20 Annual Report
To Our Fellow Shareholders:
America’s Car-Mart, Inc. continued to demonstrate
our long-standing disciplined approach to successful-
ly growing our business during fiscal year 2020. Since
2002, our Company has achieved a compounded an-
nual revenue growth rate of more than 10%. Together,
we are building the foundation for a large business with
a long runway in a highly fragmented industry. There
is real purpose in our work, and we believe every town
in America would be better with an America’s Car-Mart.
In 2020, despite the unprecedented circumstances
under which we ended the fiscal year resulting from the
COVID-19 pandemic, we grew revenue 11.3% to a record
$745 million. We grew net income by 7.8% and diluted
earnings per share by 9.8% to $7.39. We earned 18.2%
on average equity during the year and 8.8% on average
assets, which includes a $61 million “Right-of-Use Asset”
under new Lease Accounting guidelines. Our earnings
and related financial measures reflect a pre-tax $9.1
million, or $1.02 per diluted share, increase in the allow-
ance for credit losses primarily related to the pandemic.
Fiscal year 2020 was also marked by our negoti-
ation of a new loan agreement with our lending group,
our first significant acquisition and the relocation of
our corporate offices – just as the pandemic struck.
Since the fiscal year-end, we have witnessed and
heard the calls for social justice in our communities and
around the world following the killing of George Floyd in
Minneapolis in late May. These events underscore the
need for our continuing efforts to intentionally provide indi-
vidual support to help associates advance and reach their
potential with our company. Throughout these events, our
Significant Top-Line Growth ($’s in millions)
team has grown closer, and we are committed to improv-
ing. We are proud of the diversity of our workforce and will
continue to listen, learn, and grow as we move forward.
We take associate growth for all of our associates very
seriously, as it forms the foundation of our future success.
In fiscal 2020, we grew net finance receivables by
$51 million, repurchased $16 million of common stock,
and funded $5 million in long-term capital expenditures
– a total of $72 million – with an increase in debt, net
of cash of $5 million. Over the past six years, we have
increased net finance receivables by $172 million, repur-
chased $140 million in common stock, funded $23 million
in net capital expenditures, increased inventory by $6 mil-
lion to support higher revenues – a total of $341 million
– with only a $59 million increase in debt, net of cash.
OUR MISSION
We strive to earn the
repeat business of our
customers by providing
quality vehicles,
affordable payment terms,
and excellent service.
Our customers have depended on America’s Car-Mart
for almost 40 years. The challenges brought by the pan-
demic have allowed us to further “walk the walk” with our
customers and solidify the vital role we play in our com-
munities. We adjusted schedules and hours but retained
$745
$669
$588
$568
$612
$530
$489
$465
$430
$379
$339
$299
$275
$234 $240
$205
$176
$155
$127
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
$850
$750
$650
$550
$450
$350
$250
$150
$50
Return on Average Assets
11.4%
11.2%
10.7%
9.6%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
10.0%
8.8%
7.7%
8.3%
5.9%
4.9%
2.9%
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
all our associates and kept our doors open. Our team
responded effectively as associates from different func-
tions and geographies pitched in to help meet customers’
needs across the Company. We temporarily suspended
all repossessions and maintained frequent contact with
our customers via telephone, SMS, and in person. Most
importantly, we quickly focused on safeguarding the health
of our associates and customers. Everyone’s next priority
was keeping our essential business open. The ability to
make key customer decisions in the field, supported by
customer communications efforts from the corporate office,
helped us continue to deliver great customer experiences.
Like we have for nearly 40 years, Car-Mart continues to
help people through difficult times, one customer at a time.
Our associates’ commitment to the customer, and ded-
ication to the Company’s mission, vision, and values, are
the keys to our future growth. We continue to make great
strides at improving our recruiting and training through
our new “Car-Mart University” effort – this will help us re-
tain the best associates possible. Total turnover dropped
across the organization, with particular progress being
made in the Assistant Manager position, where annual
turnover improved from 34% to 22%, a direct result of im-
proved training. We have a series of targeted efforts in
place to continue to drive this key operational metric lower.
OUR VISION
To be America’s best auto sales and
finance company in the eyes of our
associates and customers while improving
the communities we serve.
In the past we pursued a traditional expansion strategy
that relied on opening new stores. While we fully intend to
open new dealerships as part of our future growth strat-
egy, we more recently shifted our investments to improv-
ing our training, revamping and scaling our procurement
processes, and upgrading our technology. Our goal is to
grow profitably by serving as many customers as possible
while deploying our resources as efficiently as possible.
We have made large investments in all three of these areas
(training, procurement, and technology) which we believe
will translate into both higher growth and greater customer
satisfaction. While the timing of these expenditures is cer-
tain, we cannot be exactly sure of the timing of the associ-
ated rewards. We want to grow at a rate we can support,
without sacrificing quality or returns. We are a “ground
up” company and it can take time for associates and
General Managers (GMs) to digest and adopt operational
changes. Importantly, these folks run the business; our
corporate staff exists largely to support their critical work.
The pandemic provided us with the opportunity to
reset and refresh our inventory of quality used vehicles.
Every GM has limited time and multiple responsibilities
- buying, coordinating transport and repairs to vehicles,
selling cars, servicing customers, and collecting pay-
ments, running an office, and more. Since the process
begins with putting the customer in a quality vehicle,
historically our best GMs have devoted considerable re-
sources to inventory procurement while dedicating less
time to pursuing strategic growth opportunities. To ad-
dress this issue, we have a renewed focus on procure-
ment, led by our Vice President of Inventory Operations.
We are establishing regional reconditioning efforts, build-
ing a network of preferred vendors which will provide a
consistent quality and higher quantity of vehicles while
Return on Average Equity
16.1%
15.5%
17.7%
16.6%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
19.4%
18.2%
13.3%
15.7%
10.2%
8.7%
5.1%
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
simplifying our sourcing. Doing more volume with few-
er vendors helps our GMs by increasing accountability,
simultaneously simplifying logistics for our suppliers,
and most importantly freeing up time to focus on market
share and serving more customers at the highest levels.
By supporting the GMs and associates with these
investments in procurement, they are able to focus on
value-add activities which are a better use of their time,
allowing them to grow market share by taking care of
associates and customers. Given the right tools, most
of our GMs can support 1,000 or more customers; our
average location currently has about 550 customers.
With a healthy balance sheet and solid cash flows, we
can continue to deploy capital for growth in markets
where we believe sustained market share growth is at-
tainable. While we cannot be certain as to the long-
term impact of the pandemic on our financial condition
and growth plans, we are pushing hard to get there.
Over the last year, we have continued to improve the
selection of quality vehicles, both by brand and type, on
our lots. Responding to customer demand, we have also
added lower-mileage, higher-priced cars to keep our best
customers shopping at Car-Mart. Our recent efforts to
source vehicles from rental car companies complement
this effort nicely. Our “Dare to Compare” messaging
focuses on the total cost of vehicle ownership, not just
monthly payment, and highlights the substantial savings
a Car-Mart customer enjoys over both third-party finance
companies and traditional “buy-here, pay-here” dealers.
We are a small-town character lender, where our
customers and associates know each other. As a fully
integrated automobile retailer, we work hard to maintain
frequent contact with our customers over the course of
time. During the pandemic, customers could easily reach
our local office, and vice versa, to take care of customers’
needs as they were presented with significant stress and
anxiety related to the unknowns surrounding the pandem-
ic. This type of service makes Car-Mart more convenient
for many. It is imperative that we provide customers
with a quality, mechanically sound vehicle that they can
afford. Our “Cars on the Road Pledge” is under devel-
opment and being piloted, and will include lengthening
our service contract and adding roadside assistance and
oil changes, features that provide real value to our cus-
tomers. Our customers’ quality of life is directly impact-
ed by our daily work. Just because they are buying an
older model, higher mileage vehicle, does not mean that
they should not enjoy the peace of mind which comes
from reliable transportation. The support we offer after
the sale, regardless of what comes along, coupled with
our presence in the local community, are also important
to delivering good value. We are deeply committed to
the advancement of our associates and to the success
of our customers. We are working hard to be the best
in the world at providing transportation solutions to cred-
it-challenged customers in the markets where we operate.
We believe the credit quality of our book of loans
is superior to many of the securitizations of subprime
loans that we see. Just as important, we strive for an
expense structure that compares well to best-in-class
used-car dealers for our dealership operations and to
the most well-regarded finance companies for our fi-
nance company, all with the overriding goal to provide
our customers with an unmatched experience before,
during and after the sale. Given our value proposition,
we have an obligation to grow at a rate which allows
Self-Funded Growth ($’s in millions)
$240 million in Share Re-Purchases since Feb 2010
$700
$600
$500
$400
$300
43.3%
$200
$100
$-
92
112
40
621
543
501
467
437
417
363
379
317
282
261
231
208
185
179
152
129
26
23
29
44
41
40
30
39
48
100
97
103
108
118
78
152
153
25.1%
156
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020*
Gross AR
Debt
Debt / Receivables
* debt, net of cash
us to continue to deliver unparalleled service to our
customers. Given the efficiencies of our scale and our
unique customer experience, we have the opportuni-
ty to continue to gain market share where we operate.
We believe the cash we generate is invested for
shareholders according to the highest and best use.
Over time, our receivables have generated around a
55% discounted cash-on-cash return; the internal rate
of return on our share repurchases since 2010 is around
15%. Our relatively low level of indebtedness provides
us with the flexibility to grow, leveraging the cash flows
generated by our top performing managers. Given the
returns in our business, the opportunities to gain market
share and the demand for our services, we direct our
cash flow first to growing our base business in a prudent
manner. We have grown our active customer count by
6.7% during the past year and by more than 25% over
the past five years, with a high percentage of our growth
being supported and served by our top performing GMs.
We are optimistic about our acquisition of Taylor Mo-
tors in the fourth quarter of 2020 and are excited to have
Steve Taylor and his team working with us. We believe
we can provide a great home to other family-owned deal-
erships, enabling the owners to both collect the invest-
ment they have made in existing receivables and provide
a career runway to long-time associates. While we are
exploring other potential acquisitions with people whom
we would like as partners, we are also wary of risking
our capital by acquiring an existing book of receivables.
Over the years, our cash flows and returns have been
tested – we understand our market position and our
strengths and try to stay mindful of our weaknesses and
shortcomings. We are excited by the wide range of op-
portunities to invest our cash flow in our business, and
we are centralizing digital activities, facilitating online
sales, working toward an increasingly convenient cus-
tomer experience, enhancing our service contracts, and
continually working on improving our collections efforts.
Even though our Company can in many ways be
considered a 39 year-old start-up, one thing has nev-
er changed and never will – our focus on the custom-
er experience and earning repeat business. Our busi-
ness is operated from the ground up, and we grind
it out every day out in the field. Our Chief Operating
Officer, Leon Walthall, continues to drive lot level ex-
ecution by consistently pushing our “Non-Negotia-
bles” and demanding excellence in our daily work.
Operational Non-Negotiables
Customer Experience • Facilities and Associates
Inventory • Collections
Expense Management
We believe that our customers need us more than
ever. What we do is very important to the quality of life
for many, and we make a big difference in the world.
We are very excited about our future and the op-
portunities we have to continue to grow and serve
more customers. We have real purpose in our work
and have a responsibility to positively contribute to the
growth of our associates and to improve the commu-
nities we serve. Our 2,000 associates serve almost
81,000 customers in 148 communities. We also have
several thousand vendor partners that are part of our
team. Through this network we have a tremendous op-
portunity to be a positive force in making our country a
better place in the future. We will be fully engaged and
doing our part to build bridges and we are optimistic
that we will make a meaningful and lasting difference.
As shareholders, we focus on increasing long-term
value and will continue to push to improve our busi-
ness as we move forward. There are certainly question
marks around what a post-pandemic world looks like
and how our highly fragmented industry will be affected.
Thus far, our customers have responded well and have
continued to support our sales and collections. Despite
the uncertain environment, we believe the unique na-
ture of what we do will position us to continue to grow
at a healthy, sustainable rate for the foreseeable future.
We would like to thank our customers for choos-
ing us, our associates for their dedication and sacrific-
es, and you, our fellow shareholders, for your support.
OUR VALUES
Integrity • Respect
Compassion • Excellence
Jeffrey A. Williams
President and Chief Executive Officer
Vickie D. Judy
Chief Financial Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-14939
AMERICA’S CAR-MART, INC.
(Exact name of registrant as specified in its charter)
Texas
(State or other jurisdiction of incorporation or organization)
1805 North 2nd Street, Suite 401
Rogers, Arkansas
(Address of principal executive offices)
63-0851141
(IRS Employer Identification No)
72756
(Zip Code)
(479) 464-9944
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.01 per share
Trading Symbol(s)
CRMT
Name of each exchange on which registered
NASDAQ Global Select Market
Securities registered pursuant to section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
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 No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No (cid:31)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or
an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth
company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer Accelerated filer
Non-accelerated filer
Smaller reporting company Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No
The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates on October 31, 2019 was $546,262,034
(6,003,539 shares), based on the closing price of the registrant’s common stock on October 31, 2019 of $90.99.
There were 6,632,819 shares of the registrant’s common stock outstanding as of June 15, 2020.
Portions of the registrant’s Proxy Statement to be furnished to stockholders in connection with its 2020 Annual Meeting of Stockholders are
incorporated by reference in response to Part III of this report.
DOCUMENTS INCORPORATED BY REFERENCE
Forward-Looking Statements
PART I
This Annual Report on Form 10-K and the documents incorporated by reference in this Annual Report on
Form 10-K contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform
Act of 1995. These forward-looking statements address the Company’s future objectives, plans and goals, as well
as the Company’s intent, beliefs and current expectations regarding future operating performance, and can generally
be identified by words such as “may”, “will”, “should”, “could”, “believe”, “expect”, “anticipate”, “intend”, “plan”,
“foresee” and other similar words or phrases. Specific events addressed by these forward-looking statements
include, but are not limited to:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
new dealership openings;
performance of new dealerships;
same dealership revenue growth;
future revenue growth;
receivables growth as related to revenue growth;
gross margin percentages;
interest rates;
future credit losses;
the Company’s collection results, including but not limited to collections during income tax refund
periods;
seasonality;
compliance with tax regulations;
the Company’s business and growth strategies;
financing the majority of growth from profits; and
having adequate liquidity to satisfy the Company’s capital needs.
These forward-looking statements are based on the Company’s current estimates and assumptions and
involve various risks and uncertainties. As a result, you are cautioned that these forward-looking statements are not
guarantees of future performance, and that actual results could differ materially from those projected in these
forward-looking statements. Factors that may cause actual results to differ materially from the Company’s
projections include those risks described elsewhere in this report, as well as:
•
•
•
•
•
•
•
•
•
•
•
business and economic disruptions and uncertainty resulting from the COVID-19 pandemic and
efforts to mitigate the financial impact and health risks associated with the pandemic;
general economic conditions in the markets in which the Company operates, including but not limited
to fluctuations in gas prices, grocery prices and employment levels;
the availability of credit facilities to support the Company’s business;
the Company’s ability to underwrite and collect its contracts effectively;
competition;
dependence on existing management;
ability to attract, develop and retain qualified general managers;
availability of quality vehicles at prices that will be affordable to customers;
changes in consumer finance laws or regulations, including but not limited to rules and regulations
that have recently been enacted or could be enacted by federal and state governments;
security breaches, cyber-attacks, or fraudulent activity; and
the ability to successfully identify, complete and integrate new acquisitions.
The Company undertakes no obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise. You are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the dates on which they are made.
2
Item 1. Business
Business and Organization
America’s Car-Mart, Inc., a Texas corporation initially formed in 1981 (the “Company”), is one of the
largest publicly held automotive retailers in the United States focused exclusively on the “Integrated Auto Sales
and Finance” segment of the used car market. References to the “Company” include the Company’s consolidated
subsidiaries. The Company’s operations are principally conducted through its two operating subsidiaries,
America’s Car Mart, Inc., an Arkansas corporation (“Car-Mart of Arkansas”), and Colonial Auto Finance, Inc., an
Arkansas corporation (“Colonial”). Collectively, Car-Mart of Arkansas and Colonial are referred to herein as “Car-
Mart.” The Company primarily sells older model used vehicles and provides financing for substantially all of its
customers. Many of the Company’s customers have limited financial resources and would not qualify for
conventional financing as a result of limited credit histories or past credit problems. As of April 30, 2020, the
Company operated 148 dealerships located primarily in small cities throughout the South-Central United States.
Impact of COVID-19
In March 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic,
and, in the following weeks, many U.S. states and localities issued lockdown orders impacting the operations of our
stores and consumer demand. Since then, the COVID-19 situation within the U.S. has rapidly escalated with many
businesses being closed or operating in limited capacities. While our dealerships have remained open and are
operating under all CDC recommendations, the fluidity of the current environment leads to uncertainty in regard to
consumer demand and ongoing changes in government mandates, as well as unpredictable risks and challenges
stemming from COVID-19. We have taken measures to enhance our liquidity position and provide additional
financial flexibility, including drawing down funds on our revolving credit facility and aligning operating expenses
to the current state of the business. We continue to monitor the situation closely. Our top priority is ensuring the
health and safety of our associates and customers. We have made process updates such as enhanced cleaning and
social distancing measures and instituted new efforts like disinfectant spraying. We have distributed personal
protective equipment, such as masks and gloves for our associates, and implemented disinfectant spraying and
temperature checks across our operations. We have also supported associates impacted by COVID-19 by providing
extra paid time off in addition to their other paid and unpaid time off options.
Business Strategy
In general, it is the Company’s objective to continue to expand its business using the same business model
that has been developed and used by Car-Mart for over 38 years. This business strategy focuses on:
Collecting Customer Accounts. Collecting customer accounts is perhaps the single most important aspect
of operating an Integrated Auto Sales and Finance used car business and is a focal point for dealership level and
corporate office personnel on a daily basis. The Company measures and monitors the collection results of its
dealerships using internally developed delinquency and account loss standards. Substantially all associate incentive
compensation is tied directly or indirectly to collection results. The Company has a vice president of collection
services and support staff at the corporate level to work with field operators to improve credit results. This team
monitors efficiencies and the effectiveness of account representatives as they work to improve customer success
rates. Over the last five fiscal years, the Company’s annual credit losses as a percentage of sales have ranged from
a low of 24.8% in fiscal 2020 to a high of 28.7% in fiscal 2017 (average of 26.9%), with the fiscal year 2020 credit
loss percentage reflecting a $9.1 million adjustment to the allowance for credit losses primarily as a result of
COVID-19. See Item 1A. Risk Factors for further discussion.
Maintaining a Decentralized Operation. The Company’s dealerships operate on a decentralized basis.
Each dealership is ultimately responsible for buying and selling its own vehicles, making credit decisions, and
collecting the contracts it originates in accordance with established policies and procedures. Most customers make
their payments in person at one of the Company’s dealerships. This decentralized structure is complemented by the
3
oversight and involvement of corporate office management and the maintenance of centralized financial controls,
including monitoring proprietary credit scoring, establishing standards for down-payments and contract terms, and
an internal compliance function.
Expanding Through Controlled Organic Growth and Strategic Acquisitions. The Company grows by
increasing revenues at existing dealerships and opening or acquiring new dealerships. The Company will continue
to view organic growth as its primary source for growth. The Company continues to make infrastructure
investments in order to improve performance of existing dealerships and to support growth of its customer count.
The Company added five new dealerships during the year and closed one, ending fiscal 2020 with 148 locations.
The Company intends to continue to add new dealerships, subject to favorable operating performance and available
general manager talent to run these dealerships, and to consider and pursue strategic acquisition opportunities that
we believe will enhance our franchise and maximize the return to our shareholders. These plans, of course, are
subject to change based on both internal and external factors.
Selling Basic Transportation. The Company focuses on selling basic and affordable transportation to its
customers. The Company’s average retail sales price was $11,793 per unit in fiscal 2020. By selling vehicles at
this price point, the Company is able to keep the terms of its installment sales contracts relatively short (overall
portfolio weighted average of 33.3 months), while requiring relatively low payments.
Operating in Smaller Communities. The majority of the Company’s dealerships are located in cities and
towns with a population of 50,000 or less. The Company believes that by operating in smaller communities it
develops strong personal relationships, resulting in better collection results. Further, the Company believes that
operating costs, such as salaries, rent and advertising, are lower in smaller communities than in major metropolitan
areas.
Enhanced Management Talent and Experience. The Company seeks to hire honest and hardworking
individuals to fill entry level positions, nurture and develop these associates, and promote them to managerial
positions from within the Company. By promoting from within, the Company believes it is able to train its
associates in the Car-Mart way of doing business, maintain the Company’s unique culture and develop the loyalty
of its associates by providing opportunity for advancement. The Company has recently focused, however, to a larger
extent on looking outside of the Company for associates possessing requisite skills and who share the values and
appreciate the unique culture the Company has developed over the years. The Company has been able to attract
quality individuals via its General Manager Recruitment and Advancement team as well as other key areas.
Management has determined that it will be increasingly difficult to grow the Company without looking for outside
talent. The Company’s operating success has been a benefit for recruiting outside talent; however, the Company
expects the hiring environment going forward to be challenging as a result of wage rates, competition for qualified
workers and the impact of COVID-19 on our business and operations.
Cultivating Customer Relationships. The Company believes that developing and maintaining a
relationship with its customers is critical to the success of the Company. A large percentage of sales at mature
dealerships are made to repeat customers, and the Company estimates an additional 10% to 15% of sales result from
customer referrals. By developing a personal relationship with its customers, the Company believes it is in a better
position to assist a customer, and the customer is more likely to cooperate with the Company should the customer
experience financial difficulty during the term of his or her installment contract. The Company is able to cultivate
these relationships through a variety of communication channels and the fact that a high percentage of customers
make their payments in person at one of the Company’s dealerships on a weekly or bi-weekly basis.
Business Strengths
The Company believes it possesses a number of strengths or advantages that distinguish it from most of its
competitors. These business strengths include:
4
Experienced and Motivated Management. The Company’s senior management team has significant
experience in the industry and an average tenure of nearly 20 years. Several of Car-Mart’s dealership managers
have been with the Company for more than 10 years. Each dealership manager is compensated, at least in part,
based upon the dealership’s profitability. A significant portion of the compensation of senior management is
incentive based and tied to operating profits or stock performance.
Proven Business Practices. The Company’s operations are highly structured. While dealerships operate
on a decentralized basis, the Company has established policies, procedures, and business practices for virtually
every aspect of a dealership’s operations. Detailed online operating manuals are available to assist the dealership
manager and office, sales and collections personnel in performing their daily tasks. As a result, each dealership is
operated in a uniform manner. Further, corporate office personnel monitor the dealerships’ operations through
weekly visits and a number of daily, weekly and monthly communications and reports.
Low Cost Operator. The Company has structured its dealership and corporate office operations to
minimize operating costs. The number of associates employed at the dealership level is dictated by the number of
active customer accounts each dealership services. Associate compensation is standardized for each dealership
position. Other operating costs are closely monitored and scrutinized. Technology is utilized to maximize
efficiency. The Company believes its operating costs as a percentage of revenues, and per unit sold, are among the
lowest in the industry.
Well-Capitalized / Limited External Capital Required for Growth. As of April 30, 2020, the
Company’s debt to equity ratio (Revolving credit facilities and notes payable divided by Total equity on the
Consolidated Balance Sheet) was 0.71 to 1.0, which reflects the Company’s decision in March 2020 to borrow an
additional $30 million under its existing credit facilities in order to increase its cash position and preserve financial
flexibility in light of the uncertainty due to the COVID-19 pandemic. Excluding the amount of debt equal to cash,
the Company’s adjusted debt to equity ratio (a non-GAAP measure) as of April 30, 2020 was 0.52 to 1.0, which the
Company believes is lower than many of its competitors. Further, the Company believes it can fund a significant
amount of its planned growth from net income generated from operations. Of the external capital that will be needed
to fund growth, the Company plans to draw on its existing credit facilities, or renewals or replacements of those
facilities. For a reconciliation of adjusted debt to equity ratio to the most directly comparable GAAP financial
measure, see “Reconciliation of Adjusted Debt to Equity Ratio” included in “Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”
Significant Expansion Opportunities. The Company historically targets smaller communities in which
to locate its dealerships (i.e., populations from 20,000 to 50,000), but is also operating in larger cities such as Tulsa,
Oklahoma; Lexington, Kentucky; Springfield, Missouri and Little Rock, Arkansas. The Company believes there
are numerous suitable communities of various sizes within the twelve states in which the Company currently
operates and other contiguous states to satisfy anticipated dealership growth for the next several years.
