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 March 31, 1998
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: 0-26412
UNION ACCEPTANCE CORPORATION
(Exact name of registrant as specified in its charter)
Indiana 35-1908796
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
250 N. Shadeland Avenue, Indianapolis, IN 46219
(Address of principal executive office) (Zip Code)
(317) 231-6400
(Registrant's telephone number, including area code)
Indicate by check mark whether 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
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 latest practicable date:
Class Outstanding at May 13, 1998
Class A Common Stock, without par value 4,376,446 Shares
--------------------------------------- ----------------
Class B Common Stock, without par value 8,855,036 Shares
--------------------------------------- ----------------
<PAGE>
UNION ACCEPTANCE CORPORATION AND SUBSIDIARIES
FORM 10-Q
INDEX
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements :
Consolidated Condensed Balance Sheets as of
March 31, 1998 and June 30, 1997 3
Consolidated Condensed Statements of Earnings for the Three
and Nine Months Ended March 31, 1998 and 1997 4
Consolidated Condensed Statements of Cash Flows for the
Nine Months Ended March 31, 1998 and 1997 5
Consolidated Condensed Statement of Shareholders' Equity for
the Nine Months Ended March 31, 1998 6
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II. OTHER INFORMATION 20
Signatures 21
<PAGE>
Union Acceptance Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
Dollars in thousands, except share data
March 31, June 30,
Assets 1998 1997
------------------------
(Unaudited)
Cash $ 28,025 $ 58,801
Restricted cash 18,331 16,657
Loans, net 153,759 121,381
Accrued interest receivable 1,439 1,232
Property and equipment, net 6,564 2,150
Excess servicing 106,428 98,841
Spread accounts 70,542 71,744
Other assets 20,715 21,360
------------------------
Total Assets $ 405,803 $ 392,166
========================
Liabilities
Amounts due under warehouse facilities 57,070 44,455
Long-term debt 221,000 221,000
Accrued interest payable 2,283 5,793
Amounts due to trusts 17,932 16,067
Dealer premiums payable 1,601 1,372
Other payables and accrued expenses 2,835 2,318
Deferred income tax payable 17,124 15,046
------------------------
Total Liabilities 319,845 306,051
------------------------
Shareholders' Equity
Preferred Stock, without par value, authorized
10,000,000 shares; none issued and outstanding
-- --
Class A Common Stock, without par value,
authorized 30,000,000 shares; 4,376,446 and
4,016,788 shares issued and outstanding at
March 31, 1998 and June 30, 1997, respectively 58,360 58,270
Class B Common Stock, without par value,
authorized 20,000,000 shares; 8,855,036 and
9,200,000 shares issued and outstanding at
March 31, 1998 and June 30, 1997, respectively -- --
Net unrealized loss on excess servicing (4,489) --
Retained earnings 32,087 27,845
------------------------
Total Shareholders' Equity 85,958 86,115
------------------------
Total Liabilities and Shareholders' Equity $ 405,803 $ 392,166
========================
See accompanying notes to consolidated condensed
financial statements.
<PAGE>
Union Acceptance Corporation and Subsidiaries
Consolidated Condensed Statement of Earnings
Dollars in thousands, except share data
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------------ -----------------------------
1998 1997 1998 1997
------------------------------ -----------------------------
<S> <C> <C> <C> <C>
Interest on loans $ 7,119 $ 7,685 $ 20,243 $ 26,014
Interest on spread accounts and
restricted cash 1,686 1,654 5,083 4,709
------------------------------ -----------------------------
Total interest income 8,805 9,339 25,326 30,723
Interest expense 6,990 6,118 19,210 18,793
------------------------------ -----------------------------
Net interest margin 1,815 3,221 6,116 11,930
Provision for credit losses 1,900 1,180 5,175 3,028
------------------------------ -----------------------------
Net interest margin
after provision (85) 2,041 941 8,902
Gain on sales of loans
4,383 8,283 8,938 22,948
Servicing fees, net 6,445 6,860 19,066 18,944
Other 1,065 1,011 3,070 2,856
------------------------------ -----------------------------
Total revenues 11,808 18,195 32,015 53,650
------------------------------ -----------------------------
Salaries and benefits 4,815 4,065 14,296 11,597
Other 4,007 3,480 12,185 10,927
------------------------------ -----------------------------
Total operating expenses 8,822 7,545 26,481 22,524
------------------------------ -----------------------------
Earnings before provision for
income taxes 2,986 10,650 5,534 31,126
Provision for income taxes 1,194 4,341 1,292 12,706
------------------------------ -----------------------------
Net earnings $ 1,792 $ 6,309 $ 4,242 $ 18,420
============================== =============================
Net earnings per share (diluted & basic) $ 0.14 $ 0.48 $ 0.32 $ 1.39
============================== =============================
Weighted average number of
common shares outstanding 13,231,482 13,216,788 13,225,047 13,214,554
============================== =============================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
Union Acceptance Corporation and Subsidiaries
Consolidated Condensed Statement of Cash Flows
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
------------------------
1998 1997
--------- ---------
Cash flows from operating activities:
<S> <C> <C>
Net earnings $ 4,242 $ 18,420
Adjustments to reconcile net earnings to net
cash provided (used) by operating activities:
Loan acquisitions in excess of liquidations (688,342) (854,758)
Dealer premiums paid in excess of dealer premium
rebates received on loans held for sale (30,197) (43,014)
Securitization of loans held for sale 651,475 918,540
Gain on sales of loans (17,438) (32,693)
Proceeds on sale of interest-only strip 11,050 25,979
Return of excess servicing cash flows 15,986 19,779
Impairment of Excess Servicing 3,756 --
Provision for estimated credit losses 5,175 3,028
Amortization and depreciation 3,314 2,719
Spread accounts 1,202 (7,908)
Restricted cash (1,674) (1,423)
Other assets and accrued interest receivable 2,142 (3,352)
Amounts due to trusts 1,865 6,695
Other payables and accrued expenses (838) 4,747
--------- ---------
Net cash provided (used) by operating activities (38,282) 56,759
--------- ---------
Cash flows from investing activities:
Purchase of fixed assets (5,109) (664)
--------- ---------
Cash flows from financing activites:
Net change in warehouse credit facilities 12,615 (60,538)
Proceeds from issuance of senior notes -- 65,000
Payment of borrowing fees -- (574)
--------- ---------
Net cash provided by financing activities 12,615 3,888
Change in cash (30,776) 59,983
Cash, beginning of period 58,801 13,459
--------- ---------
Cash, end of period $ 28,025 $ 73,442
========= =========
Supplemental disclosures of cash flow information:
Income taxes paid $ 20 $ 4,277
========= =========
Interest paid $ 23,255 $ 21,983
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
Union Acceptance Corporation and Subsidiaries
Consolidated Condensed Statement of Shareholders' Equity
For the Nine Months Ended March 31, 1998
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Number of Common Stock Net
Shares Outstanding Unrealized
Loss on Total
Common Excess Retained Shareholders'
Class A Class B Stock Servicing Earnings Equity
--------------------------- --------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1997 4,016,788 9,200,000 $58,270 $ - $27,845 $86,115
Grants of Common Stock 14,694 - 90 - - 90
Conversion of Class B
Common Stock into Class A
Common Stock 344,964 (344,964)
- - - -
Net Earnings
- - - - 4,242 4,242
--------------------------------------------------------------------------------------
4,376,446 8,855,036 58,360 - 32,087 90,447
Net unrealized loss on excess
servicing - - - (4,489) - (4,489)
--------------------------------------------------------------------------------------
Balance at March 31, 1998 4,376,446 8,855,036 $58,360 $(4,489) $32,087 $85,958
======================================================================================
</TABLE>
<PAGE>
Note 1- Basis of Presentation
The forgoing consolidated condensed financial statements are unaudited.
However, in the opinion of management, all adjustments necessary for a fair
presentation of the results of the interim period presented have been included.
All adjustments are of a normal and recurring nature. Results for any interim
period are not necessarily indicative of results to be expected for the year.
The consolidated condensed financial statements include the accounts of Union
Acceptance Corporation and its subsidiaries.
During fiscal 1995, Union Acceptance Funding Corporation, UAC
Securitization Corporation, Performance Funding Corporation and Performance
Securitization Corporation were formed as wholly owned subsidiaries of UAC.
During fiscal 1996, UAC Boat Funding Corp. was formed as a wholly- owned
subsidiary of UAC. In fiscal 1997, UAC Finance Corporation was formed as a
wholly-owned subsidiary of UAC. Circle City Car Company and Union Acceptance
Receivables Corporation were formed as wholly-owned subsidiaries of UAC during
the first and second quarters, respectively, of fiscal 1998.
The consolidated condensed financial statements have been prepared in
accordance with Form 10-Q specifications, and, therefore, do not include all
information and footnotes normally shown in full annual financial statements. A
summary of the Corporation's significant accounting policies is set forth in
"Note 1" of the "Notes to Consolidated Financial Statements" in the
Corporation's Annual Report on Form 10-K for the year ended June 30, 1997.
Note 2- Earnings Per Share
The Corporation has implemented Statement of Financial Accounting
Standards 128, "Earnings per Share" (EPS) which is effective for interim and
annual periods ending after December 15, 1997, and requires the presentation of
basic and dilutive earnings per share. EPS have been computed on the basis of
the weighted average number of common shares outstanding. The effect of stock
options not exercised during the periods presented are anti-dilutive and
therefore not included in diluted earnings per share. The weighted average
number of shares used in the basic and diluted EPS computations for the three
months ended March 31, 1998 and 1997 were 13,231,482 and 13,216,788,
respectively. The weighted average number of shares used in the basic and
dilutive EPS computations for the nine months ended March 31, 1998 and 1997 were
13,225,047 and 13,214,554, respectively.
Note 3- Conversion of Common Stock
The Company's charter provides that shares of Class B Common Stock
convert automatically to shares of Class A Common Stock on a share-for-share
basis upon transfer outside a prescribed group of initial holders and certain
affiliates. Pursuant to such provision, 344,964 shares of Class B Common Stock
were converted to shares of Class A Common Stock in the fiscal quarter ended
December 31, 1997.
