AMERICAS CARMART INC - Annual Report: 2006 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-K
|
(Mark
One)
|
|
|
x
|
ANNUAL
REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|
|
For
the fiscal year ended April 30, 2006
|
|
|
OR
|
|
|
o
|
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)
|
63-0851141
|
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(IRS
Employer
Identification
Number)
|
|
802
Southeast Plaza Avenue
Suite 200
Bentonville,
Arkansas
|
72712
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(479) 464-9944
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
NONE
Securities
registered pursuant to section 12(g) of the Act:
Common
Stock, $.01 par value
(Title
of
Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act. Yes o
No x
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
o
No x
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x
No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
(Check one):
|
o
Large
accelerated filer
|
Accelerated
filer x
|
Non-accelerated
filer o
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes o
No x
The
aggregate market value of the registrant’s common stock held by non-affiliates
on October 31, 2005 was $167,719,824
(10,378,702 shares),
based on
the closing price of the registrant’s common stock of $16.16.
There
were 11,915,524 shares of the registrant’s common stock outstanding as
of July 13, 2006.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the registrant’s Proxy Statement to be furnished to stockholders in
connection with its 2006 Annual Meeting of Stockholders are incorporated by
reference into Part III of this report.
PART
I
Forward-Looking
Statements
This
Annual Report on Form 10-K contains numerous “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,” “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:
| • |
opening
new stores at the rate of 8% to 14% per
year;
|
| • |
the
continuation of same store revenue
growth;
|
| • |
revenue
growth of approximately 10% to 14% in fiscal
2007;
|
| • |
receivables
growth greater than revenue growth;
|
| • |
the
Company’s business and growth
strategies;
|
| • |
financing
the majority of growth from profits;
and
|
| • |
having
adequate liquidity to satisfy its 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:
| • |
the
availability of credit facilities for the Company’s
business;
|
| • |
the
Company’s ability to effectively underwrite and collect its
loans;
|
| • |
competition;
|
| • |
dependence
on existing management;
|
| • |
changes
in lending laws or regulations; and
|
| • |
general
economic conditions in the markets in which the Company operates,
including fluctuations in employment
levels.
|
The
Company undertakes no obligation to publicly 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.
Item
1. Business
Business
and Organization
America’s
Car-Mart, Inc., a Texas corporation (the “Company”), is the largest publicly
held automotive retailer in the United States focused 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”). 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, 2006, the Company operated
85
stores located primarily in small cities throughout the South-Central United
States.
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. Discontinued operations are
described in Note O to the accompanying consolidated financial
statements.
Business
Strategy
In
general, it is the Company’s objective to continue to expand its Buy Here/Pay
Here used car operation using the same business model that has been developed
by
Car-Mart over the last 25 years. This business strategy focuses on:
| · |
Collecting
Customer Accounts.
Collecting customer accounts is perhaps the single most important
aspect
of operating a Buy Here/Pay Here used car business and is a focal
point
for store level and corporate office personnel on a daily basis.
Periodically, the Company measures and monitors the collection results
of
its stores using internally developed delinquency and account loss
standards. Substantially all associate incentive compensation is
tied
directly or indirectly to collection results. Over the last five
years,
Car-Mart’s annual credit losses as a percentage of sales have been
relatively stable ranging from a low of 18.5% to a high of 21.4%
(average
of 20.1%). The Company believes that it can continue to be successful
provided it maintains its credit losses within or below its historical
credit loss range.
|
| · |
Maintaining
a Decentralized Operation.
The Company’s dealerships will continue to operate on a decentralized
basis. Each store is responsible for buying (with the assistance
of a
corporate office buyer) and selling its own vehicles, making credit
decisions and collecting the loans 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 oversight and involvement of corporate office
management and the maintenance of centralized financial controls,
including an internal compliance
staff.
|
| · |
Expanding
Through Controlled Organic Growth.
The Company will continue to expand its operations by increasing
revenues
at existing dealerships and opening new dealerships. The Company
expects
to open new stores at the rate of 8% to 14% per annum for the foreseeable
future. The Company acquired an existing Buy Here/Pay Here dealership
in
March 2006 (and
|
2
another
in May 2006) and may consider acquiring additional existing dealerships if
conditions and terms are favorable. However, the Company will continue to view
organic growth as its primary source for growth.
| · |
Selling
Basic Transportation.
The Company will continue to focus on selling basic and affordable
transportation to its customers. The Company generally does not sell
luxury cars or sports cars. Approximately 80% of vehicles are sold
at
prices ranging between $6,000 and $9,500, with an average of $7,494
in
fiscal 2006. By selling vehicles in this price range, the Company
is able
to keep the terms of its installment sales contracts relatively short
(average of 27.25 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 experiences better collection
results
as its customers are more stable in their employment and place of
residence, and are easier to locate in the event their loans become
delinquent. Further, the Company believes that operating costs, such
as
salaries, rent and advertising, are lower in smaller communities
than in
major metropolitan areas.
|
| · |
Promoting
from Within.
It
has been the Company’s practice to try to hire honest and hardworking
individuals to fill entry level positions, nurture and develop these
associates, and attempt to fill the vast majority of its managerial
positions from within the Company. By promoting from within, the
Company
believes it is better 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.
|
| · |
Cultivating
Customer Relationships.
The Company believes that developing and maintaining a relationship
with
its customers are critical to the success of the Company. A large
percentage of sales at mature stores 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
loan with the Company. The Company is able to cultivate these
relationships as the majority of its 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:
| · |
Experienced
and Motivated Management. The
Company’s executive operating officers have an average tenure of
approximately 16 years. Several of Car-Mart’s store managers have been
with the Company for more than 10 years. Each store manager is
compensated, at least in part (some entirely), based upon the net
income
of his or her store. A significant portion of the compensation of
Car-Mart
senior management is incentive
based.
|
| · |
Proven
Business Practices.
The Company’s operations are highly structured. While stores are operated
on a decentralized basis, the Company has established policies, procedures
and business practices for virtually every aspect of a store’s operations.
Detailed operating manuals are available to assist the store manager
and
office and collections personnel in performing their
daily
|
3
tasks.
As
a result, each store is operated in a uniform manner. Further, corporate office
personnel monitor the stores’ operations through weekly visits and a number of
daily, weekly and monthly communications and reports.
| · |
Low
Cost Operator.
The Company has structured its store and corporate office operations
to
minimize operating costs. The number of associates employed at the
store
level is dictated by the number of active customer accounts each
store
services. Associate compensation is standardized for each store 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, or per unit sold, are among the lowest
in the
industry.
|
| · |
Well
Capitalized / Limited External Capital Required for
Growth.
As
of April 30, 2006, the Company’s debt to equity ratio was 0.37 to 1.0,
which the Company believes is lower than the majority 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.
|
| · |
Significant
Expansion Opportunities.
The Company generally targets smaller communities to locate its
dealerships (i.e., populations from 20,000 to 50,000), but has had
success
in larger cities such as Tulsa, Oklahoma and Little Rock, Arkansas.
The
Company believes there are numerous suitable communities within the
nine
states in which the Company currently operates to satisfy anticipated
store growth for the next several years. During fiscal 2007, the
Company
plans to add locations principally in Alabama and Missouri as well
as
fill-in additions in a few other existing
states.
|
Operations
| · |
Store
Organization.
Stores are operated on a decentralized basis. Each store is responsible
for buying (with the assistance of a corporate office buyer) and
selling
vehicles, making credit decisions, and servicing and collecting the
installment loans it originates. Stores also maintain their own records
and make daily deposits. Store-level financial statements are prepared
by
the corporate office on a monthly basis. Depending on the number
of active
customer accounts, a store may have as few as two or as many as 20
associates employed at that location. Associate positions at a large
store
may include a store manager, assistant store manager, manager trainee,
office manager, assistant office manager, service manager, buyer,
collections personnel, salesmen and lot attendants. Stores are open
Monday
through Saturday from 9:00 a.m. to 6:00 p.m. The Company has both
regular
and satellite stores. Satellite stores are similar to regular stores,
except that they tend to be smaller, sell fewer vehicles and their
financial performance is not captured in a stand alone financial
statement, but rather is included in the financial results of the
sponsoring regular store.
|
| · |
Store
Locations and Facilities. Below
is a summary of stores opened during the fiscal years ended April
30,
2006, 2005 and 2004:
|
|
Years
Ended April 30,
|
|||||
|
2006
|
2005
|
2004
|
|||
|
Stores
at beginning of year
|
76
|
70
|
64
|
||
|
New
stores opened
|
10
|
6
|
7
|
||
|
Stores
closed
|
(1)
|
-
|
(1)
|
||
|
Stores
at end of year
|
85
|
76
|
70
|
||
4
Below
is
a summary of store locations by state as of April 30, 2006, 2005 and
2004:
|
As
of April 30,
|
||||||
|
Stores
by State
|
2006
|
2005
|
2004
|
|||
|
Arkansas
|
34
|
34
|
32
|
|||
|
Oklahoma
|
15
|
13
|
13
|
|||
|
Texas
|
16
|
14
|
10
|
|||
|
Kentucky
|
8
|
7
|
7
|
|||
|
Missouri
|
9
|
6
|
6
|
|||
|
Kansas
|
1
|
1
|
1
|
|||
|
Indiana
|
1
|
1
|
1
|
|||
|
Tennessee
|
1
|
-
|
-
|
|||
|
Total
|
85
|
76
|
70
|
|||
Stores
are typically located in smaller communities. As of April 30, 2006,
approximately 74 % of the Company’s stores were located in cities with
populations of less than 50,000. Stores are located on leased or owned property
between one and three acres in size. When opening a new store 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. Store
facilities typically range in size from 1,500 to 5,000 square feet.
| · |
Purchasing.
The Company purchases vehicles primarily through wholesalers, new
car
dealers and from auctions. The majority of vehicle purchasing is
performed
by the Company’s buyers, although certain store managers are authorized to
purchase vehicles. On average, a buyer will purchase vehicles for
three
stores. Buyers report to the store manager, or managers, for whom
they
make purchases, and to a regional purchasing director. The regional
purchasing directors monitor the quantity and quality of vehicles
purchased and compare the cost of similar vehicles purchased among
different buyers.
|
Generally,
the Company’s buyers purchase vehicles between three and 10 years of age with
60,000 to 120,000 miles, and pay between $2,500 and $6,000 per vehicle. The
Company focuses on providing basic transportation to its customers. The Company
generally does not purchase sports cars or luxury cars. Some of the more popular
vehicles the Company sells include the Ford Taurus and Escort, Chevrolet Lumina
and Cavalier, Dodge Neon, Pontiac Grand Am and Oldsmobile Cutlass. The Company
also sells a number of trucks. Buyers inspect and test-drive almost every
vehicle they purchase. Buyers attempt to purchase vehicles that require little
or no repair as the Company has limited facilities to repair or recondition
vehicles.
| · |
Selling,
Marketing and Advertising.
Stores generally maintain an inventory of 15 to 75 vehicles depending
on
the maturity of the dealership. Inventory turns over approximately
12 to
14 times each year. Approximately 80% of vehicles are sold at prices
ranging between $6,000 and $9,500, with an average of $7,494 in fiscal
2006. Selling is done principally by the store 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
four month or 4,000 mile service contract for $345 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
and
mark-up percentages on parts. The majority of the Company’s customers
elect to purchase a service contract when purchasing a
vehicle.
|
5
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. The Company recognizes repeat
customers with silver, gold and platinum plaques representing the purchase
of
five, 10 and 15 vehicles, respectively. These plaques are prominently displayed
at the dealership where the vehicles were purchased. For mature dealerships,
a
large percentage of sales are to repeat customers.
The
Company primarily advertises in local newspapers, on the radio and on
television. In addition, periodically the Company conducts promotional sales
campaigns in order to increase sales.
| · |
Underwriting
and Finance.
The Company provides financing to substantially all of its customers
who
purchase a vehicle at one of its stores. 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 typically include down payments
ranging from 0% to 17% (average of 6%), terms ranging from 12 months
to 36
months (average of 27.25 months), and annual interest charges ranging
from
6% to 19% (average of 12.9% at April 30, 2005). The Company requires
that
payments be made on a weekly, bi-weekly, semi-monthly or monthly
basis 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
store
manager makes the decision to accept, reject or modify (perhaps obtain
a
greater down payment or require an acceptable co-buyer) the proposed
transaction. In general, the store manager attempts to assess the
stability and character of the applicant. The store manager who makes
the
credit decision is ultimately responsible for collecting the loan,
and his
or her compensation is directly related to the collection results
of his
or her store.
|
| · |
Collections.
All of the Company’s retail installment contracts are serviced by Company
personnel at the store level. The majority of the Company’s customers make
their payments in person at the store where they purchased their
vehicle,
although some customers send their payments through the mail. Each
store
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 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, the percentage of accounts three or more weeks past
due,
and for larger stores, one and two weeks past due, 15 to 44 days past due and
45-plus 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 one day late are sent a notice in the mail.
Accounts three days late are contacted by telephone. Notes from each telephone
contact are electronically maintained in the Company’s computer system. 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. The Company attempts to
amicably resolve payment delinquencies prior to repossessing a
6
vehicle.
Periodically, the Company enters into contract modifications with its customers
to extend 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. 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
store, or sold for cash on a wholesale basis.
| · |
New
Store Openings.
The Company plans to add stores at the rate of 8% to 14% per year.
Senior
management, with the assistance of the corporate office staff, makes
decisions with respect to the communities in which to locate a new
store
and the specific sites within those communities. New stores have
historically been located in the general proximity of existing stores
to
facilitate the corporate office’s oversight of the Company’s stores.
|
The
Company’s approach with respect to new store openings is one of gradual
development. The manager in charge of a new store is normally a recently
promoted associate who was an assistant manager at a larger store or a manager
trainee. The facility may be of a modular nature or an existing structure.
New
stores operate with a low level of inventory and personnel. As a result of
the
modest staffing level, the new store manager performs a variety of duties (i.e.,
selling, collecting and administrative tasks) during the early stages of his
or
her store’s operations. As the store develops and the customer base grows,
additional staff is hired.
Monthly
sales levels at new stores are substantially less than sales levels at mature
stores. Over time new stores gain recognition in their communities, and a
combination of customer referrals and repeat business generally facilitate
strong sales growth. Sales growth at new stores can exceed 20% per year for
a
number of years. Mature stores typically experience annual sales growth, but
at
a lower percentage than new stores.
New
stores are generally provided with approximately $500,000 to $600,000 in capital
from the corporate office during the first 12 to 18 months of operation. These
funds are used principally to fund receivables growth. After this 12 to 18
month
start-up period, new stores typically become cash flow positive. That is,
receivables growth is funded from store profits rather than additional capital
from the corporate office. This limitation of capital to new, as well as
existing, stores serves as an important operating discipline. Essentially,
stores must be profitable in order to grow. Typically, new stores are profitable
within a few months of opening.
| · |
Corporate
Office Oversight and Management.
