UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30,~~December 31, 2016



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-33600

hhgregg, Inc.

(Exact name of registrant as specified in its charter)




Indiana		47-4850538
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4151 East 96^th Street Indianapolis, IN		46240
(Address of principal executive offices)		(Zip Code)

(317) 848-8710

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý Yes ¨ No

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

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



Large accelerated filer	¨	Accelerated Filer	ý
Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

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

The number of shares of hhgregg, Inc.’s common stock outstanding as of ~~October 31, 2016~~January 20, 2017 was ~~27,806,403.~~27,808,166.

HHGREGG, INC. AND SUBSIDIARIES

Report on Form 10-Q

For the Quarter Ended ~~September 30,~~December 31, 2016



		Page

Part I. Financial Information

Item 1.	Condensed Consolidated Financial Statements (unaudited):

	Condensed Consolidated Statements of Operations for the Three and ~~Six~~Nine Months Ended ~~September 30,~~December 31, 2016 and 2015	3

	Condensed Consolidated Balance Sheets as of ~~September 30,~~December 31, 2016 and March 31, 2016	4

	Condensed Consolidated Statements of Cash Flows for the ~~Six~~Nine Months Ended ~~September 30,~~December 31, 2016 and 2015	5

	Condensed Consolidated Statement of Stockholders’ Equity for the ~~Six~~Nine Months Ended ~~September 30,~~December 31, 2016	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	21

Item 4.	Controls and Procedures	21

Part II. Other Information

Item 1.	Legal Proceedings	22

Item 1A.	Risk Factors	22

Item 6.	Exhibits	22

Signatures		23



Part I.	Financial Information



ITEM 1.	Condensed Consolidated Financial Statements

HHGREGG, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)


	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	September 30, 2016			September 30, 2015			September 30, 2016			September 30, 2015			December 31, 2016			December 31, 2015			December 31, 2016			December 31, 2015
	(In thousands, except share and per share data)												(In thousands, except share and per share data)
Net sales	$	454,500		$	486,876		$	878,072		$	927,939		$	452,791		$	593,219		$	1,330,863		$	1,521,158
Cost of goods sold	324,113			348,231			616,176			654,937			353,011			438,189			969,187			1,093,126
Gross profit	130,387			138,645			261,896			273,002			99,780			155,030			361,676			428,032
Selling, general and administrative expenses	117,626			113,479			225,735			224,583			116,077			116,533			341,812			341,116
Net advertising expense	21,763			26,254			44,632			49,308			26,005			34,168			70,637			83,476
Depreciation and amortization expense	7,068			8,391			14,046			16,760			7,013			8,355			21,059			25,115
Asset impairment charges	1,388			—			1,388			—			7,850			20,910			9,238			20,910
Loss from operations	(17,458		)	(9,479		)	(23,905		)	(17,649		)	(57,165		)	(24,936		)	(81,070		)	(42,585		)
Other expense (income):
Interest expense	936			649			1,721			1,239			1,106			727			2,827			1,966
Interest income	(17		)	(2		)	(22		)	(7		)	(2		)	(2		)	(24		)	(9		)
Total other expense	919			647			1,699			1,232			1,104			725			2,803			1,957
Loss before income taxes	(18,377		)	(10,126		)	(25,604		)	(18,881		)	(58,269		)	(25,661		)	(83,873		)	(44,542		)
Income taxes	—			—			—			—			—			1,252			—			1,252
Net loss	$	(18,377	)	$	(10,126	)	$	(25,604	)	$	(18,881	)	$	(58,269	)	$	(26,913	)	$	(83,873	)	$	(45,794	)
Net loss per share
Basic and diluted	$	(0.66	)	$	(0.37	)	$	(0.92	)	$	(0.68	)	$	(2.10	)	$	(0.97	)	$	(3.02	)	$	(1.65	)
Weighted average shares outstanding-basic and diluted	27,801,470			27,707,978			27,771,530			27,694,169			27,806,460			27,707,978			27,783,216			27,698,789

See accompanying notes to condensed consolidated financial statements.

HHGREGG, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)


	September 30, 2016			March 31, 2016			December 31, 2016			March 31, 2016
	(In thousands, except share data)						(In thousands, except share data)
Assets
Current assets:
Cash	$	1,207		$	3,703		$	1,953		$	3,703
Accounts receivable—trade, less allowances of $6 and $5 as of September 30, 2016 and March 31, 2016, respectively	12,697			11,106
Accounts receivable—trade, less allowances of $11 and $5 as of December 31, 2016 and March 31, 2016, respectively							20,653			11,106
Accounts receivable—other	21,999			14,937			19,764			14,937
Merchandise inventories, net	241,518			256,559			210,820			256,559
Prepaid expenses and other current assets	5,406			6,333			5,545			6,333
Income tax receivable	—			1,130			68			1,130
Total current assets	282,827			293,768			258,803			293,768
Net property and equipment	83,081			87,472			74,365			87,472
Deferred financing costs, net	2,314			1,257			2,192			1,257
Other assets	3,081			2,855			2,930			2,855
Total long-term assets	88,476			91,584			79,487			91,584
Total assets	$	371,303		$	385,352		$	338,290		$	385,352
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	109,104		$	107,474		$	99,037		$	107,474
Line of credit	—			—			30,250			—
Customer deposits	48,487			43,235			61,970			43,235
Accrued liabilities	47,769			43,370			42,765			43,370
Total current liabilities	205,360			194,079			234,022			194,079
Long-term liabilities:
Deferred rent	53,321			59,101			50,438			59,101
Other long-term liabilities	16,079			10,818			15,224			10,818
Total long-term liabilities	69,400			69,919			65,662			69,919
Total liabilities	274,760			263,998			299,684			263,998
Stockholders’ equity:
Preferred stock, par value $.0001; 10,000,000 shares authorized; no shares issued and outstanding as of September 30, 2016 and March 31, 2016, respectively	—			—
Common stock, par value $.0001; 150,000,000 shares authorized; 41,302,642 and 41,204,660 shares issued; and 27,805,960 and 27,707,978 outstanding as of September 30, 2016 and March 31, 2016, respectively	4			4
Preferred stock, par value $.0001; 10,000,000 shares authorized; no shares issued and outstanding as of December 31, 2016 and March 31, 2016, respectively							—			—
Common stock, par value $.0001; 150,000,000 shares authorized; 41,303,240 and 41,204,660 shares issued; and 27,806,558 and 27,707,978 outstanding as of December 31, 2016 and March 31, 2016, respectively							4			4
Additional paid-in capital	305,118			304,325			305,450			304,325
Accumulated deficit	(58,351		)	(32,747		)	(116,620		)	(32,747		)
Common stock held in treasury at cost 13,496,682, shares as of September 30, 2016 and March 31, 2016	(150,228		)	(150,228		)
Common stock held in treasury at cost 13,496,682, shares as of December 31, 2016 and March 31, 2016							(150,228		)	(150,228		)
Total stockholders’ equity	96,543			121,354			38,606			121,354
Total liabilities and stockholders’ equity	$	371,303		$	385,352		$	338,290		$	385,352

See accompanying notes to condensed consolidated financial statements.

HHGREGG, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Six Months Ended						Nine Months Ended
	September 30, 2016			September 30, 2015			December 31, 2016			December 31, 2015
	(In thousands)						(In thousands)
Cash flows from operating activities:
Net loss	$	(25,604	)	$	(18,881	)	$	(83,873	)	$	(45,794	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	14,046			16,760			21,059			25,115
Amortization of deferred financing costs	256			270			378			404
Stock-based compensation	835			1,684			1,169			2,423
Loss on early extinguishment of debt	126			—			126			—
Loss on sales of property and equipment	219			52			147			60
Asset impairment charges	1,388			—			9,238			20,910
Tenant allowances received from landlords	—			721			—			812
Changes in operating assets and liabilities:
Accounts receivable—trade	(1,591		)	345			(9,547		)	(3,036		)
Accounts receivable—other	(7,062		)	1,631			(4,827		)	(1,512		)
Merchandise inventories	15,041			(31,221		)	45,739			(82,854		)
Income tax receivable	1,130			4,620			1,062			4,864
Prepaid expenses and other assets	816			1,217			923			(352		)
Accounts payable	12,104			29,461			3,681			62,456
Customer deposits	5,252			2,109			18,735			(557		)
Income tax payable							—			1,129
Accrued liabilities	4,357			5,667			(649		)	11,148
Deferred rent	(5,780		)	(4,068		)	(8,663		)	(6,409		)
Other long-term liabilities	5,395			(747		)	4,606			(1,010		)
Net cash provided by operating activities	20,928			9,620
Net cash used in operating activities							(696		)	(12,203		)
Cash flows from investing activities:
Purchases of property and equipment	(11,475		)	(8,118		)	(18,533		)	(10,406		)
Proceeds from sales of property and equipment	42			62			69			80
Purchases of corporate-owned life insurance	(115		)	(78		)	(210		)	(160		)
Net cash used in investing activities	(11,548		)	(8,134		)	(18,674		)	(10,486		)
Cash flows from financing activities:
Net (repayments) borrowings on inventory financing facility	(10,437		)	2,990
Net borrowings on line of credit							30,250			—
Net repayments on inventory financing facility							(11,191		)	(676		)
Payment of financing costs	(1,439		)	—			(1,439		)	—
Net cash (used in) provided by financing activities	(11,876		)	2,990
Net (decrease) increase in cash and cash equivalents	(2,496		)	4,476
Net cash provided by (used in) financing activities							17,620			(676		)
Net decrease in cash and cash equivalents							(1,750		)	(23,365		)
Cash and cash equivalents
Beginning of period	3,703			30,401			3,703			30,401
End of period	$	1,207		$	34,877		$	1,953		$	7,036
Supplemental disclosure of cash flow information:
Interest paid	$	1,504		$	966		$	2,496		$	1,572
Income taxes received	$	(1,132	)	$	(4,600	)	$	(1,067	)	$	(4,721	)
Capital expenditures included in accounts payable	$	1,228		$	665		$	338		$	503

See accompanying notes to condensed consolidated financial statements.