Note 4-Year 2000 Compliant
A Year 2000 Committee has been established by the Company consisting of
directors, officers, and employees of the Company to address problems which
could arise from the forthcoming Year 2000 rollover. The Committee is charged
with providing regular reports to the Board of Directors detailing progress in
this area. Based on progress by the Committee to date, it is not anticipated
that the Year 2000 rollover will present material financial or operational
burdens for the Company.
<PAGE>
Union Acceptance Corporation and Subsidiaries
Notes to the Consolidated Condensed Financial Statements
For the Nine Months Ended March 31, 1998 and March 31, 1997
(Unaudited)
Note 5- Excess Servicing
Excess servicing is as follows
(in thousands) at:
March 31, June 30,
1998 1997
-----------------------------
Estimated value of excess servicing
cash flows, net of estimated prepayments $ 157,050 $ 148,788
Allowance for estimated credit losses (68,932) (79,013)
Estimated dealer premium rebates 26,473 28,175
Discount to present value (13,796) (11,916)
-----------------------------
100,795 86,034
Accrued interest on securitized loans 12,896 12,807
Unrealized loss on excess servicing (7,263) --
-----------------------------
Excess Servicing $ 106,428 $ 98,841
=============================
Outstanding balance of loans
serviced through securitized trusts $ 1,856,746 $ 1,818,163
Allowance for estimated credit
losses as a percentage of
securitized loans serviced 3.71% 4.35%
Historically, the Company has estimated the Excess Servicing recognized
as a component of the gain on sale and its subsequent fair value by discounting
the projected future servicing cash flows from the time they are received by the
respective trust. However, management is currently considering implementing the
"cash out" method which discounts the expected excess cash flows from the time
they are released from the Spread Account to the Company.
The "cash out" method estimates Excess Servicing by discounting the
expected excess cash flows from the time they are released from the Spread
Account using a discount rate which the Company believes is commensurate with
the risks involved. In determining the expected excess cash flows, the Company
must still estimate the future rates of prepayments and credit losses.
Accordingly, use of the "cash out" method may result in a larger discount of the
estimated Excess Servicing asset due to the timing of expected excess cash flows
released from the Spread Account. Additionally, interest income earned on Spread
Accounts and Restricted Cash would become a component of the expected excess
cash flows and no longer recognized as interest income during the period.
Offsetting the potentially lower gain on sales and the reduction of interest
income would be an increase in the accretion of discounted excess servicing
during future periods.
The impact of utilizing the "cash out" method has not yet been
determined but is not expected to have a material effect on the fourth quarter
gain on sales. Utilizing the "cash out" method could have a material effect on
the fair value of the Excess Servicing asset as of June 30, 1998, and result in
an other than temporary impairment of Excess Servicing which would be charged
against current earnings.
<PAGE>
Union Acceptance Corporation and Subsidiaries
Notes to the Consolidated Condensed Financial Statements
For the Nine Months Ended March 31, 1998 and March 31, 1997
(Unaudited)
Note 6-Current Accounting Pronouncements
In June, 1997, The FASB issued SFAS No. 130, "Reporting Comprehensive
Income" ("SFAS 130"), which establishes standards for reporting and displaying
comprehensive income and its components in the financial statements.
Comprehensive income is the total of net income and all non-owner changes in
shareholders' equity. The Statement is effective for fiscal years beginning
after December 15, 1997, with earlier application permitted. The Statement will
require new disclosures by the Company, but is not expected to have an impact on
the financial statements or results of operations.
In June, 1997, The FASB issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information" (SFAS 131"), which introduces
new guidance on segment reporting. The Statement is effective for fiscal years
beginning after December 15, 1997, with earlier application encouraged. The
Statement is not expected to have a material impact on the financial condition
or results of operations of the Company.
Other recent pronouncements issued by the FASB are not applicable to
the Company's consolidated financial statements.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Company derives substantially all of its earnings from the
acquisition, securitization and servicing of automobile loans originated by
dealerships affiliated with major domestic and foreign manufacturers. To fund
the acquisition of loans prior to securitization, the Company utilizes revolving
warehouse facilities, discussed in "Liquidity and Capital Resources." Through
securitizations, the Company periodically pools and sells loans to a trust which
issues Certificates to investors representing pro-rata interests in the loans
sold. When the Company sells loans in a securitization, it records a gain (or
loss) on the sale of loans and establishes excess servicing as an asset. Excess
servicing cashflows are recorded against the excess servicing asset as received
over the life of the related securitization.
Acquisition Volume. The Company currently acquires loans in 31 states
from over 3,400 manufacturer-franchised auto dealerships. The Company primarily
acquires loans on automobiles made to borrowers who exhibit a favorable credit
profile ("prime lending") and, since October 1994, to borrowers with adequate
credit quality who would not qualify for a loan under the Company's prime
lending quality criteria ("non-prime lending"). The Company began acquiring
loans under the marine lending program ("marine lending") in June 1996 and
terminated the program in March 1998. See - "Other Matters".
Over 1,200 of the 3,400 dealerships with which the Company has
agreements provide non-prime quality loans. During the current quarter, the
prime and non-prime origination departments were merged effectively reducing the
administrative complexity involved with separate operating structures. As a
result of the merged origination departments, the Company's lending program
acquires two levels of loan quality. The Company will, from time to time, refer
to its prime lending level as "Tier I" and its non-prime lending level as "Tier
II". The Company will continue to track performance and acquisition volume
separately, as well as maintain the current underwriting criteria.
Total loan acquisitions were $220.3 million for the three months ended
March 31, 1998, a decrease from $227.4 and $279.8 million for the quarters ended
December 31, 1997, and March 31, 1997, respectively. Prime loan acquisitions for
the quarter ended March 31, 1998, decreased by 3.0% from the previous quarter
and 20.4% from the quarter ended March 31, 1997. Non-prime loan acquisitions for
the quarter ended March 31, 1998, decreased 3.4% from the previous quarter and
35.2% from the quarter ended March 31, 1997. Loan acquisitions for the marine
business decreased by 43.7% from the previous quarter and 83.9% for the quarter
ended March 31, 1997, as a result of the termination of the marine lending
program.
The Company tightened its credit standards during the third quarter of
fiscal 1997. The tightening of the credit standards had the effect of lowering
loan acquisition volume for the three and nine months ended March 31, 1998,
compared to the same period of last year. Strategic changes made within the
dealer relations area during the latter half of the third quarter as well as the
seasonal cycle of the automotive industry are expected to increase acquisition
volume in the fourth quarter of fiscal 1998. The Company continues to expand
through focusing on penetrating the existing dealer base and on new high-quality
dealers within the existing markets. Management continues to focus on controlled
growth, recognizing that the underlying credit quality of the portfolio is one
of the most important factors associated with long-term profitability. See -
"Discussion of Forward-Looking Statements".
Gross and Net Spreads. The gross and net spreads on the third quarter
securitization of fiscal 1998 were 6.81% and 5.27% compared to 6.96% and 5.43%,
respectively, over the same quarter of last year. Gross spread is defined as the
difference between the weighted average loan rate and the Certificate rate. Net
spread is defined as gross spread less servicing fees, upfront costs, ongoing
credit enhancement and trustee fees, and hedging gains or losses. Net spreads
peaked in the year ago quarter at 5.43% and have fluctuated over the succeeding
four quarters to 5.15%, 5.38%, 5.07% and 5.27%. The net spread on the third
quarter securitization of fiscal 1998 was slightly lower compared to the third
quarter securitization of fiscal 1997, however net spreads have been within
management's expectations.
Management is currently targeting net spreads of 5.00% to 5.50% on
prime securitizations (assuming a pricing spread for asset-backed certificates
over the two-year treasury note of 50 basis points). Management believes that by
targeting a spread of 7.00% to 7.50% between loan rates and the two-year
<PAGE>
treasury rate, these net spreads can be achieved. Although management believes
these spreads can be achieved, material factors affecting the net spreads are
difficult to predict and could cause management's projections to be materially
inaccurate. These include current market conditions with respect to market
interest rates and demand for asset-backed securities generally, and for
Certificates representing interests in securitizations sponsored by the Company.
See - "Discussion of Forward-Looking Statements".
Gain on Sales of Loans and Interest Rate Risk. Gain on sales of loans
continues to be a significant element of the Company's net earnings. The gain on
sales of loans is affected by several factors, but is primarily affected by the
amount of loans securitized, the net spread and the level of estimated credit
losses. Historically, the Company has estimated the Excess Servicing recognized
as a component of the gain on sale by discounting the projected future servicing
cash flows from the time they are received by the respective trust, however,
management is currently considering implementing the "cash out" method. The
impact of utilizing the "cash out" method has not yet been determined but is not
expected to have a material effect on the fourth quarter gain on sale. See -
"Note 5 of the Interim Financial Statements - Excess Servicing".
The Company's sources of funds generally have variable rates of
interest and its loan portfolio bears interest at fixed rates. The Company
therefore bears interest rate risk on loans until they are securitized and
employs a hedging strategy to mitigate this risk. As a part of the hedging
strategy, the Company executes short sales of U.S. Treasury securities having a
maturity approximating the average maturity of loans to be acquired during the
relevant period. There is no assurance that this strategy will completely offset
changes in interest rates. In particular, such strategy depends on management's
estimates of loan acquisition volume. The Company realizes a gain on its hedging
transactions during periods of increasing interest rates and realizes a loss on
such transactions during periods of decreasing interest rates. The hedging gain
or loss will in part offset changes in interest rates as seen by a lower or
higher reported gain on sales of loans, respectively. Recognition of unrealized
gains or losses is deferred until the sale of loans during the securitization.
On the date of the sale, hedging deferred gains and losses are recognized as a
component of gain on sales of loans.
Portfolio Performance. UAC has seen steady improvement in delinquency
and credit losses over the last two quarters. UAC attributes the improvement to
strategic efforts made by the Company including implementing tighter credit
standards in March 1997, forming specialized collection teams to concentrate on
specific groups of accounts and increasing collection efforts on charged-off
accounts.
