UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C.D.C. 20549

FORM 10-Q

(Mark One)

 

ý  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED
September 30, 2004March 31, 2005

OR

o  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 0-19658

TUESDAY MORNING CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

Delaware

 

75-2398532

(State or Other Jurisdiction of
Incorporation or Organization)

 

(I.R.S. Employer
Identification Number)

 

6250 LBJ Freeway
Dallas, Texas 75240

(Address, including zip code, of principal executive offices)

 

(972) 387-3562

(Registrant’s telephone number, including area code)

 

Not applicable

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

 

Indicate by check mark whether the registrant: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.

Yes  ý  No  o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act).

Yes  ý  No  o

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at October 28, 2004April 25, 2005

Common Stock, par value $0.01 per share

 

41,082,32841,140,524

 

 



Forward Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws and Private Securities Litigation Reform Act of 1995.  These statements may be found throughout this Form 10-Q particularly under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” among others.  Forward-looking statements typically are identified by the use of terms such as “may, “will,” “should,” “expect,” “anticipate,” “believe,” “estimate,” “intend” and similar words, although some forward-looking statements are expressed differently.  You should consider statements that contain these words carefully because they describe our expectations, plans, strategies and goals and our beliefs concerning future business conditions, our results of operations, financial position, and our business outlook or state other “forward-looking” information based on currently available information.

 

Readers are referred to the caption “Risk Factors” appearing at the end of Item I of the Company’s Annual Report on Form 10-K for the year ended December 31, 20032004 for additional factors that may affect our forward-looking statements.  In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this report might not occur.  We undertake no obligation to update or revise our forward-looking statements, whether as a result of new information, future events or otherwise.

 

The terms “Tuesday Morning,” “we,” “us” and “our” as used in this Quarterly Report on Form 10-Q refer to Tuesday Morning Corporation and its subsidiaries.

 



 

PART I - FINANCIAL INFORMATION

 

PART I - FINANCIAL INFORMATION

Item 1 – Financial Statements

 

 

 

Consolidated Balance Sheets as of September 30, 2004March 31, 2005 and December 31, 20032004

 

 

 

Consolidated Statements of Income for the Three Months Ended March 31, 2005 and Nine Months Ended September 30, 2004 and 2003

 

 

 

Consolidated Statements of Cash Flows for the NineThree Months Ended September 30,March 31, 2005 and 2004 and 2003

 

 

 

Notes to Consolidated Financial Statements

 

 

 

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

 

 

 

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

 

 

 

Item 4 – Controls and Procedures

 

 

 

PART II – OTHER INFORMATION

 

 

Item 1 – Legal Proceedings

 

 

 

Item 5 – Other Information

Item 6 – Exhibits

 

 



 

Tuesday Morning Corporation

Consolidated Balance Sheets Sheets

(In thousands, except for share data)

 

 

September 30,
2004

 

December 31,
2003

 

 

March 31,
2005

 

Dec. 31,
2004

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

8,583

 

$

23,536

 

 

$

14,295

 

$

45,067

 

Inventories

 

262,318

 

143,023

 

 

212,587

 

189,132

 

Prepaid expenses and other current assets

 

6,343

 

4,948

 

 

7,388

 

5,169

 

Deferred income taxes

 

5,106

 

5,106

 

 

5,991

 

5,991

 

Total current assets

 

282,350

 

176,613

 

 

240,261

 

245,359

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

85,035

 

74,875

 

 

86,920

 

86,332

 

Deferred financing costs

 

895

 

907

 

 

809

 

877

 

Other assets

 

2,590

 

999

 

 

3,189

 

3,552

 

 

 

 

 

 

 

 

 

 

 

Total Assets

 

$

370,870

 

$

253,394

 

 

$

331,179

 

$

336,120

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

Revolving credit facility

 

$

60,700

 

$

 

Accounts payable

 

86,144

 

66,091

 

 

76,568

 

72,722

 

Accrued liabilities

 

34,909

 

36,321

 

 

32,477

 

39,549

 

Income taxes payable

 

4,930

 

13,247

 

 

4,952

 

17,483

 

Total current liabilities

 

186,683

 

115,659

 

 

113,997

 

129,754

 

 

 

 

 

 

 

 

 

 

 

Revolving credit facility, excluding current portion

 

20,000

 

 

Revolving credit facility

 

 

 

Deferred rent

 

4,249

 

165

 

Deferred income taxes

 

5,641

 

5,641

 

 

9,051

 

9,051

 

 

 

 

 

 

 

 

 

 

 

Total Liabilities

 

212,324

 

121,300

 

 

127,297

 

138,970

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

Senior exchangeable preferred stock, par value $.01 per share, authorized 10,000,000 shares, none issued or outstanding

 

 

 

Common stock, par value $.01 per share, authorized 100,000,000 shares; 41,082,328 shares issued and outstanding at September 30, 2004 and 40,923,737 shares at December 31, 2003

 

411

 

409

 

Stockholders’ equity:

 

 

 

 

 

Common stock, par value $.01 per share, authorized 100,000,000 shares; 41,140,524 shares issued and outstanding at March 31, 2005 and 41,101,965 shares at December 31, 2004

 

411

 

411

 

Additional paid-in capital

 

187,283

 

186,455

 

 

189,078

 

188,969

 

Accumulated deficit

 

(29,152

)

(54,872

)

Accumulated other comprehensive income

 

4

 

102

 

Retained earnings

 

14,411

 

7,745

 

Accumulated other comprehensive income (expense)

