UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2012
Commission File Number 000-50421
CONN’S, INC.
(Exact name of registrant as specified in its charter)
A Delaware Corporation | 06-1672840 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
3295 College Street
Beaumont, Texas 77701
(409) 832-1696
(Address, including zip code, and telephone
number, including area code, of registrant's
principal executive offices)
None
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (l) 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 [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ x ] No [ ]
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 definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer | ¨ | Accelerated filer | x | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ]¨ No [ x ]
Indicate the number of shares outstanding of each of the issuer'sissuer’s classes of common stock, as of December 5, 2011:
Class | Outstanding | |||
Common stock, $.01 par value per share | 32,474,083 |
(unaudited)
(in thousands, except share data)
January 31, | October 31, | |||||||
Assets | 2011 | 2011 | ||||||
Current assets | (unaudited) | |||||||
Cash and cash equivalents | $ | 10,977 | $ | 6,510 | ||||
Customer accounts receivable, net of allowance of $18,763 and $21,885, respectively | 342,754 | 305,623 | ||||||
Other accounts receivable, net of allowance of $60 and $50 respectively | 30,476 | 30,515 | ||||||
Inventories | 82,354 | 96,703 | ||||||
Deferred income taxes | 19,477 | 21,388 | ||||||
Federal income taxes recoverable | 3,942 | 4,629 | ||||||
Prepaid expenses and other assets | 6,476 | 5,994 | ||||||
Total current assets | 496,456 | 471,362 | ||||||
Long-term portion of customer accounts receivable, net of allowance of $15,874 and $18,285, respectively | 289,965 | 255,346 | ||||||
Property and equipment | ||||||||
Land | 7,264 | 7,264 | ||||||
Buildings | 10,379 | 10,454 | ||||||
Equipment and fixtures | 25,394 | 25,855 | ||||||
Transportation equipment | 1,558 | 1,529 | ||||||
Leasehold improvements | 85,415 | 85,909 | ||||||
Subtotal | 130,010 | 131,011 | ||||||
Less accumulated depreciation | (83,120 | ) | (90,392 | ) | ||||
Total property and equipment, net | 46,890 | 40,619 | ||||||
Non-current deferred income tax asset | 8,009 | 9,721 | ||||||
Other assets, net | 10,118 | 10,004 | ||||||
Total assets | $ | 851,438 | $ | 787,052 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current Liabilities | ||||||||
Current portion of long-term debt | $ | 167 | $ | 679 | ||||
Accounts payable | 57,740 | 59,480 | ||||||
Accrued compensation and related expenses | 5,477 | 7,425 | ||||||
Accrued expenses | 25,423 | 29,579 | ||||||
Income taxes payable | 2,103 | 1,756 | ||||||
Deferred revenues and allowances | 20,822 | 20,155 | ||||||
Total current liabilities | 111,732 | 119,074 | ||||||
Long-term debt | 373,569 | 309,997 | ||||||
Other long-term liabilities | 12,395 | 13,149 | ||||||
Fair value of interest rate caps | - | 181 | ||||||
Deferred gain on sale of property | 845 | 724 | ||||||
Stockholders’ equity | ||||||||
Preferred stock ($0.01 par value, 1,000,000 shares authorized; none issued or outstanding) | - | - | ||||||
Common stock ($0.01 par value, 40,000,000 shares authorized; 33,488,565 and 31,884,879 shares issued at January 31, 2011 and October 31, 2011, respectively) | 335 | 319 | ||||||
Accumulated other comprehensive loss | (71 | ) | (118 | ) | ||||
Additional paid in capital | 131,590 | 134,090 | ||||||
Retained earnings | 258,114 | 209,636 | ||||||
Treasury stock at cost (1,723,205 shares at January 31, 2011) | (37,071 | ) | - | |||||
Total stockholders’ equity | 352,897 | 343,927 | ||||||
Total liabilities and stockholders' equity | $ | 851,438 | $ | 787,052 |
April 30, | January 31, | |||||||
2012 | 2012 | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 6,730 | $ | 6,265 | ||||
Customer accounts receivable, net of allowance of $26,817 and $28,979 , respectively (includes balances of VIE of $63,947 at April 30, 2012) | 313,139 | 316,385 | ||||||
Other accounts receivable, net of allowance of $56 and $54, respectively | 35,414 | 38,715 | ||||||
Inventories | 68,890 | 62,540 | ||||||
Deferred income taxes | 16,007 | 17,111 | ||||||
Federal income taxes recoverable | — | 5,256 | ||||||
Prepaid expenses and other assets (includes balance of VIE of $10,042 at April 30, 2012) | 15,785 | 6,286 | ||||||
|
|
|
| |||||
Total current assets | 455,965 | 452,558 | ||||||
Long-term portion of customer accounts receivable, net of allowance of $23,293 and $24,999, respectively(includes balance of VIE of $55,536 at April 30, 2012) | 271,984 | 272,938 | ||||||
Property and equipment | ||||||||
Land | 7,264 | 7,264 | ||||||
Buildings | 10,455 | 10,455 | ||||||
Equipment and fixtures | 24,786 | 24,787 | ||||||
Transportation equipment | 911 | 1,468 | ||||||
Leasehold improvements | 88,155 | 83,969 | ||||||
|
|
|
| |||||
Subtotal | 131,571 | 127,943 | ||||||
Less accumulated depreciation | (91,314 | ) | (89,459 | ) | ||||
|
|
|
| |||||
Property and equipment, net | 40,257 | 38,484 | ||||||
Non-current deferred income tax asset | 9,570 | 9,754 | ||||||
Other assets | 10,856 | 9,564 | ||||||
|
|
|
| |||||
Total assets | $ | 788,632 | $ | 783,298 | ||||
|
|
|
| |||||
Liabilities and Stockholders’ Equity | ||||||||
Current Liabilities | ||||||||
Current portion of long-term debt (includes balances of VIE of $103,025 at April 30, 2012) | $ | 103,690 | $ | 726 | ||||
Accounts payable | 60,812 | 44,711 | ||||||
Accrued compensation and related expenses | 7,494 | 7,213 | ||||||
Accrued expenses | 22,314 | 24,030 | ||||||
Income taxes payable | 2,394 | 2,028 | ||||||
Deferred revenues and allowances | 16,153 | 15,966 | ||||||
|
|
|
| |||||
Total current liabilities | 212,857 | 94,674 | ||||||
Long-term debt | 194,396 | 320,978 | ||||||
Deferred again on sale of property | 675 | 699 | ||||||
Other long-term liabilities | 12,219 | 13,576 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ equity | ||||||||
Preferred stock ($0.01 par value, 1,000,000 shares authorized; none issued or outstanding) | — | — | ||||||
Common stock ($0.01 par value, 40,000,000 shares authorized; 32,390,419 and 32,139,524 shares issued at April 30, 2012 and January 31, 2012, respectively) | 324 | 321 | ||||||
Additional paid-in capital | 139,533 | 136,006 | ||||||
Accumulated other comprehensive loss | (265 | ) | (293 | ) | ||||
Retained earnings | 228,893 | 217,337 | ||||||
|
|
|
| |||||
Total stockholders’ equity | 368,485 | 353,371 | ||||||
|
|
|
| |||||
Total liabilities and stockholders’ equity | $ | 788,632 | $ | 783,298 | ||||
|
|
|
|
See notes to consolidated financial statements.
(unaudited)
(in thousands, except earnings per share)
Three Months Ended | Nine Months Ended | |||||||||||||||
October 31, | October 31, | |||||||||||||||
2010 | 2011 | 2010 | 2011 | |||||||||||||
Revenues | ||||||||||||||||
Product sales | $ | 125,817 | $ | 140,404 | $ | 439,492 | $ | 422,914 | ||||||||
Repair service agreement commissions (net) | 6,064 | 5,613 | 22,493 | 21,723 | ||||||||||||
Service revenues | 3,768 | 3,950 | 12,709 | 11,650 | ||||||||||||
Total net sales | 135,649 | 149,967 | 474,694 | 456,287 | ||||||||||||
Finance charges and other | 34,915 | 29,578 | 106,719 | 98,081 | ||||||||||||
Total revenues | 170,564 | 179,545 | 581,413 | 554,368 | ||||||||||||
Cost and expenses | ||||||||||||||||
Cost of goods sold, including warehousing and occupancy costs | 99,546 | 113,022 | 343,979 | 328,133 | ||||||||||||
Cost of service parts sold, including warehousing and occupancy costs | 1,642 | 1,647 | 6,134 | 4,973 | ||||||||||||
Selling, general and administrative expense | 55,288 | 59,623 | 174,589 | 172,062 | ||||||||||||
Costs related to store closings | - | (313 | ) | - | 3,345 | |||||||||||
Impairment of long-lived assets | - | 688 | - | 688 | ||||||||||||
Provision for bad debts | 10,813 | 19,322 | 28,786 | 31,852 | ||||||||||||
Total cost and expenses | 167,289 | 193,989 | 553,488 | 541,053 | ||||||||||||
Operating income (loss) | 3,275 | (14,444 | ) | 27,925 | 13,315 | |||||||||||
Interest expense, net | 7,722 | 3,919 | 20,234 | 18,479 | ||||||||||||
Costs related to financing transactions not completed | 2,896 | - | 2,896 | - | ||||||||||||
Loss from early extinguishment of debt | - | - | - | 11,056 | ||||||||||||
Other (income) expense, net | (16 | ) | (5 | ) | 167 | 81 | ||||||||||
Income (loss) before income taxes | (7,327 | ) | (18,358 | ) | 4,628 | (16,301 | ) | |||||||||
Provision (benefit) for income taxes | (2,547 | ) | (5,635 | ) | 2,123 | (4,877 | ) | |||||||||
Net income (loss) | $ | (4,780 | ) | $ | (12,723 | ) | $ | 2,505 | $ | (11,424 | ) | |||||
Earnings (loss) Per Share | ||||||||||||||||
Basic | $ | (0.19 | ) | $ | (0.40 | ) | $ | 0.10 | $ | (0.36 | ) | |||||
Diluted | $ | (0.19 | ) | $ | (0.40 | ) | $ | 0.10 | $ | (0.36 | ) | |||||
Average common shares outstanding | ||||||||||||||||
Basic | 24,951 | 31,881 | 24,941 | 31,819 | ||||||||||||
Diluted | 24,951 | 31,881 | 24,944 | 31,819 |
Three Months Ended | ||||||||
April 30, | ||||||||
2012 | 2011 | |||||||
Revenues | ||||||||
Product sales | $ | 152,115 | $ | 144,279 | ||||
Repair service agreement commissions, net | 11,392 | 8,902 | ||||||
Service revenues | 3,430 | 3,889 | ||||||
|
|
|
| |||||
Total net sales | 166,937 | 157,070 | ||||||
|
|
|
| |||||
Finance charges and other | 33,914 | 34,912 | ||||||
|
|
|
| |||||
Total revenues | 200,851 | 191,982 | ||||||
Cost and expenses | ||||||||
Cost of goods sold, including warehousing and occupancy costs | 108,443 | 106,453 | ||||||
Cost of service parts sold, including warehousing and occupancy costs | 1,550 | 1,730 | ||||||
Selling, general and administrative expense | 59,656 | 59,445 | ||||||
Provision for bad debts | 9,185 | 9,564 | ||||||
Store closing costs | 163 | — | ||||||
|
|
|
| |||||
Total cost and expenses | 178,997 | 177,192 | ||||||
|
|
|
| |||||
Operating income | 21,854 | 14,790 | ||||||
Interest expense | 3,759 | 7,556 | ||||||
Other (income) expense, net | (96 | ) | 52 | |||||
|
|
|
| |||||
Income before income taxes | 18,191 | 7,182 | ||||||
Provision for income taxes | 6,635 | 2,781 | ||||||
|
|
|
| |||||
Net income | $ | 11,556 | $ | 4,401 | ||||
|
|
|
| |||||
Earnings per share: | ||||||||
Basic | $ | 0.36 | $ | 0.14 | ||||
Diluted | $ | 0.35 | $ | 0.14 | ||||
Average common shares outstanding: | ||||||||
Basic | 32,195 | 31,768 | ||||||
Diluted | 32,904 | 31,772 |
See notes to consolidated financial statements.
(unaudited)
(in thousands)
Common Stock Shares | Common Stock Amount | Accumulated Other Comprehensive Income (Loss) | Paid in Capital | Retained Earnings | Treasury Stock Shares | Treasury Stock Amount | TOTAL | |||||||||||||||||||||||||
Balance January 31, 2011 | 33,488 | $ | 335 | $ | (71 | ) | $ | 131,590 | $ | 258,114 | (1,723 | ) | $ | (37,071 | ) | $ | 352,897 | |||||||||||||||
Exercise of options, including tax benefit | 100 | 1 | 790 | 791 | ||||||||||||||||||||||||||||
Issuance of common stock under Employee Stock Purchase Plan | 20 | 89 | 89 | |||||||||||||||||||||||||||||
Stock-based compensation | 1,691 | 1,691 | ||||||||||||||||||||||||||||||
Cost related to issuance of common stock | (70 | ) | (70 | ) | ||||||||||||||||||||||||||||
Treasury stock shares cancelled | (1,723 | ) | (17 | ) | (37,054 | ) | 1,723 | 37,071 | - | |||||||||||||||||||||||
Net loss | (11,424 | ) | (11,424 | ) | ||||||||||||||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||||||||||
Adjustment of fair value of hedges, net of tax of $25 | (47 | ) | (47 | ) | ||||||||||||||||||||||||||||
Total comprehensive income (loss) | (11,471 | ) | ||||||||||||||||||||||||||||||
Balance October 31, 2011 | 31,885 | $ | 319 | $ | (118 | ) | $ | 134,090 | $ | 209,636 | - | $ | - | $ | 343,927 |
Three Months Ended | ||||||||
April 30, | ||||||||
2012 | 2011 | |||||||
Net income | $ | 11,556 | $ | 4,401 | ||||
Change in fair value of hedges | 43 | 73 | ||||||
Impact of provision for income taxes on comprehensive income | (15 | ) | (26 | ) | ||||
|
|
|
| |||||
Comprehensive income | $ | 11,584 | $ | 4,448 | ||||
|
|
|
|
See notes to consolidated financial statements.
Three Months Ended April 30, 2012 and 2011
(unaudited)
(in thousands)
Nine Months Ended | ||||||||
October 31, | ||||||||
2010 | 2011 | |||||||
Cash flows from operating activities | ||||||||
Net income (loss) | $ | 2,505 | $ | (11,424 | ) | |||
Adjustments to reconcile net income (loss) to | ||||||||
net cash provided by operating activities: | ||||||||
Depreciation | 9,776 | 8,137 | ||||||
Amortization, net | 2,026 | 1,223 | ||||||
Loss from early extinguishment of debt | - | 11,056 | ||||||
Costs related to financing transactions not completed | 2,896 | - | ||||||
Provision for bad debts and uncollectible interest | 35,422 | 36,402 | ||||||
Stock-based compensation | 1,690 | 1,691 | ||||||
Costs and impairment charges related to store closings | - | 4,033 | ||||||
Provision for deferred income taxes | 1,021 | (3,624 | ) | |||||
Loss from sale of property and equipment | 176 | 65 | ||||||
Discounts and accretion on promotional credit | (1,570 | ) | (1,086 | ) | ||||
Change in operating assets and liabilities: | ||||||||
Customer accounts receivable | 19,573 | 36,435 | ||||||
Other accounts receivable | (2,771 | ) | 15 | |||||
Inventory | (20,230 | ) | (14,349 | ) | ||||
Prepaid expenses and other assets | (1,558 | ) | 1,162 | |||||
Accounts payable | 53 | 1,740 | ||||||
Accrued expenses | (6,157 | ) | 3,161 | |||||
Income taxes payable | 2,207 | (1,010 | ) | |||||
Deferred revenues and allowances | (2,459 | ) | 1,243 | |||||
Net cash provided by operating activities | 42,600 | 74,870 | ||||||
Cash flows from investing activities | ||||||||
Purchase of property and equipment | (2,340 | ) | (2,313 | ) | ||||
Proceeds from sales of property | 601 | - | ||||||
Changes in restricted cash balances | (6,532 | ) | - | |||||
Net cash used in investing activities | (8,271 | ) | (2,313 | ) | ||||
Cash flows from financing activities | ||||||||
Net proceeds from stock issued under employee benefit plans, including tax benefit | 129 | 880 | ||||||
Costs related to the issuance of common stock | - | (70 | ) | |||||
Cash paid for interest rate caps | - | (699 | ) | |||||
Proceeds from real estate note | - | 8,000 | ||||||
Borrowings under lines of credit | 200,171 | 185,451 | ||||||
Payments on lines of credit | (224,769 | ) | (162,828 | ) | ||||
Payment of term loan | - | (100,000 | ) | |||||
Payment of prepayment premium | - | (4,830 | ) | |||||
Payment of debt issuance costs | (9,576 | ) | (2,787 | ) | ||||
Payment of promissory notes | (109 | ) | (141 | ) | ||||
Net cash used in financing activities | (34,154 | ) | (77,024 | ) | ||||
Net change in cash | 175 | (4,467 | ) | |||||
Cash and cash equivalents | ||||||||
Beginning of the year | 12,247 | 10,977 | ||||||
End of the year | $ | 12,422 | $ | 6,510 |
Accumulated | ||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||
Common Stock | Paid-in | Comprehensive | Retained | |||||||||||||||||||||
Shares | Amount | Capital | Loss | Earnings | Total | |||||||||||||||||||
Balance at January 31, 2012 | 32,140 | $ | 321 | $ | 136,006 | $ | (293 | ) | $ | 217,337 | $ | 353,371 | ||||||||||||
Exercise of stock options, net of tax | 223 | 3 | 2,866 | — | — | 2,869 | ||||||||||||||||||
Issuance of common stock under Employee Stock Purchase Plan | 6 | — | 63 | — | — | 63 | ||||||||||||||||||
Issuance of common stock converted from vested restricted stock units | 21 | — | — | — | — | — | ||||||||||||||||||
Stock-based compensation | 598 | 598 | ||||||||||||||||||||||
Net income | — | — | — | — | 11,556 | 11,556 | ||||||||||||||||||
Change in fair value of hedges, net of tax of $15 | — | — | — | 28 | — | 28 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Balance at April 30, 2012 | 32,390 | $ | 324 | $ | 139,533 | $ | (265 | ) | $ | 228,893 | $ | 368,485 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | ||||||||||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||||||||||
Common Stock | Paid-in | Comprehensive | Retained | Treasury Stock | ||||||||||||||||||||||||||||
Shares | Amount | Capital | Loss | Earnings | Shares | Amount | Total | |||||||||||||||||||||||||
Balance at January 31, 2011 | 33,488 | $ | 335 | $ | 131,590 | $ | (71 | ) | $ | 258,114 | (1,723 | ) | $ | (37,071 | ) | $ | 352,897 | |||||||||||||||
Issuance of common stock under Employee Stock Purchase Plan | 7 | — | 26 | — | — | — | — | 26 | ||||||||||||||||||||||||
Stock-based compensation | — | — | 474 | — | — | — | — | 474 | ||||||||||||||||||||||||
Treasury shares cancelled | (1,723 | ) | (17 | ) | (37,054 | ) | 1,723 | 37,071 | — | |||||||||||||||||||||||
Net income | — | — | — | — | 4,401 | — | — | 4,401 | ||||||||||||||||||||||||
Change in fair value of hedges, net of tax of $26 | — | — | — | 47 | — | — | — | 47 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Balance at April 30, 2011 | 31,772 | $ | 318 | $ | 132,090 | $ | (24 | ) | $ | 225,461 | — | $ | — | $ | 357,845 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
(in thousands)
Three Months Ended | ||||||||
April 30, | ||||||||
2012 | 2011 | |||||||
Cash flows from operating activities | ||||||||
Net income | $ | 11,556 | $ | 4,401 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation | 2,402 | 2,884 | ||||||
Amortization | 739 | 897 | ||||||
Provision for bad debts and uncollectible interest | 11,282 | 11,152 | ||||||
Stock-based compensation | 598 | 474 | ||||||
Excess tax benefits from stock-based compensation | (116 | ) | — | |||||
Store closing costs | 163 | — | ||||||
Provision for deferred income taxes | 1,272 | 426 | ||||||
(Gain) loss on sale of property and equipment | (66 | ) | 1 | |||||
Discounts and accretion on promotional credit | (103 | ) | (482 | ) | ||||
Change in operating assets and liabilities: | ||||||||
Customer accounts receivable | (6,768 | ) | 36,092 | |||||
Other accounts receivable | 3,095 | (3,180 | ) | |||||
Inventory | (6,350 | ) | (2,768 | ) | ||||
Prepaid expenses and other assets | 500 | 783 | ||||||
Accounts payable | 16,100 | (5,057 | ) | |||||
Accrued expenses | (2,953 | ) | 1,524 | |||||
Income taxes payable | 5,651 | 5,849 | ||||||
Deferred revenues and allowances | 65 | (1,966 | ) | |||||
|
|
|
| |||||
Net cash provided by operating activities | 37,067 | 51,030 | ||||||
|
|
|
| |||||
Cash flows from investing activities | ||||||||
Purchase of property and equipment | (4,404 | ) | (275 | ) | ||||
Proceeds from sale of property and equipment | 296 | — | ||||||
Change in restricted cash | (10,042 | ) | — | |||||
|
|
|
| |||||
Net cash used in investing activities | (14,150 | ) | (275 | ) | ||||
|
|
|
| |||||
Cash flows from financing activities | ||||||||
Net proceeds from stock issued under employee benefit plans, including tax benefit | 2,932 | 25 | ||||||
Excess tax benefits from stock-based compensation | 116 | — | ||||||
Proceeds from issuance of asset-backed notes, net of original issue discount | 103,025 | — | ||||||
Borrowings under lines of credit | 33,729 | 25,216 | ||||||
Payments on lines of credit | (160,182 | ) | (78,238 | ) | ||||
Payments on promissory notes | (190 | ) | (41 | ) | ||||
Payment of debt issuance costs | (1,882 | ) | (73 | ) | ||||
|
|
|
| |||||
Net cash used in financing activities | (22,452 | ) | (53,111 | ) | ||||
|
|
|
| |||||
Net change in cash | 465 | (2,356 | ) | |||||
Cash and cash equivalents | ||||||||
Beginning of period | 6,265 | 10,977 | ||||||
|
|
|
| |||||
End of period | $ | 6,730 | $ | 8,621 | ||||
|
|
|
|
See notes to consolidated financial statements.
