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, 2018~~April 30, 2019



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,~~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)

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

~~Registrant's~~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)

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



Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share	CONN	NASDAQ Global Select Market

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 every Interactive Data File required to be submitted 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 accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	o	Accelerated filer	ý

Non-accelerated filer	o	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~~issuer’s classes of common stock, as of ~~November 27, 2018:~~May 24, 2019:



Class		Outstanding
Common stock, $0.01 par value per share		~~31,727,947~~31,921,875

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

FORM 10-Q

FOR THE FISCAL QUARTER ENDED ~~OCTOBER 31, 2018~~APRIL 30, 2019

TABLE OF CONTENTS



		Page No.
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Income	2
	Condensed Consolidated Statement of Shareholders’ Equity	3
	Condensed Consolidated Statements of Cash Flows	34
	Notes to Condensed Consolidated Financial Statements	45
Item 2.	~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations	2926
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4539
Item 4.	Controls and Procedures	4639
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	4639
Item 1A.	Risk Factors	4639
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4639
Item 3.	Defaults Upon Senior Securities	4639
Item 4.	Mine Safety Disclosures	4639
Item 5.	Other Information	4639
Item 6.	Exhibits	4740
	Exhibit Index	4740
	Signature	4841

This Quarterly Report on Form 10-Q includes our trademarks such as ~~“Conn's,~~“Conn’s,” ~~“Conn's~~“Conn’s HomePlus,” “YE$ YOU’RE APPROVED,” “YES Money,” “YE$ Money,” “YES Lease,” “YE$ Lease,” “$i Estas Aprobado,” and our logos, which are protected under applicable intellectual property laws and are the property of ~~Conn's,~~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 “we,” “our,” “us,” “the Company,” “Conn’s” or “CONN” refer to ~~Conn's,~~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,~~CONN’S, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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


	October 31, 2018		January 31, 2018		April 30, 2019		January 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	3,492	$	9,286	$	9,767	$	5,912
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
Restricted cash (includes VIE balances of $76,443 and $57,475, respectively)					78,043		59,025
Customer accounts receivable, net of allowances (includes VIE balances of $426,229 and $324,064, respectively)					642,385		652,769
Other accounts receivable	63,752		71,186		57,660		67,078
Inventories	227,164		211,894		213,102		220,034
Income taxes receivable	556		32,362		3,966		407
Prepaid expenses and other current assets	15,164		31,592		14,279		9,169
Total current assets	1,010,567		1,080,017		1,019,202		1,014,394
Long-term portion of customer accounts receivable, net of allowances (includes VIE balance of $326,657 and $455,002, respectively)	654,320		650,608
Long-term portion of customer accounts receivable, net of allowances (includes VIE balances of $375,668 and $230,901, respectively)					652,879		686,344
Property and equipment, net	146,326		143,152		153,696		148,983
Operating lease right-of-use assets					230,393		—
Deferred income taxes	23,157		21,565		24,863		27,535
Other assets	6,642		5,457		9,251		7,651
Total assets	$	1,841,012	$	1,900,799	$	2,090,284	$	1,884,907
Liabilities and Stockholders’ Equity
Current liabilities:
Current maturities of capital lease obligations	$	804	$	907
Current maturities of debt and finance lease obligations (includes VIE balances of $24,485 and $53,635, respectively)					$	25,191	$	54,109
Accounts payable	110,359		71,617		57,266		71,118
Accrued compensation and related expenses	19,614		21,366		13,464		27,052
Accrued expenses	60,654		44,807		55,422		54,381
Operating lease liability - current					23,958		—
Income taxes payable	7,339		2,939		1,830		8,902
Deferred revenues and other credits	22,206		22,475		11,317		22,006
Total current liabilities	220,976		164,111		188,448		237,568
Deferred rent	90,410		87,003		—		93,127
Long-term debt and capital lease obligations (includes VIE balance of $611,353 and $787,979, respectively)	920,366		1,090,105
Operating lease liability - non current					311,238		—
Long-term debt and finance lease obligations (includes VIE balances of $692,017 and $407,993, respectively)					919,250		901,222
Other long-term liabilities	22,226		24,512		23,529		33,015
Total liabilities	1,253,978		1,365,731		1,442,465		1,264,932
Commitments and contingencies
Stockholders’ equity:
Preferred stock ($0.01 par value, 1,000,000 shares authorized; none issued or outstanding)	—		—		—		—
Common stock ($0.01 par value, 100,000,000 shares authorized; 31,726,635 and 31,435,775 shares issued, respectively)	317		314
Common stock ($0.01 par value, 100,000,000 shares authorized; 31,936,526 and 31,788,162 shares issued, respectively)					319		318
Additional paid-in capital	107,720		101,087		113,359		111,185
Retained earnings	478,997		433,667		534,141		508,472
Total stockholders’ equity	587,034		535,068		647,819		619,975
Total liabilities and stockholders' equity	$	1,841,012	$	1,900,799
Total liabilities and stockholders’ equity					$	2,090,284	$	1,884,907

See notes to condensed consolidated financial statements.

~~CONN'S,~~

Table of Contents

CONN’S, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited and in thousands, except per share amounts)


	Three Months Ended October 31,				Nine Months Ended October 31,				Three Months Ended April 30,
	2018		2017		2018		2017		2019			2018
Revenues:
Product sales	$	256,731	$	263,786	$	773,224	$	774,741	$	234,445		$	249,314
Repair service agreement commissions	23,579		24,488		72,104		72,703		24,024			22,863
Service revenues	3,564		3,534		10,615		10,062		3,510			3,579
Total net sales	283,874		291,808		855,943		857,506		261,979			275,756
Finance charges and other revenues	89,950		81,364		260,888		238,139		91,533			82,631
Total revenues	373,824		373,172		1,116,831		1,095,645		353,512			358,387
Costs and expenses:
Cost of goods sold	166,886		175,591		507,102		519,847		157,228			166,589
Selling, general and administrative expense	118,380		114,355		353,948		332,524		117,914			114,878
Provision for bad debts	47,548		56,512		142,455		161,891		40,046			44,156
Charges and credits	5,537		5,861		5,837		11,156		(695		)	—
Total costs and expenses	338,351		352,319		1,009,342		1,025,418		314,493			325,623
Operating income	35,473		20,853		107,489		70,227		39,019			32,764
Interest expense	15,098		18,095		47,484		62,142		14,497			16,820
Loss on extinguishment of debt	—		461		1,773		2,907		—			406
Income before income taxes	20,375		2,297		58,232		5,178		24,522			15,538
Provision for income taxes	5,745		728		13,859		1,916		5,013			2,806
Net income	$	14,630	$	1,569	$	44,373	$	3,262	$	19,509		$	12,732
Income per share:
Basic	$	0.46	$	0.05	$	1.40	$	0.10	$	0.61		$	0.40
Diluted	$	0.45	$	0.05	$	1.38	$	0.10	$	0.60		$	0.39
Weighted average common shares outstanding:
Basic	31,712,862		31,292,913		31,636,270		31,121,177		31,882,003			31,540,684
Diluted	32,321,874		31,764,594		32,251,952		31,457,420		32,443,884			32,452,864

See notes to condensed consolidated financial statements.

~~CONN'S,~~

Table of Contents

CONN’S, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited and in thousands, except for number of shares)



				Additional Paid-in Capital
	Common Stock						Retained Earnings
	Shares	Amount					Retained Earnings		Total
Balance January 31, 2019	31,788,162	$	318	$	111,185		$	508,472	$	619,975
Adoption of ASU 2016-02	—	—		—			6,160		6,160
Exercise of options and vesting of restricted stock, net of withholding tax	136,206	1		(1,241		)	—		(1,240		)
Issuance of common stock under Employee Stock Purchase Plan	12,158	—		198			—		198
Stock-based compensation	—	—		3,217			—		3,217
Net income	—	—		—			19,509		19,509
Balance April 30, 2019	31,936,526	$	319	$	113,359		$	534,141	$	647,819



				Additional Paid-in Capital
	Common Stock						Retained Earnings
	Shares	Amount					Retained Earnings		Total
Balance January 31, 2018	31,435,775	$	314	$	101,087		$	433,667	$	535,068
Adoption of ASU 2014-09	—	—		—			957		957
Exercise of options and vesting of restricted stock, net of withholding tax	143,021	2		(1,850		)	—		(1,848		)
Issuance of common stock under Employee Stock Purchase Plan	8,031	—		226			—		226
Stock-based compensation	—	—		2,520			—		2,520
Net income	—	—		—			12,732		12,732
Balance April 30, 2018	31,586,827	$	316	$	101,983		$	447,356	$	549,655

See notes to condensed consolidated financial statements.

Table of Contents

CONN’S, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in thousands)


	Nine Months Ended October 31,						Three Months Ended April 30,
	2018			2017			2019			2018
Cash flows from operating activities:
Net income	$	44,373		$	3,262		$	19,509		$	12,732
Adjustments to reconcile net income to net cash from operating activities:
Depreciation	23,262			23,138			8,852			7,660
Amortization of right-of-use asset							6,739			—
Amortization of debt issuance costs	8,795			13,157			1,773			3,292
Provision for bad debts and uncollectible interest	179,702			192,354			52,330			55,660
Stock-based compensation expense	8,514			5,899			3,217			2,520
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
Charges, net of credits, for facility relocations							(695		)	—
Deferred income taxes							1,224			(742		)
Tenant improvement allowances received from landlords	9,532			5,072			4,807			2,130
Change in operating assets and liabilities:
Customer accounts receivable	(176,195		)	(126,654		)	(8,352		)	(21,635		)
Other accounts receivables	10,589			5,641			1,500			(883		)
Inventories	(15,269		)	(70,623		)	6,932			21,582
Other assets	16,427			964			(7,164		)	15,724
Accounts payable	35,357			8,186			(13,852		)	11,055
Accrued expenses	13,505			21,371			(11,149		)	(9,081		)
Operating leases							(4,499		)	—
Income taxes	36,205			151			(12,212		)	38,556
Deferred rent, revenues and other credits	(10,236		)	(4,971		)	700			(3,231		)
Net cash provided by operating activities	182,094			81,899			49,660			135,339
Cash flows from investing activities:
Purchase of property and equipment	(22,609		)	(11,995		)
Purchases of property and equipment							(13,119		)	(6,169		)
Net cash used in investing activities	(22,609		)	(11,995		)	(13,119		)	(6,169		)
Cash flows from financing activities:
Proceeds from issuance of asset-backed notes	358,300			469,814			381,790			—
Payments on asset-backed notes	(619,674		)	(814,568		)	(95,214		)	(232,584		)
Borrowings from Revolving Credit Facility	1,266,333			1,257,052
Payments on Revolving Credit Facility	(1,260,283		)	(1,082,552		)
Borrowings from revolving credit facility							323,138			393,158
Payments on revolving credit facility							(589,638		)	(322,608		)
Borrowings from warehouse facility	173,286			79,940			—			52,226
Payments on warehouse facility	(88,876		)	(23,066		)	(28,951		)	(29,905		)
Payments for debt issuance costs and amendment fees	(7,381		)	(8,172		)
Payments of debt issuance costs and amendment fees							(3,442		)	(533		)
Proceeds from stock issued under employee benefit plans	1,055			3,011			403			267
Tax payments associated with equity-based compensation transactions	(2,931		)	(570		)	(1,454		)	(1,888		)
Payments from extinguishment of debt	(1,177		)	(837		)
Payment from extinguishment of debt							—			(294		)
Other	(760		)	(379		)	(300		)	(253		)
Net cash used in financing activities	(182,108		)	(120,327		)	(13,668		)	(142,414		)
Net change in cash, cash equivalents and restricted cash	(22,623		)	(50,423		)	22,873			(13,244		)
Cash, cash equivalents and restricted cash, beginning of period	96,158			134,264			64,937			96,158
Cash, cash equivalents and restricted cash, end of period	$	73,535		$	83,841		$	87,810		$	82,914
Non-cash investing and financing activities:
Capital lease asset additions and related obligations	$	508		$	3,196
Right-of-use assets obtained in exchange for new finance lease liabilities							$	436		$	—
Right-of-use assets obtained in exchange for new operating lease liabilities							$	22,030		$	—
Property and equipment purchases not yet paid	$	5,454		$	1,021		$	5,594		$	1,759
Supplemental cash flow data:
Cash interest paid	$	33,854		$	44,561		$	8,605		$	8,838
Cash income taxes paid (refunded), net	$	(20,468	)	$	2,878
Cash income taxes paid, net							$	15,999		$	35,007

See notes to condensed consolidated financial statements.

~~CONN'S,~~

Table of Contents

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Business. ~~Conn's,~~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~~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~~“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.~~decisions or collection efforts. 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 of ~~Conn's,~~Conn’s, Inc. and its wholly-owned subsidiaries, including ~~the VIEs,~~its Variable Interest Entities (“VIEs”), have been prepared by management in accordance with U.S. generally accepted accounting principles ~~in the United States 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 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, ~~2018~~2019 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, ~~2018~~2019 (the “~~2018~~“2019 Form 10-K”) ~~which was~~ filed with the United States Securities and Exchange Commission (the “~~SEC”~~“SEC”) on ~~April 5, 2018, as updated by our Form 8-K filed with the SEC on November 23, 2018.~~March 26, 2019.

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

Variable Interest Entities. 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.~~Condensed Consolidated Financial Statements.

Refer to Note 5,4, Debt and ~~Capital~~Financing Lease Obligations, and Note 7, Variable Interest Entities, for additional information.

Use of 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, which are particularly sensitive given the size of our customer portfolio balance.

Cash and Cash Equivalents. As of ~~October 31, 2018, cash~~April 30, 2019 and ~~cash equivalents included cash and credit card deposits in transit. As of~~ January 31, ~~2018,~~2019, cash and cash equivalents included cash, credit card deposits in transit, and highly liquid debt instruments purchased with a maturity date of three months or less. Credit card deposits in transit included in cash and cash equivalents were ~~$2.0~~$2.5 million and ~~$2.0~~$2.5 million as of ~~October 31, 2018~~April 30, 2019 and January 31, ~~2018,~~2019, respectively.

~~CONN'S,~~

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restricted Cash. The restricted cash balance as of ~~October 31, 2018~~April 30, 2019 and January 31, ~~2018~~2019 includes ~~$54.7~~$63.7 million and ~~$58.1~~$45.3 million, respectively, of cash we collected as servicer on the securitized receivables that was subsequently remitted to the VIEs and ~~$13.8~~$12.7 million and ~~$27.2~~$12.2 million, respectively, of cash held by the VIEs as additional collateral for the asset-backed notes.

Customer Accounts Receivable. Customer accounts receivable reported in the 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 Condensed Consolidated Balance Sheet. Customer accounts receivable ~~includes~~include 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 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~~refinance their ~~obligation by refinancing the~~ account, which typically 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” or “Restructured Accounts”).

Interest Income on 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. At ~~October 31, 2018~~April 30, 2019 and January 31, ~~2018,~~2019, there was $11.6 million and ~~$12.5~~$11.2 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 a ~~12 month~~12-month no-interest option 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.

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 balance of the loan. At ~~October~~April 30, 2019 and January 31, ~~2018,~~2019, the carrying value of customer ~~receivables carried~~accounts receivable in non-accrual status ~~were $15.6~~was $13.5 million ~~of which $11.8~~and $13.9 million, ~~were in bankruptcy status and less than 60 days past due.~~respectively. At ~~January 31, 2018, customer receivables carried in non-accrual status were $16.9 million, of which $14.5 million were in bankruptcy status and less than 60 days past due. At October 31, 2018~~April 30, 2019 and January 31, ~~2018,~~2019, the carrying value of customer ~~receivables~~accounts receivable that were past due 90 days or more and still accruing interest totaled ~~$110.6~~$99.0 million and ~~$109.7~~$106.5 million, respectively. At April 30, 2019 and January 31, 2019, the carrying value of customer accounts receivable in a bankruptcy status that were less than 60 days past due of $11.8 million and $12.0 million, respectively, were included within the customer receivables balance carried in non-accrual status.

Allowance for 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 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 accounts receivable 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.

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

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

year-over-year change in the balance of customer accounts receivable that are 60 days or more past due. In addition to adjusted

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

~~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 and repair service agreement (“RSA”) 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 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,~~April 30, 2019, we ~~utilized~~made a qualitative ~~factor~~adjustment 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, as defined in Note 5,4, Debt and ~~Capital~~Financing Lease Obligations, are included in other assets on our Condensed Consolidated Balance Sheet and were ~~$6.5~~$5.7 million and ~~$5.2~~$6.1 million as of ~~October 31, 2018~~April 30, 2019 and January 31, ~~2018,~~2019, respectively.