A decline in delinquency and credit losses on those loans originated
and securitized in 1995 has also contributed to the improved delinquency and
credit losses for the portfolio. In the past, these pools have had higher credit
losses and delinquency than anticipated and have had continued higher credit
losses in the latter months of the pool life rather than reflecting a typical
loss life cycle which should peak between the 12th and 18th month. Over the last
six months, those loans originated and securitized in 1995 have become a smaller
proportion of the total portfolio's credit losses and delinquency as the dollar
amount of credit losses and delinquency in those pools has been decreasing.
Recovery rates have been a contributing factor to higher credit losses.
Recoveries have, however, shown gradual improvements over the last two quarters
which contributed to the improvement in delinquency and credit losses.
Recoveries as a percentage of gross charge-offs increased to 39.42% for the
quarter ended March 31, 1998, from 38.11% and 39.30% for the quarters ended
December 31, 1997, and March 31, 1997, respectively. Although recovery rates
showed signs of improvement during the past two quarters, management continues
to look for ways to improve recovery rates, including more diligently monitoring
and expanding the repossession and remarketing operations. See - "Other
Matters".
Provisions are made for estimated credit losses in conjunction with
each loan sale. Current assumptions in the calculation of the gain allowance for
the third quarter securitization were 4.00% over the life of the pool. Allowance
for estimated credit losses on securitized loans (inherent in the excess
servicing asset) declined to 3.71% at March 31, 1998, compared to 3.88% at
December 31, 1997, and increased from 3.00% at March 31, 1997.
Tier I Portfolio (prime). Set forth below is certain information
concerning the Company's experience pertaining to delinquencies and net credit
losses on the Tier I or prime fixed rate retail automobile, light truck and van
receivables serviced by the Company. There can be no assurance that future
delinquency and net credit loss experience on receivables will be comparable to
that set forth below. See - "Discussion of Forward-Looking Statements".
<PAGE>
<TABLE>
<CAPTION>
Prime Delinquency Experience At
------------------------------------------------------------------------------------
March 31, 1998 December 31, 1997 March 31, 1997
----------------------- ---------------------- ------------------------
(Dollars in thousands)
Number of Number of Number of
Loans Amount Loans Amount Loans Amount
----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Servicing portfolio 181,026 $1,929,151 179,962 $1,920,930 171,234 $1,836,305
Delinquencies
30-59 days 3,426 35,449 3,954 41,778 2,484 27,527
60-89 days 1,923 21,818 2,274 25,933 1,561 18,894
90 days or more 623 7,088 688 8,048 705 8,414
--------- ----------- --------- ---------- ---------- ----------
Total delinquencies 5,972 64,355 6,916 75,759 4,750 54,835
Delinquency as a
percentage of servicing portfolio 3.30% 3.34% 3.84% 3.94% 2.77% 2.99%
</TABLE>
As indicated by the above table, delinquency rates based upon
outstanding loan balances of accounts 30 days past due and over decreased to
3.34% at March 31, 1998, compared to 3.94% at December 31, 1997, and increased
from 2.99% at March 31,1997, for UAC's prime servicing portfolio. The decreased
delinquency is primarily attributed to collection strategies implemented to
target problem accounts as well as the utilization of new scoring tools to focus
collection efforts most effectively.
<TABLE>
<CAPTION>
Prime Credit Loss Experience
For the Three Months Ended
----------------------------------------------------------------------------------------------
March 31, 1998 December 31, 1997 March 31, 1997
---------------------------- -------------------------- --------------------------
(Dollars in thousands)
Number of Number of Number of
Loans Amount Loans Amount Loans Amount
----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Average servicing portfolio 180,631 $ 1,924,930 179,334 $ 1,916,778 170,741 $ 1,835,023
Gross charge-offs
Recoveries 1,886 20,767 1,977 22,373 2,139 24,027
Net charge-offs 8,186 8,527 9,443
------------- ----------- -----------
12,581 13,846 14,584
Gross charge-offs as a
percentage of average servicing
portfolio (1) 4.18% 4.32% 4.41% 4.67% 5.01% 5.24%
Recoveries as a percentage of
gross charge-offs 39.42% 38.11% 39.30%
Net charge-offs as
a percentage of average
servicing portfolio (1) 2.61% 2.89% 3.18%
</TABLE>
(1) Annualized
<PAGE>
<TABLE>
<CAPTION>
Prime Credit Loss Experience
For the Nine Months Ended
---------------------------------------------------------------
March 31, 1998 March 31, 1997
------------------------------- -----------------------------
(Dollars in thousands)
Number of Number of
Loans Amount Loans Amount
----- ------ ----- ------
<S> <C> <C> <C> <C>
Average servicing portfolio 178,628 $ 1,907,770 162,120 $ 1,727,725
Gross charge-offs 5,917 66,197 4,393 48,923
Recoveries 24,848 19,089
------------- -----------
Net charge-offs 41,349 29,834
Gross charge-offs as a
percentage of average
servicing portfolio (1) 4.42% 4.63% 3.61% 3.78%
Recoveries as a percentage
of gross charge-offs 37.54% 39.02%
Net charge-offs as a percentage
of average servicing 2.89% 2.30%
portfolio (1)
</TABLE>
(1) Annualized
As indicated in the table above, credit losses on the prime auto
portfolio totaled $12.6 million for the quarter ended March 31, 1998, or 2.61%
(annualized) of the average servicing portfolio compared to 2.89% and 3.81% for
the quarters ended December 31, 1997, and March 31, 1997, respectively.
Decreased credit losses are primarily a result of strategic efforts made by the
Company to improve the overall credit-quality of loans as well as a slight
improvement in recovery rates.
Tier II Portfolio (non-prime). Set forth below is certain information
concerning the Company's experience pertaining to delinquencies and net credit
losses on the Tier II or non-prime portfolio. There can be no assurance that
future delinquency and net credit loss experience on receivables will be
comparable to that set forth below. See - "Discussion of Forward-Looking
Statements".
<TABLE>
<CAPTION>
Non-prime Delinquency Experience At
------------------------------------------------------------------------------------
March 31, 1998 December 31, 1997 March 31, 1997
-------------------------- ----------------------- ------------------------
(Dollars in thousands)
Number of Number of Number of
Loans Amount Loans Amount Loans Amount
---------- ------------ ----------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Servicing portfolio 6,414 $69,850 6,367 $ 70,439 5,973 $ 68,340
Delinquencies
30-59 days 371 4,186 400 4,647 162 1,973
60-89 days 114 1,369 150 1,728 73 884
90 days or more - - - - - -
---------- ------------ ----------- ----------- ------------- --------------
Total delinquencies 485 5,555 550 6,375 235 2,857
Delinquency as a
percentage of servicing portfolio 7.56% 7.95% 8.64% 9.05% 3.93% 4.18%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Non-prime Credit Loss Experience
For the Three Months Ended
------------------------------------------------------------------------------------------
March 31, 1998 December 31, 1997 March 31, 1997
--------------------------- --------------------------- ---------------------------
(Dollars in thousands)
Number of Number of Number of
Loans Amount Loans Amount Loans Amount
----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Average servicing portfolio 6,414 $ 70,345 6,340 $70,547 5,896 $67,958
Gross charge-offs 159 1,781 195 2,163 111 1,252
Recoveries 602 708 455
--------- -------- -------
Net charge-offs 1,179 1,455 797
Gross charge-offs as a percentage
of average servicing portfolio (1) 9.92% 10.13% 12.30% 12.26% 7.53% 7.37%
Recoveries as a percentage
of gross charge-offs 33.81% 32.75% 36.32%
Net charge-offs as a percentage
of average servicing portfolio (1) 6.70% 8.25% 4.69%
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended
----------------------------------------------------------
March 31, 1998 March 31, 1997
--------------------------- ---------------------------
(Dollars in thousands)
Number of Number of
Loans Amount Loans Amount
----- ------ ----- ------
<S> <C> <C> <C> <C>
Average servicing portfolio 6,319 $ 70,239 5,308 $61,576
Gross charge-offs 583 6,418 247 2,736
Recoveries 2,243 913
------------ -----------
Net charge-offs 4,175 1,823
Gross charge-offs as a percentage
of average servicing portfolio (1) 12.30% 12.18% 6.20% 5.92%
Recoveries as a percentage
of gross charge-offs 34.95% 33.37%
Net charge-offs as a percentage
of average servicing portfolio (1) 7.92% 3.95%
</TABLE>
(1) Annualized
As indicated in the above table, non-prime delinquency was 7.95% based
on outstanding loan balances of accounts 30 days past due and over at March 31,
1998, compared to 9.05% at December 31, 1997, and 4.18% at March 31, 1997.
Credit losses for the quarter ended March 31, 1998, totaled $1.2 million or
6.70% (annualized) as a percentage of the average non-prime servicing portfolio
compared to 8.25% and 4.69% for the quarters ended December 31, 1997, and March
31, 1997, respectively. The decrease in delinquency and net credit losses is a
result of a more seasoned portfolio as well as strategic changes made with in
the collections department. The non-prime portfolio represents less than 4.00%
of the Company's total servicing portfolio.
Marine Portfolio. Delinquency related to the marine portfolio based on
outstanding loan balances of accounts 30 day past due and over at March 31,
1998, was 1.43%, a decrease from 1.60% at December 31, 1997, and an increase
from 0.74% at March 31, 1997. Net credit losses on the marine servicing
portfolio for the third quarter of fiscal 1998 were 1.83% compared to 1.64% for
the quarter ended December 31, 1997. The marine lending program was terminated
in March 1998, however, net credit losses are expected to continue as the
portfolio becomes more seasoned. See - "Other Matters".
