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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: Commission file number:
APRIL 30, 2000 0-14939
CROWN GROUP, INC.
(Exact name of registrant as specified in its charter)
TEXAS 63-0851141
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4040 N. MACARTHUR BLVD., SUITE 100, IRVING, TEXAS
(Address of principal executive offices)
75038
(Zip Code)
(972) 717-3423
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.01 par share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of July 24, 2000 the aggregate market value of the voting stock held by
non-affiliates (all persons other than executive officers, directors and
holder's of 5% or more of the Registrant's common stock) of the Registrant
(5,567,525 shares) was $28,707,551.
As of July 24, 2000 there were 8,120,462 shares of the Registrant's common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's definitive Proxy Statement for its Annual
Meeting of Stockholders to be held in 2000 are incorporated by reference into
Part III of this report, with the exception of information regarding executive
officers required under Item 10 of Part III, which information is included in
Part I, Item 1.
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PART I
ITEM 1. BUSINESS
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. Certain information included in
this Annual Report on Form 10-K contains, and other materials filed or to be
filed by the Company with the Securities and Exchange Commission (as well as
information included in oral statements or other written statements made or to
be made by the Company or its management) contain or will contain,
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933,
as amended. The words "believe," "expect," "anticipate," "estimate," "project"
and similar expressions identify forward-looking statements, which speak only as
of the date the statement was made. The Company undertakes no obligation to
publicly update or revise any forward-looking statements. Such forward-looking
statements address, among other things, the Company's current focus on the
development and expansion of its existing businesses, and the potential
acquisition or development of businesses in other fields. Such forward-looking
statements are based upon management's current plans or expectations and are
subject to a number of uncertainties and risks that could significantly affect
current plans, anticipated actions and the Company's future financial condition
and results. As a consequence, actual results may differ materially from those
expressed in any forward-looking statements made by or on behalf of the Company
as a result of various factors. Uncertainties and risks related to such
forward-looking statements include, but are not limited to, those relating to
the development of the Company's businesses, continued availability of lines of
credit for the Company's businesses, changes in interest rates, changes in the
industries in which the Company operates, competition, dependence on existing
management, the stability of El Salvador's government, currency exchange rate
fluctuations, the repatriation of funds from El Salvador, domestic or global
economic conditions (particularly in the states of Texas, Arkansas and Florida),
changes in foreign or domestic tax laws or the administration of such laws and
changes in lending laws or regulations. Any forward-looking statements are made
pursuant to the Private Securities Litigation Reform Act of 1995 and, as such,
speak only as of the date made.
GENERAL AND HISTORY
Crown Group, Inc. ("Crown"), and collectively with its subsidiaries (the
"Company"), is a publicly traded buy-out firm which as of April 30, 2000 owned
99% of America's Car-Mart, Inc. ("Car-Mart") and 70% of Smart Choice Automotive
Group, Inc. ("Smart Choice"). Smart Choice owns 100% of Paaco Automotive Group,
Inc. and Premium Auto Acceptance Corporation (collectively, "Paaco"). Each of
Car-Mart, Smart Choice and Paaco sell and finance used vehicles. At April 30,
2000 Crown also owned (i) 100% of Precision IBC, Inc. ("Precision"), a firm
specializing in the sale and rental of intermediate bulk containers ("IBC's"),
(ii) 80% of Concorde Acceptance Corporation ("Concorde"), a sub-prime mortgage
lender, (iii) 90% of CG Incorporated, S.A. de C.V. ("Crown El Salvador"), a
newly formed company focusing on the development and operation of casinos in El
Salvador, and (iv) minority positions in certain other entities that operate in
the high technology industry or focus on Internet commerce. In addition, from
time to time the Company purchases and sells small ownership interests in
securities of privately held and publicly traded firms. The Company is presently
focusing on (i) the development and expansion of its existing businesses, and
(ii) the potential acquisition or development of other unrelated businesses. For
a summary of the Company's operating results and other financial data by
business segment, see Note S of the Company's consolidated financial statements
appearing elsewhere in this annual report.
Prior to 1997 the Company had been involved in riverboat gaming (June 1993
to May 1996) and various facets of the cable and related programming businesses
(1983 to June 1993). In November 1996 the Company began pursuing opportunities
in other fields seeking to develop or purchase businesses that it believed had
strong growth and earnings prospects. The Company has also been pursuing
business investments that it believes are undervalued and have strong capital
gain potential.
A summary of more significant acquisitions, dispositions, business
development and investments made by the Company since November 1996 is as
follows:
CMN - In June 1997 the Company acquired a 49% interest in Casino Magic
Neuquen ("CMN") for $7.0 million. CMN operates two casinos in the
Province of Neuquen, Argentina under an exclusive concession contract.
In October 1999 the Company sold its interest in CMN which resulted in
a $10.7 million gain.
CONCORDE - In June 1997 the Company, along with certain newly hired
management personnel, formed Concorde. Concorde is in the business of
originating, purchasing, servicing and selling sub-prime mortgage loans
which are secured primarily by first and second liens on residential
properties. These loans are generally sold to institutional investors
within 45 days of originating or purchasing the loan.
PAACO - Between February 1998 and July 1999 the Company acquired an 85%
interest in Paaco for a purchase price, after adjustments, of $11.8
million. Paaco sells and finances used cars and trucks in Texas with a
focus on the Hispanic market. In December 1999 the Company contributed
its 85% interest in Paaco to Smart Choice in connection with the
Company's acquisition of 70% of Smart Choice (see Smart Choice below).
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INKTOMI - In February 1998 the Company purchased 444,444 shares of
Inktomi Corporation ("Inktomi") common stock for $1.1 million. The
Company made its investment in Inktomi, an Internet related concern,
approximately four months prior to Inktomi's initial public offering.
During fiscal 1999 the Company sold its interest in Inktomi which
resulted in a $26.4 million gain.
PRECISION - Between February 1998 and May 1999 the Company acquired
100% of two container rental and sales companies, which were merged
into newly formed Precision, for $5.2 million. Precision rents, sells
and services stainless steel intermediate bulk containers which are
used to transport and store liquids and dry powders in bulk.
HOME STAY - In May 1998 the Company, along with a minority holder,
formed Home Stay Lodges I, Ltd. ("Home Stay"). Home Stay is in the
business of constructing and operating extended-stay lodging
facilities. In December 1999 the Company sold its interest in Home Stay
which resulted in a $.1 million gain.
CAR-MART - In January 1999 the Company acquired 100% of Car-Mart for
$41.4 million. Car-Mart sells and finances used cars and trucks in
Arkansas and certain surrounding states.
CROWN EL SALVADOR - In March 1999 the Company, along with minority
holders, formed Crown El Salvador. Crown El Salvador operates two
casino properties in El Salvador.
SMART CHOICE - In December 1999 the Company acquired a 70% interest in
Smart Choice for $5.3 million, plus the contribution of the Company's
85% interest in Paaco. Smart Choice sells and finances used cars and
trucks in Florida. Paaco is now a wholly-owned subsidiary of Smart
Choice.
USED CAR SALES AND FINANCE (CAR-MART AND SMART CHOICE)
GENERAL
Car-Mart and Smart Choice (which includes Paaco) operate separate vertically
integrated used car sales and finance companies that oftentimes attract
customers who may not qualify for conventional financing as a result of limited
credit histories or past credit problems (hereinafter referred to as "Sub-Prime
Borrowers"). These operations include (i) the purchase, reconditioning (Smart
Choice only) and sale of used cars and trucks, (ii) the underwriting, financing
and servicing of the related retail installment contract, and, if necessary,
(iii) the repossession and remarketing of the vehicle. While Car-Mart and Smart
Choice are in the same business and share a number of operating characteristics,
the companies are different in many respects. Smart Choice operates primarily in
larger metropolitan areas (such as Dallas and Houston, Texas and Orlando and
Tampa, Florida), reconditions almost all vehicles prior to sale and Smart
Choice's Paaco subsidiary focuses on the Hispanic market. Car-Mart, on the other
hand operates principally in smaller communities, performs little or no vehicle
reconditioning and does not focus on any particular customer group. Smart Choice
also tends to sell newer and more expensive vehicles than Car-Mart. Presented
below is a summary of certain information with respect to Car-Mart and Smart
Choice as of April 30, 2000 and for the year then ended.
Car-Mart Smart Choice
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Founded 1981 1992
Dealerships (excluding satellite locations) 29 24
Location of dealerships AR, OK, TX, MO TX, FL
Customer accounts 18,159 21,574
Employees 247 563
INDUSTRY
Used Car Sales
Used car retail sales typically occur through franchised new car dealerships
that sell used cars or independent used car dealerships. The market for used car
sales in the United States is significant and has steadily increased over the
past five years. Management believes the factors that have led to growth in this
industry include (i) substantial increases in new car prices, which have made
new cars less affordable to the average consumer, (ii) the greater reliability
and durability of used cars resulting from the production of higher quality
cars, and (iii) the increasing number of vehicles coming off lease programs in
recent years. Many industry analysts expect these trends to continue, leading to
further expansion of the used car sales market.
Car-Mart and Smart Choice participate in the sub-prime segment of the
independent used car sales and finance market. This segment is serviced
primarily by numerous small independent used car dealerships that sell and
finance the sale of used cars to Sub-Prime Borrowers ("Buy Here-Pay Here"
dealers). Buy Here-Pay Here dealers typically offer their customers certain
advantages over more traditional financing sources, such as broader and more
flexible underwriting guidelines, flexible payment terms (including prorating
customer payments due within one month into several smaller payments and
scheduling payments to coincide with a customer's pay days), and the ability to
make payments in person, an important feature to many Sub-Prime Borrowers who
may not have checking accounts or are otherwise unable to make payments by the
due date through the mail because of the timing of paychecks.
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Used Car Financing
The automobile financing industry is the third-largest consumer finance
market in the country, after mortgage debt and revolving credit card debt.
Growth in automobile financing has been fueled by increasing prices of both new
and used cars, which has forced more buyers to seek financing when purchasing a
car. This industry is served by such traditional lending sources as banks,
savings and loans, and captive finance subsidiaries of automobile manufacturers,
as well as by independent finance companies and Buy Here-Pay Here dealers. In
general, the industry is categorized according to the type of car sold (new
versus used) and the credit characteristics of the borrower.
Despite significant opportunities, many of the traditional lending sources
do not consistently provide financing to the sub-prime consumer finance market.
Management believes traditional lenders avoid this market because of its high
credit risk and the associated collection efforts. Many of the estimated 63,000
independent used car dealers are not able to obtain debt financing from
traditional lending sources such as banks, credit unions, or major finance
companies. Many of these dealers typically finance their operations through the
sale of contract receivables at a discount.
OPERATIONS
Purchasing Vehicles
Car-Mart and Smart Choice purchase vehicles from (i) franchised new and
late-model used car dealers, (ii) auctions, (iii) wholesalers, and (iv)
customers, as a result of trade-ins. Prior to purchasing a vehicle, buyers
perform an inspection and, as permitted, test drive each vehicle. The identity
of the buyer responsible for each vehicle acquired is tracked through Car-Mart's
and Smart Choice's computer systems which allow them to monitor the results of
each buyer. Management monitors (i) the average number of days vehicles are held
in inventory, and (ii) the cost of each vehicle in comparison to similar models
purchased by other Company buyers and in comparison to wholesale market values.
Reconditioning
Smart Choice reconditions almost every vehicle it purchases at its
centralized reconditioning centers in Grand Prairie, Texas and Lakeland, Florida
where a variety of parts, assemblies, and systems are inspected and, if
necessary, repaired or replaced. In addition to inspecting, repairing and
preparing acquired vehicles for sale, these facilities are used to perform
service work on vehicles for customers pursuant to service contracts that are
provided with most vehicles sold by Smart Choice.
In general, Car-Mart performs little or no reconditioning on the vehicles it
purchases. Its buyers are instructed to thoroughly inspect and evaluate each
vehicle in order to identify and purchase vehicles that require little or no
reconditioning. Car-Mart offers a service contract to its customers which covers
certain vehicle components and assemblies for a specified duration. For covered
components, Car-Mart customers have their vehicles serviced at third party
service centers with which Car-Mart has in many cases previously negotiated
labor rates and mark-up percentages on parts. A majority of Car-Mart customers
elect to purchase a service contract when purchasing a vehicle.
Selling, Marketing and Advertising
Smart Choice lots are typically staffed with a manager, up to six sales
personnel, and several others including clerical workers, collectors, mechanics
and a porter. The lots are generally operated six days a week between the hours
of 10:00 am and 8:00 pm. Each lot maintains an inventory of 35 to 75 cars and
trucks. Periodically, Smart Choice sales personnel attend training classes where
each phase of the sales process is rehearsed. Salesmen are paid principally on a
commission basis.
In addition to its television and radio advertising, Smart Choice conducts a
variety of promotional activities including a sales referral program, occasional
live entertainment at its dealerships, and distribution of promotional items.
Existing customers have historically been a good source of referrals.
The number of persons employed at a Car-Mart dealership varies depending
upon the number of active customer accounts serviced at such dealership. A new
dealership with a limited number of accounts may only have a manager and an
assistant or two. In contrast, a mature dealership with several hundred active
accounts may have a manager, an assistant manager, a manager trainee, two
collectors, two payment takers/office workers, a buyer and an assistant or two.
Car-Mart dealerships are generally operated six days a week from 9:00 am to 6:00
pm. Each dealership maintains an inventory of 15 to 50 vehicles depending on the
maturity of the dealership. Selling is done principally by the manager,
assistant manager, manager trainee and sales associate.
Car-Mart's objective is to offer its customers basic transportation at a
fair price and treat each customer courteously and with respect. Car-Mart
attempts to build a positive reputation in each community where it operates and
generate new business from such reputation as well as referrals from existing
customers. Car-Mart recognizes repeat customers with silver and gold
certificates representing the purchase of five and ten vehicles, respectively.
Such certificates are prominently displayed at the dealership location where the
vehicles were purchased. Its dealerships are generally located on heavily
traveled roads that offer high visibility. Car-Mart advertises in local
newspapers, on billboards and on the radio.
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Underwriting and Finance
Each of Car-Mart and Smart Choice finance more than 95% of the used cars and
trucks sold at their dealerships. These retail installment contracts are
serviced exclusively by Company personnel. In connection with each such
financing, sales must be made on acceptable terms, and to a customer with a
satisfactory credit profile. Most financings require a down payment of 8% to 15%
of the retail sales price, have a term not in excess of 42 months and require
that payments be made on a weekly or bi-weekly basis.
Upon the customer and the Company coming to a preliminary agreement as to
terms, the Company obtains a detailed credit application from the customer which
includes information regarding employment, residence and credit history, income
level and personal references. This information is then verified by Company
personnel. After the verification process, it is the dealership manager who
makes the decision to accept, reject, or modify (perhaps obtain a greater down
payment or require an acceptable co-buyer) the proposed transaction. The results
of each manager's decisions are constantly monitored by Company personnel
through the review of finance receivables agings and repossession reports which
are stratified by dealership. In addition, Company personnel periodically review
credit files to evaluate the soundness of the manager's judgement and ensure
appropriate information was obtained and verified.
Collections
Providing financing to Sub-Prime Borrowers requires not only that the Company
have an effective underwriting process, but that its collection policies and
procedures be sound and diligently executed. The majority of the Company's
customers make their payments in person at one of the dealerships, although some
customers mail their payments into the dealership, or, in the case of Smart
Choice's Florida operation, to a centralized collection facility. Each of
Car-Mart and Smart Choice closely monitor their customer accounts using
collections software that stratifies past due accounts by dealership and the
number of days past due. Customers are contacted by phone within a few days if
their payment is not received on the scheduled due date. The results of each
phone contact are documented (promises to pay, alternative payment arrangements,
etc.) by Company personnel.
If a customer becomes seriously delinquent in his payments and management
determines that timely collection of future payments is not probable, the
Company will take steps to repossess the vehicle. Of the vehicles repossessed,
many are returned by the customer on a voluntary basis. Other repossessions are
performed by Company personnel and third party repossession agents. Depending on
the condition of a repossessed vehicle, it is either resold through a Company
dealership (generally after some reconditioning in the case of Smart Choice), or
sold for cash to a wholesaler or other third party at an auction.
The Company monitors the results of its collection personnel based upon a
number of quantitative criteria including (i) installment contract agings, (ii)
the percentage of accounts past due versus a standard, (iii) the average number
of days the finance receivable portfolio is past due, and (iv) static pool
analysis.
COMPETITION
The used automotive retailing industry is highly competitive and fragmented.
Presently there are an estimated 23,000 franchised automobile dealers and 63,000
independent used vehicle dealers. In recent years a number of large companies
including AutoNation U.S.A. and Car Max have entered the used car sales business
or announced plans to develop large used car sales operations. Management
believes these operations do not provide significant competition for Car-Mart or
Smart Choice as they tend to sell higher priced vehicles to consumers with
stronger credit histories. Car-Mart and Smart Choice compete principally with
other independent Buy Here-Pay Here dealers, and to a lesser degree with (i) the
used vehicle retailing operation of franchised automobile dealerships, (ii)
independent used vehicle dealers, and (iii) individual consumers who sell used
vehicles in private transactions.
Management believes the principal competitive factors in the sale of its
used vehicles include (i) the availability of financing to Sub-Prime Borrowers,
(ii) the breadth and quality of vehicle selection, (iii) the availability of
popular vehicles, (iv) pricing, (v) the convenience of a dealership's location,
(vi) customer service, and (vii) in the case of Smart Choice, the ability to
communicate in Spanish with its Spanish speaking customers. Management believes
that its dealerships are competitive in each of these areas.
REGULATION AND LICENSING
Car-Mart's and Smart Choice's operations are subject to ongoing regulation,
supervision, and licensing under various federal, state, and local statutes,
ordinances, and regulations pertaining to the sale and financing of vehicles.