CONN’S, INC. AND SUBSIDIARIES
(unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation. The accompanying unaudited, condensed consolidated financial statements of Conn’s, Inc. and subsidiaries (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The accompanying financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statementpresentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature, except as otherwise described herein. The Company’s business is somewhat seasonal, with a higher portion of sales and operating profit realized during the quarter that ends January 31, due primarily to the holiday selling season. Operating results for the nine-monththree-month period ended October 31, 2011April 30, 2012 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2012.2013. The financial statements should be read in conjunction with the Company’s (as defined below) audited consolidated financial statements and the notes thereto included in the Company’s CurrentAnnual Report on Form 10-K filed for the year ended January 31, 2011.2012, filed with the Securities and Exchange Commission on April 12, 2012.
The Company’s balance sheet at January 31, 2011,2012, has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for a complete financial presentation. Please see the Company’s Annual Report on Form 10-K filed on April 1, 2011 for a complete presentation of the audited financial statements for the fiscal year ended January 31, 2011,2012, together with all required footnotes, and for a complete presentation and explanation of the components and presentations of the financial statements.
Business Activities. The Company, through its retail stores, provides products and services to its customer base in seven primary market areas, including southern Louisiana, southeast Texas, Houston, South Texas, San Antonio/Austin, Dallas/Fort Worth and Oklahoma. Products and services offered through retail sales outlets include home appliances, consumer electronics, home office equipment, lawn and garden products, mattresses, furniture, repair service agreements, installment and revolving credit account programs, and various credit insurance products. These activities are supported through an extensive service, warehouse and distribution system. The Company’s business is somewhat seasonal, with a higher portion of sales and operating profit realized during the quarter that ends January 31, due primarily to the holiday selling season. For the reasons discussed below, the Company has aggregated its results into two operating segments: credit and retail. The Company’s retail stores bear the “Conn’s” name, and deliver the same products and services to a common customer group. The Company’s customers generally are individuals rather than commercial accounts. All of the retail stores follow the same procedures and methods in managing their operations. The Company’s management evaluates performance and allocates resources based on the operating results of its retail and credit segments. The separate financial information is disclosed in Note 8 - “Segment Reporting”.
In April of 2012, the Company transferred certain customer receivables to a bankruptcy-remote, variable-interest entity (“VIE”) in connection with a securitization. The VIE, which is consolidated within the accompanying financial statements, issued debt secured by the customer receivables that were transferred to it, which are included in customer accounts receivable and long-term portion of customer accounts receivable on the consolidated balance sheet.
The Company determined that the VIE should be consolidated within its financial statements due to the fact that it qualified as the primary beneficiary of the VIE based on the following considerations:
The Company directed the activities that generated the customer receivables that were transferred to the VIE;
The Company directs the servicing activities related to the collection of the customer receivables transferred to the VIE;
The Company absorbs losses incurred by the VIE to the extent of its interest in the VIE before any other investors incur losses; and
The Company has the right to receive benefits generated by the VIE after paying the contractual amounts due to the other investors.
The investors and the securitization trustee have no recourse to the Company’s other assets for failure of the VIE to repay the amounts due to them. Additionally, the Company has no recourse to the VIE’s assets to satisfy its obligations. The Company’s interests are subordinate to the investors’ interests, and will not be paid if the VIE is unable to repay the amounts due. The ultimate realization of the Company’s interest is subject to credit, prepayment, and interest rate risks on the transferred financial assets.
Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Change in Accounting Estimate. At January 31, 2011, the Company increased its reserve for inventory valuation to adjust for the Company’s recent experience selling aged items, both through store locations and external sources. The recent sales activity indicated the recoverable value for those items was less than originally estimated and that many items had minimal value through any distribution channel. An additional reserve in the amount of $4.7 million was recorded during the three months ended October 31, 2011 as an adjustment to appropriately value inventory. This adjustment reduced October 31, 2011 net income by $3.3 million and basic and dilutedEarnings per Share. Basic earnings per share by $.10.
Three Months Ended | ||||||||
October 31, | ||||||||
2010 | 2011 | |||||||
Common stock outstanding, net of treasury stock, beginning of period | 22,489,638 | 31,878,305 | ||||||
Weighted average common stock issued in stock option exercises | - | 337 | ||||||
Weighted average common stock issued to employee stock purchase plan | 3,194 | 1,939 | ||||||
Adjustment based on retrospective application of rights offering | 2,458,233 | - | ||||||
Shares used in computing basic earnings per share | 24,951,065 | 31,880,581 | ||||||
Dilutive effect of stock options and restricted stock units, net of assumed repurchase of treasury stock | - | - | ||||||
Adjustment based on retrospective application of rights offering | - | - | ||||||
Shares used in computing diluted earnings (loss) per share | 24,951,065 | 31,880,581 | ||||||
Nine Months Ended | ||||||||
October 31, | ||||||||
2010 | 2011 | |||||||
Common stock outstanding, net of treasury stock, beginning of period | 22,471,350 | 31,765,360 | ||||||
Weighted average common stock issued in stock option exercises | - | 44,617 | ||||||
Weighted average common stock issued to employee stock purchase plan | 12,549 | 9,328 | ||||||
Adjustment based on retrospective application of rights offering | 2,457,257 | - | ||||||
Shares used in computing basic earnings per share | 24,941,156 | 31,819,305 | ||||||
Dilutive effect of stock options and restricted stock units, net of assumed repurchase of treasury stock | 2,606 | - | ||||||
Adjustment based on retrospective application of rights offering | 285 | - | ||||||
Shares used in computing diluted earnings per share | 24,944,047 | 31,819,305 |
Three Months Ended | ||||||||
April 30, | ||||||||
(in thousands) | 2012 | 2011 | ||||||
Weighted average common shares outstanding—Basic | 32,195 | 31,768 | ||||||
Assumed exercise of stock options | 576 | 4 | ||||||
Unvested restricted stock units | 133 | — | ||||||
|
|
|
| |||||
Weighted average common shares outstanding—Diluted | 32,904 | 31,772 | ||||||
|
|
|
|
During the periods presented, options with an exercise price in excess of the average market price of the Company’s common stock, or that are otherwise anti-dilutive, are excluded from the calculation of the dilutive effect of stock options and restricted stock units for diluted earnings per share calculations. The weighted average number of stock options not included in the calculation of the dilutive effect of stock options and restricted stock units was 2.71.1 million and 2.22.9 million for each of the three months ended October 31, 2010April 30, 2012 and 2011, respectivelyrespectively.
Fair Value of Financial Instruments. The fair value of cash and 2.7 millioncash equivalents and 2.4 million for eachaccounts payable approximate their carrying amounts because of the nine months ended October 31, 2010 and 2011, respectively.
2. Supplemental Disclosure of $0.7 million was recorded for the period ended October 31, 2011.
Customer accounts receivable are originated at the time of sale and delivery of the various products and services. The Company records the amount of principal and accrued interest on customer receivables that is expected to be collected within the next twelve months, based on contractual terms, in current assets on its consolidated balance sheet. Those amounts expected to be collected after twelve months, based on contractual terms, are included in long-term assets. Typically, customer receivables are considered delinquent if a payment has not been received on the scheduled due date. Additionally,
As part of its efforts in mitigating losses on its accounts receivable, the Company offers reage programsmay make loan modifications to customers with past due balancesa borrower experiencing financial difficulty that are intended to maximize the net cash flow after expenses, and avoid the need for repossession of collateral. The Company may extend the loan term, refinance or otherwise re-age an account. In the quarter ended October 31, 2011, the Company adopted new accounting guidance that provides clarification on whether a debtor is experiencing financial difficulties and whether a concession has been granted to the debtor for purposes of determining if a loan modification constitutes a Troubled Debt Restructuring (“TDR”). The adoption was applied retrospectively to its loan restructurings after January 31, 2011. The Company defines TDR accounts that originated subsequent to January 31, 2011 as accounts that have experiencedbeen re-aged in excess of three months or refinanced. For accounts originating prior to January 31, 2011, if the cumulative re-aging exceeds three months and the accounts were re-aged subsequent to January 31, 2011, the account is considered a financial hardship, if they meetTDR.
The Company monitors the conditionsperformance of customer accounts receivable and from time-to-time modifies its policies to improve the Company’s reage policy. Reaging a customer’s account can result in updating an account from a delinquent status to a current status.long-term portfolio performance. During the quarter ended July 31, 2011, the Company implemented a new policy which limitslimited the number of months that an account can be reagedre-aged to a maximum of 18 months. During the quarter ended October 31, 2011, the Companymonths and further modified the policy to reduce the number of months that an account can be reaged to a maximum of 12 months.months in the third quarter of fiscal 2012. As of July 31, 2011, the Company changedmodified its charge-off policy so that an account that is delinquent more than 209 days as of the end of eacha month is charged-off against the allowance for doubtful accounts and interest accrued subsequent to the last payment is reversed and charged against the allowance for uncollectible interest. Prior to July 31, 2011, the Company charged off all accounts that were delinquent more than 120 days and for which no payment had been received in the past seven months. months, if the account was also delinquent more than 120 days.
The Company has a secured interest insegregates the merchandise financed by thesepopulation of accounts within its receivables portfolio is into two classes of accounts – those with origination credit scores less than 575 and therefore has the opportunitythose with origination scores equal to recover a portion of the charged-off amount.or greater than 575. The Company defines Troubled Debt Restructuring (TDR) accounts that originated inuses credit scoring criteria to differentiate underwriting requirements, potentially requiring differing down payment and initial application and documentation criteria. The following tables present quantitative information about the current fiscal year as accounts that have been reaged in excess of three months or refinanced. For accounts originating in prior fiscal years, if the cumulative reaging exceeds three months and the accounts were reaged in this fiscal year then the account is considered TDR.
Total Outstanding Balance | ||||||||||||||||||||||||
Customer Accounts Receivable | 60 Days Past Due (1) | Re-aged (1) | ||||||||||||||||||||||
April 30, | January 31, | April 30, | January 31, | April 30, | January 31, | |||||||||||||||||||
(in thousands) | 2012 | 2012 | 2012 | 2012 | 2012 | 2012 | ||||||||||||||||||
Customer accounts receivable: | ||||||||||||||||||||||||
>= 575 credit score at origination | $ | 482,386 | $ | 479,301 | $ | 20,904 | $ | 23,424 | $ | 22,565 | $ | 26,005 | ||||||||||||
< 575 credit score at origination | 112,410 | 115,128 | 9,349 | 11,278 | 10,798 | 14,033 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
594,796 | 594,429 | 30,253 | 34,702 | 33,363 | 40,038 | |||||||||||||||||||
Restructured accounts (2): | ||||||||||||||||||||||||
>= 575 credit score at origination | 23,627 | 27,760 | 9,516 | 11,428 | 23,619 | 27,749 | ||||||||||||||||||
< 575 credit score at origination | 16,810 | 21,112 | 6,669 | 9,060 | 16,755 | 21,076 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
40,437 | 48,872 | 16,185 | 20,488 | 40,374 | 48,825 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total receivables managed | $ | 635,233 | $ | 643,301 | $ | 46,438 | $ | 55,190 | $ | 73,737 | $ | 88,863 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Allowance for uncollectible accounts related to the credit portfolio | (45,368 | ) | (49,904 | ) | ||||||||||||||||||||
Allowance for promotional credit programs | (4,742 | ) | (4,074 | ) | ||||||||||||||||||||
Current portion of customer accounts receivable, net | (313,139 | ) | (316,385 | ) | ||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Long-term customer accounts receivable, net | $ | 271,984 | $ | 272,938 | ||||||||||||||||||||
|
|
|
|
(1) | Amounts are based on end of period balances. Due to the fact that an account can become past due after having been re-aged, accounts may be presented in both the past due and re-aged columns shown above. The amounts included within both the past due and re-aged columns shown above as of April 30, 2012 and January 31, 2012 were $25.6 million and $32.5 million, respectively. The total amount of customer receivables past due one day or greater was $150.0 million and $152.4 million as of April 30, 2012 and January 31, 2012, respectively. These amounts include the 60 days past due totals shown above. |
(2) | In addition to the amounts included in restructured accounts, there are $5.0 million and $7.9 million, respectively, of accounts re-aged four or more months, included in the re-aged balance above, that did not qualify as TDRs as of April 30, 2012 and January 31, 2012, respectively, because they were not re-aged subsequent to January 31, 2011. |
Net Credit | ||||||||||||||||
Average Balances | Charge-offs (3) | |||||||||||||||
Three Months Ended | Three Months Ended | |||||||||||||||
April 30, | April 30, | |||||||||||||||
(in thousands) | 2012 | 2011 | 2012 | 2011 | ||||||||||||
Customer accounts receivable: | ||||||||||||||||
>= 575 credit score at origination | $ | 476,603 | $ | 489,156 | $ | 4,831 | $ | 6,118 | ||||||||
< 575 credit score at origination | 113,366 | 158,598 | 2,745 | 4,890 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
589,969 | 647,754 | 7,576 | 11,008 | |||||||||||||
Restructured accounts: | ||||||||||||||||
>= 575 credit score at origination | 25,796 | — | 3,153 | — | ||||||||||||
< 575 credit score at origination | 18,978 | — | 2,800 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
44,774 | — | 5,953 | — | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total receivables managed | $ | 634,743 | $ | 647,754 | $ | 13,529 | $ | 11,008 | ||||||||
|
|
|
|
|
|
|
|
(3) | Charge-offs include the principal amount of losses (excluding accrued and unpaid interest), net of recoveries which include principal collections during the period shown of previously charged-off balances. |
Following is the activity in non-accrual status when legally required to do so. Interest accrual is resumed on those accounts once a legally-mandated settlement arrangement is reached or other payment arrangements are made with the customer. Interest income is recognized on interest-free promotional credit programs based on the Company’s historical experience related to customers that fail to satisfy the requirements of the interest-free programs. Additionally, for sales on deferred interest and “same as cash” programs that exceed one year in duration, the Company discounts the sales to present value, resulting in a reduction in sales and customer receivables, and amortizes the discount amount to Finance charges and other over the term of the program. The amount of customer receivables carried on the Company’s balance sheet that were in non-accrual status was $10.5 millionthe allowance for doubtful accounts and $12.5 million at January 31, 2011 and October 31, 2011, respectively. The amount ofuncollectible interest for customer receivables carried onfor the Company’s consolidated balance sheet that were past due 90 days or morethree months ended April 30, 2012 and still accruing interest was $43.5 million and $32.8 million at January 31, 2011 and October 31, 2011, respectively.
Three Months Ended April 30, 2012 | ||||||||||||||||
(in thousands) | Customer Accounts Receivable | Restructured Accounts | Total | Three Months Ended April 30, 2011 | ||||||||||||
Allowance at beginning of period | $ | 24,518 | $ | 25,386 | $ | 49,904 | $ | 44,015 | ||||||||
Provision (a) | 9,448 | 1,834 | 11,282 | 11,152 | ||||||||||||
Principal charge-offs (b) | (8,597 | ) | (6,755 | ) | (15,352 | ) | (11,964 | ) | ||||||||
Interest charge-offs | (1,282 | ) | (1,007 | ) | (2,289 | ) | (2,029 | ) | ||||||||
Recoveries (b) | 1,021 | 802 | 1,823 | 956 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Allowance at end of period | $ | 25,108 | $ | 20,260 | $ | 45,368 | $ | 42,130 | ||||||||
|
|
|
|
|
|
|
|
(a) | Includes provision for uncollectible interest, which is included in finance charges and other. |
(b) | Charge-offs include the principal amount of losses (excluding accrued and unpaid interest), and recoveries include principal collections during the period shown of previously charged-off balances. These amounts represent net charge-offs. |
The Company records an allowance for doubtful accounts, including estimated uncollectible interest, for its Customer and Othercustomer accounts receivable, based on its historical cash collections and net loss experience and expectations for future cash collections and losses. In addition to pre-charge-off cash collections and charge-off information, estimates of post-charge-off recoveries, including cash payments, amounts realized from the repossession of the products financed and, at times, payments received under credit insurance policies are also considered.Effective April 5, 2011, the FASB issued ASU No. 2011-02, A Creditor's Determination of Whether Restructuring is a Troubled Debt Restructuring, which clarifies when a loan modification or restructuring is considered a TDR. This guidance clarifies what constitutes a concession and whether the debtor is experiencing financial difficulties, even if not currently in default. The amendments in ASU 2011-02 are effective for the first interim or annual period beginning on or after June 15, 2011, or for the third quarter of fiscal 2012 for the Company, and should be applied retrospectively to restructurings occurring on or after the beginning of the annual period of adoption with early adoption permitted.
The Company determines reserves for those accounts that are TDRs based on the discounted present value of cash flows expected to be collected over the life of those accounts. The excess of the carrying amount over the discounted cash flow amount is recorded as a reserve for loss on those accounts. The Company estimates its allowance for bad debts by evaluating the credit portfolio based on the number of months reaged,re-aged, if any. As
The Company typically only places accounts in non-accrual status when legally required to do so. Interest accrual is resumed on those accounts once a resultlegally-mandated settlement arrangement is reached or other payment arrangements are made with the customer. The amount of customer receivables carried on the Company’s practice of reaging customer accounts, if the account is not ultimately collected, the timingbalance sheet that were in non-accrual status was $9.5 million and $9.8 million at April 30, 2012 and January 31, 2012, respectively. The amount of the charge-off could be impacted. If these accounts had been charged-off sooner the historical net loss rates might have been higher. During the quarter ended July 31, 2011, the Company implemented a new policy which limits the number of months that an account can be reaged to a maximum of 18 months which was further limited to a maximum of 12 months during the quarter ended October 31, 2011. This change in the reage policy has the impact of increasing delinquencies and accelerating charge-offs. The Company monitors the aging of its past due accounts closely and focuses its collection efforts on preventing accounts from becoming 60 days past due or greater, which is a leading indicator of potential charge-offs. As of July 31, 2011, the Company changed its charge-off policy such that an account that is delinquent more than 209 days as of the end of each month is charged-off against the allowance for doubtful accounts and interest accrued subsequent to the last payment is reversed and charged against the allowance for uncollectible interest. Prior to July 31, 2011, the Company charged off all accounts that were delinquent more than 120 days and for which no payment had been received in the past seven months. As a result of the change, approximately $4.4 million in charge-offs were accelerated and charged against the allowance for doubtful accounts and approximately $1.4 million in accrued interest was charged off and charged against the allowance for uncollectible interest during the second quarter. The balance in the allowance for doubtful accounts and uncollectible interest for customer receivables was $34.6 million and $40.2 million, at January 31, 2011 and October 31, 2011, respectively. The adoption of the TDR guidance in the quarter ended October 31, 2011 resulted in determining the balance of accounts considered to be TDRs of $51.9 million. The amount included in the allowance for doubtful accounts associated with principal and interestcarried on these loans was $21.4 million as of October 31, 2011. Additionally, another $6.1 million was reserved and included in accrued expenses for repair service agreement and credit insurance cancellations on these TDRs, bringing the total amount reserved against TDR accounts at October 31, 2011 to $27.5 million. TDR accounts are segregated from the credit score stratification for reporting and measurement purposes. The Company recorded a pre-tax charge during the quarter of $14.1 million, net of previously provided reserves, related to the adoption of the accounting guidance related to TDR accounts.
