UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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 0-20905
UNITED PAYORS & UNITED PROVIDERS, INC.
(Exact name of registrant as specified in its charter)
Delaware 51-0374698
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
2275 Research Boulevard, 6th Floor, Rockville, Maryland 20850
(Address of principal executive offices, Zip Code)
(301) 548-1000
(Registrant's phone number, including area code)
Not Applicable
(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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
The number of shares of common stock, par value $.01 per share, outstanding on
May 3, 1999 was 18,820,956.
<PAGE>
UNITED PAYORS & UNITED PROVIDERS, INC.
AND SUBSIDIARIES
First Quarter 1999 Form 10-Q
TABLE OF CONTENTS
Page
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 1999 (Unaudited) and
December 31, 1998.....................................................1
Consolidated Statements of Operations for the Three Months Ended
March 31, 1999 and 1998 (Unaudited)...................................2
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1999 and 1998 (Unaudited)...................................3
Notes to Consolidated Financial Statements..............................4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........................................6
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK......13
PART II OTHER INFORMATION
SIGNATURES
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
UNITED PAYORS & UNITED PROVIDERS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------- -------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ................... $ 29,720,604 $ 27,510,647
Short-term investments ...................... 5,510,045 3,855,195
Accounts receivable ......................... 15,145,738 12,729,631
Other current assets ........................ 3,044,185 2,442,075
------------- -------------
Total current assets ...................... 53,420,572 46,537,548
Fixed assets, net ............................. 4,000,862 4,301,944
Advances to contracting providers, net ........ 26,746,530 24,414,030
Intangible and other assets, net .............. 40,042,091 40,691,477
------------- -------------
Total assets .............................. $ 124,210,055 $ 115,944,999
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ....... $ 9,839,066 $ 11,487,823
Income and other taxes payable .............. 5,170,500 2,861,841
Notes payable and capital leases,
current portion ........................... 5,031,246 5,040,951
------------- -------------
Total current liabilities ................. 20,040,812 19,390,615
Other accrued expenses ........................ 1,038,333 1,073,333
Notes payable and capital leases,
less current portion ...................... 15,772,741 17,022,738
------------- -------------
Total liabilities ......................... 36,851,886 37,486,686
------------- -------------
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, $0.01 par
value, 5,000,000 shares authorized,
none issued and outstanding ............... -- --
Common stock, $0.01 par value, 35,000,000
shares authorized, 17,560,525 and
17,360,454 shares issued at March 31,
1999 and December 31,1998, respectively ... 175,605 173,605
Additional paid-in capital .................. 37,741,518 37,123,886
Treasury stock, no shares at March 31,
1999 and 273,151 shares at December
31, 1998, at cost ....................... -- (2,634,490)
Retained earnings ......................... 50,089,871 44,491,012
Deferred compensation ..................... (648,825) (695,700)
------------- -------------
Total stockholders' equity .............. 87,358,169 78,458,313
------------- -------------
Total liabilities and stockholders'
equity ................................ $ 124,210,055 $ 115,944,999
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements..
1
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UNITED PAYORS & UNITED PROVIDERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
------------ ------------
<S> <C> <C>
Revenue:
Provider network revenue ................... $ 18,769,336 $ 13,733,745
Medical management outsourcing services .... 4,953,067 4,864,265
------------ ------------
Total revenue ............................ 23,722,403 18,598,010
------------ ------------
Operating expenses:
Direct contract expenses ................... 11,029,587 8,421,248
General and administrative ................. 2,317,987 1,979,265
Depreciation and amortization .............. 994,542 639,689
------------ ------------
Total operating expenses ................. 14,342,116 11,040,202
------------ ------------
Other income, net of interest expense ........ (48,428) (36,908)
------------ ------------
Income before income taxes ................... 9,331,859 7,520,900
Income tax provision ......................... 3,733,000 3,124,706
------------ ------------
Net income ................................... $ 5,598,859 $ 4,396,194
============ ============
Net income per share - basic ................. $ 0.32 $ 0..26
============ ============
Weighted average shares outstanding -
basic ...................................... 17,269,000 17,040,000
============ ============
Net income per share - diluted ............... $ 0.31 $ 0..25
============ ============
Weighted average shares outstanding -
diluted .................................... 18,243,000 17,799,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements..
2
<PAGE>
UNITED PAYORS & UNITED PROVIDERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
------------ ------------
<S> <C> <C>
Operating activities
Net income ............................... $ 5,598,859 $ 4,396,194
Adjustment to reconcile net income to
net cash provided by (used in)
operations
Depreciation and amortization .......... 994,542 639,689
Deferred income taxes and other
non-cash items ....................... 692,736 251,020
Changes in assets and liabilities:
Accounts receivable .................. (2,775,535) (690,043)
Accounts payable and accrued
expenses ........................... (1,648,755) 268,768
Current and other assets ............. (873,799) 230,539
Income and other taxes payable ....... 2,308,661 1,808,331
------------ ------------
Net cash provided by operating
activities ........................... 4,296,709 6,904,498
------------ ------------
Investing activities
Purchases of fixed assets .............. (72,463) (480,444)
Purchases of short-term investments .... (5,775,055) (4,322,285)
Proceeds from sale of short-term
investments .......................... 4,134,849 2,379,945
Advances to contracting providers ...... (2,368,500) (2,518,000)
Other, net ............................. -- 108,198
------------ ------------
Net cash used in investing activities .... (4,081,169) (4,832,586)
------------ ------------
Financing activities
Purchase of treasury stock ............. -- (207,574)
Issuances of stock from Treasury ....... 3,254,122 121,700
and exercises of stock options
Repayment of debt ...................... (1,259,705) (795,998)
------------ ------------
Net cash provided by (used in)
financing activities ................... 1,994,417 (881,872)
------------ ------------
Increase in cash and cash equivalents ...... 2,209,957 1,190,040
Cash and cash equivalents
Beginning of the period ................ 27,510,647 14,456,069
------------ ------------
End of the period ...................... $ 29,720,604 $ 15,646,109
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements..