Operations
Operating Segment. Each dealership is an operating segment with its results regularly reviewed by the
Company’s chief operating decision maker in an effort to make decisions about resources to be allocated to the
segment and to assess its performance. Individual dealerships meet the aggregation criteria for reporting purposes
under the current accounting guidance. The Company operates in the Integrated Auto Sales and Finance segment
of the used car market. In this industry, the nature of the sale and the financing of the transaction, financing
processes, the type of customer and the methods used to distribute the Company’s products and services, including
the actual servicing of the contracts as well as the regulatory environment in which the Company operates, all have
similar characteristics. Each dealership is similar in nature and only engages in the selling and financing of used
vehicles. All individual dealerships have similar operating characteristics. As such, individual dealerships have
been aggregated into one reportable segment.
5
Dealership Organization. Dealerships operate on a decentralized basis. Each dealership is responsible
for buying and selling vehicles, making credit decisions, and servicing and collecting the installment contracts it
originates. Dealerships also maintain their own records and make daily deposits. Dealership-level financial
statements are prepared by the corporate office on a monthly basis. Depending on the number of active customer
accounts, a dealership may have as few as three or as many as twenty-five full-time associates employed at that
location. Associate positions at a large dealership may include a general manager, assistant manager(s), office
manager, office clerk(s), service manager, purchasing agent, collections personnel, sales personnel, inventory
associates (detailers), and on-call drivers. Dealerships are generally open Monday through Saturday from 9:00 a.m.
to 6:00 p.m.
Dealership Locations and Facilities. Below is a summary of dealerships operating during the fiscal
years ended April 30, 2020, 2019 and 2018:
Dealerships at beginning of year
Dealerships opened or acquired
Dealerships closed
Dealerships at end of year
2020
144
5
(1)
148
Years Ended April 30,
2019
139
5
-
144
2018
140
3
(4)
139
Below is a summary of dealership locations by state as of April 30, 2020, 2019 and 2018:
Dealerships by State
Arkansas
Oklahoma
Missouri
Alabama
Texas
Kentucky
Georgia
Tennessee
Mississippi
Illinois
Indiana
Iowa
Total
2020
37
27
18
16
13
12
9
6
5
3
1
1
148
As of April 30,
2019
36
27
18
16
13
12
9
6
5
-
1
1
144
2018
35
25
18
15
12
12
9
6
5
-
1
1
139
Dealerships are typically located in smaller communities. As of April 30, 2020, approximately 73% of the
Company’s dealerships were located in cities with populations of less than 50,000. Dealerships are located on
leased or owned property between one and three acres in size. When opening a new dealership, the Company will
typically use an existing structure on the property to conduct business or purchase a modular facility while business
at the new location develops. Dealership facilities typically range in size from 1,500 to 5,000 square feet.
Purchasing. The Company purchases vehicles primarily from wholesalers, new car dealers, individuals
and auctions. The majority of vehicle purchasing is performed by the Company’s purchasing agents, although
dealership managers are authorized to purchase vehicles as needed. A purchasing agent will purchase vehicles for
one to three dealerships depending on the size of the dealerships. Purchasing agents report to the dealership
manager, or managers, for whom they make purchases. The Company centrally monitors the quantity and quality
of vehicles purchased and continuously compares the cost of vehicles purchased to outside valuation sources and
6
holds responsible parties accountable for results. The Company has recently started to make some corporate level
purchases and form relationships with national vendors that can supply a large quantity of high-quality vehicles.
Generally, the Company’s purchasing agents purchase vehicles between 5 and 12 years of age with 70,000
to 150,000 miles and pay between $4,000 and $12,000 per vehicle. The Company focuses on providing basic
transportation to its customers. The Company typically does not purchase sports cars or luxury cars. The Company
sells a significant number of trucks and sport utility vehicles. Some of the more popular vehicles the Company sells
include the Chevrolet Impala, Chevrolet Malibu, Dodge Charger, Chrysler Mini-Van, Ford Focus, Ford Taurus,
Ford Fusion, Dodge Ram Pickup and the Ford F-150 Pickup. The Company’s purchasing agents or general
managers inspect and test-drive almost every vehicle prior to a sale. Purchasing agents strive to purchase vehicles
that require little or no repair as the Company has limited facilities to repair or recondition vehicles.
Selling, Marketing and Advertising. Dealerships generally maintain an inventory of 20 to 90 vehicles
depending on the size and maturity of the dealership and the time of the year. Inventory turns over approximately
9 to 10 times each year. Selling is done predominantly by the dealership manager, assistant manager, manager
trainee or sales associate. Sales associates are paid a commission for sales that they make in addition to an hourly
wage. Sales are made on an “as is” basis; however, customers are given an option to purchase a service contract
which covers certain vehicle components and assemblies. For covered components and assemblies, the Company
coordinates service with third-party service centers with which the Company typically has previously negotiated
labor rates. The vast majority of the Company’s customers elect to purchase a service contract when purchasing a
vehicle. Additionally, the Company offers its customers to whom financing is extended a payment protection plan
product. This product contractually obligates the Company to cancel the remaining amount owed on a contract
where the vehicle has been totaled, as defined in the plan, or the vehicle has been stolen. This product is available
in most of the states in which the Company operates and the vast majority of financed customers elect to purchase
this product when purchasing a vehicle in those states.
The Company’s objective is to offer its customers basic transportation at a fair price and treat each customer
in such a manner as to earn his or her repeat business. The Company attempts to build a positive reputation in each
community where it operates and generate new business from such reputation as well as from customer referrals.
The Company estimates that approximately 10% to 15% of the Company’s sales result from customer referrals.
For mature dealerships, a large percentage of sales are to repeat customers.
The Company primarily advertises using local newspapers, radio, internet and social media. In addition,
the Company periodically conducts promotional sales campaigns in an effort to increase sales. The Company uses
an outside marketing firm and has recently hired a director of digital experience in order to broaden and increase
the Company’s usage of digital and social media channels as a part of its marketing strategy.
Underwriting and Finance. The Company provides financing to substantially all of its customers who
purchase a vehicle at one of its dealerships. The Company only provides financing to its customers for the purchase
of its vehicles, and the Company does not provide any type of financing to non-customers. The Company’s
installment sales contracts as of April 30, 2020 typically include down payments ranging from 0% to 20% (average
of 6.4%), terms ranging from 18 months to 48 months (average of 33.3 months), and a fixed annual interest rate of
16.5% (19.5% to 21.5% in Illinois) for contracts originating after fiscal 2016 (weighted average of 16.4%).
The Company requires that payments be made on a weekly, bi-weekly, semi-monthly or monthly basis,
scheduled to coincide with the day the customer is paid by his or her employer. Upon the customer and the Company
reaching a preliminary agreement as to financing terms, the Company obtains a credit application from the customer
which includes information regarding employment, residence and credit history, personal references and a detailed
budget itemizing the customer’s monthly income and expenses. Certain information is then verified by Company
personnel. After the verification process, the dealership manager makes the decision to accept, reject or modify
(perhaps obtain a greater down payment or suggest a lower priced vehicle) the proposed transaction. In general,
the dealership manager attempts to assess the stability and character of the applicant. The dealership manager who
makes the credit decision is ultimately responsible for collecting the contract, and his or her compensation is directly
7
related to the collection results of his or her dealership. The Company provides centralized support to the dealership
manager in the form of a proprietary credit scoring system used for monitoring and other supervisory assistance to
assist with the credit decision. Credit quality is monitored centrally by corporate office personnel on a daily, weekly
and monthly basis.
Collections. All of the Company’s retail installment contracts are serviced by Company personnel at the
dealership level. A high percentage of the Company’s customers make their payments in person at the dealership
where they purchased their vehicle; however, in an effort to make paying convenient for its customers, the Company
offers a variety of payment options. Customers can send their payments through the mail, set up ACH auto draft,
make mobile and online payments, and make payments at certain money service centers. Each dealership closely
monitors its customer accounts using the Company’s proprietary receivables and collections software that stratifies
past due accounts by the number of days past due. The vice presidents of operations and the area operations
managers routinely review and monitor the status of customer collections to ensure collection activities are
conducted in compliance with applicable policies and procedures. In addition, the vice president of collections
services oversees the collections department and provides timely oversight and additional accountability on a
consistent basis. The Company believes that the timely response to past due accounts is critical to its collections
success.
The Company has established standards with respect to the percentage of accounts one and two weeks past
due, 15 or more days past due and 30 or more days past due (delinquency standards), and the percentage of accounts
where the vehicle was repossessed or the account was charged off that month (account loss standard).
The Company works very hard to keep its delinquency percentages low and not to repossess vehicles.
Accounts three days late are contacted by telephone. Notes from each telephone contact are electronically
maintained in the Company’s computer system. The Company also utilizes text messaging notifications which
allows customers to elect to receive payment reminders and late notices via text message.
The Company attempts to resolve payment delinquencies amicably prior to repossessing a vehicle. If a
customer becomes severely delinquent in his or her payments, and management determines that timely collection
of future payments is not probable, the Company will take steps to repossess the vehicle. Periodically, the Company
enters into contract modifications with its customers to extend or modify the payment terms. The Company only
enters into a contract modification or extension if it believes such action will increase the amount of monies the
Company will ultimately realize on the customer’s account and will increase the likelihood of the customer being
able to pay off the vehicle contract. At the time of modification, the Company expects to collect amounts due
including accrued interest at the contractual interest rate for the period of delay. No other concessions are granted
to customers, beyond the extension of additional time, at the time of modification. Modifications are minor and are
made for pay day changes, minor vehicle repairs and other reasons. For those vehicles that are repossessed, the
majority are returned or surrendered by the customer on a voluntary basis. Other repossessions are performed by
Company personnel or third-party repossession agents. Depending on the condition of a repossessed vehicle, it is
either resold on a retail basis through a Company dealership or sold for cash on a wholesale basis, primarily through
physical or online auctions.
New Dealership Openings. Senior management, with the assistance of the corporate office staff, will
make decisions with respect to the communities in which to locate a new dealership and the specific sites within
those communities. New dealerships have historically been located in the general proximity of existing dealerships
to facilitate the corporate office’s oversight of the Company’s dealerships. The Company intends to add new
dealerships, subject to favorable operating performance of existing dealerships and availability of qualified
managers. Recently, the Company has opened new dealerships under experienced top performing general managers
and may continue to do so in order to grow and leverage the talents of these experienced managers.
The Company’s approach with respect to new dealership openings has been one of gradual development.
The manager in charge of a new dealership is normally a recently promoted associate who was an assistant manager
at a larger dealership and in most cases participated in the formal manager-in-training program. The corporate
8
office provides significant resources and support with pre-opening and initial operations of new dealerships.
Historically, new dealerships have operated with a low level of inventory and personnel. As a result of the modest
staffing level, the new dealership manager performs a variety of duties (i.e., selling, collecting and administrative
tasks) during the early stages of his or her dealership’s operations. As the dealership develops and the customer
base grows, additional staff are hired.
Monthly sales levels at new dealerships are typically substantially less than sales levels at mature
dealerships. Over time, new dealerships gain recognition in their communities, and a combination of customer
referrals and repeat business generally facilitates sales growth. Historically, sales growth at new dealerships could
exceed 10% per year for a number of years, whereas mature dealerships typically experience annual sales growth
but at a lower percentage than new dealerships. Due to continual operational initiatives, the Company is able to
support higher sales levels, and recently the Company has raised its volume expectation level of new locations
somewhat as infrastructure improvements related to new dealership openings have improved.
New dealerships are generally provided with approximately $1.5 million to $2.5 million in capital from the
corporate office during the first few years of operation. These funds are used principally to fund receivables growth.
After this start-up period, new dealerships can typically begin generating positive cash flow, allowing for some
continuing growth in receivables without additional capital from the corporate office. As these dealerships become
cash flow positive, a decision is made by senior management to either increase the investment due to favorable
return rates on the invested capital, or to deploy capital elsewhere. This limitation of capital to new, as well as
existing, dealerships serves as an important operating discipline. Dealerships must be profitable in order to grow
and typically new dealerships can be profitable within the first year of opening.
In addition to opening new dealerships, the Company believes that strategic acquisitions of existing
dealerships can complement the Company’s business and increase its profitability. The Company recently
completed the acquisition of the ongoing dealership assets of Taylor Motor Company and Auto Credit of Southern
Illinois (collectively, “Taylor Motors”) based in Benton, Illinois, through which the Company acquired three
dealerships located in Illinois and will continue to evaluate other acquisition opportunities. These dealerships are
established businesses with an expectation of sales levels similar to mature dealerships. As part of its growth
strategy, the Company intends to consider and pursue future strategic acquisition opportunities that the Company
believes will enhance our franchise and maximize the return to our shareholders.
Corporate Office Oversight and Management. The corporate office, based in Rogers, Arkansas, consists
of regional vice presidents, area operations managers, regional inventory purchasing directors, a sales director, a
vice president of collection services, a vice president inventory operations, a director of audit and compliance and
compliance auditors, a vice president of human resources, a director of general manager recruitment and
development, associate and management development personnel, accounting and management information systems
personnel, administrative personnel and senior management. The corporate office monitors and oversees dealership
operations. The corporate office has access to operating and financial information and reports on each dealership
on a daily, weekly and monthly basis. This information includes cash receipts and disbursements, inventory and
receivables levels and statistics, receivables aging and sales and account loss data. The corporate office uses this
information to compile Company-wide reports, plan dealership visits and prepare monthly financial statements.
Periodically, area operations managers, regional vice presidents, compliance auditors and senior
management visit the Company’s dealerships to inspect, review and comment on operations. The corporate office
assists in training new managers and other dealership level associates. Compliance auditors visit dealerships to
ensure policies and procedures are being followed and that the Company’s assets are being safe-guarded. In addition
to financial results, the corporate office uses delinquency and account loss standards and a point system to evaluate
a dealership’s performance. Also, bankrupt and legal action accounts and other accounts that have been written off
at dealerships are handled by the corporate office in an effort to allow dealership personnel time to focus on more
current accounts.
9
The Company’s dealership managers meet monthly on an area, regional or Company-wide basis. At these
meetings, corporate office personnel provide training and recognize achievements of dealership managers. Near
the end of every fiscal year, the respective area operations manager, regional vice president and senior management
conduct “projection” meetings with each dealership manager. At these meetings, the year’s results are reviewed
and ranked relative to other dealerships, and both quantitative and qualitative goals are established for the upcoming
year. The qualitative goals may focus on staff development, effective delegation, and leadership and organization
skills. Quantitatively, the Company establishes unit sales goals and profit goals based on invested capital and,
depending on the circumstances, may establish delinquency, account loss or expense goals.
The corporate office is also responsible for establishing policy, maintaining the Company’s management
information systems, conducting compliance audits, orchestrating new dealership openings and setting the strategic
direction for the Company.
Industry
Used Car Sales. The market for used car sales in the United States is significant. Used car retail sales
typically occur through franchised new car dealerships that sell used cars or independent used car dealerships. The
Company operates in the Integrated Auto Sales and Finance segment of the independent used car sales and finance
market. Integrated Auto Sales and Finance dealers sell and finance used cars to individuals with limited credit
histories or past credit problems. Integrated Auto Sales and Finance dealers typically offer their customers certain
advantages over more traditional financing sources, such as less restrictive underwriting guidelines, flexible
payment terms (including scheduling payments on a weekly or bi-weekly basis to coincide with a customer’s
payday), and the ability to make payments in person, an important feature to individuals who may not have a
checking account.
Used Car Financing. The used automobile financing industry is served by traditional lending sources such
as banks, savings and loans, and captive finance subsidiaries of automobile manufacturers, as well as by independent
finance companies and Integrated Auto Sales and Finance dealers. Many loans that flow through the more
traditional sources have historically ended up packaged in the securitization markets. Despite significant
opportunities, many of the traditional lending sources have not historically been consistent in providing financing
to individuals with limited credit histories or past credit problems. Management believes traditional lenders have
historically avoided this market because of its high credit risk and the associated collections efforts. Management
believes that there was constriction in the financing sources that existed for the deep sub-prime automobile market
after the financial crisis in 2008. Since the Company does not rely on securitizations as a financing source, it was
largely unaffected by the credit constrictions during the crisis and was able to continue to grow its revenue level
and receivable base. Beginning in 2012, funding for the deep subprime automobile market increased significantly.
Management attributed the increase to the ultra-low interest rate environment combined with the historical credit
performance of the used automobile financing market during and after the recession. At this time, it is unclear what
impact COVID-19 will have on the availability of consumer credit; however management expects the availability
of consumer credit within the automotive industry to continue to remain high when compared to historical trends.
Competition
The used automotive retail industry is fragmented and highly competitive. The Company competes
principally with other independent Integrated Auto Sales and Finance dealers, as well as with (i) the used vehicle
retail operations of franchised automobile dealerships, (ii) independent used vehicle dealers, and (iii) individuals
who sell used vehicles in private transactions. The Company competes for both the purchase and resale of used
vehicles. The increased funding to the used automobile industry has led to increased competitive pressures which
have been the primary contributors to the Company’s decision in recent periods to allow longer term lengths and
slightly lower down payments in connection with our customer financing contracts.
Management believes the principal competitive factors in the sale of its used vehicles include (i) the
availability of financing to consumers with limited credit histories or past credit problems, (ii) the breadth and
10
quality of vehicle selection, (iii) pricing, (iv) the convenience of a dealership’s location, (v) the option to purchase
a service contract and a payment protection plan, and (vi) customer service. Management believes that its
dealerships are not only competitive in each of these areas, but have some distinct advantages, specifically related
to the provision of strong customer service. The Company’s local face-to-face presence allows it to serve customers
at a higher level by forming strong personal relationships.
Seasonality
Historically, the Company’s third fiscal quarter (November through January) has been the slowest period
for vehicle sales. Conversely, the Company’s first and fourth fiscal quarters (May through July and February
through April) have historically been the busiest times for vehicle sales. Therefore, the Company generally realizes
a higher proportion of its revenue and operating profit during the first and fourth fiscal quarters. The Company
expects this pattern to continue in future years.
If conditions arise that impair vehicle sales during the first or fourth fiscal quarters, the adverse effect on
the Company’s revenues and operating results for the year could be disproportionately large.
Regulation and Licensing
The Company is committed to a culture of compliance by promoting and supporting efforts to design,
implement, manage, and maintain compliance initiatives. The Company’s operations are subject to various federal,
state and local laws, ordinances and regulations pertaining to the sale and financing of vehicles. Under various state
laws, the Company’s dealerships must obtain a license in order to operate or relocate. These laws also regulate
advertising and sales practices. The Company’s financing activities are subject to federal laws such as truth-in-
lending and equal credit opportunity laws and regulations as well as state and local motor vehicle finance laws,
installment finance laws, usury laws and other installment sales laws. Among other things, these laws require that
the Company limit or prescribe terms of the contracts it originates, require specified disclosures to customers,
restrict collections practices, limit the Company’s right to repossess and sell collateral, and prohibit discrimination
against customers on the basis of certain characteristics including age, race, gender and marital status.
The Company’s consumer financing and collection activities are also subject to oversight by the federal
Consumer Financial Protection Bureau (“CFPB”), which has broad regulatory powers over consumer credit
products and services such as those offered by the Company. Under a CFPB rule adopted in 2015, the Company’s
finance subsidiary, Colonial, is deemed a “larger participant” in the automobile financing market and is therefore
subject to examination and supervision by the CFPB.
The states in which the Company operates impose limits on interest rates the Company can charge on its
installment contracts. These limits have generally been based on either (i) a specified margin above the federal
primary credit rate, (ii) the age of the vehicle, or (iii) a fixed rate.
We are subject to a variety of federal, state and local laws and regulations that pertain to the environment,
including compliance with regulations concerning the use, handing and disposal of hazardous substances and
wastes.
Additionally, the Company is subject to various laws, regulations and other government mandates by state
and local authorities adopted in response to the COVID-19 pandemic.
Management believes the Company is in compliance in all material respects with all applicable federal, state and
local laws, ordinances and regulations; however, the adoption of additional laws, changes in the interpretation of
existing laws, or the Company’s entrance into jurisdictions with more stringent regulatory requirements could have
a material adverse effect on the Company’s used vehicle sales and finance business.
11
Employees
As of April 30, 2020, the Company, including its consolidated subsidiaries, employed a diverse associate
base of approximately 1,750 full time associates. None of the Company's employees are covered by a collective
bargaining agreement and the Company believes that its relations with its employees are positive.
Available Information
The Company’s website is located at www.car-mart.com. The Company makes available on this website,
free of charge, access to its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K and all amendments to those reports, as well as proxy statements and other information the Company files with,
or furnishes to, the Securities and Exchange Commission (“SEC”) as soon as reasonably practicable after the
Company electronically submits this material to the SEC. The information contained on the website or available
by hyperlink from the website is not incorporated into this Annual Report on Form 10-K or other documents the
Company files with, or furnishes to, the SEC.
Executive Officers of the Registrant
The following table provides information regarding the executive officers of the Company as of April 30,
2020:
Name
Age
Position with the Company
Jeffrey A. Williams………………..
57
President, Chief Executive Officer and
Director
Vickie D. Judy…... ……………….
Leonard L. Walthall……………….
54
54
Chief Financial Officer
Chief Operating Officer
Jeffrey A. Williams has served as Chief Executive Officer of the Company since January 2018, President
of the Company since March 2016, and as a director since 2011. Before becoming President in March 2016, Mr.
Williams served as Chief Financial Officer, Secretary and Vice President Finance of the Company since October
2005. Mr. Williams is a Certified Public Accountant, inactive, and prior to joining the Company, his experience
included approximately seven years in public accounting with Arthur Andersen & Co. and Coopers and Lybrand
LLC in Tulsa, Oklahoma and Dallas, Texas. His experience also includes approximately five years as Chief
Financial Officer and Vice President of Operations of Wynco, LLC, a nationwide distributor of animal health
products.
Vickie D. Judy has served as Chief Financial Officer of the Company since January 2018 and served as
Secretary of the Company from May 2018 to August 2019. Before becoming Chief Financial Officer, Ms. Judy
served a Principal Accounting Officer since March 2016 and Vice President of Accounting since August 2015. She
joined the Company in May 2010, serving as Controller and Director of Financial Reporting. Ms. Judy is a Certified
Public Accountant and prior to joining the Company her experience included approximately five years in public
accounting with Arthur Andersen & Co. and approximately 17 years at National Home Center, Inc., a home
improvement products and building materials retailer, most recently as Vice President of Financial Reporting.
Leonard L. Walthall has served as Chief Operating Officer of the Company since August 2019. Before
becoming Chief Operating Officer, Mr. Walthall served as the Company’s Field Operations Officer since March
2016, and previously served as the Company’s Vice President of Operations since March 2009 and as a store
manager for approximately 20 years.
12
Item 1A. Risk Factors
The Company is subject to various risks. The following is a discussion of risks that could materially and
adversely affect the Company’s business, operating results, and financial condition.
The recent outbreak of COVID-19 could have a significant negative impact on our business, sales, results of
operations and financial condition.
The global outbreak of COVID-19 has led to severe disruptions in general economic activities, particularly
retail operations, as businesses and federal, state, and local governments implement mandates to mitigate this public
health crisis. The pandemic has affected consumer demand and the overall health of the US economy. These
conditions could negatively impact all aspects of our business, including used vehicle sales and financing, finance
receivable collections, repossession activity and inventory acquisition. Our business is also dependent on the
continued health and productivity of our associates, including management teams, throughout this crisis. The
consequences of the COVID-19 outbreak could have a material adverse effect on our business, sales, results of
operations and financial condition.
Additionally, our liquidity could be negatively impacted if these conditions continue for a significant period
of time and we may be required to pursue additional sources of financing to obtain working capital, maintain
appropriate inventory levels, support the origination of vehicle financing, and meet our financial obligations.
