<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, 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 September 30, 1997: 11,945,717 shares
<PAGE>
TUESDAY MORNING CORPORATION
PART 1--FINANCIAL INFORMATION
Page No.
--------
Item 1 - Financial Statements
Consolidated Balance Sheets as of September 30, 1997,
September 30, 1996 and December 31, 1996 1
Consolidated Statements of Operations for the
Three Months and Nine Months Ended
September 30, 1997 and 1996 2
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 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>
Sept 30, Sept 30, Dec. 31,
ASSETS 1997 1996 1996
--------- --------- ---------
(In Thousands)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents ............................. $ 3,029 $ 599 $ 10,754
Federal income tax receivable ......................... -- 96 --
Inventories ........................................... 159,687 114,347 75,493
Prepaid expenses ...................................... 1,203 2,627 1,048
Other current assets .................................. 313 211 726
--------- --------- ---------
Total current assets ........................... 164,232 117,880 88,021
--------- --------- ---------
Property, plant and equipment, at cost:
Land .................................................. 8,356 8,356 8,356
Buildings ............................................. 13,875 13,285 13,926
Furniture and fixtures ................................ 19,506 17,138 17,658
Equipment ............................................. 17,104 14,348 14,469
Leasehold improvements ................................ 2,277 2,093 2,082
--------- --------- ---------
61,118 55,220 56,491
Less accumulated depreciation & amortization .......... (29,679) (24,806) (26,104)
--------- --------- ---------
Net property, plant and equipment .............. 31,439 30,414 30,387
--------- --------- ---------
Other assets, at cost:
Due from Officer ...................................... 2,866 2,617 2,679
Other assets .......................................... 678 757 670
--------- --------- ---------
Total Assets ............................................... $ 199,215 $ 151,668 $ 121,757
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of mortgages ..................... $ 1,021 $ 1,021 $ 1,021
Current installments of capital lease obligation ...... 213 772 625
Accounts payable ...................................... 45,181 31,097 22,543
Accrued expenses
Sales tax .......................................... 1,332 1,068 2,105
Other .............................................. 4,922 3,324 5,637
Deferred income taxes ................................. 57 231 57
Income taxes payable .................................. 2,301 -- 6,465
--------- --------- ---------
Total current liabilities ...................... 55,027 37,513 38,453
--------- --------- ---------
Mortgages on land, buildings and equipment ................. 3,828 4,849 4,594
Long term notes payable .................................... 56,127 41,776 --
Long term capital lease obligation ......................... 220 433 382
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 30,000,000 shares; issued
12,357,467 shares at September 30, 1997
12,215,379 shares at September 30, 1996
12,271,554 shares at December 31, 1996 .............. 123 81 82
Additional paid-in capital ............................ 18,922 18,277 18,640
Retained earnings ..................................... 64,196 47,773 58,834
Less: treasury stock
411,750 shares at September 30, 1997
411,750 shares at September 30, 1996
411,750 shares at December 31, 1996 ................. (2,028) (2,028) (2,028)
--------- --------- ---------
Total shareholders' equity ..................... 81,213 64,103 75,528
--------- --------- ---------
Total Liabilities and Shareholders' Equity ................. $ 199,215 $ 151,668 $ 121,757
========= ========= =========
</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,
---------------------- ----------------------
1997 1996 1997 1996
--------- --------- --------- ---------
(In thousands, (In thousands,
except per share data) except per share data)
<S> <C> <C> <C> <C>
Net sales .................................................. $ 64,167 $ 48,537 $ 179,058 $ 138,563
Cost of sales .............................................. 38,631 29,787 112,620 88,199
--------- --------- --------- ---------
Gross profit ....................................... 25,536 18,750 66,438 50,364
Selling, general and administrative expenses ............... 19,892 16,855 56,193 48,134
--------- --------- --------- ---------
Operating income ................................... 5,644 1,895 10,245 2,230
--------- --------- --------- ---------
Other income (expense):
Interest income ......................................... 97 59 250 195
Interest expense ........................................ (1,132) (992) (2,330) (2,147)
Other income ............................................ 73 135 420 434
--------- --------- --------- ---------
(962) (798) (1,660) (1,518)
--------- --------- --------- ---------
Income before income taxes ......................... 4,682 1,097 8,585 712
Income tax ................................................. 1,775 399 3,219 256
--------- --------- --------- ---------
Net income ......................................... $ 2,907 $ 698 $ 5,366 $ 456
========= ========= ========= =========
Net income per share .................................... $ 0.24 $ 0.06 $ 0.43 $ 0.04
========= ========= ========= =========
Weighted average common share and share equivalents ........ 12,433 12,555 12,556 12,396
========= ========= ========= =========
</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,
----------------------
1997 1996
--------- ---------
<S> <C> <C>
(In Thousands)
Cash flows from operating activities:
Cash received from customers ............................................ $ 179,058 $ 138,563
Cash paid to suppliers and employees .................................... (227,299) (176,911)
