UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C.  20549
 

 
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended October 31, 2013
 
Commission File Number 1-34956
 
CONN'S, INC.
(Exact name of registrant as specified in its charter)

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

4055 Technology Forest Blvd, Suite 210
The Woodlands, Texas 77381
(936) 230-5899
(Address, including zip code, and telephone
number, including area code, of registrant's
principal executive offices)

None
(Former name, former address and former
fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  ý    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer  o
Accelerated filer  x  
Non-accelerated filer  o  
Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes  o   No ý

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of November 29, 2013 :
 
Class
 
Outstanding
Common stock, $.01 par value per share
 
35,994,852


Table of Contents

TABLE OF CONTENTS

PART I.
 
FINANCIAL INFORMATION
 
Page No.
 
 
 
 
 
Item 1.
 
Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
Item 3.
 
 
 
 
 
 
 
Item 4.
 
 
 
 
 
 
 
PART II.
 
OTHER INFORMATION
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
Item 1A.
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
Item 3.
 
 
 
 
 
 
 
Item 4.
 
 
 
 
 
 
 
Item 5.
 
 
 
 
 
 
 
Item 6.
 
 



Table of Contents


CONN'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except share data)

Assets
October 31,
2013
 
January 31,
2013
Current assets
 
 
 
Cash and cash equivalents
$
3,701

 
$
3,849

Customer accounts receivable, net of allowance of $38,160 and $27,617, respectively (includes balance of VIE of $28,553 at January 31, 2013)
473,795

 
378,050

Other accounts receivable, net
44,648

 
45,759

Inventories
131,732

 
73,685

Deferred income taxes
17,957

 
15,302

Prepaid expenses and other assets (includes balance of VIE of $4,717 at January 31, 2013)
7,209

 
11,599

Total current assets
679,042

 
528,244

Long-term portion of customer accounts receivable, net of allowance of $32,265 and $22,866, respectively (includes balance of VIE of $23,641 at January 31, 2013)
400,606

 
313,011

Property and equipment
173,372

 
141,449

Less accumulated depreciation
(97,937
)
 
(94,455
)
Property and equipment, net
75,435

 
46,994

Deferred income taxes
11,298

 
11,579

Other assets
7,983

 
10,029

Total assets
$
1,174,364

 
$
909,857

 
 
 
 
Liabilities and Stockholders’ Equity
 

 
 

Current Liabilities
 

 
 

Current portion of long-term debt (includes balance of VIE of $32,307 at January 31, 2013)
$
527

 
$
32,526

Accounts payable
106,422

 
69,608

Accrued compensation and related expenses
12,027

 
8,780

Accrued expenses
30,374

 
20,716

Income taxes payable
2,242

 
4,618

Deferred revenues and allowances
15,793

 
14,915

Total current liabilities
167,385

 
151,163

Long-term debt
422,161

 
262,531

Other long-term liabilities
26,083

 
21,713

 
 
 
 
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, 50,000,000 shares authorized; 35,975,452 and 35,192,070 shares issued at October 31, 2013 and January 31, 2013, respectively)
360

 
352

Additional paid-in capital
222,810

 
204,372

Accumulated other comprehensive loss
(98
)
 
(223
)
Retained earnings
335,663

 
269,949

Total stockholders’ equity
558,735

 
474,450

Total liabilities and stockholders' equity
$
1,174,364

 
$
909,857


See notes to condensed consolidated financial statements.

1

Table of Contents

CONN'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)

 
Three Months Ended 
 October 31,
 
Nine Months Ended 
 October 31,
 
2013
 
2012
 
2013
 
2012
Revenues
 
 
 
 
 
 
 
Product sales
$
234,159

 
$
151,663

 
$
628,482

 
$
459,804

Repair service agreement commissions
19,601

 
12,183

 
52,756

 
35,930

Service revenues
3,286

 
3,477

 
8,968

 
10,181

Total net sales
257,046

 
167,323

 
690,206

 
505,915

Finance charges and other
53,830

 
39,078

 
142,422

 
108,773

Total revenues
310,876

 
206,401

 
832,628

 
614,688

Cost and expenses
 

 
 

 
 
 
 
Cost of goods sold, including warehousing and occupancy costs
151,987

 
105,688

 
411,484

 
325,041

Cost of service parts sold, including warehousing and occupancy costs
1,286

 
1,522

 
4,010

 
4,513

Selling, general and administrative expense
90,341

 
61,210

 
242,353

 
180,247

Provision for bad debts
22,730

 
13,449

 
58,049

 
34,838

Charges and credits
2,834

 
641

 
2,834

 
1,150

Total cost and expenses
269,178

 
182,510

 
718,730

 
545,789

Operating income
41,698

 
23,891

 
113,898

 
68,899

Interest expense
3,714

 
4,526

 
10,720

 
13,159

Loss on extinguishment of debt

 
818

 

 
818

Other income, net

 
(3
)
 
(38
)
 
(105
)
Income before income taxes
37,984

 
18,550

 
103,216

 
55,027

Provision for income taxes
13,608

 
6,765

 
37,502

 
20,080

Net income
$
24,376

 
$
11,785

 
$
65,714

 
$
34,947

 
 
 
 
 
 
 
 
Earnings per share:
 

 
 

 
 
 
 
Basic
$
0.68

 
$
0.36

 
$
1.84

 
$
1.08

Diluted
$
0.66

 
$
0.35

 
$
1.79

 
$
1.05

Average common shares outstanding:
 

 
 

 
 
 
 
Basic
35,955

 
32,553

 
35,686

 
32,387

Diluted
36,965

 
33,539

 
36,795

 
33,207


See notes to condensed consolidated financial statements.

2

Table of Contents

CONN'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
(in thousands)

 
Three Months Ended 
 October 31,
 
Nine Months Ended 
 October 31,
 
2013
 
2012
 
2013
 
2012
Net income
$
24,376

 
$
11,785

 
$
65,714

 
$
34,947

 
 
 
 
 
 
 
 
Change in fair value of hedges
103

 
35

 
193

 
48

Impact of provision for income taxes on comprehensive income
(36
)
 
(12
)
 
(68
)
 
(17
)
Comprehensive income
$
24,443

 
$
11,808

 
$
65,839

 
$
34,978


See notes to condensed consolidated financial statements.

