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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION 
Washington, D.C.  20549 
FORM 10-Q
(Mark One) 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended October 31, 2020
 or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the transition period from to .
Commission File Number 001-34956
CONN’S, INC.
(Exact name of registrant as specified in its charter)
Delaware   06-1672840
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification Number)
2445 Technology Forest Blvd., Suite 800,
The Woodlands, TX
77381
(Address of principal executive offices)
(Zip Code)
 Registrant’s telephone number, including area code:  (936) 230-5899
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
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 ☒  No ☐
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 ☒  No ☐
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
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
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 ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes ☐  No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of December 1, 2020: 
Class   Outstanding
Common stock, $0.01 par value per share   29,203,187


Table of Contents
CONN’S, INC. AND SUBSIDIARIES

FORM 10-Q
FOR THE FISCAL QUARTER ENDED OCTOBER 31, 2020

TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION  
Item 1. Financial Statements  
 
1
 
2
3
 
5
 
6
Item 2.
23
Item 3.
40
Item 4.
40
PART II. OTHER INFORMATION  
Item 1.
41
Item 1A.
41
Item 2.
41
Item 3.
41
Item 4.
41
Item 5.
41
Item 6.
42
42
43
This Quarterly Report on Form 10-Q includes our trademarks such as “Conn’s,” “Conn’s HomePlus,” “YE$ YOU’RE APPROVED,” “YES Money,” “YE$ Money,” “YES Lease,” “YE$ Lease,” and our logos, which are protected under applicable intellectual property laws and are the property of Conn’s, Inc.  This report also contains trademarks, service marks, trade names and copyrights of other companies, which are the property of their respective owners.  Solely for convenience, trademarks and trade names referred to in this Quarterly Report may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names.
References to “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.

Explanatory Note
As previously disclosed in Note 17, Quarterly Information (Unaudited), in our Annual Report on Form 10-K for the fiscal year ended January 31, 2020 (the “2020 Form 10-K”), we restated our audited consolidated financial statements for the three and nine month periods ended October 31, 2019 (the “Non-Reliance Periods”). Accordingly, the condensed consolidated financial statements for the Non-Reliance Periods included in this Form 10-Q have been restated as described in the 2020 Form 10-K. See also Note 1, Summary of Significant Accounting Policies, for further information on the impact of the restatement on the condensed consolidated financial statements for the Non-Reliance Periods.


Table of Contents
PART I.    FINANCIAL INFORMATION
ITEM 1.     FINANCIAL STATEMENTS
CONN’S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited and dollars in thousands, except per share amounts)
October 31,
2020
January 31,
2020
Assets
Current assets:
Cash and cash equivalents $ 107,822  $ 5,485 
Restricted cash (includes VIE balances of $76,438 and $73,214, respectively)
78,374  75,370 
Customer accounts receivable, net of allowances (includes VIE balances of $322,235 and $393,764, respectively)
489,841  673,742 
Other accounts receivable 56,414  68,753 
Inventories 216,161  219,756 
Income taxes receivable 10,631  4,315 
Prepaid expenses and other current assets 9,944  11,445 
Total current assets 969,187  1,058,866 
Long-term portion of customer accounts receivable, net of allowances (includes VIE balances of $263,866 and $420,454, respectively)
444,352  663,761 
Property and equipment, net 191,079  173,031 
Operating lease right-of-use assets 269,770  242,457 
Deferred income taxes 44,725  18,599 
Other assets 14,343  12,055 
Total assets $ 1,933,456  $ 2,168,769 
Liabilities and Stockholders’ Equity    
Current liabilities:    
Current finance lease obligations $ 769  $ 605 
Accounts payable 74,338  48,554 
Accrued compensation and related expenses 23,673  10,795 
Accrued expenses 66,518  52,295 
Operating lease liability - current 37,663  35,390 
Income taxes payable 1,036  2,394 
Deferred revenues and other credits 12,765  12,237 
Total current liabilities 216,762  162,270 
Operating lease liability - non current 362,035  329,081 
Long-term debt and finance lease obligations (includes VIE balances of $570,991 and $768,121, respectively)
800,586  1,025,535 
Other long-term liabilities 25,602  24,703 
Total liabilities 1,404,985  1,541,589 
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; 32,645,472 and 32,125,055 shares issued, respectively)
326  321 
Treasury stock (at cost; 3,485,441 shares and 3,485,441 shares, respectively)
(66,290) (66,290)
Additional paid-in capital 128,552  122,513 
Retained earnings 465,883  570,636 
Total stockholders’ equity 528,471  627,180 
Total liabilities and stockholders’ equity
$ 1,933,456  $ 2,168,769 
See notes to condensed consolidated financial statements.

1

Table of Contents
CONN’S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and dollars in thousands, except per share amounts)
Three Months Ended
October 31,
Nine Months Ended
October 31,
  2020 2019 2020 2019
Revenues:
Product sales $ 239,157  $ 250,233  $ 702,497  $ 759,256 
Repair service agreement commissions 17,465  26,478  57,730  78,149 
Service revenues 3,150  3,411  9,611  10,758 
Total net sales 259,772  280,122  769,838  848,163 
Finance charges and other revenues 74,386  96,005  248,396  282,535 
Total revenues 334,158  376,127  1,018,234  1,130,698 
Costs and expenses:
Cost of goods sold 160,378  170,453  484,015  509,746 
Selling, general and administrative expense 122,158  125,608  350,443  371,006 
Provision for bad debts 27,493  45,925  176,864  135,707 
Charges and credits —  3,837  3,589  3,142 
Total costs and expenses 310,029  345,823  1,014,911  1,019,601 
Operating income 24,129  30,304  3,323  111,097 
Interest expense 11,563  15,051  39,778  43,944 
Income (loss) before income taxes 12,566  15,253  (36,455) 67,153 
Provision (benefit) for income taxes 5,147  3,784  (8,192) 16,201 
Net income (loss) $ 7,419  $ 11,469  $ (28,263) $ 50,952 
Income (loss) per share:
Basic $ 0.25  $ 0.39  $ (0.97) $ 1.65 
Diluted $ 0.25  $ 0.39  $ (0.97) $ 1.62 
Weighted average common shares outstanding:
Basic 29,142,843  29,094,062  29,013,759  30,796,114 
Diluted 29,483,481  29,710,740  29,013,759  31,353,834 
See notes to condensed consolidated financial statements.

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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 Treasury Stock
Shares Amount Shares Amount Total
Balance January 31, 2020 32,125,055  $ 321  $ 122,513  $ 570,636  (3,485,441) $ (66,290) $ 627,180 
Adoption of ASU 2016-13 —  —  —  (76,490) —  —  (76,490)
Exercise of options and vesting of restricted stock, net of withholding tax 321,468  (1,288) —  —  —  (1,285)
Issuance of common stock under Employee Stock Purchase Plan 47,450  176  —  —  —  177 
Stock-based compensation —  —  2,430  —  —  —  2,430 
Net loss —  —  —  (56,202) —  —  (56,202)
Balance April 30, 2020 32,493,973  $ 325  $ 123,831  $ 437,944  (3,485,441) $ (66,290) $ 495,810 
Exercise of options and vesting of restricted stock, net of withholding tax 70,271  (159) —  —  —  (158)
Issuance of common stock under Employee Stock Purchase Plan 51,643  —  160  —  —  —  160 
Stock-based compensation —  —  2,254  —  —  —  2,254 
Net income —  —  —  20,520  —  —  20,520 
Balance July 31, 2020 32,615,887  $ 326  $ 126,086  $ 458,464  (3,485,441) $ (66,290) $ 518,586 
Exercise of options and vesting of restricted stock, net of withholding tax 6,856  —  (32) —  —  —  (32)
Issuance of common stock under Employee Stock Purchase Plan 22,729  —  194  —  —  —  194 
Stock-based compensation —  —  2,304  —  —  —  2,304 
Net income —  —  —  7,419  —  —  7,419 
Balance October 31, 2020 32,645,472  $ 326  $ 128,552  $ 465,883  (3,485,441) $ (66,290) $ 528,471 

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Table of Contents
Additional Paid-in Capital
Common Stock Retained Earnings Treasury Stock
Shares Amount Shares Amount 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  (1,241) —  —  —  (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 
Exercise of options and vesting of restricted stock, net of withholding tax 51,384  (327) —  —  —  (326)
Issuance of common stock under Employee Stock Purchase Plan 12,638  —  194  —  —  —  194 
Stock-based compensation —  —  3,419  —  —  —  3,419 
Common stock repurchase —  —  —  —  (1,874,846) (34,344) (34,344)
Net income —  —  —  19,974  —  —  19,974 
Balance July 31, 2019 32,000,548  $ 320  $ 116,645  $ 554,115  (1,874,846) $ (34,344) $ 636,736 
Exercise of options and vesting of restricted stock, net of withholding tax 19,043  —  (211) —  —  —  (211)
Issuance of common stock under Employee Stock Purchase Plan 18,341  —  220  —  —  —  220 
Stock-based compensation —  —  3,216  —  —  —  3,216 
Common stock repurchase —  —  —  —  (1,261,819) (24,727) (24,727)
Net income —  —  —  11,469  —  —  11,469 
Balance October 31, 2019 32,037,932  $ 320  $ 119,870  $ 565,584  (3,136,665) $ (59,071) $ 626,703 
See notes to condensed consolidated financial statements.

