SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 8-K
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CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 17, 1998
UNION ACCEPTANCE CORPORATION
(Exact name of registrant as specified in its charter)
INDIANA
(State or other jurisdiction of incorporation)
0-26412 35-1908796
(Commission File Number) (IRS Employer
Identification No.)
250 N. Shadeland Avenue
Indianapolis, Indiana 46219
(Address of principal executive offices) (Zip Code)
(317) 231-6400
Registrant's telephone number, including zip code
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Item 5. Other Events.
Union Acceptance Corporation (the "Company") will be restating its
financial statements for fiscal June 30, 1997 as well as the first three
quarters of fiscal 1998. The primary reason for the restatement relates to the
way impairment is measured and presented in respect of the Excess Servicing
asset. Historically, the Company has measured impairment by viewing Excess
Servicing relating to all outstanding securitization pools on an aggregate
basis. As restated, its financial statements will measure and present impairment
of Excess Servicing on a disaggregate basis (pool by pool). This restatement
will have the effect of reducing fiscal 1997 net earnings by an amount of
approximately $1.5 million to $2.5 million and reducing net earnings for the
nine months ended March 31, 1998, by an amount of approximately $8.0 million to
$9.0 million. Such reductions result from other-than-temporary pool by pool
impairments (and not unrealized pool by pool gains) being charged to earnings.
These changes will not, however, affect shareholders' equity materially.
The Company has, for all restated periods, classified the Excess Servicing asset
as available-for-sale and recorded other-than-temporary impairments to earnings
and unrealized gains and losses as a separate component of shareholders' equity.
While the earnings adjustments for other-than-temporary impairments reduce
retained earnings, unrealized gains on individual securitization pools are
recorded as a separate component of shareholders' equity, increasing
shareholders' equity. Such unrealized gains, net of income taxes amount to
approximately $7.0 million to $8.0 million as of June 30, 1998.
The Company's independent auditors recently apprised its audit committee
that the auditors had changed their interpretation of applicable accounting
rules and had concluded that measurement and presentation of Excess Servicing
impairment on an aggregate basis was inappropriate and that pool by pool
measurement is required by generally accepted accounting principles. The
auditors have now notified the board of directors that they have concluded that
the resulting adjustments to the fiscal June 30, 1997 financial statements would
be of sufficient significance to require restatement and that their opinion
should no longer be associated with the fiscal June 30, 1997 financial
statements.
Based on its knowledge of the industry and contacts with other consumer
finance companies, the Company believes that accounting practice in the industry
in respect of the measurement of Excess Servicing is not uniform and that
certain issuers measure impairment on an aggregate basis as the Company has done
until now. Nevertheless, the Company has concluded that pool by pool measurement
is an appropriate interpretation of the applicable accounting standards and has
decided to restate its financial statements on that basis.
As previously discussed in the Company's 10-Q as filed with the SEC on May
13, 1998, the Company elected in the fourth quarter to change the method of
valuing the Excess Servicing asset from "cash in" to "cash out" which is
classified as a change in accounting estimate. The Company believes the "cash
out" method is a better valuation method as it more truly reflects the
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economic reality of the transaction. This change had the effect of reducing net
earnings for fiscal 1998 by approximately $4.5 million to $5.0 million. It is
important to note that this adjustment merely increases the discount to present
value component of the Excess Servicing asset that will be accretive going
forward.
After giving effect to the foregoing adjustments, the Company estimates
that its net loss for the fourth quarter of fiscal 1998 will be in the range of
$5.0 million to $6.0 million and for the full fiscal year will be a net loss of
approximately $9.0 million to $10.0 million. The Company will report
comprehensive net earnings (which include net loss and unrealized gains included
in shareholders' equity) of approximately $2.0 million to $3.0 million for the
fourth quarter of fiscal 1998 and a comprehensive net loss of approximately $2.0
million to $3.0 million for the fiscal year ended June 30, 1998. Without giving
effect to the non-cash adjustment for the change to "cash out", the Company
would have reported comprehensive net earnings of approximately $6.5 million to
$7.5 million for the fourth quarter ended June 30, 1998, and comprehensive net
earnings of approximately $2.5 million to $3.5 million for the fiscal year ended
June 30, 1998. The Company will issue a final annual earnings release upon
completion of the current audit and once all restatements are finalized. The
Company intends to amend its reports on Form 10-Q beginning with the report for
March 31, 1997, and ending with the report for March 31, 1998, as well as its
Form 10-K for fiscal year ended June 30, 1997, as soon as practicable.
This report contains forward-looking statements regarding management's
estimates of the net effects of the accounting adjustments described above on
fiscal 1997 and fiscal 1998, including the net effect of pool by pool
measurement of Excess Servicing impairment and use of the "cash out" method to
value Excess Servicing as well as estimates of the Company's net loss and
comprehensive net loss for fiscal 1998 and net loss and comprehensive net
earnings for the fourth quarter of such year. The final calculation of such net
effects and net earnings/loss amounts is still in process and depends on a
number of interrelated factors as well as the assumptions and estimates that are
required to be made as a part of such process. Accordingly, such forward-looking
statements are subject to changes that may result from such process and such
changes may be material. These statements and other forward-looking statements
made by the Company from time to time are also subject to a number of important
factors that could cause management's projections or estimates to be materially
inaccurate, a number of such factors are described in the Company's annual
report on form 10-K for the fiscal year ended June 30, 1997, which description
of such factors is incorporated herein by reference.
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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
August 17, 1998 By: /s/ Rick A. Brown
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Rick A. Brown
Chief Financial Officer