The corporate office, based in Bentonville, Arkansas, consists of
area
operations managers, regional vice presidents, regional purchasing
directors, a vice president of purchasing, compliance auditors, associate
and management development personnel, accounting and management
information systems personnel, administrative personnel and senior
management. The corporate office monitors and oversees store operations.
The Company’s stores transmit and submit operating and financial
information and reports to the corporate office on a daily, weekly
and
monthly basis. This information includes cash receipts and disbursements,
inventory and receivables levels, receivables agings and sales and
account
loss data. The corporate office uses this information to compile
Company-wide reports, plan store visits and prepare monthly financial
statements.
|
Periodically,
area operations managers, regional vice presidents, compliance auditors and
senior management visit the Company’s stores to inspect, review and comment on
operations. Often, the corporate office assists in training new managers and
other store level associates. In addition to financial
7
results,
the corporate office uses delinquency and account loss standards and a point
system to evaluate a store’s performance.
The
Company’s store managers meet monthly on an area, regional or Company-wide
basis. At these meetings, corporate office personnel provide training and
recognize achievements of store managers. Near the end of every fiscal year
the
respective area operations manager, regional vice president and senior
management conduct “projection” meetings with each store manager. At these
meetings, the year’s results are reviewed and ranked relative to other stores,
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, 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 store 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 Buy Here/Pay Here segment of the independent used
car
sales and finance market. Buy Here/Pay Here dealers sell and finance
used
cars to individuals with limited credit histories or past credit
problems.
Buy Here/Pay Here dealers typically offer their customers certain
advantages over more traditional financing sources, such as broader
and
more flexible 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 Buy Here/Pay Here dealers. Despite significant opportunities,
many of
the traditional lending sources do not consistently provide financing
to
individuals with limited credit histories or past credit problems.
Management believes traditional lenders avoid this market because
of its
high credit risk and the associated collection efforts.
|
Competition
The
used
automotive retail industry is highly competitive and fragmented. The Company
competes principally with other independent Buy Here/Pay Here dealers, and
to a
lesser degree 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.
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 quality of vehicle
selection, (iii) pricing, (iv) the convenience of a dealership’s location, (v)
the option to purchase a service contract, and (vi) customer service. Management
believes that its dealerships are competitive in each of these
areas.
8
Regulation
and Licensing
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
truth-in-lending and equal credit opportunity 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 collection 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
states in which the Company operates impose limits on interest rates the Company
can charge on its loans. These limits are generally based on either (i) a
specified margin above the federal primary credit rate, (ii) the age of the
vehicle, or (iii) a fixed rate. 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.
Employees
As
of
April 30, 2006, the Company, including its consolidated subsidiaries, employed
approximately 779 persons full time. None of the Company's employees are covered
by a collective bargaining agreement and the Company believes that its relations
with its employees are good.
Available
Information
Our
website is located at www.car-mart.com. We make available on this website,
free
of charge, access to our 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 we file with, or furnish to, the
Securities and Exchange Commission (“SEC”) as soon as reasonably practicable
after we electronically submit this material to the SEC. The information
contained on our website or available by hyperlink from our website is not
incorporated into this Annual Report on Form 10-K or other documents we file
with, or furnish to, the SEC.
9
Executive
Officers
The
executive officers of the Company are as follows:
|
Name
|
Age
|
Position
with the Company
|
||
|
Tilman
J. Falgout, III
|
57
|
Chairman
of the Board, Chief Executive Officer, General Counsel and
Director
|
||
|
William
H. Henderson
|
42
|
Vice
Chairman of the Board, President and Director
|
||
|
Eddie
L. Hight
|
43
|
Chief
Operating Officer
|
||
|
Jeffrey
A. Williams
|
43
|
Chief
Financial Officer, Vice President Finance and
Secretary
|
Tilman
J. Falgout, III
has
served as Chairman of the Board since May 2004, Chief Executive Officer of
the
Company since May 2002, General Counsel since 1995 and a director of the Company
since 1992. From 1995 until May 2002, Mr. Falgout also served as Executive
Vice
President of the Company. From 1978 through June 1995, Mr. Falgout was a partner
in the law firm of Stumpf & Falgout, Houston, Texas.
William
H. Henderson
has
served as Vice Chairman of the Board since May 2004 and as President of the
Company since May 2002. From 1999 until May 2002, Mr. Henderson served as Chief
Operating Officer of Car-Mart. From 1992 through 1998, Mr. Henderson served
as
General Manager of Car-Mart. From 1987 to 1992, Mr. Henderson primarily held
the
positions of District Manager and Regional Manager at Car-Mart.
Eddie
L. Hight has
served as Chief Operating Officer of the Company since May 2002. From 1984
until
May 2002, Mr. Hight held a number of positions at Car-Mart including Store
Manager and Regional Manager.
Jeffrey
A. Williams
has
served as Chief Financial Officer, Vice President Finance and Secretary of
the
Company since October 1, 2005. From October 2004 until his employment by the
Company, he served as the Chief Financial Officer of Budgetext Corporation,
a
distributor of new and used textbooks. From February 2004 to October 2004,
Mr.
Williams was the President and founder of Clearview Enterprises, LLC, a regional
distributor of animal health products. From January 1999 to January 2004, Mr.
Williams was Chief Financial Officer and Vice President of Operations of Wynco,
LLC, a nationwide distributor of animal health products.
Item
1A. Risk Factors
10
Risks
Related to the Used Automotive Retail and Finance Industry
The
Company may have a higher risk of delinquency and default than traditional
lenders because it loans money to credit-impaired borrowers.
Substantially
all of Car-Mart’s automobile contracts involve loans made to individuals with
impaired or limited credit histories, or higher debt-to-income ratios than
permitted by traditional lenders. Loans made to borrowers 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
loans made to borrowers with better credit. Delinquency interrupts the flow
of
projected interest income and repayment of principal from a loan, and a default
can ultimately lead to a loss if the net realizable value of the automobile
securing the loan is insufficient to cover the principal and interest due on
the
loan or the vehicle cannot be recovered. Car-Mart’s profitability depends, in
part, upon its ability to properly evaluate the credit worthiness of non-prime
borrowers and efficiently service such loans. Although the Company believes
that
its underwriting criteria and collection methods enable it to manage the higher
risks inherent in loans 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 would be materially
and
adversely affected.
A
decrease in market interest rates would likely have an adverse effect on the
Company’s profitability.
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
generally bear interest at fixed rates ranging from 6% to 19% while its
revolving notes payable contain variable interest rates that fluctuate with
market interest rates. However, interest rates charged on finance receivables
originated in the State of Arkansas are limited to the federal primary credit
rate plus 5%. 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 April 30, 2006, approximately 59% 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 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.
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.
From
time
to time, the Company has to recognize losses resulting from the inability of
certain borrowers to repay loans and the insufficient realizable value of the
collateral securing loans. The Company maintains an allowance for credit losses
in an attempt to cover credit losses inherent in its loan 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 delinquency levels, collateral values, economic conditions and underwriting
and collection 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 loan portfolio.
11
A
reduction in the availability or access to sources of inventory would adversely
affect the Company’s business by increasing the costs of vehicles purchased.
Car-Mart
acquires vehicles primarily through wholesalers, new car dealers and from
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
would adversely affect gross profit percentages as the Company focuses on
keeping payments affordable to its customer base. The Company could have to
absorb cost increases.
The
used automotive retailing industry is highly competitive and fragmented.
The
Company competes principally with other independent Buy Here/Pay Here dealers,
and to a lesser degree 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 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
Car-Mart’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.
An
economic slowdown will have adverse consequences for the used automotive
industry 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. Any significant
changes in economic conditions could adversely affect consumer demand and/or
increase costs, resulting in lower profitability for the Company. Due to the
Company’s focus on non-prime borrowers, its actual rate of delinquencies,
repossessions and credit losses on loans could be higher under adverse economic
conditions than those experienced in the automotive retail finance industry
in
general.
The
used automotive industry operates in a highly regulated
environment.
The
used
automotive 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,
the
Company has incurred, and will continue to incur, capital and operating
expenditures, and other costs in 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 and insurance activities in the sale of
motor
vehicles.
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, adversely affecting consumer traffic at Car-Mart’s
automotive dealerships, could negatively impact the Company’s operating results.
12
Risks
Related to the Company
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 nine states where Car-Mart 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 Arkansas,
Oklahoma, Texas, Kentucky and Missouri, with approximately 58% 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.
Car-Mart’s
success depends upon the continued contributions of its management teams.
The
Company is dependent upon the continued contributions of its management teams
and other key employees. Since the Company maintains a decentralized operation
in which each store is responsible for buying and selling its own vehicles,
making credit decisions and collecting loans it originates, the key employees
at
each store 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, as Car-Mart opens new lots, the Company will need to hire additional
personnel. The market for qualified employees in the industry and in the regions
in which Car-Mart operates is highly competitive and may subject the Company
to
increased labor costs during periods of low unemployment.
The
Company’s business is dependent upon the efficient operation of its information
systems.
Car-Mart
relies on its information systems to effectively manage its sales, inventory,
consumer financing, and customer information. 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.
Changes
in the availability or cost of capital and working capital financing could
adversely affect the Company’s growth and business strategies.
The
Company generates cash from income from continuing operations. The cash is
primarily used to fund finance receivables growth, which have historically
grown
slightly faster than revenues. 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 make loans. 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,
Car-Mart’s current credit facilities contain various reporting and performance
covenants. Any failure by the Company to comply with these covenants could
have
a material adverse effect on the Company’s ability to implement its business
strategy.
13
The
Company’s growth is dependent upon the availability of suitable lot
sites.
The
Company leases a majority of the properties where its stores are located. The
Company expects to open new stores at the rate of 8% to 14% per year for the
foreseeable future. The inability to acquire suitable real estate, either
through lease or purchase, at favorable terms could limit the expansion of
the
Company’s lot base and could have a material adverse effect on the Company’s
expansion strategy and future operating results.
Car-Mart’s
business is subject to seasonal fluctuations.
The
Company’s third fiscal quarter (November through January) is historically the
slowest period for car and truck sales. Conversely, the Company’s first and
fourth fiscal quarters (May through July and February through April) are
historically the busiest times for car and truck sales. Therefore, Car-Mart
generally realizes a higher proportion of its revenue and operating profit
during the first and fourth fiscal quarters. If conditions arise that impair
vehicle sales during the first or fourth fiscal quarters, the adverse effect
on
the Company’s revenues and operating profit for the year could be
disproportionately large.
An
unfavorable determination by the Internal Revenue Service in connection with
a
pending tax audit could have a material adverse effect on the Company’s
financial results and condition.
Car-Mart
of Arkansas and Colonial do not meet the affiliation standard for filing
consolidated income tax returns, 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 (“IRC”) as described in the Treasury Regulations.
For financial accounting purposes, these transactions are eliminated in
consolidation, and a deferred 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 240 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.
Currently,
the Internal Revenue Service (“IRS”) is examining the Company’s tax returns for
fiscal 2002 and certain items in subsequent years, and in particular is focusing
on whether or not the Company satisfies the provisions of the Treasury
Regulations which would entitle Car-Mart of Arkansas to a tax deduction at
the
time it sells its finance receivables to Colonial. The Company is unable to
determine at this time the amount of adjustments, if any, that may result from
this examination. The assessment of a tax deficiency by the IRS could have
a
material adverse effect on the Company’s results of operations and financial
condition, at least in the near term, if the Company were ultimately
unsuccessful in contesting any such deficiency.
Item
1B. Unresolved Staff Comments
Not
applicable.
14
Item
2. Properties
As
of
April 30, 2006, the Company leased approximately 75% of its facilities,
including dealerships and the Company’s corporate offices. These facilities are
located principally in the states of Arkansas, Oklahoma, Texas, Kentucky and
Missouri. The Company’s corporate offices are located in approximately 12,000
square feet of leased space in Bentonville, Arkansas. For additional information
regarding the Company’s properties, see “Contractual Payment Obligations” and
“Off-Balance Sheet Arrangements” under Item 7 of Part II.
Item
3. Legal Proceedings
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
20
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 15 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 was seeking
unspecified damages including lost profits. In August 2001, the Federal court
dismissed all of the Federal Claims with prejudice. In September 2004, the
state
court of appeals dismissed all the State Claims. In January 2005, the Louisiana
Supreme Court reversed the state court of appeals’ dismissal of the case. The
parties reached an out-of-court settlement in February 2006. The expense for
this settlement is included in selling, general and administrative expenses
in
fiscal 2006. The settlement amount was not material to the consolidated
financial statements.
In
addition to the foregoing case, in the ordinary course of business, the Company
has become a defendant in various types of other 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. However, the results
of
legal proceedings cannot be predicted with certainty, 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.
Item
4. Submission of Matters to a Vote of Security Holders
No
matters were submitted to a vote of security holders of the Company during
the
fourth quarter ended April 30, 2006.
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 National Market under the symbol
CRMT. The following table sets forth, by fiscal quarter, the high and low
closing sales prices reported by NASDAQ for the Company's common stock for
the
periods indicated.
15
|
Fiscal
2006
|
Fiscal
2005
|
||||||||||||
|
High
|
Low
|
High
|
Low
|
||||||||||
|
First
quarter
|
$
|
23.37
|
$
|
19.96
|
$
|
21.04
|
$
|
16.95
|
|||||
|
Second
quarter
|
21.72
|
15.94
|
23.04
|
19.50
|
|||||||||
|
Third
quarter
|
18.65
|
14.29
|
25.46
|
22.33
|
|||||||||
|
Fourth
quarter
|
22.06
|
17.45
|
25.23
|
20.39
|
|||||||||
As
of
July 13, 2006, there were approximately 1,077 stockholders of record. This
number excludes stockholders holding stock under nominee security position
listings.
Dividend
Policy
Since
its
inception the Company has paid no cash dividends on its common stock. The
Company currently intends to follow a 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. Colonial’s revolving credit
facility prohibits dividends to the Company and Car-Mart of Arkansas’s revolving
credit facility limits dividends to the Company to 75% of Car-Mart of Arkansas’s
net income. Thus, the Company is limited in the amount of cash dividends or
other distributions it can make to its shareholders.
Stock
Split
In
March
2005, the Company’s Board of Directors declared a three-for-two common stock
split, effected in the form of a 50% stock dividend, that was paid in April
2005. All share and per share numbers and amounts in this Form 10-K have been
adjusted to reflect this three-for-two common stock split.
