | — | — | ||||||||||||||||||||
Impairment
expense
|
— | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||
Cost
to provide enrollment services
|
— | — | 56,208 | — | 56,208 | — | — | — | — | 56,208 | |||||||||||||||||||||
Other
expenses
|
27,350 | 7,012 | 9,602 | 2,292 | 46,256 | 15,635 | 27,287 | 3,736 | 17,251 | 110,165 | |||||||||||||||||||||
Intersegment
expenses
|
28,352 | 1,962 | 1,604 | 2,195 | 34,113 | 59,372 | 1,664 | (95,149 | ) | — | — | ||||||||||||||||||||
Total
operating expenses
|
101,388 | 28,320 | 84,709 | 21,857 | 236,274 | 80,210 | 48,126 | (99,431 | ) | 17,410 | 282,589 | ||||||||||||||||||||
Income
(loss) before income taxes
|
46,693 | 12,282 | 3,895 | 2,614 | 65,484 | 129,118 | (22,545 | ) | — | (45,975 | ) | 126,082 | |||||||||||||||||||
Income
tax (expense) benefit (a)
|
(17,744 | ) | (4,667 | ) | (1,480 | ) | (994 | ) | (24,885 | ) | (49,066 | ) | 11,150 | — | 16,781 | (46,020 | ) | ||||||||||||||
Net
income (loss) from continuing operations
|
28,949 | 7,615 | 2,415 | 1,620 | 40,599 | 80,052 | (11,395 | ) | — | (29,194 | ) | 80,062 | |||||||||||||||||||
Income
from discontinued operations, net of tax
|
— | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||
Net
income (loss)
|
$ | 28,949 | 7,615 | 2,415 | 1,620 | 40,599 | 80,052 | (11,395 | ) | — | (29,194 | ) | 80,062 |
(a)
Income taxes are applied based on 38% of income (loss) before income taxes
for the individual operating segments.
|
Nine
months ended September 30, 2008
|
|||||||||||||||||||||||||||||||
Fee-Based
|
|||||||||||||||||||||||||||||||
Tuition
|
|||||||||||||||||||||||||||||||
Student
|
Payment
|
"Base
net
|
|||||||||||||||||||||||||||||
Loan
|
Processing
|
Software
|
Asset
|
Corporate
|
income"
|
||||||||||||||||||||||||||
and
|
and
|
and
|
Total
|
Generation
|
Activity
|
Eliminations
|
Adjustments
|
GAAP
|
|||||||||||||||||||||||
Guaranty
|
Campus
|
Enrollment
|
Technical
|
Fee-
|
and
|
and
|
and
|
to
GAAP
|
Results
of
|
||||||||||||||||||||||
Servicing
|
Commerce
|
Services
|
Services
|
Based
|
Management
|
Overhead
|
Reclassifications
|
Results
|
Operations
|
||||||||||||||||||||||
Total
interest income
|
$ | 1,160 | 1,471 | 16 | — | 2,647 | 892,690 | 4,781 | (1,389 | ) | 42,325 | 941,054 | |||||||||||||||||||
Interest
expense
|
— | — | 3 | — | 3 | 762,689 | 30,318 | (1,389 | ) | — | 791,621 | ||||||||||||||||||||
Net
interest income (loss)
|
1,160 | 1,471 | 13 | — | 2,644 | 130,001 | (25,537 | ) | — | 42,325 | 149,433 | ||||||||||||||||||||
Less
provision for loan losses
|
— | — | — | — | — | 18,000 | — | — | — | 18,000 | |||||||||||||||||||||
Net
interest income (loss) after provision
|
|||||||||||||||||||||||||||||||
for
loan losses
|
1,160 | 1,471 | 13 | — | 2,644 | 112,001 | (25,537 | ) | — | 42,325 | 131,433 | ||||||||||||||||||||
Other
income (expense):
|
|||||||||||||||||||||||||||||||
Loan
and guaranty servicing revenue
|
78,147 | — | — | — | 78,147 | 26 | — | — | — | 78,173 | |||||||||||||||||||||
Tuition
payment processing and campus commerce revenue
|
— | 35,980 | — | — | 35,980 | — | — | — | — | 35,980 | |||||||||||||||||||||
Enrollment
services revenue
|
— | — | 83,148 | — | 83,148 | — | — | — | — | 83,148 | |||||||||||||||||||||
Software
services revenue
|
3,477 | — | 37 | 15,828 | 19,342 | — | — | — | — | 19,342 | |||||||||||||||||||||
Other
income
|
44 | — | — | — | 44 | 13,787 | 3,956 | — | — | 17,787 | |||||||||||||||||||||
Gain
(loss) on sale of loans, net
|
— | — | — | — | — | (47,426 | ) | — | — | — | (47,426 | ) | |||||||||||||||||||
Intersegment
revenue
|
57,008 | 242 | 2 | 4,993 | 62,245 | — | 46,843 | (109,088 | ) | — | — | ||||||||||||||||||||
Derivative
market value, foreign currency,
|
|||||||||||||||||||||||||||||||
and
put option adjustments
|
— | — | — | — | — | 466 | — | — | (35,987 | ) | (35,521 | ) | |||||||||||||||||||
Derivative
settlements, net
|
— | — | — | — | — | 55,954 | — | — | (9,965 | ) | 45,989 | ||||||||||||||||||||
Total
other income (expense)
|
138,676 | 36,222 | 83,187 | 20,821 | 278,906 | 22,807 | 50,799 | (109,088 | ) | (45,952 | ) | 197,472 | |||||||||||||||||||
Operating
expenses:
|
|||||||||||||||||||||||||||||||
Salaries
and benefits
|
40,365 | 17,450 | 18,701 | 14,031 | 90,547 | 6,157 | 41,581 | 1,323 | 2,523 | 142,131 | |||||||||||||||||||||
Restructure
expense- severence and
|
|||||||||||||||||||||||||||||||
contract
terminination costs
|
747 | — | 282 | 487 | 1,516 | 1,845 | 3,746 | (7,107 | ) | — | — | ||||||||||||||||||||
Impairment
expense
|
5,074 | — | — | — | 5,074 | 9,351 | 4,409 | — | — | 18,834 | |||||||||||||||||||||
Cost
to provide enrollment services
|
— | — | 48,062 | — | 48,062 | — | — | — | — | 48,062 | |||||||||||||||||||||
Other
expenses
|
27,130 | 6,743 | 7,801 | 1,901 | 43,575 | 15,793 | 42,263 | 51 | 19,719 | 121,401 | |||||||||||||||||||||
Intersegment
expenses
|
35,040 | 1,045 | 4,936 | 1,562 | 42,583 | 57,754 | 3,018 | (103,355 | ) | — | — | ||||||||||||||||||||
Total
operating expenses
|
108,356 | 25,238 | 79,782 | 17,981 | 231,357 | 90,900 | 95,017 | (109,088 | ) | 22,242 | 330,428 | ||||||||||||||||||||
Income
(loss) before income taxes
|
31,480 | 12,455 | 3,418 | 2,840 | 50,193 | 43,908 | (69,755 | ) | — | (25,869 | ) | (1,523 | ) | ||||||||||||||||||
Income
tax (expense) benefit (a)
|
(10,542 | ) | (4,081 | ) | (1,187 | ) | (902 | ) | (16,712 | ) | (15,889 | ) | 22,824 | — | 7,984 | (1,793 | ) | ||||||||||||||
Net
income (loss) from continuing operations
|
20,938 | 8,374 | 2,231 | 1,938 | 33,481 | 28,019 | (46,931 | ) | — | (17,885 | ) | (3,316 | ) | ||||||||||||||||||
Income
from discontinued operations, net of tax
|
— | — | — | — | — | — | — | — | 981 | 981 | |||||||||||||||||||||
Net
income (loss)
|
$ | 20,938 | 8,374 | 2,231 | 1,938 | 33,481 | 28,019 | (46,931 | ) | — | (16,904 | ) | (2,335 | ) | |||||||||||||||||
(a)
Income taxes are applied based on the consolidated effective tax rate to
income (loss) before income taxes.
|
|||||||||||||||||||||||||||||||
·
|
Income
earned on certain investment
activities
|
·
|
Interest
expense incurred on unsecured debt
transactions
|
·
|
Other
products and service offerings that are not considered operating
segments
|
·
|
Certain
corporate activities and unallocated overhead functions related to
executive management, human resources, accounting and finance, legal,
marketing, and corporate technology
support
|
Student
|
Tuition
|
|||||||||||||||
Loan
|
Payment
|
Software
|
Asset
|
Corporate
|
||||||||||||
and
|
Processing
|
and
|
Generation
|
Activity
|
||||||||||||
Guaranty
|
and
Campus
|
Enrollment
|
Technical
|
and
|
and
|
|||||||||||
Servicing
|
Commerce
|
Services
|
Services
|
Management
|
Overhead
|
Total
|
||||||||||
Three
months ended September 30, 2009
|
||||||||||||||||
Derivative
market value, foreign currency, and
|
||||||||||||||||
put
option adjustments (1)
|
$
|
—
|
—
|
—
|
—
|
(2,826)
|
—
|
(2,826)
|
||||||||
Amortization
of intangible assets (2)
|
1,078
|
1,842
|
2,251
|
141
|
—
|
—
|
5,312
|
|||||||||
Compensation
related to business combinations (3)
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||
Variable-rate
floor income, net of settlements on derivatives (4)
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||
Income
from discontinued operations, net of tax (5)
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||
Net
tax effect (6)
|
(410)
|
(700)
|
(855)
|
(54)
|
1,074
|
86
|
(859)
|
|||||||||
Total
adjustments to GAAP
|
$
|
668
|
1,142
|
1,396
|
87
|
(1,752)
|
86
|
1,627
|
||||||||
Three
months ended September 30, 2008
|
||||||||||||||||
Derivative
market value, foreign currency, and
|
||||||||||||||||
put
option adjustments (1)
|
$
|
—
|
—
|
—
|
—
|
(9,030)
|
2,945
|
(6,085)
|
||||||||
Amortization
of intangible assets (2)
|
1,165
|
1,889
|
3,258
|
286
|
—
|
—
|
6,598
|
|||||||||
Compensation
related to business combinations (3)
|
—
|
—
|
—
|
—
|
—
|
477
|
477
|
|||||||||
Variable-rate
floor income, net of settlements on derivatives (4)
|
—
|
—
|
—
|
—
|
(1,580)
|
—
|
(1,580)
|
|||||||||
Income
from discontinued operations, net of tax (5)
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||
Net
tax effect (6)
|
(432)
|
(699)
|
(1,205)
|
(106)
|
3,926
|
(1,266)
|
218
|
|||||||||
Total
adjustments to GAAP
|
$
|
733
|
1,190
|
2,053
|
180
|
(6,684)
|
2,156
|
(372)
|
||||||||
Nine
months ended September 30, 2009
|
||||||||||||||||
Derivative
market value, foreign currency, and
|
||||||||||||||||
put
option adjustments (1)
|
$
|
—
|
—
|
—
|
—
|
37,499
|
(1,432)
|
36,067
|
||||||||
Amortization
of intangible assets (2)
|
3,236
|
5,598
|
7,994
|
423
|
—
|
—
|
17,251
|
|||||||||
Compensation
related to business combinations (3)
|
—
|
—
|
—
|
—
|
—
|
159
|
159
|
|||||||||
Variable-rate
floor income, net of settlements on derivatives (4)
|
—
|
—
|
—
|
—
|
(7,502)
|
—
|
(7,502)
|
|||||||||
Income
from discontinued operations, net of tax (5)
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||
Net
tax effect (6)
|
(1,230)
|
(2,127)
|
(3,037)
|
(161)
|
(11,399)
|
1,173
|
(16,781)
|
|||||||||
Total
adjustments to GAAP
|
$
|
2,006
|
3,471
|
4,957
|
262
|
18,598
|
(100)
|
29,194
|
||||||||
Nine
months ended September 30, 2008
|
||||||||||||||||
Derivative
market value, foreign currency, and
|
||||||||||||||||
put
option adjustments (1)
|
$
|
—
|
—
|
—
|
—
|
32,504
|
3,483
|
35,987
|
||||||||
Amortization
of intangible assets (2)
|
3,586
|
5,937
|
9,193
|
858
|
145
|
—
|
19,719
|
|||||||||
Compensation
related to business combinations (3)
|
—
|
—
|
—
|
—
|
—
|
2,523
|
2,523
|
|||||||||
Variable-rate
floor income, net of settlements on derivatives (4)
|
—
|
—
|
—
|
—
|
(32,360)
|
—
|
(32,360)
|
|||||||||
Income
from discontinued operations, net of tax (5)
|
(981)
|
—
|
—
|
—
|
—
|
—
|
(981)
|
|||||||||
Net
tax effect (6)
|
(1,182)
|
(1,954)
|
(3,045)
|
(284)
|
548
|
(2,067)
|
(7,984)
|
|||||||||
Total
adjustments to GAAP
|
$
|
1,423
|
3,983
|
6,148
|
574
|
837
|
3,939
|
16,904
|
||||||||
(1)
|
Derivative
market value, foreign currency, and put option 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 and the change in fair
value of put options issued by the Company for certain business
acquisitions.
|
(2)
|
Amortization
of intangible assets: “Base net income” excludes the amortization of
acquired intangibles.
|
(3)
|
Compensation
related to business combinations: The Company has structured certain
business combinations in which the consideration paid has been dependent
on the sellers’ continued employment with the Company. As such, the value
of the consideration paid is recognized as compensation expense by the
Company over the term of the applicable employment agreement. “Base net
income” excludes this expense.
|
(4)
|
Variable-rate
floor income: Loans that reset annually on July 1 can generate excess
spread income compared with the rate based on the special allowance
payment formula in declining interest rate environments. The Company
refers to this additional income as variable-rate floor income. The
Company excludes variable-rate floor income, net of settlements paid on
derivatives used to hedge student loan assets earning variable-rate floor
income, from its “base net income” since the timing and amount of
variable-rate floor income (if any) is uncertain, it has been eliminated
by legislation for all loans originated on and after April 1, 2006, and it
is in excess of expected spreads. In addition, because variable-rate floor
income is subject to the underlying rate for the subject loans being reset
annually on July 1, it is a factor beyond the Company’s control which can
affect the period-to-period comparability of results of
operations.
|
(5)
|
Discontinued
operations: In May 2007, the Company sold EDULINX. As a result of this
transaction, the results of operations for EDULINX are reported as
discontinued operations for all periods presented. The Company presents
“base net income” excluding discontinued operations since the operations
and cash flows of EDULINX have been eliminated from the ongoing operations
of the Company.
|
(6)
|
For
2009, income taxes are applied based on 38% of income (loss) before income
taxes for the individual operating segments. For 2008, income taxes for
each individual operating segment are applied based on the consolidated
effective tax rate.
|
8.
|
Intangible
Assets and Goodwill
|
Weighted
|
|||||||||||||
average
|
|||||||||||||
remaining
|
|||||||||||||
useful
life as of
|
As
of
|
As
of
|
|||||||||||
September
30,
|
September
30,
|
December
31,
|
|||||||||||
2009
(months)
|
2009
|
2008
|
|||||||||||
Amortizable
intangible assets:
|
|||||||||||||
Customer
relationships (net of accumulated amortization of $36,557
|
|||||||||||||
and
$29,737, respectively)
|
98 | $ | 43,803 | 50,623 | |||||||||
Trade
names (net of accumulated amortization of $8,265 and
|
|||||||||||||
$5,478,
respectively)
|
35 | 8,794 | 11,581 | ||||||||||
Covenants
not to compete (net of accumulated amortization of
|
|||||||||||||
$19,041
and $14,887, respectively)
|
11 | 4,581 | 8,735 | ||||||||||
Database
and content (net of accumulated amortization of $7,137
|
|||||||||||||
and
$5,447, respectively)
|
14 | 2,343 | 4,033 | ||||||||||
Computer
software (net of accumulated amortization of $8,880
|
|||||||||||||
and
$7,441, respectively)
|
14 | 122 | 1,561 | ||||||||||
Student
lists (net of accumulated amortization of $8,197 and
|
|||||||||||||
$7,855,
respectively)
|
— | — | 342 | ||||||||||
Other
(net of accumulated amortization of $114 and $95,
respectively)
|
77 | 160 | 179 | ||||||||||
Total
- amortizable intangible assets
|
79 | $ | 59,803 | 77,054 |
2009
|
$ | 5,067 | ||
2010
|
15,985 | |||
2011
|
10,031 | |||
2012
|
9,029 | |||
2013
|
6,168 | |||
2014
and thereafter
|
13,523 | |||
$ | 59,803 |
Tuition Payment Processing and Campus Commerce | $ | 58,086 | ||
Enrollment Services | 66,613 | |||
Software
and Technical Services
|
8,596 | |||
Asset Generation and Management | 41,883 | |||
$ | 175,178 |
·
|
Level
1: Quoted prices for identical instruments
in active markets. The types of financial instruments included in Level 1
are highly liquid instruments with quoted
prices.
|
·
|
Level
2: Quoted prices for similar instruments in
active markets, quoted prices for identical or similar instruments in
markets that are not active; and model-derived valuations whose inputs are
observable or whose primary value drivers are
observable.
|
·
|
Level
3: Instruments whose primary value drivers are unobservable. Inputs
are developed based on the best information available; however,
significant judgment is required by management in developing the
inputs.
|
As
of September 30, 2009
|
||||||||||||
Level
1
|
Level
2
|
Total
|
||||||||||
Assets:
|
||||||||||||
Cash
and cash equivalents (a)
|
$ | 334,293 | — | 334,293 | ||||||||
Restricted
cash (a)
|
355,388 | — | 355,388 | |||||||||
Restricted
cash - due to customers (a)
|
50,783 | — | 50,783 | |||||||||
Restricted
investments (a)
|
— | 443,248 | 443,248 | |||||||||
Other
assets (b)
|
4,218 | 5,369 | 9,587 | |||||||||
Fair
value of derivative instruments (c)
|
— | 210,157 | 210,157 | |||||||||
Total
Assets
|
$ | 744,682 | 658,774 | 1,403,456 | ||||||||
Liabilities:
|
||||||||||||
Fair
value of derivative instruments (c)
|
$ | — | 8,998 | 8,998 | ||||||||
Total
Liabilities
|
$ | — | 8,998 | 8,998 | ||||||||
As
of December 31, 2008
|
||||||||||||
Level
1
|
Level
2
|
Total
|
||||||||||
Assets:
|
||||||||||||
Cash
and cash equivalents (a)
|
$ | 189,847 | — | 189,847 | ||||||||
Restricted
cash (a)
|
387,404 | — | 387,404 | |||||||||
Restricted
cash - due to customers (a)
|
160,985 | — | 160,985 | |||||||||
Restricted
investments (a)
|
— | 609,868 | 609,868 | |||||||||
Other
assets (b)
|
4,941 | 3,876 | 8,817 | |||||||||
Fair
value of derivative instruments (c)
|
— | 175,174 | 175,174 | |||||||||
Total
Assets
|
$ | 743,177 | 788,918 | 1,532,095 | ||||||||
Liabilities:
|
||||||||||||
Fair
value of derivative instruments (c)
|
$ | — | 1,815 | 1,815 | ||||||||
Total
Liabilities
|
$ | — | 1,815 | 1,815 |
(a)
|
The
carrying amount for cash and cash equivalents, restricted cash, restricted
cash – due to customers, and restricted investments approximates fair
value due to the variable rate of interest and/or the short maturities of
these instruments.
|
(b)
|
Other
assets includes investments recorded at fair value on a recurring basis.
