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EX-32.1 - EXHIBIT 32.1 - CONNS INCconns7312017ex321.htm
EX-31.2 - EXHIBIT 31.2 - CONNS INCconns7312017ex312.htm
EX-31.1 - EXHIBIT 31.1 - CONNS INCconns7312017ex311.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION 
Washington, D.C.  20549 
FORM 10-Q
(Mark One) 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended July 31, 2017
 or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the transition period from to .
Commission File Number 001-34956
CONN'S, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
06-1672840
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
 
 
 
4055 Technology Forest Blvd, Suite 210, The Woodlands, TX
 
77381
(Address of principal executive offices)
 
(Zip Code)
 Registrant's telephone number, including area code:  (936) 230-5899
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý  No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ý  No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
 
Accelerated filer
ý
 
 
 
 
 
Non-accelerated filer
o
(Do not check if a smaller reporting company)
Smaller reporting company
o
 
 
 
 
 
 
 
 
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o  No ý
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of August 31, 2017
Class
 
Outstanding
Common stock, $0.01 par value per share
 
31,206,941



CONN'S, INC. AND SUBSIDIARIES

FORM 10-Q
FOR THE FISCAL QUARTER ENDED JULY 31, 2017

TABLE OF CONTENTS
 
 
 
 
Page No.
PART I.
 
FINANCIAL INFORMATION
 
 
Item 1.
 
Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
Item 3.
 
 
Item 4.
 
 
PART II.
 
OTHER INFORMATION
 
 
Item 1.
 
 
Item 1A.
 
 
Item 2.
 
 
Item 3.
 
 
Item 4.
 
 
Item 5.
 
 
Item 6.
 
 
 
 
 
 
 
 
This Quarterly Report on Form 10-Q includes our trademarks such as "Conn's," "Conn's HomePlus," "YES Money," "YE$ Money," and our logos, which are protected under applicable intellectual property laws and are the property of Conn's, Inc. This report also contains trademarks, service marks, trade names and copyrights of other companies, which are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this Quarterly Report may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names.
References to "Conn's," the "Company," "we," "us," and "our" refer to Conn's, Inc. and, as apparent from the context, its consolidated bankruptcy-remote variable-interest entities (“VIEs”), and its wholly-owned subsidiaries.



PART I.
FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
CONN'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited and in thousands, except per share amounts)
 
July 31,
2017
 
January 31,
2017
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
35,018

 
$
23,566

Restricted cash (all held by VIEs)
86,436

 
110,698

Customer accounts receivable, net of allowances (includes VIE balance of $430,855 and $529,108, respectively)
644,148

 
702,162

Other accounts receivable
59,401

 
69,286

Inventories
196,768

 
164,856

Income taxes recoverable
1,353

 
2,150

Prepaid expenses and other current assets
14,530

 
14,955

Total current assets
1,037,654

 
1,087,673

Long-term portion of customer accounts receivable, net of allowances (includes VIE balance of $331,642 and $320,382, respectively)
601,990

 
615,904

Property and equipment, net
154,788

 
159,202

Deferred income taxes
72,435

 
71,442

Other assets
8,196

 
6,913

Total assets
$
1,875,063

 
$
1,941,134

Liabilities and Stockholders' Equity
 

 
 

Current liabilities:
 

 
 

Current maturities of capital lease obligations
$
906

 
$
849

Accounts payable
100,268

 
101,612

Accrued compensation and related expenses
15,588

 
13,325

Accrued expenses
38,953

 
26,456

Income taxes payable
2,138

 
3,318

Deferred revenues and other credits
20,955

 
21,821

Total current liabilities
178,808

 
167,381

Deferred rent
85,538

 
87,957

Long-term debt and capital lease obligations (includes VIE balance of $635,760 and $745,581, respectively)
1,060,720

 
1,144,393

Other long-term liabilities
24,720

 
23,613

Total liabilities
1,349,786

 
1,423,344

Commitments and contingencies
 

 
 

Stockholders' equity:
 

 
 

Preferred stock ($0.01 par value, 1,000 shares authorized; none issued or outstanding)

 

Common stock ($0.01 par value, 100,000 shares authorized; 31,207 and 30,962 shares issued, respectively)
312

 
310

Additional paid-in capital
96,068

 
90,276

Retained earnings
428,897

 
427,204

Total stockholders' equity
525,277

 
517,790

Total liabilities and stockholders' equity
$
1,875,063

 
$
1,941,134

See notes to condensed consolidated financial statements.

1


CONN'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands, except per share amounts)
 
Three Months Ended 
 July 31,
 
Six Months Ended 
 July 31,
 
2017
 
2016
 
2017
 
2016
Revenues:
 
 
 
 
 
 
 
Product sales
$
259,593

 
$
299,723

 
$
510,955

 
$
586,213

Repair service agreement commissions
23,519

 
28,310

 
48,215

 
56,495

Service revenues
3,301

 
3,966

 
6,528

 
7,833

Total net sales
286,413

 
331,999

 
565,698

 
650,541

Finance charges and other revenues
80,234

 
66,158

 
156,775

 
136,729

Total revenues
366,647

 
398,157

 
722,473

 
787,270

Costs and expenses:
 

 
 

 
 
 
 
Cost of goods sold
172,306

 
208,869

 
344,256

 
413,335

Selling, general and administrative expenses
111,632

 
119,846

 
218,169

 
233,093

Provision for bad debts
49,449

 
60,196

 
105,379

 
118,414

Charges and credits
4,068

 
2,895

 
5,295

 
3,421

Total costs and expenses
337,455

 
391,806

 
673,099

 
768,263

Operating income
29,192

 
6,351

 
49,374

 
19,007

Interest expense
20,039

 
24,138

 
44,047

 
50,034

Loss on extinguishment of debt
2,097

 

 
2,446

 

Income (loss) before income taxes
7,056

 
(17,787
)
 
2,881

 
(31,027
)
Provision (benefit) for income taxes
2,783

 
(5,863
)
 
1,188

 
(9,354
)
Net income (loss)
$
4,273

 
$
(11,924
)
 
$
1,693

 
$
(21,673
)
Income (loss) per share:
 

 
 

 
 
 
 
Basic
$
0.14

 
$
(0.39
)
 
$
0.05

 
$
(0.71
)
Diluted
$
0.14

 
$
(0.39
)
 
$
0.05

 
$
(0.71
)
Weighted average common shares outstanding:
 

 
 

 
 
 
 
Basic
31,094

 
30,731

 
31,034

 
30,696

Diluted
31,435

 
30,731

 
31,292

 
30,696

See notes to condensed consolidated financial statements.

