-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, POyr4VtYLBJRc0Ysv7D9F7csU2BVfQxBDfM7I+Zpa2uHa6gsijFF7lm1GWENCnzM 9G8GplvIZ0Gq/syGJVNnxQ== 0000950134-99-002365.txt : 19990402 0000950134-99-002365.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950134-99-002365 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990115 ITEM INFORMATION: FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CROWN GROUP INC /TX/ CENTRAL INDEX KEY: 0000799850 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 630851141 STATE OF INCORPORATION: TX FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-14939 FILM NUMBER: 99581243 BUSINESS ADDRESS: STREET 1: 4040 N. MACARTHUR BLVD. STREET 2: SUITE 100 CITY: IRVING STATE: TX ZIP: 75038 BUSINESS PHONE: 9727173423 MAIL ADDRESS: STREET 1: 4040 N. MACARTHUR BLVD. STREET 2: SUITE 100 CITY: IRVING STATE: TX ZIP: 75038 FORMER COMPANY: FORMER CONFORMED NAME: CROWN CASINO CORP DATE OF NAME CHANGE: 19931104 FORMER COMPANY: FORMER CONFORMED NAME: SKYLINK AMERICA INC DATE OF NAME CHANGE: 19920703 8-K/A 1 AMENDMENT TO FORM 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A (AMENDMENT NO. 1) 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) JANUARY 15, 1999 ------------------------------- CROWN GROUP, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) TEXAS 0-14939 63-0851141 - -------------------------------------------------------------------------------- (State or other jurisdiction (Commission File Number) (IRS Employer of incorporation) Identification No.) 4040 NORTH MACARTHUR BOULEVARD, SUITE 100, IRVING, TEXAS 75038 - -------------------------------------------------------------------------------- (Address of principal executive offices) Registrant's telephone number, including area code (972) 717-3423 ------------------------------ - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report) 2 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial statements of businesses acquired. The following financial statements of America's Car-Mart, Inc. are hereby filed with this report: Report of Independent Auditors Balance Sheets as of May 31, 1998, 1997 and 1996 Statements of Operations for the years ended May 31, 1998, 1997 and 1996 Statements of Stockholders' Equity for the years ended May 31, 1998, 1997 and 1996 Statements of Cash Flows for the years ended May 31, 1998, 1997 and 1996 Notes to Financial Statements (b) Pro-Forma financial information. The following pro-forma financial statements of Crown Group, Inc. are hereby filed with this Report: Introduction to Pro-Forma Financial Information Pro-Forma Consolidated Statement of Operations (unaudited) for the year ended April 30, 1998 Pro-Forma Consolidated Statement of Operations (unaudited) for the nine months ended January 31, 1999 Notes to Pro-Forma Consolidated Financial Statements (c) Exhibits: 24.1 - Consent of Independent Auditors 3 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: March 31, 1999 --------------- 4 America's Car-Mart, Inc. Financial Statements Years ended May 31, 1998, 1997 and 1996 CONTENTS Report of Independent Auditors.................................................1 Audited Financial Statements Balance Sheets.................................................................2 Statements of Operations.......................................................3 Statements of Stockholders' Equity.............................................4 Statements of Cash Flows.......................................................5 Notes to Financial Statements..................................................6
5 [ERNST & YOUNG LLP LETTERHEAD] Report of Independent Auditors The Board of Directors and Stockholders Crown Group, Inc. We have audited the accompanying balance sheets of America's Car-Mart, Inc. as of May 31, 1998, 1997 and 1996, and the related statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended May 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of America's Car-Mart, Inc. at May 31, 1998, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended May 31, 1998, in conformity with generally accepted accounting principles. As discussed in Note 1 to the financial statements, these financial statements represent the results of America's Car-Mart, Inc. which was previously audited as a subsidiary of Fleeman Holding Company. As discussed in Note 2 to the financial statements, in 1999 the Company changed its method of accounting for finance losses. The prior year financial statements have been retroactively restated to reflect this change in accounting principle. ERNST & YOUNG LLP March 24, 1999 6 America's Car-Mart, Inc. Balance Sheets