Fair value measurement is based upon quoted prices. Level 1 investments
include investments traded on an active exchange, such as the New York
Stock Exchange, and U.S. Treasury securities that are traded by dealers or
brokers in active over-the-counter markets. Level 2 investments include
corporate debt securities.
|
(c)
|
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. It is the Company’s policy to compare its derivative
fair values to those received by its counterparties in order to validate
the model’s outputs. Fair value of derivative instruments is comprised of
market value less accrued interest and excludes
collateral.
|
As
of
|
As
of
|
|||||||||||||||
September
30, 2009
|
December
31, 2008
|
|||||||||||||||
Fair
value
|
Carrying
value
|
Fair
value
|
Carrying
value
|
|||||||||||||
Financial
assets:
|
||||||||||||||||
Student
loans receivable
|
$ | 24,121,630 | 23,764,263 | 25,743,732 | 25,413,008 | |||||||||||
Student
loans receivable - held for sale
|
1,654,701 | 1,627,794 | — | — | ||||||||||||
Cash
and cash equivalents
|
334,293 | 334,293 | 189,847 | 189,847 | ||||||||||||
Restricted
cash
|
355,388 | 355,388 | 387,404 | 387,404 | ||||||||||||
Restricted
cash – due to customers
|
50,783 | 50,783 | 160,985 | 160,985 | ||||||||||||
Restricted
investments
|
443,248 | 443,248 | 609,868 | 609,868 | ||||||||||||
Accrued
interest receivable
|
389,238 | 389,238 | 471,878 | 471,878 | ||||||||||||
Other
assets
|
9,587 | 9,587 | 8,817 | 8,817 | ||||||||||||
Derivative
instruments
|
210,157 | 210,157 | 175,174 | 175,174 | ||||||||||||
Financial
liabilities:
|
||||||||||||||||
Bonds
and notes payable
|
26,529,388 | 26,586,093 | 26,512,082 | 26,787,959 | ||||||||||||
Accrued
interest payable
|
24,859 | 24,859 | 81,576 | 81,576 | ||||||||||||
Due
to customers
|
50,783 | 50,783 | 160,985 | 160,985 | ||||||||||||
Derivative
instruments
|
8,998 | 8,998 | 1,815 | 1,815 |
Three
|
Nine
|
|||||||||||||||
months
ended
|
months
ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Net
income (loss) attributable to Nelnet, Inc.
|
$ | 46,404 | 23,785 | 80,062 | (2,335 | ) | ||||||||||
Less
earnings (loss) allocated to unvested restricted
stockholders
|
291 | 168 | 514 | (17 | ) | |||||||||||
Net
income (loss) available to common stockholders
|
$ | 46,113 | 23,617 | 79,548 | (2,318 | ) | ||||||||||
Weighted
average common shares outstanding - basic
|
49,611,423 | 49,176,436 | 49,432,165 | 49,109,340 | ||||||||||||
Dilutive
effect of the assumed vesting of restricted stock awards
|
197,433 | 220,117 | 201,125 | — | ||||||||||||
Weighted
average common shares outstanding - diluted
|
49,808,856 | 49,396,553 | 49,633,290 | 49,109,340 | ||||||||||||
Basic
earnings (loss) per common share
|
$ | 0.93 | 0.48 | 1.60 | (0.05 | ) | ||||||||||
Diluted
earnings (loss) per common share
|
$ | 0.93 | 0.48 | 1.60 | (0.05 | ) |
Three
months ended September 30,
|
Nine
months ended September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Gains
on debt repurchases
|
$ | 5,248 | — | 19,185 | — | |||||||||||
Borrower
late fee income
|
2,859 | 2,748 | 8,648 | 8,907 | ||||||||||||
Gain
on sale of equity method investment (a)
|
— | — | 3,500 | — | ||||||||||||
Other
|
2,987 | 2,660 | 8,150 | 8,880 | ||||||||||||
Other
income
|
$ | 11,094 | 5,408 | 39,483 | 17,787 |
(a)
|
On
September 28, 2007, the Company sold its 50% membership interests in
Premiere Credit of North America, LLC (“Premiere”) for initial proceeds of
$10.0 million. The Company recognized an initial gain on the sale of
Premiere of $3.9 million during the three month period ended September 30,
2007. In January 2009, the Company earned $3.5 million in additional
consideration as a result of the sale of Premiere. This payment
represented contingent consideration that was owed to the Company if
Premiere was awarded a collections contract as defined in the purchase
agreement.
|
·
|
Grow
and diversify revenue from fee generating
businesses
|
·
|
Manage
operating costs
|
·
|
Maximize
the value of existing portfolio
|
·
|
Eliminate
exposure to liquidity risk and unfunded debt
burden
|
Three
months ended September 30,
|
||||||||||||||||
2009
|
2008
|
$
Change
|
%
Change
|
|||||||||||||
Tuition
Payment Processing and Campus Commerce
|
$ | 12,987 | 11,863 | 1,124 | ||||||||||||
Enrollment
Services - Lead Generation
|
23,595 | 19,313 | 4,282 | |||||||||||||
36,582 | 31,176 | $ | 5,406 | 17.3 | % | |||||||||||
Enrollment
Services - Other
|
7,075 | 10,545 | ||||||||||||||
Student
Loan and Guaranty Servicing
|
27,353 | 30,769 | ||||||||||||||
Software
and Technical Services
|
3,634 | 4,217 | ||||||||||||||
Total
revenue from fee generating businesses
|
$ | 74,644 | 76,707 | |||||||||||||
Nine
months ended September 30,
|
||||||||||||||||
2009
|
2008
|
$
Change
|
%
Change
|
|||||||||||||
Tuition
Payment Processing and Campus Commerce
|
$ | 40,373 | 35,980 | 4,393 | ||||||||||||
Enrollment
Services - Lead Generation
|
66,374 | 53,719 | 12,655 | |||||||||||||
106,747 | 89,699 | $ | 17,048 | 19.0 | % | |||||||||||
Enrollment
Services - Other
|
21,814 | 29,466 | ||||||||||||||
Student
Loan and Guaranty Servicing
|
85,190 | 81,624 | ||||||||||||||
Software
and Technical Services
|
13,658 | 15,828 | ||||||||||||||
Total
revenue from fee generating businesses
|
$ | 227,409 | 216,617 |
Three
months ended
|
||||||||||||||||
September
30,
2009
|
September
30,
2008
|
$
Change
|
%
Change
|
|||||||||||||
Salaries
and benefits
|
$ | 36,398 | 44,739 | (8,341 | ) | (18.6 | )% | |||||||||
Other
expenses
|
32,601 | 41,026 | (8,425 | ) | (20.5 | ) | ||||||||||
Operating
expenses, excluding the cost
|
||||||||||||||||
to
provide enrollment services and
|
||||||||||||||||
restructure
and impairment expenses
|
68,999 | 85,765 | $ | (16,766 | ) | (19.5 | )% | |||||||||
Cost
to provide enrollment services
|
20,323 | 17,904 | ||||||||||||||
Restructure
expense
|
3,340 | — | ||||||||||||||
Impairment
expense
|
— | — | ||||||||||||||
Total
operating expenses
|
$ | 92,662 | 103,669 | |||||||||||||
Three
months ended
|
||||||||||||||||
September
30,
2009
|
June
30,
2009
|
$
Change
|
%
Change
|
|||||||||||||
Salaries
and benefits
|
$ | 36,398 | 38,699 | (2,301 | ) | (5.9 | )% | |||||||||
Other
expenses
|
32,601 | 37,277 | (4,676 | ) | (12.5 | ) | ||||||||||
Operating
expenses, excluding the cost
|
||||||||||||||||
to
provide enrollment services and
|
||||||||||||||||
restructure
and impairment expenses
|
68,999 | 75,976 | $ | (6,977 | ) | (9.2 | )% | |||||||||
Cost
to provide enrollment services
|
20,323 | 18,092 | ||||||||||||||
Restructure
expense
|
3,340 | 3,288 | ||||||||||||||
Impairment
expense
|
— | — | ||||||||||||||
Total
operating expenses
|
$ | 92,662 | 97,356 | |||||||||||||
Nine
months ended
|
||||||||||||||||
September
30,
2009
|
September
30,
2008
|
$
Change
|
%
Change
|
|||||||||||||
Salaries
and benefits
|
$ | 113,323 | 136,422 | (23,099 | ) | (16.9 | )% | |||||||||
Other
expenses
|
106,430 | 120,003 | (13,573 | ) | (11.3 | ) | ||||||||||
Operating
expenses, excluding the cost
|
||||||||||||||||
to
provide enrollment services and
|
||||||||||||||||
restructure
and impairment expenses
|
219,753 | 256,425 | $ | (36,672 | ) | (14.3 | )% | |||||||||
Cost
to provide enrollment services
|
56,208 | 48,062 | ||||||||||||||
Restructure
expense
|
6,628 | 7,107 | ||||||||||||||
Impairment
expense
|
— | 18,834 | ||||||||||||||
Total
operating expenses
|
$ | 282,589 | 330,428 |
·
|
In
March 2009, the Company completed a $294.6 million asset-backed
securitization and refinanced loans previously financed in the
facility
|
·
|
In
June 2009, the Company accessed the Department’s Conduit Program and
refinanced loans previously financed in the
facility
|
·
|
In
August 2009, the Company entered into a new $500.0 million FFELP warehouse
facility that expires in August 2012. In August 2009, the Company utilized
the new warehouse facility to refinance all remaining loans in the old
warehouse facility. Refinancing these loans allowed the Company to
terminate the prior facility and withdraw all remaining equity funding
support.
|
5.125%
Senior Notes due 2010
|
Junior
Subordinated Hybrid Securities
|
Asset-backed
securities
|
||||||||||||||||||||||||||
Notional
|
Purchase
|
Gain
|
Notional
|
Purchase
|
Gain
|
Notional
|
Purchase
|
Gain
|
||||||||||||||||||||
amount
|
price
|
(loss)
|
amount
|
price
|
(loss)
|
amount
|
price
|
(loss)
|
||||||||||||||||||||
Three
months ended:
|
||||||||||||||||||||||||||||
March
31, 2009
|
$ | 34,866 | 26,791 | 8,075 | — | — | — | — | — | — | ||||||||||||||||||
June
30, 2009
|
35,520 | 31,080 | 4,440 | 1,750 | 350 | 1,400 | 1,100 | 1,078 | 22 | |||||||||||||||||||
September
30, 2009
|
137,898 | 138,505 | (607 | ) | — | — | — | 44,950 | 39,095 | 5,855 | ||||||||||||||||||
Nine
months ended September 30, 2009
|
208,284 | 196,376 | 11,908 | 1,750 | 350 | 1,400 | 46,050 | 40,173 | 5,877 | |||||||||||||||||||
Subsequent
to September 30, 2009
|
||||||||||||||||||||||||||||
through
November 9, 2009
|
— | — | — | — | — | — | 140,200 | 126,159 | 14,041 | |||||||||||||||||||
Total
debt repurchased
|
$ | 208,284 | 196,376 | 11,908 | 1,750 | 350 | 1,400 | 186,250 | 166,332 | 19,918 | ||||||||||||||||||
Balance
as of September 30, 2009
|
$ | 66,716 | $ | 198,250 |
Three
months ended September 30,
|
Nine
months ended September 30,
|
|||||||||||||||||||||||||||||||
Change
|
Change
|
|||||||||||||||||||||||||||||||
2009
|
2008
|
$ | % |
2009
|
2008
|
$
|
% | |||||||||||||||||||||||||
Interest
income:
|
||||||||||||||||||||||||||||||||
Loan
interest
|
$ | 143,255 | 284,468 | (141,213 | ) | (49.6 | )% | $ | 474,587 | 911,140 | (436,553 | ) | (47.9 | )% | ||||||||||||||||||
Investment
interest
|
1,943 | 9,118 | (7,175 | ) | (78.7 | ) | 8,810 | 29,914 | (21,104 | ) | (70.5 | ) | ||||||||||||||||||||
Total
interest income
|
145,198 | 293,586 | (148,388 | ) | (50.5 | ) | 483,397 | 941,054 | (457,657 | ) | (48.6 | ) | ||||||||||||||||||||
Interest
expense:
|
||||||||||||||||||||||||||||||||
Interest
on bonds and notes payable
|
76,016 | 234,016 | (158,000 | ) | (67.5 | ) | 328,600 | 791,621 | (463,021 | ) | (58.5 | ) | ||||||||||||||||||||
Net
interest income
|
69,182 | 59,570 | 9,612 | 16.1 | 154,797 | 149,433 | 5,364 | 3.6 | ||||||||||||||||||||||||
Provision
for loan losses
|
7,500 | 7,000 | 500 | 7.1 | 23,000 | 18,000 | 5,000 | 27.8 | ||||||||||||||||||||||||
Net
interest income after
|
||||||||||||||||||||||||||||||||
provision
for loan losses
|
61,682 | 52,570 | 9,112 | 17.3 | 131,797 | 131,433 | 364 | 0.3 | ||||||||||||||||||||||||
Derivative
settlements, net (a)
|
4,914 | 789 | 4,125 | 522.8 | 38,807 | 45,989 | (7,182 | ) | (15.6 | ) | ||||||||||||||||||||||
Net
interest income after
|
||||||||||||||||||||||||||||||||
provision
for loan losses (net
|
||||||||||||||||||||||||||||||||
of
settlements on derivatives)
|
$ | 66,596 | 53,359 | 13,237 | 24.8 | % | $ | 170,604 | 177,422 | (6,818 | ) | (3.8 | )% |
(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 all 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, as discussed
below.
|
Three
months ended September 30,
|
Nine
months ended September 30,
|
|||||||||||||||||||||||||||||||
Change
|
Change
|
|||||||||||||||||||||||||||||||
2009
|
2008
|
$ | % |
2009
|
2008
|
$ | % | |||||||||||||||||||||||||
Student
loan interest margin, net
|
||||||||||||||||||||||||||||||||
of
settlements on derivatives (a)
|
$ | 39,749 | 54,955 | (15,206 | ) | (27.7 | )% | $ | 101,685 | 170,638 | (68,953 | ) | (40.4 | )% | ||||||||||||||||||
Fixed
rate floor income, net of
|
||||||||||||||||||||||||||||||||
settlements
on derivatives (b)
|
38,848 | 6,778 | 32,070 | 473.1 | 106,187 | 25,188 | 80,999 | 321.6 | ||||||||||||||||||||||||
Investment
interest (c)
|
1,943 | 9,118 | (7,175 | ) | (78.7 | ) | 8,810 | 29,914 | (21,104 | ) | (70.5 | ) | ||||||||||||||||||||
Corporate
debt interest expense (d)
|
(6,444 | ) | (10,492 | ) | 4,048 | (38.6 | ) | (23,078 | ) | (30,318 | ) | 7,240 | (23.9 | ) | ||||||||||||||||||
Provision
for loan losses (e)
|
(7,500 | ) | (7,000 | ) | (500 | ) | 7.1 | (23,000 | ) | (18,000 | ) | (5,000 | ) | 27.8 | ||||||||||||||||||
Net
interest income after
|
||||||||||||||||||||||||||||||||
provision
for loan losses (net of
|
||||||||||||||||||||||||||||||||
settlements
on derivatives)
|
$ | 66,596 | 53,359 | 13,237 | 24.8 | % | $ | 170,604 | 177,422 | (6,818 | ) | (3.8 | )% |
(a)
|
Student
loan interest margin decreased for the three and nine months ended
September 30, 2009 compared to the same periods in 2008 as a result of a
decrease in the Company’s variable student loan spread as discussed in
this Item 2 under “Asset Generation and Management Operating Segment –
Results of Operations – Student Loan Spread Analysis.” For the three
months ended September 30, 2009 and 2008, variable student loan spread was
0.66% and 0.94%, respectively. For the nine months ended September 30,
2009 and 2008, variable student loan spread was 0.54% and 0.89%,
respectively.
|
(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 creating fixed rate floor income. Due to lower interest rates in the
three and nine months ended September 30, 2009 compared to the same
periods in 2008, the Company received additional fixed rate floor income
on a portion of its student loan portfolio. See Item 3, “Quantitative and
Qualitative Disclosures about Market Risk – Interest Rate Risk” for
additional information.
|
(c)
|
Investment
interest decreased for the three and nine months ended September 30, 2009
compared to the same period in 2008 due to lower interest rates in
2009.
|
(d)
|
Corporate
debt interest expense decreased for the three and nine months ended
September 30, 2009 compared to the same periods in 2008 as a result of a
decrease in interest rates, as well as a reduction in debt outstanding due
to the purchase of unsecured fixed rate debt. The weighted average
interest rate and notes outstanding on the Company’s unsecured line of
credit was 0.77% and $691.5 million, respectively, as of September 30,
2009 compared to 3.44% and $645.0 million, respectively, as of September
30, 2008. During the first, second, and third quarters of 2009, the
Company purchased $34.9 million, $35.5 million, and $137.9 million,
respectively, of its 5.125% Senior Notes due
2010.
|
(e)
|
The
provision for loan losses increased for the three and nine months ended
September 30, 2009 compared to 2008 primarily due to increases in
delinquencies.