3

Table of Contents

CONN'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Nine Months Ended October 31, 2013 and 2012
(unaudited)
(in thousands)

 
 
 
 
 
Additional
 
Accumulated
Other
 
 
 
 
 
Common Stock
 
Paid-in
 
Comprehensive
 
Retained
 
 
 
Shares
 
Amount
 
Capital
 
Loss
 
Earnings
 
Total
Balance at January 31, 2013
35,191

 
$
352

 
$
204,372

 
$
(223
)
 
$
269,949

 
$
474,450

Exercise of stock options, net of tax
707

 
7

 
14,869

 

 

 
14,876

Issuance of common stock under Employee Stock Purchase Plan
21

 

 
680

 

 

 
680

Vesting of restricted stock units
56

 
1

 

 

 

 
1

Stock-based compensation

 

 
2,889

 

 

 
2,889

Net income

 

 

 

 
65,714

 
65,714

Change in fair value of hedges, net of tax of $68

 

 

 
125

 

 
125

Balance at October 31, 2013
35,975

 
$
360

 
$
222,810

 
$
(98
)
 
$
335,663

 
$
558,735


 
 
 
 
 
Additional
 
Accumulated
Other
 
 
 
 
 
Common Stock
 
Paid-in
 
Comprehensive
 
Retained
 
 
 
Shares
 
Amount
 
Capital
 
Loss
 
Earnings
 
Total
Balance at January 31, 2012
32,140

 
$
321

 
$
136,006

 
$
(293
)
 
$
217,337

 
$
353,371

Exercise of stock options, net of tax
429

 
5

 
5,917

 

 

 
5,922

Issuance of common stock under Employee Stock Purchase Plan
22

 

 
274

 

 

 
274

Vesting of restricted stock units
103

 
1

 

 

 

 
1

Stock-based compensation

 

 
2,065

 

 

 
2,065

Net income

 

 

 

 
34,947

 
34,947

Change in fair value of hedges, net of tax of $17

 

 

 
31

 

 
31

Balance at October 31, 2012
32,694

 
$
327

 
$
144,262

 
$
(262
)
 
$
252,284

 
$
396,611


See notes to condensed consolidated financial statements.

4

Table of Contents

CONN'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
 
Nine Months Ended 
 October 31,
 
2013
 
2012
Cash flows from operating activities
 
 
 
Net income
$
65,714

 
$
34,947

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation
9,048

 
6,777

Amortization
3,140

 
3,746

Loss from early extinguishment of debt

 
818

Provision for bad debts and uncollectible interest
66,399

 
41,266

Stock-based compensation
2,889

 
2,065

Excess tax benefits from stock-based compensation
(4,743
)
 
(638
)
Store and facility closure and relocation costs
2,834

 
163

Provision for deferred income taxes
(2,374
)
 
2,577

Gain on sale of property and equipment
(37
)
 
(107
)
Discounts and accretion on promotional credit

 
(188
)
Change in operating assets and liabilities:
 

 
 

Customer accounts receivable
(249,740
)
 
(84,795
)
Other accounts receivable
1,096

 
4,158

Inventories
(58,047
)
 
(14,610
)
Prepaid expenses and other assets
(501
)
 
(678
)
Accounts payable
36,814

 
21,463

Accrued expenses
15,178

 
(2,907
)
Income taxes payable
2,493

 
2,803

Deferred revenues and allowances
138

 
(1,614
)
Net cash (used in) provided by operating activities
(109,699
)
 
15,246

Cash flows from investing activities
 

 
 

Purchase of property and equipment
(37,122
)
 
(21,331
)
Proceeds from sale of property and equipment
44

 
350

Net cash used in investing activities
(37,078
)
 
(20,981
)
Cash flows from financing activities
 

 
 

Borrowings under lines of credit
306,664

 
146,513

Payments on lines of credit
(147,737
)
 
(187,594
)
Proceeds from issuance of asset-backed notes, net of original issue discount

 
103,025

Payments on asset-backed notes
(32,513
)
 
(52,434
)
Change in restricted cash
4,717

 
(6,441
)
Net proceeds from stock issued under employee benefit plans
10,813

 
5,558

Excess tax benefits from stock-based compensation
4,743

 
638

Other
(58
)
 
(5,526
)
Net cash provided by financing activities
146,629

 
3,739

Net decrease in cash and cash equivalents
(148
)
 
(1,996
)
Cash and cash equivalents
 

 
 

Beginning of period
3,849

 
6,265

End of period
$
3,701

 
$
4,269

See notes to condensed consolidated financial statements.

5

Table of Contents

CONN'S, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1.     Summary of Significant Accounting Policies
 
Basis of Presentation . The accompanying unaudited, consolidated financial statements of Conn’s, Inc. and all of its wholly-owned subsidiaries (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The accompanying financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature, except as otherwise described herein. The Company’s business is moderately seasonal, with a higher portion of sales and operating profit realized during the quarter that ends January 31, due primarily to the holiday selling season. Operating results for the nine -month period ended October 31, 2013 are not necessarily indicative of the results that may be expected for the full fiscal year ending   January 31, 2014 . The financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended January 31, 2013 , filed with the Securities and Exchange Commission on April 4, 2013.

The Company’s balance sheet at January 31, 2013 , has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for a complete financial presentation. Please see the Company’s Annual Report on Form 10-K for a complete presentation of the audited financial statements for the fiscal year ended January 31, 2013 , together with all required footnotes, and for a complete presentation and explanation of the components and presentations of the financial statements.

Principles of Consolidation . The consolidated financial statements include the accounts of Conn’s, Inc. and its wholly-owned subsidiaries. Conn’s, Inc. is a holding company with no independent assets or operations other than its investments in its subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation.
 