Three Months Ended | Nine Months Ended | |||||||||||||||
October 31, | October 31, | |||||||||||||||
2010 | 2011 | 2010 | 2011 | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Net income (loss) | $ | (4,780 | ) | $ | (12,723 | ) | $ | 2,505 | $ | (11,424 | ) | |||||
Adjustment of fair value of interest hedges, net of tax | 36 | (118 | ) | 98 | (47 | ) | ||||||||||
Total Comprehensive income (loss) | $ | (4,744 | ) | $ | (12,841 | ) | $ | 2,603 | $ | (11,471 | ) |
Year Ended January 31, | |||||||||||||||||||||
2010 | |||||||||||||||||||||
(Dollars in thousands, except | Quarter Ending | ||||||||||||||||||||
share amounts) | 4/30/2009 | 7/31/2009 | 10/31/2009 | 1/31/2010 | Fiscal Year | ||||||||||||||||
Consolidated Statements of Operations: | |||||||||||||||||||||
As Reported | |||||||||||||||||||||
Finance charges and other | $ | 39,439 | $ | 39,903 | $ | 36,064 | $ | 36,805 | $ | 152,211 | |||||||||||
Total revenues | 239,590 | 229,929 | 197,190 | 207,270 | 873,979 | ||||||||||||||||
Revision - charge-off interest reclass | 397 | 651 | 719 | 281 | 2,048 | ||||||||||||||||
Revision - interest adjustment | 596 | (153 | ) | 226 | 505 | 1,174 | |||||||||||||||
As Revised | |||||||||||||||||||||
Finance charges and other | 40,432 | 40,401 | 37,009 | 37,591 | 155,433 | ||||||||||||||||
Total revenues | 240,583 | 230,427 | 198,135 | 208,056 | 877,201 | ||||||||||||||||
As Reported | |||||||||||||||||||||
Operating income (loss) | 23,101 | 13,987 | (13,764 | ) | 5,988 | 29,312 | |||||||||||||||
Income (loss) before income taxes | 17,755 | 8,310 | (19,379 | ) | 763 | 7,449 | |||||||||||||||
Revision - interest adjustment | 596 | (153 | ) | 226 | 505 | 1,174 | |||||||||||||||
As Revised | |||||||||||||||||||||
Operating income (loss) | 23,697 | 13,834 | (13,538 | ) | 6,493 | 30,486 | |||||||||||||||
Income (loss) before income taxes | $ | 18,351 | $ | 8,157 | $ | (19,153 | ) | $ | 1,268 | $ | 8,623 | ||||||||||
As Reported | |||||||||||||||||||||
Provision (benefit) for income taxes | $ | 6,568 | 3,232 | (4,973 | ) | $ | (922 | ) | $ | 3,905 | |||||||||||
Revision - interest adjustment | 210 | (54 | ) | 80 | 178 | 413 | |||||||||||||||
As Revised | |||||||||||||||||||||
Provision (benefit) for income taxes | $ | 6,778 | 3,178 | (4,893 | ) | (744 | ) | $ | 4,318 | ||||||||||||
As Reported | |||||||||||||||||||||
Net Income (loss) | $ | 11,187 | 5,078 | (14,406 | ) | 1,685 | $ | 3,544 | |||||||||||||
Revision - interest adjustment | 386 | (99 | ) | 146 | 327 | 761 | |||||||||||||||
As Revised | |||||||||||||||||||||
Net Income (loss) | $ | 11,573 | $ | 4,979 | $ | (14,260 | ) | $ | 2,012 | $ | 4,305 | ||||||||||
Shares | |||||||||||||||||||||
As Reported | |||||||||||||||||||||
Basic | 22,447 | 22,454 | 22,459 | 22,466 | 22,456 | ||||||||||||||||
Diluted | 22,689 | 22,660 | 22,459 | 22,467 | 22,610 | ||||||||||||||||
Shares Revision - Basic | 2,453 | 2,454 | 2,455 | 2,455 | 2,454 | ||||||||||||||||
Shares Revision - Diluted | 2,480 | 2,477 | 2,455 | 2,455 | 2,471 | ||||||||||||||||
As Revised | |||||||||||||||||||||
Basic | 24,900 | 24,908 | 24,914 | 24,921 | 24,910 | ||||||||||||||||
Diluted | 25,169 | 25,137 | 24,914 | 24,922 | 25,081 | ||||||||||||||||
As Reported | |||||||||||||||||||||
Earnings (loss) per share | |||||||||||||||||||||
Basic | $ | 0.50 | $ | 0.23 | $ | (0.64 | ) | $ | 0.08 | $ | 0.16 | ||||||||||
Diluted | $ | 0.49 | $ | 0.22 | $ | (0.64 | ) | $ | 0.07 | $ | 0.16 | ||||||||||
As Revised | |||||||||||||||||||||
Earnings (loss) per share | |||||||||||||||||||||
Basic | $ | 0.46 | $ | 0.20 | $ | (0.57 | ) | $ | 0.08 | $ | 0.17 | ||||||||||
Diluted | $ | 0.46 | $ | 0.20 | $ | (0.57 | ) | $ | 0.08 | $ | 0.17 |
Year Ended January 31, | Six Months Ended July 31, | |||||||||||||||||||||||||||
2011 | 2011 | |||||||||||||||||||||||||||
(Dollars in thousands, except | Quarter Ending | Quarter Ending | ||||||||||||||||||||||||||
share amounts) | 4/30/2010 | 7/31/2010 | 10/31/2010 | 1/31/2011 | Fiscal Year | 4/30/2011 | 7/31/2011 | |||||||||||||||||||||
Consolidated Statements of Operations: | ||||||||||||||||||||||||||||
As Reported | ||||||||||||||||||||||||||||
Finance charges and other | $ | 34,860 | $ | 34,640 | $ | 33,141 | $ | 34,165 | $ | 136,806 | $ | 33,619 | $ | 33,744 | ||||||||||||||
Repair service agreement commissions, net | $ | 7,917 | $ | 8,341 | 6,035 | 6,495 | 28,788 | 3,889 | 8,589 | |||||||||||||||||||
Total revenues | 196,549 | 211,825 | 168,761 | 213,389 | 790,524 | 189,309 | 184,375 | |||||||||||||||||||||
Revision - charge-off interest reclass - interest income | 1,216 | 1,264 | 1,412 | 1,842 | 5,734 | - | - | |||||||||||||||||||||
Revision - charge-off interest reclass - repair service agreement commissions, net | 144 | 27 | 29 | 80 | 280 | - | - | |||||||||||||||||||||
Revision - interest adjustment | 139 | (315 | ) | 362 | (285 | ) | (99 | ) | 630 | 509 | ||||||||||||||||||
As Revised | ||||||||||||||||||||||||||||
Finance charges and other | 36,215 | 35,589 | 34,915 | 35,722 | 142,441 | 34,249 | 34,253 | |||||||||||||||||||||
Repair service agreement commissions, net | 8,061 | 8,368 | 6,064 | 6,575 | 29,068 | 3,889 | 8,589 | |||||||||||||||||||||
Total revenues | 198,048 | 212,801 | 170,564 | 215,026 | 796,439 | 189,939 | 184,884 | |||||||||||||||||||||
As Reported | ||||||||||||||||||||||||||||
Operating income (a) | 15,351 | 9,475 | 2,913 | 5,129 | 32,868 | 14,160 | 12,461 | |||||||||||||||||||||
Income (loss) before income taxes | 9,397 | 2,734 | (7,689 | ) | (4,277 | ) | 165 | 6,552 | (5,633 | ) | ||||||||||||||||||
Revision - interest adjustment | 139 | (315 | ) | 362 | (285 | ) | (99 | ) | 630 | 509 | ||||||||||||||||||
As Revised | ||||||||||||||||||||||||||||
Operating income (loss) | 15,490 | 9,160 | 3,275 | 4,844 | 32,769 | 14,790 | 12,970 | |||||||||||||||||||||
Income (loss) before income taxes | $ | 9,536 | $ | 2,419 | $ | (7,327 | ) | $ | (4,562 | ) | $ | 66 | $ | 7,182 | $ | (5,124 | ) | |||||||||||
As Reported | ||||||||||||||||||||||||||||
Provision (benefit) for income taxes | 3,604 | 1,128 | (2,674 | ) | (884 | ) | $ | 1,174 | 2,559 | (2,201 | ) | |||||||||||||||||
Revision - interest adjustment | 49 | (111 | ) | 127 | (100 | ) | (35 | ) | 222 | 179 | ||||||||||||||||||
As Revised | ||||||||||||||||||||||||||||
Provision (benefit) for income taxes | 3,653 | 1,017 | (2,547 | ) | (984 | ) | $ | 1,139 | 2,781 | (2,022 | ) | |||||||||||||||||
As Reported | ||||||||||||||||||||||||||||
Net Income (loss) | $ | 5,793 | 1,606 | (5,015 | ) | (3,393 | ) | $ | (1,009 | ) | $ | 3,993 | (3,432 | ) | ||||||||||||||
Revision - interest adjustment | 90 | (204 | ) | 235 | (185 | ) | (64 | ) | 408 | 330 | ||||||||||||||||||
As Revised | ||||||||||||||||||||||||||||
Net Income (loss) | $ | 5,883 | $ | 1,402 | $ | (4,780 | ) | $ | (3,578 | ) | $ | (1,073 | ) | $ | 4,401 | $ | (3,102 | ) | ||||||||||
Shares | ||||||||||||||||||||||||||||
As Reported | ||||||||||||||||||||||||||||
Basic | 22,475 | 22,484 | 22,484 | 28,741 | 24,061 | 31,768 | 31,808 | |||||||||||||||||||||
Diluted | 22,477 | 22,488 | 22,484 | 28,741 | 24,061 | 31,772 | 31,808 | |||||||||||||||||||||
Shares Revision - Basic | 2,456 | 2,457 | 2,457 | 750 | 2,024 | - | - | |||||||||||||||||||||
Shares Revision - Diluted | 2,457 | 2,459 | 2,457 | 750 | 2,027 | - | - | |||||||||||||||||||||
As Revised | ||||||||||||||||||||||||||||
Basic | 24,931 | 24,941 | 24,941 | 29,491 | 26,085 | 31,768 | 31,808 | |||||||||||||||||||||
Diluted | 24,934 | 24,947 | 24,941 | 29,491 | 26,088 | 31,772 | 31,808 | |||||||||||||||||||||
As Reported | ||||||||||||||||||||||||||||
Earnings (loss) per share | ||||||||||||||||||||||||||||
Basic | $ | 0.26 | $ | 0.07 | $ | (0.22 | ) | $ | (0.12 | ) | $ | (0.04 | ) | $ | 0.13 | $ | (0.11 | ) | ||||||||||
Diluted | $ | 0.26 | $ | 0.07 | $ | (0.22 | ) | $ | (0.12 | ) | $ | (0.04 | ) | $ | 0.13 | $ | (0.11 | ) | ||||||||||
As Revised | ||||||||||||||||||||||||||||
Earnings (loss) per share | ||||||||||||||||||||||||||||
Basic | $ | 0.24 | $ | 0.06 | $ | (0.19 | ) | $ | (0.12 | ) | $ | (0.04 | ) | $ | 0.14 | $ | (0.10 | ) | ||||||||||
Diluted | $ | 0.24 | $ | 0.06 | $ | (0.19 | ) | $ | (0.12 | ) | $ | (0.04 | ) | $ | 0.14 | $ | (0.10 | ) |
January 31, 2011 | ||||||||||||||||
(Dollars in thousands) | As reported | Revision - Charge-off interest reclass | Revision - interest adjustment | As revised | ||||||||||||
Consolidated Balance Sheet: | ||||||||||||||||
Deferred income taxes | $ | 16,681 | $ | - | $ | 2,796 | $ | 19,477 | ||||||||
Total current assets | $ | 493,870 | $ | (210 | ) | $ | 2,796 | $ | 496,456 | |||||||
Long term portion of customer accounts receivable | $ | 290,142 | $ | (177 | ) | $ | - | $ | 289,965 | |||||||
Total assets | $ | 849,029 | $ | (387 | ) | $ | 2,796 | $ | 851,438 | |||||||
Deferred revenues and allowances | $ | 20,870 | $ | - | $ | (48 | ) | $ | 20,822 | |||||||
Total current liabilities | $ | 112,167 | $ | (387 | ) | $ | (48 | ) | $ | 111,732 | ||||||
Other long-term liabilities | $ | 4,403 | $ | - | $ | 7,992 | $ | 12,395 | ||||||||
Retained earnings | $ | 263,262 | $ | - | $ | (5,148 | ) | $ | 258,114 | |||||||
Total stockholders' equity | $ | 358,045 | $ | - | $ | (5,148 | ) | $ | 352,897 | |||||||
Total liabilities and stockholders' equity | $ | 849,029 | $ | (387 | ) | $ | 2,796 | $ | 851,438 |
3. Supplemental Disclosure of Finance Charges and Other Revenue
The following is a summary of the classification of the amounts included as Financefinance charges and other for the three and nine months ended October 31, 2010April 30, 2012 and 2011:
Three Months Ended | Nine Months Ended | |||||||||||||||
October 31, | October 31, | |||||||||||||||
(Dollars in thousands) | 2010 | 2011 | 2010 | 2011 | ||||||||||||
Interest income and fees on customer receivables | $ | 31,164 | $ | 27,222 | $ | 94,290 | $ | 87,514 | ||||||||
Insurance commissions | 3,535 | 2,296 | 11,748 | 9,889 | ||||||||||||
Other | 216 | 60 | 681 | 678 | ||||||||||||
Finance charges and other | $ | 34,915 | $ | 29,578 | $ | 106,719 | $ | 98,081 |
Three Months Ended | ||||||||
April 30, | ||||||||
(in thousands) | 2012 | 2011 | ||||||
Interest income and fees on customer receivables | $ | 28,640 | $ | 30,632 | ||||
Insurance commissions | 5,033 | 4,056 | ||||||
Other | 241 | 224 | ||||||
|
|
|
| |||||
Finance charges and other | $ | 33,914 | $ | 34,912 | ||||
|
|
|
|
The amount included in Interestinterest income and fees on customer receivables related to TDR accounts for the ninethree months ended October 31,April 30, 2012 and 2011 is $2.6was $1.2 million net of related reserve and charge-off impact.$0.4 million, respectively. The Company recognizes interest income on TDR accounts using the interest income method, which requires reporting interest income equal to the increase in the net carrying amount of the loan attributable to the passage of time. Cash proceeds and other adjustments are applied to the net carrying amount such that it always equals the present value of expected future cash flows.
4. Supplemental Disclosure of Customer Receivables
Total Outstanding Balance | ||||||||||||||||||||||||
Customer Accounts Receivable | 60 Days Past Due (1) | Reaged (1) | ||||||||||||||||||||||
January 31, | October 31, | January 31, | October 31, | January 31, | October 31, | |||||||||||||||||||
(Dollars in Thousands) | 2011 | 2011 | 2011 | 2011 | 2011 | 2011 | ||||||||||||||||||
Customer Accounts Receivable: | ||||||||||||||||||||||||
>= 575 credit score at origination | $ | 474,847 | $ | 417,971 | $ | 31,545 | $ | 17,663 | $ | 73,458 | $ | 26,370 | ||||||||||||
< 575 credit score at origination | 200,919 | 135,681 | 26,497 | 11,763 | 60,102 | 18,781 | ||||||||||||||||||
Subtotal | 675,766 | 553,652 | 58,042 | 29,426 | 133,560 | 45,151 | ||||||||||||||||||
Restructured Accounts (2): | ||||||||||||||||||||||||
>= 575 credit score at origination | - | 28,096 | - | 9,517 | - | 28,096 | ||||||||||||||||||
< 575 credit score at origination | - | 23,902 | - | 8,710 | - | 23,902 | ||||||||||||||||||
Subtotal | - | 51,998 | - | 18,227 | - | 51,998 | ||||||||||||||||||
Total receivables managed | $ | 675,766 | $ | 605,650 | $ | 58,042 | $ | 47,653 | $ | 133,560 | $ | 97,149 | ||||||||||||
Allowance for uncollectible accounts related to the credit portfolio | (34,637 | ) | (40,170 | ) | ||||||||||||||||||||
Allowances for promotional credit programs | (8,410 | ) | (4,511 | ) | ||||||||||||||||||||
Current portion of customer accounts receivable, net | 342,754 | 305,623 | ||||||||||||||||||||||
Long-term customer accounts receivable, net | $ | 289,965 | $ | 255,346 |
Net Credit | Net Credit | |||||||||||||||||||||||||||||||
Average Balances | Charge-offs (3) | Average Balances | Charge-offs (3) | |||||||||||||||||||||||||||||
Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
October 31, | October 31, | October 31, | October 31, | |||||||||||||||||||||||||||||
(Dollars in thousands) | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | ||||||||||||||||||||||||
Customer Accounts Receivable: | ||||||||||||||||||||||||||||||||
>= 575 credit score at origination | $ | 465,342 | $ | 415,010 | $ | 5,399 | $ | 2,314 | $ | 459,895 | $ | 431,495 | $ | 14,827 | $ | 12,056 | ||||||||||||||||
< 575 credit score at origination | 229,985 | 138,771 | 5,283 | 1,628 | 244,925 | 156,605 | 14,296 | 9,637 | ||||||||||||||||||||||||
Subtotal | $ | 695,327 | $ | 553,781 | $ | 10,682 | $ | 3,942 | $ | 704,820 | $ | 588,100 | $ | 29,123 | $ | 21,693 | ||||||||||||||||
Restructured Accounts: | ||||||||||||||||||||||||||||||||
>= 575 credit score at origination | - | 26,730 | - | 787 | - | 18,585 | - | 2,012 | ||||||||||||||||||||||||
< 575 credit score at origination | - | 23,464 | - | 667 | - | 16,829 | - | 1,850 | ||||||||||||||||||||||||
Subtotal | $ | - | $ | 50,194 | $ | - | $ | 1,454 | $ | - | $ | 35,414 | $ | - | $ | 3,862 | ||||||||||||||||
Total receivables managed | $ | 695,327 | $ | 603,975 | $ | 10,682 | $ | 5,396 | $ | 704,820 | $ | 623,514 | $ | 29,123 | $ | 25,555 |
Nine Months Ended | Nine Months Ended | |||||||||||||||||||||||
October 31, 2010 | October 31, 2011 | |||||||||||||||||||||||
Customer Accounts Receivable | Restructured Accounts | Total | Customer Accounts Receivable | Restructured Accounts | Total | |||||||||||||||||||
Allowance at beginning of period | $ | 35,802 | $ | - | $ | 35,802 | $ | 34,637 | $ | - | $ | 34,637 | ||||||||||||
Provision (a) | 34,626 | - | 34,626 | 11,324 | 26,265 | 37,589 | ||||||||||||||||||
Principal charge-offs (b) | (30,825 | ) | - | (30,825 | ) | (24,071 | ) | (4,286 | ) | (28,357 | ) | |||||||||||||
Interest charge-offs | (6,946 | ) | - | (6,946 | ) | (5,519 | ) | (982 | ) | (6,501 | ) | |||||||||||||
Recoveries (b) | 1,702 | - | 1,702 | 2,378 | 424 | 2,802 | ||||||||||||||||||
Allowance at end of period | $ | 34,359 | $ | - | $ | 34,359 | $ | 18,749 | $ | 21,421 | $ | 40,170 |
During the nine month periodfiscal year ended OctoberJanuary 31, 2011,2012, the Company closed six of the seven underperformingeleven retail locations that it had plans to close. The stores being closed did not perform at athe level the Company expects for mature store locations. As a result of the closure of the foureight stores with unexpired leases, the Company recorded an accrual in the second quarterfiscal 2012 for the present value of remaining lease obligations and anticipated ancillary occupancy costs, net of estimated sublease income. The estimate is based on the Company’s best projection of the sublease rates it believes can be obtained for such properties and its best estimate of the marketing time it will take to find tenants to sublet such stores. Revisions to these projections for changes in estimated buyout termsmarketing times or sublease rates will be made to the obligation as further information related to the actual terms and costs become available. The following table presents detailestimate was calculated using Level 2 fair value inputs as defined by the GAAP fair value hierarchy. During the three months ended April 30, 2012, the Company accrued lease exit costs of $450 thousand for the activityclosure of an additional store. The changes in the accrualliability recorded for store closures:
Accrual for Store Closures | ||||
Balance at July 31, 2011 | $ | 4,195 | ||
Cash payments | (319 | ) | ||
Change in estimate | (313 | ) | ||
Balance at October 31, 2011 | $ | 3,563 |
(in thousands) | ||||
Balance at January 31, 2012 | $ | 8,106 | ||
Accrual for closure | 450 | |||
Change in estimate | (287 | ) | ||
Cash payments | (961 | ) | ||
|
| |||
Balance at April 30, 2012 | $ | 7,308 | ||
|
|
The change in estimate results from an adjustment due to decreases in the anticipated cash payments that will be required on sublet of onefavorable impact of the storestermination of a lease and is partially offset by changes in the accrual, net of thesublet assumptions for certain locations and accretion of the present value of the expected future rental payments. The cash payments include payments made for facility rent and related costs. Additionally, the Company estimates that it will incur additional store closing and lease exit costs of approximately $0.5 million in the next fiscal year in connection with the remaining store closure.
5. Debt and Letters of Credit
The Company’s long-term debt consisted of the following at the period ended:
January 31, | October 31, | |||||||
(Dollars in thousands) | 2011 | 2011 | ||||||
Asset-based revolving credit facility maturing in July 2015 | $ | 279,300 | $ | 302,000 | ||||
Term loan (net of OID of $5,820) | 94,180 | - | ||||||
Real estate loan | - | 7,922 | ||||||
Other long-term debt | 256 | 754 | ||||||
Total debt | 373,736 | 310,676 | ||||||
Less current portion of debt | 167 | 679 | ||||||
Long-term debt | $ | 373,569 | $ | 309,997 |
April 30, | January 31, | |||||||
(in thousands) | 2012 | 2012 | ||||||
Asset-based revolving credit facility | $ | 186,797 | $ | 313,250 | ||||
Asset-backed notes, net of discount of $654 | 103,025 | — | ||||||
Real estate loan | 7,755 | 7,826 | ||||||
Other long-term debt | 509 | 628 | ||||||
|
|
|
| |||||
Total debt | 298,086 | 321,704 | ||||||
Less current portion of debt | 103,690 | 726 | ||||||
|
|
|
| |||||
Long-term debt | $ | 194,396 | $ | 320,978 | ||||
|
|
|
|
The Company’s asset-based revolving credit facility, as amended, provides for funding of up to $450 million based on a borrowing base calculation that includes customer accounts receivable and inventory. The credit facility bears interest at LIBOR plus a spread ranging from 350 basis points to 400 basis points, based on a leverage ratio (defined as total liabilities to tangible net worth). In addition to the leverage ratio, the revolving credit facility includes a fixed charge coverage requirement, a minimum customer receivables cash recovery percentage requirement and a net capital expenditures limit. Additionally, the agreement contains cross-default provisions, such that, any default under another of the Company’s credit facilities would result in a default under this agreement, and any default under this agreement would result in a default under those agreements.
