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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 July 31, 2021
 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 August 23, 2021: 
Class   Outstanding
Common stock, $0.01 par value per share   29,483,140


CONN’S, INC. AND SUBSIDIARIES

FORM 10-Q
FOR THE FISCAL QUARTER ENDED JULY 31, 2021

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


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)
July 31,
2021
January 31,
2021
Assets
Current assets:
Cash and cash equivalents $ 8,736  $ 9,703 
Restricted cash (includes VIE balances of $28,911 and $48,622, respectively)
30,961  50,557 
Customer accounts receivable, net of allowances (includes VIE balances of $159,338 and $259,811, respectively)
461,491  478,734 
Other accounts receivable 55,260  61,716 
Inventories 223,662  196,463 
Income taxes receivable 32,223  38,059 
Prepaid expenses and other current assets 20,725  8,831 
Total current assets 833,058  844,063 
Long-term portion of customer accounts receivable, net of allowances (includes VIE balances of $70,927 and $184,304, respectively)
415,208  430,749 
Property and equipment, net 186,072  190,962 
Operating lease right-of-use assets 258,702  265,798 
Deferred income taxes —  9,448 
Other assets 15,907  14,064 
Total assets $ 1,708,947  $ 1,755,084 
Liabilities and Stockholders’ Equity    
Current liabilities:    
Current finance lease obligations $ 1,371  $ 934 
Accounts payable 89,001  69,367 
Accrued compensation and related expenses 27,366  24,944 
Accrued expenses 71,712  58,046 
Operating lease liability - current 54,800  44,011 
Income taxes payable 2,233  1,447 
Deferred revenues and other credits 14,937  13,007 
Total current liabilities 261,420  211,756 
Operating lease liability - non current 338,289  354,598 
Long-term debt and finance lease obligations (includes VIE balances of $214,562 and $411,551, respectively)
438,242  608,635 
Deferred tax liability 7,803  — 
Other long-term liabilities 20,743  22,940 
Total liabilities 1,066,497  1,197,929 
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; 32,967,808 and 32,711,623 shares issued, respectively)
329  327 
Treasury stock (at cost; 3,485,441 shares and 3,485,441 shares, respectively)
(66,290) (66,290)
Additional paid-in capital 134,999  132,108 
Retained earnings 573,412  491,010 
Total stockholders’ equity 642,450  557,155 
Total liabilities and stockholders’ equity
$ 1,708,947  $ 1,755,084 
See notes to condensed consolidated financial statements.

1

CONN’S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and dollars in thousands, except per share amounts)
Three Months Ended
July 31,
Six Months Ended
July 31,
  2021 2020 2021 2020
Revenues:
Product sales $ 320,245  $ 256,142  $ 589,456  $ 463,340 
Repair service agreement commissions 23,700  20,164  42,831  40,265 
Service revenues 2,840  3,430  5,794  6,461 
Total net sales 346,785  279,736  638,081  510,066 
Finance charges and other revenues 71,598  87,180  144,004  174,010 
Total revenues 418,383  366,916  782,085  684,076 
Costs and expenses:
Cost of goods sold 216,042  176,623  400,921  323,637 
Selling, general and administrative expense 137,870  115,278  263,919  228,285 
Provision for bad debts 10,262  32,045  (6,874) 149,371 
Charges and credits —  1,534  —  3,589 
Total costs and expenses 364,174  325,480  657,966  704,882 
Operating income (loss) 54,209  41,436  124,119  (20,806)
Interest expense 6,088  13,222  15,292  28,215 
Loss on extinguishment of debt —  —  1,218  — 
Income (loss) before income taxes 48,121  28,214  107,609  (49,021)
Provision (benefit) for income taxes 11,117  7,694  25,207  (13,339)
Net income (loss) $ 37,004  $ 20,520  $ 82,402  $ (35,682)
Income (loss) per share:
Basic $ 1.26  $ 0.71  $ 2.80  $ (1.23)
Diluted $ 1.22  $ 0.70  $ 2.74  $ (1.23)
Weighted average common shares outstanding:
Basic 29,438,605  29,070,607  29,382,162  28,948,216 
Diluted 30,212,448  29,140,546  30,072,401  28,948,216 
See notes to condensed consolidated financial statements.

2

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, 2021 32,711,623  $ 327  $ 132,108  $ 491,010  (3,485,441) $ (66,290) $ 557,155 
Exercise of options and vesting of restricted stock, net of withholding tax 115,159  (999) —  —  —  (998)
Issuance of common stock under Employee Stock Purchase Plan 18,240  —  180  —  —  —  180 
Stock-based compensation —  —  2,039  —  —  —  2,039 
Net income —  —  —  45,398  —  —  45,398 
Balance April 30, 2021 32,845,022  $ 328  $ 133,328  $ 536,408  (3,485,441) $ (66,290) $ 603,774 
Exercise of options and vesting of restricted stock, net of withholding tax 112,223  (229) —  —  —  (228)
Issuance of common stock under Employee Stock Purchase Plan 10,563  —  187  —  —  —  187 
Stock-based compensation —  —  1,713  —  —  —  1,713 
Net income —  —  —  37,004  —  —  37,004 
Balance July 31, 2021 32,967,808  $ 329  $ 134,999  $ 573,412  (3,485,441) $ (66,290) $ 642,450 
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 
See notes to condensed consolidated financial statements.

