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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: Commission file number:
APRIL 30, 2001 0-14939
CROWN GROUP, INC.
(Exact name of registrant as specified in its charter)
<Table>
TEXAS 63-0851141
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</Table>
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. [X]
As of August 6, 2001 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
(4,429,541 shares) was $15,946,348.
As of August 6, 2001 there were 6,735,367 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 2001 are incorporated by reference into
Part III of this report, with the exception of information regarding executive
officers required under Item 10 of Part III, which information is included in
Part I, Item 1.
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PART I
ITEM 1. BUSINESS
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for certain forward-looking statements. Certain information included in this
Annual Report on Form 10-K contains, and other materials filed or to be filed by
the Company with the Securities and Exchange Commission (as well as information
included in oral statements or other written statements made or to be made by
the Company or its management) contain or will contain, forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, and Section 27A of the Securities Act of 1933, as amended. The
words "believe," "expect," "anticipate," "estimate," "project" and similar
expressions identify forward-looking statements, which speak only as of the date
the statement was made. The Company undertakes no obligation to publicly update
or revise any forward-looking statements. Such forward-looking statements
address, among other things, the Company's current focus on the development and
expansion of its automobile businesses, and its goal of maximizing its return on
its other businesses and investments. 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, competition, dependence on
existing management, economic conditions (particularly in the states of Texas,
Arkansas and Florida), changes in 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 primarily in the business of selling and financing used
automobiles and trucks principally to consumers with limited or damaged credit
histories. In addition, Crown also has investments in other industries. As of
April 30, 2001 Crown owned a 95% fully diluted ownership interest in 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, 2001 Crown
also owned (i) 50% 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 prime and sub-prime mortgage
lender, and (iii) minority positions in certain other entities that operate in
the high technology industry or focus on Internet commerce. The Company is
presently focusing on (i) the development and expansion of its automobile
businesses, and (ii) maximizing its return on its other businesses and
investments. For a summary of the Company's operating results and other
financial data by business segment, see Note U 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 had also made business
investments that it believed had strong capital gain potential. As a result,
from June 1997 through December 1999 the Company made a number of acquisitions,
investments and business formations, some of which have since been sold,
including two at substantial gains (Inktomi - $26.4 million pretax gain and
Casino Magic Neuquen - $10.7 million pretax gain). Also, during this period the
Company acquired three companies that sell and finance used vehicles (Car-Mart,
Paaco and Smart Choice), which business has now become the principal focus of
the Company.
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USED CAR SALES AND FINANCE (CAR-MART, PAACO AND SMART CHOICE)
GENERAL
Car-Mart, Paaco and Smart Choice operate separate vertically integrated used
car sales and finance businesses that 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 (Paaco only) and sale of used cars and
trucks, (ii) the underwriting, financing and servicing of the related retail
installment contracts, and, if necessary, (iii) the repossession and remarketing
of the vehicles. While Car-Mart, Paaco and Smart Choice are in the same business
and share a number of operating characteristics, the companies are different in
many respects. Paaco and Smart Choice operate primarily in larger metropolitan
areas (such as Dallas and Houston, Texas and Orlando and Tampa, Florida),
whereas Car-Mart tends to operate in smaller communities in the central United
States. Paaco reconditions almost every vehicle prior to sale whereas Car-Mart
and Smart Choice do not. Paaco focuses on the Hispanic market while Car-Mart and
Smart Choice do not focus on any particular customer group. Paaco also tends to
sell newer and more expensive vehicles than Car-Mart or Smart Choice. Presented
below is a summary of certain information with respect to Car-Mart, Paaco and
Smart Choice as of April 30, 2001.
<Table>
<Caption>
Car-Mart Paaco Smart Choice
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Founded 1981 1992 1997
Dealerships (excluding satellite locations) 36 12 10
Location of dealerships AR, OK, TX, MO, IN, KS, KY TX FL
Customer accounts 20,736 11,591 12,321
Employees 314 396 245
</Table>
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, Paaco 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.
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 traditional lending sources such 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, Paaco 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, the
Company's buyers perform an inspection and, as permitted, test drive each
vehicle. The identity of the buyer responsible for each vehicle acquired is
tracked through the Company's computer systems which allows management 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.
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Reconditioning
Paaco reconditions almost every vehicle it purchases at its centralized
reconditioning center in Grand Prairie, Texas 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,
this facility is used to perform service work on vehicles for customers pursuant
to service contracts that are provided with most of the vehicles sold by Paaco.
In general, Car-Mart and Smart Choice perform little or no reconditioning on
the vehicles they purchase. Their 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 and Smart Choice provides 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. Similarly, Smart Choice customers have their vehicles serviced at third
party service centers or one of Smart Choice's service facilities. Over 90% of
Car-Mart customers elect to purchase a service contract when purchasing a
vehicle.
Selling, Marketing and Advertising
Paaco and Smart Choice dealerships are typically staffed with a manager, up
to six sales personnel, and others which may include 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 typically maintains an
inventory of 35 to 75 cars and trucks. On a regular basis, Paaco and Smart
Choice sales personnel attend training classes where each phase of the sales
process is rehearsed. Sales personnel are paid principally on a commission
basis.
In addition to television and radio advertising, Paaco and Smart Choice
conduct a variety of promotional activities including a sales referral program,
occasional live entertainment at their dealerships, and the 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 sales associate, 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 typically maintains an inventory of 15
to 50 vehicles depending on the maturity of the dealership. Selling is done
principally by the manager, assistant manager, management trainee or 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 from existing customer referrals.
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.
Underwriting and Finance
Each of Car-Mart, Paaco 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, bi-weekly or semi-monthly 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, in the
case of Car-Mart, or centralized buy-room personnel in the case of Paaco and
Smart Choice, who make 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 these decisions are constantly monitored by Company
personnel through the review of finance receivables aging and repossession
reports which are stratified by dealership. In addition, Company personnel
periodically review credit files to evaluate the soundness of these decisions,
and ensure that 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, a centralized collection facility. Each of Car-Mart, Paaco 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.
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If a customer becomes seriously delinquent in his or her 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 or 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
Paaco), 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, and (iii) 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. Although there are a number of large companies
in this industry, including Car Max and Auto Nation U.S.A., management believes
these operations do not provide significant competition for Car-Mart, Paaco or
Smart Choice as they tend to sell higher priced vehicles to consumers with
stronger credit histories. Car-Mart, Paaco and Smart Choice compete principally
with other independent Buy Here-Pay Here dealers, and to a lesser degree with
(i) the used vehicle retail operations 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 Paaco, 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
The Company'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.
However, 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's
used vehicle sales and finance business.
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MORTGAGE LENDING (CONCORDE)
GENERAL
Concorde is in the business of originating, purchasing, servicing and selling
prime and 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 or prime 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
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 originates mortgage loans through a network of independent mortgage
brokers and directly through Internet, telemarketing and direct mail programs.
Concorde also purchases 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, 2001, 2000 and 1999 is as follows
(dollars in millions):
<Table>
<Caption>
Fiscal 2001 Fiscal 2000 Fiscal 1999
----------------- ----------------- -----------------
Direct $ 44.2 23.1% $ 28.2 18.7% $ 38.1 34.1%
Wholesale brokers 140.6 73.7 119.4 78.9 64.5 57.7
Correspondents 6.1 3.2 3.7 2.4 9.1 8.2
------ ------ ------ ------ ------ ------
$190.9 100.0% $151.3 100.0% $111.7 100.0%
====== ====== ====== ====== ====== ======
</Table>
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 being sold
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. 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.
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 a 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
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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, vary depending
upon the classification of the borrower. Borrowers with lower credit ratings
generally pay higher interest rates and loan origination fees. 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. 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.
Although foreclosure sales are typically public sales, frequently no third-party
purchaser bids in excess of the lender's lien. 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 on a wholesale basis to third party
institutions on a limited recourse basis for cash, with servicing rights
released approximately 60 days from the date of sale. 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.
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 (including laws
prohibiting lenders from discriminating against applicants on the basis of race,
color, sex, age or marital status), 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 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
Concorde 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 the
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 industry are substantially larger and
have considerably greater financial, technical and marketing resources than
Concorde.
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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. 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 at April 30,
2001 had approximately 10,200 principally stainless steel tanks in its rental
fleet.
OPERATIONS
Precision's portable tanks are manufactured according to its specifications
primarily 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.
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 come 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.
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 carbon steel drums. Precision's 350 and 550 gallon tanks are more
expensive than carbon steel 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 carbon steel drums.
EMPLOYEES
As of April 30, 2001 the Company, including its consolidated subsidiaries,
employed approximately 1,060 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.
8
9
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
<Table>
<Caption>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
Edward R. McMurphy...................................50 Chairman of the Board,
President and Chief Executive Officer
Tilman J. Falgout, III...............................52 Executive Vice President,
General Counsel and Director
Mark D. Slusser......................................43 Chief Financial Officer,
Vice President Finance and Secretary
</Table>
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, 2001 the Company leased substantially all of its facilities,
including dealerships, collection facilities that service dealership portfolios,
and the Company's corporate offices. These facilities are located principally in
the states of Arkansas, Florida, Oklahoma and Texas. 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 the plaintiffs to purchase Smart Choice
securities at artificially inflated prices. In April 2001 Smart Choice and the
plaintiffs representatives executed an agreement whereby Smart Choice will pay
$2.5 million in full settlement of the above described actions. All of the $2.5
million settlement amount has been funded by Smart Choice's insurance carrier.
The agreement is subject to final approval of the court.
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, 2001.
9
10
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 NASDAQ National
Market 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.
<Table>
<Caption>
Fiscal 2001 Fiscal 2000
High Low High Low
---- --- ---- ---
First quarter $ 5.50 $ 4.75 $ 6.50 $ 4.00
Second quarter 5.50 4.44 5.50 4.00
Third quarter 5.00 3.63 5.50 4.38
Fourth quarter 4.19 3.51 6.00 3.88
</Table>
As of July 26, 2001 there were approximately 1,351 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, 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.)
<Table>
<Caption>
Years Ended April 30,
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
Revenues $342,762 $237,641 $111,286 $ 21,188 $ 2,030
Net income $ 5,963 $ 14,836 $ 17,508 $ 367 $ 8,860
Earnings per share - diluted $ .74 $ 1.54 $ 1.68 $ .04 $ .80
Total assets $302,520 $290,907 $168,135 $ 92,203 $ 38,237
Total debt $209,388 $191,052 $ 96,187 $ 46,035
Stockholders' equity $ 58,932 $ 58,867 $ 53,059 $ 35,051 $ 35,713
Shares outstanding 6,980 8,248 10,097 9,434 10,395
</Table>
10
11
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 primarily in the business of selling and financing used
automobiles and trucks principally to consumers with limited or damaged credit
histories. In addition, Crown also has investments in other industries. As of
April 30, 2001 Crown owned a 95% fully diluted ownership interest in 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, 2001 Crown
also owned (i) 50% 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 prime and sub-prime mortgage
lender, and (iii) minority positions in certain other entities that operate in
the high technology industry or focus on Internet commerce. The Company is
presently focusing on (i) the development and expansion of its automobile
businesses, and (ii) maximizing its return on its other businesses and
investments.
