NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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1.
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Summary of Significant Accounting Policies
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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.
The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and prevailing industry practices.
Fiscal Year.
Our fiscal year ends on January 31. References to a fiscal year refer to the calendar year in which the fiscal year ends.
Principles of Consolidation.
The consolidated financial statements include the accounts of Conn’s, Inc. and its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation.
Variable Interest Entities.
Variable Interest Entities (“VIEs”) are consolidated if the Company is the primary beneficiary. The primary beneficiary of a VIE is the party that has (i) the power to direct the activities that most significantly impact the performance of the VIE and (ii) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.
We securitize customer accounts receivables by transferring the receivables to various bankruptcy-remote VIEs. We retain the servicing of the securitized portfolio and have a variable interest in each corresponding VIE by holding the residual equity. We have determined that we are the primary beneficiary of each respective VIE because (i) our servicing responsibilities for the securitized portfolio give us the power to direct the activities that most significantly impact the performance of the VIE and (ii) our variable interest in the VIE gives us the obligation to absorb losses and the right to receive residual returns that potentially could be significant. As a result, we consolidate the respective VIEs within our consolidated financial statements.
Refer to Note 6,
Debt and Capital Lease Obligations
, and Note 13,
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
January 31, 2019
and
2018
, cash and cash equivalents included cash, credit card deposits in transit, and highly liquid debt instruments purchased with a maturity date of three months or less. Credit card deposits in transit included in cash and cash equivalents were
$2.5 million
and
$2.0 million
as of
January 31, 2019
and
2018
, respectively.
Restricted Cash.
The restricted cash balance as of
January 31, 2019
and
2018
includes
$45.3 million
and
$58.1 million
, respectively, of cash we collected as servicer on the securitized receivables that was subsequently remitted to the VIEs and
$12.2 million
and
$27.2 million
, respectively, of cash held by the VIEs as additional collateral for the asset-backed notes.
Customer Accounts Receivable.
Customer accounts receivable reported in the Consolidated Balance Sheet includes total receivables managed, including both those transferred to the VIEs and those not transferred to the VIEs. Customer accounts receivable are recognized at the time the customer takes possession of the product. Based on contractual terms, we record the amount of principal and accrued interest on customer receivables that is expected to be collected within the next twelve months in current assets with the remaining balance in long-term assets on the Consolidated Balance Sheet. 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
CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the end of a month are charged-off against the allowance for doubtful accounts along with interest accrued subsequent to the last payment.
In an effort to mitigate losses on our accounts receivable, we may make loan modifications to a borrower experiencing financial difficulty. In our role as servicer, we may also make modifications to loans held by the VIEs. The loan modifications are intended to maximize net cash flow after expenses and avoid the need to exercise legal remedies available to us. We may extend or “re-age” a portion of our customer accounts, which involves modifying the payment terms to defer a portion of the cash payments due. Our re-aging of customer accounts does not change the interest rate or the total principal amount due from the customer and typically does not reduce the monthly contractual payments. To a much lesser extent, we may provide the customer the ability to refinance their account, which typically does not change the interest rate or the total principal amount due from the customer but does reduce the monthly contractual payments and extend the term. We consider accounts that have been re-aged in excess of three months or refinanced as Troubled Debt Restructurings (“TDR” or “Restructured Accounts”).
Interest Income on Customer Accounts Receivable.
Interest income, which includes interest income and amortization of deferred fees and origination costs, is recorded using the interest method and is reflected in finance charges and other revenues. Typically, interest income is recorded until the customer account is paid off or charged-off, and we provide an allowance for estimated uncollectible interest. Any contractual interest income received from customers in excess of the interest income calculated using the interest method is recorded as deferred revenue on our balance sheets. At
January 31, 2019
and
2018
, there were
$11.2 million
and
$12.5 million
, respectively, of deferred interest included in deferred revenues and other credits and other long-term liabilities. The deferred interest will ultimately be brought into income as the accounts pay off or charge-off.
We offer 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 will be applied to principal and reduce the balance of the loan. At
January 31, 2019
and
2018
, the carrying value of customer accounts receivable in non-accrual status was
$13.9 million
and
$16.8 million
, respectively. At
January 31, 2019
and
2018
, the carrying value of customer accounts receivable that were past due 90 days or more and still accruing interest totaled
$106.5 million
and
$103.6 million
, respectively. At
January 31, 2019
and
January 31, 2018
, the carrying value of customer accounts receivable in a bankruptcy status that were less than 60 days past due of
$12.0 million
and
$14.4 million
, respectively, were included within the customer receivables balance carried in non-accrual status.
Allowance for Doubtful Accounts.
The determination of the amount of the allowance for bad debts is, by nature, highly complex and subjective. Future events that are inherently uncertain could result in material changes to the level of the allowance for bad debts. General economic conditions, changes to state or federal regulations and a variety of other factors that affect the ability of borrowers to service their debts or our ability to collect will impact the future performance of the portfolio.
We establish an allowance for doubtful accounts, including estimated uncollectible interest, to cover probable and estimable losses on our customer accounts receivable resulting from the failure of customers to make contractual payments. Our customer accounts receivable portfolio balance consists of a large number of relatively small, homogeneous accounts. None of our accounts are large enough to warrant individual evaluation for impairment.
We record an allowance for doubtful accounts on our non-TDR customer accounts receivable that we expect to charge-off over the next 12 months based on historical gross charge-off rates over the last 24 months. We incorporate an adjustment to historical gross charge-off rates for a scaled factor of the year-over-year change in six month average first payment default rates and the year-over-year change in the balance of customer accounts receivable that are 60 days or more past due. In addition to adjusted historical gross charge-off rates, estimates of post-charge-off recoveries, including cash payments from customers, amounts realized from the repossession of the products financed, sales tax recoveries from taxing jurisdictions, and payments received under credit insurance and repair service agreement (“RSA”) policies are also considered.
Qualitative adjustments are made to the allowance for bad debts when, based on management’s judgment, there are internal or external factors impacting probable incurred losses not taken into account by the quantitative calculations. These qualitative considerations are based on the following factors: changes in lending policies and procedures, changes in economic and business conditions, changes in the nature and volume of the portfolio, changes in lending management, changes in credit quality statistics, changes in concentrations of credit and other internal or external factor changes. We utilize an economic qualitative adjustment
CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
based on changes in unemployment rates if current unemployment rates in our markets are worse than they were on average over the last 24 months. We also qualitatively limit the impact of changes in first payment default rates and changes in delinquency when those changes result in a decrease to the allowance for bad debts based on a measure of the dispersion of historical charge-off rates. At January 31, 2019, we utilized a qualitative factor related to changes in the nature of the portfolio.
We determine allowances for those accounts that are TDR based on the discounted present value of cash flows expected to be collected over the life of those accounts based primarily on the performance of TDR loans over the last 24 months. The cash flows are discounted based on the weighted-average effective interest rate of the TDR accounts. The excess of the carrying amount over the discounted cash flow amount is recorded as an allowance for loss on those accounts
.
Inventories.
Inventories consist of merchandise purchased for resale and service parts and are recorded at the lower of cost or net realizable value. The carrying value of the inventory is reduced to its net realizable value for any product lines with excess of carrying amount, typically weighted-average cost, over the amount we expect to realize from the ultimate sale or other disposition of the inventory, with a corresponding charge to cost of sales. The write-down of inventory to net realizable value is estimated based on assumptions regarding inventory aging and historical product sales.
Vendor Allowances.
We receive funds from vendors for price protection, product rebates (earned upon purchase or sale of product), marketing, and promotion programs, collectively referred to as vendor allowances, which are recorded on an accrual basis. We estimate the vendor allowances to accrue based on the progress of satisfying the terms of the programs based on actual and projected sales or purchase of qualifying products. If the programs are related to product purchases, the vendor allowances are recorded as a reduction of product cost in inventory still on hand with any remaining amounts recorded as a reduction of cost of goods sold.
During the years ended
January 31, 2019
,
2018
and
2017
, we recorded
$143.3 million
,
$153.0 million
and
$162.5 million
, respectively, as reductions in cost of goods sold from vendor allowances.
Property and Equipment.
Property and equipment, including any major additions and improvements to property and equipment, are recorded at cost. Normal repairs and maintenance that do not materially extend the life of property and equipment are expensed as incurred. Depreciation, which includes amortization of capitalized leases, is computed using the straight-line method over the estimated useful lives of the assets, or in the case of leasehold improvements, over the shorter of the estimated useful lives or the remaining terms of the leases.
Internal-Use Software Costs.
Costs related to software developed or obtained for internal use and cloud-based computing arrangements are expensed as incurred until the application development stage has been reached. Once the application development stage has been reached, certain qualifying costs are capitalized until the software is ready for its intended use. For the year ended January 31, 2018, we incurred a
$5.9 million
loss from the write-off of previously capitalized costs for a software project that was abandoned during fiscal year 2018 related to the implementation of a new point of sale system that began in fiscal year 2013.
Impairment of Long-Lived Assets.
Long-lived assets are evaluated for impairment, primarily at the retail store level. We monitor store performance in order to assess if events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The most likely condition that would necessitate an assessment would be an adverse change in historical and estimated future results of a retail store’s performance. For property and equipment held and used, we recognize an impairment loss if the carrying amount is not recoverable through its undiscounted cash flows and measure the impairment loss based on the difference between the carrying amount and estimated fair value.
For the years ended
January 31, 2019
,
2018
and
2017
,
no
impairment charges were recorded.
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 6,
Debt and Capital Lease Obligations
, are included in other assets on our Consolidated Balance Sheet and were
$6.1 million
and
$5.2 million
as of
January 31, 2019
and
2018
, respectively.
Expense Classifications.
We record as cost of goods sold, the direct cost of products and parts sold and related costs for delivery, transportation and handling, inbound freight, receiving, inspection, and other costs associated with the operations of our distribution system, including occupancy related to our warehousing operations. The costs associated with our merchandising, advertising, sales commissions, and all store occupancy costs, are included in selling, general and administrative expense (“SG&A”).
Advertising Costs.
Advertising costs are expensed as incurred. For fiscal years
2019
,
2018
and
2017
, advertising expense was
$80.5 million
,
$86.8 million
and
$92.9 million
, respectively.
Stock-based Compensation.
Stock-based compensation expense is recorded, net of estimated forfeitures, for share-based compensation awards over the requisite service period using the straight-line method. An adjustment is made to compensation cost for any difference between the estimated forfeitures and the actual forfeitures related to the awards. For equity-classified share-based compensation awards, expense is recognized based on the grant-date fair value. For stock option grants, we use the Black-Scholes model to determine fair value. For grants of restricted stock units, the fair value of the grant is the market value of
CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
our stock at the date of issuance. For grants of performance-based restricted stock units, the fair value of the grant is the market value of our stock at the date of issuance adjusted for a market condition, a performance condition and a service condition.
Self-insurance.
We are self-insured for certain losses relating to group health, workers’ compensation, automobile, general and product liability claims. We have stop-loss coverage to limit the exposure arising from these claims. Self-insurance losses for claims filed and claims incurred, but not reported, are accrued based upon our estimates of the net aggregate liability for claims incurred using development factors based on historical experience.
Income Taxes.
We are subject to U.S. federal income tax as well as income tax in multiple state jurisdictions. We follow the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on temporary differences between GAAP and tax bases of assets and liabilities and for operating loss and tax credit carryforwards, as measured using the enacted tax rates expected to be in effect when the temporary differences are expected to be realized or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period in which the enactment occurs. A valuation allowance is provided when it is more-likely-than-not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become realizable. To the extent penalties and interest are incurred, we record these charges as a component of our provision for income taxes.
We review and update our tax positions as necessary to add any new uncertain tax positions taken, or to remove previously identified uncertain positions that have been adequately resolved. Additionally, uncertain positions may be remeasured as warranted by changes in facts or law. Accounting for uncertain tax positions requires estimating the amount, timing and likelihood of ultimate settlement.
Leases.
We lease most of our current store locations and certain of our facilities and operating equipment under operating leases. The fixed, non-cancelable terms of our real estate leases are generally
five
to
15
years and generally include renewal options that allow us to extend the term beyond the initial non-cancelable term. Most of the real estate leases require payment of real estate taxes, insurance and certain common area maintenance costs in addition to future minimum lease payments. Equipment leases generally provide for initial lease terms of
three
to
five
years and provide for a purchase right at the end of the lease term at the then fair market value of the equipment. As of
January 31, 2019
and
2018
, deferred rent related to lease agreements with escalating rent payments and rent holiday was
$27.7 million
and
$26.9 million
, respectively.
Certain of our operating leases contain predetermined fixed escalations of the minimum rental payments over the lease. For these leases, we recognize the related rental expense on a straight-line basis over the term of the lease, which commences for accounting purposes on the date we take possession of the leased store. Possession generally occurs prior to making any lease payments and approximately
90
to
120
days prior to the opening of a store. In the early years of a lease with rent escalations, the recorded rent expense will exceed the actual cash payments. The amount of rent expense that exceeds the cash payments is recorded as deferred rent in the Consolidated Balance Sheet. In the later years of a lease with rent escalations, the recorded rent expense will be less than the actual cash payments. The amount of cash payments that exceed the rent expense is then recorded as a reduction to deferred rent.
Additionally, certain operating leases contain tenant allowance provisions, which obligate the landlord to remit cash to us as an incentive to enter into the lease agreement. We record the amount to be remitted by the landlord as a tenant allowance receivable as we earn it under the terms of the contract. At the same time, we record deferred rent in an equal amount in the Consolidated Balance Sheet. The tenant allowance receivable is reduced as cash is received from the landlord, while the deferred rent is amortized as a reduction to rent expense over the lease term. As of
January 31, 2019
and
2018
, deferred rent related to tenant allowances, including both current and long-term portions, was
$77.8 million
and
$69.7 million
, respectively.
Earnings per Share.
Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings per share includes the dilutive effects of any stock options, restricted stock unit awards (“RSUs”) and performance stock awards (“PSUs”), which are calculated using the treasury-stock method. The following table sets forth the shares outstanding for the earnings per share calculations:
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Year Ended January 31,
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2019
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2018
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2017
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Weighted-average common shares outstanding - Basic
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31,668,370
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31,192,439
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30,776,479
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Dilutive effect of stock options and restricted stock units
|
706,005
|
|
|
585,384
|
|
|
—
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Weighted-average common shares outstanding - Diluted
|
32,374,375
|
|
|
31,777,823
|
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30,776,479
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For the years ended
January 31, 2019
,
2018
and
2017
, the weighted-average number of stock options and RSUs not included in the calculation due to their anti-dilutive effect, was
578,951
,
278,740
and
735,456
, respectively.
CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Contingencies.
An estimated loss from a contingency is recorded if it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. Gain contingencies are not recorded until realization is assured beyond a reasonable doubt. Legal costs related to loss contingencies are expensed as incurred.
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:
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•
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Level 1 – Inputs represent unadjusted quoted prices in active markets for identical assets or liabilities.
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•
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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).
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•
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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).
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In determining fair value, we use observable market data when available, or models that incorporate observable market data. When we are required to measure fair value and there is not a market-observable price for the asset or liability or for a similar asset or liability, we use the cost or income approach depending on the quality of information available to support management’s assumptions. The cost approach is based on management’s best estimate of the current asset replacement cost. The income approach is based on management’s best assumptions regarding expectations of future net cash flows and discounts the expected cash flows using a commensurate risk-adjusted discount rate. Such evaluations involve significant judgment, and the results are based on expected future events or conditions such as sales prices, economic and regulatory climates, and other factors, most of which are often outside of management’s control. However, we believe assumptions used reflect a market participant’s view of long-term prices, costs, and other factors and are consistent with assumptions used in our business plans and investment decisions.
In arriving at fair-value estimates, we use relevant observable inputs available for the valuation technique employed. If a fair-value measurement reflects inputs at multiple levels within the hierarchy, the fair-value measurement is characterized based on the lowest level of input that is significant to the fair-value measurement.
The fair value of cash and cash equivalents, restricted cash and accounts payable approximate their carrying amounts because of the short maturity of these instruments. The fair value of customer accounts receivable, determined using a Level 3 discounted cash flow analysis, approximates their carrying value, net of the allowance for doubtful accounts. The fair value of our Revolving Credit Facility approximates carrying value based on the current borrowing rate for similar types of borrowing arrangements. At
January 31, 2019
, the fair value of the Senior Notes outstanding, which was determined using Level 1 inputs, was
$221.9 million
as compared to the carrying value of
$227.0 million
, excluding the impact of the related discount. At
January 31, 2019
, the fair value of the asset-backed notes approximates their carrying value and was determined using Level 2 inputs based on inactive trading activity.
Recent Accounting Pronouncements Adopted.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which provides a single comprehensive accounting standard for revenue recognition for contracts with customers and supersedes current guidance. Upon adoption of ASU 2014-09, entities are required to recognize revenue using the following comprehensive model: (1) identify contracts with customers, (2) identify the performance obligations in such contracts, (3) determine transaction price, (4) allocate the transaction price to the performance obligations, and (5) recognize revenue as each performance obligation is satisfied. The FASB also issued ASU 2016-08,
Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
; ASU 2016-10,
Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing
; ASU 2016-11,
Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting
; and ASU 2016-12,
Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients
, all of which were issued to improve and clarify the guidance in ASU 2014-09. Effective February 1, 2018, the Company adopted these ASUs using the modified retrospective method applied to those contracts that were not completed as of February 1, 2018, with no restatement of comparative periods. Results for reporting periods beginning after February 1, 2018 are presented under ASC Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting policies under ASC Topic 605. We recognized a net after-tax cumulative effect adjustment to retained earnings of
$1.0 million
as of February 1, 2018. The details of our current revenue recognition policy, as well as the change due to ASC Topic 606, are described below.
CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition.
The Company has the following material revenue streams: the sale of products (e.g. appliances, electronics) including delivery; the sale of third party warranty and insurance programs, including retrospective income; service income; interest income generated from the financing of point of sale transactions; and volume rebate incentives received from a third party financer. Interest income related to our customer accounts receivable balance and loan origination costs (including sales commissions) meet the scope exception of ASC 606 and are therefore not impacted by the adoption of this standard. For our twelve month no-interest option program, as a practical expedient acceptable under ASC 606, we do not adjust for the time value of money.
Sale of Products Including Delivery:
The Company has a single performance obligation associated with these contracts: the delivery of the product to the customer, at which point control transfers. Revenue for the sale of products is recognized at the time of delivery, net of any adjustments for sales incentives such as discounts, coupons, rebates or other free products or services. Sales financed through third-party no-interest option programs typically require us to pay a fee to the third party on each completed sale, which is recorded as a reduction of net sales in the retail segment.
Sale of Third Party Warranty and Insurance Programs, Including Retrospective Income:
We sell RSA and credit insurance contracts on behalf of unrelated third-parties. The Company has a single performance obligation associated with these contracts: the delivery of the product to the customer, at which point control transfers. Commissions related to these contracts are recognized in revenue upon delivery of the product. We also may serve as the administrator of the RSAs sold and defer
5%
of the revenue received from the sale of RSAs as compensation for this performance obligation as
5%
represents the estimated stand-alone sales price to serve as the administrator. The deferred RSA administration fee is recorded in income ratably over the life of the RSA contract sold. Retrospective income on RSA contracts is recognized upon delivery of the product based on an estimate of claims and is adjusted throughout the life of the contracts as actual claims materialize. Retrospective income on insurance contracts is recognized when earned as that is the point at which we no longer believe a significant reversal of income is probable as the consideration is highly susceptible to factors outside of our influence.
Service Income:
The Company has a single performance obligation associated with these contracts: the servicing of the RSA claims. Service revenues are recognized at the time service is provided to the customer.
Volume Rebate Incentive:
As part of our agreement with our third-party provider of no-interest option programs, we may receive a volume rebate incentive based on the total dollar value of sales made under our third-party provider. The Company has a single performance obligation associated with this contract: the delivery of the product to the customer, at which point control transfers. Revenue for the volume rebate incentive is recognized upon delivery of the product to the customer based on the projected total annual dollar value of sales to be made under our third-party provider.
ASC 606 requires disaggregation of revenue recognized from contracts with customers to depict how the nature, amount, timing and uncertainty of revenue is affected by economic factors. The Company concluded that the disaggregated discrete financial information presented in Note 14,
Segment Information
, and Note 5,
Finance Charges and Other Revenues
, reviewed by our chief operating decision maker in evaluating the financial performance of our operating segments adequately addresses the disaggregation of revenue requirements of ASC 606.
Deferred Revenue.
Deferred revenue related to contracts with customers as defined by ASC 606 consists of deferred customer deposits and deferred RSA administration fees. During the twelve months ended
January 31, 2019
, we recognized
$1.8 million
of revenue for customer deposits deferred as of the beginning of the period. During the twelve months ended
January 31, 2019
, we recognized
$5.4 million
of revenue for RSA administrative fees deferred as of the beginning of the period.
Changes in Revenue Recognition Due to ASC 606.
The adoption of ASC 606 resulted in a change to our accounting policy related to retrospective income on RSAs. We participate in profit sharing agreements with the underwriters of our RSA products, payment from which is contingent upon the actual performance of the portfolio of the RSAs sold. Prior to the adoption of ASC 606, we recognized this revenue and related receivable as the amount due to us at each reporting date based on the performance of the portfolio through such date. The Company concluded that this retrospective income represents variable consideration under ASC 606 for which the Company’s performance obligation is satisfied when the RSA is sold to the customer. Under ASC 606, an estimate of variable consideration, subject to constraints, is to be included in the transaction price and recognized when or as the performance obligation is satisfied. As a result of the adoption of ASC 606, the Company changed its accounting policy related to retrospective income on RSAs to record an estimate of retrospective income when the RSA is sold, subject to constraints in the estimate. The Company’s estimate of the amount of variable consideration is recorded as a contract asset, representing a conditional right to payment, and is included within other accounts receivable in the Consolidated Balance Sheet. The estimated contract asset will be reassessed at the end of each reporting period, with changes thereto recorded as adjustments to revenue.
CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The cumulative effect of the changes made to the Company’s Consolidated Balance Sheet as a result of the adoption of ASC 606 were as follows (in thousands):
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Impact of Adoption of ASC 606
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(in thousands)
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Balance at January 31, 2018
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Adjustments due to ASC 606
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Balance at February 1, 2018
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Assets
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Other Accounts Receivable
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$
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71,186
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$
|
1,210
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$
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72,396
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Deferred Income Taxes
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21,565
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(254
|
)
|
21,311
|
|
|
Stockholder’s Equity
|
$
|
535,068
|
|
$
|
956
|
|
$
|
536,024
|
|
The adoption of ASC 606 did not have a material impact on the consolidated financial statements for the year ended
January 31, 2018
and no comparative financial statements are presented.
Internal Controls.
As a result of the adoption of ASC 606, we evaluated our internal control framework and there have been no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
In November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash
. ASU 2016-18 requires that the statement of cash flows provides the change in the total of cash, cash equivalents, and restricted cash or restricted cash equivalents. We hold restricted cash related to our asset backed security transactions and lending license requirements. Effective February 1, 2018, the Company retrospectively adopted this ASU which resulted in us no longer presenting the changes in restricted cash balances as a component of cash flows from financing activities but instead including the balances of both current and long-term restricted cash with cash and cash equivalents in total cash, cash equivalents and restricted cash for the beginning and end of the periods presented. The total cash flow impact for the year ended
January 31, 2017
was an decrease in the cash used in financing activities of
$32.1 million
. The total cash flow impact for the year ended
January 31, 2018
was an increase in the cash used in financing activities of
$23.8 million
. The balances of cash and cash equivalents and restricted cash are separately presented within the Consolidated Balance Sheet as of
January 31, 2018
.
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
. ASU 2016-15 clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows to reduce diversity in practice. Among other things, debt prepayment or debt extinguishment costs will be presented as cash outflows for financing activities on the statement of cash flows. Effective February 1, 2018, the Company retrospectively adopted the ASU, which resulted in us no longer presenting the cash payment for debt extinguishment costs as a component of cash flows from operating activities, but instead including the cash payment as a component of cash flows from financing activities. The adoption of this ASU resulted in the reclassification of
$0.8 million
in payment on extinguishment of debt previously classified as a cash outflow from operating activities to a cash outflow from financing activities for the year ended
January 31, 2018
. There was no impact for the year ended
January 31, 2017
.
CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recent Accounting Pronouncements Yet To Be Adopted.
In February 2016 the FASB issued ASU 2016-02,
Leases (Topic 842),
which will change how lessees account for leases. For most leases, a liability will be recorded on the balance sheet based on the present value of future lease obligations with a corresponding right-of-use asset. Primarily for those leases currently classified by us as operating leases, we will recognize a single lease cost on a straight line basis based on the combined amortization of the lease obligation and the right-of-use asset. Other leases will be required to be accounted for as financing arrangements similar to how we currently account for capital leases. We are the lessee under various lease agreements for our retail stores and equipment that are currently accounted for as operating leases as discussed in Note 8,
Leases.
On transition, we will recognize a cumulative-effect adjustment to the retained earnings on the opening balance sheet in the period of adoption using a modified retrospective approach. Based on our preliminary assessment, we believe the adoption of this ASU will have a material impact on our Consolidated Balance Sheet as we will be required to report additional leases on our Consolidated Balance Sheet. The Company plans to elect certain optional practical expedients which include the option to retain the current classification of leases entered into prior to February 1, 2019, and thus does not anticipate a material impact to the Consolidated Statements of Operations or Consolidated Statements of Cash Flows. The Company also plans to adopt an optional transition method finalized by the FASB in July 2018 that waives the requirement to apply this ASU in the comparative periods presented within the financial statements in the year of adoption. The Company expects to be affected by the transition guidance related to recognition of deferred gains recorded under previous sale and operating leaseback transactions, which requires the company to recognize deferred gains not resulting from off-market terms as a cumulative-effect adjustment to retained earnings upon adoption of ASU 2016-02. The Company is also evaluating and implementing changes to our accounting policies, processes, and internal controls to ensure compliance with the standard’s reporting and disclosure requirements as well as implementing a new lease accounting module within its lease management system to support the new accounting requirements. We will adopt the new standard in the first quarter of fiscal year 2020 and anticipate that the adoption will result in the recognition of an additional right-of-use asset and operating lease liability under noncancelable operating leases, net of deferred rent payments and tenant improvement allowances, ranging from approximately
$200 million
to
$260 million
as of the date of the adoption.
