SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported) November 9, 2001
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Crown Group, Inc.
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(Exact name of registrant as specified in its charter)
Texas 0-14939 63-0851141
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
4040 North MacArthur Boulevard, Suite 100, Irving, Texas 75038
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(Address of principal executive offices)
Registrant's telephone number, including area code (972) 717-3423
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(Former name or former address, if changed since last report)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
SMART CHOICE AGREEMENT WITH FINOVA
On November 8, 2001, Crown Group, Inc.'s ("Crown") 70% owned subsidiary, Smart
Choice Automotive Group, Inc. ("Smart Choice"), and certain of Smart Choice's
subsidiaries, entered into a forbearance agreement with Finova Capital
Corporation ("Finova"), the primary lender to Smart Choice's subsidiaries, that
has resulted in the foreclosure of receivables and inventory of certain
Florida-based subsidiaries of Smart Choice (the "Florida Finance Group"), and
the probable sale of Smart Choice's wholly-owned subsidiaries, Paaco Automotive
Group, L.P. and Premium Auto Acceptance Corporation (collectively, "Paaco"), to
Finova.
Prior to November 9, 2001, the Florida Finance Group sold and financed used cars
and trucks in Florida. Paaco sells and finances used cars and trucks in Texas.
The Florida Finance Group had, and Paaco continues to have, a revolving credit
facility with Finova. Prior to November 9, 2001, the Florida Finance Group was
over-advanced on its revolving credit facility, which constituted an event of
default under the facility, and as of September 30, 2001, was over-advanced by
approximately $25 million.
Pursuant to the forbearance agreement, on November 9, 2001, the collateral for
the Florida Finance Group's credit facility with Finova, which consisted
principally of receivables and inventory, was sold at a public foreclosure sale
to Finova for $55 million. Prior to the foreclosure sale, the Florida Finance
Group owed Finova $88.4 million. Thus, after applying the proceeds from the
foreclosure sale, the Florida Finance Group owes Finova $33.4 million (the
"Deficiency").
Further, as part of the forbearance agreement, Smart Choice has granted Finova
(i) an option to purchase Paaco (the "Paaco Option") for an amount equal to the
Deficiency, subject to shareholder approval and an appraisal indicating the
value of Paaco is not greater than the Deficiency, and (ii) an option to
purchase up to 100% of Smart Choice's remaining shares of authorized but
unissued common stock (approximately 39 million shares) (the "Smart Choice Stock
Option") at a price of $0.30 per share. The Smart Choice Stock Option will
terminate upon the closing of the exercise of the Paaco Option. Presently, Smart
Choice has approximately 9.8 million shares of common stock outstanding, of
which Crown owns approximately 6.9 million shares. Smart Choice expects Finova
will purchase Paaco pursuant to the Paaco Option. Both the Paaco Option and the
Smart Choice Stock Option will expire on March 8, 2002.
As a result of the Finova agreement and the lack of other available capital, on
November 9, 2001 Smart Choice began to wind-down its Florida-based operations.
If Paaco is sold to Finova pursuant to the exercise of the Paaco Option as is
expected, Smart Choice's remaining assets would consist of certain improved and
unimproved real estate in Titusville, Florida, including a 35,000 square-foot
office facility, and certain other current and fixed assets. Further assuming
the sale of Paaco, management presently anticipates that Smart Choice's
remaining assets will likely be sold by Smart Choice in an effort to realize the
maximum value for these assets and repay its obligations to unsecured creditors
to the extent possible.
CROWN AGREEMENT WITH FINOVA
Separately, Crown has entered into a settlement agreement with Finova that
provides for Crown to (i) pay Finova $1 million in cash, and (ii) grant Finova
an option to purchase Crown's 6.9 million shares of Smart Choice common stock
for $1.00, in exchange for Finova unconditionally releasing Crown from its $5
million guaranty of the Florida Finance Group's and Paaco's obligations to
Finova. As a result of these transactions and operating losses at Smart Choice,
Crown's equity investment in Smart Choice, which totaled $16.4 million at July
31, 2001, has been written off. Crown anticipates that it will receive a federal
income tax benefit of approximately $6 million following the ultimate
disposition of its investment in Smart Choice. Separately, on October 31, 2001
Crown's Board of Directors decided to divest itself of the Smart Choice
subsidiary if the Finova transaction did not happen.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(b). Pro Forma financial information.
