10-Q 1 d99743e10vq.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal quarter ended: Commission file number: JULY 31, 2002 0-14939 AMERICA'S CAR-MART, INC. (Exact name of registrant as specified in its charter) TEXAS 63-0851141 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1501 SOUTHEAST WALTON BLVD., SUITE 213, BENTONVILLE, ARKANSAS (Address of principal executive offices) 72712 (Zip Code) (479) 464-9944 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Outstanding at Title of Each Class September 10, 2002 ------------------- ------------------ Common stock, par value $.01 per share 7,021,744
1 PART I ITEM 1. FINANCIAL STATEMENTS AMERICA'S CAR-MART, INC. CONSOLIDATED BALANCE SHEETS
July 31, 2002 (unaudited) April 30, 2002 ---------------- ---------------- Assets: Cash and cash equivalents $ 1,041,361 $ 1,229,920 Income tax receivable 7,266,452 7,627,362 Notes and other receivables 1,686,700 1,457,013 Finance receivables, net 80,335,459 75,079,603 Inventory 4,541,969 3,540,538 Prepaid and other assets 581,107 251,729 Investments 250,205 252,456 Deferred tax assets, net 739,052 119,052 Property and equipment, net 3,258,399 2,626,711 Assets of subsidiaries held for sale 35,957,978 ---------------- ---------------- $ 99,700,704 $ 128,142,362 ================ ================ Liabilities and stockholders' equity: Accounts payable $ 2,216,711 $ 1,984,918 Accrued liabilities 6,254,687 6,282,639 Income taxes payable 1,815,294 Revolving credit facility 31,569,967 32,291,957 Other notes payable 1,500,000 7,500,000 Liabilities of subsidiaries held for sale 27,269,661 ---------------- ---------------- 43,356,659 75,329,175 ---------------- ---------------- Commitments and contingencies Stockholders' equity: Preferred stock, par value $.01 per share, 1,000,000 shares authorized; none issued or outstanding Common stock, par value $.01 per share, 50,000,000 shares authorized; 7,031,544 issued and outstanding (6,944,325 at April 30, 2002) 70,315 69,444 Additional paid-in capital 31,104,745 31,261,985 Retained earnings 25,168,985 21,481,758 ---------------- ---------------- Total stockholders' equity 56,344,045 52,813,187 ---------------- ---------------- $ 99,700,704 $ 128,142,362 ================ ================
The accompanying notes are an integral part of these consolidated financial statements. 2 CONSOLIDATED STATEMENTS OF OPERATIONS AMERICA'S CAR-MART, INC. (UNAUDITED)
Three Months Ended July 31, 2002 2001 ---------------- ---------------- Revenues: Sales $ 33,821,210 $ 28,124,115 Interest income 2,275,936 2,414,907 ---------------- ---------------- 36,097,146 30,539,022 ---------------- ---------------- Costs and expenses: Cost of sales 17,749,726 15,010,094 Selling, general and administrative 6,555,037 5,008,950 Provision for credit losses 5,601,921 5,497,206 Interest expense 536,792 934,844 Depreciation and amortization 65,105 85,150 Write-down of equipment 400,000 ---------------- ---------------- 30,508,581 26,936,244 ---------------- ---------------- Income from continuing operations before income taxes and minority interests 5,588,565 3,602,778 Provision for income taxes 2,151,682 1,485,727 Minority interests 154,158 ---------------- ---------------- Income from continuing operations 3,436,883 1,962,893 Discontinued operations: Income (loss) from discontinued operations, net of taxes and minority interests 375,318 (768,995) Loss on sale of discontinued operation, net of tax (124,974) ---------------- ---------------- Income (loss) from discontinued operations 250,344 (768,995) ---------------- ---------------- Net income $ 3,687,227 $ 1,193,898 ================ ================ Basic earnings (loss) per share: Continuing operations $ .49 $ .29 Discontinued operations .04 (.11) ---------------- ---------------- Total $ .53 $ .17 ================ ================ Diluted earnings (loss) per share: Continuing operations $ .43 $ .28 Discontinued operations .03 (.11) ---------------- ---------------- Total $ .46 $ .17 ================ ================ Weighted average number of shares outstanding: Basic 6,968,149 6,868,541 Diluted 7,937,008 7,038,749
The accompanying notes are an integral part of these consolidated financial statements. 3 CONSOLIDATED STATEMENTS OF CASH FLOWS AMERICA'S CAR-MART, INC. (UNAUDITED)
Three Months Ended July 31, 2002 2001 ---------------- ---------------- Operating activities: Net income $ 3,687,227 $ 1,193,898 Add: (Income) loss from discontinued operations (250,344) 768,995 ---------------- ---------------- Income from continuing operations 3,436,883 1,962,893 Adjustments to reconcile income from continuing operations to net cash used in operating activities: Depreciation and amortization 65,105 85,150 Deferred income taxes (620,000) Write-down of equipment 400,000 Minority interests 154,158 Loss on sale of equipment 11,032 Changes in finance receivables, net: Finance receivable originations (30,986,169) (25,918,332) Finance receivable collections 19,007,805 15,232,609 Provision for credit losses 5,601,921 5,497,206 Inventory acquired in repossession 1,120,587 1,345,278 ---------------- ---------------- Subtotal finance receivables (5,255,856) (3,843,239) Changes in operating assets and liabilities: Income tax receivable 425,910 Notes and other receivables (229,687) 617,046 Inventory (1,001,431) (526,724) Prepaids and other assets (329,378) 49,026 Accounts payable and accrued liabilities 203,841 347,857 Income taxes payable 1,815,294 (2,175,435) ---------------- ---------------- Net cash used in