On April 30, 2012, the Company’s VIE issued $103.7 million of asset-backed notes which bear interest at 4.0% and were sold at a discount to deliver a 5.21% yield, before considering transaction costs. The principal balance of the notes, which are secured by certain customer receivables, will be reduced on a monthly basis by collections on the underlying customer receivables after the payment of interest and other expenses of the VIE. While the final maturity for the notes is April 2016, the Company currently expects to repay any outstanding note balance in April 2013 and, therefore, has classified the outstanding principal within the current portion of long-term debt. Additionally, the notes include a prepayment incentive fee whereby if the notes are not repaid by the expected final principal payment date of April 15, 2013, the VIE will be required to pay, in addition to accrued interest on the notes, a monthly fee equal to an annual rate of 8.5% times the outstanding principal balance. The VIE’s borrowing agreement contains certain covenants, including the maintenance of a minimum net worth for the VIE. The VIE’s debt is secured by the customer accounts receivable that were transferred to it, which are included in customer accounts receivable and long-term portion of customer
accounts receivable on the consolidated balance sheet. At April 30, 2012, the VIE held cash of $10.0 million from collections on underlying customer receivables which is classified within prepaid expenses and other assets on the consolidated balance sheet. The investors and the securitization trustee have no recourse to the Company’s other assets for failure of the VIE to pay the notes when due or any other of its obligations. Additionally, the VIE’s assets are not available to satisfy the Company’s obligations. The Company’s interests in are subordinate to the investors’ interests, and would not be paid if the VIE is unable to repay the amounts due. The ultimate realization of the Company’s interest is subject to credit, prepayment, and interest rate risks on the transferred financial assets. Net proceeds from the offering were used to repay borrowings under the Company’s asset-based revolving credit facility.
The Company was in compliance with theits debt covenants at October 31, 2011. The asset-based revolving credit facility restricts the amount of dividends the Company can pay and is secured by the assets of the Company not otherwise encumbered. The Company expects, based on current facts and circumstances that it will be in compliance with the above covenants for the next 12 months.
As of October 31, 2011,April 30, 2012, the Company had immediately available borrowing capacity of approximately $80.1$145.4 million under its asset-based revolving credit facility, net of standby letters of credit issued, immediately available for general corporate purposes. The Company also had $46.1$113.5 million that may become available under its asset-based revolving credit facility if it grows the balance of eligible customer receivables and its total eligible inventory balances.
The Company’s asset–based revolving credit facility provides it the ability to utilize letters of credit to secure its deductibles under the Company’s property and casualty insurance programs and risk reserves for certainits obligations to remit payments collected as servicer of its third-party financing alternatives,the VIE’s receivables, among other acceptable uses. At October 31, 2011,April 30, 2012, the Company had outstanding letters of credit of $1.8$4.3 million under this facility. The maximum potential amount of future payments under these letter of credit facilities is considered to be the aggregate face amount of each letter of credit commitment, which totals $1.8$4.3 million as of October 31, 2011. In November, 2011 a $0.5 million of letter of credit was cancelled, bringing the maximum potential amount of future payments under these letter of credit facilities to $1.3 million.
The fair value of the financial derivative instruments below is included within Accrued expenses and Fair value of interest rate caps on the consolidated balance sheets:
Fair Value of Derivative Instruments | |||||||||||||
Asset (Liability) Derivatives | |||||||||||||
w/ Offset Recorded in OCI (net of tax impact) | |||||||||||||
January 31, 2011 | October 31, 2011 | ||||||||||||
Balance | Balance | ||||||||||||
Sheet | Fair | Sheet | Fair | ||||||||||
Location | Value | Location | Value | ||||||||||
Derivatives designated as | |||||||||||||
hedging instruments on | |||||||||||||
Interest rate contracts | Accrued expenses | $ | (71 | ) | Fair value of interest rate caps | $ | (181 | ) | |||||
Total derivatives designated | |||||||||||||
as heding instruments | $ | (71 | ) | $ | (181 | ) |
Location of | Amount of Gain or | |||||||||||||||||||||||||||
Gain or (Loss) | (Loss) Recognized | |||||||||||||||||||||||||||
Location of | Recognized in | in Income on | ||||||||||||||||||||||||||
Amount of Gain or | Gain or (Loss) | Amount of Gain or | Income on | Derivatives | ||||||||||||||||||||||||
(Loss) Recognized | Reclassified | (Loss) Reclassified | Derivative | (Ineffective Portion | ||||||||||||||||||||||||
in OCI on | from | from Accumulated | (Ineffective | and Amount Excluded | ||||||||||||||||||||||||
Derivative | Accumulated | OCI into Income | Portion | from Effectiveness | ||||||||||||||||||||||||
Derivatives in | (Effective Portion) | OCI into | (Effective Portion) | and Amount | Testing) | |||||||||||||||||||||||
Cash Flow | Three Months Ended | Income | Three Months Ended | Excluded from | Three Months Ended | |||||||||||||||||||||||
Hedging | October 31, | October 31, | (Effective | October 31, | October 31, | Effectiveness | October 31, | October 31, | ||||||||||||||||||||
Relationships | 2010 | 2011 | Portion) | 2010 | 2011 | Testing) | 2010 | 2011 | ||||||||||||||||||||
Interest Rate | Interest income/ | Interest income/ | ||||||||||||||||||||||||||
Hedging Swaps | $ | (36 | ) | $ | - | (expense) | $ | (75 | ) | $ | - | (expense) | $ | - | $ | - | ||||||||||||
Interest Rate | Interest income/ | Interest income/ | ||||||||||||||||||||||||||
Hedging Options | $ | - | $ | (118 | ) | (expense) | $ | - | $ | - | (expense) | $ | - | $ | - | |||||||||||||
Total | $ | (36 | ) | $ | (118 | ) | $ | (75 | ) | $ | - | $ | - | $ | - | |||||||||||||
Location of | Amount of Gain or | |||||||||||||||||||||||||||
Gain or (Loss) | (Loss) Recognized | |||||||||||||||||||||||||||
Location of | Recognized in | in Income on | ||||||||||||||||||||||||||
Amount of Gain or | Gain or (Loss) | Amount of Gain or | Income on | Derivatives | ||||||||||||||||||||||||
(Loss) Recognized | Reclassified | (Loss) Reclassified | Derivative | (Ineffective Portion | ||||||||||||||||||||||||
in OCI on | from | from Accumulated | (Ineffective | and Amount Excluded | ||||||||||||||||||||||||
Derivative | Accumulated | OCI into Income | Portion | from Effectiveness | ||||||||||||||||||||||||
Derivatives in | (Effective Portion) | OCI into | (Effective Portion) | and Amount | Testing) | |||||||||||||||||||||||
Cash Flow | Nine Months Ended | Income | Nine Months Ended | Excluded from | Nine Months Ended | |||||||||||||||||||||||
Hedging | October 31, | October 31, | (Effective | October 31, | October 31, | Effectiveness | October 31, | October 31, | ||||||||||||||||||||
Relationships | 2010 | 2011 | Portion) | 2010 | 2011 | Testing) | 2010 | 2011 | ||||||||||||||||||||
Interest Rate | Interest income/ | Interest income/ | ||||||||||||||||||||||||||
Hedging Swaps | $ | (98 | ) | $ | - | (expense) | $ | (245 | ) | $ | 71 | (expense) | $ | - | $ | - | ||||||||||||
Interest Rate | Interest income/ | Interest income/ | ||||||||||||||||||||||||||
Hedging Options | $ | - | $ | (118 | ) | (expense) | $ | - | $ | - | (expense) | $ | - | $ | - | |||||||||||||
Total | $ | (98 | ) | $ | (118 | ) | $ | (245 | ) | $ | 71 | $ | - | $ | - |
Legal Proceedings.The Company is involved in routine litigation and claims incidental to its business from time to time, and, as required, has accrued its estimate of the probable costs for the resolution of these matters, which are not expected to be material. These estimates have been developed in consultation with counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. Recently, the Company has been included in various patent infringement claims and litigation, the outcomes of which are difficult to predict at this time. Due to the timing of these matters, the Company has determined that no reasonable estimates of probable costs for resolution can be ascertained at this time, and it is possible, however, that future results of operations for any particular period could be materially affected by changes in the Company’s assumptions or the effectiveness of its strategies related to these proceedings. However, the results of these proceedings cannot be predicted with certainty, and changes in facts and circumstances could impact the Company’s estimate of reserves for litigation.
Repair Service Agreement Obligations. The Company sells repair service agreements that extend the period of covered warranty service on the products the Company sells. For certain of the repair service agreements sold, the Company is the obligor for payment of qualifying claims. The Company is responsible for administering the program, including setting the pricing of the agreements sold and paying the claims. The typical term for these agreements is between 12 and 48 months. The pricing is set based on historical claims experience and expectations about future claims. While the Company is unable to estimate maximum potential claim exposure, it has a history of overall profitability upon the ultimate resolution of agreements sold. The revenues related to the agreements sold are deferred at the time of sale and recorded in revenues in the statement of operations over the life of the agreements. The agreements can be canceled at any time and any deferred revenue associated with canceled agreements is reversed at the time of cancellation. The amounts of repair service agreement revenue deferred at January 31, 2011, and October 31, 2011, were $6.5 million and $7.2 million, respectively, and are included in deferred revenue and allowances in the accompanying consolidated balance sheets.
Nine Months Ended | ||||||||
October 31, | ||||||||
(Dollars in thousands) | 2010 | 2011 | ||||||
Balance in deferred revenues at beginning of period | $ | 7,268 | $ | 6,486 | ||||
Revenues earned during the period | (5,289 | ) | (4,383 | ) | ||||
Revenues deferred on sales of new agreements | 4,577 | 5,058 | ||||||
Balance in deferred revenues at end of period | $ | 6,556 | $ | 7,161 | ||||
Total claims incurred during the period, excludes selling expenses | $ | 2,722 | $ | 2,067 | ||||
Financial information by segment is presented in the following tables for the three months and nine months ended October 31, 2010April 30, 2012 and 2011:
Three Months Ended October 31, | Three Months Ended October 31, | |||||||||||||||||||||||
2010 | 2011 | |||||||||||||||||||||||
(Dollars in thousands) | Retail | Credit | Total | Retail | Credit | Total | ||||||||||||||||||
Revenues | ||||||||||||||||||||||||
Product sales | $ | 125,817 | $ | - | $ | 125,817 | $ | 140,404 | $ | 140,404 | ||||||||||||||
Repair service agreement commissions (net) (a) | 8,275 | (2,211 | ) | 6,064 | 10,602 | (4,989 | ) | 5,613 | ||||||||||||||||
Service revenues | 3,768 | - | 3,768 | 3,950 | - | 3,950 | ||||||||||||||||||
Total net sales | 137,860 | (2,211 | ) | 135,649 | 154,956 | (4,989 | ) | 149,967 | ||||||||||||||||
Finance charges and other | 216 | 34,699 | 34,915 | 60 | 29,518 | 29,578 | ||||||||||||||||||
Total revenues | 138,076 | 32,488 | 170,564 | 155,016 | 24,529 | 179,545 | ||||||||||||||||||
Cost and expenses | ||||||||||||||||||||||||
Cost of goods sold, including warehousing and occupancy costs | 99,546 | - | 99,546 | 113,022 | - | 113,022 | ||||||||||||||||||
Cost of service parts sold, including warehousing and occupancy cost | 1,642 | - | 1,642 | 1,647 | - | 1,647 | ||||||||||||||||||
Selling, general and administrative expense (b)(c) | 40,148 | 15,140 | 55,288 | 45,721 | 13,902 | 59,623 | ||||||||||||||||||
Impairment of long-lived assets | - | - | - | 688 | - | 688 | ||||||||||||||||||
Costs related to store closings | - | - | - | (313 | ) | - | (313 | ) | ||||||||||||||||
Provision for bad debts | 271 | 10,542 | 10,813 | 135 | 19,187 | 19,322 | ||||||||||||||||||
Total cost and expenses | 141,607 | 25,682 | 167,289 | 160,900 | 33,089 | 193,989 | ||||||||||||||||||
Operating income (loss) | (3,531 | ) | 6,806 | 3,275 | (5,884 | ) | (8,560 | ) | (14,444 | ) | ||||||||||||||
Interest expense, net (d) | - | 7,722 | 7,722 | - | 3,919 | 3,919 | ||||||||||||||||||
Costs related to financing transactions not completed | - | 2,896 | 2,896 | - | - | - | ||||||||||||||||||
Other income, net | (16 | ) | - | (16 | ) | (5 | ) | - | (5 | ) | ||||||||||||||
Income (loss) before income taxes | $ | (3,515 | ) | $ | (3,812 | ) | $ | (7,327 | ) | $ | (5,879 | ) | $ | (12,479 | ) | $ | (18,358 | ) | ||||||
Nine Months Ended October 31, | Nine Months Ended October 31, | |||||||||||||||||||||||
2010 | 2011 | |||||||||||||||||||||||
(Dollars in thousands) | Retail | Credit | Total | Retail | Credit | Total | ||||||||||||||||||
Revenues | ||||||||||||||||||||||||
Product sales | $ | 439,492 | $ | - | $ | 439,492 | $ | 422,914 | $ | - | $ | 422,914 | ||||||||||||
Repair service agreement commissions (net) (a) | 28,616 | (6,123 | ) | 22,493 | 29,449 | (7,726 | ) | 21,723 | ||||||||||||||||
Service revenues | 12,709 | - | 12,709 | 11,650 | - | 11,650 | ||||||||||||||||||
Total net sales | 480,817 | (6,123 | ) | 474,694 | 464,013 | (7,726 | ) | 456,287 | ||||||||||||||||
Finance charges and other | 681 | 106,038 | 106,719 | 678 | 97,403 | 98,081 | ||||||||||||||||||
Total revenues | 481,498 | 99,915 | 581,413 | 464,691 | 89,677 | 554,368 | ||||||||||||||||||
Cost and expenses | ||||||||||||||||||||||||
Cost of goods sold, including warehousing and occupancy costs | 343,979 | - | 343,979 | 328,133 | - | 328,133 | ||||||||||||||||||
Cost of service parts sold, including warehousing and occupancy cost | 6,134 | - | 6,134 | 4,973 | - | 4,973 | ||||||||||||||||||
Selling, general and administrative expense (b)(c) | 126,689 | 47,900 | 174,589 | 128,653 | 43,409 | 172,062 | ||||||||||||||||||
Impairment of long-lived assets | - | - | - | 688 | - | 688 | ||||||||||||||||||
Costs related to store closings | - | - | - | 3,345 | - | 3,345 | ||||||||||||||||||
Provision for bad debts | 668 | 28,118 | 28,786 | 469 | 31,383 | 31,852 | ||||||||||||||||||
Total cost and expenses | 477,470 | 76,018 | 553,488 | 466,261 | 74,792 | 541,053 | ||||||||||||||||||
Operating income (loss) | 4,028 | 23,897 | 27,925 | (1,570 | ) | 14,885 | �� | 13,315 | ||||||||||||||||
Interest expense, net (d) | - | 20,234 | 20,234 | - | 18,479 | 18,479 | ||||||||||||||||||
Costs related to financing transactions not completed | - | 2,896 | 2,896 | - | - | - | ||||||||||||||||||
Loss from early extinguishment of debt | - | - | - | - | 11,056 | 11,056 | ||||||||||||||||||
Other expense, net | 167 | - | 167 | 81 | - | 81 | ||||||||||||||||||
Income (loss) before income taxes | $ | 3,861 | $ | 767 | $ | 4,628 | $ | (1,651 | ) | $ | (14,650 | ) | $ | (16,301 | ) | |||||||||
Total Assets | 215,485 | 653,546 | 869,031 | 194,801 | 592,251 | 787,052 | ||||||||||||||||||
Three Months Ended April 30, 2012 | Three Months Ended April 30, 2011 | |||||||||||||||||||||||
(in thousands) | Retail | Credit | Total | Retail | Credit | Total | ||||||||||||||||||
Revenues | ||||||||||||||||||||||||
Product sales | $ | 152,115 | $ | — | $ | 152,115 | $ | 144,279 | $ | — | $ | 144,279 | ||||||||||||
Repair service agreement commissions, net | 11,392 | — | 11,392 | 8,902 | — | 8,902 | ||||||||||||||||||
Service revenues | 3,430 | — | 3,430 | 3,889 | — | 3,889 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total net sales | 166,937 | — | 166,937 | 157,070 | — | 157,070 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Finance charges and other | 241 | 33,673 | 33,914 | 225 | 34,687 | 34,912 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total revenues | 167,178 | 33,673 | 200,851 | 157,295 | 34,687 | 191,982 | ||||||||||||||||||
Cost and expenses | ||||||||||||||||||||||||
Cost of goods sold, including warehousing and occupancy costs | 108,443 | — | 108,443 | 106,453 | — | 106,453 | ||||||||||||||||||
Cost of service parts sold, including warehousing and occupancy cost | 1,550 | — | 1,550 | 1,730 | — | 1,730 | ||||||||||||||||||
Selling, general and administrative expense (a) | 46,049 | 13,607 | 59,656 | 44,102 | 15,343 | 59,445 | ||||||||||||||||||
Provision for bad debts | 212 | 8,973 | 9,185 | 143 | 9,421 | 9,564 | ||||||||||||||||||
Store closing costs | 163 | — | 163 | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total cost and expense | 156,417 | 22,580 | 178,997 | 152,428 | 24,764 | 177,192 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Operating income | 10,761 | 11,093 | 21,854 | 4,867 | 9,923 | 14,790 | ||||||||||||||||||
Interest expense, net | — | 3,759 | 3,759 | — | 7,556 | 7,556 | ||||||||||||||||||
Other (income) expense, net | (96 | ) | — | (96 | ) | 52 | — | 52 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Income before income taxes | $ | 10,857 | $ | 7,334 | $ | 18,191 | $ | 4,815 | $ | 2,367 | $ | 7,182 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(a) | Selling, general and administrative expenses include the direct expenses of the retail and credit operations, allocated overhead expenses and a charge to the credit segment to reimburse the retail segment for expenses it incurs related to occupancy, personnel, advertising and other direct costs of the retail segment which benefit the credit operations by sourcing credit customers and collecting payments. The reimbursement received by the retail segment from the credit segment is estimated using an annual rate of 2.5% times the average portfolio balance for each applicable period. The amount of overhead allocated to each segment was approximately $2.2 million and $2.2 million for the three months ended April 30, 2012 and 2011, respectively. The amount of reimbursement made to the retail segment by the credit segment was approximately $4.0 million and $4.0 million for the three months ended April 30, 2012 and 2011, respectively. |
8. Subsequent Event
On May 30, 2012, the Company’s stockholders approved an amendment to its certificate of incorporation to increase the number of shares of capital stock which the Company shall have authority to issue to be 51,000,000 shares of stock, of which 50,000,000 shares are the resultcommon stock, par value of customer credit account charge-offs. These amounts$0.01 per share, and 1,000,000 shares are reflected in repair service agreement commissions for the credit segment. The allocation of the cancellations was adjusted in the prior period presentation to conform to the current period’s presentation, which is consistent with the basis that management uses internally to allocate those items. The period ended October 31, 2011 was negatively impacted approximately $2.2 million by the adoption of accounting guidance related to TDRs which resulted in additional reserves for repair service agreement commissions.
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
This report contains forward-looking statements. We sometimes use words such as "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect," "project"“believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “project” and similar expressions, as they relate to us, our management and our industry, to identify forward-looking statements. Forward-looking statements relate to our expectations, beliefs, plans, strategies, prospects, future performance, anticipated trends and other future events. We have based our forward-looking statements largely on our current expectations and projections about future events and financial trends affecting our business. Actual results may differ materially. Some of the risks, uncertainties and assumptions about us that may cause actual results to differ from these forward-looking statements include, but are not limited to:
The success of our growth strategy and plans regarding opening new stores and entering adjacent and new markets, including our plans to continue expanding into existing markets;
Our intention to update, relocate or expand existing stores;
The effect of closing or reducing the hours of operating of existing stores;
Our ability to obtain capital for required capital expenditures and costs related to the opening of new stores or to update, relocate or expand existing stores;
Our ability to open and profitably operate new stores in existing, adjacent and new geographic markets;
Our ability to introduce additional product categories;
Technological and market developments, growth trends and projected sales in the home appliance and consumer electronics industry, including, with respect to digital products like Blu-ray players, HDTV, LED and 3-D televisions, tablets, home networking devices and other new products, and our ability to capitalize on such growth;
The potential for price erosion or lower unit sales points that could result in declines in revenues;
Our relationships with key suppliers and their ability to provide products at competitive prices and support sales of their products through their rebate and discount programs;
The potential for deterioration in the delinquency status of our credit portfolio or higher than historical net charge-offs in the portfolio that could adversely impact earnings;
Our inability to continue to offer existing customer financing programs or make new programs available that allow consumers to purchase products at levels that can support our growth;
Our ability to renew or replace our existing debt or other credit arrangements on or before the maturity of such arrangements;
Our ability to fund our operations, capital expenditures, debt repayment and expansion from cash flows from operations, borrowings from our asset-based revolving credit facility, and proceeds from securitizations and from accessing debt or equity markets;
Our ability to obtain additional funding for the purpose of funding the customer receivables we generate;
Our ability to profitably expand our credit operations;
Our ability to maintain compliance with the covenants of its debt and other credit arrangements, including taking the actions necessary to maintain compliance with the covenants, such as obtaining amendments to the borrowing facilities that modify the covenant requirements, which could result in higher borrowing costs;
Our ability to obtain capital to fund expansion of our credit portfolio;
Reduced availability under our asset-based revolving credit facility as a result of borrowing base requirements and the impact on the borrowing base calculation of changes in the performance or eligibility of the customer receivables financed by that facility;
The ability of the financial institutions providing lending facilities to us to fund their commitments;
The effect of any downgrades by rating agencies of our lenders on borrowing costs;
The effect on our borrowing cost of changes in laws and regulations affecting the providers of debt financing;
The cost or terms of any amended, renewed or replacement debt or other credit arrangements;
The effect of rising interest rates or borrowing spreads that could increase our cost of borrowing;
The effect of changes in our credit underwriting and collection practices and policies;
General economic conditions in the regions in which we operate;
Both the short-term and long-term impact of adverse weather conditions (e.g. hurricanes) that could result in volatility in our revenues and increased expenses and casualty losses;
The outcome of litigation or government investigations affecting our business;
The potential to incur expenses and non-cash write-offs related to decisions to close store locations and settling our remaining lease obligations and our initial investment in fixed assets and related store costs;
The effect of rising interest rates or other economic conditions that could impair our customers’ ability to make payments on outstanding credit accounts;
The effect of changes in oil and gas prices that could adversely affect our customers’ shopping decisions and patterns, as well as the cost of our delivery and service operations and our cost of products, if vendors pass on their additional fuel costs through increased pricing for products;
The ability to attract and retain qualified personnel;
Changes in laws and regulations and/or interest, premium and commission rates allowed by regulators on our credit, credit insurance and repair service agreements as allowed by those laws and regulations;
The laws and regulations and interest, premium and commission rates allowed by regulators on our credit, credit insurance and repair service agreements in the states into which we may expand;
The adequacy of our distribution and information systems and management experience to support our expansion plans;
The accuracy of our expectations regarding competition and our competitive advantages;
The potential for market share erosion that could result in reduced revenues;
The accuracy of our expectations regarding the similarity or dissimilarity of our existing markets as compared to new markets we enter;
The use of third-parties to complete certain of our distribution, delivery and home repair services; and
Changes in our stock price or the number of shares we have outstanding.
