-----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, M5lsPWkNGDXkBHOauEKdhSvlPmggO05xnElBtbpb6+Yt5SRuuZMpFNSGYap1eYMj SCX6DryfePowvPB9vdmTgA== 0000950134-00-001913.txt : 20000315 0000950134-00-001913.hdr.sgml : 20000315 ACCESSION NUMBER: 0000950134-00-001913 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000131 FILED AS OF DATE: 20000314 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: 10-Q SEC ACT: SEC FILE NUMBER: 000-14939 FILM NUMBER: 569076 BUSINESS ADDRESS: STREET 1: 4040 N. MACARTHUR BLVD. STREET 2: SUITE 100 CITY: IRVING STATE: TX ZIP: 75038 BUSINESS PHONE: 9727173423 MAIL ADDRESS: STREET 1: 4040 N. MACARTHUR BLVD. STREET 2: SUITE 100 CITY: IRVING STATE: TX ZIP: 75038 FORMER COMPANY: FORMER CONFORMED NAME: CROWN CASINO CORP DATE OF NAME CHANGE: 19931104 FORMER COMPANY: FORMER CONFORMED NAME: SKYLINK AMERICA INC DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q FOR QUARTER ENDED JANUARY 31, 2000 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal quarter ended: Commission file number: JANUARY 31, 2000 0-14939 CROWN GROUP, INC. (Exact name of registrant as specified in its charter) TEXAS 63-0851141 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 4040 N. MACARTHUR BLVD., SUITE 100, IRVING, TEXAS (Address of principal executive offices) 75038-6424 (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. Outstanding at Title of Each Class March 9, 2000 ------------------- ------------- Common stock, par value $.01 per share 8,299,362 1 2 PART I ITEM 1. FINANCIAL STATEMENTS CROWN GROUP, INC. CONSOLIDATED BALANCE SHEETS
January 31, 2000 (unaudited) April 30, 1999 ----------------- ----------------- Assets: Cash and cash equivalents $ 5,097,901 $ 12,910,535 Accounts and other receivables, net 4,726,736 2,572,535 Mortgage loans held for sale, net 14,676,550 10,636,933 Finance receivables, net 172,234,219 88,424,897 Inventory 14,247,467 9,290,272 Prepaid and other assets 5,264,103 2,748,831 Property and equipment, net 27,038,262 22,055,174 Investment in CMN and related assets, net 5,167,161 Goodwill, net 27,089,141 14,328,241 ----------------- ----------------- $ 270,374,379 $ 168,134,579 ================= ================= Liabilities and stockholders' equity: Accounts payable $ 7,407,037 $ 4,747,358 Accrued liabilities 13,086,189 5,040,007 Income taxes payable 5,552,761 3,875,583 Revolving credit facilities 160,589,368 78,928,121 Other notes payable 18,622,760 17,259,544 Deferred sales tax 3,636,081 2,713,914 Deferred income taxes 797,437 ----------------- ----------------- Total liabilities 208,894,196 113,361,964 ----------------- ----------------- Minority interests 4,432,732 1,713,731 Commitments and contingencies Stockholders' equity: Preferred stock, par value $.01 per share, 1,000,000 shares authorized; none issued or outstanding Common stock, par value $.01 per share, 50,000,000 shares authorized; 8,540,862 issued and outstanding (10,096,842 at April 30, 1999) 85,408 100,968 Additional paid-in capital 30,309,151 37,970,391 Retained earnings 26,652,892 14,987,525 ----------------- ----------------- Total stockholders' equity 57,047,451 53,058,884 ----------------- ----------------- $ 270,374,379 $ 168,134,579 ================= =================
See accompanying notes to consolidated financial statements. 2 3 CONSOLIDATED STATEMENTS OF OPERATIONS CROWN GROUP, INC. (UNAUDITED)
Three Months Ended January 31, 2000 1999 ------------- ------------- Revenues: Sales $ 46,632,384 $ 18,283,991 Rental income 1,025,985 637,044 Gain on sale of mortgage loans 1,075,075 788,361 Gaming 647,111 Interest income 9,123,289 3,172,473 Interest, fees and rentals from CMN 133,818 Other 217,043 273,279 ------------- ------------- 58,720,887 23,288,966 ------------- ------------- Costs and expenses: Cost of sales 28,745,845 11,675,453 Selling, general and administrative 13,147,026 6,958,791 Provision for credit losses 8,669,219 3,986,452 Interest expense 4,009,144 1,653,052 Depreciation and amortization 961,977 598,654 ------------- ------------- 55,533,211 24,872,402 ------------- ------------- Other income (expense): Equity in earnings (loss) of unconsolidated subsidiaries (312,534) 38,017 Gain on sale of securities, net 123,268 18,964,236 ------------- ------------- (189,266) 19,002,253 ------------- ------------- Income before taxes and minority interests 2,998,410 17,418,817 Provision for income taxes 1,256,205 5,914,692 Minority interests 261,723 (350,923) ------------- ------------- Net income $ 1,480,482 $ 11,855,048 ============= ============= Earnings per share: Basic $ .17 $ 1.19 Diluted $ .16 $ 1.14 Weighted average number of shares outstanding: Basic 8,790,490 9,942,386 Diluted 9,179,744 10,372,333
See accompanying notes to consolidated financial statements. 3 4 CONSOLIDATED STATEMENTS OF OPERATIONS CROWN GROUP, INC. (UNAUDITED)
Nine Months Ended January 31, 2000 1999 ------------------ ------------------ Revenues: Sales $ 124,967,077 $ 49,598,072 Rental income 3,256,153 1,909,059 Gain on sale of mortgage loans 3,514,169 3,102,014 Gaming 1,581,981 Interest income 19,173,127 8,441,975 Interest, fees and rentals from CMN 742,831 Other 314,297 314,829 ------------- ------------ 152,806,804 64,108,780 ------------- ------------ Costs and expenses: Cost of sales 75,450,574 32,438,788 Selling, general and administrative 36,253,473 18,483,250 Provision for credit losses 21,387,881 8,378,413 Interest expense 9,084,277 4,442,754 Depreciation and amortization 2,596,944 1,640,010 ------------- ------------ 144,773,149 65,383,215 ------------- ------------ Other income: Equity in earnings of unconsolidated subsidiaries 630,309 754,445 Gain on sale of securities, net 10,361,100 18,889,833 ------------- ------------ 10,991,409 19,644,278 ------------- ------------ Income before taxes and minority interests 19,025,064 18,369,843 Provision for income taxes 7,266,343 6,065,681 Minority interests 93,354 (362,716) ------------- ------------ Net income $ 11,665,367 $ 12,666,878 ============= ============ Earnings per share: Basic $ 1.23 $ 1.26 Diluted $ 1.18 $ 1.23 Weighted average number of shares outstanding: Basic 9,508,064 10,076,775 Diluted 9,911,777 10,335,480
See accompanying notes to consolidated financial statements. 4 5 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME CROWN GROUP, INC. (UNAUDITED)
Three Months Ended Nine Months Ended January 31, January 31, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Net income $ 1,480,482 $ 11,855,048 $ 11,665,367 $ 12,666,878 Change in unrealized appreciation of securities, net of tax: Unrealized appreciation arising during period 6,339,173 14,565,465 Less realized gain included in net income (12,516,396) (12,467,290) ------------ ------------ ------------ ------------ (6,177,223) 2,098,175 ------------ ------------ ------------ ------------ Comprehensive income $ 1,480,482 $ 5,677,825 $ 11,665,367 $ 14,765,053 ============ ============ ============ ============
See accompanying notes to consolidated financial statements. 5 6 CONSOLIDATED STATEMENTS OF CASH FLOWS CROWN GROUP, INC. (UNAUDITED)
