[X]
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Texas
|
63-0851141
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
Title of Each Class
|
Outstanding at
August 30, 2011
|
Common stock, par value $.01 per share
|
9,803,985
|
Item 1. Financial Statements | America’s Car-Mart, Inc. |
July 31, 2011
|
April 30, 2011
|
|||||||
Assets:
|
||||||||
Cash and cash equivalents
|
$ | 219 | $ | 223 | ||||
Accrued interest on finance receivables
|
1,375 | 1,133 | ||||||
Finance receivables, net
|
231,651 | 222,305 | ||||||
Inventory
|
26,564 | 23,595 | ||||||
Prepaid expenses and other assets
|
2,138 | 2,046 | ||||||
Income taxes receivable, net
|
- | 1,220 | ||||||
Goodwill
|
355 | 355 | ||||||
Property and equipment, net
|
25,728 | 25,532 | ||||||
Total Assets
|
$ | 288,030 | $ | 276,409 | ||||
Liabilities, mezzanine equity and equity:
|
||||||||
Liabilities:
|
||||||||
Accounts payable
|
$ | 6,790 | $ | 7,742 | ||||
Deferred payment protection plan revenue
|
9,264 | 8,963 | ||||||
Accrued liabilities
|
11,185 | 11,349 | ||||||
Income taxes payable, net
|
4,290 | - | ||||||
Deferred tax liabilities, net
|
13,652 | 13,405 | ||||||
Revolving credit facilities and note payable
|
57,477 | 47,539 | ||||||
Total liabilities
|
102,658 | 88,998 | ||||||
Commitments and contingencies
|
||||||||
Mezzanine equity:
|
||||||||
Mandatorily redeemable preferred stock
|
400 | 400 | ||||||
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; 12,278,716 and 12,276,658 issued at July 31, 2011 and April 30, 2011, respectively, of which 10,110,166 and 10,496,628 were outstanding at July 31, 2011 and April 30, 2011, respectively
|
123 | 123 | ||||||
Additional paid-in capital
|
47,261 | 46,476 | ||||||
Retained earnings
|
186,459 | 178,187 | ||||||
Less: Treasury stock, at cost, 2,168,550 shares (1,780,030 at April 30, 2011)
|
(48,971 | ) | (37,875 | ) | ||||
Total stockholders' equity
|
184,872 | 186,911 | ||||||
Non-controlling interest
|
100 | 100 | ||||||
Total equity
|
184,972 | 187,011 | ||||||
Total Liabilities, mezzanine equity and equity
|
$ | 288,030 | $ | 276,409 |
Condensed Consolidated Statements of Operations | America’s Car-Mart, Inc. |
Three Months Ended
|
||||||||
July 31,
|
||||||||
2011
|
2010
|
|||||||
Revenues:
|
||||||||
Sales
|
$ | 90,324 | $ | 82,602 | ||||
Interest income
|
10,200 | 8,858 | ||||||
Total revenue
|
100,524 | 91,460 | ||||||
Costs and expenses:
|
||||||||
Cost of sales, excluding depreciation shown below
|
51,562 | 46,433 | ||||||
Selling, general and administrative
|
16,198 | 14,790 | ||||||
Provision for credit losses
|
18,534 | 16,138 | ||||||
Interest expense
|
442 | 967 | ||||||
Depreciation and amortization
|
538 | 456 | ||||||
Total costs and expenses
|
87,274 | 78,784 | ||||||
Income before taxes
|
13,250 | 12,676 | ||||||
Provision for income taxes
|
4,968 | 4,711 | ||||||
Net income
|
$ | 8,282 | $ | 7,965 | ||||
Less: Dividends on mandatorily redeemable preferred stock
|
(10 | ) | (10 | ) | ||||
Net income attributable to common stockholders
|
$ | 8,272 | $ | 7,955 | ||||
Earnings per share:
|
||||||||
Basic
|
$ | 0.81 | $ | 0.71 | ||||
Diluted
|
$ | 0.78 | $ | 0.70 | ||||
Weighted average number of shares outstanding:
|
||||||||
Basic
|
10,271,359 | 11,223,777 | ||||||
Diluted
|
10,579,824 | 11,436,613 |
Consolidated Statements of Cash Flows | America’s Car-Mart, Inc. |
Three Months Ended
|
||||||||
July 31,
|
||||||||
Operating activities:
|
2011
|
2010
|
||||||
Net income
|
$ | 8,282 | $ | 7,965 | ||||
Adjustments to reconcile net income from operations to net cash provided by operating activities:
|
||||||||
Provision for credit losses
|
18,534 | 16,138 | ||||||
Losses on claims for payment protection plan
|
1,336 | 1,007 | ||||||
Depreciation and amortization
|
538 | 456 | ||||||
Amortization of debt issuance costs
|
44 | - | ||||||
Stock based compensation
|
731 | 909 | ||||||
Unrealized loss for change in fair value of interest rate swap
|
- | 233 | ||||||
Deferred income taxes
|
247 | 938 | ||||||
Change in operating assets and liabilities:
|
||||||||
Finance receivable originations
|
(82,903 | ) | (75,914 | ) | ||||
Finance receivable collections
|
45,815 | 43,556 | ||||||
Accrued interest on finance receivables
|
(242 | ) | (96 | ) | ||||
Inventory
|
4,903 | 5,819 | ||||||
Prepaid expenses and other assets
|
(136 | ) | (528 | ) | ||||
Accounts payable and accrued liabilities
|
(1,717 | ) | (1,416 | ) | ||||
Deferred payment protection plan revenue
|
301 | 317 | ||||||
Income taxes, net
|
5,510 | 3,656 | ||||||
Net cash provided by operating activities
|
1,243 | 3,040 | ||||||
Investing Activities:
|
||||||||
Purchase of property and equipment
|
(734 | ) | (1,135 | ) | ||||
Net cash used in investing activities
|
(734 | ) | (1,135 | ) | ||||
Financing Activities:
|
||||||||
Exercise of stock options and warrants
|
1 | - | ||||||
Issuance of common stock
|
53 | 48 | ||||||
Purchase of common stock
|
(11,096 | ) | (7,260 | ) | ||||
Dividend payments
|
(10 | ) | (10 | ) | ||||
Change in cash overdrafts
|
601 | (235 | ) | |||||
Principal payments on note payable
|
- | (228 | ) | |||||
Proceeds from revolving credit facilities
|
37,307 | 28,487 | ||||||
Payments on revolving credit facilities
|
(27,369 | ) | (22,697 | ) | ||||
Net cash used in financing activities
|
(513 | ) | (1,895 | ) | ||||
Increase (decrease) in cash and cash equivalents
|
(4 | ) | 10 | |||||
Cash and cash equivalents, beginning of period
|
223 | 268 | ||||||
Cash and cash equivalents, end of period
|
$ | 219 | $ | 278 |
Notes to Consolidated Financial Statements (Unaudited) | America’s Car-Mart, Inc. |
·
|
The number of units repossessed or charged-off as a percentage of total units financed over specific historical periods of time.