 

(18

)

25

 

 

 

 

 

 

 

 

 

 

 

Total Shareholders’ Equity

 

158,546

 

132,094

 

Total Stockholders’ Equity

 

203,882

 

197,150

 

 

 

 

 

 

 

 

 

 

 

Total Liabilities and Shareholders’ Equity

 

$

370,870

 

$

253,394

 

Total Liabilities and Stockholders’ Equity

 

$

331,179

 

$

336,120

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

1



 

Tuesday Morning Corporation

Consolidated Statements of Income

(In thousands, except per share data)

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

Three Months Ended
March 31,

 

 

2004

 

2003

 

2004

 

2003

 

 

2005

 

2004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

186,148

 

$

173,898

 

$

565,442

 

$

501,665

 

 

$

185,594

 

$

168,597

 

Cost of sales

 

117,525

 

110,702

 

354,417

 

319,240

 

 

113,036

 

102,585

 

 

 

 

 

 

 

 

 

 

Gross profit

 

68,623

 

63,196

 

211,025

 

182,425

 

 

72,558

 

66,012

 

Selling, general and administrative expenses

 

55,700

 

50,494

 

168,068

 

145,407

 

 

62,122

 

52,531

 

 

 

 

 

 

 

 

 

 

Operating income

 

12,923

 

12,702

 

42,957

 

37,018

 

 

10,436

 

13,481

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

1

 

5

 

8

 

62

 

 

34

 

4

 

Interest expense

 

(868

)

(2,441

)

(1,751

)

(7,143

)

 

(206

)

(411

)

Other income (expense)

 

190

 

194

 

637

 

650

 

 

193

 

241

 

 

(677

)

(2,242

)

(1,106

)

(6,431

)

 

 

 

 

 

 

 

 

 

 

21

 

(166

)

Income before income taxes

 

12,246

 

10,460

 

41,851

 

30,587

 

 

10,457

 

13,315

 

Income tax expense

 

4,724

 

4,079

 

16,131

 

11,831

 

 

3,791

 

5,126

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

7,522

 

$

6,381

 

$

25,720

 

$

18,756

 

 

$

6,666

 

$

8,189

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings Per Share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.18

 

$

0.16

 

$

0.63

 

$

0.46

 

 

$

0.16

 

$

0.20

 

Diluted

 

$

0.18

 

$

0.15

 

$

0.62

 

$

0.45

 

 

$

0.16

 

$

0.20

 

Weighted average number of common shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

41,061

 

40,544

 

41,029

 

40,406

 

 

41,129

 

40,980

 

Diluted

 

41,771

 

41,754

 

41,743

 

41,577

 

 

41,740

 

41,742

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

2



 

Tuesday Morning Corporation

Consolidated Statements of Cash Flows

(In thousands)

 

 

Nine Months Ended
September 30,

 

 

Three Months Ended
March 31,

 

 

2004

 

2003

 

 

2005

 

2004

 

 

 

 

 

 

 

 

 

 

 

Net cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

Net income

 

$

25,720

 

$

18,756

 

 

$

6,666

 

$

8,189

 

Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

8,289

 

7,139

 

 

3,459

 

2,670

 

Amortization of financing fees

 

399

 

531

 

 

43

 

101

 

Other non-cash items

 

55

 

(59

)

Other

 

(28

)

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

Inventories

 

(119,376

)

(74,476

)

 

(23,455

)

(52,211

)

Prepaid and other assets

 

(2,986

)

(2,916

)

 

(1,831

)

(406

)

Accounts payable

 

20,053

 

15,589

 

 

3,846

 

17,165

 

Accrued liabilities

 

(1,429

)

6,519

 

 

(7,072

)

(6,227

)

Deferred rent

 

4,084

 

 

Income taxes payable

 

(8,380

)

(14,518

)

 

(12,531

)

(6,820

)

Net cash used in operating activities

 

(77,655

)

(43,435

)

 

(26,819

)

(37,539

)

 

 

 

 

 

Net cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

(18,449

)

(13,051

)

 

(4,047

)

(6,279

)

Net cash used in investing activities

 

(18,449

)

(13,051

)

 

(4,047

)

(6,279

)

 

 

 

 

 

Net cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

Payment of debt and mortgages

 

 

(4,224

)

Proceeds from revolving credit facility, net

 

80,700

 

35,000

 

Payment of financing fees

 

(387

)

 

Proceeds from revolving credit facility

 

 

27,000

 

Proceeds from exercise of common stock options and stock purchase plan purchases

 

838

 

823

 

 

94

 

378

 

Net cash provided by financing activities

 

81,151

 

31,599

 

 

94

 

27,378

 

Net decrease in cash and cash equivalents

 

(14,953

)

(24,887

)

 

(30,772

)

(16,440

)

Cash and cash equivalents, beginning of period

 

23,536

 

31,929

 

 

45,067

 

23,536

 

Cash and cash equivalents, end of period

 

$

8,583

 

$

7,042

 

 

$

14,295

 

$

7,096

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3



 

Tuesday Morning Corporation

Notes to Consolidated Financial StatemenStatementsts

 

1.               Basis of Presentation –presentation - The consolidated interim financial statements included herein have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations.  These financial statements include all adjustments, consisting only of those of a normal recurring nature, which, in the opinion of management, are necessary to present fairly the results of the interim periods presented and should be read in conjunction with the consolidated financial statements and notes thereto in our Form 10-K filing for the year ended December 31, 2003.2004.  Because of the seasonal nature of our business, the results of operations for the quarter are not indicative of the results to be expected for the entire year.

