Ugly Duckling Corporation Announces 1998 Results
10 February 1999
Ugly Duckling Corporation Announces 1998 Results
PHOENIX--Feb. 10, 1999--Ugly Duckling Corporation today reported results from operations for its fourth quarter and year ended December 31, 1998.
Continuing operations
For the fourth quarter ended December 31, 1998, the Company reported a net loss from continuing operations of $4.6 million, or $(0.28) per diluted share, compared with earnings from continuing operations of $3.8 million, or $0.20 per diluted share, for the fourth quarter of 1997. Total revenues from the dealership segment of continuing operations for the fourth quarter of 1998 increased 55% to $80.9 million over the $52.2 million reported for the same quarter in 1997.
For year ended December 31, 1998, net earnings from continuing operations was $3.6 million, or $0.19 per diluted share, compared with $9.5 million, or $0.52 per diluted share for 1997. Primarily as the result of an increase in operating dealerships, total revenues for the year from the dealership segment of continuing operations increased 114% to $333.3 million over the $155.4 million for the year-ago period.
The Company's 1997 results include a one-time $8.1 million fourth quarter gain on the sale of certain assets acquired by Cygnet's bulk servicing operations in the FMAC transaction.
Discontinued operations
For the quarter ended December 31, 1998, the Company incurred a net loss from discontinued operations of $68 thousand, or $0.0 per diluted share, compared to a net loss from discontinued operations of $133 thousand, or $(0.01) per diluted share in 1997.
For the year ended December 31, 1998, the Company incurred a net loss from discontinued operations of $9.3 million, or $(0.50) per diluted share, compared to a net loss of $47 thousand, or $0.0 per diluted share, in 1997. The $9.3 million loss for 1998 consists primarily of restructuring charges incurred in the termination or disposal of the discontinued operations.
Reclassification of Certain Discontinued Operations
In April of 1998, the Board of Directors of the Company directed management to explore separation of its dealership and third party dealer operations. Consequently, the Company categorized the third party dealer operations as discontinued in its financial statements. The Company's third party dealer operations consist of the bulk purchase and servicing of third party portfolios, the Company's Cygnet Dealer program and its Champion Financial branch office network which was closed in the first quarter of 1998. The Company sought to separate its third party dealer operations from its dealership operations through a rights offering, but terminated the rights offering in the third quarter of 1998 due to market conditions.
The Company continues to explore strategic alternatives for its Cygnet Dealer program, but has determined to retain its current bulk servicing operations. Accordingly, while the branch office network and Cygnet Dealer program continue to be reported as discontinued operations, the bulk servicing operations (including the FMAC transaction) have been reclassified into continuing operations for the fourth quarter and year-ended December 31, 1998 and 1997.
Portfolio Accounting
In the fourth quarter of 1998 the Company announced that it was changing the way it structures transactions under its securitization program. Through September 30, 1998, the Company has structured these transactions as sales for accounting purposes. Beginning in the fourth quarter of 1998, however, the Company has structured securitizations for accounting purposes to recognize the income over the life of the contracts. This change will not affect the Company's prior securitizations. As a result of this change in securitization structure, and the Company's retention of its loans in portfolio, the Company has established in the fourth quarter an allowance for credit losses of approximately 27% of the original principal balance for all contracts held for investment. Previously, the Company had established an allowance of approximately 20% of the original principal balance to record the contract at the lower of cost or market value. Contracts that were previously classified as held for sale have been transferred to the held for investment portfolio in the fourth quarter.
Other
Over the past several months the Company has been in the process of consolidating its dealership and loan servicing data processing operations to a single computer system. The consolidation was recently completed, subject to final testing.
The Company previously reported that it expected to expend $2.1 to $2.7 million on Year 2000 evaluation, remediation and replacement. Through December 31, 1998, expenditures totaled approximately $1.2 million.
The Company also announced an extension of its stock repurchase program. Under the program, the Company may from time to time repurchase up to 928,000 shares of its common stock during 1999. During 1998, the Company repurchased 72,000 shares of its common stock pursuant to the repurchase program. The Company purchased an additional 2.7 million shares pursuant to exchange offers with its stockholders, leaving 15.8 million shares outstanding at year-end. Under the exchange offers, the stockholders tendered shares in exchange for subordinated debt of the Company.
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 56 Ugly Duckling Car Sales dealerships. Cygnet Financial Corporation, a wholly owned subsidiary of Ugly Duckling Corporation, provides various financial services primarily to the sub-prime segment of the automobile financing industry.
This press release may include statements that 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. Factors that could cause or contribute to such differences include factors detailed in the sections entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Risks Factors," "Factors That May Affect Future Results and Financial Condition" and "Factors That May Affect Future Stock Performance" in Ugly Duckling Corporation's most recent reports on Form 10-K and Form 10-Q (including Exhibit 99 to any such Form 10-Q), factors detailed in the section "Risk Factors" in Ugly Duckling Corporation's definitive proxy statement dated August 4, 1998, and elsewhere in Ugly Duckling Corporation's Securities and Exchange Commission filings. By making these forward-looking statements, the Company undertakes no obligation to update these statements for revisions or changes after the date of this press release.