Income Taxes. For the ~~nine~~three months ended ~~October 31,~~April 30, 2019 and 2018, ~~and 2017,~~ we utilized the estimated annual effective tax rate based on our estimated fiscal year ~~2019~~2020 and ~~2018~~2019 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,~~April 30, 2019 and 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%~~20.4% and ~~37.0%~~18.1%, respectively. The primary ~~factors~~factor affecting the increase in our effective tax rate for the ~~nine~~three months ended ~~October 31, 2018 were~~April 30, 2019 was 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~~deductible compensation expense compared to the ~~vesting of equity compensation.~~prior year period.

Stock-based 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 (“RSUs”), the fair value of the grant is the market value of our stock at the date of issuance. For grants of performance-based restricted stock units, the fair value of the grant is the market value of our stock at the date of issuance adjusted for a market condition, a performance condition and a service condition.

The following table sets forth the ~~restricted stock unit awards (“RSUs”), performance stock unit awards (“PSUs”)~~RSUs and stock options granted during the three ~~and nine~~ months ended ~~October 31, 2018~~April 30, 2019 and ~~2017:~~

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

2018:


	Three Months Ended October 31,				Nine Months Ended October 31,				Three Months Ended April 30,
	2018		2017		2018		2017		2019		2018
RSUs ⁽¹⁾	3,200		2,740		153,089		646,033		3,429		80,411
PSUs ⁽²⁾	—		—		—		501,012
Stock Options ⁽³⁾	—		—		620,166		—
Stock Options ⁽²⁾									—		620,166
Total stock awards granted	3,200		2,740		773,255		1,147,045		3,429		700,577
Aggregate grant date fair value (in thousands)	$	120	$	50	$	17,304	$	14,596	$	71	$	15,511

(1) The majority of RSUs issued during the three ~~and nine~~ months ended ~~October 31,~~April 30, 2019 and 2018 ~~and 2017~~ are scheduled to vest ratably over periods of three to four years from the date of grant.

(2) 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~~three months ended ~~October 31,~~April 30, 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~~three months ended ~~October 31,~~April 30, 2018.

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended ~~October 31,~~April 30, 2019 and 2018, ~~and 2017,~~ stock-based compensation expense was ~~$2.9~~$3.2 million and ~~$1.7~~$2.5 million, respectively. ~~For~~No performance stock awards (“PSUs”) were issued during the ~~nine~~three months ended ~~October 31, 2018~~April 30, 2019 and ~~2017, stock-based compensation expense was $8.5 million and $5.9 million, respectively.~~2018.

Earnings per Share. Basic earnings per share for a particular period is calculated by dividing net income 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 PSUs, which isare 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 April 30,
	2018	2017	2018	2017	2019	2018
Weighted-average common shares outstanding - Basic	31,712,862	31,292,913	31,636,270	31,121,177	31,882,003	31,540,684
Dilutive effect of stock options, RSUs and PSUs	609,012	471,681	615,682	336,243
Dilutive effect of stock options, PSUs and RSUs					561,881	912,180
Weighted-average common shares outstanding - Diluted	32,321,874	31,764,594	32,251,952	31,457,420	32,443,884	32,452,864

For the three months ended ~~October 31,~~April 30, 2019 and 2018, ~~and 2017,~~ the weighted-average number of stock options ~~RSUs~~ and ~~PSUs~~RSUs not included in the calculation due to their anti-dilutive effect, was ~~630,698~~859,970 and 158,627, respectively. For the nine months ended October 31, 2018 and 2017, the weighted-average number of stock options, RSUs and PSUs not included in the calculation due to their anti-dilutive effect was 503,747 and 356,116,305,313, respectively.

Fair Value of Financial 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

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

~~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 and accounts payable approximate their carrying amounts because of the short maturity of these instruments. The fair value of customer accounts ~~receivables,~~receivable, determined using a Level 3 discounted cash flow analysis, approximates their carrying ~~amount, which includes~~value, net of the allowance for doubtful accounts. The fair value of our Revolving Credit Facility approximates carrying value based on the current borrowing rate for similar types of borrowing arrangements. At ~~October 31, 2018,~~April 30, 2019, the fair value of the Senior Notes outstanding, which was determined using Level 1 inputs, was ~~$223.6~~$229.7 million as compared to the carrying value of $227.0 million, excluding the impact of the related discount. At ~~October 31, 2018,~~April 30, 2019, the fair value of the asset-backed notes approximates their carrying value and was determined using Level 2 inputs based on inactive trading activity.

~~Recent Accounting Pronouncements Adopted.~~Deferred Revenue. ~~In May 2014, the FASB issued ASU 2014-09,~~ ~~Revenue from Contracts with Customers, which provides a single comprehensive accounting standard for~~Deferred revenue ~~recognition for~~related to contracts with customers consists of deferred customer deposits and ~~supersedes current guidance. Upon adoption of ASU 2014-09, entities are required to recognize revenue using~~deferred RSA administration fees. During 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. The FASB 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. Effective February 1, 2018, the Company adopted these ASUs 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 reported in accordance with the Company’s historic accounting policies under ASC Topic 605. Wethree months ended April 30, 2019, we recognized ~~a net after-tax cumulative effect adjustment to retained earnings of~~ $1.0 million of revenue for customer deposits deferred as of the ~~date of adoption. The details of our 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 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~~beginning of the ~~product to~~period. During the ~~customer, at which point control transfers. Revenue~~three months ended April 30, 2019, we recognized $1.2 million of revenue for ~~the sale~~RSA administrative fees deferred as 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. January 31, 2019.

~~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,~~

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 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 the consolidated financial statements for the 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~~Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842), which ~~will change how~~requires lessees ~~account~~to recognize assets and liabilities for most leases. Effective February 1, 2019, the Company adopted ASU 2016-02 using the modified retrospective approach. For most leases, a liability ~~will be~~was 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.~~basis. Other leases ~~will be~~are required to be accounted for as financing arrangements similar to how we ~~currently account~~previously accounted for capital leases. ~~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 8,~~ ~~Leases, in our audited consolidated financial statements included in our 2018 Form 10-K, as updated by our Form 8-K filed with the SEC on November 23, 2018. On transition,~~Upon adoption we ~~will recognize~~elected a ~~cumulative-effect adjustment to the retained earnings on the opening balance sheet in the period~~package 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~~permitted under the ~~option~~transition guidance within the new standard. The practical expedients adopted allowed us to ~~retain~~carry forward the ~~current~~historical lease classification, ~~of leases entered into prior~~allowed us to ~~February 1, 2019,~~not separate and ~~thus does not anticipate~~allocate the consideration paid between lease and non-lease components included within a ~~material impact~~contract and allowed us to ~~the consolidated statements of earnings or consolidated statements of cash flows. The Company~~carry forward our accounting treatment for land easements on existing agreements. We also ~~plans to adopt~~adopted 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~~Therefore, results for reporting periods beginning after February 1, 2019 are presented under ASC Topic 842, while prior period amounts are not adjusted and continue to be ~~affected by~~reported in accordance with 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 ourCompany’s historic accounting policies ~~processes, and internal controls to ensure compliance with~~under ASC Topic 840.

Additionally, we have elected the ~~standard’s reporting and disclosure requirements as well as implementing a new~~short-term policy election for the Company for any lease ~~accounting module within its lease management system to support~~that, at 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~~commencement date, has a lease ~~obligation and~~term of twelve months or less. We will not recognize a lease liability or right-of-use asset on ~~its consolidated~~the balance sheet for any of our short-term leases. Rather, the short-term lease ~~agreements currently accounted for~~payments will be recognized as ~~operating leases. We will adopt~~an expense on a straight-line basis over the ~~new standard in~~lease term. The current period short-term lease expense reasonably reflects our short-term lease commitments.

The cumulative effect of the ~~first quarter~~changes made to the Company’s Condensed Consolidated Balance Sheet as a result of ~~fiscal year 2020.~~the adoption of ASC 842 were as follows (in thousands):



	Impact of Adoption of ASC 842
(in thousands)	Balance at January 31, 2019		Adjustments due to ASC 842			Balance at February 1, 2019
Assets
Current Assets ⁽¹⁾	$	1,014,394	$	(2,983	)	$	1,011,411
Operating lease right-of-use assets ⁽²⁾	—		227,421			227,421
Deferred income taxes ⁽³⁾	27,535		(1,447		)	26,088
Liabilities						—
Current liabilities ⁽⁴⁾	237,568		(12,426		)	225,142
Operating lease liability - current ⁽⁵⁾	—		29,815			29,815
Deferred rent ⁽⁴⁾	93,127		(93,127		)	—
Operating lease liability - non-current ⁽⁵⁾	—		300,170			300,170
Other long-term liabilities ⁽³⁾	33,015		(7,606		)	25,409
Stockholder’s equity ⁽³⁾	619,975		6,160			626,135


(1)	Reclassification of the $3.0 million January 31, 2019 balance of accounts receivable for tenant improvement allowances to a reduction in the operating lease liability.


(2)	The operating lease right-of-use assets represent the present value of the lease liability offset by the full value of deferred rent and tenant improvement allowances received from the lessor which had not been utilized as of the date of adoption.


(3)	A net cumulative-effect adjustment to increase retained earnings by $6.2 million to recognize the $7.6 million January 31, 2019 balance of deferred gains which resulted from sale and operating leaseback transactions made at off-market terms offset by the $1.4 million impact on our deferred tax asset related to the sale-leaseback transactions.


(4)	Reclassification of the full value of deferred rent and tenant improvement allowances received from lessors, which were previously recorded as liabilities as they had not been utilized as of the date of adoption, to a reduction of the operating lease right-of-use assets.


(5)	The operating lease liability represents the $340.5 million present value of future operating lease obligations as of January 31, 2019, offset by $10.5 million of accounts receivable for tenant improvement allowances.

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Recent Accounting Pronouncements Yet To Be Adopted. 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 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 early adoption is permitted beginning in the first quarter of fiscal year 2020. In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. ASU 2019-04 requires that the current estimate of recoveries are included in the allowance for credit losses. 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 evaluating the likely impact the adoption of this ASU will have on our ~~consolidated financial statements,~~Consolidated Financial 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~~

2. Customer Accounts Receivable

Customer accounts receivable consisted of the following:

Total Outstanding Balance
Customer Accounts Receivable
60 Days Past Due ⁽¹⁾

Re-aged ^{(1) (2)}
(in thousands) October 31,
2018 January 31,
2018 October 31,
2018 January 31,
2018 October 31,
2018 January 31,
2018
Customer accounts receivable $ 1,345,361
$ 1,374,269
$ 103,556
$ 114,120
$ 207,805
$ 217,952
Restructured accounts 181,145
153,593
44,880
37,687
181,145
153,593
Total customer portfolio balance $ 1,526,506
$ 1,527,862
$ 148,436
$ 151,807
$ 388,950
$ 371,545
Allowance for uncollectible accounts (207,097 ) (203,572 )
Allowances for no-interest option credit programs (18,716 ) (20,960 )
Deferred fees and origination costs, net (15,977 ) (15,897 )
Total customer accounts receivable, net 1,284,716
1,287,433

Short-term portion of customer accounts receivable, net (630,396 ) (636,825 )
Long-term portion of customer accounts receivable, net $ 654,320
$ 650,608

Securitized receivables held by the VIEs $ 838,835
$ 1,085,385
$ 101,433
$ 124,627
$ 287,902
$ 300,348
Receivables not held by the VIEs 687,671
442,477
47,003
27,180
101,048
71,197
Total customer portfolio balance $ 1,526,506
$ 1,527,862
$ 148,436
$ 151,807
$ 388,950
$ 371,545



(in thousands)	April 30, 2019			January 31, 2019
Customer accounts receivable portfolio balance	$	1,534,692		$	1,589,828
Deferred fees and origination costs, net	(15,897		)	(16,579		)
Allowance for no-interest option credit programs	(17,004		)	(19,257		)
Allowance for uncollectible interest	(14,647		)	(15,555		)
Carrying value of customer accounts receivable	1,487,144			1,538,437
Allowance for bad debts	(191,880		)	(199,324		)
Carrying value of customer accounts receivable, net of allowance for bad debts	1,295,264			1,339,113
Short-term portion of customer accounts receivable, net	(642,385		)	(652,769		)
Long-term customer accounts receivable, net	$	652,879		$	686,344



	Carrying Value
(in thousands)	April 30, 2019		January 31, 2019
Customer accounts receivable 60+ days past due ⁽¹⁾	$	128,870	$	146,188
Re-aged customer accounts receivable ⁽²⁾⁽³⁾	383,321		395,576
Restructured customer accounts receivable ⁽⁴⁾	187,179		183,641

(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, 2018~~April 30, 2019 and January 31, ~~2018,~~2019, the ~~amounts included within both 60 days past due and re-aged was $92.0 million and $80.8 million, respectively. As~~carrying value of ~~October 31, 2018 and January 31, 2018, the total~~ customer ~~portfolio balance~~accounts receivable past due one day or greater was ~~$418.4~~$394.8 million and ~~$401.0~~$420.9 million, respectively. These amounts include the 6060+ days past due balances ~~shown.~~shown above.


(2)	The re-aged ~~receivables balance~~carrying value as of ~~October 31, 2018~~April 30, 2019 and January 31, ~~2018~~2019 includes ~~$34.3~~$80.3 million and ~~$62.0~~$92.4 million in carrying value that are both 60+ days past due and re-aged.


(3)	The re-aged carrying value as of April 30, 2019 and January 31, 2019 includes $20.5 million and $26.5 million in first time re-ages related to customers within FEMA-designated Hurricane Harvey disaster areas.


(4)	The restructured carrying value as of April 30, 2019 and January 31, 2019 includes $37.4 million and $43.9 million in carrying value that are both 60+ days past due and restructured.

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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


	Nine Months Ended October 31, 2018									Nine Months Ended October 31, 2017									Three Months Ended April 30, 2019									Three Months Ended April 30, 2018
(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	$	148,856		$	54,716		$	203,572		$	158,992		$	51,183		$	210,175		$	147,123		$	67,756		$	214,879		$	148,856		$	54,716		$	203,572
Provision ⁽¹⁾	127,472			51,440			178,912			139,406			52,948			192,354			35,275			16,925			52,200			38,740			16,660			55,400
Principal charge-offs ⁽²⁾	(119,242		)	(38,990		)	(158,232		)	(133,033		)	(44,657		)	(177,690		)	(39,723		)	(14,809		)	(54,532		)	(39,775		)	(11,144		)	(50,919		)
Interest charge-offs	(23,696		)	(7,748		)	(31,444		)	(21,884		)	(7,346		)	(29,230		)	(9,099		)	(3,392		)	(12,491		)	(7,360		)	(2,062		)	(9,422		)
Recoveries ⁽²⁾	10,768			3,521			14,289			5,463			1,834			7,297			4,714			1,757			6,471			4,272			1,197			5,469
Allowance at end of period	$	144,158		$	62,939		$	207,097		$	148,944		$	53,962		$	202,906		$	138,290		$	68,237		$	206,527		$	144,733		$	59,367		$	204,100
Average total customer portfolio balance	$	1,341,415		$	167,473		$	1,508,888		$	1,352,137		$	141,155		$	1,493,292		$	1,368,094		$	190,228		$	1,558,322		$	1,347,373		$	159,410		$	1,506,783


(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 the principal ~~collections of~~amount collected during the period for previously charged-off balances. Net charge-offs are calculated as the net of principal charge-offs and recoveries.

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~3. Charges and Credits~~

~~Charges and credits consisted of the following:~~

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

4.3. 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 April 30,
(in thousands)	2018		2017		2018		2017		2019		2018
Interest income and fees	$	82,964	$	74,144	$	239,745	$	210,765	$	84,017	$	76,346
Insurance income	6,807		7,125		20,852		27,107		7,314		6,271
Other revenues	179		95		291		267		202		14
	$	89,950	$	81,364	$	260,888	$	238,139
Total finance charges and other revenues									$	91,533	$	82,631

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 that are recognized when coverage is sold and retrospective income paid by the insurance carrier if insurance claims are less than earned premiums.