In April 2012, the Company transferred certain customer receivables to a bankruptcy-remote, variable-interest entity (“VIE”) in connection with a securitization. The VIE, which is consolidated within the accompanying financial statements, issued debt secured by the customer receivables that were transferred to it, which were included in customer accounts receivable and long-term portion of customer accounts receivable on the consolidated balance sheet as of January 31, 2013 . On April 15, 2013, the VIE redeemed the then outstanding asset-backed notes and the remaining customer receivables were transferred back to the Company.
 
The Company determined that the VIE should be consolidated within its financial statements due to the fact that it qualified as the primary beneficiary of the VIE based on the following considerations:
 
The Company directed the activities that generated the customer receivables that were transferred to the VIE;
The Company directed the servicing activities related to the collection of the customer receivables transferred to the VIE;
The Company absorbed losses incurred by the VIE to the extent of its interest in the VIE before any other investors incurred losses; and
The Company had the right to receive benefits generated by the VIE after paying the contractual amounts due to the other investors.

Use of Estimates . The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.


6


Earnings per Share . Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share include the dilutive effects of any stock options and restricted stock units granted, to the extent not anti-dilutive, which is calculated using the treasury-stock method. The following table sets forth the shares outstanding for the earnings per share calculations:

 
Three Months Ended 
 October 31,
(in thousands)
2013
 
2012
Weighted average common shares outstanding - Basic
35,955

 
32,553

Assumed exercise of stock options
790

 
829

Unvested restricted stock units
220

 
157

Weighted average common shares outstanding - Diluted
36,965

 
33,539

 
Nine Months Ended 
 October 31,
(in thousands)
2013
 
2012
Weighted average common shares outstanding - Basic
35,686

 
32,387

Assumed exercise of stock options
892

 
689

Unvested restricted stock units
217

 
131

Weighted average common shares outstanding - Diluted
36,795

 
33,207



There were no anti-dilutive stock options or restricted stock units for the three and nine months ended October 31, 2013 . The weighted average number of stock options and restricted stock units not included in the calculation due to their anti-dilutive effect was 0.3 million and 0.7 million for the three and nine months ended October 31, 2012 , respectively.
 
Fair Value of Financial Instruments . The fair value of cash and cash equivalents and accounts payable approximate their carrying amounts because of the short maturity of these instruments. The fair value of customer accounts receivables, determined using a discounted cash flow analysis, approximates their carrying amount. The fair value of the Company’s debt approximates carrying value due to the recent date at which the facility has been renewed. The Company’s interest rate cap options are presented on the balance sheet at fair value. Fair value of these instruments were determined using Level 2 inputs of the GAAP hierarchy, which are defined as inputs not quoted in active markets, but are either directly or indirectly observable.
 
2.     Charges and Credits
 
The Company recorded the following charges during the first nine months of fiscal year 2014:

As further discussed in Note 5, the Company closed two stores, revised its estimate of future obligations related to other closed stores and relocated certain other facilities during the three months ended October 31, 2013 . This resulted in a pre-tax charge of $2,834 thousand ( $1,834 thousand after-tax). This amount is reported within the retail segment and classified in charges and credits in the consolidated statement of operations.

The Company recorded the following charges during the first nine months of fiscal year 2013:

During the three months ended October 31, 2012 , the Company incurred $641 thousand in pre-tax costs ( $415 thousand after-tax) in connection with the relocation of certain of its corporate operations from Beaumont to The Woodlands, Texas. This amount is reported within the retail segment and classified in charges and credits in the consolidated statement of operations. Additionally, the Company amended and restated its asset-based loan facility with a syndicate of banks on September 26, 2012. In connection with the transaction, the Company expensed $818 thousand ( $530 thousand after-tax) of previously deferred transaction costs associated with lenders which are no longer in the current syndicate of banks. This amount is reported within the credit segment and classified in loss on extinguishment of debt in the consolidated statement of operations.

During the three months ended July 31, 2012 , the Company incurred $346 thousand in pre-tax costs ( $224 thousand after-tax) in connection with the relocation of certain of its corporate operations from Beaumont to The Woodlands, Texas.

7


This amount is reported within the retail segment and classified in charges and credits in the consolidated statement of operations.

During the three months ended April 30, 2012 , the Company accrued the lease buyout costs related to one of its store closures and revised its estimate of future obligations related to its other closed stores. This resulted in a pre-tax charge of $163 thousand ( $106 thousand after-tax). This amount is reported within the retail segment and classified in charges and credits in the consolidated statement of operations.
 
3.     Supplemental Disclosure of Customer Receivables
 
Customer accounts receivable are originated at the time of sale and delivery of the various products and services. The Company records the amount of principal and accrued interest on customer receivables that is expected to be collected within the next twelve months , based on contractual terms, in current assets on its consolidated balance sheet. Those amounts expected to be collected after twelve months , based on contractual terms, are included in long-term assets. Typically, customer receivables are considered delinquent if a payment has not been received on the scheduled due date. Accounts that are delinquent more than 209 days as of the end of a month are charged-off against the allowance for doubtful accounts and interest accrued subsequent to the last payment is reversed and charged against the allowance for uncollectible interest.
 
As part of its efforts in mitigating losses on its accounts receivable, the Company may make loan modifications to a borrower experiencing financial difficulty that are intended to maximize the net cash flow after expenses, and avoid the need for repossession of collateral. The Company may extend the loan term, refinance or otherwise re-age an account. Accounts that have been re-aged in excess of three months or refinanced are considered Troubled Debt Restructurings (“TDR”).

