UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July 7, 2010

Conn’s, Inc.

(Exact name of registrant as specified in its charter)

Delaware		000-50421		06-1672840
(State or other jurisdiction of		(Commission File Number)		(IRS Employer Identification No.)
incorporation)

3295 College Street Beaumont, Texas (Address of principal executive offices)		77701 (Zip Code)

Registrant’s telephone number, including area code: (409) 832-1696

Not applicable
(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o		Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o		Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o		Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o		Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

Item 8.01. Other Events.

We are filing this Current Report on Form 8-K to retrospectively revise portions of our Annual Report on Form 10-K for the fiscal year ended January 31, 2010, filed on March 25, 2010 and amended by our Form 10-K/A filed on April 12, 2010, our January 31, 2010 Form 10-K, to reflect: (1) the retrospective application of our adoption of a new accounting principle, effective February 1, 2010, that resulted in a change in our accounting for our interest in a variable interest entity, and (2) a change in reportable business segments creating two reportable segments.

In June 2009, the FASB issued revised authoritative guidance to improve the relevance and comparability of the information that a reporting entity provides in its financial statements about:

	•		a transfer of financial assets;
	•		the effects of a transfer on its financial position, financial performance, and cash flows;
	•		a transferor’s continuing involvement, if any, in transferred financial assets; and
	•		improvements in financial reporting by companies involved with variable interest entities (VIE) to provide more relevant and reliable information to users of financial statements by requiring an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a VIE. This analysis identifies the primary beneficiary of a VIE as the enterprise that has both of the following characteristics:

	a)		The power to direct the activities of a VIE that most significantly impact the entity’s economic performance; and
	b)		The obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE.

As a result of the Company’s adoption of the provisions of the new guidance, effective February 1, 2010, the Company’s VIE, which is engaged in customer receivable financing and securitization, is being consolidated in the Company’s balance sheet and the Company’s statements of operations, stockholders’ equity and cash flows. Previously, the operations of the VIE were reported off-balance sheet. The Company has elected to apply the provisions of this new guidance by retrospectively restating prior period financial statements to give effect to the consolidation of the VIE, presenting the balances at their carrying value as if they had always been carried on its balance sheet.

As a result of our adoption of a new accounting principle that resulted in the consolidation of our finance subsidiary and the changes in the financial markets and availability of capital, we have expanded the operational reporting now being used by management to provide more detailed operating performance information for our retail and credit operations, including modification of the financial information reported to the chief decision maker and the board of directors. As such, we have concluded, beginning with fiscal 2011, that it is appropriate to include additional financial information about our retail and credit segments.

The attached exhibits contain the portions of our January 31, 2010 Form 10-K that are affected by the retrospective application of the adoption of the abovementioned new authoritative guidance and the resulting two reporting segments. Exhibit 99.1 reflects changes made to Item 1 — Business. Exhibit 99.2 reflects changes made to Item 6 — Selected Financial Data. Exhibit 99.3 reflects changes made to Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations. Exhibit 99.4 contains Item 8 — Financial Statements and Supplementary Data, which includes the complete set of consolidated financial statements from our January 31, 2010 Form 10-K as adjusted for the retrospective application of the new accounting principle and the addition of the reporting segments discussed above.

The information presented in the exhibits to this Current Report on Form 8-K updates the information set forth in our January 31, 2010 Form 10-K and the related consent of our independent registered public accounting firm. None of the exhibits to this Current Report on Form 8-K reflect events after the filing of our January 31, 2010 Form 10-K or modifies or updates the disclosure in our January 31, 2010 Form 10-K other than (i) certain information in Exhibit 99.1 updates Item 1 — Business to include certain data and financial information for our fiscal quarter ended April 30, 2010, and (ii) to reflect the changes related to the retrospective application of the adoption of the new accounting principle and the additional reporting segments discussed above; thus, all other sections and exhibits to our January 31, 2010 Form 10-K remain unchanged.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits. The following exhibits are filed with this report:

Exhibits		Description
12.1		Statement of computation of Ratio of Earnings to Fixed Charge
23.1		Consent of Ernst & Young LLP
99.1		2010 10-K, Item 1 — Business

Exhibits		Description
99.2		2010 10-K, Item 6 — Selected Financial Data
99.3		2010 10-K, Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations
99.4		2010 10-K, Item 8 — Financial Statements and Supplementary Data

SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Exhibit 12.1

Statement of Computation of Ratio of Earnings to Fixed Charges

		2010				2009				2008				2007				2006
Income before minority interest and income taxes		$	8,035			$	63,642			$	64,242			$	58,234			$	61,482
Fixed charges			34,880				37,105				36,560				32,299				26,467
Capitalized interest			(89	)			(164	)			(252	)			(299	)			—
Total earnings		$	42,826			$	100,583			$	100,550			$	90,234			$	87,949
Interest expense (including capitalized interest)		$	20,666			$	24,072			$	25,853			$	22,505			$	17,647
Amortized premiums and expenses			1,414				1,022				498				508				457
Estimated interest within rent expense			12,800				12,011				10,209				9,286				8,363
Total fixed charges		$	34,880			$	37,105			$	36,560			$	32,299			$	26,467
Ratio of earnings to fixed charges			1.2				2.7				2.8				2.8				3.3

Schedule II — Valuation and Qualifying Accounts
Conn’s, Inc.

						Additions
										Charged to
		Balance at				Charged to				Other								Balance at
		Beginning of				Costs and				Accounts-				Deductions-				End of
Description		Period				Expenses				Describe				Describe1				Period
Year ended January 31, 2008
Reserves and allowances from asset accounts:
Allowance for doubtful accounts		$	17,520			$	19,465			$	—			$	(18,142	)		$	18,843
Year ended January 31, 2009
Reserves and allowances from asset accounts:
Allowance for doubtful accounts		$	18,843			$	27,952			$	—			$	(19,814	)		$	26,981
Year ended January 31, 2010
Reserves and allowances from asset accounts:
Allowance for doubtful accounts		$	26,981			$	36,843			$	—			$	(27,972	)		$	35,852

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the following Registration Statements:

(1) Form S-8 No. 333-111280

(2) Form S-8 No. 333-111281

(3) Form S-8 No. 333-111282

(4) Form S-8 No. 333-111208

(5) Form S-3 No. 333-157390

of our report dated March 25, 2010, except for Notes 2 and 14 as to which the date is July 7, 2010, with respect to the consolidated financial statements and schedule of Conn’s, Inc. for the year ended January 31, 2010 included in the Current Report (Form 8-K),

/s/ Ernst & Young, LLP

Houston, Texas
July 7, 2010

Exhibit 99.1

ITEM 1. BUSINESS

     Unless the context indicates otherwise, references to “we,” “us,” and “our” refer to the consolidated business operations of Conn’s, Inc. and all of its direct and indirect subsidiaries, limited liability companies and limited partnerships.

Company overview

     We are a leading specialty retailer of durable consumer products, and we also provide consumer credit to support our customers’ purchases of the products that we offer. Currently, we derive our revenue primarily from two sources: (i) retail sales and delivery of consumer electronics, home appliances, furniture and mattresses, lawn and garden equipment and repair service agreements; and (ii) our in-house consumer credit program, including sales of related credit insurance products. We operate a highly integrated and scalable business through our 76 retail stores and our website, providing our customers with a broad range of brand name products, in-house financing options, next day delivery capabilities, and outstanding product repair service through well-trained and knowledgeable sales, consumer credit and service personnel. Through our wide range of in-house proprietary consumer credit programs, we provided financing for 60.1% of our retail sales during the twelve months ended April 30, 2010.

     We offer over 3,000 product items, or SKUs, at good-better-best price points in our core retail product categories of:

	•		Consumer Electronics, which includes LED, LCD, plasma, DLP and 3-D televisions, camcorders, digital cameras, computers and computer accessories, Blu-ray and DVD players, video game equipment, portable audio, MP3 players, GPS devices and home theater products. We represent such brands as Samsung, Sony, LG, Toshiba, Hewlett Packard, Panasonic, Mitsubishi, Compaq, Bose, Canon and JVC. As reported in “This Week in Consumer Electronics,” or Twice, we were the 35th largest retailer of consumer electronics in the United States in 2009;
	•		Home Appliances, which includes refrigerators, freezers, washers, dryers, dishwashers, ranges and room air conditioners. We represent such brands as Whirlpool, Maytag, Frigidaire, Kitchen Aid, Samsung, LG, General Electric and Friedrich. As reported by Twice, we were the 9th largest appliance retailer in the United States in 2009;
	•		Furniture and Mattresses, which includes living room, bedroom and dining room furniture. We represent such brands as Serta, Lady Americana, Better Homes and Gardens, Ashley, Lane, Broyhill, Franklin and Jackson Furniture;
	•		Lawn and Garden Equipment, which includes lawn mowers, lawn tractors and handheld equipment. We represent such brands as Poulan, Husqvarna and Toro; and
	•		Repair service agreements, which provide product repair and replacement services for customers who purchase such agreements.

     We offer our products through 76 retail stores located in three states: Texas (67), Louisiana (6) and Oklahoma (3), as well as through our website. We sell our products for cash or for payment through major credit cards, in addition to offering our customers several financing alternatives through our proprietary credit programs and third-party financing. Under our proprietary in-house credit program, we offer our customers a choice of installment payment plans and revolving credit plans through our primary credit portfolio. We also offer an installment program through our secondary credit portfolio to a limited number of customers who do not qualify for credit under our primary credit portfolio. Additionally, the most credit worthy customers in our primary credit portfolio may be eligible for no-interest financing plans.

     We began as a small plumbing and heating business in 1890. We started selling home appliances to the retail market in 1937 through one store located in Beaumont, Texas. In 1959 we

opened our second store and have since grown to 76 stores. We have been known for providing excellent customer service for over 119 years. We believe that our customer-focused business strategies make us an attractive alternative to appliance and electronics superstores, department stores and other national, regional and local retailers. We strive to provide our customers with:

	•		a broad selection of products at various price points;
	•		next day delivery and installation capabilities;
	•		a high level of customer service;
	•		flexible financing alternatives through our proprietary in-house credit programs and third-party financing;
	•		commissioned and trained sales force; and
	•		outstanding product repair or replacement service.

     For over 40 years we have offered flexible consumer credit through our proprietary in-house credit program to our credit-worthy customers for purchases of only the products we offer. We believe our consumer credit program differentiates us from our competitors who do not offer similar in-store consumer credit programs, and generates strong customer loyalty and repeat business for us. We believe that our credit customers represent an underserved market that seeks to purchase the latest in consumer goods through access to flexible consumer credit alternatives that are not widely available to them.

     We believe that these strategies drive repeat purchases and enable us to generate substantial brand name recognition and customer loyalty. During the twelve months ended April 30, 2010, approximately 68% of our credit customers, based on the number of invoices written, were repeat customers, and we have a 90% customer satisfaction rate in surveys our customers voluntarily complete.

     Our decisions to extend consumer credit to our retail customers are made by our internal credit underwriting department located at our corporate office — separate and distinct from our retail sales department. As of April 30, 2010, we employed 21 credit underwriters who make credit granting decisions using our proprietary underwriting process. Our underwriting process considers one or more of the following elements: credit bureau reporting; income verification; current income and debt levels; a review of the customer’s previous credit history with us; the credit risk of the particular products being purchased; and the level of the down payment made at the time of purchase.

     In addition to our underwriting personnel, as of April 30, 2010, we employed approximately 600 people in our collections department who service 100% of our consumer credit portfolio. Our in-house credit financed sales are secured by the products purchased, which we believe gives us a distinct advantage over other creditors when pursuing collections, especially given that many of the products we finance are necessities for the home. We employ an intensive credit collection strategy that includes dialer-based calls, virtual calling and messaging systems, field collectors that contact borrowers at their home or place of employment, collection letters, a legal staff that files lawsuits and attends bankruptcy hearings, and voluntary repossession.

     By combining our front-end underwriting discipline with the back-end rigor in monitoring and collections, we have achieved an average net loss ratio of 3.4% over the past three fiscal years. As of April 30, 2010, our total portfolio balance was $700.5 million and the percentage of borrowers who were more than 60 days delinquent was 8.6%. Additionally, we work with our borrowers after they experience financial hardships in order to help them re-establish their regular payment habits through our reaging program. As of April 30, 2010, 19.1% of the total portfolio balance had been reaged during the term of the financing, thereby extending the total term of those customers’ financing agreements. For the three

months ended April 30, 2010 and the fiscal year ended January 31, 2010, our ratio of net charge-offs as a percentage of our total receivables balance was 4.6% and 3.9%, respectively.