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Table of Contents
CONN’S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
Nine Months Ended October 31,
  2020 2019
Cash flows from operating activities:
Net income (loss) $ (28,263) $ 50,952 
Adjustments to reconcile net income (loss) to net cash from operating activities:    
Depreciation 30,506  27,171 
Change in right-of-use asset 21,926  20,588 
Amortization of debt issuance costs 6,388  6,410 
Provision for bad debts and uncollectible interest 225,713  179,150 
Stock-based compensation expense 6,988  9,852 
Charges, net of credits 3,589  3,142 
Deferred income taxes (3,954) 2,846 
Gain on disposal of property and equipment 198  68 
Tenant improvement allowances received from landlords 15,137  19,685 
Change in operating assets and liabilities:    
Customer accounts receivable 79,357  (162,075)
Other accounts receivables 11,918  (3,138)
Inventories 3,595  (27,581)
Other assets (342) (7,994)
Accounts payable 23,423  14,313 
Accrued expenses 24,666  (8,823)
Operating leases (29,151) (24,703)
Income taxes (4,370) (7,656)
Deferred revenues and other credits (1,862) 322 
Net cash provided by operating activities 385,462  92,529 
Cash flows from investing activities:    
Purchases of property and equipment (46,644) (48,324)
Proceeds from asset dispositions —  724 
Net cash used in investing activities (46,644) (47,600)
Cash flows from financing activities:    
Proceeds from issuance of asset-backed notes 240,100  381,790 
Payments on asset-backed notes (438,523) (351,424)
Borrowings under revolving credit facility 1,143,311  1,247,195 
Payments on revolving credit facility (1,172,411) (1,215,395)
Payments on warehouse facility —  (53,635)
Payments of debt issuance costs and amendment fees (4,570) (3,416)
Proceeds from stock issued under employee benefit plans 533  835 
Tax payments associated with equity-based compensation transactions (1,477) (2,009)
Purchase of treasury stock —  (59,071)
Other (440) (817)
Net cash used in financing activities (233,477) (55,947)
Net change in cash, cash equivalents and restricted cash 105,341  (11,018)
Cash, cash equivalents and restricted cash, beginning of period 80,855  64,937 
Cash, cash equivalents and restricted cash, end of period $ 186,196  $ 53,919 
Non-cash investing and financing activities:
Right-of-use assets obtained in exchange for new finance lease liabilities $ 1,045  $ 1,110 
Right-of-use assets obtained in exchange for new operating lease liabilities $ 65,958  $ 56,743 
Property and equipment purchases not yet paid $ 7,023  $ 8,558 
Supplemental cash flow data:
Cash interest paid $ 28,803  $ 33,496 
Cash income taxes paid (refunded), net $ 394  $ 17,119 
See notes to condensed consolidated financial statements.

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Table of Contents
CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.     Summary of Significant Accounting Policies 
Business. Conn’s, Inc., a Delaware corporation, is a holding company with no independent assets or operations other than its investments in its subsidiaries. References to “we,” “our,” “us,” “the Company,” “Conn’s” or “CONN” refer to Conn’s, Inc. and, as apparent from the context, its subsidiaries. Conn’s is a leading specialty retailer that offers a broad selection of quality, branded durable consumer goods and related services in addition to proprietary credit solutions for its core credit-constrained consumers. We operate an integrated and scalable business through our retail stores and website. Our complementary product offerings include furniture and mattresses, home appliances, consumer electronics and home office products from leading global brands across a wide range of price points. Our credit offering provides financing solutions to a large, under-served population of credit-constrained consumers who typically have limited credit alternatives.
We operate two reportable segments: retail and credit. Our retail stores bear the “Conn’s 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 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, Inc. and its wholly-owned subsidiaries, including its Variable Interest Entities (“VIEs”), have been prepared by management in accordance with U.S. generally accepted accounting principles (“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, 2020 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, 2020 (the “2020 Form 10-K”) filed with the United States Securities and Exchange Commission (the “SEC”) on April 14, 2020.
Restatement. In connection with the preparation of the 2020 Form 10-K, the Company’s management became aware that the Company’s historical condensed consolidated interim financial statements for the Non-Reliance Periods contained errors in the calculation and reporting of finance charges and other revenues and provision for bad debts resulting from an error in the allowance for bad debts and uncollectible interest related to the implementation of the Company’s new loan management system. As a result of these errors, the Company restated its historical condensed consolidated interim financial statements for the Non-Reliance Periods. The condensed consolidated cash flow statement for the nine month Non-Reliance Period was not impacted by the errors.
The correction of these errors reduced finance charges and other revenues in the condensed consolidated statements of income for the Non-Reliance Periods by $1.6 million and increased provision for bad debts for the Non-Reliance Periods by $3.3 million. Those changes affected the condensed consolidated balance sheets and condensed consolidated statement of stockholders’ equity as of the end of the Non-Reliance Periods as follows: customer accounts receivable, net of allowances, decreased by $4.9 million, income taxes receivable increased by $0.9 million and deferred income taxes increased by $0.3 million, resulting in a decrease in each of total assets, total stockholders’ equity and total liabilities and stockholders’ equity of approximately $3.7 million. See Note 17, Quarterly Information (Unaudited), in the 2020 Form 10-K for further details.
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 Condensed Consolidated Financial Statements include the accounts of Conn’s, Inc. and its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation. 
Variable Interest Entities. 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

6

CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 Condensed Consolidated Financial Statements.
Refer to Note 5, Debt and 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. During the three months ended July 31, 2020, we refined our historical charge-off estimate in our current expected credit loss model which resulted in an increase to the allowance for bad debt of $15.8 million. No further changes were made to the historical charge-off estimate during the three months ended October 31, 2020.
Cash and Cash Equivalents. As of October 31, 2020 and January 31, 2020, cash and cash equivalents included cash and credit card deposits in transit. Credit card deposits in transit included in cash and cash equivalents were $6.3 million and $4.0 million as of October 31, 2020 and January 31, 2020, respectively. 
Restricted Cash. The restricted cash balance as of October 31, 2020 and January 31, 2020 includes $67.3 million and $59.7 million, respectively, of cash we collected as servicer on the securitized receivables that was subsequently remitted to the VIEs and $9.1 million and $13.9 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. As discussed in more detail below, Recent Accounting Pronouncements Adopted, effective February 1, 2020 the Company adopted ASC 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Under the newly adopted standard, expected lifetime losses on customer accounts receivable are recognized upon origination through an allowance for credit losses account that is deducted from the customer account receivable balance and presented net. Customer accounts receivable 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 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 refinance their 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”).
On March 27, 2020 the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law to address the economic impact of the COVID-19 pandemic. Under the CARES Act, modifications deemed to be COVID-19 related are not considered a TDR if the loan was current (not more than 30 days past due as of March 31, 2020) and the deferral was executed between April 1, 2020 and the earlier of 60 days after the termination of the COVID-19 national emergency or December 31, 2020. In response to the CARES Act, the Company implemented short-term deferral programs for our customers. The carrying value of the customer receivables on accounts which were current prior to receiving a COVID-19 related deferment was $75.8 million as of October 31, 2020.
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. We reserve for interest that is more than 60 days past due. 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, 2020 and January 31, 2020, there was $9.2 million and $10.6 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.