The Company uses risk-rating criteria to differentiate underwriting requirements, potentially requiring differing down payment and initial application and documentation criteria. The following tables present quantitative information about the receivables portfolio managed by the Company, segregated by segment:

 
Total Outstanding Balance
 
Customer Accounts Receivable
 
60 Days Past Due (1)
 
Re-aged (1)
(in thousands)
October 31,
2013
 
January 31,
2013
 
October 31,
2013
 
January 31,
2013
 
October 31,
2013
 
January 31,
2013
Customer accounts receivable
$
901,282

 
$
702,737

 
$
68,046

 
$
41,704

 
$
59,258

 
$
47,757

Restructured accounts (2)
43,544

 
38,807

 
12,459

 
11,135

 
43,544

 
38,671

Total receivables managed
$
944,826

 
$
741,544

 
$
80,505

 
$
52,839

 
$
102,802

 
$
86,428


Allowance for uncollectible accounts related to the credit portfolio
(59,595
)
 
(43,911
)
Allowance for promotional credit programs
(10,830
)
 
(6,572
)
Short-term portion of customer accounts receivable, net
(473,795
)
 
(378,050
)
Long-term portion of customer accounts receivable, net
$
400,606

 
$
313,011


(1)
Amounts are based on end of period balances. As an account can become past due after having been re-aged, accounts may be presented in both the past due and re-aged columns shown above. The amounts included within both the past due and re-aged columns shown above as of October 31, 2013 and January 31, 2013 were $24.7 million and $20.7 million , respectively. The total amount of customer receivables past due one day or greater was $228.7 million and $172.4 million as of October 31, 2013 and January 31, 2013 , respectively. These amounts include the 60 days past due totals shown above.
(2)
In addition to the amounts included in restructured accounts, there are $1.4 million and $1.9 million as of October 31, 2013 and January 31, 2013 , respectively, of accounts re-aged four or more months included in the re-aged balance above that did not qualify as TDRs because they were not re-aged subsequent to January 31, 2011 .

8


 
 
 
 
 
Net Credit
 
 
 
 
 
Net Credit
 
Average Balances
 
Charge-offs (1)
 
Average Balances
 
Charge-offs (1)
 
Three Months Ended 
 October 31,
 
Three Months Ended 
 October 31,
 
Nine Months Ended 
 October 31,
 
Nine Months Ended 
 October 31,
(in thousands)
2013
 
2012
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
Customer accounts receivable
$
853,394

 
$
638,192

 
$
12,358

 
$
8,588

 
$
779,859

 
$
612,897

 
$
31,982

 
$
24,482

Restructured accounts
41,693

 
36,325

 
4,564

 
4,278

 
40,446

 
39,971

 
10,671

 
15,542

Total receivables managed
$
895,087

 
$
674,517

 
$
16,922

 
$
12,866

 
$
820,305

 
$
652,868

 
$
42,653

 
$
40,024


(1)
Charge-offs include the principal amount of losses (excluding accrued and unpaid interest) net of recoveries which include principal collections during the period shown of previously charged-off balances.

Following is the activity in the Company’s balance in the allowance for doubtful accounts and uncollectible interest for customer receivables for the nine months ended October 31, 2013 and 2012 :

 
Nine Months Ended October 31, 2013
 
Nine Months Ended October 31, 2012
(in thousands)
Customer
Accounts
Receivable
 
 
Restructured
Accounts
 
 
 
Total
 
Customer
Accounts
Receivable
 
 
Restructured
Accounts
 
 
 
Total
Allowance at beginning of period
$
27,702

 
$
16,209

 
$
43,911

 
$
24,518

 
$
25,386

 
$
49,904

Provision (1)
53,468

 
12,931

 
66,399

 
30,506

 
10,760

 
41,266

Principal charge-offs (2)
(35,805
)
 
(11,947
)
 
(47,752
)
 
(26,281
)
 
(16,684
)
 
(42,965
)
Interest charge-offs
(6,045
)
 
(2,017
)
 
(8,062
)
 
(4,054
)
 
(2,575
)
 
(6,629
)
Recoveries (2)
3,823

 
1,276

 
5,099

 
1,799

 
1,142

 
2,941

Allowance at end of period
$
43,143

 
$
16,452

 
$
59,595

 
$
26,488

 
$
18,029

 
$
44,517


(1)
Includes provision for uncollectible interest, which is included in finance charges and other.
(2)
Charge-offs include the principal amount of losses (excluding accrued and unpaid interest), and recoveries include principal collections during the period shown of previously charged-off balances. Net charge-offs are calculated as the net of principal charge-offs and recoveries.

The Company records an allowance for doubtful accounts, including estimated uncollectible interest, for its customer accounts receivable, based on its historical cash collections and net loss experience using a projection of monthly delinquency performance, cash collections and losses. In addition to pre-charge-off cash collections and charge-off information, estimates of post-charge-off recoveries, including cash payments, amounts realized from the repossession of the products financed and, at times, payments received under credit insurance policies are also considered.
 
The Company determines reserves for those accounts that are TDRs based on the present value of cash flows expected to be collected over the life of those accounts. The excess of the carrying amount over the discounted cash flow amount is recorded as a reserve for loss on those accounts.
 
The Company typically only places accounts in non-accrual status when legally required. Payment received on non-accrual loans will be applied to principal and reduce the amount of the loan. Interest accrual is resumed on those accounts once a legally-mandated settlement arrangement is reached or other payment arrangements are made with the customer. Customer receivables in non-accrual status were $11.0 million and $9.0 million at October 31, 2013 and January 31, 2013 , respectively. Customer receivables that were past due 90 days or more and still accruing interest totaled $55.3 million and $36.6 million at October 31, 2013 and January 31, 2013 , respectively.


9


4.          Supplemental Disclosure of Finance Charges and Other Revenue
 
The following is a summary of the classification of the amounts included as finance charges and other for the three and nine months ended October 31, 2013 and 2012 :

 
Three Months Ended 
 October 31,
 
Nine Months Ended 
 October 31,
(in thousands)
2013
 
2012
 
2013
 
2012
Interest income and fees on customer receivables
$
40,260

 
$
32,458

 
$
109,667

 
$
90,915

Insurance commissions
13,132

 
6,280

 
31,688

 
17,001

Other
438

 
340

 
1,067

 
857

Finance charges and other
$
53,830

 
$
39,078

 
$
142,422

 
$
108,773


Interest income and fees on customer receivables is reduced by provisions for uncollectible interest of $4.2 million and $1.9 million , respectively, for the three months ended October 31, 2013 and 2012 , and $9.4 million and $5.9 million , respectively, for the nine months ended October 31, 2013 and 2012. The amount included in interest income and fees on customer receivables related to TDR accounts was $1.1 million and $0.9 million for each of the three months ended October 31, 2013 and 2012 , respectively, and $3.2 million and $3.1 million for each of the nine months ended October 31, 2013 and 2012 , respectively. The Company recognizes interest income on TDR accounts using the interest income method, which requires reporting interest income equal to the increase in the net carrying amount of the loan attributable to the passage of time. Cash proceeds and other adjustments are applied to the net carrying amount of TDR accounts such that it always equals the present value of expected future cash flows.