operating activities (1,478,287) (2,929,268) ---------------- ---------------- Investing activities: Purchase of property and equipment (707,825) (384,350) Sale of discontinued subsidiaries 6,795,000 Note collections from discontinued subsidiaries 2,078,661 63,977 Purchase of investments (12,375) Sale of investments and other 2,251 ---------------- ---------------- Net cash provided by (used in) investing activities 8,168,087 (332,748) ---------------- ---------------- Financing activities: Sale of common stock 349,688 Purchase and retirement of common stock (506,057) (924,122) Proceeds from (repayments of) revolving credit facility, net (721,990) 4,560,490 Repayments of other debt (6,000,000) (300,000) ---------------- ---------------- Net cash provided by (used in) financing activities (6,878,359) 3,336,368 ---------------- ---------------- Cash provided by (used in) continuing operations (188,559) 74,352 Cash provided by (used in) discontinued operations (2,520,506) 243,317 ---------------- ---------------- Increase (decrease) in cash and cash equivalents (2,709,065) 317,669 Cash and cash equivalents at: Beginning of period 3,750,426 2,193,342 ---------------- ---------------- End of period 1,041,361 2,511,011 Less: Cash and cash equivalents of discontinued operations (1,718,525) ---------------- ---------------- Cash and cash equivalents of continuing operations $ 1,041,361 $ 792,486 ================ ================
The accompanying notes are an integral part of these consolidated financial statements. 4 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) AMERICA'S CAR-MART, INC. A - ORGANIZATION AND BUSINESS America's Car-Mart, Inc., a Texas corporation formerly known as Crown Group, Inc. ("Corporate" or the "Company"), is a holding company that operates automotive dealerships through its subsidiaries that focus exclusively on the "Buy Here/Pay Here" segment of the used car market. References to the Company typically include the Company's consolidated subsidiaries. The Company's operations are principally conducted through its America's Car-Mart, Inc., an Arkansas corporation, ("Car-Mart of Arkansas") and Colonial Auto Finance, Inc. ("Colonial") subsidiaries. Car-Mart of Arkansas and Colonial are collectively referred to herein as "Car-Mart". As of July 31, 2002 the Company operated 59 stores located primarily in small cities and rural locations throughout the South-Central United States. The Company provides financing for substantially all of its customers, many of whom may not qualify for conventional financing as a result of limited credit histories or past credit problems. During the prior fiscal year the Company made the decision to sell all of its subsidiaries except Car-Mart, and relocate its corporate headquarters to Bentonville, Arkansas where Car-Mart is based. Accordingly, the operating results of its non Car-Mart subsidiaries which included (i) Concorde Acceptance Corporation ("Concorde"), a prime and sub-prime mortgage lender and (ii) Precision IBC, Inc., a firm specializing in the sale and rental of intermediate bulk containers, for the three months ended July 31, 2002, and (i) Concorde, (ii) Precision, and (iii) Smart Choice Automotive Group, Inc. ("Smart Choice"), the Company's 70% owned subsidiary that was written-off in October 2001, for the three months ended July 31, 2001, have been included in discontinued operations (see Note K). Similarly, the assets and liabilities of Concorde and Precision are included in "Assets of subsidiaries held for sale" and "Liabilities of subsidiaries held for sale", respectively, in the accompanying consolidated balance sheet at April 30, 2002. In May 2002 the Company sold its 50% interest in Precision for $3.8 million in cash, and in July 2002 the Company sold its 80% interest in Concorde for $3.0 million in cash. In addition, at closing Concorde repaid all of its $2.1 million in outstanding borrowings from the Company. B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended July 31, 2002 are not necessarily indicative of the results that may be expected for the year ended April 30, 2003. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended April 30, 2002. 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 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 period. Actual results could differ from those estimates. Finance Receivables and Allowance for Credit Losses The Company originates installment sale contracts from the sale of used vehicles at its dealerships. Finance receivables consist of contractually scheduled payments from installment contracts net of unearned finance charges and an allowance for credit losses. Unearned finance charges represent the balance of interest income remaining from the capitalization of the total interest to be earned over the term of the related installment contract. The Company maintains an allowance for credit losses at a level it considers sufficient to cover anticipated losses in the collection of its finance receivables. The allowance for credit losses is based upon historical and recent credit loss experience, a periodic analysis of the portfolio, economic conditions and trends and collateral values. The allowance for credit losses is periodically reviewed by management with any changes reflected in current operations. It is at least reasonably possible that actual credit losses may be materially different from the recorded allowance for credit losses. Reclassifications Certain prior year amounts in the accompanying financial statements have been reclassified to conform to the fiscal 2003 presentation. 5 C - FINANCE RECEIVABLES The Company originates installment sale contracts from the sale of used vehicles at its dealerships. These installment sale contracts typically include interest rates ranging from 6% to 19% per annum and provide for payments over periods ranging from 12 to 30 months. The components of finance receivables as of July 31, 2002 and April 30, 2002 are as follows:
