n's(CONN) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial information for Conn's, Inc., including financial statements, management's discussion, market risk, and controls ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, stockholders' equity, cash flows, and detailed notes on accounting policies and financial items Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' equity at specific dates Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | July 31, 2021 | January 31, 2021 | | :------------------------------------ | :------------ | :--------------- | | Total Assets | $1,708,947 | $1,755,084 | | Total Liabilities | $1,066,497 | $1,197,929 | | Total Stockholders' Equity | $642,450 | $557,155 | | Cash and cash equivalents | $8,736 | $9,703 | | Customer accounts receivable, net | $461,491 | $478,734 | | Inventories | $223,662 | $196,463 | | Long-term debt and finance lease obligations | $438,242 | $608,635 | Condensed Consolidated Statements of Operations This statement presents the company's financial performance, detailing revenues, costs, expenses, and net income (loss) for specified periods Condensed Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | Three Months Ended July 31, 2021 | Three Months Ended July 31, 2020 | Six Months Ended July 31, 2021 | Six Months Ended July 31, 2020 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues | $418,383 | $366,916 | $782,085 | $684,076 | | Operating income (loss) | $54,209 | $41,436 | $124,119 | $(20,806) | | Net income (loss) | $37,004 | $20,520 | $82,402 | $(35,682) | | Basic income (loss) per share | $1.26 | $0.71 | $2.80 | $(1.23) | | Diluted income (loss) per share | $1.22 | $0.70 | $2.74 | $(1.23) | Condensed Consolidated Statements of Stockholders' Equity This statement details changes in stockholders' equity, including common stock, additional paid-in capital, retained earnings, and treasury stock Condensed Consolidated Statements of Stockholders' Equity Highlights (in thousands) | Metric | July 31, 2021 | January 31, 2021 | | :------------------------------------ | :------------ | :--------------- | | Total Stockholders' Equity | $642,450 | $557,155 | | Retained Earnings | $573,412 | $491,010 | | Additional Paid-in Capital | $134,999 | $132,108 | | Common Stock (shares issued) | 32,967,808 | 32,711,623 | Condensed Consolidated Statements of Cash Flows This statement summarizes cash inflows and outflows from operating, investing, and financing activities for the specified periods Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Six Months Ended July 31, 2021 | Six Months Ended July 31, 2020 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $176,939 | $305,725 | | Net cash used in investing activities | $(19,162) | $(32,459) | | Net cash used in financing activities | $(178,340) | $(283,900) | | Net change in cash, cash equivalents and restricted cash | $(20,563) | $(10,634) | | Cash, cash equivalents and restricted cash, end of period | $39,697 | $70,221 | Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations supporting the financial statements, covering accounting policies, specific line items, and other disclosures 1. Summary of Significant Accounting Policies This section outlines the company's business model, accounting policies for various financial items, and recent accounting pronouncements - Conn's operates two reportable segments: retail and credit, with the retail segment selling goods and the credit segment providing financing solutions independently[22] - The company consolidates Variable Interest Entities (VIEs) as the primary beneficiary, directing activities and absorbing losses or receiving benefits[23] - For the six months ended July 31, 2021, the effective tax rate was 23.4%, a decrease from 27.2% in the prior year, primarily due to CARES Act tax loss carryback provisions[31] Stock-based Compensation Expense (in thousands) | Period | 2021 | 2020 | | :------------------------------------ | :--- | :--- | | Three months ended July 31 | $1,700 | $2,300 | | Six months ended July 31 | $3,800 | $4,700 | 2. Customer Accounts Receivable This note details customer accounts receivable, including gross balances, allowances for credit losses, past due accounts, and re-aged and restructured accounts Customer Accounts Receivable Summary (in thousands) | Metric | July 31, 2021 | January 31, 2021 | | :------------------------------------ | :------------ | :--------------- | | Customer accounts receivable | $1,105,713 | $1,233,717 | | Allowance for credit losses | $(190,231) | $(276,610) | | Carrying value of customer accounts receivable, net of allowance for credit losses | $876,699 | $909,483 | | Customer accounts receivable 60+ days past due | $76,293 | $146,820 | | Re-aged customer accounts receivable | $218,086 | $306,845 | | Restructured customer accounts receivable | $130,725 | $178,374 | Allowance for Credit Losses Activity (Six Months Ended July 31, 2021 vs. 2020) (in thousands) | Metric | 2021 Total | 2020 Total | | :------------------------------------ | :--------- | :--------- | | Allowance at beginning of period | $298,037 | $233,803 | | Provision for (benefit from) credit losses | $7,911 | $180,936 | | Principal charge-offs | $(100,032) | $(149,047) | | Interest charge-offs | $(27,726) | $(42,680) | | Recoveries | $23,909 | $15,042 | | Allowance at end of period | $202,099 | $336,716 | - The allowance for credit losses for non-TDR customer receivables decreased from $219.7 million to $150.7 million, reflecting an improved macroeconomic outlook and decline in delinquencies[31][46][109] 3. Finance Charges and Other Revenues This note details components of finance charges and other revenues, including interest income, fees, and insurance income from both segments Finance Charges and Other Revenues (in thousands) | Metric | Three Months Ended July 31, 2021 | Three Months Ended July 31, 2020 | Six Months Ended July 31, 2021 | Six Months Ended July 31, 2020 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Interest income and fees | $65,003 | $83,599 | $132,682 | $165,442 | | Insurance income | $6,371 | $3,385 | $10,889 | $8,137 | | Other revenues | $224 | $196 | $433 | $431 | | Total finance charges and other revenues | $71,598 | $87,180 | $144,004 | $174,010 | - Interest income and fees decreased by $18.6 million (three months) and $32.8 million (six months) year-over-year, primarily due to a decrease in the average outstanding customer accounts receivable portfolio balance[47][50][102] - Insurance income increased by $3.0 million (three months) and $2.8 million (six months) year-over-year[47][102] 4. Debt and Financing Lease Obligations This note details the company's debt and financing lease obligations, including credit facilities, notes, securitization terms, and covenant compliance Debt and Financing Lease Obligations (in thousands) | Metric | July 31, 2021 | January 31, 2021 | | :------------------------------------ | :------------ | :--------------- | | Revolving Credit Facility | $219,000 | $52,000 | | Senior Notes | $0 | $141,172 | | Asset-backed Notes (total) | $215,533 | $413,988 | | Total debt and financing lease obligations | $440,584 | $613,232 | - The company redeemed all outstanding Senior Notes totaling $141.2 million on April 15, 2021[51][119] - On February 24, 2021, the company sold $62.9 million of 2020-A Class C Asset Backed Notes, generating $62.5 million in net proceeds to repay the Revolving Credit Facility[56][123] - As of July 31, 2021, the company had $362.9 million in immediately available borrowing capacity under its $650.0 million Revolving Credit Facility[56][123][126] - The company was in compliance with all debt covenants as of July 31, 2021, demonstrating strong interest coverage and leverage ratios[59][125] 5. Contingencies This note describes ongoing legal proceedings, including securities and derivative litigation, with uncertain timing and outcomes - The company is involved in securities litigation (MicroCapital Action) alleging false or misleading statements regarding credit, underwriting, accounting, and internal controls[60] - Multiple derivative lawsuits are ongoing, asserting claims against current and former directors and executive officers for breach of fiduciary duty, unjust enrichment, gross mismanagement, and insider trading[60][63] - The company cannot reasonably estimate the possible loss from these claims but believes any probable and estimable loss is adequately reflected in financial statements[60][63] 6. Variable Interest Entities This note explains the company's securitization of customer accounts receivables through consolidated Variable Interest Entities (VIEs) - The company securitizes customer accounts receivables by transferring them to bankruptcy-remote VIEs, which then issue asset-backed notes[64] - Conn's retains servicing of the securitized portfolio, receiving an annualized monthly fee of 4.75% and holding all residual equity, leading to VIE consolidation[64] VIE Assets and Liabilities (in thousands) | Metric | July 31, 2021 | January 31, 2021 | | :------------------------------------ | :------------ | :--------------- | | Total Assets | $248,809 | $487,076 | | Total Liabilities | $218,712 | $419,717 | | Restricted cash | $28,911 | $48,622 | | Total customer accounts receivable, net | $230,265 | $444,115 | | Total debt | $214,562 | $411,551 | 7. Segment Information This note provides financial information