Americas Carmart Inc (CRMT) SEC Annual Report (10-K) for 2009

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________

FORM 10-K

(Mark One)

For the fiscal year ended April 30, 2009

OR

For the transition period from    to  

Commission file number 0-14939

_____________________________

AMERICA'S CAR-MART, INC.

(Exact name of registrant as specified in its charter)

(479) 464-9944

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  o   No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  o No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  No 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

o Large accelerated filer            Accelerated filer     x

o     Non-accelerated filer                  Smaller reporting company     o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o   No  x

The aggregate market value of the registrant's voting and non-voting common equity held by non-affiliates on October 31, 2008 was $164,729,610 (10,087,545 shares), based on the closing price of the registrant's common stock of $16.33.

There were 11,731,223 shares of the registrant's common stock outstanding as of July 14, 2009.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Proxy Statement to be furnished to stockholders in connection with its 2009 Annual Meeting of Stockholders are incorporated by reference in response to Part III of this report.

PART I

Forward-Looking Statements

This Annual Report on Form 10-K and the documents incorporated by reference in this Annual Report on Form 10-K contains numerous "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements address the Company's future objectives, plans and goals, as well as the Company's intent, beliefs and current expectations regarding future operating performance, and can generally be identified by words such as "may," "will," "should," "could, "believe," "expect," "anticipate," "intend," "plan," "foresee," and other similar words or phrases.  Specific events addressed by these forward-looking statements include, but are not limited to:

•         having adequate liquidity to satisfy its capital needs.

These forward-looking statements are based on the Company's current estimates and assumptions and involve various risks and uncertainties.  As a result, you are cautioned that these forward-looking statements are not guarantees of future performance, and that actual results could differ materially from those projected in these forward-looking statements.  Factors that may cause actual results to differ materially from the Company's projections include those risks described elsewhere in this report, as well as:

•         changes in lending laws or regulations; and

•         general economic conditions in the markets in which the Company operates, including but not limited to fluctuations in gas prices, grocery prices and employment levels.

The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the dates on which they are made.

Item 1. Business

Business and Organization

America's Car-Mart, Inc., a Texas corporation initially formed in 1981 (the "Company"), is the largest publicly held automotive retailer in the United States focused exclusively on the "Buy Here/Pay Here" segment of the used car market.  References to the Company typically include the Company's consolidated subsidiaries.  The Company's operations are principally conducted through its two operating subsidiaries, America's Car-Mart, Inc., an Arkansas corporation, ("Car-Mart of Arkansas") and Colonial Auto Finance, Inc., an Arkansas corporation, ("Colonial").  Collectively, Car-Mart of Arkansas and Colonial are referred to herein as "Car-Mart."  The Company primarily sells older model used vehicles and provides financing for substantially all of its customers. Many of the Company's customers have limited financial resources and would not qualify for conventional financing as a result of limited credit histories or past credit problems.  As of April 30, 2009, the Company operated 93 stores located primarily in small cities throughout the South-Central United States.

Business Strategy

In general, it is the Company's objective to continue to expand its Buy Here/Pay Here used car operation using the same business model that has been developed by Car-Mart over the last 28 years.  This business strategy focuses on:

The Company believes it possesses a number of strengths or advantages that distinguish it from most of its competitors.  These business strengths include:

Operations

Below is a summary of store locations by state as of April 30, 2009, 2008 and 2007:

Stores are typically located in smaller communities.  As of April 30, 2009, approximately 70% of the Company's stores were located in cities with populations of less than 50,000.  Stores are located on leased or owned property between one and three acres in size.  When opening a new store the Company will typically use an existing structure on the property to conduct business, or purchase a modular facility while business at the new location develops.  Store facilities typically range in size from 1,500 to 5,000 square feet.

Generally, the Company's buyers purchase vehicles between three and 10 years of age with 90,000 to 130,000 miles, and pay between $3,000 and $6,000 per vehicle. The Company focuses on providing basic transportation to its customers.  The Company generally does not purchase sports cars or luxury cars.  Some of the more popular vehicles the Company sells include the Ford Taurus and Escort, Chevrolet Lumina and Cavalier, Dodge Neon, Pontiac Grand Am and Oldsmobile Cutlass.  The Company also sells a significant number of trucks and sport utility vehicles. Buyers inspect and test-drive almost every vehicle they purchase.  Buyers attempt to purchase vehicles that require little or no repair as the Company has limited facilities to repair or recondition vehicles.

The Company's objective is to offer its customers basic transportation at a fair price and treat each customer in such a manner as to earn his or her repeat business.  The Company attempts to build a positive reputation in each community where it operates and generate new business from such reputation as well as from customer referrals.  The Company estimates that approximately 10% to 15% of the Company's sales result from customer referrals.  The Company recognizes repeat customers with silver, gold and platinum plaques representing the purchase of 5, 10 and 15 vehicles, respectively.  These plaques are prominently displayed at the dealership where the vehicles were purchased.  For mature dealerships, a large percentage of sales are to repeat customers.

The Company primarily advertises in local newspapers, on the radio and television.  In addition, periodically the Company conducts promotional sales campaigns in order to increase sales.

The Company has established standards with respect to the percentage of accounts one and two weeks past due, the percentage of accounts three or more weeks past due, and for larger stores, one and two weeks past due, 15 to 44 days past due and 45-plus days past due (delinquency standards), and the percentage of accounts where the vehicle was repossessed or the account was charged off that month (account loss standard).

The Company works very hard to keep its delinquency percentages low, and not to repossess vehicles. Accounts one day late are sent a notice in the mail. Accounts three days late are contacted by telephone. Notes from each telephone contact are electronically maintained in the Company's computer system. If a customer becomes severely delinquent in his or her payments, and management determines that timely collection of future payments is not probable, the Company will take steps to repossess the vehicle. The Company attempts to resolve payment delinquencies amicably prior to repossessing a vehicle. Periodically, the Company enters into contract modifications with its customers to extend the payment terms. The Company only enters into a contract modification or extension if it believes such action will increase the amount of monies the Company will ultimately realize on the customer's account. At the time of modification, the Company expects to collect amounts due including accrued interest at the contractual interest rate for the period of delay. Other than the extension of additional time, concessions are not granted to customers at the time of modifications. Modifications are minor and are made for pay-day changes, minor vehicle repairs and other reasons. For those vehicles that are repossessed, the majority are returned or surrendered by the customer on a voluntary basis. Other repossessions are performed by Company personnel or third party repossession agents. Depending on the condition of a repossessed vehicle, it is either resold on a retail basis through a Company store, or sold for cash on a wholesale basis primarily through physical and/or on-line auctions.

The Company's approach with respect to new store openings has been one of gradual development.  The manager in charge of a new store is normally a recently promoted associate who was an assistant manager at a larger store or a manager trainee.  The corporate office provides significant resources and support with pre-opening and initial operations of new dealerships. The facility may be of a modular nature or an existing structure.  Historically, new stores have operated with a low level of inventory and personnel.  As a result of the modest staffing level, the new store manager performs a variety of duties (i.e., selling, collecting and administrative tasks) during the early stages of his or her store's operations.  As the store develops and the customer base grows, additional staff is hired. Recently, the Company has raised its volume expectation level of new locations somewhat as infrastructure improvements related to new store openings have improved.

Typically, monthly sales levels at new stores are substantially less than sales levels at mature stores.  Over time, new stores gain recognition in their communities, and a combination of customer referrals and repeat business generally facilitate sales growth.  Sales growth at new stores can exceed 20% per year for a number of years.  Historically, mature stores typically experience annual sales growth, but at a lower percentage than new stores. However, in 2007 the Company did experience a decrease in sales at mature stores as it focused on improving the quality of sales in response to increased credit losses.  In 2008, the historical sales trend returned as operational initiatives showed success and the Company was able to support higher sales levels as a result. Sales increased again in 2009 by 9.2% mostly due to same store growth.

New stores are generally provided with approximately $1 million to $1.5 million in capital from the corporate office during the first 12 to 24 months of operation.  These funds are used principally to fund receivables growth.  After this 12 to 24 month start-up period, new stores can typically become cash flow positive, allowing for some continuing growth in receivables without additional capital from the corporate office. As these stores become cash flow positive a decision is made by senior management to either increase the investment due to favorable return rates on the invested capital, or to deploy capital elsewhere. This limitation of capital to new, as well as existing, stores serves as an important operating discipline.  Essentially, stores must be profitable in order to grow and typically, new stores are profitable within the first year of opening.

Periodically, area operations managers, regional vice presidents, compliance auditors and senior management visit the Company's stores to inspect, review and comment on operations.  The corporate office assists in training new managers and other store level associates.  Compliance auditors visit stores quarterly to ensure policies and procedures are being followed and that the Company's assets are being safe-guarded. In addition to financial results, the corporate office uses delinquency and account loss standards and a point system to evaluate a store's performance. Also, bankrupt and legal action accounts and other accounts that have been written off at dealerships are handled by the corporate office in an effort to allow store personnel time to focus on more current accounts.

The Company's store managers meet monthly on an area, regional or Company-wide basis.  At these meetings, corporate office personnel provide training and recognize achievements of store managers.  Near the end of every fiscal year, the respective area operations manager, regional vice president and senior management conduct "projection" meetings with each store manager.  At these meetings, the year's results are reviewed and ranked relative to other stores, and both quantitative and qualitative goals are established for the upcoming year.  The qualitative goals may focus on staff development, effective delegation, and leadership and organization skills.  Quantitatively, the Company establishes unit sales goals and profit goals based on invested capital and, depending on the circumstances, may establish delinquency, account loss or expense goals.

The corporate office is also responsible for establishing policy, maintaining the Company's management information systems, conducting compliance audits, orchestrating new store openings and setting the strategic direction for the Company.

