<PAGE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A2
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported): January 15, 1997
UGLY DUCKLING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 20841 86-0721358
(State or other (Commission (IRS Employer
jurisdiction of incorporation) File Number) Identification
Number)
2525 East Camelback Road, Suite 1150, Phoenix, AZ 85016
(Address of principal executive offices)
Registrant's telephone number, including area code: (602) 852-6600
NONE
(Former name or former address, if changed since last report)
<PAGE>
This Current Report on Form 8-K/A2 amends the Current Report on Form 8-K/A1
filed by Ugly Duckling Corporation ("Company") on March 31, 1997 solely to
respond to the comments of the staff of the Securities and Exchange Commission
in connection with the Company's Registration Statement on Form S-1
(Registration No. 333-22237).
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired.
The required financial statements of the business acquired are set forth
below.
<PAGE>
SEMINOLE FINANCE CORPORATION
AND RELATED COMPANIES
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Reports F-1
F-2
Combined Financial Statements:
Combined Balance Sheets F-3
Combined Statements of Operations F-4
Combined Statements of Stockholder's Equity (Deficit) F-5
Combined Statements of Cash Flows F-6
Notes to Combined Financial Statements F-7
</TABLE>
F16
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Seminole Finance Corporation:
We have audited the accompanying combined balance sheet of Seminole Finance
Corporation and Related Companies (the Company) as of December 31, 1996, and
the related combined statements of operations, stockholder's equity (deficit),
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Seminole Finance
Corporation and Related Companies as of December 31, 1996, and the results of
their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
The accompanying combined financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 7 to
the combined financial statements, the Company is involved in a lawsuit that
involves a material amount of damages that, if there were an adverse outcome,
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to this matter are also described in Note 7. The
combined financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
KPMG Peat Marwick LLP
Tampa, Florida
March 18, 1997
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Seminole Finance Corporation:
We have audited the accompanying combined balance sheet of Seminole Finance
Corporation and Related Companies (the Company) as of December 31, 1995, and
the related combined statements of operations, stockholder's equity (deficit),
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Seminole Finance
Corporation and Related Companies as of December 31, 1995, and the results of
their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
Barton & Company, P.A.
Tampa, Florida
February 10, 1997
<PAGE>
SEMINOLE FINANCE CORPORATION
AND RELATED COMPANIES
Combined Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
-------------
<S> <C> <C>
Cash and cash equivalents $ 799,806 24,903
Finance receivables:
Principal balance 34,126,855 62,347,472
Less allowance for credit losses (10,600,000) (12,247,949)
-------------
Finance receivables, net 23,526,855 50,099,523
-------------
Notes receivable 881,408 1,896,123
Inventories 4,243,962 7,085,231
Prepaid expenses 13,930 50,799
Property and equipment, less accumulated depreciation of
$728,206 and $502,858 in 1996 and 1995, respectively 1,451,891 1,501,002
Other assets 1,185,924 556,484
-------------
$ 32,103,776 61,214,065
=============
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Liabilities:
Accounts payable $ 201,228 1,322,403
Accrued expenses and other liabilities 1,323,070 350,744
Due to affiliates 1,048,837 576,272
Obligations under capital leases 10,250 23,581
Notes payable 31,152,844 49,475,517
Subordinated note payable 1,000,000 --
-------------
Total liabilities 34,736,229 51,748,517
-------------
Stockholder's equity (deficit):
Common Stock 30,100 30,100
Additional paid-in capital 2,000,000 2,000,000
Retained earnings (accumulated deficit) (4,662,553) 7,435,448
-------------
Total stockholder's equity (deficit) (2,632,453) 9,465,548
Commitments, contingencies and subsequent events
$ 32,103,776 61,214,065
=============
</TABLE>
See accompanying notes to combined financial statements.