for the retail and credit segments, detailing revenues, costs, expenses, and operating income - The retail segment's operating income for the three months ended July 31, 2021, was $28.7 million, up from $23.2 million, while the credit segment's operating income increased to $25.5 million from $18.2 million[71] - For the six months ended July 31, 2021, the retail segment's operating income was $44.4 million, and the credit segment's operating income was $79.7 million, a significant improvement from a $49.2 million loss in the prior year for the credit segment[74] Segment Revenues (in thousands) | Segment | Three Months Ended July 31, 2021 | Three Months Ended July 31, 2020 | Six Months Ended July 31, 2021 | Six Months Ended July 31, 2020 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Retail Total Revenues | $347,009 | $279,932 | $638,514 | $510,497 | | Credit Total Revenues | $71,374 | $86,984 | $143,571 | $173,579 | - The retail segment added three new showrooms in Florida during Q2 FY22, bringing the total to 155 stores as of July 31, 2021, compared to 141 stores at July 31, 2020[84][90] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on financial condition and results, covering performance, key metrics, strategic initiatives, outlook, and liquidity Forward-Looking Statements This section contains a disclaimer regarding forward-looking statements, noting that actual results may differ due to various risks and uncertainties - Forward-looking statements are subject to risks and uncertainties, including economic conditions, securitization execution, credit portfolio delinquency, litigation, regulatory oversight, and COVID-19 impacts[76] Overview The company monitors and responds to the COVID-19 pandemic's impact on supply chain and sales, with the full extent remaining uncertain - COVID-19 continues to impact business, increasing complexity in supply chain and sales, with its full future impact remaining uncertain[77] Executive Summary Total revenues increased by 14.0% driven by retail growth, while credit revenues decreased, leading to a significant increase in net income Executive Summary Financial Highlights (Three Months Ended July 31) (in millions, except per share) | Metric | 2021 | 2020 | Change ($) | Change (%) | | :------------------------------------ | :--- | :--- | :--------- | :--------- | | Total revenues | $418.4 | $366.9 | $51.5 | 14.0% | | Retail revenues | $347.0 | $279.9 | $67.1 | 24.0% | | Credit revenues | $71.4 | $87.0 | $(15.6) | (17.9)% | | Retail gross margin | 37.7% | 36.9% | 0.8 pts | | | SG&A | $137.9 | $115.3 | $22.6 | 19.6% | | Provision for bad debts | $10.3 | $32.0 | $(21.7) | (67.8)% | | Interest expense | $6.1 | $13.2 | $(7.1) | (53.8)% | | Net income | $37.0 | $20.5 | $16.5 | 80.5% | | Diluted EPS | $1.22 | $0.70 | $0.52 | 74.3% | - Retail revenue growth was primarily driven by a 16.4% increase in same-store sales and new store expansion, reflecting increased demand across home-related product categories[78] - The decrease in credit revenue was mainly due to a 22.7% decrease in the average outstanding customer receivable portfolio balance, partially offset by a slight increase in yield rate (from 23.2% to 23.3%) and higher insurance commissions[80] How We Evaluate Our Operations Management evaluates operations using key indicators like same-store sales, retail gross margin, 60+ day delinquencies, and net yield - Key performance indicators include same-store sales, retail gross margin, 60+ day delinquencies, and net yield, reflecting operational efficiency, credit quality, and portfolio income[81] Company Initiatives The company achieved record Q2 net earnings and strong sales growth, with strategic priorities focused on operational improvements and expansion - Net earnings reached a Q2 record of $1.22 per diluted share, up from $0.70 in the prior year[82] - Same-store sales increased by 16.4% year-over-year and 3.2% on a two-year basis in Q2 FY22[82] - eCommerce sales grew 210.9% to $17.3 million, and lease-to-own sales increased 70.3% to $41.6 million in Q2 FY22[84] - The company opened three new showrooms in Florida during Q2 FY22, bringing the total to 155[84] - Key strategic priorities for FY22 include increasing net income, opening 11-13 new stores, optimizing product mix and logistics, growing lease-to-own and eCommerce, and disciplined SG&A oversight[84] Outlook Despite COVID-19 uncertainty, the company anticipates continued growth through market penetration, expansion, and operational optimization - The full extent of the COVID-19 pandemic's impact on the supply chain and future operating results remains uncertain[85] - Government support programs, such as the American Rescue Plan and