|
·
|
The average net repossession and charge-off loss per unit during the last eighteen months, segregated by the number of months since the contract origination date, and adjusted for the expected future average net charge-off loss per unit. About 50% of the charge-offs that will ultimately occur in the portfolio are expected to occur within 10-11 months following the balance sheet date. The average age of an account at charge-off date is 11.3 months.
|
·
|
The timing of repossession and charge-off losses relative to the date of sale (i.e., how long it takes for a repossession or charge-off to occur) for repossessions and charge-offs occurring during the last eighteen months.
|
Furniture, fixtures and equipment
|
3 to 7 years
|
Leasehold improvements
|
5 to 15 years
|
Buildings and improvements
|
18 to 39 years
|
Three Months Ended:
|
||||||||
July 31,
|
||||||||
(In thousands)
|
2011
|
2010
|
||||||
Sales – used autos
|
$ | 79,574 | $ | 72,991 | ||||
Wholesales – third party
|
4,894 | 4,219 | ||||||
Service contract sales
|
3,192 | 2,946 | ||||||
Payment protection plan revenue
|
2,664 | 2,446 | ||||||
Total
|
$ | 90,324 | $ | 82,602 |
(In thousands)
|
July 31, 2011
|
April 30, 2011
|
||||||
Gross contract amount
|
$ | 331,795 | $ | 317,956 | ||||
Less unearned finance charges
|
(37,420 | ) | (35,478 | ) | ||||
Principal balance
|
294,375 | 282,478 | ||||||
Less allowance for credit losses
|
(62,724 | ) | (60,173 | ) | ||||
Finance receivables, net
|
$ | 231,651 | $ | 222,305 |
Three Months Ended July 31,
|
||||||||
(In thousands)
|
2011
|
2010
|
||||||
Balance at beginning of period
|
$ | 222,305 | $ | 205,423 | ||||
Finance receivable originations
|
82,903 | 75,914 | ||||||
Finance receivable collections
|
(45,815 | ) | (43,556 | ) | ||||
Provision for credit losses
|
(18,534 | ) | (16,138 | ) | ||||
Losses on claims for payment protection plan
|
(1,336 | ) | (1,007 | ) | ||||
Inventory acquired in repossession and payment protection plan claims
|
(7,872 | ) | (6,144 | ) | ||||
Balance at end of period
|
$ | 231,651 | $ | 214,492 |
Three Months Ended July 31,
|
||||||||
(In thousands)
|
2011
|
2010
|
||||||
Balance at beginning of period
|
$ | 60,173 | $ | 55,628 | ||||
Provision for credit losses
|
18,534 | 16,138 | ||||||
Charge-offs, net of recovered collateral
|
(15,983 | ) | (13,703 | ) | ||||
Balance at end of period
|
$ | 62,724 | $ | 58,063 |
(Dollars in thousands)
|
July 31, 2011
|
April 30, 2011
|
July 31, 2010
|
|||||||||||||||||||||
Principal
|
Percent of
|
Principal
|
Percent of
|
Principal
|
Percent of
|
|||||||||||||||||||
Balance
|
Portfolio
|
Balance
|
Portfolio
|
Balance
|
Portfolio
|
|||||||||||||||||||
Current
|
$ | 245,280 | 83.32 | % | $ | 243,266 | 86.12 | % | $ | 231,648 | 84.99 | % | ||||||||||||
3 - 29 days past due
|
37,230 | 12.65 | % | 30,975 | 10.97 | % | 31,136 | 11.42 | % | |||||||||||||||
30 - 60 days past due
|
9,265 | 3.15 | % | 6,003 | 2.13 | % | 7,423 | 2.72 | % | |||||||||||||||
61 - 90 days past due
|
2,239 | 0.76 | % | 2,036 | 0.72 | % | 2,074 | 0.76 | % | |||||||||||||||
> 90 days past due
|
361 | 0.12 | % | 198 | 0.07 | % | 274 | 0.10 | % | |||||||||||||||
Total
|
$ | 294,375 | 100.00 | % | $ | 282,478 | 100.00 | % | $ | 272,555 | 100.00 | % |
Three Months Ended July 31,
|
||||||||
2011
|
2010
|
|||||||
Collections as a percent of average Finance Receivables
|
15.9 | % | 16.3 | % | ||||
Average down-payment percentage
|
7.3 | % | 7.2 | % | ||||
Average originating contract term (in months)
|
26.4 | 26.3 | ||||||
Portfolio weighted average contract term, including modifications (in months)
|
27.4 | 27.7 |
July 31,
|
April 30,
|
|||||||
(In thousands)
|
2011
|
2011
|
||||||
Land
|
$ | 6,079 | $ | 6,079 | ||||
Buildings and improvements
|
10,046 | 9,947 | ||||||
Furniture, fixtures and equipment
|
7,936 | 7,618 | ||||||
Leasehold improvements
|
10,730 | 10,063 | ||||||
Construction in progress
|
382 | 732 | ||||||
Less accumulated depreciation and amortization
|
(9,445 | ) | (8,907 | ) | ||||
$ | 25,728 | $ | 25,532 |
July 31,
|
April 30,
|
|||||||
(In thousands)
|
2011
|
2011
|
||||||
Compensation
|
$ | 3,275 | $ | 4,203 | ||||
Cash overdraft
|
601 | - | ||||||
Deferred service contract revenue
|
3,073 | 2,970 | ||||||
Deferred sales tax
|
1,699 | 1,684 | ||||||
Interest
|
144 | 117 | ||||||
Other
|
2,393 | 2,375 | ||||||
$ | 11,185 | $ | 11,349 |
Aggregate
|
Interest
|
Balance at
|
||||||||||
Amount
|
Rate
|
Maturity
|
July 31, 2011
|
April 30, 2011
|
||||||||
$90.0 million
|
Prime +/-
|
November 2013
|
$ | 57,477 | $ | 47,539 | ||||||
(3.0% at July 31, 2011 and April 30, 2011)
|
July 31, 2011
|
April 30, 2011
|
|||||||||||||||
Carrying
|
Fair
|
Carrying
|
Fair
|
|||||||||||||
(In thousands)
|
Value
|
Value
|
Value
|
Value
|
||||||||||||
Cash
|
$ | 219 | $ | 219 | $ | 223 | $ | 223 | ||||||||
Finance receivables, net
|
231,651 | 183,984 | 222,305 | 176,549 | ||||||||||||
Accounts payable
|
6,790 | 6,790 | 7,742 | 7,742 | ||||||||||||
Revolving credit facilities
|
57,477 | 57,477 | 47,539 | 47,539 |
Financial Instrument
|
Valuation Methodology
|
Cash
|
The carrying amount is considered to be a reasonable estimate of fair value due to the short-term nature of the financial instrument.
