EX-99.1 2 d745892dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

Excerpt from Preliminary Offering Memorandum dated June 23, 2014

From fiscal year 2012 to the twelve months ended April 30, 2014, our total revenues increased from $792 million to $1,278 million. Over the same period, Adjusted EBITDA has increased from $52 million to $195 million with Adjusted EBITDA margins improving by approximately 870 basis points. For the twelve months ended April 30, 2014, the retail segment contributed 83% of total revenues and 84% of total operating income. With average sales of $14.1 million per location for the twelve months ended April 30, 2014, our stores generated attractive unit economics and all of our stores open for greater than one month generated positive operating income on a four-wall basis and after the allocation of overhead costs during this period. The credit segment contributed 17% of total revenue and 16% of total operating income for the twelve months ended April 30, 2014.

The following table provides a summary of the historical consolidated financial and operating data for Conn’s and its subsidiaries for the periods and at the dates indicated. The summary financial information presented below as of and for the years ended January 31, 2014, 2013 and 2012 has been derived from our audited consolidated financial statements included in our Form 10-Ks previously filed. The summary financial information presented below as of and for the three months ended April 30, 2014 and 2013 has been derived from our unaudited interim consolidated financial statements included in our Form 10-Qs previously filed. Our results of operations for the twelve months ended April 30, 2014 have been derived by summing our historical results for the year ended January 31, 2014 and our historical results for the three months ended April 30, 2014, then subtracting our historical results for the three months ended April 30, 2013 with no other adjustments. Our results of operations for the three months ended April 30, 2014 are not necessarily indicative of the results that may be expected for the full year.

 

    Twelve
months
ended
April 30,
2014
    Three months ended
April 30,
    Year ended January 31,  
      2014     2013     2014     2013     2012  
    (dollars in thousands)  

Consolidated statement of earnings:

           

Statement Operations:

           

Revenues:

       

Product sales

  $ 967,277      $ 254,220      $ 190,860      $ 903,917      $ 649,516      $ 596,360   

Repair service agreement commissions(1)

    79,936        20,254        15,989        75,671        51,648        42,078   

Service revenues(2)

    12,808        3,155        2,599        12,252        13,103        15,246   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net sales

    1,060,021        277,629        209,448        991,840        714,267        653,684   

Finance charges and other(3)

    218,133        57,819        41,615        201,929        150,765        138,618   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    1,278,154        335,448        251,063        1,193,769        865,032        792,302   

Costs and expenses:

       

Cost of goods sold, including warehousing and occupancy costs

    626,046        160,782        123,457        588,721        454,682        455,493   

Cost of parts sold, including warehousing and occupancy costs

    5,340        1,419        1,406        5,327        5,965        6,527   

Selling, general and administrative expense

    366,477        100,204        73,255        339,528        253,189        237,098   

Provision for bad debts

    104,545        22,258        13,937        96,224        47,659        53,555   

Charges and credits(4)

    3,871        1,754        —          2,117        3,025        9,928   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    1,106,279        286,417        212,055        1,031,917        764,520        762,601   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

1


    Twelve
months
ended
April 30,
2014
    Three months ended
April 30,
    Year ended January 31,  
      2014     2013     2014     2013     2012  
    (dollars in thousands)  

Operating income

    171,875        49,031        39,008        161,852        100,512        29,701   

Interest expense, net

    16,176        4,724        3,871        15,323        17,047        22,457   

Loss from early extinguishment of debt(5)

    —          —          —          —          897        11,056   

Other (income) expense

    16        —          (6     10        (153     70   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    155,683        44,307        35,143        146,519        82,721        (3,882

Provision (benefit) for income taxes

    55,941        15,838        12,967        53,070        30,109        (159
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 99,742      $ 28,469      $ 22,176      $ 93,449      $ 52,612      $ (3,723
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) per common share:

       

Basic

  $ 2.77      $ 0.79      $ 0.63      $ 2.61      $ 1.60      $ (0.12

Diluted

  $ 2.70      $ 0.77      $ 0.61      $ 2.54      $ 1.56      $ (0.12

Average common shares outstanding:

       

Basic

    35,980        36,134        35,313        35,779        32,862        31,860   

Diluted

    36,940        36,925        36,452        36,861        33,768        31,860   

Operating and Other Financial Data:

           

Stores open at end of period

    79        79        70        79        68        65   

Same stores sales growth(6)

    26.2     15.6     16.5     26.5     14.3     2.8

Retail gross margin(7)

    40.2     41.4     40.3     39.9     35.2     28.7

Gross margin(8)

    50.6     51.6     50.3     50.2     46.7     41.7

Operating margin(9)

    13.4     14.6     15.5     13.6     11.6     3.7

Return on average equity(10)

    17.6     18.8     18.1     17.6     12.7     (1.1 %) 

Capital expenditures, net(11)

  $ 59,129      $ 14,268      $ 7,222      $ 52,083      $ 9,471      $ 4,386   

Rent expense(12)

    33,279        9,458        6,584        30,405        21,537        22,132   

Percent of retail sales financed in-house, including down payment

    77.9     77.5     74.0     77.3     70.9     60.4

Provision for bad debts as a percentage of average outstanding balance(13)

    11.0     8.2     7.3     11.0     7.0     8.5

Net charge-offs as a percent of average outstanding balance(14)

    8.4     7.8     6.1     8.0     8.0     7.5

Weighted average monthly payment rate(15)

    5.2     5.8     6.2     5.3     5.4     5.6

Adjusted EBITDA(16)

  $ 194,930      $ 56,237      $ 42,459      $ 181,152      $ 116,090      $ 51,649   

Total debt (period end)

    517,705        517,705        293,995        536,051        295,057        321,704   

Ratio of total debt to adjusted EBITDA

    2.7            3.0        2.5        6.2   

 

(1) Includes commissions from sales of third-party repair service agreements and replacement product programs, and income from company-obligor repair service agreements.
(2) Includes revenues derived from parts sales and labor sales on products serviced for customers, both covered under manufacturer’s warranty and outside manufacturer’s warranty coverage.