MAY 31 1998 1997 1996 ------------ ------------ ------------ (All Years Restated--See Note 2) ASSETS Cash $ 1,105,192 $ 658,506 $ 395,769 Finance receivables 44,422,520 39,312,183 32,336,352 Allowance for finance receivables (8,218,166) (7,272,754) (5,982,225) Inventory 953,032 1,026,663 1,339,860 Other 133,849 85,015 16,483 Property and equipment, net 532,491 548,900 625,788 Receivable from affiliate 139,560 -- 44,245 ------------ ------------ ------------ Total assets $ 39,068,478 $ 34,358,513 $ 28,776,272 ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 655,914 $ 780,790 $ 394,827 Accrued liabilities 12,000 68,472 666,476 Commissions payable 1,706,426 1,889,563 1,645,389 Income taxes payable 654,787 3,306,592 1,801,129 Payable to affiliate 2,525,263 4,316,969 3,365,172 Net deferred tax liabilities (assets) 291,577 (2,903,366) (2,265,246) ------------ ------------ ------------ Total liabilities 5,845,967 7,459,020 5,607,747 Common stock 1,300 1,300 1,300 Retained earnings 33,221,211 26,898,193 23,167,225 ------------ ------------ ------------ Total stockholders' equity 33,222,511 26,899,493 23,168,525 ------------ ------------ ------------ Total liabilities and stockholders' equity $ 39,068,478 $ 34,358,513 $ 28,776,272 ============ ============ ============
See accompanying notes. 2 7 America's Car-Mart, Inc. Statements of Operations
YEARS ENDED MAY 31 1998 1997 1996 ----------- ----------- ----------- (All Years Restated--See Note 2) REVENUES Vehicle sales $60,967,901 $54,031,453 $40,942,179 Interest income 4,723,393 4,059,222 2,615,768 ----------- ----------- ----------- Total revenue 65,691,294 58,090,675 43,557,947 COSTS AND EXPENSES Cost of sales 33,434,780 30,697,906 23,172,936 Selling, general and administrative 9,998,995 9,833,595 6,429,524 Provision for credit losses 11,914,636 10,908,532 8,217,509 Interest expense 10,529 59,019 -- Depreciation 111,313 89,388 70,313 ----------- ----------- ----------- Total costs and expenses 55,470,253 51,588,440 37,890,282 ----------- ----------- ----------- Income before income taxes 10,221,041 6,502,235 5,667,665 Provision for income taxes 3,898,023 2,771,267 1,934,655 ----------- ----------- ----------- Net income $ 6,323,018 $ 3,730,968 $ 3,733,010 =========== =========== ===========
See accompanying notes. 3 8 America's Car-Mart, Inc. Statements of Stockholders' Equity
COMMON RETAINED STOCK EARNINGS TOTAL ------------ ------------ ------------ (All Years Restated--See Note 2) Balance at June 1, 1995, as previously reported $ 1,300 $ 22,447,340 $ 22,448,640 Retroactive change in accounting method (Note 2) -- (3,013,125) (3,013,125) ------------ ------------ ------------ Balance at June 1, 1995 restated 1,300 19,434,215 19,435,515 Net income -- 3,733,010 3,733,010 ------------ ------------ ------------ Balance at May 31, 1996 1,300 23,167,225 23,168,525 Net income -- 3,730,968 3,730,968 ------------ ------------ ------------ Balance at May 31, 1997 1,300 26,898,193 26,899,493 Net income -- 6,323,018 6,323,018 ------------ ------------ ------------ Balance at May 31, 1998 $ 1,300 $ 33,221,211 $ 33,222,511 ============ ============ ============
See accompanying notes. 4 9 America's Car-Mart, Inc. Statements of Cash Flows
YEARS ENDED MAY 31 1998 1997 1996 ------------ ------------ ------------ (All Years Restated--See Note 2) OPERATING ACTIVITIES Net income $ 6,323,018 $ 3,730,968 $ 3,733,010 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation expense 111,313 89,388 70,313 Deferred income taxes 3,194,943 (638,120) (124,014) Provision for credit losses 11,914,636 10,908,532 8,217,509 Changes in operating assets and liabilities: (Increase) in finance receivables (16,079,561) (16,593,834) (9,225,016) Decrease (increase) in inventory 73,631 313,197 (196,395) Decrease (increase) in other assets (48,834) (68,532) 46,272 Increase (decrease) in accounts payable (124,876) 385,963 123,972 Increase (decrease) in income taxes payable (2,651,805) 1,505,463 (2,975,976) Increase (decrease) in commissions