|
Three
months ended September 30,
|
Nine
months ended September 30,
|
|||||||||||||||||||||||||
Change
|
Change
|
|||||||||||||||||||||||||
2009
|
2008
|
$ | % |
2009
|
2008
|
$ | % | |||||||||||||||||||
Loan
and guaranty servicing revenue (a)
|
$ | 26,006 | 29,691 | (3,685 | ) | (12.4 | )% | $ | 81,280 | 78,173 | 3,107 | 4.0 | % | |||||||||||||
Tuition
payment processing and campus commerce revenue (b)
|
12,987 | 11,863 | 1,124 | 9.5 | 40,373 | 35,980 | 4,393 | 12.2 | ||||||||||||||||||
Enrollment
services revenue (c)
|
30,670 | 29,858 | 812 | 2.7 | 88,188 | 83,148 | 5,040 | 6.1 | ||||||||||||||||||
Software
services revenue (d)
|
4,600 | 5,159 | (559 | ) | (10.8 | ) | 16,424 | 19,342 | (2,918 | ) | (15.1 | ) | ||||||||||||||
Other
income (e)
|
11,094 | 5,408 | 5,686 | 105.1 | 39,483 | 17,787 | 21,696 | 122.0 | ||||||||||||||||||
Gain
(loss) on sale of loans, net (f)
|
8,788 | — | 8,788 | 100.0 | 8,386 | (47,426 | ) | 55,812 | (117.7 | ) | ||||||||||||||||
Derivative
market value, foreign currency,
|
||||||||||||||||||||||||||
and
put option adjustments (g)
|
2,826 | 6,085 | (3,259 | ) | (53.6 | ) | (36,067 | ) | (35,521 | ) | (546 | ) | 1.5 | |||||||||||||
Derivative
settlements, net (h)
|
4,914 | 789 | 4,125 | 522.8 | 38,807 | 45,989 | (7,182 | ) | (15.6 | ) | ||||||||||||||||
Total
other income
|
$ | 101,885 | 88,853 | 13,032 | 14.7 | % | $ | 276,874 | 197,472 | 79,402 | 40.2 | % |
(a)
|
“Loan
and guaranty servicing revenue” increased for the nine months ended
September 30, 2009 compared to the same period in 2008 due to an increase
in FFELP loan servicing revenue. This increase was offset by a decrease in
rehabilitation collections on defaulted loan assets. “Loan and guaranty
servicing revenue” decreased for the three months ended September 30, 2009
compared to the same period in 2008 due to a decrease in rehabilitation
collections on defaulted loan assets. This decrease was offset by an
increase in FFELP loan servicing revenue. See Item 2 under “Student Loan
and Guaranty Servicing Operating Segment – Results of Operations” for
additional information.
|
(b)
|
“Tuition
payment processing and campus commerce revenue” increased due to an
increase in the number of managed tuition payment plans and an increase in
campus commerce transactions processed as discussed in this Item 2 under
“Tuition Payment Processing and Campus Commerce Operating Segment –
Results of Operations.”
|
(c)
|
“Enrollment
services revenue” increased due to an increase in the number of lead
generation transactions processed offset by a reduction in other
enrollment products and services offered as further discussed in this Item
2 under “Enrollment Services Operating Segment – Results of
Operations.”
|
(d)
|
“Software
and technical services revenue” decreased in 2009 compared to the same
periods in 2008 as the result of a reduction in the number of projects for
existing customers and the loss of customers due to the legislative
developments in the student loan industry throughout 2008 as further
discussed in this Item 2 under “Software and Technical Services Operating
Segment – Results of Operations.”
|
(e)
|
The
following table summarizes the components of “other
income”.
|
Three
months ended
September
30,
|
Nine
months ended
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Gains
on debt repurchases
|
$ | 5,248 | — | 19,185 | — | |||||||||||
Borrower
late fee income
|
2,859 | 2,748 | 8,648 | 8,907 | ||||||||||||
Gain
on sale of equity method investment
|
— | — | 3,500 | — | ||||||||||||
Other
|
2,987 | 2,660 | 8,150 | 8,880 | ||||||||||||
Other
income
|
$ | 11,094 | 5,408 | 39,483 | 17,787 |
The
change in other income over all the periods presented is primarily the
result of gains on debt repurchases. In addition, during the first quarter
of 2009, the Company earned $3.5 million in additional consideration from
the sale of an equity method
investment.
|
(f)
|
“Gain
(loss) on sale of loans” includes a gain of $9.7 million related to the
sale of $427.7 million of student loans to the Department under the
Purchase Program during the three months ended September 30, 2009. In
addition, the Company recognized a loss of $47.5 million during the first
quarter of 2008 as a result of the sale of $1.3 billion of student loans
as further discussed in this Item 2 under “Asset Generation and Management
Operating Segment – Results of
Operations.”
|
(g)
|
The
change in “derivative market value, foreign currency, and put option
adjustments” was caused by the change in the fair value of the Company’s
derivative portfolio and foreign currency rate fluctuations which are
further discussed in Item 3, “Quantitative and Qualitative Disclosures
about Market Risk.”
|
(h)
|
Further
detail of the components of derivative settlements is included in Item 3,
“Quantitative and Qualitative Disclosures about Market Risk.” The Company
maintains an overall risk management strategy that incorporates the use of
derivative instruments to reduce the economic effect of interest rate
volatility. Management has structured all 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, as discussed
previously.
|
Three
months ended September 30,
|
Nine
months ended September 30,
|
||||||||||||||||||||||||
2009
|
2008
|
$
Change
|
%
Change
|
2009
|
2008
|
$
Change
|
%
Change
|
||||||||||||||||||
Salaries
and benefits
|
$ | 36,398 | 44,739 | (8,341 | ) | (18.6 | ) % | $ | 113,323 | 136,422 | (23,099 | ) | (16.9 | ) % | |||||||||||
Other
expenses
|
32,601 | 41,026 | (8,425 | ) | (20.5 | ) | 106,430 | 120,003 | (13,573 | ) | (11.3 | ) | |||||||||||||
Operating
expenses, excluding the cost
|
|||||||||||||||||||||||||
to
provide enrollment services and
|
|||||||||||||||||||||||||
restructure
and impairment expenses
|
68,999 | 85,765 | $ | (16,766 | ) | (19.5 | ) % | 219,753 | 256,425 | $ | (36,672 | ) | (14.3 | ) % | |||||||||||
Cost
to provide enrollment services
|
20,323 | 17,904 | 56,208 | 48,062 | |||||||||||||||||||||
Restructure
expense
|
3,340 | — | 6,628 | 7,107 | |||||||||||||||||||||
Impairment
expense
|
— | — | — | 18,834 | |||||||||||||||||||||
Total
operating expenses
|
$ | 92,662 | 103,669 | $ | 282,589 | 330,428 | |||||||||||||||||||
As
of
|
As
of
|
|||||||||||||||
September
30,
|
December
31,
|
Change
|
||||||||||||||
2009
|
2008
|
Dollars
|
Percent
|
|||||||||||||
Assets:
|
||||||||||||||||
Student
loans receivable, net
|
$ | 23,764,263 | 25,413,008 | (1,648,745 | ) | (6.5 | ) % | |||||||||
Student
loans receivable - held for sale
|
1,627,794 | — | 1,627,794 | 100.0 | ||||||||||||
Cash,
cash equivalents, and investments
|
1,183,712 | 1,348,104 | (164,392 | ) | (12.2 | ) | ||||||||||
Goodwill
|
175,178 | 175,178 | — | — | ||||||||||||
Intangible
assets, net
|
59,803 | 77,054 | (17,251 | ) | (22.4 | ) | ||||||||||
Fair
value of derivative instruments
|
210,157 | 175,174 | 34,983 | 20.0 | ||||||||||||
Other
assets
|
570,955 | 666,379 | (95,424 | ) | (14.3 | ) | ||||||||||
Total
assets
|
$ | 27,591,862 | 27,854,897 | (263,035 | ) | (0.9 | ) % | |||||||||
Liabilities:
|
||||||||||||||||
Bonds
and notes payable
|
$ | 26,586,093 | 26,787,959 | (201,866 | ) | (0.8 | ) % | |||||||||
Fair
value of derivative instruments
|
8,998 | 1,815 | 7,183 | 395.8 | ||||||||||||
Other
liabilities
|
268,697 | 421,897 | (153,200 | ) | (36.3 | ) | ||||||||||
Total
liabilities
|
26,863,788 | 27,211,671 | (347,883 | ) | (1.3 | ) | ||||||||||
Shareholders'
equity
|
728,074 | 643,226 | 84,848 | 13.2 | ||||||||||||
Total
liabilities and shareholders' equity
|
$ | 27,591,862 | 27,854,897 | (263,035 | ) | (0.9 | ) % |
Three
months ended September 30, 2009
|
||||||||||||||||||||||||||||||
Fee-Based
|
||||||||||||||||||||||||||||||
Student
|
Tuition
|
"Base
net
|
||||||||||||||||||||||||||||
Loan
|
Payment
|
Software
|
Asset
|
Corporate
|
income"
|
|||||||||||||||||||||||||
and
|
Processing
|
and
|
Total
|
Generation
|
Activity
|
Eliminations
|
Adjustments
|
GAAP
|
||||||||||||||||||||||
Guaranty
|
and
Campus
|
Enrollment
|
Technical
|
Fee-
|
and
|
and
|
and
|
to
GAAP
|
Results
of
|
|||||||||||||||||||||
Servicing
|
Commerce
|
Services
|
Services
|
Based
|
Management
|
Overhead
|
Reclassifications
|
Results
|
Operations
|
|||||||||||||||||||||
Total
interest income
|
$ | 23 | 16 | — | — | 39 | 144,310 | 1,191 | (342 | ) | — | 145,198 | ||||||||||||||||||
Interest
expense
|
— | — | — | — | — | 69,914 | 6,444 | (342 | ) | — | 76,016 | |||||||||||||||||||
Net
interest income (loss)
|
23 | 16 | — | — | 39 | 74,396 | (5,253 | ) | — | — | 69,182 | |||||||||||||||||||
Less
provision for loan losses
|
— | — | — | — | — | 7,500 | — | — | — | 7,500 | ||||||||||||||||||||
Net
interest income (loss) after provision for loan losses
|
23 | 16 | — | — | 39 | 66,896 | (5,253 | ) | — | — | 61,682 | |||||||||||||||||||
Other
income (expense):
|
||||||||||||||||||||||||||||||
Loan
and guaranty servicing revenue
|
26,387 | — | — | — | 26,387 | — | (381 | ) | — | — | 26,006 | |||||||||||||||||||
Tuition
payment processing and campus commerce revenue
|
— | 12,987 | — | — | 12,987 | — | — | — | — | 12,987 | ||||||||||||||||||||
Enrollment
services revenue
|
— | — | 30,670 | — | 30,670 | — | — | — | — | 30,670 | ||||||||||||||||||||
Software
services revenue
|
966 | — | — | 3,634 | 4,600 | — | — | — | — | 4,600 | ||||||||||||||||||||
Other
income
|
137 | — | — | — | 137 | 9,959 | 998 | — | — | 11,094 | ||||||||||||||||||||
Gain
(loss) on sale of loans, net
|
— | — | — | — | — | 8,788 | — | — | — | 8,788 | ||||||||||||||||||||
Intersegment
revenue
|
21,525 | 62 | 139 | 3,793 | 25,519 | — | 8,355 | (33,874 | ) | — | — | |||||||||||||||||||
Derivative
market value, foreign currency, and put option adjustments
|
— | — | — | — | — | — | — | — | 2,826 | 2,826 | ||||||||||||||||||||
Derivative
settlements, net
|
— | — | — | — | — | 4,914 | — | — | — | 4,914 | ||||||||||||||||||||
Total
other income (expense)
|
49,015 | 13,049 | 30,809 | 7,427 | 100,300 | 23,661 | 8,972 | (33,874 | ) | 2,826 | 101,885 | |||||||||||||||||||
Operating
expenses:
|
||||||||||||||||||||||||||||||
Salaries
and benefits
|
12,468 | 6,399 | 5,337 | 5,756 | 29,960 | 1,693 | 5,919 | 238 | — | 37,810 | ||||||||||||||||||||
Restructure
expense- severance and contract terminination costs
|
2,646 | — | — | 292 | 2,938 | — | 402 | (3,340 | ) | — | — | |||||||||||||||||||
Impairment
expense
|
— | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||
Cost
to provide enrollment services
|
— | — | 20,323 | — | 20,323 | — | — | — | — | 20,323 | ||||||||||||||||||||
Other
expenses
|
7,613 | 2,265 | 3,266 | 776 | 13,920 | 4,801 | 8,567 | 1,929 | 5,312 | 34,529 | ||||||||||||||||||||
Intersegment
expenses
|
9,398 | 670 | 550 | 786 | 11,404 | 20,764 | 533 | (32,701 | ) | — | — | |||||||||||||||||||
Total
operating expenses
|
32,125 | 9,334 | 29,476 | 7,610 | 78,545 | 27,258 | 15,421 | (33,874 | ) | 5,312 | 92,662 | |||||||||||||||||||
Income
(loss) before income taxes
|
16,913 | 3,731 | 1,333 | (183 | ) | 21,794 | 63,299 | (11,702 | ) | — | (2,486 | ) | 70,905 | |||||||||||||||||
Income
tax (expense) benefit (a)
|
(6,427 | ) | (1,418 | ) | (507 | ) | 70 | (8,282 | ) | (24,054 | ) | 6,976 | — | 859 | (24,501 | ) | ||||||||||||||
Net
income (loss) from continuing operations
|
10,486 | 2,313 | 826 | (113 | ) | 13,512 | 39,245 | (4,726 | ) | — | (1,627 | ) | 46,404 | |||||||||||||||||
Income
from discontinued operations, net of tax
|
— | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||
Net
income (loss)
|
$ | 10,486 | 2,313 | 826 | (113 | ) | 13,512 | 39,245 | (4,726 | ) | — | (1,627 | ) | 46,404 |
Three
months ended September 30, 2009:
|
||||||||||||||||||||||||
Before
Tax Operating Margin
|
34.5 | % | 28.6 | % | 4.3 | % | (2.5 | %) | 21.7 | % | 69.9 | % | ||||||||||||
Before
Tax Operating Margin -
|
||||||||||||||||||||||||
excluding
net interest income for
|
||||||||||||||||||||||||
fee
generating businesses and
|
||||||||||||||||||||||||
restructure
expense
|
39.9 | % | 28.5 | % | 4.3 | % | 1.5 | % | 24.6 | % | 69.9 | % | ||||||||||||
Three
months ended September 30, 2008:
|
||||||||||||||||||||||||
Before
Tax Operating Margin
|
26.3 | % | 29.7 | % | 7.1 | % | 5.9 | % | 19.7 | % | 59.8 | % | ||||||||||||
Before
Tax Operating Margin -
|
||||||||||||||||||||||||
excluding
net interest income for
|
||||||||||||||||||||||||
fee
generating businesses
|
25.9 | % | 27.4 | % | 7.1 | % | 5.9 | % | 19.1 | % | 59.8 | % |
Three
months ended September 30, 2008
|
|||||||||||||||||||||||||||||||
Fee-Based
|
|||||||||||||||||||||||||||||||
Tuition
|
|||||||||||||||||||||||||||||||
Student
|
Payment
|
"Base
net
|
|||||||||||||||||||||||||||||
Loan
|
Processing
|
Software
|
Asset
|
Corporate
|
income"
|
||||||||||||||||||||||||||
and
|
and
|
and
|
Total
|
Generation
|
Activity
|
Eliminations
|
Adjustments
|
GAAP
|
|||||||||||||||||||||||
Guaranty
|
Campus
|
Enrollment
|
Technical
|
Fee-
|
and
|
and
|
and
|
to
GAAP
|
Results
of
|
||||||||||||||||||||||
Servicing
|
Commerce
|
Services
|
Services
|
Based
|
Management
|
Overhead
|
Reclassifications
|
Results
|
Operations
|
||||||||||||||||||||||
Total
interest income
|
$ | 304 | 396 | 6 | — | 706 | 290,039 | 2,010 | (749 | ) | 1,580 | 293,586 | |||||||||||||||||||
Interest
expense
|
— | — | 1 | — | 1 | 224,272 | 10,492 | (749 | ) | — | 234,016 | ||||||||||||||||||||
Net
interest income (loss)
|
304 | 396 | 5 | — | 705 | 65,767 | (8,482 | ) | — | 1,580 | 59,570 | ||||||||||||||||||||
Less
provision for loan losses
|
— | — | — | — | — | 7,000 | — | — | — | 7,000 | |||||||||||||||||||||
Net
interest income (loss) after provision
|
|||||||||||||||||||||||||||||||
for
loan losses
|
304 | 396 | 5 | — | 705 | 58,767 | (8,482 | ) | — | 1,580 | 52,570 | ||||||||||||||||||||
Other
income (expense):
|
|||||||||||||||||||||||||||||||
Loan
and guaranty servicing revenue
|
29,827 | — | — | — | 29,827 | (136 | ) | — | — | — | 29,691 | ||||||||||||||||||||
Tuition
payment processing and campus commerce revenue
|
— | 11,863 | — | — | 11,863 | — | — | — | — | 11,863 | |||||||||||||||||||||
Enrollment
services revenue
|
— | — | 29,858 | — | 29,858 | — | — | — | — | 29,858 | |||||||||||||||||||||
Software
services revenue
|
942 | — | — | 4,217 | 5,159 | — | — | — | — | 5,159 | |||||||||||||||||||||
Other
income
|
6 | — | — | — | 6 | 4,079 | 1,323 | — | — | 5,408 | |||||||||||||||||||||
Intercompany
revenue
|
18,402 | 58 | 2 | 1,660 | 20,122 | — | 15,671 | (35,793 | ) | — | — | ||||||||||||||||||||
Derivative
market value, foreign currency,
|
|||||||||||||||||||||||||||||||
and
put option adjustments
|
— | — | — | — | — | — | — | — | 6,085 | 6,085 | |||||||||||||||||||||
Derivative
settlements, net
|
— | — | — | — | — | 789 | — | — | — | 789 | |||||||||||||||||||||
Total
other income (expense)
|
49,177 | 11,921 | 29,860 | 5,877 | 96,835 | 4,732 | 16,994 | (35,793 | ) | 6,085 | 88,853 | ||||||||||||||||||||
Operating
expenses:
|
|||||||||||||||||||||||||||||||
Salaries
and benefits
|
13,876 | 6,236 | 5,805 | 4,138 | 30,055 | 1,980 | 14,179 | (1,952 | ) | 477 | 44,739 | ||||||||||||||||||||
Restructure
expense- severance and
|
|||||||||||||||||||||||||||||||
contract
terminination costs
|
— | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||
Impairment
expense
|
— | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||
Cost
to provide enrollment services
|
— | — | 17,904 | — | 17,904 | — | — | — | — | 17,904 | |||||||||||||||||||||
Other
expenses
|
10,632 | 2,132 | 2,512 | 568 | 15,844 | 5,354 | 13,477 | (247 | ) | 6,598 | 41,026 | ||||||||||||||||||||
Intersegment
expenses
|
11,940 | 288 | 1,509 | 826 | 14,563 | 18,200 | 831 | (33,594 | ) | — | — | ||||||||||||||||||||
Total
operating expenses
|
36,448 | 8,656 | 27,730 | 5,532 | 78,366 | 25,534 | 28,487 | (35,793 | ) | 7,075 | 103,669 | ||||||||||||||||||||
Income
(loss) before income taxes
|
13,033 | 3,661 | 2,135 | 345 | 19,174 | 37,965 | (19,975 | ) | — | 590 | 37,754 | ||||||||||||||||||||
Income
tax (expense) benefit (a)
|
(4,823 | ) | (1,354 | (790 | ) | (128 | ) | (7,095 | ) | (14,047 | ) | 7,391 | — | (218 | ) | (13,969 | ) | ||||||||||||||
Net
income (loss) from continuing operations
|
8,210 | 2,307 | 1,345 | 217 | 12,079 | 23,918 | (12,584 | ) | — | 372 | 23,785 | ||||||||||||||||||||
Income
from discontinued operations, net of tax
|
— | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||
Net
income (loss)
|
$ | 8,210 | 2,307 | 1,345 | 217 | 12,079 | 23,918 | (12,584 | ) | — | 372 | 23,785 | |||||||||||||||||||
(a)
Income taxes are applied based on the consolidated effective tax rate to
income (loss) before income taxes.
