UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q/A

(AMENDMENT NO. 2)

For the quarterly period ended April 30, 2010		Commission File Number 000-50421

CONN’S, INC.

(Exact name of registrant as specified in its charter)

A Delaware Corporation (State or other jurisdiction of incorporation or organization)		06-1672840 (I.R.S. Employer Identification Number)

3295 College Street
Beaumont, Texas 77701
(409) 832-1696

(Address, including zip code, and telephone
number, including area code, of registrant’s
principal executive offices)

NONE
(Former name, former address and former
fiscal year, if changed since last report)

Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check One):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of May 24, 2010:

Class		Outstanding
Common stock, $.01 par value per share		22,480,848

 

 

EXPLANATORY NOTE

          We are filing this amendment to our Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2010, to include information about our retail and credit segments and provide updated risk factors. As a result of our adoption of new accounting principles 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 are including segment information in the footnotes to the financial statements and Management’s Discussion and Analysis.

This amendment to the original Form 10-Q amends and restates only the information stated above. We have not updated any disclosures in this amendment to speak as of a later date than the original filing. All information contained in this amendment and the original Form 10-Q is subject to updating and supplementing as provided in the periodic reports filed subsequent to the original filing date with the Securities and Exchange Commission.

TABLE OF CONTENTS

						Page No.
PART I.				FINANCIAL INFORMATION
Item 1.				Financial Statements			1
				Consolidated Balance Sheets as of January 31, 2010 and April 30, 2010			1
				Consolidated Statements of Operations for the three months ended April 30, 2009 and 2010			2
				Consolidated Statement of Stockholders’ Equity for the three months ended April 30, 2010			3
				Consolidated Statements of Cash Flows for the three months ended April 30, 2009 and 2010			4
				Notes to Consolidated Financial Statements			5
Item 2.				Management’s Discussion and Analysis of Financial Condition and Results of Operations			14
Item 3.				Quantitative and Qualitative Disclosures About Market Risk			36
Item 4.				Controls and Procedures			36
PART II.				OTHER INFORMATION
Item 1.				Legal Proceedings			37
Item 1A.				Risk Factors			37
Item 2.				Unregistered Sales of Equity Securities and Use of Proceeds			50
Item 4.				Submission of Matters to a Vote of Security Holders			50
Item 5.				Other Information			51
Item 6.				Exhibits			51
SIGNATURE							52
EX-12.1
EX-31.1
EX-31.2
EX-32.1
EX-99.1
EX-99.2
EX-99.3
EX-99.4
EX-99.5
EX-99.6

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

Conn’s, Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

		January 31,				April 30,
		2010				2010
		(As adjusted
		see Note 1)				(unaudited)
Assets
Cash and cash equivalents (includes balances of VIE of $104 and $107, respectively)		$	12,247			$	5,708
Other accounts receivable, net of allowance of $50 and $52, respectively			23,254				30,291
Customer accounts receivable, net of allowance of $19,204 and $18,087 respectively (includes balances of VIE of $279,948 and $262,403, respectively)			368,304				353,551
Inventories			63,499				88,901
Deferred income taxes			15,237				14,826
Federal income taxes recoverable			8,148				—
Prepaid expenses and other assets			8,050				6,628
Total current assets			498,739				499,905
Long-term portion of customer accounts receivable, net of allowance of $16,598 and $15,454, respectively (includes balances of VIE of $241,971 and $224,193, respectively)			318,341				302,070
Property and equipment
Land			7,682				7,490
Buildings			10,480				10,378
Equipment and fixtures			23,797				23,826
Transportation equipment			1,795				1,684
Leasehold improvements			91,299				91,320
Subtotal			135,053				134,698
Less accumulated depreciation			(75,350	)			(78,335	)
Total property and equipment, net			59,703				56,363
Non-current deferred income tax asset			5,485				6,404
Other assets, net (includes balances of VIE of $7,106 and $7,886, respectively)			10,198				12,287
Total assets		$	892,466			$	877,029
Liabilities and Stockholders’ Equity
Current liabilities
Current portion of long-term debt (includes balances of VIE of $63,900 and $100,000, respectively)		$	64,055			$	100,162
Accounts payable			39,944				55,238
Accrued compensation and related expenses			5,697				5,049
Accrued expenses			31,685				24,181
Income taxes payable			2,640				7,941
Deferred revenues and allowances			14,596				13,353
Total current liabilities			158,617				205,924
Long-term debt (includes balances of VIE of $282,500 and $220,000, respectively)			388,249				319,611
Other long-term liabilities			5,195				4,995
Fair value of interest rate swaps			337				251
Deferred gains on sales of property			905				874
Stockholders’ equity
Preferred stock ($0.01 par value, 1,000,000 shares authorized; none issued or outstanding)			—				—
Common stock ($0.01 par value, 40,000,000 shares authorized; 24,194,555 and 24,204,053 shares issued at January 31, 2010 and April 30, 2010, respectively)			242				242
Additional paid-in capital			106,226				106,835
Accumulated other comprehensive loss			(218	)			(163	)
Retained earnings			269,984				275,531
Treasury stock, at cost, 1,723,205 shares			(37,071	)			(37,071	)
Total stockholders’ equity			339,163				345,374
Total liabilities and stockholders’ equity		$	892,466			$	877,029

See notes to consolidated financial statements.

Conn’s, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)
(in thousands, except earnings per share)

		Three Months Ended
		April 30,
		2009				2010
		(As adjusted
		see Note 1)
Revenues
Product sales		$	184,817			$	150,365
Repair service agreement commissions, net			9,790				7,917
Service revenues			5,544				4,757
Total net sales			200,151				163,039
Finance charges and other			39,700				34,480
Total revenues			239,851				197,519
Cost and expenses
Cost of goods sold, including warehousing and occupancy costs			145,870				114,157
Cost of parts sold, including warehousing and occupancy costs			2,587				2,372
Selling, general and administrative expense			62,738				60,743
Provision for bad debts			5,644				6,274
Total cost and expenses			216,839				183,546
Operating income			23,012				13,973
Interest expense, net			5,004				4,785
Other (income) expense, net			(8	)			171
Income before income taxes			18,016				9,017
Provision for income taxes			6,660				3,470
Net income		$	11,356			$	5,547
Earnings per share
Basic		$	0.51			$	0.25
Diluted		$	0.50			$	0.25
Average common shares outstanding
Basic			22,447				22,475
Diluted			22,689				22,477

See notes to consolidated financial statements.