3

CONN’S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
Six Months Ended July 31,
  2021 2020
Cash flows from operating activities:
Net income (loss) $ 82,402  $ (35,682)
Adjustments to reconcile net income (loss) to net cash from operating activities:    
Depreciation 22,836  19,929 
Change in right-of-use asset 17,005  15,328 
Amortization of debt issuance costs 3,254  4,237 
Provision for bad debts and uncollectible interest 8,071  181,286 
Stock-based compensation expense 3,752  4,683 
Charges, net of credits —  3,589 
Deferred income taxes 17,251  (2,472)
Loss on extinguishment of debt 1,218  — 
Loss on disposal of property and equipment 104  — 
Tenant improvement allowances received from landlords 10,864  10,277 
Change in operating assets and liabilities:    
Customer accounts receivable 24,873  63,745 
Other accounts receivables 6,296  13,068 
Inventories (27,199) 38,863 
Other assets (11,390) 690 
Accounts payable 19,633  13,442 
Accrued expenses 17,907  2,485 
Operating leases (26,293) (20,086)
Income taxes 5,622  (9,578)
Deferred revenues and other credits 733  1,921 
Net cash provided by operating activities 176,939  305,725 
Cash flows from investing activities:    
Purchases of property and equipment (19,162) (32,459)
Net cash used in investing activities (19,162) (32,459)
Cash flows from financing activities:    
Proceeds from issuance of asset-backed notes 62,900  — 
Payments on asset-backed notes (261,356) (315,225)
Borrowings under revolving credit facility 740,850  835,717 
Payments on revolving credit facility (573,850) (800,917)
Payments of debt issuance costs and amendment fees (4,231) (2,055)
Proceeds from stock issued under employee benefit plans 367  338 
Tax payments associated with equity-based compensation transactions (1,227) (1,444)
Payment for extinguishment of debt (141,279) — 
Other (514) (314)
Net cash used in financing activities (178,340) (283,900)
Net change in cash, cash equivalents and restricted cash (20,563) (10,634)
Cash, cash equivalents and restricted cash, beginning of period 60,260  80,855 
Cash, cash equivalents and restricted cash, end of period $ 39,697  $ 70,221 
Non-cash investing and financing activities:
Right-of-use assets obtained in exchange for new finance lease liabilities $ 493  $ 1,045 
Right-of-use assets obtained in exchange for new operating lease liabilities $ 12,415  $ 47,950 
Property and equipment purchases not yet paid $ 5,962  $ 11,662 
Supplemental cash flow data:
Cash interest paid $ 10,931  $ 23,976 
Cash income taxes paid (refunded), net $ 2,334  $ (1,026)
See notes to condensed consolidated financial statements.

4

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, 2021 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, 2021 (the “2021 Form 10-K”) filed with the United States Securities and Exchange Commission (the “SEC”) on March 31, 2021.
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 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 4, Debt and Financing Lease Obligations, and Note 6, Variable Interest Entities, for additional information.
Use of Estimates. The preparation of financial statements in accordance with GAAP requires management to make informed judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Changes in facts and circumstances or additional information may result in revised estimates, and actual results may differ, even significantly, from these estimates. Management evaluates its estimates and related assumptions regularly, including those related to the allowance for doubtful accounts and allowances for no-interest option credit programs, which are particularly sensitive given the size of our customer portfolio balance.
Cash and Cash Equivalents. As of July 31, 2021 and January 31, 2021, cash and cash equivalents included cash and credit card deposits in transit. Credit card deposits in transit included in cash and cash equivalents were $6.8 million and $7.9 million as of July 31, 2021 and January 31, 2021, respectively. 

5

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

Restricted Cash. The restricted cash balance as of July 31, 2021 and January 31, 2021 includes $24.1 million and $41.6 million, respectively, of cash we collected as servicer on the securitized receivables that was subsequently remitted to the VIEs and $4.8 million and $7.0 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. 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. 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 $33.5 million and $65.2 million as of July 31, 2021 and January 31, 2021, respectively. All COVID-19 specific deferral programs ended during the third quarter of fiscal year 2021.
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 July 31, 2021 and January 31, 2021, there was $8.4 million and $8.9 million, respectively, of deferred interest included in deferred revenues and other credits and other long-term liabilities. The deferred interest will ultimately be brought into income as the accounts pay off or charge-off.
We offer a 12-month 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 July 31, 2021 and January 31, 2021, the carrying value of customer accounts receivable in non-accrual status was $7.0 million and $8.5 million, respectively. At July 31, 2021 and January 31, 2021, the carrying value of customer accounts receivable that were past due 90 days or more and still accruing interest totaled $55.2 million and $111.5 million, respectively. At July 31, 2021 and January 31, 2021, the carrying value of customer accounts receivable in a bankruptcy status that were less than 60 days past due of $6.4 million and $5.2 million, respectively, were included within the customer receivables balance carried in non-accrual status.
Allowance for Doubtful Accounts. The determination of the amount of the allowance for credit losses is, by nature, highly complex and subjective. Future events that are inherently uncertain could result in material changes to the level of the allowance for credit losses. General economic conditions, changes to state or federal regulations and a variety of other factors

6

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

that affect the ability of borrowers to service their debts or our ability to collect will impact the future performance of the portfolio.
We establish an allowance for credit losses, including estimated uncollectible interest, to cover expected credit losses on our customer accounts receivable resulting from the failure of customers to make contractual payments. Our customer accounts receivable portfolio balance consists of a large number of relatively small, homogeneous accounts. None of our accounts are large enough to warrant individual evaluation for impairment. The allowance for credit losses is measured on a collective (pool) basis where similar risk characteristics exist. 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.
We 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 revisit our measurement methodology and assumption annually, or more frequently if circumstances warrant.
As of July 31, 2021 and January 31, 2021, the balance of allowance for doubtful accounts and uncollectible interest for non-TDR customer receivables was $150.7 million and $219.7 million, respectively. As of July 31, 2021 and January 31, 2021, the amount included in the allowance for doubtful accounts associated with principal and interest on TDR accounts was $51.4 million and $78.3 million, respectively.
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 4, Debt and Financing Lease Obligations, are included in other assets on our Condensed Consolidated Balance Sheet and were $5.9 million and $3.5 million as of July 31, 2021 and January 31, 2021, respectively.
Loss on Extinguishment. During the six months ended July 31, 2021, we incurred a loss of $1.0 million related to the retirement of the remaining $141.2 million aggregate principal amount of our 7.25% Senior Notes due 2022 (“Senior Notes”) and a loss of $0.2 million related to the amendment of our Fifth Amended and Restated Loan and Security Agreement.
Income Taxes. For the six months ended July 31, 2021 and 2020, we utilized the estimated annual effective tax rate based on our estimated fiscal year 2022 and 2021 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 six months ended July 31, 2021 and 2020, the effective tax rate was 23.4% and 27.2%, respectively. The primary factor affecting the decrease in our effective tax rate for the six months ended July 31, 2021 was the impact of the tax loss carryback provisions of the CARES Act that was reflected in the prior period.
Stock-based Compensation. During the six months ended July 31, 2021, the Company granted performance stock awards (“PSUs”) and restricted stock awards (“RSUs”). The awards had a combined aggregate grant date fair value of $9.3 million. The PSUs will vest in fiscal year 2025, if at all, upon certification by the Compensation Committee of the Board of Directors of satisfaction of certain total stockholder return performance conditions over the three fiscal years commencing with fiscal year 2022. The RSUs will vest ratably, over periods of three years to four years from the date of grant.
Stock-based compensation expense is recorded, net of actual forfeitures, for share-based compensation awards over the requisite service period using the straight-line method. 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.