July 31, April 30, 2002 2002 --------------- --------------- Finance receivables $ 106,575,769 $ 99,675,260 Unearned finance charges (8,004,660) (7,553,048) Allowance for credit losses (18,235,650) (17,042,609) --------------- --------------- $ 80,335,459 $ 75,079,603 =============== ===============
Changes in the finance receivables allowance for credit losses for the three months ended July 31, 2002 and 2001 are as follows:
Three Months Ended July 31, 2002 2001 --------------- --------------- Balance at beginning of period $ 17,042,609 $ 14,066,782 Provision for credit losses 5,601,921 5,497,206 Net charge offs (4,408,880) (4,624,822) --------------- --------------- Balance at end of period $ 18,235,650 $ 14,939,166 =============== ===============
D - PROPERTY AND EQUIPMENT A summary of property and equipment as of July 31, 2002 and April 30, 2002 is as follows:
July 31, April 30, 2002 2002 --------------- --------------- Land and buildings $ 2,013,705 $ 1,562,393 Furniture, fixtures and equipment 925,781 939,557 Leasehold improvements 1,402,300 1,147,597 Less accumulated depreciation and amortization (1,083,387) (1,022,836) --------------- --------------- $ 3,258,399 $ 2,626,711 =============== ===============
6 E - ACCRUED LIABILITIES A summary of accrued liabilities as of July 31, 2002 and April 30, 2002 is as follows:
July 31, April 30, 2002 2002 --------------- --------------- Compensation $ 1,835,447 $ 2,573,579 Interest 170,234 163,211 Severance and office closing 1,767,300 2,519,606 Service contracts 1,069,186 1,013,035 Cash overdraft 1,372,746 Other 39,774 13,208 --------------- --------------- $ 6,254,687 $ 6,282,639 =============== ===============
F - DEBT A summary of debt as of July 31, 2002 and April 30, 2002 is as follows:
Revolving Credit Facility ------------------------------------------------------------------------------------------------------------- Facility Interest Balance at Lender Amount Rate Maturity July 31, 2002 April 30, 2002 ------------------- ------------ ------------- ----------- -------------- -------------- Bank of Oklahoma $37 million Prime + .50% Dec 2003 $ 31,569,967 $ 32,291,957
Other Notes Payable ------------------------------------------------------------------------------------------------------------- Facility Interest Balance at Lender Amount Rate Maturity July 31, 2002 April 30, 2002 ------------------- ------------ ------------- ----------- -------------- -------------- Individuals/Trusts N/A 8.50% Jan 2004 $ 1,500,000 $ 7,500,000
The Company's revolving credit facility is primarily collateralized by finance receivables and inventory. Interest is payable monthly or quarterly on all of the Company's debt and the principal balances are due at the maturity of the facilities. The Company's revolving credit facility contains various reporting and performance covenants including (i) maintenance of certain financial ratios and tests, (ii) limitations on borrowings from other sources, (iii) restrictions on certain operating activities, and (iv) restrictions on the payment of dividends or distributions. The amount available to be drawn under the Company's revolving credit facility is a function of eligible finance receivables. Based upon eligible finance receivables at July 31, 2002, the Company could have drawn an additional $5.4 million under such facility. 7 G - WEIGHTED AVERAGE SHARES OUTSTANDING Weighted average shares outstanding, which are used in the calculation of basic and diluted earnings per share, are as follows for the periods ended July 31, 2002 and 2001:
Three Months Ended July 31, 2002 2001 --------------- --------------- Weighted average shares outstanding-basic 6,968,149 6,868,541 Dilutive options and warrants 968,859 170,208 --------------- --------------- Weighted average shares outstanding-diluted 7,937,008 7,038,749 =============== =============== Antidilutive securities not included: Options and warrants -- 627,500 =============== ===============
H - COMMITMENTS AND CONTINGENCIES In the ordinary course of business, the Company has become a defendant in various types of legal proceedings. Although the Company cannot determine at this time the amount of the ultimate exposure from these ordinary course of business lawsuits, if any, management, based on the advice of counsel, does not expect the final outcome of any of these actions, individually or in the aggregate, to have a material adverse effect on the Company's financial position, results of operations or cash flows. I - SUPPLEMENTAL CASH FLOW INFORMATION Supplemental cash flow disclosures for the three months ended July 31, 2002 and 2001 are as follows:
Three Months Ended July 31, 2002 2001 --------------- --------------- Interest paid $ 521,708 $ 882,758 Income taxes paid, net 739,757 3,661,161
8 J - BUSINESS SEGMENTS Operating results and other financial data are presented for the continuing operations of the Company by business segment for the three months ended July 31, 2002 and 2001. The segments include Car-Mart and Corporate operations. The Company's continuing operations and other financial data by business segment for the three months ended July 31, 2002 and 2001 are as follows (in thousands):
