PHOENIX--(BUSINESS WIRE)--Oct. 25, 2001--Ugly Duckling Corporation
(Nasdaq NM: UGLY), the largest used car sales company focused
exclusively on the sub-prime market, today reported its third quarter
and nine month financial results for 2001.
The Company's results for third quarter of 2001 reflect a
significant increase in the Provision for Loan Losses (Provision) to
44.7% of the total amount financed versus 31% in the prior quarters of
2001, and versus 29% in the third quarter of 2000. While early
indications reflect actual improvements in loss experience on 2001
originations due to improvement in underwriting, it was necessary to
increase the quarter's Provision as a percent of the quarter's loan
originations due to resulting lower loan origination volume. Company
policy is to maintain an Allowance for Credit Losses (Allowance) for
all loans in its portfolio to cover estimated net charge offs for the
next 12 months. Our loans have experienced lifetime losses in the 31%
to 34% range for the past few years. With origination growth over this
time we have been able to maintain an adequate Allowance in accordance
with Company policy and with GAAP by providing between 27% to 31% of
the quarter's amount financed. As the speed of portfolio growth has
slowed due to the reduced loan originations, an increase to the
Provision as a percentage of lower originations is necessary unless
there were a significant decrease in loss rates.
The increase in the Provision was also due to loss levels for
prior years' originations emerging at levels higher than previously
estimated as well as the economic environment and its likely effect on
our portfolio performance. More specifically, with the economic and
political events occurring in the third quarter of 2001, management
intensified its review of general trends in the economy, specific
economic events in many of its markets and the impact of such factors
on the market segments in which its customers are employed. As a
result of this evaluation, management concluded that these factors
offset other evidence that supported that its 2001 originations will
ultimately perform better than loans originated in fiscal year 1999
and 2000. While the Company believes loans originated in 2001 were
underwritten to higher credit standards and its transition to a
dealership centered collection methodology will produce more effective
collection results, uncertainties in the economy and our customers'
ongoing employment opportunities could offset these positive factors.
Accordingly, the Company adjusted upward its estimate of loan losses
for its 2001 originations to a level generally equal to that actually
being experienced on its fiscal year 2000 originations.
Based on all of these factors, the Company increased its Provision
to a level sufficient to bring the Allowance balance as of September
30, 2001 to a level adequate to cover this revised estimate of net
charge offs for the next 12 months.
Greg Sullivan, President and Chief Executive Officer stated, "We
certainly are disappointed by the need to take a large increase to our
Provision this quarter. This was due to many factors, including higher
than expected losses in 2001 on 2000 and earlier originations, the
reduced growth in our portfolio due to reduced sales and concern over
the downturn in the economy, particularly higher unemployment.
Although we believe that loan credit scoring and better inventory are
resulting in better loan originations in 2001, we are not forecasting
improvement in loss performance in the short-term due to the economy."
Mr. Sullivan continued, "Although we will likely see a Provision
significantly above 31% again in the fourth quarter, as we look to
2002, we believe that we are well positioned. We are strongly
committed to credit scoring and believe that it will ultimately lead
to lower losses and increased profitability. In time, we anticipate
more individuals will find themselves falling into the subprime
category, while many lenders will likely back away from the higher
losses and servicing expenses inherent in this market. We believe that
we will benefit from this environment in the long run with more and
better customers, which should ultimately lead to higher
profitability. In the meantime, we are focused on improving all phases
of our operations and reducing operating expenses where it makes
sense. Fortunately, our liquidity position is strong and the interest
rate environment is quite favorable for our borrowings."
Quarter over Quarter Results
For the three months ended September 30, 2001, the Company
reported a net loss of $6,817,000, or $(0.56) per diluted share,
compared with net earnings for the same period of 2000 of $2,683,000,
or $0.21 per diluted share. As discussed above, the decrease in
earnings in 2001 is primarily attributable to the Company's decision
to increase its Allowance for Credit Losses through an increased
Provision for Credit Losses and also a decreased sales volume. The
Provision was $48,755,000, an amount approximating 44.7% of
originations. This Provision for the three months ended September 30,
2001 as a percent of the quarter's originations is 15.7% higher than
the 29.0% Provision as a percent of originations recorded for the
three months ended September 30, 2000. The percent used in 2001
results in a $17,105,000 increase, or $0.82 per diluted share, over
that which would have been recorded in 2001 had the rate used in 2000
been applicable.
Total revenues for the third quarter of 2001 declined to
$145,237,000 from $158,072,000 for the third quarter of 2000, a
decrease of approximately 8.1%. The decrease in total revenue is due
to a 19.7% reduction in the number of cars sold from 14,825 in 2000 to
11,907 in 2001, partially offset by an increase in interest income.
The decrease in sales is primarily due to the Company's commitment to
originating higher quality loans as well as a general weakening in the
economy.
While used car sales declined during the third quarter of 2001
versus 2000, the loan portfolio continued to grow leading to a 11.3%
increase in interest income to $35,000,000 in the third quarter of
2001 from $31,436,000 in the third quarter of 2000. The Company's loan
portfolio principal balance totaled $537,946,000 at September 30, 2001
compared to $512,763,000 at September 30, 2000. New loan originations
for the quarter totaled $109,139,000 declining 12.2% from $124,367,000
during the third quarter of 2000. The effect of decreased used car
sales was partially offset by an increase in the quarter's average
amount financed to $9,215 in 2001 from $8,433 in the third quarter of
2000. The increase in the average amount financed is due to an
increase in the overall average sales price to $9,258 for the third
quarter of 2001 versus $8,542 for the same period of the previous
year. The increase in sales price is due to the Company's decision to
purchase a larger number of higher end vehicles than have been
purchased in the past. The Company has generally maintained a
consistent dollar net profit margin thereby passing the entire benefit
of the more expensive car on to the customer.