5.     Accrual for Store Closures
 
During the three months ended October 31, 2013, the Company revised its estimates related to remaining lease obligations, net of estimated sublease income, for certain facilities closed prior to January 31, 2013. The loss of a sublease tenant and other market events during the quarter resulted in a $2.0 million charge to income and a related increase in the recorded obligation. Additionally, the Company closed two retail locations that did not perform at a level the Company currently expects for mature store locations and relocated certain other facilities, incurring related costs of $0.8 million . Reported within charges and credits for the retail segment in the accompanying, facility-related closure costs totaled $2.8 million for the quarter ended October 31, 2013.

During fiscal 2013 and 2012 , the Company closed two and 11 retail locations, respectively, that did not perform at a level the Company expects for mature store locations. Certain of the closed stores had unexpired leases, resulting in the accrual of the present value of remaining lease obligations and anticipated ancillary occupancy costs, net of estimated sublease income. Revisions to these projections for changes in estimated marketing times and sublease rates are made to the obligation as further information related to the actual terms and costs become available. The estimates were calculated using Level 2 fair value inputs. The following table presents detail of the activity in the accrual for store closures during the nine months ended October 31, 2013 and 2012 :

 
Nine Months Ended 
 October 31,
(in thousands)
2013
 
2012
Balance at beginning of period
$
5,071

 
$
8,106

Accrual for closures
137

 
450

Change in estimate
2,036

 
(287
)
Cash payments
(1,509
)
 
(3,292
)
Balance at end of period
$
5,735

 
$
4,977


Balance sheet presentation:
October 31,
2013
Accrued expenses
$
3,395

Other long-term liabilities
2,340

 
$
5,735


10



The cash payments include payments made for facility rent and related costs.

6.     Debt and Letters of Credit
 
The Company’s long-term debt consisted of the following at the period ended:

(in thousands)
October 31,
2013
 
January 31,
2013
Asset-based revolving credit facility
$
421,328

 
$
262,401

Asset-backed notes, net of discount of $205

 
32,307

Other long-term debt
1,360

 
349

Total debt
422,688

 
295,057

Less current portion of debt
527

 
32,526

Long-term debt
$
422,161

 
$
262,531


The Company’s asset-based revolving credit facility with a syndicate of banks had capacity of $585 million as of October 31, 2013 . The revolving credit facility provides funding based on a borrowing base calculation that includes customer accounts receivable and inventory. The amended and restated credit facility bears interest at LIBOR plus a spread ranging from 275 basis points to 350 basis points, based on a leverage ratio (defined as total liabilities to tangible net worth). In addition to the leverage ratio, the revolving credit facility includes a fixed charge coverage requirement, a minimum customer receivables cash recovery percentage requirement and a net capital expenditures limit. The asset-based revolving credit facility restricts the amount of dividends the Company can pay and is secured by the assets of the Company not otherwise encumbered.
  
As of October 31, 2013 , the Company had immediately available borrowing capacity of approximately $162.3 million under its asset-based revolving credit facility, net of standby letters of credit issued, for general corporate purposes. The Company pays additional fees in the amount of 25 basis points for the additional commitment amount.

The Company’s asset-based revolving credit facility provides it the ability to utilize letters of credit to secure its deductibles under the Company’s property and casualty insurance programs, among other acceptable uses. At October 31, 2013 , the Company had outstanding letters of credit of $1.3 million under this facility. The maximum potential amount of future payments under these letter of credit facilities is considered to be the aggregate face amount of each letter of credit commitment, which totals $1.3 million as of October 31, 2013 .

The Company was in compliance with its financial covenants at October 31, 2013 .

On April 30, 2012, the Company’s VIE issued $103.7 million of asset-backed notes which bore interest at 4.0% and were sold at a discount to deliver a 5.21% yield, before considering transaction costs. The principal balance of the notes, which was secured by certain customer receivables, was reduced on a monthly basis by collections on the underlying customer receivables after the payment of interest and other expenses of the VIE. While the final maturity for the notes was April 2016, the Company repaid the outstanding note balance in April 2013. In connection with the early repayment of the asset-backed notes, the Company accelerated the amortization of deferred financing cost resulting in an additional $0.4 million of interest expense during the first quarter of fiscal 2014.

7.     Contingencies
 
The Company is involved in routine litigation and claims incidental to its business from time to time, and, as required, has accrued its estimate of the probable costs for the resolution of these matters, which, individually or in the aggregate, are not expected to have a material adverse effect on the Company's financial position, results of operations or cash flows. 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 the Company’s estimate of reserves for litigation.
 


11


8.      Segment Reporting
 
Financial information by segment is presented in the following tables:
 
 
Three Months Ended October 31, 2013

Three Months Ended October 31, 2012
(in thousands)
Retail

Credit

Total

Retail

Credit

Total
Revenues
 
 
 
 
 
 
 
 
 
 
 
Product sales
$
234,159

 
$

 
$
234,159

 
$
151,663

 
$

 
$
151,663

Repair service agreement commissions
19,601

 

 
19,601

 
12,183

 

 
12,183

Service revenues
3,286

 

 
3,286

 
3,477

 

 
3,477

Total net sales
257,046

 

 
257,046

 
167,323

 

 
167,323

Finance charges and other
438

 
53,392

 
53,830

 
340

 
38,738

 
39,078

Total revenues
257,484

 
53,392

 
310,876

 
167,663

 
38,738

 
206,401

Cost and expenses
 

 
 

 
 

 
 

 
 

 
 

Cost of goods sold, including warehousing and occupancy costs
151,987

 

