<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A1
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): April 1, 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/A1 amends the Current Report on Form 8-K filed
by Ugly Duckling Corporation ("Company") on April 1, 1997 solely to add the
financial statements of the business acquired required by item 7 (a) and the
pro forma financial information required by item 7 (b).
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>
E-Z Plan, Inc.
Financial Statements
Year Ended December 31, 1996
with Report of Independent Auditors
<PAGE>
E-Z Plan, Inc.
Financial Statements
Year Ended December 31, 1996
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors. . 1
Financial Statements
Balance Sheet . . . . . . . . . . 2
Statement of Operations . . . . . 4
Statement of Stockholders' Equity 5
Statement of Cash Flows . . . . . 6
Notes to Financial Statements . . 7
</TABLE>
<PAGE>
Report of Independent Auditors
Board of Directors
E-Z Plan, Inc.
We have audited the accompanying balance sheet of E-Z Plan, Inc. as of
December 31, 1996, and the related statements of operations, stockholders'
equity, and cash flows for the year then ended. The financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on the 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 financial statements referred to above present fairly, in
all material respects, the financial position of E-Z Plan, Inc. at December
31, 1996, and the results of its operations and its cash flows for the year
then ended in conformity with generally accepted accounting principles.
Ernst & Young LLP
San Antonio, Texas
February 24, 1997, except for
Note 8, as to which the date is
February 28, 1997
<PAGE>
E-Z Plan, Inc.
Balance Sheet
December 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Cash and cash equivalents ($320,580 restricted at
December 31, 1996) $ 630,938
Contracts in process of being collected from
finance companies 1,374,072
Notes receivable under retail sales contracts 27,891,311
Less allowance for repossession losses 1,964,108
-----------
Notes receivable under retail sales contracts, net 25,927,203
Inventories - used automobiles 5,402,706
Equipment and leasehold improvements:
Furniture and equipment 513,677
Computer equipment 405,254
Leasehold improvements 730,532
-----------
1,649,463
Less accumulated depreciation 760,935
-----------
Net equipment and leasehold improvements 888,528
Other assets 1,048,272
-----------
Total assets $35,271,719
===========
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable $13,132,959
Due to stockholders 8,765,351
Accounts payable and accrued expenses 3,079,959
-----------
Total liabilities 24,978,269
Commitments
Stockholders' equity:
Common stock, no par value, 10,000,000 shares authorized;
1,000 issued and outstanding 1,000
Additional paid-in capital 3,250,000
Retained earnings 7,042,450
-----------
Total stockholders' equity 10,293,450
Total liabilities and stockholders' equity $35,271,719
===========
</TABLE>
See accompanying notes.
<PAGE> 3
E-Z Plan, Inc.
Statement of Operations
Year Ended December 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Sales $ 42,302,699
Cost of sales 30,799,966
-------------
Gross profit before provision for repossession losses 11,502,733
Provision for repossession losses 4,512,400
-------------
Gross profit 6,990,333
Other operating income (expenses):
Finance charge income 6,417,753
Selling, general, and administrative expenses (13,556,705)
Other, net 2,882,867
-------------
Income from operations 2,734,248
Other income (expense):
Interest expense (1,880,125)
Interest income 43,370
Key man life insurance expense (695,776)
Total other expense (2,532,531)
Net income $ 201,717
=============
</TABLE>
See accompanying notes.
<PAGE> 4
E-Z Plan, Inc.
Statement of Stockholders' Equity
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------- ----------- ---------- -----------
Balance at December 31, 1995 $ 1,000 $ 3,250,000 $6,840,733 $10,091,733
Net income - - 201,717 201,717
------- ----------- ---------- -----------
Balance at December 31, 1996 $ 1,000 $ 3,250,000 $7,042,450 $10,293,450
======= =========== ========== ===========
</TABLE>
See accompanying notes.
<PAGE> 5
E-Z Plan, Inc.
