UNITED STATES
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 June 30, 1999
----------------
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the transition period from ______________________________________________
Commission file number __ 333-08929____________________
UNION FINANCIAL SERVICES-1, INC.
---------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 86-0817755
------------- ----------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
1801 California Street, Suite 3920, Denver, Colorado 80202
----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(303) 292-6930
---------------------
(Registrant's telephone number, including area code)
N/A
-----------------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
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 __
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date.
Class of Stock Amount Outstanding
--------------- ------------------
Common Stock, No par value 1,000 Shares of Common Stock
as of August 1, 1999
1
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UNION FINANCIAL SERVICES-1, INC.
INDEX
Page No.
PART I. - FINANCIAL INFORMATION
Item 1.Financial Statements
Balance Sheets as of June 30, 1999 and
December 31, 1998........................................3
Statements of Operations for the three months ended
and six months ended June 30, 1999 and 1998..............4
Statements of Stockholder's Equity for the six months
ended June 30, 1999......................................5
Statements of Cash Flows for the six months ended
June 30, 1999 and 1998...................................6
Note to Financial Statements...............................7
Item 2.Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................8
Item 3.Quantitative and Qualitative Disclosures About Market Risk ...........9
PART II. - OTHER INFORMATION
Item 1.Legal Proceedings....................................................12
Item 2.Changes in Securities................................................12
Item 3.Defaults upon Senior Securities......................................12
Item 4.Submission of Matters to a Vote of Security Holders..................12
Item 5.Other Information....................................................12
Item 6.Exhibits and Reports on Form 8-K.....................................12
2
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<TABLE>
<CAPTION>
UNION FINANCIAL SERVICES-1, INC.
BALANCE SHEETS
June 30, 1999 and December 31, 1998
- --------------------------------------------------------------------------------------------
ASSETS June 30, December 31,
1999 1998
(Unaudited)
--------------- -----------------
<S> <C> <C>
Cash and cash equivalents $ 58,426,373 $ 664,815,085
Student loans receivable including net premiums, net of
allowance for loan losses 1,232,294,509 639,740,073
Accrued interest receivable 23,265,540 11,110,808
Debt issuance cost, net of accumulated amortization 6,447,463 6,698,845
Other assets 726,651 199,506
-------------- -------------
Total assets $1,321,160,536 $1,322,564,317
============== ==============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Notes payable $1,310,500,000 $1,316,500,000
Accrued interest payable 3,406,344 3,725,622
Income taxes payable -- 146,270
Other liabilities 1,657,599 1,139,945
-------------- -------------
Total liabilities $1,315,563,943 $1,321,511,837
-------------- --------------
Stockholder's equity:
Common stock, no par value. Authorized 1,000 shares;
issued 1,000 shares $ 1,000 $ 1,000
Additional Paid in Capital 1,920,000 --
Retained earnings 3,675,593 1,051,480
-------------- -------------
Total stockholder's equity 5,596,593 1,052,480
-------------- -------------
Total liabilities and stockholder's equity $1,321,160,536 $1,322,564,317
============== ==============
See accompanying notes to financial statements.
</TABLE>
3
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<TABLE>
<CAPTION>
UNION FINANCIAL SERVICES - 1, INC.
STATEMENTS OF OPERATIONS
Three months ended and six months ended June 30, 1999 and 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
--------------------------- ----------------------------
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
Revenues: ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Loan interest $25,065,909 $11,016,122 $50,135,562 $21,738,803
Investment interest 670,322 294,344 2,301,693 653,521
Other 89,621 35,055 161,006 46,282
---------- ----------- ---------- ----------
Total revenues 25,825,852 11,345,521 52,598,261 22,438,606
---------- ----------- ---------- ----------
Expenses:
Interest on notes 17,477,214 8,282,127 33,756,996 16,529,763
Loan servicing 2,755,373 1,362,202 5,392,264 2,686,384
Financing fees to parent 1,234,196 238,951 1,694,280 470,163
Trustee and broker fees 525,206 233,863 1,011,480 460,996
Amortization of debt issuance costs 324,897 124,387 644,667 248,773
Amortization of loan premiums 1,195,068 583,359 2,558,768 960,185
Other general and administrative 1,769,414 413,239 3,351,278 856,269
--------- ------- --------- -------
Total expenses 25,281,368 11,238,128 48,404,733 22,212,533
---------- ---------- ---------- ----------
Income before income taxes 544,484 107,393 4,188,528 226,073
Income tax expense 203,365 39,198 1,564,415 82,517
------- ------ --------- ------
Net Income $341,119 $68,195 $2,624,113 $143,556
======== ======= ========== ========
See accompanying notes to financial statements.
