For the quarterly period ended July 31, 2014 | Commission File Number: 1-34956 |
A Delaware Corporation | 06-1672840 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Large accelerated filer x | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
Class | Outstanding | |
Common stock, $.01 par value per share | 36,254,633 |
PART I. | FINANCIAL INFORMATION | Page No. | ||
Item 1. | Financial Statements | |||
Item 2. | ||||
Item 3. | ||||
Item 4. | ||||
PART II. | OTHER INFORMATION | |||
Item 1. | ||||
Item 1A. | ||||
Item 2. | ||||
Item 3. | ||||
Item 4. | ||||
Item 5. | ||||
Item 6. |
Assets | July 31, 2014 | January 31, 2014 | |||||
Current assets | |||||||
Cash and cash equivalents | $ | 4,021 | $ | 5,727 | |||
Customer accounts receivable, net of allowance of $46,113 and $38,447, respectively | 583,687 | 527,267 | |||||
Other accounts receivable | 49,993 | 51,480 | |||||
Inventories | 137,624 | 120,530 | |||||
Deferred income taxes | 26,372 | 20,284 | |||||
Prepaid expenses and other assets | 15,257 | 10,307 | |||||
Total current assets | 816,954 | 735,595 | |||||
Long-term portion of customer accounts receivable, net of allowance of $39,178 and $33,354, respectively | 495,904 | 457,413 | |||||
Property and equipment, net | 112,149 | 86,842 | |||||
Deferred income taxes | 13,612 | 7,721 | |||||
Other assets | 10,576 | 10,415 | |||||
Total assets | $ | 1,449,195 | $ | 1,297,986 | |||
Liabilities and Stockholders’ Equity | |||||||
Current Liabilities | |||||||
Current portion of long-term debt | $ | 401 | $ | 420 | |||
Accounts payable | 95,963 | 82,861 | |||||
Accrued compensation and related expenses | 8,099 | 11,390 | |||||
Accrued expenses | 32,115 | 27,944 | |||||
Income taxes payable | 2,380 | 2,924 | |||||
Deferred revenues and credits | 19,626 | 17,068 | |||||
Total current liabilities | 158,584 | 142,607 | |||||
Long-term debt | 606,980 | 535,631 | |||||
Other long-term liabilities | 45,299 | 30,458 | |||||
Commitments and contingencies | |||||||
Stockholders’ equity | |||||||
Preferred stock ($0.01 par value, 1,000,000 shares authorized; none issued or outstanding) | — | — | |||||
Common stock ($0.01 par value, 100,000,000 and 50,000,000 shares authorized; 36,253,864 and 36,127,569 shares issued at July 31, 2014 and January 31, 2014, respectively) | 363 | 361 | |||||
Additional paid-in capital | 228,477 | 225,631 | |||||
Accumulated other comprehensive loss | (25 | ) | (100 | ) | |||
Retained earnings | 409,517 | 363,398 | |||||
Total stockholders’ equity | 638,332 | 589,290 | |||||
Total liabilities and stockholders' equity | $ | 1,449,195 | $ | 1,297,986 |
Three Months Ended July 31, | Six Months Ended July 31, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Revenues | |||||||||||||||
Product sales | $ | 264,166 | $ | 203,463 | $ | 518,386 | $ | 394,323 | |||||||
Repair service agreement commissions | 20,732 | 17,166 | 40,986 | 33,155 | |||||||||||
Service revenues | 3,383 | 3,083 | 6,538 | 5,682 | |||||||||||
Total net sales | 288,281 | 223,712 | 565,910 | 433,160 | |||||||||||
Finance charges and other | 64,683 | 46,977 | 122,502 | 88,592 | |||||||||||
Total revenues | 352,964 | 270,689 | 688,412 | 521,752 | |||||||||||
Cost and expenses | |||||||||||||||
Cost of goods sold, including warehousing and occupancy costs | 168,717 | 136,040 | 329,499 | 259,497 | |||||||||||
Cost of service parts sold, including warehousing and occupancy costs | 1,871 | 1,318 | 3,290 | 2,724 | |||||||||||
Selling, general and administrative expense | 107,303 | 78,757 | 207,507 | 152,012 | |||||||||||
Provision for bad debts | 39,585 | 21,382 | 61,843 | 35,319 | |||||||||||
Charges and credits | 1,492 | — | 3,246 | — | |||||||||||
Total cost and expenses | 318,968 | 237,497 | 605,385 | 449,552 | |||||||||||
Operating income | 33,996 | 33,192 | 83,027 | 72,200 | |||||||||||
Interest expense | 6,247 | 3,135 | 10,971 | 7,006 | |||||||||||
Other income, net | — | (32 | ) | — | (38 | ) | |||||||||
Income before income taxes | 27,749 | 30,089 | 72,056 | 65,232 | |||||||||||
Provision for income taxes | 10,099 | 10,927 | 25,937 | 23,894 | |||||||||||
Net income | $ | 17,650 | $ | 19,162 | $ | 46,119 | $ | 41,338 | |||||||
Earnings per share: | |||||||||||||||
Basic | $ | 0.49 | $ | 0.54 | $ | 1.27 | $ | 1.16 | |||||||
Diluted | $ | 0.48 | $ | 0.52 | $ | 1.25 | $ | 1.13 | |||||||
Average common shares outstanding: | |||||||||||||||
Basic | 36,209 | 35,777 | 36,172 | 35,549 | |||||||||||
Diluted | 36,972 | 36,849 | 36,951 | 36,688 |
Three Months Ended July 31, | Six Months Ended July 31, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Net income | $ | 17,650 | $ | 19,162 | $ | 46,119 | $ | 41,338 | |||||||
Change in fair value of hedges | 58 | 61 | 116 | 90 | |||||||||||
Impact of provision for income taxes on comprehensive income | (21 | ) | (22 | ) | (41 | ) | (32 | ) | |||||||
Comprehensive income | $ | 17,687 | $ | 19,201 | $ | 46,194 | $ | 41,396 |
Additional | Accumulated Other | |||||||||||||||||||||
Common Stock | Paid-in | Comprehensive | Retained | |||||||||||||||||||
Shares | Amount | Capital | Loss | Earnings | Total | |||||||||||||||||
Balance at January 31, 2014 | 36,127 | $ | 361 | $ | 225,631 | $ | (100 | ) | $ | 363,398 | $ | 589,290 | ||||||||||
Exercise of stock options, net of tax | 52 | 2 | 4 | — | — | 6 | ||||||||||||||||
Issuance of common stock under Employee Stock Purchase Plan | 18 | — | 601 | — | — | 601 | ||||||||||||||||
Vesting of restricted stock units | 57 | — | — | — | — | — | ||||||||||||||||
Stock-based compensation | — | — | 2,241 | — | — | 2,241 | ||||||||||||||||
Net income | — | — | — | — | 46,119 | 46,119 | ||||||||||||||||
Change in fair value of hedges, net of tax of $41 | — | — | — | 75 | — | 75 | ||||||||||||||||
Balance at July 31, 2014 | 36,254 | $ | 363 | $ | 228,477 | $ | (25 | ) | $ | 409,517 | $ | 638,332 |
Additional | Accumulated Other | |||||||||||||||||||||
Common Stock | Paid-in | Comprehensive | Retained | |||||||||||||||||||
Shares | Amount | Capital | Loss | Earnings | Total | |||||||||||||||||
Balance at January 31, 2013 | 35,191 | $ | 352 | $ | 204,372 | $ | (223 | ) | $ | 269,949 | $ | 474,450 | ||||||||||
Exercise of stock options, net of tax | 657 | 7 | 14,089 | — | — | 14,096 | ||||||||||||||||
Issuance of common stock under Employee Stock Purchase Plan | 15 | — | 406 | — | — | 406 | ||||||||||||||||
Vesting of restricted stock units | 55 | — | — | — | — | — | ||||||||||||||||
Stock-based compensation | — | — | 1,872 | — | — | 1,872 | ||||||||||||||||
Net income | — | — | — | — | 41,338 | 41,338 | ||||||||||||||||
Change in fair value of hedges, net of tax of $32 | — | — | — | 58 | — | 58 | ||||||||||||||||
Balance at July 31, 2013 | 35,918 | $ | 359 | $ | 220,739 | $ | (165 | ) | $ | 311,287 | $ | 532,220 |
Six Months Ended July 31, | |||||||
2014 | 2013 | ||||||
Cash flows from operating activities | |||||||
Net income | $ | 46,119 | $ | 41,338 | |||
Adjustments to reconcile net income to net cash used in operating activities: | |||||||
Depreciation | 8,566 | 5,675 | |||||
Amortization | 2,089 | 2,237 | |||||
Provision for bad debts and uncollectible interest | 73,552 | 39,856 | |||||
Stock-based compensation | 2,241 | 1,872 | |||||
Excess tax benefits from stock-based compensation | (952 | ) | (4,548 | ) | |||
Store and facility closure and relocation costs | 3,246 | — | |||||
Benefit for deferred income taxes | (12,019 | ) | (1,005 | ) | |||
(Gain) loss on sale of property and equipment | 23 | (38 | ) | ||||
Change in operating assets and liabilities: | |||||||
Customer accounts receivable | (168,463 | ) | (129,012 | ) | |||
Inventories | (17,094 | ) | (16,876 | ) | |||
Other assets | 116 | 7,334 | |||||