Three Months Ended July 31, 2002 ----------------------------------------------------------------------- Car-Mart Corporate Eliminations Consolidated --------------- --------------- --------------- --------------- Revenues: Sales $ 33,821 $ 33,821 Interest income 2,216 $ 120 $ (60) 2,276 --------------- --------------- --------------- --------------- Total 36,037 120 (60) 36,097 --------------- --------------- --------------- --------------- Costs and expenses: Cost of sales 17,750 17,750 Selling, general and admin 5,915 640 6,555 Provision for credit losses 5,602 5,602 Interest expense 486 110 (60) 536 Depreciation and amortization 46 19 65 --------------- --------------- --------------- --------------- Total 29,799 769 (60) 30,508 --------------- --------------- --------------- --------------- Income (loss) before taxes and minority interests $ 6,238 $ (649) $ -- $ 5,589 =============== =============== =============== =============== Capital expenditures $ 660 $ 48 $ -- $ 708 =============== =============== =============== =============== Total assets $ 89,008 $ 63,655 $ (52,962) $ 99,701 =============== =============== =============== ===============
Three Months Ended July 31, 2001 ----------------------------------------------------------------------- Car-Mart Corporate Eliminations Consolidated --------------- --------------- --------------- --------------- Revenues: Sales $ 28,124 $ 28,124 Interest income 2,233 $ 276 $ (94) 2,415 --------------- --------------- --------------- --------------- Total 30,357 276 (94) 30,539 --------------- --------------- --------------- --------------- Costs and expenses: Cost of sales 15,010 15,010 Selling, general and admin 4,097 912 5,009 Provision for credit losses 5,497 5,497 Interest expense 784 245 (94) 935 Depreciation and amortization 34 52 86 Write-down of equipment 400 400 --------------- --------------- --------------- --------------- Total 25,422 1,609 (94) 26,937 --------------- --------------- --------------- --------------- Income (loss) before taxes and minority interests $ 4,935 $ (1,333) $ -- $ 3,602 =============== =============== =============== =============== Capital expenditures $ 384 $ -- $ -- $ 384 =============== =============== =============== =============== Total assets $ 77,091 $ 70,869 =============== ==============
9 K - DISCONTINUED OPERATIONS In October 2001 the Company made the decision to sell all its subsidiaries except Car-Mart, and relocate its corporate headquarters to Bentonville, Arkansas where Car-Mart is based. This decision was based on management's desire to separate the highly profitable and modestly leveraged operations of Car-Mart from the operating losses or lower level of profitability and highly leveraged operations of the Company's other subsidiaries. In addition, it is management's belief that the Company's ownership of businesses in a variety of different industries may have created confusion within the investment community, possibly making it difficult for investors to analyze and properly value the Company's common stock. In May 2002 the Company sold its remaining 50% interest in Precision for $3.8 million in cash. In July 2002 the Company sold its 80% interest in Concorde for $3.0 million in cash. In addition, at closing, Concorde repaid all of its $2.1 million in outstanding borrowings from the Company. As a result of the Company's decision, operating results from its non Car-Mart subsidiaries have been reclassified to discontinued operations for all periods presented. Below is a summary of the number of months each of these subsidiaries operating results are included in discontinued operations of the Company for the three months ended July 31, 2002 and 2001:
Number of Months Included Month Month in Discontinued Operations for Company Company the Three Months Ended July 31, Acquired Sold or --------------------------------- Subsidiary or Formed Disposed 2002 2001 --------------------- ------------- ------------- ------------- ------------ Smart Choice 12-99 10-01 -- 3 Paaco 2-98 10-01 -- 3 Precision 2-98 5-02 -- 3 Concorde 6-97 7-02 2 3
A summary of the Company's discontinued operations for the three months ended July 31, 2002 and 2001 is as follows (in thousands):
Three Months Ended July 31, 2002 2001 --------------- --------------- Revenues $ 3,058 $ 49,839 Operating expenses 2,306 51,782 --------------- --------------- Income (loss) before taxes and minority interests 752 (1,943) Provision (benefit) for income taxes 283 (656) Minority interests (benefit) 94 (518) --------------- --------------- Income (loss) from discontinued operations $ 375 $ (769) =============== ===============
