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 September 30, 2000
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 November 13, 2000
Class A Common Stock, without par value 5,816,024
--------------------------------------- ---------
Class B Common Stock, without par value 7,461,608
--------------------------------------- ---------
<PAGE>
UNION ACCEPTANCE CORPORATION AND SUBSIDIARIES
FORM 10-Q
INDEX
Page
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements (unaudited):
Consolidated Condensed Balance Sheets as of
September 30, 2000 and June 30, 2000 3
Consolidated Condensed Statements of Earnings
for the Three Months Ended September 30, 2000 and 1999 4
Consolidated Condensed Statements of Cash Flows for the
Three Months Ended September 30, 2000 and 1999 5
Consolidated Condensed Statement of Shareholders'
Equity for the Three Months Ended September 30, 2000 6
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk 21
Part II. OTHER INFORMATION 23
Signatures 24
<PAGE>
<TABLE>
<CAPTION>
Union Acceptance Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
(Dollars in thousands, except share data)
(Unaudited)
September 30, June 30,
Assets 2000 2000
--------- ---------
<S> <C> <C>
Cash and cash equivalents $ 14,425 $ 14,792
Restricted cash 10,377 13,010
Receivables held for sale, net 271,023 206,701
Retained interest in securitized assets 225,859 208,431
Accrued interest receivable 2,293 1,727
Property, equipment, and leasehold improvements, net 9,319 9,494
Other assets 24,393 23,983
--------- ---------
Total Assets $ 557,689 $ 478,138
========= =========
Liabilities and Shareholders' Equity
Liabilities
-----------
Amounts due under warehouse facilities $ 246,394 $ 152,235
Long-term debt 155,000 177,000
Accrued interest payable 4,100 5,408
Amounts due to trusts 16,523 14,487
Dealer premiums payable 4,682 3,663
Current and deferred income taxes payable 11,613 9,740
Other payables and accrued expenses 5,900 5,576
--------- ---------
Total Liabilities 444,212 368,109
--------- ---------
Commitment and Contingencies - -
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; 5,816,024 shares issued and outstanding
at September 30, 2000 and June 30, 2000 58,632 58,632
Class B Common Stock, without par value, authorized
20,000,000 shares; 7,461,608 shares issued and outstanding
at September 30, 2000 and June 30, 2000 - -
Accumulated other comprehensive earnings, net of income taxes 4,003 3,564
Retained earnings 50,842 47,833
--------- ---------
Total Shareholders' Equity 113,477 110,029
--------- ---------
Total Liabilities and Shareholders' Equity $ 557,689 $ 478,138
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
Union Acceptance Corporation and Subsidiaries
Consolidated Condensed Statements of Earnings
(Dollars in thousands, except share data)
(Unaudited)
Three Months Ended
September 30,
-----------------------------------
2000 1999
---------------- ---------------
<S> <C> <C>
Interest on receivables held for sale $ 14,371 $ 8,145
Retained interest and other 7,300 5,728
---------------- ---------------
Total interest income 21,671 13,873
Interest expense 11,041 6,564
---------------- ---------------
Net interest margin 10,630 7,309
Provision for estimated credit losses 975 750
---------------- ---------------
Net interest margin after provision
for estimated credit losses 9,655 6,559
---------------- ---------------
Gain on sales of receivables, net 7,867 6,530
Loss on interest rate swaps on securitized receivables (5,350) -
Loss on interest rate swaps on held for sale receivables (2,440) -
Servicing fees 6,719 6,068
Late charges and other fees 1,755 1,505
---------------- ---------------
Other revenues 8,551 14,103
---------------- ---------------
Salaries and benefits 7,918 6,927
Other general and administrative expenses 5,512 4,914
---------------- ---------------
Total operating expenses 13,430 11,841
---------------- ---------------
Earnings before provision for income taxes 4,776 8,821
Provision for income taxes 1,767 3,402
---------------- ---------------
Net earnings $ 3,009 $ 5,419
================ ===============
Net earnings per common share (basic and diluted) $ 0.23 $ 0.41
================ ===============
Basic weighted average number of common
shares outstanding 13,277,632 13,250,660
Common stock options 38,256 44,886
---------------- ---------------
Diluted weighted average number of common
shares outstanding 13,315,888 13,295,546
================ ===============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
Union Acceptance Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Three Months Ended
September 30,
------------------------------------
2000 1999
--------------- ---------------
Cash flows from operating activities:
<S> <C> <C>
Net earnings $ 3,009 $ 5,419
Adjustments to reconcile net earnings to net cash
from operating activities:
Increase in receivables held for sale, net of liquidations (563,153) (330,869)
Dealer premiums paid, net on receivables held for sale (15,198) (9,812)
Proceeds from securitization of receivables held for sale 499,999 364,792
Gain on sales of receivables (11,072) (7,369)
Impairment of retained interest in securitized assets - 240
Accretion of discount on retained interest in securitized assets (7,017) (5,172)
Provision for estimated credit losses 975 750
Amortization and depreciation 1,663 904
Restricted cash 2,633 311
Other assets and accrued interest receivable (1,237) 1,321
Amounts due to trusts 2,036 (445)
Other payables and accrued expenses 889 (5,584)
--------------- ---------------
Net cash provided by (used in) operating activities (86,473) 14,486
--------------- ---------------
Cash flows from investing activities:
Collections on retained interest in securitized assets
and change in spread accounts and accelerated principal 14,742 23,743
Capital expenditures (270) (560)
--------------- ---------------
Net cash provided by investing activities 14,472 23,183
--------------- ---------------
Cash flows from financing activities:
Principal payment on long-term debt (22,000) (22,000)
Stock options exercised - 12
Net change in warehouse credit facilities 94,159 (15,685)
Payment of borrowing fees (525) (446)
--------------- ---------------
Net cash provided by (used in) financing activities 71,634 (38,119)
--------------- ---------------