These laws include the Truth In Lending Act, the Equal Credit Opportunity Act
and the Fair Credit Reporting Act of 1970. Among other things, these laws
require that the Company obtain and maintain certain licenses and
qualifications, limit or prescribe terms of the contracts it originates, require
specified disclosures to customers, limit the Company's right to repossess and
sell collateral, and prohibit discrimination against customers on the basis of
certain characteristics including age, race and gender.
In many cases the Company charges fixed interest rates in excess of
traditional finance companies on the contracts originated at its dealerships.
The states in which the Company operates impose limits on interest rates the
Company can charge on its loans. These limits are generally based on either (i)
a specified margin above the federal discount rate, or (ii) the age of the
vehicle. Management believes the Company is in compliance in all material
respects with all applicable federal, state, and local laws and regulations. In
addition, the adoption of additional laws, changes in the interpretation of
existing laws, or the Company's entrance into jurisdictions with more stringent
regulatory requirements could have a material adverse effect on the Company.
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MORTGAGE LENDING (CONCORDE)
GENERAL
In June 1997 the Company, along with certain newly hired management
personnel, formed Concorde. Concorde is in the business of originating,
purchasing, servicing and selling sub-prime mortgage loans which are secured
primarily by first and second liens on residential properties. These loans are
generally sold to institutional investors within 45 days of originating or
purchasing the loan.
Concorde primarily focuses on lending to individuals who have impaired or
unsubstantiated credit histories and/or unverifiable income. Loans made to these
individuals do not qualify for purchase by government-sponsored agencies such as
the Fannie Mae or Freddie Mac, and thus are sometimes referred to as
non-conforming or sub-prime mortgage loans. Such loans generally provide higher
yields than conforming loans. The principal differences between conforming loans
and non-conforming loans include the applicable loan-to-value ratios, the credit
and income histories of the mortgagors, the documentation required for approval
of the mortgagors, the loan purpose, the loan sizes, and the mortgagors'
occupancy status with respect to the mortgaged properties. Second mortgage loans
are made to borrowers owning single-family homes for the purpose of debt
consolidation, home improvements, education and a variety of other purposes.
These loans generally provide a higher interest rate yield than first mortgage
loans, and are secured by a second lien on the property.
Management believes the sub-prime mortgage loan industry is fragmented and
operates inefficiently compared to the conforming loan industry, and as a
result, higher interest rate yields are available to sub-prime mortgage lenders
even after considering a higher rate of loan defaults. Management also believes
the sub-prime mortgage loan industry is less cyclical than the conforming loan
industry because the sub-prime mortgage borrower is more "payment" sensitive
rather than "interest rate" sensitive. In addition, the federal tax code's
preferential treatment of the interest expense deduction for home mortgage loans
makes it financially advantageous for many individuals to convert their credit
card and other consumer loans into a mortgage loan.
LOAN ORIGINATIONS AND PURCHASES
Concorde began originating and purchasing mortgage loans in July 1997.
Concorde originates loans through a network of independent mortgage brokers and
directly through Internet, telemarketing and direct mail programs. Concorde also
purchases some mortgage loans from a network of wholesale loan brokers and
correspondents, including banks and thrift institutions. Concorde typically pays
a premium for loans purchased from correspondents, as well as to mortgage
brokers for loans they originate. A summary of Concorde's loan originations and
purchases for the fiscal years ended April 30, 2000, 1999 and 1998 is as follows
(dollars in millions):
Fiscal 2000 Fiscal 1999 Fiscal 1998
---------------------- ---------------------- ----------------------
Direct $ 28.2 18.7% $ 38.1 34.1% $ 9.6 25.7%
Wholesale brokers 119.4 78.9 64.5 57.7 18.0 48.3
Correspondents 3.7 2.4 9.1 8.2 9.7 26.0
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$ 151.3 100.0% $ 111.7 100.0% $ 37.3 100.0%
======== ======== ======== ======== ======== ========
Prior to purchasing loans through wholesale loan brokers and correspondents,
Concorde reviews the loan packages to determine whether the packages are
complete and adhere to Concorde's underwriting guidelines. Depending on the size
of the pool of loans purchased, Concorde may engage a third-party underwriter to
re-underwrite the loans, verify the borrower's employment status, determine the
quality of the appraisal and assign a credit grade. Concorde also analyzes the
financial condition of the mortgage broker, which includes a review of the
mortgage broker's licenses and financial statements. Upon approval, Concorde
requires each mortgage broker to enter into a purchase and sale agreement that
contains customary representations and warranties regarding the loans such
mortgage broker will sell to Concorde.
UNDERWRITING
Concorde's underwriting guidelines are provided to mortgage loan brokers and
mortgage bankers so they can create loan applications or bulk purchase packages
which meet such guidelines. Upon receipt of a completed loan package from a
mortgage loan broker, Concorde's underwriting staff reviews the package, which
includes the loan application, a current appraisal of the underlying collateral
property, a preliminary title report and a credit report to determine if the
proposed loan meets its underwriting guidelines. To assess the credit quality of
each loan, Concorde's underwriters consider various factors, including the
appraised value of the collateral property, the applicant's debt payment
history, credit profile and employment status, and the combined debt
service-to-income ratio and loan-to-value ratio upon completion of the proposed
mortgage loan. Personal circumstances including divorce, family illnesses or
deaths and temporary job losses due to layoffs and corporate downsizing often
impair an applicant's credit record. Concorde does not delegate underwriting
authority to any broker or correspondent.
Property appraisals for loans originated or purchased by Concorde are
conducted by licensed, independent appraisers who are approved by Concorde. Upon
receipt of the appraisal, Concorde's underwriting staff reviews the value of the
underlying collateral based upon a full review of the appraisal. Concorde
selects its appraisers based on professional experience, education, membership
in related professional organizations and experience with the appraiser. For
wholesale and correspondent loans purchased, Concorde will typically request a
second appraisal if the original appraisal was completed by an appraiser who is
not acceptable to Concorde.
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Prior to funding a loan, Concorde's underwriting staff determines the
applicant's creditworthiness and ability to service the loan. Verification of
personal financial information, credit history, mortgage or rent history, and
employment history is required prior to closing the loan. Concorde has
established classifications with respect to its borrowers based upon the credit
profile of such borrower and certain other borrower characteristics. Each loan
applicant is placed into one of four letter ratings ("A" through "D", with
sub-ratings within each category), depending upon a number of factors including
the applicant's credit history and employment status. Terms of loans made by
Concorde, as well as the maximum loan-to-value ratio and debt service-to-income
ratio (calculated by dividing fixed monthly debt payments by gross monthly
income), vary depending upon the classification of the borrower. Borrowers with
lower credit ratings generally pay higher interest rates and loan origination
fees. Generally, loan applicants are required to have two years of employment
with their current employer or two years of similar business experience.
Verification of information regarding the first mortgage, if any, is also
required, including balance, status and whether local taxes, interest, insurance
and assessments are included in the applicant's monthly payment. All taxes and
assessments not included in the payment are required to be verified as current.
Upon successful completion of the underwriting process, the closing of the loan
is scheduled with an independent closing attorney or title company who is
responsible for closing the loan in accordance with Concorde's closing
procedures.
LOAN SERVICING AND COLLECTIONS
Servicing involves, among other things, collecting payments, applying such
payments of principal and interest to the appropriate loan, ensuring the
underlying collateral is properly insured, preparing reports relative to such
loans and enforcing the lender's rights with respect to the loans, including
recovering delinquent payments, instituting foreclosures and liquidating the
underlying collateral. Management believes that servicing Concorde's own
portfolio enhances certain operating efficiencies. Concorde's servicing
portfolio is subject to reduction by normal monthly payments, prepayments,
foreclosures and the sale of mortgage loans. In some states in which Concorde
operates, prepayment fees may be limited or prohibited by applicable law.
Concorde sends borrowers a monthly billing statement twenty days prior to
the monthly payment due date. Although borrowers generally make loan payments
within ten to fifteen days after the due date (the "grace period"), if a
borrower fails to pay the monthly payment within the grace period, Concorde
commences collection efforts by notifying the borrower of the delinquency. If
the loan remains unpaid, Concorde will contact the borrower to determine the
cause of the delinquency and to obtain a commitment to cure the delinquency at
the earliest possible time.
As a general matter, if efforts to obtain payment have not been successful,
a pre-foreclosure notice will be sent to the borrower generally 30 days after
the due date of the next subsequently scheduled installment, providing 30 days
notice of the impending foreclosure action. During the 30-day notice period,
collection efforts continue. However, if no substantial progress has been made
in collecting delinquent payments from the borrower, foreclosure proceedings
generally begin.
Loans originated or purchased by Concorde are secured by mortgages, deeds of
trust, security deeds or deeds to secure debt, depending upon the prevailing
practice in the state in which the property securing the loan is located.
Depending on local law, foreclosure is effected by judicial action or
nonjudicial sale, and is subject to various notice and filing requirements. In
general, the borrower, or any person having a junior encumbrance on the real
estate, may cure a monetary default by paying the entire amount in arrears plus
other designated costs and expenses incurred in enforcing the obligation during
a statutorily prescribed reinstatement period. Generally, state law controls the
amount of foreclosure expenses and costs, including attorneys' fees, which may
be recovered by a lender. After the reinstatement period has expired without the
default having been cured, the borrower or junior lienholder no longer has the
right to reinstate the loan and must pay the loan in full to prevent the
scheduled foreclosure sale.
Although foreclosure sales are typically public sales, frequently no
third-party purchaser bids in excess of the lender's lien because of the
difficulty of determining the exact status of title to the property, the
possible deterioration of the property during the foreclosure proceedings and a
requirement that the purchaser pay for the property in cash or by cashier's
check. Thus, it is likely the lender will purchase the property from the trustee
or referee for an amount equal to the principal amount outstanding under the
loan, accrued and unpaid interest and the expenses of foreclosure. Depending
upon market conditions and loan-to-value ratios, the ultimate proceeds from the
sale of the collateral may not equal Concorde's investment in the property.
LOAN SALES
Concorde sells the majority of the loans it originates and purchases to
institutional investors. Loans are sold periodically to provide Concorde with
greater flexibility and operating leverage than that of a traditional portfolio
lender. Loans are sold on a wholesale basis to third party institutions on a
limited recourse basis for cash, with servicing rights released approximately 60
days from the sale date. In most cases, Concorde is required to refund a portion
of the premium it received on the sale of a loan, if such loan is prepaid by the
borrower within a specified period, generally twelve months. Under certain
circumstances, such as fraud or immediate borrower default, Concorde may be
required to repurchase the loan.
7
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REGULATION
The operations of Concorde are subject to extensive regulation, supervision
and licensing by federal, state and local government authorities. Regulated
matters include, without limitation, loan origination, credit activities,
maximum interest rates and finance and other charges, disclosures to customers,
the terms of secured transactions, the collection, repossession and
claims-handling procedures utilized by Concorde, multiple qualification and
licensing requirements for doing business in various jurisdictions and other
trade practices. Concorde's loan origination activities are subject to the laws
and regulations in each of the states in which those activities are conducted.
Concorde's activities as a lender are also subject to various federal laws
including, among others, the Truth in Lending Act ("TILA"), the Real Estate
Settlement Procedures Act ("RESPA"), the Equal Credit Opportunity Act of 1974,
as amended ("ECOA"), the Home Mortgage Disclosure Act and the Fair Credit
Reporting Act of 1970, as amended ("FCRA").
The ECOA prohibits creditors from discriminating against applicants on the
basis of race, color, sex, age or marital status. Regulation B promulgated under
ECOA restricts creditors from obtaining certain types of information from loan
applicants. It also requires certain disclosures by the lender regarding
consumer rights and requires lenders to advise applicants of the reasons for any
credit denial. In instances where the applicant is denied credit or the rate or
charge for a loan increases as a result of information obtained from a consumer
credit agency, another statute, the FCRA, requires the lender to supply the
applicant with a name and address of the reporting agency. Concorde is also
subject to RESPA and is required to file an annual report with the Department of
Housing and Urban Development pursuant to the Home Mortgage Disclosure Act.
The laws, rules and regulations applicable to Concorde are subject to
amendment and change. Changes or amendments to existing law, or new laws could
make compliance much more difficult or expensive, restrict Concorde's ability to
originate, purchase, broker or sell loans, further limit or restrict the amount
of commissions, interest and other charges earned on loans originated or sold by
Concorde, or otherwise adversely affect the business or prospects of Concorde.
COMPETITION
The Company is a relatively new entrant in the sub-prime mortgage lending
industry, is small compared to many of its competitors and faces intense
competition in the business of originating, purchasing and selling mortgage
loans. Competition in the industry takes many forms including convenience in
obtaining a loan, customer service, marketing and distribution channels, and
amount and terms of the loan. Traditional competitors in the financial services
business include other mortgage banking companies, commercial banks, credit
unions, thrift institutions, credit card issuers and finance companies. Most of
these competitors in the consumer finance business are substantially larger and
have considerably greater financial, technical and marketing resources than
Concorde.
IBC RENTALS AND SALES (PRECISION)
GENERAL
Precision is in the business of renting and selling intermediate bulk
containers ("IBC's" or "portable tanks") to petroleum related, specialty
chemical, industrial and manufacturing concerns. Precision's tanks generally
come in two sizes (350 gallon and 550 gallon) and are used primarily to
transport and store liquids in bulk. These liquids include industrial and
textile chemicals (surfactants, soaps, dyes and brighteners), solvents,
lubricants, water clarifiers, corrosive inhibitors, contract packaging items
(shampoo), and food items (mayonnaise, ketchup, barbecue sauce, honey, syrup and
concentrate). Precision also performs certain tank maintenance, testing,
tracking and reconditioning services, and sells spare parts such as valves and
lids on both a retail and OEM basis. Precision operates from facilities in
Fairhope, Alabama and Lafayette, Louisiana and presently has a fleet of
approximately 8,400 principally stainless steel tanks.
OPERATIONS
Precision's portable tanks are manufactured according to its specifications
principally from two contractors, although other manufacturing sources are
available. Precision maintains a supply of tanks, valves and lids to meet the
sometimes immediate needs of its customers. These lids are typically
manufactured by Precision in house with the occasional assistance of certain
subcontractors, while valves are manufactured overseas according to Precision's
specifications.
Periodically, Precision receives tanks back from customers who are returning
them from rental. As necessary, these tanks are cleaned and repaired, and either
returned to the rental fleet, or sold as used equipment. Precision also performs
testing services on a fee basis for its customers. The U.S. Department of
Transportation regulations require that IBC's be tested every 30 months if they
are being used to transport regulated materials (flammables, corrosives,
methanol) over public roadways. This certification is generally the customer's
responsibility to maintain. For some customers Precision performs maintenance
services on their tanks. For a fee, Precision will change valves and lids,
perform external cleanings and provide reconditioning services. These services
are performed at Precision's LaFayette, Louisiana facility as well as on site.
8
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MARKET AND MARKETING
Precision's primary focus is on renting portable tanks. As a secondary focus
Precision sells new and used tanks and related spare parts. A large portion of
tank rentals and sales comes from existing customers and referrals. Precision
advertises in nationally distributed periodicals and direct markets extensively.
Precision's sales personnel also attend industry trade shows and make sales
calls to existing and potential customers. Presently, Precision has about 100
customers in 20 states throughout the United States. Precision's customers are
principally in the oil field production and drilling, specialty chemical, water
treatment, textile and manufacturing industries.
A portion of Precision's new business comes from industrial and
manufacturing concerns that previously used 55 gallon polyethylene or carbon
steel drums ("drums") to store liquids in bulk. Management believes its
stainless steel 350 and 550 gallon tanks are far superior to drums in many
respects. In particular, drums are expensive to dispose of as a result of the
environmentally damaging materials they sometimes contain. Drums are also more
difficult to handle and dispense from, have more problems with leaks, and
require more space to store the same amount of liquid. Typically fluids are
extracted from drums via a removable pump, which may require cleaning prior to
placing it into another drum. Tanks, on the other hand, discharge fluids through
a valve located on the bottom of the tank. Management believes there is a trend
of drums being replaced by reusable and returnable 350 and 550 gallon tanks, and
that Precision is in a position to benefit from those making such a transition.
COMPETITION
Precision competes with other companies specializing in the sale and rental
of tanks. Competitive factors in the industry include price, availability,
service, product quality and convenience. Precision believes it competes
effectively with other tank suppliers.
Precision's tanks also compete with 55 gallon drums. Precision's 350 and 550
gallon tanks are initially considerably more expensive than drums. However,
Precision's tanks offer certain competitive advantages over drums, including
their (i) greater durability and ease in storing and dispensing liquids, (ii)
longer useful life, and (iii) greater space efficiencies. They also eliminate
the disposal costs associated with drums.
GAMING (CROWN EL SALVADOR)
Crown El Salvador operates casinos in the cities of Antiguo Cuscatlan
(adjacent to San Salvador) and San Miguel, El Salvador. Collectively, the
casinos occupy 12,000 square feet of space in leased facilities and contain
approximately 225 slot machines and 25 table games. The casinos are open seven
days a week generally from 7:00 p.m. to 4:00 a.m., and provide live
entertainment on most weekends. Greater San Miguel has a population of
approximately 400,000, while the population within 15 miles of Antiguo Cuscatlan
(including the City of San Salvador) is approximately 1.5 million. Crown El
Salvador's strategy is to provide American style gaming in a comfortable
atmosphere with friendly and courteous service.
Crown El Salvador has been granted a non-exclusive gaming license by each
city in which it operates. Generally, the licenses specify the location in which
gaming may be conducted, the amount of gaming taxes to be paid and permitted
hours of operation. The licenses do not contain a specified term. Generally,
gaming taxes are assessed based upon the number of slot machines and table games
in operation.
EMPLOYEES
As of April 30, 2000 the Company, including its consolidated subsidiaries,
employed approximately 1,000 persons full time. None of the Company's employees
are covered by a collective bargaining agreement and the Company believes that
its employee relations are satisfactory.