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
. ASU 2016-13 requires that financial assets measured at amortized cost be presented at the net amount expected to be collected through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The standard will become effective for us in the first quarter of fiscal year 2021 and early adoption is permitted beginning in the first quarter of fiscal year 2020. We have formed a cross-functional working group comprised of individuals from various functional areas including credit, finance, accounting, and information technology. While we are currently evaluating the likely impact the adoption of this ASU will have on our consolidated financial statements, the adoption of ASU 2016-13 is likely to result in a material increase in the allowance for loan losses as a result of changing from an “incurred loss” model, which encompasses allowances for current known and inherent losses within the portfolio, to an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio.
|
|
|
|
2.
|
Customer Accounts Receivable
|
Customer accounts receivable consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
January 31,
2019
|
|
January 31,
2018
|
|
Customer accounts receivable portfolio balance
|
$
|
1,589,828
|
|
|
$
|
1,527,862
|
|
|
Deferred fees and origination costs, net
|
(16,579
|
)
|
|
(15,897
|
)
|
|
Allowance for no-interest option credit programs
|
(19,257
|
)
|
|
(20,960
|
)
|
|
Allowance for uncollectible interest
|
(15,555
|
)
|
|
(10,966
|
)
|
|
Carrying value of customer accounts receivable
|
1,538,437
|
|
|
1,480,039
|
|
|
Allowance for bad debts
|
(199,324
|
)
|
|
(192,606
|
)
|
|
Carrying value of customer accounts receivable, net of allowance for bad debts
|
1,339,113
|
|
|
1,287,433
|
|
|
Short-term portion of customer accounts receivable, net
|
$
|
(652,769
|
)
|
|
$
|
(636,825
|
)
|
|
Long-term customer accounts receivable, net
|
$
|
686,344
|
|
|
$
|
650,608
|
|
CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value
|
|
(in thousands)
|
January 31,
2019
|
|
January 31,
2018
|
|
Customer accounts receivable 60+ days past due
(1)
|
$
|
146,188
|
|
|
$
|
143,713
|
|
|
Re-aged customer accounts receivable
(2)(3)
|
395,576
|
|
|
364,768
|
|
|
Restructured customer accounts receivable
(4)
|
183,641
|
|
|
152,784
|
|
|
|
|
|
(1)
|
As of
January 31, 2019
and
2018
, the carrying value of customer accounts receivable past due one day or greater was
$420.9 million
and
$390.0 million
, respectively. These amounts include the 60+ days past due balances shown above.
|
|
|
|
|
(2)
|
The re-aged carrying value as of
January 31, 2019
and
2018
includes
$92.4 million
and
$76.9 million
in carrying value that are both 60+ days past due and re-aged.
|
|
|
|
|
(3)
|
The re-aged carrying value as of
January 31, 2019
and
2018
includes
$26.5 million
and
$59.8 million
in first time re-ages related to customers within FEMA-designated Hurricane Harvey disaster areas.
|
|
|
|
|
(4)
|
The restructured carrying value as of
January 31, 2019
and
2018
includes
$43.9 million
and
$37.1 million
in carrying value that are both 60+ days past due and restructured.
|
The following presents the activity in our allowance for doubtful accounts and uncollectible interest for customer accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2019
|
|
(in thousands)
|
Customer Accounts Receivable
|
|
Restructured Accounts
|
|
Total
|
|
Allowance at beginning of period
|
$
|
148,856
|
|
|
$
|
54,716
|
|
|
$
|
203,572
|
|
|
Provision
(1)
|
174,552
|
|
|
74,514
|
|
|
249,066
|
|
|
Principal charge-offs
(2)
|
(157,789
|
)
|
|
(55,024
|
)
|
|
(212,813
|
)
|
|
Interest charge-offs
|
(32,432
|
)
|
|
(11,310
|
)
|
|
(43,742
|
)
|
|
Recoveries
(2)
|
13,936
|
|
|
4,860
|
|
|
18,796
|
|
|
Allowance at end of period
|
$
|
147,123
|
|
|
$
|
67,756
|
|
|
$
|
214,879
|
|
|
Average total customer portfolio balance
|
$
|
1,355,011
|
|
|
$
|
171,717
|
|
|
$
|
1,526,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2018
|
|
(in thousands)
|
Customer Accounts Receivable
|
|
Restructured Accounts
|
|
Total
|
|
Allowance at beginning of period
|
$
|
158,992
|
|
|
$
|
51,183
|
|
|
$
|
210,175
|
|
|
Provision
(1)
|
189,786
|
|
|
71,047
|
|
|
260,833
|
|
|
Principal charge-offs
(2)
|
(177,682
|
)
|
|
(60,003
|
)
|
|
(237,685
|
)
|
|
Interest charge-offs
|
(30,379
|
)
|
|
(10,259
|
)
|
|
(40,638
|
)
|
|
Recoveries
(2)
|
8,139
|
|
|
2,748
|
|
|
10,887
|
|
|
Allowance at end of period
|
$
|
148,856
|
|
|
$
|
54,716
|
|
|
$
|
203,572
|
|
|
Average total customer portfolio balance
|
$
|
1,357,455
|
|
|
$
|
143,245
|
|
|
$
|
1,500,700
|
|
CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2017
|
|
(in thousands)
|
Customer Accounts Receivable
|
|
Restructured Accounts
|
|
Total
|
|
Allowance at beginning of period
|
$
|
149,227
|
|
|
$
|
41,763
|
|
|
$
|
190,990
|
|
|
Provision
(1)
|
219,084
|
|
|
62,788
|
|
|
281,872
|
|
|
Principal charge-offs
(2)
|
(183,235
|
)
|
|
(46,710
|
)
|
|
(229,945
|
)
|
|
Interest charge-offs
|
(30,686
|
)
|
|
(7,832
|
)
|
|
(38,518
|
)
|
|
Recoveries
(2)
|
4,602
|
|
|
1,174
|
|
|
5,776
|
|
|
Allowance at end of period
|
$
|
158,992
|
|
|
$
|
51,183
|
|
|
$
|
210,175
|
|
|
Average total customer portfolio balance
|
$
|
1,423,445
|
|
|
$
|
129,030
|
|
|
$
|
1,552,475
|
|
(1) Includes provision for uncollectible interest, which is included in finance charges and other revenues.
(2) Charge-offs include the principal amount of losses (excluding accrued and unpaid interest). Recoveries include the principal 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.
|
Property and Equipment
|
Property and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
January 31,
|
|
(dollars in thousands)
|
Useful Lives
|
|
2019
|
|
2018
|
|
Land
|
—
|
|
$
|
4,130
|
|
|
$
|
4,146
|
|
|
Buildings
|
30 years
|
|
1,748
|
|
|
1,748
|
|
|
Leasehold improvements
|
5 to 15 years
|
|
246,404
|
|
|
222,781
|
|
|
Equipment and fixtures
|
3 to 5 years
|
|
78,562
|
|
|
67,710
|
|
|
Capital leases
|
3 to 20 years
|
|
9,646
|
|
|
8,527
|
|
|
Construction in progress
|
—
|
|
9,696
|
|
|
8,097
|
|
|
|
|
|
350,186
|
|
|
313,009
|
|
|
Less accumulated depreciation
|
|
|
(201,203
|
)
|
|
(169,857
|
)
|
|
|
|
|
$
|
148,983
|
|
|
$
|
143,152
|
|
Depreciation expense was approximately
$31.6 million
,
$30.8 million
and
$28.8 million
for the years ended
January 31, 2019
,
2018
and
2017
, respectively. Construction in progress is comprised primarily of the construction of leasehold improvements related to unopened retail stores and internal-use software under development. Capital lease assets primarily include retail locations.
Charges and credits consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
|
(in thousands)
|
2019
|
|
2018
|
|
2017
|
|
Store and facility closure and relocation costs
|
$
|
—
|
|
|
$
|
2,381
|
|
|
$
|
1,089
|
|
|
Legal and professional fees and related reserves associated with the exploration of strategic alternatives, securities-related litigation, a legal judgment and other legal matters
|
5,100
|
|
|
1,177
|
|
|
101
|
|
|
Indirect tax audit reserve
|
1,943
|
|
|
2,595
|
|
|
1,434
|
|
|
Impairment from disposal
|
—
|
|
|
—
|
|
|
1,986
|
|
|
Employee severance and executive management transition costs
|
737
|
|
|
1,317
|
|
|
1,868
|
|
|
Write-off of capitalized software costs
|
—
|
|
|
5,861
|
|
|
—
|
|
|
|
$
|
7,780
|
|
|
$
|
13,331
|
|
|
$
|
6,478
|
|
CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the year ended
January 31, 2019
,
we recorded a contingency reserve related to a regulatory matter, a charge related to an increase in our indirect tax audit reserve, severance costs related to a change in the executive management team and costs related to the TF LoanCo (“TFL”) judgment. Refer to Note 12,
Contingencies
, for additional information about the TFL judgment.
During the year ended
January 31, 2018
,
we incurred exit costs associated with reducing the square footage of a distribution center and consolidating our corporate headquarters, severance costs related to a change in the executive management team, a charge related to an increase in our indirect tax audit reserve, a loss from the write-off of previously capitalized costs for a software project that was abandoned during fiscal year 2018 related to the implementation of a new point of sale system that began in fiscal year 2013, and contingency reserves related to legal matters.
During the year ended
January 31, 2017
, we incurred severance costs related to a change in the executive management team and impairments from disposals, which included the write-off of leasehold improvements for one store we relocated prior to the end of the useful life of the leasehold improvements, costs for a terminated store project prior to starting construction, legal and professional fees related to the exploration of strategic alternatives and securities-related litigation, costs associated with store and facility closures and relocations, charges related to increases in our indirect tax audit reserve, and transition costs due to changes in the executive management team.
|
|
|
|
5.
|
Finance Charges and Other Revenues
|
Finance charges and other revenues consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
|
(in thousands)
|
2019
|
|
2018
|
|
2017
|
|
Interest income and fees
|
$
|
325,136
|
|
|
$
|
289,005
|
|
|
$
|
238,386
|
|
|
Insurance income
|
29,556
|
|
|
34,718
|
|
|
42,422
|
|
|
Other revenues
|
447
|
|
|
341
|
|
|
1,569
|
|
|
Total finance charges and other revenues
|
$
|
355,139
|
|
|
$
|
324,064
|
|
|
$
|
282,377
|
|
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.
For the years ended
January 31, 2019
,
2018
and
2017
, interest income and fees reflected provisions for uncollectible interest of
$52.0 million
,
$44.8 million
and
$40.6 million
, respectively. The amount included in interest income and fees related to TDR accounts for the years ended
January 31, 2019
,
2018
and
2017
is
$27.2 million
,
$19.3 million
and
$17.3 million
, respectively.
CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
6.
|
Debt and Capital Lease Obligations
|
Debt and capital lease obligations consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
(in thousands)
|
2019
|
|
2018
|
|
Revolving Credit Facility
|
$
|
266,500
|
|
|
$
|
77,000
|
|
|
Senior Notes
|
227,000
|
|
|
227,000
|
|
|
2016-B VIE Asset-backed Class B Notes
|
—
|
|
|
73,589
|
|
|
2017-A VIE Asset-backed Class A Notes
|
—
|
|
|
59,794
|
|
|
2017-A VIE Asset-backed Class B Notes
|
—
|
|
|
106,270
|
|
|
2017-A VIE Asset-backed Class C Notes
|
—
|
|
|
50,340
|
|
|
2017-B VIE Asset-backed Class A Notes
|
—
|
|
|
292,663
|
|
|
2017-B VIE Asset-backed Class B Notes
|
98,297
|
|
|
132,180
|
|
|
2017-B VIE Asset-backed Class C Notes
|
78,640
|
|
|
78,640
|
|
|
2018-A VIE Asset-backed Class A Notes
|
105,971
|
|
|
—
|
|
|
2018-A VIE Asset-backed Class B Notes
|
63,908
|
|
|
—
|
|
|
2018-A VIE Asset-backed Class C Notes
|
63,908
|
|
|
—
|
|
|
Warehouse Notes
|
53,635
|
|
|
—
|
|
|
Capital lease obligations
|
5,075
|
|
|
4,949
|
|
|
Total debt and capital lease obligations
|
962,934
|
|
|
1,102,425
|
|
|
Less:
|
|
|
|
|
Discount on debt
|
(1,966
|
)
|
|
(2,527
|
)
|
|
Deferred debt issuance costs
|
(5,637
|
)
|
|
(8,886
|
)
|
|
Current maturities of long-term debt and capital lease obligations
|
(54,109
|
)
|
|
(907
|
)
|
|
Long-term debt and capital lease obligations
|
$
|
901,222
|
|
|
$
|
1,090,105
|
|
Future maturities of debt, excluding capital lease obligations, as of
January 31, 2019
are as follows:
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
Year Ended January 31,
|
|
|
2020
|
$
|
53,635
|
|
|
2021
|
—
|
|
|
2022
|
98,297
|
|
|
2023
|
805,927
|
|
|
2024
|
—
|
|
|
Total
|
$
|
957,859
|
|
Senior Notes.
On July 1, 2014, we issued
$250.0 million
of unsecured Senior Notes due
July 2022
bearing interest at
7.25%
, (the “Senior Notes”) pursuant to an indenture dated
July 1, 2014
(as amended, the “Indenture”), among Conn’s, Inc., its subsidiary guarantors (the “Guarantors”) and U.S. Bank National Association, as trustee. The effective interest rate of the Senior Notes after giving effect to the discount and issuance costs is
7.8%
.
The Indenture restricts the Company’s and certain of its subsidiaries’ ability to: (i) incur indebtedness; (ii) pay dividends or make other distributions in respect of, or repurchase or redeem, our capital stock (“restricted payments”); (iii) prepay, redeem or repurchase debt that is junior in right of payment to the notes; (iv) make loans and certain investments; (v) sell assets; (vi) incur liens; (vii) enter into transactions with affiliates; and (viii) consolidate, merge or sell all or substantially all of our assets. These covenants are subject to a number of important exceptions and qualifications. Specifically, limitations on restricted payments are only effective if one or more of the following occurred: (1) a default were to exist under the Indenture, (2) we could not satisfy a debt incurrence test, and (3) the aggregate amount of restricted payments, excluding certain restricted payments permitted under the Indenture, exceeds the sum of (i) 50% of Consolidated Net Income (as defined in the Indenture) from November 1, 2015 to the
CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
end of the most recent fiscal quarter, (ii) 100% of net cash proceeds and the fair market value of certain capital stock and other property received in or exchanged for the sale or issuance of Capital Stock (as defined in the Indenture), (iii) amount by which certain indebtedness is reduced upon conversion or exchange for Capital Stock and (iv) certain reductions in Restricted Investments (as defined in the Indenture) (the sum of clauses (i) through (iv) as of January 31, 2019, the “Consolidated Net Income Threshold Amount”). These limitations, however, are subject to certain permitted exceptions, including (1) an exception that permits restricted payments regardless of dollar amount so long as, after giving pro forma effect to such dividends and other restricted payments, we would have had a leverage ratio, as defined in the Indenture, of less than or equal to
2.50
to
1.0
and (2) a general exception that permits the payment of up to
$375.0 million
in restricted payments not otherwise permitted under the Indenture (the “Permitted Distribution Amount”). As a result of the sum of the Consolidated Net Income Threshold Amount and Permitted Distribution Amount, as of
January 31, 2019
,
$228.4 million
would have been free from the distribution restriction.