10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Company's consolidated financial statements and notes thereto appearing elsewhere in this report. FORWARD-LOOKING INFORMATION The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain forward-looking statements. Certain information included in this Quarterly Report on Form 10-Q contains, and other materials filed or to be filed by the Company with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by the Company or its management) contain or will contain, forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. The words "believe," "expect," "anticipate," "estimate," "project" and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. The Company undertakes no obligation to publicly update or revise any forward-looking statements. Such forward-looking statements are based upon management's current plans or expectations and are subject to a number of uncertainties and risks that could significantly affect current plans, anticipated actions and the Company's future financial condition and results. As a consequence, actual results may differ materially from those expressed in any forward-looking statements made by or on behalf of the Company as a result of various factors. Uncertainties and risks related to such forward-looking statements include, but are not limited to, those relating to the continued availability of lines of credit for the Company's business, the Company's ability to effectively underwrite and collect its installment loans, changes in interest rates, competition, dependence on existing management, adverse economic conditions (particularly in the State of Arkansas), changes in tax laws or the administration of such laws and changes in lending laws or regulations. Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made. OVERVIEW America's Car-Mart, Inc., a Texas corporation formerly known as Crown Group, Inc. ("Corporate" or the "Company"), is a holding company that operates automotive dealerships through its subsidiaries that focus exclusively on the "Buy Here/Pay Here" segment of the used car market. References to the Company typically include the Company's consolidated subsidiaries. The Company's operations are principally conducted through its America's Car-Mart, Inc., an Arkansas corporation, ("Car-Mart of Arkansas") and Colonial Auto Finance, Inc. ("Colonial") subsidiaries. Car-Mart of Arkansas and Colonial are collectively referred to herein as "Car-Mart". As of July 31, 2002 the Company operated 59 stores located primarily in small cities and rural locations throughout the South-Central United States. The Company provides financing for substantially all of its customers, many of whom may not qualify for conventional financing as a result of limited credit histories or past credit problems. During the prior fiscal year the Company made the decision to sell all of its subsidiaries except Car-Mart, and relocate its corporate headquarters to Bentonville, Arkansas where Car-Mart is based. Accordingly, the operating results of its non Car-Mart subsidiaries which included (i) Concorde Acceptance Corporation ("Concorde"), a prime and sub-prime mortgage lender and (ii) Precision IBC, Inc., a firm specializing in the sale and rental of intermediate bulk containers, for the three months ended July 31, 2002, and (i) Concorde, (ii) Precision, and (iii) Smart Choice Automotive Group, Inc. ("Smart Choice"), the Company's 70% owned subsidiary that was written-off in October 2001, for the three months ended July 31, 2001, have been included in discontinued operations (see Note K). Similarly, the assets and liabilities of Concorde and Precision are included in "Assets of subsidiaries held for sale" and "Liabilities of subsidiaries held for sale", respectively, in the accompanying consolidated balance sheet at April 30, 2002. In May 2002 the Company sold its 50% interest in Precision for $3.8 million in cash, and in July 2002 the Company sold its 80% interest in Concorde for $3.0 million in cash. In addition, at closing Concorde repaid all of its $2.1 million in outstanding borrowings from the Company. From these proceeds, the Company reduced other notes payable by $6.0 million. 11 RESULTS OF CONTINUING OPERATIONS Operating results are presented for the continuing operations of the Company by business segment for the three months ended July 31, 2002 and 2001. The segments include Car-Mart and Corporate operations. A summary of the Company's continuing operations by business segment for the three months ended July 31, 2002 and 2001 is as follows: CONSOLIDATED (In Thousands)
Revenues Pretax Income (Loss) ------------------------------- -------------------------------- Three Months Ended Three Months Ended July 31, July 31, 2002 2001 2002 2001 ------------- ------------- -------------- -------------- Car-Mart $ 36,037 $ 30,357 $ 6,238 $ 4,935 Corporate 120 276 (649) (1,333) Eliminations (60) (94) ------------- ------------- -------------- -------------- Consolidated $ 36,097 $ 30,539 $ 5,589 $ 3,602 ============= ============= ============== ==============
THREE MONTHS ENDED JULY 31, 2002 VS. THREE MONTHS ENDED JULY 31, 2001 Revenues increased $5.6 million, or 18.2%, for the three months ended July 31, 2002 compared to the same period in the prior fiscal year. The increase was principally the result of (i) revenue growth from stores that operated a full three months in both periods ($3.9 million, or 14.5%), (ii) revenue growth from stores opened during the three months ended July 31, 2001 or stores that added a satellite location after April 30, 2001 ($.3 million), and (iii) revenues from stores opened after July 31, 2001 ($1.5 million). Pretax income increased $2.0 million, or 55.2%, for the three months ended July 31, 2002 as compared to the same period in the prior fiscal year. The increase was principally the result of (i) an increase in Car-Mart's pretax income ($1.3 million) stemming from an 18.7% increase in revenues and lower costs and expenses as a percentage of sales, and (ii) a reduction in Corporate's pretax loss ($.7 million). The pretax loss at Corporate decreased as a result of (i) lower operating expenses at its Irving, Texas office ($.3 million) as a result of a smaller staff and lower compensation levels, (ii) lower interest expense ($.1 million) as a result of a reduction in debt, and (iii) the prior fiscal period including a write-down of equipment ($.4 million) with no similar cost in the current fiscal period. 12 CAR-MART (Dollars in Thousands)