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EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
Edward R. McMurphy...................................49 Chairman of the Board,
President and Chief Executive Officer
Tilman J. Falgout, III...............................51 Executive Vice President,
General Counsel and Director
Mark D. Slusser......................................42 Chief Financial Officer,
Vice President Finance and Secretary
EDWARD R. MCMURPHY, has served as the Company's Chief Executive Officer since
July 1984. Mr. McMurphy has been a director of the Company since its inception
in April 1983. From 1979 to June 1986, Mr. McMurphy served as President of
Marion Properties, Inc., a real estate development company and former parent of
the Company from July 1984 to June 1986.
TILMAN J. FALGOUT, III, has served as Executive Vice President and General
Counsel of the Company since March 1995 and as a director of the Company since
September 1992. From 1978 through June 1995, Mr. Falgout was a partner in the
law firm of Stumpf & Falgout, Houston, Texas.
MARK D. SLUSSER, has served as Chief Financial Officer of the Company since
October 1989 and as Secretary since April 1990. From 1981 until joining the
Company, Mr. Slusser was employed by Ernst & Young LLP, where he held various
positions in the Audit Department including Senior Manager.
ITEM 2. PROPERTIES
As of April 30, 2000 the Company leased substantially all of its facilities,
including dealerships, collection facilities that service dealership portfolios,
and the Company's corporate offices. The Company's corporate administrative
offices are located in approximately 6,000 square feet of leased space in
Irving, Texas.
ITEM 3. LEGAL PROCEEDINGS
In March 1999, prior to Crown's ownership interest in Smart Choice, certain
shareholders of Smart Choice filed two putative class action lawsuits against
Smart Choice and certain of Smart Choice's officers and directors in the United
States District Court for the Middle District of Florida (collectively, the
"Securities Actions"). The Securities Actions purport to be brought by
plaintiffs in their individual capacity and on behalf of the class of persons
who purchased or otherwise acquired Smart Choice publicly traded securities
between April 15, 1998 and February 26, 1999. These lawsuits were filed
following Smart Choice's announcement on February 26, 1999 that a preliminary
determination had been reached that the net income it had announced on February
10, 1999 for the fiscal year ended December 31, 1998 was likely overstated in a
material, undetermined amount. Each of the complaints assert claims for
violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule
10b-5 of the Securities and Exchange Commission as well as a claim for the
violation of Section 20(a) of the Exchange Act. The plaintiffs allege that the
defendants prepared and issued deceptive and materially false and misleading
statements to the public, which caused plaintiffs to purchase Smart Choice
securities at artificially inflated prices. The plaintiffs seek unspecified
damages. Smart Choice intends to contest these claims vigorously. The Company
cannot predict the ultimate resolution of these actions. The two class action
lawsuits have subsequently been consolidated.
In the ordinary course of business, the Company has become a defendant in
various other types of legal proceedings. Although the Company cannot determine
at this time the amount of the ultimate exposure from these ordinary course of
business lawsuits, if any, management, based on the advice of counsel, does not
expect the final outcome of any of these actions, individually or in the
aggregate, to have a material adverse effect on the Company's financial
position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company during
the fourth quarter ended April 30, 2000.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is authorized for quotation on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") National
Market System under the NASDAQ symbol CNGR. The following table sets forth, by
fiscal quarter, the high and low sale prices reported by NASDAQ for the
Company's common stock for the periods indicated.
Fiscal 2000 Fiscal 1999
High Low High Low
-------- -------- -------- --------
First quarter $ 6.50 $ 4.00 $ 4.88 $ 3.38
Second quarter 5.50 4.00 4.25 3.00
Third quarter 5.50 4.38 7.75 4.00
Fourth quarter 6.00 3.88 7.88 5.13
As of July 17, 2000 there were approximately 1,415 stockholders of record.
This number excludes individual stockholders holding stock under nominee
security position listings.
Since its inception the Company has paid no dividends on its common stock.
The Company currently intends to follow a policy of retaining earnings to
finance future growth. Payment of dividends in the future will be determined by
the Company's Board of Directors and will depend upon, among other things, the
Company's future earnings, operations, capital requirements and surplus, general
financial condition, and contractual restrictions that may exist, and such other
factors as the Board of Directors may deem relevant.
ITEM 6. SELECTED FINANCIAL DATA
The financial data set forth below was derived from the audited consolidated
financial statements of the Company and should be read in conjunction with the
consolidated financial statements and related notes thereto, and Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained elsewhere herein. (In thousands, except per share amounts.)
Years Ended April 30,
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
Revenues $237,641 $111,286 $ 21,188 $ 2,030 $ 2,293
Net income $ 14,836 $ 17,508 $ 367 $ 8,860 $ 12,298
Earnings per share (diluted) $ 1.54 $ 1.68 $ 0.04 $ 0.80 $ 1.03
Total assets $290,907 $168,135 $ 92,203 $ 38,237 $ 39,329
Total debt 191,052 96,187 46,035 987
Stockholders' equity 58,867 53,059 35,051 35,713 30,153
Shares outstanding 8,248 10,097 9,434 10,395 11,650
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements appearing elsewhere in this annual report.
OVERVIEW
Crown Group, Inc. ("Crown"), and collectively with its subsidiaries (the
"Company"), is a publicly traded buy-out firm which as of April 30, 2000 owned
99% of America's Car-Mart, Inc. ("Car-Mart") and 70% of Smart Choice Automotive
Group, Inc. ("Smart Choice"). Smart Choice owns 100% of Paaco Automotive Group,
Inc. and Premium Auto Acceptance Corporation (collectively, "Paaco"). Each of
Car-Mart, Smart Choice and Paaco sell and finance used vehicles. At April 30,
2000 Crown also owned (i) 100% of Precision IBC, Inc. ("Precision"), a firm
specializing in the sale and rental of intermediate bulk containers ("IBC's"),
(ii) 80% of Concorde Acceptance Corporation ("Concorde"), a sub-prime mortgage
lender, (iii) 90% of CG Incorporated, S.A. de C.V. ("Crown El Salvador"), a
newly formed company focusing on the development and operation of casinos in El
Salvador, and (iv) minority positions in certain other entities that operate in
the high technology industry or focus on Internet commerce. In addition, from
time to time the Company purchases and sells small ownership interests in
securities of privately held and publicly traded firms. The Company is presently
focusing on (i) the development and expansion of its existing businesses, and
(ii) the potential acquisition or development of other unrelated businesses.
Prior to 1997 the Company had been involved in riverboat gaming (June 1993 to
May 1996) and various facets of the cable and related programming businesses
(1983 to June 1993). In November 1996 the Company began pursuing opportunities
in other fields seeking to develop or purchase businesses that it believed had
strong growth and earnings prospects. The Company has also been pursuing
business investments that it believes are undervalued and have strong capital
gain potential.
RESULTS OF OPERATIONS
The Company has made a variety of acquisitions, dispositions and business
investments over the last three years (see Note C of the Company's consolidated
financial statements appearing elsewhere in this annual report). All
acquisitions have been accounted for using the purchase method of accounting.
The Company has included the operating results of each majority-owned company
from the respective acquisition date. As a result of the acquisitions,
dispositions and business investments, operating results for the years ended
April 30, 2000, 1999 and 1998 are not entirely comparable. Below is a summary of
the number of months of operation each companies' operating results are included
in the Company's consolidated results of operations for the years ended April
30, 2000, 1999 and 1998:
Number of Months Included in
Month Crown Month Crown Fiscal Years Ended April 30,
Acquired Disposed ------------------------------------------------
Entity or Formed or Sold 2000 1999 1998
----------------------------- ----------- ----------- ------------ ------------ ------------
Casino Magic Neuquen 6-97 10-99 5 months 12 months 11 months
Concorde 6-97 12 months 12 months 10 months
Paaco 2-98 12 months 12 months 3 months
Precision 2-98 12 months 12 months 3 months
Home Stay 5-98 12-99 7 months 12 months --
Car-Mart 1-99 12 months 3 1/2 months --
Crown El Salvador 2-99 12 months 2 months --
Atlantic Castings 3-99 4-00 12 months 2 months --
Smart Choice 12-99 5 months -- --
Net income during fiscal 2000 and 1999 reflect the impact of substantial
gains on the sale of securities. Fiscal 2000 includes a $7.0 million after tax
gain on the sale of its 49% ownership interest in Casino Magic Neuquen, and
fiscal 1999 includes a $17.1 million after tax gain on the sale of its
investment in Inktomi Corporation ("Inktomi") common stock. The Company made its
investment in Inktomi, an Internet related concern, approximately four months
prior to Inktomi's initial public offering. While the Company's primary focus
continues to be investing in operating businesses with an established history of
revenues and earnings, management anticipates the Company will make some
investments in more speculative businesses such as Internet related or emerging
technology companies. At April 30, 2000 the Company had investments in two such
businesses at an aggregate cost of $2.5 million. There can be no assurance that
these or other future investments will result in profits to the Company.
12
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Below is a presentation of the operating results for the four principal
business segments of the Company for the years ended April 30, 2000, 1999 and
1998. The segments include (i) automobile, which pertains to Car-Mart's, Smart
Choice's, and Paaco's selling and financing of used vehicles, (ii) IBC's, which
pertains to Precision's rental and sales of intermediate bulk containers, (iii)
mortgage, which pertains to Concorde's originating and selling of sub-prime
mortgage loans, and (iv) other, which includes corporate operations, Home Stay,
Crown El Salvador, activities of relatively inactive subsidiaries and the
Company's equity investments in CMN and Atlantic Castings. The Company's
business segment data for the years ended April 30, 2000, 1999 and 1998 is as
follows (in thousands):
Year Ended April 30, 2000
----------------------------------------------------------------------------------------
Automobile IBC's Mortgage Other Eliminations Consolidated
---------- ---------- ---------- ---------- ------------ ------------
Revenues:
Sales and other $ 192,247 $ 7,113 $ 5,151 $ 2,849 $ 207,360
Interest income 27,699 47 1,896 2,667 $ (2,028) 30,281
---------- ---------- ---------- ---------- ---------- ----------
Total 219,946 7,160 7,047 5,516 (2,028) 237,641
---------- ---------- ---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales 112,977 2,827 115,804
Selling, gen. and admin 39,177 2,107 5,304 7,793 54,381
Prov. for credit losses 35,474 32 250 35,756
Interest expense 12,707 584 1,378 1,239 (2,028) 13,880
Depreciation and amort 900 996 198 1,474 3,568
---------- ---------- ---------- ---------- ---------- ----------
Total 201,235 6,546 7,130 10,506 (2,028) 223,389
---------- ---------- ---------- ---------- ---------- ----------
Security gains and other 11,368 11,368
---------- ---------- ---------- ---------- ---------- ----------
Income before taxes
and minority interests $ 18,711 $ 614 $ (83) $ 6,378 $ -- $ 25,620
========== ========== ========== ========== ========== ==========
Year Ended April 30, 1999
----------------------------------------------------------------------------------------
Automobile IBC's Mortgage Other Eliminations Consolidated
---------- ---------- ---------- ---------- ------------ ------------
Revenues:
Sales and other $ 87,121 $ 5,237 $ 4,634 $ 973 $ 97,965
Interest income 10,638 19 1,616 1,867 $ (819) 13,321
---------- ---------- ---------- ---------- ---------- ----------
Total 97,759 5,256 6,250 2,840 (819) 111,286
---------- ---------- ---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales 55,265 1,865 57,130
Selling, gen. and admin 19,354 1,716 4,498 5,216 30,784
Prov. for credit losses 15,251 83 164 15,498
Interest expense 5,771 377 1,187 250 (819) 6,766
Depreciation and amort 433 707 161 1,098 2,399
---------- ---------- ---------- ---------- ---------- ----------
Total 96,074 4,748 6,010 6,564 (819) 112,577
---------- ---------- ---------- ---------- ---------- ----------
Security gains and other 27,249 27,249
---------- ---------- ---------- ---------- ---------- ----------
Income before taxes
and minority interests $ 1,685 $ 508 $ 240 $ 23,525 $ -- $ 25,958
========== ========== ========== ========== ========== ==========
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Year Ended April 30, 1998
-----------------------------------------------------------------------------------------
Automobile IBC's Mortgage Other Eliminations Consolidated
---------- ---------- ---------- ---------- ------------ ------------
Revenues:
Sales and other $ 14,241 $ 1,351 $ 1,100 $ 1,105 $ 17,797
Interest income 1,491 815 1,472 $ (388) 3,390
---------- ---------- ---------- ---------- ---------- ----------
Total 15,732 1,351 1,915 2,577 (388) 21,187
---------- ---------- ---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales 8,472 628 9,100
Selling, gen. and admin. 3,363 235 2,042 2,928 8,568
Prov. for credit losses 1,744 4 52 1,800
Interest expense 942 81 586 14 (388) 1,235
Depreciation and amort. 64 122 42 574 802
---------- ---------- ---------- ---------- ---------- ----------
Total 14,585 1,070 2,722 3,516 (388) 21,505
---------- ---------- ---------- ---------- ---------- ----------
Security gains and other 965 965
---------- ---------- ---------- ---------- ---------- ----------
Income before taxes
and minority interests $ 1,147 $ 281 $ (807) $ 26 $ -- $ 647
========== ========== ========== ========== ========== ==========
FISCAL YEAR 2000 COMPARED TO FISCAL YEAR 1999
Net income for fiscal 2000 decreased $2.7 million compared to fiscal 1999.
The decrease was principally due to (i) fiscal 1999 including a $17.1 million
after tax gain on the sale of Inktomi common stock versus fiscal 2000 including
a $7.0 million after tax gain on the sale of its 49% interest in CMN, and (ii)
operating losses in fiscal 2000 at Crown El Salvador of approximately $1.2
million, largely offset by (a) including the results of operations of Car-Mart
for twelve months in fiscal 2000 versus only three and one-half months in fiscal
1999, (b) substantially improved operating results at Paaco, and (c) including
Smart Choice in the Company's consolidated results of operations.
Revenues from sales and other for fiscal 2000 increased $109.4 million
compared to fiscal 1999. The increase was principally the result of (i)
including Smart Choice ($26.7 million) and Crown El Salvador ($2.2 million) in
the Company's consolidated results of operations in fiscal 2000, (ii) including
Car-Mart in the Company's operating results for twelve months in fiscal 2000
versus three and one-half months in fiscal 1999 ($57.6 million), and (iii)
higher revenues at Paaco ($20.8 million), Precision ($1.9 million) and Concorde
($.5 million). Interest income for fiscal 2000 increased $17.0 million compared
to fiscal 1999. The increase was principally the result of (i) including Smart
Choice ($9.2 million) in the Company's consolidated results of operations, (ii)
including Car-Mart in the Company's operating results for twelve months in
fiscal 2000 versus three and one-half months in fiscal 1999 ($4.7 million), and
(iii) greater interest earned on Paaco's finance receivables portfolio ($3.2
million) as a result of growth in the portfolio.
As a percentage of sales, fiscal 2000 cost of sales decreased to 59.3% from
63.7% in fiscal 1999. The decrease was the result of (i) including Car-Mart,
which has higher gross profit margins as a result of selling lower priced
vehicles, in the Company's consolidated results of operations for twelve months
in fiscal 2000 versus three and one-half months in fiscal 1999, and (ii)
increased gross margins at Paaco. As a percentage of revenues, fiscal 2000
selling, general and administrative expense decreased to 22.9% from 27.7% in
fiscal 1999. The decrease was principally the result of (i) including Car-Mart,
which has relatively low operating costs as a percentage of revenues, in the
Company's consolidated results of operations for twelve months in fiscal 2000
versus three and one-half months in fiscal 1999, (ii) including Smart Choice in
the Company's consolidated results of operations in fiscal 2000, and (iii)
greater operating efficiencies achieved at Paaco in fiscal 2000. Provision for
credit losses for fiscal 2000 increased $20.3 million compared to fiscal 1999.
The increase was principally the result of (i) including Smart Choice ($8.3
million) in the Company's consolidated results of operations, (ii) including
Car-Mart in the Company's operating results for twelve months in fiscal 2000
versus three and one-half months in fiscal 1999 ($8.8 million), and (iii) higher
credit losses at Paaco ($3.2 million) partially attributable to an increase in
the finance receivables portfolio as a result of increased sales levels.
Interest expense for fiscal 2000 increased $7.1 million compared to fiscal 1999.
The increase was principally the result of (i) including Smart Choice ($3.7
million) in the Company's consolidated results of operations, (ii) including
Car-Mart in the Company's operating results for twelve months in fiscal 2000
versus three and one-half months in fiscal 1999 ($2.3 million), and (iii) higher
interest expense at Paaco ($.8 million) resulting from an increase in the
balance of its revolving credit facility.
The provision for income taxes for fiscal 2000 was $10.1 million on pretax
income of $25.6 million. This equates to a 40.2% effective tax rate after
removing from pretax income the equity in earnings of unconsolidated
subsidiaries ($.5 million), which earnings are presented on an after tax basis.
The provision for income taxes for fiscal 1999 was $9.0 million on pretax income
of $26.0 million. This equates to a 36.4% effective tax rate after removing from
pretax income the equity in earnings of unconsolidated subsidiaries ($1.3
million), which earnings are presented on an after tax basis. Minority interests
pertain to the portions of consolidated subsidiaries not owned by the Company
during fiscal 2000 (Car-Mart, Smart Choice, Paaco, Crown El Salvador, and Home
Stay) and fiscal 1999 (Paaco, Crown El Salvador, and Home Stay).
14
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FISCAL YEAR 1999 COMPARED TO FISCAL YEAR 1998
Net income for fiscal 1999 increased $17.1 million compared to fiscal 1998.
The increase was principally the result of (i) recognizing a $17.1 million after
tax gain on the sale of Inktomi common stock, (ii) including the results of
operations of Car-Mart for three and one-half months in fiscal 1999, (iii)
improved operating results at Concorde, and (iv) including Precision's operating
results for a full year, partially offset by (i) operating losses at Paaco and
(ii) expensing certain preopening costs of Crown El Salvador.