Change in cash and cash equivalents (367) (450)
Cash and cash equivalents, beginning of period 14,792 8,088
--------------- ---------------
Cash and cash equivalents, end of period $ 14,425 $ 7,638
=============== ===============
Supplemental disclosures of cash flow information:
Income taxes paid $154 $ 7,439
Interest paid $11,570 $ 9,782
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
Union Acceptance Corporation and Subsidiaries
Consolidated Condensed Statement of Shareholders' Equity
For the Three Months Ended September 30, 2000
(Dollars in thousands, except per share data)
(Unaudited)
Number of Common Stock Accumulated
Shares Outstanding Other Total
-------------------------- Common Comprehensive Retained Shareholders'
Class A Class B Stock Earnings Earnings Equity
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 2000 5,816,024 7,461,608 $58,632 $ 3,564 $ 47,833 $ 110,029
Comprehensive earnings:
Net earnings - - - - 3,009 3,009
Net unrealized gain on retained
interest in securitized assets - - - 691 - 691
Income taxes related to unrealized
gain in securitized assets - - - (252) - (252)
--------------
Total comprehensive earnings 3,448
-------------------------------------------------------------------------------------
Balance at September 30, 2000 5,816,024 7,461,608 $58,632 $ 4,003 $ 50,842 $ 113,477
=====================================================================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
Union Acceptance Corporation and Subsidiaries
Notes to Consolidated Condensed Financial Statements
For the Three Months Ended September 30, 2000 and 1999
(Unaudited)
Note 1 - Basis of Presentation
The foregoing 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 ("UAC") and its subsidiaries (collectively, the
"Company").
The consolidated condensed interim financial statements have been
prepared in accordance with Form 10-Q specifications and therefore do not
include all information and footnotes normally shown in annual financial
statements. A summary of the Company's significant accounting policies is set
forth in "Note 1" of the "Notes to Consolidated Financial Statements" in the
Company's Annual Report on Form 10-K for the year ended June 30, 2000. Certain
amounts for the prior period have been reclassified to conform to the current
period presentation.
Note 2 - Retained Interest in Securitized Assets
Retained Interest in Securitized Assets ("Retained Interest") is
recorded as an "available for sale" security and is recorded at fair value. The
associated unrealized gains and losses attributable to changes in fair value,
net of income taxes are recorded as a separate component of shareholders' equity
("accumulated other comprehensive earnings"). Other than temporary impairment
charges are recorded through earnings as a component of gain on sale of
receivables, net.
The average of the interest rates received on receivables exceeds
the interest rates paid on securities issued in the securitization. Accordingly,
Retained Interest is a significant asset of the Company. In determining the fair
value of the Retained Interest, the Company must estimate the future
prepayments, rates of gross credit losses and credit loss severity,
delinquencies and prepayments, as they impact the amount and timing of the
estimated cash flows. The Company estimates prepayments by evaluating historical
prepayment performance of comparable receivables and the impact of trends in the
economy. The Company has used annual prepayment estimates ranging from 21.88% to
28.00% on Tier I receivables and 21.00% on Tier II receivables at September 30,
2000. The Company estimates gross credit losses and credit loss severity using
available historical loss data for comparable receivables and the specific
characteristics of the receivables purchased by the Company. The Company used
net credit loss assumptions of 4.00% to 6.24% on Tier I receivables and 12.00%
on Tier II receivables, as a percentage of the original principal balance over
the life of the receivables to value Retained Interest at September 30, 2000.
The Company determines the estimated fair value of its Retained
Interest by discounting the expected cash flows released from the Trust (the
cash out method) using a discount rate which the Company believes is
commensurate with the risks involved. The Company used tiered discount rates
based on a pool's specific risk factors up to 900 basis points over the
applicable U.S. Treasury Rate. The Company utilized discount rates ranging from
9.07% to 15.00% on Tier I receivables and 14.05% on Tier II receivables on the
estimated cash flows to be released from the Spread Account to value the
Retained Interest at September 30, 2000. The weighted average discount rate used
to value Retained Interest at September 30, 2000 was 13.52% compared to 13.78%
at June 30, 2000.
In July 2000, the Emerging Issues Task Force ("EITF") finalized the
provisions of EITF Issue No. 99-20, "Recognition of Interest Income and
Impairment of Purchased and Retained Beneficial Interests in Securitized
Financial Assets", ("EITF 99-20"). EITF 99-20 sets forth rules for recognizing
interest income and determining when securities must be written down to fair
value because of other than temporary impairments. EITF 99-20 will require the
"prospective method" of adjusting the recognition of interest income when the
anticipated cash flows have either increased or decreased. Anticipated cash
flows can change as the result of factors such as prepayment rates and credit
losses. Under the provisions of EITF 99-20, an other than temporary impairment
must be recorded when the anticipated cash flows have decreased since the last
estimate and the fair value of the Retained Interest is less than the carrying
value.
<PAGE>
Union Acceptance Corporation and Subsidiaries
Notes to Consolidated Condensed Financial Statements
For the Three Months Ended September 30, 2000 and 1999
(Unaudited)
The Company currently applies certain provisions of EITF Issue No.
93-18 "Recognition of Impairment for an Investment in a Collateralized Mortgage
Obligation Instrument or in a Mortgage-Backed Interest-Only Certificate" ("EITF
93-18") regarding impairment. EITF 99-20 will no longer allow for measurement of
other than temporary impairments based on fair values discounted at risk free
rates.
