UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QA
AMENDMENT NO. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
<Table>
For the fiscal quarter ended: Commission file number:
JANUARY 31, 2002 0-14939
CROWN GROUP, INC.
(Exact name of registrant as specified in its charter)
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)
75038-6424
(Zip Code)
(972) 717-3423
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
<Table>
<Caption>
Outstanding at
Title of Each Class March 7, 2002
------------------- -------------
Common stock, par value $.01 per share 6,777,338
</Table>
1
PART I
ITEM 1. FINANCIAL STATEMENTS CROWN GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
January 31, 2002
(Unaudited) April 30, 2001
---------------- ---------------
(Restated)
Assets:
Cash and cash equivalents $ 698,826 $ 718,134
Income tax receivable 9,566,243
Notes and other receivables, net 1,167,890 4,441,391
Finance receivables, net 71,421,600 61,969,879
Inventory 3,693,644 3,013,293
Prepaid and other assets 259,914 359,395
Investments 229,768 3,473,761
Deferred tax assets, net 5,401,487
Property and equipment, net 3,188,607 4,233,443
Assets of subsidiaries held for sale 32,439,881 218,909,333
--------------- ---------------
$ 122,666,373 $ 302,520,116
=============== ===============
Liabilities and stockholders' equity:
Accounts payable $ 3,259,984 $ 1,942,261
Accrued liabilities 5,499,376 3,565,981
Income taxes payable 4,987,609
Deferred tax liabilities, net 10,766
Revolving credit facility 32,505,703 29,767,688
Other notes payable 8,375,000 11,816,000
Liabilities of subsidiaries held for sale 24,091,538 190,655,389
--------------- ---------------
73,742,367 242,734,928
--------------- ---------------
Minority interests 1,900,818 852,935
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;
6,773,082 issued and outstanding (6,980,367 at April 30, 2001) 67,731 69,804
Additional paid-in capital 24,403,744 23,075,677
Retained earnings 22,551,713 35,786,772
--------------- ---------------
Total stockholders' equity 47,023,188 58,932,253
--------------- ---------------
$ 122,666,373 $ 302,520,116
=============== ===============
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
2
CONSOLIDATED STATEMENTS OF OPERATIONS CROWN GROUP, INC.
(UNAUDITED)
<Table>
<Caption>
Three Months Ended Nine Months Ended
January 31, January 31,
2002 2001 2002 2001
--------------- --------------- --------------- ---------------
(Restated) (Restated)
Revenues:
Sales $ 28,655,084 $ 24,502,764 $ 86,121,745 $ 70,504,122
Interest income 2,265,420 2,237,445 7,105,314 6,471,218
--------------- --------------- --------------- ---------------
30,920,504 26,740,209 93,227,059 76,975,340
--------------- --------------- --------------- ---------------
Costs and expenses:
Cost of sales 14,506,250 13,347,919 45,549,187 38,367,994
Selling, general and administrative 5,867,055 4,594,415 16,042,312 14,044,547
Provision for credit losses 5,887,001 4,431,717 17,509,684 12,175,500
Interest expense 656,354 1,055,044 2,438,761 3,082,379
Depreciation and amortization 51,248 230,888 208,868 398,155
Stock option based compensation 2,290,172 2,290,172
Restructuring charge 2,732,106
Write-down of investments and equipment 3,927,631
--------------- --------------- --------------- ---------------
29,258,080 23,659,983 90,698,721 68,068,575
--------------- --------------- --------------- ---------------
Income from continuing operations
before taxes and minority interests 1,662,424 3,080,226 2,528,338 8,906,765
Provision for income taxes 1,293,078 1,217,455 2,069,734 3,620,016
Minority interests 138,329 74,184 418,189 230,445
--------------- --------------- --------------- ---------------
Income from continuing operations 231,017 1,788,587 40,415 5,056,304
Discontinued operations:
Income (loss) from discontinued operations,
net of taxes and minority interests 307,323 (795,357) (13,275,474) 254,054
Gain on sale of discontinued operation,
net of tax 3,119 3,119
--------------- --------------- --------------- ---------------
Income (loss) from discontinued operations 307,323 (792,238) (13,275,474) 257,173
--------------- --------------- --------------- ---------------
Net income (loss) $ 538,340 $ 996,349 $ (13,235,059) $ 5,313,477
=============== =============== =============== ===============
Basic earnings (loss) per share:
Continuing operations $ .03 $ .24 $ .01 $ .65
Discontinued operations .05 (.11) (1.96) .03
--------------- --------------- --------------- ---------------
Total $ .08 $ .13 $ (1.95) $ .68
=============== =============== =============== ===============
Diluted earnings (loss) per share:
Continuing operations $ .03 $ .23 $ .01 $ .62
Discontinued operations .04 (.10) (1.89) .03
--------------- --------------- --------------- ---------------
Total $ .08 $ .13 $ (1.88) $ .65
=============== =============== =============== ===============
Weighted average number of shares outstanding:
Basic 6,747,458 7,474,780 6,782,439 7,856,297
Diluted 7,149,145 7,768,330 7,032,625 8,218,856
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
3
CONSOLIDATED STATEMENTS OF CASH FLOWS CROWN GROUP, INC.
(UNAUDITED)
<Table>
<Caption>
Nine Months Ended
January 31,
2002 2001
--------------- ---------------
(Restated)
Operating activities:
Net income (loss) $ (13,235,059) $ 5,313,477
Add: (Income) loss from discontinued operations 13,275,474 (257,173)
--------------- ---------------
Income from continuing operations 40,415 5,056,304
Adjustments to reconcile income from continuing operations to net cash used in
operating activities:
Depreciation and amortization 208,868 398,155
Deferred income taxes 5,412,253 (1,570,971)
Provision for credit losses 17,509,684 12,175,500
Stock option based compensation 2,290,172
Write-down of investments and equipment 3,927,631
Minority interests 418,189 230,445
Accretion of purchase discount (29,095)
Changes in operating assets and liabilities:
Receivables (3,109,955) 318,623
Finance receivable originations (78,713,912) (63,980,960)
Finance receivable collections 47,759,066 40,337,513
Inventory acquired in repossession 4,093,441 3,367,061
Inventory (680,351) (494,273)
Prepaids and other assets 102,938 150,331
Accounts payable and accrued liabilities 3,880,812 (523,036)
Income taxes payable (4,987,609) (3,719,806)
--------------- ---------------
Net cash used in operating activities (1,848,358) (8,284,209)
--------------- ---------------
Investing activities:
Purchase of property and equipment (937,609) (496,883)
Sale of equipment 25,000
Sale of securities 2,229,468
Note collections from discontinued subsidiaries 1,347,340 3,230,247
Purchase of investments (54,518) (805,877)
--------------- ---------------
Net cash provided by investing activities 380,213 4,156,955
--------------- ---------------
Financing activities:
Sale of common stock 48,359 60,937
Purchase of common stock (1,012,537) (3,785,670)
Proceeds from revolving credit facility, net 2,738,015 1,211,017
Repayments of other debt (325,000)
--------------- ---------------
Net cash provided by (used in) financing activities 1,448,837 (2,513,716)
--------------- ---------------
Cash used in continuing operations (19,308) (6,640,970)
Cash provided by (used in) discontinued operations 300,098 (1,421,360)
--------------- ---------------
Increase (decrease) in cash and cash equivalents 280,790 (8,062,330)
Cash and cash equivalents at: Beginning of period 2,193,342 9,843,310
End of period 2,474,132 1,780,980
Less: Cash and cash equivalents of discontinued operations (1,775,306) (1,672,163)
--------------- ---------------
Cash and cash equivalents of continuing operations $ 698,826 $ 108,817
=============== ===============
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CROWN GROUP, INC.
A - DESCRIPTION OF BUSINESS
Crown Group, Inc. ("Crown") is a holding company which owns a 95% fully
diluted ownership interest in America's Car-Mart, Inc. ("Car-Mart")
(collectively, Crown and Car-Mart are referred to as "the Company"). Car-Mart
sells and finances the sale of used automobiles and trucks principally to
consumers with limited or damaged credit histories. As of January 31, 2002
Car-Mart operated 54 stores in seven south-centrally located states.
