Conn's Inc (CONN) 2007 Q3 法說會逐字稿

Good morning and welcome to the Conn's Inc. conference call to discuss earnings for the third quarter ended October 31, 2007. My name is Dustin and I will be your operator today. During the presentation, all participants will be in a listen-only mode. After the speakers' remarks, you will be invited to participate in a question and answer session. As a reminder, this conference is being recorded.

Your speaker's today are Mr. and Thomas J. Frank, Sr., Chairman of the Board, Director of Conn's and its CEO; Mr. David L. Rogers, the Company's Chief Financial Officer; and Mr. Michael J. [Pope], Conn's Controller and CFO Designate.

Now I would like to turn the conference over to Mr. Rogers. Please go ahead, sir.

Thank you, Dustin. Good morning everyone and thank you for joining us. I am speaking to you today from Conn's corporate offices in Beaumont, Texas. You should have received a copy of our earnings release dated November 29, 2007 distributed before the market opened this morning, which describes our earnings and other financial information for the quarter ended October 31, 2007. If for some reason you did not receive a copy of the release, you can download it from our web site at Conn's.com.

I must remind you that some of the statements made in this call are forward-looking statements within the meaning 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 risk and uncertainties which could cause actual results to differ materially from those indicated today.

I would now like to turn the call over to today's host, Thomas J. Frank, Sr., Conn's Chairman and CEO. Tommy?

Good morning and thank you for joining us. As already noted, product sales for the quarter were up 11.6% while same-store sales increases were at 6.8%. In fact, all product categories performed well, except appliances. We do not consider our appliance business a factor of national trends, but in fact our own internal performance. We have made significant adjustments in this one category in both marketing and personnel and have seen positive improvements to the extent that this category is now tracking positive month to date and reverses a two-year trend of negative growth.

Yes, we do expect some additional product margin pressures and continue to prepare for this event by flattening our management structure and removing significant operating costs. As product margin pressures increase, we're addressing these issues by extensive operating cost reductions and increased focus on individual productivity.

Black Friday, we enjoyed a 58% increase over Black Friday last year. While video products certainly played a large part, we still enjoyed nice increases in all product categories, including appliances and month to date in November we are tracking in the high teens in product volume. Our month to date November trend shows increases overall of double digits in same-store sales.

Consumer desires for new product technology remains strong and at this point we feel we have adequate inventory supplies to address this demand. In preparation for this demand, we have increased inventory levels and brought in video products earlier than usual to avert shortages which have occurred in the past in flat-panel technology.

Also, product development in high-efficiency laundry products and new featured refrigerator products remains strong. Since the builders business is a small part of our total product sales volume, what we have experienced in prior periods of slowing housing starts is generally an increased demand for appliance products due to individuals remodeling or updating their kitchens as opposed to purchasing new homes.

As we looked at our credit portfolio performance, while there was an increase in net write-offs to 3.2% for the quarter, this is still very close to our target of 3% net write-offs, which is consistent with many prior periods' and years' performance. There is an increase in 60-day delinquency which you have probably noted which again reflects internal performance issues and we are adjusting our staff in the San Antonio facility to correct this trend.

As sub-prime worries continue, we have analyzed our portfolio and it appears from evaluation that only 30% of all of our customers have existing home mortgages, while only 20% of our secondary portfolio individuals have active home mortgages. We do not at this point anticipate this issue to be significant in collecting our existing accounts. In fact, we're experiencing significant declines of 30 to 40% in first payment defaults. We see much improvement in our 15 to 30-day receivables, and further our re-aged receivables are tracking at a two-year low.

We are committed to continuing our stock repurchase program. With 65 stores operating today, we have either opened or replaced four stores this year with our fifth and sixth new store projected to open prior to Christmas and two additional stores to open in January '08, plus one additional store opening in the first week of February '08 -- nine new stores total, which falls in our range of seven to 10 new stores we projected. We should buy this time next year have a total of 13 new stores giving us a total of 78 stores in Texas, Louisiana and Oklahoma.

I will now turn the program over to David Rogers so that he can share the financial information with you.

Thank you, Tommy. While we did not deliver the earnings performance we expected this quarter, we were very happy with the strong 6.8% same-store sales growth and 11.6% net sales growth. Additionally, despite the highly competitive retail environment, we still expect to achieve the full-year results from core operations we communicated at the beginning of the year.

