AMERICAS CARMART INCCRMT
AMERICAS CARMART INC Fair Value Disclosure
G – Fair Value Measurements
Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements, defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.
ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance also establishes a fair value hierarchy that requires the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. Topic 820 describes three levels of inputs that may be used to measure fair value:
•Level 1 Inputs – Quoted prices in active markets for identical assets or liabilities.
•Level 2 Inputs – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets; quoted prices for similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
•Level 3 Inputs – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
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:
Financial Instruments and Other Assets | Valuation Methodology | |||||||
| Cash, cash equivalents, and restricted cash | The carrying amount is considered to be a reasonable estimate of fair value due to the short-term nature of the financial instruments (Level 1). | |||||||
| Repossessed inventory | The fair value approximates wholesale value (Level 1). | |||||||
| 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 bought and sold portfolios and has had a third-party appraisal in October 2022 that indicates a range of 34% to 39% 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 made at a 38.5% discount. For financial reporting purposes these sale transactions are eliminated (Level 2). | |||||||
| 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 (Level 2). | |||||||
Contingent consideration | The fair value was based upon inputs from the earn-out projection (Level 2). | |||||||
| Revolving line of credit | The fair value approximates carrying value due to the variable interest rates charged on the borrowings, which reprice frequently (Level 2). | |||||||
| Non-recourse notes payable | The fair value was based upon inputs derived from prices for similar instruments at period end (Level 2). | |||||||
The estimated fair values, and related carrying amounts, of the financial instruments and other assets included in the Company’s financial statements at April 30, 2025 and 2024 are as follows:
| April 30, 2025 | April 30, 2024 | |||||||||||||||||||||||||
| Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 9,808 | $ | 9,808 | $ | 5,522 | $ | 5,522 | ||||||||||||||||||
| Restricted cash | 114,729 | 114,729 | 88,925 | 88,925 | ||||||||||||||||||||||
| Inventory - Repossessions | 18,845 | 18,845 | 18,182 | 18,182 | ||||||||||||||||||||||
| Finance receivables, net | 1,180,673 | 928,130 | 1,098,591 | 882,764 | ||||||||||||||||||||||
| Accounts payable | 34,980 | 34,980 | 21,379 | 21,379 | ||||||||||||||||||||||
| Contingent consideration | 6,298 | 6,298 | 3,193 | 3,193 | ||||||||||||||||||||||
| Revolving line of credit, net | 204,769 | 204,769 | 200,819 | 200,819 | ||||||||||||||||||||||
| Non-recourse notes payable, net | 572,010 | 581,029 | 553,629 | 553,003 | ||||||||||||||||||||||
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.