7

CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

We offer a 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 place accounts in non-accrual status when legally required. Payments received on non-accrual loans are applied to principal and reduce the balance of the loan. At October 31, 2020 and January 31, 2020, the carrying value of customer accounts receivable in non-accrual status was $9.8 million and $12.5 million, respectively. At October 31, 2020 and January 31, 2020, the carrying value of customer accounts receivable that were past due 90 days or more and still accruing interest totaled $102.0 million and $132.7 million, respectively. At October 31, 2020 and January 31, 2020, the carrying value of customer accounts receivable in a bankruptcy status that were less than 60 days past due of $7.2 million and $12.1 million, respectively, were included within the customer receivables balance carried in non-accrual status.
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, Debt and Financing Lease Obligations, are included in other assets on our Condensed Consolidated Balance Sheet and were $4.1 million and $3.5 million as of October 31, 2020 and January 31, 2020, respectively.
Income Taxes. For the nine months ended October 31, 2020 and 2019, we utilized the estimated annual effective tax rate based on our estimated fiscal year 2021 and 2020 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.
For the nine months ended October 31, 2020 and 2019, the effective tax rate was 22.5% and 24.1%, respectively. The primary factor affecting the decrease in our effective tax rate for the nine months ended October 31, 2020 was a $2.5 million benefit recognized in the current period as a result of net operating loss provisions within the CARES Act that provide for a five year carryback of losses.
Stock-based Compensation. During the nine months ended October 31, 2020, the Company granted performance stock awards (“PSUs”) and restricted stock awards (“RSUs”). The awards had a combined aggregate grant date fair value of $8.0 million. The PSUs will vest after the Company’s fiscal year 2024, if at all, upon certification by the compensation committee of the satisfaction of certain total shareholder return conditions over the three fiscal years commencing with the Company’s fiscal year 2021. The majority of the RSUs will vest, if at all, over periods of three years to four years from the date of grant.
Stock-based compensation expense is recorded, net of estimated forfeitures, for share-based compensation awards over the requisite service period using the straight-line method. An adjustment is made to compensation cost for any difference between the estimated forfeitures and the actual forfeitures related to the awards. For equity-classified share-based compensation awards, expense is recognized based on the grant-date fair value. For stock option grants, we use the Black-Scholes model to determine fair value. For grants of restricted stock units, the fair value of the grant is the market value of our stock at the date of issuance. For grants of performance-based restricted stock units, the fair value is the market value of our stock at the date of issuance adjusted for the market condition using a Monte Carlo model.
The following table sets forth the RSUs and PSUs granted during the three and nine months ended October 31, 2020 and 2019: 
Three Months Ended
October 31,
Nine Months Ended
October 31,
2020 2019 2020 2019
RSUs —  2,534  622,195  106,328 
PSUs (1)
—  —  270,828  33,894 
Total stock awards granted —  2,534  893,023  140,222 
Aggregate grant date fair value (in thousands) $ —  $ 65  $ 7,957  $ 2,910 
(1)The weighted-average assumptions used in the Monte Carlo model for the PSUs granted on February 6, 2020 included expected volatility of 60.0%, an expected term of 3 years and risk-free interest rate of 1.42%.  No dividend yield was included in the weighted-average assumptions.

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CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended October 31, 2020 and 2019, stock-based compensation expense was $2.3 million and $3.2 million, respectively. For the nine months ended October 31, 2020 and 2019, stock-based compensation expense was $7.0 million and $9.9 million, respectively.
Earnings (loss) per Share. Basic earnings (loss) per share for a particular period is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings per share includes the dilutive effects of any stock options, RSUs and PSUs, which are 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,
(in thousands) 2020 2019 2020 2019
Weighted-average common shares outstanding - Basic 29,142,843  29,094,062  29,013,759  30,796,114 
Dilutive effect of stock options, PSUs and RSUs 340,638  616,678  —  557,720 
Weighted-average common shares outstanding - Diluted 29,483,481  29,710,740  29,013,759  31,353,834 
For the three months ended October 31, 2020 and 2019, the weighted average number of stock options and RSUs not included in the calculation due to their anti-dilutive effect was 894,130 and 660,304, respectively. For the nine months ended October 31, 2020 and 2019, the weighted average number of stock options and RSUs not included in the calculation due to their anti-dilutive effect, was 1,225,771 and 885,554, 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 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 receivable, determined using a Level 3 discounted cash flow analysis, approximates their carrying 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, 2020, the fair value of the Senior Notes outstanding, which was determined using Level 1 inputs, was $219.0 million as compared to the carrying value of $227.0 million, excluding the impact of the related discount. At October 31, 2020, the fair value of the asset backed notes was $553.3 million as compared to the carrying value of $574.6 million and was determined using Level 2 inputs based on inactive trading activity.
Deferred Revenue. Deferred revenue related to contracts with customers consists of deferred customer deposits and deferred RSA administration fees. During the nine months ended October 31, 2020, we recognized $1.2 million of revenue for customer

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CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

deposits deferred as of January 31, 2020. During the nine months ended October 31, 2020, we recognized $3.3 million of revenue for RSA administrative fees deferred as of January 31, 2020.
Leases. In response to the COVID-19 pandemic, during the nine months ended October 31, 2020, we renegotiated a portion of our leases as a means of preserving liquidity. On April 10, 2020 the Financial Accounting Standards Board (“FASB”) issued guidance for lease concessions entered into in response to the COVID-19 pandemic that allows lessees to make an election not to evaluate whether a lease concession provided by a lessor should be accounted for as a lease modification if it does not result in a substantial increase in the rights of the lessor or the obligations of the lessee. We have elected to apply this guidance to our COVID-19 lease concessions. As a result, for the nine months ended October 31, 2020, there were no material modifications to our leases.
Recent Accounting Pronouncements Adopted. In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASC 326”). ASU 2016-13 replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology. Under the new guidance entities must reserve an allowance for expected credit losses over the life of the loan. The measurement of expected credit losses is applicable to financial assets measured at amortized cost. The allowance for credit losses is a valuation account that is deducted from the customer account receivable’s amortized cost basis to present the net amount expected to be collected. Customer receivables are charged off against the allowance when management deems an account to be uncollectible. 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.
Effective February 1, 2020, the Company adopted ASU 2016-13 and ASU 2019-04 using the modified retrospective approach. The Company has reviewed its entire portfolio of assets recognized on the balance sheet as of January 31, 2020 and identified Customer Accounts Receivables as the materially impacted asset in-scope of ASC 326. The risk of credit losses from the remaining portfolio of assets was concluded to be immaterial. Upon adoption of ASC 326 the Company recorded a net decrease to retained earnings of $76.5 million as of February 1, 2020. Results for reporting periods prior to February 1, 2020 are not adjusted and continue to be reported in accordance with the Company’s historic accounting policies under previously applicable GAAP.
The allowance for credit losses is measured on a collective (pool) basis where similar risk characteristics exist. Upon adoption of ASC 326, the Company elected to maintain the pools of customer accounts receivable that were previously accounted for under ASC 310 (Non-TDR Non-Re-aged, Non-TDR Re-aged, and TDR). These pools are further segmented based on shared risk attributes, which include the borrower’s FICO score, product class, length of customer relationship and delinquency status. The allowance for credit losses is determined for each pool and added to the pool’s carrying amount to establish a new amortized cost basis. Changes to the allowance for credit losses after adoption are recorded through provision expense.
We have elected to use a risk-based, pool-level segmentation framework to calculate the expected loss rate. This framework is based on our historical gross charge-off history. In addition to adjusted historical gross charge-off rates, estimates of post-charge-off recoveries, including cash payments from customers, sales tax recoveries from taxing jurisdictions, and payments received under credit insurance and repair service agreement (“RSA”) policies are also considered. We also consider forward-looking economic forecasts based on a statistical analysis of economic factors (specifically, forecast of unemployment rates over the reasonable and supportable forecasting period). To the extent that situations and trends arise which are not captured in our model, management will layer on additional qualitative adjustments.
Pursuant to ASC 326 requirements, the Company uses a 24-month reasonable and supportable forecast period for the Customer Accounts Receivable portfolio. We estimate losses beyond the 24-month forecast period based on historic loss rates experienced over the life of our historic loan portfolio by loan pool type. We will revisit our measurement methodology and assumption annually, or more frequently if circumstances warrant.
The cumulative effect of the changes made to the Company’s Consolidated Balance Sheet as a result of the adoption of ASC 326 were as follows:

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CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Impact of Adoption of ASC 326
(in thousands) Balance at January 31, 2020 Adjustments due to ASC 326 Balance at February 1, 2020
Assets
Customer accounts receivable $ 673,742  $ (49,700) $ 624,042 
Long-term portion of customer accounts receivable 663,761  (48,962) 614,799 
Deferred Income Taxes 18,599  22,172  40,771 
Stockholders’ Equity
Retained Earnings $ 570,636  $ (76,490) $ 494,146 
Changes due to Securities and Exchange Commission Regulation S-X Rules 13-01 and 13-02. In March 2020, the Securities and Exchange Commission (“SEC”) amended Regulation S-X to create Rules 13-01 and 13-02. These new rules reduce and simplify financial disclosure requirements for issuers and guarantors of registered debt offerings. Previously, with limited exceptions, a parent entity was required to provide detailed disclosures with regard to guarantors of registered debt offerings within the footnotes to the consolidated financial statements. Under the new regulations, disclosure exceptions have been expanded and required disclosures may be provided within the Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations rather than in the notes to the financial statements. Further, summarized guarantor balance sheet and income statements are permitted, with the requirement to provide guarantor cash flow statements eliminated. Summarized guarantor financial statements only need be disclosed for the current fiscal year rather than all years presented in the financial statements as was previously required. The guidance will become effective for filings on or after January 4, 2021, with early adoption permitted.
The Company elected to early adopt the new regulations beginning with the first quarter of fiscal year 2021. Our summarized guarantor financial statements are presented in Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

2.    Customer Accounts Receivable
Customer accounts receivable consisted of the following:
(in thousands) October 31,
2020
January 31,
2020
Customer accounts receivable (1)
$ 1,276,100  $ 1,602,037 
Deferred fees and origination costs, net (14,093) (15,746)
Allowance for no-interest option credit programs (10,391) (14,984)
Allowance for uncollectible interest (20,894) (23,662)
Carrying value of customer accounts receivable 1,230,722  1,547,645 
Allowance for credit losses (2)
(296,529) (210,142)
Carrying value of customer accounts receivable, net of allowance for credit losses 934,193  1,337,503 
  Short-term portion of customer accounts receivable, net (489,841) (673,742)
Long-term customer accounts receivable, net $ 444,352  $ 663,761 
Carrying Value
(in thousands) October 31,
2020
January 31,
2020
Customer accounts receivable 60+ days past due (3)
$ 141,441  $ 193,797 
Re-aged customer accounts receivable (4)
347,113  455,704 
Restructured customer accounts receivable (5)
190,819  211,857 
(1)As of October 31, 2020 and January 31, 2020, the customer accounts receivable balance included $32.6 million and $43.7 million, respectively, in interest receivable. Net of the allowance for uncollectible interest, interest receivable outstanding as of October 31, 2020 and January 31, 2020 was $11.7 million and $20.0 million, respectively.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(2)Our current methodology to estimate expected credit losses utilized macroeconomic forecasts as of October 31, 2020, which incorporated the continued estimated impact of the global COVID-19 outbreak on the U.S. economy. Our forecast utilized economic projections from a major rating service reflecting an increase in unemployment. The allowance for credit losses as of January 31, 2020 is based on an incurred loss model, which reserves for incurred losses in the portfolio as of January 31, 2020.
(3)As of October 31, 2020 and January 31, 2020, the carrying value of customer accounts receivable past due one day or greater was $367.3 million and $527.0 million, respectively. These amounts include the 60+ days past due balances shown above.
(4)The re-aged carrying value as of October 31, 2020 and January 31, 2020 includes $91.3 million and $131.4 million, respectively, in carrying value that are both 60+ days past due and re-aged.
(5)The restructured carrying value as of October 31, 2020 and January 31, 2020 includes $52.4 million and $64.8 million, respectively, in carrying value that are both 60+ days past due and restructured.
The allowance for credit losses included in the current and long-term portion of customer accounts receivable, net as shown in the Condensed Consolidated Balance Sheet were as follows:
(in thousands) October 31, 2020
Customer accounts receivable - current $ 666,294 
Allowance for credit losses for customer accounts receivable - current (176,453)
Customer accounts receivable, net of allowances 489,841 
Customer accounts receivable - non current 585,322 
Allowance for credit losses for customer accounts receivable - non current (140,970)
Long-term portion of customer accounts receivable, net of allowances 444,352 
Total customer accounts receivable, net $ 934,193 
The following presents the activity in our allowance for credit losses and uncollectible interest for customer receivables: 
  Nine Months Ended October 31, 2020 Nine Months Ended October 31, 2019
(in thousands) Customer
Accounts
Receivable
 
Restructured
Accounts
 
 
Total
Customer
Accounts
Receivable
 
Restructured
Accounts
 
 
Total
Allowance at beginning of period, prior to adoption of ASC 326 $ 145,680  $ 88,123  $ 233,803  $ 147,123  $ 67,756  $ 214,879 
Impact of adoption ASC 326 95,136  3,526  98,662  —  —  — 
Provision for credit loss expense (1)
164,697  60,595  225,292  119,846  58,818  178,664 
Principal charge-offs (2)
(144,048) (62,678) (206,726) (116,698) (44,686) (161,384)
Interest charge-offs (40,340) (17,553) (57,893) (27,076) (10,368) (37,444)
Recoveries (3)
16,922  7,363  24,285  13,571  5,197  18,768 
Allowance at end of period $ 238,047  $ 79,376  $ 317,423  $ 136,766  $ 76,717  $ 213,483 
Average total customer portfolio balance $ 1,219,794  $ 216,433  $ 1,436,227  $ 1,362,790  $ 195,471  $ 1,558,261 
(1)Includes provision for uncollectible interest, which is included in finance charges and other revenues, and changes in expected future recoveries.
(2)Charge-offs include the principal amount of losses (excluding accrued and unpaid interest). The increase in bad debt charge-offs, net of recoveries, was primarily due to an increase in new customer mix and the impact of difficulties in collection efforts related to the implementation of our new loan management system during the fourth quarter of fiscal year 2020.
(3)Recoveries include the principal amount collected during the period for previously charged-off balances.

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CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

We manage our Customer Accounts Receivable portfolio using delinquency as a key credit quality indicator. The following table presents the delinquency distribution of the carrying value of customer accounts receivable by year of origination. The information is updated as of October 31, 2020:
(in thousands)
Delinquency Bucket 2020 2019 2018 2017 Prior Total % of Total
Current $ 418,548  $ 316,243  $ 113,741  $ 14,045  $ 851  $ 863,428  70.2  %
1-30 49,070  78,166  36,580  8,113  685  172,614  14.0  %
31-60 12,652  23,948  12,449  3,805  385  53,239  4.3  %
61-90 7,536  17,974  8,756  2,755  264  37,285  3.0  %
91+ 19,328  50,445  25,437  8,026  920  104,156  8.5  %
Total $ 507,134  $ 486,776  $ 196,963  $ 36,744  $ 3,105  $ 1,230,722  100.0  %

3.     Charges and Credits
Charges and credits consisted of the following:
Three Months Ended
October 31,
Nine Months Ended
October 31,
(in thousands) 2020 2019 2020 2019
Professional fees $ —  $ —  $ 3,589  $ — 
Write-off of software costs —  1,209  —  1,209 
Facility relocation costs —  2,628  —  1,933 
Total charges and credits $ —  $ 3,837  $ 3,589  $ 3,142 

During the three months ended October 31, 2019, we recognized $3.2 million in impairments from exiting certain leases upon the relocation of three distribution centers into one facility. These facility closure costs were offset by a $0.6 million gain from the sale of a cross-dock. In addition, we recognized $1.2 million in impairments of software costs for a loan management system that was abandoned during the third quarter of fiscal year 2020 related to the implementation of a new loan management system. During the nine months ended October 31, 2020, we recognized $3.6 million in professional fees associated with non-recurring expenses. During the nine months ended October 31, 2019, we recognized $3.2 million in impairments from the exiting of certain leases upon the relocation of three distribution centers into one facility. These facility closure costs were offset by a $0.7 million gain from increased sublease income related to the consolidation of our corporate headquarters and a $0.6 million gain from the sale of a cross-dock. In addition, we recognized $1.2 million in impairments of software costs for a loan management system that was abandoned during the third quarter of fiscal year 2020 related to the implementation of a new loan management system.

