2017 Q3 Form 10-Q Financial Statement

#000125860217000045 Filed on November 07, 2017

View on sec.gov

Income Statement

Concept 2017 Q3 2016 Q3
Revenue $0.00 $0.00
YoY Change
Cost Of Revenue $17.78M $0.00
YoY Change -100.0%
Gross Profit -$17.78M $0.00
YoY Change -100.0%
Gross Profit Margin
Selling, General & Admin $74.20M $63.70M
YoY Change 16.48% -15.85%
% of Gross Profit
Research & Development
YoY Change
% of Gross Profit
Depreciation & Amortization $7.700M $5.800M
YoY Change 32.76% 26.09%
% of Gross Profit
Operating Expenses $121.8M $106.8M
YoY Change 14.02% -11.7%
Operating Profit -$139.5M -$106.8M
YoY Change 30.67% -19.27%
Interest Expense $121.7M $96.39M
YoY Change 26.21% 24.91%
% of Operating Profit
Other Income/Expense, Net $29.50M $26.39M
YoY Change 11.78% -16.49%
Pretax Income $69.10M $132.1M
YoY Change -47.68% 73.84%
Income Tax $25.56M $47.72M
% Of Pretax Income 36.99% 36.13%
Net Earnings $46.30M $84.29M
YoY Change -45.07% 72.19%
Net Earnings / Revenue
Basic Earnings Per Share
Diluted Earnings Per Share $1.113M $1.979M
COMMON SHARES
Basic Shares Outstanding
Diluted Shares Outstanding

Balance Sheet

Concept 2017 Q3 2016 Q3
SHORT-TERM ASSETS
Cash & Short-Term Investments $254.0M $67.00M
YoY Change 279.1% -41.23%
Cash & Equivalents $254.4M $67.15M
Short-Term Investments
Other Short-Term Assets
YoY Change
Inventory
Prepaid Expenses
Receivables $71.00M $53.00M
Other Receivables $396.0M $382.0M
Total Short-Term Assets $721.0M $502.0M
YoY Change 43.63% -98.28%
LONG-TERM ASSETS
Property, Plant & Equipment $208.4M $107.5M
YoY Change 93.89% 130.17%
Goodwill $147.3M $147.3M
YoY Change 0.0% 16.73%
Intangibles $40.74M $50.96M
YoY Change -20.06% 44.02%
Long-Term Investments $277.0M $258.0M
YoY Change 7.36% 9.32%
Other Assets $831.0M $964.0M
YoY Change -13.8% -3.12%
Total Long-Term Assets $24.05B $27.17B
YoY Change -11.48% 1320.61%
TOTAL ASSETS
Total Short-Term Assets $721.0M $502.0M
Total Long-Term Assets $24.05B $27.17B
Total Assets $24.77B $27.67B
YoY Change -10.48% -10.87%
SHORT-TERM LIABILITIES
YoY Change
Accounts Payable $105.0M $92.00M
YoY Change 14.13% -8.0%
Accrued Expenses $48.00M $43.00M
YoY Change 11.63% 34.38%
Deferred Revenue
YoY Change
Short-Term Debt $0.00 $0.00
YoY Change
Long-Term Debt Due
YoY Change
Total Short-Term Liabilities $153.0M $135.0M
YoY Change 13.33% 2.27%
LONG-TERM LIABILITIES
Long-Term Debt $22.24B $25.32B
YoY Change -12.17% -12.17%
Other Long-Term Liabilities $245.0M $233.0M
YoY Change 5.15% -7.17%
Total Long-Term Liabilities $22.49B $25.55B
YoY Change -12.01% -12.12%
TOTAL LIABILITIES
Total Short-Term Liabilities $153.0M $135.0M
Total Long-Term Liabilities $22.49B $25.55B
Total Liabilities $22.64B $25.69B
YoY Change -11.87% -12.06%
SHAREHOLDERS EQUITY
Retained Earnings $2.107B $1.972B
YoY Change 6.85% 7.73%
Common Stock
YoY Change
Preferred Stock
YoY Change
Treasury Stock (at cost)
YoY Change
Treasury Stock Shares
Shareholders Equity $2.112B $1.972B
YoY Change
Total Liabilities & Shareholders Equity $24.77B $27.67B
YoY Change -10.48% -10.87%