|
Nine
months ended September 30, 2009
|
|||||||||||||||||||||||||||||||
Fee-Based
|
|||||||||||||||||||||||||||||||
|
Tuition
|
|
|||||||||||||||||||||||||||||
Student
|
Payment
|
|
|
|
"Base
net
|
||||||||||||||||||||||||||
Loan
|
Processing
|
Software
|
|
Asset
|
Corporate
|
|
income"
|
|
|||||||||||||||||||||||
and
|
and
|
|
and
|
Total
|
Generation
|
Activity
|
Eliminations
|
Adjustments
|
GAAP
|
||||||||||||||||||||||
Guaranty
|
Campus
|
Enrollment
|
Technical
|
Fee-
|
and
|
and
|
and
|
to
GAAP
|
Results
of
|
||||||||||||||||||||||
Servicing
|
Commerce
|
Services
|
Services
|
Based
|
Management
|
Overhead
|
Reclassifications
|
Results
|
Operations
|
||||||||||||||||||||||
Total
interest income
|
$ | 102 | 57 | — | — | 159 | 473,130 | 3,930 | (1,324 | ) | 7,502 | 483,397 | |||||||||||||||||||
Interest
expense
|
— | — | — | — | — | 306,846 | 23,078 | (1,324 | ) | — | 328,600 | ||||||||||||||||||||
Net
interest income (loss)
|
102 | 57 | — | — | 159 | 166,284 | (19,148 | ) | — | 7,502 | 154,797 | ||||||||||||||||||||
Less
provision for loan losses
|
— | — | — | — | — | 23,000 | — | — | — | 23,000 | |||||||||||||||||||||
Net
interest income (loss) after provision for loan
losses
|
102 | 57 | — | — | 159 | 143,284 | (19,148 | ) | — | 7,502 | 131,797 | ||||||||||||||||||||
Other
income (expense):
|
|||||||||||||||||||||||||||||||
Loan
and guaranty servicing revenue
|
82,424 | — | — | — | 82,424 | — | (1,144 | ) | — | — | 81,280 | ||||||||||||||||||||
Tuition
payment processing and campus commerce revenue
|
— | 40,373 | — | — | 40,373 | — | — | — | — | 40,373 | |||||||||||||||||||||
Enrollment
services revenue
|
— | — | 88,188 | — | 88,188 | — | — | — | — | 88,188 | |||||||||||||||||||||
Software
services revenue
|
2,766 | — | — | 13,658 | 16,424 | — | — | — | — | 16,424 | |||||||||||||||||||||
Other
income
|
498 | — | — | — | 498 | 18,851 | 20,134 | — | — | 39,483 | |||||||||||||||||||||
Gain
(loss) on sale of loans, net
|
— | — | — | — | — | 8,386 | — | — | — | 8,386 | |||||||||||||||||||||
Intersegment
revenue
|
62,291 | 172 | 416 | 10,813 | 73,692 | — | 25,739 | (99,431 | ) | — | — | ||||||||||||||||||||
Derivative
market value, foreign currency,
|
|||||||||||||||||||||||||||||||
and
put option adjustments
|
— | — | — | — | — | — | — | — | (36,067 | ) | (36,067 | ) | |||||||||||||||||||
Derivative
settlements, net
|
— | — | — | — | — | 38,807 | — | — | — | 38,807 | |||||||||||||||||||||
Total
other income (expense)
|
147,979 | 40,545 | 88,604 | 24,471 | 301,599 | 66,044 | 44,729 | (99,431 | ) | (36,067 | ) | 276,874 | |||||||||||||||||||
Operating
expenses:
|
|||||||||||||||||||||||||||||||
Salaries
and benefits
|
40,527 | 19,346 | 17,295 | 16,656 | 93,824 | 5,203 | 18,420 | (1,390 | ) | 159 | 116,216 | ||||||||||||||||||||
Restructure
expense- severance and contract
|
|||||||||||||||||||||||||||||||
termination
costs
|
5,159 | — | — | 714 | 5,873 | — | 755 | (6,628 | ) | — | — | ||||||||||||||||||||
Impairment
expense
|
— | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||
Cost
to provide enrollment services
|
— | — | 56,208 | — | 56,208 | — | — | — | — | 56,208 | |||||||||||||||||||||
Other
expenses
|
27,350 | 7,012 | 9,602 | 2,292 | 46,256 | 15,635 | 27,287 | 3,736 | 17,251 | 110,165 | |||||||||||||||||||||
Intersegment
expenses
|
28,352 | 1,962 | 1,604 | 2,195 | 34,113 | 59,372 | 1,664 | (95,149 | ) | — | — | ||||||||||||||||||||
Total
operating expenses
|
101,388 | 28,320 | 84,709 | 21,857 | 236,274 | 80,210 | 48,126 | (99,431 | ) | 17,410 | 282,589 | ||||||||||||||||||||
Income
(loss) before income taxes
|
46,693 | 12,282 | 3,895 | 2,614 | 65,484 | 129,118 | (22,545 | ) | — | (45,975 | ) | 126,082 | |||||||||||||||||||
Income
tax (expense) benefit (a)
|
(17,744 | ) | (4,667 | ) | (1,480 | ) | (994 | ) | (24,885 | ) | (49,066 | ) | 11,150 | — | 16,781 | (46,020 | ) | ||||||||||||||
Net
income (loss) from continuing operations
|
28,949 | 7,615 | 2,415 | 1,620 | 40,599 | 80,052 | (11,395 | ) | — | (29,194 | ) | 80,062 | |||||||||||||||||||
Income
from discontinued operations, net of tax
|
— | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||
Net
income (loss)
|
$ | 28,949 | 7,615 | 2,415 | 1,620 | 40,599 | 80,052 | (11,395 | ) | — | (29,194 | ) | 80,062 |
Nine
months ended September 30, 2009:
|
||||||||||||||||||||||||
Before
Tax Operating Margin
|
31.5 | % | 30.2 | % | 4.4 | % | 10.7 | % | 21.7 | % | 61.7 | % | ||||||||||||
Before
Tax Operating Margin -
|
||||||||||||||||||||||||
excluding
net interest income for fee generating
|
||||||||||||||||||||||||
businesses
and restructure expense
|
35.0 | % | 30.2 | % | 4.4 | % | 13.6 | % | 23.6 | % | 61.7 | % | ||||||||||||
Nine
months ended September 30, 2008:
|
||||||||||||||||||||||||
Before
Tax Operating Margin
|
22.5 | % | 33.0 | % | 4.1 | % | 13.6 | % | 17.8 | % | 32.6 | % | ||||||||||||
Before
Tax Operating Margin -
|
||||||||||||||||||||||||
excluding
net interest income for fee generating
|
||||||||||||||||||||||||
businesses,
restructure expense, impairment expense,
|
||||||||||||||||||||||||
and
the loss on sale of loans in the first quarter
|
||||||||||||||||||||||||
of
2008
|
26.1 | % | 30.3 | % | 4.4 | % | 16.0 | % | 19.4 | % | 56.3 | % |
Nine
months ended September 30, 2008
|
|||||||||||||||||||||||||||||||
Fee-Based
|
|||||||||||||||||||||||||||||||
Tuition
|
|||||||||||||||||||||||||||||||
Student
|
Payment
|
"Base
net
|
|||||||||||||||||||||||||||||
Loan
|
Processing
|
Software
|
Asset
|
Corporate
|
income"
|
||||||||||||||||||||||||||
and
|
and
|
and
|
Total
|
Generation
|
Activity
|
Eliminations
|
Adjustments
|
GAAP
|
|||||||||||||||||||||||
Guaranty
|
Campus
|
Enrollment
|
Technical
|
Fee-
|
and
|
and
|
and
|
to
GAAP
|
Results
of
|
||||||||||||||||||||||
Servicing
|
Commerce
|
Services
|
Services
|
Based
|
Management
|
Overhead
|
Reclassifications
|
Results
|
Operations
|
||||||||||||||||||||||
Total
interest income
|
$ | 1,160 | 1,471 | 16 | — | 2,647 | 892,690 | 4,781 | (1,389 | ) | 42,325 | 941,054 | |||||||||||||||||||
Interest
expense
|
— | — | 3 | — | 3 | 762,689 | 30,318 | (1,389 | ) | — | 791,621 | ||||||||||||||||||||
Net
interest income (loss)
|
1,160 | 1,471 | 13 | — | 2,644 | 130,001 | (25,537 | ) | — | 42,325 | 149,433 | ||||||||||||||||||||
Less
provision for loan losses
|
— | — | — | — | — | 18,000 | — | — | — | 18,000 | |||||||||||||||||||||
Net
interest income (loss) after provision
|
|||||||||||||||||||||||||||||||
for
loan losses
|
1,160 | 1,471 | 13 | — | 2,644 | 112,001 | (25,537 | ) | — | 42,325 | 131,433 | ||||||||||||||||||||
Other
income (expense):
|
|||||||||||||||||||||||||||||||
Loan
and guaranty servicing revenue
|
78,147 | — | — | — | 78,147 | 26 | — | — | — | 78,173 | |||||||||||||||||||||
Tuition
payment processing and campus commerce revenue
|
— | 35,980 | — | — | 35,980 | — | — | — | — | 35,980 | |||||||||||||||||||||
Enrollment
services revenue
|
— | — | 83,148 | — | 83,148 | — | — | — | — | 83,148 | |||||||||||||||||||||
Software
services revenue
|
3,477 | — | 37 | 15,828 | 19,342 | — | — | — | — | 19,342 | |||||||||||||||||||||
Other
income
|
44 | — | — | — | 44 | 13,787 | 3,956 | — | — | 17,787 | |||||||||||||||||||||
Gain
(loss) on sale of loans, net
|
— | — | — | — | — | (47,426 | ) | — | — | — | (47,426 | ) | |||||||||||||||||||
Intersegment
revenue
|
57,008 | 242 | 2 | 4,993 | 62,245 | — | 46,843 | (109,088 | ) | — | — | ||||||||||||||||||||
Derivative
market value, foreign currency,
|
|||||||||||||||||||||||||||||||
and
put option adjustments
|
— | — | — | — | — | 466 | — | — | (35,987 | ) | (35,521 | ) | |||||||||||||||||||
Derivative
settlements, net
|
— | — | — | — | — | 55,954 | — | — | (9,965 | ) | 45,989 | ||||||||||||||||||||
Total
other income (expense)
|
138,676 | 36,222 | 83,187 | 20,821 | 278,906 | 22,807 | 50,799 | (109,088 | ) | (45,952 | ) | 197,472 | |||||||||||||||||||
Operating
expenses:
|
|||||||||||||||||||||||||||||||
Salaries
and benefits
|
40,365 | 17,450 | 18,701 | 14,031 | 90,547 | 6,157 | 41,581 | 1,323 | 2,523 | 142,131 | |||||||||||||||||||||
Restructure
expense- severence and
|
|||||||||||||||||||||||||||||||
contract
terminination costs
|
747 | — | 282 | 487 | 1,516 | 1,845 | 3,746 | (7,107 | ) | — | — | ||||||||||||||||||||
Impairment
expense
|
5,074 | — | — | — | 5,074 | 9,351 | 4,409 | — | — | 18,834 | |||||||||||||||||||||
Cost
to provide enrollment services
|
— | — | 48,062 | — | 48,062 | — | — | — | — | 48,062 | |||||||||||||||||||||
Other
expenses
|
27,130 | 6,743 | 7,801 | 1,901 | 43,575 | 15,793 | 42,263 | 51 | 19,719 | 121,401 | |||||||||||||||||||||
Intersegment
expenses
|
35,040 | 1,045 | 4,936 | 1,562 | 42,583 | 57,754 | 3,018 | (103,355 | ) | — | — | ||||||||||||||||||||
Total
operating expenses
|
108,356 | 25,238 | 79,782 | 17,981 | 231,357 | 90,900 | 95,017 | (109,088 | ) | 22,242 | 330,428 | ||||||||||||||||||||
Income
(loss) before income taxes
|
31,480 | 12,455 | 3,418 | 2,840 | 50,193 | 43,908 | (69,755 | ) | — | (25,869 | ) | (1,523 | ) | ||||||||||||||||||
Income
tax (expense) benefit (a)
|
(10,542 | ) | (4,081 | ) | (1,187 | ) | (902 | ) | (16,712 | ) | (15,889 | ) | 22,824 | — | 7,984 | (1,793 | ) | ||||||||||||||
Net
income (loss) from continuing operations
|
20,938 | 8,374 | 2,231 | 1,938 | 33,481 | 28,019 | (46,931 | ) | — | (17,885 | ) | (3,316 | ) | ||||||||||||||||||
Income
from discontinued operations, net of tax
|
— | — | — | — | — | — | — | — | 981 | 981 | |||||||||||||||||||||
Net
income (loss)
|
$ | 20,938 | 8,374 | 2,231 | 1,938 | 33,481 | 28,019 | (46,931 | ) | — | (16,904 | ) | (2,335 | ) | |||||||||||||||||
(a)
Income taxes are applied based on the consolidated effective tax rate to
income (loss) before income taxes.
|
Student
|
Tuition
|
||||||||||||||||
Loan
|
Payment
|
Software
|
Asset
|
Corporate
|
|||||||||||||
and
|
Processing
|
and
|
Generation
|
Activity
|
|||||||||||||
Guaranty
|
and
Campus
|
Enrollment
|
Technical
|
and
|
and
|
||||||||||||
Servicing
|
Commerce
|
Services
|
Services
|
Management
|
Overhead
|
Total
|
|||||||||||
Three
months ended September 30, 2009
|
|||||||||||||||||
Derivative
market value, foreign currency, and
|
|||||||||||||||||
put
option adjustments
|
$
|
—
|
—
|
—
|
—
|
(2,826)
|
—
|
(2,826)
|
|||||||||
Amortization
of intangible assets
|
1,078
|
1,842
|
2,251
|
141
|
—
|
—
|
5,312
|
||||||||||
Compensation
related to business combinations
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||
Variable-rate
floor income, net of settlements on derivatives
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||
Income
from discontinued operations, net of tax
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||
Net
tax effect (a)
|
(410)
|
(700)
|
(855)
|
(54)
|
1,074
|
86
|
(859)
|
||||||||||
Total
adjustments to GAAP
|
$
|
668
|
1,142
|
1,396
|
87
|
(1,752)
|
86
|
1,627
|
|||||||||
Three
months ended September 30, 2008
|
|||||||||||||||||
Derivative
market value, foreign currency, and
|
|||||||||||||||||
put
option adjustments
|
$
|
—
|
—
|
—
|
—
|
(9,030)
|
2,945
|
(6,085)
|
|||||||||
Amortization
of intangible assets
|
1,165
|
1,889
|
3,258
|
286
|
—
|
—
|
6,598
|
||||||||||
Compensation
related to business combinations
|
—
|
—
|
—
|
—
|
—
|
477
|
477
|
||||||||||
Variable-rate
floor income, net of settlements on derivatives
|
—
|
—
|
—
|
—
|
(1,580)
|
—
|
(1,580)
|
||||||||||
Income
from discontinued operations, net of tax
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||
Net
tax effect (a)
|
(432)
|
(699)
|
(1,205)
|
(106)
|
3,926
|
(1,266)
|
218
|
||||||||||
Total
adjustments to GAAP
|
$
|
733
|
1,190
|
2,053
|
180
|
(6,684)
|
2,156
|
(372)
|
|||||||||
Nine
months ended September 30, 2009
|
|||||||||||||||||
Derivative
market value, foreign currency, and
|
|||||||||||||||||
put
option adjustments
|
$
|
—
|
—
|
—
|
—
|
37,499
|
(1,432)
|
36,067
|
|||||||||
Amortization
of intangible assets
|
3,236
|
5,598
|
7,994
|
423
|
—
|
—
|
17,251
|
||||||||||
Compensation
related to business combinations
|
—
|
—
|
—
|
—
|
—
|
159
|
159
|
||||||||||
Variable-rate
floor income, net of settlements on derivatives
|
—
|
—
|
—
|
—
|
(7,502)
|
—
|
(7,502)
|
||||||||||
Income
(loss) from discontinued operations, net of tax
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||
Net
tax effect (a)
|
(1,230)
|
(2,127)
|
(3,037)
|
(161)
|
(11,399)
|
1,173
|
(16,781)
|
||||||||||
Total
adjustments to GAAP
|
$
|
2,006
|
3,471
|
4,957
|
262
|
18,598
|
(100)
|
29,194
|
|||||||||
Nine
months ended September 30, 2008
|
|||||||||||||||||
Derivative
market value, foreign currency, and
|
|||||||||||||||||
put
option adjustments
|
$
|
—
|
—
|
—
|
—
|
32,504
|
3,483
|
35,987
|
|||||||||
Amortization
of intangible assets
|
3,586
|
5,937
|
9,193
|
858
|
145
|
—
|
19,719
|
||||||||||
Compensation
related to business combinations
|
—
|
—
|
—
|
—
|
—
|
2,523
|
2,523
|
||||||||||
Variable-rate
floor income, net of settlements on derivatives
|
—
|
—
|
—
|
—
|
(32,360)
|
—
|
(32,360)
|
||||||||||
Loss
from discontinued operations, net of tax
|
(981)
|
—
|
—
|
—
|
—
|
—
|
(981)
|
||||||||||
Net
tax effect (a)
|
(1,182)
|
(1,954)
|
(3,045)
|
(284)
|
548
|
(2,067)
|
(7,984)
|
||||||||||
Total
adjustments to GAAP
|
$
|
1,423
|
3,983
|
6,148
|
574
|
837
|
3,939
|
16,904
|
|||||||||
(a)
|
For
2009, income taxes are applied based on 38% of income (loss) before income
taxes for the individual operating segments. For 2008, income taxes for
each individual operating segment are applied based on the consolidated
effective tax rate.