Operating expenses for the third quarter of 2001 decreased 4.7% to
$35,230,000 versus $36,955,000 for the third quarter of 2000.
Beginning in the third quarter of 2001, the Company began the process
of implementing numerous cost savings initiatives to reduce operating
expenses including the relocation of its corporate headquarters.
Further, in early October of 2001 the Company continued this process
by implementing a reduction in force of primarily corporate staff.
Beginning in 2002, this reduction in staff, the relocation of its
corporate headquarters and other cost saving initiatives are expected
to decrease annual operating expenses by approximately $6.0 million.
Third quarter 2001 operating expenses include approximately $500,000
in non-recurring costs associated with the corporate relocation.
Nine-Month Results
For the nine months ended September 30, 2001, the Company reported
a net loss of $3,631,000, or $(0.30) per diluted share, compared with
net earnings for the same period of 2000 of $11,514,000, or $0.82 per
diluted share. The Provision was $119,985,000, an amount approximating
35.4% of originations, for the nine months ended September 30, 2001.
This Provision as a percent of the nine-month period's originations is
7.7% higher than the 27.7% Provision as a percent of originations
recorded for the nine months ended September 30, 2000. The percent
used in 2001 results in a $26,146,000 increase in the Provision, or
$1.25 per diluted share, over that which would have been recorded in
2001 had the rate used in 2000 been applicable.
Total revenues declined to $450,086,000 for the nine months of
2001 from $467,787,000 for the nine months ended September 30, 2000, a
decrease of approximately 3.8% due to a decline in used cars sold
partially offset by an increase in interest income. For the reasons
discussed above, the number of cars sold decreased 14.7% to 38,365
cars sold in the nine-month period ended September 30, 2001 from
44,996 cars sold in the nine-month period ended September 30, 2000.
Offsetting the impact of lower sales was an increase in interest
income for the nine months ended September 30, 2001 of 19.5% to
$103,744,000 versus $86,838,000 for the comparable nine-month period
in 2000.
New loan originations have declined 8.8% from $371,268,000 during
the first nine months of 2000 to $338,769,000 during the first nine
months of 2001, also a result of the decrease in cars sold. The effect
of decreased used car sales was partially offset by an increase in the
average amount financed to $8,873 in 2001 from $8,295 in 2000. The
increase in the average amount financed is due to an increase in the
overall average sales price to $9,028 for the nine months ended
September 30, 2001 versus $8,466 for the same period of the previous
year.
Operating expenses for the nine months ended September 30, 2001
increased slightly to $108,588,000 versus $107,725,000 for the nine
months ended September 30, 2000. As previously mentioned, the Company
has been and continues to implement cost savings initiatives to reduce
future operating expenses.
Loan Charge-offs
Loan charge offs for the three months ended September 30, 2001 and
2000, net of recoveries, were $35,717,000 and $33,332,000,
respectively. As a percentage of quarter's average principal balances,
net charge offs for the two quarters were 6.6% and 6.7%, respectively.
For the nine-month periods ended September 30, 2001 and 2000, net
charge offs were $105,052,000 and $76,734,000, respectively. Net
charge offs as a percentage of average principal balances for the same
periods were 19.7% and 17.0%, respectively.
Closing of 21st Securitization
The Company announced that earlier this month it completed its
21st securitization, consisting of approximately $109,400,000 in
principal balances and the issuance of approximately $103,600,000 in
Class A bonds, including a pre-funded amount of approximately
$25,902,000. The Company will subsequently provide an additional
$36,481,000 in loans as collateral for the pre-funded amount. The
coupon rate on the Class A bonds is 3.44%, the initial deposit into
the reserve account was 2.25% and the reserve account maximum is 8%,
all substantial improvements over the terms of Company securitizations
closed earlier this year and during 2000.
Working Capital
As announced in a press release dated September 9, 2001, we closed
a new inventory warehouse facility revolving line of credit in the
third quarter. The two-year deal for $36,000,000 is an increase of
$11,000,000 from our prior facility, and includes an improved advance
rate and bears interest at the lender's prime rate plus 600 basis
points.
This inventory warehouse line and the loan warehouse line
consummated in the first quarter of 2001 replace the financing
previously provided by GE Capital, which announced its intention to
exit the sub-prime market in December of 2000.
Withdrawal of Offer to Purchase Outstanding Company Stock
As previously announced, the Company confirmed the withdrawal of
an offer from Mr. Ernest C. Garcia II, the Company's Chairman of the
Board and largest shareholder, to the Board of Directors to purchase
all of the outstanding shares of the Company's common stock not
already owned by him. Costs incurred by the Company related to this
offer totaled approximately $350,000 and were charged to operations
during the third quarter of 2001.
Conference Call/Rescheduled Conference Call Time
Ugly Duckling will be holding an investor conference call to
discuss the Company's financial and operational results at 12:30 pm
eastern standard time (9:30 am Phoenix time) on October 25, 2001.
Investors will have the opportunity to listen to the conference call
over the Internet through Ugly Duckling's website at
uglyduckling.com and click on investor information (or go
directly to uglyduckling.com and then
click on "3rd Quarter Earnings Call." To listen to the live call,
please go to the website at least fifteen minutes early to register,
download, and install any necessary audio software. For those who
cannot listen to the live broadcast, a replay will be available
shortly after the call on the Company's website at
uglyduckling.com. The replay will be available for 30 days. |