In addition, at January 31, 2002, Crown also owned (i) an 80% interest in
Concorde Acceptance Corporation ("Concorde"), a prime and sub-prime mortgage
lender, and (ii) a 50% interest in Precision IBC, Inc. ("Precision"), a firm
specializing in the sale and rental of intermediate bulk containers. In October
2001 Crown made the decision to sell all of its subsidiaries except Car-Mart,
and relocate its corporate headquarters to Rogers, Arkansas where Car-Mart is
based. Accordingly, the operating results of Concorde and Precision, as well as
the operating results of Smart Choice Automotive Group, Inc. ("Smart Choice"),
Crown's 70% owned subsidiary which was written-off in October 2001, and CG
Incorporated, S.A. de C.V. ("Crown El Salvador") that was sold in the prior
fiscal year, are included in discontinued operations (see Note L). Similarly,
the assets and liabilities of Concorde and Precision are included in "Assets of
subsidiaries held for sale" and "Liabilities of subsidiaries held for sale",
respectively, in the accompanying consolidated balance sheet at January 31, 2002
(Concorde, Precision and Smart Choice at April 30, 2001).
B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the nine-month
period ended January 31, 2002 are not necessarily indicative of the results that
may be expected for the year ended April 30, 2002. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's annual report on Form 10-K for the year ended April 30, 2001.
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 adopted SFAS 141 effective May 1,
2001. Such adoption did not have any 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 adopted SFAS 142
effective May 1, 2001. Such adoption did not have any impact on the continuing
operations of the Company.
In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144 ("SFAS 144"), "Accounting for the Impairment of Long-Lived Assets",
which requires a single accounting model to be used for long-lived assets to be
sold and broadens the presentation of discontinued operations to include a
"component of an entity" (rather than a segment of a business). A component of
an entity comprises operations and cash flows that can be clearly distinguished,
operationally and for financial reporting purposes, from the rest of the entity.
A component of an entity that is classified as held for sale, or has been
disposed of, is presented as a discontinued operation if the operations and cash
flows of the component will be (or have been) eliminated from the ongoing
operations of the entity and the entity will not have any significant continuing
involvement in the operations of the component.
The Company adopted SFAS 144 effective August 1, 2001. Consequently, the
operating results of Concorde and Precision, which are presently held for sale,
as well as the operating results of Smart Choice, which was written-off in
October 2001, and Crown El Salvador that was sold in the prior fiscal year, are
included in discontinued operations. Assets and liabilities of Concorde and
Precision are included in "Assets of subsidiaries held for sale" and
"Liabilities of subsidiaries held for sale", respectively, at January 31, 2002
(Concorde, Precision and Smart Choice at April 30, 2001) (see Note L).
5
Reclassifications
Certain prior year amounts in the accompanying financial statements have
been reclassified to conform to the fiscal 2002 presentation. In particular, the
operating results of Crown El Salvador, which was sold in April 2001, were not
included in discontinued operations in the prior fiscal year due to the
relatively insignificant size of its operations. However, in the current fiscal
period, as the Company has other discontinued operations, the operating results
of Crown El Salvador have been reclassified to discontinued operations for all
periods presented.
C - 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 6% to 18% per annum and provide for payments over
periods ranging from 12 to 30 months. The components of finance receivables as
of January 31, 2002 and April 30, 2001 are as follows:
<Table>
<Caption>
January 31, April 30,
2002 2001
--------------- ---------------
Finance receivables $ 95,112,481 $ 83,439,089
Unearned finance charges (7,355,928) (7,402,428)
Allowance for credit losses (16,334,953) (14,066,782)
--------------- ---------------
$ 71,421,600 $ 61,969,879
=============== ===============
</Table>
Changes in the finance receivables allowance for credit losses for the nine
months ended January 31, 2002 and 2001 are as follows:
<Table>
<Caption>
Nine Months Ended
January 31,
2002 2001
--------------- ---------------
Balance at beginning of period $ 14,066,782 $ 11,492,611
Provision for credit losses 17,409,684 12,175,500
Net charge offs (15,141,513) (10,336,636)
--------------- ---------------
Balance at end of period $ 16,334,953 $ 13,331,475
=============== ===============
</Table>
D - PROPERTY AND EQUIPMENT
A summary of property and equipment as of January 31, 2002 and April 30,
2001 is as follows:
<Table>
<Caption>
January 31, April 30,
2002 2001
--------------- ---------------
Land and buildings $ 1,261,309 $ 650,191
Furniture, fixtures and equipment 1,903,647 3,826,051
Leasehold improvements 1,010,848 871,390
Less accumulated depreciation and amortization (987,197) (1,114,189)
--------------- ---------------
$ 3,188,607 $ 4,233,443
=============== ===============
</Table>
For the nine months ended January 31, 2002 and 2001 depreciation and
amortization of property and equipment amounted to $208,868 and $398,155,
respectively.
6
E - DEBT
A summary of debt as of January 31, 2002 and April 30, 2001 is as follows:
<Table>
<Caption>
Revolving Credit Facility
------------------------------------------------------------------------------------------------------------------------------
Facility Interest Balance at
Borrower Lender Amount Rate Maturity January 31, 2002 April 30, 2001
--------------- --------------- ----------- ------------- ------------ ------------------ -----------------
Car-Mart Bank of Oklahoma $ 37 million Prime + .50% Dec 2003 $ 32,505,703
Car-Mart Bank of America $ 35 million Prime + .88% Jan 2002 $ 29,767,688
</Table>
<Table>
<Caption>
Other Notes Payable
------------------------------------------------------------------------------------------------------------------------------
Facility Interest Balance at
Borrower Lender Amount Rate Maturity January 31, 2002 April 30, 2001
--------------- --------------- ----------- ------------- ------------ ------------------ -----------------
Crown Car-Mart sellers N/A 8.50% Jan 2004 $ 7,500,000 $ 7,500,000
Crown First Mercantile N/A Prime + .25% Sept 2002 875,000
Crown Bank of America N/A 8.00% Sep 2001 2,316,000
Crown Regions Bank N/A Prime + .50% May 2001 2,000,000
------------------ -----------------
$ 8,375,000 $ 11,816,000
================== =================
</Table>
Car-Mart's revolving credit facility is primarily collateralized by finance
receivables and inventory. Crown's note payable to First Mercantile Bank is
collateralized by equipment. Interest is payable monthly or quarterly on all of
the Company's debt. Car-Mart's revolving credit facility contains 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 or distributions. At January 31, 2002, all of Crown's $36.3
million equity investment in Car-Mart was restricted due to covenants in
Car-Mart's revolving credit facility which prohibits dividend or other
distributions to Crown. The amount available to be drawn under Car-Mart's
revolving credit facility is a function of eligible finance receivables. Based
on eligible finance receivables at January 31, 2002, Car-Mart could have drawn
an additional $4.5 million under its revolving credit facility.
F - WRITE-DOWN OF INVESTMENTS AND EQUIPMENT
During the second quarter ended October 31, 2001, financing for early-stage
emerging technology/Internet investments, such as the Company's investment in
Monarch Venture Partners' Fund I, L.P. ("Monarch") and Mariah Vision 3, Inc.
("Mariah"), became increasingly difficult to obtain. The adverse conditions in
the capital markets, combined with poor operating results and prospects of
Mariah and some of Monarch's investee companies, caused the Company to consider
whether its carrying values of Mariah and Monarch were impaired. After review
and analysis, the Company wrote-down the carrying value of Mariah and Monarch
and certain equipment as follows:
<Table>
<Caption>
Three Months Nine Months
Ended Ended
January 31, January 31,
2002 2002
--------------- ---------------
Monarch $ -- $ 1,648,511
Mariah 1,650,000
Equipment 629,120
--------------- ---------------
$ -- $ 3,927,631
=============== ===============
</Table>
The Company's remaining investment in Monarch and Mariah at January 31,
2002 was $229,768 and $0, respectively, and is included in "Investments" in the
accompanying consolidated balance sheet.
7
G - RESTRUCTURING CHARGE
As discussed in Note L, in October 2001, the Company made the decision to
sell all of its subsidiaries except Car-Mart and relocate its corporate
headquarters to Rogers, Arkansas where Car-Mart is based. As a result, the
Company recorded severance ($2.6 million) and office closing costs ($.1 million)
aggregating $2.7 million during the period ended October 31, 2001. As of January
31, 2002, $12,500 had been paid pertaining to severance costs. The Company's
remaining restructuring liability at January 31, 2002 was $2.7 million.