The effective date for EITF 99-20 is January 1, 2001, with earlier
adoption permitted. Any write-down associated with the implementation of EITF
99-20 would be reported as a "cumulative effect of a change in accounting
principle" and would be reported on a prospective basis. The Company anticipates
adopting the provision of EITF 99-20 as of January 1, 2001. The Company has not
evaluated the impact of this change.
<TABLE>
<CAPTION>
Retained Interest in Securitized Assets is as follows (in thousands) at:
September 30, June 30,
2000 2000
--------------------------
<S> <C> <C>
Estimated gross interest spread from
receivables, net of estimated
prepayments and fees $ 312,061 $ 287,661
Estimated dealer premium rebates refundable 17,435 18,133
Estimated credit losses on securitized
receivables (126,250) (119,003)
Accelerated Principal (1) 28,823 24,082
Spread accounts 63,772 58,663
Discount to present value (69,982) (61,105)
--------------------------
Total Retained Interest in Securitized Assets $ 225,859 $ 208,431
========== ===========
Outstanding balance of securitized receivables $2,895,305 $2,676,655
Estimated credit losses as a percentage of ========== ===========
securitized receivables serviced 4.36% 4.45%
(1) Also referred to as "turbo".
</TABLE>
<PAGE>
Union Acceptance Corporation and Subsidiaries
Notes to Consolidated Condensed Financial Statements
For the Three Months Ended September 30, 2000 and 1999
(Unaudited)
Note 3 - Segment Information
The Company has a single reportable segment which is acquiring,
securitizing and servicing retail automobile installment sales contracts and
installment loan agreements originated by dealerships affiliated with major
domestic and foreign automobile manufacturers. The single segment is based on
management's approach to operating decisions, assessing performance and
reporting financial information.
Note 4 - Earnings Per Share
Options to purchase shares of common stock are excluded from the
calculation of Earnings Per Share ("EPS") assuming dilution when the exercise
prices of these options are greater than the average market price of the common
share during the period. The following chart indicates the numbers of shares
which were excluded from the calculation of EPS assuming dilution for the
periods indicated:
Three Months Ended
September 30,
-----------------------------
2000 1999
----------- --------------
766,875 398,077
Note 5 - Current Accounting Pronouncements
In September 2000, the Financial Accounting Standards Board issued
Statement of Accounting Standards No 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No.
140"). SFAS No. 140 replaces Statement of Accounting Standard No. 125, which
bears the same title, ("SFAS No. 125"). SFAS No. 140 is effective for transfers
and servicing of financial assets and extinguishments of liabilities occurring
after March 31, 2001. Other provisions of the statement are effective for fiscal
years ended after December 15, 2000 and include additional disclosure
requirements and changes related the recognition and reclassification of
collateral. The Company has not evaluated the impact of this change.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
------ CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------
Results of Operations
Acquisition Volume. The Company currently acquires receivables in 40
states from over 5,200 manufacturer-franchised auto dealerships. The Company
focuses its efforts on acquiring receivables on late model used and, to a lesser
extent, new automobiles made to purchasers who exhibit a favorable credit
profile ("Tier I"). Total receivable acquisitions were $576.4 million for the
quarter ended September 30, 2000, compared to $450.2 million for the quarter
ended June 30, 2000, and $330.3 million for the same quarter of last fiscal
year. The Company believes the increase in receivables acquisitions is the
result of better dealer service, primarily due to an increase in staffing for
nights and weekends to better handle the volume, an increase in active dealers,
and a decrease in competition. The Company believes that the purchase of
automobiles by consumers and the financing of these purchases is seasonal;
therefore, the Company expects receivable acquisitions for the quarter ended
December 31, 2000 will be lower than that of the quarter ended September 30,
2000. See - "Discussion of Forward-Looking Statements". The Company's primary
focus remains on acquiring high quality, profitable receivables. The Company
believes that its increased emphasis on growing existing markets will result in
future increased acquisition volume. See - "Discussion of Forward-Looking
Statements".
Gross and Net Spreads. The gross and net spreads on the first quarter
securitization of fiscal 2001 were 6.67% and 4.67% compared to 7.09% and 6.20%,
respectively, over the same quarter of last fiscal year. Gross spread is defined
as the difference between the weighted average receivable rate and the weighted
average certificate rate. Net spread is defined as the gross spread, net of
upfront costs, servicing fees, ongoing credit enhancement fees, trustee fees,
and the economic hedging gains or losses. During June 2000, the Company began
migrating to a risk based pricing model which attempts to price the acquisitions
based on perceived risks such as credit risk, age of the car, length of terms
and advance over the vehicle's book value. The risk based pricing model rewards
those customers with better credit quality with lower rates, which in turn could
potentially lower the Company's net spread.
Net spreads are currently targeted between 5.00% and 5.50% on
securitizations for the remaining three quarters of fiscal 2001. Although
management believes these targeted net 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 interest rates and demand for asset-backed securities generally
and for securities issued in securitizations sponsored by the Company. See -
"Discussion of Forward-Looking Statements".
Portfolio Performance. The Company saw an increase in net credit losses
during the quarter ended September 30, 2000, compared to the quarters ended June
30, 2000 and September 30, 1999. As shown in the following tables, Tier I net
credit losses totaled 2.11% for the quarter ended September 30, 2000, compared
to 2.05% and 1.97% for the quarters ended June 30, 2000 and September 30, 1999,
respectively. Delinquency on the Tier I automobile portfolio was 3.13% at
September 30, 2000, compared to 2.82% and 3.18% at June 30, 2000 and September
30, 1999, respectively. Recoveries as a percentage of gross charge-offs on the
Tier I portfolio were 41.01% for the quarter ended September 30, 2000, compared
to 41.45% and 41.12% for the quarters ended June 30, 2000 and September 30,
1999, respectively.