|
Finance receivables, net
|
The Company estimated the fair value of its receivables at what a third party purchaser might be willing to pay. The Company has had discussions with third parties and has recently bought and sold portfolios, and has had a recent third party appraisal that indicates a 37.5% discount to face would be a reasonable fair value in a negotiated third party transaction. The sale of finance receivables from Car-Mart of Arkansas to Colonial is at a 37.5% discount. For financial reporting purposes these sale transactions are eliminated. Since the Company does not intend to offer the receivables for sale to an outside third party, the expectation is that the book value at July 31, 2011, will be ultimately collected. By collecting the accounts internally the Company expects to realize more than a third party purchaser would expect to collect with a servicing requirement and a profit margin included.
|
Accounts payable
|
The carrying amount is considered to be a reasonable estimate of fair value due to the short-term nature of the financial instrument.
|
Revolving credit facilities
|
The fair value approximates carrying value due to the variable interest rates charged on the borrowings, which reprice frequently.
|
Three Months Ended:
|
||||||||
July 31,
|
||||||||
2011
|
2010
|
|||||||
Weighted average shares outstanding-basic
|
10,271,359 | 11,223,777 | ||||||
Dilutive options, warrants and restricted stock
|
308,465 | 212,836 | ||||||
Weighted average shares outstanding-diluted
|
10,579,824 | 11,436,613 | ||||||
Antidilutive securities not included:
|
||||||||
Options and warrants
|
25,000 | 580,000 |
1997 Plan
|
2007 Plan
|
|||||||
Minimum exercise price as a percentage of fair market value at date of grant
|
100 | % | 100 | % | ||||
Last expiration date for outstanding options
|
July 2, 2017
|
June 13, 2021
|
||||||
Shares available for grant at July 31, 2011
|
- | 457,500 |
July 31, 2011
|
July 31, 2010
|
|||||||
Expected term (years)
|
5.0 | 5.0 | ||||||
Risk-free interest rate
|
1.77 | % | 1.80 | % | ||||
Volatility
|
50 | % | 50 | % | ||||
Dividend yield
|
— | — |
Number
|
Weighted Average
|
|||||||
of
|
Grant Date
|
|||||||
Shares
|
Fair Value
|
|||||||
Unvested shares at April 30, 2011
|
29,000 | $ | 22.79 | |||||
Shares granted
|
- | - | ||||||
Shares vested
|
- | - | ||||||
Unvested shares at July 31, 2011
|
29,000 | $ | 22.79 |
Three Months Ended July 31,
|
||||||||
(in thousands)
|
2011
|
2010
|
||||||
Supplemental disclosures:
|
||||||||
Interest paid
|
$ | 415 | $ | 943 | ||||
Income taxes paid (received), net
|
(788 | ) | 117 | |||||
Non-cash transactions:
|
||||||||
Inventory acquired in repossession and payment protection plan claims
|
7,872 | 6,144 |
·
|
new dealership openings;
|
·
|
performance of new dealerships;
|
·
|
same store revenue growth;
|
·
|
future revenue growth;
|
·
|
future credit losses;
|
·
|
investment in development of workforce;
|
·
|
gross margin percentages;
|
·
|
financing the majority of growth from profits;
|
·
|
seasonality;
|
·
|
compliance with tax regulations; and
|
·
|
the Company’s business and growth strategies.
|
·
|
the availability of credit facilities to support the Company’s business;
|
·
|
the Company’s ability to underwrite and collect its contracts effectively;
|
·
|
competition;
|
·
|
dependence on existing management;
|
·
|
availability of quality vehicles at prices that will be affordable to customers;
|
·
|
changes in financing laws or regulations;
|
·
|
the outcome of pending tax audits; and
|
·
|
general economic conditions in the markets in which the Company operates, including but not limited to fluctuations in gas prices, grocery prices and employment levels.
|
% Change
|
As a % of Sales
|
|||||||||||||||||||
Three Months Ended
|
2011
|
Three Months Ended
|
||||||||||||||||||
July 31,
|
vs.
|
July 31,
|
||||||||||||||||||
2011
|
2010
|
2010
|
2011
|
2010
|
||||||||||||||||
Revenues:
|
||||||||||||||||||||
Sales
|
$ | 90,324 | $ | 82,602 | 9.3 | % | 100.0 | % | 100.0 | % | ||||||||||
Interest income
|
10,200 | 8,858 | 15.2 | 11.3 | 10.7 | |||||||||||||||
Total
|
100,524 | 91,460 | 9.9 | 111.3 | 110.7 | |||||||||||||||
Costs and expenses:
|
||||||||||||||||||||
Cost of sales, excluding depreciation shown below
|
51,562 | 46,433 | 11.0 | 57.1 | 56.2 | |||||||||||||||
Selling, general and administrative
|
16,198 | 14,790 | 9.5 | 17.9 | 17.9 | |||||||||||||||
Provision for credit losses
|
18,534 | 16,138 | 14.8 | 20.5 | 19.5 | |||||||||||||||
Interest expense
|
442 | 967 | (54.3 | ) | 0.5 | 1.2 | ||||||||||||||
Depreciation and amortization
|
538 | 456 | 18.0 | 0.6 | 0.6 | |||||||||||||||
Total
|
87,274 | 78,784 | 10.8 | 96.6 | 95.4 | |||||||||||||||
Pretax income
|
$ | 13,250 | $ | 12,676 | 4.5 | 14.7 | % | 15.3 | % | |||||||||||
Operating Data:
|
||||||||||||||||||||
Retail units sold
|
9,049 | 8,481 | ||||||||||||||||||
Average stores in operation
|
107 | 98 | ||||||||||||||||||
Average units sold per store per month
|
28.2 | 28.8 | ||||||||||||||||||
Average retail sales price
|
$ | 9,441 | $ | 9,242 | ||||||||||||||||
Same store revenue change
|
3.6 | % | 6.4 | % | ||||||||||||||||
Period End Data:
|
||||||||||||||||||||
Stores open
|
107 | 98 | ||||||||||||||||||
Accounts over 30 days past due
|
4.0 | % | 3.6 | % |
July 31, 2011
|
April 30, 2011
|
|||||||
Assets:
|
||||||||
Finance receivables, net
|
$ | 231,651 | $ | 222,305 | ||||
Inventory
|
26,564 | 23,595 | ||||||
Property and equipment, net
|
25,728 | 25,532 | ||||||
Liabilities:
|
||||||||
Accounts payable and accrued liabilities
|
17,975 | 19,091 | ||||||
Deferred payment protection plan revenue
|
9,264 | 8,963 | ||||||
Income taxes payable, net
|
4,290 | (1,220 | ) | |||||
Deferred tax liabilities, net
|
13,652 | 13,405 | ||||||
Debt facilities
|
57,477 | 47,539 |
Three Months Ended July 31,
|
||||||||
2011
|
2010
|
|||||||
Operating activities:
|
||||||||
Net income
|
$ | 8,282 | $ | 7,965 | ||||
Provision for credit losses
|
18,534 | 16,138 | ||||||
Losses on claims for payment protection plan
|
1,336 | 1,007 | ||||||
Unrealized loss for change in fair value of interest rate swap
|
- | 233 | ||||||
Depreciation and amortization
|
538 | 456 | ||||||
Stock based compensation
|
731 | 909 | ||||||
Finance receivable originations
|
(82,903 | ) | (75,914 | ) | ||||
Finance receivable collections
|
45,815 | 43,556 | ||||||
Inventory
|
4,903 | 5,819 | ||||||
Accounts payable and accrued liabilities
|
(1,717 | ) | (1,416 | ) | ||||
Deferred payment protection plan revenue
|
301 | 317 | ||||||
Income taxes, net
|
5,510 | 3,656 | ||||||
Deferred income taxes
|
247 | 938 | ||||||
Accrued interest on finance receivables
|
(242 | ) | (96 | ) | ||||
Other
|
(92 | ) | (528 | ) | ||||
Total
|
1,243 | 3,040 | ||||||
Investing activities:
|
||||||||
Purchase of property and equipment
|
(734 | ) | (1,135 | ) | ||||
