and they wonder why they call this ugly
Ugly Duckling Corp. to Discontinue
Gain-on-Sale Accounting
PHOENIX--(BUSINESS WIRE)--Nov. 18, 1998--Ugly Duckling Corp. (Nasdaq/NM:UGLY -
news) Wednesday announced that it is changing the way it structures transactions under its
securitization program.
Until now, the company has structured these transactions as sales for accounting purposes.
Beginning in the fourth quarter of 1998, however, the company will structure securitizations for
accounting purposes to recognize the income over the life of the contracts. This change will not affect
the company's prior securitizations.
Commenting on the announcement, Chairman and CEO Ernest C. Garcia II stated: ''The decision to
structure the securitizations to eliminate sale accounting treatment reflects the growing skepticism
among securities analysts and a lack of investor confidence in this treatment.
''While we believe our sale accounting has been appropriate, it appears that the investment
community is not fully distinguishing between those companies doing it correctly and those being
overly aggressive.''
Garcia continued: ''The fundamentals of our business, particularly our revenues, should be
unaffected by this change. We also expect to continue to finance our receivables through
securitization. However, there will initially be a significant adverse impact on earnings per share for
the next few periods as we build our on-balance-sheet portfolio.
''We expect to incur a significant loss in the fourth quarter of 1998, and this change should continue
to have a material adverse effect on reported earnings until the company's net earnings from the
additional contracts added to the company's balance sheet approximates the revenues the company
has historically recognized on its securitization transactions.
''Nonetheless, we believe this approach will enhance the long-term value of the company through
greater earnings stability and predictability, as well as instill higher confidence in those earnings from
the investment community,'' Garcia concluded.
With headquarters in Phoenix, Ugly Duckling 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-plus Ugly
Duckling Car Sales dealerships. |