|
(a)
|
As
of September 30, 2009, the Company was servicing $1.9 billion of
loans owned by the Company and approximately $1.5 billion of loans for
third parties that were disbursed on or after May 1, 2008 and may be
eligible to be sold to the Department of Education pursuant to its Loan
Purchase Commitment Program. The Company expects to retain servicing
rights on all loans sold to the Department which are currently being
serviced by the Company.
|
(b)
|
Includes
loans that are accounted for as participation interests sold under an
agreement with Union Bank.
|
Three
months ended September 30,
|
Nine
months ended September 30,
|
|||||||||||||||||||||||||
Change
|
Change
|
|||||||||||||||||||||||||
2009
|
2008
|
$ | % |
2009
|
2008
|
$ | % | |||||||||||||||||||
Net
interest income
|
$ | 23 | 304 | (281 | ) | (92.4 | )% | $ | 102 | 1,160 | (1,058 | ) | (91.2 | )% | ||||||||||||
Loan
and guaranty servicing revenue
|
26,387 | 29,827 | (3,440 | ) | (11.5 | ) | 82,424 | 78,147 | 4,277 | 5.5 | ||||||||||||||||
Software
services revenue
|
966 | 942 | 24 | 2.5 | 2,766 | 3,477 | (711 | ) | (20.4 | ) | ||||||||||||||||
Other
income
|
137 | 6 | 131 | 2,183.3 | 498 | 44 | 454 | 1,031.8 | ||||||||||||||||||
Intersegment
revenue
|
21,525 | 18,402 | 3,123 | 17.0 | 62,291 | 57,008 | 5,283 | 9.3 | ||||||||||||||||||
Total
other income
|
49,015 | 49,177 | (162 | ) | (0.3 | ) | 147,979 | 138,676 | 9,303 | 6.7 | ||||||||||||||||
Salaries
and benefits
|
12,468 | 13,876 | (1,408 | ) | (10.1 | ) | 40,527 | 40,365 | 162 | 0.4 | ||||||||||||||||
Restructure
expense
|
2,646 | — | 2,646 | 100.0 | 5,159 | 747 | 4,412 | 590.6 | ||||||||||||||||||
Impairment
expense
|
— | — | — | — | — | 5,074 | (5,074 | ) | (100.0 | ) | ||||||||||||||||
Other
expenses
|
7,613 | 10,632 | (3,019 | ) | (28.4 | ) | 27,350 | 27,130 | 220 | 0.8 | ||||||||||||||||
Intersegment
expenses
|
9,398 | 11,940 | (2,542 | ) | (21.3 | ) | 28,352 | 35,040 | (6,688 | ) | (19.1 | ) | ||||||||||||||
Total
operating expenses
|
32,125 | 36,448 | (4,323 | ) | (11.9 | ) | 101,388 | 108,356 | (6,968 | ) | (6.4 | ) | ||||||||||||||
"Base
net income" before income taxes
|
16,913 | 13,033 | 3,880 | 29.8 | 46,693 | 31,480 | 15,213 | 48.3 | ||||||||||||||||||
Income
tax expense
|
(6,427 | ) | (4,823 | ) | (1,604 | ) | 33.3 | (17,744 | ) | (10,542 | ) | (7,202 | ) | 68.3 | ||||||||||||
"Base
net income"
|
$ | 10,486 | 8,210 | 2,276 | 27.7 | % | $ | 28,949 | 20,938 | 8,011 | 38.3 | % | ||||||||||||||
Before
Tax Operating Margin
|
34.5 | % | 26.3 | % | 31.5 | % | 22.5 | % | ||||||||||||||||||
Before
Tax Operating Margin -
|
||||||||||||||||||||||||||
excluding
net interest income, restructure expense
|
||||||||||||||||||||||||||
and
impairment expense
|
39.9 | % | 25.9 | % | 35.0 | % | 26.1 | % |
Three
months ended September 30,
|
|||||||||||||||||||
2009
|
2008
|
||||||||||||||||||
Origination | Servicing | Total | Origination | Servicing | Total | ||||||||||||||
revenue
|
revenue
|
revenue
|
revenue
|
revenue
|
revenue
|
||||||||||||||
FFELP
servicing (a)
|
$ | 857 | 13,556 | 14,413 | 1,678 | 12,362 | 14,040 | ||||||||||||
Private
servicing
|
514 | 1,760 | 2,274 | 240 | 1,776 | 2,016 | |||||||||||||
Government
servicing
|
— | 31 | 31 | — | — | — | |||||||||||||
Guaranty
servicing (b)
|
82 | 9,587 | 9,669 | 131 | 13,640 | 13,771 | |||||||||||||
Loan
and guaranty servicing revenue
|
1,453 | 24,934 | 26,387 | 2,049 | 27,778 | 29,827 | |||||||||||||
Intersegment
revenue (c)
|
2,364 | 19,161 | 21,525 | 1,730 | 16,672 | 18,402 | |||||||||||||
Total
servicing revenue
|
$ | 3,817 | 44,095 | 47,912 | 3,779 | 44,450 | 48,229 |
(a)
|
FFELP
origination revenue decreased in 2009 compared to 2008 due to lenders
exiting the FFELP marketplace as a result of legislative changes and
disruptions in the capital markets. FFELP servicing revenue increased in
2009 due to the receipt of $1.7 million in conversion fees associated with
the loss of life of loan servicing and transfer related activities for
third party clients that sold loans to the Department of Education under
the Purchase Program.
|
(b)
|
Guaranty
servicing revenue decreased in 2009 due to the receipt of $6.1 million in
fees received from rehabilitation collections on defaulted loan assets in
the third quarter of 2008. In the third quarter of 2009, revenue from
rehabilitation collections on defaulted loans was $0.6
million.
|
(c)
|
Intersegment
origination revenue increased in 2009 compared to the same period in 2008
due to an increase in the Company’s disbursement volume. Intersegment
servicing revenue increased in 2009 compared to the same period in 2008
due to an increase in the number of loans transferred between various
financings as the Company was executing certain financing strategies and
conversion fees received upon the Company selling $427.7 million of
student loans to the Department under the Purchase
Program.
|
Nine
months ended September 30,
|
||||||||||||||||||
2009
|
2008
|
|||||||||||||||||
Origination | Servicing |
Total
|
|
Origination | Servicing |
Total
|
||||||||||||
revenue
|
revenue
|
revenue
|
revenue
|
revenue
|
revenue
|
|||||||||||||
FFELP
servicing (a)
|
$ | 1,632 | 42,878 | 44,510 | 3,234 | 35,620 |
38,854
|
|||||||||||
Private
servicing
|
618 | 5,523 | 6,141 | 421 | 5,737 |
6,158
|
||||||||||||
Government
servicing
|
— | 31 | 31 | — | — |
-
|
||||||||||||
Guaranty
servicing (b)
|
296 | 31,446 | 31,742 | 400 | 32,735 |
33,135
|
||||||||||||
Loan
and guaranty servicing revenue
|
2,546 | 79,878 | 82,424 | 4,055 | 74,092 |
78,147
|
||||||||||||
Intersegment
revenue (c)
|
6,531 | 55,760 | 62,291 | 3,906 | 53,102 |
57,008
|
||||||||||||
Total
servicing revenue
|
$ | 9,077 | 135,638 | 144,715 | 7,961 | 127,194 |
135,155
|
|||||||||||
(a)
|
FFELP
origination revenue decreased in 2009 compared to 2008 due to lenders
exiting the FFELP marketplace as a result of legislative changes and
disruptions in the capital markets. FFELP servicing revenue increased in
2009 due to the receipt of $3.8 million in conversion fees associated with
the loss of life of loan servicing and transfer related activities for
third party clients that sold loans to the Department of Education under
the Purchase Program.
|
(b)
|
Guaranty
servicing revenue decreased in 2009 due to the receipt of $11.7 million in
fees received from rehabilitation collections on defaulted loan assets in
2008. In 2009, the revenue from rehabilitation collections on defaulted
loans was $6.9 million. This decrease was offset by an increase in
consolidation collection revenue in
2009.
|
(c)
|
Intersegment
origination revenue increased in 2009 compared to the same period in 2008
due to an increase in the Company’s disbursement volume. Intersegment
servicing revenue increased in 2009 compared to the same period in 2008
due to an increase in the number of loans transferred between various
financings as the Company was executing certain financing strategies and
conversion fees received upon the Company selling $427.7 million of
student loans to the Department under the Purchase
Program.
|
Three
months ended September 30,
|
Nine
months ended September 30,
|
|||||||||||||||||||||||||
Change
|
Change
|
|||||||||||||||||||||||||
2009
|
2008
|
$ | % |
2009
|
2008
|
$ | % | |||||||||||||||||||
Net
interest income
|
$ | 16 | 396 | (380 | ) | (96.0 | )% | $ | 57 | 1,471 | (1,414 | ) | (96.1 | )% | ||||||||||||
Tuition
payment processing and campus commerce revenue
|
12,987 | 11,863 | 1,124 | 9.5 | 40,373 | 35,980 | 4,393 | 12.2 | ||||||||||||||||||
Intersegment
revenue
|
62 | 58 | 4 | 6.9 | 172 | 242 | (70 | ) | (28.9 | ) | ||||||||||||||||
Total
other income
|
13,049 | 11,921 | 1,128 | 9.5 | 40,545 | 36,222 | 4,323 | 11.9 | ||||||||||||||||||
Salaries
and benefits
|
6,399 | 6,236 | 163 | 2.6 | 19,346 | 17,450 | 1,896 | 10.9 | ||||||||||||||||||
Other
expenses
|
2,265 | 2,132 | 133 | 6.2 | 7,012 | 6,743 | 269 | 4.0 | ||||||||||||||||||
Intersegment
expenses
|
670 | 288 | 382 | 132.6 | 1,962 | 1,045 | 917 | 87.8 | ||||||||||||||||||
Total
operating expenses
|
9,334 | 8,656 | 678 | 7.8 | 28,320 | 25,238 | 3,082 | 12.2 | ||||||||||||||||||
"Base
net income" before income taxes
|
3,731 | 3,661 | 70 | 1.9 | 12,282 | 12,455 | (173 | ) | (1.4 | ) | ||||||||||||||||
Income
tax expense
|
(1,418 | ) | (1,354 | ) | (64 | ) | 4.7 | (4,667 | ) | (4,081 | ) | (586 | ) | 14.4 | ||||||||||||
"Base
net income"
|
$ | 2,313 | 2,307 | 6 | 0.3 | % | $ | 7,615 | 8,374 | (759 | ) | (9.1 | )% | |||||||||||||
Before
Tax Operating Margin
|
28.6 | % | 29.7 | % | 30.2 | % | 33.0 | % | ||||||||||||||||||
Before
Tax Operating Margin, excluding net interest income
|
28.5 | % | 27.4 | % | 30.2 | % | 30.3 | % |
Three
months ended September 30,
|
Nine
months ended September 30,
|
|||||||||||||||||||||||||
Change
|
Change
|
|||||||||||||||||||||||||
2009
|
2008
|
$ | % |
2009
|
2008
|
$ | % | |||||||||||||||||||
Net
interest income
|
$ | — | 5 | (5 | ) | (100.0 | )% | $ | — | 13 | (13 | ) | (100.0 | )% | ||||||||||||
Enrollment
services revenue
|
30,670 | 29,858 | 812 | 2.7 | 88,188 | 83,148 | 5,040 | 6.1 | ||||||||||||||||||
Software
services revenue
|
— | — | — | — | — | 37 | (37 | ) | (100.0 | ) | ||||||||||||||||
Intersegment
revenue
|
139 | 2 | 137 | 6,850.0 | 416 | 2 | 414 | 20,700.0 | ||||||||||||||||||
Total
other income
|
30,809 | 29,860 | 949 | 3.2 | 88,604 | 83,187 | 5,417 | 6.5 | ||||||||||||||||||
Salaries
and benefits
|
5,337 | 5,805 | (468 | ) | (8.1 | ) | 17,295 | 18,701 | (1,406 | ) | (7.5 | ) | ||||||||||||||
Restructure
expense - severance and
|
||||||||||||||||||||||||||
contract
termination costs
|
— | — | — | — | — | 282 | (282 | ) | (100.0 | ) | ||||||||||||||||
Cost
to provide enrollment services
|
20,323 | 17,904 | 2,419 | 13.5 | 56,208 | 48,062 | 8,146 | 16.9 | ||||||||||||||||||
Other
expenses
|
3,266 | 2,512 | 754 | 30.0 | 9,602 | 7,801 | 1,801 | 23.1 | ||||||||||||||||||
Intersegment
expenses
|
550 | 1,509 | (959 | ) | (63.6 | ) | 1,604 | 4,936 | (3,332 | ) | (67.5 | ) | ||||||||||||||
Total
operating expenses
|
29,476 | 27,730 | 1,746 | 6.3 | 84,709 | 79,782 | 4,927 | 6.2 | ||||||||||||||||||
"Base
net income" before income taxes
|
1,333 | 2,135 | (802 | ) | (37.6 | ) | 3,895 | 3,418 | 477 | 14.0 | ||||||||||||||||
Income
tax expense
|
(507 | ) | (790 | ) | 283 | (35.8 | ) | (1,480 | ) | (1,187 | ) | (293 | ) | 24.7 | ||||||||||||
"Base
net income"
|
$ | 826 | 1,345 | (519 | ) | (38.6 | )% | $ | 2,415 | 2,231 | 184 | 8.2 | % | |||||||||||||
Before
Tax Operating Margin
|
4.3 | % | 7.1 | % | 4.4 | % | 4.1 | % | ||||||||||||||||||
Before
Tax Operating Margin -
|
||||||||||||||||||||||||||
excluding
net interest income and
|
||||||||||||||||||||||||||
restructure
expense
|
4.3 | % | 7.1 | % | 4.4 | % | 4.4 | % |
Three
months ended September 30, 2009
|
||||||||||||||||||||
Publishing
|
Content
|
|||||||||||||||||||
and
|
management
|
|||||||||||||||||||
Lead
|
editing
|
and
recruitment
|
||||||||||||||||||
generation
(a)
|
services
(b)
|
Subtotal
|
services
(c)
|
Total
|
||||||||||||||||
Enrollment
services revenue
|
$ | 23,595 | 3,148 | 26,743 | 3,927 | 30,670 | ||||||||||||||
Cost
to provide enrollment services
|
19,085 | 1,238 | 20,323 | |||||||||||||||||
Gross
profit
|
$ | 4,510 | 1,910 | 6,420 | ||||||||||||||||
Gross
profit %
|
19.1% | 60.7% | 24.0% | |||||||||||||||||
Three
months ended September 30, 2008
|
||||||||||||||||||||
Publishing
|
Content
|
|||||||||||||||||||
and
|
management
|
|||||||||||||||||||
Lead
|
editing
|
and
recruitment
|
||||||||||||||||||
generation
(a)
|
services
(b)
|
Subtotal
|
services
(c)
|
Total
|
||||||||||||||||
Enrollment
services revenue
|
$ | 19,313 | 5,018 | 24,331 | 5,527 | 29,858 | ||||||||||||||
Cost
to provide enrollment services
|
15,985 | 1,919 | 17,904 | |||||||||||||||||
Gross
profit
|
$ | 3,328 | 3,099 | 6,427 | ||||||||||||||||
Gross
profit %
|
17.2% | 61.8% | 26.4% | |||||||||||||||||
Nine
months ended September 30, 2009
|
||||||||||||||||||||
Publishing
|
Content
|
|||||||||||||||||||
and
|
management
|
|||||||||||||||||||
Lead
|
editing
|
and
recruitment
|
||||||||||||||||||
generation
(a)
|
services
(b)
|
Subtotal
|
services
(c)
|
Total
|
||||||||||||||||
Enrollment
services revenue
|
$ | 66,374 | 8,100 | 74,474 | 13,714 | 88,188 | ||||||||||||||
Cost
to provide enrollment services
|
52,735 | 3,473 | 56,208 | |||||||||||||||||
Gross
profit
|
$ | 13,639 | 4,627 | 18,266 | ||||||||||||||||
Gross
profit %
|
20.5% | 57.1% | 24.5% | |||||||||||||||||
Nine
months ended September 30, 2008
|
||||||||||||||||||||
Publishing
|
Content
|
|||||||||||||||||||
and
|
management
|
|||||||||||||||||||
Lead
|
editing
|
and
recruitment
|
||||||||||||||||||
generation
(a)
|
services
(b)
|
Subtotal
|
services
(c)
|
Total
|
||||||||||||||||
Enrollment
services revenue
|
$ | 53,719 | 11,291 | 65,010 | 18,138 | 83,148 | ||||||||||||||
Cost
to provide enrollment services
|
43,459 | 4,603 | 48,062 | |||||||||||||||||
Gross
profit
|
$ | 10,260 | 6,688 | 16,948 | ||||||||||||||||
Gross
profit %
|
19.1% | 59.2% | 26.1% |
(a)
|
Lead
generation revenue increased $4.3 million (22.2%) and $12.7 million
(23.6%) for the three and nine months ended September 30, 2009 compared to
the same periods in 2008 as a result of an increase in lead generation
services volume. The gross profit for lead generation services increased
due to the Company’s focus on eliminating lower margin sales and creating
cost efficiencies.
|
(b)
|
Publishing
and editing services revenue decreased $1.9 million (37.3%) and $3.2
million (28.3%) for the three and nine months ended September 30, 2009
compared to the same periods in 2008 due to competition related to online
delivery of similar products, as well as a general downturn in economic
conditions. The gross profit for publishing and editing services decreased
as a result of a shift in the mix of products
sold.
|
(c)
|
Content
management and recruitment services revenue decreased $1.6 million (28.9%)
and $4.4 million (24.4%) for the three and nine months ended September 30,
2009 compared to the same periods in 2008. These decreases were the result
of decreases of $1.1 million and $3.1 million for the three and nine
months ended September 30, 2009 compared to the same periods in 2008
associated with the Company’s pay per click marketing management, email
marketing, and admissions consulting services and a decrease of $0.5
million and $1.4 million associated with the Company’s list marketing
services for the three and nine months ended September 30, 2009 compared
to the same periods in 2008 as a result of legislative developments in the
student loan industry.