</TABLE>
4
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<TABLE>
<CAPTION>
UNION FINANCIAL SERVICES-1, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
Six months ended June 30, 1999 (Unaudited)
- ---------------------------------------------------------------------------------------------
ADDITIONAL TOTAL
COMMON STOCK PAID IN RETAINED STOCKHOLDER'S
CAPITAL EARNINGS EQUITY
------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
Balances at December 31, 1998 $1,000 -- $1,051,480 $1,052,480
Capital contribution from Parent -- 1,920,000 -- 1,920,000
----- --------- --------- ---------
Net income, six months ended June
30, 1999 -- 2,624,113 2,624,113
----- --------- --------- ---------
Balance at June 30, 1999 $1,000 $1,920,000 $3,675,593 $5,596,593
===== ========== =========== ==========
See accompanying notes to financial statements.
</TABLE>
5
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<TABLE>
<CAPTION>
UNION FINANCIAL SERVICES - 1, INC.
STATEMENTS OF CASH FLOWS
Six months ended June 30, 1999 and 1998
(Unaudited)
- ----------------------------------------------------------------------------------------
1999 1998
---- ----
<S> <C> <C>
Net income $ 2,624,113 $ 143,556
Adjustments to reconcile net income to net cash
used in operating activities:
Amortization 3,203,435 1,208,958
Provision for loan losses, net of charge offs 367,821 210,583
Increase in accrued interest receivable (12,154,733) (1,206,858)
(Increase) decrease in other assets 46,107 (37,990)
Increase (decrease) in accrued interest payable (319,278) 23,014
Increase (decrease) in other liabilities 517,654 (372,986)
Decrease in income tax payable (719,521) (354,231)
--------- ---------
Net cash used in operating activities (6,434,402) (385,954)
--------- ---------
Cash flows used in investing activities:
Purchase of student loans, including premiums (691,844,677) (56,244,000)
Proceeds from student loan principal sales 16,590,748 664,772
Net proceeds from student loan principal payments and
loan consolidations 79,772,905 32,170,335
------------ ------------
Net cash used in investing activities (595,481,084) (23,408,893)
------------ ------------
Cash flows provided by financing activities:
Capital contribution from parent 1,920,000
Payments on debt (6,000,000) -
Debt issuance costs (393,286) -
---------- ----------
Net cash used in financing activities (4,473,286) -
---------- ----------
Net decrease in cash and cash equivalents (606,388,712) (23,794,847)
----------- ----------
Cash and cash equivalents, beginning of period 664,815,085 39,542,382
Cash and cash equivalents , end of period 58,426,373 15,747,485
========== ==========
See accompanying notes to financial statements.
</TABLE>
6
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UNION FINANCIAL SERVICES - 1, INC.
NOTE TO FINANCIAL STATEMENTS (Unaudited)
June 30, 1999
(1) BASIS OF PRESENTATION
The accompanying financial statements of Union Financial Services-1,
Inc. (the "Company") have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission ("SEC") and, in the opinion of
management, include all adjustments necessary for a fair statement of income for
each period shown. All such adjustments made are of a normal recurring nature,
except when noted as extraordinary or nonrecurring. The balance sheet at
December 31, 1998 is derived from the audited balance sheet as of that date. All
other financial statements are unaudited. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to SEC rules and regulations. Management believes that the disclosures
made are adequate and that the information is fairly presented. The results for
the interim periods are not necessarily indicative of the results for the full
year. These financial statements should be read in conjunction with the
financial statements and notes thereto in the Company's Annual Report on Form
10-K, which are incorporated by reference.