2


CONN'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
 
Six Months Ended July 31,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net income (loss)
$
1,693

 
$
(21,673
)
Adjustments to reconcile net income (loss) to net cash from operating activities:
 

 
 

Depreciation
15,356

 
13,773

Loss from retirement of leasehold improvement

 
1,385

Amortization of debt issuance costs
8,578

 
13,812

Provision for bad debts and uncollectible interest
125,491

 
133,084

Loss on extinguishment of debt
2,446

 

Stock-based compensation expense
4,188

 
2,886

Charges, net of credits, for facility closures
388

 

Deferred income taxes
(992
)
 
(700
)
Gain on sale of property and equipment
(371
)
 
(180
)
Tenant improvement allowances received from landlords
1,997

 
18,860

Change in operating assets and liabilities:
 

 
 

Customer accounts receivable
(53,563
)
 
(78,096
)
Other accounts receivable
8,537

 
5,751

Inventories
(31,912
)
 
10,327

Other assets
127

 
(1,213
)
Accounts payable
(3,060
)
 
28,831

Accrued expenses
13,792

 
6,823

Income taxes
(383
)
 
(10,489
)
Deferred rent, revenues and other credits
(1,771
)
 
8,758

Net cash provided by operating activities
90,541

 
131,939

Cash flows from investing activities:
 

 
 

Purchase of property and equipment
(6,135
)
 
(32,020
)
Proceeds from sale of property

 
686

Net cash used in investing activities
(6,135
)
 
(31,334
)
Cash flows from financing activities:
 

 
 

Proceeds from issuance of asset-backed notes
469,814

 
493,540

Payments on asset-backed notes
(583,299
)
 
(537,819
)
Changes in restricted cash balances
24,262

 
(17,406
)
Borrowings from revolving credit facility
844,941

 
405,378

Payments on revolving credit facility
(822,441
)
 
(435,085
)
Payment of debt issuance costs and amendment fees
(7,595
)
 
(6,089
)
Proceeds from stock issued under employee benefit plans
1,905

 
618

Other
(541
)
 
(461
)
Net cash used in financing activities
(72,954
)
 
(97,324
)
Net change in cash and cash equivalents
11,452

 
3,281

Cash and cash equivalents, beginning of period
23,566

 
12,254

Cash and cash equivalents, end of period
$
35,018

 
$
15,535

Non-cash investing and financing activities:
 
 
 
Capital lease asset additions and related obligations
$
3,196

 
$

Property and equipment purchases not yet paid
$
2,796

 
$
6,476

Supplemental cash flow data:
 
 
 
Cash interest paid
$
33,817

 
$
38,403

Cash income taxes paid (refunded), net
$
2,563

 
$
1,816

See notes to condensed consolidated financial statements.

3


CONN'S, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.     Summary of Significant Accounting Policies 
Business. Conn's, Inc., a Delaware corporation, is a holding company with no independent assets or operations other than its investments in its subsidiaries. References to “we,” “our,” “us,” “the Company,” “Conn’s” or “CONN” refer to Conn’s Inc. and, as apparent from the context, its subsidiaries. Conn's is a leading specialty retailer that offers a broad selection of quality, branded durable consumer goods and related services in addition to proprietary credit solutions for its core credit-constrained consumers. We operate an integrated and scalable business through our retail stores and website. Our complementary product offerings include furniture and mattresses, home appliances, consumer electronics and home office products from leading global brands across a wide range of price points. Our credit offering provides financing solutions to a large, under-served population of credit-constrained consumers who typically have limited credit alternatives.
We operate two reportable segments: retail and credit. Our retail stores bear the "Conn's" or "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. Our management evaluates performance and allocates resources based on the operating results of the retail and credit segments.
Basis of Presentation. The accompanying unaudited, condensed consolidated financial statements of Conn's, Inc. and its wholly-owned subsidiaries, including the VIEs (as defined below), have been prepared by management in accordance with accounting principles generally accepted in the United States ("GAAP") and prevailing industry practice for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, we do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The accompanying financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature. The condensed consolidated financial position, results of operations and cash flows for these interim periods are not necessarily indicative of the results that may be expected in future periods. The balance sheet at January 31, 2017 has been derived from the audited financial statements at that date. The financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2017, filed with the United States Securities and Exchange Commission (the “SEC”) on April 4, 2017.
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 8, 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, allowances for no-interest option credit programs and deferred interest, which are particularly sensitive given the size of our customer portfolio balance.
Cash and Cash Equivalents. Cash and cash equivalents include cash, credit card deposits in-transit, and highly liquid debt instruments purchased with a maturity of three months or less. Cash and cash equivalents include credit card deposits in-transit of $3.2 million and $2.4 million, as of July 31, 2017 and January 31, 2017, respectively. 

4

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


Restricted Cash. The restricted cash balance as of July 31, 2017 and January 31, 2017 includes $58.7 million and $75.2 million, respectively, of cash we collected as servicer on the securitized receivables that was subsequently remitted to the VIEs and $27.7 million and $35.5 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 the end of a month are charged-off against the allowance for doubtful accounts along with interest accrued subsequent to the last payment.
In an effort to mitigate losses on our accounts receivable, we may make loan modifications to a borrower experiencing financial difficulty. In our role as servicer,we may also make modifications to loans held by the VIEs. The loan modifications are intended to maximize net cash flow after expenses and avoid the need to repossess collateral or exercise legal remedies available to us. We may extend or "re-age" a portion of our customer accounts, which involves modifying the payment terms to defer a portion of the cash payments due. Our re-aging of customer accounts does not change the interest rate or the total amount due from the customer and typically does not reduce the monthly contractual payments. To a much lesser extent, we may provide the customer the ability to re-age their obligation by refinancing the account, which does not change the interest rate or the total 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 receivableInterest 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. Our calculation of interest income for customers with similar financing arrangements for which the timing and amount of prepayments can be reasonably estimated includes an estimate of the benefit from future prepayments based on our historical experience. At July 31, 2017 and January 31, 2017, there was $13.5 million and $13.7 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 12-and 18-month no-interest option programs. 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.
No-interest option finance programs with terms greater than 12 months are discounted to their present value at origination, resulting in a reduction in sales and customer receivables, and the discount amount is amortized into finance charges and other revenues over the term of the contract.
We recognize interest income on TDR accounts using the interest income method, which requires reporting interest income equal to the increase in the net carrying amount of the loan attributable to the passage of time. Cash proceeds and other adjustments are applied to the net carrying amount such that it equals the present value of expected future cash flows.
We typically only place accounts in non-accrual status when legally required. Payments received on non-accrual loans will be applied to principal and reduce the amount of the loan. Interest accrual is resumed on those accounts once a legally-mandated settlement arrangement is reached or other payment arrangements are made with the customer. At July 31, 2017 and January 31, 2017, customer receivables carried in non-accrual status were $49.2 million and $22.9 million, respectively. At July 31, 2017 and January 31, 2017, customer receivables that were past due 90 days or more and still accruing interest totaled $84.9 million and $124.0 million, respectively. The shift in the customer receivables balance from 90 days or more and still accruing interest to customer receivables in non-accrual status is primarily due to the increased use of third-party collection agencies to support our internal collection efforts. At July 31, 2017 and January 31, 2017, customer receivables in a bankruptcy status that are less than 60 days past due of $15.2 million and $19.5 million, respectively, are included within the customer receivables carried in non-accrual status balance.
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.   