During any time when the Senior Notes are rated investment grade by either of Moody’s Investors Service, Inc. or Standard & Poor’s Ratings Services and no default (as defined in the Indenture) has occurred and is continuing, many of such covenants will be suspended and we will cease to be subject to such covenants during such period. Events of default under the Indenture include customary events, such as a cross-acceleration provision in the event that we fail to make payment of other indebtedness prior to the expiration of any applicable grace period or upon acceleration of indebtedness prior to its stated maturity date in an amount exceeding
$25.0 million
, as well as in the event a judgment is entered against us in excess of
$25.0 million
that is not discharged, bonded or insured.
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 repair service agreements on charge-offs of the securitized receivables, which are reflected as a reduction to net charge-offs on a consolidated basis.
The asset-backed notes were offered and sold to qualified institutional buyers pursuant to the exemptions from registration provided by Rule 144A under the Securities Act. If an event of default were to occur under the indenture that governs the respective asset-backed notes, the payment of the outstanding amounts may be accelerated, in which event the cash proceeds of the receivables that otherwise might be released to the residual equity holder would instead be directed entirely toward repayment of the asset-backed notes, or if the receivables are liquidated, all liquidation proceeds could be directed solely to repayment of the asset-backed notes as governed by the respective terms of the asset-backed notes. The holders of the asset-backed notes have no recourse to assets outside of the VIEs. Events of default include, but are not limited to, failure to make required payments on the asset-backed notes or specified bankruptcy-related events.
The asset-backed notes outstanding as of January 31, 2019 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-Backed Notes
|
|
Original Principal Amount
|
|
Original Net Proceeds
(1)
|
|
Current Principal Amount
|
|
Issuance Date
|
|
Maturity Date
|
|
Contractual Interest Rate
|
|
Effective Interest Rate
(2)
|
|
2017-B Class B Notes
|
|
$
|
132,180
|
|
|
$
|
131,281
|
|
|
$
|
98,297
|
|
|
12/20/2017
|
|
4/15/2021
|
|
4.52%
|
|
5.24%
|
|
2017-B Class C Notes
|
|
78,640
|
|
|
77,843
|
|
|
78,640
|
|
|
12/20/2017
|
|
11/15/2022
|
|
5.95%
|
|
6.34%
|
|
2018-A Class A Notes
|
|
219,200
|
|
|
217,832
|
|
|
105,971
|
|
|
8/15/2018
|
|
1/17/2023
|
|
3.25%
|
|
4.57%
|
|
2018-A Class B Notes
|
|
69,550
|
|
|
69,020
|
|
|
63,908
|
|
|
8/15/2018
|
|
1/17/2023
|
|
4.65%
|
|
5.43%
|
|
2018-A Class C Notes
|
|
69,550
|
|
|
68,850
|
|
|
63,908
|
|
|
8/15/2018
|
|
1/17/2023
|
|
6.02%
|
|
6.80%
|
|
Warehouse Notes
|
|
121,060
|
|
|
118,972
|
|
|
53,635
|
|
|
7/16/2018
|
|
1/15/2020
|
|
Index + 2.50%
|
|
6.41%
|
|
Total
|
|
$
|
690,180
|
|
|
$
|
683,798
|
|
|
$
|
464,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
After giving effect to debt issuance costs and restricted cash held by the VIEs.
|
|
|
|
|
(2)
|
For the year ended
January 31, 2019
,
and inclusive of the impact of changes in timing of actual and expected cash flows.
|
On February 15, 2018, affiliates of the Company closed on a $52.2 million financing under a receivables warehouse financing transaction entered into on February 6, 2018 (the “Warehouse Notes”). The net proceeds of the Warehouse Notes were used to prepay in full the Series 2016-B Class B Notes (the “2016-B Redeemed Notes”) that were still outstanding as of February 15, 2018.
CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On February 15, 2018, the Company completed the redemption of the 2016-B Redeemed Notes at an aggregate redemption price of $73.6 million (which was equal to the entire outstanding principal of, plus accrued interest and the call premiums on, the 2016-B Redeemed Notes). The net funds used to call the notes was $50.3 million, which is equal to the redemption price less adjustments of $23.3 million for funds held in reserve and collection accounts in accordance with the terms of the applicable indenture governing the 2016-B Redeemed Notes. The difference between the net proceeds of the Warehouse Notes and the carrying value of the 2016-B Redeemed Notes at redemption was used to fund fees, expenses and a reserve account related to the Warehouse facility. In connection with the early redemption of the 2016-B Redeemed Notes, we wrote-off $0.4 million as a loss on extinguishment of debt.
On July 16, 2018, affiliates of the Company closed on $121.1 million of additional financing under a receivables warehouse financing transaction entered into on July 9, 2018 (the “Additional Funding”). The net proceeds of the Additional Funding were used to prepay in full the Series 2017-A Class B and C Notes (the “2017-A Redeemed Notes”) that were still outstanding as of July 16, 2018.
On July 16, 2018, the Company completed the redemption of the 2017-A Redeemed Notes at an aggregate redemption price of $127.2 million (which was equal to the entire outstanding principal of, plus accrued interest and the call premiums on the 2017-A Redeemed Notes). The net funds used to call the notes was $119.0 million, which is equal to the redemption price less adjustments of $8.2 million for funds held in reserve and collection accounts in accordance with the terms of the applicable indenture governing the 2017-A Redeemed Notes. The difference between the net proceeds of the Additional Funding and the carrying value of the 2017-A Redeemed Notes at redemption was used to fund fees, expenses and a reserve account related to the warehouse facility. In connection with the early redemption of the 2017-A Redeemed Notes, we wrote-off $1.2 million as a loss on extinguishment of debt.
On August 15, 2018, an affiliate of the Company (the “Issuer”) completed the issuance and sale of asset-backed notes at a face amount of $358.3 million secured by the transferred customer accounts receivables and restricted cash held by a VIE, which resulted in net proceeds to us of $355.7 million, net of transaction costs and restricted cash held by the VIE. Net proceeds from the offering were used to repay indebtedness under the Revolving Credit Facility and for other general corporate purposes. The asset-backed notes mature on January 17, 2023 and consist of $219.2 million of the Issuer’s 3.25% Asset Backed Fixed Rate Notes, Series 2018-A, Class A, $69.6 million of the Issuer’s 4.65% Asset Backed Fixed Rate Notes, Series 2018-A, Class B, and $69.6 million of the Issuer’s 6.02% Asset Backed Fixed Rate Notes, Series 2018-A, Class C.
Revolving Credit Facility.
On May 23, 2018, Conn’s, Inc. and certain of its subsidiaries (the “Borrowers”) entered into a Fourth Amendment to the Fourth Amended and Restated Loan and Security Agreement (the “Fourth Amendment”), dated as of October 30, 2015, with certain lenders, which provides for a
$650.0 million
asset-based revolving credit facility (the “Revolving Credit Facility”) under which credit availability is subject to a borrowing base.
The Fourth Amendment, among other things, (a) extends the maturity date of the credit facility to May 23, 2022; (b) provides for a reduction in the aggregate commitments from $750 million to $650 million; (c) amends the method by which the applicable margin is calculated to be based on the total leverage ratio (ratio of total liabilities less the sum of qualified cash and ABS qualified cash to tangible net worth), with the applicable margin ranging from 2.50% to 3.25% for LIBOR loans and from 1.50% to 2.25% for base rate loans; (d) eliminates a $10 million availability block in calculating the borrowing base; (e) increases the maximum accounts receivable advance rate from 75% to 80%; (f) decreases the maximum unused line fee by 25 basis points, from 75 basis points to 50 basis points; (g) eliminates the cash recovery covenant; (h) modifies the maximum inventory component of the borrowing base from $175 million to 33.33% of revolving loan commitments in effect; (i) modifies the interest coverage covenant such that the minimum interest coverage on a trailing two quarter basis is 1.5x and the minimum interest coverage during any single quarter is 1.0x; (j) increases the maximum capital expenditures from $75 million to $100 million during any period of four consecutive fiscal quarters; and (k) modifies the ability of the Company to effect future securitizations of its customer receivables portfolio, including adding the ability of the Company to enter into revolving ABS transactions.
Subsequent to the adoption of the Fourth Amendment, loans under the Revolving Credit Facility bear interest, at our option, at a rate equal to LIBOR plus the applicable 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). The alternate base rate is the greatest of the prime rate announced by Bank of America, N.A., the federal funds rate plus 0.5%, or LIBOR for a 30-day interest period plus 1.0%. 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 6.9% for the year ended
January 31, 2019
.
The Revolving Credit Facility provides funding based on a borrowing base calculation that includes customer accounts receivable and inventory, and provides for a
$40.0 million
sub-facility for letters of credit to support obligations incurred in the ordinary
CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
course of business. The obligations under the Revolving Credit Facility are secured by substantially all assets of the Company, excluding the assets of the VIEs. As of
January 31, 2019
, we had immediately available borrowing capacity of
$381.0 million
under our Revolving Credit Facility, net of standby letters of credit issued of
$2.5 million
.
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
January 31, 2019
, we were restricted from making distributions, including repayments of the Senior Notes or other distributions, in excess of
$223.0 million
as a result of the Revolving Credit Facility distribution restrictions. The Revolving Credit Facility contains customary default provisions, which, if triggered, could result in acceleration of all amounts outstanding under the Revolving Credit Facility.
Debt Covenants.
We were in compliance with our debt covenants, as amended, at
January 31, 2019
.
A summary of the significant financial covenants that govern our Revolving Credit Facility, as amended, compared to our actual compliance status at
January 31, 2019
is presented below:
|
|
|
|
|
|
|
|
|
Actual
|
|
Required
Minimum/
Maximum
|
|
Interest Coverage Ratio for the quarter must equal or exceed minimum
|
5.08:1.00
|
|
1.00:1.00
|
|
Interest Coverage Ratio for the trailing two quarters must equal or exceed minimum
|
4.59:1.00
|
|
1.50:1.00
|
|
Leverage Ratio must not exceed maximum
|
1.94:1.00
|
|
4.00:1.00
|
|
ABS Excluded Leverage Ratio must not exceed maximum
|
1.28:1.00
|
|
2.00:1.00
|
|
Capital Expenditures, net, must not exceed maximum
|
$16.0 million
|
|
$100.0 million
|
All capitalized terms in the above table are defined by the Revolving Credit Facility and may or may not agree directly to the financial statement captions in this document. The covenants are calculated quarterly, except for capital expenditures, which is calculated for a period of
four
consecutive fiscal quarters, as of the end of each fiscal quarter.
Deferred tax assets and liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
(in thousands)
|
2019
|
|
2018
|
|
Deferred tax assets:
|
|
|
|
|
Allowance for doubtful accounts
|
$
|
22,637
|
|
|
$
|
19,325
|
|
|
Deferred rent
|
6,200
|
|
|
5,839
|
|
|
Deferred gains on sale-leaseback transactions
|
1,447
|
|
|
1,598
|
|
|
Deferred revenue
|
908
|
|
|
1,240
|
|
|
Indirect tax reserve
|
3,025
|
|
|
—
|
|
|
Inventories
|
1,711
|
|
|
2,126
|
|
|
Stock-based compensation
|
1,825
|
|
|
1,439
|
|
|
State net operating loss carryforwards
|
1,127
|
|
|
1,207
|
|
|
Other
|
3,093
|
|
|
3,534
|
|
|
Total deferred tax assets
|
41,973
|
|
|
36,308
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
Vendor prepayments
|
(1,066
|
)
|
|
(4,723
|
)
|
|
Sales tax receivable
|
(4,155
|
)
|
|
(3,649
|
)
|
|
Property and equipment
|
(8,694
|
)
|
|
(6,275
|
)
|
|
Other
|
(523
|
)
|
|
(96
|
)
|
|
Total deferred tax liabilities
|
(14,438
|
)
|
|
(14,743
|
)
|
|
Net deferred tax asset
|
$
|
27,535
|
|
|
$
|
21,565
|
|
CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Our state net operating loss carryforwards begin to expire starting with fiscal year 2028. Realization of our deferred tax asset ultimately depends on the existence of sufficient taxable income, which may include future taxable income and tax planning strategies. Based on the weight of available evidence at
January 31, 2019
, we believe that it is more likely than not that we will generate sufficient taxable income to utilize our entire deferred tax asset prior to its expiration.
Provision for income taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
|
(in thousands)
|
2019
|
|
2018
|
|
2017
|
|
Current:
|
|
|
|
|
|
|
Federal
|
$
|
29,919
|
|
|
$
|
(25,891
|
)
|
|
$
|
(11,251
|
)
|
|
State
|
2,308
|
|
|
1,184
|
|
|
3,519
|
|
|
Total current
|
32,227
|
|
|
(24,707
|
)
|
|
(7,732
|
)
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
Federal
|
(9,419
|
)
|
|
49,536
|
|
|
(1,435
|
)
|
|
State
|
121
|
|
|
342
|
|
|
212
|
|
|
Total deferred
|
(9,298
|
)
|
|
49,878
|
|
|
(1,223
|
)
|
|
Provision (benefit) for income taxes
|
$
|
22,929
|
|
|
$
|
25,171
|
|
|
$
|
(8,955
|
)
|
A reconciliation of the provision (benefit) for income taxes at the U.S. federal statutory tax rate and the total tax provision (benefit) for each of the periods presented in the statements of operations follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
|
(in thousands)
|
2019
|
|
2018
|
|
2017
|
|
Income tax provision (benefit) at U.S. federal statutory rate
(1)
|
$
|
20,323
|
|
|
$
|
10,696
|
|
|
$
|
(12,081
|
)
|
|
State income taxes, net of federal benefit
|
2,068
|
|
|
1,910
|
|
|
2,363
|
|
|
Tax Act and other deferred tax adjustments
|
—
|
|
|
13,387
|
|
|
771
|
|
|
Provision to return adjustments
|
—
|
|
|
(1,142
|
)
|
|
—
|
|
|
Employee benefits
|
1,096
|
|
|
—
|
|
|
—
|
|
|
Other
|
(558
|
)
|
|
320
|
|
|
(8
|
)
|
|
Provision (benefit) for income taxes
|
$
|
22,929
|
|
|
$
|
25,171
|
|
|
$
|
(8,955
|
)
|
(1)
As a result of the Tax Act, the Company recorded a
$0.3 million
current income tax benefit in the fourth quarter of fiscal year 2018 as a result of using a
33.81%
blended statutory rate for fiscal year 2018 instead of the prior statutory rate of 35%.