The change in our guidance that we reported today was a result of the decrease in the fair value of our interest and securitized assets and does not reflect the change in our expectations for our core operations. The decrease in the fair value of our interest and securitized assets was caused by the volatility in the financial markets during the quarter and the impact of that volatility on investment returns and was not due to the performance of our credit operations. Our focus for the fourth quarter will be on driving sales growth and controlling expenses so that we can achieve our earnings guidance for the year.

Before we review our operating performance for the quarter, I want to address the $4 million non-cash decrease in the fair value of our interest and securitized assets that impacted our earnings this quarter. As you will recall from our first quarter earnings call, we adopted several new accounting principles during the first quarter that impacted the accounting for our securitization transaction resulting in changes in the fair value of our interest and securitized assets being reflected in current earnings in the line 'Finance Charges and Other'. Previously, these changes were recorded on the balance sheet in other comprehensive income.

There has been a lot of commentary in the press recently about the impact of FASB Statement Number 157 regarding fair value measurements, especially with regard to determining the fair value of assets using valuation models that use inputs defined as Level Three inputs. These are inputs or assumptions used in evaluation that cannot be readily obtained from market sources and are derived from a company's historical experience adjusted to reflect the Company's judgment about the assumptions a market participant would use when valuing the asset. Given that there are no securities being traded that provide a valuation benchmark for our securitization transaction, we use instead a discounted cash flow model with many of the assumptions being of the Level Three type.

The recent turmoil in the financial markets caused in part by the sub-prime mortgage issues has driven up the returns required by investors for many investments, including asset-backed securities. As a result, to reflect this increase in required returns, we increased the discount rate assumption in our cash flow model used to determine the fair value of our interest and securitized assets. We increased the weighted average discount rate from 14.3% to 16.4%. That change accounted for the majority of the $4 million decrease in the fair value of our interest and securitized assets. As I mentioned before, this is not due to a change in our expectations for the performance of the credit portfolio in regard to either earnings or cash flow and does not reflect a permanent reduction in the earnings of the QSPE or the Company. Essentially, the fair value adjustment represents a deferral of the earnings which will be recognized in the future as interest income is actually realized on our interest in securitized assets. While the ultimate earnings to be realized under the securitization transaction will not be impacted by assumption changes, the affect the fair value accounting could likely period-to-period volatility in future reported earnings if additional changes in these assumptions are necessary.

Mike Pope will now review our core operating performance.

Thank you, David. Total revenues were up 9% to $189.4 million made up of an increase in net sales of 11.6% and a decrease in finance charges and other up of $2 million, or 9.3%. We previously released our net sales results and as David said before we were very happy with the growth we achieved this quarter. Finance charges and other decreased due to the $4 million fair value reduction that was discussed previously. Excluding the fair value adjustment, finance charges and other would have increased 9.4%.

The net charge-off rate during the quarter was 3.2% and we expect the net charge-off rate to remain around 3%. The annualized charge-off rate for the first nine months of this year was 2.7%. Also, while 60-day delinquency was up seasonally to 7.7% versus 7.1% last year, the percent of the portfolio re-aged at October 31 dropped to 16.8% as compared to 18.5% last year. Our total gross margin declined by 270 basis points primarily due to the $4 million fair value adjustment and a 130 basis point decline in product gross margin. The drop in our product gross margin versus the prior year period was due primarily to the highly competitive retail market we operated in during the quarter.

SG&A expenses increased as a percentage of revenues by 20 basis points before considering the impact of the $4 million fair value adjustment. Had total revenues for the quarter not been impacted by the fair value adjustment, SG&A as a percentage of revenues would have decreased by 40 basis points. This decrease as a percentage of revenues is driven primarily by lower advertising expense, partially offset by higher medical claims experience.

The fair value adjustment reduced net income by $2.6 million or $0.11 per diluted share. As a result, net income for the quarter decreased $3.2 million to $4 million and earnings per diluted share declined $0.17 from $0.30 in the prior year.

Looking at our performance for the nine months, total revenues increased 9.1% to $598.2 million on a same-store sales increase of 3.5%. Net sales increased 8.8% or $42.7 million and finance charges and other increased $7.4 million or 12.3%. For the nine-month period, finance charges and other included a non-cash fair value charge of $4.3 million. Net income, which includes a fair value adjustment of $2.8 million net of tax, decreased to $26.6 million from $27.6 million. Earnings per diluted share declined $0.03 to $1.11 and included a $0.12 charge for the fair value adjustment recorded during the period.