(2) SUBSEQUENT EVENT
In July 1999, the company issued Taxable Student Loan Asset-Backed
Auction Rate Certificate Notes in the aggregate principal amount of
approximately $278 million. The Company used the net proceeds of the offering to
purchase student loans. All of the student loans were purchased from related
parties at prices equivalent to those available in the market.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OR OPERATIONS.
General
The Company was formed on February 28, 1996, solely for the purpose of
acquiring, holding and selling from time to time student loans originated under
the Federal Family Education Loan Program created by the Higher Education Act of
1965, as amended. The Company finances its purchases of student loans through
the issuance of student loan asset-backed notes (the "Notes"). The Notes are
limited obligations of the Company secured solely by the student loans and other
assets in the trust estate created by the Indenture of Trust governing the
issuance of the Notes.
The assets of the Company consist primarily of student loans. At June
30, 1999, the Company held approximately $1.2 billion in student loans. On July
1, 1999, the Company issued $278,700,000 of its Series 1999 Notes and used the
proceeds to purchase approximately $277 million of student loans, including
approximately $6 million of purchased interest and $6 million of loan premiums.
All of those loans were purchased from related parties at prices equivalent to
those available in the market.
Results of Operations
Three months ended June 30, 1999 compared to three months ended June 30, 1998
- -----------------------------------------------------------------------------
Revenues. Revenues for the three months ended June 30, 1999, consisted
primarily of interest earned on student loans. Revenues from interest on student
loans increased by $14,049,787 from $11,016,122 for the three months ended June
30, 1998 to $25,065,909 for the three months ended June 30, 1999. The increase
in revenues is attributable to the acquisition of additional student loans by
the Company in the fourth quarter of 1998 and the first quarter of 1999. The
amount of interest reported for the three months ended June 30, 1999 was derived
from student loans in an aggregate principal amount of approximately
$1,210,827,000. The Company's average net investment in student loans during the
three months ended June 30, 1999 and June 30, 1998 was approximately
$1,192,980,000 and $531,851,000 respectively (excluding funds held by the
Trustee) and the average effective annual interest rate of interest income on
student loans during the three months ended June 30, 1999 and June 30, 1998 was
approximately 8.40% and 8.29% respectively. The Company also earned investment
income and other income in the amounts of $670,322 and $89,621, respectively,
for the three months ended June 30, 1999 and $294,344 and $35,055, respectively,
for the three months ended June 30, 1998.
Expenses. The Company's expenses consisted primarily of interest due on
the Company's outstanding Notes. Expenses from interest due on the Company's
outstanding Notes increased by $9,195,087 from $8,282,127 for the three months
ended June 30, 1998 to $17,477,214 for the three months ended June 30, 1999.
This increase in expenses is attributable to the issuance of additional Notes in
the fourth quarter of 1998. For the three months ended June 30, 1999 and June
30, 1998, the Company's average debt outstanding was approximately
$1,313,533,000 and $571,500,000, respectively, and the average annual cost of
borrowings was approximately 5.32% and 5.80% respectively. The Company also
incurred loan servicing fees to Union Bank and Trust Company and financing fees
to Union Financial Services, Inc., its parent company, in the amount of
$2,755,373 and $1,234,196, respectively, for the three months ended June 30,
1999 as compared to $1,362,202 and $238,951 respectively, for the three months
ended June 30, 1998. The increase in loan servicing fees is directly related to
8
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the servicing of additional student loans and the increase in financing fees is
directly related to increased financing activity. Trustee and broker fees,
amortization of debt issuance costs and amortization of loan premiums amounted
to $525,206, $324,897, and $1,195,068, respectively, for the three months ended
June 30, 1999 as compared to $233,863, $124,387 and $583,359, respectively, for
the three months ended June 30, 1998. Other general and administrative expenses
amounted to $1,769,414 for the three months ended June 30, 1999 as compared to
$413,239 for the three months ended June 30, 1998. The increase in these
expenses directly relates to the increased activity of the Company's business.