% Change As a % of Sales ---------- ---------------------- Three Months Ended 2002 Three Months Ended July 31, vs July 31, 2002 2001 2001 2002 2001 ---------- --------- ---------- ---------- -------- Revenues: Sales $ 33,821 $ 28,124 20.3% 100.0% 100.0% Interest income 2,216 2,233 (.8) 6.5 7.9 --------- -------- -------- -------- Total 36,037 30,357 18.7 106.5 107.9 --------- -------- -------- -------- Costs and expenses: Cost of sales 17,750 15,010 18.3 52.5 53.4 Selling, general and admin 5,915 4,097 44.4 17.5 14.6 Provision for credit losses 5,602 5,497 1.9 16.6 19.5 Interest expense 486 784 (38.0) 1.4 2.8 Depreciation and amortization 46 34 35.3 .1 .1 --------- -------- -------- -------- Total 29,799 25,422 17.2 88.1 90.4 --------- -------- -------- -------- Pretax income $6,238 $4,935 26.4 18.4 17.5 ========= ======== ======== ========= Operating Data: Retail units sold 5,273 4,429 19.1% Average stores in operation 57.7 50.3 14.7 Average units sold per store 91.4 88.1 3.8 Average retail sales price $6,213 $6,129 1.4 Same store revenue growth 14.5% 16.3% Period End Data: Stores open 59 51 15.7% Accounts 30 days or more past due 4.4% 4.0%
THREE MONTHS ENDED JULY 31, 2002 VS. THREE MONTHS ENDED JULY 31, 2001 Revenues increased $5.7 million, or 18.7%, for the three months ended July 31, 2002 as compared to the same period in the prior fiscal year. The increase was principally the result of (i) revenue growth from stores that operated a full three months in both periods ($3.9 million, or 14.5%), (ii) revenue growth from stores opened during the three months ended July 31, 2001 or stores that added a satellite location after April 30, 2001 ($.3 million), and (iii) revenues from stores opened after July 31, 2001 ($1.5 million). Cost of sales as a percentage of sales decreased .9% to 52.5% for the three months ended July 31, 2002 from 53.4% in the same period of the prior fiscal year. The decrease was principally the result of the Company's decision to raise vehicle prices, thereby improving gross margins. The Company made the decision to raise prices during the third quarter of the prior fiscal year after making significant improvements in the price it pays when purchasing vehicles. Selling, general and administrative expense as a percentage of sales increased 2.9% to 17.5% for the three months ended July 31, 2002 from 14.6% in the same period of the prior fiscal year. The increase was principally the result of (i) changing the Company's store level augmentation policy such that more associates are employed at a store for the same number of active customer accounts, (ii) creating several new management positions at Car-Mart's general office to assist in managing the Company's growing business, and (iii) higher insurance costs. Provision for credit losses as a percentage of sales decreased 2.9%, to 16.6% for the three months ended July 31, 2002 from 19.5% in the same period of the prior fiscal year. The Company believes the decrease was principally the result of increased staffing at the store and general office levels. Specifically, individuals were hired to fill newly created regional accounts director positions. These individuals are responsible for supervising and managing store level collection personnel. Interest expense as a percentage of sales decreased 1.4%, to 1.4% for the three months ended July 31, 2002 from 2.8% in the same period of the prior fiscal year. The decrease was principally the result of (i) a decrease in the prime interest rate (ie, interest charged on the Company's revolving credit facility fluctuates with the prime interest rate), and (ii) a lower level of borrowings relative to the sales volume of the Company. 13 CORPORATE (Dollars in Thousands)
% Change ----------- Three Months Ended 2002 July 31, vs 2002 2001 2001 ----------- ----------- ----------- Revenues: Interest income $ 120 $ 276 (56.6)% ----------- ----------- Total 120 276 (56.6) ----------- ----------- Costs and expenses: Selling, general and admin 640 912 (29.8) Interest expense 110 245 (55.1) Depreciation and amortization 19 52 (63.5) Write-down of equipment 400 NM ----------- ----------- Total 769 1,609 (52.2) ----------- ----------- Pretax loss $ (649) $ (1,333) (51.3) =========== ===========
NM - not meaningful THREE MONTHS ENDED JULY 31, 2002 VS. THREE MONTHS ENDED JULY 31, 2001 Interest income decreased $.2 million to $.1 million for the three months ended July 31, 2002 from $.3 million in the same period in the prior fiscal year. The decrease was principally due to a lower level of notes receivable outstanding during the three months ended July 31, 2002 as compared to the same period in the prior fiscal year. Selling, general and administrative expense decreased $.3 million to $.6 million for the three months ended July 31, 2002 from $.9 million in the same period in the prior fiscal year, a decrease of 29.8%. The decrease was principally the result of (i) lower compensation expense at its Irving, Texas office resulting from reductions in staff, (ii) reduced transportation expenses, and (iii) lower director compensation. The staff was reduced in connection with the relocation of the Company's principal headquarters from Irving, Texas to Bentonville, Arkansas (where Car-Mart is based) in July 2002. The Company expects selling, general and administrative expenses at Corporate to continue to decline in future quarters as more administrative duties are transferred to Car-Mart. Interest expense decreased $.1 million as a result of Corporate substantially reducing its debt. 14 RESULTS OF DISCONTINUED OPERATIONS Operating results are presented below for the discontinued operations of the Company for the three months ended July 31, 2002 and 2001. These discontinued operations include the following subsidiaries for the periods indicated.