Statement of Cash Flows
Year Ended December 31, 1996
<TABLE>
<CAPTION>
<S> <C>
OPERATING ACTIVITIES
Net income $ 201,717
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for repossession losses 4,512,400
Depreciation 226,760
Decrease in cash surrender value of key man life insurance 64,021
Loss from sale of property and equipment 13,434
Changes in assets and liabilities:
Contracts in process of being collected from finance companies 485,077
Inventories 287
Other assets 49,414
Accounts payable and accrued expenses 94,424
-------------
Net cash provided by operating activities 5,647,534
INVESTING ACTIVITIES
Retail sales and other costs financed (22,758,165)
Collections on notes receivable under retail sales contracts 21,611,941
Proceeds from sale of property and equipment 99,790
Purchases of property and equipment (432,595)
-------------
Net cash used in investing activities (1,479,029)
FINANCING ACTIVITIES
Proceeds from notes payable 21,147,893
Payments on notes payable (21,494,913)
Due to stockholders, net (3,400,000)
-------------
Net cash used in financing activities (3,747,020)
-------------
Net change in cash and cash equivalents 421,485
Cash and cash equivalents at beginning of year 209,453
-------------
Cash and cash equivalents at end of year $ 630,938
=============
Supplementary cash flow information:
Interest paid $ 1,789,537
</TABLE>
See accompanying notes.
<PAGE> 6
E-Z Plan, Inc.
Notes to Financial Statements
December 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
E-Z Plan, Inc. (the Company) began operations in January 1990 with the opening
of its first used automobile retail sales facility in San Antonio, Texas. As
of December 31, 1996, fourteen retail sales facilities were operating under
the names E-Z Motors, Red McCombs Superstores, and Red McCombs Star Cars
primarily in the San Antonio and central Texas areas. In addition to
automobile sales, the Company provides financing to its retail customers with
terms generally averaging 24 -36 months at annual interest rates ranging from
18% to 26%. The Company retains a security interest in the related vehicles.
During 1995 the Company also served as a financing source for motor vehicle
contracts arising from automobile sales by affiliated dealerships.
Consideration paid by the Company to these dealerships for such contracts was
either 90% of the principal financed on a non-recourse basis; or 100% of the
principal financed less a $200 fee on a recourse basis.
INCOME RECOGNITION
The sales price and the related cost of the automobile are recognized in the
Company's operations at the time of sale. Notes receivable under retail sales
contracts arise from those sales for which the Company provides financing and
are collateralized by the titles to the automobiles sold. Finance charge
income related to these notes receivable is recognized using the interest
method over the term of the contract.
REPOSSESSION LOSSES
An allowance for repossession losses is maintained based on the Company's loss
experience and other factors. Upon customer default and repossession, the
remaining net note receivable balance, less the fair value or wholesale price
of the automobile, is charged to the allowance for repossession losses.
INVENTORIES
The inventories of used automobiles are stated at the lower of cost, using the
last-in, first-out (LIFO) method, or market. If the first-in, first-out
(FIFO) method of inventory accounting had been used by the Company,
inventories would have been approximately $1,264,000 higher than reported at
December 31, 1996.
<PAGE> 7
E-Z Plan, Inc.
Notes to Financial Statements (continued)
December 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are stated at cost. Depreciation on
furniture and equipment and computer equipment is provided on straight-line
and accelerated methods over the estimated useful lives of the related assets,
which generally range from three to seven years. Amortization of leasehold
improvements is provided on an accelerated method over the estimated lives of
the related assets, which range from 1 to 39 years.
ADVERTISING
The Company expenses advertising costs as they are incurred. Total
advertising expenditures were approximately $1,160,000 in 1996.
FEDERAL INCOME TAXES
No provision for federal income tax has been made since the Company elected to
be treated as an S Corporation as prescribed by the Internal Revenue Service
Code. Under the terms of this election, the Company generally pays no income
tax and all stock-holders will report their proportionate share of the
Company's tax items on their individual income tax returns.
CASH FLOW
For purposes of the statement of cash flows, the Company considers all highly
liquid investments with original maturities of three months or less to be cash
equivalents.
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 amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
<PAGE> 8
E-Z Plan, Inc.