Child Tax Credit, are expected to continue providing financial means to customers, potentially benefiting the business[85] - The company plans to improve operating results by leveraging infrastructure, optimizing operations, and expanding its store base to increase purchase volumes and strengthen vendor relationships[85] Results of Operations This section analyzes consolidated and segment-specific financial performance, detailing revenues, costs, expenses, and profitability metrics Consolidated Financial Performance (in thousands) | Metric | Three Months Ended July 31, 2021 | Three Months Ended July 31, 2020 | Six Months Ended July 31, 2021 | Six Months Ended July 31, 2020 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues | $418,383 | $366,916 | $782,085 | $684,076 | | Cost of goods sold | $216,042 | $176,623 | $400,921 | $323,637 | | SG&A expense | $137,870 | $115,278 | $263,919 | $228,285 | | Provision for bad debts | $10,262 | $32,045 | $(6,874) | $149,371 | | Operating income (loss) | $54,209 | $41,436 | $124,119 | $(20,806) | | Net income (loss) | $37,004 | $20,520 | $82,402 | $(35,682) | Three months ended July 31, 2021 compared to three months ended July 31, 2020 Net sales increased by 24.0% driven by retail growth, while finance charges decreased, leading to improved retail gross margin and substantial net income growth Retail Net Sales by Product Category (Three Months Ended July 31) (in thousands) | Product Category | 2021 Sales | % of Total 2021 | 2020 Sales | % of Total 2020 | Change ($) | % Change | Same Store % Change | | :------------------------------------ | :--------- | :-------------- | :--------- | :-------------- | :--------- | :------- | :------------------ | | Furniture and mattress | $109,259 | 31.5% | $80,984 | 29.0% | $28,275 | 34.9% | 22.0% | | Home appliance | $135,444 | 39.1% | $107,682 | 38.5% | $27,762 | 25.8% | 17.8% | | Consumer electronics | $48,413 | 14.0% | $47,384 | 16.9% | $1,029 | 2.2% | 0.1% | | Home office | $17,986 | 5.2% | $14,979 | 5.4% | $3,007 | 20.1% | 10.4% | | Other | $9,143 | 2.6% | $5,113 | 1.8% | $4,030 | 78.8% | 71.3% | | Product sales | $320,245 | 92.4% | $256,142 | 91.6% | $64,103 | 25.0% | 16.7% | | Repair service agreement commissions | $23,700 | 6.8% | $20,164 | 7.2% | $3,536 | 17.5% | 13.6% | | Service revenues | $2,840 | 0.8% | $3,430 | 1.2% | $(590) | (17.2)% | | | Total net sales | $346,785 | 100.0% | $279,736 | 100.0% | $67,049 | 24.0% | 16.4% | Key Portfolio Performance (Three Months Ended July 31) (in thousands) | Metric | 2021 | 2020 | Change ($) | | :------------------------------------ | :--- | :--- | :--------- | | Interest income and fees | $65,003 | $83,599 | $(18,596) | | Net charge-offs | $(31,184) | $(75,118) | $43,934 | | Interest expense | $(6,088) | $(13,222) | $7,134 | | Net portfolio income | $27,731 | $(4,741) | $32,472 | | Average outstanding portfolio balance | $1,105,936 | $1,429,991 | $(324,055) | | Interest income and fee yield (annualized) | 23.3% | 23.2% | | | Net charge-off % (annualized) | 11.3% | 21.0% | | - Retail gross margin increased by 80 basis points to 37.7%, driven by higher-margin products, decreased third-party credit fees, and leveraged fixed logistics costs[96] - Consolidated SG&A increased by $22.6 million (19.6%) to $137.9 million, primarily due to new store and operating costs in retail, partially offset by decreased credit segment labor costs[97] - Provision for bad debts decreased by $21.7 million to $10.3 million, mainly due to a $43.8 million decrease in net charge-offs and an improved forecasted unemployment rate[97] - Interest expense decreased by $7.1 million (53.8%) to $6.1 million, attributed to a lower average outstanding debt balance and a lower effective interest rate[99] Six months ended July 31, 2021 compared to six months ended July 31, 2020 Net sales increased by 25.1% driven by retail growth, while finance charges decreased, resulting in improved retail gross margin and substantial net income growth Retail Net Sales by Product Category (Six Months Ended July 31) (in thousands) | Product Category | 2021 Sales | % of Total 2021 | 2020 Sales | % of Total 2020 | Change ($) | % Change | Same Store % Change | | :------------------------------------ | :--------- | :-------------- | :--------- | :-------------- | :--------- | :------- | :------------------ | | Furniture and mattress | $203,750 | 31.9% | $149,877 | 29.4% | $53,873 | 35.9% | 24.3% | | Home appliance | $248,705 | 39.0% | $188,967 | 37.0% | $59,738 | 31.6% | 23.9% | | Consumer electronics | $86,451 | 13.5% | $83,160 | 16.3% | $3,291 | 4.0% | 1.7% | | Home office | $32,507 | 5.1% | $32,345 | 6.3% | $162 | 0.5% | (5.5)% | | Other | $18,043 | 2.8% | $8,991 | 1.8% | $9,052 | 100.7% | 90.9% | | Product sales | $589,456 | 92.3% | $463,340 | 90.8% | $126,116 | 27.2% | 19.4% | | Repair service agreement commissions | $42,831 | 6.7% | $40,265 | 7.9% | $2,566 | 6.4% | 3.1% | | Service revenues | $5,794 | 1.0% | $6,461 | 1.3% | $(667) | (10.3)% | | | Total net sales | $638,081 | 100.0% | $510,066 | 100.0% | $128,015 | 25.1% | 17.8% | Key Portfolio Performance (Six Months Ended July 31) (in thousands) | Metric | 2021 | 2020 | Change ($) | | :------------------------------------ | :--- | :--- | :--------- | | Interest income and fees | $132,682 | $165,442 | $(32,760) | | Net charge-offs | $(76,123) | $(134,006) | $57,883 | | Interest expense | $(15,292) | $(28,215) | $12,923 | | Net portfolio income | $41,267 | $3,221 | $38,046 | | Average outstanding portfolio balance | $1,142,080 | $1,493,250 | $(351,170) | | Interest income and fee yield (annualized) | 23.4% | 22.2% | | | Net charge-off % (annualized) | 13.3% | 17.9% | | - Retail gross margin increased by 70 basis points to 37.2%, driven by higher-margin products, decreased third-party credit fees, and leveraged fixed logistics costs[105] - Consolidated SG&A increased by $35.6 million (15.6%) to $263.9 million, primarily due to new store and operating costs in retail, partially offset by decreased credit segment labor costs[106] - Provision for bad debts was a benefit of $(6.9) million, a $156.3 million decrease from the prior year's provision of $149.4 million, driven by a decrease in the allowance for bad debts due to improved macroeconomic outlook and lower delinquencies[107][109] - Interest expense decreased by $12.9 million (45.7%) to $15.3 million, driven by a lower average outstanding debt balance, partially offset by a higher effective interest rate[110] Customer Accounts Receivable Portfolio This section details the customer accounts receivable portfolio, highlighting improved credit scores, decreased delinquencies, and reduced allowance for uncollectible accounts - The weighted average credit score of outstanding balances improved to 608 as of July 31, 2021, from 596 as of July 31, 2020[114] - Balances 60+ days past due as a percentage of total customer portfolio carrying value decreased to 7.2% from 10.0%, primarily due to increased cash collections and tighter underwriting standards[114][116] - Re-aged balance as a percentage of total customer portfolio carrying value decreased to 20.4% from 29.9%, due to increased cash collections, changes in re-age policy, and tighter underwriting standards[114][116] - The allowance for uncollectible accounts as a percentage of the total customer accounts receivable portfolio balance decreased to 18.3% from 24.8%[114] - The percent of bad debt charge-offs, net of recoveries, to average outstanding portfolio balance decreased to 11.3% from 21.0%, due to an increase in existing customer mix and tighter underwriting standards[118] Liquidity and Capital Resources The company relies on cash flow, credit facilities, and securitizations for liquidity, with changes in operating, investing, and financing cash flows detailed - Net cash provided by operating activities decreased to $176.9 million from $305.7 million, primarily due to increased inventory and higher prior year collections[119] - Net cash used in investing activities decreased to $19.2 million from $32.5 million, with current period investments in new/existing stores and technology[119] - Net cash used in financing activities decreased to $178.3 million from $283.9 million, driven by asset-backed note proceeds and Senior Notes retirement, partially offset by Revolving Credit Facility borrowings[119] - The company expects cash from operations, potential securitizations, and the Revolving Credit Facility to be sufficient for liquidity needs over the next 12 months[126] - Planned capital expenditures for the remainder of fiscal year 2021 are between $25.0 million and $35.0 million, including for 11 to 13 new stores planned for FY22[125] Off-Balance Sheet Liabilities and Other Contractual Obligations The company has no off-balance sheet arrangements and details its minimum contractual commitments and obligations - The company does not have any off-balance sheet arrangements[129] Minimum Contractual Commitments and Obligations (in thousands) | Obligation Type | Total | Less Than 1 Year | 1-3 Years | 3-5 Years | More Than 5 Years | | :------------------------------------ | :-------- | :--------------- | :-------- | :-------- | :---------------- | | Debt, including estimated interest payments | $489,948 | $10,693 | $130,282 | $339,692 | $0 | | Financing lease obligations | $7,890 | $1,208 | $2,189 | $1,426 | $3,067 | | Operating leases (Real