3
<PAGE>
UNITED PAYORS & UNITED PROVIDERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION
United Payors & United Providers, Inc. ("UP&UP" or the "Company") is a
Delaware corporation which is the successor to an Iowa corporation organized in
February 1995 by its Chairman and Co-Chief Executive Officer, Thomas L. Blair,
and an affiliate of Principal Mutual Holding Company ("Principal Mutual"). UP&UP
has developed a network of providers offering nationwide access to discounted
health care services for payors of health care services who contract with it..
UP&UP enters into contractual arrangements with providers such as hospitals,
ancillary facilities and physicians who agree to provide services on a
discounted basis to its payor clients. The payor clients include traditional
indemnity insurance companies, self-insured entities, unions and federal
government health plans. UP&UP also provides management and administrative
services for payor clients with respect to their relationships with provider
networks. In addition, UP&UP offers medical management outsourcing services,
including a broad array of utilization review and case management services
through its subsidiary, National Health Services, Inc. UP&UP derives its
revenues primarily from the receipt of a percentage of the price concessions
that payor clients receive from the contracting providers in the provider
network, a percentage of cost savings realized by payor clients using its
network management services, monthly membership-based fees for utilization
review services, and hourly fees for case management services.
On April 13, 1998 the Company's Board of Directors approved a three-for-two
split in the form of a stock dividend which was paid on May 4, 1998. All
references in the 1997 financial statements to number of shares, related prices
and per share amounts have been restated to reflect the stock split.
2. LEGAL PROCEEDINGS
On April 26, 1996, First Health Group (formerly known as HealthCare
COMPARE), a Delaware corporation and competitor of the Company, filed a civil
complaint against the Company in the United States District Court for the
Northern District of Illinois. The complaint, in its present amended form, seeks
permanent injunctive relief, as well as an unspecified amount of damages, and
alleges violations of the Lanham Act, 15 U.S.C. Sections 1125(a)(1)(A) and
(a)(1)(B), as well as common law claims of deceptive trade practices, fraud,
interference with contract, interference with prospective economic relations and
unfair competition. The complaint also seeks treble damages pursuant to the
Lanham Act. The complaint is based upon allegations that representatives of the
Company made false and misleading statements during contract negotiations with
providers in order to cause them to join the Provider Network. In pleadings and
during discovery, Plaintiff has alleged that it has suffered actual damages of
approximately $41 million. Further, Plaintiff is attempting to increase the
amount of damages claimed by $19 million and to reserve the right to increase
the amount of the claim in the future. The Company denies the allegations in the
complaint and believes them to be without merit. In addition, the Company has
moved to strike any increased damage claim as untimely. The Company has asserted
a counterclaim against the Plaintiff for violations of the Lanham Act, as well
as common law claims for unfair competition, commercial disparagement and
service mark cancellation. Fact discovery in the action is ongoing and the trial
date has not yet been set by the Court. Based upon the available information,
management believes that its potential liability, if any, arising from the
litigation will not be material to the consolidated financial statements of the
Company.
The Company is also a party to other legal actions arising in the ordinary
course of business. Management believes that damages arising from these actions,
if any, will not be material to the consolidated financial statements of the
Company.
3. BUSINESS COMBINATION
Effective December 1, 1998, the Company acquired ProAmerica Managed Care,
Inc. ("ProAmerica") for a purchase price of approximately $14.3 million,
consisting of $11.7 million in cash and the assumption of approximately $2.6
million in liabilities based on a preliminary determination of the liabilities
assumed. The acquisition has been accounted
4
<PAGE>
for as a purchase and, accordingly, the results of operations of ProAmerica have
been included in the accompanying consolidated statements of operations since
the effective date of the acquisition. A preliminary allocation of the purchase
price resulted in goodwill of $12.6 million which is being amortized over 15
years. The unamortized portion of goodwill at March 31, 1999 and December 31,
1998, is included in intangible and other assets in the accompanying
consolidated balance sheets.
4. EARNINGS PER SHARE
A reconciliation of the numerators and denominators of the basic earnings
per share computations for the three months ended March 31, 1999 and 1998 to the
numerators and denominators of the diluted earnings per share computations for
the respective periods follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------------- ---------------------------------
Net Income Shares Per Share Net Income Shares Per Share
---------- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic $5,598,859 17,269,000 $ 0.32 $4,396,194 17,040,000 $ 0.26
Effect of Dilutive
Securities -- 974,000 (0.01) -- 759,000 (0.01)
---------- ---------- --------- ---------- ---------- ---------
Diluted $5,598,859 18,243,000 $ 0.31 $4,396,194 17,799,000 $ 0.25
========== ========== ========= ========== ========== =========
</TABLE>
Stock options to purchase 6,000 shares of common stock at a weighted
average exercise price of $28.00 per share were outstanding during the three
months ended March 31, 1999 but were not included in the computation of diluted
earnings per share because the exercise prices of the stock options were greater
than the average market price of the common shares and, therefore, were
antidilutive. These stock options expire December, 2009.
In February 1999, holders of stock options to purchase 466,500 shares of
the Company's common stock at an aggregate exercise price of $3.1 million
exercised their options.