Warrants
In
January 2003, the Company issued a warrant to purchase 7,500 shares of its
common stock at an exercise price of $8.69 per share to Epoch Financial Group,
Inc. (“Epoch”), a firm that provides investor relations services. In July 2003
and April 2004, the Company issued warrants to purchase 15,000 and 3,750 shares
of its common stock at exercise prices of $11.83 and $18.23 per share,
respectively, to Epoch. During fiscal 2006, 2005 and 2004, the Company issued
4,436, 8,943 and 15,975 shares of its common stock, respectively, pursuant
to
partial exercises of the warrants held by Epoch.
Equity
Compensation Plan Information
The
following table provides information as of April 30, 2006 with respect to the
Company’s equity compensation plans:
|
Plan
Category
|
Number
of Securities to
be
Issued upon
Exercise
of
Outstanding
Options,
Warrants
and Rights
|
Weighted-Average
Exercise
Price of
Outstanding
Options,
Warrants
and Rights
|
Number
of Securities
Remaining
Available for
Future
Issuance under
Equity
Compensation Plans
|
||||
|
Equity
compensation plans:
|
|||||||
|
Approved
by security holders
|
287,295
|
$
10.38
|
40,808
|
||||
|
Not
approved by security holders (1)
|
45,000
|
6.92
|
-
|
||||
|
|
|||||||
|
Total
|
332,295
|
$
9.91
|
40,808
|
||||
_________________________________
| (1) |
For
a description of equity compensation plans not approved by security
holders, see “Warrants” in Note J to the Company’s financial statements
included elsewhere herein.
|
16
Issuer
Purchases of Equity Securities
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
|
Total
Number
of
Shares
Purchased
|
Average
Price
Paid
per Share
|
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)
|
||||
|
February
1, 2006 to February 28, 2006
|
-
|
-
|
-
|
955,200
|
||||
|
March
1, 2006 to March 31, 2006
|
-
|
-
|
-
|
955,200
|
||||
|
April
1, 2006 to April 30, 2006
|
6,000
|
$
20.78
|
6,000
|
949,200
|
||||
_________________________________
| (1) |
In
December 2005, the Company announced its latest amendment to its
stock
repurchase plan that was initially announced in July 1996. The plan,
as
amended, authorizes the purchase of up to 1,000,000 shares of the
Company’s common stock and has no expiration date. As of April 30, 2006,
the remaining number of shares that may be purchased under the plan
was
949,200.
|
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 related notes thereto, and Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained elsewhere herein.
|
Years
Ended April 30,
|
||||||||||||||||
|
(In
thousands, except per share amounts)
|
||||||||||||||||
|
2006
|
2005
|
2004
|
2003
|
2002
(a)
|
||||||||||||
|
Revenues
|
$
|
234,207
|
$
|
204,788
|
$
|
176,184
|
$
|
154,885
|
$
|
127,924
|
||||||
|
|
||||||||||||||||
|
Income
(loss) from continuing operations
|
$
|
16,705
|
$
|
17,976
|
$
|
15,639
|
$
|
13,569
|
$
|
(1,136
|
)
|
|||||
|
Net
income (loss)
|
$
|
16,705
|
$
|
17,976
|
$
|
15,804
|
$
|
14,075
|
$
|
(14,306
|
)
|
|||||
|
Diluted
earnings (loss) per share - continuing operations
|
$
|
1.39
|
$
|
1.49
|
$
|
1.31
|
$
|
1.16
|
$
|
(.11
|
)
|
|||||
|
Total
assets
|
$
|
177,613
|
$
|
143,668
|
$
|
117,241
|
$
|
101,841
|
$
|
128,142
|
||||||
|
Total
debt
|
$
|
43,588
|
$
|
29,145
|
$
|
22,534
|
$
|
25,968
|
$
|
39,792
|
||||||
|
Stockholders’
equity
|
$
|
119,251
|
$
|
103,265
|
$
|
84,577
|
$
|
65,961
|
$
|
52,813
|
||||||
|
Shares
outstanding
|
11,848
|
11,844
|
11,637
|
10,812
|
10,416
|
|||||||||||
_________________________________
| (a) |
Fiscal
2002 includes after tax charges totaling $10.7 million pertaining
to (i)
non-cash stock option compensation ($6.3 million), (ii) the write-down
of
certain emerging technology/Internet investments and equipment ($2.6
million), and (iii) severance and office closing costs in connection
with
the decision to relocate the Company’s corporate headquarters to
Bentonville, Arkansas ($1.8 million) where Car-Mart is
based.
|
17
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 appearing elsewhere in this annual
report.
Overview
America’s
Car-Mart, Inc., a Texas corporation (the “Company”), is the largest publicly
held automotive retailer in the United States focused 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”). 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, 2006, the Company operated
85
stores 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 13%
and
21% per year over the last nine years. Historically, finance receivables have
tended to grow slightly faster than revenues. In fiscal 2006 finance receivables
grew 21.6% compared to revenue growth of 14.4%. The increase primarily relates
to 1) an increase in the average term for installment sales contracts (to 27.25
months), 2) the timing of customer payments, particularly at year-end, 3) the
purchase of finance receivables from Dan’s Auto Sales in Lexington, KY in March
2006, 4) the increase in the percentage of 30-day plus past due amounts at
year-end (to 3.7%), and 5) an increase in the average interest rate charged
resulting in a higher percentage of customer payments going to interest as
opposed to principle reduction. Revenue growth results from same store revenue
growth and the addition of new stores. Revenue growth in fiscal 2006 (14.4%)
was
slightly ahead of the Company’s growth expectations of 10% to 14%. Revenue
growth in fiscal 2006 was assisted by a 4.6% increase in the average retail
sales price and a 7.9% growth in retail unit sales. Typically, annual price
increases are in the 3% to 5% range. Presently, the
Company expects that its average retail sales price will increase in fiscal
2007, but at a rate slightly lower than its historical average annual price
increase.
Unit
sales are expected to increase at a faster rate than 2006 resulting from new
store additions and same store revenue growth. As a result, revenue growth
for
fiscal 2007 is presently expected to be in the 10% to 14% range.
The
Company’s primary focus is on collections. Each store is responsible for its own
collections with supervisory involvement of the corporate office. Over the
last
five fiscal years, Car-Mart’s credit losses as a percentage of sales have ranged
between approximately 19% and 21% (average of 20.1%). For the last two fiscal
years, credit losses as a percentage of sales have averaged 20.8%. Credit losses
in fiscal 2006 (21.4%) were higher than the Company’s average over the last five
years. Credit losses in fiscal 2006 were negatively affected by higher losses
experienced during the Company’s second quarter (24.6%). Significant negative
external economic issues, including higher fuel prices, were prevalent during
fiscal year 2006, concentrated to a large extent in the second quarter. Also
during the second quarter, significant efforts were made by store management
to
identify, clean-up and write off uncollectible accounts. Credit losses were
20.9%, 20.6% and 19.6% for the first, third and fourth quarters of fiscal
2006.
18
In
February 2004, the Company decided to substantially reduce its purchase and
sale
of lower-priced vehicles and began purchasing and selling slightly higher-priced
vehicles. Historical data indicates that loans on lower-priced vehicles have
higher charge-off experience than loans on higher-priced vehicles. Lower-priced
vehicles tend to have more mechanical difficulties that often result in a higher
level of repossessions. The effects of the Company’s February 2004 decision to
reduce its purchase and sale of lower-priced vehicles is reflected in the lower
provision for credit losses, as a percentage of sales, in fiscal 2005 (20.1%)
when compared to fiscal 2004 (21.3%).
The
Company’s gross margins as a percentage of sales have been fairly consistent
from year to year. Over the last nine fiscal years, Car-Mart’s gross margins as
a percentage of sales have ranged between approximately 44% and 48%. Gross
margins as a percentage of sales for fiscal 2006 were 44.3% (43.2% for the
fourth quarter). This is down from 46.3% for fiscal 2005 (45.5% for the fourth
quarter). The Company’s gross margins are set based upon the cost of the vehicle
purchased, with lower-priced vehicles having higher gross margin percentages.
The Company’s gross margins have been negatively affected by the increase in the
average retail sales price (a function of a higher purchase price) and to a
lesser extent by higher operating costs, mostly related to increased vehicle
repair costs and higher fuel and transport costs. Short-term supply issues
during fiscal 2006, most prevalent during the final three quarters brought
on by
Hurricanes Katrina and Rita and by the slow down in domestic new car sales,
have
resulted in higher purchase costs for vehicles. The Company expects that its
gross margin percentage will not change significantly in the future from its
current level.
Hiring,
training and retaining qualified associates are critical to the Company’s
success. The rate at which the Company adds new stores is sometimes limited
by
the number of trained managers the Company has at its disposal. Excessive
turnover, particularly at the Store Manager level, could impact the Company’s
ability to add new stores. In fiscal 2005 and 2006, the Company added resources
to train and develop personnel. The Company expects to continue to invest in
the
development of its workforce in fiscal 2007 and beyond.
19
Consolidated
Operations
(Operating
Statement Dollars in Thousands)
|
%
Change
|
|||||||||||||||||||||||||
|
2006
|
2005
|
|
|||||||||||||||||||||||
|
Years
Ended April 30,
|
vs.
|
vs.
|
As
a % of Sales
|
||||||||||||||||||||||
|
Operating
Statement:
|
2006
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
||||||||||
|
Revenues:
|
|||||||||||||||||||||||||
|
Sales
|
$
|
214,482
|
$
|
189,343
|
$
|
163,589
|
13.3
|
%
|
15.7
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
|||||||||
|
Interest
income and other
|
19,725
|
15,445
|
12,595
|
27.7
|
22.6
|
9.2
|
8.2
|
7.7
|
|||||||||||||||||
|
Total
|
234,207
|
204,788
|
176,184
|
14.4
|
16.2
|
109.2
|
108.2
|
107.7
|
|||||||||||||||||
|
|
|||||||||||||||||||||||||
|
Costs
and expenses:
|
|||||||||||||||||||||||||
|
Cost
of sales
|
119,433
|
101,770
|
85,510
|
17.4
|
19.0
|
55.7
|
53.7
|
52.3
|
|||||||||||||||||
|
Selling,
gen and admin
|
39,261
|
34,789
|
29,671
|
12.9
|
17.2
|
18.3
|
18.4
|
18.1
|
|||||||||||||||||
|
Provision
for credit loss
|
45,810
|
38,094
|
34,767
|
20.3
|
9.6
|
21.4
|
20.1
|
21.3
|
|||||||||||||||||
|
Interest
expense
|
2,458
|
1,226
|
1,114
|
100.5
|
10.1
|
1.1
|
.6
|
.7
|
|||||||||||||||||
|
Depreciation
and amort
|
724
|
425
|
321
|
70.4
|
32.4
|
.3
|
.2
|
.2
|
|||||||||||||||||
|
Total
|
207,686
|
176,304
|
151,383
|
17.8
|
16.5
|
96.8
|
93.1
|
92.5
|
|||||||||||||||||
|
Pretax
income
|
$ |
26,521
|
$
|
28,484
|
$
|
24,801
|
(6.9
|
)
|
14.9
|
12.4
|
15.0
|
15.2
|
|||||||||||||
|
Operating
Data:
|
|||||||||||||||||||||||||
|
Retail
units sold
|
27,415
|
25,399
|
24,281
|
7.9
|
%
|
4.6
|
%
|
||||||||||||||||||
|
Average
stores in operation
|
81.5
|
74.5
|
67.0
|
9.4
|
11.2
|
||||||||||||||||||||
|
Average
units sold per store
|
336
|
341
|
362
|
(1.5
|
)
|
(5.9
|
)
|
||||||||||||||||||
|
Average
retail sales price
|
$
|
7,494
|
$
|
7,163
|
$
|
6,506
|
4.6
|
10.1
|
|||||||||||||||||
|
Same
store revenue growth
|
9.8
|
%
|
11.8
|
%
|
9.8
|
%
|
|||||||||||||||||||
|
Receivables
average yield
|
11.6
|
%
|
10.8
|
%
|
10.3
|
%
|
|||||||||||||||||||
2006
Compared to 2005
Revenues
increased $29.4 million, or 14.4%, in fiscal 2006 as compared to fiscal 2005,
principally as a result of (i) revenue growth from stores that operated a full
12 months in both periods ($19.5 million, or 9.8%), (ii) revenue growth from
stores opened during fiscal 2005 or stores that opened or closed a satellite
location during fiscal 2006 or fiscal 2005 ($2.5 million), and (iii) revenues
from stores opened during fiscal 2006 ($7.4 million).
Revenues
increased 14.4% in fiscal 2006 as compared to revenue growth of 16.2% in fiscal
2005. The decrease in revenue growth year over year is attributable to a larger
increase in the average retail sales price in fiscal 2005 (10.1%) as compared
to
fiscal 2006 (4.6%) offset by an increase in retail units sold and an increase
in
interest income and other. As discussed in “Overview” above, in February 2004
the Company made the decision to substantially reduce its purchase and sale
of
lower-priced vehicles and began purchasing and selling slightly higher-priced
vehicles. Presently, the Company expects that its average retail sales price
will increase in fiscal 2007, but at a rate slightly lower than its historical
average annual price increase of 3% to 5%.
Cost
of
sales, as a percentage of sales, increased 2.0% to 55.7% in fiscal 2006 from
53.7% in fiscal 2005. The Company’s gross margins are set based upon the cost of
the vehicle purchased, with lower-priced vehicles having higher gross margin
percentages. The Company’s gross margins have been negatively affected by the
increase in the average retail sales price (a function of a higher purchase
price) and to a lesser extent by higher operating costs, mostly related to
increased vehicle repair costs and higher fuel and transport costs.
Additionally, the percentage of wholesale sales was higher in 2006 versus 2005
which had a negative effect on gross margins. Short-term supply issues during
fiscal 2006, most prevalent
20
during
the final three quarters brought on by Hurricanes Katrina and Rita and by the
slow down in domestic new car sales, have resulted in higher purchase costs
for
vehicles.
Selling,
general and administrative expense, as a percentage of sales, decreased .1%
to
18.3% in fiscal 2006 from 18.4% in fiscal 2005. The percentage decrease was
principally the result of a decrease, as a percentage of sales, in compensation
expense. The decrease in compensation expense, as a percentage of sales, is
partially the result of selling higher-priced vehicles. Selling higher-priced
vehicles increases sales without necessarily increasing compensation expense.
The decrease in compensation expense was offset, to an extent, by other expense
increases including 1) utility and travel costs which increased as a result
of
the increase in fuel prices during the year, 2) charges associated with the
legal settlement with Astoria Entertainment, Inc. (See Note K to the
consolidated financial statements), and 3) increased costs in the Information
Technology Department and other corporate infrastructure areas to strengthen
controls, improve efficiencies and allow for continued growth.
