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 immediate release
ADJUSTED BASE NET INCOME FOR THE FIRST SIX MONTHS UP 21 PERCENT TO $0.82 PER
SHARE
o Net student loan assets up $1.1 billion to $22.4 billion for
second quarter
o Adjusted base net income for the second quarter $0.37 per share
o Fee-based revenue represents 43 percent of total revenue
LINCOLN, Neb., July 28, 2006 - Nelnet, Inc. (NYSE: NNI) today reported GAAP net
income for the first six months of 2006 of $97.8 million, or $1.80 per share,
compared with $66.3 million, or $1.23 per share, for the first six months of
2005. Base net income for the first six months of 2006 was $62.6 million, or
$1.15 per share, compared with $62.5 million, or $1.16 per share, for the first
six months of 2005.
GAAP net income for the second-quarter 2006 was $45.8 million, or $0.84 per
share, compared with a net loss of $(1.8) million, or $(0.03) per share, for the
second-quarter 2005. Base net income for the second-quarter 2006 was $31.7
million, or $0.58 per share, compared with $31.0 million, or $0.58 per share, in
the second-quarter 2005.
Adjusted base net income, which is base net income excluding certain special
allowance yield adjustments and related derivative settlements, was $0.74 per
share for the first six months of 2006 and $0.37 per share for the second
quarter of 2006, compared with $0.68 per share for the first six months of 2005
and $0.34 per share for the second quarter of 2005. Excluding a
legislative-driven expense of $6.9 million, $4.3 million after tax, for loan
loss reserves in the first-quarter 2006 due to a provision in the Deficit
Reduction Act of 2005 that increased risk sharing for student loan holders by
one percent on Federal Family Education Loan Program loans, adjusted base net
income for the first six months of 2006 was up 21 percent to $0.82 per share
compared with the same period a year ago.
Base net income as defined by Nelnet is GAAP net income excluding derivative
market value and foreign currency adjustments, the amortization of intangible
assets, and variable-rate floor income. A description of base and adjusted base
net income and reconciliation of GAAP net income to base and adjusted base net
income is included in this release.
GAAP net income includes an unrealized gain in the fair-market value of
derivative instruments and foreign currency adjustments of $68.7 million for the
first six months of 2006 and $28.9 million for the second quarter of 2006.
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 in
the calculation of base net income. In addition, base net income excludes the
foreign currency transaction gain caused by the re-measurement of the company's
Euro-denominated bonds to U.S. dollars.
Since December 31, 2005, net student loan assets have increased 11 percent, or
$2.1 billion, from $20.3 billion to $22.4 billion at June 30, 2006. Since March
31, 2006, net student loan assets have increased 5 percent, or $1.1 billion.
The company reported net consolidation loan originations of $1.1 billion and
$477.8 million and a loss of $581.2 million and $310.8 million through the
consolidation of the company's portfolio by third parties for the first six
months of 2006 and the second quarter of 2006, respectively. This resulted in
net new consolidation loan originations of $487.5 million for the first six
months of 2006 and $167.0 million for the second quarter of 2006.
"We are pleased with our strong results for the quarter, in particular solid
student loan growth, consolidation application activity that will primarily fund
in the third and fourth quarters, and diversification of our revenue streams,"
said Steve Butterfield, Nelnet Vice Chairman and Co-Chief Executive Officer. "As
expected, our results also reflect the seasonality of some of our fee-based
businesses and the investment we made to bolster our direct-to-consumer
marketing efforts. Quality student loan asset growth, combined with the
diversification of revenues, will continue to be important to meeting our goal
of long-term sustainable growth."
MARGIN ANALYSIS
Net interest income for the first six months of 2006 was $172.5 million compared
with $168.8 million for the first six months of 2005. For the second quarter of
2006, Nelnet reported net interest income of $86.2 million compared with $82.0
million for the second quarter of 2005. Net interest income for the first six
months of 2006 includes a special allowance yield adjustment of $24.5 million,
down from $55.7 million for the first six months of 2005. The second-quarter
2006 net interest income includes a special allowance yield adjustment of $10.6
million, down from $25.9 million in the same period a year ago. Excluding the
impact of the special allowance yield adjustment, net interest income for the
second-quarter 2006 increased $19.6 million, or 35 percent, compared to the same
period a year ago.