Federal tax returns for fiscal years subsequent to January 31, 2015, remain subject to examination. Generally, state tax returns for fiscal years subsequent to January 31, 2015 remain subject to examination.
On December 22, 2017 H.R. 1, originally known as the Tax Cuts and Jobs Act (the “Tax Act”), the Tax Act was signed into law. Upon enactment, the Company recognized a provisional and one-time deferred tax expense of
$13.4 million
due to the remeasurement of its deferred tax assets and liabilities based on the reduction of the statutory rate to 21%. During the current fiscal year, the Company completed its analysis of the impact of the Tax Act and determined that no material adjustment was needed to the provisional amount.
Changes in the balance of unrecognized tax benefits, including interest and penalties on uncertain tax positions, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
|
(in thousands)
|
2019
|
|
2018
|
|
2017
|
|
Balance at February 1
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Increases related to prior year tax positions
|
(12,084
|
)
|
|
—
|
|
|
—
|
|
|
Decreases related to prior year tax positions
|
459
|
|
|
—
|
|
|
—
|
|
|
Balance at January 31
|
$
|
(11,625
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of
January 31, 2019
, there are
$3.5 million
of unrecognized tax benefits that if recognized would favorably affect the Company’s annual effective tax rate.
The Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income taxes. During the year ended
January 31, 2019
, the Company recognized interest and penalties of approximately
$0.1 million
, which is the same amount it has accrued as of
January 31, 2019
.
For the years ended
January 31, 2019
,
2018
and
2017
, total rent expense was
$52.7 million
,
$51.4 million
and
$50.9 million
, respectively.
As of
January 31, 2019
, our future minimum lease payments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Operating Leases
|
|
Capital Leases
|
|
Year ending January 31,
|
|
|
|
|
2020
|
$
|
68,678
|
|
|
$
|
1,040
|
|
|
2021
|
71,462
|
|
|
724
|
|
|
2022
|
69,802
|
|
|
723
|
|
|
2023
|
67,935
|
|
|
470
|
|
|
2024
|
62,721
|
|
|
639
|
|
|
Thereafter
|
172,827
|
|
|
3,703
|
|
|
Total
|
$
|
513,425
|
|
|
7,299
|
|
|
Less - interest on capital lease obligations
|
|
|
(2,224
|
)
|
|
Total principal payable on capital lease obligations
|
|
|
5,075
|
|
|
Less - current maturities
|
|
|
(744
|
)
|
|
Long-term capital lease obligations
|
|
|
$
|
4,331
|
|
|
|
|
|
9.
|
Stock-Based Compensation
|
On May 25, 2016, our stockholders approved the Conn’s, Inc. 2016 Omnibus Incentive Plan (“2016 Plan”), which replaced our 2011 Omnibus Incentive Plan (“2011 Plan”) and our Amended and Restated 2003 Incentive Stock Option Plan (“2003 Plan”). The 2016 Plan, as originally adopted, provided for
1,200,000
shares of Company common stock available for issuance. Shares subject to an award under the 2016 Plan, the 2011 Plan or the 2003 Plan that lapse, expire, are forfeited or terminated, or are settled in cash will again become available for future grant under the 2016 Plan. Shares will not become available for future grant under the 2016 Plan if delivered or withheld to pay withholding taxes or the exercise price of an option or repurchased on the open market with the proceeds of an option exercise. On May 31, 2017, our shareholders approved an amendment to the 2016 Plan authorizing an additional
1,400,000
shares of Company common stock for awards.
Our 2016 Plan is an equity-based compensation plan that allows for the grant of a variety of awards, including stock options, restricted stock awards, RSUs, PSUs, stock appreciation rights and performance and cash awards. Awards are generally granted once per year, with the amount and type of awards determined by the Compensation Committee of our Board of Directors (the “Committee”). Stock options and RSUs are subject to early termination provisions but generally vest over periods of
one
to
five
years from the date of grant. Stock options under the various plans are issued with exercise prices equal to the market value on the date of the grant and, typically, expire
ten
years after the date of grant.
In the event of a change in control of the Company, as defined in the 2016 Plan, the Board of Directors of the Company (“Board of Directors”) may cause some or all outstanding awards to fully or partially vest, either upon the change in control or upon a subsequent termination of employment or service, and may provide that any applicable performance criteria be deemed satisfied at the target or any other level. The Board of Directors may also cause outstanding awards to terminate in exchange for a cash or stock payment or to be substituted or assumed by the surviving corporation.
We also continue to maintain the 2003 Non-Employee Director Stock Option Plan and 2011 Non-Employee Director Restricted Stock Plan.
As of
January 31, 2019
, shares authorized for future issuance were:
670,125
under the 2016 Plan;
120,000
under the 2003 Non-Employee Director Stock Option Plan; and
82,388
under the 2011 Non-Employee Director Restricted Stock Plan.
CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock-Based Compensation Expense.
Total stock-based compensation expense, recognized primarily in SG&A, from stock-based compensation consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
|
(in thousands)
|
2019
|
|
2018
|
|
2017
|
|
Stock options
|
$
|
3,414
|
|
|
$
|
236
|
|
|
$
|
173
|
|
|
RSUs
|
8,540
|
|
|
7,622
|
|
|
4,282
|
|
|
Employee stock purchase plan
|
263
|
|
|
220
|
|
|
329
|
|
|
Accelerated RSU expense charged to severance
|
—
|
|
|
602
|
|
|
217
|
|
|
|
$
|
12,217
|
|
|
$
|
8,680
|
|
|
$
|
5,001
|
|
During the years ended
January 31, 2019
,
2018
, and
2017
, we recognized tax benefits related to stock-based compensation of
$1.7 million
,
$1.7 million
and
$1.6 million
, respectively.
As of
January 31, 2019
, the total unrecognized compensation cost related to all unvested stock-based compensation awards was
$23.9 million
and is expected to be recognized over a weighted-average period of
2.4
years. The total fair value of RSUs and stock options vested during fiscal years
2019
,
2018
and
2017
was
$12.6 million
,
$6.0 million
and
$1.9 million
, respectively, based on the market price at the vesting date.
Stock Options.
During fiscal year 2019,
620,166
stock options were awarded with an exercise price of
$32.35
per share. The stock options awarded vest in equal installments
three
and
four years
from the date of grant and expire
ten years
from the date of grant. The fair values of the stock options at grant date ranged from
$20.00
to
$21.67
per share. The fair values of the stock option awards were determined using the Black-Scholes option pricing model. The weighted-average assumptions for the option awards granted in fiscal year 2019 included expected volatility of
68%
, an expected term of
six
to
seven years
and risk-free interest rate of
2.69%
.
No
dividend yield was included in the weighted-average assumptions for the option awards granted in fiscal year 2019.
No
stock options were awarded during fiscal year
2018
. During fiscal year
2017
,
100,000
stock options were awarded with a range of exercise prices between
$12.65
and
$25.30
per share. The stock options awarded vest in equal installments over a
four
-year period and expire
10
years from the date of grant. The fair values of the stock options at grant date ranged from
$8.97
to
$10.03
. The fair values of the stock option awards were determined using the Black-Scholes option pricing model. The weighted-average assumptions for the option awards granted in fiscal year 2017 included expected volatility of
75.1%
, an expected term of
ten
years and risk-free interest rate of
2.46%
.
No
dividend yield was included in the weighted-average assumptions for the option awards granted in fiscal year 2017.
The following table summarizes the activity for outstanding stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Under
Option
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual
Life
|
|
Outstanding, January 31, 2018
|
189,485
|
|
|
$
|
14.39
|
|
|
|
|
Granted
|
620,166
|
|
|
$
|
32.35
|
|
|
|
|
Exercised
|
(32,620
|
)
|
|
$
|
12.23
|
|
|
|
|
Forfeited and expired
|
(4,300
|
)
|
|
$
|
5.46
|
|
|
|
|
Outstanding, January 31, 2019
|
772,731
|
|
|
$
|
28.94
|
|
|
8.4 years
|
|
Vested and expected to vest, January 31, 2019
|
772,731
|
|
|
$
|
28.94
|
|
|
8.4 years
|
|
Exercisable, January 31, 2019
|
102,564
|
|
|
$
|
13.21
|
|
|
4.4 years
|
During the years ended
January 31, 2019
,
2018
and
2017
, the total intrinsic value of stock options exercised was
$0.4 million
,
$2.3 million
and
$1.0 million
, respectively. The aggregate intrinsic value of stock options outstanding, vested and expected to vest and exercisable at
January 31, 2019
was approximately
$1.0 million
. The total fair value of common stock options vested during fiscal years
2019
,
2018
and
2017
was
$0.5 million
,
$0.9 million
and
$0.3 million
, respectively, based on the market price at the vesting date.
Restricted Stock Units.
The restricted stock program consists of a combination of performance-based RSUs and time-based RSUs. The number of performance-based RSUs issued under the program is dependent upon a measurement of earnings before interest, taxes, depreciation and amortization (“EBITDA”) target for the period identified in the grant, which is
three
years. In the event EBITDA exceeds the respective predefined target, shares for up to a maximum of
150%
of the target award may be granted. In
CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the event the EBITDA falls below the respective predefined target, a reduced number of shares may be granted. If the EBITDA falls below the respective threshold performance level, no shares will be granted. The performance-based RSUs vest on predetermined schedules, which occur over
three
years. The time-based RSUs vest on a straight-line basis over their term, which is generally
three
to
five years
.
The following table summarizes the activity for RSUs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time-Based RSUs
|
|
Performance-Based RSUs
|
|
|
|
|
Number of Units
|
|
Weighted-Average Grant Date Fair Value
|
|
Number of Units
|
|
Weighted-Average Grant Date Fair Value
|
|
Total Number of Units
|
|
Balance, January 31, 2018
|
1,222,009
|
|
|
$
|
15.52
|
|
|
615,174
|
|
|
$
|
11.78
|
|
|
1,837,183
|
|
|
Granted
|
272,973
|
|
|
$
|
27.90
|
|
|
—
|
|
|
$
|
—
|
|
|
272,973
|
|
|
Vested and converted to common stock
|
(390,478
|
)
|
|
$
|
15.62
|
|
|
—
|
|
|
$
|
—
|
|
|
(390,478
|
)
|
|
Forfeited
|
(220,229
|
)
|
|
$
|
17.83
|
|
|
(148,174
|
)
|
|
$
|
12.26
|
|
|
(368,403
|
)
|
|
Balance, January 31, 2019
|
884,275
|
|
|
$
|
18.73
|
|
|
467,000
|
|
|
$
|
11.66
|
|
|
1,351,275
|
|
The total fair value of restricted shares vested during fiscal years
2019
,
2018
and
2017
was
$12.1 million
,
$5.1 million
, and
$1.6 million
, respectively, based on the market price at the vesting date. The total fair value of restricted shares granted during fiscal years
2019
,
2018
and
2017
was
$7.6 million
,
$17.2 million
and
$8.2 million
, respectively.
Employee Stock Purchase Plan.
Our Employee Stock Purchase Plan is available to our employees, subject to minimum employment conditions and maximum compensation limitations. At the end of each calendar quarter, employee contributions are used to acquire shares of common stock at
85%
of the lower of the fair market value of the common stock on the first or last day of the calendar quarter. During the years ended
January 31, 2019
,
2018
and
2017
, we issued
34,922
,
57,937
and
100,758
shares of common stock, respectively, to employees participating in the plan, leaving
771,722
shares remaining reserved for future issuance under the plan as of
January 31, 2019
.
As shown in the table below, a significant portion of our merchandise purchases were made from
six
vendors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Vendor A
|
25.3
|
%
|
|
27.6
|
%
|
|
26.5
|
%
|
|
Vendor B
|
16.1
|
|
|
14.8
|
|
|
17.6
|
|
|
Vendor C
|
7.0
|
|
|
6.5
|
|
|
5.8
|
|
|
Vendor D
|
6.7
|
|
|
5.3
|
|
|
5.4
|
|
|
Vendor E
|
5.2
|
|
|
4.1
|
|
|
4.0
|
|
|
Vendor F
|
5.0
|
|
|
3.8
|
|
|
3.7
|
|
|
|
65.3
|
%
|
|
62.1
|
%
|
|
63.0
|
%
|
The vendors shown above represent the top
six
vendors with the highest volume in each period shown. The same vendor may not necessarily be represented in all periods presented.
|
|
|
|
11.
|
Defined Contribution Plan
|
We have established a defined contribution 401(k) plan for eligible employees. Prior to January 1, 2018, employees could contribute up to
20%
of their eligible pretax compensation to the plan and we matched
100%
of the first
3%
of the employees’ contributions. Effective January 1, 2018, employees may contribute up to
50%
of their eligible pretax compensation to the plan and we match
100%
of the first
3%
of the employees’ contributions and an additional
50%
of the next
2%
of the employees’ contributions. At our option, we may make supplemental contributions to the plan, but have
no
t made such supplemental contributions in the past
three
years. The matching contributions made by us totaled
$1.4 million
,
$1.1 million
and
$1.1 million
during the years ended
January 31, 2019
,
2018
and
2017
, respectively.
CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Securities Litigation.
We and
two
of our former executive officers were defendants in a consolidated securities class action lawsuit pending in the United States District Court for the Southern District of Texas (the “Court”), captioned In re Conn’s Inc. Securities Litigation, Cause No. 14-CV-00548 (the “Consolidated Securities Action”). The plaintiffs in the Consolidated Securities Action alleged that the defendants made false and misleading statements or failed to disclose material adverse facts about our business, operations, and prospects. They alleged violations of sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and sought to certify a class of all persons and entities that purchased or otherwise acquired Conn’s common stock or call options, or sold or wrote Conn’s put options between April 3, 2013 and December 9, 2014.
On June 14, 2018, the parties filed a motion for preliminary approval of a settlement for the Consolidated Securities Action. The Court granted preliminary approval of the settlement terms and stayed the Consolidated Securities Action on June 28, 2018. The
$22.5 million
settlement was funded solely by proceeds from our insurance carriers. As part of the settlement, we, along with the other executive officer defendants, have denied and continue to deny any wrongdoing giving rise to any liability or violation of the law, including the U.S. securities laws, as well as each and every one of the claims alleged by plaintiffs in the Consolidated Securities Action.