Financial Highlights
For Quarter and Year Ended December 31, 1998 and 1997
Consolidated Operating Information
(In thousands, except used cars sold and per share data)
Year Ended Three Months Ended
December 31, December 31,
1998 1997 1998 1997
Used cars sold - Units 35,964 16,636 8,821 5,835
Total revenues, dealership
operations $333,332 155,419 80,893 52,155
Used car sales $287,617 123,814 71,542 44,271
Cost of used cars sold (166,991) (72,358) (41,906) (26,456)
Provision for credit
losses (65,318) (22,354) (20,263) (8,161)
Net revenue from
dealerships 55,308 29,102 9,373 9,654
Interest earnings 17,287 12,559 5,256 2,637
Gain on sale of loans 12,093 6,721 - -
Servicing and other
income 16,335 12,325 4,095 5,247
Cygnet bulk servicing
continuing operations,
net 176 9,200 763 8,915
Operating expenses (92,341) (53,100) (25,941) (19,888)
Operating earnings (loss) 8,858 16,807 (6,454) 6,565
Interest expense (2,877) (706) (1,325) (76)
Earnings (loss) before
income taxes 5,981 16,101 (7,779) 6,489
Income taxes (2,421) (6,609) 3,170 (2,656)
Earnings (loss):
Continuing operations 3,560 9,492 (4,609) 3,833
Discontinued operations -
net (9,262) (47) (68) (133)
Net earnings (loss) $ (5,702) 9,445 (4,677) 3,700
Earnings (loss) per
share - basic:
Continuing operations $ 0.20 0.53 (0.28) 0.21
Net earnings (loss) $ (0.32) 0.53 (0.28) 0.20
Earnings (loss) per
share - diluted:
Continuing operations $ 0.19 0.52 (0.28) 0.20
Net earnings (loss) $ (0.31) 0.52 (0.28) 0.20
Shares used in:
Basic computation 18,082 17,832 16,633 17,832
Diluted computation 18,405 18,234 16,633 18,234
Financial Highlights, continued
For Quarter and Year Ended December 31, 1998 and 1997
Cygnet Bulk Servicing Continuing Operations Information
(In thousands, except used cars sold and per share data)
Year Ended Three Months Ended
December 31, December 31,
1998 1997 1998 1997
Servicing fees $ 18,974 - 7,902 -
Other income 5,154 3,819 1,266 1,842
Gain on sale of finance
receivables - 8,131 - 8,131
Operating Expense (18,385) - (7,242) -
Administrative expenses (3,077) (1,697) (966) (424)
Operating income 2,666 10,253 960 9,549
Offering costs (2,000) - - -
Interest expense (490) (1,053) (197) (634)
Cygnet Operations, net $ 176 9,200 763 8,915
For Quarter and Year Ended December 31, 1998 and 1997
Consolidated Operating Expenses - Dealership Segment
(In thousands)
Year Ended Three Months Ended
December 31, December 31,
Operating Expenses 1998 1997 1998 1997
Dealership Operations
Dealerships $55,167 29,250 14,321 10,834
Servicing 19,819 13,411 5,637 4,786
Administrative 17,355 10,439 5,983 4,268
Total operating expenses $92,341 $53,100 $25,941 $19,888
Consolidated Balance Sheet Information
(in thousands)
December 31,
Assets: 1998 1997
Cash $ 2,544 3,537
Finance receivables, net 126,168 71,135
Used car inventory 44,145 32,372
Property & equipment, net 28,631 39,182
Intangible assets, net 14,433 16,366
Other assets 15,378 10,630
Cygnet bulk servicing operations, net 25,132 22,126
Discontinued operations, net 81,865 80,285
-------- --------
$338,296 275,633
Total Liabilities and Stockholders
Equity:
Accounts payable & accrued expenses $ 18,748 16,688
Notes payable 117,895 65,171
Subordinated debt 38,741 12,000
-------- --------
Total liabilities 175,384 93,859
Total stockholders' equity 162,912 181,774
-------- --------
$338,296 275,633
Selected Consolidated Balance Sheet Information
Finance Receivables, net
(In thousands)
December 31,
1998 1997
Principal balances $ 93,936 55,965
Accrued Interest 877 461
Loan origination costs 2,237 1,431
Principal balances, net 97,050 57,857
Residuals in finance receivables sold 36,083 16,105
Investments held in trust 20,564 10,357
-------- -------
153,697 84,319
Allowance for credit losses (27,529) (13,184)
Finance receivables, net $126,168 71,135
Selected Consolidated Balance Sheet Information
Cygnet Bulk Servicing Operations, net
(In thousands)
December 31,
1998 1997
Notes receivable & other - FMAC $ 19,084 20,238
Property & equipment, net 3,897 647
Other, net 2,151 1,241
-------- --------
$ 25,132 22,126
Discontinued operations, net
(In thousands)
December 31,
1998 1997
Finance receivables, net - dealer
finance $ 42,146 24,885
Finance receivables, net - branch
system $ 38,524 42,879
Investments held in trust 3,665 7,277
Other, net (2,470) 5,244
-------- --------
$ 81,865 80,285
Finance Receivables and Allowance for Credit Losses Information
(In thousands)
Principal Balances Attributable
Remaining principal: Retained Serviced(a) Managed
December 1998 $ 93,936 198,747 292,683
December 1997 $ 55,965 127,356 183,321
(a) Originated by Company dealerships, securitized and sold with
servicing retained
Delinquencies
Retained Securitized Managed
December 31, 1998, Over 60 Days 0.5% 2.2% 1.9%
December 31, 1998, 30 - 60 Days 2.3% 5.2% 4.6%
December 31, 1998, Over 30 Days 2.8% 7.4% 6.5%
December 31, 1997, Over 60 Days 0.6% 2.2% 1.5%
December 31, 1997, 31 - 60 Days 2.2% 4.5% 3.6%
December 31, 1997, Over 30 Days 2.8% 6.7% 5.1%
Allowance as % of
Remaining Principal
Retained Securitized Managed
Dealership Portfolio - December 1998 26.4% 20.6% 23.4%
Dealership Portfolio - December 1997 18.5% 18.4% 18.4%