Conn’s, Inc.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
Three Months Ended April 30, 2010
(unaudited)
(in thousands, except descriptive shares)

														Other
										Additional				Compre-
		Common Stock								Paid-in				hensive				Retained				Treasury
		Shares				Amount				Capital				Loss				Earnings				Stock				Total
Balance January 31, 2010 (As adjusted, see Note 1)			24,194			$	242			$	106,226			$	(218	)		$	269,984			$	(37,071	)		$	339,163
Issuance of shares of common stock under Employee Stock Purchase Plan			10				—				48																48
Stock-based compensation											561																561
Net income																			5,547								5,547
Adjustment of fair value of interest rate swaps net of tax of $31															55												55
Other comprehensive income															55												55
Total comprehensive income																											5,602
Balance April 30, 2010			24,204			$	242			$	106,835			$	(163	)		$	275,531			$	(37,071	)		$	345,374

See notes to consolidated financial statements.

Conn’s, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (in thousands)

		Three Months Ended
		April 30,
		2009				2010
		(As adjusted
		see Note 1)
Cash flows from operating activities
Net income		$	11,356			$	5,547
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			3,291				3,352
Amortization, net			110				766
Provision for bad debts			5,644				6,274
Stock-based compensation			630				561
Discounts and accretion on promotional credit			(804	)			(766	)
Provision for deferred income taxes			(946	)			(192	)
(Gains) losses on sales of property and equipment			(8	)			171
Changes in operating assets and liabilities:
Customer accounts receivable			12,731				25,521
Other accounts receivable			13,812				(7,037	)
Inventory			4,992				(25,402	)
Prepaid expenses and other assets			178				1,392
Accounts payable			(1,003	)			15,294
Accrued expenses			(4,155	)			(8,152	)
Income taxes payable			3,309				13,132
Deferred revenue and allowances			(405	)			(1,242	)
Net cash provided by operating activities			48,732				29,219
Cash flows from investing activities
Purchases of property and equipment			(3,800	)			(390	)
Proceeds from sales of property			19				204
Net cash used in investing activities			(3,781	)			(186	)
Cash flows from financing activities
Proceeds from stock issued under employee benefit plans			59				48
Borrowings under lines of credit			82,933				61,013
Payments on lines of credit			(132,633	)			(93,511	)
Increase in deferred financing costs			(154	)			(3,089	)
Payment of promissory notes			(1	)			(33	)
Net cash used in financing activities			(49,796	)			(35,572	)
Net change in cash			(4,845	)			(6,539	)
Cash and cash equivalents
Beginning of the year			11,909				12,247
End of period		$	7,064			$	5,708

See notes to consolidated financial statements.

Conn’s, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
April 30, 2010

1. Summary of Significant Accounting Policies

     Basis of Presentation. The accompanying unaudited, condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The accompanying financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. All such adjustments are of a normal recurring nature, except as otherwise described herein. Operating results for the three month period ended April 30, 2010, are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2011. The financial statements should be read in conjunction with the Company’s (as defined below) audited consolidated financial statements and the notes thereto included in the Company’s Current Report on Form 8-K filed on July 7, 2010.

     The Company’s balance sheet at January 31, 2010, has been derived from the audited financial statements at that date, revised for the retrospective application of the new accounting principles discussed below, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for a complete financial presentation. Please see the Company’s Form 8-K for a complete presentation of the audited financial statements for the fiscal year ended January 31, 2010, together with all required footnotes, and for a complete presentation and explanation of the components and presentations of the financial statements.

     Business Activities. The Company, through its retail stores, provides products and services to its customer base in seven primary market areas, including southern Louisiana, southeast Texas, Houston, South Texas, San Antonio/Austin, Dallas/Fort Worth 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, installment and revolving credit account programs, and various credit insurance products. These activities are supported through an extensive service, warehouse and distribution system. For the reasons discussed below, the Company has aggregated its results into two operating segments: credit and retail. The Company’s retail stores bear the “Conn’s” name, and deliver the same products and services to a common customer group. The Company’s customers generally are individuals rather than commercial accounts. All of the retail stores follow the same procedures and methods in managing their operations. The Company’s management evaluates performance and allocates resources based on the operating results of its retail and credit segments. With the adoption of the new accounting principles discussed below, which require the consolidation of the Company’s variable interest entity engaged in receivables securitizations, it began separately evaluating the performance of its retail and credit operations. As a result, management believes it is appropriate to disclose separate financial information of its retail and credit segments. The separate financial information is disclosed in footnote 6 — “Segment Reporting”.

     Adoption of New Accounting Principles. The Company enters into securitization transactions to transfer eligible retail installment and revolving customer receivables and retains servicing responsibilities and subordinated interests. Additionally, the Company transfers the eligible customer receivables to a bankruptcy-remote variable interest entity (VIE). 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; and
	•		a transferor’s continuing involvement, if any, in transferred financial assets; and,
	•		Improvements in financial reporting by companies involved with variable interest entities 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 variable interest entity. This analysis identifies the primary beneficiary of a variable interest entity as the enterprise that has both of the following characteristics:

	a)		The power to direct the activities of a variable interest entity 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 variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity.

After the effective date, the concept of a qualifying special-purpose entity is no longer relevant for accounting purposes. Therefore, formerly qualifying special-purpose entities (as defined under previous accounting standards) should be evaluated for consolidation by reporting entities on and after the effective date in accordance with the applicable consolidation guidance. If the evaluation on the effective date results in consolidation, the reporting entity should apply the transition guidance provided in the pronouncement that requires consolidation. The new FASB-issued authoritative guidance was effective for the Company beginning February 1, 2010.

     The Company determined that it qualifies as the primary beneficiary of its VIE based on the following considerations:

	•		The Company directs the activities that generate the customer receivables that are transferred to the VIE,
	•		The Company directs the servicing activities related to the collection of the customer receivables transferred to the VIE,
	•		The Company absorbs all losses incurred by the VIE to the extent of its residual interest in the customer receivables held by the VIE before any other investors incur losses, and
	•		The Company has the rights to receive all benefits generated by the VIE after paying the contractual amounts due to the other investors.

