UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 31, ~~2017~~2018



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number 001-34956

CONN'S, INC.

(Exact name of registrant as specified in its charter)



Delaware		06-1672840
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

~~4055~~2445 Technology Forest ~~Blvd,~~Blvd., Suite ~~210,~~800, The Woodlands, TX		77381
(Address of principal executive offices)		(Zip Code)

Registrant's telephone number, including area code: (936) 230-5899

Not Applicable

(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 ý No o

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 ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of ~~"large~~“large accelerated filer,~~" "accelerated~~” “accelerated filer,~~" "smaller~~” “smaller reporting company,"” and ~~"emerging~~“emerging growth ~~company"~~company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	o		Accelerated filer	ý

Non-accelerated filer	o	~~(Do not check if a smaller reporting company)~~	Smaller reporting company	o

				Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of November ~~30, 2017:~~27, 2018:



Class		Outstanding
Common stock, $0.01 par value per share		~~31,370,581~~31,727,947

CONN'S, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE FISCAL QUARTER ENDED OCTOBER 31, ~~2017~~2018

TABLE OF CONTENTS



		Page No.
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of ~~Operations~~Income	2
	Condensed Consolidated Statements of Cash Flows	3
	Notes to Condensed Consolidated Financial Statements	4
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2729
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4345
Item 4.	Controls and Procedures	4446
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	4446
Item 1A.	Risk Factors	4446
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4446
Item 3.	Defaults Upon Senior Securities	4446
Item 4.	Mine Safety Disclosures	4446
Item 5.	Other Information	4446
Item 6.	Exhibits	4447
	Exhibit Index	4547
	Signature	4648

This Quarterly Report on Form 10-Q includes our trademarks such as ~~"Conn's," "Conn's~~“Conn's,” “Conn's HomePlus,~~" "YES~~” “YES Money,~~" "YE$~~” “YE$ Money,"” and our logos, which are protected under applicable intellectual property laws and are the property of Conn's, Inc. This report also contains trademarks, service marks, trade names and copyrights of other companies, which are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this Quarterly Report may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names.

References to ~~"Conn's," the "Company," "we," "us," and "our"~~“we,” “our,” “us,” “the Company,” “Conn’s” or “CONN” refer to Conn's, Inc. and, as apparent from the context, its consolidated bankruptcy-remote variable-interest entities (“VIEs”), and its wholly-owned subsidiaries.


PART I.	FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS

CONN'S, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited and dollars in ~~thousands)~~thousands, except per share amounts)


	October 31, 2017		January 31, 2017		October 31, 2018		January 31, 2018
Assets
Current assets:
Cash and cash equivalents	$	12,742	$	23,566	$	3,492	$	9,286
Restricted cash (all held by VIEs)	71,099		110,698
Customer accounts receivable, net of allowances (includes VIE balance of $360,086 and $529,108, respectively)	635,700		702,162
Restricted cash (includes VIE balance of $68,493 and $85,322, respectively)					70,043		86,872
Customer accounts receivable, net of allowances (includes VIE balance of $372,481 and $459,708, respectively)					630,396		636,825
Other accounts receivable	63,203		69,286		63,752		71,186
Inventories	235,479		164,856		227,164		211,894
Income taxes recoverable	1,194		2,150
Income taxes receivable					556		32,362
Prepaid expenses and other current assets	14,721		14,955		15,164		31,592
Total current assets	1,034,138		1,087,673		1,010,567		1,080,017
Long-term portion of customer accounts receivable, net of allowances (includes VIE balance of $231,036 and $320,382, respectively)	616,665		615,904
Long-term portion of customer accounts receivable, net of allowances (includes VIE balance of $326,657 and $455,002, respectively)					654,320		650,608
Property and equipment, net	144,747		159,202		146,326		143,152
Deferred income taxes	72,554		71,442		23,157		21,565
Other assets	6,285		6,913		6,642		5,457
Total assets	$	1,874,389	$	1,941,134	$	1,841,012	$	1,900,799
Liabilities and Stockholders' Equity
Liabilities and Stockholders’ Equity
Current liabilities:
Current maturities of long-term debt and capital lease obligations (includes VIE balance of $64,952 and $0 respectively)	$	65,651	$	849
Current maturities of capital lease obligations					$	804	$	907
Accounts payable	109,738		101,612		110,359		71,617
Accrued compensation and related expenses	16,912		13,325		19,614		21,366
Accrued expenses	45,491		26,456		60,654		44,807
Income taxes payable	2,513		3,318		7,339		2,939
Deferred revenues and other credits	22,018		21,821		22,206		22,475
Total current liabilities	262,323		167,381		220,976		164,111
Deferred rent	87,152		87,957		90,410		87,003
Long-term debt and capital lease obligations (includes VIE balance of $396,010 and $745,581, respectively)	973,278		1,144,393
Long-term debt and capital lease obligations (includes VIE balance of $611,353 and $787,979, respectively)					920,366		1,090,105
Other long-term liabilities	22,245		23,613		22,226		24,512
Total liabilities	1,344,998		1,423,344		1,253,978		1,365,731
Commitments and contingencies
Stockholders' equity:
Stockholders’ equity:
Preferred stock ($0.01 par value, 1,000,000 shares authorized; none issued or outstanding)	—		—		—		—
Common stock ($0.01 par value, 100,000,000 shares authorized; 31,365,028 and 30,961,898 shares issued, respectively)	314		310
Common stock ($0.01 par value, 100,000,000 shares authorized; 31,726,635 and 31,435,775 shares issued, respectively)					317		314
Additional paid-in capital	98,611		90,276		107,720		101,087
Retained earnings	430,466		427,204		478,997		433,667
Total stockholders' equity	529,391		517,790
Total stockholders’ equity					587,034		535,068
Total liabilities and stockholders' equity	$	1,874,389	$	1,941,134	$	1,841,012	$	1,900,799

See notes to condensed consolidated financial statements.

CONN'S, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~INCOME

(unaudited and ~~dollars~~ in thousands, except per share amounts)


	Three Months Ended October 31,					Nine Months Ended October 31,					Three Months Ended October 31,				Nine Months Ended October 31,
	2017		2016			2017		2016			2018		2017		2018		2017
Revenues:
Product sales	$	263,786	$	278,056		$	774,741	$	864,269		$	256,731	$	263,786	$	773,224	$	774,741
Repair service agreement commissions	24,488		26,354			72,703		82,849			23,579		24,488		72,104		72,703
Service revenues	3,534		3,623			10,062		11,456			3,564		3,534		10,615		10,062
Total net sales	291,808		308,033			857,506		958,574			283,874		291,808		855,943		857,506
Finance charges and other revenues	81,364		68,740			238,139		205,469			89,950		81,364		260,888		238,139
Total revenues	373,172		376,773			1,095,645		1,164,043			373,824		373,172		1,116,831		1,095,645
Costs and expenses:
Cost of goods sold	175,591		192,374			519,847		605,709			166,886		175,591		507,102		519,847
Selling, general and administrative expenses	114,355		114,457			332,524		347,550
Selling, general and administrative expense											118,380		114,355		353,948		332,524
Provision for bad debts	56,512		51,564			161,891		169,978			47,548		56,512		142,455		161,891
Charges and credits	5,861		1,987			11,156		5,408			5,537		5,861		5,837		11,156
Total costs and expenses	352,319		360,382			1,025,418		1,128,645			338,351		352,319		1,009,342		1,025,418
Operating income	20,853		16,391			70,227		35,398			35,473		20,853		107,489		70,227
Interest expense	18,095		23,470			62,142		73,504			15,098		18,095		47,484		62,142
Loss on extinguishment of debt	461		—			2,907		—			—		461		1,773		2,907
Income (loss) before income taxes	2,297		(7,079		)	5,178		(38,106		)
Provision (benefit) for income taxes	728		(3,264		)	1,916		(12,618		)
Net income (loss)	$	1,569	$	(3,815	)	$	3,262	$	(25,488	)
Income (loss) per share:
Income before income taxes											20,375		2,297		58,232		5,178
Provision for income taxes											5,745		728		13,859		1,916
Net income											$	14,630	$	1,569	$	44,373	$	3,262
Income per share:
Basic	$	0.05	$	(0.12	)	$	0.10	$	(0.83	)	$	0.46	$	0.05	$	1.40	$	0.10
Diluted	$	0.05	$	(0.12	)	$	0.10	$	(0.83	)	$	0.45	$	0.05	$	1.38	$	0.10
Weighted average common shares outstanding:
Basic	31,292,913		30,816,319			31,121,177		30,736,636			31,712,862		31,292,913		31,636,270		31,121,177
Diluted	31,764,594		30,816,319			31,457,420		30,736,636			32,321,874		31,764,594		32,251,952		31,457,420

See notes to condensed consolidated financial statements.

CONN'S, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and ~~dollars~~ in thousands)


	Nine Months Ended October 31,						Nine Months Ended October 31,
	2017			2016			2018			2017
Cash flows from operating activities:
Net income (loss)	$	3,262		$	(25,488	)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Net income							$	44,373		$	3,262
Adjustments to reconcile net income to net cash from operating activities:
Depreciation	23,138			21,209			23,262			23,138
Loss from retirement of leasehold improvement	—			1,980
Amortization of debt issuance costs	11,088			19,164			8,795			13,157
Provision for bad debts and uncollectible interest	192,354			200,349			179,702			192,354
Loss on extinguishment of debt	2,907			—
Stock-based compensation expense	5,899			3,928			8,514			5,899
Charges, net of credits, for store and facility closures	428			954
Deferred income taxes	(1,112		)	3,309
Loss (gain) on sale/write-off of fixed assets	5,636			(259		)
Charges, net of credits, for store and facility closures and relocations							—			428
Deferred income tax benefit							(1,847		)	(1,112		)
Gain (loss) on sale/disposal of property and equipment							(620		)	5,636
Tenant improvement allowances received from landlords	5,072			23,674			9,532			5,072
Change in operating assets and liabilities:
Customer accounts receivable	(126,654		)	(131,943		)	(176,195		)	(126,654		)
Other accounts receivable	5,641			13,281
Other accounts receivables							10,589			5,641
Inventories	(70,623		)	(2,568		)	(15,269		)	(70,623		)
Other assets	964			1,483			16,427			964
Accounts payable	8,186			32,342			35,357			8,186
Accrued expenses	21,371			11,542			13,505			21,371
Income taxes	151			(355		)	36,205			151
Deferred rent, revenues and other credits	(4,971		)	10,409			(10,236		)	(4,971		)
Net cash provided by operating activities	82,737			183,011			182,094			81,899
Cash flows from investing activities:
Purchase of property and equipment	(11,995		)	(41,804		)	(22,609		)	(11,995		)
Proceeds from sale of property	—			686
Net cash used in investing activities	(11,995		)	(41,118		)	(22,609		)	(11,995		)
Cash flows from financing activities:
Proceeds from issuance of asset-backed notes	469,814			1,067,850			358,300			469,814
Payments on asset-backed notes	(816,243		)	(736,266		)	(619,674		)	(814,568		)
Changes in restricted cash balances	39,599			(87,900		)
Borrowings from revolving credit facility	1,257,052			529,352
Payments on revolving credit facility	(1,082,552		)	(858,559		)
Borrowings on warehouse facility	79,940			—
Borrowings from Revolving Credit Facility							1,266,333			1,257,052
Payments on Revolving Credit Facility							(1,260,283		)	(1,082,552		)
Borrowings from warehouse facility							173,286			79,940
Payments on warehouse facility	(23,066		)	—			(88,876		)	(23,066		)
Payment of debt issuance costs and amendment fees	(8,172		)	(9,775		)
Payments for debt issuance costs and amendment fees							(7,381		)	(8,172		)
Proceeds from stock issued under employee benefit plans	3,011			824			1,055			3,011
Tax payments associated with equity-based compensation transactions							(2,931		)	(570		)
Payments from extinguishment of debt							(1,177		)	(837		)
Other	(949		)	(608		)	(760		)	(379		)
Net cash used in financing activities	(81,566		)	(95,082		)	(182,108		)	(120,327		)
Net change in cash and cash equivalents	(10,824		)	46,811
Cash and cash equivalents, beginning of period	23,566			12,254
Cash and cash equivalents, end of period	$	12,742		$	59,065
Net change in cash, cash equivalents and restricted cash							(22,623		)	(50,423		)
Cash, cash equivalents and restricted cash, beginning of period							96,158			134,264
Cash, cash equivalents and restricted cash, end of period							$	73,535		$	83,841
Non-cash investing and financing activities:
Capital lease asset additions and related obligations	$	3,196		$	—		$	508		$	3,196
Property and equipment purchases not yet paid	$	1,021		$	1,805		$	5,454		$	1,021
Supplemental cash flow data:
Cash interest paid	$	44,561		$	53,074		$	33,854		$	44,561
Cash income taxes paid (refunded), net	$	2,878		$	(15,624	)	$	(20,468	)	$	2,878

See notes to condensed consolidated financial statements.

CONN'S, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

~~Business~~Business.. Conn's, Inc., a Delaware corporation, is a holding company with no independent assets or operations other than its investments in its subsidiaries. References to “we,” “our,” “us,” “the Company,” “Conn’s” or “CONN” refer to Conn’s, Inc. and, as apparent from the context, its consolidated bankruptcy-remote variable interest entities (“VIEs”) and its wholly owned subsidiaries. Conn's is a leading specialty retailer that offers a broad selection of quality, branded durable consumer goods and related services in addition to proprietary credit solutions for its core credit-constrained consumers. We operate an integrated and scalable business through our retail stores and website. Our complementary product offerings include furniture and mattresses, home appliances, consumer electronics and home office products from leading global brands across a wide range of price points. Our credit offering provides financing solutions to a large, under-served population of credit-constrained consumers who typically have limited credit alternatives.

We operate two reportable segments: retail and credit. Our retail stores bear the ~~"Conn's" or "Conn's HomePlus"~~“Conn's HomePlus” name with all of our stores providing the same products and services to a common customer group. Our stores follow the same procedures and methods in managing their operations. Our retail business and credit business are operated independently from each other. The credit segment is dedicated to providing short- and medium-term financing to our retail customers. The retail segment is not involved in credit approval decisions. Our management evaluates performance and allocates resources based on the operating results of the retail and credit segments.

Basis of Presentation. The accompanying unaudited ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements of Conn's, Inc. and its wholly-owned subsidiaries, including the VIEs, ~~(as defined below),~~ have been prepared by management in accordance with generally accepted accounting principles ~~generally accepted~~ in the United States ~~("GAAP"~~of America (“GAAP”) and prevailing industry practice for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, we do not include all of the information and footnotes required by ~~accounting principles generally accepted in the United States~~GAAP for complete financial statements. The accompanying financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature. The condensed consolidated financial position, results of operations and cash flows for these interim periods are not necessarily indicative of the results that may be expected in future periods. The balance sheet at January 31, ~~2017~~2018 has been derived from the audited financial statements at that date. The financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 31, ~~2017,~~2018 (the “2018 Form 10-K”) which was filed with the United States Securities and Exchange Commission (the ~~“SEC”~~“SEC”) on April ~~4, 2017.~~5, 2018, as updated by our Form 8-K filed with the SEC on November 23, 2018.

Fiscal Year. Our fiscal year ends on January 31. References to a fiscal year refer to the calendar year in which the fiscal year ends.

Principles of ~~Consolidation~~Consolidation.. The consolidated financial statements include the accounts of Conn's, Inc. and its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation.

Variable Interest Entities. ~~Variable interest entities ("VIEs")~~VIEs are consolidated if the Company is the primary beneficiary. The primary beneficiary of a VIE is the party that has (i) the power to direct the activities that most significantly impact the performance of the VIE and (ii) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.

We securitize customer accounts receivables by transferring the receivables to various bankruptcy-remote VIEs. We retain the servicing of the securitized portfolio and have a variable interest in each corresponding VIE by holding the residual equity. We have determined that we are the primary beneficiary of each respective VIE because (i) our servicing responsibilities for the securitized portfolio give us the power to direct the activities that most significantly impact the performance of the VIE and (ii) our variable interest in the VIE gives us the obligation to absorb losses and the right to receive residual returns that potentially could be significant. As a result, we consolidate the respective VIEs within our consolidated financial statements.

Refer to Note 6,5, Debt and Capital Lease Obligations, and Note 8,7, Variable Interest Entities, for additional information.

Use of ~~Estimates~~Estimates.. The preparation of financial statements in accordance with GAAP requires management to make informed judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Changes in facts and circumstances or additional information may result in revised estimates, and actual results may differ, even significantly, from these estimates. Management evaluates its estimates and related assumptions regularly, including those related to the allowance for doubtful accounts and allowances for no-interest option credit programs, ~~and deferred interest,~~ which are particularly sensitive given the size of our customer portfolio balance.

Cash and Cash ~~Equivalents~~.Equivalents. ~~Cash~~As of October 31, 2018, cash and cash equivalents ~~include~~included cash and credit card deposits in transit. As of January 31, 2018, cash and cash equivalents included cash, credit card deposits ~~in-transit,~~in transit, and highly liquid debt instruments purchased with a maturity of three months or less. ~~Cash~~Credit card deposits in transit included in cash and cash equivalents ~~include credit card deposits in-transit of $2.1~~were $2.0 million and ~~$2.4~~$2.0 million as of October 31, ~~2017~~2018 and January 31, ~~2017,~~2018, respectively.

CONN'S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restricted Cash. The restricted cash balance as of October 31, ~~2017~~2018 and January 31, ~~2017~~2018 includes ~~$52.8~~$54.7 million and ~~$75.2~~$58.1 million, respectively, of cash we collected as servicer on the securitized receivables that was subsequently remitted to the VIEs and ~~$18.3~~$13.8 million and ~~$35.5~~$27.2 million, respectively, of cash held by the VIEs as additional collateral for the asset-backed notes.

Customer ~~accounts receivable.~~Accounts Receivable. Customer accounts receivable reported in the ~~consolidated balance sheet~~Condensed Consolidated Balance Sheet includes total receivables managed, including both those transferred to the VIEs and those not transferred to the VIEs. Customer accounts receivable are recognized at the time the customer takes possession of the product. Based on contractual terms, we record the amount of principal and accrued interest on customer receivables that is expected to be collected within the next twelve months in current assets with the remaining balance in long-term assets on the ~~consolidated balance sheet.~~Condensed Consolidated Balance Sheet. Customer accounts receivable ~~include~~includes the net of unamortized deferred fees charged to customers and origination costs. Customer receivables are considered delinquent if a payment has not been received on the scheduled due date. Accounts that are delinquent more than 209 days as of the end of a month are charged-off against the allowance for doubtful accounts along with interest accrued subsequent to the last payment.

In an effort to mitigate losses on our accounts receivable, we may make loan modifications to a borrower experiencing financial difficulty. In our role as servicer we may also make modifications to loans held by the VIEs. The loan modifications are intended to maximize net cash flow after expenses and avoid the need to repossess collateral or exercise legal remedies available to us. We may extend or ~~"re-age" a portion of~~“re-age” our customer accounts, which involves modifying the payment terms to defer a portion of the cash payments due. Our re-aging of customer accounts does not change the interest rate or the total principal amount due from the customer and typically does not reduce the monthly contractual payments. To a much lesser extent, we may provide the customer the ability to re-age their obligation by refinancing the account, which does not change the interest rate or the total principal amount due from the customer but does reduce the monthly contractual payments and extend the term. We consider accounts that have been re-aged in excess of three months or refinanced as Troubled Debt Restructurings ~~("TDR"~~(“TDR” or ~~"Restructured Accounts"~~“Restructured Accounts”).

Interest ~~income~~Income on ~~customer accounts receivable~~Customer Accounts Receivable.. Interest income, which includes interest income and amortization of deferred fees and origination costs, is recorded using the interest method and is reflected in finance charges and other revenues. Typically, interest income is recorded until the customer account is paid off or charged-off, and we provide an allowance for estimated uncollectible interest. Any contractual interest income received from customers in excess of the interest income calculated using the interest method is recorded as deferred revenue on our balance sheets. Our calculation of interest income for customers with similar financing arrangements for which the timing and amount of prepayments can be reasonably estimated includes an estimate of the benefit from future prepayments based on our historical experience. At October 31, ~~2017~~2018 and January 31, ~~2017,~~2018, there was ~~$13.0~~$11.6 million and ~~$13.7~~$12.5 million, respectively, of deferred interest included in deferred revenues and other credits and other long-term liabilities. The deferred interest will ultimately be brought into income as the accounts pay off or charge-off.

We offer ~~12-and 18-month~~a 12 month no-interest option ~~programs.~~program. If the customer is delinquent in making a scheduled monthly payment or does not repay the principal in full by the end of the no-interest option program period (grace periods are provided), the account does not qualify for the no-interest provision and none of the interest earned is waived. Interest income is recognized based on estimated accrued interest earned to date on all no-interest option finance programs with an offsetting reserve for those customers expected to satisfy the requirements of the program based on our historical experience.

No-interest option finance programs with terms greater than 12 months are discounted to their present value at origination, resulting in a reduction in sales and customer receivables, and the discount amount is amortized into finance charges and other revenues over the term of the contract.

We recognize 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 equals the present value of expected future cash flows.

We typically only place accounts in non-accrual status when legally required. Payments received on non-accrual loans will be applied to principal and reduce the ~~amount~~balance of the loan. At October 31, ~~2017 and January 31, 2017,~~2018, customer receivables carried in non-accrual status were ~~$21.4~~$15.6 million, of which $11.8 million were in bankruptcy status and ~~$22.9~~less than 60 days past due. At January 31, 2018, customer receivables carried in non-accrual status were $16.9 million, ~~respectively.~~of which $14.5 million were in bankruptcy status and less than 60 days past due. At October 31, ~~2017~~2018 and January 31, ~~2017,~~2018, customer receivables that were past due 90 days or more and still accruing interest totaled ~~$105.2~~$110.6 million and ~~$124.0~~$109.7 million, respectively. At October 31, 2017 and January 31, 2017, customer receivables in a bankruptcy status that are less than 60 days past due of $11.7 million and $19.5 million, respectively, are included within the customer receivables carried in non-accrual status balance.

Allowance for ~~doubtful accounts.~~Doubtful Accounts. The determination of the amount of the allowance for bad debts is, by nature, highly complex and subjective. Future events that are inherently uncertain could result in material changes to the level of the allowance for bad debts. General economic conditions, changes to state or federal regulations and a variety of other factors that affect the ability of ~~borrowers’~~borrowers to service their debts or our ability to collect will impact the future performance of the portfolio.

We establish an allowance for doubtful accounts, including estimated uncollectible interest, to cover probable and estimable losses on our customer accounts receivable resulting from the failure of customers to make contractual payments. Our customer portfolio balance consists of a large number of relatively small, homogeneous accounts. None of our accounts are large enough to warrant individual evaluation for impairment.

~~CONN'S, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

We record an allowance for doubtful accounts on our non-TDR customer accounts receivable that we expect to charge-off over the next 12 months based on historical gross charge-off rates over the last 24 months. We incorporate an adjustment to historical gross charge-off rates for a scaled factor of the year-over-year change in six month average first payment default rates and the year-over-year change in the balance of customer accounts receivable that are 60 days or more past due. In addition to adjusted

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

historical gross charge-off rates, estimates of post-charge-off recoveries, including cash payments from customers, amounts realized from the repossession of the products financed, sales tax recoveries from taxing jurisdictions, and payments received under credit insurance policies are also considered.

Qualitative adjustments are made to the allowance for bad debts when, based on management’s judgment, there are internal or external factors impacting probable incurred losses not taken into account by the quantitative calculations. These qualitative considerations are based on the following factors: changes in lending policies and procedures, changes in economic and business conditions, changes in the nature and volume of the portfolio, changes in lending management, changes in credit quality statistics, changes in ~~the quality of the loan review system, changes in the value of underlying collateral, changes in~~ concentrations of credit, and other internal or external factor changes. We utilize an economic qualitative adjustment based on changes in unemployment rates if current unemployment rates in our markets are worse than they were on average over the last 24 months. We also qualitatively limit the impact of changes in first payment default rates and changes in delinquency when those changes result in a decrease to the allowance for bad debts based on a measure of the dispersion of historical charge-off rates. At October 31, 2018, we utilized a qualitative factor related to changes in the nature of the portfolio.

We determine allowances for those accounts that are TDR based on the discounted present value of cash flows expected to be collected over the life of those accounts based primarily on the performance of TDR loans over the last 24 months. The cash flows are discounted based on the weighted-average effective interest rate of the TDR accounts. The excess of the carrying amount over the discounted cash flow amount is recorded as an allowance for loss on those accounts.

Debt Issuance Costs. Costs that are direct and incremental to debt issuance are deferred and amortized to interest expense using the effective interest method over the expected life of the debt. All other costs related to debt issuance are expensed as incurred. We present debt issuance costs associated with long-term debt as a reduction of the carrying amount of the debt. Unamortized costs related to the ~~revolving credit facility were $5.9 million~~Revolving Credit Facility, as defined in Note 5, Debt and ~~$5.7 million as of October 31, 2017 and January 31, 2017, respectively, and were~~Capital Lease Obligations, are included in other assets on our ~~consolidated balance sheet.~~Condensed Consolidated Balance Sheet and were $6.5 million and $5.2 million as of October 31, 2018 and January 31, 2018, respectively.

Income Taxes. For the nine months ended October 31, ~~2017~~2018 and ~~2016~~2017, we utilized the estimated annual effective tax rate based on our estimated fiscal year ~~2018~~2019 and ~~2017~~2018 pre-tax income, respectively, in determining income tax expense.

Provision for income taxes for interim periods is based on an estimated annual income tax rate, adjusted for discrete tax items. As a result, our interim effective tax rates may vary significantly from the statutory tax rate and the annual effective tax rate.

On December 22, 2017, H.R. 1, originally known as the Tax Cuts and Jobs Act (the “Tax Act”), was signed into law. Among the significant changes to the U.S. Internal Revenue Code, the Tax Act lowered the U.S. federal corporate income tax rate (“Federal Tax Rate”) from 35% to 21% effective January 1, 2018. For the three months ended January 31, 2018, we calculated our best estimate of the impact of the Tax Act in our fiscal year 2018 provision for income taxes in accordance with our understanding of the Tax Act and available guidance as of that date.

We continue to analyze additional information and guidance related to the Tax Act as supplemental legislation, regulatory guidance and evolving technical interpretations become available. We will continue to refine such amounts within the measurement period as provided by Staff Accounting Bulletin No. 118 and expect to complete our analysis no later than the fourth quarter of fiscal year 2019.

For the nine months ended October 31, 2018 and 2017, the effective tax rate was 23.8% and 37.0%, respectively. The primary factors affecting our effective tax rate for the nine months ended October 31, 2018 were a decrease in the Federal Tax Rate as a result of the Tax Act, an increase in pre-tax earnings, and excess tax benefits related to the vesting of equity compensation.

Stock-based ~~compensation.~~Compensation. Stock-based compensation expense is recorded, net of estimated forfeitures, for share-based compensation awards over the requisite service period using the straight-line method. An adjustment is made to compensation cost for any difference between the estimated forfeitures and the actual forfeitures related to the awards. For equity-classified share-based compensation awards, expense is recognized based on the grant-date fair value. For stock option grants, we use the Black-Scholes model to determine fair value. For grants of restricted stock units, the fair value of the grant is the market value of our stock at the date of issuance.

The following table sets forth the restricted stock unit awards (“RSUs”), performance stock unit awards (“PSUs”) and stock options granted during the three and nine months ended October 31, 2018 and 2017:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	Three Months Ended October 31,				Nine Months Ended October 31,				Three Months Ended October 31,				Nine Months Ended October 31,
	2017		2016		2017		2016		2018		2017		2018		2017
Restricted stock awards ("RSUs") ⁽¹⁾	2,740		14,502		646,033		343,369
Performance stock awards ("PSUs") ⁽²⁾	—		—		501,012		131,759
RSUs ⁽¹⁾									3,200		2,740		153,089		646,033
PSUs ⁽²⁾									—		—		—		501,012
Stock Options ⁽³⁾									—		—		620,166		—
Total stock awards granted	2,740		14,502		1,147,045		475,128		3,200		2,740		773,255		1,147,045
Aggregate grant date fair value (in thousands)	$	50	$	96	$	14,596	$	5,046	$	120	$	50	$	17,304	$	14,596

(1) The majority of ~~the~~ RSUs issued during the three and nine months ended October 31, 2018 and 2017 ~~will~~are scheduled to vest ~~if at all,~~ratably over periods of three to ~~five~~four years from the date of grant.