Income tax expense amounted to $203,365 for the three months ended June 30, 1999
compared to $39,198 for the three months ended June 30, 1998. The increase in
tax expense was a result of higher net income before income taxes for the three
months ended June 30, 1999.
Net Income. The Company had net income of $341,119 for the three months
ended June 30, 1999 and $68,195 for the three months ended June 30, 1998.
For the three months ended June 30, 1999, there were no unusual or
infrequent events or transactions or any significant economic dangers that
materially affected the amount of reported income.
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
- -------------------------------------------------------------------------
Revenues. Revenues for the six months ended June 30, 1999, consisted
primarily of interest earned on student loans. Revenues from interest on student
loans increased by approximately $28,397,000 from $21,738,803 for the six months
ended June 30, 1998 to $50,135,562 for the six months ended June 30, 1999. The
increase in revenues is directly attributable to the acquisition of additional
student loans by the Company in the fourth quarter of 1998 and the first quarter
of 1999. The amount of interest reported for the six months ended June 30, 1999
was derived from student loans in an aggregate principal amount of approximately
$1,210,827,000. The Company's average net investment in student loans during the
six months ended June 30, 1999 and June 30, 1998 was approximately
$1,198,907,000 and $526,130,000, respectively (excluding funds held by the
Trustee) and the average effective annual interest rate of interest income on
student loans during the six months ended June 30, 1999 and June 30, 1998 was
approximately 8.36% and 8.26%, respectively. The Company also earned investment
income and other income in the amounts of $2,301,693 and $161,006 respectively,
for the six months ended June 30, 1999 and $653,521 and $46,272, respectively,
for the six months ended June 30, 1998.
Expenses. The Company's expenses consisted primarily of interest due on
the Company's outstanding Notes. Interest expense on the Company's outstanding
Notes increased by $17,227,233 from $16,529,763 for the six months ended June
30, 1998 to $33,756,996 for the six months ended June 30, 1999. This increase in
expenses is directly attributable to the issuance of additional Notes in the
fourth quarter of 1998. The Company's average debt outstanding was approximately
$1,313,533,000 and the average annual cost of borrowings was approximately 5.13%
for the six months ended June 30, 1999. The Company also made payments for loan
servicing fees to Union Bank and Trust Company and financing fees to Union
Financial Services, Inc. in the amount of $5,392,264 and $1,694,280,
respectively, for the six months ended June 30, 1999 as compared to $2,686,384
and $470,163, respectively, for the six months ended June 30, 1998. The increase
in loan servicing fees is directly related to the servicing of additional
student loans and the increase in administration and financing fees is directly
related to increased financing activity. Trustee and broker fees, amortization
of debt issuance costs and amortization of loan premiums amounted to $1,011,480,
$644,667, and $2,558,768, respectively, for the six months ended June 30, 1999
9
<PAGE>
as compared to $460,996, $248,773 and $960,185, respectively, for the six months
ended June 30, 1998. Other general and administrative expenses amounted to
$3,351,278 for the six months ended June 30, 1999 as compared to $856,269 for
the six months ended June 30, 1998. The increase in these expenses directly
relates to the increased activity of the Company's business. Income tax expense
amounted to $1,564,415 for the six months ended June 30, 1999 as compared to
$82,517 for the six months ended June 30, 1998. The increase in tax expense was
a result of higher net income before income taxes for the six months ended June
30, 1999.
Net Income. The Company had net income of $2,624,113 for the six months
ended June 30, 1999 as compared to $143,556 for the six months ended June 30,
1998.
For the six months ended June 30, 1999, there were no unusual or
infrequent events or transactions or any significant economic dangers that
materially affected the amount of reported income.