Notwithstanding modest increases during the quarter ended September 30,
2000, delinquency and credit loss percentages are within management's
expectations and continue to exhibit relative stability. The Company attributes
the overall strength of the portfolio to strong underwriting guidelines, based
on improved risk-based portfolio analysis, and focused collection efforts.
Overall recovery percentages have been relatively stable over the past year,
bolstered in part by the significantly higher recovery rates the Company is able
to realize by disposing of repossessed vehicles throughout its retail operation
rather than at auction. Approximately 15% of repossessed automobiles were sold
at the Company's retail operations during the quarter ended September 30, 2000.
Provisions are made for estimated net credit losses in conjunction with
each receivable sale. The current assumption utilized in the gain on sale of
receivables calculation for estimated net credit losses on the fiscal 2001 first
quarter securitization was 4.60% over the life of the pool and included only
Tier I receivables compared to 4.50% over the life of the pool on the fiscal
2000 first quarter securitization which included both Tier I and Tier II
receivables. Estimated net credit losses as a percentage of securitized
receivables serviced (inherent in Retained Interest) was 4.36% at September 30,
2000, compared to 4.45% and 4.57% at June 30, 2000 and September 30, 1999,
respectively.
<PAGE>
Certain information concerning the Company's experience pertaining to
net credit losses and delinquencies on the Tier I fixed rate retail automobile,
light truck and van receivables serviced by the Company is shown in the
following tables. There can be no assurance that future net credit loss and
delinquency experience on receivables will be comparable to that set forth
below. See "Discussion of Forward-Looking Statements".
<TABLE>
<CAPTION>
Tier I Credit Loss Experience
For the Three Months Ended
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
September 30, 2000 June 30, 2000 September 30, 1999
-------------------------- -------------------------------- --------------------------------
(Dollars in thousands)
Number of Number of Number of
Receivables Amount Receivables Amount Receivables Amount
----------- ------ ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Average servicing portfolio 246,406 $3,031,640 231,176 $2,771,197 216,508 $2,515,461
Gross charge-offs 2,306 $ 27,099 2,099 $ 24,311 2,003 $ 21,088
Recoveries 11,112 10,076 8,671
---------- ---------- ----------
Net charge-offs $ 15,987 $ 14,235 $ 12,417
========== ========== ==========
Gross charge-offs as a percentage
of average servicing portfolio (1) 3.74% 3.58% 3.63% 3.51% 3.70% 3.35%
Recoveries as a percentage of
gross charge-offs 41.01% 41.45% 41.12%
Net charge-offs as a percentage
of average servicing portfolio (1) 2.11% 2.05% 1.97%
(1) Annualized
</TABLE>
<TABLE>
<CAPTION>
Tier I Delinquency Experience
---------------------------------------------------------------------------------------------------
At September, 2000 At June 30, 2000 At September 30, 1999
-------------------------------- ------------------------------- ---------------------------------
(Dollars in thousands)
Number of Number of Number of
Receivables Amount Receivables Amount Receivables Amount
<S> <C> <C> <C> <C> <C> <C>
Servicing portfolio 252,293 $3,133,025 235,732 $2,848,150 217,296 $ 2,530,654
Delinquencies:
30-59 days 5,120 $ 56,184 4,204 $ 45,442 4,714 $ 50,734
60-89 days 2,482 29,062 2,176 25,250 1,955 20,439
90 days or more 1,158 12,918 886 9,710 875 9,291
------------- ---------------- --------------- --------------- --------------- -----------------
Total delinquencies 8,760 $ 98,164 7,266 $ 80,402 7,544 $ 80,464
============= ================ =============== =============== =============== =================
Delinquency as a percentage
of servicing portfolio 3.47% 3.13% 3.08% 2.82% 3.47% 3.18%
</TABLE>
Net earnings are summarized in the table below. Net earnings decreased
44.5% for the quarter ended September 30, 2000, compared to the quarter ended
September 30, 1999. The decrease over the same quarter of the prior year is
primarily due to lower net spreads and the loss on interest rate swaps on held
for sale receivables. The loss on interest rate swaps on held for sale
receivables is the result of the implementation of a new accounting standard,
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133") during the first quarter of
fiscal 2001. SFAS No. 133 is further discussed below in the "Gain on sale of
receivables, net" section. The decrease was partially offset by an increase in
net interest margin after provision for estimated credit losses, which was
primarily the result of the higher average held for sale portfolio.
Three Months
Ended September 30,
----------------------------------------------------
2000 1999
---------------- ----------------
(Dollars in thousands, except per share amounts)
Net Income $ 3,009 $ 5,419
Net Earnings Per Share $ 0.23 $ 0.41
(basic and diluted)
Interest on receivables held for sale increased 76.4% to $14.4 million
for the quarter ended September 30, 2000, compared to $8.1 million for the
quarter ended September 30, 1999. The increase over the prior year related to a
higher average held for sale portfolio of $409.4 million for the quarter ended
September 30, 2000, compared to $239.0 million for the quarter ended September
30, 1999.
Retained interest and other interest income increased 27.4% to $7.3
million for the quarter ended September 30, 2000, compared to $5.7 million for
the quarter ended September 30, 1999. The discount component of Retained
Interest increased at June 30, 1999 as a result of the Company increasing the
discount rate used to record the gain on sale of receivables during the fourth
quarter of fiscal 1999. As a result, more Securitizations discounted at the
higher rate are being accreted into income during the quarter ended September
30, 2000 than in the quarter ended September 30, 1999. The individual components
of Retained interest and other interest income are shown in the following table.
