-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E+VZMQv2wkHy8RANjqTUqn3mg4fLqAagjLwXQDZ0TQ+D/p4WUFzM9YEzKIbJvDc/ 7OFazNBuF/B7G8pZj+zRiQ== /in/edgar/work/20000727/0000950134-00-005980/0000950134-00-005980.txt : 20000921 0000950134-00-005980.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950134-00-005980 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20000430 FILED AS OF DATE: 20000727 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CROWN GROUP INC /TX/ CENTRAL INDEX KEY: 0000799850 STANDARD INDUSTRIAL CLASSIFICATION: [7990 ] IRS NUMBER: 630851141 STATE OF INCORPORATION: TX FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-14939 FILM NUMBER: 679605 BUSINESS ADDRESS: STREET 1: 4040 N. MACARTHUR BLVD. STREET 2: SUITE 100 CITY: IRVING STATE: TX ZIP: 75038 BUSINESS PHONE: 9727173423 MAIL ADDRESS: STREET 1: 4040 N. MACARTHUR BLVD. STREET 2: SUITE 100 CITY: IRVING STATE: TX ZIP: 75038 FORMER COMPANY: FORMER CONFORMED NAME: CROWN CASINO CORP DATE OF NAME CHANGE: 19931104 FORMER COMPANY: FORMER CONFORMED NAME: SKYLINK AMERICA INC DATE OF NAME CHANGE: 19920703 10-K 1 e10-k.txt FORM 10-K FOR FISCAL YEAR END APRIL 30, 2000 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- 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 ----- 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. 2 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). 2 3 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 -------------- ------------ 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. 3 4 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. 4 5 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. 5 6 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 -------- -------- -------- -------- -------- -------- $ 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. 6 7 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 8 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 9 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. 9 10 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. 10 11 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
11 12 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 13 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 ========== ========== ========== ========== ========== ==========
13 14
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 15 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 ============
30 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.
EX-21.1 2 ex21-1.txt SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21.1 SUBSIDIARIES OF CROWN GROUP, INC. Crown Group of Nevada, Inc. Crown Delaware Investments Corp. Precision IBC, Inc. Concorde Acceptance Corporation America's Car-Mart, Inc. CG Incorporated, SA de CV Smart Choice Automotive Group, Inc. Subsidiaries of Smart Choice Automotive Group, Inc.: Paaco Automotive Group, Inc. Premium Auto Acceptance Corporation Dealer Development Services, Inc. Dealers Insurance Services, Inc. First Choice Auto Finance, Inc. Smart Choice Receivables Holding Company Suncoast Car Mart, Inc. Florida Finance Group, Inc. Team Automobile Sales & Finance, Inc. Easy Pay Insurance, Inc. First Choice Melbourne 1, Inc. SC Holdings, Inc. First Choice Auto Services, Inc. EX-23.1 3 ex23-1.txt CONSENT OF GRANT THORNTON LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our reports dated July 7, 2000, accompanying the consolidated financial statements and schedule included in the Annual Report of Crown Group, Inc. for the year ended April 30, 2000. We hereby consent to the incorporation by reference of said reports in the Registration Statements of Crown Group, Inc. on Form S-8 (File Nos. 33-59519, 33-59527, 33-41960, 33-22590, 33-71090, and 333-38475). Dallas, Texas Grant Thornton LLP July 25, 2000 EX-23.1.1 4 ex23-1_1.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP 1 EXHIBIT 23.1.