Currently capital and credit markets have been disrupted by the crisis and our ability to obtain any new or additional
financing is not guaranteed and largely dependent upon evolving market conditions and other factors.
The extent to which the COVID-19 outbreak ultimately impacts our business, sales, results of operations
and financial condition will depend on future developments, which are highly uncertain and cannot be predicted,
including, but not limited to, the duration and spread of the outbreak, the development of testing and a vaccine, and
how quickly and to what extent normal economic and operating conditions can resume.
The Company may have a higher risk of delinquency and default than traditional lenders because it finances its
sales of used vehicles to credit-impaired borrowers.
Substantially all of the Company’s automobile contracts involve financing to individuals with impaired or
limited credit histories, or higher debt-to-income ratios than permitted by traditional lenders. Financing made to
borrowers who are restricted in their ability to obtain financing from traditional lenders generally entails a higher
risk of delinquency, default and repossession, and higher losses than financing made to borrowers with better credit.
Delinquency interrupts the flow of projected interest income and repayment of principal from a contract, and a
default can ultimately lead to a loss if the net realizable value of the automobile securing the contract is insufficient
to cover the principal and interest due on the contract or if the vehicle cannot be recovered. The Company’s
profitability depends, in part, upon its ability to properly evaluate the creditworthiness of non-prime borrowers and
efficiently service such contracts. Although the Company believes that its underwriting criteria and collection
methods enable it to manage the higher risks inherent in financing made to non-prime borrowers, no assurance can
be given that such criteria or methods will afford adequate protection against such risks. If the Company
experiences higher losses than anticipated, its financial condition, results of operations and business prospects could
be materially and adversely affected.
The Company’s allowance for credit losses may not be sufficient to cover actual credit losses, which could adversely
affect its financial condition and operating results.
When applicable, the Company has to recognize losses resulting from the inability of certain borrowers to
pay contracts and the insufficient realizable value of the collateral securing contracts. The Company maintains an
allowance for credit losses in an attempt to cover credit losses inherent in its contract portfolio. Additional credit
losses will likely occur in the future and may occur at a rate greater than the Company has experienced to date. The
allowance for credit losses is based primarily upon historical credit loss experience, with consideration given to
13
delinquency levels, collateral values, economic conditions and underwriting and collections practices. This
evaluation is inherently subjective as it requires estimates of material factors that may be susceptible to significant
change. If the Company’s assumptions and judgments prove to be incorrect, its current allowance may not be
sufficient and adjustments may be necessary to allow for different economic conditions or adverse developments
in its contract portfolio which could adversely affect the Company’s financial condition and results of operations.
In the first quarter of fiscal 2020, the Company reduced its allowance for credit losses from 25.0% to 24.5% as a
result of improvements in net chargeoffs as a percentage of average receivables, the quality of the portfolio and the
allowance analysis. During the fourth quarter of fiscal 2020, the Company increased its allowance for credit losses
from 24.5% to 26.5% of the principal balance in our finance receivables due to the impact of COVID-19. However,
the deterioration in economic conditions as a result of COVID-19 may result in additional future credit losses that
may not be fully reflected in the allowance for credit losses.
A reduction in the availability or access to sources of inventory could adversely affect the Company’s business by
increasing the costs of vehicles purchased.
The Company acquires vehicles primarily through wholesalers, new car dealers, individuals and auctions.
There can be no assurance that sufficient inventory will continue to be available to the Company or will be available
at comparable costs. Any reduction in the availability of inventory or increases in the cost of vehicles could
adversely affect gross margin percentages as the Company focuses on keeping payments affordable to its customer
base. The Company could have to absorb a portion of cost increases. The overall new car sales volumes in the
United States decreased dramatically from peak sales years during the economic recession of 2008 and did not
return back to pre-recession levels until fiscal 2016. The reduction in new car sales had a significant negative effect
on the supply of vehicles at appropriate prices available to the Company in recent years. Any future decline in new
car sales could further adversely affect the Company’s access to and costs of inventory. Our ability to source
vehicles could also be impacted by the closure of auctions and wholesalers as a result of COVID-19 or other factors.
The used automotive retail industry is fragmented and highly competitive, which could result in increased costs to
the Company for vehicles and adverse price competition. Increased competition on the financing side of the business
could result in increased credit losses.
The Company competes principally with other independent Integrated Auto Sales and Finance dealers, and
with (i) the used vehicle retail operations of franchised automobile dealerships, (ii) independent used vehicle
dealers, and (iii) individuals who sell used vehicles in private transactions. The Company competes for both the
purchase and resale, which includes, in most cases, financing for the customer, of used vehicles. The Company’s
competitors may sell the same or similar makes of vehicles that Car-Mart offers in the same or similar markets at
competitive prices. Increased competition in the market, including new entrants to the market, could result in
increased wholesale costs for used vehicles and lower-than-expected vehicle sales and margins. Further, if any of
the Company’s competitors seek to gain or retain market share by reducing prices for used vehicles, the Company
would likely reduce its prices in order to remain competitive, which may result in a decrease in its sales and
profitability and require a change in its operating strategies. Increased competition on the financing side puts
pressure on contract structures and increases the risk for higher credit losses. More qualified applicants have more
financing options on the front-end, and if events adversely affecting the borrower occur after the sale, the increased
competition may tempt the borrower to default on their contract with the Company in favor of other financing
options, which in turn increases the likelihood of the Company not being able to save that account.
The used automotive retail industry operates in a highly regulated environment with significant attendant
compliance costs and penalties for non-compliance.
The used automotive retail industry is subject to a wide range of federal, state, and local laws and
regulations, such as local licensing requirements and laws regarding advertising, vehicle sales, financing, and
employment practices. Facilities and operations are also subject to federal, state, and local laws and regulations
relating to environmental protection and human health and safety. The violation of these laws and regulations could
result in administrative, civil, or criminal penalties against the Company or in a cease and desist order. As a result,
14
the Company has incurred, and will continue to incur, capital and operating expenditures, and other costs of
complying with these laws and regulations. Further, over the past several years, private plaintiffs and federal, state,
and local regulatory and law enforcement authorities have increased their scrutiny of advertising, sales and finance
activities in the sale of motor vehicles. Additionally, the Company’s finance subsidiary, Colonial, is deemed a
“larger participant” in the automobile finance market and is therefore subject to examination and supervision by the
CFPB, which has broad regulatory powers over consumer credit products and services such as those offered by the
Company.
Inclement weather can adversely impact the Company’s operating results.
The occurrence of weather events, such as rain, snow, wind, storms, hurricanes, or other natural disasters,
which adversely affect consumer traffic at the Company’s automotive dealerships, could negatively impact the
Company’s operating results.
Recent and future disruptions in domestic and global economic and market conditions could have adverse
consequences for the used automotive retail industry in the future and may have greater consequences for the non-
prime segment of the industry.
In the normal course of business, the used automotive retail industry is subject to changes in regional U.S.
economic conditions, including, but not limited to, interest rates, gasoline prices, inflation, personal discretionary
spending levels, and consumer sentiment about the economy in general. Recent and future disruptions in domestic
and global economic and market conditions could adversely affect consumer demand or increase the Company’s
costs, resulting in lower profitability for the Company. Due to the Company’s focus on non-prime customers, its
actual rate of delinquencies, repossessions and credit losses on contracts could be higher under adverse economic
conditions than those experienced in the automotive retail finance industry in general. The Company is unable to
predict with certainty the future impact of the most recent global economic conditions on consumer demand in our
markets or on the Company’s costs.
The Company’s business is geographically concentrated; therefore, the Company’s results of operations may be
adversely affected by unfavorable conditions in its local markets.
The Company’s performance is subject to local economic, competitive, and other conditions prevailing in
the twelve states where the Company operates. The Company provides financing in connection with the sale of
substantially all of its vehicles. These sales are made primarily to customers residing in Alabama, Arkansas,
Georgia, Illinois, Kentucky, Mississippi, Missouri, Oklahoma, Tennessee and Texas with approximately 29% of
revenues resulting from sales to Arkansas customers. The Company’s current results of operations depend
substantially on general economic conditions and consumer spending habits in these local markets. Any decline in
the general economic conditions or decreased consumer spending in these markets may have a negative effect on
the Company’s results of operations.
The Company’s success depends upon the continued contributions of its management teams and the ability to attract
and retain qualified employees.
The Company is dependent upon the continued contributions of its management teams. Because the
Company maintains a decentralized operation in which each dealership is responsible for buying and selling its own
vehicles, making credit decisions and collecting contracts it originates, the key employees at each dealership are
important factors in the Company’s ability to implement its business strategy. Consequently, the loss of the services
of key employees could have a material adverse effect on the Company’s results of operations. In addition, when
the Company decides to open new dealerships, the Company will need to hire additional personnel. The market for
qualified employees in the industry and in the regions in which the Company operates is highly competitive and
may subject the Company to increased labor costs during periods of low unemployment.
15
The Company’s business is dependent upon the efficient operation of its information systems.
The Company relies on its information systems in managing its sales, inventory, consumer financing, and
customer information effectively. The failure of the Company’s information systems to perform as designed, or the
failure to maintain and continually enhance or protect the integrity of these systems, could disrupt the Company’s
business, impact sales and profitability, or expose the Company to customer or third-party claims.
Security breaches, cyber-attacks or fraudulent activity could result in damage to the Company's operations or lead
to reputational damage.
Our information and technology systems are vulnerable to damage or interruption from computer viruses,
network failures, computer and telecommunications failures, infiltration by unauthorized persons and security
breaches, usage errors by our employees, power outages and catastrophic events such as fires, tornadoes, floods,
hurricanes and earthquakes. A security breach of the Company's computer systems could also interrupt or damage
its operations or harm its reputation. In addition, the Company could be subject to liability if confidential customer
information is misappropriated from its computer systems. Any compromise of security, including security breaches
perpetrated on persons with whom the Company has commercial relationships, that result in the unauthorized
release of its users’ personal information, could result in a violation of applicable privacy and other laws, significant
legal and financial exposure, damage to the Company's reputation, and a loss of confidence in the Company's
security measures, which could harm its business. Any compromise of security could deter people from entering
into transactions that involve transmitting confidential information to the Company's systems and could harm
relationships with the Company's suppliers, which could have a material adverse effect on the Company's business.
Actual or anticipated attacks may cause the Company to incur increasing costs, including costs to deploy additional
personnel and protection technologies, train employees, and engage third-party experts and consultants. Despite the
implementation of security measures, these systems may still be vulnerable to physical break-ins, computer viruses,
programming errors, attacks by third parties or similar disruptive problems. The Company may not have the
resources or technical sophistication to anticipate or prevent rapidly evolving types of cyber-attacks.
Most of the Company's customers provide personal information when applying for financing. The
Company relies on encryption and authentication technology to provide security to effectively store and securely
transmit confidential information. Advances in computer capabilities, new discoveries in the field of cryptography
or other developments may result in the technology used by the Company to protect transaction data being breached
or compromised.
In addition, many of the third parties who provide products, services, or support to the Company could also
experience any of the above cyber risks or security breaches, which could impact the Company's customers and its
business and could result in a loss of customers, suppliers, or revenue.
Changes in the availability or cost of capital and working capital financing could adversely affect the Company’s
growth and business strategies, and volatility and disruption of the capital and credit markets and adverse changes
in the global economy could have a negative impact on the Company’s ability to access the credit markets in the
future and/or obtain credit on favorable terms.
The Company generates cash from income from continuing operations. The cash is primarily used to fund
finance receivables growth. To the extent finance receivables growth exceeds income from continuing operations,
generally the Company increases its borrowings under its revolving credit facilities to provide the cash necessary
to fund operations. On a long-term basis, the Company expects its principal sources of liquidity to consist of income
from continuing operations and borrowings under revolving credit facilities and/or fixed interest term loans. Any
adverse changes in the Company’s ability to borrow under revolving credit facilities or fixed interest term loans, or
any increase in the cost of such borrowings, would likely have a negative impact on the Company’s ability to finance
receivables growth which would adversely affect the Company’s growth and business strategies. Further, the
Company’s current credit facilities contain various reporting and financial performance covenants. Any failure of
the Company to comply with these covenants could have a material adverse effect on the Company’s ability to
implement its business strategy.
16
If the capital and credit markets experience disruptions and/or the availability of funds becomes restricted,
it is possible that the Company’s ability to access the capital and credit markets may be limited or available on less
favorable terms which could have an impact on the Company’s ability to refinance maturing debt or react to
changing economic and business conditions. In addition, if negative global economic conditions persist for an
extended period of time or worsen substantially, the Company’s business may suffer in a manner which could cause
the Company to fail to satisfy the financial and other restrictive covenants under its credit facilities.
The Company’s growth strategy is dependent upon the following factors:
Favorable operating performance. Our ability to expand our business through additional dealership
openings or strategic acquisitions is dependent on a sufficiently favorable level of operating performance
to support the management, personnel and capital resources necessary to successfully open and operate or
acquire new locations.
Availability of suitable dealership sites. Our ability to open new dealerships is subject to the availability
of suitable dealership sites in locations and on terms favorable to the Company. If and when the Company
decides to open new dealerships, the inability to acquire suitable real estate, either through lease or
purchase, at favorable terms could limit the expansion of the Company’s dealership base. In addition, if a
new dealership is unsuccessful and we are forced to close the dealership, we could incur additional costs if
we are unable to dispose of the property in a timely manner or on terms favorable to the Company. Any of
these circumstances could have a material adverse effect on the Company’s expansion strategy and future
operating results.
Ability to attract and retain management for new dealerships. The success of new dealerships is dependent
upon the Company being able to hire and retain additional competent personnel. The market for qualified
employees in the industry and in the regions in which the Company operates is highly competitive. If we
are unable to hire and retain qualified and competent personnel to operate our new dealerships, these
dealerships may not be profitable, which could have a material adverse effect on our future financial
condition and operating results.
Availability and cost of vehicles. The cost and availability of sources of inventory could affect the
Company’s ability to open new dealerships. The overall new car sales volumes in the United States
decreased dramatically from peak sales years during the economic recession of 2008 and did not return
back to pre-recession levels until fiscal 2016. The long-term impacts of the current downturn due to
COVID-19 on new car sales volumes and the ability of auctions and wholesalers to continue to operate is
uncertain. Any of these factors could potentially have a significant negative effect on the supply of vehicles
at appropriate prices available to the Company in future periods. This could also make it difficult for the
Company to supply appropriate levels of inventory for an increasing number of dealerships without
significant additional costs, which could limit our future sales or reduce future profit margins if we are
required to incur substantially higher costs to maintain appropriate inventory levels.
Acceptable levels of credit losses at new dealerships. Credit losses tend to be higher at new dealerships
due to fewer repeat customers and less experienced associates; therefore, the opening of new dealerships
tends to increase the Company’s overall credit losses. In addition, new dealerships may experience higher
than anticipated credit losses, which may require the Company to incur additional costs to reduce future
credit losses or to close the underperforming locations altogether. Any of these circumstances could have
a material adverse effect on the Company’s future financial condition and operating results.
Ability to successfully identify, complete and integrate new acquisitions. Part of our current growth strategy
includes strategic acquisitions of dealerships. We could have difficulty identifying attractive target
dealerships, completing the acquisition or integrating the acquired business’ assets, personnel and
operations with our own. Acquisitions are accompanied by a number of inherent risks, including, without
limitation, the difficulty of integrating acquired companies and operations; potential disruption of our
17
ongoing business and distraction of our management or the management of the target company; difficulties
in maintaining controls, procedures and policies; potential impairment of relationships with associates and
partners as a result of any integration of new personnel; potential inability to manage an increased number
of locations and associates; failure to realize expected efficiencies, synergies and cost savings; or the effect
of any government regulations which relate to the businesses acquired.
The Company’s business is subject to seasonal fluctuations.
Historically, the Company’s third fiscal quarter (November through January) has been the slowest period
for vehicle sales. Conversely, the Company’s first and fourth fiscal quarters (May through July and February
through April) have historically been the busiest times for vehicle sales. Therefore, the Company generally realizes
a higher proportion of its revenue and operating profit during the first and fourth fiscal quarters. The Company
expects this pattern to continue in future years.
If conditions arise that impair vehicle sales during the first or fourth fiscal quarters, the adverse effect on
the Company’s revenues and operating results for the year could be disproportionately large.
Item 1B. Unresolved Staff Comments
Not applicable.
18
Item 2. Properties
As of April 30, 2020, the Company leased approximately 87% of its facilities, including dealerships and
the Company’s corporate offices. These facilities are located principally in the states of Alabama, Arkansas,
Georgia, Illinois, Kentucky, Mississippi, Missouri, Oklahoma, Tennessee and Texas. The Company’s corporate
offices are located in approximately 34,000 square feet of leased space in Rogers, Arkansas. For additional
information regarding the Company’s properties, see “Operations-Dealership Locations and Facilities” under Item
1 above and “Contractual Payment Obligations” and “Off-Balance Sheet Arrangements” under Item 7 of Part II.
Item 3. Legal Proceedings
In the ordinary course of business, the Company has become a defendant in various types of legal
proceedings. While the outcome of these proceedings cannot be predicted with certainty, the Company does not
expect the final outcome of any of these proceedings, individually or in the aggregate, to have a material adverse
effect on the Company’s financial position, results of operations or cash flows.
Item 4. Mine Safety Disclosure
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
General
The Company’s common stock is traded on the NASDAQ Global Select Market under the symbol CRMT.
As of June 15, 2020, there were approximately 885 shareholders of record. This number excludes stockholders
holding the Company’s common stock as “beneficial owners” under nominee security position listings.
19
Stockholder Return Performance Graph
Set forth below is a line graph comparing the fiscal year end percentage change in the cumulative total
stockholder return on the Company’s common stock to (i) the cumulative total return of the NASDAQ Market Index
(U.S. companies), and (ii) the Hemscott Group 744 Index – Auto Dealerships (“Automobile Index”), for the period
of five fiscal years commencing on May 1, 2015 and ending on April 30, 2020.
The graph assumes that the value of the investment in the Company’s common stock and each index was
$100 on April 30, 2015.
* $100 invested on 4/30/2015 in stock or index, including reinvestment of dividends.
Fiscal year ending April 30.
The dollar value at April 30, 2020 of $100 invested in the Company’s common stock on April 30, 2015
was $128.46, compared to $136.56 for the automobile index described above and $190.32 for the NASDAQ Market
Index (U.S. Companies).
Dividend Policy
Since its inception, the Company has paid no cash dividends on its common stock. The Company currently
intends for the foreseeable future to continue its policy of retaining earnings to finance future growth. Payment of
cash dividends in the future will be determined by the Company's Board of Directors and will depend upon, among
other things, the Company's future earnings, operations, capital requirements and surplus, general financial
condition, contractual restrictions that may exist, and such other factors as the Board of Directors may deem
relevant. The Company is also limited in its ability to pay dividends or make other distributions to its shareholders
without the consent of its lender. Please see “Liquidity and Capital Resources” under Item 7 of Part II for more
information regarding this limitation.
20
Issuer Purchases of Equity Securities
The Company is authorized to repurchase shares of its common stock under its common stock repurchase
program. The Board of Directors most recently approved, and the Company announced, on November 16, 2017 the
authorization to repurchase up to an additional one million shares along with the balance remaining under its
previous authorization approved in July 2016. The following table sets forth information with respect to purchases
made by or on behalf of the Company of shares of the Company’s common stock during the periods indicated:
Period
February 1, 2020 through February 28, 2020
March 1, 2020 through March 31, 2020
April 1, 2020 through April 30, 2020
Total
Total
Number of
Shares
Purchased(2)
-
-
2,823
2,823
Average
Price Paid
per Share
-
-
$65.95
$65.95
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (1)
Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans or
Programs (1)
-
-
-
-
125,109
125,109
125,109
125,109
(1) The above described stock repurchase program has no expiration date.
(2) 2,823 of the shares purchased during April 2020 were originally granted to employees as restricted stock pursuant to the Company’s
Amended and Restated Stock Incentive Plan. Pursuant to the Amended and Restated Stock Incentive Plan, these shares were surrendered by
the employees in exchange for the Company’s agreement to pay federal and state withholding obligations resulting from the vesting of the
restricted stock. These repurchases were not made pursuant to a publicly announced plan or program and do not reduce the number of shares
that may yet be purchased under the Company’s publicly announced repurchase program.
Item 6. Selected Financial Data
The financial data set forth below was derived from the audited consolidated financial statements of the
Company and should be read in conjunction with the Consolidated Financial Statements and the Notes thereto
contained in Item 8, and the information contained in Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Years Ended April 30,
(In thousands, except per share amounts)
2018
2017
2019
2016
2020
Revenues
$ 744,611
$ 669,122
$ 612,201
$ 587,751
$ 567,906
Net income attributable to common
stockholders
Diluted earnings per share from
continuing operations
$
$
51,303
7.39
$
$
47,585
6.73
$
$
36,469
4.90
$
$
20,165
2.49
$
$
11,556
1.33
2020
2019
April 30,
(In thousands)
2018
2017
2016
Total assets
Total debt
Mandatorily redeemable preferred stock
Total equity
Shares outstanding
$ 667,324
$ 215,568
$
400
$ 302,759
6,619
$ 492,542
$ 152,918
$
400
$ 260,510
6,699
$ 455,584
$ 152,367
$
400
$ 230,535
6,849
$ 424,258
$ 117,944
$
400
$ 233,008
7,608
$ 406,296
$ 107,902
$
400
$ 228,817
8,074
21
Item 7. 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 in Item 8 of this Annual Report on Form 10-K.
Overview
America’s Car-Mart, Inc., a Texas corporation (the “Company”), is one of the largest publicly held
automotive retailers in the United States focused exclusively on the “Integrated Auto Sales and Finance” segment
of the used car market. References to the Company include the Company’s consolidated subsidiaries. The
Company’s operations are principally conducted through its two operating subsidiaries, America’s Car Mart, Inc.,
an Arkansas corporation (“Car-Mart of Arkansas”), and Colonial Auto Finance, Inc., an Arkansas corporation
(“Colonial”). Collectively, Car-Mart of Arkansas and Colonial are referred to herein as “Car-Mart.” The Company
primarily sells older model used vehicles and provides financing for substantially all of its customers. Many of the
Company’s customers have limited financial resources and would not qualify for conventional financing as a result
of limited credit histories or past credit problems. As of April 30, 2020, the Company operated 148 dealerships
located primarily in small cities throughout the South-Central United States.
Car-Mart has been operating since 1981. Car-Mart has grown its revenues between approximately 3% and
13% per year over the last ten years (average 8%). Growth results from same dealership revenue growth and the
addition of new dealerships. Revenue increased 11.3% for the fiscal year ended April 30, 2020 compared to fiscal
2019 primarily due to a 6.0% increase in average retail sales price, a 5.3% increase in units sold and a 10.9%
increase in interest income. The Company added a net of four new dealerships in fiscal 2020.
The Company earns revenue from the sale of used vehicles, and in most cases a related service contract and
a payment protection plan product, as well as interest income and late fees from the related financing. The
Company’s cost structure is more fixed in nature and is sensitive to volume changes. Revenues can be affected by
our level of competition, which is influenced to a large extent by the availability of funding to the sub-prime
automobile industry, together with the availability and resulting purchase cost of the types of vehicles the Company
purchases for resale. Revenues can also be affected by the macro-economic environment. Down payments, contract
term lengths and proprietary credit scoring are critical to helping customers succeed and are monitored closely by
corporate management at the point of sale. After the sale, collections, delinquencies and charge-offs are crucial
elements of the Company’s evaluation of its financial condition and results of operations and are monitored and
reviewed on a continuous basis. Management believes that developing and maintaining a relationship with its
customers and earning their repeat business is critical to the success and growth of the Company and can serve to
offset the effects of increased competition and negative macro-economic factors.
A challenging competitive environment puts pressure on sales volumes especially at older dealerships
which tend to have higher overall sales volumes and more repeat customers. Additionally, as the Company attempts
to attract and retain target customers, increased competition can contribute to lower down payments and longer
contract terms which can have a negative effect on collection percentages, liquidity and credit losses. Management
believes that the ultra-low interest rate environment combined with a lack of other investment alternatives has been
attracting excess capital into the sub-prime automobile market and increasing competition. In an effort to combat
the increased competition the Company will continue to focus on the benefits of excellent customer service and its
“local” face to face offering in an effort to help customers succeed. The Company, over recent years, has focused
on providing a good mix of vehicles in various price ranges to increase affordability for customers, to address sales
volume challenges and to improve credit performance in the future by improving the equity position of customers
who may be tempted to default on their contracts, especially when competition on the lending side is elevated.