 

22.               Lease accounting adjustment - Based on certain views expressed in a letter of February 7, 2005 from the Office of the Chief Accountant of the Securities and Exchange Commission to the American Institute of Certified Public Accountants, we reviewed our accounting policies and practices associated with operating leases. Consistent with industry practices, we historically reported straight-line rental expense beginning on the lease commencement date. This had the effect of excluding the rent holiday associated with the pre-opening or build-out period of our stores from the calculation of the period over which we expensed rent. Following our review, we modified our accounting policies such that we begin recording rent expense on the date we take possession of or have the right to use the premises.

As a result of this adjustment, we recorded a non-cash, $3.9 million ($2.4 million, net of income tax or $0.06 per diluted share) cumulative charge to earnings during the first quarter of fiscal 2005. The adjustment did not impact historical or future net cash flows nor the timing of the payments under related leases. We believe that the new lease accounting policies will not have a material effect on future diluted earnings per share. Prior years’ financial statements were not restated as the impact of this issue was immaterial to previously reported results for any individual previous period.

3.               Comprehensive income - Comprehensive income is defined as net income plus the change in equity during a period from transactions and other events, excluding those resulting from investments by and distributions to shareholders.stockholders. Total comprehensive income for the three month period ended September 30,March 31, 2005 and 2004 and 2003 was $7.5$6.6 million and $6.3 million, respectively, and for the nine month period ended September 30, 2004 and 2003 was $25.6 million and $18.7$8.1 million, respectively.

 

3.4.               Legal proceedings – During 2001 and 2002, we were named as a defendant in three separate complaints filed in the Superior Court of California in and for the County of Los Angeles. The plaintiffs are seeking to certify a statewide class made up of some of our current and former employees, which they claim are owed compensation for overtime wages, penalties and interest. The plaintiffs are also seeking attorney’s fees and costs. In October 2003, we entered into a settlement agreement with a sub-class of these plaintiffs consisting of manager-in-training and management trainees.  ThisThe settlement agreement was approved by the court on April 2, 2004, but is currently under appeal.appeal by one of the plaintiffs.

 

In December 2003, we were named as a defendant in a complaintnew lawsuit filed in the Superior Court of California, in and for the County of San Diego.  The plaintiffs are alleging failure to pay for minimum reporting time, travel time, split-shift premiums, meal periods and other labor issues.  This lawsuit is still in the discovery phase.

In April 2004, we were named as a defendant in a complaint filed by Liz Claiborne, Inc. and L.C. Licensing, Inc., in the U.S. District Court, Northern District of Texas, Dallas Division regarding the sale of costume jewelry.  We have reached a memorandum of understanding on a settlement agreement with the plaintiffs in September 2004.  There wasbut no material impactformalized settlement agreement has been submitted to our financial statements related to this settlement agreement.the court.

 

In June 2004, we were named as a defendant in a complaint filed in the U.S. District Court, Central District of California. The plaintiff, Thomas Kinkade Company (f/k/a/ Media Arts Group Inc.), is alleging copyright infringement and false advertisements on merchandise we sold in the second quarter of 2004. This lawsuit is in the discovery phase.

 

We intend to vigorously defend all pending actions. We do not believe these or any other legal proceedings pending or threatened against us willwould have a material adverse effect on our financial condition or results of operations.

 

4



 

4.5.               Earnings Per Common Shareper common share

 

 

Three Months Ended
September 30

 

Nine Months Ended
September 30

 

 

Three Months Ended
March 31,

 

 

2004

 

2003

 

2004

 

2003

 

 

2005

 

2004

 

 

 

 

 

 

 

 

 

 

 

(in thousands, except per share
amounts)

 

Basic earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

7,522

 

$

6,381

 

$

25,720

 

$

18,756

 

 

$

6,666

 

$

8,189

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding

 

41,129

 

40,980

 

Net income per common share

 

$

0.18

 

$

0.16

 

$

0.63

 

$

0.46

 

 

$

0.16

 

$

0.20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

Net income

 

$

7,522

 

$

6,381

 

$

25,720

 

$

18,756

 

 

$

6,666

 

$

8,189

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dilutive effect of employee stock options

 

710

 

1,210

 

714

 

1,171

 

 

611

 

762

 

Weighted average number of common shares outstanding

 

41,061

 

40,544

 

41,029

 

40,406

 

 

41,129

 

40,980

 

Weighted average number of common shares and diluted effect of outstanding employee stock options

 

41,771

 

41,754

 

41,743

 

41,577

 

 

41,740

 

41,742

 

 

 

 

 

 

 

 

 

 

Net income per common share

 

$

0.18

 

$

0.15

 

$

0.62

 

$

0.45

 

 

$

0.16

 

$

0.20

 

5.6.               Revolving Credit Facilitycredit facility – Our $160$210 million revolving credit facility expires in March 2006.  On June 30, 2004, we amended our revolving credit facility to increase the borrowing capacity from $135 million to $215 million, which includes a $55 million overadvance facility that is only available to us from June 30, 2004 to March 31, 2005.December 2009.  We incur commitment fees of up to 0.50%0.25% on the unused portion of the revolving credit facility. Any borrowings under the revolverrevolving credit facility incur interest at LIBOR or the prime rate, depending on the type of borrowing, plus an applicable margin. These rates are increased or reduced as our average total leverage ratio changes or overadvance declines.changes.