 

2


(3) Includes primarily interest income and fees earned on credit accounts and commissions earned from the sale of third-party credit insurance products.
(4) Includes the following charges and credits:

 

    Twelve
months ended
April 30, 2013
     Three months ended
April 30,
     Year ended January 31,  
       2014      2013      2014      2013      2012  
           (in thousands)  

Store and facility closure and relocation costs

  $ 3,871       $ 1,754       $ —         $ 2,117       $ 869       $ 7,096   

Impairment of long-lived assets

    —           —           —           —           —           2,019   

Costs related to office relocation

    —           —           —           —           1,202         —     

Employee severance

    —           —           —           —           628         813   

Vehicle lease terminations

    —           —           —           —           326         —     
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $ 3,871       $ 1,754       $ —         $ 2,117       $ 3,025       $ 9,928   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(5) Includes the write-off of unamortized financing fees associated primarily with amendment and restatement of the asset-based loan facility in fiscal 2013 and the termination of the securitization program in fiscal 2012.
(6) Same store sales is calculated by comparing the reported sales for all stores that were open during the entirety of a period and the entirety of the same period during the prior fiscal year. Sales from closed stores, if any, are removed from each period. Sales from relocated stores have been included in each period because each such store was relocated within the same general geographic market. Sales from expanded stores have been included in each period.
(7) Retail gross margin percentage is defined as the sum of product sales and repair service agreement commissions less cost of goods sold, divided by the sum of product sales and repair service agreement commissions.
(8) Gross margin percentage is defined as total revenues less cost of goods and parts sold, including warehousing and occupancy cost, divided by total revenues.
(9) Operating margin is defined as operating income divided by total revenues.
(10) Return on average equity is calculated as current period net income (loss) divided by the average of the beginning and ending equity.
(11) Represents the amount of property and equipment purchased net of proceeds from the sales of any property and equipment.
(12) Rent expense includes rent expense incurred on our properties, equipment and vehicles, and is net of any rental income received.
(13) Amount does not include retail segment provision for bad debts.
(14) Represents net charge-offs for the fiscal year divided by the average balance of the credit portfolio for the fiscal year.
(15) Represents the weighted average of monthly gross cash collections received on the credit portfolio as a percentage of the average monthly beginning portfolio balance for each period.
(16) Adjusted EBITDA is not a financial measure presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). We believe that the presentation of this non-GAAP financial measure provides useful information to investors in assessing our financial condition and results of operations. We define adjusted EBITDA as income (loss) before income taxes, plus interest expense, depreciation and amortization, stock compensation, charges and credits and loss from early extinguishment of debt, less amortization included in interest expense.

 

3


Income (loss) before income taxes is the GAAP financial measure most directly comparable to adjusted EBITDA. Our non-GAAP financial measure should not be considered as an alternative to the most directly comparable GAAP financial measure. Furthermore, this non-GAAP financial measure has limitations as an analytical tool because it excludes some but not all items that affect the most directly comparable GAAP financial measure. Some of these limitations include:

 

    certain items excluded from adjusted EBITDA are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure;

 

    adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

 

    adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

 

    although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements for such replacements; and

 

    our computations of adjusted EBITDA may not be comparable to other similarly titled measures of other companies.

We compensate for the limitations of adjusted EBITDA as an analytical tool by reviewing the comparable GAAP financial measure, understanding the differences between the financial measures and incorporating these data points into our decision-making process. Adjusted EBITDA should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Because adjusted EBITDA may be defined differently by other companies in our industry, our definition of this non-GAAP financial measure may not be comparable to similarly titled measures of other companies, thereby diminishing its utility.

The following table provides a reconciliation of adjusted EBITDA to income (loss) before income taxes for the periods specified below.

 

    Twelve
months
ended April 30,
    Three months ended
April 30,
    Year ended January 31,  
    2014     2014     2013     2014     2013     2012  
    (dollars in thousands)  

Income (loss) before income taxes

  $ 155,683      $ 44,307      $ 35,143      $ 146,519      $ 82,721      $ (3,882

Plus:

           

Interest expense

    16,176        4,724        3,871        15,323        17,047        22,457   

Depreciation and amortization

    17,890        5,037        3,964        16,817        13,891        12,869   

Amortization included in interest expense

    (2,888     (675     (1,360     (3,573     (4,436     (3,133

Stock compensation

    4,198        1,090        841        3,949        2,945        2,354   

Charges and credits(a)

    3,871        1,754        —          2,117        3,025        9,928   

Loss from early extinguishment of debt

    —          —          —          —          897        11,056   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 194,930      $ 56,237      $ 42,459      $ 181,152      $ 116,090      $ 51,649   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) See footnote (4) above

 

4