5

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


 
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 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. During the three months ended July 31, 2017, we began to 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 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 the quality of the loan review system, changes in the value of underlying collateral, changes in concentrations of credit, and other internal or external factor changes. We utilize an economic qualitative adjustment based on changes in unemployment rates if current unemployment rates in our markets are worse than they were on average over the last 24 months.  We also qualitatively limit the impact of changes in first payment default rates and changes in delinquency when those changes result in a decrease to the allowance for bad debts based on a measure of the dispersion of historical charge-off rates.  The impact of the changes in first payment default rates and changes in delinquency balance adjustments implemented during the second quarter, net of qualitative adjustments, was a reduction to the allowance for doubtful accounts of $4.4 million.  
We determine allowances for those accounts that are TDR based on the discounted present value of cash flows expected to be collected over the life of those accounts based primarily on the performance of TDR loans over the last 24 months.  The cash flows are discounted based on the weighted-average effective interest rate of the TDR accounts. The excess of the carrying amount over the discounted cash flow amount is recorded as an allowance for loss on those accounts.
Debt Issuance Costs. Costs that are direct and incremental to debt issuance are deferred and amortized to interest expense using the effective interest method over the expected life of the debt.  All other costs related to debt issuance are expensed as incurred. We present debt issuance costs associated with long-term debt as a reduction of the carrying amount of the debt. Unamortized costs related to the revolving credit facility were $6.7 million and $5.7 million as of July 31, 2017 and January 31, 2017, respectively, and were included in other assets on our consolidated balance sheet.
Income Taxes. For the six months ended July 31, 2017 and 2016 we utilized the estimated annual effective tax rate based on our estimated fiscal year 2018 and 2017 pre-tax income, respectively, in determining income tax expense.
Stock-based compensation. During the three months ended July 31, 2017, the Company granted 72,012 performance stock awards ("PSUs") and 318,806 restricted stock awards (“RSUs") with an aggregate grant date fair value of $6.8 million. During the six months ended July 31, 2017, the Company granted 501,012 PSUs and 643,293 RSUs with an aggregate grant date fair value of $14.5 million. During the three months ended July 31, 2016, the Company granted 131,759 PSUs and 319,454 RSUs with an aggregate grant date fair value of $4.8 million. During the six months ended July 31, 2016, the Company granted 131,759 PSUs and 328,827 RSUs with an aggregate grant date fair value of $4.9 million. The majority of the PSUs issued during the six months ended July 31, 2017 will vest, if at all, upon the certification, after the Company’s fiscal year 2020, by the compensation committee of the satisfaction of the annual and cumulative Earnings Before Interest, Taxes, Depreciation and Amortization performance conditions over the three fiscal years commencing with the Company’s fiscal year 2018. The majority of the RSUs issued during the six months ended July 31, 2017 will vest, if at all, over periods of three to five years from the date of grant. For the three months ended July 31, 2017 and 2016, stock-based compensation expense was $3.6 million and $1.3 million, respectively. For the six months ended July 31, 2017 and 2016, stock-based compensation expense was $5.2 million and $2.6 million, respectively.

6

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


Earnings per Share. Basic earnings 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 and restricted stock units granted, which is calculated using the treasury-stock method. The following table sets forth the shares outstanding for the earnings per share calculations: 
 
Three Months Ended 
 July 31,
 
Six Months Ended 
 July 31,
(in thousands)
2017
 
2016
 
2017
 
2016
Weighted-average common shares outstanding - Basic
31,094

 
30,731

 
31,034

 
30,696

Dilutive effect of stock options and restricted stock units
341

 

 
258

 

Weighted-average common shares outstanding - Diluted
31,435

 
30,731

 
31,292

 
30,696

For the three months ended July 31, 2017 and 2016 the weighted-average number of stock options and restricted stock units not included in the calculation due to their anti-dilutive effect was 0.4 million and 1.3 million, respectively. For the six months ended July 31, 2017 and 2016, the weighted-average number of stock options and restricted stock units not included in the calculation due to their anti-dilutive effect was 0.5 million and 1.0 million, respectively. 
Fair Value of Financial Instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value are categorized using defined hierarchical levels related to subjectivity associated with the inputs to fair value measurements as follows:  
Level 1 – Inputs represent unadjusted quoted prices in active markets for identical assets or liabilities
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (for example, quoted market prices for similar assets or liabilities in active markets or quoted market prices for identical assets or liabilities in markets not considered to be active, inputs other than quoted prices that are observable for the asset or liability, or market-corroborated inputs).
Level 3 – Inputs that are not observable from objective sources such as our internally developed assumptions used in pricing an asset or liability (for example, an estimate of future cash flows used in our internally developed present value of future cash flows model that underlies the fair-value measurement).
In determining fair value, we use observable market data when available, or models that incorporate observable market data. When we are required to measure fair value and there is not a market-observable price for the asset or liability or for a similar asset or liability, we use the cost or income approach depending on the quality of information available to support management’s assumptions. The cost approach is based on management’s best estimate of the current asset replacement cost. The income approach is based on management’s best assumptions regarding expectations of future net cash flows and discounts the expected cash flows using a commensurate risk-adjusted discount rate. Such evaluations involve significant judgment, and the results are based on expected future events or conditions such as sales prices, economic and regulatory climates, and other factors, most of which are often outside of management’s control. However, we believe assumptions used reflect a market participant’s view of long-term prices, costs, and other factors and are consistent with assumptions used in our business plans and investment decisions.
In arriving at fair-value estimates, we use relevant observable inputs available for the valuation technique employed. If a fair-value measurement reflects inputs at multiple levels within the hierarchy, the fair-value measurement is characterized based on the lowest level of input that is significant to the fair-value measurement.
The fair value of cash and cash equivalents, restricted cash held by the consolidated VIEs and accounts payable approximate their carrying amounts because of the short maturity of these instruments. The fair value of customer accounts receivables, determined using a Level 3 discounted cash flow analysis, approximates their carrying amount, which includes the allowance for doubtful accounts. The fair value of our revolving credit facility approximates carrying value based on the current borrowing rate for similar types of borrowing arrangements. At July 31, 2017, the fair value of the Senior Notes outstanding, which was determined using Level 1 inputs, was $221.4 million as compared to the carrying value of $227.0 million, excluding the impact of the related discount. At July 31, 2017, the fair value of the asset-backed notes approximates their carrying value and was determined using Level 2 inputs based on inactive trading activity.

