AMERICAS CARMART INC - Quarter Report: 2004 January (Form 10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal quarter ended:		Commission file number:
January 31, 2004		0-14939

AMERICA’S CAR-MART, INC.

(Exact name of registrant as specified in its charter)

Texas		63-0851141
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1501 Southeast Walton Blvd., Suite 213, Bentonville, Arkansas 72712
(Address of principal executive offices, including zip code)

(479) 464-9944
(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Title of Each Class		Outstanding at March 2, 2004
Common stock, par value $.01 per share		7,728,341

Part I

Item 1. Financial Statements		America’s Car-Mart, Inc.
Consolidated Balance Sheets

	January 31, 2004		April 30, 2003
	(unaudited)
Assets:
Cash and cash equivalents	$	1,177,712	$	783,786
Income tax receivable			161,816
Notes and other receivables	537,679		647,872
Finance receivables, net	100,279,489		91,358,935
Inventory	4,498,885		4,056,027
Prepaid and other assets	408,065		353,014
Property and equipment, net	5,393,753		4,479,132

	$	112,295,583	$	101,840,582

Liabilities and stockholders’ equity:
Liabilities:
Accounts payable	$	2,513,856	$	2,084,472
Accrued liabilities	3,574,385		6,664,313
Income taxes payable	590,777
Deferred tax liabilities, net	1,722,640		1,162,704
Revolving credit facility	23,913,131		25,968,220
Total liabilities	32,314,789		35,879,709

Commitments and contingencies

Stockholders’ equity:
Preferred stock, par value $.01 per share, 1,000,000 shares authorized; none issued or outstanding
Common stock, par value $.01 per share, 50,000,000 shares authorized; 7,705,241 issued and outstanding (7,207,963 at April 30, 2003)	77,052		72,080
Additional paid-in capital	33,177,880		30,332,106
Retained earnings	46,725,862		35,556,687
Total stockholders’ equity	79,980,794		65,960,873

	$	112,295,583	$	101,840,582

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Statements of Operations		America’s Car-Mart, Inc.
(Unaudited)

	Three Months Ended January 31,				Nine Months Ended January 31,
	2004		2003		2004		2003
Revenues:
Sales	$	38,642,711	$	35,730,236	$	119,159,852	$	105,477,164
Interest income	3,210,086		2,569,293		9,318,217		7,197,105
	41,852,797		38,299,529		128,478,069		112,674,269

Costs and expenses:
Cost of sales	19,882,443		19,011,745		62,014,019		55,827,775
Selling, general and administrative	7,387,369		7,012,232		21,822,967		20,198,649
Provision for credit losses	9,765,192		6,621,280		26,046,851		19,415,277
Interest expense	294,024		361,206		914,602		1,366,940
Depreciation and amortization	71,450		74,175		231,613		209,925
	37,400,478		33,080,638		111,030,052		97,018,566

Income from continuing operations before tax	4,452,319		5,218,891		17,448,017		15,655,703

Provision for income taxes	1,642,681		1,935,349		6,443,842		5,834,877

Income from continuing operations	2,809,638		3,283,542		11,004,175		9,820,826

Discontinued operations:
Income from discontinued operations, after tax					165,000		375,318
Gain on sale of discontinued operation, after tax							130,868
Income from discontinued operations					165,000		506,186

Net income	$	2,809,638	$	3,283,542	$	11,169,175	$	10,327,012

Basic earnings per share:
Continuing operations	$	.37	$	.47	$	1.47	$	1.41
Discontinued operations					.02		.07
Total	$	.37	$	.47	$	1.49	$	1.48

Diluted earnings per share:
Continuing operations	$	.35	$	.42	$	1.38	$	1.25
Discontinued operations					.02		.07
Total	$	.35	$	.42	$	1.40	$	1.32

Weighted average number of shares outstanding:
Basic	7,634,222		6,996,036		7,480,518		6,987,118
Diluted	7,994,430		7,794,090		7,951,513		7,846,605

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Statements of Cash Flows		America’s Car-Mart, Inc.
(Unaudited)

		Nine Months Ended January 31,
		2004			2003
Operating activities:
Net income		$	11,169,175		$	10,327,012
Less: Income from discontinued operations		165,000			506,186
Income from continuing operations		11,004,175			9,820,826

Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
Depreciation and amortization		231,613			209,925
Deferred income taxes		559,936			369,700
Changes in finance receivables, net:
Finance receivable originations		(111,374,611		)	(96,096,526		)
Finance receivable collections		71,435,701			60,265,397
Provision for credit losses		26,046,851			19,415,277
Inventory acquired in repossession		4,971,505			4,076,586
Subtotal finance receivables		(8,920,554		)	(12,339,266		)
Changes in operating assets and liabilities:
Income tax receivable		161,816			7,948,204
Notes and other receivables		110,193			814,178
Inventory		(442,858		)	(1,199,651		)
Prepaid and other		164,949			13,742
Accounts payable and accrued liabilities		(2,660,544		)	(1,370,698		)
Income taxes payable		2,168,777			266,387
Net cash provided by operating activities		2,377,503			4,533,347

Investing activities:
Purchase of property and equipment		(1,146,234		)	(1,668,560		)
Sale of discontinued subsidiaries					6,795,000
Note collections from discontinued subsidiaries					2,078,661
Other					(26,015		)
Net cash provided by (used in) investing activities		(1,146,234		)	7,179,086

Financing activities:
Exercise of stock options		2,129,693			664,618
Purchase of common stock		(911,947		)	(1,809,048		)
Repayments of revolving credit facility, net		(2,055,089		)	(3,702,362		)
Repayments of other debt					(7,500,000		)
Net cash used in financing activities		(837,343		)	(12,346,792		)

Cash provided by (used in) continuing operations		393,926			(634,359		)
Cash used in discontinued operations					(2,520,506		)

Increase (decrease) in cash and cash equivalents		393,926			(3,154,865		)
Cash and cash equivalents at:	Beginning of period	783,786			3,750,426

	End of period	$	1,177,712		$	595,561

The accompanying notes are an integral part of these consolidated financial statements.

Notes to Consolidated Financial Statements (Unaudited)

America’s Car-Mart, Inc.

A – Organization and Business

America’s Car-Mart, Inc., a Texas corporation (“Corporate” or the “Company”), is a holding company that operates automotive dealerships through its subsidiaries that focus exclusively on the “Buy Here/Pay Here” segment of the used car market. References to the Company typically 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. (“Colonial”). Car-Mart of Arkansas and Colonial are collectively referred to herein as “Car-Mart.” As of January 31, 2004, the Company operated 68 stores located primarily in small cities throughout the South-Central United States. The Company provides financing for substantially all of its customers, many of whom would not qualify for conventional financing as a result of limited credit histories or past credit problems.

In October 2001, the Company made the decision to sell all of its operating subsidiaries except Car-Mart, and relocate its corporate headquarters to Bentonville, Arkansas where Car-Mart is based. As a result of this decision, all of the Company’s other operating subsidiaries were sold and their operating results have been included in discontinued operations. The Company sold its last remaining discontinued operation in July 2002 as described in Note J.

B – Summary of Significant Accounting Policies

General

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended January 31, 2004 are not necessarily indicative of the results that may be expected for the year ended April 30, 2004. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended April 30, 2003.

Use of Estimates

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 Arkansas, Oklahoma, Missouri, Texas and Kentucky. Periodically, the Company maintains cash in financial institutions in excess of the amounts insured by the federal government.

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. Finance receivables 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 income remaining from the total interest to be earned over the term of the related installment contract. An account is considered delinquent when a contractually scheduled payment has not been received by the scheduled payment date. At January 31, 2004, 4.5% of finance receivable balances were over 30 days past due.

The Company takes steps to repossess a vehicle when the customer becomes severely delinquent in his or her payments, and management determines that timely collection of delinquent and 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 timely collection of future payments is not probable for accounts where the Company has been unable to repossess the vehicle.

The Company maintains an allowance for credit losses at a level it considers sufficient to cover anticipated losses in the collection of its finance receivables. The allowance for credit losses is based primarily upon historical and recent credit loss experience, with consideration given to changes in loan characteristics (i.e., average amount financed and term), delinquency levels, collateral values, economic conditions, underwriting and collection practices, and management’s expectations of future credit losses. 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 events or circumstances could occur in the future that are not presently foreseen and 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.

Stock Option Plan

The Company accounts for its stock option plan in accordance with the provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. As such, compensation expense is only recorded on the date of grant if the market price on such date exceeds the exercise price. Since the exercise price of options granted has been equal to the market price on the date of grant, no compensation expense has been recorded. Had the Company determined compensation cost on the date of grant based upon the fair value of its stock options under Statement of Financial Accounting Standards No. 123, and using the assumptions detailed below, the Company’s pro forma net income and earnings per share would be as follows using the Black-Scholes option-pricing model. The estimated weighted average fair value of options granted using the Black-Scholes option-pricing model was $8.68 and $6.37 per share for the nine months ended January 31, 2004 and 2003, respectively.

