FORM 10Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Quarterly Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For Quarter Ended June 30, 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 June 30, 1997: 11,945,716 shares
TUESDAY MORNING CORPORATION
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements Page No.
-------
Consolidated Balance Sheets as of June 30, 1997,
June 30, 1996 and December 31, 1996 1
Consolidated Statements of Operations for the
Three Months and Six Months Ended
June 30, 1997 and 1996 2
Consolidated Statements of Cash Flows for the
Six Months Ended June 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
Tuesday Morning Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
June 30, June 30, Dec. 31,
ASSETS 1997 1996 1996
-------- -------- --------
(In Thousands)
Current assets:
Cash and cash equivalents............................................... 1,315 1,748 10,754
Income tax receivable................................................... - 469 -
Inventories............................................................. 128,270 91,622 75,493
Prepaid expenses........................................................ 1,109 1,274 1,048
Other current assets.................................................... 302 444 726
-------- -------- --------
Total current assets............................................. 130,996 95,557 88,021
-------- -------- --------
Property, plant and equipment, at cost:
Land.................................................................... 8,356 8,356 8,356
Buildings............................................................... 13,730 13,285 13,926
Furniture and fixtures.................................................. 18,757 16,379 17,658
Equipment............................................................... 16,315 13,994 14,469
Leasehold improvements.................................................. 2,181 2,032 2,082
-------- -------- --------
59,339 54,046 56,491
Less accumulated depreciation & amortization............................ (28,433) (23,616) (26,104)
-------- -------- --------
Net property, plant and equipment................................ 30,906 30,430 30,387
-------- -------- --------
Other assets, at cost:
Due from Officer........................................................ 2,801 2,441 2,679
Other assets............................................................ 549 762 670
-------- -------- --------
Total Assets................................................................. 165,252 129,190 121,757
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of mortgages....................................... 1,021 1,021 1,021
Current installments of capital lease obligation........................ 318 795 625
Accounts payable........................................................ 39,282 26,753 22,543
Accrued expenses
Sales tax............................................................ 596 454 2,105
Other................................................................ 3,659 3,127 5,637
Deferred income taxes................................................... 57 231 57
Income taxes payable.................................................... 821 - 6,465
-------- -------- --------
Total current liabilities........................................ 45,754 32,381 38,453
-------- -------- --------
Mortgages on land, buildings and equipment................................... 4,084 5,104 4,594
Long term notes payable...................................................... 34,055 24,695 -
Long term capital lease obligation........................................... 276 594 382
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
12,357,466 shares at June 30, 1997
12,215,379 shares at June 30, 1996
12,271,629 shares at December 31, 1996................................ 124 122 123
Additional paid-in capital.............................................. 18,896 18,254 18,599
Retained earnings....................................................... 61,291 47,074 58,834
Less: treasury stock
411,750 shares at June 30, 1997, June 30, 1996
and at December 31, 1996.............................................. (2,028) (2,028) (2,028)
-------- -------- --------
Total shareholders' equity....................................... 78,283 63,422 75,528
-------- -------- --------
Total Liabilities and Shareholders' Equity................................... 165,252 129,190 121,757
======== ======== ========
See accompanying notes to consolidated financial statements.
(1)
Tuesday Morning Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1997 1996 1997 1996
---------- --------- ---------- ---------
(In thousands, (In thousands,
except per share data) except per share data)
Net sales................................................................ 67,377 54,286 114,891 90,026
Cost of sales............................................................ 44,369 36,068 73,989 58,411
---------- --------- ---------- ---------
Gross profit..................................................... 23,008 18,218 40,902 31,615
Selling, general and administrative expenses............................. 19,848 17,094 36,299 31,279
---------- --------- ---------- ---------
Operating income ................................................ 3,160 1,124 4,603 336
---------- --------- ---------- ---------
Other income (expense):
Interest income....................................................... 78 76 153 135
Interest expense...................................................... (728) (677) (1,197) (1,154)
Other income ......................................................... 212 149 346 299
---------- --------- ---------- ---------
(438) (452) (698) (720)
---------- --------- ---------- ---------
Income (loss) before income taxes................................ 2,722 672 3,905 (384)
Income tax expense (benefit)............................................. 1,007 238 1,445 (142)
---------- --------- ---------- ---------
Net income (loss)................................................ 1,715 434 2,460 (242)
========== ========= ========== =========
Net income (loss) per share .......................................... 0.13 0.03 0.19 (0.02)
========== ========= ========== =========
Weighted average common shares outstanding............................... 12,641 12,479 12,706 11,778
========== ========= ========== =========
See accompanying notes to consolidated financial statements.