HHGREGG, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Stockholders’ Equity

~~Six~~Nine Months Ended ~~September 30,~~December 31, 2016

(Dollars in thousands, Unaudited)


	Common Shares Outstanding	Preferred Stock		Common Stock		Additional Paid-in Capital			Accumulated Deficit			Common Stock Held in Treasury			Total Stockholders’ Equity			Common Shares Outstanding	Preferred Stock		Common Stock		Additional Paid-in Capital			Accumulated Deficit			Common Stock Held in Treasury			Total Stockholders’ Equity
Balance at March 31, 2016	27,707,978	$	—	$	4	$	304,325		$	(32,747	)	$	(150,228	)	$	121,354		27,707,978	$	—	$	4	$	304,325		$	(32,747	)	$	(150,228	)	$	121,354
Net loss	—	—		—		—			(25,604		)	—			(25,604		)	—	—		—		—			(83,873		)	—			(83,873		)
Vesting of RSUs, net of tax withholdings	97,982	—		—		(42		)	—			—			(42		)	98,580	—		—		(44		)	—			—			(44		)
Stock compensation expense	—	—		—		835			—			—			835			—	—		—		1,169			—			—			1,169
Balance at September 30, 2016	27,805,960	$	—	$	4	$	305,118		$	(58,351	)	$	(150,228	)	$	96,543
Balance at December 31, 2016																		27,806,558	$	—	$	4	$	305,450		$	(116,620	)	$	(150,228	)	$	38,606

See accompanying notes to condensed consolidated financial statements.

HHGREGG, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)


(1)	Summary of Significant Accounting Policies

Description of Business

hhgregg, Inc. (“hhgregg” or the “Company”) is an appliance, consumer electronics and home products retailer that is committed to providing customers with a truly differentiated purchase experience through superior customer service, knowledgeable sales associates and the highest quality product selections. Founded in 1955, hhgregg is a multi-regional retailer with ~~221~~220 brick-and-mortar stores in 2019 states that also offers market-leading global and local brands at value prices nationwide via ~~hhgregg.com.~~www.hhgregg.com. The Company reports its results as one reportable segment.

Interim Financial Information

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). In the opinion of the Company’s management, these unaudited condensed consolidated financial statements reflect all necessary adjustments, which are of a normal recurring nature, for a fair presentation of such data. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such SEC rules and regulations. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of hhgregg and the notes thereto for the fiscal year ended March 31, 2016, included in the Company’s Annual Report on Form 10-K filed with the SEC on May 19, 2016.

The consolidated results of operations, financial position and cash flows for interim periods are not necessarily indicative of those to be expected for a full year. The Company has made a number of estimates and assumptions relating to the assets and liabilities and the reporting of sales and expenses to prepare these unaudited condensed consolidated financial statements in conformity with GAAP. Actual results could differ from those estimates.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of hhgregg and its wholly-owned subsidiary, Gregg Appliances, Inc. (“Gregg Appliances”). Gregg Appliances has a wholly-owned subsidiary, HHG Distributing LLC (“HHG Distributing”), which has no assets or operations.

Recently Issued Accounting Pronouncements

In August 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments" ("ASU 2016-15") which addresses eight classification issues related to the statement of cash flows: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon bonds; (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years and early adoption is permitted. The Company is evaluating the effect that ASU 2016-15 will have on its consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, ("ASU 2016-09") which is intended to improve the accounting for share-based payment transactions as part of the FASB’s simplification initiative. The ASU changes certain aspects of the accounting for share-based payment award transactions, including: (1) accounting for income taxes; (2) classification of excess tax benefits on the statement of cash flows; (3) forfeitures; (4) minimum statutory tax withholding requirements; and (5) classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax-withholding purposes. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those years with early adoption permitted. The Company is evaluating the effect that ASU No. 2016-09 will have on its consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)" ("ASU 2016-02"), which requires an entity that is a lessee to recognize the assets and liabilities arising from leases on the balance sheet. This guidance also requires disclosures about the amount, timing and uncertainty of cash flows arising from leases. This guidance is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods and early adoption is permitted. The Company does not expect to early adopt this ASU 2016-02 and is currently evaluating the effect that ASU

2016-02 will have on its consolidated financial statements and related ~~disclosures.~~

disclosures and expects the guidance to have a material impact due to the significant number of store and distribution leases that the Company is under contract for.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) to clarify the principles used to recognize revenue for all entities. The original standard was to be effective for fiscal years beginning after December 15, 2016; however, in July 2015, the FASB approved a one-year deferral of this standard, with a new effective date for fiscal years beginning after December 15, 2017. While the Company is still in the process of evaluating the impact ~~if any,~~ the adoption of this guidance will have on its financial position and results of operations, the Company does not currently expect a material impact on its consolidated financial ~~statements.~~statements, however some changes are expected regarding the timing of recognizing gift card breakage. The Company plans to complete its evaluation of the impact on its consolidated financial statements by the second half of our fiscal 2018.

Recently Adopted Accounting Pronouncements

In April 2015, the FASB issued an accounting pronouncement, FASB ASU 2015-3, related to the presentation of debt issuance costs (FASB ASC Subtopic 835-30). This standard requires debt issuance costs related to a recognized debt liability to be presented on the balance sheet as a direct deduction from the debt liability rather than as an asset. These costs continue to be amortized to interest expense using the effective interest method. In August 2015, FASB issued ASU 2015-15 Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. These pronouncements were effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015, and retrospective adoption was required. The Company adopted the pronouncements for its fiscal year beginning April 1, 2016 for costs associated with their line of credit facility. The Company's accounting policy for these costs did not change with the adoption of the new pronouncements. The Company defers such costs and presents them as an asset on the balance sheet and amortizes the costs ratably over the term of the arrangement to interest expense.


(2)	Fair Value Measurements

The Company uses a three-tier valuation hierarchy for its fair value measurements based upon observable and non-observable inputs:

Level 1 — unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

Level 2 — inputs other than quoted market prices included in Level 1 that are observable, either directly or indirectly, for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 — unobservable inputs for the asset or liability, as there is little, if any, market activity at the measurement date.

Assets and Liabilities that are Measured at Fair Value on a Non-recurring Basis

The Company has property and equipment that are measured at fair value on a non-recurring basis when impairment indicators are present. When evaluating long-lived assets for potential impairment, the Company compares the carrying amount of the asset or asset group to the asset’s or asset group’s estimated undiscounted future cash flows. If the estimated future cash flows are less than the carrying amount of the asset or asset group, an impairment loss is calculated. The impairment loss calculation compares the carrying amount of the asset or asset group to the asset’s or asset group’s estimated fair value, which is determined based on estimated discounted future cash flows. An impairment loss is recognized for the amount by which the asset’s or asset group’s carrying amount exceeds the asset’s or asset group’s estimated fair value. If an impairment loss is recognized, the adjusted carrying amount of the asset or asset group becomes its new cost basis. For a depreciable long-lived asset, the new cost basis will be depreciated (amortized) over the remaining useful life of that asset or asset ~~group~~group.

The categorization of the framework used to value the ~~assets~~property and equipment is considered Level 3, due to the subjective nature of the unobservable inputs used to determine the fair value. ~~Property and equipment fair values are derived using a discounted cash flow model to estimate the present value of net cash flows that the asset group expected to generate.~~ The key inputs to the discounted cash flow model generally included the Company's forecasts of net cash generated from revenue, expenses and other significant cash outflows, such as certain capital expenditures, as well as a discount rate.

The need for an impairment analysis to be performed at several locations was triggered by declining sales and overall declines in profitability in recent periods. As a result of these analyses, for the quarter ended December 31, 2016, property and equipment at 21 locations with a net book value of $7.2 million were reduced to an estimated aggregate fair value of $0.8 million based on their projected cash flows, discounted at 15%. This resulted in an asset impairment charge of $6.4 million for the three months ended December 31, 2016. For the quarter ended December 31, 2015, property and equipment at 40 locations with a net book value of $21.7 million were reduced to estimated aggregate fair value of $0.8 million based on their projected cash flows, discounted at 15%. This resulted in an asset impairment charge of $20.9 million for the three and nine months

ended December 31, 2015. The fair values were determined using a probability based cash flow analysis based on management's estimates of future store-level sales, gross margins, and direct expenses.

For certain remodeled locations that were previously evaluated and a portion of property and equipment was impaired due to declining sales and profitability, the Company performed another evaluation asduring the nine months ended December 31, 2016. A total of ~~September 30, 2016. Twenty-two~~37 stores with an aggregate net book value of ~~$2.1~~$3.0 million were reduced to an estimated aggregate fair value of ~~$0.7~~$0.2 million based on their projected cash flows, discounted at 15%. This resulted in a non-cash asset impairment charge of ~~$1.4~~$1.5 million and $2.8 million for the three and ~~six~~nine months ended ~~September 30,~~December 31, 2016. The fair values were determined using a probability based cash flow analysis based on management's estimates of future store-level sales, gross margins, direct expenses and capital expenditures.

The following table summarizes the fair value measurement adjustments for property and equipment recorded during the three and nine months ended December 31, 2016 and 2015 (in millions).