During the three months ended ~~October 31,~~April 30, 2019 and 2018, ~~and 2017,~~ interest income and fees reflected provisions for uncollectible interest of ~~$13.4~~$12.3 million and ~~$10.5~~$11.5 million, respectively. The amount included in interest income and fees related to TDR accounts for the three months ended ~~October 31,~~April 30, 2019 and 2018 ~~and 2017 are $7.1~~were $8.1 million and ~~$4.8~~$5.8 million, respectively. During the nine months ended October 31, 2018 and 2017, interest income and fees reflected provisions for uncollectible interest of $37.2 million and $31.0 million, respectively. The amount included in interest income and fees related to TDR accounts for the nine months ended October 31, 2018 and 2017 are $19.4 million and $14.0 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,~~CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.4. Debt and ~~Capital~~Financing Lease Obligations

Debt and ~~capital~~financing lease obligations consisted of the following:


(in thousands)	October 31, 2018			January 31, 2018			April 30, 2019			January 31, 2019
Revolving Credit Facility	$	83,050		$	77,000		$	—		$	266,500
Senior Notes	227,000			227,000			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			59,397			98,297
2017-B VIE Asset-backed Class C Notes	78,640			78,640			78,640			78,640
2018-A VIE Asset-backed Class A Notes	154,907			—			80,444			105,971
2018-A VIE Asset-backed Class B Notes	69,550			—			48,514			63,908
2018-A VIE Asset-backed Class C Notes	69,550			—			48,514			63,908
2019-A VIE Asset-backed Class A Notes							254,530			—
2019-A VIE Asset-backed Class B Notes							64,750			—
2019-A VIE Asset-backed Class C Notes							62,510			—
Warehouse Notes	84,409			—			24,684			53,635
Capital lease obligations	4,698			4,949
Total debt and capital lease obligations	930,081			1,102,425
Financing lease obligations							5,213			5,075
Total debt and financing lease obligations							954,196			962,934
Less:
Discount on debt	(2,106		)	(2,527		)	(1,825		)	(1,966		)
Deferred debt issuance costs	(6,805		)	(8,886		)	(7,930		)	(5,637		)
Current maturities of capital lease obligations	(804		)	(907		)
Long-term debt and capital lease obligations	$	920,366		$	1,090,105
Current maturities of long-term debt and financing lease obligations							(25,191		)	(54,109		)
Long-term debt and financing lease obligations							$	919,250		$	901,222

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”), pursuant to an indenture dated July 1, 2014 ~~(the~~(as amended, the “Indenture”), among ~~Conn's,~~Conn’s, Inc., its subsidiary guarantors (the “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~~Company’s and certain of its ~~subsidiaries'~~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”); (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, excluding certain restricted payments permitted under the Indenture, exceeds the sum of (i) 50% of Consolidated Net Income from November 1, 2015 to 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 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 certain permitted exceptions, including (1) an exception that permits restricted payments regardless of dollar amount so long as, after giving pro forma effect to such dividends and other restricted payments, we would have had a leverage ratio, as defined in the Indenture, of less than or equal to 2.50 to 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 the sum of the Consolidated Net Income Threshold Amount and Permitted Distribution Amount, as of October 31, 2018, $207.8 million would have been free from the distribution restriction. During any time when the Senior Notes are rated investment grade by either of ~~Moody's~~Moody’s Investors Service, Inc. or Standard & ~~Poor's~~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. As of April 30, 2019, $238.1 million would have been free from the distribution restriction covenant contained in the Indenture. 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.

Asset-backed Notes.~~During fiscal years 2019, 2018 and 2017~~ From time to time, we ~~securitized~~securitize customer accounts receivables by transferring the receivables to various bankruptcy-remote VIEs. In turn, the VIEs ~~issued~~issue 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~~RSAs on charge-offs of the securitized receivables, which are reflected as a reduction to net charge-offs on a consolidated basis.

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 ~~consist~~outstanding as of April 30, 2019 consisted of the following:


(dollars in thousands)
Asset-Backed Notes	Original Principal Amount		Original Net Proceeds ⁽¹⁾		Current Principal Amount		Issuance Date	Maturity Date	Fixed Interest Rate	Effective Interest Rate ⁽²⁾	Original Principal Amount		Original Net Proceeds ⁽¹⁾		Current Principal Amount		Issuance Date	Maturity Date	Contractual 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%	$	132,180	$	131,281	$	59,397	12/20/2017	4/15/2021	4.52%	5.31%
2017-B Class C Notes	78,640		77,843		78,640		12/20/2017	11/15/2022	5.95%	6.34%	78,640		77,843		78,640		12/20/2017	11/15/2022	5.95%	6.37%
2018-A Class A Notes	219,200		217,832		154,907		8/15/2018	1/17/2023	3.25%	4.73%	219,200		217,832		80,444		8/15/2018	1/17/2023	3.25%	4.79%
2018-A Class B Notes	69,550		69,020		69,550		8/15/2018	1/17/2023	4.65%	5.43%	69,550		69,020		48,514		8/15/2018	1/17/2023	4.65%	5.59%
2018-A Class C Notes	69,550		68,850		69,550		8/15/2018	1/17/2023	6.02%	6.79%	69,550		68,850		48,514		8/15/2018	1/17/2023	6.02%	6.96%
2019-A Class A Notes											254,530		253,026		254,530		4/24/2019	10/16/2023	3.40%	4.87%
2019-A Class B Notes											64,750		64,276		64,750		4/24/2019	10/16/2023	4.36%	5.06%
2019-A Class C Notes											62,510		61,898		62,510		4/24/2019	10/16/2023	5.29%	5.99%
Warehouse Notes	121,060		118,972		84,409		7/16/2018	1/15/2020	Index + 2.50% ⁽³⁾	6.56%	121,060		118,972		24,684		7/16/2018	1/15/2020	Index + 2.50% ⁽³⁾	5.91%
Total	$	1,051,580	$	1,042,743	$	615,333					$	1,071,970	$	1,062,998	$	721,983


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


(2)	For the ~~nine~~three months ended ~~October 31, 2018,~~April 30, 2019, and inclusive of ~~retrospective adjustments to deferred debt issuance costs based on~~the impact of changes in timing of actual and expected cash flows.


(3)	The rate on the Warehouse Notes is defined as the applicable index plus a 2.50% fixed margin.

On ~~February 15, 2018, affiliates of~~April 24, 2019, 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 the 2016-B Redeemed Notes at an aggregate redemption price of $73.6 million (which was equal to the entire outstanding principal of, plus accrued interest and the call premiums on, the 2016-B Redeemed Notes). The net funds used to call the notes was $50.3 million, which is equal to the redemption price less adjustments of $23.3 million for funds held in reserve and collection accounts in accordance with the terms of the applicable indenture governing the 2016-B Redeemed Notes. The difference between the net proceeds of the Warehouse Notes and the carrying value of the 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-B Redeemed Notes, we wrote-off $0.4 million as a loss on extinguishment of debt.

On July 16, 2018, affiliates of the Company closed on $121.1 million of 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 and sale of asset-backed notes at a face amount of ~~$358.3~~$381.8 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~~$379.2 million, net of ~~transaction costs and restricted cash held by the VIE.~~debt issuance costs. 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,~~October 16, 2023 and consist of ~~$219.2~~$254.5 million of ~~the Issuer’s 3.25%~~3.40% Series 2019-A, Class A Asset Backed Fixed Rate Notes, ~~Series 2018-A, Class A, $69.6~~$64.8 million of ~~the Issuer’s 4.65%~~4.36% Series 2019-A, Class B Asset Backed Fixed Rate Notes ~~Series 2018-A, Class B,~~ and ~~$69.6~~$62.5 million of ~~the Issuer’s 6.02%~~5.29%, Series 2019-A, Class C Asset Backed Fixed Rate ~~Notes, Series 2018-A, Class C.~~Notes.

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

~~The Fourth Amendment, among other things, (a) extends the~~base and a maturity date of ~~the credit facility to~~ May 23, 2022; (b) provides for a reduction in the aggregate commitments from $750 million to $650 million; (c) amends the 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 covenant such that the minimum interest coverage on a trailing two quarter basis is 1.5x and the minimum interest coverage during any single quarter is 1.0x; (j) increases the maximum capital expenditures from $75 million to $100 million during any period of four consecutive fiscal quarters; and (k) modifies the ability of the Company to effect future securitizations of its customer receivables portfolio, including adding the ability of the Company to enter into revolving ABS transactions.2022.

~~Subsequent to the adoption of the Fourth Amendment, loans~~Loans under the Revolving Credit Facility bear interest, at our option, at a rate equal to LIBOR plus the applicable margin ~~based on facility availability which specified a margin~~ ranging from 2.50% to 3.25% per annum (depending on ~~quarterly average net availability under the borrowing base)~~a pricing grid determined by our total leverage ratio) or the alternate base rate plus a margin ranging from 1.50% to 2.25% per annum (depending on ~~quarterly average net availability under the borrowing base)~~a pricing grid determined by our total leverage ratio). 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%. ~~As of October 31, 2018, we~~We also ~~paid~~pay an unused fee on the portion of the commitments that ~~was~~is available for future borrowings or letters of credit at a rate ranging from 0.25% to 0.50% per annum, depending on the average outstanding balance and letters of credit of the 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 was ~~7.0%~~5.9% for the ~~nine~~three months ended ~~October 31, 2018.~~April 30, 2019.

The 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 are secured by substantially all assets of the Company, excluding the assets of the VIEs. As of ~~October 31, 2018,~~April 30, 2019, we had immediately available borrowing capacity of ~~$401.6~~$429.4 million under our Revolving Credit Facility, net of standby letters of credit issued of $2.5 million. We also had ~~$162.8~~$218.1 million that may become available under our Revolving Credit Facility if we grow the balance of eligible customer receivables and total eligible inventory balances.

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The 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 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 pay dividends and make distributions to the Company and other obligors under the Revolving Credit Facility without restriction. As of ~~October 31, 2018,~~April 30, 2019, we were restricted from making distributions, including

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

repayments of the Senior Notes or other distributions, in excess of ~~$282.5~~$274.3 million as a result of the Revolving Credit Facility distribution restrictions. The 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 ~~the~~our debt covenants, ~~of our Revolving Credit Facility~~as amended, at ~~October 31, 2018.~~April 30, 2019. A summary of the significant financial covenants that govern our Revolving Credit Facility, as amended, compared to our actual compliance status at ~~October 31, 2018~~April 30, 2019 is presented below:



	Actual	Required Minimum/ Maximum
Interest Coverage Ratio for the quarter must equal or exceed minimum	~~4.07:~~4.09:1.00	1.00:1.00
Interest Coverage Ratio for the trailing two quarters must equal or exceed minimum	~~3.97:~~4.60:1.00	1.50:1.00
Leverage Ratio must not exceed maximum	~~2.01:~~1.77:1.00	4.00:1.00
ABS Excluded Leverage Ratio must not exceed maximum	~~1.08:~~0.76:1.00	2.00:1.00
Capital Expenditures, net, must not exceed maximum	$~~16.0~~20.3 million	$100.0 million

All capitalized terms in the above table are defined by the Revolving Credit Facility and may or may not agree directly to the financial statement captions in this document. The covenants are calculated quarterly, except for capital expenditures, which is calculated for a period of four consecutive fiscal quarters, as of the end of each fiscal quarter.

5. Leases

We lease most of our current store locations and certain of our facilities and operating equipment under operating leases. The fixed, non-cancelable terms of our real estate leases are generally five to 15 years and generally include renewal options that allow us to extend the term beyond the initial non-cancelable term. However, prior to the expiration of the existing contract, the Company will typically renegotiate any lease contracts as opposed to continuing in the current lease under the renewal terms. As such, the lease renewal options are not recognized as part of the right-of-use assets and liabilities. Most of the real estate leases require payment of real estate taxes, insurance and certain common area maintenance costs in addition to future minimum lease payments. Equipment leases generally provide for initial lease terms of three to five years and provide for a purchase right at the end of the lease term at the then fair market value of the equipment.

Certain operating leases contain tenant allowance provisions, which obligate the landlord to remit cash to us as an incentive to enter into the lease agreement. We record the full amount to be remitted by the landlord as a reduction to the operating lease right-of-use assets upon commencement of the lease and amortize the balance on a straight-line basis over the life of the lease.

Supplemental lease information is summarized below:



(in thousands)	Balance sheet classification	April 30, 2019
Assets
Operating lease assets	Operating lease right-of-use assets	$	230,393
Finance lease assets	Property and equipment, net	4,791
Total leased assets		235,184
Liabilities
Operating ⁽¹⁾	Operating lease liability - current	$	41,967
Finance	Current maturities of debt and finance lease obligations	706
Operating	Operating lease liability - non current	311,238
Finance	Long-term debt and finance lease obligations	4,507
Total lease liabilities		$	358,418


(1)	Represents the gross operating lease liability before tenant improvement allowances. As of April 30, 2019 we had $18.0 million of tenant improvement allowances to be remitted by the landlord.

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Lease Cost		Three Months Ended April 30,
(in thousands)	Income statement classification	2019
Operating lease costs ⁽¹⁾	Selling, general and administrative expense	$	13,928


(1)	Includes short-term and variable lease costs, which are not significant.

Operating lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

Additional details regarding the Company’s leasing activities as a lessee are presented below:



Other Information	Three Months Ended April 30,
(dollars in thousands)	2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	16,496
Weighted-average remaining lease term (in years)
Finance Leases	11.8
Operating Leases	7.3
Weighted-average discount rate
Finance Leases	6.2		%
Operating Leases ⁽¹⁾	8.7		%


(1)	Upon adoption of ASC 842, discount rates for existing operating leases were established as of February 1, 2019.

The following table presents a summary of our minimum contractual commitments and obligations as of April 30, 2019:



	Operating Leases		Finance Leases		Total
(in thousands)	Operating Leases		Finance Leases		Total
Quarter ending April 30,
2020	$	70,214	$	1,035	$	71,249
2021	69,303		793		70,096
2022	68,072		730		68,802
2023	65,100		539		65,639
2024	59,070		655		59,725
Thereafter	147,272		3,699		150,971
Total undiscounted cash flows	479,031		7,451		486,482
Less: Interest	125,826		2,238		128,064
Total lease liabilities	$	353,205	$	5,213	$	358,418

6. Contingencies

Securities ~~Class Action~~ Litigation. We and two of our former executive officers 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 plaintiffs in the Consolidated Securities Action alleged that the defendants made false and misleading statements or failed to disclose material adverse facts about our business, operations, and prospects. They alleged violations of sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and 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 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. In May 2016, the Court issued a ruling that dismissed 78 of 91 alleged misstatements. 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 United States Fifth Circuit Court of Appeals (the “Fifth Circuit”). The Fifth Circuit granted leave to appeal on August 21, 2017.

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,~~Ltd., and MicroCapital LLC (collectively, “MicroCapital”) filed a lawsuit ~~(the “MicroCapital Lawsuit”)~~ against us and certain of our former executive officers in the ~~United States~~U.S. 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 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 violations of 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 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,~~

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~18,~~The Court previously had stayed the MicroCapital Action pending resolution of other outstanding litigation (In re Conn’s Inc. Sec. Litig., Cause No. 14-CV-00548 (S.D. Tex.) (the “Consolidated Securities Action”)), which was settled in October 2018. ~~On July 10, 2018,~~After that settlement, the ~~court granted our cross-motion to~~ stay ~~this action pending final approval of settlement in~~was lifted, and the ~~Consolidated Securities Action. On November 6, 2018,~~ defendants filed a motion to dismiss plaintiff’s ~~complaint. Plaintiff’s response is due~~complaint in the MicroCapital Action on ~~December 19, 2018, and defendants’ reply in support of their~~November 6, 2018. Briefing on the motion to dismiss ~~is due~~was completed on January 16, 2019. The Court’s ruling is pending.

We intend to vigorously defend our interests in the MicroCapital Action. It is not possible at this time to predict the timing or outcome 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 U.S. District Court for the Southern District of Texas, captioned as Robert Hack, derivatively on behalf of ~~Conn's,~~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,~~Conn’s, Inc., Case No. 4:14-cv-03442 (the “Original Derivative 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 of ~~Conn's,~~Conn’s, Inc. v. Wright et al., Cause No. 4:15-cv-00521, was filed in the U.S. District Court for the Southern District of Texas, which has been consolidated with the Original Derivative Action.

The Court previously approved a stipulation among the parties to stay the ~~action~~Original Derivative Action pending resolution of ~~the motion 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~~was lifted on ~~October 11, 2018, and set a deadline of~~ November 1, 2018, ~~for defendants to respond to the complaint. On November 1,~~and the defendants filed a motion to dismiss plaintiff’s complaint. Briefing on the motion to dismiss was completed December 3, 2018. The Court’s ruling is pending. The parties are currently engaging in discovery.

Another derivative action was filed on January 27, 2015, captioned as Richard A. Dohn v. Wright, et al., Cause No. 2015-04405, 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 7, 2018, the 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 interest in filing. We received a copy of the proposed amended petition on October 12, ~~2018.~~2018, but the amended proposed petition has not yet been filed. The parties jointly requested a stay on this case pending resolution of the Original Derivative Action. This case remains stayed until at least June 27, 2019.