The purchase price the Company pays for its vehicles can also have a significant effect on revenues,
liquidity and capital resources. Because the Company bases its selling price on the purchase cost of the vehicle,
increases in purchase costs result in increased selling prices. As the selling price increases, it becomes more difficult
to keep the gross margin percentage and contract term in line with historical results because the Company’s
22
customers have limited incomes and their car payments must remain affordable within their individual budgets.
Decreases in the overall volume of new car sales, particularly domestic brands, lead to decreased supply and
generally increased prices in the used car market. Also, expansions or constrictions in consumer credit, as well as
general economic conditions, can have an overall effect on the demand and the resulting purchase cost of the types
of vehicles the Company purchases for resale.
COVID-19 has had an impact on the availability and prices of the vehicles the Company purchases.
Auctions and other wholesale outlets have been closed, forced to operate at limited capacity, or converted to online.
The timing and duration of these closures could continue to impact the availability of product. The Company
constantly reviews and adjusts purchasing avenues in order to obtain an appropriate flow of vehicles. Declining
purchase costs may present the opportunity to purchase a slightly newer, lower mileage vehicle for our customers.
The Company’s primary focus is on collections. Each dealership is responsible for its own collections with
supervisory involvement of the corporate office. Over the last five fiscal years, the Company’s credit losses as a
percentage of sales have ranged from approximately 24.8% in fiscal 2020 to 28.7% in fiscal 2017 (average of
26.9%). Credit losses as a percentage of sales increased in recent years prior to 2018, primarily due to increased
contract term lengths and lower down payments resulting from increased competitive pressures as well as higher
charge-offs caused, to an extent, by negative macro-economic factors affecting the Company’s customer base.
Credit losses as a percentage of sales have improved in each of the past three fiscal years as improvements in
collection processes and higher recovery rates on repossessions progressively offset the continuing competitive
pressures. However, the Company’s credit loss results were negatively impacted during the fourth quarter of fiscal
2020 by the impacts of COVID-19, including the Company’s suspension of certain collection activities, including
repossession efforts, for a period of time and the Company’s decision to increase the allowance for credit losses as
a result of the pandemic.
Historically, credit losses, on a percentage basis, tend to be higher at new and developing dealerships than
at mature dealerships. Generally, this is because the management at new and developing dealerships tends to be
less experienced in making credit decisions and collecting customer accounts and the customer base is less seasoned.
Normally more mature dealerships have more repeat customers and, on average, repeat customers are a better credit
risk than non-repeat customers. Negative macro-economic issues do not always lead to higher credit loss results
for the Company because the Company provides basic affordable transportation which in many cases is not a
discretionary expenditure for customers. The Company does believe, however, that general inflation, particularly
within staple items such as groceries and gasoline, as well as overall unemployment levels and potentially lower or
stagnant personal income levels affecting customers can have, and has had in recent years, a negative impact on
collections. Additionally, increased competition for used vehicle financing can have a negative effect on collections
and charge-offs.
In an effort to offset credit losses and to operate more efficiently, the Company continues to look for
improvements to its business practices, including better underwriting and better collection procedures. The
Company has a proprietary credit scoring system which enables the Company to monitor the quality of contracts.
Corporate office personnel monitor proprietary credit scores and work with dealerships when the distribution of
scores falls outside of prescribed thresholds. The Company also uses credit reporting and the use of global
positioning system (“GPS”) units on vehicles. Additionally, the Company has placed significant focus on the
collection area as the Company’s training department continues to spend significant time and effort on collections
improvements. The Company’s vice president of collections services oversees the collections department and
provides timely oversight and additional accountability on a consistent basis. The Company believes that the proper
execution of its business practices is the single most important determinant of its long-term credit loss experience.
Historically, the Company’s gross margin as a percentage of sales has been fairly consistent from year to
year at approximately 40% or 41% over each of the previous five fiscal years. The Company’s gross margin is
based upon the cost of the vehicle purchased, with lower-priced vehicles typically having higher gross margin
percentages, and is also affected by the percentage of wholesale sales to retail sales, which relates for the most part
to repossessed vehicles sold at or near cost. The gross margin percentage decreased in fiscal 2020 to 40.5% from
23
41.4% in the prior fiscal year, while gross margin dollars per retail until sold increased by $172, primarily as a result
of the Company selling on average a higher priced vehicle in fiscal 2020. The Company expects that increasing
vehicle purchase costs and sales prices will continue to put pressure on its gross margin percentage over the near
term.
Hiring, training and retaining qualified associates is critical to the Company’s success. The rate at which
the Company adds new dealerships and is able to implement operating initiatives is limited by the number of trained
managers and support personnel the Company has at its disposal. Excessive turnover, particularly at the dealership
manager level, could impact the Company’s ability to add new dealerships and to meet operational initiatives. The
Company has added resources to recruit, train, and develop personnel, especially personnel targeted to fill
dealership manager positions. The Company expects to continue to invest in the development of its workforce.
24
Consolidated Operations
(Operating Statement Dollars in Thousands)
Years Ended April 30,
2020
2019
2018
% Change
2020
vs.
2019
2019
vs.
2018
As a % of Sales
2019
2020
2018
$
$
652,992
91,619
744,611
586,508
82,614
669,122
$
537,528
74,673
612,201
11.3 %
10.9
11.3
9.1 %
10.6
9.3
100.0 %
14.0
114.0
100.0 %
14.1
114.1
100.0 %
13.9
113.9
388,475
117,762
162,246
8,052
3,839
(114)
680,260
343,898
107,249
146,363
7,883
3,969
(91)
609,271
315,273
99,023
149,059
5,599
4,250
91
573,295
13.0 %
9.8
10.9
2.1
(3.3)
9.1 %
8.3
(1.8)
40.8
(6.6)
59.5
18.0
24.8
1.2
0.6
58.6
18.3
25.0
1.3
0.7
58.7
18.4
27.7
1.0
0.8
25.3
11.7
(200.0)
6.3
-
104.1
-
103.9
-
106.8
Operating Statement:
Revenues:
Sales
Interest and other income
Total
Costs and expenses:
Cost of sales, excluding depreciation
shown below
Selling, general and administrative
Provision for credit losses
Interest expense
Depreciation and amortization
Loss (gain) on disposal of property
and equipment
Total
Income before income taxes
$
64,351
$
59,851
$
38,906
9.9 %
10.2 %
7.2 %
Operating Data (Unaudited):
Retail units sold
Average dealerships in operation
Average units sold per dealership
Average retail sales price
$
Same store revenue growth
Receivables average yield
52,914
146
362
11,793
9.3%
15.7%
$
50,257
142
354
11,125
8.4%
15.6%
$
48,271
140
345
10,604
5.2%
15.2%
5.3 %
2.8
2.4
6.0
4.1 %
1.4
2.6
4.9
2020 Compared to 2019
Total revenues increased $75.5 million, or 11.3%, in fiscal 2020, as compared to revenue growth of 9.3%
in fiscal 2019, principally as a result of (i) revenue growth from dealerships that operated a full twelve months in
both fiscal years ($61.5 million), and (ii) revenue from stores opened or acquired during or after the year ended
April 30, 2019 ($17.0 million), partially offset by (iii) decreased revenue from dealerships closed during or after
the year ended April 30, 2019 ($3.0 million). The increase in revenue for fiscal 2020 is attributable to (i) a 6.0%
increase in average retail sales price, (ii) a 5.3% increase in retail units sold and (iii) a 10.9% increase in interest
and other income.
Cost of sales, as a percentage of sales, increased slightly to 59.5% compared to 58.6% in fiscal 2019. The
average retail sales price for fiscal 2020 was $11,793, a $668 increase over the prior fiscal year, reflecting the high
demand for used cars, especially in the market we serve. As purchase costs increase, the margin between the
purchase cost and the sales price of the vehicles we sell generally narrows on a percentage basis because the
Company must offer affordable prices to our customers. However, on a dollar basis, our gross margin per retail
unit sold increased by $172 in fiscal 2020 compared to fiscal 2019. Demand for the vehicles we purchase for resale
has remained high relative to supply largely due to excess funding to the used vehicle financing market and the
depressed levels of new car sales during and after the last recession, although more robust new car sales in recent
years have bolstered the supply of used vehicles. While the long-term impact of COVID-19 on the availability of
vehicles in our market and new car sales is undetermined at this time, the Company has seen disruptions in the
supply of vehicles since the beginning of the pandemic and expects the supply to be tighter in the near-term relative
to demand.
25
Selling, general and administrative expenses, as a percentage of sales remained relatively consistent at
18.0% in fiscal 2020, compared to 18.3% for fiscal 2019. Selling, general and administrative expenses are, for the
most part, more fixed in nature. In dollar terms, overall selling, general and administrative expenses increased
$10.5 million from fiscal 2019. The increase is primarily focused on investments in our associates, especially
general manager recruitment, training and collections support along with improvements in digital marketing, all in
an effort to provide superior customer service.
Provision for credit losses as a percentage of sales decreased slightly to 24.8% for fiscal 2020 compared to
25.0% for fiscal 2019. Net charge-offs as a percentage of average finance receivables decreased to 23.1% for fiscal
2020 compared to 25.7% for the prior year. The decrease in net charge-offs for fiscal 2020 primarily resulted from
a lower frequency of losses combined with a lower severity of losses, primarily due to improvements in collections
processes and higher recovery rates on repossessions. However, the fiscal 2020 credit loss results were negatively
impacted by net provision changes of $9.1 million primarily as a result of the Company’s decision to increase the
allowance for credit losses in light of the uncertainty regarding the COVID-19 impact and the fact that the Company
suspended certain collection activities including repossession efforts for a period of time due to the pandemic. The
Company uses several operational initiatives (including credit reporting and the use of GPS units on vehicles) to
improve collections and continually pushes for improvements and better execution of its collection practices. The
Company believes that the proper execution of its business practices is the single most important determinant of
credit loss experience and that improvements in oversight and accountability provided by the Company’s
investments in our corporate infrastructure within the collections area and the somewhat improved macro-economic
environment prior to the pandemic mitigated the competitive pressures and positively impacted credit loss results
for fiscal 2020.
Interest expense for fiscal 2020 as a percentage of sales remained relatively consistent at 1.2% compared
to 1.3% for fiscal 2019. Although the Company had a higher average borrowings in fiscal 2020 ($179.9 million in
fiscal 2020 compared to $161.0 million for fiscal 2019), the lower interest rates offset the interest on the higher debt
balances.
2019 Compared to 2018
Total revenues increased $56.9 million, or 9.3%, in fiscal 2019, as compared to revenue growth of 4.2% in
fiscal 2018, principally as a result of (i) revenue growth from dealerships that operated a full twelve months in both
fiscal years ($50.7 million), and (ii) revenue from stores opened during or after the year ended April 30, 2018 ($11.9
million), partially offset by (iii) decreased revenue from dealerships closed during or after the year ended April 30,
2018 ($5.7 million). The increase in revenue for fiscal 2019 is attributable to (i) a 4.9% increase in average retail
sales price, (ii) a 4.1% increase in retail units sold and (iii) a 10.6% increase in interest and other income.
Cost of sales, as a percentage of sales, remained relatively consistent at 58.6% in fiscal 2019 compared to
58.7% in fiscal 2018. The average retail sales price for fiscal 2019 was $11,125, a $521 increase over the prior fiscal
year. In fiscal 2019, the slight improvement in the margin in spite of increasing purchase costs was due to
improvements in inventory management and lower repair costs.
Selling, general and administrative expenses, as a percentage of sales remained relatively consistent at
18.3% in fiscal 2019, compared to 18.4% for fiscal 2018. In dollar terms, overall selling, general and administrative
expenses increased $8.2 million from fiscal 2018. The increase was primarily focused on investments in our
associates, especially general manager recruitment, training and collections support along with improvements in
digital marketing, all in an effort to provide superior customer service.
Provision for credit losses as a percentage of sales decreased to 25.0% for fiscal 2019 compared to 27.7%
for fiscal 2018. Net charge-offs as a percentage of average finance receivables decreased to 25.7% for fiscal 2019
compared to 28.8% for the prior year. The decrease in net charge-offs for fiscal 2019 primarily resulted from a
lower frequency of losses combined with a lower severity of losses, primarily due to improvements in collections
processes and higher recovery rates on repossessions.
26
Interest expense for fiscal 2019 as a percentage of sales increased slightly to 1.3% compared to 1.0% for
fiscal 2018, due to higher average borrowings during the fiscal year 2019 ($161.0 million compared to $136.7
million in the prior year) and increased interest rates.
Financial Condition
The following table sets forth the major balance sheet accounts of the Company at April 30, 2020, 2019
and 2018 (in thousands):
Assets:
Finance receivables, net
Inventory
Property and equipment, net
2020
April 30,
2019
2018
$
466,141
36,414
30,140
$
415,486
37,483
28,537
$
383,617
33,610
28,594
Liabilities:
Accounts payable and accrued liabilities
Deferred revenue
Income taxes payable (receivable), net
Deferred income tax liabilities, net
Debt facilities
32,846
36,121
3,841
12,979
215,568
32,496
31,959
(1,947)
14,259
152,918
29,569
30,155
(1,450)
12,558
152,367
The following table shows receivables growth compared to revenue growth during each of the past three
fiscal years. For fiscal year 2020, growth in finance receivables of 14.4% exceeded revenue growth of 11.3%. The
Company currently anticipates going forward that the growth in finance receivables will generally be slightly higher
than overall revenue growth on an annual basis due to overall term length increases in our installment sales contracts
in recent prior years, partially offset by improvements in underwriting and collection procedures in an effort to
reduce credit losses. The average term for installment sales contracts at April 30, 2020 was 33.3 months, compared
to 32.1 months for April 30, 2019.
Years Ended April 30,
2019
2020
2018
Growth in finance receivables, net of deferred
revenue
Revenue growth
14.4%
11.3%
8.5%
9.3%
7.4%
4.2%
At fiscal year-end 2020, inventory decreased 2.9% ($1.1 million), compared to fiscal year-end 2019. This
decrease was primarily related to COVID-19, as the Company held off on inventory purchases for a period of time
to conserve cash flow and for additional clarity on restrictions and sales volumes during the pandemic. The
Company strives to improve the quality of the inventory and improve turns while maintaining inventory levels to
ensure adequate supply of vehicles, in volume and mix, and to meet sales demand.
Property and equipment, net, increased by approximately $1.6 million as of April 30, 2020 as compared to
fiscal 2019. The increase is attributable to approximately $5.5 million in additions, partially offset by depreciation
expense of $3.8 million and disposals of almost $100,000.
Accounts payable and accrued liabilities increased slightly by approximately $350,000 at April 30, 2020 as
compared to April 30, 2019 partially due to the deferral of the employer’s share of social security and payroll taxes
as permitted under the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act.
27
Income taxes payable, net, increased approximately $5.8 million at April 30, 2020 compared to April 30,
2019 primarily due to the relief provided by the CARES Act, as the Company elected to defer certain estimated tax
payments in the fourth quarter.
Deferred revenue increased $4.2 million at April 30, 2020 over April 30, 2019, primarily resulting from the
increase in sales of the payment protection plan and service contract products.
Deferred income tax liabilities, net, decreased approximately $1.3 million at April 30, 2020 as compared to
April 30, 2019 due primarily to the deferred tax asset created by the disallowed interest deduction as a result of the
Tax Cuts and Jobs Act of 2017.
Debt facilities increased primarily as a result of the $60 million in cash held at the end of the year due to
the uncertainty related to COVID-19 and to ensure financial flexibility. Typically, the cash would have been used
to pay down the debt facilities.
Borrowings on the Company’s revolving credit facilities fluctuate primarily based upon a number of factors
including (i) net income, (ii) finance receivables changes, (iii) income taxes, (iv) capital expenditures and (v)
common stock repurchases. Historically, income from continuing operations, as well as borrowings on the
revolving credit facilities, have funded the Company’s finance receivables growth, capital asset purchases and
common stock repurchases. In fiscal 2020, the Company had a $4.8 million net increase in total debt, net of cash,
used to contribute to the funding of finance receivables growth of $77.9 million, net capital expenditures of $5.5
million and common stock repurchases of $16.0 million.
28
Liquidity and Capital Resources
The following table sets forth certain historical information with respect to the Company’s Statements of
Cash Flows (in thousands):
2020
Years Ended April 30,
2019
2018
Operating activities:
Net income
Provision for credit losses
Losses on claims for payment protection plan
Depreciation and amortization
Amortization of debt issuance costs
Stock based compensation
Deferred income taxes
Finance receivable originations
Finance receivable collections
Accrued interest on finance receivables
Inventory
Accounts payable and accrued liabilities
Deferred payment protection plan revenue
Deferred service contract revenue
Income taxes, net
Other
Total
Investing activities:
Purchase of investments
Purchase of property and equipment
Proceeds from sale of property and equipment
Total
Financing activities:
Debt facilities, net
Change in cash overdrafts
Purchase of common stock
Dividend payments
Exercise of stock options, including
tax benefits and issuance of common stock
Total
$
51,343
162,246
17,966
3,839
273
4,732
(1,280)
(604,497)
322,180
(750)
53,827
1,009
3,113
1,049
5,788
79
20,917
(4,648)
(5,422)
184
(9,886)
62,377
(1,274)
(16,009)
(40)
1,723
46,777
$
47,625
146,363
17,020
3,969
251
3,703
1,701
(540,505)
293,739
(159)
47,641
2,226
1,544
259
(497)
22
24,902
$
36,509
149,059
16,748
4,250
260
1,603
(6,360)
(494,641)
260,104
(91)
38,793
4,712
1,351
721
(2,335)
(689)
9,994
-
(4,029)
142
(3,887)
300
768
(26,577)
(40)
5,264
(20,285)
-
(2,258)
554
(1,704)
33,046
(163)
(42,301)
(40)
1,756
(7,702)
Increase in cash
$
57,808
$
730
$
588
The primary drivers of operating profits and cash flows include (i) top line sales (ii) interest rates on finance
receivables, (iii) gross margin percentages on vehicle sales, and (iv) credit losses, a significant portion of which
relates to the collection of principal on finance receivables. The Company generates cash flow from income from
operations. Historically, most or all of this cash is used to fund finance receivables growth, capital expenditures
and common stock repurchases. To the extent finance receivables growth, common stock repurchases and capital
expenditures exceed income from operations the Company generally increases its borrowings under its revolving
credit facilities. The majority of the Company’s growth has been self-funded.
Cash flows from operations in fiscal 2020 compared to fiscal 2019 decreased primarily as a result of (i) an
increase in finance receivable originations, (ii) an increase in deferred tax assets and (iii) accounts payable and
accrued liabilities increasing at a lower rate than the prior year, offset by (iv) an increase in finance receivable
29
collections and (v) an increase in the provision for credit losses. Finance receivables, net, increased by $50.7 million
during fiscal 2020.
Cash flows from operations in fiscal 2019 compared to fiscal 2018 increased primarily as a result of (i) net
income, (ii) an increase in deferred taxes, (iii) an increase in finance receivable collections and (iv) an increase in
stock based compensation, offset by (v) an increase in finance receivable originations and (vi) accounts payable and
accrued liabilities increasing at a lower rate than the prior year. Finance receivables, net, increased by $31.9 million
during fiscal 2019.
The purchase price the Company pays for a vehicle has a significant effect on liquidity and capital resources.
Because the Company bases its selling price on the purchase cost for the vehicle, increases in purchase costs result
in increased selling prices. As the selling price increases, it generally becomes more difficult to keep the gross
margin percentage and contract term in line with historical results because the Company’s customers have limited
incomes and their car payments must remain affordable within their individual budgets. Several external factors can
negatively affect the purchase cost of vehicles. Decreases in the overall volume of new car sales, particularly
domestic brands, lead to decreased supply in the used car market. Also, constrictions in consumer credit, as well as
general economic conditions, can increase overall demand for the types of vehicles the Company purchases for
resale as used vehicles become more attractive than new vehicles in times of economic instability. A negative shift
in used vehicle supply, combined with strong demand, results in increased used vehicle prices and thus higher
purchase costs for the Company.
New vehicle sales decreased dramatically during the economic recession of 2008 and did not return to pre-
recession levels until 2016. In addition, the challenging macro-economic environment, together with the
constriction in consumer credit starting in 2008, contributed to increased demand for the types of vehicles the
Company purchases and a resulting increase in used car prices. These negative macro-economic conditions have
continued to affect our customers in the years since the recession and, in turn, have helped keep demand high for
the types of vehicles we purchase. This increased demand, coupled with depressed levels of new vehicle sales in
recent years, negatively impacted both the quality and the quantity of the used vehicle supply available to the
Company. Our ability to source vehicles could also be impacted by the closure of auctions and wholesalers as a
result of COVID-19 or other factors.
The Company has devoted significant efforts to improving its purchasing processes to ensure adequate
supply at appropriate prices, including expanding its purchasing territories to larger cities in close proximity to its
dealerships and increasing its efforts to purchase vehicles from individuals at the dealership level as well as via the
internet. The Company has also increased the level of accountability for its purchasing agents including the
establishment of sourcing and pricing guidelines. The Company has also recently begun to make some corporate
level purchases and form relationships with national vendors that can supply a large quantity of high-quality
vehicles. Even with these efforts, the Company expects gross margin percentages to remain under pressure over the
near term.
The Company believes that the amount of credit available for the sub-prime auto industry will remain
relatively consistent with levels in recent years, which management expects will contribute to continued strong
overall demand for most, if not all, of the vehicles the Company purchases for resale. Increased competition
resulting from availability of funding to the sub-prime auto industry has contributed to lower down payments and
longer terms, which have had a negative effect on collection percentages, liquidity and credit losses when compared
to historical periods. However, COVID-19 and the resulting economic changes substantially affected consumer
behavior during the Company’s fourth quarter and could have a long-term impact on the availability of credit and
consumer demand depending on the duration and severity of the pandemic and resulting economic disruption.
The Company’s liquidity is also impacted by our credit losses. Macro-economic factors such as
unemployment levels and general inflation, particularly within staple items such as groceries, can significantly
affect our collection results and ultimately credit losses. The long-term economic impact of the COVID-19
pandemic and the resulting effects on the Company’s collections and credit loss results remains uncertain. However,
30
past-due amounts as a percentage of receivables have increased as a result of COVID-19 and given the uncertainty
regarding how customers will pay and react in this new environment, the Company expects credit losses to increase
over the near-term. The Company has made improvements to its business processes within the last few years to
strengthen controls and provide stronger infrastructure to support its collections efforts. The Company continues to
strive to reduce credit losses in spite of the current economic challenges and continued competitive pressures by
improving deal structures. Management continues to focus on improved execution at the dealership level,
specifically as related to working individually with customers concerning collection issues.
The Company has generally leased the majority of the properties where its dealerships are located. As of
April 30, 2020, the Company leased approximately 87% of its dealership properties. The Company expects to
continue to lease the majority of the properties where its dealerships are located.
The Company’s revolving credit facilities generally restrict distributions by the Company to its
shareholders. The distribution limitations under the credit facilities allow the Company to repurchase shares of its
common stock so long as either: (a) the aggregate amount of repurchases after September 30, 2019 does not exceed
$50 million, net of proceeds received from the exercise of stock options , and the total availability under the credit
facilities is equal to or greater than 20% of the sum of the borrowing bases, in each case after giving effect to such
repurchases (repurchases under this item are excluded from fixed charges for covenant calculations), or (b) the
aggregate amount of such repurchases does not exceed 75% of the consolidated net income of the Company
measured on a trailing twelve month basis; provided that immediately before and after giving effect to the
Company’s stock repurchases, at least 12.5% of the aggregate funds committed under the credit facilities remains
available. Thus, although the Company currently does routinely repurchase stock, the Company is limited in its
ability to pay dividends or make other distributions to its shareholders without the consent of the Company’s
lenders.