<PAGE>
SEMINOLE FINANCE CORPORATION
AND RELATED COMPANIES
Combined Statements of Operations
Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------
<S> <C> <C>
Dealership revenues:
Sales of used cars $11,827,087 57,584,506
Income on finance receivables 10,193,024 18,941,403
------------
22,020,111 76,525,909
------------
Cost of dealership revenues:
Cost of used cars 9,416,749 47,367,031
Provision for credit losses 7,106,949 9,724,355
------------
16,523,698 57,091,386
------------
Net revenues from dealership activities 5,496,413 19,434,523
Other income 1,618,549 2,524,834
------------
Income before operating expenses 7,114,962 21,959,357
------------
Operating expenses:
Selling and marketing 3,316,874 3,670,667
General and administrative 7,108,540 10,489,390
Depreciation and amortization 296,548 257,863
------------
10,721,962 14,417,920
------------
Operating income (loss) (3,607,000) 7,541,437
------------
Other expenses:
Interest on subordinated note payable 27,247 --
Interest, other 3,714,905 5,170,330
Loss on sale of finance receivables 1,456,892 --
------------ ----------
5,199,044 5,170,330
------------ ----------
Net earnings (loss) $(8,806,044) 2,371,107
============ ==========
</TABLE>
See accompanying notes to combined financial statements.
<PAGE>
SEMINOLE FINANCE CORPORATION
AND RELATED COMPANIES
Combined Statements of Stockholder's Equity (Deficit)
Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
RETAINED TOTAL
ADDITIONAL EARNINGS STOCKHOLDER'S
COMMON PAID-IN (ACCUMULATED EQUITY
STOCK CAPITAL DEFICIT) (DEFICIT)
-------
<S> <C> <C> <C> <C>
Balances at December 31, 1994 $30,100 2,000,000 7,178,674 9,208,774
Net earnings -- -- 2,371,107 2,371,107
Distributions to shareholder -- -- (2,114,333) (2,114,333)
-------
Balances at December31, 1995 30,100 2,000,000 7,435,448 9,465,548
Net loss -- -- (8,806,044) (8,806,044)
Distributions to shareholder -- -- (3,291,957) (3,291,957)
-------
Balances at December 31, 1996 $30,100 2,000,000 (4,662,553) (2,632,453)
=======
</TABLE>
See accompanying notes to combined financial statements.
<PAGE>
SEMINOLE FINANCE CORPORATION
AND RELATED COMPANIES
Combined Statements of Cash Flows
Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
-------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (8,806,044) 2,371,107
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Provision for credit losses 7,106,949 9,724,355
Loss on sale of finance receivables 1,456,892 --
Loss on sale of property and equipment 17,744 34,239
Depreciation and amortization 296,548 257,863
Decrease in notes receivable 1,014,715 --
Decrease in inventory 2,841,269 1,063,019
Decrease (increase) in prepaid expenses 36,869 (14,395)
Decrease (increase) in other assets (629,440) 221,442
Decrease in accounts payable (1,121,175) (975,581)
Increase (decrease) in accrued expenses and other liabilities 972,326 (469,665)
-------------
Net cash provided by operating activities 3,186,653 12,212,384
-------------
Cash flows from investing activities:
Decrease (increase) in finance receivables 18,008,827 (13,975,390)
Proceeds from sale of property, plant and equipment 73,106 --
Purchases of property, plant and equipment (338,287) (1,063,584)
Loans to related parties -- (1,221,888)
Repayments from related parties -- 387,372
Other -- 264,731
-------------
Net cash provided by (used in) investing activities 17,743,646 (15,608,759)
-------------
Cash flows from financing activities:
Repayment of obligations under capital leases (13,331) (12,243)
Advances (repayments)of notes payable (17,273,836) 5,605,693
Advances on subordinated note payable 1,000,000 --
Distributions to shareholder (3,291,957) (2,114,333)
Other (576,272) (59,739)
-------------
Net cash provided by (used in) financing activities (20,155,396) 3,419,378
-------------
Net increase in cash 774,903 23,003
Cash at beginning of year 24,903 1,900
-------------
Cash at end of year $ 799,806 24,903
=============
</TABLE>
See accompanying notes to combined financial statements.
