<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 September 30, 1996 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 (I.R.S. Employer Identification No.)
incorporation or organization)
14621 INWOOD RD., DALLAS, TEXAS 75244
(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 September 30, 1996: 7,869,086 shares
<PAGE>
TUESDAY MORNING CORPORATION
PART 1 - FINANCIAL INFORMATION
Page No.
Item 1 - Financial Statements --------
Consolidated Balance Sheets as of September 30, 1996,
September 30, 1995 and December 31, 1995 1
Consolidated Statements of Operations for the
Three Months and Nine Months Ended
September 30, 1996 and 1995 2
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1996 and 1995 3
Notes to Consolidated Financial Statements 4
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
<PAGE>
Tuesday Morning Corporation and Subsidiaries
Consolidated Balance Sheets
Unaudited
<TABLE>
<CAPTION>
Sept 30, Sept 30, Dec. 31,
ASSETS 1996 1995 1995
--------- --------- --------
(In Thousands)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................. $ 599 $ 2,062 $ 6,276
Federal income tax receivable......................... 96 1,730 -
Inventories........................................... 114,347 93,118 52,367
Prepaid expenses...................................... 2,627 1,379 993
Other current assets.................................. 211 550 458
-------- -------- --------
Total current assets........................... 117,880 98,839 60,094
-------- -------- --------
Property, plant and equipment, at cost:
Land.................................................. 8,356 8,356 8,356
Buildings............................................. 13,285 12,955 12,989
Furniture and fixtures................................ 17,138 15,815 15,584
Equipment............................................. 14,348 13,177 13,433
Leasehold improvements................................ 2,093 1,924 1,967
-------- -------- --------
55,220 52,227 52,329
Less accumulated depreciation & amortization.......... (24,806) (20,695) (21,267)
-------- -------- --------
Net property, plant and equipment.............. 30,414 31,532 31,062
-------- -------- --------
Other assets, at cost:
Due from Officer...................................... 2,617 2,048 2,211
Other assets.......................................... 757 930 876
-------- -------- --------
Total Assets............................................... $151,668 $133,349 $ 94,243
========= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of mortgages..................... $ 1,021 $ 1,021 $ 1,021
Short term notes payable.............................. - 138 -
Current installments of capital lease obligation...... 772 669 755
Accounts payable...................................... 31,097 24,699 12,707
Accrued expenses
Sales tax.......................................... 1,068 994 1,662
Other.............................................. 3,324 2,584 2,467
Deferred income taxes................................. 231 303 231
Due to officer........................................ - - -
Federal income taxes payable.......................... - - 2,136
--------- -------- --------
Total current liabilities...................... 37,513 30,408 20,979
--------- -------- --------
Mortgages on land, buildings and equipment................. 4,849 5,870 5,615
Long term notes payable.................................... 41,776 36,593 -
Long term capital lease obligation......................... 433 1,270 1,007
Deferred income taxes...................................... 2,994 2,920 2,994
Shareholders' equity:
Preferred stock of $1 par value per share.
Authorized 2,000,000 shares,none issued............. - - -
Common stock of $.01 par value per share.
Authorized 20,000,000 shares; issued
8,143,586 shares at September 30, 1996
8,139,086 shares at September 30, 1995
8,143,586 shares at December 31, 1995............... 81 81 81
Additional paid-in capital............................ 18,277 18,367 18,277
Retained earnings..................................... 47,773 40,007 47,318
Less: treasury stock
274,500 shares at September 30, 1996
299,500 shares at September 30, 1995
274,500 shares at December 31, 1995................. (2,028) (2,167) (2,028)
--------- -------- --------
Total shareholders' equity..................... 64,103 56,288 63,648
--------- -------- --------
Total Liabilities and Shareholders' Equity................. $151,668 $133,349 $ 94,243
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
(1)
<PAGE>
Tuesday Morning Corporation and Subsidiaries
Consolidated Statements of Operations
Unaudited
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1996 1995 1996 1995
-------- -------- -------- --------
(In thousands, (In thousands,
except per share data) except per share data)
<S> <C> <C> <C> <C>
Net sales....................................................... $ 48,537 $ 38,240 $138,563 $116,175
Cost of sales................................................... 29,787 23,377 88,199 75,036
-------- -------- -------- --------
Gross profit............................................ 18,750 14,863 50,364 41,139
Selling, general and administrative expenses.................... 16,855 14,496 48,134 43,112
-------- -------- ------- --------
Operating income (loss)................................. 1,895 367 2,230 (1,973)
-------- -------- ------- --------
Other income (expense):
Interest income.............................................. 59 46 195 142
Interest expense............................................. (992) (1,093) (2,147) (2,587)
Other income ................................................ 135 147 434 391
-------- -------- ------- --------
(798) (900) (1,518) (2,054)
-------- -------- ------- --------
