L - Commitments and Contingencies

Letter of Credit

The Company has a standby letter of credit relating to an insurance policy totaling

$250,000

April 30, 2020.

Facility Leases

The Company leases certain dealership and office facilities under various non-cancelable operating leases. Dealership leases are generally for periods from

three

five

years and contain multiple renewal options. As of

April 30, 2020,

the aggregate rentals due under such leases, including renewal options that are reasonably assured, were as follows:

Years Ending		Amount
April 30,		(In thousands)

2021	$	6,831
2022		6,646
2023		6,570
2024		6,043
2025		5,876
Thereafter		54,407

Total undiscounted operating lease payments		86,373
Less: imputed interest		23,563

Present value of operating lease liabilities	$	62,810

The

$86.4

million of operating lease commitments includes

$26.2

million of non-cancelable lease commitments under the lease terms, and

$60.2

million of lease commitments for renewal periods at the Company’s option that are reasonably assured. The lease commitments also include

$13.2

million of lease commitments associated with entities owned or controlled by a preferred shareholder of the Company’s subsidiary. For the years ended

April 30, 2020,

2019

and

2018,

rent expense for all operating leases amounted to approximately

$6.9

million,

$6.7

million and

$6.2

million, respectively.

Litigation

In the ordinary course of business, the Company has become a defendant in various types of legal proceedings. The Company does

not

expect the final outcome of any of these actions, individually or in the aggregate, to have a material adverse effect on the Company’s financial position, annual results of operations or cash flows. The results of legal proceedings cannot be predicted with certainty; however, and an unfavorable resolution of

one

or more of these legal proceedings could have a material adverse effect on the Company’s financial position, annual results of operations or cash flows.

Related Finance Company

Car-Mart of Arkansas and Colonial do

not

meet the affiliation standard for filing consolidated income tax returns, and as such they file separate federal and state income tax returns. Car-Mart of Arkansas routinely sells its finance receivables to Colonial at what the Company believes to be fair market value and is able to take a tax deduction at the time of sale for the difference between the tax basis of the receivables sold and the sales price. These types of transactions, based upon facts and circumstances, have been permissible under the provisions of the Internal Revenue Code as described in the Treasury Regulations. For financial accounting purposes, these transactions are eliminated in consolidation, and a deferred income tax liability has been recorded for this timing difference. The sale of finance receivables from Car-Mart of Arkansas to Colonial provides certain legal protection for the Company’s finance receivables and, principally because of certain state apportionment characteristics of Colonial, also has the effect of reducing the Company’s overall effective state income tax rate. The actual interpretation of the regulations is in part a facts and circumstances matter. The Company believes it satisfies the material provisions of the regulations. Failure to satisfy those provisions could result in the loss of a tax deduction at the time the receivables are sold and have the effect of increasing the Company’s overall effective income tax rate as well as the timing of required tax payments.