Ugly Duckling Reports Q2 1998 Results
22 July 1998
Ugly Duckling Corporation Announces Second Quarter 1998 Results
PHOENIX--July 22, 1998--Ugly Duckling Corporation (Nasdaq NM:UGLY) today reported results from continuing and discontinued operations for the three and six months ended June 30, 1998.In April 1998 Ugly Duckling announced that it was proceeding with its plan to separate current operations into two publicly held companies. Continuing operations focus exclusively on the retail sale and financing of used cars through Ugly Duckling's chain of dealerships, as well as the collection and servicing of the resulting loans. A new company, Cygnet Financial Corporation, will operate all non-dealership operations.
For the quarter, earnings from continuing operations totaled $2.6 million, or $0.14 per diluted share, compared with $2.2 million, or $0.11 per diluted share, for the second quarter of 1997. Total revenues for the period increased to $81.0 million over the $36.1 million reported for the same period a year ago. Earnings from discontinued and non-dealership operations totaled $358,000, or $0.02 per diluted share, compared with $2.2 million, or $0.11 per diluted share, for the second quarter of 1997.
For the six-month period ended June 30, 1998, earnings from continuing operations rose to $6.3 million, or $0.33 per diluted share, compared with $2.9 million, or $0.16 per diluted share, for the same six-month period of 1997. Total revenues for the period increased to $166.4 million over the $58.4 million for the same period a year ago. Loss for the six months ended June 30, 1998 from discontinued and non-dealership operations totaled $(5.3) million, or $(0.27) per diluted share, compared with earnings of $4.7 million, or $0.27 per diluted share, for the six months ended June 30, 1997.
As previously disclosed, a registration statement has been filed with the Securities and Exchange Commission related to splitting Ugly Duckling into two public companies. Subject to the completion of the registration process, the Company's Board of Directors has set the date of record for the associated "rights offering" as August 17, 1998 and scheduled its Annual Stockholders meeting for Monday, August 31, 1998 at 4:00 PM in Phoenix.
In addition, on July 20, 1998 Cygnet Financial secured a subordinate loan of $5 million from a third party lender with a three-year term. In connection with this loan, on the effective date of the split-up Cygnet will issue warrants to purchase up to 115,000 shares of Cygnet Financial common stock at an exercise price of $8.40 per share. However, if the split-up of Ugly Duckling has not occurred by December 31, 1998, and the loan has not been repaid, Ugly Duckling will be required to issue warrants to purchase 115,000 shares of the Company's common stock at an exercise price of 120% of an average trading price for Ugly Duckling's stock prior to the issuance date of such warrants.
Headquartered in Phoenix, Arizona, Ugly Duckling Corporation is a used car sales and finance company that operates the nation's largest chain of used car dealerships focused exclusively on the sub-prime market. The Company underwrites, finances and services sub-prime contracts generated at its 50 Ugly Duckling dealerships. Cygnet Financial provides operating lines of credit and other financing arrangements for non-affiliated used car dealers. The Company also acquires economic interests in distressed portfolios.
This press release includes statements that may constitute forward-looking statements, usually containing the words "believe," "estimate," "project," "expects" or similar expressions. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. By making these forward-looking statements, UDC undertakes no obligation to update these statements for revisions or changes after the date of this release. Factors that would cause or contribute to such differences include, but are not limited to, factors detailed in the sections and subsections entitled "Risk Factors," "Factors That May Affect Future Results and Financial Condition" and "Factors That May Affect Future Stock Performance" in UDC's most recent reports on Form 10-K and Form 10-Q, and elsewhere in UDC's Securities and Exchange Commission filings.
A Cygnet Financial registration statement relating to securities arising from the separation of Company operations into two publicly held companies has been filed with the Securities and Exchange Commission but has not yet become effective. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state. A copy of the prospectus, included with the registration statement, will be distributed to stockholders with the upcoming notice and proxy statement, pursuant to which UDC stockholders would vote on the Split-up.