(2)The ~~majority of the~~ PSUs issued during the nine months ended October 31, 2017 will vest, if at all, upon the certification, after fiscal year 2020, by the compensation committee of the satisfaction of the annual and cumulative Earnings Before Interest, Taxes, Depreciation and Amortization performance conditions over the three fiscal years commencing with fiscal year 2018.

(3) The weighted-average assumptions for the option awards granted during the nine months ended October 31, 2018 included expected volatility of 68.0%, an expected term of 6.5 years and risk-free interest rate of 2.67%. No dividend yield was included in the weighted-average assumptions for the option awards granted during the nine months ended October 31, 2018.

For the three months ended October 31, ~~2017~~2018 and ~~2016,~~2017, stock-based compensation expense was ~~$1.7~~$2.9 million and ~~$1.0~~$1.7 million, respectively. For the nine months ended October 31, ~~2017~~2018 and ~~2016,~~2017, stock-based compensation expense was $8.5 million and $5.9 million, ~~and $3.9 million, respectively, inclusive of severance related stock-based compensation expense of $0.6 million and $0.2 million,~~ respectively.

~~CONN'S, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Earnings per ~~Share~~Share.. Basic earnings per share is calculated by dividing net income ~~(loss)~~ by the weighted-average number of common shares outstanding during the period. Diluted earnings per share includes the dilutive effects of any stock options, RSUs and ~~restricted stock units granted,~~PSUs, which is calculated using the treasury-stock method. The following table sets forth the shares outstanding for the earnings per share calculations:


	Three Months Ended October 31,		Nine Months Ended October 31,		Three Months Ended October 31,		Nine Months Ended October 31,
(in thousands)	2017	2016	2017	2016
					2018	2017	2018	2017
Weighted-average common shares outstanding - Basic	31,292,913	30,816,319	31,121,177	30,736,636	31,712,862	31,292,913	31,636,270	31,121,177
Dilutive effect of stock options and restricted stock units	471,681	—	336,243	—
Dilutive effect of stock options, RSUs and PSUs					609,012	471,681	615,682	336,243
Weighted-average common shares outstanding - Diluted	31,764,594	30,816,319	31,457,420	30,736,636	32,321,874	31,764,594	32,251,952	31,457,420

For the three months ended October 31, ~~2017~~2018 and ~~2016~~2017, the weighted-average number of stock options, RSUs and ~~restricted stock units~~PSUs not included in the calculation due to their anti-dilutive effect was ~~0.2 million~~630,698 and ~~1.2 million,~~158,627, respectively. For the nine months ended October 31, ~~2017~~2018 and ~~2016,~~2017, the weighted-average number of stock options, RSUs and ~~restricted stock units~~PSUs not included in the calculation due to their anti-dilutive effect was ~~0.4 million~~503,747 and ~~1.2 million,~~356,116, respectively.

Fair Value of Financial ~~Instruments~~Instruments.. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value are categorized using defined hierarchical levels related to subjectivity associated with the inputs to fair value measurements as follows:

Level 1 – Inputs represent unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (for example, quoted market prices for similar assets or liabilities in active markets or quoted market prices for identical assets or liabilities in markets not considered to be active, inputs other than quoted prices that are observable for the asset or liability, or market-corroborated inputs).

Level 3 – Inputs that are not observable from objective sources such as our internally developed assumptions used in pricing an asset or liability (for example, an estimate of future cash flows used in our internally developed present value of future cash flows model that underlies the fair-value measurement).

In determining fair value, we use observable market data when available, or models that incorporate observable market data. When we are required to measure fair value and there is not a market-observable price for the asset or liability or for a similar asset or

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

liability, we use the cost or income approach depending on the quality of information available to support management’s assumptions. The cost approach is based on management’s best estimate of the current asset replacement cost. The income approach is based on management’s best assumptions regarding expectations of future net cash flows and discounts the expected cash flows using a commensurate risk-adjusted discount rate. Such evaluations involve significant judgment, and the results are based on expected future events or conditions such as sales prices, economic and regulatory climates, and other factors, most of which are often outside of management’s control. However, we believe assumptions used reflect a market participant’s view of long-term prices, costs, and other factors and are consistent with assumptions used in our business plans and investment decisions.

In arriving at fair-value estimates, we use relevant observable inputs available for the valuation technique employed. If a fair-value measurement reflects inputs at multiple levels within the hierarchy, the fair-value measurement is characterized based on the lowest level of input that is significant to the fair-value measurement.

The fair value of cash and cash equivalents, restricted cash ~~held by the consolidated VIEs~~ and accounts payable approximate their carrying amounts because of the short maturity of these instruments. The fair value of customer accounts receivables, determined using a Level 3 discounted cash flow analysis, approximates their carrying amount, which includes the allowance for doubtful accounts. The fair value of our ~~revolving credit facility~~Revolving Credit Facility approximates carrying value based on the current borrowing rate for similar types of borrowing arrangements. At October 31, ~~2017,~~2018, the fair value of the Senior Notes outstanding, which was determined using Level 1 inputs, was ~~$225.3~~$223.6 million as compared to the carrying value of $227.0 million, excluding the impact of the related discount. At October 31, ~~2017,~~2018, the fair value of the asset-backed notes approximates their carrying value and was determined using Level 2 inputs based on inactive trading activity.

~~CONN'S, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Recent Accounting Pronouncements ~~Adopted.~~ ~~In March 2016, the FASB issued ASU 2016-09,~~ ~~Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,~~ which modifies the accounting for excess tax benefits and tax deficiencies associated with share-based payments, the accounting for forfeitures, and the classification of certain items on the statement of cash flows. ASU 2016-09 eliminates the requirement to recognize excess tax benefits in additional paid-in capital ("APIC"), and the requirement to evaluate tax deficiencies for APIC or income tax expense classification, and provides for these benefits or deficiencies to be recorded as an income tax expense or benefit in the income statement. With these changes, tax-related cash flows resulting from share-based payments are classified as operating activities as opposed to financing. The standard became effective for us in the first quarter of fiscal year 2018. The amendment requiring the recognition of excess tax benefits and deficiencies as income tax benefit or expense in the income statement as opposed to being recognized as additional paid-in-capital was applied prospectively and the impact was not material. The Company retrospectively adopted the amendments requiring the classification of excess tax benefits and deficiencies with other income tax cash flows as operating activities and cash paid when directly withholding shares as financing activities in the accompanying consolidated statements of cash flows; the impact was not material. The Company has elected to continue its current practice of estimating the number of awards expected to vest in determining the amount of compensation cost to be recognized related to share based payment transactions.

~~In July 2015, the FASB issued ASU 2015-11,~~ ~~Inventory (Topic 330): Simplifying the Measurement of Inventory.~~ ASU 2015-11 requires that inventory that has historically been measured using first-in, first-out or average cost method be measured at the lower of cost and net realizable value. The update requires prospective application and became effective for us in the first quarter of fiscal year 2018. The adoption of this ASU did not have a material impact on our consolidated financial statements.

~~Recent Accounting Pronouncements Yet To Be~~ Adopted. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which provides a single comprehensive accounting standard for revenue recognition for contracts with customers and supersedes current guidance. Upon adoption of ASU 2014-09, entities are required to recognize revenue using the following comprehensive model: (1) identify contracts with customers, (2) identify the performance obligations in such contracts, (3) determine transaction price, (4) allocate the transaction price to the performance obligations, and (5) recognize revenue as each performance obligation is satisfied. ~~In August 2015, the FASB issued ASU 2015-14,~~ ~~Revenue from Contracts with Customers: Deferral of Effective Date, which defers the effective date of ASU 2014-09 by one year and allows early adoption on a limited basis.~~ The FASB ~~has~~ also issued ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net); ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing; ASU 2016-11, Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting; and ASU 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients, all of which were issued to improve and clarify the guidance in ASU 2014-09. ~~These~~Effective February 1, 2018, the Company adopted these ASUs ~~will~~using the modified retrospective method applied to those contracts that were not completed as of February 1, 2018, with no restatement of comparative periods. Results for reporting periods beginning after February 1, 2018 are presented under ASC Topic 606, while prior period amounts are not adjusted and continue to be ~~effective for us beginning~~reported in accordance with the ~~first quarter of fiscal year 2019 and will result in retrospective application, either in the form of recasting all prior periods presented or~~Company’s historic accounting policies under ASC Topic 605. We recognized a net after-tax cumulative effect adjustment to ~~equity in~~retained earnings of $1.0 million as of the ~~period~~date of adoption. ~~Based on~~The details of our ~~preliminary assessment,~~current revenue recognition policy, as well as the change due to ASC Topic 606, are described below.

Revenue Recognition. The Company has the following material revenue streams: the sale of products (e.g. appliances, electronics) including delivery; the sale of third party warranty and insurance programs, including retrospective income; service income; interest income generated from the financing of point of sale transactions; and volume rebate incentives received from a third party financer. Interest income related to our customer accounts receivable balance and loan origination costs (including sales commissions) meet the scope exception of ASC 606 and are therefore not impacted by the adoption of this standard. For our twelve month no-interest option program, as a practical expedient acceptable under ASC 606, we do not ~~expect~~adjust for the time value of money.

Sale of Products Including Delivery: The Company has a single performance obligation associated with these contracts: the delivery of the product to the customer, at which point control transfers. Revenue for the sale of products is recognized at the time of delivery, net of any adjustments for sales incentives such as discounts, coupons, rebates or other free products or services. Sales financed through third-party no-interest option programs typically require us to pay a fee to the third party on each completed sale, which is recorded as a reduction of net sales in the retail segment.

Sale of Third Party Warranty and Insurance Programs, Including Retrospective Income: We sell repair service agreements (“RSA”) and credit insurance contracts on behalf of unrelated third-parties. The Company has a single performance obligation associated with these contracts: the delivery of the product to the customer, at which point control transfers. Commissions related to these contracts are recognized in revenue upon delivery of the product. We also may serve as the administrator of the RSAs sold and defer 5% of the revenue received from the sale of RSAs as compensation for this performance obligation as 5% represents the estimated stand-alone sales price to serve as the administrator. The deferred RSA administration fee is recorded in income ratably over the life of the RSA contract sold. Retrospective income on RSA contracts is recognized upon delivery of the product based on an estimate of claims and is adjusted throughout the life of the contracts as actual claims materialize. Retrospective income on insurance contracts is recognized when earned

CONN'S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

as that is the point at which we no longer believe a significant reversal of income is probable as the consideration is highly susceptible to factors outside of our influence.

Service Income: The Company has a single performance obligation associated with these contracts: the servicing of the RSA claims. Service revenues are recognized at the time service is provided to the customer.

Volume Rebate Incentive: As part of our agreement with our third-party provider of no-interest option programs, we may receive a volume rebate incentive based on the total dollar value of sales made under our third-party provider. The Company has a single performance obligations associated with this contract: the delivery of the product to the customer, at which point control transfers. Revenue for the volume rebate incentive is recognized upon delivery of the product to the customer based on the projected total annual dollar value of sales to be made under our third-party provider.

ASC 606 requires disaggregation of revenue recognized from contracts with customers to depict how the nature, amount, timing and uncertainty of revenue is affected by economic factors. The Company concluded that the disaggregated discrete financial information presented in Note 8, Segment Reporting, and Note 4, Finance Charges and Other Revenues, reviewed by our chief operating decision maker in evaluating the financial performance of our operating segments adequately addresses the disaggregation of revenue requirements of ASC 606.

Deferred Revenue. Deferred revenue related to contracts with customers as defined by ASC 606 consists of deferred customer deposits and deferred RSA administration fees. During the three and nine months ended October 31, 2018, we recognized $1.7 million and $1.8 million, respectively, of revenue for customer deposits deferred as of the beginning of those periods. During the three and nine months ended October 31, 2018, we recognized $1.5 million and $4.2 million respectively, of revenue for RSA administrative fees deferred as of the beginning of those periods.

Changes in Revenue Recognition Due to ASC 606. The adoption of ASC 606 resulted in a change to our accounting policy related to retrospective income on RSAs. We participate in profit sharing agreements with the underwriters of our RSA products, payment from which is contingent upon the actual performance of the portfolio of the RSAs sold. Prior to the adoption of ~~these ASUs~~ASC 606, we recognized this revenue and related receivable as the amount due to us at each reporting date based on the performance of the portfolio through such date. The Company concluded that this retrospective income represents variable consideration under ASC 606 for which the Company’s performance obligation is satisfied when the RSA is sold to the customer. Under ASC 606, an estimate of variable consideration, subject to constraints, is to be included in the transaction price and recognized when or as the performance obligation is satisfied. As a result of the adoption of ASC 606, the Company changed its accounting policy related to retrospective income on RSAs to record an estimate of retrospective income when the RSA is sold, subject to constraints in the estimate. The Company's estimate of the amount of variable consideration is recorded as a contract asset, representing a conditional right to payment, and is included within other accounts receivable in the Condensed Consolidated Balance Sheet. The estimated contract asset will be reassessed at the end of each reporting period, with changes thereto recorded as adjustments to revenue.

The cumulative effect of the changes made to the Company’s Condensed Consolidated Balance Sheet as a result of the adoption of ASC 606 were as follows (in thousands):



	Impact of Adoption of ASC 606
(in thousands)	Balance at January 31, 2018		Adjustments due to ASC 606			Balance at February 1, 2018
Assets
Other Accounts Receivable	$	71,186	$	1,210		$	72,396
Deferred Income Taxes	21,565		(254		)	21,311
Stockholder's Equity	$	535,068	$	956		$	536,024

The adoption of ASC 606 did not have a material impact on ~~our~~the consolidated financial statements ~~other than~~for the ~~expected additional disclosure requirements.~~three and nine months ended October 31, 2018 and no comparative financial statements are presented.

Internal Controls. As a result of the adoption of ASC 606, we evaluated our internal control framework and there have been no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

CONN'S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. ASU 2016-18 requires that the statement of cash flows provides the change in the total of cash, cash equivalents, and restricted cash or restricted cash equivalents. We hold restricted cash related to our asset backed security transactions and lending license requirements. Effective February 1, 2018, the Company retrospectively adopted the ASU which resulted in us no longer presenting the changes in restricted cash balances as a component of cash flows from financing activities but instead including the balances of both current and long-term restricted cash with cash and cash equivalents in total cash, cash equivalents and restricted cash for the beginning and end of the periods presented. The total cash flow impact for the nine months ended October 31, 2017 was an increase in the cash used in financing activities of $39.6 million. The balances of cash and cash equivalents and restricted cash are separately presented within the Condensed Consolidated Balance Sheet as of October 31, 2018 and January 31, 2018.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows to reduce diversity in practice. Among other things, debt prepayment or debt extinguishment costs will be presented as cash outflows for financing activities on the statement of cash flows. Effective February 1, 2018, the Company retrospectively adopted the ASU, which resulted in us no longer presenting the cash payment for debt extinguishment costs as a component of cash flows from operating activities but instead including the cash payment as a component of cash flows from financing activities. The adoption of this ASU resulted in the reclassification of $0.8 million in payments on extinguishment of debt previously classified as a cash outflow from operating activities to a cash outflow from financing activities for the nine months ended October 31, 2017.

Recent Accounting Pronouncements Yet To Be Adopted. In February 2016 the FASB issued ASU 2016-02, Leases (Topic 842), which will change how lessees account for leases. For most leases, a liability will be recorded on the balance sheet based on the present value of future lease obligations with a corresponding right-of-use asset. Primarily for those leases currently classified by us as operating leases, we will recognize a single lease cost on a straight line basis based on the combined amortization of the lease obligation and the right-of-use asset. Other leases will be required to be accounted for as financing arrangements similar to how we currently account for capital leases. On transition, we will recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The final standard will become effective for us beginning in the first quarter of fiscal year 2020. Based on our preliminary assessment, we believe the adoption of this ASU will have a material impact on our financial statements as we will be required to report additional leases on our consolidated balance sheet. We are the lessee under various lease agreements for our retail stores and equipment that are currently accounted for as operating leases as discussed in Note 6,8, Leases of, in our audited ~~Consolidated Financial Statements~~consolidated financial statements included in our ~~Annual Report on~~2018 Form 10-K, as updated by our Form 8-K filed with the SEC on November 23, 2018. On transition, we will recognize a cumulative-effect adjustment to the retained earnings on the opening balance sheet in the period of adoption using a modified retrospective approach. Based on our preliminary assessment, we believe the adoption of this ASU will have a material impact on our Condensed Consolidated Balance Sheet as we will be required to report additional leases on our Condensed Consolidated Balance Sheet. The Company plans to elect certain optional practical expedients which include the option to retain the current classification of leases entered into prior to February 1, 2019, and thus does not anticipate a material impact to the consolidated statements of earnings or consolidated statements of cash flows. The Company also plans to adopt an optional transition method finalized by the FASB in July 2018 that waives the requirement to apply this ASU in the comparative periods presented within the financial statements in the year of adoption. The Company expects to be affected by the transition guidance related to recognition of deferred gains recorded under previous sale and operating leaseback transactions, which requires companies to recognize any deferred gains not resulting from off-market terms as a cumulative-effect adjustment to retained earnings upon adoption of ASU 2016-02. The Company is also evaluating and implementing changes to our accounting policies, processes, and internal controls to ensure compliance with the standard’s reporting and disclosure requirements as well as implementing a new lease accounting module within its lease management system to support the new accounting requirements. The Company is currently quantifying the impact of ASU 2016-02 to its consolidated financial statements, including the impact of recognizing a lease obligation and right-of-use asset on its consolidated balance sheet for lease agreements currently accounted for as operating leases. We will adopt the new standard in the first quarter of fiscal year ~~ended January 31, 2017~~.2020.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires that financial assets measured at amortized cost ~~should~~ be presented at the net amount expected to be collected through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The standard will become effective for us in the first quarter of fiscal year 2021 and ~~earlier~~early adoption is permitted beginning in the first quarter of fiscal year 2020. We have formed a cross-functional working group comprised of individuals from various functional areas including credit, finance, accounting, and information technology. While we are currently ~~assessing~~evaluating the likely impact the adoption of this ASU will have on our consolidated financial ~~statements.~~statements, the adoption of ASU 2016-13 is likely to result in a material increase in the allowance for loan losses as a result of changing from an “incurred loss” model, which encompasses allowances for current known and inherent losses within the portfolio, to an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio.

CONN'S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~In August 2016, the FASB issued ASU 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)~~. ASU 2016-15 clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows to reduce diversity in practice. Among other things, debt prepayment or debt extinguishment costs will be presented as cash outflows for financing activities on the statement of cash flow. The standard will become effective for us in the first quarter of fiscal year 2019 and early adoption is permitted. The adoption of this ASU is not expected to have a significant impact on our consolidated financial statements.

~~In October 2016, the FASB issued ASU 2016-16,~~ ~~Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory~~, which eliminates the exception that prohibits the recognition of current and deferred income tax effects for intra-entity transfers of assets other than inventory until the asset has been sold to an outside party. The standard will become effective for us in the first quarter of fiscal year 2019 and early adoption is permitted. The application of the amendments will require the use of a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. We are evaluating the standard and the impact it will have on our consolidated financial statements.

~~In November 2016, the FASB issued ASU 2016-18,~~ ~~Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)~~. ASU 2016-18 requires that the statement of cash flows provides the change in the total of cash, cash equivalents, and restricted cash or restricted cash equivalents. We hold restricted cash related to our asset-backed security transactions. The adoption of this standard will result in us no longer showing the changes in restricted cash balances as a component of cash flows from financing activities but instead include the balances of both current and long-term restricted cash with cash and cash equivalents in total cash, cash equivalents and restricted cash for the beginning and end of the periods presented. The ASU will become effective for us in the first quarter of fiscal year 2019, and early adoption is permitted.

2. Customer Accounts Receivable

Customer accounts receivable consisted of the following:


	Total Outstanding Balance														Total Outstanding Balance
	Customer Accounts Receivable						60 Days Past Due ⁽¹⁾				Re-aged ⁽¹⁾				Customer Accounts Receivable						60 Days Past Due ⁽¹⁾				Re-aged ^{(1) (2)}
(in thousands)	October 31, 2017			January 31, 2017			October 31, 2017 ⁽²⁾		January 31, 2017		October 31, 2017 ⁽³⁾		January 31, 2017		October 31, 2018			January 31, 2018			October 31, 2018		January 31, 2018		October 31, 2018		January 31, 2018
Customer accounts receivable	$	1,341,939		$	1,417,581		$	110,382	$	127,747	$	208,047	$	111,585	$	1,345,361		$	1,374,269		$	103,556	$	114,120	$	207,805	$	217,952
Restructured accounts	146,967			138,858			37,484		38,010		146,967		138,858		181,145			153,593			44,880		37,687		181,145		153,593
Total customer portfolio balance	1,488,906			1,556,439			$	147,866	$	165,757	$	355,014	$	250,443	$	1,526,506		$	1,527,862		$	148,436	$	151,807	$	388,950	$	371,545
Allowance for uncollectible accounts	(202,906		)	(210,175		)									(207,097		)	(203,572		)
Allowances for no-interest option credit programs	(19,616		)	(21,207		)									(18,716		)	(20,960		)
Deferred fees and origination costs, net	(14,019		)	(6,991		)									(15,977		)	(15,897		)
Total customer accounts receivable, net	1,252,365			1,318,066											1,284,716			1,287,433
Short-term portion of customer accounts receivable, net	(635,700		)	(702,162		)									(630,396		)	(636,825		)
Long-term portion of customer accounts receivable, net	$	616,665		$	615,904										$	654,320		$	650,608
Securitized receivables held by the VIEs	$	712,727		$	1,015,837		$	99,763	$	156,344	$	246,333	$	238,375	$	838,835		$	1,085,385		$	101,433	$	124,627	$	287,902	$	300,348
Receivables not held by the VIEs	776,179			540,602			48,103		9,413		108,681		12,068		687,671			442,477			47,003		27,180		101,048		71,197
Total customer portfolio balance	$	1,488,906		$	1,556,439		$	147,866	$	165,757	$	355,014	$	250,443	$	1,526,506		$	1,527,862		$	148,436	$	151,807	$	388,950	$	371,545

(1)

Due to the fact that an account can become past due after having been re-aged, accounts could be represented as both past due and re-aged. As of October 31, ~~2017~~2018 and January 31, ~~2017,~~2018, the amounts included within both 60 days past due and re-aged ~~were $64.8~~was $92.0 million and ~~$66.7~~$80.8 million, respectively. As of October 31, ~~2017~~2018 and January 31, ~~2017,~~2018, the total customer portfolio balance past due one day or greater was ~~$394.5~~$418.4 million and ~~$406.1~~$401.0 million, respectively. These amounts include the 60 days past due balances shown.

~~CONN'S, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~


(2)	The ~~balance of accounts 60 days past due as of October 31, 2017 reflects the impact of first time re-ages related to customers within FEMA-designated Hurricane Harvey disaster areas.~~


~~(3)~~	~~The~~ re-aged ~~receivable~~receivables balance as of October 31, ~~2017~~2018 and January 31, 2018 includes ~~$71.8~~$34.3 million and $62.0 million in first time re-ages related to customers within FEMA-designated Hurricane Harvey disaster areas.

The following presents the activity in the allowance for doubtful accounts and uncollectible interest for customer receivables:


	Nine Months Ended October 31, 2017									Nine Months Ended October 31, 2016									Nine Months Ended October 31, 2018									Nine Months Ended October 31, 2017
(in thousands)	Customer Accounts Receivable			Restructured Accounts			Total			Customer Accounts Receivable			Restructured Accounts			Total			Customer Accounts Receivable			Restructured Accounts			Total			Customer Accounts Receivable			Restructured Accounts			Total
Allowance at beginning of period	$	158,992		$	51,183		$	210,175		$	149,226		$	41,764		$	190,990		$	148,856		$	54,716		$	203,572		$	158,992		$	51,183		$	210,175
Provision ⁽¹⁾	139,406			52,948			192,354			156,063			44,286			200,349			127,472			51,440			178,912			139,406			52,948			192,354
Principal charge-offs ⁽²⁾	(133,033		)	(44,657		)	(177,690		)	(132,028		)	(31,802		)	(163,830		)	(119,242		)	(38,990		)	(158,232		)	(133,033		)	(44,657		)	(177,690		)
Interest charge-offs	(21,884		)	(7,346		)	(29,230		)	(22,400		)	(5,405		)	(27,805		)	(23,696		)	(7,748		)	(31,444		)	(21,884		)	(7,346		)	(29,230		)
Recoveries ⁽²⁾	5,463			1,834			7,297			3,727			899			4,626			10,768			3,521			14,289			5,463			1,834			7,297
Allowance at end of period	$	148,944		$	53,962		$	202,906		$	154,588		$	49,742		$	204,330		$	144,158		$	62,939		$	207,097		$	148,944		$	53,962		$	202,906
Average total customer portfolio balance	$	1,352,137		$	141,155		$	1,493,292		$	1,422,473		$	126,493		$	1,548,966		$	1,341,415		$	167,473		$	1,508,888		$	1,352,137		$	141,155		$	1,493,292


(1)	Includes provision for uncollectible interest, which is included in finance charges and other revenues.


(2)	Charge-offs include the principal amount of losses (excluding accrued and unpaid interest). Recoveries include principal collections of previously charged-off balances. Net charge-offs are calculated as the net of principal charge-offs and recoveries.

~~3. Accrual for Store and Facility Closures~~

We have closed or relocated retail and facility locations that did not perform at a level expected for mature store locations or that did not align with our long-term retail objectives. Certain of the closed or relocated stores and facilities had non-cancelable lease agreements, resulting in the accrual of the present value of the remaining lease payments and estimated related occupancy obligations, net of estimated sublease income. Adjustments to these projections for changes in estimated marketing times and sublease rates, as well as other revisions, are made to the obligation as further information related to the actual terms and costs become available.

~~The following table presents detail of the activity in the accrual for store and facility closures:~~

Nine Months Ended
October 31,
(in thousands) 2017 2016
Balance at beginning of period $ 1,874
$ 1,866
Accrual for additional closures 1,314
954
Adjustments 16
(74 )
Cash payments, net of sublease income (2,010 ) (767 )
Balance at end of period 1,194
1,979
Current portion, included in accrued expenses (170 ) (923 )
Long-term portion, included in other long-term liabilities $ 1,024
$ 1,056

CONN'S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4.3. Charges and Credits

Charges and credits consisted of the following:


	Three Months Ended October 31,				Nine Months Ended October 31,				Three Months Ended October 31,				Nine Months Ended October 31,
(in thousands)	2017		2016		2017		2016		2018		2017		2018		2017
Store and facility closure costs	$	—	$	954	$	1,349	$	954
Impairments from disposals	—		595		—		1,980
Legal and professional fees related to the exploration of strategic alternatives and securities-related litigation	—		158		34		747
Facility closure costs									$	—	$	—	$	—	$	1,349
Securities-related regulatory matter and other legal fees									—		—		300		34
Employee severance	—		280		1,317		1,493		737		—		737		1,317
Indirect tax audit reserve	—		—		2,595		—		—		—		—		2,595
Legal judgment									4,800		—		4,800		—
Write-off of capitalized software costs	5,861		—		5,861		—		—		5,861		—		5,861
Executive management transition costs	—		—		—		234
	$	5,861	$	1,987	$	11,156	$	5,408	$	5,537	$	5,861	$	5,837	$	11,156

During the three months ended October 31, 2018, we recorded severance costs related to a change in the executive management team and costs related to the TFL Judgment (as defined below). Refer to Note 6, Contingencies, for additional information about the TFL Judgment. During the nine months ended October 31, 2018, we recorded a contingency reserve related to a regulatory matter, severance costs related to a change in the executive management team and costs related to the TFL Judgment. Refer to Note 6, Contingencies, for additional information about the TFL Judgment. During the three months ended October 31, 2017, we incurred a loss from the write-off of previously capitalized costs for a software project that was abandoned during the third quarter of fiscal year 2018 related to the implementation of a new point of sale system that began in fiscal year 2013. During the nine months ended October 31, 2017, we incurred exit costs associated with reducing the square footage of a distribution center, severance costs related to a change in the executive management team, a charge related to an increase in our indirect tax audit reserve, and a loss from the write-off of previously capitalized costs for a software project that was abandoned during the third quarter of fiscal year 2018 related to the implementation of a new point of sale system that began in fiscal year 2013. During the three and nine months ended October 31, 2016, we incurred costs associated with store and facility closures, impairments from disposals, legal and professional fees related to our securities-related litigation and severance and transition costs due to changes in the executive management team. The impairments from disposals included the write-off of leasehold improvements for one store we relocated prior to the end of the useful life of the leasehold improvements and incurred costs for a terminated store project prior to starting construction.