At April 30, 2020, the Company had approximately $60 million of cash on hand and $23 million of
availability under its revolving credit facilities (see Note F to the Consolidated Financial Statements in Item 8). The
Company significantly increased its cash position during the fourth quarter of fiscal 2020 by reducing inventory
purchases and other expenses, drawing $30 million in additional funds under its revolving credit facilities and
delaying repayments under its credit facilities to preserve financial flexibility in light of the uncertainty due to the
COVID-19 pandemic. On a short-term basis, the Company’s principal sources of liquidity include income from
operations and borrowings under its revolving credit facilities. On a longer-term basis, the Company expects its
principal sources of liquidity to consist of income from operations and borrowings under revolving credit facilities
or fixed interest term loans. The Company’s revolving credit facilities mature in September 2022 and the Company
expects that it will be able to renew or refinance its revolving credit facilities on or before the date they mature.
Furthermore, while the Company has no specific plans to issue debt or equity securities, the Company believes, if
necessary, it could raise additional capital through the issuance of such securities.
The Company expects to use cash from operations and borrowings to (i) grow its finance receivables
portfolio, (ii) purchase property and equipment of approximately $6.5 million in the next 12 months in connection
with refurbishing existing dealerships and adding new dealerships, subject to strong operating results, (iii)
repurchase shares of common stock when favorable conditions exist and (iv) reduce debt to the extent excess cash
is available.
The Company believes it will have adequate liquidity to continue to grow its revenues and to satisfy its
capital needs for the foreseeable future.
31
Contractual Payment Obligations
The following is a summary of the Company’s contractual payment obligations as of April 30, 2020,
including renewal periods under operating leases that are reasonably assured (in thousands):
Revolving lines of credit
Notes payable
Finance lease
Operating leases
Interest on debt facilities
Total
$
$
Total
215,831
79
445
86,373
21,975
324,703
Payments Due by Period
Less Than
1 Year
-
79
445
6,831
6,433
13,788
1-3 Years
3-5 Years
More Than
5 Years
215,831
-
-
13,216
15,542
244,589
-
-
-
11,919
-
11,919
-
-
-
54,407
-
54,407
The table above includes estimated interest payments on the Company’s revolving lines of credit. We have
assumed $216 million remains outstanding under our revolving lines of credit until the maturity date of September
30, 2022, using the interest rate in effect on April 30, 2020, which was approximately 2.98%. The estimated interest
payments on notes payable have been calculated based on the amortization of the notes in accordance with the
respective agreements. The $86.4 million of operating lease commitments includes $26.2 million of non-cancelable
lease commitments under the lease terms, and $60.2 million of lease commitments for renewal periods at the
Company’s option that are reasonably assured.
Off-Balance Sheet Arrangements
The Company has a standby letter of credit relating to an insurance policy totaling $250,000 at April 30,
2020.
Other than its letter of credit, the Company is not a party to any off-balance sheet arrangement that
management believes is reasonably likely to have a current or future effect on the Company’s financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to
investors.
Related Finance Company Contingency
Car-Mart of Arkansas and Colonial do not meet the affiliation standard for filing consolidated income tax
returns, and as such they file separate federal and state income tax returns. Car-Mart of Arkansas routinely sells its
finance receivables to Colonial at what the Company believes to be fair market value and is able to take a tax
deduction at the time of sale for the difference between the tax basis of the receivables sold and the sales price.
These types of transactions, based upon facts and circumstances, have been permissible under the provisions of the
Internal Revenue Code as described in the Treasury Regulations. For financial accounting purposes, these
transactions are eliminated in consolidation and a deferred income tax liability has been recorded for this timing
difference. The sale of finance receivables from Car-Mart of Arkansas to Colonial provides certain legal protection
for the Company’s finance receivables and, principally because of certain state apportionment characteristics of
Colonial, also has the effect of reducing the Company’s overall effective state income tax rate by approximately
287 basis points. The actual interpretation of the Regulations is in part a facts and circumstances matter. The
Company believes it satisfies the material provisions of the Regulations. Failure to satisfy those provisions could
result in the loss of a tax deduction at the time the receivables are sold and have the effect of increasing the
Company’s overall effective income tax rate as well as the timing of required tax payments.
The Company’s policy is to recognize accrued interest related to unrecognized tax benefits in interest
expense and penalties in operating expenses. The Company had no accrued penalties or interest as of April 30,
2020.
32
Critical Accounting Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the
United States of America requires the Company to make estimates and assumptions in determining the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could
differ from the Company’s estimates. The Company believes the most significant estimate made in the preparation
of the Consolidated Financial Statements in Item 8 relates to the determination of its allowance for credit losses,
which is discussed below. The Company’s accounting policies are discussed in Note B to the Consolidated
Financial Statements in Item 8.
The Company maintains an allowance for credit losses on an aggregate basis at a level it considers sufficient
to cover estimated losses inherent in the portfolio at the balance sheet date in the collection of its finance receivables
currently outstanding. At April 30, 2020, the weighted average total contract term was 33.3 months with 24.5
months remaining. The reserve amount in the allowance for credit losses at April 30, 2020, $155.0 million, was
26.5% of the principal balance in finance receivables of $621.2 million, less unearned payment protection plan
revenue of $24.5 million and unearned service contract revenue of $11.6 million. In the first quarter of fiscal 2020,
the Company reduced its allowance for credit losses from 25.0% to 24.5% as a result of improvements in net
chargeoffs as a percentage of average receivables, the quality of the portfolio and the allowance analysis. Based on
the analysis discussed below and factoring in the uncertainty regarding how the COVID-19 pandemic will impact
collections and charge-offs going forward, management decided to increase the allowance for credit losses at April
30, 2020 to 26.5% from 24.5%. The net increase to the allowance for credit losses resulted in a $9.1 million ($7.0
million after tax effects, $1.02 per diluted share) charge to the provision for credit losses for fiscal year 2020.
The estimated reserve amount is the Company’s anticipated future net charge-offs for losses incurred
through the balance sheet date. The allowance takes into account historical credit loss experience (both timing and
severity of losses), with consideration given to recent credit loss trends and changes in contract characteristics (i.e.,
average amount financed, months outstanding at loss date, term and age of portfolio), delinquency levels, collateral
values, economic conditions and underwriting and collection practices. The allowance for credit losses is reviewed
at least quarterly by management with any changes reflected in current operations. The calculation of the allowance
for credit losses uses the following primary factors:
The number of units repossessed or charged-off as a percentage of total units financed over specific
historical periods of time from one year to five years.
The average net repossession and charge-off loss per unit during the last eighteen months, segregated
by the number of months since the contract origination date, and adjusted for the expected future
average net charge-off loss per unit. Approximately 50% of the charge-offs that will ultimately occur
in the portfolio are expected to occur within 10-11 months following the balance sheet date. The
average age of an account at charge-off date is 13 months.
The timing of repossession and charge-off losses relative to the date of sale (i.e., how long it takes for
a repossession or charge-off to occur) for repossessions and charge-offs occurring during the last
eighteen months.
A point estimate is produced by this analysis which is then supplemented by any positive or negative
subjective factors to arrive at an overall reserve amount that management considers to be a reasonable estimate of
losses inherent in the portfolio at the balance sheet date that will be realized via actual charge-offs in the future.
Although it is at least reasonably possible that the deterioration in economic conditions and high unemployment as
a result of COVID-19 could lead to additional losses in the portfolio or that other events or circumstances could
occur in the future that are not presently foreseen which could cause actual credit losses to be materially different
from the recorded allowance for credit losses, the Company believes that it has given appropriate consideration to
all relevant factors and has made reasonable assumptions in determining the allowance for credit losses. While
33
challenging economic conditions can negatively impact credit losses, the effectiveness of the execution of internal
policies and procedures within the collections area and the competitive environment on the funding side have
historically had a more significant effect on collection results than macro-economic issues. A 1% change, as a
percentage of Finance receivables, in the allowance for credit losses would equate to an approximate pre-tax change
of $5.9 million.
Recent Accounting Pronouncements
Occasionally, new accounting pronouncements are issued by the Financial Accounting Standards Board
(“FASB”) or other standard setting bodies which the Company will adopt as of the specified effective date. Unless
otherwise discussed, the Company believes the implementation of recently issued standards which are not yet
effective will not have a material impact on its consolidated financial statements upon adoption.
Adopted in Current Period
Leases. In February 2016, the FASB issued ASU 2016-02, Leases. The new guidance requires that lessees
recognize all leases, including operating leases, with a term greater than 12 months on-balance sheet and also
requires disclosure of key information about leasing transactions. The guidance in ASU 2016-02 is effective for
annual reporting periods beginning after December 15, 2018, and interim reporting periods within those years. The
Company adopted this ASU and related amendments for its fiscal year beginning May 1, 2019 and elected certain
practical expedients permitted under the transition guidance, including to retain the historical lease classification as
well as relief from reviewing expired or existing contracts to determine if they contain leases. The adoption of this
ASU and related amendments resulted in total assets and liabilities increasing $34.5 million at the time of adoption.
The Company’s Consolidated Statements of Income and Consolidated Statements of Cash Flows were not
materially impacted.
Effective in Future Periods
Credit Losses. In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic
326). ASU 2016-13 requires financial assets such as loans to be presented net of an allowance for credit losses that
reduces the cost basis to the amount expected to be collected over the estimated life. Expected credit losses will be
measured based on historical experience and current conditions, as well as forecasts of future conditions that affect
the collectability of the reported amount. ASU 2016-13 is effective for annual reporting periods beginning after
December 15, 2019, and interim reporting periods within those years using a modified retrospective approach. Our
allowance for loan loss calculation will be modified to comply with these new requirements and adopted for our
fiscal year beginning May 1, 2020. We do not expect a material impact to our financial statements as a result of this
adoption.
Cloud Computing Arrangement. In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill
and Other – Internal-Use Software (Subtopic 350-40). ASU 2018-15 aligns the requirements for capitalizing
implementation costs in a cloud computing arrangement with the requirements for capitalizing implementation costs
incurred to develop or obtain internal-use software. ASU 2018-15 is effective for annual reporting periods beginning
after December 15, 2019, and interim reporting periods within those years. The Company is currently evaluating
the potential effects of the adoption of this guidance on the consolidated financial statements but does not expect
such impact to be material.
Reference Rate Reform. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform. The
pronouncement provides optional guidance for a limited period of time to ease the potential burden of accounting
for reference rate reform. This guidance is effective for all entities as of March 12, 2020 through December 31,
2022. The Company expects to utilize this optional guidance but does not expect the impact to be material.
34
Impact of Inflation
Inflation has not historically been a significant factor impacting the Company’s results; however, recent
purchase price increases for vehicles, most pronounced over the last five fiscal years, have had a negative effect on
the Company’s gross margin percentages when compared to past years. This is due to the fact that the Company
focuses on keeping payments affordable for its customer base and at the same time ensuring that the term of the
contract matches the economic life of the vehicle.
Non-GAAP Financial Measure
The reconciliation between the Company’s debt to equity ratio and adjusted debt, net of cash, to equity ratio
for fiscal year ending April 30, 2020 is summarized in the table below.
April 30, 2020
Debt to Equity
Cash to Equity
Debt net of Cash to Equity
0.71
0.20
0.52
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to market risk on its financial instruments from changes in interest rates. In
particular, the Company has historically had exposure to changes in the federal primary credit rate and has exposure
to changes in the prime interest rate of its lender. The Company does not use financial instruments for trading
purposes but has in the past entered into an interest rate swap agreement to manage interest rate risk.
Interest rate risk. The Company’s exposure to changes in interest rates relates primarily to its debt
obligations. The Company is exposed to changes in interest rates as a result of its revolving credit facilities, and
the interest rates charged to the Company under its credit facilities fluctuate based on its primary lender’s base rate
of interest. The Company had total revolving debt of $215.8 million outstanding at April 30, 2020. The impact of
a 1% increase in interest rates on this amount of debt would result in increased annual interest expense of
approximately $2.1 million and a corresponding decrease in net income before income tax.
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. The Company’s
finance receivables carry a fixed interest rate of 15% or 16.5% per annum (19.5% to 21.5% in Illinois), based on
the Company’s contract interest rate as of the contract origination date, while its revolving credit facilities contain
variable interest rates that fluctuate with market interest rates.
35
Item 8. Financial Statements and Supplementary Data
The following financial statements and accountant’s report are included in Item 8 of this Annual Report on
Form 10-K:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of April 30, 2020 and 2019
Consolidated Statements of Operations for the years ended April 30, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended April 30, 2020, 2019 and 2018
Consolidated Statement of Equity for the years ended April 30, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
36
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
America’s Car-Mart, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of America’s Car-Mart, Inc. (a Texas corporation) and
subsidiaries (the “Company”) as of April 30, 2020 and 2019, the related consolidated statements of operations, equity,
and cash flows for each of the three years in the period ended April 30, 2020, and the related notes (collectively referred
to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the
financial position of the Company as of April 30, 2020 and 2019, and the results of its operations and its cash flows for
each of the three years in the period ended April 30, 2020, in conformity with accounting principles generally accepted
in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the Company’s internal control over financial reporting as of April 30, 2020, based on criteria established in the
2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”), and our report dated June 24, 2020 expressed an unqualified opinion.
Change in accounting principle
As discussed in Note B to the consolidated financial statements, the Company has changed its method of accounting for leases
in the year ended April 30, 2020 due to the adoption of FASB Accounting Standards Codification Topic 842, Leases.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether
due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2000.
Tulsa, Oklahoma
June 24, 2020
37
Consolidated Balance Sheets
America’s Car-Mart, Inc.
(Dollars in thousands)
Assets:
Cash and cash equivalents
Accrued interest on finance receivables
Finance receivables, net
Inventory
Prepaid expenses and other assets
Income taxes receivable, net
Right-of-use asset
Goodwill
Property and equipment, net
April 30, 2020
April 30, 2019
$
59,560
3,098
466,141
36,414
4,441
-
60,713
6,817
30,140
$
1,752
2,348
415,486
37,483
4,634
1,947
-
355
28,537
Total Assets
$
667,324
$
492,542
Liabilities, mezzanine equity and equity:
Liabilities:
Accounts payable
Income taxes payable, net
Deferred payment protection plan revenue
Deferred service contract revenue
Accrued liabilities
Deferred income tax liabilities, net
Lease liability
Debt facilities
Total liabilities
Commitments and contingencies (Note L)
Mezzanine equity:
Mandatorily redeemable preferred stock
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;
13,478,733 and 13,376,030 issued at April 30, 2020 and April 30, 2019,
respectively, of which 6,619,319 and 6,699,421 were outstanding at
April 30, 2020 and April 30, 2019, respectively
Additional paid-in capital
Retained earnings
Less: Treasury stock, at cost, 6,859,414 and 6,676,609
shares at April 30, 2020 and April 30, 2019, respectively
Total stockholders' equity
Non-controlling interest
Total equity
$
13,117
3,841
24,480
11,641
19,729
12,979
62,810
215,568
364,165
400
-
135
88,559
460,876
(246,911)
302,659
100
302,759
$
13,659
-
21,367
10,592
18,837
14,259
-
152,918
231,632
400
-
134
81,605
409,573
(230,902)
260,410
100
260,510
Total Liabilities, mezzanine equity and equity
$
667,324
$
492,542
The accompanying notes are an integral part of these consolidated financial statements.
38
Consolidated Statements of Operations
America’s Car-Mart, Inc.
(Dollars in thousands except per share amounts)
Revenues:
Sales
Interest and other income
Total revenues
Costs and expenses:
Cost of sales, excluding depreciation
Selling, general and administrative
Provision for credit losses
Interest expense
Depreciation and amortization
Loss (gain) on disposal of property and equipment
Total costs and expenses
Income before income taxes
Provision for income taxes
Net income
Less: Dividends on mandatorily redeemable
preferred stock
Net income attributable to common stockholders
Earnings per share:
Basic
Diluted
2020
Years Ended April 30,
2019
2018
$
652,992
91,619
744,611
388,475
117,762
162,246
8,052
3,839
(114)
680,260
64,351
13,008
$
586,508
82,614
669,122
343,898
107,249
146,363
7,883
3,969
(91)
609,271
59,851
12,226
537,528
74,673
612,201
315,273
99,023
149,059
5,599
4,250
91
573,295
38,906
2,397
51,343
$
47,625
$
36,509
40
51,303
7.74
7.39
$
$
$
40
47,585
6.99
6.73
$
$
$
40
36,469
5.04
4.90
$
$
$
$
$
Weighted average number of shares outstanding:
Basic
Diluted
6,630,023
6,945,652
6,810,879
7,071,768
7,232,014
7,441,358
The accompanying notes are an integral part of these consolidated financial statements.
39
Consolidated Statements of Cash Flows
America’s Car-Mart, Inc.
(In thousands)
Operating activities:
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for credit losses
Losses on claims for payment protection plan
Depreciation and amortization
Amortization of debt issuance costs
Loss (gain) on disposal of property and equipment
Stock-based compensation
Deferred income taxes
Change in operating assets and liabilities:
Finance receivable originations
Finance receivable collections
Accrued interest on finance receivables
Inventory
Prepaid expenses and other assets
Accounts payable and accrued liabilities
Deferred payment protection plan revenue
Deferred service contract revenue
Income taxes, net
Net cash provided by operating activities
Investing Activities:
Purchase of investments
Purchases of property and equipment
Proceeds from sale of property and equipment
Net cash used in investing activities
Financing Activities:
Exercise of stock options
Issuance of common stock
Purchase of common stock
Dividend payments
Debt issuance costs
Change in cash overdrafts
Principal payments on notes payable
Proceeds from revolving credit facilities
Payments on revolving credit facilities
Net cash provided by (used in) financing activities
Increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Years Ended April 30,
2020
2019
2018
$
51,343
$
47,625
$
36,509
162,246
17,966
3,839
273
(114)
4,732
(1,280)
(604,497)
322,180
(750)
53,827
193
1,009
3,113
1,049
5,788
20,917
(4,648)
(5,422)
184
(9,886)
1,533
190
(16,009)
(40)
(505)
(1,274)
(509)
442,490
(379,099)
46,777
57,808
1,752
146,363
17,020
3,969
251
(91)
3,703
1,701
(540,505)
293,739
(159)
47,641
113
2,226
1,544
259
(497)
24,902
-
(4,029)
142
(3,887)
5,117
147
(26,577)
(40)
(371)
768
(389)
450,554
(449,494)
(20,285)
730
1,022
149,059
16,748
4,250
260
91
1,603
(6,360)
(494,641)
260,104
(91)
38,793
(780)
4,712
1,351
721
(2,335)
9,994
-
(2,258)
554
(1,704)
1,641
115
(42,301)
(40)
(103)
(163)
(107)
433,818
(400,562)
(7,702)
588
434
Cash and cash equivalents, end of period
$
59,560
$
1,752
$
1,022
The accompanying notes are an integral part of these consolidated financial statements.
40
Consolidated Statements of Equity
America’s Car-Mart, Inc.
(Dollars in thousands)
For the Years Ended April 30, 2020, 2019 and 2018
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Retained
Earnings
Treasury
Stock
Non-
Controlling
Interest
Total
Equity
Balance at April 30, 2017
12,927,413
$
129
$
69,284
$
325,519
$ (162,024)
$
100
$
233,008
Issuance of common stock
Stock options exercised
Purchase of 979,040 treasury shares
Stock based compensation
Dividends on subsidiary preferred stock
Net income
3,096
216,634
-
-
-
-
-
2
-
-
-
-
115
1,639
-
1,603
-
-
-
-
-
-
(40)
36,509
-
-
(42,301)
-
-
-
-
-
-
-
-
-
115
1,641
(42,301)
1,603
(40)
36,509
Balance at April 30, 2018
13,147,143
$
131
$
72,641
$
361,988
$ (204,325)
$
100
$
230,535
Issuance of common stock
Stock options exercised
Purchase of 378,627 treasury shares
Stock based compensation
Dividends on subsidiary preferred stock
Net income
2,267
226,620
-
-
-
-
-
3
-
-
-
-
147
5,114
-
3,703
-
-
-
-
-
-
(40)
47,625
-
-
(26,577)
-
-
-
-
-
-
-
-
-
147
5,117
(26,577)
3,703
(40)
47,625
Balance at April 30, 2019
13,376,030
$
134
$
81,605
$
409,573
$ (230,902)
$
100
$
260,510
Issuance of common stock
Stock options exercised
Purchase of 182,805 treasury shares
Stock based compensation
Issuance of restricted stock
Dividends on subsidiary preferred stock
Net income
9,760
92,943
-
-
-
-
-
1
-
-
-
-
190
1,532
-
4,732
500
-
-
-
-
-
-
(40)
51,343
-
-
(16,009)
-
-
-
-
-
-
-
-
-
190
1,533
(16,009)
4,732
500
(40)
51,343
Balance at April 30, 2020
13,478,733
$
135
$
88,559
$
460,876
$ (246,911)
$
100
$
302,759
The accompanying notes are an integral part of these consolidated financial statements.
41
Notes to Consolidated Financial Statements
America’s Car-Mart, Inc.
A - Organization and Business
America’s Car-Mart, Inc., a Texas corporation (the “Company”), is one of the largest publicly held
automotive retailers in the United States focused exclusively on the “Integrated Auto Sales and Finance” segment
of the used car market. References to the Company typically include the Company’s consolidated subsidiaries.
The Company’s operations are conducted principally through its two operating subsidiaries, America’s Car Mart,
Inc., an Arkansas corporation (“Car-Mart of Arkansas”), and Colonial Auto Finance, Inc., an Arkansas corporation
(“Colonial”). Collectively, Car-Mart of Arkansas and Colonial are referred to herein as “Car-Mart”. The Company
primarily sells older model used vehicles and provides financing for substantially all of its customers. Many of the
Company’s customers have limited financial resources and would not qualify for conventional financing as a result
of limited credit histories or past credit problems. As of April 30, 2020, the Company operated 148 dealerships
located primarily in small cities throughout the South-Central United States.
B - Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of America’s Car-Mart, Inc. and its subsidiaries.
All intercompany accounts and transactions have been eliminated.
Segment Information
Each dealership is an operating segment with its results regularly reviewed by the Company’s chief
operating decision maker in an effort to make decisions about resources to be allocated to the segment and to assess
its performance. Individual dealerships meet the aggregation criteria for reporting purposes under the current
accounting guidance. In the Integrated Auto Sales and Finance industry, the nature of the sale and the financing of
the transaction, financing processes, the type of customer and the methods used to distribute the Company’s
products and services, including the actual servicing of the contracts as well as the regulatory environment in which
the Company operates all have similar characteristics. Each of our individual dealerships is similar in nature and
only engages in the selling and financing of used vehicles. All individual dealerships have similar operating
characteristics. As such, individual dealerships have been aggregated into one reportable segment.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect the reported amount
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.
Significant estimates include, but are not limited to, the Company’s allowance for credit losses.
Concentration of Risk
The Company provides financing in connection with the sale of substantially all of its vehicles. These sales
are made primarily to customers residing in Alabama, Arkansas, Georgia, Illinois, Kentucky, Mississippi, Missouri,
Oklahoma, Tennessee, and Texas, with approximately 29% of revenues resulting from sales to Arkansas customers.
As of April 30, 2020, and periodically throughout the year, the Company maintained cash in financial
institutions in excess of the amounts insured by the federal government. The cash is held in several highly rated
banking institutions. We regularly monitor our counterparty credit risk and mitigate exposure by limiting the amount
we invest in one institution. The Company’s revolving credit facilities mature in September 2022. The Company
expects that these credit facilities will be renewed or refinanced on or before the scheduled maturity dates.
42
Restrictions on Distributions/Dividends
The Company’s revolving credit facilities generally restrict distributions by the Company to its
shareholders. The distribution limitations under the credit facilities allow the Company to repurchase the
Company’s stock so long as either: (a) the aggregate amount of such repurchases after September 30, 2019 does
not exceed $50 million, net of proceeds received from the exercise of stock options, and the total availability under
the credit facilities is equal to or greater than 20% of the sum of the borrowing bases, in each case after giving effect
to such repurchases (repurchases under this item are excluded from fixed charges for covenant calculations), or (b)
the aggregate amount of such repurchases does not exceed 75% of the consolidated net income of the Company
measured on a trailing twelve month basis; provided that immediately before and after giving effect to the stock
repurchases, at least 12.5% of the aggregate funds committed under the credit facilities remain available. Thus, the
Company is limited in its ability to pay dividends or make other distributions to its shareholders without the consent
of the Company’s lenders.
