Exhibit 99.1
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NELNET 121 South 13th Street, Suite 400 P 402 458 2370 www.nelnet.net
Lincoln, NE 68506 F 402 458 2344 NELNET CORPORATE
SERVICES, INC.
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Media Contact: Sheila Odom, 402.458.2329
Investor Contact: Cheryl Watson, 317.469.2064
For release
Nelnet reports net student loan assets up 51 percent to more than $20 billion in
2005
o Student loan assets increase 27 percent, excluding acquisitions
in 2005
o Net consolidation loan originations of $2.1 billion for 2005
LINCOLN, Neb., Jan 31, 2006 -- Nelnet, Inc. (NYSE: NNI) today reported GAAP net
income for 2005 of $181.1 million, or $3.37 per share, compared with $149.2
million, or $2.78 per share, for 2004. GAAP net income for the fourth quarter of
2005 totaled $42.7 million, or $0.79 per share, compared with $47.2 million, or
$0.88 per share, for the fourth quarter of 2004.
Base net income for 2005 was $127.6 million, or $2.37 per share, compared with
$161.8 million, or $3.02 per share, in 2004. Base net income for the fourth
quarter of 2005 totaled $32.3 million, or $0.60 per share, compared with $31.7
million, or $0.59 per share, in the fourth quarter of 2004.
Base net income as defined by Nelnet is GAAP net income excluding derivative
market value adjustments, amortization of intangible assets, and variable-rate
floor income. A description of base net income and reconciliation of GAAP net
income to base net income is included in this release.
Base net income excluding certain special allowance yield adjustments and
related derivative settlements for 2005 was $1.46 per share, up from $1.02 per
share for 2004. Base net income excluding certain special allowance yield
adjustments and related derivative settlements was $0.39 per share for the
fourth quarter of 2005 up from $0.33 per share for the fourth quarter of 2004.
GAAP net income includes an unrealized gain in the fair-market value of
derivative instruments of $95.9 million for 2005 and $21.6 million for the
fourth quarter of 2005. Nelnet's derivatives do not qualify for hedge accounting
under FASB 133. As such, the mark-to-market gains or losses of derivatives in
each reporting period are included in the statement of operations, but removed
from GAAP net income during the calculation of base net income.
Net student loan assets at December 31, 2005 were $20.3 billion, up 51 percent,
or $6.8 billion, from $13.5 billion at December 31, 2004. Excluding $3.2 billion
of student loans acquired through business and portfolio acquisitions in 2005,
net student loan assets increased $3.6 billion or 27 percent from December 31,
2004.
The company reported net consolidation loan originations of $2.1 billion for
2005 and $721.4 million for the fourth quarter of 2005. For 2005 and for the
fourth-quarter 2005, Nelnet experienced a loss of $855.0 million and $356.5
million, respectively, of student loans through the consolidation of the
company's portfolio by third parties.
"In 2005, Nelnet executed a strategy of delivering value to our customers,
diversifying our revenue streams, and growing our student loan portfolio," said
Steve Butterfield, Nelnet Vice Chairman and co-Chief Executive Officer. "We will
use the success of this past year as the foundation for continued growth and
diversification."
Margin analysis
Net interest income for 2005 was $329.1 million compared with $398.2 million for
2004. For the fourth quarter of 2005, Nelnet reported net interest income of
$81.3 million compared with $90.2 million for the fourth quarter of 2004. Net
interest income for 2005 includes a special allowance yield adjustment of $94.7
million, down from $203.5 million in the same period a year ago. The
fourth-quarter 2005 net interest income includes a special allowance yield
adjustment of $17.2 million, down from $35.6 million in the same period a year
ago. Excluding the impact of the special allowance yield adjustments, net
interest income for the fourth-quarter 2005 increased $9.5 million, or 17
percent, compared to the same period a year ago.