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, 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 Casey, derivatively on behalf of ~~Conn's,~~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,~~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 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.

Other than Casey, none of the plaintiffs in 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.

~~TF LoanCo.~~ In April 2014, Conn’s entered into an agreement with TF LoanCo (“TFL”) to sell Conn’s charged-off accounts. In August 2014, Conn’s sued TFL for breach of contract in the U.S. District Court (the “Court”). TFL filed counterclaims. In October 2016, the Court issued a decision in favor of 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 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.

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. Variable Interest Entities

From time to time, we ~~have securitized~~securitize 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~~RSAs 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,~~Conn’s, Inc.):


(in thousands)	October 31, 2018			January 31, 2018			April 30, 2019			January 31, 2019
Assets:
Restricted cash	$	68,493		$	85,322		$	76,443		$	57,475
Due from Conn's, Inc., net	—			15,212
Due from Conn’s, Inc., net							2,650			5,504
Customer accounts receivable:
Customer accounts receivable	715,253			987,418			807,614			538,826
Restructured accounts	123,581			97,967			148,375			135,834
Allowance for uncollectible accounts	(121,021		)	(143,115		)	(135,024		)	(106,327		)
Allowances for no-interest option credit programs	(11,283		)	(18,228		)
Allowance for no-interest option credit programs							(10,744		)	(8,047		)
Deferred fees and origination costs	(7,392		)	(9,332		)	(8,324		)	(5,321		)
Total customer accounts receivable, net	699,138			914,710			801,897			554,965
Total assets	$	767,631		$	1,015,244		$	880,990		$	617,944
Liabilities:
Accrued expenses	$	4,889		$	6,723		$	5,069		$	3,939
Other liabilities	7,172			10,639			5,188			5,513
Due to Conn's, Inc., net	4,496			—
Short-term debt:
Warehouse Notes							24,485			53,635

Long-term debt:
2016-B Class B Notes	—			73,589
2017-A Class A Notes	—			59,794
2017-A Class B Notes	—			106,270
2017-A Class C Notes	—			50,340
2017-B Class A Notes	26,097			292,663
2017-B Class B Notes	132,180			132,180			59,397			98,297
2017-B Class C Notes	78,640			78,640			78,640			78,640
2018-A Class A Notes	154,907			—			80,444			105,971
2018-A Class B Notes	69,550			—			48,514			63,908
2018-A Class C Notes	69,550			—			48,514			63,908
Warehouse Notes	84,409			—
2019-A Class A Notes							254,530			—
2019-A Class B Notes							64,750			—
2019-A Class C Notes							62,510			—
	615,333			793,476			697,299			410,724
Less: deferred debt issuance costs	(3,980		)	(5,497		)	(5,282		)	(2,731		)
Total long-term debt	611,353			787,979			692,017			407,993
Total debt							$	716,502		$	461,628
Total liabilities	$	627,910		$	805,341		$	726,759		$	471,080

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

8. Segment ~~Reporting~~Information

~~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. The operating segments follow the same accounting policies used in our ~~condensed 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~~(“SG&A”) 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~~calculated using an annual rate of 2.5% times the average outstanding portfolio balance for each applicable period.

As of ~~October 31, 2018,~~April 30, 2019, 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,~~

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, 2018 Three Months Ended October 31, 2017
(in thousands) Retail Credit Total Retail Credit Total
Revenues:
Furniture and mattress $ 91,342
$ —
$ 91,342
$ 97,146
$ —
$ 97,146
Home appliance 79,542
—
79,542
83,837
—
83,837
Consumer electronic 60,008
—
60,008
58,062
—
58,062
Home office 22,661
—
22,661
20,295
—
20,295
Other 3,178
—
3,178
4,446
—
4,446
Product sales 256,731
—
256,731
263,786
—
263,786
Repair service agreement commissions 23,579
—
23,579
24,488
—
24,488
Service revenues 3,564
—
3,564
3,534
—
3,534
Total net sales 283,874
—
283,874
291,808
—
291,808
Finance charges and other revenues 179
89,771
89,950
95
81,269
81,364
Total revenues 284,053
89,771
373,824
291,903
81,269
373,172
Costs and expenses:
Cost of goods sold 166,886
—
166,886
175,591
—
175,591
Selling, general and administrative expense ⁽¹⁾
80,894
37,486
118,380
80,676
33,679
114,355
Provision for bad debts 286
47,262
47,548
189
56,323
56,512
Charges and credits 737
4,800
5,537
5,861
—
5,861
Total costs and expenses 248,803
89,548
338,351
262,317
90,002
352,319
Operating income (loss) 35,250
223
35,473
29,586
(8,733 ) 20,853
Interest expense —
15,098
15,098
—
18,095
18,095
Loss on extinguishment of debt —
—
—
—
461
461
Income (loss) before income taxes $ 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, 2018							Nine Months Ended October 31, 2017							Three Months Ended April 30, 2019									Three Months Ended April 30, 2018
(in thousands)	Retail		Credit			Total		Retail		Credit			Total		Retail			Credit			Total			Retail		Credit			Total
Revenues:
Furniture and mattress	$	285,428	$	—		$	285,428	$	286,886	$	—		$	286,886	$	88,364		$	—		$	88,364		$	97,020	$	—		$	97,020
Home appliance	249,036		—			249,036		253,044		—			253,044		77,290			—			77,290			78,023		—			78,023
Consumer electronic	167,964		—			167,964		166,761		—			166,761
Consumer electronics															49,649			—			49,649			52,302		—			52,302
Home office	60,260		—			60,260		54,945		—			54,945		15,706			—			15,706			18,310		—			18,310
Other	10,536		—			10,536		13,105		—			13,105		3,436			—			3,436			3,659		—			3,659
Product sales	773,224		—			773,224		774,741		—			774,741		234,445			—			234,445			249,314		—			249,314
Repair service agreement commissions	72,104		—			72,104		72,703		—			72,703		24,024			—			24,024			22,863		—			22,863
Service revenues	10,615		—			10,615		10,062		—			10,062		3,510			—			3,510			3,579		—			3,579
Total net sales	855,943		—			855,943		857,506		—			857,506		261,979			—			261,979			275,756		—			275,756
Finance charges and other revenues	291		260,597			260,888		267		237,872			238,139		202			91,331			91,533			14		82,617			82,631
Total revenues	856,234		260,597			1,116,831		857,773		237,872			1,095,645		262,181			91,331			353,512			275,770		82,617			358,387
Costs and expenses:
Cost of goods sold	507,102		—			507,102		519,847		—			519,847		157,228			—			157,228			166,589		—			166,589
Selling, general and administrative expense ⁽¹⁾	241,649		112,299			353,948		233,290		99,234			332,524		79,622			38,292			117,914			77,752		37,126			114,878
Provision for bad debts	789		141,666			142,455		584		161,307			161,891		129			39,917			40,046			260		43,896			44,156
Charges and credits	1,037		4,800			5,837		11,156		—			11,156		(695		)	—			(695		)	—		—			—
Total costs and expenses	750,577		258,765			1,009,342		764,877		260,541			1,025,418		236,284			78,209			314,493			244,601		81,022			325,623
Operating income (loss)	105,657		1,832			107,489		92,896		(22,669		)	70,227
Operating income															25,897			13,122			39,019			31,169		1,595			32,764
Interest expense	—		47,484			47,484		—		62,142			62,142		—			14,497			14,497			—		16,820			16,820
Loss on extinguishment of debt	—		1,773			1,773		—		2,907			2,907		—			—			—			—		406			406
Income (loss) before income taxes	$	105,657	$	(47,425	)	$	58,232	$	92,896	$	(87,718	)	$	5,178	$	25,897		$	(1,375	)	$	24,522		$	31,169	$	(15,631	)	$	15,538
															April 30, 2019									April 30, 2018
(in thousands)															Retail			Credit			Total			Retail		Credit			Total
Total assets															$	613,117		$	1,477,167		$	2,090,284		$	375,087	$	1,409,662		$	1,784,749

(1)

For the three months ended ~~October 31,~~April 30, 2019 and 2018, ~~and 2017,~~ the amount of corporate overhead allocated to each segment reflected in ~~selling, general and administrative expense~~SG&A was ~~$9.1~~$7.9 million and ~~$7.3~~$8.4 million, respectively. For the three months ended ~~October 31,~~April 30, 2019 and 2018, ~~and 2017,~~ the amount of reimbursement made to the retail segment by the credit segment was ~~$9.5~~$9.7 million and $9.3 million, respectively. For the nine months ended October 31, 2018 and 2017, the amount of corporate overhead allocated to each segment reflected in selling, general and administrative expense was $26.7 million and $21.5 million, respectively. For the nine months ended October 31, 2018 and 2017, the amount of reimbursement made to the retail segment by the credit segment was $28.3 million and $27.9$9.4 million, respectively.


9.	Guarantor Financial Information

~~Conn's,~~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,~~Conn’s, Inc., are fully and unconditionally guaranteed on a joint and several senior unsecured basis by the Guarantors. As of ~~October 31, 2018~~April 30, 2019 and January 31, ~~2018,~~2019, the direct or indirect subsidiaries of ~~Conn's,~~Conn’s, Inc. that were not Guarantors (the “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,~~Conn’s, Inc. in the form of dividends or distributions.

The following financial information presents the Condensed Consolidated Balance Sheet, Condensed Consolidated Statement of Income, and Condensed Consolidated Statement of Cash Flows for ~~Conn's,~~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~~company’s investment accounts and operations. The condensed 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,~~

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, 2018~~April 30, 2019 and January 31, ~~2018~~2019 (after the elimination of intercompany balances and transactions). ~~Condensed Consolidated Net Income is the same as Condensed Consolidated Comprehensive Income for the periods presented.~~

Condensed Consolidated Balance Sheet as of ~~October 31, 2018:~~April 30, 2019:


(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	$	—	$	3,492	$	—	$	—		$	3,492	$	—	$	9,767	$	—	$	—		$	9,767
Restricted cash	—		1,550		68,493		—			70,043		—		1,600		76,443		—			78,043
Customer accounts receivable, net of allowances	—		257,915		372,481		—			630,396		—		216,156		426,229		—			642,385
Other accounts receivable	—		63,752		—		—			63,752		—		57,660		—		—			57,660
Inventories	—		227,164		—		—			227,164		—		213,102		—		—			213,102
Other current assets	—		19,121		—		(3,401		)	15,720		—		22,162		2,650		(6,567		)	18,245
Total current assets	—		572,994		440,974		(3,401		)	1,010,567		—		520,447		505,322		(6,567		)	1,019,202
Investment in and advances to subsidiaries	790,746		139,723		—		(930,469		)	—		850,483		154,231		—		(1,004,714		)	—
Long-term portion of customer accounts receivable, net of allowances	—		327,663		326,657		—			654,320		—		277,211		375,668		—			652,879
Property and equipment, net	—		146,326		—		—			146,326		—		153,696		—		—			153,696
Operating lease right-of-use assets												—		230,393		—		—			230,393
Deferred income taxes	23,157		—		—		—			23,157		24,863		—		—		—			24,863
Other assets	—		6,642		—		—			6,642		—		9,251		—		—			9,251
Total assets	$	813,903	$	1,193,348	$	767,631	$	(933,870	)	$	1,841,012	$	875,346	$	1,345,229	$	880,990	$	(1,011,281	)	$	2,090,284
Liabilities and Stockholders' Equity
Liabilities and Stockholders’ Equity
Current liabilities:
Current maturities of capital lease obligations	$	—	$	804	$	—	$	—		$	804
Current maturities of debt and financing lease obligations												$	—	$	706	$	24,485	$	—		$	25,191
Accounts payable	—		110,359		—		—			110,359		—		57,266		—		—			57,266
Accrued expenses	4,800		81,319		4,889		(3,401		)	87,607		4,800		64,763		5,069		(3,916		)	70,716
Operating lease liability - current												—		23,958		—		—			23,958
Other current liabilities	—		14,334		7,872		—			22,206		—		11,521		2,447		(2,651		)	11,317
Total current liabilities	4,800		206,816		12,761		(3,401		)	220,976		4,800		158,214		32,001		(6,567		)	188,448
Deferred rent	—		90,410		—		—			90,410
Long-term debt and capital lease obligations	222,069		86,944		611,353		—			920,366
Operating lease liability - non current												—		311,238		—		—			311,238
Long-term debt and financing lease obligations												222,727		4,506		692,017		—			919,250
Other long-term liabilities	—		18,430		3,796		—			22,226		—		20,788		2,741		—			23,529
Total liabilities	226,869		402,600		627,910		(3,401		)	1,253,978		227,527		494,746		726,759		(6,567		)	1,442,465
Total stockholders' equity	587,034		790,746		139,723		(930,469		)	587,034
Total liabilities and stockholders' equity	$	813,903	$	1,193,346	$	767,633	$	(933,870	)	$	1,841,012
Total stockholders’ equity												647,819		850,483		154,231		(1,004,714		)	647,819
Total liabilities and stockholders’ equity												$	875,346	$	1,345,229	$	880,990	$	(1,011,281	)	$	2,090,284

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

~~CONN'S,~~

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheet as of January 31, ~~2018:~~2019:


(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	$	—	$	9,286	$	—	$	—		$	9,286	$	—	$	5,912	$	—	$	—		$	5,912
Restricted cash	—		1,550		85,322		—			86,872		—		1,550		57,475		—			59,025
Customer accounts receivable, net of allowances	—		177,117		459,708		—			636,825		—		328,705		324,064		—			652,769
Other accounts receivable	—		71,186		—		—			71,186		—		67,078		—		—			67,078
Inventories	—		211,894		—		—			211,894		—		220,034		—		—			220,034
Other current assets	—		68,621		15,212		(19,879		)	63,954		—		12,344		5,504		(8,272		)	9,576
Total current assets	—		539,654		560,242		(19,879		)	1,080,017		—		635,623		387,043		(8,272		)	1,014,394
Investment in and advances to subsidiaries	735,272		209,903		—		(945,175		)	—		815,524		146,864		—		(962,388		)	—
Long-term portion of customer accounts receivable, net of allowances	—		195,606		455,002		—			650,608		—		455,443		230,901		—			686,344
Property and equipment, net	—		143,152		—		—			143,152		—		148,983		—		—			148,983
Deferred income taxes	21,565		—		—		—			21,565		27,535		—		—		—			27,535
Other assets	—		5,457		—		—			5,457		—		7,651		—		—			7,651
Total assets	$	756,837	$	1,093,772	$	1,015,244	$	(965,054	)	$	1,900,799	$	843,059	$	1,394,564	$	617,944	$	(970,660	)	$	1,884,907
Liabilities and Stockholders' Equity
Liabilities and Stockholders’ Equity
Current liabilities:
Current maturities of capital lease obligations	$	—	$	907	$	—	$	—		$	907
Current maturities of debt and financing lease obligations												$	—	$	474	$	53,635	$	—		$	54,109
Accounts payable	—		71,617		—		—			71,617		—		71,118		—		—			71,118
Accrued expenses	686		66,370		6,723		(4,667		)	69,112		686		88,478		3,939		(2,768		)	90,335
Other current liabilities	—		32,685		5,002		(15,212		)	22,475		—		24,918		2,592		(5,504		)	22,006
Total current liabilities	686		171,579		11,725		(19,879		)	164,111		686		184,988		60,166		(8,272		)	237,568
Deferred rent	—		87,003		—		—			87,003		—		93,127		—		—			93,127
Long-term debt and capital lease obligations	221,083		81,043		787,979		—			1,090,105
Long-term debt and financing lease obligations												222,398		270,831		407,993		—			901,222
Other long-term liabilities	—		18,875		5,637		—			24,512		—		30,094		2,921		—			33,015
Total liabilities	221,769		358,500		805,341		(19,879		)	1,365,731		223,084		579,040		471,080		(8,272		)	1,264,932
Total stockholders' equity	535,068		735,272		209,903		(945,175		)	535,068
Total liabilities and stockholders' equity	$	756,837	$	1,093,772	$	1,015,244	$	(965,054	)	$	1,900,799
Total stockholders’ equity												619,975		815,524		146,864		(962,388		)	619,975
Total liabilities and stockholders’ equity												$	843,059	$	1,394,564	$	617,944	$	(970,660	)	$	1,884,907

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

~~CONN'S,~~

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidated Statement of Income for the Three Months Ended ~~October 31, 2018:~~April 30, 2019:


(in thousands)	Conn's, Inc.			Guarantors			Non-guarantor Subsidiaries			Eliminations			Consolidated		Conn’s, Inc.			Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues:
Total net sales	$	—		$	283,874		$	—		$	—		$	283,874	$	—		$	261,979		$	—		$	—		$	261,979
Finance charges and other revenues	—			48,666			41,284			—			89,950		—			64,025			27,508			—			91,533
Servicing fee revenue	—			12,226			—			(12,226		)	—		—			8,833			—			(8,833		)	—
Total revenues	—			344,766			41,284			(12,226		)	373,824		—			334,837			27,508			(8,833		)	353,512
Costs and expenses:
Cost of goods sold	—			166,886			—			—			166,886		—			157,228			—			—			157,228
Selling, general and administrative expense	—			118,234			12,372			(12,226		)	118,380		—			119,456			7,291			(8,833		)	117,914
Provision for bad debts	—			7,715			39,833			—			47,548		—			23,984			16,062			—			40,046
Charges and credits	—			5,537			—			—			5,537		—			(695		)	—			—			(695		)
Total costs and expenses	—			298,372			52,205			(12,226		)	338,351		—			299,973			23,353			(8,833		)	314,493
Operating income	—			46,394			(10,921		)	—			35,473
Operating income (loss)															—			34,864			4,155			—			39,019
Interest expense	4,448			2,106			8,544			—			15,098		4,443			4,587			5,467			—			14,497
Loss on extinguishment of debt	—			—			—			—			—
Income (loss) before income taxes	(4,448		)	44,288			(19,465		)	—			20,375		(4,443		)	30,277			(1,312		)	—			24,522
Provision (benefit) for income taxes	(1,254		)	12,487			(5,488		)	—			5,745		(908		)	6,190			(269		)	—			5,013
Net income (loss)	(3,194		)	31,801			(13,977		)	—			14,630		(3,535		)	24,087			(1,043		)	—			19,509
Income (loss) from consolidated subsidiaries	17,824			(13,977		)	—			(3,847		)	—		23,044			(1,043		)	—			(22,001		)	—
Consolidated net income (loss)	$	14,630		$	17,824		$	(13,977	)	$	(3,847	)	$	14,630	$	19,509		$	23,044		$	(1,043	)	$	(22,001	)	$	19,509

Condensed Consolidated Statement of Income for the Three Months Ended ~~October 31, 2017:~~April 30, 2018:

(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 expense —
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) (3,035 ) (702 ) 5,306
—
1,569
Income (loss) from consolidated subsidiaries 4,742
1,988
—
(6,730 ) —
Consolidated net income (loss) $ 1,707
$ 1,286
$ 5,306
$ (6,730 ) $ 1,569

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Condensed Consolidated Statement of Income for the 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
Revenues:
Total net sales $ —
$ 857,506
$ —
$ —
$ 857,506
Finance charges and other revenues —
122,305
115,834
—
238,139
Servicing fee revenue —
46,010
—
(46,010 ) —
Total revenues —
1,025,821
115,834
(46,010 ) 1,095,645
Costs and expenses:

Cost of goods sold —
519,847
—
—
519,847
Selling, general and administrative expense —
343,043
35,491
(46,010 ) 332,524
Provision for bad debts —
64,438
97,453
—
161,891
Charges and credits —
11,156
—
—
11,156
Total costs and expenses —
938,484
132,944
(46,010 ) 1,025,418
Operating income (loss) —
87,337
(17,110 ) —
70,227
Interest expense 13,329
7,501
41,312
—
62,142
Loss on extinguishment of debt —
349
2,558
—
2,907
Income (loss) before income taxes (13,329 ) 79,487
(60,980 ) —
5,178
Provision (benefit) for income taxes (4,934 ) 29,420
(22,570 ) —
1,916
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

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~



(in thousands)	Conn’s, Inc.			Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues:
Total net sales	$	—		$	275,756		$	—		$	—		$	275,756
Finance charges and other revenues	—			45,655			36,976			—			82,631
Servicing fee revenue	—			16,746			—			(16,746		)	—
Total revenues	—			338,157			36,976			(16,746		)	358,387
Costs and expenses:
Cost of goods sold	—			166,589			—			—			166,589
Selling, general and administrative expense	—			119,793			11,831			(16,746		)	114,878
Provision for bad debts	—			7,008			37,148			—			44,156
Total costs and expenses	—			293,390			48,979			(16,746		)	325,623
Operating income (loss)	—			44,767			(12,003		)	—			32,764
Interest expense	4,443			3,033			9,344			—			16,820
Loss on extinguishment of debt	—			—			406			—			406
Income (loss) before income taxes	(4,443		)	41,734			(21,753		)	—			15,538
Provision (benefit) for income taxes	(802		)	7,537			(3,929		)	—			2,806
Net income (loss)	(3,641		)	34,197			(17,824		)	—			12,732
Income (loss) from consolidated subsidiaries	16,373			(17,824		)	—			1,451			—
Consolidated net income (loss)	$	12,732		$	16,373		$	(17,824	)	$	1,451		$	12,732

~~Condensed Consolidated Statement of Cash Flows for the Nine Months Ended October 31, 2018:~~22

(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,~~CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidated Statement of Cash Flows for the ~~Nine~~Three Months Ended ~~October 31, 2017:~~April 30, 2019:


(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	)	$	(636,406	)	$	721,316		$	—		$	81,899		$	(403	)	$	285,322		$	(235,259	)	$	—		$	49,660
Cash flows from investing activities:
Purchase of customer accounts receivables	—			—			(544,833		)	544,833			—			—			—			(379,200		)	379,200			—
Sale of customer accounts receivables	—			544,833			—			(544,833		)	—			—			—			379,200			(379,200		)	—
Purchase of property and equipment	—			(11,995		)	—			—			(11,995		)	—			(13,119		)	—			—			(13,119		)
Net cash provided by (used in) investing activities	—			532,838			(544,833		)	—			(11,995		)
Net cash used in investing activities																—			(13,119		)	—			—			(13,119		)
Cash flows from financing activities:
Proceeds from issuance of asset-backed notes	—			—			469,814			—			469,814			—			—			381,790			—			381,790
Payments on asset-backed notes	—			(77,105		)	(737,463		)	—			(814,568		)	—			—			(95,214		)	—			(95,214		)
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
Borrowings from revolving credit facility																—			323,138			—			—			323,138
Payments on revolving credit facility																—			(589,638		)	—			—			(589,638		)
Payments of debt issuance costs and amendment fees	—			(2,865		)	(5,307		)	—			(8,172		)	—			(44		)	(3,398		)	—			(3,442		)
Payments on warehouse facility	—			—			(23,066		)	—			(23,066		)	—			—			(28,951		)	—			(28,951		)
Proceeds from stock issued under employee benefit plans	3,011			—			—			—			3,011			403			—			—			—			403
Tax payments associated with equity-based compensation transactions	—			(570		)	—			—			(570		)	—			(1,454		)	—			—			(1,454		)
Payments from extinguishment of debt	—			(837		)	—			—			(837		)
Other	—			(379		)	—			—			(379		)	—			(300		)	—			—			(300		)
Net cash provided by (used in) financing activities	3,011			92,744			(216,082		)	—			(120,327		)	403			(268,298		)	254,227			—			(13,668		)
Net change in cash, cash equivalents and restricted cash	—			(10,824		)	(39,599		)	—			(50,423		)	—			3,905			18,968			—			22,873
Cash, cash equivalents and restricted cash, beginning of period	—			23,566			110,698			—			134,264			—			7,462			57,475			—			64,937
Cash, cash equivalents and restricted cash, end of period	$	—		$	12,742		$	71,099		$	—		$	83,841		$	—		$	11,367		$	76,443		$	—		$	87,810

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidated Statement of Cash Flows for the Three Months Ended April 30, 2018:



(in thousands)	Conn’s, Inc.			Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net cash provided by (used in) operating activities	$	(267	)	$	(14,194	)	$	149,800		$	—		$	135,339
Cash flows from investing activities:
Purchase of customer accounts receivables	—			—			(50,774		)	50,774			—
Sale of customer accounts receivables	—			—			50,774			(50,774		)	—
Purchase of property and equipment	—			(6,169		)	—			—			(6,169		)
Net cash used in investing activities	—			(6,169		)	—			—			(6,169		)
Cash flows from financing activities:
Payments on asset-backed notes	—			(50,847		)	(181,737		)	—			(232,584		)
Borrowings from revolving credit facility	—			393,158			—			—			393,158
Payments on revolving credit facility	—			(322,608		)	—			—			(322,608		)
Borrowings from warehouse facility	—			—			52,226			—			52,226
Payments of debt issuance costs and amendment fees	—			(1		)	(532		)	—			(533		)
Payments on warehouse facility	—			—			(29,905		)	—			(29,905		)
Proceeds from stock issued under employee benefit plans	267			—			—			—			267
Tax payments associated with equity-based compensation transactions	—			(1,888		)	—			—			(1,888		)
Payments from extinguishment of debt	—			(294		)	—			—			(294		)
Other	—			(253		)	—			—			(253		)
Net cash provided by (used in) financing activities	267			17,267			(159,948		)	—			(142,414		)
Net change in cash, cash equivalents and restricted cash	—			(3,096		)	(10,148		)	—			(13,244		)
Cash, cash equivalents and restricted cash, beginning of period	—			10,836			85,322			—			96,158
Cash, cash equivalents and restricted cash, end of period	$	—		$	7,740		$	75,174		$	—		$	82,914

CONN’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Subsequent Events

On May 30, 2019, the Company's Board of Directors approved a stock repurchase program, effective as of May 31, 2019, pursuant to which the Company may repurchase up to $75 million of its outstanding common stock. The program will remain effective for one year, unless extended by the Board of Directors.

Under the repurchase program, the Company may purchase shares of its common stock through open market transactions, block purchases, privately negotiated transactions or otherwise in accordance with applicable federal securities laws, including Rule 10b-18 of the Securities Exchange Act of 1934, as amended. The timing and amount of any repurchases under this program will be determined by the Company’s management in its discretion based on a variety of factors, including the market price of the Company's common stock, corporate considerations, general market and economic conditions, and legal requirements. The repurchase program does not obligate the Company to acquire any particular amount of common stock, and the repurchase program may be modified, discontinued or suspended at any time or from time to time in the Company's discretion. The Company anticipates funding for this program to come from available corporate funds.

Table of Contents


ITEM 2.	~~MANAGEMENT'S~~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,” “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 ~~2018~~Annual Report on Form 10-K ~~Part II, Item 1A, Risk Factors, in the Form 10-Q~~ for the ~~three months~~fiscal year ended ~~July~~January 31, ~~2018~~2019 (the ~~“Q2 FY19~~“2019 Form ~~10-Q”~~10-K”) 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~~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~~Management’s Discussion and Analysis of Financial Condition and Results of Operations in conjunction with the accompanying ~~condensed consolidated financial statements~~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 were ~~$373.8~~$353.5 million for the three months ended ~~October 31, 2018~~April 30, 2019 compared to ~~$373.2~~$358.4 million for the three months ended ~~October 31, 2017, an increase~~April 30, 2018, a decrease of ~~$0.6~~$4.9 million or ~~0.2%~~1.4%. Retail revenues were ~~$284.1~~$262.2 million for the three months ended ~~October 31, 2018~~April 30, 2019 compared to ~~$291.9~~$275.8 million for the three months ended ~~October 31, 2017,~~April 30, 2018, a decrease of ~~$7.9~~$13.6 million or ~~2.7%~~4.9%. The decrease in retail revenue was primarily driven by a decrease in same store sales of ~~4.4%~~8.2%, partially offset by new store growth. The decrease in same store sales was ~~due to a decrease~~14.8% in ~~same store sales for~~ markets impacted by Hurricane Harvey ~~of 11.8%~~ and ~~a decrease~~5.6% in ~~same store sales for non-Hurricane Harvey~~ markets ~~of 1.3%. The~~not impacted by Hurricane Harvey. We believe 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.~~April 30, 2018. We also believe same store sales were negatively impacted by a greater-than-expected shift towards online applications, which exhibit higher credit risk and lower approval rates, disruption in the transition to our new e-commerce platform to support our full omnichannel offering and the delay in federal tax refunds. Credit revenues were ~~$89.8~~$91.3 million for the three months ended ~~October 31, 2018~~April 30, 2019 compared to ~~$81.3~~$82.6 million for the three months ended ~~October 31, 2017,~~April 30, 2018, an increase of ~~$8.5~~$8.7 million or 10.5%. The increase in credit revenue resulted from the origination of our higher-yielding direct loan product, which resulted in an increase in the portfolio yield rate to ~~21.7%~~22.1% from ~~19.8%,~~20.8% for the comparative period in fiscal year 2019, and byfrom a ~~2.2%~~3.4% increase in the average outstanding balance of the customer accounts receivable portfolio. In addition, insurance income contributed to an increase in credit revenue over the prior year period primarily due to an increase in insurance retrospective income for the three months ended April 30, 2019.

Table of Contents

Retail gross margin for the three months ended ~~October 31, 2018~~April 30, 2019 was ~~41.2%~~40.0%, an increase of ~~140~~40 basis points from the ~~39.8%~~39.6% reported for the three months ended ~~October 31, 2017.~~April 30, 2018. The increase in retail gross margin was primarily driven by an increase in retrospective income on our RSAs and by improved product margins in almost all product categories.

Selling, general and administrative expense (“SG&A”) for the three months ended ~~October 31, 2018~~April 30, 2019 was ~~$118.4~~$117.9 million compared to ~~$114.4~~$114.9 million for the three months ended ~~October 31, 2017,~~April 30, 2018, an increase of ~~$4.0~~$3.0 million or ~~3.5%~~2.6%. 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,~~ 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~~occupancy costs and third-party legal expenses related to ~~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 compensation.on charged off accounts.

~~The provision~~Provision for bad debts decreased to ~~$47.5~~$40.0 million for the three months ended ~~October 31, 2018~~April 30, 2019 from ~~$56.5~~$44.2 million for the three months ended ~~October 31, 2017,~~April 30, 2018, a decrease of ~~$9.0~~$4.2 million. The decrease was driven by a greater decrease in the allowance for bad debts during three months ended April 30, 2019 compared to the three months ended April 30, 2018, partially offset by a year-over-year ~~reduction~~increase in net charge-offs of ~~$9.7 million.~~$2.6 million, which was primarily driven by an increase in the average balance of the customer receivable portfolio.

Interest expense decreased to ~~$15.1~~$14.5 million for the three months ended ~~October 31, 2018,~~April 30, 2019, compared to ~~$18.1~~$16.8 million for the three months ended ~~October 31, 2017, primarily reflecting~~April 30, 2018, a decrease ~~in our~~of $2.3 million. The decrease was driven by a lower weighted average cost of borrowing ~~as a result of lower pricing on our securitization transactions coupled with~~and a lower average outstanding balance of debt.

Net income for the three months ended ~~October 31, 2018~~April 30, 2019 was ~~$14.6~~$19.5 million or ~~$0.45~~$0.60 per diluted share, ~~which included net pre-tax charges of $5.5~~compared to $12.7 million, or ~~$0.14~~$0.39 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 of $1.6 million, or $0.05 per diluted share, which included 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~~”).April 30, 2018.

Company Initiatives

In the ~~third~~first quarter of fiscal year ~~2019,~~2020, we ~~maintained our focus on enhancing our credit platform to support~~delivered the ~~pursuit of our long-term growth objectives. Our~~best 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 in ~~the capital markets, which has led to~~five years, driven by higher yields, better portfolio performance and lower ~~cost of funds. We continue to see the benefit in our credit operations from the structural changes we have made to increase yield, reduce losses and improve overall credit performance.~~borrowing costs. 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~~first quarter of fiscal year ~~2019:~~2020:

~~Posted our seventh consecutive quarter~~Earnings per diluted share of ~~profitability, driven by a 70.1%~~$0.60 for the three months ended April 30, 2019, an increase ~~in operating income~~of 53.8% compared to $0.39 for the ~~third quarter of fiscal year~~three months ended April 30, 2018;

~~Delivered record third~~Record first quarter retail gross margin of ~~41.2%,~~40.0% for the three months ended April 30, 2019, an increase of ~~140~~40 basis points compared to ~~39.8% in~~39.6% for the ~~third quarter of fiscal year 2018, driven primarily by improved product margins;~~three months ended April 30, 2018;

Increased, year-over-year, sales 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%~~8.4% at ~~October 31, 2018~~April 30, 2019 from ~~5.7%~~7.5% at ~~October 31, 2017;~~April 30, 2018;

~~Delivered record~~Record quarterly yield on our customer receivables portfolio of ~~21.7%~~22.1% as a result of the continued seasoning of loans originated under our higher-yielding direct loan program;

Increased our credit spread, which is the difference between net yield and charge-offs as a percentage of our average customer accounts receivable portfolio balance, to 9.8% for the three months ended April 30, 2019 from 8.7% for the three months ended April 30, 2018;

Reduced, year-over-year, the balance of accounts 60 days past due as a percentage of the total customer ~~receivables~~ portfolio carrying value to ~~9.7%~~8.7% at ~~October 31, 2018~~April 30, 2019 from ~~9.9%~~9.1% at ~~October 31, 2017;~~April 30, 2018;

Continued our successful asset-backed securitization program, securitizing ~~$358.3~~$381.8 million of customer receivables and delivering an all-in cost of funds on the ~~August 2018~~2019 Class A, Class B and Class C notes, including transaction costs, of approximately ~~5.6%; and~~5.26%, which was the lowest all-in cost of funds we have achieved since reentering the asset-backed securities market in 2015;

~~Realized a reduction~~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%~~13.8% reduction in interest expense compared to the ~~third~~first quarter of fiscal year ~~2018.~~2019; and

Launched our e-commerce channel for sales financed through Conn’s credit.