Revenues from sales and other for fiscal 1999 increased $80.2 million
compared to fiscal 1998. The increase was principally the result of (i) revenue
increases from Paaco ($47.6 million), Precision ($3.9 million) and Concorde
($3.5 million) as a result of including a full twelve months of operating
results and growth in revenues at those companies, and (ii) including three and
one-half months of Car-Mart's operations ($25.3 million). Interest income for
fiscal 1999 increased $9.9 million compared to fiscal 1998. The increase was
principally the result of (i) interest earned on Car-Mart's finance receivable
portfolio ($1.4 million), (ii) greater interest earned on Paaco's finance
receivables portfolio ($7.4 million) as a result of including a full twelve
months of operating results and growth in the portfolio, and (iii) greater
interest earned on Concorde's mortgage loans ($.8 million) as a result of an
increase in the average amount of mortgage loans held for sale.
Cost of sales pertains to the operations of Car-Mart, Paaco and Precision. As
a percentage of sales, fiscal 1999 cost of sales increased to 63.7% compared to
60.9% in fiscal 1998. The 2.8% increase is principally the result of lower
margins at Paaco resulting from selling higher priced vehicles, partially offset
by the inclusion of Car-Mart, which has higher gross profit margins as a result
of selling lower priced vehicles. Provision for credit losses pertains
principally to Car-Mart's and Paaco's operations. Selling, general and
administrative expenses for fiscal 1999 increased $22.2 million compared to
fiscal 1998. The increase resulted principally from (i) expenses relating to
Car-Mart ($3.5 million), (ii) increases in expenses at Paaco ($12.5 million) and
Precision ($1.5 million) as a result of including a full twelve months of
operating results and general growth at those companies, (iii) the development
of Concorde's mortgage based lending business ($2.5 million), (iv) Crown's
abandonment of certain business ventures which it had been pursuing ($.5
million), and (v) preopening costs associated with Crown El Salvador ($.2
million). Interest expense for fiscal 1999 increased $5.5 million compared to
fiscal 1998. The increase principally resulted from (i) including Car-Mart in
the Company's consolidated results of operations ($.9 million) and (ii)
including a full twelve months of operating results of Paaco, Precision and
Concorde and generally higher debt balances at those subsidiaries ($4.8
million). Depreciation and amortization expense for fiscal 1999 increased $1.6
million compared to fiscal 1998. The increase resulted principally from (i)
amortizing goodwill that was created in the acquisitions of Paaco and Precision
for a full twelve months ($.6 million) and (ii) depreciating the assets of
Paaco, Precision and Concorde for a full twelve months and higher fixed asset
balances at those subsidiaries ($.9 million).
The provision for income taxes for fiscal 1999 was $9.0 million on pretax
income of $26.0 million. This equates to a 36.4% effective tax rate after
removing from pretax income the equity in earnings of unconsolidated
subsidiaries ($1.3 million), which earnings are presented on an after tax basis.
The benefit for income taxes for fiscal 1998 was $.1 million on pretax income of
$.6 million. This equates to a 32.6% effective tax rate after removing from
pretax income the equity in earnings of unconsolidated subsidiaries ($.9
million), which earnings are presented on an after tax basis. Minority interests
pertain to the portions of consolidated subsidiaries not owned by the Company
during fiscal 1999 (Paaco, Crown El Salvador and Home Stay) and fiscal 1998
(Paaco and Precision).
LIQUIDITY AND CAPITAL RESOURCES
For fiscal 2000, net cash provided by operating activities amounted to $60.2
million. The principal sources of cash resulted from (i) net income, (ii)
certain non-cash expenses (provision for credit losses and depreciation and
amortization), and (iii) the sale of repossessed vehicles. Net cash used by
investing activities of $75.2 million included (i) an $83.6 million use of cash
in finance receivables originations in excess of finance receivables
collections, and (ii) a $7.8 million use of cash in the purchase of property and
equipment, offset by a $16.8 million source of cash resulting from the sale of
the Company's 49% interest in Casino Magic Neuquen ($16.5 million) and the sale
of Home Stay ($.3 million). Net cash provided by financing activities of $12.0
million principally relates to (i) net borrowings from revolving credit
facilities ($18.3 million), offset by (ii) purchases of the Company's common
stock ($5.8 million).
As of April 30, 2000 the Company's sources of liquidity included
approximately (i) $9.8 million of cash on hand, of which $5.8 million was held
by Crown, (ii) an aggregate of $45.3 million remaining to be drawn on the
revolving credit facilities of Car-Mart, Smart Choice, Paaco, Concorde and
Precision, although the majority of such additional draws may only be made in
connection with a corresponding increase in the related collateral asset (i.e.,
finance receivables, mortgage loans held for sale and intermediate bulk
containers), and (iii) the potential issuance of additional debt and/or equity,
although the Company has no specific commitments or arrangements to issue such
additional debt and/or equity. Based on the collateral on hand at April 30,
2000, the Company's subsidiaries could have collectively drawn an additional
$9.0 million on their revolving credit facilities. The loan agreements which
govern the credit facilities of Crown's subsidiaries limit dividends and other
distributions from such subsidiaries to Crown. The amount available to be drawn
under each of the Company's revolving credit facilities is a function of the
underlying collateral asset. Generally, the Company is able to borrow a
specified percentage of the face value of eligible finance receivables in the
case of Car-Mart, Smart Choice and Paaco, and eligible mortgage loans in the
case of Concorde. Precision's borrowing base is a function of the number of
tanks owned and operating cash flow, as defined. The Company's revolving credit
facilities mature at various times between September 2000 and November 2004, and
bear interest at rates ranging from Libor plus 2.0% to prime plus 2.25%. The
advance rates on eligible finance receivables declines from 85.0% to 70.0% for
Smart Choice and from 72.0% to 67.5% for Paaco over the term of the respective
credit facilities. The Company expects that it will have adequate liquidity to
satisfy the reductions in advance rates over the terms of the credit facilities.
The Company also expects that it will renew or refinance each of its credit
facilities with the existing or a new lender on or before the scheduled maturity
date of the facility.
15
16
The Company is focusing on the development and expansion of its existing
businesses and the potential acquisition or development of other unrelated
businesses. The credit facilities of Car-Mart, Smart Choice, Paaco, Precision
and Concorde are expected to be able to support the majority of their
anticipated growth over the next twelve months. As of April 30, 2000 the Company
had an outstanding commitment of approximately $.4 million pertaining to an
investment in a private venture capital fund which focuses on the investment in
Internet related or emerging technology companies. The Company plans to fund
this commitment from cash on hand.
In March 1996 the Company's Board of Directors approved a program, as
amended, to repurchase up to 6,000,000 shares of the Company's common stock from
time to time in the open market or in private transactions. As of April 30, 2000
the Company had repurchased 4,057,417 shares pursuant to this program. The
timing and amount of future share repurchases, if any, will depend on various
factors including market conditions, available alternative investments and the
Company's financial position.
SEASONALITY
The Company's automobile sales business is seasonal in nature. In the
automobile business, the Company's third fiscal quarter (November through
January) is historically the slowest period for car and truck sales. Many of the
Company's operating expenses such as administrative personnel, rent and
insurance are fixed and cannot be reduced during periods of decreased sales.
Conversely, the Company's fourth fiscal quarter (February through April) is
historically the busiest time for car and truck sales as many of the Company's
customers use income tax refunds as a down payment on the purchase of a vehicle.
None of the Company's other businesses experience significant seasonal
fluctuations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk on its financial instruments from
changes in interest rates. The Company does not use financial instruments for
trading purposes or to manage interest rate risk. The Company's earnings are
impacted by its net interest income, which is the difference between the income
earned on interest-bearing assets and the interest paid on interest bearing
notes payable. Increases in market interest rates could have an adverse effect
on profitability. Financial instruments consist of fixed rate finance
receivables and fixed and variable rate notes payable. The Company's finance
receivables generally bear interest at fixed rates ranging from 10% to 26%.
These finance receivables have scheduled maturities from one to 42 months.
Financial instruments also include mortgage notes held for sale. The Company
does not experience significant market risk with such mortgage notes as they are
generally sold within 45 days of origination or purchase. At April 30, 2000 the
majority of the Company's notes payable contained variable interest rates that
fluctuate with market rates. Therefore, an increase in market interest rates
would decrease the Company's net interest income and profitability.
The table below illustrates the impact which hypothetical changes in market
interest rates could have on the Company's pretax earnings. The calculations
assume (i) the increase or decrease in market interest rates remain in effect
for twelve months, (ii) the amount of variable rate notes payable outstanding
during the period decreases in direct proportion to decreases in finance
receivables as a result of scheduled payments and anticipated charge-offs, and
(iii) there is no change in prepayment rates as a result of the interest rate
changes.
Change in Change in
Interest Rates Pretax Earnings
-------------- ---------------
(in thousands)
+2% $ (2,262)
+1% (1,131)
-1% 1,131
-2% 2,262
16
17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and accountants' reports are included in Item
8 of this report:
Reports of Independent Accountants
Consolidated Balance Sheets as of April 30, 2000 and 1999
Consolidated Statements of Operations for the fiscal years ended April
30, 2000, 1999 and 1998
Consolidated Statements of Comprehensive Income for the fiscal years
ended April 30, 2000, 1999, and 1998
Consolidated Statements of Cash Flows for the fiscal years ended April
30, 2000, 1999 and 1998
Consolidated Statements of Stockholders' Equity for the fiscal years
ended April 30, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
17
18
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS CROWN GROUP, INC.
Stockholders and Board of Directors
Crown Group, Inc.
We have audited the accompanying consolidated balance sheet of Crown Group, Inc.
as of April 30, 2000 and the related consolidated statements of operations,
comprehensive income, stockholders' equity 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 financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 consolidated financial position of Crown Group, Inc.
as of April 30, 2000, and the consolidated results of their operations and their
consolidated cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.
Dallas, Texas Grant Thornton LLP
July 7, 2000
REPORT OF INDEPENDENT ACCOUNTANTS
Stockholders and Board of Directors
Crown Group, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, comprehensive income, stockholders'
equity and of cash flows present fairly, in all material respects, the financial
position of Crown Group, Inc. and its subsidiaries at April 30, 1999, and the
results of their operations and their cash flows for each of the two years in
the period ended April 30, 1999 in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Dallas, Texas PricewaterhouseCoopers LLP
August 12, 1999
18
19
CONSOLIDATED BALANCE SHEETS CROWN GROUP, INC.
April 30, 2000 April 30, 1999
-------------- --------------
Assets:
Cash and cash equivalents $ 9,843,310 $ 12,910,535
Accounts and other receivables, net 5,489,686 2,572,535
Mortgage loans held for sale, net 14,202,420 10,636,933
Finance receivables, net 183,331,361 88,424,897
Inventory 14,948,365 9,290,272
Prepaid and other assets 1,753,074 2,054,490
Investments 2,503,146 694,341
Investment in CMN and related assets, net 5,167,161
Deferred tax assets, net 13,859,897
Property and equipment, net 27,736,105 22,055,174
Goodwill, net 17,239,955 14,328,241
------------ ------------
$290,907,319 $168,134,579
============ ============
Liabilities and stockholders' equity:
Accounts payable $ 8,606,983 $ 4,747,358
Accrued liabilities 13,557,228 5,040,007
Income taxes payable 9,599,439 3,875,583
Revolving credit facilities 172,709,224 78,928,121
Other notes payable 18,342,379 17,259,544
Deferred sales tax 4,207,117 2,713,914
Deferred tax liabilities, net 797,437
------------ ------------
Total liabilities 227,022,370 113,361,964
------------ ------------
Minority interests 5,017,734 1,713,731
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01 per share, 1,000,000 shares
authorized; none issued or outstanding
Common stock, par value $.01 per share, 50,000,000 shares authorized;
8,247,762 issued and outstanding (10,096,842 at April 30, 1999) 82,478 100,968
Additional paid-in capital 28,960,793 37,970,391
Retained earnings 29,823,944 14,987,525
------------ ------------
Total stockholders' equity 58,867,215 53,058,884
------------ ------------
$290,907,319 $168,134,579
============ ============
See accompanying notes to consolidated financial statements.
19
20
CONSOLIDATED STATEMENTS OF OPERATIONS CROWN GROUP, INC.
Years Ended April 30,
2000 1999 1998
-------------- -------------- --------------
Revenues:
Sales $ 195,324,265 $ 89,731,527 $ 14,938,617
Interest income 30,280,976 13,320,513 3,390,161
Gain on sale of mortgage loans 4,992,612 4,406,974 1,087,303
Rental income 4,194,456 2,634,854 494,374
Gaming 2,159,517
Interest, fees and rentals from CMN 694,146 680,697
Other 689,000 498,201 596,709
-------------- -------------- --------------
237,640,826 111,286,215 21,187,861
-------------- -------------- --------------
Costs and expenses:
Cost of sales 115,803,719 57,129,838 9,100,053
Selling, general and administrative 54,381,275 30,784,380 8,567,614
Provision for credit losses 35,756,056 15,498,111 1,800,164
Interest expense 13,879,737 6,766,258 1,235,358
Depreciation and amortization 3,567,687 2,398,901 802,319
-------------- -------------- --------------
223,388,474 112,577,488 21,505,508
-------------- -------------- --------------
Other income:
Equity in earnings of unconsolidated subsidiaries 506,775 1,259,734 926,598
Gain on sale of securities, net 10,861,100 25,989,130 38,258
-------------- -------------- --------------
11,367,875 27,248,864 964,856
-------------- -------------- --------------
Income before taxes and minority interests 25,620,227 25,957,591 647,209
Provision (benefit) for income taxes 10,105,451 9,000,661 (91,030)
Minority interests 678,357 (551,480) 371,073
-------------- -------------- --------------
Net income $ 14,836,419 $ 17,508,410 $ 367,166
============== ============== ==============
Earnings per share:
Basic $ 1.61 $ 1.73 $ .04
Diluted $ 1.54 $ 1.68 $ .04
Weighted average number of shares outstanding:
Basic 9,216,184 10,095,614 9,829,392
Diluted 9,621,328 10,400,504 9,905,819
See accompanying notes to consolidated financial statements.
20
21
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME CROWN GROUP, INC.
Years Ended April 30,
2000 1999 1998
-------------- -------------- --------------
Net income $ 14,836,419 $ 17,508,410 $ 367,166
Change in unrealized appreciation of securities, net of tax:
Unrealized appreciation arising during period 15,017,605 1,930,500
Less realized gain included in net income (16,948,105)
-------------- -------------- --------------
(1,930,500) 1,930,500
-------------- -------------- --------------
Comprehensive income $ 14,836,419 $ 15,577,910 $ 2,297,666
============== ============== ==============
See accompanying notes to consolidated financial statements.
21
22
CONSOLIDATED STATEMENTS OF CASH FLOWS CROWN GROUP, INC.
Years Ended April 30,
2000 1999 1998
-------------- -------------- --------------
Operating activities:
Net income $ 14,836,419 $ 17,508,410 $ 367,166
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 3,567,687 2,398,901 802,319
Amortization of finance receivable discounts (1,435,059) (1,186,350) (252,765)
Deferred income taxes (3,557,335) 944,961 (950,343)
Provision for credit losses 35,756,056 15,498,111 1,800,164
Minority interests 678,357 (551,480) 371,073
Gain on sale of mortgage loans (4,992,612) (4,406,974) (1,087,303)
Gain on sale of assets (108,378) (286,225) (437,171)
Gain on sale of securities (10,861,100) (25,989,130) (38,258)
Equity in earnings of unconsolidated subsidiaries (506,775) (1,259,734) (926,598)
Changes in operating assets and liabilities, net of transactions:
Accounts and other receivables (1,324,225) 3,226,886 (598,109)
Mortgage loans originated or acquired (144,898,739) (99,206,479) (36,757,608)
Mortgage loans sold and principal repayments 146,075,563 107,188,926 23,441,905
Inventory 20,937,112 8,832,626 567,689
Prepaids and other assets 519,080 (1,542,587) 107,938
Accounts payable, accrued liabilities and deferred sales tax (251,122) 3,630,783 1,298,385
Income taxes payable 5,723,856 2,640,797 (192,428)
-------------- -------------- --------------
Net cash provided (used) by operating activities 60,158,785 27,441,442 (12,483,944)
-------------- -------------- --------------
Investing activities:
Finance receivable originations (179,434,289) (80,431,081) (13,324,694)
Finance receivable collections 95,873,645 36,252,894 4,723,150
Purchase of property and equipment (7,781,061) (16,312,815) (4,061,196)
Sale of property and equipment 1,758,774 2,004,520 17,721,787
Purchase of securities (1,808,805) (6,643,496) (5,551,714)
Sale of securities 16,762,326 34,449,806 3,772,792
Dividends and note collections from CMN 306,487 2,389,152 1,050,750
Purchase of CMN and related assets (7,000,001)
Purchase of Paaco, net of cash acquired (1,031,250) (4,378,459)
Purchase of Precision, net of cash acquired (4,021,142)
Purchase of Car-Mart, net of cash acquired (33,437,087)
Purchase of Smart Choice, net of cash acquired (866,741)
-------------- -------------- --------------
Net cash used by investing activities (75,189,664) (62,759,357) (11,068,727)
-------------- -------------- --------------
Financing activities:
Capital contributions from minority owners 1,088,000
Issuance of common stock 93,282
Purchase of common stock (5,844,111) (1,994,323) (3,052,322)
Proceeds from revolving credit facilities, net 18,348,103 37,763,597 13,979,273
Proceeds from (repayments of) other debt, net (540,338) 4,889,470 (2,103,816)
-------------- -------------- --------------
Net cash provided by financing activities 11,963,654 41,746,744 8,916,417
-------------- -------------- --------------
Increase (decrease) in cash and cash equivalents (3,067,225) 6,428,829 (14,636,254)
Cash and cash equivalents at: Beginning of year 12,910,535 6,481,706 21,117,960
-------------- -------------- --------------
End of year $ 9,843,310 $ 12,910,535 $ 6,481,706
============== ============== ==============
See accompanying notes to consolidated financial statements.