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the registration statements on Form S-8 (File Nos. 33-59519, 33-59527, 33-41960, 33-22590, 33-71090 and 333-38475) of Crown Group, Inc. and subsidiaries of our report dated August 12, 1999, relating to the consolidated financial statements and financial statement schedule, which appears in this Form 10-K. Dallas, Texas PricewaterhouseCoopers LLP July 25, 2000 EX-23.2 5 ex23-2.txt REPORT ON FINANCIAL STATEMENT - GRANT THORNTON LLP 1 EXHIBIT 23.2 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE Board of Directors Crown Group, Inc. In connection with our audit of the consolidated financial statements of Crown Group, Inc. and Subsidiaries referred to in our report dated July 7, 2000, which is included in this Annual Report on Form 10-K, we have also audited Schedule I as of and for the year ended April 30, 2000. In our opinion, this schedule presents fairly, in all material respects, the information required to be set forth therein. Dallas, Texas Grant Thornton LLP July 7, 2000 EX-23.2.1 6 ex23-2_1.txt REPORT ON FIN. STATEMT. - PRICEWATERHOUSECOOPERS 1 EXHIBIT 23.2.1 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE Board of Directors Crown Group, Inc. Our audits of the consolidated financial statements referred to in our report dated August 12, 1999, appearing in the 2000 Annual Report to Shareholders of Crown Group, Inc. (which report and consolidated financial statements are included in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, the financial statement schedule, presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Dallas, Texas PricewaterhouseCoopers LLP August 12, 1999 EX-24.1 7 ex24-1.txt POWER OF ATTORNEY OF EDWARD R. MCMURPHY 1 EXHIBIT 24.1 STATE OF TEXAS ) COUNTY OF DALLAS ) POWER OF ATTORNEY Know all men by these presents, that I, EDWARD R. MCMURPHY, a Director of CROWN GROUP, INC., a Texas corporation, do constitute and appoint MARK D. SLUSSER my true and lawful attorney-in-fact, with full power of substitution, for me in any and all capacities, to sign, pursuant to the requirements of the Securities and Exchange Act of 1934, the Annual Report on Form 10-K for CROWN GROUP, INC. for the fiscal year ended April 30, 2000 and to file the same with the Securities and Exchange Commission and National Association of Securities Dealers, Inc., together with all exhibits thereto and other documents in connection therewith, and to sign on my behalf and in my stead, in any and all capacities, any amendments to said Annual Report, incorporating such changes as said attorney-in-fact deems appropriate, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes may do or cause to be done by virtue hereof. In witness whereof, I have hereunto set my hand and seal this 18th day of July, 2000. /s/ Edward R. McMurphy ---------------------- EDWARD R. MCMURPHY ACKNOWLEDGMENT Before me this 18th day of July, 2000, came EDWARD R. MCMURPHY, personally known to me, who in my presence did sign and seal the above and foregoing Power of Attorney and acknowledged the same as his true act and deed. /s/ Jeanna Couch ---------------------- NOTARY PUBLIC EX-24.2 8 ex24-2.txt POWER OF ATTORNEY OF TILMAN J. FALGOUT, III. 1 EXHIBIT 24.2 STATE OF TEXAS ) COUNTY OF DALLAS ) POWER OF ATTORNEY Know all men by these presents, that I, TILMAN J. FALGOUT, III, a Director of CROWN GROUP, INC., a Texas corporation, do constitute and appoint MARK D. SLUSSER and EDWARD R. McMURPHY my true and lawful attorneys-in-fact, with full power of substitution, for me in any and all capacities, to sign, pursuant to the requirements of the Securities and Exchange Act of 1934, the Annual Report on Form 10-K for CROWN GROUP, INC. for the fiscal year ended April 30, 2000 and to file the same with the Securities and Exchange Commission and National Association of Securities Dealers, Inc., together with all exhibits thereto and other documents in connection therewith, and to sign on my behalf and in my stead, in any and all capacities, any amendments to said Annual Report, incorporating such changes as said attorneys-in-fact deem appropriate, hereby ratifying and confirming all that said attorneys-in-fact, or their substitute or substitutes may do or cause to be done by virtue hereof. In witness whereof, I have hereunto set my hand and seal this 20th day of July, 2000. /s/ Tilman J. Falgout, III -------------------------- TILMAN J. FALGOUT, III ACKNOWLEDGMENT Before