     In 1994, we realigned and added to our management team, enhanced our infrastructure and refined our operating strategy to position ourselves for future growth. From fiscal 1994¹ to fiscal 1999, we selectively grew our store base from 21 to 26 stores while improving operating margins. Since fiscal 1999, we have generated significant growth in our number of stores and revenue. Specifically:

	•		we have grown from 26 stores to 76 stores, an increase of over 192%, and although we have no new store openings currently planned, we plan to continue our store development in the future, dependent on capital availability, to fund the expansion of consumer financial operations;
	•		total revenues have grown 257%, at a compounded annual rate of 12.3%, from $245.1 million in fiscal 1999, to $875.6 million in fiscal 2010 and our same store sales growth from fiscal 1999 through fiscal 2010 has averaged 5.7%; it decreased by 13.8% for fiscal 2010;
	•		our operating margin has averaged 8.6% since fiscal 2006; it was 3.3% for fiscal 2010; and
	•		our consumer credit portfolio has grown 356.3%, at a compound annual growth rate of 14.8%, from $161.3 million at July 31, 1999 to $736.0 million at January 31, 2010.

Industry overview

     The products we sell are generally home necessities used by our customers in their everyday lives.

     We believe we will continue to benefit from several key industry trends and characteristics, including:

	•		introduction of new technologies driving consumers to upgrade existing appliances and electronics (i.e. 3-D televisions, energy-efficient front-load laundry);
	•		increasing demand for large screen (42 inches and greater) televisions, which are large items that cannot be easily carried out of the retail store, and therefore typically require delivery and installation;
	•		rationalization of several national and regional players leading to market share opportunities; and
	•		reductions in consumer lending, especially for lower tier credit score customers.

     As measured by Twice, the top 100 consumer electronics retailers in the United States reported consumer electronic sales of $121.3 billion in 2009, a 1.8% increase from the $119.1 billion reported in 2008. The consumer electronics market is highly fragmented with sales coming from large appliance and electronics superstores, national chains, small regional chains, single-store operators, and consumer electronics departments of selected department and discount stores. We estimate, based on data provided in Twice, that Best Buy and Wal-Mart, the two largest consumer electronics retailers, together accounted for approximately 42% of the total electronics sales attributable to the 100 largest retailers in 2009. Based on revenue in 2009, we were the 35th largest retailer of consumer electronics in the United States. For the twelve months ended April 30, 2010, we generated $237.9 million, or 37.6%, of total product sales from the sale of consumer electronics.

     Technological advancements and the introduction of new products have largely driven growth in the consumer electronics market. Recently, industry growth has been fueled primarily by the introduction of products that incorporate digital technology, such as high definition flat-panel (including 3-D, LCD, and LED technology) and projection televisions, Blu-ray and traditional DVD players, digital cameras and camcorders, digital stereo receivers, satellite technology and MP3 products. Digital products offer significant advantages over their analog counterparts, including better clarity and quality of video and audio, durability of recording and compatibility with computers. Due to these advantages, we believe that digital technology will continue to drive industry growth.

     Based on data published in Twice the top 100 major appliance retailers reported sales of approximately $22.6 billion in 2009, down approximately 3.7% from reported sales in 2008 of approximately $23.5 billion. The retail appliance market is large and concentrated among a few major dealers, with sales coming primarily from large appliance and electronics superstores, national chains, small regional chains and home improvement centers. Sears has been the leader in the retail appliance market, with a market share of the top 100 retailers of approximately 32% in 2009 and 33% in 2008. Lowe’s and Home Depot held the second and third place positions, respectively, in national market share in 2008. We were the 9^th largest appliance retailer in the United States in 2009. For the twelve months ended April 30, 2010, we generated $199.3 million, or 31.5%, of total product sales from the sale of home appliances.

     In the home appliance market, many factors impact sales, including consumer confidence, economic conditions, household formations and new product introductions. Product design and innovation have recently been a key driver of sales in this market, while the reduction in sales of homes has negatively impacted appliance sales. Products recently introduced include high efficiency, front-loading laundry appliances and three door refrigerators, and variations on these products, including new features.

     According to the U.S. Department of Commerce — Bureau of Economic Analysis, personal consumption expenditures for household furniture were estimated to be approximately $85.8 billion in 2009, down from $92.8 billion in the prior year. The household furniture and mattress market is highly fragmented with sales coming from manufacturer-owned stores, independent dealers, furniture centers, specialty sleep product stores, national and local chains, mass market retailers, department stores and, to a lesser extent, home improvement centers, decorator showrooms, wholesale clubs, catalog retailers, and the Internet. For the twelve months ended April 30, 2010, retail sales of furniture and mattresses comprised approximately 10.7% of our total product sales, and, other than accessories, which account for less than 2% of our total product sales, generated our highest individual product category gross margin of 32% versus our overall retail product margin of 21% for the twelve months ended April 30, 2010. Given our ability to provide consumer financing and next day delivery, we believe that we have significant growth opportunities in this market, and expect to continue to expand this product line.

     Based on data from the Federal Reserve System, estimated total consumer credit outstanding, which excludes primarily loans secured by real estate, was $2.45 trillion as of December 31, 2009, down 4.3% from $2.56 trillion at December 31, 2008. As a result of the recession that began in late 2007, consumers have increased their rate of savings and reduced their level of borrowing to fund purchases. Consumers obtain credit from banks, credit unions, finance companies and non-financial businesses that offer credit, including retailers. The credit obtained takes many forms, including revolving (e.g., credit cards) or fixed-term (e.g., automobile loans) credit, and at times is secured by the products being purchased.

Our competitive strengths

     Distinct shopping experience.

     We strive to offer our customers a distinct shopping experience through a continuing focus on execution in five key areas: merchandising, consumer credit, distribution, product service and training. Successful execution in each area relies on the following strategies:

	•		Providing a high level of customer service. We endeavor to maintain a high level of customer service as a key component of our culture. Our sales associates serve as ongoing resources for our customers, including assisting with the credit application process, scheduling delivery and installation, and acting as a point of contact for service issues. We believe this commitment to our customers drives customer loyalty and generates a high level of repeat purchases. Our customer service resolution department takes more than 18,000 calls or online requests for assistance each month and attempts to assist customers within 72 hours of contact.
	•		Offering a broad range of brand name products. We offer a comprehensive selection of high-quality, brand name merchandise to our customers at guaranteed low prices. Consistent with our good-better-best merchandising strategy, we offer a wide range of product selections from entry-level models through high-end models. We maintain strong relationships with the approximately 200 manufacturers and distributors that enable us to offer over 3,000 SKUs to our customers. We carry the latest in consumer brand names in our core product categories, including: Samsung; Sony; LG; Toshiba; Hewlett Packard; Panasonic; Mitsubishi; Compaq; Bose; Canon; JVC; Whirlpool; Maytag; Frigidaire; Kitchen Aid; General Electric; Friedrich; Serta; Lady Americana; Better Homes and Gardens; Ashley; Lane; Broyhill; Franklin and Jackson Furniture.
	•		Employing a commissioned and trained sales force. Through a targeted sales compensation incentive structure, regular product and sales training, and our “good-better-best” merchandising strategy, our sales effort is focused on driving sales volume towards products that both provide better value to the customer and typically generate higher margins for our business. We require all sales personnel to complete an intensive classroom training program and additional time riding in a delivery truck and a service truck to observe how we serve our customers after the sale is made. After the initial new hire training, all sales personnel participate in regular training programs to learn about new products and refresh their knowledge of the general sales process and maintaining a high level of customer service. Additionally, we also require all credit personnel to complete a two week classroom training program. Classroom instruction includes negotiation techniques and credit policy training to ensure customer retention and compliance with debt collection regulations. Post graduation, the collection trainees undergo additional skill set assessment training, coaching, and call monitoring within their respective department assignments. All credit personnel are required to complete monthly and quarterly refresher training and testing.
	•		Maintaining next day delivery and installation capabilities. We maintain four regional distribution centers and two other related facilities that, in combination with outsourced third-party distribution arrangements, cover all of the markets in which we operate. These facilities are part of a sophisticated inventory management system that also includes a fleet of approximately 70 transfer and delivery vehicles that service all of our customers not serviced by our third-party providers. Our distribution operations have enabled us to deliver products on the day after the sale for approximately 94% of our customers who scheduled delivery during that timeframe.
	•		Offering outstanding product repair or replacement services. For all products that are either covered by warranties or for customers who purchase repair service agreements, we provide repair or replacement services. We service every product that we sell, and we service only

			the products that we sell. In this way, we can assure our customers that they will receive our service technicians’ exclusive attention to their product repair needs. We will repair the product ourselves, make house calls if necessary or facilitate replacement products. All of our service centers are authorized factory service facilities that provide trained technicians to offer in-home diagnostic and repair service utilizing a fleet of approximately 120 service vehicles as well as on-site service and repairs for products that cannot be repaired in the customer’s home. At times, we also use third-party service providers to allow us to cover some of the markets outside our traditional service areas and maintain the appropriate level of customer service.
	•		Endeavoring to maintain a high level of customer satisfaction. Our customer satisfaction level, which is measured for the sales floor, delivery operation and service department, averaged approximately 90% over the past three fiscal years, based on customer surveys which typically have a response rate of approximately 17%. We measure customer satisfaction on the sales floor, in our delivery operation and in our service department by sending survey cards to all customers to whom we have delivered or installed a product or made a service call.

     Proprietary in-house credit program.

     Our consumer in-house credit program is an integral part of our business, and we believe it is a major driver of customer loyalty. We have offered flexible financing alternatives to our customers through our proprietary in-house credit programs for over 40 years. Our credit program allows us to differentiate ourselves from our competitors who do not offer similar programs.

     As of April 30, 2010, the aggregate outstanding account balances in our consumer credit portfolio were $700.5 million, of which 40% was financed through our own capital and 60% was financed by our borrowings. Historically, our equity investment in our credit portfolio has been greater than 35%. We believe that our deeply rooted collections culture stems in large part from our dedication to protecting this investment, and since a significant portion of our own capital is at stake, we believe it is important for us to control the credit process from initial underwriting to final collection. Thus, we do not outsource our credit operations. We believe that it is this high level of attention, from our strict underwriting standards to our robust in-house monitoring and collections practices, when combined with the secured nature of our portfolio, which drives the strong long-term performance of our credit portfolio.

     In the last three years, we financed, on average, approximately 61% of our retail sales through our proprietary in-house credit programs. We believe that our credit programs provide our customers access to financing alternatives that our competitors typically do not offer and, as a result they:

	•		expand our potential customer base,
	•		increase our sales revenue,
	•		enhance customer loyalty, and
	•		enhance our overall profitability through earnings from financing income.

     Our credit department makes all credit decisions internally, entirely independent of our sales personnel. We provide special consideration to customers with good credit history with us. Before extending credit, we consider our loss experience by product category and the customer’s credit worthiness and income to debt level in determining the down payment amount and other credit terms. This facilitates product sales while keeping our credit risk within an acceptable range, allowing us to generate the performance of our credit portfolio despite the recent difficult economic conditions. We provide a full range of credit products, including interest-free programs for the highest credit quality customers and our secondary portfolio for our credit-challenged customers. The secondary portfolio, which has generally lower average credit scores than our primary portfolio, undergoes more intense

internal underwriting scrutiny to mitigate the inherently greater risk, including address and employment verification and reference checks. Approximately 60% of our customers who have active credit accounts with us take advantage of our in-store payment option and come to our stores each month to make their payments, which we believe results in additional sales to these customers. We employ a rigorous series of measures to ensure collection of our customer credit receivables including contacting customers with past due accounts daily and attempt to work with them to collect payments in times of financial difficulty or periods of economic downturn. Our experience in credit underwriting and the collections process has enabled us to achieve an average net loss ratio of 3.3% over the past three years on the credit portfolio that we manage, including customer receivables sold to our bankruptcy-remote variable interest entity, or VIE.

     Strong presence in desirable geographic region.

     We believe our typical customer is a working class repeat buyer living in a mature neighborhood who comes to our store to replace older household goods with newer items. Our stores are often strategically located as the anchor store in a strip center, where we can improve access to this target customer segment.

     With 67 of our 76 stores in Texas, we believe we benefit from strong demographic trends. According to the Bureau of Economic Analysis, Texas was the second largest state by nominal GDP in 2008. In addition, from 2000 to 2009, Texas experienced population growth of 18.8% compared to the U.S. population growth of 9.1% over the same period. Moreover, Texas’ average unemployment rate continues to trend below the national rate (8.3% in Texas versus 9.7% nationally as of May 2010).

     Long history of providing credit to an underserved customer base.

     Many of our customers have a long credit history with us, providing us with valuable information when making underwriting decisions. Our long history of providing consumer finance in our markets and our in-depth understanding of the credit profile of our customers gives us the ability to offer flexible financing options to an underserved market.

     Flexible and scalable operating platform.

     Our highly integrated retail and credit business model allows us to adapt a changing economic environment and appropriately manage our liquidity. As recent economic conditions deteriorated, we:

	•		adjusted our credit standards, thereby improving the credit quality of the additions to our credit portfolio; as a result, we decreased the size of our credit portfolio and debt balances and reduced the use of cash for working capital;
	•		reduced expenses, in addition to those expenses that are directly variable with changes in net sales, which we believe will improve our operating leverage in the future; and
	•		emphasized pricing discipline on the sales floor, while maintaining our competitive pricing position in the marketplace, to drive an increase in our retail gross margin to 27.9% in the three months ended April 30, 2010, as compared to 25.0% for the same period in the prior fiscal year;

     We have the ability to open up new stores with minimal capital requirements (less than $1.5 million of capital expenditure per leased store) and can easily integrate them into our existing infrastructure. Our credit operations are in a central location and our vendor relationships provide us access to stock the necessary inventory.

