Note J - Commitments and Contingencies

6 Months Ended

Oct. 31, 2020

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

J – Commitments and Contingencies

The Company has entered into operating leases for approximately 85% of its dealership and office facilities. Generally, these leases are for periods of three to five years and usually contain multiple renewal options. The Company uses leasing arrangements to maintain flexibility in its dealership locations and to preserve capital. The Company expects to continue to lease the majority of its dealership and office facilities under arrangements substantially consistent with the past. Rent expense for all operating leases amounted to approximately $4.0 million for the six months ended October 31, 2020 and $3.5 million for the prior year period.

Scheduled amounts and timing of cash flows arising from operating lease payments as of October 31, 2020, discounted at the weighted average interest rate in effect as of October 31, 2020 of approximately 4.34%, are as follows:

Maturity of lease liabilities
2021 (remaining)	$	3,488
2022		6,989
2023		6,915
2024		6,398
2025		6,218
Thereafter	$	57,801
Total undiscounted operating lease payments		87,809
Less: imputed interest		(23,643	)
Present value of operating lease liabilities	$	64,166

The Company has a standby letter of credit relating to an insurance policy totaling $250,000 at October 31, 2020.

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.