Nine Months Ended January 31, 2000 1999 ------------------- ------------------ Operating activities: Net income $ 11,665,367 $ 12,666,878 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,596,944 1,640,010 Accretion of purchase discount (1,082,634) (695,869) Deferred income taxes (2,349,763) (206,002) Provision for credit losses 21,387,881 8,378,413 Minority interests 93,354 (362,716) Gain on sale of mortgage loans (3,514,169) (3,102,014) Gain on sale of assets (105,840) (265,387) Gain on sale of securities (10,361,100) (18,889,833) Equity in earnings of unconsolidated subsidiaries (630,309) (754,445) Changes in assets and liabilities, net of acquisitions: Accounts and other receivables (611,689) (1,512,746) Mortgage loans originated or acquired (106,822,237) (67,572,153) Mortgage loans sold and principal repayments 106,190,189 73,203,758 Inventory 14,660,789 4,754,843 Prepaids and other assets (575,905) (197,171) Accounts payable, accrued liabilities and deferred sales tax (3,800,855) 2,621,532 Income taxes payable 1,677,177 1,282,248 ------------- ------------- Net cash provided by operating activities 28,417,200 10,989,346 ------------- ------------- Investing activities: Finance receivable originations (113,364,312) (44,465,402) Finance receivable collections 64,322,170 18,629,316 Purchase of property and equipment (5,848,753) (12,184,078) Sale of assets 856,913 1,802,286 Purchase of securities (1,995,030) Sale of securities 16,762,325 21,122,595 Dividends and collections of notes receivable from CMN 306,487 1,665,685 Purchase of Car-Mart, net of cash acquired (33,420,470) Purchase of Smart Choice, net of cash acquired (866,741) ------------- ------------- Net cash used by investing activities (37,831,911) (48,845,098) ------------- ------------- Financing activities: Capital contribution from minority owner 60,000 Purchase of common stock (4,492,823) (1,213,746) Proceeds from revolving credit facilities, net 6,228,247 30,606,220 Proceeds from (repayments of) other debt, net (133,347) 5,635,271 ------------- ------------- Net cash provided by financing activities 1,602,077 35,087,745 ------------- ------------- Decrease in cash and cash equivalents (7,812,634) (2,768,007) Cash and cash equivalents at: Beginning of period 12,910,535 6,481,706 ------------- ------------- End of period $ 5,097,901 $ 3,713,699 ============= =============
See accompanying notes to consolidated financial statements. 6 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CROWN GROUP, INC. A - HISTORY AND DESCRIPTION OF BUSINESS Crown Group, Inc. ("Crown"), and collectively with its subsidiaries (the "Company"), is a publicly traded buy-out firm which as of January 31, 2000 owned 99% of America's Car-Mart, Inc. ("Car-Mart") and 70% of Smart Choice Automotive Group, Inc. ("Smart Choice"). Smart Choice owns 100% of Paaco Automotive Group, Inc. and Premium Auto Acceptance Corporation (collectively, "Paaco"). Each of Car-Mart, Smart Choice and Paaco sell and finance used vehicles. At January 31, 2000 Crown also owned (i) 100% of Precision IBC, Inc. ("Precision"), a firm specializing in the sale and rental of intermediate bulk containers ("IBC's"), (ii) 80% of Concorde Acceptance Corporation ("Concorde"), a sub-prime mortgage lender, (iii) 50.1% of CG Incorporated, S.A. de C.V. ("Crown El Salvador"), a newly formed company focusing on the development and operation of casinos in El Salvador, and (iv) 45% of Atlantic Castings, Inc. ("Atlantic Castings"), an investment casting manufacturer of turbine engine components. In addition, from time to time the Company purchases and sells small ownership interests in securities of privately held and publicly traded firms. The Company is presently focusing on (i) the development and expansion of its existing businesses, and (ii) the potential acquisition or development of other unrelated businesses. 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 generally accepted accounting principles 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, 2000 are not necessarily indicative of the results that may be expected for the year ended April 30, 2000. 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, 1999. Goodwill Goodwill represents the excess of the Company's cost over the fair value of net identifiable assets acquired in its purchases of Smart Choice, Paaco and Precision. Goodwill is amortized on a straight line basis over periods ranging from 15 to 25 years. The Company assesses the recoverability of this intangible asset by determining whether the amortization of the goodwill balance over its remaining life can be recovered through undiscounted future operating cash flows of the acquired operation. At January 31, 2000 accumulated amortization of goodwill amounted to $1,610,663. Reclassifications Certain prior year amounts in the accompanying financial statements have been reclassified to conform to the fiscal 2000 presentation. 7 8 C - ACQUISITIONS AND DISPOSITIONS Smart Choice Purchase On December 1, 1999, Crown acquired a 70% voting and economic interest in Smart Choice directly from Smart Choice. The purchase price ("Purchase Price") consisted of (i) $3.0 million in cash, (ii) the conversion of $4.5 million of Smart Choice debt, which Crown had contemporaneously acquired from a third party for approximately $2.3 million cash, and (iii) the contribution of Crown's 85% interest in Paaco. In consideration for the Purchase Price Crown received 1,371,581.47 shares of Smart Choice Series E Convertible Preferred Stock, which is convertible into 137,158,147 shares of Smart Choice common stock representing 70% of the ownership and voting rights of Smart Choice on an "as converted" basis. The cash consideration paid by Crown was obtained from working capital. The activities of Smart Choice have been included in the Company's consolidated results of operations since the acquisition date. Contemporaneously with Crown's purchase of a 70% interest in Smart Choice, approximately $15.0 million of Smart Choice's outstanding debt and preferred stock was converted into shares of common stock representing a 20.7% interest in Smart Choice. In addition, the Paaco minority shareholders converted their 15% interest in Paaco into shares of Smart Choice Series E Convertible Preferred Stock representing a 5% voting and economic interest in Smart Choice. Paaco is now a wholly-owned subsidiary of Smart Choice. Excluding Paaco, Smart Choice operates eleven "buy-here pay-here" used car dealerships in central Florida. Smart Choice's assets consist principally of (i) finance receivables originated in the sale of used vehicles, and (ii) inventory. For its most recent fiscal year ended December 31, 1998, Smart Choice reported revenues from continuing operations of $95.4 million and a loss from continuing operations of $7.3 million. For the nine months ended September 30, 1999, Smart Choice reported revenues of $71.4 million and a loss from continuing operations of $24.2 million. Car-Mart Purchase On January 15, 1999 the Company acquired 100% of the outstanding common stock of Fleeman Holding Company, including its wholly-owned subsidiary Car-Mart for $41.35 million. The purchase price consisted of $33.85 million in cash and the issuance of promissory notes aggregating $7.5 million (the "Notes"). The Notes bear interest at 8.5% per annum payable quarterly, with the principal due in five years. Approximately $24 million of the cash portion of the purchase price was obtained pursuant to a $30 million revolving credit facility with a major banking institution. The remaining $9.85 million was funded from cash on hand. The activities of Car-Mart have been included in the Company's consolidated results of operation since the acquisition date. Car-Mart was founded in 1981 and operates "buy-here pay-here" used car dealerships located in niche markets throughout Arkansas, Oklahoma, Texas and Missouri. Car-Mart underwrites, finances and services retail installment contracts generated at its dealerships. The majority of Car-Mart's assets consists of over 16,000 retail installment contracts. Car-Mart's revenues for the fiscal years ended May 31, 1998 and 1997 were approximately $65.7 million and $58.1 million, respectively. Casino Magic Neuquen Sale Effective October 1, 1999 the Company sold its 49% interest in Casino Magic Neuquen ("CMN") and related assets for $16.5 million cash resulting in a gain before income taxes of $10.2 million. The gain, which is net of a $.5 million bonus pursuant to the Company's executive compensation program, is included in gain on sale of securities in the consolidated statements of operations. The operating results of CMN for the five months ended September 30, 1999 and nine months ended January 31, 1999 are as follows (in thousands):