Each dealership is an operating segment with its results regularly reviewed by the Company's chief operating decision maker in an effort to make decisions about resources to be allocated to the segment and to assess its performance. Individual lots meet the aggregation criteria under SFAS 131, "Disclosures about Segments of an Enterprise and Related Information." The Company operates in the Buy Here/Pay Here segment of the used car market, also referred to as the Integrated Auto Sales and Finance industry.  In this industry, the nature of the sale and the financing of the transaction, financing processes, the type of customer and the methods used to distribute the Company's products and services, including the actual servicing of the loans as well as the regulatory environment in which the Company operates all have similar characteristics.  Each of our individual lots is similar in nature and only engages in the selling and financing of used vehicles. All individual lots have similar operating characteristics.  As such, individual lots have been aggregated into one reportable segment.

Industry

Competition

The used automotive retail industry is highly competitive and fragmented.  The Company competes principally with other independent Buy Here/Pay Here dealers, and to a lesser degree with (i) the used vehicle retail operations of franchised automobile dealerships, (ii) independent used vehicle dealers, and (iii) individuals who sell used vehicles in private transactions.  The Company competes for both the purchase and resale of used vehicles.

Management believes the principal competitive factors in the sale of its used vehicles include (i) the availability of financing to consumers with limited credit histories or past credit problems, (ii) the breadth and quality of vehicle selection, (iii) pricing, (iv) the convenience of a dealership's location, (v) the option to purchase a service contract and/or a payment protection plan, and (vi) customer service.  Management believes that its dealerships are competitive in each of these areas.

Seasonality

The Company's third fiscal quarter (November through January) has historically been the slowest period for car and truck sales. Conversely, the Company's first and fourth fiscal quarters (May through July and February through April) have historically been the busiest times for car and truck sales. Therefore, Car-Mart generally realizes a higher proportion of its revenue and operating profit during the first and fourth fiscal quarters. However, in fiscal 2008 and 2009, tax refund anticipation sales began in early November and continued through January (the Company's third fiscal quarter). The success of the tax refund anticipation sales effort led to higher sales levels during the third quarters of fiscal 2008 and 2009. The Company expects this trend to continue in future periods. If conditions arise that impair vehicle sales during the first, third or fourth fiscal quarters, the adverse effect on the Company's revenues and operating profit for the year could be disproportionately large.

The Company's operations are subject to various federal, state and local laws, ordinances and regulations pertaining to the sale and financing of vehicles.  Under various state laws, the Company's dealerships must obtain a license in order to operate or relocate.  These laws also regulate advertising and sales practices.  The Company's financing activities are subject to federal truth-in-lending and equal credit opportunity regulations as well as state and local motor vehicle finance laws, installment finance laws, usury laws and other installment sales laws.  Among other things, these laws require that the Company limit or prescribe terms of the contracts it originates, require specified disclosures to customers, restrict collections practices, limit the Company's right to repossess and sell collateral, and prohibit discrimination against customers on the basis of certain characteristics including age, race, gender and marital status.

The states in which the Company operates impose limits on interest rates the Company can charge on its loans. These limits are generally based on either (i) a specified margin above the federal primary credit rate, (ii) the age of the vehicle, or (iii) a fixed rate.  Management believes the Company is in compliance in all material respects with all applicable federal, state and local laws, ordinances and regulations.  However, the adoption of additional laws, changes in the interpretation of existing laws, or the Company's entrance into jurisdictions with more stringent regulatory requirements could have a material adverse effect on the Company's used vehicle sales and finance business.

Employees

As of April 30, 2009, the Company, including its consolidated subsidiaries, employed approximately 915 persons full time. None of the Company's employees are covered by a collective bargaining agreement and the Company believes that its relations with its employees are good.

Available Information

The Company's website is located at www.car-mart.com.  The Company makes available on this website, free of charge, access to its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports, as well as proxy statements and other information the Company files with, or furnishes to, the Securities and Exchange Commission ("SEC") as soon as reasonably practicable after the Company electronically submits this material to the SEC.  The information contained on the website or available by hyperlink from the website is not incorporated into this Annual Report on Form 10-K or other documents the Company files with, or furnishes to, the SEC.

Executive Officers

The following table provides information regarding the executive officers of the Company as of April 30, 2009:

Tilman J. Falgout, III has served as Chairman of the Board since May 2004, as General Counsel since 1995 and as a director of the Company since 1992.  From May 2002 until October 2007, Mr. Falgout served as Chief Executive Officer of the Company.  From July 1995 until May 2002, Mr. Falgout also served as Executive Vice President of the Company.  From 1978 through June 1995, Mr. Falgout was a partner in the law firm of Stumpf & Falgout, Houston, Texas.

William H. Henderson has served as Vice Chairman of the Board since May 2004, as President of the Company since May 2002, and as Chief Executive Officer of the Company since October 2007.  Mr. Henderson has also served as a director of the Company since September 2002.  From 1999 until May 2002, Mr. Henderson served as Chief Operating Officer of Car-Mart.  From 1992 through 1998, Mr. Henderson served as General Manager of Car-Mart.  From 1987 to 1992, Mr. Henderson primarily held the positions of District Manager and Regional Manager at Car-Mart.

Eddie L. Hight has served as Chief Operating Officer of the Company since May 2002.  From 1984 until May 2002, Mr. Hight held a number of positions at Car-Mart including Store Manager and Regional Manager.

Jeffrey A. Williams has served as Chief Financial Officer, Vice President Finance and Secretary of the Company since October 1, 2005. From October 2004 until his employment by the Company, he served as the Chief Financial Officer of Budgetext Corporation, a distributor of new and used textbooks. From February 2004 to October 2004, Mr. Williams was the President and founder of Clearview Enterprises, LLC, a regional distributor of animal health products. From January 1999 to January 2004, Mr. Williams was Chief Financial Officer and Vice President of Operations of Wynco, LLC, a nationwide distributor of animal health products.

Item 1A.  Risk Factors

The Company is subject to various risks, including the risks described below. The Company's business, operating results, and financial condition could be materially and adversely affected by any of these risks. Additional risks not presently known to the Company or that the Company currently deems immaterial may also impair its business and operations.

Risks Related to the Used Automotive Retail and Finance Industry

The Company may have a higher risk of delinquency and default than traditional lenders because it loans money to credit-impaired borrowers.

Substantially all of Car-Mart's automobile contracts involve loans made to individuals with impaired or limited credit histories, or higher debt-to-income ratios than permitted by traditional lenders.  Loans made to borrowers who are restricted in their ability to obtain financing from traditional lenders generally entail a higher risk of delinquency, default and repossession, and higher losses than loans made to borrowers with better credit.  Delinquency interrupts the flow of projected interest income and repayment of principal from a loan, and a default can ultimately lead to a loss if the net realizable value of the automobile securing the loan is insufficient to cover the principal and interest due on the loan or the vehicle cannot be recovered.  The Company's profitability depends, in part, upon its ability to properly evaluate the creditworthiness of non-prime borrowers and efficiently service such loans.  Although the Company believes that its underwriting criteria and collection methods enable it to manage the higher risks inherent in loans made to non-prime borrowers, no assurance can be given that such criteria or methods will afford adequate protection against such risks.  If the Company experiences higher losses than anticipated, its financial condition, results of operations and business prospects could be materially and adversely affected.

The Company's allowance for credit losses may not be sufficient to cover actual credit losses, which could adversely affect its financial condition and operating results.

From time to time, the Company has to recognize losses resulting from the inability of certain borrowers to repay loans and the insufficient realizable value of the collateral securing loans.  The Company maintains an allowance for credit losses in an attempt to cover credit losses inherent in its loan portfolio.  Additional credit losses will likely occur in the future and may occur at a rate greater than the Company has experienced to date.  The allowance for credit losses is based primarily upon historical credit loss experience, with consideration given to delinquency levels, collateral values, economic

conditions and underwriting and collections practices. This evaluation is inherently subjective as it requires estimates of material factors that may be susceptible to significant change.  If the Company's assumptions and judgments prove to be incorrect, its current allowance may not be sufficient and adjustments may be necessary to allow for different economic conditions or adverse developments in its loan portfolio.

A reduction in the availability or access to sources of inventory would adversely affect the Company's business by increasing the costs of vehicles purchased.

The Company acquires vehicles primarily through wholesalers, new car dealers, individuals and auctions.  There can be no assurance that sufficient inventory will continue to be available to the Company or will be available at comparable costs.  Any reduction in the availability of inventory or increases in the cost of vehicles would adversely affect gross profit percentages as the Company focuses on keeping payments affordable to its customer base.  The Company could have to absorb cost increases. The overall new car sales volumes in the United States have decreased dramatically in the last several months and this could potentially have a significant negative effect on the supply of cars available to the Company in future periods.

The used automotive retail industry is highly competitive and fragmented, which could result in increased costs to the Company for vehicles and adverse price competition.

The Company competes principally with other independent Buy Here/Pay Here dealers, and to a lesser degree with (i) the used vehicle retail operations of franchised automobile dealerships, (ii) independent used vehicle dealers, and (iii) individuals who sell used vehicles in private transactions.  The Company competes for both the purchase and resale of used vehicles. The Company's competitors may sell the same or similar makes of vehicles that Car-Mart offers in the same or similar markets at competitive prices.  Increased competition in the market, including new entrants to the market, could result in increased wholesale costs for used vehicles and lower-than-expected vehicle sales and margins.  Further, if any of the Company's competitors seek to gain or retain market share by reducing prices for used vehicles, the Company would likely reduce its prices in order to remain competitive, which may result in a decrease in its sales and profitability and require a change in its operating strategies.

The used automotive retail industry operates in a highly regulated environment with significant attendant compliance costs and penalties for non-compliance.

The used automotive retail industry is subject to a wide range of federal, state, and local laws and regulations, such as local licensing requirements and laws regarding advertising, vehicle sales, financing, and employment practices.  Facilities and operations are also subject to federal, state, and local laws and regulations relating to environmental protection and human health and safety. The violation of these laws and regulations could result in administrative, civil, or criminal penalties against the Company, or in a cease and desist order.  As a result, the Company has incurred, and will continue to incur, capital and operating expenditures, and other costs in complying with these laws and regulations. Further, over the past several years, private plaintiffs and federal, state, and local regulatory and law enforcement authorities have increased their scrutiny of advertising, sales, and finance and insurance activities in the sale of motor vehicles.

Inclement weather can adversely impact the Company's operating results.