|
Three
months ended September 30,
|
Nine
months ended September 30,
|
||||||||||||||||||||||||||
Change
|
Change
|
||||||||||||||||||||||||||
2009
|
2008
|
$ | % |
2009
|
2008
|
$ | % | ||||||||||||||||||||
Software
services revenue
|
$ | 3,634 | 4,217 | (583 | ) | (13.8 | )% | $ | 13,658 | 15,828 | (2,170 | ) | (13.7 | )% | |||||||||||||
Intersegment
revenue
|
3,793 | 1,660 | 2,133 | 128.5 | 10,813 | 4,993 | 5,820 | 116.6 | |||||||||||||||||||
Total
other income
|
7,427 | 5,877 | 1,550 | 26.4 | 24,471 | 20,821 | 3,650 | 17.5 | |||||||||||||||||||
Salaries
and benefits
|
5,756 | 4,138 | 1,618 | 39.1 | 16,656 | 14,031 | 2,625 | 18.7 | |||||||||||||||||||
Restructure
expense - severance and
|
|||||||||||||||||||||||||||
contract
termination costs
|
292 | — | 292 | 100.0 | 714 | 487 | 227 | 46.6 | |||||||||||||||||||
Other
expenses
|
776 | 568 | 208 | 36.6 | 2,292 | 1,901 | 391 | 20.6 | |||||||||||||||||||
Intersegment
expenses
|
786 | 826 | (40 | ) | (4.8 | ) | 2,195 | 1,562 | 633 | 40.5 | |||||||||||||||||
Total
operating expenses
|
7,610 | 5,532 | 2,078 | 37.6 | 21,857 | 17,981 | 3,876 | 21.6 | |||||||||||||||||||
"Base
net income" before income taxes
|
(183 | ) | 345 | (528 | ) | (153.0 | ) | 2,614 | 2,840 | (226 | ) | (8.0 | ) | ||||||||||||||
Income
tax expense
|
70 | (128 | ) | 198 | (154.7 | ) | (994 | ) | (902 | ) | (92 | ) | 10.2 | ||||||||||||||
"Base
net income"
|
$ | (113 | ) | 217 | (330 | ) | (152.1 | )% | $ | 1,620 | 1,938 | (318 | ) | (16.4 | )% | ||||||||||||
Before
Tax Operating Margin
|
(2.5 | %) | 5.9 | % | 10.7 | % | 13.6 | % | |||||||||||||||||||
Before
Tax Operating Margin -
|
|||||||||||||||||||||||||||
excluding
restructure expense
|
1.5 | % | 5.9 | % | 13.6 | % | 16.0 | % |
As
of September 30, 2009
|
||||||||||||||||||||||||
2008-2009 | ||||||||||||||||||||||||
Originated
|
Originated
|
Academic
Year
|
2009-2010 | |||||||||||||||||||||
prior
to
|
between
10/1/07
|
Loans - held |
Academic
Year
|
|||||||||||||||||||||
Total
|
10/1/07
|
and
6/3/08 (a)
|
for
sale (b)
|
Loans
(b)
|
||||||||||||||||||||
Federally
insured:
|
||||||||||||||||||||||||
Stafford
|
$ | 8,321,669 | 32.8 | % | $ | 6,140,869 | 452,558 | 1,445,080 | 283,162 | |||||||||||||||
PLUS/SLS
|
615,513 | 2.4 | % | 369,335 | 47,585 | 162,089 | 36,504 | |||||||||||||||||
Consolidation
|
15,965,190 | 62.9 | % | 15,778,158 | 187,032 | — | — | |||||||||||||||||
Total
federally insured
|
24,902,372 | 98.1 | % | $ | 22,288,362 | 687,175 | 1,607,169 | 319,666 | ||||||||||||||||
100.0 | % | 89.4 | % | 2.8 | % | 6.5 | % | 1.3 | % | |||||||||||||||
Non-federally
insured
|
167,114 | 0.6 | % | |||||||||||||||||||||
Total
student loans receivable (gross)
|
25,069,486 | 98.7 | % | |||||||||||||||||||||
Unamortized
premiums and deferred
|
||||||||||||||||||||||||
origination
costs - held for investment
|
352,066 | 1.4 | % | |||||||||||||||||||||
Unamortized
premiums and deferred
|
||||||||||||||||||||||||
origination
costs - held for sale
|
20,625 | 0.1 | % | |||||||||||||||||||||
Allowance
for loan losses:
|
||||||||||||||||||||||||
Federally
insured
|
(29,015 | ) | (0.1 | %) | ||||||||||||||||||||
Non-federally
insured
|
(21,105 | ) | (0.1 | %) | ||||||||||||||||||||
Total
student loans receivable (net)
|
$ | 25,392,057 | 100.0 | % |
As
of December 31, 2008
|
||||||||||||||||||||
Originated
|
Originated
|
2008-2009
|
||||||||||||||||||
prior
to
|
between
10/1/07
|
Academic
Year
|
||||||||||||||||||
Total
|
10/1/07
|
and
6/3/08 (a)
|
Loans
(b)
|
|||||||||||||||||
Federally
insured:
|
||||||||||||||||||||
Stafford
|
$ | 7,602,568 | 29.9 | % | $ | 6,641,817 | 390,658 | 570,093 | ||||||||||||
PLUS/SLS
|
527,670 | 2.1 | % | 412,142 | 48,346 | 67,182 | ||||||||||||||
Consolidation
|
16,657,703 | 65.5 | % | 16,614,950 | 42,753 | — | ||||||||||||||
Total
federally insured
|
24,787,941 | 97.5 | % | $ | 23,668,909 | 481,757 | 637,275 | |||||||||||||
100.0 | % | 95.5 | % | 1.9 | % | 2.6 | % | |||||||||||||
Non-federally
insured
|
273,108 | 1.1 | % | |||||||||||||||||
Total
student loans receivable (gross)
|
25,061,049 | 98.6 | % | |||||||||||||||||
Unamortized
premiums and deferred
|
||||||||||||||||||||
origination
costs
|
402,881 | 1.6 | % | |||||||||||||||||
Allowance
for loan losses:
|
||||||||||||||||||||
Federally
insured
|
(25,577 | ) | (0.1 | %) | ||||||||||||||||
Non-federally
insured
|
(25,345 | ) | (0.1 | %) | ||||||||||||||||
Total
student loans receivable (net)
|
$ | 25,413,008 | 100.0 | % | ||||||||||||||||
(a)
|
Federally
insured student loans originated on or after October 1, 2007 earn a
reduced annual yield as a result of the enactment of the College Cost
Reduction Act in September 2007.
|
(b)
|
2008-2009
and 2009-2010 Academic Year loans are eligible to be participated and sold
to the Department under the Department’s Participation and Purchase
Programs. As of September 30, 2009, the 2008-2009 Academic Year loans
classified as held for sale were sold to the Department under the
Department’s Purchase Program in October 2009. As of September 30, 2009,
the 2009-2010 Academic Year loans are classified as loans held for
investment in the Company’s consolidated balance
sheet.
|
Three
months ended September 30,
|
Nine
months ended September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Beginning
balance
|
$ | 25,299,539 | 25,612,126 | 25,061,049 | 26,329,213 | |||||||||||
Direct
channel:
|
||||||||||||||||
Consolidation
loan originations
|
— | 44 | — | 69,073 | ||||||||||||
Less
consolidation of existing portfolio
|
— | (27 | ) | — | (28,474 | ) | ||||||||||
Net
consolidation loan originations
|
— | 17 | — | 40,599 | ||||||||||||
Stafford/PLUS
loan originations
|
496,720 | 416,721 | 1,295,156 | 952,050 | ||||||||||||
Branding
partner channel
|
70,217 | 334,685 | 665,788 | 935,992 | ||||||||||||
Forward
flow channel
|
75,260 | 114,488 | 126,304 | 517,548 | ||||||||||||
Other
channels
|
19,257 | — | 39,627 | 55,922 | ||||||||||||
Total
channel acquisitions
|
661,454 | 865,911 | 2,126,875 | 2,502,111 | ||||||||||||
Repayments,
claims, capitalized interest, participations, and other
|
(261,922 | ) | (369,940 | ) | (1,198,890 | ) | (1,255,183 | ) | ||||||||
Consolidation
loans lost to external parties
|
(149,984 | ) | (106,684 | ) | (322,573 | ) | (282,951 | ) | ||||||||
Loans
sold
|
(479,601 | ) | — | (596,975 | ) | (1,291,777 | ) | |||||||||
Ending
balance
|
$ | 25,069,486 | 26,001,413 | 25,069,486 | 26,001,413 |
Three
months ended September 30,
|
Nine
months ended September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Balance
at beginning of period
|
$ | 50,000 | 47,909 | 50,922 | 45,592 | |||||||||||
Provision
for loan losses:
|
||||||||||||||||
Federally
insured loans
|
4,500 | 4,500 | 15,000 | 12,000 | ||||||||||||
Non-federally
insured loans
|
3,000 | 2,500 | 8,000 | 6,000 | ||||||||||||
Total
provision for loan losses
|
7,500 | 7,000 | 23,000 | 18,000 | ||||||||||||
Charge-offs,
net of recoveries:
|
||||||||||||||||
Federally
insured loans
|
(3,578 | ) | (4,218 | ) | (11,042 | ) | (11,418 | ) | ||||||||
Non-federally
insured loans
|
(802 | ) | (1,621 | ) | (2,440 | ) | (2,354 | ) | ||||||||
Net
charge-offs
|
(4,380 | ) | (5,839 | ) | (13,482 | ) | (13,772 | ) | ||||||||
Sale
of federally insured loans
|
— | — | (520 | ) | (750 | ) | ||||||||||
Sale
of non-federally insured loans
|
(3,000 | ) | — | (9,800 | ) | — | ||||||||||
Balance
at end of period
|
$ | 50,120 | 49,070 | 50,120 | 49,070 | |||||||||||
Allocation
of the allowance for loan losses:
|
||||||||||||||||
Federally
insured loans
|
$ | 29,015 | 24,366 | 29,015 | 24,366 | |||||||||||
Non-federally
insured loans
|
21,105 | 24,704 | 21,105 | 24,704 | ||||||||||||
Total
allowance for loan losses
|
$ | 50,120 | 49,070 | 50,120 | 49,070 | |||||||||||
Net
loan charge-offs as a percentage of average student loans
|
0.070 | % | 0.090 | % | 0.070 | % | 0.070 | % | ||||||||
Total
allowance as a percentage of the ending balance of student
|
||||||||||||||||
loans
(excluding loans held-for-sale)
|
0.214 | % | 0.189 | % | 0.214 | % | 0.189 | % | ||||||||
Allowance
for non-federally insured loans as a percentage such loans
|
12.629 | % | 8.966 | % | 12.629 | % | 8.966 | % | ||||||||
Average
student loans
|
$ | 25,056,836 | 26,035,006 | 25,148,707 | 26,220,486 | |||||||||||
Ending
balance of student loans (excluding loans held-for-sale)
|
23,462,317 | 26,001,413 | 23,462,317 | 26,001,413 | ||||||||||||
Ending
balance of non-federally insured loans
|
167,114 | 275,520 | 167,114 | 275,520 |
As
of September 30, 2009
|
As
of December 31, 2008
|
|||||||||||||||
Dollars
|
Percent
|
Dollars
|
Percent
|
|||||||||||||
Federally
Insured Loans:
|
||||||||||||||||
Loans
in-school/grace/deferment(1)
|
$ | 8,042,550 | $ | 7,374,602 | ||||||||||||
Loans
in forebearance(2)
|
2,412,644 | 2,484,478 | ||||||||||||||
Loans
in repayment status:
|
||||||||||||||||
Loans
current
|
12,464,768 | 86.2 | % | 13,169,101 | 88.2 | % | ||||||||||
Loans
delinquent 31-60 days(3)
|
629,064 | 4.4 | 536,112 | 3.6 | ||||||||||||
Loans
delinquent 61-90 days(3)
|
325,522 | 2.3 | 240,549 | 1.6 | ||||||||||||
Loans
delinquent 91 days or greater(4)
|
1,027,824 | 7.1 | 983,099 | 6.6 | ||||||||||||
Total
loans in repayment
|
14,447,178 | 100.0 | % | 14,928,861 | 100.0 | % | ||||||||||
Total
federally insured loans
|
$ | 24,902,372 | $ | 24,787,941 | ||||||||||||
Non-Federally
Insured Loans:
|
||||||||||||||||
Loans
in-school/grace/deferment(1)
|
$ | 45,022 | $ | 84,237 | ||||||||||||
Loans
in forebearance(2)
|
1,722 | 9,540 | ||||||||||||||
Loans
in repayment status:
|
||||||||||||||||
Loans
current
|
112,063 | 93.1 | % | 169,865 | 94.7 | % | ||||||||||
Loans
delinquent 31-60 days(3)
|
3,165 | 2.6 | 3,315 | 1.8 | ||||||||||||
Loans
delinquent 61-90 days(3)
|
1,871 | 1.6 | 1,743 | 1.0 | ||||||||||||
Loans
delinquent 91 days or greater(4)
|
3,271 | 2.7 | 4,408 | 2.5 | ||||||||||||
Total
loans in repayment
|
120,370 | 100.0 | % | 179,331 | 100.0 | % | ||||||||||
Total
non-federally insured loans
|
$ | 167,114 | $ | 273,108 | ||||||||||||
(1)
|
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.
|
(2)
|
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.
|
(3)
|
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.
|
(4)
|
Loans
delinquent 91 days or greater include loans in claim status, which are
loans that have gone into default and have been submitted to the guaranty
agency for FFELP loans, or, if applicable, the insurer for non-federally
insured loans, to process the claim for
payment.
|
Three
months ended September 30,
|
Nine
months ended September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Variable
student loan yield
|
2.64 | % | 5.23 | % | 2.95 | % | 5.54 | % | ||||||||
Consolidation
rebate fees
|
(0.68 | ) | (0.72 | ) | (0.70 | ) | (0.74 | ) | ||||||||
Premium
and deferred origination costs amortization
|
(0.31 | ) | (0.33 | ) | (0.29 | ) | (0.35 | ) | ||||||||
Variable
student loan net yield
|
1.65 | 4.18 | 1.96 | 4.45 | ||||||||||||
Student
loan cost of funds - interest expense
|
(1.07 | ) | (3.30 | ) | (1.58 | ) | (3.73 | ) | ||||||||
Student
loan cost of funds - derivative settlements
|
0.08 | 0.06 | 0.20 | 0.25 | ||||||||||||
Variable
student loan spread
|
0.66 | 0.94 | 0.58 | 0.97 | ||||||||||||
Variable
rate floor income,
|
||||||||||||||||
net
of settlements on derivatives (a)
|
— | — | (0.04 | ) | (0.08 | ) | ||||||||||
Fixed
rate floor income,
|
||||||||||||||||
net
of settlements on derivatives
|
0.61 | 0.10 | 0.56 | 0.13 | ||||||||||||
Core
student loan spread
|
1.27 | % | 1.04 | % | 1.10 | % | 1.02 | % | ||||||||
Average
balance of student loans
|
$ | 25,056,836 | 26,035,006 | 25,148,707 | 26,220,486 | |||||||||||
Average
balance of debt outstanding
|
25,677,213 | 26,769,955 | 25,704,825 | 27,120,342 |
(a)
|
As
a result of the ongoing volatility of interest rates, effective October 1,
2008, the Company changed its calculation of variable rate floor income to
better reflect the economic benefit received by the Company. The economic
benefit received by the Company related to variable rate floor income was
$0.1 million for the three months ended September 30, 2008 and $7.5
million and $25.7 million for the nine months ended September 30, 2009 and
2008, respectively. There was no economic benefit received by the Company
related to variable rate floor income for the three months ended September
30, 2009. Variable rate floor income calculated on a statutory maximum
basis was $0.1 million and $1.6 million for the three months ended
September 30, 2009 and 2008, respectively, and $23.9 million
and $42.3 million for the nine months ended September 30, 2009 and 2008,
respectively. Beginning October 1, 2008, and for presentation of prior
periods, the economic benefit received by the Company has been used to
determine core student loan spread. For the student loan spread analysis
shown above, variable-rate floor income for prior periods was changed to
reflect the economic benefit to conform to the current period
presentation.
|
·
|
The
amortization of loan premiums and deferred origination costs, which is a
reduction to core student loan spread, decreased as a result of reduced
costs to acquire or originate loans and a decrease in the yield earned on
student loans.
|
·
|
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 creating fixed rate floor income which is included in its core
student loan spread. Due to lower interest rates in the three and nine
month period ended September 30, 2009 compared to the same period in 2008,
the Company received additional fixed rate floor income on a portion of
its student loan portfolio. See Item 3, “Quantitative and Qualitative
Disclosures about Market Risk – Interest Rate Risk” for additional
information.
|
·
|
The
Company has used derivative instruments to hedge the repricing risk due to
the timing of the interest rate resets on its assets and liabilities. The
Company has entered into basis swaps in which the Company receives
three-month LIBOR and pays one-month LIBOR plus or minus a spread as
defined in the agreements. During the three and nine months ended
September 30, 2009, the Company received $3.1 million and $20.5 million,
respectively, of settlements on its 1/3 Basis Swaps. During the first
quarter of 2008, the Company received $0.9 million of settlements on its
1/3 Basis Swaps. No 1/3 Basis Swaps were outstanding during the three
months ended September 30, 2008.
|
·
|
The
passage of the College Cost Reduction Act has reduced the yield on all
FFELP loans originated after October 1, 2007. As of September 30, 2009,
10.6% of the Company’s federally insured student loan portfolio was
originated after October 1, 2007 as compared to 4.1% as of
September 30, 2008.
|
·
|
Historically,
the movement of the various interest rate indices received on the
Company’s student loan assets and paid on the debt to fund such loans was
highly correlated. The short term movement of the indices was dislocated
beginning in August 2007. Due to the unintended consequences of government
intervention in the commercial paper markets and limited issuances of
qualifying financial commercial paper, the relationship between the
three-month financial CP and LIBOR rates has widened from historical
levels. To address this issue, the Department announced that for purposes
of calculating the FFELP loan index from October 27, 2008 to December 31,
2008, the Federal Reserve’s Commercial Paper Funding Facility rate was
used for those days in which no three-month financial commercial paper
rate was available. This action partially mitigated the volatility between
CP and LIBOR for the three-month period ended on December 31, 2008.