SEMINOLE FINANCE CORPORATION
AND RELATED COMPANIES
Notes to Combined Financial Statements
F15
SEMINOLE FINANCE CORPORATION
AND RELATED COMPANIES
Notes to Combined Financial Statements
December 31, 1996 and 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of Seminole Finance
Corporation, Second Chance Finance, Inc., Second Chance Wholesale, Inc. and
Choice Auto Sales (collectively, the Company). These Companies operate used
car retail operations and a finance company in the state of Florida. All
significant intercompany balances and transactions have been eliminated in
consolidation.
(b) COMMON STOCK
<TABLE>
<CAPTION>
PAR AUTHORIZED SHARES
COMPANY VALUE SHARES OUTSTANDING
- ----------------------------- ------
<S> <C> <C> <C>
Seminole Finance Corporation No 100 100
Second Chance Finance, Inc. No 100 100
Second Chance Wholesale, Inc. $ 1 10,000 100
Choice Auto Sales $ 1 10,000 100
</TABLE>
(c) CASH EQUIVALENTS
The Company considers all cash and money market accounts, bank certificates of
deposits, and highly liquid debt instruments purchased with a maturity date of
three months or less to be cash equivalents.
(d) INCOME RECOGNITION
Revenue from the sale of cars is recognized upon delivery, when the sales
contract is signed and the agreed-upon down payment has been received.
Income on finance receivables is recognized using the interest method.
Unearned finance charges represent the balance of finance income (interest)
remaining from the capitalization of the total interest to be earned over the
original term of the related installment sales contract.
The Company has elected to suspend the accrual of interest income on finance
receivables when a loan has become delinquent generally after 90 days. If one
of these delinquent receivables becomes current, interest income is
recognized as if the account had not been delinquent. Late fees are charged
on these accounts and recognized when collected.
<PAGE>
(e) ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is primarily provided through discounts
charged by Seminole Finance Corporation when it purchases finance contracts
from third parties. Additional provisions for credit losses are charged
against income in amounts sufficient to maintain the allowance at a level
considered adequate to cover the losses of the existing loans. Seminole
Finance Corporation charges off loans based on a loan-by-loan review of the
receivables. When a loan is deemed uncollectible, the Company first seeks
recovery by attempting to repossess the vehicle financed. If the vehicle
cannot be repossessed, then the Company writes off the loan against the
allowance account.
(f) INVENTORIES
Inventories consist of used vehicles held for sale and is valued at the lower
of cost or market. Vehicle reconditioning costs are capitalized as a component
of inventory. The cost of used vehicles sold is determined on a specific
identification basis. Repossessed vehicles are valued at the estimated net
realizable value.
(g) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is computed
using straight-line and accelerated methods over the estimated useful lives of
the assets. Leasehold improvements are amortized using straight-line and
accelerated methods over the shorter of the lease term or the estimated useful
lives of the related improvements. Expenditures that extend the useful lives
of property and equipment are capitalized. Maintenance and repair expenditures
are charged to expense when incurred.
(h) INCOME TAXES
Each Company, with consent of its shareholder, elected to be treated as an S
Corporation. As an S Corporation, the Company is generally not liable for
income taxes since all income, losses and credits are passed through to the
shareholder.
(i) USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amount of revenues and expenses during the reporting period.
Estimates by management that are critical to the accompanying financial
statements include the appropriate level of allowance for credit losses which
can be significantly impacted by future industry, market, and economic trends
and conditions. Actual results could differ significantly from these
estimates.
(j) CONCENTRATION OF CREDIT RISK
The Company provides finance services in connection with used car dealerships
to individuals residing primarily in Hillsborough, Pinellas, Pasco and Polk
Counties, Florida.
(k) RECLASSIFICATIONS
Certain amounts in the 1995 combined financial statements have been
reclassified to conform with the 1996 presentation.