Financial Highlights
For Quarter and Six Month Periods Ended June 30, 1998 and 1997
Consolidated Operating Information
(In thousands, except used cars sold and per share data)
Six Months Three Months
ended ended
June 30, June 30,
1998 1997 1998 1997
Used cars sold 18,138 6,278 8,699 3,806
Total revenues $166,357 58,443 80,908 36,147
Used car sales $142,491 46,013 69,519 27,802
Cost of used cars sold 81,213 24,012 40,850 14,848
Provision for credit losses 29,308 8,109 14,274 4,848
Net revenue from dealerships 31,970 13,892 14,395 8,106
Interest earnings 7,439 4,691 3,560 3,179
Gain on sale of loans 8,273 4,143 3,659 3,012
Servicing and other earnings 8,154 3,596 4,171 1,159
Operating expenses:
Dealerships 28,065 12,482 12,625 7,513
Servicing 9,176 4,938 4,583 3,244
Administrative 6,821 3,570 3,707 1,793
Total operating expenses 44,062 20,990 20,915 12,550
Operating earnings 11,774 5,332 4,870 3,901
Interest expense 1,164 440 517 263
Earnings before income taxes 10,610 4,892 4,353 3,638
Income taxes (4,274)(1,987)(1,763)(1,488)
Earnings (loss):
Continuing operations 6,336 2,905 2,590 2,150
Discontinued operations - net (5,254) 4,668 358 2,161
Net earnings (loss) $ 1,082 7,573 2,948 4,311
Earnings per share - basic:
Continuing operations $0.34 $0.17 $0.14 $0.12
Net earnings $0.06 $0.44 $0.16 $0.23
Earnings per share - diluted:
Continued operations $0.33 $0.16 $0.14 $0.11
Net earnings $0.06 $0.43 $0.16 $0.23
Shares used in:
Basic computation 18,570 17,200 18,590 18,450
Diluted computation 18,930 17,800 18,980 19,000
Consolidated Balance Sheet Information
(in thousands)
June 30, Dec. 31,
Assets: 1998 1997 1997
Cash $ 1,652 41,149 3,537
Finance receivables, net 27,310 32,627 47,501
Residual in finance receivables sold 28,418 12,551 13,277
Investments held in trust 17,894 5,208 11,637
Used car inventory 34,690 15,782 32,372
Property & equipment, net 27,785 29,980 39,182
Intangible assets, net 14,715 13,705 16,366
Other assets 13,187 9,849 9,350
Discontinued operations, net 114,767 54,625 102,411
$ 280,418 215,476 275,633
Total Liabilities and Stockholders Equity:
Accounts payable & accrued expenses $ 21,774 16,551 16,688
Notes payable 47,891 8,328 65,171
Subordinated debt 25,000 12,000 12,000
Total liabilities 94,665 36,879 93,859
Total stockholders' equity 185,753 178,597 181,774
$ 280,418 215,476 275,633
Discontinued Operations - Assets, net
(In thousands)
June 30, March 31, Dec. 31,
1998 1998 1997
Champion Portfolio - Retained $ 53,626 61,511 42,879
Investments held in trust 5,500 6,868 7,277
Assets arising from FMAC transactions 23,910 23,636 25,686
Cygnet Finance Portfolio 32,974 29,358 19,438
Other, net (1,243) 3,008 7,131
$ 114,767 124,375 102,411
Finance Receivables and Allowance for Credit Losses Information
(In thousands)
Principal Balances Attributable
Continuing Operations: Retained Securitized Managed
---------------------- -------- ----------- -------
Dealership Portfolio - June 1998 $ 32,156 217,197 249,353
Dealership Portfolio - Dec. 1997 $ 55,950 83,850 139,800
Dealership Portfolio - June 1997 $ 42,600 68,400 111,000
Delinquencies
Continuing Operations: Retained Securitized Managed
June 30, 1998, Over 60 Days 2.2% 1.5% 1.6%
June 30, 1998, 30 - 60 Days 1.1% 3.6% 3.2%
Over 30 Days 3.2% 5.0% 4.8%
December 31, 1997, Over 60 Days 0.6% 2.2% 1.5%
December 31, 1997, 31 - 60 Days 2.2% 4.5% 3.6%
Over 30 Days 2.8% 6.7% 5.1%
Allowance as % of Remaining Principal
Continuing Operations: Retained Securitized Managed
---------------------- -------- --------- -------
Dealership Portfolio - June 1998 18.5% 24.1% 23.6%
Dealership Portfolio - Dec. 1997 18.5% 18.4% 18.4%
Dealership Portfolio - June 1997 23.6% 16.9% 19.5%