	Three Months Ended January 31,						Nine Months Ended January 31,
	2004			2003			2004			2003

Reported net income	$	2,809,638		$	3,283,542		$	11,169,175		$	10,327,012
Fair value compensation cost, net of tax	—			—			42,966			307,621

Pro forma net income	$	2,809,638		$	3,283,542		$	11,126,209		$	10,019,391

Basic earnings per share:
As reported	$	.37		$	.47		$	1.49		$	1.48
Pro forma	$	.37		$	.47		$	1.49		$	1.43

Diluted earnings per share:
As reported	$	.35		$	.42		$	1.40		$	1.32
Pro forma	$	.35		$	.42		$	1.40		$	1.28

Assumptions:
Dividend yield	0.0		%	0.0		%	0.0		%	0.0		%
Risk-free interest rate	4.0		%	4.5		%	4.3		%	4.5		%
Expected volatility	60.0		%	50.0		%	55.0		%	50.0		%
Expected life	5 years			5 years			5 years			5 years

Related Party Transactions

During the nine months ended January 31, 2004 and 2003, the Company paid Dynamic Enterprises, Inc. (“Dynamic”) approximately $18,750 per month for the lease of six dealership locations. A director of the Company is also an officer of Dynamic.

C – Finance Receivables

The Company originates installment sale contracts from the sale of used vehicles at its dealerships. These installment sale contracts typically have interest rates ranging from 6% to 19% per annum and provide for payments over periods ranging from 12 to 36 months. The components of finance receivables are as follows:

	January 31, 2004			April 30, 2003

Gross contract amount	$	134,746,741		$	121,013,893
Unearned finance charges	(10,407,635		)	(9,259,863		)
Allowance for credit losses	(24,059,617		)	(20,395,095		)

	$	100,279,489		$	91,358,935

Changes in the finance receivables allowance for credit losses for the nine months ended January 31, 2004 and 2003 are as follows:

	Nine Months Ended January 31,
	2004			2003
Balance at beginning of period	$	20,395,095		$	17,042,609
Provision for credit losses	26,046,851			19,415,277
Net charge-offs	(22,382,329		)	(16,942,359		)

Balance at end of period	$	24,059,617		$	19,515,527

D – Property and Equipment

A summary of property and equipment is as follows:

	January 31, 2004			April 30, 2003

Land and buildings	$	3,320,013		$	2,764,821
Furniture, fixtures and equipment	768,350			630,065
Leasehold improvements	2,264,226			1,844,191
Less accumulated depreciation and amortization	(958,836		)	(759,945		)

	$	5,393,753		$	4,479,132

E – Accrued Liabilities

A summary of accrued liabilities is as follows:

	January 31, 2004		April 30, 2003

Compensation	$	1,630,681	$	3,520,548
Interest	95,440		101,214
Cash overdraft	143,785		1,145,112
Deferred revenue	1,271,262		1,269,430
Other	433,217		628,009

	$	3,574,385	$	6,664,313

F – Debt

A summary of debt is as follows:

Revolving Credit Facility

Lender

Facility
Amount

Interest
Rate

Maturity

Balance at
January 31, 2004

Balance at
April 30, 2003

Bank of Oklahoma

39.5 million

Prime

Apr 2006

23,913,131

25,968,220

The Company’s revolving credit facility is collateralized by substantially all the assets of the Company including finance receivables and inventory. Interest is payable monthly and the principal balance is due at the maturity of the facility. Interest is charged at the bank’s prime lending rate per annum (4.0% at January 31, 2004). Prior to November 30, 2003, interest was charged at the bank’s prime lending rate plus .5% (4.75% at April 30, 2003). The revolving credit facility contains various reporting and performance covenants including (i) maintenance of certain financial ratios and tests, (ii) limitations on borrowings from other sources, (iii) restrictions on certain operating activities, and (iv) restrictions on the payment of dividends or distributions. The amount available to be drawn under the revolving credit facility is a function of eligible finance receivables. Based upon eligible finance receivables at January 31, 2004, the Company could have drawn an additional $15.6 million under the facility.

G – Weighted Average Shares Outstanding

Weighted average shares outstanding, which are used in the calculation of basic and diluted earnings per share, are as follows:

	Three Months Ended January 31,		Nine Months Ended January 31,
	2004	2003	2004	2003

Weighted average shares outstanding-basic	7,634,222	6,996,036	7,480,518	6,987,118
Dilutive options and warrants	360,208	798,054	470,995	859,487

Weighted average shares outstanding-diluted	7,994,430	7,794,090	7,951,513	7,846,605

Antidilutive securities not included:
Options and warrants	—	62,500	5,833	62,500

During the nine months ended January 31, 2004, options and warrants covering 538,478 shares were exercised that resulted in proceeds of $2,129,693.