Turning to our liquidity and cash flow, we used $11.6 million of cash flow and operations for the nine months ended October 31, 2007 compared with cash provided of $11.1 million in the prior-year period. Both periods were negatively impacted by the timing of payments on accounts payable and accrued expenses. The current-year period was impacted heavily by the timing of receipts of inventory and increased investment in inventory and accounts receivable. The increased investment in accounts receivable was driven by an increase in our retained interest in sold receivables as a result of a decrease in the effective funding rate. The effective funding rate declined due to the impact of the paydown of the 2002 series of bonds, the increase in the balance of the variable funding note and other collateral requirements. The lower funding rate negatively impacted operating cash flows by approximately $27 million. We expect the funding rate to improve and much of this negative cash flow impact to reverse once our QAPE is able to issue a new series of fixed-rate term bonds and after the 2002 series of bonds are paid off. I will talk more about our planned bond issuance in a minute.

The inventory decrease in the current year was to ensure we had sufficient inventory levels for the holiday selling season, especially with respect to flat-panel televisions as Tommy discussed previously. The prior-year payables were impacted by the repayment of amounts that had been deferred as a result of the hurricanes in late 2005. The prior-year period was also positively impacted by the completion of a bond offering in August 2006 which resulted in significant cash inflows. Cash used in investing activities totaled $3.1 million in the current year period as proceeds of $8.9 million from sales of properties partially offset amounts spent on investments in property and equipment. This compared with $13.4 million used a year ago which primarily represented investments in property and equipment.

Financing activities used $18.8 million in the current year principally for purchases of $20.7 million of treasury stock compared with cash provided of $1.3 million in the prior-year primarily from proceeds from issuances of stock under employee benefit plans. Through the nine months ended October 31, 2007, we purchased 873,000 shares of our stock and have approximately $25.5 million remaining under our $50 million authorization to repurchase shares. We intend to continue purchasing shares under this plan dependent upon market conditions and share price.

We have no bank debt on our balance sheet and have $55.6 million net of letters of credit available under our revolving lines of credit to be drawn for working capital or capital expenditure needs. In addition, at October 31, 2007, we had $19.2 million of cash invested.

Regarding our planned bond offering, our QSPE is currently preparing to market a new series of fixed-rate term bonds. Given the current upheaval in the credit markets, we're not certain as to when the contemplated transaction can be completed, however we believe the QSPE and the Company have sufficient combined liquidity to maintain consistent operations for at least 12 months. The sources of this liquidity at October 31, 2007 included $220 million of available capacity under the QSPE's existing variable funding note, $19.2 million of invested cash available to the Company, $55.6 million available under the Company's revolving credit facilities, $16 million due to excess collateral on the 2002 series bonds that will be recaptured as they are paid off over the next seven months. The current balance outstanding on the bonds is $70 million. This totals $310.8 million in funding capacity before considering the $70 million paydown required on the 2002 series of bonds.

In addition, we have future cash flow from operations, including the ability to modify certain capital investment programs though we do not expect these actions will be necessary.

During the quarter, the QSPE attained an increase in this revolving credit facility to $450 million from $300 million. Additionally, J.P. Morgan joined as an additional lender in the facility and provides one-third of the commitment, with SunTrust providing the other two-thirds. $250 million of the commitment matures in July 2008 and the remaining $200 million matures in September 2012.

As David alluded to earlier, we lowered our EPS guidance for fiscal year 2008 to a range of $1.64 to $1.74 per diluted share due solely to the $0.11 reduction in earnings this quarter caused by the non-cash fair value adjustment.

All of this analysis that David and I just provided and much more is available in our Form 10-Q for the quarter ended October 31, 2007 to be filed with the Securities and Exchange Commission later today.

Tommy, that concludes our prepared remarks. If you're ready, we will open up the lines for questions.

(OPERATOR INSTRUCTIONS). Rick Nelson, Stevens.

Can you comment on the sequential rise in charge-offs and delinquencies, what contributed to that and what changes are going into effect to -- changes in direction?