Income (loss) before income taxes....................... 1,097 (533) 712 (4,027)
Income tax (benefits)........................................... 399 (197) 256 (1,490)
-------- -------- ------- --------
Net income (loss)....................................... $ 698 $ (336) $ 456 $ (2,537)
======== ======== ======== ========
Net income (loss) per share.................................. $ 0.08 $ (0.04) $ 0.06 $ (0.32)
======== ======== ======== =========
Weighted average common share and share equivalents............. 8,370 7,840 8,264 7,824
======== ======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
(2)
<PAGE>
Tuesday Morning Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1996 1995
---------- ----------
(In Thousands)
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers........................... $ 138,563 $ 116,175
Cash paid to suppliers and employees................... (176,911) (148,645)
Interest received...................................... 195 142
Interest paid.......................................... (2,147) (2,587)
Income taxes paid...................................... (2,489) (1,228)
---------- ----------
Net cash used by operating activities.................. (42,789) (36,143)
---------- ----------
Cash flows from investing activities:
Loans to officers...................................... (406) (248)
Capital expenditures................................... (2,935) (1,711)
---------- ----------
Net cash used by investing activities.................. (3,341) (1,959)
---------- ----------
Cash flows from financing activities:
Proceeds from short and long term borrowings........... 41,776 36,593
Payment of short-term borrowings....................... - 138
Payment of mortgages................................... (766) (808)
Principal payments under capital lease obligation...... (557) (489)
Proceeds from exercise of common
stock options/stock purchase plan................. - 195
--------------------------
Net cash provided by financing activities.............. 40,453 35,629
---------- ----------
Net decrease in cash and cash equivalents.................. (5,677) (2,473)
Cash and cash equivalents at beginning of period........... 6,276 4,535
---------- ----------
Cash and cash equivalents at end of period................. $ 599 $ 2,062
========== ==========
Reconciliation of net loss to net cash
used by operating activities:
Net income (loss).......................................... $ 456 $ (2,537)
---------- ----------
Adjustments to reconcile net income (loss) to net cash
used by operating activities:
Depreciation and amortization...................... 3,582 3,132
Change in operating assets and liabilities:
Increase in federal income taxes receivable...... (96) (1,730)
Increase in inventories.......................... (61,980) (46,303)
Increase (decrease) in prepaid expense........... (1,634) 295
Decrease in other current assets................. 247 99
Decrease in other assets and liabilities......... 119 48
Increase in accounts payable..................... 18,390 11,782
Increase in accrued expenses..................... 263 59
Decrease in federal income taxes payable......... (2,136) (988)
---------- ----------
Total adjustments.............................. (43,245) (33,606)
---------- ----------
Net cash used by operating activities...................... $ (42,789) $ (36,143)
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
(3)
<PAGE>
Tuesday Morning Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1. The consolidated interim financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosure 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 1995 Annual Report.
2. Net Income/(Loss) per share amounts are based on the weighted average
number of shares and dilutive share equivalents outstanding during the
period.
3. The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
4. 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 next page.
(4)
<PAGE>
TUESDAY MORNING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES:
The Company's principal liquidity need is for inventory purchases. The Company's
two principal sources of liquidity have been its operating cash flow and
borrowings under bank lines of credit.
The Company entered into a three year $45 million revolving line of credit
agreement with a new bank on July 15, 1994. This agreement is secured by a
pledge of the Company's assets. Borrowings available under the agreement were
limited to the lesser of $45 million or 50% (60% for up to 120 days during each
year) of eligible inventory, as defined. The availability was further reduced by
the aggregate undrawn amount of outstanding letters of credit.
This agreement was amended on June 25, 1996 to increase the amount to $55
million from July 1 to October 31 of each year, extend the maturity date to
July, 1999 and lower the interest rate by 1/2%. Based on the line of credit
agreement, the Company had the ability to utilize $55.0 million in borrowings
and letters of credit at September 30, 1996. On September 30, 1996, the Company
had $41.8 million of long term borrowings and outstanding letters of credit
totaled $2.2 million. The remaining $11.0 million was available for general
corporate purposes.
The agreement requires the Company and its subsidiaries to comply with various
financial and other covenants, including the maintenance of certain operating
and financial ratios, and they contain substantial limitations on dividends,
indebtedness, liens, capital expenditures, asset sales and certain other items.
At September 30, 1996, the Company was in compliance with these covenants.
Management believes that the agreement will be adequate to meet its needs for
liquidity and growth.