(2) FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES
A summary of net finance receivables at December 31, 1996 and 1995
follows:
<PAGE>
<TABLE>
<CAPTION>
1996 1995
-------------
<S> <C> <C>
Contractually scheduled payments $ 44,922,993 80,820,358
Less unearned finance income (10,796,138) (18,131,041)
Less unearned discounts -- (341,845)
-------------
Principal balances, net 34,126,855 62,347,472
Less allowance for credit losses (10,600,000) (12,247,949)
-------------
Finance receivables, net $ 23,526,855 50,099,523
=============
</TABLE>
Allowance for credit losses as a percent of principal balances totaled 31.06%
and 19.6% as of December 31, 1996 and 1995, respectively.
The changes in the allowance for credit losses were as follows for the years
ended December 31:
<TABLE>
<CAPTION>
1996 1995
------------
<S> <C> <C>
Balances, beginning of year $12,247,949 11,419,769
Provision for credit losses 7,106,949 9,724,355
Discount acquired -- 10,510,600
Net charge-offs (8,754,898) (19,406,775)
------------
Balances, end of year $10,600,000 12,247,949
============
</TABLE>
(3) PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31 follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
1996 1995 (YEARS)
----------
<S> <C> <C> <C>
Land $ 55,000 55,000 --
Buildings and improvements 524,902 512,811 31.5
Furniture and equipment 1,600,195 1,436,049 5-10
----------
Total cost $2,180,097 2,003,860
==========
</TABLE>
(4) NOTES PAYABLE
In May 1995, the Company amended its loan agreement for a revolving loan with
a credit corporation. The note calls for interest payable at an annual rate of
30 day London Interbank Offered Rates (LIBOR) plus 3.00%. The note is secured
by certain assets of the Company. As of December 31, 1996, the Company had a
maximum commitment of $75,000,000 through May 1997, at which time the loan may
be extended through a one-year automatic renewal. The Company borrowed
$28,253,844 and $46,543,517 under this loan as of December 31, 1996 and
December 31, 1995, respectively. (See note 8)
In May 1994, the Company executed a loan agreement for $2,500,000 with a
credit corporation. The note calls for interest at an annual rate of 30 day
LIBOR plus 6.75%. The note is secured by certain assets of the Company and
guaranteed by the owner of the Company. As of December 31, 1996, the Company
had a maximum commitment of $2,500,000 through May 1996, at which time the
loan was extended through a one-year automatic renewal. The Company borrowed
$2,500,000 under this loan as of December 31, 1996 and December 31, 1995. (See
note 8)
The Company owes $1,048,837 and $576,272 as of December 31, 1996 and 1995,
respectively, on borrowings from related companies owned by the same
shareholder as the Company. These companies are offshore insurance companies
that are liable for the losses on the credit insurance claims that result from
insurance policies sold with the financing contracts. These loans have no
specific terms for repayment or interest. (See note 8)
On June 30, 1992, the Company purchased 50% of the office building it occupied
until the end of 1995 from the shareholder of the Company. The shareholder of
the Company purchased the office building on May 21, 1992 for $550,000. The
mortgage on the building is in the name of the Company; therefore, 100% of the
mortgage is recorded on the books of the Company. As of December 31, 1996 and
1995, the balance on the mortgage payable was $399,000 and $432,000,
respectively, and the note bears interest at 9.25%.
Aggregate installments of the mortgage payable are due as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31
- -------------------------
<S> <C>
1997 $ 36,000
1998 36,000
1999 36,000
2000 36,000
2001 36,000
Thereafter 219,000
--------
$399,000
========
</TABLE>
(5) SUBORDINATED NOTE PAYABLE
In July 1996, the Company executed a senior subordinated note payable for
$1,000,000. The note calls for interest payable at an annual rate of the prime
rate plus 2.00%. The note is secured by certain assets of the Company and
guaranteed by the owner of the Company.