Five Months Nine Months Ended Ended September 30, 1999 January 31, 1999 -------------------- ------------------ Revenues $ 9,929 $ 16,081 Costs and expenses 6,732 10,296 Lawsuit settlement and costs 917 Interest, fees and rentals to shareholders 1,070 Provision for income taxes 1,135 1,513 -------------------- ------------------ Net income $ 2,062 $ 2,285 ==================== ==================
Home Stay Sale Effective December 2, 1999 Crown sold its 80% interest in Home Stay Lodges I, Ltd. ("Home Stay") to Efficiency Lodge, Inc. for approximately $850,000, of which approximately $210,000 was paid in cash and the balance is payable over five years with interest at an annual rate of prime plus 1%. In connection with the transaction, Crown has been released as a guarantor of Home Stay's mortgage debt of approximately $5.4 million. The gain of approximately $.1 million is included in gain on sale of securities in the consolidated statements of operations. 8 9 Pro Forma Financial Information The following unaudited pro forma condensed consolidated results of operations of the Company for the nine months ended January 31, 2000 and January 31, 1999 were prepared as if the above described acquisitions and dispositions had occurred on May 1, 1999 and May 1, 1998, respectively (in thousands, except per share amounts). The adjustments to the historical financial statements principally consist of (i) eliminating interest income on the cash used in the acquisitions, net of cash received in the dispositions, (ii) recording interest expense on the debt issued in the Car-Mart acquisition, (iii) eliminating interest expense and preferred stock dividends pertaining to certain Smart Choice debt and preferred stock that was converted to Smart Choice common stock, (iv) amortizing goodwill created in the Smart Choice acquisition, (v) adjusting interest income resulting from purchase accounting entries, (vi) eliminating the write off of historical goodwill, and (vii) adjusting income tax expense to reflect the above described adjustments.
Nine Months Ended January 31, 2000 1999 --------------- ---------------- Revenues $ 199,289 $ 184,237 Net income 117 7,666 Earnings per share - diluted $ .01 $ .74
The unaudited pro forma results of operations are not necessarily indicative of future results or the results that would have occurred had the acquisitions and dispositions taken place on the dates indicated. D - FINANCE RECEIVABLES The Company originates installment sale contracts from the sale of used vehicles at its dealerships. These installment sale contracts typically include interest rates ranging from 10% to 26% per annum and provide for payments over periods ranging from 12 to 46 months. A summary of finance receivables as of January 31, 2000 and April 30, 1999 is as follows:
January 31, April 30, 2000 1999 --------------- -------------- Finance receivables $ 256,053,318 $ 123,142,202 Unearned finance charges (40,988,545) (16,669,411) Allowance for credit losses (40,863,393) (17,045,063) Purchase discounts (1,967,161) (1,002,831) ------------- ------------- $ 172,234,219 $ 88,424,897 ============= =============
In accordance with APB Opinion No. 16, as of the dates the Company acquired interests in Paaco, Car-Mart and Smart Choice, the Company valued Paaco's, Car-Mart's and Smart Choice's finance receivables portfolios at market value and determined that purchase discounts of $1,577,781, $864,165 and $2,046,964, respectively, were appropriate. These discounts are being amortized over the life of the related finance receivables portfolios that existed on the dates of purchase using the interest method. A summary of the finance receivables allowance for credit losses for the period from April 30, 1999 to January 31, 2000 is as follows: Balance at April 30, 1999 $ 17,045,063 Acquisition of Smart Choice 21,047,112 Provision for credit losses 21,387,881 Net charge offs (18,616,663) ------------ Balance at January 31, 2000 $ 40,863,393 ============
In addition to the finance receivables allowance for credit losses the Company also has an allowance for credit losses on mortgage loans held for sale ($297,200) and trade accounts receivable ($50,000) as of January 31, 2000. 9 10 E - PROPERTY AND EQUIPMENT A summary of property and equipment as of January 31, 2000 and April 30, 1999 is as follows:
January 31, April 30, 2000 1999 --------------- ---------------- Land and buildings $ 7,995,411 $ 8,651,003 Rental equipment 9,817,615 7,644,949 Furniture, fixtures and equipment 9,440,065 5,691,910 Leasehold improvements 3,165,386 2,003,575 Less accumulated depreciation and amortization (3,380,215) (1,936,263) ----------- ----------- $27,038,262 $22,055,174 =========== ===========
F - DEBT A summary of debt as of January 31, 2000 is as follows:
Revolving Credit Facilities --------------------------------------------------------------------------------------------------------------------- Facility Interest Primary Balance at Borrower Lender Amount Rate Maturity Collateral January 31, 2000 -------------- -------------- ----------- ------------ ---------- ------------- ------------------ Smart Choice Finova $100 million Prime + 2.25% Nov 2004 Finance rec. $ 75,633,325 Paaco Finova $60 million Prime + 2.25% Nov 2004 Finance rec. 46,833,680 Car-Mart Bank of America $30 million Prime + 1.13% Jan 2002 Finance rec. 27,407,277 Concorde Bank One $20 million Libor + 2.00% Sep 2000 Mortgage loans 9,546,952 Precision Wells Fargo $8 million Prime Dec 2000 IBC's and rec. 1,168,134 -------------- $ 160,589,368 ==============
Other Notes Payable --------------------------------------------------------------------------------------------------------------------- Facility Interest Primary Balance at Borrower Lender Amount Rate Maturity Collateral January 31, 2000 -------------- -------------- ----------- ------------- ---------- ------------- ------------------ Crown Car-Mart sellers N/A 8.50% Jan 2004 Finance rec $ 7,500,000 Crown Bank of America N/A 7.00% Apr 2001 Equipment 2,316,000 Precision South Trust Bank N/A 7.35% Jan 2014 Real estate 654,437 Paaco Chase Texas N/A 8.50% May 2003 Real estate 887,858 Paaco Heller Financial N/A Prime + 2.25% Dec 2015 Real estate 607,069 Smart Choice Huntington N/A Prime + .75% Jul 2001 Real estate 2,118,981 Smart Choice High Capital N/A 10.0% Nov 2001 None 1,000,000 Various Various N/A Various Various Real estate 3,538,415 ------------- $ 18,622,760 =============
Interest is payable monthly or quarterly on all of the Company's debt. The loan agreements relating to certain of the above described debt contain various reporting and performance covenants including (i) maintenance of certain financial ratios and tests, (ii) limitations on borrowings from other sources, (iii) restrictions on certain operating activities, and (iv) restrictions on the payment of dividends. The Company was in compliance with all of its loan agreements as of January 31, 2000. The amount available to be drawn under each of the Company's revolving credit facilities is a function of the underlying collateral asset. Generally, the Company is able to borrow a specified percentage of the face value of eligible finance receivables in the case of Car-Mart, Smart Choice and Paaco, and eligible mortgage loans in the case of Concorde. Precision's borrowing base is a function of the number of tanks owned and operating cash flow, as defined. 10 11 G - COMPREHENSIVE INCOME INFORMATION Supplemental comprehensive income disclosures for the three and nine months ended January 31, 1999 are as follows:
Three Months Nine Months Ended Ended January 31, 1999 January 31, 1999 ------------------ ------------------ Gross unrealized appreciation of securities arising during period $ 9,604,808 $ 22,068,886 Provision for income taxes 3,265,635 7,503,421 ------------ ------------ Unrealized appreciation of securities arising during period $ 6,339,173 $ 14,565,465 ============ ============