In September 1995, the Company entered into a $7.1 million floating rate
mortgage collateralized by a first lien deed of trust on all of the Company's
owned real estate. This mortgage refinanced and consolidated mortgages which
existed prior to 1995. In connection with this mortgage, the Company is required
to maintain a minimum net worth and to comply with other financial covenants. At
September 30, 1996, the Company was in compliance with these covenants.
The Company's principal capital requirement has been the funding of the
development of new stores and the resulting increase in inventory requirements.
As of September 30, 1996, the Company had opened 16 stores, net of closings. As
of the start of the sale in the fourth quarter, the Company had opened an
additional 10 stores. These stores were funded from operating cash flow. In
1997, the Company plans store growth of approximately 28-30 new stores.
(5)
<PAGE>
INVENTORY:
The Company's inventory increased from $52.4 million at December 31, 1995 to
$114.3 million at September 30, 1996. This increase of $61.9 million from
December 31, 1995 is required due to growth in the number of stores, comparative
sales growth, and normal seasonal activity. As reflected on the following table,
store level inventory increased when compared to December 31, 1995 and to
September 30, 1995. Total inventory increased $21.2 million from September 30,
1995, as a result of an increase in the number of stores and an increased sales
plan for the fourth quarter of 1996 compared to 1995.
INVENTORY LEVELS BY LOCATION
(IN MILLIONS)
<TABLE>
<CAPTION>
9/30/96 9/30/95 12/31/95
------- ------- --------
<S> <C> <C> <C>
Stores $43.0 $38.3 $36.3
Warehouse 71.3 54.8 16.1
---- ---- ----
$114.3 $93.1 $52.4
====== ===== =====
</TABLE>
STORE OPENINGS/CLOSINGS
<TABLE>
<CAPTION>
Nine Months Nine Months Year
Ending Ending Ended
9/30/96 9/30/95 12/31/95
----------- ----------- --------
<S> <C> <C> <C>
Stores Open at
Beginning of Period 260 246 246
Stores Opened 23 23 32
Stores Closed (7) (17) (18)
--- --- ---
Stores Open at End
of Period 276 252 260
=== === ===
</TABLE>
(6)
<PAGE>
TUESDAY MORNING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1995
The Company's net income of $0.5 million or $0.06 per share for the nine months
ended September 30, 1996 compares to a net loss of $2.5 million or $0.32 per
share for the nine months ended September 30, 1995. The Company reported a net
income due to the leverage obtained from increased sales and gross profit
improvements while expenses remained relatively consistent on a per store basis.
For the nine months ended September 30, 1996, comparable store sales increased
12%. Total gross profit increased from $41.1 million to $50.4 million due to
higher sales volume and improved gross profit percent. The gross profit percent
grew from 35.4% to 36.4% as a result of improved product selection and reduced
markdowns. Selling, general and administrative expenses increased 11.6% from
$43.1 million to $48.1 million. As a percentage of sales, these expenses
decreased from 37.9% to 34.7% which is the result of relatively fixed SG&A
expenses on a per store basis combined with strong comparable store sales
increases. Interest expense decreased from $2.6 million to $2.1 million due to
the net impact of reduced borrowings caused by 1995's improved earnings and
lower interest rates, partially offset by increased inventory levels.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS
ENDED SEPTEMBER 30, 1995
For the quarter ended September 30, 1996, the Company had net income of $0.7
million or $0.08 per share versus a net loss of $0.3 million or $0.04 per share
for the same period during 1995. During the quarter, comparable store sales
increased 18%. Total gross profit increased from $14.9 million to $18.8 million
due to increased sales volume. The gross profit percentage decreased from 38.9%
to 38.6% due to product mix variations. Selling, general and administrative
expenses increased from $14.5 million to $16.9 million; as a percent to sales,
they decreased from 37.9% in 1995 to 34.7% in 1996 for the reasons stated above.
Interest expense decreased from $1.1 million to $1.0 million for the reasons
previously discussed.
(7)
<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: October 30, 1996 /s/ Mark E. Jarvis
-------------------------------------
Mark E. Jarvis, Senior Vice President
(8)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 599
<SECURITIES> 0
<RECEIVABLES> 96
<ALLOWANCES> 0
<INVENTORY> 114,347
<CURRENT-ASSETS> 117,880
<PP&E> 55,220
<DEPRECIATION> 24,806
<TOTAL-ASSETS> 151,668
<CURRENT-LIABILITIES> 37,513
<BONDS> 0
0
0
<COMMON> 81
<OTHER-SE> 64,022
<TOTAL-LIABILITY-AND-EQUITY> 151,668
<SALES> 138,563
<TOTAL-REVENUES> 0
<CGS> 88,199
<TOTAL-COSTS> 48,134
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,147
<INCOME-PRETAX> 712
<INCOME-TAX> 256
<INCOME-CONTINUING> 456
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 456
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