The company reported core student loan spread of 1.51 percent for 2005 compared
with 1.66 percent in 2004 and 1.44 percent for the fourth quarter of 2005
compared with 1.69 percent in 2004. The tightening was primarily attributable to
an increase in short-term interest rates and an increase in the amount of
lower-yield consolidation loans in the company's student loan portfolio that
comprised approximately 64 percent of Nelnet's student loan portfolio at
December 31, 2005.
Other revenue
Income from loan and guarantee servicing fees reached $152.5 million for 2005,
up from $100.1 million in 2004. In the fourth quarter of 2005, income from loan
and guarantee servicing grew to $43.2 million from $26.7 million in the fourth
quarter of 2004. The increase is attributable to the acquisition of EDULINX in
December 2004 and the expanded outsourcing agreement with the College Access
Network in October 2005, but is also partially offset by reductions in other
third-party servicing-related revenue.
Other fee-based income increased to $35.6 million for 2005 compared with $7.0
million for 2004. For the fourth quarter of 2005, other fee-based income
increased to $12.8 million, up from $1.7 million in the same period a year ago.
The integration of Student Marketing Group and National Honor Roll, which were
acquired in March 2005, and FACTS Management Co., eighty percent of which was
acquired in June 2005, drove the increase.
Operating expenses
For 2005, the company reported operating expenses of $322.3 million compared
with $242.8 million for 2004. Operating expenses increased to $98.1 million in
the fourth quarter of 2005 from $61.8 million for the same period a year ago.
The increase in operating expenses is primarily attributable to the integration
of recent acquisitions. Excluding the impact of these acquisitions, operating
expenses for the fourth quarter of 2005 increased approximately 3 percent
compared with the prior quarter.
Reconciliation of GAAP net income to base net income
Nelnet prepares financial statements in accordance with generally accepted
accounting principles (GAAP). In addition to evaluating the company's GAAP-based
financial information, management also evaluates the company on certain non-GAAP
performance measures that we refer to as base net income. While base net income
is not a substitute for reported results under GAAP, Nelnet provides base net
income as additional information regarding financial results.
Base net income, excluding certain special allowance yield adjustments and
related hedging activity related to the company's portfolio of student loans
earning a minimum special allowance payment of 9.5%, is used by management to
develop the company's financial plans, track results, and establish corporate
performance targets.
The following table provides a reconciliation of GAAP net income to base net
income and also reflects the earnings per share impact of the special allowance
yield adjustments and related hedging activity related to the 9.5% portfolio.
Three Months Ended Year Ended
December 31, December 31,
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2005 2004 2005 2004
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(dollars in thousands, except share data)
GAAP net income $ 42,676 $ 47,168 $ 181,122 $ 149,179
Base adjustments:
Derivative market value adjustments (21,554) (27,291) (95,854) 11,918
Amortization of intangible assets 4,828 2,336 9,479 8,768
Variable-rate floor income - - - (348)
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Total base adjustments before income taxes (16,726) (24,955) (86,375) 20,338
Net tax effect (a) 6,356 9,483 32,823 (7,728)
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Total base adjustments (10,370) (15,472) (53,552) 12,610
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Base net income 32,306 31,696 127,570 161,789
Special allowance yield adjustments (b) (11,352) (13,402) (48,841) (106,842)
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Base net income, excluding the special
allowance yield adjustments (b) $ 20,954 $ 18,294 $ 78,729 $ 54,947
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Earnings per share, basic and diluted:
GAAP net income $ 0.79 $ 0.88 $ 3.37 $ 2.78
Total base adjustments (0.19) (0.29) (1.00) 0.24
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Base net income 0.60 0.59 2.37 3.02
Special allowance yield adjustments (b) (0.21) (0.26) (0.91) (2.00)
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Base net income, excluding the special
allowance yield adjustments (b) $ 0.39 $ 0.33 $ 1.46 $ 1.02
========== ========= ========== ==========
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(a) Tax effect computed at 38%.
(b) The special allowance yield adjustments are net of derivative settlements
of $(1.1) million and $14.0 million for the three months ended
December 31, 2005 and 2004 respectively, and $15.9 million and $31.2 million
for the years ended December 31, 2005 and 2004 respectively, and the tax
effect computed at 38%.