H – Commitments and Contingencies

In February 2001 and May 2002, the Company was added as a defendant in two similar actions which were originally filed in December 1998 against approximately twenty defendants (the “Defendants”) by Astoria Entertainment, Inc. (“Astoria”). One action was filed in the Civil District Court for the Parish of Orleans, Louisiana (the “State Claims”) and the other was filed in the United States District Court for the Eastern District of Louisiana (the “Federal Claims”). In these actions, Astoria alleges the Defendants conspired to eliminate Astoria from receiving one of the fifteen riverboat gaming licenses that were awarded by the State of Louisiana in 1993 and 1994, at a time when a former subsidiary of the Company was involved in riverboat gaming in Louisiana. Astoria seeks unspecified damages including lost profits. In August 2001, the federal court dismissed all of the Federal Claims with prejudice. The State Claims are pending before the state district court. The Company believes the remaining State Claims are without merit and intends to vigorously contest liability in this matter. Further, in the ordinary course of business, the Company has become a defendant in various types of other legal proceedings. Although the Company cannot determine at this time the amount of exposure from lawsuits, if any, management does not expect the final outcome of any of these actions, individually or in the aggregate, to have a material adverse effect on the Company’s financial position, results of operations or cash flows.

I – Supplemental Cash Flow Information

Supplemental cash flow disclosures are as follows:

	Nine Months Ended January 31,
	2004		2003

Interest paid	$	898,875	$	1,393,580
Income taxes paid (refunded), net	3,638,289		(3,280,662		)

J – Discontinued Operations

In October 2001 the Company made the decision to sell all of its operating subsidiaries except Car-Mart, and relocate its corporate headquarters to Bentonville, Arkansas where Car-Mart is based. This decision was based on management’s desire to separate the highly profitable and modestly leveraged operations of Car-Mart from the operating losses or lower level of profitability and highly leveraged operations of the Company’s other operating subsidiaries. In addition, it was management’s belief that the Company’s ownership of businesses in a variety of different industries may have created confusion within the investment community, possibly making it difficult for investors to analyze and properly value the Company’s common stock. In May 2002, the Company sold its remaining 50% interest in Precision IBC, Inc. (“Precision”) for $3.8 million in cash. In July 2002 the Company sold its 80% interest in Concorde Acceptance Corporation (“Concorde”) for $3.0 million in cash. As a result of these two sales, the Company no longer operates any business other than Car-Mart.

As a result of the Company’s decision, operating results from its non Car-Mart operating subsidiaries have been reclassified to discontinued operations for all periods presented. Discontinued operations include the operations of Concorde through June 2002. Discontinued operations for the nine months ended January 31, 2004 reflect a negotiated settlement of amounts due from a former subsidiary of the Company that had been previously written-off. A summary of the Company’s discontinued operations is as follows (in thousands):

	Three Months Ended January 31,				Nine Months Ended January 31,
	2004		2003		2004		2003

Revenues	$	—	$	—	$	250	$	3,058
Operating expenses							2,306

Income before taxes and minority interests					250		752

Provision for income taxes					85		283
Minority interests							94

Income from discontinued operations	$	—	$	—	$	165	$	375

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Company’s consolidated financial statements and notes thereto appearing elsewhere in this report.

Forward-looking Information

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements. Certain information included in this Quarterly Report on Form 10-Q contains, and other materials filed or to be filed by the Company with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by the Company or its management) contain or will contain, forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. The words “believe,” “expect,” “anticipate,” “estimate,” “project” and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. The Company undertakes no obligation to publicly update or revise any forward-looking statements. Such forward-looking statements are based upon management’s current plans or expectations and are subject to a number of uncertainties and risks that could significantly affect current plans, anticipated actions and the Company’s future financial condition and results. As a consequence, actual results may differ materially from those expressed in any forward-looking statements made by or on behalf of the Company as a result of various factors. Uncertainties and risks related to such forward-looking statements include, but are not limited to, those relating to the continued availability of lines of credit for the Company’s business, the Company’s ability to underwrite and collect its installment loans effectively, changes in interest rates, competition, dependence on existing management, adverse economic conditions (particularly in the State of Arkansas), changes in tax laws or the administration of such laws and changes in lending laws or regulations. Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made.