Changes to unrealized appreciation of securities for the three and nine months ended January 31, 1999 are as follows:
Three Months Nine Months Ended Ended January 31, 1999 January 31, 1999 ------------------- ------------------ Balance at beginning of period $ 10,205,898 $ 1,930,500 Unrealized appreciation of securities arising during period 6,339,173 14,565,465 Less realized gain included in net income (12,516,396) (12,467,290) ------------ ------------ Balance at January 31, 1999 $ 4,028,675 $ 4,028,675 ============ ============
H - EARNINGS PER SHARE A summary reconciliation of basic earnings per share to diluted earnings per share for the three and nine months ended January 31, 2000 and 1999 is as follows:
Three Months Ended Nine Months Ended January 31, January 31, 2000 1999 2000 1999 ----------- ------------ ------------ ------------ Net income $ 1,480,482 $ 11,855,048 $ 11,665,367 $ 12,666,878 =========== ============ ============ ============ Average shares outstanding-basic 8,790,490 9,942,386 9,508,064 10,076,775 Dilutive options 389,254 429,947 403,713 240,555 Dilutive warrants 18,150 ----------- ------------ ------------ ------------ Average shares outstanding-diluted 9,179,744 10,372,333 9,911,777 10,335,480 =========== ============ ============ ============ Earnings per share: Basic $ .17 $ 1.19 $ 1.23 $ 1.26 Diluted $ .16 $ 1.14 $ 1.18 $ 1.23 Antidilutive securities not included: Options 432,500 432,500 432,500 295,000 =========== ============ ============ ============ Warrants -- 391,198 -- 391,198 =========== ============ ============ ============
11 12 I - CAPITAL STOCK In July 1999, upon discovering certain accounting errors and irregularities at Paaco, the Company and the shareholders from whom the Company purchased an interest in Paaco amended and restated the three prior purchase agreements such that the Company received approximately $4 million in consideration and an additional 5% interest in Paaco. A portion of the consideration received consisted of 670,311 shares of the Company's common stock. The total value of the consideration received in this transaction ($4.5 million) was recorded as a reduction of goodwill in July 1999. J - COMMITMENTS AND CONTINGENCIES Mortgage Loan Sales In connection with the Company's sale of mortgage loans in the ordinary course of business, in certain circumstances such loan sales involve limited recourse to the Company for up to the first twelve months following the sale. Generally, the events which could give rise to these recourse provisions involve the prepayment or foreclosure of a loan, and violations of customary representations and warranties. If the recourse provisions are triggered the Company may be required to refund all or part of the premium received on the sale of such loan, and in some cases the Company may be required to repurchase the loan. Periodically the Company estimates the potential exposure related to such recourse provisions and accrues a percentage of the total potential liability. Severance Agreements The Company has entered into severance agreements with its three executive officers which provide for payments to the executives in the event of their termination after a change in control, as defined, of the Company. The agreements provide, among other things, for a compensation payment equal to 2.99 times the annual compensation paid to the executive, as well as accelerated vesting of any unvested options under the Company's stock option plans, in the event of such executive's termination in connection with a change in control. Class Action Lawsuit In March 1999, prior to Crown's ownership interest in Smart Choice, certain shareholders of Smart Choice filed two putative class action lawsuits against Smart Choice and certain of Smart Choice's officers and directors in the United States District Court for the Middle District of Florida (collectively, the "Securities Actions"). The Securities Actions purport to be brought by plaintiffs in their individual capacity and on behalf of the class of persons who purchased or otherwise acquired Smart Choice publicly traded securities between April 15, 1998 and February 26, 1999. These lawsuits were filed following Smart Choice's announcement on February 26, 1999 that a preliminary determination had been reached that the net income it had announced on February 10, 1999 for the fiscal year ended December 31, 1998 was likely overstated in a material, undetermined amount. Each of the complaints assert claims for violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 of the Securities and Exchange Commission as well as a claim for the violation of Section 20(a) of the Exchange Act. The plaintiffs allege that the defendants prepared and issued deceptive and materially false and misleading statements to the public, which caused plaintiffs to purchase Smart Choice securities at artificially inflated prices. The plaintiffs seek unspecified damages. Smart Choice intends to contest these claims vigorously. The Company cannot predict the ultimate resolution of these actions. The two class action lawsuits have subsequently been consolidated. Other Litigation In the ordinary course of business, the Company has become a defendant in various other types of legal proceedings. Although the Company cannot determine at this time the amount of the ultimate exposure from these ordinary course of business lawsuits, if any, management, based on the advice of counsel, does not expect the final outcome of any of these actions, individually or in the aggregate, to have a material adverse effect on the Company's financial position, results of operations or cash flows. Investment Fund In November 1998 the Company committed $2.0 million to Monarch Venture Partners' Fund L.L.P. ("Monarch"), a private venture capital fund focusing on high technology businesses, such as Internet related concerns. As of January 31, 2000 the Company had funded approximately $1.4 million of its $2.0 million commitment. The Company expects it will fund the remaining $.6 million over the next 12 months. 12 13 K - SUPPLEMENTAL CASH FLOW INFORMATION Supplemental cash flow disclosures for the nine months ended January 31, 2000 and 1999 are as follows:
Nine Months Ended January 31, 2000 1999 -------------- --------------- Issuance of notes in acquisition $ 7,500,000 Value of stock issued in acquisitions 2,652,108 Value of securities received in acquisition amendment $ 4,452,597 Inventory acquired in repossession 14,051,983 5,057,773 Notes issued in purchase of property and equipment 2,044,000 Interest paid, net of amount capitalized 8,598,058 4,274,642 Income taxes paid, net of refund 8,058,829 4,954,189
13 14 L - BUSINESS SEGMENTS Operating results and other financial data are presented for the four principal business segments of the Company for the three months ended January 31, 2000 and 1999. These segments are categorized by the lines of business of the Company. The segments include (i) automobile, which pertains to Car-Mart's, Smart Choice's and Paaco's selling and financing of used vehicles, (ii) IBC's, which pertains to Precision's rental and sales of intermediate bulk containers, (iii) mortgage, which pertains to Concorde's originating and selling of sub-prime mortgage loans, and (iv) other, which includes corporate operations, Home Stay, Crown El Salvador, activities of relatively inactive subsidiaries and the Company's equity investment in Atlantic Castings. The Company's business segment data for the three months ended January 31, 2000 and 1999 is as follows (in thousands):