Notes to Financial Statements (continued)
December 31, 1996
2. NOTES RECEIVABLE UNDER RETAIL SALES CONTRACTS
Future contractual maturities of notes receivable under retail sales contracts
at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $14,587,156
1998 7,976,915
1999 4,072,131
2000 1,255,109
-----------
$27,891,311
===========
</TABLE>
A summary of the allowance for repossession losses is as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance at December 31, 1995 $ 1,586,801
Provision for repossession losses 4,512,400
Charge-offs (4,135,093)
------------
Balance at December 31, 1996 $ 1,964,108
============
</TABLE>
3. BORROWINGS
Notes payable at December 31, 1996 consist of five separate notes with a
remaining balance totaling $13,132,959. Three of the notes are due in 1997
and the other two are due in 1998. Generally, payments are dependent on
collections of notes receivable under retail sales contracts. Based on
expected collections, approximately $11,619,509 of principal repayments are
due in 1997, with the remainder due in 1998. The notes carry fixed or
variable interest rates of 8.75% to 9.75% and are collateralized by notes
receivable under retail sales contracts.
<PAGE> 9
E-Z Plan, Inc.
Notes to Financial Statements (continued)
December 31, 1996
3. BORROWINGS (CONTINUED)
Certain of the note agreements contain covenants restricting the issuance of
additional debt obligations and prohibiting the payment of dividends, among
other matters. The note agreements also require the Company to maintain an
escrow deposit with the lenders which approximates the previous month's
collections on the notes receivable that collateralize the notes payable. The
amounts of these escrow deposits are disclosed as restricted cash on the
balance sheets. A former stockholder of the Company has personally guaranteed
substantially all of the debt obligations.
The fair value of the Company's borrowings is estimated at the current rate
offered the Company for debt of the same approximate terms. The carrying
value of the Company's borrowings approximates fair value.
4. COMMITMENTS
The Company leases land and facilities at each of its retail sales facilities
and its corpo-rate office under operating leases. Rental expense for the year
ended December 31, 1996 was approximately $1,061,000. Future lease
commitments as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 990,586
1998 701,467
1999 370,640
2000 242,640
----------
$2,305,333
==========
</TABLE>
<PAGE> 10
E-Z Plan, Inc.
Notes to Financial Statements (continued)
December 31, 1996
5. RELATED PARTY TRANSACTIONS
Entities in which the Company's stockholders and a related individual own a
controlling interest provided the Company with finance, accounting, and
management services for the year ended December 31, 1996. In addition, the
Company leases four retail sales facilities and its corporate office from
entities related to the stockholders by common ownership and other factors.
The accompanying statement of operations includes the following charges
related to these arrangements:
<TABLE>
<CAPTION>
<S> <C>
1996
--------
Finance, accounting, and management fees $180,000
Lease expense 400,875
</TABLE>
At December 31, 1996, the Company has receivables from affiliates totaling
$391,410 included in other assets.
The stockholders have provided financing to the Company for use in purchasing
and reconditioning its used automobile inventory and in funding operating
expenses. The amounts due are unsecured, bear no interest except for advances
related to inventory purchases, and are payable on demand. Included in
interest expense in 1996 is $447,393, which the Company paid to stockholders
for advances related to inventory purchases.
<PAGE> 11
E-Z Plan, Inc.
Notes to Financial Statements (continued)
December 31, 1996
6. RETIREMENT PLAN
The Company has a 401(k) plan in which all employees who have completed one
year of service are eligible for participation. Employees may make
contributions to the plan in an amount equal to 1% to 15% of their salary.
The Company's matching contributions are made based on years of participation
in the plan with the maximum employer contribution equal to 100% of a maximum
participant contribution of $1,500. Employees are 100% vested in their own
contributions at all times and vest in employer contributions as follows:
<TABLE>
<CAPTION>
<S> <C>
Years 1 and 2 0%
Year 3 50%
Year 4 75%
Year 5 100%
</TABLE>
The Company made annual contributions to the plan of $27,336 during the 1996
plan year.
7. KEY MAN LIFE INSURANCE
The Company owns certain life insurance which insure the lives of the
Company's current and former owners and key officers with a combined benefit
value of $56,725,000. During 1996 premiums of $631,755 were paid and net cash
value decreased by $64,021 for a total expense of $695,776.
