Mar 03, 2009

Nelnet Reports Year-End and Fourth Quarter 2008 Results; Strong Fee-based Revenue and Improved Liquidity

LINCOLN, Neb., March 3, 2009 /PRNewswire-FirstCall via COMTEX News Network/ -- Nelnet, Inc. (NYSE: NNI) today reported GAAP net income for the fourth quarter of 2008 of $31.0 million, or $0.63 per share, compared with $19.0 million, or $0.39 per share, for the fourth quarter of 2007. Base net income excluding discontinued operations and restructuring, impairment, and certain liquidity related charges for the fourth quarter of 2008 was $15.8 million, or $0.32 per share, compared with $16.6 million, or $0.34 per share, in the fourth quarter of 2007.

GAAP net income for 2008 was $28.7 million, or $0.58 per share, compared with $32.9 million, or $0.66 per share, for 2007. Base net income excluding discontinued operations and legislative, restructuring, impairment, and certain liquidity related charges for 2008 was $81.1 million, or $1.65 per share, compared with $85.3 million, or $1.72 per share, for 2007.

Throughout the year, Nelnet significantly improved its liquidity position by reducing the amount of student loans in its federal student loan warehouse facility from $6.6 billion at December 31, 2007, to $1.4 billion at December 31, 2008.

The company reduced the amount of student loans in this facility by issuing asset-backed securitizations and selling loans. During 2008, the company incurred charges from losses on the sale of loans of $51.4 million, of which $4.0 million were incurred in the fourth quarter. In addition, the company incurred $13.5 million of expenses in the fourth quarter of 2008 related to liquidity contingency planning.

"We are pleased with our 2008 results," said Mike Dunlap, Chairman and Chief Executive Officer of Nelnet. "In one of the most challenging financial environments, we were profitable and improved our financial position. Specifically, our fee-based businesses performed well and have considerable operating margins and growth opportunities."

Last week, the President announced his budget proposal, which includes a request that the federal government originate all education loans through the Direct Lending program and use private corporations only for the servicing of the loans. "While we disagree with this recommendation, the proposal is only the beginning of a budget process that will give us the opportunity to work with Congress to shape the future of the federal student loan programs," said Dunlap. "We believe Congress will see the value of a student loan program that maintains the benefits of choice and competition and does not contribute significantly to the national debt."

Fee-based Businesses

Total revenue from fee-based businesses for the quarter and year ended December 31, 2008 was $68.7 million and $288.0 million, respectively. In recent years, the company has expanded its products and services generated from businesses that are not dependent on the federal student loan program, including the company's enrollment services, tuition payment plan, and campus commerce businesses, in order to reduce legislative risk. In 2008, revenue from these businesses increased $25.0 million, or 20 percent, compared with the same period in 2007.

Margin Analysis

For the fourth quarter of 2008, Nelnet reported net interest income of $38.5 million, compared with $44.3 million for the fourth quarter of 2007. Net interest income for 2008 was $187.9 million compared with $244.6 million for 2007.

The company reported core student loan spread of 0.90 percent for the fourth quarter of 2008 compared with 0.93 percent in the same period of 2007 and 1.02 percent for the third quarter of 2008.

Operating Expenses

Operating expenses were $110.2 million in the fourth quarter of 2008 down from $120.3 million for the same period a year ago. For 2008, operating expenses decreased $95.0 million, or 18 percent, year over year to $440.6 million. Excluding restructuring, impairment, and liquidity related charges, operating expenses decreased $74.7 million, or 16 percent, year over year.

Student Loan Assets

At December 31, 2008, net student loan assets were $25.4 billion. Approximately 90 percent of these student loans are financed to term at rates that the company believes will generate cash flow in excess of $1.4 billion.

In addition, Nelnet has liquidity for new loan originations through the Department of Education's loan participation and put programs, which will allow Nelnet to make loans to all eligible students through the 2009-2010 academic year.

Non-GAAP Performance Measures

A description of base net income and a reconciliation of GAAP net income to base net income can be found in supplemental financial information to this earnings release online at

Nelnet will host a conference call to discuss this earnings release at 3:00 p.m. (Eastern) Today. To access the call live, participants in the United States and Canada should dial 877.795.3610, and international callers should dial 719.325.4799 at least 15 minutes prior to the call. A live audio Webcast of the call will also be available at under the Events & Webcasts menu. A replay of the conference call will be available through March 13, 2009. 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 6429634. A replay of the audio Webcast will also be available at