7

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

The following table sets forth the RSUs and PSUs granted during the three and six months ended July 31, 2021 and 2020: 
Three Months Ended
July 31,
Six Months Ended
July 31,
2021 2020 2021 2020
RSUs (1)
41,087  101,774  381,731  622,195 
PSUs (2)
—  —  152,349  270,828 
Total stock awards granted 41,087  101,774  534,080  893,023 
Aggregate grant date fair value (in thousands) $ 960  $ 750  $ 9,250  $ 7,957 
(1)The RSUs issued during the six months ended July 31, 2021 and 2020 are scheduled to vest ratably over periods of three years to four years from the date of grant.
(2)The weighted-average assumptions used in the Monte Carlo model for the PSUs granted during the six months ended July 31, 2021 included expected volatility of 83.0%, an expected term of 3 years and risk-free interest rate of 0.17%.  No dividend yield was included in the weighted-average assumptions for the PSUs granted during the six months ended July 31, 2021. The weighted-average assumptions used in the Monte Carlo model for the PSUs granted during the six months ended July 31, 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 for the PSUs granted during the six months ended July 31, 2020.
For the three months ended July 31, 2021 and 2020, stock-based compensation expense was $1.7 million and $2.3 million, respectively. For the six months ended July 31, 2021 and 2020, stock-based compensation expense was $3.8 million and $4.7 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
July 31,
Six Months Ended
July 31,
2021 2020 2021 2020
Weighted-average common shares outstanding - Basic 29,438,605  29,070,607  29,382,162  28,948,216 
Dilutive effect of stock options, PSUs and RSUs 773,843  69,939  690,239  — 
Weighted-average common shares outstanding - Diluted 30,212,448  29,140,546  30,072,401  28,948,216 
For the three months ended July 31, 2021 and 2020, the weighted average number of stock options, RSUs and PSUs not included in the calculation due to their anti-dilutive effect, was 656,987 and 1,116,730, respectively. For the six months ended July 31, 2021 and 2020, the weighted average number of stock options, RSUs and PSUs not included in the calculation due to their anti-dilutive effect, was 731,647 and 1,479,599, 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.