Cashflow Statement

Concept 2017 Q3 2016 Q3
OPERATING ACTIVITIES
Net Income $46.30M $84.29M
YoY Change -45.07% 72.19%
Depreciation, Depletion And Amortization $7.700M $5.800M
YoY Change 32.76% 26.09%
Cash From Operating Activities $98.20M $83.60M
YoY Change 17.46% -27.56%
INVESTING ACTIVITIES
Capital Expenditures -$35.90M -$17.20M
YoY Change 108.72% 421.21%
Acquisitions
YoY Change
Other Investing Activities $734.2M $1.052B
YoY Change -30.2% 99.54%
Cash From Investing Activities $698.3M $1.035B
YoY Change -32.51% 97.52%
FINANCING ACTIVITIES
Cash Dividend Paid
YoY Change
Common Stock Issuance & Retirement, Net
YoY Change
Debt Paid & Issued, Net
YoY Change
Cash From Financing Activities -611.3M -1.110B
YoY Change -44.94% 57.02%
NET CHANGE
Cash From Operating Activities 98.20M 83.60M
Cash From Investing Activities 698.3M 1.035B
Cash From Financing Activities -611.3M -1.110B
Net Change In Cash 185.2M 7.900M
YoY Change 2244.3% -111.63%
FREE CASH FLOW
Cash From Operating Activities $98.20M $83.60M
Capital Expenditures -$35.90M -$17.20M
Free Cash Flow $134.1M $100.8M
YoY Change 33.04% -15.08%