payable (183,137) 244,174 487,848 Increase (decrease) in accrued expenses (56,472) (598,004) 665,372 ------------ ------------ ------------ Net cash provided by (used in) operating activities 2,472,856 (720,805) 822,895 INVESTING ACTIVITIES Purchases of property and equipment (94,904) (12,500) (226,237) ------------ ------------ ------------ Net cash used in investing activities (94,904) (12,500) (226,237) FINANCING ACTIVITIES Increase (decrease) in payable to affiliate (1,791,706) 951,797 (888,443) Decrease (increase) in receivable from affiliate (139,560) 44,245 (44,245) ------------ ------------ ------------ Net cash provided by (used in) financing activities (1,931,266) 996,042 (932,688) ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents 446,686 262,737 (336,030) Cash and cash equivalents at beginning of year 658,506 395,769 731,799 ------------ ------------ ------------ Cash and cash equivalents at end of year $ 1,105,192 $ 658,506 $ 395,769 ============ ============ ============
See accompanying notes. 5 10 America's Car-Mart, Inc. Notes to Financial Statements May 31, 1998 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES America's Car-Mart, Inc. (the "Company") operates retail used car lots under the names of Car-Mart and Discount Auto in the states of Arkansas, Missouri, Oklahoma, and Texas. CHANGE IN ENTITY America's Car-Mart, Inc. was previously audited as a wholly owned consolidated subsidiary of Fleeman Holding Company. On January 15, 1999, Fleeman Holding Company was sold to Crown Group, Inc. (Note 8). These financial statements represent only the results of America's Car Mart, Inc. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. INVENTORY Inventory, which primarily consists of used cars, is stated at the lower of cost or market. Cost is determined using the specific identification method. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation on property and equipment is calculated on the straight-line method. Estimated useful lives are as follows:
YEARS ---------------- Furniture, fixtures and equipment 4 - 8 Autos 3 - 5 Leasehold improvements 5 - 39 Buildings and improvements 15 - 39
6 11 America's Car-Mart, Inc. Notes to Financial Statements (continued) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FINANCE RECEIVABLES Finance receivables, principally from used car sales to a wide variety of customers in Arkansas, Missouri, Oklahoma and Texas consist of installment receivables financed by the Company over a period ranging from 12 to 24 months. Minimum down payments ranging between 10% to 17% of the purchase price are generally required. Finance receivables are stated at the amount of remaining payments due less unearned interest. The unearned interest on finance receivables is recognized as income over the life of the loan using the interest method. The face amount of the finance receivable contracts as of May 31, 1998, 1997 and 1996 were $47,854,347, $42,237,662 and $34,958,218, respectively. Interest rates range from approximately 10% to 18%. The Company holds a lien on the title on all used car sales until the related receivable is fully collected. Repossessions on previous sales are recorded as a reduction of the allowance for finance receivables based on the remaining balance outstanding less the estimated wholesale value of the repossessed vehicle. The Company believes that an adequate provision for the possibility of certain receivables proving uncollectible either through non-payment, repossession or other method has been provided and carefully monitors and adjusts the allowance as necessary, based upon a historical analysis of uncollectible accounts. INCOME TAXES Income taxes are accounted for under the liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. ADVERTISING EXPENSES Advertising expenses are charged to operations in the period incurred. Advertising expenses for the years ended May 31, 1998, 1997 and 1996 were approximately $400,000, $310,000 and $239,000, respectively. 