Results of Operations
Net earnings for the three months and nine months ended March 31, 1998,
were down 71.6% and 77.0% respectively, compared to the three months and nine
months ended March 31, 1997. Net earnings for the nine months ended March 31,
1998, included a one-time income tax benefit of $860,000 resulting from the
change in commercial domicile of five of the Company's subsidiaries. The change
in commercial domicile should reduce the effective income tax rate from 40.5% to
approximately 38.2% on a continuing basis. The decrease in net earnings is
primarily attributable to lower net interest margins and lower gain on sales of
loans. The Company's total loan acquisitions for the quarter decreased 21.3%
compared to the same quarter last year. Year to date loan acquisitions also
decreased by 20.7% over the comparable period of fiscal 1997. The servicing
portfolio was over $2.0 billion, a 5.1% increase over a year ago.
Net interest margin after provision decreased 104.2% to ($85,000) and
89.4% to 941,000 for the three and nine months ended March 31, 1998,
respectively, compared to $2.0 million and $8.9 million for the corresponding
periods ended March 31, 1997. The decrease in net interest margin is due
primarily to three factors. First, the held for sale portfolio had a lower
interest rate yield and a lower average principal balance on the prime held for
sale portfolio for the three and nine months ended March 31, 1998, compared to
the corresponding periods of last fiscal year. Second, the provision for credit
losses on loans held for sale was increased in response to the trend of
increasing credit losses and delinquencies experienced prior to the second
quarter of this fiscal year. Third, interest expense on long-term debt was
higher during the three and nine months ended March 31, 1998, compared to the
same periods of fiscal 1997 due to the issuance of the $65.0 million in Senior
Notes during March 1997, but was partially offset by lower interest on
borrowings due to lower average borrowing needs resulting from lower loan
acquisitions.
Gain on sales of loans decreased to $4.4 million and $8.9 million for
the three and nine months ended March 31, 1998, respectively, from $8.3 million
and $22.9 million for the corresponding periods ended March 31, 1997. The
decrease was due to higher provisions for estimated credit losses as well as
lower loan acquisitions resulting in lower securitizations during the first
three quarters of fiscal 1998. The Company securitized $218.4, $204.1 and $228.9
million in loans during the first, second and third quarters of fiscal 1998
compared to $311.0, $314.2 (including $31.1 million in a non-prime
securitization), and $293.3 million for the first, second and third quarters of
fiscal 1997. Furthermore, an additional $1.0 million of reserves was recorded in
the third quarter of fiscal 1998 and 1997 as a reduction to the gain.
Servicing fees, net totaled $6.4 million and $19.1 million for the
three and nine months ended March 31, 1998, compared to $6.9 million and $18.9
million, respectively, for the corresponding periods ended March 31, 1997.
Servicing fees consist of contractual servicing fees (1% on prime
securitizations), the accretion of discount on excess servicing cashflows, and
excess rebates. Servicing fees, net decreased 6.1% for the three months ended
March 31, 1998, compared to the same period of last year. The decrease is
primarily a result of rebates received in excess of original estimates that
reduced the excess servicing asset rather than being recorded as a component of
servicing fees. The change in recording excess rebates was made during the
fourth quarter of fiscal 1997. The decrease in servicing fees related to excess
rebates is offset by an increase in servicing fees due to a higher average
securitized servicing portfolio at March 31, 1998, compared to March 31, 1997.
The average securitized portfolio increased by approximately 4.8% and 14.2% for
the three and nine months ended March 31, 1998, compared to the same periods of
fiscal 1997.
Other revenues increased to $1.1 million and $3.1 million for the three
and nine months ended March 31, 1998, respectively, from $1.0 million and $2.9
million for the three and nine months ended March 31, 1997. Other revenue
consists primarily of late charge income and origination fee income. The
increase resulted primarily from increases in late charge fee income, but was
offset by a decrease in origination fees. The increase in late charge income is
primarily due to the increase in the servicing portfolio as well as higher
delinquencies experienced during the nine months ended March 31, 1998, compared
to the same period of last fiscal year. The decrease in origination fees is
primarily due to a lower volume of loans acquired during the three and nine
months ended March 31, 1998, compared to the same periods of fiscal 1997.
Additionally, origination fees have decreased due to the use of a greater
percentage of generic contracts that do not allow for an origination fee to be
charged.
Salaries and benefits increased 18.5% to $4.8 million and 23.3% to
$14.3 million for the three and nine months ended March 31, 1998, respectively,
from $4.1 million and $11.6 million for the three and nine months ended March
31, 1997. These increases resulted primarily from increased full-time equivalent
("FTE") employees. Average FTE's for the three and nine months ended March 31,
1998, were 492 and 451, respectively, compared to 371 and 364 for the comparable
periods ended March 31, 1997. The Company has experienced growth primarily in
collections, but modestly in other areas. Additional support staff has been
added to help ensure efficiency in operations as the Company's servicing
portfolio continues to increase.
Other operating expense increased 15.1% to $4.0 million and 11.5% to
$12.2 million for the three and nine months ended March 31, 1998, respectively,
from $3.5 million and $10.9 million for the three and nine months ended March
31, 1997. Other operating expenses primarily include occupancy and equipment
costs, outside and professional services, loan expenses, promotional expenses,
travel and office supplies. The year to date increase resulted primarily from an
increase in consulting and professional fees for the Activity Based Management
("ABM") project that began in July 1997 and the non-recurring fees related to
the change in commercial domicile for five of the Company's subsidiaries. ABM is
used as a tool to better manage the Company's business and to improve the
pricing of products and overall operating efficiency. The change in commercial
domicile provided a one-time income tax benefit of $860,000 in the second
quarter of fiscal 1998.
Financial Condition
Loans, net includes the principal balance of loans held for sale, net
of unearned discount, allowance for estimated credit losses, loans in process,
and prepaid dealer premiums. The Company's portfolio of loans, net increased to
$153.8 million at March 31, 1998, from $121.4 million at June 30, 1997. The
increase in loans, net is due primarily to a higher balance of non-prime loans
held for sale at March 31, 1998, compared to June 30, 1997. A non-prime
securitization is scheduled for the fourth quarter of fiscal 1998 which will
reduce the loans, net balance by approximately $30.0 million. Additionally,
prime loan acquisition volume was higher in the third month of the quarter ended
March 31, 1998, compared to the quarter ended June 30, 1997, resulting in a
higher loans, net balance at quarter end. Modified loans, which do not meet
certain securitization eligibility requirements, are included in the loans, net
balance and have increased to approximately $25.5 million at March 31, 1998,
from $14.3 million at June 30, 1997, of the loans, net balance. The increase in
modified loans has contributed to a higher loans, net balance at March 31, 1998,
compared to June 30, 1997.
Excess Servicing increased to $106.4 million as of March 31, 1998, from
$98.8 million as of June 30, 1997. Excess Servicing increased by the amount
capitalized upon consummation of the UACSC 1997-C, 1997-D, and 1998-A Auto
("1997-C", "1997-D" and "1998-A", respectivley) prime securitizations.
Structuring of the securitization includes the sale of an "interest only strip"
which generates higher cash proceeds from the sale, but serves to reduce the
initial excess servicing asset recorded. The amount capitalized was offset by
the increased return of excess cashflows over the nine months ended March 31,
1998, related to all outstanding securitizations. The excess servicing asset was
decreased by a mark to market unrealized loss adjustment to excess servicing
totaling $7.3 million, or $4.5 million after tax. The net unrealized loss was
recorded as a component of shareholder's equity in accordance with SFAS 125
during the current quarter. Historically, the Company has estimated the Excess
Servicing fair value by discounting the projected future servicing cash flows
from the time they are received by the respective trust, however, management is
currently considering implementing the "cash out" method. The impact of
utilizing the "cash out" method has not yet been determined but could have a
material effect on the fair value of the Excess Servicing asset as of June 30,
1998, and result in an other than temporary impairment of Excess Servicing which
would be charged against current earnings. See - "Note 5 of the Interim
Financial Statements- Excess Servicing". The increase in excess servicing was
also offset by the effect of the $3.7 million impairment of the excess servicing
asset recorded during the quarter ended September 30, 1997, which reduced the
amount of gain recorded in the quarter ended September 30, 1997. The Company
made an additional $1.0 million provision to the allowance for estimated credit
losses on securitized loans during the third quarter of fiscal 1998 which
lowered the gain on sale. Allowance for estimated credit losses on securitized
loans is included as a component of the excess servicing asset. At March 31,
1998, the undiscounted allowances, related to both prime and non-prime
securitized loans, totaled $68.9 million or 3.71% of the total securitized loan
portfolio compared to $79.0 million or 4.35% at June 30, 1997. Accrued interest
due to the Company at the cutoff date on securitized loan pools is also included
as a component of Excess Servicing.
Spread Accounts decreased to $70.5 million at March 31, 1998, from
$71.7 million at June 30, 1997. These balances were increased by deposits made
monthly from excess servicing cashflows and are reduced by any withdrawals of
Spread Account funds. Withdrawals of Spread Account funds are made when the
balance of the Spread Accounts are in excess of the requirements stipulated in
the servicing agreement or when a draw on the Spread Account is required to meet
cash flow requirements of the securitization. An initial deposit of $2.3 million
and $2.0 million was made in connection with the 1998-A and 1997-D
securitization, respectively.
The balance of the Revolving Warehouse Credit Facilities and the Senior
and Senior Subordinated Notes was $278.1 million at March 31, 1998, compared to
$265.5 million at June 30, 1997. The increase in borrowings was primarily
related to higher non-prime borrowings at March 31, 1998, compared to June 30,
1997. Additionally, prime loan acquisition volume was higher in the third month
of the quarter ended March 31, 1998, compared to the quarter ended June 30,
1997, effectively increasing the borrowing needs.
The net deferred income taxes payable totaled $17.1 million at March
31, 1998, compared to $15.0 million at June 30, 1997. The increase is a result
of the deferral of a portion of the gain on sales of loans for the
securitizations effected during the first three quarters of fiscal 1998 in
excess of previously deferred income recognized currently for tax purposes. The
increase is offset by the $860,000 reduction in deferred state income taxes
effected in the second quarter of fiscal 1997.