Total
|
(734 | ) | (1,135 | ) | ||||
Financing activities:
|
||||||||
Debt facilities, net
|
9,938 | 5,562 | ||||||
Change in cash overdrafts
|
601 | (235 | ) | |||||
Issuance of common stock
|
54 | 48 | ||||||
Purchase of common stock
|
(11,096 | ) | (7,260 | ) | ||||
Dividend payments
|
(10 | ) | (10 | ) | ||||
Total
|
(513 | ) | (1,895 | ) | ||||
Increase (decrease) in Cash
|
$ | (4 | ) | $ | 10 |
·
|
The number of units repossessed or charged-off as a percentage of total units financed over specific historical periods of time.
|
·
|
The average net repossession and charge-off loss per unit during the last eighteen months segregated by the number of months since the contract origination date and adjusted for the expected future average net charge-off loss per unit. About 50% of the charge-offs that will ultimately occur in the portfolio are expected to occur within 10-11 months following the balance sheet date. The average age of an account at charge-off date is 11.3 months.
|
·
|
The timing of repossession and charge-off losses relative to the date of sale (i.e., how long it takes for a repossession or charge-off to occur) for repossessions and charge-offs occurring during the last eighteen months.
|
a)
|
Evaluation of Disclosure Controls and Procedures
|
b)
|
Changes in Internal Control Over Financial Reporting
|
Issuer Purchases of Equity Securities
|
||||||||||||||||
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)
|
||||||||||||
May 1, 2011 through May 31, 2011
|
64,400 | $ | 25.11 | 64,400 | 995,400 | |||||||||||
June 1, 2011 through June 30, 2011
|
272,606 | $ | 28.28 | 272,606 | 722,794 | |||||||||||
July 1, 2011 through July 31, 2011
|
51,514 | $ | 34.34 | 51,514 | 671,280 | |||||||||||
Total
|
388,520 | $ | 28.56 | 388,520 | 671,280 |
Exhibit
Number
|
Description of Exhibit
|
|
3.1
|
Articles of Incorporation of the Company, as amended. (Incorporated by reference to Exhibits 4.1-4.8 to the Company's Registration Statement on Form S-8 filed with the SEC on November 16, 2005 (File No. 333-129727))
|
|
3.2
|
Amended and Restated Bylaws of the Company dated December 4, 2007. (Incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended October 31, 2007 filed with the SEC on December 7, 2007)
|
|
31.1
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
|
|
31.2
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act.
|
|
32.1
|
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350,as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
1. I have reviewed this quarterly report on Form 10-Q of America’s Car-Mart, Inc. for the period ended July 31, 2011;
|
|
|
|
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
|
|
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
|
|
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
|
|
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
|
|
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
|
|
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
|
|
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
|
|
|
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
|
|
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
|
|
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
|
|
|
September 2, 2011
|
\s\ William H. Henderson
|
||
William H. Henderson
|
|||
Chief Executive Officer
|
|
1. I have reviewed this quarterly report on Form 10-Q of America’s Car-Mart, Inc. for the period ended July 31, 2011;
|
|
|
|
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
|
|
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
|
|
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
|
|
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
|
|
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
|
|
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
|
|
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
|
|
|
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
|
|
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
|
|
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
|
|
|
September 2, 2011
|
\s\ Jeffrey A. Williams
|
||
Jeffrey A. Williams
|
|||
Chief Financial Officer
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Condensed Consolidated Balance Sheets (Unaudited) (Parentheticals) (USD $)
|
Jul. 31, 2011
|
Apr. 30, 2011
|
---|---|---|
Preferred stock, par value (in Dollars per share) | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized | 1,000,000 | 1,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value (in Dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 50,000,000 | 50,000,000 |
Common stock, shares issued | 12,278,716 | 12,276,658 |
Common stock, shares outstanding | 10,110,166 | 10,496,628 |
Treasury stock, shares | 2,168,550 | 1,780,030 |
Condensed Consolidated Statements of Operations (Unaudited) (USD $)
In Thousands, except Share data |
3 Months Ended | |
---|---|---|
Jul. 31, 2011
|
Jul. 31, 2010
|
|
Revenues: | Â | Â |
Sales | $ 90,324 | $ 82,602 |
Interest income | 10,200 | 8,858 |
Total revenue | 100,524 | 91,460 |
Costs and expenses: | Â | Â |
Cost of sales, excluding depreciation shown below | 51,562 | 46,433 |
Selling, general and administrative | 16,198 | 14,790 |
Provision for credit losses | 18,534 | 16,138 |
Interest expense | 442 | 967 |
Depreciation and amortization | 538 | 456 |
Total costs and expenses | 87,274 | 78,784 |
Income before taxes | 13,250 | 12,676 |
Provision for income taxes | 4,968 | 4,711 |
Net income | 8,282 | 7,965 |
Less: Dividends on mandatorily redeemable preferred stock | (10) | (10) |
Net income attributable to common stockholders | $ 8,272 | $ 7,955 |
Earnings per share: | Â | Â |
Basic (in Dollars per share) | $ 0.81 | $ 0.71 |
Diluted (in Dollars per share) | $ 0.78 | $ 0.70 |
Weighted average number of shares outstanding: | Â | Â |
Basic (in Shares) | 10,271,359 | 11,223,777 |
Diluted (in Shares) | 10,579,824 | 11,436,613 |
Document And Entity Information
|
3 Months Ended | |
---|---|---|
Jul. 31, 2011
|
Aug. 30, 2011
|
|
Document and Entity Information [Abstract] | Â | Â |
Entity Registrant Name | AMERICAS CARMART INC | Â |
Document Type | 10-Q | Â |
Current Fiscal Year End Date | --04-30 | Â |
Entity Common Stock, Shares Outstanding | Â | 9,803,985 |
Amendment Flag | false | Â |
Entity Central Index Key | 0000799850 | Â |
Entity Current Reporting Status | Yes | Â |
Entity Voluntary Filers | No | Â |
Entity Filer Category | Accelerated Filer | Â |
Entity Well-known Seasoned Issuer | No | Â |
Document Period End Date | Jul. 31, 2011 | |
Document Fiscal Year Focus | 2012 | Â |
Document Fiscal Period Focus | Q1 | Â |
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Note G - Fair Value Measurements
|
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 31, 2011
|
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Fair Value Disclosures [Text Block] |
G
– Fair Value Measurements