Additional important factors that could cause our actual results to differ materially from our expectations are discussed under “Risk Factors” in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K filed on April 1, 2011.12, 2012. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report might not happen.
The forward-looking statements in this report reflect our views and assumptions only as of the date of this report. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
All forward-looking statements attributable to us, or to persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements.
General
We intend for the following discussion and analysis to provide you with a better understanding of the financial condition and performance of our retail and credit segments for the indicated periods, including an analysis of those key factors that contributed to our financial condition and performance and that are, or are expected to be, the key “drivers” of our business.
We are a specialty retailer with 70 retail locations in Texas, Louisiana and Oklahoma, that sells home appliances, including refrigerators, freezers, washers, dryers, dishwashers and ranges, a variety of consumer electronics, including LCD, LED, 3-D, plasma and DLP televisions, camcorders, digital cameras, Blu-ray and DVD players, video game equipment, MP3 players and home theater products, lawn and garden products, mattresses and furniture. We also sell home office equipment, including computers, notebooks, tablets and computer accessories and continue to introduce additional product categories for the home and consumer entertainment to help increase same store sales and to respond to our customers' product needs. We require our sales associates to be knowledgeable of all of our products.
We currently operate 64 retail locations in Texas, Louisiana and Oklahoma. The Company’s primary product categories include:
Home appliance, including refrigerators, freezers, washers, dryers, dishwashers and ranges;
Furniture and mattress, including furniture for the living room, dining room, bedroom and related accessories and mattresses;
Consumer electronic, including LCD, LED, 3-D, plasma and DLP televisions, camcorders, digital cameras, Blu-ray and DVD players, video game equipment, portable audio, MP3 players and home theater products;
Home office, including desktop and notebook computers, tablets, printers and computer accessories.
Additionally, we offer a variety of products on a seasonal basis, including window room air conditioners and lawn and garden equipment, and continue to introduce additional product categories for the home to respond to customers product needs and to increase same store sales. We require our sales associates to be knowledgeable of all of our products.
Our business is moderately seasonal, with a greater share of our revenues, operating and net income historically realized during the quarter ending January 31, due primarily to the holiday selling season.
Unlike many of our competitors, we provide flexible in-house credit options for our customers. In the last three years, we financed, on average, approximately 60%61% of our retail sales through our internal credit programs. In addition toWe offer our owncustomers an interest-bearing installment financing program and, at times, we offer promotional credit programs we use third-party financing programs to provide a portioncertain of the non-interest bearing financing for purchases made by our customers and to provide our customers a rent-to-own payment option. The financing programs we offer to our customers include interest-bearing installment, revolving charge, and promotional credit programs that provide for “same as cash” or deferred interest interest-free periods of varying terms, generally three, nine,six and 12 18, 24, 36 and 48 months, and require monthly payments beginning in the month after the sale.
The following tables present, for comparison purposes, information about our credit portfolios (dollars in thousands, except average outstanding customer balance).
Nine Months Ended | ||||||||
October 31, | ||||||||
(Dollars in Thousands) | 2010 | 2011 | ||||||
Total outstanding balance (period end) | $ | 676,994 | $ | 605,650 | ||||
Percent of total outstanding balances represented by balances over 36 months old (period end) (1) | 3.0 | % | 2.8 | % | ||||
Percent of total outstanding balances represented by balances over 48 months old (period end) (1) | 0.8 | % | 0.6 | % | ||||
Average outstanding customer balance | $ | 1,299 | $ | 1,281 | ||||
Number of active accounts (period end) | 521,316 | 472,791 | ||||||
Account balances 60+ days past due (period end) (2) | $ | 64,934 | $ | 47,653 | ||||
Percent of balances 60+ days past due to total outstanding balance (period end) | 9.6 | % | 7.9 | % | ||||
Percent of balances 60-209 days past due to total outstanding balance (period end) | 8.1 | % | 7.9 | % | ||||
Total account balances reaged (period end) (2) | $ | 133,281 | $ | 97,149 | ||||
Percent of reaged balances to total outstanding balance (period end) | 19.7 | % | 16.0 | % | ||||
Account balances reaged more than six months (period end) | $ | 58,198 | $ | 44,926 | ||||
Weighted average credit score of outstanding balances | 590 | 602 | ||||||
Total applications processed | 558,437 | 515,326 | ||||||
Percent of retail sales financed | 59.1 | % | 54.3 | % | ||||
Weighted average origination credit score of sales financed | 627 | 623 | ||||||
Total applications approved | 57.8 | % | 57.3 | % | ||||
Average down payment | 5.2 | % | 6.1 | % | ||||
Average total outstanding balance | $ | 704,822 | $ | 623,514 | ||||
Bad debt charge-offs (net of recoveries) (5) | $ | 29,123 | $ | 25,555 | ||||
Percent of bad debt charge-offs (net of recoveries) to average outstanding balance, annualized (5) | 5.5 | % | 5.5 | % | ||||
Estimated percent of reage balances collected (3) | 83.6 | % | 78.8 | % | ||||
Percent of total outstanding balance represented by promotional receivables | 13.6 | % | 11.2 | % | ||||
Payment rate (4) | 5.10 | % | 5.39 | % | ||||
Percent of retail sales paid for by third-party financing | 8.4 | % | 11.5 | % | ||||
Percent of retail sales paid for by third-party rent-to-own options | 1.0 | % | 3.9 | % |
Three Months Ended | ||||||||
April 30, | ||||||||
2012 | 2011 | |||||||
Total outstanding balance (period end) | $ | 635,233 | $ | 625,487 | ||||
Percent of total outstanding balances represented by balances over 36 months old (period end) (1) | 1.8 | % | 3.3 | % | ||||
Percent of total outstanding balances represented by balances over 48 months old (period end) (1) | 0.4 | % | 0.9 | % | ||||
Average outstanding customer balance | $ | 1,385 | $ | 1,273 | ||||
Number of active accounts (period end) | 458,493 | 491,441 | ||||||
Account balances 60+ days past due (period end) (2) | $ | 46,438 | $ | 44,453 | ||||
Percent of balances 60+ days past due to total outstanding balance (period end) | 7.3 | % | 7.1 | % | ||||
Percent of balances 60-209 days past due to total outstanding balance (period end) | 7.3 | % | 5.5 | % | ||||
Total account balances reaged (period end) (2) | $ | 73,737 | $ | 121,197 | ||||
Percent of re-aged balances to total outstanding balance (period end) | 11.6 | % | 19.4 | % | ||||
Account balances re-aged more than six months (period end) | $ | 27,052 | $ | 55,802 | ||||
Weighted average credit score of outstanding balances | 601 | 589 | ||||||
Total applications processed | 179,907 | 175,761 | ||||||
Weighted average origination credit score of sales financed | 615 | 623 | ||||||
Total applications approved | 56.8 | % | 54.0 | % | ||||
Average down payment | 4.5 | % | 8.0 | % | ||||
Average total outstanding balance | $ | 634,743 | $ | 647,754 | ||||
Bad debt charge-offs (net of recoveries) (3) | $ | 13,529 | $ | 11,008 | ||||
Percent of bad debt charge-offs (net of recoveries) to average outstanding balance, annualized (3) | 8.5 | % | 6.8 | % | ||||
Percent of total bad debt allowance to total oustanding customer receivable balance (period end) | 7.1 | % | 6.7 | % | ||||
Percent of total outstanding balance represented by promotional receivables | 17.7 | % | 9.7 | % | ||||
Weighted average monthly payment rate (4) | 6.1 | % | 6.4 | % | ||||
Percent of retail sales paid for by: | ||||||||
Third-party financing | 12.5 | % | 6.3 | % | ||||
In-house financing, including down payment received | 66.9 | % | 55.0 | % | ||||
Third-party rent-to-own options | 3.7 | % | 3.5 | % | ||||
|
|
|
| |||||
Total | 83.1 | % | 64.8 | % | ||||
|
|
|
|
(1) | Includes installment accounts only. Balances included in over 48 |
(2) | Accounts that become delinquent after being |
(3) | |
On July 31, 2011, we revised our charge-off policy to require an account that is delinquent more than 209 days at month end to be charged-off. |
(4) | Three-month rolling average of gross cash payments as a percentage of gross principal balances outstanding at the beginning of each month in the period. |
Historical Static Loss Table
The following static loss analysis calculates the cumulative percentage of balances charged off, based on the year the credit account was originated and the period the balance was charged off. The percentage computed below is calculated by dividing the cumulative net amount charged off since origination by the total balance of accounts originated during the applicable fiscal year. The net charge-off was determined by estimating, on a pro rata basis, the amount of the recoveries received during a period that were allocable to the applicable origination period.
Cumulative loss rate as a % of balance originated (a) | ||||||||||||||||||||||||||||||
Fiscal Year | Years from origination | |||||||||||||||||||||||||||||
of Origination | 0 | 1 | 2 | 3 | 4 | 5 | 6 | Terminal (b) | ||||||||||||||||||||||
2005 | 0.3 | % | 1.7 | % | 3.4 | % | 4.3 | % | 4.7 | % | 4.9 | % | 5.0 | % | 5.0% | |||||||||||||||
2006 | 0.3 | % | 1.9 | % | 3.6 | % | 4.8 | % | 5.4 | % | 5.7 | % | 5.7 | % | 5.7% | |||||||||||||||
2007 | 0.2 | % | 1.7 | % | 3.5 | % | 4.6 | % | 5.4 | % | 5.6 | % | 5.6 | % | ||||||||||||||||
2008 | 0.2 | % | 1.8 | % | 3.6 | % | 5.0 | % | 5.7 | % | 5.8 | % | ||||||||||||||||||
2009 | 0.2 | % | 2.0 | % | 4.6 | % | 6.0 | % | 6.3 | % | ||||||||||||||||||||
2010 | 0.2 | % | 2.4 | % | 4.5 | % | 5.1 | % | ||||||||||||||||||||||
2011 | 0.4 | % | 2.6 | % | 3.4 | % | ||||||||||||||||||||||||
2012 | 0.2 | % | 0.4 | % |
(a) | The |
(b) | The terminal loss percentage presented represents the point at which that pool of loans has reached its maximum loss rate. |
Our business is moderately seasonal, with a greater share of our revenues, pretax and net income realized during the quarter ending January 31, due primarily to the holiday selling season.
This narrative is intended to provideprovides an executive level overview of our operations for the three and nine months ended October 31, 2011.April 30, 2012. A detailed explanation of the changes in our operations for these periodsthis period as compared to the prior year periodsprior-year period is included under Results of Operations. The following is a summary of some of the specific items impacting our retail and credit segments:
Retail Segment Review
Net sales rose $9.8 million, or 6.3%, to $166.9 million for the quarter ended April 30, 2012, from the comparable prior-year period. The increase in net sales during the quarter was driven by higher average selling prices in the major product categories, improved and expanded product selection in the furniture and mattress category and retention of a portion of the unit volume from stores closed in the prior year. The reported increase in sales was partially offset by the impact of the closure of 11 stores in fiscal 2012;
The retail gross margin increased to 33.7% in the current-year quarter, from 30.5% in the same quarter of the prior year. The increase in the retail gross margin was driven by a favorable shift in product mix. The majority of the margin expansion was reported in the furniture and mattress category which contributed approximately 30% of our retail product gross margin in the current quarter; and
Selling, general and administrative (“SG&A”) expense increased by $1.9 million, but declined 50 basis points as a percent of segment revenues to 27.5% for the quarter ended April 30, 2012 as compared to 28.0% for the quarter ended April 30, 2011. The SG&A expense increase was primarily due to higher sales-driven compensation expenses, partially offset by decreased depreciation and facility-related expenses.
Credit Segment Review
Total revenues for the three months ended April 30, 2012 declined by $1.0 million, as compared to the prior year, reflecting a higher proportion of short-term promotional receivables relative to the total portfolio balance outstanding and increased net charge-off levels which resulted in lower interest income and fee revenues. The average customer accounts receivable balance declined 2.0%, to $634.7 million for the quarter ended April 30, 2012 from $647.8 million for the quarter ended April 30, 2011;
SG&A expense for the credit segment declined $1.7 million, primarily due to reduced compensation and related expense. Continued improvement in the performance of the portfolio has allowed us to reduce the cost of servicing the portfolio. Credit segment SG&A expense as a percent of revenues was 40.4% for the three months ended April 30, 2012 and 44.2% in the prior year;
The provision for bad debts decreased by $0.4 million during the three months ended April 30, 2012, as we experienced continued improvement in the performance of our credit portfolio.
Net interest expense decreased in the three months ended April 30, 2012 by $3.8 million from the prior- year period primarily due to a reduction in the effective interest rate on outstanding borrowings and a decline in outstanding debt.
Operational changes and outlook
We have implemented, continued to focus on or modified operating initiatives that we believe will positively impact future results, including:
Reviewing our existing store locations to ensure the customer demographics and retail sales opportunity are sufficient to achieve our store performance expectations, and selectively closing or relocating stores to achieve those goals;
Evaluating store opening plans for future years. We are planning to open five to seven new locations during fiscal year 2013, all of which are expected to be in new markets;
Remodeling existing stores to improve our customers shopping experience and expand our product offering of furniture and mattresses;
The exit of lower-price, lower-margin products to improve operating performance;
Augmenting our credit offerings through the use of third-party consumer credit providers to provide flexible financing options to meet the varying needs of our customers, while focusing the use of our credit program to offer credit to customers where third-party programs are not available;
Limiting the number of months an account can be re-aged and reducing the period of time a delinquent account can remain outstanding before it is charged off. Additionally, we are utilizing shorter contract terms for higher-risk products and smaller-balances originated to continue to increase the payment rate and improve credit quality. We have increased credit lines to higher credit scored customers to allow them to purchase additional products given our furniture and mattress offerings expansion. In total, these changes are expected to continue to improve the performance of our portfolio and increase the cost-effectiveness of our collections operation; and
In fiscal 2012, we closed 11 retail locations that did not perform at the level we expect for mature store locations. We closed an additional store in May 2012. One of the 12 stores was located in Oklahoma, with 11 of the stores located in Texas, with two located in the Austin market, six in the Dallas market, one in the Houston market and two in the San Antonio market.
While we have benefited from our operations being concentrated in the Texas, Louisiana and Oklahoma region in the past, recentcontinued weakness in the national and state economies, including instability in the financial markets declining consumer confidence and the volatility of oil and natural gas prices, have and will present significant challenges to our operations in the coming quarters. Our customers continue to be pressured by higher gas and food prices and high levels of unemployment and, as a result, we have seen national average selling prices for television and laundry decline.
Customer accounts receivable are originated at the time of sale and delivery of the various products and services we offer. We include the amount of principal and accrued interest on those receivables that are expected to be collected within the next twelve months, based on contractual terms, in current assets on our consolidated balance sheet. Those amounts expected to be collected after twelve months, based on contractual terms, are included in long-term assets. Typically, a receivable is considered delinquent if a payment has not been received on the scheduled due date. Additionally, we offer reage programs to customers with past due balances that have experienced a financial hardship, if they meet the conditions of our reage policy. Reaging a customer’s account can result in updating it from a delinquent status to a current status. Effective July 31, 2011, we changed our charge-off policy so that an account that is delinquent more than 209 days at each month end is charged-off against the allowance for doubtful accounts and interest accrued subsequent to the last payment is reversed and charged to the allowance for uncollectible interest. We have a secured interest in the merchandise financed by these receivables and therefore have the opportunity to recover a portion of any charged-off amount. As part of our customer retention and expansion efforts, we may modify loans for certain borrowers. As part of our efforts in mitigating losses on our accounts receivable within our credit portfolio, we may make loan modifications to a borrower experiencing financial difficulty that are intended to minimize our economic impact and avoid the need for repossession of collateral. We may extend the loan term on or reage an account for a period not to exceed 12 months. These modifications may result in receiving the full amount due, or certain installments due, under the loan over a period of time that is longer than originally provided under the terms of the loan. Loan modifications in which an economic concession has been granted to a borrower experiencing financial difficulty are accounted for and reported as TDRs. In the quarter ended October 31, 2011, we adopted new accounting guidance that provides clarification on whether a debtor is experiencing financial difficulties and whether a concession has been granted to the debtor for purposes of determining if a loan modification constitutes a TDR. The adoption applies retrospectively to our loan restructurings after January 31, 2011. The Company defines TDR accounts that originated in the current fiscal year as accounts that have been reaged in excess of three months or refinanced. For accounts originating in prior fiscal years, the accounts must receive additional reaging during this fiscal year and is considered TDR if the cumulative reaging exceeds three months.
The following table sets forth certain statement of operations information as a percentage of total revenues for the periods indicated:
Three Months Ended | Nine Months Ended | |||||||||||||||
October 31, | October 31, | |||||||||||||||
2010 | 2011 | 2010 | 2011 | |||||||||||||
Revenues | ||||||||||||||||
Product sales | 73.7 | % | 78.2 | % | 75.6 | % | 76.3 | % | ||||||||
Repair service agreement commissions (net) | 3.6 | 3.1 | 3.8 | 3.9 | ||||||||||||
Service revenues | 2.2 | 2.2 | 2.2 | 2.1 | ||||||||||||
Total net sales | 79.5 | 83.5 | 81.6 | 82.3 | ||||||||||||
Finance charges and other | 20.5 | 16.5 | 18.4 | 17.7 | ||||||||||||
Total revenues | 100.0 | 100.0 | 100.0 | 100.0 | ||||||||||||
Cost and expenses | ||||||||||||||||
Cost of goods sold, including warehousing and occupancy costs | 58.4 | 62.9 | 59.2 | 59.2 | ||||||||||||
Cost of service parts sold, including warehousing and occupancy cost | 1.0 | 0.9 | 1.0 | 0.9 | ||||||||||||
Selling, general and administrative expense | 32.4 | 33.2 | 30.0 | 31.0 | ||||||||||||
Costs related to store closings | 0.0 | (0.2 | ) | 0.0 | 0.1 | |||||||||||
Impairment of long lived assets | 0.0 | 0.4 | 0.0 | 0.6 | ||||||||||||
Provision for bad debts | 6.3 | 10.8 | 5.0 | 5.8 | ||||||||||||
Total cost and expenses | 98.1 | 108.0 | 95.2 | 97.6 | ||||||||||||
Operating income (loss) | 1.9 | (8.0 | ) | 4.8 | 2.4 | |||||||||||
Interest expense, net | 4.5 | 2.2 | 3.5 | 3.3 | ||||||||||||
Cost of financing transactions not completed | 1.7 | 0.0 | 0.0 | 0.0 | ||||||||||||
Loss from early extinguishment of debt | 0.0 | 0.0 | 0.5 | 2.0 | ||||||||||||
Other expense, net | 0.0 | 0.0 | 0.0 | 0.0 | ||||||||||||
Income (loss) before income taxes | (4.3 | ) | (10.2 | ) | 0.8 | (2.9 | ) | |||||||||
Provision (benefit) for income taxes | (1.5 | ) | (3.1 | ) | 0.4 | (0.9 | ) | |||||||||
Net Income (Loss) | (2.8 | )% | (7.1 | )% | 0.4 | % | (2.0 | )% | ||||||||
Three Months Ended | ||||||||
April 30, | ||||||||
2012 | 2011 | |||||||
Revenues | ||||||||
Product sales | 75.7 | % | 75.2 | % | ||||
Repair service agreement commissions, net | 5.7 | 4.6 | ||||||
Service revenues | 1.7 | 2.0 | ||||||
|
|
|
| |||||
Total net sales | 83.1 | 81.8 | ||||||
|
|
|
| |||||
Finance charges and other | 16.9 | 18.2 | ||||||
|
|
|
| |||||
Total revenues | 100.0 | 100.0 | ||||||
Cost and expenses | ||||||||
Cost of goods sold, including warehousing and occupancy costs | 54.0 | 55.4 | ||||||
Cost of service parts sold, including warehousing and occupancy cost | 0.8 | 0.9 | ||||||
Selling, general, administrative expense | 29.7 | 31.0 | ||||||
Provision for bad debts | 4.6 | 5.0 | ||||||
Store closing costs | 0.0 | 0.0 | ||||||
|
|
|
| |||||
Total cost and expenses | 89.1 | 92.3 | ||||||
|
|
|
| |||||
Operating income | 10.9 | 7.7 | ||||||
Interest expense | 1.9 | 3.9 | ||||||
Other (income) expense, net | (0.1 | ) | 0.1 | |||||
|
|
|
| |||||
Income before income taxes | 9.1 | 3.7 | ||||||
|
|
|
| |||||
Provision for income taxes | 3.3 | 1.4 | ||||||
|
|
|
| |||||
Net income | 5.8 | % | 2.3 | % | ||||
|
|
|
|
Analysis of consolidated statements of operations
The presentation of gross margins may not be comparable to some other retailers since we include the cost of our in-home delivery and installation service as part of Selling,selling, general and administrative expense. Similarly, we include the cost related to operating our purchasing function in Selling,selling, general and administrative expense. It is our understanding that other retailers may include such costs as part of their cost of goods sold.