 
151,987

 
105,688

 

 
105,688

Cost of service parts sold, including warehousing and occupancy cost
1,286

 

 
1,286

 
1,522

 

 
1,522

Selling, general and administrative expense (a)
69,920

 
20,421

 
90,341

 
47,275

 
13,935

 
61,210

Provision for bad debts
203

 
22,527

 
22,730

 
229

 
13,220

 
13,449

Charges and credits
2,834

 

 
2,834

 
641

 

 
641

Total cost and expense
226,230

 
42,948

 
269,178

 
155,355

 
27,155

 
182,510

Operating income
31,254

 
10,444

 
41,698

 
12,308

 
11,583

 
23,891

Interest expense

 
3,714

 
3,714

 

 
4,526

 
4,526

Loss on extinguishment of debt

 

 

 

 
818

 
818

Other income, net

 

 

 
(3
)
 

 
(3
)
Income before income taxes
$
31,254

 
$
6,730

 
$
37,984

 
$
12,311

 
$
6,239

 
$
18,550


 
As of October 31, 2013
 
As of January 31, 2013
(in thousands)
Retail
 
Credit
 
Total
 
Retail
 
Credit
 
Total
Total assets
$
275,812

 
$
898,552

 
$
1,174,364

 
$
188,609

 
$
721,248

 
$
909,857



12


 
Nine Months Ended October 31, 2013
 
Nine Months Ended October 31, 2012
(in thousands)
Retail
 
Credit
 
Total
 
Retail
 
Credit
 
Total
Revenues
 
 
 
 
 
 
 
 
 
 
 
Product sales
$
628,482

 
$

 
$
628,482

 
$
459,804

 
$

 
$
459,804

Repair service agreement commissions
52,756

 

 
52,756

 
35,930

 

 
35,930

Service revenues
8,968

 

 
8,968

 
10,181

 

 
10,181

Total net sales
690,206

 

 
690,206

 
505,915

 

 
505,915

Finance charges and other
1,067

 
141,355

 
142,422

 
857

 
107,916

 
108,773

Total revenues
691,273

 
141,355

 
832,628

 
506,772

 
107,916

 
614,688

Cost and expenses
 

 
 

 
 

 
 

 
 

 
 

Cost of goods sold, including warehousing and occupancy costs
411,484

 

 
411,484

 
325,041

 

 
325,041

Cost of service parts sold, including warehousing and occupancy cost
4,010

 

 
4,010

 
4,513

 

 
4,513

Selling, general and administrative expense (a)
188,340

 
54,013

 
242,353

 
139,832

 
40,415

 
180,247

Provision for bad debts
389

 
57,660

 
58,049

 
630

 
34,208

 
34,838

Charges and credits
2,834

 

 
2,834

 
1,150

 

 
1,150

Total cost and expense
607,057

 
111,673

 
718,730

 
471,166

 
74,623

 
545,789

Operating income
84,216

 
29,682

 
113,898

 
35,606

 
33,293

 
68,899

Interest expense

 
10,720

 
10,720

 

 
13,159

 
13,159

Loss on extinguishment of debt

 

 

 

 
818

 
818

Other income, net
(38
)
 

 
(38
)
 
(105
)
 

 
(105
)
Income before income taxes
$
84,254

 
$
18,962

 
$
103,216

 
$
35,711

 
$
19,316

 
$
55,027



(a)
Selling, general and administrative expenses include the direct expenses of the retail and credit operations, allocated overhead expenses and a charge to the credit segment to reimburse the retail segment for expenses it incurs related to occupancy, personnel, advertising and other direct costs of the retail segment which benefit the credit operations by sourcing credit customers and collecting payments. The reimbursement received by the retail segment from the credit segment is estimated using an annual rate of 2.5% times the average portfolio balance for each applicable period. The amount of overhead allocated to each segment was $2.9 million and $2.3 million for the three months ended October 31, 2013 and 2012 , respectively, and $8.0 million and $6.5 million for the nine months ended October 31, 2013 and 2012 , respectively. The amount of reimbursement made to the retail segment by the credit segment was $5.6 million and $4.2 million for the three months ended October 31, 2013 and 2012 , respectively, and $15.3 million and $12.2 million for the nine months ended October 31, 2013 and 2012 , respectively.

9.      Subsequent Event

On November 25, 2013, the Company completed an expansion and extension of its asset-based loan facility with a syndicate of banks. Under the amended terms, the revolving credit facility commitment increased $265.0 million to $850.0 million and the maturity date was extended to November 2017. The amended credit facility bears interest at LIBOR plus a spread ranging from 250 basis points to 325 basis points, based on a leverage ratio (defined as total liabilities to tangible net worth).


13


Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations
 
Unless the context otherwise indicates, references to “Conn’s,” the “Company,” “we,” “us,” and “our” refer to the consolidated business operations of Conn’s, Inc. and all of its direct and indirect subsidiaries, limited liability companies and limited partnerships.
 
Forward-Looking Statements
 
This report contains forward-looking statements within the meaning of 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,” or the negative of such terms or other similar expressions are generally forward-looking in nature and not historical facts. Although we believe that the expectations, opinions, projections, and comments reflected in these forward-looking statements are reasonable, we can give no assurance that such statements will prove to be correct. 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 continue existing or offer new customer financing programs; changes in the delinquency status of our credit portfolio; higher than anticipated net charge-offs in the credit portfolio; the success of our planned opening of new stores and the updating of existing stores; technological and market developments and sales trends for our major product offerings; our ability to fund our operations, capital expenditures, debt repayment and expansion from cash flows from operations, borrowings from our revolving credit facility, and proceeds from accessing debt or equity markets; and the other risks detailed in our United States Securities and Exchange Commission (“SEC”) reports, including but not limited to, our Annual Report on Form 10-K for our fiscal year ended January 31, 2013.  You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Except as required by law, we are not obligated to publicly release any revisions or update to these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.
 