8

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

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 July 31, 2021, the fair value of the asset backed notes was $216.9 million as compared to the carrying value of $215.5 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 six months ended July 31, 2021, we recognized $4.7 million of revenue for customer deposits deferred as of January 31, 2021. During the six months ended July 31, 2021, we recognized $1.9 million of revenue for RSA administrative fees deferred as of January 31, 2021.
Recent Accounting Pronouncements Adopted.
Simplifying the Accounting for Income Taxes. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, an update intended to simplify various aspects related to accounting for income taxes. This guidance removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This accounting standards update became effective for us in the first quarter of fiscal year 2022. The adoption did not have a material impact on our consolidated financial statements.
Recent Accounting Pronouncements Yet to Be Adopted.
Reference Rate Reform on Financial Reporting. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, an update that provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), Scope, to clarify the scope of the guidance and reduce potential diversity in practice. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. These accounting standard updates were effective upon issuance, with adoption permitted through December 31, 2022. We expect to adopt ASC 2020-04 and ASC 2021-01 upon transition from LIBOR, prior to December 31, 2022. We do not expect the adoption to have a material impact on our consolidated financial statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2.    Customer Accounts Receivable
Customer accounts receivable consisted of the following:
(in thousands) July 31,
2021
January 31,
2021
Customer accounts receivable (1)
$ 1,105,713  $ 1,233,717 
Deferred fees and origination costs, net (13,265) (14,212)
Allowance for no-interest option credit programs (13,650) (11,985)
Allowance for uncollectible interest (11,868) (21,427)
Carrying value of customer accounts receivable 1,066,930  1,186,093 
Allowance for credit losses (2)
(190,231) (276,610)
Carrying value of customer accounts receivable, net of allowance for credit losses 876,699  909,483 
  Short-term portion of customer accounts receivable, net (461,491) (478,734)
Long-term customer accounts receivable, net $ 415,208  $ 430,749 
Carrying Value
(in thousands) July 31,
2021
January 31,
2021
Customer accounts receivable 60+ days past due (3)
$ 76,293  $ 146,820 
Re-aged customer accounts receivable (4)
218,086  306,845 
Restructured customer accounts receivable (5)
130,725  178,374 
(1)As of July 31, 2021 and January 31, 2021, the customer accounts receivable balance included $20.1 million and $31.1 million, respectively, in interest receivable. Net of the allowance for uncollectible interest, interest receivable outstanding as of July 31, 2021 and January 31, 2021 was $8.2 million and $9.7 million, respectively.
(2)Our current methodology to estimate expected credit losses utilized macroeconomic forecasts as of July 31, 2021 and January 31, 2021, 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 a decrease in unemployment rates.
(3)As of July 31, 2021 and January 31, 2021, the carrying value of customer accounts receivable past due one day or greater was $234.6 million and $340.8 million, respectively. These amounts include the 60+ days past due balances shown above.
(4)The re-aged carrying value as of July 31, 2021 and January 31, 2021 includes $42.4 million and $88.0 million, respectively, in carrying value that are both 60+ days past due and re-aged.
(5)The restructured carrying value as of July 31, 2021 and January 31, 2021 includes $26.7 million and $57.1 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) July 31, 2021 January 31, 2021
Customer accounts receivable - current $ 575,231  $ 643,903 
Allowance for credit losses for customer accounts receivable - current (113,740) (165,169)
Customer accounts receivable, net of allowances 461,491  478,734 
Customer accounts receivable - non current 503,567  563,617 
Allowance for credit losses for customer accounts receivable - non current (88,359) (132,868)
Long-term portion of customer accounts receivable, net of allowances 415,208  430,749 
Total customer accounts receivable, net $ 876,699  $ 909,483 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following presents the activity in our allowance for credit losses and uncollectible interest for customer receivables: 
  Six Months Ended July 31, 2021 Six Months Ended July 31, 2020
(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 $ 219,740  $ 78,297  $ 298,037  $ 145,680  $ 88,123  $ 233,803 
Impact of adoption ASC 326 —  —  —  95,136  3,526  98,662 
Provision for (benefit from) credit losses (1)
(5,422) 13,333  7,911  138,395  42,541  180,936 
Principal charge-offs (2)
(61,323) (38,709) (100,032) (101,746) (47,301) (149,047)
Interest charge-offs (16,997) (10,729) (27,726) (29,135) (13,545) (42,680)
Recoveries (3)
14,657  9,252  23,909  10,269  4,773  15,042 
Allowance at end of period $ 150,655  $ 51,444  $ 202,099  $ 258,599  $ 78,117  $ 336,716 
Average total customer portfolio balance $ 982,186  $ 159,894  $ 1,142,080  $ 1,271,225  $ 222,025  $ 1,493,250 
(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). Recoveries include the principal amount collected during the period for previously charged-off balances. Net charge-offs are calculated as the net of principal charge-offs and recoveries.
(3)Recoveries include the principal amount collected during the period for previously charged-off balances.
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 presented as of July 31, 2021:
(in thousands)
Delinquency Bucket 2021 2020 2019 2018 Prior Total % of Total
Current $ 358,052  $ 291,693  $ 150,885  $ 27,872  $ 3,813  $ 832,315  78.0  %
1-30 27,833  44,758  36,874  11,070  1,755  122,290  11.5  %
31-60 7,311  12,236  11,779  4,034  672  36,032  3.4  %
61-90 3,700  7,390  6,720  2,438  478  20,726  1.9  %
91+ 5,077  21,727  19,429  7,503  1,831  55,567  5.2  %
Total $ 401,973  $ 377,804  $ 225,687  $ 52,917  $ 8,549  $ 1,066,930  100.0  %

3.     Finance Charges and Other Revenues 
Finance charges and other revenues consisted of the following:
Three Months Ended
July 31,
Six Months Ended
July 31,
(in thousands) 2021 2020 2021 2020
Interest income and fees $ 65,003  $ 83,599  $ 132,682  $ 165,442 
Insurance income 6,371  3,385  10,889  8,137 
Other revenues 224  196  433  431 
Total finance charges and other revenues $ 71,598  $ 87,180  $ 144,004  $ 174,010 
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.

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

During the three months ended July 31, 2021 and 2020, interest income and fees reflected provisions for uncollectible interest of $7.4 million and $11.8 million, respectively. The amounts included in interest income and fees related to TDR accounts for the three months ended July 31, 2021 and 2020 were $6.7 million and $10.1 million, respectively. During the six months ended July 31, 2021 and 2020, interest income and fees reflected provisions for uncollectible interest of $14.9 million and $31.9 million, respectively. The amounts included in interest income and fees related to TDR accounts for the six months ended July 31, 2021 and 2020 were $14.2 million and $19.6 million, respectively.