     Experienced management team and collections personnel.

     Our executive management team has spent an average of approximately 13 years with the Company. The senior management team of our retail operations has experience in all aspects of that business and has an average of approximately 15 years with the Company. The seven senior credit underwriters possess an average of over 21 years of credit experience, supervise a group of 21 underwriters and oversee the credit underwriting process. This level of experience ensures that both our retail and credit operations are closely monitored.

Our strategies

     Our strategies to maximize and grow returns for our stakeholders by offering customers quality products, excellent customer service and flexible consumer credit options, include:

Be the leading specialty retailer of consumer electronics, appliances and furniture and mattresses in our geographic footprint.

     We seek to drive improved store productivity through comparable store sales growth, expansion of retail gross margin and increased operational efficiencies. We expect to grow sales by expanding existing categories, especially furniture and mattresses, which we expanded in our stores over the past five years, through improved merchandising, by reviewing and adjusting our product and brand offerings to meet customer demand, and by a continued focus on customer service. Specifically, we plan to increase our same store sales by:

	•		adding new merchandise to our existing product lines;
	•		re-merchandising our product offerings in response to changes in consumer interest and demand;
	•		increasing sales of our merchandise, finance products, repair service agreements and credit insurance through direct mail and in-store credit promotion programs;
	•		continuing to offer quality products at competitive prices;
	•		continuing to provide a high level of customer service in sales, delivery and servicing of our products;
	•		training our sales personnel to increase sales closing rates; and
	•		updating our stores as needed.

Maintain strong credit portfolio performance.

     During fiscal 2010, we re-assessed the underlying delinquency and charge-off performance of our credit portfolio in light of the deterioration of the economy and tightened our underwriting standards in response. The implementation of stricter underwriting standards is also a reflection of our assessment of the profitability of our credit operation relative to the capital requirements of that business. Our adjusted approach to underwriting credit with enhanced data verification requirements sequentially improved our portfolio credit metrics in the first quarter of fiscal 2011 compared to the fourth quarter of fiscal 2010. Cash collections have improved since the fourth quarter of fiscal 2010 with 60-day delinquencies down 140 basis points and re-aged receivables down 50 basis points since the end of fiscal 2010, compared to a decline of 40 basis points and an increase of 10 basis points, respectively, in the first quarter of the prior fiscal year. Our net portfolio charge-offs (as a percent of average outstanding receivables) have averaged 3.4% over the last three fiscal years, using a weighted average, although our net charge-offs have increased from 3.2% for the year ended January 31, 2009 to 3.9% for the year ended January 31, 2010, as a result of challenging economic conditions. Though net charge-offs increased from 3.0% for the quarter ended April 30, 2009, to 4.6% for the quarter ended April 30, 2010, the total amounts charged off

decreased $0.6 million and as a percent, from 4.8%, compared to the quarter ended January 31, 2010, despite the reduction in the outstanding balance of the portfolio. We believe that the key drivers of our strong portfolio performance are:

	•		a significant portion of our credit portfolio is financed with our capital; we control all aspects of the credit process and do not sell our receivables to third parties;
	•		we service 100% of our portfolio in-house;
	•		our loans to our customers are secured by the items purchased;
	•		customized front-end underwriting procedures tailored to our customer base, including customer and product risk assessment and down payment determination;
	•		credit history of our large pool of repeat customers;
	•		rigorous collection process;
	•		64% of our loans are covered by credit insurance which covers borrowers in certain events, and
	•		64% of the products securing our loans are covered by repair service agreements.

Controlled growth of our store base and credit offerings.

     As a result of the recent volatility in the capital markets we modified our store opening plans, and currently have no new store openings planned. However, in the future we intend to reinitiate our new store development program and increase our market presence by opening new stores in our existing markets and in adjacent markets as we identify the need and opportunity, in each case, dependent upon future capital availability. New store openings in these locations will allow us to leverage our existing advertising presence, brand name recognition, reputation and infrastructure. This infrastructure includes our proprietary management information systems, training processes, distribution network, merchandising capabilities, supplier relationships, product service capabilities and centralized credit approval and collection management processes. We have historically grown our new store count by about 10% per year, except as appropriate or necessary to take advantage of unique market opportunities, and expect to return to this modest, controlled pace based on capital availability to support the resultant growth in our credit operations. As we increase our capital base, we intend to increase the amount of credit originations to our underserved customer base, to help them purchase products and services they may not be able to purchase otherwise.

     We intend to expand our store base in existing, adjacent and new markets, as follows:

	•		Existing and adjacent markets. Over the long-term, we intend to increase our market presence by opening new stores in our existing markets and in adjacent markets as we identify the need and opportunity. New store openings in these locations will allow us to maximize opportunity in those markets and leverage our existing distribution network, advertising presence, brand name recognition and reputation. In fiscal 2010, we opened one new store in each of Dallas and Houston.
	•		New markets. During fiscal 2008 we opened our first store in Oklahoma and opened two additional stores in the market during fiscal 2009. We intend to consider new markets over the next several fiscal years, beginning with markets in states in which we currently operate. We expect that new store growth will include major metropolitan markets in Texas and have also identified a number of smaller markets within Texas, Louisiana and Oklahoma in which we expect to explore new store opportunities. Our long-term growth plans include markets in other areas of significant population density in neighboring states.

     The addition of new stores and new and expanded product categories have played a significant role in our continued growth and success. We currently operate 76 retail stores located in Texas,

Louisiana and Oklahoma. We opened seven stores in each of fiscal 2008 and 2009 and two stores in fiscal 2010. Additionally, we closed two of our clearance center locations in fiscal 2010. We believe that continuing our strategies of updating existing stores, growing our store base and locating our stores in desirable geographic markets is important to our future success.

Customers

     We do not have a significant concentration of sales with any individual customer and, therefore, the loss of any one customer would not have a material impact on our business. No single customer accounts for more than 10% of our total revenues; in fact, no single customer accounted for more than $250,000 during the year ended January 31, 2010.

Products and merchandising

     Product categories.

     Each of our stores sells the major categories of products shown below. The following table, which has been adjusted from previous filings to ensure comparability, presents a summary of total revenues for the years ended January 31, 2008, 2009, and 2010:

		Year ended January 31,
(Dollars in Thousands)		2008								2009								2010
		Amount				Percent				Amount				Percent				Amount				Percent
Consumer electronics		$	244,872				28.1	%		$	305,056				31.8	%		$	262,751				30.0	%
Home appliances			223,877				25.7				221,474				23.1				208,470				23.8
Track			101,289				11.6				109,799				11.4				97,463				11.1
Furniture and mattresses			62,797				7.2				68,869				7.2				68,208				7.8
Other			38,736				4.5				38,531				4.0				30,509				3.4
Total product sales			671,571				77.1				743,729				77.5				667,401				76.1
Repair service agreement commissions			36,424				4.2				40,199				4.2				33,272				3.8
Service revenues			22,997				2.7				21,121				2.2				22,115				2.5
Total net sales			730,992				84.0				805,049				83.9				722,788				82.4
Finance charges and other			139,538				16.0				154,492				16.1				152,797				17.5
Total revenues		$	870,530				100.0	%		$	959,541				100.0	%		$	875,585				100.0	%

     Within these major product categories (excluding repair service agreements, service revenues and delivery and installation), we offer our customers over 3,000 SKUs in a wide range of price points. Most of these products are manufactured by brand name companies, including General Electric, Whirlpool, Frigidaire, Friedrich, Maytag, LG, Mitsubishi, Samsung, Sony, Toshiba, Bose, Canon, JVC, Serta, Simmons, Spring Air, Ashley, Lane, Broyhill, Franklin, Hewlett Packard, Compaq, Poulan, Husqvarna and Toro. As part of our good-better-best merchandising strategy, our customers are able to choose from products ranging from low-end to mid- to high-end models in each of our key product categories, as follows:

Category		Products		Selected Brands
Home appliances		Refrigerators, freezers, washers, dryers, ranges, dishwashers, builtins, air conditioners and vacuum cleaners		Whirlpool, Maytag, Frigidaire, Kitchen Aid, Samsung, LG, General Electric, Friedrich, Roper, Hoover, Dyson and Eureka
Consumer electronics		3D, LCD, plasma, and DLP televisions, and home theater systems		Samsung, Sony, LG, Toshiba, Panasonic, Mitsubishi and Bose
Track		Computers, computer peripherals,		Hewlett Packard, Compaq, Sony,

Category		Products		Selected Brands
		camcorders, digital cameras, DVD players, audio components, compact disc players, GPS devices, video game equipment, speakers and portable electronics (e.g. MP3 players)		Canon, Garmin, Panasonic, Nintendo, Microsoft and JVC
Furniture and mattresses		Furniture and mattresses		Serta, Lady Americana, Better Homes and Gardens, Ashley, Lane, Broyhill, Franklin and Jackson Furniture
Other		Lawn and garden		Poulan, Husqvarna, Toro, Weedeater

     Purchasing.

     We purchase products from over 200 manufacturers and distributors. Our agreements with these manufacturers and distributors typically cover a one-year time period, are renewable at the option of the parties and are terminable upon 30 days written notice by either party. Similar to other specialty retailers, we purchase a significant portion of our total inventory from a limited number of vendors. During fiscal 2010, 58.3% of our total inventory purchases were from six vendors, including 12.6%, 10.7% and 10.2% of our total inventory purchases from Samsung, LG and Toshiba, respectively. The loss of any one or more of these key vendors or our failure to establish and maintain relationships with these and other vendors could have a material adverse effect on our results of operations and financial condition. We have no indication that any of our suppliers will discontinue selling us merchandise. We have not experienced significant difficulty in maintaining adequate sources of merchandise, and we generally expect that adequate sources of merchandise will continue to exist for the types of products we sell.

     Merchandising strategy.

     We focus on providing a comprehensive selection of high-quality merchandise to appeal to a broad range of potential customers. Consistent with our good-better-best merchandising strategy, we offer a wide range of product selections from entry-level models through high-end models. We primarily sell brand name warranted merchandise. Our established relationships with major appliance and electronic vendors and our affiliation with NATM, a major buying group with $5 billion in purchases annually, give us purchasing power that allows us to offer custom-featured appliances and electronics at prices which compare favorably with national retailers and provides us a competitive selling advantage over other independent retailers. As part of our merchandising strategy, we operate two clearance centers with one in Houston and one in Dallas to help sell damaged, used or discontinued merchandise.

     Pricing.

     We emphasize competitive pricing on all of our products and maintain a low price guarantee that is valid in all markets for 10 to 30 days after the sale, depending on the product. At our stores, to print an invoice that contains pricing other than the price maintained within our computer system, sales personnel must call a special “hotline” number at the corporate office for approval. Personnel staffing this hotline number are familiar with competitor pricing and are authorized to make price adjustments to fulfill our low price guarantee when a customer presents acceptable proof of the competitor’s lower price. This centralized function allows us to maintain control of pricing and gross margins, and to store and retrieve pricing data of our competitors.

Store operations

     Stores.

     We currently operate 76 retail and clearance stores located in Texas, Louisiana and Oklahoma. We recently closed our clearance center in San Antonio, Texas, to provide additional space for the expansion of our credit collection center, which was located in the same facility, and closed and sold our

clearance center in Baytown, Texas. The following table illustrates our markets, the number of freestanding and strip mall stores in each market and the calendar year in which we opened our first store in each market:

		Number of Stores								First Store
Market		Stand Alone				Strip Mall				Opened
Houston			5				18				1983
San Antonio/Austin			5				9				1994
Golden Triangle (Beaumont, Port Arthur, Lufkin and Orange, Texas and Lake Charles, Louisiana)			1				5				1937
Baton Rouge/Lafayette			1				4				1975
Corpus Christi			1				1				2002
Dallas/Fort Worth			1				18				2003
South Texas			1				3				2004
Oklahoma			0				3				2008
Total			15				61

     Our stores have an average selling space of approximately 22,000 square feet, plus a rear storage area averaging approximately 5,500 square feet for fast-moving or smaller products that customers prefer to carry out rather than wait for in-home delivery. Two of our stores are clearance centers for discontinued product models, damaged merchandise, returns and repossessed product located in our Houston and Dallas markets and contain 30,630 square feet of combined selling space. All stores are open from 10:00 a.m. to 9:30 p.m. Monday through Friday, from 9:00 a.m. to 9:30 p.m. on Saturday, and from 11:00 a.m. to 7:00 p.m. on Sunday. We also offer extended store hours during the holiday selling season.

