Table of Contents

 

 

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D. C. 20549**

 

**FORM 10-Q**

 

**(MarkOne)**

 
| **x**                                                                                                                                                               | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934**  |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------|
|                                                                                                                                                                |                                                                                               |
| **FOR  THE QUARTERLY PERIOD ENDED March 31, 2009**                                                                                                             |
|                                                                                                                                                                |                                                                                               |
| **OR**                                                                                                                                                              |
|                                                                                                                                                                |                                                                                               |
| **o**                                                                                                                                                               | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                                                                          | ** **                                                                                         |
| **FOR  THE TRANSITION PERIOD FROM           TO          ** |

 

**Commissionfile number 0-19658**

 

**TUESDAYMORNING CORPORATION**

(Exact Name ofRegistrant as Specified in its Charter)

 

| **Delaware**                     | ** ** | **75-2398532**          |
|----------------------------------|------------|-------------------------|
| (State or Other  Jurisdiction of |       | (I.R.S. Employer        |
| Incorporation or  Organization)  |       | Identification  Number) |

 

**6250LBJ Freeway**

**Dallas,Texas 75240**

(Address,including zip code, of principal executive offices)

 

**(972)387-3562**

(Registrant’stelephone number, including area code)

 

**Notapplicable**

(Former name,former address and former fiscal year, if changed since last report)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.  Yes     x    No     o

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Date File required to be submitted andposted 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 registrantwas required to submit and post such files). o Yes xNo

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See definitions of “largeaccelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2of 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 markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). Yes o No x

 

Indicate the number ofshares outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date.

 

| **Class**                                | ** ** | **Outstanding at May 4, 2009** |
|------------------------------------------|------------|----------------------------------------------------|
| Common Stock, par value  $0.01 per share |       | 43,448,199                                         |

 

 

 

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**Forward-LookingStatements**

 

*ThisQuarterly Report on Form 10-Q contains forward-looking statements withinthe meaning of the federal securities laws and the Private SecuritiesLitigation Reform Act of 1995, which are based on management’s currentexpectations, estimates and projections. These statements may be foundthroughout this Form 10-Q, particularly under the heading “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations,” among others. Forward-lookingstatements 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 shouldconsider statements that contain these words carefully because they describeour expectations, plans, strategies and goals and our beliefs concerning futurebusiness conditions, our future results of operations, our future financialposition, and our business outlook or state other “forward-looking”information.*

 

*Readersare referred to”Item 1A. Risk Factors” of our Annual Report on Form 10-Kfor the fiscal year ended June 30, 2008 for examples of risks,uncertainties and events that could cause our actual results to differ materiallyfrom the expectations expressed in our forward-looking statements. These risks,uncertainties and events also include, but are not limited to, the following:*

 

·                      *uncertainties regardingour ability to open stores in new and existing markets and operate these storeson a profitable basis;*

·                      *conditions affectingconsumer spending and the impact, depth and duration of the current economicrecession;*

·                      *inclement weather;*

·                      *changes in ourmerchandise mix;*

·                      *timing and type ofsales events, promotional activities and other advertising;*

·                      *increased or newcompetition;*

·                       *loss or departure ofone or more members of our senior management or experienced buying andmanagement personnel;*

·                      *an increase in the costor a disruption in the flow of our products;*

·                      *seasonal and quarterlyfluctuations;*

·                      *fluctuations in ourcomparable store results;*

·                      *our ability to operatein highly competitive markets and to compete effectively;*

·                      *our ability to operateinformation systems and implement new technologies effectively;*

·                      *our ability to generatestrong cash flows from our operations;*

·                      *our ability to maintaininternal control over financial reporting;*

·                      *our ability to continueobtaining funding from external sources;*

·                      *our ability toanticipate and respond in a timely manner to changing consumer demands andpreferences; and*

·                      *our ability to generatestrong holiday season sales.*

 

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

 

*Theterms “Tuesday Morning,”“the Company,” “we,” “us” and “our” as used in thisQuarterly Report on Form 10-Q refer to Tuesday Morning Corporation and itssubsidiaries.*

 