4.     Debt and Financing Lease Obligations 
Debt and financing lease obligations consisted of the following:
(in thousands) July 31,
2021
January 31,
2021
Revolving Credit Facility $ 219,000  $ 52,000 
Senior Notes —  141,172 
2019-A VIE Asset-backed Class A Notes —  19,521 
2019-A VIE Asset-backed Class B Notes —  25,069 
2019-A VIE Asset-backed Class C Notes —  24,202 
2019-B VIE Asset-backed Class A Notes —  17,860 
2019-B VIE Asset-backed Class B Notes 19,078  85,540 
2019-B VIE Asset-backed Class C Notes 83,270  83,270 
2020-A VIE Asset-backed Class A Notes 22,986  93,326 
2020-A VIE Asset-backed Class B Notes 45,909  65,200 
2020-A VIE Asset-backed Class C Notes 44,290  — 
Financing lease obligations 6,051  6,072 
Total debt and financing lease obligations 440,584  613,232 
Less:
Discount on debt —  (524)
Deferred debt issuance costs (971) (3,139)
Current maturities of long-term debt and financing lease obligations (1,371) (934)
Long-term debt and financing lease obligations $ 438,242  $ 608,635 
Senior Notes. On July 1, 2014, we issued an aggregate principal amount of $250.0 million in unsecured 7.25% Senior Notes due 2022 (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. On April 15, 2021 we completed the redemption of all of our outstanding Senior Notes in an aggregate principal amount of $141.2 million.
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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The asset-backed notes outstanding as of July 31, 2021 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)
2019-B Class B Notes $ 85,540  $ 84,916  $ 19,078  11/26/2019 6/17/2024 3.62% 4.58%
2019-B Class C Notes 83,270  82,456  83,270  11/26/2019 6/17/2024 4.60% 5.19%
2020-A Class A Notes 174,900  173,716  22,986  10/16/2020 6/16/2025 1.71% 4.56%
2020-A Class B Notes 65,200  64,754  45,909  10/16/2020 6/16/2025 4.27% 5.54%
2020-A Class C Notes 62,900  62,535  44,290  2/24/2021 6/16/2025 4.20% 5.75%
Total $ 471,810  $ 468,377  $ 215,533 
(1)After giving effect to debt issuance costs.
(2)For the six months ended July 31, 2021, and inclusive of the impact of changes in timing of actual and expected cash flows.
On February 24, 2021, the Company completed the sale of $62.9 million aggregate principal amount of 4.20% Asset Backed Notes, Class C, Series 2020-A, which were previously issued and held by the Company. The asset-backed notes are secured by the transferred customer accounts receivables and restricted cash held by a consolidated VIE, which resulted in net proceeds to us of $62.5 million, net of debt issuance costs. Net proceeds from the sale were used to repay amounts outstanding under the Company’s Revolving Credit Facility.
On May 12, 2021, the Company completed the redemption of the 2019-A Asset Backed Notes at an aggregate redemption price of $41.1 million (which was equal to the entire outstanding principal balance plus accrued interest). We funded the redemption with cash on hand and borrowings under our Revolving Credit Facility.
Revolving Credit Facility. On March 29, 2021, Conn’s, Inc. and certain of its subsidiaries (the “Borrowers”) entered into the Fifth Amended and Restated Loan and Security Agreement (the “Fifth Amended and Restated Loan Agreement”), with certain lenders, which provides for a $650.0 million asset-based revolving credit facility (as amended, the “Revolving Credit Facility”) under which credit availability is subject to a borrowing base and a maturity date of March 29, 2025.
The Fifth Amended and Restated Loan Agreement, among other things, permits borrowings under the Letter of Credit Subline (as defined in the Fifth Amended and Restated Loan Agreement) that exceed the cap of $40 million to $100 million, solely at the discretion of the lenders for such amounts in excess of $40 million. The obligations under the Revolving Credit Facility are secured by substantially all assets of the Company, excluding the assets of the VIEs. As of July 31, 2021, we had immediately available borrowing capacity of $362.9 million under our Revolving Credit Facility, net of standby letters of credit issued of $22.5 million. We also had $45.6 million that may become available under our Revolving Credit Facility were we to grow the balance of eligible customer receivables and total eligible inventory balances.
Loans under the Revolving Credit Facility bear interest, at our option, at a rate of LIBOR plus a margin ranging from 2.50% to 3.25% per annum (depending on a pricing grid determined by our total leverage ratio) or the alternate base rate plus a margin ranging from 1.50% to 2.25% per annum (depending on a pricing grid determined by our total leverage ratio). 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 4.9% for the six months ended July 31, 2021.
The Revolving Credit Facility places restrictions on our ability to incur additional indebtedness, grant liens on assets, make distributions on equity interests, dispose of assets, make loans, pay other indebtedness, engage in mergers, and other matters. The Revolving Credit Facility restricts our ability to make dividends and distributions unless no event of default exists and a liquidity test is satisfied. Subsidiaries of the Company may pay dividends and make distributions to the Company and other obligors under the Revolving Credit Facility without restriction. As of July 31, 2021, we were restricted from making distributions in excess of $217.6 million 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.

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

Debt Covenants. We were in compliance with our debt covenants at July 31, 2021. A summary of the significant financial covenants that govern our Revolving Credit Facility compared to our actual compliance status at July 31, 2021 is presented below: 
  Actual Required Minimum/ Maximum
Interest Coverage Ratio for the quarter must equal or exceed minimum 14.37:1.00 1.00:1.00
Interest Coverage Ratio for the trailing two quarters must equal or exceed minimum 12.77:1.00 1.50:1.00
Leverage Ratio must not exceed maximum 1.20:1.00 4.50:1.00
ABS Excluded Leverage Ratio must not exceed maximum 0.91:1.00 2.50:1.00
Capital Expenditures, net, must not exceed maximum $20.8 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.

5.    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.
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

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

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 April 29, 2022.
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. In July 2021, the parties requested that the court extend the abatement pending further developments in the Original Derivative Action.
Other than Casey, none of the plaintiffs in the other derivative actions made a demand on our Board of Directors prior to filing their respective lawsuits. The defendants in the derivative actions intend to vigorously defend against these claims. It is not possible at this time to predict the timing or outcome of any of this litigation, and we cannot reasonably estimate the possible loss or range of possible loss from these claims.
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.

6.     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) July 31,
2021
January 31,
2021
Assets:
Restricted cash $ 28,911  $ 48,622 
Due from Conn’s, Inc., net (10,367) (5,661)
Customer accounts receivable:
Customer accounts receivable 225,602  509,574 
Restructured accounts 81,179  105,395 
Allowance for uncollectible accounts (73,655) (159,849)
Allowance for no-interest option credit programs (475) (5,502)
Deferred fees and origination costs (2,386) (5,503)
Total customer accounts receivable, net 230,265  444,115 
Total assets $ 248,809  $ 487,076 
Liabilities:
Accrued expenses $ 1,871  $ 3,707 
Other liabilities 2,279  4,459 
Long-term debt:
2019-A Class A Notes —  19,521 
2019-A Class B Notes —  25,069 
2019-A Class C Notes —  24,202 
2019-B Class A Notes —  17,860 
2019-B Class B Notes 19,078  85,540 
2019-B Class C Notes 83,270  83,270 
2020-A Class A Notes 22,986  93,326 
2020-A Class B Notes 45,909  65,200 
2020-A Class C Notes 44,290  — 
215,533  413,988 
Less: deferred debt issuance costs (971) (2,437)
Total debt $ 214,562  $ 411,551 
Total liabilities $ 218,712  $ 419,717 
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.

7.     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.