Accounts payable | 13,102 | 11,640 | |||||
Accrued expenses | (1,143 | ) | 6,392 | ||||
Income taxes payable | (4,109 | ) | (4,329 | ) | |||
Deferred revenues and credits | 2,050 | 276 | |||||
Net cash used in operating activities | (52,676 | ) | (39,188 | ) | |||
Cash flows from investing activities | |||||||
Purchase of property and equipment | (38,120 | ) | (19,310 | ) | |||
Proceeds from sale of property and equipment | 19,279 | 47 | |||||
Net cash used in investing activities | (18,841 | ) | (19,263 | ) | |||
Cash flows from financing activities | |||||||
Borrowings under lines of credit | 215,983 | 181,306 | |||||
Payments on lines of credit | (389,750 | ) | (109,737 | ) | |||
Proceeds from issuance of senior notes, net of issuance costs | 243,400 | — | |||||
Payments on asset-backed notes | — | (32,513 | ) | ||||
Change in restricted cash | — | 4,717 | |||||
Proceeds from stock issued under employee benefit plans | 607 | 14,502 | |||||
Other | (429 | ) | 126 | ||||
Net cash provided by financing activities | 69,811 | 58,401 | |||||
Net change in cash and cash equivalents | (1,706 | ) | (50 | ) | |||
Cash and cash equivalents | |||||||
Beginning of period | 5,727 | 3,849 | |||||
End of period | $ | 4,021 | $ | 3,799 |
Three Months Ended July 31, | Six Months Ended July 31, | ||||||||||
(in thousands) | 2014 | 2013 | 2014 | 2013 | |||||||
Weighted average common shares outstanding - Basic | 36,209 | 35,777 | 36,172 | 35,549 | |||||||
Assumed exercise of stock options | 621 | 859 | 622 | 926 | |||||||
Unvested restricted stock units | 142 | 213 | 157 | 213 | |||||||
Weighted average common shares outstanding - Diluted | 36,972 | 36,849 | 36,951 | 36,688 |
Total Outstanding Balance | |||||||||||||||||||||||
Customer Accounts Receivable | 60 Days Past Due(1) | Re-aged(1) | |||||||||||||||||||||
(in thousands) | July 31, 2014 | January 31, 2014 | July 31, 2014 | January 31, 2014 | July 31, 2014 | January 31, 2014 | |||||||||||||||||
Customer accounts receivable | $ | 1,117,243 | $ | 1,022,914 | $ | 87,964 | $ | 82,486 | $ | 80,846 | $ | 75,414 | |||||||||||
Restructured accounts (2) | 62,071 | 45,356 | 14,099 | 11,917 | 62,071 | 45,356 | |||||||||||||||||
Total receivables managed | $ | 1,179,314 | $ | 1,068,270 | $ | 102,063 | $ | 94,403 | $ | 142,917 | $ | 120,770 | |||||||||||
Allowance for uncollectible accounts related to the credit portfolio | (85,291 | ) | (71,801 | ) | |||||||||||||||||||
Allowance for short-term, no-interest option credit programs | (14,432 | ) | (11,789 | ) | |||||||||||||||||||
Short-term portion of customer accounts receivable, net | (583,687 | ) | (527,267 | ) | |||||||||||||||||||
Long-term portion of customer accounts receivable, net | $ | 495,904 | $ | 457,413 |
(1) | Amounts are based on end of period balances. As an account can become past due after having been re-aged, accounts may be presented in both the past due and re-aged columns shown above. The amounts included within both the past due and re-aged columns shown above as of July 31, 2014 and January 31, 2014 were $33.8 million and $27.4 million, respectively. The total amount of customer receivables past due one day or greater was $282.8 million and $249.3 million as of July 31, 2014 and January 31, 2014, respectively. These amounts include the 60 days past due totals shown above. |
(2) | In addition to the amounts included in restructured accounts, there was $1.3 million as of July 31, 2014 and January 31, 2014, respectively, of accounts re-aged four or more months included in the re-aged balance above that did not qualify as TDRs because they were not re-aged subsequent to January 31, 2011. |
Net Credit | Net Credit | ||||||||||||||||||||||||||||||
Average Balances | Charge-offs (1) | Average Balances | Charge-offs(1) | ||||||||||||||||||||||||||||
Three Months Ended July 31, | Three Months Ended July 31, | Six Months Ended July 31, | Six Months Ended July 31, | ||||||||||||||||||||||||||||
(in thousands) | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | |||||||||||||||||||||||
Customer accounts receivable | $ | 1,081,196 | $ | 766,718 | $ | 24,822 | $ | 10,818 | $ | 1,057,875 | $ | 741,108 | $ | 42,560 | $ | 19,661 | |||||||||||||||
Restructured accounts | 56,694 | 39,935 | 3,734 | 3,358 | 52,626 | 39,716 | 7,188 | 6,070 | |||||||||||||||||||||||
Total receivables managed | $ | 1,137,890 | $ | 806,653 | $ | 28,556 | $ | 14,176 | $ | 1,110,501 | $ | 780,824 | $ | 49,748 | $ | 25,731 |
(1) | Charge-offs include the principal amount of losses (excluding accrued and unpaid interest) net of recoveries which include principal collections during the period shown of previously charged-off balances. |
Six Months Ended July 31, 2014 | Six Months Ended July 31, 2013 | ||||||||||||||||||||||
(in thousands) | Customer Accounts Receivable | Restructured Accounts | Total | Customer Accounts Receivable | Restructured Accounts | Total | |||||||||||||||||
Allowance at beginning of period | $ | 54,448 | $ | 17,353 | $ | 71,801 | $ | 27,702 | $ | 16,209 | $ | 43,911 | |||||||||||
Provision(1) | 61,317 | 12,235 | 73,552 | 32,526 | 7,330 | 39,856 | |||||||||||||||||
Principal charge-offs(2) | (49,367 | ) | (8,338 | ) | (57,705 | ) | (21,039 | ) | (6,496 | ) | (27,535 | ) | |||||||||||
Interest charge-offs | (8,824 | ) | (1,490 | ) | (10,314 | ) | (3,447 | ) | (1,064 | ) | (4,511 | ) | |||||||||||
Recoveries(2) | 6,807 | 1,150 | 7,957 | 1,378 | 425 | 1,803 | |||||||||||||||||
Allowance at end of period | $ | 64,381 | $ | 20,910 | $ | 85,291 | $ | 37,120 | $ | 16,404 | $ | 53,524 |
(1) | Includes provision for uncollectible interest, which is included in finance charges and other. |
(2) | Charge-offs include the principal amount of losses (excluding accrued and unpaid interest), and recoveries include principal collections during the period shown of previously charged-off balances. Net charge-offs are calculated as the net of principal charge-offs and recoveries. |
Three Months Ended July 31, | Six Months Ended July 31, | ||||||||||||||
(in thousands) | 2014 | 2013 | 2014 | 2013 | |||||||||||
Interest income and fees on customer receivables | $ | 52,226 | $ | 36,397 | $ | 98,716 | $ | 69,407 | |||||||
Insurance commissions | 12,113 | 10,289 | 22,976 | 18,556 | |||||||||||
Other | 344 | 291 | 810 | 629 | |||||||||||
Finance charges and other | $ | 64,683 | $ | 46,977 | $ | 122,502 | $ | 88,592 |
Six Months Ended July 31, | |||||||
(in thousands) | 2014 | 2013 | |||||
Balance at beginning of period | $ | 4,316 | $ | 5,071 | |||
Accrual for closures | 3,108 | — | |||||
Change in estimate | 138 | — | |||||
Cash payments | (4,254 | ) | (1,047 | ) | |||
Balance at end of period | $ | 3,308 | $ | 4,024 |
Balance sheet presentation: | July 31, 2014 | January 31, 2014 | |||||
Accrued expenses | $ | 1,181 | $ | 1,957 | |||
Other long-term liabilities | 2,127 | 2,359 | |||||
$ | 3,308 | $ | 4,316 |
(in thousands) | July 31, 2014 | January 31, 2014 | |||||
Asset-based revolving credit facility | $ | 361,190 | $ | 534,956 | |||
7.25% senior notes, net of discount of $4,948 | 245,052 | — | |||||
Other long-term debt | 1,139 | 1,095 | |||||
Total debt | 607,381 | 536,051 | |||||
Less current portion of debt | 401 | 420 | |||||
Long-term debt | $ | 606,980 | $ | 535,631 |
Three Months Ended July 31, 2014 | Three Months Ended July 31, 2013 | ||||||||||||||||||||||
(in thousands) | Retail | Credit | Total | Retail | Credit | Total | |||||||||||||||||
Revenues | |||||||||||||||||||||||
Product sales | $ | 264,166 | $ | — | $ | 264,166 | $ | 203,463 | $ | — | $ | 203,463 | |||||||||||
Repair service agreement commissions | 20,732 | — | 20,732 | 17,166 | — | 17,166 | |||||||||||||||||
Service revenues | 3,383 | — | 3,383 | 3,083 | — | 3,083 | |||||||||||||||||
