<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 March 31, 1997 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 April 30, 1997: 7,936,336 shares
<PAGE>
TUESDAY MORNING CORPORATION
PART 1 - FINANCIAL INFORMATION
Page No.
Item 1 - Financial Statements --------
Consolidated Balance Sheets, March 31, 1997,
March 31, 1996 and December 31, 1996 1
Consolidated Statements of Operations for the
Three Months Ended March 31, 1997 and 1996 2
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1997 and 1996 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>
Mar. 31, Mar. 31, Dec. 31,
1997 1996 1996
--------- --------- --------
(in thousands)
ASSETS
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents ............................................... $ 3,151 $ 1,565 $ 10,754
Income tax receivable ................................................... -- 776 --
Inventories ............................................................. 111,069 81,091 75,493
Prepaid expenses ........................................................ 1,200 960 1,048
Other current assets .................................................... 245 415 726
--------- --------- ---------
Total current assets ............................................... 115,665 84,807 88,021
--------- --------- ---------
Property, plant and equipment, at cost:
Land .................................................................... 8,356 8,356 8,356
Buildings ............................................................... 13,728 13,180 13,926
Furniture and fixtures .................................................. 18,152 15,991 17,658
Equipment ............................................................... 15,583 13,704 14,469
Leasehold improvements .................................................. 2,136 1,987 2,082
--------- --------- ---------
57,955 53,218 56,491
Less accumulated depreciation and amortization .......................... (27,317) (22,404) (26,104)
--------- --------- ---------
Net property, plant and equipment .................................. 30,638 30,814 30,387
--------- --------- ---------
Due from Officer ........................................................ 2,737 2,338 2,679
Other assets ............................................................ 578 822 670
--------- --------- ---------
Total Assets ............................................................... $ 149,618 $ 118,781 $ 121,757
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of mortgages ....................................... $ 1,021 $ 1,021 $ 1,021
Current installments of capital lease obligation ........................ 474 779 625
Accounts payable ........................................................ 33,721 25,998 22,543
Accrued expenses:
Sales tax ............................................................ 804 583 2,105
Other ............................................................... 4,566 2,956 5,637
Deferred income taxes ................................................... 57 231 57
Income taxes payable .................................................... 615 -- 6,465
--------- --------- ---------
Total current liabilities .......................................... 41,258 31,568 38,453
--------- --------- ---------
Mortgages on land, buildings and equipment, excl. current installments ..... 4,339 5,360 4,594
Notes payable .............................................................. 24,369 15,061 --
Capital lease obligation, excl. current installments ....................... 330 804 382
Deferred income taxes ...................................................... 2,800 2,994 2,800
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
8,210,836 shares at March 31, 1997
8,143,586 shares at March 31, 1996 and
8,181,036 shares at December 31, 1996 ................................ 82 81 82
Additional paid-in capital .............................................. 18,893 18,299 18,640
Retained earnings ....................................................... 59,575 46,642 58,834
Less: treasury stock, 274,500 shares at
March 31, 1997 and 1996 and at December 31, 1996 ..................... (2,028) (2,028) (2,028)
--------- --------- ---------
Total shareholders' equity ......................................... 76,522 62,994 75,528
--------- --------- ---------
Total Liabilities and Shareholders' Equity ................................. $ 149,618 $ 118,781 $ 121,757
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
Tuesday Morning Corporation and Subsidiaries
Consolidated Statements of Operations
Unaudited
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
----------------------
1997 1996
-------- --------
<S> <C> <C>
(in thousands,
except per share data)
Net sales............................... $ 47,514 $ 35,740
Cost of sales........................... 29,621 22,343
------- -------
Gross Profit....................... 17,893 13,397
Selling, general and administrative
expenses............................... 16,451 14,185
------- -------
Operating Income (loss)............ 1,442 (788)
------- -------
Other income (expense):
Interest Income...................... 74 60
Interest expense..................... (469) (477)
Other income......................... 134 149
------- -------
(261) (268)
------- -------
Income (loss) before income taxes.. 1,181 (1,056)
Income tax expense (benefit)............ 437 (380)
------- -------
Net income (loss).................. $ 744 $ (676)
======= =======
Net income (loss) per share............. $ 0.09 $ (0.09)
======= =======
Weighted average common shares
outstanding............................ 8,389 7,851
======= =======
</TABLE>
See accompanying notes to consolidated statements.
(2)
<PAGE>
Tuesday Morning Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Unaudited
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1997 1996
-------- --------
Cash flows from operating activities: (in thousands)
<S> <C> <C>
Cash received from customers.........................$ 47,514 $ 35,740
Cash paid to suppliers and employees................. (71,067) (51,101)
Interest received.................................... 75 60
Interest paid........................................ (469) (477)
Income taxes paid.................................... (6,288) (2,533)
-------- --------
Net cash used by operating activities.............. (30,235) (18,311)
-------- --------
Cash flows from investing activities:
Loans to officers.................................... (58) (127)
Capital expenditures................................. (1,473) (922)
-------- --------
Net cash used by investing activities.............. (1,531) (1,049)
-------- --------
Cash flows from financing activities:
Proceeds from short and long term borrowings......... 24,369 15,061
Payment of mortgages................................. (255) (255)
Principal payments under capital lease obligation.... (204) (179)
Proceeds from exercise of common
stock options/stock purchase plan.................. 253 22
-------- --------
Net cash provided by financing activities.......... 24,163 14,649
-------- --------
Net decrease in cash and cash equivalents.............. (7,603) (4,711)
Cash and cash equivalents at beginning of period....... 10,754 6,276
-------- --------
Cash and cash equivalents at end of period.............$ 3,151 $ 1,565
======== =========
Reconciliation of net income (loss) to net cash
used by operating activities:
Net income (loss)......................................$ 744 $ (676)
-------- --------
Adjustments to reconcile net income (loss) to net cash
used by operating activities:
Depreciation and amortization...................... 1,223 1,171
Change in operating assets and liabilities:
Increase in income taxes receivable.............. - (776)
Increase in inventories.......................... (35,576) (28,724)
Increase (decrease) in prepaid expense........... (152) 33
Decrease in other current assets................. 481 43
Decrease in other assets and liabilities......... 92 53
Increase in accounts payable..................... 11,178 13,291
Decrease in accrued expenses..................... (2,375) (590)
Decrease in income taxes payable................. (5,850) (2,136)
-------- --------
Total adjustments.............................. (30,979) (17,635)
-------- --------
Net cash used by operating activities..................$(30,235) $(18,311)
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
(3)
<PAGE>
Tuesday Morning Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1. These unaudited financial statements include all adjustments, 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 1996 Annual Report.