The occurrence of weather events, such as rain, snow, wind, storms, hurricanes, or other natural disasters, which adversely affect consumer traffic at the Company's automotive dealerships, could negatively impact the Company's operating results.

The severe downturn in recent global economic and market conditions could have adverse consequences for the used automotive retail industry in the future and may have greater consequences for the non-prime segment of the industry.

In the normal course of business, the used automotive retail industry is subject to changes in regional U.S. economic conditions, including, but not limited to, interest rates, gasoline prices, inflation, personal discretionary spending levels, and consumer sentiment about the economy in general.  The recent severe downturn and disruptions in global economic and market conditions could adversely affect consumer demand and/or increase the Company's costs, resulting in lower profitability for the Company.  Due to the Company's focus on non-prime borrowers, its actual rate of delinquencies, repossessions and credit losses on loans could be higher under adverse economic conditions than those experienced in the automotive retail finance industry in general.  The Company is unable to predict with certainty the future impact which the most recent global economic conditions will have on consumer demand in our markets or on the Company's costs.

The recent volatility and disruption of the capital and credit markets, and adverse changes in the global economy, could have a negative impact on the Company's ability to access the credit markets in the future and/or obtain credit on favorable terms.

Recently, the capital and credit markets have become increasingly tight as a result of adverse economic conditions that have caused the failure and near failure of a number of large financial services companies.  While currently these conditions have not impaired the Company's ability to access the credit markets and finance its operations, there can be no assurance that there will not be a further deterioration in the financial markets.  If the capital and credit markets continue to experience crises and the availability of funds remains low, it is possible that the Company's ability to access the capital and credit markets may be limited or available on less favorable terms at a time when the Company would like, or need, to do so, which could have an impact on the Company's ability to refinance maturing debt or react to changing economic and business conditions.  In addition, if current global economic conditions persist for an extended period of time or worsen substantially, the Company's business may suffer in a manner which could cause the Company to fail to satisfy the financial and other restrictive covenants under its credit facilities.

If an amendment to the Arkansas constitution is not approved by voters, a decrease in market interest rates will likely have an adverse effect on the Company's profitability.

The Company's earnings are impacted by its net interest income, which is the difference between the income earned on interest-bearing assets and the interest paid on interest-bearing notes payable.  The Company's finance receivables generally bear interest at fixed rates ranging from 5.5% to 19%, while its revolving notes payable contain variable interest rates that fluctuate with market interest rates.  However, interest rates charged on finance receivables originated in the State of Arkansas have, until recently, been limited to the federal primary credit rate (currently .5%) plus 5%.  In recent years, the rate charged to Arkansas customers was as high as 11.25%, in August 2007.  Typically, the Company has charged interest on its Arkansas loans at or near the maximum rate allowed by law.  Thus, while the interest rates charged on the Company's loans do not fluctuate once established, new loans originated in Arkansas were set at a spread above the federal primary credit rate which does fluctuate.  At April 30, 2009, approximately 52% of the Company's finance receivables were originated in Arkansas.  The long-term effect of decreases in the federal primary credit rate generally had a negative effect on the profitability of the Company because the amount of interest income lost on Arkansas originated loans would likely exceed the amount of interest expense saved on the Company's variable rate borrowings. Effective June 26, 2009, the Company began charging 12% on loans originated in Arkansas. This was due to the passage by the U.S. Congress of the Supplemental Appropriations Act of 2009 which was signed into law on June

 24, 2009. Within this legislation is a provision which allows the Company to charge up to 17% on loans to our customers in Arkansas. The legislation has a sunset clause and will expire on December 31, 2010. The sunset exists because Arkansas voters will be voting in November 2010 on a state constitutional amendment which will effectively replace the federal legislation. Should Arkansas voters not approve the state constitutional amendment, the Company will again be subject to a maximum rate of the federal primary credit rate plus 5% effective January 1, 2011 for loans originated in Arkansas.

Risks Related to the Company

The Company's business is geographically concentrated; therefore, the Company's results of operations may be adversely affected by unfavorable conditions in its local markets.

The Company's performance is subject to local economic, competitive, and other conditions prevailing in the eight states where Car-Mart operates. The Company provides financing in connection with the sale of substantially all of its vehicles.  These sales are made primarily to customers residing in Arkansas, Oklahoma, Texas, Kentucky and Missouri, with approximately 50% of revenues resulting from sales to Arkansas customers.  The Company's current results of operations depend substantially on general economic conditions and consumer spending habits in these local markets.  Any decline in the general economic conditions or decreased consumer spending in these markets may have a negative effect on the Company's results of operations.

The Company's success depends upon the continued contributions of its management teams and the ability to attract and retain qualified employees.

The Company is dependent upon the continued contributions of its management teams.  Because the Company maintains a decentralized operation in which each store is responsible for buying and selling its own vehicles, making credit decisions and collecting loans it originates, the key employees at each store are important factors in the Company's ability to implement its business strategy.  Consequently, the loss of the services of key employees could have a material adverse effect on the Company's results of operations. In addition, when the Company decides to open new stores, the Company will need to hire additional personnel. The market for qualified employees in the industry and in the regions in which Car-Mart operates is highly competitive and may subject the Company to increased labor costs during periods of low unemployment.

The Company's business is dependent upon the efficient operation of its information systems.

The Company relies on its information systems to manage its sales, inventory, consumer financing, and customer information effectively. The failure of the Company's information systems to perform as designed, or the failure to maintain and continually enhance or protect the integrity of these systems, could disrupt the Company's business, impact sales and profitability, or expose the Company to customer or third-party claims.

Changes in the availability or cost of capital and working capital financing could adversely affect the Company's growth and business strategies.

The Company generates cash from income from continuing operations.  The cash is primarily used to fund finance receivables growth, which have historically grown slightly faster than revenues.  To the extent finance receivables growth exceeds income from continuing operations, generally the Company increases its borrowings under its revolving credit facilities to provide the cash necessary to make loans.  On a long-term basis, the Company expects its principal sources of liquidity to consist of income from continuing operations and borrowings under revolving credit facilities and/or fixed interest term loans.  

Any adverse changes in the  Company's ability to borrow under revolving credit facilities or fixed interest term loans, or any increase in the cost of such borrowings, would likely have a negative impact on the Company's ability to finance receivables growth which would adversely affect the Company's growth and business strategies.

Further, the Company's current credit facilities contain various reporting and financial performance covenants. Any failure of the Company to comply with these covenants could have a material adverse effect on the Company's ability to implement its business strategy.

The Company's growth is dependent upon the availability of suitable lot sites.

The Company leases a majority of the properties where its stores are located.  If and when the Company decides to open new stores, the inability to acquire suitable real estate, either through lease or purchase, at favorable terms could limit the expansion of the Company's store base and could have a material adverse effect on the Company's expansion strategy and future operating results.

The Company's business is subject to seasonal fluctuations.

The Company's third fiscal quarter (November through January) has historically been the slowest period for car and truck sales. Conversely, the Company's first and fourth fiscal quarters (May through July and February through April) have historically been the busiest times for car and truck sales. As a result, the Company generally realizes a higher proportion of its revenue and operating profit during the first and fourth fiscal quarters. However, in fiscal 2008 and 2009, tax refund anticipation sales began at the beginning of the Company's third quarter (early November) and continued through January. The success of the tax refund anticipation sales effort led to higher sales levels during the third quarter of fiscal 2008 and 2009. The Company expects this trend to continue in future periods. If conditions arise that impair vehicle sales during the first, third or fourth fiscal quarters, the adverse effect on the Company's revenues and operating profit for the year could be disproportionately large.

Item 1B.  Unresolved Staff Comments

Not applicable.

Item 2.     Properties

As of April 30, 2009, the Company leased approximately 70% of its facilities, including dealerships and the Company's corporate offices.  These facilities are located principally in the states of Arkansas, Oklahoma, Texas, Kentucky and Missouri.  The Company's corporate offices are located in approximately 12,000 square feet of leased space in Bentonville, Arkansas.  For additional information regarding the Company's properties, see "Contractual Payment Obligations" and "Off-Balance Sheet Arrangements" under Item 7 of Part II.

Item 3.     Legal Proceedings

In the ordinary course of business, the Company has become a defendant in various types of legal proceedings.  While the outcome of these proceedings cannot be predicted with certainty, the Company does not expect the final outcome of any of these proceedings, individually or in the aggregate, to have a material adverse effect on the Company's financial position, results of operations or cash flows.

Item 4.     Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders of the Company during the fourth quarter ended April 30, 2009.

PART II

Item 5.     Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

General

As of July 14, 2009, there were approximately 1,125 stockholders of record.  This number excludes stockholders holding the Company's common stock as "beneficial owners" under nominee security position listings.

Stockholder Return Performance Graph

Set forth below is a line graph comparing the fiscal year end percentage change in the cumulative total stockholder return on the Company's common stock to (i) the cumulative total return of the NASDAQ Market Index (U.S. companies), and (ii) the Hemscott Group 744 Index – Auto Dealerships ("Automobile Index"), for the period of five fiscal years commencing on May 1, 2004 and ending on April 30, 2009.  The graph assumes that the value of the investment in the Company's common stock and each index was $100 on April 30, 2004.

The dollar value at April 30, 2009 of $100 invested in the Company's common stock on April 30, 2004 was $93.57, compared to $95.13 for the Automobile Index described above and $90.69 for the NASDAQ Market Index (U.S. Companies).

Dividend Policy

Since its inception the Company has paid no cash dividends on its common stock.  The Company currently intends for the foreseeable future to continue its policy of retaining earnings to finance future growth.  Payment of cash dividends in the future will be determined by the Company's Board of Directors and will depend upon, among other things, the Company's future earnings, operations, capital requirements and surplus, general financial condition, contractual restrictions that may exist, and such other factors as the Board of Directors may deem relevant. Colonial's revolving credit facility prohibits dividends to the Company and Car-Mart of Arkansas's revolving credit facility limits dividends to the Company to 75% of Car-Mart of Arkansas's net income.  As a result, the Company is limited in the amount of cash dividends or other distributions it can make to its shareholders.