Yes. The rise was primarily in the 60-day plus in delinquency. In my opinion, it was a function of our own internal performance. As we continue to grow personnel, these personnel are not as experienced as they needed to be. As I mentioned also in my remarks, I think we had too many layers of management and we were not close enough to what was happening in our collection activity and that has been decreased. The charge-off rate was a roll-through that had been building and we still have issues in controlling that, but we have instituted an aggressive program of involving many of our top-level people in reducing that role rate.

Did you , Tommy, accelerate any charge-offs into the third quarter?

We did accelerate some charge-offs. That is correct. Probably what will do is ask David or Mike to comment on that, because we did accelerate some charge-offs.

We discovered a technical issue relative to our receivables and how we anticipated that they would be charged off and we made a correction to that and that flowed through some accelerations, onetime kind of considerations on charge-offs, and that did occur in the third quarter. It did impact our charge-off rate, but I will tell you, it wasn't a huge impact, but it did occur.

Do you know what that kind of ratio would have been, ex that acceleration?

I think it would still be in the 3% range, Rick, slightly over that probably. So I'm thinking it probably had something like a 15 basis point effect.

Thank you for that. Tommy, can we get your outlook for the holiday season in terms of sales growth expectation and what you're anticipating in terms of margin pressures? Your guidance -- implied guidance range for the fourth quarter is $0.50 to $0.60. Fairly wide range, and wondering what would get you to one side or the other?

I think that as I have already commented, Rick, we were extremely pleased with what we saw occur the Friday after Thanksgiving with a 58% increase. That was an absolute new high for our Company. In previous Fridays after Thanksgiving and previous years, many times we have given back some of that volume on the Saturday or the Sunday or the Monday following that huge day. In fact, that did not occur this time which certainly signaled a positive event to us.

Based on what we are seeing now, we are very, very excited about the business. We saw consumers in the store. They were spending. They were not worried about sub-prime issues. They love the new technology that is out there. It seems to be growing as more people buy the product and see the product in other peoples' homes, it seems to be growing. So we are very, very positive about it. That's why we increased those inventory levels substantially prior to Thanksgiving and you see an increase on our balance sheet in inventory levels.

So we see very positive results going forward. We do see some additional pressures in product margin. In our Company, we have to differentiate between total margin and product margin. To what degree, I am not sure. I don't at this point visualize that product margin dropping the amount that it dropped in this past quarter. I think that there should be some leveling. Part of that decrease in product margin was delivered on our part to get back market share in this appliance business. I think it was the right thing to do. We will certainly remain aggressive in that core category because it does help our other profit centers. So I think you can see some -- expect some slight deterioration in the product margin, but to what degree I'm not sure yet.

David Magee, SunTrust Robinson Humphrey.

Can you touch on the new store performance this year and how you are feeling about the relative performance of the stores you plan to add over the next 12 months since we've got a pretty good slug here?

You know, we really only opened four new stores, one being a replacement store which has totally outperformed any of our expectations; the second one being a clearance center, which is about on track; the third one being a store in the valley area which borders Mexico, Brownsville, which has met or exceeded our expectations. And the fourth store we just opened in November, so it's really almost too early to say, is it doing what we expected or not. The stores as I reported, we have five stores slated to open in a group within the next 60 days. One of those stores would be a replacement store in the Golden Triangle which is experiencing immense growth due to the petrochemical industry. So we think we will get increases there.

The other stores are located in Dallas, Houston and our first store in Oklahoma. So it's sort of hard to project at this point how they're going to reform. Our expectations are that we certainly put a lot of effort into selecting sites that would at least meet our minimum criteria for store openings.

Thank you. Secondly with regard to appliances, you mentioned that that business turned for you during November. You already mentioned I guess pricing being sharpened a little bit on that category. Are there other things that you're doing to try to elevate, to promote that category to kind of buck the industry trend that we're seeing right now?

Yes. I think that our merchandising efforts have improved dramatically in that category. We made some significant changes in personnel in that area. The senior management got much closer to that area. We brought in some former associates that had retired. And you take all of those efforts together and we paid attention to the category and the growth is there for us. We don't own the category, we're a significant player in the category, but as always we get our increases out of someone else's volume and we succeeded in doing so as planned.

Lastly, what are you seeing on the furniture side right now?