Facts In Submission

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<div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Basis of Financial Reporting</font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The accompanying unaudited consolidated financial statements of Nelnet, Inc. and subsidiaries (the &#8220;Company&#8221;) as of </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">September&#160;30, 2017</font><font style="font-family:inherit;font-size:10pt;"> and for the </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">three and nine</font><font style="font-family:inherit;font-size:10pt;"> months ended </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">September 30, 2017 and 2016</font><font style="font-family:inherit;font-size:10pt;"> have been prepared on the same basis as the audited consolidated financial statements for the year ended </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">December&#160;31, 2016</font><font style="font-family:inherit;font-size:10pt;"> and, in the opinion of the Company&#8217;s management, the unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of results of operations for the interim periods presented. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">three and nine</font><font style="font-family:inherit;font-size:10pt;"> months ended </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">September&#160;30, 2017</font><font style="font-family:inherit;font-size:10pt;"> are not necessarily indicative of the results for the year ending </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">December&#160;31, 2017</font><font style="font-family:inherit;font-size:10pt;">. The unaudited consolidated financial statements should be read in conjunction with the Company&#8217;s Annual Report on Form 10-K for the year ended </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">December&#160;31, 2016</font><font style="font-family:inherit;font-size:10pt;"> (the "</font><font style="font-family:inherit;font-size:10pt;">2016</font><font style="font-family:inherit;font-size:10pt;"> Annual Report").</font></div><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Consolidation</font></div><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The consolidated financial statements include the accounts of Nelnet, Inc. and its consolidated subsidiaries. In addition, the accounts of all variable interest entities (&#8220;VIEs&#8221;) of which the Company has determined that it is the primary beneficiary are included in the consolidated financial statements. All significant intercompany balances and transactions have been eliminated in consolidation.</font></div><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;padding-bottom:10px;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Variable Interest Entities</font></div><div style="line-height:120%;padding-bottom:10px;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The following entities are VIEs of which the Company has determined that it is the primary beneficiary. The primary beneficiary is the entity which has both: (1) the power to direct the activities of the VIE that most significantly impact the VIE's economic performance, and (2) the obligation to absorb losses or receive benefits of the entity that could potentially be significant to the VIE. </font></div><div style="line-height:120%;padding-bottom:10px;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company's education lending subsidiaries are engaged in the securitization of education finance assets. These education lending subsidiaries hold beneficial interests in eligible loans, subject to creditors with specific interests. The liabilities of the Company's education lending subsidiaries are not the direct obligations of Nelnet, Inc. or any of its other subsidiaries. Each education lending subsidiary is structured to be bankruptcy remote, meaning that it should not be consolidated in the event of bankruptcy of the parent company or any other subsidiary. The Company is generally the administrator and master servicer of the securitized assets held in its education lending subsidiaries and owns the residual interest of the securitization trusts. As a result, for accounting purposes, the transfers of student loans to the securitization trusts do not qualify as sales. Accordingly, all the financial activities and related assets and liabilities, including debt, of the securitizations are reflected in the Company's consolidated financial statements and are summarized as supplemental information on the balance sheet.</font></div><div style="line-height:120%;padding-bottom:10px;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company owns </font><font style="font-family:inherit;font-size:10pt;">91.5 percent</font><font style="font-family:inherit;font-size:10pt;"> of the economic rights of Allo Communications LLC ("Allo") and has a disproportional </font><font style="font-family:inherit;font-size:10pt;">80 percent</font><font style="font-family:inherit;font-size:10pt;"> of the voting rights related to all operating decisions for Allo's business. Allo management, as current minority members, has the opportunity to earn an additional </font><font style="font-family:inherit;font-size:10pt;">11.5 percent</font><font style="font-family:inherit;font-size:10pt;"> of the total ownership interests based on the financial performance of Allo. In addition to the Company&#8217;s equity investment, Nelnet, Inc. (the parent) issued a </font><font style="font-family:inherit;font-size:10pt;">$200.0 million</font><font style="font-family:inherit;font-size:10pt;"> line of credit to Allo on December 30, 2015. On September 30, 2017, the line of credit was increased by </font><font style="font-family:inherit;font-size:10pt;">$70.0 million</font><font style="font-family:inherit;font-size:10pt;"> to a total of </font><font style="font-family:inherit;font-size:10pt;">$270.0 million</font><font style="font-family:inherit;font-size:10pt;">. As of </font><font style="font-family:inherit;font-size:10pt;">September&#160;30, 2017</font><font style="font-family:inherit;font-size:10pt;">, the outstanding balance and accrued interest on the line of credit was </font><font style="font-family:inherit;font-size:10pt;">$144.5 million</font><font style="font-family:inherit;font-size:10pt;"> and </font><font style="font-family:inherit;font-size:10pt;">$4.6 million</font><font style="font-family:inherit;font-size:10pt;">, respectively. Nelnet, Inc.