Conn's Inc (CONN) 2003 Q4 法說會逐字稿

Good day ladies and gentlemen, and welcome to the year ended January 31st '04 Conns Inc. conference call.

Your speakers for the call today are Mr. Tommy Frank, Chairman and Chief Executive Officer and Mr. Bill Frank, Executive Vice President, and Chief Financial Officer.

My name is Rhoda and I will be your coordinator for today.

At this time, all participants are in listen only mode, and we will be facilitating a question and answer session towards the end of this conference.

If at any time during the call you require assistance, please press star followed by zero and a coordinator will be happy to assist you.

I would now like to turn the presentation over to your first speaker today, Mr. Bill Frank, please speak sir.

Thank you, Rhoda, and good morning to everyone, and thank you for joining us. By now, you should have received a copy of our earnings release, which was distributed shortly before the market closed yesterday. That outlines our operational and financial results for the fourth quarter and also for the full year ended January 31 of '04.

If for some reason, you did not receive a copy of the release, you can download it from our Website at www.conns.com, through the investor relations tab.

In addition, we have also provided certain financial and statistical information that will be discussed during this conference call; it's on the same Web site. Finally, I must remind you that some of the statements made in this call are forward looking statements within the meanings of the Securities and Exchange Act of 1934. These forward-looking statements represent the company's present expectations or beliefs concerning future events.

The company cautions that such statements are necessarily based on certain assumptions which are subject to risks and uncertainties, which could cause actual results to differ materially from those indicated today. These risk factors include, but are not limited to the following; the company's growth strategy and plans regarding opening of new stores and entering new markets.

The company's intention to update or expand existing stores. The company's estimated capital expenditures, and costs related to the opening of new stores, or the update or expansion of existing stores. The company's cash flow from operations, borrowings from it's revolving line of credit, and proceeds from securitizations to fund operations, debt repayments and expansion.

Growth trend and projected sales in the home appliance and consumer electronic industry, and the company's ability to capitalize on such growth. Relationships with the company's key suppliers, the results of the company's litigation, interest rates, weather conditions in the company's markets, changes in the company's stock price, and the actual number of shares of common stock outstanding.

Further information on these risk factors is included in the company's filing with the Securities and Exchange Commission, including our 8-K, which was filed in connection with our current press release. At this point I would like to hand the call over to our host for today's call, Mr. Tommy Frank, our Chairman and CEO.

Good morning, and thank you again for joining us. My intent is to cover the year and then the fourth quarter in particular with comments, and then Bill will rejoin us and comment in depth on the financial analysis of the things that I'm going to tell you.

Basically, we'll talk about the year in review, the impact of our Dallas/Fort Worth market, our same store sales performance in the fourth quarter, our growth strategy, merchandising issues, and maybe one or two things relative to our Sarbanes-Oxley compliance issues.

As we look at the year in review, we approach the $500 million mark at $499.3, which was a 12% increase in our top line, and at the same time achieved 18.1% increase in our profits, with record profits of $24.3 million. Our sales growth for the year ended up at 2.6%. If you recall on our road trip, we would have .9 negative through the second quarter of our fiscal year.

In the third quarter, we achieved a 4.1% increase in same store sales, which brought that same store sales number to .3 tenths. Now in the fourth quarter, we did achieve 11.7% same store sales increase, which brought the year total to 2.6.

I'll comment in a moment additionally about, what in my opinion, occurred in the fourth quarter to help us achieve that kind of same store growth.

During this year, as we all know, we entered the Dallas/Fort Worth market, which represents an enormous opportunity to us with three stores. We also successfully completed the IPO and we installed a new board of directors that is very qualified and experienced with experience on public boards. Additionally, our credit department continued to perform in both the primary and secondary portfolios in an exceptional manger, and continues to perform in a very stable manner on both the front end and the back end.

No significant variance that we will report to you a large amount of data relative to this issue. As we go forward and look at the Dallas/Fort Worth market, we have sensed the end of the year opened to additional stores. The fifth store in fact is opened this week.

As we look at the sales performance in that market, it still remains at or slightly above our expectations. We don't see any signs of deterioration in the performance of those stores, relative to our expectations.