	Three Months Ended				Nine months ended
	December 31, 2016		December 31, 2015		December 31, 2016		December 31, 2015
Carrying value (pre-impairment)	$	8.9	$	21.7	$	10.2	$	21.7
Asset impairment charge (included in income from operations)	7.9		20.9		9.2		20.9
Remaining net carrying value	$	1.0	$	0.8	$	1.0	$	0.8

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable—trade, accounts receivable—other, accounts payable and customer deposits approximate fair value because of the short maturity of these instruments. Any outstanding amount on the Company’s line of credit approximates fair value as the interest rate is market based.


(3)	Property and Equipment

Property and equipment consisted of the following at ~~September 30,~~December 31, 2016 and March 31, 2016 (in thousands):


	September 30, 2016			March 31, 2016			December 31, 2016			March 31, 2016
Machinery and equipment	$	23,675		$	23,700		$	24,071		$	23,700
Store fixtures and furniture	153,468			150,390			144,844			150,390
Vehicles	1,780			1,757			1,737			1,757
Signs	11,991			11,959			10,337			11,959
Leasehold improvements	106,428			103,908			96,858			103,908
Construction in progress	2,468			1,792			826			1,792
	299,810			293,506			278,673			293,506
Less accumulated depreciation and amortization	(216,729		)	(206,034		)	(204,308		)	(206,034		)
Net property and equipment	$	83,081		$	87,472		$	74,365		$	87,472


(4)	Net Loss per Share

Net loss per basic and diluted share is calculated based on the weighted-average number of outstanding common shares. When the Company reports net income, the calculation of net income per diluted share excludes shares underlying outstanding stock options and restricted stock units with exercise prices that exceed the average market price of the Company’s common stock for the period and certain options and restricted stock units with unrecognized compensation cost, as the effect would be antidilutive. Potential dilutive common shares are composed of shares of common stock issuable upon the exercise of stock options and vesting of restricted stock units. For the three and ~~six~~nine months ended ~~September 30,~~December 31, 2016 and 2015, the diluted loss per common share calculation represents the weighted average common shares outstanding with no additional dilutive shares as the Company incurred a net loss for the periods and such shares would be antidilutive.

The following table presents net loss per basic and diluted share for the three and ~~six~~nine months ended ~~September 30,~~December 31, 2016 and 2015 (in thousands, except share and per share amounts):


	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	September 30, 2016			September 30, 2015			September 30, 2016			September 30, 2015			December 31, 2016			December 31, 2015			December 31, 2016			December 31, 2015
Net loss (A)	$	(18,377	)	$	(10,126	)	$	(25,604	)	$	(18,881	)	$	(58,269	)	$	(26,913	)	$	(83,873	)	$	(45,794	)
Weighted average outstanding shares of common stock (B)	27,801,470			27,707,978			27,771,530			27,694,169			27,806,460			27,707,978			27,783,216			27,698,789
Common stock and potential dilutive common shares (C)	27,801,470			27,707,978			27,771,530			27,694,169			27,806,460			27,707,978			27,783,216			27,698,789
Net loss per share:
Basic (A/B)	$	(0.66	)	$	(0.37	)	$	(0.92	)	$	(0.68	)	$	(2.10	)	$	(0.97	)	$	(3.02	)	$	(1.65	)
Diluted (A/C)	$	(0.66	)	$	(0.37	)	$	(0.92	)	$	(0.68	)	$	(2.10	)	$	(0.97	)	$	(3.02	)	$	(1.65	)

Antidilutive shares not included in the net loss per diluted share calculation for the three months ended ~~September 30,~~December 31, 2016 and 2015 were ~~2,105,245~~2,018,490 and ~~3,373,274,~~3,238,355, respectively. Antidilutive shares not included in the net loss per diluted share calculation for the ~~six~~nine months ended ~~September 30,~~December 31, 2016 and 2015 were ~~2,438,505~~2,197,979 and ~~3,452,936,~~3,360,010, respectively.


(5)	Inventories

Net merchandise inventories consisted of the following at ~~September 30,~~December 31, 2016 and March 31, 2016 (in thousands):


	September 30, 2016		March 31, 2016		December 31, 2016		March 31, 2016
Appliances	$	124,877	$	126,025	$	120,144	$	126,025
Consumer electronics	98,611		109,418		71,020		109,418
Home products	18,030		21,116		19,656		21,116
Net merchandise inventory	$	241,518	$	256,559	$	210,820	$	256,559


(6)	Debt

A summary of debt at ~~September 30,~~December 31, 2016 and March 31, 2016 is as follows (in thousands):



	~~September 30,~~ ~~2016~~		~~March 31,~~ ~~2016~~
~~Line of credit~~	$	—	$	—



	December 31, 2016		March 31, 2016
Line of credit	$	30,250	$	—

On June 28, 2016, Gregg Appliances entered into Amendments No. 2 & 3 to the Amended and Restated Loan and Security Agreement (the “Amended Facility”) which amended the maximum amount available under the Amended Facility from $400 million to $300 million, comprised of a $20 million first-in last-out revolving tranche ("the FILO") and a $280 million revolver, subject to borrowing base availability, and extended the maturity date from July 29, 2018 to June 28, 2021.

Pursuant to the Amended Facility, the first $20 million of borrowings are applied to the FILO, subject to a borrowing base equal to the sum of (i) 5% of the eligible credit card A/R and (ii) 10% of the net orderly liquidation value of eligible inventory, in each case subject to customary reserves and eligibility criteria. Under the FILO, the inventory advance rate is reduced by 0.5% per quarter to 6.0% and will remain at 6.0% unless the fixed charge coverage ratio is less than 1.0x, then it will reduce by 0.5% each quarter to 5.0%. If the fixed charge coverage ratio is less than 1.0x at that time, the inventory advance rate is reduced by 0.25% each quarter. Interest on the borrowings under the FILO is payable at a fluctuating rate based on the bank's prime rate or LIBOR plus an applicable margin based on the average quarterly excess availability.

For borrowings greater than $20 million, the borrowing base is equal to the sum of (i) 90% of the amount of eligible commercial and credit card receivables of Gregg Appliances and (ii) 90% of the net recovery percentage multiplied by the value of eligible inventory consistent with the most recent appraisal of such eligible inventory. Interest on borrowings (other

than Eurodollar rate borrowings) is payable monthly at a fluctuating rate based on the bank’s prime rate or LIBOR plus an applicable margin based on the average quarterly excess availability. Interest on Eurodollar rate borrowings is payable on the last day of each “interest period” applicable to such borrowing or on the three month anniversary of the beginning of such “interest period” for interest periods greater than three months.

The Company pays an unused line fee at the unused line rate which is determined based on the amount of the daily average of the outstanding borrowings for the immediately preceding calendar quarter period (the “Daily Average”). For a Daily Average greater than or equal to 50% of the defined borrowing base, the unused line rate is 0.25%. For a Daily Average less than 50% of the defined borrowing base, the unused line rate is 0.375%. The Amended Facility is guaranteed by Gregg Appliances’ wholly-owned subsidiary, HHG Distributing, which has no assets or operations. The guarantee is full and unconditional, and Gregg Appliances has no other subsidiaries.

Under the Amended Facility, Gregg Appliances is not required to comply with any financial maintenance covenant but Gregg Appliances is required to maintain “excess availability” of the greater of (i) 10% of the defined borrowing base or (ii) $15 million. Prior to Amendments No. 2 & 3, Gregg Appliances was not required to comply with any financial maintenance covenant unless “excess availability” was less than the greater of (i) 10.0% of the lesser of (A) the defined borrowing base or (B) the defined maximum credit or (ii) $20.0 million during the continuance of which event Gregg Appliances was subject to compliance with a fixed charge coverage ratio of 1.0 to 1.0. If Gregg Appliances has “excess availability” of less than 15%, 12.5% prior to Amendments No. 2 & 3, of the lesser of (A) the defined borrowing base or (B) the defined maximum credit, it may, ~~have,~~ in certain circumstances more specifically described in the Amended Facility, become subject to cash dominion control.

The Amended Facility places limitations on the ability of Gregg Appliances to, among other things, incur debt, create other liens on its assets, make investments, sell assets, pay dividends, undertake transactions with affiliates, enter into merger transactions, enter into unrelated businesses, open collateral locations outside of the United States, or enter into consignment agreements or floor plan financing arrangements. The Amended Facility also contains various customary representations and warranties, financial and collateral reporting requirements and other affirmative and negative covenants. Gregg Appliances was in compliance with the restrictions and covenants of the Amended Facility at ~~September 30,~~December 31, 2016.

As of ~~September 30,~~December 31, 2016 and March 31, 2016,, Gregg Appliances had $30.3 million and no borrowings, respectively, outstanding under the Amended Facility. The total borrowing availability under the Amended Facility was ~~$142.0~~$94.1 million and $139.9 million as of ~~September 30,~~December 31, 2016 and March 31, 2016, respectively. The Company typically borrows based on LIBOR. As of ~~September 30,~~December 31, 2016, the interest rate on the FILO based on LIBOR was 5.5%. The interest rate on the revolver based on LIBOR was ~~2.2%~~2.5% and 2.1% as of ~~September 30,~~December 31, 2016 and March 31, 2016, respectively.


(7)	Stock-based Compensation

~~Stock Options~~

Effective June 20, 2014, the Company adopted an Amendment to the hhgregg, Inc. 2007 Equity Incentive Plan which increased the number of shares of common stock reserved for issuance under the Plan to 9,000,000.