We believe that we have laid the foundation to execute our long-term growth strategy and prudently manage financial and operational risk while maximizing shareholder value. We remain focused on the following strategic priorities for fiscal year ~~2019:~~2020:

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;

Open ~~seven~~12 to 15 new stores in our current geographic footprint to leverage our existing ~~infrastructure, five~~infrastructure;

Table of ~~which were successfully opened during the nine months ended October 31, 2018;~~Contents

~~Increase interest income on our loan portfolio by continuing to originate higher-yielding loans;~~

Continue to refine and enhance our underwriting platform;

~~Reduce~~Mitigate increases in our interest expense despite a rising rate environment;

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

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

Continue to grow our e-commerce sales;

Maintain disciplined oversight of our ~~selling, general~~SG&A;

Ensure that the Company has the leadership and ~~administrative expenses.~~human capital pipeline and capability to drive results and meet present and future business objectives as the Company continues to expand its retail store base; and

Leverage technology and shared services to drive efficient, effective and scalable processes.

Outlook

The broad appeal of the ~~Conn's~~Conn’s value proposition to our geographically diverse core demographic, unit economics of our business and current retail real estate market conditions provide us ample 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, 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. Over 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 April 30,
(in thousands)	2018		2017		Change			2018		2017		Change			2019			2018		Change
Revenues:
Total net sales	$	283,874	$	291,808	$	(7,934	)	$	855,943	$	857,506	$	(1,563	)	$	261,979		$	275,756	$	(13,777	)
Finance charges and other revenues	89,950		81,364		8,586			260,888		238,139		22,749			91,533			82,631		8,902
Total revenues	373,824		373,172		652			1,116,831		1,095,645		21,186			353,512			358,387		(4,875		)
Costs and expenses:
Cost of goods sold	166,886		175,591		(8,705		)	507,102		519,847		(12,745		)	157,228			166,589		(9,361		)
Selling, general and administrative expense	118,380		114,355		4,025			353,948		332,524		21,424			117,914			114,878		3,036
Provision for bad debts	47,548		56,512		(8,964		)	142,455		161,891		(19,436		)	40,046			44,156		(4,110		)
Charges and credits	5,537		5,861		(324		)	5,837		11,156		(5,319		)	(695		)	—		(695		)
Total costs and expenses	338,351		352,319		(13,968		)	1,009,342		1,025,418		(16,076		)	314,493			325,623		(11,130		)
Operating income	35,473		20,853		14,620			107,489		70,227		37,262			39,019			32,764		6,255
Interest expense	15,098		18,095		(2,997		)	47,484		62,142		(14,658		)	14,497			16,820		(2,323		)
Loss on extinguishment of debt	—		461		(461		)	1,773		2,907		(1,134		)	—			406		(406		)
Income before income taxes	20,375		2,297		18,078			58,232		5,178		53,054			24,522			15,538		8,984
Provision for income taxes	5,745		728		5,017			13,859		1,916		11,943			5,013			2,806		2,207
Net income	$	14,630	$	1,569	$	13,061		$	44,373	$	3,262	$	41,111		$	19,509		$	12,732	$	6,777

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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 Condensed Consolidated Financial Statements.

We evaluate a segment’s performance based upon operating ~~income before taxes. Selling, general and administrative expense~~income. SG&A 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~~calculated using an annual rate of 2.5% multiplied by the average outstanding portfolio balance for each applicable period.

The following ~~tables represent~~table represents total revenues, costs and expenses, operating income ~~(loss)~~ and ~~income (loss)~~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 April 30,
(dollars in thousands)	2018		2017		Change			2018		2017		Change			2019			2018		Change
Revenues:
Product sales	$	256,731	$	263,786	$	(7,055	)	$	773,224	$	774,741	$	(1,517	)	$	234,445		$	249,314	$	(14,869	)
Repair service agreement commissions	23,579		24,488		(909		)	72,104		72,703		(599		)	24,024			22,863		1,161
Service revenues	3,564		3,534		30			10,615		10,062		553			3,510			3,579		(69		)
Total net sales	283,874		291,808		(7,934		)	855,943		857,506		(1,563		)	261,979			275,756		(13,777		)
Other revenues	179		95		84			291		267		24
Finance charges and other															202			14		188
Total revenues	284,053		291,903		(7,850		)	856,234		857,773		(1,539		)	262,181			275,770		(13,589		)
Costs and expenses:
Cost of goods sold	166,886		175,591		(8,705		)	507,102		519,847		(12,745		)	157,228			166,589		(9,361		)
Selling, general and administrative expense ⁽¹⁾	80,894		80,676		218			241,649		233,290		8,359			79,622			77,752		1,870
Provision for bad debts	286		189		97			789		584		205			129			260		(131		)
Charges and credits	737		5,861		(5,124		)	1,037		11,156		(10,119		)	(695		)	—		(695		)
Total costs and expenses	248,803		262,317		(13,514		)	750,577		764,877		(14,300		)	236,284			244,601		(8,317		)
Operating income	$	35,250	$	29,586	$	5,664		$	105,657	$	92,896	$	12,761		$	25,897		$	31,169	$	(5,272	)
Number of stores:
Beginning of period	118		116					116		113					123			116
Opened	3		—					5		3					4			2
End of period	121		116					121		116					127			118

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Credit Segment:	Three Months Ended October 31,									Nine Months Ended October 31,									Three Months Ended April 30,
(in thousands)	2018			2017			Change			2018			2017			Change			2019			2018			Change
Revenues:
Finance charges and other revenues	$	89,771		$	81,269		$	8,502		$	260,597		$	237,872		$	22,725		$	91,331		$	82,617		$	8,714
Costs and expenses:
Selling, general and administrative expense ⁽¹⁾	37,486			33,679			3,807			112,299			99,234			13,065			38,292			37,126			1,166
Provision for bad debts	47,262			56,323			(9,061		)	141,666			161,307			(19,641		)	39,917			43,896			(3,979		)
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		)	78,209			81,022			(2,813		)
Operating income (loss)	223			(8,733		)	8,956			1,832			(22,669		)	24,501
Operating income																			13,122			1,595			11,527
Interest expense	15,098			18,095			(2,997		)	47,484			62,142			(14,658		)	14,497			16,820			(2,323		)
Loss on extinguishment of debt	—			461			(461		)	1,773			2,907			(1,134		)	—			406			(406		)
Loss before income taxes	$	(14,875	)	$	(27,289	)	$	12,414		$	(47,425	)	$	(87,718	)	$	40,293		$	(1,375	)	$	(15,631	)	$	14,256

(1)

For the three months ended ~~October 31,~~April 30, 2019 and 2018, ~~and 2017,~~ the amount of ~~corporate~~ overhead allocated to each segment reflected in ~~selling, general and administrative expense~~SG&A was ~~$9.1~~$7.9 million and ~~$7.3~~$8.4 million, respectively. For the three months ended ~~October 31,~~April 30, 2019 and 2018, and 2017, the amount of reimbursements made to the retail segment by the credit segment were $9.5 million and $9.3 million, respectively. For the nine months ended October 31, 2018 and 2017, the amount of corporate overhead allocated to each segment reflected in selling, general and administrative expense was $26.7 million and $21.5 million, respectively. For the nine months ended October 31, 2018 and 2017, the amount of reimbursement made to the retail segment by the credit segment was ~~$28.3~~$9.7 million and ~~$27.9~~$9.4 million, respectively.

Three ~~Months Ended October 31,~~months ended April 30, 2019 compared to three months ended April 30, 2018 ~~Compared to Three Months Ended October 31, 2017~~

~~Revenues~~

Revenues. The following table provides an analysis of retail net sales by product category in each period, including repair service agreement (“RSA”) 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 April 30,											%		Same Store
(dollars in thousands)	2018		% of Total		2017		% of Total		Change			Change		% Change		2019		% of Total		2018		% of Total		Change			Change		% Change
Furniture and mattress⁽¹⁾	$	91,342	32.2	%	$	97,146	33.3	%	$	(5,804	)	(6.0	)%	(6.6	)%	$	88,364	33.7	%	$	97,020	35.2	%	$	(8,656	)	(8.9	)%	(10.3	)%
Home appliance	79,542		28.0		83,837		28.7		(4,295		)	(5.1	)	(6.4	)	77,290		29.5		78,023		28.3		(733		)	(0.9	)	(3.4	)
Consumer electronics⁽¹⁾	60,008		21.1		58,062		19.9		1,946			3.4		(0.2	)	49,649		19.0		52,302		19.0		(2,653		)	(5.1	)	(8.3	)
Home office⁽¹⁾	22,661		8.0		20,295		7.0		2,366			11.7		9.9
Home office																15,706		6.0		18,310		6.6		(2,604		)	(14.2	)	(15.9	)
Other	3,178		1.1		4,446		1.5		(1,268		)	(28.5	)	(26.6	)	3,436		1.3		3,659		1.3		(223		)	(6.1	)	(9.3	)
Product sales	256,731		90.4		263,786		90.4		(7,055		)	(2.7	)	(4.2	)	234,445		89.5	%	249,314		90.4		(14,869		)	(6.0	)	(8.1	)
Repair service agreement commissions ⁽²⁾⁽¹⁾	23,579		8.3		24,488		8.4		(909		)	(3.7	)	(6.3	)	24,024		9.2		22,863		8.3		1,161			5.1		(8.7	)
Service revenues	3,564		1.3		3,534		1.2		30			0.8				3,510		1.3		3,579		1.3		(69		)	(1.9	)
Total net sales	$	283,874	100.0	%	$	291,808	100.0	%	$	(7,934	)	(2.7	)%	(4.4	)%	$	261,979	100.0	%	$	275,756	100.0	%	$	(13,777	)	(5.0	)%	(8.2	)%

~~(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.~~

(1) The total change in sales of RSA commissions includes retrospective commissions, which are not reflected in the change in same store sales.

The decrease in product sales for the three months ended April 30, 2019 was due to a decrease in same store sales. The decrease in same store sales was 14.8% in markets impacted by Hurricane Harvey and 5.6% in markets not impacted by Hurricane Harvey. We believe 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 April 30, 2018. We also believe same store sales were negatively impacted by a greater-than-expected shift towards online applications, which exhibit higher credit risk and lower approval rates, disruption in the transition to our new e-commerce platform to support our full omnichannel offering and the delay in federal tax refunds.The following provides a summary of the drivers of same store sales performance of our product categories during the three months ended ~~October 31, 2018~~April 30, 2019 as compared to the three months ended ~~October 31, 2017:~~April 30, 2018:

Furniture unit volume decreased ~~8.9%~~11.2%, partially offset by a ~~2.8%~~1.0% increase in average selling price;

Mattress unit volume decreased ~~16.6%~~14.5%, partially offset by a ~~11.3%~~4.6% increase in average selling price;

Home appliance unit volume decreased ~~14.0%~~7.2%, partially offset by a ~~8.8%~~4.1% increase in average selling price;

Consumer electronic unit volume decreased ~~7.4%~~14.2%, partially offset by a ~~7.8%~~6.8% increase in average selling price; and

Home office unit volume ~~increased 24.5%~~decreased 30.1%, partially offset by a ~~11.7% decrease~~20.4% increase in average selling price.

~~Enhancements~~

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The increase in the average sales prices in most product categories is due to 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.~~items.

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


	Three Months Ended October 31,							Three Months Ended April 30,
(in thousands)	2018		2017		Change			2019		2018		Change
Interest income and fees	$	82,964	$	74,144	$	8,820		$	84,017	$	76,346	$	7,671
Insurance income	6,807		7,125		(318		)	7,314		6,271		1,043
Other revenues	179		95		84			202		14		188
Finance charges and other revenues	$	89,950	$	81,364	$	8,586		$	91,533	$	82,631	$	8,902

The increase in interest income and fees ~~was due to~~resulted from an increase in the yield rate to ~~21.7%~~22.1% for the three months ended ~~October 31, 2018~~April 30, 2019 from ~~19.8%~~20.8% for the three months ended ~~October 31, 2017,~~April 30, 2018, an increase of ~~190~~130 basis points, and byfrom an increase of ~~2.2%~~3.4% in the average balance of the customer accounts receivable portfolio. The increase in the yield rate resulted from the origination of our higher-yielding direct loan ~~product.~~product, which represented approximately 77% of our originations for the three months ended April 30, 2019. In addition, insurance income contributed to an increase in credit revenue over the prior year period primarily due to an increase in insurance retrospective income for the three months ended April 30, 2019.

The following table provides key portfolio performance information:


	Three Months Ended October 31,								Three Months Ended April 30,
(dollars in thousands)	2018			2017			Change		2019			2018			Change
Interest income and fees	$	82,964		$	74,144		$	8,820	$	84,017		$	76,346		$	7,671
Net charge-offs	(46,850		)	(56,519		)	9,669		(48,061		)	(45,450		)	(2,611		)
Interest expense	(15,098		)	(18,095		)	2,997		(14,497		)	(16,820		)	2,323
Net portfolio income (loss)	$	21,016		$	(470	)	$	21,486
Average portfolio balance	$	1,518,513		$	1,485,683		$	32,830
Net portfolio income									$	21,459		$	14,076		$	7,383
Average outstanding portfolio balance									$	1,558,322		$	1,506,783		$	51,539
Interest income and fee yield (annualized)	21.7		%	19.8		%			22.1		%	20.8		%
Net charge-off % (annualized)	12.3		%	15.2		%			12.3		%	12.1		%

Retail Gross Margin


	Three Months Ended October 31,									Three Months Ended April 30,
(dollars in thousands)	2018			2017			Change			2019			2018			Change
Retail total net sales	$	283,874		$	291,808		$	(7,934	)	$	261,979		$	275,756		$	(13,777	)
Cost of goods sold	166,886			175,591			(8,705		)	157,228			166,589			(9,361		)
Retail gross margin	$	116,988		$	116,217		$	771		$	104,751		$	109,167		$	(4,416	)
Retail gross margin percentage	41.2		%	39.8		%				40.0		%	39.6		%

The increase in retail gross margin was primarily driven by an increase in retrospective income on our RSAs and by improved product margins in almost all product categories.

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Selling, General and Administrative Expense


	Three Months Ended October 31,								Three Months Ended April 30,
(dollars in thousands)	2018			2017			Change		2019			2018			Change
Retail segment	$	80,894		$	80,676		$	218	$	79,622		$	77,752		$	1,870
Credit segment	37,486			33,679			3,807		38,292			37,126			1,166
Selling, general and administrative expense - Consolidated	$	118,380		$	114,355		$	4,025	$	117,914		$	114,878		$	3,036
Selling, general and administrative expense as a percent of total revenues	31.7		%	30.6		%			33.4		%	32.1		%

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,~~ offset by a decrease in advertising ~~expense and a decrease in Hurricane Harvey-related expenses.~~expense. The SG&A increase in the credit segment was primarily due to an increase in ~~compensation costs,~~general operational expenses and third-party legal expenses related to ~~bankruptcy~~ collection efforts ~~expenses related to information technology investments and an increase in the corporate overhead allocation.~~on charged off accounts. As a percent of average total customer portfolio balance (annualized), SG&A for the credit segment infor the three months ended ~~October 31, 2018 increased 80~~April 30, 2019 decreased 10 basis points as compared to the 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 compensation.April 30, 2018.