5. COMMITMENTS AND CONTINGENCIES
The Company on October 6, 1998 entered into an agreement to acquire for
$2.5 million a federal savings bank (the "Bank") and its parent holding company,
having total assets of approximately $27 million, subject to the approval of
shareholders of the holding company and federal banking regulators. Upon
acquisition of the Bank, the Company would become a savings and loan holding
company, subject to supervision and examination by the Office of Thrift
Supervision (the "OTS"). The Bank is subject to extensive regulations,
supervision and examination by the OTS and the Federal Deposit Insurance
Corporation (the "FDIC"). In connection with the Company's proposed acquisition
of the Bank and its parent holding company, Principal Mutual, which, at December
31, 1998 owned 6,600,000 shares or approximately 38.6% of the Company's
outstanding common stock, proposes to divest control of the Company within the
meaning of the Savings and Loan Holding Company Act ("Holding Company Act"), and
the four directors of the Company who may be considered to be affiliated with or
nominated by Principal Mutual, will resign from the Board of Directors of the
Company. To accomplish such divestiture of control, on February 25, 1999,
Principal Mutual, sold 4,500,000 shares (the "Principal Shares") of common stock
of the Company, or approximately 25.6% of the outstanding shares, to a trust
(the "Trust"). Principal Mutual received from the Trust $13,225,000 in cash and
trust certificates entitling it to the proceeds from the sale of the Principal
Shares. At the same time, the Trust agreed to sell the Principal Shares to
Thomas L. Blair, the Chairman and Co-Chief Executive Officer of the Company, on
or before four years from the date of the transfer of the Principal Shares to
the Trust. UP&UP would be a unitary savings and loan holding company, if the
current control of UP&UP by Principal Mutual is divested, as proposed (see Note
7). As a unitary savings and loan holding company, UP&UP generally will not be
restricted under existing laws as to the type of business activities in which it
may engage, provided the Bank continues to meet the standards as a qualified
thrift lender. There can be no assurance that the Company's acquisition of the
Bank will be approved by the OTS. The Company believes such approval will be
given only, among other things, if the OTS is satisfied as to the arrangements
by Principal Mutual to divest control of the Company within the meaning of the
Holding Company Act. Principal Mutual already is a savings and loan holding
company. In light of the regulatory uncertainty regarding the proposed
acquisition of the Bank, the Company is not treating the acquisition as probable
for financial reporting purposes.
5
<PAGE>
6. UNAUDITED INFORMATION
The consolidated financial statements for the three months ended March 31,
1999 and 1998 have not been audited but, in the opinion of management, include
all adjustments (consisting only of normal recurring accruals) necessary to
present fairly the information set forth therein. The results of operations for
the three months ended March 31, 1999 are not necessarily indicative of the
results to be expected for the full year or in the future.
7. SUBSEQUENT EVENT
In April 1999, the Company completed an offering of 2,500,000 shares of
common stock at $19.00 per share consisting of 1,250,000 shares issued by the
Company and 1,250,000 shares sold by Principal Mutual. The issuance of the
1,250,000 shares resulted in net proceeds to the Company (net of underwriters'
commissions) of $22.6 million before estimated offering expenses of $0.6
million. The Company intends to use the net proceeds to repay debt and for
working capital and general corporate purposes, including the funding of
advances to contracting providers and for potential acquisitions.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Form 10-Q may contain forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements involve a number of risks and uncertainties. The
Company undertakes no obligation to revise any forward-looking statements in
order to reflect events or circumstances that may arise after the date of this
report. Readers are urged to carefully review and consider the various
disclosures made by the Company in this report and in the Company's other
filings with the Securities and Exchange Commission that attempt to advise
interested parties of the risks and factors that may affect the Company's
business.
GENERAL
United Payors & United Providers, Inc. ("UP&UP" or the "Company") is a
Delaware corporation which is the successor to an Iowa corporation organized in
February 1995 by its Chairman and Co-Chief Executive Officer, Thomas L. Blair,
and an affiliate of Principal Mutual Holding Company ("Principal Mutual").
UP&UP has developed a network of providers ("Provider Network") offering
nationwide access to discounted health care services for payors of health care
services who contract with it ("Payor Clients"). UP&UP enters into contractual
arrangements with providers such as hospitals, ancillary facilities and
physicians ("Contracting Providers") who agree to provide services on a
discounted basis to its Payor Clients. The Payor Clients include traditional
indemnity insurance companies, self-insured entities, unions and federal
government health plans. UP&UP also provides management and administrative
services for Payor Clients with respect to their relationships with provider
networks. In addition, UP&UP offers medical management outsourcing services,
including a broad array of utilization review and case management services
through its subsidiary, National Health Services, Inc. ("NHS"), the third
largest independent utilization management company in the United States, based
on an annual acute in-patient admission volume.
UP&UP derives its revenues primarily from the receipt of a percentage of
the price concessions that Payor Clients receive from the Contracting Providers
in the Provider Network, a percentage of cost savings realized by Payor Clients
using its network management services, monthly membership-based fees for
utilization review services, and hourly fees for case management services.
UP&UP's contracts do not assume obligations to Contracting Providers for payment
of medical claims or to beneficiaries of Payor Clients for health care services.
Consequently, UP&UP is not subject to health care underwriting risks.
Effective December 1, 1998, the Company acquired ProAmerica Managed Care,
Inc. ("ProAmerica"), a national preferred provider network that operates a
network of health care providers. The acquisition of ProAmerica has been
accounted for as a purchase and, accordingly, the results of operations for
ProAmerica has been included in the Selected consolidated financial statements
since the effective date of the respective acquisitions.
6
<PAGE>
Period-to-period comparisons are not necessarily meaningful due to the impact of
acquisitions and formation transactions completed during the periods.