Three Months
Ended September 30,
2000 1999
--------------- ---------------
(In thousands)
Discount accretion $ 7,068 $ 5,371
Other interest income 232 357
--------------- ---------------
$ 7,300 $ 5,728
Interest expense increased 68.2% to $11.0 million for the quarter ended
September 30, 2000, compared to $6.6 million for the quarter ended September 30,
1999. The increase is the result of higher warehouse borrowing needs as a result
of an increase in the average receivables held for sale balances caused by the
increase in acquisition volume previously discussed and was offset by lower
long-term debt interest expense due to the $22 million principal payment made on
the Senior debt made in the first quarter of fiscal 2001.
Provision for estimated credit losses increased 30.0% to $975,000 for
the quarter ended September 30, 2000, compared to $750,000 for the quarter ended
September 30, 1999. The increase is due to the higher average receivables held
for sale during the quarter ended September 30, 2000 compared to the quarter
ended September 30, 1999.
Gain on sale of receivables, net and Loss on interest rate swaps on
securitized receivables. The gain on sale of receivables, net, increased 20.5%
to $7.9 for the quarter ended September 30, 2000, compared to $6.5 million for
the same period of fiscal 2000. The accounting treatment for the Company's
derivative activity changed during the first quarter of fiscal 2001 and is
discussed in more detail below in the "Loss on interest rate swaps on held for
sale receivables" section. As a result, the Gain on sale of receivables, net for
the quarter ended September 30, 2000 is not comparable to the gain on sale of
receivables, net for the quarter ended September 30, 1999. Historically, the
gain or loss on interest rate swaps on securitized receivables and other than
temporary impairments have been included as components of the Gain on sales of
receivables, net in the income statement. Beginning with the first quarter of
fiscal 2001, the Gain on sale of receivables, net will no longer reflect the
gain or loss on interest rate swaps on securitized receivables, rather, the
economic hedging gain or loss will be shown separately in the income statement
as "Gain (loss) on interest rate swaps on securitized receivables." The
following chart summarizes the individual components of the gain on sale of
receivables. The comparable lower net gain for the quarter was primarily due to
lower spreads in the quarter ended September 30, 2000 securitization than in the
same quarter of fiscal 2000. The receivables sold in the securitizations were
$500.0 million for the quarter ended September 30, 2000, compared to $364.8
million for the quarter ended September 30, 1999. The gain on sales of
receivables continues to be a significant element of the Company's net earnings.
The gain on sales of receivables is affected by several factors but is primarily
affected by the amount of receivables securitized, the net spread, the level of
estimation for net credit losses and discount rate.
Fiscal Quarter ended
September 30,
------------------------------------
2000 1999
---------------- ----------------
Gain on sales of receivables $ 7,867 $ 3,785
Hedging gain on securitized receivables - 2,985
Other than temporary impairments - (240)
---------------- ----------------
Gain on sales of receivables, net 7,867 6,530
Loss on interest rate swaps on
securitized receivables (5,350) -
---------------- ----------------
Net economic gain $ 2,517 $ 6,530
================ ================
<PAGE>
Set forth below is certain information relating to the first quarter fiscal 2001
and 2000 securitizations.
First Quarter Securitizations Fiscal
-----------------------------
2001 2000
---- ----
2000 - C 1999 - C
Amount securitized (in millions) $500.0 $364.8
Weighted average receivable rate 13.57% 13.31%
Weighted average certificate rate 6.90% 6.22%
Gross spread (1) 6.67% 7.09%
Net spread (2), (3) 4.67% 6.20%
Credit loss assumption 4.60% 4.50%
Annual prepayment speed assumption 25.00% 28.00%
Discount rate assumption 15.10% 14.66%
Weighted average remaining maturity (in months) 69.5 71.1
Weighted average life (in years) 2.08 1.95
Gain as a percentage of amount securitized (3) 0.50% 1.88%
(1) Gross spread - difference between the weighted average receivable rate and
weighted average certificate rate.
(2) Net spread - gross spread, net of upfront costs, servicing fees, ongoing
credit enhancement fees, trustee fees, and the economic hedging gains or
losses.
(3) Includes impact of the $5.4 million loss and $3.0 million gain on interest
rate swaps on securitized receivables.
Gain on sale of receivables, net also includes charges, if applicable
based on management's review, for other than temporary impairments. On a regular
basis, management reviews the fair value of the estimated recoverable cash flows
associated with the retained interest for other than temporary impairments. Some
of the factors considered in this evaluation are discussed further in the Notes
to Consolidated Financial Statements. See - "Note 2 of the Consolidated
Condensed Financial Statements". Based on management's review of the Retained
Interest, there were no additional other than temporary impairments charges for
the first quarter ended September 30, 2000. See - "Discussion of Forward-Looking
Statements".
Loss on interest rate swaps on held for sale receivables. Beginning in
the first quarter of fiscal 2001, a new accounting standard, SFAS No. 133,
became effective for the Company. This new standard changes how the Company
recognizes its derivative activity. The only derivative instruments that the
Company utilizes relate to interest rate swaps executed solely to hedge
receivable acquisitions prior to securitization. Management believes that the
interest rate swaps are effective in protecting the Company from interest rate
fluctuations from origination through securitization and that these transactions
are typical in this industry. However, it has been determined that under SFAS
No. 133, these transactions do not qualify for hedge accounting treatment, and
the Company's derivatives are therefore required to be marked to market every
accounting period.
Previously, the market value of these derivatives was not accounted for
until the corresponding receivables were securitized and the derivatives closed
out. At that time, the gain or loss on the closed out derivatives was included
in the net gain on sales of receivables amount. This amount will now be a
separate line item on the income statement titled "Gain (loss) on interest rate
swaps on securitized receivables." In addition, UAC will now be required to
reflect the market value of any outstanding derivatives on its balance sheet,
and the changes in the corresponding value will be reported in the income
statement as "Gain (loss) on interest rate swaps on held for sale receivables."
