FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended March 31, 2000 Commission File Number 333-46013
TUESDAY MORNING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 75-2398532
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14621 INWOOD RD., ADDISON, TEXAS 75001
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (972) 387-3562
NONE
(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.
Yes ___X___ No _______
Common stock outstanding as of April 30, 2000: 39,093,133 shares
PART 1 - FINANCIAL INFORMATION
Page No.
Item 1 - Financial Statements _______
Consolidated Balance Sheets as of March 31, 2000,
March 31, 1999 and December 31, 1999 1
Consolidated Statements of Operations for the
Three Months Ended March 31, 2000 and 1999 2
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2000 and 1999 3
Notes to Consolidated Financial Statements 4
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
Item 3 - Quantitative and Qualitative Disclosures about
Market Risk 9
Tuesday Morning Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands, except for share data)
Unaudited Unaudited Audited
March 31, March 31, Dec 31,
ASSETS 2000 1999 1999
--------- --------- ---------
Current assets:
Cash and cash equivalents..................................................... $ 2,099 $ 1,206 $ 19,795
Inventories................................................................... 204,185 145,568 141,534
Prepaid expenses.............................................................. 2,681 1,976 1,913
Other current assets.......................................................... 1,293 484 1,243
Deferred income taxes......................................................... - 354 -
--------- --------- ---------
Total current assets.................................................... 210,258 149,588 164,485
--------- --------- ---------
Property and equipment, at cost.................................................... 74,584 59,958 71,924
Less accumulated depreciation & amortization.................................. (39,983) (35,371) (38,838)
--------- --------- ---------
Net property and equipment.............................................. 34,601 24,587 33,086
--------- --------- ---------
Other assets, at cost:
Due from officers............................................................. - 3,403 -
Deferred financing costs...................................................... 5,495 8,087 5,818
Other assets.................................................................. 357 291 327
--------- --------- ---------
Total Assets............................................................ $250,711 $185,956 $203,716
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Installments of mortgages..................................................... $ 1,671 $ 1,021 $ 1,671
Revolving credit facility..................................................... 35,250 11,740 -
Installments of notes payable................................................. 13,662 4,310 11,838
Installments of capital lease obligation...................................... - 101 -
Accounts payable.............................................................. 46,274 39,105 39,491
Accrued liabilities........................................................... 10,531 8,674 12,266
Deferred income taxes......................................................... 546 - 547
Income taxes payable.......................................................... 1,101 1,064 9,168
--------- --------- ---------
Total current liabilities.............................................. 109,035 $ 66,015 $ 74,981
--------- --------- ---------
Mortgages on land, buildings and equipment......................................... 6,638 2,297 7,056
Notes payable, excluding current installments...................................... 151,247 195,910 155,227
Revolving credit facility excluding current portion................................ 15,000 15,000 -
Deferred income taxes.............................................................. 2,400 2,211 2,400
Dividends payable on Jr Preferred................................................. - 9,342 -
--------- --------- ---------
Total Liabilities....................................................... 284,320 290,775 239,664
--------- --------- ---------
Senior exchangeable redeemable preferred stock,
par value $ 01 per share, authorized 1,000,000 shares,
293,294 issued at March 31, 1999.............................................. - 29,182 -
Junior redeemable preferred stock, par value $ 01 per share, authorized
150,000 shares, 85,998 issued at March 31, 1999............................... - 85,998 -
Shareholders' equity
Junior perpetual preferred stock, authorized 2,500 shares, 1,930 issued at
March 31, 1999; par value $ 01 per share...................................... - 1,930 -
Common stock par value $ 01 per share, authorized 100,000,000 shares;
issued 39,080,735 shares at March 31, 2000, 26,802,251 shares at
March 31, 1999 and 38,847,326 shares at December 31,1999...................... 391 268 388
Additional paid-in capital.................................................... 171,816 5,469 171,789
Retained deficit.............................................................. (205,816) (227,666) (208,125)
--------- --------- ---------
Total Shareholders' Equity.............................................. (33,609) (219,999) (35,948)
--------- --------- ---------
Total Liabilities and Shareholders' Equity......................................... $250,711 $185,956 $203,716
========= ========= =========
-1-
Tuesday Morning Corporation and Subsidiaries
Consolidated Statements of Operations
Unaudited In thousands
Three Months Ended March 31,
----------------------------
2000 1999
-------- --------
Net sales............................................................................. $ 90,491 $ 71,761
Cost of sales......................................................................... 55,162 43,387
-------- --------
Gross profit...................................................................... 35,329 28,374
Selling, general and administrative expenses.......................................... 26,880 22,514
-------- --------
Operating income.................................................................. 8,449 5,860
Other income (expense):
Interest income..................................................................... 30 87
Interest expense.................................................................... (4,808) (5,495)
Other income........................................................................ 53 218
-------- --------
(4,725) (5,190)
-------- --------
Income before income taxes........................................................ 3,724 670
Income tax expense.................................................................... 1,415 235
-------- --------
Net income........................................................................ $ 2,309 $ 435
======== ========
Less: Dividends on and accretion of preferred stocks.................................. - (2,858)
-------- --------
Net income (loss) available to common shareholders................................... $ 2,309 $ (2,423)
======== ========
Earnings Per Share
Net income (loss) per common share:
Basic............................................................................... $ 0.06 $ (0.09)
======== ========
Diluted............................................................................. $ 0.06 $ (0.09)
======== ========
Weighted average number of common shares
and common share equivalents outstanding:
Basic............................................................................... 39,028 26,799
Diluted............................................................................. 40,618 26,799
-2-
Tuesday Morning Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Unaudited In Thousands
Three Months Ended March 31,
-----------------------------------------
2000 1999
---------- ----------
Net cash flows from operating activities:
Net income $ 2,309 $ 435
Depreciation and amortization 1,154 1,517
Amortization of financing fees 323 365
(Gain) Loss on disposal of fixed assets (2) 5
Change in operating assets and liabilities:
Inventories (62,651) (48,826)
Prepaid expenses (768) (863)
Other current assets (50) (18)
Other assets (30) 180
Accounts payable 6,783 16,024
Accrued liabilities and deferred taxes (1,736) (3,272)
Income taxes payable (8,067) (7,780)
---------- ----------
Total adjustments (65,044) (42,668)
---------- ----------
Net cash used in operating activities (62,735) (42,233)
---------- ----------
Net cash flows from investing activities:
Loans to officers -- (57)
Proceeds from sale of assets -- 23
Capital expenditures (2,667) (2,039)
---------- ----------
Net cash used in investing activities (2,667) (2,073)
---------- ----------
Net cash flows from financing activities:
Proceeds from revolving credit facility 50,250 26,740
Payment of debt and mortgages (2,574) (1,498)
Principal payments under capital lease obligation -- (60)
Proceeds from exercise of common
stock options/stock purchase plan 30 48
---------- ----------
Net cash provided by financing activities 47,706 25,230
---------- ----------
Net change in cash and cash equivalents (17,696) (19,076)
Cash and cash equivalents at beginning of period 19,795 20,282
---------- ----------
Cash and cash equivalents at end of period $ 2,099 $ 1,206
========== ==========
Supplemental cash flow information:
Our Senior Credit Facility and the Senior Subordinated Notes both limit the
Company's ability to pay cash dividends, accordingly dividends have not been
paid in cash. This statement does not reflect the accrual for 1999 of $1,907 for
dividends on the Junior Preferred Stocks or the accrual of $951 of additional
Senior Preferred Stock in 1999 as a dividend to the holders of the Senior
Preferred Stock.
-3-
Tuesday Morning Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1. The consolidated interim financial statements included herein have been
prepared by the Company 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 generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. These unaudited 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 Company for the interim periods presented and should be
read in conjunction with the consolidated financial statements and notes
thereto in the Company's Form 10-K filing for the year ended December 31,
1999.
2. The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
3. Notes payable under the terms of the Company's revolving line of credit
agreement are classified between current and long term in accordance with
the terms of the agreement. This agreement is discussed in more detail in
Liquidity and Capital Resources on page 6.
4. Certain prior year amounts have been reclassed to conform to the current
period presentation.
5. On March 12, 1999, the Company filed a Form S-1 registration statement with
the Securities and Exchange Commission for the sale of shares of common
stock, which occurred on April 22, 1999. The Company used the net proceeds
of $76.0 million as follows:
(Amounts in 000's)
Net proceeds from IPO $ 75,953
Redemption of Junior Preferred Stock ( 7,382)
Redemption of Senior Preferred Stock ( 33,858)
Partial paydown of Senior Subordinated Note ( 34,410)
Includes prepayment premium of $3.4 million
Interest Income 179
----------
Increase in working capital $ 482
==========
-4-
Tuesday Morning Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The following table sets forth certain financial information from the Company's
consolidated statements of operations expressed as a percentage of net sales.
There can be no assurance that the trends in sales growth or operating results
will continue in the future.
Quarter Ended March 31
----------------------
2000 1999
----- -----
Net sales 100.0% 100.0%
Cost of sales 61.0 60.5
----- -----
Gross profit 39.0 39.5
Selling, general and administrative expense 29.7 31.4
----- -----
Operating income 9.3 8.1
Net interest expense and other income <5.2> <7.2>
----- -----
Income before income taxes 4.1 0.9
Income Taxes 1.6 0.3
Net income 2.5% 0.6%
Three Months Ended March 31, 2000
Compared to the Three Months Ended March 31, 1999
During the first quarter of 2000 sales increased 26.1% compared to an increase
of 22.0% in the first quarter of 1999. Same store sales increased 15.1% for the
quarter. The increase in first quarter sales is due to comparable store sales
increases of $10.1 million and $8.0 million of new store sales. Average store
sales for the first sales events increased from $203 thousand to $232 thousand.
The increase in comparable sales was comprised of an 8.5% increase in the number
of transactions and a 5.2% increase in the average transaction amount. The
primary factors in our strong comparable store sales growth include our buying
organization's experience in providing value to customers. Our unique niche as
the nation's only high-end closeout retailer of home furnishings and gifts and
the strong economy also contributed to the strong sales. In addition, we
featured a larger percentage of higher quality, higher price merchandise.
Gross profit increased $6.9 million from $28.4 million to $35.3 million
primarily as a result of the increased sales mentioned above. Our gross profit
percentage decreased 0.5% compared with last year. Our initial markup on
products purchased improved by 0.6%, however, this was offset by increased
buying and distribution expenses of 1.0%.
Selling, general, and administrative expenses increased $4.4 million due
primarily to the addition of new stores, variable store level expenses, and
inflationary increases. These expenses, as a percentage of sales, decreased to
29.7% from 31.4% due to the leverage resulting from comparable store sales
increases.
Interest expense decreased due to an early paydown of Term A and B notes in
October 1998 and an early paydown of a portion of the senior subordinated debt
which is more fully explained in the Initial Public Offering discussion.
-5-
The income tax provision for the three-month periods ended March 31, 2000 and
1999 was $1.4 million and $0.2 million, respectively, reflecting an effective
tax rate of 38% and 35%, respectively. This increase is a result of higher
income tax rates relating to the reversal of a non-deductible expense from a
prior period.
EBITDA increased from $7.7 million to $9.7 million due to the factors mentioned
above.
Liquidity and Capital Resources
We have historically financed our operations with funds generated from operating
activities and borrowings under the revolving credit facilities.
Net cash used in operating activities for the three months ended March 2000 and
1999 was $62.7 million and $42.2 million, respectively. These amounts were due
primarily to the seasonal buildup of inventory. Cash and cash equivalents as of
March 31, 2000 and 1999 were $2.1 million and $1.2 million, respectively.
Capital expenditures principally associated with new store openings and
warehouse equipment were $2.7 million and $2.0 million for the three months
ending March 2000 and 1999, respectively. We expect to spend approximately $3.4
million for capital expenditures for the remainder of 2000.
As part of the recapitalization, discussed in detail in the December 31, 1999
financial statements, the Company entered into the Senior Credit Facility, which
is comprised of the $110.0 million Term Loans and the $90.0 million Revolving
Credit Facility. Subject to compliance with the terms of the Senior Credit
Facility and the Indenture, borrowings under the Revolving Credit Facility may
be increased by $25.0 million to accommodate future growth and for certain other
purposes. At March 31 2000, the Company had $95.9 million outstanding under the
Term Loans and $50.3 million outstanding under the Revolving Credit Facility,
with $38.2 million of remaining availability thereunder. The Term Loan A loans
and the Revolving Credit Facility loans mature in five years, and the Term Loan
B loans mature in seven years. For 30 consecutive days during each twelve-month
period, beginning April 1999, the aggregate principal amount of loans
outstanding under the Revolving Credit Facility is not to exceed $15.0 million.
The Senior Subordinated Notes bear interest at 11.0% and are due on December 15,
2007. These notes are subordinated to any amounts outstanding under the Senior
Credit Facility. Interest is payable on June 15 and December 15 of each year.
Upon consummation of the recapitalization, our total debt and interest charges
increased significantly. Interest payments on the Notes, under the Senior
Credit Facility and on the Exchange Debentures, represent significant liquidity
requirements. The Notes require semi-annual interest payments, and interest on
the loans under the Senior Credit Facility is due quarterly. We anticipate that
cash flow generated from operations and borrowings under the Senior Credit
Facility will be sufficient to fund our working capital needs, planned capital
expenditures, and scheduled interest payments (including interest payments on
the Notes and amounts outstanding under the Senior Credit Facility).
-6-
The instruments governing the Company's indebtedness, the Senior Credit Facility
and the Indenture contain financial and other covenants that restrict, among
other things, the ability of the Company and its subsidiaries to incur
additional indebtedness, incur liens, pay dividends or make certain other
restricted payments, consummate certain asset sales, enter into certain
transactions with affiliates, merge or consolidate with any other person or
sell, assign, transfer, lease, convey or otherwise dispose of substantially all
of the assets of the Company. Such limitations, together with our highly
leveraged nature could limit corporate and operating activities, including our
ability to invest in opening new stores.
Inventory
The Company's inventory increased from $141.5 million at year-end to $204.2
million at March 31, 2000, for an increase of $62.7 million from December 31,
1999.
As reflected on the chart below, the increase in warehouse inventory is due to
the seasonal nature of our business in which inventory levels increase from the
beginning of the year to March 31. In addition, our second sales event for 2000
is scheduled to begin nine days earlier than it did in 1999 and our third
quarter sales event is scheduled to begin two days earlier. In order to support
both the double-digit comparable sales we have experienced and our expanded
level of growth, we have purchased higher levels of inventory. These
inventories are arriving earlier than in the past in order to allow adequate
time for processing.
Total Inventory Levels by Location
($ millions)
3/31/00 3/31/99 3/31/98 12/31/99
------- ------- ------- --------
Stores $ 72.5 $ 57.2 $ 61.7 $ 72.8
Warehouse 131.7 88.2 72.4 68.7
------- ------- ------- --------
Total $ 204.2 $ 145.5 $ 134.1 $ 141.5
======= ======= ======= ========
Per Store Inventory Levels by Location
($ thousands)
3/31/00 3/31/99 3/31/98 12/31/99
------- ------- ------- --------
Stores $ 186 $ 162 $ 191 $ 191
Warehouse 338 249 224 180
------- ------- ------- --------
Total $ 524 $ 411 $ 415 $ 371
======= ======= ======= ========
Store Count 390 354 323 382
Store Openings/Closings
Three Months Three Months Three Months
Ending Ending Ending
March 31, 2000 March 31, 1999 March 31, 1998
-------------- -------------- --------------
Stores Open at
Beginning of Period 382 347 315
Stores Opened 12 12 11
Stores Closed (4) (5) (3)
--- --- ---
Stores Open at End
of Period 390 354 323
=== === ===
-7-
Calculation of Income per Common Share
Three Months Ended
March 31,
2000 1999
------------ ------------
Basic income per share:
Net income $ 2,309 $ 435
Less:
Junior preferred dividends - (1,907)
Senior preferred dividends - (944)
Senior preferred accretion - (7)
------------ ------------
Net income (loss) available to common shareholders $ 2,309 $ (2,423)
============ ============
Net income (loss) per to common share $ 0.06 $ (0.09)
============ ============
Diluted income per share:
Net income (loss) available to common shareholders $ 2,309 $ (2,423)
============ ============
Effect of dilutive securities:
Weighted average common equivalent shares from
Stock options 1,590 - (1)
Weighted average common shares outstanding 39,028 26,799
------------ ------------
Weighted average common shares and common
Stock equivalents outstanding 40,618 26,799
============ ============
Net income (loss) per common share $ 0.06 $ (0.09)
============ ============
(1) Not included in calculation, because of anti-dilutive effect
Three Months Ended
March 31
2000 1999
------------ ------------
Pro forma Income Per Common Share
Net income $ 2,309 $ 435
Add: Reduction from interest expense from $31 million
Notes payment, net of tax - $ 577
------------ ------------
Net income available to common shareholders $ 2,309 $ 1,012
============ ============
Net income per Common Share
Basic $ 0.06 $ 0.03
============ ============
Diluted $ 0.06 $ 0.03
============ ============
Weighted average number of common shares
And common share equivalents outstanding
Basic 39,028 38,660
Diluted 40,618 40,356
-8-
Quantitative and Qualitative Disclosures about Market Risk
The market risk of the Company's financial instruments as of March 31, 2000 has
not materially changed since December 31, 1999. The market risk profile on
December 31, 1999 is disclosed in the Company's annual report on Form 10-K for
the year ended December 31, 1999.
The Company is including the following cautionary statements in this document to
make applicable and take advantage of the "safe harbor" provision of the Private
Securities Litigation Reform Act of 1995 for any forward-looking statements made
in this 10-K report. Investors are cautioned that actual results may differ
substantially from such forward-looking statements. Forward-looking statements
include statements concerning plans, objectives, goals, strategies, future
events or performance and underlying assumptions and other statement which are
not statement of historical facts, and they may be identified by the use of
works such as "anticipates", "estimates", "expects", "intends", "plans",
"predicts", "projects", and similar expressions. Forward-looking statements
involve risks and uncertainties that could cause actual results or outcomes to
differ materially from those expressed in the forward-looking statements. We
express our expectations, beliefs and projections in good faith and believe them
to have a reasonable basis, however, we make no assurance that they will be
achieved or accomplished. The fulfillment of our expectations, beliefs and
projections is subject to a variety of important factors, including, but not
limited to, continued acceptance of the Company's products in the marketplace,
competitive factors, the availability of closeout merchandise, consumer spending
patterns, general economic trends, the availability of new store locations, and
other risks detailed in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999, and other periodic reports filed with the Securities
and Exchange Commission. The foregoing factors may be in addition to other
factors discussed in other parts of this 10-Q report.
PART II - OTHER INFORMATION
Not applicable.
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.
TUESDAY MORNING CORPORATION
(Registrant)
DATE: May 8, 2000 /s/ Mark E. Jarvis
-------------------------------------
Mark E. Jarvis, Senior Vice President