Again, furniture nationally, ,my understanding is furniture is probably trending about the same way [as] appliances. Remember, furniture is not our core category. Furniture is an add-on category for us, and so we have seen significant growth in that and we like the category. We're able to handle the merchandise. It requires distribution. We're able to have that product in our warehouses, we've learned how to distribute the product. Where many furniture stores would order that product and there would be delays of two to four weeks in getting it, we can with our selected SKUs on the floor deliver that product the next day or have it available for pick up the same day. So we like the category. We think with the decrease in space required in the store because of the decrease in size and video products that it's a very good additional category for us, and we see it continuing to grow.

Laura Champine, Morgan-Keegan.

Just maybe a housekeeping thing, but I noticed that you reduced your guidance by $0.11, but then in the press releases it says the nine-month impact is $0.12. Is there a reason that you did not reduce the guidance by a $0.12 differential?

Yes. We essentially, if you will recall, Laura, after the second quarter, we left guidance the same, and $0.01 of that $0.12 occurred in the second quarter. So we basically had absorbed that $0.01 into our guidance projection, but the $0.11 is -- it's a big hill, so we did drop guidance by the $0.11.

Okay. And I know you don't give quarterly expectations, but given that this number is a little bit below the consensus and us, it makes it seem as if you have a tougher hurdle for the fourth quarter, which is important anyway. So my question is -- did the Q3 results hit management's expectations, or do you have indeed a tougher hurdle next quarter?

I don't think the Q3 hit our expectations, operationally speaking. I think it's obvious from our remarks that it did not. We began making significant adjustments just prior to the end of Q3. Those adjustments have been accelerated intensively and I can tell you it is our expectation and every effort possible is being made to make sure that we deliver the results that we said we would. That is about the best that I can say to you, is that we're putting every effort there. I feel comfortable that we have the ability both on the credit and the merchandising side to achieve the results that we said we would. Now we still have to deliver, but given the progress that we have made to date in November, I am certainly not disappointed in our people or in the programs that we have instituted in order to achieve these results.

I thank, Laura, we have been encouraged as Tommy said by the activity that we had on Black Friday and subsequent to that. So we are not overly optimistic, but like Tommy said, we are very, very encouraged.

One last one. You did mention that there were some internal execution issues that you thought took that delinquency rate up and that you are correcting those. Can you just comment more specifically on what those were?

I would just iterate again what I probably previously said. I think we had too many tiers of management. I think that as those tiers increase and as the portfolio grow, it was not a wise thing to do in retrospect. I think the flattening of that has had a very definite improvement in that. I think the bringing in of new people to address growth in the portfolio, the training could have been more substantial and I think holding people more accountable to productivity could have been better. I also think the bottom 20% of performers [in any and] our Company have got to step up or we have to frankly help them find new careers because I think those are the issues. I don't think it's any external issue causing it and very cognizant of what the issues are. And I can assure you that intensive efforts are being taken to correct the deficiencies.

Anthony Lebiedzinski, Sidoti & Company.

Earlier in your remarks, you mentioned that month to date comps are up somewhere in the double digits, right?

Yes, that's correct.

I was just wondering -- how does that compare to November of 2006? Do you recall what the comps were?

I don't, but I can assure you. they weren't double digits. They were slightly negative.

And also, [can] you have any comments about the competitive landscape now that you are so far into this fourth quarter?

I don't see any significant changes out there. I think everyone is -- our competitors appear to be as concerned as we are. So we just have to continue to execute at higher and higher levels. But I don't see anything dramatic occurring out there that we haven't seen in the past two or three years. I think that the landscape looks the same to me. You just have to execute at high levels to get your share of the volume out there. There's no two ways about it. I don't see anything that I could identify for you that's any different.

Also, I know that after the 13-D was filed back in September that you had temporarily suspended your share buyback program. Are you able to buy back stock now?

We are able to repurchase stock when the window opens and we file the appropriate paperwork, yes.

Lastly, and this is just a hypothetical question, but let's assume that the credit markets remain challenged similar to what you saw in the third quarter. So when you close the fourth quarter, would you then foresee -- assuming these conditions are still the same in the fourth quarter, would you foresee taking a similar fair value adjustment charge in the fourth quarter?

It's really going to depend on what happens in the credit markets. It's driven by returns that investors are requiring on securities in the market, and if that continues to increase, then potentially we could. We expect over time if the market cleans up, it will go the other way, too.

Jeff Blaeser, Morgan Joseph.

Quick question. You mentioned I think earlier on some cost-cutting initiatives. Is that the tiers of management you've been referring to? And what kind of impact are you expecting and a little bit more color, if possible?