Liquidity and Capital Resources
Student loans held by the Company are pledged as collateral for the
Notes under an Indenture of Trust, the terms of which provide for the retirement
of all Notes from the proceeds of the student loans. Cash flows from payments on
the student loans, together with proceeds of reinvestment of the income earned
on student loans, are intended to provide cash sufficient to make all required
payments of principal and interest on each outstanding series of the Notes. If
current revenues are insufficient to pay principal and interest due on the
Notes, money in the Reserve Fund created under the Indenture is available for
payment of amounts due. The Reserve Fund is fully funded under the terms of the
Indenture.
It is anticipated that regular payments under the terms of the student
loans, as well as early prepayment, will reduce the number of student loans held
in the trust estate created under the Indenture. The Company is authorized under
the Indenture to use principal receipts from student loans to purchase
additional student loans until April 1, 2002. Thereafter, principal receipts
from student loans will be used to redeem Notes.
Year 2000 Compliance.
The Company cannot determine whether the Year 2000 issue will have a
material adverse effect on its business operations. The conduct of the Company's
business in relationship to purchasing loans or administering the loans it owns
is not significantly dependent on the Company's own computer programs. However,
the Company's loan servicers, the trustee under the indenture for the Notes, the
guarantee agencies guaranteeing the Company's student loans, and the Department
of Education all rely heavily on computer programs and systems for processing
transactions related to student loans.
The Company has made inquiry of the trustee and the servicer and
subsubservicers of its loans concerning the Year 2000 issue, and has received
assurances that they are, or are working to become, Year 2000 compliant. The
Company is aware that the guarantee agencies and Department of Education are
working to address the Year 2000 issue. The Department of Education has
indicated that all of its data systems are Year 2000 compliant. However, the
Company cannot provide any assurance that the Department of Education, the
guarantee agencies, the trustee or the servicer or subservicers will not be
adversely affected by the arrival of the Year 2000. The Company cannot influence
10
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or control the efforts of third parties to address the Year 2000 issue, nor can
the Company terminate its dependence on the servicer, subservicers, guarantee
agencies or Department of Education. Under the reasonably likely worst case
scenario, the arrival of the Year 2000 could delay the Company's receipt of
principal and interest payments on its student loans and the receipt of claims
payments from the guarantee agencies. If that delay continues for a prolonged
period, the Company may be unable to make timely payments of principal and
interest due on its Notes.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective January 1, 2001.
Management does not believe that adoption of this Statement will have a material
impact on the Company's financial position, results of operations or cash flows.
11
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's assets consist almost entirely of student loans. Those
student loans are subject to market risk in that the cash flows generated by the
student loans can be affected by changes in interest rates. The student loans
generally bear interest at a rate equal to the average bond equivalent rates of
weekly auctions of 91-day Treasury bills (the "91 day Treasury Bill Rate") plus
a margin specified for each student loan. Thus, if interest rates generally
increase, the Company would expect to earn greater interest on its student
loans, and if interest rates generally decrease, the Company would expect the
interest that it earns to be reduced. The Company does not hold any of its
assets for trading purposes.
The Company attempts to manage its interest rate risk by funding its
portfolio of student loans with variable rate debt instruments. The majority of
the Notes bear interest at a rate that is reset periodically by means of auction
procedures, or by reference to the London Interbank Offered Rate ("LIBOR") or a
specified Treasury rate, plus an applicable margin. By funding its student loans
with variable rate Notes, the Company attempts to maintain a positive "spread"
between the interest earned on its student loans and its interest payment
obligations under the Notes. Thus, in an environment of generally declining
interest rates, the Company should earn less interest on its student loans, but
the interest expense on the Notes should also be lower.