Issuer Purchases of Equity Securities

The Company is authorized to repurchase up to 1 million shares of its common stock under the common stock repurchase program last amended and approved by the Board of Directors and announced on December 2, 2005. The following table sets forth information with respect to purchases made by or on behalf of the Company of shares of the Company's common stock during the periods indicated:

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Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto appearing elsewhere in this Annual Report on Form 10-K.

Overview

America's Car-Mart, Inc., a Texas corporation (the "Company"), is the largest publicly held automotive retailer in the United States focused exclusively on the "Buy Here/Pay Here" segment of the used car market.  References to the Company typically include the Company's consolidated subsidiaries.  The Company's operations are principally conducted through its two operating subsidiaries, America's Car-Mart, Inc., an Arkansas corporation ("Car-Mart of Arkansas"), and Colonial Auto Finance, Inc., an Arkansas corporation ("Colonial").  Collectively, Car-Mart of Arkansas and Colonial are referred to herein as "Car-Mart."  The Company primarily sells older model used vehicles and provides financing for substantially all of its customers. Many of the Company's customers have limited financial resources and would not qualify for conventional financing as a result of limited credit histories or past credit problems.  As of April 30, 2009, the Company operated 93 stores located primarily in small cities throughout the South-Central United States.

Car-Mart has been operating since 1981.  Car-Mart has grown its revenues between approximately 3% and 21% per year over the last ten years (average 15%).  Historically, finance receivables have tended to grow slightly faster than revenues. In fiscal 2007, revenues increased 2.6% while finance receivables decreased 3.6% due to higher charge offs experienced for the year. In fiscal 2008, revenues increased 14.3% and finance receivables principal increased 16.6%. After subtracting deferred revenue associated with the payment protection plan product, finance receivables increased 14% during fiscal 2008. In fiscal 2009, revenues increased 8.9% and finance receivables principal increased 11.1%. After subtracting deferred revenue associated with the payment protection plan product, finance receivables increased 9.8% during fiscal 2009. The difference for 2009 relates to lower net charge-offs and a slightly longer weighted average loan term due mostly to an increase in the average retail sales price. The average term for installment sales contracts at April 30, 2009 was relatively flat as compared to April 30, 2008 (27.6 months vs. 27.3 months).  Revenue growth results from same store revenue growth and the addition of new stores.  Going forward, it is anticipated that the historical experience of finance receivables growing slightly faster than revenues will continue.

The Company's primary focus is on collections.  Each store is responsible for its own collections with supervisory involvement of the corporate office.  Over the last five fiscal years, the Company's credit losses as a percentage of sales have ranged between approximately 20.1% in 2005 and 29.1% in 2007 (average of 22.8%). Credit losses in fiscal 2007 (29.1%) were higher than the Company's average over the last five years. Credit losses in fiscal 2007 were negatively affected by higher losses experienced during the Company's second through fourth quarters (31.4%). The 2007 credit losses included an approximate $5 million pre-tax charge (2.3%) to increase the allowance for credit losses to 22% of the finance receivables principal balance from 19.2%. Credit losses were higher due to several factors and included higher losses experienced in most of the dealerships, including mature dealerships, as the Company saw weakness in the performance of its portfolio as customers had difficulty making payments under the terms of their loans. Additionally, the Company's rapid growth put stress on its infrastructure leading to operational difficulties resulting in higher losses. Credit losses in fiscal 2008 returned to a more historical level at 22% of sales as the Company continued to focus on its operational initiatives, including credit and collections efforts.  In fiscal 2009, the Company continued to benefit from operational improvements despite negative macro-economic factors and experienced a reduction in credit losses to 21.5% of sales.

The primary reason for the improvement in credit losses between periods relates to improvements the Company has made to its business practices, including better underwriting and better collection procedures. These improvements in business practices have lead to better collection results. Negative macro-economic issues do not always lead to higher credit loss results for the Company, because the Company provides basic affordable transportation which in many cases is not a discretionary expenditure for customers. The Company has installed a proprietary credit scoring system which enables the Company to monitor the quality of loans on the front end. Corporate office personnel monitor scores and work with stores when the distribution of scores falls outside of prescribed thresholds.  Additionally, the Company has increased its investment in the corporate infrastructure within the collection area, including the hiring of a Director of Collection Practices and Review, which is also having a positive effect on results by providing more and more timely oversight and providing for more accountability on a consistent basis. In addition, turnover at the store level for collection positions is down between years, which is having a positive effect on results. The Company believes that the proper execution of its business practices is the single most important determinate of credit loss experience.

especially personnel targeted to fill store manager positions.  The Company expects to continue to invest in the development of its workforce in fiscal 2010 and beyond.

Consolidated Operations

(Operating Statement Dollars in Thousands)

2009 Compared to 2008

Revenues increased $24.3 million, or 8.9%, in fiscal 2009 as compared to fiscal 2008, principally as a result of (i) revenue growth from stores that operated a full 12 months in both periods ($20.9 million), (ii) stores opened during fiscal 2008 or stores that opened or closed a satellite location during fiscal 2009 or fiscal 2008 ($3.4 million), (iii) revenues from stores opened during fiscal 2009 ($.8 million) offset by a $.8 million decrease in revenues for a store that closed in fiscal 2008.

purchase price) and to a lesser extent by higher operating costs, mostly related to increased vehicle repair costs and higher fuel costs. In fiscal 2009, gross margin percentages benefited from pricing efficiencies, lower wholesale sales and slightly lower operating expenses when compared to fiscal 2008. The consumer demand for vehicles the Company purchases for resale remains high.  This high demand has been exacerbated by the decrease in domestic new car sales, which results in higher purchase costs for the Company.

Selling, general and administrative expense, as a percentage of sales, decreased .2% to 18.7% in fiscal 2009 from 18.9% in fiscal 2008.  The percentage decrease was principally the result of higher sales levels as a large majority of the Company's operating costs are more fixed in nature. In dollar terms, overall expenses increased $3.9 million from fiscal 2008, which consisted primarily of increased payroll costs. At the corporate level, higher payroll costs were concentrated in the Human Resources, Information Technology and Collections areas. Human Resources includes the Company's Manager in Training Program, the entry level point for future store managers. The Company significantly increased its investment in the Manager in Training program throughout fiscal 2009. Additionally, the Company increased its investment in its training department during fiscal 2009 to ensure that associates possess the appropriate skills and are well trained in serving customers. At the store level, the Company made market-based pay adjustments for certain positions in an effort to reduce turnover and to attract qualified associates. The Company will continue to review its infrastructure to ensure it is adequate to support the Company's growth.  Also, stock based compensation was $2.1 million in fiscal 2009 compared to $1.6 million in fiscal 2008.

Provision for credit losses, as a percentage of sales, decreased .5% to 21.5% in fiscal 2009 from 22.0% in fiscal 2008.  Credit losses in fiscal 2009 were positively affected by lower losses during the first three quarters of 2009 offset by a slightly higher loss rate for the fourth fiscal quarter (20.8% for the fourth quarter of fiscal 2009 compared to 20.0% for the fourth quarter of fiscal 2008). The Company is benefiting from better execution of its collection practices, which is offsetting negative macro-economic issues that were prevalent during most of fiscal 2009. Turnover at the store level for collection positions is down between years which is having a positive effect on results. Additionally, the Company has increased its investment in the corporate infrastructure within the collection area which is also having a positive effect on results by providing more oversight and providing more accountability on a consistent basis. The Company believes that the proper execution of its business practices is the single most important determinate of credit loss experience.

Balance Sheet at $1.5 million.  The interest on the credit facilities, the net settlements under the interest rate swap, and the changes in the fair value of the Agreement are all reflected in Interest expense on the Company's Consolidated Statement of Operations.  Notwithstanding the Company's intention to hold the swap until maturity, pursuant to SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," changes in fair value of the Agreement will continue to be recognized quarterly as non-cash charges or gains, as the case may be.

2008 Compared to 2007

Revenues increased $34.3 million, or 14.3%, in fiscal 2008 as compared to fiscal 2007, principally as a result of (i) revenue growth from stores that operated a full 12 months in both periods ($27.7 million), (ii) stores opened during fiscal 2007 or stores that opened or closed a satellite location during fiscal 2008 or fiscal 2007 ($6.7 million), (iii) revenues from stores opened during fiscal 2008 ($.6 million) offset by a $.7 million decrease in revenues for a store that closed in fiscal 2008.

Revenues increased 14.3% in fiscal 2008 as compared to revenue growth of 2.6% in fiscal 2007.  The increase in revenue growth for fiscal 2008 is attributable to (i) an 8% increase in retail unit volumes in fiscal 2008 together with a 7% increase in the average unit sales price, (ii) a 3.7% increase in interest and other income, and (iii) increased wholesale sales during fiscal 2008.

Cost of sales, as a percentage of sales, was flat at 57.7% in fiscal 2008 compared to fiscal 2007. The Company's gross margins are based upon the cost of the vehicle purchased, with lower-priced vehicles typically having higher gross margin percentages. The Company's gross margins have been negatively affected in recent years by the increase in the average retail sales price (a function of a higher purchase price) and to a lesser extent by higher operating costs, mostly related to increased vehicle repair costs and higher fuel costs. Additionally, the percentage of wholesale sales was higher in fiscal 2008 and 2007 than in previous years, which has had a negative effect on overall gross margin percentages.  The consumer demand for vehicles the Company purchases for resale was high during fiscal 2008.  This high demand was exacerbated by the decrease in domestic new car sales, which resulted in higher purchase costs for the Company.

Interest expense, as a percentage of sales, decreased .5% to 1.2% in fiscal 2008 from 1.7% in fiscal 2007.  The decrease was principally the result of lower average borrowing levels and lower average interest rates on the Company's revolving credit facilities during fiscal 2008.

In fiscal 2008, the Company incurred $527,000 in losses associated with the closure of four dealerships. One of the dealerships was in Kansas and the other three were satellite locations in Texas.

The effective income tax rate in fiscal 2008 was 35.1%. This rate is lower than historical rates (excluding fiscal 2007) due to the distribution of profits among the Company's operating subsidiaries.