As we look at the additional stores in that market for the remainder of the year, we would expect to certainly add an additional three or four stores in that market, which would put us at the top end of the four to six stores that we told you we anticipated adding during the year.

As we look at the market in Dallas/Fort Worth, which we think could accommodate 18 to 20 stores, certainly distribution capabilities become an essential part of our planning process.

And that timeframe for that is somewhat fluid as we add additional distribution capabilities. Presently, our advertising costs continue to run about twice what they run in other markets.

And what we would like to do is get the new stores up and running so that we can dilute the advertising costs as we bring on new costs associated with our distribution facilities in order to maximize our earnings opportunity.

As we look at the same store sales performance in the fourth quarter, primarily, your question might be, well, what were the drivers? I think there were three or four significant things that occurred in particular that track sales which we had and a lot of our strategies on increasing same store sales grew at a 40% rate over that same period a year ago. And in fact, it contributed an additional $8 million of same store sales increase.

Additionally, our bedding division contributed an additional $1.4 million roughly due to increases there. Lawn and garden was primarily flat during the winter months, but we do anticipate that we would get that division moving as we go forward and as the weather warms up.

Additionally, probably it didn't hurt us in the south that the Super Bowl was held in Houston, Texas, which tend to elevate people's desire to own the new technology and video, and also think that the tax cut that was passed earlier last year in some cases probably did not impact people until January 1st as their withholding taxes decrease, and their take home pay increased.

And we think that had some positive effect on our growth and our same store sales. We would say, as we continue to look forward, what are the expectations in same store sales? I think we told you previously that it was low single digits.

We think we now revise that to the low mid single digits in being consistent with our conservative strategy of under commitment and over performance. If we look at the growth strategy going forward, I think it remains fairly consistent with what we have told you previously, in that the Dallas/Fort Worth certainly represents a huge part of non same store sales growth and same store sales growth we're depending on from the three drivers that we've already talked about the track, the bedding and the lawn and garden.

There is one other market that we have made initial determination of interest in, and that is in the Harlingen market, which is on the Texas/Mexico border. It's a very large populous center, and we do have contracted to lease a building there to open a store in that area. That would be supported with infrastructure from our existing distribution center out of San Antonio, so we should be able to leverage some costs, at the same time, maybe take advantage of some opportunities in that market.

Our expected annual growth in store count is probably for this year around the six to seven mark. It's the high end of what we told you, and as we go forward into the following year, I think that we're still on track to somewhere around the five to seven or somewhere, in that area.

As we look at merchandising issues and what products are out there that are new that we can expect to help drive our business, certainly, the video category itself remains a very viable category to help us grow business. There are a number of different types of video boxes that are being manufactured today.

Liquid crystal display, digital like processing, liquid crystal on silicon, plasma, and then several variations of these technologies. What it tends to do is create exciting new products for us to sell and as these products are created, and as the price continues to come down so that people really feel like that they become more affordable, it tends to obsolete the products that are out there.

Additionally, the federal governments mandate that by July of this year that 50% of all video products must possess fully integrated circuits, which means simply that it has to have a digital tuner in it.

Also has the ability to impact this category dramatically. The price of those sets will actually raise the price point of traditional television sets by some $300 estimated at this point and that helps us move the old technology and at the same time put some stress on availability of the new technology. So that's sort of a double-edged sword there.

As we look at new products that we might add during the next few months, certainly within the track that we're beginning to concentrate more on the good, better, best type of concept.

We're looking at treadmills and fans, and also cookware and also cutlery knives, cutting knives to add to those product categories.

At this point, we don't have any concerns about product availability, that probably the most sensitive area would be in the area of video products and we do have two vendors in fact that if we do our forecast properly have guaranteed shipments to us, and they also have, if they fail to do that, are subjected to a penalty clause.

So we feel like that is very helpful, because coping with availability for new products should be growing in demand. What we see in new product availability and appliances is continued innovation in high efficiency products at lower price points, both particularly in laundry, and in refrigeration, and it's drawn a lot of excitement out there, and we really like what is happening on that front.