Overview

Consolidated Operations
(Operating Statement Dollars in Thousands)

							% Change		As a% of Sales
	Three Months Ended January 31,						2004 vs.		Three Months Ended January 31,
	2004			2003			2003		2004		2003
Revenues:
Sales	$	38,643		$	35,730		8.2	%	100.0	%	100.0	%
Interest income	3,210			2,569			25.0		8.3		7.2
Total	41,853			38,299			9.3		108.3		107.2

Costs and expenses:
Cost of sales	19,882			19,012			4.6		51.5		53.2
Selling, general and admin	7,387			7,012			5.3		19.1		19.6
Provision for credit losses	9,765			6,621			47.5		25.3		18.5
Interest expense	295			361			(18.3	)	.8		1.0
Depreciation and amortization	71			74			(4.1	)	.2		.2
Total	37,400			33,080			13.1		96.8		92.6

Pretax income	$	4,453		$	5,219		(14.7	)	11.5		14.6

Operating Data:
Retail units sold	5,936			5,321			11.6	%
Average stores in operation	67.3			62.0			8.5
Average units sold per store	88.2			85.8			2.8
Average retail sales price	$	6,300		$	6,506		(3.2	)
Same store revenue growth	5.9		%	17.1		%

Period End Data:
Stores open	68			63			7.9	%
Accounts over 30 days past due	4.5		%	5.2		%

Three Months Ended January 31, 2004 vs. Three Months Ended January 31, 2003

Revenues increased $3.6 million, or 9.3%, for the three months ended January 31, 2004 as compared to the same period in the prior fiscal year. The increase was principally the result of (i) revenue growth from stores that operated a full three months in both periods ($2.1million, or 5.9%), (ii) revenue growth from stores opened during the three months ended January 31, 2003 or stores that opened or closed a satellite location after October 31, 2002 ($.1 million), and (iii) revenues from stores opened after January 31, 2003 ($1.4 million).

Same store revenue growth slowed to 5.9% for the three months ended January 31, 2004 from 17.1% in the same period of the prior fiscal year. The decrease was principally the result of a 3.2% decrease in the average retail sales price in the current fiscal period as compared to a 6.8% increase in the same period of the prior fiscal year. The decrease in the average retail sales price stems from a decision at the beginning of the current fiscal year to sell a higher percentage of lower-priced vehicles. On a percentage basis, lower-priced vehicles have higher gross margins, and are more affordable than higher-priced vehicles. However, selling lower-priced vehicles has a negative impact on revenue growth, and, as discussed below, loans on lower-priced vehicles have higher charge-off experience than loans on higher-priced vehicles. As a result of the negative impact on revenue growth and the higher charge-off experience, the Company recently decided to substantially reduce its purchase and sale of lower-priced vehicles.

Cost of sales as a percentage of sales decreased to 51.5% for the three months ended January 31, 2004 from 53.2% in the same period of the prior fiscal year. The decrease was principally the result of the Company’s decision to sell a higher percentage of lower-priced vehicles (which have higher gross margin percentages than higher-priced vehicles), and a decision in late December 2003 to raise prices by about $200, or 3%, on most of the vehicles it sells. The effect of the December 2003 price increase will be fully reflected in the fourth quarter of fiscal 2004.

Selling, general and administrative expense as a percentage of sales decreased to 19.1% for the three months ended January 31, 2004 from 19.6% in the same period of the prior fiscal year. The decrease was principally the result of (i) lower compensation expense at its Irving, Texas office in connection with the relocation of the Company’s principal headquarters from Irving, Texas to Bentonville, Arkansas and (ii) lower compensation expense in connection with a change in the senior management bonus program, partially offset by higher insurance and advertising costs.

Provision for credit losses as a percentage of sales increased to 25.3% for the three months ended January 31, 2004 from 18.5% in the same period of the prior fiscal year. The increase was primarily the result of higher charge-offs as a percentage of sales and an increase of the

Company’s allowance for credit losses as a percentage of finance receivable principal balances. During the three months ended January 31, 2004, the Company increased its allowance for credit losses by 70 basis points from 18.65% to 19.35% of finance receivable principal balances. The increase was determined to be needed primarily as a result of the higher charge-offs as previously discussed.

The increase in charge-offs was partially attributable to a change in Company policy with respect to the number of accounts over 30 days past due the Company will allow its stores to carry. At January 31, 2004, the Company reduced the percentage of accounts over 30 days past due to 4.5%, from 5.2% at October 31, 2003 and 5.2% at January 31, 2003. The Company expects to further reduce this percentage by April 30, 2004. Management believes that by not allowing stores to carry as many accounts over 30 days past due (and in particular, accounts over 60 days past due), store managers and collection personnel will be forced to address these severely past due accounts on a timelier basis which will increase the likelihood that a greater percentage of these accounts can be “saved”, rather than charged-off.