General
 
Conn’s is a leading specialty retailer that offers a broad selection of high-quality, branded durable consumer goods and related services in addition to a proprietary credit solution for its core credit constrained consumers. We operate a highly integrated and scalable business through our retail stores and website. Our complementary product offerings include home appliances, furniture and mattresses, 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, underserved population of credit constrained consumers who typically are unbanked and have credit scores between 550 and 650. We provide customers the opportunity to comparison shop across brands with confidence in our low prices as well as affordable monthly payment options, next day delivery and installation, and product repair service. We believe our large, attractively merchandised stores and credit solutions offer a distinctive shopping experience compared to other retailers that target our core customer demographic.
 
We operate over 70 retail locations in Texas, Louisiana, Arizona, Oklahoma and New Mexico. The Company’s primary product categories include:
 
Home appliance, including refrigerators, freezers, washers, dryers, dishwashers and ranges;
Furniture and mattress, including furniture and related accessories for the living room, dining room and bedroom, as well as both traditional and specialty mattresses;
Consumer electronic, including LCD, LED, 3-D and plasma televisions, Blu-ray players, home theater and video game products, camcorders, digital cameras, and portable audio equipment; and
Home office, including computers, tablets, printers and accessories.

Additionally, the Company offers a variety of products on a seasonal basis.
 
Our stores typically range in size from 18,000 to 50,000 square feet and are predominately located in areas densely populated by our core customer and are typically anchor stores in strip malls. We utilize a “good-better-best” merchandising strategy that offers approximately 2,300 branded products from approximately 200 manufacturers and distributors in a wide range of price points. Our commissioned sales, consumer credit and service personnel are well-trained and knowledgeable to assist our customers with product selection and the credit application process. We also provide additional services including next day delivery and installation capabilities, and product repair or replacement services for most items sold in our stores.

Unlike many of our competitors, we provide multiple financing options to address various customer needs including a proprietary in-house credit program, a third-party financing program and a third-party rent-to-own payment program. The majority

14

Table of Contents

of our credit customers use our in-house credit program and typically have a credit score of between 550 and 650, with the average score of new applicants for the three months ended October 31, 2013 of 598 . For customers who do not qualify for our in-house program, we offer rent-to-own payment plans through RAC Acceptance. For customers with high credit scores, we have partnered with GE Capital to offer long-term, no interest and revolving credit plans. RAC Acceptance and GE Capital manage their respective underwriting decisions, management and collection of their credit programs. For the three months ended October 31, 2013 , we financed approximately 79.5% of our retail sales, including down payments, under our in-house financing program.
 
We believe our extensive brand and product selection, competitive pricing, financing alternatives and supporting services combined with our customer service-focused store associates make us an attractive alternative to appliance and electronics superstores, department stores and other national, regional, local and internet retailers.
 
Due to the holiday selling season, our business is moderately seasonal, with a greater share of our revenues, operating and net income historically realized during the quarter ending January 31.

Operational Changes and Operating Environment

We have implemented, continued to focus on, or modified operating initiatives that we believe should positively impact future results, including:
 
Opening expanded Conn’s HomePlus stores in new markets. During the first nine months of 2013, we opened new stores in Mesa, Phoenix and Tempe, Arizona; Las Cruces, New Mexico; and Tulsa, Oklahoma. Additionally, we opened new stores in each of our existing Houston and Dallas, Texas markets and we plan to open seven additional new stores by January 31, 2014. We plan to open 15 to 20 new stores during fiscal 2015;

Remodeling existing stores utilizing the new Conn’s HomePlus format to increase retail square footage and improve our customers shopping experience;

Expanding and enhancing our product offering of higher-margin furniture and mattresses;

Focusing on higher-price, higher-margin products to improve operating performance;

Reviewing our existing store locations to ensure the customer demographics and retail sales opportunity are sufficient to achieve our store performance expectations, and selectively closing or relocating stores to achieve those goals. In this regard, we have closed a total of 15 retail locations since the beginning of fiscal 2012 that did not perform at the level we expect for mature store locations;

Assessing the ability to approve customers being declined today, as retail margin and portfolio yield increases may provide the ability to finance these customers profitably;

Increased use of interest-free credit programs, with terms of 12 months or less, during fiscal 2014 with the intent to accelerate cash collections, while modestly reducing portfolio interest and fee yield; and

Focusing on improving the execution within our collection operations to reduce delinquency rates and future charge-offs.

While we have benefited from our operations being historically concentrated in the Texas, Louisiana and Oklahoma region in the past, continued weakness in the national and state economies, including instability in the financial markets and the volatility of oil and natural gas prices, have and will present significant challenges to our operations in the coming quarters.



15

Table of Contents

Customer Receivable Portfolio Data

The following tables present, for comparison purposes, information about our credit portfolios (dollars in thousands, except average outstanding customer balance):

 
As of October 31,
 
2013
 
2012
Total outstanding balance
$
944,826

 
$
683,744

Weighted average credit score of outstanding balances
591

 
603

Weighted average months since origination of outstanding balances (1)
8.6

 
9.7

Percent of total outstanding balances represented by balances over 36 months from origination (1)
0.5
%
 
1.1
%
Average outstanding customer balance
$
1,676

 
$
1,479

Number of active accounts
563,573

 
462,200

Account balances 60+ days past due (2)
$
80,505

 
$
47,691

Percent of balances 60+ days past due to total outstanding balance
8.5
%
 
7.0
%
Total account balances reaged (2)
$
102,802

 
$
77,837

Percent of re-aged balances to total outstanding balance
10.9
%
 
11.4
%
Account balances re-aged more than six months
$
20,738

 
$
20,225

Percent of total bad debt allowance to total outstanding balance
6.3
%
 
6.5
%
Percent of total outstanding balance represented by promotional receivables
33.4
%
 
23.5
%


Three Months Ended 
 October 31,

Nine Months Ended 
 October 31,
 
2013
 
2012
 
2013
 
2012
Total applications processed (3)
267,558

 
198,617

 
682,453

 
565,036

Weighted average origination credit score of sales financed
599

 
616

 
601

 
615

Total applications approved (3)
48.5
%
 
52.3
%
 
50.4
%
 
56.6
%
Weighted average down payment
3.4
%
 
2.8
%
 
3.7
%
 
3.4
%
Average total outstanding balance
$
895,087

 
$
674,517

 
$
820,305

 
$
652,868

Bad debt charge-offs (net of recoveries)
$
16,922

 
$
12,866

 
$
42,653

 
$
40,024

Percent of bad debt charge-offs (net of recoveries) to average outstanding balance, annualized
7.6
%
 