Total net sales | 288,281 | — | 288,281 | 223,712 | — | 223,712 | |||||||||||||||||
Finance charges and other | 343 | 64,340 | 64,683 | 290 | 46,687 | 46,977 | |||||||||||||||||
Total revenues | 288,624 | 64,340 | 352,964 | 224,002 | 46,687 | 270,689 | |||||||||||||||||
Cost and expenses | |||||||||||||||||||||||
Cost of goods sold, including warehousing and occupancy costs | 168,717 | — | 168,717 | 136,040 | — | 136,040 | |||||||||||||||||
Cost of service parts sold, including warehousing and occupancy cost | 1,871 | — | 1,871 | 1,318 | — | 1,318 | |||||||||||||||||
Selling, general and administrative expense(a) | 82,336 | 24,967 | 107,303 | 60,910 | 17,847 | 78,757 | |||||||||||||||||
Provision for bad debts | — | 39,585 | 39,585 | 72 | 21,310 | 21,382 | |||||||||||||||||
Charges and credits | 1,492 | — | 1,492 | — | — | — | |||||||||||||||||
Total cost and expense | 254,416 | 64,552 | 318,968 | 198,340 | 39,157 | 237,497 | |||||||||||||||||
Operating income (loss) | 34,208 | (212 | ) | 33,996 | 25,662 | 7,530 | 33,192 | ||||||||||||||||
Interest expense | — | 6,247 | 6,247 | — | 3,135 | 3,135 | |||||||||||||||||
Other income, net | — | — | — | (32 | ) | — | (32 | ) | |||||||||||||||
Income (loss) before income taxes | $ | 34,208 | $ | (6,459 | ) | $ | 27,749 | $ | 25,694 | $ | 4,395 | $ | 30,089 |
As of July 31, 2014 | As of January 31, 2014 | ||||||||||||||||||||||
(in thousands) | Retail | Credit | Total | Retail | Credit | Total | |||||||||||||||||
Total assets(b) | $ | 345,017 | $ | 1,104,178 | $ | 1,449,195 | $ | 283,637 | $ | 1,014,349 | $ | 1,297,986 |
Six Months Ended July 31, 2014 | Six Months Ended July 31, 2013 | ||||||||||||||||||||||
(in thousands) | Retail | Credit | Total | Retail | Credit | Total | |||||||||||||||||
Revenues | |||||||||||||||||||||||
Product sales | $ | 518,386 | $ | — | $ | 518,386 | $ | 394,323 | $ | — | $ | 394,323 | |||||||||||
Repair service agreement commissions | 40,986 | — | 40,986 | 33,155 | — | 33,155 | |||||||||||||||||
Service revenues | 6,538 | — | 6,538 | 5,682 | — | 5,682 | |||||||||||||||||
Total net sales | 565,910 | — | 565,910 | 433,160 | — | 433,160 | |||||||||||||||||
Finance charges and other | 809 | 121,693 | 122,502 | 629 | 87,963 | 88,592 | |||||||||||||||||
Total revenues | 566,719 | 121,693 | 688,412 | 433,789 | 87,963 | 521,752 | |||||||||||||||||
Cost and expenses | |||||||||||||||||||||||
Cost of goods sold, including warehousing and occupancy costs | 329,499 | — | 329,499 | 259,497 | — | 259,497 | |||||||||||||||||
Cost of service parts sold, including warehousing and occupancy cost | 3,290 | — | 3,290 | 2,724 | — | 2,724 | |||||||||||||||||
Selling, general and administrative expense(a) | 158,666 | 48,841 | 207,507 | 118,420 | 33,592 | 152,012 | |||||||||||||||||
Provision for bad debts | 44 | 61,799 | 61,843 | 186 | 35,133 | 35,319 | |||||||||||||||||
Charges and credits | 3,246 | — | 3,246 | — | — | — | |||||||||||||||||
Total cost and expense | 494,745 | 110,640 | 605,385 | 380,827 | 68,725 | 449,552 | |||||||||||||||||
Operating income | 71,974 | 11,053 | 83,027 | 52,962 | 19,238 | 72,200 | |||||||||||||||||
Interest expense | — | 10,971 | 10,971 | — | 7,006 | 7,006 | |||||||||||||||||
Other income, net | — | — | — | (38 | ) | — | (38 | ) | |||||||||||||||
Income before income taxes | $ | 71,974 | $ | 82 | $ | 72,056 | $ | 53,000 | $ | 12,232 | $ | 65,232 |
(a) | Selling, general and administrative ("SG&A") expenses include the direct expenses of the retail and credit operations, allocated overhead expenses and a charge to the credit segment to reimburse the retail segment for expenses it incurs related to occupancy, personnel, advertising and other direct costs of the retail segment which benefit the credit operations by sourcing credit customers and collecting payments. The reimbursement received by the retail segment from the credit segment is estimated using an annual rate of 2.5% times the average portfolio balance for each applicable period. The amount of overhead allocated to each segment was $3.0 million and $2.5 million, respectively, for the three months ended July 31, 2014 and 2013, and $5.9 million and $5.1 million, respectively, for the six months ended July 31, 2014 and 2013. The amount of reimbursement made to the retail segment by the credit segment was $7.1 million and $5.0 million, respectively, for the three months ended July 31, 2014 and 2013, and $13.8 million and $9.7 million, respectively, for the six months ended July 31, 2014 and 2013. |
(b) | Retail segment total assets as of July 31, 2014 includes $6.0 million of land, buildings and improvements related to two stores under construction which are subject to a sale and lease back transaction. These related assets will be retired from the Company’s balance sheet upon completion of construction and opening of the stores. |
• | Furniture and mattress, including furniture and related accessories for the living room, dining room and bedroom, as well as both traditional and specialty mattresses; |
• | Home appliance, including refrigerators, freezers, washers, dryers, dishwashers and ranges; |
• | Consumer electronic, including LCD, LED, 3-D, Ultra HD and plasma televisions, Blu-ray players, home theater and video game products, digital cameras, and portable audio equipment; and |
• | Home office, including computers, tablets, printers and accessories. |
• | Opening expanded Conn’s HomePlus stores in new markets. During the six months ended July 31, 2014, we opened ten new stores in Arizona (1), Colorado (2), Mississippi (1), Nevada (1), South Carolina (1), Tennessee (3) and Texas (1). We plan to open eight additional new stores by January 31, 2015. We plan to open between 15 and 18 stores in fiscal 2016. We opened 14 new stores in fiscal 2014 and five new stores in fiscal 2013. For the six months ended July 31, 2014, new stores opened since February 1, 2012 accounted for approximately 25.0% of total product sales. New stores opened since February 1, 2012 accounted for approximately 14.9% and 3.4% of total product sales in fiscal 2014 and 2013, respectively; |
• | Reviewing our existing store locations to ensure the customer demographics and retail sales opportunity are sufficient to achieve our store performance expectations, and selectively closing or relocating stores to achieve those goals. In this regard, we have closed a total of 19 retail locations since the beginning of fiscal 2012 that did not perform at the level we expect for mature store locations. We plan to close seven additional retail locations by January 31, 2015; |
• | Remodeling and relocating existing stores utilizing the Conn’s HomePlus format to increase retail square footage and improve our customers' shopping experience; |
• | Expanding and enhancing our product offering of higher-margin furniture and mattresses; |
• | Focusing on quality, branded products to improve operating performance; |
• | Increased use of short-term, no interest credit programs, with terms of 12 months or less, over recent years with the intent to accelerate cash collections, while modestly reducing portfolio interest and fee yield. In this regard, we discontinued offering six-month, no-interest programs in August 2014 and currently offer only a 12-month program. Beginning in September 2014, we raised eligibility requirements to qualify for the 12-month program; |
• | Planning to modestly raise interest rates charged to customers, where possible, in response to the changing market environment; |