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| **PART I -  FINANCIAL INFORMATION**                                                                        | 4          |
|-----------------------------------------------------------------------------------------------------------------|------------|
|                                                                                                            |       |
| Item 1 — Financial  Statements                                                                             | 4          |
|                                                                                                            |       |
| Consolidated  Balance Sheets as of March 31, 2009 and June 30, 2008                                   | 4          |
|                                                                                                            |       |
| Consolidated  Statements of Operations for the Three Months and Nine Months Ended  March 31, 2009 and 2008 | 5          |
|                                                                                                            |       |
| Consolidated  Statements of Cash Flows for the Nine Months Ended March 31, 2009 and  2008                  | 6          |
|                                                                                                            |       |
| Notes to Consolidated Financial Statements                                                                      | 7          |
|                                                                                                            |       |
| Item 2 — Management’s Discussion and Analysis of  Financial Condition and Results of Operations       | 10         |
|                                                                                                            |       |
| Item 3 — Quantitative and Qualitative Disclosures  About Market Risk                                       | 13         |
|                                                                                                            |       |
| Item 4 — Controls and Procedures                                                                           | 14         |
| ** **                                                                                                      | ** ** |
| **PART II  — OTHER INFORMATION**                                                                      | 15         |
| ** **                                                                                                      | ** ** |
| Item  1 — Legal Proceedings                                                                                | 15         |
|                                                                                                            |       |
| Item  1A — Risk Factors                                                                                    | 15         |
|                                                                                                            |       |
| Item 6 —  Exhibits                                                                                         | 16         |

 

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Table of Contents

 

**PART I — FINANCIAL INFORMATION**

 

**Item1. Financial Statements**

 

**TuesdayMorning Corporation**

**Consolidated Balance Sheets**

**March 31,2009 (unaudited) and June 30, 2008**

**(Inthousands, except for per share data)**

 
| ** **                                                                                                                                                                          | ** ** | **March 31,  2009** | ** ** | **June 30,  2008** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-------------------------|------------|
| ** **                                                                                                                                                                          | ** ** | ** **               | ** ** | ** **              | ** ** |
| **ASSETS**                                                                                                                                                                          |       |                     |       |                    |       |
| Current assets:                                                                                                                                                                     |       |                     |       |                    |       |
| Cash and cash  equivalents                                                                                                                                                          |       | $                        | 5,507      |                    | $          | 8,630 |   |
| Inventories                                                                                                                                                                         |       | 260,624                  |       | 240,996                 |       |
| Prepaid expenses  and other current assets                                                                                                                                          |       | 11,358                   |       | 11,292                  |       |
| Total current  assets                                                                                                                                                               |       | 277,489                  |       | 260,918                 |       |
|                                                                                                                                                                                |       |                     |       |                    |       |
| Property and  equipment, net                                                                                                                                                        |       | 74,042                   |       | 77,315                  |       |
| Deferred  financing costs                                                                                                                                                           |       | 4,465                    |       | 503                     |       |
| Other assets                                                                                                                                                                        |       | 2,248                    |       | 3,040                   |       |
|                                                                                                                                                                                |       |                     |       |                    |       |
| Total Assets                                                                                                                                                                        |       | $                        | 358,244    |                    | $          | 341,776 |   |
|                                                                                                                                                                                |       |                     |       |                    |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                       |       |                     |       |                    |       |
| Current  liabilities:                                                                                                                                                               |       |                     |       |                    |       |
| Accounts payable                                                                                                                                                                    |       | $                        | 64,146     |                    | $          | 63,899 |   |
| Accrued  liabilities                                                                                                                                                                |       | 27,840                   |       | 28,595                  |       |
| Deferred income  taxes                                                                                                                                                              |       | 53                       |       | 267                     |       |
| Income taxes  payable                                                                                                                                                               |       | 1,606                    |       | 27                      |       |
| Total current  liabilities                                                                                                                                                          |       | 93,645                   |       | 92,788                  |       |
|                                                                                                                                                                                |       |                     |       |                    |       |
| Revolving credit  facility                                                                                                                                                          |       | 22,000                   |       | 8,500                   |       |
| Deferred rent                                                                                                                                                                       |       | 4,191                    |       | 4,163                   |       |
| Deferred income  taxes                                                                                                                                                              |       | 2,362                    |       | 3,414                   |       |
|                                                                                                                                                                                |       |                     |       |                    |       |
| Total  Liabilities                                                                                                                                                                  |       | 122,198                  |       | 108,865                 |       |
|                                                                                                                                                                                |       |                     |       |                    |       |
| Commitments and  contingencies                                                                                                                                                      |       |                     |       |                    |       |
| Stockholders’  equity:                                                                                                                                                         |       |                     |       |                    |       |
| Preferred stock,  par value $.01 per share, authorized 10,000,000 shares, none issued or  outstanding                                                                               |       | —                   |       | —                  |       |
| Common stock,  par value $.01 per share, authorized 100,000,000 shares; 41,583,177 shares  issued and outstanding at March 31, 2009 and 41,816,820shares at June 30, 2008 |       | 427                      |       | 418                     |       |
| Additional  paid-in capital                                                                                                                                                         |       | 202,691                  |       | 201,154                 |       |
| Retained  earnings                                                                                                                                                                  |       | 32,963                   |       | 31,378                  |       |
| Accumulated other  comprehensive loss                                                                                                                                               |       | (35                      | )          | (39                     | )          |
|                                                                                                                                                                                |       |                     |       |                    |       |
| Total  Stockholders’ Equity                                                                                                                                                    |       | 236,046                  |       | 232,911                 |       |
|                                                                                                                                                                                |       |                     |       |                    |       |
| Total  Liabilities and Stockholders’ Equity                                                                                                                                    |       | $                        | 358,244    |                    | $          | 341,776 |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