     Approximately 80% our stores are located in strip shopping centers and regional malls, with the balance being stand-alone buildings in “power centers” of big box consumer retail stores. All of our locations have parking available immediately adjacent to the store’s front entrance. Our storefronts have a distinctive front that guides the customer to the entrance of the store. Inside the store, a large colorful tile track separates the interior floor of the store for our “track products”. One track leads the customer to major appliances, while the other track leads the customer to a large display of television and home theater products. The inside of the track contains various home office and consumer electronic products such as computers, laptops, printers, Blu-ray and DVD players, camcorders, digital cameras, MP3 players, video game equipment and GPS devices. We are expanding the rear floor areas of our stores for the display of furniture, mattresses, and lawn and garden equipment. To reach the cashier’s desk at the center of the track area, our customers must walk past our products. We believe this increases sales to customers who have purchased products from us on credit in the past and who return to our stores to make their monthly credit payments.

     We have updated many of our stores in the last three fiscal years. We expect to continue to update our stores as needed to address each store’s specific needs. We continue to update our prototype store model and implement it at new locations and in existing locations in which the market demands support the required design changes. As we continue to add new stores or update or replace existing stores, we intend to modify our floor plan to include elements of this new model. All of our updated stores, as well as our new stores, include modern interior selling spaces featuring attractive signage and display areas specifically designed for each major product type. Our prototype store for future expansion has from 20,000 to 25,000 square feet of retail selling space, which approximates the average size of our existing stores and a rear storage area of between 5,000 and 7,000 square feet. Our investment to update our stores has averaged approximately $168,025 per store over the past three years, and we expect these improvements to benefit sales at those stores over time. Over the last three years, we have invested approximately $10.4 million updating, refurbishing or relocating our existing stores. We

continuously evaluate our existing and potential sites to position our stores in desirable locations and relocate stores that are not properly positioned. We typically lease rather than purchase our stores to retain the flexibility of managing our financial commitment to a location if we later decide that the store is performing below our standards or the market would be better served by a relocation. After updating, expanding or relocating a store, we expect to increase same store sales at the store.

     Site selection.

     Our stores are typically located adjacent to freeways or major travel arteries and in the vicinity of major retail shopping areas. We prefer to locate our stores in areas where our prominent storefront will be the anchor of the shopping center or readily visible from major thoroughfares. We also prefer to locate our stores in mature working class neighborhoods. We have typically entered major metropolitan markets where we can potentially support at least 10 to 12 stores. We believe this number of stores allows us to optimize advertising and distribution costs. We have and may continue to elect to experiment with opening lower numbers of new stores in smaller communities where customer demand for products and services outweighs any extra cost, including our initial move to the Oklahoma City market. Other factors we consider when evaluating potential markets include the distance from our distribution centers, our existing store locations and store locations of our competitors and population, demographics and growth potential of the market.

     Store economics.

     We lease 72 of our 76 current store locations, with an average monthly rent of $20,900. Our average per store investment for the 14 new leased stores we have opened in the last three years was approximately $1.4 million, including leasehold improvements, fixtures and equipment and inventory (net of accounts payable). Our total investment for the owned location that was built in 2008 totaled approximately $4.6 million, including land, buildings, fixtures and equipment and inventory (net of accounts payable). For these new stores, excluding the clearance center opened in San Antonio and subsequently closed to expand our call center in that location, the net sales per store have averaged $0.5 million per month.

     Our new stores have typically been profitable on an operating basis within their first three to six months of operation and, on average, have returned our net cash investment in 20 months or less. We consider a new store to be successful if it achieves $8 million to $9 million in sales volume and 4% to 7% in operating margins before other ancillary revenues and allocations of overhead and advertising in the first full year of operation. We expect successful stores that have matured, which generally occurs after two to three years of operations, to generate annual sales of approximately $12 million to $15 million and 9% to 12% in operating margins before other ancillary revenues and overhead and allocations. However, depending on the credit and insurance penetration of an individual store, we believe that a store that does not achieve these levels of sales can still contribute significantly to our pretax margin.

     Personnel and compensation.

     We staff a typical store with a store manager, an assistant manager, an average of 17 sales personnel and other support staff including cashiers and/or porters based on store size and location. Managers have an average tenure with us of approximately five years and typically have prior sales floor experience. In addition to store managers, we have seven district management personnel that generally oversee from seven to ten stores in each market. The senior management team of retail operations have an average of approximately 15 years of experience with us.

     We compensate the majority of our sales associates on a straight commission arrangement, while we generally compensate store managers on a salary basis plus incentives and cashiers at an hourly rate. In some instances, store managers receive earned commissions plus base salary. We believe that because our store compensation plans are tied to sales, they generally provide us an advantage in attracting and retaining highly motivated employees.

     Training.

     New sales personnel must complete an intensive classroom training program in the markets where they will be assigned, under the direction of sales management personnel in those markets. We then require them to spend additional time riding in delivery and service trucks to gain an understanding of how we serve our customers after the sale is made. Installation and delivery staff and service personnel receive training through an on-the-job program in which individuals are assigned to an experienced installation and delivery or service employee as helpers prior to working alone. In addition, our employees benefit from on-site training conducted by many of our vendors.

     We attempt to identify store manager candidates early in their careers with us and place them in a defined program of training. They generally first attend our in-house training program, which provides guidance and direction for the development of managerial and supervisory skills. They then attend a Dale Carnegie^® certified management course that helps solidify their management knowledge and builds upon their internal training. After completion of these training programs, manager candidates work as assistant managers for six to twelve months and are then allowed to manage one of our smaller stores, where they are supervised closely by the store’s district manager. We give new managers an opportunity to operate larger stores as they become more proficient in their management skills. Each store manager attends mandatory training sessions on a monthly basis and also attends bi-weekly sales training meetings where participants receive and discuss new product information.

Marketing

     We design our marketing and advertising programs to increase our brand name recognition, educate consumers about our products and services and generate customer traffic in order to increase sales. We conduct our advertising programs primarily through newspapers, radio and television stations, direct mail, telephone and our website. Our promotional programs include the use of discounts, rebates, product bundling and no-interest financing plans. Our website and the information contained on our website is not incorporated in this annual report or Form 8-K or any other document filed with the SEC.

     Our website provides customers the ability to purchase our products on-line, offers information about our selection of products and provides useful information to the consumer on pricing, features and benefits for each product. Our website also allows the customers residing in the markets in which we operate retail locations to apply and be considered for credit. The website currently averages approximately 15,000 visits per day from potential and existing customers and during fiscal 2010 was a source of retail sales and credit applications. The website is linked to a call center, allowing us to better assist customers with their credit and product needs.

Distribution and inventory management

     We typically locate our stores in close proximity of our four regional distribution centers located in Houston, San Antonio, Dallas and Beaumont, Texas and smaller cross-dock facilities in Austin and Harlingen, Texas. This enables us to deliver products to our customers quickly, reduces inventory requirements at the individual stores and facilitates regionalized inventory and accounting controls.

     In our retail stores we maintain an inventory of fast-moving items and products that the customer is likely to carry out of the store. Our Distribution Inventory Sales computer system and the use of scanning technology in our distribution centers allow us to determine, on a real-time basis, the exact location of any product we sell. If we do not have a product at the desired retail store at the time of sale, we can provide it through our distribution system on a next day basis.

     We maintain a fleet of tractors and trailers that allow us to move products from market to market and from distribution centers to stores to meet customer needs. We outsource a portion of our deliveries to a third party. Our fleet of home delivery vehicles enables our highly-trained delivery and installation specialists, in combination with the outsourced distribution arrangements to quickly complete the sales process, enhancing customer service. We receive a delivery fee based on the products sold and the services needed to complete the delivery. Additionally, we are able to complete deliveries to our

customers on the day after the sale for approximately 94% of our customers who have scheduled delivery during that timeframe.

Finance operations

     General.

     We sell our products for cash or for payment through major credit cards and third-party financing, in addition to offering our customers several financing alternatives through our proprietary credit programs. In the last three fiscal years, we financed, on average, approximately 61% of our retail sales through one of our two credit programs. We offer our customers a choice of installment payment plans and revolving credit plans through our primary credit portfolio. We also offer an installment program through our secondary credit portfolio to a limited number of customers who do not qualify for credit under our primary credit portfolio. Additionally, the most credit worthy customers in our primary credit portfolio may be eligible for no-interest financing plans. We use a third-party finance company to provide a portion of our no-interest financing offerings.

     The following table shows our product and repair service agreements sales, net of returns and allowances, by method of payment for the periods indicated.

		Year Ended January 31,
(Dollars in Thousands)		2008								2009								2010
		Amount				%				Amount				%				Amount				%
Cash and other credit cards		$	267,931				37.8	%		$	293,131				37.4	%		$	293,512				41.9	%
Primary credit portfolio:
Installment			340,274				48.1				390,040				49.8				336,337				48.0
Revolving			34,025				4.8				23,105				2.9				28,638				4.1
Secondary credit portfolio			65,765				9.3				77,652				9.9				42,186				6.0
Total		$	707,995				100.0	%		$	783,928				100.0	%		$	700,673				100.0	%

     Credit underwriting.

     Our decisions to extend consumer credit to our retail customers are made by our internal credit underwriting department located at our corporate office — separate and distinct from our retail sales department. The seven senior credit underwriters possess an average of 21 years of credit experience. These senior underwriters supervise 21 credit underwriters who make credit granting decisions using our proprietary underwriting process and oversees our credit underwriting process. Our underwriting process considers one or more of the following elements: credit bureau reporting; income verification; current income and debt levels; a review of the customer’s previous credit history with us; the credit risk of the particular products being purchased; and the level of the down payment made at the time of purchase.

     Our credit programs are managed by our centralized credit underwriting department staff, independent of sales personnel. As part of our centralized credit approval process, we have developed a proprietary standardized scoring model that provides preliminary credit decisions, including down payment amounts and credit terms, based on customer risk, income level, and product risk. While we automatically approve some credit applications from customers, approximately 85% of all of our credit decisions are based on evaluation of the customer’s creditworthiness by a qualified in-house credit underwriter. As of April 30, 2010, we employed over 620 full-time and part-time employees who focus on credit approval, collections and credit customer service. Employees in these operational areas are trained to follow our strict methodology in approving credit, collecting our accounts, and charging off any uncollectible accounts based on pre-determined aging criteria, depending on their area of responsibility.

     Part of our ability to control delinquency and net charge-off is based on the level of down payments that we require and the purchase money security interest that we obtain in the product financed, which reduce our credit risk and increase our customers’ ability and willingness to meet their

future obligations. We require the customer to purchase or provide proof of credit property insurance coverage to offset potential losses relating to theft or damage of the product financed.

     Installment accounts are paid over a specified period of time with set monthly payments. Revolving accounts provide customers with a specified amount which the customer may borrow, repay and re-borrow so long as the credit limit is not exceeded. Most of our installment accounts provide for payment over 12 to 36 months, with the average account in the primary credit portfolio remaining outstanding for approximately 14 to 16 months. Our revolving accounts remain outstanding approximately 14 to 16 months. During fiscal 2010, approximately 34% of the applications approved under the primary program were approved automatically through our computer system based on the customer’s credit history. The remaining applications, of both new and repeat customers, are sent to an experienced in-house credit underwriter.

     We created our secondary credit portfolio program to meet the needs of those customers who do not qualify for credit under our primary program, typically due to past credit problems or lack of credit history. If we cannot approve a customer’s application for credit under our primary portfolio, we automatically send the application to the credit staff of our secondary portfolio for further consideration, using stricter underwriting criteria. The additional requirements include verification of employment and recent work history, reference checks and higher required down payment levels. We only offer the installment program to those customers who qualify under these stricter underwriting criteria, and these customers are not eligible for our no-interest programs. An experienced, in-house credit underwriter administers the credit approval process for all applications received under our secondary portfolio program. Most of the installment accounts approved under this program provide for repayment over 12 to 36 months, with the average account remaining outstanding for approximately 21 to 23 months.

The following tables present, for comparison purposes, information regarding our two credit portfolios.