The
table below summarizes information about the fair value of
financial instruments included in the Company’s
financial statements at July 31, 2011 and April 30,
2011:
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:
|
Note C - Finance Receivables
|
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 31, 2011
|
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Financing Receivables [Text Block] |
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 5.5% to 19% per annum, are collateralized by the
vehicle sold and provide for payments over periods ranging
from 12 to 36 months. The Company’s finance
receivables are defined as one segment and one class of
loans, which is sub-prime consumer automobile
contracts. The level of risks inherent in our
financing receivable are managed as one homogeneous
pool. The components of finance receivables are as
follows:
Changes in the
finance receivables, net for the three months ended July 31,
2011 and 2010 are as follows:
Changes
in the finance receivables allowance for credit losses for
the three months ended July 31, 2011 and 2010 are as
follows:
The
factors which influenced management’s judgment in
determining the amount of the additions to the allowance
charged to provision for credit losses were:
The
level of actual charge-offs, net of recovered collateral is
the most important factor in determining the charges to the
provision for credit losses. This is due to the fact that
once a contract becomes delinquent the account is either made
current by the customer, the vehicle is repossessed or the
account is written off, if the collateral cannot be
recovered. Net charge-offs for the first three
months of fiscal 2012 were higher than the prior year period,
partially due to higher sales volumes. Net
charge-offs as a percentage of average finance receivables
increased 0.5% to 5.6% for the first three months ended July
31, 2011 compared to 5.1% for the same period in the prior
year. Higher sales volumes also had the effect of
higher additions to the allowance charged to the provision
for the first three months of fiscal 2012.
Collections
and delinquency levels have a significant effect on additions
to the allowance and are reviewed frequently in determining
the additions to the allowance charged to the provision. For
the first three months of fiscal 2012, collections as a
percentage of average finance receivables decreased to 15.9%
compared to 16.3% for the same period of fiscal 2011.
Macro-economic
factors as well as proper execution of operational policies
and procedures can have an effect on additions charged to the
provision. Higher unemployment levels, higher gasoline prices
and higher prices for staple items can potentially have a
significant effect. While overall macro-economic factors were
still unfavorable during the first quarter of 2012, the
Company is focused on continuing operational improvements
within the collections area as well as market share gains and
specific stimulus funds directly benefitting most the
Company’s customers were positive as related to credit
results.
Credit
quality information for finance receivables is as
follows:
Accounts
one and two days past due are considered current for this
analysis, due to the varying payment dates and variation in
the day of the week at each period
end. Delinquencies may vary from period to period
based on the average age of the portfolio, seasonality within
the calendar year, the day of the week and overall economic
factors. The above categories are consistent with
internal operational measures used by the Company to monitor
credit results.
Substantially
all of the Company’s automobile contracts involve
contracts made to individuals with impaired or limited credit
histories, or higher debt-to-income ratios than permitted by
traditional lenders. Contracts made with buyers
who are restricted in their ability to obtain financing from
traditional lenders generally entail a higher risk of
delinquency, default and repossession, and higher losses than
contracts made with buyers with better credit. The
Company monitors contract term length, down payment
percentages, and collections for credit quality
indicators.
|
Note I - Stock Based Compensation
|
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 31, 2011
|
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Disclosure of Compensation Related Costs, Share-based Payments [Text Block] |
I
– Stock Based Compensation
The
Company has stock based compensation plans available to grant
non-qualified stock options, incentive stock options and
restricted stock to employees, directors and certain advisors
of the Company. The stock based compensation plans
currently being utilized are the 2007 Stock Option Plan
(“2007 Plan”) and the Stock Incentive Plan
(“Incentive Plan”). The
Company recorded total stock based compensation expense for
all plans of $731,000 ($457,000 after tax effects) and
$909,000 ($573,000 after tax effects) for the three months
ended July 31, 2011 and 2010, respectively. Tax
benefits were recognized for these costs at the
Company’s overall effective tax rate.
Stock
Options
The
Company has options outstanding under two stock option plans
approved by the shareholders, the 1997 Stock Option Plan
(“1997 Plan”) and the 2007 Plan. While previously
granted options remain outstanding, no additional option
grants may be made under the 1997 Plan. The
shareholders of the Company approved an amendment to the
Company’s 2007 Plan on October 13, 2010. The amendment
increased from 1,000,000 to 1,500,000 the number of options
to purchase our common stock that may be issued under the
2007 Plan. The 2007 Plan provides for the grant of
options to purchase shares of the Company’s common
stock to employees, directors and certain advisors of the
Company at a price not less than the fair market value of the
stock on the date of grant and for periods not to exceed ten
years. Options granted under the Company’s stock option
plans expire in the calendar years 2012 through 2021.
The
fair value of options granted is estimated on the date of
grant using the Black-Scholes option pricing model based on
the assumptions in the table below.
The
expected term of the options is based on evaluations of
historical and expected future employee exercise
behavior. The risk-free interest rate is based on
the U.S. Treasury rates at the date of grant with maturity
dates approximately equal to the expected life at the grant
date. Volatility is based on historical volatility
of the Company’s common stock. The Company
has not historically issued any dividends and does not expect
to do so in the foreseeable future.
The
grant-date fair value of options granted during the three
months ended July 31, 2011 and 2010 was $579,000 and
$244,000, respectively. The options were granted at fair
market value on date of grant.