4.     Finance Charges and Other Revenues 
Finance charges and other revenues consisted of the following:
Three Months Ended
October 31,
Nine Months Ended
October 31,
(in thousands) 2020 2019 2020 2019
Interest income and fees $ 69,996  $ 85,903  $ 235,438  $ 255,124 
Insurance income 4,222  9,905  12,359  26,809 
Other revenues 168  197  599  602 
Total finance charges and other revenues $ 74,386  $ 96,005  $ 248,396  $ 282,535 
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, 2020 and 2019, interest income and fees reflected provisions for uncollectible interest of $16.9 million and $16.8 million, respectively. The amounts included in interest income and fees related to TDR accounts for the three months ended October 31, 2020 and 2019 were $9.3 million and $9.0 million, respectively. During the

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CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

nine months ended October 31, 2020 and 2019, interest income and fees reflected provisions for uncollectible interest of $48.8 million and $43.4 million, respectively. The amounts included in interest income and fees related to TDR accounts for the nine months ended October 31, 2020 and 2019 were $28.8 million and $25.7 million, respectively.

5.     Debt and Financing Lease Obligations 
Debt and financing lease obligations consisted of the following:
(in thousands) October 31,
2020
January 31,
2020
Revolving Credit Facility $ —  $ 29,100 
Senior Notes 227,000  227,000 
2017-B VIE Asset-backed Class C Notes —  59,655 
2018-A VIE Asset-backed Class A Notes 2,029  34,112 
2018-A VIE Asset-backed Class B Notes 2,861  20,572 
2018-A VIE Asset-backed Class C Notes 2,861  20,572 
2019-A VIE Asset-backed Class A Notes 27,393  76,241 
2019-A VIE Asset-backed Class B Notes 35,180  64,750 
2019-A VIE Asset-backed Class C Notes 33,963  62,510 
2019-B VIE Asset-backed Class A Notes 61,412  265,810 
2019-B VIE Asset-backed Class B Notes 85,540  85,540 
2019-B VIE Asset-backed Class C Notes 83,270  83,270 
2020-A VIE Asset-backed Class A Notes 174,900  — 
2020-A VIE Asset-backed Class B Notes 65,200  — 
Financing lease obligations 5,665  5,209 
Total debt and financing lease obligations 807,274  1,034,341 
Less:
Discount on debt (983) (1,404)
Deferred debt issuance costs (4,936) (6,797)
Current maturities of long-term debt and financing lease obligations (769) (605)
Long-term debt and financing lease obligations $ 800,586  $ 1,025,535 
Senior Notes. On July 1, 2014, we issued $250.0 million of unsecured Senior Notes due July 2022 bearing interest at 7.25% (the “Senior Notes”), pursuant to an indenture dated July 1, 2014 (as amended, the “Indenture”), among 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 and certain of its subsidiaries’ ability to: (i) incur indebtedness; (ii) pay dividends or make other distributions in respect of, or repurchase or redeem, our capital stock (“restricted payments”); (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. During any time when the Senior Notes are rated investment grade by either of Moody’s Investors Service, Inc. or Standard & Poor’s Ratings Services and no default (as defined in the Indenture) has occurred and is continuing, many of such covenants will be suspended and we will cease to be subject to such covenants during such period. As of October 31, 2020, $176.0 million would have been free from the restricted payments 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.
On November 30, 2020, the Company announced a cash tender offer for up to $100.0 million aggregate principal amount of its Senior Notes. See Note 9, Subsequent Events, of the Condensed Consolidated Financial Statements in Part I, Item 1, of this Quarterly Report on Form 10-Q for further details.

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CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Asset-backed Notes. From time to time, we securitize customer accounts receivables by transferring the receivables to various bankruptcy-remote VIEs. In turn, the VIEs 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 RSAs on charge-offs of the securitized receivables, which are reflected as a reduction to net charge-offs on a consolidated basis.
The asset-backed notes were offered and sold to qualified institutional buyers pursuant to the exemptions from registration provided by Rule 144A under the Securities Act of 1933. If an event of default were to occur under the indenture that governs the respective asset-backed notes, the payment of the outstanding amounts may be accelerated, in which event the cash proceeds of the receivables that otherwise might be released to the residual equity holder would instead be directed entirely toward repayment of the asset-backed notes, or if the receivables are liquidated, all liquidation proceeds could be directed solely to repayment of the asset-backed notes as governed by the respective terms of the asset-backed notes. The holders of the asset-backed notes have no recourse to assets outside of the VIEs. Events of default include, but are not limited to, failure to make required payments on the asset-backed notes or specified bankruptcy-related events.
The asset-backed notes outstanding as of October 31, 2020 consisted of the following:
(dollars in thousands)
Asset-Backed Notes Original Principal Amount
Original Net Proceeds (1)
Current Principal Amount Issuance Date Maturity Date Contractual Interest Rate
Effective Interest Rate (2)
2018-A Class A Notes $ 219,200  $ 217,832  $ 2,029  8/15/2018 1/17/2023 3.25% 5.03%
2018-A Class B Notes 69,550  69,020  2,861  8/15/2018 1/17/2023 4.65% 5.65%
2018-A Class C Notes 69,550  68,850  2,861  8/15/2018 1/17/2023 6.02% 7.02%
2019-A Class A Notes 254,530  253,026  27,393  4/24/2019 10/16/2023 3.40% 4.41%
2019-A Class B Notes 64,750  64,276  35,180  4/24/2019 10/16/2023 4.36% 4.87%
2019-A Class C Notes 62,510  61,898  33,963  4/24/2019 10/16/2023 5.29% 5.81%
2019-B Class A Notes 317,150  315,417  61,412  11/26/2019 6/17/2024 2.66% 4.34%
2019-B Class B Notes 85,540  84,916  85,540  11/26/2019 6/17/2024 3.62% 4.22%
2019-B Class C Notes 83,270  82,456  83,270  11/26/2019 6/17/2024 4.60% 5.02%
2020-A Class A Notes 174,900  173,716  174,900  10/16/2020 6/16/2025 1.71% 3.58%
2020-A Class B Notes 65,200  64,754  65,200  10/16/2020 6/16/2025 4.27% 5.86%
Total $ 1,466,150  $ 1,456,161  $ 574,609 
(1)After giving effect to debt issuance costs.
(2)For the nine months ended October 31, 2020, and inclusive of the impact of changes in timing of actual and expected cash flows.
On October 16, 2020, the Company completed the issuance and sale of $240.1 million aggregate principal amount of asset-backed notes secured by the transferred customer accounts receivables and restricted cash held by a consolidated VIE, which resulted in net proceeds to us of $238.5 million, net of 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 June 16, 2025 and consist of $174.9 million of 1.71% Asset Backed Fixed Rate Notes, Class A, Series 2020-A and $65.2 million of 4.27% Asset Backed Fixed Rate Notes, Class B, Series 2020-A. Additionally, the Company issued $62.9 million in aggregate principal amount of 7.10% Asset Backed Fixed Rate Notes, Class C, Series 2020-A which mature on June 16, 2025. The Class C Notes are currently being retained by the Company.
Revolving Credit Facility. On May 23, 2018, Conn’s, Inc. and certain of its subsidiaries (the “Borrowers”) entered into the Fourth Amended and Restated Loan and Security Agreement (as amended from time to time, “Fourth A&R Loan and Security Agreement”), 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 and a maturity date of May 23, 2022.
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