estate) | $519,682 | $84,539 | $161,508 | $119,783 | $153,852 | | Operating leases (Equipment) | $222 | $169 | $37 | $16 | $0 | | Contractual commitments (primarily inventory) | $131,957 | $122,445 | $9,236 | $276 | $0 | | Total | $1,144,718 | $222,844 | $303,752 | $461,203 | $156,919 | Issuer and Guarantor Subsidiary Summarized Financial Information This section presents summarized financial information for the Issuer and Guarantor Subsidiaries, excluding Non-Guarantor Subsidiaries Issuer and Guarantor Subsidiaries Summarized Balance Sheet (in thousands) | Metric | July 31, 2021 | January 31, 2021 | | :------------------------------------ | :------------ | :--------------- | | Total Assets | $1,461,537 | $1,270,918 | | Total Liabilities | $849,184 | $781,124 | | Cash, cash equivalents and restricted cash | $10,786 | $11,638 | | Customer accounts receivable | $302,153 | $218,923 | | Inventories | $223,662 | $196,463 | | Long-term debt | $223,680 | $197,084 | Issuer and Guarantor Subsidiaries Summarized Statement of Operations (Six Months Ended July 31, 2021) (in thousands) | Metric | Amount | | :------------------------------------ | :----- | | Total revenues | $738,559 | | Total costs and expenses | $694,280 | | Net income | $44,279 | Critical Accounting Policies and Estimates This section refers to the 2021 Form 10-K for critical accounting policies, with no material changes noted - The description of critical accounting policies is included in the 2021 Form 10-K, with no material changes other than the additional policy mentioned in Note 1[134] Recent Accounting Pronouncements This section incorporates recent accounting pronouncements by reference from Note 1 of the financial statements - Information on recent accounting pronouncements is incorporated by reference from Note 1, Summary of Significant Accounting Policies[135] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section discusses market risk exposure, primarily from interest rate fluctuations on the Revolving Credit Facility, noting fixed-rate asset-backed notes - The primary market risk stems from adverse changes in interest rates, specifically impacting the variable-rate Revolving Credit Facility[136] - Asset-backed notes bear fixed interest rates and are not affected by interest rate changes[136] - A 100 basis point increase in interest rates on the Revolving Credit Facility would increase borrowing costs by $2.2 million over a 12-month period, based on the $219.0 million outstanding balance at July 31, 2021[136] ITEM 4. CONTROLS AND PROCEDURES The CEO and CFO concluded that disclosure controls and procedures were effective, with no material changes in internal controls during the quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of July 31, 2021[137] - No material changes in internal controls over financial reporting occurred during the quarter ended July 31, 2021[137] PART II. OTHER INFORMATION This section provides other information, including legal proceedings, risk factors, equity sales, defaults, mine safety, and exhibits ITEM 1. LEGAL PROCEEDINGS This section incorporates information on legal proceedings by reference from Note 5, Contingencies - Information on legal proceedings is incorporated by reference from Note 5, Contingencies, in the financial statements[138] ITEM 1A. RISK FACTORS No material changes to risk factors have occurred since the filing of the company's 2021 Form 10-K - No material changes to risk factors have occurred since the filing of the 2021 Form 10-K[139] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS No unregistered sales of equity securities or use of proceeds were reported for the period - No unregistered sales of equity securities or use of proceeds were reported[139] ITEM 3. DEFAULTS UPON SENIOR SECURITIES No defaults upon senior securities were reported for the period - No defaults upon senior securities were reported[140] ITEM 4. MINE SAFETY DISCLOSURE This item is not applicable to the company's operations - Mine Safety Disclosure is not applicable to the company[142] ITEM 5. OTHER INFORMATION No other information is reported for the period - No other information was reported[142] ITEM 6. EXHIBITS This section lists all exhibits filed with the report, including corporate governance documents and regulatory certifications - The exhibits include corporate governance documents, executive agreements, and regulatory certifications, such as Rule 13a-14(a)/15d-14(a) and Section 1350 Certifications[144] Signature This section contains the signature of the authorized officer, certifying the filing of the report - The report is signed by George L. Bchara, Executive Vice President and Chief Financial Officer, on September 1, 2021[148]