Stock
option compensation expense on a pre-tax basis was $687,000
($429,000
after tax effects) and $853,000 ($537,000
after tax effects) for the three months ended July 31,
2011 and 2010, respectively.
The
aggregate intrinsic value of outstanding options at July 31,
2011 and 2010 was $16.8 million and $5.1 million.
As
of July 31, 2011, the Company has $3.2 million of total
unrecognized compensation cost related to unvested
options. These unvested outstanding options have a
weighted-average remaining vesting period of 1.73
years.
The
Company received cash from options exercised during the first
quarter of fiscal 2012 of $1,100. The impact of
these cash receipts is included in financing activities in
the accompanying Consolidated Statements of Cash
Flows. The intrinsic value for options exercised
was $5,000. There were no options exercised during
the first three months of fiscal 2011.
Stock
Incentive Plan
The
shareholders of the Company approved an amendment to the
Company’s Stock Incentive Plan on October 14, 2009. The
amendment increased from 150,000 to 350,000 the number of
shares of common stock that may be issued under the Stock
Incentive Plan. For shares issued under the Stock
Incentive Plan, the associated compensation expense is
generally recognized equally over the vesting periods
established at the award date and is subject to the
employee’s continued employment by the
Company.
There
were no restricted shares granted during the first quarter of
2011 or 2010. A total of 187,027 shares remained
available for award at July 31, 2011. The
following is a summary of the activity in the Company’s
Stock Incentive Plan during the quarter ended July 31,
2011:
The
Company recorded a compensation cost of $34,000 ($21,000
after tax effects) and $47,000 ($27,000
after tax effects) related to the Stock Incentive Plan
during the three months ended July 31, 2011 and 2010,
respectively.
As
of July 31, 2011, the Company has $420,000 of total
unrecognized compensation cost related to unvested awards
granted under the Stock Incentive Plan, which the Company
expects to recognize over a weighted-average remaining period
of 3.11 years.
There
were no modifications to any of the Company’s
outstanding share-based payment awards during fiscal 2011 or
during the first three months of fiscal 2012.
|
Note J - Supplemental Cash Flow Information
|
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 31, 2011
|
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Cash Flow, Supplemental Disclosures [Text Block] |
J
- Supplemental Cash Flow Information
Supplemental
cash flow disclosures are as follows:
|
Note H - Weighted Average Shares Outstanding
|
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 31, 2011
|
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Schedule of Weighted Average Number of Shares [Table Text Block] |
H
– Weighted Average Shares Outstanding
Weighted
average shares of common stock outstanding, which are used in
the calculation of basic and diluted earnings per share, are
as follows:
|
Note A - Organization and Business
|
3 Months Ended |
---|---|
Jul. 31, 2011
|
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Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block] |
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 “Integrated Auto Sales and Finance”
segment of the used car market. References to the
Company typically include the Company’s consolidated
subsidiaries. The Company’s operations are
principally conducted through its two operating subsidiaries,
America’s Car-Mart, Inc., an Arkansas corporation
(“Car-Mart of Arkansas”), and Colonial Auto
Finance, Inc., an Arkansas corporation
(“Colonial”). Collectively, Car-Mart
of Arkansas and Colonial are referred to herein as
“Car-Mart.” The Company primarily
sells older model used vehicles and provides financing for
substantially all of its customers. Many of the
Company’s customers have limited financial resources
and would not qualify for conventional financing as a result
of limited credit histories or past credit
problems. As of July 31, 2011, the Company
operated 107 dealerships located primarily in small cities
throughout the South-Central United States.
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Note D - Property and Equipment
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Property, Plant and Equipment Disclosure [Text Block] |
D
– Property and Equipment
A
summary of property and equipment is as follows:
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Note E - Accrued Liabilities
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Other Liabilities Disclosure [Text Block] |
E
– Accrued Liabilities
A
summary of accrued liabilities is as follows:
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Note F - Debt Facilities
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Debt Disclosure [Text Block] |
F
– Debt Facilities
A
summary of revolving credit facilities is as follows:
On
November 4, 2010, the Company entered into a new loan and
security agreement (“Credit Facilities”) with a
group of lenders providing revolving credit facilities
totaling $90 million. The Credit Facilities expire
in November 2013. The revolving credit facilities
are collateralized primarily by finance receivables and
inventory of Car-Mart, are cross collateralized and contain a
guarantee by the Company. Interest is payable
monthly under the revolving credit facilities with tiered
pricing at Libor + 2.75% or the bank’s prime rate less
.25% with no floor. The Credit Facilities contain
various reporting and performance covenants including (i)
maintenance of certain financial ratios and tests, (ii)
limitations on borrowings from other sources, (iii)
restrictions on certain operating activities, and (iv)
limitations on the payment of dividends or
distributions. The Company was in compliance with
the covenants at July 31, 2011. The amount
available to be drawn under the credit facilities is a
function of eligible finance receivables and inventory. Based
upon eligible finance receivables and inventory at July 31,
2011, the Company had additional availability of $33 million
under the new revolving credit facilities.
The
Company recognized $44,000 of amortization in the first
quarter of fiscal 2012 related to debt issuance
costs. The amortization is reflected as interest
expense in the Company’s Condensed Consolidated
Statement of Operations.
Interest
Rate Swap Agreement
On
May 16, 2008, the Company entered into an interest rate swap
agreement (“Agreement”) with its primary lender
for a notional principal amount of $20
million. The effective date of the Agreement was
May 20, 2008. The Agreement was set to mature on
May 31, 2013 and provided that the Company would pay monthly
interest on the notional amount at a fixed rate of 6.68% and
receive monthly interest on the notional amount at a floating
rate based on the bank’s prime lending rate, an initial
rate of 5.00% (effective rate of 3.25% at July 31,
2010). The
Company entered into this Agreement to manage a portion of
its interest rate exposure by effectively converting a
portion of its variable rate debt into fixed rate debt;
however, due to unfavorable interest rate movements, the
Company terminated the interest rate swap agreement in April
2011 for $1.3 million. The interest rate swap
agreement was not designated as a hedge by Company
management; therefore, the gain (loss) of the Agreement is
reported in earnings. The net loss for the Agreement reported
in earnings as interest expense was $233,000 for the quarter
ended July 31, 2010. The interest on the credit
facilities, the net settlements under the interest rate swap,
and the changes in the fair value of the agreement, were all
reflected in interest expense.
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Note B - Summary of Significant Accounting Policies
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Significant Accounting Policies [Text Block] |
B
– Summary of Significant Accounting Policies
General
The
accompanying condensed consolidated balance sheet as of April
30, 2011, which has been derived from audited financial
statements, and the unaudited interim condensed financial
statements as of July 31, 2011, have been prepared in
accordance with generally accepted accounting principles for
interim financial information and in accordance with the
instructions to Form 10-Q in 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 months ended
July 31, 2011 are not necessarily indicative of the results
that may be expected for the year ending April 30,
2012. 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, 2011.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the
Company and its subsidiaries. All intercompany
accounts and transactions have been eliminated.