Three Months Ended January 31, 2000 --------------------------------------------------------------------------------------------- Automobile IBC's Mortgage Other Eliminations Consolidated ------------ ------------ ----------- ----------- ------------- ------------- Revenues: Sales and other $ 45,929 $ 1,849 $ 1,080 $ 740 $ 49,598 Interest income 8,447 18 481 856 $ (679) 9,123 ------------ ------------ ----------- ----------- ------------- ------------- Total 54,376 1,867 1,561 1,596 (679) 58,721 ------------ ------------ ----------- ----------- ------------- ------------- Costs and expenses: Cost of sales 27,979 767 28,746 Selling, gen. and admin. 9,708 474 1,290 1,675 13,147 Prov. for credit losses 8,570 29 70 8,669 Interest expense 3,785 149 366 388 (679) 4,009 Depreciation and amort. 332 254 51 325 962 ------------ ------------ ----------- ----------- ------------- ------------- Total 50,374 1,673 1,777 2,388 (679) 55,533 ------------ ------------ ----------- ----------- ------------- ------------- Security gains and other (190) (190) ------------ ------------ ----------- ----------- ------------- ------------- Income (loss) before taxes and minority interests $ 4,002 $ 194 $ (216) $ (982) $ - $ 2,998 ============ ============ =========== =========== ============= ============= Capital expenditures $ 289 $ 1,389 $ 14 $ 59 $ - $ 1,751 ============ ============ =========== =========== ============= ============= Total assets $ 217,337 $ 16,326 $ 16,000 $ 76,542 $ (55,831) $ 270,374 ============ ============ =========== =========== ============= =============
Three Months Ended January 31, 1999 --------------------------------------------------------------------------------------------- Automobile IBC's Mortgage Other Eliminations Consolidated ------------ ------------ ----------- ----------- ------------- ------------- Revenues: Sales and other $ 17,765 $ 1,188 $ 890 $ 274 $ 20,117 Interest income 2,542 3 388 429 $ (190) 3,172 ------------ ------------ ----------- ----------- ------------- ------------- Total 20,307 1,191 1,278 703 (190) 23,289 ------------ ------------ ----------- ----------- ------------- ------------- Costs and expenses: Cost of sales 11,314 362 11,676 Selling, gen. and admin. 4,292 392 1,074 1,200 6,958 Prov. for credit losses 3,929 13 44 3,986 Interest expense 1,433 93 281 36 (190) 1,653 Depreciation and amort. 112 185 42 260 599 ------------ ------------ ----------- ----------- ------------- ------------- Total 21,080 1,045 1,441 1,496 (190) 24,872 ------------ ------------ ----------- ----------- ------------- ------------- Security gains and other 19,002 - 19,002 ------------ ------------ ----------- ----------- ------------- ------------- Income (loss) before taxes and minority interest $ (773) $ 146 $ (163) $ 18,209 $ - $ 17,419 ============ ============ =========== =========== ============= ============= Capital expenditures $ 339 $ 670 $ 11 $ 3,032 $ - $ 4,052 ============ ============ =========== =========== ============= ============= Total assets $ 97,648 $ 12,213 $ 13,539 $ 79,799 $ (44,305) $ 158,894 ============ ============ =========== =========== ============= =============
14 15 The Company's business segment data for the nine months ended January 31, 2000 and 1999 is as follows (in thousands):
Nine Months Ended January 31, 2000 --------------------------------------------------------------------------------------------- Automobile IBC's Mortgage Other Eliminations Consolidated ------------ ------------ ----------- ----------- ------------- ------------- Revenues: Sales and other $ 122,661 $ 5,106 $ 3,596 $ 2,271 $ 133,634 Interest income 17,224 32 1,416 2,077 $ (1,576) 19,173 ------------ ------------ ----------- ----------- ------------- ------------- Total 139,885 5,138 5,012 4,348 (1,576) 152,807 ------------ ------------ ----------- ----------- ------------- ------------- Costs and expenses: Cost of sales 73,476 1,975 75,451 Selling, gen. and admin. 25,544 1,449 3,848 5,412 36,253 Prov. for credit losses 21,199 82 107 21,388 Interest expense 8,158 424 1,052 1,026 (1,576) 9,084 Depreciation and amort. 558 726 148 1,165 2,597 ------------ ------------ ----------- ----------- ------------- ------------- Total 128,935 4,656 5,155 7,603 (1,576) 144,773 ------------ ------------ ----------- ----------- ------------- ------------- Security gains and other 10,991 10,991 ------------ ------------ ----------- ----------- ------------- ------------- Income (loss) before taxes and minority interests $ 10,950 $ 482 $ (143) $ 7,736 $ - $ 19,025 ============ ============ =========== =========== ============= ============= Capital expenditures $ 1,108 $ 3,112 $ 62 $ 1,567 $ - $ 5,849 ============ ============ =========== =========== ============= ============= Total assets $ 217,337 $ 16,326 $ 16,000 $ 76,542 $ (55,831) $ 270,374 ============ ============ =========== =========== ============= =============
Nine Months Ended January 31, 1999 --------------------------------------------------------------------------------------------- Automobile IBC's Mortgage Other Eliminations Consolidated ------------ ------------ ----------- ----------- ------------- ------------- Revenues: Sales and other $ 47,674 $ 3,865 $ 3,246 $ 882 $ 55,667 Interest income 6,461 6 1,192 1,232 $ (449) 8,442 ------------ ------------ ----------- ----------- ------------- ------------- Total 54,135 3,871 4,438 2,114 (449) 64,109 ------------ ------------ ----------- ----------- ------------- ------------- Costs and expenses: Cost of sales 31,069 1,370 32,439 Selling, gen. and admin. 11,685 1,021 3,297 2,480 18,483 Prov. for credit losses 8,235 23 120 8,378 Interest expense 3,683 283 890 36 (449) 4,443 Depreciation and amort. 247 500 115 778 1,640 ------------ ------------ ----------- ----------- ------------- ------------- Total 54,919 3,197 4,422 3,294 (449) 65,383 ------------ ------------ ----------- ----------- ------------- ------------- Security gains and other 19,644 19,644 ------------ ------------ ----------- ----------- ------------- ------------- Income before taxes and minority interest $ (784) $ 674 $ 16 $ 18,464 $ - $ 18,370 ============ ============ =========== =========== ============= ============= Capital expenditures $ 713 $ 2,838 $ 230 $ 8,403 $ - $ 12,184 ============ ============ =========== =========== ============= ============= Total assets $ 97,648 $ 12,213 $ 13,539 $ 79,799 $ (44,305) $ 158,894 ============ ============ =========== =========== ============= =============
15 16 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 report contains, and other materials filed or to be filed by the Company with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by the Company or its management) contain or will contain, forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. The words "believe," "expect," "anticipate," "estimate," "project" and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. The Company undertakes no obligation to publicly update or revise any forward-looking statements. Such forward-looking statements address, among other things, the Company's current focus on the development and expansion of its existing businesses, and the potential acquisition or development of businesses in other fields. Such forward-looking statements are based upon management's current plans or expectations and are subject to a number of uncertainties and risks that could significantly affect current plans, anticipated actions and the Company's future financial condition and results. As a consequence, actual results may differ materially from those expressed in any forward-looking statements made by or on behalf of the Company as a result of various factors. Uncertainties and risks related to such forward-looking statements include, but are not limited to, those relating to the development of the Company's businesses, continued availability of lines of credit for the Company's businesses, changes in interest rates, changes in the industries in which the Company operates, competition, dependence on existing management, the stability of El Salvador's government, currency exchange rate fluctuations, the