(6) LEASES
The Company has several noncancelable operating leases, primarily for a
computer system and office and warehouse space. Rent expense under these
leases amounted to approximately $122,085 and $888,218 in 1996 and 1995,
respectively. Future minimum lease payments are as follows:
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- -----------------------------
<S> <C>
1997 $ 61,573
1998 23,436
1999 19,311
2000 19,311
2001 14,483
Thereafter -
--------
$138,114
========
</TABLE>
The Company's capital lease obligation is for computer equipment that is
recorded at a cost of $61,520 and has been depreciated by $54,343 through
December 31, 1996. Amortization expense related to the capital lease is
included in depreciation expense on the accompanying combined statements of
operations. The lease terminates in 1997.
(7) COMMITMENTS AND CONTINGENCIES
In 1996, four companies that were former dealers from which the Company
purchased retail installment contracts have filed suits and/or counterclaims
against the Company and its related companies. The dealers seek to recover
approximately $20,000,000 in damages for alleged usury and breach of contract,
and to be indemnified for certain claims that may be made against them by the
Florida Department of Revenue in connection with sales tax refunds previously
paid to them. The Company has not yet responded to these claims and is in the
process of providing discovery information to the dealers. Management of the
Company intends to vigorously defend itself against these claims and believes
these claims to be without merit. Because these cases are in the early stages,
it is not possible to provide an evaluation of the likelihood of an
unfavorable outcome, nor an estimate of the amount or range of any potential
loss. Any unaccrued liability will not, in the opinion of management, have a
material adverse effect on the Company's combined financial statements.
(8) SUBSEQUENT EVENTS
On January 10, 1997, Ugly Duckling Corporation purchased ninety-one
repossessed vehicles and certain new and used vehicle parts from the Company.
On January 15, 1997, Ugly Duckling Corporation purchased certain assets and
assumed certain liabilities of the Company. The Company sold substantially all
of its finance receivables, certain inventory held for retail sale by the
seller, and certain furniture, fixed assets and equipment for approximately
$32,130,000. The proceeds from the sale of the assets were used to repay in
full the Company's notes payable.
(b) Pro Forma Financial Information.
The required pro forma financial information is set forth below.
UGLY DUCKLING CORPORATION
PRO FORMA CONDENSED COMBINED BALANCE SHEET- UNAUDITED
DECEMBER 31, 1996
(in thousands)
<TABLE>
<CAPTION>
UGLY PRO FORMA PRO FORMA
DUCKLING SEMINOLE ADJUSTMENTS COMBINED
----------
<S> <C> <C> <C> <C>
Assets:
Cash and Cash Equivalents $ 18,455 $ 800 $ 800 (a) $ 15,925
(2,530)(c)
Finance Receivables:
Held for Investment 52,188 -- -- 52,188
Held for Sale 7,000 34,127 (3,061)(a) 38,066
----------
Principal Balances, Net 59,188 34,127 (3,061) 90,254
Less: Allowance for Credit Losses (8,125) (10,600) 2,000 (a) (16,725)
----------
Finance Receivables, Net 51,063 23,527 (1,061) 73,529
----------
Residuals in Finance Receivables Sold 9,889 -- -- 9,889
Investments Held in Trust 3,479 -- -- 3,479
Inventory 5,752 4,244 (1,444)(a) 8,552
Property and Equipment, Net 20,652 1,452 (952)(a) 21,152
Goodwill and Trademarks, Net 2,150 -- 6,096 (c) 8,246
Other Assets 6,643 2,081 (2,081)(a) 7,211
250 (c)
265 (d)
53 (d)
$ 118,083 $ 32,104 $ (2,204) $ 147,983
==========
Liabilities and Stockholders' Equity (Deficit)
Liabilities:
Accounts Payable $ 2,132 $ 201 $ (201)(a) $ 2,132
Accrued Expenses and Other 6,728 1,333 (433)(a) 6,728
(900)(d)
Notes Payable 12,904 32,202 (7,336)(a) 42,804
(29,900)(b)
29,900 (b)
3,816 (c)
1,218 (d)
Subordinated Notes Payable 14,000 1,000 (1,000)(a) 14,000
----------
Total Liabilities 35,764 34,736 (4,836) 65,664
----------
Stockholders' Equity (Deficit):
Common Stock 82,612 2,030 (2,030)(a) 82,612
Accumulated Deficit (293) (4,662) 4,662 (a) (293)
----------
Total Stockholders' Equity (Deficit) 82,319 (2,632) 2,632 82,319
----------
$ 118,083 $ 32,104 $ (2,204) $ 147,983
==========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
condensed combined financial statements.