H - EARNINGS PER SHARE
Basic earnings (loss) per share is computed by dividing net income (loss)
by the weighted average number of common shares outstanding during the period.
Diluted earnings (loss) per share is computed by dividing net income by the sum
of the weighted average number of common and common equivalent shares
outstanding. Common equivalent shares include, where appropriate, the assumed
exercise or conversion of warrants and options to purchase common stock. In
computing diluted earnings per share, the Company utilized the treasury stock
method.
Basic and diluted weighted average shares outstanding, which are used in
the calculation of basic and diluted earnings (loss) per share, are as follows
for the periods ended January 31:
<Table>
<Caption>
Three Months Ended Nine Months Ended
January 31, January 31,
2002 2001 2002 2001
--------------- --------------- --------------- ---------------
Weighted average shares outstanding-basic 6,747,458 7,474,780 6,782,439 7,856,297
Dilutive options and warrants 401,687 293,550 250,186 362,559
--------------- --------------- --------------- ---------------
Weighted average shares outstanding-diluted 7,149,145 7,768,330 7,032,625 8,218,856
=============== =============== =============== ===============
Antidilutive securities not included:
Options and warrants 432,500 445,000 432,500 445,000
=============== =============== =============== ===============
</Table>
I - COMMITMENTS AND CONTINGENCIES
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 January 31, 2002 Car-Mart
employees had purchased, or had the right to purchase at a nominal cost, an
aggregate 5% interest in Car-Mart. Options to purchase the remaining 5% interest
become exercisable upon meeting the earnings targets for the fiscal years ending
April 30, 2002 and 2003.
Litigation
In the ordinary course of business, the Company has become a defendant in
various 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.
J - SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow disclosures for the nine months ended January 31,
2002 and 2001 are as follows:
<Table>
<Caption>
Nine Months Ended
January 31,
2002 2001
---------------- -----------------
Interest paid $ 2,299,615 $ 2,904,637
Income taxes paid 5,502,331 8,639,240
</Table>
8
K - BUSINESS SEGMENTS
Operating results and other financial data are presented for the continuing
operations of the Company by business segment for the three months ended January
31, 2002 and 2001. The segments are categorized by legal entity, which is how
management organizes its segments for making operating decisions and assessing
performance. The segments include Car-Mart and Corporate operations. The
Company's continuing operations and other financial data by business segment for
the three months ended January 31, 2002 and 2001 are as follows (in thousands):
<Table>
<Caption>
Three Months Ended January 31, 2002 (Restated)
-----------------------------------------------------------------------
Car-Mart Corporate Eliminations Consolidated
--------------- --------------- --------------- ---------------
Revenues:
Sales $ 28,655 $ 28,655
Interest income 2,157 $ 189 $ (80) 2,266
--------------- --------------- --------------- ---------------
Total 30,812 189 (80) 30,921
--------------- --------------- --------------- ---------------
Costs and expenses:
Cost of sales 14,506 14,506
Selling, general and admin. 5,090 777 5,867
Provision for credit losses 5,887 5,887
Interest expense 558 179 (80) 657
Depreciation and amortization 35 17 52
Stock option based compensation 2,290 2,290
--------------- --------------- --------------- ---------------
Total 26,076 3,263 (80) 29,259
--------------- --------------- --------------- ---------------
Income (loss) before taxes
and minority interests $ 4,736 $ (3,074) $ -- $ 1,662
=============== =============== =============== ===============
Capital expenditures $ 272 $ -- $ -- $ 272
=============== =============== =============== ===============
Total assets $ 77,756 $ 60,775
=============== ===============
</Table>
<Table>
<Caption>
Three Months Ended January 31, 2001
-----------------------------------------------------------------------
Car-Mart Corporate Eliminations Consolidated
--------------- --------------- --------------- ---------------
Revenues:
Sales $ 24,503 $ 24,503
Interest income 1,986 $ 359 $ (107) 2,238
--------------- --------------- --------------- ---------------
Total 26,489 359 (107) 26,741
--------------- --------------- --------------- ---------------
Costs and expenses:
Cost of sales 13,348 13,348
Selling, general and admin. 3,649 945 4,594
Provision for credit losses 4,432 4,432
Interest expense 927 236 (107) 1,056
Depreciation and amortization 38 193 231
--------------- --------------- --------------- ---------------
Total 22,394 1,374 (107) 23,661
--------------- --------------- --------------- ---------------
Income (loss) before taxes
and minority interests $ 4,095 $ (1,015) $ -- $ 3,080
=============== =============== =============== ===============
Capital expenditures $ 24 $ 39 $ -- $ 63
=============== =============== =============== ===============
Total assets $ 67,633 $ 72,281
=============== ===============
</Table>
9
The Company's continuing operations and other financial data by business
segment for the nine months ended January 31, 2002 and 2001 are as follows (in
thousands):
<Table>
<Caption>
Nine Months Ended January 31, 2002 (Restated)
-----------------------------------------------------------------------
Car-Mart Corporate Eliminations Consolidated
--------------- --------------- --------------- ---------------
Revenues:
Sales $ 86,122 $ 86,122
Interest income 6,658 $ 705 $ (258) 7,105
--------------- --------------- --------------- ---------------
Total 92,780 705 (258) 93,227
--------------- --------------- --------------- ---------------
Costs and expenses:
Cost of sales 45,549 45,549
Selling, general and admin. 13,811 2,231 16,042
Provision for credit losses 17,410 100 17,510
Interest expense 2,074 622 (258) 2,438
Depreciation and amortization 105 105 210
Stock option based compensation 2,290 2,290
Restructuring charge 2,732 2,732
Write-down of investments/equip. 3,928 3,928
--------------- --------------- --------------- ---------------
Total 78,949 12,008 (258) 90,699
--------------- --------------- --------------- ---------------
Income (loss) before taxes
and minority interests $ 13,831 $ (11,303) $ -- $ 2,528
=============== =============== =============== ===============
Capital expenditures $ 785 $ 153 $ -- $ 938
=============== =============== =============== ===============
Total assets $ 77,756 $ 60,775
=============== ===============
</Table>
<Table>
<Caption>
Nine Months Ended January 31, 2001
-----------------------------------------------------------------------
Car-Mart Corporate Eliminations Consolidated
--------------- --------------- --------------- ---------------
Revenues:
Sales $ 70,504 $ 70,504
Interest income 5,655 $ 1,189 $ (372) 6,472
--------------- --------------- --------------- ---------------
Total 76,159 1,189 (372) 76,976
--------------- --------------- --------------- ---------------
Costs and expenses:
Cost of sales 38,368 38,368
Selling, general and admin. 10,927 3,117 14,044
Provision for credit losses 12,176 12,176
Interest expense 2,817 639 (372) 3,084
Depreciation and amortization 115 283 398
--------------- --------------- --------------- ---------------
Total 64,403 4,039 (372) 68,070
--------------- --------------- --------------- ---------------
Income (loss) before taxes
and minority interests $ 11,756 $ (2,850) $ -- $ 8,906
=============== =============== =============== ===============
Capital expenditures $ 449 $ 48 $ -- $ 497
=============== =============== =============== ===============
Total assets $ 67,633 $ 72,281
=============== ===============
</Table>
10
L - DISCONTINUED OPERATIONS
In October 2001 Crown made the decision to sell all its subsidiaries except
Car-Mart, and relocate its corporate headquarters to Rogers, Arkansas where
Car-Mart is based. This decision was based on management's desire to separate
the highly profitable and modestly leveraged operations of Car-Mart from the
operating losses or lower level of profitability and highly leveraged operations
of the Company's other subsidiaries. In addition, it is management's belief that
the Company's ownership of businesses in a variety of different industries may
have created confusion within the investment community, possibly making it
difficult for investors to analyze and properly value the Company's common
stock. Accordingly, the Company plans to sell its equity interests in Concorde
and Precision, which sales are expected to be completed by October 31, 2002.