7 12 America's Car-Mart, Inc. Notes to Financial Statements (continued) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) IMPAIRMENT OF LONG-LIVED ASSETS At each balance sheet date, management determines whether any property or equipment or any other assets have been impaired based on the criteria established in Statement of Financial Accounting Standards No. 121 ("SFAS 121"), Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of. The Company made no adjustments to the carrying values of the assets during the years ended May 31, 1998, 1997 and 1996. OTHER Certain reclassifications have been made in prior year's financial statements to conform to the current year's presentation. 2. CHANGE IN METHOD OF ACCOUNTING FOR FINANCE LOSSES In 1999, the Company retroactively changed their method of accounting for finance losses in conjunction with their sale to Crown Group, Inc.. The new method of accounting for finance losses, which approximates actual finance losses incurred, was adopted to recognize a year end allowance for finance losses of 18.5% of the related finance receivables. The effect of the accounting change on net income as previously reported for 1998 and prior years is as follows:
1998 1997 1996 ------------ ------------ ------------ Net income as previously reported $ 6,846,856 $ 4,319,678 $ 3,906,663 Adjustment for effect of a change in accounting method that is applied retroactively (523,838) (588,710) (173,653) ------------ ------------ ------------ Net income as adjusted $ 6,323,018 $ 3,730,968 $ 3,733,010 ============ ============ ============
The cumulative effect of the accounting change to stockholders' equity as previously reported at May 31 is as follows:
1998 1997 1996 1995 ------------ ------------ ------------ ------------ Stockholders' equity, as previously reported $ 37,521,837 $ 30,674,981 $ 26,355,303 $ 22,448,640 Cumulative effect of retroactive change in accounting method (4,299,326) (3,775,488) (3,186,778) (3,013,125) ------------ ------------ ------------ ------------ Stockholders' equity, as restated $ 33,222,511 $ 26,899,493 $ 23,168,525 $ 19,435,515 ============ ============ ============ ============
8 13 America's Car-Mart, Inc. Notes to Financial Statements (continued) 3. PROPERTY AND EQUIPMENT Property and equipment consisted of the following as of May 31:
1998 1997 1996 ----------- ----------- ----------- Buildings and improvements $ 212,755 $ 206,087 $ 200,311 Furniture, fixtures, & equipment 534,548 547,532 574,399 Leasehold improvements 761,101 718,290 682,976 Autos 66,967 34,500 23,367 ----------- ----------- ----------- 1,575,371 1,506,409 1,481,053 Accumulated depreciation (1,042,880) (957,509) (855,265) =========== =========== =========== Net property and equipment $ 532,491 $ 548,900 $ 625,788 =========== =========== ===========
4. RELATED PARTY TRANSACTIONS As of May 31, 1998, 1997 and 1996 the Company had the following amounts payable to or receivable from Dynamic Enterprises, Inc., another wholly owned subsidiary of Fleeman Holding Company.
1998 1997 1996 --------------- --------------- --------------- Dynamic Enterprises, Inc. Receivable from affiliate $ 139,560 $ -- $ 44,245 Payable to affiliate (2,525,263) (4,316,969) (3,365,172)
Dynamic Enterprises, Inc. constructs various Car-Mart facilities that historically have been sold to Fleeman Holding Company shareholders at cost upon completion. These facilities are then leased to the Company under noncancelable operating leases. The rent paid to the former Fleeman Holding Company shareholders during fiscal years ended May 31, 1998, 1997 and 1996 totaled $741,000, $577,900 and $301,200, respectively. Future minimum annual rentals under all related party, noncancelable leases for the five fiscal years subsequent to May 31, 1998, will be approximately $1,000,000 for each year. 9 14 America's Car-Mart, Inc. Notes to Financial Statements (continued) 5. INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:
MAY 31 1998 1997 1996 ----------- ----------- ----------- Deferred tax liabilities: Tax over book depreciation $ 72,367 $ 65,340 $ 55,679 Bad debt reserve 2,910,305 -- -- Other 12,494 -- -- ----------- ----------- ----------- Total deferred tax liabilities 2,995,166 65,340 55,679 Deferred tax assets: Bad debt reserve -- 453,084 322,501 Other 49,503 201,629 45,237 ----------- ----------- ----------- Total deferred tax assets 49,503 654,713 367,738 ----------- ----------- ----------- Net deferred tax liabilities (assets) before change in accounting method 2,945,663 (589,373) (312,059) Effect from change in accounting method-cumulative (2,313,993) (1,953,187) (1,860,848) Effect from change in accounting method-current year (340,093) (360,806) (92,339) =========== =========== =========== Net deferred tax liabilities (assets) $ 291,577 $(2,903,366) $(2,265,246) =========== =========== ===========