&#8217;s maximum exposure to loss as a result of its involvement with Allo is equal to its equity investment and the outstanding balance and accrued interest on the line of credit. The amounts owed by Allo to Nelnet, Inc., including the interest costs incurred by Allo and interest earnings recognized by Nelnet, Inc., are not reflected in the Company&#8217;s consolidated balance sheet as they were eliminated in consolidation. All of Allo&#8217;s financial activities and related assets and liabilities, excluding the line of credit, are reflected in the Company&#8217;s consolidated financial statements. See note 10, "Segment Reporting," for disclosure of Allo's total assets and results of operations (included in the "Communications" operating segment), note 7, "Goodwill," for disclosure of Allo's goodwill, and note 8, &#8220;Property and Equipment,&#8221; for disclosure of Allo&#8217;s fixed assets. Allo's goodwill and property and equipment comprise the majority of its assets. The assets recognized as a result of consolidating Allo are the property of Allo and are not available for any other purpose, other than to Nelnet, Inc. as a secured lender under Allo's line of credit.</font></div><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Noncontrolling Interest</font></div><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Nelnet Servicing, LLC ("Nelnet Servicing"), a subsidiary of the Company, and Great Lakes Educational Loan Services, Inc. ("Great Lakes") created a joint venture to respond to the initiative announced by the U.S. Department of Education (the "Department") in April 2016 for the procurement of a contract for federal student loan servicing to acquire a single servicing platform to manage all loans owned by the Department.&#160; The joint venture operates as a new legal entity called GreatNet Solutions, LLC (&#8220;GreatNet&#8221;).&#160; Nelnet Servicing and Great Lakes each own </font><font style="font-family:inherit;font-size:10pt;">50 percent</font><font style="font-family:inherit;font-size:10pt;"> of the ownership interests in GreatNet.&#160; See note 11 for additional information on the contract procurement process.&#160; </font></div><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">During the first and third quarters of 2017, Nelnet Servicing and Great Lakes each contributed </font><font style="font-family:inherit;font-size:10pt;">$12.6 million</font><font style="font-family:inherit;font-size:10pt;"> and </font><font style="font-family:inherit;font-size:10pt;">$6.5 million</font><font style="font-family:inherit;font-size:10pt;">, respectively, to GreatNet and during the first quarter of 2017 GreatNet began to incur certain operating costs. For financial reporting purposes, the balance sheet and operating results of GreatNet are included in the Company&#8217;s consolidated financial statements and presented in the Company&#8217;s Loan Systems and Servicing operating segment.&#160; The proportionate share of membership interest (equity) and net loss of GreatNet that is attributable to Great Lakes is reflected as noncontrolling interests in the consolidated financial statements.</font></div><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">On October 18, 2017, the Company entered into an agreement to purchase </font><font style="font-family:inherit;font-size:10pt;">100 percent</font><font style="font-family:inherit;font-size:10pt;"> of the outstanding stock of Great Lakes. See note 14, "Subsequent Events" for additional information on this business acquisition agreement.</font></div><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">For a description of other entities in which the Company reflects noncontrolling interests in its consolidated financial statements, see note 2 of the notes to consolidated financial statements included in the </font><font style="font-family:inherit;font-size:10pt;">2016</font><font style="font-family:inherit;font-size:10pt;"> Annual Report.</font></div></div>
us-gaap Revenue Recognition Interest
RevenueRecognitionInterest
<div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company recognizes student loan interest income as earned, net of amortization of loan premiums and deferred origination costs and the accretion of loan discounts. Loan interest income is recognized based upon the expected yield of the loan after giving effect to interest rate reductions resulting from borrower utilization of incentives such as timely payments ("borrower benefits") and other yield adjustments. Loan premiums or discounts, deferred origination costs, and borrower benefits are amortized/accreted over the estimated life of the loans, which includes an estimate of forecasted payments in excess of contractually required payments. The Company periodically evaluates the assumptions used to estimate the life of the loans and prepayment rates. In instances where there are changes to the assumptions, amortization/accretion is adjusted on a cumulative basis to reflect the change since the acquisition of the loan.</font></div><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;&#160;</font></div><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">In the third quarter of 2016, the Company revised its policy to correct for an error in its method of applying the interest method used to amortize premiums and deferred origination costs and accrete discounts on its student loan portfolio. Previously, the Company amortized premiums and deferred origination costs and accreted discounts by including in its prepayment assumption forecasted payments in excess of contractually required payments as well as forecasted defaults. The Company has determined that only payments in excess of contractually required payments (excluding forecasted defaults) should be included in the prepayment assumption. Under the Company's revised policy, as of September 30, 2016, the constant prepayment rate used by the Company to amortize/accrete student loan premiums/discounts was decreased. The constant prepayment rates under the Company's revised policy are </font><font style="font-family:inherit;font-size:10pt;">5 percent</font><font style="font-family:inherit;font-size:10pt;"> for Stafford loans and </font><font style="font-family:inherit;font-size:10pt;">3 percent</font><font style="font-family:inherit;font-size:10pt;"> for Consolidation loans. The constant prepayment rates under the Company's prior policy in effect before this correction were </font><font style="font-family:inherit;font-size:10pt;">6 percent</font><font style="font-family:inherit;font-size:10pt;"> and </font><font style="font-family:inherit;font-size:10pt;">4 percent</font><font style="font-family:inherit;font-size:10pt;">, respectively.</font></div></div>

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