Since January 2001 Smart Choice's Florida-based subsidiaries (the "Florida
Finance Group") have been over-advanced on their revolving credit facility with
Finova Capital Corporation ("Finova"). On November 8, 2001, Smart Choice, the
Florida Finance Group and Smart Choice's Texas-based subsidiaries ("Paaco")
entered into an agreement with Finova that resulted in the foreclosure of the
Florida Finance Group's receivables and inventory. The Florida Finance Group
ceased operations in November 2001 and it is likely that Paaco will be sold to
Finova, or Finova's designee, for the amount the Florida Finance Group continues
to owe Finova (more than $33 million). If Paaco is sold to Finova, or Finova's
designee, as expected, Smart Choice's remaining assets (consisting principally
of a 35,000 square foot office building, and certain other current and fixed
assets) will likely be sold or conveyed 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.
Separately, Crown entered into a settlement agreement with Finova that
resulted in Crown paying Finova $1 million and granting 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 $17.6 million at April 30, 2001, was
written off as of October 31, 2001. In addition, as a result of revised
subordination language that requires Finova to be paid in full prior to Crown
receiving any note payments from Paaco, Crown has fully reserved its $1.6
million receivable from Paaco as of October 31, 2001. The write-off of Crown's
investment in Smart Choice and the loss resulting from the $1 million guaranty
payment to Finova and related tax benefits, are included in discontinued
operations.
The assets and liabilities of Smart Choice are not included in assets and
liabilities of subsidiaries held for sale at January 31, 2002 as at such date
(i) Crown's investment in Smart Choice was reduced to zero, and (ii) Crown is
not liable for, or a guarantor of, any of the obligations of Smart Choice. A
summary of assets and liabilities of subsidiaries held for sale as of January
31, 2002 and April 30, 2001 is as follows (in thousands):
<Table>
<Caption>
January 31, April 30,
2002 2001
--------------- ---------------
Assets of subsidiaries held for sale:
Mortgage loans held for sale, net $ 24,499 $ 16,200
Finance receivables, net 149,656
Inventory 7,980
Property and equipment, net 682 12,783
Deferred tax asset, net 256 15,902
Other 7,003 16,388
--------------- ---------------
$ 32,440 $ 218,909
=============== ===============
Liabilities of subsidiaries held for sale:
Accounts payable and accrued liabilities $ 2,919 $ 13,255
Deferred sales tax 4,963
Income taxes payable 628
Revolving credit facilities 20,427 160,294
Notes payable to Crown 2,191 6,112
Other notes payable 7,495
Minority interests 118 4,648
--------------- ---------------
26,283 196,767
Less: Notes payable to Crown (2,191) (6,112)
--------------- ---------------
$ 24,092 $ 190,655
=============== ===============
</Table>
11
As of January 31, 2002 and April 30, 2001 the Company's equity investment
in businesses held for sale was as follows (in thousands):
<Table>
<Caption>
January 31, April 30,
2002 2001
--------------- ---------------
Smart Choice $ -- $ 17,591
Concorde 2,523 1,354
Precision 3,634 3,197
--------------- ---------------
$ 6,157 $ 22,142
=============== ===============
</Table>
12
Operating results are presented for the discontinued operations of the
Company by business segment for the three and nine months ended January 31, 2002
and 2001. The segments include Smart Choice and other. The Smart Choice segment
is included in discontinued operations through October 31, 2001, the date the
Company's investment in Smart Choice was written off. For the three and nine
months ended January 31, 2002 "Other" includes Concorde and the Company's equity
investment in Precision. For the three and nine months ended January 31, 2001
"Other" includes Concorde, Precision (consolidated through October 31, 2000,
equity method thereafter) and Crown El Salvador. The Company's discontinued
operations by business segment for the three and nine months ended January 31,
2002 and 2001 are as follows (in thousands):
<Table>
<Caption>
Three Months Ended January 31, 2002 Nine Months Ended January 31, 2002
----------------------------------------- -----------------------------------------
S. Choice Other Total S. Choice Other Total
----------- ----------- ----------- ----------- ----------- -----------
Revenues $ -- $ 3,388 $ 3,388 $ 89,748 $ 10,314 $ 100,062
Costs and expenses:
Cost of sales 45,127 45,127
Selling, gen. and admin. 2,300 2,300 21,833 6,425 28,258
Prov. for credit loss 13 13 21,040 530 21,570
Interest expense 401 401 7,130 1,150 8,280
Depreciation and amort. 62 62 845 230 1,075
Write-down of assets 39,294 39,294
Loss in excess of basis (19,349) (19,349)
----------- ----------- ----------- ----------- ----------- -----------
2,776 2,776 115,920 8,335 124,255
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before tax
and minority interests 612 612 (26,172) 1,979 (24,193)
Prov. (benefit) for taxes 247 247 (7,025) 624 (6,401)
Minority interests 57 57 (4,647) 130 (4,517)
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from
discontinued operations $ -- $ 308 $ 308 $ (14,500) $ 1,225 $ (13,275)
=========== =========== =========== =========== =========== ===========
</Table>
<Table>
<Caption>
Three Months Ended January 31, 2001 Nine Months Ended January 31, 2001
----------------------------------------- ----------------------------------------
S. Choice Other Total S. Choice Other Total
----------- ----------- ----------- ----------- ----------- -----------
Revenues $ 50,690 $ 2,924 $ 53,614 $ 163,498 $ 12,283 $ 175,781
Costs and expenses:
Cost of sales 26,456 26,456 83,399 1,180 84,579
Selling, gen. and admin. 10,767 2,532 13,299 31,426 8,068 39,494
Prov. for credit loss 9,469 187 9,656 31,507 427 31,934
Interest expense 4,650 340 4,990 13,387 1,414 14,801
Depreciation and amort. 613 182 795 1,645 1,116 2,761
Write-down of assets 800 800
----------- ----------- ----------- ----------- ----------- -----------
51,955 3,241 55,196 161,364 13,005 174,369
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before tax
and minority interests (1,265) (317) (1,582) 2,134 (722) 1,412
Prov. (benefit) for taxes (430) (138) (568) 924 (218) 706
Minority interests (218) (218) 452 452
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from
discontinued operations $ (617) $ (179) $ (796) $ 758 $ (504) $ 254
=========== =========== =========== =========== =========== ===========
</Table>
13
M - STOCK OPTION BASED COMPENSATION AND RESTATEMENT
In connection with the April 30, 2002 year-end closing process, the Company
determined that stock options outstanding under its 1997 Stock Option Plan ("97
Plan") should be accounted for as "variable" options rather than "fixed" options
since the 97 Plan contains a "cashless" exercise feature. A cashless exercise
feature allows option holders to use the "in-the-money" value of the option as
payment for all, or a portion, of the exercise price of the option. Under
variable option accounting, changes in the market value of the Company's common
stock generally result in charges or credits to stock-based compensation. In
order to avoid future stock-based compensation charges or credits (which can
result in volatile earnings fluctuations), effective May 1, 2002 the Company
rescinded the cashless exercise provision of its 97 Plan.
As a result of this determination, the Company has restated its previously
issued consolidated financial statements for the three months ended January 31,
2002 to reflect a $2.3 million non-cash charge ($2.0 million after tax) related
to stock-based compensation during that period. The Company's consolidated
financial statements for the fiscal year ended April 30, 2002 as filed on Form
10-K already reflects this non-cash charge. Periods prior to November 1, 2001
did not have significant stock-based compensation charges or credits. A summary
of the impact of this correction on the Company's consolidated financial
statements for the three and nine months ended January 31, 2002 is set forth
below (in thousands, except per share amounts):
<Table>
<Caption>
Three Months Ended January 31, 2002 Nine Months Ended January 31, 2002
------------------------------------ -------------------------------------
As Previously As As Previously As
Reported Restated Reported Restated
---------------- ---------------- ---------------- ----------------
Revenues $ 30,921 $ 30,921 $ 93,227 $ 93,227
Income from continuing operations 2,221 231 2,031 40
Net income 2,529 538 (11,245) (13,235)
Continuing earnings per share:
Basic $ 0.33 $ 0.03 $ 0.30 $ 0.01
Diluted $ 0.31 $ 0.03 $ 0.29 $ 0.01
</Table>
<Table>
<Caption>
January 31, 2002
------------------------------------
As Previously As
Reported Restated
---------------- ----------------
Income tax receivable $ 9,266 $ 9,566
Total assets 122,366 122,666
Stockholders' equity 46,723 47,023
</Table>
14
ITEM 2. 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 and notes thereto appearing elsewhere in this
report.
FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. Certain information included in
this Quarterly Report on Form 10-Q 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 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 continued availability of lines of credit for the Company's business, the
Company's ability to effectively underwrite and collect its installment loans,
changes in interest rates, competition, dependence on existing management,
adverse economic conditions (particularly in the State of Arkansas), 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.
OVERVIEW
Crown Group, Inc. ("Crown") is a holding company which owns a 95% fully
diluted ownership interest in America's Car-Mart, Inc. ("Car-Mart")
(collectively, Crown and Car-Mart are referred to as "the Company"). Car-Mart
sells and finances the sale of used automobiles and trucks principally to
consumers with limited or damaged credit histories. As of January 31, 2002
Car-Mart operated 54 stores in seven south-centrally located states.
In addition, at January 31, 2002, Crown also owned (i) an 80% interest in
Concorde Acceptance Corporation ("Concorde"), a prime and sub-prime mortgage
lender, and (ii) a 50% interest in Precision IBC, Inc. ("Precision"), a firm
specializing in the sale and rental of intermediate bulk containers. In October
2001 Crown made the decision to sell all of its subsidiaries except Car-Mart,
and relocate its corporate headquarters to Rogers, Arkansas where Car-Mart is
based. Accordingly, the operating results of Concorde and Precision, as well as
the operating results of Smart Choice Automotive Group, Inc. ("Smart Choice"),
Crown's 70% owned subsidiary which was written-off in October 2001, and CG
Incorporated, S.A. de C.V. ("Crown El Salvador") that was sold in the prior
fiscal year, are included in discontinued operations (see Note L to the
accompanying consolidated financial statements). Similarly, the assets and
liabilities of Concorde and Precision are included in "Assets of subsidiaries
held for sale" and "Liabilities of subsidiaries held for sale", respectively, in
the accompanying consolidated balance sheet at January 31, 2002 (Concorde,
Precision and Smart Choice at April 30, 2001).
15
RESULTS OF CONTINUING OPERATIONS
Operating results are presented for the continuing operations of the
Company by business segment for the three and nine months ended January 31, 2002
and 2001. These segments are categorized by legal entity, which is how
management organizes its segments for making operating decisions and assessing
performance. The segments include Car-Mart and Corporate operations. A summary
of the Company's continuing operations by business segment for the three and
nine months ended January 31, 2002 and 2001 are as follows:
CONSOLIDATED
(In Thousands)
<Table>
<Caption>
Revenues Pretax Income (Loss)
------------------------------------------------------- ------------------------------------------------------
Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended
January 31, January 31, January 31, January 31,
------------------------- ------------------------- -------------------------- ------------------------
2002 2001 2002 2001 2002 2001 2002 2001
--------- --------- --------- --------- ---------- --------- ---------- ---------
(Restated) (Restated)
Car-Mart $ 30,812 $ 26,489 $ 92,780 $ 76,159 $ 4,736 $ 4,095 $ 13,831 $ 11,756
Corporate 189 359 705 1,189 (3,074) (1,015) (11,303) (2,850)
Eliminations (80) (107) (258) (372)
--------- --------- --------- --------- ---------- --------- ---------- ---------
Consolidated $ 30,921 $ 26,741 $ 93,227 $ 76,976 $ 1,662 $ 3,080 $ 2,528 $ 8,906
========= ========= ========= ========= ========== ========= ========== =========
</Table>
THREE MONTHS ENDED JANUARY 31, 2002 VS. THREE MONTHS ENDED JANUARY 31, 2001
Revenues increased $4.2 million, or 15.6%, for the three months ended
January 31, 2002 compared to the same period in the prior fiscal year. The
increase was principally the result of (i) increasing the average number of
Car-Mart regular and satellite stores in operation to 52.7 in the current fiscal
period from 46.0 in the prior fiscal period, (ii) increasing the average number
of retail vehicles sold per Car-Mart store by 1.4%, and (iii) increasing the
average sales price per retail vehicle by 1.1%. Pretax income decreased $1.4
million, or 46.0%, for the three months ended January 31, 2002 as compared to
the same period in the prior fiscal year. The decrease was principally the
result of Corporate recording a $2.3 million non-cash charge related to stock
option compensation, partially offset by a $.6 million increase in Car-Mart's
pretax earnings stemming from a 16.3% increase in its revenues.
The stock option based compensation charge pertains to the Company's 1997
stock option plan that contained a "cashless" exercise feature. Due to such
cashless feature, options granted under the plan were characterized under
generally accepted accounting principles as variable options. This resulted in
compensation charges to reflect changes in the market value of the Company's
common stock. In order to avoid future stock option based compensation charges
or credits, effective May 1, 2002 the Company rescinded the cashless exercise
provisions of its 1997 Plan.
NINE MONTHS ENDED JANUARY 31, 2002 VS. NINE MONTHS ENDED JANUARY 31, 2001
Revenues increased $16.3 million, or 21.1%, for the nine months ended
January 31, 2002 compared to the same period in the prior fiscal year. The
increase was principally the result of (i) increasing the average number of
Car-Mart regular and satellite stores in operation to 51.7 in the current fiscal
period from 44.0 in the prior fiscal period, (ii) increasing the average number
of retail vehicles sold per Car-Mart store by 2.3%, and (iii) increasing the
average sales price per retail vehicle by .8%. Pretax income was $2.5 million
for the nine months ended January 31, 2002 as compared to $8.9 million in the
same period in the prior fiscal year, a decrease of $6.4 million. The decrease
was principally the result of (i) the nine months ended January 31, 2002
including a $2.3 million non-cash stock option based compensation charge, a $2.7
million restructuring charge and a $3.9 million write-down of investments and
equipment, with no comparable charges or write-down in the prior fiscal period,
partially offset by (ii) higher earnings at Car-Mart ($2.1 million).
The stock option based compensation charge pertains to the Company's 1997
stock option plan that contained a "cashless" exercise feature. Due to such
cashless feature, options granted under the plan were characterized under
generally accepted accounting principles as variable options. This resulted in
compensation charges to reflect changes in the market value of the Company's
common stock. In order to avoid future stock option based compensation charges
or credits, effective May 1, 2002 the Company rescinded the cashless exercise
provisions of its 1997 Plan. The restructuring charge pertains to severance and
office closing costs relating to the Company's decision to relocate its
corporate headquarters to Rogers, Arkansas where Car-Mart is based. The
write-down of investments and equipment principally pertains to two emerging
technology/Internet investments made in a prior fiscal year that were deemed to
be impaired at October 31, 2001.