Financial Condition

The following table sets forth the major balance sheet accounts of the Company at April 30, 2009, 2008 and 2007 (in thousands):

Borrowings on the Company's revolving credit facilities fluctuate primarily based upon a number of factors including (i) net income, (ii) finance receivables changes, (iii) income taxes, (iv) capital expenditures and (v) common stock repurchases.  Historically, income from continuing operations, as well as borrowings on the revolving credit facilities, have funded the Company's finance receivables growth and capital asset purchases. In fiscal 2009, the Company benefitted from a $4.9 million increase in deferred income taxes and a $4.2 million positive change in current income taxes, primarily related to refunds from prior year taxes paid.

Liquidity and Capital Resources

The following table sets forth certain historical information with respect to the Company's Statements of Cash Flows (in thousands):

The primary drivers of operating profits and cash flows include 1) top line sales 2) interest rates on finance receivables 3) gross profit percentages on vehicle sales and 4) credit losses. The Company generates cash flow from income from operations.  Historically, most or all of this cash is used to fund finance receivables growth and capital expenditures.  To the extent finance receivables growth and capital expenditures exceeds income from operations, generally the Company increases its borrowings under its revolving credit facilities.  The majority of the Company's growth has been self-funded.

Cash flows from operations in fiscal 2009 were positively impacted by 1) higher sales levels and higher gross margin percentages on those sales, 2) lower credit losses as a percentage of sales, 3) improvements in current and deferred income taxes which resulted from the effect of the increase in finance receivables as well as refunds from prior year taxes paid, 4) increases in liabilities for fiscal 2009 resulting from increased sales levels, the deferred payment protection plan revenue and the liability associated with the interest rate swap agreement, offset by 5) the net effect of other components of the change in finance receivables including originations, collections, inventory acquired in both repossessions and payment protections plan claims as well as the actual payment protection plan claims. Finance receivables, net, increased by $18.7 million during fiscal 2009.

Cash flows from operations in 2008 were positively impacted by 1) higher sales levels with consistent gross margin percentages, 2) significantly lower credit losses, 3) improvements in current and deferred income taxes which resulted from the effect of an increase in the allowance for credit losses combined with a decrease in finance receivables during fiscal 2007, 4) increases in liabilities for fiscal 2008 resulting from increased sales levels and deferred payment protection plan revenue, offset by 5) other components of the change in finance receivables including originations, collections, inventory acquired in both repossessions and payment protections plan claims as well as the actual payment protection plan claims. Finance receivables, net, increased by $24.2 million during fiscal 2008.

unemployment levels can have a significant effect on collection results and ultimately credit losses. The Company has made improvements to its business processes within the last few years to strengthen controls and provide stronger infrastructure to support its collection efforts. With these improvements, the Company anticipates that credit losses on a going-forward basis will be in the range of 21-23% of sales. However, significant negative macro-economic effects could cause actual results to differ from the anticipated range.

The Company believes it will have adequate liquidity to continue to grow its revenues and to satisfy its capital needs for the foreseeable future.

The Company has generally leased the majority of the properties where its stores are located.  As of April 30, 2009, the Company leased approximately 70% of its store properties.  The Company expects to continue to lease the majority of the properties where its stores are located.

Car-Mart of Arkansas' credit facilities limit distributions from Car-Mart of Arkansas to the Company beyond (i) the repayment of an intercompany loan ($10.0 million at April 30, 2009), and (ii) dividends equal to 75% of Car-Mart of Arkansas' net income.  At April 30, 2009, the Company's net assets (excluding its $145 million equity investment in Car-Mart of Arkansas) consisted of $1,000 in cash, $3.3 million in other net assets and a $10.0 million receivable from Car-Mart of Arkansas.  As a result, the Company is limited in the amount of dividends or other distributions it can make to its shareholders without the consent of the Company's lender.

At April 30, 2009, the Company had $168,000 of cash on hand and an additional $30.6 million of availability under its revolving credit facilities (see Note F to the Consolidated Financial Statements).  On a short-term basis, the Company's principal sources of liquidity include income from operations and borrowings under its revolving credit facilities.  On a longer-term basis, the Company expects its principal sources of liquidity to consist of income from operations and borrowings under revolving credit facilities and/or fixed interest term loans.  Furthermore, while the Company has no specific plans to issue debt or equity securities, the Company believes, if necessary, it could raise additional capital through the issuance of such securities.

The Company expects to use cash to (i) grow its finance receivables portfolio by a percentage that is slightly larger than the percentage that its revenues grow, (ii) purchase property and equipment of approximately $3 million in the next 12 months in connection with refurbishing existing stores and adding new stores, and (iii) reduce debt to the extent excess cash is available.  In addition, occasionally the Company may use cash to repurchase its common stock.

The Company's revolving credit facilities mature in April 2010.  The Company expects that it will be able to renew or refinance its revolving credit facilities on or before the date they mature.  The Company believes it will have adequate liquidity to satisfy its capital needs for the foreseeable future.

Contractual Payment Obligations

The following is a summary of the Company's contractual payment obligations as of April 30, 2009, including renewal periods under operating leases that are reasonably assured (in thousands):

We calculate estimated interest payments for the long term debt using the applicable rates and payment dates.  We typically expect to settle such interest payments with cash flows from operations and short-term borrowings.

The above excludes estimated interest payments on the Company's revolving line of credit.  The Company paid $1.3 million in interest payments on the revolving line of credit debt in fiscal 2009.

The $29.6 million of operating lease commitments includes $4.4 million of non-cancelable lease commitments under the primary lease terms, and $25.2 million of lease commitments for renewal periods at the Company's option that are reasonably assured.

Off-Balance Sheet Arrangements

The Company has entered into operating leases for approximately 70% of its store 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 store locations and to preserve capital.  The Company expects to continue to lease the majority of its store and office facilities under arrangements substantially consistent with the past.  For the years ended April 30, 2009, 2008 and 2007, rent expense for all operating leases amounted to approximately $3.0 million, $2.7 million and $2.8 million, respectively.

Other than its operating leases, the Company is not a party to any off-balance sheet arrangement that management believes is reasonably likely to have a current or future effect on the Company's financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Related Finance Company Contingency

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 ("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 240 basis points.  The actual interpretation of the Treasury Regulations is in part a facts

and circumstances matter.  The Company believes it satisfies the material provisions of the Treasury 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 altering the timing of required tax payments.

In May 2007, the Internal Revenue Service (the "IRS") concluded on the previously disclosed examinations of the Company's tax returns for fiscal 2002 and certain items in subsequent years. The IRS concluded that the Company would not be assessed any additional taxes, penalties or interest related to the examinations. The examinations focused on whether or not the Company satisfied the provisions of the Treasury Regulations which would entitle Car-Mart of Arkansas to a tax deduction at the time it sells its finance receivables to Colonial.  Based upon the favorable IRS conclusion, the Company recognized $500,000 of net income in the fourth quarter of fiscal 2007 for the elimination of associated income tax reserves.

The IRS is currently auditing the 2007 income tax return for Colonial and the 2008 income tax return for Car-Mart of Arkansas.

Critical Accounting Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires the Company to make estimates and assumptions in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from the Company's estimates.  The Company believes the most significant estimate made in the preparation of the accompanying Consolidated Financial Statements relates to the determination of its allowance for credit losses, which is discussed below.  The Company's accounting policies are discussed in Note B to the accompanying Consolidated Financial Statements.

The Company maintains an allowance for credit losses on an aggregate basis at a level it considers sufficient to cover estimated losses in the collection of its finance receivables.  At April 30, 2009, the weighted average total loan term was 27.6 months with 19.5 months remaining. The reserve amount in the allowance for credit losses at April 30, 2009, $49.3 million, was 22% of the principal balance in Finance receivables of $231.4 million, less unearned payment protection plan revenue of $7.4 million. The estimated reserve amount is the Company's anticipated future net charge-offs for losses incurred through the balance sheet date. The allowance takes into account historical credit loss experience (both timing and severity of losses), with consideration given to recent credit loss trends and changes in loan characteristics (i.e., average amount financed, months outstanding at loss date, term and age of portfolio), delinquency levels, collateral values, economic conditions and underwriting and collection practices. The allowance for credit losses is reviewed at least quarterly by management with any changes reflected in current operations.  The calculation of the allowance for credit losses uses the following primary factors:

A point estimate is produced by this analysis which is then supplemented by any positive or negative subjective factors to arrive at an overall reserve amount that management considers to be a reasonable estimate of incurred losses that will be realized via actual charge-offs in the future. Although it is at least reasonably possible that events or circumstances could occur in the future that are not presently foreseen which could cause actual credit losses to be materially different from the recorded allowance for credit losses, the Company believes that it has given appropriate consideration to all relevant factors and has made reasonable assumptions in determining the allowance for credit losses.  Periods of economic downturn do not necessarily lead to increased credit losses because the Company provides basic affordable transportation to customers that, for the most part, do not have access to public transportation.  The effectiveness of the execution of internal policies and procedures within the collections area has historically had a more significant effect on collection results than macro-economic issues. A 1% change, as a percentage of Finance receivables, in the allowance for credit losses would equate to an approximate pre-tax charge of $2.2 million.

At October 31, 2006 (the end of the Company's 2007 second quarter), management increased the allowance for credit loss percentage from 19.2% to 22% due to higher credit loss experience and trends.  A change in accounting estimate was recognized to reflect the decision to increase the allowance for credit losses, resulting in a pretax, non-cash charge of $5,271,000 for the Company's second quarter of fiscal 2007.

Recent Accounting Pronouncements

Occasionally, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other standard setting bodies which the Company adopts as of the specified effective date. Unless otherwise discussed, the Company believes the impact of recently issued standards which are not yet effective will not have a material impact on its consolidated financial statements upon adoption.

In February 2007, the FASB issued Statement 159, "The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement 115" ("SFAS 159.")  The statement permits entities to choose to measure certain financial instruments and other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. Unrealized gains and losses on any items for which Car-Mart elects the fair value measurement option would be reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS 159 did not have a material impact on the Company's financial statements.