Significant components of the provision for income taxes were as follows:
FOR THE PERIOD ENDED MAY 31 1998 1997 1996 ----------- ----------- ----------- Current: Federal $ 624,307 $ 3,027,400 $ 1,828,016 State 78,773 381,987 230,653 ----------- ----------- ----------- Total current 703,080 3,409,387 2,058,669 Deferred: Federal 2,652,579 (529,795) (102,961) State 542,364 (108,325) (21,053) ----------- ----------- ----------- Total deferred 3,194,943 (638,120) (124,014) ----------- ----------- ----------- Total provision $ 3,898,023 $ 2,771,267 $ 1,934,655 =========== =========== ===========
10 15 America's Car-Mart, Inc. Notes to Financial Statements (continued) 5. INCOME TAXES (CONTINUED) The reconciliation of income tax computed at the U.S. federal statutory tax rate to the provision for income taxes is as follows:
FOR THE PERIOD ENDED MAY 31 1998 1997 1996 AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT ----------- ----------- ----------- ----------- ----------- ----------- Tax at U.S. statutory rates $ 3,475,154 34.0% $ 2,210,760 34.0% $ 1,927,006 34.0% Nondeductible expenses -- 0.0 38,067 0.6 80,622 1.4 Income not taxed in current year -- 0.0 -- 0.0 (452,235) (8.0) State tax (net of federal tax benefit) 95,357 0.9 336,308 5.2 210,149 3.7 Other 327,512 3.2 186,132 2.9 169,113 3.0 =========== =========== =========== =========== =========== =========== $ 3,898,023 38.1% $ 2,771,267 42.7% $ 1,934,655 34.1% =========== =========== =========== =========== =========== ===========
6. COMMITMENTS AND CONTINGENCIES The Company is a defendant in a class action lawsuit in which the claimants are seeking damages from the Company for loaning money to the claimants at an allegedly usurious interest rate. The claimants assert that the Company loaned money at the highest legal interest rate to each of the claimants and the Company also charged each of the claimants a documentary fee. The claimants assert that this documentary fee constitutes interest, which when combined with the interest charged on the loans causes the interest rate to be usurious. On or about October 2, 1996, the court granted in part and denied in part the claimants' motion for summary judgment seeking the determination from the court that the five dollar ($5.00) documentary fee causes the loans to be usurious. The Court held that the documentary fee constitutes interest; however, the court concluded that the issue of whether the five dollar ($5.00) documentary fee caused the contracts to be usurious should be tried. A date for trial has not been set. At this time the Company's legal counsel is unable to estimate the amount or range of potential loss, if any, to which the Company may be subject. Accordingly, no provision has been made in the financial statements for any liability that may result from this matter. 11 16 America's Car-Mart, Inc. Notes to Financial Statements (continued) 7. LITIGATION During fiscal 1997, the Company was a defendant in a class action lawsuit in which the claimants were seeking damages from the Company for alleged breach of contract and for unjust enrichment. In 1994 and prior years, the Company had sold debt waiver contracts and is continuing to sell maintenance service contracts. The claimants allege that the debt waiver contracts are insurance and that because the Company sold the contracts without obtaining a license to sell insurance, the contracts should be considered void. On June 6, 1997, the court entered an order approving the settlement agreement entered into between the claimants and the Company. The order dismissed with prejudice all remaining claims asserted against the Company. The terms include obligations for the Company to pay the claimants' lawyers a total of $200,000 in legal fees and to pay certain class members according to a formula set out in the court order. The claims process is now complete and the Company has made cash payments to the claimants totaling $47,551 and issued coupons for the purchase of automobiles from the Company with a value of $68,256 subsequent to May 31, 1997. This settlement terminated all liability attributed to the Company in the matter. Accordingly, these amounts have been recorded in the financial statements at May 31, 1997 and for the year then ended. 