Based on a notional amount of $512.6 million, this amount was a loss of $2.4
million at September 30, 2000 and is related to interest rate swaps on
receivables held for sale, most of which should be securitized in the
securitization in the quarter ended December 31, 2000. Although this accounting
change may have a significant impact on the volatility of period to period
earnings, SFAS No. 133 has no cash effect on the Company's business.
Servicing fees increased 10.7% to $6.7 million for the quarter ended
September 30, 2000, compared to $6.1 million for the quarter ended September 30,
1999. The increase was related to a higher average securitized servicing
portfolio for the quarter ended September 30, 2000 compared to the same period
of the prior fiscal year. Servicing fees consist primarily of contractual
servicing fees of 1.0% on Tier I securitizations.
Late charges and other fees increased 16.6% to $1.8 million for the
quarter ended September 30, 2000, compared to $1.5 million for the quarter ended
September 30, 1999. Other fees consist primarily of late charges, the gross
profit from the dealership sales, and other fee income.
Salaries and benefits expense increased 14.3% to $7.9 million for the
quarter ended September 30, 2000, from $6.9 million for the quarter ended
September 30, 1999. The increase was primarily related to an increase in
employees. The average full-time equivalents for the quarter ended September 30,
2000 was 660 compared to 538 for the quarter ended September 30, 1999.
Other general and administrative expense increased 12.2% to $5.5
million for the quarter ended September 30, 2000, compared to $4.9 million for
the quarter ended September 30, 1999. Other operating expense includes occupancy
and equipment costs, outside and professional services, receivable expenses,
promotional expenses, travel, office supplies, and other. Total operating
expenses (including salaries and benefits) as a percentage of the average
servicing portfolio was 1.75% for the quarter ended September 30, 2000, compared
to 1.85% for the quarter ended September 30, 1999.
Provision for income taxes decreased 48.1% to $1.8 million for the
quarter ended September 30, 2000, compared to $3.4 million for the quarter ended
September 30, 1999. This is the result of the decrease in earnings before income
taxes and a decrease in the effective tax rate. Beginning July 1, 2000, the
Company decreased the effective tax rate by 1.7% to 36.5% from 38.2% (before
permanent differences) to more accurately reflect the combined federal and state
tax liability resulting from the Company's operations in the various
jurisdictions in which the Company does business. The decrease in the effective
tax rate primarily results from state tax savings as the Company increases the
number of securitizations which are treated as secured financing arrangements
under a debt for tax structure.
Financial Condition
Receivables held for sale, net and servicing portfolio. Receivables
held for sale, net includes the principal balance of receivables held for sale,
net of unearned discount and allowance for estimated net credit losses,
receivables in process, and prepaid dealer premiums. Selected information
regarding the Receivables held for sale, net and the servicing portfolio at
September 30, 2000 and June 30, 2000 is summarized in the following table.
September 30, June 30,
2000 2000
-------------------- -------------------
(In thousands)
Receivables held for sale, net $ 271,023 $ 206,701
Allowance for net credit losses $ (2,649) $ (2,978)
Securitized assets serviced $ 2,895,305 $ 2,676,655
Total servicing portfolio $ 3,161,833 $ 2,881,115
Retained interest in securitized assets ("Retained Interest"). Retained
Interest increased $17.5 million to $225.9 million at September 30, 2000, from
$208.4 million at June 30, 2000. The Retained Interest balance increased or
decreased by the amounts capitalized upon consummation of the first quarters'
securitization including estimated dealer premium rebates, collections,
accretion of discount, change in spread accounts, impairment and net change in
unrealized gain. The Company's collections are the receipt of the net interest
spread.
The following table illustrates the activity of Retained Interest for the three
months ended September 30, 2000 (in thousands):
Balance at June 30, 2000 $ 208,431
Amounts capitalized (including estimated dealer rebates) 24,462
Collections (24,592)
Accretion of discount 7,017
Change in spread accounts 5,109
Change in accelerated principal 4,741
Net change in unrealized gain (loss) 691
-------------
Balance at September 30, 2000 $ 225,859
=============
<PAGE>
The following table illustrates the activity of the Spread account for the three
months ended September 30, 2000 (in thousands):
Balance at June 30, 2000 $ 58,663
Excess cash flows deposited to spread accounts 14,918
Initial spread account deposits 5,000
Interest earned on spread accounts 954
Less: excess cash flows released to the Company (15,763)
-------------
Balance at September 30, 2000 $ 63,772
=============
Allowance for net credit losses on securitized receivables is included
as a component of Retained Interest. At September 30, 2000, the allowance
related to both Tier I and Tier II securitized receivables totaled $126.3
million, or 4.36% of the total securitized receivable portfolio, compared to
$119.0 million, or 4.45%, at June 30, 2000. Impairment of Retained Interest, an
available-for-sale security, is measured on a disaggregate (pool by pool) basis
in accordance with SFAS 115. See "Note 2 - Notes to Consolidated Condensed
Financial Statements" for additional discussions regarding Retained Interest.
Also, see - "Discussion of Forward-Looking Statements".
Amounts due under revolving warehouse credit facilities were $246.4
million at September 30, 2000, compared to $152.2 million at June 30, 2000. The
increase is a result of higher acquisition volume after the close of the
securitization transaction in September 2000 compared to June 2000. In addition,
this increase was also the result of the Company not securitizing approximately
$60 million of eligible receivables in the September 2000 securitization.
Long-term debt was $155 million at September 30, 2000, compared to $177
million at June 30, 2000. The decrease in long-term debt was a result of a
required principal payment on the Company's Senior Notes in August 2000 of $22.0
million.