This press release contains forward-looking statements and information that are based on management's current expectations as of the date of this document. Statements that are not historical facts, including statements about the Company's expectations and statements that assume or are dependent upon future events, are forward-looking statements. These forward-looking statements are subject to risks, uncertainties, assumptions, and other factors that may cause the actual results to be materially different from those reflected in such forward-looking statements. These factors include, among others, changes in the terms of student loans and the educational credit marketplace arising from the implementation of, or changes in, applicable laws and regulations, which may reduce the volume, average term, special allowance payments, and yields on student loans under the Federal Family Education Loan Program (the "FFEL Program" or "FFELP") of the U.S. Department of Education (the "Department") or result in loans being originated or refinanced under non-FFEL programs or may affect the terms upon which banks and others agree to sell FFELP loans to the Company. The Company could also be affected by changes in the demand for educational financing or in financing preferences of lenders, educational institutions, students, and their families; the Company's ability to maintain its credit facilities or obtain new facilities; the ability of lenders under the Company's credit facilities to fulfill their lending commitments under these facilities; changes to the terms and conditions of the liquidity programs offered by the Department; changes in the general interest rate environment and in the securitization markets for education loans, which may increase the costs or limit the availability of financings necessary to initiate, purchase, or carry education loans; losses from loan defaults; changes in prepayment rates, guaranty rates, loan floor rates, and credit spreads; incorrect estimates or assumptions by management in connection with the preparation of the consolidated financial statements; and changes in general economic conditions. Additionally, financial projections may not prove to be accurate and may vary materially. The reader should not place undue reliance on forward-looking statements, which speak only as of the date of this press release.

For more information see the company's filings with the Securities and Exchange Commission. The company is not obligated to publicly release any revisions to forward-looking statements to reflect events after the date of this press release or unforeseen events. Although the company may from time to time voluntarily update its prior forward-looking statements, it disclaims any commitment to do so except as required by securities laws.

    Condensed Consolidated Statements of Income

                               Three months ended           Year ended
                       December    September   December  December   December
                          31,         30,         31,       31,        31,
                         2008        2008        2007      2008       2007
                      (unaudited) (unaudited) (unaudited)
                            (dollars in thousands, except share data)

    Interest income:

      Loan interest     $286,279    304,226    437,128  1,224,678  1,755,064
      Variable rate
       floor income           -       1,580      2,416     42,325      3,013
      Amortization of
       loan premiums
       and deferred
       costs             (21,036)   (21,338)   (23,878)   (90,620)   (91,020)
       interest            8,084      9,118     18,988     37,998     80,219
        Total interest
         income          273,327    293,586    434,654  1,214,381  1,747,276

    Interest expense:
      Interest on bonds
       and notes
       payable           234,868    234,016    390,399  1,026,489  1,502,662

        Net interest
         income           38,459     59,570     44,255    187,892    244,614
    Less provision for
     loan losses           7,000      7,000      4,550     25,000     28,178

        Net interest
         income after
         for loan losses  31,459     52,570     39,705    162,892    216,436

    Other income:
      Loan and guaranty
       servicing income   22,526     30,633     32,953    104,176    128,069
      Other fee-based
       income             46,082     45,887     44,572    178,699    160,888
      Software services
       income              3,892      4,217      5,647     19,757     22,669
      Other income           462      1,242      1,564      4,760     15,612
      Gain (loss) on
       sale of loans      (3,988)        -         309    (51,414)     3,597
      Derivative market
       value, foreign
       currency, and put
       option adjustments 46,348      6,085     14,940     10,827     26,806
       settlements, net    9,668        789     11,577     55,657     18,677
        Total other
         income          124,990     88,853    111,562    322,462    376,318

    Operating expenses:
      Salaries and
       benefits           41,262     44,739     54,621    183,393    236,631
      Other expenses      62,413     52,332     59,256    212,157    219,048
      Amortization of
       intangible assets   6,511      6,598      6,412     26,230     30,426
      Impairment expense      -          -          -      18,834     49,504
        Total operating
         expenses        110,186    103,669    120,289    440,614    535,609

        Income before
         income taxes     46,263     37,754     30,978     44,740     57,145

    Income tax expense    16,103     13,969     11,810     17,896     21,716

        Income from
         operations       30,160     23,785     19,168     26,844     35,429

    Income (loss) from
     net of tax              837         -        (159)     1,818     (2,575)

        Net income       $30,997     23,785     19,009     28,662     32,854

    Earnings per share,
     basic and diluted:
      Income from
       operations          $0.61       0.48       0.39       0.54       0.71
      Income (loss)
       from discontinued
       net of tax           0.02         -          -        0.04      (0.05)
      Net income           $0.63       0.48       0.39       0.58       0.66
    Weighted average
     outstanding      49,075,755 49,176,436 49,047,048 49,099,967 49,618,107

    Condensed Consolidated Balance Sheets and Financial Data

                                          As of        As of         As of
                                       December 31, September 30, December 31,
                                           2008         2008          2007

                                               (dollars in thousands)
      Student loans receivable, net    $25,413,008   26,376,269   26,736,122
      Unrestricted cash and liquid
       investments                         189,847      325,007      111,746
      Restricted cash, cash
       equivalents, and investments      1,158,257    1,129,874    1,009,092
      Goodwill                             175,178      175,178      164,695
      Intangible assets, net                77,054       83,565      112,830
      Other assets                         841,553      880,122    1,028,298
        Total assets                   $27,854,897   28,970,015   29,162,783

      Bonds and notes payable          $26,787,959   28,004,835   28,115,829
      Other liabilities                    423,712      355,450      438,075
        Total liabilities               27,211,671   28,360,285   28,553,904

    Shareholders' equity                   643,226      609,730      608,879
        Total liabilities and
         shareholders' equity          $27,854,897   28,970,015   29,162,783

(Code #: nnif)

SOURCE Nelnet, Inc.

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