As a result, the Company’s adoption of the provisions of the new guidance, effective February 1, 2010, resulted in the Company’s VIE, which is engaged in customer receivable financing and securitization, 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. The retrospective application impacted the comparative prior period financial statements as follows:

	•		For the three months ended April 30, 2009, Income before income taxes was reduced by approximately $0.3 million.
	•		For the three months ended April 30, 2009, Net income was reduced by approximately $0.2 million.
	•		For the three months ended April 30, 2009, Basic earnings per share was unchanged.
	•		For the three months ended April 30, 2009, Diluted earnings per share was reduced by $0.01.
	•		For the three months ended April 30, 2009, Cash flows from operating activities was increased by approximately $46.5 million.
	•		For the three months ended April 30, 2009, Cash flows from financing activities was reduced by approximately $46.5 million.
	•		As of January 31, 2010, the net of current assets and current liabilities increased approximately $25.4 million;
	•		As of January 31, 2010, Customer accounts receivable, net, were increased approximately $488.5 million, Net deferred tax assets were increased approximately $3.0 million and Other assets were increased approximately $7.1 million;
	•		As of January 31, 2010, Interests in the securitized assets of its VIE of approximately $157.7 million was eliminated;
	•		As of January 31, 2010, current and long-term debt were increased approximately $63.9 million and $282.5 million, respectively; and
	•		As of January 31, 2010, Retained earnings was decreased approximately $5.2 million.

     Principles of Consolidation. The consolidated financial statements include the accounts of Conn’s, Inc. and all of its wholly-owned subsidiaries (the Company), including the Company’s VIE. The liabilities of the VIE and the assets specifically collateralizing those obligations are not available for the general use of the Company and have been parenthetically presented on the face of the Company’s balance sheet. All material intercompany transactions and balances have been eliminated in consolidation.

     Fair Value of Financial Instruments. The fair value of cash and cash equivalents, receivables and accounts payable approximate their carrying amounts because of the short maturity of these instruments. The fair value of the Company’s long-term debt and the VIE’s $170 million 2002 Series A variable funding note approximate their carrying amount based on the fact that the agreements were recently amended and the cost of the borrowings were revised to reflect current market conditions. The estimated fair value of the VIE’s $150 million 2006 Series A medium term notes was approximately $141 million and $139 million as of April 30, 2010 and January 31, 2010, respectively, based on its estimate of the rates available at these dates, for instruments with similar terms and maturities. The Company’s interest rate swaps are presented on the balance sheet at fair value.

     Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

     Earnings Per Share. The Company calculates basic earnings per share by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share include the dilutive effects of any stock options granted, as calculated under the treasury-stock method. The weighted average number of anti-dilutive stock options not included in calculating diluted EPS was 1.5 million and 2.7 million for the three months ended April 30, 2009 and 2010, respectively. The following table sets forth the shares outstanding for the earnings per share calculations:

The following table sets forth the shares outstanding for the earnings per share calculations:

		Three Months Ended
		April 30,
		2009				2010
Common stock outstanding, net of treasury stock, beginning of period			22,444,240				22,471,350
Weighted average common stock issued to employee stock purchase plan			2,719				3,308
Shares used in computing basic earnings per share			22,446,959				22,474,658
Dilutive effect of stock options, net of assumed repurchase of treasury stock			242,204				2,787
Shares used in computing diluted earnings per share			22,689,163				22,477,445

     Customer Accounts Receivable. Customer accounts receivable reported in the consolidated balance sheet includes receivables transferred to the Company’s VIE and those receivables not transferred to the VIE. The Company records the amount of principal and accrued interest on Customer receivables that is expected to be collected within the next twelve months, based on contractual terms, in current assets on its consolidated balance sheet. Those amounts expected to be collected after 12 months, based on contractual terms, are included in long-term assets. Typically, customer receivables are considered delinquent if a payment has not been received on the scheduled due date. Additionally, the Company offers reage programs to customers with past due balances that have experienced a financial hardship; if they meet the conditions of the Company’s reage policy. Reaging a customer’s account can result in updating an account 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. The Company has a secured interest in the merchandise financed by these receivables and therefore has the opportunity to recover a portion of the 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 interest-free promotion credit programs based on the Company’s historical experience related

to customers that 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, the Company discounts the sales to their fair value, resulting in a reduction in sales and customer receivables, and amortizes the discount amount to Finance charges and other over the term of the program. The amount of customer receivables carried on the Company’s consolidated balance sheet that were past due 90 days or more and still accruing interest was $54.8 million and $44.7 million at January 31, 2010, and April 30, 2010, respectively.

     Allowance for Doubtful Accounts. The Company records an allowance for doubtful accounts, including estimated uncollectible interest, for its Customer and Other accounts receivable, based on its 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, amounts realized from the repossession of the products financed and, at times, payments under credit insurance policies. Additionally, the Company separately evaluates 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 $35.8 million and $33.5 million, at January 31, 2010, and April 30, 2010, respectively. Additionally, as a result of the Company’s 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 historical net loss rates might have been higher.

     Inventories. Inventories consist of finished goods or parts and are valued at the lower of cost (moving weighted average method) or market.

     Other Assets. The Company has certain deferred financing costs for transactions that have not yet been completed and has not begun amortization of those costs. These costs are included in Other assets, net, on the balance sheet and will be amortized upon completion of the related financing transaction or expensed in the event the Company fails to complete such a transaction. The Company also has certain restricted cash balances included in Other assets. The restricted cash balances represent collateral for note holders of the Company’s VIE, and the amount is expected to decrease as the respective notes are repaid. However, the required balance could increase dependent on certain net portfolio yield requirements. The balance of this restricted cash account was $6.0 million at January 31, 2010, and April 30, 2010.

     Comprehensive Income.