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
Total | October 31, | 2011 vs. 2010 | October 31, | 2011 vs. 2010 | ||||||||||||||||||||||||||||
(Dollars in thousands) | 2010 | 2011 | Amount | % | 2010 | 2011 | Amount | % | ||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||
Product sales | $ | 125,817 | $ | 140,404 | $ | 14,587 | 11.6 | % | $ | 439,492 | $ | 422,914 | $ | (16,578 | ) | (3.8 | %) | |||||||||||||||
Repair service agreement commissions (net) | 6,064 | 5,613 | (451 | ) | (7.4 | %) | 22,493 | 21,723 | (770 | ) | (3.4 | %) | ||||||||||||||||||||
Service revenues | 3,768 | 3,950 | 182 | 4.8 | % | 12,709 | 11,650 | (1,059 | ) | (8.3 | %) | |||||||||||||||||||||
Total net sales | 135,649 | 149,967 | 14,318 | 10.6 | % | 474,694 | 456,287 | (18,407 | ) | (3.9 | %) | |||||||||||||||||||||
Finance charges and other | 34,915 | 29,578 | (5,337 | ) | (15.3 | %) | 106,719 | 98,081 | (8,638 | ) | (8.1 | %) | ||||||||||||||||||||
Total revenues | 170,564 | 179,545 | 8,981 | 5.3 | % | 581,413 | 554,368 | (27,045 | ) | (4.7 | %) | |||||||||||||||||||||
Cost and expenses | ||||||||||||||||||||||||||||||||
Cost of goods and parts sold | 101,188 | 114,669 | 13,481 | 13.3 | % | 350,113 | 333,106 | (17,007 | ) | (4.9 | %) | |||||||||||||||||||||
Selling, general and administrative expense | 55,288 | 59,623 | 4,335 | 7.8 | % | 174,589 | 172,062 | (2,527 | ) | (1.4 | %) | |||||||||||||||||||||
Costs related to store closings | - | (313 | ) | (313 | ) | 0.0 | % | - | 688 | 688 | 0.0 | % | ||||||||||||||||||||
Impairment of long-lived assets | - | 688 | 688 | 0.0 | % | - | 3,345 | 3,345 | 0.0 | % | ||||||||||||||||||||||
Provision for bad debts | 10,813 | 19,322 | 8,509 | 78.7 | % | 28,786 | 31,852 | 3,066 | 10.7 | % | ||||||||||||||||||||||
Total cost and expenses | 167,289 | 193,989 | 26,700 | 16.0 | % | 553,488 | 541,053 | (12,435 | ) | (2.2 | %) | |||||||||||||||||||||
Operating income (loss) | 3,275 | (14,444 | ) | (17,719 | ) | (541.0 | %) | 27,925 | 13,315 | (14,610 | ) | (52.3 | %) | |||||||||||||||||||
Interest expense, net | 7,722 | 3,919 | (3,803 | ) | (49.2 | %) | 20,234 | 18,479 | (1,755 | ) | (8.7 | %) | ||||||||||||||||||||
Costs related to financing transactions not completed | 2,896 | - | (2,896 | ) | (100.0 | %) | 2,896 | - | (2,896 | ) | (100.0 | %) | ||||||||||||||||||||
Loss from early extinguishment of debt | - | - | - | 0.0 | % | - | 11,056 | 11,056 | 0.0 | % | ||||||||||||||||||||||
Other (income) expense, net | (16 | ) | (5 | ) | 11 | (70.6 | %) | 167 | 81 | (86 | ) | (51.5 | %) | |||||||||||||||||||
Income (loss) before income taxes | (7,327 | ) | (18,358 | ) | (11,031 | ) | 190.1 | % | 4,628 | (16,301 | ) | (23,825 | ) | (514.8 | %) | |||||||||||||||||
Provision (benefit) for income taxes | (2,547 | ) | (5,635 | ) | (3,088 | ) | 121.3 | % | 2,123 | (4,877 | ) | (7,000 | ) | (329.7 | %) | |||||||||||||||||
Net Income (Loss) | $ | (4,780 | ) | $ | (12,723 | ) | $ | (7,943 | ) | 166.2 | % | $ | 2,505 | $ | (11,424 | ) | $ | (13,929 | ) | (556.0 | %) | |||||||||||
Three Months Ended. | Nine Months Ended | |||||||||||||||||||||||||||||||
Retail Segment | October 31, | 2011 vs. 2010 | October 31, | 2011 vs. 2010 | ||||||||||||||||||||||||||||
(Dollars in thousands) | 2010 | 2011 | Amount | % | 2010 | 2011 | Amount | % | ||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||
Product sales | $ | 125,817 | $ | 140,404 | $ | 14,587 | 11.6 | % | $ | 439,492 | $ | 422,914 | $ | (16,578 | ) | (3.8 | %) | |||||||||||||||
Repair service agreement commissions (net) | 8,275 | 10,602 | 2,327 | 28.1 | % | 28,616 | 29,449 | 833 | 2.9 | % | ||||||||||||||||||||||
Service revenues | 3,768 | 3,950 | 182 | 4.8 | % | 12,709 | 11,650 | (1,059 | ) | (8.3 | %) | |||||||||||||||||||||
Total net sales | 137,860 | 154,956 | 17,096 | 12.4 | % | 480,817 | 464,013 | (16,804 | ) | (3.5 | %) | |||||||||||||||||||||
Finance charges and other | 216 | 60 | (156 | ) | (72.2 | %) | 681 | 678 | (3 | ) | (0.4 | %) | ||||||||||||||||||||
Total revenues | 138,076 | 155,016 | 16,940 | 12.3 | % | 481,498 | 464,691 | (16,807 | ) | (3.5 | %) | |||||||||||||||||||||
Cost and expenses | ||||||||||||||||||||||||||||||||
Cost of goods and parts sold | 101,188 | 114,669 | 13,481 | 13.3 | % | 350,113 | 333,106 | (17,007 | ) | (4.9 | %) | |||||||||||||||||||||
Selling, general and administrative expense | 40,148 | 45,721 | 5,573 | 13.9 | % | 126,689 | 128,653 | 1,964 | 1.6 | % | ||||||||||||||||||||||
Costs related to store closings | - | (313 | ) | (313 | ) | 0.0 | % | - | 688 | 688 | 0.0 | % | ||||||||||||||||||||
Impairment of long-lived assets | - | 688 | 688 | 0.0 | % | - | 3,345 | 3,345 | 0.0 | % | ||||||||||||||||||||||
Provision for bad debts | 271 | 135 | (136 | ) | (50.2 | %) | 668 | 469 | (199 | ) | (29.8 | %) | ||||||||||||||||||||
Total cost and expenses | 141,607 | 160,900 | 19,293 | 13.6 | % | 477,470 | 466,261 | (11,209 | ) | (2.3 | %) | |||||||||||||||||||||
Operating income (loss) | (3,531 | ) | (5,884 | ) | (2,353 | ) | 66.6 | % | 4,028 | (1,570 | ) | (5,598 | ) | (139.0 | %) | |||||||||||||||||
Other expense (income), net | (16 | ) | (5 | ) | 11 | (68.8 | %) | 167 | 81 | (86 | ) | (51.5 | %) | |||||||||||||||||||
Income (loss) before income taxes | $ | (3,515 | ) | $ | (5,879 | ) | $ | (2,364 | ) | 67.3 | % | $ | 3,861 | $ | (1,651 | ) | $ | (5,512 | ) | (142.8 | %) | |||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
Credit | October 31, | 2011 vs. 2010 | October 31, | 2011 vs. 2010 | ||||||||||||||||||||||||||||
(Dollars in thousands) | 2010 | 2011 | Amount | % | 2010 | 2011 | Amount | % | ||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||
Product sales | $ | - | $ | - | $ | - | 0.0 | % | $ | - | $ | - | $ | - | 0.0 | % | ||||||||||||||||
Repair service agreement commissions (net) (a) | (2,211 | ) | (4,989 | ) | (2,778 | ) | 125.6 | % | (6,123 | ) | (7,726 | ) | (1,603 | ) | 26.2 | % | ||||||||||||||||
Service revenues | - | - | - | 0.0 | % | - | - | - | 0.0 | % | ||||||||||||||||||||||
Total net sales | (2,211 | ) | (4,989 | ) | (2,778 | ) | 125.6 | % | (6,123 | ) | (7,726 | ) | (1,603 | ) | 26.2 | % | ||||||||||||||||
Finance charges and other | 34,699 | 29,518 | (5,181 | ) | (14.9 | %) | 106,038 | 97,403 | (8,635 | ) | (8.1 | %) | ||||||||||||||||||||
Total revenues | 32,488 | 24,529 | (7,959 | ) | (24.5 | %) | 99,915 | 89,677 | (10,238 | ) | (10.2 | %) | ||||||||||||||||||||
Cost and expenses | 0.0 | % | 0.0 | % | ||||||||||||||||||||||||||||
Cost of goods and parts sold | - | - | - | 0.0 | % | - | - | - | 0.0 | % | ||||||||||||||||||||||
Selling, general and administrative expense (b) | 15,140 | 13,902 | (1,238 | ) | (8.2 | %) | 47,900 | 43,409 | (4,491 | ) | (9.4 | %) | ||||||||||||||||||||
Provision for bad debts | 10,542 | 19,187 | 8,645 | 82.0 | % | 28,118 | 31,383 | 3,265 | 11.6 | % | ||||||||||||||||||||||
Total cost and expenses | 25,682 | 33,089 | 7,407 | 28.8 | % | 76,018 | 74,792 | (1,226 | ) | (1.6 | %) | |||||||||||||||||||||
Operating income (loss) | 6,806 | (8,560 | ) | (15,366 | ) | (225.8 | %) | 23,897 | 14,885 | (9,012 | ) | (37.7 | %) | |||||||||||||||||||
Interest expense, net | 7,722 | 3,919 | (3,803 | ) | (49.2 | %) | 20,234 | 18,479 | (1,755 | ) | (8.7 | %) | ||||||||||||||||||||
Costs related to financing transactions not completed | 2,896 | - | (2,896 | ) | (100.0 | %) | 2,896 | - | (2,896 | ) | (100.0 | %) | ||||||||||||||||||||
Loss from early extinguishment of debt | - | - | - | 0.0 | % | - | 11,056 | 11,056 | 0.0 | % | ||||||||||||||||||||||
Other expense, net | - | - | - | 0.0 | % | - | - | - | 0.0 | % | ||||||||||||||||||||||
Income (loss) before income taxes | $ | (3,812 | ) | $ | (12,479 | ) | $ | (8,667 | ) | 227 | % | $ | 767 | $ | (14,650 | ) | $ | (15,417 | ) | (2,010.0 | %) | |||||||||||
Total Consolidated
Three Months Ended | ||||||||||||||||
April 30, | 2012 vs. 2011 | |||||||||||||||
(in thousands, except percentages) | 2012 | 2011 | Amount | % | ||||||||||||
Revenues | ||||||||||||||||
Product sales | $ | 152,115 | $ | 144,279 | $ | 7,836 | 5.4 | % | ||||||||
Repair service agreement commissions, net | 11,392 | 8,902 | 2,490 | 28.0 | % | |||||||||||
Service revenues | 3,430 | 3,889 | (459 | ) | (11.8 | %) | ||||||||||
|
|
|
|
|
| |||||||||||
Total net sales | 166,937 | 157,070 | 9,867 | 6.3 | % | |||||||||||
|
|
|
|
|
| |||||||||||
Finance charges and other | 33,914 | 34,912 | (998 | ) | (2.9 | %) | ||||||||||
|
|
|
|
|
| |||||||||||
Total revenues | 200,851 | 191,982 | 8,869 | 4.6 | % | |||||||||||
Cost and expenses | ||||||||||||||||
Cost of goods sold, including warehousing and occupancy costs | 108,443 | 106,453 | 1,990 | 1.9 | % | |||||||||||
Cost of service parts sold, including warehousing and occupancy cost | 1,550 | 1,730 | (180 | ) | (10.4 | %) | ||||||||||
Selling, general and administrative expense (a) | 59,656 | 59,445 | 211 | 0.4 | % | |||||||||||
Provision for bad debts | 9,185 | 9,564 | (379 | ) | (4.0 | %) | ||||||||||
Store closing costs | 163 | — | 163 | 100.0 | % | |||||||||||
|
|
|
|
|
| |||||||||||
Total cost and expenses | 178,997 | 177,192 | 1,805 | 1.0 | % | |||||||||||
|
|
|
|
|
| |||||||||||
Operating income | 21,854 | 14,790 | 7,064 | 47.8 | % | |||||||||||
Operating margin | 10.9 | % | 7.7 | % | ||||||||||||
Interest expense, net | 3,759 | 7,556 | (3,797 | ) | (50.3 | %) | ||||||||||
Other (income) expense, net | (96 | ) | 52 | (148 | ) | (284.6 | %) | |||||||||
|
|
|
|
|
| |||||||||||
Income before income taxes | 18,191 | 7,182 | 11,009 | 153.3 | % | |||||||||||
|
|
|
|
|
| |||||||||||
Provision for income taxes | 6,635 | 2,781 | 3,854 | 138.6 | % | |||||||||||
|
|
|
|
|
| |||||||||||
Net income | $ | 11,556 | $ | 4,401 | $ | 7,155 | 162.6 | % | ||||||||
|
|
|
|
|
|
Retail repair service agreement commissions exclude repair service agreement cancellations that are the result of customer credit account charge-offs. These amounts are reflected in repair service agreement commissions for the credit segment. The allocation of the cancellations was adjusted in the prior period presentation to conform to the current period’s presentation, which is consistent with the basis that management uses internally to allocate those items.
Three Months Ended | ||||||||||||||||
April 30, | 2012 vs. 2011 | |||||||||||||||
(in thousands, except percentages) | 2012 | 2011 | Amount | % | ||||||||||||
Revenues | ||||||||||||||||
Product sales | $ | 152,115 | $ | 144,279 | $ | 7,836 | 5.4 | % | ||||||||
Repair service agreement commissions, net | 11,392 | 8,902 | 2,490 | 28.0 | % | |||||||||||
Service revenues | 3,430 | 3,889 | (459 | ) | (11.8 | %) | ||||||||||
|
|
|
|
|
| |||||||||||
Total net sales | 166,937 | 157,070 | 9,867 | 6.3 | % | |||||||||||
|
|
|
|
|
| |||||||||||
Finance charges and other | 241 | 225 | 16 | 7.1 | % | |||||||||||
|
|
|
|
|
| |||||||||||
Total revenues | 167,178 | 157,295 | 9,883 | 6.3 | % | |||||||||||
Cost and expenses | ||||||||||||||||
Cost of goods sold, including warehousing and occupancy costs | 108,443 | 106,453 | 1,990 | 1.9 | % | |||||||||||
Cost of service parts sold, including warehousing and occupancy cost | 1,550 | 1,730 | (180 | ) | (10.4 | )% | ||||||||||
Selling, general and administrative expense (a) | 46,049 | 44,102 | 1,947 | 4.4 | % | |||||||||||
Provision for bad debts | 212 | 143 | 69 | 48.3 | % | |||||||||||
Costs related to store closings | 163 | — | 163 | 100.0 | % | |||||||||||
|
|
|
|
|
| |||||||||||
Total cost and expenses | 156,417 | 152,428 | 3,989 | 2.6 | % | |||||||||||
Operating income | 10,761 | 4,867 | 5,894 | 121.1 | % | |||||||||||
Operating margin | 6.4 | % | 3.1 | % | ||||||||||||
Other expense (income), net | (96 | ) | 52 | (148 | ) | (284.6 | %) | |||||||||
|
|
|
|
|
| |||||||||||
Segment income before income taxes | $ | 10,857 | $ | 4,815 | $ | 6,042 | 125.5 | % | ||||||||
|
|
|
|
|
|
(b) – Selling, general and administrative expenses include the direct expenses of the retail and credit operations, allocated overhead expenses and a charge to the credit segment to reimburse the retail segment for expenses it incurs related to occupancy, personnel, advertising and other direct costs of the retail segment which benefit the credit operations by sourcing credit customers and collecting payments. The reimbursement received by the retail segment from the credit segment is estimated using an annual rate of 2.5% times the average portfolio balance for each applicable period. The amount of overhead allocated to each segment was approximately $5.0 million and $5.7 million for the nineCredit Segment
Three Months Ended | ||||||||||||||||
April 30, | 2012 vs. 2011 | |||||||||||||||
(in thousands, except percentages) | 2012 | 2011 | Amount | % | ||||||||||||
Revenues | ||||||||||||||||
Finance charges and other | $ | 33,673 | $ | 34,687 | $ | (1,014 | ) | (2.9 | ) | |||||||
Cost and expenses | ||||||||||||||||
Selling, general and administrative expense (a) | 13,607 | 15,343 | (1,736 | ) | (11.3 | ) | ||||||||||
Provision for bad debts | 8,973 | 9,421 | (448 | ) | (4.8 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Total cost and expenses | 22,580 | 24,764 | (2,184 | ) | (8.8 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Operating income | 11,093 | 9,923 | 1,170 | 11.8 | ||||||||||||
Operating margin | 32.9 | % | 28.6 | % | ||||||||||||
Interest expense, net | 3,759 | 7,556 | (3,797 | ) | (50.3 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Segment income before income taxes | $ | 7,334 | $ | 2,367 | $ | 4,967 | 209.8 | |||||||||
|
|
|
|
|
|
(a) | Selling, general and administrative expenses include the direct expenses of the retail and credit operations, allocated overhead expenses and a charge to the credit segment to reimburse the retail segment for expenses it incurs related to occupancy, personnel, advertising and other direct costs of the retail segment which benefit the credit operations by sourcing credit customers and collecting payments. The reimbursement received by the retail segment from the credit segment is estimated using an annual rate of 2.5% times the average portfolio balance for each applicable period. The amount of overhead allocated to each segment was approximately $2.2 million and $2.2 million for the three months ended April 30, 2012 and 2011, respectively. The amount of reimbursement made to the retail segment by the credit segment was approximately $4.0 million and $4.0 million for the three months ended April 30, 2012 and 2011, respectively. |
Three months ended October 31, 2010 and 2011, respectively. The amount of overhead allocatedApril 30, 2012 compared to each segment was approximately $1.6 million and $1.7 million for the three months ended October 31, 2010 andApril 30, 2011 respectively. The amount of reimbursement made to the retail segment by the credit segment was approximately $13.2 million and $11.6 million for the nine months ended October 31, 2010 and 2011, respectively and approximately $4.4 million and $3.8 million for the three months ended October 31, 2010 and 2011, respectively.
Three Months Ended | ||||||||||||||||
October 31, | Change | |||||||||||||||
(Dollars in millions) | 2010 | 2011 | $ | % | ||||||||||||
Net sales | $ | 135.7 | $ | 150.0 | 14.3 | 10.5 | ||||||||||
Finance charges and other | 34.9 | 29.6 | (5.3 | ) | (15.2 | ) | ||||||||||
Total Revenues | $ | 170.6 | $ | 179.6 | 9.0 | 5.3 | ||||||||||
Three Months Ended | ||||||||||||||||
April 30, | Change | |||||||||||||||
(in thousands, except percentages) | 2012 | 2011 | $ | % | ||||||||||||
Total net sales | $ | 166,937 | $ | 157,070 | 9,867 | 6.3 | ||||||||||
Finance charges and other | 33,914 | 34,912 | (998 | ) | (2.9 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Total Revenues | $ | 200,851 | $ | 191,982 | 8,869 | 4.6 | ||||||||||
|
|
|
|
|
|
The following table presents the makeupprovides an analysis of net sales by product category in each period, including repair service agreement commissions and service revenues, expressed both in dollar amounts and as a percent of total net sales. Classification of sales has been adjusted from previous filings to ensure comparability between the categories.