														Three Months Ended
		Year Ended January 31,												January 31,
Primary Portfolio (1)		2008				2009				2010				2009				2010
		(total outstanding balance in thousands)
Total outstanding balance (period end)		$	511,586			$	589,922			$	597,360			$	589,922			$	597,360
Average outstanding customer balance		$	1,287			$	1,403			$	1,339			$	1,403			$	1,339
Number of accounts (period end)			397,606				420,585				446,203				420,585				446,203
Weighted average credit score of outstanding balances			605				603				600				603				600
Total applications processed (2)			823,627				850,538				802,765				257,840				206,422
Percent of retail sales financed			52.9	%			52.7	%			52.1	%			48.9	%			54.7	%
Weighted average origination credit score of sales financed			634				633				632				636				631
Total applications approved			49.8	%			50.0	%			51.1	%			49.9	%			52.7	%
Average down payment			7.4	%			5.9	%			5.2	%			5.5	%			4.5	%

Secondary Portfolio (1)		2008				2009				2010				2009				2010
		(total outstanding balance in thousands)
Total outstanding balance (period end)		$	143,281			$	163,591			$	138,681			$	163,591			$	138,681
Average outstanding customer balance		$	1,264			$	1,394			$	1,319			$	1,394			$	1,319
Number of accounts (period end)			113,316				117,372				105,109				117,372				105,109
Weighted average credit score of outstanding balances			521				521				526				521				526
Total applications processed (2)			400,592				386,126				351,613				114,133				89,615
Percent of retail sales financed			9.3	%			9.9	%			6.0	%			9.4	%			6.0	%
Weighted average origination credit score of sales financed			537				533				550				540				555
Total applications approved			29.8	%			29.4	%			20.2	%			23.2	%			19.3	%
Average down payment			24.6	%			20.5	%			21.2	%			20.1	%			21.2	%

Combined Portfolio (1)		2008				2009				2010				2009				2010
		(total outstanding balance in thousands)
Total outstanding balance (period end)		$	654,867			$	753,513			$	736,041			$	753,513			$	736,041
Average outstanding customer balance		$	1,282			$	1,401			$	1,335			$	1,401				1,335
Number of accounts (period end)			510,922				537,957				551,312				537,957				551,312
Weighted average credit score of outstanding balances			587				585				586				585				586
Total applications processed (2)			1,224,219				1,236,664				1,154,378				371,973				296,037
Percent of retail sales financed			62.2	%			62.5	%			58.1	%			58.3	%			60.7	%
Weighted average origination credit score of sales financed			614				612				620				620				621
Total applications approved			45.3	%			43.6	%			41.7	%			41.7	%			42.6	%
Average down payment			10.1	%			8.2	%			6.9	%			7.4	%			6.2	%

     Credit monitoring and collections.

     In addition to our underwriting personnel, as of April 30, 2010, we employed approximately 600 people in our collections department who service 100% of our consumer credit portfolio. Our in-house credit financed sales are secured by the products purchased, which we believe gives us a distinct advantage over other creditors when pursuing collections, especially given that many of the products we finance are necessities for the home. We employ a very intensive credit collection strategy that includes dialer-based calls, virtual calling and messaging systems, field collectors that contact borrowers at their home or place of employment, collection letters, a legal staff that files lawsuits and attends bankruptcy hearings, and voluntary repossession.

     We closely monitor the credit portfolios to identify delinquent accounts early and dedicate resources to contacting customers concerning past due accounts. We believe that our unique underwriting model, secured interest in the products financed, required down payments, local presence, ability to work with customers, relative to their product, service and credit insurance needs, and the flexible financing alternatives we offer contribute to the historically low net charge-off rates on these portfolios. In addition, our customers have the opportunity to make their monthly payments in our stores, and approximately 60% of our active credit accounts did so at some time during the twelve months ended January 31, 2010. We believe that these factors help us maintain a relationship with the customer that keeps losses lower while encouraging repeat purchases.

     Our collection activities involve a combination of efforts that take place in our Beaumont, Texas and San Antonio collection centers, and field collection efforts that involve a visit by one of our credit counselors to the customer’s home. We maintain a predictive dialer system, including virtual collection systems, and letter campaign that helps us contact over 35,000 delinquent customers daily. We also maintain an experienced skip-trace department that utilizes current technology to locate customers who have moved and left no forwarding address. Our field collectors provide on-site contact with the customer to assist in the collection process or, if needed, to voluntarily repossess the product in the event of non-payment. As part of our effort to work with our customers to achieve and maintain a habit of making consistent monthly payments on their credit accounts with us we will, at times, extend their contractual payment terms, also known as reaging, which usually results in updating the past due status of the account to reflect it as current. Typically, we will agree to reage an account when a customer has experienced a financial hardship, such as temporary loss of employment, if, after discussing the situation with the customer, we validate that they will be able to resume making their regularly scheduled payments. Generally, for the reage process to be completed, the customer is required to pay interest on the account for the number of months reaged and at times may require one or more full monthly

payments. An account can be reaged multiple times over its life, but the use of the reage program is limited and must comply with company guidelines. We believe our reaging programs reduce our ultimate net charge-offs and enhance our ability to collect the full amounts due to us from sales under our credit programs and results in building long-term relationships with those customers that help drive future sales. Repossessions are made when it is clear that the customer is unwilling to establish a reasonable payment program and voluntarily relinquishes control of the purchased merchandise to our field collectors. Our legal department processes our legal collection efforts and helps handle any legal issues associated with the collection process.

     Generally, we deem an account to be uncollectible and charge it off if the account is 120 days or more past due and we have not received a payment in the last seven months. Over the last 36 months, we have recovered approximately 11% of charged-off amounts through our collection activities. The income that we realize from the customer receivables portfolio that we manage depends on a number of factors, including expected credit losses. Therefore, it is to our advantage to maintain a low delinquency rate and net loss ratio on the credit portfolios.

     Our accounting and credit staff consistently monitor trends in charge-offs by examining the various characteristics of the charge-offs, including store of origination, product type, customer credit and income information, down payment amounts and other identifying information. We track our charge-offs both gross, before recoveries, and net, after recoveries. We periodically adjust our credit granting, collection and charge-off policies based on this information.

     The following tables reflect the performance of our two credit portfolios, net of unearned interest.

														Three Months Ended
		Year Ended January 31,												January 31,
Primary Portfolio (1)		2008				2009				2010				2009				2010
		(total outstanding balance in thousands)
Total outstanding balance (period end)		$	511,586			$	589,922			$	597,360			$	589,922			$	597,360
Average total outstanding balance		$	465,429			$	538,673			$	592,376			$	579,539			$	601,763
Account balances over 60 days old (period end)			31,558				35,153				48,775				35,153				48,775
Percent of balances over 60 days old to total outstanding (period end)			6.2	%			6.0	%			8.2	%			6.0	%			8.2	%
Total account balances reaged (2)			71,883				90,560				95,038				90,560				95,038
Percent of balances reaged to total outstanding (period end) (2)			14.1	%			15.4	%			15.9	%			15.4	%			15.9	%
Account balances reaged more than six months			35,631				36,452				35,448				36,452				35,448
Bad debt charge-offs (net of recoveries)			12,429				15,071				20,777				4,280				6,516
Percent of charge-offs (net of recoveries) to average outstanding			2.7	%			2.8	%			3.5	%			3.0	%			4.3	%
Estimated percent of reage balances collected (3)			89.7	%			89.5	%			86.4	%			89.5	%			82.8	%

Secondary Portfolio (1)		2008				2009				2010				2009				2010
		(total outstanding balance in thousands)
Total outstanding balance (period end)		$	143,281			$	163,591			$	138,681			$	163,591			$	138,681
Average total outstanding balance		$	141,202			$	157,529			$	151,380			$	163,320			$	141,125
Account balances over 60 days old (period end)			18,220				19,988				24,616				19,988				24,616
Percent of balances over 60 days old to total outstanding (period end)			12.7	%			12.2	%			17.8	%			12.2	%			17.8	%
Total account balances reaged (2)			35,844				50,602				49,135				50,602				49,135
Percent of balances reaged to total outstanding (period end) (2)			25.0	%			30.9	%			35.4	%			30.9	%			35.4	%

Secondary Portfolio (1)		2008				2009				2010				2009				2010
		(total outstanding balance in thousands)
Account balances reaged more than six months			15,599				19,860				21,920				19,860				21,920
Bad debt charge-offs (net of recoveries)			4,989				7,291				8,165				2,043				2,325
Percent of charge-offs (net of recoveries) to average outstanding			3.5	%			4.6	%			5.4	%			5.0	%			6.6	%
Estimated percent of reage balances collected (3)			90.7	%			89.8	%			88.7	%			90.3	%			86.2	%

Combined Portfolio (1)		2008				2009				2010				2009				2010
		(total outstanding balance in thousands)
Total outstanding balance (period end)		$	654,867			$	753,513			$	736,041			$	753,513			$	736,041
Average total outstanding balance		$	606,631			$	696,202			$	743,756			$	742,859			$	742,888
Account balances over 60 days old (period end)			49,778				55,141				73,391				55,141				73,391
Percent of balances over 60 days old to total outstanding (period end)			7.6	%			7.3	%			10.0	%			7.3	%			10.0	%
Total account balances reaged (2)			107,727				141,162				144,173				141,162				144,173
Percent of balances reaged to total outstanding (period end) (2)			16.5	%			18.7	%			19.6	%			18.7	%			19.6	%
Account balances reaged more than six months			51,230				56,312				57,368				56,312				57,368
Bad debt charge-offs (net of recoveries)			17,418				22,362				28,942				6,323				8,841
Percent of charge-offs (net of recoveries) to average outstanding			2.9	%			3.2	%			3.9	%			3.4	%			4.8	%
Estimated percent of reage balances collected (3)			90.0	%			89.6	%			87.2	%			89.8	%			84.0	%

     By combining our front-end underwriting discipline with the back-end rigor in monitoring and collections, we have achieved an average net loss ratio of 3.4% over the past three fiscal years. As of April 30, 2010, our total portfolio balance was $700.5 million and the percentage of borrowers who were more than 60 days delinquent was 8.6%. Additionally, we work with our borrowers after they experience financial hardships in order to help them re-establish their regular payment habits through our reaging program. As of April 30, 2010, 19.1% of the total portfolio balance had been reaged during the term of the financing, thereby extending the total term of those customers’ financing agreements. For the three months ended April 30, 2010 and the fiscal year ended January 31, 2010, our ratio of net charge-offs as a percentage of our total receivables balance was 4.6% and 3.9%, respectively.

Product support services

     Credit insurance.

     Acting as agents for unaffiliated insurance companies, we offer credit life, credit disability, credit involuntary unemployment and credit property insurance, which we collectively refer to as credit insurance, at all of our stores on sales financed under our credit programs. These products cover payment of the customer’s credit account in the event of the customer’s death, disability or involuntary unemployment or if the financed property is lost or damaged. We receive sales commissions from the unaffiliated insurance company at the time we sell the coverage, and we receive retrospective commissions, which are additional commissions paid by the insurance carrier if insurance claims are less than earned premiums.

     We require proof of property insurance on all installment credit purchases, although we do not require that customers purchase this insurance from us. During fiscal 2010, approximately 72.3% of our credit customers purchased one or more of the credit insurance products we offer, and approximately 14.9% purchased all of the insurance products we offer. Commission revenues from the sale of credit insurance contracts represented approximately 2.5%, 2.1% and 1.9% of total revenues for fiscal years 2008, 2009 and 2010, respectively.

     Warranty service.

     We provide service for all of the products we sell and only for the products we sell. Customers purchased repair service agreements that we sell for third-party insurers on products representing approximately 45.1% of our total product sales for fiscal 2010. These agreements broaden and extend the period of covered manufacturer warranty service for up to four years from the date of purchase, depending on the product. These agreements are sold at the time the product is purchased. Customers may finance the cost of the agreements along with the purchase price of the associated product. We contact the customer prior to the expiration of the repair service agreement period to provide them the opportunity to purchase an extended period of coverage for which we are the direct obligor.

     We have contracts with unaffiliated third party insurers that issue the initial repair service agreements to cover the costs of repairs performed under these agreements. The initial service agreement is between the customer and the independent third-party insurance company, and, through our agreements with the third-party insurance company, we are obligated to provide service when it is needed under each agreement sold. We receive a commission on the sale of the contract, which is recognized in revenues at the time of the sale, and we receive retrospective commissions, which are additional commissions paid by the insurance carrier over time if the cost of repair claims are less than earned premiums. Additionally, we bill the insurance company for the cost of the service work that we perform. We are the obligor under the renewal contracts sold after the primary warranty and third-party repair service agreements expire. Under renewal contracts we recognize revenues received, and direct selling expenses incurred, over the life of the contracts, and expense the cost of the service work performed as products are repaired. We also sell furniture protection program agreements at the time of sale of furniture, for which we are the obligor. We recognize revenues for this program the same as we do for the renewal contracts.

     Of the 16,000 repairs, on average, that we perform each month, approximately 47.3% are covered under repair service agreements, approximately 40.9% are covered by manufacturer warranties and the remainder are cash and customer accommodation repairs. Revenues from the sale of repair service agreements and the other product protection products that we sell represented approximately 5.0%, 5.0% and 4.6% of net sales during fiscal years 2008, 2009 and 2010, respectively.

Management information systems

     We have a fully integrated management information system that tracks, on a real-time basis, point-of-sale information, inventory receipt and distribution, merchandise movement and financial information. The management information system also includes a local area network that connects all corporate users to e-mail, scheduling and various servers. All of our facilities are linked by a wide-area network that provides communication for in-house credit authorization and real-time capture of sales and merchandise movement at the store level. In our distribution centers, we use wireless terminals to assist in receiving, stock put-away, stock movement, order filling, cycle counting and inventory management. At our stores, we currently use desktop terminals to provide sales, and inventory receiving, transferring and maintenance capabilities.

     Our integrated management information system also includes extensive functionality for management of the complete credit portfolio life cycle as well as functionality for the management of product service. The credit system provides in-house credit underwriting, new account set up and tracking, credit portfolio reporting, collections, credit employee productivity metrics, skip-tracing, and bankruptcy, fraud and legal account management. The service system provides for service order processing, warranty claims processing, parts inventory management, technician scheduling and

dispatch, technician performance metrics and customer satisfaction measurement. The sales, credit and service systems share a common customer and product sold database.