22
23
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY CROWN GROUP, INC.
For the Three Years in the Period Ended April 30, 2000
Retained
Additional Earnings
Common Stock Paid-In (Accumulated
Shares Amount Capital Deficit)
------------ ------------ ------------ ------------
Balance at May 1, 1997 10,394,585 $ 103,946 $ 38,496,803 $ (2,888,051)
Purchase of common stock (1,102,765) (11,028) (3,041,294)
Stock options exercised 142,143 1,422 91,860
Unrealized appreciation of securities
Net income 367,166
------------ ------------ ------------ ------------
Balance at April 30, 1998 9,433,963 94,340 35,547,369 (2,520,885)
Issuance of common stock 958,338 9,583 4,414,390
Purchase of common stock (492,909) (4,929) (1,989,394)
Stock options and warrants exercised 197,450 1,974 (1,974)
Unrealized appreciation of securities
Net income 17,508,410
------------ ------------ ------------ ------------
Balance at April 30, 1999 10,096,842 100,968 37,970,391 14,987,525
Stock warrants exercised 2,000 20 (20)
Purchase agreement amendment (670,311) (6,703) (3,177,274)
Purchase of common stock (1,180,769) (11,807) (5,832,304)
Net income 14,836,419
------------ ------------ ------------ ------------
Balance at April 30, 2000 8,247,762 $ 82,478 $ 28,960,793 $ 29,823,944
============ ============ ============ ============
For the Three Years in the Period Ended April 30, 2000
Unrealized Total
Appreciation Stockholders'
of Securities Equity
------------- -------------
Balance at May 1, 1997 $ 35,712,698
Purchase of common stock (3,052,322)
Stock options exercised 93,282
Unrealized appreciation of securities $ 1,930,500 1,930,500
Net income 367,166
------------ ------------
Balance at April 30, 1998 1,930,500 35,051,324
Issuance of common stock 4,423,973
Purchase of common stock (1,994,323)
Stock options and warrants exercised --
Unrealized appreciation of securities (1,930,500) (1,930,500)
Net income 17,508,410
------------ ------------
Balance at April 30, 1999 53,058,884
Stock warrants exercised --
Purchase agreement amendment (3,183,977)
Purchase of common stock (5,844,111)
Net income 14,836,419
------------ ------------
Balance at April 30, 2000 $ -- $ 58,867,215
============ ============
See accompanying notes to consolidated financial statements.
23
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CROWN GROUP, INC.
A - DESCRIPTION OF BUSINESS
Crown Group, Inc. ("Crown"), and collectively with its subsidiaries (the
"Company"), is a publicly traded buy-out firm which as of April 30, 2000 owned
99% of America's Car-Mart, Inc. ("Car-Mart") and 70% of Smart Choice Automotive
Group, Inc. ("Smart Choice"). Smart Choice owns 100% of Paaco Automotive Group,
Inc. and Premium Auto Acceptance Corporation (collectively, "Paaco"). Each of
Car-Mart, Smart Choice and Paaco sell and finance used vehicles. At April 30,
2000 Crown also owned (i) 100% of Precision IBC, Inc. ("Precision"), a firm
specializing in the sale and rental of intermediate bulk containers ("IBC's"),
(ii) 80% of Concorde Acceptance Corporation ("Concorde"), a sub-prime mortgage
lender, (iii) 90% of CG Incorporated, S.A. de C.V. ("Crown El Salvador"), a
newly formed company focusing on the development and operation of casinos in El
Salvador, and (iv) minority positions in certain other entities that operate in
the high technology industry or focus on Internet commerce. In addition, from
time to time the Company purchases and sells small ownership interests in
securities of privately held and publicly traded firms. The Company is presently
focusing on (i) the development and expansion of its existing businesses, and
(ii) the potential acquisition or development of other unrelated businesses.
As discussed in Note C, the Company completed a number of acquisitions during
the three years ended April 30, 2000. Each of these acquisitions has been
accounted for using the purchase method of accounting. As a result, the
Company's financial statements include the results of operations of the acquired
businesses only from the date of acquisition.
B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Crown Group,
Inc. and all of its majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated. The Company's subsidiaries are
included in its consolidated results of operations from the point in time such
subsidiary became a majority-owned subsidiary of the Company.
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 amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the period. Actual results
could differ from those estimates.
Concentration of Risk
The Company provides financing in connection with the sale of substantially
all of its used vehicles. These sales are made primarily to customers residing
in Arkansas, Texas and Florida. Periodically, the Company maintains cash in
financial institutions in excess of the amounts insured by the federal
government.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased with
maturities of three months or less to be cash equivalents. Cash equivalents
generally consist of interest bearing money market accounts.
Mortgage Loans Held for Sale
Mortgage loans held for sale are carried at the lower of aggregate cost or
market. Market value is determined by current investor yield requirements. A
portion of these loans are pledged against the Company's revolving credit
facility. The cost of mortgage loans held for sale includes the cost of
originating or purchasing the mortgage loans reduced by (i) deferred loan
origination fees, and (ii) an allowance for loan losses of $515,900 and $190,600
at April 30, 2000 and 1999, respectively. While management believes the
allowance for loan losses included in the financial statements to be adequate,
such estimate may be more or less than the amount ultimately charged off. The
adequacy of the allowance for loan losses is periodically reviewed by management
with any changes reflected in current operations.
Finance Receivables and Allowance for Credit Losses
The Company originates installment contracts from the sale of used vehicles
at its dealerships. Finance receivables consist of contractually scheduled
payments from installment contracts net of unearned finance charges and an
allowance for credit losses. Unearned finance charges represent the balance of
interest income remaining from the capitalization of the total interest to be
earned over the original term of the related installment contract.
The Company maintains an allowance for credit losses at a level it considers
sufficient to cover anticipated losses in the collection of its finance
receivables. The allowance for credit losses is based upon a periodic analysis
of the portfolio, economic conditions and trends, historical credit loss
experience, and collateral values. Since the loss reserve is based upon a number
of factors, most of which are subject to change over time (i.e. economic
conditions), it is reasonably possible that a change in such factors may cause
the allowance for credit losses to increase or decrease by a material amount in
the near term. The allowance for credit losses is periodically reviewed by
management with any changes reflected in current operations.
24
25
Inventory
Inventory is valued at the lower of cost or market on a specific
identification basis. Inventory includes used vehicles, parts for vehicles and
supplies and parts related to the IBC business. Repossessed vehicles are
recorded at the lower of cost or market, which approximates wholesale value.
Vehicle reconditioning costs are capitalized as a component of inventory. The
cost of used vehicles and IBC's sold is determined using the specific
identification method.
Investments
Investments at April 30, 2000 consist of minority ownership interests in (i)
Monarch Venture Partners' Fund I, L.P. ("Monarch"), a private venture capital
fund focusing on the investment in Internet related or emerging technology
companies, and (ii) Mariah Vision3, Inc., a software developer specializing in
three-dimensional graphic design. Investments at April 30, 1999 consisted of a
minority ownership interest in Monarch. The investments are carried at cost.
Property and Equipment
Property and equipment are stated at cost. Expenditures for additions,
renewals and improvements are capitalized. Costs of repairs and maintenance are
expensed as incurred. Depreciation is computed principally using the
straight-line method over the following estimated useful lives:
Furniture, fixtures and equipment 3 to 10 years
Leasehold improvements 5 to 7 years
Rental equipment 12 years
Buildings 39 years
Goodwill
Goodwill represents the excess of the Company's cost over the fair value of
net identifiable assets acquired in its purchases of Smart Choice, Paaco and
Precision. Goodwill is amortized on a straight-line basis over periods ranging
from 15 to 25 years. At April 30, 2000 and 1999 accumulated amortization of
goodwill amounted to $1,864,933 and $936,171, respectively.
Impairment of Long-Lived Assets
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate the carrying
amount of an asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an asset to
future undiscounted net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
Revenue Recognition
Interest income on finance receivables is recognized using the interest
method. Revenue from the sale of used vehicles is recognized upon delivery, when
the sales contract is signed and the customer has taken possession of the
vehicle.
Stock Option Plan
The Company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations. As such,
compensation expense is recorded on the date of grant only if the current market
price of the underlying stock exceeds the exercise price.
Earnings Per Share
Basic earnings per share is computed by dividing net income by the average
number of common shares outstanding during the period. Diluted earnings per
share takes into consideration the potentially dilutive effect of common stock
equivalents, such as outstanding stock options and warrants, that if exercised
or converted into common stock would then share in the earnings of the Company.
Reclassifications
Certain prior year amounts in the accompanying financial statements have been
reclassified to conform to the fiscal 2000 presentation.
25
26
C - ACQUISITIONS AND DISPOSITIONS
Smart Choice Purchase
On December 1, 1999, Crown acquired a 70% voting and economic interest in
Smart Choice directly from Smart Choice. The purchase price ("Purchase Price")
consisted of (i) $3.0 million in cash, (ii) the conversion of $4.5 million of
Smart Choice debt, which Crown had contemporaneously acquired from a third party
for approximately $2.3 million cash, and (iii) the contribution of Crown's 85%
interest in Paaco. In consideration for the Purchase Price Crown received
1,371,581.47 shares of Smart Choice Series E Convertible Preferred Stock, which
is convertible into 137,158,147 shares of Smart Choice common stock representing
70% of the ownership and voting rights of Smart Choice on an "as converted"
basis.
Contemporaneously with Crown's purchase of a 70% interest in Smart Choice,
approximately $15.0 million of Smart Choice's outstanding debt and preferred
stock was converted into shares of common stock representing a 20.7% interest in
Smart Choice. In addition, the Paaco minority shareholders converted their 15%
interest in Paaco into shares of Smart Choice Series E Convertible Preferred
Stock representing a 5% voting and economic interest in Smart Choice. Paaco is
now a wholly-owned subsidiary of Smart Choice.
Excluding Paaco, Smart Choice operates "buy-here pay-here" used car
dealerships in central Florida. Smart Choice's assets consist principally of (i)
finance receivables originated in the sale of used vehicles, (ii) inventory, and
(iii) deferred tax assets. For its most recent fiscal year ended December 31,
1998, Smart Choice reported revenues from continuing operations of $95.4 million
and a loss from continuing operations of $7.3 million. For the nine months ended
September 30, 1999, Smart Choice reported unaudited revenues of $71.4 million
and a loss from continuing operations of $24.2 million.
Car-Mart Purchase
On January 15, 1999 the Company acquired 100% of the outstanding common stock
of Fleeman Holding Company, including its wholly-owned subsidiary Car-Mart for
$41.35 million. The purchase price consisted of $33.85 million in cash and the
issuance of promissory notes aggregating $7.5 million (the "Notes"). The Notes
bear interest at 8.5% per annum payable quarterly, with the principal due in
five years. Approximately $24 million of the cash portion of the purchase price
was obtained pursuant to a $30 million revolving credit facility with a major
banking institution. The remaining $9.85 million was funded from cash on hand.
Car-Mart was founded in 1981 and operates "buy-here pay-here" used car
dealerships located in niche markets throughout Arkansas, Oklahoma, Texas and
Missouri. Car-Mart underwrites, finances and services retail installment
contracts generated at its dealerships. The majority of Car-Mart's assets
consist of finance receivables originated in the sale of used vehicles.
Car-Mart's revenues for the fiscal year ended May 31, 1998 were approximately
$65.7 million.
Paaco Purchase
Effective February 1, 1998 the Company acquired 53% of the common stock of
Paaco for a purchase price of approximately $9.1 million cash. Approximately
$4.9 million of Paaco common stock was purchased directly from Paaco, and the
remaining $4.2 million was purchased from Paaco management who prior to this
transaction were the sole shareholders of Paaco (the "Paaco Management
Shareholders"). Effective May 1, 1998 and February 1, 1999 the Company acquired
an additional 12% and 15% interest, respectively, in Paaco directly from the
Paaco Management Shareholders. The May 1, 1998 purchase price of approximately
$1.7 million was paid by issuing 412,500 shares of the Company's common stock.
The February 1, 1999 purchase price of approximately $2.6 million was paid by
issuing 257,811 shares of the Company's common stock and approximately $1.0
million in cash. In July 1999, upon discovering certain accounting errors and
irregularities at Paaco, the Company and the Paaco Management Shareholders
amended and restated the three prior purchase agreements such that the Company
received approximately $4 million in consideration and an additional 5% interest
in Paaco.
Paaco is a vertically integrated used car sales and finance company which
operates used car dealerships in the Dallas-Ft. Worth metropolitan area and in
Houston, Texas. Paaco sells, underwrites and finances used cars and trucks with
a focus on the Hispanic market. For the year ended December 31, 1997, Paaco's
revenues were approximately $48.3 million.
Precision Purchase
On February 3, 1998 the Company acquired 80% of the common stock of Precision
IBC, Incorporated ("Original Precision") for a purchase price of approximately
$2.4 million cash. On March 5, 1998 the Company acquired 80% of the common stock
of M&S Tank Rentals, Inc. ("M&S") for a purchase price of $1.65 million cash.
Original Precision and M&S were subsequently merged together into a newly formed
corporation, Precision IBC, Inc. ("Precision"). Effective May 1, 1998 the
Company acquired the remaining 20% interest in Precision it did not previously
own by issuing 288,027 shares of the Company's common stock. All references to
Precision include the former entities of Original Precision and M&S.
Precision is in the business of renting, selling, testing and servicing
principally stainless steel IBC's to customers primarily in the petroleum and
chemical industries. For the year ended December 31, 1997, Precision's unaudited
revenues were approximately $4.1 million.
Casino Magic Neuquen Purchase and Sale
On June 2, 1997 the Company acquired 49% of the capital stock of Casino Magic
Neuquen ("CMN"), as well as interests in certain other assets and contracts
related to CMN, for a purchase price of $7 million cash. CMN owns and operates
casinos in the cities of Neuquen and San Martin de los Andes in the Province of
Neuquen, Argentina. The interests in contracts included (i) a 16.4% interest in
a certain management agreement relating to CMN, and (ii) a 49% interest in (a)
slot machines and a related lease agreement and (b) a certain royalty agreement
relating to CMN. Pursuant to the various CMN agreements, the Company received
its respective share of fees and rental payments due under such agreements.
26
27
Effective October 1, 1999 the Company sold its 49% interest in CMN and
related assets for $16.5 million cash resulting in a gain before income taxes of
$10.7 million. The gain is included in gain on sale of securities in the
consolidated statement of operations. The operating results of CMN for the five
months ended September 30, 1999 and years ended April 30, 1999 and 1998 are as
follows (in thousands):
Five Months
Ended
September 30, Years Ended April 30,
1999 1999 1998
------------- ---------- ----------
Revenues $ 9,929 $ 21,388 $ 18,255
Costs and expenses 6,732 13,850 13,355
Lawsuit settlement and costs 917
Interest, fees and rentals to shareholders 1,057 1,910
Provision for income taxes 1,135 2,121 978
---------- ---------- ----------
Net income $ 2,062 $ 3,443 $ 2,012
========== ========== ==========
For the year ended April 30, 1999, the Company recorded an after tax charge of
approximately $365,000 relating to its share of the estimated costs of a dispute
between CMN and the City of Neuquen with respect to entrance taxes being charged
by the City of Neuquen for each patron entering CMN's casinos. Such amount has
been included in "equity in earnings of unconsolidated subsidiaries" on the
accompanying consolidated statement of operations.
Home Stay Formation and Sale
In May 1998 the Company, along with a minority holder, formed Home Stay
Lodges I, Ltd. ("Home Stay"). Home Stay is in the business of constructing and
operating extended-stay lodging facilities. Effective December 2, 1999 Crown
sold its 80% interest in Home Stay to Efficiency Lodge, Inc. for approximately
$850,000, of which approximately $210,000 was paid in cash and the balance is
payable over five years with interest at an annual rate of prime plus 1%. In
connection with the transaction, Crown has been released as a guarantor of Home
Stay's mortgage debt of approximately $5.4 million. The gain of approximately
$.1 million is included in gain on sale of securities in the consolidated
statement of operations.
Each of the above acquisitions have been accounted for using the purchase
method of accounting with existing assets and liabilities being recorded at fair
value. Goodwill resulting from the transactions is being amortized on a
straight-line basis over periods ranging from 15 to 25 years. The activities of
Smart Choice, Car-Mart, Paaco, Precision and CMN have been included in the
Company's consolidated results of operations since their respective dates of
acquisition. The activities of CMN and Home Stay have been excluded from the
Company's consolidated results of operations from their respective dates of
disposition.
Pro Forma Financial Information
The following unaudited pro forma condensed consolidated results of
operations of the Company for the year ended April 30, 2000 were prepared as if
the acquisition of Smart Choice had occurred on May 1, 1999, and the following
pro forma condensed consolidated results of operations of the Company for the
year ended April 30, 1999 were prepared as if the acquisitions of Car-Mart and
Smart Choice had occurred on May 1, 1998 (in thousands, except per share
amounts). The adjustments to the historical financial statements principally
consist of (i) eliminating interest income on the cash used in the acquisitions,
(ii) recording interest expense on the debt issued in the Car-Mart acquisition,
(iii) eliminating interest expense and preferred stock dividends pertaining to
certain Smart Choice debt and preferred stock that was converted into Smart
Choice common stock, (iv) amortizing goodwill created in the Smart Choice
acquisition, (v) adjusting interest income resulting from purchase accounting
entries, (vi) eliminating Smart Choice's discontinued operations and write off
of historical goodwill, and (vii) adjusting income tax expense to reflect the
above described adjustments.
Years Ended April 30,
2000 1999
---------- ----------
Revenue $ 284,424 $ 259,248
Net income 3,404 14,864
Earnings per share (diluted) $ .35 $ 1.43
The unaudited pro forma results of operations are not necessarily indicative
of future results or the results that would have occurred had the acquisitions
and dispositions taken place on the dates indicated.