We have, as we look at our ability to cope with Sarbanes-Oxley, our board structure is well in place, committee assignments have been made, we have now a functioning audit committee, and a functioning compensation committee, and we have begun our process of compliance with section 404 issues under Sarbanes-Oxley. And those summarize my comments at this time, and I'm going to turn it over to Bill.

OK, we've finished our year strong from an operating standpoint, and substantially decreased our balance sheet leverage with the proceeds of our initial public offering. I'm first going to provide you with some comments regarding our results of operations, and then I'll attempt to address some of the more significant issues with the balance sheet. First, for the quarter, total revenues increased $23.4 million, or about 19.4%. Moving from $120.6 million in 2003, to $144.0 million in 2004.

This revenue increase resulted from primarily two areas. First of all, we have net sales increase of $22.4 million, or about 21.1%, and as Tommy alluded to earlier, that included a same store sales increase of 11.7%. Our finance charges and other increase $1.0 million, or about 6.9%.

Also, during the quarter, we continued to see some price deterioration in the retail sales volume, where we had volume increases of about $25.6 million being offset by $2.7 million from lower price points. Now that's a significant change from what we presented in the past, and it appears that that price deterioration is finally beginning to slow.

The off balance sheet credit portfolio of our qualifying special purpose entity increase 15.0% from January of '03 to January of '04. During the quarter, the increase in program costs of $1.4 million, or roughly 33.7%, primarily from the fixing of our $200 million in bonds in September. That offset the increase in interest charge for our customer of approximately $1.7 million. Also for the quarter, gross margins decreased slightly from about 36.5% in the '03 period, to 36.1% in the '04 period.

SG&A expense for the quarter increase $6.2 million, or about 19.6%, from $31.5 million in 2003, to $37.6 million in 2004. As a percentage of revenue, the SG&A expense was basically flat at 26.1%. And that somewhat reflects the additional advertising and stand by costs that we've absorbed as we continue our expansion into that Dallas/Forth Worth marketplace.

Operating margins for the quarter dropped slightly from 9.3% to 9.1% in 2004. This decrease reflected the time in gross margin, as well as the continuation of the standby costs that we just talked about in Dallas/Fort Worth.

We do expect that that operating margin will begin to increase slightly as we continue the growth in this market and begin to absorb more of those advertising and stand by costs with additional stores. Interest expense for the quarter decreased by $1.2 million, or 67.4%, from $1.8 million in 2003, to $.6 million in 2004.

Most of this decrease resulted from the payoff of balance sheet debt, which was the use of our proceeds from the IPO. The reclassification of amounts that were previously recorded in other comprehensive income, and the application of SFAS 133 that deals with the accounting for derivatives.

During this quarter, we also saw the expiration of roughly $80 million in interest rate swap agreements. As a result of the items that we've discussed previously, our pre tax income for the quarter increased $3.0 million, or roughly 31.8%, from $9.5 million in 2003, to $12.5 million in 2004.

The net income available for common stock holders increased $2.6 million, or 46.5% from $5.6 million in 2003, to $8.2 million in 2004.

And then finally, on a diluted EPS calculation in accordance with GAAP, we saw an increase from 34 cents in 2003, to 38 cents in 2004.

Then if you look at diluted EPS on a pro forma basis, as though the common shares issued in the IPO were outstanding since the beginning of the prior year, we saw increases from 27 cents to 36 cents. Of that increase, about $.4 million, or two cents a share, resulted from the increase in net income available, actually resulted from a cash refund of previously overprovided federal and state income taxes.

For the year ended January 31 '04, as we talk about the complete year now, total revenues increased $53.3 million, or twelve percent, from $446 million in 2003 to $499.3 million in 2004.

Again, the increase resulted primarily from the net sales, which increased $51.4 million, or 13.2%, including same store sales increase of 2.6%.

And then we had an increase in finance charges and other of $1.9 million or about 3.4%. Again, for the year, we continued to see the price deterioration in retail sales, volume increases of about $107.6 million were offset approximately $56.2 million from lower price points.