The Court held a final settlement approval hearing on October 11, 2018 and that same day the Court signed its Final Order and Judgment approving the terms of the settlement of the Consolidated Securities Action. The United States Fifth Circuit Court of Appeals dismissed the appeal on November 15, 2018. All claims of class members who did not opt out of the Consolidated Securities Action were settled and dismissed. MicroCapital Fund, LP, MicroCapital Fund Ltd, and MicroCapital LLC (collectively “MicroCapital”) provided notice that they were opting out of the class action.
On April 2, 2018, MicroCapital filed a lawsuit (the “MicroCapital Lawsuit”) against us and certain of our former executive officers in the Court, 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 section 20A of the Securities Exchange Act of 1934; and Connecticut common law negligent misrepresentation against certain defendants arising from plaintiffs’ purchase of Conn’s, Inc. securities between April 3, 2013 and February 20, 2014. The complaint does not specify the amount of damages sought.
On November 6, 2018, defendants filed a motion to dismiss plaintiff’s complaint and briefs were filed with the Court on or about January 16, 2019. The Court’s ruling is pending.
We intend to vigorously defend our interests in the MicroCapital Action. It is not possible at this time to predict the timing or outcome of this litigation, and we cannot reasonably estimate the possible loss or range of possible loss from these claims.
Derivative Litigation.
On December 1, 2014, an alleged shareholder, purportedly on behalf of the Company, filed a derivative shareholder lawsuit against us and certain of our current and former directors and former executive officers in the Court, captioned as Robert Hack, derivatively on behalf of Conn’s, Inc., v. Theodore M. Wright (former executive officer and former director), Bob L. Martin, Jon E.M. Jacoby (former director), Kelly M. Malson, Douglas H. Martin, David Schofman, Scott L. Thompson (former director), Brian Taylor (former executive officer) and Michael J. Poppe (former executive officer) and Conn’s, Inc., Case No. 4:14-cv-03442 (the “Original Derivative Action”). The complaint asserts claims for breach of fiduciary duty, unjust enrichment, gross mismanagement, and insider trading based on substantially similar factual allegations as those asserted in the Consolidated Securities Action. The plaintiff seeks unspecified damages against these persons and does not request any damages from us. Setting forth substantially similar claims against the same defendants, on February 25, 2015, an additional federal derivative action, captioned 95250 Canada LTEE, derivatively on Behalf of Conn’s, Inc. v. Wright et al., Cause No. 4:15-cv-00521, was filed in the Court, which has been consolidated with the Original Derivative Action.
The Court previously approved a stipulation among the parties to stay the 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. Briefs were filed with the Court on or about December 3, 2018. The Court’s ruling is pending.
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. We received a copy of the proposed amended petition on October 12, 2018, but the amended proposed petition has not yet been filed. The parties jointly requested a stay on this case pending the Original Derivative Action. This case remains stayed until at least April 31, 2019.
Prior to filing a lawsuit, an alleged shareholder, Robert J. Casey II (“Casey”), submitted a demand under Delaware law, which our Board of Directors refused. On May 19, 2016, Casey, purportedly on behalf of the Company, filed a lawsuit against us and certain of our current and former directors and former executive officers in the 55th Judicial District Court, Harris County, Texas, captioned
CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 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. No further activity has occurred in this case since the Final Order and Judgment was entered in the Consolidated Securities Action.
Other than Casey, none of the plaintiffs in the other derivative actions made a demand on our Board of Directors prior to filing their respective lawsuits. The defendants in the derivative actions intend to vigorously defend against these claims. It is not possible at this time to predict the timing or outcome of any of this litigation, and we cannot reasonably estimate the possible loss or range of possible loss from these claims.
Regulatory Matters.
We are continuing to cooperate with the Securities and Exchange Commission’s (“SEC”) investigation of our underwriting policies and bad debt provisions, which began in November 2014. The investigation is a non-public, fact-finding inquiry, and the SEC has stated that the investigation does not mean that any violations of law have occurred.
TF LoanCo.
In April 2014, Conn’s entered into an agreement with TFL to sell Conn’s charged-off accounts. In August 2014, Conn’s sued TFL for breach of contract in the U.S. District Court (“Court”). TFL filed counterclaims. In October 2016, the Court issued a decision in favor of Conn’s on all claims against TFL. TFL appealed the Court’s decision. On September 10, 2018, the U.S. Court of Appeals for the Fifth Circuit unanimously reversed the Court’s decision and entered a judgment (the “TFL Judgment”) in favor of TFL which required Conn’s to pay approximately
$4.8 million
, which includes the purchase price, statutory pre-judgment interest and attorney’s fees to TFL. The TFL Judgment was recognized as a charge during the three months ended October 31, 2018.
In addition, we are involved in other routine litigation and claims incidental to our business from time to time which, individually or in the aggregate, are not expected to have a material adverse effect on us. As required, we accrue estimates of the probable costs 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.
|
|
|
|
13.
|
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.
CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the assets and liabilities held by the VIEs (for legal purposes, the assets and liabilities of the VIEs will remain distinct from Conn’s, Inc.):
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
January 31,
2019
|
|
January 31,
2018
|
|
Assets:
|
|
|
|
|
Restricted cash
|
$
|
57,475
|
|
|
$
|
85,322
|
|
|
Due from Conn’s, Inc., net
|
5,504
|
|
|
15,212
|
|
|
Customer accounts receivable:
|
|
|
|
|
Customer accounts receivable
|
538,826
|
|
|
987,418
|
|
|
Restructured accounts
|
135,834
|
|
|
97,967
|
|
|
Allowance for uncollectible accounts
|
(106,327
|
)
|
|
(143,115
|
)
|
|
Allowance for no-interest option credit programs
|
(8,047
|
)
|
|
(18,228
|
)
|
|
Deferred fees and origination costs
|
(5,321
|
)
|
|
(9,332
|
)
|
|
Total customer accounts receivable, net
|
554,965
|
|
|
914,710
|
|
|
Total assets
|
$
|
617,944
|
|
|
$
|
1,015,244
|
|
|
Liabilities:
|
|
|
|
|
Accrued expenses
|
$
|
3,939
|
|
|
$
|
6,723
|
|
|
Other liabilities
|
5,513
|
|
|
10,639
|
|
|
Short-term debt:
|
|
|
|
|
Warehouse Notes
|
53,635
|
|
|
—
|
|
|
|
|
|
|
|
Long-term debt:
|
|
|
|
|
2016-B Class B Notes
|
—
|
|
|
73,589
|
|
|
2017-A Class A Notes
|
—
|
|
|
59,794
|
|
|
2017-A Class B Notes
|
—
|
|
|
106,270
|
|
|
2017-A Class C Notes
|
—
|
|
|
50,340
|
|
|
2017-B Class A Notes
|
—
|
|
|
292,663
|
|
|
2017-B Class B Notes
|
98,297
|
|
|
132,180
|
|
|
2017-B Class C Notes
|
78,640
|
|
|
78,640
|
|
|
2018-A Class A Notes
|
105,971
|
|
|
—
|
|
|
2018-A Class B Notes
|
63,908
|
|
|
—
|
|
|
2018-A Class C Notes
|
63,908
|
|
|
—
|
|
|
|
410,724
|
|
|
793,476
|
|
|
Less deferred debt issuance costs
|
(2,731
|
)
|
|
(5,497
|
)
|
|
Total debt
|
461,628
|
|
|
787,979
|
|
|
Total liabilities
|
$
|
471,080
|
|
|
$
|
805,341
|
|
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.
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
CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 consolidated financial statements.
We evaluate a segment’s performance based upon operating income before taxes. 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 portfolio balance for each applicable period.
As of
January 31, 2019
, we operated retail stores in
14
states with
no
operations outside of the United States.
No
single customer accounts for more than
10%
of our total revenues.
Financial information by segment is presented in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, 2019
|
|
(in thousands)
|
Retail
|
|
Credit
|
|
Total
|
|
Revenues:
|
|
|
|
|
|
|
Furniture and mattress
|
$
|
382,975
|
|
|
$
|
—
|
|
|
$
|
382,975
|
|
|
Home appliance
|
332,609
|
|
|
—
|
|
|
332,609
|
|
|
Consumer electronics
|
262,088
|
|
|
—
|
|
|
262,088
|
|
|
Home office
|
86,260
|
|
|
—
|
|
|
86,260
|
|
|
Other
|
14,703
|
|
|
—
|
|
|
14,703
|
|
|
Product sales
|
1,078,635
|
|
|
—
|
|
|
1,078,635
|
|
|
Repair service agreement commissions
|
101,928
|
|
|
—
|
|
|
101,928
|
|
|
Service revenues
|
14,111
|
|
|
—
|
|
|
14,111
|
|
|
Total net sales
|
1,194,674
|
|
|
—
|
|
|
1,194,674
|
|
|
Finance charges and other revenues
|
447
|
|
|
354,692
|
|
|
355,139
|
|
|
Total revenues
|
1,195,121
|
|
|
354,692
|
|
|
1,549,813
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
702,135
|
|
|
—
|
|
|
702,135
|
|
|
Selling, general and administrative expense
(1)
|
328,628
|
|
|
151,933
|
|
|
480,561
|
|
|
Provision for bad debts
|
1,009
|
|
|
197,073
|
|
|
198,082
|
|
|
Charges and credits
|
2,980
|
|
|
4,800
|
|
|
7,780
|
|
|
Total costs and expenses
|
1,034,752
|
|
|
353,806
|
|
|
1,388,558
|
|
|
Operating income
|
160,369
|
|
|
886
|
|
|
161,255
|
|
|
Interest expense
|
—
|
|
|
62,704
|
|
|
62,704
|
|
|
Loss on extinguishment of debt
|
—
|
|
|
1,773
|
|
|
1,773
|
|
|
Income (loss) before income taxes
|
$
|
160,369
|
|
|
$
|
(63,591
|
)
|
|
$
|
96,778
|
|
|
Additional Disclosures:
|
|
|
|
|
|
|
Property and equipment additions
|
$
|
36,110
|
|
|
$
|
1,384
|
|
|
$
|
37,494
|
|
|
Depreciation expense
|
$
|
30,739
|
|
|
$
|
845
|
|
|
$
|
31,584
|
|
|
|
January 31, 2019
|
|
(in thousands)
|
Retail
|
|
Credit
|
|
Total
|
|
Total assets
|
$
|
405,542
|
|
|
$
|
1,479,365
|
|
|
$
|
1,884,907
|
|
CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, 2018
|
|
(in thousands)
|
Retail
|
|
Credit
|
|
Total
|
|
Revenues:
|
|
|
|
|
|
|
Furniture and mattress
|
$
|
393,853
|
|
|
$
|
—
|
|
|
$
|
393,853
|
|
|
Home appliance
|
337,538
|
|
|
—
|
|
|
337,538
|
|
|
Consumer electronics
|
248,727
|
|
|
—
|
|
|
248,727
|
|
|
Home office
|
80,330
|
|
|
—
|
|
|
80,330
|
|
|
Other
|
17,426
|
|
|
—
|
|
|
17,426
|
|
|
Product sales
|
1,077,874
|
|
|
—
|
|
|
1,077,874
|
|
|
Repair service agreement commissions
|
100,383
|
|
|
—
|
|
|
100,383
|
|
|
Service revenues
|
13,710
|
|
|
—
|
|
|
13,710
|
|
|
Total net sales
|
1,191,967
|
|
|
—
|
|
|
1,191,967
|
|
|
Finance charges and other revenues
|
341
|
|
|
323,723
|
|
|
324,064
|
|
|
Total revenues
|
1,192,308
|
|
|
323,723
|
|
|
1,516,031
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
720,344
|
|
|
—
|
|
|
720,344
|
|
|
Selling, general and administrative expense
(1)
|
316,325
|
|
|
134,088
|
|
|
450,413
|
|
|
Provision for bad debts
|
829
|
|
|
216,046
|
|
|
216,875
|
|
|
Charges and credits
|
13,331
|
|
|
—
|
|
|
13,331
|
|
|
Total costs and expenses
|
1,050,829
|
|
|
350,134
|
|
|
1,400,963
|
|
|
Operating income (loss)
|
141,479
|
|
|
(26,411
|
)
|
|
115,068
|
|
|
Interest expense
|
—
|
|
|
80,160
|
|
|
80,160
|
|
|
Loss on extinguishment of debt
|
—
|
|
|
3,274
|
|
|
3,274
|
|
|
Income (loss) before income taxes
|
$
|
141,479
|
|
|
$
|
(109,845
|
)
|
|
$
|
31,634
|
|
|
Additional Disclosures:
|
|
|
|
|
|
|
Property and equipment additions
|
$
|
21,285
|
|
|
$
|
42
|
|
|
$
|
21,327
|
|
|
Depreciation expense
|
$
|
30,065
|
|
|
$
|
741
|
|
|
$
|
30,806
|
|
|
|
January 31, 2018
|
|
(in thousands)
|
Retail
|
|
Credit
|
|
Total
|
|
Total assets
|
$
|
344,327
|
|
|
$
|
1,556,472
|
|
|
$
|
1,900,799
|
|
CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, 2017
|
|
(in thousands)
|
Retail
|
|
Credit
|
|
Total
|
|
Revenues:
|
|
|
|
|
|
|
Furniture and mattress
|
$
|
421,055
|
|
|
$
|
—
|
|
|
$
|
421,055
|
|
|
Home appliance
|
358,771
|
|
|
—
|
|
|
358,771
|
|
|
Consumer electronics
|
293,685
|
|
|
—
|
|
|
293,685
|
|
|
Home office
|
92,404
|
|
|
—
|
|
|
92,404
|
|
|
Other
|
20,282
|
|
|
—
|
|
|
20,282
|
|
|
Product sales
|
1,186,197
|
|
|
—
|
|
|
1,186,197
|
|
|
Repair service agreement commissions
|
113,615
|
|
|
—
|
|
|
113,615
|
|
|
Service revenues
|
14,659
|
|
|
—
|
|
|
14,659
|
|
|
Total net sales
|
1,314,471
|
|
|
—
|
|
|
1,314,471
|
|
|
Finance charges and other revenues
|
1,569
|
|
|
280,808
|
|
|
282,377
|
|
|
Total revenues
|
1,316,040
|
|
|
280,808
|
|
|
1,596,848
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
823,082
|
|
|
—
|
|
|
823,082
|
|
|
Selling, general and administrative expense
(1)
|
326,078
|
|
|
134,818
|
|
|
460,896
|
|
|
Provision for bad debts
|
990
|
|
|
241,304
|
|
|
242,294
|
|
|
Charges and credits
|
6,478
|
|
|
—
|
|
|
6,478
|
|
|
Total costs and expenses
|
1,156,628
|
|
|
376,122
|
|
|
1,532,750
|
|
|
Operating income (loss)
|
159,412
|
|
|
(95,314
|
)
|
|
64,098
|
|
|
Interest expense
|
—
|
|
|
98,615
|
|
|
98,615
|
|
|
Income (loss) before income taxes
|
$
|
159,412
|
|
|
$
|
(193,929
|
)
|
|
$
|
(34,517
|
)
|
|
Additional Disclosures:
|
|
|
|
|
|
|
Property and equipment additions
|
$
|
43,460
|
|
|
$
|
182
|
|
|
$
|
43,642
|
|
|
Depreciation expense
|
$
|
28,063
|
|
|
$
|
783
|
|
|
$
|
28,846
|
|
|
|
January 31, 2017
|
|
(in thousands)
|
Retail
|
|
Credit
|
|
Total
|
|
Total assets
|
$
|
332,611
|
|
|
$
|
1,608,523
|
|
|
$
|
1,941,134
|
|
|
|
|
|
(1)
|
For the years ended
January 31, 2019
,
2018
and
2017
, the amount of overhead allocated to each segment reflected in SG&A was
$36.4 million
,
$27.6 million
and
$24.5 million
, respectively. For the years ended
January 31, 2019
,
2018
and
2017
, the amount of reimbursement made to the retail segment by the credit segment was
$38.1 million
,
$37.4 million
and
$38.8 million
, respectively.