4

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**TuesdayMorning Corporation**

**Consolidated Statements of Operations(unaudited)**

**(Inthousands, except for per share data)**

** **
| ** **                                    | ** ** | **Three Months Ended March 31,** | ** ** | **Nine Months Ended March 31,** | ** ** |
|-----------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                    | ** ** | **2009**                                             | ** ** | **2008**                                            | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                          |       |                                                 |       |                                                |       |   |   |   |   |
| Net sales                                     |       | $                                                    | 167,000    |                                                | $          | 178,446 |   | $ | 613,052 |   | $ | 688,789 |   |
| Cost of sales                                 |       | 106,022                                              |       | 114,447                                             |       | 387,023 |   | 434,177 |   |
| Gross profit                                  |       | 60,978                                               |       | 63,999                                              |       | 226,029 |   | 254,612 |   |
| Selling, general  and administrative expenses |       | 70,366                                               |       | 71,357                                              |       | 221,593 |   | 224,565 |   |
| Operating income  (loss)                      |       | (9,388                                               | )          | (7,358                                              | )          | 4,436 |   | 30,047 |   |
| Other income  (expense):                      |       |                                                 |       |                                                |       |   |   |   |   |
| Interest income                               |       | —                                               |       | 2                                                   |       | 1 |   | 155 |   |
| Interest expense                              |       | (860                                                 | )          | (455                                                | )          | (1,988 | ) | (3,561 | ) |
| Other income  (expense), net                  |       | (173                                                 | )          | 209                                                 |       | 98 |   | 782 |   |
|                                          |       | (1,033                                               | )          | (244                                                | )          | (1,889 | ) | (2,624 | ) |
| Income (loss)  before income taxes            |       | (10,421                                              | )          | (7,602                                              | )          | 2,547 |   | 27,423 |   |
| Income tax  expense (benefit)                 |       | (3,593                                               | )          | (2,905                                              | )          | 962 |   | 10,429 |   |
|                                          |       |                                                 |       |                                                |       |   |   |   |   |
| Net income  (loss)                            |       | $                                                    | (6,828     | )                                                   | $          | (4,697 | ) | $ | 1,585 |   | $ | 16,994 |   |
|                                          |       |                                                 |       |                                                |       |   |   |   |   |
| **Earnings  Per Share**                       |       |                                                 |       |                                                |       |   |   |   |   |
| Net income  (loss) per common share:          |       |                                                 |       |                                                |       |   |   |   |   |
| Basic                                         |       | $                                                    | (0.16      | )                                                   | $          | (0.11 | ) | $ | 0.04 |   | $ | 0.41 |   |
| Diluted                                       |       | $                                                    | (0.16      | )                                                   | $          | (0.11 | ) | $ | 0.04 |   | $ | 0.41 |   |
| Weighted average  number of common shares:    |       |                                                 |       |                                                |       |   |   |   |   |
| Basic                                         |       | 41,534                                               |       | 41,441                                              |       | 41,479 |   | 41,439 |   |
| Diluted                                       |       | 41,534                                               |       | 41,441                                              |       | 41,729 |   | 41,479 |   |
|                                          |       |                                                 |       |                                                |       |   |   |   |   |
| Dividends per  common share                   |       | $                                                    | —     |                                                | $          | — |   | $ | — |   | $ | — |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

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**TuesdayMorning Corporation**