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CONN’S, INC. AND SUBSIDIARIES
NOTES TO 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 July 31, 2021, we operated retail stores in 15 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 July 31, 2021 Three Months Ended July 31, 2020
(in thousands) Retail Credit Total Retail Credit Total
Revenues:
Furniture and mattress $ 109,259  $ —  $ 109,259  $ 80,984  $ —  $ 80,984 
Home appliance 135,444  —  135,444  107,682  —  107,682 
Consumer electronics 48,413  —  48,413  47,384  —  47,384 
Home office 17,986  —  17,986  14,979  —  14,979 
Other 9,143  —  9,143  5,113  —  5,113 
Product sales 320,245  —  320,245  256,142  —  256,142 
Repair service agreement commissions 23,700  —  23,700  20,164  —  20,164 
Service revenues 2,840  —  2,840  3,430  —  3,430 
Total net sales 346,785  —  346,785  279,736  —  279,736 
Finance charges and other revenues 224  71,374  71,598  196  86,984  87,180 
Total revenues 347,009  71,374  418,383  279,932  86,984  366,916 
Costs and expenses:
Cost of goods sold 216,042  —  216,042  176,623  —  176,623 
Selling, general and administrative expense (1)
102,157  35,713  137,870  78,584  36,694  115,278 
Provision for bad debts 142  10,120  10,262  182  31,863  32,045 
Charges and credits —  —  —  1,355  179  1,534 
Total costs and expenses 318,341  45,833  364,174  256,744  68,736  325,480 
Operating income 28,668  25,541  54,209  23,188  18,248  41,436 
Interest expense —  6,088  6,088  —  13,222  13,222 
Income before income taxes $ 28,668  $ 19,453  $ 48,121  $ 23,188  $ 5,026  $ 28,214 

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

Six Months Ended July 31, 2021 Six Months Ended July 31, 2020
(in thousands) Retail Credit Total Retail Credit Total
Revenues:
Furniture and mattress $ 203,750  $ —  $ 203,750  $ 149,877  $ —  $ 149,877 
Home appliance 248,705  —  248,705  188,967  —  188,967 
Consumer electronics 86,451  —  86,451  83,160  —  83,160 
Home office 32,507  —  32,507  32,345  —  32,345 
Other 18,043  —  18,043  8,991  —  8,991 
Product sales 589,456  —  589,456  463,340  —  463,340 
Repair service agreement commissions 42,831  —  42,831  40,265  —  40,265 
Service revenues 5,794  —  5,794  6,461  —  6,461 
Total net sales 638,081  —  638,081  510,066  —  510,066 
Finance charges and other revenues 433  143,571  144,004  431  173,579  174,010 
Total revenues 638,514  143,571  782,085  510,497  173,579  684,076 
Costs and expenses:
Cost of goods sold 400,921  —  400,921  323,637  —  323,637 
Selling, general and administrative expense (1)
193,050  70,869  263,919  156,758  71,527  228,285 
Provision for bad debts 160  (7,034) (6,874) 350  149,021  149,371 
Charges and credits —  —  —  1,355  2,234  3,589 
Total costs and expenses 594,131  63,835  657,966  482,100  222,782  704,882 
Operating income (loss) 44,383  79,736  124,119  28,397  (49,203) (20,806)
Interest expense —  15,292  15,292  —  28,215  28,215 
Loss on extinguishment of debt —  1,218  1,218  —  —  — 
Income (loss) before income taxes $ 44,383  $ 63,226  $ 107,609  $ 28,397  $ (77,418) $ (49,021)
July 31, 2021 July 31, 2020
(in thousands) Retail Credit Total Retail Credit Total
Total assets
$ 672,944  $ 1,036,003  $ 1,708,947  $ 726,304  $ 1,115,396  $ 1,841,700 

(1)For the three months ended July 31, 2021 and 2020, the amount of corporate overhead allocated to each segment reflected in SG&A was $9.8 million and $8.5 million, respectively. For the three months ended July 31, 2021 and 2020, the amount of reimbursement made to the retail segment by the credit segment was $6.9 million and $8.9 million, respectively. For the six months ended July 31, 2021 and 2020, the amount of corporate overhead allocated to each segment reflected in SG&A was $18.8 million and $15.7 million, respectively. For the six months ended July 31, 2021 and 2020, the amount of reimbursement made to the retail segment by the credit segment was $14.2 million and $18.7 million, respectively.


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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 pandemic; 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, 2021 (the “2021 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 increased the complexity of our business, including with respect to supply chain and sales, and, despite our strong performance during the second quarter of fiscal year 2022, 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 and mitigate its economic impact, 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. Our fiscal year ends on January 31. References to a fiscal year refer to the calendar year in which the fiscal year ends.

Executive Summary
Total revenues were $418.4 million for the three months ended July 31, 2021 compared to $366.9 million for the three months ended July 31, 2020, an increase of $51.5 million or 14.0%. Retail revenues were $347.0 million for the three months ended July 31, 2021 compared to $279.9 million for the three months ended July 31, 2020, an increase of $67.1 million or 24.0%. The increase in retail revenue was primarily driven by an increase in same store sales of 16.4% and by new store growth. The increase in same store sales reflects an increase in demand across all of the Company’s home-related product categories. The increase also reflects the impact of prior year proactive underwriting changes and industry wide supply chain disruptions, each of which was the result of the COVID-19 pandemic. Credit revenues were $71.4 million for the three months ended July 31, 2021 compared to $87.0 million for the three months ended July 31, 2020, a decrease of $15.6 million or 17.9%. The decrease