repatriation of funds from El Salvador, domestic or global economic conditions (particularly in the states of Texas, Florida and Arkansas), changes in foreign or domestic tax laws or the administration of such laws and changes in gaming or 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"), and collectively with its subsidiaries (the "Company"), is a publicly traded buy-out firm which as of January 31, 2000 owned 99% of America's Car-Mart, Inc. ("Car-Mart") and 70% of Smart Choice Automotive Group, Inc. ("Smart Choice"). Smart Choice owns 100% of Paaco Automotive Group, Inc. and Premium Auto Acceptance Corporation (collectively, "Paaco"). Each of Car-Mart, Smart Choice and Paaco sell and finance used vehicles. At January 31, 2000 Crown also owned (i) 100% of Precision IBC, Inc. ("Precision"), a firm specializing in the sale and rental of intermediate bulk containers ("IBC's"), (ii) 80% of Concorde Acceptance Corporation ("Concorde"), a sub-prime mortgage lender, (iii) 50.1% of CG Incorporated, S.A. de C.V. ("Crown El Salvador"), a newly formed company focusing on the development and operation of casinos in El Salvador, and (iv) 45% of Atlantic Castings, Inc. ("Atlantic Castings"), an investment casting manufacturer of turbine engine components. In addition, from time to time the Company purchases and sells small ownership interests in securities of privately held and publicly traded firms. The Company is presently focusing on (i) the development and expansion of its existing businesses, and (ii) the potential acquisition or development of other unrelated businesses. 16 17 RESULTS OF OPERATIONS The Company has made a variety of acquisitions, dispositions and business investments over the last two years. Acquisitions involving the purchase of greater than a 50% interest have been accounted for using the purchase method of accounting. The Company has included the operating results of each majority-owned company from the respective acquisition date. As a result of the acquisitions, dispositions and business investments occurring throughout the last two fiscal years, operating results for the nine month periods ending January 31, 2000 and 1999 are not entirely comparable. Below is a summary of the number of months of operation each companies' operating results are included in the Company's consolidated results of operations for the nine month periods ending January 31, 2000 and 1999.
Number of Months Month Crown Month Included in Nine Months Acquired Crown Ended January 31, Entity or Formed Sold 2000 1999 --------------------------------- ---------------- --------------- --------------- ----------------- Casino Magic Neuquen 6-97 10-99 5 months 9 months Concorde 6-97 9 months 9 months Paaco 1-98 9 months 9 months Precision 2-98 9 months 9 months Home Stay 5-98 12-99 7 months 9 months Car-Mart 1-99 9 months 1/2 month Crown El Salvador 2-99 9 months - Atlantic Castings 3-99 9 months - Smart Choice 12-99 2 months -
17 18 THREE MONTHS ENDED JANUARY 31, 2000 COMPARED TO THE THREE MONTHS ENDED JANUARY 31, 1999 Below is a presentation of the operating results for the four principal business segments of the Company for the three months ended January 31, 2000 and 1999. The segments include (i) automobile, which pertains to Car-Mart's, Smart Choice's and Paaco's selling and financing of used vehicles, (ii) IBC's, which pertains to Precision's rental and sales of intermediate bulk containers, (iii) mortgage, which pertains to Concorde's originating and selling of sub-prime mortgage loans, and (iv) other, which includes corporate operations, Home Stay, Crown El Salvador, activities of relatively inactive subsidiaries and the Company's equity investment in Atlantic Castings. The Company's business segment data for the three months ended January 31, 2000 and 1999 is as follows (in thousands):
Three Months Ended January 31, 2000 --------------------------------------------------------------------------------------------- Automobile IBC's Mortgage Other Eliminations Consolidated ------------ ------------ ----------- ----------- ------------- ------------- Revenues: Sales and other $ 45,929 $ 1,849 $ 1,080 $ 740 $ 49,598 Interest income 8,447 18 481 856 $ (679) 9,123 ------------ ------------ ----------- ----------- ------------- ------------- Total 54,376 1,867 1,561 1,596 (679) 58,721 ------------ ------------ ----------- ----------- ------------- ------------- Costs and expenses: Cost of sales 27,979 767 28,746 Selling, gen. and admin. 9,708 474 1,290 1,675 13,147 Prov. for credit losses 8,570 29 70 8,669 Interest expense 3,785 149 366 388 (679) 4,009 Depreciation and amort. 332 254 51 325 962 ------------ ------------ ----------- ----------- ------------- ------------- Total 50,374 1,673 1,777 2,388 (679) 55,533 ------------ ------------ ----------- ----------- ------------- ------------- Security gains and other (190) (190) ------------ ------------ ----------- ----------- ------------- ------------- Income (loss) before taxes and minority interests $ 4,002 $ 194 $ (216) $ (982) $ - $ 2,998 ============ ============ =========== =========== ============= =============
Three Months Ended January 31, 1999 --------------------------------------------------------------------------------------------- Automobile IBC's Mortgage Other Eliminations Consolidated ------------ ------------ ----------- ----------- ------------- ------------- Revenues: Sales and other $ 17,765 $ 1,188 $ 890 $ 274 $ 20,117 Interest income 2,542 3 388 429 $ (190) 3,172 ------------ ------------ ----------- ----------- ------------- ------------- Total 20,307 1,191 1,278 703 (190) 23,289 ------------ ------------ ----------- ----------- ------------- ------------- Costs and expenses: Cost of sales 11,314 362 11,676 Selling, gen. and admin. 4,292 392 1,074 1,200 6,958 Prov. for credit losses 3,929 13 44 3,986 Interest expense 1,433 93 281 36 (190) 1,653 Depreciation and amort. 112 185 42 260 599 ------------ ------------ ----------- ----------- ------------- ------------- Total 21,080 1,045 1,441 1,496 (190) 24,872 ------------ ------------ ----------- ----------- ------------- ------------- Security gains and other 19,002 19,002 ------------ ------------ ----------- ----------- ------------- ------------- Income (loss) before taxes and minority interest $ (773) $ 146 $ (163) $ 18,209 $ - $ 17,419 ============ ============ =========== =========== ============= =============
Revenues from sales and other for the three months ended January 31, 2000 increased $29.5 million compared to the same period in the prior fiscal year. The increase was principally the result of (i) including Car-Mart ($14.3 million), Smart Choice ($9.5 million), and Crown El Salvador ($.6 million) in the Company's consolidated results of operations, and (ii) higher revenues at Paaco ($4.4 million) and Precision ($.7 million). Interest income for the three months ended January 31, 2000 increased $6.0 million compared to the same period in the prior fiscal year. The increase was principally the result of (i) including Car-Mart ($1.2 million) and Smart Choice ($3.8 million) in the Company's consolidated results of operations and (ii) greater interest earned on Paaco's finance receivables portfolio ($.8 million) as a result of growth in the portfolio. As a percentage of sales, cost of sales for the three months ended January 31, 2000 decreased to 61.6% from 63.9% in the same period in 18 19 the prior fiscal year. The decrease is principally the result of including Car-Mart, which has higher gross profit margins as a result of selling lower priced vehicles, in the Company's consolidated results of operations. Selling, general and administrative expense for the three months ended January 31, 2000 increased $6.2 million compared to the same period in the prior fiscal year. The increase is principally the result of (i) including Car-Mart ($2.6 million), Smart Choice ($2.8 million) and Crown El Salvador ($.7 million) in the Company's consolidated results of operations, and (ii) higher expenses at Paaco ($.1 million), Precision ($.1 million) and Concorde ($.2 million) which corresponds to increased revenues at those subsidiaries. Provision for credit losses for the three months ended January 31, 2000 increased $4.7 million compared to the same period in the prior fiscal year. The increase was principally the result of (i) including Car-Mart ($2.1 million) and Smart Choice ($2.3 million) in the Company's consolidated results of operations, and (ii) higher credit losses at Paaco ($.2 million) partially attributable to an increase in the finance receivables portfolio as a result of increased sales levels. Interest expense for the three months ended January 31, 2000 increased $2.4 million compared to the same period in the prior fiscal year. The increase was principally the result of (i) including Car-Mart ($.7 million) and Smart Choice ($1.5 million) in the Company's consolidated results of operations, and (ii) higher interest expense at Paaco ($.2 million) resulting from an increase in the balance of its revolving credit facility. The provision for income taxes for the three months ended January 31, 2000 was $1.3 million on pretax income of $3.0 million. This equates to a 37.9% effective tax rate after removing from pretax income the equity in loss of unconsolidated subsidiaries ($.3 million), which loss is presented on an after tax basis. The provision for income taxes for the three months ended January 31, 1999 was $5.9 million on pretax income of $17.4 million. This equates to a 34.0% effective tax rate after removing from pretax income the equity in earnings of unconsolidated subsidiaries ($.1 million), which earnings are presented on an after tax basis. Minority interests pertain to the portions of consolidated subsidiaries not owned by the Company during the three months ended January 31, 2000 (Smart Choice, Paaco, Crown El Salvador, and Home Stay) and the three months ended January 31, 1999 (Paaco and Home Stay). NINE MONTHS ENDED JANUARY 31, 2000 COMPARED TO THE NINE MONTHS ENDED JANUARY 31, 1999 Below is a presentation of the operating results for the four principal business segments of the Company for the nine months ended January, 31, 2000 and 1999 (in thousands):
Nine Months Ended January 31, 2000 --------------------------------------------------------------------------------------------- Automobile IBC's Mortgage Other Eliminations Consolidated ------------ ------------ ----------- ----------- ------------- ------------- Revenues: Sales and other $ 122,661 $ 5,106 $ 3,596 $ 2,271 $ 133,634 Interest income 17,224 32 1,416 2,077 $ (1,576) 19,173 ------------ ------------ ----------- ----------- ------------- ------------- Total 139,885 5,138 5,012 4,348 (1,576) 152,807 ------------ ------------ ----------- ----------- ------------- ------------- Costs and expenses: Cost of sales 73,476 1,975 75,451 Selling, gen. and admin. 25,544 1,449 3,848 5,412 36,253 Prov. for credit losses 21,199 82 107 21,388 Interest expense 8,158 424 1,052 1,026 (1,576) 9,084 Depreciation and amort. 558 726 148 1,165 2,597 ------------ ------------ ----------- ----------- ------------- ------------- Total 128,935 4,656 5,155 7,603 (1,576) 144,773 ------------ ------------ ----------- ----------- ------------- ------------- Security gains and other 10,991 10,991 ------------ ------------ ----------- ----------- ------------- ------------- Income (loss) before taxes and minority interests $ 10,950 $ 482 $ (143) $ 7,736 $ - $ 19,025 ============ ============ =========== =========== ============= =============
19 20
Nine Months Ended January 31, 1999 --------------------------------------------------------------------------------------------- Automobile IBC's Mortgage Other Eliminations Consolidated ------------ ------------ ----------- ----------- ------------- ------------- Revenues: Sales and other $ 47,674 $ 3,865 $ 3,246 $ 882 $ 55,667 Interest income 6,461 6 1,192 1,232 $ (449) 8,442 ------------ ------------ ----------- ----------- ------------- ------------- Total 54,135 3,871 4,438 2,114 (449) 64,109 ------------ ------------ ----------- ----------- ------------- ------------- Costs and expenses: Cost of sales 31,069 1,370 32,439 Selling, gen. and admin. 11,685 1,021 3,297 2,480 18,483 Prov. for credit losses 8,235 23 120 8,378 Interest expense 3,683 283 890 36 (449) 4,443 Depreciation and amort. 247 500 115 778 1,640 ------------ ------------ ----------- ----------- ------------- ------------- Total 54,919 3,197 4,422 3,294 (449) 65,383 ------------ ------------ ----------- ----------- ------------- ------------- Security gains and other 19,644 19,644 ------------ ------------ ----------- ----------- ------------- ------------- Income before taxes and minority interest $ (784) $ 674 $ 16 $ 18,464 $ - $ 18,370 ============ ============ =========== =========== ============= =============
Revenues from sales and other for the nine months ended January 31, 2000 increased $78.0 million compared to the same period in the prior fiscal year. The increase was principally the result of (i) including Car-Mart ($54.5 million), Smart Choice ($9.5 million) and Crown El Salvador ($1.6 million) in the Company's consolidated results of operations, and (ii) higher revenues at Paaco ($11.0 million), Precision ($1.2 million) and Concorde ($.3 million). Interest income for the nine months ended January 31, 2000 increased $10.7 million compared to the same period in the prior fiscal year. The increase was principally the result of (i) including Car-Mart ($4.4 million) and Smart Choice ($3.8 million) in the Company's consolidated results of operations, and (ii) greater interest earned on Paaco's finance receivables portfolio ($2.6 million) as a result of growth in the portfolio. As a percentage of sales, cost of sales for the nine months ended January 31, 2000 decreased to 60.4% from 65.4% in the same period in the prior fiscal year. The decrease is principally the result of including Car-Mart, which has higher gross profit margins as a result of selling lower priced vehicles, in the Company's consolidated results of operations. Selling, general and administrative expense for the nine months ended January 31, 2000 increased $17.8 million compared to the same period in the prior fiscal year. The increase is principally the result of (i) including Car-Mart ($9.0 million), Smart Choice ($2.8 million) and Crown El Salvador ($2.1 million) in the Company's consolidated results of operations, and (ii) higher expenses at Paaco ($2.1 million), Precision ($.4 million), Concorde ($.6 million) and Home Stay ($.5 million) which corresponds to increased revenues at those subsidiaries. Provision for credit losses for the nine months ended January 31, 2000 increased $13.0 million compared to the same period in the prior fiscal year. The increase was principally the result of (i) including Car-Mart ($9.1 million) and Smart Choice ($2.3 million) in the Company's consolidated results of operations, and (ii) higher credit losses at Paaco ($1.5 million) partially attributable to an increase in the finance receivables portfolio as a result of increased sales levels. Interest expense for the nine months ended January 31, 2000 increased $4.6 million compared to the same period in the prior fiscal year. The increase was principally the result of (i) including Car-Mart ($2.2 million) and Smart Choice ($1.5 million) in the Company's consolidated results of operations, and (ii) higher interest expense at Paaco ($.7 million) resulting from an increase in the balance of its revolving credit facility. The provision for income taxes for the nine months ended January 31, 2000 was $7.3 million on pretax income of $19.0 million. This equates to a 39.5% effective tax rate after removing from pretax income the