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 subsidiary
from the respective acquisition date. As a result of the acquisitions,
dispositions and business investments made by the Company, operating results for
the years ended April 30, 2001, 2000 and 1999 are not entirely comparable. Below
is a summary of the number of months each companies' operating results are
included in the Company's consolidated results of operations for the years ended
April 30, 2001, 2000 and 1999:
<Table>
<Caption>
Number of Months Included in
Month Crown Month Crown Fiscal Years Ended April 30,
Acquired Disposed -------------------------------------------------
Entity or Formed or Sold 2001 2000 1999
----------------------------- --------------- -------------- ------------- --------------- -------------
Car-Mart 1-99 12 months 12 months 3 1/2 months
Paaco 2-98 12 months 12 months 12 months
Smart Choice 12-99 12 months 5 months --
Other:
Concorde 6-97 12 months 12 months 12 months
Precision 2-98 11-00 (50% sold) 6 months 12 months 12 months
Crown El Salvador 2-99 4-01 12 months 12 months 2 months
Home Stay 5-98 12-99 -- 7 months 12 months
Atlantic Castings 3-99 4-00 -- 12 months 2 months
Casino Magic Neuquen 6-97 10-99 -- 5 months 12 months
</Table>
11
12
CONSOLIDATED REVIEW
The Company's business segments are categorized principally by legal entity,
which is how management organizes the segments for making operating decisions
and assessing performance. The segments include (i) Car-Mart, (ii) Paaco, (iii)
Smart Choice, and (iv) other. Each of Car-Mart, Paaco and Smart Choice sell and
finance used vehicles. "Other" includes corporate operations and Concorde
(mortgage loans), and for certain periods, Precision (IBC rentals and sales),
Crown El Salvador (gaming), Home Stay (lodging), and the Company's equity
investments in Casino Magic Neuquen (gaming) and Atlantic Castings (investment
casting). "Other" also includes gains and losses on the sale of securities.
Below is a summary of revenue and pretax income by business segment, and a more
detailed operating statement by segment, for the years ended April 30, 2001,
2000 and 1999 (in thousands):
<Table>
<Caption>
Revenues Pretax Income (Loss)
---------------------------------------- ---------------------------------------
Years Ended April 30, Years Ended April 30,
2001 2000 1999 2001 2000 1999
---------- ---------- ---------- ---------- ---------- ----------
Car-Mart $ 105,706 $ 89,382 $ 27,031 $ 16,375 $ 13,562 $ 3,872
Paaco 122,985 94,708 70,728 7,093 4,318 (2,187)
Smart Choice 98,923 35,856 -- (7,591) 831 --
Other 16,315 19,723 14,346 (5,024) 6,909 24,273
Eliminations (1,167) (2,028) (819) -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Consolidated $ 342,762 $ 237,641 $ 111,286 $ 10,853 $ 25,620 $ 25,958
========== ========== ========== ========== ========== ==========
</Table>
2001 VS. 2000
Revenues increased $105.1 million, or 44.2%, in fiscal 2001 versus fiscal
2000 principally as a result of (i) including Smart Choice in the Company's
operating results for twelve months in fiscal 2001 versus five months in fiscal
2000 ($61.0 million), and (ii) higher revenues at Car-Mart ($16.3 million) and
Paaco ($28.3 million) primarily as a result of an increase in the average number
of dealerships in operation. Pretax income decreased $14.8 million, or 57.6%, in
fiscal 2001 versus fiscal 2000 principally as a result of (i) fiscal 2000
including a $10.7 million pretax gain on the sale of Casino Magic Neuquen with
no similar gain in fiscal 2001, and (ii) fiscal 2001 including a $7.6 million
pretax loss on Smart Choice's operations (largely due to higher credit losses)
versus $.8 million of pretax income in fiscal 2000, partially offset by (iii)
higher pretax income at Car-Mart ($2.8 million) and Paaco ($2.8 million) in
fiscal 2001 compared to fiscal 2000 as a result of (a) sales growth, and (b)
lower costs and expenses as a percentage of sales.
2000 VS. 1999
Revenues increased $126.4 million, or 113.5%, in fiscal 2000 versus fiscal
1999 principally as a result of (i) including Smart Choice in the Company's
operating results in fiscal 2000 ($35.9 million), (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 ($60.0 million), and (iii) higher revenues at
Paaco ($24.0 million) primarily as a result of an increase in the average number
of dealerships in operation. Pretax income decreased $.3 million, or 1.3%,
principally as a result of (i) fiscal 1999 including a $26.4 million pretax gain
on the sale of Inktomi Corporation common stock compared to fiscal 2000
including a $10.7 million pretax gain on the sale of Casino Magic Neuquen,
largely offset by (ii) including the operating results of Car-Mart for twelve
months in fiscal 2000 versus three and one-half months in fiscal 1999 ($8.5
million), (iii) substantially improved operating results at Paaco ($6.5
million), and (iv) including Smart Choice in the Company's consolidated results
of operations ($.8 million).
12
13
CAR-MART
<Table>
<Caption>
% Change
Year Year 3.5 Months --------------------
Ended Ended Ended 2001 2000 As a % of Sales and Other
April 30, April 30, April 30, vs vs --------------------------------
2001 2000 1999 2000 1999 2001 2000 1999
-------- ------- ------- ------- ------ ------ ------ ------
Revenues:
Sales and other $ 97,848 $82,916 $25,273 18.0% NM 100.0% 100.0% 100.0%
Interest income 7,858 6,466 1,758 21.5 NM 8.0 7.8 7.0
-------- ------- ------- ------ ------ ------
Total 105,706 89,382 27,031 18.3 NM 108.0 107.8 107.0
-------- ------- ------- ------ ------ ------
Costs and expenses:
Cost of sales 53,412 45,383 13,407 17.7 NM 54.6 54.7 53.0
Selling, gen and admin 14,950 12,960 3,494 15.4 NM 15.3 15.6 13.8
Prov for credit loss 17,215 14,104 5,325 22.1 NM 17.6 17.0 21.1
Interest expense 3,613 3,239 892 11.5 NM 3.7 3.9 3.5
Depreciation and amort 141 134 41 5.2 NM .1 .2 .2
-------- ------- ------- ------ ------ ------
Total 89,331 75,820 23,159 17.8 NM 91.3 91.4 91.6
-------- ------- ------- ------ ------ ------
Pretax income $ 16,375 $13,562 $ 3,872 20.7 NM 16.7 16.4 15.4
======== ======= ======= ====== ====== ======
</Table>
NM = Not meaningful
2001 VS. 2000
Revenues increased $16.3 million, or 18.3%, in fiscal 2001 versus fiscal 2000
principally as a result of (i) increasing the average number of regular and
satellite stores in operation to 44.6 in fiscal 2001 from 37.9 in fiscal 2000,
and (ii) increasing the average sales price per retail vehicle by approximately
5%. Pretax income increased $2.8 million, or 20.7%, in fiscal 2001 versus fiscal
2000 principally as a result of (i) increased revenues (18.3%), and (ii)
slightly lower costs and expenses as a percentage of sales and other.
2000 VS. 1999
Revenues increased $62.4 million in fiscal 2001 versus fiscal 2000
principally as a result of (i) fiscal 2000 including twelve months of operating
results versus three and one-half months in fiscal 1999 ($60.0 million), and
(ii) increasing the average number of regular and satellite stores in operation
to 37.9 in fiscal 2000 from 32.3 in fiscal 1999. Pretax income increased $9.7
million in fiscal 2000 compared to fiscal 1999 principally as a result of (i)
fiscal 2000 including twelve months of operating results versus three and
one-half months in fiscal 1999 ($8.5 million), and (ii) a lower provision for
credit loss as a percentage of sales and other (17.0% in fiscal 2000 versus
21.1% in fiscal 1999).
PAACO
<Table>
<Caption>
% Change
Year Year Year --------------------
Ended Ended Ended 2001 2000 As a % of Sales and Other
April 30, April 30, April 30, vs vs --------------------------------
2001 2000 1999 2000 1999 2001 2000 1999
-------- ------- ------- ------- ------ ------ ------ ------
Revenues:
Sales and other $106,654 $82,674 $61,848 29.0% 33.7% 100.0% 100.0% 100.0%
Interest income 16,331 12,034 8,880 35.7 35.5 15.3 14.6 14.4
-------- ------- ------- ------ ------ ------
Total 122,985 94,708 70,728 29.9 33.9 115.3 114.6 114.4
-------- ------- ------- ------ ------ ------
Costs and expenses:
Cost of sales 68,700 52,259 41,858 31.5 24.8 64.4 63.2 67.7
Selling, gen and admin 24,887 18,962 15,860 31.2 19.6 23.3 23.0 25.6
Prov for credit loss 14,342 13,113 9,926 9.4 32.1 13.4 15.9 16.1
Interest expense 7,246 5,725 4,879 26.6 17.3 6.8 6.9 7.9
Depreciation and amort 717 331 392 116.6 (15.6) .7 .4 .6
-------- ------- ------- ------ ------ ------
Total 115,892 90,390 72,915 28.2 24.0 108.6 109.4 117.9
-------- ------- ------- ------ ------ ------
Pretax income (loss) $ 7,093 $ 4,318 $(2,187) 64.3 NM 6.7 5.2 (3.5)
======== ======= ======= ====== ====== ======
</Table>
13
14
2001 VS. 2000
Revenues increased $28.3 million, or 29.9%, in fiscal 2001 versus fiscal 2000
principally as a result of (i) increasing the average number of stores in
operation to 12.7 in fiscal 2001 from 10.6 in fiscal 2000, and (ii) increasing
the average sales price per retail vehicle by approximately 7%. Pretax income
increased $2.8 million, or 64.3%, in fiscal 2001 versus fiscal 2000 principally
as a result of (i) increased revenues (29.9%), and (ii) a lower provision for
credit loss as a percentage of sales and other (13.4% in fiscal 2001 versus
15.9% in fiscal 2000), which is believed to be attributable to (a) selling a
higher quality vehicle, and (b) providing a greater level of service.
2000 VS. 1999
Revenues increased $24.0 million, or 33.9%, in fiscal 2000 versus fiscal 1999
principally as a result of (i) increasing the average number of stores in
operation to 10.6 in fiscal 2000 from 8.3 in fiscal 1999, and (ii) higher
interest income in fiscal 2000 as a result of higher finance receivable balances
during fiscal 2000 as compared to fiscal 1999. Pretax income increased to $4.3
million in fiscal 2000 from a pretax loss of $2.2 million in fiscal 1999
principally as a result of (i) lower cost of sales as a percentage of sales and
other (63.2% in fiscal 2000 versus 67.7% in fiscal 1999), and (ii) lower
selling, general and administrative expenses as a percentage of sales and other
(22.9% in fiscal 2000 versus 25.6% in fiscal 1999).