**Consolidated Statements of Cash Flows(unaudited)**

**(Inthousands)**

** **
| ** **                                                                                 | ** ** | **Nine Months Ended  March 31,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                                                 | ** ** | **2009**                                        | ** ** | **2008** | ** ** |
|                                                                                       |       |                                            |       |   |   |
| **Net  cash flows from operating activities:**                                             |       |                                            |       |   |   |
| Net income                                                                                 |       | $                                               | 1,585      |   | $ | 16,994 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities:         |       |                                            |       |   |   |
| Depreciation and  amortization                                                             |       | 12,637                                          |       | 13,172 |   |
| Amortization of  financing fees                                                            |       | 474                                             |       | 150 |   |
| Deferred income  taxes                                                                     |       | (1,432                                          | )          | 183 |   |
| Loss on disposal  of assets                                                                |       | 546                                             |       | 478 |   |
| Stock-based  compensation                                                                  |       | 1,656                                           |       | 2,663 |   |
| Other non-cash  items                                                                      |       | 12                                              |       | 23 |   |
| Change in  operating assets and liabilities:                                               |       |                                            |       |   |   |
| Inventories                                                                                |       | (19,570                                         | )          | 18,892 |   |
| Prepaid and  other assets                                                                  |       | 726                                             |       | (2,490 | ) |
| Accounts payable                                                                           |       | 5,377                                           |       | (12,383 | ) |
| Accrued  liabilities                                                                       |       | (755                                            | )          | (544 | ) |
| Deferred rent                                                                              |       | 28                                              |       | (323 | ) |
| Income taxes  payable                                                                      |       | 1,579                                           |       | (712 | ) |
| Net cash  provided by operating activities                                                 |       | 2,863                                           |       | 36,103 |   |
|                                                                                       |       |                                            |       |   |   |
| **Net  cash flows from investing activities:**                                             |       |                                            |       |   |   |
| Capital  expenditures                                                                      |       | (9,919                                          | )          | (8,530 | ) |
| Proceeds from  sale of assets                                                              |       | —                                          |       | 78 |   |
| Net cash used in  investing activities                                                     |       | (9,919                                          | )          | (8,452 | ) |
|                                                                                       |       |                                            |       |   |   |
| **Net  cash flows from financing activities:**                                             |       |                                            |       |   |   |
| Repayments under  revolving credit facility                                                |       | (193,242                                        | )          | (219,000 | ) |
| Proceeds under  revolving credit facility                                                  |       | 206,742                                         |       | 194,500 |   |
| Change in cash  overdraft                                                                  |       | (5,130                                          | )          | (3,185 | ) |
| Payment of debt  financing costs                                                           |       | (4,437                                          | )          | — |   |
| Proceeds from  exercise of common stock options and used for stock purchase plan purchases |       | —                                          |       | 1 |   |
| Net cash  provided by (used in) financing activities                                       |       | 3,933                                           |       | (27,684 | ) |
| Net decrease in  cash and cash equivalents                                                 |       | (3,123                                          | )          | (33 | ) |
| Cash and cash  equivalents, beginning of period                                            |       | 8,630                                           |       | 10,303 |   |
| Cash and cash  equivalents, end of period                                                  |       | $                                               | 5,507      |   | $ | 10,270 |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

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**TuesdayMorning Corporation**

**Notes to Consolidated FinancialStatements (unaudited)**

 

1.     Basis of presentation — The unauditedconsolidated interim financial statements included herein have been prepared byus pursuant to the rules and regulations of the Securities and ExchangeCommission. Certain information and footnote disclosures normally included infinancial statements prepared in accordance with accounting principlesgenerally accepted in the United States have been condensed or omitted pursuantto such rules and regulations. These financial statements include alladjustments, consisting only of those of a normal recurring nature, which, inthe opinion of management, are necessary to present fairly the results of theinterim periods presented and should be read in conjunction with theconsolidated financial statements and notes thereto in our Form 10-K forthe fiscal year ended June 30, 2008. Because of the seasonal nature of ourbusiness, the results of operations for the quarter are not indicative of theresults to be expected for the entire year.

 

The balance sheet at June 30,2008 has been derived from the audited consolidated financial statements atthat date but does not include all of the information and notes required byU.S. generally accepted accounting principles for complete financialstatements.  For further information, refer to the consolidated financialstatements and notes thereto included in our Form 10-K for the fiscal yearended June 30, 2008.  We operate our business as a single operatingsegment.

 

2.      Stock-based compensation — We account forour stock-based compensation plan in accordance with Statement of Financial AccountingStandards (“SFAS”) 123 (revised 2004) “Share-Based Payment” (“SFAS 123R”). Under SFAS 123R, all stock-based compensation cost is measured at the grantdate, based on the estimated fair value of the award, and is recognized as anexpense in the statement of operations over the requisite service period.

 

We have established theTuesday Morning Corporation 1997 Long-Term Equity Incentive Plan, as amended(the “1997 Plan”), the Tuesday Morning Corporation 2004 Long-Term EquityIncentive Plan, as amended (the “2004 Plan”), and the Tuesday MorningCorporation 2008 Long-Term Equity Incentive Plan (the “2008 Plan”) which allowfor the granting of stock options to directors, officers and key employees of,and certain other key individuals who perform services for us, and our subsidiaries.The 1997 Plan authorized grants of options to purchase up to 4,800,000 sharesof authorized, but unissued common stock.  Equity awards may no longer begranted under the 1997 Plan but options granted under the plan are stillexercisable.  The 2004 Plan and the 2008 Plan authorize grants of optionsto 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 priceat a fair market value equal to the average of the high and low trading pricesof the Company’s common stock on the date of grant in the 1997 Plan and the2004 Plan.  Stock options are awarded with a strike price at a fair marketvalue equal to the closing price of the Company’s common stock on the date ofthe grant in the 2008 Plan.