     Comprehensive income for the three months ended April 30, 2009 is as follows:

Net income		$	11,356
Adjustment of fair value of interest rate swaps, net of tax of $44			(81	)
Total comprehensive income		$	11,275

     Subsequent Events. Subsequent events have been evaluated through the date of issuance. No material subsequent events have occurred since April 30, 2010, that required recognition or disclosure in the Company’s current period financial statements

     Reclassifications. Certain reclassifications have been made in the prior year’s financial statements to conform to the current year’s presentation, by reclassifying the balance of construction-in-progress of approximately $0.9 million from Property and equipment — Buildings to Property and equipment — Leasehold improvements, on the consolidated balance sheet.

2. Supplemental Disclosure of Finance Charges and Other Revenue

     The following is a summary of the classification of the amounts included as Finance charges and other for the three months ended April 30, 2009 and 2010 (in thousands):

		Three Months ended
		April 30,
		2009				2010
Interest income and fees on customer receivables		$	34,956			$	30,393
Insurance commissions			4,630				3,837
Other			114				250
Finance charges and other		$	39,700			$	34,480

3. Supplemental Disclosure of Customer Receivables

     The following tables present quantitative information about the receivables portfolios managed by the Company (in thousands):

		Total Outstanding Balance
		of Customer Receivables								60 Days Past Due (1)								Reaged (1)
		January 31,				April 30,				January 31,				April 30,				January 31,				April 30,
		2010				2010				2010				2010				2010				2010
Primary portfolio:
Installment		$	555,573			$	532,869			$	46,758			$	38,577			$	93,219			$	87,196
Revolving			41,787				36,193				2,017				1,884				1,819				1,762
Subtotal			597,360				569,062				48,775				40,461				95,038				88,958
Secondary portfolio:
Installment			138,681				131,430				24,616				19,471				49,135				45,051
Total receivables managed			736,041				700,492			$	73,391			$	59,932			$	144,173			$	134,009
Allowance for uncollectible accounts			(35,802	)			(33,541	)
Allowances for promotional credit programs			(13,594	)			(11,330	)
Current portion of customer accounts receivable, net			368,304				353,551
Long-term customer accounts receivable, net		$	318,341			$	302,070
Receivables transferred to the VIE		$	521,919			$	486,596			$	59,840			$	47,540			$	122,521			$	110,082
Receivables not transferred to the VIE			214,122				213,896				13,551				12,392				21,652				23,927
Total receivables managed		$	736,041			$	700,492			$	73,391			$	59,932			$	144,173			$	134,009

										Net Credit
		Average Balances								Charge-offs (2)
		Three Months Ended								Three Months Ended
		April 30,								April 30,
		2009				2010				2009				2010
Primary portfolio:
Installment		$	547,980			$	542,675
Revolving			35,291				38,839
Subtotal			583,271				581,514			$	3,916			$	6,153
Secondary portfolio:
Installment			159,270				134,324				1,689				2,092
Total receivables managed		$	742,541			$	715,838			$	5,605			$	8,245
Receivables transferred to the VIE		$	615,761			$	503,280			$	5,249			$	6,077
Receivables not transferred to the VIE			126,780				212,558				356				2,168
Total receivables managed		$	742,541			$	715,838			$	5,605			$	8,245

4. Debt and Letters of Credit

     The Company’s borrowing facilities consist of an asset-based revolving credit facility, a $10 million unsecured revolving line of credit, its VIE’s 2002 Series A variable funding note and its VIE’s 2006 Series A medium term notes. Debt consisted of the following at the periods ended (in thousands):

		January 31,				April 30,
		2010				2010
Asset-based revolving credit facility		$	105,498			$	99,400
2002 Series A Variable Funding Note			196,400				170,000
2006 Series A Notes			150,000				150,000
Unsecured revolving line of credit for $10 million maturing in September 2010			—				—
Other long-term debt			406				373
Total debt			452,304				419,773
Less current portion of debt			64,055				100,162
Long-term debt		$	388,249			$	319,611

     The Company’s $210 million asset-based revolving credit facility provides funding based on a borrowing base calculation that includes customer accounts receivable and inventory and matures in August 2011. The credit facility bears interest at LIBOR plus a spread ranging from 325 basis points to 375 basis points, based on a fixed charge coverage ratio. In addition to the fixed charge coverage ratio, the revolving credit facility includes a total liabilities to tangible net worth requirement, a minimum customer receivables cash recovery percentage requirement, a net capital expenditures limit and combined portfolio performance covenants. The Company was in compliance with the covenants, as amended, at April 30, 2010. Additionally, the agreement contains cross-default provisions, such that, any default under another credit facility of the Company or its VIE would result in a default under this agreement, and any default under this agreement would result in a default under those agreements. The asset-based revolving credit facility is secured by the assets of the Company not otherwise encumbered.

     The 2002 Series A program functions as a revolving credit facility to fund the transfer of eligible customer receivables to the VIE. When the outstanding balance of the facility approaches a predetermined amount, the VIE (Issuer) is required to seek financing to pay down the outstanding balance in the 2002 Series A variable funding note. The amount paid down on the facility then becomes available to fund the transfer of new customer receivables or to meet required principal payments on other series as they become due. The new financing could be in the form of additional notes, bonds or other instruments as the market and transaction documents might allow. Given the current state of the financial markets, especially with respect to asset-backed securitization financing, the Company has been unable to issue medium-term notes or increase the availability under the existing variable funding note program. The 2002 Series A program consists of $170 million that is renewable annually, at the Company’s option, until August 2011 and bears interest at commercial paper rates plus a spread of 250 basis points. The total commitment under the 2002 Series A program was reduced during the quarter from $200 million at January 31, 2010. Additionally, in connection with recent amendments to the 2002 Series A facility, the VIE agreed to reduce the total available commitment to $130 million in April 2011.