In December 2007, the FASB issued Statement 160, "Noncontrolling Interests in Consolidated Financial Statements" (SFAS 160").  The objective of this statement is to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements.  Accordingly this statement requires the ownership interests in subsidiaries held by other parties other than the parent be clearly identified, labeled, and presented in the Consolidated Balance Sheet within equity but separate from the parent's and entities provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners.  This statement is effective for fiscal years and interim periods within those fiscal years, beginning on or after December 15, 2008.  Upon adoption of SFAS 160, $100,000 of preferred

stock will be classified as non-controlling interest within equity and $400,000 of the preferred stock with a put will be classified in the mezzanine section. The dividends associated with the entire preferred stock will be recorded as a reduction to net income to arrive at net income attributable to the Company. The presentation of the preferred stock will be applied retroactively for all periods presented upon adoption of SFAS 160.

In March 2008, the FASB issued Statement 161, "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161").  Due to the use and complexity of derivative instruments, there were concerns regarding the existing disclosure requirements in FASB 133.  Accordingly, this statement requires enhanced disclosures about an entity's derivative and hedging activities.  Entities will be required to provide enhanced disclosures about (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedging items are accounted for under FASB 133 and its related interpretations, and (iii) how derivative instruments and related hedging items affect an entity's financial position, financial performance and cash flows.  This statement is effective for financial statements issued for fiscal years beginning after November 15, 2008.  The Company does not believe the adoption of SFAS 161 will have a material impact on the Company's financial statements.

In May 2009, the FASB issued Statement 165, "Subsequent Events" ("SFAS 165").  SFAS 165 was issued to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued.  It sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that occur for a potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures than an entity should make about events or transactions that occurred after the balance sheet date.  The statement also introduces the concept of financial statements "available to be issued."  This statement is effective for financial statements issued for interim and annual periods ending after June 15, 2009.  The Company does not believe that adoption of SFAS 165 will have a material impact on the Company's financial statements.

In June 2009, the FASB issued Statement 168, "The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles" ("SFAS 168").  The statement was issued to replace SFAS 162, "The Hierarchy of Generally Accepted Accounting Principles", and establish the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB in the preparation of financial statements in conformity w/ generally accepted accounting principles ("GAAP").  Essentially, the GAAP hierarchy will be modified to only include 2 levels – authoritative and non-authoritative.  This statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009.  The Company does not believe that adoption of SFAS 168 will have a material impact on the Company's financial statements.

Impact of Inflation

Inflation has not historically been a significant factor impacting the Company's results; however, recent purchase price increases for vehicles, most pronounced over the last three fiscal years, have had a negative effect on the Company's gross profit percentages. This is due to the fact that the Company focuses on keeping payments affordable to its customer base and at the same time ensuring that the term of the loan matches the economic life of the vehicle.

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed to market risk on its financial instruments from changes in interest rates.  In particular, the Company has historically had exposure to changes in the federal primary credit

rate and has exposure to changes in the prime interest rate of its lender.  The Company does not use financial instruments for trading purposes but has entered into an interest rate swap agreement to manage interest rate risk.  

Item 8.  Financial Statements and Supplementary Data

The following financial statements and accountant's report are included in Item 8 of this Annual Report on Form 10-K:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of April 30, 2009 and 2008

Consolidated Statements of Operations for the years ended April 30, 2009, 2008 and 2007

Consolidated Statements of Cash Flows for the years ended April 30, 2009, 2008 and 2007

Consolidated Statements of Stockholders' Equity for the years ended April 30, 2009, 2008 and 2007

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Stockholders and Board of Directors

America's Car-Mart, Inc.

We have audited the accompanying consolidated balance sheets of America's Car-Mart, Inc. (a Texas corporation) and subsidiaries as of April 30, 2009 and 2008, and the related consolidated statements of operations, cash flows, and stockholders' equity for each of the three years in the period ended April 30, 2009. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of America's Car-Mart, Inc. and subsidiaries as of April 30, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended April 30, 2009 in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), America's Car-Mart, Inc. and subsidiaries' internal control over financial reporting as of April 30, 2009, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO ) and our report dated July 14, 2009 expressed an unqualified opinion.

 /s/ GRANT THORNTON LLP

Tulsa, Oklahoma

July 14, 2009 

Consolidated Balance Sheets

America's Car-Mart, Inc.

Consolidated Statements of Operations

America's Car-Mart, Inc.

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Statements of Cash Flows

America's Car-Mart, Inc.

(In thousands)

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Statements of Stockholders' Equity

America's Car-Mart, Inc .

(Dollars in thousands)

The accompanying notes are an integral part of these consolidated financial statements.

Notes to Consolidated Financial Statements

America's Car-Mart, Inc .

A - Organization and Business

America's Car-Mart, Inc., a Texas corporation (the "Company"), is the largest publicly held automotive retailer in the United States focused exclusively on the "Buy Here/Pay Here" segment of the used car market.  References to the Company typically include the Company's consolidated subsidiaries.  The Company's operations are principally conducted through its two operating subsidiaries, America's Car-Mart, Inc., an Arkansas corporation ("Car-Mart of Arkansas") and Colonial Auto Finance, Inc., an Arkansas corporation ("Colonial").  Collectively, Car-Mart of Arkansas and Colonial are referred to herein as "Car-Mart."  The Company primarily sells older model used vehicles and provides financing for substantially all of its customers. Many of the Company's customers have limited financial resources and would not qualify for conventional financing as a result of limited credit histories or past credit problems.  As of April 30, 2009, the Company operated 93 stores located primarily in small cities throughout the South-Central United States.

B - Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of America's Car-Mart, Inc. and its subsidiaries.  All intercompany accounts and transactions have been eliminated.

Segment Information

Each dealership is an operating segment with its results regularly reviewed by the Company's chief operating decision maker in an effort to make decisions about resources to be allocated to the segment and to assess its performance. Individual lots meet the aggregation criteria under Statement of Financial Accounting Standard ("SFAS") 131, "Disclosures about Segments of an Enterprise and Related Information." The Company operates in the Buy Here/Pay Here segment of the used car market, also referred to as the Integrated Auto Sales and Finance industry.  In this industry, the nature of the sale and the financing of the transaction, financing processes, the type of customer and the methods used to distribute the Company's products and services, including the actual servicing of the loans as well as the regulatory environment in which the Company operates all have similar characteristics.  Each of our individual lots is similar in nature and only engages in the selling and financing of used vehicles. All individual lots have similar operating characteristics.  As such, individual lots have been aggregated into one reportable segment.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the period.  Actual results could differ from those estimates.

Concentration of Risk

The Company provides financing in connection with the sale of substantially all of its vehicles.  These sales are made primarily to customers residing in Arkansas, Alabama, Oklahoma, Texas, Kentucky

and Missouri, with approximately 50% of revenues resulting from sales to Arkansas customers.  Periodically, the Company maintains cash in financial institutions in excess of the amounts insured by the federal government.  Car-Mart of Arkansas' revolving credit facilities mature in April 2010.  The Company expects that these credit facilities will be renewed or refinanced on or before the scheduled maturity dates.

Restrictions on Subsidiary Distributions/Dividends

Car-Mart of Arkansas' revolving credit facilities limit distributions from Car-Mart of Arkansas to the Company beyond (i) the repayment of an intercompany loan ($10.0 million at April 30, 2009), and (ii) dividends equal to 75% of Car-Mart of Arkansas' net income.  At April 30, 2009, the Company's assets (excluding its $145 million equity investment in Car-Mart of Arkansas) consisted of $1,000 in cash, $3.3 million in other net assets and a $10.0 million receivable from Car-Mart.  Thus, the Company is limited in the amount of dividends or other distributions it can make to its shareholders without the consent of the Company's lender.

Cash Equivalents

The Company considers all highly liquid instruments purchased with original maturities of three months or less to be cash equivalents.

Finance Receivables, Repossessions and Charge-offs and Allowance for Credit Losses

The Company originates installment sale contracts from the sale of used vehicles at its dealerships.  These installment sale contracts carry interest rates ranging from 5.5% to 19% using the simple effective interest method in compliance with SFAS 91, "Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases", including any deferred fees. Loan origination costs are not significant. The installment sale contracts are not pre-computed loans whereby borrowers are obligated to pay back principal plus the full amount of interest that will accrue over the entire term of the loan.  Finance receivables are collateralized by vehicles sold and consist of contractually scheduled payments from installment contracts net of unearned finance charges and an allowance for credit losses.  Unearned finance charges represent the balance of interest receivable to be earned over the entire term of the related installment contract, less the earned amount ($778,000 and $833,000 at April 30, 2009 and 2008, respectively), and as such, has been reflected as a reduction to the gross contract amount in arriving at the principal balance in finance receivables . An account is considered delinquent when a contractually scheduled payment has not been received by the scheduled payment date.  While the Company does not formally place loans on nonaccrual status, the immaterial amount of interest that may accrue after an account becomes delinquent up until the point of resolution via repossession or write-off, is reserved for against the accrued interest on the Consolidated Balance Sheets. Delinquent loans are addressed and either made current by the customer, which is the case in most situations, or the vehicle is repossessed or written off, if the collateral cannot be recovered quickly. Customer payments are set to match their pay-day with over 80% of payments due on either a weekly or bi-weekly basis. The frequency of the payment due dates combined with the declining value of collateral lead to prompt resolutions on problem accounts. Accounts are delinquent when the customer is one day or more behind on their contractual payments .   At April 30, 2009 and 2008, respectively, 2.8% and 3.1% of the Company's finance receivable balances were 30 days or more past due.

