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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OF 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
October 8, 1998 (Date of earliest event reported)
UGLY DUCKLING CORPORATION
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 000-20841 86-0721358
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
</TABLE>
2525 East Camelback Road, Suite 500, Phoenix, Arizona 85016
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (602)852-6600
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
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ITEM 5. OTHER EVENTS.
On October 8, 1998, Ugly Duckling Corporation (the "Company") announced
that it expects to take charges to discontinued operations totaling
approximately $4.8 million (net of income taxes), or $0.26 per diluted common
share, in the third quarter ended September 30, 1998. Approximately $3.6
million, or $0.19 per diluted common share, of these 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 the closing of 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 Corporation, a wholly-owned subsidiary of the
Company ("Cygnet").
Despite these charges to discontinued operations, the Company
anticipates that earnings from continuing operations of its dealership business
for the third quarter of 1998 will range from $0.09 to $0.12 per diluted common
share, and that earnings from discontinued operations of its Cygnet
non-dealership business, before giving effect to the charges described above,
will range from $0.02 to $0.04 per diluted common share for the same period.
These numbers are based on management's estimates of revenues and expenses
relating to operations in the third quarter and were made prior to the Company's
final determination of its operating results for that quarter, including the
recording of closing and adjusting entries to the Company's accounting records.
Accordingly, there can be no assurance that actual revenues and expenses will
not differ from these estimates.
Attached hereto as Exhibit 4.1 is a copy of Ugly Duckling
Corporation's Supplement No. 2 to Offering Circular dated October 9, 1998,
which describes Ugly Duckling Corporation's charge to discontinued operations.
In addition, attached hereto as Exhibit 99.1 is a copy of Ugly Duckling
Corporation's press release dated October 8, 1998 titled "Ugly Duckling
Corporation Announces Third Quarter Charges For Discontinued Operations."
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits
EXHIBIT
NUMBER DESCRIPTION
4.1 Supplement No. 2 to Offering Circular described in Item 5
above
99.1 Press Release dated October 8, 1998
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
UGLY DUCKLING CORPORATION
(Registrant)
By /s/ Steven P. Johnson
__________________________
(Signature)
Steven P. Johnson
Senior Vice President
Date October 9, 1998
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
4.1 Supplement No. 2 to Offering Circular described in Item 5
99.1 Press Release dated October 8, 1998
<PAGE> 1
Exhibit 4.1
UGLY DUCKLING CORPORATION
SUPPLEMENT NO. 2 DATED OCTOBER 9, 1998
OFFERING CIRCULAR DATED SEPTEMBER 17, 1998
On October 8, 1998, Ugly Duckling Corporation (the "Company") announced
that it expects to take charges to discontinued operations totaling
approximately $4.8 million (net of income taxes), or $0.26 per diluted common
share, in the third quarter ended September 30, 1998. Approximately $3.6
million, or $0.19 per diluted common share, of these 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 the closing of 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 Corporation, a wholly-owned subsidiary of the
Company ("Cygnet").
Despite these charges to discontinued operations, the Company anticipates
that earnings from continuing operations of its dealership business for the
third quarter of 1998 will range from $0.09 to $0.12 per diluted common share,
and that earnings from discontinued operations of its Cygnet non-dealership
business, before giving effect to the charges described above, will range from
$0.02 to $0.04 per diluted common share for the same period. These numbers are
based on management's estimates of revenues and expenses relating to operations
in the third quarter and were made prior to the Company's final determination of
its operating results for that quarter, including the recording of closing and
adjusting entries to the Company's accounting records. Accordingly, there can be
no assurance that actual revenues and expenses will not differ from these
estimates.
The Company is continuing to explore alternatives for formally separating
its dealership and non-dealership operations, although there can be no assurance
that the Company will ultimately be successful in this regard. In the meantime,
Cygnet will remain a wholly-owned subsidiary of the Company. Although the
Company was not successful in formally separating its non-dealership operations
as contemplated, it has completed the internal process of establishing separate
management teams and infrastructures for the dealership and non-dealership
operations. The Company believes this structure enhances each segment's ability
to focus on its own operations and facilitates the Company's goal of formally
separating its dealership and non-dealership operations.