The company reported core student loan spread of 1.51 percent for the first six
months of 2006 compared with 1.58 percent in the same period in 2005. For the
second quarter of 2006, Nelnet reported core student loan spread of 1.49 percent
compared with 1.50 percent in the same period of 2005 and 1.54 percent for the
first quarter of 2006.
OTHER REVENUE
Fee-based revenue in the second quarter of 2006 represented 43 percent of
Nelnet's total revenue for the quarter. This is an increase from the second
quarter of 2005 when fee-based revenue represented 36 percent of total revenue.
Income from loan and guarantee servicing fees reached $91.1 million for the
first six months of 2006, up from $71.9 million in the first six months of 2005.
In the second quarter of 2006, loan and guarantee servicing income grew to $44.0
million from $34.7 million in the second quarter of 2005. This increase is
attributable to the acquisition of Firstmark Services and the expansion of an
outsourcing agreement with College Access Network both of which occurred during
the fourth quarter of 2005.
Other fee-based income increased to $34.2 million for the first six months of
2006 compared with $12.4 million for the first six months of 2005. For the
second quarter of 2006, other fee-based income increased to $16.1 million, up
from $9.0 million in the same period a year ago. Other fee-based income includes
Nelnet's list management, direct marketing, and tuition payment plan businesses.
OPERATING EXPENSES
For the first six months of 2006, the company reported operating expenses of
$222.5 million compared with $145.3 million for the first six months of 2005.
Operating expenses were $114.3 million in the second quarter of 2006 compared
with $73.9 million for the same period a year ago. The increase in operating
expenses is primarily attributable to recent acquisitions.
NON-GAAP PERFORMANCE MEASURES
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.
Adjusted base net income, which excludes 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 percent, 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 (loss) to base
and adjusted base net income.
THREE MONTHS ENDED SIX MONTHS ENDED
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JUNE 30, MARCH 31, JUNE 30, JUNE 30, JUNE 30,
2006 2006 2005 2006 2005
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(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
GAAP net income (loss) (a) $ 45,753 $ 52,066 $ (1,773) $ 97,819 $ 66,314
Base adjustments:
Derivative market value and foreign
currency adjustments (28,865) (39,795) 51,372 (68,660) (8,918)
Amortization of intangible assets 6,161 5,633 1,559 11,794 2,732
Variable-rate floor income - - - - -
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Total base adjustments before income taxes (22,704) (34,162) 52,931 (56,866) (6,186)
Net tax effect (b) 8,628 12,981 (20,114) 21,609 2,351
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Total base adjustments (14,076) (21,181) 32,817 (35,257) (3,835)
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Base net income (a) 31,677 30,885 31,044 62,562 62,479
Adjustments to base net income:
Special allowance yield adjustment (10,550) (13,910) (25,919) (24,460) (55,661)
Derivative settlements, net (7,721) (4,164) 5,454 (11,885) 14,317
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Total adjustments to base net income
before income taxes (18,271) (18,074) (20,465) (36,345) (41,344)
Net tax effect (b) 6,943 6,868 7,777 13,811 15,711
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Total adjustments to base net income (11,328) (11,206) (12,688) (22,534) (25,633)
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Adjusted base net income (a) $ 20,349 $ 19,679 $ 18,356 $ 40,028 $ 36,846
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Earnings (loss) per share, basic and diluted:
GAAP net income (loss) (a) $ 0.84 $ 0.96 $ (0.03) $ 1.80 $ 1.23
Total base adjustments (0.26) (0.39) 0.61 (0.65) (0.07)
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Base net income (a) 0.58 0.57 0.58 1.15 1.16
Total adjustments to base net income (0.21) (0.21) (0.24) (0.41) (0.48)
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Adjusted base net income (a) $ 0.37 $ 0.36 $ 0.34 $ 0.74 $ 0.68
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(a) Includes expense of $6.9 million ($4.3 million after tax) for the three
months ended March 31, 2006 and six months ended June 30, 2006 to
increase the Company's allowance for loan losses due to a provision in
the Deficit Reduction Act that increased risk sharing for student loan
holders by one percent on FFELP loans. Excluding this one-time expense,
GAAP net income, base net income, and adjusted base net income would
have been $1.04 per share, $0.65 per share, and $0.44 per share,
respectively, for the three months ended March 31, 2006 and $1.88 per
share, $1.23 per share, and $0.82 per share, respectively, for the six
months ended June 30, 2006.