As discussed above, the Company also believes the increase in charge-offs is partially attributable to a decision at the beginning of the current fiscal year to sell a higher percentage of lower-priced vehicles. Lower-priced vehicles have higher margins on a percentage basis and are more affordable to the Company’s customers. However, historical data indicates that loans on lower-priced vehicles have higher charge-off experience than loans on higher-priced vehicles. As a result of the negative impact on revenue growth (as discussed above) and higher than normal charge-off experience, the Company recently decided to substantially reduce its purchase and sale of lower-priced vehicles.

Interest expense as a percentage of sales decreased to .8% for the three months ended January 31, 2004 from 1.0% in the same period of the prior fiscal year. The decrease was principally the result of (i) a decrease in the prime interest rate (interest charged on the Company’s revolving credit facility fluctuates with the prime interest rate), and (ii) a lower level of borrowings relative to the sales volume of the Company.

Consolidated Operations
(Operating Statement Dollars in Thousands)

							% Change		As a% of Sales
	Nine Months Ended January 31,						2004 vs.		Nine Months Ended January 31,
	2004			2003			2003		2004		2003
Revenues:
Sales	$	119,160		$	105,477		13.0	%	100.0	%	100.0	%
Interest income	9,318			7,197			29.5		7.8		6.8
Total	128,478			112,674			14.0		107.8		106.8

Costs and expenses:
Cost of sales	62,014			55,828			11.1		52.0		52.9
Selling, general and admin	21,823			20,199			8.0		18.3		19.2
Provision for credit losses	26,047			19,415			34.2		21.9		18.4
Interest expense	915			1,366			(33.0	)	.8		1.3
Depreciation and amortization	231			210			10.0		.2		.2
Total	111,030			97,018			14.4		93.2		92.0

Pretax income	$	17,448		$	15,656		11.4		14.6		14.8

Operating Data:
Retail units sold	18,098			16,130			12.2	%
Average stores in operation	66.2			60.5			9.5
Average units sold per store	273.2			266.8			2.4
Average retail sales price	$	6,363		$	6,334		.5
Same store revenue growth	10.8		%	15.0		%

Period End Data:
Stores open	68			63			7.9	%
Accounts over 30 days past due	4.5		%	5.2		%

Nine Months Ended January 31, 2004 vs. Nine Months Ended January 31, 2003

Revenues increased $15.8 million, or 14.0%, for the nine months ended January 31, 2004 as compared to the same period in the prior fiscal year. The increase was principally the result of (i) revenue growth from stores that operated a full nine months in both periods ($10.1 million, or 10.8%), (ii) revenue growth from stores opened during the nine months ended January 31, 2003 or stores that opened or closed a satellite location after April 30, 2002 ($3.0 million), and (iii) revenues from stores opened after January 31, 2003 ($2.7 million).

Same store revenue growth slowed to 10.8% for the nine months ended January 31, 2004 from 15.0% in the same period of the prior fiscal year. The decrease was principally the result of a smaller increase in the average retail sales price during the current fiscal period (.5%) as compared to same period in the prior fiscal year (4.2%). The slowing of growth in the average retail sales price stems from a decision at the beginning of the current fiscal year to sell a higher percentage of lower-priced vehicles as discussed above.

Cost of sales as a percentage of sales decreased to 52.0% for the nine months ended January 31, 2004 from 52.9% in the same period of the prior fiscal year. The decrease was principally the result of (i) the Company’s decision in late December 2003 to raise prices by about $200, or 3%, on most of the vehicles it sells, and (ii) encouraging store managers to more closely adhere to the Company’s pricing matrix and to not use their discretionary authority to discount the sales price of vehicles.

Selling, general and administrative expense as a percentage of sales decreased to 18.3% for the nine months ended January 31, 2004 from 19.2% in the same period of the prior fiscal year. The decrease was principally the result of (i) lower compensation expense at its Irving, Texas office in connection with the relocation of the Company’s principal headquarters from Irving, Texas to Bentonville, Arkansas and (ii) lower compensation expense in connection with a change in the senior management bonus program, partially offset by higher insurance and advertising costs.