15

CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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, 2020, we had immediately available borrowing capacity of $276.9 million under our Revolving Credit Facility, net of standby letters of credit issued of $27.5 million and prior to giving effect to a minimum liquidity requirement of $125.0 million pursuant to the Third Amendment as defined below. We also had $345.6 million that could have become available under our Revolving Credit Facility were we to grow the balance of eligible customer receivables and total eligible inventory balances.
On June 5, 2020 we entered into the Third Amendment to our Revolving Credit Facility (the “Third Amendment”). Under the Third Amendment, loans under the Revolving Credit Facility bear interest, at our option, at a rate of LIBOR plus a margin ranging from 3.00% to 3.75% per annum (depending on a pricing grid determined by our total leverage ratio) or the alternate base rate plus a margin ranging from 2.00% to 2.75% per annum (depending on 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, the federal funds effective rate plus 0.5%, or LIBOR for a 30-day interest period plus 1.0%. We also pay an unused fee on the portion of the commitments that 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 5.2% for the nine months ended October 31, 2020.
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. We are restricted from making distributions, including repayments of the Senior Notes or other distributions, as a result of the Revolving Credit Facility distribution and payment 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.
On November 16, 2020, the Company gave the lenders under the Third Amendment the required 10 days’ notice to terminate the Covenant Relief Period (as defined herein). As a result, the Covenant Relief Period ended on November 30, 2020. See Note 9, Subsequent Events, of the Condensed Consolidated Financial Statements in Part I, Item 1, of this Quarterly Report on Form 10-Q for further details.
Debt Covenants. As of October 31, 2020, we were in compliance with the covenants in our Revolving Credit Facility. See Note 9, Subsequent Events, of the Condensed Consolidated Financial Statements in Part I, Item 1, of this Quarterly Report on Form 10-Q for further details. If we were to breach certain covenants under our Revolving Credit Facility in the future, that breach might trigger a default under our Revolving Credit Facility, which, if not remedied, would require a waiver from the lenders under our Revolving Credit Facility or an amendment to our Revolving Credit Facility in order for us to avoid an event of default. There can be no assurances that, in the event of such a covenant breach, we would be able to obtain the necessary waivers or amendments to remain in compliance with the covenants in our Revolving Credit Facility.
A summary of the significant financial covenants that govern our Revolving Credit Facility, as amended, compared to our actual compliance status at October 31, 2020 is presented below: 
  Actual Required Minimum/ Maximum
Interest Coverage Ratio for the quarter must equal or exceed minimum 4.05:1.00 1.00:1.00
Interest Coverage Ratio for the trailing two quarters must equal or exceed minimum 4.69:1.00 1.50:1.00
Leverage Ratio must not exceed maximum 1.84:1.00 4.50:1.00
ABS Excluded Leverage Ratio must not exceed maximum 0.89:1.00 2.50:1.00
Capital Expenditures, net, must not exceed maximum $34.5 million $100.0 million

All capitalized terms in the above table are defined in the Revolving Credit Facility and may or may not match 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.

6.    Contingencies
Securities Litigation. On May 15, 2020, a putative securities class action lawsuit was filed against us and two of our executive officers in the United States District Court for the Southern District of Texas, captioned Uddin v. Conn’s, Inc., et al., No. 4:20-1705 (“Uddin Action”). On November 16, 2020, the lead plaintiff voluntarily dismissed the action without prejudice. The court entered an order recognizing the dismissal on November 17, 2020.

16

CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On April 2, 2018, MicroCapital Fund, LP, MicroCapital Fund, Ltd., and MicroCapital LLC (collectively, “MicroCapital”) filed a lawsuit against us and certain of our former executive officers in the 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.
The Court previously 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. After that settlement, the stay was lifted, and the defendants filed a motion to dismiss plaintiff’s complaint in the MicroCapital Action on November 6, 2018. On July 26, 2019, the magistrate judge issued a report recommending that defendants’ motion to dismiss the complaint be granted in part and denied in part. On September 25, 2019, the district court adopted the magistrate judge’s report, which permitted MicroCapital to file an amended complaint, which MicroCapital filed on October 30, 2019. Defendants filed their answer to the amended complaint on November 27, 2019.
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 captioned as Robert Hack, derivatively on behalf of Conn’s, Inc., v. Theodore M. Wright (former executive officer and former director), Bob L. Martin, Jon E.M. Jacoby (former director), Kelly M. Malson, Douglas H. Martin, David Schofman, Scott L. Thompson (former director), Brian Taylor (former executive officer) and Michael J. Poppe (former executive officer) and Conn’s, Inc., Case No. 4:14-cv-03442 (S.D. Tex.) (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 Conn’s. 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, Inc. v. Wright et al., Cause No. 4:15-cv-00521 (S.D. Tex.), which was consolidated with the Original Derivative Action.
The Court previously approved a stipulation among the parties to stay the Original Derivative Action pending resolution of the Consolidated Securities Action. The stay was lifted on November 1, 2018, and the defendants filed a motion to dismiss plaintiff’s complaint. Briefing on the motion to dismiss was completed December 3, 2018. On May 29, 2019, the magistrate judge issued a report, recommending that defendants’ motion to dismiss the complaint be granted, but recommended that the plaintiff be permitted to replead his claims. The district court adopted the recommendation on July 5, 2019.
On July 19, 2019, plaintiff filed an amended complaint. On November 1, 2019, the magistrate judge heard argument on the motion to dismiss and postponed certain deadlines. Adopting the report and recommendation issued by the magistrate judge on July 22, 2020, the district court entered an order on September 25, 2020 denying defendant’s motion on the breach of fiduciary duty claims and granting defendants’ motion on the insider trading claims. The district court also allowed plaintiff leave to amend to add 95250 Canada LTEE, which had been omitted from the amended complaint, as a party to the case. Plaintiffs filed a corrected amended complaint on October 21, 2020 in accordance with the district court’s order.
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. This case is stayed until at least July 15, 2021.
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, 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 (former director), Douglas H. Martin, David Schofman, Scott L. Thompson (former director) and William E. Saunders Jr., and Conn’s, Inc., Cause No. 2016-33135. The complaint asserts claims for breach of fiduciary duties and unjust enrichment based on substantially similar factual allegations as those asserted in the Original Derivative Action. The complaint does not specify the amount of damages sought. Since April 2018, this case has been abated pending the resolution of related cases. At a hearing on October 2, 2020, the court took under advisement whether the abatement should continue pending further developments in the Original Derivative Action.

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CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.
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 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.

7.     Variable Interest Entities
From time to time, we 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 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.

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CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the assets and liabilities held by the VIEs (for legal purposes, the assets and liabilities of the VIEs will remain distinct from Conn’s, Inc.):
(in thousands) October 31,
2020
January 31,
2020
Assets:
Restricted cash $ 76,438  $ 73,214 
Due from Conn’s, Inc., net 5,953  307 
Customer accounts receivable:
Customer accounts receivable 669,954  838,210 
Restructured accounts 130,571  147,971 
Allowance for uncollectible accounts (200,770) (151,263)
Allowance for no-interest option credit programs (6,312) (12,445)
Deferred fees and origination costs (7,342) (8,255)
Total customer accounts receivable, net 586,101  814,218 
Total assets $ 668,492  $ 887,739 
Liabilities:
Accrued expenses $ 6,105  $ 5,517 
Other liabilities 5,828  7,584 
Long-term debt:
2017-B Class C Notes —  59,655 
2018-A Class A Notes 2,029  34,112 
2018-A Class B Notes 2,861  20,572 
2018-A Class C Notes 2,861  20,572 
2019-A Class A Notes 27,393  76,241 
2019-A Class B Notes 35,180  64,750 
2019-A Class C Notes 33,963  62,510 
2019-B Class A Notes 61,412  265,810 
2019-B Class B Notes 85,540  85,540 
2019-B Class C Notes 83,270  83,270 
2020-A Class A Notes 174,900  — 
2020-A Class B Notes 65,200  — 
574,609  773,032 
Less: deferred debt issuance costs (3,618) (4,911)
Total debt $ 570,991  $ 768,121 
Total liabilities $ 582,924  $ 781,222 
The assets of the VIEs serve as collateral for the obligations of the VIEs. The holders of asset-backed notes have no recourse to assets outside of the respective VIEs.


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CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8.     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. Our retail segment product offerings include furniture and mattresses, home appliances, consumer electronics and home office products from leading global brands across a wide range of price points. Our credit segment offers affordable financing solutions to a large, under-served population of credit-constrained consumers who 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.
We evaluate a segment’s performance based upon operating income before taxes. Selling, general and administrative expenses (“SG&A”) includes the direct expenses of the retail and credit operations, allocated overhead expenses, and a charge to the credit segment to reimburse the retail segment for expenses it incurs related to occupancy, personnel, advertising and other direct costs of the retail segment, which benefit the credit operations by sourcing credit customers and collecting payments. The reimbursement received by the retail segment from the credit segment is calculated using an annual rate of 2.5% times the average outstanding portfolio balance for each applicable period.
As of October 31, 2020, 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.
Financial information by segment is presented in the following tables:
  Three Months Ended October 31, 2020 Three Months Ended October 31, 2019
(in thousands) Retail Credit Total Retail Credit Total
Revenues:
Furniture and mattress $ 82,793  $ —  $ 82,793  $ 89,070  $ —  $ 89,070 
Home appliance 99,872  —  99,872  90,343  —  90,343 
Consumer electronics 35,517  —  35,517  48,113  —  48,113 
Home office 16,711  —  16,711  18,681  —  18,681 
Other 4,264  —  4,264  4,026  —  4,026 
Product sales 239,157  —  239,157  250,233  —  250,233 
Repair service agreement commissions 17,465  —  17,465  26,478  —  26,478 
Service revenues 3,150  —  3,150  3,411  —  3,411 
Total net sales 259,772  —  259,772  280,122  —  280,122 
Finance charges and other revenues 168  74,218  74,386  197  95,808  96,005 
Total revenues 259,940  74,218  334,158  280,319  95,808  376,127 
Costs and expenses:
Cost of goods sold 160,378  —  160,378  170,453  —  170,453 
Selling, general and administrative expense (1)
84,245  37,913  122,158  87,105  38,503  125,608 
Provision for bad debts 72  27,421  27,493  535  45,390  45,925 
Charges and credits —  —  —  2,628  1,209  3,837 
Total costs and expenses 244,695  65,334  310,029  260,721  85,102  345,823 
Operating income 15,245  8,884  24,129  19,598  10,706  30,304 
Interest expense —  11,563  11,563  —  15,051  15,051 
Income (loss) before income taxes $ 15,245  $ (2,679) $ 12,566  $ 19,598  $ (4,345) $ 15,253 