Cash Equivalents
The Company considers all highly liquid instruments purchased with original maturities of three months or
less to be cash equivalents.
Finance Receivables, Repossessions and Charge-offs and Allowance for Credit Losses
The Company originates installment sale contracts from the sale of used vehicles at its dealerships. These
installment sale contracts carry an average interest rate of approximately 16.4% using the simple effective interest
method including any deferred fees. Contract origination costs are not significant. The installment sale contracts
are not pre-computed contracts whereby borrowers are obligated to pay back principal plus the full amount of
interest that will accrue over the entire term of the contract. Finance receivables are collateralized by vehicles sold
and consist of contractually scheduled payments from installment contracts net of unearned finance charges and an
allowance for credit losses. Unearned finance charges represent the balance of interest receivable to be earned over
the entire term of the related installment contract, less the earned amount ($3.1 million at April 30, 2020 and $2.3
million at April 30, 2019), and as such, have been reflected as a reduction to the gross contract amount in arriving
at the principal balance in finance receivables. An account is considered delinquent when the customer is one day
or more behind on their contractual payments. While the Company does not formally place contracts on nonaccrual
status, the immaterial amount of interest that may accrue after an account becomes delinquent up until the point of
resolution via repossession or write-off, is reserved for against the accrued interest on the Consolidated Balance
Sheets. Delinquent contracts are addressed and either made current by the customer, which is the case in most
situations, or the vehicle is repossessed or written off if the collateral cannot be recovered quickly. Customer
payments are set to match their payday with approximately 76% of payments due on either a weekly or bi-weekly
basis. The frequency of the payment due dates combined with the declining value of collateral lead to prompt
resolutions on problem accounts. At April 30, 2020, 6.2% of the Company’s finance receivables balances were 30
days or more past due compared to 2.9% at April 30, 2019.
Substantially all of the Company’s automobile contracts involve contracts made to individuals with
impaired or limited credit histories, or higher debt-to-income ratios than permitted by traditional lenders. Contracts
made with buyers who are restricted in their ability to obtain financing from traditional lenders generally entail a
higher risk of delinquency, default and repossession, and higher losses than contracts made with buyers with better
credit. At the time of originating a finance agreement, the Company requires customers to meet certain criteria that
demonstrate their intent and ability to pay for the financed principle and interest on the vehicle they are purchasing.
However, the Company recognizes that their customer base is at a higher risk of default given their impaired or
limited credit histories.
The Company strives to keep its delinquency percentages low, and not to repossess vehicles. Accounts
three days late are contacted by telephone. Notes from each telephone contact are electronically maintained in the
Company’s computer system. The Company also utilizes text messaging notifications which allows customers to
elect to receive reminders on their due dates and late notifications, if applicable. The Company attempts to resolve
43
payment delinquencies amicably prior to repossessing a vehicle. If a customer becomes severely delinquent in his
or her payments, and management determines that timely collection of future payments is not probable, the
Company will take steps to repossess the vehicle.
Periodically, the Company enters into contract modifications with its customers to extend or modify the
payment terms. The Company only enters into a contract modification or extension if it believes such action will
increase the amount of monies the Company will ultimately realize on the customer’s account and will increase the
likelihood of the customer being able to pay off the vehicle contract. At the time of modification, the Company
expects to collect amounts due including accrued interest at the contractual interest rate for the period of delay. No
other concessions are granted to customers, beyond the extension of additional time, at the time of modifications.
Modifications are minor and are made for payday changes, minor vehicle repairs and other reasons. For those
vehicles that are repossessed, the majority are returned or surrendered by the customer on a voluntary basis. Other
repossessions are performed by Company personnel or third-party repossession agents. Depending on the condition
of a repossessed vehicle, it is either resold on a retail basis through a Company dealership or sold for cash on a
wholesale basis primarily through physical or online auctions.
The Company takes steps to repossess a vehicle when the customer becomes delinquent in his or her
payments and management determines that timely collection of future payments is not probable. Accounts are
charged-off after the expiration of a statutory notice period for repossessed accounts, or when management
determines that the timely collection of future payments is not probable for accounts where the Company has been
unable to repossess the vehicle. For accounts with respect to which the vehicle was repossessed, the fair value of
the repossessed vehicle is charged as a reduction of the gross finance receivables balance charged-off. On average,
accounts are approximately 60 days past due at the time of charge-off. For previously charged-off accounts that
are subsequently recovered, the amount of such recovery is credited to the allowance for credit losses.
The Company maintains an allowance for credit losses on an aggregate basis, as opposed to a contract-by-
contract basis, at an amount it considers sufficient to cover estimated losses inherent in the portfolio at the balance
sheet date in the collection of its finance receivables currently outstanding. The Company accrues an estimated loss
for the amount it believes will not be collected. The amount of the loss can be reasonably estimated in the aggregate.
The allowance for credit losses is based primarily upon historical credit loss experience, with consideration given
to recent credit loss trends and changes in contract characteristics (i.e., average amount financed and term),
delinquency levels, collateral values, economic conditions and underwriting and collection practices. The
allowance for credit losses is periodically reviewed by management with any changes reflected in current
operations. Although it is at least reasonably possible that the deterioration in economic conditions and high
unemployment as a result of COVID-19 could lead to additional losses in the portfolio or that other events or
circumstances could occur in the future that are not presently foreseen which could cause actual credit losses to be
materially different from the recorded allowance for credit losses, the Company believes that it has given
appropriate consideration to all relevant factors and has made reasonable assumptions in determining the allowance
for credit losses. The calculation of the allowance for credit losses uses the following primary factors:
The number of units repossessed or charged-off as a percentage of total units financed over specific
historical periods of time from one year to five years.
The average net repossession and charge-off loss per unit during the last eighteen months, segregated
by the number of months since the contract origination date, and adjusted for the expected future
average net charge-off loss per unit. Approximately 50% of the charge-offs that will ultimately occur
in the portfolio are expected to occur within 10-11 months following the balance sheet date. The
average age of an account at charge-off date is 13 months.
The timing of repossession and charge-off losses relative to the date of sale (i.e., how long it takes for
a repossession or charge-off to occur) for repossessions and charge-offs occurring during the last
eighteen months.
44
A point estimate is produced by this analysis which is then supplemented by a review of static pools coupled
with any positive or negative subjective factors to arrive at an overall reserve amount that management considers
to be a reasonable estimate of losses inherent in the portfolio at the balance sheet date that will be realized via actual
charge-offs in the future. While challenging economic conditions can negatively impact credit losses, the
effectiveness of the execution of internal policies and procedures within the collections area and the competitive
environment on the lending side have historically had a more significant effect on collection results than macro-
economic issues.
In the first quarter of fiscal 2020, the Company reduced its allowance for credit losses from 25.0% to 24.5%
as a result of improvements in net chargeoffs as a percentage of average receivables, the quality of the portfolio and
the allowance analysis. However, in the fourth quarter of fiscal 2020, COVID-19 impacted our customers, resulting
in an increased past-due amount as a percentage of receivables (to 6.2% from 2.9%). As a result, the Company
increased the allowance for credit losses from 24.5% to 26.5%. The net increase resulted in a $9.1 million pre-tax
charge to the provision for credit losses ($7.0 million after tax effects, $1.02 per diluted share). The full impact of
COVID-19 is uncertain at this point.
In most states, the Company offers retail customers who finance their vehicle the option of purchasing a
payment protection plan product as an add-on to the installment sale contract. This product contractually obligates
the Company to cancel the remaining principal outstanding for any contract where the retail customer has totaled
the vehicle, as defined by the product, or the vehicle has been stolen. The Company periodically evaluates
anticipated losses to ensure that if anticipated losses exceed deferred payment protection plan revenues, an
additional liability is recorded for such difference. No such liability was required at April 30, 2020 or 2019.
Inventory
Inventory consists of used vehicles and is valued at the lower of cost or net realizable value on a specific
identification basis. Vehicle reconditioning costs are capitalized as a component of inventory. Repossessed
vehicles and trade-in vehicles are recorded at fair value, which approximates wholesale value. The cost of used
vehicles sold is determined using the specific identification method.
Goodwill
Goodwill reflects the excess of purchase price over the fair value of specifically identified net assets
purchased. Goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to
qualitative annual impairment tests at the Company’s year-end. The impairment tests are based on the comparison
of the fair value of the reporting unit to the carrying value of such unit. The implied goodwill is compared to the
carrying value of the goodwill to determine the impairment, if any. There was no impairment of goodwill during
fiscal 2020 or fiscal 2019.
Property and Equipment
Property and equipment are stated at cost. Expenditures for additions, remodels and improvements are
capitalized. Costs of repairs and maintenance are expensed as incurred. Leasehold improvements are amortized
over the shorter of the estimated life of the improvement or the lease period. The lease period includes the primary
lease term plus any extensions that are reasonably assured. Depreciation is computed principally using the straight-
line method generally over the following estimated useful lives:
Furniture, fixtures and equipment
Leasehold improvements
Buildings and improvements
3 to 7 years
5 to 15 years
18 to 39 years
Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate
the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated
45
by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying values of the impaired assets exceed the fair value of such assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
Cash Overdraft
As checks are presented for payment from the Company’s primary disbursement bank account, monies are
automatically drawn against cash collections for the day and, if necessary, are drawn against one of its revolving
credit facilities. Any cash overdraft balance principally represents outstanding checks, net of any deposits in transit
that as of the balance sheet date had not yet been presented for payment. Any cash overdraft balance is reflected in
accrued liabilities on the Company’s Consolidated Balance Sheets.
Deferred Sales Tax
Deferred sales tax represents a sales tax liability of the Company for vehicles sold on an installment basis
in the states of Alabama and Texas. Under Alabama and Texas law, for vehicles sold on an installment basis, the
related sales tax is due as the payments are collected from the customer, rather than at the time of sale. Deferred
sales tax liabilities are reflected in accrued liabilities on the Company’s Consolidated Balance Sheets.
Income Taxes
Income taxes are accounted for under the liability method. Under this method, deferred income 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 expected to apply in the years in which these differences are expected
to be recovered or settled.
On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (the "Tax Act"). The
Tax Act includes significant changes to the U.S. tax code that affected our fiscal year ending April 30, 2018, and
future periods. Changes in the tax laws from the Tax Act had a material impact on our financial statements in fiscal
2018. Under generally accepted accounting principles (U.S. GAAP) specifically ASC Topic 740, Income Taxes,
the tax effects of changes in tax laws must be recognized in the period in which the law is enacted, or December
22, 2017, for the Tax Act. ASC 740 also requires deferred tax assets and liabilities to be measured at the enacted
tax rate expected to apply when temporary differences are to be realized or settled. Thus, at the date of enactment,
the Company’s deferred taxes were re-measured based upon the new tax rates. The change in deferred taxes is
recorded as an adjustment to our deferred tax provision. The Tax Act reduced the corporate tax rate from 35% to
21%, effective January 1, 2018. This results in a blended federal corporate tax rate of approximately 30.4% in fiscal
year 2018 and 21% thereafter. In the third quarter of fiscal 2018, we recorded a discrete net deferred income tax
benefit of $8.1 million with a corresponding provisional reduction to our net deferred income tax liability.
Occasionally, the Company is audited by taxing authorities. These audits could result in proposed
assessments of additional taxes. The Company believes that its tax positions comply in all material respects with
applicable tax law; however, tax law is subject to interpretation, and interpretations by taxing authorities could be
different from those of the Company, which could result in the imposition of additional taxes.
The Company recognizes the financial statement benefit of a tax position only after determining that the
relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting
the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has
a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The
Company applies this methodology to all tax positions for which the statute of limitations remains open.
The Company is subject to income taxes in the U.S. federal jurisdiction and various state jurisdictions. Tax
regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and
require significant judgment to apply. With few exceptions, the Company is no longer subject to U.S. federal, state
and local income tax examinations by tax authorities for the fiscal years before 2017.
46
The Company’s policy is to recognize accrued interest related to unrecognized tax benefits in interest
expense and penalties in operating expenses. The Company had no accrued penalties or interest as of April 30, 2020
and 2019, respectively.
Revenue Recognition
Revenues are generated principally from the sale of used vehicles, which in most cases includes a service
contract and a payment protection plan product, as well as interest income and late fees earned on finance
receivables. Revenues are net of taxes collected from customers and remitted to government agencies. Cost of
vehicle sales include costs incurred by the Company to prepare the vehicle for sale including license and title costs,
gasoline, transport services and repairs.
The Company’s performance obligations are clearly identifiable, and the transaction price is explicitly
stated on the customers’ contracts. The Company collects payments in accordance with the terms of the customers’
accounts, ranging between 18 to 48 months. Revenues from the sale of used vehicles are recognized when the sales
contract is signed, the customer has taken possession of the vehicle and, if applicable, financing has been approved.
Revenues from the sale of vehicles sold at wholesale are recognized at the time the proceeds are received. Revenues
from the sale of service contracts are recognized ratably over the expected duration of the product. Service contract
revenues are included in sales and the related expenses are included in cost of sales. Payment protection plan
revenues are initially deferred and then recognized to income using the “Rule of 78’s” interest method over the life
of the contract so that revenues are recognized in proportion to the amount of cancellation protection
provided. Payment protection plan revenues are included in sales and related losses are included in cost of sales as
incurred. Interest income is recognized on all active finance receivables accounts using the simple effective interest
method. Active accounts include all accounts except those that have been paid-off or charged-off.
Sales consist of the following for the years ended April 30, 2020, 2019 and 2018:
(In thousands)
Sales – used autos
Wholesales – third party
Service contract sales
Payment protection plan revenue
Total
2020
Years Ended April 30,
2019
2018
$
$
$
567,816
28,966
31,480
24,730
506,184
27,376
30,243
22,705
652,992
$
586,508
$
$
462,956
25,638
28,482
20,452
537,528
At April 30, 2020 and 2019, finance receivables more than 90 days past due were approximately $3.1
million and $1.2 million, respectively. Late fee revenues totaled approximately $2.3 million, $1.9 million and $1.9
million for the fiscal years ended 2020, 2019 and 2018, respectively. Late fee revenue is recognized when collected
and is reflected within Interest and other income on the Consolidated Statements of Operations.
During the years ended April 30, 2020 and 2019, the Company recognized $9.4 million and $9.1 million of
revenues that were included in deferred service contract revenues for the years ended April 30, 2019 and 2018,
respectively.
Advertising Costs
Advertising costs are expensed as incurred and consist principally of radio, print media and digital
marketing costs. Advertising costs amounted to $3.1 million, $3.1 million and $3.8 million for the years ended
April 30, 2020, 2019 and 2018, respectively.
47
Employee Benefit Plans
The Company has 401(k) plans for all of its employees meeting certain eligibility requirements. The plans
provide for voluntary employee contributions and the Company matches 50% of employee contributions up to a
maximum of 6% of each employee’s compensation. The Company contributed approximately $769,000, $523,000,
and $465,000 to the plans for the years ended April 30, 2020, 2019 and 2018, respectively.
The Company offers employees the right to purchase common shares at a 15% discount from market price
under the 2006 Employee Stock Purchase Plan which was approved by shareholders in October 2006. The Company
takes a charge to earnings for the 15% discount, included in stock-based compensation. Amounts for fiscal years
2020, 2019 and 2018 were not material individually or in the aggregate. A total of 200,000 shares were registered
and 139,763 remain available for issuance under this plan at April 30, 2020.
Earnings per Share
Basic earnings per share are computed by dividing net income attributable to common stockholders by the
average number of common shares outstanding during the period. Diluted earnings per share are computed by
dividing net income attributable to common stockholders by the average number of common shares outstanding
during the period plus dilutive common stock equivalents. The calculation of diluted earnings per share takes into
consideration the potentially dilutive effect of common stock equivalents, such as outstanding stock options and
non-vested restricted stock, which if exercised or converted into common stock would then share in the earnings of
the Company. In computing diluted earnings per share, the Company utilizes the treasury stock method and anti-
dilutive securities are excluded.
Stock-Based Compensation
The Company recognizes the cost of employee services received in exchange for awards of equity
instruments, such as stock options and restricted stock, based on the fair value of those awards at the date of grant
over the requisite service period. The Company uses the Black-Scholes option pricing model to determine the fair
value of stock option awards. The Company may issue either new shares or treasury shares upon exercise of these
awards. Stock-based compensation plans, related expenses, and assumptions used in the Black-Scholes option
pricing model are more fully described in Note K. If an award contains a performance condition, expense is
recognized only for those shares for which it is considered reasonably probable as of the current period end that the
performance condition will be met. In March 2016, the FASB issued ASU 2016-09, Improvements to Employee
Share-Based Payment Accounting, to simplify the accounting for share-based payment transactions. The Company
adopted the guidance prospectively on May 1, 2017. The Company recognized a $1.7 million tax benefit during
fiscal 2018. In connection with the adoption, we elected to account for forfeitures as they occur; previously, we
were required to record stock compensation expense based on awards that were expected to vest, which had required
us to apply an estimated forfeiture rate. The differential between the amount of compensation previously recorded
and the amount that would have been recorded, if we did not assume a forfeiture rate, was not material to our
consolidated financial statements. Also, in connection with the adoption, the Company now records any excess tax
benefits or deficiencies from its equity awards in its Consolidated Statements of Operations in the reporting period
in which the exercise occurs. As a result, going forward, the Company’s income tax expenses and associated
effective tax rate will be impacted by fluctuations in stock price between the grant dates and exercise dates of equity
awards.
Treasury Stock
The Company purchased 182,805, 378,627, and 979,040 shares of its common stock to be held as treasury
stock for a total cost of $16.0 million, $26.6 million and $42.3 million during the years ended April 30, 2020, 2019
and 2018, respectively. Treasury stock may be used for issuances under the Company’s stock-based compensation
plans or for other general corporate purposes. The Company has a reserve account of 10,000 shares of treasury
stock to secure outstanding service contracts issued in Iowa in accordance with the regulatory requirements of that
state and another reserve account of 14,000 shares of treasury stock for its subsidiary, ACM Insurance Company,
in accordance with the requirements of the Arkansas Department of Insurance.
48
Facility Leases
The Company’s leases primarily consist of operating leases related to retail stores, office space, and land.
For more information on financing obligations, see Note F.
The initial term for real property leases is typically 3 to 10 years. Most leases include one or more options
to renew, with renewal terms that can extend the lease term from 3 to 10 years or more. The Company includes
options to renew (or terminate) in the lease term, and as part of the right-of-use (“ROU”) asset and lease liability,
when it is reasonably certain that the options will be exercised. The weighted average remaining lease term as of
April 30, 2020 was 15.0 years.
The ROU asset and the related lease liability are initially measured at the present value of future lease
payments over the lease term. As most leases do not provide an implicit interest rate, the Company obtains a quote
for a collateralized debt obligation from the group of lenders each quarter to determine the present value of future
payments of leases commenced for that quarter. The weighted average discount rate as of April 30, 2020 was 4.35%.
The Company includes variable lease payments in the initial measurement of ROU assets and lease
liabilities only to the extent they depend on an index or rate. Changes in such indices or rates are accounted for in
the period the change occurs, and do not result in the remeasurement of the ROU asset or liability. The Company
is also responsible for payment of certain real estate taxes, insurance, and other expenses on leases. These amounts
are generally considered to be variable and are not included in the measurement of the ROU asset and lease liability.
Non-lease components are generally accounted for separately from lease components. The Company’s leases do
not contain any material residual value guarantees or material restricted covenants.
Recent Accounting Pronouncements
Occasionally, new accounting pronouncements are issued by the Financial Accounting Standards Board
(“FASB”) or other standard setting bodies which the Company will adopt as of the specified effective date. Unless
otherwise discussed, the Company believes the implementation of recently issued standards which are not yet
effective will not have a material impact on its consolidated financial statements upon adoption.
Adopted in Current Period
Leases. In February 2016, the FASB issued ASU 2016-02, Leases. The new guidance requires that lessees
recognize all leases, including operating leases, with a term greater than 12 months on-balance sheet and also
requires disclosure of key information about leasing transactions. The guidance in ASU 2016-02 is effective for
annual reporting periods beginning after December 15, 2018, and interim reporting periods within those years. The
Company adopted this ASU and related amendments for its fiscal year beginning May 1, 2019 and elected certain
practical expedients permitted under the transition guidance, including to retain the historical lease classification as
well as relief from reviewing expired or existing contracts to determine if they contain leases. The adoption of this
ASU and related amendments resulted in total assets and liabilities increasing $34.5 million at the time of adoption.
The Company’s Consolidated Statements of Income and Consolidated Statements of Cash Flows were not
materially impacted.
Effective in Future Periods
Credit Losses. In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses
(Topic 326). ASU 2016-13 requires financial assets such as loans to be presented net of an allowance for credit
losses that reduces the cost basis to the amount expected to be collected over the estimated life. Expected credit
losses will be measured based on historical experience and current conditions, as well as forecasts of future
49
conditions that affect the collectability of the reported amount. ASU 2016-13 is effective for annual reporting
periods beginning after December 15, 2019, and interim reporting periods within those years using a modified
retrospective approach. Our allowance for loan loss calculation will be modified to comply with these new
requirements and adopted for our fiscal year beginning May 1, 2020. We do not expect a material impact to our
financial statements as a result of this adoption.
Cloud Computing Arrangement. In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill
and Other – Internal-Use Software (Subtopic 350-40). ASU 2018-15 aligns the requirements for capitalizing
implementation costs in a cloud computing arrangement with the requirements for capitalizing implementation costs
incurred to develop or obtain internal-use software. ASU 2018-15 is effective for annual reporting periods beginning
after December 15, 2019, and interim reporting periods within those years. The Company is currently evaluating
the potential effects of the adoption of this guidance on the consolidated financial statements but does not expect
such impact to be material.
Reference Rate Reform. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform. The
pronouncement provides optional guidance for a limited period of time to ease the potential burden of accounting
for reference rate reform. This guidance is effective for all entities as of March 12, 2020 through December 31,
2022. The Company expects to utilize this optional guidance but does not expect the impact to be material.
C - Finance Receivables, Net
The Company originates installment sale contracts from the sale of used vehicles at its dealerships. These
installment sale contracts, which carry a fixed interest rate of 15% or 16.5% per annum (19.5% to 21.5% in Illinois),
are collateralized by the vehicle sold and typically provide for payments over periods ranging from 18 to 48 months.
The Company’s finance receivables are defined as one segment and one class of loans, which is sub-prime consumer
automobile contracts. The level of risks inherent in our financing receivables is managed as one homogeneous
pool. The components of finance receivables as of April 30, 2020 and 2019 are as follows:
(In thousands)
April 30, 2020
April 30, 2019
Gross contract amount
Less unearned finance charges
Principal balance
Less allowance for credit losses
$
728,841
(107,659)
621,182
(155,041)
$
631,681
(88,353)
543,328
(127,842)
Finance receivables, net
$
466,141
$
415,486
Changes in the finance receivables, net for the years ended April 30, 2020, 2019 and 2018 are as follows:
(In thousands)
Balance at beginning of period
Finance receivable originations
Finance receivable collections
Provision for credit losses
Losses on claims for payment protection plan
Inventory acquired in repossession and payment protection plan claims
$
2020
415,486
604,497
(322,180)
(162,246)
(17,966)
(51,450)
Years Ended April 30,
2019
$
383,617
540,505
(293,739)
(146,363)
(17,020)
(51,514)
$
2018
357,161
494,641
(260,104)
(149,059)
(16,748)
(42,274)
Balance at end of period
$
466,141
$
415,486
$
383,617
50
Changes in the finance receivables allowance for credit losses for the years ended April 30, 2020, 2019 and
2018 are as follows:
(In thousands)
Balance at beginning of period
Provision for credit losses
Charge-offs, net of recovered collateral
2020
Years Ended April 30,
2019
2018
$
127,842
162,246
(135,047)
$
117,821
146,363
(136,342)
$
109,693
149,059
(140,931)
Balance at end of period
$
155,041
$
127,842
$
117,821
The factors which influenced management’s judgment in determining the amount of the additions to the
allowance charged to provision for credit losses are described below.