27
28
D - SALE OF SECURITIES
In February 1998 the Company purchased 444,444 shares of Inktomi Corporation
common stock in a private transaction for $1.1 million. In June 1998 Inktomi, an
Internet related concern, completed its initial public offering. During fiscal
1999 the Company sold all of its Inktomi common stock which resulted in a gain
of approximately $26.4 million.
Below is a summary of gains and losses on the sale of securities:
Years Ended April 30,
2000 1999 1998
------------ ------------ ------------
Gain on sale of Inktomi common stock $ 26,377,290
Gain on sale of CMN $ 10,737,832
Gain on sale of Home Stay 123,268
Gain (loss) on sale of other equity securities, net (388,160) $ 38,258
------------ ------------ ------------
$ 10,861,100 $ 25,989,130 $ 38,258
============ ============ ============
E - FINANCE RECEIVABLES
The Company originates installment sale contracts from the sale of used
vehicles at its dealerships. These installment sale contracts typically include
interest rates ranging from 10 to 26% per annum and provide for payments over
periods ranging from 12 to 42 months. The components of finance receivables as
of April 30, 2000 and 1999 are as follows:
April 30,
2000 1999
-------------- --------------
Finance receivables $ 267,389,412 $ 123,142,202
Unearned finance charges (38,659,786) (16,669,411)
Allowance for credit losses (43,783,529) (17,045,063)
Purchase discounts (1,614,736) (1,002,831)
-------------- --------------
$ 183,331,361 $ 88,424,897
============== ==============
In accordance with APB Opinion No. 16, as of the dates the Company acquired
interests in Paaco, Car-Mart and Smart Choice, the Company valued Paaco's,
Car-Mart's and Smart Choice's finance receivables portfolios at fair value and
determined that purchase discounts of $1,577,781, $864,165 and $2,046,964,
respectively, were appropriate. These discounts are being amortized into
interest income over the life of the related finance receivable portfolios that
existed on the dates of purchase using the interest method.
Changes in the finance receivables allowance for credit losses for the years
ended April 30, 2000, 1999 and 1998 are as follows:
Years Ended April 30,
2000 1999 1998
------------ ------------ ------------
Balance at beginning of period $ 17,045,063 $ 4,727,679
Acquisition of Paaco $ 4,248,643
Acquisition of Car-Mart 8,726,309
Acquisition of Smart Choice 23,568,788
Provision for credit losses 35,473,716 15,251,225 1,743,318
Net charge offs (32,304,038) (11,660,150) (1,264,282)
------------ ------------ ------------
Balance at end of period $ 43,783,529 $ 17,045,063 $ 4,727,679
============ ============ ============
In addition to the finance receivables allowance for credit losses, the
Company also has an allowance for credit losses on mortgage loans held for sale
($515,900 and $190,600) and accounts receivable ($27,256 and $35,000) as of
April 30, 2000 and 1999, respectively.
28
29
F - PROPERTY AND EQUIPMENT
A summary of property and equipment as of April 30, 2000 and 1999 is as
follows:
April 30,
2000 1999
-------------- --------------
Land and buildings $ 8,310,614 $ 8,651,003
Rental equipment 9,937,557 7,644,949
Furniture, fixtures and equipment 10,144,565 5,691,910
Leasehold improvements 3,292,660 2,003,575
Less accumulated depreciation and amortization (3,949,291) (1,936,263)
-------------- --------------
$ 27,736,105 $ 22,055,174
============== ==============
For the years ended April 30, 2000, 1999 and 1998 depreciation and
amortization of property and equipment amounted to $2,406,657, $1,616,762 and
$362,904, respectively.
G - ACCRUED LIABILITIES
A summary of accrued liabilities as of April 30, 2000 and 1999 is as follows:
April 30,
2000 1999
-------------- --------------
Compensation $ 3,467,517 $ 1,182,468
Commissions 1,627,898 1,643,996
Interest 1,415,244 519,517
Service contracts 1,394,439 534,725
Other 5,652,130 1,159,301
-------------- --------------
$ 13,557,228 $ 5,040,007
============== ==============
29
30
H - DEBT
A summary of debt as of April 30, 2000 and 1999 is as follows:
Revolving Credit Facilities
- ------------------------------------------------------------------------------------------------------------------------------
Facility Interest Balance at April 30,
Borrower Lender Amount Rate Maturity 2000 1999
-------- ------ -------- -------- -------- ---- ----
Smart Choice Finova $ 100 million Prime + 2.25% Nov 2004 $ 77,533,325
Paaco Finova $ 60 million Prime + 2.25% Nov 2004 52,833,680 $ 41,823,680
Car-Mart Bank of America $ 30 million Prime + 1.13% Jan 2002 27,502,614 25,176,594
Concorde Bank One $ 20 million Libor + 2.00% Sep 2000 9,839,067 7,191,101
Precision Wells Fargo $ 8 million Prime Dec 2000 5,000,538 4,736,746
-------------- ------------
$ 172,709,224 $ 78,928,121
============== ============
Other Notes Payable
- -----------------------------------------------------------------------------------------------------------------------------
Facility Interest Balance at April 30,
Borrower Lender Amount Rate Maturity 2000 1999
-------- ------ -------- -------- -------- ---- ----
Crown Car-Mart sellers N/A 8.50% Jan 2004 $ 7,500,000 $ 7,500,000
Crown Bank of America N/A 7.00% Apr 2001 2,316,000 1,158,000
Home Stay Bank of Pensacola N/A 8.50% 5,388,417
Precision South Trust Bank N/A 7.35% Jan 2014 647,743 673,787
Paaco Chase Texas N/A 8.50% May 2003 869,616 939,905
Paaco Heller Financial N/A Prime + 2.25% Dec 2015 603,084 617,595
Smart Choice Huntington N/A Prime + .75% Jul 2001 2,090,171
Smart Choice High Capital N/A 10.0% Nov 2001 1,000,000
Various Various N/A Various Various 3,315,765 981,840
------------- ------------
$ 18,342,379 $ 17,259,544
============= ============
The Company's revolving credit facilities are primarily collateralized by
finance receivables, mortgage loans and IBC's. Other notes payable are primarily
collateralized by finance receivables, equipment and real estate. Interest is
payable monthly or quarterly on all of the Company's debt. The loan agreements
relating to certain of the above described debt contain various reporting and
performance covenants including (i) maintenance of certain financial ratios and
tests, (ii) limitations on borrowings from other sources, (iii) restrictions on
certain operating activities, and (iv) restrictions on the payment of dividends.
At April 30, 2000 substantially all of the Company's $36.7 million equity
investment in its consolidated subsidiaries was restricted due to lender
covenants. The amount available to be drawn under each of the Company's
revolving credit facilities is a function of the underlying collateral asset.
Generally, the Company is able to borrow a specified percentage of the face
value of eligible finance receivables in the case of Car-Mart, Smart Choice and
Paaco, and eligible mortgage loans in the case of Concorde. Precision's
borrowing base is a function of the number of tanks owned and operating cash
flow, as defined. The advance rates on eligible finance receivables declines
from 85.0% to 70.0% for Smart Choice and from 72.0 % to 67.5% for Paaco over the
term of the respective credit facilities.
A summary of future minimum principal payments required under the
aforementioned debt as of April 30, 2000 is as follows:
Years Ending
April 30, Amount
------------ ------------
2001 $ 19,041,428
2002 32,005,345
2003 979,107
2004 7,585,054
2005 130,448,982
Thereafter 991,687
------------
$191,051,603
============
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31
I - INCOME TAXES
The Company files a consolidated federal income tax return with its 80% or
more owned domestic subsidiaries. Smart Choice and Crown El Salvador each file
separate tax returns. The provision (benefit) for income taxes for the fiscal
years ended April 30, 2000, 1999 and 1998 was as follows:
Years Ended April 30,
2000 1999 1998
------------ ------------ ------------
Provision (benefit) for income taxes
Current $ 13,662,786 $ 9,945,622 $ (1,041,373)
Deferred (3,557,335) (944,961) 950,343
------------ ------------ ------------
$ 10,105,451 $ 9,000,661 $ (91,030)
============ ============ ============
The provision (benefit) for income taxes is different from the amount
computed by applying the statutory federal income tax rate to income before
income taxes for the following reasons:
Years Ended April 30,
2000 1999 1998
------------ ------------ ------------
Tax provision at statutory rate $ 8,967,079 $ 9,085,157 $ 220,052
State taxes, net of federal benefit 1,298,632
Equity in earnings of unconsolidated subsidiaries (177,371) (440,907) (315,043)
Goodwill amortization 325,081 273,749 52,591
Other, net (307,970) 82,662 (48,630)
------------ ------------ ------------
$ 10,105,451 $ 9,000,661 $ (91,030)
============ ============ ============
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of April 30, 2000 and 1999
were as follows:
April 30,
2000 1999
------------ ------------
Deferred tax assets:
Allowance for loan loss $ 13,749,402
Finance receivable purchase discounts 588,687 $ 371,047
Reserves 1,007,725 220,418
Net operating loss 4,986,478 798,399
Other 1,171,215 236,508
Less valuation allowance (3,905,081)
------------ ------------
Total 17,598,426 1,626,372
------------ ------------
Deferred tax liabilities:
Allowance for loan losses 63,502
Tax over book depreciation 2,721,659 1,680,557
Other 1,016,870 679,750
------------ ------------
Total 3,738,529 2,423,809
------------ ------------
Deferred tax assets (liabilities), net $ 13,859,897 $ (797,437)
============ ============
31
32
In fiscal 2000 and 1999 the Company utilized approximately $3.1 million and
$2.1 million, respectively, of net operating loss carryforwards in determining
its federal income tax provision. At April 30, 2000 Smart Choice had a net
operating loss carryforward of approximately $13.4 million available to offset
future Smart Choice taxable income. The net operating loss carryforward expires
in 2014 and its utilization is subject to certain limitations. The valuation
allowance pertains to acquired Smart Choice deferred tax assets, and any
decrease in such valuation allowance will result in an adjustment to goodwill.
J - CAPITAL STOCK
Effective May 1, 1998 the Company issued 375,000 and 288,027 shares of its
common stock in the purchases of an additional 12% interest in Paaco and an
additional 20% interest in Precision, respectively (see Note C). Furthermore, in
June 1998 the Company issued 169,941 shares of its common stock to Nomura
Holding America, Inc. ("Nomura") in connection with Nomura's full exercise of a
warrant held by them to purchase 508,414 shares of the Company's common stock.
Nomura exercised the warrant pursuant to its "cashless exercise" feature.
Effective February 1, 1999 the Company issued 257,811 shares of its common stock
as partial consideration in the purchase of an additional 15% interest in Paaco.
Also effective February 1, 1999 the Company issued 37,500 shares of its common
stock in satisfaction of a liability in connection with the May 1, 1998 purchase
of an additional 12% interest in Paaco.
In July 1999, upon discovering certain accounting errors and irregularities
at Paaco, the Company and the shareholders from whom the Company purchased an
interest in Paaco amended and restated the three prior purchase agreements such
that the Company received approximately $4 million in consideration and an
additional 5% interest in Paaco. A portion of the consideration received
consisted of 670,311 shares of the Company's common stock valued at $3.2
million. The total value of the consideration received in this transaction ($4.5
million) was recorded as a reduction of goodwill in July 1999.
In March 1996 the Company's Board of Directors approved a program, as
amended, to repurchase up to 6,000,000 shares of the Company's common stock from
time to time in the open market. At April 30, 2000 the Company had repurchased
4,057,417 shares pursuant to this program. The timing and amount of future share
repurchases, if any, will depend on various factors including market conditions,
available alternative investments and the Company's financial position.
The Company is authorized to issue up to one million shares of $.01 par value
preferred stock in one or more series having such respective terms, rights and
preferences as are designated by the Board of Directors. No preferred stock has
been issued.
K - COMPREHENSIVE INCOME INFORMATION
Supplemental comprehensive income disclosures for the years ended April 30,
2000, 1999 and 1998 are as follows:
Years Ended April 30,
2000 1999 1998
------------ ------------ ------------
Gross unrealized appreciation of securities arising during period $ -- $ 23,104,008 $ 2,925,000
Provision for income taxes 8,086,403 994,500
------------ ------------ ------------
Unrealized appreciation of securities arising during
period, net of tax $ -- $ 15,017,605 $ 1,930,500
============ ============ ============
Changes to unrealized appreciation of securities on a net of tax basis for
the years ended April 30, 2000, 1999 and 1998 are as follows:
Years Ended April 30,
2000 1999 1998
------------ ------------ ------------
Balance at beginning of period $ -- $ 1,930,500 $ --
Unrealized appreciation of securities arising during period 15,017,605 1,930,500
Less realized gain included in net income (16,948,105)
------------ ------------ ------------
Balance at end of period $ -- $ -- $ 1,930,500
============ ============ ============
32
33
L - EARNINGS PER SHARE
Basic earnings per share and diluted earnings per share for the years ended
April 30, 2000, 1999 and 1998 were computed as follows:
Years Ended April 30,
2000 1999 1998
------------ ------------ ------------
Net income $ 14,836,419 $ 17,508,410 $ 367,166
============ ============ ============
Average shares outstanding - basic 9,216,184 10,095,614 9,829,392
Dilutive options 405,144 288,469 76,427
Dilutive warrants 16,421
------------ ------------ ------------
Average shares outstanding - diluted 9,621,328 10,400,504 9,905,819
============ ============ ============
Earnings per share:
Basic $ 1.61 $ 1.73 $ 0.04
Diluted $ 1.54 $ 1.68 $ 0.04
Antidilutive securities not included:
Options 432,500 420,000 516,068
============ ============ ============
Warrants -- 391,198 899,612
============ ============ ============
M - STOCK OPTIONS
Since inception, the shareholders of the Company have approved three stock
option plans including the 1986 Incentive Stock Option Plan ("1986 Plan"), the
1991 Non-Qualified Stock Option Plan ("1991 Plan") and the 1997 Stock Option
Plan ("1997 Plan"). While previously granted options remain effective, the
provisions of the 1986 and 1991 Plans permitting additional option grants have
expired. The 1997 Plan sets aside 1,000,000 shares of the Company's common stock
to be granted to employees, directors and certain advisors of the Company at a
price not less than the fair market value of the stock on the date of grant. At
April 30, 2000 and 1999 there were 170,000 and 202,500 shares of common stock
available for grant under the 1997 Plan, respectively. Options granted under the
Company's stock option plans expire in the years 2001 through 2010.
The following is an aggregate summary of the activity in the Company's stock
option plans from April 30, 1997 to April 30, 2000:
Weighted
Number Exercise Proceeds Average
of Price on Exercise Price
Shares per Share Exercise per Share
------------ -------------- ------------ --------------
Outstanding at April 30, 1997 814,643 $0.41 to $7.38 $ 2,291,250 $ 2.81
Granted 85,000 $ 2.44 207,188 $ 2.44
Exercised (142,143) $ 0.66 (93,282) $ .66
------------ ------------
Outstanding at April 30, 1998 757,500 $0.41 to $7.38 2,405,156 $ 3.18
Granted 717,500 $3.13 to $5.50 3,197,031 $ 4.46
Exercised (25,000) $ 1.55 (38,672) $ 1.55
Canceled (5,000) $ 3.31 (16,563) $ 3.31
------------ ------------
Outstanding at April 30, 1999 1,445,000 $0.41 to $7.38 5,546,952 $ 3.84
Granted 32,500 $4.38 to $5.81 160,156 $ 4.93
------------ ------------
Outstanding at April 30, 2000 1,477,500 $0.41 to $7.38 $ 5,707,108 $ 3.86
============ ============
33
34
A summary of stock options outstanding as of April 30, 2000 is as follows:
Weighted Average
Range of Remaining Weighted
Exercise Number Contractual Life Average
Prices of Shares (in years) Exercise Price
-------------- ------------- ---------------- --------------
$0.41 to $1.41 87,500 2.94 $ 1.29
$2.44 to $4.38 957,500 6.38 $ 3.29
$5.50 to $7.38 432,500 8.30 $ 5.66
-------------
$0.41 to $7.38 1,477,500 6.74 $ 3.86
=============
All of the above options were exercisable at April 30, 2000 with the
exception of options to purchase 210,000 shares at $5.50 per share. Such shares
become exercisable in 2000 through 2002 and expire in 2008. At April 30, 1999
options to purchase 1,165,000 shares were exercisable.
The Company applies the provisions of APB Opinion No. 25 in accounting for
the issuance of stock options and, accordingly, no compensation cost has been
recognized in the consolidated financial statements. The estimated weighted
average fair value of options granted per share for the fiscal years ended April
30, 2000, 1999 and 1998 was $1.50, $1.50 and $1.53, respectively. Had the
Company determined compensation cost on the date of grant based upon the fair
value of its stock options under SFAS No. 123, the Company's pro forma income
and earnings per share would have been as follows using certain valuation
techniques with the assumptions detailed below:
Years Ended April 30,
2000 1999 1998
------------ ------------ ------------
Pro forma net income $ 14,804,732 $ 16,808,848 $ 281,391
Pro forma earnings per share:
Basic $ 1.61 $ 1.66 $ 0.03
Diluted $ 1.54 $ 1.62 $ 0.03
Assumptions:
Dividend yield 0.0% 0.0% 0.0%
Risk-free interest rate 6.0% 6.5% 6.5%
Expected volatility 50.0% 52.5% 52.5%
Expected life 5 years 5 years 5 years
N - FAIR VALUE OF FINANCIAL INSTRUMENTS
The table below summarizes information about the fair value of financial
instruments included in the Company's financial statements at April 30, 2000 and
1999:
April 30, 2000 April 30, 1999
----------------------------- -----------------------------
Carrying Fair Carrying Fair
Value Value Value Value
------------ ------------ ------------ ------------
Cash and cash equivalents $ 9,843,310 $ 9,843,310 $ 12,910,535 $ 12,910,535
Mortgage loans held for sale 14,202,420 14,770,517 10,636,933 11,115,595
Finance receivables 183,331,361 174,164,793 88,424,897 84,003,652
Investments 2,503,146 3,055,000 694,341 694,341
Revolving credit facilities 172,709,224 172,709,224 78,928,121 78,928,121
Other notes payable 18,342,379 18,342,379 17,259,544 17,259,544
34
35
Because no market exists for certain of the Company's financial instruments,
fair value estimates are based on judgments and estimates regarding yield
expectations of investors, credit risk, normal cost of administration of
mortgage loans and finance receivables and other risk characteristics, including
interest rate and prepayment risk. These estimates are subjective in nature and
involve uncertainties and matters of judgment and therefore cannot be determined
with precision. Changes in assumptions could significantly affect these
estimates. The methodology and assumptions utilized to estimate the fair value
of the Company's financial instruments are as follows:
Financial Instrument Valuation Methodology
-------------------- ---------------------
Cash and cash equivalents The carrying amount is considered
to be a reasonable estimate of fair
value.