     The 2006 Series A program, which was consummated in August 2006, is non-amortizing for the first four years and officially matures in April 2017. However, it is expected that the scheduled $7.5 million principal payments, which begin in September 2010, will retire the bonds prior to that date. The VIE’s borrowing agreements contain certain covenants requiring the maintenance of various financial ratios and customer receivables performance standards. The Issuer was in compliance with the requirements of the agreements, as amended, as of April 30, 2010. The VIE’s debt is secured by the Customer accounts receivable that are transferred to it, which are included in Customer accounts receivable and Long-term portion of customer accounts receivable on the consolidated balance sheet. The investors and the securitization trustee have no recourse to the Company’s other assets for failure of the individual customers of the Company and the VIE to pay when due. Additionally, the Company has no recourse to the VIE’s assets to satisfy its obligations. The

Company’s retained interests in the customer receivables collateralizing the securitization program and the related cash flows are subordinate to the investors’ interests, and would not be paid if the Issuer is unable to repay the amounts due under the 2002 Series A and 2006 Series A programs. The ultimate realization of the retained interest is subject to credit, prepayment, and interest rate risks on the transferred financial assets.

     In March 2010, the Company and its VIE completed amendments to the various borrowing agreements that revised the covenant requirements as of January 31, 2010, and revised certain future covenant requirements. The revised covenant calculations include both the operating results and assets and liabilities of the Company and the VIE, effective January 31, 2010, for all financial covenant calculations. In addition to the covenant changes, the Company, as servicer of the customer receivables, agreed to implement certain additional collection procedures if certain performance requirements were not maintained, and agreed to make fee payments to the 2002 Series A facility providers on the amount of the commitment available at specific future dates. The Company also agreed to use the proceeds from any capital raising activity it completes to further reduce the commitments and debt outstanding under the securitization program’s debt facilities. The fee payments will equal the following rates multiplied time the total available borrowing commitment under the 2002 Series A facility on the dates shown:

	•		50 basis points on May 1, 2010,
	•		100 basis points on August 1, 2010,
	•		110 basis points on November 1, 2010,
	•		115 basis points on February 1, 2011,
	•		115 basis point on May 1, 2011, and
	•		123 basis points on August 1, 2011.

     As of April 30, 2010, the Company had approximately $55.4 million under its asset-based revolving credit facility, net of standby letters of credit issued, and $10.0 million under its unsecured bank line of credit immediately available for general corporate purposes. The Company also had $33.5 million that may become available under its asset-based revolving credit facility as it grows the balance of eligible customer receivables and its total eligible inventory balances.

     The Company’s asset—based revolving credit facility provides it the ability to utilize letters of credit to secure its obligations as the servicer under its VIE’s asset-backed securitization program, deductibles under the Company’s property and casualty insurance programs and international product purchases, among other acceptable uses. At April 30, 2010, the Company had outstanding letters of credit of $21.7 million under this facility. The maximum potential amount of future payments under these letter of credit facilities is considered to be the aggregate face amount of each letter of credit commitment, which totals $21.7 million as of April 30, 2010.

     The Company held interest rate swaps with notional amounts totaling $25.0 million as of April 30, 2010, with terms extending through July 2011 for the purpose of hedging against variable interest rate risk related to the variability of cash flows in the interest payments on a portion of its variable-rate debt, based on changes in the benchmark one-month LIBOR interest rate. Changes in the cash flows of the interest rate swaps are expected to exactly offset the changes in cash flows (changes in base interest rate payments) attributable to fluctuations in the LIBOR interest rate. For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. At April 30, 2010, the estimated net amount of loss that is expected to be reclassified into earnings within the next twelve months is $0.2 million.

     For information on the location and amounts of derivative fair values in the statement of operation, see the tables presented below (in thousands):

Fair Values of Derivative Instruments

Liability Derivatives

January 31, 2010

April 30, 2010

Balance

Balance

Sheet

Fair

Sheet

Fair

Location

Value

Location

Value

Derivatives designated as hedging instruments under

Interest rate contracts

Other liabilities

$

337

Other liabilities

$

251

Total derivatives designated as hedging instruments

$

337

$

251

Amount of

Gain or (Loss)

Amount of

Recognized in

Gain or (Loss)

Location of

Income on

Amount of

Reclassified

Gain or (Loss)

Derivative

Gain or (Loss)

Location of

from

Recognized in

(Ineffective

Recognized

Gain or (Loss)

Accumulated

Income on

Portion

in OCI on

Reclassified

OCI into

Derivative

and Amount

Derivative

from

Income

(Ineffective

Excluded from

(Effective

Accumulated

(Effective

Portion

Effectiveness

Derivatives in

Portion)

OCI into

Portion)

and Amount

Testing)

Cash Flow

Three Months Ended

Income

Three Months Ended

Excluded from

Three Months Ended

Hedging

April 30,

April 30,

(Effective

April 30,

April 30,

Effectiveness

April 30,

April 30,

Relationships

2009

2010

Portion)

2009

2010

Testing)

2009

2010

Interest Rate Contracts

$

(81

)

$

55

Interest income/ (expense)

$

(17

)

$

(98

)

Interest income/ (expense)

$

—

$

—

Total

$

(81

)

$

55

$

(17

)

$

(98

)

$

—

$

—

5. Contingencies

     Legal Proceedings. The Company is involved in routine litigation and claims incidental to its business from time to time, and, as required, has accrued its estimate of the probable costs for the resolution of these matters. These estimates have been developed in consultation with counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. It is possible, however, that future results of operations for any particular period could be materially affected by changes in the Company’s assumptions or the effectiveness of its strategies related to these proceedings. However, the results of these proceedings cannot be predicted with certainty, and changes in facts and circumstances could impact the Company’s estimate of reserves for litigation.

     Repair Service Agreement Obligations. The Company sells repair service agreements that extend the period of covered warranty service on the products the Company sells. For certain of the repair service agreements sold, the Company is the obligor for payment of qualifying claims. The Company is responsible for administering the program, including setting the pricing of the agreements sold and paying the claims. The typical term for these agreements is between 12 and 36 months. The pricing is set based on historical claims experience and expectations about future claims. While the Company is unable to estimate maximum potential claim exposure, it has a history of overall profitability upon the ultimate resolution of agreements sold. The revenues related to the agreements sold are deferred at the time of sale and recorded in revenues in the statement of operations over the life of the agreements. The agreements can be canceled at any time and any deferred revenue associated with canceled agreements is reversed at the time of cancellation. The

amounts of repair service agreement revenue deferred at January 31, 2010, and April 30, 2010, are $7.3 million and $7.3 million, respectively, and are included in Deferred revenue and allowances in the accompanying consolidated balance sheets. The following table presents a reconciliation of the beginning and ending balances of the deferred revenue on the Company’s repair service agreements and the amount of claims paid under those agreements (in thousands):