Nelnet will host a conference call to discuss this earnings release at 2:00 p.m.
(Eastern) today. To access the call live, participants in the United States and
Canada should dial 800.289.0572 and international callers should dial
913.981.5543 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 5:00 p.m. (Eastern) today and 11:59 p.m. (Eastern) February 3. 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 9344836. 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.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three months ended Year ended
December 31, December 31,
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2005 2004 2005 2004
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(unaudited) (unaudited) (unaudited)
(dollars in thousands, except share data)
Interest income:
Loan interest, excluding variable-rate floor income $ 309,890 $ 185,977 $ 981,479 $ 705,036
Variable-rate floor income - - - 348
Amortization of loan premiums and deferred
origination costs (24,160) (17,121) (76,530) (70,370)
Investment interest 17,616 6,012 44,259 17,762
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Total interest income 303,346 174,868 949,208 652,776
Interest expense:
Interest on bonds and notes payable 222,066 84,670 620,111 254,610
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Net interest income 81,280 90,198 329,097 398,166
Less provision (recovery) for loan losses 1,473 477 7,030 (529)
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Net interest income after provision (recovery)
for loan losses 79,807 89,721 322,067 398,695
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Other income:
Loan and guarantee servicing income 43,180 26,708 152,493 100,130
Other fee-based income 12,755 1,668 35,641 7,027
Software services income 2,410 2,530 9,169 8,051
Other income 2,650 2,237 8,032 9,321
Derivative market value adjustments 21,554 27,291 95,854 (11,918)
Derivative settlements, net 2,041 (14,751) (17,008) (34,140)
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Total other income 84,590 45,683 284,181 78,471
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Operating expenses:
Salaries and benefits 49,117 31,802 172,732 133,667
Other expenses 44,156 27,703 140,092 100,316
Amortization of intangible assets 4,828 2,336 9,479 8,768
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Total operating expenses 98,101 61,841 322,303 242,751
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Income before income taxes 66,296 73,563 283,945 234,415
Income tax expense 23,246 26,395 102,220 85,236
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Net income before minority interest 43,050 47,168 181,725 149,179
Minority interest in net earnings of subsidiaries (374) - (603) -
----------- ------------ ------------ ------------
Net income $ 42,676 $ 47,168 $ 181,122 $ 149,179
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Earnings per share, basic and diluted $ 0.79 $ 0.88 $ 3.37 $ 2.78
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Weighted average shares outstanding 53,915,812 53,662,152 53,761,727 53,648,605
CONDENSED CONSOLIDATED BALANCE SHEETS AND FINANCIAL DATA
As of December 31,
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2005 2004
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(unaudited)
(dollars in thousands)
Assets:
Student loans receivable, net $ 20,260,807 $ 13,461,814
Cash, cash equivalents, and investments 1,645,797 1,302,954
Goodwill 99,535 8,522
Intangible assets, net 153,117 11,987
Other assets 639,366 374,728
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Total assets $ 22,798,622 $ 15,160,005
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Liabilities:
Bonds and notes payable $ 21,673,620 $ 14,300,606
Other liabilities 474,884 403,224
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Total liabilities 22,148,504 14,703,830
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Minority interest in subsidiaries 626 -
Shareholders' equity 649,492 456,175
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Total liabilities and shareholders' equity $ 22,798,622 $ 15,160,005
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Return on average total assets 1.00% 1.11%
Return on average equity 32.4% 39.7%
Nelnet is one of the leading education finance companies in the United States
and is focused on providing quality products and services to students and
schools nationwide. Nelnet ranks among the nation's leaders in terms of total
net student loan assets with $20.3 billion as of December 31, 2005.
Headquartered in Lincoln, Nebraska, Nelnet originates, consolidates,
securitizes, holds, and services student loans, principally loans originated
under the Federal Family Education Loan Program of the U.S. Department of
Education.
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.