7

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


Recent Accounting Pronouncements Adopted. In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which modifies the accounting for excess tax benefits and tax deficiencies associated with share-based payments, the accounting for forfeitures, and the classification of certain items on the statement of cash flows. ASU 2016-09 eliminates the requirement to recognize excess tax benefits in additional paid-in capital ("APIC"), and the requirement to evaluate tax deficiencies for APIC or income tax expense classification, and provides for these benefits or deficiencies to be recorded as an income tax expense or benefit in the income statement. With these changes, tax-related cash flows resulting from share-based payments are classified as operating activities as opposed to financing. The standard became effective for us in the first quarter of fiscal year 2018. The amendment requiring the recognition of excess tax benefits and deficiencies as income tax benefit or expense in the income statement as opposed to being recognized as additional paid-in-capital was applied prospectively; the impact was not material. The Company retrospectively adopted the amendments requiring the classification of excess tax benefits and deficiencies with other income tax cash flows as operating activities and cash paid when directly withholding shares as financing activities in the accompanying consolidated statements of cash flows; the impact was not material. The Company has elected to continue its current practice of estimating the number of awards expected to vest in determining the amount of compensation cost to be recognized related to share based payment transactions.
In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. ASU 2015-11 requires that inventory that has historically been measured using first-in, first-out or average cost method be measured at the lower of cost and net realizable value. The update requires prospective application and became effective for us in the first quarter of fiscal year 2018. The adoption of this ASU did not have a material impact on our consolidated financial statements.
Recent Accounting Pronouncements Yet To Be 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. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers: Deferral of Effective Date, which defers the effective date of ASU 2014-09 by one year and allows early adoption on a limited basis. The FASB has 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. These ASUs are effective for us beginning in the first quarter of fiscal year 2019 and will result in retrospective application, either in the form of recasting all prior periods presented or a cumulative adjustment to equity in the period of adoption. We currently anticipate adopting the standard using the cumulative catch-up transition method. Based on our preliminary assessment, we do not expect the adoption of these ASUs to have a material impact on our consolidated financial statements other than the expected additional disclosure requirements.
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. On transition, we will recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The final standard will become effective for us beginning in the first quarter of fiscal year 2020. We are currently assessing the impact this ASU will have on our financial statements. 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 6, Leases, of our audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2017.
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 should 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 earlier adoption is permitted beginning in the first quarter of fiscal year 2020. We are currently assessing the impact this ASU will have on our financial statements.

8

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


In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force). 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, the presentation of debt prepayment or debt extinguishment costs as cash outflows for financing activities on the statement of cash flow. The standard will become effective for us in the first quarter of fiscal year 2019 and early adoption is permitted. The adoption of this ASU is not expected to have a significant impact on our consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory, which eliminates the exception that prohibits the recognition of current and deferred income tax effects for intra-entity transfers of assets other than inventory until the asset has been sold to an outside party. We will be required to adopt the amendments in this ASU in the annual and interim periods for our fiscal year ending January 31, 2019, with early adoption permitted. The application of the amendments will require the use of a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. We are evaluating the standard and the impact it will have on our consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force). 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. This will result in us no longer showing the changes in restricted cash balances as a component of cash flows from financing activities but instead include 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 ASU will become effective for us in the first quarter of fiscal year 2019, and early adoption is permitted. We are currently assessing when we expect to adopt the ASU.
2.    Customer Accounts Receivable
Customer accounts receivable consisted of the following:
 
Total Outstanding Balance
 
Customer Accounts Receivable
 
60 Days Past Due (1)
 
Re-aged (1)
(in thousands)
July 31,
2017
 
January 31,
2017
 
July 31,
2017
 
January 31,
2017
 
July 31,
2017
 
January 31,
2017
Customer accounts receivable
$
1,337,121

 
$
1,417,581

 
$
111,963

 
$
127,747

 
$
94,470

 
$
111,585

Restructured accounts
142,411

 
138,858

 
41,820

 
38,010

 
142,411

 
138,858

Total customer portfolio balance
1,479,532

 
1,556,439

 
$
153,783

 
$
165,757

 
$
236,881

 
$
250,443

Allowance for uncollectible accounts
(202,655
)
 
(210,175
)
 
 
 
 
 
 
 
 
Allowances for no-interest option credit programs
(18,587
)
 
(21,207
)
 
 
 
 
 
 
 
 
Deferred fees and origination costs, net
(12,152
)
 
(6,991
)
 
 
 
 
 
 
 
 
Total customer accounts receivable, net
1,246,138

 
1,318,066

 
 
 
 
 
 
 
 
Short-term portion of customer accounts receivable, net
(644,148
)
 
(702,162
)
 
 
 
 
 
 
 
 
Long-term portion of customer accounts receivable, net
$
601,990

 
$
615,904

 
 
 
 
 
 
 
 
Securitized receivables held by the VIEs
$
910,385

 
$
1,015,837

 
$
120,385

 
$
156,344

 
$
231,320

 
$
238,375

Receivables not held by the VIEs
569,147

 
540,602

 
33,398

 
9,413

 
5,561

 
12,068

Total customer portfolio balance
$
1,479,532

 
$
1,556,439

 
$
153,783

 
$
165,757

 
$
236,881

 
$
250,443

(1)
Due to the fact that an account can become past due after having been re-aged, accounts could be represented as both past due and re-aged. As of July 31, 2017 and January 31, 2017, the amounts included within both past due and re-aged were $70.8 million and $66.7 million, respectively. As of July 31, 2017 and January 31, 2017, the total customer portfolio balance past due one day or greater was $391.5 million and $406.1 million, respectively. These amounts include the 60 days past due balances shown.

9

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


The following presents the activity in the allowance for doubtful accounts and uncollectible interest for customer receivables: 
 
Six Months Ended July 31, 2017
 
Six Months Ended July 31, 2016
(in thousands)
Customer
Accounts
Receivable
 
 
Restructured
Accounts
 
 
 
Total
 
Customer
Accounts
Receivable
 
 
Restructured
Accounts
 
 
 
Total
Allowance at beginning of period
$
158,992

 
$
51,183

 
$
210,175

 
$
149,226

 
$
41,764

 
$
190,990

Provision (1)
92,285

 
33,208

 
125,493

 
108,333

 
29,768

 
138,101

Principal charge-offs (2)
(92,251
)
 
(26,159
)
 
(118,410
)
 
(91,261
)
 
(20,969
)
 
(112,230
)
Interest charge-offs
(14,911
)
 
(4,228
)
 
(19,139
)
 
(15,384
)
 
(3,544
)
 
(18,928
)
Recoveries (2)
3,534

 
1,002

 
4,536

 
2,636

 
607

 
3,243

Allowance at end of period
$
147,649

 
$
55,006

 
$
202,655

 
$
153,550

 
$
47,626

 
$
201,176

Average total customer portfolio balance
$
1,356,569

 
$
139,106

 
$
1,495,675

 
$
1,428,396

 
$
123,451

 
$
1,551,847

(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 principal collections of previously charged-off balances. Net charge-offs are calculated as the net of principal charge-offs and recoveries.
3.     Accrual for Store and Facility Closures 
We have closed or relocated retail and facility locations that did not perform at a level expected for mature store locations or that did not align with our long-term retail objectives. Certain of the closed or relocated stores and facilities had non-cancelable lease agreements, resulting in the accrual of the present value of the remaining lease payments and estimated related occupancy obligations, net of estimated sublease income. Adjustments to these projections for changes in estimated marketing times and sublease rates, as well as other revisions, are made to the obligation as further information related to the actual terms and costs become available.
The following table presents detail of the activity in the accrual for store and facility closures: 
 
Six Months Ended 
 July 31,
(in thousands)
2017
 
2016
Balance at beginning of period
$
3,641

 
$
1,866

Accrual for additional closures
1,227

 

Adjustments
38

 
23

Cash payments, net of sublease income
(1,739
)
 
(339
)
Balance at end of period
3,167

 
1,550

Current portion, included in accrued expenses
(986
)
 
(643
)
Long-term portion, included in other long-term liabilities
$
2,181

 
$
907


10

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


4.     Charges and Credits
Charges and credits consisted of the following:
 
Three Months Ended 
 July 31,
 
Six Months Ended 
 July 31,
(in thousands)
2017
 
2016
 
2017
 
2016
Facility closure costs
$
122

 
$

 
$
1,349

 
$

Impairments from disposals

 
1,385

 