Liquidity and Capital Resources
Sources and Uses of Cash in Operations. The Company's business requires
significant amounts of cash to support operations. Its primary uses of cash
include (i) acquisition of loans, (ii) payment of Dealer Premiums, (iii)
securitization costs including cash held in Spread Accounts and similar cash
collateral accounts under revolving Warehouse Credit Facilities, (iv) servicer
advances of payments on securitized loans pursuant to securitization trusts, (v)
losses on hedging transactions realized in connection with the closing of
securitization transactions where interest rates have declined during the period
covered by the hedge, (vi) operating expenses, (vii) payment of income taxes,
and (viii) interest expense. The Company's sources of cash from operations
include (i) standard servicing fees, generally 1.0% per annum of the prime
securitized portfolio, (ii) Excess Servicing Cash Flows, (iii) Dealer Premium
rebates, (iv) gains on hedging transactions realized in connection with the
closing of securitization transactions where interest rates have increased
during the periods covered by the hedge, (v) interest income, (vi) sales of
loans in securitization transactions and (vii) proceeds from sale of
interest-only strips in conjunction with securitization transactions. Net cash
used by operating activities decreased to $38.3 million for the nine months
ended March 31, 1998, from net cash provided by operating activities of $56.8
million for the nine months ended March 31, 1997. This was primarily
attributable to a decrease in loans securitized relative to loans acquired. The
increase in cash used for investing activities was primarily due to the purchase
of property for the expansion of the reconditioning and remarketing operations
in Indianapolis. See - "Other Matters"
Hedging transactions may represent a source or a use of cash during a
given period depending on the change in interest rates. Hedging transactions
have required a use of cash of $2.2 million for the nine months ended March 31,
1998, compared to $5.8 million for the nine months ended March 31, 1997.
Financing Activities. The Company has substantial capital requirements
to support its ongoing operations and anticipated growth. The Company's sources
of liquidity are currently funds from operations, securitizations and external
financing including long-term debt and revolving warehouse credit facilities.
Historically, the Company has used the securitization of loan pools as its
primary source of long-term funding. Securitization transactions enable the
Company to improve its liquidity, to recognize gains from the sales of the loan
pools while maintaining the servicing rights to the loans, and to control
interest rate risk by matching the repayment of amounts due to investors in the
securitizations with the actual cash flows from the securitized assets. Between
securitization transactions, the Company relies primarily on the Revolving
Warehouse Credit Facilities to fund ongoing loan acquisitions (not including
Dealer Premiums). In addition to loan acquisition funding, the Company also
requires substantial capital on an ongoing basis to fund the advances of Dealer
Premiums, securitization costs, servicing obligations and other cash
requirements described above. The Company's ability to borrow under the Credit
Facilities is dependent upon its compliance with the terms and conditions
thereof. The Company's ability to obtain successor facilities or similar
financing will depend on, among other things, the willingness of financial
institutions to participate in funding automobile financing businesses and the
Company's financial condition and results of operations. Moreover, the Company's
growth may be inhibited, at least temporarily, if the Company is not able to
obtain additional funding through these or other facilities or if it is unable
to satisfy the conditions to borrowing under the Credit Facilities. The Company
consistently assesses its long-term loan funding arrangements with a view to
optimizing cash flows and reducing costs.
Warehouse Facilities. The Company has borrowing arrangements with an
independent financial institution for the Prime Warehouse Facility of up to
$350.0 million and a similar Non-prime Warehouse Facility of up to $50.0
million. Additionally, the Company established a Marine Warehouse Facility of up
to $50.0 million in April 1997 and terminated the Facility in April 1998. See -
"Other Matters". The aggregate capacity of the Prime and Non-prime Warehouse
Facilities is $400.0 million, of which $57.1 million was utilized and an
additional $45.6 million was available to borrow based on the outstanding
principal balance of eligible loans at March 31, 1998. The Prime and Non-prime
Warehouse Facilities were recently renewed and extended to June 1999 and July
1999, respectively. The Prime Warehouse Facility provides funding for loan
acquisitions at a purchase price of up to 100.0% of the outstanding principal
balance of eligible loans at the time of purchase to the extent allocable to
loans which, upon acquisition, provided for 72 monthly payments or less.
Additional funding is provided for eligible loans with greater than 72 monthly
payments at a purchase price of up to 92.0% of the outstanding principal
balance. The advance rate is adjusted monthly based upon actual loss statistics
in order to maintain the necessary credit enhancement level. The Non-prime
Warehouse Facility provides funding for loan acquisitions at a purchase price of
up to 87.0% of the outstanding principal balance of eligible loans at the time
of purchase.
Long-term Debt. The Company issued $110.0 million of 8.53% Senior Notes
due August 1, 2002, in connection with the Company's initial public offering.
Interest on the Notes is payable semiannually, and principal payments are
scheduled to begin August 1, 1998, and on each subsequent August 1, in the
amount equal to approximately 20% of the stated original principal balance. In
April 1996 the Company completed a private placement of $46.0 million of 9.99%
Senior Subordinated Notes due March 30, 2003, with interest payable quarterly
and principal due at maturity. In March 1997, the Company issued $65.0 million
of Senior Notes due December 27, 2002. The Notes were issued as "Series A" in
the principal amount of $50.0 million at 7.75% interest and "Series B" in the
principal amount of $15.0 million at 7.97% interest. Interest on the Notes is
payable semiannually and a principal payment is due March 15, 2002, in the
amount equal to approximately 33 1/3% of the stated original balance.
The Company's credit agreements, among other things, require compliance
with monthly and quarterly financial maintenance tests as well as restrict the
Company's ability to create liens, incur additional indebtedness, sell or merge
assets and make investments. The Company is in compliance with all covenants and
restrictions imposed by the terms of indebtedness.
During the fiscal quarter ended December 31, 1997, the Company was
notified by FITCH IBCA ("Fitch") that its ratings of the Company's Senior and
Senior Subordinated Notes were being reduced one grade. At the time of the
initial downgrade, Fitch informed the Company that it would consider a further
downgrade of such securities if the Company failed to show material improvement
in asset quality unless the Company obtained additional equity capital. Although
improvement in asset quality during the second and third quarters of fiscal 1998
occurred, the Company was notified on February 27, 1998, of a further downgrade
to "BB+" and "BB" on the Senior and Senior Subordinated notes, respectively.
Given the improvement in asset quality and current adequacy of capital
resources, the Company does not intend to seek additional equity investment in
the current fiscal year. The Company plans to do a prime and non-prime
securitization during the fourth quarter of fiscal 1998 and is considering a
sale of its marine portfolio and its portfolio of prime loans which do not meet
certain securitization eligibility criteria to increase liquidity in the short
term.
Management believes that the Company's existing capital resources, the
Warehouse Facilities described above, future earnings, and periodic
securitization of loans should provide the necessary capital and liquidity for
its operations through at least the first quarter of fiscal 1999. The period
during which its existing capital resources will continue to be sufficient will,
however, be affected by the factors described above affecting the Company's cash
requirements. A number of these factors are difficult to predict, particularly
including the cash-effect of hedging transactions, the availability of outside
credit enhancement in securitizations or other financing transactions and other
factors affecting the net cash provided by securitizations. Depending on the
Company's ongoing cash and liquidity requirements, market conditions and
investor interest, the Company may seek to issue additional debt or equity
securities in the near term. The sale of additional equity, including Class A
Common Stock or preferred stock, would dilute the interests of current
shareholders.
Other Matters
Remarketing of Repossessed Autos. During the first quarter of fiscal
1998 the Company acquired a 6.5 acre property near its Indianapolis headquarters
for the purpose of expanding its reconditioning and remarketing operations which
have outgrown its current facilities in Indianapolis. Renovation of the facility
is progressing and operations are expected to commence in the latter part of the
fourth quarter of fiscal 1998.
Marine Lending. The marine lending program was terminated March 1, 1998
due to strict rate competition in the market, resulting in the inability to
acquire large volumes of loans with profitable spreads. Marine loan acquisitions
totaled $288,000 and $2.5 million for the quarter and nine months ended March
31, 1998, respectively. The termination of the marine program will not
significantly impact operations and will allow the Company to focus on the more
profitable used car market. As a result of the termination of the marine lending
program, the Marine Warehouse Facility was no longer necessary. On April 15,
1998, the Company repaid all of its obligations under the Marine Warehouse
Facility and terminated all related contractual agreements.
In May 1998 Cynthia F. Whitaker, Vice President of Special Projects and
Secretary, resigned to pursue other interests.
Discussion of Forward-Looking Information
The above discussions and notes to interim financial statements contain
forward-looking statements made by the Company regarding its results of
operations, effects of changes in accounting policies, cash flow needs and
liquidity, loan acquisition volume, target spreads, potential credit losses,
servicing income, and other aspects of its business. Similar forward-looking
statements may be made by the Company from time to time. Such forward-looking
statements are subject to a number of important factors that cannot be predicted
with certainty and which could cause such forward-looking statements to be
materially inaccurate. See the "Discussion of Forward-Looking Information" under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's Annual Report on Form 10-K for fiscal 1997 which is
incorporated herein by this reference.
<PAGE>
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
Exhibit 4.1 Amendment No. 8, dated as of September 29, 1998,
to Transfer and Administration Agreement, dated
June 27,1995, among Union Acceptance Funding
Corporation, Union Acceptance Corporation and
Enterprise Funding Corporation, as amended ("UAFC
Transfer and Administration Agreement.")
Exhibit 4.2 Letter Agreement regarding UAFC Transfer and
Administration Agreement, dated as of November 24,
1997.
Exhibit 4.3 Amendment No. 10 to UAFC Transfer and
Administration Agreement, dated as of January 26,
1998.
Exhibit 4.4 Letter Agreement regarding UAFC Transfer and
Administration Agreement, dated as of April 28,
1998.
Exhibit 4.5 Amendment No. 7, dated as of September 29, 1998,
to Transfer and Administration Agreement, dated
July 24, 1995, among Performance Funding
Corporation, Union Acceptance Corporation and
Enterprise Funding Corporation, as amended ("Non-
Prime Transfer and Administration Agreement.")
Exhibit 4.6 Letter Agreement regarding Non-Prime Transfer and
Administration Agreement, dated as of November 24,
1997.