8. YEAR 2000 ISSUE (UNAUDITED) The Company utilizes two primary software packages (operating and accounting), and several secondary software packages (word processing, spreadsheet, database and communication) in the operation of its business. The present version of the operating software utilized by the Company is not Year 2000 compliant, but a more recent version is available that is Year 2000 compliant. The accounting software utilized by the Company is not Year 2000 compliant, however, the Company recently purchased new accounting software that is Year 2000 compliant and it plans to install such new software by May 1999. All of the Company's secondary software packages are Year 2000 compliant. The majority of the Company's data processing hardware is Year 2000 compliant, and the portion that is not will be updated or replaced by July 1999. 9. SUBSEQUENT EVENT (UNAUDITED) On January 15, 1999, Crown Group, Inc. acquired 100% of the common stock of Fleeman Holding Company for a purchase price of $41.35 million. At closing, Fleeman Holding Company's only asset was the common stock of the Company. Effective March 1, 1999 Fleeman Holding Company was merged with and into the Company with the Company being the surviving entity. The Company is now a wholly owned subsidiary of Crown Group, Inc. 12 17 CROWN GROUP, INC. INTRODUCTION TO PRO-FORMA FINANCIAL INFORMATION PURCHASE OF 100% OF CAR-MART On January 15, 1999 the Company acquired 100% of the outstanding common stock of Fleeman Holding Company, including its wholly-owned subsidiary America's Car-Mart, Inc., ("Car-Mart") for $41.35 million. The purchase price consisted of $33.85 million in cash and the issuance of promissory notes aggregating $7.5 million (the "Notes"). The Notes bear interest at 8.5% per annum payable quarterly, with the principal due in five years. Approximately $24 million of the cash portion of the purchase price was obtained pursuant to a $30 million revolving credit facility with a major banking institution. The remaining $9.85 million was funded from cash on hand. Car-Mart was founded in 1981 and presently operates thirty "buy-here-pay-here" used car dealerships located in niche markets throughout Arkansas, Oklahoma, Texas and Missouri. Car-Mart underwrites, finances and services retail installment contracts generated at its dealerships. The majority of Car-Mart's assets consist of over 15,000 retail installment contracts. PRO-FORMA FINANCIAL STATEMENTS The following Pro-Forma Consolidated Statement of Operations of Crown for the year ended April 30, 1998 gives effect to the above described transaction, as if such transaction had occurred at the beginning of the period (May 1, 1997). Car-Mart's historical accounting year ends on May 31. Car-Mart's operating results for the year ended April 30, 1998 have been derived by adding (i) its operating results for the month of May 1997, and subtracting (ii) its operating results for the month of May 1998, from (iii) its operating results for the year ended May 31, 1998. The following Pro-Forma Consolidated Statement of Operations of Crown for the nine months ended January 31, 1999 gives effect to the above described transaction, as if such transaction had occurred at the beginning of the period (May 1, 1998). The pro-forma information is based on the historical financial statements of Crown and Car-Mart giving effect to the transaction 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-1 18 CROWN GROUP, INC. PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED APRIL 30, 1998 UNAUDITED (IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL HISTORICAL PRO-FORMA CROWN CAR-MART ADJUSTMENTS CONSOLIDATED ----------- ----------- ----------- ----------- Revenues: Sales $ 14,939 $ 60,343 $ 75,282 Rental income 494 494 Gain on sale of mortgage loans 1,087 1,087 Interest income 3,418 4,677 $ 302(a) 8,397 Interest, fees, and rentals from CMN 681 681 Other 596 596 ----------- ----------- ----------- ----------- 21,215 65,020 302 86,537 ----------- ----------- ----------- ----------- Costs and expenses: Cost of sales 9,275 33,187 42,462 Selling, general and administrative 8,568 10,887 19,455 Provision for credit losses 