 
1,385

Legal and professional fees related to the exploration of strategic alternatives and securities-related litigation
34

 
135

 
34

 
589

Employee severance
1,317

 
1,213

 
1,317

 
1,213

Indirect tax audit reserve
2,595

 

 
2,595

 

Executive management transition costs

 
162

 

 
234

 
$
4,068

 
$
2,895

 
$
5,295

 
$
3,421

During the three months ended July 31, 2017, we incurred severance costs related to a change in the executive management team and a charge related to an increase in our indirect tax audit reserve. During the six months ended July 31, 2017, we incurred exit costs associated with reducing the square footage of a distribution center, severance costs related to a change in the executive management team, and a charge related to an increase in our indirect tax audit reserve. During the three and six months ended July 31, 2016, we incurred costs associated with impairments from disposals, legal and professional fees related to our securities-related litigation and severance and transition costs due to changes in the executive management team. The impairments from disposals included the write-off of leasehold improvements for one store we relocated prior to the end of the useful life of the leasehold improvements and incurred costs for a terminated store project prior to starting construction.
5.     Finance Charges and Other Revenues 
Finance charges and other revenues consisted of the following:
 
Three Months Ended 
 July 31,
 
Six Months Ended 
 July 31,
(in thousands)
2017
 
2016
 
2017
 
2016
Interest income and fees
$
69,490

 
$
54,502

 
$
136,621

 
$
115,123

Insurance commissions
10,652

 
11,219

 
19,982

 
20,675

Other revenues
92

 
437

 
172

 
931

 
$
80,234

 
$
66,158

 
$
156,775

 
$
136,729

Interest income and fees and insurance commissions are derived from the credit segment operations, whereas other revenues are derived from the retail segment operations. During the three months ended July 31, 2017 and 2016, interest income and fees reflected provisions for uncollectible interest of $10.5 million and $10.2 million and amounts related to TDR accounts of $4.6 million and $4.2 million, respectively. During the six months ended July 31, 2017 and 2016, interest income and fees reflected provisions for uncollectible interest of $20.5 million and $20.2 million and amounts related to TDR accounts of $9.1 million and $8.3 million, respectively.

11

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:
(in thousands)
July 31,
2017
 
January 31,
2017
Revolving credit facility
$
200,000

 
$
177,500

Senior Notes
227,000

 
227,000

2015 VIE Asset-backed Class A notes

 
12,166

2015 VIE Asset-backed Class B notes

 
165,900

2016-A VIE Asset-backed Class A notes

 
64,732

2016-A VIE Asset-backed Class B notes
30,618

 
70,510

2016-A VIE Asset-backed Class C notes
70,510

 
70,510

2016-B VIE Asset-backed Class A notes
66,292

 
256,513

2016-B VIE Asset-backed Class B notes
111,960

 
111,960

2017-A VIE Asset-backed Class A notes
202,832

 

2017-A VIE Asset-backed Class B notes
106,270

 

2017-A VIE Asset-backed Class C notes
50,340

 

Capital lease obligations
5,439

 
2,393

Total debt and capital lease obligations
1,071,261

 
1,159,184

Less:
 
 
 
Discount on debt
(2,808
)
 
(3,089
)
Deferred debt issuance costs
(6,827
)
 
(10,853
)
Current maturities of capital lease obligations
(906
)
 
(849
)
Long-term debt and capital lease obligations
$
1,060,720

 
$
1,144,393

Senior Notes. On July 1, 2014, we issued $250.0 million of the unsecured Senior Notes due July 2022 bearing interest at 7.25% (the "Senior Notes"), pursuant to an indenture dated July 1, 2014 (the "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 were to exceed an amount tied to consolidated net income. These limitations, however, are subject to two exceptions: (1) an exception that permits the payment of up to $375.0 million in restricted payments, and (2) an exception that permits restricted payments regardless of dollar amount so long as, after giving pro forma effect to the dividends and other restricted payments, we would have had a leverage ratio, as defined under the Indenture, of less than or equal to 2.50 to 1.0. As a result of these exceptions, as of July 31, 2017, $177.7 million would have been free from the distribution restriction. However, as a result of the revolving credit facility distribution restrictions, which are further described below, we were restricted from making a distribution as of July 31, 2017. 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 default on the payment of other debt due at maturity or upon acceleration of default in an amount exceeding $25.0 million, as well as in the event a judgment is entered against us in excess of $25.0 million that is not discharged, bonded or insured.
Asset-backed Notes. During fiscal years 2018, 2017 and 2016, we securitized customer accounts receivables by transferring the receivables to various bankruptcy-remote VIEs. In turn, the VIEs issued asset-backed notes secured by the transferred customer accounts receivables and restricted cash held by the VIEs.

12

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


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 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 of 1933, as amended. If an event of default were to occur under the indenture that governs the respective asset-backed notes, the payment of the outstanding amounts may be accelerated, in which event the cash proceeds of the receivables that otherwise might be released to the residual equity holder would instead be directed entirely toward repayment of the asset-backed notes, or if the receivables are liquidated, all liquidation proceeds could be directed solely to repayment of the asset-backed notes as governed by the respective terms of the asset-backed notes. The holders of the asset-backed notes have no recourse to assets outside of the VIEs. Events of default include, but are not limited to, failure to make required payments on the asset-backed notes or specified bankruptcy-related events.
The asset-backed notes consist of the following:
Asset-Backed Notes
 
Principal Amount
 
Net Proceeds(1)
 
Issuance Date
 
Maturity Date
 
Fixed Interest Rate
 
Effective Interest Rate(2)
2016-A Class B Notes
 
70,510

 
68,309

 
3/17/2016
 
8/15/2018
 
8.96%
 
9.88%
2016-A Class C Notes
 
70,510

 
71,648

 
10/12/2016
 
4/15/2020
 
12.00%
 
10.96%
2016-B Class A Notes
 
391,840

 
380,033

 
10/6/2016
 
10/15/2018
 
3.73%
 
5.56%
2016-B Class B Notes
 
111,960

 
108,586

 
10/6/2016
 
3/15/2019
 
7.34%
 
8.09%
2017-A Class A Notes
 
313,220

 
304,451

 
4/19/2017
 
7/15/2019
 
2.73%
 
4.97%
2017-A Class B Notes
 
106,270

 
103,300

 
4/19/2017
 
2/15/2020
 
5.11%
 
5.80%
2017-A Class C Notes
 
50,340

 
48,919

 
4/19/2017
 
10/15/2021
 
7.40%
 
7.83%
Total
 
$
1,114,650

 
$
1,085,246

 
 
 
 
 
 
 
 
(1)
After giving effect to debt issuance costs and restricted cash held by the VIEs.
(2)
For the six months ended July 31, 2017, and inclusive of retrospective adjustments to deferred debt issuance costs based on changes in timing of actual and expected cash flows.
On May 15, 2017, the Company completed the redemption of its Series 2015-A Class B Notes (collectively, the "2015-A Redeemed Notes") at an aggregate redemption price of $114.1 million (which was equal to the entire outstanding principal of, plus accrued interest on, the 2015-A Redeemed Notes). The net funds used to call the notes was $78.8 million, which is equal to the redemption price less adjustments of $35.3 million for funds held in reserve and collection accounts in accordance with the terms of the applicable indenture governing the 2015-A Redeemed Notes. The net funds used to call the 2015-A Redeemed Notes of $78.8 million was transferred from the Guarantors to the Non-Guarantor Subsidiary in exchange for the underlying securities held as collateral on the 2015-A Redeemed Notes with carrying value of $126.3 million as of April 30, 2017. In connection with the early redemption of the 2015-A Redeemed Notes, we wrote-off $2.1 million of debt issuance costs.