Segment
Information
Each
dealership is an operating segment with its results regularly
reviewed by the Company’s chief operating decision
maker in an effort to make decisions about resources to be
allocated to the segment and to assess its performance.
Individual dealerships meet the aggregation criteria under
the current accounting guidance. The Company
operates in the Integrated Auto Sales and Finance segment of
the used car market. In this industry, the nature
of the sale and the financing of the transaction, financing
processes, the type of customer and the methods used to
distribute the Company’s products and services,
including the actual servicing of the contracts as well as
the regulatory environment in which the Company operates, all
have similar characteristics. Each of our
individual dealerships is similar in nature and only engages
in the selling and financing of used vehicles. All
individual dealerships have similar operating
characteristics. As such, individual dealerships
have been aggregated into one reportable segment.
Use
of Estimates
The
preparation of financial statements in conformity with
accounting principles generally accepted in the United States
of America requires management to make estimates and
assumptions that affect the reported 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.
Concentration
of Risk
The
Company provides financing in connection with the sale of
substantially all of its vehicles. These sales are
made primarily to customers residing in Alabama, Arkansas,
Oklahoma, Tennessee, Texas, Kentucky and Missouri, with
approximately 44% of revenues resulting from sales to
Arkansas customers. Periodically, the Company
maintains cash in financial institutions in excess of the
amounts insured by the federal government.
Restrictions
on Distributions/Dividends
The
Company’s revolving credit facilities generally limit
distributions by the Company to its shareholders in order to
repurchase the Company’s common stock, to 75% of
consolidated net income measured on a trailing twelve month
basis as well as the maintenance of certain financial ratios,
as defined. Thus, the Company is limited in the
amount of dividends or other distributions it can make to its
shareholders without the consent of the Company’s
lenders.
Cash
Equivalents
The
Company considers all highly liquid debt instruments
purchased with original maturities of three months or less to
be cash equivalents.
Finance
Receivables, Repossessions and Charge-offs and Allowance for
Credit Losses
The
Company originates installment sale contracts from the sale
of used vehicles at its dealerships. These
installment sale contracts carry interest rates ranging from
5.5% to 19% using the simple effective interest method
including any deferred fees. Contract origination
costs are not significant. The installment sale
contracts are not pre-computed contracts whereby buyers are
obligated to pay back principal plus the full amount of
interest that will accrue over the entire term of the
contract. Finance receivables are collateralized
by vehicles sold and consist of contractually scheduled
payments from installment contracts net of unearned finance
charges and an allowance for credit
losses. Unearned finance charges represent the
balance of interest receivable to be earned over the entire
term of the related installment contract, less the earned
amount ($1.4 million at July 31, 2011 and $1.1 million at
April 30, 2011), and as such, has been reflected as a
reduction to the gross contract amount in arriving at the
principal balance in finance receivables. An account is
considered delinquent when a contractually scheduled payment
has not been received by the scheduled payment
date. While the Company does not formally place
contracts on nonaccrual status, the immaterial amount of
interest that may accrue after an account becomes delinquent
up until the point of resolution via repossession or
write-off, is reserved for against the accrued interest on
the Consolidated Balance Sheets. Delinquent contracts are
addressed and either made current by the customer, which is
the case in most situations, or the vehicle is repossessed or
written off, if the collateral cannot be recovered quickly.
Customer payments are set to match their pay-day with over
80% of payments due on either a weekly or bi-weekly basis.
The frequency of the payment due dates combined with the
declining value of collateral lead to prompt resolutions on
problem accounts. Accounts are delinquent when the
customer is one day or more behind on their contractual
payments. At July 31, 2011 and 2010, respectively,
4.0% and 3.6% of the Company’s finance receivable
balances were 30 days or more past due.
Substantially
all of the Company’s automobile contracts involve
contracts made to individuals with impaired or limited credit
histories, or higher debt-to-income ratios than permitted by
traditional lenders. Contracts made with buyers
who are restricted in their ability to obtain financing from
traditional lenders generally entail a higher risk of
delinquency, default and repossession, and higher losses than
contracts made with buyers with better credit.
The
Company 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
resolve payment delinquencies amicably prior to repossessing
a 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. At the
time of modification, the Company expects to collect amounts
due including accrued interest at the contractual interest
rate for the period of delay. Other than the extension of
additional time, concessions are not granted to customers at
the time of modifications. Modifications are minor and are
made for pay-day changes, minor vehicle repairs and other
reasons. For those vehicles that are repossessed,
the majority are returned or surrendered by the customer on a
voluntary basis. Other repossessions are performed
by Company personnel or third party repossession
agents. Depending on the condition of a
repossessed vehicle, it is either resold on a retail basis
through a Company dealership, or sold for cash on a wholesale
basis primarily through physical and/or on-line
auctions.
The
Company takes steps to repossess a vehicle when the customer
becomes delinquent in his or her payments, and management
determines that timely collection of future payments is not
probable. Accounts are charged-off after the
expiration of a statutory notice period for repossessed
accounts, or when management determines that the timely
collection of future payments is not probable for accounts
where the Company has been unable to repossess the
vehicle. For accounts with respect to which the
vehicle was repossessed, the fair value of the repossessed
vehicle is charged as a reduction of the gross finance
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, as opposed to a contract-by-contract basis,
at an amount it considers sufficient to cover estimated
losses in the collection of its finance
receivables. The Company accrues an estimated loss
as it is probable that the entire amount will not be
collected and the amount of the loss can be reasonably
estimated in the aggregate. The allowance for
credit losses is based primarily upon historical credit loss
experience, with consideration given to recent credit loss
trends and changes in contract characteristics (i.e., average
amount financed and term), delinquency levels, collateral
values, economic conditions and underwriting and collection
practices. The
allowance for credit losses is reviewed at least quarterly by
management with any changes reflected in current
operations. The calculation of the allowance for
credit losses uses the following primary
factors:
A
point estimate is produced by this analysis which is then
supplemented by any positive or negative subjective factors
to arrive at an overall reserve amount that management
considers to be a reasonable estimate of incurred losses that
will be realized via actual charge-offs in the future.
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. Periods of economic downturn do not
necessarily lead to increased credit losses because the
Company provides basic affordable transportation to customers
that, for the most part, do not have access to public
transportation. The effectiveness of the execution
of internal policies and procedures within the collections
area has historically had a more significant effect on
collection results than macro-economic issues.