• | Adjusted our underwriting standards during the third and fourth quarters of fiscal 2014 and in March and August of 2014 to improve the overall quality of our credit portfolio. To improve ultimate cash collections, beginning in May 2014, customers may re-age their account once every four months which compares to once every six months previously. The maximum number of months an account can be extended remains unchanged at 12 months; and |
• | Focusing on continuing to improve the execution within our collection operations to reduce delinquency rates and future charge-offs. |
Three Months Ended July 31, | Six Months Ended July 31, | ||||||||||||||||||||||
(in thousands) | 2014 | 2013 | Change | 2014 | 2013 | Change | |||||||||||||||||
Revenues | |||||||||||||||||||||||
Product sales | $ | 264,166 | $ | 203,463 | $ | 60,703 | $ | 518,386 | $ | 394,323 | $ | 124,063 | |||||||||||
Repair service agreement commissions | 20,732 | 17,166 | 3,566 | 40,986 | 33,155 | 7,831 | |||||||||||||||||
Service revenues | 3,383 | 3,083 | 300 | 6,538 | 5,682 | 856 | |||||||||||||||||
Total net sales | 288,281 | 223,712 | 64,569 | 565,910 | 433,160 | 132,750 | |||||||||||||||||
Finance charges and other | 64,683 | 46,977 | 17,706 | 122,502 | 88,592 | 33,910 | |||||||||||||||||
Total revenues | 352,964 | 270,689 | 82,275 | 688,412 | 521,752 | 166,660 | |||||||||||||||||
Cost and expenses | |||||||||||||||||||||||
Cost of goods sold, including warehousing and occupancy costs | 168,717 | 136,040 | 32,677 | 329,499 | 259,497 | 70,002 | |||||||||||||||||
Cost of service parts sold, including warehousing and occupancy cost | 1,871 | 1,318 | 553 | 3,290 | 2,724 | 566 | |||||||||||||||||
Selling, general and administrative expense(a) | 107,303 | 78,757 | 28,546 | 207,507 | 152,012 | 55,495 | |||||||||||||||||
Provision for bad debts | 39,585 | 21,382 | 18,203 | 61,843 | 35,319 | 26,524 | |||||||||||||||||
Charges and credits | 1,492 | — | 1,492 | 3,246 | — | 3,246 | |||||||||||||||||
Total cost and expenses | 318,968 | 237,497 | 81,471 | 605,385 | 449,552 | 155,833 | |||||||||||||||||
Operating income | 33,996 | 33,192 | 804 | 83,027 | 72,200 | 10,827 | |||||||||||||||||
Interest expense | 6,247 | 3,135 | 3,112 | 10,971 | 7,006 | 3,965 | |||||||||||||||||
Other income, net | — | (32 | ) | 32 | — | (38 | ) | 38 | |||||||||||||||
Income before income taxes | 27,749 | 30,089 | (2,340 | ) | 72,056 | 65,232 | 6,824 | ||||||||||||||||
Provision for income taxes | 10,099 | 10,927 | (828 | ) | 25,937 | 23,894 | 2,043 | ||||||||||||||||
Net income | $ | 17,650 | $ | 19,162 | $ | (1,512 | ) | $ | 46,119 | $ | 41,338 | $ | 4,781 |
Three Months Ended July 31, | Six Months Ended July 31, | ||||||||||||||||||||||
(in thousands) | 2014 | 2013 | Change | 2014 | 2013 | Change | |||||||||||||||||
Revenues | |||||||||||||||||||||||
Product sales | $ | 264,166 | $ | 203,463 | $ | 60,703 | $ | 518,386 | $ | 394,323 | $ | 124,063 | |||||||||||
Repair service agreement commissions | 20,732 | 17,166 | 3,566 | 40,986 | 33,155 | 7,831 | |||||||||||||||||
Service revenues | 3,383 | 3,083 | 300 | 6,538 | 5,682 | 856 | |||||||||||||||||
Total net sales | 288,281 | 223,712 | 64,569 | 565,910 | 433,160 | 132,750 | |||||||||||||||||
Finance charges and other | 343 | 290 | 53 | 809 | 629 | 180 | |||||||||||||||||
Total revenues | 288,624 | 224,002 | 64,622 | 566,719 | 433,789 | 132,930 | |||||||||||||||||
Cost and expenses | |||||||||||||||||||||||
Cost of goods sold, including warehousing and occupancy costs | 168,717 | 136,040 | 32,677 | 329,499 | 259,497 | 70,002 | |||||||||||||||||
Cost of service parts sold, including warehousing and occupancy cost | 1,871 | 1,318 | 553 | 3,290 | 2,724 | 566 | |||||||||||||||||
Selling, general and administrative expense(a) | 82,336 | 60,910 | 21,426 | 158,666 | 118,420 | 40,246 | |||||||||||||||||
Provision for bad debts | — | 72 | (72 | ) | 44 | 186 | (142 | ) | |||||||||||||||
Charges and credits | 1,492 | — | 1,492 | 3,246 | — | 3,246 | |||||||||||||||||
Total cost and expenses | 254,416 | 198,340 | 56,076 | 494,745 | 380,827 | 113,918 | |||||||||||||||||
Operating income | 34,208 | 25,662 | 8,546 | 71,974 | 52,962 | 19,012 | |||||||||||||||||
Other income, net | — | (32 | ) | 32 | — | (38 | ) | 38 | |||||||||||||||
Income before income taxes | $ | 34,208 | $ | 25,694 | $ | 8,514 | $ | 71,974 | $ | 53,000 | $ | 18,974 |
Three Months Ended July 31, | Six Months Ended July 31, | ||||||||||||||||||||||
(in thousands) | 2014 | 2013 | Change | 2014 | 2013 | Change | |||||||||||||||||
Revenues | |||||||||||||||||||||||
Finance charges and other | $ | 64,340 | $ | 46,687 | $ | 17,653 | $ | 121,693 | $ | 87,963 | $ | 33,730 | |||||||||||
Cost and expenses | |||||||||||||||||||||||
Selling, general and administrative expense(a) | 24,967 | 17,847 | 7,120 | 48,841 | 33,592 | 15,249 | |||||||||||||||||
Provision for bad debts | 39,585 | 21,310 | 18,275 | 61,799 | 35,133 | 26,666 | |||||||||||||||||
Total cost and expenses | 64,552 | 39,157 | 25,395 | 110,640 | 68,725 | 41,915 | |||||||||||||||||
Operating income (loss) | (212 | ) | 7,530 | (7,742 | ) | 11,053 | 19,238 | (8,185 | ) | ||||||||||||||
Interest expense | 6,247 | 3,135 | 3,112 | 10,971 | 7,006 | 3,965 | |||||||||||||||||
Income (loss) before income taxes | $ | (6,459 | ) | $ | 4,395 | $ | (10,854 | ) | $ | 82 | $ | 12,232 | $ | (12,150 | ) |
(a) | SG&A expenses include the direct expenses of the retail and credit operations, allocated overhead expenses and a charge to the credit segment to reimburse the retail segment for expenses it incurs related to occupancy, personnel, advertising and other direct costs of the retail segment which benefit the credit operations by sourcing credit customers and collecting payments. The reimbursement received by the retail segment from the credit segment is estimated using an annual rate of 2.5% times the average portfolio balance for each applicable period. The amount of overhead allocated to each segment was $3.0 million and $2.5 million, respectively, for the three months ended July 31, 2014 and 2013, and $5.9 million and $5.1 million, respectively, for the six months ended July 31, 2014 and 2013. The amount of reimbursement made to the retail segment by the credit segment was $7.1 million and $5.0 million, respectively, for the three months ended July 31, 2014 and 2013, and $13.8 million and $9.7 million, respectively, for the six months ended July 31, 2014 and 2013. |
• | Revenues for the quarter ended July 31, 2014 increased $64.6 million, or 28.8%, from the prior-year period. The revenue increase was primarily driven by new store openings and an 11.7% increase in same store sales. The year-over-year expansion in same store sales was tempered by our decision to not sell lawn equipment in fiscal 2015 and tightening by our credit segment of underwriting standards in the third and fourth quarters of fiscal 2014. Revenues for the six months ended July 31, 2014 increased by 30.6% over the prior-year period, driven by new store openings and same store sales growth of 14.3%. This year-over-year growth was partially offset by the impact of the decision to no longer offer lawn equipment and changes in our underwriting standards. |
• | Retail gross margin for the quarter ended July 31, 2014 was 40.8%, an increase of 250 basis points over the 38.3% reported in the comparable quarter last year. The expansion in retail margin was driven by a favorable shift in product mix with the higher-margin furniture and mattress category accounting for 30.8% of product sales in the current quarter versus 24.9% in the prior-year period. Product gross margins expanded year-over-year in each of the major categories. Retail gross margin for the six-month period increased from 39.3% in the prior-year quarter to 41.1% in the current period reflecting a favorable shift in product mix and margin expansion in each of the major product categories. |