<PAGE>
UGLY DUCKLING CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS- UNAUDITED
YEAR ENDED DECEMBER 31, 1996
(in thousands, except earnings per share amounts)
<TABLE>
<CAPTION>
UGLY PRO FORMA PRO FORMA
DUCKLING SEMINOLE ADJUSTMENTS COMBINED
---------
<S> <C> <C> <C> <C>
Sales of Used Cars $ 53,768 $ 11,827 -- $ 65,595
Less:
Cost of Used Cars Sold 29,890 9,417 -- 39,307
Provision for Credit Losses 9,811 7,107 -- 16,918
---------
14,067 (4,697) -- 9,370
---------
Interest Income 15,856 10,193 -- 26,049
Gain (Loss) on Sale of Loans 4,434 (1,457) -- 2,977
---------
20,290 8,736 -- 29,026
---------
Servicing Income 921 -- -- 921
Other Income 650 1,620 -- 2,270
---------
1,571 1,620 -- 3,191
---------
Income before Operating Expenses 35,928 5,659 -- 41,587
Operating Expenses
Selling and Marketing 3,585 3,317 -- 6,902
General and Administrative 19,538 7,109 291(f) 26,938
Depreciation and Amortization 1,577 297 457(e) 2,331
---------
24,700 10,723 748 36,171
---------
Income (Loss) before Interest Expense 11,228 (5,064) (748) 5,416
Interest Expense 5,262 3,742 -- 9,004
---------
Earnings (Loss) before Income Taxes 5,966 (8,806) (748) (3,588)
Income Taxes (Benefit) 100 -- (100)(g) --
---------
Net Earnings (Loss) $ 5,866 $ (8,806) $ (648) $ (3,588)
=========
Earnings (Loss) per Share $ 0.60 $ (0.54)
========= ===========
Shares Used in Computation 8,283 8,283
========= ===========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
condensed combined financial statements.
UGLY DUCKLING CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
UGLY DUCKLING CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(1) BASIS OF ACCOUNTING
On January 15, 1997, Ugly Duckling Corporation ("Ugly Duckling") completed the
acquisition of substantially all of the net assets of Seminole Finance
Corporation and Related Companies (the Company or "Seminole") in exchange for
approximately $2,530,000 in cash and assumption of $29,900,000 in debt as
described in (2)(b) below.
The pro forma unaudited combined statement of operations is presented using
Ugly Duckling's audited consolidated statement of operations for the year
ended December 31, 1996 combined with the Company's audited year ended
December 31, 1996 combined statement of operations as if the transaction had
taken place on January 1, 1996.
The pro forma unaudited combined balance sheet gives effect to the acquisition
as if the transaction had taken place on December 31, 1996 and combines Ugly
Duckling's audited December 31, 1996 consolidated balance sheet amounts with
the Company's audited December 31, 1996 combined balance sheet amounts.
The pro forma condensed combined financial statements should be read in
conjunction with the consolidated financial statements and notes thereto of
Ugly Duckling Corporation and with the combined financial statements and notes
thereto of Seminole Finance Corporation and Related Companies.
The following pro forma combined statement of operations is not necessarily
indicative of the future results of operations of Ugly Duckling or the results
of operations which would have resulted had Ugly Duckling and the Company been
combined during the period presented. In addition, the pro forma results are
not intended to be a projection of future results.