Three Months ended October 31, | Same Store | |||||||||||||||||||||||||||
(Dollars in millions) | 2010 | % of Total | 2011 | % of Total | Change | % Change | % Change | |||||||||||||||||||||
Consumer electronics | $ | 47.7 | 35.2 | % | $ | 49.1 | 32.7 | % | $ | 1.4 | 2.9 | % | 8.6 | % | ||||||||||||||
Home appliances | 42.3 | 31.2 | 47.0 | 31.3 | 4.7 | 11.1 | % | 16.5 | % | |||||||||||||||||||
Furniture and mattresses | 16.4 | 12.1 | 26.0 | 17.3 | 9.6 | 58.5 | % | 68.9 | % | |||||||||||||||||||
Home office | 13.4 | 9.9 | 12.9 | 8.6 | (0.5 | ) | (3.7 | %) | (1.9 | %) | ||||||||||||||||||
Other | 6.0 | 4.4 | 5.4 | 3.6 | (0.6 | ) | (10.0 | %) | (2.5 | %) | ||||||||||||||||||
Total product sales | 125.8 | 92.8 | 140.4 | 93.5 | 14.6 | 11.6 | % | 17.3 | % | |||||||||||||||||||
Repair service agreement commissions - Retail segment | 8.3 | 6.1 | 10.6 | 7.1 | 2.3 | 27.7 | % | 32.0 | % | |||||||||||||||||||
Repair service agreement commissions - Credit segment | (2.2 | ) | (1.6 | ) | (5.0 | ) | (3.3 | ) | (2.8 | ) | 127.3 | % | ||||||||||||||||
Service revenues | 3.8 | 2.7 | 4.0 | 2.7 | 0.2 | 5.3 | % | |||||||||||||||||||||
Total net sales | $ | 135.7 | 100.0 | % | $ | 150.0 | 100.0 | % | $ | 14.3 | 10.5 | % | 18.9 | % | ||||||||||||||
Three Months ended April 30, | % | Same store | ||||||||||||||||||||||||||
2012 | % of Total | 2011 | % of Total | Change | Change | % change | ||||||||||||||||||||||
(in thousands except for percertages) | ||||||||||||||||||||||||||||
Home appliance | $ | 48,293 | 28.9 | % | $ | 45,133 | 28.7 | % | $ | 3,160 | 7.0 | 16.7 | % | |||||||||||||||
Furniture and mattress | 28,446 | 17.0 | 21,970 | 14.0 | 6,476 | 29.5 | 43.1 | % | ||||||||||||||||||||
Consumer electronic | 52,446 | 31.4 | 58,132 | 37.0 | (5,686 | ) | (9.8 | ) | (0.2 | %) | ||||||||||||||||||
Home office | 12,150 | 7.3 | 11,109 | 7.1 | 1,041 | 9.4 | 19.9 | % | ||||||||||||||||||||
Other | 10,780 | 6.5 | 7,935 | 5.1 | 2,845 | 35.9 | 47.3 | % | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Product sales | 152,115 | 91.1 | 144,279 | 91.9 | 7,836 | 5.4 | 16.0 | % | ||||||||||||||||||||
Repair service agreement commissions | 11,392 | 6.8 | 8,902 | 5.7 | 2,490 | 28.0 | 36.8 | % | ||||||||||||||||||||
Service revenues | 3,430 | 2.1 | 3,889 | 2.4 | (459 | ) | (11.8 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total net sales | $ | 166,937 | 100.0 | % | $ | 157,070 | 100.0 | % | $ | 9,867 | 6.3 | 17.8 | % | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
The following isprovides a summary of some of the key items impacting net salesthe Company’s product categories during the quarter, as compared to the same quarter in the prior fiscal year:
Home appliance sales increased during the quarter on a 28.7% increase in the average selling price, partially offset by a 15.9% decrease in unit sales. Approximately half of the unit sales decline was attributable to store closures in the prior fiscal year. On a same store basis, laundry sales were up 20.0%, refrigeration sales were up 15.9% and cooking sales were up 32.1%, while room air conditioner sales were down 29.8% due to milder temperatures;
The growth in furniture and mattress sales was driven by enhanced displays and product selection, and increased promotional activity. The reported increase was moderated by the impact of the store closures. Furniture same store sales growth was driven by a 25.2% increase in the average sales price and a 12.5% increase in unit sales. Mattress same store sales also increased reflecting a favorable shift in product mix with the Company’s decision to discontinue offering low price-point products. The average mattress selling price was up 69.5%, while unit volume declined 12.1% on a same store basis; and
Consumer electronic sales decreased due primarily to the closure of 11 stores in fiscal year 2012. On a same store basis, sales were comparable with growth in home theater and television sales offset by a reduction in gaming hardware and accessory item sales. With the Company’s decision not to compete for low-priced, low-margin television sales during the current quarter, the same store average selling price for televisions increased 27.4%, while unit sales declined 21.0%;
Home office sales grew primarily as a result of the expansion of tablet sales and a 24.5% increase in the average selling price of laptop and desktop computers, partially offset by the impact of store closures, a decline in computer unit volume and lower sales of accessory items.
Three Months Ended | ||||||||||||||||
October 31, | Change | |||||||||||||||
(Dollars in millions) | 2010 | 2011 | $ | % | ||||||||||||
Interest income and fees | $ | 31.2 | $ | 27.2 | (4.0 | ) | (12.8 | ) | ||||||||
Insurance commissions | 3.5 | 2.3 | (1.2 | ) | (34.3 | ) | ||||||||||
Other income | 0.2 | 0.1 | (0.1 | ) | (50.0 | ) | ||||||||||
Finance charges and other | $ | 34.9 | $ | 29.6 | (5.3 | ) | (15.2 | ) | ||||||||
Interest income and fees Insurance commissions Other income Finance charges and other Three Months Ended April 30, Change (in thousands, except percentages) 2012 2011 $ % $ 28,640 $ 30,632 (1,992 ) (6.5 ) 5,033 4,056 977 24.1 241 224 17 7.6 $ 33,914 $ 34,912 (998 ) (2.9 )
Interest income and fees and insurance commissions are included in the Financefinance charges and other for the credit segment, while Otherother income is included in Financefinance charges and other for the retail segment.
The decrease in Interestinterest income and fees of the credit segment resultedwas driven primarily dueby a decline in portfolio interest and fee yield to 18.0% from 18.9% in the first quarter of fiscal year 2012, reflecting a decreasehigher proportion of short-term promotional receivables outstanding relative to the total portfolio balance outstanding, increased net charge-off levels and a decline in the average balance of customer accounts receivable outstanding during the three months ended October 31, 2011 of 13.1%, as compared to the prior year period. Additionally, the adoption of TDR accounting guidance, which resulted in an increase in reserves for uncollectible interest, negatively impacted interest income and fees by $1.0 million and the interest income and fee yield by 70 basis points. Increased reserves for non-TDR accounts also reduced the current period yield. The average interest income and fee yield earned on the portfolio increased from 17.9% for the three months ended October 31, 2010, to 18.0% for the three months ended October 31, 2011. Insurance commissions of the credit segment declined primarily due to the impact of the TDR accounting adoption and increase in reserves on the non-TDR accounts.
The following table provides key portfolio performance information for the three months ended October31, 2010April 30, 2012 and 2011:
Three Months Ended | ||||||||
October 31, | ||||||||
2010 | 2011 | |||||||
(Dollars in millions) | ||||||||
Interest income and fees (a) | $ | 31.2 | $ | 27.2 | ||||
Net charge-offs (b) | (10.7 | ) | (5.4 | ) | ||||
Borrowing costs (c) | (7.7 | ) | (3.9 | ) | ||||
Net portfolio yield | $ | 12.8 | $ | 17.9 | ||||
Average portfolio balance | $ | 695.3 | $ | 604.0 | ||||
Interest income and fee yield % (annualized) | 17.9 | % | 18.0 | % | ||||
Net charge-off % (annualized) | 6.2 | % | 3.6 | % |
Three Months Ended | ||||||||
April 30, | ||||||||
2012 | 2011 | |||||||
(in thousands, except percentages) | ||||||||
Interest income and fees (a) | $ | 28,640 | $ | 30,632 | ||||
Net charge-offs (b) | (13,529 | ) | (11,008 | ) | ||||
Borrowing costs (c) | (3,759 | ) | (7,556 | ) | ||||
|
|
|
| |||||
Net portfolio yield | $ | 11,352 | $ | 12,068 | ||||
|
|
|
| |||||
Average portfolio balance | $ | 634,743 | $ | 647,754 | ||||
Interest income and fee yield % (annualized) | 18.0 | % | 18.9 | % | ||||
Net charge-off % (annualized) | 8.5 | % | 6.8 | % |
Included in |
Included in |
Included in |
Three Months Ended | ||||||||||||||||
October 31, | Change | |||||||||||||||
(Dollars in millions) | 2010 | 2011 | $ | % | ||||||||||||
Cost of goods sold | $ | 99.5 | $ | 113.0 | 13.5 | 13.6 | ||||||||||
Product gross margin percentage | 20.9 | % | 19.5 | % | (1.4 | %) |
Three Months Ended | ||||||||||||||||
April 30, | Change | |||||||||||||||
(in thousands, except percentages) | 2012 | 2011 | $ | % | ||||||||||||
Cost of goods sold | $ | 108,443 | $ | 106,453 | 1,990 | 1.9 | ||||||||||
Product gross margin percentage | 28.7 | % | 26.2 | % | 2.5 | % |
Product gross margin decreasedexpanded 250 basis points as a percent of product sales from the three months ending October 31, 2010 due to an increase in the inventory reserve of $4.7 million at October 31, 2011. The inventory reserve adjustment resulted in a reduction of 330 basis points in product gross margin for the quarter ended October 31, 2011. AApril 30, 2011 due primarily to a shift in our relative product mix to highermix. The majority of the margin expansion was driven by the furniture and mattressesmattress category, attributable to improved gross margin levels and improved margins generated in the home appliances and home office categories in the current year period partially offset the impactyear-over-year sales growth which outpaced that of the reserve adjustment.
Three Months Ended | ||||||||||||||||
October 31, | Change | |||||||||||||||
(Dollars in millions) | 2010 | 2011 | $ | % | ||||||||||||
Cost of service parts sold | $ | 1.6 | $ | 1.6 | - | - | ||||||||||
As a percent of service revenues | 42.5 | % | 40.5 | % | (2.0 | %) |
Cost of service parts sold As a percent of service revenues Three Months Ended April 30, Change (in thousands, except percentages) 2012 2011 $ % $ 1,550 $ 1,730 (180 ) (10.4 ) 45.2 % 44.5 % 0.7 %
Cost of service parts sold remained relatively constant while service revenues increaseddecreased by $0.2$0.4 million.
Three Months Ended | ||||||||||||||||
October 31, | Change | |||||||||||||||
(Dollars in millions) | 2010 | 2011 | $ | % | ||||||||||||
Selling, general and administrative expense - Retail | $ | 40.1 | $ | 45.7 | 5.6 | 14.0 | ||||||||||
Selling, general and administrative expense - Credit | 15.2 | 13.9 | (1.3 | ) | (8.6 | ) | ||||||||||
Selling, general and administrative expense - Total | $ | 55.3 | �� | $ | 59.6 | 4.3 | 7.8 | |||||||||
As a percent of total revenues | 32.4 | % | 32.8 | % | (0.4 | %) |
Three Months Ended | ||||||||||||||||
April 30, | Change | |||||||||||||||
(in thousands, except percentages) | 2012 | 2011 | $ | % | ||||||||||||
Selling, general and administrative expense—Retail | $ | 46,049 | $ | 44,102 | 1,947 | 4.4 | ||||||||||
Selling, general and administrative expense—Credit | 13,607 | 15,343 | (1,736 | ) | (11.3 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Selling, general and administrative expense—Total | $ | 59,656 | $ | 59,445 | 211 | 0.4 | ||||||||||
|
|
|
|
|
| |||||||||||
As a percent of total revenues | 29.7 | % | 31.0 | % | (1.3 | %) |
For the three months ended October 31, 2011,April 30, 2012, SG&A expense increased $4.3$0.2 million, driven by the increase inhigher retail product sales, specifically by our investment in advertising and sales staffing, in support of our growth initiatives, to drive sales growth in the third and fourth quarter of the current fiscal year and on an ongoing basis.sales. These increases were partially offset by reductions in depreciation and occupancy expense, reducedcredit personnel costs related to our property and casualty insurance program, and reduced credit card fees. The improvement in our SG&A expense as a percentage of total revenues was largely attributable to the leveraging effect of higher total revenues as overall SG&A expenses related to credit mailings.
Significant SG&A expense increases and decreases related to specific business segments included the following:
Retail Segment
The following are the significant factors affecting the retail segment:
Total compensation costs and related expenses increased approximately $3.6 million from the prior period. The increase was driven by higher sales-related compensation and increases in employee benefit costs;
Advertising expense increased approximately $0.2 million;
Depreciation and occupancy expenses decreased approximately $1.1 million with the closure of 11 stores; and
Credit card fees decreased approximately $0.7 million.
Credit Segment
The following are the significant factors affecting the credit segment:
Total compensation costs and related expenses decreased approximately $1.0 million from the prior period due to a decrease in staffing as the performance of the portfolio improved and our credit portfolio balance dropped;
Form printing and purchases and related postage decreased approximately $0.2 million as collection efforts did not utilize letter mailings |
Three Months Ended October 31, | Change | |||||||||||||||
(Dollars in millions) | 2010 | 2011 | $ | % | ||||||||||||
Impairment of long-lived assets | $ | - | $ | 0.7 | 0.7 | - |
Information technology expenses decreased $0.2 million.
Three Months Ended | ||||||||||||||||
October 31, | Change | |||||||||||||||
(Dollars in millions) | 2010 | 2011 | $ | % | ||||||||||||
Provision for bad debts | $ | 10.8 | $ | 19.3 | 8.5 | 78.7 | ||||||||||
As a percent of average portfolio balance (annualized) | 6.2 | % | 12.8 | % | 6.6 | % |
Three Months Ended | ||||||||||||||||
April 30, | Change | |||||||||||||||
(in thousands, except percentages) | 2012 | 2011 | $ | % | ||||||||||||
Provision for bad debts | $ | 9,185 | $ | 9,564 | (379 | ) | (4.0 | ) | ||||||||
As a percent of average portfolio balance (annualized) | 5.8 | % | 5.9 | % | (0.1 | %) |
The provision for bad debts is primarily related to the operations of our credit segment, with approximately $0.3$0.2 million and $0.1 million for the periods ended October 31, 2010April 30, 2012 and 2011, respectively, included in the results of operations for the retail segment.
The Provisionprovision for bad debts increaseddecreased by $8.5$0.4 million for the three months ended October 31, 2011,April 30, 2012, from $10.8$9.6 million in the prior year period. We have experienced an improvement in ourprior-year period, as the credit portfolio performance (specifically, the trends in the payment rate, delinquency rate and percent of the portfolio reaged) since the fourth quarter of fiscal 2011 and our total net charge-offs of customer and non-customer accounts receivable decreased by $5.3 million comparedcontinued to the prior period. However, a charge of $10.0 million was recorded in this quarter as we adopted the new TDR accounting guidance. Additionally, changes in our reaging policies are expected to accelerate the timing of credit account charge-offs. As a result, we increased our bad debt reserves for non-TDR accounts during the current year quarter.
Three Months Ended | ||||||||||||||||
October 31, | Change | |||||||||||||||
(Dollars in millions) | 2010 | 2011 | $ | % | ||||||||||||
Interest expense, net | $ | 7.7 | $ | 3.9 | (3.8 | ) | (49.4 | ) |
Interest expense Three Months Ended April 30, Change (in thousands, except percentages) 2012 2011 $ % $ 3,759 $ 7,556 (3,797 ) (50.3 )
Net interest expense decreased infor the three months ended October 31, 2011April 30, 2012 decreased by $3.8 million overfrom the prior-year period primarily due to the payoff of higher interest borrowings in the prior year primarily due toperiod and the effect of a lower overall debt balance outstanding and the prior period payoff of the higher cost securitization borrowings.outstanding. The entirety of our interest expense is included in the results of operations of ourthe credit segment.
Three Months Ended | ||||||||||||||||
October 31, | Change | |||||||||||||||
(Dollars in millions) | 2010 | 2011 | $ | % | ||||||||||||
Costs related to financing transactions not completed | $ | 2.9 | $ | - | (2.9 | ) | (100.0 | ) | ||||||||
Three Months Ended | ||||||||||||||||
October 31, | Change | |||||||||||||||
(Dollars in millions) | 2010 | 2011 | $ | % | ||||||||||||
Benefit for income taxes | $ | (2.5 | ) | $ | (5.6 | ) | (3.1 | ) | 124.0 | |||||||
As a percent of income (loss) before income taxes | 34.8 | % | 30.7 | % | 4.1 | % |
Three Months Ended | ||||||||||||||||
April 30, | Change | |||||||||||||||
(in thousands, except percentages) | 2012 | 2011 | $ | % | ||||||||||||
Provision for income taxes | $ | 6,635 | $ | 2,781 | 3,854 | 138.6 | ||||||||||
As a percent of income before income taxes | 36.5 | % | 38.7 | % | (2.2 | %) |
The benefitprovision for income taxes increased primarily asdue to the year-over-year improvement in profitability. The improvement in profitability also drove a result ofdecline in the changeeffective tax rate in our effective rate as a result of our reporting a loss before income taxes andthe current quarter due to the impact of the Texas margin tax, which is based on gross margin and is not affected by changes in income or loss before income taxes.
Nine Months Ended | ||||||||||||||||
October 31, | Change | |||||||||||||||
(Dollars in millions) | 2010 | 2011 | $ | % | ||||||||||||
Net sales | $ | 474.7 | $ | 456.3 | (18.4 | ) | (3.9 | ) | ||||||||
Finance charges and other | 106.7 | 98.1 | (8.6 | ) | (8.1 | ) | ||||||||||
Total Revenues | $ | 581.4 | $ | 554.4 | (27.0 | ) | (4.6 | ) | ||||||||
Liquidity and Capital Resources
Cash flow
Operating activities
During the following:
Nine Months ended October 31, | Same Store | |||||||||||||||||||||||||||
(Dollars in millions) | 2010 | % of Total | 2011 | % of Total | Change | % Change | % Change | |||||||||||||||||||||
Consumer electronics | $ | 167.5 | 35.3 | % | $ | 152.6 | 33.4 | % | $ | (14.9 | ) | (8.9 | %) | (6.5 | %) | |||||||||||||
Home appliances | 149.5 | 31.5 | 143.6 | 31.5 | (5.9 | ) | (3.9 | %) | (1.6 | %) | ||||||||||||||||||
Furniture and mattresses | 56.5 | 11.9 | 72.3 | 15.8 | 15.8 | 28.0 | % | 32.0 | % | |||||||||||||||||||
Home office | 39.5 | 8.3 | 33.8 | 7.4 | (5.7 | ) | (14.4 | %) | (13.1 | %) | ||||||||||||||||||
Other | 26.5 | 5.6 | 20.6 | 4.5 | (5.9 | ) | (22.3 | %) | (22.1 | %) | ||||||||||||||||||
Total product sales | 439.5 | 92.6 | 422.9 | 92.6 | (16.6 | ) | (3.8 | %) | (1.5 | %) | ||||||||||||||||||
Repair service agreement commissions - Retail segment | 28.6 | 6.0 | 29.4 | 6.4 | 0.8 | 2.8 | % | 6.5 | % | |||||||||||||||||||
Repair service agreement commissions - Credit segment | (6.1 | ) | (1.3 | ) | (7.7 | ) | (1.6 | ) | (1.6 | ) | 26.2 | % | ||||||||||||||||
Service revenues | 12.7 | 2.7 | 11.7 | 2.6 | (1.0 | ) | (7.9 | %) | ||||||||||||||||||||
Total net sales | $ | 474.7 | 100.0 | % | $ | 456.3 | 100.0 | % | $ | (18.4 | ) | (3.9 | %) | (0.7 | %) | |||||||||||||
Investing activities
Net cash used in investing activities increased to $14.2 million in the current period, as compared to the same period$0.3 million in the prior fiscal year:
Nine Months Ended | ||||||||||||||||
October 31, | Change | |||||||||||||||
(Dollars in millions) | 2010 | 2011 | $ | % | ||||||||||||
Interest income and fees | $ | 94.3 | $ | 87.5 | (6.8 | ) | (7.2 | ) | ||||||||
Insurance commissions | 11.7 | 9.9 | (1.8 | ) | (15.4 | ) | ||||||||||
Other income | 0.7 | 0.7 | - | - | ||||||||||||
Finance charges and other | $ | 106.7 | $ | 98.1 | (8.6 | ) | (8.1 | ) | ||||||||
Nine Months Ended | ||||||||
October 31, | ||||||||
2010 | 2011 | |||||||
(Dollars in millions) | ||||||||
Interest income and fees (a) | $ | 94.3 | $ | 87.5 | ||||
Net charge-offs (b) | (29.1 | ) | (25.6 | ) | ||||
Borrowing costs (c) | (20.2 | ) | (18.5 | ) | ||||
Net portfolio yield | $ | 45.0 | $ | 43.4 | ||||
Average portfolio balance | $ | 704.8 | $ | 623.5 | ||||
Interest income and fee yield % (annualized) | 17.8 | % | 18.7 | % | ||||
Net charge-off % (annualized) | 5.5 | % | 5.5 | % | ||||
Nine Months Ended | ||||||||||||||||
October 31, | Change | |||||||||||||||
(Dollars in millions) | 2010 | 2011 | $ | % | ||||||||||||
Cost of goods sold | $ | 344.0 | $ | 328.1 | (15.9 | ) | (4.6 | ) | ||||||||
Product gross margin percentage | 21.7 | % | 22.4 | % | 0.7 | % |
Nine Months Ended | ||||||||||||||||
October 31, | Change | |||||||||||||||
(Dollars in millions) | 2010 | 2011 | $ | % | ||||||||||||
Cost of service parts sold | $ | 6.1 | $ | 5.0 | (1.1 | ) | (18.0 | ) | ||||||||
As a percent of service revenues | 48.0 | % | 42.9 | % | -5.1 | % |
Nine Months Ended | ||||||||||||||||
October 31, | Change | |||||||||||||||
(Dollars in millions) | 2010 | 2011 | $ | % | ||||||||||||
Selling, general and administrative expense - Retail | $ | 126.7 | $ | 128.7 | 2.0 | 1.6 | ||||||||||
Selling, general and administrative expense - Credit | 47.9 | 43.4 | (4.5 | ) | (9.4 | ) | ||||||||||
Selling, general and administrative expense - Total | $ | 174.6 | $ | 172.1 | (2.5 | ) | (1.4 | ) | ||||||||
Nine Months Ended | ||||||||||||||||
October 31, | Change | |||||||||||||||
(Dollars in millions) | 2010 | 2011 | $ | % | ||||||||||||
Provision for bad debts | $ | 28.8 | $ | 31.9 | 3.1 | 10.8 | ||||||||||
As a percent of average portfolio balance (annualized) | 3.1 | % | 3.8 | % | 0.0 | |||||||||||
Financing activities
Net cash used in financing activities decreased from $53.1 million used during the periods ended October 31, 2010 and 2011, respectively, included in the results of operations for the retail segment.