5.4. Finance Charges and Other Revenues

Finance charges and other revenues consisted of the following:


	Three Months Ended October 31,				Nine Months Ended October 31,				Three Months Ended October 31,				Nine Months Ended October 31,
(in thousands)	2017		2016		2017		2016		2018		2017		2018		2017
Interest income and fees	$	74,144	$	58,404	$	210,765	$	173,527	$	82,964	$	74,144	$	239,745	$	210,765
Insurance income	7,125		9,999		27,107		30,674		6,807		7,125		20,852		27,107
Other revenues	95		337		267		1,268		179		95		291		267
	$	81,364	$	68,740	$	238,139	$	205,469	$	89,950	$	81,364	$	260,888	$	238,139

Interest income and fees and insurance income are derived from the credit segment operations, whereas other revenues are derived from the retail segment operations. Insurance income is comprised of sales commissions from third-party insurance companies ~~at the time we sell the~~that are recognized when coverage is sold and ~~we may receive~~ retrospective ~~commissions, which are additional commissions~~income paid by the insurance carrier if insurance claims are less than earned premiums.

During the three months ended October 31, ~~2017~~2018 and ~~2016,~~2017, interest income and fees reflected provisions for uncollectible interest of $13.4 million and $10.5 million, ~~and $11.0 million and~~respectively. The amount included in interest income and fees related to TDR accounts ~~of $4.8~~for the three months ended October 31, 2018 and 2017 are $7.1 million and ~~$4.4~~$4.8 million, respectively. During the nine months ended October 31, ~~2017~~2018 and ~~2016,~~2017, interest income and fees reflected provisions for uncollectible interest of $37.2 million and $31.0 million, ~~and $31.2 million and~~respectively. The amount included in interest income and fees related to TDR accounts offor the nine months ended October 31, 2018 and 2017 are $19.4 million and $14.0 million, ~~and $12.7 million,~~ respectively. Insurance income decreased over the nine month period primarily due to a decrease in retrospective income as a result of higher claim volumes related to Hurricane Harvey.

CONN'S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6.5. Debt and Capital Lease Obligations

Debt and capital lease obligations consisted of the following:

(in thousands) October 31,
2017 January 31,
2017
Revolving credit facility $ 352,000
$ 177,500
Senior Notes 227,000
227,000
2015 VIE Asset-backed Class A notes —
12,166
2015 VIE Asset-backed Class B notes —
165,900
2016-A VIE Asset-backed Class A notes —
64,732
2016-A VIE Asset-backed Class B notes —
70,510
2016-A VIE Asset-backed Class C notes —
70,510
2016-B VIE Asset-backed Class A notes 8,563
256,513
2016-B VIE Asset-backed Class B notes 111,960
111,960
2017-A VIE Asset-backed Class A notes 129,583
—
2017-A VIE Asset-backed Class B notes 106,270
—
2017-A VIE Asset-backed Class C notes 50,340
—
2017 Warehouse Class A Notes 56,874
—
Capital lease obligations 5,213
2,393
Total debt and capital lease obligations 1,047,803
1,159,184
Less:
Discount on debt (2,668 ) (3,089 )
Deferred debt issuance costs (6,206 ) (10,853 )
Current maturities of long-term debt and capital lease obligations (65,651 ) (849 )
Long-term debt and capital lease obligations $ 973,278
$ 1,144,393



(in thousands)	October 31, 2018			January 31, 2018
Revolving Credit Facility	$	83,050		$	77,000
Senior Notes	227,000			227,000
2016-B VIE Asset-backed Class B Notes	—			73,589
2017-A VIE Asset-backed Class A Notes	—			59,794
2017-A VIE Asset-backed Class B Notes	—			106,270
2017-A VIE Asset-backed Class C Notes	—			50,340
2017-B VIE Asset-backed Class A Notes	26,097			292,663
2017-B VIE Asset-backed Class B Notes	132,180			132,180
2017-B VIE Asset-backed Class C Notes	78,640			78,640
2018-A VIE Asset-backed Class A Notes	154,907			—
2018-A VIE Asset-backed Class B Notes	69,550			—
2018-A VIE Asset-backed Class C Notes	69,550			—
Warehouse Notes	84,409			—
Capital lease obligations	4,698			4,949
Total debt and capital lease obligations	930,081			1,102,425
Less:
Discount on debt	(2,106		)	(2,527		)
Deferred debt issuance costs	(6,805		)	(8,886		)
Current maturities of capital lease obligations	(804		)	(907		)
Long-term debt and capital lease obligations	$	920,366		$	1,090,105

Senior Notes. On July 1, 2014, we issued $250.0 million of the unsecured Senior Notes due July 2022 bearing interest at 7.25% (the ~~"Senior Notes"~~“Senior Notes”), pursuant to an indenture dated July 1, 2014 (the ~~"Indenture"~~“Indenture”), among Conn's, Inc., its subsidiary guarantors (the ~~"Guarantors"~~“Guarantors”) and U.S. Bank National Association, as trustee. The effective interest rate of the Senior Notes after giving effect to the discount and issuance costs is 7.8%.

The Indenture restricts the Company's and certain of its subsidiaries' ability to: (i) incur indebtedness; (ii) pay dividends or make other distributions in respect of, or repurchase or redeem, our capital stock ("(“restricted ~~payments"~~payments”); (iii) prepay, redeem or repurchase debt that is junior in right of payment to the notes; (iv) make loans and certain investments; (v) sell assets; (vi) incur liens; (vii) enter into transactions with affiliates; and (viii) consolidate, merge or sell all or substantially all of our assets. These covenants are subject to a number of important exceptions and qualifications. Specifically, limitations on restricted payments are only effective if one or more of the following occurred: (1) a default were to exist under the Indenture, (2) we could not satisfy a debt incurrence test, and (3) the aggregate amount of restricted payments, ~~were~~excluding certain restricted payments permitted under the Indenture, exceeds the sum of (i) 50% of Consolidated Net Income from November 1, 2015 to ~~exceed an~~the end of the most recent fiscal quarter, (ii) 100% of net cash proceeds and the fair market value of certain capital stock and other property received in or exchanged for the sale or issuance of Capital Stock, (iii) amount ~~tied to consolidated net income.~~by which certain indebtedness is reduced upon conversion or exchange for Capital Stock and (iv) certain reductions in Restricted Investments (the sum of clauses (i) through (iv) as of October 31, 2018, the “Consolidate Net Income Threshold Amount”). These limitations, however, are subject to ~~two exceptions:~~certain permitted exceptions, including (1) ~~an exception that permits the payment of up to $375.0 million in restricted payments, and (2)~~ an exception that permits restricted payments regardless of dollar amount so long as, after giving pro forma effect to ~~the~~such dividends and other restricted payments, we would have had a leverage ratio, as defined ~~under~~in the Indenture, of less than or equal to 2.50 to ~~1.0.~~1.0 and (2) a general exception that permits the payment of up to $375.0 million in restricted payments not otherwise permitted under the Indenture (the “Permitted Distribution Amount”). As a result of ~~these exceptions,~~the sum of the Consolidated Net Income Threshold Amount and Permitted Distribution Amount, as of October 31, ~~2017, $179.2~~2018, $207.8 million would have been free from the distribution restriction. ~~However, as a result of the revolving credit facility distribution restrictions, which are further described below, we were restricted from making a distribution as of October 31, 2017.~~ During any time when the Senior Notes are rated investment grade by either of Moody's Investors Service, Inc. or Standard & Poor's Ratings Services and no default (as defined in the Indenture) has occurred and is continuing, many of such covenants will be suspended and we will cease to be subject to such covenants during such period.

Events of default under the Indenture include customary events, such as a cross-acceleration provision in the event that we fail to make payment of other indebtedness prior to the expiration of any applicable grace period or upon acceleration of indebtedness prior to its stated maturity

CONN'S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

date in an amount exceeding $25.0 million, as well as in the event a judgment is entered against us in excess of $25.0 million that is not discharged, bonded or insured.

~~CONN'S, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Asset-backed Notes. During fiscal years 2019, 2018 ~~2017~~ and ~~2016,~~2017 we securitized customer accounts receivables by transferring the receivables to various bankruptcy-remote VIEs. In turn, the VIEs issued asset-backed notes secured by the transferred customer accounts receivables and restricted cash held by the VIEs.

Under the terms of the securitization transactions, all cash collections and other cash proceeds of the customer receivables go first to the servicer and the holders of issued notes, and then to us as the holder of non-issued notes, if any, and residual equity. We retain the servicing of the securitized portfolios and receive a monthly fee of 4.75% (annualized) based on the outstanding balance of the securitized receivables. In addition, we, rather than the VIEs, retain all credit insurance income together with certain recoveries related to credit insurance and repair service agreements on charge-offs of the securitized receivables, which are reflected as a reduction to net charge-offs on a consolidated basis.

The asset-backed notes were offered and sold to qualified institutional buyers pursuant to the exemptions from registration provided by Rule 144A under the Securities Act of 1933, as amended. If an event of default were to occur under the indenture that governs the respective asset-backed notes, the payment of the outstanding amounts may be accelerated, in which event the cash proceeds of the receivables that otherwise might be released to the residual equity holder would instead be directed entirely toward repayment of the asset-backed notes, or if the receivables are liquidated, all liquidation proceeds could be directed solely to repayment of the asset-backed notes as governed by the respective terms of the asset-backed notes. The holders of the asset-backed notes have no recourse to assets outside of the VIEs. Events of default include, but are not limited to, failure to make required payments on the asset-backed notes or specified bankruptcy-related events.

The asset-backed notes ~~at origination consisted~~consist of the following:

Asset-Backed Notes Original Principal Amount
Net Proceeds⁽¹⁾
Issuance Date Maturity Date Contractual Interest Rate
Effective Interest Rate⁽²⁾
2016-B Class A Notes 391,840
380,033
10/6/2016 10/15/2018 3.73% 5.47%
2016-B Class B Notes 111,960
108,586
10/6/2016 3/15/2019 7.34% 8.03%
2017-A Class A Notes 313,220
304,451
4/19/2017 7/15/2019 2.73% 4.96%
2017-A Class B Notes 106,270
103,300
4/19/2017 2/15/2020 5.11% 5.83%
2017-A Class C Notes 50,340
48,919
4/19/2017 10/15/2021 7.40% 7.91%
2017 Warehouse Class A Notes

79,940
78,777
8/15/2017 8/15/2018
1M CP + 4% ⁽³⁾
7.02%
Total $ 1,053,570
$ 1,024,066



Asset-Backed Notes	Original Principal Amount		Original Net Proceeds ⁽¹⁾		Current Principal Amount		Issuance Date	Maturity Date	Fixed Interest Rate	Effective Interest Rate ⁽²⁾
2017-B Class A Notes	$	361,400	$	358,945	$	26,097	12/20/2017	7/15/2020	2.73%	5.17%
2017-B Class B Notes	132,180		131,281		132,180		12/20/2017	4/15/2021	4.52%	5.23%
2017-B Class C Notes	78,640		77,843		78,640		12/20/2017	11/15/2022	5.95%	6.34%
2018-A Class A Notes	219,200		217,832		154,907		8/15/2018	1/17/2023	3.25%	4.73%
2018-A Class B Notes	69,550		69,020		69,550		8/15/2018	1/17/2023	4.65%	5.43%
2018-A Class C Notes	69,550		68,850		69,550		8/15/2018	1/17/2023	6.02%	6.79%
Warehouse Notes	121,060		118,972		84,409		7/16/2018	1/15/2020	Index + 2.50% ⁽³⁾	6.56%
Total	$	1,051,580	$	1,042,743	$	615,333


(1)	After giving effect to debt issuance costs and restricted cash held by the VIEs.


(2)	For the nine months ended October 31, ~~2017,~~2018, and inclusive of retrospective adjustments to deferred debt issuance costs based on changes in timing of actual and expected cash flows.


(3)	The rate on the ~~2017~~ Warehouse ~~Class A~~ Notes is defined as the ~~one-month commercial paper rate, representing the purchaser's commercial paper cost,~~applicable index plus a 4%2.50% fixed margin.

On ~~May~~February 15, ~~2017,~~2018, affiliates of the Company closed on a $52.2 million financing under a receivables warehouse financing transaction entered into on February 6, 2018 (the “Warehouse Notes”). The net proceeds of the Warehouse Notes were used to prepay in full the Series 2016-B Class B Notes (the “2016-B Redeemed Notes”) that were still outstanding as of February 15, 2018.

On February 15, 2018, the Company completed the redemption of ~~its Series 2015-A Class B~~the 2016-B Redeemed Notes ~~(collectively, the "2015-A Redeemed Notes")~~ at an aggregate redemption price of ~~$114.1~~$73.6 million (which was equal to the entire outstanding principal of, plus accrued interest and the call premiums on, the ~~2015-A~~2016-B Redeemed Notes). The net funds used to call the notes was ~~$78.8~~$50.3 million, which is equal to the redemption price less adjustments of ~~$35.3~~$23.3 million for funds held in reserve and collection accounts in accordance with the terms of the applicable indenture governing the 2015-A Redeemed Notes. The net funds used to call the 2015-A Redeemed Notes of $78.8 million was transferred from the Guarantors to the Non-Guarantor Subsidiary in exchange for the underlying securities held as collateral on the 2015-A Redeemed Notes with carrying value of $126.3 million as of April 30, 2017. In connection with the early redemption of the 2015-A Redeemed Notes, we wrote-off $2.1 million of debt issuance costs.

On August 15, 2017, affiliates of the Company closed on a $79.9 million financing under a receivables warehouse financing transaction entered into on August 8, 2017 (the "Warehouse Financing"). The net proceeds of the Warehouse Financing were used to prepay in full the Series 2016-A Class B Notes and Class C Notes (collectively, the "2016-A Redeemed Notes"), which had been issued by Conn’s Receivables Funding 2016-A, LLC under a securitization transaction entered into on March 17, 2016, that were still outstanding as of August 15, 2017.

~~CONN'S, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~2016-A~~ 2016-B Redeemed Notes at redemption was used to fund fees, expenses and a reserve account related to the Warehouse facility. In connection with the early redemption of the ~~2016-A~~2016-B Redeemed Notes, we wrote-off ~~$0.5~~$0.4 million as a loss on extinguishment of debt.

On July 16, 2018, affiliates of the Company closed on $121.1 million of ~~debt~~additional financing under a receivables warehouse financing transaction entered into on July 9, 2018 (the “Additional Funding”). The net proceeds of the Additional Funding were

CONN'S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

used to prepay in full the Series 2017-A Class B and C Notes (the “2017-A Redeemed Notes”) that were still outstanding as of July 16, 2018.

On July 16, 2018, the Company completed the redemption of the 2017-A Redeemed Notes at an aggregate redemption price of $127.2 million (which was equal to the entire outstanding principal of, plus accrued interest and the call premiums on the 2017-A Redeemed Notes). The net funds used to call the notes was $119.0 million, which is equal to the redemption price less adjustments of $8.2 million for funds held in reserve and collection accounts in accordance with the terms of the applicable indenture governing the 2017-A Redeemed Notes. The difference between the net proceeds of the Additional Funding and the carrying value of the 2017-A Redeemed Notes at redemption was used to fund fees, expenses and a reserve account related to the warehouse facility. In connection with the early redemption of the 2017-A Redeemed Notes, we wrote-off $1.2 million as a loss on extinguishment of debt.

On August 15, 2018, an affiliate of the Company (the “Issuer”) completed the issuance ~~costs.~~

and sale of asset-backed notes at a face amount of $358.3 million secured by the transferred customer accounts receivables and restricted cash held by a VIE, which resulted in net proceeds to us of $355.7 million, net of transaction costs and restricted cash held by the VIE. Net proceeds from the offering were used to repay indebtedness under the Company’s Revolving Credit Facility, as defined below, and for other general corporate purposes. The asset-backed notes mature on January 17, 2023 and consist of $219.2 million of the Issuer’s 3.25% Asset Backed Fixed Rate Notes, Series 2018-A, Class A, $69.6 million of the Issuer’s 4.65% Asset Backed Fixed Rate Notes, Series 2018-A, Class B, and $69.6 million of the Issuer’s 6.02% Asset Backed Fixed Rate Notes, Series 2018-A, Class C.

Revolving Credit Facility. On ~~March 31, 2017,~~May 23, 2018, Conn's, Inc. and certain of its subsidiaries (the ~~"Borrowers"~~“Borrowers”) entered into a ~~Third~~Fourth Amendment ~~(the "Third Amendment")~~ to the ~~Third~~Fourth Amended and Restated Loan and Security Agreement (the “Fourth Amendment”), dated as of October 30, 2015, with certain lenders, which provides for a ~~$750.0~~$650.0 million asset-based revolving credit facility (the ~~"revolving credit facility"~~“Revolving Credit Facility”) under which credit availability is subject to a borrowing base. ~~The revolving credit facility matures on October 30, 2019.~~

The ~~Third~~Fourth Amendment, among other things, (a) extends the maturity date of the credit facility ~~one year~~ to ~~October 30, 2019;~~May 23, 2022; (b) provides for a reduction in the aggregate commitments from ~~$810~~$750 million to ~~$750~~$650 million; (c) amends the ~~minimum~~method by which the applicable margin is calculated to be based on the total leverage ratio (ratio of total liabilities less the sum of qualified cash and ABS qualified cash to tangible net worth), with the applicable margin ranging from 2.50% to 3.25% for LIBOR loans and from 1.50% to 2.25% for base rate loans; (d) eliminates a $10 million availability block in calculating the borrowing base; (e) increases the maximum accounts receivable advance rate from 75% to 80%; (f) decreases the maximum unused line fee by 25 basis points, from 75 basis points to 50 basis points; (g) eliminates the cash recovery covenant; (h) modifies the maximum inventory component of the borrowing base from $175 million to 33.33% of revolving loan commitments in effect; (i) modifies the interest coverage ~~ratio~~ covenant ~~to reduce~~such that the minimum interest coverage ~~ratio to 1.10x as of~~on a trailing two quarter basis is 1.5x and the last day of the fiscal quarter ending October 31, 2017 and to 1.25x as of the last day of each fiscal quarter thereafter, beginning with the fiscal quarter ending January 31, 2018; (d) sets the applicable margin at 3.50% for LIBOR loans and 2.50% for Base Rate loans until the Company demonstrates anminimum interest coverage ~~ratio of equal to or greater than 1.10x for the fiscal~~during any single quarter ending October 31, 2017, at which point the applicable margin will revert to being determined according to the existing pricing grid based on facility availability; (e) reduces the minimum cash recovery percentage on the contracts it owns and manages from 4.50% to 4.45% for the first nine months of each fiscal year, and from 4.25% to 4.20% for the last three months of each fiscal year; (f) amends the definition of “EBITDA” to, among other things, exclude the impact of non-cash asset write-offs relating to construction in process; (g) amends the definition of “Interest Expense�� to exclude certain non-interest expenses; (h) amends various definitions and other related provisions to clarify the Company’s ability to undertake permitted securitization transactions; (i) increases the number of equity cures that may be exercised during the term of the agreement from one time to two times, andis 1.0x; (j) increases the maximum ~~amount of each such cure~~capital expenditures from ~~$10~~$75 million to ~~$20 million;~~$100 million during any period of four consecutive fiscal quarters; and ~~(j)~~(k) modifies the ~~calculations~~ability of ~~“Tangible Net Worth” and “Interest Coverage Ratio”~~the Company to ~~deduct certain amounts attributable~~effect future securitizations of its customer receivables portfolio, including adding the ability of the Company to enter into revolving ABS transactions.

Subsequent to the ~~difference between a calculated loss reserve and~~adoption of the ~~Company’s recorded loss reserve on its customer receivables.~~

~~Loans~~Fourth Amendment, loans under the ~~revolving credit facility~~Revolving Credit Facility bear interest, at our option, at a rate equal to LIBOR plus the applicable margin at 3.50% for LIBOR loans and 2.50% for base rate loans until the Company demonstrates an interest coverage ratio of equal to or greater than 1.10x for the fiscal quarter ending October 31, 2017, at which point the applicable margin will revert to being determined according to the existing pricing grid based on facility availability which ~~specifies~~specified a margin ranging from ~~2.75%~~2.50% to 3.25% per annum (depending on quarterly average net availability under the borrowing base) or the alternate base rate plus a margin ranging from ~~1.75%~~1.50% to 2.25% per annum (depending on quarterly average net availability under the borrowing base). The alternate base rate is the greatest of the prime rate announced by Bank of America, N.A., the federal funds rate plus 0.5%, or LIBOR for a 30-day interest period plus 1.0%. WeAs of October 31, 2018, we also ~~pay~~paid an unused fee on the portion of the commitments that iswas available for future borrowings or letters of credit at a rate ranging from 0.25% to ~~0.75%~~0.50% per annum, depending on the average outstanding balance and letters of credit of the ~~revolving credit facility~~Revolving Credit Facility in the immediately preceding quarter. The weighted-average interest rate on borrowings outstanding and including unused line fees under the ~~revolving credit facility~~Revolving Credit Facility was ~~6.6%~~7.0% for the nine months ended October 31, ~~2017.~~2018.

The ~~revolving credit facility~~Revolving Credit Facility provides funding based on a borrowing base calculation that includes customer accounts receivable and inventory, and provides for a $40.0 million sub-facility for letters of credit to support obligations incurred in the ordinary course of business. The obligations under the ~~revolving credit facility~~Revolving Credit Facility are secured by substantially all assets of the Company, excluding the assets of the VIEs. As of October 31, ~~2017,~~2018, we had immediately available borrowing capacity of ~~$110.5~~$401.6 million under our ~~revolving credit facility,~~Revolving Credit Facility, net of standby letters of credit issued of ~~$2.8~~$2.5 million. We also had ~~$284.8~~$162.8 million that may become available under our ~~revolving credit facility~~Revolving Credit Facility if we grow the balance of eligible customer receivables and ~~our~~total eligible inventory balances.

The ~~revolving credit facility~~Revolving Credit Facility places restrictions on our ability to incur additional indebtedness, grant liens on assets, make distributions on equity interests, dispose of assets, make loans, pay other indebtedness, engage in mergers, and other matters. The ~~revolving credit facility~~Revolving Credit Facility restricts our ability to make dividends and distributions unless no event of default exists and a liquidity test is satisfied. Subsidiaries of the Company may ~~make~~pay dividends and make distributions to the Company and other obligors under the ~~revolving credit facility~~Revolving Credit Facility without restriction. As of October 31, ~~2017,~~2018, we were ~~unable to repay~~restricted from making distributions, including

CONN'S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

repayments of the Senior Notes or ~~make~~ other distributions, in excess of $282.5 million as a result of the ~~revolving credit facility~~Revolving Credit Facility distribution restrictions. The ~~revolving credit facility~~Revolving Credit Facility contains customary default provisions, which, if triggered, could result in acceleration of all amounts outstanding under the ~~revolving credit facility.~~

In connection with entering into the Third Amendment, we wrote-off $0.3 million of debt issuance costs for lenders that did not continue to participate. We also paid $2.8 million of debt issuance costs, recorded as other assets, which will be amortized ratably over the remaining term of the revolving credit facility along with the unamortized debt issuance costs remaining on the revolving credit facility.

~~CONN'S, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Revolving Credit Facility.

Debt Covenants. We were in compliance with ~~our~~the debt covenants ~~as amended,~~of our Revolving Credit Facility at October 31, ~~2017.~~2018. A summary of the significant financial covenants that govern our ~~revolving credit facility, as amended,~~Revolving Credit Facility compared to our actual compliance status at October 31, ~~2017~~2018 is presented below:

Actual
Required
Minimum/
Maximum
Interest Coverage Ratio must equal or exceed minimum 1.75:1.00 1.10:1.00
Leverage Ratio must not exceed maximum 2.49:1.00 4.00:1.00
ABS Excluded Leverage Ratio must not exceed maximum 1.71:1.00 2.00:1.00
Cash Recovery Percent must exceed stated amount 4.80% 4.45%
Capital Expenditures, net, must not exceed maximum $1.0 million $75.0 million



	Actual	Required Minimum/ Maximum
Interest Coverage Ratio for the quarter must equal or exceed minimum	4.07:1.00	1.00:1.00
Interest Coverage Ratio for the trailing two quarters must equal or exceed minimum	3.97:1.00	1.50:1.00
Leverage Ratio must not exceed maximum	2.01:1.00	4.00:1.00
ABS Excluded Leverage Ratio must not exceed maximum	1.08:1.00	2.00:1.00
Capital Expenditures, net, must not exceed maximum	$16.0 million	$100.0 million

All capitalized terms in the above table are defined by the ~~revolving credit facility, as amended,~~Revolving Credit Facility and may or may not agree directly to the financial statement captions in this document. The covenants are calculated quarterly, except for ~~the Cash Recovery Percent, which is calculated monthly on a trailing three-month basis, and Capital Expenditures,~~capital expenditures, which is calculated for a period of four consecutive fiscal quarters, as of the end of each fiscal quarter.

7.6. Contingencies

Securities Class Action Litigation. We and two of our former executive officers ~~are~~were defendants in a consolidated securities class action lawsuit pending in the United States District Court for the Southern District of Texas (the “Court”), captioned In re Conn's Inc. Securities Litigation, Cause No. 14-CV-00548 (the “Consolidated Securities Action”). The Consolidated Securities Action started as three separate purported securities class action lawsuits filed between March 5, 2014 and May 5, 2014 in the Court that were consolidated into the Consolidated Securities Action on June 3, 2014. The plaintiffs in the Consolidated Securities Action ~~allege~~alleged that the defendants made false and misleading statements or failed to disclose material adverse facts about our business, operations, and prospects. They ~~allege~~alleged violations of sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and ~~seek~~sought to certify a class of all persons and entities that purchased or otherwise acquired Conn's common stock or call options, or sold or wrote Conn's put options between April 3, 2013 and December 9, 2014. The complaint ~~does~~did not specify the amount of damages sought.

On June 30, 2015, the Court held a hearing on the defendants' motion to dismiss plaintiffs' complaint. At the hearing the Court dismissed Brian Taylor, a former executive officer, and certain other aspects of the complaint. The Court ordered the plaintiffs to further amend their complaint in accordance with its ruling, and the plaintiffs filed their Fourth Consolidated Amended Complaint on July 21, 2015. The remaining defendants filed a motion to dismiss on August 28, 2015. The defendant's motion to dismiss was fully briefed and the Court held a hearing on defendants' motion on March 25, 2016 and onIn May 5, 2016, the Court issued a ruling that dismissed 78 of 91 alleged misstatements. ~~The parties have submitted their respective briefs in support of, and in opposition to, class certification, and also engaged in discovery pursuant to the Court’s scheduling order.~~ In late June 2017 the Court granted the plaintiffs’ motion for class certification, and shortly thereafter, Defendants filed a petition for permission to appeal to the ~~U.S. 5~~^thUnited States Fifth Circuit Court of ~~Appeals.~~Appeals (the “Fifth Circuit”). The Fifth Circuit granted leave to appeal on August 21, 2017. ~~We anticipate~~

On June 14, 2018, the parties filed a motion for preliminary approval of a settlement for the Consolidated Securities Action. The Court granted preliminary approval of the settlement terms and stayed the Consolidated Securities Action on June 28, 2018. The $22.5 million settlement was funded solely by proceeds from our insurance carriers. As part of the settlement, we, along with the other executive officer defendants, have denied and continue to deny any wrongdoing giving rise to any liability or violation of the law, including the U.S. securities laws, as well as each and every one of the claims alleged by plaintiffs in the Consolidated Securities Action.

The Court held a final settlement approval hearing on October 11, 2018 and that same day the Court signed its Final Order and Judgment approving the terms of the settlement of the Consolidated Securities Action. On November 16, 2018, after no appeal from the Final Order and Judgment was filed and the settlement became final, we filed a motion to voluntarily dismiss the Fifth Circuit appeal. The Fifth Circuit dismissed the appeal on November 15, 2018.