• | SG&A expense was $82.3 million in the current period, an increase of $21.4 million, or 35.2%, over the quarter ended July 31, 2013. The SG&A expense increase was primarily due to higher sales-driven compensation, advertising costs, delivery expenses and facility-related costs. As a percentage of segment revenues, SG&A expense was 28.5% for the quarter ended July 31, 2014, compared to 27.2% in the prior-year quarter. The increase in SG&A expense as a percentage of segment revenues is attributable primarily to costs associated with the eight new stores opened during the current quarter. In the prior-year period, we opened two new stores. SG&A for the six months ended July 31, 2014 increased $40.2 million from the prior-year period but remained relatively flat as a percentage of segment revenues. |
• | Revenues for the three months ended July 31, 2014 were $64.3 million, an increase of $17.7 million, or 37.8%, over the same period last year. The increase reflects the year-over-year growth in the average balance of the customer receivable portfolio and a 30 basis point increase in portfolio yield. Total revenues for the six-month period increased by $33.7 million as compared to the prior year period also due to the rise in the average balance of the customer receivable portfolio. |
• | Credit segment SG&A expense was $25.0 million for the quarter ended July 31, 2014, an increase of $7.1 million, or 39.9%, from the prior-year period. We have added collections personnel to service the 39.9% year-over-year increase in the customer receivable portfolio balance and anticipated near-term portfolio growth. SG&A expense as a percent of segment revenues was 38.8% in the current year period, which compares to 38.2% in the prior-year period. For the six-month period, credit segment SG&A increased by $15.2 million also due to increased compensation and related expenses. |
• | Provision for bad debts was $39.6 million for the three months ended July 31, 2014, an increase of $18.3 million from the prior-year quarter. The annualized provision rate was 13.9%, an increase of 330 basis points from the prior year. These increases were driven primarily by a 41.1% increase in the average receivable portfolio balance, which reflects a 24.9% increase in loan originations, and higher than expected delinquency and future charge-offs. Additionally, the balance of customer receivables accounted for as troubled debt restructurings (for which full-life expected losses are provided) increased to $62.1 million, or 5.3% of the total portfolio balance, driving $3.4 million of the increase in provision for bad debts. The provision for bad debts increased $26.7 million for the six-month period due primarily to substantial growth in the portfolio balance and higher than expected delinquency and future charge-offs at July 31, 2014. |
• | Net interest expense was $6.2 million for the quarter ended July 31, 2014, an increase of $3.1 million from the prior-year quarter reflecting an increase in the level of outstanding debt and an increase in our effective interest rate. The increase in our effective interest rate is attributable to our issuance of $250.0 million in 7.25% senior unsecured notes |
Three Months Ended July 31, | |||||||||||
(in thousands) | 2014 | 2013 | Change | ||||||||
Total net sales | $ | 288,281 | $ | 223,712 | $ | 64,569 | |||||
Finance charges and other | 64,683 | 46,977 | 17,706 | ||||||||
Total Revenues | $ | 352,964 | $ | 270,689 | $ | 82,275 |
Three Months Ended July 31, | % | Same store | |||||||||||||||||||||
2014 | % of Total | 2013 | % of Total | Change | Change | % change | |||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||||
Furniture and mattress | $ | 81,373 | 28.2 | % | $ | 50,668 | 22.6 | % | $ | 30,705 | 60.6 | % | 30.3 | % | |||||||||
Home appliance | 84,355 | 29.3 | 63,857 | 28.5 | 20,498 | 32.1 | 19.4 | ||||||||||||||||
Consumer electronic | 68,945 | 23.9 | 55,766 | 24.9 | 13,179 | 23.6 | 7.8 | ||||||||||||||||
Home office | 24,061 | 8.3 | 18,712 | 8.4 | 5,349 | 28.6 | 14.2 | ||||||||||||||||
Other | 5,432 | 1.9 | 14,460 | 6.5 | (9,028 | ) | (62.4 | ) | (66.5 | ) | |||||||||||||
Product sales | 264,166 | 91.6 | 203,463 | 90.9 | 60,703 | 29.8 | 11.8 | ||||||||||||||||
Repair service agreement commissions | 20,732 | 7.2 | 17,166 | 7.7 | 3,566 | 20.8 | 11.4 | ||||||||||||||||
Service revenues | 3,383 | 1.2 | 3,083 | 1.4 | 300 | 9.7 | |||||||||||||||||
Total net sales | $ | 288,281 | 100.0 | % | $ | 223,712 | 100.0 | % | $ | 64,569 | 28.9 | % | 11.7 | % |
• | Furniture and mattress sales growth was driven by a 44.3% increase in unit sales and an 11.7% increase in the average selling price. Furniture sales rose 59.3% on a 49.1% increase in unit volume with a 6.8% increase in average selling price. Mattress sales increased 64.8% reflecting a 32.2% increase in unit volume and a 24.7% increase in average selling price due to a shift to higher price-point merchandise; |
• | Home appliance sales increased from the prior-year period driven by a 20.3% increase in unit sales and an 8.9% increase in the average selling price. Laundry sales increased 41.1%, refrigeration sales rose 30.8%, dishwasher sales were up 28.5% and cooking sales increased 27.4%; |
• | Consumer electronic sales rose 23.6% driven by a 20.3% increase in unit volume. Television sales were up 16.2%, gaming hardware sales rose 500+% and home theater sales climbed 36.6%; |
• | Home office sales increased primarily due to a 56.2% increase in computer sales with a 15.6% rise in the average selling price of computers. This increase was partially offset by a 27.7% decrease in tablet sales; |
• | Other sales included $9.3 million of lawn equipment sales in the quarter ended July 31, 2013. The Company is not participating in this lower-margin category in the current fiscal year. |
• | The increase in repair service agreement commissions was driven primarily by increased retail sales; and |
• | Service revenue increased by 9.7% due to increased product sales in recent years and additional service technician staffing. |
Three Months Ended July 31, | |||||||||||
(in thousands) | 2014 | 2013 | Change | ||||||||
Interest income and fees | $ | 52,226 | $ | 36,397 | $ | 15,829 | |||||
Insurance commissions | 12,113 | 10,289 | 1,824 | ||||||||
Other income | 344 | 291 | 53 | ||||||||
Finance charges and other | $ | 64,683 | $ | 46,977 | $ | 17,706 |
Three Months Ended July 31, | |||||||
2014 | 2013 | ||||||
(in thousands, except percentages) | |||||||
Interest income and fees(a) | $ | 52,226 | $ | 36,397 | |||
Net charge-offs | (28,556 | ) | (14,176 | ) | |||
Borrowing costs(b) | (6,247 | ) | (3,135 | ) | |||
Net portfolio yield | $ | 17,423 | $ | 19,086 | |||
Average portfolio balance | $ | 1,137,890 | $ | 806,653 | |||
Interest income and fee yield % (annualized) | 18.2 | % | 17.9 | % | |||
Net charge-off % (annualized) | 10.0 | % | 7.0 | % |
(a) | Included in finance charges and other. |
(b) | Total interest expense. |
Three Months Ended July 31, | |||||||||||
(in thousands, except percentages) | 2014 | 2013 | Change | ||||||||
Cost of goods sold | $ | 168,717 | $ | 136,040 | $ | 32,677 | |||||
Product gross margin percentage | 36.1 | % | 33.1 | % |
Three Months Ended July 31, | |||||||||||
(in thousands, except percentages) | 2014 | 2013 | Change | ||||||||
Cost of service parts sold | $ | 1,871 | $ | 1,318 | $ | 553 | |||||
As a percent of service revenues | 55.3 | % | 42.8 | % |
Three Months Ended July 31, | |||||||||||
(in thousands, except percentages) | 2014 | 2013 | Change | ||||||||
Selling, general and administrative expense - Retail | $ | 82,336 | $ | 60,910 | $ | 21,426 | |||||