Revolving Credit Facility. On March 31, 2017, Conn's, Inc. and certain of its subsidiaries (the "Borrowers") entered into a Third Amendment (the "Third Amendment") to the Third Amended and Restated Loan and Security Agreement, dated as of October 30, 2015, with certain lenders, which provides for a $750.0 million asset-based revolving credit facility (the "revolving credit facility") under which credit availability is subject to a borrowing base. The revolving credit facility matures on October 30, 2019.
The Third Amendment, among other things, (a) extends the maturity date of the credit facility one year to October 30, 2019; (b) provides for a reduction in the aggregate commitments from $810 million to $750 million; (c) amends the minimum interest coverage ratio covenant to (i) eliminate the application of the minimum interest coverage ratio covenant for the fiscal quarter ended April 30, 2017 and (ii) reduce the minimum interest coverage ratio (A) to 0.80x as of the last day of the fiscal quarter ended July 31, 2017, (B) to 1.10x as of the last day of the fiscal quarter ending October 31, 2017 and (C) to 1.25x as of the last day of each fiscal quarter thereafter, beginning with the fiscal quarter ending January 31, 2018; (d) sets the applicable margin at 3.50% for LIBOR loans and 2.50% for Base Rate loans until the Company demonstrates an interest coverage ratio of equal to or greater than 1.10x for the fiscal quarter ending October 31, 2017, at which point the applicable margin will revert to being determined according to the existing pricing grid based on facility availability; (e) reduces the minimum cash recovery percentage on the contracts it owns and manages from 4.50% to 4.45% for the first nine months of each fiscal year, and from 4.25% to 4.20% for

13

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


the last three months of each fiscal year; (f) amends the definition of “EBITDA” to, among other things, exclude the impact of non-cash asset write-offs relating to construction in process; (g) amends the definition of “Interest Expense” to exclude certain non-interest expenses; (h) amends various definitions and other related provisions to clarify the Company’s ability to undertake permitted securitization transactions; (i) increases the number of equity cures that may be exercised during the term of the agreement from one time to two times, and increases the maximum amount of each such cure from $10 million to $20 million; and (j) modifies the calculations of “Tangible Net Worth” and “Interest Coverage Ratio” to deduct certain amounts attributable to the difference between a calculated loss reserve and the Company’s recorded loss reserve on its customer receivables.
Loans under the revolving credit facility bear interest, at our option, at a rate equal to LIBOR plus the applicable margin at 3.50% for LIBOR loans and 2.50% for base rate loans until the Company demonstrates an interest coverage ratio of equal to or greater than 1.10x for the fiscal quarter ending October 31, 2017, at which point the applicable margin will revert to being determined according to the existing pricing grid based on facility availability which specifies a margin ranging from 2.75% to 3.25% per annum (depending on quarterly average net availability under the borrowing base) or the alternate base rate plus a margin ranging from 1.75% to 2.25% per annum (depending on quarterly average net availability under the borrowing base). 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 0.75% 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 three months ended July 31, 2017.
The revolving credit facility provides funding based on a borrowing base calculation that includes customer accounts receivable and inventory, and provides for a $40.0 million sub-facility for letters of credit to support obligations incurred in the ordinary course of business. The obligations under the revolving credit facility are secured by substantially all assets of the Company, excluding the assets of the VIEs. As of July 31, 2017, we had immediately available borrowing capacity of $130.5 million under our revolving credit facility, net of standby letters of credit issued of $2.8 million. We also had $416.8 million that may become available under our revolving credit facility if we grow the balance of eligible customer receivables and our total eligible inventory balances.
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 make dividends and distributions to the Company and other obligors under the revolving credit facility without restriction. As of July 31, 2017, we were unable to repay the Senior Notes or make other distributions as a result of the revolving credit facility 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.
In connection with entering into the third amendment to the revolving credit facility, we wrote-off $0.3 million of debt issuance costs for lenders that did not continue to participate. We also paid $2.8 million of debt issuance costs, recorded as other assets, which will be amortized ratably over the remaining term of the revolving credit facility along with the unamortized debt issuance costs remaining on the revolving credit facility.
Debt covenants. We were in compliance with our debt covenants, as amended, at July 31, 2017. A summary of the significant financial covenants that govern our revolving credit facility, as amended, compared to our actual compliance status at July 31, 2017 is presented below: 
 
Actual
 
Required
Minimum/
Maximum
Interest Coverage Ratio must equal or exceed minimum
1.83:1.00
 
0.80:1.00
Leverage Ratio must not exceed maximum
2.42:1.00
 
4.00:1.00
ABS Excluded Leverage Ratio must not exceed maximum
1.33:1.00
 
2.00:1.00
Cash Recovery Percent must exceed stated amount
5.01%
 
4.45%
Capital Expenditures, net, must not exceed maximum
$3.1 million
 
$75.0 million
All capitalized terms in the above table are defined by the revolving credit facility, as amended, and may or may not agree directly to the financial statement captions in this document. The covenants are calculated quarterly, except for the Cash Recovery Percent, which is calculated monthly on a trailing three-month basis, and Capital Expenditures, which is calculated for a period of four consecutive fiscal quarters, as of the end of each fiscal quarter.

14

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


On August 8, 2017, the Company closed on the initial financing under a warehouse financing transaction and completed the redemption of its Series 2016-A Class B Notes and Class C Notes on August 15, 2017 with the proceeds from that closing. See Note 11. Subsequent Events for additional details.