SMART CHOICE
<Table>
<Caption>
% Change
Year 5 Months Year -------------------
Ended Ended Ended 2001 2000 As a % of Sales and Other
April 30, April 30, April 30, vs vs ---------------------------------
2001 2000 1999 2000 1999 2001 2000 1999
--------- -------- -------- --------- ------- -------- -------- -------
Revenues:
Sales and other $ 77,206 $ 26,657 -- NM -- 100.0% 100.0% --
Interest income 21,717 9,199 -- NM -- 28.1 34.5 --
--------- -------- -------- -------- -------- -------
Total 98,923 35,856 -- NM -- 128.1 134.5 --
--------- -------- -------- -------- -------- -------
Costs and expenses:
Cost of sales 45,940 15,335 -- NM -- 59.5 57.5 --
Selling, gen and admin 20,119 7,255 -- NM -- 26.0 27.2 --
Prov for credit loss 29,153 8,257 -- NM -- 37.8 31.0 --
Interest expense 10,253 3,743 -- NM -- 13.3 14.1 --
Depreciation and amort 1,049 435 -- NM -- 1.3 1.6 --
--------- -------- -------- -------- -------- -------
Total 106,514 35,025 -- NM -- 137.9 131.4 --
--------- -------- -------- -------- -------- -------
Pretax income (loss) $ (7,591) $ 831 -- NM -- (9.8) 3.1 --
========= ======== ======== ======== ======== =======
</Table>
2001 VS 2000
Revenues increased $63.1 million in fiscal 2001 versus fiscal 2000
principally as a result of (i) fiscal 2001 including twelve months of operating
results versus five months in fiscal 2000 ($61.0 million), and (ii) a higher
average retail selling price per vehicle in fiscal 2001 compared to fiscal 2000.
Smart Choice reported a pretax loss of $7.6 million in fiscal 2001 versus $.8
million pretax income in fiscal 2000. The $8.4 million decrease is principally
the result of (i) the provision for credit loss increasing to 37.8% of sales and
other in fiscal 2001 from 31.0% in fiscal 2000 ($5.3 million), (ii) cost of
sales increasing to 59.5% of sales and other in fiscal 2001 from 57.5% in fiscal
2000 ($1.5 million), and (iii) a decrease in the average interest rate charged
on Smart Choice finance receivables.
14
15
<Table>
<Caption>
OTHER
Year Year Year
Ended Ended Ended
April 30, April 30, April 30,
2001 2000 1999
---------- ---------- ----------
Revenues:
Sales and other $ 12,878 $ 15,113 $ 10,844
Interest income 3,437 4,610 3,502
---------- ---------- ----------
Total 16,315 19,723 14,346
---------- ---------- ----------
Costs and expenses:
Cost of sales 1,180 2,827 1,865
Selling, gen and admin 14,204 15,204 11,430
Prov for credit loss 508 282 247
Interest expense 2,631 3,201 1,814
Depreciation and amort 2,159 2,668 1,966
El Salvador write-down 800
---------- ---------- ----------
Total 21,482 24,182 17,322
---------- ---------- ----------
Security gains and other 143 11,368 27,249
---------- ---------- ----------
Pretax income (loss) $ (5,024) $ 6,909 $ 24,273
========== ========== ==========
</Table>
2001 VS. 2000
Revenues decreased $3.4 million, or 17.3%, in fiscal 2001 versus fiscal 2000
principally as a result of fiscal 2001 including only six months of Precision's
operating results (50% of Precision was sold in November 2000, at which point it
has been accounted for on the equity method) versus twelve months in fiscal 2000
($3.9 million). Other pretax loss was $5.0 million in fiscal 2001 versus pretax
income of $6.9 million in fiscal 2000, a decrease of $11.9 million. The decrease
was principally the result of (i) fiscal 2000 including a $10.7 million pretax
gain on the sale of Casino Magic Neuquen with no similar gain in fiscal 2001,
and (ii) equity in earnings of unconsolidated subsidiaries decreasing $.4
million in fiscal 2001 versus fiscal 2000 principally as a result of the sale of
Casino Magic Neuquen during fiscal 2000, and (iii) increased losses at Crown El
Salvador ($.3 million) and Concorde ($.2 million) in fiscal 2001 compared to
fiscal 2000.
2000 VS. 1999
Revenues increased $5.4 million, or 37.5%, in fiscal 2000 versus fiscal 1999
principally as a result of (i) including Crown El Salvador in the Company's
operating results for twelve months in fiscal 2000 versus two months in fiscal
1999 ($2.2 million), and (ii) increased revenues at Precision ($1.9 million) and
Concorde ($.8 million) in fiscal 2000 versus fiscal 1999 as a result of the
general growth in their businesses. Pretax income decreased $17.4 million, or
71.5%, in fiscal 2000 versus fiscal 1999 principally as a result of (i) fiscal
1999 including a $26.4 million pretax gain on the sale of Inktomi Corporation
common stock versus fiscal 2000 including a $10.7 million pretax gain on the
sale of Casino Magic Neuquen, and (ii) an increased loss at Crown El Salvador
($1.0 million) in fiscal 2000 compared to fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
For fiscal 2001, net cash provided by operating activities amounted to $94.0
million. The principal sources of cash resulted from (i) net income and (ii)
certain non-cash expenses (provision for credit losses and depreciation and
amortization). Net cash used by investing activities of $118.7 million included
(i) a $116.7 million use of cash in finance receivables originations in excess
of finance receivables collections, and (ii) a $3.9 million use of cash in the
purchase of property and equipment, offset by a $2.1 million source of cash
resulting from the sale of 50% of Precision. Net cash provided by financing
activities of $17.1 million principally relates to (i) net borrowings from
revolving credit facilities ($23.9 million), offset by (ii) purchases of the
Company's common stock ($5.1 million) and repayments of other debt ($1.8
million).
CROWN
As of April 30, 2001 Crown's (parent company only) sources of liquidity
included (i) $.3 million of cash on hand, (ii) $10.6 million of receivables from
its subsidiaries, of which approximately $4.7 million was restricted due to the
terms of the credit facilities of its subsidiaries, (iii) $1.8 million of other
receivables, net of certain corresponding liabilities, and (iv) the potential
issuance of additional debt and/or equity, although Crown had no specific
commitments or arrangements to issue such additional debt and/or equity. Crown
expects that it will have adequate liquidity to satisfy its capital needs for
the foreseeable future.
15
16
CAR-MART
Car-Mart's sources of liquidity include cash from operations and its $35.0
million revolving credit facility with a group of banks, of which $29.8 million
was outstanding at April 30, 2001. Based upon the collateral on hand at April
30, 2001, Car-Mart could have drawn an additional $5.2 million on its revolving
credit facility at such date. Car-Mart's revolving credit facility matures in
January 2002. Car-Mart expects that it will be able to renew or refinance its
revolving credit facility on or before the scheduled maturity date. Car-Mart
believes it will have adequate liquidity to satisfy its capital needs for the
foreseeable future.
PAACO
Paaco's sources of liquidity include cash from operations and its $62.0
million revolving credit facility with Finova Capital Corporation ("Finova"), of
which $59.0 was outstanding at April 30, 2001. As of April 30, 2001, Smart
Choice's revolving credit facility with Finova was in default, and there may be
a question as to whether such default is a basis for an event of default under
Paaco's revolving credit facility with Finova (see Smart Choice discussion
below). Thus, there is an uncertainty as to whether Paaco is eligible to draw
any additional monies under its revolving credit facility with Finova. Paaco's
revolving credit facility matures in November 2004.
It is unlikely that Finova will increase the size of Paaco's credit facility,
or that Paaco could refinance such facility with a new lender since Paaco's
advance rate (ie. 70% of eligible receivables) is believed to be above market.
Accordingly, for the foreseeable future, Paaco's ability to expand its
operations may be limited as a result of a shortage of additional capital.
Consequently, Paaco anticipates operating its business at a level consistent
with its recent past, and not substantially expanding its operations.
SMART CHOICE
For the fiscal year ended April 30, 2001 Smart Choice (excluding Paaco)
reported a net loss of $5.1 million. Smart Choice has a $98 million revolving
credit facility with Finova, of which $88.4 million was outstanding as of April
30, 2001. Since December 2000 Smart Choice has been over-advanced on its
revolving credit facility, which constitutes an event of default under the
facility. As of April 30, 2001 Smart Choice was over-advanced by $6.2 million.
In July 2001, pursuant to the terms of its credit facility, the advance rate on
eligible finance receivables declined from 85% to 77%, increasing Smart Choice's
over-advance to $18.5 million. Absent funding from an outside source, Smart
Choice does not expect it will be able to come into compliance with the current
advance rate provisions of its credit facility. As a result of the event of
default, Smart Choice is currently not entitled to receive additional advances
under its credit facility. Smart Choice is presently operating its business from
the cash generated from the collection of its finance receivables and down
payments received in connection with the sale of vehicles.
Since January 2001 Smart Choice has been in discussions with Finova with
regard to possible solutions to the over-advanced position. There are several
possible outcomes that may result from these negotiations, including:
(i) a restructuring of the Smart Choice credit facility which brings Smart
Choice back into compliance;
(ii) a sale of substantially all of Smart Choice's assets with the proceeds
being used to pay down a portion of its credit facility, and the unpaid
portion being absorbed by Finova (forgiveness of debt) and Paaco as the
parties may negotiate;
(iii) an agreement among Smart Choice, Paaco and Finova whereby substantially
all of the assets and liabilities of Smart Choice are liquidated with the
proceeds being used to pay down a portion of Smart Choice's credit
facility, and the unpaid portion being absorbed by Finova (forgiveness of
debt) and Paaco as the parties may negotiate; or
(iv) Finova's exercise of its rights under the credit facility and acceleration
of the maturity of the loan seeking to liquidate or sell the collateral,
which action may prompt Smart Choice to take actions to protect the
interests of its shareholders, including the filing of a plan of
reorganization under federal bankruptcy laws.
Although management is exploring a number of alternatives, including those
listed above, the Company cannot predict how or whether Smart Choice's default
will be resolved. As of April 30, 2001 Crown's investment in Paaco/Smart Choice
was $20.2 million ($17.6 million equity and $2.6 million debt). In addition,
Crown guarantees the credit facilities of Smart Choice and Paaco to a maximum
combined amount of $5 million.
OTHER
Concorde's sources of liquidity include cash on hand ($1.0 million at April
30, 2001) and its $25.0 million revolving credit facility with a bank, of which
$12.9 million was outstanding at April 30, 2001. Concorde is able to borrow a
specified percentage of eligible mortgage loans under the facility. Based upon
eligible mortgage loans on hand at April 30, 2001, Concorde was fully advanced
under its revolving credit facility. Concorde's revolving credit facility
matures in September 2001.
16
17
At April 30, 2001 Concorde was in violation of the $1.5 million minimum net
worth covenant under its revolving credit facility, which violation has not been
waived. Concorde is presently in discussions with its lender regarding an
amendment to its credit facility. Concorde expects to execute an agreement with
its lender to cure the violation, or replace its credit facility with a
different lender.
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, 2001
the Company had repurchased 5,179,642 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business
Combinations", which eliminates the pooling method of accounting for business
combinations initiated after June 30, 2001. In addition, SFAS 141 addresses the
accounting for intangible assets and goodwill acquired in a business
combination. This portion of SFAS 141 is effective for business combinations
completed after June 30, 2001. The Company does not expect SFAS 141 will have a
material impact on the Company's financial position or results of operations.
In July 2001, the FASB issued Statement of Financial Accounting Standards No.
142 ("SFAS 142"), "Goodwill and Intangible Assets", which revises the accounting
for purchased goodwill and intangible assets. Under SFAS 142, goodwill and
intangible assets with indefinite lives will no longer be amortized, but will be
tested for impairment annually, and in the event of an impairment indicator.