Selling, general and administrative expense - Credit | 24,967 | 17,847 | 7,120 | ||||||||
Selling, general and administrative expense - Total | $ | 107,303 | $ | 78,757 | $ | 28,546 | |||||
As a percent of total revenues | 30.4 | % | 29.1 | % |
Three Months Ended July 31, | |||||||||||
(in thousands, except percentages) | 2014 | 2013 | Change | ||||||||
Provision for bad debts - Retail | $ | — | $ | 72 | $ | (72 | ) | ||||
Provision for bad debts - Credit | 39,585 | 21,310 | 18,275 | ||||||||
Provision for bad debts - Total | $ | 39,585 | $ | 21,382 | $ | 18,203 | |||||
Provision for bad debts - Credit as a percent of average portfolio balance (annualized) | 13.9 | % | 10.6 | % |
Three Months Ended July 31, | |||||||||||
(in thousands) | 2014 | 2013 | Change | ||||||||
Store closure and relocation costs | $ | 1,492 | $ | — | $ | 1,492 | |||||
Charges and credits | $ | 1,492 | $ | — | $ | 1,492 |
Three Months Ended July 31, | |||||||||||
(in thousands) | 2014 | 2013 | Change | ||||||||
Interest expense | $ | 6,247 | $ | 3,135 | $ | 3,112 |
Three Months Ended July 31, | ||||||||||
(in thousands, except percentages) | 2014 | 2013 | Change | |||||||
Provision for income taxes | $ | 10,099 | $ | 10,927 | (828 | ) | ||||
As a percent of income before income taxes | 36.4 | % | 36.3 | % |
Six Months Ended July 31, | |||||||||||
(in thousands) | 2014 | 2013 | Change | ||||||||
Total net sales | $ | 565,910 | $ | 433,160 | $ | 132,750 | |||||
Finance charges and other | 122,502 | 88,592 | 33,910 | ||||||||
Total Revenues | $ | 688,412 | $ | 521,752 | $ | 166,660 |
Six Months Ended July 31, | % | Same store | |||||||||||||||||||||
2014 | % of Total | 2013 | % of Total | Change | Change | % change | |||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||||
Furniture and mattress | $ | 162,265 | 28.7 | % | $ | 99,791 | 23.0 | % | $ | 62,474 | 62.6 | % | 38.0 | % | |||||||||
Home appliance | 161,470 | 28.5 | 121,536 | 28.1 | 39,934 | 32.9 | 20.2 | ||||||||||||||||
Consumer electronic | 135,388 | 23.9 | 112,576 | 26.0 | 22,812 | 20.3 | 6.0 | ||||||||||||||||
Home office | 47,997 | 8.5 | 36,218 | 8.4 | 11,779 | 32.5 | 18.8 | ||||||||||||||||
Other | 11,266 | 2.0 | 24,202 | 5.6 | (12,936 | ) | (53.5 | ) | (62.9 | ) | |||||||||||||
Product sales | 518,386 | 91.6 | 394,323 | 91.1 | 124,063 | 31.5 | 14.3 | ||||||||||||||||
Repair service agreement commissions | 40,986 | 7.2 | 33,155 | 7.6 | 7,831 | 23.6 | 14.6 | ||||||||||||||||
Service revenues | 6,538 | 1.2 | 5,682 | 1.3 | 856 | 15.1 | |||||||||||||||||
Total net sales | $ | 565,910 | 100.0 | % | $ | 433,160 | 100.0 | % | $ | 132,750 | 30.6 | % | 14.3 | % |
• | Furniture and mattress sales growth was driven by a 48.5% increase in unit sales and a 13.3% increase in the average selling price. Furniture sales rose 67.5% on a 48.2% increase in unit volume with a 13.0% increase in average selling price. Mattress sales increased 70.4% reflecting a 49.7% increase in unit volume and a 13.8% increase in average selling price attributable to a shift to higher price-point merchandise; |
• | Home appliance sales increased during the period due to a 20.7% increase in unit sales. Laundry sales were up 37.8%, refrigeration sales were up 31.1%, dishwasher sales climbed 29.2% and cooking sales increased 25.3%; |
• | Consumer electronic sales were up 20.3% driven by an 12.9% increase in unit volume. Television sales were up 13.4%, home theater sales climbed 39.1% and gaming hardware sales increased approximately 400%; |
• | Home office sales increased primarily due to a 58.1% increase in computer sales with a 12.2% rise in the average selling price of computers. This increase was partially offset by a 21.6% decrease in tablet sales; |
• | Other sales included $14.4 million of lawn equipment sales in the six months ended July 31, 2013. The Company is not participating in this lower-margin product category in the current fiscal year; |
• | The increase in repair service agreement commissions was driven primarily by increased retail sales; and |
• | Service revenue increased by 15.1% due to increased service technician staffing and in-house performance of certain warranty repair services. |
Six Months Ended July 31, | |||||||||||
(in thousands) | 2014 | 2013 | Change | ||||||||
Interest income and fees | $ | 98,716 | $ | 69,407 | $ | 29,309 | |||||
Insurance commissions | 22,976 | 18,556 | 4,420 | ||||||||
Other income | 810 | 629 | 181 | ||||||||
Finance charges and other | $ | 122,502 | $ | 88,592 | $ | 33,910 |
Six Months Ended July 31, | |||||||
2014 | 2013 | ||||||
(in thousands, except percentages) | |||||||
Interest income and fees(a) | $ | 98,716 | $ | 69,407 | |||
Net charge-offs | (49,748 | ) | (25,731 | ) | |||
Borrowing costs(b) | (10,971 | ) | (7,006 | ) | |||
Net portfolio yield | $ | 37,997 | $ | 36,670 | |||
Average portfolio balance | $ | 1,110,501 | $ | 780,825 | |||
Interest income and fee yield % (annualized) | 17.9 | % | 17.9 | % | |||
Net charge-off % (annualized) | 9.0 | % | 6.6 | % |
(a) | Included in finance charges and other. |
(b) | Total interest expense. |
Six Months Ended July 31, | |||||||||||
(in thousands, except percentages) | 2014 | 2013 | Change | ||||||||
Cost of goods sold | $ | 329,499 | $ | 259,497 | $ | 70,002 | |||||
Product gross margin percentage | 36.4 | % | 34.2 | % |
Six Months Ended July 31, | |||||||||||
(in thousands, except percentages) | 2014 | 2013 | Change | ||||||||
Cost of service parts sold | $ | 3,290 | $ | 2,724 | $ | 566 | |||||
As a percent of service revenues | 50.3 | % | 47.9 | % |
Six Months Ended July 31, | |||||||||||
(in thousands, except percentages) | 2014 | 2013 | Change | ||||||||
Selling, general and administrative expense - Retail | $ | 158,666 | $ | 118,420 | $ | 40,246 | |||||
Selling, general and administrative expense - Credit | 48,841 | 33,592 | 15,249 | ||||||||
Selling, general and administrative expense - Total | $ | 207,507 | $ | 152,012 | $ | 55,495 | |||||
As a percent of total revenues | 30.1 | % | 29.1 | % |
Six Months Ended July 31, | |||||||||||
(in thousands, except percentages) | 2014 | 2013 | Change | ||||||||
Provision for bad debts - Retail | $ | 44 | $ | 186 | $ | (142 | ) | ||||
Provision for bad debts - Credit | 61,799 | 35,133 | 26,666 | ||||||||
Provision for bad debts - Total | $ | 61,843 | $ | 35,319 | $ | 26,524 | |||||
Provision for bad debts - Credit as a percent of average portfolio balance (annualized) | 11.1 | % | 9.0 | % |
Six Months Ended July 31, | |||||||||||
(in thousands) | 2014 | 2013 | Change | ||||||||
Store closure and relocation costs | $ | 3,246 | $ | — | $ | 3,246 | |||||
Charges and credits | $ | 3,246 | $ | — | $ | 3,246 |
Six Months Ended July 31, | |||||||||||
(in thousands) | 2014 | 2013 | Change | ||||||||
Interest expense | $ | 10,971 | $ | 7,006 | $ | 3,965 |
Six Months Ended July 31, | ||||||||||
(in thousands, except percentages) | 2014 | 2013 | Change | |||||||
Provision for income taxes | $ | 25,937 | $ | 23,894 | 2,043 | |||||
As a percent of income before income taxes | 36.0 | % | 36.6 | % |
As of July 31, | |||||||
2014 | 2013 | ||||||
Total outstanding balance | $ | 1,179,314 | $ | 843,071 | |||
Weighted average credit score of outstanding balances | 592 | 595 | |||||
Number of active accounts | 666,099 | 519,867 | |||||
Weighted average months since origination of outstanding balance | 8.5 | 8.9 | |||||
Average outstanding customer balance | $ | 1,770 | $ | 1,622 | |||
Account balances 60+ days past due(1) | $ | 102,063 | $ | 69,158 | |||
Percent of balances 60+ days past due to total outstanding balance | 8.7 | % | 8.2 | % | |||
Total account balances re-aged(1) | $ | 142,917 | $ | 91,067 | |||