Reconciliation of deferred revenues on repair service agreements

		Three Months Ended
		April 30,
		2009				2010
Balance in deferred revenues at beginning of period		$	7,213			$	7,268
Revenues earned during the period			(1,733	)			(1,787	)
Revenues deferred on sales of new agreements			1,833				1,801
Balance in deferred revenues at end of period		$	7,313			$	7,282
Total claims incurred during the period, excludes selling expenses		$	716			$	886

6. Segment Reporting

     Financial information by segment is presented in the following tables for the three months ended April 30, 2010 and 2009 (in thousands):

		Three Months Ended April 30,
		2009												2010
		Retail				Credit				Total				Retail				Credit				Total
Revenues
Product sales		$	184,817			$	—			$	184,817			$	150,365			$	—			$	150,365
Repair service agreement commissions (net) (a)			12,087				(2,297	)			9,790				10,925				(3,008	)			7,917
Service revenues			5,544								5,544				4,757								4,757
Total net sales			202,448				(2,297	)			200,151				166,047				(3,008	)			163,039
Finance charges and other			114				39,586				39,700				250				34,230				34,480
Total revenues			202,562				37,289				239,851				166,297				31,222				197,519
Cost and expenses
Cost of goods and parts sold, including warehousing and occupancy costs			148,457				—				148,457				116,529				—				116,529
Selling, general and administrative expense (b)			43,830				15,507				59,337				40,150				16,475				56,625
Depreciation and amortization			2,982				419				3,401				3,023				1,095				4,118
Provision for bad debts			59				5,585				5,644				86				6,188				6,274
Total cost and expenses			195,328				21,511				216,839				159,788				23,758				183,546
Operating income			7,234				15,778				23,012				6,509				7,464				13,973
Interest expense, net			—				5,004				5,004				—				4,785				4,785
Other (income) expense, net			(8	)			—				(8	)			171				—				171
Segment income before income taxes		$	7,242			$	10,774			$	18,016			$	6,338			$	2,679			$	9,017
Total assets		$	213,297			$	705,056			$	918,353			$	209,589			$	667,440			$	877,029

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements

     This report contains forward-looking statements. We sometimes use words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “project” and similar expressions, as they relate to us, our management and our industry, to identify forward-looking statements. Forward-looking statements relate to our expectations, beliefs, plans, strategies, prospects, future performance, anticipated trends and other future events. We have based our forward-looking statements largely on our current expectations and projections about future events and financial trends affecting our business. Actual results may differ materially. Some of the risks, uncertainties and assumptions about us that may cause actual results to differ from these forward-looking statements include, but are not limited to:

	•		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 renew or replace our existing borrowing facilities on or before the maturity dates of the facilities;
	•		the cost or terms of any amended, renewed or replacement credit facilities;
	•		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 the commercial paper-based funding sources in our securitization program;
	•		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 asset-based 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;
	•		increases in the retained portion of our customer receivables portfolio under our asset-backed securitization program as a result of changes in performance or types of customer receivables transferred, or as a result of a change in the mix of funding sources available to the securitization program, requiring higher collateral levels, or limitations on our ability to obtain financing through commercial paper-based funding sources;
	•		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;
	•		the ability of the financial institutions providing lending facilities to us to fund their commitments;

	•		the effect of any downgrades by rating agencies of our lenders on 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;
	•		the potential for deterioration in the delinquency status of the transferred or owned credit portfolios or higher than historical net charge-offs in the portfolios 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 and repair service 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 Form 10-K/A filed with the Securities Exchange Commission on April 12, 2010. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report might not happen.

     The forward-looking statements in this report reflect our views and assumptions only as of the date of this report. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

     All forward-looking statements attributable to us, or to persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements.

General

     We intend for 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.

     We are a specialty retailer with 76 retail locations in Texas, Louisiana and Oklahoma, that sells home appliances, including refrigerators, freezers, washers, dryers, dishwashers and ranges, a variety of consumer electronics, including LCD, LED, 3-D, plasma and DLP televisions, camcorders, digital cameras, Blu-ray and DVD players, video game equipment, MP3 players and home theater products, lawn and garden products, mattresses and furniture. We also sell home office equipment, including computers and computer accessories and continue to introduce additional product categories for the home and consumer entertainment, such as GPS devices, to help increase same store sales and to respond to our customers’ product needs. We require our sales associates to be knowledgeable of all of our products.

     Unlike many of our competitors, we provide flexible in-house credit options for our customers. In the last three years, we financed, on average, approximately 61% of our retail sales through our internal credit programs. In addition to interest-bearing installment and revolving charge contracts, at times, we offer promotional credit programs to certain 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 programs with cash flow from operations and through an asset-based 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.

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

		Primary Portfolio (1)
		Three Months Ended
		1/31/2009				4/30/2009				1/31/2010				4/30/2010
Total outstanding balance (period end)		$	589,922			$	579,455			$	597,360			$	569,062
Average outstanding customer balance		$	1,403			$	1,405			$	1,339			$	1,341
Number of active accounts (period end)			420,585				412,387				446,203				424,383
Account balances over 60 days past due (period end)		$	35,153			$	33,003			$	48,775			$	40,461
Percent of balances over 60 days past due to total outstanding balance (period end)			6.0	%			5.7	%			8.2	%			7.1	%
Total account balances reaged (period end)			90,560				88,400				95,038				88,959
Percent of reaged balances to total outstanding balance (period end)			15.4	%			15.3	%			15.9	%			15.6	%
Account balances reaged more than six months (period end)		$	36,452			$	34,716			$	35,448			$	34,299
Weighted average credit score of outstanding balances			603				600				600				596
Total applications processed (2)			257,840				203,559				206,422				169,289
Percent of retail sales financed			48.9	%			43.8	%			54.7	%			52.8	%
Weighted average origination credit score of sales financed			636				634				631				626
Total applications approved			49.9	%			45.9	%			52.7	%			50.5	%
Average down payment			5.5	%			7.6	%			4.5	%			4.1	%
Average total outstanding balance		$	579,539			$	583,271			$	601,763			$	581,514
Bad debt charge-offs (net of recoveries)		$	4,280			$	3,916			$	6,516			$	6,153
Percent of bad debt charge-offs (net of recoveries) to average outstanding balance			3.0	%			2.7	%			4.3	%			4.2	%
Estimated percent of reage balances collected (3)			89.5	%			90.4	%			82.8	%			83.5	%