I think it's much broader than that. I think certainly that is a portion of it. I certainly think as we continue to see fuel prices rise, we have a fleet of about 160 or 80 vehicles out there, delivery and service vehicles. I think the management of that asset has been tightened up considerably. How many trucks do we really need, how much more efficiently can the routing be done, how much fuel can we eliminate, how many vehicles in fact can we eliminate? And then I think the greatest thing of all is, we now have about 3300 associates in this Company, of which about 3000 are direct producers. And when you look at the bottom 20% of the people, if you rank these people and look at the bottom 20%, there are tremendous efficiencies to be gained by correcting their performance in that area in various ways, and I think that is where the significant savings are going to really come from. So it's a broad range of approaches that we're using. It's nothing we haven't faced before and the good news is, we know what's wrong. The good news is, we're dedicated to correcting those deficiencies and I feel confident and our ability to do so.

So it sounds like you wouldn't necessarily be eliminating that 20%, but either improving their performance or adding new personnel?

Replacing them, yes. Either improving their performance or replacing, and this is nothing we haven't told them.

Okay, great. One other question on credit ratings. Have you seen any shift? Obviously you have done a good job of keeping write-downs level, but has any shift from credit ratings over the whole -- have they been dropping as the credit market heats up?

Not that we have seen.

One final question on the mattress side. Where do you stand on -- I think you were looking at a multi-vendor mattress strategy. Is that in place, or is that in the works?

It is in place and we are pleased that that strategy has begun to improve and we are seeing -- we're actually seeing double-digit growth now in that category. We liked it. We liked the category again like we do furniture. We get to finance it, and so we're seeing an improvement because of that new strategy we took, yes.

Jordan Hymowitz, Philadelphia Financial.

A couple of questions. The discount rate increase, that was a cumulative increase, the $0.11. What was the impact on the quarter? Or saying it a different way, what would be the impact on each quarter going forward just from the higher discount rate?

It shouldn't have an impact beyond what we experienced this quarter, Jordan. You're right, it is a cumulative kind of effect, and once we establish the fair value of that asset, again, there would have to be some kind of change in the discount rate or other assumptions in order for the value to change again.

But if you do a new securitization and you used a higher discount rate, it's going to lower the earnings on that new securitization.

It would not.

The impact it's going to have is it's going to reduce the day one gain we would record.

That's my point. How much is it going to reduce the day one gain?

But then we're going to record higher interest income, interest yield on that asset over time, and those are basically going to offset.

Of course, but how much will it reduce the initial day one gain?

I don't have that number in front of me, Jordan. Again, you need to realize that these assets are turning in about a 15-month period, so we're not talking about a long-term period of time to realize that increased earnings.

What was the gross loss ratio as opposed to net loss ratio in the quarter?

I don't have that.

Third is, when you report the Q later today, will there been any update on [Stevens]' previous attempt to buy the entire company?

There are no additional updates. The 13-D stands as the 13-D.

Has management formed any sort of special committee to evaluate whether it would be them or somebody else that may be interested in the Company, and if they are interested, maybe putting it up for a bid for other people as well?

We have not at this point, because there's been no action taken on Stevens' part.

[Alexandra Jennings], Greenlight Capital.

Can you (inaudible) at all to how the loss rate trended within the quarter?

You know, I don't know that. I believe that it was trending up as we finished the quarter. That's my recollection just sitting here, Alexandra. Tommy?

I think I would concur with that.

Some of that too, David, was due to the acceleration you talked about and really happened late in the quarter.

That's right, we took that charge in October.

Can you explain in a little more detail what this technical issue was within the quarter that increased the charge-offs?

It really had to do with how we reset the dates for charge-off relative to payments that we receive and the way that NSF payments were affecting that. Essentially, what was happening was the dates would be reset because there appeared to be a payment even if it was an NSF payments and so we corrected that. We took all of the accounts that had been reset for their dates that would have charged off had it not been for essentially the false payment recorded and we pushed all of those through and then corrected our procedures so that that doesn't continue to happen. So, again, it certainly was our intention that those accounts charge off and we determined that they were not. We charged them off and corrected our processes.

And that was an impact of about 15 basis points this quarter?

That's my guess at it. I don't have the exact number, but that would be my guess. It had an impact, it wasn't a huge impact.

Now you said that the re-age is about 17%, which is the lowest you've had in about two years. How much of that re-age is in the current charge-off and 3% loss provision estimate?