 

Options granted under the1997 Plan, the 2004 Plan, and the 2008 Plan typically vest over periods ofthree to five years and expire in ten years. The exercise prices of the optionsrange between $0.63 and $35.23, which represents market value on the grantdate.  At March 31, 2009, all shares available under the 1997 Planhad been granted and the 1997 Plan terminated pursuant to its terms as of December 29,2007.  There were 147,342 and 528,041 shares available for grant under the2004 Plan and the 2008 Plan at March 31, 2009, respectively.

 

Under the terms of the2004 Plan and the 2008 Plan, we may also grant restricted stock to compensatecertain directors, officers, key employees of, and certain other keyindividuals who perform services for us and our subsidiaries. Restricted stockawards are non-transferable, but bear rights of ownership including voting anddividend rights. Shares are valued at the market price at the date of award andgenerally vest over three to five years.  Some grants of restricted sharesalso contain performance provisions.  As of March 31, 2009, therewere 1,865,022 shares of restricted stock outstanding with a weighted averagefair value of $2.60 per share under the 2004 Plan and 2008 Plan.

 

Stock compensationexpense recognized in the three months and nine months ended March 31,2009 was as follows:

 
| ** **                                                | ** ** | **Three Months Ended  March 31, 2009** | ** ** | **Nine Months Ended  March 31, 2009** | ** ** |
|-----------------------------------------------------------|------------|------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
|                                                      |       |                                                       |       |                                                      |       |
| Total cost of  stock-based compensation during the period |       | $                                                          | 588        |                                                      | $          | 1,734 |   |
| Amounts  capitalized in ending inventory                  |       | (272                                                       | )          | (831                                                      | )          |
| Amounts  recognized in expense previously capitalized     |       | 201                                                        |       | 753                                                       |       |
|                                                      |       |                                                       |       |                                                      |       |
| Amounts charged  against income for the period before tax |       | $                                                          | 517        |                                                      | $          | 1,656 |   |

 

3.      Comprehensive income or loss - Comprehensiveincome or loss is defined as net income or loss plus the change in equityduring a period from transactions and other events, excluding those resultingfrom investments by and distributions to stockholders.

 

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We account for foreigncurrency forward contracts as cash flow hedges in accordance with FinancialAccounting Standards  Board (FASB)Statement 133, *Accounting for Derivative Instruments andHedging Activities. *Changesin the fair value of the contracts that are considered to be effective arerecorded in other comprehensive income or loss until the hedged item isrecorded in earnings.  Effective cash flowhedges are reclassified out of other comprehensive income or loss and into costof sales when the hedged inventory is sold. All of our cash flow hedges are effective.  We enter into foreign currency forwardexchange contracts with major financial institutions who are participatingbanks on our revolving credit facility to manage and reduce the impact offluctuations in foreign currency exchange rates on certain contractualmerchandise purchases with international vendors between the order and payment dates,which generally approximate 2 to 6 months. The effect of foreign exchange contracts on our financial position orresults of operations has historically been immaterial.  Only six foreign exchange contracts totalingless than $30 thousand each were outstanding at March 31, 2009.  Total comprehensive loss for the three monthperiod ended March 31, 2009 was $6.8 million while total comprehensiveloss was $4.7 million for the three month period ending March 31,2008.  Comprehensive income for the nine month periods ended March 31,2009 and 2008 was $1.6 million and $17.0 million, respectively.

 

4.     Commitments and Contingencies -During 2001 and 2002, we were named as adefendant in three complaints filed in the Superior Court of California in andfor the County of Los Angeles.  The plaintiffs sought to certify astatewide class made up of some of our current and former employees, which theyclaim are owed compensation for overtime wages, penalties and interest. Theplaintiffs also sought attorney’s fees and costs. In October 2003, weentered into a settlement agreement with a sub-class of these plaintiffsconsisting of managers-in-training and management trainees which was paid in November 2005with no material impact to our financial statements.  In August 2008,our motion for de-certification of the class of remaining plaintiffs wasgranted, thereby dismissing their class action claim.  The plaintiffs haveappealed this ruling and some may pursue their claims individually.