DIRECT CONTRACT EXPENSES
Direct contract expenses include access fees paid by the Company for the
utilization of other provider networks, marketing commissions, and other direct
costs of services, such as personnel, related to repricing of claims, client
services, and other costs incurred in connection with the generation of revenues
and the development of the Company's Provider Network. Direct contract expenses
also include the costs of medical personnel (nurses and doctors) and other
expenses related to its medical management outsourcing services. Marketing
commissions are payable to consultants and marketing organizations who became
entitled to such commissions for their role in obtaining contracts with certain
Payor Clients.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses include salaries and related costs for
personnel involved in the administration of the Company and other costs, such as
professional services and general overhead expenses.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
Total revenues increased by $5.1 million, from $18.6 million in 1998 to
$23.7 million in 1999. Provider network revenues increased by $5.0 million, from
$13.7 million in 1998 to $18.7 million in 1999. This increase was attributable
to the acquisition of ProAmerica, the addition of new Payor Clients, the growth
in the overall claims volume from existing Payor Clients and the expansion of
the Company's Provider Network. At March 31, 1999, the Provider Network
consisted of direct contracts with approximately 17,700 medical facilities and
approximately 153,000 physicians compared to approximately 12,000 medical
facilities and approximately 140,000 physicians at March 31, 1998. Medical
management outsourcing services revenues increased by approximately $0.1
million, from $4.9 million in 1998 to $5.0 million in 1999.
Direct contract expenses increased by $2.6 million, from $8.4 million in
1998 to $11.0 million in 1999. Access fees to other provider networks as a
percentage of Provider Network revenues increased by 1.1% from 7.7% ($1.1
million) in 1998 to 8.8% ($1.7 million) in 1999. The percentage increase was
attributable to the net effect of an increase in access fees due to the
inclusion in 1998 of the access fees of ProAmerica, which incurs a higher level
of access fees as a percentage of its Provider Network revenues than UP&UP, and
a reduction in the access fees of UP&UP due to growth in the number of providers
contacting directly with UP&UP and Payor Clients accessing more direct contract.
Other direct costs of services increased by approximately $2.0 million, from
$7.4 million in 1998 to $9.4 million in 1999. The increase was primarily
attributable to the acquisition of ProAmerica.
General and administrative expenses increased by approximately $0.3
million, from approximately $2.0 million in 1998 to approximately $2.3 million
in 1999. The increase was primarily attributable to the acquisition of
ProAmerica and an overall increase in expenses of UP&UP resulting from an
increase in the number of employees in the administrative and executive areas
and an increase in professional fees for accounting and legal services.
Depreciation and amortization increased by approximately $0.4 million, from
approximately $0.6 million in 1998 to approximately $1.0 million in 1999. The
increase was primarily attributable to the amortization of goodwill of
ProAmerica and other intangible assets and the depreciation of investments made
to achieve the consolidation of the Provider Network operations and to enhance
the information technology infrastructure in order to allow for future growth
and capabilities.
7
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999 and December 31, 1998, the Company had working capital of
approximately $33.4 million and $27.1 million, respectively. In December 1998,
the Company utilized the proceeds from a $10 million line of credit with a bank
as part of the consideration paid for the acquisition of ProAmerica. In February
1999, the Company entered into a five-year $10 million term loan with the same
bank and utilized the proceeds from the term loan to replenish the amount drawn
under the line of credit.
The Company's primary capital resources commitment is to fund advances to
Contracting Providers upon exercise of prepayment options ("Prepayment Options")
granted to Contracting Providers. Depending on increases in claims volume and in
the number of Payor Clients and Contracting Provider hospitals electing to
accept the Prepayment Option, the Company estimates that $15 million to $20
million could be required to fund the Prepayment Options during 1999. In 1997,
the Board of Directors of the Company approved a common stock repurchase program
of up to $5 million. The Company canceled the common stock repurchase program as
of February 1, 1998. As of December 31, 1998, the Company had repurchased
389,625 shares of its outstanding common stock under the program, at an
aggregate purchase price of $3.5 million, and reissued 116,474 of the shares for
an aggregate consideration of $0.9 million. During the three months ended March
31, 1999, the Company reissued the remainder of the shares in connection with
the exercise of stock options with an aggregate exercise price of $3.1 million.
In April 1999, the Company completed an offering of 2,500,000 shares of
common stock at $19.00 per share consisting of 1,250,000 shares issued by the
Company and 1,250,000 shares sold by Principal Mutual. The issuance of the
1,250,000 shares resulted in net proceeds to the Company (net of underwriters'
commissions) of $22.6 million before estimated offering expenses of $0.6
million. The Company intends to use the net proceeds to repay debt and for
working capital and general corporate purposes, including the funding of
advances to contracting providers and for potential acquisitions.
The Company believes that its existing liquidity sources, anticipated funds
from operations, and credit arrangements will satisfy cash requirements for its
operations for the next twenty-four months. However, in the event of additional
acquisitions and/or in the event that the advances for Prepayment Options exceed
the Company's currently anticipated estimates and/or other available sources of
liquidity to fund such payments are not as great as anticipated, or in the event
that, if a federal savings bank is acquired as proposed and the bank requires
funding to maintain its capital requirements or to expand its business, the
Company could be required to borrow additional funds or issue additional equity
securities to fund the balance of such advances. There can be no assurances that
the Company will be able to effect any such additional borrowings or issue
additional equity securities on acceptable terms.
INTEREST RATE SENSITIVITY
The Company is subject to interest rate risk on its short-term investments
portfolio and its outstanding bank loans. The Company has determined that a 10%
move in the current weighted average interest rates of its short-term
investments and its outstanding bank loans would not have a material effect on
the Company's financial position, results of operations and cash flows over the
next year.
IMPACT OF INFLATION
Since the Company's revenues are based on medical costs, the impact of
inflation on operating costs and expenses should be offset by the impact of
inflation of medical costs.
CERTAIN FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS OR STOCK PRICES
A significant portion of UP&UP's revenues are derived from a small number
of Payor Clients. In 1998, three Payor Clients accounted for approximately 37%
of revenues. The loss of a contract with a major Payor Client and the inability
to replace any such client with significant new clients could have a material
adverse effect on UP&UP.
8
<PAGE>
UP&UP's contracts with its Payor Clients for access to the Provider Network
generally permits the annual renegotiation of terms and permits either party to
terminate the contract at any time upon satisfaction of notice requirements.