I'm not sure I understand the question, if you can help me a little bit more.

Now when you re-age an account, do you increase any of your estimate for the likelihood that that account might eventually charge off?

No. our estimate of the charge-off, the 3% that we use for instant in our model, is based on our historical charge-off run rate and then adjusted for our -- a risk premium. So, we have not -- if you're asking have we adjusted that estimate due to this change in the re-age percentage, the answer is no.

Okay. You're looking at, at least some increase in your 60-day delinquency. What gives you comfort that you're not going to have to increase the charge-off forecast in your securitization going forward from the 3%?

I think that always exists as a potential possibility. I think it's totally dependent on our performance and I think I've outlined in this talk the measures we have taken. They're substantial, and so it simply lies in our ability to control that roll-through. So can we absolutely say that it is not in any way going to go up at all? No. But, are we making the efforts necessary to control it? Absolutely.

You all are talking about some wonderful sales increases in November. Do you have any calendar shift impact? I know that Thanksgiving was extra early this year and some of the retailers are expecting their Novembers to be particularly good.

You know, if you're asking because it was a week earlier, are we comping -- are the numbers really -- numbers the comp numbers? We think they are.

Are you tending to finance about 50, 55% of your current sales shift like usual?

Yes.

Ralph Jean, Wachovia.

I would like to talk a little bit about products that might be doing well or might not. Could you address what screen sizes in flat-panel televisions are doing the best right now? Are you seeing any change in trend there?

I think so. I don't have hard numbers to quote you. I think that what we are seeing, as the price of the technology comes down, the screen size tends to go up. That's at least what we are verbalizing internally. Is that happening in all markets throughout the country? I'm not sure in is. Our market traditionally in southeast Texas, in Texas in general and Louisiana, has always trended towards a larger size TV and a larger size refrigerator. Why? I cannot tell you why. But it's always -- we have always enjoyed these larger sizes, even as the old technology, the old big projection TV went out of style, we were still selling those. So I guess the answer to your question is, yes. As those prices erode and come down, the retail price point, I do think that we are seeing larger sizes being sold.

Would you say your average unit retail for the entire television category is stable to slightly up versus last year, or would it be down?

It's going to be down slightly because the units are up tremendously and we have had some price erosion, so it's going to be down a little bit.

And then there has been talk that Wal-Mart and Target were pretty aggressive in their promoting of 32-inch flat-panel LCDs and below. I am just wondering if you saw that in your marketplace, you've talked about a promotional environment. Is it those two that are the most promotional, or is it across the board?

What I would like to do is respond -- rather than name other retailers, I would like to respond in general to your question because I think it's a significant part of our operating strategy. What we noted was that people had offered ridiculous prices had extremely limited quantities of those products on hand, including most nationals. They did for the most part suggest that that was what would happen. We chose to open one hour later than most of the nationals in our market. They opened at 5, we opened at 6. We had people standing in line, they were extremely angry because they did not have access to the products offered by other people. We in fact, if we offered it, we had it on hand in quantities sufficient to satisfy the demand, and we have done the traditionally now year after year and I think it has a positive impact for us on that weekend.

I know you mentioned that appliances turned positive again, but are there any categories outside of television that's really going well for you that you may not have expected?

I think that this furniture thing, this growth in that, I think our [track] business, we like what we're seeing going on there right now, which has traditionally bounced around a lot. So really, if you look at all of these categories, I think we like the growth we're seeing in all of them.

Bob Kaynor, Ramius Capital.

I was just wondering if you could tell us what the new discount rate is? I think you may have mentioned it earlier, but I may have missed it.

We certainly can. It's 16.4%.

Great. Thank you very much.

That does conclude the question and answer session. At this time, I would like to turn things back to Mr. Rogers for any additional or closing comments.

Actually, you're turning it back to Tommy Frank, and what I would like to do is thank David Rogers for his years of service to this Company. He has been a pleasure to work with. His accuracy, his candor, his interaction with our management team and with the investment community has been superb. David is retiring, as has been announced. Mike Pope is CFO elect and we want to wish David the best of luck and wishes in his retirement with his wife and we just want to say thank you, David, so much for the contribution you made to our Company and our growth.

Thank you very much, Tommy.

That concludes our remarks.

And that does conclude today's conference call. We thank you for your participation, you may disconnect at this time.