 

A similar lawsuit, whichalso alleges claims concerning meal and rest periods, was filed in OrangeCounty, California in 2004, by managers, managers-in-training and assistantmanagers, and an amended complaint was filed in January 2007. In September 2008,the four plaintiffs abandoned their class action claim and have elected topursue their individual claims as well as claims under California’s PrivateAttorney General Act.  This matter is set for trial in September 2009. A companion lawsuit alleging the same claims was filed on December 26,2008 on behalf of approximately thirty-four additional individualplaintiffs.  This lawsuit includes a claim under California’s PrivateAttorney General Act.  The companion lawsuit is still in the initialstages of litigation.  We do not expect either of these complaints to havea material impact to our financial statements.

 

In December 2008, aclass action lawsuit was filed by hourly, non-exempt employees in the SuperiorCourt of California in and for the County of Los Angeles, alleging claimscovering meal and rest period violations.  This case is still in theinitial stages of litigation.

 

We intend to vigorouslydefend all pending actions. We do not believe these or any other legalproceedings pending or threatened against us would have a material adverseeffect on our financial condition or results of operations.

 

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

 
| ** **                                                                                                               | ** ** | **Three Months Ended**

**March 31** | ** ** | **Nine Months Ended  March 31** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|------------------------------------------------|------------|
| **(In thousands, except for per share data)**                                              | ** ** | **2009**                                            | ** ** | **2008**                                       | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                                                                                                     |       |                                                |       |                                           |       |   |   |   |   |
| **Basic  earnings per share:**                                                                                           |       |                                                |       |                                           |       |   |   |   |   |
| Net income  (loss)                                                                                                       |       | $                                                   | (6,828     | )                                              | $          | (4,697 | ) | $ | 1,585 |   | $ | 16,994 |   |
| Weighted average  number of common shares outstanding                                                                    |       | 41,534                                              |       | 41,441                                         |       | 41,479 |   | 41,439 |   |
| Net income  (loss) per common share                                                                                      |       | $                                                   | (0.16      | )                                              | $          | (0.11 | ) | $ | 0.04 |   | $ | 0.41 |   |
|                                                                                                                     |       |                                                |       |                                           |       |   |   |   |   |
| **Diluted  earnings per share:**                                                                                         |       |                                                |       |                                           |       |   |   |   |   |
| Net income  (loss)                                                                                                       |       | $                                                   | (6,828     | )                                              | $          | (4,697 | ) | $ | 1,585 |   | $ | 16,994 |   |
|                                                                                                                     |       |                                                |       |                                           |       |   |   |   |   |
| Dilutive effect  of employee stock options                                                                               |       | —                                              |       | —                                         |       | 104 |   | 1 |   |
| Dilutive effect  of restricted stock                                                                                     |       | —                                              |       | —                                         |       | 146 |   | 39 |   |
| Weighted average  number of common shares outstanding                                                                    |       | 41,534                                              |       | 41,441                                         |       | 41,479 |   | 41,439 |   |
| Weighted average  number of common shares and diluted effect of outstanding employee stock  options and restricted stock |       | 41,534                                              |       | 41,441                                         |       | 41,729 |   | 41,479 |   |
|                                                                                                                     |       |                                                |       |                                           |       |   |   |   |   |
| Net income  (loss) per common share                                                                                      |       | $                                                   | (0.16      | )                                              | $          | (0.11 | ) | $ | 0.04 |   | $ | 0.41 |   |

 

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Options representing therights to purchase common stock of 3,566,292 shares at March 31, 2009,1,973,445 at March 31, 2008, had exercise prices greater than the averagequoted market price for our common stock. Options representing the rights to purchase common stock of 10,000shares at March 31, 2009 had exercise prices lower than the average quotedmarket price for our common stock. Additionally, 1,306,769 and 349,920 restricted shares were outstandingat March 31, 2009 and 2008, respectively. None of these shares were included in the diluted earnings per sharecalculation for the three months ended March 31, 2009, and 2008, becausesuch inclusion would have been anti-dilutive.

 

6.     Revolving credit facility — On December 15,2008, we entered into a new credit agreement providing for an asset-based,five-year senior secured revolving credit facility (the “Revolving CreditFacility”) in the amount of up to $150.0 million.  On January 28, 2009,we entered into an amendment to increase the amount from $150.0 million to$180.0 million.