16
CAR-MART
(Dollars in Thousands)
<Table>
<Caption>
% Change As a % of Sales
----------- ---------------------------
Three Months Ended 2002 Three Months Ended
January 31, vs January 31,
2002 2001 2001 2002 2001
----------- ----------- ----------- ----------- -----------
Revenues:
Sales $ 28,655 $ 24,503 16.9% 100.0% 100.0%
Interest income 2,157 1,986 8.6 7.5 8.1
----------- ----------- ----------- ----------- -----------
Total 30,812 26,489 16.3 107.5 108.1
----------- ----------- ----------- ----------- -----------
Costs and expenses:
Cost of sales 14,506 13,348 8.7 50.6 54.5
Selling, general and admin. 5,090 3,649 39.5 17.8 14.9
Provision for credit losses 5,887 4,432 32.8 20.5 18.1
Interest expense 558 927 (39.8) 2.0 3.8
Depreciation and amortization 35 38 (7.9) .1 .1
----------- ----------- ----------- ----------- -----------
Total 26,076 22,394 16.4 91.0 91.4
----------- ----------- ----------- ----------- -----------
Pretax income $ 4,736 $ 4,095 15.7 16.5 16.7
=========== =========== =========== =========== ===========
</Table>
THREE MONTHS ENDED JANUARY 31, 2002 VS. THREE MONTHS ENDED JANUARY 31, 2001
Revenues increased $4.3 million, or 16.3%, for the three months ended
January 31, 2002 as compared to the same period in the prior fiscal year. The
increase was principally the result of (i) increasing the average number of
regular and satellite stores in operation to 52.7 in the current fiscal period
from 46.0 in the prior fiscal period, (ii) increasing the average number of
retail vehicles sold per store by 1.4%, and (iii) increasing the average sales
price per retail vehicle by 1.1%. Pretax income increased $.6 million, or 15.7%,
for the three months ended January 31, 2002 as compared to the same period in
the prior fiscal year. The increase was principally the result of a 16.3%
increase in revenues. Pretax income as a percentage of sales decreased slightly
to 16.5% in the three months ended January 31, 2002 from 16.7% in the three
months ended January 31, 2001, a decrease of .2%. The decrease was principally
the result of increases in selling, general and administrative expenses and the
provision for credit loss as a percentage of sales (2.9% and 2.4%,
respectively), partially offset by decreases in cost of sales and interest
expense as a percentage of sales (3.9% and 1.8%, respectively). The selling,
general and administrative expense percentage increased partially as a result of
higher payroll costs associated with building Car-Mart's infrastructure. The
Company believes the higher provision for credit loss as a percentage of sales
is partially attributable to a general slowdown in the economy during the three
months ended January 31, 2002 as compared to the same period in the prior fiscal
year. The Company does not expect the provision for credit loss percentage to
increase from its present level during the fourth quarter ending April 30, 2002,
and perhaps beyond, as the Company has seen improvements in its receivable
agings and repossessions since January 31, 2002. The cost of sales percentage
decreased as a result of a concerted effort to reduce the price paid for
inventory and a decision to raise vehicle prices slightly. The interest expense
percentage decrease is associated with a decrease in the prime interest rate.
<Table>
<Caption>
% Change As a % of Sales
----------- ---------------------------
Nine Months Ended 2002 Nine Months Ended
January 31, vs January 31,
2002 2001 2001 2002 2001
----------- ----------- ----------- ----------- -----------
Revenues:
Sales $ 86,122 $ 70,504 22.2% 100.0% 100.0%
Interest income 6,658 5,655 17.7 7.7 8.0
----------- ----------- ----------- ----------- -----------
Total 92,780 76,159 21.8 107.7 108.0
----------- ----------- ----------- ----------- -----------
Costs and expenses:
Cost of sales 45,549 38,368 18.7 52.9 54.4
Selling, general and admin. 13,811 10,927 26.4 16.0 15.5
Provision for credit losses 17,410 12,176 43.0 20.2 17.3
Interest expense 2,074 2,817 (26.4) 2.4 4.0
Depreciation and amortization 105 115 (8.7) .1 .2
----------- ----------- ----------- ----------- -----------
Total 78,949 64,403 22.6 91.6 91.4
----------- ----------- ----------- ----------- -----------
Pretax income $ 13,831 $ 11,756 17.7 16.1 16.6
=========== =========== =========== =========== ===========
</Table>
17
NINE MONTHS ENDED JANUARY 31, 2002 VS. NINE MONTHS ENDED JANUARY 31, 2001
Revenues increased $16.6 million, or 21.8%, for the nine months ended
January 31, 2002 as compared to the same period in the prior fiscal year. The
increase was principally the result of (i) increasing the average number of
regular and satellite stores in operation to 51.7 in the current fiscal period
from 44.0 in the prior fiscal period, (ii) increasing the average number of
retail vehicles sold per dealership by 2.3%, and (iii) increasing the average
sales price per retail vehicle by .8%. Pretax income increased $2.1 million, or
17.7%, for the nine months ended January 31, 2002 as compared to the same period
in the prior fiscal year. The increase was principally the result of (i)
increased revenues (21.8%), partially offset by slightly higher costs and
expenses as a percentage of sales (.2%). Pretax income as a percentage of sales
decreased to 16.1% in the nine months ended January 31, 2002 from 16.6% in the
nine months ended January 31, 2001, a decrease of .5%. The decrease was
principally the result of increases in selling, general and administrative
expenses and the provision for credit loss as a percentage of sales (.5% and
2.9%, respectively), partially offset by decreases in cost of sales and interest
expense as a percentage of sales (1.5% and 1.6%, respectively). The selling,
general and administrative expense percentage increased partially as a result of
higher payroll costs associated with building Car-Mart's infrastructure. The
Company believes the higher provision for credit loss as a percentage of sales
is partially attributable to a general slowdown in the economy during the nine
months ended January 31, 2002 as compared to the same period in the prior fiscal
year. The Company does not expect the provision for credit loss percentage to
increase from its present level during the fourth quarter ending April 30, 2002,
and perhaps beyond, as the Company has seen improvements in its receivable
agings and repossessions since January 31, 2002. The cost of sales percentage
decreased as a result of a concerted effort to reduce the price paid for
inventory and a decision to raise vehicle prices slightly. The interest expense
percentage decrease is associated with a decrease in the prime interest rate.
CORPORATE
(Dollars in Thousands)
<Table>
<Caption>
% Change % Change
----------- -----------
Three Months Ended 2002 Nine Months Ended 2002
January 31, vs January 31, vs
2002 2001 2001 2002 2001 2001
----------- ----------- ----------- ----------- ----------- -----------
(restated) (restated)
Revenues:
Interest income $ 189 $ 359 (47.4)% $ 705 $ 1,189 (40.7)%
----------- ----------- ----------- ----------- ----------- -----------
Total 189 359 (47.4) 705 1,189 (40.7)
----------- ----------- ----------- ----------- ----------- -----------
Costs and expenses:
Selling, general and admin 777 945 (17.8) 2,231 3,117 (28.4)
Provision for credit losses 100 NM
Interest expense 179 236 (24.2) 622 639 (2.7)
Depreciation and amortization 17 193 (91.2) 105 283 (62.9)
Stock option compensation 2,290 NM 2,290 NM
Restructuring charge 2,732 NM
Write-down of investments/equip 3,928 NM
----------- ----------- ----------- ----------- ----------- -----------
Total 3,263 1,374 NM 12,008 4,039 NM
----------- ----------- ----------- ----------- ----------- -----------
Pretax loss $ (3,074) $ (1,015) NM $ (11,303) $ (2,850) NM
=========== =========== =========== =========== =========== ===========
</Table>
NM = Not meaningful
THREE MONTHS ENDED JANUARY 31, 2002 VS. THREE MONTHS ENDED JANUARY 31, 2001
Pretax loss increased to $3.1 million for the three months ended January
31, 2002 from $1.0 million for the three months ended January 31, 2001, an
increase of $2.1 million. The increase was principally the result of the Company
recording a $2.3 million non-cash charge related to stock option compensation.
The charge pertains to the Company's 1997 stock option plan that contained a
"cashless" exercise feature. Due to such cashless feature, options granted under
the plan were characterized under generally accepted accounting principles as
variable options. This resulted in compensation charges to reflect changes in
the market value of the Company's common stock. In order to avoid future stock
option based compensation charges or credits, effective May 1, 2002 the Company
rescinded the cashless exercise provisions of its 1997 Plan. Partially
offsetting the increase in pretax loss, selling, general and administrative
expenses and depreciation and amortization decreased. The decrease in selling,
general and administrative expense was principally the result of lower personnel
costs as the Company is in the process of decreasing the overhead at its Irving,
Texas office in connection with the relocation of its corporate headquarters to
Rogers, Arkansas where Car-Mart is based.
18
NINE MONTHS ENDED JANUARY 31, 2002 VS. NINE MONTHS ENDED JANUARY 31, 2001
Pretax loss increased to $11.3 million for the nine months ended January
31, 2002 from $2.8 million for the nine months ended January 31, 2001, an
increase of $8.5 million. The increase was principally the result of including
(i) a $2.3 million non-cash stock option based compensation charge, (ii) a $2.7
million restructuring charge, and (iii) a $3.9 million write-down of investments
and equipment in the current fiscal period, with no comparable charges or
write-down in the prior fiscal period. The stock option based compensation
charge pertains to the Company's 1997 stock option plan that contained a
"cashless" exercise feature. Due to such cashless feature, options granted under
the plan were characterized under generally accepted accounting principles as
variable options. This resulted in compensation charges to reflect changes in
the market value of the Company's common stock. In order to avoid future stock
option based compensation charges or credits, effective May 1, 2002 the Company
rescinded the cashless exercise provisions of its 1997 Plan. The restructuring
charge pertains to severance and office closing costs relating to the Company's
decision to relocate its corporate headquarters to Rogers, Arkansas where
Car-Mart is based. The write-down of investments and equipment principally
pertains to two emerging technology/Internet investments made in a prior fiscal
year that were deemed to be impaired in the current period. Selling, general and
administrative expenses decreased $.9 million for the nine months ended January
31, 2002 as compared to the same period in the prior fiscal year. The decrease
was principally the result of lower personnel costs as the Company is in the
process of decreasing the overhead at its Irving, Texas office in connection
with the relocation of its corporate headquarters to Rogers, Arkansas.