The interest rates on each series of Auction Rate Notes is based
generally on the outcome of each auction of such series of Notes. The interest
rates on each series of LIBOR Rate Notes and Treasury Rate Notes is based
generally on the LIBOR Rate or Treasury Rate then in effect for the applicable
interest rate period. The student loans, however, generally bear interest at the
91-day Treasury Bill Rate plus margins specified for such student loans. As a
result of the differences between the indices used to determine the interest
rates on student loans and the interest rates on the Notes, there could be
periods of time when the rates on student loans are inadequate to generate
sufficient cash flow to cover the interest on the Notes and the expenses
required to be paid under the Indenture. In a period of rapidly rising interest
rates, the interest rates on student loans may not increase as quickly as the
variable interest rates with respect to the Notes. Further, LIBOR or auction
rates may rise more quickly than the 91-day Treasury Bill Rate. If there is a
decline in the rates on student loans, the funds deposited into the trust estate
created under the Indenture may be reduced and, even if there is a similar
reduction in the variable interest rates applicable to any series of Notes,
there may not necessarily be a similar reduction in the other amounts required
to be paid out of such funds (such as administrative expenses).
The Company has conducted a sensitivity analysis to determine what
effect differing changes of the interest rates on student loans and the Notes
would be on its cash flows and its resulting ability to pay the principal and
interest due on the Notes.
The Company's management case cash flow was prepared assuming a 60 basis
point spread between Treasury bills and LIBOR. In this analysis the net present
value of the estimated issuer withdrawals at the five-year treasury bill rate on
December 15th, 1998 (4.34%) plus 100 basis points was $27,132,810. When this
spread was increased by 10 basis points to 70, the net present value of the cash
flow was reduced to $23,543,053, or a reduction of $3,589,757 of the estimated
issuer withdrawals.
There has been no significant change in the Company's interest rate market
exposure subsequent to December 31, 1998.
12
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
In July, 1999, the Company offered its Taxable Student Loan Asset-Backed
Auction Rate Certificate Notes (the "Series 1999 Notes") in the aggregate
principal amount of $278,700,000. The Company offered the Series 1999 Notes
pursuant to its shelf registration statement filed with the Securities and
Exchange Commission on Form S-3, under Commission file number 333-28551 (the
"Registration Statement"). The effective date of the Registration Statement is
October 23, 1997. The offering commenced on June 17, 1999. All of the securities
offered were sold on July 1, 1999. The managing underwriter of the offering was
PaineWebber Incorporated. The offering consisted of the following classes:
Aggregate Price Aggregate
of the Offering Offering Price
Amount Amount Amount of Amount Sold
Class Registered Registered Sold to Date
- -------------- --------------- ------------------ ------------- ----------------
1999A - 13 $70,000,000 $70,000,000 100% $69,734,000
1999A - 14 $70,000,000 $70,000,000 100% $69,734,000
1999A - 15 $70,000,000 $70,000,000 100% $69,734,000
1999A - 16 $68,700,000 $68,700,000 100% $68,438,940
In connection with the offering, the Company incurred total expenses in the
amount of $883,000 not including underwriting discount. The net offering
proceeds to the Company after deducting the total expenses were $276,750,000.
The Company used the offering proceeds to purchase student loans.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
The Company entered into a Second Amended and Restated Servicing
Agreement with Union Bank and Trust Company dated as of December 18, 1998. Under
separate subservicing agreements, Union Bank engaged UNIPAC Service Corporation
and InTuition, Inc. to act as subservicers for the Company's student loans.
13
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On July 1, 1999, Union Bank assigned its rights and obligations under
the servicing agreement and the subservicing agreements to National Education
Loan Network, Inc. ("NELNET"). The Company then entered into a new servicing
agreement with NELNET, and NELNET entered new subservicing agreements with
UNIPAC and InTuition. The new servicing and subservicing agreements have terms
identical to the prior agreements.
NELNET was formed in 1997 with the purpose of creating a network of
student loan finance industry participants to provide services to education
institutions, lenders and students across the country. NELNET provides a wide
array of education loan finance services, including student loan secondary
market operations, administrative management services, and asset finance
services. Through its operating subsidiaries, NELNET owns and administers over
$1 billion in student loans. NELNET and the Company are both subsidiaries of
Union Financial Services, Inc.