 

Availability on therevolving credit facility is calculated on a monthly basis and is dependantupon inventory valuation requirements as specified in the agreement.  The revolving credit facility may beincreased by up to $70.0 million, not to exceed an aggregate total commitmentof $250.0 million.  Our indebtedness under the credit facility is securedby a lien on substantially all of our assets.  The revolving creditfacility contains, among other things, a “clean down” provision requiring thatthe sum of the aggregate principal amount of the outstanding loans and undrawnletters of credit may not exceed $45.0 million for 30 consecutive days duringthe period from December 28 through January 31.  The revolvingcredit facility contains certain restrictive covenants, which affect, amongothers, our ability to incur liens or incur additional indebtedness, sellassets or merge or consolidate with any other entity. Unless borrowings andletters of credit exceed 82.5% of the maximum amounts available under therevolving credit facility or an event of default exists, the Company does nothave to comply with any financial covenants. Should such an event occur, theCompany is required to comply with a consolidated fixed charge coverage ratioof 1:1.  As of March 31, 2009, we were in compliance with allcovenants.

 

At March 31, 2009,we had $22.0 million of outstanding loans under the revolving credit facility,$10.1 million of outstanding letters of credit and availability of $103.1million under the revolving credit facility.  We incur commitment fees ofup to 0.75% on the unused portion of the revolving credit facility. Anyborrowing under the revolving credit facility incurs interest at LIBOR or theprime rate, depending on the type of borrowing, plus an applicable margin.These rates are increased or reduced as our average daily availabilitychanges.   The weighted average interest rate at March 31, 2009for LIBOR loans was 3.28%. The weighted average interest rate for prime rateloans at March 31, 2009 was 6.02%.

 

7.     Income Taxes - Tuesday MorningCorporation or one of its subsidiaries files income tax returns in the U.S.federal jurisdiction, and various state jurisdictions.  With a fewexceptions, Tuesday Morning Corporation is generally no longer subject to U.S.state and local income tax examinations by tax authorities for years before1999.  The Internal Revenue Service (“IRS”) has concluded an examinationof the Company for years ending before 2007.

 

As of the end of thethird quarter of fiscal year 2009, the Company’s annual effective tax ratecould not be reliably estimated as a result of the difficulty in forecastingfourth quarter profit or loss.  Therefore, the effective tax rate for thenine-month period ended March 31, 2009, was utilized to determine theCompany’s tax provision.  The effective tax rate is lower in the ninemonths ended March 31, 2009 as compared to the nine months ended March 31,2008 primarily due to a reduction in state income taxes.

 

8.     Cash and Cash Equivalents — Credit cardreceivables of $3.5 million and $5.6 million at March 31, 2009 and June 30,2008, respectively, from MasterCard, Visa, Discover and American Express, andall highly liquid investments with an original maturity date of three months orless are considered to be cash equivalents.

 

9.     Recent Accounting Pronouncements — In June 2008,the Financial Accounting Standards Board (“FASB”) issued a staff position (“FSP”)on Emerging Issues Task Force 03-6-1 “Determining Whether Instruments Grantedin Share-Based Payment Transactions are Participating Securities.”  TheFSP addresses whether instruments granted in share-based payment transactionsare participating securities prior to vesting and, therefore, need to beincluded in the earnings allocation in computing earnings per share (EPS) underthe two class method described in paragraphs 60 and 61 of FASB Statement No. 128,“Earnings per Share.”  The FSP is effective for financial statementsissued for fiscal years beginning after December 15, 2008 and interimperiods within those years.  Early adoption of this FSP is notpermitted.  The Company is currently evaluating the impact of the adoptionof this FSP on its consolidated financial statements.

 

In March of 2008,the FASB adopted Statement of Financial Accounting Standards (SFAS) No. 161,*Disclosures about Derivative Instruments and HedgingActivities.*    Thisstatement requires enhanced disclosures about an entity’s derivative and hedgingactivities.  SFAS No. 161 is effective for financial statementsissued for fiscal years and interim periods beginning after November 15,2008.  The Company adopted SFAS No. 161 effective January 1,2009, but our foreign currency derivative contracts were immaterial fordisclosure purposes.

 

In December 2007,the FASB adopted Statement of Financial Accounting Standards (SFAS) No. 141(revised 2007),*Business Combinations*.SFAS 141R replaces SFAS No. 141,*  Business Combinations*. Thestatement retains the purchase method of accounting used in businesscombinations, but replaces SFAS 141 by establishing principles and requirementsfor the recognition and measurement of assets, liabilities and goodwill,including the requirement that most transaction costs and

 

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restructuring costs beexpensed. In addition, the statement requires disclosures to enable users toevaluate the nature and financial effects of the business combination. SFAS141R is effective for business combinations for which the acquisition date ison or after the beginning of the first annual reporting period beginning on orafter December 15, 2008. We adopted SFAS 141R on January 1, 2009 withno impact to our financial statements.