me this 20th day of July, 2000, came TILMAN J. FALGOUT, III, personally known to me, who in my presence did sign and seal the above and foregoing Power of Attorney and acknowledged the same as his true act and deed. /s/ April May -------------------------- NOTARY PUBLIC EX-24.3 9 ex24-3.txt POWER OF ATTORNEY OF DAVID J. DOUGLAS 1 EXHIBIT 24.3 STATE OF TEXAS ) COUNTY OF DALLAS ) POWER OF ATTORNEY Know all men by these presents, that I, DAVID J. DOUGLAS, a Director of CROWN GROUP, INC., a Texas corporation, do constitute and appoint MARK D. SLUSSER and EDWARD R. McMURPHY my true and lawful attorneys-in-fact, with full power of substitution, for me in any and all capacities, to sign, pursuant to the requirements of the Securities and Exchange Act of 1934, the Annual Report on Form 10-K for CROWN GROUP, INC. for the fiscal year ended April 30, 2000 and to file the same with the Securities and Exchange Commission and National Association of Securities Dealers, Inc., together with all exhibits thereto and other documents in connection therewith, and to sign on my behalf and in my stead, in any and all capacities, any amendments to said Annual Report, incorporating such changes as said attorneys-in-fact deem appropriate, hereby ratifying and confirming all that said attorneys-in-fact, or their substitute or substitutes may do or cause to be done by virtue hereof. In witness whereof, I have hereunto set my hand and seal this 20th day of July, 2000. /s/ David J. Douglas -------------------- DAVID J. DOUGLAS ACKNOWLEDGMENT Before me this 20th day of July, 2000, came DAVID J. DOUGLAS, personally known to me, who in my presence did sign and seal the above and foregoing Power of Attorney and acknowledged the same as his true act and deed. /s/ April May -------------------- NOTARY PUBLIC EX-24.4 10 ex24-4.txt POWER OF ATTORNEY OF J. DAVID SIMMONS 1 EXHIBIT 24.4 STATE OF ALABAMA ) COUNTY OF BALDWIN ) POWER OF ATTORNEY Know all men by these presents, that I, J. DAVID SIMMONS, a Director of CROWN GROUP, INC., a Texas corporation, do constitute and appoint MARK D. SLUSSER and EDWARD R. McMURPHY my true and lawful attorneys-in-fact, with full power of substitution, for me in any and all capacities, to sign, pursuant to the requirements of the Securities and Exchange Act of 1934, the Annual Report on Form 10-K for CROWN GROUP, INC. for the fiscal year ended April 30, 2000 and to file the same with the Securities and Exchange Commission and National Association of Securities Dealers, Inc., together with all exhibits thereto and other documents in connection therewith, and to sign on my behalf and in my stead, in any and all capacities, any amendments to said Annual Report, incorporating such changes as said attorneys-in-fact deem appropriate, hereby ratifying and confirming all that said attorneys-in-fact, or their substitute or substitutes may do or cause to be done by virtue hereof. In witness whereof, I have hereunto set my hand and seal this 20th day of July, 2000. /s/ J. David Simmons -------------------- J. DAVID SIMMONS ACKNOWLEDGMENT Before me this 20th day of July, 2000, came J. DAVID SIMMONS, personally known to me, who in my presence did sign and seal the above and foregoing Power of Attorney and acknowledged the same as his true act and deed. /s/ Ramona Walters -------------------- NOTARY PUBLIC EX-24.5 11 ex24-5.txt POWER OF ATTORNEY OF GERALD L. ADAMS 1 EXHIBIT 24.5 STATE OF TEXAS ) COUNTY OF DALLAS ) POWER OF ATTORNEY Know all men by these presents, that I, GERALD L. ADAMS, a Director of CROWN GROUP, INC., a Texas corporation, do constitute and appoint MARK D. SLUSSER and EDWARD R. McMURPHY my true and lawful attorneys-in-fact, with full power of substitution, for me in any and all capacities, to sign, pursuant to the requirements of the Securities and Exchange Act of 1934, the Annual Report on Form 10-K for CROWN GROUP, INC. for the fiscal year ended April 30, 2000 and to file the same with the Securities and Exchange Commission and National Association of Securities Dealers, Inc., together with all exhibits thereto and other documents in connection therewith, and to sign on my behalf and in