And most of those, that price deterioration, appeared to take place in our home audio, video and computer areas. We did indicate earlier I think in quarter results that we're seeing that deterioration begin to slow.

Also, as we noted earlier, the off balance sheet program for our credit portfolio increased 15% from January of '03 to '04. For the year, the increase in program costs of $5.7 million or 46.9%, again resulting from the fixing of the $200 million in bonds.

The interest rate, we fixed that on a $200 million, that was offset about $5.6 million of increases in interest charges made to the customer. Gross margins for the year decreased 37.9%, or from 37.9% to 36.4%. Again, primarily as a result of the transaction in September of '02, where we fixed the interest on $200 million of bonds.

And of course the price deterioration that we discussed earlier also had an impact on that decrease in margin. For the entire year, SG&A expense increased $9.5 million, or 7.5%, from $125.7 million in 2003, to $135.2 million in 2004.

As a percentage of revenue, SG&A decreased from 28.2% in 2003 to 27.1% in 2004. So we're beginning to see a little bit of that economies of scale take place, and hopefully we'll continue that trend as we grow more stores on that Dallas/Fort Worth marketplace.

Operating margin for the year dropped from 8.9% in 2003, to 8.4% in 2004. This decrease reflects a decline in gross margin, as well as the absorption of the standby costs associated with our entry into the Dallas/Fort Worth marketplace.

Interest expense for the entire year dropped $2.7 million, or 36.8% from $7.2 million in 2003 to $4.6 million in 2004. Most of this decrease resulted from a payoff of the balance sheet debt, the reclassification of amounts previously recorded in other comprehensive income.

The application of the SFAS 133, the derivatives, and again, the expiration of $80 million in interest rate swap agreements that took place during the year.

For the year, as a result of the items that we just discussed, pre tax income for the year increased $5.2 million, or 16.4%, from $31.9 million in 2003, to $37.2 million in 2004.

Net income available for the common stock holders increased $3.9 million, or 21.2%, from $18.5 million in 2003, to $22.4 million in 2004. Diluted EPS, calculated in accordance with GAAP, increased from $1.10 in 2003, to $1.22 into '04.

Diluted EPS, as though the common shares issued in the IPO were outstanding since the beginning of the prior year increased from roughly 89 cents, to $1.03 for the full year in '04. And again, approximately $.4 million, or two cents per share of that increase in net income was a result of the cash refund from previously overprovided federal and state income taxes.

Finally, as we look at our balance sheet, we can see the impact of the IPO begin to take place. As you will recall in October of '03 when we issued our third quarter information, we had not yet closed the IPO transaction, so we did not see the full benefit of that.

But in this quarter, we received approximately $58.4 million of net IPO proceeds, that obviously is after the expenses of the offering and the under writers discount. But it does include the under writers over allotment.

Of that amount, we used about $51.3 million to pay off existing interest bearing balance sheet debt. And then the balance of the proceeds of the offering were placed into our general working capital to provide for working capital needs of the company.

On January 31, the last day of our fiscal year of '04, we adopted SFASB interpretation number 46. This deals with variable interest entities, and required us to consolidate the balance sheet of specialized realty development services LP, which is the real estate partnership with Conns leases presently five facilities from.

The resulting impact of our balance sheet included recording approximately $1.0 million in cash. We recorded $15.2 million in fixed assets, and we recognized $14.4 million in current and long-term debt on our balance sheet. And that's the balancing piece of that consolidation reflects a $1.8 million in amounts due to minority interests.

Finally, a few comments about our credit portfolio, and then we'll open this up for questions. From January of '03, and this information, by the way is posted on our Web site as supplemental information, since it was not covered in our press release.

But from January of '03 to January of '04, we increased the number of active accounts by about 5.1%. I went from just over $285,000 active accounts to just under $300,000 active accounts.

The total outstanding balance in the two portfolios increased 15% from $303.8 million, to just under $350 million. The average outstanding balance increased about 9.5% from $1.065 per account, to $1,166 per account.

And the good news is that the 60-day delinquency rate increase from $17 million to just a little over $18 million, or about 6.8%. In terms of performance, our percent delinquency actually decreased as a percentage of the portfolio from about 5.6% to roughly 5.2% in January of '04.