On April 2, 2018, MicroCapital Fund, LP, MicroCapital Fund Ltd, and MicroCapital LLC filed a lawsuit (the “MicroCapital Lawsuit”) against us and certain of our former executive officers in the United States District Court for the Southern District of Texas, Cause No. 4:18-CV-01020 (the “MicroCapital Action”). The plaintiffs in this action allege that the ~~appellate court may issue its ruling~~defendants made false and misleading statements or failed to disclose material facts about our credit and underwriting practices, accounting and internal controls. Plaintiffs allege violations of sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, Texas and Connecticut common law fraud, and Texas common law negligent misrepresentation against all defendants; as well as section 20A of the Securities Exchange Act of 1934; and Connecticut common law negligent misrepresentation against certain defendants arising from plaintiffs’ purchase of Conn’s, Inc. securities between April 3, 2013 and February 20, 2014. The complaint does not specify the amount of damages sought.

On April 27, 2018, the plaintiffs in the ~~first half~~MicroCapital Action filed a motion for a ruling that discovery can proceed and a request for a Rule 16 conference. We filed a response in opposition, as well as a cross-motion to stay this action in its entirety on May

CONN'S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

18, 2018. On July 10, 2018, the court granted our cross-motion to stay this action pending final approval of ~~calendar year 2018. Trial~~settlement in the Consolidated Securities Action. On November 6, 2018, defendants filed a motion to dismiss plaintiff’s complaint. Plaintiff’s response is ~~scheduled for October 2018.~~due on December 19, 2018, and defendants’ reply in support of their motion to dismiss is due on January 16, 2019.

We intend to vigorously defend ~~against all of the claims~~our interests in the ~~Consolidated Securities Action against us.~~MicroCapital Action. It is not possible at this time to predict the timing or outcome ~~of any~~ of this litigation, and we cannot reasonably estimate the possible loss or range of possible loss from these claims.

Derivative Litigation.On December 1, 2014, an alleged shareholder, purportedly on behalf of the Company, filed a derivative shareholder lawsuit against us and certain of our current and former directors and former executive officers in the Court, captioned as Robert Hack, derivatively on behalf of Conn's, Inc., v. Theodore M. Wright (former executive officer and former director), Bob L. Martin, Jon E.M. Jacoby (former director), Kelly M. Malson, Douglas H. Martin, David Schofman, Scott L. Thompson (former director), Brian Taylor (former executive officer) and Michael J. Poppe (former executive officer) and Conn's, Inc., Case No. 4:14-cv-03442 (the ~~"Original~~“Original Derivative ~~Action"~~Action”). The complaint asserts claims for breach of fiduciary duty, unjust enrichment, gross mismanagement, and insider trading based on substantially similar factual allegations as those asserted in the Consolidated Securities Action. The plaintiff seeks unspecified damages against these persons and does not request any damages from us. Setting forth substantially similar claims against the same defendants, on February 25, 2015, an additional federal derivative action, captioned 95250 Canada LTEE, derivatively on ~~behalf~~Behalf of Conn's, Inc. v. Wright et al., Cause No. 4:15-cv-00521, was filed in the Court, which has been consolidated with the Original Derivative Action.

~~CONN'S, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The Court previously approved a stipulation among the parties to stay the action pending resolution of the motion ~~to dismiss~~for class certification in the Consolidated Securities Action. The Court has agreed to continue to the stay through the final settlement approval hearing in the Consolidated Securities Action ~~is scheduled~~on October 11, 2018, and set a deadline of November 1, 2018, for ~~trial in October 2018. The parties have agreed~~defendants to ~~continue~~respond to the ~~stay.~~complaint. On November 1, the defendants filed a motion to dismiss plaintiff’s complaint.

Another derivative action was filed on January 27, 2015, captioned as Richard A. Dohn v. Wright, et al., Cause No. 2015-04405, ~~filed~~ in the 281st Judicial District Court, Harris County, Texas. This action makes substantially similar allegations to the Original Derivative Action against the same defendants. On September ~~14, 2017,~~7, 2018, the ~~court entered~~Court held a status conference at which the parties informed the Court of the October 11, 2018 final approval hearing for the settlement in the Consolidated Securities Action. In light of the pending settlement, the Court ordered the parties to appear for a status conference on December 7, 2018, and ordered the plaintiff to send us a courtesy copy of the amended petition that his counsel expressed an ~~order extending~~interest in filing. We received a copy of the ~~stay until March 16,~~amended petition on October 12, 2018.

Prior to filing a lawsuit, an alleged shareholder, Robert J. Casey II (“Casey”), submitted a demand under Delaware law, which our Board of Directors refused. On May 19, 2016, ~~an alleged shareholder,~~Casey, purportedly on behalf of the Company, filed a lawsuit against us and certain of our current and former directors and former executive officers in the 55th Judicial District Court, Harris County, Texas, captioned as ~~Robert J.~~ Casey, ~~II,~~ derivatively on behalf of Conn's, Inc., v. Theodore M. Wright (former executive officer and former director), Michael J. Poppe (former executive officer), Brian Taylor (former executive officer), Bob L. Martin, Jon E.M. Jacoby (former director), Kelly M. Malson, Douglas H. Martin, David Schofman, Scott L. Thompson (former director) and William E. Saunders Jr., and Conn's, Inc., Cause No. 2016-33135. The complaint asserts claims for breach of fiduciary duties and unjust enrichment based on substantially similar factual allegations as those asserted in the Original Derivative Action. The complaint does not specify the amount of damages sought. Pursuant to the parties’ agreement, this action is ~~currently stayed.~~stayed pending the resolution of the Consolidated Securities Action. No further activity has occurred in this case since the Final Order and Judgment was entered in the Consolidated Securities Action.

~~None~~Other than Casey, none of the plaintiffs in ~~any of~~ the other derivative actions made a demand on our Board of Directors prior to filing their respective lawsuits. The defendants in the derivative actions intend to vigorously defend against these claims. It is not possible at this time to predict the timing or outcome of any of this litigation, and we cannot reasonably estimate the possible loss or range of possible loss from these claims.

Regulatory Matters.We are continuing to cooperate with the SEC's investigation of our underwriting policies and bad debt provisions, which began in November 2014. The investigation is a non-public, fact-finding inquiry, and the SEC has stated that the investigation does not mean that any violations of law have occurred. ~~At this time, it is not possible~~

TF LoanCo. In April 2014, Conn’s entered into an agreement with TF LoanCo (“TFL”) to ~~predict~~sell Conn’s charged-off accounts. In August 2014, Conn’s sued TFL for breach of contract in the ~~timing or outcome~~U.S. District Court (the “Court”). TFL filed counterclaims. In October 2016, the Court issued a decision in favor of ~~this investigation, or whether there will be~~Conn’s on all claims against TFL. TFL appealed the Court’s decision. On September 10, 2018, the U.S. Court of Appeals for the Fifth Circuit unanimously reversed the Court’s decision and entered a ~~material loss, if any, resulting from this investigation.~~judgment (the “TFL Judgment”) in favor of TFL which required Conn’s to pay approximately $4.8 million, which includes the purchase price, statutory pre-judgment interest and attorney’s fees to TFL. The TFL Judgment was recognized as a charge during the three months ended October 31, 2018.

In addition, we are involved in other routine litigation and claims incidental to our business from time to time which, individually or in the aggregate, are not expected to have a material adverse effect on us. As required, we accrue estimates of the probable costs

CONN'S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

for the resolution of these matters. 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. However, the results of these proceedings cannot be predicted with certainty, and changes in facts and circumstances could impact our estimate of reserves for litigation. The Company believes that any probable and reasonably estimable loss associated with the foregoing has been adequately reflected in the accompanying financial statements.

8.7. Variable Interest Entities

~~In fiscal years 2018, 2017 and 2016,~~From time to time, we have securitized customer accounts receivables by transferring the receivables to various bankruptcy-remote VIEs. Under the terms of the respective securitization transactions, all cash collections and other cash proceeds of the customer receivables go first to the servicer and the holders of the asset-backed notes, and then to the residual equity holder. We retain the servicing of the securitized portfolio and receive a monthly fee of 4.75% (annualized) based on the outstanding balance of the securitized receivables, and we currently hold all of the residual equity. In addition, we, rather than the VIEs, will retain certain credit insurance income together with certain recoveries related to credit insurance and repair service agreements on charge-offs of the securitized receivables, which will continue to be reflected as a reduction of net charge-offs on a consolidated basis for as long as we consolidate the VIEs.

We consolidate VIEs when we determine that we are the primary beneficiary of these VIEs, we have the power to direct the activities that most significantly impact the performance of the VIEs and our obligation to absorb losses and the right to receive residual returns are significant.

CONN'S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the assets and liabilities held by the VIEs (for legal purposes, the assets and liabilities of the VIEs will remain distinct from Conn's, Inc.):


(in thousands)	October 31, 2017			January 31, 2017			October 31, 2018			January 31, 2018
Assets:
Restricted cash	$	71,099		$	110,698		$	68,493		$	85,322
Due from Conn's, Inc., net	2,387			7,368			—			15,212
Customer accounts receivable:
Customer accounts receivable	603,584			884,367			715,253			987,418
Restructured accounts	109,143			131,470			123,581			97,967
Allowance for uncollectible accounts	(109,759		)	(150,435		)	(121,021		)	(143,115		)
Allowances for no-interest option credit programs	(8,661		)	(15,912		)	(11,283		)	(18,228		)
Deferred fees and origination costs	(3,185		)	—			(7,392		)	(9,332		)
Total customer accounts receivable, net	591,122			849,490			699,138			914,710
Total assets	$	664,608		$	967,556		$	767,631		$	1,015,244
Liabilities:
Accrued expenses	$	3,602		$	6,525		$	4,889		$	6,723
Other liabilities	6,362			6,691			7,172			10,639
Current maturities of long-term debt:
2016-B Class A Notes	8,563
2017-A Warehouse Class A Notes	56,874
Deferred debt issuance costs	(485		)
Due to Conn's, Inc., net							4,496			—
	64,952			—
Long-term debt:
2015 Class A Notes	—			12,166
2015 Class B Notes	—			165,900
2016-A Class A Notes	—			64,732
2016-A Class B Notes	—			70,510
2016-A Class C Notes	—			70,510
2016-B Class A Notes	—			256,513
2016-B Class B Notes	111,960			111,960			—			73,589
2017-A Class A Notes	129,583			—			—			59,794
2017-A Class B Notes	106,270			—			—			106,270
2017-A Class C Notes	50,340			—			—			50,340
2017-B Class A Notes							26,097			292,663
2017-B Class B Notes							132,180			132,180
2017-B Class C Notes							78,640			78,640
2018-A Class A Notes							154,907			—
2018-A Class B Notes							69,550			—
2018-A Class C Notes							69,550			—
Warehouse Notes							84,409			—
	398,153			752,291			615,333			793,476
Less: deferred debt issuance costs	(2,143		)	(6,710		)	(3,980		)	(5,497		)
Total long-term debt	396,010			745,581			611,353			787,979
Total liabilities	$	470,926		$	758,797		$	627,910		$	805,341

The assets of the VIEs serve as collateral for the obligations of the VIEs. The holders of the asset-backed notes have no recourse to assets outside of the respective VIEs.

~~CONN'S, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

9.8. Segment Reporting

Operating segments are defined as components of an enterprise that engage in business activities and for which discrete financial information is available that is evaluated on a regular basis by the chief operating decision maker to make decisions about how to allocate resources and assess performance. We are a leading specialty retailer and offer a broad selection of quality, branded durable consumer goods and related services in addition to a proprietary credit solution for our core credit-constrained consumers. We have two operating segments: (i) retail and (ii) credit. Our operating segments complement one another. The retail segment operates primarily through our stores and ~~website in the retail furniture and mattresses, home appliances, consumer electronics and home office products business.~~website. Our retail segment product offerings include furniture and mattresses, home appliances, consumer electronics and home office products from leading global brands across a wide range of price points. Our credit segment offers affordable financing solutions to a large, under-served population of credit-constrained consumers who

CONN'S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

typically have limited credit alternatives. Our operating segments provide customers the opportunity to comparison shop across brands with confidence in our competitive prices as well as affordable monthly payment options, next day delivery and installation in the majority of our markets, and product repair service. ~~We believe our large, attractively merchandised retail stores and credit solutions offer a distinctive value proposition compared to other retailers that target our core customer demographic.~~ The operating segments follow the same accounting policies used in our condensed consolidated financial statements.

We evaluate a segment’s performance based upon operating income before taxes. Selling, general and administrative expenses include the direct expenses of the retail and credit operations, allocated corporate 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.

As of October 31, ~~2017,~~2018, we operated retail stores in 14 states with no operations outside of the United States. No single customer accounts for more than 10% of our total revenues.

CONN'S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Financial information by segment is presented in the following tables:


	Three Months Ended October 31, 2017							Three Months Ended October 31, 2016								Three Months Ended October 31, 2018							Three Months Ended October 31, 2017
(in thousands)	Retail		Credit			Total		Retail		Credit			Total			Retail		Credit			Total		Retail		Credit			Total
Revenues:
Furniture and mattress	$	97,146	$	—		$	97,146	$	98,898	$	—		$	98,898		$	91,342	$	—		$	91,342	$	97,146	$	—		$	97,146
Home appliance	83,837		—			83,837		85,785		—			85,785			79,542		—			79,542		83,837		—			83,837
Consumer electronic	58,062		—			58,062		65,670		—			65,670			60,008		—			60,008		58,062		—			58,062
Home office	20,295		—			20,295		22,747		—			22,747			22,661		—			22,661		20,295		—			20,295
Other	4,446		—			4,446		4,956		—			4,956			3,178		—			3,178		4,446		—			4,446
Product sales	263,786		—			263,786		278,056		—			278,056			256,731		—			256,731		263,786		—			263,786
Repair service agreement commissions	24,488		—			24,488		26,354		—			26,354			23,579		—			23,579		24,488		—			24,488
Service revenues	3,534		—			3,534		3,623		—			3,623			3,564		—			3,564		3,534		—			3,534
Total net sales	291,808		—			291,808		308,033		—			308,033			283,874		—			283,874		291,808		—			291,808
Finance charges and other revenues	95		81,269			81,364		337		68,403			68,740			179		89,771			89,950		95		81,269			81,364
Total revenues	291,903		81,269			373,172		308,370		68,403			376,773			284,053		89,771			373,824		291,903		81,269			373,172
Costs and expenses:
Cost of goods sold	175,591		—			175,591		192,374		—			192,374			166,886		—			166,886		175,591		—			175,591
Selling, general and administrative expenses ⁽¹⁾	80,676		33,679			114,355		79,777		34,680			114,457
Selling, general and administrative expense ⁽¹⁾																80,894		37,486			118,380		80,676		33,679			114,355
Provision for bad debts	189		56,323			56,512		286		51,278			51,564			286		47,262			47,548		189		56,323			56,512
Charges and credits	5,861		—			5,861		1,987		—			1,987			737		4,800			5,537		5,861		—			5,861
Total costs and expense	262,317		90,002			352,319		274,424		85,958			360,382
Total costs and expenses																248,803		89,548			338,351		262,317		90,002			352,319
Operating income (loss)	29,586		(8,733		)	20,853		33,946		(17,555		)	16,391			35,250		223			35,473		29,586		(8,733		)	20,853
Interest expense	—		18,095			18,095		—		23,470			23,470			—		15,098			15,098		—		18,095			18,095
Loss on extinguishment of debt	—		461			461		—		—			—			—		—			—		—		461			461
Income (loss) before income taxes	$	29,586	$	(27,289	)	$	2,297	$	33,946	$	(41,025	)	$	(7,079	)	$	35,250	$	(14,875	)	$	20,375	$	29,586	$	(27,289	)	$	2,297

CONN'S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	Nine Months Ended October 31, 2017							Nine Months Ended October 31, 2016								Nine Months Ended October 31, 2018							Nine Months Ended October 31, 2017
(in thousands)	Retail		Credit			Total		Retail		Credit			Total			Retail		Credit			Total		Retail		Credit			Total
Revenues:
Furniture and mattress	$	286,886	$	—		$	286,886	$	309,766	$	—		$	309,766		$	285,428	$	—		$	285,428	$	286,886	$	—		$	286,886
Home appliance	253,044		—			253,044		275,048		—			275,048			249,036		—			249,036		253,044		—			253,044
Consumer electronic	166,761		—			166,761		197,270		—			197,270			167,964		—			167,964		166,761		—			166,761
Home office	54,945		—			54,945		66,921		—			66,921			60,260		—			60,260		54,945		—			54,945
Other	13,105		—			13,105		15,264		—			15,264			10,536		—			10,536		13,105		—			13,105
Product sales	774,741		—			774,741		864,269		—			864,269			773,224		—			773,224		774,741		—			774,741
Repair service agreement commissions	72,703		—			72,703		82,849		—			82,849			72,104		—			72,104		72,703		—			72,703
Service revenues	10,062		—			10,062		11,456		—			11,456			10,615		—			10,615		10,062		—			10,062
Total net sales	857,506		—			857,506		958,574		—			958,574			855,943		—			855,943		857,506		—			857,506
Finance charges and other revenues	267		237,872			238,139		1,268		204,201			205,469			291		260,597			260,888		267		237,872			238,139
Total revenues	857,773		237,872			1,095,645		959,842		204,201			1,164,043			856,234		260,597			1,116,831		857,773		237,872			1,095,645
Costs and expenses:
Cost of goods sold	519,847		—			519,847		605,709		—			605,709			507,102		—			507,102		519,847		—			519,847
Selling, general and administrative expenses ⁽¹⁾	233,290		99,234			332,524		244,598		102,952			347,550
Selling, general and administrative expense ⁽¹⁾																241,649		112,299			353,948		233,290		99,234			332,524
Provision for bad debts	584		161,307			161,891		811		169,167			169,978			789		141,666			142,455		584		161,307			161,891
Charges and credits	11,156		—			11,156		5,408		—			5,408			1,037		4,800			5,837		11,156		—			11,156
Total costs and expense	764,877		260,541			1,025,418		856,526		272,119			1,128,645
Total costs and expenses																750,577		258,765			1,009,342		764,877		260,541			1,025,418
Operating income (loss)	92,896		(22,669		)	70,227		103,316		(67,918		)	35,398			105,657		1,832			107,489		92,896		(22,669		)	70,227
Interest expense	—		62,142			62,142		—		73,504			73,504			—		47,484			47,484		—		62,142			62,142
Loss on extinguishment of debt	—		2,907			2,907		—		—			—			—		1,773			1,773		—		2,907			2,907
Income (loss) before income taxes	$	92,896	$	(87,718	)	$	5,178	$	103,316	$	(141,422	)	$	(38,106	)	$	105,657	$	(47,425	)	$	58,232	$	92,896	$	(87,718	)	$	5,178

(1)

For the three months ended October 31, ~~2017~~2018 and ~~2016,~~2017, the amount of corporate overhead allocated to each segment reflected in selling, general and administrative expense was ~~$7.3~~$9.1 million and ~~$6.7~~$7.3 million, respectively. For the three months ended October 31, ~~2017~~2018 and ~~2016,~~2017, the amount of reimbursement made to the retail segment by the credit segment was ~~$9.3~~$9.5 million and ~~$9.6~~$9.3 million, respectively. For the nine months ended October 31, ~~2017~~2018 and ~~2016,~~2017, the amount of corporate overhead allocated to each segment reflected in selling, general and administrative expense was ~~$21.5~~$26.7 million and ~~$18.9~~$21.5 million, respectively. For the nine months ended October 31, ~~2017~~2018 and ~~2016,~~2017, the amount of reimbursement made to the retail segment by the credit segment was ~~$27.9~~$28.3 million and ~~$29.0~~$27.9 million, respectively.


~~10.~~9.	Guarantor Financial Information

Conn's, Inc. is a holding company with no independent assets or operations other than its investments in its subsidiaries. The Senior Notes, which were issued by Conn's, Inc., are fully and unconditionally guaranteed on a joint and several senior unsecured basis by ~~certain guarantor subsidiaries (the "Guarantors").~~the Guarantors. As of October 31, ~~2017~~2018 and January 31, ~~2017,~~2018, the direct or indirect subsidiaries of Conn's, Inc. that were not Guarantors (the ~~"Non-Guarantor Subsidiaries"~~“Non-Guarantor Subsidiaries”) were the VIEs and minor subsidiaries. There are no restrictions under the Indenture on the ability of any of the Guarantors to transfer funds to Conn's, Inc. in the form of dividends or distributions.

The following financial information presents the ~~condensed consolidated balance sheet, statement~~Condensed Consolidated Balance Sheet, Condensed Consolidated Statement of ~~operations,~~Income, and ~~statement~~Condensed Consolidated Statement of ~~cash flows~~Cash Flows for Conn's, Inc. (the issuer of the Senior Notes), the Guarantors, and the Non-Guarantor Subsidiaries, together with certain eliminations. Investments in subsidiaries are accounted for by the parent company using the equity method for purposes of this presentation. Results of operations of subsidiaries are therefore reflected in the parent company's investment accounts and operations. The consolidated financial information includes financial data for:

(i) Conn’s, Inc. (on a parent-only basis),

(ii) Guarantors,

(iii) Non-Guarantor Subsidiaries, and

CONN'S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~(iii) Non-Guarantor Subsidiaries, and~~

(iv) the parent company and the subsidiaries on a consolidated basis at October 31, ~~2017~~2018 and January 31, ~~2017~~2018 (after the elimination of intercompany balances and transactions). Condensed ~~consolidated net income (loss)~~Consolidated Net Income is the same as ~~condensed consolidated comprehensive income (loss)~~Condensed Consolidated Comprehensive Income for the periods presented.

Condensed Consolidated Balance Sheet as of October 31, ~~2017:~~2018:


(in thousands)	Conn's, Inc.		Guarantors		Non-Guarantor Subsidiaries		Eliminations			Consolidated		Conn's, Inc.		Guarantors		Non-guarantor Subsidiaries		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	—	$	12,742	$	—	$	—		$	12,742	$	—	$	3,492	$	—	$	—		$	3,492
Restricted cash	—		—		71,099		—			71,099		—		1,550		68,493		—			70,043
Customer accounts receivable, net of allowance	—		275,614		360,086		—			635,700
Customer accounts receivable, net of allowances												—		257,915		372,481		—			630,396
Other accounts receivable	—		63,203		—		—			63,203		—		63,752		—		—			63,752
Inventories	—		235,479		—		—			235,479		—		227,164		—		—			227,164
Other current assets	—		18,865		2,387		(5,337		)	15,915		—		19,121		—		(3,401		)	15,720
Total current assets	—		605,903		433,572		(5,337		)	1,034,138		—		572,994		440,974		(3,401		)	1,010,567
Investment in and advances to subsidiaries	682,391		193,682		—		(876,073		)	—		790,746		139,723		—		(930,469		)	—
Long-term portion of customer accounts receivable, net of allowance	—		385,629		231,036		—			616,665
Long-term portion of customer accounts receivable, net of allowances												—		327,663		326,657		—			654,320
Property and equipment, net	—		144,747		—		—			144,747		—		146,326		—		—			146,326
Deferred income taxes	72,554		—		—		—			72,554		23,157		—		—		—			23,157
Other assets	—		6,285		—		—			6,285		—		6,642		—		—			6,642
Total assets	$	754,945	$	1,336,246	$	664,608	$	(881,410	)	$	1,874,389	$	813,903	$	1,193,348	$	767,631	$	(933,870	)	$	1,841,012
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of capital lease obligations	$	—	$	699	$	64,952	$	—		$	65,651	$	—	$	804	$	—	$	—		$	804
Accounts payable	—		109,738		—		—			109,738		—		110,359		—		—			110,359
Accrued expenses	4,800		59,463		3,602		(2,949		)	64,916		4,800		81,319		4,889		(3,401		)	87,607
Other current liabilities	—		21,342		3,063		(2,387		)	22,018		—		14,334		7,872		—			22,206
Total current liabilities	4,800		191,242		71,617		(5,336		)	262,323		4,800		206,816		12,761		(3,401		)	220,976
Deferred rent	—		87,152		—		—			87,152		—		90,410		—		—			90,410
Long-term debt and capital lease obligations	220,754		356,514		396,010		—			973,278		222,069		86,944		611,353		—			920,366
Other long-term liabilities	—		18,946		3,299		—			22,245		—		18,430		3,796		—			22,226
Total liabilities	225,554		653,854		470,926		(5,336		)	1,344,998		226,869		402,600		627,910		(3,401		)	1,253,978
Total stockholders' equity	529,391		682,391		193,682		(876,073		)	529,391		587,034		790,746		139,723		(930,469		)	587,034
Total liabilities and stockholders' equity	$	754,945	$	1,336,245	$	664,608	$	(881,409	)	$	1,874,389	$	813,903	$	1,193,346	$	767,633	$	(933,870	)	$	1,841,012

Deferred income taxes related to tax attributes of the ~~Guarantors~~Guarantor Subsidiaries and Non-Guarantor Subsidiaries are reflected under Conn's, Inc.

CONN'S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheet as of January 31, ~~2017:~~2018:


(in thousands)	Conn's, Inc.		Guarantors		Non-Guarantor Subsidiaries		Eliminations			Consolidated		Conn's, Inc.		Guarantors		Non-guarantor Subsidiaries		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	—	$	23,566	$	—	$	—		$	23,566	$	—	$	9,286	$	—	$	—		$	9,286
Restricted cash	—		—		110,698		—			110,698		—		1,550		85,322		—			86,872
Customer accounts receivable, net of allowance	—		173,054		529,108		—			702,162
Customer accounts receivable, net of allowances												—		177,117		459,708		—			636,825
Other accounts receivable	—		69,286		—		—			69,286		—		71,186		—		—			71,186
Inventories	—		164,856		—		—			164,856		—		211,894		—		—			211,894
Other current assets	—		21,505		7,368		(11,768		)	17,105		—		68,621		15,212		(19,879		)	63,954
Total current assets	—		452,267		647,174		(11,768		)	1,087,673		—		539,654		560,242		(19,879		)	1,080,017
Investment in and advances to subsidiaries	678,149		220,107		—		(898,256		)	—		735,272		209,903		—		(945,175		)	—
Long-term portion of customer accounts receivable, net of allowance	—		295,522		320,382		—			615,904
Long-term portion of customer accounts receivable, net of allowances												—		195,606		455,002		—			650,608
Property and equipment, net	—		159,202		—		—			159,202		—		143,152		—		—			143,152
Deferred income taxes	71,442		—		—		—			71,442		21,565		—		—		—			21,565
Other assets	—		6,913		—		—			6,913		—		5,457		—		—			5,457
Total assets	$	749,591	$	1,134,011	$	967,556	$	(910,024	)	$	1,941,134	$	756,837	$	1,093,772	$	1,015,244	$	(965,054	)	$	1,900,799
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of capital lease obligations	$	—	$	849	$	—	$	—		$	849	$	—	$	907	$	—	$	—		$	907
Accounts payable	—		101,612		—		—			101,612		—		71,617		—		—			71,617
Accrued expenses	686		40,287		6,525		(4,399		)	43,099		686		66,370		6,723		(4,667		)	69,112
Other current liabilities	—		25,230		3,961		(7,370		)	21,821		—		32,685		5,002		(15,212		)	22,475
Total current liabilities	686		167,978		10,486		(11,769		)	167,381		686		171,579		11,725		(19,879		)	164,111
Deferred rent	—		87,957		—		—			87,957		—		87,003		—		—			87,003
Long-term debt and capital lease obligations	219,768		179,044		745,581		—			1,144,393		221,083		81,043		787,979		—			1,090,105
Other long-term liabilities	—		20,883		2,730		—			23,613		—		18,875		5,637		—			24,512
Total liabilities	220,454		455,862		758,797		(11,769		)	1,423,344		221,769		358,500		805,341		(19,879		)	1,365,731
Total stockholders' equity	529,137		678,149		208,759		(898,255		)	517,790		535,068		735,272		209,903		(945,175		)	535,068
Total liabilities and stockholders' equity	$	749,591	$	1,134,011	$	967,556	$	(910,024	)	$	1,941,134	$	756,837	$	1,093,772	$	1,015,244	$	(965,054	)	$	1,900,799

Deferred income taxes related to tax attributes of the ~~Guarantors~~Guarantor Subsidiaries and Non-Guarantor Subsidiaries are reflected under Conn's, Inc.