14
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following is a complete list of exhibits filed as part of this Form
10-Q. Exhibit numbers correspond to the numbers in the Exhibit Table of Item 601
of Regulation S-K.
Exhibit No. Description
- ---------- -------------------------------------------------------------------
3.1 Articles of Incorporation of the Company (Incorporated by reference
herein to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996.)
3.2 Bylaws of the Company (Incorporated by reference herein to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.)
4.1 Second Amended and Restated Indenture by and between the Company and
Norwest Bank Minnesota, N.A. (Incorporated by reference herein to the
Company's current report on Form 8-K, filed January 7, 1997.)
4.2 Series 1996C Supplemental Indenture by and between the Company and
Norwest Bank Minnesota, N.A. (Incorporated by reference herein to the
Company's current report on Form 8-K, filed January 7, 1997.)
4.2.1 1998 Supplemental Indenture by and between the Company and Zions
First National Bank (Incorporated by reference herein to the Company's
current report on Form 8-K, filed January 6, 1999.)
4.2.2 Series 1999 Supplemental Indenture of Trust by and between the
Company and Zions First National Bank (Incorporated by reference
herein to the Company's current report on Form 8-K, filed July 8,
1999.)
10.1 Administrative Services Agreement, dated as of August 1, 1996, by and
between Union Financial Services, Inc. and the Company (Incorporated
by reference herein to the Company's Registration Statement on Form
S-3 (File No. 333-28551).)
10.1.1 Amendment to Administrative Services Agreement, dated as of November
1, 1996, by and between Union Financial Services, Inc. and the Company
(Incorporated by reference herein to the Company's Registration
Statement on Form S-3 (File No. 333-28551).)
10.2 Amended and Restated Servicing Agreement, dated as of June 19, 1996,
by and between Union Bank and Trust Company and the Company
(Incorporated by reference herein to the Company's Registration
Statement on Form S-3 (File No. 333-28551).)
10.2.1 Second Amended and Restated Servicing Agreement, dated as of
December 18, 1998 by and between Union Bank and Trust Company and the
Company (Incorporated by reference herein to the Company's current
report on Form 8-K, filed January 6, 1999.)
15
<PAGE>
10.2.2 Servicing Agreement, dated as of July 1, 1999, by and between the
Company and National Education Loan Network Inc. (Incorporated by
reference herein to the Company's Registration Statement on Form S-3
(File No. 333-75693).)
27.1 Financial Data Schedule (Filed herewith.)
Reports on Form 8-K
The Company filed reports on Form 8-K during the three months covered by
this report.
o Current report on Form 8-K, filed July 8, 1999, containing
copies of an Underwriting Agreement between Union
Financial Services-1, Inc. and PaineWebber Incorporated
dated June 30, 1999 and the Series 1999 Supplemental
Indenture of Trust by and between Union Financial
Services-1, Inc. and Zions First National Bank dated July
1, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNION FINANCIAL SERVICES-1, INC.
By: /s/ Stephen F. Butterfield
------------------------------------
Stephen F. Butterfield, President
(Principal Executive Officer)
By: /s/ Ronald W. Page
------------------------------------
Ronald W. Page, Vice President (Principal
Financial and Accounting Officer)
Date: August 16, 1999
17
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 58,426,373
<SECURITIES> 0
<RECEIVABLES> 1,210,827,042
<ALLOWANCES> (784,622)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,321,160,536
<CURRENT-LIABILITIES> 0
<BONDS> 1,310,500,000
0
0
<COMMON> 1,000
<OTHER-SE> 5,595,593
<TOTAL-LIABILITY-AND-EQUITY> 1,321,160,536
<SALES> 0
<TOTAL-REVENUES> 52,598,261
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 48,404,733
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,756,996
<INCOME-PRETAX> 4,188,528
<INCOME-TAX> 1,564,415
<INCOME-CONTINUING> 2,624,113
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,624,113
<EPS-BASIC> 2,624.11
<EPS-DILUTED> 2,624.11
</TABLE>