The Company works very hard to keep its delinquency percentages low, and not to repossess vehicles.  Accounts one day late are sent a notice in the mail.  Accounts three days late are contacted by telephone.  Notes from each telephone contact are electronically maintained in the Company's computer system.  If a customer becomes severely delinquent in his or her payments, and management determines

that timely collection of future payments is not probable, the Company will take steps to repossess the vehicle.  The Company attempts to resolve payment delinquencies amicably prior to repossessing a vehicle.  Periodically, the Company enters into contract modifications with its customers to extend the payment terms.  The Company only enters into a contract modification or extension if it believes such action will increase the amount of monies the Company will ultimately realize on the customer's account. At the time of modification, the Company expects to collect amounts due including accrued interest at the contractual interest rate for the period of delay. Other than the extension of additional time, concessions are not granted to customers at the time of modifications. Modifications are minor and are made for pay-day changes, minor vehicle repairs and other reasons.  For those vehicles that are repossessed, the majority are returned or surrendered by the customer on a voluntary basis.  Other repossessions are performed by Company personnel or third party repossession agents.  Depending on the condition of a repossessed vehicle, it is either resold on a retail basis through a Company store, or sold for cash on a wholesale basis primarily through physical and/or on-line auctions.

The Company takes steps to repossess a vehicle when the customer becomes delinquent in his or her payments, and management determines that timely collection of future payments is not probable.  Accounts are charged-off after the expiration of a statutory notice period for repossessed accounts, or when management determines that the timely collection of future payments is not probable for accounts where the Company has been unable to repossess the vehicle.  For accounts with respect to which the vehicle was repossessed, the fair value of the repossessed vehicle is charged as a reduction of the gross finance receivable balance charged-off.  On average, accounts are approximately 56 days past due at the time of charge-off.  For previously charged-off accounts that are subsequently recovered, the amount of such recovery is credited to the allowance for credit losses.

The Company maintains an allowance for credit losses on an aggregate basis, as opposed to a loan-by-loan basis, at a level it considers sufficient to cover estimated losses in the collection of its finance receivables. In accordance with the Financial Accounting Standards Board ("FASB") Statement No. 5, "Accounting for Contingencies", the Company accrues an estimated loss as it is probable that the entire amount will not be collected and the amount of the loss can be reasonably estimated in the aggregate.  The allowance for credit losses is based primarily upon historical credit loss experience, with consideration given to recent credit loss trends and changes in loan characteristics (i.e., average amount financed and term), delinquency levels, collateral values, economic conditions and underwriting and collection practices.  The allowance for credit losses is periodically reviewed by management with any changes reflected in current operations.  Although it is at least reasonably possible that events or circumstances could occur in the future that are not presently foreseen which could cause actual credit losses to be materially different from the recorded allowance for credit losses, the Company believes that it has given appropriate consideration to all relevant factors and has made reasonable assumptions in determining the allowance for credit losses.

At October 31, 2006 (the end of the Company's 2007 second quarter), management increased the allowance for credit loss percentage from 19.2% to 22% due to recent higher credit loss experience and trends.  A change in accounting estimate was recognized to reflect the decision to increase the allowance for credit losses, resulting in a pretax, non-cash charge of $5.3 million for the Company's second quarter of fiscal 2007.  No such charge was required in the third or fourth quarters of fiscal 2007, fiscal 2008, or fiscal 2009.

The Company offers retail customers in most states the option of purchasing a payment protection plan product as an add-on to the installment sale contract.  This product contractually obligates the Company to cancel the remaining principal outstanding for any loan where the retail customer has totaled the vehicle, as defined, or the vehicle has been stolen.  The Company periodically evaluates anticipated

losses to ensure that if anticipated losses exceed deferred payment protection plan revenues, an additional liability is recorded for such difference.  No such liability was required at April 30, 2009.

Inventory

Inventory consists of used vehicles and is valued at the lower of cost or market on a specific identification basis.  Vehicle reconditioning costs are capitalized as a component of inventory.  Repossessed vehicles are recorded at fair value, which approximates wholesale value.  The cost of used vehicles sold is determined using the specific identification method.

Goodwill

Goodwill reflects the excess of purchase price over the fair value of specifically identified net assets purchased. In accordance with Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangibles" ("SFAS 142"), goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests. The impairment tests are based on the comparison of the fair value of the reporting unit to the carrying value of such unit. If the fair value of the reporting unit falls below its carrying value, goodwill is deemed to be impaired and a write-down of goodwill would be recognized.  There was no impairment of goodwill during fiscal years 2009, 2008 or 2007.

Property and Equipment

Property and equipment are stated at cost.  Expenditures for additions, renewals and improvements are capitalized.  Costs of repairs and maintenance are expensed as incurred.  Leasehold improvements are amortized over the shorter of the estimated life of the improvement or the lease period.  The lease period includes the primary lease term plus any extensions that are reasonably assured.  Depreciation is computed principally using the straight-line method generally over the following estimated useful lives:

Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset.  If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying values of the impaired assets exceed the fair value of such assets.  Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

Cash Overdraft

The Company's primary disbursement bank account is set up to operate with a fixed $50,000 cash balance.  As checks are presented for payment, monies are automatically drawn against cash collections for the day and, if necessary, are drawn against one of its revolving credit facilities.  The cash overdraft balance principally represents outstanding checks, net of any deposits in transit that as of the balance sheet date had not yet been presented for payment.

Deferred Sales Tax

Deferred sales tax represents a sales tax liability of the Company for vehicles sold on an installment basis in the State of Texas.  Under Texas law, for vehicles sold on an installment basis, the related sales tax is due as the payments are collected from the customer, rather than at the time of sale.

Income Taxes

Income taxes are accounted for under the liability method.  Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates expected to apply in the years in which these temporary differences are expected to be recovered or settled.

Occasionally, the Company is audited by taxing authorities.  These audits could result in proposed assessments of additional taxes.  The Company believes that its tax positions comply in all material respects with applicable tax law.  However, tax law is subject to interpretation, and interpretations by taxing authorities could be different from those of the Company, which could result in the imposition of additional taxes. The Internal Revenue Service is currently auditing the 2007 income tax return for Colonial and the 2008 income tax return for Car-Mart of Arkansas.

The Company applies the provisions of FASB Interpretation 48, "Accounting for Uncertainty in Income Taxes." As required by Interpretation 48, which clarifies Statement 109, "Accounting for Income Taxes", the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit.  For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.  The Company applies Interpretation 48 to all tax positions for which the statute of limitations remains open.  The Company has no adjustments or unrecognized tax benefits as a result of the implementation of Interpretation 48.

The Company is subject to income taxes in the U.S. federal jurisdiction and various state jurisdictions.  Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply.  With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for the years before 2006.

The Company's policy is to recognize accrued interest related to unrecognized tax benefits in interest expense and penalties in operating expenses. The Company had no accrued penalties and/or interest as of April 30, 2009 and 2008, respectively.

Revenue Recognition

Revenues are generated principally from the sale of used vehicles, which in most cases includes a service contract and a payment protection plan product, and interest income and late fees earned on finance receivables. Revenues are net of taxes collected from customers and remitted to government agencies.  Cost of vehicle sales include costs incurred by the Company to prepare the vehicle for sale including license and title costs, gasoline, transport services and repairs.

Revenues from the sale of used vehicles are recognized when the sales contract is signed, the customer has taken possession of the vehicle and, if applicable, financing has been approved.  Revenues from the sale of service contracts are recognized ratably over the five-month service contract period.  Service contract related expenses are included in cost of sales. Payment protection plan revenues are initially deferred and then recognized to income using the "Rule of 78's" interest method over the life of

the loan so that revenues are recognized in proportion to the amount of cancellation protection provided.  Payment protection plan related losses are included in cost of sales.  Interest income is recognized on all active finance receivable accounts using the simple effective interest method.

Sales consists of the following for the years ended April 30, 2009, 2008 and 2007:

Active accounts include all accounts except those that have been paid-off or charged-off.  At April 30, 2009 and 2008, finance receivables more than 90 days past due were approximately $89,000 and $241,000, respectively. Late fee revenues totaled approximately $1.4 million for the fiscal years ending 2009 and 2007 and $1.3 million for fiscal 2008.  Late fee revenue is recognized when collected and reflected within interest and other income on the Consolidated Statements of Operations.

Advertising Costs

Advertising costs are expensed as incurred and consist principally of radio, television and print media marketing costs.  Advertising costs amounted to $2.8 million, $2.9 million and $2.9 million for the years ended April 30, 2009, 2008 and 2007, respectively.

Employee Benefit Plans

The Company has 401(k) plans for all of its employees meeting certain eligibility requirements.  The plans provide for voluntary employee contributions and the Company matches 50% of employee contributions up to a maximum of 2% of each employee's compensation.  The Company contributed approximately $156,000, $153,000, and $156,000 to the plans for the years ended April 30, 2009, 2008 and 2007, respectively.

The Company offers employees the right to purchase common shares at a 15% discount from market price under the 2006 Employee Stock Purchase Plan which was approved by shareholders in October 2006. The Company takes a charge to earnings for the 15% discount.  Amounts for fiscal years 2009, 2008 and 2007 were not material. A total of 200,000 shares were registered and 184,648 remain available for issuance at April 30, 2009.

Earnings per Share

Basic earnings per share are computed by dividing net income by the average number of common shares outstanding during the period.  Diluted earnings per share takes into consideration the potentially dilutive effect of common stock equivalents, such as outstanding stock options and warrants, which if exercised or converted into common stock would then share in the earnings of the Company.  In computing diluted earnings per share, the Company utilizes the treasury stock method and anti-dilutive securities are excluded.

Stock-based Compensation

The Company applies the provisions of Statement of Financial Accounting Standards 123R, "Share Based Payments" ("SFAS 123R"), which revises Statement 123, "Accounting for Stock-Based Compensation," and supersedes APB Opinion 25, "Accounting for Stock Issued to Employees."  SFAS 123R requires the Company to recognize expense related to the fair value of stock-based compensation awards, including employee stock options.

The Company recorded compensation cost for stock-based employee awards of $2.1million ($1.4 million after-tax) during the year ended April 30, 2009. The pre-tax amounts include $358,000 for restricted shares issued on May 1, 2006, $1.5 million for stock options granted during the year ended April 30, 2009, $268,000 for restricted shares issued on December 18, 2007 and $16,000 related to stock issued under the 2006 Employee Stock Purchase Plan.  The Company recorded compensation cost for stock-based employee awards of $1.6 million ($1.04 million after-tax) during the year ended April 30, 2008.  The pretax amounts include $358,000 for restricted shares issued on May 1, 2006, $823,000 for stock options granted during the year ended April 30, 2008, $403,000 for restricted shares issued on December 18, 2007 and $16,000 related to stock issued under the 2006 Employee Stock Purchase Plan.  The Company recorded compensation cost for stock based employee awards of $533,000 ($336,000 after-tax) during the year ended April 30, 2007.  The pretax amounts include $397,000 for restricted shares issued on May 1, 2006 and $136,000 for stock options granted in fiscal 2007.  Tax benefits were recognized for these costs at the Company's overall expected effective tax rate.