Provision for Bad Debts


	Three Months Ended October 31,									Three Months Ended April 30,
(dollars in thousands)	2018			2017			Change			2019			2018			Change
Retail segment	$	286		$	189		$	97		$	129		$	260		$	(131	)
Credit segment	47,262			56,323			(9,061		)	39,917			43,896			(3,979		)
Provision for bad debts - Consolidated	$	47,548		$	56,512		$	(8,964	)	$	40,046		$	44,156		$	(4,110	)
Provision for bad debts - Credit segment, as a percent of average portfolio balance (annualized)	12.4		%	15.2		%
Provision for bad debts - Credit segment, as a percent of average outstanding portfolio balance (annualized)										10.2		%	11.7		%

The provision for bad debts decreased to ~~$47.5~~$40.0 million for the three months ended ~~October 31, 2018~~April 30, 2019 from ~~$56.5~~$44.2 million for the three months ended ~~October 31, 2017,~~April 30, 2018, a decrease of ~~$9.0~~$4.2 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, 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 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.

~~Interest Expense~~

Interest expense decreased to $15.1 million for the three months ended October 31, 2018 from $18.1 million for the three months ended October 31, 2017, a decrease of $3.0 million. The decrease reflects a decrease in our cost of borrowing 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 $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,
(dollars in thousands) 2018 2017 Change
Provision for income taxes $ 5,745
$ 728
$ 5,017
Effective tax rate 28.2 % 31.7 %

The increase in income tax expense for the three months ended October 31, 2018 compared to the three months ended October 31, 2017 was primarily 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 from 35% to 21%.~~

~~Nine Months Ended October 31, 2018 Compared to Nine Months Ended October 31, 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:

Nine Months Ended October 31, % Same Store
(dollars in thousands) 2018 % of Total 2017 % of Total Change Change % Change
Furniture and mattress ⁽¹⁾
$ 285,428
33.4 % $ 286,886
33.5 % $ (1,458 ) (0.5 )% (3.9 )%
Home appliance 249,036
29.1
253,044
29.5
(4,008 ) (1.6 ) (3.3 )
Consumer electronics ⁽¹⁾
167,964
19.6
166,761
19.4
1,203
0.7
0.2
Home office ⁽¹⁾
60,260
7.1
54,945
6.4
5,315
9.7
10.4
Other 10,536
1.2
13,105
1.6
(2,569 ) (19.6 ) (20.8 )
Product sales 773,224
90.4
774,741
90.4
(1,517 ) (0.2 ) (2.1 )
Repair service agreement commissions ⁽²⁾
72,104
8.4
72,703
8.5
(599 ) (0.8 ) (5.0 )
Service revenues 10,615
1.2
10,062
1.1
553
5.5

Total net sales $ 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 following provides a summary of the drivers of same store sales performance of our product categories during the nine months ended October 31, 2018 as compared to the nine months ended October 31, 2017:

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

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

~~Home appliance unit volume decreased 8.8%, partially offset by a 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 increased 25.5%, partially offset by a 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,
(in thousands) 2018 2017 Change
Interest income and fees $ 239,745
$ 210,765
$ 28,980
Insurance income 20,852
27,107
(6,255 )
Other revenues 291
267
24
Finance charges and other revenues $ 260,888
$ 238,139
$ 22,749

The increase in interest income and fees was due to an increase in the yield rate to 21.2% for the nine months ended October 31, 2018 from 18.9% for the nine months ended October 31, 2017, an increase of 230 basis points, and by an increase of 1.0% in the average balance of the customer receivable portfolio. The increase in the yield rate resulted from the origination of our higher-yielding direct loan product. Insurance income decreased over the prior year period primarily due to a decrease in retrospective 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,
(dollars in thousands) 2018 2017 Change
Interest income and fees $ 239,745
$ 210,765
$ 28,980
Net charge-offs (143,943 ) (170,393 ) 26,450
Interest expense (47,484 ) (62,142 ) 14,658
Net portfolio income (loss) $ 48,318
$ (21,770 ) $ 70,088
Average portfolio balance $ 1,508,887
$ 1,493,292
$ 15,595
Interest income and fee yield (annualized) 21.2 % 18.9 %
Net charge-off % (annualized) 12.7 % 15.2 %

~~Retail Gross Margin~~

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

~~The increase in retail gross margin was driven by improved product margins in almost all product categories.~~

~~Selling, General and Administrative Expense~~

Nine Months Ended
October 31,
(dollars in thousands) 2018 2017 Change
Retail segment $ 241,649
$ 233,290
$ 8,359
Credit segment 112,299
99,234
13,065
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 increase in the retail segment was primarily due to an increase in new store occupancy costs, an increase in compensation costs, an increase in professional fees and an increase in the corporate overhead allocation, partially offset by a decrease in

advertising expense and a decrease in Hurricane Harvey-related expenses. The SG&A increase in the credit segment was primarily due to an increase in compensation costs, 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, 2018 increased 100 basis points as compared to the nine 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 compensation.

~~Provision for Bad Debts~~

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

The provision for bad debts decreased 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~~three months ended ~~October 31, 2017 as~~April 30, 2019 compared to the ~~nine~~three months ended ~~October 31, 2018.~~April 30, 2018, partially offset by a year-over-year increase in net charge-offs of $2.6 million, which was primarily driven by an increase in the average balance of the customer receivable portfolio. The ~~greater~~ decrease in the allowance for bad debts as of three months ended April 30, 2019 was primarily driven by a year-over-year decrease in the ~~inclusion~~loss rate of ~~changes~~the customer accounts receivable portfolio balance due to improved credit quality of our customers, compared to a year-over-year increase in ~~first payment default rates and changes in delinquency balances to our allowance for bad debts framework made during~~ the ~~nine~~loss rate of the customer accounts receivable portfolio balance as of the three months ended ~~October 31, 2017.~~April 30, 2018 and by a greater decrease in the customer accounts receivable portfolio balance as of the three months ended April 30, 2019 compared to the three months ended April 30, 2018.

Charges and Credits

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~~three months ended ~~October 31, 2018,~~April 30, 2019, we ~~recorded~~recognized a ~~contingency reserve related to a regulatory matter, severance costs related to a change in the executive management team, and costs~~$0.7 million gain from increased sublease income 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~~consolidation 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.corporate headquarters.

Interest Expense

Interest expense decreased to ~~$47.5~~$14.5 million for the ~~nine~~three months ended ~~October 31, 2018~~April 30, 2019 from ~~$62.1~~$16.8 million for the ~~nine~~three months ended ~~October 31, 2017~~April 30, 2018, a decrease of ~~$14.7~~$2.3 million. The decrease ~~reflects~~was driven by a ~~decrease in our~~lower weighted average cost of borrowing ~~as a result of lower pricing on our securitization transactions coupled with~~and a lower average outstanding balance of debt.

Loss on Extinguishment of Debt

During the ~~nine~~three months ended ~~October 31,~~April 30, 2018, we recorded a ~~$1.8~~$0.4 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 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,								Three Months Ended April 30,
(dollars in thousands)	2018			2017			Change		2019			2018			Change
Provision for income taxes	$	13,859		$	1,916		$	11,943	$	5,013		$	2,806		$	2,207
Effective tax rate	23.8		%	37.0		%			20.4		%	18.1		%

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The increase in income tax expense for the ~~nine~~three months ended ~~October 31, 2018~~April 30, 2019 compared to the ~~nine~~three months ended ~~October 31, 2017~~April 30, 2018 was primarily driven by an increase in ~~taxable income partially offset by a decrease~~pre-tax earnings and an increase in the effective tax rate. The primary factor affecting the increase in our effective tax rate ~~pursuant~~for the three months ended April 30, 2019 was a decrease in deductible compensation expense compared to the ~~Tax Act, which reduced the federal statutory income tax rate from 35% to 21%, and a $0.8 million tax benefit related to the vesting of equity compensation.~~prior year period.

Customer Accounts 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 reflect an interest rate of between 18% and 30%. ~~During the third quarter of fiscal year 2017, we~~We have implemented our direct consumer loan program across all Texas, ~~locations. During the first quarter of fiscal year 2018, we implemented our direct consumer loan program in all~~ Louisiana, ~~locations. During the third quarter of fiscal year 2018, we implemented our direct consumer loan program in all~~ Tennessee and Oklahoma locations. The states of Texas, Louisiana, Tennessee and Oklahoma represented approximately ~~78%~~77% of our originations during the ~~nine~~three months ended ~~October 31, 2018,~~April 30, 2019, which ~~under our previous offerings, had~~have 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~~loan contracts generally reflect an interest rate of ~~fiscal year 2017 to~~ 29.99%. These states represented ~~11%~~12% of our originations during the ~~nine~~three months ended ~~October 31, 2018.~~April 30, 2019.

We offer qualified customers a 12-month no-interest option finance 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” 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. Our re-age programs consist of extensions and two payment updates, which 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. To a much lesser extent, we may provide the customer the ability to re-age their obligation by refinancing the account, which typically 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,

2018
2017
Weighted average credit score of outstanding balances ⁽¹⁾
593

589
Average outstanding customer balance $ 2,578

$ 2,405
Balances 60+ days past due as a percentage of total customer portfolio balance ⁽²⁾
9.7 %
9.9 %
Re-aged balance as a percentage of total customer portfolio balance ⁽²⁾⁽³⁾
25.5 %
23.8 %
Account balances re-aged more than six months (in thousands) $ 87,484

$ 80,516
Allowance for bad debts as a percentage of total customer portfolio balance 13.6 %
13.6 %
Percent of total customer portfolio balance represented by no-interest option receivables 21.7 %
22.3 %



	As of April 30,
	2019			2018
Weighted average credit score of outstanding balances ⁽¹⁾	591			592
Average outstanding customer balance	$	2,686		$	2,462
Balances 60+ days past due as a percentage of total customer portfolio carrying value ⁽²⁾⁽³⁾	8.7		%	9.1		%
Re-aged balance as a percentage of total customer portfolio carrying value ^(2)(3)(4)	25.8		%	25.1		%
Carrying value of account balances re-aged more than six months (in thousands) ⁽³⁾	$	97,620		$	79,497
Allowance for bad debts and uncollectible interest as a percentage of total customer accounts receivable portfolio balance	13.5		%	13.7		%
Percent of total customer accounts receivable portfolio balance represented by no-interest option receivables	23.6		%	21.4		%

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	Three Months Ended October 31,						Nine Months Ended October 31,						Three Months Ended April 30,
	2018			2017			2018			2017			2019			2018
Total applications processed(5)	283,274			321,373			862,324			909,287			258,787			283,486
Weighted average origination credit score of sales financed ⁽¹⁾	610			611			609			609			608			609
Percent of total applications approved and utilized	28.5		%	29.1		%	30.1		%	31.1		%	27.6		%	29.2		%
Average down payment	2.4		%	2.9		%	2.7		%	3.2		%	2.7		%	3.1		%
Average income of credit customer at origination	$	45,400		$	43,500		$	44,200		$	42,700		$	45,200		$	43,800
Percent of retail sales paid for by:
In-house financing, including down payment received	69.7		%	72.0		%	70.1		%	71.7		%
In-house financing, including down payments received													68.2		%	70.0		%
Third-party financing	15.6		%	15.1		%	15.7		%	15.8		%	16.1		%	14.9		%
Third-party lease-to-own option	8.0		%	5.7		%	7.3		%	5.7		%	8.4		%	7.5		%
	93.3		%	92.8		%	93.1		%	93.2		%	92.7		%	92.4		%


(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)	Carrying value reflects the total customer accounts receivable portfolio balance, net of deferred fees and origination costs, the allowance for no-interest option credit programs and the allowance for uncollectible interest.


(4)	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,~~April 30, 2019 and April 30, 2018 were 1.4% and ~~October 31, 2017 were 2.2% and 4.8%~~3.6%, respectively, of the total customer portfolio ~~balance.~~carrying value.


(5)	The total applications processed during the three months ended April 30, 2018, we believe, reflect the impact of the rebuilding efforts following Hurricane Harvey.

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 ~~include~~includes all accounts for which payment term has been ~~extended~~re-aged 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~~total customer accounts receivable portfolio balance decreased to ~~10.7%~~10.3% as of ~~October 31, 2018~~April 30, 2019 from ~~11.1%~~10.9% as of ~~October 31, 2017.~~April 30, 2018. The percentage of the carrying value of non-restructured accounts greater than 60 days past due decreased 50 basis points over the prior year period to ~~7.7%~~7.0% as of ~~October 31, 2018~~April 30, 2019 from ~~8.2%~~7.5% as of ~~October 31, 2017.~~April 30, 2018.

For restructured accounts, the allowance for uncollectible accounts as a percentage of the portfolio balance was ~~34.7%~~35.6% as of ~~October 31, 2018~~April 30, 2019 as compared to ~~36.7%~~36.3% as of ~~October 31, 2017. This 200 basis point~~April 30, 2018. The decrease reflects ~~the impact of improved delinquency rates.~~lower historical losses on restructured accounts.

The percent of bad debt charge-offs, net of recoveries, to average outstanding portfolio balance was 12.3% for the three months ended ~~October 31, 2018 as~~April 30, 2019 compared to ~~15.2%~~12.1% for the three months ended October 31, 2017. The decrease was primarily due to the seasoning of loans originated with tighter underwriting standards, improved collections execution and improvements in recoveries due to enhancements in our collections program.April 30, 2018.

As of ~~October 31,~~April 30, 2019 and 2018, ~~and 2017,~~ balances under no-interest programs included within customer receivables were ~~$331.1~~$362.0 million and ~~$331.6~~$319.8 million, respectively.

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, 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~~three months ended ~~October 31, 2018,~~April 30, 2019, net cash provided by operating activities was ~~$182.1~~$49.7 million compared to ~~$81.9~~$135.3 million for the ~~nine~~three months ended ~~October 31, 2017.~~April 30, 2018. The ~~increase~~decrease in net cash provided by operating activities was primarily driven by ~~an increase~~a decrease in cash provided by working capital ~~primarily due to more efficient management of inventory,~~and the collection of an income tax receivable ~~and~~during the three months ended April 30, 2018 offset by an increase in net income when adjusted for non-cash activity.

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Investing cash flows. For the ~~nine~~three months ended ~~October 31, 2018,~~April 30, 2019, net cash used in investing activities was ~~$22.6~~$13.1 million compared to ~~$12.0~~$6.2 million for the ~~nine~~three months ended ~~October 31, 2017.~~April 30, 2018. The change was primarily the result of higher capital expenditures due to investments in new stores, renovations and expansions of select existing stores and technology investments we are making to support long-term growth.

Financing cash flows. For the ~~nine~~three months ended ~~October 31, 2018,~~April 30, 2019, net cash used in financing activities was ~~$182.1~~$13.7 million compared to ~~$120.3~~net cash used in financing activities of $142.4 million for the ~~nine~~three months ended ~~October 31, 2017.~~April 30, 2018. During the ~~nine~~three months ended ~~October 31,~~April 30, 2019, we issued 2019-A VIE asset-backed notes resulting in net proceeds to us of approximately $379.2 million, net of transaction costs, which were used to pay down the entire balance of the Company’s Revolving Credit Facility outstanding at the time of issuance and for other general corporate purposes. Cash collections from the securitized receivables were used to make payments on the asset-backed notes of approximately $124.1 million during the three months ended April 30, 2019 compared to approximately $262.5 million in the comparable prior year period.

During the three months ended April 30, 2018, the issuance of additional funding under the Warehouse Notes resulted in net proceeds of ~~$169.7~~$50.8 million, net of transaction costs and restricted cash. The proceeds from the fundings of the Warehouse Notes were used to early retire our Series 2016-B Class B Notes (the “2016-B Redeemed Notes”) ~~and our Series 2017-A 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 $708.6 million during the nine months ended October 31, 2018 compared to approximately $837.6 million in the comparable prior year period. During the nine months ended October 31, 2018, net borrowings under our Revolving Credit Facility were $6.1 million compared to $174.5 million for the 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 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 $456.7 million, net of transaction costs and restricted cash held by the 2017-A VIE, which were used to pay down the entire balance on our 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”), pursuant to an indenture dated July 1, 2014 ~~(the~~(as amended, the “Indenture”), among ~~Conn's,~~Conn’s, Inc., its subsidiary guarantors (the “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~~Company’s and certain of its ~~subsidiaries'~~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”); (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, excluding certain restricted payments permitted under the Indenture, exceeds the sum of (i) 50% of Consolidated Net Income from November 1, 2015 to 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 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 certain permitted exceptions, including (1) an exception that permits restricted payments regardless of dollar amount so long as, after giving pro forma effect to such dividends and other restricted payments, we would have had a leverage ratio, as defined in the Indenture, of less than or equal to 2.50 to 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 the sum of the Consolidated Net Income Threshold Amount and Permitted Distribution Amount, as of October 31, 2018, $207.8 million would have been free from the distribution restriction. During any time when the Senior Notes are rated investment grade by either of ~~Moody's~~Moody’s Investors Service, Inc. or Standard & ~~Poor's~~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. As of April 30, 2019, $238.1 million would have been free from the distribution restriction covenant contained in the Indenture. 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.