1,761 11,977 13,738 Interest expense 1,235 10 3,142(b) 4,387 Depreciation and amortization 785 108 893 ----------- ----------- ----------- ----------- 21,624 56,169 3,142 80,935 ----------- ----------- ----------- ----------- Other income: Equity in earnings of CMN 927 927 Gain on sale of securities 38 38 ----------- ----------- ----------- ----------- 965 965 ----------- ----------- ----------- ----------- Income before taxes and minority interest 556 8,851 (2,840) 6,567 Provision (benefit) for income taxes (131) 3,707 (1,079)(c) 2,497 Minority interests 339 339 ----------- ----------- ----------- ----------- Net income $ 348 $ 5,144 $ (1,761) $ 3,731 =========== =========== =========== =========== Earnings per share: Basic $ .04 $ .38 Diluted $ .04 $ .38 Average shares outstanding: Basic 9,829 9,829 Diluted 9,906 9,906
See accompanying Notes to Pro-Forma Consolidated Financial Statements. P-2 19 CROWN GROUP, INC. PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED JANUARY 31, 1999 UNAUDITED (IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL HISTORICAL PRO-FORMA CROWN CAR-MART ADJUSTMENTS CONSOLIDATED ------------- ------------- -------------- ---------------- Revenues: Sales $ 49,598 $ 45,770 $ 95,368 Rental income 1,909 1,909 Gain on sale of mortgage loans 3,102 3,102 Interest income 8,442 3,658 $ 366 (a) 12,466 Interest, fees, and rentals from CMN 743 743 Other 315 315 -------- -------- -------- --------- 64,109 49,428 366 113,903 -------- -------- -------- --------- Costs and expenses: Cost of sales 31,203 23,134 54,337 Selling, general and administrative 18,483 7,857 26,340 Provision for credit losses 6,280 11,240 17,520 Interest expense 4,443 29 2,342 (b) 6,814 Depreciation and amortization 1,577 107 1,684 -------- -------- -------- --------- 61,986 42,367 2,342 106,695 -------- -------- -------- --------- Other income: Equity in earnings of CMN 754 754 Gain on sale of securities 18,890 18,890 -------- -------- -------- --------- 19,644 19,644 -------- -------- -------- --------- Income before taxes and minority 21,767 7,061 (1,976) 26,852 interest Provision (benefit) for income taxes 7,299 2,590 (751) (c) 9,138 Minority interests 373 373 -------- -------- -------- --------- Net income $ 14,095 $ 4,471 $ (1,225) $ 17,341 ======== ======== ======== ========= Earnings per share: Basic $ 1.40 $ 1.72 Diluted $ 1.36 $ 1.68 Average shares outstanding: Basic 10,077 10,077 Diluted 10,335 10,335
See accompanying Notes to Pro-Forma Consolidated Financial Statements. P-3 20 CROWN GROUP, INC. NOTES TO PRO-FORMA CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) a - To record amortization of discount on finance receivable portfolios and eliminate interest income on the cash on hand used to acquire Car-Mart:
Year Nine Months Ended Ended April 30, 1998 January 31, 1999 -------------- ----------------- Discount amortization $ 710 $ 672 Eliminate interest income (408) (306) -------- ---------- $ 302 $ 366 ======== ==========
b - To record interest expense associated with (i) monies borrowed to complete the Car-Mart acquisition, and (ii) amortization of debt issue costs incurred in the Car-Mart acquisition.
Year Nine Months Ended Ended April 30, 1998 January 31, 1999 -------------- ---------------- $ 3,142 $ 2,342 ========= =========
c - To record a provision for income taxes related to the above described adjustments. P-4 21 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION - ------- ----------- 24.1 Consent of Independent Auditors
EX-24.1 2 CONSENT OF INDEPENDENT AUDITORS 1 Exhibit 24.1 CONSENT OF INDEPENDENT AUDITORS We consent to incorporation by reference in Registration Statements (S-8, Nos. 33-22590, 33-41960 and 33-59527) relating to the 1986 Incentive Stock Option Plan; Registration Statements (S-8, Nos. 33-71090 and 33-59519) relating to the 1991 Non-qualified Stock Option Plan; and Registration Statement (S-8, No. 333-38475) relating to the 1997 Stock Option Plan of our report dated March 24, 1999, with respect to the financial statements of America's Car-Mart, Inc. for the three years ended May 31, 1998, included in Crown Group, Inc.'s filing on Form 8-K/A (Amendment No. 1) dated March 31, 1999, filed with the Securities and Exchange Commission. Ernst & Young LLP March 30, 1999 Little Rock, Arkansas -----END PRIVACY-ENHANCED MESSAGE-----