8. SUBSEQUENT EVENT
The Company has entered into a Letter of Intent dated February 28, 1997 to
sell substantially all the operating assets of the Company. The Letter of
Intent is subject to the execution of a definitive agreement. This
transaction is expected to close by March 31, 1997.
<PAGE> 12
E-Z Plan, Inc.
Condensed Financial Statements- Unaudited
Three Months Ended March 31, 1997
<PAGE>
E-Z Plan, Inc.
Condensed Financial Statements- Unaudited
Three Months Ended March 31, 1997
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Condensed Financial Statements:
Condensed Balance Sheet 1
Condensed Statement of Operations . . . . 2
Condensed Statement of Cash Flows . . . . 3
Notes to Condensed Financial Statements. 4
<PAGE>
E-Z PLAN, INC.
CONDENSED BALANCE SHEET- UNAUDITED
(IN THOUSANDS)
MARCH 31, 1997
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Assets:
Cash and cash equivalents $ 1,272
Contracts in process of being collected
from finance companies 2,096
Notes receivable under retail sales contracts 27,748
Less: Allowance for repossession losses (Note 2) (5,827)
--------
Notes receivable under retail sales contracts, Net 21,921
Inventories-used automobiles 2,791
Equipment and leasehold improvements, Net 838
Other assets 967
$29,885
========
Liabilities and Stockholders' Equity:
Liabilities:
Notes payable $ 314
Advances from stockholder 20,080
Accounts payable and accrued expenses 3,045
--------
Total Liabilities 23,439
--------
Stockholders' Equity:
Common stock 1
Additional paid-in capital 3,250
Retained earnings 3,195
--------
Total Stockholders' Equity 6,446
--------
$29,885
========
See accompanying notes to condensed unaudited financial statements.
</TABLE>
<PAGE> 1
E-Z PLAN, INC.
CONDENSED STATEMENT OF OPERATIONS- UNAUDITED
(IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Sales of used cars $10,730
Cost of used cars sold 7,675
--------
Gross profit before provision for
repossession losses 3,055
Provision for repossession losses (Note 2) 5,316
--------
Gross loss (2,261)
--------
Other operating income (expense):
Finance charge income 1,357
Selling, general, and administrative
expense (3,406)
Other ,net 977
--------
Loss from operations 3,333
--------
Other income (expense):
Interest expense 359
Key man life insurance expense 155
--------
Total other expense 514
--------
Net Loss $(3,847)
========
See accompanying notes to condensed unaudited financial statements.
</TABLE>
<PAGE> 2
E-Z PLAN, INC.
CONDENSED STATEMENT OF CASH FLOWS- UNAUDITED
(IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
<S> <C>
OPERATING ACTIVITIES
Net Loss $ (3,847)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Provision for repossession losses 5,316
Depreciation 51
Changes in assets and liabilities:
Contracts in process of being collected from
finance companies (722)
Inventories 2,612
Other assets 80
Accounts payable and accrued expenses (35)
---------
Net cash provided by operating activities 3,455
Investing Activities
Retail sales and other costs financed (6,690)
Collections on notes receivable under retail sales
contracts 5,380
---------
Net cash used in investing activities (1,310)
Financing Activities
Proceeds from notes payable 7
Payments on notes payable (12,826)
Due to stockholders, net 11,315
---------
Net cash used in financing activities (1,504)
---------
Net change in cash and cash equivalents 641
Cash and cash equivalents at beginning of period 631
---------
Cash and cash equivalents at end of period $ 1,272
=========
Supplementary Cash flow information:
Interest Paid $ 379
</TABLE>
See accompanying notes to condensed unaudited financial statements.
<PAGE> 3
E-Z PLAN, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
-----------------------
The accompanying unaudited condensed financial statements of E-Z Plan, Inc.
(Company) have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for a complete financial statement presentation. In the
opinion of management, such unaudited interim information reflect all
adjustments, consisting only of normal recurring adjustments, necessary to
present the Company's financial position and results of operations for the
periods presented. The results of operations for interim periods are not
necessarily indicative of the results to be expected for a full fiscal year.
It is suggested that these condensed financial statements be read in
conjunction with the Company's audited financial statements for the year ended
December 31, 1996.