Percent of re-aged balances to total outstanding balance | 12.1 | % | 10.8 | % | |||
Account balances re-aged more than six months | $ | 28,224 | $ | 19,891 | |||
Percent of total allowance for bad debts to total outstanding customer receivable balance | 7.2 | % | 6.3 | % | |||
Percent of total outstanding balance represented by short-term, no-interest option receivables(2) | 36.6 | % | 31.9 | % |
Three Months Ended July 31, | Six Months Ended July 31, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Total applications processed | 295,983 | 215,850 | 561,248 | 414,895 | |||||||||||
Weighted average origination credit score of sales financed | 607 | 601 | 606 | 601 | |||||||||||
Percent of total applications approved | 45.3 | % | 51.7 | % | 46.6 | % | 51.6 | % | |||||||
Average down payment | 3.6 | % | 3.1 | % | 3.9 | % | 3.5 | % | |||||||
Average income of credit customer at origination | $ | 39,700 | $ | 40,500 | $ | 39,200 | $ | 39,900 | |||||||
Average total outstanding balance | $ | 1,137,890 | $ | 806,653 | $ | 1,110,501 | $ | 780,825 | |||||||
Bad debt charge-offs (net of recoveries) | $ | 28,556 | $ | 14,176 | $ | 49,748 | $ | 25,731 | |||||||
Percent of bad debt charge-offs (net of recoveries) to average outstanding balance | 10.0 | % | 7.0 | % | 9.0 | % | 6.6 | % | |||||||
Weighted average monthly payment rate(3) | 5.0 | % | 5.2 | % | 5.4 | % | 5.7 | % | |||||||
Provision for bad debts(4) | $ | 39,585 | $ | 21,310 | $ | 61,799 | $ | 35,133 | |||||||
Provision for bad debts as a percentage of average outstanding balance | 13.9 | % | 10.6 | % | 11.1 | % | 9.0 | % | |||||||
Percent of retail sales paid for by: | |||||||||||||||
In-house financing, including down payment received | 77.0 | % | 76.8 | % | 77.2 | % | 75.4 | % | |||||||
Third party financing | 13.0 | % | 12.2 | % | 12.1 | % | 12.0 | % | |||||||
Third party rent-to-own options | 3.9 | % | 2.5 | % | 4.0 | % | 3.1 | % | |||||||
93.9 | % | 91.5 | % | 93.3 | % | 90.5 | % |
(1) | Accounts that become delinquent after being re-aged are included in both the delinquency and re-aged amounts. |
(2) | Short-term, no-interest option receivables are financed under a standard retail installment loan contract. Minimum monthly payments are required and the maximum term is 12 months. If the customer account becomes delinquent or the remaining account principal balance is not paid in full prior to the end of the no-interest period, interest is earned over the term of the installment contract and the required minimum monthly payment remains unchanged. |
(3) | Three-month average of gross cash payments as a percentage of gross principal balances outstanding at the beginning of each month in the period. |
(4) | Amount does not include retail segment provision for bad debts. |
Total Outstanding Balance | |||||||||||||||||||||||
Customer Accounts Receivable | 60 Days Past Due(1) | Re-aged(1) | |||||||||||||||||||||
(in thousands) | July 31, 2014 | January 31, 2014 | July 31, 2014 | January 31, 2014 | July 31, 2014 | January 31, 2014 | |||||||||||||||||
Customer accounts receivable | $ | 1,117,243 | $ | 1,022,914 | $ | 87,964 | $ | 82,486 | $ | 80,846 | $ | 75,414 | |||||||||||
Restructured accounts(2) | 62,071 | 45,356 | 14,099 | 11,917 | 62,071 | 45,356 | |||||||||||||||||
Total receivables managed | $ | 1,179,314 | $ | 1,068,270 | $ | 102,063 | $ | 94,403 | $ | 142,917 | $ | 120,770 | |||||||||||
Allowance for uncollectible accounts related to the credit portfolio | (85,291 | ) | (71,801 | ) | |||||||||||||||||||
Allowance for short-term, no-interest option credit programs | (14,432 | ) | (11,789 | ) | |||||||||||||||||||
Short-term portion of customer accounts receivable, net | (583,687 | ) | (527,267 | ) | |||||||||||||||||||
Long-term portion of customer accounts receivable, net | $ | 495,904 | $ | 457,413 |
(1) | Amounts are based on end of period balances. As an account can become past due after having been re-aged, accounts may be presented in both the past due and re-aged columns shown above. The amounts included within both the past due and re-aged columns shown above as of July 31, 2014 and January 31, 2014 were $33.8 million and $27.4 million, respectively. The total amount of customer receivables past due one day or greater was $282.8 million and $249.3 million as of July 31, 2014 and January 31, 2014, respectively. These amounts include the 60 days past due totals shown above. |
(2) | In addition to the amounts included in restructured accounts, there was $1.3 million as of July 31, 2014 and January 31, 2014, respectively, of accounts re-aged four or more months included in the re-aged balance above that did not qualify as TDRs because they were not re-aged subsequent to January 31, 2011. |
Net Credit | Net Credit | ||||||||||||||||||||||||||||||
Average Balances | Charge-offs (1) | Average Balances | Charge-offs(1) | ||||||||||||||||||||||||||||
Three Months Ended July 31, | Three Months Ended July 31, | Six Months Ended July 31, | Six Months Ended July 31, | ||||||||||||||||||||||||||||
(in thousands) | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | |||||||||||||||||||||||
Customer accounts receivable | $ | 1,081,196 | $ | 766,718 | $ | 24,822 | $ | 10,818 | $ | 1,057,875 | $ | 741,108 | $ | 42,560 | $ | 19,661 | |||||||||||||||
Restructured accounts | 56,694 | 39,935 | 3,734 | 3,358 | 52,626 | 39,716 | 7,188 | 6,070 | |||||||||||||||||||||||
Total receivables managed | $ | 1,137,890 | $ | 806,653 | $ | 28,556 | $ | 14,176 | $ | 1,110,501 | $ | 780,824 | $ | 49,748 | $ | 25,731 |
(1) | Charge-offs include the principal amount of losses (excluding accrued and unpaid interest) net of recoveries which include principal collections during the period shown of previously charged-off balances. |
Six Months Ended July 31, 2014 | Six Months Ended July 31, 2013 | ||||||||||||||||||||||
(in thousands) | Customer Accounts Receivable | Restructured Accounts | Total | Customer Accounts Receivable | Restructured Accounts | Total | |||||||||||||||||
Allowance at beginning of period | $ | 54,448 | $ | 17,353 | $ | 71,801 | $ | 27,702 | $ | 16,209 | $ | 43,911 | |||||||||||
Provision(1) | 61,317 | 12,235 | 73,552 | 32,526 | 7,330 | 39,856 | |||||||||||||||||
Principal charge-offs(2) | (49,367 | ) | (8,338 | ) | (57,705 | ) | (21,039 | ) | (6,496 | ) | (27,535 | ) | |||||||||||
Interest charge-offs | (8,824 | ) | (1,490 | ) | (10,314 | ) | (3,447 | ) | (1,064 | ) | (4,511 | ) | |||||||||||
Recoveries(2) | 6,807 | 1,150 | 7,957 | 1,378 | 425 | 1,803 | |||||||||||||||||
Allowance at end of period | $ | 64,381 | $ | 20,910 | $ | 85,291 | $ | 37,120 | $ | 16,404 | $ | 53,524 |
(1) | Includes provision for uncollectible interest, which is included in finance charges and other. |
(2) | Charge-offs include the principal amount of losses (excluding accrued and unpaid interest), and recoveries include principal collections during the period shown of previously charged-off balances. Net charge-offs are calculated as the net of principal charge-offs and recoveries. |
As of July 31, 2014 (a) | ||||||||||||||
% of balance | Cumulative loss rate as a % of balance originated (b) (d) | |||||||||||||
Fiscal year | Balance | originated | Years from origination | |||||||||||
of origination | outstanding | outstanding | — | 1 | 2 | 3 | Terminal (c) | |||||||
2006 | 0.3% | 1.9% | 3.6% | 4.8% | 5.8% | |||||||||
2007 | 0.2% | 1.7% | 3.5% | 4.8% | 5.7% | |||||||||
2008 | 0.2% | 1.8% | 3.6% | 5.1% | 5.9% | |||||||||
2009 | 0.2% | 2.1% | 4.6% | 6.1% | 6.6% | |||||||||
2010 | 0.2% | 2.4% | 4.6% | 6.0% | 6.0% | |||||||||
2011 | $1.1 | 0.2% | 0.4% | 2.6% | 5.2% | 5.8% | 6.0% | |||||||
2012 | $14.2 | 2.4% | 0.2% | 3.1% | 5.5% | 5.9% | ||||||||