Stock Options

The following table summarizes the stock option activity under the Company’s 2007 Equity Incentive Plan for the ~~six~~nine months ended ~~September 30,~~December 31, 2016:


	Number of Options Outstanding		Weighted Average Exercise Price per Share		Number of Options Outstanding		Weighted Average Exercise Price per Share
Outstanding at March 31, 2016	2,827,168		$	11.86	2,827,168		$	11.86
Granted	—		—		—		—
Exercised	—		—		—		—
Forfeited	(62,917	)	7.06		(137,001	)	6.83
Expired	(1,109,886	)	13.04		(1,291,229	)	13.06
Outstanding at September 30, 2016	1,654,365		$	11.25
Outstanding at December 31, 2016					1,398,938		$	11.25

Time Vested Restricted Stock Units

During the ~~six~~nine months ended ~~September 30,~~December 31, 2016, the Company granted ~~1,003,832~~1,339,530 time vested restricted stock units (“RSUs”) under the 2007 Equity Incentive Plan to certain employees and directors of the Company. The RSUs vest in equal amounts over a three-year period beginning on the first anniversary of the date of grant. Upon vesting, the outstanding number

of RSUs will be converted into shares of common stock. RSUs are forfeited if they have not vested before the participant's service to the Company terminates for any reason other than death or total permanent disability or certain other circumstances as described in such participant’s RSU agreement. Upon death or disability, the participant is entitled to receive a portion of the award based upon the period of time lapsed between the date of grant of the RSU and the termination of service as an employee or director. The fair value of RSU awards is based on the Company’s stock price at the close of the market on the date of grant. The weighted average grant date fair value for the RSUs issued during the ~~six~~nine months ended ~~September 30,~~December 31, 2016 was $~~1.66~~1.67.

The following table summarizes RSU vesting activity for the ~~six~~nine months ended ~~September 30,~~December 31, 2016:


	Shares		Weighted Average Grant-Date Fair Value		Shares		Weighted Average Grant-Date Fair Value
Nonvested at March 31, 2016	370,383		$	4.83	370,383		$	4.83
Granted	1,003,832		1.66		1,339,530		1.67
Vested	(120,709	)	5.66		(121,654	)	5.65
Forfeited	(85,399	)	2.27		(185,047	)	2.46
Nonvested at September 30, 2016	1,168,107		$	2.21
Nonvested at December 31, 2016					1,403,212		$	2.05


(8)	Contingencies

The Company is engaged in various legal proceedings in the ordinary course of business and has certain unresolved claims pending. The ultimate liability, if any, for the aggregate amounts claimed cannot be determined at this time. However, management believes, based on the examination of these matters and experiences to date, that the ultimate liability, if any, in excess of amounts already provided for in the unaudited condensed consolidated financial statements is not likely to have a material effect on its consolidated financial position, results of operations or cash flows.


(9)	Related Party Transaction

In August 2016, Gregg Appliances entered into a sponsorship agreement through December 31, 2018, with Andretti Autosport 2, Inc. ("Andretti Autosport"), a subsidiary of Andretti Autosport Holding Company, Inc. Pursuant to the agreement, Andretti Autosport will receive $2.75 million annually for the 2017 and 2018 racing seasons from Gregg Appliances to sponsor an Andretti Autosport racing team. Michael Andretti, a director on hhgregg's Board of Directors, serves as the Chairman, President and Chief Executive Officer of Andretti Autosport Holding Company, Inc.



ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A is presented in five sections:

Overview

Critical Accounting ~~Polices~~Policies

Results of Operations

Liquidity and Capital Resources

Contractual Obligations

Our MD&A should be read in conjunction with the unaudited condensed consolidated financial statements and accompanying notes contained herein and the Consolidated Financial Statements for the fiscal year ended March 31, 2016, included in our latest Annual Report on Form 10-K, as filed with the SEC on May 19, 2016.

Overview

hhgregg is an appliance, electronics and furniture retailer that is committed to providing customers with a truly differentiated purchase experience through superior customer service, knowledgeable sales associates and the highest quality product selections. Founded in 1955, hhgregg is a multi-regional retailer with ~~221~~220 brick-and-mortar stores in 2019 states that also offers its market-leading global and local brands at value prices nationwide via hhgregg.com. References to fiscal years in this report relate to the respective 12 month period ended March 31. Our 2017 fiscal year is the 12 month period ending on March 31, 2017.

Comparable store sales isare comprised of net sales at stores in operation for at least 14 full months, including remodeled and relocated stores, as well as net sales for our website. Stores that are closed are excluded from the calculation the month of closing. The method of calculating comparable store sales varies across the retail industry, and our method of calculating comparable store sales may not be the same as other retailers’ methods.

~~This overview section is divided into three sub-sections discussing our operating strategy and performance, business strategy and core philosophies and seasonality.~~

Operating Strategy and Performance. We focus the majority of our floor space, advertising expense and distribution infrastructure on the marketing, delivery and installation of a wide selection of ~~premium~~ appliance, consumer electronics and home furniture products. We also offer additional products not available in our store locations online at www.hhgregg.com. Appliance and consumer electronics sales comprised 94% of our net sales mix for the ~~six~~nine months ended ~~September 30,~~December 31, 2016, and ~~September 30,~~December 31, 2015.

We strive to differentiate ourselves through our customer purchase ~~experience, starting~~experience. This starts with a highly-trained, consultative commissioned sales force which educates our customers on the features and benefits of our products, followed by rapid product delivery and installation, and ~~ending~~ends with post-sales support services. We carefully monitor our competition to ensure that our prices are competitive in the marketplace. Our experience has been that informed customers often choose to buy a more heavily-featured product once they understand the applicability and benefits of its features. Heavily-featured products typically carry higher average selling prices and higher margins than less-featured, entry-level price point products.

In response to the declines in our overall comparable store sales, for fiscal 2017 we are ~~focusing~~focused on ~~revenue growth and productivity.~~two specific actions.

Our first focus for fiscal 2017 is ~~revenue growth. Similar to previous years, the~~increasing net sales. The appliance category continues to be the centerpiece of our business, and as such, we continue to drive specific initiatives around the category. We continue to enhance our product selection by adding additional Fine Lines departments. Fine Lines departments incorporate ultra premium appliances brands that are only available to our customers in ~~our~~stores with Fine ~~Line departments and historically have improved our appliance sales in the adjacent hhgregg stores.~~Lines departments. As of ~~September 30,~~December 31, 2016, we ~~opened six~~operated 17 stores with Fine Lines ~~and and we plan on opening~~departments with an additional four Fine Lines departments expected to open during the fiscal 2017 ~~third~~fourth quarter. In addition to the Fine Lines departments, ~~in order~~ to drive appliance revenues, we continue to offer promotions ~~aimed towards~~focused on appliances, including free delivery. For the ~~six~~nine months ended ~~September 30,~~December 31, 2016, appliances accounted for ~~63%~~60% of our total revenues and appliance same store sales had increased ~~4.7%~~1.8%.

To further grow revenues in all departments, we expanded our product selection through www.hhgregg.com. WeOur investments in www.hhgregg.com are ~~optimizing www.hhgregg.com~~expected to increase the online purchase of products by consumers as well as expand the endless aisle concept, offering products not available in stores through www.hhgregg.com and the in-store Store2Door kiosk. The Store2Door kiosk, as well as the Store2Door web feature, allows customers ~~who visit our store~~ to purchase products not available in the store and have them delivered to their home. During the ~~six~~nine months ended ~~September 30,~~December 31, 2016, we increased online sales by ~~35.5%~~ 15.3%

compared to the ~~six~~nine months ended ~~September 30,~~December 31, 2015. In all of our categories, we continue to offer delivery and installation capabilities and are investing in the infrastructure and revenue generating capabilities of these areas by improving upon the Store2Door service.

We continue to reset the layout of our stores to better showcase our selection of appliances, consumer electronics and home products. These changes are designed to make our stores more visually appealing to our customers, as well as to display merchandise by functionality. ~~Furniture~~For instance, furniture and appliances are prominently displayed in the front of our ~~stores.~~stores successfully reset. We have completed 65101 of the 114 fiscal 2017 planned ~~100~~ existing store resets as of ~~September 30, 2016, and we plan to complete the majority of the remaining 35 by the fiscal 2017 holiday selling season.~~December 31, 2016. We plan on completing the resets of the ~~remainder of~~13 additional stores during the ~~the entire chain of stores by the end~~fourth quarter of fiscal 2017 ~~which is earlier than we previously expected.~~

~~In all of~~bringing our ~~categories, we continue~~total resets completed to offer delivery and installation capabilities and are investing in the infrastructure and revenue generating capabilities of these areas by improving upon the Store2Door service. Store2Door allows the customer to purchase online and have the product delivered and/or installed in their home or to allow the customer to pick the product up in the store seamlessly. To accomplish this, we will refine our processes and offerings. We also added a Store2Door kiosk which allows customers who visit our store to purchase appliance and home products not available in the store and have them delivered to their home.152 stores.

Our goal is to establish long-term relationships with our customers through our stores and our website. We want to gain our customer's trust during the sales process. To ~~reach~~accomplish this goal, we will continue to train and develop our consultative sales staff to enable them to educate our customers on the benefits of our feature-rich products. We also offer the ultimate price center which shows the customer the competitor's price of most of our products in the store so that the customer can ~~be assured~~see that they are paying the lowest price possible. In addition, we offer a comprehensive suite of services including delivery and installation, third-party premium service plans and third-party in-home service and repair, and repair and maintenance of our products. By putting the customer first, we believe we gain our customer's trust and ensure that the customer has a positive sales experience, which we believe ~~will lead~~leads to repeat business.