Our gross bad debt write off percent dropped from 3.5% down to 3.4%. And our reserve as a percentage of the outstanding balance at year-end also decreased from 3.5% to 3.4%. So, with that, we would be happy to open it up for questions and see if we can respond.

Ladies and gentlemen, if you wish to ask a question, please press star followed by one on your touchtone telephone. If your question has been answered, or you wish to withdraw that question, press star, followed by two.

Questions will be taken in the order receive, again, that's star one to begin. And your first question comes from Rick Nelson from Stephens, please proceed, sir.

Thank you, good morning, and congratulations guys. The one thing in expense ratios during the fourth quarter, if we had excluded Dallas, would we have seen a narrowing in that ratio?

Rick, I would say in SG&A, you probably would have seen, instead of a static percentage for the fourth quarter, you probably would have seen something drop, a decrease. I'm not sure that I can give you a specific number. I would like to probably refocus your attention to the year where that Dallas/Fort Worth entry kind of gets spread and you can see the decrease in our SG&A cost from 28.2% of revenue down to 27.1%.

Right, when, Bill, should we start to see a narrowing in that ratio in '04?

It's going to offset by a distribution, you're going to see some narrowing because of advertising leveraging occurring as we get additional stores up. However, it's going to be replaced by increased cost with the larger distribution facility.

So, I'm not so sure that as far as the impact of Dallas is affecting us, that you're going to see much significance in that area through the remainder of this year. Maybe early next year we would hope to have both of those things going in the right direction. But we can continue to look at it by pulling Dallas out, and I think we would see some benefit there, as Bill said.

And Tommy, if you could provide some color on the plan to expand that Dallas center DC (ph), that would helpful.

Now, presently, we're in about 12 or 13,000 feet there, which is a very modest amount of warehouse space to support an effort like we anticipate over there. We have relied on our Houston DC center, which is some 220 or 30 miles away to backfill the needs for that. We think, as we look at, continue to look at ways to leverage costs, and be as efficient as we can, that somewhere between the seventh and the eighth store that we're probably going to have to go to a larger facility.

Presently, there's an abundance of inventory available in the Dallas/Fort Worth market, buildings of the type we would anticipate using. So, I think that we're probably looking at somewhere in the November/December time frame. It would be neat if we could make it through Christmas, and we're just going to have to play it month by month, but certainly, without a doubt, we have got to put that facility in place somewhere around the end of this year, the beginning of next calendar year.

Thank you, and historically, you have seen relatively stable EPS in the first three quarters of the year. Is there any reason to believe this year would be different?

Well, I think, let me take a shot at that, Rick. I think in terms of the first quarter for 2005 fiscal year, we're out of the chute very well, and I think as we suggested in our guidance for the full quarter, we would expect to see an increase in earnings per share somewhere in the three cent range from what, I guess was out there previously.

And I think that's a reflection of a number of things that appear to be taking place. First of all, that price deterioration that we discussed seems to be easing a bit. Secondly, we have seen some nice increases in the same store sales category.

Tommy eluded to the fact that rather than the, I guess, two to three percent range that we had suggested to you in the past that maybe that two to three, up to maybe mid point single digits, five percent, would be a more realistic number, so we're seeing some benefit from that.

And I think we're seeing some benefit from the growth in our credit portfolio, from the standpoint that our credit penetration seems to be back to a number that we're a lot more comfortable seeing.

For all of those reasons, and I think the continued expense control that Tommy likes to make certain we live within has all resulted in a better performance than we would have expected last year. Now, will that performance continue? And I think that was kind of your question. Would we expect to see that increase in earnings per share that we're predicting for the first quarter continue for the balance of the year?

I would tell you that we feel very comfortable with the numbers that we gave you and the guidance for the first quarter, since it represents, we're already two-thirds through the quarter, and have a pretty good handle on what that number is going to look like.

At this point I do not believe we are ready to expand that into the quarters beyond the first quarter and increase the total earnings per share for the year beyond the three cents or so that we've increased the first quarter.

And I concur with that.