Mortgage loans held for sale The fair value was estimated based
on recent sales.
Finance receivables The fair value was estimated based
on management's knowledge of the
sale of other finance receivable
portfolios within the sub-prime
auto industry.
Investments The fair value was estimated based
on (i) the fair value information
provided by management of an
investee, and (ii) recent equity
transactions.
Revolving credit facilities The fair value approximates
carrying value due to the
short-term nature of the borrowings
and the variable interest rates
charged on the borrowings.
Other notes payable The fair value approximates
carrying value as the interest
rates charged on such debt
approximates market.
O - LEASES
The Company leases used car sales and reconditioning facilities, payment
centers, office facilities and equipment under various operating leases. As of
April 30, 2000 the aggregate rentals due under such non-cancelable operating
leases with remaining lease terms in excess of one year were as follows:
Years Ending
April 30, Amount
------------ -------------
2001 $ 4,744,227
2002 3,711,799
2003 3,002,777
2004 2,358,921
2005 1,743,256
For the years ended April 30, 2000, 1999 and 1998 rent expense for all
operating leases amounted to approximately $4,066,000, $2,077,000 and $467,000,
respectively.
P - RELATED PARTY TRANSACTIONS
In March 1999 the Company paid an outside director $30,000 as a fee in
connection with providing certain consulting services related to its used car
sales and finance businesses.
In February 1998 the Company paid an outside director $90,834 as a fee in
connection with the Company's purchase of Paaco (see Note C).
During fiscal 2000, 1999 and 1998, in exchange for a fee, Paaco sold
approximately $1,212,000, $2,558,000 and $608,000, respectively, of 90-day
service contracts to its customers on behalf of Medallia de Oro LLC
("Medallia"), a company owned by the then minority shareholders of Paaco. In
addition, Paaco sends the majority of its vehicle trade-ins to an auction
company that is partially owned by its former minority shareholders.
During fiscal 1999 and 1998 certain family members of a former minority
shareholder of Paaco loaned money to Paaco at interest rates ranging from 15 to
18%. At April 30, 1999 all of such loans had been repaid.
35
36
Q - COMMITMENTS AND CONTINGENCIES
Mortgage Loan Sales
In connection with the Company's sale of mortgage loans in the ordinary
course of business, in certain circumstances such loan sales involve limited
recourse to the Company for up to the first twelve months following the sale.
Generally, the events which could give rise to these recourse provisions involve
the prepayment or foreclosure of a loan, and violations of customary
representations and warranties. If the recourse provisions are triggered the
Company may be required to refund all or part of the premium received on the
sale of such loan, and in some cases the Company may be required to repurchase
the loan. Periodically the Company estimates the potential exposure related to
such recourse provisions and accrues losses where required.
Severance Agreements
The Company has entered into severance agreements with its three executive
officers which provide for payments to the executives in the event of their
termination after a change in control, as defined, of the Company. The
agreements provide, among other things, for a compensation payment equal to 2.99
times the annual compensation paid to the executive, as well as accelerated
vesting of any unvested options under the Company's stock option plans, in the
event of such executive's termination in connection with a change in control.
Smart Choice Class Action Lawsuit
In March 1999, prior to Crown's ownership interest in Smart Choice, certain
shareholders of Smart Choice filed two putative class action lawsuits against
Smart Choice and certain of Smart Choice's officers and directors in the United
States District Court for the Middle District of Florida (collectively, the
"Securities Actions"). The Securities Actions purport to be brought by
plaintiffs in their individual capacity and on behalf of the class of persons
who purchased or otherwise acquired Smart Choice publicly traded securities
between April 15, 1998 and February 26, 1999. These lawsuits were filed
following Smart Choice's announcement on February 26, 1999 that a preliminary
determination had been reached that the net income it had announced on February
10, 1999 for the fiscal year ended December 31, 1998 was likely overstated in a
material, undetermined amount. Each of the complaints assert claims for
violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule
10b-5 of the Securities and Exchange Commission as well as a claim for the
violation of Section 20(a) of the Exchange Act. The plaintiffs allege that the
defendants prepared and issued deceptive and materially false and misleading
statements to the public, which caused plaintiffs to purchase Smart Choice
securities at artificially inflated prices. The plaintiffs seek unspecified
damages. Smart Choice intends to contest these claims vigorously. The Company
cannot predict the ultimate resolution of these actions. The two class action
lawsuits have subsequently been consolidated.
Other Litigation
In the ordinary course of business, the Company has become a defendant in
various other types of legal proceedings. Although the Company cannot determine
at this time the amount of the ultimate exposure from these ordinary course of
business lawsuits, if any, management, based on the advice of counsel, does not
expect the final outcome of any of these actions, individually or in the
aggregate, to have a material adverse effect on the Company's financial
position, results of operations or cash flows.
Investment Fund
In November 1998 the Company committed $2.0 million to Monarch, a private
venture capital fund focusing on the investment in Internet related or emerging
technology companies. As of April 30, 2000 the Company had funded approximately
$1.6 million of its $2.0 million commitment. The Company expects it will fund
the remaining $400,000 over the next 12 months. Principals of Monarch assisted
the Company in its investment in Inktomi common stock (see Note D).
R - SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow disclosures for the fiscal years ended April 30, 2000,
1999 and 1998 are as follows:
Years Ended April 30,
2000 1999 1998
------------ ------------ ------------
Interest paid, net of amount capitalized $ 12,635,936 $ 6,637,102 $ 1,356,075
Income taxes paid, net 8,058,829 5,632,986 925,000
Inventory acquired in repossession 21,029,205 12,570,596 1,710,220
Paaco purchase agreement amendment (Note J) 4,452,597
Notes issued in the purchase of property and equipment 2,170,610
Issuance of notes in Car-Mart acquisition 7,500,000
Value of stock issued in acquisitions 4,423,973
Conversion of portion of CMN note to equity 2,516,493
36
37
In connection with the Company's purchase of Smart Choice, Car-Mart, Paaco
and Precision, assumed liabilities were as follows:
Smart Choice Car-Mart Paaco Precision
-------------- -------------- -------------- --------------
Fair value of assets acquired $ 103,166,990 $ 44,592,839 $ 46,391,955 $ 8,258,112
Cash paid for capital stock and costs (5,338,838) (34,514,029) (9,174,212) (4,032,389)
Note issued for capital stock (7,500,000)
Minority interests (2,987,000) (2,062,337) (128,461)
-------------- -------------- -------------- --------------
Liabilities assumed $ 94,841,152 $ 2,578,810 $ 35,155,406 $ 4,097,262
============== ============== ============== ==============
37
38
S - BUSINESS SEGMENTS
Operating results and other financial data are presented for the four
principal business segments of the Company for the years ended April 30, 2000,
1999 and 1998. These segments are categorized by the lines of business of the
Company. The segments include (i) automobile, which pertains to Car-Mart's,
Smart Choice's and Paaco's selling and financing of used vehicles, (ii) IBC's,
which pertains to Precision's rental and sales of intermediate bulk containers,
(iii) mortgage, which pertains to Concorde's originating and selling of
sub-prime mortgage loans, and (iv) other, which includes corporate operations,
Home Stay, Crown El Salvador, activities of relatively inactive subsidiaries and
the Company's equity investments in Atlantic Castings and CMN. The Company's
business segment data for the years ended April 30, 2000, 1999 and 1998 is as
follows (in thousands):
Year Ended April 30, 2000
----------------------------------------------------------------
Automobile IBC's Mortgage Other
------------ ------------ ------------ ------------
Revenues:
Sales and other $ 192,247 $ 7,113 $ 5,151 $ 2,849
Interest income 27,699 47 1,896 2,667
------------ ------------ ------------ ------------
Total 219,946 7,160 7,047 5,516
------------ ------------ ------------ ------------
Costs and expenses:
Cost of sales 112,977 2,827
Selling, gen. and admin. 39,177 2,107 5,304 7,793
Prov. for credit losses 35,474 32 250
Interest expense 12,707 584 1,378 1,239
Depreciation and amort. 900 996 198 1,474
------------ ------------ ------------ ------------
Total 201,235 6,546 7,130 10,506
------------ ------------ ------------ ------------
Security gains and other 11,368
------------ ------------ ------------ ------------
Income (loss) before taxes
and minority interests $ 18,711 $ 614 $ (83) $ 6,378
============ ============ ============ ============
Capital expenditures $ 2,804 $ 4,062 $ 87 $ 2,999
============ ============ ============ ============
Total assets $ 237,942 $ 16,540 $ 16,385 $ 79,551
============ ============ ============ ============
Year Ended April 30, 2000
------------------------------
Eliminations Consolidated
------------ ------------
Revenues:
Sales and other $ 207,360
Interest income $ (2,028) 30,281
------------ ------------
Total (2,028) 237,641
------------ ------------
Costs and expenses:
Cost of sales 115,804
Selling, gen. and admin. 54,381
Prov. for credit losses 35,756
Interest expense (2,028) 13,880
Depreciation and amort. 3,568
------------ ------------
Total (2,028) 223,389
------------ ------------
Security gains and other 11,368
------------ ------------
Income (loss) before taxes
and minority interests $ -- $ 25,620
============ ============
Capital expenditures $ -- $ 9,952
============ ============
Total assets $ (59,511) $ 290,907
============ ============
Year Ended April 30, 1999
----------------------------------------------------------------
Automobile IBC's Mortgage Other
------------ ------------ ------------ ------------
Revenues:
Sales and other $ 87,121 $ 5,237 $ 4,634 $ 973
Interest income 10,638 19 1,616 1,867
------------ ------------ ------------ ------------
Total 97,759 5,256 6,250 2,840
------------ ------------ ------------ ------------
Costs and expenses:
Cost of sales 55,265 1,865
Selling, gen. and admin. 19,354 1,716 4,498 5,216
Prov. for credit losses 15,251 83 164
Interest expense 5,771 377 1,187 250
Depreciation and amort. 433 707 161 1,098
------------ ------------ ------------ ------------
Total 96,074 4,748 6,010 6,564
------------ ------------ ------------ ------------
Security gains and other 27,249
------------ ------------ ------------ ------------
Income before taxes
and minority interests $ 1,685 $ 508 $ 240 $ 23,525
============ ============ ============ ============
Capital expenditures $ 897 $ 4,498 $ 324 $ 10,594
============ ============ ============ ============
Total assets $ 106,785 $ 14,031 $ 12,646 $ 77,316
============ ============ ============ ============
Year Ended April 30, 1999
------------------------------
Eliminations Consolidated
------------ ------------
Revenues:
Sales and other $ 97,965
Interest income $ (819) 13,321
------------ ------------
Total (819) 111,286
------------ ------------
Costs and expenses:
Cost of sales 57,130
Selling, gen. and admin. 30,784
Prov. for credit losses 15,498
Interest expense (819) 6,766
Depreciation and amort. 2,399
------------ ------------
Total (819) 112,577
------------ ------------
Security gains and other 27,249
------------ ------------
Income before taxes
and minority interests $ -- $ 25,958
============ ============
Capital expenditures $ -- $ 16,313
============ ============
Total assets $ (42,643) $ 168,135
============ ============
38
39
Year Ended April 30, 1998
----------------------------------------------------------------
Automobile IBC's Mortgage Other
------------ ------------ ------------ ------------
Revenues:
Sales and other $ 14,241 $ 1,351 $ 1,100 $ 1,105
Interest income 1,491 815 1,472
------------ ------------ ------------ ------------
Total 15,732 1,351 1,915 2,577
------------ ------------ ------------ ------------
Costs and expenses:
Cost of sales 8,472 628
Selling, gen. and admin. 3,363 235 2,042 2,928
Prov. for credit losses 1,744 4 52
Interest expense 942 81 586 14
Depreciation and amort. 64 122 42 574
------------ ------------ ------------ ------------
Total 14,585 1,070 2,722 3,516
------------ ------------ ------------ ------------
Security gains and other 965
------------ ------------ ------------ ------------
Income (loss) before taxes
and minority interests $ 1,147 $ 281 $ (807) $ 26
============ ============ ============ ============
Capital expenditures $ 1,648 $ 1,057 $ 568 $ 788
============ ============ ============ ============
Total assets $ 42,935 $ 9,337 $ 16,211 $ 44,376
============ ============ ============ ============
Year Ended April 30, 1998
------------------------------
Eliminations Consolidated
------------ ------------
Revenues:
Sales and other $ 17,797
Interest income $ (388) 3,390
------------ ------------
Total (388) 21,187
------------ ------------
Costs and expenses:
Cost of sales 9,100
Selling, gen. and admin. 8,568
Prov. for credit losses 1,800
Interest expense (388) 1,235
Depreciation and amort. 802
------------ ------------
Total (388) 21,505
------------ ------------
Security gains and other 965
------------ ------------
Income (loss) before taxes
and minority interests $ -- $ 647
============ ============
Capital expenditures $ -- $ 4,061
============ ============
Total assets $ (20,656) $ 92,203
============ ============
T - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
A summary of the Company's quarterly results of operations for the years
ended April 30, 2000 and 1999 are as follows (in thousands):
Year Ended April 30, 2000
------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------------ ------------ ------------ ------------- ------------
Revenue (a) $ 48,556 $ 45,530 $ 58,721 $ 84,834 $ 237,641
Net income (b) 2,578 7,606 1,480 3,172 14,836
Diluted EPS (b) .25 .76 .16 .36 1.54
Year Ended April 30, 1999
------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------------ ------------ ------------ ------------- ------------
Revenue (c) $ 21,070 $ 19,750 $ 23,289 $ 47,177 $111,286
Net income (d) 766 46 11,855 4,841 17,508
Diluted EPS (d) .07 .00 1.14 .45 1.68
a - During the third quarter in the year ended April 30, 2000, the Company
acquired Smart Choice which caused revenues to increase in the third and
fourth quarter of such year.
b - During the second quarter in the year ended April 30, 2000, the Company
sold its 49% interest in CMN resulting in a significant gain during such
period (see Note C).
c - Late in the third quarter in the year ended April 30, 1999, the Company
acquired Car-Mart which caused revenues to increase significantly in the
fourth quarter of such year.
d - During the third and fourth quarter in the year ended April 30, 1999,
the Company sold all of its shares of Inktomi Corporation common stock
which resulted in significant gains during such periods (see Note D).
39
40
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On October 20, 1999, the Company's Audit Committee unanimously approved the
dismissal of PricewaterhouseCoopers LLP ("PwC") as the Company's independent
accountants, and engaged Grant Thornton LLP as the Company's new independent
accountants. The Company's Audit Committee cited cost considerations as a
principal reason for the change.
PwC's report on the financial statements of the Company for the past two
fiscal years did not contain an adverse opinion or a disclaimer of opinion, and
was not qualified or modified as to uncertainty, audit scope or accounting
principles.
During the two most recent fiscal years and the subsequent interim period
preceding the dismissal of PwC, there were no disagreements with PwC on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of PwC, would have caused it to make reference to the subject
matter of the disagreements in connection with its report.
No event listed in Paragraphs (A) through (D) of Item 304 a(1)(v) of
Regulation S-K occurred within the Company's two most recent fiscal years and
the subsequent interim period preceding the dismissal of PwC except as follows:
During the course of its fiscal 1999 year end closing process, the Company
discovered certain accounting errors and irregularities at its Paaco
Automotive Group, Inc. and Premium Auto Acceptance Corporation subsidiaries
(collectively "Paaco"). As a result of such discovery PwC (i) expanded
their fiscal 1999 audit procedures at Paaco and (ii) advised the Company
that a material weakness existed in Paaco's financial reporting and
accounting processes. The Company has restructured Paaco's management
organization and has taken certain steps to ensure the integrity of Paaco's
accounting and reporting procedures. Daniel Chu, former President of Paaco,
resigned in July 1999.
The Audit Committee of the Board of Directors of the Company met with PwC
and discussed the subject matter of the audit procedures and advice of PwC
with respect to Paaco, and the Company authorized PwC to respond fully to
the inquiries of the Company's successor accountant concerning the subject
matter of PwC's audit procedures and advice regarding Paaco.
During the two most recent fiscal years and subsequent interim period
preceding the engagement of Grant Thornton LLP, the Company did not consult with
Grant Thornton LLP on (i) the application of accounting principles to a
specified transaction, (ii) the type of audit opinion that might be rendered on
the Company's financial statements, or (iii) any matter that was either the
subject of a disagreement or a reportable event.
PwC provided the Company with a letter indicating its agreement with the
foregoing statements.
40
41
PART III
Except as to information with respect to executive officers which is
contained in a separate heading under Item 1 to this Form 10-K, the information
required by Part III of Form 10-K is, pursuant to General Instruction G(3) of
Form 10-K, incorporated by reference from the Company's definitive proxy
statement to be filed pursuant to Regulation 14A for the Company's Annual
Meeting of Stockholders to be held in 2000. The Company will, within 120 days of
the end of its fiscal year, file with the Securities and Exchange Commission a
definitive proxy statement pursuant to Regulation 14A.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning directors and executive officers of the
registrant is set forth in the Proxy Statement to be delivered to stockholders
in connection with the Company's Annual Meeting of Stockholders to be held in
2000 (the "Proxy Statement") under the headings "Election of Directors" and
"Compliance with Section 16(a) of the Securities Exchange Act of 1934," which
information is incorporated herein by reference. The name, age and position of
each executive officer of the Company is set forth under the heading "Executive
Officers" in Item 1 of this report.