		Secondary Portfolio (1)
		Three Months Ended
		1/31/2009				4/30/2009				1/31/2010				4/30/2010
Total outstanding balance (period end)		$	163,591			$	155,097			$	138,681			$	131,430
Average outstanding customer balance		$	1,394			$	1,385			$	1,319			$	1,309
Number of active accounts (period end)			117,372				112,011				105,109				100,412
Account balances over 60 days past due (period end)		$	19,988			$	17,908			$	24,616			$	19,471
Percent of balances over 60 days past due to total outstanding balance (period end)			12.2	%			11.5	%			17.8	%			14.8	%
Total account balances reaged (period end)		$	50,602			$	49,850			$	49,135			$	45,051
Percent of reaged balances to total outstanding balance (period end)			30.9	%			32.1	%			35.4	%			34.3	%
Account balances reaged more than six months (period end)		$	19,860			$	20,185			$	21,920			$	20,931
Weighted average credit score of outstanding balances			521				524				526				528
Total applications processed (2)			114,133				96,443				89,615				75,345
Percent of retail sales financed			9.4	%			8.5	%			6.0	%			6.4	%
Weighted average origination credit score of sales financed			540				559				555				556
Total applications approved			23.2	%			16.5	%			19.3	%			21.4	%
Average down payment			20.1	%			22.9	%			21.2	%			17.5	%
Average total outstanding balance		$	163,320			$	159,270			$	141,125			$	134,324
Bad debt charge-offs (net of recoveries)		$	2,043			$	1,689			$	2,325			$	2,092
Percent of bad debt charge-offs (net of recoveries) to average outstanding balance			5.0	%			4.2	%			6.6	%			6.2	%
Estimated percent of reage balances collected (3)			90.3	%			91.9	%			86.2	%			87.1	%

		Combined Portfolio (1)
		Three Months Ended
		1/31/2009				4/30/2009				1/31/2010				4/30/2010
Total outstanding balance (period end)		$	753,513			$	734,552			$	736,041			$	700,492
Average outstanding customer balance		$	1,401			$	1,401			$	1,335			$	1,335
Number of active accounts (period end)			537,957				524,398				551,312				524,795
Account balances over 60 days past due (period end)		$	55,141			$	50,911			$	73,391			$	59,932
Percent of balances over 60 days past due to total outstanding balance (period end)			7.3	%			6.9	%			10.0	%			8.6	%
Total account balances reaged (period end)		$	141,162			$	138,250			$	144,173			$	134,010
Percent of reaged balances to total outstanding balance (period end)			18.7	%			18.8	%			19.6	%			19.1	%
Account balances reaged more than six months (period end)		$	56,312			$	54,901			$	57,368			$	55,230
Weighted average credit score of outstanding balances			585				584				586				583
Total applications processed (2)			371,973				300,002				296,037				244,634
Percent of retail sales financed			58.3	%			52.3	%			60.7	%			59.2	%
Weighted average origination credit score of sales financed			620				623				621				616
Total applications approved			41.7	%			36.4	%			42.6	%			41.5	%
Average down payment			7.4	%			9.3	%			6.2	%			5.9	%
Average total outstanding balance		$	742,859			$	742,541			$	742,888			$	715,838
Weighted average monthly payment rate			5.2	%			5.8	%			5.0	%			6.0	%
Bad debt charge-offs (net of recoveries)		$	6,323			$	5,605			$	8,841			$	8,245
Percent of bad debt charge-offs (net of recoveries) to average outstanding balance			3.4	%			3.0	%			4.8	%			4.6	%
Estimated percent of reage balances collected (3)			89.8	%			91.0	%			84.0	%			84.7	%

     We also derive revenues from repair services on the products we sell and from product delivery and installation services we provide to our customers. Additionally, acting as an agent for unaffiliated companies, we sell credit insurance and repair service agreements to protect our customers from credit losses due to death, disability, involuntary unemployment and property damage and product failure not covered by a manufacturers’ warranty. We also derive revenues from the sale of extended repair service agreements, under which we are the primary obligor, to protect the customers after the original manufacturer’s warranty or repair service agreement has expired.

     Our business is moderately seasonal, with a greater share of our revenues, pretax and net income realized during the quarter ending January 31, due primarily to the holiday selling season.

Executive Overview

     This narrative is intended to provide an executive level overview of our operations for the three months ended April 30, 2010. A detailed explanation of the changes in our operations for this period as compared to the prior year period is included under Results of Operations. Some of the more specific items impacting our operating and pretax income were:

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For the three months ended April 30, 2010, compared to the same period last year, Total net sales decreased 18.6% and Finance charges and other decreased 13.1%. Total revenues decreased 17.7% while same store sales decreased 19.7% for the quarter ended April 30, 2010. The sales decline was primarily driven by:

	•		more challenging economic conditions in Texas compared to the same quarter in the prior year, as evidenced by the unemployment rate rising from 6.8% in February 2009, to 8.3% in April 2010, and
	•		management’s emphasis on improving retail gross margin, which increased from 25.0% to 27.9% for the three months ended April 30, 2009, and 2010, respectively, while maintaining price competitiveness.