Number of Months Included Month Month in Discontinued Operations for Company Company the Three Months Ended July 31, Acquired Sold or --------------------------------- Subsidiary or Formed Disposed 2002 2001 ----------------------- -------------- -------------- -------------- -------------- Smart Choice 12-99 10-01 -- 3 Paaco 2-98 10-01 -- 3 Precision 2-98 5-02 -- 3 Concorde 6-97 7-02 2 3
(In Thousands) Three Months Ended July 31, 2002 2001 ------------------ ----------------- Revenues $ 3,058 $ 49,839 Operating expenses 2,306 51,782 ------------------ ----------------- Pretax income (loss) $ 752 $ (1,943) ================== =================
THREE MONTHS ENDED JULY 31, 2002 VS. THREE MONTHS ENDED JULY 31, 2001 Revenues decreased $46.8 million, or 93.9%, for the three months ended July 31, 2002 as compared to the same period in the prior fiscal year. The decrease was principally the result of the removal of Smart Choice/Paaco from the Company's discontinued operations. Effective October 31, 2001, the Company wrote-off its investment in Smart Choice/Paaco and thereafter the Company ceased to include Smart Choice/Paaco's operating results in its discontinued operations. In March 2002, the Company sold its investment in Smart Choice/Paaco for a nominal sum. Pretax income for the Company's discontinued operations was $.8 million for the three months ended July 31, 2002 as compared to a $1.9 million pretax loss for the same period in the prior fiscal year. The $2.7 million improvement was principally the result of not including Smart Choice/Paaco in the Company's discontinued operations during the three months ended July 31, 2002 ($2.6 million), and an increase in Concorde's pretax earnings ($.2 million). 15 LIQUIDITY AND CAPITAL RESOURCES The following table sets forth certain summarized historical information with respect to the Company's statements of cash flows (in thousands):
Three Months Ended July 31, 2002 2001 -------------- -------------- Operating activities: Income from continuing operations $ 3,437 $ 1,963 Net finance receivables growth (5,256) (3,843) Other 341 (1,049) -------------- -------------- Total (1,478) (2,929) -------------- -------------- Investing activities: Purchase of property and equipment (708) (384) Sale of discontinued subsidiaries 6,795 Note collections from discontinued subsidiaries 2,079 64 Other 2 (13) -------------- -------------- Total 8,168 (333) -------------- -------------- Financing activities: Proceeds from (repayments of) revolving credit facility, net (722) 4,560 Repayments of other debt (6,000) (300) Purchase of common stock, net (156) (924) -------------- -------------- Total (6,878) 3,336 -------------- -------------- Cash provided by (used in) continuing operations $ (188) $ 74 ============== ==============
At July 31, 2002 the Company had (i) $1.0 million of cash on hand and had an additional $5.4 million of availability on its $37.0 million revolving credit facility, (ii) a $7.3 million federal income tax refund receivable stemming principally from the Company's loss on Smart Choice, and (iii) $1.7 million of other receivables. On a short-term basis, the Company's principal sources of liquidity include (i) income from continuing operations, (ii) borrowings from its revolving credit facility, (iii) a federal income tax refund receivable, and (iv) other receivables. On a longer-term basis, the Company expects its principal sources of liquidity to include (i) income from continuing operations, and (ii) borrowings from a revolving credit facility. Further, while the Company has no present plans to issue debt or equity securities, the Company believes, if necessary, it could raise additional capital through the issuance of such securities. The Company expects to use cash to (i) grow its finance receivables portfolio in direct proportion with the expected growth in its sales levels, (ii) purchase property and equipment in connection with opening new stores and refurbishing existing stores, and, to the extent excess cash is available, (iii) reduce debt. In addition, from time to time the Company may use cash to repurchase its common stock. The Company expects to fund the majority of its growth from income generated from operations. Further, the Company expects its financial leverage ratio to decline for the next several years, as net income builds equity and debt either decreases or remains relatively constant. The Company's revolving credit facility matures in December 2003. The Company expects that it will be able to renew or refinance its revolving credit facility on or before the scheduled maturity date. The Company believes it will have adequate liquidity to satisfy its capital needs for the foreseeable future. CRITICAL ACCOUNTING POLICIES The preparation of financial statements in conformity with 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 reported 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. Below is a discussion of the