Provision
for credit losses, as a percentage of sales, increased 1.3% to 21.4% in fiscal
2006 from 20.1% in fiscal 2005. Credit losses in fiscal 2006 were negatively
affected by higher losses experienced during the Company’s second quarter
(24.6%). Significant negative external economic issues, including higher fuel
prices, were prevalent during fiscal 2006, concentrated to a large extent in
the
second quarter. Also during the second quarter, significant efforts were made
by
store management to identify, clean-up and write off uncollectible accounts.
Credit losses were 20.9%, 20.6% and 19.6% for the first, third and fourth
quarters of fiscal 2006.
Interest
expense, as a percentage of sales, increased .5% to 1.1% in fiscal 2006 from
.6%
in fiscal 2005. The increase was principally the result of higher average
borrowing levels and higher average interest rates on the credit facility during
fiscal 2006.
2005
Compared to 2004
Revenues
increased $28.6 million, or 16.2%, in fiscal 2005 as compared to fiscal 2004,
principally as a result of (i) revenue growth from stores that operated a full
twelve months in both periods ($19.3 million, or 11.8%), (ii) revenue growth
from stores opened during fiscal 2004 or stores that opened or closed a
satellite location during fiscal 2005 or fiscal 2004 ($4.9 million), and (iii)
revenues from stores opened during fiscal 2005 ($4.4 million).
Revenues
increased 16.2% in fiscal 2005 as compared to revenue growth of 13.8% in fiscal
2004. The increase in revenue growth is attributable to a much larger increase
in the average retail sales price in fiscal 2005 (10.1%) as compared to fiscal
2004 (1.9%). As discussed in “Overview” above, in February 2004 the Company made
the decision to substantially reduce its purchase and sale of lower-priced
vehicles and began purchasing and selling slightly higher-priced vehicles.
Cost
of
sales, as a percentage of sales, increased 1.4% to 53.7% in fiscal 2005 from
52.3% in fiscal 2004. The increase was principally the result of the Company’s
decision to (i) substantially reduce the purchase and sale of lower-priced
vehicles which carry higher gross profit margin percentages, (ii) purchase
slightly higher-priced vehicles for sale which carry lower gross profit margin
percentages, (iii) perform repairs of more vehicles in inventory without passing
on the added cost, and (iv) assist in the repair of more customers’
vehicles.
Selling,
general and administrative expense, as a percentage of sales, increased .3%
to
18.4% in fiscal 2005 from 18.1% in fiscal 2004. The percentage increase is
attributable to external costs related to compliance with Section 404 of the
Sarbanes-Oxley Act of 2002, which costs amounted to approximately $.8 million
in
fiscal 2005, or .4% of sales, with no corresponding amount in the prior fiscal
year. As a
21
percentage
of sales, compensation costs decreased slightly in fiscal 2005 as compared
to
fiscal 2004. The decrease is partially the result of selling higher-priced
vehicles. Selling higher-priced vehicles increases sales without necessarily
increasing compensation expense.
Provision
for credit losses, as a percentage of sales, decreased 1.2% to 20.1% in fiscal
2005 from 21.3% in fiscal 2004. The decrease was primarily the result of lower
charge-offs as a percentage of sales. As discussed in “Overview” above, the
Company believes it experienced the positive effects on credit losses of its
February 2004 decision to reduce the purchase and sale of lower-priced vehicles.
Historically, loans on lower-priced vehicles have had higher charge-off
experience than loans on higher-priced vehicles. Also, in comparison to the
prior fiscal year, the Company believes that it became more selective in
approving credit in connection with the sale of its vehicles.
Interest
expense, as a percentage of sales, decreased .1% to .6% in fiscal 2005 from
.7%
in fiscal 2004. The decrease was principally the result of a lower level of
borrowings relative to the sales volume of the Company.
Financial
Condition
The
following table sets forth the major balance sheet accounts of the Company
at
April 30, 2006, 2005 and 2004 (in thousands):
|
April
30,
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
Assets:
|
||||||||||
|
Finance
receivables, net
|
$
|
149,379
|
$
|
123,099
|
$
|
103,684
|
||||
|
Inventory
|
10,923
|
7,985
|
5,975
|
|||||||
|
Property
and equipment, net
|
15,436
|
11,305
|
5,557
|
|||||||
|
Liabilities:
|
||||||||||
|
Accounts
payable and accrued liabilities
|
11,838
|
8,819
|
7,668
|
|||||||
|
Revolving
credit facilities
|
43,588
|
29,145
|
22,534
|
|||||||
Historically,
finance receivables have tended to grow slightly faster than revenue growth.
This has historically been due, to a large extent, to an increasing average
term
necessitated by increases in the average retail sales price. In fiscal 2006,
finance receivables, net grew 21.6% as compared to revenue growth of 14.4%.
In
fiscal 2005, finance receivables, net grew 18.7% as compared to revenue growth
of 16.2%. The percentage increase in finance receivables as compared to revenues
during 2006 was greater than the historical average due to several factors,
including an increase in the average note term. The average note term at April
30, 2006 was 27.25 months, which is up from 26 months at April 30, 2005 and
25
months at April 30, 2004. Additionally, higher interest rates on finance
receivables during 2006 resulted in a higher percentage of customer payments
going to interest as opposed to principle reduction. Also, our 30-day plus
past
due amounts were higher in fiscal 2006 than 2005 (3.7% compared to 3.0%) and
the
Company had an increase in past due dollars in the less than 30 day category
based on the timing of customer payments, particularly at year-end. Also,
finance receivables were up due to the acquisition of Dan’s Auto Sales in
Lexington, Kentucky in mid-March 2006.
The
Company expects the historical relationship between net finance receivable
growth and revenue growth to continue in the future but in an expected range
between the 2005 and 2006 experience.
In
fiscal
2006, inventory grew by 37% as compared to revenue growth of 14.4%. Inventory
grew at a faster pace than revenues as a result of the Company’s decision to (i)
increase the level of inventory it carries at many of its stores to facilitate
sales growth, and (ii) increase the average inventory cost per
unit.
22
In
fiscal
2006, the average retail sales price increased 4.61% over fiscal 2005. Inventory
increased $2.9 million during fiscal 2006 as the Company made the decision
to
carry more inventories per store.
Property
and equipment, net increased $4.1 million in fiscal 2006 as the Company
purchased real estate for a number of new stores and relocated some existing
stores to purchased property. The Company also refurbished and expanded a number
of existing stores to facilitate revenue growth.
As
a
percentage of total assets, accounts payable and accrued liabilities have been
fairly consistent from year to year.
Borrowings
on the Company’s revolving credit facilities fluctuate primarily based upon a
number of factors including (i) net income, (ii) finance receivables growth,
(iii) capital expenditures, and (iv) common stock repurchases. Historically,
income from continuing operations, as well as borrowings on the revolving credit
facility, have funded the finance receivables growth and capital asset
purchases.
Liquidity
and Capital Resources
The
following table sets forth certain historical information with respect to the
Company’s statements of cash flows (in thousands):
|
Years
Ended April 30,
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
Operating
activities:
|
||||||||||
|
Income
from continuing operations
|
$
|
16,705
|
$
|
17,976
|
$
|
15,639
|
||||
|
Provision
for credit losses
|
45,810
|
38,094
|
34,766
|
|||||||
|
Finance
receivable originations
|
(196,190
|
)
|
(173,446
|
)
|
(151,380
|
)
|
||||
|
Finance
receivable collections
|
111,315
|
105,973
|
97,367
|
|||||||
|
Inventory
|
10,692
|
7,954
|
5,003
|
|||||||
|
Income
Taxes
|
611
|
280
|
3,013
|
|||||||
|
Other
receivables
|
(294
|
)
|
(14
|
)
|
300
|
|||||
|
Accounts
payable and accrued liabilities
|
3,018
|
1,151
|
(1,081
|
)
|
||||||
|
Other
|
572
|
518
|
363
|
|||||||
|
Total
|
(7,761
|
)
|
(1,514
|
)
|
3,990
|
|||||
|
Investing
activities:
|
||||||||||
|
Purchase
of property and equipment
|
(5,011
|
)
|
(6,174
|
)
|
(1,399
|
)
|
||||
|
Proceeds
from sale of property and equipment
|
157
|
-
|
-
|
|||||||
|
Payment
for business acquired
|
(1,200
|
)
|
-
|
-
|
||||||
|
Total
|
(6,054
|
)
|
(6,174
|
)
|
(1,399
|
)
|
||||
|
Financing
activities:
|
||||||||||
|
Revolving
credit facility, net
|
14,443
|
6,611
|
(3,434
|
)
|
||||||
|
Purchase
of common stock
|
(1,312
|
)
|
(531
|
)
|
(1,646
|
)
|
||||
|
Exercise
of stock options and warrants
|
480
|
939
|
2,584
|
|||||||
|
Total
|
13,611
|
7,019
|
(2,496
|
)
|
||||||
|
Cash
provided by (used in) continuing operations
|
$
|
(204
|
)
|
$
|
(669
|
)
|
$
|
95
|
||
The
Company generates cash flow from income from continuing operations. Most or
all
of this cash is 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. The
majority of the Company’s growth is self-funded.
The
Company has had a tendency to lease the majority of the properties where its
stores are located. As of April 30, 2006, the Company leased approximately
75%
of its store properties. The Company expects to continue to lease the majority
of the properties where its stores are located.
23
Car-Mart’s
revolving credit facilities limit distributions from Car-Mart to the Company
beyond (i) the repayment of an intercompany loan ($10.0 million at April 30,
2006), and (ii) dividends equal to 75% of Car-Mart of Arkansas’ net income. At
April 30, 2006, the Company’s assets (excluding its $107 million equity
investment in Car-Mart) consisted of $44,000 in cash, $3.0 million in other
assets and a $10.0 million receivable from Car-Mart. Thus, the Company is
limited in the amount of dividends or other distributions it can make to its
shareholders without the consent of Car-Mart’s lender. Beginning in February
2003, Car-Mart assumed substantially all of the operating costs of the Company.
At
April
30, 2006, the Company had $.3 million of cash on hand and an additional $6.4
million of availability under its revolving credit facilities ($16.4 million
upon the funding of the $10 million term loan in May 2006 - see Note F to the
consolidated financial statements). On a short-term basis, the Company’s
principal sources of liquidity include income from continuing 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
continuing operations and borrowings under revolving credit facilities and/or
fixed interest term loans. Further, 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 to (i) grow its finance receivables portfolio by
a
percentage that is larger than the percentage that its revenues grow, (ii)
purchase property and equipment of approximately $2 to $3 million in the next
12
months in connection with opening new stores and refurbishing existing stores,
and (iii) reduce debt, to the extent excess cash is available. In addition,
from
time to time the Company may use cash to repurchase its common stock.
The
Company’s revolving credit facilities mature in April 2009. The Company expects
that it will be able to renew or refinance its revolving credit facilities
on or
before the date they mature. The Company believes it will have adequate
liquidity to satisfy its capital needs for the foreseeable future.
Contractual
Payment Obligations
The
following is a summary of the Company’s contractual obligations as of April 30,
2006, including renewal periods under operating leases that are reasonably
assured (in thousands):
|
Payments
Due by Period
|
|||||||||||||||||
|
Contractual
Obligations
|
Total
|
Less
Than
1
Year
|
1-3
Years
|
3-5
Years
|
More
Than
5
Years
|
||||||||||||
|
Debt
|
$
|
43,588
|
$
|
-
|
$
|
43,588
|
$
|
-
|
$
|
-
|
|||||||
|
Operating
leases
|
28,761
|
2,556
|
5,012
|
4,585
|
16,608
|
||||||||||||
|
Total
|
$
|
72,349
|
$
|
2,556
|
$
|
48,600
|
$
|
4,585
|
$
|
16,608
|
|||||||
The
$28.8
million of lease commitments includes $7.9 million of non-cancelable lease
commitments under the primary lease terms, and $20.9 million of lease
commitments for renewal periods at the Company’s option that are reasonably
assured.
Off-Balance
Sheet Arrangements
The
Company has entered into operating leases for approximately 75% of its store
and
office facilities. Generally these leases are for periods of three to five
years
and usually contain multiple renewal options. The Company uses leasing
arrangements to maintain flexibility in its store locations and
24
to
preserve capital. The Company expects to continue to lease the majority of
its
store and office facilities under arrangements substantially consistent with
the
past. For the years ended April 30, 2006, 2005 and 2004 rent expense for all
operating leases amounted to approximately $2.4 million, $2.1 million and $1.9
million, respectively.
Other
than its operating leases, 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
is 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, 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 (“IRC”) as described in the Treasury Regulations.
For financial accounting purposes, these transactions are eliminated in
consolidation, and a deferred 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 240 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.
Currently,
the Internal Revenue Service (“IRS”) is examining the Company’s tax returns for
fiscal 2002 and certain items in subsequent years, and in particular is focusing
on whether or not the Company satisfies the provisions of the Treasury
Regulations which would entitle Car-Mart of Arkansas to a tax deduction at
the
time it sells its finance receivables to Colonial. The Company is unable to
determine at this time the amount of adjustments, if any, that may result from
this examination. The assessment of a tax deficiency by the IRS could have
a
material adverse effect on the Company’s results of operations and financial
condition, at least in the near term, if the Company were ultimately
unsuccessful in contesting any such deficiency.
Critical
Accounting Policies
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 accompanying consolidated financial statements 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 accompanying
consolidated financial statements.
25
The
Company maintains an allowance for credit losses on an aggregate basis at a
level it considers sufficient to cover estimated losses in the collection of
its
finance receivables. The allowance for credit losses is based primarily upon
historical credit loss experience, with consideration given to recent credit
loss trends and changes in loan 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 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.
Recent
Accounting Pronouncement
In
December 2004, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards 123R, “Share-Based Payment” (“SFAS
123R”), which is a revision of SFAS 123. SFAS 123R supersedes APB Opinion No.
25. Generally, the approach in SFAS 123R is similar to the approach described
in
SFAS 123, except that SFAS 123R requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the income
statement based on their fair values. Pro forma disclosure is no longer an
alternative under SFAS 123R. SFAS 123R was originally issued with implementation
required for interim and annual periods beginning after June 15, 2005. On April
15, 2005, the Securities and Exchange Commission delayed the required effective
date of SFAS 123R to the beginning of the first fiscal year that begins after
June 15, 2005.
SFAS
123R
became effective for the Company on May 1, 2006. SFAS 123R permits public
companies to adopt its requirements using one of two methods: a
“modified-prospective” method or a “modified-retrospective” method. The Company
plans to adopt SFAS 123R using the modified-prospective method under which
it
will record compensation expense for all share-based awards granted after the
effective date. The Company has no unvested awards granted prior to May 1,
2006.
As
permitted by SFAS 123, the Company currently accounts for share-based payments
to employees using APB 25’s intrinsic value method and, as such, generally
recognizes no compensation cost for the fair value of employee stock options.