•		Finance charges and other decreased 13.1% for the three months ended April 30, 2010, when compared to the same period last year, primarily due to a decrease in interest income and fees as the average interest income and fee yield earned on the portfolio fell from 18.8% for the three months April 30, 2009, to 17.0%, for the three months ended April 30, 2010, and the average balance of customer accounts receivable outstanding fell 3.6%. The interest income and fee yield fell as a result of the higher level of charge-offs experienced and the reduced amount of new credit accounts originated in the three months ended April 30, 2010, as compared to the same quarter in the prior fiscal year.
•		Deferred interest and “same as cash” plans under our consumer credit programs 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 three months ended April 30, 2010, $25.6 million, or 17.0%, of our product sales were financed by our deferred interest and “same as cash” plans. For the comparable period in the prior year, product sales financed by our deferred interest and “same as cash” sales were $27.2 million, or 14.7%. 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 typically used to finance sales of our highest margin products. We expect to continue to offer promotional credit in the future, including the use of third-party consumer credit programs, which financed $0.7 million and $13.5 million, of our product and repair service agreement sales during the three months ended April 30, 2009 and 2010, respectively.
•		Our total gross margin (Total revenues less Cost of goods sold) increased from 38.1% to 41.0% for the three months ended April 30, 2010, when compared to the same period in the prior year. The increase resulted primarily from:

	•		an increase in retail gross margins (includes gross profit from product sales and repair service agreement commissions) from 25.0% for the three months ended April 30, 2009, to 27.9% for the three months ended April 30, 2010, respectively, which improved the total gross margin by 230 basis points. The increase was driven largely by a 300 basis point increase in product gross margins to 24.1% for the three months ended April 30, 2010, as we focused on improving pricing discipline on the sales floor while maintaining price competitiveness in the marketplace, and
	•		a change in the revenue mix in the quarter ended April 30, 2010, such that higher gross margin finance charge and other revenues contributed a larger percentage of total revenues, resulted in an increase in the total gross margin of approximately 60 basis points.

•		During the three months ended April 30, 2010, Selling, general and administrative (SG&A) expense was reduced by $2.0 million, though it increased as a percent of revenues to 30.8% from 26.2% in the prior year period, due to the deleveraging effect of the decline in total revenues. The $2.0 million reduction in SG&A expense was driven primarily by lower compensation and related expense and reduced advertising expense, partially offset by increased amortization expense due to the amendments completed to our credit facilities, higher charges related to the increased use of third-party finance providers and increased use of contract delivery and installation services. The prior year period also included a $0.5 million charge to increase our litigation reserves.
•		The Provision for bad debts increased to $6.3 million for the three months ended April 30, 2010, from $5.6 million for the same quarter in the prior year period. While our total net charge-offs of customer and non-customer accounts receivable increased by $2.7 million compared to the first quarter of the prior fiscal year. In the first quarter we experienced an improvement in our credit portfolio performance (specifically, the trends in the delinquency rate, payment rate, net charge-off rate and percent of the portfolio reaged) over the fourth quarter of fiscal 2010. As such, our allowance for bad debts declined approximately $2.2 million during the three months ended April 30, 2010 from the fourth quarter of fiscal 2010, after absorbing the higher net charge-offs incurred in the fiscal quarter ended April 30, 2010.

•		Net interest expense decreased in the three months ended April 30, 2010, due primarily to reduced outstanding debt balances.
•		The provision for income taxes for the three months ended April 30, 2010, was impacted primarily by the change in pre-tax income.

Operational Changes and Resulting Outlook

     While we are continuing to assess the availability of capital for new store locations and growth of the credit portfolio, we do not currently have any new store openings planned.

     During the fiscal year ended January 31, 2010, we adjusted our underwriting guidelines and reduced the volume of credit accounts we originated in our Secondary Portfolio. As a result of the changes in our underwriting guidelines, we saw improved credit portfolio performance during the first quarter of fiscal 2011, evidenced by:

	•		a 140 basis point reduction in the 60+ day delinquency percentage from 10.0% at January 31, 2010, to 8.6% at April 30, 2010, as compared to a 40 basis point reduction in the same percentage from 7.3% at January 31, 2009, to 6.9% at April 30, 2009,
	•		a 50 basis point, or $10 million, reduction in the percent and balance, respectively, of the credit portfolio that has been reaged, to 19.1%, or $134.0 million, as of April 30, 2010, as compared to January 31, 2010, and
	•		the payment rate percentage, the amount collected on credit accounts during a month as a percentage of the portfolio balance at the beginning of the month, increased in February, March and April of the current year as compared to the same months in the prior year.

     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 health of the national and state economies 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 the 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.

     The consumer electronics industry depends on new products to drive same store sales increases. Typically, these new products, such as high-definition and 3-D televisions, Blu-ray and DVD players, digital cameras, MP3 players and GPS devices are introduced at relatively high price points that are then gradually reduced as the product becomes mainstream. To sustain positive same store sales growth, unit sales must increase at a rate greater than the decline in product prices. The affordability of the product helps drive the unit sales growth. However, as a result of relatively short product life cycles in the consumer electronics industry, which limit the amount of time available for sales volume to increase, combined with rapid price erosion in the industry, retailers are challenged to maintain overall gross margin levels and positive same store sales. This has historically been our experience, and we continue to adjust our marketing strategies to address this challenge through the introduction of new product categories and new products within our existing categories.

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 as of April 30, 2010.

     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 12 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, 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 $35.8 million and $33.5 million at January 31, 2010, and April 30, 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 19.1% of the total portfolio balance at April 30, 2010. If the loss rate used to calculate the allowance for doubtful accounts were increased by 10% at April 30, 2010, we would have increased our Provision for bad debts by approximately $3.4 million.

     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 revenue deferred at January 31, 2010, and April 30, 2010, was $7.3 million and $7.3 million, respectively, and is included in Deferred revenues and allowances in the accompanying consolidated balance sheets.

     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.

     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.

     Results of Operations

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

		Three Months Ended
		April 30,
		2010				2009
Revenues:
Product sales			76.1	%			77.0	%
Repair service agreement commissions (net)			4.0				4.1
Service revenues			2.4				2.3
Total net sales			82.5				83.4
Finance charges and other			17.5				16.6
Total revenues			100.0				100.0
Costs and expenses:
Cost of goods sold, including warehousing and occupancy cost			57.8				60.8
Cost of parts sold, including warehousing and occupancy cost			1.2				1.1
Selling, general and administrative expense			30.8				26.2
Provision for bad debts			3.2				2.4
Total costs and expenses			93.0				90.5
Operating income			7.0				9.5
Interest expense, net			2.4				2.1
Other (income) / expense, net			0.1				0.0
Income before income taxes			4.5				7.4
Provision for income taxes			1.8				2.8
Net income			2.7	%			4.6	%