(2) PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS AND PRO FORMA
CONDENSED COMBINED BALANCE SHEET
The accompanying pro forma adjustments reflect adjustments for the following
items:
(a) Reduction for cash, finance receivables, inventory, other assets, and
liabilities not acquired by Ugly Duckling. The common stock and accumulated
deficit of Seminole were eliminated in their entirety as only assets were
purchased from Seminole, which continued to exist as a separate entity.
(b) Ugly Duckling and Seminole utilize the same finance company for their
respective lines of credit. Concurrent with the closing of the acquisition,
the finance company increased Ugly Duckling's note payable by $29,900,000 and
applied a similar amount against Seminole's note payable.
(c) Reduction of $2,530,000 for the cash remitted to Seminole, as well as
recognition of the excess of the purchase price over the net assets acquired
(goodwill) in the amount of $6,096,000 and covenant not to compete of
$250,000. Ugly Duckling paid a total of $32.4 million for assets with a fair
value of $26.3 million resulting in an excess of the purchase price over the
fair value of the net assets acquired of $6.1 million. The determination of
the fair value of the finance receivables was based upon review of the
weighted average yield of the purchased portfolio as well as the required
allowance for credit losses. The required allowance for credit losses was
determined utilizing static pool analysis. Property and equipment was
considered to have been purchased at a fair value based upon review of
estimated replacement costs for a sample of the acquired items. The fair
value of inventory was determined utilizing published listing of vehicle
values.
A summary of the allocation of fair values follows:
<TABLE>
<CAPTION>
FAIR
DESCRIPTION VALUE
- --------------------------------------------------- -----------
<S> <C>
Finance Receivables $22,466,000
Inventory 2,800,000
Property and Equipment 500,000
Covenant not to Compete 250,000
Prepaid Rent 265,000
Deposits 53,000
-----------
Total Fair Value 26,334,000
Consideration Exchanged 32,430,000
-----------
Excess of Purchase Price over Fair Value
of Assets Acquired $ 6,096,000
===========
</TABLE>
(d) Represents the payment of $265,000 for one year of rent in advance for
an office building leased from Seminole, the purchase of lease deposits of
$53,000, and the elimination of the escrow deposit of $900,000 paid by Ugly
Duckling to the Company.
(e) Amortization of goodwill over a period of fifteen years and amortization
of a covenant not to compete over a period of five years.
(f) Increase in rent expense for difference in lease rates for used car
dealerships and an office building.
(g) Reduction in income tax expense for the income tax effect of the
operating loss of the Company.
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- ---------------------------------
<C> <S>
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Barton & Company, P.A.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
UGLY DUCKLING CORPORATION
(Registrant)
Dated: May 13, 1997 By: /s/ Steven P. Johnson
Senior Vice President and Secretary
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Ugly Duckling Corporation:
We consent to the inclusion of our report dated March 18, 1997 with respect to
the combined balance sheet of Seminole Finance Corporation and Related
Companies as of December 31, 1996 and the related combined statements of
operations, stockholder's equity (deficit), and cash flows for the year ended
December 31, 1996, which report appears in the Form 8-K/A2 of Ugly Duckling
Corporation dated January 15, 1997.
Our report dated March 18, 1997, contains an explanatory paragraph that
states: "the accompanying combined financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 7 to the combined financial statements, the Company is involved in a
lawsuit that involves a material amount of damages that, if there were an
adverse outcome, raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to this matter are also described
in Note 7. The combined financial statements do not include any adjustments
that might result from the outcome of this uncertainty."
KPMG PEAT MARWICK LLP
Tampa, Florida
May 13, 1997
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Seminole Finance Corporation
We consent to the inclusion of our report dated February 10, 1997 with respect
to the combined balance sheet of Seminole Finance Corporation and Related
Companies as of December 31, 1995 and the related combined statements of
operations, stockholder's equity (deficit), and cash flows for the year ended
December 31, 1995, which report appears in the Form 8-K/A2 of Ugly Duckling
Corporation dated January 15, 1997.
/s/ Barton & Company, P.A.
Barton & Company, P.A.
Certified Public Accountants
Tampa, Florida
May 13, 1997