Also, those contracts do not prohibit Payor Clients from entering into contracts
with or utilizing other provider networks or developing their own provider
networks. Therefore, even if a Payor Client does not terminate its contract with
UP&UP, UP&UP could experience a decrease in claims from that Payor Client as a
result of the use of their own provider networks, other provider networks, or
other managed care systems. UP&UP's contract with the State of Kentucky is
terminable for the convenience of the government.
Furthermore, the health insurance industry has been experiencing
significant consolidation, particularly consolidation designed to promote an
increase in managed health care insurance programs, as opposed to the indemnity
style programs for which the UP&UP Provider Network is most attractive. UP&UP
believes these consolidation trends have in the past reduced utilization of the
UP&UP Provider Network by particular health insurance programs, and, in the
future, could further reduce utilization of the UP&UP Provider Network, as a
result of both a decrease in the number of Payor Clients and a decrease in the
need for Payor Clients to utilize the UP&UP Provider Network.
YEAR 2000 READINESS DISCLOSURE
The Company is aware of the issues associated with the programming code in
existing computer and software systems regarding the Year 2000. The Company,
like other organizations, is in the process of assessing and modifying or
replacing its information technology and non-information technology to ensure,
to the extent within the control of the Company, their functionality with
respect to the "Year 2000" millennium change and to identify and evaluate
potential risks to the Company to the extent that Year 2000 problems not within
the Company's control could impact the Company. The Company's primary computer
systems operate from an IBM platform and were designed in the 1990's, generally
with four digit year capability. With respect to non-information technology, all
of the Company's facilities are relatively modern, post-1990, and are believed,
based on the evaluation to date, not to have any significant Year 2000 problems.
The Company has budgeted $1 million, as a conservative estimate of the maximum
cost to it, to address "Year 2000" problems, and has presently spent
approximately $400,000. The Company anticipates that it will be Year 2000
compliant by July 1, 1999 and will spend the remainder of 1999 testing. While
there can be no guarantee, the Company believes that Year 2000 issues with
respect to both the information technology and non-information technology
systems within its control will be adequately addressed by it and will not cause
material disruption to the Company's operations. The Company intends to monitor
its progress towards addressing its Year 2000 issues successfully and intends to
develop contingency plans if necessary.
However, the Company's operations are dependent to a substantial extent on
the ability of its Payor Clients, and to a lesser extent, possibly its
Contracting Providers, to address successfully their Year 2000 issues in
connection with their claims processing. The Company has no guarantee, however,
that its Payor Clients or Contracting Providers will be able to resolve all of
their own Year 2000 problems in a timely manner. The Company has had discussions
with its major Payor Clients and the Company believes, based on the discussions
and other information available to it, that all of its major Payor Clients are
aware of the Year 2000 issue and are expending significant resources to identify
and resolve all of their Year 2000 problems. The Company could be materially and
adversely affected as a result of Year 2000 problems incurred by Payor Clients
or Contracting Providers or their inability to interface with the Company's
systems, or as a result of unforeseen problems regarding the Company's own
system. The Company intends to continue to monitor to the best of its ability
the likelihood of significant problems experienced by such entities which could
materially affect the Company or its operations.
DEPENDENCE ON CONTRACTING PROVIDERS
UP&UP's growth depends on its ability to retain existing Contracting
Providers, to attract additional Contracting Providers, and to retain or improve
the price concessions granted by Contracting Providers. The termination of a
significant number of contracts with Contracting Providers having a high volume
of claims with UP&UP's Payor Clients, the inability to replace those contracts
with similar Contracting Providers and/or the renegotiation of contracts
resulting in reduced price concessions could have a material adverse effect on
UP&UP. UP&UP's contracts with Contracting Providers typically have a one-year
term, renewable automatically for successive one-year terms unless either party
gives notice of intent not to renew, and may be terminated at any time, for any
reason, upon satisfaction of the
9
<PAGE>
notification requirements. Also the contracts do not prohibit the Contracting
Providers from entering into discounted arrangements with others.
POSSIBILITY OF CHANGES IN INDUSTRY PRACTICES AND GOVERNMENT REGULATION ADVERSE
TO UP&UP
UP&UP's business is dependent in significant part on its ability to enter
into contracts with payors and providers on terms attractive to all parties and
the absence of substantial changes in the health care industry that would
decrease the need for the services offered by it. UP&UP's ability to continue
conducting business in its current manner could be seriously jeopardized if,
among other things, a significant number of payors, such as insurance companies,
were to seek price concessions directly from providers. In addition, UP&UP's
opportunities to maintain or expand its existing operations could be limited by
substantial changes in the health care industry, such as further adoption of
capitation payment systems, which have become more prevalent in recent years, or
the enactment of legislation or the adoption of regulations unfavorable to UP&UP
and/or its relationships with payors or providers. Any of these developments
could have a material adverse effect on UP&UP and could cause it to alter
substantially its business objectives and methods of operation.
During the past several years, the United States health care industry has
been subject to changing and increasing government regulation. A number of
proposals for health care reform have been made at the federal and state levels,
including proposals to provide greater government control of health care
spending, to reduce fraud and abuse, to broaden access to health care services
and to change the operating environment for health care providers and payors..
UP&UP cannot predict what impact, if any, these activities, which include
efforts to effect reform through legislation and changes in the administration
or interpretation of government health care programs, laws, regulations or
policies, might have on it. Any of these activities could have a material
adverse effect on UP&UP.
RISKS RELATED TO GROWTH
UP&UP's strategy is to continue to grow aggressively, both internally and
through acquisitions. Since its initial Public Offering in July 1996, UP&UP has
made three acquisitions, most recently the ProAmerica acquisition in December
1998. This strategy is likely to place significant demands on UP&UP's financial,
operational and management resources, and to expose it to a variety of risks,
including the risk that UP&UP will be unable to attract and retain the personnel
or obtain the financial and other resources necessary to pursue and manage its
growth. UP&UP's growth makes for greater demands on the time and attention of
its key personnel. Expenses arising from UP&UP's efforts to complete
acquisitions, develop new products or increase its existing market penetration
could have a material adverse effect on it. Furthermore, UP&UP may not be able
to identify, acquire or integrate acquisition candidates successfully or manage
profitably any additional products and services resulting from acquisitions.