CONN'S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidated Statement of ~~Operations~~Income for the ~~three months ended~~Three Months Ended October 31, 2018:



(in thousands)	Conn's, Inc.			Guarantors			Non-guarantor Subsidiaries			Eliminations			Consolidated
Revenues:
Total net sales	$	—		$	283,874		$	—		$	—		$	283,874
Finance charges and other revenues	—			48,666			41,284			—			89,950
Servicing fee revenue	—			12,226			—			(12,226		)	—
Total revenues	—			344,766			41,284			(12,226		)	373,824
Costs and expenses:
Cost of goods sold	—			166,886			—			—			166,886
Selling, general and administrative expense	—			118,234			12,372			(12,226		)	118,380
Provision for bad debts	—			7,715			39,833			—			47,548
Charges and credits	—			5,537			—			—			5,537
Total costs and expenses	—			298,372			52,205			(12,226		)	338,351
Operating income	—			46,394			(10,921		)	—			35,473
Interest expense	4,448			2,106			8,544			—			15,098
Loss on extinguishment of debt	—			—			—			—			—
Income (loss) before income taxes	(4,448		)	44,288			(19,465		)	—			20,375
Provision (benefit) for income taxes	(1,254		)	12,487			(5,488		)	—			5,745
Net income (loss)	(3,194		)	31,801			(13,977		)	—			14,630
Income (loss) from consolidated subsidiaries	17,824			(13,977		)	—			(3,847		)	—
Consolidated net income (loss)	$	14,630		$	17,824		$	(13,977	)	$	(3,847	)	$	14,630

Condensed Consolidated Statement of Income for the Three Months Ended October 31, 2017:

(in thousands) Conn's, Inc. Guarantors Non-Guarantor Subsidiaries Eliminations Consolidated
Revenues:
Total net sales $ —
$ 291,808
$ —
$ —
$ 291,808
Finance charges and other revenues —
45,228
36,136
—
81,364
Servicing fee revenue —
18,178
—
(18,178 ) —
Total revenues —
355,214
36,136
(18,178 ) 373,172
Costs and expenses:

Cost of goods sold —
175,591
—
—
175,591
Selling, general and administrative expenses —
125,355
7,178
(18,178 ) 114,355
Provision for bad debts —
44,454
12,058
—
56,512
Charges and credits —
5,861
—
—
5,861
Total costs and expenses —
351,261
19,236
(18,178 ) 352,319
Operating income —
3,953
16,900
—
20,853
Interest expense 4,443
4,979
8,673
—
18,095
Loss on extinguishment of debt —
—
461
—
461
Income (loss) before income taxes (4,443 ) (1,026 ) 7,766
—
2,297
Provision (benefit) for income taxes (1,408 ) (324 ) 2,460
—
728
Net income (loss) before consolidation $ (3,035 ) $ (702 ) $ 5,306
$ —
$ 1,569
Income (loss) from consolidated subsidiaries (after tax) $ 4,742
$ 1,988
$ —
$ (6,730 ) $ —
Consolidated net income (loss) $ 1,707
$ 1,286
$ 5,306
$ (6,730 ) $ 1,569

~~Condensed Consolidated Statement of Operations for the three months ended October 31, 2016:~~


(in thousands)	Conn's, Inc.			Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated			Conn's, Inc.			Guarantors			Non-guarantor Subsidiaries		Eliminations			Consolidated
Revenues:
Total net sales	$	—		$	308,033		$	—		$	—		$	308,033		$	—		$	291,808		$	—	$	—		$	291,808
Finance charges and other revenues	—			22,326			46,414			—			68,740			—			45,228			36,136		—			81,364
Servicing fee revenue	—			15,073			—			(15,073		)	—			—			18,178			—		(18,178		)	—
Total revenues	—			345,432			46,414			(15,073		)	376,773			—			355,214			36,136		(18,178		)	373,172
Costs and expenses:
Cost of goods sold	—			192,374			—			—			192,374			—			175,591			—		—			175,591
Selling, general and administrative expenses	—			114,457			15,073			(15,073		)	114,457
Selling, general and administrative expense																—			125,355			7,178		(18,178		)	114,355
Provision for bad debts	—			31,672			19,892			—			51,564			—			44,454			12,058		—			56,512
Charges and credits	—			1,987			—			—			1,987			—			5,861			—		—			5,861
Total costs and expenses	—			340,490			34,965			(15,073		)	360,382			—			351,261			19,236		(18,178		)	352,319
Operating income	—			4,942			11,449			—			16,391			—			3,953			16,900		—			20,853
Interest expense	4,447			3,876			15,147			—			23,470			4,443			4,979			8,673		—			18,095
Loss on extinguishment of debt	—			—			—			—			—			—			—			461		—			461
Income (loss) before income taxes	(4,447		)	1,066			(3,698		)	—			(7,079		)	(4,443		)	(1,026		)	7,766		—			2,297
Provision (benefit) for income taxes	(2,051		)	492			(1,705		)	—			(3,264		)	(1,408		)	(324		)	2,460		—			728
Net income (loss) before consolidation	$	(2,396	)	$	574		$	(1,993	)	$	—		$	(3,815	)
Income (loss) from consolidated subsidiaries (after tax)	$	(1,419	)	$	(1,993	)	$	—		$	3,412		$	—
Net income (loss)																(3,035		)	(702		)	5,306		—			1,569
Income (loss) from consolidated subsidiaries																4,742			1,988			—		(6,730		)	—
Consolidated net income (loss)	$	(3,815	)	$	(1,419	)	$	(1,993	)	$	3,412		$	(3,815	)	$	1,707		$	1,286		$	5,306	$	(6,730	)	$	1,569

CONN'S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidated Statement of ~~Operations~~Income for the ~~nine months ended~~Nine Months Ended October 31, 2018:



(in thousands)	Conn's, Inc.			Guarantors			Non-guarantor Subsidiaries			Eliminations			Consolidated
Revenues:
Total net sales	$	—		$	855,943		$	—		$	—		$	855,943
Finance charges and other revenues	—			150,974			109,914			—			260,888
Servicing fee revenue	—			32,007			—			(32,007		)	—
Total revenues	—			1,038,924			109,914			(32,007		)	1,116,831
Costs and expenses:
Cost of goods sold	—			507,102			—			—			507,102
Selling, general and administrative expense	—			353,542			32,413			(32,007		)	353,948
Provision for bad debts	—			44,591			97,864			—			142,455
Charges and credits	—			5,837			—			—			5,837
Total costs and expenses	—			911,072			130,277			(32,007		)	1,009,342
Operating income (loss)	—			127,852			(20,363		)	—			107,489
Interest expense	13,339			8,872			25,273			—			47,484
Loss on extinguishment of debt	—			142			1,631			—			1,773
Income (loss) before income taxes	(13,339		)	118,838			(47,267		)	—			58,232
Provision (benefit) for income taxes	(3,175		)	28,284			(11,250		)	—			13,859
Net income (loss)	(10,164		)	90,554			(36,017		)	—			44,373
Income (loss) from consolidated subsidiaries	54,537			(36,017		)	—			(18,520		)	—
Consolidated net income (loss)	$	44,373		$	54,537		$	(36,017	)	$	(18,520	)	$	44,373

Condensed Consolidated Statement of Income for the Nine Months Ended October 31, 2017:


(in thousands)	Conn's, Inc.			Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated		Conn's, Inc.			Guarantors			Non-guarantor Subsidiaries			Eliminations			Consolidated
Revenues:
Total net sales	$	—		$	857,506		$	—		$	—		$	857,506	$	—		$	857,506		$	—		$	—		$	857,506
Finance charges and other revenues	—			122,305			115,834			—			238,139		—			122,305			115,834			—			238,139
Servicing fee revenue	—			46,010			—			(46,010		)	—		—			46,010			—			(46,010		)	—
Total revenues	—			1,025,821			115,834			(46,010		)	1,095,645		—			1,025,821			115,834			(46,010		)	1,095,645
Costs and expenses:
Cost of goods sold	—			519,847			—			—			519,847		—			519,847			—			—			519,847
Selling, general and administrative expenses	—			343,043			35,491			(46,010		)	332,524
Selling, general and administrative expense															—			343,043			35,491			(46,010		)	332,524
Provision for bad debts	—			64,438			97,453			—			161,891		—			64,438			97,453			—			161,891
Charges and credits	—			11,156			—			—			11,156		—			11,156			—			—			11,156
Total costs and expenses	—			938,484			132,944			(46,010		)	1,025,418		—			938,484			132,944			(46,010		)	1,025,418
Operating income	—			87,337			(17,110		)	—			70,227
Operating income (loss)															—			87,337			(17,110		)	—			70,227
Interest expense	13,329			7,501			41,312			—			62,142		13,329			7,501			41,312			—			62,142
Loss on extinguishment of debt	—			349			2,558			—			2,907		—			349			2,558			—			2,907
Income (loss) before income taxes	(13,329		)	79,487			(60,980		)	—			5,178		(13,329		)	79,487			(60,980		)	—			5,178
Provision (benefit) for income taxes	(4,934		)	29,420			(22,570		)	—			1,916		(4,934		)	29,420			(22,570		)	—			1,916
Net income (loss) before consolidation	$	(8,395	)	$	50,067		$	(38,410	)	$	—		$	3,262
Income (loss) from consolidated subsidiaries (after tax)	$	11,657		$	(38,410	)	$	—		$	26,753		$	—
Net income (loss)															(8,395		)	50,067			(38,410		)	—			3,262
Income (loss) from consolidated subsidiaries															11,657			(38,410		)	—			26,753			—
Consolidated net income (loss)	$	3,262		$	11,657		$	(38,410	)	$	26,753		$	3,262	$	3,262		$	11,657		$	(38,410	)	$	26,753		$	3,262

CONN'S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidated Statement of ~~Operations~~Cash Flows for the ~~nine months ended~~Nine Months Ended October 31, ~~2016:~~2018:

(in thousands) Conn's, Inc. Guarantors Non-Guarantor Subsidiaries Eliminations Consolidated
Revenues:
Total net sales $ —
$ 958,574
$ —
$ —
$ 958,574
Finance charges and other revenues —
85,560
119,909
—
205,469
Servicing fee revenue —
45,384
—
(45,384 ) —
Total revenues —
1,089,518
119,909
(45,384 ) 1,164,043
Costs and expenses:

Cost of goods sold —
605,709
—
—
605,709
Selling, general and administrative expenses —
347,550
45,384
(45,384 ) 347,550
Provision for bad debts —
88,084
81,894
—
169,978
Charges and credits —
5,408
—
—
5,408
Total costs and expenses —
1,046,751
127,278
(45,384 ) 1,128,645
Operating income —
42,767
(7,369 ) —
35,398
Interest expense 13,290
10,496
49,718
—
73,504
Income (loss) before income taxes (13,290 ) 32,271
(57,087 ) —
(38,106 )
Provision (benefit) for income taxes (4,400 ) 10,685
(18,903 ) —
(12,618 )
Net income (loss) before consolidation $ (8,890 ) $ 21,586
$ (38,184 ) $ —
$ (25,488 )
Income (loss) from consolidated subsidiaries (after tax) $ (16,598 ) $ (38,184 ) $ —
$ 54,780
$ —
Consolidated net income (loss) $ (25,488 ) $ (16,598 ) $ (38,184 ) $ 54,780
$ (25,488 )



(in thousands)	Conn's, Inc.			Guarantors			Non-guarantor Subsidiaries			Eliminations			Consolidated
Net cash provided by (used in) operating activities	$	(1,055	)	$	188,302		$	(5,153	)	$	—		$	182,094
Cash flows from investing activities:
Purchase of customer accounts receivables	—			—			(525,846		)	525,846			—
Sale of customer accounts receivables	—			—			525,846			(525,846		)	—
Purchase of property and equipment	—			(22,609		)	—			—			(22,609		)
Net cash used in investing activities	—			(22,609		)	—			—			(22,609		)
Cash flows from financing activities:
Proceeds from issuance of asset-backed notes	—			—			358,300			—			358,300
Payments on asset-backed notes	—			(169,443		)	(450,231		)	—			(619,674		)
Borrowings from Revolving Credit Facility	—			1,266,333			—			—			1,266,333
Payments on Revolving Credit Facility	—			(1,260,283		)	—			—			(1,260,283		)
Borrowings from warehouse facility	—			—			173,286			—			173,286
Payments of debt issuance costs and amendment fees	—			(3,226		)	(4,155		)	—			(7,381		)
Payments on warehouse facility	—			—			(88,876		)	—			(88,876		)
Proceeds from stock issued under employee benefit plans	1,055			—			—			—			1,055
Tax payments associated with equity-based compensation transactions	—			(2,931		)	—			—			(2,931		)
Payments from extinguishment of debt	—			(1,177		)	—			—			(1,177		)
Other	—			(760		)	—			—			(760		)
Net cash provided by (used in) financing activities	1,055			(171,487		)	(11,676		)	—			(182,108		)
Net change in cash, cash equivalents and restricted cash	—			(5,794		)	(16,829		)	—			(22,623		)
Cash, cash equivalents and restricted cash, beginning of period	—			10,836			85,322			—			96,158
Cash, cash equivalents and restricted cash, end of period	$	—		$	5,042		$	68,493		$	—		$	73,535

CONN'S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidated Statement of Cash Flows for the ~~nine months ended~~Nine Months Ended October 31, 2017:


(in thousands)	Conn's, Inc.			Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated			Conn's, Inc.			Guarantors			Non-guarantor Subsidiaries			Eliminations			Consolidated
Net cash provided by (used in) operating activities	$	(3,011	)	$	(635,568	)	$	721,316		$	—		$	82,737		$	(3,011	)	$	(636,406	)	$	721,316		$	—		$	81,899
Cash flows from investing activities:
Purchase of customer accounts receivables	—			—			(544,833		)	544,833			—			—			—			(544,833		)	544,833			—
Sale of customer accounts receivables	—			544,833			—			(544,833		)	—			—			544,833			—			(544,833		)	—
Purchase of property and equipment	—			(11,995		)	—			—			(11,995		)	—			(11,995		)	—			—			(11,995		)
Proceeds from sales of property	—			—			—			—			—
Net cash provided by (used in) investing activities	—			532,838			(544,833		)	—			(11,995		)	—			532,838			(544,833		)	—			(11,995		)
Cash flows from financing activities:
Proceeds from issuance of asset-backed notes	—			—			469,814			—			469,814			—			—			469,814			—			469,814
Payments on asset-backed notes	—			(78,780		)	(737,463		)	—			(816,243		)	—			(77,105		)	(737,463		)	—			(814,568		)
Changes in restricted cash balances	—			—			39,599			—			39,599
Borrowings from revolving credit facility	—			1,257,052			—			—			1,257,052
Payments on revolving credit facility	—			(1,082,552		)	—			—			(1,082,552		)
Borrowings from Revolving Credit Facility																—			1,257,052			—			—			1,257,052
Payments on Revolving Credit Facility																—			(1,082,552		)	—			—			(1,082,552		)
Borrowings from warehouse facility	—			—			79,940			—			79,940			—			—			79,940			—			79,940
Payment of debt issuance costs and amendment fees	—			(2,865		)	(5,307		)	—			(8,172		)
Payments of debt issuance costs and amendment fees																—			(2,865		)	(5,307		)	—			(8,172		)
Payments on warehouse facility	—			—			(23,066		)	—			(23,066		)	—			—			(23,066		)	—			(23,066		)
Proceeds from stock issued under employee benefit plans	3,011			—			—			—			3,011			3,011			—			—			—			3,011
Tax payments associated with equity-based compensation transactions																—			(570		)	—			—			(570		)
Payments from extinguishment of debt																—			(837		)	—			—			(837		)
Other	—			(949		)	—			—			(949		)	—			(379		)	—			—			(379		)
Net cash provided by (used in) financing activities	3,011			91,906			(176,483		)	—			(81,566		)	3,011			92,744			(216,082		)	—			(120,327		)
Net change in cash and cash equivalents	—			(10,824		)	—			—			(10,824		)
Cash and cash equivalents, beginning of period	—			23,566			—			—			23,566
Cash and cash equivalents, end of period	$	—		$	12,742		$	—		$	—		$	12,742
Net change in cash, cash equivalents and restricted cash																—			(10,824		)	(39,599		)	—			(50,423		)
Cash, cash equivalents and restricted cash, beginning of period																—			23,566			110,698			—			134,264
Cash, cash equivalents and restricted cash, end of period																$	—		$	12,742		$	71,099		$	—		$	83,841

~~CONN'S, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Condensed Consolidated Statement of Cash Flows for the nine months ended October 31, 2016:~~

(in thousands) Conn's, Inc. Guarantors Non-Guarantor Subsidiaries Eliminations Consolidated
Net cash provided by (used in) operating activities $ (13,544 ) $ (606,570 ) $ 803,125
$ —
$ 183,011
Cash flows from investing activities:




Purchase of customer accounts receivables —
—
(1,038,226 ) 1,038,226
—
Sale of customer accounts receivables —
1,038,226
—
(1,038,226 ) —
Purchase of property and equipment —
(41,804 ) —
—
(41,804 )
Proceeds from sales of property —
686
—
—
686
Net change in intercompany 12,719
(12,719 ) —
Net cash provided by (used in) investing activities 12,719
997,108
(1,038,226 ) (12,719 ) (41,118 )
Cash flows from financing activities:

Proceeds from issuance of asset-backed notes —
—
1,067,850
—
1,067,850
Payments on asset-backed notes —
—
(736,266 ) —
(736,266 )
Changes in restricted cash balances —
—
(87,900 ) —
(87,900 )
Borrowings from revolving credit facility —
529,352
—
—
529,352
Payments on revolving credit facility —
(858,559 ) —
—
(858,559 )
Payment of debt issuance costs and amendment fees —
(1,192 ) (8,583 ) —
(9,775 )
Proceeds from stock issued under employee benefit plans 824
—
—
—
824
Net change in intercompany —
(12,719 ) —
12,719
—
Other 1
(609 ) —
—
(608 )
Net cash provided by (used in) financing activities 825
(343,727 ) 235,101
12,719
(95,082 )
Net change in cash and cash equivalents —
46,811
—
—
46,811
Cash and cash equivalents, beginning of period —
12,254
—
—
12,254
Cash and cash equivalents, end of period $ —
$ 59,065
$ —
$ —
$ 59,065


ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This report contains forward-looking statements within the meaning of the federal securities laws, including but not limited to, the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Such forward-looking statements include information concerning our future financial performance, business strategy, plans, goals and objectives. Statements containing the words ~~"anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "project," "should,"~~“anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “should,” “predict,” “will,” “potential,” or the negative of such terms or other similar expressions are generally forward-looking in nature and not historical facts. Such forward-looking statements are based on our current expectations. We can give no assurance that such statements will prove to be correct, and actual results may differ materially. A wide variety of potential risks, uncertainties, and other factors could materially affect our ability to achieve the results either expressed or implied by our forward-looking statements including, but not limited to: general economic conditions impacting our customers or potential customers; our ability to execute periodic securitizations of future originated customer loans on favorable terms; our ability to continue existing customer financing programs or to offer new customer financing programs; changes in the delinquency status of our credit portfolio; unfavorable developments in ongoing litigation; increased regulatory oversight; higher than anticipated net charge-offs in the credit portfolio; the success of our planned opening of new stores; technological and market developments and sales trends for our major product offerings; our ability to manage effectively the selection of our major product offerings; our ability to protect against cyber-attacks or data security breaches and to protect the integrity and security of individually identifiable data of our customers and employees; our ability to fund our operations, capital expenditures, debt repayment and expansion from cash flows from operations, borrowings from our revolving credit facility, and proceeds from accessing debt or equity markets; and other risks detailed in Part I, Item 1A, Risk Factors, in our ~~Annual Report on~~2018 Form 10-K, Part II, Item 1A, Risk Factors, in the Form 10-Q for the ~~fiscal year~~three months ended ~~January~~July 31, ~~2017~~2018 (the “Q2 FY19 Form 10-Q”) and other reports filed with the SEC. If one or more of these or other risks or uncertainties materialize (or the consequences of such a development changes), or should our underlying assumptions prove incorrect, actual outcomes may vary materially from those reflected in our forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We disclaim any intention or obligation to update publicly or revise such statements, whether as a result of new information, future events or otherwise, or to provide periodic updates or guidance. All forward-looking statements attributable to us, or to persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements.

The Company makes available in the investor relations section of its website at ir.conns.com updated monthly reports to the holders of its asset-backed notes. This information reflects the performance of the securitized portfolio only, in contrast to the financial statements contained herein, which reflect the performance of all of the Company's outstanding receivables, including those originated subsequent to those included in the securitized portfolio. The website and the information contained on our website is not incorporated in this Quarterly Report on Form 10-Q or any other document filed with the SEC.

Overview

We encourage you to read this Management's Discussion and Analysis of Financial Condition and Results of Operations in conjunction with the accompanying condensed consolidated financial statements and related notes. Our fiscal year ends on January 31. References to a fiscal year refer to the calendar year in which the fiscal year ends.

Executive Summary

Total revenues ~~decreased~~were $373.8 million for the three months ended October 31, 2018 compared to $373.2 million for the three months ended October 31, 2017, ~~compared to $376.8~~an increase of $0.6 million or 0.2%. Retail revenues were $284.1 million for the three months ended October 31, ~~2016. Retail revenues decreased~~2018 compared to $291.9 million for the three months ended October 31, 2017, ~~from $308.4~~a decrease of $7.9 million ~~for the three months ended October 31, 2016.~~or 2.7%. The decrease in retail revenue was primarily driven by a decrease in same store sales of ~~7.0%~~4.4%, partially offset by new store growth. ~~Sales~~The decrease in same store sales was due to a decrease in same store sales for markets impacted by Hurricane Harvey of 11.8% and a decrease in same store sales for non-Hurricane Harvey markets of 1.3%. The decrease in same store sales in markets impacted by Hurricane Harvey was primarily a result of the impact of rebuilding efforts during the three months ended October 31, 2017. Credit revenues were $89.8 million for the three months ended October 31, ~~2017 were impacted negatively by general softness in consumer spending. Credit revenue increased~~2018 compared to $81.3 million for the three months ended October 31, 2017, ~~from $68.4~~an increase of $8.5 million ~~for the three months ended October 31, 2016.~~or 10.5%. The increase in credit revenue resulted from ~~increased originations~~the origination of our higher-yielding direct loan product, which resulted in an increase in the portfolio yield rate to ~~19.8%~~21.7% from ~~15.0%~~19.8%, ~~partially offset~~and by a ~~3.7% decline~~2.2% increase in the average balance of the customer receivable portfolio.

Retail gross margin for the three months ended October 31, ~~2017~~2018 was ~~39.8%~~41.2%, an increase of ~~230~~140 basis points from the ~~37.5%~~39.8% reported infor the three months ended October 31, ~~2016.~~2017. The increase in retail gross margin was ~~primarily due to~~driven by improved product margins ~~across~~in almost all product ~~categories, favorable product mix and continued focus on increasing efficiencies.~~categories.

Selling, general and administrative ~~expenses ("~~expense (“SG~~&A"~~&A”) for the three months ended October 31, ~~2017 were~~2018 was $118.4 million compared to $114.4 million ~~a decrease of $0.1 million, or 0.1%, over~~for the three months ended October 31, ~~2016. The SG&A decrease in the credit segment was primarily due to a decrease in compensation costs, partially offset by~~2017, an increase ~~in the corporate overhead allocation.~~of $4.0 million or 3.5%. The SG&A increase in the

retail segment was primarily due to an increase in new store occupancy costs, an increase in compensation cost and an increase in the corporate overhead allocation, ~~an increase in occupancy costs due to additional stores opened in fiscal year 2018, and $1.2 million of expenses incurred, net of estimated insurance proceeds, related to Hurricane Harvey, partially~~ offset by a decrease in advertising expense and a decrease in Hurricane Harvey-related expense. The SG&A increase in the credit segment was primarily due to an increase in compensation ~~expenses. The Company incurred a~~

~~total of $1.6 million of~~costs, third-party legal expenses ~~net of estimated insurance proceeds,~~ related to ~~Hurricane Harvey.~~bankruptcy collection efforts, expenses related to information technology investments and an increase in the corporate overhead allocation. The increase in the corporate overhead allocation made to each of the segments was driven by investments we are making in information technology, other personnel to support long-term performance improvement initiatives and an increase in accrued ~~incentive~~ compensation.

~~Provision~~The provision for bad debts decreased to $47.5 million for the three months ended October 31, 2018 from $56.5 million for the three months ended October 31, 2017, a decrease of $9.0 million. The decrease was ~~$56.5~~driven by to a year-over-year reduction in net charge-offs of $9.7 million.

Interest expense decreased to $15.1 million ~~an increase of $4.9 million from the comparable prior-year period. The most significant reasons for the increase in the provision for bad debts~~ for the three months ended October 31, ~~2017~~2018, compared ~~to the three months ended October 31, 2016 were~~


i.	~~growth in the customer receivables portfolio in the three months ended October 31, 2017 compared to a decline in the three months ended October 31, 2016,~~


~~ii.~~	~~higher net-charge offs in the three months ended October 31, 2017 compared to the three months ended October 31, 2016, and~~


~~iii.~~	~~an increase in the qualitative reserve related to Hurricane Harvey of $1.1 million, partially offset by~~


~~iv.~~	~~a decrease in our estimated TDR loss rate as a result of improvements in TDR delinquency rates.~~

~~Interest expense decreased~~ to $18.1 million for the three months ended October 31, 2017, ~~compared to $23.5 million for the three months ended October 31, 2016,~~ primarily reflecting a ~~lower effective~~decrease in our cost of borrowing ~~and~~as a result of lower pricing on our securitization transactions coupled with a lower average outstanding balance of debt. ~~Interest expense during the third quarter of fiscal year 2018 benefited from the early redemption of previously issued higher cost asset backed notes.~~

Net income for the three months ended October 31, 2018 was $14.6 million or $0.45 per diluted share, which included net pre-tax charges of $5.5 million, or $0.14 per diluted share, for severance costs related to a change in the executive management team and costs related to the TFL Judgment (as defined in Note 6, Contingencies). Refer to Note 6, Contingencies, for additional information about the TFL Judgment. This compares to net income for the three months ended October 31, 2017 ~~was~~of $1.6 million, or $0.05 per diluted share, which included ~~certain~~net pre-tax charges of $6.3 million, or $0.13 per diluted share, related to the write-off of previously capitalized costs for a software project that was abandoned during the third quarter of fiscal year 2018 related to the implementation of a new point of sale system that began in fiscal year 2013, and the loss on extinguishment of debt related to the early redemption of our Series 2016-A Class B Notes and Class C Notes (collectively, the “2016-A Redeemed Notes. This compares to a net loss for the three months ended October 31, 2016 of $3.8 million, or $0.12 per diluted share, which included net pre-tax charges of $2.0 million, or $0.04 per diluted share, related to legal and professional fees related to the exploration of strategic alternatives and securities-related litigation, impairment on disposals, facility close costs, and executive management transition costs.Notes”).

Company Initiatives

In the third quarter of fiscal year 2018, we demonstrated the resiliency of our business model and the significant value we provide our customers as we quickly recovered from the impact of Hurricane Harvey. Despite the challenges caused by Hurricane Harvey,2019, we maintained our focus on enhancing our credit platform to ~~improve near-term results and to~~ support the pursuit of ~~the Company’s~~our long-term growth objectives. ~~Retail~~Our credit segment continued to improve, reflecting the higher yield we earn on our direct loan product, more sophisticated underwriting and improved collections execution, which has led to lower delinquency rates and losses, and better execution and performance ~~and margin remain strong, demonstrating our differentiated business model.~~in the capital markets, which has led to lower cost of funds. We continue to see the benefit in our credit operations from the structural changes we ~~are making~~have made to increase yield, reduce losses and improve overall credit performance. Retail operating margins remained strong, demonstrating our differentiated business model, improved product mix, and emphasis on disciplined cost management. We delivered the following financial and operational results in the third quarter of fiscal year ~~2018:~~2019:

~~Achieved second~~Posted our seventh consecutive quarter of profitability, ~~despite~~driven by a 70.1% increase in operating income compared to the ~~unprecedented impact of Hurricane Harvey;~~

~~Successfully launched our direct loan program in all of our Oklahoma and Tennessee locations which contributed to our sixth consecutive~~third quarter of ~~incremental yield improvement. Our weighted average origination loan yield increased~~fiscal year 2018;

Delivered record third quarter retail gross margin of 41.2%, an increase of 140 basis points compared to ~~27.9%~~39.8% in the third quarter of fiscal year 2018, ~~from 24.7% in the third quarter of fiscal year 2017, an increase of over 300 basis points;~~

~~Reduced, year-over-year, the balance of accounts 60 days past due as a percentage of the customer receivables portfolio to 9.9% at October 31, 2017 from 11.0% at October 31, 2016;~~

~~Increased retail gross margin for the third quarter of fiscal year 2018 to 39.8%, an increase of over 230 basis points compared to the third quarter of fiscal year 2017 rate of 37.5%,~~ driven primarily by improved product ~~margins across all product categories, favorable product mix, and continued focus on increasing efficiencies;~~

Completed the early redemption of our 2016-A Redeemed Notes on August 15, 2017, which contributed to a $1.9 million reduction in interest expense in the third quarter of fiscal year 2018 compared to the second quarter of fiscal year 2018 and a $5.4 million reduction compared to the third quarter of fiscal year 2017; andmargins;

Increased, year-over-year, sales ~~financed with~~purchased through the lease-to-own product offered through Progressive Leasing, which we offer to our customers who do not qualify for our proprietary credit programs, to 8.0% at October 31, 2018 from 5.7% at October 31, 2017;

Delivered record quarterly yield on our customer receivables portfolio of 21.7% as a result of the continued seasoning of loans originated under our higher-yielding direct loan program;

Reduced, year-over-year, the balance of accounts 60 days past due as a percentage of the customer receivables portfolio to 9.7% at October 31, 2018 from 9.9% at October 31, 2017;

Continued our successful asset-backed securitization program, securitizing $358.3 million of customer receivables and delivering an all-in cost of funds on the August 2018 Class A, Class B and Class C notes, including transaction costs, of approximately 5.6%; and

Realized a reduction in interest expense as a result of our deleveraging efforts combined with the continued successful execution of our asset-backed securitization program, which led to a 16.6% reduction in interest expense compared to the third quarter of fiscal year ~~2018 from 3.8% in the second quarter of fiscal year~~ 2018.