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in credit revenue was primarily due to a 22.7% decrease in the average outstanding balance of the customer receivable portfolio. These decreases were partially offset by an increase in the yield rate, from 23.2% for the three months ended July 31, 2020 to 23.3% for the three months ended July 31, 2021 and an increase in insurance commissions.
Retail gross margin for the three months ended July 31, 2021 was 37.7%, an increase of 80 basis points from the 36.9% reported for the three months ended July 31, 2020. The year-over-year increase in retail gross margin was primarily driven by a shift in sales from lower margin products to higher margin products, a decrease in third-party credit fees and the impact of fixed logistics costs on higher sales. The increase was partially offset by a slower rate of increase in repair service agreement commissions compared to product sales year-over-year.
Selling, general and administrative expense (“SG&A”) for the three months ended July 31, 2021 was $137.9 million compared to $115.3 million for the three months ended July 31, 2020, an increase of $22.6 million or 19.6%. The SG&A increase in the retail segment was primarily due to increases in new store occupancy costs, labor costs, advertising expense and general operating costs. The retail segment increase also reflects the impact of prior year precautionary cost saving measures enacted in response to the COVID-19 pandemic. The SG&A decrease in the credit segment was primarily due to a decrease in labor costs.
Provision for bad debts was $10.3 million for the three months ended July 31, 2021 compared to $32.0 million for the three months ended July 31, 2020, a decrease of $21.7 million. The change was primarily driven by a year-over-year decrease in net charge-offs of $43.8 million, partially offset by a smaller decrease in the allowance for bad debts during the three months ended July 31, 2021 compared to the three months ended July 31, 2020. The smaller decrease was driven by a lower year-over-year decline in the customer accounts receivable portfolio balance, partially offset by a $5.0 million decrease in the economic adjustment that was driven by an improvement in the forecasted unemployment rate.
Interest expense was $6.1 million for the three months ended July 31, 2021 and $13.2 million for the three months ended July 31, 2020, a decrease of $7.1 million or 53.8%. The decrease was primarily driven by a lower average outstanding balance of debt and by a lower effective interest rate.
Net income for the three months ended July 31, 2021 was $37.0 million, or $1.22 per diluted share, compared to net income of $20.5 million, or $0.70 per diluted share, for the three months ended July 31, 2020.
How We Evaluate Our Operations
Senior 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 reflect 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 if 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 reflects the quality of our credit portfolio, drives future credit performance and credit offerings, and 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. 
Company Initiatives
In the second quarter of fiscal year 2022, we delivered strong results driven by our store and eCommerce performance. We delivered the following financial and operational results in the second quarter of fiscal year 2022:
Net earnings increased to a second quarter record of $1.22 per diluted share, compared to $0.70 per diluted share for the same period last fiscal year;
Same store sales increased 16.4% for the second quarter of fiscal year 2022 as compared to the second quarter of fiscal year 2021 and increased 3.2% on a two-year basis;
Strong same store sales combined with the contribution of new showrooms drove a 24.0% increase in total retail sales for the second quarter;

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eCommerce sales during the second quarter of fiscal year 2022 increased 210.9% to $17.3 million, as compared to the prior fiscal year period;
Lease-to-own sales during the second quarter of fiscal year 2022 increased 70.3% to $41.6 million, as compared to the prior fiscal year period;
During the second quarter of fiscal year 2022, the Company added three new showrooms, all within the state of Florida, bringing the total number of showrooms at July 31, 2021 to 155, compared to 141 at July 31, 2020; and
At July 31, 2021, the carrying value of customer accounts receivable 60+ days past due declined 42.1% year-over-year to the lowest level in eight fiscal years, and the carrying value of re-aged accounts declined 44.5% year-over-year to the lowest level in six fiscal years.
We believe that we have laid the foundation to execute our long-term growth strategy and prudently manage financial and operational risk while maximizing shareholder value. We remain focused on the following strategic priorities for fiscal year 2022:
Increase net income by improving performance across our core operational and financial metrics: same store sales, retail margin, charge-offs and net yield;
Open 11 to 13 new stores in our current geographic footprint to leverage our existing infrastructure (inclusive of the nine new stores opened during the first half of fiscal year 2022);
Optimize our mix of quality, branded products and gain efficiencies in our warehouse, delivery and transportation operations to increase our retail gross margin;
Continue to grow our lease-to-own sales;
Continue to grow our eCommerce sales;
Maintain disciplined oversight of our SG&A;
Ensure that the Company has the leadership and human capital pipeline and capability to drive results and meet present and future business objectives as the Company continues to expand its retail store base; and
Leverage technology and shared services to drive efficient, effective and scalable processes.
Outlook
As noted in the “Overview” above, our business and industry continue to be impacted by the COVID-19 pandemic in the United States. Going forward, the full extent to which the pandemic will impact our supply chain, future business and operating results is uncertain. Government support, including the American Rescue Plan Act of 2021, 2021 Child Tax Credit Payments and Infrastructure Investment and Jobs Act, has provided our customers with additional financial means which we expect has helped, and may continue to help, our business. We feel we are well positioned to continue serving our customers and supporting our employees as we continue to monitor and respond to the pandemic.
The broad appeal of our value proposition to our geographically diverse core demographic and the unit economics of our business should provide the stability necessary to maintain and grow our business. 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 improve our operating results by leveraging our existing infrastructure and seeking to continually optimize the efficiency of our marketing, merchandising, distribution and credit operations. As we expand in existing markets and penetrate new markets, we expect to increase our purchase volumes, achieve distribution efficiencies and strengthen our relationships with our key vendors. Over time, we also expect our increased store base and higher net sales to further leverage our existing corporate and regional infrastructure.


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Results of Operations 
The following tables present certain financial and other information, on a condensed consolidated basis: 
Consolidated: Three Months Ended
July 31,
Six Months Ended
July 31,
(in thousands) 2021 2020 Change 2021 2020 Change
Revenues:
Total net sales $ 346,785  $ 279,736  $ 67,049  $ 638,081  $ 510,066  $ 128,015 
Finance charges and other revenues 71,598  87,180  (15,582) 144,004  174,010  (30,006)
Total revenues 418,383  366,916  51,467  782,085  684,076  98,009 
Costs and expenses:  
Cost of goods sold 216,042  176,623  39,419  400,921  323,637  77,284 
Selling, general and administrative expense 137,870  115,278  22,592  263,919  228,285  35,634 
Provision for bad debts 10,262  32,045  (21,783) (6,874) 149,371  (156,245)
Charges and credits —  1,534  (1,534) —  3,589  (3,589)
Total costs and expenses 364,174  325,480  38,694  657,966  704,882  (46,916)
Operating income (loss) 54,209  41,436  12,773  124,119  (20,806) 144,925 
Interest expense 6,088  13,222  (7,134) 15,292  28,215  (12,923)
Loss on extinguishment of debt —  —  —  1,218  —  1,218 
Income (loss) before income taxes 48,121  28,214  19,907  107,609  (49,021) 156,630 
Provision (benefit) for income taxes 11,117  7,694  3,423  25,207  (13,339) 38,546 
Net income (loss) $ 37,004  $ 20,520  $ 16,484  $ 82,402  $ (35,682) $ 118,084 
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 (loss). 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.