Acquired businesses, products and services may not contribute to UP&UP's overall
strategy or produce returns that justify the related investment or
implementation by UP&UP. In addition, UP&UP may acquire companies or seek to
develop products or services in areas in which it does not currently operate or
have meaningful experience. For example, UP&UP has recently entered into an
agreement to acquire a federal savings bank. These acquisitions or developments
may require UP&UP's management to develop expertise in new areas and to attract
a new customer base and could have a material adverse effect on UP&UP. UP&UP may
not be able to implement its growth strategy successfully or, if successful in
consummating acquisitions, be able to manage its expanded operations effectively
and profitably.
RISKS OF INTEGRATING ACQUIRED OPERATIONS
UP&UP must successfully combine and integrate the operations of acquired
entities in order to realize the anticipated benefits of acquisitions.
Integrating management services, administrative organizations, facilities,
management information systems and other operational aspects of acquired
businesses, products or services can be time consuming and costly and may
distract management from day-to-day operations. Challenges in coordinating
geographically separated organizations, integrating personnel with disparate
business backgrounds and combining different corporate cultures could magnify
integration problems. UP&UP cannot guarantee that its integration processes will
be successful or that the anticipated benefits of any past or future
acquisitions will be realized. Furthermore, UP&UP may experience substantial
unanticipated costs or liabilities or other material adverse effects associated
with past or future acquisitions and integration activities conducted by it.
10
<PAGE>
SUBSTANTIAL COMPETITION
The market for UP&UP's services is highly competitive. UP&UP competes (or
may in the future have to compete) for clients with national, regional and local
provider networks, managed care organizations and health care information
companies. Several of UP&UP's competitors have significantly greater financial,
technical and marketing resources than UP&UP, which could put UP&UP at a
significant competitive disadvantage. UP&UP may not be able to compete
effectively with any of these parties in attracting and retaining clients.
EXPOSURE TO PROFESSIONAL LIABILITY
UP&UP, through its subsidiary, National Health Services, applies medical
treatment guidelines in its utilization review and case management services. As
a result, National Health Services could become subject to claims related to
adverse medical consequences as a result of, or for the costs of, services
denied, and claims, such as malpractice, arising from the errors or omissions of
health care professionals. A successful claim against UP&UP or a subsidiary
could have a material adverse effect on it. Furthermore, UP&UP may incur
substantial costs in defending against claims, regardless of their merit or
eventual outcome. Procedures implemented by UP&UP may not limit its liability or
be effective, and litigation to which UP&UP is or may become subject could have
a material adverse effect on it. UP&UP maintains insurance coverage that it
believes is reasonable in light of its experience to date. However, this
insurance may be insufficient to protect UP&UP from liability and may not
continue to be available to it at reasonable cost or at all.
SIGNIFICANT UNCERTAINTY REGARDING POSSIBLE FUTURE SALES OF SIGNIFICANT BLOCKS OF
UP&UP COMMON STOCK; POSSIBLE EFFECT ON THE TRADING MARKET FOR UP&UP COMMON STOCK
AND THE CONTROL OF UP&UP
Thomas L. Blair, Chairman of the Board and Co-Chief Executive Officer of
UP&UP beneficially owns an aggregate of 7,183,150 shares, or approximately 40.9%
of UP&UP's common stock. This beneficial ownership includes 4,500,000 shares, or
approximately 25.6% of outstanding shares, which Mr. Blair has committed to
purchase on or prior to February 25, 2003. These 4,500,000 shares currently are
held by Independent Divestment Trust, which acquired them from Principal Mutual
Holding Company. In addition, Capital Z Financial Services Fund II, L.P.
recently purchased 1,750,000 shares from officers and employees of UP&UP and an
option to purchase from Mr. Blair an additional 2,250,000 shares of common stock
on or prior to February 25, 2003.
Effect on Trading Market For UP&UP Common Stock
If the 4,500,000 shares of UP&UP common stock are not purchased by February
25, 2003 by Mr. Blair, as he is obligated to do, those shares would have to be
sold by the trust in which they have been placed. Further, Mr. Blair likely
would seek to sell shares to pay the purchase price of at least some of the
shares he purchases from the trust. Also, Capital Z Financial Services Fund II
could seek to sell shares it has purchased, and/or shares it purchases from Mr.
Blair upon the exercise of the option. Registration rights held by Capital Z
Financial Services Fund II would facilitate public resales of its shares of
UP&UP common stock. Thus, it is likely that a significant number of shares of
UP&UP common stock would be resold during the next four years. The possibility
of a sale of those shares could have an adverse effect on the trading market for
UP&UP's common stock. A private sale of a significant number of shares could
effect a change in control of UP&UP.
Effect on Control of UP&UP
The controlling influence Mr. Blair has with respect to UP&UP is enhanced
by his agreement to purchase the 4,500,000 shares of common stock. However, Mr.
Blair has no right to vote those 4,500,000 shares until he actually purchases
them from the trust. The trust is required to vote the UP&UP shares it holds in
the same proportion as all other UP&UP stockholders vote their shares. In
effect, the voting power held by all other stockholders is increased while the
trust holds these shares. Mr. Blair's power to vote 2,683,150 shares, giving
effect to the trust voting arrangement, would mean that he has approximately
20.6% of the voting power.
In addition, UP&UP has agreed to nominate two designees of Capital Z
Financial Services Fund II for election as directors. Thus, Capital Z Financial
Services Fund II could gain a significant influence in the business of UP&UP..