ITEM 11. EXECUTIVE COMPENSATION
The information concerning executive compensation is set forth in the 2000
Proxy Statement under the heading "Executive Compensation," which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information concerning security ownership of certain beneficial owners
and management is set forth in the 2000 Proxy Statement under the heading
"Security Ownership of Certain Beneficial Owners and Management," which
information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information concerning certain relationships and related transactions is
set forth in the 2000 Proxy Statement under the heading "Certain Transactions,"
which information is incorporated herein by reference.
41
42
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1). FINANCIAL STATEMENTS AND ACCOUNTANT'S REPORT
The following financial statements and accountants' reports are
included in Item 8 of this report:
Reports of Independent Accountants
Consolidated Balance Sheets as of April 30, 2000 and 1999
Consolidated Statements of Operations for the fiscal years
ended April 30, 2000, 1999 and 1998
Consolidated Statements of Comprehensive Income for the fiscal
years ended April 30, 2000, 1999, and 1998
Consolidated Statements of Cash Flows for the fiscal years
ended April 30, 2000, 1999 and 1998
Consolidated Statements of Stockholders' Equity for the fiscal
years ended April 30, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
(a)(2). FINANCIAL STATEMENT SCHEDULES
Schedule I - Condensed Financial Information of Crown Group, Inc.
(Parent Company Only)
The other financial statement schedules are omitted since the required
information is not present, or is not present in amounts sufficient to
require submission of the schedules, or because the information
required is included in the consolidated financial statements and notes
thereto.
(a)(3). EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
2.1 Stock Purchase Agreement dated as of December 1, 1998 by and among Bill
Fleeman Revocable Trust, Fleeman Charitable Remainder Annuity Trust and
certain other trusts and individuals, and Crown Group, Inc. (13)
2.2 Stock Purchase Agreement dated as of December 1, 1999 by and between
Smart Choice Automotive Group, Inc. and Crown Group, Inc. (15)
3.1 Articles of Incorporation of the Company (formerly SKAI, Inc.). (3)
3.1.1 Articles of Merger of the Company and SKAI, Inc. filed with the
Secretary of State of the State of Alabama on September 29, 1989. (3)
3.1.2 Articles of Merger of the Company and SKAI, Inc. filed with the
Secretary of State of the State of Texas on October 10, 1989. (3)
3.1.3 Articles of Amendment filed with the Secretary of State of the State of
Texas on October 7, 1993. (8)
3.1.4 Articles of Amendment filed with the Secretary of State of the State of
Texas on October 5, 1994. (8)
3.1.5 Articles of Amendment filed with the Secretary of State of the State of
Texas on October 2, 1997. (12)
3.2 By-Laws dated August 24, 1989. (4)
4.1 Specimen stock certificate. (9)
4.2 Loan and Security Agreement by and among Paaco Automotive Group, Inc.
and Premium Auto Acceptance Corporation (collectively, "Paaco") and
Finova Capital Corporation ("Finova") including the Eighth Amended and
Restated Schedule to Loan and Security Agreement and the Eighth Amended
and Restated Promissory Note. (12)
4.2.1 First Amended and Restated Loan and Security Agreement by and among
Finova and Paaco including the Schedule to First Amended and Restated
Loan and Security Agreement and the Twelfth Amended and Restated
Promissory Note. (14)
42
43
4.2.2 First Amended and Restated Schedule to First Amended and Restated Loan
and Security Agreement dated November 18, 1999 by and between Finova
and Paaco. (15)
4.3 Loan and Security Agreement dated January 15, 1999 by and among
BankAmerica Business Credit, Inc. and America's Car-Mart, Inc. (13)
4.4 Second Amended and Restated Loan and Security Agreement dated November
9, 1998 by and between Florida Finance Group, Inc., Liberty Finance
Company, Smart Choice Receivables Holding Company and First Choice Auto
Finance, Inc. (collectively, the "Smart Choice Subsidiaries") and
Finova. (15)
4.4.1 First Amended and Restated Schedule to Second Amended and Restated Loan
and Security Agreement dated November 18, 1999 by and between the Smart
Choice Subsidiaries and Finova. (15)
10.1 1986 Incentive Stock Option Plan. (2)
10.1.1 Amendment to 1986 Incentive Stock Option Plan adopted September 27,
1990. (5)
10.2 1991 Non-Qualified Stock Option Plan. (6)
10.3 1997 Stock Option Plan. (11)
10.4 Form of Indemnification Agreement between the Company and Edward R.
McMurphy, Mark D. Slusser, T.J. Falgout, III, David J. Douglas, J.
David Simmons, Gerald L. Adams, Robert J. Kehl, Gerard M. Jacobs and
Michael B. Cloud. (7)
10.5 Form of Severance Agreement dated July 2, 1996 between the Company and
Edward R. McMurphy, T.J. Falgout, III and Mark D. Slusser. (10)
21.1 Subsidiaries of Crown Group, Inc. (1)
23.1 Consent of Independent Certified Public Accountants (Grant Thornton
LLP). (1)
23.1.1 Consent of Independent Accountants (PricewaterhouseCoopers LLP). (1)
23.2 Report of Independent Accountants on Financial Statement Schedule
(Grant Thornton LLP). (1)
23.2.1 Report of Independent Accountants on Financial Statement Schedule
(PricewaterhouseCoopers LLP). (1)
24.1 Power of Attorney of Edward R. McMurphy. (1)
24.2 Power of Attorney of Tilman J. Falgout, III. (1)
24.3 Power of Attorney of David J. Douglas. (1)
24.4 Power of Attorney of J. David Simmons. (1)
24.5 Power of Attorney of Gerald L. Adams. (1)
24.6 Power of Attorney of Gerard M. Jacobs. (1)
24.7 Power of Attorney of Robert J. Kehl. (1)
27.1 Financial Data Schedule. (1)
- ----------
(1) Filed herewith.
(2) Previously filed as an Exhibit to the Company's Registration Statement
on Form 10, as amended, (No. 0-14939) and incorporated herein by
reference.
(3) Previously filed as an Exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended October 31, 1989 and incorporated
herein by reference.
(4) Previously filed as an Exhibit to the Company's Annual Report on Form
10-K for the year ended April 30, 1990 and incorporated herein by
reference.
43
44
(5) Previously filed as an Exhibit to the Company's Annual Report on Form
10-K for the year ended April 30, 1991 and incorporated herein by
reference.
(6) Previously filed as an Exhibit to the Company's Annual Report on Form
10-K for the year ended April 30, 1992 and incorporated herein by
reference.
(7) Previously filed as an Exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended July 31, 1993 and incorporated herein
by reference.
(8) Previously filed as an Exhibit to the Company's Registration Statement
on Form S-1, as amended, initially filed with the Securities and
Exchange Commission on May 31, 1994 (No. 33-79484) and incorporated
herein by reference.
(9) Previously filed as an Exhibit to the Company's Annual Report on Form
10-K for the year ended April 30, 1994 and incorporated herein by
reference.
(10) Previously filed as an Exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended January 31, 1997 and incorporated
herein by reference.
(11) Previously filed as an Exhibit to the Company's Registration Statement
on Form S-8, as amended, initially filed with the Securities and
Exchange Commission on October 20, 1997 (No. 333-38475) and
incorporated herein by reference.
(12) Previously filed as an Exhibit to the Company's Annual Report on Form
10-K for the year ended April 30, 1998 and incorporated herein by
reference.
(13) Previously filed as an Exhibit to the Company's Current Report on Form
8-K dated January 15, 1999 and incorporated herein by reference.
(14) Previously filed as an Exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended January 31, 1999 and incorporated
herein by reference.
(15) Previously filed as an Exhibit to the Company's Current Report on Form
8-K dated December 1, 1999 and incorporated herein by reference.
(b) REPORTS ON FORM 8-K
During the fiscal quarter ended April 30, 2000 the Company filed a report on
Form 8-K/A as follows:
FORM EVENT DATE DESCRIPTION OF EVENT
- ------------------- --------------------- ------------------------------------------------------------
8-K/A December 1, 1999 Amendment No. 1 to Form 8-K dated December 1, 1999 including
the financial statements of Smart Choice Automotive Group,
Inc. and pro-forma financial information of the Company.
44
45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CROWN GROUP, INC.
Dated: July 25, 2000 By: /s/ Edward R. McMurphy
-----------------------
Edward R. McMurphy
President and Chief Executive
Officer
(principal executive officer)
Dated: July 25, 2000 By: /s/ Mark D. Slusser
-----------------------
Mark D. Slusser
Vice President Finance and Chief
Financial Officer
(principal financial and accounting
officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
* Chairman of the Board, President July 25, 2000
- ------------------------------------- and Chief Executive Officer
Edward R. McMurphy
* Executive Vice President, July 25, 2000
- -------------------------------------- General Counsel and Director
Tilman J. Falgout, III
* Director July 25, 2000
- --------------------------------------
David J. Douglas
* Director July 25, 2000
- --------------------------------------
John David Simmons
* Director July 25, 2000
- --------------------------------------
Gerald L. Adams
* Director July 25, 2000
- --------------------------------------
Gerard M. Jacobs
* Director July 25, 2000
- --------------------------------------
Robert J. Kehl
* By /s/ Mark D. Slusser
---------------------------------
Mark D. Slusser
As Attorney-in-Fact
Pursuant to Powers of
Attorney filed herewith
45
46
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF CROWN GROUP, INC. (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEET
April 30,
---------------------------
2000 1999
------------ ------------
Assets:
Cash and cash equivalents $ 5,803,702 $ 12,660,789
Investments 2,503,146 694,341
Receivables from subsidiaries 19,556,771 12,232,940
Investment in subsidiaries 36,709,601 26,584,853
Investment in CMN and related assets, net 5,167,161
Goodwill, net 7,283,551 10,234,197
Other 5,195,313 2,146,320
------------ ------------
$ 77,052,084 $ 69,720,601
============ ============
Liabilities and stockholders' equity:
Accounts payable and accrued liabilities $ 1,761,012 $ 1,233,747
Income taxes payable 6,463,863 3,301,683
Payables to subsidiaries 2,641,637
Debt 9,816,000 8,658,000
Deferred tax liability 143,994 826,650
------------ ------------
Total liabilities 18,184,869 16,661,717
------------ ------------
Stockholders' equity 58,867,215 53,058,884
------------ ------------
$ 77,052,084 $ 69,720,601
============ ============
CONDENSED STATEMENTS OF OPERATION
Years Ended April 30,
------------------------------------------
2000 1999 1998
------------ ------------ ------------
Revenues:
Interest income $ 638,687 $ 1,038,645 $ 1,081,583
Interest income from subsidiaries 2,028,413 818,831 387,615
Interest, fees and rentals from CMN 694,146 680,697
Other 239,346 388,827
------------ ------------ ------------
2,667,100 2,790,968 2,538,722
------------ ------------ ------------
Costs and expenses:
Selling, general and administrative 4,677,799 4,916,797 2,924,675
Interest expense 788,375 211,210 13,444
Depreciation and amortization 833,405 1,079,564 574,568
------------ ------------ ------------
6,299,579 6,207,571 3,512,687
------------ ------------ ------------
Other income:
Equity in earnings of unconsolidated subsidiaries 506,775 1,259,734 926,598
Equity in earnings of subsidiaries 9,600,315 1,696,385 10,980
Gain on sale of securities, net 10,861,100 25,989,130 38,258
------------ ------------ ------------
20,968,190 28,945,249 975,836
------------ ------------ ------------
Income before income taxes 17,335,711 25,528,646 1,871
Provision (benefit) for income taxes 2,499,292 8,020,236 (365,295)
------------ ------------ ------------
Net income $ 14,836,419 $ 17,508,410 $ 367,166
============ ============ ============
See accompanying notes to condensed financial information.
46
47
SCHEDULE I (CONTINUED)
CROWN GROUP, INC. (PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
Years Ended April 30,
--------------------------------------------
2000 1999 1998
------------ ------------ ------------
Operating activities:
Net income $ 14,836,419 $ 17,508,410 $ 367,166
Adjustments to reconcile net income to net cash used
by operating activities:
Depreciation and amortization 833,405 1,079,564 574,568
Amortization of finance receivable discounts (376,074) (825,198) (252,765)
Deferred income taxes (682,656) 778,307 305,341
(Gain) loss on sale of assets 11,188 (136,196) (373,999)
Gain on sale of securities (10,861,100) (25,989,130) (38,258)
Equity in earnings of unconsolidated subsidiaries (506,775) (1,259,734) (926,598)
Equity in earnings of subsidiaries (9,600,315) (1,696,385) (10,980)
Changes in assets and liabilities, net of transactions:
Other (1,190,001) 756,298 86,139
Accounts payable and accrued liabilities 454,842 398,515 (169,203)
Income taxes payable 3,162,180 3,238,210 (271,525)
------------ ------------ ------------
Net cash used by operating activities (3,918,887) (6,147,339) (710,114)
------------ ------------ ------------
Investing activities:
Purchase of property and equipment (291,426) (3,475,908) (788,784)
Sale of property and equipment 1,043,711 2,191,861
Purchase of securities (1,808,805) (6,643,496) (5,551,714)
Sale of securities 16,762,325 34,449,806 3,772,792
Advances to subsidiaries (18,306,514) (2,213,221) (4,618,220)
Repayments from subsidiaries 11,582,682 5,350,000 13,732,772
Dividends and note collections from CMN 306,487 2,389,152 1,050,750
Investment in unconsolidated entities (1,000,341)
Formation of Crown El Salvador (1,207,000)
Formation of Home Stay (640,000)
Formation of Concorde (2,000,800)
Purchase of Car-Mart (10,005,863)
Purchase of CMN and related assets (7,000,001)
Purchase of Paaco (3,431,250) (9,174,212)
Purchase of Precision and M&S (2,000) (4,032,389)
Purchase of Smart Choice (5,338,838)
------------ ------------ ------------
Net cash provided (used) by investing activities 2,905,911 14,613,590 (12,417,945)
------------ ------------ ------------
Financing activities:
Issuance of common stock 93,282
Issuance of debt 1,158,000
Purchase of common stock (5,844,111) (1,994,323) (3,052,322)
------------ ------------ ------------
Net cash used by financing activities (5,844,111) (836,323) (2,959,040)
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents (6,857,087) 7,629,928 (16,087,099)
Cash and cash equivalents at: Beginning of year 12,660,789 5,030,861 21,117,960
------------ ------------ ------------
End of year $ 5,803,702 $ 12,660,789 $ 5,030,861
============ ============ ============
See accompanying notes to condensed financial information.
47
48
SCHEDULE I (CONTINUED)
CROWN GROUP, INC. (PARENT COMPANY ONLY)
NOTES TO CONDENSED FINANCIAL INFORMATION
A - GUARANTEES
Crown Group, Inc. ("Crown") has made the following guarantees with respect
to its subsidiaries:
Amount
Facility Drawn at Maximum
Debtor Amount April 30, 2000 Guarantee
------ -------- -------------- ---------
Paaco/Smart Choice $ 160,000,000 $ 130,367,005 $ 5,000,000
Car-Mart 30,000,000 27,502,614 10,000,000
Concorde 20,000,000 9,839,067 5,000,000
B - ELIMINATION OF BALANCES AND TRANSACTIONS WITH SUBSIDIARIES
As of April 30, 2000 and 1999 the following balances were eliminated in the
consolidated financial statements of Crown:
April 30,
----------------------------------------
2000 1999
----------------- -----------------
Receivables from subsidiaries $ 19,556,771 $ 12,232,940
Investments in subsidiaries 36,709,601 26,584,853
Payables to subsidiaries 2,641,637
For the years ended April 30, 2000, 1999 and 1998 interest income in the
amounts of $2,028,413, $818,831 and $387,615, respectively, was eliminated
in the consolidated financial statements of Crown.
C - DEBT
A summary of debt as of April 30, 2000 and 1999 is as follows:
------------------------------------------------------------------------------------------------
Interest Primary Balance at April 30,
Lender Rate Maturity Collateral 2000 1999
-------------- ----------- ---------- ------------ ------------ ------------
Car-Mart sellers 8.50% Jan 2004 Unsecured $ 7,500,000 $ 7,500,000
Bank of America 7.00% Apr 2001 Equipment 2,316,000 1,158,000
------------ ------------
$ 9,816,000 $ 8,658,000
============ ============
A summary of future minimum principal payments required under the
aforementioned debt as of April 30, 2000 is as follows:
Years Ending
April 30, Amount
------------- ------------
2001 $ 2,316,000
2004 7,500,000
------------
$ 9,816,000
============
D - RECLASSIFICATIONS
Certain prior year amounts in the accompanying financial statements have
been reclassified to conform to the fiscal 2000 presentation.
48
49
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------
21.1 Subsidiaries of Crown Group, Inc.
23.1 Consent of Independent Certified Public Accountants (Grant
Thornton LLP).
23.1.1 Consent of Independent Accountants (PricewaterhouseCoopers
LLP).
23.2 Report of Independent Accountants on Financial Statement
Schedule (Grant Thornton LLP).
23.2.1 Report of Independent Accountants on Financial Statement
Schedule (PricewaterhouseCoopers LLP).
24.1 Power of Attorney of Edward R. McMurphy.
24.2 Power of Attorney of Tilman J. Falgout, III.
24.3 Power of Attorney of David J. Douglas.
24.4 Power of Attorney of J. David Simmons.
24.5 Power of Attorney of Gerald L. Adams.
24.6 Power of Attorney of Gerard M. Jacobs.
24.7 Power of Attorney of Robert J. Kehl.
27.1 Financial Data Schedule.