RESULTS OF DISCONTINUED OPERATIONS
Operating results are presented for the discontinued operations of the
Company by business segment for the three and nine months ended January 31, 2002
and 2001. The segments include Smart Choice and other. The Smart Choice segment
is comprised of two components (the Florida Finance Group and Paaco) and is
included in the Company's operating results though October 31, 2001, the date
the Company's investment in Smart Choice was written off. For the three and nine
months ended January 31, 2002 "Other" includes Concorde and the Company's equity
investment in Precision. For the three and nine months ended January 31, 2001
"Other" includes Concorde, Precision (consolidated through October 31, 2000,
equity method thereafter) and Crown El Salvador. The Company's discontinued
operations by business segment for the three and nine months ended January 31,
2002 and 2001 are as follows:
SMART CHOICE
(Dollars in Thousands)
<Table>
<Caption>
% Change % Change
------------- -------------
Three Months Ended 2002 Nine Months Ended 2002
January 31, vs January 31, vs
2002 2001 2001 2002 2001 2001
------------- ------------- ------------- ------------- ------------- -------------
Revenues:
Sales and other $ -- $ 41,275 NM $ 71,280 $ 135,116 (47.2)%
Interest income 9,415 NM 18,468 28,382 (34.9)
------------- ------------- ------------- ------------- ------------- -------------
Total 50,690 NM 89,748 163,498 (45.1)
------------- ------------- ------------- ------------- ------------- -------------
Costs and expenses:
Cost of sales 26,456 NM 45,127 83,399 (45.9)
Selling, general and admin. 10,767 NM 21,833 31,426 (30.5)
Provision for credit losses 9,469 NM 21,040 31,507 (33.2)
Interest expense 4,650 NM 7,130 13,387 (46.7)
Depreciation and amortization 613 NM 845 1,645 (48.6)
Write-down of assets 39,294 NM
Loss in excess of basis (19,349) NM
------------- ------------- ------------- ------------- ------------- -------------
Total 51,955 NM 115,920 161,364 NM
------------- ------------- ------------- ------------- ------------- -------------
Pretax income (loss) $ -- $ (1,265) NM $ (26,172) $ 2,134 NM
============= ============= ============= ============= ============= =============
</Table>
NM = Not meaningful
NINE MONTHS ENDED JANUARY 31, 2002 VS. NINE MONTHS ENDED JANUARY 31, 2001
Revenues decreased $73.8 million, or 45.1%, for the nine months ended
January 31, 2002 as compared to the same period in the prior fiscal year. The
decrease was principally the result of (i) the current fiscal period only
including six months of Smart Choice's operations versus nine months in the
prior fiscal period, (ii) a 32.9% decrease in the number of vehicles sold and a
26.3% decrease in the average sales price per retail vehicle sold at Smart
Choice's Florida Finance Group subsidiaries during the first six months of both
periods. Beginning in March 2001 the
19
Florida Finance Group changed its underwriting practices in an effort to reduce
credit losses. The changes in its underwriting practices resulted in fewer
individuals being approved for credit, which resulted in a lower number of
vehicles sold.
Smart Choice reported a pretax loss of $26.2 million for the nine months
ended January 31, 2002 as compared to $2.1 million pretax income for the same
period in the prior fiscal year. The $28.3 million decrease is principally the
result of a $39.3 million write-down of assets, partially offset by a $19.3
million credit which represents Smart Choice stockholders' deficit at October
31, 2001. Once Crown's investment in Smart Choice was reduced to zero, no
additional losses were recorded by Crown to reflect losses at Smart Choice. The
$39.3 million write-down pertains to certain Smart Choice assets (finance
receivables, property and equipment, deferred tax assets and goodwill) that were
deemed to be impaired in connection with the foreclosure by Finova of certain
Florida Finance Group assets and the winding-down of the Florida Finance Group's
operations (see Note L to the accompanying consolidated financial statements).
In addition, the Florida Finance Group's provision for credit loss and selling,
general and administrative expenses did not decrease proportionately with its
decrease in revenues.
OTHER
(Dollars in Thousands)
<Table>
<Caption>
% Change % Change
----------- -----------
Three Months Ended 2002 Nine Months Ended 2002
January 31, vs January 31, vs
2002 2001 2001 2002 2001 2001
----------- ----------- ----------- ----------- ----------- -----------
Revenues:
Sales and other $ 2,782 $ 2,464 12.9% $ 8,564 $ 10,856 (21.1)%
Interest income 606 460 31.7 1,750 1,427 22.6
----------- ----------- ----------- ----------- ----------- -----------
Total 3,388 2,924 15.9 10,314 12,283 (16.0)
----------- ----------- ----------- ----------- ----------- -----------
Costs and expenses:
Cost of sales 1,180 NM
Selling, general and admin. 2,300 2,532 (9.2) 6,425 8,068 (20.4)
Provision for credit losses 13 187 (93.0) 530 427 24.1
Interest expense 401 340 17.9 1,150 1,414 (18.7)
Depreciation and amortization 62 182 (65.9) 230 1,116 (79.4)
Write-down of assets 800 NM
----------- ----------- ----------- ----------- ----------- -----------
Total 2,776 3,241 (14.3) 8,335 13,005 (35.9)
----------- ----------- ----------- ----------- ----------- -----------
Pretax income (loss) $ 612 $ (317) NM $ 1,979 $ (722) NM
=========== =========== =========== =========== =========== ===========
</Table>
NM = Not meaningful
THREE MONTHS ENDED JANUARY 31, 2002 VS. THREE MONTHS ENDED JANUARY 31, 2001
Revenues increased $.5 million, or 15.9%, for the three months ended
January 31, 2002 as compared to the same period in the prior fiscal year. The
increase was principally the result of (i) an increase in Concorde's revenues
($.8 million) as a result of greater mortgage loan originations and sales,
partially offset by excluding Crown El Salvador ($.5 million) from the Company's
consolidated operating results in the current fiscal period as a result of the
sale of Crown El Salvador in the prior fiscal year. Other pretax income
increased to $.6 million for the three months ended January 31, 2002 from a
pretax loss of $.3 million for the same period in the prior fiscal year, an
increase of $.9 million. The increase was principally the result of (i) improved
operating results at Concorde ($.7 million), and (ii) excluding Crown El
Salvador's loss ($.2 million in the prior fiscal period) as a result of the sale
of that subsidiary.
NINE MONTHS ENDED JANUARY 31, 2002 VS. NINE MONTHS ENDED JANUARY 31, 2001
Revenues decreased $2.0 million, or 16.0%, for the nine months ended
January 31, 2002 as compared to the same period in the prior fiscal year. The
decrease was principally the result of (i) excluding Precision ($3.2 million)
and Crown El Salvador ($1.6 million) from the Company's consolidated operating
results in the current fiscal period as a result of the sale of 50% of Precision
and all of Crown El Salvador in the prior fiscal year, partially offset by (ii)
an increase in Concorde's revenues ($2.8 million) as a result of greater
mortgage loan originations and sales. Other pretax income increased to $2.0
million for the nine months ended January 31, 2002 from a pretax loss of $.7
million for the same period in the prior fiscal year, an increase of $2.7
million. The increase was principally the result of (i) improved operating
results at Concorde ($2.0 million), and (ii) excluding Crown El Salvador's loss
($1.2 million in the prior fiscal period) as a result of the sale of that
subsidiary.