We believe that we ~~are positioned~~have laid the foundation to ~~prudently~~ execute our long-term growth strategy and ~~reduce~~prudently manage financial and operational risk while ~~enhancing~~maximizing shareholder value. We ~~continue to execute~~remain focused on the following strategic priorities for fiscal year ~~2018:~~2019:

Increase net income by improving performance across our core operational and financial metrics: same store sales, retail margin, portfolio yield, charge-off rate, and interest expense;

~~Implement~~Open seven new stores in our ~~direct~~current geographic footprint to leverage our existing infrastructure, five of which were successfully opened during the nine months ended October 31, 2018;

Increase interest income on our loan ~~program offering~~portfolio by continuing to ~~further enhance our yield;~~originate higher-yielding loans;

Continue to refine and enhance our underwriting ~~model and focus on~~platform;

Reduce our ~~collection operations to reduce delinquency rates and future charge-offs to improve future credit segment performance;~~

~~Lower our cost of funds;~~interest expense despite a rising rate environment;

Optimize our mix of quality, branded products and ~~reduce~~gain efficiencies in our warehouse, delivery and transportation ~~costs~~operations to increase our retail gross margin;

Continue to grow our lease-to-own sales; and

Maintain ~~focus on cost control~~disciplined oversight of our ~~SG&A expenses;~~selling, general and

~~Open three new stores, all of which were successfully opened during the first half of fiscal year 2018.~~

administrative expenses.

Outlook

The broad appeal of the Conn's ~~store~~value proposition to our geographically diverse core demographic, ~~the historical~~ unit economics of our business and current retail real estate market conditions provide us ample ~~room~~opportunity for continued expansion. Our brand recognition and long history in our core markets give us the opportunity to further penetrate our existing footprint, particularly as we leverage existing marketing spend, logistics infrastructure, and service footprint. There are also many markets in the United States with demographic characteristics similar to those in our existing footprint, which provides substantial opportunities for future growth. We plan to continue to improve our operating results by leveraging our existing infrastructure and seeking to continually optimize the efficiency of our marketing, merchandising, ~~sourcing,~~ distribution and credit operations. As we expand in existing markets and penetrate new markets, we expect to increase our purchase volumes ~~achieve distribution efficiencies~~ and strengthen our relationships with our key vendors. WeOver time, we also expect our increased store base and higher net sales to further leverage our existing corporate and regional infrastructure.

Results of Operations

The following tables present certain financial and other information, on a consolidated basis:


Consolidated:	Three Months Ended October 31,								Nine Months Ended October 31,								Three Months Ended October 31,							Nine Months Ended October 31,
(in thousands)	2017		2016			Change			2017		2016			Change			2018		2017		Change			2018		2017		Change
Revenues:
Total net sales	$	291,808	$	308,033		$	(16,225	)	$	857,506	$	958,574		$	(101,068	)	$	283,874	$	291,808	$	(7,934	)	$	855,943	$	857,506	$	(1,563	)
Finance charges and other revenues	81,364		68,740			12,624			238,139		205,469			32,670			89,950		81,364		8,586			260,888		238,139		22,749
Total revenues	373,172		376,773			(3,601		)	1,095,645		1,164,043			(68,398		)	373,824		373,172		652			1,116,831		1,095,645		21,186
Costs and expenses:
Cost of goods sold	175,591		192,374			(16,783		)	519,847		605,709			(85,862		)	166,886		175,591		(8,705		)	507,102		519,847		(12,745		)
Selling, general and administrative expenses	114,355		114,457			(102		)	332,524		347,550			(15,026		)
Selling, general and administrative expense																	118,380		114,355		4,025			353,948		332,524		21,424
Provision for bad debts	56,512		51,564			4,948			161,891		169,978			(8,087		)	47,548		56,512		(8,964		)	142,455		161,891		(19,436		)
Charges and credits	5,861		1,987			3,874			11,156		5,408			5,748			5,537		5,861		(324		)	5,837		11,156		(5,319		)
Total costs and expenses	352,319		360,382			(8,063		)	1,025,418		1,128,645			(103,227		)	338,351		352,319		(13,968		)	1,009,342		1,025,418		(16,076		)
Operating income	20,853		16,391			4,462			70,227		35,398			34,829			35,473		20,853		14,620			107,489		70,227		37,262
Interest expense	18,095		23,470			(5,375		)	62,142		73,504			(11,362		)	15,098		18,095		(2,997		)	47,484		62,142		(14,658		)
Loss on extinguishment of debt	461		—			461			2,907		—			2,907			—		461		(461		)	1,773		2,907		(1,134		)
Income (loss) before income taxes	2,297		(7,079		)	9,376			5,178		(38,106		)	43,284
Provision (benefit) for income taxes	728		(3,264		)	3,992			1,916		(12,618		)	14,534
Net income (loss)	$	1,569	$	(3,815	)	$	5,384		$	3,262	$	(25,488	)	$	28,750
Income before income taxes																	20,375		2,297		18,078			58,232		5,178		53,054
Provision for income taxes																	5,745		728		5,017			13,859		1,916		11,943
Net income																	$	14,630	$	1,569	$	13,061		$	44,373	$	3,262	$	41,111

Supplementary Operating Segment Information

Operating segments are defined as components of an enterprise that engage in business activities and for which discrete financial information is available that is evaluated on a regular basis by the chief operating decision maker to make decisions about how to allocate resources and assess performance. We are a leading specialty retailer and offer a broad selection of quality, branded durable consumer goods and related services in addition to a proprietary credit solution for our core credit-constrained consumers. We have two operating segments: (i) retail and (ii) credit. Our operating segments complement one another. The retail segment operates primarily through our stores and website and its product offerings include furniture and mattresses, home appliances, consumer electronics and home office products from leading global brands across a wide range of price points. Our credit segment offers affordable financing solutions to a large, under-served population of credit-constrained consumers who typically have limited credit alternatives. Our operating segments provide customers the opportunity to comparison shop across brands with confidence

in our competitive prices as well as affordable monthly payment options, next day delivery and installation in the majority of our markets, and product repair service. We believe our large, attractively merchandised retail stores and credit solutions offer a distinctive value proposition compared to other retailers that target our core customer demographic. The operating segments follow the same accounting policies used in our ~~consolidated financial statements.~~Condensed Consolidated Financial Statements.

We evaluate a segment’s performance based upon operating income before taxes. Selling, general and administrative ~~expenses include~~expense includes the direct expenses of the retail and credit operations, allocated corporate 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% multiplied by the average portfolio balance for each applicable period.

The following ~~table represents~~tables represent total revenues, costs and expenses, operating income (loss) and income (loss) before taxes attributable to these operating segments for the periods indicated:


Retail Segment:	Three Months Ended October 31,							Nine Months Ended October 31,							Three Months Ended October 31,							Nine Months Ended October 31,
(in thousands)	2017		2016		Change			2017		2016		Change
(dollars in thousands)															2018		2017		Change			2018		2017		Change
Revenues:
Product sales	$	263,786	$	278,056	$	(14,270	)	$	774,741	$	864,269	$	(89,528	)	$	256,731	$	263,786	$	(7,055	)	$	773,224	$	774,741	$	(1,517	)
Repair service agreement commissions	24,488		26,354		(1,866		)	72,703		82,849		(10,146		)	23,579		24,488		(909		)	72,104		72,703		(599		)
Service revenues	3,534		3,623		(89		)	10,062		11,456		(1,394		)	3,564		3,534		30			10,615		10,062		553
Total net sales	291,808		308,033		(16,225		)	857,506		958,574		(101,068		)	283,874		291,808		(7,934		)	855,943		857,506		(1,563		)
Other revenues	95		337		(242		)	267		1,268		(1,001		)	179		95		84			291		267		24
Total revenues	291,903		308,370		(16,467		)	857,773		959,842		(102,069		)	284,053		291,903		(7,850		)	856,234		857,773		(1,539		)
Costs and expenses:
Cost of goods sold	175,591		192,374		(16,783		)	519,847		605,709		(85,862		)	166,886		175,591		(8,705		)	507,102		519,847		(12,745		)
Selling, general and administrative expenses ⁽¹⁾	80,676		79,777		899			233,290		244,598		(11,308		)
Selling, general and administrative expense ⁽¹⁾															80,894		80,676		218			241,649		233,290		8,359
Provision for bad debts	189		286		(97		)	584		811		(227		)	286		189		97			789		584		205
Charges and credits	5,861		1,987		3,874			11,156		5,408		5,748			737		5,861		(5,124		)	1,037		11,156		(10,119		)
Total costs and expenses	262,317		274,424		(12,107		)	764,877		856,526		(91,649		)	248,803		262,317		(13,514		)	750,577		764,877		(14,300		)
Operating income	$	29,586	$	33,946	$	(4,360	)	$	92,896	$	103,316	$	(10,420	)	$	35,250	$	29,586	$	5,664		$	105,657	$	92,896	$	12,761
Number of stores:
Beginning of period	116		112					113		103					118		116					116		113
Open	—		1					3		10
Closed	—		—					—		—
Opened															3		—					5		3
End of period	116		113					116		113					121		116					121		116


Credit Segment:	Three Months Ended October 31,									Nine Months Ended October 31,									Three Months Ended October 31,									Nine Months Ended October 31,
(in thousands)	2017			2016			Change			2017			2016			Change			2018			2017			Change			2018			2017			Change
Revenues -
Revenues:
Finance charges and other revenues	$	81,269		$	68,403		$	12,866		$	237,872		$	204,201		$	33,671		$	89,771		$	81,269		$	8,502		$	260,597		$	237,872		$	22,725
Costs and expenses:
Selling, general and administrative expenses ⁽¹⁾	33,679			34,680			(1,001		)	99,234			102,952			(3,718		)
Selling, general and administrative expense ⁽¹⁾																			37,486			33,679			3,807			112,299			99,234			13,065
Provision for bad debts	56,323			51,278			5,045			161,307			169,167			(7,860		)	47,262			56,323			(9,061		)	141,666			161,307			(19,641		)
Total cost and expenses	90,002			85,958			4,044			260,541			272,119			(11,578		)
Operating loss	(8,733		)	(17,555		)	8,822			(22,669		)	(67,918		)	45,249
Charges and credits																			4,800			—			4,800			4,800			—			4,800
Total costs and expenses																			89,548			90,002			(454		)	258,765			260,541			(1,776		)
Operating income (loss)																			223			(8,733		)	8,956			1,832			(22,669		)	24,501
Interest expense	18,095			23,470			(5,375		)	62,142			73,504			(11,362		)	15,098			18,095			(2,997		)	47,484			62,142			(14,658		)
Loss on extinguishment of debt	461			—			461			2,907			—			2,907			—			461			(461		)	1,773			2,907			(1,134		)
Loss before income taxes	$	(27,289	)	$	(41,025	)	$	13,736		$	(87,718	)	$	(141,422	)	$	53,704		$	(14,875	)	$	(27,289	)	$	12,414		$	(47,425	)	$	(87,718	)	$	40,293

(1)

For the three months ended October 31, ~~2017~~2018 and ~~2016,~~2017, the amount of corporate overhead allocated to each segment reflected in selling, general and administrative expense was ~~$7.3~~$9.1 million and ~~$6.7~~$7.3 million, respectively. For the three months ended October 31, ~~2017~~2018 and ~~2016,~~2017, the amount of ~~reimbursement~~reimbursements made to the retail segment by the credit segment ~~was $9.3~~were $9.5 million and ~~$9.6~~$9.3 million, respectively. For the nine months ended October 31, ~~2017~~2018 and ~~2016,~~2017, the amount of corporate overhead allocated to each segment reflected in selling, general and administrative expense was ~~$21.5~~$26.7 million and ~~$18.9~~$21.5 million, respectively. For the nine months ended October 31, ~~2017~~2018 and ~~2016,~~2017, the amount of reimbursement made to the retail segment by the credit segment was ~~$27.9~~$28.3 million and ~~$29.0~~$27.9 million, respectively.

Three ~~months ended~~Months Ended October 31, ~~2017 compared~~2018 Compared to ~~three months ended~~Three Months Ended October 31, ~~2016~~2017

Revenues

The following table provides an analysis of retail 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:


	Three Months Ended October 31,											%		Same store		Three Months Ended October 31,											%		Same Store
(dollars in thousands)	2017		% of Total		2016		% of Total		Change			Change		% change		2018		% of Total		2017		% of Total		Change			Change		% Change
Furniture and mattress(1)	$	97,146	33.3	%	$	98,898	32.1	%	$	(1,752	)	(1.8	)%	(6.1	)%	$	91,342	32.2	%	$	97,146	33.3	%	$	(5,804	)	(6.0	)%	(6.6	)%
Home appliance	83,837		28.7		85,785		27.8		(1,948		)	(2.3	)	(3.3	)	79,542		28.0		83,837		28.7		(4,295		)	(5.1	)	(6.4	)
Consumer electronic	58,062		19.9		65,670		21.3		(7,608		)	(11.6	)	(10.7	)
Home office	20,295		7.0		22,747		7.5		(2,452		)	(10.8	)	(8.1	)
Consumer electronics⁽¹⁾																60,008		21.1		58,062		19.9		1,946			3.4		(0.2	)
Home office⁽¹⁾																22,661		8.0		20,295		7.0		2,366			11.7		9.9
Other	4,446		1.5		4,956		1.6		(510		)	(10.3	)	(11.1	)	3,178		1.1		4,446		1.5		(1,268		)	(28.5	)	(26.6	)
Product sales	263,786		90.4		278,056		90.3		(14,270		)	(5.1	)	(6.6	)	256,731		90.4		263,786		90.4		(7,055		)	(2.7	)	(4.2	)
Repair service agreement commissions(2)	24,488		8.4		26,354		8.5		(1,866		)	(7.1	)	(10.1	)	23,579		8.3		24,488		8.4		(909		)	(3.7	)	(6.3	)
Service revenues	3,534		1.2		3,623		1.2		(89		)	(2.5	)			3,564		1.3		3,534		1.2		30			0.8
Total net sales	$	291,808	100.0	%	$	308,033	100.0	%	$	(16,225	)	(5.3	)%	(7.0	)%	$	283,874	100.0	%	$	291,808	100.0	%	$	(7,934	)	(2.7	)%	(4.4	)%

(1)

During the three months ended October 31, 2017, we reclassified certain products from the consumer electronics and home office product categories into the furniture and mattress product category. Net sales of these products reflected in the consumer electronics and home office product categories for the three months ended October 31, 2017 were $2.7 million and $0.8 million, respectively. The change in same store sales reflects the current product classification for both periods presented.


(2)	The total change in sales of repair service agreement commissions includes retrospective commissions, which are not reflected in the change in same store sales.

~~Sales for the three months ended October 31, 2017 were impacted negatively by general softness in consumer spending.~~ The following provides a summary of the drivers of same store sales performance of our product categories during the ~~third quarter of fiscal year~~three months ended October 31, 2018 as compared to the ~~third quarter of fiscal year~~three months ended October 31, 2017:

•Furniture unit volume decreased ~~12.5%~~8.9%, partially offset by a ~~9.3%~~2.8% increase in average selling price;

Mattress unit volume decreased ~~15.1%~~16.6%, partially offset by a ~~4.5%~~11.3% increase in average selling price;

Home appliance unit volume decreased ~~5.0%~~14.0%, partially offset by a ~~1.8%~~8.8% increase in average selling price;

Consumer electronic unit volume decreased ~~11.9%~~7.4%, partially offset by a ~~1.5%~~7.8% increase in average ~~sales~~selling price; and

Home office unit volume ~~decreased 20.4%~~increased 24.5%, partially offset by a ~~15.5% increase~~11.7% decrease in average selling price.

Enhancements to product assortments and shifts in product sales mix towards higher-priced items have driven increases to average sales prices in most product categories.

The following table provides the change of the components of finance charges and other revenues:


	Three Months Ended October 31,							Three Months Ended October 31,
(in thousands)	2017		2016		Change			2018		2017		Change
Interest income and fees	$	74,144	$	58,404	$	15,740		$	82,964	$	74,144	$	8,820
Insurance income	7,125		9,999		(2,874		)	6,807		7,125		(318		)
Other revenues	95		337		(242		)	179		95		84
Finance charges and other revenues	$	81,364	$	68,740	$	12,624		$	89,950	$	81,364	$	8,586

The increase in interest income and fees was due to aan increase in the yield rate to 21.7% for the three months ended October 31, 2018 from 19.8% for the three months ended October 31, 2017, an increase of ~~19.8% during the third quarter of fiscal year 2018, 480~~190 basis points, ~~higher than the third quarter~~and by an increase of ~~fiscal year 2017, partially offset by a decline of 3.7%~~2.2% in the average balance of the customer receivable portfolio. ~~Insurance income is comprised~~The increase in the yield rate resulted from the origination of sales commissions from third-party insurance companies at the time we sell the coverage, and we may receive retrospective commissions, which are additional commissions paid by the insurance carrier if insurance claims are less than earned premiums. Insurance income decreased over the prior year period primarily due to the decrease in retrospective commissions as a result of higher claim volumes related to Hurricane Harvey.

our higher-yielding direct loan product.

The following table provides key portfolio performance information:


	Three Months Ended October 31,									Three Months Ended October 31,
(dollars in thousands)	2017			2016			Change			2018			2017			Change
Interest income and fees	$	74,144		$	58,404		$	15,740		$	82,964		$	74,144		$	8,820
Net charge-offs	(56,519		)	(50,216		)	(6,303		)	(46,850		)	(56,519		)	9,669
Interest expense	(18,095		)	(23,470		)	5,375			(15,098		)	(18,095		)	2,997
Net portfolio income	$	(470	)	$	(15,282	)	$	14,812
Net portfolio income (loss)										$	21,016		$	(470	)	$	21,486
Average portfolio balance	$	1,485,683		$	1,542,767		$	(57,084	)	$	1,518,513		$	1,485,683		$	32,830
Interest income and fee yield (annualized)	19.8		%	15.0		%				21.7		%	19.8		%
Net charge-off % (annualized)	15.2		%	13.0		%				12.3		%	15.2		%

Retail Gross Margin


	Three Months Ended October 31,									Three Months Ended October 31,
(dollars in thousands)	2017			2016			Change			2018			2017			Change
Total net sales	$	291,808		$	308,033		$	(16,225	)
Retail total net sales										$	283,874		$	291,808		$	(7,934	)
Cost of goods sold	$	175,591		$	192,374		$	(16,783	)	166,886			175,591			(8,705		)
Retail gross margin	39.8		%	37.5		%				$	116,988		$	116,217		$	771
Retail gross margin percentage										41.2		%	39.8		%

The increase in retail gross margin was ~~primarily due to~~driven by improved product margins ~~across~~in almost all product ~~categories, favorable product mix and continued focus on increasing efficiencies.~~categories.

Selling, General and Administrative ~~Expenses~~Expense


	Three Months Ended October 31,									Three Months Ended October 31,
(dollars in thousands)	2017			2016			Change			2018			2017			Change
Selling, general and administrative expenses:
Retail segment	$	80,676		$	79,777		$	899		$	80,894		$	80,676		$	218
Credit segment	33,679			34,680			(1,001		)	37,486			33,679			3,807
Selling, general and administrative expenses - Consolidated	$	114,355		$	114,457		$	(102	)
Selling, general and administrative expenses as a percent of total revenues	30.6		%	30.4		%
Selling, general and administrative expense - Consolidated										$	118,380		$	114,355		$	4,025
Selling, general and administrative expense as a percent of total revenues										31.7		%	30.6		%

The SG&A increase in the retail segment was primarily due to an increase in new store occupancy costs, an increase in compensation costs and an increase in the corporate overhead allocation, ~~an increase in occupancy costs due to additional stores opened in fiscal year 2018, and $1.2 million of expenses incurred, net of estimated insurance proceeds, related to Hurricane Harvey, partially~~ offset by a decrease in advertising ~~expense. The increase in retail SG&A as well as the~~expense and a decrease in retail revenue resulted in an increase in SG&A as a percent of retail segment revenues of 170 basis points for the third quarter of fiscal year 2018 as compared to the third quarter of fiscal year 2017.Hurricane Harvey-related expenses. The SG&A ~~decrease~~increase in the credit segment was primarily due to ~~a decrease~~an increase in compensation costs, ~~partially offset by~~third-party legal expenses related to bankruptcy collection efforts, expenses related to information technology investments and an increase in the corporate overhead allocation. As a percent of average total customer portfolio balance (annualized), SG&A for the credit segment in the ~~third quarter of fiscal year~~three months ended October 31, 2018 increased 1080 basis points as compared to the ~~third quarter of fiscal year~~three months ended October 31, 2017. The increase in the corporate overhead allocation made to each of the segments was driven by investments we are making in information technology, other personnel to support long-term performance improvement initiatives and an increase in accrued ~~incentive~~ compensation.

Provision for Bad Debts


	Three Months Ended October 31,									Three Months Ended October 31,
(dollars in thousands)	2017			2016			Change			2018			2017			Change
Provision for bad debts:
Retail segment	$	189		$	286		$	(97	)	$	286		$	189		$	97
Credit segment	56,323			51,278			5,045			47,262			56,323			(9,061		)
Provision for bad debts - Consolidated	$	56,512		$	51,564		$	4,948		$	47,548		$	56,512		$	(8,964	)
Provision for bad debts - Credit segment, as a percent of average portfolio balance (annualized)	15.2		%	13.3		%				12.4		%	15.2		%

The provision for bad debts ~~increased by $4.9~~decreased to $47.5 million for the three months ended October 31, 2018 from $56.5 million for the three months ended October 31, 2017, ~~compared to~~a decrease of $9.0 million. The decrease was driven by a year-over-year reduction in net charge-offs of $9.7 million.

Charges and Credits



	Three Months Ended October 31,
(in thousands)	2018		2017		Change
Employee severance	$	737	$	—	$	737
Legal judgment	4,800		—		4,800
Write-off of capitalized software costs	—		5,861		(5,861		)
	$	5,537	$	5,861	$	(324	)

During the three months ended October 31, ~~2016. The most significant reasons~~2018, we recorded severance costs related to a change in the executive management team, and costs related to the TFL Judgment. Refer to Note 6, Contingencies, for ~~this increase were:~~


i.	~~growth in the customer receivables portfolio in the three months ended October 31, 2017 compared to a decline in the three months ended October 31, 2016;~~


~~ii.~~	~~higher net-charge offs in the three months ended October 31, 2017 compared to the three months ended October 31, 2016; and~~


~~iii.~~	~~an increase in the qualitative reserve related to Hurricane Harvey of $1.1 million; partially offset by~~


~~iv.~~	~~a decrease in our estimated TDR loss rate as a result of improvements in TDR delinquency rates.~~

~~Charges and Credits~~

Three Months Ended
October 31,
(in thousands) 2017 2016 Change
Store and Facility closure costs $ —
$ 954
$ (954 )
Impairments from disposals —
595
(595 )
Legal and professional fees related to securities-related litigation —
158
(158 )
Employee severance —
280
(280 )
Write-off of capitalized software costs 5,861
—
5,861
$ 5,861
$ 1,987
$ 3,874

additional information about the TFL Judgment. During the three months ended October 31, 2017, we incurred a loss from the write-off of previously capitalized costs for a software project that was abandoned during the third quarter of fiscal year 2018 related to the implementation of a new point of sale system that began in fiscal year 2013. ~~During~~

Interest Expense

Interest expense decreased to $15.1 million for the three months ended October 31, ~~2016, we incurred charges associated with store and facility closures, impairments~~2018 from ~~disposals, legal and professional fees related to our securities-related litigation, and charges~~$18.1 million for severance. The impairments from disposals included the write-off of leasehold improvements for one store we relocated prior to the end of its useful life and incurred costs for terminated store projects prior to starting construction.

~~Interest Expense~~

~~For~~ the three months ended October 31, 2017, ~~net interest expense decreased by $5.4 million from the prior year comparative period, primarily reflecting~~ a ~~lower weighted average~~decrease of $3.0 million. The decrease reflects a decrease in our cost of borrowing ~~and~~as a result of lower pricing on our securitization transactions coupled with a lower average outstanding balance of debt.

Loss on Extinguishment of Debt

During the three months ended October 31, 2017, we ~~wrote off~~wrote-off $0.5 million of debt issuance costs related to the early retirement of our 2016-A Redeemed Notes.

Provision for Income Taxes


	Three Months Ended October 31,								Three Months Ended October 31,
(dollars in thousands)	2017			2016			Change		2018			2017			Change
Provision (benefit) for income taxes	$	728		$	(3,264	)	$	3,992
Provision for income taxes									$	5,745		$	728		$	5,017
Effective tax rate	31.7		%	46.1		%			28.2		%	31.7		%

The ~~decrease~~increase in ~~the~~ income tax ~~rate~~expense for the three months ended October 31, ~~2017~~2018 compared to the three months ended October 31, ~~2016~~2017 was primarily ~~due to a decrease in the rate due to discrete items, partially offset~~driven by an increase in taxable income partially offset by a decrease in our effective tax rate pursuant to H.R. 1, originally known as the Tax Cuts and Jobs Act (the “Tax Act”), which reduced the federal statutory income tax rate ~~due~~from 35% to ~~state income taxes.~~

21%.

Nine ~~months ended~~Months Ended October 31, ~~2017 compared~~2018 Compared to Nine ~~months ended~~Months Ended October 31, ~~2016~~2017

Revenues


	Nine Months Ended October 31,											%		Same store		Nine Months Ended October 31,											%		Same Store
(dollars in thousands)	2017		% of Total		2016		% of Total		Change			Change		% change		2018		% of Total		2017		% of Total		Change			Change		% Change
Furniture and mattress(1)	$	286,886	33.5	%	$	309,766	32.3	%	$	(22,880	)	(7.4	)%	(11.0	)%	$	285,428	33.4	%	$	286,886	33.5	%	$	(1,458	)	(0.5	)%	(3.9	)%
Home appliance	253,044		29.5		275,048		28.7		(22,004		)	(8.0	)	(9.7	)	249,036		29.1		253,044		29.5		(4,008		)	(1.6	)	(3.3	)
Consumer electronic	166,761		19.4		197,270		20.6		(30,509		)	(15.5	)	(16.0	)
Consumer electronics ⁽¹⁾																167,964		19.6		166,761		19.4		1,203			0.7		0.2
Home office(1)	54,945		6.4		66,921		7.0		(11,976		)	(17.9	)	(17.6	)	60,260		7.1		54,945		6.4		5,315			9.7		10.4
Other	13,105		1.6		15,264		1.6		(2,159		)	(14.1	)	(16.2	)	10,536		1.2		13,105		1.6		(2,569		)	(19.6	)	(20.8	)
Product sales	774,741		90.4		864,269		90.2		(89,528		)	(10.4	)	(12.4	)	773,224		90.4		774,741		90.4		(1,517		)	(0.2	)	(2.1	)
Repair service agreement commissions(2)	72,703		8.5		82,849		8.6		(10,146		)	(12.2	)	(13.9	)	72,104		8.4		72,703		8.5		(599		)	(0.8	)	(5.0	)
Service revenues	10,062		1.1		11,456		1.2		(1,394		)	(12.2	)			10,615		1.2		10,062		1.1		553			5.5
Total net sales	$	857,506	100.0	%	$	958,574	100.0	%	$	(101,068	)	(10.5	)%	(12.5	)%	$	855,943	100.0	%	$	857,506	100.0	%	$	(1,563	)	(0.2	)%	(2.5	)%

(1)

During the nine months ended October 31, 2017, we reclassified certain products from the consumer electronics and home office product categories into the furniture and mattress product category. Net sales of these products reflected in the consumer electronics and home office product categories for the nine months ended October 31, 2017 were $8.1 million and $2.4 million, respectively. The change in same store sales reflects the current product classification for both periods presented.