The following pro forma financial information of Crown Group, Inc. is hereby
filed with this report:
Introduction to Pro Forma Financial Information
Pro Forma Consolidated Condensed Balance Sheet (unaudited) as of July
31, 2001
Pro Forma Consolidated Statement of Operations (unaudited) for the year
ended April 30, 2001
Pro Forma Consolidated Statements of Operations (unaudited) for the
three months ended July 31, 2001
Notes to Pro Forma Consolidated Financial Statements
(c). Exhibits.
Exhibit Number Description of Exhibit
10.6 Forbearance Agreement dated as of November 8, 2001 by
and between Smart Choice Automotive Group, Inc. and
certain of Smart Choice's subsidiaries, and Finova
Capital Corporation.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
CROWN GROUP, INC.
By: /s/ Mark D. Slusser
------------------------------------
Mark D. Slusser
Chief Financial Officer
Dated: November 26, 2001
CROWN GROUP, INC.
INTRODUCTION TO PRO FORMA FINANCIAL INFORMATION
SMART CHOICE AGREEMENT WITH FINOVA
On November 8, 2001, Crown Group, Inc.'s ("Crown") 70% owned subsidiary, Smart
Choice Automotive Group, Inc. ("Smart Choice"), and certain of Smart Choice's
subsidiaries, entered into a forbearance agreement with Finova Capital
Corporation ("Finova"), the primary lender to Smart Choice's subsidiaries, that
has resulted in the foreclosure of receivables and inventory of certain
Florida-based subsidiaries of Smart Choice (the "Florida Finance Group"), and
the probable sale of Smart Choice's wholly-owned subsidiaries, Paaco Automotive
Group, L.P. and Premium Auto Acceptance Corporation (collectively, "Paaco"), to
Finova.
Prior to November 9, 2001, the Florida Finance Group sold and financed used cars
and trucks in Florida. Paaco sells and finances used cars and trucks in Texas.
The Florida Finance Group had, and Paaco continues to have, a revolving credit
facility with Finova. Prior to November 9, 2001, the Florida Finance Group was
over-advanced on its revolving credit facility, which constituted an event of
default under the facility, and as of September 30, 2001, was over-advanced by
approximately $25 million.
Pursuant to the forbearance agreement, on November 9, 2001, the collateral for
the Florida Finance Group's credit facility with Finova, which consisted
principally of receivables and inventory, was sold at a public foreclosure sale
to Finova for $55 million. Prior to the foreclosure sale, the Florida Finance
Group owed Finova $88.4 million. Thus, after applying the proceeds from the
foreclosure sale, the Florida Finance Group owes Finova $33.4 million (the
"Deficiency").
Further, as part of the forbearance agreement, Smart Choice has granted Finova
(i) an option to purchase Paaco (the "Paaco Option") for an amount equal to the
Deficiency, subject to shareholder approval and an appraisal indicating the
value of Paaco is not greater than the Deficiency, and (ii) an option to
purchase up to 100% of Smart Choice's remaining shares of authorized but
unissued common stock (approximately 39 million shares) (the "Smart Choice Stock
Option") at a price of $0.30 per share. The Smart Choice Stock Option will
terminate upon the closing of the exercise of the Paaco Option. Presently, Smart
Choice has approximately 9.8 million shares of common stock outstanding, of
which Crown owns approximately 6.9 million shares. Smart Choice expects Finova
will purchase Paaco pursuant to the Paaco Option. Both the Paaco Option and the
Smart Choice Stock Option will expire on March 8, 2002.
As a result of the Finova agreement and the lack of other available capital, on
November 9, 2001 Smart Choice began to wind-down its Florida-based operations.
If Paaco is sold to Finova pursuant to the exercise of the Paaco Option, Smart
Choice's remaining assets would consist of certain improved and unimproved real
estate in Titusville, Florida, including a 35,000 square-foot office facility,
and certain other current and fixed assets. Further assuming the sale of Paaco,
management presently anticipates that Smart Choice's remaining assets will
likely be sold by Smart Choice in an effort to realize the maximum value for
these assets and repay its obligations to unsecured creditors to the extent
possible.