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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
July 31,
Six Months Ended
July 31,
(dollars in thousands) 2021 2020 Change 2021 2020 Change
Revenues:
Product sales $ 320,245  $ 256,142  $ 64,103  $ 589,456  $ 463,340  $ 126,116 
Repair service agreement commissions 23,700  20,164  3,536  42,831  40,265  2,566 
Service revenues 2,840  3,430  (590) 5,794  6,461  (667)
Total net sales 346,785  279,736  67,049  638,081  510,066  128,015 
Finance charges and other 224  196  28  433  431 
Total revenues 347,009  279,932  67,077  638,514  510,497  128,017 
Costs and expenses:    
Cost of goods sold 216,042  176,623  39,419  400,921  323,637  77,284 
Selling, general and administrative expense (1)
102,157  78,584  23,573  193,050  156,758  36,292 
Provision for bad debts 142  182  (40) 160  350  (190)
Charges and credits —  1,355  (1,355) —  1,355  (1,355)
Total costs and expenses 318,341  256,744  61,597  594,131  482,100  112,031 
Operating income $ 28,668  $ 23,188  $ 5,480  $ 44,383  $ 28,397  $ 15,986 
Number of stores:
Beginning of period 152  139  146  137 
Opened
End of period 155  141  155  141 
Credit Segment: Three Months Ended
July 31,
Six Months Ended
July 31,
(in thousands) 2021 2020 Change 2021 2020 Change
Revenues:
Finance charges and other revenues $ 71,374  $ 86,984  $ (15,610) $ 143,571  $ 173,579  $ (30,008)
Costs and expenses:      
Selling, general and administrative expense (1)
35,713  36,694  (981) 70,869  71,527  (658)
Provision for bad debts 10,120  31,863  (21,743) (7,034) 149,021  (156,055)
Charges and credits —  179  (179) —  2,234  (2,234)
Total costs and expenses 45,833  68,736  (22,903) 63,835  222,782  (158,947)
Operating income (loss) 25,541  18,248  7,293  79,736  (49,203) 128,939 
Interest expense 6,088  13,222  (7,134) 15,292  28,215  (12,923)
Loss on extinguishment of debt —  —  —  1,218  —  1,218 
Income (loss) before income taxes $ 19,453  $ 5,026  $ 14,427  $ 63,226  $ (77,418) $ 140,644 
(1)For the three months ended July 31, 2021 and 2020, the amount of overhead allocated to each segment reflected in SG&A was $9.8 million and $8.5 million, respectively. For the three months ended July 31, 2021 and 2020, the amount of reimbursement made to the retail segment by the credit segment was $6.9 million and $8.9 million, respectively. For the six months ended July 31, 2021 and 2020, the amount of corporate overhead allocated to each segment reflected in SG&A was $18.8 million and $15.7 million, respectively. For the six months ended July 31, 2021 and 2020, the amount of reimbursement made to the retail segment by the credit segment was $14.2 million and $18.7 million, respectively.

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Three months ended July 31, 2021 compared to three months ended July 31, 2020
Revenues. The following table provides an analysis of retail net sales by product category in each period, including repair service agreement (“RSA”) commissions and service revenues, expressed both in dollar amounts and as a percent of total net sales:
  Three Months Ended July 31, % Same Store
(dollars in thousands) 2021 % of Total 2020 % of Total Change Change % Change
Furniture and mattress $ 109,259  31.5  % $ 80,984  29.0  % $ 28,275  34.9  % 22.0  %
Home appliance 135,444  39.1  107,682  38.5  27,762  25.8  17.8 
Consumer electronics 48,413  14.0  47,384  16.9  1,029  2.2  0.1 
Home office 17,986  5.2  14,979  5.4  3,007  20.1  10.4 
Other 9,143  2.6  5,113  1.8  4,030  78.8  71.3 
Product sales 320,245  92.4  256,142  91.6  64,103  25.0  16.7 
Repair service agreement commissions (1)
23,700  6.8  20,164  7.2  3,536  17.5  13.6 
Service revenues 2,840  0.8  3,430  1.2  (590) (17.2)  
Total net sales $ 346,785  100.0  % $ 279,736  100.0  % $ 67,049  24.0  % 16.4  %
(1) The total change in sales of RSA commissions includes retrospective commissions, which are not reflected in the change in same store sales.
The increase in product sales for the three months ended July 31, 2021 was primarily driven by an increase in same store sales of 16.4% and by new store growth. The increase in same store sales reflects an increase in demand across all of the Company’s home-related product categories. The increase also reflects the impact of prior year proactive underwriting changes and industry wide supply chain disruptions, each of which was the result of the COVID-19 pandemic.
The following table provides the change of the components of finance charges and other revenues:
Three Months Ended
July 31,
(in thousands) 2021 2020 Change
Interest income and fees $ 65,003  $ 83,599  $ (18,596)
Insurance income 6,371  3,385  2,986 
Other revenues 224  196  28 
Finance charges and other revenues $ 71,598  $ 87,180  $ (15,582)
The decrease in finance charges and other revenues was primarily due to a decrease of 22.7% in the average outstanding balance of the customer accounts receivable portfolio. The decrease was offset by an increase in the yield rate, from 23.2% for the three months ended July 31, 2020 to 23.3% during the three months ended July 31, 2021 and an increase in insurance commissions.
The following table provides key portfolio performance information: 
Three Months Ended
July 31,
(dollars in thousands) 2021 2020 Change
Interest income and fees $ 65,003