Individuals contemplating whether to participate in the Exchange Offer
should consider the possibility that Ugly Duckling could later decide to retain
rather than separate its non-dealership operations, in which case Ugly
Duckling's consolidated financial statements would require restatement to
reflect the integration of certain financial results currently attributed to
discontinued operations.
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EXHIBIT 99.1
CONTACTS: Steven T. Darak
Senior Vice President & Chief Financial Officer
(602) 852-6600
Eugene Heller/Lori Parks
Silverman Heller Associates
(310) 208-2550
FOR IMMEDIATE RELEASE
UGLY DUCKLING CORPORATION ANNOUNCES THIRD QUARTER CHARGES
TO DISCONTINUED OPERATIONS
PHOENIX, Arizona (October 8, 1998) - Ugly Duckling Corporation (Nasdaq
NM: UGLY) announced today that it expects to take charges to discontinued
operations of approximately $4.8 million (net of income taxes), or $0.26 per
diluted common share, in the third quarter ended September 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 Corporation, 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
-more-
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Ugly Duckling Corporation
October 8, 1998
Page 2
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, Mr.
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."
Mr. 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 September 17, which
enables stockholders to exchange their shares in
-more-
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Ugly Duckling Corporation
October 8, 1998
Page 3
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
October 19, 1998.
Headquartered in Phoenix, Arizona, Ugly Duckling Corporation 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 52 Ugly
Duckling dealerships. Cygnet Financial Corporation engages in the business of
providing various financial services primarily to the sub-prime segment of the
automobile financing industry.
*****
This press release may include statements that constitute
forward-looking statements, usually containing the words "believe," "estimate,"
"project," "expects" or similar expressions. These statements are made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Forward-looking statements inherently involve risks and uncertainties that
could cause actual results to differ materially from the forward-looking
statements. Specifically, the statements in this press release relating to the
Company's expectations regarding (1) earnings for the third quarter of 1998, (2)
anticipated growth in 1999 and (3) the separation of its dealership and
non-dealership operations are forward-looking in nature and involve risks and
uncertainties. Factors that could cause or contribute to such differences
include, but are not limited to, as to (1) above, differences in actual revenues
and expenses relating to operations in the third quarter from estimates made
prior to the Company's closing of its accounting records and the making of final
adjusting entries for that quarter; as to (2) above, changes in the used car
financing industry, the tightening of credit to the sub-prime industry and the
competitive nature of this industry, the success of future acquisitions and the
general economy; and, as to (3) above, the Company's ability to identify and
follow through on a viable alternative regarding separation of its
non-dealership operations. In particular, the Company could later decide to
retain
-more-
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Ugly Duckling Corporation
October 8, 1998
Page 4
rather than separate its non-dealership operations, in which case its financial
statements would require restatement to reflect the integration of certain
financial information attributed to discontinued operations. Other factors that
could cause or contribute to such differences include factors detailed in the
sections entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Risks Factors," "Factors That May Affect Future
Results and Financial Condition" and "Factors That May Affect Future Stock
Performance" in Ugly Duckling Corporation's most recent reports on Form 10-K and
Form 10-Q (including Exhibit 99 to any such Form 10-Q), factors detailed in the
section "Risk Factors" in Ugly Duckling Corporation's definitive proxy statement
dated August 4, 1998, and elsewhere in Ugly Duckling Corporation's Securities
and Exchange Commission filings. By making these forward-looking statements, the
Company undertakes no obligation to update these statements for revisions or
changes after the date of this press release.
No statement in this press release shall constitute an offer to sell or
the solicitation of an offer to buy any security in connection with the
Company's exchange offer described above. Offers to sell and solicitations of
offers to buy may be made only pursuant to the Company's Offering Circular dated
September 17, 1998, as supplemented. Copies of this Offering Circular may be
obtained by contacting Steven P. Johnson, General Counsel of the Company, 2525
East Camelback Road, Suite 1150, Phoenix, Arizona 85016.
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