Provision for credit losses as a percentage of sales increased to 21.9% for the nine months ended January 31, 2004 from 18.4% in the same period of the prior fiscal year. The increase was primarily the result of higher charge-offs as a percentage of sales and an increase of the Company’s allowance for credit losses as a percentage of finance receivable principal balances. During the nine months ended January 31, 2004, the Company increased its allowance for credit losses by 110 basis points from 18.25% to 19.35% of finance receivable principal balances. The increase was determined to be needed primarily as a result of the higher charge-offs as previously discussed.

The increase in charge-offs was partially attributable to a change in Company policy with respect to the number of accounts over 30 days past due the Company will allow its stores to carry. At January 31, 2004, the Company reduced the percentage of accounts over 30 days past due to 4.5%, from 5.2% at January 31, 2003. The Company expects to further reduce this percentage by April 30, 2004. Management believes that by not allowing stores to carry as many accounts over 30 days past due (and in particular, accounts over 60 days past due), store managers and collection personnel will be forced to address these severely past due accounts on a timelier basis which will increase the likelihood that a greater percentage of these accounts can be “saved”, rather than charged-off.

As discussed above, the Company also believes the increase in charge-offs is partially attributable to a decision at the beginning of the current fiscal year to sell a higher percentage of lower-priced vehicles. Lower priced vehicles have higher-margins on a percentage basis and are more affordable to the Company’s customers. However, historical data indicates that loans on lower-priced vehicles have higher charge-off experience than loans on higher-priced vehicles. As a result of the negative impact on revenue growth (as discussed above) and higher than normal charge-off experience, the Company recently decided to substantially reduce its purchase and sale of lower-priced vehicles.

Interest expense as a percentage of sales decreased to .8% for the nine months ended January 31, 2004 from 1.3% in the same period of the prior fiscal year. The decrease was principally the result of (i) a decrease in the prime interest rate (interest charged on the Company’s revolving credit facility fluctuates with the prime interest rate), and (ii) a lower level of borrowings relative to the sales volume of the Company.

Liquidity and Capital Resources

The following table sets forth certain summarized historical information with respect to the Company’s statements of cash flows (in thousands):

	Nine Months Ended January 31,
	2004			2003
Operating activities:
Income from continuing operations	$	11,004		$	9,821
Finance receivables, net	(8,921		)	(12,339		)
Income tax receivable	162			7,948
Other	132			(897		)
Total	2,377			4,533

Investing activities:
Purchase of property and equipment	(1,146		)	(1,669		)
Sale of discontinued subsidiaries				6,795
Note collections from discontinued subsidiaries				2,079
Other				(26		)
Total	(1,146		)	7,179

Financing activities:
Exercise of stock options	2,130			665
Purchase of common stock	(912		)	(1,809		)
Revolving credit facility, net	(2,055		)	(3,702		)
Repayment of other debt				(7,500		)
Total	(837		)	(12,346		)

Cash provided by (used in) continuing operations	$	394		$	(634	)

At January 31, 2004, the Company had $1.2 million of cash on hand and had an additional $15.6 million of availability under its $39.5 million revolving credit facility.

On both a short-term and long-term basis, the Company expects its principal sources of liquidity to consist of income from continuing operations and borrowings from a revolving credit facility. Further, while the Company has no present 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 to (i) grow its finance receivables portfolio by approximately the same percentage that its sales grow, (ii) purchase property and equipment of approximately $2 million in the next twelve months in connection with opening new stores and refurbishing existing stores, and (iii) to the extent excess cash is available, reduce debt. In addition, from time to time the Company may use cash to repurchase its common stock. The Company expects to fund the majority of its finance receivables portfolio growth from income generated from operations, with the balance of its capital needs being satisfied by its revolving credit facility.

The Company’s revolving credit facility matures in April 2006. The Company expects that it will be able to renew or refinance its revolving credit facility on or before the scheduled maturity date. The Company believes it will have adequate liquidity to satisfy its capital needs for the foreseeable future.

Critical Accounting Policies

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. The Company believes the most significant estimate made in the preparation of the accompanying consolidated financial statements relates to the determination of its allowance for credit losses. Below is a discussion of the Company’s accounting policy concerning its allowance for credit losses. Other accounting policies are disclosed in Note B in the accompanying consolidated financial statements.

underwriting and collection practices, and management’s expectations of future credit losses. 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 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.

Seasonality

The Company’s business is seasonal in nature. The Company’s third fiscal quarter (November through January) is historically the slowest period for automobile sales. Many of the Company’s operating expenses such as administrative personnel, rent and insurance are fixed and cannot be reduced during periods of decreased sales. Conversely, the Company’s fourth fiscal quarter (February through April) is historically the busiest time for automobile sales primarily because many of the Company’s customers use income tax refunds as a down payment on the purchase of a vehicle. Further, the Company experiences seasonal fluctuations in its finance receivable credit losses. As a percentage of sales, the Company’s first and fourth fiscal quarters tend to have lower credit losses (averaging 17.6% over the last seven years), while its second and third fiscal quarters tend to have higher credit losses (averaging 19.8% over the last seven years).