Current and deferred income taxes payable totaled $11.6 million at
September 30, 2000, compared to $9.7 million at June 30, 2000. The increase is
primarily the result of the tax liability associated with current year earnings
and was partially offset by tax payments made during the quarter ended September
30, 2000.
Liquidity and Capital Resources
Sources and Uses of Cash in Operations. Net cash used in operating
activities was $86.5 million for the three months ended September 30, 2000,
compared to cash provided by operating activities of $14.5 million for the three
months ended September 30, 1999. The change was primarily attributable to higher
receivable acquisitions than receivables securitized during the quarter ended
September 30, 2000. Net cash provided by investing activities was $14.5 million
and $23.2 million for the three months ended September 30, 2000 and 1999,
respectively. The increase over prior period primarily relates to the decrease
in the change in spread accounts. Net cash provided from financing activities
for the three months ended September 30, 2000 was $71.6 million compared to net
cash used in financing activities of ($38.1) million for the three months ended
September 30, 1999. The primary factor for this change is the increased
warehouse borrowings resulting from the higher acquisition of receivables in the
quarter ended September 30, 2000 compared to the quarter ended September 30,
1999.
Derivative financial instruments. Derivative financial instrument
transactions may represent a source or a use of cash during a given period
depending on the change in interest rates. In the first quarter of fiscal 2001,
derivative financial instrument transactions used cash of $5.9 million compared
to cash provided of $3.0 million during the first quarter of fiscal 2000.
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, securitization transactions and external
financing including long-term debt and revolving warehouse credit facilities.
Historically, the Company has used the securitization of receivable pools as its
primary source of long-term funding. In August 1999, the Company established an
additional source of liquidity through a securitization arrangement with a
commercial paper conduit. This facility has capacity of $500 million and was
fully utilized at September 2000. Securitization transactions enable the Company
to improve its liquidity, to recognize gains from the sales of the receivable
pools while maintaining the servicing rights to the receivables, 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 receivable acquisitions not
including dealer premiums. In addition to receivable 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 previously described. The Company's ability to borrow
under revolving warehouse 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 business 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 revolving warehouse credit facilities. The Company
consistently assesses its long-term receivable funding arrangements with a view
to optimizing cash flows and reducing costs. The Company has several options for
funding including, but not limited to, a public asset-backed securitization, a
sale into a commercial paper facility, a private sale, or temporarily holding
the receivables. The Company continues to evaluate market conditions and
available liquidity and could decide to alter the timing of its securitizations
in the future depending on the Company's cash position and available short-term
funding.
Warehouse facilities. The Company has Credit Facilities with
independent financial institutions for a total of $750.0 million to fund
receivable acquisitions. A $350 million Credit Facility and a $200 million
Credit Facility are insured by surety bond providers while a $200 million Credit
Facility is not insured. At September 30, 2000, $246.4 million of the capacity
was utilized, and an additional $21.3 million was available to borrow based on
the outstanding principal balance of eligible receivables. At June 30, 2000, and
September 30, 1999, $152.2 million and $169.8 million of the capacity was
utilized, and an additional $47.1 million and $54.1 million was available to
borrow based on the outstanding principal balance of eligible receivables,
respectively. The Credit Facilities generally have a term of one year. Selected
summary information about the Credit Facilities is shown below:
Credit Facility Outstanding Expiration
Capacity at September 30, 2000 Date
---------------- --------------------- ----------
(in millions)
$ 350 $246.4 September 2001
$ 200 None March 2001
$ 200 None August 2001
Working capital line. In June 2000, the Company established a working
capital line of credit for $15.0 million. This line of credit is unsecured and
is available to fund short-term cash flow needs of the Company. The facility has
a one year term, and the entire amount was available for use at September 30,
2000. This facility expires in June 2001.
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 pricinpal payments of $22.0
million began on August 1, 1998 and are due on August 1. The Notes have a
current private rating by Fitch of B+. 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. The
Notes have a current private rating by Fitch of B-. 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 Notes have a current private rating by Fitch of B+.
The Company's credit agreements, among other things, require compliance
with monthly and quarterly financial maintenance tests and 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.
Based on current cash flow projections, management believes that the
Company's existing capital resources, the revolving warehouse credit facilities
described above, future earnings, expected growth in receivable acquisitions,
and periodic securitization of receivables should provide the necessary capital
and liquidity for its operations through the end of the fiscal year. 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 current Fitch ratings on the Company's existing
long-term debt may have an adverse affect on its ability to obtain or its cost
of additional debt securities. The sale of additional equity, including Class A
Common Stock or preferred stock, would dilute the interests of current
shareholders. See - "Discussion of Forward-Looking Statements".
<PAGE>
Discussion of Forward-Looking Statements
The above discussions and notes to consolidated condensed 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, receivable acquisition volume, target spreads, potential
credit losses, recovery rates, prepayment rates, servicing income, and other
aspects of its business. Similar forward-looking statements may be made by the
Company from time to time. In particular, the Company's gain on sale of
receivables and retained interest in securitized assets are reported on the
basis of significant estimates of future portfolio performance. 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. Such factors include, for example,
demand for new and used autos, competition, and consumer credit and delinquency
trends. 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 2000 which is incorporated
herein by this reference.
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
------- ----------------------------------------------------------
The Company's sources for short-term funds generally have variable
rates of interest, and its receivable portfolio bears interest at fixed rates.