(2)	The total change in sales of repair service agreement commissions includes retrospective commissions, which are not reflected in the change in same store sales.

The decrease in same store sales was impacted by underwriting changes made during fiscal year 2017, one less business day in fiscal year 2018 versus the leap year in fiscal year 2017, and general softness in consumer spending. The following provides a summary of the drivers of same store sales performance of our product categories during the nine months ended October 31, ~~2017~~2018 as compared to the nine months ended October 31, ~~2016:~~2017:

Furniture unit volume decreased ~~20.7%~~7.7%, partially offset by a ~~11.4%~~3.9% increase in average selling price;

Mattress unit volume decreased ~~17.4%~~12.7%, partially offset by a ~~10.2%~~10.8% increase in average selling price;

Home appliance unit volume decreased ~~9.0% and average selling price decreased 0.8%;~~

~~Consumer electronic unit volume decreased 16.5%~~8.8%, partially offset by a ~~0.6%~~6.0% increase in average selling price;

Consumer electronic average selling price increased 3.6%, partially offset by a 3.4% decrease in unit volume; and

Home office unit volume ~~decreased 21.0%~~increased 25.5%, partially offset by a ~~4.3% increase~~12.1% decrease in average selling price.

Enhancements to product assortments and shifts in product sales mix towards higher-priced items have driven increases to average sales prices in most product categories.

The following table provides the change of the components of finance charges and other revenues:


	Nine Months Ended October 31,							Nine Months Ended October 31,
(in thousands)	2017		2016		Change			2018		2017		Change
Interest income and fees	$	210,765	$	173,527	$	37,238		$	239,745	$	210,765	$	28,980
Insurance income	27,107		30,674		(3,567		)	20,852		27,107		(6,255		)
Other revenues	267		1,268		(1,001		)	291		267		24
Finance charges and other revenues	$	238,139	$	205,469	$	32,670		$	260,888	$	238,139	$	22,749

The increase in interest income and fees was due to aan increase in the yield rate ofto 21.2% for the nine months ended October 31, 2018 from 18.9% ~~during~~for the nine months ended October 31, 2017, ~~400~~an increase of 230 basis points, ~~higher than the nine months ended October 31, 2016, partially offset~~and by ~~a decline~~an increase of ~~3.6%~~1.0% in the average balance of the customer receivable portfolio. ~~Interest income and fees for the nine months ended October 31, 2016 included the negative impact of adjustments of $8.2 million as a result of changes~~The increase in ~~estimates for allowances for no-interest option credit programs and deferred interest. Excluding the impact of changes in estimates,~~ the yield rate ~~increased 320 basis points~~resulted from the ~~nine months ended October 31, 2016. Insurance income is comprised~~origination of sales commissions from third-party insurance companies at the time we sell the coverage, and we may receive retrospective commissions, which are additional commissions paid by the insurance carrier if insurance claims are less than earned premiums.our higher-yielding direct loan product. Insurance income decreased over the prior year period primarily due to ~~the~~a decrease in retrospective ~~commissions~~income as a result of higher claim volumes related to Hurricane Harvey.

The following table provides key portfolio performance information:


	Nine Months Ended October 31,									Nine Months Ended October 31,
(dollars in thousands)	2017			2016			Change			2018			2017			Change
Interest income and fees	$	210,765		$	173,527		$	37,238		$	239,745		$	210,765		$	28,980
Net charge-offs	(170,393		)	(159,204		)	(11,189		)	(143,943		)	(170,393		)	26,450
Interest expense	(62,142		)	(73,504		)	11,362			(47,484		)	(62,142		)	14,658
Net portfolio income	$	(21,770	)	$	(59,181	)	$	37,411
Net portfolio income (loss)										$	48,318		$	(21,770	)	$	70,088
Average portfolio balance	$	1,493,292		$	1,548,966		$	(55,674	)	$	1,508,887		$	1,493,292		$	15,595
Interest income and fee yield (annualized)	18.9		%	14.9		%				21.2		%	18.9		%
Net charge-off % (annualized)	15.2		%	13.7		%				12.7		%	15.2		%

Retail Gross Margin


	Nine Months Ended October 31,									Nine Months Ended October 31,
(dollars in thousands)	2017			2016			Change			2018			2017			Change
Total net sales	$	857,506		$	958,574		$	(101,068	)
Retail total net sales										$	855,943		$	857,506		$	(1,563	)
Cost of goods sold	$	519,847		$	605,709		$	(85,862	)	507,102			519,847			(12,745		)
Retail gross margin	39.4		%	36.8		%				$	348,841		$	337,659		$	11,182
Retail gross margin percentage										40.8		%	39.4		%

Selling, General and Administrative ~~Expenses~~Expense


	Nine Months Ended October 31,									Nine Months Ended October 31,
(dollars in thousands)	2017			2016			Change			2018			2017			Change
Selling, general and administrative expenses:
Retail segment	$	233,290		$	244,598		$	(11,308	)	$	241,649		$	233,290		$	8,359
Credit segment	99,234			102,952			(3,718		)	112,299			99,234			13,065
Selling, general and administrative expenses - Consolidated	$	332,524		$	347,550		$	(15,026	)
Selling, general and administrative expenses as a percent of total revenues	30.3		%	29.9		%
Selling, general and administrative expense - Consolidated										$	353,948		$	332,524		$	21,424
Selling, general and administrative expense as a percent of total revenues										31.7		%	30.3		%

The SG&A ~~decrease~~increase in the retail segment was primarily due to ~~a decrease~~an increase in new store occupancy costs, an increase in compensation ~~advertising, delivery,~~costs, an increase in professional fees and ~~transportation costs, partially offset by~~ an increase in the corporate overhead allocation, ~~an increase in occupancy costs due to additional stores opened in fiscal year 2018, and $1.2 million of expenses incurred, net of estimated insurance proceeds, related to Hurricane Harvey. The~~partially offset by a decrease in ~~retail revenue resulted~~

advertising expense and a decrease in ~~an increase in SG&A as a percent of retail segment revenues of 170 basis points for the nine months ended October 31, 2017 as compared to the nine months ended October 31, 2016.~~Hurricane Harvey-related expenses. The SG&A ~~decrease~~increase in the credit segment was primarily due to ~~a decrease~~an increase in compensation costs, ~~partially offset by~~third-party legal expenses related to bankruptcy collection efforts, expenses related to information technology investments and an increase in the corporate overhead allocation. As a percent of average total customer portfolio balance (annualized), SG&A for the credit segment in the nine months ended October 31, ~~2017 remained the same~~2018 increased 100 basis points as compared to the nine months ended October 31, ~~2016.~~2017. The increase in the corporate

overhead allocation made to each of the segments was driven by investments we are making in information technology, other personnel to support long-term performance improvement initiatives and an increase in accrued ~~incentive~~ compensation.

Provision for Bad Debts


	Nine Months Ended October 31,									Nine Months Ended October 31,
(dollars in thousands)	2017			2016			Change			2018			2017			Change
Provision for bad debts:
Retail segment	$	584		$	811		$	(227	)	$	789		$	584		$	205
Credit segment	161,307			169,167			(7,860		)	141,666			161,307			(19,641		)
Provision for bad debts - Consolidated	$	161,891		$	169,978		$	(8,087	)	$	142,455		$	161,891		$	(19,436	)
Provision for bad debts - Credit segment, as a percent of average portfolio balance (annualized)	14.4		%	14.6		%				12.5		%	14.4		%

The provision for bad debts decreased ~~by $8.1~~to $142.5 million for the nine months ended October 31, 2018 from $161.9 million for the nine months ended October 31, 2017, a decrease of $19.4 million. The decrease was driven by a year-over-year reduction in net charge-offs of $26.5 million, partially offset by a greater decrease in the allowance for bad debts during the nine months ended October 31, 2017 as compared to the nine months ended October 31, ~~2016.~~2018. The ~~most significant reasons~~greater decrease in the allowance for ~~this decrease were:~~bad debts was primarily driven by the inclusion of changes in first payment default rates and changes in delinquency balances to our allowance for bad debts framework made during the nine months ended October 31, 2017.


i.	~~a decrease in our estimated non-TDR loss rate as a result of the inclusion of first payment default rates as a factor in our allowance for bad debts estimate;~~


~~ii.~~	~~changes in estimates of $5.0 million reflected as an increase to provision for bad debts for the nine months ended October 31, 2016 related to sales tax recovery on previously charged-off accounts;~~


~~iii.~~	~~a decrease in our estimated TDR loss rate as a result of improvements in TDR delinquency rates; and~~


~~iv.~~	~~a larger decrease in the customer receivables portfolio in the nine months ended October 31, 2017 compared to the nine months ended October 31, 2016; partially offset by~~


v.	~~higher net-charge offs in the nine months ended October 31, 2017 compared to the nine months ended October 31, 2016; and~~


~~vi.~~	~~an increase in the qualitative reserve related to Hurricane Harvey of $1.1 million.~~

Charges and Credits

Nine Months Ended
October 31,
(in thousands) 2017 2016 Change
Store and facility closure costs $ 1,349
$ 954
$ 395
Impairments from disposals —
1,980
(1,980 )
Legal and professional fees related to the exploration of strategic alternatives and securities-related litigation 34
747
(713 )
Employee severance 1,317
1,493
(176 )
Write-off of software capitalized costs

5,861
—
5,861
Indirect tax audit reserve 2,595
—
2,595
Executive management transition costs —
234
(234 )
$ 11,156
$ 5,408
$ 5,748



	Nine Months Ended October 31,
(in thousands)	2018		2017		Change
Facility closure costs	$	—	$	1,349	$	(1,349	)
Securities-related regulatory matter and other legal fees	300		34		266
Employee severance	737		1,317		(580		)
Indirect tax audit reserve	—		2,595		(2,595		)
Legal judgment	4,800		—		4,800
Write-off of capitalized software costs	—		5,861		(5,861		)
	$	5,837	$	11,156	$	(5,319	)

During the nine months ended October 31, 2018, we recorded a contingency reserve related to a regulatory matter, severance costs related to a change in the executive management team, and costs related to the TFL Judgment. Refer to Note 6, Contingencies, for additional information about the TFL Judgment. During the nine months ended October 31, 2017, we incurred exit costs associated with reducing the square footage of a distribution center, charges for severance due to changes in our executive management team, an increase to our indirect tax audit reserve, and a loss from the write-off of previously capitalized costs for a software project that was abandoned during the third quarter of fiscal year 2018 related to the implementation of a new point of sale system that began in fiscal year 2013. ~~During~~

Interest Expense

Interest expense decreased to $47.5 million for the nine months ended October 31, ~~2016, we had costs associated with store and facility closures, impairments~~2018 from ~~disposals of two real estate assets, legal and professional fees related to our securities-related litigation, charges~~$62.1 million for ~~severance and transition costs due to changes in the executive management team. The impairments from disposals included the write-off of leasehold improvements for one store.~~

~~Interest Expense~~

~~For~~ the nine months ended October 31, 2017 ~~net interest expense decreased by $11.4 million from the prior year comparative period, primarily reflecting~~ a ~~lower weighted average~~decrease of $14.7 million. The decrease reflects a decrease in our cost of borrowing ~~and~~as a result of lower pricing on our securitization transactions coupled with a lower average outstanding balance of debt.

Loss on Extinguishment of Debt

During the nine months ended October 31, 2018, we recorded a $1.8 million loss on extinguishment of debt primarily related to the early retirement of our 2016-B Redeemed Notes and 2017-A Redeemed Notes. During the nine months ended October 31, 2017, we wrote-off $2.9 million of debt issuance costs related to an amendment to our revolving credit facility for lenders that did not continue to participate ~~the early retirement of our 2015-A Redeemed Notes,~~ and the early retirement of our Series 2015-A Class B Notes and 2016-A Redeemed Notes.

Provision for Income Taxes


	Nine Months Ended October 31,								Nine Months Ended October 31,
(dollars in thousands)	2017			2016			Change		2018			2017			Change
Provision (benefit) for income taxes	$	1,916		$	(12,618	)	$	14,534
Provision for income taxes									$	13,859		$	1,916		$	11,943
Effective tax rate	37.0		%	33.1		%			23.8		%	37.0		%

The increase in ~~the~~ income tax ~~rate~~expense for the nine months ended October 31, ~~2017~~2018 compared to the nine months ended October 31, ~~2016~~2017 was primarily ~~due to~~driven by an increase in taxable income partially offset by a decrease in our effective tax rate pursuant to the Tax Act, which reduced the federal statutory income tax rate ~~due~~from 35% to ~~state income taxes.~~21%, and a $0.8 million tax benefit related to the vesting of equity compensation.

Customer Receivable Portfolio

We provide in-house financing to individual consumers on a short- and medium-term basis (contractual terms generally range from 12 to 36 months) for the purchase of durable products for the home. A significant portion of our customer credit portfolio is due from customers that are considered higher-risk, subprime borrowers. Our financing is executed using contracts that require fixed monthly payments over fixed terms. We maintain a secured interest in the product financed. If a payment is delayed, missed or paid only in part, the account becomes delinquent. Our collection personnel attempt to contact a customer once their account becomes delinquent. Our loan contracts generally ~~provide for~~reflect an interest ~~at the maximum~~ rate ~~allowed by the respective regulations in the states in which we operate, which generally range~~ between 18% and 30%. During the third quarter of fiscal year 2017, we implemented our ~~new~~ direct consumer loan program across all Texas locations. During the first quarter of fiscal year 2018, we implemented our ~~new~~ direct consumer loan program in all Louisiana locations. During the third quarter of fiscal year 2018, we implemented our ~~new~~ direct consumer loan program in all Tennessee and Oklahoma locations. The states of Texas, Louisiana, Tennessee and Oklahoma ~~represent~~represented approximately 78% of our ~~third quarter of fiscal year~~originations during the nine months ended October 31, 2018, ~~originations,~~ which, under our previous offerings, had a maximum equivalent interest rate of approximately 21%, compared to an interest rate of up to 27% in Oklahoma and up to 30% in Texas, Louisiana and Tennessee under our new direct consumer loan programs. In states where regulations do not generally limit the interest rate charged, we increased our rates in the third quarter of fiscal year 2017 to 29.99%. These states represented 11% of our originations during the nine months ended October 31, 2018.

We offer ~~12- and 18-month cash-option,~~qualified customers a 12-month no-interest option finance ~~programs.~~program. If the customer is delinquent in making a scheduled monthly payment or does not repay the principal in full by the end of the no-interest option program period (grace periods are provided), the account does not qualify for the no-interest provision and none of the interest earned is waived.

We regularly extend or ~~"re-age"~~“re-age” a portion of our delinquent customer accounts as a part of our normal collection procedures to protect our investment. Generally, extensions are granted to customers who have experienced a financial difficulty (such as the temporary loss of employment), which is subsequently resolved, and when the customer indicates a willingness and ability to resume making monthly payments. These re-ages involve modifying the payment terms to defer a portion of the cash payments currently required of the debtor to help the debtor improve his or her financial condition and eventually be able to pay the account balance. Our re-aging of customer accounts does not change the interest rate or the total principal amount due from the customer and typically does not reduce the monthly contractual payments. We may also charge the customer an extension fee, which approximates the interest owed for the time period the contract was past due. ~~As part~~Our re-age programs consist of ~~our re-age program, we have straight extension programs~~extensions and two payment ~~update programs,~~updates, which ~~also~~ include unilateral extensions to customers who make two full payments in three calendar months in certain states. Re-ages are not granted to debtors who demonstrate a lack of intent or ability to service the obligation or have reached our limits for account re-aging. ~~The re-aged receivable balance as of October 31, 2017 includes $71.8 million in first time re-ages related to customers within FEMA-designated Hurricane Harvey disaster areas.~~ To a much lesser extent, we may provide the customer the ability to re-age their obligation by refinancing the account, which does not change the interest rate or the total principal amount due from the customer but does reduce the monthly contractual payments and extends the term. Under these options, as with extensions, the customer must resolve the reason for delinquency and show a willingness and ability to resume making contractual monthly payments.

The following tables present, for comparison purposes, information about our managed portfolio (information reflects on a combined basis the securitized receivables transferred to the VIEs and receivables not transferred to the VIEs):


	As of October 31,						As of October 31,
	2017			2016			2018			2017
Weighted average credit score of outstanding balances⁽¹⁾	589			591			593			589
Average outstanding customer balance	$	2,405		$	2,354		$	2,578		$	2,405
Balances 60+ days past due as a percentage of total customer portfolio balance⁽³⁾⁽²⁾	9.9		%	11.0		%	9.7		%	9.9		%
Re-aged balance as a percentage of total customer portfolio balance⁽⁴⁾⁽³⁾	23.8		%	16.0		%	25.5		%	23.8		%
Account balances re-aged more than six months (in thousands)	$	80,516		$	73,385		$	87,484		$	80,516
Allowance for bad debts as a percentage of total customer portfolio balance	13.6		%	13.3		%	13.6		%	13.6		%
Percent of total customer portfolio balance represented by no-interest option receivables	22.3		%	28.3		%	21.7		%	22.3		%


	Three Months Ended October 31,						Nine Months Ended October 31,						Three Months Ended October 31,						Nine Months Ended October 31,
	2017			2016			2017			2016			2018			2017			2018			2017
Total applications processed	321,373			326,131			909,287			975,363			283,274			321,373			862,324			909,287
Weighted average origination credit score of sales financed⁽¹⁾	611			610			609			610			610			611			609			609
Percent of total applications approved and utilized	29.1		%	32.7		%	31.1		%	35.1		%	28.5		%	29.1		%	30.1		%	31.1		%
Average down payment	2.9		%	3.1		%	3.2		%	3.4		%	2.4		%	2.9		%	2.7		%	3.2		%
Average income of credit customer at origination	$	43,500		$	42,200		$	42,700		$	41,400		$	45,400		$	43,500		$	44,200		$	42,700
Percent of retail sales paid for by:
In-house financing, including down payments received	72.0		%	72.3		%	71.7		%	69.8		%
In-house financing, including down payment received													69.7		%	72.0		%	70.1		%	71.7		%
Third-party financing	15.1		%	16.4		%	15.8		%	15.4		%	15.6		%	15.1		%	15.7		%	15.8		%
Third-party lease-to-own option	5.7		%	5.2		%	5.7		%	5.1		%	8.0		%	5.7		%	7.3		%	5.7		%
	92.8		%	93.9		%	93.2		%	90.3		%	93.3		%	92.8		%	93.1		%	93.2		%


(1)	Credit scores exclude non-scored accounts.


(2)	Accounts that become delinquent after being re-aged are included in both the delinquency and re-aged amounts.

(3)

~~The balance of 60+ days past due as a percentage of total customer portfolio~~First time re-ages related to customers affected by Hurricane Harvey within FEMA-designated disaster areas included in the re-aged balance as of October 31, 2018 and October 31, 2017 ~~reflects~~were 2.2% and 4.8%, respectively, of the ~~impact of first time re-ages related to customers within FEMA-designated Hurricane Harvey disaster areas.~~


~~(4)~~	~~The re-aged balance as a percentage of~~ total customer portfolio ~~as of October 31, 2017 includes $71.8 million in first time re-ages related to customers within FEMA-designated Hurricane Harvey disaster areas.~~balance.

The decrease in the weighted average credit score of outstanding balances from October 31, 2016 to October 31, 2017 was driven by us moving origination of long-term equal-payment, no-interest programs to a third-party, partially offset by underwriting changes made during fiscal year 2017. The underwriting changes were made to reduce credit risk, specifically related to new customers, while identifying opportunities to increase originations to certain existing customers.

Our customer portfolio balance and related allowance for uncollectible accounts are segregated between customer accounts receivable and restructured accounts. Customer accounts receivable include all accounts for which the payment term has not been cumulatively extended over three months or refinanced. Restructured accounts ~~includes~~include all accounts for which payment term has been ~~re-aged~~extended in excess of three months or refinanced.

For customer accounts receivable (excluding restructured accounts), the allowance for uncollectible accounts as a percentage of the outstanding portfolio balance ~~rose from 11.0%~~decreased to 10.7% as of October 31, ~~2016 to~~2018 from 11.1% as of October 31, 2017. The percentage of non-restructured accounts greater than 60 days past due decreased ~~110~~50 basis points ~~compared~~over the prior year period to 7.7% as of October 31, ~~2016 to~~2018 from 8.2% as of October 31, 2017. We expect delinquency levels to continue to decline over time. The decrease in delinquency and changes in expectations for customer performance and cash recoveries on charged-off accounts are reflected in our projection models.

For restructured accounts, the allowance for uncollectible accounts as a percentage of the portfolio balance was ~~37.0%~~34.7% as of October 31, ~~2016~~2018 as compared to 36.7% as of October 31, 2017. This 30200 basis point decrease reflects the impact of improved delinquency ~~rates, partially offset by an increase in charge-offs in the current period compared to a year ago.~~

rates.

The percent of bad debt charge-offs, net of recoveries, to average portfolio balance was ~~13.0%~~12.3% for the three months ended October 31, ~~2016~~2018 as compared to 15.2% for the three months ended October 31, 2017. The ~~increase~~decrease was primarily due to the ~~acceleration~~seasoning of ~~charge-offs related~~loans originated with tighter underwriting standards, improved collections execution and improvements in recoveries due to ~~bankruptcy and legal settlement accounts during the third quarter of the current year.~~enhancements in our collections program.

As of October 31, ~~2017~~2018 and ~~2016,~~2017, balances under no-interest programs included within customer receivables were $331.1 million and $331.6 million, ~~and $434.5 million,~~ respectively. During the first quarter of fiscal year 2017 we shifted our 18- and 24-month equal-payment, no-interest programs to a third-party and reduced the availability of cash-option, no-interest programs to higher risk customers. In the third quarter of fiscal year 2017 we began to issue 18 month cash-option, no-interest program. As a result, a decline in the proportion of accounts financed under no-interest programs is likely to result in an increase in the overall yield recognized.

Liquidity and Capital Resources

We require liquidity and capital resources to finance our operations and future 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 generally finance our operations through a combination of cash flow generated from operations, the use of our ~~revolving credit facility,~~Revolving Credit Facility, and through periodic securitizations of originated customer receivables. We plan to execute periodic securitizations of future originated customer receivables.

We believe, based on our current projections, that we have sufficient sources of liquidity to fund our operations, store expansion and renovation activities, and capital expenditures for at least the next 12 months.

Operating cash flows. For the nine months ended October 31, ~~2017,~~2018, net cash provided by operating activities was ~~$82.7~~$182.1 million compared to ~~$183.0~~$81.9 million for the nine months ended October 31, ~~2016.~~2017. The ~~decrease~~increase in net cash provided by operating activities was primarily driven by an increase in cash ~~used for~~provided by working capital, primarily ~~used~~due to ~~purchase~~more efficient management of inventory, ~~related to seasonal sales activity, a decrease in cash used for accounts payable, a decrease in~~ the ~~amount~~collection of ~~tenant improvement allowances received, partially offset by a decrease in cash used to fund customer receivables,~~an income tax receivable and an increase in net income when adjusted for non-cash activity.

Investing cash flows. For the nine months ended October 31, ~~2017,~~2018, net cash used in investing activities was ~~$12.0~~$22.6 million compared to ~~$41.1~~$12.0 million for the nine months ended October 31, ~~2016.~~2017. The change was primarily the result of ~~lower~~higher capital expenditures due to ~~fewer~~investments in new ~~store openings in the nine months ended October 31, 2017 compared~~stores, renovations and expansions of select existing stores, and technology investments we are making to ~~the comparable prior year period.~~ support long-term growth.

Financing cash flows. For the nine months ended October 31, ~~2017,~~2018, net cash used in financing activities was ~~$81.6~~$182.1 million compared to ~~net cash used in financing activities of $95.1~~$120.3 million for the nine months ended October 31, ~~2016.~~2017. During the nine months ended October 31, ~~2017,~~2018, the ~~2017-A VIE issued asset-backed notes and 2017-A warehouse financing transaction~~issuance of additional funding under the Warehouse Notes resulted in net proceeds ~~to us~~ of ~~approximately $456.7~~$169.7 million, ~~and $78.8 million respectively,~~ net of transaction costs and restricted cash. The proceeds from the ~~2017-A VIE asset-backed notes~~fundings of the Warehouse Notes were used to ~~pay down the entire balance on~~early retire our ~~revolving credit facility~~Series 2016-B Class B Notes (the “2016-B Redeemed Notes”) and ~~for other general corporate purposes. The proceeds from the~~our Series 2017-A ~~warehouse financing transaction were used to pay down the entire balance on our 2016-A asset-backed notes.~~Class B and C Notes (the “2017-A Redeemed Notes”). Cash collections from the securitized receivables were used to make payments on the asset-backed notes of approximately ~~$816.2~~$708.6 million during the nine months ended October 31, ~~2017~~2018 compared to ~~$736.3~~approximately $837.6 million in the comparable prior year period. During the nine months ended October 31, ~~2016,~~2018, net borrowings under our Revolving Credit Facility were $6.1 million compared to $174.5 million for the ~~2016-A~~nine months ended October 31, 2017. During the nine months ended October 31, 2018, the Issuer (as defined below) issued asset-backed notes resulting in net proceeds to us of approximately $355.7 million, net of transaction costs and ~~2016-B~~restricted cash held by the Issuer, which were used to repay indebtedness under the Company’s asset-based credit facility and for other general corporate purposes. During the nine months ended October 31, 2017, the 2017-A VIE issued asset-backed notes resulting in net proceeds to us of approximately ~~$1.0 billion,~~$456.7 million, net of transaction costs and restricted cash held by the ~~2016-A~~2017-A VIE, which were used to pay down the entire balance on our ~~revolving credit facility~~Revolving Credit Facility and for other general corporate purposes.

Senior Notes. On July 1, 2014, we issued $250.0 million of the unsecured Senior Notes due July 2022 bearing interest at 7.25%, (the ~~"Senior Notes"~~“Senior Notes”), pursuant to an indenture dated July 1, 2014 (the ~~"Indenture"~~“Indenture”), among Conn's, Inc., its subsidiary guarantors (the ~~"Guarantors"~~“Guarantors”) and U.S. Bank National Association, as trustee. The effective interest rate of the Senior Notes after giving effect to the discount and issuance costs is 7.8%.

The Indenture restricts the Company's and certain of its subsidiaries' ability to: (i) incur indebtedness; (ii) pay dividends or make other distributions in respect of, or repurchase or redeem, our capital stock ("(“restricted ~~payments"~~payments”); (iii) prepay, redeem or repurchase debt that is junior in right of payment to the notes; (iv) make loans and certain investments; (v) sell assets; (vi) incur liens; (vii) enter into transactions with affiliates; and (viii) consolidate, merge or sell all or substantially all of our assets. These covenants are subject to a number of important exceptions and qualifications. Specifically, limitations on restricted payments are only effective if one or more of the following occurred: (1) a default were to exist under the Indenture, (2) we could not satisfy a debt incurrence test, and (3) the aggregate amount of restricted payments, ~~were~~excluding certain restricted payments permitted under the Indenture, exceeds the sum of (i) 50% of Consolidated Net Income from November 1, 2015 to ~~exceed an~~the end of the most recent fiscal quarter, (ii) 100% of net cash proceeds and the fair market value of certain capital stock and other property received in or exchanged for the sale or issuance of Capital Stock, (iii) amount ~~tied to consolidated net income.~~by which certain indebtedness is reduced upon conversion or exchange for Capital Stock and (iv) certain reductions in Restricted Investments (the sum of clauses (i) through (iv) as of October 31, 2018, the “Consolidate Net Income Threshold Amount”). These limitations, however, are subject to ~~two exceptions:~~certain permitted exceptions, including (1) ~~an exception that permits the payment of up to $375.0 million in restricted payments, and (2)~~ an exception that permits restricted payments regardless of dollar amount so long as, after giving pro forma effect to ~~the~~such dividends and other restricted payments, we would have had a leverage ratio, as defined ~~under~~in the Indenture, of less than or equal to 2.50 to ~~1.0.~~1.0 and (2) a general exception that permits the payment of up to $375.0 million in restricted payments not otherwise permitted under the Indenture (the “Permitted Distribution Amount"). As a result of ~~these exceptions,~~the sum of the Consolidated Net Income Threshold Amount and Permitted Distribution Amount, as of October 31, ~~2017, $179.2~~2018, $207.8 million would have been free from the distribution restriction. ~~However, as a result of the revolving credit facility distribution restrictions, which are further described below, we were restricted from making a distribution as of October 31, 2017.~~ During any time when the Senior Notes are rated

investment grade by either of Moody's Investors Service, Inc. or Standard & Poor's Ratings Services and no default (as defined in the Indenture) has occurred and is continuing, many of such covenants will be suspended and we will cease to be subject to such covenants during such period.