Interest received ....................................................... 250 195
Interest paid ........................................................... (2,329) (2,147)
Income taxes paid ....................................................... (7,383) (2,489)
--------- ---------
Net cash used by operating activities ................................... (57,703) (42,789)
--------- ---------
Cash flows used by investing activities:
Loans to officers ....................................................... (373) (406)
Capital expenditures .................................................... (4,756) (2,935)
--------- ---------
Net cash used by investing activities ................................... (5,129) (3,341)
--------- ---------
Cash flows from financing activities:
Proceeds from short and long term borrowings ............................ 56,127 41,776
Payment of mortgages .................................................... (766) (766)
Principal payments under capital lease obligation ....................... (574) (557)
Proceeds from exercise of common
stock options/stock purchase plan .................................. 323 --
--------- ---------
Net cash provided by financing activities ............................... 55,110 40,453
--------- ---------
Net decrease in cash and cash equivalents ................................... (7,722) (5,677)
Cash and cash equivalents at beginning of period ............................ 10,753 6,276
--------- ---------
Cash and cash equivalents at end of period .................................. $ 3,031 $ 599
========= =========
Reconciliation of net income to net cash used by operating activities:
Net income .................................................................. $ 5,366 $ 456
--------- ---------
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation and amortization ....................................... 3,704 3,582
Change in operating assets and liabilities:
Increase in income taxes receivable ............................... -- (96)
Increase in inventories ........................................... (84,194) (61,980)
Increase in prepaid expense ....................................... (155) (1,634)
Decrease in other current assets .................................. 414 247
Decrease in other assets and liabilities .......................... 178 119
Increase in accounts payable ...................................... 22,638 18,390
Increase (decrease) in accrued expenses ........................... (1,490) 263
Decrease in income taxes payable .................................. (4,164) (2,136)
--------- ---------
Total adjustments ............................................... (63,069) (43,245)
--------- ---------
Net cash used by operating activities ....................................... $ (57,703) $ (42,789)
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
(3)
<PAGE>
TUESDAY MORNING CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(UNAUDITED)
1. In September 1997, the Company and Madison Dearborn Partners ll, L.P.
("Madison Dearborn") entered into an Agreement and Plan of Merger under
which Madison Dearborn would acquire all of the Company's outstanding shares
of common stock for $25 per share in cash. Consummation of the merger, which
is expected in December 1997 or early 1998, is subject to a number of
conditions, including approval by the stockholders of the Company and
Madison Dearborn obtaining the necessary financing.
2. The consolidated interim financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
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 1996 Annual Report.
3. Net income per share amounts are based on the weighted average number of
shares and dilutive share equivalents outstanding during the period. See
note 6 below.
4. The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
5. 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.
6. On May 13, 1997 the Board of Directors approved a three-for-two stock split
of the Company's common stock. All financial statements presented reflect
this transaction which was completed in June, 1997.
(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 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
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%. On April 30, 1997, the agreement was
amended further to increase the amount to $65 million for July 1 to October 31
and $55 million the rest of the year. Based on the line of credit agreement,
the Company had the ability to utilize $65.0 million in borrowings and letters
of credit at September 30, 1997. On September 30, 1997, the Company had $56.1
million of long term borrowings from banks. On the same date, the outstanding
letters of credit totaled approximately $3.2 million. 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,
asset sales, and certain other items. At September 30, 1997, the Company was in
compliance with these covenants. Management believes that the agreement will be
adequate to meet its needs for liquidity and growth, subject to the consumation
of the merger.
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, 1997, the Company was in compliance with these
covenants.
The Company's principal capital requirement has been the funding of the opening
of new stores and the resulting increase in inventory requirements. As of
October 2, 1997, the Company opened 29 net new stores and funded these from
operating cash flow.
(5)
<PAGE>
INVENTORY:
The Company's inventory increased from $75.5 million at year end to $159.7
million at September 30, 1997, for an increase of $84.2 million from December
31, 1996. As reflected on the following chart, the increase in store inventory
is attributed to early shipments of fourth quarter merchandise. The increase in
the warehouse inventory is due to anticipated fourth quarter sales, which
includes the holiday season sales, as well as sales for the first quarter of
1998.