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CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Nine Months Ended October 31, 2020 Nine Months Ended October 31, 2019
(in thousands) Retail Credit Total Retail Credit Total
Revenues:
Furniture and mattress $ 232,670  $ —  $ 232,670  $ 276,889  $ —  $ 276,889 
Home appliance 288,839  —  288,839  266,989  —  266,989 
Consumer electronics 118,677  —  118,677  151,454  —  151,454 
Home office 49,056  —  49,056  52,270  —  52,270 
Other 13,255  —  13,255  11,654  —  11,654 
Product sales 702,497  —  702,497  759,256  —  759,256 
Repair service agreement commissions 57,730  —  57,730  78,149  —  78,149 
Service revenues 9,611  —  9,611  10,758  —  10,758 
Total net sales 769,838  —  769,838  848,163  —  848,163 
Finance charges and other revenues 599  247,797  248,396  602  281,933  282,535 
Total revenues 770,437  247,797  1,018,234  848,765  281,933  1,130,698 
Costs and expenses:
Cost of goods sold 484,015  —  484,015  509,746  —  509,746 
Selling, general and administrative expense (1)
241,003  109,440  350,443  254,874  116,132  371,006 
Provision for bad debts 422  176,442  176,864  645  135,062  135,707 
Charges and credits 1,355  2,234  3,589  1,933  1,209  3,142 
Total costs and expenses 726,795  288,116  1,014,911  767,198  252,403  1,019,601 
Operating income (loss) 43,642  (40,319) 3,323  81,567  29,530  111,097 
Interest expense —  39,778  39,778  —  43,944  43,944 
Income (loss) before income taxes $ 43,642  $ (80,097) $ (36,455) $ 81,567  $ (14,414) $ 67,153 
October 31, 2020 October 31, 2019
(in thousands) Retail Credit Total Retail Credit Total
Total assets
$ 743,568  $ 1,189,888  $ 1,933,456  $ 672,181  $ 1,480,970  $ 2,153,151 

(1)For the three months ended October 31, 2020 and 2019, the amount of corporate overhead allocated to each segment reflected in SG&A was $8.5 million and $5.7 million, respectively. For the three months ended October 31, 2020 and 2019, the amount of reimbursement made to the retail segment by the credit segment was $8.2 million and $9.8 million, respectively. For the nine months ended October 31, 2020 and 2019, the amount of corporate overhead allocated to each segment reflected in SG&A was $24.2 million and $23.4 million, respectively. For the nine months ended October 31, 2020 and 2019, the amount of reimbursement made to the retail segment by the credit segment was $26.9 million and $29.2 million, respectively.


21

CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

9. Subsequent Events
Termination of Covenant Relief Period. As previously disclosed, on June 5, 2020, the Company and the lenders entered into a Third Amendment (the “Third Amendment”) to the Fourth Amended and Restated Loan and Security Agreement, dated as of October 30, 2015, by and among the Company, as parent and guarantor, Conn Appliances, Inc., Conn Credit I, LP and Conn Credit Corporation, Inc., as borrowers, certain banks and financial institutions named therein, as lenders, and JPMorgan Chase Bank, N.A., as Administrative Agent for the Lenders. The Third Amendment, among other things, (1) waived the two interest coverage covenants for the period ended on April 30, 2020 and for subsequent periods through the date on which the Company delivers financial statements and a compliance certificate for the quarter ended January 31, 2021 or such earlier date as the borrowers may elect to terminate such relief period upon 10 business days’ prior written notice, the “Covenant Relief Period”; (2) added a minimum liquidity covenant of $125.0 million at any time during the Covenant Relief Period; (3) added a minimum availability covenant requiring at any time during the Covenant Relief Period that the borrowers maintain availability under the revolver equal to the greater of (a) 25% of the lesser of (i) the borrowing base and (ii) the revolver commitments and (b) $75.0 million; and (4) included temporary restrictions, applicable only during the Covenant Relief Period, prohibiting the borrowers from, among other things, (a) making acquisitions and certain other investments, (b) making certain non-ordinary course restricted payments and (c) prepaying certain indebtedness.
On November 16, 2020, the Company gave the lenders under the Third Amendment the required 10 days’ notice to terminate the Covenant Relief Period. As a result, the Covenant Relief Period ended on November 30, 2020.
Cash Tender Offer. On November 30, 2020, the Company announced a cash tender offer for up to $100.0 million aggregate principal amount of its Senior Notes (the “tender offer”) for the total consideration of $980.00, in cash, per $1,000 principal amount of Senior Notes, which includes an early tender payment of $30.00 for holders who validly tender their notes (and do not validly withdraw) prior to 5:00 p.m., New York City time, on December 11, 2020 (the “early tender deadline”). Holders who validly tender their notes after the early tender deadline but on or prior to 11:59 p.m. on December 28, 2020 (the “final expiration date”) will be entitled to receive $950.00, in cash, per $1,000 principal amount of notes accepted for purchase. Settlement of Senior Notes tendered prior to the early tender deadline is scheduled to occur on or shortly after December 14, 2020. Settlement of any Senior Notes tendered in connection with the final expiration date is scheduled to occur on or shortly after December 30, 2020. The Company has reserved the right, subject to compliance with applicable laws, to amend, extend or terminate the tender offer at any time and for any reason.

22

ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  
Forward-Looking Statements 
This report contains forward-looking statements within the meaning of the federal securities laws, including, but not limited to, the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Such forward-looking statements include information concerning our future financial performance, business strategy, plans, goals and objectives. Statements containing the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “should,” “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, proceeds from accessing debt or equity markets; the effects of epidemics or pandemics, including the COVID-19 outbreak; the impact of our previous restatement and correction of the Company’s previously issued financial statements; the previously identified material weakness in the Company’s internal control over financial reporting and the Company’s ability to remediate that material weakness; the initiation of legal or regulatory proceedings with respect to the prior restatement and corrections; the adverse effects on the Company’s business, results of operations, financial condition and stock price as a result of the previous restatement and correction process; and other risks detailed in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended January 31, 2020 (the “2020 Form 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 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 continue to monitor the evolving nature of COVID-19 and respond to its impact on our business. We have experienced and continue to experience challenges related to the pandemic. These challenges have increased the complexity of our business and impacted our supply chain and sales for fiscal year 2021 and we expect it to continue into fiscal year 2022. Increased complexity, supply chain issues and reduced sales will likely continue until the effects of COVID-19 diminish. The full impact of COVID-19 remains uncertain and will depend on future developments, including the duration and spread of the pandemic and related actions taken by federal, state and local government officials to prevent and manage disease spread, all of which are uncertain and unpredictable.
We encourage you to read this Management’s Discussion and Analysis of Financial Condition and Results of Operations in conjunction with the accompanying Condensed Consolidated Financial Statements and related notes. As discussed in the Explanatory Note to this Form 10-Q and in further detail in Note 17, Quarterly Information (Unaudited), in our Annual Report on Form 10-K for the fiscal year ended January 31, 2020, amounts presented for the three and nine month periods ended October 31, 2019 have been restated to reflect the impact of corrections to finance charges and other revenues and provision for bad debts resulting from an error in the calculation and reporting of allowance for bad debts and uncollectible interest related to the implementation of the Company’s new loan management system. Our fiscal year ends on January 31. References to a fiscal year refer to the calendar year in which the fiscal year ends.


