Ugly Duckling Corp. Announces Third-Quarter Charges to Discontinued Operations
PHOENIX--(BUSINESS WIRE)--Oct. 8, 1998--Ugly Duckling Corp. (Nasdaq NM:UGLY) Thursday announced that it expects to take charges to discontinued operations of approximately $4.6 million (net of income taxes), or $0.26 per diluted common share, in the third quarter ended Sept. 30, 1998.
Approximately $3.6 million, or $0.19 per diluted common share, of the charges relate to the company's ongoing efforts to close the third-party dealer branch office network of Champion Financial Services Inc., its wholly owned subsidiary.
These charges result from higher-than-estimated costs associated with closing the branch operations, which were discontinued in the first quarter of 1998, as well as greater-than-anticipated costs for the collection and liquidation of the associated loan portfolio. The remaining $1.2 million, or $0.07 per diluted common share, relates to costs incurred for the recently terminated rights offering by Cygnet Financial Corp., a wholly owned subsidiary of the company.
Despite these charges to discontinued operations, the company is comfortable with analysts' consensus estimates for earnings from continuing operations for its dealership business for the third quarter 1998.
Commenting on the announcement, Ernest C. Garcia II, chairman and chief executive officer of Ugly Duckling, said: "In the first quarter of this year, we decided to terminate the operations of our Champion Financial Services subsidiary and record a charge that we believed would sufficiently cover the expected net loss from the disposal of its assets and the collection of the related portfolio.
"We are disappointed that these costs have exceeded our initial estimates and that this portfolio's performance has been below expectations. While these developments lend support to our decision to exit this line of business, it is necessary to record an additional charge to discontinued operations for these higher-than-projected costs."
Regarding the charge taken for the terminated rights offering, Garcia continued: "As previously disclosed, we terminated the rights offering to Ugly Duckling's shareholders due primarily to a lack of sufficient subscriptions for Cygnet common shares to meet certain Nasdaq listing requirements.
"As a result, we have determined it is appropriate to write off the costs associated with the rights offering. The company continues to explore alternatives for formally separating our dealership and non-dealership operations, although there can be no assurance that we will ultimately be successful in this regard. In the meantime, Cygnet will remain a wholly owned subsidiary of Ugly Duckling.
"This being said, I am pleased to report that both our dealership and non-dealership operations have continued to expand and that each has continued to perform as expected. Further, although we were not successful in formally separating these operations as planned, we have completed the internal process of establishing separate management teams and infrastructures for our dealership and non-dealership operations within the company.
"We believe this structure enhances each segment's ability to focus on its own operations, improve financial performance and facilitate our goal of formally separating the two businesses."
Garcia concluded: "We believe the company is positioned for continued growth in 1999. However, given current market conditions, access to capital is a continuing concern and, if capital market conditions do not improve in the future, current expectations of our growth will need to be moderated."
As previously disclosed, the termination of the rights offering does not affect the exchange offer announced by Ugly Duckling on Sept. 17, which enables stockholders to exchange their shares in Ugly Duckling for 12%, five-year subordinated debentures. Under the terms of that offer, each share of common stock can be exchanged for $6.50 principal amount of debentures.
The expiration date of the exchange offer is scheduled for Oct. 19, 1998. |