Accordingly, the adoption of SFAS 123R’s fair value method could
potentially have a significant impact on the Company’s results of operations,
although it is not expected to impact the Company’s overall financial position.
The total impact of adoption of SFAS 123R cannot be predicted at this time
because it will depend on levels of share-based payments granted in the future.
SFAS 123R will also require the Company to estimate forfeitures of share-based
payments upon grant. Historically, forfeitures have not been significant.
SFAS
123R
also requires the benefits of tax deductions in excess of recognized
compensation cost to be reported as a financing cash flow, rather than as an
operating cash flow as required under current literature. This requirement
will
reduce net operating cash flows and increase net financing cash flows in periods
after adoption. The Company cannot estimate what those amounts will be in the
future because they depend on, among other things, when employees exercise
stock
options.
Seasonality
The
Company’s automobile sales and finance business is seasonal in nature. The
Company’s third fiscal quarter (November through January) is historically the
slowest period for car and truck sales. Many of the Company’s operating expenses
such as administrative personnel, rent and insurance are fixed and cannot be
reduced during periods of decreased sales. Conversely, the Company’s fourth
fiscal
26
quarter
(February through April) is historically the busiest time for car and truck
sales, as 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 19.1% over the last five years), while its second and third fiscal
quarters tend to have higher credit losses (averaging 21.2% over the last five
years).
Impact
of Inflation
Inflation
has not historically been a significant factor impacting the Company’s results.
Recent purchase price increases for vehicles coupled with higher interest rates
on finance receivables, however, have had a negative effect on the Company’s
gross profit percentages as the Company focuses on keeping payments affordable
to its customer base.
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 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,
variable rate revolving notes payable and a $10 million fixed rate term loan
(funded in May 2006 - see note F to the consolidated financial statements).
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 revolving notes payable 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 (5.75% at April 30, 2006) 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 April 30, 2006,
approximately 59% of the Company’s finance receivables were originated in
Arkansas. The remaining loan portfolio carries interest rates approximating
19%.
Assuming that these percentages are 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 within the first few months 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
27
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 ($185.3 million)
and variable interest rate borrowings ($33.6 million), and the percentage of
Arkansas originated finance receivables (59%), remain constant during the
periods, and (iv) the Company’s historical collection and charge-off experience
continues throughout the periods.
|
Year
1
|
Year
2
|
|||
|
Increase
(Decrease)
|
Increase
(Decrease)
|
Increase
(Decrease)
|
||
|
in
Interest Rates
|
in
Pretax Earnings
|
in
Pretax Earnings
|
||
|
(in
thousands)
|
(in
thousands)
|
|||
|
+200
basis points
|
$
164
|
$
1,223
|
||
|
+100
basis points
|
82
|
611
|
||
|
-100
basis points
|
(82)
|
(611)
|
||
|
-200
basis points
|
(164)
|
(1,223)
|
Item
8. Financial Statements and Supplementary Data
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, 2006 and 2005
Consolidated
Statements of Operations for the years ended April 30, 2006, 2005 and
2004
Consolidated
Statements of Cash Flows for the years ended April 30, 2006, 2005 and
2004
Consolidated
Statements of Stockholders' Equity for the years ended April 30, 2006, 2005
and
2004
Notes
to
Consolidated Financial Statements
28
Report
of Independent Registered Public Accounting Firm
Stockholders
and Board of Directors
America’s
Car-Mart, Inc.
We
have
audited the accompanying consolidated balance sheets of America’s Car-Mart, Inc.
(a Texas Corporation) and subsidiaries as of April 30, 2006 and 2005, and the
related consolidated statements of operations, cash flows and stockholders’
equity for each of the three years in the period ended April 30, 2006. These
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. Our audits included examining,
on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of America’s
Car-Mart, Inc. and subsidiaries as of April 30, 2006 and 2005, and the results
of their consolidated operations and their consolidated cash flows for each
of
the three years in the period ended April 30, 2006, 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), the effectiveness of America’s
Car-Mart,
Inc. and subsidiaries’ internal control over financial reporting as of April 30,
2006, based on criteria established in
Internal Control—Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission and
our
report dated July 13, 2006, (included in item 9A) expressed an unqualified
opinion on both management’s assessment of America’s Car-Mart Inc., and
subsidiaries' internal control over financial reporting and on the effectiveness
of America’s Car-Mart Inc., and subsidiaries' internal control over financial
reporting.
/s/
GRANT
THORNTON LLP
Dallas,
Texas
July
13,
2006
29
Consolidated
Balance Sheets
America’s
Car-Mart, Inc.
|
April
30, 2006
|
April
30, 2005
|
||||||
|
Assets:
|
|||||||
|
Cash
and cash equivalents
|
$
|
254,824
|
$
|
459,177
|
|||
|
Accrued
interest on finance receivables
|
818,029
|
524,046
|
|||||
|
Finance
receivables, net
|
149,379,024
|
123,098,966
|
|||||
|
Inventory
|
10,923,200
|
7,985,959
|
|||||
|
Prepaid
expenses and other assets
|
802,274
|
295,452
|
|||||
|
Property
and equipment, net
|
15,435,852
|
11,304,658
|
|||||
|
$
|
177,613,203
|
$
|
143,668,258
|
||||
|
Liabilities
and stockholders’ equity:
|
|||||||
|
Accounts
payable
|
$
|
3,094,825
|
$
|
2,796,086
|
|||
|
Accrued
liabilities
|
8,742,918
|
6,023,291
|
|||||
|
Income
taxes payable
|
1,846,943
|
451,714
|
|||||
|
Deferred
tax liabilities, net
|
1,088,641
|
1,986,696
|
|||||
|
Revolving
credit facilities
|
43,588,443
|
29,145,090
|
|||||
|
Total
liabilities
|
58,361,770
|
40,402,877
|
|||||
|
|
|||||||
|
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;
11,929,274
issued and outstanding (11,852,188 at April 30,
2005)
|
119,293
|
118,522
|
|||||
|
Additional
paid-in capital
|
33,090,886
|
33,809,445
|
|||||
|
Retained
earnings
|
86,042,067
|
69,337,499
|
|||||
|
Treasury
stock, at cost (81,250 and 8,450 shares at April 30, 2006 and
2005)
|
(1,498,343
|
)
|
(186,154
|
)
|
|||
|
Total
stockholders’ equity
|
119,251,433
|
103,265,381
|
|||||
|
$
|
177,613,203
|
$
|
143,668,258
|
The
accompanying notes are an integral part of these consolidated financial
statements.
30
Consolidated
Statements of Operations
America’s
Car-Mart, Inc.
|
Years
Ended April 30,
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
Revenues:
|
||||||||||
|
Sales
|
$
|
214,481,542
|
$
|
189,343,473
|
$
|
163,589,076
|
||||
|
Interest
and other income
|
19,725,476
|
15,444,975
|
12,594,611
|
|||||||
|
234,207,018
|
204,788,448
|
176,183,687
|
||||||||
|
Costs
and expenses:
|
||||||||||
|
Cost
of sales
|
119,433,054
|
101,769,671
|
85,510,497
|
|||||||
|
Selling,
general and administrative
|
39,261,202
|
34,788,123
|
29,670,849
|
|||||||
|
Provision
for credit losses
|
45,810,496
|
38,093,729
|
34,766,496
|
|||||||
|
Interest
expense
|
2,458,250
|
1,226,957
|
1,113,840
|
|||||||
|
Depreciation,
amortization and loss on sale
|
723,271
|
425,624
|
321,053
|
|||||||
|
207,686,273
|
176,304,104
|
151,382,735
|
||||||||
|
Income
from continuing operations before taxes
|
26,520,745
|
28,484,344
|
24,800,952
|
|||||||
|
|
||||||||||
|
Provision
for income taxes
|
9,816,177
|
10,507,978
|
9,161,506
|
|||||||
|
Income
from continuing operations
|
16,704,568
|
17,976,366
|
15,639,446
|
|||||||
|
Discontinued
operations:
|
||||||||||
|
Income
from discontinued operations, net
of taxes
|
0
|
0
|
165,000
|
|||||||
|
Net
income
|
$
|
16,704,568
|
$
|
17,976,366
|
$
|
15,804,446
|
||||
|
Basic
earnings per share:
|
||||||||||
|
Continuing
operations
|
$
|
1.41
|
$
|
1.53
|
$
|
1.38
|
||||
|
Discontinued
operations
|
- | - | .02 | |||||||
|
Total
|
$
|
1.41
|
$
|
1.53
|
$
|
1.40
|
||||
|
Diluted
earnings per share:
|
||||||||||
|
Continuing
operations
|
$
|
1.39
|
$
|
1.49
|
$
|
1.31
|
||||
|
Discontinued
operations
|
- | - | .01 | |||||||
|
Total
|
$
|
1.39
|
$
|
1.49
|
$
|
1.32
|
||||
|
Weighted
average number of shares outstanding:
|
||||||||||
|
Basic
|
11,852,804
|
11,737,398
|
11,318,946
|
|||||||
|
Diluted
|
12,018,541
|
12,026,745
|
11,945,139
|
|||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
31
Consolidated
Statements of Cash Flows
America’s
Car-Mart, Inc.
|
Years
Ended April 30,
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
Operating
activities:
|
||||||||||
|
Net
income
|
$
|
16,704,568
|
$
|
17,976,366
|
$
|
15,804,446
|
||||
|
Less:
Income from discontinued operations
|
165,000
|
|||||||||
|
Income
from continuing operations
|
16,704,568
|
17,976,366
|
15,639,446
|
|||||||
|
Adjustments
to reconcile income from continuing operations to
net cash provided by (used in) operating activities:
|
||||||||||
|
Provision
for credit losses
|
45,810,496
|
38,093,729
|
34,766,496
|
|||||||
|
Depreciation
and amortization
|
708,658
|
425,624
|
321,053
|
|||||||
|
Loss
on sale of property and equipment
|
14,613
|
0
|
0
|
|||||||
|
Deferred
income taxes
|
(898,055
|
)
|
369,800
|
454,192
|
||||||
|
Changes
in operating assets and liabilities:
|
||||||||||
|
Finance
receivable originations
|
(196,189,770
|
)
|
(173,446,050
|
)
|
(151,379,959
|
)
|
||||
|
Finance
receivable collections
|
111,315,282
|
105,972,843
|
97,366,670
|
|||||||
|
Other
receivables
|
(293,983
|
)
|
(14,294
|
)
|
299,936
|
|||||
|
Inventory
|
10,692,003
|
7,953,505
|
5,002,803
|
|||||||
|
Prepaid
expenses and other assets
|
(152,132
|
)
|
92,189
|
41,373
|
||||||
|
Accounts
payable and accrued liabilities
|
3,018,366
|
1,151,462
|
(1,080,870
|
)
|
||||||
|
Income
taxes payable
|
1,508,931
|
(89,330
|
)
|
2,559,044
|
||||||
|
Discontinued
operations
|
-
|
-
|
250,000
|
|||||||
|
Net
cash provided by (used in) operating activities
|
(7,761,023
|
)
|
(1,514,156
|
)
|
4,240,184
|
|||||
|
|
||||||||||
|
Investing
activities:
|
||||||||||
|
Purchase
of property and equipment
|
(5,011,459
|
)
|
(6,173,525
|
)
|
(1,398,678
|
)
|
||||
|
Proceeds
from sale of property and equipment
|
156,994
|
0
|
0
|
|||||||
|
Payment
for business acquired
|
(1,200,000
|
)
|
0
|
0
|
||||||
|
Net
cash used in investing activities
|
(6,054,465
|
)
|
(6,173,525
|
)
|
(1,398,678
|
)
|
||||
|
|
||||||||||
|
Financing
activities:
|
||||||||||
|
Exercise
of stock options and warrants
|
479,971
|
939,175
|
2,583,517
|
|||||||
|
Purchase
of common stock
|
(1,312,189
|
)
|
(531,636
|
)
|
(1,646,360
|
)
|
||||
|
Proceeds
from (repayments of) revolving credit facility, net
|
14,443,353
|
6,610,970
|
(3,434,100
|
)
|
||||||
|
Net
cash provided by (used in) financing activities
|
13,611,135
|
7,018,509
|
(2,496,943
|
)
|
||||||
|
|
||||||||||
|
Increase
(decrease) in cash and cash equivalents
|
(204,353
|
)
|
(669,172
|
)
|
344,563
|
|||||
|
Cash
and cash equivalents at: Beginning of period
|
459,177
|
1,128,349
|
783,786
|
|||||||
|
|
||||||||||
|
End
of period
|
$
|
254,824
|
$
|
459,177
|
$
|
1,128,349
|
||||
The
accompanying notes are an integral part of these consolidated financial
statements.
32
Consolidated
Statements of Stockholders’ Equity
America’s
Car-Mart, Inc.
|
For
the Years Ended April 30, 2006, 2005 and 2004
|
|||||||||||||||||||
|
Additional
|
Total
|
||||||||||||||||||
|
Common
Stock
|
Paid-In
|
Retained
|
Treasury
|
Stockholders’
|
|||||||||||||||
|
Shares
|
Amount
|
Capital
|
Earnings
|
Stock
|
Equity
|
||||||||||||||
|
Balance
at April 30, 2003
|
10,811,945
|
$
|
108,119
|
$
|
30,296,067
|
$
|
35,556,687
|
$
|
0
|
$
|
65,960,873
|
||||||||
|
Stock
options/warrants exercised
|
927,717
|
9,278
|
2,574,239
|
2,583,517
|
|||||||||||||||
|
Stock
warrant issued
|
76,000
|
76,000
|
|||||||||||||||||
|
Purchase
of common stock
|
(102,900
|
)
|
(1,029
|
)
|
(1,645,331
|
)
|
(1,646,360
|
)
|
|||||||||||
|
Tax
benefit of options exercised
|
1,799,000
|
1,799,000
|
|||||||||||||||||
|
Net
income
|
15,804,446
|
15,804,446
|
|||||||||||||||||
|
|
|||||||||||||||||||
|
Balance
at April 30, 2004
|
11,636,762
|
116,368
|
33,099,975
|
51,361,133
|
0
|
84,577,476
|
|||||||||||||
|
Stock
options/warrants exercised
|
233,199
|
2,332
|
936,843
|
939,175
|
|||||||||||||||
|
Purchase
of common stock
|
(17,773
|
)
|
(178
|
)
|
(345,304
|
)
|
(345,482
|
)
|
|||||||||||
|
Purchase
of 8,450 treasury shares
|
(186,154
|
)
|
(186,154
|
)
|
|||||||||||||||
|
Tax
benefit of options exercised
|
304,000
|
304,000
|
|||||||||||||||||
|
Net
income
|
17,976,366
|
17,976,366
|
|||||||||||||||||
|
Balance
at April 30, 2005
|
11,852,188
|
118,522
|
33,995,514
|
69,337,499
|
(186,154
|
)
|
103,265,381
|
||||||||||||
|
Stock
options/warrants exercised
|
77,086
|
771
|
479,200
|
479,971
|
|||||||||||||||
|
Purchase
of 72,800 treasury shares
|
|
|
|
(1,312,189
|
)
|
(1,312,189
|
)
|
||||||||||||
|
Tax
benefit of options exercised
|
113,702
|
113,702
|
|||||||||||||||||
|
Net
income
|
16,704,568
|
16,704,568
|
|||||||||||||||||
|
|
|||||||||||||||||||
|
Balance
at April 30, 2006
|
11,929,274
|
$
|
119,293
|
$
|
34,588,416
|
$
|
86,042,067
|
$ |
(1,498,343
|
)
|
$
|
119,251,433
|
|||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
33
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 the largest publicly
held automotive retailer in the United States focused 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”). 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, 2006, the Company operated
85
stores located primarily in small cities throughout the South-Central United
States.