At September 30, 2004,March 31, 2005, we had $80.7 millionno balances outstanding under the revolving credit facility of which $20 million was considered long-term, with totaland had availability of $126.4 million based on eligible inventory and the $55 million overadvance facility.$202.1 million.

6.7.               Stock-based Compensationcompensation – We account for our stock-based compensation plans utilizing the intrinsic value method in accordance with the provisions of Accounting Principles Board Opinion No. 25 (APB 25).  Generally, no compensation expense is recognized for fixed option plans because the exercise prices of employee stock options equal or exceed the market prices of the underlying stock on the dates of grant.

The following table represents the effect on net income and earnings per share if we had applied the fair value based method and recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” and our adoption on January 1, 2003 of Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation Transition and Disclosure.”  The pro forma effects of stock-based compensation on net income and net income per common share are as follows:

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

(in thousands, except per share data)

 

2004

 

2003

 

2004

 

2003

 

Net income as reported

 

$

7,522

 

$

6,381

 

$

25,720

 

$

18,756

 

Less: Stock-based employee compensation expense determined under the fair value method, net of related tax effects

 

983

 

752

 

2,641

 

1,806

 

Pro-forma net income

 

$

6,539

 

$

5,629

 

$

23,079

 

$

16,950

 

 

 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

 

 

Basic as reported

 

$

0.18

 

$

0.16

 

$

0.63

 

$

0.46

 

Basic pro-forma

 

$

0.16

 

$

0.14

 

$

0.56

 

$

0.42

 

Diluted as reported

 

$

0.18

 

$

0.15

 

$

0.62

 

$

0.45

 

Diluted pro-forma

 

$

0.16

 

$

0.13

 

$

0.56

 

$

0.41

 

 

 

Three Months Ended March 31,

 

 

 

2005

 

2004

 

 

 

(in thousands, except per share
amounts)

 

Net income as reported

 

$

6,666

 

$

8,189

 

Less: Stock-based employee compensation expense determined under the fair value method, net of related tax effects

 

1,000

 

818

 

Pro-forma net income

 

$

5,666

 

$

7,371

 

 

 

 

 

 

 

Net income per common share

 

 

 

 

 

Basic as reported

 

$

0.16

 

$

0.20

 

Basic pro-forma

 

0.14

 

0.18

 

Diluted as reported

 

0.16

 

0.20

 

Diluted pro-forma

 

0.14

 

0.18

 

7.On December 16, 2004, the Financial Accounting Standards Board (“FASB”) issued FASB Statement No. 123 (revised 2004), Share-Based Payment (Statement 123(R)), which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in Statement

5



123(R) is similar to the approach described in Statement 123. However, Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values at the time of grant. Pro forma disclosure is no longer an alternative.

In connection with the Securities Exchange Commission’s amendment of its rules, Statement 123(R) must be adopted no later than January 1, 2006. Early adoption will be permitted in periods in which financial statements have not yet been issued. We expect to adopt Statement 123(R) on January 1, 2006.

Statement 123(R) permits public companies to adopt its requirements using one of two methods: (1) a “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of Statement 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of Statement 123 for all awards granted to employees prior to the effective date of Statement 123(R) that remain unvested on the effective date; (2) a “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under Statement 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption.

The company has not yet determined which transition method it plans to adopt under Statement 123(R).

As permitted by Statement 123, the company currently accounts for share-based payments to employees using Opinion 25’s intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of Statement 123(R)’s fair value method will have a significant impact on our result of operations, although it will have no impact on our overall financial position. The impact of adoption of Statement 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future and on the model chosen to determine fair value for grants after January 1, 2006. However, had we adopted Statement 123(R) in prior periods based on our use of the Black-Scholes option pricing model, the impact of that standard would have approximated the impact of Statement 123 as described above in the disclosure of pro forma net income and earnings per share. While Statement 123(R) permits entities to continue use of the Black-Scholes option pricing model, Statement 123(R) also permits the use of a “binomial model.” We have no yet determined which model we will use to measure the fair value of future employee stock option grants upon the adoption of Statement 123(R).

8.               Reclassifications - Certain prior year amounts may have been reclassified to conform to the current period presentation.

 

56



Item 2.

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

 

Overview

 

       We sell upscale, name brand home furnishings, gifts and related items significantly below retail prices charged by department and specialty stores throughout 641673 stores in 43 states. We have a unique event-based selling strategy.strategy that creates a sense of urgency and excitement for our customer base.

 

       Our store base has grown at approximately 10% per year for the last five years, and during the first nine monthsquarter of 20042005 we expanded our store base by 6818 new stores and had 47 store closures.

 

       Our long-term vendor relationships and diverse sourcing capabilities continue to provide us with access to merchandise at attractive prices. We believe that there will be an adequate selection and volume of closeout merchandise available to match our anticipated future growth.

      We believe our focus on distribution center efficiencies, inventory management strategies and improved store procedures and training have contributed to our sales growth and improved inventory turnover.

Our operating profits, combined with more efficient use of working capital and increased inventory turns over the past 3 years have generated excessincreased cash flow, which has been used to reduce debt. At September 30, 2004March 31, 2005, we had $80.7 million inno debt outstanding as compared to $104.0$27.0 million in debt outstanding at September 30, 2003.March 31, 2004. We anticipate using our revolving credit facility during certain periods of the remainder of 20042005 for inventory purchases and capital expenditures, but we expect to havegenerate excess cash flow atfor the end of 2004.entire fiscal year 2005. We will be evaluating appropriate uses of our excess cash flow in the future, including the use of capital to expand the business and other alternative uses for our cash.

