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Note L - Commitments and Contingencies
 12 Months Ended
Apr. 30, 2012
Commitments and Contingencies Disclosure [Text Block]
L - Commitments and Contingencies

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, 2012 the aggregate rentals due under such leases, including renewal options that are reasonably assured, were as follows:

 
Years Ending
April 30,
 
Amount
(In thousands)
   
           
 
2013
  $ 4,214    
 
2014
    4,085    
 
2015
    4,074    
 
2016
    3,971    
 
2017
    3,859    
 
Thereafter
    16,723    
             
      $ 36,926    

The $36.9 million of lease commitments includes $7.8 million of non-cancelable lease commitments under the primary lease terms, and $29.1 million of lease commitments for renewal periods at the Company’s option that are reasonably assured.  For the years ended April 30, 2012, 2011 and 2010, rent expense for all operating leases amounted to approximately $4.2 million, $3.7 million, and $3.5 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.  However, the results of legal proceedings cannot be predicted with certainty, 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, 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 (“IRC”) as described in the Treasury Regulations.  For financial accounting purposes, these transactions are eliminated in consolidation, and a deferred 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 by approximately 230 basis points.  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.

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 IRC 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 had a preliminary conference with the Appeals Office and the matter continues to be under review and discussion.  The Company does not have a reserve for this issue and believes none is necessary as the issue is timing in nature and 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 IRS is currently auditing the 2009 and 2010 federal income tax returns for the Company.