CROWN AGREEMENT WITH FINOVA
Separately, Crown has entered into a settlement agreement with Finova that
provides for Crown to (i) pay Finova $1 million in cash, and (ii) grant Finova
an option to purchase Crown's 6.9 million shares of Smart Choice common stock
for $1.00, in exchange for Finova unconditionally releasing Crown from its $5
million guaranty of the Florida Finance Group's and Paaco's obligations to
Finova. As a result of these transactions and operating losses at Smart Choice,
Crown's equity investment in Smart Choice, which totaled $16.4 million at July
31, 2001, has been written off. Crown anticipates that it will receive a federal
income tax benefit of approximately $6 million following the ultimate
disposition of its investment in Smart Choice. Separately on October 31, 2001
Crown's Board of Directors decided to divest itself of the Smart Choice
subsidiary if the Finova transactions did not happen.
P-1
PRO FORMA FINANCIAL STATEMENTS
The following Pro Forma Consolidated Condensed Balance Sheet of Crown as of July
31, 2001 gives effect to the (i) elimination of Smart Choice from Crown's
consolidated financial statements, which essentially occurs as a result of (a)
the sale of certain of the Florida Finance Group's receivables and inventory to
Finova at a public foreclosure sale for $55 million, (b) the expected sale of
Paaco to Finova for the Deficiency pursuant to Finova's exercise of the Paaco
Option, and (c) the adjustment of Smart Choice assets to net realizable value,
and (ii) other adjustments described in the Notes to Pro Forma Consolidated
Financial Statements, as if such transactions and actions had occurred on that
date.
The following Pro Forma Consolidated Statement of Operations for the year ended
April 30, 2001 gives effect to the (i) elimination of Smart Choice from Crown's
consolidated financial statements, and (ii) other adjustments as described in
the Notes to Pro Forma Consolidated Financial Statements, as if such
transactions and actions had occurred immediately prior to the beginning of the
period (April 30, 2000).
The following Pro Forma Consolidated Statement of Operations for the three
months ended July 31, 2001 gives effect to the (i) elimination of Smart Choice
from Crown's consolidated financial statements, and (ii) other adjustments as
described in the Notes to Pro Forma Consolidated Financial Statements, as if
such transactions and actions had occurred immediately prior to the beginning of
the period (April 30, 2001).
The pro forma information is based on the historical financial statements of
Crown and Smart Choice giving effect to the transactions described above and the
adjustments described in the accompanying Notes to Pro Forma Consolidated
Financial Statements and may not be indicative of the results that actually
would have occurred had the transactions taken place on the dates indicated or
the results which may be obtained in the future.
P-2
CROWN GROUP, INC.
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
UNAUDITED
JULY 31, 2001
(IN THOUSANDS)
<Table>
<Caption>
Eliminate
Smart Choice
Historical Balance Other Pro Forma
Crown Sheet Adjustments Crown
------------ ------------ ------------ ------------
Assets:
Cash and cash equivalents $ 2,207 $ (851) $ (1,000)(a) $ 356
Accounts and other receivables 4,842 (1,539) 2,576(b) 5,879
Federal income tax receivable 3,423(e) 3,423
Mortgage loans held for sale 17,595 17,595
Finance receivables, net 209,456 (143,653) 65,803
Inventory 12,605 (9,065) 3,540
Prepaid and other assets 1,071 (710) 361
Investments 6,790 6,790
Deferred tax assets, net 22,023 (16,510) 5,513
Property and equipment, net 16,723 (12,012) 4,711
Goodwill, net 8,852 (2,084) (6,768)(c)
------------ ------------ ------------ ------------
$ 302,164 $ (186,424) $ (1,769) $ 113,971
============ ============ ============ ============
Liabilities and stockholders' equity:
Accounts payable $ 6,055 $ (3,752) $ 2,303
Accrued liabilities 9,467 (5,679) 3,788
Income taxes payable 3,989 (1,140) $ (2,493)(e) 356
Revolving credit facilities 196,025 (147,442) 48,583
Other notes payable 16,644 (9,690) 2,576(b) 9,530
Deferred sales tax 4,957 (4,957)
------------ ------------ ------------ ------------
Total liabilities 237,137 (172,660) 83 64,560
------------ ------------ ------------ ------------
Minority interests 5,825 (4,129)(d) 1,696
Stockholders' equity 59,202 (13,764) 2,277 47,715
------------ ------------ ------------ ------------
$ 302,164 $ (186,424) $ (1,769) $ 113,971
============ ============ ============ ============