Exhibit 4.7 Amendment No. 9 to Non-Prime Transfer and
Administration Agreement, dated as of January 26,
1998.
Exhibit 4.8 Letter Agreement regarding Non-Prime Transfer and
Administration Agreement, dated as of April 28,
1998.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
March 31, 1998
<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 Acceptance Corporation
May 13, 1998 By: /S/ John M. Stainbrook
-------------------------
John M. Stainbrook
President and Chief Executive
Officer
May 13, 1998 By: /S/ Rick A. Brown
-------------------
Rick A. Brown
Vice President, Treasurer
and Chief Financial Officer
AMENDMENT NUMBER 8 TO
TRANSFER AND ADMINISTRATION AGREEMENT
AMENDMENT NUMBER 8 TO TRANSFER AND ADMINISTRATION AGREEMENT (this
"Amendment"), dated as of September 29, 1997 between UNION ACCEPTANCE FUNDING
CORPORATION, a Delaware corporation, as transferor (in such capacity, the
"Transferor"), UNION ACCEPTANCE CORPORATION, an Indiana Corporation, as
collection agent (in such capacity, the "Collection Agent"), and ENTERPRISE
FUNDING CORPORATION, a Delaware corporation (the "Company") amending that
certain Transfer and Administration Agreement dated as of June 27, 1995, as
amended as of September 8, 1995, September 29, 1995, March 1, 1996, September 5,
1996, October 31, 1996, December 23, 1996 and March 31, 1997 (the "Transfer and
Administration Agreement").
WHEREAS, the Transferor and the Company have agreed to make certain
amendments to the Transfer and Administration Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
SECTION 1. Defined Terms. As used in this Amendment and except as
otherwise provided in this Section 1, capitalized terms shall have the same
meanings assigned thereto in the Transfer and Administration Agreement:
(a) Section 1.1 of the Transfer and Administration Agreement is hereby
amended by deleting the definition of Actual Net Loss to Date and replacing it
with the following (solely for convenience changed language is italicized):
"Actual Net Loss to Date" shall mean, on any date of
determination, for any applicable period and for any
particular Securitized Pool, an amount equal to the cumulative
gross charge-offs through the end of the most recent
Settlement Period less any recoveries realized through the end
of the most recent Settlement Period on charged-off contracts
less the estimated wholesale value of repossessed financed
vehicles which have not yet been liquidated (based on the
National Auto Research Black Book together with adjustments
related to vehicle condition) less all Reimbursable Dealer
Add-one as determined in accordance with UAC's Credit and
Collection Policy relating to Contracts for which Reimbursable
Dealer Add-one have not been received and for which UAC's
Credit and Collection Policy deems such amounts to be
collectible, in each case related to specified contracts and
receivables included in such Securitized Pool through the most
recent Settlement Period.
(b) Section 1.1 of the Transfer and Administration Agreement is hereby
amended by the addition of the following definition in the appropriate
alphabetic location:
"Reimbursable Dealer Add-ons" shall mean any accident and
health, credit life and disability and warranty insurance
rebates that are to be reimbursed on charged-off accounts."
-1-
<PAGE>
SECTION 2. Limited Scope. This amendment is specific to the
circumstances described above and does not imply any future amendment or waiver
of rights allocated to the Company, the Transferor, Union Acceptance
Corporation, the Collection Agent, the Administrative Agent or the Collateral
Agent under the Transfer and Administration Agreement.
SECTION 3. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 4. Severability; Counterparts. This Amendment may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
instrument. Any provisions of this Amendment which are prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
SECTION 5. Ratification. Except as expressly affected by the provisions
hereof, the Transfer and Administration Agreement as amended shall remain in
full force and effect in accordance with its terms and ratified and confirmed by
the parties hereto. On and after the date hereof, each reference in the Transfer
and Administration Agreement to "this Agreement", "hereunder", "herein" or words
of like import shall mean and be a reference to the Transfer and Administration
Agreement as amended by this Amendment.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment Number 8 as of the date first written above.
ENTERPRISE FUNDING CORPORATION,
as Company
By: /s/ Andrea Dulbery
Name: Andrea Dulbery
Title:
UNION ACCEPTANCE FUNDING CORPORATION
as Transferor
By: /s/ Leeanne Graziani
Name: Leeanne Graziani
Title: Vice President
UNION ACCEPTANCE CORPORATION
as Collection Agent
By: /s/ Rick A. Brown
Name: Rick Brown
Title: Vice President and
Chief Financial Officer
ENTERPRISE FUNDING CORPORATION
c/o MERRILL LYNCH MONEY MARKETS INC.
World Financial Center - South Tower
225 Liberty Street
Now York, Now York 10281
November 24, 1997
Ms. Leeanne Graziani
Union Acceptance Funding Corporation
9240 Bonita Beach Road
Suite 1109-C
Bonita Springs, Florida 34136
Dear Leeanne:
This letter is to confirm our agreement to amend the Transfer and Administration
Agreement (the "Agreement") between Union Acceptance Corporation (the
"Collection Agent"), Union Acceptance Funding Corporation (the "Transferor") and
Enterprise Funding Corporation (the "Company") dated June 27, 1995 and as
amended to date. The Agreement shall be amended as follows and shall be
effective as of today:
o In Section 5.2(j) insert the word "senior" before the phrase "long-term
unsecured debt rating lower than BBB- from Fitch Investors Service,
Inc. or the equivalent by Moody's or Standard and Poor's".
The Transferor hereby represents and warrants that the representations and
warranties of the Transferor set forth in Section 3.1 of the Transfer and
Administration Agreement are true and correct as of the date hereof (except
those representations and warranties set forth therein which specifically relate
to an earlier date).
All other terms and conditions of the Agreement not amended by this letter
agreement shall remain unchanged and in full force and effect.
If this letter correctly sets forth our agreement. please sign the enclosed
duplicate original and return to Brian D. Krum, NationsBank Investment Banking,
NationsBank Corporate Center, 10th Floor, Charlotte, North Carolina 28255 by
November 26,1997.
Sincerely,
ENTERPRISE FUNDING CORPORATION
By: /s/ Stewert Cutler
Name: Stewert Cutler
Title:
-1-
<PAGE>
Accepted and Agreed:
UNION ACCEPTANCE CORPORATION UNION ACCEPTANCE FUNDING
CORPORATION
By: /s/ Rick A. Brown By: /s/ Leeanne W. Graziani
------------------------- ---------------------------
Name: Rick A. Brown Name: Leeanne W. Graziani
Title: Vice President and Title: Vice President
Chief Financial Officer
AMENDMENT NUMBER 10 TO
TRANSFER AND ADMINISTRATION AGREEMENT
AMENDMENT NUMBER 10 TO TRANSFER AND ADMINISTRATION AGREEMENT (this
"Amendment"), dated as of January 26, 1998 between UNION ACCEPTANCE FUNDING
CORPORATION, a Delaware corporation, as transferor (in such capacity, the
"Transferor"), UNION ACCEPTANCE CORPORATION, an Indiana corporation, as
collection agent (in such capacity, the "Collection Agent"), and ENTERPRISE
FUNDING CORPORATION, a Delaware corporation (the "Company") amending that
certain Transfer and Administration Agreement dated as of June 27, 1995, as
amended as of September 8, 1995, September 29, 1995, March 1, 1996, September 5,
1996, October 31, 1996, December 23, 1996, March 31, 1997, September 29, 1997
and November 24, 1997 (the "Transfer and Administration Agreement").
WHEREAS, the Transferor and the Company have agreed to make certain
amendments to the Transfer and Administration Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
SECTION 1. Defined Terms. As used in this Amendment, and except as
otherwise provided in this Section 1, capitalized terms shall have the same
meanings assigned thereto in the Transfer and Administration Agreement.
(a) Section 1.1 of the Transfer and Administration Agreement is hereby
amended by deleting the definition of Actual Net Loss and replacing it with the
following (solely for convenience changed language is italicized):
"Actual Net Loss to Date" shall mean, on any date of
determination, for any applicable period and for any
particular Securitized Pool, an amount equal to the cumulative
gross charge-offs through the end of the most recent
Settlement Period less any recoveries realized through the end
of the most recent Settlement Period on charged-off contracts
less the Adjustment Factor times the estimated wholesale value
of repossessed financed vehicles which have not yet been
liquidated (based on the National Auto Research, Black Book
together with adjustments related to vehicle condition) less
all Reimbursable Dealer Add-ons as determined in accordance
with UAC's Credit and Collection Policy relating to Contracts
for which Reimbursable Dealer Add-ons have not been received
and for which UAC'S Credit and Collection Policy deems such
amounts to be collectible, in each case related to specified
contracts and receivables included in such Securitized Pool
through the most recent Settlement Period."
(b) Section 1.1 of the Transfer and Administration Agreement is hereby
amended by the addition of the following definition in the appropriate
alphabetic location:
-1-
<PAGE>
""Actual Amount" shall mean, for each Settlement Period, the
actual liquidation proceeds obtained for the repossessed
financed vehicles during such Settlement Period upon the
liquidation of the repossessed financed vehicles, as reported
on the related Settlement Statement."
""Adjustment Factor" shall mean, for each Collection Period
(i) 0%, if the Ratio of Estimated Amount to Actual Amount is
greater than 110% for the three most recent Collection Periods
or (ii) if the Ratio of Estimated Amount to Actual Amount is
less than 110% for the three most recent Collection Periods,
the percentage equivalent of a fraction, the numerator of
which is 1 and the denominator of which is the highest Ratio
of Estimated Amount to Actual Amount for the six most recent
Collection Periods."
""Estimated Amount" shall mean, for each Settlement Period,
the wholesale value of repossessed financed vehicles which
have not been liquidated as previously estimated by the
Collection Agent for all Securitized Pools in the aggregate,
as reported on the related Settlement Statement."
""Ratio of the Estimated Amount to the Actual Amount" shall
mean, for each Collection Period, the ratio of (a) Estimated
Amount to (b) Actual Amount."