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. Discontinued operations are
described in Note O.
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.
Adjustments
to Reflect Stock Split
All
references to the number of shares of common stock, stock options and warrants,
earnings per share amounts, exercise prices of stock options and warrants,
common stock prices, and other share and per share data or amounts have been
adjusted, as necessary, to retroactively reflect the three-for-two common stock
split effected in the form of a 50% stock dividend in April 2005.
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.
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, Texas, Kentucky and Missouri, with approximately 58% of revenues
resulting from sales to Arkansas customers. Periodically,
34
the
Company maintains cash in financial institutions in excess of the amounts
insured by the federal government. Car-Mart’s revolving credit facilities mature
in April 2009. The Company expects that these credit facilities will be renewed
or refinanced on or before the scheduled maturity dates.
Restrictions
on Subsidiary Distributions/Dividends
Car-Mart’s
revolving credit facilities limit distributions from Car-Mart to the Company
beyond (i) the repayment of an intercompany loan ($10.0 million at April 30,
2006), and (ii) dividends equal to 75% of Car-Mart of Arkansas’ net income. At
April 30, 2006, the Company’s assets (excluding its $107 million equity
investment in Car-Mart) consisted of $44,000 in cash, $3.0 million in other
assets and a $10.0 million receivable from Car-Mart. Thus, the Company is
limited in the amount of dividends or other distributions it can make to its
shareholders without the consent of Car-Mart’s lender. Beginning in February
2003, Car-Mart assumed substantially all of the operating costs of the Company.
Cash
Equivalents
The
Company considers all highly liquid debt instruments purchased with 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. 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 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 April 30, 2006 and 2005,
respectively, 3.7% and 3.0% of the Company’s finance receivable balances were 30
days or more past due.
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 that the vehicle was repossessed, the fair value of the repossessed
vehicle is charged as a reduction of the gross finance receivable 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 at a
level it considers sufficient to cover estimated losses in the collection of
its
finance receivables. The allowance for credit losses is based primarily upon
historical credit loss experience, with consideration given to recent credit
loss trends and changes in loan 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 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.
35
Inventory
Inventory
consists of used vehicles and is valued at the lower of cost or market on a
specific identification basis. Vehicle reconditioning costs are capitalized
as a
component of inventory. Repossessed vehicles are recorded at fair value, which
approximates wholesale value. The cost of used vehicles sold is determined
using
the specific identification method.
Investments
and Other Assets
Included
in Prepaid Expenses and Other at April 30, 2006 and 2005 are investments in
high
technology/Internet based companies of approximately $30,000 and $231,000,
respectively. These investments were acquired between 1998 and 2000 and are
carried at their estimated fair values.
Goodwill
Goodwill
reflects the excess of purchase price over the fair value of specifically
identified net assets purchased. In accordance with Statement of Financial
Accounting Standards No. 142, “Goodwill and Other Intangibles”
(“SFAS 142”), goodwill and intangible assets deemed to have indefinite
lives are not amortized but are subject to annual impairment tests. The
impairment tests are based on the comparison of the fair value of the reporting
unit to the carrying value of such unit. If the fair value of the reporting
unit
falls below its carrying value, goodwill is deemed to be impaired and a
write-down of goodwill would be recognized. The Company’s goodwill is included
in Prepaid Expenses and Other at April 30, 2006, at approximately
$350,000.
Property
and Equipment
Property
and equipment are stated at cost. Expenditures for additions, renewals 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
|
3
to 7 years
|
|
Leasehold
improvements
|
5
to 15 years
|
|
Buildings
and improvements
|
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 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
The
Company’s primary disbursement bank account is set up to operate with a fixed
$100,000 cash balance. As checks are presented for payment, monies are
automatically drawn against cash collections for the day and, if necessary,
are
drawn against one of its revolving credit facilities. The 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.
36
Deferred
Sales Tax
Deferred
sales tax represents a sales tax liability of the Company for vehicles sold
on
an installment basis in the State of Texas. Under 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.
Income
Taxes
Income
taxes are accounted for under the liability method. Under this method, deferred
tax assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates expected to apply in the years in which these temporary
differences are expected to be recovered or settled.
From
time
to time, 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.
Revenue
Recognition
Revenues
are generated principally from the sale of used vehicles, which in most cases
includes a service contract, and interest income and late fees earned on finance
receivables.
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 service contracts are recognized
ratably over the four-month service contract period. Service contract revenues
are included in sales and the related expenses are included in cost of sales.
Interest income is recognized on all active finance receivable accounts using
the interest method. Active accounts include all accounts except those that
have
been paid-off or charged-off. At April 30, 2006 and 2005, finance receivables
more than 90 days past due were approximately $178,000 and $181,000,
respectively. Late fees are recognized when collected and are included in
interest income.
Advertising
Costs
Advertising
costs are expensed as incurred and consist principally of radio, television
and
print media marketing costs. Advertising costs amounted to $2,326,000,
$2,006,000 and $1,616,000 for the years ended April 30, 2006, 2005 and 2004,
respectively.
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 2% of each
employee’s compensation. The Company contributed approximately $155,000,
$103,000, and $142,000 to the plans for the years ended April 30, 2006, 2005
and
2004, respectively.
37
Earnings
per Share
Basic
earnings per share are computed by dividing net income by the average number
of
common shares outstanding during the period. Diluted earnings per share takes
into consideration the potentially dilutive effect of common stock equivalents,
such as outstanding stock options and warrants, 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
Option Plans
The
Company accounts for its stock option plans in accordance with the provisions
of
Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued
to Employees,” and related interpretations. Had the Company determined
compensation cost on the date of grant based upon the fair value of its stock
options under SFAS No. 123, the Company’s pro forma net income and earnings per
share would be as follows using the Black-Scholes option-pricing model with
the
assumptions detailed below. The estimated weighted average fair value of options
granted using the Black-Scholes option-pricing model was $10.09, $9.94 and
$5.79
for the years ended April 30, 2006, 2005 and 2004, respectively.
|
Years
Ended April 30,
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
Reported
net income
|
$
|
16,704,568
|
$
|
17,976,366
|
$
|
15,804,446
|
||||
|
Less
fair value compensation cost, net of tax
|
(99,891 | ) | (624,447 | ) | (42,966 | ) | ||||
|
Pro
forma net income
|
$
|
16,604,677
|
$
|
17,351,919
|
$
|
15,761,480
|
||||
|
Basic
earnings per share:
|
||||||||||
|
As
reported
|
$
|
1.41
|
$
|
1.53
|
$
|
1.40
|
||||
|
Pro
forma
|
$
|
1.40
|
$
|
1.48
|
$
|
1.39
|
||||
|
Diluted
earnings per share:
|
||||||||||
|
As
reported
|
$
|
1.39
|
$
|
1.49
|
$
|
1.32
|
||||
|
Pro
forma
|
$
|
1.38
|
$
|
1.44
|
$
|
1.32
|
||||
|
Assumptions:
|
||||||||||
|
Expected
dividend yield
|
0.0
|
%
|
0.0
|
%
|
0.0
|
%
|
||||
|
Risk-free
interest rate
|
4.5
|
%
|
4.9
|
%
|
4.3
|
%
|
||||
|
Expected
volatility
|
45.0
|
%
|
40.0
|
%
|
50.0
|
%
|
||||
|
Expected
life
|
5
years
|
5
years
|
5
years
|
|||||||
Treasury
Stock
The
Company purchased 72,800 and 8,450 shares of its common stock to be held as
treasury stock for a total cost of $1,312,189 and $186,154 during 2006 and
2005,
respectively. Treasury stock may be used for issuances under the Company’s stock
option plan or for other general corporate purposes. All other common shares
which have been purchased by the Company under its stock repurchase plan have
been cancelled and retired.
38
Recent
Accounting Pronouncement
In
December 2004, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards 123R, “Share-Based Payment” (“SFAS
123R”), which is a revision of SFAS 123. SFAS 123R supersedes APB Opinion No.
25. Generally, the approach in SFAS 123R is similar to the approach described
in
SFAS 123, except that SFAS 123R requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the income
statement based on their fair values. Pro forma disclosure is no longer an
alternative under SFAS 123R. SFAS 123R was originally issued with implementation
required for interim and annual periods beginning after June 15, 2005. On April
15, 2005, the Securities and Exchange Commission delayed the required effective
date of SFAS 123R to the beginning of the first fiscal year that begins after
June 15, 2005.
SFAS
123R
became effective for the Company on May 1, 2006. SFAS 123R permits public
companies to adopt its requirements using one of two methods: a
“modified-prospective” method or a “modified-retrospective” method. The Company
plans to adopt SFAS 123R using the modified-prospective method under which
it
will record compensation expense for all share-based awards granted after the
effective date. The Company has no unvested awards granted prior to May 1,
2006.
As
permitted by SFAS 123, the Company currently accounts for share-based payments
to employees using APB 25’s intrinsic value method and, as such, generally
recognizes no compensation cost for the fair value of employee stock options.
Accordingly, the adoption of SFAS 123R’s fair value method could
potentially have a significant impact on the Company’s results of operations,
although it is not expected to impact the Company’s overall financial position.
The total impact of adoption of SFAS 123R cannot be predicted at this time
because it will depend on levels of share-based payments granted in the future.
SFAS 123R will also require the Company to estimate forfeitures of share-based
payments upon grant. Historically, forfeitures have not been significant.
SFAS
123R
also requires the benefits of tax deductions in excess of recognized
compensation cost to be reported as a financing cash flow, rather than as an
operating cash flow as required under current literature. This requirement
will
reduce net operating cash flows and increase net financing cash flows in periods
after adoption. The Company cannot estimate what those amounts will be in the
future because they depend on, among other things, when employees exercise
stock
options.
Reclassifications
Certain
prior year amounts in the accompanying financial statements have been
reclassified to conform to the fiscal 2006 presentation. Cash provided by
discontinued operations in 2004 has been classified as an operating cash flow.
Treasury stock held at April 30, 2005, has been presented as a reduction to
stockholders’ equity.
39
C
- Finance Receivables, Net
The
Company originates installment sale contracts from the sale of used vehicles
at
its dealerships. These installment sale contracts typically include interest
rates ranging from 6% to 19% per annum, are collateralized by the vehicle sold
and provide for payments over periods ranging from 12 to 36 months. The
components of finance receivables as of April 30, 2006 and 2005 are as
follows:
|
April
30,
|
|||||||
|
2006
|
2005
|
||||||
|
Gross
contract amount
|
$
|
207,377,976
|
$
|
168,145,038
|
|||
|
Less
unearned finance charges
|
(22,134,769
|
)
|
(15,794,828
|
)
|
|||
|
Principal
balance
|
185,243,207
|
152,350,210
|
|||||
|
Less
allowance for credit losses
|
(35,864,183
|
)
|
(29,251,244
|
)
|
|||
|
Finance
receivables, net
|
$
|
149,379,024
|
$
|
123,098,966
|
|||
Changes
in the finance receivables, net balance for the years ended April 30, 2006,
2005
and 2004 are as follows:
|
Years
Ended April 30,
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
Balance
at beginning of year
|
$
|
123,098,966
|
$
|
103,683,660
|
$
|
91,358,935
|
||||
|
Finance
receivable originations
|
196,189,770
|
173,446,050
|
151,379,959
|
|||||||
|
Finance
receivables from acquisition of business
|
845,310
|
0
|
0
|
|||||||
|
Finance
receivable collections
|
(111,315,282
|
)
|
(105,972,843
|
)
|
(97,366,670
|
)
|
||||
|
Provision
for credit losses
|
(45,810,496
|
)
|
(38,093,729
|
)
|
(34,766,496
|
)
|
||||
|
Inventory
acquired in repossession
|
(13,629,244
|
)
|
(9,964,172
|
)
|
(6,922,068
|
)
|
||||
|
Balance
at end of year
|
$
|
149,379,024
|
$
|
123,098,966
|
$
|
103,683,660
|
||||
Changes
in the finance receivables allowance for credit losses for the years ended
April
30, 2006, 2005 and 2004 are as follows:
|
Years
Ended April 30,
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
Balance
at beginning of year
|
$
|
29,251,244
|
$
|
25,035,967
|
$
|
20,395,095
|
||||
|
Provision
for credit losses
|
45,810,496
|
38,093,729
|
34,766,496
|
|||||||
|
Allowance
related to acquisition of business
|
526,736
|
0
|
0
|
|||||||
|
Charge-offs,
net of recovered collateral
|
(39,724,293
|
)
|
(33,878,452
|
)
|
(30,125,624
|
)
|
||||
|
Balance
at end of year
|
$
|
35,864,183
|
$
|
29,251,244
|
$
|
25,035,967
|
||||
40
D
- Property and Equipment
A
summary
of property and equipment as of April 30, 2006 and 2005 is as
follows:
|
April
30,
|
|||||||
|
2006
|
2005
|
||||||
|
Land
|
$
|
5,233,716
|
$
|
4,371,748
|
|||
|
Buildings
and improvements
|
5,093,155 | 3,161,500 | |||||
|
Furniture,
fixtures and equipment
|
3,673,122
|
2,356,385
|
|||||
|
Leasehold
improvements
|
3,291,608
|
2,737,845
|
|||||
|
Less
accumulated depreciation and amortization
|
(1,855,749
|
)
|
(1,322,820
|
)
|
|||
|
$
|
15,435,852
|
$
|
11,304,658
|
||||
E
- Accrued Liabilities
A
summary
of accrued liabilities as of April 30, 2006 and 2005 is as follows:
|
April
30,
|
|||||||
|
2006
|
2005
|
||||||
|
Compensation
|
$
|
2,593,695
|
$
|
2,383,826
|
|||
|
Cash
overdraft (see Note B)
|
2,440,839
|
736,820
|
|||||
|
Deferred
service contract revenue (see Note B)
|
1,626,521
|
1,526,943
|
|||||
|
Deferred
sales tax (see Note B)
|
1,012,271
|
716,901
|
|||||
|
Subsidiary
redeemable preferred stock (see Note H)
|
500,000
|
500,000
|
|||||
|
Interest
|
257,860
|
136,036
|
|||||
|
Other
|
311,732
|
22,765
|
|||||
|
$
|
8,742,918
|
$
|
6,023,291
|
||||
F
- Revolving Credit Facilities
A
summary
of revolving credit facilities is as follows:
|
Revolving
Credit Facilities
|
||||||||||
|
Aggregate
|
Interest
|
Balance
at
|
||||||||
|
Primary
Lender
|
Amount
|
Rate
|
Maturity
|
April
30, 2006
|
April
30, 2005
|
|||||
|
Bank
of Oklahoma
|
$50.0
million
|
Prime
less .25%
|
Apr
2009
|
$
43,588,443
|
$
29,145,090
|
|||||
On
April
28, 2006, Car-Mart and its lenders amended the credit facilities. The amended
facilities set total borrowings allowed on the revolving credit facilities
at
$50 million and established a new $10 million term loan. The term loan was
funded in May 2006 and calls for 120 consecutive and substantially equal
installments beginning June 1, 2006. The interest rate on the term loan is
fixed
at 7.33%. The combined total for the Company’s credit facilities is $60 million.