SFAS 142 is effective for fiscal years beginning after December 15, 2001, with
earlier adoption permitted. The Company expects the adoption of SFAS 142 will
increase annual pretax income by approximately $.7 million. The Company has
adopted SFAS 142 effective May 1, 2001.
SEASONALITY
The Company's automobile sales and finance business is seasonal in nature. In
such 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 9% to 26%. These
finance receivables have scheduled maturities from one to 48 months. Financial
instruments also include mortgage loans held for sale. The Company does not
experience significant market risk with such mortgage loans as they are
generally sold within 45 days of origination or purchase. At April 30, 2001 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.
<Table>
<Caption>
Change in Change in
Interest Rates Pretax Earnings
-------------- ---------------
(in thousands)
+2% $ (2,380)
+1% (1,190)
-1% 1,190
-2% 2,380
</Table>
17
18
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, 2001 and 2000
Consolidated Statements of Operations for the fiscal years ended
April 30, 2001, 2000 and 1999
Consolidated Statements of Comprehensive Income for the fiscal years
ended April 30, 2001, 2000 and 1999
Consolidated Statements of Cash Flows for the fiscal years ended April
30, 2001, 2000 and 1999
Consolidated Statements of Stockholders' Equity for the fiscal years
ended April 30, 2001, 2000 and 1999
Notes to Consolidated Financial Statements
18
19
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Stockholders and Board of Directors
Crown Group, Inc.
We have audited the accompanying consolidated balance sheets of Crown Group,
Inc., as of April 30, 2001 and 2000, and the related consolidated statements of
operations, comprehensive income, stockholders' equity and cash flows for each
of the years 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 audits.
We conducted our audits 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 audits provide 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, 2001 and 2000, and the consolidated results of its operations
and its consolidated cash flows for each of the years then ended in conformity
with accounting principles generally accepted in the United States of America.
Grant Thornton LLP
Dallas, Texas
July 16, 2001
REPORT OF INDEPENDENT ACCOUNTANTS
Stockholders and Board of Directors
Crown Group, Inc.
In our opinion, the accompanying consolidated statements of operations,
comprehensive income, stockholders' equity and of cash flows present fairly, in
all material respects, the results of operations and cash flows of Crown Group,
Inc. and its subsidiaries for the year ended April 30, 1999 in conformity with
accounting principles generally accepted in the United States of America. 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 of these statements in accordance with
auditing standards generally accepted in the United States of America, 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 audit provides a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Dallas, Texas
August 12, 1999
19
20
CONSOLIDATED BALANCE SHEETS CROWN GROUP, INC.
<Table>
<Caption>
April 30, 2001 April 30, 2000
-------------- --------------
Assets:
Cash and cash equivalents $ 2,193,342 $ 9,843,310
Accounts and other receivables, net 6,642,760 5,489,686
Mortgage loans held for sale, net 16,200,439 14,202,420
Finance receivables, net 211,605,630 183,331,361
Inventory 10,993,585 14,948,365
Prepaid and other assets 1,043,233 1,753,074
Investments 6,670,265 2,503,146
Deferred tax assets, net 21,302,939 13,859,897
Property and equipment, net 17,016,321 27,736,105
Goodwill, net 8,851,602 17,239,955
-------------- --------------
$ 302,520,116 $ 290,907,319
============== ==============
Liabilities and stockholders' equity:
Accounts payable $ 6,441,606 $ 8,606,983
Accrued liabilities 11,167,421 13,557,228
Income taxes payable 6,127,419 9,599,439
Revolving credit facilities 190,062,226 172,709,224
Other notes payable 19,325,376 18,342,379
Deferred sales tax 4,963,154 4,207,117
-------------- --------------
Total liabilities 238,087,202 227,022,370
-------------- --------------
Minority interests 5,500,661 5,017,734
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;
6,980,367 issued and outstanding (8,247,762 at April 30, 2000) 69,804 82,478
Additional paid-in capital 23,075,677 28,960,793
Retained earnings 35,786,772 29,823,944
-------------- --------------
Total stockholders' equity 58,932,253 58,867,215
-------------- --------------
$ 302,520,116 $ 290,907,319
============== ==============
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
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21
CONSOLIDATED STATEMENTS OF OPERATIONS CROWN GROUP, INC.
<Table>
<Caption>
Years Ended April 30,
2001 2000 1999
------------- ------------- -------------
Revenues:
Sales $ 282,544,601 $ 195,324,265 $ 89,731,527
Interest income 48,176,228 30,280,976 13,320,513
Gain on sale of mortgage loans 6,725,756 4,992,612 4,406,974
Rental income 1,973,795 4,194,456 2,634,854
Gaming 1,983,023 2,159,517
Other 1,358,269 689,000 1,192,347
------------- ------------- -------------
342,761,672 237,640,826 111,286,215
------------- ------------- -------------
Costs and expenses:
Cost of sales 169,232,396 115,803,719 57,129,838
Selling, general and administrative 74,159,580 54,381,275 30,784,380
Provision for credit losses 61,217,935 35,756,056 15,498,111
Interest expense 22,575,799 13,879,737 6,766,258
Depreciation and amortization 4,066,020 3,567,687 2,398,901
Write-down of Crown El Salvador 800,000
------------- ------------- -------------
332,051,730 223,388,474 112,577,488
------------- ------------- -------------
Other income:
Equity in earnings of unconsolidated subsidiaries 137,929 506,775 1,259,734
Gain on sale of securities, net 4,726 10,861,100 25,989,130
------------- ------------- -------------
142,655 11,367,875 27,248,864
------------- ------------- -------------
Income before taxes and minority interests 10,852,597 25,620,227 25,957,591
Provision for income taxes 4,757,699 10,105,451 9,000,661
Minority interests 132,070 678,357 (551,480)
------------- ------------- -------------
Net income $ 5,962,828 $ 14,836,419 $ 17,508,410
============= ============= =============
Earnings per share:
Basic $ .77 $ 1.61 $ 1.73
Diluted $ .74 $ 1.54 $ 1.68
Weighted average number of shares outstanding:
Basic 7,697,239 9,216,184 10,095,614
Diluted 8,015,834 9,621,328 10,400,504
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
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22
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME CROWN GROUP, INC.
<Table>
<Caption>
Years Ended April 30,
2001 2000 1999
------------ ------------ ------------
Net income $ 5,962,828 $ 14,836,419 $ 17,508,410
Change in unrealized appreciation of securities, net of tax:
Unrealized appreciation arising during period 15,017,605
Less realized gain included in net income (16,948,105)
------------ ------------ ------------
(1,930,500)
------------ ------------ ------------
Comprehensive income $ 5,962,828 $ 14,836,419 $ 15,577,910
============ ============ ============
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
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23
CONSOLIDATED STATEMENTS OF CASH FLOWS CROWN GROUP, INC.
<Table>
<Caption>
Years Ended April 30,
2001 2000 1999
------------- ------------- -------------
Operating activities:
Net income $ 5,962,828 $ 14,836,419 $ 17,508,410
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,066,020 3,567,687 2,398,901
Accretion of purchase discounts (1,016,237) (1,435,059) (1,186,350)
Deferred income taxes (1,019,778) (3,557,335) 944,961
Provision for credit losses 61,217,935 35,756,056 15,498,111
Minority interests 132,070 678,357 (551,480)
Write-down of Crown El Salvador 800,000
Gain on sale of mortgage loans (6,725,756) (4,992,612) (4,406,974)
Gain on sale of assets (60,884) (108,378) (286,225)
Gain on sale of securities (4,726) (10,861,100) (25,989,130)
Equity in earnings of unconsolidated subsidiaries (137,929) (506,775) (1,259,734)
Changes in operating assets and liabilities, net of
transactions:
Accounts and other receivables 620,761 (1,324,225) 3,226,886
Mortgage loans originated or acquired (172,264,937) (144,898,739) (99,206,479)
Mortgage loans sold and principal repayments 175,907,355 146,075,563 107,188,926
Inventory 32,254,660 20,937,112 8,832,626
Prepaid and other assets 274,722 519,080 (1,542,587)
Accounts payable, accrued liabilities and deferred
sales tax (2,569,389) (251,122) 3,630,783
Income taxes payable (3,472,020) 5,723,856 2,640,797
------------- ------------- -------------
Net cash provided by operating activities 93,964,695 60,158,785 27,441,442
------------- ------------- -------------
Investing activities:
Finance receivable originations (261,756,199) (179,434,289) (80,431,081)
Finance receivable collections 145,098,386 95,873,645 36,252,894
Purchase of property and equipment (3,885,202) (7,781,061) (16,312,815)
Sale of property and equipment 687,810 1,758,774 2,004,520
Purchase of investments and securities (970,615) (1,808,805) (6,643,496)
Sale of securities 16,762,326 34,449,806
Sale of 50% of Precision 2,127,675
Sale of Crown El Salvador 22,252
Dividends and note collections from CMN 306,487 2,389,152
Purchase of Paaco, net of cash acquired (1,031,250)
Purchase of Car-Mart, net of cash acquired (33,437,087)
Purchase of Smart Choice, net of cash acquired (866,741)
------------- ------------- -------------
Net cash used in investing activities (118,675,893) (75,189,664) (62,759,357)
------------- ------------- -------------
Financing activities:
Capital contributions from minority owners 1,088,000
Issuance of common stock 60,937
Purchase of common stock (5,124,894) (5,844,111) (1,994,323)
Proceeds from revolving credit facilities, net 23,930,687 18,348,103 37,763,597
Proceeds from (repayments of) other debt, net (1,805,500) (540,338) 4,889,470
------------- ------------- -------------
Net cash provided by financing activities 17,061,230 11,963,654 41,746,744
------------- ------------- -------------
Increase (decrease) in cash and cash equivalents (7,649,968) (3,067,225) 6,428,829
Cash and cash equivalents at: Beginning of year 9,843,310 12,910,535 6,481,706
------------- ------------- -------------
End of year $ 2,193,342 $ 9,843,310 $ 12,910,535
============= ============= =============
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
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24
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY CROWN GROUP, INC.
<Table>
<Caption>
For the Three Years Ended April 30, 2001
Retained
Additional Earnings Unrealized Total
Common Stock Paid-In (Accumulated Appreciation Stockholders'
Shares Amount Capital Deficit) of Securities Equity
------------ ------------ ------------ ------------ ------------ ------------
Balance at May 1, 1998 9,433,963 $ 94,340 $ 35,547,369 $ (2,520,885) $ 1,930,500 $ 35,051,324
Issuance of common stock 958,338 9,583 4,414,390 4,423,973
Purchase of common stock (492,909) (4,929) (1,989,394) (1,994,323)
Stock options and warrants
exercised 197,450 1,974 (1,974) --
Unrealized appreciation of
securities (1,930,500) (1,930,500)
Net income 17,508,410 17,508,410
------------ ------------ ------------ ------------ ------------ ------------
Balance at April 30, 1999 10,096,842 100,968 37,970,391 14,987,525 53,058,884
Stock warrants exercised 2,000 20 (20) --
Purchase agreement amendment (670,311) (6,703) (3,177,274) (3,183,977)
Purchase of common stock (1,180,769) (11,807) (5,832,304) (5,844,111)
Net income 14,836,419 14,836,419
------------ ------------ ------------ ------------ ------------ ------------
Balance at April 30, 2000 8,247,762 82,478 28,960,793 29,823,944 58,867,215
Issuance of common stock 25,000 250 60,687 60,937
Purchase of common stock (1,122,225) (11,222) (5,113,672) (5,124,894)
Stock received in Precision sale (170,170) (1,702) (832,131) (833,833)
Net income 5,962,828 5,962,828
------------ ------------ ------------ ------------ ------------ ------------
Balance at April 30, 2001 6,980,367 $ 69,804 $ 23,075,677 $ 35,786,772 $ -- $ 58,932,253
============ ============ ============ ============ ============ ============
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
24
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CROWN GROUP, INC.