Our second focus for fiscal 2017 is productivity. We continue to focus on reducing our overall selling, general and administrative expenses including store level, corporate and logistics expenses. ~~During the six months ended September 30, 2016 we~~We began restructuring our logistics network ~~and are~~in our second fiscal 2017 quarter by combining our Indianapolis and Chicago distribution centers into a new facility in the Cincinnati area and right-sizing the warehouses in the Indianapolis and Chicago market for local deliveries. The restructuring ~~will be~~was complete ~~before~~in October 2016. Unfortunately, the ~~fiscal 2017 holiday selling season~~efficiencies we expected were not achieved in the quarter ended December 31, 2016. We are correcting the issues and we expect to see efficiencies in the benefits of increased logistics productivity beginning in our third fiscal quarter of fiscal 2017. The majority of the costs for this project were incurred during the six months ended September 30, 2016.fourth quarter. To date, we incurred ~~$2.9~~$5.6 million of non-recurring costs related to this logistics restructure. We also continue to evaluate inventory productivity to determine ways to reduce inventory in all categories. As a result of our evaluation, as of ~~September 30,~~December 31, 2016, our inventory levels were down ~~16.3%~~38.1%, or ~~$47.2~~$129.5 million, compared to ~~September 30,~~December 31, 2015. Finally, using the knowledge we obtained during fiscal 2016, we continue to optimize our fiscal 2017 marketing spend to the most effective mediums to drive in-store and online traffic.

Business Strategy and Core Philosophies. Our business strategy is centered around offering our customers a superior customer purchase experience. From the time the customers walk in the door, they experience a well-designed, customer-friendly store. Our stores are brightly lit and have clearly distinguished departments that allow our customers to find what they are looking for. We greet and assist our customers with our highly-trained consultative sales force, who ~~educates the~~educate our customers about the different product features.

We believe our products are rich in features and innovation. We also believe that customers find it helpful to have someone explain the features and benefits of a product as this assistance allows them the opportunity to buy the product that most closely matches their needs. We focus our product assortment on big box items requiring in-home delivery and installation in order to utilize service offerings. We follow up on the customer purchase experience by offering delivery capabilities on many of our products and in-home installation service.

While we believe many of our product offerings are considered essential items by our customers, other products and certain features are viewed as discretionary purchases. As a result, our results of operations are susceptible to a challenging macro-economic environment. As consumers show a more cautious approach to purchases of discretionary items, customer traffic and spending patterns continue to be difficult to predict. By providing a knowledgeable consultative sales force, delivery and installation capabilities, credit offerings and expanded product offerings, we believe we offer our customers a differentiated value proposition. ~~There are many variables that affect consumer demand for the home product purchases that we offer, including:~~

Growth in real disposable personal income is projected to moderate to 2.9% in 2016 as compared with 3.4% growth in 2015, based on the March 2016 Blue Chip Economic Indicators®. *

~~The average unemployment rate for 2016 is forecasted to decline to 4.7%, according to the March 2016 Blue Chip Economic Indicators, which would be an improvement from the 5.3% average in 2015.~~

In 2015, home price appreciation increased 5.7% which was consistent with the 2014 increase, according to the Federal Housing Finance Agency index. Economists generally expect the rate of home price growth to moderate to 5% in 2016.

~~Housing turnover increased an estimated 7.4% in 2015 after a 2.6% decrease in 2014, according to The National Association of Realtors and U.S. Census Bureau.~~

*~~Blue Chip Economic Indicators®~~ ~~(ISSN: 0193-4600) is published monthly by Aspen Publishers, 76 Ninth Avenue, New York, NY 10011, a division of Wolters Kluwer Law and Business. Printed in the U.S.A.~~

Retail appliance sales are correlated to the housing industry and housing turnover. As more people purchase existing homes in the market, appliance sales tend to trend upward. Conversely, when demand in the housing market declines, appliance sales are negatively impacted. The U.S. Census Bureau’s data on New Residential Construction shows that U.S. Housing Start-Up’s experienced a ~~5.3%~~5.6% increase for the twelve-month period ended ~~September~~November 30, 2016 over the prior year comparable period. The appliance industry has benefited from increased innovation in energy efficient products. While these energy efficient products typically carry a higher average selling price than traditional products, they ~~save~~provide the consumer significant dollars in annual energy savings. Average unit selling prices of major appliances are not expected to change dramatically in the foreseeable future. For the ~~six~~nine months ended ~~September 30,~~December 31, 2016 we experienced a low single digit decrease in average unit selling prices in appliances compared to the ~~six~~nine months ended ~~September 30,~~December 31, 2015. For the ~~six~~nine months ended ~~September 30,~~December 31, 2016, we generated ~~63%~~60% of total product sales from the sale of home appliances. ~~The Association of Home Appliance Manufactures estimates 2-3% of growth for calendar 2016 compared to calendar 2015.~~ With the addition of the Fine Lines departments, promotions aimed towards appliances and refined product assortments by geography, we were successful in driving additional traffic, and converting that into additional revenues for the appliance category for the ~~six~~nine months ended ~~September 30,~~

December 31, 2016. We had a comparable store sales increase of ~~4.7%~~1.8% in appliances for the ~~six~~nine months ended ~~September 30, 2016~~December 31, 2016.

The consumer electronics industry ~~depends~~is dependent on new product innovations to drive sales and profitability. Innovative, heavily-featured products are typically introduced at relatively high price points. Over time, price points ~~are~~ gradually ~~reduced~~decline to drive consumption. Accordingly, there has been consistent price compression in flat panel televisions for equivalent screen sizes in recent years without a widely accepted innovation in technology to offset this compression. As new technology has not been sufficient to keep demand constant, the industry has ~~seen falling~~experienced declining demand, gross margin ~~rate declines,~~rates, and average selling ~~price declines.~~prices. Over the last couple of years, we have proactively shifted our focus towards larger screen sizes with higher profit margins, which has also resulted in lost market share in the consumer electronics category, as we offered fewer smaller screen size televisions. In addition, we have seen the ~~evolution~~integration of traditional consumer electronics devices ~~change~~ to connected devices in the last few years. We will continue to assort and promote value products across all segments of the category to drive the video business both in-store and online. As vendor models transition for the year, we will add additional online SKUs in both value and premium brands. For the ~~six~~nine months ended ~~September 30,~~December 31, 2016, we generated ~~30%~~34% of total product sales from the sale of consumer electronics. For calendar ~~2016,~~2017, the U.S. Consumer Technology Association projects that unit sales of digital displays will be down 1%1.9% compared to calendar ~~2015 and total computing will be down 7% for calendar 2016 compared to calendar 2015.~~2016. For the ~~six~~nine months ended ~~September 30,~~December 31, 2016, we had a comparable store sales decrease of ~~21.6%~~29.6% for consumer ~~electronics~~electronics. Our decrease in comparable store sales was due to declines in units sold, especially in smaller television screen sizes, and declines in average selling prices in all screen sizes. We have made the ~~fact that, relative~~strategic decision to ~~our competitors, we were highly indexed in~~focus on the more profitable large premium televisions. ~~We will~~As a result of this strategic decision, we would expect to continue to ~~focus on shifting our consumer electronic~~see declines in comparable store sales ~~to a more profitable sales mix, which may result~~but improvements in ~~our unit sales to be lower than the industry.~~margins.

In previous years, we have introduced new products to help offset falling market demand and market share losses of our product categories. We will continue to monitor the performance of these categories, along with market share shifts between the competitive set in our existing categories. We continue to refine our assortment in the furniture category and focus on the great room, a large room in a modern house that combines features of a living room with those of a dining room or family room. Even though we experienced a slight decrease in same store sales for our home products for the ~~six~~nine months ended ~~September 30,~~December 31, 2016, we are optimistic ~~about~~we will benefit from the growth experienced by the industry. Our home products comparable store sales for ~~six~~nine months ended ~~September 30,~~December 31, 2016 decreased ~~0.3%~~3.3% from the prior year. For the ~~six~~nine months ended ~~September 30,~~December 31, 2016, we generated 6% of total product sales from the sale of furniture and mattresses.

Seasonality. Our business is seasonal, with a higher portion of net sales, operating costs, and operating profit realized during the quarter that ends December 31st due to the overall demand for consumer electronics during the Thanksgiving and Christmas holiday shopping season. For fiscal 2017 we had a comparable store sales decrease of 38.6% in consumer electronics for the three months ended December 31, 2016 resulting in lower net sales and operating profit in the quarter ending December 31, 2016 than we historically have experienced. Appliance sales are impacted by seasonal weather patterns, but are less seasonal than our electronics business and help to offset the seasonality of our overall business.

Critical Accounting Policies

We describe our critical accounting policies and estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the fiscal year ended March 31, 2016 in our latest Annual Report on Form 10-K filed with the SEC on May 19, 2016. There have been no significant changes in our critical accounting policies and estimates since the end of fiscal 2016.

Results of Operations

Operating Performance. The following table presents selected unaudited condensed consolidated financial data (in thousands, except share amounts, per share amounts, and store count data):


	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	September 30,						September 30,						December 31,						December 31,
(unaudited)	2016			2015			2016			2015			2016			2015			2016			2015
Net sales	$	454,500		$	486,876		$	878,072		$	927,939		$	452,791		$	593,219		$	1,330,863		$	1,521,158
Net sales % decrease	(6.6		)%	(3.8		)%	(5.4		)%	(5.1		)%	(23.7		)%	(10.9		)%	(12.5		)%	(7.5		)%
Comparable store sales % decrease ⁽¹⁾	(6.4		)%	(3.5		)%	(5.2		)%	(4.8		)%	(22.2		)%	(10.8		)%	(11.8		)%	(7.3		)%
Gross profit as a % of net sales	28.7		%	28.5		%	29.8		%	29.4		%	22.0		%	26.1		%	27.2		%	28.1		%
SG&A as a % of net sales	25.9		%	23.3		%	25.7		%	24.2		%	25.6		%	19.6		%	25.7		%	22.4		%
Net advertising expense as a % of net sales	4.8		%	5.4		%	5.1		%	5.3		%	5.7		%	5.8		%	5.3		%	5.5		%
Depreciation and amortization expense as a % of net sales	1.6		%	1.7		%	1.6		%	1.8		%	1.5		%	1.4		%	1.6		%	1.7		%
Asset impairment charges as a % of net sales													1.7		%	3.5		%	0.7		%	1.4		%
Loss from operations as a % of net sales	(3.8		)%	(1.9		)%	(2.7		)%	(1.9		)%	(12.6		)%	(4.2		)%	(6.1		)%	(2.8		)%
Net interest expense as a % of net sales	0.2		%	0.1		%	0.2		%	0.1		%	0.2		%	0.1		%	0.2		%	0.1		%
Income tax expense as a % of net sales													—		%	0.2		%	—		%	0.1		%
Net loss	$	(18,377	)	$	(10,126	)	$	(25,604	)	$	(18,881	)	$	(58,269	)	$	(26,913	)	$	(83,873	)	$	(45,794	)
Net loss per diluted share	$	(0.66	)	$	(0.37	)	$	(0.92	)	$	(0.68	)	$	(2.10	)	$	(0.97	)	$	(3.02	)	$	(1.65	)
Weighted average shares outstanding—diluted	27,801,470			27,707,978			27,771,530			27,694,169			27,806,460			27,707,978			27,783,216			27,698,789
Number of stores open at the end of period	221			227									220			227


⁽¹⁾	Comprised of net sales at stores in operation for at least 14 full months, including remodeled and relocated stores, as well as net sales for our e-commerce site.