41
The
facilities are collateralized by substantially all the assets of Car-Mart
including finance receivables and inventory. Interest is payable monthly under
the revolving credit facilities at the bank’s prime lending rate less .25% per
annum at April 30, 2006 (7.50%) and at the bank’s prime lending rate per annum
at April 30, 2005 (5.75%). The 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) limitations on the payment of dividends
or distributions to the Company. The Company was in compliance with the
covenants at April 30, 2006. The amount available to be drawn under the
facilities is a function of eligible finance receivables and inventory. Based
upon eligible finance receivables and inventory at April 30, 2006, Car-Mart
could have drawn an additional $6.4 million under its facilities ($16.4 million
upon the funding of the term loan in May 2006).
G
- Income Taxes
The
provision for income taxes for the fiscal years ended April 30, 2006, 2005
and
2004 was as follows:
|
Years
Ended April 30,
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
Provision
for income taxes
|
||||||||||
|
Current
|
$
|
10,714,232
|
$
|
10,138,178
|
$
|
8,707,314
|
||||
|
Deferred
|
(898,055
|
)
|
369,800
|
454,192
|
||||||
|
$
|
9,816,177
|
$
|
10,507,978
|
$
|
9,161,506
|
|||||
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:
|
Years
Ended April 30,
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
Tax
provision at statutory rate
|
$
|
9,282,261
|
$
|
9,969,520
|
$
|
8,680,333
|
||||
|
State
taxes, net of federal benefit
|
642,614
|
751,116
|
707,104
|
|||||||
|
Other,
net
|
(108,698
|
)
|
(212,658
|
)
|
(225,931
|
)
|
||||
|
$
|
9,816,177
|
$
|
10,507,978
|
$
|
9,161,506
|
|||||
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and
the amounts used for income tax purposes. Significant components of the
Company’s deferred tax assets and liabilities as of April 30, 2006 and 2005 were
as follows:
|
April
30,
|
|||||||
|
2006
|
2005
|
||||||
|
Deferred
tax liabilities related to:
|
|||||||
|
Finance
receivables
|
$
|
2,519,957
|
$
|
3,269,338
|
|||
|
Property
and equipment
|
258,956
|
0
|
|||||
|
Total
|
2,778,913
|
3,269,338
|
|||||
|
Deferred
tax assets related to:
|
|||||||
|
Liability
reserves
|
1,034,617
|
838,635
|
|||||
|
Inventory
|
479,372
|
307,676
|
|||||
|
Other
|
176,283
|
136,331
|
|||||
|
Total
|
1,690,272
|
1,282,642
|
|||||
|
Deferred
tax liabilities, net
|
$
|
1,088,641
|
$
|
1,986,696
|
|||
42
H
- 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 a 6% cumulative dividend. Accumulated but undeclared
dividends at April 30, 2006 and 2005 were $30,000. The Company’s subsidiary can
redeem the preferred stock at any time at par value plus any unpaid dividends.
After April 30, 2007, 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. The subsidiary preferred stock is included in accrued
liabilities.
I
- Weighted Average Shares Outstanding
Weighed
average shares outstanding used in the calculation of basic and diluted earnings
per share was as follows for the years ended April 30, 2006, 2005 and
2004:
|
Years
Ended April 30,
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
Average
shares outstanding - basic
|
11,852,804
|
11,737,398
|
11,318,946
|
|||||||
|
Dilutive
options and warrants
|
165,738
|
289,347
|
626,193
|
|||||||
|
Average
shares outstanding - diluted
|
12,018,541
|
12,026,745
|
11,945,139
|
|||||||
|
Antidilutive
securities not included:
|
||||||||||
|
Options
and warrants
|
77,250
|
21,563
|
6,563
|
|||||||
J
- Stock Options and Warrants
Stock
Options
Since
inception, the shareholders of the Company have approved three stock option
plans including the 1986 Incentive Stock Option Plan ("1986 Plan"), the 1991
Non-Qualified Stock Option Plan ("1991 Plan") and the 1997 Stock Option Plan
(“1997 Plan”). While previously granted options remain outstanding, no
additional option grants may be made under the 1986 and 1991 Plans. The 1997
Plan sets aside 1,500,000 shares of the Company’s common stock for grants 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. At April 30, 2006 and 2005, there were 40,808 and 30,533
shares of common stock available for grant, respectively, under the 1997 Plan.
Options granted under the Company’s stock option plans expire in the calendar
years 2008 through 2015.
The
following is an aggregate summary of the activity in the Company’s stock option
plans from April 30, 2003 to April 30, 2006:
43
|
Number
of
Shares
|
Exercise
Price
per
Share
|
Proceeds
on
Exercise
|
Weighted
Average Exercise Price per
Share
|
||||||||||
|
Outstanding
at April 30, 2003
|
1,410,533
|
$
|
1.63
to $ 8.77
|
$
|
4,981,948
|
$
|
3.53
|
||||||
|
Granted
|
11,250
|
11.83
|
133,125
|
11.83
|
|||||||||
|
Exercised
|
(911,742
|
)
|
1.63
to 8.77
|
(2,583,517
|
)
|
2.83
|
|||||||
|
Canceled
|
(1,650
|
)
|
6.59
|
(10,869
|
)
|
6.59
|
|||||||
|
|
|
||||||||||||
|
Outstanding
at April 30, 2004
|
508,391
|
2.58
to 11.83
|
2,520,687
|
4.96
|
|||||||||
|
Granted
|
86,250
|
19.83
to 23.75
|
2,004,550 |
23.24
|
|||||||||
|
Exercised
|
(224,256
|
)
|
2.58
to 6.59
|
(939,175 | ) |
4.19
|
|||||||
|
Canceled
|
(165
|
)
|
6.59
|
(1,087 | ) |
6.59
|
|||||||
|
Outstanding
at April 30, 2005
|
370,220
|
$
|
3.67
to $ 23.75
|
3,584,975 |
$
|
9.68
|
|||||||
|
Granted
|
15,000
|
22.17
|
332,550 |
22.17
|
|||||||||
|
Exercised
|
(72,650
|
)
|
3.67
to 8.77
|
(479,971 | ) |
6.61
|
|||||||
|
Canceled
|
(25,275
|
)
|
6.59
to 23.75
|
(456,715 | ) |
18.07
|
|||||||
|
Outstanding
at April 30, 2006
|
287,295
|
$
|
3.67
to $23.75
|
$
|
2,980,839
|
$
|
10.38
|
||||||
As
of
April 30, 2006 and 2005, all stock options were exercisable. At April 30, 2004
and 2003, all stock options were exercisable with the exception of options
to
purchase 15,000 and 30,000 shares, respectively, at $8.77 per share. A summary
of stock options outstanding as of April 30, 2006 is as follows:
|
Weighted
Average
|
Weighted
|
|||||||||
|
Range
of
|
Number
|
Remaining
|
Average
|
|||||||
|
Exercise
Prices
|
of
Shares
|
Contractual
Life
|
Exercise
Price
|
|||||||
|
$
3.67 to $ 8.77
|
195,045
|
3.47
|
$
|
4.75
|
||||||
|
11.83
to 23.75
|
92,250
|
8.53
|
22.27
|
|||||||
|
287,295
|
5.10
|
$
|
10.38
|
|||||||
Warrants
As
of
April 30, 2006, the Company had stock purchase warrants outstanding to purchase
45,000 shares at prices ranging from $2.50 to $18.23 per share (weighted average
exercise price of $6.92). All of the warrants are presently exercisable and
expire between 2006 and 2009. During the fiscal years ended April 30, 2004
and
2003, the Company issued warrants to purchase 18,750 and 7,500 shares of its
common stock, which had weighted-average grant-date fair values of $4.05 and
$2.00 per share, respectively. During fiscal 2006, 2005 and 2004, the Company
issued 4,436, 8,943 and 15,975 shares of its common stock, respectively,
pursuant to partial exercises of the warrants held by Epoch.
K
- Commitments and Contingencies
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,
2006, the aggregate rentals due under such leases, including renewal options
that are reasonably assured, were as follows:
44
|
Years
Ending
|
||||
|
April
30,
|
Amount
|
|||
|
2007
|
$
|
2,556,128
|
||
|
2008
|
2,540,224
|
|||
|
2009
|
2,471,851
|
|||
|
2010
|
2,364,850
|
|||
|
2011
|
2,220,086
|
|||
|
Thereafter
|
16,608,187
|
|||
|
$
|
28,761,326
|
|||
The
$28.8
million of lease commitments includes $7.9 million of non-cancelable lease
commitments under the primary lease terms, and $20.9 million of lease
commitments for renewal periods at the Company’s option that are reasonably
assured. For the years ended April 30, 2006, 2005 and 2004, rent expense for
all
operating leases amounted to approximately $2,440,000, $2,114,000 and
$1,905,000, respectively.
Litigation
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
20
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 alleged the Defendants conspired to eliminate Astoria
from receiving one of the 15 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 was seeking
unspecified damages including lost profits. In August 2001, the Federal court
dismissed all of the Federal Claims with prejudice. In September 2004, the
state
court of appeals dismissed all the State Claims. In January 2005, the Louisiana
Supreme Court reversed the state court of appeals’ dismissal of the case. The
parties reached an out-of-court settlement in February 2006. The expense for
this settlement is included in selling, general and administrative expenses
in
fiscal 2006. The settlement amount was not material to the consolidated
financial statements.
In
addition to the foregoing case, in the ordinary course of business, the Company
has become a defendant in various types of other 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. However, the results
of
legal proceedings cannot be predicted with certainty, 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, 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 (“IRC”) as described in the Treasury Regulations.
For financial accounting purposes, these transactions are eliminated in
45
consolidation,
and a deferred 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 240 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.
Currently,
the Internal Revenue Service (“IRS”) is examining the Company’s tax returns for
fiscal 2002 and certain items in subsequent years, and in particular is focusing
on whether or not the Company satisfies the provisions of the Treasury
Regulations which would entitle Car-Mart of Arkansas to a tax deduction at
the
time it sells its finance receivables to Colonial. The Company is unable to
determine at this time the amount of adjustments, if any, that may result from
this examination. The assessment of a tax deficiency by the IRS could have
a
material adverse effect on the Company’s results of operations and financial
condition, at least in the near term, if the Company were ultimately
unsuccessful in contesting any such deficiency.
L
- Related Party Transactions
During
fiscal 2004, the Company paid Dynamic Enterprises, Inc. (“Dynamic”)
approximately $225,000 for the lease of six dealership locations. During this
period an officer of Dynamic was also a director of the Company.
M
- Fair Value of Financial Instruments
The
table
below summarizes information about the fair value of financial instruments
included in the Company’s financial statements at April 30, 2006 and
2005:
|
April
30, 2006
|
April
30, 2005
|
||||||||||||
|
Carrying
|
Fair
|
Carrying
|
Fair
|
||||||||||
|
Value
|
Value
|
Value
|
Value
|
||||||||||
|
Cash
|
$
|
254,824
|
$
|
254,824
|
$
|
459,177
|
$
|
459,177
|
|||||
|
Finance
receivables, net
|
149,379,024
|
138,718,515
|
123,098,966
|
114,262,658
|
|||||||||
|
Accounts
payable
|
3,094,825
|
3,094,825
|
2,796,086
|
2,796,086
|
|||||||||
|
Revolving
credit facilities
|
43,588,443
|
43,588,443
|
29,145,090
|
29,145,090
|
|||||||||
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
fair value was estimated based upon discussions with third party
purchasers of finance receivables.
|
|
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
|
The
fair value approximates carrying value due to the variable interest
rates
charged on the borrowings.
|
46
N
- Supplemental Cash Flow Information
Supplemental
cash flow disclosures for the years ended April 30, 2006, 2005 and 2004 are
as
follows:
|
Years
Ended April 30,
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
Supplemental
disclosures:
|
||||||||||
|
Interest
paid
|
$
|
2,336,426
|
$
|
1,178,691
|
$
|
1,101,715
|
||||
|
Income
taxes paid, net
|
9,204,392
|
10,227,393
|
5,986,433
|
|||||||
|
Non-cash
transactions:
|
||||||||||
|
Inventory
acquired in repossession
|
13,629,244
|
9,964,172
|
6,922,068
|
|||||||
O
- 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. As a result, in May 2002 the
Company sold its remaining 50% interest in Precision IBC, Inc. (“Precision”) for
$3.8 million in cash, and in July 2002 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.