However, the Department of Education did not make a similar adjustment for
2009, which negatively impacted the Company’s net interest income for the
three and nine months ended September 30,
2009.
|
·
|
The
spread to LIBOR on asset-backed securities transactions has increased
significantly since August 2007. The Company issued $4.4 billion of notes
in asset-backed securities transactions in 2008 ($1.2 billion in March
2008, $1.9 billion in April 2008, and $1.3 billion in May 2008) and an
additional $0.3 billion in March 2009. Prior to completing these
asset-backed securities transactions, these loans were funded in the
Company’s FFELP warehouse facility in which the cost of funds were lower
than the asset-backed securities
transactions.
|
·
|
The
Company has used derivative instruments to hedge the repricing risk due to
the timing of the interest rate resets on its assets and liabilities. The
Company has entered into basis swaps in which the Company receives
three-month LIBOR set discretely in advance and pays a daily weighted
average three-month LIBOR less a spread as defined in the individual
agreements (“the Average/Discrete Basis Swaps”). The Company received less
settlements on its Average/Discrete Basis Swaps in the first and second
quarters of 2009 compared to the same periods in 2008 due to the
significant drop in interest rates in 2008 which triggered larger
settlements during the first and second quarters of
2008.
|
Three
months ended September 30,
|
Nine
months ended September 30,
|
|||||||||||||||||||||||||
Change
|
Change
|
|||||||||||||||||||||||||
2009
|
2008
|
$ | % |
2009
|
2008
|
$ | % | |||||||||||||||||||
Net
interest income after provision
|
||||||||||||||||||||||||||
for
loan losses
|
$ | 66,896 | 58,767 | 8,129 | 13.8 | % | $ | 143,284 | 112,001 | 31,283 | 27.9 | % | ||||||||||||||
Loan
and guaranty servicing revenue
|
— | (136 | ) | 136 | (100.0 | ) | — | 26 | (26 | ) | (100.0 | ) | ||||||||||||||
Other
income
|
9,959 | 4,079 | 5,880 | 144.2 | 18,851 | 13,787 | 5,064 | 36.7 | ||||||||||||||||||
Gain
(loss) on sale of loans, net
|
8,788 | — | 8,788 | 100.0 | 8,386 | (47,426 | ) | 55,812 | (117.7 | ) | ||||||||||||||||
Derivative
market value, foreign currency,
|
||||||||||||||||||||||||||
and
put option adjustments
|
— | — | — | — | — | 466 | (466 | ) | (100.0 | ) | ||||||||||||||||
Derivative
settlements, net
|
4,914 | 789 | 4,125 | 522.8 | 38,807 | 55,954 | (17,147 | ) | (30.6 | ) | ||||||||||||||||
Total
other income
|
23,661 | 4,732 | 18,929 | 400.0 | 66,044 | 22,807 | 43,237 | 189.6 | ||||||||||||||||||
Salaries
and benefits
|
1,693 | 1,980 | (287 | ) | (14.5 | ) | 5,203 | 6,157 | (954 | ) | (15.5 | ) | ||||||||||||||
Restructure
expense - severance and contract
|
||||||||||||||||||||||||||
termination
costs
|
— | — | — | — | — | 1,845 | (1,845 | ) | (100.0 | ) | ||||||||||||||||
Impairment
expense
|
— | — | — | — | — | 9,351 | (9,351 | ) | (100.0 | ) | ||||||||||||||||
Other
expenses
|
4,801 | 5,354 | (553 | ) | (10.3 | ) | 15,635 | 15,793 | (158 | ) | (1.0 | ) | ||||||||||||||
Intersegment
expenses
|
20,764 | 18,200 | 2,564 | 14.1 | 59,372 | 57,754 | 1,618 | 2.8 | ||||||||||||||||||
Total
operating expenses
|
27,258 | 25,534 | 1,724 | 6.8 | 80,210 | 90,900 | (10,690 | ) | (11.8 | ) | ||||||||||||||||
"Base
net income" before income taxes
|
63,299 | 37,965 | 25,334 | 66.7 | 129,118 | 43,908 | 85,210 | 194.1 | ||||||||||||||||||
Income
tax expense
|
(24,054 | ) | (14,047 | ) | (10,007 | ) | 71.2 | (49,066 | ) | (15,889 | ) | (33,177 | ) | 208.8 | ||||||||||||
"Base
net income"
|
$ | 39,245 | 23,918 | 15,327 | 64.1 | % | $ | 80,052 | 28,019 | 52,033 | 185.7 | % | ||||||||||||||
Before
Tax Operating Margin
|
69.9 | % | 59.8 | % | 61.7 | % | 32.6 | % | ||||||||||||||||||
Before
Tax Operating Margin -
|
||||||||||||||||||||||||||
excluding
restructure expense,
|
||||||||||||||||||||||||||
impairment
expense, and loss on sale
|
||||||||||||||||||||||||||
of
loans during the first quarter of 2008
|
69.9 | % | 59.8 | % | 61.7 | % | 56.3 | % | ||||||||||||||||||
Three
months ended September 30,
|
Change
|
|||||||||||||||
2009
|
2008
|
Dollars
|
Percent
|
|||||||||||||
Loan
interest
|
$ | 205,978 | 351,331 | (145,353 | ) | (41.4 | )% | |||||||||
Consolidation
rebate fees
|
(43,191 | ) | (47,105 | ) | 3,914 | 8.3 | ||||||||||
Amortization
of loan premiums and
|
||||||||||||||||
deferred
origination costs
|
(19,532 | ) | (21,338 | ) | 1,806 | 8.5 | ||||||||||
Total
loan interest
|
143,255 | 282,888 | (139,633 | ) | (49.4 | ) | ||||||||||
Investment
interest
|
1,055 | 7,151 | (6,096 | ) | (85.2 | ) | ||||||||||
Total
interest income
|
144,310 | 290,039 | (145,729 | ) | (50.2 | ) | ||||||||||
Interest
on bonds and notes payable
|
69,572 | 223,523 | (153,951 | ) | (68.9 | ) | ||||||||||
Intercompany
interest
|
342 | 749 | (407 | ) | (54.3 | ) | ||||||||||
Provision
for loan losses
|
7,500 | 7,000 | 500 | 7.1 | ||||||||||||
Net
interest income after provision
|
||||||||||||||||
for
loan losses
|
$ | 66,896 | 58,767 | 8,129 | 13.8 | % |
·
|
Loan
interest income decreased $145.4 million as a result of a decrease in the
average student loan portfolio of $1.0 billion (3.8%) and a decrease in
the yield earned on student loans due to a decrease in interest rates for
the three months ended September 30, 2009 compared to the same period in
2008. In addition, the passage of the College Cost Reduction Act has
reduced the yield on all FFELP loans originated after October 1, 2007. As
of September 30, 2009, 10.6% of the Company’s federally insured student
loan portfolio was originated after October 1, 2007 as compared to 4.2% as
of September 30, 2008. These decreases were
offset by an increase of $29.3 million due to an increase in fixed rate
floor income.
|
·
|
Consolidation
rebate fees decreased due to the $1.7 billion (9.7%) decrease in the
average consolidation portfolio.
|
·
|
The
amortization of loan premiums and deferred origination costs decreased as
a result of reduced costs to acquire or originate loans and a decrease in
the yield earned on student loans.
|
·
|
Investment
income decreased as a result of lower interest rates in the second quarter
of 2009 as compared to the same period in
2008.
|
·
|
Interest
expense decreased as a result of a decrease in interest rates on the
Company’s variable rate debt which lowered the Company’s cost of funds
(excluding net derivative settlements) to 1.07% for the three months ended
September 30, 2009 compared to 3.30% for the same period a year ago. In
addition, average debt decreased by $1.1 billion (4.1%) for the three
months ended September 30, 2009 compared to the same period in
2008.
|
·
|
The
provision for loan losses increased for the three months ended September
30, 2009 compared to the same period in 2008 primarily due to increases in
delinquencies.
|
Nine
months ended September 30,
|
Change
|
|||||||||||||||
2009
|
2008
|
Dollars
|
Percent
|
|||||||||||||
Loan
interest
|
$ | 653,553 | 1,083,078 | (429,525 | ) | (39.7 | )% | |||||||||
Consolidation
rebate fees
|
(131,496 | ) | (144,680 | ) | 13,184 | 9.1 | ||||||||||
Amortization
of loan premiums and
|
||||||||||||||||
deferred
origination costs
|
(54,972 | ) | (69,583 | ) | 14,611 | 21.0 | ||||||||||
Total
loan interest
|
467,085 | 868,815 | (401,730 | ) | (46.2 | ) | ||||||||||
Investment
interest
|
6,045 | 23,875 | (17,830 | ) | (74.7 | ) | ||||||||||
Total
interest income
|
473,130 | 892,690 | (419,560 | ) | (47.0 | ) | ||||||||||
Interest
on bonds and notes payable
|
305,522 | 761,300 | (455,778 | ) | (59.9 | ) | ||||||||||
Intercompany
interest
|
1,324 | 1,389 | (65 | ) | (4.7 | ) | ||||||||||
Provision
for loan losses
|
23,000 | 18,000 | 5,000 | 27.8 | ||||||||||||
Net
interest income (loss) after provision
|
||||||||||||||||
for
loan losses
|
$ | 143,284 | 112,001 | 31,283 | (27.9 | )% |
·
|
Loan
interest income decreased $429.5 million as a result of a decrease in the
average student loan portfolio of $1.1 billion (4.1%) and a decrease in
the yield earned on student loans due to a decrease in interest rates for
the nine months ended September 30, 2009 compared to the same period in
2008. In addition, the passage of the College Cost Reduction Act has
reduced the yield on all FFELP loans originated after October 1, 2007. As
of September 30, 2009, 10.6% of the Company’s federally insured student
loan portfolio was originated after October 1, 2007 as compared to 4.2% as
of September 30, 2008. These
decreases were offset by an increase of $77.2 million due to an increase
in fixed rate floor income.
|
·
|
Consolidation
rebate fees decreased due to the $2.2 billion (12.1%) decrease in the
average consolidation portfolio.
|
·
|
The
amortization of loan premiums and deferred origination costs decreased as
a result of reduced costs to acquire or originate loans and a decrease in
the yield earned on student loans.
|
·
|
Investment
income decreased as a result of lower interest rates for the nine months
ended September 30, 2009 as compared to the same period in
2008.
|
·
|
Interest
expense decreased as a result of a decrease in interest rates on the
Company’s variable rate debt which lowered the Company’s cost of funds
(excluding net derivative settlements) to 1.58% for the nine months ended
September 30, 2009 compared to 3.73% for the same period a year ago. In
addition, average debt decreased by $1.4 billion (5.2%) for the nine
months ended September 30, 2009 compared to the same period in
2008.
|
·
|
The
provision for loan losses increased for the nine months ended September
30, 2009 compared to the same period in 2008 primarily due to increases in
delinquencies.
|
Three
months ended September 30,
|
Nine
months ended September 30,
|
||||||||||||||
2009
|
2008
|
2009
|
2008
|
||||||||||||
Department's
Purchase Program (a)
|
$ | 9,689 | — | 9,689 | — | ||||||||||
Private
loan participations (b)
|
(695 | ) | — | (695 | ) | — | |||||||||
FFELP
loan sales to a related party (c)
|
(206 | ) | — | (608 | ) | — | |||||||||
FFELP
loan sales to a third party (d)
|
— | — | — | (47,426 | ) | ||||||||||
Gain
(loss) on sale of loans, net
|
$ | 8,788 | — | 8,386 | (47,426 | ) |
(a)
|
During
the three months ended September 30, 2009, the Company sold $427.7 million
of student loans to the Department under the Purchase
Program.
|
(b)
|
During
the three and nine months ended September 30, 2009, the Company
participated $30.5 million and $95.5 million,
respectively, of non-federally insured loans to third parties, which
resulted in the recognition of a net loss on the sale of these loans for
both periods.
|
(c)
|
During
the three and nine months ended September 30, 2009, the Company sold $21.4
million (par value) and $61.5
million (par value), respectively, of federally insured student
loans.
|
(d)
|
The
Company sold $1.3 billion (par value) of student loans to third parties in
2008 in order to reduce the amount of student loans remaining under the
Company’s multi-year committed financing facility for FFELP loans, which
reduced the Company’s exposure related to certain equity support
provisions included in this
facility.
|
·
|
Fund
new FFELP Stafford and PLUS loan originations for the 2009-2010 academic
year
|
·
|
Satisfy
debt obligations, specifically its unsecured senior notes and unsecured
line of credit
|
Carrying
|
Interest
rate
|
||||||||
amount
|
range
|
Final
maturity
|
|||||||
Asset
Generation and Management:
|
|||||||||
Bonds
and notes issued in asset-backed securitizations
|
$ | 22,183,537 | 0.30% - 6.90% |
11/01/09
- 07/01/43
|
|||||
DOE
Participation
|
1,902,909 | 0.91% |
10/15/2009
and 09/30/10
|
||||||
FFELP
warehouse facility
|
361,279 | 0.22% - 0.38% |
08/03/12
|
||||||
DOE
Conduit
|
1,155,351 | 0.37% |
05/08/14
|
||||||
25,603,076 | |||||||||
Unsecured
Corporate Debt and other:
|
|||||||||
Senior
notes
|
66,716 | 5.125% |
06/01/10
|
||||||
Unsecured
line of credit
|
691,500 | 0.73% - 0.79% |
05/08/12
|
||||||
Junior
Subordinated Hybrid securities
|
198,250 | 7.40% |
09/15/61
|
||||||
Other
borrowings
|
26,551 | 0.26% - 5.10% |
01/10/10
- 11/01/15
|
||||||
983,017 | |||||||||
$ | 26,586,093 |
·
|
Sources
of liquidity currently
available
|
·
|
Cash
generated from operations
|
·
|
Cash
generated from existing
portfolio
|
Sources of primary liquidity: (a) | |||
Cash
and cash equivalents (b)
|
$ | 375,000 | |
Unencumbered
FFELP student loan assets
|
|
22,000
|
|
Unencumbered
private student loan assets
|
136,000
|
||
Unused
unsecured line of credit (c)
|
51,000
|
||
Total sources of primary liquidity | $ |
584,000
|
(a)
|
The
sources of primary liquidity table above does not include asset-backed
security investments. As part of the Company’s issuance of asset-backed
securitizations in March 2008 and May 2008, due to credit market
conditions when these notes were issued, the Company purchased the Class B
subordinated notes of $36 million (par value) and $41 million (par value),
respectively. These notes are not included on the Company’s consolidated
balance sheet. If the credit market conditions 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. Upon sale, these notes would be
shown as “bonds and notes payable” on the Company’s consolidated balance
sheet. Unless there is a significant market improvement, the Company
believes the market value of such notes will be less than par value. The
difference between the par value and market value would be recognized by
the Company as interest expense over the life of the
bonds.
|
(b)
|
The
Company also has restricted cash and investments; however, the Company is
limited in the amounts of funds that can be transferred from its
subsidiaries through intercompany loans, advances, or cash dividends.
These limitations result from the restrictions contained in trust
indentures under debt financing arrangements to which the Company’s
education lending subsidiaries are parties. The Company does not believe
these limitations will significantly affect its operating cash needs. The
amounts of cash and investments restricted in the respective reserve
accounts of the education lending subsidiaries are shown on the balance
sheets as restricted cash and
investments.
|
(c)
|
The
lending commitment under the Company’s unsecured line of credit is
provided by a total of thirteen banks, with no individual bank
representing more than 11% of the total lending commitment. The bank
lending group includes Lehman Brothers Bank, a subsidiary of Lehman
Brothers Holdings Inc., which represents approximately 7% of the lending
commitment under the line of credit. On September 15, 2008, Lehman
Brothers Holdings Inc. filed a voluntary petition for relief under Chapter
11 of the United States Bankruptcy Code. The Company does not expect
Lehman to fund future borrowing requests. The amount included in the table
above excludes Lehman’s commitment.
|
·
|
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
|
5.125%
Senior Notes due 2010
|
Junior
Subordinated
Hybrid
Securities
|
Asset-backed
securities (a)
|
||||||||||||||||||||||||||||||||||
Notional
|
Purchase
|
Gain
|
Notional
|
Purchase
|
Gain
|
Notional
|
Purchase
|
Gain
|
||||||||||||||||||||||||||||
amount
|
price
|
(loss)
|
amount
|
price
|
(loss)
|
amount
|
price
|
(loss)
|
||||||||||||||||||||||||||||
Three
months ended:
|
||||||||||||||||||||||||||||||||||||
March
31, 2009
|
$ | 34,866 | 26,791 | 8,075 | — | — | — | — | — | — | ||||||||||||||||||||||||||
June
30, 2009
|
35,520 | 31,080 | 4,440 | 1,750 | 350 | 1,400 | 1,100 | 1,078 | 22 | |||||||||||||||||||||||||||
September
30, 2009
|
137,898 | 138,505 | (607 | ) | — | — | — | 44,950 | 39,095 | 5,855 | ||||||||||||||||||||||||||
Nine
months ended September 30, 2009
|
208,284 | 196,376 | 11,908 | 1,750 | 350 | 1,400 | 46,050 | 40,173 | 5,877 | |||||||||||||||||||||||||||
Subsequent
to September 30, 2009
|
||||||||||||||||||||||||||||||||||||
through
November 9, 2009
|
— | — | — | — | — | — | 140,200 | 126,159 | 14,041 | |||||||||||||||||||||||||||
Total
debt repurchased
|
$ | 208,284 | 196,376 | 11,908 | 1,750 | 350 | 1,400 | 186,250 | 166,332 | 19,918 | ||||||||||||||||||||||||||
Balance
as of September 30, 2009
|
$ | 66,716 | $ | 198,250 |
(a)
|
In
accordance with the various indentures, the Company expects to continue to
use funds available in the trust to purchase certain asset-backed
securities for cash in open market transactions, privately negotiated
transactions, or otherwise to redeem such securities. Under the terms of
the indentures, the purchase price paid in any such transaction must be
less than the par amount of securities acquired. Any redemptions in the
normal course must be made at par. Any such transaction will depend on
prevailing market conditions, liquidity requirements, contractual
restrictions, compliance with securities laws, and other
factors.
|
Total
|
Less
than 1 year
|
1
to 3 years
|
3
to 5 years
|
More
than
5
years
|
||||||||||||||||
Bonds
and notes payable
|
$ | 26,586,093 | 2,384,286 | 803,338 | 1,436,564 | 21,961,905 | ||||||||||||||
Operating
lease obligations (a)
|
29,476 | 8,483 | 11,999 | 7,799 | 1,195 | |||||||||||||||
Other
|
31,764 | 31,764 | — | — | — | |||||||||||||||
Total
|
$ | 26,647,333 | 2,424,533 | 815,337 | 1,444,363 | 21,963,100 |
(a)
|
Operating
lease obligations are presented net of approximately $1.9 million in
sublease arrangements.
|
·
|
LoanSTAR
Funding Group, Inc. (“LoanSTAR”) – As part of the agreement for the
acquisition of the capital stock of LoanSTAR from the Greater Texas
Foundation (“Texas Foundation”), the Company agreed to sell student loans
in an aggregate amount sufficient to permit the Texas Foundation to
maintain a portfolio of loans equal to no less than $200 million through
October 2010. The sales price for such loans is the fair value mutually
agreed upon between the Company and the Texas Foundation. To satisfy this
obligation, the Company is obligated to sell loans to the Texas Foundation
on a quarterly basis; however, the Foundation recently has chosen not to
purchase such loans.
|
·
|
infiNET
Integrated Solutions, Inc. (“infiNET”) – Stock price guarantee of
$104.8375 per share on 95,380 shares of Class A Common Stock (less the
greater of $41.9335 or the gross sales price such seller obtains from a
sale of the shares occurring prior to February 28, 2011 as defined in the
agreement) issued as part of the original purchase price. The obligation
to pay this guaranteed stock price is due February 28, 2011 and is not
included in the table above. Based upon the closing sale price of the
Company’s Class A Common Stock as of September 30, 2009 of $12.44 per
share, the Company’s obligation under this stock price guarantee would
have been $6.0 million (($104.8375 - $41.9335) x 95,380 shares). Any cash
paid by the Company in consideration of satisfying the guaranteed value of
stock issued for this acquisition would be recorded by the Company as a
reduction to additional paid-in
capital.
|
As
of September 30, 2009
|
As
of December 31, 2008
|
|||||||||||||||
Dollars
|
Percent
|
Dollars
|
Percent
|
|||||||||||||
Fixed-rate
loan assets
|
$ | 8,858,739 | 35.3 | % | $ | 2,532,609 | 10.1 | % | ||||||||
Variable-rate
loan assets
|
16,210,747 | 64.7 | 22,528,440 | 89.9 | ||||||||||||
Total
|
$ | 25,069,486 | 100.0 | % | $ | 25,061,049 | 100.0 | % | ||||||||
Fixed-rate
debt instruments
|
$ | 451,240 | 1.7 | % | $ | 677,096 | 2.5 | % | ||||||||
Variable-rate
debt instruments
|
26,134,853 | 98.3 | 26,110,863 | 97.5 | ||||||||||||
Total
|
$ | 26,586,093 | 100.0 | % | $ | 26,787,959 | 100.0 | % |
Borrower/
|
Estimated
|
Balance
of
|
||||||||||||
Fixed
|
lender
|
variable
|
assets
earning fixed-rate
|
|||||||||||
interest
|
weighted
|
conversion
|
floor
income as of
|
|||||||||||
rate
range
|
average
yield
|
rate
(a)
|
September
30, 2009
|
|||||||||||
3.0
- 3.49%
|
3.21 | % | 0.57 | % | $ | 1,873,340 | ||||||||
3.5
- 3.99%
|
3.65 | % | 1.01 | % | 1,936,910 | |||||||||
4.0
- 4.49%
|
4.20 | % | 1.56 | % | 1,536,050 | |||||||||
4.5
- 4.99%
|
4.72 | % | 2.08 | % | 845,801 | |||||||||
5.0
- 5.49%
|
5.25 | % | 2.61 | % | 550,018 | |||||||||
5.5
- 5.99%
|
5.67 | % | 3.03 | % | 328,894 | |||||||||
6.0
- 6.49%
|
6.19 | % | 3.55 | % | 387,812 | |||||||||
6.5
- 6.99%
|
6.70 | % | 4.06 | % | 343,523 | |||||||||
7.0
- 7.49%
|
7.17 | % | 4.53 | % | 119,245 | |||||||||
7.5
- 7.99%
|
7.71 | % | 5.07 | % | 202,473 | |||||||||
8.0
- 8.99%
|
8.16 | % | 5.52 | % | 460,447 | |||||||||
>
9.0%
|
9.04 | % | 6.40 | % | 274,226 | |||||||||
$ | 8,858,739 |
(a)
|
The
estimated variable conversion rate is the estimated short-term interest
rate at which loans would convert to variable rate. As of September 30,
2009, the short-term interest rate was 29 basis
points.
|
Weighted
|
||||||||
average
fixed
|
||||||||
Notional
|
rate
paid by
|
|||||||
Maturity
|
Amount
|
the Company (a) | ||||||
2010
|
$ | 1,000,000 | 0.76 | % |
(a)
|
For
all interest rate derivatives for which the Company pays a fixed rate, the
Company receives discrete three-month
LIBOR.
|
Index
(f)
|
Frequency
of Variable Resets
|
Assets
|
Debt
outstanding that funded student loan assets (a)
|
|||||||
3
month H15 financial commercial paper (b)
|
Daily
|
$ | 23,823,346 | 1,902,909 | ||||||
3
month Treasury bill
|
Varies
|
1,079,026 | — | |||||||
3
month LIBOR (c)
|
Quarterly
|
— | 19,749,843 | |||||||
Auction-rate
or remarketing
|
Varies
|
— | 2,247,420 | |||||||
Asset-backed
commercial paper (d)
|
Varies
|
— | 1,516,630 | |||||||
Fixed
rate
|
— | 186,274 | ||||||||
Other
(e)
|
700,704 | — | ||||||||
$ | 25,603,076 | 25,603,076 |
(a)
|
The
Company has certain basis swaps outstanding in which the Company (i)
receives three-month LIBOR set discretely in advance and pays a daily
weighted average three-month LIBOR less a spread as defined in the
individual agreements (the “Average/Discrete Basis Swaps”); and (ii)
receives three-month LIBOR and pays one-month LIBOR plus or minus a spread
as defined in the agreements (the "1/3 Basis
Swaps"). 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 September 30,
2009:
|
Notional
Amount
|
||||||||
Maturity
|
Average/Discrete
Basis Swaps
|
1/3
Basis Swaps
|
||||||
2010
|
$ | — | 1,000,000 | |||||
2011
(a)
|
6,000,000 | — | ||||||
2013
|
— | 500,000 | ||||||
2014
|
— | 500,000 | ||||||
2018
|
— | 1,300,000 | ||||||
2019
|
— | 500,000 | ||||||
2021
|
— | 250,000 | ||||||
2023
|
— | 1,250,000 | ||||||
2024
|
— | 250,000 | ||||||
2028
|
— | 100,000 | ||||||
2039
|
— | 150,000 | ||||||
$ | 6,000,000 | 5,800,000 |
(a) |
Certain
of these derivatives have forward effective start dates of January 2010
($1.5 billion), February 2010 ($1.5 billion), and March 2010 ($1.5
billion).
|
(b)
|
The
Company’s FFELP student loans earn interest based on the daily average H15
financial commercial paper index calculated on a fiscal quarter. The
Company’s funding includes FFELP student loans under the Department’s
Participation Program. The interest rate on the principal amount of
participation interests outstanding under the Department’s Participation
Program is based on a rate of commercial paper plus 50 basis points, which
is set a quarter in arrears, while the earnings on the student loans is
based primarily on the daily average H15 financial commercial paper index
calculated on the current fiscal
quarter.
|
(c)
|
The
Company has Euro-denominated notes that reprice on the EURIBOR index. The
Company has entered into derivative instruments (cross-currency interest
rate swaps) that convert the EURIBOR index to 3 month LIBOR. As a result,
these notes are reflected in the 3 month LIBOR category in the above
table. See “Foreign Currency Exchange
Risk.”
|
(d)
|
Asset-backed
commercial paper consists of $361 million funded in the Company’s FFELP
warehouse facility and $1.2 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.
|
(e)
|
Assets
include restricted cash and investments and other
assets.
|
(f)
|
Historically,
the movement of the various interest rate indices received on the
Company’s student loan assets and paid on the debt to fund such loans was
highly correlated. The short term movement of the indices was dislocated
beginning in August 2007. This dislocation has had a negative impact on
the Company’s student loan net interest income as compared to historical
periods.
|
Three
months ended September 30
|
Nine
months ended September 30
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Settlements:
|
||||||||||||||||
Interest
rate swaps
|
$ | (436 | ) | (3,175 | ) | $ | (447 | ) | (14,194 | ) | ||||||
Average/discrete
basis swaps
|
646 | (3,999 | ) | 11,707 | 40,711 | |||||||||||
1/3
basis swaps
|
3,071 | — | 20,473 | 894 | ||||||||||||
Cross-currency
interest rate swaps
|
1,633 | 7,963 | 7,074 | 18,578 | ||||||||||||
Total
settlements
|
$ | 4,914 | 789 | $ | 38,807 | 45,989 |
Three
months ended September 30, 2009
|
||||||||||||||||||||||||||||||||
Interest
Rates
|
||||||||||||||||||||||||||||||||
Change from increase | Change from increase |
Asset
and funding index mismatches
|
||||||||||||||||||||||||||||||
of
100 basis points
|
of
300 basis points
|
Increase
of 10 basis points
|
Increase
of 30 basis points
|
|||||||||||||||||||||||||||||
Dollar
|
Percent
|
Dollar
|
Percent
|
Dollar
|
Percent
|
Dollar
|
Percent
|
|||||||||||||||||||||||||
Effect
on earnings:
|
||||||||||||||||||||||||||||||||
Increase
(decrease) in pre-tax net income
|
||||||||||||||||||||||||||||||||
before
impact of derivative settlements
|
$ | (17,600 | ) | (24.8 | )% | (30,431 | ) | (42.9 | )% | (6,472 | ) | (9.1 | )% | (19,416 | ) | (27.4 | )% | |||||||||||||||
Impact
of derivative settlements
|
1,377 | 1.9 | 4,130 | 5.8 | — | — | — | — | ||||||||||||||||||||||||
Increase
(decrease) in net income before taxes
|
$ | (16,223 | ) | (22.9 | )% | (26,301 | ) | (37.1 | )% | (6,472 | ) | (9.1 | )% | (19,416 | ) | (27.4 | )% | |||||||||||||||
Increase
(decrease) in basic and diluted
|
||||||||||||||||||||||||||||||||
earnings
per share
|
$ | (0.21 | ) | (0.35 | ) | (0.09 | ) | (0.26 | ) |
Three
months ended September 30, 2008
|
||||||||||||||||||||||||||||||||
Interest
Rates
|
||||||||||||||||||||||||||||||||
Change
from increase
|
Change
from increase
|
Asset
and funding index mismatches
|
||||||||||||||||||||||||||||||
of
100 basis points
|
of
300 basis points
|
Increase
of 10 basis points
|
Increase
of 30 basis points
|
|||||||||||||||||||||||||||||
Dollar
|
Percent
|
Dollar
|
Percent
|
Dollar
|
Percent
|
Dollar
|
Percent
|
|||||||||||||||||||||||||
Effect
on earnings:
|
||||||||||||||||||||||||||||||||
Increase
(decrease) in pre-tax net income
|
||||||||||||||||||||||||||||||||
before
impact of derivative settlements
|
$ | (2,299 | ) | (6.1 | )% | (3,931 | ) | (10.4 | )% | (6,743 | ) | (17.9 | )% | (20,229 | ) | (53.6 | )% | |||||||||||||||
Impact
of derivative settlements
|
3,101 | 8.2 | 4,650 | 12.3 | — | — | — | — | ||||||||||||||||||||||||
Increase
(decrease) in net income before taxes
|
$ | 802 | 2.1 | % | 719 | 1.9 | % | (6,743 | ) | (17.9 | )% | (20,229 | ) | (53.6 | )% | |||||||||||||||||
Increase
(decrease) in basic and diluted
|
||||||||||||||||||||||||||||||||
earnings
per share
|
$ | 0.01 | 0.01 | (0.09 | ) | (0.26 | ) |
Nine
months ended September 30, 2009
|
||||||||||||||||||||||||||||||||
Change
from increase of 100 basis points
|
Change
from increase of 300 basis points
|
Asset
and funding index mismatches
|
||||||||||||||||||||||||||||||
Dollar
|
Percent
|
Dollar
|
Percent
|
Increase
of 10 basis points
|
Increase
of 30 basis points
|
|||||||||||||||||||||||||||
Effect
on earnings:
|
||||||||||||||||||||||||||||||||
Increase
(decrease) in pre-tax net income
|
||||||||||||||||||||||||||||||||
before
impact of derivative settlements
|
$ | (80,676 | ) | (63.0 | )% | (102,677 | ) | (80.2 | )% | (19,229 | ) | (15.0 | )% | (57,685 | ) | (45.0 | )% | |||||||||||||||
Impact
of derivative settlements
|
1,418 | 1.1 | 4,212 | 3.3 | — | — | — | — | ||||||||||||||||||||||||
Increase
(decrease) in net income before taxes
|
$ | (79,258 | ) | (61.9 | )% | (98,465 | ) | (76.9 | )% | (19,229 | ) | (15.0 | )% | (57,685 | ) | (45.0 | )% | |||||||||||||||
Increase
(decrease) in basic and diluted
|
||||||||||||||||||||||||||||||||
earning
per share
|
$ | (1.02 | ) | (1.26 | ) | (0.25 | ) | (0.74 | ) |
Nine
months ended September 30, 2008
|
||||||||||||||||||||||||||||||||
Change
from increase of 100 basis points
|
Change
from increase of 300 basis points
|
Asset
and funding index mismatches
|
||||||||||||||||||||||||||||||
Dollar
|
Percent
|
Dollar
|
Percent
|
Increase
of 10 basis points
|
Increase
of 30 basis points
|
|||||||||||||||||||||||||||
Effect
on earnings:
|
||||||||||||||||||||||||||||||||
Increase
(decrease) in pre-tax net income
|
||||||||||||||||||||||||||||||||
before
impact of derivative settlements
|
$ | (24,704 | ) | (1,622.1 | )% | (51,031 | ) | (3,350.7 | )% | (20,239 | ) | (1,328.9 | )% | (60,719 | ) | (3,986.8 | )% | |||||||||||||||
Impact
of derivative settlements
|
17,818 | 1,169.9 | 48,799 | 3,204.1 | — | — | — | — | ||||||||||||||||||||||||
Increase
(decrease) in net income before taxes
|
$ | (6,886 | ) | (452.2 | )% | (2,232 | ) | (146.6 | )% | (20,239 | ) | (1,328.9 | )% | (60,719 | ) | (3,986.8 | )% | |||||||||||||||
Increase
in basic and diluted
|
||||||||||||||||||||||||||||||||
earning
per share
|
$ | (0.09 | ) | (0.03 | ) | (0.26 | ) | (0.78 | ) |
Total
number of
|
Maximum
number
|
|||||||||||||||
shares
purchased
|
of
shares that may
|
|||||||||||||||
Total
number
|
Average
|
as
part of publicly
|
yet
be purchased
|
|||||||||||||
of
shares
|
price
paid
|
announced
plans
|
under
the plans
|
|||||||||||||
Period
|
purchased
(1)
|
per
share
|
or
programs (2) (3)
|
or
programs (4)
|
||||||||||||
July
1 - July 31, 2009
|
776 | $ | 14.41 | 776 | 7,394,184 | |||||||||||
August
1 - August 31, 2009
|
3,346 | 14.66 | 3,346 | 7,309,615 | ||||||||||||
September
1 - September 30, 2009
|
3,312 | 14.14 | 3,312 | 7,766,855 | ||||||||||||
Total
|
7,434 | $ | 14.40 | 7,434 |
(1)
|
The
total number of shares includes: (i) shares purchased pursuant to the 2006
Plan discussed in footnote (2) below; and (ii) shares purchased pursuant
to the 2006 ESLP discussed in footnote (3) below, of which there were none
for the months of July, August, or September 2009. Shares of Class A
common stock purchased pursuant to the 2006 Plan included 776 shares,
3,346 shares, and 3,312 shares in July, August, and September,
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.
|
(2)
|
On
May 25, 2006, the Company publicly announced that its Board of Directors
had authorized a stock repurchase program to repurchase up to a total of
five million shares of the Company’s Class A common stock (the “2006
Plan”). On February 7, 2007, the Company’s Board of Directors increased
the total shares the Company is allowed to repurchase to 10 million. The
2006 Plan had an initial expiration date of May 24, 2008, which was
extended until May 24, 2010 by the Company’s Board of Directors on January
30, 2008.
|
(3)
|
On
May 25, 2006, the Company publicly announced that the shareholders of the
Company approved an Employee Stock Purchase Loan Plan (the “2006 ESLP”) to
allow the Company to make loans to employees for the purchase of shares of
the Company's Class A common stock either in the open market or directly
from the Company. A total of $40 million in loans may be made under the
2006 ESLP, and a total of one million shares of Class A common stock are
reserved for issuance under the 2006 ESLP. Shares may be purchased
directly from the Company or in the open market through a broker at
prevailing market prices at the time of purchase, subject to any
conditions or restrictions on the timing, volume, or prices of purchases
as determined by the Compensation Committee of the Board of Directors and
set forth in the Stock Purchase Loan Agreement with the participant. The
2006 ESLP shall terminate May 25,
2016.
|
(4)
|
The
maximum number of shares that may yet be purchased under the plans is
calculated below. There are no assurances that any additional shares will
be repurchased under either the 2006 Plan or the 2006 ESLP. Shares under
the 2006 ESLP may be issued by the Company rather than purchased in open
market transactions.
|
As
of
|
Maximum
number of shares that may yet be purchased under the 2006
Plan
(A)
|
Approximate
dollar value of shares that may yet be purchased under the 2006
ESLP
(B)
|
Closing
price on the last trading day of the Company's Class A Common
Stock
(C)
|
(B
/ C)
Approximate
number of shares that may yet be purchased under the 2006
ESLP
(D)
|
(A
+ D)
Approximate
number of shares that may yet be purchased under the 2006 Plan and 2006
ESLP
|
|||||||||||||||
July
31, 2009
|
4,843,449 | 36,450,000 | 14.29 | 2,550,735 | 7,394,184 | |||||||||||||||
August
31, 2009
|
4,840,103 | 36,450,000 | 14.76 | 2,469,512 | 7,309,615 | |||||||||||||||
September
30, 2009
|
4,836,791 | 36,450,000 | 12.44 | 2,930,064 | 7,766,855 |
·
|
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
|
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:
November 9, 2009
|
By:
|
/s/ MICHAEL S. DUNLAP | |
Name:
Michael S. Dunlap
Title:
Chairman and Chief Executive Officer
|
|||
By:
|
/s/ TERRY J. HEIMES | ||
Name:
Terry J. Heimes
Title:
Chief Financial Officer
|