</Table>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
P-3
CROWN GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED APRIL 30, 2001
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
Eliminate
Smart Choice
Historical Consolidated Other Pro Forma
Crown Operations Adjustments Crown
------------ ------------ ------------ ------------
Revenues:
Sales $ 282,545 $ (183,183) $ 99,362
Interest income 48,176 (38,048) 10,128
Gain on sale of mortgage loans 6,726 6,726
Other 5,315 (677) 4,638
------------ ------------ ------------ ------------
342,762 (221,908) 120,854
------------ ------------ ------------ ------------
Costs and expenses:
Cost of sales 169,232 (114,640) 54,592
Selling, general and administrative 74,160 (45,006) 29,154
Provision for credit losses 61,218 (43,495) 17,723
Interest expense 22,576 (17,499) 5,077
Depreciation and amortization 4,066 (1,766) $ (516)(a) 1,784
Write-down of Crown El Salvador 800 800
------------ ------------ ------------ ------------
332,052 (222,406) (516) 109,130
------------ ------------ ------------ ------------
Other income 143 143
------------ ------------ ------------ ------------
Income before taxes and minority interests 10,853 498 516 11,867
Provision for income taxes 4,758 (105) 4,653
Minority interests 132 181(b) 313
------------ ------------ ------------ ------------
Net income $ 5,963 $ 603 $ 335 $ 6,901
============ ============ ============ ============
Earnings per share:
Basic $ 0.77 $ 0.90
Diluted $ 0.74 $ 0.86
Weighted average number of shares outstanding:
Basic 7,697 7,697
Diluted 8,016 8,016
</Table>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
P-4
CROWN GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JULY 31, 2001
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
Eliminate
Smart Choice
Historical Consolidated Other Pro Forma
Crown Operations Adjustments Crown
------------ ------------ ------------ ------------
Revenues:
Sales $ 64,716 $ (36,592) $ 28,124
Interest income 12,503 (9,648) 2,855
Gain on sale of mortgage loans 2,392 2,392
Other 510 (281) 229
------------ ------------ ------------ ------------
80,121 (46,521) 33,600
------------ ------------ ------------ ------------
Costs and expenses:
Cost of sales 38,190 (23,179) 15,011
Selling, general and administrative 17,818 (10,779) 7,039
Provision for credit losses 16,660 (11,053) 5,607
Interest expense 4,890 (3,700) 1,190
Depreciation and amortization 611 (415) 196
Write-down of equipment 400 400
------------ ------------ ------------ ------------
78,569 (49,126) 29,443
------------ ------------ ------------ ------------
Other income 108 108
------------ ------------ ------------ ------------
Income before taxes and minority interests 1,660 2,605 4,265
Provision for income taxes 830 878 1,708
Minority interests (364) $ 518(b) 154
------------ ------------ ------------ ------------
Net income $ 1,194 $ 1,727 $ (518) $ 2,403
============ ============ ============ ============
Earnings per share:
Basic $ 0.17 $ 0.35
Diluted $ 0.17 $ 0.34
Weighted average number of shares outstanding:
Basic 6,869 6,869
Diluted 7,039 7,039
</Table>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
P-5
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXPECT PERCENTAGE)
CONDENSED BALANCE SHEET
a - To reflect cash payment by Crown to Finova as full settlement of
Crown's guarantee of the Florida Finance Group's and Paaco's
obligations to Finova.
b - To record Crown's note receivable from Paaco that had previously been
eliminated in Crown's consolidated balance sheet.
c - To write-off goodwill that was related to Crown's investment in Smart
Choice that is deemed worthless.
d - To write-off minority interests related to Smart Choice.
e - To record a tax benefit on Crown's books related to its loss of its
investment in Smart Choice as follows:
<Table>
Investment in Smart Choice written-off $ 16,400
Guarantee payment to Finova 1,000
--------
17,400
Federal tax rate 34%
--------
Total tax benefit 5,916
Less reduction in federal income tax payable (2,493)
--------
Federal income tax receivable $ 3,423
========
</Table>
STATEMENTS OF OPERATIONS
a - To eliminate amortization of goodwill related to Smart Choice.
b - To eliminate minority interests related to Smart Choice.
P-6
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.6 Forbearance Agreement dated as of November 8, 2001 by
and between Smart Choice Automotive Group, Inc. and
certain of Smart Choice's subsidiaries, and Finova
Capital Corporation.
</Table>