The level of actual charge-offs, net of recovered collateral, is the most important factor in determining the
charges to the provision for credit losses. This is due to the fact that once a contract becomes delinquent the account
is either made current by the customer, the vehicle is repossessed, or the account is written off if the collateral
cannot be recovered. Net charge-offs as a percentage of average finance receivables was 23.1% for fiscal 2020 as
compared to 25.7% for fiscal 2019. The decrease in net charge-offs for fiscal 2020 primarily resulted from a lower
frequency of losses combined with a lower severity of losses, primarily due to improvements in the collections
processes and higher recovery rates on repossessions. However, as a result of COVID-19 restrictions and for the
health and safety of our associates and customers, we suspended repossession efforts for a period of time beginning
in the fourth quarter, which also decreased the percentage of net charge-offs in fiscal 2020.
Collections and delinquency levels can have a significant effect on additions to the allowance and are
reviewed frequently. Collections as a percentage of average finance receivables were 55.1% for the year ended
April 30, 2020 compared to 55.3% for the year ended April 30, 2019. Delinquencies greater than 30 days increased
to 6.2% at April 30, 2020 compared to 2.9% at April 30, 2019. Many of our customers were impacted by the
pandemic resulting in increased past due amounts. Although delinquency levels have improved since year end, there
is still uncertainty regarding the impact of COVID-19 on the economy and unemployment, which could affect our
collections and past due receivables going forward.
Macro-economic factors, and more importantly, proper execution of operational policies and procedures
have a significant effect on additions to the allowance charged to the provision. Higher unemployment levels,
higher gasoline prices and higher prices for staple items can potentially have a significant effect. As a result, the
Company increased the allowance for credit losses from 25.0% to 26.5% in fiscal 2020.
51
Credit quality information for finance receivables is as follows:
(Dollars in thousands)
April 30, 2020
April 30, 2019
Current
3 - 29 days past due
30 - 60 days past due
61 - 90 days past due
> 90 days past due
Total
Principal
Balance
515,390
67,259
25,311
10,140
3,082
621,182
$
$
Percent of
Portfolio
82.97%
10.83%
4.07%
1.63%
0.50%
100.00%
Principal
Balance
$
$
435,603
91,747
11,362
3,429
1,187
543,328
Percent of
Portfolio
80.17%
16.89%
2.09%
0.63%
0.22%
100.00%
Accounts one and two days past due are considered current for this analysis, due to the varying payment
dates and variation in the day of the week at each period end. Delinquencies may vary from period to period based
on the average age of the portfolio, seasonality within the calendar year, the day of the week and overall economic
factors. The above categories are consistent with internal operational measures used by the Company to monitor
credit results.
Substantially all of the Company’s automobile contracts involve contracts made to individuals with
impaired or limited credit histories, or higher debt-to-income ratios than permitted by traditional lenders. Contracts
made with buyers who are restricted in their ability to obtain financing from traditional lenders generally entail a
higher risk of delinquency, default and repossession, and higher losses than contracts made with buyers with better
credit. The Company monitors contract term length, down payment percentages, and collections for credit quality
indicators.
Principal collected as a percent of average finance receivables
Average down-payment percentage
Twelve Months Ended
April 30,
2020
55.1%
6.4%
2019
55.3%
6.5%
Average originating contract term (in months )
Portfolio weighted average contract term, including modifications (in months )
30.7
33.3
29.5
32.1
April 30, 2020
April 30, 2019
D - Property and Equipment
A summary of property and equipment is as follows:
(In thousands)
April 30, 2020
April 30, 2019
Land
Buildings and improvements
Furniture, fixtures and equipment
Leasehold improvements
Construction in progress
Accumulated depreciation and amortization
$
7,799
12,678
14,118
27,519
3,186
(35,160)
$
7,413
11,815
13,307
26,064
1,523
(31,585)
Property and equipment, net
$
30,140
$
28,537
52
E - Accrued Liabilities
A summary of accrued liabilities is as follows:
(In thousands)
April 30, 2020
April 30, 2019
Employee compensation
Cash overdrafts (see Note B)
Deferred sales tax (see Note B)
Reserve for PPP claims
Health insurance
Fair value of contingent consideration
Other
$
8,199
-
2,974
2,926
1,187
2,713
1,730
$
6,321
1,274
3,571
2,433
-
-
5,238
Accrued liabilities
$
19,729
$
18,837
F – Debt Facilities
A summary of debt facilities is as follows:
(In thousands)
2020
2019
Revolving lines of credit
Notes payable
Finance lease
Debt issuance costs
Debt facilities
$
$
$
215,831
79
445
(787)
215,568
$
152,440
194
839
(555)
152,918
On September 30, 2019, the Company and its subsidiaries, Colonial, Car-Mart of Arkansas (“ACM”) and
Texas Car-Mart, Inc. (“TCM”) entered into a Third Amended and Restated Loan and Security Agreement (the
“Agreement”), which amended and restated the Company’s revolving credit facilities. Under the Agreement, BMO
Harris Bank, N.A. replaced Bank of America, N.A. as agent, lead arranger and book manager, and Wells Fargo
Bank, N.A. joined the group of lenders. The Agreement also extended the term of the Company’s revolving credit
facilities to September 30, 2022 and increased the total permitted borrowings from $215 million to $241 million,
including an increase in the Colonial revolving line of credit from $205 million to $231 million. The ACM-TCM
revolving line of credit commitment remained the same at $10 million. The Agreement also increased the accordion
feature from $50 million to $100 million.
The revolving credit facilities are collateralized primarily by finance receivables and inventory, are cross
collateralized and contain a guarantee by the Company. The Company also granted a security interest in the equity
ownership interests of its subsidiaries. Interest is payable monthly under the revolving credit facilities. The credit
facilities provide for four pricing tiers for determining the applicable interest rate, based on the Company’s
consolidated leverage ratio for the preceding fiscal quarter. The current applicable interest rate under the credit
facilities is generally LIBOR plus 2.35%, or 2.98% at April 30, 2020 and 4.73% at April 30, 2019. The credit
facilities 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 or distributions (see note B).
The Company was in compliance with the covenants at April 30, 2020. The amount available to be drawn
under the credit facilities is a function of eligible finance receivables and inventory; based upon eligible finance
receivables and inventory at April 30, 2020, the Company had additional availability of approximately $23 million
under the revolving credit facilities. The Company took a $30 million draw on our credit facilities during March
2020 to ensure financial flexibility during the uncertainty as a result of COVID-19. We have grown our cash balance
53
to approximately $60 million at April 30, 2020, which would have typically been used to pay down the line of
credit.
The Company recognized $273,000, $251,000 and 260,000 of amortization for the twelve months ended
April 30, 2020, 2019 and 2018, respectively, related to debt issuance costs. The amortization is reflected as interest
expense in the Company’s Consolidated Statements of Operations.
During the years ended April 30, 2020 and April 30, 2019, the Company incurred approximately $505,000
and $371,000, respectively, in debt issuance costs related to amendments of the credit facilities. Debt issuance costs
of approximately $787,000 and $555,000 as of April 30, 2020 and 2019, respectively, are shown as a deduction
from the revolving credit facilities in the Consolidated Balance Sheet.
On December 15, 2015, the Company entered into an agreement to purchase the property on which one of
its dealerships is located for a purchase price of $550,000. Under the agreement, the purchase price is being paid
in monthly principal and interest installments of $10,005. The debt matures in December 2020, bears interest at a
rate of 3.50% and is secured by the property. The balance on this note payable was approximately $79,000 as of
April 30, 2020.
On March 29, 2018, the Company entered into a lease classified as a finance lease. The present value of
the minimum lease payments is approximately $445,000, which is included in Debt facilities in the Consolidated
Balance Sheet. The leased equipment is amortized on a straight-line basis over three years. As of April 30, 2020,
there is approximately $340,000 in accumulated depreciation related to the leased equipment.
G – Fair Value Measurements
The table below summarizes information about the fair value of financial instruments included in the
Company’s financial statements at April 30, 2020 and 2019:
(In thousands)
Cash
Finance receivables, net
Accounts payable
Debt facilities
April 30, 2020
April 30, 2019
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
$ 59,560
466,141
13,117
215,568
$ 59,560
382,027
13,117
215,568
$ 1,752
415,486
13,659
152,918
$ 1,752
308,384
13,659
152,918
54
Because no market exists for certain of the Company’s financial instruments, fair value estimates are based
on judgments and estimates regarding yield expectations of investors, credit risk and other risk characteristics,
including interest rate and prepayment risk. These estimates are subjective in nature and involve uncertainties and
matters of judgment and therefore cannot be determined with precision. Changes in assumptions could significantly
affect these estimates. The methodology and assumptions utilized to estimate the fair value of the Company’s
financial instruments are as follows:
Financial Instrument
Valuation Methodology
Cash
The carrying amount is considered to be a reasonable estimate of
fair value due to the short-term nature of the financial instrument.
Finance receivables, net
The Company estimated the fair value of its receivables at what a
third-party purchaser might be willing to pay. The Company has
had discussions with third parties and has bought and sold
portfolios and has had a third-party appraisal in January 2019 that
indicates a range of 34% to 39% discount to face would be a
reasonable fair value in a negotiated third-party transaction. The
sale of finance receivables from Car-Mart of Arkansas to Colonial
is made at a 38.5% discount. For financial reporting purposes
these sale transactions are eliminated. Since the Company does
not intend to offer the receivables for sale to an outside third party,
the expectation is that the net book value at April 30, 2020, will
ultimately be collected. By collecting the accounts internally, the
Company expects to realize more than a third-party purchaser
would expect to collect with a servicing requirement and a profit
margin included.
Accounts payable
The carrying amount is considered to be a reasonable estimate of
fair value due to the short-term nature of the financial instrument.
Revolving credit facilities and
notes payable
The fair value approximates carrying value due to the variable
interest rates charged on
the borrowings, which reprice
frequently.
H - Income Taxes
The provision for income taxes was as follows:
(In thousands)
Provision for income taxes
Current
Deferred
Total
2020
Years Ended April 30,
2019
2018
$
$
14,288
(1,280)
13,008
$
$
10,525
1,701
12,226
$
$
8,757
(6,360)
2,397
55
The provision for income taxes is different from the amount computed by applying the statutory federal
income tax rate to income before income taxes for the following reasons:
(In thousands)
Tax provision at statutory rate
State taxes, net of federal benefit
Tax benefit from option exercises
Deferred tax adjustment related to Tax Act
Other, net
Total
2020
Years Ended April 30,
2019
2018
$
$
13,514
1,931
(1,498)
-
(939)
13,008
$
$
12,569
1,796
(1,961)
-
(178)
12,226
$
$
11,827
1,077
(1,721)
(8,083)
(703)
2,397
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 income tax assets and liabilities were as follows:
(In thousands)
Deferred income tax liabilities related to:
Finance receivables
Property and equipment
Goodwill
Total
Deferred income tax assets related to:
Accrued liabilities
Inventory
Disallowed interest deduction
Share based compensation
Property and equipment
State net operating loss
Deferred revenue
Total
Deferred income tax liabilities, net
Years Ended April 30,
2020
2019
$ 19,342
69
90
19,501
$ 19,254
-
76
19,330
1,565
107
1,365
2,490
-
42
953
6,522
$ 12,979
1,638
127
-
2,186
76
29
1,015
5,071
$ 14,259
I – Capital Stock
The Company is authorized to issue up to one million shares of $.01 par value preferred stock in one or
more series having such respective terms, rights and preferences as are designated by the Board of Directors. The
Company has not issued any preferred stock.
A subsidiary of the Company has issued 500,000 shares of $1.00 par value preferred stock which carries
an 8% cumulative dividend. The Company’s subsidiary can redeem the preferred stock at any time at par value
plus any unpaid dividends. After April 30, 2017, a holder of 400,000 shares of the subsidiary preferred stock can
require the Company’s subsidiary to redeem such stock for $400,000 plus any unpaid dividends.
56
J – Weighted Average Shares Outstanding
Weighted average shares of common stock outstanding used in the calculation of basic and diluted earnings
per share were as follows:
Weighted average shares outstanding-basic
Dilutive options and restricted stock
2020
6,630,023
315,629
Years Ended April 30,
2019
6,810,879
260,889
2018
7,232,014
209,344
Weighted average shares outstanding-diluted
6,945,652
7,071,768
7,441,358
Antidilutive securities not included:
Options
Restricted Stock
K – Stock-Based Compensation Plans
118,750
7,224
60,000
-
229,000
-
The Company has stock-based compensation plans available to grant non-qualified stock options, incentive
stock options and restricted stock to employees, directors and certain advisors of the Company. The current stock-
based compensation plans are the Amended and Restated Stock Option Plan and the Amended and Restated Stock
Incentive Plan. The Company recorded total stock-based compensation expense for all plans of $4.7 million ($3.6
million after tax effects), $3.7 million ($2.8 million after tax effects) and $1.6 million ($1.1 million after tax effects)
for the years ended April 30, 2020, 2019 and 2018, respectively. Tax benefits were recognized for these costs at
the Company’s overall effective tax rate.
Stock Option Plan
The Company has options outstanding under the Amended and Restated Stock Option Plan. The
shareholders of the Company approved the Amended and Restated Stock Option Plan (the “Stock Option Plan”) on
August 5, 2015, which extended the term of the Stock Option Plan to June 10, 2025 and increased the number of
shares of common stock reserved for issuance under the plan by an additional 300,000 shares to 1,800,000 shares.
On August 29, 2018, the shareholders of the Company approved an amendment to the Stock Option Plan, which
increased the number of shares of common stock reserved for issuance under the plan by an additional 200,000
shares to 2,000,000 shares. The Stock Option Plan provides for the grant of options to purchase shares of the
Company’s common stock to employees, directors and certain advisors of the Company at a price not less than the
fair market value of the stock on the date of grant and for periods not to exceed ten years. Options granted under
the Company’s stock option plans expire in the calendar years 2022 through 2029.
Minimum exercise price as a percentage of fair market value at date of grant
Last expiration date for outstanding options
Shares available for grant at April 30, 2020
Option Plan
100%
December 30, 2029
75,000
The aggregate intrinsic value of outstanding options at April 30, 2020 and 2019 was $7.7 million and $29.9
million, respectively.
57
The fair value of options granted is estimated on the date of grant using the Black-Scholes option pricing
model based on the assumptions in the table below.
Expected terms (years)
Risk-free interest rate
Volatility
Dividend yield
April 30, 2020
5.5
1.75%
39%
-
April 30, 2019
5.5
2.79%
36%
-
April 30, 2018
5.5
1.81%
36%
-
The expected term of the options is based on evaluations of historical and expected future employee exercise
behavior. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates
approximately equal to the expected life at the grant date. Volatility is based on historical volatility of the
Company’s common stock. The Company has not historically issued dividends and does not expect to do so in the
foreseeable future.
There were 225,000 options granted during fiscal 2020. The grant-date fair value of all options granted
during fiscal 2020, 2019 and 2018 was $9.3 million, $3.0 million and $336,000, respectively. The options were
granted at fair market value on date of grant. Generally, options vest after three to five years, except for options
issued to directors which are immediately vested at date of grant.
The following is an aggregate summary of the activity in the Company’s stock option plans from April 30,
2017 to April 30, 2020:
Outstanding at April 30, 2017
Granted
Exercised
Expired
Cancelled
Outstanding at April 30, 2018
Granted
Exercised
Outstanding at April 30, 2019
Granted
Exercised
Cancelled
Outstanding at April 30, 2020
Number
of
Options
Exercise
Price
per Share
Proceeds
on
Exercise
(in thousands)
Weighted Average
Exercise Price per
Share
1,028,500
25,000
(323,000)
(15,000)
(20,000)
695,500
145,000
(275,000)
565,500
225,000
(121,250)
(1,500)
667,750
$ 37.30
$ 11.90 to $ 37.94
$44.52 to $51.81
$ 41.86 to $ 53.02
$ 53.30 to $ 54.85
$ 18.86 to $ 53.30
$ 99.05 to $ 109.06
$ 22.87 to $ 53.02
$ 53.02
$
$
$
$
34,084
933
(6,692)
(710)
(932)
26,683
7,915
(8,511)
26,087
24,287
(4,517)
(80)
45,777
$
$
$
$
33.51
37.30
20.72
47.26
46.61
30.50
54.58
30.95
46.13
107.95
37.25
53.02
68.55
Stock option compensation expense on a pre-tax basis was $3.6 million ($2.9 million after tax effects), $2.7
million ($2.0 million after tax effects) and $1.2 million ($773,000 after tax effects) for the years ended April 30,
2020, 2019 and 2018, respectively. As of April 30, 2020, the Company had approximately $8.7 million of total
unrecognized compensation cost related to unvested options that are expected to vest. These options have a
weighted-average remaining vesting period of 1.9 years.
58
The Company had the following options exercised for the periods indicated. The impact of these cash
receipts is included in financing activities in the accompanying Consolidated Statements of Cash Flows.
(Dollars in thousands)
Options Exercised
Cash Received from Options Exercised
Intrinsic Value of Options Exercised
2020
Years Ended April 30,
2019
2018
121,250
2,928
7,580
$
$
275,000
5,663
10,817
$
$
323,000
2,832
8,381
$
$
During the year ended April 30, 2020, there were 57,500 options exercised through net settlements in
accordance with plan provisions, wherein the shares issued were reduced by 28,307 shares to satisfy the exercise
price and applicable withholding taxes to acquire 29,193 shares.
As of April 30, 2020, there were 155,250 vested and exercisable stock options outstanding with an
aggregate intrinsic value of $2.6 million and a weighted average remaining contractual life of 3.7 years and a
weighted average exercise price of $36.38.
Stock Incentive Plan
On August 5, 2015, the shareholders of the Company approved the Amended and Restated Stock Incentive
Plan (the “Stock Incentive Plan”), which extended the term of the Stock Incentive Plan to June 10, 2025. On August
29, 2018, the shareholders of the Company approved an amendment to the Company’s Stock Incentive Plan that
increased the number of shares of common stock that may be issued under the Stock Incentive Plan from 350,000
to 450,000. For shares issued under the Stock Incentive Plan, the associated compensation expense is generally
recognized equally over the vesting periods established at the award date and is subject to the employee’s continued
employment by the Company.
The following is a summary of the activity in the Company’s Stock Incentive Plan:
Unvested shares at April 30, 2017
Shares granted
Shares vested
Shares cancelled
Unvested shares at April 30, 2018
Shares granted
Shares vested
Shares cancelled
Unvested shares at April 30, 2019
Shares granted
Shares vested
Shares cancelled
Unvested shares at April 30, 2020
Number
of
Shares
Weighted Average
Grant Date
Fair Value
17,000
166,500
-
(4,500)
179,000
3,000
-
(1,500)
180,500
12,328
(7,000)
(1,000)
184,828
$
$
$
$
44.86
45.86
-
38.28
45.96
53.30
-
36.38
46.16
102.03
52.10
37.07
49.71
The fair value at vesting for awards under the stock incentive plan was $9.2 million, $8.3 million and $8.2
million in fiscal 2020, 2019 and 2018, respectively.
During the fiscal year 2020, 3,000 shares were granted with a fair value of $99.05, 4,224 shares were
granted with a fair value of $109.06 and 5,104 shares were granted with a fair value of $97.97. During the fiscal
year 2019, 3,000 restricted shares were granted with a fair value of $53.30 per share. During the fiscal year 2018,
59
132,000 restricted shares were granted with a fair value of $48.70 per share and 34,500 shares were granted with a
fair value of $35.00 per share. A total of 94,199 shares remain available for award at April 30, 2020.
The Company recorded compensation cost of $1.1 million ($839,000 after tax effects), $1.0 million
($760,000 after tax effects) and $430,000 ($288,000 after tax effects) related to the Stock Incentive Plan during the
years ended April 30, 2020, 2019 and 2018, respectively. As of April 30, 2020, the Company had $6.3 million of
total unrecognized compensation cost related to unvested awards granted under the Stock Incentive Plan, which the
Company expects to recognize over a weighted-average remaining period of 6.3 years.
L - Commitments and Contingencies
Letter of Credit
The Company has a standby letter of credit relating to an insurance policy totaling $250,000 at April 30, 2020.
Facility Leases
The Company leases certain dealership and office facilities under various non-cancelable operating leases.
Dealership leases are generally for periods from three to five years and contain multiple renewal options. As of
April 30, 2020, the aggregate rentals due under such leases, including renewal options that are reasonably assured,
were as follows:
Years Ending
April 30,
Amount
(In thousands)
2021
2022
2023
2024
2025
Thereafter
Total undiscounted operating lease payments
Less: imputed interest
Present value of operating lease liabilities
$
$
6,831
6,646
6,570
6,043
5,876
54,407
86,373
23,563
62,810
The $86.4 million of operating lease commitments includes $26.2 million of non-cancelable lease
commitments under the lease terms, and $60.2 million of lease commitments for renewal periods at the Company’s
option that are reasonably assured. The lease commitments also include $13.2 million of lease commitments
associated with entities owned or controlled by a preferred shareholder of the Company’s subsidiary. For the years
ended April 30, 2020, 2019 and 2018, rent expense for all operating leases amounted to approximately $6.9 million,
$6.7 million and $6.2 million, respectively.
Litigation
In the ordinary course of business, the Company has become a defendant in various types of legal
proceedings. The Company 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, annual results of operations or
cash flows. The results of legal proceedings cannot be predicted with certainty; however, and an unfavorable
resolution of one or more of these legal proceedings could have a material adverse effect on the Company’s financial
position, annual results of operations or cash flows.
Related Finance Company
Car-Mart of Arkansas and Colonial do not meet the affiliation standard for filing consolidated income tax
returns, and as such they file separate federal and state income tax returns. Car-Mart of Arkansas routinely sells its
finance receivables to Colonial at what the Company believes to be fair market value and is able to take a tax
deduction at the time of sale for the difference between the tax basis of the receivables sold and the sales price.
60
These types of transactions, based upon facts and circumstances, have been permissible under the provisions of the
Internal Revenue Code as described in the Treasury Regulations. For financial accounting purposes, these
transactions are eliminated in consolidation, and a deferred income tax liability has been recorded for this timing
difference. The sale of finance receivables from Car-Mart of Arkansas to Colonial provides certain legal protection
for the Company’s finance receivables and, principally because of certain state apportionment characteristics of
Colonial, also has the effect of reducing the Company’s overall effective state income tax rate. The actual
interpretation of the regulations is in part a facts and circumstances matter. The Company believes it satisfies the
material provisions of the regulations. Failure to satisfy those provisions could result in the loss of a tax deduction
at the time the receivables are sold and have the effect of increasing the Company’s overall effective income tax
rate as well as the timing of required tax payments.
M - Supplemental Cash Flow Information
Supplemental cash flow disclosures for the years ended April 30, 2020, 2019 and 2018 are as follows:
(in thousands)
Supplemental disclosures:
Interest paid
Income taxes paid, net
2020
Years Ended April 30,
2019
2018
$
8,152
8,505
$
7,259
11,022
$
5,599
11,092
Non-cash transactions:
Inventory acquired in repossession and payment protection plan claims
Purchase of property and equipment using the issuance of debt
Loss accrued on disposal of property and equipment
Net settlement option exercises
51,450
-
3
1,589
51,514
-
29
2,848
42,274
1,151
-
3,859
N - Quarterly Results of Operations (unaudited)
A summary of the Company’s quarterly results of operations for the years ended April 30, 2020 and 2019
is as follows (in thousands, except per share information):
Revenues
Gross profit
Net income
Net income attributable to common
stockholders
Earnings per share:
Basic
Diluted
Revenues
Gross profit
Net income
Net income attributable to common
stockholders
Earnings per share:
Basic
Diluted
$
$
First
Quarter
Second
Quarter
Year Ended April 30, 2020
Third
Quarter
Fourth
Quarter
171,878
61,189
15,511
$
190,310
67,917
13,887
$
15,501
13,877
2.32
2.21
2.10
2.00
186,734
65,749
12,686
12,676
1.92
1.83
$
195,689
69,662
9,259
9,249
1.40
1.35
First
Quarter
Second
Quarter
Year Ended April 30, 2019
Third
Quarter
Fourth
Quarter
164,015
59,933
10,884
$
167,171
61,045
11,281
$
10,874
11,271
1.57
1.53
1.64
1.58
161,054
58,063
10,895
10,885
1.61
1.55
$
176,882
63,569
14,565
14,555
2.17
2.07
$
$
Total
744,611
264,517
51,343
51,303
7.74
7.39
Total
669,122
242,610
47,625
47,585
6.99
6.73
61
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
Based on management’s evaluation (with the participation of the Company’s Chief Executive Officer and
Chief Financial Officer), as of April 30, 2020, the Company’s Chief Executive Officer and Chief Financial Officer
have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-
15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), are effective to ensure that
information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and
that such information is accumulated and communicated to management, including the Company’s Chief Executive
Officer (principal executive officer) and Chief Financial Officer (principal financial officer), to allow timely
decisions regarding required disclosure.