2013 | $95.8 | 13.0% | 0.4% | 5.2% | 6.7% | |||||||||
2014 | $537.9 | 50.0% | 0.8% | 3.7% |
(a) | As of July 31, 2014, balances originated prior to fiscal 2011 and outstanding were insignificant. |
(b) | The loss rates for balances originated in fiscal years 2012 through 2015 may not be comparable to those for balances originated in earlier years as changes made to our collections policies during fiscal 2012 resulted in accounts charging off earlier than in prior periods. |
(c) | The terminal loss percentage presented represents the point at which that pool of loans has reached its maximum loss rate. |
(d) | The most recent percentages in years from origination 1 through 3 include loss data through July 31, 2014, and are not comparable to prior fiscal year accumulated net charge-off percentages in the same column. |
Actual | Required Minimum/ Maximum | ||
Fixed charge coverage ratio must exceed required minimum | 1.55 to 1.00 | 1.10 to 1.00 | |
Total liabilities to tangible net worth ratio must be lower than required maximum | 1.27 to 1.00 | 2.00 to 1.00 | |
Cash recovery percentage must exceed stated amount | 5.00% | 4.49% | |
Capital expenditures, net must be lower than required maximum | $41.0 million | $75.0 million |
CONN’S, INC. | |||
By: | /s/ Brian E. Taylor | ||
Brian E. Taylor | |||
Vice President, Chief Financial Officer and Treasurer | |||
(Principal Financial Officer and duly authorized to sign this report on behalf of the registrant) |
Exhibit Number | Description |
3.1 | Certificate of Incorporation of Conn's, Inc. (incorporated herein by reference to Exhibit 3.1 to Conn's, Inc. registration statement on Form S-1 (file no. 333-109046) as filed with the Securities and Exchange Commission on September 23, 2003) |
3.1.1 | Certificate of Amendment to the Certificate of Incorporation of Conn’s, Inc. dated June 3, 2004 (incorporated herein by reference to Exhibit 3.1.1 to Conn’s, Inc. Form 10-Q for the quarterly period ended April 30, 2004 (File No. 000-50421) as filed with the Securities and Exchange Commission on June 7, 2004) |
3.1.2 | Certificate of Amendment to the Certificate of Incorporation of Conn’s, Inc. dated May 30, 2012 (incorporated herein by reference to Exhibit 3.1.2 to Conn’s, Inc. Form 10-Q for the quarterly period ended April 30, 2012 (File No. 000-50421) as filed with the Securities and Exchange Commission on June 5, 2012) |
3.1.3 | Certificate of Correction to the Certificate of Amendment to Conn’s, Inc. Certificate of Incorporation (as corrected December 31, 2013) (incorporated herein by reference to Exhibit 3.1.3 to Conn’s, Inc. Form 10-K for the annual period ended January 31, 2014 (File No. 000-50421) as filed with the Securities and Exchange Commission on March 27, 2014) |
3.1.4 | Certificate of Amendment to the Certificate of Incorporation of Conn’s, Inc. as filed on May 29, 2014 (incorporated herein by reference to Exhibit 3.1.4 to Conn’s, Inc. Form 10-Q for the fiscal period ended April 30, 2014 (File No. 000-50421) as filed with the Securities and Exchange Commission on June 2, 2014) |
3.2 | Amended and Restated Bylaws of Conn’s, Inc. effective as of December 3, 2013 (incorporated herein by reference to Exhibit 3.2 to Conn’s, Inc. Form 10-Q for the quarter ended October 31, 2013 (File No. 000-50421) as filed with the Securities and Exchange Commission on December 6, 2013) |
4.1 | Specimen of certificate for shares of Conn's, Inc.'s common stock (incorporated herein by reference to Exhibit 4.1 to Conn's, Inc. registration statement on Form S-1 (file no. 333-109046) as filed with the Securities and Exchange Commission on October 29, 2003) |
4.2 | Indenture, dated as of July 1, 2014, by and among Conn’s, Inc., the several guarantors named therein and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Conn’s, Inc. Current Report on Form 8-K (File No. 000-50421) filed with the Securities and Exchange Commission on July 2, 2014) |
4.3 | Form of 7.250% Senior Notes due 2022 (incorporated by reference to Exhibit A to Exhibit 4.1 to Conn’s, Inc. Current Report on Form 8-K (File No. 000-50421) filed with the Securities and Exchange Commission on July 2, 2014) |
4.4 | Registration Rights Agreement, dated as of July 1, 2014, by and among Conn’s, Inc., the several guarantors named therein and Merrill Lynch, Pierce, Fenner & Smith, Incorporated as representative of the initial purchasers named therein (incorporated by reference to Exhibit 4.3 to Conn’s, Inc. Current Report on Form 8-K (File No. 000-50421) filed with the Securities and Exchange Commission on July 2, 2014) |
10.1 | Purchase Agreement, dated as of June 26, 2014 among the Company, the Guarantors and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representative of the several initial purchasers (incorporated by reference to Exhibit 10.1 to Conn’s, Inc. Current Report on Form 8-K (File No. 000-50421) filed with the Securities and Exchange Commission on July 2, 2014) |
10.2* | Second Amendment to Second Amended and Restated Loan and Security Agreement, effective as of June 20, 2014, among Conn’s, Inc., Conn Appliances, Inc., Conn Credit I, LP, Conn Credit Corporation, Inc., the banks and other financial institutions identified as “Lenders” therein, and Bank of America, N.A., as Administrative Agent for the Lenders |
12.1* | Statement of computation of Ratio of Earnings to Fixed Charges |
31.1* | Rule 13a-14(a)/15d-14(a) Certification (Chief Executive Officer) |
31.2* | Rule 13a-14(a)/15d-14(a) Certification (Chief Financial Officer) |
32.1* | Section 1350 Certification (Chief Executive Officer and Chief Financial Officer) |
101 | The following financial information from our Quarterly Report on Form 10-Q for the second quarter of fiscal year 2015, filed with the SEC on September 2, 2014, formatted in Extensible Business Reporting Language (XBRL): (i) the consolidated balance sheets at July 31, 2014 and January 31, 2014 and, (ii) the consolidated statements of operations for the three and six months ended July 31, 2014 and 2013, (iii) the consolidated statements of comprehensive income for the three and six months ended July 31, 2014 and 2013, (iv) the consolidated statements of cash flows for the six months ended July 31, 2014 and 2013, (v) the consolidated statements of stockholders' equity for the six months ended July 31, 2014 and 2013 and (vi) the notes to consolidated financial statements |
Title: | Vice President, Chief Financial Officer and Treasurer |
Six Months Ended July 31, | |||||||
2014 | 2013 | ||||||
Income before income taxes | $ | 72,056 | $ | 65,232 | |||
Fixed charges | 21,149 | 14,838 | |||||
Capitalized interest | (112 | ) | (242 | ) | |||
Total earnings | $ | 93,093 | $ | 79,828 | |||
Interest expense (including capitalized interest) | $ | 9,821 | $ | 5,597 | |||
Amortized premiums and expenses | 1,262 | 1,651 | |||||
Estimated interest within rent expense | 10,066 | 7,590 | |||||
Total fixed charges | $ | 21,149 | $ | 14,838 | |||
Ratio of earnings to fixed charges | 4.40 | 5.38 |
1. | I have reviewed this quarterly report on Form 10-Q of Conn's, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ Theodore M. Wright | ||
Theodore M. Wright | ||
Chief Executive Officer and President |
1. | I have reviewed this quarterly report on Form 10-Q of Conn's, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ Brian E. Taylor | ||
Brian E. Taylor | ||
Vice President, Chief Financial Officer and Treasurer |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Theodore M. Wright | ||
Theodore M .Wright | ||
Chief Executive Officer and President |
/s/ Brian E. Taylor | ||
Brian E. Taylor | ||
Vice President, Chief Financial Officer and Treasurer |
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