Net loss increased ~~82%~~117% to $~~18.4~~58.3 million for the three months ended ~~September 30,~~December 31, 2016, or $~~0.66~~2.10 per diluted share, compared with net loss of $~~10.1~~26.9 million, or $~~0.37~~0.97 per diluted share, for the comparable prior year period. Net loss increased ~~36%~~83% to ~~$25.6~~$83.9 million for the ~~six~~nine months ended ~~September 30,~~December 31, 2016, or ~~$0.92~~$3.02 per diluted share, compared with net loss of ~~$18.9~~$45.8 million, or ~~$0.68~~$1.65 per diluted share, for the comparable prior period. The increase in net loss for the three and nine months ended ~~September 30,~~December 31, 2016 compared to the prior year period was ~~primarily~~ due to decreased net sales of ~~6.6%, partially offset by increased~~23.7% and 12.5% for the three and nine months ended December 31, 2016, respectively, and decreased gross ~~margin~~margins, as a percentage of ~~net sales~~sales. These decreases were partially offset by a lower asset impairment charge in the current periods as compared to the prior year periods and a decrease in advertising expense. The increased net loss for the six months ended September 30, 2016 was primarily due to a decrease in net sales of 5.4%, partially offset by increased gross margin as a percentage of net sales and decreased net advertising expense.

Net sales for the three months ended ~~September 30,~~December 31, 2016 decreased ~~6.6%~~23.7% to ~~$454.5~~$452.8 million from ~~$486.9~~$593.2 million in the comparable prior year period. The decrease in net sales for the three month period was primarily the result of a comparable store sales decrease of ~~6.4%~~22.2%. Net sales for the ~~six~~nine months ended ~~September 30,~~December 31, 2016 decreased ~~5.4%~~12.5% to ~~$878.1 million~~$1.3 billion from ~~$927.9 million~~$1.5 billion in the comparable prior year period. The decrease in net sales for the ~~six~~nine month period was primarily the result of a comparable store sales decrease of ~~5.2%~~11.8%.

Net sales mix and comparable store sales percentage changes by product category for the three and ~~six~~nine months ended ~~September 30,~~December 31, 2016 and 2015 were as follows:


	Net Sales Mix Summary								Comparable Store Sales Summary								Net Sales Mix Summary								Comparable Store Sales Summary
	Three Months Ended September 30,				Six Months Ended September 30,				Three Months Ended September 30,				Six Months Ended September 30,				Three Months Ended December 31,				Nine Months Ended December 31,				Three Months Ended December 31,				Nine Months Ended December 31,
	2016		2015		2016		2015		2016		2015		2016		2015		2016		2015		2016		2015		2016		2015		2016		2015
Appliances	63	%	56	%	64	%	57	%	5.7	%	0.8	%	4.7	%	(0.7	)%	53	%	43	%	60	%	52	%	(4.2	)%	(10.4	)%	1.8	%	(4.1	)%
Consumer electronics ⁽¹⁾	30	%	38	%	30	%	37	%	(25.1	)%	(10.2	)%	(21.6	)%	(12.3	)%	41	%	52	%	34	%	42	%	(38.6	)%	(12.2	)%	(29.6	)%	(12.3	)%
Home products ⁽²⁾	7	%	6	%	6	%	6	%	(0.7	)%	4.4	%	(0.3	)%	7.8	%	6	%	5	%	6	%	6	%	(9.0	)%	3.3	%	(3.3	)%	6.2	%
Total	100	%	100	%	100	%	100	%	(6.4	)%	(3.5	)%	(5.2	)%	(4.8	)%	100	%	100	%	100	%	100	%	(22.2	)%	(10.8	)%	(11.8	)%	(7.3	)%


⁽¹⁾	Primarily consists of televisions, audio, personal electronics, computers and tablets, and accessories.


⁽²⁾	Primarily consists of furniture and mattresses.

The decrease in comparable store sales for the three ~~and six~~ months ended ~~September 30,~~December 31, 2016 was driven by a decrease in net sales in all categories. The decrease in net sales for the nine months ended December 31, 2016 was driven by a decrease in net sales of consumer electronics and home products, slightly offset by increases in appliances net sales. The comparable store sales ~~increase~~decrease of ~~5.7% and 4.7%~~4.2% for the three ~~and six~~ months ended ~~September 30,~~December 31, 2016 in the appliance category is due to decreases in both unit demand and in average selling prices. The comparable store sales increase of 1.8% for the nine months ended December 31, 2016 in the appliance category is due to increases in unit demand partially offset by a decrease in average selling prices. The consumer electronics category comparable store sales ~~decline~~declines of ~~25.1%~~38.6% and 29.6% for the three and nine months ended December 31, 2016, respectively, were primarily due to declines in units sold, especially in smaller television screen sizes, and average selling prices declines in all screen sizes. The decrease of 9.0% in comparable store sales for the home products category for the three months ended ~~September 30,~~December 31, 2016 was ~~primarily due to~~largely a ~~decline in units sold. For the six months ended September 30, 2016, the comparable store sales decline~~result of ~~21.6% in consumer electronics was due to~~ decreases in demand and average selling prices. The decrease of ~~0.7% and 0.3% for the three and six months ended September 30, 2016~~3.3% in comparable store sales for the home products category for the nine months ended December 31, 2016 was largely a result of decreases in demand offset by increases in average selling prices.

Three Months Ended ~~September 30,~~December 31, 2016 Compared to Three Months Ended ~~September 30,~~December 31, 2015

Gross profit margin, expressed as gross profit as a percentage of net sales, ~~increased~~decreased for the three months ended ~~September 30,~~December 31, 2016 to ~~28.7%~~22.0% from ~~28.5%~~26.1% for the comparable prior year period. The ~~increase~~decrease was primarily due to lower gross margin rates in all categories, primarily in consumer electronics, partially offset by a favorable sales mix shift to product categories with higher gross profit margin ~~rates, in addition to higher gross margin rates in consumer electronics offset by decreased gross margin rates in appliances and home products.~~rates.

SG&A expense, as a percentage of net sales, increased ~~257~~599 basis points ~~or $4.1~~and decreased $0.5 million, for the three months ended ~~September 30,~~December 31, 2016 compared to the comparable prior year period. The increase in SG&A as a percentage of net sales was primarily the result of ~~(i) 103~~the deleveraging effect of the net sales decline. As a percentage of net sales, wages and occupancy costs increased 186 basis ~~point, or $3.6~~points and 142 basis points, respectively, for the three months ended December 31, 2016 compared to the comparable prior year period. In addition, wages decreased $2.0 million ~~increase in delivery services~~primarily due to lower commissions paid as a result of decreased sales partially offset by increased wages due to the unexpected non-recurring costs relating to the distribution center consolidation. Occupancy costs decreased $1.1 million, compared to the prior year period, primarily due to lower rents due to closing stores and common annual maintenance adjustments for leased properties. Delivery services increased 138 basis points as a percentage of net sales, or $2.5 million, primarily due to the increased number of deliveries in all categories due to free delivery promotions, (ii) 59 basis point, or $0.6 million, increase in occupancy costs due to increased utility costs and the deleveraging effect of the net sales decline, (iii) 50 basis point, or $2.3 million, increase for the costs associated with our logistics optimization and (iv) 42 basis point, or $0.8 million, increase in wages due to the deleveraging effect of the net sales decline.promotions.

Net advertising expense decreased 602 basis points as a percentage of net sales, or ~~$4.5~~$8.2 million, during the three months ended ~~September 30,~~December 31, 2016 compared to the prior year period due to a reduction in gross advertising spend driven by continued efficiency ~~and effectiveness~~ in our advertising spend.

Depreciation expense, as a percentage of net sales, ~~decreased 17~~increased 14 basis points orand decreased $1.3 million, during the three months ended ~~September 30,~~December 31, 2016 compared to the prior year period. The reduction of expense was primarily the result of a lower depreciable asset base in the current year due to asset impairment charges recorded in fiscal 2016 compared to the comparable prior year period. The increase in depreciation expense as a percentage of sales is due to the deleveraging effect of the net sales decline.

