Ugly Duckling Corp. Announces Intention to Split Operations and Reports First Quarter 1998 Results
PHOENIX--(BUSINESS WIRE)--April 28, 1998--Ugly Duckling Corp. (Nasdaq NM:UGLY) Tuesday announced that its Board of Directors has authorized management to proceed with separating current operations into two publicly held companies.
Ugly Duckling's continuing operations would focus exclusively on the retail sale and financing of used cars through its chain of dealerships, as well as the collection and servicing of the resulting loans. A new company, Cygnet Financial Corp., would be formed to operate all non-dealership operations. Ugly Duckling today also reported results of operations for the first quarter ended March 31, 1998.
Under a proposal currently being considered, Ugly Duckling would distribute rights to its stockholders to purchase stock in Cygnet Financial. Only stockholders of Ugly Duckling who exercise their rights would acquire common equity in the new entity.
However, details of any such rights offering, including the subscription price, back-up purchase rights, interests to be retained by Ugly Duckling, capitalization of the new entity and other factors, are still under consideration.
Any structure for the separation would be subject to the consent of various parties and applicable regulatory approvals and filings. Ugly Duckling's Board has directed management to continue developing a specific plan for the separation.
Commenting on the announcement to separate the operations, Ernest C. Garcia II, chairman and chief executive officer of Ugly Duckling, said, "It has become evident over the past year that our Cygnet Finance subsidiary is a viable business and, as we have demonstrated with several recent transactions, there also exists an opportunity to capitalize on the sub-prime industry's current turmoil.
"We also have determined that with proper focus, the company's used-car operations can be significantly expanded both internally and through acquisition.
"Given the diversity of these ventures and their growth potential, the Board has concluded that the company's long-term success and enhancement of shareholder value would be improved if each business were allowed to progress under its own management and corporate structure. This would enable each management team to concentrate their time and financial resources on their distinctive operations.
"Further, this division of businesses should make it easier for the investment community to analyze and evaluate the companies."
Garcia continued, "We believe this is a situation where the sum of the parts is greater than the whole. Additionally, while I would expect to remain chairman of Ugly Duckling, I would focus my daily efforts on expanding Cygnet's market presence and capitalizing on unique opportunities in the sub-prime industry.
"As currently envisioned, Greg Sullivan, Ugly Duckling's president and COO, would assume the role of CEO of the company and retain nearly all of its current senior management. This realignment will allow the respective management teams to concentrate exclusively on their unique business segment and more fully capitalize on their respective strengths."
Garcia added that management expects the transaction to be completed by the end of the third quarter of 1998.
Ugly Duckling also announced results of operations for the first quarter of 1998. For the quarter, net income from continuing operations advanced to $3.7 million, or $0.20 per diluted share, from $800,000, or $0.05 per diluted share, for the first quarter of 1997. Total revenues from continuing operations for the 1998 period increased almost four-fold to $85.4 million, compared with $22.3 million for the same period one year ago.
Results of continuing operations for the first quarter of 1998 include a pre-tax gain on sale of $4.6 million on $86.9 million in loans sold. Results of continuing operations for the first quarter of 1997 include a pre-tax gain on sale of $1.1 million on $15.1 million in loans sold.
Net income from continuing operations this quarter excludes a net loss of $5.6 million, or $0.29 per diluted share, which arose from the company's decision in January 1998 to discontinue or dispose of all non-dealership activities. Nearly all of this net loss is attributable to charges the company took for closing its branch network that purchased loans from third-party dealers.
By contrast, net earnings from discontinued operations for the three months ended March 31, 1997, totaled $2.5 million, or $0.15 per diluted share.
"We are pleased with the progress we continue to make in our dealership operations, Garcia commented. "By the end of the first quarter, our number of locations had grown to 46 in seven states, compared with 14 locations in three states at March 31, 1997. We expect that this decision to focus exclusively on our dealerships will enable us to expand our chain still further."
Garcia concluded, "With Ugly Duckling solely focused on our dealership chain -- and with a separate company and management team targeting other opportunities in the sub-prime market -- we believe both can prosper and provide increased value to our stockholders."
|