     Our invoicing system uses an IBM Series i5 hardware system that runs on the i5OS operating system. This system enables us to use a variety of readily available applications in conjunction with software that supports the system. All of our current business application software, except our website, accounting, human resources and credit legal systems, has been developed in-house by our management information system employees. We believe our management information systems efficiently support our current operations and provide a foundation for future growth.

     We employ Nortel telephone switches and Avaya predictive dialers, as well as a redundant data network and cable plant, to improve the efficiency of our collection and overall corporate communication efforts.

     As part of our ongoing system availability protection and disaster recovery planning, we have implemented a secondary IBM Series i5 system. We installed and implemented the back-up IBM Series i5 system in our corporate offices to provide the ability to switch production processing from the primary system to the secondary system within thirty minutes should the primary system become disabled or unreachable. The two machines are kept synchronized utilizing third party software. This backup system provides “high availability” of the production processing environment. The primary IBM Series i5 system is geographically removed from our corporate office for purposes of disaster recovery and security. Our disaster recovery plan worked as designed during our evacuation from our corporate headquarters in Beaumont, Texas, due to Hurricane Rita in September 2005, and Hurricanes Gustav and Ike in September 2008. While we were displaced, our store, distribution and service operations that were not impacted by the hurricane continued to have normal system availability and functionality.

Competition

     As measured by Twice, the top 100 consumer electronics retailers in the United States reported electronic sales of $121.3 billion in 2009, a 1.8% increase from the $119.1 billion reported in 2008. The consumer electronics market is highly fragmented with sales coming from large appliance and electronics superstores, national chains, small regional chains, single-store operators, and consumer electronics departments of selected department and discount stores. We estimate, based on data provided in Twice, that Best Buy and Wal-Mart, the two largest consumer electronics retailers, together accounted for approximately 42% of the total electronics sales attributable to the 100 largest retailers in 2009. According to the most recently available data reported by Twice, based on revenue in 2009, we were the 35th largest retailer of consumer electronics in the United States.

     Based on data published in Twice, the top 100 major appliance retailers reported sales of approximately $22.6 billion in 2009, down approximately 3.7% from reported sales in 2008 of approximately $23.5 billion. The retail appliance market is large and concentrated among a few major dealers, with sales coming primarily from large appliance and electronics superstores, national chains, small regional chains and home improvement centers. Sears has been the leader in the retail appliance market, with a market share of the top 100 retailers of approximately 32% in 2009 and 33% in 2008. Lowe’s and Home Depot held the second and third place positions, respectively, in national market share in 2008. According to the most recently available data reported by Twice, we were the 9th largest appliance retailer in the United States in 2009.

     According to the U.S. Department of Commerce — Bureau of Economic Analysis, personal consumption expenditures for household furniture were estimated to be approximately $85.8 billion in 2009, down from $92.8 billion in the prior year. The household furniture and mattress market is highly fragmented with sales coming from manufacturer-owned stores, independent dealers, furniture centers, specialty sleep product stores, national and local chains, mass market retailers, department stores and, to a lesser extent, home improvement centers, decorator showrooms, wholesale clubs, catalog retailers, and the Internet.

     Based on data from the Federal Reserve System, estimated total consumer credit outstanding, which excludes primarily loans secured by real estate, was $2.45 trillion as of December 31, 2009, down 4.3% from $2.56 trillion at December 31, 2008. As a result of the recession that began in late 2007, consumers have increased their rate of savings and reduced their level of borrowing to fund purchases. Consumers obtain credit from banks, credit unions, finance companies and non-financial businesses that offer credit, including retailers. The credit obtained takes many forms, including revolving (e.g., credit cards) or fixed-term (e.g., automobile loans) credit, and at times is secured by the products being purchased.

     We compete primarily based on enhanced customer service and customer shopping experience through our unique sales force training and product knowledge, next day delivery capabilities, proprietary in-house credit program, guaranteed low prices and product repair service.

Regulation

     The extension of credit to consumers is a highly regulated area of our business. Numerous federal and state laws impose disclosure and other requirements on the origination, servicing and enforcement of credit accounts. These laws include, but are not limited to, the Federal Truth in Lending Act, Equal Credit Opportunity Act and Federal Trade Commission Act. State laws impose limitations on the maximum amount of finance charges that we can charge and also impose other restrictions on consumer creditors, such as us, including restrictions on collection and enforcement. We routinely review our contracts and procedures to ensure compliance with applicable consumer credit laws. Failure on our part to comply with applicable laws could expose us to substantial penalties and claims for damages and, in certain circumstances, may require us to refund finance charges already paid and to forego finance charges not yet paid under non-complying contracts. We believe that we are in substantial compliance with all applicable federal and state consumer credit and collection laws.

     Our sale of credit life, credit disability, credit involuntary unemployment and credit property insurance products is also highly regulated. State laws currently impose disclosure obligations with respect to our sales of credit and other insurance products similar to those required by the Federal Truth in Lending Act, impose restrictions on the amount of premiums that we may charge and require licensing of certain of our employees and operating entities. We believe we are in substantial compliance with all applicable laws and regulations relating to our credit insurance business.

Employees

     As of April 30, 2010, we had approximately 2,500 full-time employees and 200 part-time employees, of which approximately 1,350 were sales personnel. We offer a comprehensive benefits package including health, life, short and long term disability, and dental insurance coverage as well as a 401(k) plan, employee stock purchase plan, paid vacation and holiday pay, for eligible employees. None of our employees are subject to collective bargaining agreements governing their employment with us and we believe that our employee relations are good. Conn’s has a formal dispute resolution plan that requires mandatory arbitration for employment related issues.

Tradenames and trademarks

     We have registered the trademarks “Conn’s” and our logos.

Available information.

     We are subject to reporting requirements of the Securities and Exchange Act of 1934, or the Exchange Act, and its rules and regulations. The Exchange Act requires us to file reports, proxy and other information statements and other information with the Securities and Exchange Commission (SEC). Copies of these reports, proxy statements and other information can be inspected an copied at the SEC Public Reference Room, 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You may also obtain these materials electronically by accessing the SEC’s home page on the Internet at www.sec.gov.

     Our board has adopted a code of business conduct and ethics for our employees, code of ethics for our chief executive officer and senior financial professionals and a code of business conduct and ethics for our board of directors. A copy of these codes are published on our website at www.conns.com under “Investor Relations — Corporate Governance.” We intend to make all required disclosures concerning any amendments to, or waivers from, these codes on our website. In addition, we make available, free of charge on our Internet website, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on From 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file this material with, or furnish it to, the SEC. You may review these documents, under the heading “Investor Relations — Corporate Governance,” by accessing our website at www.conns.com.

Exhibit 99.2

ITEM 6. SELECTED FINANCIAL DATA

     The following tables set forth selected historical financial information as of and for the periods indicated and reflects our retrospective adoption, for all periods presented, of a change in our accounting for our interest in our variable interest entity, or VIE. See Note 2 in our Notes to Consolidated Financial Statements for the year ended January 31, 2010 for additional information. We have provided the following selected historical financial information for your reference. We have derived the selected statement of operations and balance sheet data as of January 31, 2010 and 2009 and for each of the years ended January 31, 2010, 2009 and 2008 from our audited consolidated financial statements included as Exhibit 99.4 to this Current Report on Form 8-K. Balance sheet data as of January 31, 2008 and statement of operations data for the years ended January 31, 2007 and 2006 have been derived from our unaudited consolidated financial statements which do not appear in this in this Current Report on Form 8-K.

		Year Ended January 31,
		(dollars and shares in thousands, except per share amounts)
		2006				2007				2008				2009				2010
Statement Operations:
Revenues:
Product sales		$	569,877			$	623,959			$	671,571			$	743,729			$	667,401
Repair service agreement commissions, net (1)			30,583				30,567				36,424				40,199				33,272
Service revenues (2)			20,278				22,411				22,997				21,121				22,115
Total net sales			620,738				676,937				730,992				805,049				722,788
Finance charges and other (3)			109,250				122,649				139,538				154,492				152,797
Total revenues		$	729,988			$	799,586			$	870,530			$	959,541			$	875,585
Costs and expenses:
Cost of goods sold, including warehousing and occupancy cost			422,533				466,279				508,787				580,423				534,299
Cost of parts sold, including warehousing and occupancy costs			5,310				6,785				8,379				9,638				10,401
Selling, general and administrative expense			208,652				225,434				245,761				254,172				255,942
Goodwill impairment (4)			—				—				—				—				9,617
Provision for bad debts			14,519				22,173				19,465				27,952				36,843
Total costs and expenses		$	651,014			$	720,671			$	782,392			$	872,185			$	847,102
Operating income			78,974				78,915				88,138				87,356				28,483
Interest expense, net			17,423				21,454				24,839				23,597				20,571
Other (income) expense (5)			69				(772	)			(943	)			117				(123	)
Income before income taxes			61,482				58,233				64,242				63,642				8,035
Provision for income taxes			21,380				20,613				22,575				23,624				4,111
Net income		$	40,102			$	37,620			$	41,667			$	40,018			$	3,924
Earnings per common share:
Basic		$	1.71			$	1.59			$	1.80			$	1.79			$	0.17
Diluted		$	1.66			$	1.55			$	1.76			$	1.77			$	0.17
Average common shares outstanding:
Basic			23,412				23,663				23,193				22,413				22,456
Diluted			24,088				24,289				23,673				22,577				22,610
Other Financial Data:
Stores open at end of period			56				62				69				76				76
Same stores sales growth (6)			16.9	%			3.6	%			3.2	%			2.0	%			(13.8	)%
Inventory turns (7)			6.1				5.7				5.7				6.0				6.1
Gross margin percentage (8)			41.4	%			40.8	%			40.6	%			38.5	%			37.8	%

		Year Ended January 31,
		(dollars and shares in thousands, except per share amounts)
		2006				2007				2008				2009				2010
Operating margin (9)			10.8	%			9.9	%			10.1	%			9.1	%			3.3	%
Ratio of earnings to fixed charges (10)			3.3				2.8				2.8				2.7				1.2
Return on average equity (11)			18.7	%			14.7	%			14.8	%			12.9	%			1.2	%
Capital expenditures		$	18,490			$	18,425			$	18,955			$	17,597			$	10,255
Balance Sheet Data:
Working capital		$	307,948			$	372,668			$	387,730			$	277,296			$	340,122
Cash and cash equivalents		$	45,179			$	56,598			$	11,024			$	11,909			$	12,247
Inventory			73,986				87,098				81,495				95,971				63,499
Other accounts receivable, net			17,796				22,329				27,722				32,505				23,254
Total assets			721,447				810,511				835,499				957,566				892,466
Total debt, including current maturities		$	385,136			$	438,198			$	468,119			$	505,417			$	452,304
Total stockholders’ equity		$	236,962			$	274,182			$	288,726			$	332,784			$	339,163

		Year Ended January 31,
		(dollars and shares in thousands)
		2008				2009				2010
Other Relevant Data:
Rent expense (12)		$	18,905			$	22,242			$	23,703
Percent of retail sales financed			62.2	%			62.6	%			58.1	%
Allowance for bad debts as a percent of average outstanding balance (13)			3.5	%			3.9	%			4.8	%
Weighted average monthly payment rate (14)			5.7	%			5.5	%			5.2	%

Exhibit 99.3

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and related notes included as Exhibit 99.4 to this Current Report on Form 8-K.