Lease Accounting Adjustment

Based on certain views expressed in a letter of February 7, 2005 from the Office of the Chief Accountant of the Securities and Exchange Commission to the American Institute of Certified Public Accountants, we reviewed our accounting policies and practices associated with operating leases. Consistent with industry practices, we historically reported straight-line rental expense beginning on the lease commencement date. This had the effect of excluding the rent holiday associated with the pre-opening or build-out period of our stores from the calculation of the period over which we expensed rent. Following our review, we modified our accounting policies such that we begin recording rent expense on the date we take possession of or have the right to use the premises.

As a result of this adjustment, we recorded a non-cash, $3.9 million ($2.4 million, net of income tax or $0.06 per diluted share) cumulative charge to earnings during the first quarter of 2005. The adjustment did not impact historical or future net cash flows nor the timing of the payments under related leases. We believe that the new lease accounting policies will not have a material effect on future diluted earnings per share. Prior years’ financial statements were not restated as the impact of this issue was immaterial to previously reported results for any individual previous periods.

 

Results of Operations

 

The following table sets forth certain financial information from our consolidated statements of income expressed as a percentage of net sales.  Our business is highly seasonal, with a significant portion of our net sales and most of our operating income generated in the fourth quarter, which includes the holiday season. There can be no assurance that the trends in sales growth or operating results will continue in the future.

 

 

Three Months Ended
September
 30

 

Nine Months Ended
September 30

 

 

Three Months Ended
March 31,

 

 

2004

 

2003

 

2004

 

2003

 

 

2005

 

2004

 

Net sales

 

100.0

%

100.0

%

100.0

%

100.0

%

 

100.0

%

100.0

%

Cost of sales

 

63.1

 

63.7

 

62.7

 

63.6

 

 

60.9

 

60.8

 

Gross profit

 

36.9

 

36.3

 

37.3

 

36.4

 

 

39.1

 

39.2

 

Selling, general and administrative expense

 

30.0

 

29.0

 

29.7

 

29.0

 

 

33.5

 

31.2

 

Operating income

 

6.9

 

7.3

 

7.6

 

7.4

 

 

5.6

 

8.0

 

Net interest expense and other income (expense)

 

(0.3

)

(1.3

)

(0.2

)

(1.3

)

 

0.0

 

(0.1

)

Income before income taxes

 

6.6

 

6.0

 

7.4

 

6.1

 

 

5.6

 

7.9

 

Income tax expense

 

2.6

 

2.3

 

2.8

 

2.4

 

 

2.0

 

3.0

 

Net income

 

4.0

%

3.7

%

4.6

%

3.7

%

 

3.6

%

4.9

%

 

67



 

Three Months Ended September 30, 2004March 31, 2005

Compared to the Three Months Ended September 30, 2003March 31, 2004

 

During the thirdfirst quarter of 2004,2005, net sales increased to $186.1$185.6 million from $173.9$168.6 million, an increase of $12.2$17.0 million or 7.0%10.1% compared to the same quarter of 2003.2004. The increase in thirdfirst quarter sales is primarily due to sales from non-comparable new stores, offset by a 4.0%0.3% decrease in comparable store sales.  The impact of severe storms, which affected stores representing  33% of our total sales base, and lower than expected sales in seasonal products were the primary causes of the comparable store sales decrease for the quarter.

In the first quarter of 2004, we refined our methodology for calculating our comparable store sales, in light of changes to the timing of store openings during a quarter.  Stores are now included in the same store calculation at the beginning of the quarter following the anniversary date of the store opening.  Previously, stores were included in the same store calculation at the beginning of the quarter that contained the anniversary date of the store opening, since the majority of our store openings used to be only at the beginning of the respective quarter.  Using our refined methodology, the comparable sales increase for the third quarter of 2003 would have been 3.0% compared to the 2.8% previously reported.  Stores that relocated within the same geographic market are still considered same store for purposes of this computation.  The number of days our stores are open may fluctuate from period to period.

Comparable store sales decreased 4.0% for the quarter. The decrease in comparable sales for the secondfirst quarter of 20042005 was comprised of a 1.2%0.3% decrease in the number of transactions andoffset by a 2.8% decrease in theflat average transaction amount.  Average store sales for the thirdfirst quarter decreased 7.1%3.1% when compared to the same prior year quarter.  The decrease in average store sales was primarily due to the aforementioned impact of severe storms, lower than expected sales of seasonal products and an increasing percentage of new stores in the store base.

 

Gross profit increased $5.4$6.6 million, or 8.6%10.0%, to $68.6$72.6 million for the three months ending September 30, 2004March 31, 2005 as compared to last year’s thirdfirst quarter of $63.2$66.0 million, primarily as a result of our increased net sales.  Our gross profit percentage as a percentage of net sales, increased 0.6%decreased to 36.9%39.1% from 36.3%39.2% in the prior year’s thirdfirst quarter.  This 0.1% decrease is comprised of a 0.6% increase isdecrease in gross margin due to a 0.3% improvementshift in leveragingproduct mix and a lower initial mark up in the first quarter of 2005 as compared to the first quarter of 2004, offset by a 0.4% reduction in our distribution and freight expenses and a 0.3% reduction0.1% decrease in shrinkdamages and damaged merchandise.shrink.