Due to declining sales and overall declines in profitability in the third fiscal quarter the Company performed a detailed store impairment analysis as of December 31, 2016. As a result of this impairment analysis, property and equipment at 21 locations with a net book value of $7.2 million were reduced to estimated aggregate fair value of $0.8 million based on their projected cash flows, discounted at 15%. The Company continues to invest in its store layouts to better showcase its selections of appliances, consumer electronics and home products. For certain locations that were previously evaluated and fully impaired due to declining sales and profitability, the Company performed another evaluation as of December 31, 2016. Thirty-one stores with an aggregate net book value of $1.7 million were reduced to an estimated aggregate fair value of $0.2 million based on their projected cash flows, discounted at 15%. As a result of these analyses, the Company recorded an asset impairment charge of $7.9 million for the three months ended December 31, 2016. For the three months ended December 31, 2015, property and equipment at 40 locations with a net book value of $21.7 million were reduced to estimated aggregate fair value of $0.8 million based on their projected cash flows, discounted at 15%.This resulted in an asset impairment charge of $20.9 million for the three months ended December 31, 2015. The fair values were determined using a probability based cash flow analysis based on management's estimates of future store-level sales, gross margins, and direct expenses.

There was no income tax expense or benefit recorded for the third fiscal quarter due to our full valuation allowance. For the three months ended December 31, 2015, we recorded $1.3 million income tax expense due primarily to the settlement of an Internal Revenue Service examination for the prior year.

Nine Months Ended December 31, 2016 Compared to Nine Months Ended December 31, 2015

Gross profit margin, expressed as gross profit as a percentage of net sales, decreased for the nine months ended December 31, 2016 to 27.2% from 28.1% for the comparable prior year period. The decrease was primarily due to lower gross margin rates in all categories, partially offset by a favorable sales mix shift to product categories with higher gross profit margin rates.

SG&A expense, as a percentage of net sales, increased 325 basis points, or $0.6 million, for the nine months ended December 31, 2016 compared to the comparable prior year period. The increase in SG&A as a percentage of net sales was primarily the result of the deleveraging effect of the net sales decline. As a percentage of net sales, wages and occupancy costs increased 105 basis points and 82 basis points, respectively, for the nine months ended December 31, 2016 as compared to the comparable prior year period. In addition, wages decreased $1.6 million for the nine months ended December 31, 2016 compared to the comparable prior year period primarily due to lower commissions paid as a result of decreased sales and a reduction in bonus expense in the current year as compared to the prior year period. Occupancy costs decreased $1.0 million, for the nine months ended December 31, 2016, compared to the prior year period, primarily due to common annual maintenance adjustments for leased properties. Delivery services increased 96 basis points as a percentage of net sales, or $6.9 million, for the nine months ended December 31, 2016 as compared to the comparable prior year period, primarily due to the increased number deliveries in all categories due to free delivery promotions.

Net advertising expense decreased $12.8 million, or 18 basis points as a percentage of net sales, during the nine months ended December 31, 2016 compared to the prior year period due to a reduction in gross advertising spend driven by continued efficiency in our advertising spend.

Depreciation expense, as a percentage of net sales, decreased 7 basis points, or $4.1 million, during the nine months ended December 31, 2016 compared to the prior year period. The reduction of expense was primarily the result of a lower depreciable asset base in the current year due to asset impairment charges recorded in fiscal 2016 compared to the comparable prior year period.

Due to declining sales and overall declines in profitability in the nine months ended December 31, 2016 the Company performed a detailed store impairment analysis as of December 31, 2016. As a result of the nine months ended December 31, 2016 impairment analysis, property and equipment at 21 locations with a net book value of $7.2 million were reduced to estimated aggregate fair value of $0.8 million based on their projected cash flows, discounted at 15%. The Company continues to invest in its store layouts ~~for our chain~~ to better showcase its selections of appliances, consumer electronics and home products. ~~For those stores remodeled, the Company typically sees positive same store sales improvement.~~ For certain locations that were previously evaluated and fully impaired due to declining sales and profitability, the Company performed another evaluation ~~of these locations~~ as of ~~September 30,~~December 31, 2016. ~~Twenty-two~~Thirty-seven stores with aan aggregate net book value of ~~$2.1~~$3.0 million were reduced to an estimated aggregate fair value of ~~$0.7~~$0.2 million based on their projected cash flows, discounted at 15%. ~~This resulted in~~As a ~~non-cash~~result of these analyses, the Company recorded an asset impairment charge of ~~$1.4~~$9.2 million for the nine months ended December 31, 2016. For the nine months ended December 31, 2015, property and equipment at 40 locations with a net book value of $21.7 million were reduced to estimated aggregate fair value of $0.8 million based on their projected cash flows, discounted at 15%.This resulted in an asset impairment charge of $20.9 million for the three months ended ~~September 30, 2016.~~December 31, 2015. The fair values were determined using a probability based cash flow analysis based on management's estimates of future store-level sales, gross margins, and direct expenses.

~~Six Months Ended September 30, 2016 Compared to Six Months Ended September 30, 2015~~

~~Gross profit margin, expressed as gross profit as a percentage of net sales, increased~~There was no income tax expense or benefit recorded for the ~~six~~nine months ended ~~September 30,~~December 31, 2016 ~~to 29.8% from 29.4% for the comparable prior year period. The increase was~~ due to ~~a favorable sales mix shift to~~

product categories with higher gross profit margin rates, in addition to higher gross margin rates in appliances and home products, partially offset by lower gross profit margin rates in consumer electronics.

~~SG&A expense, as a percentage of net sales, increased 149 basis points, or $1.0 million, for~~our full valuation allowance. For the ~~six~~nine months ended ~~September 30, 2016 compared to the comparable prior year period. The increase in SG&A as a percentage of net sales was the result of (i) 69 basis point increase, or $4.4~~December 31, 2015, we recorded $1.3 million ~~in delivery services due to increased number of deliveries in all categories due to free delivery promotions, (ii) 48 basis points, $0.8 million, increase in occupancy costs~~income tax expense due primarily to ~~increased utility expenses and~~ the ~~deleveraging effect~~settlement of ~~the net sales decline, (iii) 33 basis point, or $2.9 million, increase~~an Internal Revenue Service examination for costs associated with our logistics optimization and (iv) 21 basis point, or $2.5 million, increase in wages due to the deleveraging effect of the net sales decline. These increases were partially offset by a 48 basis point, or $4.4 million, decrease primarily due to one time consulting expenses incurred in the prior ~~year to assist in our cost saving initiatives for fiscal 2016.~~year.

Net advertising expense decreased $4.7 million, or 23 basis points, during the six months ended September 30, 2016 compared to the prior year period due to continued efficiency and effectiveness in our advertising spend.

Depreciation expense, as a percentage of net sales, decreased 21 basis points, or $2.7 million, during the six months ended September 30, 2016 compared to the prior year period. The reduction of expense was primarily the result of a lower depreciable asset base in the current year due to asset impairment charges recorded in fiscal 2016 compared to the comparable prior year period.

The Company continues to invest in its store layouts for our chain to better showcase its selections of appliances, consumer electronics and home products. For those stores remodeled, the Company typically sees positive same store sales improvement. For certain locations that were previously evaluated and fully impaired due to declining sales and profitability, the Company performed another evaluation of these locations as of September 30, 2016. Twenty-two stores with a aggregate net book value of $2.1 million were reduced to an estimated aggregate fair value of $0.7 million based on their projected cash flows, discounted at 15%. This resulted in a non-cash asset impairment charge of $1.4 million for the six months ended September 30, 2016. The fair values were determined using a probability based cash flow analysis based on management's estimates of future store-level sales, gross margins, and direct expenses.

Liquidity and Capital Resources

The following table presents a summary on a consolidated basis of our net cash (used in) provided by operating, investing and financing activities (dollars are in thousands):

Six Months Ended
September 30, 2016 September 30, 2015
Net cash provided by operating activities $ 20,928
$ 9,620
Net cash used in investing activities (11,548 ) (8,134 )
Net cash (used in) provided by financing activities (11,876 ) 2,990



	Nine Months Ended
	December 31, 2016			December 31, 2015
Net cash used in operating activities	$	(696	)	$	(12,203	)
Net cash used in investing activities	(18,674		)	(10,486		)
Net cash provided by (used in) financing activities	17,620			(676		)

Our liquidity requirements arise primarily from our need to fund working capital requirements and capital expenditures. We make capital expenditures principally to fund our existing stores along with our e-commerce business and the related

supply chain infrastructure, which includes, among other things, investments in new distribution facilities, remodeling and relocation of existing stores, enhancements to our e-commerce site, as well as information technology and other infrastructure-related projects.

During the ~~six~~nine months ended ~~September 30,~~December 31, 2016, we continued to invest in our infrastructure, including management information systems, e-commerce and distribution capabilities, as well as incur capital remodeling and improvement costs. Capital expenditures for fiscal 2017 will be funded through cash, borrowings under our Amended Facility described below and tenant allowances from landlords.

Cash ~~Provided by~~Used in Operating Activities. Net cash ~~provided by~~used in operating activities primarily consists of net loss as adjusted for increases or decreases in working capital and non-cash charges such as depreciation, asset impairment, loss on early extinguishment of debt and stock compensation expense. Cash ~~provided by~~used in operating activities was ~~$20.9~~$0.7 million and ~~$9.6~~$12.2 million for the ~~six~~nine months ended ~~September 30,~~December 31, 2016 and 2015, respectively. The ~~increase~~decrease in cash ~~provided by~~used in operating activities is primarily due to a lower level of inventory in the current ~~year. This~~year and an increase ~~was~~in customer deposits. These increases were partially offset by an increased net loss for the ~~six~~nine months ended ~~September 30,~~December 31, 2016, a decrease in accounts payable and ~~increased receivables.~~accrued liabilities and decreased non-cash asset impairment charge in the current year period.