Events of default under the Indenture include customary events, such as a cross-acceleration provision in the event that we fail to make payment of other

indebtedness prior to the expiration of any applicable grace period or upon acceleration of indebtedness prior to its stated maturity date in an amount exceeding $25.0 million, as well as in the event a judgment is entered against us in excess of $25.0 million that is not discharged, bonded or insured.

The asset-backed notes ~~at origination consisted~~consist of the following:

Asset-Backed Notes Original Principal Amount
Net Proceeds⁽¹⁾
Issuance Date Maturity Date Contractual Interest Rate
Effective Interest Rate⁽²⁾
2016-B Class A Notes 391,840
380,033
10/6/2016 10/15/2018 3.73% 5.47%
2016-B Class B Notes 111,960
108,586
10/6/2016 3/15/2019 7.34% 8.03%
2017-A Class A Notes 313,220
304,451
4/19/2017 7/15/2019 2.73% 4.96%
2017-A Class B Notes 106,270
103,300
4/19/2017 2/15/2020 5.11% 5.83%
2017-A Class C Notes 50,340
48,919
4/19/2017 10/15/2021 7.40% 7.91%
2017 Warehouse Class A Notes
79,940
78,777
8/15/2017 8/15/2018
1M CP + 4% ⁽³⁾
7.02%
Total $ 1,053,570
$ 1,024,066



Asset-Backed Notes	Original Principal Amount		Original Net Proceeds ⁽¹⁾		Current Principal Amount		Issuance Date	Maturity Date	Fixed Interest Rate	Effective Interest Rate ⁽²⁾
2017-B Class A Notes	$	361,400	$	358,945	$	26,097	12/20/2017	7/15/2020	2.73%	5.17%
2017-B Class B Notes	132,180		131,281		132,180		12/20/2017	4/15/2021	4.52%	5.23%
2017-B Class C Notes	78,640		77,843		78,640		12/20/2017	11/15/2022	5.95%	6.34%
2018-A Class A Notes	219,200		217,832		154,907		8/15/2018	1/17/2023	3.25%	4.73%
2018-A Class B Notes	69,550		69,020		69,550		8/15/2018	1/17/2023	4.65%	5.43%
2018-A Class C Notes	69,550		68,850		69,550		8/15/2018	1/17/2023	6.02%	6.79%
Warehouse Notes	121,060		118,972		84,409		7/16/2018	1/15/2020	Index + 2.50% ⁽³⁾	6.56%
Total	$	1,051,580	$	1,042,743	$	615,333


(1)	After giving effect to debt issuance costs and restricted cash held by the VIEs.


(2)	For the nine months ended October 31, ~~2017,~~2018, and inclusive of retrospective adjustments to deferred debt issuance costs based on changes in timing of actual and expected cash flows.


(3)	The rate on the ~~2017~~ Warehouse ~~Class A~~ Notes is defined as the ~~one-month commercial paper rate, representing the purchaser's commercial paper cost,~~applicable index plus a 4%2.50% fixed margin.

On ~~May~~February 15, ~~2017,~~2018, affiliates of the Company closed on a $52.2 million financing under a receivables warehouse financing transaction entered into on February 6, 2018 (the “Warehouse Notes”). The net proceeds of the Warehouse Notes were used to prepay in full the 2016-B Redeemed Notes that were still outstanding as of February 15, 2018.

~~been issued by Conn’s Receivables Funding 2016-A, LLC under a securitization transaction entered into on March 17, 2016, that were still outstanding as of August 15, 2017.~~

On August 15, 2017, the Company completed the redemption of the 2016-A Redeemed Notes at an aggregate redemption price of $102.9 million (which was equal to the entire outstanding principal of, plus accrued interest and the call premiums on, the 2016-A Redeemed Notes). The net funds used to call the notes was $78.6 million, which is equal to the redemption price less adjustments of $24.3 million for funds held in reserve and collection accounts in accordance with the terms of the applicable indenture governing the 2016-A2016-B Redeemed Notes. The difference between the net proceeds of the Warehouse ~~Financing~~Notes and the carrying value of the ~~2016-A~~2016-B Redeemed Notes at redemption was used to fund fees, expenses and a reserve account related to the Warehouse facility. In connection with the early redemption of the ~~2016-A~~2016-B Redeemed Notes, we wrote-off ~~$0.5~~$0.4 million as a loss on extinguishment of debt.

used to prepay in full the Series 2017-A Class B and C Notes (the “2017-A Redeemed Notes”) that were still outstanding as of July 16, 2018.

On August 15, 2018, an affiliate of the Company (the “Issuer”) completed the issuance ~~costs.~~

The ~~Third~~Fourth Amendment, among other things, (a) extends the maturity date of the credit facility ~~one year~~ to ~~October 30, 2019;~~May 23, 2022; (b) provides for a reduction in the aggregate commitments from ~~$810~~$750 million to ~~$750~~$650 million; (c) amends the ~~minimum~~method by which the applicable margin is calculated to be based on the total leverage ratio (ratio of total liabilities less the sum of qualified cash and ABS qualified cash to tangible net worth), with the applicable margin ranging from 2.50% to 3.25% for LIBOR loans and from 1.50% to 2.25% for base rate loans; (d) eliminates a $10 million availability block in calculating the borrowing base; (e) increases the maximum accounts receivable advance rate from 75% to 80%; (f) decreases the maximum unused line fee by 25 basis points, from 75 basis points to 50 basis points; (g) eliminates the cash recovery covenant; (h) modifies the maximum inventory component of the borrowing base from $175 million to 33.33% of revolving loan commitments in effect; (i) modifies the interest coverage ~~ratio~~ covenant ~~to reduce~~such that the minimum interest coverage ~~ratio to 1.10x as of~~on a trailing two quarter basis is 1.5x and the last day of the fiscal quarter ending October 31, 2017 and to 1.25x as of the last day of each fiscal quarter thereafter, beginning with the fiscal quarter ending January 31, 2018; (d) sets the applicable margin at 3.50% for LIBOR loans and 2.50% for Base Rate loans until the Company demonstrates anminimum interest coverage ~~ratio of equal to or greater than 1.10x for the fiscal~~during any single quarter ending October 31, 2017, at which point the applicable margin will revert to being determined according to the existing pricing grid based on facility availability; (e) reduces the minimum cash recovery percentage on the contracts it owns and manages from 4.50% to 4.45% for the first nine months of each fiscal year, and from 4.25% to 4.20% for the last three months of each fiscal year; (f) amends the definition of “EBITDA” to, among other things, exclude the impact of non-cash asset write-offs relating to construction in process; (g) amends the definition of “Interest Expense” to exclude certain non-interest expenses; (h) amends various definitions and other related provisions to clarify the Company’s ability to undertake permitted securitization transactions; (i) increases the number of equity cures that may be exercised during the term of the agreement from one time to two times, andis 1.0x; (j) increases the maximum ~~amount of each such cure~~capital expenditures from ~~$10~~$75 million to ~~$20 million;~~$100 million during any period of four consecutive fiscal quarters; and ~~(j)~~(k) modifies the ~~calculations~~ability of ~~“Tangible Net Worth” and “Interest Coverage Ratio”~~the Company to ~~deduct certain amounts attributable~~effect future securitizations of its customer receivables portfolio, including adding the ability of the Company to enter into revolving ABS transactions.

Subsequent to the ~~difference between a calculated loss reserve and~~adoption of the ~~Company’s recorded loss reserve on its customer receivables.~~

the ~~revolving credit facility~~Revolving Credit Facility without restriction. As of October 31, ~~2017,~~2018, we were ~~unable to repay~~restricted from making distributions, including repayments of the Senior Notes or ~~make~~ other distributions, in excess of $282.5 million as a result of the ~~revolving credit facility~~Revolving Credit Facility distribution restrictions. The ~~revolving credit facility~~Revolving Credit Facility contains customary default provisions, which, if triggered, could result in acceleration of all amounts outstanding under the ~~revolving credit facility.~~

Debt Covenants. We were in compliance with our debt covenants ~~as amended,~~ at October 31, ~~2017.~~2018. A summary of the significant financial covenants that govern our ~~revolving credit facility,~~Revolving Credit Facility, as amended, compared to our actual compliance status at October 31, ~~2017~~2018 is presented below:

Actual Required
Minimum/
Maximum
Interest Coverage Ratio must equal or exceed minimum 1.75:1.00 1.10:1.00
Leverage Ratio must not exceed maximum 2.49:1.00 4.00:1.00
ABS Excluded Leverage Ratio must not exceed maximum 1.71:1.00 2.00:1.00
Cash Recovery Percent must exceed stated amount 4.80% 4.45%
Capital Expenditures, net, must not exceed maximum $1.0 million $75.0 million



	Actual	Required Minimum/ Maximum
Interest Coverage Ratio for the quarter must equal or exceed minimum	4.07:1.00	1.00:1.00
Interest Coverage Ratio for the trailing two quarters must equal or exceed minimum	3.97:1.00	1.50:1.00
Leverage Ratio must not exceed maximum	2.01:1.00	4.00:1.00
ABS Excluded Leverage Ratio must not exceed maximum	1.08:1.00	2.00:1.00
Capital Expenditures, net, must not exceed maximum	$16.0 million	$100.0 million

All capitalized terms in the above table are defined by the ~~revolving credit facility,~~Revolving Credit Facility, as amended, and may or may not agree directly to the financial statement captions in this document. The covenants are calculated quarterly, except for the ~~Cash Recovery Percent, which is calculated monthly on a trailing three-month basis, and~~ Capital Expenditures, which is calculated for a period of four consecutive fiscal quarters, as of the end of each fiscal quarter.

Capital ~~expenditures.~~Expenditures. We lease the majority of our stores under operating leases, and our plans for future store locations ~~include primarily~~anticipate operating leases under existing GAAP, but do not exclude store ownership. Our capital expenditures for future new store projects should primarily be for our tenant improvements to the property leased (including any new distribution centers and cross-dock facilities), the cost of which is estimated to be between ~~$1.3~~$1.5 million and ~~$1.5~~$2.0 million per store (before tenant improvement allowances), and for our existing store remodels, estimated to range between ~~$0.5~~$0.3 million and ~~$1.0~~$1.5 million per store remodel (before tenant improvement allowances), depending on store size. In the event we purchase existing properties, our capital expenditures will depend on the particular property and whether it is improved when purchased. We are continuously reviewing new relationships and funding sources and alternatives for new stores, which may include ~~"sale-leaseback"~~“sale-leaseback” or direct ~~"purchase-lease"~~“purchase-lease” programs, as well as other funding sources for our purchase and construction of those projects. If we do not purchase the real property for new stores, our direct cash needs should include only our capital expenditures for tenant improvements to leased properties and our remodel programs for existing stores. We ~~have~~ opened ~~three~~five new stores during the nine months ended October 31, 2018 and currently plan to open a total of seven new stores during fiscal year ~~2018. We do not~~2019. Additionally, we plan to ~~open any additional stores~~upgrade several of our facilities and continue to enhance our IT systems during fiscal year ~~2018.~~2019. Our anticipated capital expenditures for the remainder of fiscal year ~~2018~~2019 are between $13.0 million and ~~$17.0~~$15.0 million.

Cash Flow

We periodically evaluate our liquidity requirements, capital needs and availability of resources in view of inventory levels, expansion plans, debt service requirements and other operating cash needs. To meet our short- and long-term liquidity requirements, including payment of operating expenses and repayment of debt, we rely primarily on cash from operations. As of October 31, ~~2017,~~2018, beyond cash generated from operations we had (i) immediately available borrowing capacity of ~~$110.5~~$401.6 million under our ~~revolving credit facility,~~Revolving Credit Facility, (ii) ~~$284.8~~$162.8 million that may become available under our ~~revolving credit facility~~Revolving Credit Facility if we grow the balance of eligible customer receivables and our total eligible inventory balances and (iii) ~~$12.7~~$3.5 million of cash on hand. However, we have in the past sought to raise additional capital.

We expect that, for the next 12 months, cash generated from operations, proceeds from potential accounts receivable securitizations and our ~~revolving credit facility~~Revolving Credit Facility will be sufficient to provide us the ability to fund our operations, provide the increased working capital necessary to support our strategy and fund planned capital expenditures discussed above in Capital expenditures.

We may repurchase or otherwise retire our debt and take other steps to reduce our debt or otherwise improve our financial position. These actions could include open market debt repurchases, negotiated repurchases, other retirements of outstanding debt and opportunistic refinancing of debt. The amount of debt that may be repurchased or otherwise retired, if any, will depend on market conditions, the Company’s cash position, compliance with debt covenant and restrictions and other considerations.

Off-Balance Sheet Liabilities and Other Contractual Obligations

We do not have any off-balance sheet arrangements as defined by Item 303(a)(4) of Regulation S-K. The following table presents a summary of our minimum contractual commitments and obligations as of October 31, ~~2017:~~2018:

Payments due by period
(in thousands) Total
Less Than 1
Year

1-3
Years

3-5
Years

More Than
5 Years
Debt, including estimated interest payments⁽¹⁾:

Revolving credit facility⁽¹⁾
$ 385,394
$ 16,720
$ 368,674
$ —
$ —
Senior Notes⁽²⁾
304,464
16,458
32,915
255,091

2016B Class A Notes⁽²⁾
8,868
8,868

2016B Class B Notes⁽²⁾
123,217
8,218
114,999

2017A Class A Notes⁽²⁾
135,611
3,538
132,073

2017A Class B Notes⁽²⁾
118,722
5,430
113,292

2017A Class C Notes⁽²⁾
65,088
3,725
7,450
53,913

2017 Warehouse Class A Notes⁽¹⁾

59,353
59,353

Capital lease obligations 7,668
1,281
1,540
826
4,021
Operating leases:

Real estate 434,072
58,571
116,284
109,474
149,743
Equipment 1,521
1,003
505
13
—
Contractual commitments⁽³⁾
111,704
107,030
4,575
99
—
Total $ 1,755,682
$ 290,195
$ 892,307
$ 419,416
$ 153,764



			Payments due by period
(in thousands)	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Debt, including estimated interest payments ⁽¹⁾:
Revolving Credit Facility ⁽¹⁾	$	97,958	$	4,186	$	8,371	$	85,401	$	—
Senior Notes	288,006		16,458		32,915		238,633		—
2017-B Class A Notes ⁽²⁾	27,313		712		26,601		—		—
2017-B Class B Notes ⁽²⁾	146,863		5,975		140,888		—		—
2017-B Class C Notes ⁽²⁾	97,561		4,679		9,358		83,524		—
2018-A Class A Notes ⁽²⁾	176,135		5,034		10,069		161,032		—
2018-A Class B Notes ⁽²⁾	83,186		3,234		6,468		73,484		—
2018-A Class C Notes ⁽²⁾	87,204		4,187		8,374		74,643		—
Warehouse Notes ⁽¹⁾	89,549		4,254		85,295		—		—
Capital lease obligations	7,271		1,151		1,328		953		3,839
Operating leases:
Real estate	452,655		64,714		127,145		118,001		142,795
Equipment	2,442		1,184		1,000		258		—
Contractual commitments ⁽³⁾	132,466		127,176		5,270		20		—
Total	$	1,688,609	$	242,944	$	463,082	$	835,949	$	146,634


(1)	Estimated interest payments are based on the outstanding balance as of October 31, ~~2017~~2018 and the interest rate in effect at that time.


(2)	The payments due by period for the Senior Notes and asset-backed notes were based on their respective maturity dates atand their respective fixed annual interest rate. Actual principal and interest payments ~~will be provided based~~ on the asset-backed notes will reflect actual proceeds from the securitized customer accounts receivables.


(3)	Contractual commitments primarily includes commitments to purchase inventory of ~~$100.7 million, with the remaining commitments for advertising and other services. The timing of the payments is subject to change based upon actual receipt and the terms of payment with the vendor.~~$111.4 million.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires us to make estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Certain accounting policies are considered ~~"critical~~“critical accounting ~~policies"~~policies” because they are particularly dependent on estimates made by us about matters that are inherently uncertain and could have a material impact to our consolidated financial statements. We base our estimates on historical experience and on other assumptions that we believe are reasonable. As a result, actual results could differ because of the use of estimates. The description of critical accounting policies is included in our ~~Annual Report on~~ Form 10-K for the fiscal year ended January 31, ~~2017.~~2018 (the “2018 Form 10-K”) , as updated by our Form 8-K filed with the SEC on November 23, 2018.

Recent Accounting Pronouncements

The information related to recent accounting pronouncements as set forth in Note 1, Summary of Significant Accounting Policies, of the Condensed Consolidated Financial Statements in Part I, Item 1, of this quarterly report on Form 10-Q is incorporated herein by reference.


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The market risk inherent in our financial instruments represents the potential loss arising from adverse changes in interest rates. We have not been materially impacted by fluctuations in foreign currency exchange rates, as substantially all of our business is transacted in, and is expected to continue to be transacted in, U.S. dollars or U.S. dollar-based currencies. Our Senior Notes and asset-backed notes bear interest at a fixed rate and would not be affected by interest rate changes.

Loans under the ~~revolving credit facility~~Revolving Credit Facility bear interest, at our option, at a rate ~~equal to~~of LIBOR plus the applicable margin at 3.50% for LIBOR loans and 2.50% for base rate loans until the Company demonstrates an interest coverage ratio of equal to or greater than 1.10x for the fiscal quarter ending October 31, 2017, at which point the applicable margin will revert to being determined according to the existing pricing grid based on facility availability which specifies a margin ranging from ~~2.75%~~2.50% to 3.25% per annum (depending on quarterly average net availability under the borrowing base) or the alternate base rate plus a margin ranging

from ~~1.75%~~1.50% to 2.25% per annum (depending on quarterly average net availability under the borrowing base). The alternate base rate is a rate per annum equal to the greatest of the prime rate announced by Bank of America, N.A., the federal funds rate plus 0.5%, or LIBOR for a 30-day interest period plus 1.0%. Accordingly, changes in our quarterly average net availability under the borrowing base and LIBOR or the alternate base rate will affect the interest rate on, and therefore our costs under, the ~~revolving credit facility.~~Revolving Credit Facility. As of October 31, ~~2017,~~2018, the balance outstanding under our ~~revolving credit facility~~Revolving Credit Facility was ~~$352.0~~$83.1 million. A 100 basis point increase in interest rates on the ~~revolving credit facility~~Revolving Credit Facility would increase our borrowing costs by ~~$3.5~~$0.8 million over a 12-month period, based on the balance outstanding ~~as of~~at October 31, ~~2017.~~

For additional information regarding quantitative and qualitative market risks, as updated by the preceding paragraphs, see Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," of our Annual Report on Form 10-K for the fiscal year ended January 31, 2017. 2018.


ITEM 4.	CONTROLS AND PROCEDURES

Based on management's evaluation (with the participation of our Chief Executive Officer ~~("CEO"~~(“CEO”) and our Chief Financial Officer ~~("CFO"~~(“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"~~“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 quarter ended October 31, ~~2017,~~2018, 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)~~Act) that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.


PART II.	OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS

The information set forth in Note 7,6, Contingencies, of the Consolidated Financial Statements in Part I, Item 1, of this quarterly report on Form 10-Q is incorporated herein by reference.


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 I, Item 1A, of our ~~Annual Report on~~2018 Form 10-K ~~for~~and Item 1A, Risk Factors, in the ~~year ended January 31, 2017.~~Q2 FY19 Form 10-Q. The risks described in our 2018 Form 10-K and in the Q2 FY19 Form 10-Q are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.


ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.


ITEM 3.	DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 4.	MINE SAFETY ~~DISCLOSURES~~DISCLOSURE

Not applicable.


ITEM 5.	OTHER INFORMATION

None.


ITEM 6.	EXHIBITS

The exhibits ~~required pursuant to Item 6~~filed as part of ~~Form 10-Q~~this report are ~~listed~~as follows (exhibits incorporated by reference are set forth with the name of the registrant, the type of report and registration number or last date of the period for which it was filed, and the exhibit number in ~~the Exhibit Index filed herewith, which Exhibit Index is incorporated herein by reference.~~such filing):

~~EXHIBIT INDEX~~



Exhibit Number		Description of Document

3.1		Certificate of Incorporation of Conn's, Inc. (incorporated herein by reference to Exhibit 3.1 to Conn's, Inc. registration statement on Form S-1 (File No. 333-109046) as filed with the Securities and Exchange Commission on September 23, 2003)
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 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 (incorporated herein by reference to Exhibit 3.1.2 to Form 10-Q for the quarterly period ended April 30, 2012 (File No. 001-34956) as filed with the Securities and Exchange Commission on June 5, 2012)
3.1.3		Certificate of Correction to the Certificate of Amendment to Conn's, Inc. Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1.3 to Form 10-K for the annual period ended January 31, 2014 (File No. 001-34956) as filed with the Securities and Exchange Commission on March 27, 2014)
3.1.4		Certificate of Amendment to the Certificate of Incorporation of Conn's, Inc. as filed on May 29, 2014 (incorporated herein by reference to Exhibit 3.1.4 to Conn's, Inc. Form 10-Q for the quarterly period ended April 30, 2014 (File No. 001-34956) as filed with the Securities and Exchange Commission on June 2, 2014)
~~3.2~~3.2*		Second Amended and Restated Bylaws of Conn's, Inc. effective as of ~~December 3, 2013~~November 27, 2018
4.1		Specimen of certificate for shares of Conn's, Inc.'s common stock (incorporated herein by reference to Exhibit ~~3.2~~4.1 to registration statement on Form ~~10-Q for the quarterly period ended October 31, 2013~~S-1 (File No. ~~001-34956)~~333-109046) as filed with the Securities and Exchange Commission on ~~December 6, 2013)~~October 29, 2003)
~~3.3~~4.2		Certificate of Designations of Series A Junior Participating Preferred Stock of Conn's, Inc. (incorporated herein by reference to Exhibit 3.1 to Form 8-K (File No. 001-34956) filed with the Securities and Exchange Commission on October 6, 2014)
~~3.4~~		Certificate of Elimination of Certificate of Designations of Series A Junior Participating Preferred Stock of Conn’s Inc., dated September 10, 2015 (incorporated herein by reference to Exhibit 3.1 to Form 8-K (File No. 001-34956) as filed with the Securities and Exchange Commission on September 11, 2015)
~~4.1~~		Base Indenture, dated as of ~~February 24, 2017, as amended and made effective as of~~ August ~~8, 2017~~15, 2018, by and ~~among Conn’s Receivables Warehouse, LLC, Conn Appliances, Inc., Wells Fargo Bank, National Association, Conn’s Receivables Warehouse Trust,~~between the Issuer and ~~Credit Suisse AG, New York Branch~~the Trustee (incorporated herein by reference to Exhibit 4.1 to Form 8-K (File No. 001-34956) as filed with the Securities and Exchange Commission on August ~~14, 2017)~~17, 2018)
~~10.1~~4.3		~~Note Purchase Agreement,~~Series 2018-A Supplement to the Base Indenture, dated ~~February 24, 2017, as amended and made effective~~ as of August ~~8, 2017,~~15, 2018, by and ~~among Conn’s Receivables Warehouse, LLC, Conn Appliances Receivables Funding, LLC, Conn Appliances, Inc.,~~between the ~~conduits from time to time party thereto, Credit Suisse AG, Cayman Islands Branch~~Issuer and ~~Credit Suisse AG, New York Branch~~the Trustee (incorporated herein by reference to Exhibit ~~1.1~~4.2 to Form 8-K (File No. 001-34956) as filed with the Securities and Exchange Commission on August ~~14, 2017)~~17, 2018)
~~10.2~~10.1		~~Second~~First Receivables Purchase Agreement, dated ~~February 24, 2017, as amended~~August 15, 2018, by and ~~made effective as of August 8, 2017, among Conn’s Receivables Warehouse, LLC, Conn Appliances Receivables Funding, LLC, Conn Credit I, L.P.,~~between the Seller and ~~Conn’s Receivables Warehouse Trust~~the Depositor (incorporated herein by reference to Exhibit 10.1 to Form 8-K (File No. 001-34956) as filed with the Securities and Exchange Commission on August ~~14, 2017)~~17, 2018)
~~10.3~~10.2		~~Servicing~~Second Receivables Purchase Agreement, dated ~~as of February 24, 2017, as amended~~August 15, 2018, by and ~~made effective as of August 8, 2017, among Conn’s~~between the Seller and the Receivables ~~Warehouse, LLC, Conn’s Receivables Warehouse~~ Trust ~~Conn Appliances, Inc. and Wells Fargo Bank, National Association~~ (incorporated herein by reference to Exhibit 10.2 to Form 8-K (File No. 001-34956) as filed with the Securities and Exchange Commission on August ~~14, 2017)~~17, 2018)
~~11.1~~10.3		~~Statement re: computation of earnings per share~~Purchase and Sale Agreement, dated August 15, 2018, by and between the Seller and the Receivables Trust (incorporated herein by reference to ~~Note 1~~Exhibit 10.3 to Form 8-K (File No. 001-34956) as filed with the ~~condensed consolidated financial statements included in this~~Securities and Exchange Commission on August 17, 2018)
10.4		Servicing Agreement dated as of August 15, 2018, by and among the Issuer, the Receivables Trust, the Servicer and the Trustee (incorporated herein by reference to Exhibit 10.4 to Form ~~10-Q)~~8-K (File No. 001-34956) as filed with the Securities and Exchange Commission on August 17, 2018)
31.1		Rule 13a-14(a)/15d-14(a) Certification (Chief Executive Officer) (filed herewith)
31.2		Rule 13a-14(d)/15d-14(d) 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 third quarter of fiscal year ~~2018,~~2019, filed with the SEC on December ~~7, 2017,~~4, 2018, formatted in Extensible Business Reporting Language (XBRL): (i) the consolidated balance sheets at October 31, ~~2017~~2018 and January 31, ~~2017,~~2018, (ii) the consolidated statements of ~~operations~~income for the three and nine months ended October 31, ~~2017~~2018 and ~~2016,~~2017, (iii) the consolidated statements of cash flows for the nine months ended October 31, ~~2017~~2018 and ~~2016~~2017 and (iv) the notes to consolidated financial ~~statements~~statements.

*Filed herewith

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.

	Date:	December ~~7, 2017~~4, 2018

	By:	/s/ Lee A. Wright
		Lee A. Wright
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer and duly authorized to sign this report on behalf of the registrant)



Asset-Backed Notes	Original Principal Amount		Net Proceeds⁽¹⁾		Issuance Date	Maturity Date	Contractual Interest Rate	Effective Interest Rate⁽²⁾
2016-B Class A Notes	391,840		380,033		10/6/2016	10/15/2018	3.73%	5.47%
2016-B Class B Notes	111,960		108,586		10/6/2016	3/15/2019	7.34%	8.03%
2017-A Class A Notes	313,220		304,451		4/19/2017	7/15/2019	2.73%	4.96%
2017-A Class B Notes	106,270		103,300		4/19/2017	2/15/2020	5.11%	5.83%
2017-A Class C Notes	50,340		48,919		4/19/2017	10/15/2021	7.40%	7.91%
2017 Warehouse Class A Notes	79,940		78,777		8/15/2017	8/15/2018	1M CP + 4% ⁽³⁾	7.02%
Total	$	1,053,570	$	1,024,066



	Actual	Required Minimum/ Maximum
Interest Coverage Ratio must equal or exceed minimum	1.75:1.00	1.10:1.00
Leverage Ratio must not exceed maximum	2.49:1.00	4.00:1.00
ABS Excluded Leverage Ratio must not exceed maximum	1.71:1.00	2.00:1.00
Cash Recovery Percent must exceed stated amount	4.80%	4.45%
Capital Expenditures, net, must not exceed maximum	$1.0 million	$75.0 million