The Company therefore bears interest rate risk on receivables until they are
securitized and employs an economic hedging strategy to mitigate this risk. The
Company uses an economic hedging strategy that primarily consists of forward
interest rate swaps having a maturity approximating the average maturity of the
acquisition volume during the relevant period. At such time as a Securitization
is committed, the interest rate swaps are terminated. The Company's econimic
hedging strategy is an integral part of its practice of periodically
securitizing receivables. Prior to March 1999, as part of the economic hedging
strategy, the Company used an economic hedging vehicle that included the
execution of short sales of U.S. Treasury Notes having a maturity approximating
the average maturity of the receivable acquisition volume during the relevant
period. In addition, the commercial paper conduit pursuant to which the Company
Securitized $500.0 million in receivables in September 2000, may from time to
time in the future, provide for issuance of a note bearing interest at a
floating rate with the resulting interest rate risk covered by a related
interest rate swap arrangement. There is no assurance that these strategies will
completely offset changes in interest rates. In particular, such strategies
depend on management's estimates of receivable acquisition volume and timing of
its Securitizations. The Company realizes a gain on its economic hedging
transactions during periods of increasing interest rates and realizes a loss on
such transactions during periods of decreasing interest rates. Prior to July 1,
2000, the economic hedging gain or loss substantially offset changes in interest
rates as seen by reporting a lower or higher gain on sales of receivables,
respectively. Also, prior to July, 1, 2000, recognition of unrealized gains or
losses is deferred until the sale of receivables during the Securitization and
on the date of the sale, deferred hedging gains and losses are recognized as a
component of the Gain (Loss) on Sales of Receivables. Beginning July 1, 2000,
both the Gain on interest rate swaps on securitized receivables and the Gain on
interest rate swaps on held for sale receivables will be reflected in the income
statement. At September 30, 2000, the Company had an unrealized hedging loss on
forward interest rate swaps of $1.9 million based on notional amounts
outstanding of $512.6 million. The fair value of long-term debt increases or
decreases as market interest rates are reduced or increased, respectively.
Effective July 1, 2000, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 133 "Accounting for Derivatives Instruments
and Hedging Activities" ("SFAS No. 133").
The following table presents the principal cash repayments and related
weighted average interest rates by maturity date for the current variable rate
and long-term debt at September 30, 2000.
Nine months
ended June
30, 2001 2002 2003 Total Fair Value
--------------------------------------------------
(Dollars in thousands)
----------------------
Amounts due under warehouse
facility $246,394 $ - $ - $ 246,39 $246,394
Weighted average variable
rate 8.16% - - 8.16%
Long-term debt $ - $43,667 $111,333 $155,000 $145,968
Weighted average fixed rate - 8.14% 8.86% 8.66%
<PAGE>
Sensitivity analysis on Retained Interest
The Company bears the primary risk of loss due to credit losses in its
servicing portfolio. Credit loss rates are impacted by general economic factors
that affect customers' ability to continue to make timely payments on their
indebtedness. Prepayments on receivables in the servicing portfolio reduce the
size of the portfolio and reduce the Company's servicing income. The gain on
sales of receivables in connection with each securitization transaction and the
amount of Retained Interest recognized in each transaction reflect deductions
for estimates of future defaults and prepayments. The carrying value of Retained
Interest may be adjusted periodically to reflect differences between estimated
and actual net credit losses and prepayments on past Securitizations. The
Company does not believe fluctuations in interest rates materially affect the
rate of prepayments on receivables.
At September 30, 2000, key economic assumptions and the sensitivity of
the current fair value of Retained Interest to immediate 10% and 20% adverse
changes in assumed economics is as follows:
<TABLE>
<CAPTION>
Amounts as of September 30, 2000 Tier I Tier II Total
<S> <C> <C> <C>
Fair value of retained interest (1) $ 233,360 $ 2,056 $ 235,416
Prepayment speed assumption (annual rate) 21.88% - 28.00% 21.00%
Impact on fair value of 10% adverse change $ 226,419 $ 2,040 $ 228,459
Impact on fair value of 20% adverse change $ 213,400 $ 2,024 $ 215,424
Net loss rate assumption (pool life rate) 4.00% - 6.24% 12.00%
Impact on fair value of 10% adverse change $ 209,183 $ 1,730 $ 210,913
Impact on fair value of 20% adverse change $ 184,768 $ 1,409 $ 186,177
Discount rate assumption (annual rate) 9.07% - 15.00% 14.05%
Impact on fair value of 10% adverse change $ 227,190 $ 2,013 $ 229,203
Impact on fair value of 20% adverse change $ 221,314 $ 1,971 $ 223,285
</TABLE>
(1) Retained Interest on the balance sheet is lower than the total fair value
included in this analysis. The difference primarily relates to the inventory
value of repossessed autos that have not been sold. This amount is included in
Retained Interest as part of the allowance for estimated credit losses on
securitized receivables but not included in the total fair value.
These sensitivities are hypothetical and should be used with caution. As the
figures indicate, any change in fair value based on a particular percentage
variation in assumptions cannot be extrapolated because the relationship of the
change in fair value is not linear. Also, in this table, the effect of a
variation in a particular assumption on the fair value of the retained interest
is calculated independent from any change in another assumption; in reality,
changes in one factor may result in changes in another, which might magnify or
counteract the sensitivities. See "Discussion of Forward-Looking Statements."
<PAGE>
Part II. Other Information
--------------------------
Item 6. Exhibits and Reports on Form 8-K
------- --------------------------------
Exhibit 10.1 - Amendment No. 1 to Union Acceptance Corporation
Incentive Stock Plan dated as of July 26, 2000.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter ended
September 30, 2000.
<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
November xx, 2000 By: /S/ John M. Stainbrook
------------------------------
John M. Stainbrook
President and Chief Executive Officer
November xx, 2000 By: /S/ Rick A. Brown
------------------------------
Rick A. Brown
Treasurer and Chief Financial Officer