A - DESCRIPTION OF BUSINESS
Crown Group, Inc. ("Crown"), and collectively with its subsidiaries (the
"Company"), is primarily in the business of selling and financing used
automobiles and trucks principally to consumers with limited or damaged credit
histories. In addition, Crown also has investments in other industries. As of
April 30, 2001 Crown owned a 95% fully diluted ownership interest in 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, 2001 Crown
also owned (i) 50% 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 prime and sub-prime mortgage
lender, and (iii) minority positions in certain other entities that operate in
the high technology industry or focus on Internet commerce. The Company is
presently focusing on (i) the development and expansion of its automobile
businesses, and (ii) maximizing its return on its other businesses and
investments.
As discussed in Note C, the Company completed a number of acquisitions during
the three years ended April 30, 2001. 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 the subsidiaries it controls (generally greater than 50%
ownership). All significant intercompany accounts and transactions have been
eliminated. The Company's subsidiaries are included in its consolidated results
of operations during the period in which the Company controls such subsidiary.
Equity Method Investments
The Company accounts for subsidiaries in which it does not control (generally
50% owned or less) by the equity method of accounting. On November 1, 2000 the
Company sold a 50% interest in Precision, reducing its remaining ownership
interest to 50%. As a result, effective November 1, 2000 the Company began
accounting for its ownership interest in Precision on the equity method.
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. The
majority 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 $577,972 and $515,900
at April 30, 2001 and 2000, 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
25
26
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.
Inventory
Inventory is valued at the lower of cost or market on a specific
identification basis. Inventory includes used vehicles and related parts.
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 sold is determined using the
specific identification method.
Investments
Investments at April 30, 2001 consisted of an equity investment (Precision),
and investments carried at cost. Investments carried at cost consist of (i) a 7%
ownership interest in 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) an 8% ownership interest in Mariah
Vision(3), Inc., a software developer specializing in three-dimensional graphic
design.
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:
<Table>
Furniture, fixtures and equipment 3 to 10 years
Leasehold improvements 5 to 7 years
Rental equipment 12 years
Buildings 39 years
</Table>
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, 2001 and 2000 accumulated amortization of
goodwill amounted to $2,252,932 and $1,864,933, 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
Income taxes are accounted for under the liability method. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates expected to apply in the years in which these
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 when the sales
contract is signed and the customer has taken possession of the vehicle.
Advertising Costs
Advertising costs are expensed as incurred by the Company and include radio,
television, print media, Internet and direct mail marketing costs. Advertising
costs amounted to $5,537,764, $3,172,860 and $1,752,000 for the years ended
April 30, 2001, 2000 and 1999, respectively.
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, which if exercised or converted
into common stock would then share in the earnings of the Company.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business
Combinations", which eliminates the pooling method of accounting for business
combinations initiated after June 30, 2001. In addition, SFAS 141 addresses the
accounting for intangible assets and goodwill acquired in a business
combination. This portion
26
27
of SFAS 141 is effective for business combinations completed after June 30,
2001. The Company does not expect SFAS 141 will have a material impact on the
Company's financial position or results of operations.
In July 2001, the FASB issued Statement of Financial Accounting Standards No.
142 ("SFAS 142"), "Goodwill and Intangible Assets", which revises the accounting
for purchased goodwill and intangible assets. Under SFAS 142, goodwill and
intangible assets with indefinite lives will no longer be amortized, but will be
tested for impairment annually, and in the event of an impairment indicator.
SFAS 142 is effective for fiscal years beginning after December 15, 2001, with
earlier adoption permitted. The Company expects the adoption of SFAS 142 will
increase annual pretax income by approximately $.7 million. The Company has
adopted SFAS 142 effective May 1, 2001.
Reclassifications
Certain prior year amounts in the accompanying financial statements have been
reclassified to conform to the fiscal 2001 presentation.
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 in 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
was subsequently converted into 6,857,907 shares of Smart Choice common stock,
or 70% of the total outstanding shares.
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 which was subsequently converted into 489,851 shares of Smart Choice
common stock, or 5% of the total outstanding shares. 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.
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 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,
Missouri, Kansas, Kentucky and Indiana. Car-Mart underwrites, finances and
services retail installment contracts generated at its dealerships.
Precision Purchase and Sale
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 in 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 in
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.
Effective November 1, 2000 the Company sold a 50% interest in Precision to
the President of Precision, for total consideration of approximately $3.1
million. The consideration consisted of approximately $2.2 million in cash and
170,170 shares of Crown common stock. In connection with the transaction, the
Company recorded a gain of $4,726 which is included in gain on sale of
securities in the consolidated statement of operations.
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 in cash. CMN owns and
operates casinos in the cities of Neuquen and San Martin de los Andes in the
Province of Neuquen, Argentina.
27
28
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 year ended April 30, 1999 are as follows (in
thousands):
<Table>
<Caption>
Five Months
Ended Year Ended
September 30, April 30,
1999 1999
------------- -------------
Revenues $ 9,929 $ 21,388
Costs and expenses 6,732 13,850
Lawsuit settlement and costs 917
Interest, fees and rentals to shareholders 1,057
Provision for income taxes 1,135 2,121
------------- -------------
Net income $ 2,062 $ 3,443
============= =============
</Table>
Home Stay Formation and Sale
In May 1998 the Company, along with a minority interest 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%. 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, Precision and CMN have been included in the Company's
consolidated results of operations (whether by consolidating or accounting for
on the equity method) 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 statement of
operations of the Company for the year ended April 30, 2000 was prepared as if
the acquisition of Smart Choice had occurred on May 1, 1999 (in thousands,
except per share amount). The operating results of the Company's 80% interest in
Home Stay and 49% interest in Casino Magic Neuquen prior to their disposition
during the fiscal year ended April 30, 2000 were not material, and accordingly
no adjustment has been made in the pro forma statement of operations to reflect
such dispositions at an earlier date. The operating results of Precision, prior
to the Company's sale of a 50% interest therein, during the fiscal year ended
April 30, 2001 were not material, and accordingly no pro forma statement of
operations has been provided for such year. The adjustments to the historical
financial statements principally consist of (i) eliminating interest income on
the cash used in the acquisition, (ii) eliminating interest expense and
preferred stock dividends pertaining to certain Smart Choice debt and preferred
stock that was converted into Smart Choice common stock, (iii) amortizing
goodwill created in the Smart Choice acquisition, (iv) adjusting interest income
resulting from purchase accounting entries, (v) eliminating Smart Choice's
discontinued operations and write-off of historical goodwill, and (vi) adjusting
income tax expense to reflect the above described adjustments.
<Table>
<Caption>
Year Ended
April 30, 2000
--------------
Revenues $ 284,424
Net income 3,404
Earnings per share - diluted $ .35
</Table>
The unaudited pro forma results of operations are not necessarily indicative
of future results or the results that would have occurred had the acquisition
taken place on the date indicated.
28
29
D - SALE OF SECURITIES AND INTERESTS IN AFFILIATES
Effective November 1, 2000 the Company sold a 50% interest in Precision to
the President of Precision, for total consideration of approximately $3.1
million. The consideration consisted of approximately $2.2 million in cash and
170,170 shares of Crown common stock. In connection with the transaction, the
Company recorded a gain of $4,726 which is included in gain on sale of
securities in the consolidated statement of operations.
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:
<Table>
<Caption>
Years Ended April 30,
2001 2000 1999
----------- ------------ ------------
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 on sale of 50% of Precision $ 4,726
Loss on sale of other equity securities, net (388,160)
----------- ------------ ------------
$ 4,726 $ 10,861,100 $ 25,989,130
=========== ============ ============
</Table>
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 48 months. The components of finance receivables as
of April 30, 2001 and 2000 are as follows:
<Table>
<Caption>
April 30,
2001 2000
------------- -------------
Finance receivables $ 300,228,162 $ 267,389,412
Unearned finance charges (36,965,956) (38,659,786)
Allowance for credit losses (51,058,077) (43,783,529)
Purchase discounts (598,499) (1,614,736)
------------- -------------
$ 211,605,630 $ 183,331,361
============= =============
</Table>
In accordance with APB Opinion No. 16, as of the dates the Company acquired
interests in Car-Mart and Smart Choice, the Company valued Car-Mart's and Smart
Choice's finance receivables portfolios at fair value and determined that
purchase discounts of $864,165 and $2,046,964, respectively, were appropriate.
These discounts are being amortized into interest income over the life of the
related finance receivables 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, 2001, 2000 and 1999 are as follows:
<Table>
<Caption>
Years Ended April 30,
2001 2000 1999
------------ ------------ ------------
Balance at beginning of year $ 43,783,529 $ 17,045,063 $ 4,727,679
Acquisition of Car-Mart 8,726,309
Acquisition of Smart Choice 23,568,788
Provision for credit losses 60,709,680 35,473,716 15,251,225
Net charge offs (53,435,132) (32,304,038) (11,660,150)
------------ ------------ ------------
Balance at end of year $ 51,058,077 $ 43,783,529 $ 17,045,063
============ ============ ============
</Table>
29
30
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
($577,972 and $515,900) and accounts receivable ($27,256 and $27,256) as of
April 30, 2001 and 2000, respectively.
F - INVESTMENTS
A summary of investments as of April 30, 2001 and 2000 is as follows:
<Table>
<Caption>
April 30,
2001 2000
---------- ----------
Precision IBC, Inc. $3,196,505
Monarch Venture Partners' Fund I, L.P. 1,823,760 $1,503,146
Mariah Vision 3, Inc. 1,650,000 1,000,000
---------- ----------
$6,670,265 $2,503,146
========== ==========
</Table>
G - PROPERTY AND EQUIPMENT
A summary of property and equipment as of April 30, 2001 and 2000 is as
follows:
<Table>
<Caption>
April 30,
2001 2000
------------ ------------
Land and buildings $ 7,461,891 $ 8,310,614
Rental equipment 9,937,557
Furniture, fixtures and equipment 10,007,553 10,144,565
Leasehold improvements 3,914,807 3,292,660
Less accumulated depreciation and amortization (4,367,930) (3,949,291)
------------ ------------
$ 17,016,321 $ 27,736,105
============ ============
</Table>
For the years ended April 30, 2001, 2000 and 1999 depreciation and
amortization of property and equipment amounted to $3,115,924, $2,406,657 and
$1,616,762, respectively.