Nine Months Ended | ||||||||||||||||
October 31, | Change | |||||||||||||||
(Dollars in millions) | 2010 | 2011 | $ | % | ||||||||||||
Interest expense, net | $ | 20.2 | $ | 18.5 | (1.7 | ) | (8.4 | ) |
Nine Months Ended | ||||||||||||||||
October 31, | Change | |||||||||||||||
(Dollars in millions) | 2010 | 2011 | $ | % | ||||||||||||
Costs related to financing transactions not completed | $ | 2.9 | $ | - | (2.9 | ) | - |
Nine Months Ended | ||||||||||||||||
October 31, | Change | |||||||||||||||
(Dollars in millions) | 2010 | 2011 | $ | % | ||||||||||||
Loss from early extinguishment of debt | $ | - | $ | 11.1 | 11.1 | - |
Nine Months Ended | ||||||||||||||||
October 31, | Change | |||||||||||||||
(Dollars in millions) | 2010 | 2011 | $ | % | ||||||||||||
Costs related to store closings | $ | - | $ | 3.3 | 3.3 | - |
Nine Months Ended October 31, | Change | |||||||||||||||
(Dollars in millions) | 2010 | 2011 | $ | % | ||||||||||||
Impairment of long-lived assets | $ | - | $ | 0.7 | 0.7 | - |
Nine Months Ended | ||||||||||||||||
October 31, | Change | |||||||||||||||
(Dollars in millions) | 2010 | 2011 | $ | % | ||||||||||||
Provision (benefit) for income taxes | $ | 2.1 | $ | (4.9 | ) | (7.0 | ) | (333.3 | ) | |||||||
As a percent of income (loss) before income taxes | 45.9 | % | 29.9 | % | (5.0 | %) |
Liquidity and Capital Resources
We require capital to finance our growth as we add new stores and markets to our operations, which in turn requires additional working capital for increased customer receivables and inventory. We have historically financed our operations through a combination of cash flow generated from earnings and external borrowings, including primarily bank debt, extended terms provided by our vendors for inventory purchases, acquisition of inventory under consignment arrangements and transfers of customer receivables to asset-backed securitization facilities.
We currently have an amendment and extension of our asset-based revolving credit facility increasing thewith capacity from $375of $450 million to $430 million and extending the maturity date from November 2013 tothat matures in July 2015. On November 18, 2011 we obtained an increase in the total commitments under our asset-based revolving credit facility, increasing the capacity from $430 million to $450 million with no change in maturity dates. Our asset-based revolving creditThe facility provides funding based on a borrowing base calculation that includes customer accounts receivable and inventory. The credit facility bears interest at LIBOR plus a spread ranging from 350 basis points to 400 basis points, based on a leverage ratio (defined as total liabilities to tangible net worth). In addition to the leverage ratio, the revolving credit facility includes a fixed charge coverage requirement, a minimum customer receivables cash recovery percentage requirement and a net capital expenditures limit. The leverage ratio covenant requirement is a required maximum of 2.00 to 1.00. The current fixed charge coverage ratio is a minimum of 1.00 to 1.00. As part of the amendment and extension, the fixed charge coverage ratio requirement was changed to 1.00 to 1.00 for the quarters ending July 31, 2011 and October 31, 2011. It will return tois a minimum of 1.10 to 1.00 for the quarter ending January 31, 2012 and thereafter.1.00. We expect, based on current facts and circumstances, that we will be in compliance with the above covenants for the next 12 months. The weighted average interest rate on borrowings outstanding under the asset-based revolving credit facility at October 31, 2011, was4.3% at April 30, 2012.
On April 30, 2012, our VIE issued $103.7 million of notes which bear interest at 4.0%.
We entered intohave an $8.0 million real estate loan, on July 28, 2011, collateralized by three of our owned store locations, that will mature in July 2016 and requires monthly principal payments based on a 15-year amortization schedule. The loan was then amended on October 31, 2011 to adjust the interest rate. The interest rate on the loan is the Primeprime rate plus 100 basis points. Thepoints with a floor on the total rate was reduced from 6% toof 5% effective October 31, 2011.
We have interest rate cap option transactionsoptions with a notional amount of $100 million. These cap options are held for the purpose of hedging against variable interest rate risk related to the variability of cash flows in the interest payments on a portion of its variable-rate debt, based on the benchmark one-month LIBOR interest rate exceeding 1.0%. These cap options have monthly caplets extending through August, 2014.
The weighted average effective interest rate on borrowings outstanding under all our credit facilities for the three months ended October 31, 2011April 30, 2012 was 5.2%5.1%, including the interest expense associated with our interest rate caps and amortization of deferred financing costs.
A summary of the significant financial covenants that govern our credit facility compared to our actual compliance status at October 31, 2011,April 30, 2012, is presented below:
Actual | Required Minimum/ Maximum | |||||
Fixed charge coverage ratio must exceed required minimum | 1.71 to 1.00 | 1.00 to 1.00 | ||||
Total liabilities to tangible net worth ratio must be lower than required maximum | 1.29 to 1.00 | 2.00 to 1.00 | ||||
Cash recovery percentage must exceed stated amount | 5.39% | 4.74% | ||||
Capital expenditures, net must be lower than required maximum | $3.0 million | $25.0 million |
Actual | Required Minimum/ Maximum | |||
Fixed charge coverage ratio must exceed required minimum | 2.01 to 1.00 | 1.10 to 1.00 | ||
Total liabilities to tangible net worth ratio must be lower than required maximum | 1.15 to 1.00 | 2.00 to 1.00 | ||
Cash recovery percentage must exceed stated amount | 6.10% | 4.74% | ||
Capital expenditures, net must be lower than stated amount | $8.2 million | $25.0 million |
Note: All terms in the above table are defined by the revolving credit facility and may or may not agree directly to the financial statement captions in this document. The covenants are required to be calculated quarterly on a trailing twelve month basis, except for the Cash recovery percentage, which is calculated monthly on a trailing three month basis.
As of October 31, 2011,April 30, 2012, we had immediately available borrowing capacity of $80.1$145.4 million under our asset-based revolving credit facility, net of standby letters of credit issued of $1.8$4.3 million, available to us for general corporate purposes before considering extended vendor terms for purchases of inventory. In addition to the $80.1$145.4 million currently available under the revolving credit facility, an additional $46.1$113.5 million may become available if we grow the balance of eligible customer receivables and total eligible inventory balances, excluding the $20 million expansion of our asset-based revolving credit facility. The principal paymentsbalances. Payments received on customer receivables which averaged approximately $29.3$46.5 million per month during the three months ended October 31, 2011,April 30, 2012, are available each month to fund new customer receivables generated.
We will continue to finance our operations and future growth through a combination of cash flow generated from operations and external borrowings, including primarily bank debt, extended vendor terms for purchases of inventory, and acquisition of inventory under consignment arrangements and transfers of customer receivables to asset-backed securitization facilities. Based on our current operating plans, we believe that cash generated from operations, available borrowings under our revolving credit facility, extended vendor terms for purchases of inventory, and acquisition of inventory under consignment arrangements, and transfers of customer receivable to asset-based securitization facilities will be sufficient to fund our operations, store expansion and updating activities and capital programs for at least the next 12 months, subject to continued compliance with the covenants in our debt and other credit facilities.arrangements. Additionally, if there is a default under any of the facilities that is not waived by the various lenders, it could result in the requirement to immediately begin repayment of all amounts owed under our credit facilities, as all of the facilities have cross-default provisions that would result in default under all of the facilities if there is a default under any one of the facilities. If the repayment of amounts owed under our debit and other credit facilitiesarrangements is accelerated for any reason, we may not have sufficient cash and liquid assets at such time to be able to immediately repay all the amounts owed under the facilities.
The revolving credit facility is a significant factor relative to our ongoing liquidity and our ability to meet the cash needs associated with the growth of our business. Our inability to use this program because of a failure to comply with its covenants would adversely affect our business operations. Funding of current and future customer receivables under the borrowing facility can be adversely affected if we exceed certain predetermined levels of reagedre-aged customer receivables, write-offs, bankruptcies or other ineligible customer receivable amounts.
Item 3. |
Our VIE issued $103.7 million of fixed-rate notes on April 30, 2012. The notes bear interest at a fixed rate of 4.0% and Qualitative Disclosures About Market Risk
For additional quantitative and qualitative disclosures about market risk, sensitive instrumentssee Item 7A. “Quantitative and positions have been determined to be “other than trading.Qualitative Disclosures about Market Risk,”
Item 4. | Controls and Procedures |
Based on management'smanagement’s evaluation (with the participation of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO)), as of the end of the period covered by this report, our CEO and CFO have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
For the ninethree months ending October 31, 2011,ended April 30, 2012, there have been no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Item 1. | Legal Proceedings |
The Company is involved in routine litigation and claims incidental to its business from time to time, and, as required, has accrued its estimate of the probable costs for the resolution of these matters, which are not expected to be material. These estimates have been developed in consultation with counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. Recently, the Company has been included in various patent infringement claims and litigation, the outcomes of which are difficult to predict at this time. Due to the timing of these matters, the Company has determined that no reasonable estimates of probable costs for resolution can be ascertained at this time, and it is possible, however, that future results of operations for any particular period could be materially affected by changes in the Company’s assumptions or the effectiveness of its strategies related to these proceedings. However, the results of these proceedings cannot be predicted with certainty, and changes in facts and circumstances could impact the Company’s estimate of reserves for litigation.
Item 1A. | Risk Factors |
As of the date of the filing, there have been no material changes to the risk factors previously disclosed in Part 1, Item A, of the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2012.
Item 2. |
None.
Item 3. | Defaults Upon Senior Securities |
None.
Item 4. | Mine Safety Disclosure |
None.
Item 5. | Submission of Matters to a Vote of Security Holders |
At the Annual Meeting of Equity Securities and Use of Proceeds
1. | Election of seven directors: |
Number of Shares | ||||||||
For | Withheld | |||||||
Marvin D. Brailsford | 26,583,033 | 415,748 | ||||||
Jon E.M. Jacoby | 25,558,096 | 1,440,685 | ||||||
Bob L. Martin | 26,541,789 | 456,992 | ||||||
Douglas H. Martin | 26,500,751 | 498,030 | ||||||
David Schofman | 26,585,695 | 413,086 | ||||||
Scott L. Thompson | 25,073,829 | 1,924,952 | ||||||
Theodore M. Wright | 26,478,852 | 519,929 |
2. | Approval of an amendment to certificate of incorporation to increase the number of authorized shares of our common stock from 40 million (40,000,000) shares to 50 million (50,000,000). |
Number of Shares | ||||
For | 26,806,262 | |||
Against | 187,888 | |||
Abstain | 4,631 |
3. | Approval of an Incentive Compensation Award Agreement with Theodore M. Wright, our Chief Executive Officer: |
Number of Shares | ||||
For | 26,791,784 | |||
Against | 129,874 | |||
Abstain | 77,123 |
4. | Ratification of the Audit Committee’s appointment of Ernst & Young, LLP as our independent registered public accounting firm for the fiscal year ending January 31, 2013. |
Number of Shares | ||||
For | 30,220,852 | |||
Against | 17,415 | |||
Abstain | 3,366 |
5. | Advisory vote for the approval of the compensation of our Named Executive Officers: |
Number of Shares | ||||
For | 24,267,029 | |||
Against | 2,199,207 | |||
Abstain | 532,545 |
6. | Approval of such other business as may properly come before the Meeting: |
Number of Shares | ||||
For | 20,298,737 | |||
Against | 9,731,213 | |||
Abstain | 211,683 |
Item 6. | Other Information |
There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors since we last provided disclosure in response to the requirements of Item 7(d)(2)(ii)(G) of Schedule 14A.
Item 7. | Exhibits |
The exhibits required to be furnished pursuant to Item 6 of Form 10-Q are listed in the Exhibit Index filed herewith, which Exhibit Index is incorporated herein by referencereference.
.SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
CONN’S, INC. | ||
By: | ||
/s/ Brian E. Taylor | ||
Vice President and Chief Financial Officer | ||
(Principal Financial Officer and duly authorized to sign this report on behalf of the registrant) |
Date: December 13, 2011
EXHIBIT INDEX
Exhibit Number | Description | |
2 | Agreement and Plan of Merger dated January 15, 2003, by and among | |
3.1 | Certificate of Incorporation of | |
3.1.1 | Certificate of Amendment to the Certificate of Incorporation of Conn’s, Inc. dated June 3, 2004 (incorporated herein by reference to Exhibit 3.1.1 to Conn’s, Inc. Form 10-Q for the quarterly period ended April 30, 2004 (File No. 000-50421) as filed with the Securities and Exchange Commission on June 7, 2004). | |
3.1.2 | Certificate of Amendment to the Certificate of Incorporation of Conn’s, Inc. dated May 30, 2012 (filed herewith). | |
3.2 | Amended and Restated Bylaws of Conn’s, Inc. effective as of June 3, 2008 (incorporated herein by reference to Exhibit 3.2.3 to Conn’s, Inc. Form 10-Q for the quarterly period ended April 30, 2008 (File No. 000-50421) as filed with the Securities and Exchange Commission on June 4, 2008). | |
4.1 | Specimen of certificate for shares of | |
10.1 | Amended and Restated 2003 Incentive Stock Option Plan (incorporated herein by reference to Exhibit 10.1 to | |
10.1.1 | Amendment to the Conn’s, Inc. Amended and Restated 2003 Incentive Stock Option Plan (incorporated herein by reference to Exhibit 10.1.1 to Conn’s, Inc. Form 10-Q for the quarterly period ended April 30, 2004 (File No. 000-50421) as filed with the Securities and Exchange Commission on June 7, 2004).t | |
10.1.2 | Form of Stock Option Agreement (incorporated herein by reference to Exhibit 10.1.2 to Conn’s, Inc. Form 10-K for the annual period ended January 31, 2005 (File No. 000-50421) as filed with the Securities and Exchange Commission on April 5, 2005).t | |
10.1.3 | 2011 Omnibus Incentive Plan as filed with the Securities and Exchange Commission on April 1, 2011. | |
10.1.4 | Form of Restricted Stock Award Agreement from Omnibus Incentive Plan (incorporated herein by reference to Exhibit 10.1.4 to Conn’s, Inc. Form 10-Q for the quarterly period ended July 31, 2011 (File No. 000-50421) as filed with the | |
10.2 | 2003 Non-Employee Director Stock Option Plan (incorporated herein by reference to Exhibit 10.2 to | |
10.2.1 | Form of Stock Option Agreement (incorporated herein by reference to Exhibit 10.2.1 to Conn’s, Inc. Form 10-K for the annual period ended January 31, 2005 (File No. 000-50421) as filed with the Securities and Exchange Commission on April 5, 2005).t | |
10.2.2 | Non-Employee Director Restricted Stock Plan as filed with the Securities and Exchange Commission on April 1, 2011. |
10.2.3 | Form of Restricted Stock Award Agreement from Non-Employee Director Restricted Stock Plan as filed with the Securities and Exchange Commission on April 1, 2011. |
10.3 | Employee Stock Purchase Plan (incorporated herein by reference to Exhibit 10.3 to | ||
10.4 | Conn’s 401(k) Retirement Savings Plan (incorporated herein by reference to Exhibit 10.4 to | ||
10.5 | Amended and Restated Loan and Security Agreement dated November 30, 2010, by and among Conn’s, Inc. and the Borrowers thereunder, the Lenders party thereto, Bank of America, N.A., a national banking association, as Administrative Agent and Collateral Agent for the Lenders, JPMorgan Chase Bank, National Association,as Co-Syndication Agent, Joint Book Runner and Co-Lead Arranger for the Lenders, Wells Fargo Preferred Capital, Inc., as Co-Syndication Agent for the Lenders, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Joint Book Runner and Co-Lead Arranger for the Lenders, Capital One, N.A., as Co-Documentation Agent for the Lenders, and Regions Business Capital, a division of Regions Bank, as Co-Documentation Agent for the Lenders incorporated herein by reference to Exhibit 10.9.4 to Conn’s, Inc. Form 10-Q for the quarterly period ended October 31, 2010 (File No. 000-50421) as filed with the | ||
10.5.1 | Amended and Restated Security Agreement dated November 30, 2010, by and among Conn’s, Inc. and the Existing Grantors thereunder, and Bank of America, N.A., in its capacity as Agent for Lenders (incorporated herein by reference to Exhibit 10.9.6 to Conn’s, Inc. Form 10-Q for the quarterly period ended October 31, 2010 (File No. 000-50421) as filed with the | ||
10.5.2 | Amended and Restated Continuing Guaranty dated as of November 30, 2010, by Conn’s, Inc. and the Existing Guarantors thereunder, in favor of Bank of America, N.A., in its capacity as Agent for Lenders (incorporated herein by reference to Exhibit 10.9.7 to Conn’s, Inc. Form 10-Q for the quarterly period ended October 31, 2010 (File No. 000-50421) as filed with the | ||
10.5.3 | First Amendment to Amended and Restated Security Agreement dated July 28, 2011, by and among Conn’s, Inc. and the Existing Grantors thereunder, and Bank of America, N.A., in its capacity as Agent for Lenders (incorporated herein by reference to Form 8-K (File No. 000-50421) as filed with the | ||
10.6 | Non-Executive Employment Agreement between Conn’s, Inc. and Thomas J. Frank, Sr., approved by the Board of Directors June 19, 2009 (incorporated herein by reference to Exhibit 10.14.1 to Conn’s, Inc. Form 10-Q for the quarterly period ended October 31, 2009 (File No. 000-50421) as filed with the Securities and Exchange Commission on August 27, 2009).t | ||
10.7 | Form of Indemnification Agreement (incorporated herein by reference to Exhibit 10.16 to | ||
10.8 | Description of Compensation Payable to Non-Employee Directors (incorporated herein by reference to Form 8-K (file no. 000-50421) filed with the Securities and Exchange Commission on June 2, 2005).t | ||
10.9 | Executive Severance Agreement between Conn’s, Inc. and Michael J. Poppe, approved by the Board of Directors August 31, 2011 (incorporated herein by reference to Exhibit 10.9 to Conn’s, Inc. Form 10-Q for the quarterly period ended July 31, 2011 (File No. 000-50421) as filed with the | ||
10.10 | Executive Severance Agreement between Conn’s, Inc. and David W. Trahan, approved by the Board of Directors August 31, 2011 (incorporated herein by reference to Exhibit 10.10 to Conn’s, Inc. Form 10-Q for the quarterly period ended July 31, 2011 (File No. 000-50421) as filed with the | ||
10.11 | Executive Severance Agreement between Conn’s, Inc. and Reymundo de la Fuente, approved by the Board of Directors August 31, 2011 (incorporated herein by reference to Exhibit 10.11 to Conn’s, Inc. Form 10-Q for the quarterly period ended July 31, 2011 (File No. 000-50421) as filed with the |
10.12 | Executive Severance Agreement between Conn’s, Inc. and Theodore M. Wright, approved by the Board of Directors December 05, 2011 (incorporated herein by reference to Exhibit 10.12 to Form 8-K (File No. 000-50421) as filed with the | ||
10.12.1 | Incentive Compensation Award Agreement between Conn’s, Inc. and Theodore M. Wright, approved by the Board of Directors May 30, 2012 (filed herewith). | ||
10.13 | Executive Severance Agreement between Conn’s, Inc. and Brian E. Taylor, approved by the Board of Directors April 23, 2012 (incorporated herein by reference to Exhibit 10.13 to Form 8-K (File No. 000-50421) as filed with the Securities and Exchange Commission on April 23, 2012). | ||
10.14 | Base Indenture dated April 30, 2012, by and between Conn’s Receivables Funding I, LP, as Issuer, and Wells Fargo Bank, National Association, as Trustee (filed herewith). | ||
10.15 | Series 2012-A Supplement dated April 30, 2012, by and between Conn’s Receivable Funding I, LP, as Issuer, and Wells Fargo Bank, National Association, as Trustee (filed herewith). | ||
10.16 | Servicing Agreement dated April 30, 2012, by and among Conn’s Receivables Funding I, LP, as Issuer, Conn Appliances, Inc., as Servicer, and Wells Fargo Bank, National Association, as Trustee (filed herewith). | ||
11.1 | Statement re: computation of earnings per share is included under Note 1 to the financial statements. | ||
12.1 | Statement of computation of Ratio of Earnings to Fixed Charges (filed herewith) | ||
31.1 | Rule 13a-14(a)/15d-14(a) Certification (Chief Executive Officer) (filed herewith). | ||
31.2 | Rule 13a-14(a)/15d-14(a) Certification (Chief Financial Officer) (filed herewith). | ||
32.1 | Section 1350 Certification (Chief Executive Officer and Chief Financial Officer) (furnished herewith). | ||
101 | The following financial information from our Quarterly Report on Form 10-Q for the | ||
t | Management contract or compensatory plan or arrangement. |
33