U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2004.
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 000-29995
EDUCATION LENDING GROUP, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 33-0851387 | |
| (State or other jurisdiction of incorporation or organization) |
(IRS employer identification number) |
12760 High Bluff Drive,
Suite 210, San Diego, California 92130
(Address of principal executive offices)
(858) 617-6080
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act). YES x NO ¨
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date: Shares of Common Stock, $0.001 par value, outstanding at March 31, 2004: 16,296,337, including treasury shares.
TABLE OF CONTENTS
2
| Item 1. | Financial Statements |
CONSOLIDATED BALANCE SHEETS
| ASSETS | March 31, 2004 |
December 31, 2003 |
||||||
| (Unaudited) | ||||||||
| Student loans, net of loan loss reserve |
$ | 900,700,102 | $ | 540,561,502 | ||||
| Student loans, net of loan loss reserve (securitized) |
2,696,655,319 | 2,750,239,082 | ||||||
| Student loans held for resale at the lower of cost or market |
76,651,150 | 75,441,990 | ||||||
| Restricted cash and investments |
149,022,431 | 141,846,261 | ||||||
| Cash and cash equivalents |
27,426,833 | 33,557,879 | ||||||
| Interest & other receivables |
34,451,863 | 28,191,861 | ||||||
| Property and equipment, net |
1,717,417 | 1,600,606 | ||||||
| Deferred financing costs |
12,038,817 | 12,268,239 | ||||||
| Other |
1,176,853 | 133,448 | ||||||
| Total Assets |
$ | 3,899,840,785 | $ | 3,583,840,868 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY/(DEFICIT) |
||||||||
| Accounts payable |
$ | 2,880,489 | $ | 4,470,680 | ||||
| Government payable Accrued expenses and other liabilities |
|
7,777,357 6,255,650 |
|
|
7,917,689 8,217,111 |
| ||
| Education Loan Backed Notes related to securitized student loans structured as collateralized borrowings |
2,855,535,613 | 2,905,121,844 | ||||||
| Warehouse loan facilities |
1,025,333,858 | 660,353,242 | ||||||
| Total Liabilities |
3,897,782,967 | 3,586,080,566 | ||||||
| Commitments and contingencies—(Note 9) |
— | — | ||||||
| Preferred stock—$0.001 par value, 10,000,000 shares authorized Common stock—$0.001 par value, 40,000,000 shares authorized, 16,296,337 and 15,917,705 shares issued and outstanding, respectively |
16,296 | 15,918 | ||||||
| Additional paid in capital |
42,306,611 | 40,673,609 | ||||||
| Accumulated deficit |
(38,577,705 | ) | (41,548,168 | ) | ||||
| Accumulated other comprehensive loss, net of taxes of $0 |
(1,687,384 | ) | (1,381,057 | ) | ||||
| Total Stockholders’ Equity/(Deficit) |
2,057,818 | (2,239,698 | ) | |||||
| Total Liabilities and Stockholders’ Equity/(Deficit) |
$ | 3,899,840,785 | $ | 3,583,840,868 | ||||
See accompanying notes to consolidated financial statements
3
EDUCATION LENDING GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2004 and 2003
(Unaudited)
| Interest income: | 2004 |
2003 |
|||||
| Student loans, net |
$ | 30,135,859 | $ | 14,712,652 | |||
| Investments |
356,220 | 190,905 | |||||
| 30,492,079 | 14,903,557 | ||||||
| Cost of interest income |
|||||||
| Interest related expenses |
14,714,103 | 8,607,003 | |||||
| Valuation of interest rate swap Loan servicing and other fees |
|
— 1,863,703 |
|
912,702 727,609 |
| ||
| Total cost of interest income |
16,577,806 | 10,247,314 | |||||
| Net interest income |
13,914,273 | 4,656,243 | |||||
| Less: provision for loan losses |
437,523 | 554,630 | |||||
| Net interest income after provision for loan losses |
13,476,750 | 4,101,613 | |||||
| Other income |
|||||||
| Gain on sale of student loans |
2,426,546 | 7,741,418 | |||||
| Other |
58,011 | 7,045 | |||||
| Total other income |
2,484,557 | 7,748,463 | |||||
| Operating expenses: |
|||||||
| General and administrative |
2,528,930 | 1,898,913 | |||||
| Servicing |
164,103 | — | |||||
| Sales and marketing |
10,192,858 | 11,509,951 | |||||
| Total operating expenses |
12,885,891 | 13,408,864 | |||||
| Income/(loss) before income tax provision |
3,075,416 | (1,558,788 | ) | ||||
| Income tax provision |
104,953 | 36,056 | |||||
| Net income/(loss) |
$ | 2,970,463 | $ | (1,594,844 | ) | ||
| Net income/(loss) per share: |
|||||||
| Basic |
$ | 0.19 | $ | (0.14 | ) | ||
| Diluted |
$ | 0.16 | $ | (0.14 | ) | ||
| Weighted average common shares outstanding: |
|||||||
| Basic |
15,980,461 | 11,311,164 | |||||
| Diluted |
18,493,415 | 11,311,164 | |||||
See accompanying notes to consolidated financial statements
4
EDUCATION LENDING GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY/(DEFICIT)
For the Three Months Ended March 31, 2004
(Unaudited)
| Common Stock |
|||||||||||||||||||||||||
| Number of Shares |
Amount |
Additional Paid in Capital |
Accumulated Deficit |
Accumulated Other Comprehensive Loss |
Total |
Total Comprehensive Income |
|||||||||||||||||||
| Balance, December 31, 2003 |
15,917,705 | $ | 15,918 | $ | 40,673,609 | $ | (41,548,168 | ) | $ | (1,381,057 | ) | $ | (2,239,698 | ) | |||||||||||
| Exercise of options and warrants |
378,632 | 378 | 776,896 | — | — | 777,274 | |||||||||||||||||||