11
<PAGE>
REGULATION OF UP&UP AS A SAVINGS AND LOAN HOLDING COMPANY
UP&UP has entered into an agreement to acquire for $2.5 million a savings
and loan holding company and its wholly owned, federal savings bank subsidiary,
subject to the approval of shareholders of the holding company and federal
banking regulators. The bank is subject to extensive regulation, supervision and
examination by the Office of Thrift Supervision and the Federal Deposit
Insurance Corporation. If this acquisition is completed, UP&UP would become a
savings and loan holding company, subject to supervision and examination by the
Office of Thrift Supervision of the U.S. Department of Treasury. UP&UP would be
a unitary savings and loan holding company, if the current control of UP&UP by
Principal Mutual Holding Company is divested, as proposed (see Note 7 to the
Consolidated Financial Statements). As a unitary savings and loan holding
company, UP&UP generally will not be restricted under existing laws as to the
type of business activities in which it may engage, provided the bank continues
to meet the standards as a qualified thrift lender. Nevertheless, the Office of
Thrift Supervision will have enforcement authority over UP&UP and its
non-savings association subsidiaries. Among other things, this authority permits
the Office of Thrift Supervision to restrict or prohibit activities that are
determined to be a serious risk to the subsidiary savings bank.
DEPENDENCE ON KEY PERSONNEL
UP&UP depends to a significant extent on its Chairman and Co-Chief
Executive Officer, Thomas L. Blair, its Co-Chief Executive Officer and
President, Edward S. Civera, its Vice President of Operations, Spiro A.
Karadimas and its Vice President and Chief Financial Officer, S. Joseph Bruno.
UP&UP's growth and future success will depend in large part on its ability to
retain and attract highly qualified personnel. UP&UP has entered into a
five-year employment agreement with Mr. Civera extending to January, 2004, and
has entered into two-year employment agreements with Messrs. Karadimas, Blair
and Bruno, extending to January, 2001. If UP&UP were to lose any of its key
personnel, particularly any of its executive officers, or be unable to retain or
hire qualified personnel, then it could be potentially and adversely affected.
POTENTIAL IMPEDIMENTS TO TAKEOVER
The concentration of ownership of its common stock could also impede any
effort by a third party to effect a change of control of UP&UP. In addition,
UP&UP's certificate of incorporation and bylaws contain a number of provisions
that could inhibit a change of control by means of a tender offer, merger, proxy
contest or otherwise, including advance notice and supermajority provisions,
provisions that establish a classified board of directors and provisions that
enable UP&UP to issue "blank check" preferred stock. These provision could
reduce or eliminate any takeover premium in the market price for UP&UP's common
stock or otherwise limit the price certain investors might be willing to pay for
UP&UP's common stock.
Also, if UP&UP acquires the federal savings bank as it proposes, UP&UP
would be subject to regulation by the Office of Thrift Supervision as a savings
and loan holding company. The regulatory approval or notice requirements
applicable to persons seeking to acquire control of a savings and loan holding
company could inhibit or delay possible acquisition of UP&UP, even acquisitions
desired by UP&UP's stockholders. For regulatory purposes, presumptions of
control can arise once a person's beneficial ownership, together with that of
persons acting in concert, of outstanding voting stock exceeds 10%.
UP&UP'S ANNUAL AND QUARTERLY OPERATING RESULTS ARE SUBJECT TO FLUCTUATION
UP&UP's annual and quarterly operating results could fluctuate in the
future as a result of a number of factors, including:
o the expiration or termination of contracts with significant Payor
Clients or Contracting Providers;
o the timing of new product and service introductions;
o changes in pricing; o increases in operating expenses;
o increases in selling, general and administrative expenses;
o increased competition;
12
<PAGE>
o the impact of acquisitions;
o regulatory changes; and
o conditions in the health care industry and the economy generally.
Historical annual or quarter-to-quarter comparisons of UP&UP's results of
operations may not be an indication of future performance. It is possible that
in some future periods UP&UP's results of operations may be below the
expectations of public market analysts and investors. If this were to occur, the
price of UP&UP's common stock may decline.
LACK OF DIVIDENDS
UP&UP does not plan to pay any dividends on its common stock for the
foreseeable future.
THE MARKET PRICE OF UP&UP'S COMMON STOCK COULD BE ADVERSELY AFFECTED BY THE
RISKS TO UP&UP AND OTHER FACTORS
The potential impact of all of the above risk factors is difficult for
UP&UP to forecast. Nevertheless, these or other factors, such as fluctuations in
UP&UP's earnings, changes in estimates of those earnings by security analysts
and sales of substantial amounts of UP&UP's common stock in the public market,
may materially adversely affect UP&UP's operating results and/or the trading
price of the common stock. Recently, the stock market has experienced extreme
price and volume fluctuations that have particularly affected the market prices
of securities of many companies, for reasons frequently unrelated to the
performance of the specific companies. These fluctuations, as well as general
economic, political and market conditions, may materially adversely affect the
market price of UP&UP's common stock. UP&UP does not guarantee that the trading
price for the common stock will remain at or above the public offering price in
this offering.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(Included in "Management's Discussion and Analysis of Financial
Condition and Results of Operations")
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Company nor its subsidiaries are involved in any pending legal
proceedings, other than routine legal matters occurring in the ordinary course
of business, which in the aggregate involve amounts which are believed by
management to be immaterial to the consolidated financial condition or results
of operations of the company, except as referenced in Note 2 to the Consolidated
Financial Statements for the three months ended March 31, 1999.