And first quarter sales trends, how is that tracking relative to the upper end of the guidance of five percent. And you're less promotional, is that right, this year, relative to a year ago, in the first quarter?

Let's take the last question first. If you define promotional as being reduction in price points to the retail floor, the answer is yes. However, it's still a very, very competitive environment out there, and we should not kid ourselves or delude ourselves into thinking that we will not, at any point, have to respond to price and pressures. So I would say to you that, do not forecast from these remarks that we're going to increase those margins to the floor.

We had very, very good success in doing it in the last quarter, and some good success during the first two months of this quarter. But do not think that they are not continued price impressions out there that we do not have to respond to. What was his first question?

Sales relative to the guidance in the first quarter today?

I think it's within the range that we indicated which would be the two to three percent up to the five percent range.

We're off to a good start as Bill said in the first two months. It's really early in this month yet, and sometimes it's hard to do comp numbers when you have Easter occurring two weeks later last year, and two weeks earlier this year. It's really hard sometimes to really understand where you are with that top line because it bounces around so much. So that's why I think we're a little bit hesitant to firm that up for you. We're very, very pleased with where we are in the first two months, very pleased.

OK, thank you very much, congrats.

Thank you, Rick.

You're next question comes from Frank Bryant from Con Sync (ph), please proceed, sir.

Hi, good morning, how are you this morning. Can you all hear me OK?

Frank, you may want to clarify for the group who you are with.

Hi, I'm with SunTrust Robinson Humphries.

OK.

Let's see, I wanted to ask you guys a little bit about, you mentioned penetration rate for finance, can you flush that out a little bit in terms of what that level is?

Well definitely an increase, and we've got Bill Nylin in here, our President with us that heads up that division. And we definitely saw increases in penetration from a year ago, which has helped drive some of this same store volume also, and I did not allude to that in my remarks. But, if memory serves me right, we increased that penetration about three or four percentage points over a comparable period a year ago, and do you have the number there, Bill?

Yes, Tommy, the number is increased from where it was earlier last spring. It's stable now in the 60% penetration range, up from the upper fifties.

Yes, so we're around 57, 58, so it's, and it was bouncing around a little bit in that area, so we're up two or three percentage points as I said in penetration rate.

And, we would like to see that continue to grow a little bit more. But it really kind of returned to the levels that we were prior to the time that we saw the decrease.

That's great. Could you give me a similar number for the SMA attachment.

Yes, I might talk to you about the SMA attachments a little bit. I had it in my notes, and I failed to cover it. We made some adjustments in our SMA program. The first adjustment we made is that we put in a replacement policy with our track products, which tended to increase SMA attachment and penetration on a unit basis.

However, at the same time we did that, we chose to temporarily suspend selling five-year maintenance agreements, which tended to reduce the overall revenue stream as a percent to the total volume.

Whether we continue in that vein or not is still under discussion. The attachment rate goes up because of the track program, however the total dollar volume as a percent to the top line, we will probably see some decreases in it in this first quarter reporting. It was a planned event, it's a long-term strategy as we continue to evaluate whether the fifth year contract is a very, very expensive year.

And if we continue to offer it, it puts us somewhat at a pricing disadvantage in order to really fund adequately for that, so we continue to evaluate. So we have a mixed bag going on there, Frank.

OK, just to touch base on the gross margin again. It was really impressive performance on the retail side of the business, is actually up versus the prior year, when we exclude the finance income, looked up that way.

And I was curious, I hear you talking about some of the, getting better margins at the floor. Can you address mixed shift in terms of how that might have helped? I'm thinking that track margins are probably below average, and we didn't get a lot of help from lawn and garden. Where would mixed shift have helped that gross margin comparison?

Well, certainly in the bedding outfit, and the track margins in some product categories are low, so overall, it didn't tend to detract, even though it was somewhat lower, and Bill's got the numbers. I think it's about three or four percentage points lower on the average. But we have some highly profitable items in that track too in accessory types of items. I don't think that mix was totally the reason that you saw that improvement.