Total inventory increased $45.4 million from September 30, 1996, primarily in
the stores. The increase is attributable to the store count increase and the
expected sales levels for the fourth quarter. Warehouse inventory is slightly
lower than that of September 30, 1996 due to the early shipments of merchandise
mentioned above.
(6)
<PAGE>
TUESDAY MORNING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INVENTORY LEVELS BY LOCATION
(IN MILLIONS)
<TABLE>
<CAPTION>
9/30/97 9/30/96 12/31/96
-------- -------- ---------
<S> <C> <C> <C>
Stores $ 91.2 $ 43.0 $ 43.1
Average per store (0.300) (0.156) (0.151)
Warehouse 68.5 71.3 32.4
-------- -------- ---------
Total Inventory $ 159.7 $ 114.3 $ 75.5
======== ======== =========
</TABLE>
STORE OPENINGS/CLOSINGS
<TABLE>
<CAPTION>
Nine Months Nine Months
Ending Ending FYE
9/30/97 9/30/96 12/31/96
------- ------- --------
<S> <C> <C> <C>
Stores Open at
Beginning of Period 286 260 260
Stores Opened 20 23 33
Stores Closed (2) (7) (7)
------- ------- --------
Stores Open at End
of Period 304 276 286
======= ======= ========
</TABLE>
(7)
<PAGE>
TUESDAY MORNING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996
During the first nine months of 1997, sales increased 29% and comparable store
sales increased 19%. These increases provided significant operating leverage
and increased operating income from $2,230,000 (1.61% of sales) to $10,245,000
(5.72% of sales).
Sales increases were the result of improvements in product selection and value
offered to customers in addition to sales from new stores. In 1993 senior
buying management was changed in order to re-focus the company's buying efforts.
Since 1993, the company has increased its buying staff from 10 to 22 buyers,
emphasizing expertise in individual product categories. Buyer travel has
increased in order to obtain merchandise from a greater number of manufacturers
and the company has emphasized a breadth of product selection rather than the
depth focused on in prior years.
The company's gross profit increased 0.8% from 36.3% to 37.1%. This increase
was primarily attributable to leveraging its distribution costs which remain
relatively fixed and thus improved as a percentage relative to the sales
increase. Selling, general, and administrative expenses are primarily incurred
at the stores. These expenses are relatively fixed and have also benefited from
the increase in comparable store sales. These expenses declined from 34.7% in
1996 to 31.4% in 1997.
Other income and expense is comprised of interest income, interest expense
(which has remained consistent due to similar borrowing levels and interest
rates), rental income from a strip shopping area adjacent to the company's
headquarters and sales tax discounts.
(8)
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1997
COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1996
The financial results of the Company during the quarter were driven by the
financial leverage discussed on the previous page.
For the quarter ended September 30, 1997, the Company had net income of $2.9
million or $0.24 per share versus income of $0.7 million or $0.06 per share for
the same period during 1996. During the quarter, comparable sales increased
18.0%. Total gross profit increased from $18.8 million to $25.5 million due
primarily to sales volume and the leverage obtained via comparable store sales
gains. The gross profit percentage increased from 38.6% to 39.8% due to
leveraging of buying and distribution costs which did not increase in proportion
to the increases in volume of merchandise produced. Selling, general, and
administrative expenses increased from $16.9 million to $19.9 million; as a
percent of sales, these expenses decreased from 34.7% to 31.0%.
For the quarter, interest expense increased $140.0 thousand due to the inventory
build-up necessary for the fourth quarter.
(9)
<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: November 5, 1997 /s/ Mark E. Jarvis
-----------------------------------------
Mark E. Jarvis, Senior Vice President
(10)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JUL-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 3,029 3,029
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 159,687 159,687
<CURRENT-ASSETS> 164,232 164,232
<PP&E> 61,118 61,118
<DEPRECIATION> (29,679) (29,679)
<TOTAL-ASSETS> 199,215 199,215
<CURRENT-LIABILITIES> 55,027 55,027
<BONDS> 0 0
0 0
0 0
<COMMON> 123 123
<OTHER-SE> 81,090 81,090
<TOTAL-LIABILITY-AND-EQUITY> 199,215 199,215
<SALES> 64,167 179,058
<TOTAL-REVENUES> 64,167 179,058
<CGS> 38,631 112,620
<TOTAL-COSTS> 19,892 56,193
<OTHER-EXPENSES> (170) (670)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,132 2,330
<INCOME-PRETAX> 4,682 8,585
<INCOME-TAX> 1,775 3,219
<INCOME-CONTINUING> 2,907 5,366
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,097 5,366
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0.24 0.43
</TABLE>
