<PAGE>
FORM 10Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Quarterly Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For Quarter Ended June 30, 1999 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 Identification No.)
incorporation or organization)
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 June 30, 1999: 38,802,648 shares
<PAGE>
TUESDAY MORNING CORPORATION
PART 1 - FINANCIAL INFORMATION
Page No.
-------
Item 1 - Financial Statements
Consolidated Balance Sheets as of June 30, 1999,
June 30, 1998 and December 31, 1998 1
Consolidated Statements of Operations for the
Three Months and Six Months
Ended June 30, 1999 and 1998 2
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1999 and 1998 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 10
<PAGE>
Tuesday Morning Corporation and Subsidiaries
Consolidated Balance Sheets
In Thousands (except for share data)
<TABLE>
<CAPTION>
Unaudited Unaudited Audited
June 30, June 30, Dec. 31,
ASSETS 1999 1998 1998
---------- ----------- ---------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.................................................... $ 912 $ 525 $ 20,282
Inventories.................................................................. 168,595 138,966 96,743
Assets held for sale......................................................... - 5,857 -
Prepaid expenses............................................................. 2,093 1,600 1,114
Other current assets......................................................... 438 347 466
Income taxes receivable...................................................... 327 - -
Deferred income taxes........................................................ 354 1,610 354
----------- ----------- ---------
Total current assets.................................................. 172,719 148,905 118,959
----------- ----------- ---------
Property and equipment, at cost................................................. 67,944 58,946 60,355
Less accumulated depreciation & amortization................................. (36,672) (33,675) (36,263)
----------- ----------- ---------
Net property and equipment............................................ 31,272 25,271 24,092
----------- ----------- ---------
Other assets, at cost:
Due from officers............................................................ - 3,253 3,345
Deferred financing costs..................................................... 6,469 9,263 8,452
Other assets................................................................. 304 285 471
----------- ----------- ---------
Total Assets.......................................................... $ 210,764 $ 186,977 $ 155,319
=========== =========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Installments of mortgages.................................................... $ 1,671 $ 1,021 $ 1,021
Revolving credit facility.................................................... 26,230 27,375 -
Installments of notes payable................................................ 4,858 3,405 3,398
Installments of capital lease obligation..................................... 41 274 161
Accounts payable............................................................. 41,137 30,100 23,081
Accrued liabilities
Sales taxes................................................................ 1,275 1,005 3,039
Interest expense........................................................... 935 2,846 2,195
Other...................................................................... 7,210 5,311 6,712
Income taxes payable......................................................... - 55 8,845
----------- ----------- ---------
Total current liabilities............................................. 83,357 71,392 48,452
----------- ----------- ---------
Mortgages on land, buildings and equipment...................................... 7,892 3,063 2,552
Notes payable, excluding current installments................................... 163,716 206,595 198,065
Revolving credit facility excluding current portion............................. 15,000 15,000 -
Deferred income taxes........................................................... 2,211 2,771 2,209
Dividends payable on Jr. Preferred.............................................. - 3,612 7,435
----------- ----------- ---------
Total Liabilities..................................................... 272,176 302,433 258,713
----------- ----------- ---------
Senior exchangeable redeemable preferred stock,
par value $.01 per share, authorized 1,000,000 shares,
283,891 issued at December 31, 1998; aggregate liquidation preference
$28,558 and 265,695 issued at June 30, 1998; aggregate liquidation
preference $26,595........................................................... - 26,374 28,231
Junior redeemable preferred stock, par value $.01 per share, authorized
150,000 shares, 85,998 issued at December 31, 1998 and June 30, 1998;
aggregate liquidation preference $85,998..................................... - 85,998 85,998
Shareholders' equity
Junior perpetual preferred stock, authorized 2,500 shares, 1,930 issued
at December 31, 1998 and June 30, 1998; par value $.01 per share;
aggregate liquidation preference $1,930...................................... - 1,930 1,930
Common stock par value $.01 per share, authorized 100,000,000 shares;
issued 26,563,782 shares at December 31, 1998, 26,249,951 shares at
June 30, 1998 and 38,802,648 at June 30,1999................................. 388 259 266
Additional paid-in capital................................................... 171,941 5,365 5,423
Retained deficit............................................................. (233,741) (235,382) (225,242)
----------- ----------- ---------
Total Shareholders' Equity............................................ (61,412) (227,828) (217,623)
----------- ----------- ---------
Total Liabilities and Shareholders' Equity...................................... $ 210,764 $ 186,977 $ 155,319
=========== =========== =========
</TABLE>
-1-
<PAGE>
Tuesday Morning Corporation and Subsidiaries
Consolidated Statements of Operations
Unaudited In Thousands
(except per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30, Year to date as of June 30,
--------------------------- ---------------------------
1999 1998 1999 1998
--------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales............................................................... $ 107,681 $ 84,829 $ 179,442 $ 143,640
Cost of sales........................................................... 72,103 57,490 115,490 93,953
---------- --------- ----------- ----------
Gross profit....................................................... 35,578 27,339 63,952 49,687
Selling, general and administrative expenses............................ 27,021 23,135 49,534 41,997
Operating income................................................... 8,557 4,204 14,418 7,690
---------- --------- ----------- ----------
Other income (expense):
Interest income....................................................... 216 73 303 181
Interest expense...................................................... (5,370) (6,513) (10,866) (12,733)
Other income.......................................................... 161 325 379 624
---------- --------- ----------- ----------
(4,993) (6,115) (10,184) (11,928)
---------- --------- ----------- ----------
Income (loss) before income taxes and extraordinary item........... 3,564 (1,911) 4,234 (4,238)
Income tax expense...................................................... 1,353 (698) 1,588 (1,571)
---------- --------- ----------- ----------
Net income (loss) before extraordinary item........................ 2,211 (1,213) 2,646 (2,667)
Extraordinary item related to debt extinguishment (net of tax).......... (3,048) - (3,048) -
---------- --------- ----------- ----------
Net income (loss).................................................. $ (837) $ (1,213) $ (402) $ (2,667)
========== ========= =========== ==========
Earnings per Share
- ------------------
Net income (loss) before extraordinary item............................. $ 2,211 $ (1,213) $ 2,646 $ (2,667)
Dividends on and accretion of preferred stocks..................... (890) (2,646) (3,748) (5,229)
Premium on redemption of senior preferred stock.................... (4,395) - (4,395) -
---------- --------- ----------- ----------
Income (loss) available to common shareholders.......................... $ (3,074) $ (3,859) $ (5,497) $ (7,896)
Extraordinary item related to debt extinguishment (net of tax)..... (3,048) - (3,048) -
---------- --------- ----------- ----------
Net income (loss) available to common shareholders...................... $ (6,122) $ (3,859) $ (8,545) $ (7,896)
========== ========= =========== ==========
Net Income (loss) per Common Share - Basic
Income (loss) available to common shareholders..................... $ (0.09) $ (0.15) $ (0.18) $ (0.30)
Extraordinary item related to debt extinguishment (net of tax)..... (0.09) - (0.10) -
---------- --------- ----------- ----------
Net (loss) available to common shareholders........................ $ (0.18) $ (0.15) $ (0.28) $ (0.30)
========== ========= =========== ==========
Net Income (loss) per Common Share - Diluted
Income (loss) available to common shareholders..................... $ (0.09) $ (0.15) $ (0.18) $ (0.30)
Extraordinary item related to debt extinguishment (net of tax)..... (0.09) - (0.10) -
---------- --------- ----------- ----------
Net (loss) available to common shareholders........................ $ (0.18) $ (0.15) $ (0.28) $ (0.30)
========== ========= =========== ==========
Weighted average number of common shares
and common share equivalents outstanding:
Basic................................................................. 35,239 26,250 31,042 26,250
Diluted............................................................... 35,239 26,250 31,042 26,250
Pro forma Earnings per Share
- ----------------------------
Net income (loss) before extraordinary item............................. $ 2,211 $ (1,213) $ 2,646 $ (2,667)
Add: Reduction of interest expense from $31 million notes payment,
net of tax............................................................ 275 556 852 1,112
---------- --------- ----------- ----------
Pro forma income (loss) available to common shareholders................ $ 2,486 $ (657) $ 3,498 $ (1,555)
========== ========= =========== ==========
Net income (loss) per common share
Basic................................................................. $ 0.06 $ (0.02) $ 0.09 $ (0.04)
========== ========= =========== ==========
Diluted.............................................................. $ 0.06 $ (0.02) $ 0.09 $ (0.04)
========== ========= =========== ==========
Weighted average number of common shares
and common share equivalents outstanding:
Basic................................................................. 38,146 37,597 38,146 37,597
Diluted............................................................... 39,978 37,597 39,949 37,597
</TABLE>
-2-
<PAGE>
Tuesday Morning Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Unaudited In Thousands
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1999 1998
---------- ----------
<S> <C> <C>
Net cash flows from operating activities:
Net income (loss) $ (402) $ (2,667)
Depreciation and amortization 2,825 2,739
Amortization of financing fees 705 666
Extraordinary item 3,048 -
Loss on disposal of fixed assets 15 4
Change in operating assets and liabilities:
Income taxes receivable - (1,592)
Inventories (71,852) (39,779)
Prepaid expenses (979) (542)
Other current assets 28 227
Other assets 167 388
Accounts payable 18,056 7,847
Accrued liabilities (2,526) (28,882)
Income taxes payable (7,530) -
---------- ----------
Total adjustments (58,043) (58,924)
---------- ----------
Net cash (used in) operating activities (58,445) (61,591)
---------- ----------
Net cash flows from investing activities:
Repayments of loans from officers 3,345 390
Proceeds from sale of assets 28 -
Capital expenditures (10,046) (3,231)
---------- ----------
Net cash (used in) investing activities (6,673) (2,841)
---------- ----------
Net cash flows from financing activities:
Proceeds from revolving credit facility 41,230 42,375
Financing fees - (300)
Payment of debt and mortgages (2,399) (511)
Mortgage on warehouse 6,500 -
Partial redemption of Senior Subordinated Note (34,410) -
Principal payments under capital lease obligation (120) (109)
Proceeds from exercise of common stock options 49 -
Redeem Junior Preferred Stocks (7,382) -
Redeem Senior Exchangeable Redeemable Preferred Stock (33,855) -
Net proceeds from IPO 76,135 -
---------- ----------
Net cash provided by financing activities 45,748 41,455
---------- ----------
Net change in cash and cash equivalents (19,370) (22,977)
Cash and cash equivalents at beginning of period 20,282 23,502
---------- ----------
Cash and cash equivalents at end of period $ 912 $ 525
========== ==========
Supplemental cash flow information:
Non-cash items:
Conversion of : Jr. perpetual preferred stock 553 -
Jr. redeemable preferred stock 89,903 -
</TABLE>
At June 30,1999, see IPO note. As of June 30, 1998, 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 of $3,573 in
1998 for dividends on the Junior Preferred Stocks or the issuance of
$1,713 of additional Senior Preferred Stock in 1998, as a dividend to
the holders of the Senior Preferred Stock.
-3-
<PAGE>
Tuesday Morning Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1. On December 29, 1997, Madison Dearborn Capital Partners II, L.P., certain
members of management and certain unaffiliated investors acquired all of
the outstanding capital stock of the Company. This transaction has been
accounted for as a recapitalization and, as such, has no impact on the
historical basis of assets and liabilities. Refer to the consolidated
financial statements and notes thereto for the fiscal year ended December
31, 1998 for more details of the transaction.
2. 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 10K filing.
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 the page 6.
4. 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 $76.1 million as described in the Initial Public Offering note.
In connection with the redemption of a portion of the Senior Subordinated
Notes, the Company incurred an extraordinary charge, net of income taxes,
of $3.0 million in the second quarter of 1999.
-4-
<PAGE>
Tuesday Morning Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The following discussion and analysis should be read in conjunction with the
consolidated financial statements of the Company for the year ended December 31,
1998.
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.
<TABLE>
<CAPTION>
Quarter Ended June 30 Year to date, June 30
------------------------------ -------------------------------
1999 1998 1999 1998
-------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 67.0 67.8 64.4 65.4
----- ----- ----- -----
Gross profit 33.0 32.2 35.6 34.6
Selling, general and administrative expense 25.1 27.2 27.6 29.2
----- ----- ----- -----
Operating income 7.9 5.0 8.0 5.4
Net interest expense and other income (4.6) (7.2) (5.7) (8.3)
----- ----- ----- -----
Earnings (loss) before income taxes and
extraordinary item 3.3 (2.2) 2.4 (2.9)
Net earnings (loss) before extraordinary item 2.1 (1.4) 1.5 (1.9)
Net earnings (0.8)% (1.4)% (0.2)% (1.9)%
</TABLE>
Three Months Ended June 30, 1999
Compared to the Three Months Ended June 30, 1998
During the second quarter of 1999 sales increased 26.9% due primarily to
comparable store sales increases of 16.6% and $10.5 million of sales from new
stores. Average store sales for the quarter increased from $254 thousand to $295
thousand. The increase in comparable sales was comprised of a 13.6% increase in
the number of transactions and a 2.6% 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.
Gross profit increased $8.2 million from $27.3 million to $35.6 million
primarily as a result of the increased sales mentioned above. Our gross profit
percentage increased 0.8% compared with last year. Our initial markup on
products purchased and markdowns improved by 1.6%, however this was offset by
increased buying and distribution expenses of 0.8%.
-5-
<PAGE>
Tuesday Morning Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Selling, general, and administrative expense benefited from the leverage
resulting from increased sales. These expenses increased $3.9 million due to the
addition of new stores and inflationary increases. These expenses, as a
percentage of sales, decreased to 25.1% from 27.2% 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, an early paydown of senior subordinated debt which is more fully
explained in the Initial Public Offering discussion and decreased borrowings
against the revolver.
EBITDA increased from $6.0 million to $10.3 million due to the factors mentioned
above.
Six Months Ended June 30, 1999
Compared to the Six Months Ended June 30, 1998
For the first six months of 1999 sales increased 24.9% due primarily to
comparable store sales increases of 15.1% and $16.7 million of sales from new
stores. Average store sales for the six months increased from $436 thousand to
$497 thousand. The increase in comparable sales was comprised of a 11.1%
increase in the number of transactions and a 3.5% increase in the average
transaction amount. The increase was primarily the result of continued
improvement in merchandise selection, pricing, and mix.
Gross profit increased $14.3 million from $49.7 million to $64.0 million
primarily as a result of the increased sales mentioned above. The gross profit
percentage increased by 1.0% due to reduced markdowns, partially offset by
increased buying and distribution expense.
Selling, general, and administrative expense increased $7.5 million due to the
addition of new stores and inflationary increases. These expenses as a
percentage of sales decreased to 27.6% from 29.2% 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, an early paydown of senior subordinated debt which is more fully
explained in the Initial Public Offering discussion and decreased borrowings
against the revolver.
EBITDA increased from $11.2 million to $18.0 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 by operating activities for the six months ended June, 1999 and
1998 was $58.4 million, and $61.6 million respectively. These amounts were due
to the seasonal buildup of inventory and, in 1998, the payment of fees and
expenses related to the recapitalization. Cash and cash equivalents as of June
30, 1999 and 1998 were $0.9 million, and $0.5 million respectively.
-6-
<PAGE>
Tuesday Morning Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations
In June of 1999, we purchased a warehouse for $6.5 million that we had been
leasing. This was financed through a ten year mortgage with a floating interest
rate, currently at 6.952%. Excluding the purchase of the warehouse, capital
expenditures principally associated with new store openings and warehouse
equipment were $3.5 million and $3.2 million for the six months ending June,
1999 and 1998, respectively. We expect to spend approximately $2.8 million for
capital expenditures for the remainder of 1999.
As part of the recapitalization, discussed in detail in the December 31, 1998
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 June 30, 1999, the Company had $99.6 million outstanding under the
Term Loans and $41.2 million outstanding under the Revolving Credit Facility,
with $23.6 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 1998, 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.
See Initial Public Offering on page 9 for a discussion on the paydown of the
notes and the redemption of preferred stock.
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).
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.
-7-
<PAGE>
Tuesday Morning Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Inventory:
The Company's inventory increased from $96.7 million at year end to $168.6
million at June 30, 1999, for an increase of $71.9 million from December 31,
1998. As reflected on the chart on page 12, the increase in inventory is
entirely in the warehouse. Typically, warehouse inventory levels increase from
the beginning of the year to June 30 due to the seasonal nature of our business.
The increase in 1999 is higher than usual as some of the merchandise was
received earlier than our historical pattern.
The decrease in inventory at the stores from June 30, 1999 to June 30, 1998 is
the result of sales for the quarter in excess of shipments. Store level
inventory in excess of six months old is consistent for each year.
Year 2000
We recognize that our business could be adversely affected by hardware and
software errors arising from calculations using the Year 2000 and beyond
("Y2K"). Y2K could adversely affect our ability to obtain, distribute and
process merchandise, run our stores, deal with our customers and handle daily
business functions, and receive payment from our customers and utilize these
funds in our business.
We have taken various steps in each of these areas to minimize the risk that our
business will be adversely affected. Our ability to obtain merchandise is
dependent on vendors, freight companies, ports of entry and U.S. Customs. We
have informally polled our largest vendors and, based on the information we have
obtained, believe that their systems are, or will be, Y2K compliant. In
addition, we have contacted our primary freight companies and, based on the
information we have obtained, believe that their systems are also Y2K compliant.
U.S. Customs has stated on its website that its systems are Y2K compliant.
In order to determine that our internal operations are Y2K compliant we have
taken an inventory of all computer software programs and hardware. We have
determined that our merchandise purchasing, inventory management, shipping and
receiving, sales reporting, financial reporting and cash management systems are
Y2K compliant. Our remaining system upgrade requirements have been identified,
tested and completed, including all file servers. A third party vendor will
upgrade our point-of-sale software to the latest version by October 1, 1999.
This upgrade was delayed by two months to include requested functional changes
to the program. The scheduled update to the point-of-sale hardware is complete.
Direct expenditures and internal costs for these upgrades and updates have been
and are expected to remain immaterial to our operations. We have evaluated our
non-information technology systems, such as our general office security systems,
store security systems, corporate access systems, environmental systems and
phone systems. We have found that they are Y2K compliant and the corporate
access system is now compliant.
-8-
<PAGE>
Tuesday Morning Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Our ability to receive payment from our customers and utilize these funds in our
business is dependent on credit card processing companies and banks. We have
contacted these companies and have been assured that their systems are, or will
be, Y2K compliant.
We recognize that our failure to resolve internal Y2K issues could result, in
the worst case, in our inability to distribute merchandise to our stores and to
process our daily business for some period of time. However, we presently
believe that scenario is unlikely based on our Y2K remediation plan. The failure
of one or more of our third party service providers to resolve Y2K issues could
also result in a business interruption. In addition, the failure of one or more
of our merchandise suppliers to resolve their own Y2K issues could negatively
affect us. The lost revenue, if any, resulting from a worst case scenario would
depend on the length of time during which such failure goes uncorrected and on
how widespread the impact.
Our Y2K exposure is mitigated by the following factors: (1) no vendor accounts
for more than 5% of our purchases; (2) we will receive substantially all of our
merchandise for the first sale event of 2000 before January 1, 2000; (3) our
first sales event of 2000 is scheduled to begin six weeks after January 1, 2000;
and (4) there is neither a contractual nor business reason for us to buy a
specific product from a specific vendor.
In order to further mitigate any business interruption caused by third parties,
we believe that we can easily change vendors, freight companies or ports of
entry if we find that we are unable to receive merchandise from specific
vendors. We plan to test credit card processing in January 2000 and will change
processors if necessary. Our cash management is handled by several banks and if
necessary can be shifted if one or more of these banks will not permit us to
access our funds.
Although Y2K issues or unanticipated or undiscovered Y2K compliance problems
could impact our operations, we believe that it is unlikely that Y2K issues or
problems will significantly adversely affect us. Our Y2K compliance costs have
totaled $110,000 (excluding scheduled upgrades).
Initial Public Offering
On March 12, 1999, we 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. A total of 7,392,000 shares of common stock were
registered and sold to the public. This includes 5,515,000 sold by the company
and 1,877,000 shares sold by other shareholders. As shown on the next page,
proceeds received by the Company have been used to redeem a portion of the
Junior redeemable preferred stock and Junior perpetual preferred stock. The
remaining Junior stock shares were converted to common stock. The Senior
exchangeable redeemable preferred stock was redeemed on May 14, 1999 and $31.0
million of Senior subordinated debt was paid on May 18, 1999. These transactions
resulted in an extraordinary charge of $3.0 million, net of tax.
-9-
<PAGE>
Tuesday Morning Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations
<TABLE>
<CAPTION>
(Amounts in 000's)
<S> <C>
Net proceeds from IPO $ 76,135
Redemption of Junior Preferred Stock ( 7,382)
Redemption of Senior Preferred Stock (33,855)
Partial paydown of Senior Subordinated Note (34,410)
Includes prepayment premium of $3.4 million
Interest Income 179
---------
Increase in working capital $ 667
=========
</TABLE>
Quantitative and Qualitative Disclosures about Market Risk
The market risk of the Company's financial instruments as of June 30, 1999 has
not materially changed since December 31, 1998. The market risk profile on
December 31, 1998 is disclosed in the Company's annual report on Form 10-K for
the year ended December 31, 1998.
This document contains forward-looking statements, which are made pursuant to
the "safe harbor" provisions of the Private Securities Litigation Act of 1995.
Actual results may differ substantially from such forward-looking statements.
Forward-looking statements involve risks and uncertainties including, but not
limited to, continued acceptance of the Company's products in the marketplace,
the success of new store openings and the availability of new store locations,
competitive factors, access to merchandise in a variety of foreign countries,
economic trends, and other risks detailed in the Company's periodic report
filings with the Securities and Exchange Commission.
-10-
<PAGE>
Tuesday Morning Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations
<TABLE>
<CAPTION>
Three Months Ended June 30 Year to date as of June 30
--------------------------- ----------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Earnings Per Common Share
Net income (loss) $ (837) $ (1,213) $ (402) $ (2,667)
Add: Extraordinary item related to debt
extinguishment (net of tax) 3,048 - 3,048 -
--------- --------- ----------- ----------
Net income (loss) before extraordinary item $ 2,211 $ (1,213) $ 2,646 $ (2,667)
Less:
Junior preferred dividends $ (562) $ (1,757) $ (2,469) $ (3,516)
Senior preferred dividends (326) (881) (1,269) (1,698)
Senior preferred accretion (2) (8) (10) (15)
Premium on redemption of senior
preferred stock (4,395) - (4,395) -
--------- --------- ----------- ----------
Income (loss) available to common shareholders $ (3,074) $ (3,859) $ (5,497) $ (7,896)
Extraordinary item related to debt extinguishment
(net of tax) (3,048) - (3,048) -
Net income (loss) available to common shareholders $ (6,122) $ (3,859) $ (8,545) $ (7,896)
========= ========= =========== ==========
Net Income (loss) per Common Share - Basic
Income (loss) available to common shareholders $ (0.09) $ (0.15) $ (0.18) $ (0.30)
Extraordinary item related to debt extinguishment
(net of tax) (0.09) - (0.10) -
--------- --------- ----------- ----------
Net (loss) available to common shareholders $ (0.18) $ (0.15) $ (0.28) $ (0.30)
========= ========= =========== ==========
Net Income (loss) per Common Share - Diluted
Income (loss) available to common shareholders $ (0.09) $ (0.15) $ (0.18) $ (0.30)
Extraordinary item related to debt extinguishment
(net of tax) (0.09) - (0.10) -
--------- --------- ----------- ----------
Net (loss) available to common shareholders $ (0.18) $ (0.15) $ (0.28) $ (0.30)
========= ========= =========== ==========
Effect of dilutive securities:
Weighted average common equivalent shares from
stock options - - - - (1)
Weighted average common shares outstanding 35,239 26,250 31,042 26,250 (2)
--------- --------- ----------- ----------
Weighted average common shares and common
stock equivalents outstanding 35,239 26,250 31,042 26,250
========= ========= =========== ==========
</TABLE>
(1) Not included in calculation, because of anti-dilutive effect
(2) Reflects seven for one stock split effective March 25, 1999
-11-
<PAGE>
Tuesday Morning Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Total Inventory Levels by Location
($ millions)
<TABLE>
<CAPTION>
6/30/99 6/30/98 12/31/98 12/31/97
------- ------- -------- ---------
<S> <C> <C> <C> <C>
Stores $ 54.4 $ 62.1 $ 58.8 $ 61.5
Warehouse 114.2 76.9 37.9 37.7
-------- -------- --------- ---------
Total $ 168.6 $ 139.0 $ 96.7 $ 99.2
======== ======== ========= =========
</TABLE>
Per Store Inventory Levels by Location
($ thousands)
<TABLE>
<CAPTION>
6/30/99 6/30/98 12/31/98 12/31/97
------- ------- -------- --------
<S> <C> <C> <C> <C>
Stores $ 149 $ 186 $ 169 $ 195
Warehouse 313 231 109 120
-------- -------- --------- ---------
Total $ 462 $ 417 $ 278 $ 315
======== ======== ========= =========
Store Count 365 333 347 315
</TABLE>
Store Openings/Closings
<TABLE>
<CAPTION>
Six Months Six Months
Ending Ending FYE
June 30, 1999 June 30, 1998 12/31/98
------------- ------------- --------
<S> <C> <C> <C>
Stores Open at
Beginning of Period 347 315 315
Stores Opened 25 21 36
Stores Closed (7) (3) (4)
--- --- ----
Stores Open at End
365 333 347
of Period === === ====
</TABLE>
-12-
<PAGE>
TUESDAY MORNING CORPORATION
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: August 11, 1999 /s/ Mark E. Jarvis
-------------------------------------
Mark E. Jarvis, Senior Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> APR-01-1999 JAN-01-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 912 912
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 168,595 168,595
<CURRENT-ASSETS> 172,719 172,719
<PP&E> 67,944 67,944
<DEPRECIATION> (36,672) (36,672)
<TOTAL-ASSETS> 210,764 210,764
<CURRENT-LIABILITIES> 83,357 83,357
<BONDS> 171,608 171,608
0 0
0 0
<COMMON> 388 388
<OTHER-SE> (61,800) (61,800)
<TOTAL-LIABILITY-AND-EQUITY> 210,764 210,764
<SALES> 107,681 179,442
<TOTAL-REVENUES> 107,681 179,442
<CGS> 72,103 115,490
<TOTAL-COSTS> 27,021 49,534
<OTHER-EXPENSES> (377) (682)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 5,370 10,866
<INCOME-PRETAX> 3,564 4,234
<INCOME-TAX> 1,353 1,588
<INCOME-CONTINUING> 2,211 8,696
<DISCONTINUED> 0 0
<EXTRAORDINARY> (3,048) (3,048)
<CHANGES> 0 0
<NET-INCOME> (837) (402)
<EPS-BASIC> (0.09) (0.18)
<EPS-DILUTED> (0.09) (0.18)
</TABLE>