 

Selling, general and administrative expenses are comprised of store labor, store occupancy costs, advertising, miscellaneous store operating expenses and corporate office costs. Increases in dollar amounts of these expenses are attributable to increases in the number of stores and increases in variable expenses due to sales growth. Variable expenses include payroll and related benefits, advertising expense and other expenses such as credit card fees.

 

Selling, general and administrative expenses increased $5.2$9.6 million, or 10.3%18.3%, to $55.7$62.1 million from $50.5$52.5 million in the thirdfirst quarter of 2003.2004.  The increase was attributable to the opening of new stores, to the $3.9 million lease accounting adjustment and to increases in variable expenses.  As a percentage of net sales these expenses increased 1.0%2.3% to 30.0%33.5% in thirdthe first quarter of 20042005 from 29.0%31.2% in the thirdfirst quarter of 2003.2004.  The increased percentage is primarily due to the 2.1% increase in rent expense due to the lease accounting adjustment and includes a 0.6% increase in store repair, remodeling and pre-opening expenses, a 1.0%0.8% increase related to rent, occupancy and depreciation expense associated with the increase in our store base, and a 0.5% increase in wages and benefits expense due to less sales leveraging, all offset by a 1.1%0.7% decrease in advertising.advertising expense.

 

Net interest and other expenseincome (expense) decreased $1.6$0.2 million compared to the thirdfirst quarter of 2003.2004.   This reduction is a result of lower debt levels with the repayment of the $69 million senior subordinated debtlimited borrowings under our revolving credit line in the fourthfirst quarter of 2003.2005 as compared to the first quarter 2004.

 

The income tax provision for the three month periods ended September 30,March 31, 2005 and 2004 and 2003 was $4.7$3.8 million and $4.1$5.1 million, respectively, reflecting an effective tax rate of 38.6%36.3% and 39.0%38.5%, respectively.

Nine Months Ended September 30, 2004

Compared to the Nine Months Ended September 30, 2003

During  The effective tax rate is lower in the first nine monthsquarter of 2004, net sales increased to $565.4 million from $501.7 million, an increase of $63.8 million or 12.7% compared to the same period of 2003. The increase in sales for the first nine months is primarily due to sales from non-comparable new stores and a 1.5% increase in comparable store sales.  Year to date comparable store sales for the period ended September 30, 2004 decreased due to the impact of severe storms, which affected stores representing 33% of our total sales base, and lower than expected sales in seasonal products in the third quarter.

Nine month comparable store sales are the summation of the individual quarterly results within the year. The 1.5% increase in comparable sales for the first nine months of the year was comprised primarily of a 0.1% increase in the number of transactions and a 1.4% increase in the average transaction amount.  Using our refined methodology, the comparable sales increase for the nine month period of 2003 would have been 3.2% compared to the 2.8% previously reported.  Average store sales for the nine months decreased 0.9% compared to the same prior year period.  The decrease in average store sales was primarily due to the aforementioned impact of severe storms, lower than expected sales of seasonal products and an increasing percentage of new stores in the store base.

Gross profit increased $28.6 million or 15.7% to $211.0 million for the nine months ending September 30, 20042005 as compared to the nine month period last yearfirst quarter of $182.4 million, primarily as a result of our increased net sales.  Our gross profit percentage, as a percentage of net sales, increased 0.9% to 37.3% from 36.4% in the prior year’s nine month period.  This 0.9% increase is primarily2004 due to a 0.6%

7



improvement in our leveraginglower estimated annual effective tax for 2005 and an adjustment of our distribution and freight expenses and 0.3% reduction in shrink and damaged merchandise and markdowns.

Selling, general and administrative expenses increased $22.7 million, or 15.6%, to $168.1 million from $145.4 million in the first nine months of 2003.  The increase was attributable to new stores, and increases in variable expenses.  As a percentage of net sales these expenses increased 0.7% to 29.7% in the first nine months of 2004 from 29.0% in the first nine months of 2003.  The increased percentage includes a 0.7% increasetax reserves related to rent, occupancy and depreciation expense associateda favorable settlement with the increase in our store base, and a 0.4% increase related to general and administrative expenses and store repair expense, all offset by a 0.4% decrease in advertising expense.

Net interest and other expense decreased $5.3 million compared to the first nine months of 2003.  This reduction is a result of lower debt levels with the repayment of the $69 million senior subordinated debt in the fourth quarter of 2003.

The income tax provision for the nine month periods ended September 30, 2004 and 2003 was $16.1 million and $11.8 million, respectively, reflecting an effective tax rate of 38.5% and 38.7%, respectively.taxing authority.

 

Liquidity and Capital Resources

We have financed our operations with funds generated from operating activities and borrowings under our revolving credit facility. Our cash flow strategy during the last three years has been focused on funding our store growth and distribution improvements and reducing our debt and financing costs associated with our recapitalization in 1997. Our cash flows will continue to be utilized for the expansion of our business, but we are exploring the alternative uses of excess cash for the future. Other than the letters of credit described below, weWe have no off-balance sheet arrangements or transactions with unconsolidated, limited purpose or variable interest entities, nor do we have material transactions or commitments involving related persons or entities.

 

Net cash used in operating activities for the ninethree months ended September 30,March 31, 2005 and 2004 and 2003 was $77.7$26.8 million and $43.4$37.5 million, respectively, representing a $34.3$10.7 million increase.decrease. This increasedecrease is predominantly due to the growth of our store base and the increaseddecrease in inventory purchases of inventory in the first nine monthsquarter of 20042005 as compared to the first nine monthsquarter of 2003.  2004, offset by the increase in estimated income tax payments and in advertising prepayments.

At September 30, 2004,March 31, 2005, our inventory increased $119.3$23.5 million to $262.3$212.6 million from $143.0$189.1 million at December 31, 20032004 primarily due to the normal seasonal build-up of inventory for the holiday season, the increase in the number of stores and to a lesser extent lower than anticipated sales in the third quarternormal seasonal build-up of 2004 compared to planned performance.inventory.  Accounts payable balances have increased $20.0 million to $86.1$76.6 million as of September 30, 2004March 31, 2005 from $66.1$72.7 million at December 31, 2003.2004.

 

Capital expenditures principally associated with new store opening and warehouse equipment were $18.4$4.0 million and $13.1$6.3 million for the ninethree months ending September 30,March 31, 2005 and 2004, and 2003, respectively.  We expect to spend approximately $2.0$14.0 million for additional capital expenditures for the remainder of 2004,2005, which will include the opening of new

8



stores, enhancements of selected stores, and purchases of equipment for our distribution center.center and corporate office.

 

We have a $160$210 million revolving credit facility that expires in March 2006.  On June 30, 2004 we amended ourDecember 2009.  Any borrowing under the revolving credit facility to increasewill incur interest at LIBOR or the prime rate, depending on the term of the borrowing, capacity from $135 millionplus an applicable margin. We incur commitment fees of up to $215 million, which includes a $55 million overadvance facility that0.25% on the unused portion of the revolving credit facility. This rate is only available to us from June 30, 2004 to March 31, 2005.reduced or increased as our average total leverage ratio changes. Our indebtedness under the credit facility is secured by a lien on our inventory tangible personal property and our owned real property,cash accounts, as well as a pledge of our ownership interests in all of our subsidiaries.  For 15 consecutive days between November 1 and December

At March 31, of each calendar year, the aggregate principal amount of loans2005, we had no debt outstanding under the revolving credit facility and any swing loans may not exceed $20 million.  Any borrowings under the revolver incur interest at LIBOR or the prime rate, depending on the type of borrowing, plus an applicable margin. We incur commitment fees of up to 0.50% on the unused portion of the $160 revolving credit facility. These rates are increased or reduced as our leverage ratio changes or overadvance declines.

At September 30, 2004, we had $80.7 million outstanding under our revolving credit facility, of which $20 million was considered long-term, with total availability of $126.4 million based on eligible inventory and the $55 million overadvance facility.$202.1 million.  As of September 30,March 31, 2005 and 2004, and 2003, we had outstanding letters of credit of $7.9 million and $6.3$6.2 million, respectively, primarily for self-insurance.

 

The revolving credit facility contains certain restrictive covenants, which among other things, require us to comply with certain financial ratios covering maximum leverage, minimum fixed charge coverage and minimum interest coverage and minimum tangible net worth.coverage. Other restrictions affect our ability to incur liens or make certain other restricted payments, sell assets or merge or consolidate with any other person. As of September 30, 2004,March 31, 2005, we were in compliance with all covenants contained in our revolving credit facility.covenants.

8



 

We anticipate that our future net cash flows from operations and unused borrowings under our revolving credit facility will be sufficient to fund our working capital needs and planned capital expenditures and scheduled interest payments for the next 12 months.

Store Openings/Closings

 

 

Nine Months
Ended
September 30
2004

 

Nine Months
Ended
September 30
2003

 

Twelve Months
Ended
December 31,
2003

 

 

 

 

 

 

 

 

 

Stores Open at beginning of period

 

577

 

515

 

515

 

Stores Opened

 

68

 

53

 

74

 

Stores Closed

 

(4

)

(12

)

(12

)

Stores Open at end of period

 

641

 

556

 

577

 

 

 

Three Months Ended
March 31
2005

 

Three Months
Ended
March 31
2004

 

Twelve Months
Ended
December 31,
2004

 

 

 

 

 

 

 

 

 

Stores Open at beginning of period

 

662

 

577

 

577

 

Stores Opened

 

18

 

18

 

89

 

Stores Closed

 

(7

)

(1

)

(4

)

Stores Open at end of period

 

673

 

594

 

662

 

Item 3.3.            Quantitative and Qualitative Disclosures about Market Risk

We are exposed to various market risks, including changes in foreign currency exchange rates and interest rates.  Market risk is the potential loss arising from adverse changes in market prices and rates, such as foreign currency exchange and interest rates.  Based on our market risk sensitive instruments outstanding as of September 30, 2004,March 31, 2005, we have determined that there was no material market risk exposure to our consolidated financial position, results of operations or cash flows as of such date.  Our market risk is discussed in more detail in our Annual Report on Form 10-K for the year ended December 31, 2003.2004.  We do not enter into derivatives or other financial instruments for trading or speculative purposes.  There have been no significant changes in the foreign currency exchange rate or interest rate market risks since December 31, 2003.2004.

Item 4.4. Controls and Procedures

Disclosure Controls and Procedures

Based on our management’s evaluation (with participation of our principal executive officer and our principal financial officer), our principal executive officer and our principal financial officer have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) andor Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective as of September 30, 2004March 31, 2005 to ensure that material information required to be disclosed by us in this Quarterly Report on Form 10-Q was recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission’s rules and forms.

In conjunction with our preparation toward compliance with Section 404 of the Sarbanes-Oxley Act of 2002, we are formalizing and enhancing our financial control processes and general computer controls.  These matters have been discussed with our independent accountants, our audit committee and our Board of Directors.

There were no changes in our internal control over financial reporting that occurred during the quarter ending September 30, 2004 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met and, as set forth above, our chief executive officer and chief financial officer have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures were sufficiently effective to provide reasonable assurance that the objectives of our disclosure

9



control system were met.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2005 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.1.  Legal Proceedings

During 2001 and 2002, we were named as a defendant in three separate complaints filed in the Superior Court of California in and for the County of Los Angeles. The plaintiffs are seeking to certify a statewide class made up of some of our current and former employees, which they claim are owed compensation for overtime wages, penalties and interest. The plaintiffs are also seeking attorney’s fees and costs. In October 2003, we entered into a settlement agreement with a sub-class of these plaintiffs consisting of manager-in-training and management trainees.  ThisThe settlement agreement was approved by the court on April 2, 2004, but is currently under appeal.appeal by one of the plaintiffs.

In December 2003, we were named as a defendant in a complaintnew lawsuit filed in the Superior Court of California, in and for the

9



County of San Diego.  The plaintiffs are alleging failure to pay for minimum reporting time, travel time, split-shift premiums, meal periods and other labor issues.  This lawsuit is still in the discovery phase.

In April 2004, we were named as a defendant in a complaint filed by Liz Claiborne, Inc. and L.C. Licensing, Inc., in the U.S. District Court Northern District of Texas, Dallas Division regarding the sale of costume jewelry.  We have reached a memorandum of understanding on a settlement agreement with the plaintiffs in September 2004.  There wasbut no material impactformalized settlement agreement has been submitted to our financial statements related to this settlement.the court.

 

In June 2004, we were named as a defendant in a complaint filed in the U.S. District Court, Central District of California. The plaintiff, Thomas Kinkade Company (f/k/a/ Media Arts Group Inc.), is alleging copyright infringement and false advertisements on merchandise we sold in the second quarter of 2004. This lawsuit is in the discovery phase.

 

We intend to vigorously defend all pending actions. We do not believe these or any other legal proceedings pending or threatened against us willwould have a material adverse effect on our financial condition or results of operations.

 

Item 5. Other Information

There have been no material changes to the procedures by which security holders may recommend nominees to our Board of Directors since April 21, 2003.

10



 

Item 66.   Exhibits.   Exhibits

(a)                                  Exhibits

 

Exhibit
Number

 

Title of Exhibit

3.1

 

Certificate of Incorporation of Tuesday Morning Corporation (the “Company”) (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-4 (File No. 333-46017) as filed with the Securities and Exchange Commission (the “Commission”) on February 10, 1998). (1)

3.23.1.2

 

Certificate of Amendment to the Certificate of Incorporation of the Company. (2)Company dated March 25, 1999 (incorporated by reference to Exhibit 3.3 to the Company’s Registration Statement on Form S-1/A (File No. 333-74365) as filed with the Commission on March 29, 1999) .

3.33.1.3

 

Certificate of DesignationAmendment to the Certificate of Incorporation of the Company. (1)Company dated May 7, 1999.

3.43.2

 

Amended and Restated By-laws of the Company. (1)(incorporated by reference to Exhibit 3.7 to the Company’s Registration Statement on Form S-4 (File No. 333-46017) as filed with the Commission on February 10, 1998).

31.1

 

Certification by the Chief Executive Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (3)

31.2

 

Certification by the Chief Financial Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (3)

32.1

 

Certifications byof the Chief Executive Officer andof the Company pursuant to 18 U.S.C §1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

32.2

Certifications of the Chief Financial Officer of the Company pursuant to 18 U.S.C §1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (3)*

 


(1)         Incorporated by reference to the corresponding exhibits of the Company’s Registration Statement on Form S-4 (File No. 333-46017).

(2)         Incorporated by reference to the corresponding exhibits of the Company’s Registration Statement on Form S-1 (File No. 333-74365).

(3)       Provided herewith.

*                 The certifications attached hereto as Exhibit 32.1 accompanies theand Exhibit 32.2 are furnished with this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

 

11



 

SIGNATURE

 

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.

 

 

TUESDAY MORNING CORPORATION

 

 

(Registrant)

 

 

 

 

 

DATE:

November 3, 2004

May 2, 2005

By:

/s/ Loren K. Jensen

 

 

 

Loren K. Jensen, Executive Vice President,
Chief Financial Officer and Secretary
(Principal Financial Officer and duly
authorized to sign this report on behalf of the
registrant)

 

12



EXHIBIT INDEX

Exhibit No.

Description

3.1

Certificate of Incorporation of Tuesday Morning Corporation (the “Company”) (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-4 (File No. 333-46017) as filed with the Securities and Exchange Commission (the “Commission”) on February 10, 1998)

3.1.2

Certificate of Amendment to the Certificate of Incorporation of the Company dated March 25, 1999 (incorporated by reference to Exhibit 3.3 to the Company’s Registration Statement on Form S-1/A (File No. 333-74365) as filed with the Commission on March 29, 1999)

3.1.3

Certificate of Amendment to the Certificate of Incorporation of the Company dated May 7, 1999

3.2

Amended and Restated By-laws of the Company (incorporated by reference to Exhibit 3.7 to the Company’s Registration Statement on Form S-4 (File No. 333-46017) as filed with the Commission on February 10, 1998)

31.1

Certification by the Chief Executive Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification by the Chief Financial Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

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

32.2

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


*                 The certifications attached hereto as Exhibit 32.1 and Exhibit 32.2 are furnished with this Quarterly Report on Form 10-Q and shall not be deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

13