(2)
Tuesday Morning Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
--------------------------
1997 1996
---------- ---------
(In Thousands)
Cash flows from operating activities:
Cash received from customers.................................................... 114,891 90,026
Cash paid to suppliers and employees............................................ (146,527) (112,919)
Interest received............................................................... 153 135
Interest paid................................................................... (1,197) (1,154)
Income taxes paid............................................................... (7,089) (2,463)
---------- ---------
Net cash used by operating activities........................................... (39,769) (26,375)
---------- ---------
Cash flows from investing activities:
Loans to officers............................................................... (122) (230)
Capital expenditures............................................................ (2,977) (1,750)
---------- ---------
Net cash used by investing activities........................................... (3,099) (1,980)
---------- ---------
Cash flows from financing activities:
Proceeds from short and long term borrowings.................................... 34,055 24,695
Payment of short-term borrowings................................................ - -
Payment of mortgages............................................................ (510) (510)
Principal payments under capital lease obligation............................... (414) (375)
Proceeds from exercise of common
stock options/stock purchase plan.......................................... 298 17
---------- ---------
Net cash provided by financing activities....................................... 33,429 23,827
---------- ---------
Net decrease in cash and cash equivalents........................................... (9,439) (4,528)
Cash and cash equivalents at beginning of period.................................... 10,754 6,276
---------- ---------
Cash and cash equivalents at end of period.......................................... 1,315 1,748
========== =========
Reconciliation of net income (loss) to net cash used by operating activities:
Net income (loss)................................................................... 2,460 (242)
---------- ---------
Adjustments to reconcile net income (loss) to net cash used by operating
activities:
Depreciation and amortization............................................... 2,458 2,382
Change in operating assets and liabilities:
Increase in income taxes receivable....................................... - (469)
Increase in inventories................................................... (52,777) (39,255)
Increase in prepaid expense............................................... (61) (281)
Decrease in other current assets.......................................... 424 14
Decrease in other assets and liabilities.................................. 121 114
Increase in accounts payable.............................................. 16,738 14,046
Decrease in accrued expenses.............................................. (3,488) (548)
Decrease in income taxes payable.......................................... (5,644) (2,136)
---------- ---------
Total adjustments....................................................... (42,229) (26,133)
---------- ---------
Net cash used by operating activities............................................... (39,769) (26,375)
========== =========
See accompanying notes to consolidated financial statements.
(3)
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
1996 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. See note 5 below.
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.
5. On May 13, 1997 the Board of Directors approved a three-for-two stock
split of the Company's common stock. All financial statements reflect
this transaction, which was completed in June, 1997.
(4)
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 $55 million in borrowings and letters of
credit at June 30, 1997. On June 30, 1997, the Company had $34.1 million of long
term borrowings from banks. On the same date, the outstanding letters of credit
totaled approximately $9.3 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 June 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.
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 June 30, 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 approximately 30 stores during 1997 and plans to fund
these from operating cash flow.
(5)
INVENTORY:
The Company's inventory increased from $75.5 million at year end to $128.3
million at June 30, 1997. This is an increase of $52.8 million from December
31, 1996. As reflected on the following chart, most of the increase is in the
warehouse. The Company anticipates that the recent sales trends will continue
and has purchased inventory for the Fall accordingly.
Total inventory increased $36.7 million from June 30, 1996 - again, primarily in
the warehouse. The increase is attributable to the store count increase and the
expected sales levels for the Fall.
(6)
TUESDAY MORNING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INVENTORY LEVELS BY LOCATION
(IN MILLIONS)
6/30/97 6/30/96 12/31/96
-------- -------- ---------
Stores $ 47.6 $ 33.4 $ 43.1
Average per store (0.160) (0.123) (0.151)
Warehouse 80.7 58.2 32.4
-------- -------- ---------
Total Inventory $ 128.3 $ 91.6 $ 75.5
======== ======== =========
STORE OPENINGS/CLOSINGS
Six Months Six Months
Ending Ending FYE
6/30/97 6/30/96 12/31/96
------- ------- --------
Stores Open at
Beginning of Period 286 260 260
Stores Opened 14 16 33
Stores Closed <2> <5> <7>
------- ------- --------
Stores Open at End
of Period 298 271 286
======= ======= ========
(7)
TUESDAY MORNING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1996
The Company's income of $2.5 million or $0.19 per share for the first half of
1997 compares to a loss of $0.2 million or $0.02 per share for the first half of
1996. The Company reported this significant improvement for the first half due
to the financial leverage obtained from increased sales and gross margin
improvements while expenses, up slightly on a per store basis, decreased as a
percent of sales.
During the first half of 1997, comparable store sales increased 19%. Total
gross profit increased from $31.6 million to $40.9 million due primarily to
increased sales volume. The gross profit percent increased from 35.1% to 35.6%
as a result of improved efficiencies in the buying and distribution processes
which were driven by the increase in inventory levels. Selling, general and
administrative expenses increased 6% when comparing average stores but decreased
from 34.7% to 31.6% of sales as a result of the strong sales activity. Interest
expense remained unchanged at $1.2 million.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
As during the six months, the financial results of the Company during the
quarter were driven by the financial leverage discussed above.
For the quarter ended June 30, 1997, the Company made $1.7 million or $0.13 per
share versus an income of $0.4 million or $0.03 per share for the same period
during 1996. During the quarter, comparable store sales increased 16%. Total
gross profit increased from $18.2 million to $23.0 million due primarily to
increased sales volume. The gross profit percentage increased from 33.6% to
34.2%, due to the leveraging of buying and distribution costs which did not
increase in proportion to the increases in the volume of merchandise produced.
Selling, general and administrative expenses increased from $17.1 to $19.8 and
interest expense was essentially unchanged at $0.7 million.
(8)
TUESDAY MORNING CORPORATION
PART II - OTHER INFORMATION
Not Applicable
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TUESDAY MORNING CORPORATION
(Registrant)
DATE: August 8, 1997 /s/ Mark E. Jarvis
--------------------------------------
Mark E. Jarvis, Senior Vice President
(9)