equity in earnings of unconsolidated subsidiaries ($.6 million), which earnings are presented on an after tax basis. The provision for income taxes for the nine months ended January 31, 1999 was $6.1 million on pretax income of $18.4 million. This equates to a 34.4% effective tax rate after removing from pretax income the equity in earnings of unconsolidated subsidiaries ($.8 million), which earnings are presented on an after tax basis. Minority interests pertain to the portions of consolidated subsidiaries not owned by the Company during the nine months ended January 31, 2000 (Smart Choice, Paaco, Crown El Salvador, and Home Stay) and the nine months ended January 31, 1999 (Paaco and Home Stay). LIQUIDITY AND CAPITAL RESOURCES For the nine months ended January 31, 2000, net cash provided by operating activities amounted to $28.4 million. The principal sources of cash resulted from (i) net income, (ii) certain non cash expenses (provision for credit losses and depreciation and amortization), and (iii) repossession of vehicles which is included in the change in inventory. Net cash used by investing activities of $37.8 million included (i) a $49.0 million use of cash in finance receivable originations in excess of finance receivable collections, and (ii) a $5.8 million use of cash in the purchase of property and equipment, offset by a $16.8 million source of cash resulting from the sale of the Company's 49% interest in Casino Magic Neuquen ($16.5 million) and the sale of Home Stay ($.3 million). Net cash provided by financing activities of $1.6 million principally relates to (i) net borrowings from revolving credit facilities ($6.2 million), offset by (ii) purchases of the Company's common stock ($4.5 million). 20 21 As of January 31, 2000 the Company's sources of liquidity included approximately (i) $5.1 million of cash on hand, of which $3.6 million was held by Crown, (ii) an aggregate of $57.4 million remaining to be drawn on the revolving credit facilities of Car-Mart, Smart Choice, Paaco, Concorde and Precision, although the majority of such additional draws may only be made in connection with a corresponding increase in the related collateral asset (i.e., finance receivables, mortgage loans held for sale and intermediate bulk containers), and (iii) the potential issuance of additional debt and/or equity, although the Company has no specific commitments or arrangements to issue such additional debt and/or equity. Based on the collateral on hand at January 31, 2000, the Company's subsidiaries could have collectively drawn an additional $10.3 million on their revolving credit facilities. The loan agreements which govern the credit facilities of Crown's subsidiaries limit dividends and other distributions from such subsidiaries to Crown. The amount available to be drawn under each of the Company's revolving credit facilities is a function of the underlying collateral asset. Generally, the Company is able to borrow a specified percentage of the face value of eligible finance receivables in the case of Car-Mart, Smart Choice and Paaco, and eligible mortgage loans in the case of Concorde. Precision's borrowing base is a function of the number of tanks owned and operating cash flow, as defined. The Company's revolving credit facilities mature at various times between September 2000 and November 2004, and bear interest at rates ranging from Libor plus 2.0% to prime plus 2.25%. The advance rates on eligible finance receivables declines from 85.0% to 70.0% for Smart Choice and from 72.0% to 67.5% for Paaco over the term of the respective credit facilities. The Company expects that it will have adequate liquidity to satisfy the reductions in advance rates over the terms of the credit facilities. The Company is focusing on the development and expansion of its existing businesses and the potential acquisition or development of other unrelated businesses. The credit facilities of Car-Mart, Smart Choice, Paaco, Precision and Concorde are expected to be able to support the majority of their anticipated growth over the next twelve months. As of January 31, 2000 the Company had an outstanding commitment of approximately $.6 million pertaining to an investment in a private venture capital fund which focuses on high technology businesses, such as Internet related concerns. The Company plans to fund this commitment from cash on hand. In March 1996 the Company's Board of Directors approved a program, as amended, to repurchase up to 4,000,000 shares of the Company's common stock from time to time in the open market or in private transactions. As of January 31, 2000 the Company had repurchased 3,764,317 shares pursuant to this program. The timing and amount of future share repurchases, if any, will depend on various factors including market conditions, available alternative investments and the Company's financial position. SEASONALITY The Company's automobile sales operation is seasonal in nature. In the automobile business, the Company's third fiscal quarter (November through January) is historically the slowest period of time 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. None of the Company's other businesses experience significant seasonal fluctuations. 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. Increases in market interest rates could have an adverse effect on profitability. Financial instruments consist of fixed rate finance receivables and fixed and variable rate notes payable. The Company's finance receivables generally bear interest at fixed rates ranging from 10% to 26%. These finance receivables have scheduled maturities from one to 46 months. Financial instruments also include mortgage notes held for sale. The Company does not experience significant market risk with such mortgage notes as they are generally sold within 30 to 45 days of origination. The majority of the Company's notes payable contain variable interest rates that fluctuate with market rates. Therefore, an increase in market interest rates would decrease the Company's net interest income and profitability. The table below illustrates the impact which hypothetical changes in market interest rates could have on the Company's pretax earnings. The calculations assume (i) the increase or decrease in market interest rates remain in effect for twelve months, (ii) the amount of variable rate notes payable outstanding during the period decreases in direct proportion to decreases in finance receivables as a result of scheduled payments and projected repossessions, and (iii) there is no change in prepayment rates as a result of the interest rate changes.
Change in Change in Interest Rates Pretax Earnings ------------------- ------------------- (in thousands) +2% $ (2,148) +1% (1,074) 0% 0 -1% 1,074 -2% 2,148
21 22 PART II ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 27.1 Financial data schedule (1). (b) Reports on Form 8-K: During the fiscal quarter ended January 31, 2000 the Company filed a report on Form 8-K dated December 13, 1999 (event date December 1, 1999) respecting the acquisition of Smart Choice Automotive Group, Inc. ----------------------- (1) Filed herewith. 22 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/ Mark D. Slusser -------------------------------------- Mark D. Slusser Chief Financial Officer, Vice President Finance and Secretary (Principal Financial and Accounting Officer) Dated: March 13, 2000 23 24 INDEX TO EXHIBITS ----------------- Exhibit No. Description - ----------- ----------- 27.1 Financial Data Schedule
EX-27.1 2 FINANCIAL DATA SCHEDULE
5 9-MOS APR-30-2000 JAN-31-2000 5,097,901 0 191,637,505 (41,210,593) 14,247,467 0 30,418,477 (3,380,215) 270,374,379 0 0 0 0 85,408 56,962,043 270,374,379 124,967,077 152,806,804 75,450,574 0 38,850,417 21,387,881 9,084,277 19,025,064 7,266,343 11,665,367 0 0 0 11,665,367 1.23 1.18
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