62
Management’s Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over
financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal
control over financial reporting is designed to provide reasonable assurance regarding the reliability of the
Company’s financial reporting and the preparation of financial statements for external purposes in accordance with
U.S. generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance
with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of
April 30, 2020. In making this assessment, management used the criteria set forth in The 2013 Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
Based on management’s assessment, management believes that the Company maintained effective internal
control over financial reporting as of April 30, 2020.
The Company’s independent registered public accounting firm independently assessed the effectiveness of
the Company’s internal control over financial reporting and has issued their report on the effectiveness of the
Company’s internal control over financial reporting at April 30, 2020. That report appears below.
63
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
America’s Car-Mart, Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of America’s Car-Mart, Inc. (a Texas corporation) and
subsidiaries (the “Company”) as of April 30, 2020, based on criteria established in the 2013 Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of April
30, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended April 30, 2020,
and our report dated June 24, 2020 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
Tulsa, Oklahoma
June 24, 2020
64
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-
15(f) and 15d-15(f) under the Exchange Act) that occurred during the Company’s last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial
reporting.
Item 9B. Other Information
None.
65
PART III
Except as to information with respect to executive officers which is contained in a separate heading under
Part I, Item 1 of this Form 10-K, the information required by Items 10 through 14 of this Form 10-K is, pursuant to
General Instruction G (3) of Form 10-K, incorporated by reference herein from the Company's definitive proxy
statement to be filed pursuant to Regulation 14A for the Company's Annual Meeting of Stockholders to be held in
August 2020 (the “Proxy Statement”). The Company will, within 120 days of the end of its fiscal year, file with
the SEC a definitive proxy statement pursuant to Regulation 14A.
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item will be contained in the Proxy Statement and such information is
incorporated herein by reference. Information regarding the executive officers of the Company is set forth under
the heading "Executive Officers" in Part I, Item 1 of this report.
Item 11. Executive Compensation
The information required by this item will be contained in the Proxy Statement and such information is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required by this item will be contained in the Proxy Statement and such information is
incorporated herein by reference.
The Company’s equity compensation plans consist of the Amended and Restated Stock Incentive Plan, the
Amended and Restated Stock Option Plan and the 2006 Employee Stock Purchase Plan. These plans have been
approved by the stockholders.
The following table sets forth information regarding outstanding options and shares reserved for future
issuance under the foregoing plans as of April 30, 2020:
Number of securities
to be issued upon
exercise of
outstanding
options, warrants
and rights
Weighted-average
exercise price of
outstanding
options, warrants
and rights
Plan Category
(a)
(b)
Number of securities
remaining available for future
issuance under equity
compensation plans
(excluding shares reflected in
column (a))
(c) (1)
Equity compensation plans
approved by the stockholders
Equity compensation plans
not approved by the stockholders
667,750
$68.55
308,962
-
-
-
(1)
Includes 94,199 shares available for issuance under the Amended and Restated Stock Incentive Plan, 75,000 shares under the Amended
and Restated Stock Option Plan and 139,763 shares under the 2006 Employee Stock Purchase Plan.
66
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item will be contained in the Proxy Statement and such information is
incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information required by this item will be contained in the Proxy Statement and such information is
incorporated herein by reference.
67
Item 15. Exhibits, Financial Statement Schedules
(a)1. Financial Statements
PART IV
The following financial statements and accountant’s report are included in Item 8 of this report:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of April 30, 2020 and 2019
Consolidated Statements of Operations for the years ended April 30, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended April 30, 2020, 2019 and 2018
Consolidated Statements of Equity for the years ended April 30, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
(a)2. Financial Statement Schedules
The financial statement schedules are omitted since the required information is not present, or is not present
in amounts sufficient to require submission of the schedules, or because the information required is included in the
Consolidated Financial Statements and Notes thereto.
(a)3. Exhibits
Exhibit
Number
Description of Exhibit
3.1
3.2
3.3
4.1
Articles of Incorporation of the Company, as amended. (Incorporated by reference to Exhibits
4.1-4.8 to the Company's Registration Statement on Form S-8 filed with the SEC on November
16, 2005 (File No. 333-129727)).
Amended and Restated Bylaws of the Company dated December 4, 2007. (Incorporated by
reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended October 31, 2007 filed with the SEC on December 7, 2007).
Amendment No. 1 to the Amended and Restated Bylaws of the Company dated February 18,
2014. (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-
K filed with the SEC on February 19, 2014).
Specimen stock certificate. (Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended April 30, 1994 (File No. 000-14939))(filed in paper format).
4.2
Description of Securities
10.1*
Amended and Restated Stock Incentive Plan (Incorporated by reference to Appendix A to the
Company’s Proxy Statement on Schedule 14A filed with the SEC on June 23, 2015).
68
Exhibit
Number
10.1.1*
Description of Exhibit
Amendment to Amended and Restated Stock Incentive Plan ((Incorporated by reference to
Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on September
4, 2018).
10.2*
Amended and Restated Stock Option Plan (Incorporated by reference to Appendix B to the
Company’s Proxy Statement on Schedule 14A filed with the SEC on June 23, 2015).
10.2.1*
10.2.2*
10.2.3*
10.2.4*
10.2.5*
10.3*
10.4*
10.5*
10.6*
Amendment to Amended and Restated Stock Option Plan ((Incorporated by reference to
Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on September
4, 2018).
Option Agreement for Amended and Restated Stock Option Plan, dated August 5, 2015,
between America’s Car-Mart, Inc., a Texas corporation, and Jeffrey A. Williams (Incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC
on August 10, 2015).
Option Agreement for Amended and Restated Stock Option Plan, dated August 5, 2015,
between America’s Car-Mart, Inc., a Texas corporation, and Jeffrey A. Williams (Incorporated
by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC
on August 10, 2015).
Option Agreement for Amended and Restated Stock Option Plan, dated August 5, 2015,
between America’s Car-Mart, Inc., a Texas corporation, and William H. Henderson
(Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed
with the SEC on August 10, 2015).
Option Agreement for Amended and Restated Stock Option Plan, dated August 5, 2015,
between America’s Car-Mart, Inc., a Texas corporation, and William H. Henderson
(Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed
with the SEC on August 10, 2015).
Form of Indemnification Agreement between the Company and certain officers and directors
of the Company. (Incorporated by reference to the Company's Quarterly Report on Form 10-
Q for the quarter ended July 31, 1993) (filed in paper format).
Employment Agreement, dated as of May 1, 2015, between America’s Car Mart, Inc., an
Arkansas corporation, and Jeffrey A. Williams (Incorporated by reference to Exhibit 10.2 to
the Company’s Current Report on Form 8-K filed with the SEC on June 14, 2017).
Employment Agreement, dated as of February 27, 2020, between America’s Car-Mart, Inc.,
an Arkansas corporation, and Jeffrey A. Williams (Incorporated by reference to Exhibit 10.1
to the Company’s Current Report on Form 8-K filed with the SEC on March 4, 2020).
America’s Car-Mart, Inc. Nonqualified Deferred Compensation Plan (Incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC
on October 10, 2014).
69
Exhibit
Number
10.7*
10.8
14.1
21.1
23.1
31.1
31.2
32.1
Description of Exhibit
Retirement and Transition Agreement, dated as of January 1, 2018, between America’s Car-
Mart, Inc. and William H. Henderson (Incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed with the SEC on January 11, 2018).
Third Amended and Restated Loan and Security Agreement dated September 30, 2019, among
America’s Car-Mart, Inc., a Texas corporation, as Parent; Colonial Auto Finance, Inc., an
Arkansas corporation, America’s Car Mart, Inc., an Arkansas corporation, and Texas Car-
Mart, Inc., a Texas corporation, as Borrowers; and certain financial institutions, as Lenders,
with BMO Harris Bank, N.A., as Agent, Lead Arranger and Book Manager (Incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC
on October 1, 2019).
Code of Business Conduct and Ethics. (Incorporated by reference to Exhibit 14.1 to the
Company’s Current Report on Form 8-K filed with the SEC on July 22, 2016)
Subsidiaries of America’s Car-Mart, Inc.
Consent of Independent Registered Public Accounting Firm
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”)
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-
14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Labels Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
Indicates management contract or compensatory plan or arrangement covering executive officers or
*
directors of the Company.
70
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Dated: June 24, 2020
AMERICA’S CAR-MART, INC.
By: /s/ Vickie D. Judy
Vickie D. Judy
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
/s/ Jeffrey A. Williams
Jeffrey A. Williams
President, Chief Executive Officer
and Director
(Principal Executive Officer)
/s/ Vickie D. Judy
Vickie D. Judy
Chief Financial Officer
(Principal Financial Officer)
Date
June 24, 2020
June 24, 2020
/s/ Ray C. Dillon
Ray C. Dillon
/s/ Daniel J. Englander
Daniel J. Englander
/s/ William H. Henderson
William H. Henderson
/s/ Ann G. Bordelon
Ann G. Bordelon
/s/ Jim von Gremp
Jim von Gremp
/s/ Joshua G. Welch
Joshua G. Welch
Chairman of the Board
June 24, 2020
June 24, 2020
June 24, 2020
June 24, 2020
June 24, 2020
June 24, 2020
Director
Director
Director
Director
Director
71
Exhibit 4.2
Description of Securities
The following is a description of the capital stock of America’s Car-Mart, Inc. (the “Company”) and certain
provisions of the Company’s Articles of Incorporation, as amended (“Articles”), Amended and Restated Bylaws,
as amended (“Bylaws”), and certain provisions of applicable law. The following is only a summary and is qualified
by applicable law and by the provisions of the Company’s Articles and Bylaws, copies of which have been filed
with the Securities and Exchange Commission.
General
The Company is authorized to issue up to 50,000,000 shares of common stock, par value $0.01 per share,
and up to 1,000,000 shares of preferred stock, par value $0.01 per share. Each share of the Company’s common
stock has the same relative rights as, and is identical in all respects to, each other share of the Company’s common
stock.
As of June 15, 2020, 6,632,819 shares of the Company’s common stock were issued and outstanding, and
276,962 shares of common stock were reserved for issuance pursuant to the Company’s stock incentive, option and
purchase plans. The Company’s common stock is listed on the NASDAQ Global Select Market. The outstanding
shares of the Company’s common stock are fully paid and non-assessable.
As of June 15, 2020, no shares of the Company’s preferred stock were issued and outstanding.
Common Stock
Dividend Rights. Subject to such preferential rights as the Board of Directors of the Company (the “Board”)
may grant in connection with future issuances of preferred stock, holders of shares of common stock are entitled to
receive such dividends as the Board may declare in its discretion out of funds legally available therefor. Under the
Company’s Bylaws, the Board may declare dividends at any regular or special meeting, and dividends may be paid
in cash, in property, or in shares of the capital stock, subject to any provisions of the Articles.
Voting Rights. Holders of shares of common stock are entitled to elect all of the members of the Board,
and such holders are entitled to vote as a class on all matters required or permitted to be submitted to the shareholders
of the Company. Each director shall be elected by a majority of the votes cast with respect to that director at the
annual meeting. However, if the number of nominees is greater than the number of directors to be elected, the
directors shall be elected by the vote of a plurality of the shares represented in person or by proxy at the annual
meeting. All other matters require the affirmative vote of the holders of a majority of the shares entitled to vote on,
and that voted for or against or expressly abstained with respect to, that matter at a meeting of shareholders at which
a quorum is present. Holders of the Company’s common stock do not have cumulative voting rights.
Liquidation and Dissolution. Holders of shares of common stock are entitled to share ratably in any
distribution made to holders of common stock in the event of a liquidation, dissolution or winding up of the
Company after payment of liabilities and any liquidation preference on any shares of preferred stock then
outstanding.
Other Rights. Holders of shares of common stock have no preemptive rights, nor do they have any
conversion, preemptive or other rights to subscribe for additional shares or other securities. There are no redemption
or sinking fund provisions with respect to such shares.
72
Modification of Rights. The Board, acting by a majority vote of the members present and without
shareholder approval, may amend the Company’s Bylaws and may issue shares of the Company’s preferred stock
under terms determined by the Board as described below under “Preferred Stock.” Rights of holders of the
Company’s common stock may not otherwise be modified by less than a majority vote of the common stock
outstanding.
Preferred Stock
The Board is authorized, without further action of the shareholders of the Company, to issue up to 1,000,000
shares of preferred stock in one or more series and to fix the number of shares constituting any such series and the
rights and preferences thereof, including dividend rates, terms of redemption (including sinking fund provisions),
redemption price or prices, voting rights, conversion rights and liquidation preferences of the shares constituting
such series. The issuance of preferred stock by the Board could adversely affect the rights of holders of common
stock. For example, an issuance of preferred stock could result in a class of securities outstanding with preferences
over the common stock with respect to dividends and liquidations, and that could (upon conversion or otherwise)
enjoy all of the rights appurtenant to common stock.
The Company has no present plans to issue any shares of the preferred stock.
Anti-Takeover Provisions of the Company’s Articles, Bylaws and Texas Law
The Company’s authorized but unissued shares of common stock and preferred stock are available for future
issuance without shareholder approval, subject to any limitations imposed by the listing standards of the NASDAQ
Stock Market. These additional shares may be utilized for a variety of corporate purposes, including future public
offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized
but unissued shares of common stock and preferred stock could make it more difficult or discourage an attempt to
obtain control of a majority of the Company’s common stock by means of a proxy contest, tender offer, merger or
otherwise.
As discussed above, the ability to designate and issue preferred stock makes it possible for the Board,
without approval of the shareholders, to issue preferred stock with super voting, special approval, dividend or other
rights or preferences on a discriminatory basis that could impede the success of any attempt to acquire the Company
or otherwise effect a change in control of the Company. These and other provisions may have the effect of deferring,
delaying or discouraging hostile takeovers, or changes in control or management of the Company. Such provisions
may also impede or discourage transactions that some, or a majority, of the Company’s shareholders might believe
to be in their best interests, or in which the Company’s shareholders might receive a premium for their shares of
common stock over the market price for such shares.
If the Company meets the definition of an “issuing public corporation,” provisions of Texas law also may
discourage delay or prevent someone from acquiring or merging with the Company, which may cause the market
price of the Company’s common stock to decline. Under Title 2, Chapter 21, Subchapter M of the Texas Business
Organizations Code, a Texas issuing public corporation may not engage in specified types of business combinations,
including mergers, consolidations and asset sales, with an affiliated shareholder, or an affiliate or associate of an
affiliated shareholder, unless:
the business combination or the acquisition of shares by the affiliated shareholder was approved by the
board of directors of the corporation before the affiliated shareholder became an affiliated shareholder;
or
the business combination was approved by the affirmative vote of the holders of at least two-thirds of
the outstanding voting shares of the corporation not beneficially owned by the affiliated shareholder, at
a meeting of shareholders called for that purpose, not less than six months after the affiliated
shareholder became an affiliated shareholder.
73
Under Texas law, a shareholder who beneficially owns more than 20% of the Company’s outstanding
voting stock or who during the preceding three-year period was the beneficial owner of 20% or more of the
Company’s outstanding voting stock is an affiliated shareholder. An “issuing public corporation” means a domestic
corporation that has: (i) 100 or more shareholders of record as shown by the share transfer records of the corporation;
(ii) a class or series of the corporation’s voting shares registered under the Securities Exchange Act of 1934, as
amended; or (iii) a class or series of the corporation’s voting shares qualified for trading on a national securities
exchange.
Other provisions of Texas law and the Company’s Bylaws may have the effect of delaying or preventing a
change in control or acquisition, whether by means of a tender offer, business combination, proxy contest, or
otherwise. Texas law requires that a change in control generally be approved by the holders of two thirds of the
outstanding votes, rather than a mere majority. The Company’s Bylaws include certain procedural requirements
governing the nomination of directors and proposals of other business by shareholders and shareholder meetings.
These provisions could have the effect of delaying or preventing a change in control or management of the
Company.
Limitation of Liability and Indemnification
The Company’s Articles provide that a director shall not be personally liable to the Company or its
shareholders for monetary damages for an act or omission in the director’s capacity as a director, except that such
provision shall not eliminate or limit the liability of a director for (a) a breach of the director’s duty of loyalty to the
Company or its shareholders; (b) an act or omission not in good faith that constitutes a breach of duty of the director
to the Company or an act or omission that involves intentional misconduct or a knowing violation of the law; (c) a
transaction from which the director received an improper benefit, whether or not the benefit resulted from an action
taken within the scope of the director’s office; or (d) an act or omission for which the liability of a director is
expressly provided by an applicable statute. In appropriate circumstances, equitable remedies or non-monetary
relief, such as an injunction, will remain available to a shareholder seeking redress from a violation of fiduciary
duty. In addition, the provision applies only to claims against a director arising out of his or her role as a director
and not in any other capacity (such as an officer or employee of the Company).
The Company’s Bylaws provide that directors and officers of the Company will be indemnified by the
Company to the fullest extent authorized by Texas law, as it now exists or may in the future be amended, against
all expenses and liabilities reasonably incurred in connection with service for or on behalf of the Company.
Transfer Agent and Registrar
Securities Transfer Corporation acts as the transfer agent and registrar for the common stock.
74
Exhibit 21.1
Subsidiaries of America’s Car-Mart, Inc.
Crown Delaware Investments Corp. (a Delaware corporation)
America’s Car Mart, Inc. (an Arkansas Corporation)
Colonial Auto Finance, Inc. (an Arkansas Corporation)
Colonial Underwriting, Inc. (an Arkansas Corporation)
Texas Car-Mart, Inc. (a Texas corporation)
Auto Finance Investors, Inc. (a Texas corporation)
ACM Insurance Company (an Arkansas corporation)
75
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our reports dated June 24, 2020, with respect to the consolidated financial statements and internal
control over financial reporting included in the Annual Report of America’s Car-Mart, Inc. on Form 10-K for the year
ended April 30, 2020. We consent to the incorporation by reference of said reports in the Registration Statements of
America’s Car-Mart, Inc. on Forms S-8 (File Nos. 333-139270, 333-139269, 333-208414, 333-208416, 333-227856, and
333-227857).
/s/ GRANT THORNTON LLP
Tulsa, Oklahoma
June 24, 2020
76
Exhibit 31.1
Certification
1.
2.
3.
4.
I, Jeffrey A. Williams, certify that:
I have reviewed this Annual Report on Form 10-K for the period ended April 30, 2020 of America’s Car-Mart, Inc.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing
the equivalent functions):
(a)
(b)
June 24, 2020
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
/s/ Jeffrey A. Williams
Jeffrey A. Williams
President,
Chief Executive Officer
77
Exhibit 31.2
Certification
1.
2.
3.
4.
I, Vickie D. Judy, certify that:
I have reviewed this Annual Report on Form 10-K for the period ended April 30, 2020 of America’s Car-Mart, Inc.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing
the equivalent functions):
(a)
(b)
June 24, 2020
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
/s/ Vickie D. Judy
Vickie D. Judy
Chief Financial Officer
(Principal Financial Officer)
78
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K for the period ended April 30, 2020 of America’s Car-Mart, Inc.
(the “Company”), as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned,
Jeffrey A. Williams, President and Chief Executive Officer of the Company, and Vickie D. Judy, Chief Financial Officer of
the Company, certify in our capacities as officers of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
By: /s/ Jeffrey A. Williams
Jeffrey A. Williams
President, Chief Executive Officer
June 24, 2020
By: /s/ Vickie D. Judy
Vickie D. Judy
Chief Financial Officer
June 24, 2020
79
America’s Car-Mart, Inc.
2
Annual Report
CORPORATE INFORMATION
Corporate Headquarters
80
(479) 464-9944
Annual Meeting
The annual meeting of stockholders will be held
at America’s Car-Mart Corporate Headquarters,
1805 N 2nd St, Suite 401, Rogers, Arkansas
at 10:00 a.m. Central Time on
Wednesday, August 26, 2020.
Transfer Agent and Registrar
Securities Transfer Corporation
2901 N Dallas Parkway, Suite 380
Plano, Texas 75093
Independent Public Accountants
Grant Thornton, LLP
Tulsa, Oklahoma
Board of Directors
Ray C. Dillon
Chairman of the Board
Retired Chief Executive Officer,
Deltic Timber Corporation
Jeffrey A. Williams
President and Chief Executive Officer
America’s Car-Mart, Inc.
Jim von Gremp
Retired Certified Public Accountant
Ann G. Bordelon
Vice Chancellor for Finance and Administration
University of Arkansas
Daniel J. Englander
Managing Partner, Ursula Investors
William H. (“Hank”) Henderson
Retired Chief Executive Officer
America’s Car-Mart, Inc.
Joshua G. Welch
Managing Partner, Vicuna Capital I, LP
Executive Officers
Jeffrey A. Williams
President and Chief Executive Officer
Vickie D. Judy
Chief Financial Officer
Leonard L. Walthall
Chief Operating Officer
America’s Car-Mart currently operates 148 dealerships in twelve states,
with headquarters in Rogers, Arkansas.
Corporate Headquarters
1805 N 2nd St, Suite 401
Rogers, Arkansas 72756
Phone: (479) 464-9944
Fax: (479) 273-7556
www.car-mart.com
ALABAMA (16)
Albertville
Anniston
Athens
Cullman
Decatur
Dothan
Enterprise
Florence
Gadsden
Montgomery
Muscle Shoals
Opelika
Phenix City
Prattville
Troy
Tuscaloosa
ARKANSAS (37)
Arkadelphia
Batesville
Benton
Berryville
Bryant
Camden
Centerton
Clarksville
Conway (2)
El Dorado
Fayetteville (2)
Fort Smith
Harrison
Hope
Hot Springs
Jonesboro
Little Rock
Magnolia
Malvern
Morrilton
Mountain Home
North Little Rock
Paragould
Pine Bluff
Rogers (2)
Russellville (2)
Searcy
Siloam Springs (2)
Springdale (2)
Van Buren
West Memphis
GEORGIA (9)
Brunswick
Carrollton
Covington
Dalton
Macon
Millidgeville
Rome
Valdosta
Woodstock
ILLINOIS (3)
Benton
Marion
Mt. Vernon
INDIANA (1)
Evansville
IOWA (1)
Burlington
KENTUCKY (12)
Bowling Green (2)
Elizabethtown
Glasgow
Henderson
Hopkinsville
Lexington
Madisonville
Owensboro
Paducah
Richmond
Winchester
MISSISSIPPI (5)
Columbus
Corinth
Meridian
Oxford
Tupelo
MISSOURI (18)
Cape Girardeau
Carthage
Columbia
Farmington
Harrisonville
Joplin
Kirksville
Lebanon
Moberly
Neosho
Poplar Bluff
Rolla
Saint Joseph
Sedalia
Springfield (2)
West Plains
Warrensburg
OKLAHOMA (27)
Ada
Altus
Ardmore
Bartlesville
Bixby
Broken Arrow
Claremore
Duncan
Durant
Enid
Grove
Lawton
McAlester
Miami
Muskogee
Okmulgee
Owasso
Ponca City
Poteau
Pryor
Sapulpa
Shawnee
Stillwater
Stilwell
Tahlequah
Tulsa (2)
TENNESSEE (6)
Clarksville
Columbia
Hixson
Jackson
Madison
Tullahoma
TEXAS (13)
Corsicana
Greenville
Longview
Lufkin
Mount Pleasant
Nacogdoches
Palestine
Paris
Sherman
Sulphur Springs
Texarkana
Tyler
Wichita Falls