The fair value of options granted is estimated on the date of grant using the Black-Scholes option pricing model based on the weighted average assumptions in the table below.

The expected term of the options is based on evaluations of historical and expected future employee and director exercise behavior.  The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life at the grant date.  Volatility is based on historical volatility of the Company's stock.  The Company has not historically issued any dividends and does not expect to do so in the foreseeable future.

Stock Options

On October 16, 2007, the shareholders of the Company approved the 2007 Stock Option Plan (the "2007 Plan"). The 2007 Plan provides for the grant of options to purchase up to an aggregate 1,000,000 shares of the Company's common stock for grants to employees, directors and certain advisors of the Company at a price not less than the fair market value of the stock on the date of grant and for periods not to exceed ten years. The shares of common stock available for issuance under the 2007 Plan may, at the election of the Company's board of directors, be unissued shares or treasury shares, or shares purchased in the open market or by private purchase.

The stockholders of the Company previously approved three stock option plans, including the 1986 Incentive Stock Option Plan ("1986 Plan"), the 1991 Non-Qualified Stock Option Plan ("1991 Plan") and the 1997 Stock Option Plan ("1997 Plan").  No additional option grants may be made under

the 1986, 1991 or 1997 Plans.  Outstanding options granted under the Company's stock option plans expire in the calendar years 2009 through 2017.

The grant-date fair value of options granted during fiscal years 2009 and 2008 was $201,000 and $3.4 million, respectively.  The aggregate intrinsic value of all outstanding options at April 30, 2009, 2008, and 2007 was $2 million, $2.1 million, and $1.5 million respectively. Of the 375,000 options granted during fiscal 2008, 360,000 were granted to executive officers on October 16, 2007 upon the approval by shareholders of the 2007 Plan. The options were granted at fair market value on date of grant. The vesting of these options are set to vest in one third increments and is subject to the attainment of certain profitability goals over the three fiscal years ending April 30, 2010. As of April 30, 2009, the Company has $1.3 million of total unrecognized compensation cost related to unvested options granted under the 2007 Plan.  At each period end, the Company will evaluate and estimate the likelihood of attaining the underlying performance goals and recognize compensation cost accordingly for the options that have performance criteria. These outstanding options have a weighted-average remaining vesting period of 1.0 year.

The Company received cash from options exercised of $301,000, $205,000 and $81,000 in fiscal years 2009, 2008 and 2007, respectively.  The impact of these cash receipts is included in financing activities in the accompanying Consolidated Statements of Cash Flows.

The intrinsic value for options exercised was $1.3 million, $495,000, and $156,000 in fiscal years 2009, 2008, and 2007, respectively.

Warrants

During the year ended April 30, 2009, warrants for 18,750 shares were exercised with an intrinsic value of $60,000.  As of April 30, 2009, the Company had no remaining outstanding stock purchase warrants.

Stock Incentive Plan

The shareholders of the Company approved an amendment to the Company's Stock Incentive Plan on October 16, 2007. The amendment increased from 100,000 to 150,000 the number of shares of common stock that may be issued under the Stock Incentive Plan.  For shares issued under the Stock Incentive Plan, the associated compensation expense is generally recognized equally over the vesting periods established at the award date and is subject to the employee's continued employment by the Company.  During fiscal 2008, 65,000 restricted shares were granted with a grant date fair value of $11.90 per share, the market price of the Company's stock on the grant date.  During fiscal 2007, 57,500 restricted shares were granted with a grant date fair value of $20.07 per share, the market price of the Company's stock on the grant date.  Restricted shares issued under the Stock Incentive Plan had an initial weighted average vesting period of 2.6 years and began vesting on April 30, 2007. The following is a summary of the activity in the Company's stock incentive plans during fiscal year April 30, 2009:

The Company recorded a compensation cost of $627,000, $761,000, and $397,000 related to the Stock Incentive Plan during fiscal years 2009, 2008, and 2007, respectively.

As of April 30, 2009, the Company has $182,000 of total unrecognized compensation cost related to unvested awards granted under the Stock Incentive Plan, which the Company expects to recognize over a weighted-average remaining period of 1.3 years.  The fair value at vesting for awards under the stock incentive plan was $616,000, $655,000, and $229,000 in fiscal 2009, 2008, and 2007 respectively.

There were no modifications to any of the Company's outstanding share-based payment awards during fis c al 2009.

Treasury Stock

The Company purchased 95,343, 292,691, and 30,000 shares of its common stock to be held as treasury stock for a total cost of $1.2 million, $3.5 million, and $454,000 during 2009, 2008, and 2007 respectively. Treasury stock may be used for issuances under the Company's stock option plan or for other general corporate purposes.

Recent Accounting Pronouncements

Occasionally, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other standard setting bodies which the Company adopts as of the specified effective date. Unless otherwise discussed, the Company believes the impact of recently issued standards which are not yet effective will not have a material impact on its consolidated financial statements upon adoption.

In February 2007, the FASB issued Statement 159, "The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement 115" ("SFAS 159.")  The statement permits entities to choose to measure certain financial instruments and other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. Unrealized gains and losses on any items for which Car-Mart elects the fair value measurement option would be reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS 159 did not have a material impact on the Company's financial statements.

In December 2007, the FASB issued Statement 160, "Noncontrolling Interests in Consolidated Financial Statements" ("SFAS 160").  The objective of this statement is to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements.  Accordingly this statement requires the ownership interests in subsidiaries held by other parties other than the parent be clearly identified, labeled, and presented in the Consolidated Balance Sheet within equity but separate from the parent's and entities provide sufficient

disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners.  This statement is effective for fiscal years and interim periods within those fiscal years, beginning on or after December 15, 2008.  Upon adoption of SFAS 160, $100,000 of preferred stock will be classified as non-controlling interest within equity and $400,000 of the preferred stock with a put will be classified in the mezzanine section. The dividends associated with the entire preferred stock will be recorded as a reduction to net income to arrive at net income attributable to the Company. The presentation of the preferred stock will be applied retroactively for all periods presented upon adoption of SFAS 160.

In March 2008, the FASB issued Statement 161, "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161").  Due to the use and complexity of derivative instruments, there were concerns regarding the existing disclosure requirements in FASB 133.  Accordingly, this statement requires enhanced disclosures about an entity's derivative and hedging activities.  Entities will be required to provide enhanced disclosures about (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedging items are accounted for under FASB 133 and its related interpretations, and (iii) how derivative instruments and related hedging items affect an entity's financial position, financial performance and cash flows.  This statement is effective for financial statements issued for fiscal years beginning after November 15, 2008.  The Company does not believe the adoption of SFAS 161 will have a material impact on the Company's financial statements.

In May 2009, the FASB issued Statement 165, "Subsequent Events" ("SFAS 165").  SFAS 165 was issued to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued.  It sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that occur for a potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures tha an entity should make about events or transactions that occurred after the balance sheet date.  The statement also introduces the concept of financial statements "available to be issued."  This statement is effective for financial statements issued for interim and annual periods ending after June 15, 2009.  The Company does not believe that adoption of SFAS 165 will have a material impact on the Company's financial statements.

In June 2009, the FASB issued Statement 168, "The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles" ("SFAS 168").  The statement was issued to replace SFAS 162, "The Hierarchy of Generally Accepted Accounting Principles", and establish the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB in the preparation of financial statements in conformity w/ generally accepted accounting principles ("GAAP").  Essentially, the GAAP hierarchy will be modified to only include 2 levels – authoritative and non-authoritative.  This statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009.  The Company does not believe that adoption of SFAS 168 will have a material impact on the Company's financial statements.

C - Finance Receivables, Net

The Company originates installment sale contracts from the sale of used vehicles at its dealerships.  These installment sale contracts typically include interest rates ranging from 5.5% to 19% per annum, are collateralized by the vehicle sold and provide for payments over periods ranging from 12 to 36 months.  The components of finance receivables as of April 30, 2009 and 2008 are as follows:

Changes in the finance receivables, net balance for the years ended April 30, 2009, 2008 and 2007 are as follows:

Changes in the finance receivables allowance for credit losses for the years ended April 30, 2009, 2008 and 2007 are as follows:

The factors which influenced management's judgment in determining the amount of the additions to the allowance charged to Provision for Credit Losses were:

Actual charge-offs, net of recovered collateral, is the most important factor in determining the charges to the Provision for Credit Losses. This is due to the fact that once a loan becomes delinquent the account is either made current by the customer, the vehicle is repossessed or the account is written off, if the collateral cannot be recovered.  Net charge-offs in 2007 were significantly higher than the Company had experienced in prior or subsequent years. This had the effect of higher additions to the allowance charged to the provision for 2007. Net charge-offs in 2008 were slightly higher than levels for 2009.

Collections and delinquency levels have a significant effect on additions to the allowance and are reviewed frequently in determining the additions to the allowance charge to the provision. In 2007, collections as a percentage of average finance receivables were lower and delinquencies were higher contributing to the higher additions to the allowance charged to the provision for 2007. Collections and delinquencies for 2008 and 2009 were fairly consistent.

Macro-economic factors as well as proper execution of operational policies and procedures have a significant effect on additions to the allowance charged to the provision. Higher unemployment levels, higher gasoline prices and higher prices for staple items can have a significant effect. While macro-economic factors were more favorable during 2007, operational difficulties that resulted from the Company's growth contributed to higher additions to the allowance charged to the provision.

D - Property and Equipment

A summary of property and equipment as of April 30, 2009 and 2008 is as follows:

A summary of accrued liabilities as of April 30, 2009 and 2008 is as follows:

F - Revolving Credit Facilities

A summary of revolving credit facilities is as follows: