Exhibit 99.1
Media Contact: Sheila Odom, 402.458.2329
Investors Contact: Cheryl Watson, 317.469.2064
For immediate release
NELNET REPORTS SUBSTANTIAL GROWTH IN NET INCOME AND STUDENT LOAN ASSETS
Lincoln, NE - Nelnet, Inc. (NYSE: NNI) today announced that base net income for
the first nine months of 2004 was $130.1 million, or $2.43 per share, compared
with $18.3 million, or $0.41 per share, in the prior year. For the first nine
months of 2004, net income was $102.0 million, or $1.90 per share, compared with
net income of $16.8 million, or $0.37 per share, for the same period a year ago.
Net income excluding derivative market value adjustments, amortization of
intangible assets, and variable-rate floor income items, which the company
defines as base net income, was $34.0 million, or $0.63 per share, for the third
quarter of 2004 compared with $3.8 million, or $0.08 per share, in the prior
year. Net income including these items was $7.6 million, or $0.14 per share for
the third quarter of 2004, compared with a net loss of $1.1 million, or $0.03
per share, for the same period a year ago. A description of base net income and
a reconciliation of GAAP net income to base net income are included later in the
release.
"As we review the quarter, two things in particular stand out," said Steve
Butterfield, Nelnet Vice Chairman and Co-CEO. "Net income and student loan
assets were both up substantially, clearly demonstrating the strength of our
core business."
Net student loan assets at September 30, 2004 were $12.8 billion, up 27 percent,
or $2.7 billion, from $10.1 billion the year before. Since the beginning of
2004, Nelnet's net student loan assets increased 22 percent, or $2.3 billion.
"We continue to be excited about Nelnet's organic student loan asset growth,"
Butterfield said. "This is a key driver of future earnings and is the result of
the success of our indirect and direct marketing strategies. Combined, our
origination channels - direct to consumer, brand, and forward flow - have grown
in line with our expectations."
"Our strong performance in the third quarter reflects the strength of our
business and our focus on business-as-usual," Butterfield said. "In addition,
last week we announced an agreement to acquire EDULINX Canada Corporation, the
largest servicer of government sponsored student loans in Canada. While EDULINX
is expected to make a positive, though not material, contribution to net income
in 2005, it adds volume to our servicing and fee-based business and opens new
market opportunities."
Nelnet prepares financial statements in accordance with generally accepted
accounting principles ("GAAP"). In addition to evaluating the company's
GAAP-based financial information, management and analysts also evaluate the
company on certain non-GAAP performance measures that are referred to as base
income adjustments. While base net income is not a substitute for reported
results under GAAP, Nelnet provides this information as additional information
regarding our financial results.
Nelnet's base net income is a non-GAAP financial measure and may not be
comparable to similarly titled measures reported by other companies. Nelnet's
base net income presentation does not represent another comprehensive basis of
accounting.
The derivative market value adjustment on the company's consolidated statements
of income represents unrealized losses in the fair value of derivative
instruments of $39.2 million year-to-date 2004 and $40.2 million for the third
quarter of 2004. While derivative gains or losses do not impact the base income
of the company as they fluctuate, they will continue to be reflected in our
operating results.
Amortization expense related to intangible assets amounted to $6.4 million and
$2.3 million for the nine months and quarter ended September 30, 2004,
respectively. In 2003, such amortization expense for the corresponding periods
was $10.0 million and $2.8 million.
Net interest income includes variable-rate floor income, or floor income
generated by the annual reset of borrower rates on July 1, of $348,000 for the
nine months ended September 30, 2004 compared to $12.7 million for the same
period a year ago. No variable-rate floor income was earned in the third
quarters of 2004 and 2003.
The following table provides a reconciliation of GAAP net income (loss) to base
net income.
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -----------------------
2004 2003 2004 2003
---------- ---------- ----------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
GAAP net income (loss) $ 7,637 $ (1,133) $ 102,011 $ 16,771
Base adjustments:
Impact of derivative market value adjustments 40,183 5,131 39,209 5,131
Amortization of intangible assets 2,275 2,785 6,432 9,981
Impact of variable-rate floor income - - (348) (12,700)
---------- ---------- ----------- ----------
Total base adjustments before income taxes 42,458 7,916 45,293 2,412
Net tax effect (a) (16,134) (3,008) (17,211) (917)
---------- ---------- ----------- ----------
Total base adjustments 26,324 4,908 28,082 1,495
---------- ---------- ----------- ----------
Base net income $ 33,961 $ 3,775 $ 130,093 $ 18,266
========== ========== =========== ==========
Base earnings per share, basic and diluted $ 0.63 $ 0.08 $ 2.43 $ 0.41
========== ========== =========== ==========
- --------------------------------------------------
(a) Tax effect computed at 38%.
