<PAGE> 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)
<PAGE> 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
<PAGE> 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
---------------
<PAGE> 4
America's Car-Mart, Inc.
Financial Statements
Years ended May 31, 1998, 1997 and 1996
CONTENTS
<TABLE>
<S> <C>
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
</TABLE>
<PAGE> 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
<PAGE> 6
America's Car-Mart, Inc.
Balance Sheets
<TABLE>
<CAPTION>
MAY 31
1998 1997 1996
------------ ------------ ------------
(All Years Restated--See Note 2)
<S> <C> <C> <C>
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
============ ============ ============
</TABLE>
See accompanying notes.
2
<PAGE> 7
America's Car-Mart, Inc.
Statements of Operations
<TABLE>
<CAPTION>
YEARS ENDED MAY 31
1998 1997 1996
----------- ----------- -----------
(All Years Restated--See Note 2)
<S> <C> <C> <C>
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
=========== =========== ===========
</TABLE>
See accompanying notes.
3
<PAGE> 8
America's Car-Mart, Inc.
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS TOTAL
------------ ------------ ------------
(All Years Restated--See Note 2)
<S> <C> <C> <C>
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
============ ============ ============
</TABLE>
See accompanying notes.
4
<PAGE> 9
America's Car-Mart, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
YEARS ENDED MAY 31
1998 1997 1996
------------ ------------ ------------
(All Years Restated--See Note 2)
<S> <C> <C> <C>
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
============ ============ ============
</TABLE>
See accompanying notes.
5
<PAGE> 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:
<TABLE>
<CAPTION>
YEARS
----------------
<S> <C>
Furniture, fixtures and equipment 4 - 8
Autos 3 - 5
Leasehold improvements 5 - 39
Buildings and improvements 15 - 39
</TABLE>
6
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
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
============ ============ ============
</TABLE>
The cumulative effect of the accounting change to stockholders' equity as
previously reported at May 31 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
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
============ ============ ============ ============
</TABLE>
8
<PAGE> 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:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
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
=========== =========== ===========
</TABLE>
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.
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Dynamic Enterprises, Inc.
Receivable from affiliate $ 139,560 $ -- $ 44,245
Payable to affiliate (2,525,263) (4,316,969) (3,365,172)
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
MAY 31
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
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)
=========== =========== ===========
</TABLE>
Significant components of the provision for income taxes were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED MAY 31
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
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
=========== =========== ===========
</TABLE>
10
<PAGE> 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:
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED MAY 31
1998 1997 1996
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
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%
=========== =========== =========== =========== =========== ===========
</TABLE>
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
<PAGE> 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
<PAGE> 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
<PAGE> 18
CROWN GROUP, INC.
PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED APRIL 30, 1998
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO-FORMA
CROWN CAR-MART ADJUSTMENTS CONSOLIDATED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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
</TABLE>
See accompanying Notes to Pro-Forma Consolidated Financial Statements.
P-2
<PAGE> 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)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO-FORMA
CROWN CAR-MART ADJUSTMENTS CONSOLIDATED
------------- ------------- -------------- ----------------
<S> <C> <C> <C> <C>
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
</TABLE>
See accompanying Notes to Pro-Forma Consolidated Financial Statements.
P-3
<PAGE> 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:
<TABLE>
<CAPTION>
Year Nine Months
Ended Ended
April 30, 1998 January 31, 1999
-------------- -----------------
<S> <C> <C>
Discount amortization $ 710 $ 672
Eliminate interest income (408) (306)
-------- ----------
$ 302 $ 366
======== ==========
</TABLE>
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.
<TABLE>
<CAPTION>
Year Nine Months
Ended Ended
April 30, 1998 January 31, 1999
-------------- ----------------
<S> <C> <C>
$ 3,142 $ 2,342
========= =========
</TABLE>
c - To record a provision for income taxes related to the above described
adjustments.
P-4
<PAGE> 21
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
24.1 Consent of Independent Auditors
</TABLE>
<PAGE> 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