7.     Contingencies
Securities Class Action Litigation. We and two of our former executive officers are 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 Consolidated Securities Action started as three separate purported securities class action lawsuits filed between March 5, 2014 and May 5, 2014 in the Court that were consolidated into the Consolidated Securities Action on June 3, 2014. The plaintiffs in the Consolidated Securities Action allege that the defendants made false and misleading statements or failed to disclose material adverse facts about our business, operations, and prospects. They allege violations of sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and seek to certify a class of all persons and entities that purchased or otherwise acquired Conn's common stock or call options, or sold or wrote Conn's put options between April 3, 2013 and December 9, 2014. The complaint does not specify the amount of damages sought.
On June 30, 2015, the Court held a hearing on the defendants' motion to dismiss plaintiffs' complaint. At the hearing, the Court dismissed Brian Taylor, a former executive officer, and certain other aspects of the complaint. The Court ordered the plaintiffs to further amend their complaint in accordance with its ruling, and the plaintiffs filed their Fourth Consolidated Amended Complaint on July 21, 2015. The remaining defendants filed a motion to dismiss on August 28, 2015. The defendant's motion to dismiss was fully briefed and the Court held a hearing on defendants' motion on March 25, 2016 and on May 5, 2016, the Court issued a ruling that dismissed 78 of 91 alleged misstatements. The parties have submitted their respective briefs in support of, and in opposition to, class certification, and also engaged in discovery pursuant to the Court’s scheduling order. In late June 2017, the Court granted the plaintiffs’ motion for class certification, and shortly thereafter, Defendants filed a petition for permission to appeal to the U.S. 5th Circuit Court of Appeals. The Fifth Circuit granted leave to appeal on August 21, 2017. Trial is scheduled for July 2018.
We intend to vigorously defend against all of the claims in the Consolidated Securities Action against us. 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.
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 motion to dismiss in the Consolidated Securities Action. The Consolidated Securities Action is scheduled for trial in July 2018. The parties have agreed to continue the stay.
Another derivative action was filed on January 27, 2015, captioned as Richard A. Dohn v. Wright, et al., Cause No. 2015-04405, filed in the 281st Judicial District Court, Harris County, Texas. This action makes substantially similar allegations to the Original Derivative Action against the same defendants. On June 28, 2017, the court entered an order extending the stay for an additional 60 days (until September 15, 2017). On May 19, 2016, an alleged shareholder, purportedly on behalf of the Company, filed a lawsuit against us and certain of our current and former directors and former executive officers in the 55th Judicial District Court, Harris County, Texas, captioned as Robert J. Casey II, 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. Pursuant to the parties’ agreement, this action is currently stayed.
None of the plaintiffs in any of the 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

15

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


to predict the timing or outcome of any of this litigation, and we cannot reasonably estimate the possible loss or range of possible loss from these claims.
Regulatory Matters. We are continuing to cooperate with the SEC's investigation of our underwriting policies and bad debt provisions, which began in November 2014.  The investigation is a non-public, fact-finding inquiry, and the SEC has stated that the investigation does not mean that any violations of law have occurred.
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.
8.     Variable Interest Entities
In fiscal years 2018, 2017 and 2016, we securitized customer accounts receivables by transferring the receivables to various bankruptcy-remote VIEs. Under the terms of the respective securitization transactions, all cash collections and other cash proceeds of the customer receivables go first to the servicer and the holders of the asset-backed notes, and then to the residual equity holder. We retain the servicing of the securitized portfolio and receive a monthly fee of 4.75% (annualized) based on the outstanding balance of the securitized receivables, and we currently hold all of the residual equity. In addition, we, rather than the VIEs, will retain certain credit insurance income together with certain recoveries related to credit insurance and repair service agreements 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.

16

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)
July 31,
2017
 
January 31,
2017
Assets:
 
 
 
Restricted cash
$
86,436

 
$
110,698

Due from Conn's, Inc., net
8,526

 
7,368

Customer accounts receivable:
 
 
 
Customer accounts receivable
812,279

 
884,367

Restructured accounts
98,106

 
131,470

Allowance for uncollectible accounts
(130,103
)
 
(150,435
)
Allowances for no-interest option credit programs
(13,425
)
 
(15,912
)
Deferred fees and origination costs
(4,360
)
 

Total customer accounts receivable, net
762,497

 
849,490

Total assets
$
857,459

 
$
967,556

Liabilities:
 
 
 
Accrued expenses
$
5,660

 
$
6,525

Other liabilities
10,301

 
6,691

Long-term debt:
 
 
 
2015 Class A Notes

 
12,166

2015 Class B Notes

 
165,900

2016-A Class A Notes

 
64,732

2016-A Class B Notes
30,618

 
70,510

2016-A Class C Notes
70,510

 
70,510

2016-B Class A Notes
66,292

 
256,513

2016-B Class B Notes
111,960

 
111,960

2017-A Class A notes
202,832

 

2017-A Class B notes
106,270

 

2017-A Class C notes
50,340

 

 
638,822

 
752,291

Less: deferred debt issuance costs
(3,061
)
 
(6,710
)
Total long-term debt
635,761

 
745,581

Total liabilities
$
651,722

 
$
758,797

The assets of the VIEs serve as collateral for the obligations of the VIEs. The holders of the asset-backed notes have no recourse to assets outside of the respective VIEs.

17

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


9.     Segment Reporting 
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 in the retail furniture and mattresses, home appliances, consumer electronics and home office products business. Our retail segment product offerings include furniture and mattresses, home appliances, consumer electronics and home office products from leading global brands across a wide range of price points. Our credit segment offers affordable financing solutions to a large, under-served population of credit-constrained consumers who typically have limited credit alternatives. Our operating segments provide customers the opportunity to comparison shop across brands with confidence in our competitive prices as well as affordable monthly payment options, next day delivery and installation in the majority of our markets, and product repair service. We believe our large, attractively merchandised retail stores and credit solutions offer a distinctive value proposition compared to other retailers that target our core customer demographic. The operating segments follow the same accounting policies used in our consolidated financial statements.
We evaluate a segment’s performance based upon operating income before taxes. Selling, general and administrative expenses include the direct expenses of the retail and credit operations, allocated corporate overhead expenses, and a charge to the credit segment to reimburse the retail segment for expenses it incurs related to occupancy, personnel, advertising and other direct costs of the retail segment which benefit the credit operations by sourcing credit customers and collecting payments. The reimbursement received by the retail segment from the credit segment is estimated using an annual rate of 2.5% times the average portfolio balance for each applicable period.
As of July 31, 2017, 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.

18

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


Financial information by segment is presented in the following tables:
 
Three Months Ended July 31, 2017
 
Three Months Ended July 31, 2016
(in thousands)
Retail
 
Credit
 
Total
 
Retail
 
Credit
 
Total
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Furniture and mattress
$
95,297

 
$

 
$
95,297

 
$
105,562

 
$

 
$
105,562

Home appliance
89,085

 

 
89,085

 
101,359

 

 
101,359

Consumer electronic
52,946

 

 
52,946

 
65,735

 

 
65,735

Home office
17,862

 

 
17,862

 
21,701

 

 
21,701

Other
4,403

 

 
4,403

 
5,366

 

 
5,366

Product sales
259,593

 

 
259,593

 
299,723

 

 
299,723

Repair service agreement commissions
23,519

 

 
23,519

 
28,310

 

 
28,310

Service revenues
3,301

 

 
3,301

 
3,966

 

 
3,966

Total net sales
286,413

 

 
286,413

 
331,999

 

 
331,999

Finance charges and other revenues
92

 
80,142

 
80,234

 
437

 
65,721

 
66,158

Total revenues
286,505

 
80,142

 
366,647

 
332,436

 
65,721

 
398,157

Costs and expenses:
 

 
 

 
 

 
 

 
 

 
 

Cost of goods sold
172,306

 

 
172,306

 
208,869

 

 
208,869

Selling, general and administrative expenses (1)
78,667

 
32,965

 
111,632

 
84,838

 
35,008

 
119,846

Provision for bad debts
165

 
49,284

 
49,449

 
127

 
60,069

 
60,196

Charges and credits
4,068

 

 
4,068

 
2,895

 

 
2,895

Total costs and expense
255,206

 
82,249

 
337,455

 
296,729

 
95,077

 
391,806

Operating income (loss)
31,299

 
(2,107
)
 