(c) Section 5.2(j) of the Transfer and Administration Agreement is
hereby amended by deleting such section and replacing it with the following
(solely for Convenience changed language is italicized):
Minimum Standards of an Independent UAC. Following complete
divestiture by Union Federal Savings Bank of Indianapolis of
its equity interest in UAC, UAC shall not, subsequent to such
divestiture (i) (A) as at the end of each fiscal year, fail to
maintain consolidated shareholder's equity (calculated in
accordance with generally accepted accounting principles) of
at least $50,000,000 and (B) as at the end of each fiscal
quarter, have a ratio of Consolidated Total Debt to the sum of
Subordinated Debt plus Consolidated Tangible Net Worth greater
than 7.5:1.0 (where the Warehouse Facility balances utilized
in such calculation are the average quarterly balances
determined using the Warehouse Facility balances at the end of
each month in the relevant quarter) (capitalized terms used in
this clause are defined in Exhibit P) or (ii) have a long-term
senior unsecured debt rating lower than BB+ from Fitch
Investors Service, Inc. or the equivalent by Moody's or
Standard and Poor's.
SECTION 2. Limited Scope. This amendment is specific to the
circumstances described above and does not imply any future amendment or waiver
of rights allocated to the Company, the Transferor, Union Acceptance
Corporation, the Collection Agent, the Administrative Agent or the Collateral
Agent under the Transfer and Administration Agreement.
-2-
<PAGE>
SECTION 3. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 4. Severability; Counterparts. This Amendment may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
instrument. Any provisions of this Amendment which are prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
SECTION 5. Ratification. Except as expressly affected by the provisions
hereof, the Transfer and Administration Agreement as amended shall. remain in
full force and effect in accordance with its terms and ratified and confirmed by
the parties hereto. On and after the date hereof, each reference in the Transfer
and Administration Agreement to "this Agreement", "hereunder", "herein" or words
of like import shall mean and be a reference to the Transfer and Administration
Agreement as amended by this Amendment.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment Number 10 as of the date first written above.
ENTERPRISE FUNDING CORPORATION,
as Company
By: /s/ Stewert Cutler
-----------------------------------
Name: Stewert Cutler
Title:
UNION ACCEPTANCE FUNDING CORPORATION
as Transferor
By: /s/ Leeanne W. Graziani
-----------------------------------
Name: Leeanne W. Graziani
Title: Vice President
UNION ACCEPTANCE CORPORATION
as Collection Agent
By: /s/ Rick A. Brown
-----------------------------------
Name: /s/ Rick A. Brown
Title: Vice President and Chief Financial
Officer
ENTERPRISE FUNDING CORPORATION
c/o MERRILL LYNCH MONEY MARKETS INC.
World Financial Center - South Tower
225 Liberty Street
New York, New York 10281
April 28, 1998
Ms. Leeanne Graziani
Union Acceptance Funding Corporation
9240 Bonita Beach Road
Suite 1109-C
Bonita Springs, Florida 34135
Dear Leeanne:
This letter is to confirm our agreement to amend the Transfer and Administration
Agreement between Union Acceptance Corporation (the "Collection Agent"), Union
Acceptance Funding Corporation (the "Transferor") and Enterprise Funding
Corporation (the "Company") dated June 27, 1995 and as amended to date (the
"Agreement"). The Agreement shall be amended as follows and shall be effective
as of today:
o In Section 1.1, the definition of "Termination Date" shall be amended
so that "June 26, 1998" contained in clause (v) of the definition shall
read "June 25, 1999".
The Transferor hereby represents and warrants that the representations and
warranties of the Transferor set forth in Section 3.1 of the Agreement are true
and correct as of the date hereof (except those representations and warranties
set forth therein which specifically relate to an earlier date).
All other terms and conditions of the Agreement not amended by this letter
agreement shall remain unchanged and in full force and effect.
If this letter correctly sets forth our agreement, please sign the enclosed
duplicate original and return to Brian D. Krum, NationsBank Investment Banking,
NationsBank Corporate Center, 10th Floor, Charlotte, North Carolina 28255 by May
2, 1998.
Sincerely,
ENTERPRISE FUNDING CORPORATION
By: /s/ Stewert Cutler
Name: Stewert Cutler
Title:
-1-
<PAGE>
Accepted and Agreed:
UNION ACCEPTANCE CORPORATION PERFORMANCE FUNDING CORPORATION
By: /s/ Melanie S. Otto By: /s/ Leeanne W. Graziani
Name: Melanie S. Otto Name: Leeanne W. Graziani
Title: Vice President Title: Vice President
AMENDMENT NUMBER 7 TO
TRANSFER AND ADMINISTRATION AGREEMENT
AMENDMENT NUMBER 7 TO TRANSFER AND ADMINISTRATION AGREEMENT (this
"Amendment"), dated as of September 29, 1997 between PERFORMANCE FUNDING
CORPORATION, a Delaware corporation, as transferor (in such capacity, the
"Transferor"), UNION ACCEPTANCE CORPORATION, an Indiana corporation, in its
individual capacity and as collection agent (in such capacity, the "Collection
Agent"), and ENTERPRISE FUNDING CORPORATION, a Delaware corporation (the
"Company") amending that certain Transfer and Administration Agreement dated as
of July 24, 1995 among the parties hereto, as amended by Amendment No. 1 dated
as of September 8, 1995, Amendment No. 2 dated as of May 10, 1996, Amendment No.
3 dated as of December 23, 1996, Amendment No. 4 dated as of April 25, 1997,
Amendment No. 5 dated as of June 6, 1997 and Amendment No. 6 dated as of July
29, 1997 (the "Transfer and Administration Agreement").
WHEREAS, the Transferor and the Company have agreed to make certain
amendments to the Transfer and Administration Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
SECTION 1. Defined Terms. As used in this Amendment, and except as
otherwise provided in this Section 1, capitalized terms shall have the same
meanings assigned thereto in the Transfer and Administration Agreement.
(a) Section 1.1 of the Transfer and Administration Agreement is hereby
amended by deleting the definition of Actual Net Loss and replacing it with the
following (solely for convenience changed language is italicized):
"Actual Net Loss" shall mean, for any applicable period and
for any particular Monthly Group, an amount equal to the
cumulative gross charge-offs during such period less any
recoveries realized during such period on charged-off
contracts less the estimated wholesale value of repossessed
financed vehicles which have not yet been liquidated (based on
the National Auto Research Black Book together with
adjustments related to vehicle condition) less all
Reimbursable Dealer Add-ons as determined in accordance with
UACs Credit and Collection Policy relating to Contracts for
which Reimbursable Dealer Add-ons have not been received and
for which UAC's Credit and Collection policy deems such
amounts to be collectible, in each case related to specified
contracts and receivables included in such Monthly Group
through the most recent Settlement Period.
(b) Section 1.1 of the Transfer and Administration Agreement is hereby
amended by the addition of the following definition in the appropriate
alphabetic location:
-1-
<PAGE>
"Reimbursable Dealer Add-Ons" shall mean any accident and
health, credit life and disability and warranty insurance
rebates that are to be reimbursed on charged-off accounts."
SECTION 2. Representations and Warranties. The Transferor hereby makes
to the Company, on and as of the date hereof, all of the representations and
warranties set forth in Section 3.1 of the Transfer and Administration
Agreement, except to the extent that any such representation or warranty
specifically refers to an earlier date. In addition, the Collection Agent hereby
makes to the Company, on the date hereof, all the representations and warranties
set forth in Section 3.2 of the Transfer and Administration Agreement, except to
the extent that any such representation or warranty specifically refers to an
earlier date.
SECTION 3. Limited Scope. This amendment is specific to the
circumstances described above and does not imply any future amendment or waiver
of rights allocated to the Company, the Transferor, Union Acceptance
Corporation, the Collection Agent, the Administrative Agent or the Collateral
Agent under the Transfer and Administration Agreement.
SECTION 4. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 5. Severability; Counterparts. This Amendment may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
instrument. Any provisions of this Amendment which are prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
SECTION 6. Ratification. Except as expressly affected by the provisions
hereof, the Transfer and Administration Agreement as amended shall remain in
full force and effect in accordance with its terms and ratified and confirmed by
the parties hereto. On and after the date hereof, each reference in the Transfer
and Administration Agreement to "this Agreement", "hereunder", "herein" or words
of like import shall mean and be a reference to the Transfer and Administration
Agreement as amended by this Amendment.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment Number 7 as of the date first written above.
ENTERPRISE FUNDING CORPORATION,
as Company
By: /s/ Andrea Dulbery
Name: Andrea Dulbery
Title:
UNION ACCEPTANCE FUNDING CORPORATION
as Transferor
By: /s/ Leeanne W. Grazaini
Name: Leeanne W. Grazaini
Title: Vice President
UNION ACCEPTANCE CORPORATION
as Collection Agent
By: /s/ Rick A. Brown
Name: Rick A. Brown
Title: Vice President and
Chief Financial Officer
ENTERPRISE FUNDING CORPORATION
c/o MERRILL LYNCH MONEY MARKETS INC.
World Financial Center - South Tower
225 Liberty Street
New York, New York 10281
November 24, 1997
Ms. Leeanne Graziani
Performance Funding Corporation
9240 Bonita Beach Road
Suite 1109-D
Bonita Springs, Florida 34135
Dear Leeanne:
This letter is to confirm our agreement to amend the Transfer and Administration
Agreement (the "Agreement") between Union Acceptance Corporation (the
"Collection Agent"), Performance Funding Corporation (the "Transferor") and
Enterprise Funding Corporation (the "Company") dated July 24, 1995 and as
amended to date. The Agreement shall be amended as follows and shall be
effective as of today:
o In Section 5.2(j) insert the word "senior" before the phrase "long-term
unsecured debt rating lower than BBB- from Fitch Investors Service,
Inc. or the equivalent by Moody's or Standard and Poor's".
The Transferor hereby represents and warrants that the representations and
warranties of the Transferor set forth in Section 3.1 of the Transfer and
Administration Agreement are true and correct as of the date hereof (except
those representations and warranties set forth therein which specifically relate
to an earlier date).
