L - Commitments and Contingencies
Letter of Credit
The Company has two standby letters of credit relating to insurance policies totaling $4.4 million at April 30, 2025.
Facility Leases
The Company leases certain dealership and office facilities under various non-cancelable operating leases. Dealership leases are generally for periods from three to five years and contain multiple renewal options. As of April 30, 2025, the aggregate rentals due under such leases, including renewal options that are reasonably assured, were as follows:
| | | | | | | | |
| Years Ending | | Amount |
| April 30, | | (In thousands) |
| | | |
| 2026 | | $ | 10,085 | |
| 2027 | | 9,462 | |
| 2028 | | 8,789 | |
| 2029 | | 7,924 | |
| 2030 | | 6,757 | |
| Thereafter | | 43,618 | |
| Total undiscounted operating lease payments | | 86,635 | |
| Less: imputed interest | | (19,633) | |
| Present value of operating lease liabilities | | $ | 67,002 | |
The $86.6 million of operating lease commitments includes $21.3 million of non-cancelable lease commitments under the lease terms and $65.3 million of lease commitments for renewal periods at the Company’s option that are reasonably assured. For the years ended April 30, 2025, 2024, and 2023, rent expense for all operating leases amounted to approximately $10.1 million, $9.0 million, and $9.0 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.