NOTE 2. ALLOWANCE FOR REPOSSESSION LOSSES AND PROVISION FOR REPOSSESSION
- -------- ----------------------------------------------------------------
LOSSES
- ------
In anticipation of selling substantially all of the assets of EZ Plan (Note
3), management revised its method of computing the allowance for repossession
losses to conform to the method used by the acquiring company. As a result of
this change, the provision for repossession losses during the three months
ended March 31, 1997 increased by approximately $4.0 million over the amount
computed under the former method.
NOTE 3. SUBSEQUENT EVENT
-----------------
On April 1, 1997, the Company sold substantially all of its assets including
seven dealerships in San Antonio and a contract portfolio of approximately
$24.3 million. The purchase price for the sale was $26.3 million, subject to
adjustment.
<PAGE> 4
(b) Pro Forma Financial Information.
The required pro forma financial information is set forth below.
<PAGE>
UGLY DUCKLING CORPORATION
PRO FORMA CONDENSED COMBINED BALANCE SHEET- UNAUDITED
MARCH 31, 1997
(in thousands)
<TABLE><CAPTION>
UGLY PRO FORMA PRO FORMA
DUCKLING EZ PLAN ADJUSTMENTS COMBINED
---------- --------- ------------- -----------
<S> <C> <C> <C> <C>
Assets:
Cash and Cash Equivalents $ 73,237 $ 1,272 $ (1,270)(a) $ 46,988
-- -- (26,251)(a)
Contracts in process of being collected
from finance companies -- 2,096 (2,096)(a) --
Finance Receivables:
Held for Investment 39,790 -- -- 39,790
Held for Sale 30,000 27,748 (1,489)(a) 56,259
---------- --------- ------------- -----------
Principal Balances, Net 69,790 27,748 (1,489) 96,049
Less: Allowance for Credit Losses (15,442) (5,827) 312 (a) (22,139)
-- -- (1,182)(b) --
---------- --------- ------------- -----------
Finance Receivables, Net 54,348 21,921 (2,359) 73,910
---------- --------- ------------- -----------
Residuals in Finance Receivables Sold 16,823 -- -- 16,823
Investments Held in Trust 6,339 -- -- 6,339
Inventory 9,270 2,791 (1,465)(a) 10,475
-- -- (121)(b)
Property and Equipment, Net 24,996 838 (284)(a) 25,412
-- -- (138)(b)
Goodwill and Trademarks, Net 8,590 -- 5,044 (b) 13,634
Other Assets 12,473 967 (967)(a) 12,519
-- -- 40 (c)
-- -- 6 (c)
---------- --------- ------------- -----------
$ 206,076 $ 29,885 $ (29,861) $ 206,100
========== ========= ============= ===========
Liabilities and Stockholders' Equity:
Liabilities:
Accounts Payable $ 1,858 $ 707 $ (707)(a) $ 1,858
Accrued Expenses and Other 9,575 2,338 (2,338)(a) 9,599
-- -- 24 (c)
Notes Payable 8,400 314 (314)(a) 8,400
Advances from Shareholder -- 20,080 (20,080)(a) --
Subordinated Notes Payable 12,000 -- -- 12,000
---------- --------- ------------- -----------
Total Liabilities 31,833 23,439 (23,415) 31,857
---------- --------- ------------- -----------
Stockholders' Equity:
Common Stock 171,274 3,251 (3,251)(a) 171,274
Retained Earnings 2,969 3,195 (3,195)(a) 2,969
---------- --------- ------------- -----------
Total Stockholders' Equity 174,243 6,446 (6,446) 174,243
---------- --------- ------------- -----------
$ 206,076 $ 29,885 $ (29,861) $ 206,100
========== ========= ============= ===========
</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
THREE MONTHS ENDED MARCH 31, 1997
(in thousands, except earnings per share amounts)
<TABLE>
<CAPTION>
UGLY PRO FORMA PRO FORMA
DUCKLING EZ PLAN ADJUSTMENTS COMBINED
--------- --------- ------------- ----------
<S> <C> <C> <C> <C>
Sales of Used Cars $ 18,211 $ 10,730 $ -- $ 28,941
Less:
Cost of Used Cars Sold 9,164 7,675 291(d) 17,130
Provision for Credit Losses 3,981 5,316 -- 9,297
--------- --------- ------------- ----------
5,066 (2,261) (291) 2,514
--------- --------- ------------- ----------
Interest Income 6,440 1,357 -- 7,797
Gain on Sale of Loans 4,579 -- -- 4,579