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed to market risk on its financial instruments from changes in interest rates. In particular, the Company has exposure to changes in the federal primary credit rate and the prime interest rate of its lender. The Company does not use financial instruments for trading purposes or to manage interest rate risk. The Company’s earnings are impacted by its net interest income, which is the difference between the income earned on interest-bearing assets and the interest paid on interest-bearing notes payable. As described below, a decrease in market interest rates would generally have an adverse effect on the Company’s profitability.

The Company’s financial instruments consist of fixed rate finance receivables and variable rate notes payable. The Company’s finance receivables generally bear interest at fixed rates ranging from 6% to 19%. These finance receivables generally have remaining maturities from one to 36 months. The Company’s borrowings contain variable interest rates that fluctuate with market interest rates (i.e., the rate charged on the Company’s revolving credit facility fluctuates with the prime interest rate of its lender). However, interest rates charged on finance receivables originated in the State of Arkansas are limited to the federal primary credit rate (2.0% at January 31, 2004) plus 5.0%. Typically, the Company charges interest on its Arkansas loans at or near the maximum rate allowed by law. Thus, while the interest rates charged on the Company’s loans do not fluctuate once established, new loans originated in Arkansas are set at a spread above the federal primary credit rate which does fluctuate. At January 31, 2004, approximately 67% of the Company’s finance receivables were originated in Arkansas. Assuming that this percentage is held constant for future loan originations, the long-term effect of decreases in the federal primary credit rate would generally have a negative effect on the profitability of the Company. This is the case because the amount of interest income lost on Arkansas originated loans would likely exceed the amount of interest expense saved on the Company’s variable rate borrowings (assuming the prime interest rate of its lender decreases by the same percentage as the decrease in the federal primary credit rate). The initial impact on profitability resulting from a decrease in the federal primary credit rate and the rate charged on its variable interest rate borrowings would be positive, as the immediate interest expense savings would outweigh the loss of interest income on new loan originations. However, as the amount of new loans originated at the lower interest rate increases to an amount in excess of the amount of variable interest rate borrowings, the effect on profitability would become negative.

The table below illustrates the estimated impact that hypothetical changes in the federal primary credit rate would have on the Company’s continuing pretax earnings. The calculations assume (i) the increase or decrease in the federal primary credit rate remains in effect for two years, (ii) the increase or decrease in the federal primary credit rate results in a like increase or decrease in the rate charged on the Company’s variable rate borrowings, (iii) the principal amount of finance receivables ($124.3 million) and variable interest rate borrowings ($23.9 million), and the percentage of Arkansas originated finance receivables (67%), remain constant during the periods, and (iv) the Company’s historical collection and charge-off experience continues throughout the periods.

Increase (Decrease) in Interest Rates	Year 1 Increase (Decrease) in Pretax Earnings			Year 2 Increase (Decrease) in Pretax Earnings
	(in thousands)			(in thousands)
+2%	$	362		$	1,106
+1%	181			553
-1%	(181		)	(553		)
-2%	(362		)	(1,106		)

A similar calculation and table were prepared at April 30, 2003. The calculation and table were materially consistent with the information provided above.

Item 4. Controls and Procedures

Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the design and operation of the Company’s disclosure controls and procedures were effective as of the end of the period covered by this quarterly report on Form 10-Q.

PART II

Item 1. Legal Proceedings

Item 5. Other Information

Nan R. Smith, the Company’s Chairman of the Board, has informed the Company that she plans to retire shortly after the end of fiscal year 2004. It is expected that Tilman J. Falgout, III, the Company’s Chief Executive Officer, will replace Ms. Smith as Chairman of the Board.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits:

31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K:

During the fiscal quarter ended January 31, 2004 the Company furnished one report on Form 8-K pertaining to a press release dated December 10, 2003 announcing earnings for the fiscal quarter ended October 31, 2003.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	America’s Car-Mart, Inc.


	By:	/s/ Tilman J. Falgout, III
		Tilman J. Falgout, III
		Chief Executive Officer
		(Principal Executive Officer)


	By:	/s/ Mark D. Slusser
		Mark D. Slusser
		Chief Financial Officer and Secretary
		(Principal Financial and Accounting Officer)


Dated: March 2, 2004

Exhibit Index

31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.