Discontinued operations for the year ended April 30, 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 for
the years ended April 30, 2006, 2005 and 2004 is as follows (in
thousands):
|
Years
Ended April 30,
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
Revenues
|
$
|
-
|
$
|
-
|
$
|
-
|
||||
|
Operating
expenses
|
||||||||||
|
Other
income
|
-
|
-
|
250
|
|||||||
|
Income
before taxes and minority interests
|
-
|
-
|
250
|
|||||||
|
Provision
for income taxes
|
-
|
-
|
85
|
|||||||
|
Income
from discontinued operations
|
$
|
-
|
$
|
-
|
$
|
165
|
||||
P
- Quarterly Results of Operations (unaudited)
A
summary
of the Company’s quarterly results of operations for the years ended April 30,
2006 and 2005 is as follows (in thousands, except per share
information):
47
|
Year
Ended April 30, 2006
|
||||||||||||||
|
First
|
Second
|
Third
|
Fourth
|
|||||||||||
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
Total
|
||||||||||
|
Revenues
|
$
|
58,179
|
$
|
55,329
|
$
|
58,248
|
$
|
62,451
|
$
|
234,207
|
||||
|
Net
income
|
4,887
|
2,799
|
4,465
|
4,554
|
16,705
|
|||||||||
|
Earnings
per share:
|
||||||||||||||
|
Basic
|
.41
|
.24
|
.38
|
.38
|
1.41
|
|||||||||
|
Diluted
|
.41
|
.23
|
.37
|
.38
|
1.39
|
|||||||||
|
Year
Ended April 30, 2005
|
||||||||||||||
|
First
|
Second
|
Third
|
Fourth
|
|||||||||||
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
Total
|
||||||||||
|
Revenues
|
$
|
50,810
|
$
|
50,515
|
$
|
48,219
|
$
|
55,244
|
$
|
204,788
|
||||
|
Net
income
|
4,933
|
4,391
|
4,333
|
4,319
|
17,976
|
|||||||||
|
Earnings
per share:
|
||||||||||||||
|
Basic
|
.42
|
.37
|
.37
|
.37
|
1.53
|
|||||||||
|
Diluted
|
.41
|
.37
|
.36
|
.36
|
1.49
|
|||||||||
Item
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
None
Item
9A. Controls and Procedures
Disclosure
Controls and Procedures
As
of the
end of the period covered by this report (April 30, 2006), the Company carried
out an evaluation, under the supervision and with the participation of
management, including its Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the Company’s disclosure controls and procedures (as
defined in 13a-15(e) of the Exchange Act). Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the Company’s
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company (including its consolidated
subsidiaries) required to be included in this report.
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 Securities Exchange Act of 1934. The Company’s internal
control over financial reporting is 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.
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.
48
Management
assessed the effectiveness of the Company’s internal control over financial
reporting as of April 30, 2006. In making this assessment, management used
the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal
Control-Integrated Framework.
Based
on
management’s assessment and those criteria, management believes that the Company
maintained effective internal control over financial reporting as of April
30,
2006.
The
Company’s independent auditors have issued an attestation report on management’s
assessment of the Company’s internal control over financial reporting. That
report appears below.
49
Report
of Independent Registered Public Accounting Firm
`
Stockholders
and Board of Directors
America’s
Car-Mart, Inc.
We
have
audited management's assessment, included in the accompanying Management’s
Report on Internal Control Over Financial Reporting, that America’s Car-Mart
Inc. and subsidiaries (a Texas Corporation) maintained effective internal
control over financial reporting as of April 30, 2006, based on criteria
established in Internal
Control—Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”). America’s Car-Mart Inc.’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. Our
responsibility is to express an opinion on management's assessment and an
opinion on the effectiveness of the Company’s internal control over financial
reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing
such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinions.
/s/
GRANT
THORNTON LLP
Dallas,
Texas
July
13,
2006
50
Changes in
Internal Control Over
Financial Reporting
There
were no changes in the Company’s internal control over financial reporting (as
defined in Rule 13a-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.
51
PART
III
Except
as
to information with respect to executive officers which is contained in a
separate heading under Part I, Item 1 to 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 October 2006 (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 and Executive Officers of the Registrant
The
information required by this item is set forth in the Proxy Statement under
the
headings "Proposals to be Voted on - Election of Directors," "Ownership of
Common Stock - Section 16(a) Beneficial Ownership Reporting Compliance" and
“Corporate Governance and Board Matters - Code of Ethics” which 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 is set forth in the Proxy Statement under
the
heading "Executive Compensation," which 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 is set forth in the Proxy Statement under
the
headings "Ownership of Common Stock" and “Equity Compensation Plan Information,”
which information is incorporated herein by reference.
Item
13. Certain Relationships and Related Transactions
The
information required by this item is set forth in the Proxy Statement under
the
heading "Related Party Transactions," which information is incorporated herein
by reference.
Item
14. Principal Accountant Fees and Services
The
information required by this item is set forth in the Proxy Statement under
the
heading "Principal Accountant Fees and Services," which information is
incorporated herein by reference.
52
PART
IV
Item
15. Exhibits and Financial Statement Schedules
(a)1. Financial
Statements and Accountant's Report
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, 2006 and 2005
Consolidated
Statements of Operations for the years ended April 30, 2006, 2005 and
2004
Consolidated
Statements of Cash Flows for the years ended April 30, 2006, 2005 and
2004
Consolidated
Statements of Stockholders' Equity for the years ended April 30, 2006, 2005
and
2004
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
|
Articles
of Incorporation of the Company, as amended. (2)
|
|
|
3.2
|
Bylaws
dated August 24, 1989. (3)
|
|
|
4.1
|
Specimen
stock certificate. (4)
|
|
|
4.2
|
Amended
and Restated Agented Revolving Credit Agreement, dated June 23, 2005,
among Colonial Auto Finance, Inc., as borrower, Bank of Arkansas,
N.A.,
Great Southern Bank, Arvest Bank, First State Bank, Bank of Oklahoma,
N.A., and Liberty Bank of Arkansas and one or more additional lenders
to
be determined at a later date, Bank of Arkansas, N.A., as agent for
the
banks and Bank of Oklahoma, N.A., as the paying agent.
(5)
|
|
|
4.2.1
|
First
Amendment to the Amended and Restated Agented Revolving Credit Agreement,
dated September 30, 2005, among Colonial Auto Finance, Inc., as borrower,
Bank of Arkansas, N.A., Great Southern Bank, Arvest Bank, First State
Bank, Bank of Oklahoma, N.A., and Liberty Bank of Arkansas and one
or more
additional lenders to be determined at a later date, Bank of Arkansas,
N.A., as agent for the banks. (6)
|
53
|
4.2.2
|
Third
Amendment to the Amended and Restated Agented Revolving Credit Agreement,
dated February 24, 2006, among Colonial Auto Finance, Inc., as borrower,
Bank of Arkansas, N.A., Great Southern Bank, Arvest Bank, First State
Bank, Bank of Oklahoma, N.A., and Liberty Bank of Arkansas and one
or more
additional lenders to be determined at a later date, Bank of Arkansas,
N.A., as agent for the banks. (7)
|
|
|
4.2.3
|
Fourth
Amendment to the Amended and Restated Agented Revolving Credit Agreement,
dated April 28, 2006, among Colonial Auto Finance, Inc., as borrower,
Bank
of Arkansas, N.A., Great Southern Bank, Arvest Bank, First State
Bank,
Bank of Oklahoma, N.A., and Liberty Bank of Arkansas and one or more
additional lenders to be determined at a later date, Bank of Arkansas,
N.A., as agent for the banks. (8)
|
|
|
4.3
|
Revolving
Credit Agreement, dated June 23, 2005, among America’s Car-Mart, Inc., an
Arkansas corporation, and Texas Car-Mart, Inc., as borrowers, and
Bank of
Oklahoma, N.A., as lender. (5)
|
|
|
4.3.1
|
Second
Amendment to Revolving Credit Agreement, dated September 30, 2005,
among
America’s Car-Mart, Inc., an Arkansas corporation, and Texas Car-Mart,
Inc., as borrowers, and Bank of Oklahoma, N.A., as lender.
(6)
|
|
|
4.3.2
|
Third
Amendment to Revolving Credit Agreement, dated April 28, 2006, among
America’s Car-Mart, Inc., an Arkansas corporation, and Texas Car-Mart,
Inc., as borrowers, and Bank of Oklahoma, N.A., as lender.
(8)
|
|
|
10.1
|
1986
Incentive Stock Option Plan. (9)
|
|
|
10.1.1
|
Amendment
to 1986 Incentive Stock Option Plan adopted September 27, 1990.
(10)
|
|
|
10.2
|
1991
Non-Qualified Stock Option Plan. (11)
|
|
|
10.3
|
1997
Stock Option Plan. (12)
|
|
|
10.4
|
2005
Restricted Stock Plan. (15)
|
|
|
10.5
|
Form
of Indemnification Agreement between the Company and certain officers
and
directors of the Company. (13)
|
|
|
10.6
|
Employment
Agreement, dated May 1, 2006, between the Company and Tilman J. Falgout,
III. (1)
|
|
|
10.7
|
Employment
arrangements with Jeffrey A. Williams. (1)
|
|
|
10.8
|
Employment
Agreement, dated May 1, 2006, between the Company and William H.
Henderson. (1)
|
|
|
10.9
|
Employment
Agreement, dated May 1, 2006, between the Company and Eddie Lee Hight.
(1)
|
|
54
|
14.1
|
Code
of Business Conduct and Ethics. (14)
|
|
|
21.1
|
Subsidiaries
of America’s Car-Mart, Inc. (1)
|
|
|
23.1
|
Consent
of Independent Registered Public Accounting Firm. (1)
|
|
|
24.1
|
Power
of Attorney of William H. Henderson. (1)
|
|
|
24.2
|
Power
of Attorney of Tilman J. Falgout, III. (1)
|
|
|
24.3
|
Power
of Attorney of J. David Simmons. (1)
|
|
|
24.4
|
Power
of Attorney of Carl E. Baggett. (1)
|
|
|
24.5
|
Power
of Attorney of William M. Sams. (1)
|
|
|
31.1
|
Rule
13a-14(a) certification. (1)
|
|
|
31.2
|
Rule
13a-14(a) certification. (1)
|
|
|
32.1
|
Section
1350 certification. (1)
|
___________________________
|
(1)
|
Filed
herewith.
|
|
|
(2)
|
Previously
filed as Exhibits 4.1-4.8 to the Company's Registration Statement
on Form
S-8 initially filed with the Securities and Exchange Commission on
November 16, 2005 (No. 333-129727) and incorporated herein by
reference.
|
|
|
(3)
|
Previously
filed as Exhibit 4.9 to the Company's Registration Statement on Form
S-8
initially filed with the Securities and Exchange Commission on November
16, 2005 (No. 333-129727) and incorporated herein by
reference.
|
|
|
(4)
|
Previously
filed as an Exhibit to the Company's Annual Report on Form 10-K for
the
year ended April 30, 1994 and incorporated herein by
reference.
|
|
|
(5)
|
Previously
filed as an Exhibit to the Company’s Current Report on Form 8-K initially
filed with the Securities and Exchange Commission on June 29, 2005
and
incorporated herein by reference.
|
|
|
(6)
|
Previously
filed as an Exhibit to the Company's Current Report on Form 8-K initially
filed with the Securities and Exchange Commission on October 6, 2005
and
incorporated herein by reference.
|
|
|
(7)
|
Previously
filed as an Exhibit to the Company's Current Report on Form 8-K initially
filed with the Securities and Exchange Commission on February 27,
2006 and
incorporated herein by reference.
|
|
|
(8)
|
Previously
filed as an Exhibit to the Company's Current Report on Form 8-K initially
filed with the Securities and Exchange Commission on May 3, 2006
and
incorporated herein by reference.
|
|
|
(9)
|
Previously
filed as an Exhibit to the Company's Registration Statement on Form
10, as
amended, (No. 0-14939) and incorporated herein by
reference.
|
|
|
(10)
|
Previously
filed as an Exhibit to the Company's Annual Report on Form 10-K for
the
year ended April 30, 1991 and incorporated herein by
reference.
|
|
|
(11)
|
Previously
filed as an Exhibit to the Company's Annual Report on Form 10-K for
the
year ended April 30, 1992 and incorporated herein by
reference.
|
|
|
(12)
|
Previously
filed as an Exhibit to the Company’s Registration Statement on Form S-8,
as amended, initially filed with the Securities and Exchange Commission
on
October 20, 1997 (No. 333-38475) and incorporated herein by
reference.
|
|
|
(13)
|
Previously
filed as an Exhibit to the Company's Quarterly Report on Form 10-Q
for the
quarter ended July 31, 1993 and incorporated herein by
reference.
|
55
|
(14)
|
Previously
filed as an Exhibit to the Company’s Annual Report on Form 10-K for the
year ended April 30, 2004 and incorporated herein by
reference.
|
|
|
(15)
|
Previously
filed as Appendix B to the Company's Proxy Statement on Schedule
14A
initially filed with the Securities and Exchange Commission on August
29,
2005 and incorporated herein by
reference.
|
(b)
The
exhibits are listed in Item 15(a)(3) above.
(c)
Refer to
Item 15(a)(2) above.
56
SIGNATURES
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.
|
AMERICA’S
CAR-MART, INC.
|
|
|
Dated: July
13, 2006
|
By:
/s/
Tilman J. Falgout,
III
|
|
Tilman J. Falgout, III
|
|
|
Chief Executive Officer
|
|
|
(principal executive officer)
|
|
|
Dated: July
13, 2006
|
By:
/s/
Jeffrey A.
Williams
|
|
Jeffrey A. Williams
|
|
|
Vice President Finance and Chief Financial Officer
|
|
|
(principal financial and accounting
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
|
Date
|
|
*
|
Chairman
of the Board, Chief Executive
|
July
13, 2006
|
|
Tilman
J. Falgout, III
|
Officer
and Director
|
|
|
|
||
|
*
|
Vice
Chairman of the Board,
|
July
13, 2006
|
|
William
H. Henderson
|
President
and Director
|
|
|
*
|
Director
|
July
13, 2006
|
|
J.
David Simmons
|
||
|
*
|
Director
|
July
13, 2006
|
|
Carl
E. Baggett
|
||
|
*
|
Director
|
July
13, 2006
|
|
William
M. Sams
|
||
|
*
By /s/
Jeffrey A.
Williams
|
||
|
Jeffrey A. Williams
|
||
|
As Attorney-in-Fact
|
||
|
Pursuant to Powers of
|
||
|
Attorney filed herewith
|
57
EXHIBIT
INDEX
|
Exhibit
Number
|
Description
of Exhibit
|
|
|
10.6
|
Employment
Agreement, dated May 1, 2006, between the Company and Tilman J. Falgout,
III.
|
|
|
10.7
|
Employment
arrangements with Jeffrey A. Williams.
|
|
|
10.8
|
Employment
Agreement, dated May 1, 2006, between the Company and William H.
Henderson.
|
|
|
10.9
|
Employment
Agreement, dated May 1, 2006, between the Company and Eddie Lee Hight.
|
|
|
21.1
|
Subsidiaries
of America’s Car-Mart, Inc.
|
|
|
23.1
|
Consent
of Independent Registered Public Accounting Firm.
|
|
|
24.1
|
Power
of Attorney of William H. Henderson.
|
|
|
24.2
|
Power
of Attorney of Tilman J. Falgout, III.
|
|
|
24.3
|
Power
of Attorney of J. David Simmons.
|
|
|
24.4
|
Power
of Attorney of Carl E. Baggett.
|
|
|
24.5
|
Power
of Attorney of William M. Sams.
|
|
|
31.1
|
Rule
13a-14(a) certification.
|
|
|
31.2
|
Rule
13a-14(a) certification.
|
|
|
32.1
|
Section
1350 certification.
|
58