Nelnet will host a conference call to discuss this earnings release at 11:00
a.m. (Eastern) today. To access the call live, participants in the United States
and Canada should dial 800.289.0493 and international callers should dial
913.981.5510 at least 15 minutes prior to the call. A live audio Web cast of the
call will also be available at www.nelnetinvestors.net under the conference
calls and Web casts menu. A replay of the conference call will be available
between 2:00 p.m. (Eastern) today and 11:59 p.m. (Eastern) November 12. To
access the replay via telephone within the United States and Canada, callers
should dial 888.203.1112. International callers should dial 719.457.0820. All
callers accessing the replay will need to use the confirmation code 996876. A
replay of the audio Web cast will also be available at www.nelnetinvestors.net.
Supplemental financial information to this earnings release is available online
at http://www.nelnetinvestors.net/releases.cfm?reltype=Financial.
###
Nelnet is one of the leading education finance companies in the United States
and is focused on providing quality student loan products and services to
students and schools nationwide. With over $14 billion in total assets, Nelnet
originates in excess of $3 billion for itself and its service partners annually,
and its servicing software is used by approximately 35 clients, including
Nelnet, to service nearly $50 billion in student loans. Nelnet ranks among the
nation's leaders in terms of total student loan assets.
Nelnet offers a broad range of student loan and financial services and
technology-based products, including student loan origination and lending,
guarantee servicing, and a suite of software solutions. Our products are
designed to simplify the student loan process by automating financial aid
delivery, loan processing, and funds disbursement. Our services help to
facilitate and streamline education finance for all involved in the industry,
including student and parent borrowers, lenders, financial aid officers,
guaranty agencies, governmental agencies, servicers, and the capital markets.
Additional information is available at www.nelnet.net.
Information contained in this press release, other than historical information,
may be considered forward-looking in nature and is subject to various risks,
uncertainties, and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated, or
expected. Among the key factors that may have a direct bearing on Nelnet's
operating results, performance, or financial condition are changes in terms of
student loans and the educational credit marketplace, changes in the demand for
educational financing or in financing preferences of educational institutions,
students and their families, or changes in the general interest rate environment
and in the securitization markets for education loans.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Interest income:
Loan interest, excluding variable rate floor income $ 171,427 $ 104,998 $ 519,059 $ 304,989
Variable rate floor income - - 348 12,700
Amortization of loan premiums (18,395) (19,424) (53,249) (49,760)
Investment interest 4,918 2,716 11,750 11,984
------------ ------------ ------------ ------------
Total interest income 157,950 88,290 477,908 279,913
Interest expense:
Interest on bonds and notes payable 68,545 47,309 169,940 151,484
------------ ------------ ------------ ------------
Net interest income 89,405 40,981 307,968 128,429
Less provision (recovery) for loan losses 2,300 4,015 (1,006) 8,875
------------ ------------ ------------ ------------
Net interest income after provision (recovery)
for loan losses 87,105 36,966 308,974 119,554
------------ ------------ ------------ ------------
Other income (expense):
Loan servicing and other fee income 24,167 27,087 72,388 77,324
Software services and other income 8,391 4,565 18,998 13,676
Derivative market value adjustments (40,183) (5,131) (39,209) (5,131)
Derivative settlements, net (16,031) (524) (19,389) (524)
------------ ------------ ------------ ------------
Total other income (expense) (23,656) 25,997 32,788 85,345
------------ ------------ ------------ ------------
Operating expenses:
Salaries and benefits 25,060 35,901 101,865 92,749
Other expenses 24,167 23,583 72,613 72,109
Amortization of intangible assets 2,275 2,785 6,432 9,981
------------ ------------ ------------ ------------
Total operating expenses 51,502 62,269 180,910 174,839
------------ ------------ ------------ ------------
Income before income taxes 11,947 694 160,852 30,060
Income tax expense 4,310 1,827 58,841 13,289
------------ ------------ ------------ ------------
Net income (loss) $ 7,637 $ (1,133) $ 102,011 $ 16,771
============ ============ ============ ============
Earnings (loss) per share, basic and diluted $ 0.14 $ (0.03) $ 1.90 $ 0.37
============ ============ ============ ============
Weighted average shares outstanding 53,648,788 45,038,488 53,644,056 45,019,823
CONDENSED CONSOLIDATED BALANCE SHEETS AND FINANCIAL DATA
As of As of As of
September 30, December 31, September 30,
2004 2003 2003
------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
ASSETS
Student loans receivable, net $ 12,793,704 $ 10,455,442 $ 10,059,920
Cash, cash equivalents, and investments 933,271 1,155,215 774,667
Other assets 387,821 321,529 318,410
------------- ------------- -------------
Total assets $ 14,114,796 $ 11,932,186 $ 11,152,997
============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Bonds and notes payable $ 13,526,343 $ 11,366,458 $ 10,892,347
Other liabilities 179,838 260,239 129,428
------------- ------------- -------------
Total liabilities 13,706,181 11,626,697 11,021,775
------------- ------------- -------------
Shareholders' equity 408,615 305,489 131,222
------------- ------------- -------------
Total liabilities and
shareholders' equity $ 14,114,796 $ 11,932,186 $ 11,152,997
============= ============= =============
Average student loans $ 11,282,561 $ 9,451,035 $ 8,891,773
Return on average total assets 1.04% 0.25% 0.21%
Return on average equity 38.3% 19.4% 18.3%