ITEM 2. CHANGES IN SECURITIES (Not Applicable)
ITEM 3. DEFAULTS UPON SENIOR SECURITIES (Not Applicable)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (Not Applicable)
ITEM 5. OTHER INFORMATION (None)
13
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
1. The following exhibits are filed as part of this report unless noted
otherwise:
Exhibit No. Description
2.1 Agreement with America's Health Plan, Inc. (1)
2.2 Plan and Agreement of Merger of IM&I, Inc. into PB Newco (1)
2.3 Plan and Agreement of Merger of PB Newco, Inc. into United Payors
& United Providers, Inc. (1)
3.1 Certificate of Incorporation of United Payors & United Providers,
Inc. (1)
3.2 Bylaws of United Payors & United Providers, Inc. (1)
4.1 Specimen Stock Certificate of United Payors & United Providers,
Inc. (1)
4.2 Shareholder Agreement (1)
10.1 Form of Indemnification Agreement (1)
10.2 Stock Purchase Agreement between Preferred Health Choice and
United Payors & United Providers, Inc., dated October 22, 1996 (2)
10.3 Warrants to Purchase 150,000 Shares of Common Stock of United
Payors & United Providers, Inc. Issued to Preferred Health Choice,
Inc., dated October 23, 1996 (3)
10.4 Warrants to Purchase 168,000 Shares of Common Stock of United
Payors & United Providers, Inc. Issued to Preferred Health Choice,
Inc., dated October 27, 1996 (3)
10.5 Stock Purchase Agreement between United Payors & United Providers,
Inc. and Principal Holding Company, a wholly owned subsidiary of
Principal Mutual Life Insurance Company, dated September 29,
1997 (4)
10.6 Stock Purchase Agreement by and among United Payors & United
Providers, Inc. and The MetraHealth Employee Benefits Company,
Inc., dated December 17, 1998(5)
10.7 Employment Agreement by and between United Payors & United
Providers, Inc., Thomas L. Blair, Chairman of the Board and
Chief Executive Officer of United Payors & United Providers, Inc.,
and Edward S. Civera (6)
10.8 First Amendment to the Employment Agreement by and between United
Payors & United Providers, Inc., Thomas L. Blair, Chairman of the
Board and Chief Executive Officer of United Payors & United
Providers, Inc., and Edward S. Civera (7)
10.9 Employment Agreement by and between United Payors & United
Providers, Inc. and Thomas L. Blair (7)
10.10 Employment Agreement by and between United Payors & United
Providers, Inc. and S. Joseph Bruno (7)
10.11 Employment Agreement by and between United Payors & United
Providers, Inc. and Spiro A. Karadimas (7)
10.12 Registration Rights Agreement by and among Capital Z Financial
Services Fund II, L.P. and United Payors & United Providers, Inc.,
dated February 25, 1999 (7)
10.13 Registration Rights Agreement by and among Thomas L. Blair and
United Payors & United Providers, Inc., dated February 25,
1999 (7)
10.14 Stockholders Agreement by and between Capital Z Financial Services
Fund II, L.P., Thomas L. Blair and United Payors & United
Providers, Inc., dated February 25, 1999 (7)
10.15 Royalty Agreement between United Payors & United Providers, Inc.
and HealthExtras, LLC (7)
27.1 Financial Data Schedule As Of and For the Three Months Ended March
31, 1999 (filed herewith)
- --------------
(1) Incorporated herein by reference into this document from the Exhibits to
the Form S-1 Registration Statement, as amended, Registration No. 333-3814,
initially filed on April 19, 1996.
(2) Incorporated herein by reference into this document from the Exhibits to
the Form 10-Q for the quarter ended September 30, 1996.
(3) Incorporated herein by reference into this document from the Exhibits A-1
and A-2 to the Stock Purchase Agreement filed as Exhibit 10.4 to the Form
10-Q for the quarter ended September 30, 1996.
(4) Incorporated herein by reference into this document from the Exhibits to
the Form 8-K dated October 13, 1997.
(5) Incorporated herein by reference into this document from the Exhibits to
the Form 8-K dated December 31, 1998.
(6) Incorporated herein by reference into this document from Exhibit 10.8 to
the Form 10-K for the year ended December 31, 1997.
(7) Incorporated herein by reference into this document from the Exhibits to
the Form 10-K for the year ended December 31, 1998.
14
<PAGE>
2. REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K on April 22, 1999 reporting
Item 5 in connection with the issuance of a press release which reported
earnings for the quarter ended March 31, 1999.
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.
UNITED PAYORS & UNITED PROVIDERS, INC.
(Registrant)
Date: May 14, 1999 By: /s/ THOMAS L. BLAIR
-------------------------------------------
Thomas L. Blair
Chairman and Co-Chief Executive Officer
Date: May 14, 1999 By: /s/ EDWARD S. CIVERA
-------------------------------------------
Edward S. Civera
Co-Chief Executive Officer and President
Date: May 14, 1999 By: /s/ S. JOSEPH BRUNO
-------------------------------------------
S. Joseph Bruno
Vice President and Chief Financial Officer
Date: May 14, 1999 By: /s/ EDUARDO V. FEITO
-------------------------------------------
Eduardo V. Feito
Controller and Chief Accounting Officer
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
UNITED PAYORS & UNITED PROVIDERS, INC.
AND SUBSIDIARIES
FINANCIAL DATA SCHEDULE
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1999
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets and Statements of Operations of United Payors &
United Providers, Inc. as of and for the three months ended March 31, 1999 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 29,720,604
<SECURITIES> 5,510,045
<RECEIVABLES> 15,145,738
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 53,420,572
<PP&E> 7,108,080
<DEPRECIATION> 3,107,218
<TOTAL-ASSETS> 124,210,055
<CURRENT-LIABILITIES> 20,040,812
<BONDS> 15,772,741
0
0
<COMMON> 37,917,123
<OTHER-SE> 49,441,046
<TOTAL-LIABILITY-AND-EQUITY> 124,210,055
<SALES> 0
<TOTAL-REVENUES> 23,722,403
<CGS> 0
<TOTAL-COSTS> 14,342,116
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 386,866
<INCOME-PRETAX> 9,331,859
<INCOME-TAX> 3,733,000
<INCOME-CONTINUING> 5,598,859
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,598,859
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.31
</TABLE>