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

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.

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The asset-backed notes ~~consist~~outstanding as of April 30, 2019 consisted of the following:


Asset-Backed Notes	Original Principal Amount		Original Net Proceeds ⁽¹⁾		Current Principal Amount		Issuance Date	Maturity Date	Fixed Interest Rate	Effective Interest Rate ⁽²⁾	Original Principal Amount		Original Net Proceeds ⁽¹⁾		Current Principal Amount		Issuance Date	Maturity Date	Contractual 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%	$	132,180	$	131,281	$	59,397	12/20/2017	4/15/2021	4.52%	5.31%
2017-B Class C Notes	78,640		77,843		78,640		12/20/2017	11/15/2022	5.95%	6.34%	78,640		77,843		78,640		12/20/2017	11/15/2022	5.95%	6.37%
2018-A Class A Notes	219,200		217,832		154,907		8/15/2018	1/17/2023	3.25%	4.73%	219,200		217,832		80,444		8/15/2018	1/17/2023	3.25%	4.79%
2018-A Class B Notes	69,550		69,020		69,550		8/15/2018	1/17/2023	4.65%	5.43%	69,550		69,020		48,514		8/15/2018	1/17/2023	4.65%	5.59%
2018-A Class C Notes	69,550		68,850		69,550		8/15/2018	1/17/2023	6.02%	6.79%	69,550		68,850		48,514		8/15/2018	1/17/2023	6.02%	6.96%
2019-A Class A Notes											254,530		253,026		254,530		4/24/2019	10/16/2023	3.40%	4.87%
2019-A Class B Notes											64,750		64,276		64,750		4/24/2019	10/16/2023	4.36%	5.06%
2019-A Class C Notes											62,510		61,898		62,510		4/24/2019	10/16/2023	5.29%	5.99%
Warehouse Notes	121,060		118,972		84,409		7/16/2018	1/15/2020	Index + 2.50% ⁽³⁾	6.56%	121,060		118,972		24,684		7/16/2018	1/15/2020	Index + 2.50% ⁽³⁾	5.91%
Total	$	1,051,580	$	1,042,743	$	615,333					$	1,071,970	$	1,062,998	$	721,983


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


(2)	For the ~~nine~~three months ended ~~October 31, 2018,~~April 30, 2019, and inclusive of ~~retrospective adjustments to deferred debt issuance costs based on~~the impact of changes in timing of actual and expected cash flows.


(3)	The rate on the Warehouse Notes is defined as the applicable index plus a 2.50% fixed margin.

On ~~February 15, 2018, affiliates of~~April 24, 2019, 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.

~~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.~~

the Revolving Credit Facility without restriction. As of ~~October 31, 2018,~~April 30, 2019, we were restricted from making distributions, including repayments of the Senior Notes or other distributions, in excess of ~~$282.5~~$274.3 million as a result of the Revolving Credit Facility

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distribution restrictions. The 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, 2018.~~April 30, 2019. A summary of the significant financial covenants that govern our Revolving Credit Facility, as amended, compared to our actual compliance status at ~~October 31, 2018~~April 30, 2019 is presented below:



	Actual	Required Minimum/ Maximum
Interest Coverage Ratio for the quarter must equal or exceed minimum	~~4.07:~~4.09:1.00	1.00:1.00
Interest Coverage Ratio for the trailing two quarters must equal or exceed minimum	~~3.97:~~4.60:1.00	1.50:1.00
Leverage Ratio must not exceed maximum	~~2.01:~~1.77:1.00	4.00:1.00
ABS Excluded Leverage Ratio must not exceed maximum	~~1.08:~~0.76:1.00	2.00:1.00
Capital Expenditures, net, must not exceed maximum	$~~16.0~~20.3 million	$100.0 million

All capitalized terms in the above table are defined by the 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 Capital Expenditures,~~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 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 $1.5 million and ~~$2.0~~$2.5 million per store (before tenant improvement allowances), and for our existing store remodels, estimated to range between $0.3 million and $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” or direct “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 opened ~~five~~four new stores during the ~~nine~~three months ended ~~October 31, 2018~~April 30, 2019 and currently plan to open a total of ~~seven~~14 to 15 new stores during fiscal year ~~2019.~~2020. Additionally, we plan to upgrade several of our facilities and continue to enhance our IT systems during fiscal year ~~2019.~~2020. Our anticipated capital expenditures for the remainder of fiscal year ~~2019~~2020 are between ~~$13.0~~$47.0 million and ~~$15.0~~$50.0 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, funding of capital expenditures and repayment of debt, we rely primarily on cash from operations. As of ~~October 31, 2018,~~April 30, 2019, beyond cash generated from operations we had (i) immediately available borrowing capacity of ~~$401.6~~$429.4 million under our Revolving Credit Facility, (ii) ~~$162.8~~$218.1 million that may become available under our Revolving Credit Facility if we grow the balance of eligible customer receivables and our total eligible inventory balances and (iii) ~~$3.5~~$9.8 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 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.

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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, 2018:~~April 30, 2019:


			Payments due by period										Payments due by period
(in thousands)	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years		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		—		279,845		16,458		32,915		230,472		—
2017-B Class A Notes ⁽²⁾	27,313		712		26,601		—		—
2017-B Class B Notes ⁽²⁾	146,863		5,975		140,888		—		—		64,664		2,685		61,979		—		—
2017-B Class C Notes ⁽²⁾	97,561		4,679		9,358		83,524		—		95,241		4,679		9,358		81,204		—
2018-A Class A Notes ⁽²⁾	176,135		5,034		10,069		161,032		—		90,172		2,614		5,229		82,329		—
2018-A Class B Notes ⁽²⁾	83,186		3,234		6,468		73,484		—		56,907		2,256		4,512		50,139		—
2018-A Class C Notes ⁽²⁾	87,204		4,187		8,374		74,643		—		59,380		2,921		5,841		50,618		—
2019-A Class A Notes ⁽²⁾											293,177		8,654		17,308		267,215		—
2019-A Class B Notes ⁽²⁾											77,357		2,823		5,646		68,888		—
2019-A Class C Notes ⁽²⁾											77,278		3,307		6,614		67,357		—
Warehouse Notes ⁽¹⁾	89,549		4,254		85,295		—		—		25,609		25,609		—		—		—
Capital lease obligations	7,271		1,151		1,328		953		3,839
Financing lease obligations											7,449		1,034		1,522		1,194		3,699
Operating leases:
Real estate	452,655		64,714		127,145		118,001		142,795		514,700		70,240		143,125		131,282		170,053
Equipment	2,442		1,184		1,000		258		—		2,230		1,052		947		231		—
Contractual commitments ⁽³⁾	132,466		127,176		5,270		20		—		132,919		125,317		5,569		2,033		—
Total	$	1,688,609	$	242,944	$	463,082	$	835,949	$	146,634	$	1,776,928	$	269,649	$	300,565	$	1,032,962	$	173,752


(1)	Estimated interest payments are based on the outstanding balance as of ~~October 31, 2018~~April 30, 2019 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 ~~and~~at their respective fixed annual interest rate. Actual principal and interest payments on the asset-backed notes will reflect actual proceeds from the securitized customer accounts receivables.


(3)	Contractual commitments primarily ~~includes~~include commitments to purchase inventory of ~~$111.4~~$97.2 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~~GAAP 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 accounting 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.~~Condensed 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~~Other than with respect to the additional policy below, the description of critical accounting policies is included in our 2019 Form 10-K, ~~for the fiscal year ended January 31, 2018 (the~~ “~~2018 Form 10-K”) , as updated by our Form 8-K~~ filed with the SEC on ~~November 23,~~March 26, 2018.

Leases

On February 1, 2019, we adopted ASU 2016-02, Leases (Topic 842). We determine if an arrangement is a lease at inception. Operating lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We record lease incentives as a reduction to the operating lease right-of-use assets upon commencement of the lease and amortize the balance on a straight-line basis over the life of the lease. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Rather, the short-term lease payments will be recognized as an expense on a straight-line basis over the lease term. Lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise the option. Lease expense is recognized on a straight-line basis over the lease term.

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We have made a policy election for all classifications of leases to combine lease and non-lease components and to account for them as a single lease component.

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 bear interest, at our option, at a rate of LIBOR plus a margin ranging from 2.50% to 3.25% per annum (depending on ~~quarterly average net availability under the borrowing base)~~a pricing grid determined by our total leverage ratio) or the alternate base rate plus a margin ranging from 1.50% to 2.25% per annum (depending on ~~quarterly average net availability under the borrowing base)~~a pricing grid determined by our total leverage ratio). 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~~total leverage ratio and LIBOR or the alternate base rate will affect the interest rate on, and therefore our costs under, the Revolving Credit Facility. As of ~~October 31, 2018, the~~April 30, 2019, there was no outstanding balance ~~outstanding~~ under our Revolving Credit Facility was $83.1 million. A 100 basis point increase in interest rates on the Revolving Credit Facility would increase our borrowing costs by $0.8 million over a 12-month period, based on the balance outstanding at October 31, 2018.Facility.


ITEM 4.	CONTROLS AND PROCEDURES

Based on ~~management's~~management’s evaluation (with the participation of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”)), as of the end of the period covered by this report, our CEO and CFO have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

For the quarter ended ~~October 31, 2018,~~April 30, 2019, there have been no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange 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 6, Contingencies, 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 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 ~~2018~~2019 Form 10-K and Item 1A, Risk Factors, in the 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.10-K.


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

None.


ITEM 3.	DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 4.	MINE SAFETY DISCLOSURE

Not applicable.


ITEM 5.	OTHER INFORMATION

None.

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ITEM 6.	EXHIBITS

The exhibits filed as part of this report are 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 such filing):



Exhibit Number		Description of Document

3.1		Certificate of Incorporation of ~~Conn's,~~Conn’s, Inc. (incorporated herein by reference to Exhibit 3.1 to ~~Conn's,~~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,~~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,~~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,~~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,~~Conn’s, Inc. as filed on May 29, 2014 (incorporated herein by reference to Exhibit 3.1.4 to ~~Conn's,~~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,~~Conn’s, Inc. effective as of November 27, 2018
~~4.1~~		~~Specimen of certificate for shares of Conn's, Inc.'s common stock~~ (incorporated herein by reference to ~~Exhibit 4.1~~exhibit 3.2 to ~~registration statement on~~ Form ~~S-1~~10-Q for the quarterly period ended October 31, 2018 (File No. ~~333-109046)~~001-34956) as filed with the Securities and Exchange Commission on ~~October 29, 2003)~~December 4, 2018)
~~4.2~~4.1		Base Indenture, dated as of ~~August 15, 2018,~~April 24, 2019, by and between the Issuer and 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 17, 2018)~~April 25, 2019)
~~4.3~~4.2		Series ~~2018-A~~2019-A Supplement to the Base Indenture, dated as of ~~August 15, 2018,~~April 24, 2019, by and between the Issuer and the Trustee (incorporated herein by reference to Exhibit 4.2 to Form 8-K (File No. 001-34956) as filed with the Securities and Exchange Commission on ~~August 17, 2018)~~April 25, 2019)
10.1		First Receivables Purchase Agreement, dated ~~August 15, 2018,~~April 24, 2019, by and between the Seller and 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 17, 2018)~~April 25, 2019)
10.2		Second Receivables Purchase Agreement, dated ~~August 15, 2018,~~April 24, 2019, by and between the Seller and the Receivables Trust (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 17, 2018)~~April 25, 2019)
10.3		Purchase and Sale Agreement, dated ~~August 15, 2018,~~April 24, 2019, by and between the Seller and the Receivables Trust (incorporated herein by reference to Exhibit 10.3 to Form 8-K (File No. 001-34956) as filed with the Securities and Exchange Commission on ~~August 17, 2018)~~April 25, 2019)
10.4		Servicing Agreement dated as of ~~August 15, 2018,~~April 24, 2019, by and among the Issuer, the Receivables Trust, the Servicer and the Trustee (incorporated herein by reference to Exhibit 10.4 to Form 8-K (File No. 001-34956) as filed with the Securities and Exchange Commission on ~~August 17, 2018)~~April 25, 2019)
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~~first quarter of fiscal year ~~2019,~~2020, filed with the SEC on ~~December 4, 2018,~~May 31, 2019, formatted in Extensible Business Reporting Language (XBRL): (i) the ~~consolidated balance sheets~~Condensed Consolidated Balance Sheets at ~~October 31, 2018~~April 30, 2019 and January 31, ~~2018,~~2019, (ii) the ~~consolidated statements~~Condensed Consolidated Statements of ~~income~~Income for the three ~~and nine~~ months ended ~~October 31,~~April 30, 2019 and 2018, (iii) the Condensed Consolidated Statements of Shareholders Equity for the three months ended April 30, 2019 and 2018, (iv) the Condensed Consolidated Statements of Cash Flows for the three months ended April 30, 2019 and 2018 and ~~2017, (iii) the consolidated statements of cash flows for the nine months ended October 31, 2018 and 2017 and (iv)~~(v) the notes to ~~consolidated financial statements.~~the Condensed Consolidated Financial 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,~~CONN’S, INC.

	Date:	~~December 4, 2018~~May 31, 2019

	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)



	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



	Total Outstanding Balance
	Customer Accounts Receivable						60 Days Past Due ⁽¹⁾				Re-aged ^{(1) (2)}
(in thousands)	October 31, 2018			January 31, 2018			October 31, 2018		January 31, 2018		October 31, 2018		January 31, 2018
Customer accounts receivable	$	1,345,361		$	1,374,269		$	103,556	$	114,120	$	207,805	$	217,952
Restructured accounts	181,145			153,593			44,880		37,687		181,145		153,593
Total customer portfolio balance	$	1,526,506		$	1,527,862		$	148,436	$	151,807	$	388,950	$	371,545
Allowance for uncollectible accounts	(207,097		)	(203,572		)
Allowances for no-interest option credit programs	(18,716		)	(20,960		)
Deferred fees and origination costs, net	(15,977		)	(15,897		)
Total customer accounts receivable, net	1,284,716			1,287,433
Short-term portion of customer accounts receivable, net	(630,396		)	(636,825		)
Long-term portion of customer accounts receivable, net	$	654,320		$	650,608
Securitized receivables held by the VIEs	$	838,835		$	1,085,385		$	101,433	$	124,627	$	287,902	$	300,348
Receivables not held by the VIEs	687,671			442,477			47,003		27,180		101,048		71,197
Total customer portfolio balance	$	1,526,506		$	1,527,862		$	148,436	$	151,807	$	388,950	$	371,545



	Three Months Ended October 31, 2018							Three Months Ended October 31, 2017
(in thousands)	Retail		Credit			Total		Retail		Credit			Total
Revenues:
Furniture and mattress	$	91,342	$	—		$	91,342	$	97,146	$	—		$	97,146
Home appliance	79,542		—			79,542		83,837		—			83,837
Consumer electronic	60,008		—			60,008		58,062		—			58,062
Home office	22,661		—			22,661		20,295		—			20,295
Other	3,178		—			3,178		4,446		—			4,446
Product sales	256,731		—			256,731		263,786		—			263,786
Repair service agreement commissions	23,579		—			23,579		24,488		—			24,488
Service revenues	3,564		—			3,564		3,534		—			3,534
Total net sales	283,874		—			283,874		291,808		—			291,808
Finance charges and other revenues	179		89,771			89,950		95		81,269			81,364
Total revenues	284,053		89,771			373,824		291,903		81,269			373,172
Costs and expenses:
Cost of goods sold	166,886		—			166,886		175,591		—			175,591
Selling, general and administrative expense ⁽¹⁾	80,894		37,486			118,380		80,676		33,679			114,355
Provision for bad debts	286		47,262			47,548		189		56,323			56,512
Charges and credits	737		4,800			5,537		5,861		—			5,861
Total costs and expenses	248,803		89,548			338,351		262,317		90,002			352,319
Operating income (loss)	35,250		223			35,473		29,586		(8,733		)	20,853
Interest expense	—		15,098			15,098		—		18,095			18,095
Loss on extinguishment of debt	—		—			—		—		461			461
Income (loss) before income taxes	$	35,250	$	(14,875	)	$	20,375	$	29,586	$	(27,289	)	$	2,297



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