|
|
|
|
|
15.
|
Guarantor Financial Information
|
Conn’s, Inc. is a holding company with
no
independent assets or operations other than its investments in its subsidiaries. The Senior Notes, which were issued by Conn’s, Inc., are fully and unconditionally guaranteed on a joint and several senior unsecured basis by the Guarantors. As of
January 31, 2019
and 2018, the direct or indirect subsidiaries of Conn’s, Inc. that were not Guarantors (the “Non-Guarantor Subsidiaries”) were the VIEs and minor subsidiaries. There are no restrictions under the Indenture on the ability of any of the Guarantors to transfer funds to Conn’s, Inc. in the form of dividends or distributions.
The following financial information presents the Consolidated Balance Sheet, Statement of Operations, and Statement of Cash Flows for Conn’s, Inc. (the issuer of the Senior Notes), the Guarantors, and the Non-Guarantor Subsidiaries, together with certain eliminations. Investments in subsidiaries are accounted for by the parent company using the equity method for purposes of this presentation. Results of operations of subsidiaries are therefore reflected in the parent company’s investment accounts and operations. The consolidated financial information includes financial data for:
(i) Conn’s, Inc. (on a parent-only basis),
(ii) Guarantors,
CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(iii) Non-Guarantor Subsidiaries, and
(iv) the parent company and the subsidiaries on a consolidated basis at January 31, 2019 and 2018 (after the elimination of intercompany balances and transactions).
Consolidated Balance Sheets as of
January 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Conn’s, Inc.
|
|
Guarantors
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
5,912
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,912
|
|
|
Restricted cash
|
—
|
|
|
1,550
|
|
|
57,475
|
|
|
—
|
|
|
59,025
|
|
|
Customer accounts receivable, net of allowances
|
—
|
|
|
328,705
|
|
|
324,064
|
|
|
—
|
|
|
652,769
|
|
|
Other accounts receivable
|
—
|
|
|
67,078
|
|
|
—
|
|
|
—
|
|
|
67,078
|
|
|
Inventories
|
—
|
|
|
220,034
|
|
|
—
|
|
|
—
|
|
|
220,034
|
|
|
Other current assets
|
—
|
|
|
12,344
|
|
|
5,504
|
|
|
(8,272
|
)
|
|
9,576
|
|
|
Total current assets
|
—
|
|
|
635,623
|
|
|
387,043
|
|
|
(8,272
|
)
|
|
1,014,394
|
|
|
Investment in and advances to subsidiaries
|
815,524
|
|
|
146,864
|
|
|
—
|
|
|
(962,388
|
)
|
|
—
|
|
|
Long-term portion of customer accounts receivable, net of allowance
|
—
|
|
|
455,443
|
|
|
230,901
|
|
|
—
|
|
|
686,344
|
|
|
Property and equipment, net
|
—
|
|
|
148,983
|
|
|
—
|
|
|
—
|
|
|
148,983
|
|
|
Deferred income taxes
|
27,535
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
27,535
|
|
|
Other assets
|
—
|
|
|
7,651
|
|
|
—
|
|
|
—
|
|
|
7,651
|
|
|
Total assets
|
$
|
843,059
|
|
|
$
|
1,394,564
|
|
|
$
|
617,944
|
|
|
$
|
(970,660
|
)
|
|
$
|
1,884,907
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of debt and capital lease obligations
|
$
|
—
|
|
|
$
|
474
|
|
|
$
|
53,635
|
|
|
$
|
—
|
|
|
$
|
54,109
|
|
|
Accounts payable
|
—
|
|
|
71,118
|
|
|
—
|
|
|
—
|
|
|
71,118
|
|
|
Accrued expenses
|
686
|
|
|
88,478
|
|
|
3,939
|
|
|
(2,768
|
)
|
|
90,335
|
|
|
Other current liabilities
|
—
|
|
|
24,918
|
|
|
2,592
|
|
|
(5,504
|
)
|
|
22,006
|
|
|
Total current liabilities
|
686
|
|
|
184,988
|
|
|
60,166
|
|
|
(8,272
|
)
|
|
237,568
|
|
|
Deferred rent
|
—
|
|
|
93,127
|
|
|
—
|
|
|
—
|
|
|
93,127
|
|
|
Long-term debt and capital lease obligations
|
222,398
|
|
|
270,831
|
|
|
407,993
|
|
|
—
|
|
|
901,222
|
|
|
Other long-term liabilities
|
—
|
|
|
30,094
|
|
|
2,921
|
|
|
—
|
|
|
33,015
|
|
|
Total liabilities
|
223,084
|
|
|
579,040
|
|
|
471,080
|
|
|
(8,272
|
)
|
|
1,264,932
|
|
|
Total stockholders’ equity
|
619,975
|
|
|
815,524
|
|
|
146,864
|
|
|
(962,388
|
)
|
|
619,975
|
|
|
Total liabilities and stockholders’ equity
|
$
|
843,059
|
|
|
$
|
1,394,564
|
|
|
$
|
617,944
|
|
|
$
|
(970,660
|
)
|
|
$
|
1,884,907
|
|
Deferred income taxes related to tax attributes of the Guarantors and Non-Guarantor Subsidiaries are reflected under Conn’s, Inc.
CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Operations for the year ended
January 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Conn’s, Inc.
|
|
Guarantors
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
$
|
—
|
|
|
$
|
1,194,674
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,194,674
|
|
|
Finance charges and other revenues
|
—
|
|
|
193,583
|
|
|
161,556
|
|
|
—
|
|
|
355,139
|
|
|
Servicing fee revenue
|
—
|
|
|
40,947
|
|
|
—
|
|
|
(40,947
|
)
|
|
—
|
|
|
Total revenues
|
—
|
|
|
1,429,204
|
|
|
161,556
|
|
|
(40,947
|
)
|
|
1,549,813
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
—
|
|
|
702,135
|
|
|
—
|
|
|
—
|
|
|
702,135
|
|
|
Selling, general and administrative expense
|
—
|
|
|
479,995
|
|
|
41,513
|
|
|
(40,947
|
)
|
|
480,561
|
|
|
Provision for bad debts
|
—
|
|
|
68,056
|
|
|
130,026
|
|
|
—
|
|
|
198,082
|
|
|
Charges and credits
|
—
|
|
|
7,780
|
|
|
—
|
|
|
—
|
|
|
7,780
|
|
|
Total costs and expenses
|
—
|
|
|
1,257,966
|
|
|
171,539
|
|
|
(40,947
|
)
|
|
1,388,558
|
|
|
Operating income (loss)
|
—
|
|
|
171,238
|
|
|
(9,983
|
)
|
|
—
|
|
|
161,255
|
|
|
Interest expense
|
17,782
|
|
|
12,498
|
|
|
32,424
|
|
|
—
|
|
|
62,704
|
|
|
Loss on extinguishment of debt
|
—
|
|
|
142
|
|
|
1,631
|
|
|
—
|
|
|
1,773
|
|
|
Income (loss) before income taxes
|
(17,782
|
)
|
|
158,598
|
|
|
(44,038
|
)
|
|
—
|
|
|
96,778
|
|
|
Provision (benefit) for income taxes
|
(4,213
|
)
|
|
37,577
|
|
|
(10,435
|
)
|
|
—
|
|
|
22,929
|
|
|
Net income (loss)
|
(13,569
|
)
|
|
121,021
|
|
|
(33,603
|
)
|
|
—
|
|
|
73,849
|
|
|
Income (loss) from consolidated subsidiaries
|
87,418
|
|
|
(33,603
|
)
|
|
—
|
|
|
(53,815
|
)
|
|
—
|
|
|
Consolidated net income (loss)
|
$
|
73,849
|
|
|
$
|
87,418
|
|
|
$
|
(33,603
|
)
|
|
$
|
(53,815
|
)
|
|
$
|
73,849
|
|
CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Cash Flows for the year ended
January 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Conn’s, Inc.
|
|
Guarantors
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Net cash provided by (used in) operating activities
|
$
|
(1,237
|
)
|
|
$
|
18,201
|
|
|
$
|
134,837
|
|
|
$
|
—
|
|
|
$
|
151,801
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of customer accounts receivables
|
—
|
|
|
—
|
|
|
(525,846
|
)
|
|
525,846
|
|
|
—
|
|
|
Sale of customer accounts receivables
|
—
|
|
|
—
|
|
|
525,846
|
|
|
(525,846
|
)
|
|
—
|
|
|
Purchase of property and equipment
|
—
|
|
|
(32,814
|
)
|
|
—
|
|
|
—
|
|
|
(32,814
|
)
|
|
Net cash provided by (used in) investing activities
|
—
|
|
|
(32,814
|
)
|
|
—
|
|
|
—
|
|
|
(32,814
|
)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of asset-backed notes
|
—
|
|
|
—
|
|
|
358,300
|
|
|
—
|
|
|
358,300
|
|
|
Payments on asset-backed notes
|
—
|
|
|
(169,443
|
)
|
|
(570,432
|
)
|
|
—
|
|
|
(739,875
|
)
|
|
Borrowings from Revolving Credit Facility
|
—
|
|
|
1,836,822
|
|
|
—
|
|
|
—
|
|
|
1,836,822
|
|
|
Payments on Revolving Credit Facility
|
—
|
|
|
(1,647,322
|
)
|
|
—
|
|
|
—
|
|
|
(1,647,322
|
)
|
|
Borrowings from warehouse facility
|
—
|
|
|
—
|
|
|
173,286
|
|
|
—
|
|
|
173,286
|
|
|
Payments of debt issuance costs and amendment fees
|
—
|
|
|
(3,230
|
)
|
|
(4,188
|
)
|
|
—
|
|
|
(7,418
|
)
|
|
Payments on warehouse facility
|
—
|
|
|
—
|
|
|
(119,650
|
)
|
|
—
|
|
|
(119,650
|
)
|
|
Proceeds from stock issued under employee benefit plans
|
1,237
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,237
|
|
|
Tax payments associated with equity-based compensation transactions
|
—
|
|
|
(3,342
|
)
|
|
—
|
|
|
—
|
|
|
(3,342
|
)
|
|
Payments from extinguishment of debt
|
—
|
|
|
(1,178
|
)
|
|
—
|
|
|
—
|
|
|
(1,178
|
)
|
|
Other
|
—
|
|
|
(1,068
|
)
|
|
—
|
|
|
—
|
|
|
(1,068
|
)
|
|
Net cash provided by (used in) financing activities
|
1,237
|
|
|
11,239
|
|
|
(162,684
|
)
|
|
—
|
|
|
(150,208
|
)
|
|
Net change in cash, cash equivalents and restricted cash
|
—
|
|
|
(3,374
|
)
|
|
(27,847
|
)
|
|
—
|
|
|
(31,221
|
)
|
|
Cash, cash equivalents and restricted cash, beginning of period
|
—
|
|
|
10,836
|
|
|
85,322
|
|
|
—
|
|
|
96,158
|
|
|
Cash, cash equivalents and restricted cash, end of period
|
$
|
—
|
|
|
$
|
7,462
|
|
|
$
|
57,475
|
|
|
$
|
—
|
|
|
$
|
64,937
|
|
CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
January 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Conn’s, Inc.