This report includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results, and therefore are, or may be deemed to be, “forward-looking statements.” These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “estimates,” “seeks,” “projects,” “intends,” “plans,” “may,” “will” or “should” or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We believe that these risks and uncertainties include, but are not limited to:

	•		our inability to maintain compliance with debt covenant requirements, including taking the actions necessary to maintain compliance with the covenants, such as obtaining amendments to the borrowing facilities that modify the covenant requirements, which could result in higher borrowing costs;
	•		reduced availability under our revolving credit facility as a result of borrowing base requirements and the impact on the borrowing base calculation of changes in the performance or eligibility of the customer receivables financed by that facility;
	•		the success of our growth strategy and plans regarding opening new stores and entering adjacent and new markets, including our plans to continue expanding into existing markets;
	•		our ability to open and profitably operate new stores in existing, adjacent and new geographic markets;
	•		our intention to update or expand existing stores;
	•		our ability to introduce additional product categories;
	•		our ability to obtain capital for required capital expenditures and costs related to the opening of new stores or to update, relocate or expand existing stores;
	•		our ability to fund our operations, capital expenditures, debt repayment and expansion from cash flows from operations, borrowings from our revolving line of credit and proceeds from securitizations, and proceeds from accessing debt or equity markets;
	•		our ability to obtain additional funding for the purpose of funding the customer receivables generated by us, including limitations on our ability to obtain financing through our commercial paper-based funding sources and our ability to maintain the current credit rating issued by a recognized statistical rating organization;
	•		our ability to renew or replace our revolving credit facility on or before its maturity date;
	•		the cost or terms of any amended, renewed or replacement credit facilities;
	•		the ability of the financial institutions to provide lending facilities to us and fund their commitments;

	•		the effect of any downgrades by rating agencies on our borrowing costs;
	•		the effect on our borrowing cost of changes in laws and regulations affecting the providers of debt financing;
	•		the effect of rising interest rates or borrowing spreads that could increase our cost of borrowing or reduce securitization income;
	•		the effect of rising interest rates or other economic conditions on mortgage borrowers that could impair our customers’ ability to make payments on outstanding credit accounts;
	•		our inability to make customer financing programs available that allow consumers to purchase products at levels that can support our growth and maintain profitable operations;
	•		the potential for deterioration in the delinquency status of our credit portfolio or higher than historical net charge-offs in the customer receivables portfolio could adversely impact earnings;
	•		technological and market developments, growth trends and projected sales in the home appliance and consumer electronics industry, including, with respect to digital products like Blu-ray players, HDTV, LED and 3-D televisions, GPS devices, home networking devices and other new products, and our ability to capitalize on such growth;
	•		the potential for price erosion or lower unit sales points that could result in declines in revenues;
	•		the effect of changes in oil and gas prices that could adversely affect our customers’ shopping decisions and patterns, as well as the cost of our delivery and service operations and our cost of products, if vendors pass on their additional fuel costs through increased pricing for products;
	•		the ability to attract and retain qualified personnel;
	•		both the short-term and long-term impact of adverse weather conditions (e.g. hurricanes) that could result in volatility in our revenues and increased expenses and casualty losses;
	•		changes in laws and regulations and/or interest, premium and commission rates allowed by regulators on our credit, credit insurance, repair service and product replacement agreements as allowed by those laws and regulations;
	•		our relationships with key suppliers and their ability to provide products at competitive prices and support sales of their products through their rebate and discount programs;
	•		the adequacy of our distribution and information systems and management experience to support our expansion plans;
	•		the accuracy of our expectations regarding competition and our competitive advantages;
	•		changes in our stock price or the number of shares we have outstanding;
	•		the potential for market share erosion that could result in reduced revenues;
	•		the accuracy of our expectations regarding the similarity or dissimilarity of our existing markets as compared to new markets we enter;
	•		the use of third parties to complete certain of our distribution, delivery and home repair services;
	•		general economic conditions in the regions in which we operate; and

•

the outcome of litigation or government investigations affecting our business.

Additional important factors that could cause our actual results to differ materially from our expectations are discussed under “Risk Factors” in our Annual Report on Form 10-K. These factors should not be construed as exhaustive and should be read with the other cautionary statements in this report.

Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this report. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this report, those results or developments may not be indicative of results or developments in subsequent periods.

Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. Any forward-looking statements which we make in this report speak only as of the date of such statement, and we do not undertake, and specifically decline, any obligation to update such statements or to publicly announce the results of any revisions to any such statements to reflect future events or developments. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

General

          We intend the following discussion and analysis to provide you with a better understanding of the financial condition and performance of our retail and credit segments for the indicated periods, including an analysis of those key factors that contributed to our financial condition and performance and that are, or are expected to be, the key drivers of our business.

          Through our 76 retail stores, we provide products and services to our customers in seven primary market areas, including Houston, San Antonio/Austin, Dallas/Fort Worth, southern Louisiana, Southeast and South Texas and Oklahoma. Products and services offered through retail sales outlets include home appliances, consumer electronics, home office equipment, lawn and garden products, mattresses, furniture, repair service agreements, customer credit programs, including installment and revolving credit account programs, and various credit insurance products. These activities are supported through our extensive service, warehouse and distribution system. Our stores bear the “Conn’s” name, after our founder’s family, and deliver the same products and services to our customers. All of our stores follow the same procedures and methods in managing their operations. Our management evaluates performance and allocates resources based on the operating results of its retail and credit segments.

          The five cornerstones of our business which represent, in our view, the five components of our business model that drive profitability are — strong merchandising systems, flexible credit options for our customers, extensive warehousing and distribution systems, service systems to support our customer’s needs during and beyond the product warranty periods, and our uniquely, well-trained employees in each area. Each of these systems combine to create a “nuts and bolts” support system for our customers needs and desires. Each of these systems is discussed at length in our Business discussion included as Exhibit 99.1 to this Current Report on Form 8-K.

          We derive the majority of our revenues from our product sales and repair service agreement commissions, which are generated by sales of third-party and company-obligor repair service agreements and product replacement policies. However, unlike many of our competitors, we provide in-house credit options for our customers’ product purchases. Additionally, we derive a portion of our revenues from the sale of credit insurance products of third-party insurers to our customers.

          In the last three years, we have financed, on average, approximately 61% of our retail sales through our credit programs. We offer our customers a choice of installment payment plans and revolving credit plans through our primary credit portfolio. We also offer an installment program through our secondary credit portfolio to a limited number of customers who do not qualify for credit under our primary credit portfolio. In addition to interest-bearing installment and revolving charge contracts, at times, we offer promotional credit programs to certain of our primary credit portfolio customers that provide for “same as cash” or deferred interest interest-free periods of varying terms, generally three, six, 12, 18, 24 and 36 months, and require monthly payments beginning in the month after the sale. In turn, we finance substantially all of our customer receivables from these credit options through our revolving credit facility and an asset-backed securitization facility. In addition to our own credit programs, we use third-party financing programs to provide a portion of the non-interest bearing financing for purchases made by our customers. As part of our asset-backed securitization facility, we have created a bankruptcy-remote variable interest entity, which we refer to as the VIE, to purchase customer receivables from us and to issue medium-term and variable funding notes secured by the customer receivables to finance its acquisition of the customer receivables. We transfer eligible customer receivables, consisting of retail installment and revolving account receivables extended to our customers, to the VIE in exchange for cash and subordinated securities. The VIE is consolidated in our financial statements. Customer receivables not sold to the VIE have been funded by our revolving credit facility.

          While our warehouse and distribution system does not directly generate revenues, other than the fees paid by our customers for delivery and installation of the products to their homes, it is our extra, “value-added” program that our existing customers have come to rely on, and our new customers are hopefully sufficiently impressed with to become repeat customers. We derive revenues from our repair services on the products we sell. Additionally, acting as an agent for unaffiliated companies, we sell credit insurance to protect our customers from credit losses due to death, disability, involuntary unemployment and damage to the products they have purchased to the extent they do not already have it.

Application of critical accounting policies

          In applying the accounting policies that we use to prepare our consolidated financial statements, we necessarily make accounting estimates that affect our reported amounts of assets, liabilities, revenues and expenses. Some of these accounting estimates require us to make assumptions about matters that are highly uncertain at the time we make the accounting estimates. We base these assumptions and the resulting estimates on authoritative pronouncements, historical information and other factors that we believe to be reasonable under the circumstances, and we evaluate these assumptions and estimates on an ongoing basis. We could reasonably use different accounting estimates, and changes in our accounting estimates could occur from period to period, with the result in each case being a material change in the financial statement presentation of our financial condition or results of operations. We refer to accounting estimates of this type as critical accounting estimates. We believe that the critical accounting estimates discussed below are among those most important to an understanding of our consolidated financial statements.

          Customer accounts receivable.

          Customer accounts receivable reported in our consolidated balance sheet include receivables transferred to our VIE and those receivables not transferred to our VIE. We include the amount of principal and accrued interest on those receivables that are expected to be collected within the next twelve months, based on contractual terms, in current assets on our consolidated balance sheet. Those amounts expected to be collected after twelve months, based on contractual terms, are included in long-term assets. Typically, a receivable is considered delinquent if a payment has not been received on the scheduled due date. Additionally, we offer reage programs to customers with past due balances that have experienced a financial hardship, if they meet the conditions of our reage policy. Reaging a customer’s account can result in updating it from a delinquent status to a current status. Generally, an account that is delinquent more than 120 days and for which no payment has been received in the past seven months will be charged-off against the allowance for doubtful accounts and interest accrued subsequent to the last payment will be reversed. We have a secured interest in the merchandise financed by these receivables and therefore have the opportunity to recover a portion of any charged-off amount.

          Interest income on customer accounts receivable.

          Interest income is accrued using the Rule of 78’s method for installment contracts and the simple interest method for revolving charge accounts, and is reflected in Finance charges and other. Typically, interest income is accrued until the contract or account is paid off or charged-off and we provide an allowance for estimated uncollectible interest. Interest income is recognized on our interest-free promotional accounts based on our historical experience related to customers who fail to satisfy the requirements of the interest-free programs. Additionally, for sales on deferred interest and “same as cash” programs that exceed one year in duration, we discount the sales to their fair value, resulting in a reduction in sales and receivables, and amortize the discount amount in to Finance charges and other over the term of the program.

          Allowance for doubtful accounts.

          We record an allowance for doubtful accounts, including estimated uncollectible interest, for our Customer accounts receivable, based on our historical net loss experience and expectations for future losses. The net charge-off data used in computing the loss rate is reduced by the amount of post-charge-off recoveries received, including cash payments, and amounts realized from the repossession of the products financed and, at times, payments received under credit insurance policies. Additionally, we separately evaluate the Primary and Secondary portfolios when estimating the allowance for doubtful accounts. The balance in the allowance for doubtful accounts and uncollectible interest for customer receivables was $26.9 million and $35.8 million, at January 31, 2009, and 2010, respectively. Additionally, as a result of our practice of reaging customer accounts, if the account is not ultimately collected, the timing and amount of the charge-off is impacted. If these accounts had been charged-off sooner the net loss rates might have been higher. Reaged customer receivable balances represented 19.6% of the total portfolio balance at January 31, 2010. If the loss rate used to calculate the allowance for doubtful accounts was increased by 10% at January 31, 2010, we would have increased our Provision for bad debts by approximately $3.6 million for fiscal 2010.

          Revenue recognition.

          Revenues from the sale of retail products are recognized at the time the customer takes possession of the product. Such revenues are recognized net of any adjustments for sales incentive offers such as discounts, coupons, rebates, or other free products or services and discounts of promotional credit sales that will extend beyond one year. We sell repair service agreements and credit insurance contracts on behalf of unrelated third parties. For contracts where the third parties are the obligors on the contract, commissions are recognized in revenues at the time of sale, and in the case of retrospective commissions, at the time that they are earned. Where we sell repair service renewal agreements in which we are deemed to be the obligor on the contract at the time of sale, revenue is recognized ratably, on a straight-line basis, over the term of the repair service agreement. These repair service agreements are renewal contracts that provide our customers protection against product repair costs arising after the expiration of the manufacturer’s warranty and the third party obligor contracts. These agreements typically have terms ranging from 12 to 36 months. These agreements are separate units of accounting and are valued based on the agreed upon retail selling price. The amount of repair service agreement revenues deferred at January 31, 2009 and 2010 were $7.2 million and $7.3 million, respectively, and are included in Deferred revenues and allowances in the accompanying consolidated balance sheets. The amounts of repair service agreement revenue recognized for the fiscal years ended January 31, 2008, 2009 and 2010 were $5.7 million, $6.5 million and $7.0 million, respectively.

          Vendor allowances.

          We receive funds from vendors for price protection, product rebates (earned upon purchase or sale of product), marketing, training and promotion programs which are recorded on the accrual basis as a reduction to the related product cost, cost of goods sold, compensation expense or advertising expense, according to the nature of the program. We accrue rebates based on the satisfaction of terms of the program and sales of qualifying products even though funds may not be received until the end of a quarter or year. If the programs are related to product purchases, the allowances, credits or payments are recorded as a reduction of product cost; if the programs are related to product sales, the allowances, credits or payments are recorded as a reduction of cost of goods sold; if the programs are directly related to promotion, marketing or compensation expense paid related to the product, the allowances, credits, or payments are recorded as a reduction of the applicable expense in the period in which the expense is incurred. We received $36.1 million, $46.2 million and $51.3 million in vendor allowances during the fiscal years ended January 31, 2008, 2009 and 2010, respectively, of which $6.6 million, $6.4 million and $5.1 million, respectively, represented advertising assistance allowances. The increase in fiscal year 2010 was due to increased use of instant rebates by vendors to drive sales. Over the past three years we have received funds from approximately 50 vendors, with the terms of the programs ranging between one month and one year.

          Accounting for leases.

          We analyze each lease, at its inception and any subsequent renewal, to determine whether it should be accounted for as an operating lease or a capital lease. Additionally, monthly lease expense for each operating lease is calculated as the average of all payments required under the minimum lease term, including rent escalations. Generally, the minimum lease term begins with the date we take possession of the property and ends on the last day of the minimum lease term, and includes all rent holidays, but excludes renewal terms that are at our option. Any tenant improvement allowances received are deferred and amortized into income as a reduction of lease expense on a straight line basis over the minimum lease term. The amortization of leasehold improvements is computed on a straight line basis over the shorter of the remaining lease term or the estimated useful life of the improvements. For transactions that qualify for treatment as a sale-leaseback, any gain or loss is deferred and amortized as rent expense on a straight-line basis over the minimum lease term. Any deferred gain would be included in Deferred gain on sale of property and any deferred loss would be included in Other assets on the consolidated balance sheets.