Cash Used In Investing Activities. Net cash used in investing activities was $~~11.5~~18.7 million and $~~8.1~~10.5 million for the ~~six~~nine months ended ~~September 30,~~December 31, 2016 and 2015, respectively. The increase in cash used in investing activities is primarily due to an increase in capital expenditures. In the ~~six~~nine months ended ~~September 30,~~December 31, 2016, we invested capital in six new Fine Lines

departments, one store relocation, a new regional distribution center, a local delivery center, the redesign and remodeling of 101 existing stores and infrastructure and e-commerce. In the nine months ended December 31, 2015, we opened one new store with a Fine Lines department, redesigned and remodeled existing stores and invested in infrastructure and e-commerce. ~~In the~~ ~~six months ended September 30, 2015, we relocated one new store and invested in infrastructure and e-commerce.~~

Cash Provided by (Used In) ~~Provided by~~ Financing Activities. Net cash provided by (used in) ~~provided by~~ financing activities was ~~$(11.9)~~$17.6 million and ~~$3.0~~$(0.7) million for the ~~six~~nine months ended ~~September 30,~~December 31, 2016 and 2015, respectively. The increase in cash ~~used in~~provided by financing activities is due to ~~the~~$30.3 million of net borrowings under our Amended Facility, as described below, partially offset by greater net repayments on the inventory financing facility compared to ~~net borrowings in~~ the prior year and the payment of financing costs related to the Amended Facility.

Amended Facility. On June 28, 2016, Gregg Appliances entered into Amendments No. 2 & 3 to the Amended and Restated Loan and Security Agreement (the “Amended Facility”) which amended the maximum amount available under the Amended Facility from $400 million to $300 million, comprised of a $20 million first-in last-out revolving tranche ("the FILO") and a $280 million revolver, subject to borrowing base availability, and extended the maturity date from July 29, 2018 to June 28, 2021. Refer to Note 6, Debt, of the Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for further information about the Amended Facility.

The Amended Facility places limitations on the ability of Gregg Appliances to, among other things, incur debt, create other liens on its assets, make investments, sell assets, pay dividends, undertake transactions with affiliates, enter into merger transactions, enter into unrelated businesses, open collateral locations outside of the United States, or enter into consignment assignments or floor plan financing arrangements. The Amended Facility also contains various customary representations and warranties, financial and collateral reporting requirements and other affirmative and negative covenants. Gregg Appliances was in compliance with the restrictions and covenants of the Amended Facility at ~~September 30,~~December 31, 2016.

As of ~~September 30,~~December 31, 2016 and March 31, 2016, Gregg Appliances had $30.3 million and no borrowings, respectively, outstanding under the Amended Facility. The total borrowing availability under the Amended Facility was ~~$142.0~~$94.1 million and $139.9 million as of ~~September 30,~~December 31, 2016 and March 31, 2016, respectively. The Company typically borrows based on LIBOR. As of ~~September 30,~~December 31, 2016, the interest rate on the FILO based on LIBOR was 5.5%. The interest rate on the revolver based on LIBOR was ~~2.2%~~2.5% and 2.1% as of ~~September 30,~~December 31, 2016 and March 31, 2016, respectively.

Long Term Liquidity. Anticipated cash flows from operations and funds available from our Amended Facility, together with cash on hand, is expected to provide sufficient funds to finance our operations for the next 12 months. As a normal part of our business, we consider opportunities to refinance our existing indebtedness, based on market conditions. Although we may refinance all or part of our existing indebtedness in the future, there can be no assurances that we will do so. Changes in our operating plans, lower than anticipated sales, increased expenses, reduced vendor terms, acquisitions or other events may require us to seek additional debt or equity financing. There can be no guarantee that financing will be available on acceptable terms or at all. Additional debt financing, if available, could impose additional cash payment obligations, additional covenants and operating restrictions.

Contractual Obligations

~~The following table summarizes the advertising commitments we entered into during the three months ended September 30, 2016 (dollars are in thousands):~~

Payments due by period
Total Less than 1 year 1 - 3 years
Advertising commitments $ 53,330
50,580
2,750

See our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the fiscal year ended March 31, 2016 in our latest Annual Report on Form 10-K filed with the SEC on May 19, 2016 for additional information regarding our contractual obligations.

Cautionary Note Regarding Forward-Looking Statements

Some of the statements in this document constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our business’ or our industry’s actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statements. Such statements include, our estimates of cash flows for purposes of impairment charges, our ability to manage costs, our ability to execute on our 2017 initiatives, innovation in the video industry, the impact and amount

of non-cash charges, and shifts in our sales mix. hhgregg has based these forward-looking statements on its current expectations, assumptions, estimates and projections. While hhgregg believes these expectations, assumptions, estimates and projections are reasonable, these forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond its control. These and other important factors may cause hhgregg's actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Some of the key factors that could cause actual results to differ from hhgregg's expectations are: the ability to successfully execute the Company's strategies and initiatives, particularly in returning the Company to profitable growth; the Company's ability to increase customer traffic and conversion; competition in the retail industry; the Company's ability to maintain a positive brand perception and recognition; the Company's ability to attract and retain qualified personnel; the Company's ability to maintain the security of customer, associate and Company information; rules, regulations, contractual obligations, compliance requirements and fees associated with accepting a variety of payment methods; the Company's ability to effectively achieve cost cutting initiatives; the Company's ability to generate strong cash flows to support its operating activities; the Company's relationships and operations of its key suppliers; the Company's ability to generate sufficient cash flows to recover the fair value of long-lived assets; the Company's ability to maintain and upgrade its information technology systems; the fluctuation of the Company's comparable store sales; the effect of general and regional economic and employment conditions on the Company's net sales; the Company's ability to meet financial performance guidance; disruption in the Company's supply chain; changes in trade regulation, currency fluctuations and prevailing interest rates; and the potential for litigation. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “tends,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of those terms or other comparable terminology. Actual events or results may differ materially because of market conditions in our industry or other factors. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our latest Annual Report on Form 10-K filed with the SEC on May 19, 2016. The forward-looking statements are made as of the date of this document and we assume no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements.



ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk

In addition to the risks inherent in our operations, we are exposed to certain market risks, including interest rate risk.

As of ~~September 30,~~December 31, 2016, our debt was comprised of our Amended Facility.

Interest on borrowings under our Amended Facility is payable monthly at a fluctuating rate based on the bank’s prime, LIBOR, or Eurodollar rates plus an applicable margin based on the average quarterly excess availability. As of ~~September 30,~~December 31, 2016, we had no$30.3 million outstanding borrowings on our Amended Facility. A hypothetical 100 basis point increase in the bank's prime rate would decrease our annual pre-tax income by approximately $0.3 million.



ITEM 4.	Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (principal executive officer) and SVP, Chief Financial Officer (principal financial and accounting officer), as appropriate to allow timely decisions regarding required disclosure. We have established a Disclosure Committee, consisting of certain members of management, to assist in this evaluation. Our Disclosure Committee meets on a quarterly basis and more often if necessary.

Our management, including our Chief Executive Officer and ~~SVP,~~Senior Vice President, Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of ~~September 30,~~December 31, 2016. Based on that evaluation, our Chief Executive Officer and ~~SVP,~~Senior Vice President, Chief Financial Officer concluded that, as of ~~September 30,~~December 31, 2016, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

During the fiscal quarter ended ~~September 30,~~December 31, 2016, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



Part II.	Other Information



ITEM 1.	Legal Proceedings

For a description of our legal proceedings, see Note 8, Contingencies, of the Notes to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.



ITEM 1A.	Risk Factors

~~There~~Other than the risk factor set below, there have been no material changes to the risk factors set forth in the section entitled “Risk Factors” in our Annual Report on Form 10-K filed with the SEC on May 19, 2016. The risks disclosed in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and operating results.

If we fail to comply with the continued listing requirements of the NYSE, our common stock may be subject to delisting.

We currently meet the continued listing standards of the New York Stock Exchange (NYSE). However, we cannot assure you that we will be able to continue to comply with the listing standards that we are required to meet to maintain a listing of our common stock on the NYSE, such as an average closing price of at least $1.00 and a minimum stockholders equity and market value of our listed securities of at least $50 million. Our common stock is currently trading at a price of less than $1.00 per share and our stockholders equity and market capitalization is below $50 million. If we fail to meet these standards for 30 consecutive trading days, we may receive a notice from the NYSE that we have failed to comply with the NYSE’s listing standards. Our failure to continue to meet these requirements may result in our common stock being delisted from the NYSE. If we receive a deficiency notice, there can be no assurance that we will be able to regain compliance or that any appeal of a decision to delist our common stock would be successful.

If the NYSE delists our common stock, we could face significant material adverse consequences, including (i) a limited availability of market quotations for our shares; (ii) reduced price and liquidity with respect to our shares which may materially limit your ability to sell shares of common stock; (iii) a determination that the common stock is a “penny stock” which will require brokers trading in our shares to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our shares; (iv) a limited amount of news and analyst coverage for our company; and (v) a decreased ability to issue additional securities or obtain additional financing in the future.



ITEM 6.	Exhibits


31.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.


31.2	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.


32.1*	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


32.2*	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101

The following materials from hhgregg, Inc.’s Form 10-Q for the quarterly period ended ~~September 30,~~December 31, 2016, formatted in an XBRL Interactive Data File: (i) Condensed Consolidated Statements of Operations-unaudited; (ii) Condensed Consolidated Balance Sheets-unaudited; (iii) Condensed Consolidated Statements of Cash Flows-unaudited; (iv) Condensed Consolidated Statement of Stockholders’ Equity-unaudited; and (v) Notes to Condensed Consolidated Financial Statements-unaudited.

This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference in any filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

SIGNATURES

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




	HHGREGG, INC.

By:	/s/ Kevin J. Kovacs
	Kevin J. Kovacs SVP, Chief Financial Officer (Principal Accounting and Financial Officer)

Dated: ~~November 8, 2016~~January 26, 2017



	Payments due by period
	Total		Less than 1 year	1 - 3 years
Advertising commitments	$	53,330	50,580	2,750