First of all, we were up against some, as Rick pointed out, some highly promotion price cutting in the prior year, and also in the first quarter of this year, we're up against some, the first two months, some very intense price cutting types of situations out there to drive volume.

And additionally, I would tell you that we were able to begin concentrating on operating our business again.

It's very simple that, for almost a year, the senior management, not just Bill Frank and Tom Frank, but about five or six people were very, very busy raising $450 million of refinancing and selling bonds and restating financial statements, and then taking the company public.

So just having the time and the effort to redevote towards the operational issues that we face in our company also was a factor in my opinion.

Have you seen anything that you would attribute store traffic growth to the changes that we've seen in credit businesses at Sears and possibly Circuit City?

I don't think that we have significantly enjoyed any fallout from that. In the past, when Circuit stopped selling appliances, we enjoyed fallout from that three years ago. We have not seen that kind of a dramatic impact on our floor traffic due to what's happening.

I do think that they have alternative plans in place, both of those organizations that has been able to compensate. At this point anyway, we're not seeing an impact, a positive impact in our stores relative to that that we can identify. There might be some there, but if it is, it's probably marginal.

OK, well nice work, thank you very much.

Thank you Frank.

As a reminder ladies and gentlemen, that's star one for questions. And your next question comes from Tyler Burke from Trenton Capital, please proceed, sir.

Hi, I wanted to see if I could get a couple of details on the securitization income. Specifically the gain on sale of receivables as well interest earned on retained interest.

Yes, hang on just one second. Let me pull some information here that should be able to give you that. The gains on sale of receivables for the year, $12,529,000.

OK.

The interest earned on retained interest was $12,801,000.

OK, and what were the total amount of loans securitized during the year?

We finished the year at about $271 million, $200 million of which was associated with the fixed rate bonds, and then roughly $71 million that was with our series A, variable rate notes.

OK.

We, and I would point out to you, we will be filing our 10-K later this week. And much of the information that you're asking for is in volumes in that document.

OK, I'll wait for those further type of questions. A specific question, but yet bigger picture, did you say what percentage of your sales were made under the interest free program?

Well, we did not say, but typically it's around eight to ten percent, I believe in that range, so that's about where it goes. It's not an inverted situation.

The majority of our sales is with interest. And our interest free programs to this point, we may experiment later with a different type of approach, but our interest free programs are really cash option programs. You pay interest alone, and if you pay that account out on, in its entirety, then you get a rebate.

So the utilization if you will on six and twelve months varied considerably from about 60% on a six month, to about 75 or 80 percent on a twelve month. So it's something under 10%.

OK, that's helpful. A final question was, Ultimate Electronics, on their conference call, cited Dallas specifically as a problem market. I'm just curious, you guys sound like it's meeting your plans and expectations.

I just wonder, I don't know to the extent you're still in the honeymoon period with your stores, but could you comment on the competitive environment, and how you're doing better than them?

Well, first of all, I'm hesitant to say anything about anyone else. Here's what I know about that market, it is a very, very large populous, and densely populated metropolitan area.

And here's what I do know, is that hardly anyone there does not have a dishwasher, a refrigerator, a washing machine, a dryer, multiple TV's, multiple DVD players and the products we sell.

And what I do know about our stores, they're in first class locations, primarily on freeway exchanges, easy access, and that they're located within a five mile radius around any of these stores, represents 60 to 90,000 rooftops, and that's a huge city in itself around each one of these stores.

So our ability to out execute our competition, our ability to perform well at the sales floor, to offer variable credit funding programs, all of this sets us aside from other people.

And we sell commodities. We sell items that people can buy anywhere else. So, there are a lot of things that go into how successful you can be against your competition. And, I don't think, I do think that our model is different than Ultimate's. And I do know that our stores are in first class locations in that city. And I don't really care to comment about Ultimate's locations, but that might be something you might want to look at.

OK, thank you very much, that's helpful.

Thank you, and ladies and gentlemen, that's star one for questions. And we have no further questions at this time.

We thank everyone for your participation, and we look forward to visiting with you at the next session.

And this concludes our conference.

Thank you for your participation in today's conference. This concludes the presentation, and you may now disconnect, and good day.