20
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $1.8 million for the nine months
ended January 31, 2002 as compared to $8.3 million for the same period in the
prior fiscal year. The $6.5 million improvement was principally the result of an
increase in accounts payable and accrued liabilities and a reduction in deferred
tax assets, partially offset by lower income from continuing operations. Cash is
used in operating activities principally to fund finance receivable growth. For
the nine months ended January 31, 2002 and 2001, net finance receivables grew by
$9.5 million and $8.1 million, respectively. Net cash provided by investing
activities was $.4 million for the nine months ended January 31, 2002 as
compared to $4.2 million in the same period in the prior fiscal year. The $3.8
million decrease was principally the result of a decrease in note collections
from discontinued subsidiaries ($1.9 million), and the prior period including
$2.2 million in cash received from the sale of a 50% interest in Precision. Net
cash provided by financing activities was $1.4 million for the nine months ended
January 31, 2002 as compared to a $2.5 million use of cash in the same period in
the prior fiscal year. The $3.9 million increase was principally the result of
(i) a lower level of net stock purchases by the Company ($2.8 million), and (ii)
an increase in borrowings from Car-Mart's revolving credit facility ($1.5
million), in the current fiscal period as compared to the same period in the
prior fiscal year.
CAR-MART
Car-Mart's sources of liquidity include cash from operations and its $37.0
million revolving credit facility with a group of banks, of which $32.5 million
was outstanding at January 31, 2002. Based upon the collateral on hand at
January 31, 2002, Car-Mart could have drawn an additional $4.5 million on its
revolving credit facility at such date. Car-Mart's revolving credit facility
matures in December 2003. 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.
CORPORATE
As of January 31, 2002 Crown's (parent company only) sources of liquidity
included (i) $.4 million of cash on hand, (ii) $5.9 million of receivables from
its subsidiaries, (iii) a $7.6 million federal income tax receivable stemming
principally from the Company's loss on Smart Choice, (iv) $.9 million of other
receivables, and (v) the planned sale of the Company's ownership interests in
Concorde and Precision. Crown expects that it will have adequate liquidity to
satisfy its capital needs for the foreseeable future.
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 adopted SFAS 141 effective May 1,
2001. Such adoption did not have any 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 has adopted SFAS
142 effective May 1, 2001. Such adoption did not have any impact on the
continuing operations of the Company.
In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144 ("SFAS 144"), "Accounting for the Impairment of Long-Lived Assets",
which requires a single accounting model to be used for long-lived assets to be
sold and broadens the presentation of discontinued operations to include a
"component of an entity" (rather than a segment of a business). A component of
an entity comprises operations and cash flows that can be clearly distinguished,
operationally and for financial reporting purposes, from the rest of the entity.
A component of an entity that is classified as held for sale, or has been
disposed of, is presented as a discontinued operation if the operations and cash
flows of the component will be (or have been) eliminated from the ongoing
operations of the entity and the entity will not have any significant continuing
involvement in the operations of the component.
The Company adopted SFAS 144 effective August 1, 2001. Consequently, the
operating results of Concorde and Precision, which are presently held for sale,
as well as the operating results of Smart Choice, which was written-off in
October 2001, and Crown El Salvador that was sold in the prior fiscal year, are
included in discontinued operations. Assets and liabilities of Concorde and
Precision are included in "Assets of subsidiaries held for sale" and
"Liabilities of subsidiaries held for sale", respectively (see Note L to the
accompanying consolidated financial statements).
21
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.
ITEM 3. 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. Decreases in market interest rates could eventually 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 6% to 18%. These finance receivables
have remaining maturities from one to 30 months. A majority of the Company's
borrowings contain variable interest rates that fluctuate with market interest
rates (ie. revolving credit facility). However, interest rates charged on
finance receivables originated in the State of Arkansas are limited to the
federal discount rate (1.25% at January 31, 2002) plus 5.0%. Typically, the
Company charges interest on its Arkansas loans at or near the maximum rate
allowed by law. Thus, while the interest rates charged on the Company's loans do
not fluctuate once established, new loans originated in Arkansas are set at a
spread above the federal discount rate which fluctuates. At January 31, 2002
approximately 71% of the Company's finance receivables were originated in
Arkansas. Assuming that this percentage is held constant for future loan
originations, the long-term effect of decreases in the federal discount rate
could have a negative effect on profitability of the Company. This is the case
because the amount of interest income lost on Arkansas originated loans would
likely exceed the amount of interest expense saved on the Company's variable
rate borrowings. The initial impact on profitability resulting from a decrease
in the federal discount rate is positive, as the immediate interest expense
savings outweighs the loss of interest income on new loan originations. However,
as the amount of new loans originated at the lower interest rate exceeds the
amount of variable interest rate borrowings, the effect on profitability becomes
negative.
The table below illustrates the impact which hypothetical changes in the
federal discount rate could have on the Company's continuing pretax earnings.
The calculations assume (i) the increase or decrease in the federal discount
rate remains in effect for two years, (ii) the increase or decrease in the
federal discount rate results in a like increase or decrease in the rate charged
on the Company's variable rate borrowings, (iii) the principal amount of finance
receivables ($87.8 million) and variable interest rate borrowings ($32.5
million), and the percentage of Arkansas originated finance receivables (71%),
remain constant during the periods, and (iv) the Company's historical collection
and charge-off experience continues throughout the periods.
<Table>
<Caption>
Year 1 Year 2
Increase Increase
Increase (Decrease) (decrease) (Decrease)
in Interest Rates in Pretax Earnings in Pretax Earnings
- ---------------------- ------------------- -------------------
(in thousands) (in thousands)
+2% $ 14 $ 602
+1% 7 301
-1% (7) (301)
-2% (14) (602)
</Table>
22
PART II
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 2001 annual meeting was held on January 16, 2002. The record
date for such meeting was November 23, 2001 on which date there were a total of
6,748,424 shares of common stock outstanding and entitled to vote. At such
meeting all matters presented were approved by the Company's shareholders as
follows:
1. Election of Directors:
<Table>
<Caption>
Votes Votes Votes
Director For Against Abstained
- -------------------------- ----------- ---------- ----------
Edward R. McMurphy 6,266,234 161 28,573
T.J. Falgout, III 6,266,234 161 28,573
Robert J. Kehl 6,254,534 11,861 28,573
J. David Simmons 6,148,234 118,161 28,573
Bennie M. Bray 6,266,234 161 28,573
Nan R. Smith 6,137,484 128,911 28,573
</Table>
2. Proposal to amend the Company's Articles of Incorporation to change
the Company's name to America's Car-Mart, Inc. and delete certain
provisions of the Articles of Incorporation relating to the gaming
business, in which the Company is no longer engaged (votes for
6,283,381, votes against 7,492, votes abstained 4,095).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 99.1 Form of Certification pursuant to Section 906 of
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
During the fiscal quarter ended January 31, 2002, the Company filed a
report on Form 8-K dated November 26, 2001 (event date November 9,
2001) respecting Smart Choice's sale of receivables and inventory at a
public foreclosure sale.
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
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.
By: /s/ Tilman J. Falgout, III
--------------------------------------------
Tilman J. Falgout, III
Chief Executive Officer
(Principal Executive Officer)
March 8, 2002, By: /s/ Mark D. Slusser
except for matters --------------------------------------------
discussed in Note M Mark D. Slusser
as to which the date is Chief Financial Officer, Vice President
October 3, 2002. Finance and Secretary
(Principal Financial and Accounting Officer)
24
CERTIFICATION
I, Tilman J. Falgout III, Chief Executive Officer of America's Car-Mart,
Inc. (formerly Crown Group, Inc.), certify that:
1. I have reviewed this quarterly report on Form 10-QA of Crown Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
October 3, 2002 /s/ Tilman J. Falgout, III
--------------------------------------
Tilman J. Falgout, III
Chief Executive Officer
CERTIFICATION
I, Mark D. Slusser, Chief Financial Officer, Vice President Finance and
Secretary of America's Car-Mart, Inc. (formerly Crown Group, Inc.), certify
that:
1. I have reviewed this quarterly report on Form 10-QA of Crown Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
October 3, 2002 /s/ Mark D. Slusser
----------------------------------------
Mark D. Slusser
Chief Financial Officer, Vice President
Finance and Secretary
25
INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
99.1 Form of Certification pursuant to Section 906 of
Sarbanes-Oxley Act of 2002.
</Table>