--------- --------- ------------- ----------
11,019 1,357 -- 12,376
--------- --------- ------------- ----------
Servicing Income 598 -- -- 598
Other Income 906 977 -- 1,884
--------- --------- ------------- ----------
1,504 977 -- 2,481
--------- --------- ------------- ----------
Income before Operating Expenses 17,589 73 (291) 17,371
Operating Expenses 11,406 3,561 (155)(e) 14,865
-- -- (10)(f)
-- -- 63 (g)
--------- --------- ------------- ----------
Income (Loss) before Interest Expense 6,183 (3,448) 189 2,506
Interest Expense 769 359 169(h) 1,297
--------- --------- ------------- ----------
Earnings (Loss) before Income Taxes 5,414 (3,847) (358) 1,209
Income Taxes (Benefit) 2,152 -- (1,323)(i) 829
--------- --------- ------------- ----------
Net Earnings (Loss) $ 3,262 $ (3,847) $ 965 $ 380
========= ========= ============= ==========
Earnings per Share $ 0.20 $ 0.02
========= ==========
Shares Used in Computation 16,579 16,579
========= ==========
</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 EZ PLAN ADJUSTMENTS COMBINED
---------- -------- ------------- -----------
<S> <C> <C> <C> <C>
Sales of Used Cars $ 53,768 $ 42,303 $ -- $ 96,071
Less:
Cost of Used Cars Sold 29,890 30,800 (2)(d) 60,688
Provision for Credit Losses 9,811 4,512 -- 14,323
---------- -------- ------------- -----------
14,067 6,991 2 21,060
---------- -------- ------------- -----------
Interest Income 15,856 6,418 -- 22,274
Gain on Sale of Loans 4,434 -- -- 4,434
---------- -------- ------------- -----------
20,290 6,418 -- 26,708
---------- -------- ------------- -----------
Servicing Income 921 -- -- 921
Other Income 650 2,926 -- 3,576
---------- -------- ------------- -----------
1,571 2,926 -- 4,497
---------- -------- ------------- -----------
Income before Operating Expenses 35,928 16,335 2 52,265
Operating Expenses 24,700 14,253 (696)(e) 38,329
-- -- (41)(f)
-- -- 113(g)
---------- -------- ------------- -----------
Income (Loss) before Interest Expense 11,228 2,082 626 13,936
Interest Expense 5,262 1,880 477(h) 7,619
---------- -------- ------------- -----------
Earnings (Loss) before Income Taxes 5,966 202 149 6,317
Income Taxes (Benefit) 100 -- 290(i) 390
---------- -------- ------------- -----------
Net Earnings (Loss) $ 5,866 $ 202 $ (141) $ 5,927
========== ======== ============= ===========
Earnings per Share $ 0.60 (j) $ 0.61 (j)
========== ===========
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.
<PAGE>
UGLY DUCKLING CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(1) BASIS OF ACCOUNTING
On April 1, 1997, Ugly Duckling Corporation ("Ugly Duckling") completed the
acquisition of substantially all of the net assets of EZ Plan, Inc. (the
Company or "EZ Plan") in exchange for approximately $26,251,000 in cash.
The pro forma unaudited combined balance sheet gives effect to the acquisition
as if the transaction had taken place on March 31, 1997 and combines Ugly
Duckling's unaudited March 31, 1997 condensed consolidated balance sheet
amounts with EZ Plan's March 31, 1997 unaudited balance sheet amounts.
The pro forma unaudited combined statement of operations for the year ended
December 31, 1996 is presented using Ugly Duckling's audited consolidated
statement of operations for the year ended December 31, 1996 combined with the
EZ Plan's audited year ended December 31, 1996 statement of operations as if
the transaction had taken place on January 1, 1996.
The pro forma unaudited combined statement of operations for the three months
ended March 31, 1997 is presented using Ugly Duckling's unaudited consolidated
statement of operations for the three months ended March 31, 1997 combined
with the EZ Plan's unaudited statement of operations for the three months
ended March 31, 1997 as if the transaction had taken place on January 1, 1996.