7.6
%
 
6.9
%
 
8.2
%
Weighted average monthly payment rate (4)
5.1
%
 
5.3
%
 
5.4
%
 
5.5
%
Percent of retail sales paid for by:
 

 
 

 
 

 
 

In-house financing, including down payment received
79.5
%
 
72.3
%
 
73.2
%
 
69.5
%
Third party financing
11.5
%
 
14.5
%
 
11.7
%
 
14.3
%
Third party rent-to-own options
2.5
%
 
3.7
%
 
2.9
%
 
3.5
%
Total
93.5
%
 
90.5
%
 
87.8
%
 
87.3
%
 
(1)
Includes installment accounts only.
(2)
Accounts that become delinquent after being re-aged are included in both the delinquency and re-aged amounts.
(3)
Total applications approved data for three and nine months ended October 31, 2012 revised to conform calculation of approval status.
(4)
Three and nine month average of gross cash payments as a percentage of gross principal balances outstanding at the beginning of each month in the period.



16

Table of Contents

Historical Static Loss Table

The following static loss analysis calculates the cumulative percentage of balances charged off, based on the year the credit account was originated and the period the balance was charged off. The percentage computed below is calculated by dividing the cumulative net amount charged off since origination by the total balance of accounts originated during the applicable fiscal year. The net charge-off was determined by estimating, on a pro rata basis, the amount of the recoveries received during a period that was allocable to the applicable origination period (dollars in thousands).

 
 
As of October 31, 2013 (a)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
% of balance

Cumulative loss rate as a % of balance originated (b)
Fiscal year
 
Balance
 
originated

Years from origination
of origination
 
outstanding
 
outstanding


1

2

3

Terminal (c)
2005
 
 
 
 
 
0.3%
 
1.8%
 
3.5%
 
4.4%
 
5.1%
2006
 
 
 
 
 
0.3%
 
1.9%
 
3.6%
 
4.8%
 
5.8%
2007
 
 
 
 
 
0.2%
 
1.7%
 
3.5%
 
4.8%
 
5.8%
2008
 
 
 
 
 
0.2%
 
1.8%
 
3.6%
 
5.1%
 
5.9%
2009
 
 
 
 
 
0.2%
 
2.1%
 
4.6%
 
6.1%
 
6.6%
2010
 
$1,121
 
0.2%
 
0.2%
 
2.4%
 
4.6%
 
6.0%
 
6.1%
2011
 
$7,652
 
1.2%
 
0.4%
 
2.6%
 
5.2%
 
5.8%
 
 
2012
 
$64,854
 
10.8%
 
0.2%
 
3.1%
 
4.9%
 
 
 
 
2013
 
$260,368
 
35.4%
 
0.4%
 
3.4%
 
 
 
 
 
 
 
(a)
As of October 31, 2013, balances originated prior to fiscal 2010 and outstanding were insignificant.
(b)
The most recent percentages in years from origination 1 through 3 include loss data through October 31, 2013 , and are not comparable to prior fiscal year accumulated net charge-off percentages in the same column.
(c)
The terminal loss percentage presented represents the point at which that pool of loans has reached its maximum loss rate.



17

Table of Contents

Results of Operations
 
The presentation of our results of operations may not be comparable to some other retailers since we include the cost of our in-home delivery and installation service as part of selling, general and administrative expense.  Similarly, we include the cost related to operating our purchasing function in selling, general and administrative expense.  It is our understanding that other retailers may include such costs as part of their cost of goods sold.
 
The following tables present certain operations information, on a consolidated and segment basis:
 
Consolidated:
 
Three Months Ended 
 October 31,
 
Nine Months Ended 
 October 31,
(in thousands)
2013
 
2012
 
Change
 
2013
 
2012
 
Change
Revenues
 
 
 
 
 
 
 
 
 
 
 
Product sales
$
234,159

 
$
151,663

 
$
82,496

 
$
628,482

 
$
459,804

 
$
168,678

Repair service agreement commissions
19,601

 
12,183

 
7,418

 
52,756

 
35,930

 
16,826

Service revenues
3,286

 
3,477

 
(191
)
 
8,968

 
10,181

 
(1,213
)
Total net sales
257,046

 
167,323

 
89,723

 
690,206

 
505,915

 
184,291

Finance charges and other
53,830

 
39,078

 
14,752

 
142,422

 
108,773

 
33,649

Total revenues
310,876

 
206,401

 
104,475

 
832,628

 
614,688

 
217,940

Cost and expenses
 

 
 

 
 

 
 
 
 
 
 

Cost of goods sold, including warehousing and occupancy costs
151,987

 
105,688

 
46,299

 
411,484

 
325,041

 
86,443

Cost of service parts sold, including warehousing and occupancy cost
1,286

 
1,522

 
(236
)
 
4,010

 
4,513

 
(503
)
Selling, general and administrative expense (a)
90,341

 
61,210

 
29,131

 
242,353

 
180,247

 
62,106

Provision for bad debts
22,730

 
13,449

 
9,281

 
58,049

 
34,838

 
23,211

Charges and credits
2,834

 
641

 
2,193

 
2,834

 
1,150

 
1,684

Total cost and expenses
269,178

 
182,510

 
86,668

 
718,730

 
545,789

 
172,941

Operating income
41,698

 
23,891

 
17,807

 
113,898

 
68,899

 
44,999

Interest expense
3,714

 
4,526

 
(812
)
 
10,720

 
13,159

 
(2,439
)
Loss on extinguishment of debt

 
818

 
(818
)
 

 
818

 
(818
)
Other income, net

 
(3
)
 
3

 
(38
)
 
(105
)
 
67

Income before income taxes
37,984

 
18,550