23

Table of Contents
Executive Summary
Total revenues were $334.2 million for the three months ended October 31, 2020 compared to $376.1 million for the three months ended October 31, 2019, a decrease of $41.9 million or 11.1%. Retail revenues were $259.9 million for the three months ended October 31, 2020 compared to $280.3 million for the three months ended October 31, 2019, a decrease of $20.4 million or 7.3%. The decrease in retail revenue was primarily driven by a decrease in same store sales of 10.9% and a decrease in RSA commissions, partially offset by new store growth. The decrease in same store sales reflects proactive underwriting changes, combined with industry wide supply chain disruptions in certain product categories, each of which was the result of the COVID-19 pandemic. Credit revenues were $74.2 million for the three months ended October 31, 2020 compared to $95.8 million for the three months ended October 31, 2019, a decrease of $21.6 million or 22.5%. The decrease in credit revenue was primarily due to a decrease of 16.0% in the average balance of the customer receivable portfolio, a decrease in insurance commissions due to a decline in the balance of sale of our in-house credit financing and a decrease in insurance retrospective income. The decrease was also due to a decline in the yield rate to 21.1% during the three months ended October 31, 2020, 60 basis points lower than the three months ended October 31, 2019.
Retail gross margin for the three months ended October 31, 2020 was 38.3%, a decrease of 90 basis points from the 39.2% reported for the three months ended October 31, 2019. The year-over-year decrease in retail gross margin was primarily driven by the impact of a decrease in RSA commissions and retrospective income.
Selling, general and administrative expense (“SG&A”) for the three months ended October 31, 2020 was $122.2 million compared to $125.6 million for the three months ended October 31, 2019, a decrease of $3.4 million or 2.7%. The SG&A decrease in the retail segment was primarily due to a reduction in advertising costs and labor costs, partially offset by an increase in occupancy costs. The SG&A decrease in the credit segment was primarily due to decreases in labor costs.
Provision for bad debts was $27.5 million for the three months ended October 31, 2020 compared to $45.9 million for the three months ended October 31, 2019, a decrease of $18.4 million. The decrease was driven by a greater decrease in the allowance for bad debts during the three months ended October 31, 2020 compared to the three months ended October 31, 2019. The decrease in the allowance for bad debts was primarily driven by the year-over-year decrease in the customer accounts receivable portfolio and a decrease of $12.4 million related to a decrease in forecasted unemployment rates. These decreases were partially offset by an $8.0 million increase from the impact of COVID-19 on the portfolio performance related to accounts that received a COVID-19 payment deferral.
Interest expense was $11.6 million for the three months ended October 31, 2020 and $15.1 million for the three months ended October 31, 2019, a decrease of $3.5 million or 23.2%. The decrease was driven by a lower average outstanding balance of debt.
Net income for the three months ended October 31, 2020 was $7.4 million, or $0.25 per diluted share, compared to net income of $11.5 million, or $0.39 per diluted share, for the three months ended October 31, 2019.
How We Evaluate Our Operations
Management focuses on certain key indicators to monitor our performance including:
Same store sales - Our management considers same store sales, which consists of both brick and mortar and eCommerce sales, to be an important indicator of our performance because they are important to our attempts to leverage our SG&A costs, which include rent and other store expenses, and they have a direct impact on our total net sales, net income, cash and working capital. Same store sales is calculated by comparing the reported sales for all stores that were open during both comparative fiscal years, starting in the first period in which the store has been open for a full quarter. Sales from closed stores, if any, are removed from each period. Sales from relocated stores have been included in each period as each such store was relocated within the same general geographic market. Sales from expanded stores have also been included in each period.
Retail gross margin - Our management views retail gross margin as a key indicator of our performance because it reflects our pricing power relative to the prices we pay for our products. Retail gross margin is calculated by comparing retail total net sales to the cost of goods sold.
60+ day delinquencies - Our management views customer account delinquencies as a key indicator of our performance because it is a reflection of the quality of our credit portfolio, it drives future credit performance and credit offerings, and it impacts the interest rates we pay on our asset-backed securitizations. Delinquencies are measured as the percentage of balances that are 60+ days past due.
Net yield - Our management considers yield to be a key performance metric because it drives future credit decisions and credit offerings and directly impacts our net income.  Yield reflects the amount of interest we receive from our portfolio. 

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Outlook
We are generally classified as an essential business by government authorities in the jurisdictions in which we operate as we provide essential goods and services to our communities. As a result, despite widespread stay-at-home orders that have been in effect from time to time since the COVID-19 pandemic began in March 2020, most of our stores have remained open, though at times operating on reduced schedules as mandated. As of December 8, 2020, substantially all of our stores are open and conduct regular in-store shopping hours. However, as noted in the “Overview” above, our business and industry continue to be impacted by the COVID-19 outbreak in the United States. As we face the possibility of another wave, the full extent to which the pandemic will impact our supply chain, future business and operating results is highly uncertain. Despite this, we are well positioned to continue serving our customers and supporting our employees as we continue with our previously implemented proactive measures and further monitor and respond to the pandemic.
The broad appeal of our value proposition to our geographically diverse core demographic, the unit economics of our business and the current retail real estate market should provide the stability necessary to maintain our business. As the COVID-19 outbreak is contained, we expect our brand recognition and long history in our core markets to 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 U.S. with demographic characteristics similar to those in our existing footprint, which provides substantial opportunities for future growth. We plan to continue improving 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 condensed consolidated basis: 
Consolidated: Three Months Ended
October 31,
Nine Months Ended
October 31,
(in thousands) 2020 2019 Change 2020 2019 Change
Revenues:
Total net sales $ 259,772  $ 280,122  $ (20,350) $ 769,838  $ 848,163  $ (78,325)
Finance charges and other revenues 74,386  96,005  (21,619) 248,396  282,535  (34,139)
Total revenues 334,158  376,127  (41,969) 1,018,234  1,130,698  (112,464)
Costs and expenses:  
Cost of goods sold 160,378  170,453  (10,075) 484,015  509,746  (25,731)
Selling, general and administrative expense 122,158  125,608  (3,450) 350,443  371,006  (20,563)
Provision for bad debts 27,493  45,925  (18,432) 176,864  135,707  41,157 
Charges and credits —  3,837  (3,837) 3,589  3,142  447 
Total costs and expenses 310,029  345,823  (35,794) 1,014,911  1,019,601  (4,690)
Operating income 24,129  30,304  (6,175) 3,323  111,097  (107,774)
Interest expense 11,563  15,051  (3,488) 39,778  43,944  (4,166)
Income (loss) before income taxes 12,566  15,253  (2,687) (36,455) 67,153  (103,608)
Provision (benefit) for income taxes 5,147  3,784  1,363  (8,192) 16,201  (24,393)
Net income (loss) $ 7,419  $ 11,469  $ (4,050) $ (28,263) $ 50,952  $ (79,215)

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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. 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 calculated using an annual rate of 2.5% multiplied by the average outstanding portfolio balance for each applicable period.
The following table represents total revenues, costs and expenses, operating income (loss) and income (loss) before taxes attributable to these operating segments for the periods indicated:
Retail Segment: Three Months Ended
October 31,
Nine Months Ended
October 31,
(dollars in thousands) 2020 2019 Change 2020 2019 Change
Revenues:
Product sales $ 239,157  $ 250,233  $ (11,076) $ 702,497  $ 759,256  $ (56,759)
Repair service agreement commissions 17,465  26,478  (9,013) 57,730  78,149  (20,419)
Service revenues 3,150  3,411  (261) 9,611  10,758  (1,147)
Total net sales 259,772  280,122  (20,350) 769,838  848,163  (78,325)
Finance charges and other 168  197  (29) 599  602  (3)
Total revenues 259,940  280,319  (20,379) 770,437  848,765  (78,328)
Costs and expenses:    
Cost of goods sold 160,378  170,453  (10,075) 484,015  509,746  (25,731)
Selling, general and administrative expense (1)
84,245  87,105  (2,860) 241,003  254,874  (13,871)
Provision for bad debts 72  535  (463) 422  645  (223)
Charges and credits —  2,628  (2,628) 1,355  1,933  (578)
Total costs and expenses 244,695  260,721  (16,026) 726,795  767,198  (40,403)
Operating income $ 15,245  $ 19,598  $ (4,353) $ 43,642  $ 81,567  $ (37,925)
Number of stores:
Beginning of period 141  131  137  123 
Opened 14 
End of period 143  137  143  137 

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Credit Segment: Three Months Ended
October 31,
Nine Months Ended
October 31,
(in thousands) 2020 2019 Change 2020 2019 Change
Revenues:
Finance charges and other revenues $ 74,218