H - ACCRUED LIABILITIES
A summary of accrued liabilities as of April 30, 2001 and 2000 is as follows:
<Table>
<Caption>
April 30,
2001 2000
----------- -----------
Compensation $ 3,493,256 $ 5,095,415
Interest 1,363,372 1,415,244
Reserves 1,279,563 1,679,089
Service contracts 955,062 1,394,439
Other 4,076,168 3,973,041
----------- -----------
$11,167,421 $13,557,228
=========== ===========
</Table>
30
31
I - DEBT
A summary of debt as of April 30, 2001 and 2000 is as follows:
<Table>
<Caption>
Revolving Credit Facilities
---------------------------------------------------------------------------------------------------------------------------
Facility Interest Balance at April 30,
Borrower Lender Amount Rate Maturity 2001 2000
------------ ---------------- ------------- ------------ -------- --------------- ---------------
Smart Choice Finova $ 98 million Prime + 2.25% Nov 2004 $ 88,394,135 $ 77,533,325
Paaco Finova $ 62 million Prime + 2.00% Nov 2004 59,047,810 52,833,680
Car-Mart Bank of America $ 35 million Prime + .88% Jan 2002 29,767,688 27,502,614
Concorde Wash. Mutual $ 25 million Libor + 2.00% Sep 2001 12,852,593 9,839,067
Precision Wells Fargo $ 8 million Prime Dec 2001 5,000,538
--------------- ---------------
$ 190,062,226 $ 172,709,224
=============== ===============
</Table>
<Table>
<Caption>
Other Notes Payable
---------------------------------------------------------------------------------------------------------------------------
Facility Interest Balance at April 30,
Borrower Lender Amount Rate Maturity 2001 2000
------------ ---------------- -------- ----------- -------- --------------- ---------------
Crown Car-Mart sellers N/A 8.50% Jan 2004 $ 7,500,000 $ 7,500,000
Crown Bank of America N/A 8.00% Sep 2001 2,316,000 2,316,000
Crown Regions Bank N/A Prime + .5% May 2001 2,000,000
Precision South Trust Bank N/A 7.35% Jan 2014 647,743
Paaco Chase Texas N/A 8.50% May 2003 792,815 869,616
Paaco Heller Financial N/A Prime + 2.25% Dec 2015 586,836 603,084
Smart Choice Huntington N/A Prime + .75% Jul 2001 1,932,373 2,090,171
Smart Choice High Capital N/A 10.0% Nov 2001 725,000 1,000,000
Various Various N/A Various Various 3,472,352 3,315,765
--------------- ---------------
$ 19,325,376 $ 18,342,379
=============== ===============
</Table>
The Company's revolving credit facilities are primarily collateralized by
finance receivables, inventory and mortgage loans. Other notes payable are
primarily collateralized by 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, 2001 substantially all of the Company's $47.3 million equity
investment in its consolidated subsidiaries was restricted due to covenants in
each of such subsidiaries' revolving credit facilities which prohibit certain
distributions from such subsidiary to Crown. The amount available to be drawn
under each of the Company's revolving credit facilities is a function of the
underlying collateral assets. 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.
At April 30, 2001 Concorde was in violation of its $1.5 million minimum net
worth covenant under its revolving credit facility, which violation has not been
waived. Concorde is presently in discussions with its lender regarding an
amendment to its credit facility. Concorde expects to execute an agreement with
its lender to cure the violation, or replace its credit facility with a
different lender. In addition, at April 30, 2001 Smart Choice was in violation,
and, as a result of Smart Choice's violation, Paaco may be in violation, of
certain terms of their revolving credit facilities with Finova (see Note J).
A summary of future minimum principal payments required under the
aforementioned debt as of April 30, 2001, assuming no acceleration of the
maturity date of Smart Choice's and/or Paaco's credit facilities with Finova, is
as follows:
<Table>
<Caption>
Years Ending
April 30, Amount
------------- -----------------
2002 $ 51,900,740
2003 726,023
2004 8,496,449
2005 147,685,987
2006 88,722
Thereafter 489,681
-----------------
$ 209,387,602
=================
</Table>
31
32
J - SMART CHOICE DEFAULT ON FINOVA CREDIT FACILITY
Each of Paaco and Smart Choice have revolving credit facilities with Finova
Capital Corporation ("Finova"). Since December 2000 Smart Choice has been
over-advanced on its revolving credit facility, which constitutes an event of
default under the facility. As of April 30, 2001 Smart Choice was over-advanced
by $6.2 million. In July 2001, pursuant to the credit facility, the advance rate
on eligible finance receivables declined from 85% to 77%, increasing Smart
Choice's over-advance to $18.5 million. Absent funding from an outside source,
Smart Choice does not expect it will be able to come into compliance with the
current advance rate provisions of the Finova revolving credit facility. There
is uncertainty as to whether Smart Choice's event of default is the basis for an
event of default under Paaco's revolving credit facility with Finova. In any
event, Paaco is a wholly-owned subsidiary of Smart Choice, and ultimately Paaco
could be affected by the default of Smart Choice under its Finova credit
facility.
Since January 2001 Smart Choice has been in discussions with Finova with
regard to possible solutions to the over-advanced position. There are several
possible outcomes that may result from these negotiations, including:
(i) a restructuring of the Smart Choice credit facility which brings
Smart Choice back into compliance;
(ii) a sale of substantially all of Smart Choice's assets with the
proceeds being used to pay down a portion of its credit facility,
and the unpaid portion being absorbed by Finova (forgiveness of debt)
and Paaco as the parties may negotiate;
(iii) an agreement among Smart Choice, Paaco and Finova whereby
substantially all of the assets and liabilities of Smart Choice are
liquidated with the proceeds being used to pay down a portion of
Smart Choice's credit facility, and the unpaid portion being absorbed
by Finova (forgiveness of debt) and Paaco as the parties may
negotiate; or
(iv) Finova's exercise of its rights under the credit facility and
acceleration of the maturity of the loan seeking to liquidate or sell
the collateral, which action may prompt Smart Choice to take actions
to protect the interests of its shareholders, including the filing of
a plan of reorganization under federal bankruptcy laws.
Although management is exploring a number of alternatives, including those
listed above, the Company cannot predict how or whether Smart Choice's default
will be resolved. As of April 30, 2001 Crown's investment in Paaco/Smart Choice
was $20.2 million ($17.6 million equity and $2.6 million debt). In addition,
Crown guarantees the credit facilities of Smart Choice and Paaco to a maximum
combined amount of $5 million.
K - INCOME TAXES
The Company files a consolidated federal income tax return with its 80% or
more owned subsidiaries. Smart Choice and Precision each file separate tax
returns. The provision (benefit) for income taxes for the fiscal years ended
April 30, 2001, 2000 and 1999 was as follows:
<Table>
<Caption>
Years Ended April 30,
2001 2000 1999
---------------- ---------------- ---------------
Provision (benefit) for income taxes
Current $ 5,777,477 $ 13,662,786 $ 9,945,622
Deferred (1,019,778) (3,557,335) (944,961)
---------------- ---------------- ---------------
$ 4,757,699 $ 10,105,451 $ 9,000,661
================ ================ ===============
</Table>
The provision 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:
<Table>
<Caption>
Years Ended April 30,
2001 2000 1999
------------ ------------ ------------
Tax provision at statutory rate $ 3,698,409 $ 8,967,079 $ 9,085,157
State taxes, net of federal benefit 952,369 1,298,632
Equity in earnings of unconsolidated subsidiaries (46,896) (177,371) (440,907)
Goodwill amortization 288,080 325,081 273,749
Other, net (134,263) (307,970) 82,662
------------ ------------ ------------
$ 4,757,699 $ 10,105,451 $ 9,000,661
============ ============ ============
</Table>
32
33
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, 2001 and 2000
were as follows:
<Table>
<Caption>
April 30,
2001 2000
------------ ------------
Deferred tax assets:
Allowance for credit losses $ 18,336,076 $ 16,160,246
Finance receivables purchase discounts 161,352 588,687
Reserves 1,191,943 1,007,725
Net operating loss 4,535,311 4,986,478
Other 698,756 1,171,215
Less valuation allowance (3,905,081)
------------ ------------
Total 24,923,438 20,009,270
------------ ------------
Deferred tax liabilities:
Finance receivables 1,957,032 2,410,844
Tax over book depreciation 1,147,211 2,721,659
Other 516,256 1,016,870
------------ ------------
Total 3,620,499 6,149,373
------------ ------------
Deferred tax assets, net $ 21,302,939 $ 13,859,897
============ ============
</Table>
In fiscal 2001, 2000 and 1999 the Company utilized approximately $4.2
million, $3.1 million and $2.1 million, respectively, of net operating loss
carryforwards in determining its federal income tax provision. At April 30, 2001
Smart Choice had a net operating loss carryforward of approximately $4.5 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. In fiscal 2001 the Company determined that it was more likely than
not that all of Smart Choice's net operating loss carryforwards were realizable.
As a result, during fiscal 2001 the valuation allowance was reversed and
goodwill was reduced by approximately $3.9 million.
L - 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. 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 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 or in private transactions. At April 30, 2001
the Company had repurchased 5,179,642 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.
33
34
M - COMPREHENSIVE INCOME INFORMATION
Supplemental comprehensive income disclosures for the years ended April 30,
2001, 2000 and 1999 are as follows:
<Table>
<Caption>
Years Ended April 30,
2001 2000 1999
-------- --------- -----------
Gross unrealized appreciation of securities arising during period $ -- $ -- $23,104,008
Provision for income taxes 8,086,403
-------- --------- -----------
Unrealized appreciation of securities arising during
period, net of tax $ -- $ -- $15,017,605
======== ========= ===========
</Table>
Changes to unrealized appreciation of securities on a net of tax basis for
the years ended April 30, 2001, 2000 and 1999 are as follows:
<Table>
<Caption>
Years Ended April 30,
2001 2000 1999
------------ --------- ------------
Balance at beginning of period $ -- $ -- $ 1,930,500
Unrealized appreciation of securities arising during period 15,017,605
Less realized gain included in net income (16,948,105)
------------ --------- ------------
Balance at end of period $ -- $ -- $ --
============ ========= ============
</Table>
N - EARNINGS PER SHARE
Basic and diluted earnings per share for the years ended April 30, 2001, 2000
and 1999 were computed as follows:
<Table>
<Caption>
Years Ended April 30,
2001 2000 1999
----------- ----------- -----------
Net income $ 5,962,828 $14,836,419 $17,508,410
=========== =========== ===========
Average shares outstanding - basic 7,697,239 9,216,184 10,095,614
Dilutive options 318,595 405,144 288,469
Dilutive warrants 16,421
----------- ----------- -----------
Average shares outstanding - diluted 8,015,834 9,621,328 10,400,504
=========== =========== ===========
Earnings per share:
Basic $ .77 $ 1.61 $ 1.73
Diluted $ .74 $ 1.54 $ 1.68
Antidilutive securities not included:
Options 445,000 432,500 420,000
=========== =========== ===========
Warrants -- -- 391,198
=========== =========== ===========
</Table>
34
35
O - 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 outstanding, no
additional option grants may be made under the 1986 and 1991 Plans. 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, 2001
and 2000 there were 157,500 and 170,000 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 2002 through 2010.