The
Company offers retail customers in most states the option of
purchasing a payment protection plan product as an add-on to
the installment sale contract. This product
contractually obligates the Company to cancel the remaining
principal outstanding for any contract where the retail
customer has totaled the vehicle, as defined, or the vehicle
has been stolen. The Company periodically
evaluates anticipated losses to ensure that if anticipated
losses exceed deferred payment protection plan revenues, an
additional liability is recorded for such
difference. No such liability was required at July
31, 2011 or April 30, 2011.
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.
Goodwill
Goodwill
reflects the excess of purchase price over the fair value of
specifically identified net assets
purchased. Goodwill and intangible assets deemed
to have indefinite lives are not amortized but are subject to
annual impairment tests at the Company’s year end. The
impairment tests are based on the comparison of the fair
value of the reporting unit to the carrying value of such
unit. If the fair value of the reporting unit falls below its
carrying value, the Company performs the second step of the
two-step goodwill impairment process to determine the amount,
if any, that the goodwill is impaired. The second
step involves determining the fair value of the identifiable
assets and liabilities and the implied
goodwill. The implied goodwill is compared to the
carrying value of the goodwill to determine the impairment,
if any. There was no impairment of goodwill during
fiscal 2011, and to date, there has been none in fiscal
2012.
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 term. The lease term
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:
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 $50,000 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.
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. The quarterly provision
for income taxes is determined using an estimated annual
effective tax rate, which is based on expected annual taxable
income, statutory tax rates and the Company’s best
estimate of nontaxable and nondeductible items of income and
expense.
Occasionally,
the Company is audited by taxing
authorities. These audits could result in proposed
assessments of additional taxes. The Company
believes that its tax positions comply in all material
respects with applicable tax law. However, tax law
is subject to interpretation, and interpretations by taxing
authorities could be different from those of the Company,
which could result in the imposition of additional
taxes.
The
Company recognizes the financial statement benefit of a tax
position only after determining that the relevant tax
authority would more likely than not sustain the position
following an audit. For tax positions meeting the
more-likely-than-not threshold, the amount recognized in the
financial statements is the largest benefit that has a
greater than 50 percent likelihood of being realized upon
ultimate settlement with the relevant tax
authority. The Company applies this methodology to
all tax positions for which the statute of limitations
remains open.
The
Company is subject to income taxes in the U.S. federal
jurisdiction and various state jurisdictions. Tax
regulations within each jurisdiction are subject to the
interpretation of the related tax laws and regulations and
require significant judgment to apply.
With
few exceptions, the Company is no longer subject to U.S.
federal, state and local income tax examinations by tax
authorities for the years before fiscal 2008.
In
fiscal 2010, the Internal Revenue Service (“IRS”)
completed the examinations of the Company’s income tax
returns for fiscal years 2008 and 2009. As a
result of the examinations, the IRS has questioned whether
deferred payment protection plan (“PPP”) revenue
associated with the sale of certain receivables are subject
to the acceleration of advance payments provision of the IRS
code and whether the Company may deduct losses on the sale of
the PPP receivables in excess of the income recognized on the
underlying contracts. The issue is timing in
nature and does not affect the overall tax provision, but
affects the timing of required tax payments.
By
letter dated April 2, 2010, the IRS delivered to the Company
a revenue agent’s report, which proposes an adjustment
for the items discussed above as well as
interest. The Company intends to vigorously defend
its position, and on April 23, 2010, the Company filed an
administrative protest with the Appeals Office of the
IRS. The protest disputes the income tax changes
proposed by the IRS and requests a conference with a
representative of the Appeals Office. The Company
has not yet been notified by the Appeals Office of a date for
the conference. If the matter is not resolved in
the Appeals Office, and if the IRS intends to pursue its
position, the Company fully intends to ask an appropriate
court to consider the issue.
The
Company’s policy is to recognize accrued interest
related to unrecognized tax benefits in interest expense and
penalties in operating expenses. The Company had no accrued
penalties and/or interest as of July 31, 2011 or April 30,
2011.
Revenue
Recognition
Revenues
are generated principally from the sale of used vehicles,
which in most cases includes a service contract and a payment
protection plan product, interest income and late fees earned
on finance receivables. Revenues are net of taxes
collected from customers and remitted to government
agencies. Cost of vehicle sales include costs
incurred by the Company to prepare the vehicle for sale
including license and title costs, gasoline, transport
services and repairs.
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 five-month service
contract period. Service contract revenues are
included in sales and the related expenses are included in
cost of sales. Payment protection plan revenues
are initially deferred and then recognized to income using
the “Rule of 78’s” interest method over the
life of the contract so that revenues are recognized in
proportion to the amount of cancellation protection
provided. Payment protection plan revenues are
included in sales and related losses are included in cost of
sales. Interest income is recognized on all active
finance receivable accounts using the simple effective
interest method. Active accounts include all
accounts except those that have been paid-off or
charged-off.
Sales
consist of the following:
Late
fee revenues were approximately $394,000 and $467,000 for the
three months ended July 31, 2011 and 2010, respectively. Late
fees are recognized when collected and are reflected in
interest income. Finance receivables more than 90
days past due were approximately $361,000 and $274,000 at
July 31, 2011 and 2010, respectively.
Earnings per Share
Basic
earnings per share are computed by dividing net income by the
average number of common shares outstanding during the
period. The calculation of diluted earnings per
share takes into consideration the potentially dilutive
effect of common stock equivalents, such as outstanding stock
options, which if exercised or converted into common stock
would then share in the earnings of the
Company. In computing diluted earnings per share,
the Company utilizes the treasury stock method and
anti-dilutive securities are excluded.
Stock-based
compensation
The
Company recognizes the cost of employee services received in
exchange for awards of equity instruments, such as stock
options and restricted stock, based on the fair value of
those awards at the date of grant over the requisite service
period. The Company uses the Black Scholes option
pricing model to determine the fair value of stock option
awards. The Company may issue either new shares or
treasury shares upon exercise of these
awards. Stock-based compensation plans, related
expenses and assumptions used in the Black Scholes option
pricing model are more fully described in Note I.
Treasury
Stock
The
Company purchased 388,520 shares of its common stock during
the first three months of fiscal 2012 for a total cost of
$11.1 million and 317,686 shares for a total cost of $7.3
million during the first three months of fiscal
2011. Treasury stock may be used for issuances
under the Company’s stock-based compensation plans or
for other general corporate purposes.
Recent
Accounting Pronouncements
Occasionally,
new accounting pronouncements are issued by the Financial
Accounting Standards Board (“FASB”) or other
standard setting bodies which the Company adopts as of the
specified effective date. Unless otherwise discussed, the
Company believes the impact of recently issued standards
which are not yet effective will not have a material impact
on its consolidated financial statements upon
adoption.
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