29,192

 
35,707

 
(29,356
)
 
6,351

Interest expense

 
20,039

 
20,039

 

 
24,138

 
24,138

Loss on extinguishment of debt

 
2,097

 
2,097

 

 

 

Income (loss) before income taxes
$
31,299

 
$
(24,243
)
 
$
7,056

 
$
35,707

 
$
(53,494
)
 
$
(17,787
)

19

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



 
Six Months Ended July 31, 2017
 
Six Months Ended July 31, 2016
(in thousands)
Retail
 
Credit
 
Total
 
Retail
 
Credit
 
Total
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Furniture and mattress
$
189,740

 
$

 
$
189,740

 
$
210,868

 
$

 
$
210,868

Home appliance
169,207

 

 
169,207

 
189,263

 

 
189,263

Consumer electronic
108,699

 

 
108,699

 
131,600

 

 
131,600

Home office
34,650

 

 
34,650

 
44,174

 

 
44,174

Other
8,659

 

 
8,659

 
10,308

 

 
10,308

Product sales
510,955

 

 
510,955

 
586,213

 

 
586,213

Repair service agreement commissions
48,215

 

 
48,215

 
56,495

 

 
56,495

Service revenues
6,528

 

 
6,528

 
7,833

 

 
7,833

Total net sales
565,698

 

 
565,698

 
650,541

 

 
650,541

Finance charges and other revenues
172

 
156,603

 
156,775

 
931

 
135,798

 
136,729

Total revenues
565,870

 
156,603

 
722,473

 
651,472

 
135,798

 
787,270

Costs and expenses:
 

 
 

 
 

 
 

 
 

 
 

Cost of goods sold
344,256

 

 
344,256

 
413,335

 

 
413,335

Selling, general and administrative expenses (1)
152,614

 
65,555

 
218,169

 
164,821

 
68,272

 
233,093

Provision for bad debts
395

 
104,984

 
105,379

 
525

 
117,889

 
118,414

Charges and credits
5,295

 

 
5,295

 
3,421

 

 
3,421

Total costs and expense
502,560

 
170,539

 
673,099

 
582,102

 
186,161

 
768,263

Operating income (loss)
63,310

 
(13,936
)
 
49,374

 
69,370

 
(50,363
)
 
19,007

Interest expense

 
44,047

 
44,047

 

 
50,034

 
50,034

Loss on extinguishment of debt

 
2,446

 
2,446

 

 

 

Income (loss) before income taxes
$
63,310

 
$
(60,429
)
 
$
2,881

 
$
69,370

 
$
(100,397
)
 
$
(31,027
)
(1)
For the three months ended July 31, 2017 and 2016, the amount of corporate overhead allocated to each segment reflected in selling, general and administrative expense was $7.7 million and $6.5 million, respectively. For the three months ended July 31, 2017 and 2016, the amount of reimbursement made to the retail segment by the credit segment was $9.2 million and $9.6 million, respectively. For the six months ended July 31, 2017 and 2016, the amount of corporate overhead allocated to each segment reflected in selling, general and administrative expense was $14.2 million and $12.2 million, respectively. For the six months ended July 31, 2017 and 2016, the amount of reimbursement made to the retail segment by the credit segment was $18.7 million and $19.4 million, respectively.
10.
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 July 31, 2017 and January 31, 2017, 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 condensed 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,

20

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 July 31, 2017 and January 31, 2017 (after the elimination of intercompany balances and transactions). Condensed consolidated net income (loss) is the same as condensed consolidated comprehensive income (loss) for the periods presented.
Condensed Consolidated Balance Sheet as of July 31, 2017.
(in thousands)
Conn's, Inc.
 
Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
35,018

 
$

 
$

 
$
35,018

Restricted cash

 

 
86,436

 

 
86,436

Customer accounts receivable, net of allowance

 
213,293

 
430,855

 

 
644,148

Other accounts receivable

 
59,401

 

 

 
59,401

Inventories

 
196,768

 

 

 
196,768

Other current assets

 
19,711

 
8,526

 
(12,354
)
 
15,883

Total current assets

 
524,191

 
525,817

 
(12,354
)
 
1,037,654

Investment in and advances to subsidiaries
673,953

 
205,738

 

 
(879,691
)
 

Long-term portion of customer accounts receivable, net of allowance

 
270,348

 
331,642

 

 
601,990

Property and equipment, net

 
154,788

 

 

 
154,788

Deferred income taxes
72,435

 

 

 

 
72,435

Other assets

 
8,196

 

 

 
8,196

Total assets
$
746,388

 
$
1,163,261

 
$
857,459

 
$
(892,045
)
 
$
1,875,063

Liabilities and Stockholders' Equity
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Current maturities of capital lease obligations
$

 
$
906

 
$

 
$

 
$
906

Accounts payable

 
100,268

 

 

 
100,268

Accrued expenses
685

 
54,162

 
5,660

 
(3,828
)
 
56,679

Other current liabilities

 
25,335

 
4,146

 
(8,526
)
 
20,955

Total current liabilities
685

 
180,671

 
9,806

 
(12,354
)
 
178,808

Deferred rent

 
85,538

 

 

 
85,538

Long-term debt and capital lease obligations
220,426

 
204,534

 
635,760

 

 
1,060,720

Other long-term liabilities

 
18,565

 
6,155

 

 
24,720

Total liabilities
221,111

 
489,308

 
651,721

 
(12,354
)
 
1,349,786

Total stockholders' equity
525,277

 
673,953

 
205,738

 
(879,691
)
 
525,277

Total liabilities and stockholders' equity
$
746,388

 
$
1,163,261

 
$
857,459

 
$
(892,045
)
 
$
1,875,063

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


21

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


Condensed Consolidated Balance Sheet as of January 31, 2017.
(in thousands)
Conn's, Inc.
 
Guarantors
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
23,566

 
$

 
$

 
$
23,566

Restricted cash

 

 
110,698

 

 
110,698

Customer accounts receivable, net of allowance

 
173,054

 
529,108

 

 
702,162

Other accounts receivable

 
69,286

 

 

 
69,286

Inventories

 
164,856

 

 

 
164,856

Other current assets

 
21,505

 
7,368

 
(11,768
)
 
17,105

Total current assets

 
452,267

 
647,174

 
(11,768
)
 
1,087,673

Investment in and advances to subsidiaries
678,149

 
220,107

 

 
(898,256
)
 

Long-term portion of customer accounts receivable, net of allowance

 
295,522

 
320,382

 

 
615,904

Property and equipment, net

 
159,202

 

 

 
159,202

Deferred income taxes
71,442

 

 

 

 
71,442

Other assets

 
6,913

 

 

 
6,913

Total assets
$
749,591

 
$
1,134,011

 
$
967,556

 
$
(910,024
)
 
$
1,941,134

Liabilities and Stockholders' Equity
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Current maturities of capital lease obligations
$

 
$
849

 
$

 
$

 
$
849

Accounts payable

 
101,612

 

 

 
101,612

Accrued expenses
686

 
40,287

 
6,525

 
(4,399
)
 
43,099

Other current liabilities

 
25,230

 
3,961

 
(7,370
)
 
21,821

Total current liabilities
686