The following is an aggregate summary of the activity in the Company's stock
option plans from April 30, 1998 to April 30, 2001:
<Table>
<Caption>
Number Exercise Proceeds Weighted
of Price on Average Exercise
Shares per Share Exercise Price per Share
---------- -------------- ----------- ----------------
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
Granted 12,500 $5.00 62,500 $ 5.00
Exercised (25,000) $2.44 (60,937) $ 2.44
Canceled (5,000) $ .66 (3,281) $ .66
---------- -----------
Outstanding at April 30, 2001 1,460,000 $ 5,705,390
========== ===========
</Table>
A summary of stock options outstanding as of April 30, 2001 is as follows:
<Table>
<Caption>
Weighted Average
Range of Remaining Weighted
Exercise Number Contractual Life Average
Prices of Shares (in years) Exercise Price
-------------- --------- ---------------- --------------
$0.41 to $1.41 82,500 2.07 $ 1.32
$2.44 to $4.38 932,500 5.36 $ 3.31
$5.00 to $7.38 445,000 7.36 $ 5.64
---------
$0.41 to $7.38 1,460,000 5.78 $ 3.91
=========
</Table>
All of the above options were exercisable at April 30, 2001, with the
exception of options to purchase 140,000 shares at $5.50 per share. Such shares
become exercisable in 2001 through 2002 and expire in 2008.
35
36
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 was $1.50 per share for each of the fiscal
years ended April 30, 2001, 2000 and 1999. 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 be as follows using certain valuation techniques with the
assumptions detailed below:
<Table>
<Caption>
Years Ended April 30,
2001 2000 1999
-------------- ---------------- ----------------
Pro forma net income $ 5,950,453 $ 14,804,732 $ 16,808,848
Pro forma earnings per share:
Basic $ .77 $ 1.61 $ 1.66
Diluted $ .74 $ 1.54 $ 1.62
Assumptions:
Dividend yield 0.0% 0.0% 0.0%
Risk-free interest rate 5.5% 6.0% 6.5%
Expected volatility 50.0% 50.0% 52.5%
Expected life 5 years 5 years 5 years
</Table>
P - LEASES
The Company leases used car sales and reconditioning facilities, payment
centers, office facilities and equipment under various operating leases. As of
April 30, 2001 the aggregate rentals due under such non-cancelable operating
leases with remaining lease terms in excess of one year were as follows:
<Table>
<Caption>
Years Ending
April 30, Amount
------------------- ----------------
2002 $ 5,881,256
2003 4,757,642
2004 3,832,428
2005 2,891,431
2006 1,007,375
Thereafter 270,051
----------------
$ 18,640,183
================
</Table>
For the years ended April 30, 2001, 2000 and 1999 rent expense for all
operating leases amounted to approximately $6,366,000, $4,066,000 and
$2,077,000, respectively.
Q - RELATED PARTY TRANSACTIONS
During fiscal 2001 and 2000, the Company paid an outside director $81,140 and
$30,000, respectively, as a fee in connection with certain consulting services
related to its used car sales and finance businesses.
During fiscal 2000 and 1999, in exchange for a fee, Paaco sold approximately
$1,212,000 and $2,558,000, 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 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.
36
37
R - 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, 2001 and
2000:
<Table>
<Caption>
April 30, 2001 April 30, 2000
----------------------------------- -----------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
--------------- ---------------- ---------------- ---------------
Cash and cash equivalents $ 2,193,342 $ 2,193,342 $ 9,843,310 $ 9,843,310
Mortgage loans held for sale 16,200,439 16,848,457 14,202,420 14,770,517
Finance receivables, net 211,605,630 190,445,067 183,331,361 174,164,793
Revolving credit facilities 190,062,226 190,062,226 172,709,224 172,709,224
Other notes payable 19,325,376 19,325,376 18,342,379 18,342,379
</Table>
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 costs 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:
<Table>
<Caption>
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, net The fair value was estimated based
on management's knowledge of sales of
other finance receivables portfolios
within the sub-prime auto industry.
Revolving credit facilities The fair value approximates carrying
value due to 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.
</Table>
S - 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. The Company estimates the potential exposure related to such recourse
provisions and accrues amounts against such potential 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.
Car-Mart Stock Options
In connection with the Company's acquisition of Car-Mart in January 1999,
Car-Mart issued options to certain employees to purchase an aggregate 10%
interest in Car-Mart. Such options become exercisable over a period of
approximately five years and are subject to meeting certain annual earnings
targets. The earnings targets are established each year by Car-Mart's Board of
Directors. Pursuant to such option plan, as of April 30, 2001 Car-Mart employees
had purchased, or had the right to purchase, an aggregate 5% interest in
Car-Mart at a nominal cost. Options to purchase the remaining 5% interest become
exercisable upon meeting the earnings targets for the fiscal years ended April
30, 2002 and 2003. In connection with such stock options becoming exercisable,
the Company recorded compensation expense of $673,680, $421,095 and $47,952 for
the fiscal years ended April 30, 2001, 2000 and 1999, respectively.
37
38
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 the plaintiffs to purchase Smart Choice
securities at artificially inflated prices. In April 2001 Smart Choice and the
plaintiffs' representatives executed an agreement whereby Smart Choice will pay
$2.5 million in full settlement of the above described actions. All of the $2.5
million settlement amount has been funded by Smart Choice's insurance carrier.
The agreement is subject to final approval of the court.
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.
T - SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow disclosures for the fiscal years ended April 30, 2001,
2000 and 1999 are as follows:
<Table>
<Caption>
Years Ended April 30,
2001 2000 1999
---------------- ---------------- ----------------
Interest paid $ 22,389,880 $ 12,635,936 $ 6,637,102
Income taxes paid, net 9,740,571 8,058,829 5,632,986
Inventory acquired in repossession 28,690,101 21,029,205 12,570,596
Notes issued in the purchase of property and equipment 1,475,915 2,170,610
Value of securities received in sale of 50% of
Precision 833,833
Note received in sale of Crown El Salvador 554,213
Paaco purchase agreement amendment (Note L) 4,452,597
Issuance of notes in Car-Mart acquisition 7,500,000
Value of stock issued in acquisitions 4,423,973
</Table>
In connection with the Company's purchase of Smart Choice in fiscal 2000 and
Car-Mart in fiscal 1999, assumed liabilities were as follows:
<Table>
<Caption>
Smart Choice Car-Mart
---------------- ----------------
Fair value of assets acquired $ 103,166,990 $ 44,592,839
Cash paid for capital stock and costs (5,338,838) (34,514,029)
Notes issued for capital stock (7,500,000)
Minority interests (2,987,000)
---------------- ----------------
Liabilities assumed $ 94,841,152 $ 2,578,810
================ ================
</Table>
38
39
U - BUSINESS SEGMENTS
Operating results and other financial data are presented for the principal
business segments of the Company for the years ended April 30, 2001, 2000 and
1999. These segments are categorized principally by legal entity, which is how
management organizes the segments for making operating decisions and assessing
performance. The segments include (i) Car-Mart, (ii) Paaco, (iii) Smart Choice,
and (iv) other. Each of Car-Mart, Paaco and Smart Choice sell and finance used
vehicles. Other includes corporate operations, Concorde (mortgage loans),
Precision (container rental and sales), and for certain periods Crown El
Salvador (gaming), Home Stay (lodging) and the Company's equity investments in
Precision (for periods after October 31, 2000), Casino Magic Neuquen and
Atlantic Castings. The Company's business segment data for the years ended April
30, 2001, 2000 and 1999 is as follows (in thousands):
<Table>
<Caption>
Year Ended April 30, 2001
-----------------------------------------------------------------------------------
Car-Mart Paaco S. Choice Other Eliminations Consolidated
--------- --------- --------- --------- -------------- --------------
Revenues:
Sales and other $ 97,848 $ 106,654 $ 77,206 $ 12,878 $ 294,586
Interest income 7,858 16,331 21,717 3,437 $ (1,167) 48,176
--------- --------- --------- --------- -------------- --------------
Total 105,706 122,985 98,923 16,315 (1,167) 342,762
--------- --------- --------- --------- -------------- --------------
Costs and expenses:
Cost of sales 53,412 68,700 45,940 1,180 169,232
Selling, gen. and admin. 14,950 24,887 20,119 14,204 74,160
Prov. for credit losses 17,215 14,342 29,153 508 61,218
Interest expense 3,613 7,246 10,253 2,631 (1,167) 22,576
Depreciation and amort. 141 717 1,049 2,159 4,066
El Salvador write-down 800 800
--------- --------- --------- --------- -------------- --------------
Total 89,331 115,892 106,514 21,482 (1,167) 332,052
--------- --------- --------- --------- -------------- --------------
Security gains and other 143 143
--------- --------- --------- --------- -------------- --------------
Income (loss) before taxes
and minority interests $ 16,375 $ 7,093 $ (7,591) $ (5,024) $ -- $ 10,853
========= ========= ========= ========= ============== ==============
Capital expenditures $ 636 $ 2,219 $ 975 $ 1,531 $ -- $ 5,361
========= ========= ========= ========= ============== ==============
Total assets $ 72,890 $ 91,562 $ 100,059 $ 90,897 $ (52,888) $ 302,520
========= ========= ========= ========= ============== ==============
</Table>
<Table>
<Caption>
Year Ended April 30, 2000
-----------------------------------------------------------------------------------
Car-Mart Paaco S. Choice Other Eliminations Consolidated
--------- --------- --------- --------- -------------- --------------
Revenues:
Sales and other $ 82,916 $ 82,674 $ 26,657 $ 15,113 $ 207,360
Interest income 6,466 12,034 9,199 4,610 $ (2,028) 30,281
--------- --------- --------- --------- -------------- --------------
Total 89,382 94,708 35,856 19,723 (2,028) 237,641
--------- --------- --------- --------- -------------- --------------
Costs and expenses:
Cost of sales 45,383 52,259 15,335 2,827 115,804
Selling, gen. and admin. 12,960 18,962 7,255 15,204 54,381
Prov. for credit losses 14,104 13,113 8,257 282 35,756
Interest expense 3,239 5,725 3,743 3,201 (2,028) 13,880
Depreciation and amort. 134 331 435 2,668 3,568
--------- --------- --------- --------- -------------- --------------
Total 75,820 90,390 35,025 24,182 (2,028) 223,389
--------- --------- --------- --------- -------------- --------------
Security gains and other 11,368 11,368
--------- --------- --------- --------- -------------- --------------
Income before taxes
and minority interests $ 13,562 $ 4,318 $ 831 $ 6,909 $ -- $ 25,620
========= ========= ========= ========= ============== ==============
Capital expenditures $ 169 $ 1,652 $ 983 $ 7,148 $ -- $ 9,952
========= ========= ========= ========= ============== ==============
Total assets $ 58,976 $ 87,648 $ 99,191 $ 112,476 $ (67,384) $ 290,907
========= ========= ========= ========= ============== ==============
</Table>
39
40
<Table>
<Caption>
Year Ended April 30, 1999
-----------------------------------------------------------------------------------
Car-Mart Paaco S. Choice Other Eliminations Consolidated
--------- --------- --------- --------- -------------- --------------
Revenues:
Sales and other $ 25,273 $ 61,848 $ -- $ 10,844 $ 97,965
Interest income 1,758 8,880 3,502 $ (819) 13,321
--------- --------- --------- --------- -------------- --------------
Total 27,031 70,728 -- 14,346 (819) 111,286
--------- --------- --------- --------- -------------- --------------
Costs and expenses:
Cost of sales 13,407 41,858 1,865 57,130
Selling, gen. and admin. 3,494 15,860 11,430 30,784
Prov. for credit losses 5,325 9,926 247 15,498
Interest expense 892 4,879 1,814 (819) 6,766
Depreciation and amort. 41 392 1,966 2,399
--------- --------- --------- --------- -------------- --------------
Total 23,159 72,915 -- 17,322 (819) 112,577
--------- --------- --------- --------- -------------- --------------
Security gains and other 27,249 27,249
--------- --------- --------- --------- -------------- --------------
Income (loss) before taxes
and minority interests $ 3,872 $ (2,187) $ -- $ 24,273 $ -- $ 25,958
========= ========= ========= ========= ============== ==============
Capital expenditures $ -- $ 897 $ -- $ 15,416 $ -- $ 16,313
========= ========= ========= ========= ============== ==============
Total assets $ 47,229 $ 59,556 $ -- $ 103,993 $ (42,643) $ 168,135
========= ========= ========= ========= ============== ==============
</Table>
V - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
A summary of the Company's quarterly results of operations for the years
ended April 30, 2001 and 2000 is as follows (in thousands):
<Table>
<Caption>
Year Ended April 30, 2001
------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------------ ------------ ------------ ------------- ------------
Revenues $ 82,451 $ 89,564 $ 80,115 $ 90,632 $ 342,762
Net income 2,767 1,550 996 650 5,963
Basic EPS .34 .20 .13 .09 .77
Diluted EPS .32 .19 .13 .09 .74
</Table>
<Table>
<Caption>
Year Ended April 30, 2000
------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------------ ------------ ------------ ------------- ------------
Revenues (a) $ 48,556 $ 45,530 $ 58,721 $ 84,834 $ 237,641
Net income (b) 2,578 7,606 1,480 3,172 14,836
Basic EPS (b) .26 .79 .17 .38 1.61
Diluted EPS (b) .25 .76 .16 .36 1.54
</Table>
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 Casino Magic Neuquen resulting in a significant
gain during such period (see Note C).
40
41
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 fiscal 1999 and
1998 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.
41
42
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 2001. 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 2001
(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 2001
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 2001 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 2001 Proxy Statement under the heading "Certain Transactions,"
which information is incorporated herein by reference.
42
43
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, 2001 and 2000
Consolidated Statements of Operations for the fiscal years
ended April 30, 2001, 2000 and 1999
Consolidated Statements of Comprehensive Income for the
fiscal years ended April 30, 2001, 2000, and 1999
Consolidated Statements of Cash Flows for the fiscal years
ended April 30, 2001, 2000 and 1999
Consolidated Statements of Stockholders' Equity for the fiscal
years ended April 30, 2001, 2000 and 1999
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
<Table>
<Caption>
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)
</Table>
43
44
<Table>
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)
</Table>
- ----------
(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.
44
45
(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, 2001 the Company did not file any
reports on Form 8-K.
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46
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: August 7, 2001 By: /s/ Edward R. McMurphy
-------------------------------------------
Edward R. McMurphy
President and Chief Executive Officer
(principal executive officer)
Dated: August 7, 2001 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.
<Table>
<Caption>
Signature Title Date
--------- ----- ----
* Chairman of the Board, President August 7, 2001
- -------------------------------------- and Chief Executive Officer
Edward R. McMurphy
* Executive Vice President, August 7, 2001
- -------------------------------------- General Counsel and Director
Tilman J. Falgout, III
* Director August 7, 2001
- --------------------------------------
David J. Douglas
* Director August 7, 2001
- --------------------------------------
John David Simmons
* Director August 7, 2001
- --------------------------------------
Gerald L. Adams
* Director August 7, 2001
- --------------------------------------
Gerard M. Jacobs
* Director August 7, 2001
- --------------------------------------
Robert J. Kehl
* By/s/ Mark D. Slusser
----------------------------------
Mark D. Slusser
As Attorney-in-Fact
Pursuant to Powers of
Attorney filed herewith
</Table>
46
47
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF CROWN GROUP, INC. (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
<Table>
<Caption>
April 30,
-------------------------
2001 2000
----------- -----------
Assets:
Cash and cash equivalents $ 252,773 $ 5,803,702
Investments 6,670,265 2,503,146
Receivables from subsidiaries 10,611,644 19,556,771
Investment in subsidiaries 40,555,756 36,709,601
Goodwill, net 6,767,585 7,283,551
Other 6,973,699 5,195,313
----------- -----------
$71,831,722 $77,052,084
=========== ===========
Liabilities and stockholders' equity:
Accounts payable and accrued liabilities $ 838,750 $ 1,761,012
Income taxes payable 230,204 6,463,863
Debt 11,830,515 9,816,000
Deferred tax liability 143,994
----------- -----------
Total liabilities 12,899,469 18,184,869
----------- -----------
Stockholders' equity 58,932,253 58,867,215
----------- -----------
$71,831,722 $77,052,084
=========== ===========
</Table>
CONDENSED STATEMENTS OF OPERATIONS
<Table>
<Caption>
Years Ended April 30,
-------------------------------------------
2001 2000 1999
------------ ------------ ------------
Revenues:
Interest income $ 392,436 $ 638,687 $ 1,038,645
Interest income from subsidiaries 1,166,973 2,028,413 818,831
Interest, fees and rentals from CMN 694,146
Other 67,729 239,346
------------ ------------ ------------
1,627,138 2,667,100 2,790,968
------------ ------------ ------------
Costs and expenses:
Selling, general and administrative 3,783,915 4,677,799 4,916,797
Interest expense 877,245 788,375 211,210
Depreciation and amortization 861,704 833,405 1,079,564
------------ ------------ ------------
5,522,864 6,299,579 6,207,571
------------ ------------ ------------
Other income:
Equity in earnings of unconsolidated subsidiaries 137,929 506,775 1,259,734
Equity in earnings of consolidated subsidiaries 7,838,572 9,600,315 1,696,385
Gain on sale of securities, net 4,726 10,861,100 25,989,130
------------ ------------ ------------
7,981,227 20,968,190 28,945,249
------------ ------------ ------------
Income before income taxes 4,085,501 17,335,711 25,528,646
Provision (benefit) for income taxes (1,877,327) 2,499,292 8,020,236
------------ ------------ ------------
Net income $ 5,962,828 $ 14,836,419 $ 17,508,410
============ ============ ============
</Table>
The accompanying notes are an integral part of this condensed financial
information.
47
48
SCHEDULE I (CONTINUED)
CROWN GROUP, INC. (PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
Years Ended April 30,
------------------------------------------------------
2001 2000 1999
--------------- -------------- --------------
Operating activities:
Net income $ 5,962,828 $ 14,836,419 $ 17,508,410
Adjustments to reconcile net income to
net cash used by operating activities:
Depreciation and amortization 861,704 833,405 1,079,564
Accretion of purchase discount (103,370) (376,074) (825,198)
Deferred income taxes 530,526 (682,656) 778,307
(Gain) loss on sale of assets 2,503 11,188 (136,196)
Gain on sale of securities (4,726) (10,861,100) (25,989,130)
Equity in earnings of unconsolidated subsidiaries (137,929) (506,775) (1,259,734)
Equity in earnings of consolidated subsidiaries (7,838,572) (9,600,315) (1,696,385)
Changes in assets and liabilities, net of transactions:
Other 737,932 (1,190,001) 756,298
Accounts payable and accrued liabilities (1,301,079) 454,842 398,515
Income taxes payable (6,233,659) 3,162,180 3,238,210
--------------- -------------- --------------
Net cash used by operating activities (7,523,842) (3,918,887) (6,147,339)
--------------- -------------- --------------
Investing activities:
Purchase of property and equipment (51,660) (291,426) (3,475,908)
Sale of property and equipment 1,043,711
Purchase of investments and securities (970,615) (1,808,805) (6,643,496)
Sale of securities 16,762,325 34,449,806
Advances to subsidiaries (242,918) (18,306,514) (2,213,221)
Repayments from subsidiaries 6,042,596 11,582,682 5,350,000
Sale of 50% of Precision 2,229,467
Sale of Crown El Salvador 30,000
Dividends and note collections from CMN 306,487 2,389,152
Investment in unconsolidated entities (1,000,341)
Formation of Crown El Salvador (1,207,000)
Formation of Home Stay (640,000)
Purchase of Car-Mart (10,005,863)
Purchase of Paaco (3,431,250)
Purchase of Precision and M&S (2,000)
Purchase of Smart Choice (5,338,838)
--------------- -------------- --------------
Net cash provided by investing activities 7,036,870 2,905,911 14,613,590
--------------- -------------- --------------
Financing activities:
Issuance of stock 60,937
Issuance of debt 1,158,000
Purchase of common stock (5,124,894) (5,844,111) (1,994,323)
--------------- -------------- --------------
Net cash used by financing activities (5,063,957) (5,844,111) (836,323)
--------------- -------------- --------------
Increase (decrease) in cash and cash equivalents (5,550,929) (6,857,087) 7,629,928
Cash and cash equivalents at: Beginning of year 5,803,702 12,660,789 5,030,861
--------------- -------------- --------------
End of year $ 252,773 $ 5,803,702 $ 12,660,789
=============== ============== ==============
The accompanying notes are an integral part of this condensed financial
information.
48
49
SCHEDULE I (CONTINUED)
CROWN GROUP, INC. (PARENT COMPANY ONLY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
A - GUARANTEES
Crown Group, Inc. ("Crown") has made the following guarantees with respect
to its subsidiaries:
<Table>
<Caption>
Amount
Facility Drawn at Maximum
Debtor Amount April 30, 2001 Guarantee
------ ------------- -------------- ------------
Paaco/Smart Choice $ 160,000,000 $ 147,441,945 $ 5,000,000
Car-Mart 35,000,000 29,767,688 10,000,000
Concorde 25,000,000 12,852,593 5,000,000
</Table>
B - ELIMINATION OF BALANCES AND TRANSACTIONS WITH SUBSIDIARIES
As of April 30, 2001 and 2000 the following balances were eliminated in the
consolidated financial statements of Crown:
<Table>
<Caption>
April 30,
------------------------------------
2001 2000
--------------- ---------------
Receivables from subsidiaries $ 10,611,644 $ 19,556,771
Investments in subsidiaries 40,555,756 36,709,601
</Table>
For the years ended April 30, 2001, 2000 and 1999 interest income in the
amounts of $1,166,973, $2,028,413 and $818,831, respectively, was eliminated
in the consolidated financial statements of Crown.
C - DEBT
A summary of debt as of April 30, 2001 and 2000 is as follows:
<Table>
<Caption>
Interest Primary Balance at April 30,
Lender Rate Maturity Collateral 2001 2000
--------------- ----------- ---------- ------------ ------------- --------------
Car-Mart sellers 8.50% Jan 2004 Unsecured $ 7,500,000 $ 7,500,000
Bank of America 8.00% Sep 2001 Equipment 2,316,000 2,316,000
Regions Bank Prime + .5% May 2001 Land 2,000,000
IOS 17.27% Apr 2006 Equipment 14,515
------------- --------------
$ 11,830,515 $ 9,816,000
============= ==============
</Table>
A summary of future minimum principal payments required under the
aforementioned debt as of April 30, 2001 is as follows:
<Table>
<Caption>
Years Ending
April 30, Amount
------------- ------------
2002 $ 4,318,159
2003 2,563
2004 7,503,042
2005 3,611
2006 3,140
------------
$ 11,830,515
============
</Table>
D - RECLASSIFICATIONS
Certain prior year amounts in the accompanying financial statements
have been reclassified to conform to the fiscal 2001 presentation.
49
50
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
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.
</Table>
50