All other terms and conditions of the Agreement not amended by this letter
agreement shall remain unchanged and in full force and effect.
If this letter correctly sets forth our agreement, please sign the enclosed
duplicate original and return to Brian D. Krum, NationsBank Investment Banking,
NationsBank Corporate Center, 10th Floor, Charlotte, North Carolina 28255 by
November 26, 1997.
Sincerely,
ENTERPRISE FUNDING CORPORATION
By: /s/ Stewert Cutler
Name: Stewert Cutler
Title:
-1-
<PAGE>
Accepted and Agreed:
UNION ACCEPTANCE CORPORATION PERFORMANCE FUNDING CORPORATION
By: /s/ Rick A. Brown By: /s/ Leeanne W. Graziani
------------------------- ---------------------------
Name: Rick A. Brown Name: Leeanne W. Graziani
Title: Vice President and Title: Vice President
Chief Financial Officer
AMENDMENT NUMBER 9 TO
TRANSFER AND ADMINISTRATION AGREEMENT
AMENDMENT NUMBER 9 TO TRANSFER AND ADMINISTRATION AGREEMENT (this
"Amendment"), dated as of January 26, 1998 between PERFORMANCE FUNDING
CORPORATION, a Delaware corporation, as transferor (in such capacity, the
"Transferor"), UNION ACCEPTANCE CORPORATION, an Indiana corporation, in its
individual capacity and as collection agent (in such capacity, the "Collection
Agent"), and ENTERPRISE FUNDING CORPORATION, a Delaware corporation (the
"Company") amending that certain Transfer and Administration Agreement dated as
of July 24, 1995 among the parties hereto, as amended by Amendment No. 1 dated
as of September 8, 1995, Amendment No. 2 dated as of May 10, 1996, Amendment No.
3 dated as of December 23, 1996, Amendment No. 4 dated as of April 25, 1997,
Amendment No. 5 dated as of June 6, 1997, Amendment No. 6 dated as of July 29,
1997, Amendment No.7 dated as of September 29,1997 and Amendment No. 8 dated as
of November 24, 1997 (the "Transfer and Administration Agreement").
WHEREAS, the Transferor and the Company have agreed to make certain
amendments to the Transfer and Administration Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
SECTION 1. Defined Terms. As used in this Amendment, and except as
otherwise provided in this Section 1, capitalized terms shall have the same
meanings assigned thereto in the Transfer and Administration Agreement.
(a) Section 1.1 of the Transfer and Administration Agreement is hereby
amended by deleting the definition of Actual Net Loss and replacing it with the
following (solely for convenience changed language is italicized):
"Actual Net Loss" shall mean, for any applicable period and
for any particular Monthly Group, an amount equal to the
cumulative gross charge-offs during such period less any
recoveries realized during such period on charged-off
contracts less the Adjustment Factor times estimated wholesale
value of repossessed financed vehicles which have not yet been
liquidated (based on the National Auto Research Black Book
together with adjustments related to vehicle condition) less
all Reimbursable Dealer Add-ons as determined in accordance
with UAC's Credit and Collection Policy relating to Contracts
for which Reimbursable Dealer Add-ons have not been received
and for which UAC's Credit and Collection Policy deems such
amounts to be collectible, in each case related to specified
contracts and receivables included in such Monthly Group
through the most recent Settlement Period.
(b) Section 1.1 of the Transfer and Administration Agreement is hereby
amended by the addition of the following definition in the appropriate
alphabetic location:
-1-
<PAGE>
"Actual Amount" shall mean, for each Settlement Period, the
actual liquidation proceeds obtained for the repossessed
financed vehicles during such Settlement Period upon the
liquidation of the repossessed financed vehicles, as reported
on the related Settlement Statement."
"Adjustment Factor" shall mean, for each Collection Period (i)
0%, if the Ratio of Estimated Amount to Actual Amount is
greater than 120% for the three most recent Collection Periods
or (ii) if the Ratio of Estimated Amount to Actual Amount is
less than 120% for the three most recent Collection Periods,
the percentage equivalent of a fraction, the numerator of
which is 1 and the denominator of which is the highest Ratio
of Estimated Amount to Actual Amount for the six most recent
Collection Periods."
"Estimated Amount' shall mean, for each Settlement Period, the
wholesale value of repossessed financed vehicles which have
not been liquidated as previously estimated by the Collection
Agent for all Monthly Groups in the aggregate, as reported on
the related Settlement Statement."
"Ratio of the Estimated Amount to the Actual Amount" shall
mean, for each Collection Period, the ratio of (a) Estimated
Amount to (b) Actual Amount."
(c) Section 5.2(j) of the Transfer and Administration Agreement is
hereby amended by deleting such section and replacing it with the following
(solely for convenience changed language is italicized):
Minimum Standards of an Independent UAC. Following complete
divestiture by Union Federal Savings Bank of Indianapolis of
its equity interest in UAC, UAC shall not, subsequent to such
divestiture (i) (A) as at the end of each fiscal year, fail to
maintain consolidated shareholder's equity (calculated in
accordance with generally accepted accounting principles) of
at least $50,000,000 and (B) as at the end of each fiscal
quarter, have a ratio of Consolidated Total Debt to the sum of
Subordinated Debt plus Consolidated Tangible Net Worth greater
than 7.5:1.0 (where the Warehouse Facility balances utilized
in such calculation are the average quarterly balances
determined using the Warehouse Facility balances at the end of
each month in the relevant quarter) (capitalized terms used in
this clause are defined in Exhibit P) or (ii) have a long-term
senior unsecured debt rating lower than BB+ from Fitch
Investors Service, Inc. or the equivalent by Moody's or
Standard and Poor's.
SECTION 2. Limited Scope. This amendment is specific to the
circumstances described above and does not imply any future amendment or waiver
of rights allocated to the Company, the Transferor, Union Acceptance
Corporation, the Collection Agent, the Administrative Agent or the Collateral
Agent under the Transfer and Administration Agreement.
-2-
<PAGE>
SECTION 3. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 4. Severability; Counterparts. This Amendment may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
instrument. Any provisions of this Amendment which are prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
SECTION 5. Ratification. Except as expressly affected by the provisions
hereof, the Transfer and Administration Agreement as amended shall remain in
full force and effect in accordance with its terms and ratified and confirmed by
the parties hereto. On and after the date hereof, each reference in the Transfer
and Administration Agreement to "this Agreement", "hereunder", "herein" or words
of like import shall mean and be a reference to the Transfer and Administration
Agreement as amended by this Amendment.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment Number 9 as of the date first written above.
ENTERPRISE FUNDING CORPORATION,
as Company
By: /s/ Stewert Cutler
Name: Stewert Cutler
Title:
UNION ACCEPTANCE FUNDING CORPORATION
as Transferor
By: /s/ Leeanne W. Grazaini
Name: Leeanne W. Grazaini
Title: Vice President
UNION ACCEPTANCE CORPORATION
as Collection Agent
By: /s/ Rick A. Brown
Name: Rick A. Brown
Title: Vice President and
Chief Financial Officer
ENTERPRISE FUNDING CORPORATION
c/o MERRILL LYNCH MONEY MARKETS INC.
World Financial Center - South Tower
226 Liberty Street
New York, New York 10281
April 28, 1998
Ms. Leeanne Graziani
Union Acceptance Funding Corporation
9240 Bonita Beach Road
Suite 1109-C
Bonita Springs, Florida 34135
Dear Leeanne:
This letter is to confirm our agreement to amend the Transfer and Administration
Agreement between Union Acceptance Corporation (the "Collection Agent"), Union
Acceptance Funding Corporation (the "Transferor") and Enterprise Funding
Corporation (the "Company") dated July 24, 1995 and as amended to date (the
"Agreement"). The Agreement shall be amended as follows and shall be effective
as of today:
o In Section 1.1, the definition of "Termination Date" shall be amended
so that "July 18, 1998" contained in clause (v) of the definition shall
read "July 18, 1999".
o In Section 1.1, the definition of "Defaulted Receivable" shall be
amended so that "60" contained in clause (i) of the definition shall
read "90".
The Transferor hereby represents and warrants that the representations and
warranties of the Transferor set forth in Section 3.1 of the Agreement are true
and correct as of the date hereof (except those representations and warranties
set forth therein which specifically relate to an earlier date).
All other terms and conditions of the Agreement not amended by this letter
agreement shall remain unchanged and in full force and effect.
If this letter correctly sets forth our agreement, please sign the enclosed
duplicate original and return to Brian D. Krum, NationsBank Investment Banking,
NationsBank Corporate Center, 10th Floor, Charlotte, North Carolina 28255 by May
2, 1998.
Sincerely,
ENTERPRISE FUNDING CORPORATION
By: /s/ Stewert Cutler
Name: Stewert Cutler
Title:
-1-
<PAGE>
Accepted and Agreed:
UNION ACCEPTANCE CORPORATION PERFORMANCE FUNDING CORPORATION
By: /s/ Melanie S. Otto By: /s/ Leeanne W. Graziani
Name: Melanie S. Otto Name: Leeanne W. Graziani
Title: Vice President Title: Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS
ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000927790
<NAME> Union Acceptance Corporation
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-1-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1.000
<CASH> 116,897
<SECURITIES> 0
<RECEIVABLES> 156,247
<ALLOWANCES> (1,048)
<INVENTORY> 0
<CURRENT-ASSETS> 272,096
<PP&E> 9,790
<DEPRECIATION> (3,226)
<TOTAL-ASSETS> 405,803
<CURRENT-LIABILITIES> 24,651
<BONDS> 295,194
<COMMON> 58,360
0
0
<OTHER-SE> 27,598
<TOTAL-LIABILITY-AND-EQUITY> 405,803
<SALES> 0
<TOTAL-REVENUES> 56,400
<CGS> 0
<TOTAL-COSTS> 26,481
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,175
<INTEREST-EXPENSE> 19,210
<INCOME-PRETAX> 5,534
<INCOME-TAX> 1,292
<INCOME-CONTINUING> 4,242
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,242
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
</TABLE>