|
|
Guarantors
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
9,286
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,286
|
|
|
Restricted cash
|
—
|
|
|
1,550
|
|
|
85,322
|
|
|
—
|
|
|
86,872
|
|
|
Customer accounts receivable, net of allowances
|
—
|
|
|
177,117
|
|
|
459,708
|
|
|
—
|
|
|
636,825
|
|
|
Other accounts receivable
|
—
|
|
|
71,186
|
|
|
—
|
|
|
—
|
|
|
71,186
|
|
|
Inventories
|
—
|
|
|
211,894
|
|
|
—
|
|
|
—
|
|
|
211,894
|
|
|
Other current assets
|
—
|
|
|
68,621
|
|
|
15,212
|
|
|
(19,879
|
)
|
|
63,954
|
|
|
Total current assets
|
—
|
|
|
539,654
|
|
|
560,242
|
|
|
(19,879
|
)
|
|
1,080,017
|
|
|
Investment in and advances to subsidiaries
|
735,272
|
|
|
209,903
|
|
|
—
|
|
|
(945,175
|
)
|
|
—
|
|
|
Long-term portion of customer accounts receivable, net of allowance
|
—
|
|
|
195,606
|
|
|
455,002
|
|
|
—
|
|
|
650,608
|
|
|
Property and equipment, net
|
—
|
|
|
143,152
|
|
|
—
|
|
|
—
|
|
|
143,152
|
|
|
Deferred income taxes
|
21,565
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
21,565
|
|
|
Other assets
|
—
|
|
|
5,457
|
|
|
—
|
|
|
—
|
|
|
5,457
|
|
|
Total assets
|
$
|
756,837
|
|
|
$
|
1,093,772
|
|
|
$
|
1,015,244
|
|
|
$
|
(965,054
|
)
|
|
$
|
1,900,799
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of debt and capital lease obligations
|
$
|
—
|
|
|
$
|
907
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
907
|
|
|
Accounts payable
|
—
|
|
|
71,617
|
|
|
—
|
|
|
—
|
|
|
71,617
|
|
|
Accrued expenses
|
686
|
|
|
66,370
|
|
|
6,723
|
|
|
(4,667
|
)
|
|
69,112
|
|
|
Other current liabilities
|
—
|
|
|
32,685
|
|
|
5,002
|
|
|
(15,212
|
)
|
|
22,475
|
|
|
Total current liabilities
|
686
|
|
|
171,579
|
|
|
11,725
|
|
|
(19,879
|
)
|
|
164,111
|
|
|
Deferred rent
|
—
|
|
|
87,003
|
|
|
—
|
|
|
—
|
|
|
87,003
|
|
|
Long-term debt and capital lease obligations
|
221,083
|
|
|
81,043
|
|
|
787,979
|
|
|
—
|
|
|
1,090,105
|
|
|
Other long-term liabilities
|
—
|
|
|
18,875
|
|
|
5,637
|
|
|
—
|
|
|
24,512
|
|
|
Total liabilities
|
221,769
|
|
|
358,500
|
|
|
805,341
|
|
|
(19,879
|
)
|
|
1,365,731
|
|
|
Total stockholders’ equity
|
535,068
|
|
|
735,272
|
|
|
209,903
|
|
|
(945,175
|
)
|
|
535,068
|
|
|
Total liabilities and stockholders’ equity
|
$
|
756,837
|
|
|
$
|
1,093,772
|
|
|
$
|
1,015,244
|
|
|
$
|
(965,054
|
)
|
|
$
|
1,900,799
|
|
CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Operations for the year ended
January 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Conn’s, Inc.
|
|
Guarantors
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
$
|
—
|
|
|
$
|
1,191,967
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,191,967
|
|
|
Finance charges and other revenues
|
—
|
|
|
173,539
|
|
|
150,525
|
|
|
—
|
|
|
324,064
|
|
|
Servicing fee revenue
|
—
|
|
|
63,372
|
|
|
—
|
|
|
(63,372
|
)
|
|
—
|
|
|
Total revenues
|
—
|
|
|
1,428,878
|
|
|
150,525
|
|
|
(63,372
|
)
|
|
1,516,031
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
—
|
|
|
720,344
|
|
|
—
|
|
|
—
|
|
|
720,344
|
|
|
Selling, general and administrative expense
|
—
|
|
|
460,698
|
|
|
53,087
|
|
|
(63,372
|
)
|
|
450,413
|
|
|
Provision for bad debts
|
—
|
|
|
42,677
|
|
|
174,198
|
|
|
—
|
|
|
216,875
|
|
|
Charges and credits
|
—
|
|
|
13,331
|
|
|
—
|
|
|
—
|
|
|
13,331
|
|
|
Total costs and expenses
|
—
|
|
|
1,237,050
|
|
|
227,285
|
|
|
(63,372
|
)
|
|
1,400,963
|
|
|
Operating income (loss)
|
—
|
|
|
191,828
|
|
|
(76,760
|
)
|
|
—
|
|
|
115,068
|
|
|
Interest expense
|
17,772
|
|
|
15,978
|
|
|
46,410
|
|
|
—
|
|
|
80,160
|
|
|
Loss on extinguishment of debt
|
—
|
|
|
349
|
|
|
2,925
|
|
|
—
|
|
|
3,274
|
|
|
Income (loss) before income taxes
|
(17,772
|
)
|
|
175,501
|
|
|
(126,095
|
)
|
|
—
|
|
|
31,634
|
|
|
Provision (benefit) for income taxes
|
(14,141
|
)
|
|
139,647
|
|
|
(100,335
|
)
|
|
—
|
|
|
25,171
|
|
|
Net income (loss)
|
(3,631
|
)
|
|
35,854
|
|
|
(25,760
|
)
|
|
—
|
|
|
6,463
|
|
|
Income (loss) from consolidated subsidiaries
|
10,094
|
|
|
(25,760
|
)
|
|
—
|
|
|
15,666
|
|
|
—
|
|
|
Consolidated net income (loss)
|
$
|
6,463
|
|
|
$
|
10,094
|
|
|
$
|
(25,760
|
)
|
|
$
|
15,666
|
|
|
$
|
6,463
|
|
CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Cash Flows for the year ended
January 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Conn’s, Inc.
|
|
Guarantors
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Net cash provided by (used in) operating activities
|
$
|
(3,318
|
)
|
|
$
|
(925,182
|
)
|
|
$
|
979,022
|
|
|
$
|
—
|
|
|
$
|
50,522
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of customer accounts receivables
|
—
|
|
|
—
|
|
|
(1,112,903
|
)
|
|
1,112,903
|
|
|
—
|
|
|
Sale of customer accounts receivables
|
—
|
|
|
1,112,903
|
|
|
—
|
|
|
(1,112,903
|
)
|
|
—
|
|
|
Purchase of property and equipment
|
—
|
|
|
(16,918
|
)
|
|
—
|
|
|
—
|
|
|
(16,918
|
)
|
|
Net cash provided by (used in) investing activities
|
—
|
|
|
1,095,985
|
|
|
(1,112,903
|
)
|
|
—
|
|
|
(16,918
|
)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of asset-backed notes
|
—
|
|
|
—
|
|
|
1,042,034
|
|
|
—
|
|
|
1,042,034
|
|
|
Payments on asset-backed notes
|
—
|
|
|
(77,104
|
)
|
|
(922,923
|
)
|
|
—
|
|
|
(1,000,027
|
)
|
|
Borrowings from Revolving Credit Facility
|
—
|
|
|
1,717,012
|
|
|
—
|
|
|
—
|
|
|
1,717,012
|
|
|
Payments on Revolving Credit Facility
|
—
|
|
|
(1,817,512
|
)
|
|
—
|
|
|
—
|
|
|
(1,817,512
|
)
|
|
Payments of debt issuance costs and amendment fees
|
—
|
|
|
(3,268
|
)
|
|
(10,606
|
)
|
|
—
|
|
|
(13,874
|
)
|
|
Proceeds from stock issued under employee benefit plans
|
3,318
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,318
|
|
|
Tax payments associated with equity-based compensation transactions
|
—
|
|
|
(1,182
|
)
|
|
—
|
|
|
—
|
|
|
(1,182
|
)
|
|
Payments from extinguishment of debt
|
—
|
|
|
(836
|
)
|
|
—
|
|
|
—
|
|
|
(836
|
)
|
|
Other
|
—
|
|
|
(643
|
)
|
|
—
|
|
|
—
|
|
|
(643
|
)
|
|
Net cash provided by (used in) financing activities
|
3,318
|
|
|
(183,533
|
)
|
|
108,505
|
|
|
—
|
|
|
(71,710
|
)
|
|
Net change in cash, cash equivalents and restricted cash
|
—
|
|
|
(12,730
|
)
|
|
(25,376
|
)
|
|
—
|
|
|
(38,106
|
)
|
|
Cash, cash equivalents and restricted cash, beginning of period
|
—
|
|
|
23,566
|
|
|
110,698
|
|
|
—
|
|
|
134,264
|
|
|
Cash, cash equivalents and restricted cash, end of period
|
$
|
—
|
|
|
$
|
10,836
|
|
|
$
|
85,322
|
|
|
$
|
—
|
|
|
$
|
96,158
|
|
CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Operations for the year ended
January 31, 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Conn’s, Inc.
|
|
Guarantors
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
$
|
—
|
|
|
$
|
1,314,471
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,314,471
|
|
|
Finance charges and other revenues
|
—
|
|
|
117,028
|
|
|
165,349
|
|
|
—
|
|
|
282,377
|
|
|
Servicing fee revenue
|
—
|
|
|
60,149
|
|
|
—
|
|
|
(60,149
|
)
|
|
—
|
|
|
Total revenues
|
—
|
|
|
1,491,648
|
|
|
165,349
|
|
|
(60,149
|
)
|
|
1,596,848
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
—
|
|
|
823,082
|
|
|
—
|
|
|
—
|
|
|
823,082
|
|
|
Selling, general and administrative expense
|
—
|
|
|
460,076
|
|
|
60,969
|
|
|
(60,149
|
)
|
|
460,896
|
|
|
Provision for bad debts
|
—
|
|
|
6,974
|
|
|
235,320
|
|
|
—
|
|
|
242,294
|
|
|
Charges and credits
|
—
|
|
|
6,478
|
|
|
—
|
|
|
—
|
|
|
6,478
|
|
|
Total costs and expenses
|
—
|
|
|
1,296,610
|
|
|
296,289
|
|
|
(60,149
|
)
|
|
1,532,750
|
|
|
Operating income (loss)
|
—
|
|
|
195,038
|
|
|
(130,940
|
)
|
|
—
|
|
|
64,098
|
|
|
Interest expense
|
17,708
|
|
|
13,379
|
|
|
67,528
|
|
|
—
|
|
|
98,615
|
|
|
Loss on extinguishment of debt
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Income (loss) before income taxes
|
(17,708
|
)
|
|
181,659
|
|
|
(198,468
|
)
|
|
—
|
|
|
(34,517
|
)
|
|
Provision (benefit) for income taxes
|
(4,594
|
)
|
|
47,129
|
|
|
(51,490
|
)
|
|
—
|
|
|
(8,955
|
)
|
|
Net income (loss)
|
(13,114
|
)
|
|
134,530
|
|
|
(146,978
|
)
|
|
—
|
|
|
(25,562
|
)
|
|
Income (loss) from consolidated subsidiaries
|
(12,448
|
)
|
|
(146,978
|
)
|
|
—
|
|
|
159,422
|
|
|
—
|
|
|
Consolidated net income (loss)
|
$
|
(25,562
|
)
|
|
$
|
(12,448
|
)
|
|
$
|
(146,978
|
)
|
|
$
|
159,422
|
|
|
$
|
(25,562
|
)
|
CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Cash Flows for the year ended
January 31, 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Conn’s, Inc.
|
|
Guarantors
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Net cash provided by (used in) operating activities
|
$
|
(1,268
|
)
|
|
$
|
(723,018
|
)
|
|
$
|
929,457
|
|
|
$
|
—
|
|
|
$
|
205,171
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of customer accounts receivables
|
—
|
|
|
—
|
|
|
(923,842
|
)
|
|
923,842
|
|
|
—
|
|
|
Sale of customer accounts receivables
|
—
|
|
|
923,842
|
|
|
—
|
|
|
(923,842
|
)
|
|
—
|
|
|
Purchase of property and equipment
|
—
|
|
|
(46,556
|
)
|
|
—
|
|
|
—
|
|
|
(46,556
|
)
|
|
Proceeds from sales of property
|
—
|
|
|
10,806
|
|
|
—
|
|
|
—
|
|
|
10,806
|
|
|
Net cash provided by (used in) investing activities
|
—
|
|
|
888,092
|
|
|
(923,842
|
)
|
|
—
|
|
|
(35,750
|
)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of asset-backed notes
|
—
|
|
|
—
|
|
|
1,067,850
|
|
|
—
|
|
|
1,067,850
|
|
|
Payments on asset-backed notes
|
—
|
|
|
—
|
|
|
(1,032,842
|
)
|
|
—
|
|
|
(1,032,842
|
)
|
|
Borrowings from Revolving Credit Facility
|
—
|
|
|
724,697
|
|
|
—
|
|
|
—
|
|
|
724,697
|
|
|
Payments on Revolving Credit Facility
|
—
|
|
|
(876,404
|
)
|
|
—
|
|
|
—
|
|
|
(876,404
|
)
|
|
Payments of debt issuance costs and amendment fees
|
—
|
|
|
(1,215
|
)
|
|
(8,501
|
)
|
|
—
|
|
|
(9,716
|
)
|
|
Proceeds from stock issued under employee benefit plans
|
1,268
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,268
|
|
|
Tax payments associated with equity-based compensation transactions
|
—
|
|
|
(40
|
)
|
|
—
|
|
|
—
|
|
|
(40
|
)
|
|
Other
|
—
|
|
|
(800
|
)
|
|
—
|
|
|
—
|
|
|
(800
|
)
|
|
Net cash provided by (used in) financing activities
|
1,268
|
|
|
(153,762
|
)
|
|
26,507
|
|
|
—
|
|
|
(125,987
|
)
|
|
Net change in cash, cash equivalents and restricted cash
|
—
|
|
|
11,312
|
|
|
32,122
|
|
|
—
|
|
|
43,434
|
|
|
Cash, cash equivalents and restricted cash, beginning of period
|
—
|
|
|
12,254
|
|
|
78,576
|
|
|
—
|
|
|
90,830
|
|
|
Cash, cash equivalents and restricted cash, end of period
|
$
|
—
|
|
|
$
|
23,566
|
|
|
$
|
110,698
|
|
|
$
|
—
|
|
|
$
|
134,264
|
|
CONN’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
16.
|
Quarterly Information (Unaudited)
|
The following tables set forth certain quarterly financial data for the years ended
January 31, 2019
and
2018
that have been prepared on a consistent basis as the accompanying audited consolidated financial statements and include all adjustments necessary for a fair presentation, in all material respects, of the information shown: