Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2011

 

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 (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 o

 

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

 

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

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

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

 

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 January 25, 2012

Common Stock, par value $0.01 per share

 

41,933,929

 

 

 



Table of Contents

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws and the Private Securities Litigation Reform Act of 1995, which are based on management’s current expectations, estimates and projections. 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 future results of operations, our future financial position, and our business outlook or state other “forward-looking” information.

 

Readers are referred to “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended June 30, 2011 for examples of risks, uncertainties and events that could cause our actual results to differ materially from the expectations expressed in our forward-looking statements. These risks, uncertainties and events also include, but are not limited to, the following:

 

·                                                                                                      uncertainties regarding our ability to open stores and relocate existing stores in new and existing markets and operate these stores on a profitable basis;

·                                                                                                      conditions affecting consumer spending and consumer confidence and the impact, depth and duration of current economic conditions;

·                                                                                                      increased or new competition;

·                                                                                                      our ability to operate information systems and implement new technologies effectively;

·                                                                                                      our ability to safeguard our customers’ personal information and other secure data;

·                                                                                                      our ability to continue to attract buying opportunities and anticipate customer demand;

·                                                                                                      loss of or disruption in our centralized distribution center;

·                                                                                                      our freight costs and thus our cost of goods sold are impacted by changes in fuel prices;

·                                                                                                      loss or departure of one or more members of our senior management or other key management personnel;

·                                                                                                      our ability to generate strong cash flows from our operations;

·                                                                                                      an increase in the cost or a disruption in the flow of our imported products;

·                                                                                                      our success in implementing our marketing, advertising and promotional efforts;

·                                                                                                      our ability to attract and retain quality sales, distribution center and other associates in large numbers;

·                                                                                                      seasonal and quarterly fluctuations; and

·                                                                                                     fluctuations in our comparable store results.

 

The forward-looking statements made in this Form 10-Q relate only to events as of the date on which the statements were made. Except as may be required by law, we undertake no obligation to update our forward-looking statements to reflect events and circumstances after the date on which the statements were made or to reflect the occurrence of unanticipated events.

 

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

 

2



Table of Contents

 

PART I - FINANCIAL INFORMATION

4

 

 

Item 1 — Financial Statements

4

 

 

Consolidated Balance Sheets as of December 31, 2011 and June 30, 2011

4

 

 

Consolidated Statements of Operations for the Three Months and Six Months Ended December 31, 2011 and 2010

5

 

 

Consolidated Statements of Cash Flows for the Three Months and Six Months Ended December 31, 2011 and 2010

6

 

 

Notes to Consolidated Financial Statements

7

 

 

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

11

 

 

Item 3 — Quantitative and Qualitative Disclosures About Market Risk

15

 

 

Item 4 — Controls and Procedures

15

 

 

PART II — OTHER INFORMATION

16

 

 

Item 1 — Legal Proceedings

16

 

 

Item 1 A — Risk Factors

16

 

 

Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds

17

 

 

Item 6 — Exhibits

18

 

3



Table of Contents

 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Tuesday Morning Corporation

Consolidated Balance Sheets

December 31, 2011 and June 30, 2011

(In thousands, except for per share data)

 

 

 

December 31,
2011
(unaudited)

 

June 30,
2011

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

57,128

 

$

19,400

 

Inventories

 

239,161

 

264,361

 

Prepaid expenses and other current assets

 

8,075

 

13,684

 

Deferred income taxes

 

1,568

 

447

 

Total current assets

 

305,932

 

297,892

 

 

 

 

 

 

 

Property and equipment, net

 

74,730

 

76,982

 

Deferred financing costs

 

2,861

 

2,504

 

Other assets

 

1,329

 

1,778

 

 

 

 

 

 

 

Total Assets

 

$

384,852

 

$

379,156

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

71,087

 

$

81,047

 

Accrued liabilities

 

32,228

 

28,760

 

Income taxes payable

 

5,482

 

65

 

Total current liabilities

 

108,797

 

109,872

 

 

 

 

 

 

 

Revolving credit facility

 

 

 

Deferred rent

 

3,400

 

3,198

 

Deferred income taxes

 

5,126

 

5,297

 

Income tax payable - non current

 

571

 

655

 

 

 

 

 

 

 

Total Liabilities

 

117,894

 

119,022

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock, par value $0.01 per share, authorized 10,000,000 shares; none issued or outstanding

 

 

 

Common stock, par value $0.01 per share, authorized 100,000,000 shares; 43,333,414 shares issued and 42,134,631outstanding at December 31, 2011 and 43,185,203 shares issued and outstanding at June 30, 2011

 

433

 

432

 

Additional paid-in capital

 

209,019

 

208,130

 

Retained earnings

 

61,827

 

51,661

 

Accumulated other comprehensive loss

 

(37

)

(89

)

Less: 1,198,783 common shares in treasury, at cost, at December 31, 2011

 

(4,284

)

 

 

 

 

 

 

 

Total Stockholders’ Equity

 

266,958

 

260,134

 

 

 

 

 

 

 

Total Liabilities and Stockholders’ Equity

 

$

384,852

 

$

379,156

 

 

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

 

4



Table of Contents

 

Tuesday Morning Corporation

Consolidated Statements of Operations (unaudited)

(In thousands, except for per share data)

 

 

 

Three Months Ended December
31,

 

Six Months Ended December 31,

 

 

 

2011

 

2010

 

2011

 

2010

 

Net sales

 

$

273,054

 

$

279,312

 

$

443,707

 

$

452,068

 

Cost of sales

 

168,239

 

172,133

 

273,919

 

278,092

 

Gross profit

 

104,815

 

107,179

 

169,788

 

173,976

 

Selling, general and administrative expenses

 

79,330

 

78,809

 

152,802

 

149,090

 

Operating income

 

25,485

 

28,370

 

16,986

 

24,886

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest income

 

 

 

 

2

 

Interest expense

 

(651

)

(832

)

(1,448

)

(1,522

)

Other income (expense), net

 

108

 

485

 

150

 

387

 

 

 

(543

)

(347

)

(1,298

)

(1,133

)

Income before income taxes

 

24,942

 

28,023

 

15,688

 

23,753

 

Income tax expense

 

9,085

 

10,762

 

5,522

 

9,138

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

15,857

 

$

17,261

 

$

10,166

 

$

14,615

 

 

 

 

 

 

 

 

 

 

 

Earnings Per Share

 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.37

 

$

0.40

 

$

0.24

 

$

0.34

 

Diluted

 

$

0.37

 

$

0.40

 

$

0.23

 

$

0.34

 

Weighted average number of common shares:

 

 

 

 

 

 

 

 

 

Basic

 

42,131

 

42,383

 

42,421

 

42,301

 

Diluted

 

42,673

 

42,990

 

42,972

 

42,887

 

 

 

 

 

 

 

 

 

 

 

Dividends per common share

 

$

 

$

 

$

 

$

 

 

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

 

5



Table of Contents

 

Tuesday Morning Corporation

Consolidated Statements of Cash Flows (unaudited)

(In thousands)

 

 

 

Six Months Ended
December 31,

 

 

 

2011

 

2010

 

Net cash flows from operating activities:

 

 

 

 

 

Net income

 

$

10,166

 

$

14,615

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

7,607

 

8,189

 

Amortization of financing fees

 

459

 

509

 

Deferred income taxes

 

(1,292

)

(2,514

)

Loss on disposal of assets

 

216

 

56

 

Stock-based compensation

 

993

 

922

 

Other non-cash items

 

52

 

(237

)

Change in operating assets and liabilities:

 

 

 

 

 

Inventories

 

24,941

 

(38,162

)

Prepaid and other assets

 

6,058

 

2,312

 

Accounts payable

 

8,976

 

13,000

 

Accrued liabilities

 

3,323

 

1,901

 

Deferred rent

 

202

 

(170

)

Income taxes payable

 

5,333

 

8,368

 

Net cash provided by operating activities

 

67,034

 

8,789

 

 

 

 

 

 

 

Net cash flows from investing activities:

 

 

 

 

 

Capital expenditures

 

(5,571

)

(12,330

)

Net cash used in investing activities

 

(5,571

)

(12,330

)

 

 

 

 

 

 

Net cash flows from financing activities:

 

 

 

 

 

Repayments under revolving credit facility

 

(92,338

)

(51,634

)

Proceeds under revolving credit facility

 

92,338

 

51,634

 

Change in cash overdraft

 

(18,791

)

(3,391

)

Excess tax benefit from the exercise of employee stock options

 

145

 

557

 

Payments of debt financing costs

 

(816

)

 

Purchases of treasury stock

 

(4,284

)

 

Proceeds from the exercise of stock options

 

11

 

22

 

Net cash used in financing activities

 

(23,735

)

(2,812

)

Change in cash and cash equivalents

 

37,728

 

(6,353

)

Cash and cash equivalents, beginning of period

 

19,400

 

23,522

 

Cash and cash equivalents, end of period

 

$

57,128

 

$

17,169

 

 

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

 

6



Table of Contents

 

Tuesday Morning Corporation

Notes to Consolidated Financial Statements (unaudited)

 

1.             Basis of presentation — The unaudited consolidated interim financial statements included herein have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). 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 for the year ended June 30, 2011.  Due to 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 fiscal year.

 

The balance sheet at June 30, 2011 has been derived from the audited consolidated financial statements at that date but does not include all of the information and notes required by U.S. generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in our Form 10-K for the year ended June 30, 2011.  We operate our business as a single operating segment.

 

2.             Stock-based compensation — We have established the Tuesday Morning Corporation 1997 Long-Term Equity Incentive Plan, as amended (the “1997 Plan”), the Tuesday Morning Corporation 2004 Long-Term Equity Incentive Plan, as amended (the “2004 Plan”), and the Tuesday Morning Corporation 2008 Long-Term Equity Incentive Plan (the “2008 Plan”) which allow for the granting of stock-based compensation, including stock options and restricted stock to directors, officers and key employees of, and certain other key individuals who perform services for the Company, and its subsidiaries.  All shares available under the 1997 Plan have been granted and the 1997 Plan was terminated pursuant to its terms as of December 29, 2007.  Equity awards may no longer be granted under the 1997 Plan but existing options granted under the plan may still be exercisable.  Equity awards may be subject to forfeiture if certain performance requirements are not met under the 2004 and 2008 Plans.  No performance awards were outstanding as of December 31, 2011.

 

Stock Options.  The 1997 Plan authorized grants of options to purchase up to 4,800,000 shares of authorized, but unissued common stock. The 2004 Plan and the 2008 Plan authorize grants of options to purchase up to 2,000,000, and 2,500,000 shares, respectively, of authorized, but unissued common stock. Stock options are awarded with a strike price at a fair market value equal to the average of the high and low trading prices of our common stock on the date of grant under the 1997 Plan and the 2004 Plan. Stock options are awarded with a strike price at a fair market value equal to the closing price of our common stock on the date of the grant under the 2008 Plan.

 

Options granted under the 1997 Plan and the 2004 Plan typically vest over periods of three to five years and expire ten years from the date of grant while options granted under the 2008 Plan typically vest over periods of one to three years and expire ten years from the date of grant. Options granted under the 2004 Plan and the 2008 Plan may have certain performance requirements in addition to service terms. If the performance conditions are not satisfied, the options are forfeited. No options with performance conditions were outstanding as of December 31, 2011. The exercise prices of stock options outstanding on December 31, 2011 range between $0.63 and $35.23, which represents market value on the grant date. There were 239,312 and 669,372 shares available for grant under the 2004 Plan and the 2008 Plan, respectively, at December 31, 2011.

 

Restricted Stock.  Restricted stock awards are not transferable, but bear certain rights of common stock ownership including voting and dividend rights. Shares are valued at the fair market price at the date of award.  As of December 31, 2011, there were 321,362 shares of restricted stock outstanding with vesting periods of one to three years and a weighted average grant date fair value of $3.03 per share under the 2004 Plan and 2008 Plan.

 

Stock-based compensation costs were recognized as follows (in thousands):

 

 

 

Three
Months
Ended
December
31, 2011

 

Six Months
Ended
December
31, 2011

 

Total cost of stock-based compensation during the period

 

$

370

 

$

734

 

Amounts capitalized in ending inventory

 

(170

)

(336

)

Amounts recognized in expense previously capitalized

 

374

 

595

 

 

 

 

 

 

 

Amounts charged against income for the period before tax

 

$

574

 

$

993

 

 

7



Table of Contents

 

3.             Comprehensive Income or Loss — Comprehensive income or loss is defined as net income or loss plus the change in equity during a period from transactions and other events, excluding those resulting from investments by and distributions to stockholders.  We account for foreign currency forward contracts as cash flow hedges in accordance with ASC 815 (formerly SFAS No. 133), “Accounting for Derivative Instruments and Hedging Activities.”  Changes in the fair value of the contracts that are considered to be effective are recorded in other comprehensive income or loss until the hedged item is recorded in earnings.  Effective cash flow hedges are reclassified out of other comprehensive income or loss and into cost of sales when the hedged inventory is sold. Ineffective cash flow hedges are recorded in other income or loss and were immaterial for the periods presented.  The effect of foreign exchange contracts on our financial position or results of operations has historically been immaterial.  Comprehensive income for the quarters ended December 31, 2011 and 2010 was $15.8 million and $17.3 million, respectively, while comprehensive income for the six month periods ended December 31, 2011 and 2010 was $10.2 million and $14.4 million, respectively.

 

4.             Commitments and Contingencies — During 2001 and 2002, we were named as a defendant in three complaints filed in the Superior Court of California in and for the County of Los Angeles. The plaintiffs sought 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 also sought attorney’s fees and costs. In October 2003, we entered into a settlement agreement with a sub-class of these plaintiffs consisting of managers-in-training and management trainees which was paid in November 2005 with no material impact to our financial statements. A store manager class was certified. However, in August 2008, our motion for de-certification of the class of store managers was granted, thereby dismissing their class action claim. The California Court of Appeals upheld the trial court’s de-certification order and the California Supreme Court has declined to review that decision. We settled the individual claims of two plaintiffs in the lawsuit with no material impact on our financial statements. In addition, approximately 81 individual plaintiffs initially chose to pursue their claims individually and have filed separate lawsuits against us alleging overtime violations.  Some of these cases have been voluntarily dismissed and others have been settled.  There are now approximately 47 separate lawsuits pending.  Eleven of the individual lawsuits have been tried.  We are awaiting decisions in five of these cases and judgments have been entered against Tuesday Morning in four of those cases.  In these four cases we will file Notices of Appeal.  We do not expect these decisions to have a material impact on our results of operations or financial position.  Several of the other individual cases are scheduled for trial this year.

 

A similar lawsuit, which also alleges claims concerning meal and rest periods, was filed in Orange County, California in 2004, by managers, managers-in-training and assistant managers, and an amended complaint was filed in July 2007. In December 2008, the two plaintiffs abandoned their class action claim and elected to pursue their individual claims as well as claims under California’s Private Attorney General Act with respect to such allegations. The Court has found in our favor on all claims and a final judgment has been entered. The plaintiffs have chosen not to pursue an appeal. A companion lawsuit alleging the same claims was filed in Orange County Superior Court in December 2008 on behalf of approximately thirty-four additional individual plaintiffs. This lawsuit includes a claim under California’s Private Attorney General Act.  The Court has scheduled the matter for trial in May 2012 and it is unclear at this time whether such trial will involve one or all plaintiffs.  We do not expect this case to have a material impact on our financial statements.

 

In July 2009, a lawsuit alleging failure to pay overtime compensation was filed in Alabama by a former store manager.  The plaintiff sought to certify a class action made up of current and former store managers.   In fiscal 2010, we filed a request with the court to deny this motion.  The court has not ruled, and no trial date has been set.  We will rigorously defend our position at trial, and we do not expect these complaints to have a material impact on our results of operations or financial position.

 

In December 2008, a class action lawsuit was filed by hourly, non-exempt employees in the Superior Court of California in and for the County of Los Angeles, alleging claims covering meal and rest period violations. The putative class action has now been limited to Senior Sales Associates in California during the class period. The parties are presently conducting discovery.  We do not expect this complaint to have a material impact on our results of operations or financial position.

 

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

 

8



Table of Contents

 

5.             Earnings per common share - The following table sets forth the computation of basic and diluted earnings per common share:

 

 

 

Three Months Ended
December 31,

 

Six Months Ended
December 31,

 

(in thousands, except per share data)

 

2011

 

2010

 

2011

 

2010

 

Net income

 

$

15,857

 

$

17,261

 

$

10,166

 

$

14,615

 

Less: Income to participating securities

 

(137

)

(272

)

(92

)

(252

)

Income available to common shares

 

$

15,720

 

$

16,989

 

$

10,074

 

$

14,363

 

Weighted average common shares outstanding - basic

 

42,131

 

42,383

 

42,421

 

42,301

 

Effect of diluted stock equivalents

 

542

 

607

 

551

 

586

 

Weighted average common shares outstanding - dilutive

 

42,673

 

42,990

 

42,972

 

42,887

 

Net income per common share - basic

 

$

0.37

 

$

0.40

 

$

0.24

 

$

0.34

 

Net income per common share - diluted

 

$

0.37

 

$

0.40

 

$

0.23

 

$

0.34

 

 

For the quarters ended December 31, 2011 and 2010, 1,854,497 and 1,816,165 options, respectively, were excluded because their inclusion would have been anti-dilutive.  For the six months ended December 31, 2011 and 2010, 1,832,287 and 1,749,610 options, respectively, were excluded because their inclusion would have been anti-dilutive.  Additionally, 321,362 and 557,233 restricted shares were outstanding at December 31, 2011 and 2010, respectively.

 

6.             Revolving Credit Facility — We have a credit agreement providing for an asset-based, five-year senior secured revolving credit facility (the “Revolving Credit Facility”) in the amount of up to $180.0 million. Our indebtedness under the credit facility is secured by a lien on substantially all of our assets. On November 17, 2011, we entered into a third amendment to the Revolving Credit Facility.  This amendment, among other things, extended the maturity date of the Revolving Credit Facility from December 15, 2013 to November 17, 2016 and removed the “clean down” provision. The Revolving Credit Facility contains certain restrictive covenants, which affect, among others, our ability to incur liens or incur additional indebtedness, sell assets or merge or consolidate with any other entity. In addition, we are currently required to maintain availability under the Revolving Credit Facility of not less than $18,000,000.  As of December 31, 2011, we were in compliance with all required covenants.  Interest expense of $0.7 million for the quarter ended December 31, 2011 was due primarily to commitment fees of $0.3 million, interest expense of $0.1 million, and the amortization of financing fees of $0.3 million.

 

At December 31, 2011, we had no outstanding amounts under the Revolving Credit Facility, $8.3 million of outstanding letters of credit and availability of $116.7 million under the Revolving Credit Facility subject to minimum availability requirements as discussed above. Letters of credit under the Revolving Credit Facility are primarily for self-insurance purposes. We incur commitment fees of 0.375% on the unused portion of the Revolving Credit Facility. Any borrowing under the Revolving Credit Facility incurs 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 daily availability changes.

 

7.             Income Taxes — Tuesday Morning Corporation or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. With few exceptions, Tuesday Morning Corporation is no longer subject to U.S. state and local income tax examinations by tax authorities for years before 1999. The Internal Revenue Service has concluded an examination of the Company for all tax years ended on or before June 30, 2007.  The effective tax rates for the quarters and six months ended December 31, 2011 and December 31, 2010 were 36.4% and 35.2% compared to 38.4% and 38.5%, respectively.  The effective tax rate was lower in the quarter and six months ended December 31, 2011 as compared to the quarter and six months ended December 31, 2010 due to an increase in tax credits for fiscal 2012.

 

8.             Cash and Cash Equivalents — Credit card receivables of $6.7 million and $3.6 million at December 31, 2011 and June 30, 2011, respectively, from MasterCard, Visa, Discover and American Express, as well as highly liquid investments with an original maturity date of three months or less, are considered to be cash equivalents.

 

9.             Recent Accounting Pronouncements - In June 2011, an accounting standard update was issued that eliminates the option to present the components of other comprehensive income in the statement of equity and requires the presentation of net income and other comprehensive income in one continuous statement or in two separate, but consecutive, statements.  This update does not change the items that must be reported in other comprehensive income, how such items are measured or when they must be reclassified to net income.  This accounting standard update is not effective for the Company until July 1, 2012, and will be applied retrospectively.  This update will not have an impact on our financial condition, results of operations and cash flows.

 

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This standard amends the disclosure guidance with respect to fair value measurements for both interim and annual reporting periods. Specifically, this standard requires separate disclosure of significant transfers of assets or liabilities between Level 1 and Level 2 fair value measurements, and separate disclosures of fair value measurements for purchases, sales, issuances and settlements that use unobservable inputs (Level 3),

 

9



Table of Contents

 

and more robust disclosure of the valuation techniques and inputs used to measure recurring and nonrecurring fair value measurements (e.g. Level 2 and Level 3 measurements). These more robust disclosures and separate disclosure of significant transfers of assets or liabilities between Level 1 and Level 2 fair value measurements was effective for us as of December 15, 2009. The separate disclosures of fair value measurements for purchases, sales and settlements that use unobservable inputs (Level 3) was effective beginning with our fiscal year beginning July 1, 2011. However, at this time, the Company does not have any material Level 1, 2 or 3 assets or liabilities that require disclosure.

 

In April 2011, the FASB issued Accounting Standards Update No. 2011-04: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. The Amendments change the wording used to describe the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. Specifically, the amendments clarify the intent around applying existing fair value measurements and disclosure requirements, as well as, those that change a particular principle or requirement for measuring fair value or disclosing information about fair value measurements. These amendments are to be applied prospectively for annual periods beginning after December 15, 2011, and early application is not permitted. Due to the level of immateriality of the Level 1, 2 and 3 assets and liabilities that are addressed with these amendments, the Company does not believe that any of these amendments will have a material effect on its consolidated financial statements.

 

10



Table of Contents

 

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

 

The following discussion should be read in conjunction with our unaudited Consolidated Financial Statements and the notes thereto included in Item 1 of this Quarterly Report on Form 10-Q.

 

Introduction

 

We operated 861 discount retail stores in 43 states as of December 31, 2011. We sell upscale, decorative home accessories, housewares, and famous maker gifts which we purchase at below wholesale prices. Our stores have periodic “sales events” that occur in each month except January and July. As we conduct physical inventories at all of our stores, we are normally closed for up to one week during the months of January and July, which traditionally have been weaker months for retailers. We purchase first quality, brand name merchandise at closeout prices and, in turn, sell it at prices significantly below those generally charged by department stores and specialty and catalog retailers. We do not sell seconds, irregulars, refurbished or factory rejects.

 

Business Overview

 

The retail home furnishings industry has been negatively impacted by increased supply and competition within an already highly competitive promotional environment, a trend we believe is likely to continue in the near term and potentially longer. As a closeout retailer of home furnishings, we currently compete against a diverse group of retailers, including department and discount stores, specialty, catalogue and e-commerce retailers and mass merchants, which sell, among other products, home furnishing and related products similar and often identical to those we sell. We also compete in particular markets with a substantial number of retailers that specialize in one or more types of home furnishing and houseware products that we sell. Some of these competitors have substantially greater financial resources than we do. Our competitors’ greater financial resources allow them to initiate and sustain aggressive price competition, initiate broader marketing campaigns that reach a larger customer base, fund ongoing promotional events and communicate more frequently with existing and potential customers.

 

In response to the ongoing competition in the retail home furnishings and housewares industries, we continue to focus internally on various strategic initiatives that we believe have and will continue to offset the impact of this trend including, but not limited to:

 

·                  evaluating our monthly direct mail advertising vehicle to create more excitement surrounding each monthly event and draw more customer traffic to our stores;

·                  focusing on our Internet business to more effectively utilize this channel to increase sales to our existing customers as well as attract new customers;

·                  continuing to review the individual contributions of the existing store base and making decisions about the future of individual store locations, including whether to close or relocate them;

·                  striving to provide a merchandise assortment that evolves and adapts to the changing needs and preferences of our customer base;

·                  seeking to improve overall supply chain efficiency, including an ongoing review of operational practices such as freight costs, vendor payment terms, distribution processes and increasing inventory turns;

·                  expanding the current customer base;

·                 increasing cost efficiency; and

·                  striving to optimize our purchasing of inventory to best match customer demand.

 

We also continue to closely monitor and control our markdowns of inventory to avoid marking down items that continue to sell through at reasonable rates.  Markdowns during the second quarter of fiscal 2012 were 5.5% of sales versus 5.1% of sales for the same period last year.  We believe this strategy has contributed and will continue to contribute to overall margin by focusing our markdowns on inventory that is truly slow moving and not marking down items on the basis of age in inventory alone.  This strategy is designed to exclude markdowns on opportunistic buys which are too large for us to sell through in one year.  However, if our sales forecasts are not achieved, we may be required to record additional markdowns that could exceed historical levels.  The effect of a 0.5% markdown in the value of our inventory at December 31, 2011 would result in a decline in gross profit and earnings per share for the second quarter of fiscal 2012 of $1.2 million and $0.02, respectively.  Under current economic conditions, forecasts can vary significantly from the actual results we achieve.

 

Our ability to continuously attract buying opportunities for closeout merchandise, and to anticipate consumer demand as closeout merchandise becomes available, represents an uncertainty in our business. By their nature, specific closeout merchandise items are generally only available from manufacturers or vendors on a non-recurring basis. As a result, we do not have long-term contracts with our vendors for supply, pricing or access to products, but make individual purchase decisions, which are often for large quantities. Although we have many sources of merchandise and do not foresee any shortage of closeout merchandise in the near future, we cannot assure that manufacturers or vendors will continue to make desirable closeout merchandise available to us in quantities or on terms acceptable to us or that our buyers will continue to identify and take advantage of appropriate buying opportunities. Since this uncertainty is a by-product of our business, we expect it to be an ongoing risk.

 

11



Table of Contents

 

The stability of our earnings is also heavily influenced by macroeconomic factors. As the economy improves or worsens our business is often similarly impacted. Macroeconomic factors, such as the current conditions in the debt and housing markets and unemployment, have impacted and will continue to impact our business by decreasing the disposable income of our existing and potential customers. A decline in consumer confidence levels also has a negative impact on consumers’ ability and willingness to spend discretionary income. At this time, we view the direction of the economy to be uncertain, which does not allow us a high degree of visibility or certainty with respect to our future earnings.

 

Net sales for the second quarter of fiscal 2012 were approximately $273.1 million, a decrease of 2.2% compared to the same period last year. Comparable store sales for the quarter ended December 31, 2011, decreased by 4.6% compared to the same period last year which was primarily due to a 3.5% decrease in traffic and a 1.1% decrease in average ticket.  Net income for the quarter was $15.9 million and earnings per share was $0.37.

 

We continue to remain focused on our long-term growth and profitability. The home furnishings and high end decorative sectors of the U.S. economy continue to be challenged by the highly competitive promotional environment and weakness in the housing and debt markets.

 

We opened nine new stores and closed one existing store during the second quarter of fiscal 2012. In addition, we relocated 13 existing stores during the second quarter of fiscal 2012.

 

Store Openings/Closings

 

 

 

Six Months
Ended
December
31,
2011

 

Six Months
Ended
December
31,
2010

 

Fiscal Year
Ended
June 30,
2011

 

Stores open at beginning of period

 

861

 

852

 

852

 

Stores opened during the period

 

15

 

10

 

44

 

Stores closed during the period

 

(15

)

(17

)

(35

)

Stores opened at end of period

 

861

 

845

 

861

 

 

Results of Operations

 

The following table sets forth certain financial information from our consolidated statements of operations 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 quarter ending December 31, which includes the holiday season. There can be no assurance that the trends in sales or operating results will continue in the future.

 

 

 

Three Months Ended
December 31,

 

Six Months Ended
December 31,

 

 

 

2011

 

2010

 

2011

 

2010

 

Net sales

 

100.0

%

100.0

%

100.0

%

100.0

%

Cost of sales

 

61.6

 

61.6

 

61.7

 

61.5

 

Gross profit

 

38.4

 

38.4

 

38.3

 

38.5

 

Selling, general and administrative expense

 

29.1

 

28.2

 

34.4

 

33.0

 

Operating income

 

9.3

 

10.2

 

3.9

 

5.5

 

Net interest expense and other income (expense)

 

(0.2

)

(0.1

)

(0.3

)

(0.3

)

Income before income taxes

 

9.1

 

10.1

 

3.6

 

5.2

 

Income tax expense

 

3.3

 

3.9

 

1.2

 

2.0

 

 

 

 

 

 

 

 

 

 

 

Net income

 

5.8

%

6.2

%

2.4

%

3.2

%

 

Three Months Ended December 31, 2011

Compared to the Three Months Ended December 31, 2010

 

During the second quarter of fiscal 2012, net sales decreased to $273.1 million from $279.3 million, a decrease of $6.2 million, or 2.2%, compared to the quarter ended December 31, 2010.  The decrease in second quarter sales was primarily due to a 4.6% decrease in comparable store sales. The decrease in comparable sales for the second quarter of fiscal 2012 was comprised of a 3.5% decrease in traffic and a 1.1% decrease in average ticket.

 

12



Table of Contents

 

Gross profit decreased $2.4 million, or 2.2%, to $104.8 million for the second quarter ended December 31, 2011 compared to $107.2 million for the same quarter last year.  The decrease in gross profit dollars was due to lower net sales of $6.3 million.  As a percentage of net sales, gross profit remained flat at 38.4% for the quarter ended December 31, 2011 compared to the same quarter in fiscal 2011.

 

Selling, general and administrative expenses increased $0.5 million, or 0.6%, to $79.3 million for the second quarter of fiscal 2012 from $78.8 million for the same quarter last year.  As a percentage of net sales, selling, general and administrative expenses increased by 0.9% to 29.1% in the second quarter of fiscal 2012 from 28.2% in the same quarter last year, primarily due to lower sales volume.  On a per store basis, selling, general and administrative expenses decreased 1.2% year over year.

 

The income tax expense for the quarter ended December 31, 2011 was $9.1 million compared to $10.8 million for the same period last year.  The effective tax rates for the quarters ended December 31, 2011 and December 31, 2010 were 36.4% and 38.4%, respectively.  The effective tax rate was lower in the three months ended December 31, 2011 as compared to the three months ended December 31, 2010 due to an increase in tax credits for fiscal 2012.

 

Six Months Ended December 31, 2011

Compared to the Six Months Ended December 31, 2010

 

During the six months ended December 31, 2011, net sales decreased to $443.7 million from $452.1 million, a decrease of $8.4 million, or 1.9%, compared to the six months ended December 31, 2010.  The decrease in six months sales was primarily due to a 4.4% decrease in comparable store sales. The decrease in comparable sales for the first six months of fiscal 2012 was comprised of a 4.2% decrease in traffic and a 0.2% decrease in average ticket.

 

Gross profit decreased $4.2 million, or 2.4%, to $169.8 million for the six months ended December 31, 2011 as compared to $174.0 million for the same six month period last year.  The decrease in gross profit dollars was due to lower net sales of $8.4 million.  In the six month period ended December 31, 2011, our gross profit percentage decreased to 38.3% from 38.5% for the same period last year. This decrease of 0.2% in gross profit percentage was primarily due to slightly higher markdowns and freight offset by sharper product margins, a result of sourcing better merchandise deals.

 

Selling, general and administrative expenses during the six months ended December 31, 2011 increased $3.7 million, or 2.5%, to $152.8 million from $149.1 million for the six months ended December 31, 2010.   As a percentage of net sales, selling, general and administrative expenses increased 1.4% to 34.4% in the first six months of fiscal 2012 from 33.0% in the same period last year.   The increase was primarily due to the loss of expense leverage on lower sales volume in addition to higher rent expense from having 16 more stores this year.  An increase in square footage in certain new and relocated stores during the last 12 months also contributed to the higher rent expense.  On a per store basis, selling, general and administrative expenses increased 1.0% year over year.

 

The income tax expense for the six month periods ended December 31, 2011 and 2010 was $5.5 million and $9.1 million, respectively, reflecting an effective tax rate of 35.2% and 38.5%, respectively.  The effective tax rate was lower in the six months ended December 31, 2011 as compared to the six months ended December 31, 2010 due to an increase tax credits for fiscal year 2012.

 

Liquidity and Capital Resources

 

We have financed our operations with funds generated from operating activities and borrowings under our revolving credit facility.  Our borrowings have historically peaked during October as we build inventory levels prior to the holiday selling season.  Given the seasonality of our business, the amount of borrowings under our revolving credit facility may fluctuate materially depending on various factors, including the time of year, our needs and the opportunity to acquire merchandise inventory.  We 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 provided by operating activities for the six months ended December 31, 2011 and 2010 was $67.0 million and $8.8 million, respectively. The $67.0 million of cash provided by operating activities for the six months ended December 31, 2011 was primarily due to a decrease in inventory of $24.9 million, a decrease in prepaid assets of $6.1 million, an increase in accounts payable of $9.0 million, an increase in accrued liabilities of $3.3 million, an increase in income tax payable of $5.3 million, and net income, excluding depreciation and amortization of $18.2 million. There were no significant changes to our vendor payment policy during this time.

 

Capital expenditures are primarily associated with new store openings or relocations, existing store maintenance, or enhancements to warehouse and office equipment and systems, and totaled $5.6 million and $12.3 million for the six months ended December 31, 2011 and 2010, respectively.  The decrease in capital expenditures was primarily related to merchandise systems implementations in fiscal 2011 that did not recur in fiscal 2012.  We expect to spend approximately $9.4 million for additional capital expenditures during the remainder of fiscal 2012, which will primarily include systems improvements, the opening of new stores, relocations of existing stores, enhancements of selected stores, fixtures for existing stores and purchases of equipment for our distribution center and corporate office.

 

13



Table of Contents

 

On August 22, 2011, the Company’s Board of Directors adopted a share repurchase program pursuant to which the Company is authorized to repurchase from time to time shares of Common Stock, up to a maximum of $5.0 million in aggregate purchase price for all such shares (the “Repurchase Program”).  On January 20, 2012, the Company’s Board of Directors increased the authorization for stock repurchases under the Repurchase Program from $5.0 million to a maximum of $10.0 million.  The Repurchase Program does not have an expiration date and may be suspended or discontinued at any time.  The Board will evaluate the Repurchase Program each year and there can be no assurances as to the number of shares of Common Stock the Company will repurchase.  During the six-month period ended December 31, 2011, 1,198,783 shares were repurchased under the Repurchase Program at an average cost of $3.55 per share and for a total cost (excluding commissions) of approximately $4.3 million.  All of such shares were purchased by the Company in open-market transactions.

 

We have a credit agreement providing for an asset-based, five-year senior secured revolving credit facility (the “Revolving Credit Facility”) in the amount of up to $180.0 million. Our indebtedness under the credit facility is secured by a lien on substantially all of our assets. On November 17, 2011, we entered into a third amendment to the Revolving Credit Facility.  This amendment, among other things, extended the maturity date of the Revolving Credit Facility from December 15, 2013 to November 17, 2016 and removed the “clean down” provision. The Revolving Credit Facility contains certain restrictive covenants, which affect, among others, our ability to incur liens or incur additional indebtedness, sell assets or merge or consolidate with any other entity. In addition, we are currently required to maintain availability under the Revolving Credit Facility of not less than $18,000,000.  As of December 31, 2011, we were in compliance with all required covenants.  Interest expense of $0.7 million for the quarter ended December 31, 2011 was due primarily to commitment fees of $0.3 million, interest expense of $0.1 million, and the amortization of financing fees of $0.3 million.

 

At December 31, 2011, we had no outstanding amounts under the Revolving Credit Facility, $8.3 million of outstanding letters of credit and availability of $116.7 million under the Revolving Credit Facility subject to minimum availability requirements as discussed above. Letters of credit under the Revolving Credit Facility are primarily for self-insurance purposes. We incur commitment fees of 0.375% on the unused portion of the Revolving Credit Facility. Any borrowing under the Revolving Credit Facility incurs 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 daily availability changes.

 

Recent Accounting Pronouncements

 

In June 2011, an accounting standard update was issued that eliminates the option to present the components of other comprehensive income in the statement of equity and requires the presentation of net income and other comprehensive income in one continuous statement or in two separate, but consecutive, statements.  This update does not change the items that must be reported in other comprehensive income, how such items are measured or when they must be reclassified to net income.  This accounting standard update is not effective for the Company until July 1, 2012 and will be applied retrospectively.  This update will not have an impact on our financial condition, results of operations and cash flows.

 

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This standard amends the disclosure guidance with respect to fair value measurements for both interim and annual reporting periods. Specifically, this standard requires separate disclosure of significant transfers of assets or liabilities between Level 1 and Level 2 fair value measurements, and separate disclosures of fair value measurements for purchases, sales, issuances and settlements that use unobservable inputs (Level 3), and more robust disclosure of the valuation techniques and inputs used to measure recurring and nonrecurring fair value measurements (e.g. Level 2 and Level 3 measurements). These more robust disclosures and separate disclosure of significant transfers of assets or liabilities between Level 1 and Level 2 fair value measurements was effective for us as of December 15, 2009. The separate disclosures of fair value measurements for purchases, sales and settlements that use unobservable inputs (Level 3) was effective beginning with our fiscal year beginning July 1, 2011. However, at this time, the Company does not have any material Level 1, 2 or 3 assets or liabilities that require disclosure.

 

In April 2011, the FASB issued Accounting Standards Update No. 2011-04: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. The Amendments change the wording used to describe the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. Specifically, the amendments clarify the intent around applying existing fair value measurements and disclosure requirements, as well as, those that change a particular principle or requirement for measuring fair value or disclosing information about fair value measurements. These amendments are to be applied prospectively for annual periods beginning after December 15, 2011, and early application is not permitted. Due to the level of immateriality of the Level 1, 2 and 3 assets and liabilities that are addressed with these amendments, the Company does not believe that any of these amendments will have a material effect on its consolidated financial statements.

 

14



Table of Contents

 

Item 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 December 31, 2011, 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 fiscal year ended June 30, 2011. We do not enter into derivatives or other financial instruments for trading or speculative purposes. We have not been significantly affected by any changes in the foreign currency exchange rate or interest rate market risks since June 30, 2011.  The effect of foreign exchange contracts on our financial position or results of operations has historically been, and continue to be, immaterial.

 

Item 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) or Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective as of December 31, 2011 to ensure that information required to be disclosed by us in this Quarterly Report on Form 10-Q was (1) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (2) accumulated and communicated to our management, including our principal executive and principal financial officers, to allow timely decisions regarding required disclosure.

 

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 effective to provide reasonable assurance that the objectives of our disclosure 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 December 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

15



Table of Contents

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

During 2001 and 2002, we were named as a defendant in three complaints filed in the Superior Court of California in and for the County of Los Angeles. The plaintiffs sought 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 also sought attorney’s fees and costs. In October 2003, we entered into a settlement agreement with a sub-class of these plaintiffs consisting of managers-in-training and management trainees which was paid in November 2005 with no material impact to our financial statements. A store manager class was certified. However, in August 2008, our motion for de-certification of the class of store managers was granted, thereby dismissing their class action claim. The California Court of Appeals upheld the trial court’s de-certification order and the California Supreme Court has declined to review that decision. We settled the individual claims of two plaintiffs in the lawsuit with no material impact on our financial statements. In addition, approximately 81 individual plaintiffs initially chose to pursue their claims individually and have filed separate lawsuits against us alleging overtime violations.  Some of these cases have been voluntarily dismissed and others have been settled.  There are now approximately 47 separate lawsuits pending.  Eleven of the individual lawsuits have been tried.  We are awaiting decisions in five of these cases and judgments have been entered against Tuesday Morning in four of those cases.  In these four cases we will file Notices of Appeal.  We do not expect these decisions to have a material impact on our results of operations or financial position.  Several of the other individual cases are scheduled for trial this year.

 

A similar lawsuit, which also alleges claims concerning meal and rest periods, was filed in Orange County, California in 2004, by managers, managers-in-training and assistant managers, and an amended complaint was filed in July 2007. In December 2008, the two plaintiffs abandoned their class action claim and elected to pursue their individual claims as well as claims under California’s Private Attorney General Act with respect to such allegations. The Court has found in our favor on all claims and a final judgment has been entered. The plaintiffs have chosen not to pursue an appeal. A companion lawsuit alleging the same claims was filed in Orange County Superior Court in December 2008 on behalf of approximately thirty-four additional individual plaintiffs. This lawsuit includes a claim under California’s Private Attorney General Act.  The Court has scheduled the matter for trial in May 2012 and it is unclear at this time whether such trial will involve one or all plaintiffs.  We do not expect this case to have a material impact on our financial statements.

 

In July 2009, a lawsuit alleging failure to pay overtime compensation was filed in Alabama by a former store manager.  The plaintiff sought to certify a class action made up of current and former store managers.   In fiscal 2010, we filed a request with the court to deny this motion.  The court has not ruled, and no trial date has been set.  We will rigorously defend our position at trial, and we do not expect these complaints to have a material impact on our results of operations or financial position.

 

In December 2008, a class action lawsuit was filed by hourly, non-exempt employees in the Superior Court of California in and for the County of Los Angeles, alleging claims covering meal and rest period violations. The putative class action has now been limited to Senior Sales Associates in California during the class period. The parties are presently conducting discovery.  We do not expect this complaint to have a material impact on our results of operations or financial position.

 

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

 

Item 1A. Risk Factors

 

There have been no material changes from our risk factors previously disclosed in “Item 1A. Risk Factors” of our Form 10-K for the fiscal year ended June 30, 2011.

 

16



Table of Contents

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Repurchases of equity securities during the three months ended December 31, 2011 are listed in the following table:

 

Period

 

Total
Number of
Shares
Repurchased(1)

 

Average
Price Paid
per Share(2)

 

Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs(3)

 

Approximate
Dollar
Value of
Shares That
May Yet Be
Purchased
Under the
Plans or
Programs(2)(3)(4)

 

October 1 through October 31

 

292,596

 

$

3.66

 

292,596

 

$

2,756,677

 

November 1 through November 30

 

328,266

 

$

3.50

 

328,266

 

$

1,616,716

 

December 1 through December 31

 

268,021

 

$

3.39

 

268,021

 

$

716,209

 

Total

 

888,883

 

$

3.46

 

888,883

 

$

716,209

 

 


(1)              Includes shares of Common Stock withheld by the Company in connection with the vesting of equity awards under the Company’s equity incentive plans.

 

(2)              Excludes commissions

 

(3)              On August 22, 2011, the Company’s Board of Directors adopted a share repurchase program pursuant to which the Company is authorized to repurchase from time to time shares of Common Stock, up to a maximum of $5.0 million in aggregate purchase price for all such shares (the “Repurchase Program”).On January 20, 2012, the Company’s Board of Directors increased the authorization for stock repurchases under the Repurchase Program from $5.0 million to a maximum of $10.0 million. The Repurchase Program does not have an expiration date and may be suspended or discontinued at any time. The Board will evaluate the Repurchase Program each year and there can be no assurances as to the number of shares of Common Stock the Company will repurchase. As of December 31, 2011, 1,198,783 shares have been repurchased under the Repurchase Program for a total cost (excluding commissions) of approximately $4.3 million, of which 1,140,288 shares were purchased by the Company in open-market transactions and 58,495 shares were withheld by the Company in connection with the vesting of equity awards under the Company’s equity incentive plans.

 

(4)              Amounts listed do not include the additional $5.0 million that the Company’s Board of Directors authorized for stock repurchases on January 20, 2012, which was subsequent to the period covered by this report.

 

17



Table of Contents

 

Item 6.  Exhibits

 

Exhibit
Number

 

Description

 

 

 

 

 

3.1.1

 

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 (incorporated by reference to Exhibit 3.1.3 to the Company’s Form 10-Q as filed with the Commission on May 2, 2005)

 

 

 

 

 

3.2

 

Amended and Restated By-laws of the Company dated December 14, 2006 (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K as filed with the Commission on December 20, 2006)

 

 

 

 

 

10.1

 

Third Amendment to Credit Agreement, dated November 17, 2011, by and among the Company, Bank of America, N.A., Wells Fargo Bank, N.A. and Regions Bank (incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K as filed with the Commission of November 23, 2011)

 

 

 

 

 

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 *

 

 

 

 

 

101.INS

 

XBRL Instance Document**

 

 

 

 

 

101.SCH

 

XBRL Taxonomy Schema Document**

 

 

 

 

 

101.CAL

 

XBRL Taxonomy Calculation Linkbase Document**

 

 

 

 

 

101.DEF

 

XBRL Taxonomy Definition Linkbase Document**

 

 

 

 

 

101.LAB

 

XBRL Taxonomy Label Linkbase Document**

 

 

 

 

 

101.PRE

 

XBRL Taxonomy Presentation Linkbase Document**

 

 


*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.

 

** These exhibits are furnished herewith.  In accordance with Rule 406T of Regulation S-T, these exhibits are not deemed to be filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are not deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under theses sections.

 

18



Table of Contents

 

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: January 30, 2012

By:

/s/ STEPHANIE BOWMAN

 

 

Stephanie Bowman, Executive Vice President,
Chief Financial Officer, Treasurer and Secretary

 

19



Table of Contents

 

EXHIBIT INDEX

 

Exhibit
Number

 

Description

 

 

 

 

 

3.1.1

 

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 (incorporated by reference to Exhibit 3.1.3 to the Company’s Form 10-Q as filed with the Commission on May 2, 2005)

 

 

 

 

 

3.2

 

Amended and Restated By-laws of the Company dated December 14, 2006 (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K as filed with the Commission on December 20, 2006)

 

 

 

 

 

10.1

 

Third Amendment to Credit Agreement, dated November 17, 2011, by and among the Company, Bank of America, N.A., Wells Fargo Bank, N.A. and Regions Bank (incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K as filed with the Commission of November 23, 2011)

 

 

 

 

 

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 *

 

 

 

 

 

101.INS

 

XBRL Instance Document**

 

 

 

 

 

101.SCH

 

XBRL Taxonomy Schema Document**

 

 

 

 

 

101.CAL

 

XBRL Taxonomy Calculation Linkbase Document**

 

 

 

 

 

101.DEF

 

XBRL Taxonomy Definition Linkbase Document**

 

 

 

 

 

101.LAB

 

XBRL Taxonomy Label Linkbase Document**

 

 

 

 

 

101.PRE

 

XBRL Taxonomy Presentation Linkbase Document**

 

 


*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.

 

** These exhibits are furnished herewith.  In accordance with Rule 406T of Regulation S-T, these exhibits are not deemed to be filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are not deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under theses sections.

 

20


EXHIBIT 31.1

 

CERTIFICATION

 

I, Kathleen Mason, certify that:

 

1.                                                   I have reviewed this quarterly report on Form 10-Q of Tuesday Morning Corporation;

 

2.                                                   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.                                                   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.                                                   The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)                                                              Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)                                                             Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)                                                              Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)                                                             Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.                                                   The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)                                                              All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)                                                             Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

Date: January 30, 2012

By:

/s/ KATHLEEN MASON

 

 

Kathleen Mason

 

 

Chief Executive Officer

 

1


 

EXHIBIT 31.2

 

CERTIFICATION

 

I, Stephanie Bowman, certify that:

 

1                                                                        I have reviewed this quarterly report on Form 10-Q of Tuesday Morning Corporation;

 

2.                                                                     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.                                                                     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.                                                                     The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)                                      Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)                                     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)                                      Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)                                     Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.                                                                     The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)                                      All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)                                     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

Date: January 30, 2012

By:

/s/ STEPHANIE BOWMAN

 

 

Stephanie Bowman

 

 

Chief Financial Officer

 

1


EXHIBIT 32.1

 

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER OF TUESDAY MORNING CORPORATION PURSUANT TO

18 U.S.C. §1350

 

I, Kathleen Mason, the Chief Executive Officer of Tuesday Morning Corporation, hereby certify that:

 

1.                                       The quarterly report on Form 10-Q of Tuesday Morning Corporation for the period ended December 31, 2011 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.                                       The information contained in the above-mentioned report fairly presents, in all material respects, the financial condition and results of operations of Tuesday Morning Corporation.

 

 

Date: January 30, 2012

By:

/s/ KATHLEEN MASON

 

 

Kathleen Mason
Chief Executive Officer

 

1


EXHIBIT 32.2

 

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER OF TUESDAY MORNING CORPORATION PURSUANT TO

18 U.S.C. §1350

 

I, Stephanie Bowman, the Chief Financial Officer of Tuesday Morning Corporation, hereby certify that:

 

1.                                       The quarterly report on Form 10-Q of Tuesday Morning Corporation for the period ended December 31, 2011 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.                                       The information contained in the above-mentioned report fairly presents, in all material respects, the financial condition and results of operations of Tuesday Morning Corporation.

 

 

Date: January 30, 2012

By:

/s/ STEPHANIE BOWMAN

 

 

Stephanie Bowman
Chief Financial Officer

 

1