(b) 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 877.704.5382 and international callers should dial
913.312.1296 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) August 4. 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 7132804. 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 www.nelnetinvestors.net/releases.cfm?reltype=Financial.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
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JUNE 30, MARCH 31, JUNE 30, JUNE 30, JUNE 30,
2006 2006 2005 2006 2005
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(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Interest income:
Loan interest, excluding variable-rate
floor income $ 383,867 $ 347,522 $ 223,691 $ 731,389 $ 423,798
Amortization of loan premiums and deferred
origination costs (21,125) (21,862) (16,547) (42,987) (32,329)
Investment interest 24,314 19,541 8,150 43,855 15,152
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Total interest income 387,056 345,201 215,294 732,257 406,621
Interest expense:
Interest on bonds and notes payable 300,844 258,949 133,277 559,793 237,802
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Net interest income 86,212 86,252 82,017 172,464 168,819
Less provision for loan losses 2,190 9,618 2,124 11,808 4,155
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Net interest income after provision
for loan losses 84,022 76,634 79,893 160,656 164,664
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Other income (expense):
Loan and guarantee servicing income 44,042 47,074 34,678 91,116 71,854
Other fee-based income 16,074 18,155 9,027 34,229 12,383
Software services income 4,018 3,409 2,602 7,427 4,808
Other income 3,154 1,455 1,524 4,609 2,924
Derivative market value and foreign
currency adjustments 28,865 39,795 (51,372) 68,660 8,918
Derivative settlements, net 6,702 4,744 (6,001) 11,446 (16,087)
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Total other income (expense) 102,855 114,632 (9,542) 217,487 84,800
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Operating expenses:
Salaries and benefits 62,207 57,684 39,977 119,891 79,304
Other expenses 45,904 44,930 32,343 90,834 63,231
Amortization of intangible assets 6,161 5,633 1,559 11,794 2,732
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Total operating expenses 114,272 108,247 73,879 222,519 145,267
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Income (loss) before income taxes 72,605 83,019 (3,528) 155,624 104,197
Income tax expense (benefit) 26,852 30,711 (1,755) 57,563 37,883
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Net income (loss) before minority interest 45,753 52,308 (1,773) 98,061 66,314
Minority interest in net earnings of subsidiaries - (242) - (242) -
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Net income (loss) $ 45,753 $ 52,066 $ (1,773) $ 97,819 $ 66,314
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Earnings (loss) per share, basic and diluted $ 0.84 $ 0.96 $ (0.03) $ 1.80 $ 1.23
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Weighted average shares outstanding 54,297,230 54,241,341 53,712,048 54,269,440 53,697,390
CONDENSED CONSOLIDATED BALANCE SHEETS AND FINANCIAL DATA
AS OF AS OF AS OF
JUNE 30, DECEMBER 31, JUNE 30,
2006 2005 2005
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(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
Assets:
Student loans receivable, net $ 22,404,492 $ 20,260,807 $ 15,661,315
Cash, cash equivalents, and investments 1,974,310 1,645,797 1,110,109
Goodwill 128,236 99,535 65,839
Intangible assets, net 159,918 153,117 34,357
Other assets 874,107 639,366 437,283
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Total assets $ 25,541,063 $ 22,798,622 $ 17,308,903
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Liabilities:
Bonds and notes payable $ 24,327,855 $ 21,673,620 $ 16,580,078
Other liabilities 461,019 474,884 205,155
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Total liabilities 24,788,874 22,148,504 16,785,233
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Minority interest in subsidiaries - 626 -
Shareholders' equity 752,189 649,492 523,670
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Total liabilities and shareholders' equity $ 25,541,063 $ 22,798,622 $ 17,308,903
============== =============== =============
Return on average total assets 0.81% 1.00% 0.82%
Return on average equity 27.4% 32.4% 26.0%
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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 $22.4 billion as of June 30, 2006. 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. For more information see
our filings with the Securities and Exchange Commission.