2. Income (loss) per share amounts are based on the weighted average number of
shares 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 debt 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. On March 31, 1997, the Company had
$24.4 million of long term borrowings from banks. On the same date, the
outstanding letters of credit totaled approximately $4.9 million. Based on the
line of credit agreement, the Company had the ability to utilize $45.0 million
in borrowings and letters of credit at March 31, 1997.
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 is further reduced by
the aggregate undrawn amount of outstanding letters of credit and a reserve for
foreign currency contracts. During 1996, this agreement was amended to extend
the term through July 1999 and to increase the borrowing capacity to $55,000,000
for the period beginning July 1 and ending October 31 of each year. The maximum
amount of outstanding and unused letters of Credit was also increased to
$12,000,000.
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 March 31, 1997, the Company was in compliance with these covenants.
As of April 30, 1997, the Company and the bank reached an agreement to increase
the line of credit by an additional $10 million. This amendment, when
executed, will give the Company a base of $55 million with the ability to
increase the borrowing capacity to $65 million for the period beginning July 1
and ending October 31 of each year. Management believes that the agreement as
modified 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 March 31, 1997, 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.
The Company plans to open 25-30 stores during 1997 and plans to fund these from
operating cash flow.
(5)
<PAGE>
TUESDAY MORNING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INVENTORY:
The Company's inventory increased from $75.5 million at year end to $111.1
million at March 31, 1997. This is an increase of $35.5 million from December
31, 1996. The increase from March 31, 1996, is $30.7 million. The increase in
the Company's inventory is attributable to several factors, including normal
seasonal activity and continued increases in store count. Also, the Company is
building higher inventory levels to support its strong sales growth. At the
same time, shipments of merchandise for the fall event are being received
earlier to insure timely shipments to the stores.
INVENTORY LEVELS BY LOCATION
(IN MILLIONS)
<TABLE>
<S> <C> <C> <C>
3/31/97 3/31/96 12/31/96
------- ------- --------
Stores $ 45.9 $ 33.4 $ 43.1
Warehouse 65.2 47.7 32.4
------- ------- --------
$ 111.1 $ 81.1 $ 75.5
======= ======= ========
</TABLE>
STORE OPENINGS/CLOSINGS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
3/31/97 3/31/96 12/31/96
------- ------- --------
Stores Open
Beginning of Period 286 260 260
Stores Opened 7 8 33
Stores Closed (2) (5) (7)
------- ------- --------
Stores Open at End
of Period 291 263 286
======= ======= ========
</TABLE>
(6)
<PAGE>
TUESDAY MORNING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1996:
The Company reported a net profit in the first quarter of 1997 which is the
first time a profit was achieved in that part of the year since the Company went
public in 1986. Traditionally, the Company loses money early in the year due to
lower sales levels while expenses are relatively flat throughout the year.
Comparable store sales increased 23% during the quarter allowing the Company to
obtain significant leverage on its SG&A costs which are primarily store related
and are relatively fixed on a per store basis. In total, sales increased 27.9%,
to $47.5 million from $35.7 million in 1996. This significant sales increase
was the result of better product selection, pricing and higher inventory levels.
Gross profit increased 0.2% from 37.5% to 37.7% due primarily to leveraging of
distribution costs which are relatively fixed..
Selling, general and administrative expenses increased from $14.2 million to
$16.5 million but, due to the strong sales performance, decreased 5.1% of sales
from 39.7% to 34.6%.
Interest expense was consistent between the two periods.
(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: May 7, 1997 /s/Mark E. Jarvis
----------------------------------------
Mark E. Jarvis, Senior Vice President
(8)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,151
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 111,069
<CURRENT-ASSETS> 1,445
<PP&E> 57,955
<DEPRECIATION> (27,317)
<TOTAL-ASSETS> 149,618
<CURRENT-LIABILITIES> 41,258
<BONDS> 0
0
0
<COMMON> 82
<OTHER-SE> 76,440
<TOTAL-LIABILITY-AND-EQUITY> 149,618
<SALES> 47,514
<TOTAL-REVENUES> 47,514
<CGS> 29,621
<TOTAL-COSTS> 16,451
<OTHER-EXPENSES> (208)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 469
<INCOME-PRETAX> 1,181
<INCOME-TAX> 437
<INCOME-CONTINUING> 744
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 744
<EPS-PRIMARY> .09
<EPS-DILUTED> 0
</TABLE>