Year ended January 31, 2009 compared to the year ended January 31, 2010

Executive overview

          This overview is intended to provide an executive level overview of our operations for our fiscal year ended January 31, 2010. Our performance during fiscal 2010 was impacted by the slowdown in the

economy and rising unemployment in our markets that occurred during the year. Following are significant financial items in management’s view:

	•		Our revenues for the fiscal year ended January 31, 2010, decreased by 8.7%, or $83.9 million, from fiscal year 2009, to $875.6 million due primarily to a decline in product sales and related reduction in repair service agreement commissions. Sales declined during the year largely as a result of the slowdown in the economic conditions in our markets, reduced average selling prices for televisions and were also impacted by tighter credit underwriting standards implemented during the year to improve the credit quality of our consumer receivable portfolio. Our same store sales declined 13.8% in the fiscal year ended January 31, 2010, as compared to an increase of 2.0% for fiscal 2009, with the sharpest decline occurring in the fourth quarter, when same store sales fell 31.7%.
	•		The addition of stores in our existing Dallas/Fort Worth, Houston, Southeast and South Texas markets and the opening of three stores in Oklahoma in fiscal 2009 had a positive impact on our revenues. We achieved approximately $20.3 million of increases in product sales and repair service agreement (RSA) commissions for the year ended January 31, 2010, from the opening of nine new stores in these markets since February 2008. While we have no current plans to open additional stores, we have additional sites under consideration for future development and continue to evaluate our store opening plans for future periods, provided we have adequate capital availability.
	•		Deferred interest and “same as cash” plans continue to be an important part of our sales promotion plans and are utilized to provide a wide variety of financing to enable us to appeal to a broader customer base. For the fiscal year ended January 31, 2010, $130.7 million, or 19.6%, of our product sales were financed by deferred interest and “same as cash” plans. We have been able to reduce the volume of promotional credit as a percent of product sales, as compared to the prior year. For the comparable period in the prior year, product sales financed by deferred interest and “same as cash” sales were $155.8 million, or 21.0%. Our promotional credit programs (same as cash and deferred interest programs), which require monthly payments, are reserved for our highest credit quality customers, thereby reducing the overall risk in the portfolio, and are used primarily to finance sales of our highest margin products. We expect to continue to offer extended term promotional credit in the future. During the fiscal year ended January 31, 2010, we began offering promotional credit programs through third-party consumer credit programs, which financed $15.3 million of our product and repair service agreement sales during the year.
	•		Finance charges and other decreased 1.1% for the fiscal year ended January 31, 2010, when compared to the same period last year, primarily due to a decline in insurance commissions and retrospective commissions on our repair service agreements, which offset a slight increase in interest income and other fees.
	•		Our gross margin, defined as total revenues less cost of goods and parts sold, was 37.8% for fiscal 2010, a decrease from 38.5% in fiscal 2009, primarily as a result of:

	o		reduced gross margin realized on product sales from 22.0% in the year ended January 31, 2009, to 19.9% in fiscal year 2010, which negatively impacted the total gross margin by 150 basis points. The product gross margins were negatively impacted by a highly price-competitive retail market and our successful strategy early in the fiscal year to grow market share through competitive pricing, and
	o		a change in the revenue mix in the year ended January 31, 2010, such that higher gross margin finance charge and other revenues contributed a larger percentage of total revenues, partially offset by reduced revenue contribution from repair service agreement commissions, which contributed a smaller percentage of total revenues, and resulted in an increase in the total gross margin of approximately 80 basis points.

•

During the fiscal year ended January 31, 2010, Selling, general and administrative (SG&A) expense increased as a percent of revenues to 29.2% from 26.5% in the prior year period, primarily due to the litigation reserves we established to reflect our best estimate of the amount we expect will be required to settle outstanding litigation as well as the increase in expenses

			related to the new stores opened during the prior fiscal year and the general de-leveraging effect of the decline in same store sales.
	•		During the fiscal year ended January 31, 2010, we determined, as a result of the sustained decline in our market capitalization, the increasingly challenging economic environment and its impact on our comparable store sales, credit portfolio performance and operating results, that an interim goodwill impairment test was necessary. A two-step method was utilized for determining goodwill impairment. Our valuation was performed utilizing the services of outside valuation consultants using both an income approach utilizing our discounted debt-free cash flows and comparable valuation multiples. Upon completion of the impairment test, we concluded that the carrying value of our recorded goodwill was impaired. As a result, we recorded a goodwill impairment charge of $9.6 million to write-off the carrying value of our goodwill during the three month period ended October 31, 2009.
	•		The provision for bad debts increased to $36.8 million in fiscal 2010, from $28.0 million in the prior year. This increase is due to higher actual and expected net credit charge-offs on customer receivables. Actual net charge-offs increased approximately $6.6 million, or 29.4%, in fiscal 2010, compared to fiscal 2009. As a result of the recent credit portfolio performance and expectations about future net charge-offs, the bad debt and uncollectible interest reserves for customer receivables were increased, as a percent of the customer receivable balance, to 5.0% at January 31, 2010, from 3.6% at January 31, 2009.
	•		Net interest expense decreased in fiscal 2010, due primarily to reduced outstanding debt balances.
	•		The provision for income taxes was negatively impacted by the effect of the taxes for the state of Texas, which are based on gross margin, instead of income before taxes.

Operational changes and outlook

          We have implemented, continued to focus on, or modified operating initiatives that we believe will positively impact future results, including:

	•		Increased emphasis on sales of furniture and mattresses by enhancing our product offerings and displays;
	•		Increased emphasis on improving gross margin; and
	•		Adjusted credit underwriting guidelines to improve the credit quality and profitability of our in-house credit programs.

          During the year, we opened one new store in the Houston market and one in the Dallas/Fort Worth market and closed two of our clearance centers, one in the Houston market and one in the San Antonio market. We have additional areas under consideration for future store locations and continue to evaluate our store opening plans for future periods, provided we have adequate capital availability.

          In order to improve the credit quality of our credit portfolio and reduce the amount of capital used in our credit operations, we reduced the amount of credit granted as a percentage of sales during the past fiscal year. Additionally, as a result of these changes, we have seen the mix between the primary and secondary customer receivables portfolios shift to a greater proportion of the customer receivables being in the higher quality primary portfolio.

          While we benefited from our operations being concentrated in the Texas, Louisiana and Oklahoma region in the earlier months of 2009, recent weakness in the national and state economies, including instability in the financial markets, declining consumer confidence and the volatility of oil prices, have and will present significant challenges to our operations in the coming quarters. Specifically, future sales volumes, gross profit margins and credit portfolio performance could be negatively impacted, and thus impact our overall profitability. Additionally, declines in our future operating performance could impact compliance with our credit facility covenants, which we recently renegotiated to avoid potentially triggering the default provisions of our credit facilities. As a result, while we will strive to maintain our market share, improve credit portfolio performance and reduce expenses, we will also work to maintain our access to the liquidity necessary to maintain our operations through these challenging times.

Results of operations

          The following table sets forth certain statement of operations information as a percentage of total revenues for the periods indicated.

		Year Ended January 31,
		2008				2009				2010
Revenues:
Product sales			77.2	%			77.5	%			76.2	%
Repair service agreement commissions (net)			4.2				4.2				3.8
Service revenues			2.6				2.2				2.5
Total net sales			84.0				83.9				82.5
Finance charges and other			16.0				16.1				17.5
Total revenues			100.0				100.0				100.0
Cost and expenses:
Cost of goods sold, including warehousing and occupancy costs			58.4				60.5				61.0
Cost of parts sold, including warehousing and occupancy costs			1.0				1.0				1.2
Selling, general and administrative expense			28.2				26.5				29.2
Goodwill impairment			0.0				0.0				1.1
Provision for bad debts			2.2				2.9				4.2
Total costs and expenses			89.8				90.9				96.7
Operating income			10.2				9.1				3.3
Interest expense			2.9				2.5				2.4
Other (income) expense			(0.1	)			0.0				0.0
Earnings before income taxes			7.4				6.6				0.9
Provision for income taxes			2.6				2.4				0.5
Net income			4.8	%			4.2	%			0.4	%

Analysis of consolidated statements of operations

          The presentation of our gross margins may not be comparable to other retailers since we include the cost of our in-home delivery service as part of selling, general and administrative expense. Similarly, we include the cost of merchandising our products, including amounts related to purchasing the product in selling, general and administrative expense. It is our understanding that other retailers may include such costs as part of cost of goods sold.

          The following table presents certain operations information, on a consolidated and segment basis, in dollars and percentage changes from year to year:

Total Consolidated:

														2009 vs. 2008								2010 vs. 2009
		Year Ended January 31,												Incr/(Decr)								Incr/(Decr)
(in thousands except percentages)		2008				2009				2010				Amount				Pct				Amount				Pct
Revenues
Product sales		$	671,571			$	743,729			$	667,401			$	72,158				10.7	%			$(76,328	)			(10.3	)%
Repair service agreement commissions (net)			36,424				40,199				33,272				3,775				10.4				(6,927	)			(17.2	)
Service revenues			22,997				21,121				22,115				(1,876	)			(8.2	)			994				4.7
Total net sales			730,992				805,049				722,788				74,057				10.1				(82,261	)			(10.2	)
Finance charges and other			139,538				154,492				152,797				14,954				10.7				(1,695	)			(1.1	)
Total revenues			870,530				959,541				875,585				89,011				10.2				(83,956	)			(8.7	)
Cost and expenses
Cost of goods and parts sold			517,166				590,061				544,700				72,895				14.1				(45,361	)			(7.7	)
Gross Profit			353,364				369,480				330,885				16,116				4.6				(38,595	)			(10.4	)
Gross Margin			40.6	%			38.5	%			37.8	%
Selling, general and administrative expense			233,633				241,631				241,930				7,998				3.4				299				0.1
Depreciation and amortization			12,128				12,541				14,012				413				3.4				1,471				11.7
Goodwill impairment			—				—				9,617				—				N/A				9,617				N/A

														2009 vs. 2008								2010 vs. 2009
		Year Ended January 31,												Incr/(Decr)								Incr/(Decr)
(in thousands except percentages)		2008				2009				2010				Amount				Pct				Amount				Pct
Provision for bad debts			19,465				27,952				36,843				8,487				43.6				8,891				31.8
Operating income			88,138				87,356				28,483				(782	)			(0.9	)			(58,873	)			(67.4	)
Operating Margin			10.1	%			9.1	%			3.3	%
Interest expense			24,839				23,597				20,571				(1,242	)			(5.0	)			(3,026	)			(12.8	)
Other (income) expense			(943	)			117				(123	)			1,060				(112.4	)			(240	)			(205.1	)
Pretax Income			64,242				63,642				8,035				(600	)			(0.9	)			(55,607	)			(87.4	)
Provision for income taxes			22,575				23,624				4,111				1,049				4.6				(19,513	)			(82.6	)
Net Income		$	41,667			$	40,018			$	3,924				$(1,649	)			(4.0	)%			$(36,094	)			(90.2	)%

          Retail Segment:

														2009 vs. 2008								2010 vs. 2009
		Year Ended January 31,												Incr/(Decr)								Incr/(Decr)
(in thousands except percentages)		2008				2009				2010				Amount				Pct				Amount				Pct
Revenues
Product sales		$	671,571			$	743,729			$	667,401			$	72,158				10.7	%			$(76,328	)			(10.3	)%
Repair service agreement commissions (net) (a)			44,735				50,778				44,119				6,043				13.5				(6,659	)			(13.1	)
Service revenues			22,997				21,121				22,115				(1,876	)			(8.2	)			994				4.7
Total net sales			739,303				815,628				733,635				76,325				10.3				(81,993				(10.1	)
Finance charges and other			950				2,161				532				1,211				127.5				(1,629	)			(75.4	)
Total revenues			740,253				817,789				734,167				77,536				10.5				(83,622	)			(10.2	)
Cost and expenses
Cost of goods and parts sold			517,166				590,061				544,700				72,895				14.1				(45,361	)			(7.7	)
Gross Profit			223,087				227,728				189,467				4,641				2.1				(38,261	)			(16.8	)
Gross Margin			30.1	%			27.8	%			25.8	%
Selling, general and administrative expense (b)			179,354				182,703				180,911				3,349				1.9				(1,792	)			(1.0	)
Depreciation and amortization			11,331				11,218				12,288				(113	)			(1.0	)			(1,070				9.5
Provision for bad debts			190				160				97				(30	)			(15.8	)			(63	)			(39.4	)
Operating income (loss)			32,212				33,647				(3,829	)			1,435				4.5				(37,476	)			(111.4	)
Operating Margin			4.4	%			4.1	%			(0.5	)%
Other (income) expense			(943	)			117				(123	)			1,060				(112.4	)			(240	)			(205.1	)
Segment income (loss) before income taxes		$	33,155			$	33,530				$(3,706	)		$	375				1.1	%			$(37,236	)			111.1	%