The pro forma condensed combined financial statements should be read in
conjunction with the audited consolidated financial statements and notes
thereto of Ugly Duckling Corporation and with the audited financial statements
and notes thereto of EZ Plan, Inc.
The pro forma combined statements of operations are 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 EZ Plan been
combined during the periods 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 of $26,251,000 for the cash remitted to EZ Plan, as well as
reduction for cash, finance receivables, inventory, other assets, and
liabilities not acquired by Ugly Duckling. The common stock and retained
earnings of EZ Plan were eliminated in their entirety as a result of using the
"purchase method" of accounting.
(b) Ugly Duckling paid a total of $26,251,000 for assets with a fair value
of $21,207,000 resulting in an excess of the purchase price over the fair
value of the net assets acquired (goodwill) of $5,044,000. 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 allowance for credit losses was increased by
$1,182,000 for the effect of sales tax credits, which historically have been
utilized by EZ Plan to reduce credit losses, that are not available to Ugly
Duckling. 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.
UGLY DUCKLING CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
A summary of the allocation of fair values follows:
<TABLE><CAPTION>
FAIR
DESCRIPTION VALUE
- --------------------------------------------------- ------------
<S> <C>
Finance Receivables $19,562,000
Inventory 1,205,000
Property and Equipment 416,000
Prepaid Rent 40,000
Deposits 6,000
Petty Cash 2,000
Property taxes (24,000)
------------
Total Fair Value 21,207,000
Consideration Exchanged 26,251,000
------------
Excess of Purchase Price over Fair Value
of Assets Acquired $ 5,044,000
============
</TABLE>
(c) Represents the payment of $40,000 for prepaid rent for certain
locations, the purchase of lease deposits of $6,000, and Ugly Duckling's
assumption of a property tax liability of $24,000.
(d) Adjustment to convert EZ Plan inventory from last-in, first-out (LIFO)
to specific identification basis of accounting.
(e) Adjustment to reverse Key man life insurance expense for policies
retained by EZ Plan.
(f) Decrease in rent expense for difference in lease rates for a used car
dealership and an office building.
(g) Amortization of goodwill over a period of twenty years.
(h) The former stockholders of EZ Plan had provided financing to EZ Plan for
use in purchasing and reconditioning its inventory and in funding operating
expenses. No interest was charged, except for advances related to inventory
purchases. This pro forma adjustment is to charge interest at Ugly Duckling's
average borrowing rate as if the entire balance of the advances from the
shareholders had been charged interest.
(i) No provision for income taxes had been made to the EZ Plan financial
statements since EZ Plan elected to be treated as an S Corporation for income
taxes. Under the terms of the election, EZ Plan generally paid no income tax
as the income tax "flows through" to the former stockholders of EZ Plan. This
pro forma adjustment is for the income tax effect of the earnings (loss)
before income taxes of the Company as if the EZ Plan had been consolidated
with Ugly Duckling and had been subject to corporate income taxes for the
period.
(j) Earnings per share calculated after giving effect to payment of $916,000
in preferred stock dividends in 1996.
<PAGE>
(c) Exhibits
<TABLE><CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- ----------------------------
<C> <S>
23.1 Consent of Ernst & Young LLP
</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: June 12, 1997 By: /s/ Steven P. Johnson
Senior Vice President and Secretary
<PAGE>
EXHIBIT INDEX
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<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- ----------------------------
<C> <S>
23.1 Consent of Ernst & Young LLP
</TABLE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-06615) pertaining to the Ugly Duckling Corporation Director
Incentive Plan and (Form S-8 No. 33-08457) pertaining to the Ugly Duckling
Corporation Long-Term Incentive Plan of Ugly Duckling Corporation of our
report dated February 24, 1997, except for Note 8, as to which the date is
February 28, 1997, with respect to the financial statements of E-Z Plan, Inc.
and to the inclusion of the Current Report (Form 8-K/A) filed with the
Securities and Exchange Commission.
/s/Ernst & Young LLP
San Antonio, Texas
June 9, 1997