| Performance-based option vesting |
— | — | 861,145 | — | — | 861,145 | |||||||||||||||||||
| 2003 Secondary offering-additional issuance costs |
— | — | (5,039 | ) | — | — | (5,039 | ) | |||||||||||||||||
| Other comprehensive loss |
— | — | — | — | (306,327 | ) | (306,327 | ) | $ | (306,327 | ) | ||||||||||||||
| Net income |
— | — | — | 2,970,463 | — | 2,970,463 | 2,970,463 | ||||||||||||||||||
| Balance at March 31, 2004 |
16,296,337 | $ | 16,296 | $ | 42,306,611 | $ | (38,577,705 | ) | $ | (1,687,384 | ) | $ | 2,057,818 | $ | 2,664,136 | ||||||||||
See accompanying notes to consolidated financial statements
5
EDUCATION LENDING GROUP, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2004 and 2003
(Unaudited)
| 2004 |
2003 |
|||||||
| Cash Flows From Operating Activities: |
||||||||
| Net income/(loss) |
$ | 2,970,463 | $ | (1,594,844 | ) | |||
| Adjustments to reconcile net loss to net cash used by operations: |
||||||||
| Depreciation, amortization and other non-cash charges |
1,665,275 | 294,230 | ||||||
| Loan loss reserve |
437,523 | 554,630 | ||||||
| Valuation of interest rate swap |
— | 912,702 | ||||||
| (Increase) decrease in assets: |
||||||||
| Interest and other receivables |
(6,260,002 | ) | (4,365,026 | ) | ||||
| Other assets |
(889,999 | ) | 329,118 | |||||
| Increase (decrease) in liabilities: |
||||||||
| Accounts payable |
(1,590,190 | ) | 3,379,628 | |||||
| Government payable |
(140,332 | ) | 1,054,661 | |||||
| Accrued expenses and other liabilities |
(2,035,439 | ) | (1,256,735 | ) | ||||
| Net cash used by operating activities |
(5,842,701 | ) | (691,636 | ) | ||||
| Cash flows from investing activities: |
||||||||
| Purchase/origination of student loans |
(407,403,001 | ) | (445,194,159 | ) | ||||
| Sales of student loans |
98,785,491 | — | ||||||
| Acquisition of property and equipment |
(314,521 | ) | (176,717 | ) | ||||
| Acquisition of intangible assets |
(63,406 | ) | — | |||||
| Other investments |
(90,000 | ) | — | |||||
| Net cash used in investing activities |
(309,085,437 | ) | (445,370,876 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Net proceeds from credit facility |
369,123,451 | 471,601,403 | ||||||
| Net proceeds from Education Loan Backed |
||||||||
| Notes related to securitized student loans structured as collateralized borrowings |
(60,905,237 | ) | (21,525,554 | ) | ||||
| Costs related to securitizations |
(193,357 | ) | (582,241 | ) | ||||
| Proceeds from issuance of stock |
772,235 | 173,816 | ||||||
| Net cash provided by financing activities |
308,797,092 | 449,667,424 | ||||||
| Net increase/(decrease) in cash |
(6,131,046 | ) | 3,604,912 | |||||
| Cash and cash equivalents at beginning of period |
33,557,879 | 2,042,527 | ||||||
| Cash and cash equivalents at end of period |
$ | 27,426,833 | $ | 5,647,439 | ||||
| Supplemental Information |
||||||||
| Cash paid for interest |
$ | 11,261,949 | $ | 5,064,124 | ||||
| Cash paid for taxes |
$ | 40,957 | $ | 36,056 | ||||
See accompanying notes to consolidated financial statements
6
Education Lending Group, Inc.
Notes to Consolidated Financial Statements
March 31, 2004
(Unaudited)
Note 1—Summary of Organization
Organization—Education Lending Group, Inc., (“Education Lending Group,” “we,” “our Company,” “our” and “us”) was incorporated in Delaware on March 26, 1999. Our Company was formed to identify and acquire enterprises in the student loan business. Without consummating any acquisitions, in September 2001, through Education Lending Services, Inc. and Education Funding Resources, LLC, we began operations related to marketing, originating, and purchasing student loans. Through these subsidiaries, we originate or purchase Federal Family Education Loan Program (FFELP) student loans that are eligible for guarantee from the Department of Education (DOE), federally sponsored consolidation loans and other eligible student loans. We have in place two warehouse loan facilities with financial institutions which we use to facilitate originating and purchasing student loans. On a periodic basis, we complete student loan securitizations to pay down the warehouse facility and finance our loans on a permanent basis.
Education Lending Services, Inc., a wholly-owned subsidiary of our Company, was incorporated in Delaware on October 3, 2000. Currently, Education Lending Services, Inc.’s business is focused on the origination of consolidation loans and Parent Loans to Undergraduate Students (PLUS).
Education Funding Resources, LLC was formed in Delaware on July 19, 2001. Education Lending Services, Inc. is the sole equity member of Education Funding Resources, LLC. Education Funding Resources, LLC is a special purpose bankruptcy remote entity that was formed in order to facilitate the student loan origination and funding process and the secondary market acquisitions of student loans.
Student Loan Xpress, Inc., a wholly-owned subsidiary of our Company, was incorporated in Delaware on November 1, 2000 and began operations in November, 2001. Student Loan Xpress, Inc.’s business is primarily focused on development of the traditional schoo