my stead, in any and all capacities, any amendments to said Annual Report, incorporating such changes as said attorneys-in-fact deem appropriate, hereby ratifying and confirming all that said attorneys-in-fact, or their substitute or substitutes may do or cause to be done by virtue hereof. In witness whereof, I have hereunto set my hand and seal this 24th day of July, 2000. /s/ Gerald L. Adams ------------------- GERALD L. ADAMS ACKNOWLEDGMENT Before me this 24th day of July, 2000, came GERALD L. ADAMS, personally known to me, who in my presence did sign and seal the above and foregoing Power of Attorney and acknowledged the same as his true act and deed. /s/ Jeanna Couch ------------------- NOTARY PUBLIC EX-24.6 12 ex24-6.txt POWER OF ATTORNEY OF GERALD M. JACOBS 1 EXHIBIT 24.6 STATE OF TEXAS ) COUNTY OF DALLAS ) POWER OF ATTORNEY Know all men by these presents, that I, GERARD M. JACOBS, a Director of CROWN GROUP, INC., a Texas corporation, do constitute and appoint MARK D. SLUSSER and EDWARD R. McMURPHY my true and lawful attorneys-in-fact, with full power of substitution, for me in any and all capacities, to sign, pursuant to the requirements of the Securities and Exchange Act of 1934, the Annual Report on Form 10-K for CROWN GROUP, INC. for the fiscal year ended April 30, 2000 and to file the same with the Securities and Exchange Commission and National Association of Securities Dealers, Inc., together with all exhibits thereto and other documents in connection therewith, and to sign on my behalf and in my stead, in any and all capacities, any amendments to said Annual Report, incorporating such changes as said attorneys-in-fact deem appropriate, hereby ratifying and confirming all that said attorneys-in-fact, or their substitute or substitutes may do or cause to be done by virtue hereof. In witness whereof, I have hereunto set my hand and seal this 20th day of July, 2000. /s/ Gerard M. Jacobs -------------------- GERARD M. JACOBS ACKNOWLEDGMENT Before me this 20th day of July, 2000, came GERARD M. JACOBS, personally known to me, who in my presence did sign and seal the above and foregoing Power of Attorney and acknowledged the same as his true act and deed. /s/ April May -------------------- NOTARY PUBLIC EX-24.7 13 ex24-7.txt POWER OF ATTORNEY OF ROBERT J. KEHL 1 EXHIBIT 24.7 STATE OF TEXAS ) COUNTY OF DALLAS ) POWER OF ATTORNEY Know all men by these presents, that I, ROBERT J. KEHL, a Director of CROWN GROUP, INC., a Texas corporation, do constitute and appoint MARK D. SLUSSER and EDWARD R. McMURPHY my true and lawful attorneys-in-fact, with full power of substitution, for me in any and all capacities, to sign, pursuant to the requirements of the Securities and Exchange Act of 1934, the Annual Report on Form 10-K for CROWN GROUP, INC. for the fiscal year ended April 30, 2000 and to file the same with the Securities and Exchange Commission and National Association of Securities Dealers, Inc., together with all exhibits thereto and other documents in connection therewith, and to sign on my behalf and in my stead, in any and all capacities, any amendments to said Annual Report, incorporating such changes as said attorneys-in-fact deem appropriate, hereby ratifying and confirming all that said attorneys-in-fact, or their substitute or substitutes may do or cause to be done by virtue hereof. In witness whereof, I have hereunto set my hand and seal this 20th day of July, 2000. /s/ Robert J. Kehl ------------------ ROBERT J. KEHL ACKNOWLEDGMENT Before me this 20th day of July, 2000, came ROBERT J. KEHL, personally known to me, who in my presence did sign and seal the above and foregoing Power of Attorney and acknowledged the same as his true act and deed. /s/ April May ------------------ NOTARY PUBLIC EX-27.1 14 ex27-1.txt FINANCIAL DATA SCHEDULE
5 12-MOS APR-30-2000 APR-30-2000 9,843,310 0 247,350,152 (44,326,685) 14,948,365 0 31,685,396 (3,949,291) 290,907,319 0 191,051,603 82,478 0 0 58,784,737 290,907,319 195,324,265 237,640,826 115,803,719 0 57,948,962 35,756,056 13,879,737 25,620,227 10,105,451 14,836,419 0 0 0 14,836,419 1.61 1.54
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