Company's accounting policy concerning such allowance. Other accounting policies are disclosed in Note B of the Company's consolidated financial statements which are included in its annual report on Form 10-K for the year ended April 30, 2002. The Company maintains an allowance for credit losses at a level it considers sufficient to cover anticipated losses in the collection of its finance receivables. The allowance for credit losses is determined based upon a review of (i) historical and recent credit losses and (ii) the 16 finance receivables portfolio, and takes into consideration (iii) economic conditions and trends, and collateral values. The allowance for credit losses is periodically reviewed by management with any changes reflected in current operations. It is at least reasonably possible that actual credit losses may be materially different from the recorded allowance for credit losses. SEASONALITY The Company's automobile sales and finance business is seasonal in nature. In such business, 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 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 has experienced seasonal fluctuations in its credit losses. The Company's first and fourth fiscal quarters tend to have lower credit losses, and its second and third fiscal quarters tend to have higher credit losses. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk on its financial instruments from changes in interest rates. In particular, the Company has exposure to changes in the federal discount 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. Decreases in market interest rates could eventually have an adverse effect on profitability. Financial instruments consist of fixed rate finance receivables and fixed and variable rate notes payable. The Company's finance receivables generally bear interest at fixed rates ranging from 6% to 19%. These finance receivables have remaining maturities from one to 30 months. A majority of the Company's borrowings contain variable interest rates that fluctuate with market interest rates (ie, 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 discount rate (1.25% at July 31, 2002) 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 discount rate which fluctuates. At July 31, 2002 approximately 69% 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 discount rate could have a negative effect on 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. The initial impact on profitability resulting from a decrease in the federal discount rate is positive, as the immediate interest expense savings outweighs the loss of interest income on new loan originations. However, as the amount of new loans originated at the lower interest rate exceeds the amount of variable interest rate borrowings, the effect on profitability becomes negative. The table below illustrates the impact which hypothetical changes in the federal discount rate could have on the Company's continuing pretax earnings. The calculations assume (i) the increase or decrease in the federal discount rate remains in effect for two years, (ii) the increase or decrease in the federal discount 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 ($98.6 million) and variable interest rate borrowings ($31.6 million), and the percentage of Arkansas originated finance receivables (69%), 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 Increase Increase (Decrease) (decrease) (Decrease) in Interest Rates in Pretax Earnings in Pretax Earnings ---------------------- ------------------- ------------------- (in thousands) (in thousands) +2% $ 55 $ 662 +1% 27 331 -1% (27) (331) -2% (55) (662)
A similar calculation and table was prepared as of April 30, 2002. That calculation and table was materially consistent with the information provided above. 17 ITEM 4. CONTROLS AND PROCEDURES During the fiscal quarter ended July 31, 2002 there were not any significant changes in the Company's internal controls. PART II ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 99.1 Form of Certification Pursuant to Section 906 of Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K: During the fiscal quarter ended July 31, 2002 the Company did not file any reports on Form 8-K. 18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICA'S CAR-MART, INC. By: \s\ Tilman J. Falgout, III ------------------------------------- Tilman J. Falgout, III Chief Executive Officer (Principal Executive Officer) By: \s\ Mark D. Slusser ------------------------------------- Mark D. Slusser Chief Financial Officer, Vice President Finance and Secretary (Principal Financial and Accounting Officer) Dated: September 10, 2002 19 CERTIFICATION I, Tilman J. Falgout III, Chief Executive Officer of America's Car-Mart, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of America's Car-Mart, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. \s\ Tilman J. Falgout, III ------------------------------------ Tilman J. Falgout, III Chief Executive Officer CERTIFICATION I, Mark D. Slusser, Chief Financial Officer, Vice President Finance and Secretary of America's Car-Mart, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of America's Car-Mart, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. September 10, 2002 \s\ Mark D. Slusser ---------------------------------------- Mark D. Slusser Chief Financial Officer, Vice President Finance and Secretary 20 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- 99.1 Form of Certification Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.