 

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

 

The following discussionshould be read in conjunction with our unaudited Consolidated FinancialStatements and the notes thereto included in Item 1 of this Quarterly Report onForm 10-Q.

 

**Introduction**

 

We operated 850 discountretail stores in 45 states as of March 31, 2009.  We sell closeouthome furnishings, housewares, gifts and related items, which we purchase atbelow wholesale prices.  Our stores operate during periodic “sales events”that occur in each month except January and July.  We are generallyclosed during the first two weeks of January and July, which traditionallyhave been weaker months for retailers.  We purchase first quality, brandname merchandise at closeout prices and sell it at prices significantly belowthose generally charged by department stores and specialty and catalogretailers. We do not sell seconds, irregulars, refurbished or factory rejects.

 

**BusinessOverview**

 

The retail homefurnishings industry has been negatively impacted by increased supply andcompetition within an already highly competitive promotional environment, alongwith the weakness in the housing and debt markets, trends we believe are likelyto continue in the near term and potentially longer. As a closeout retailer ofhome furnishings, we currently compete against a diverse group of retailers,including department and discount stores, specialty and e-commerce retailersand mass merchants, which sell, among other products, home furnishing productssimilar and often identical to those we sell. We also compete in particularmarkets with a substantial number of retailers that specialize in one or moretypes of home furnishing and houseware products that we sell. Many of thesecompetitors have substantially greater financial resources than we do. Ourcompetitors’ greater financial resources allow them to initiate and sustainaggressive price competition, initiate broader marketing campaigns that reach alarger customer base, fund ongoing promotional events and communicate morefrequently with existing and potential customers.

 

In response to this trendin the retail home furnishings industry, we have been focused internally onimplementing various strategic initiatives that we believe will offset theimpact of this trend including, but not limited to, striving to provide amerchandise assortment that evolves and adapts to the changing needs and preferencesof the Company’s customer base, continuing to review the individualcontributions of the existing store base and making decisions about the futureof individual store locations, including whether to close or relocate them,seeking to improve overall supply chain efficiency, including reviewingoperational practices such as freight costs, vendor payment terms anddistribution processes, and striving to improve the Company’s marketing plan bymaximizing traffic, improving comparable store sales and expanding the currentcustomer base, while also maintaining cost efficiency.

 

Given the uncertaineconomic environment, we are closely monitoring our inventory purchases. We have developed a strategy to closely monitor and control our markdowns ofinventory to avoid marking down items that continue to sell through atreasonable rates.  As a result, markdowns combined with our reserve formarkdowns during the fiscal third quarter of 2009 were 5.7% of sales versus theprior year quarter of 5.8% of sales.  We believe this strategy willcontribute to overall margin by focusing our markdowns on inventory that istruly slow moving and not marking down items on the basis of age in inventoryalone, thereby allowing us to continue to exclude markdowns on opportunisticbuys which are too large for us to sell through in one year.  As a resultof this strategy, our inventory turnover could decrease.  Actual requiredmarkdowns could differ from our current estimates based on future customerdemand or economic conditions.  The effect of an additional 1.0% markdownin the value of our inventory at March 31, 2009 would result in a declinein gross profit and diluted earnings per share for the third quarter of fiscal2009 of $2.6 million and $0.04, respectively.  Under current economicconditions, those estimates can vary significantly from the actual results wemay encounter.

 

The stability of ourearnings is also heavily influenced by macroeconomic factors. As the economyimproves or worsens our business is often similarly impacted. Macroeconomicfactors, such as the current conditions in the debt and housing markets, haveimpacted and will continue to impact our business by decreasing the disposableincome of our potential consumers. The decline in consumer confidence levelshas also had a negative impact on consumers’ ability and willingness to spenddiscretionary income. At this time, we view the direction of the economy to beuncertain, which does not allow us a high degree of visibility or certainty inpredicting our earnings.

 

Our ability tocontinuously attract buying opportunities for closeout merchandise and toanticipate consumer demand as closeout merchandise becomes available representsan uncertainty in our business. By their nature, specific closeout merchandiseitems are generally only available from manufacturers or vendors on anon-recurring basis. As a result, we do not have long-term contracts with

 

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our vendors for supply,pricing or access to products, but make individual purchase decisions, whichare often for large quantities. Although we have many sources of merchandiseand do not foresee any shortage of closeout merchandise in the near future, wecannot assure that manufacturers or vendors will continue to make desirablecloseout merchandise available to us in quantities or on terms acceptable to usor that our buyers will continue to identify and take advantage of appropriatebuying opportunities. Since this uncertainty is a by-product of our business,we expect it to be an ongoing concern.

 

Net sales for the thirdquarter of fiscal 2009 were $167.0 million, a decrease of 6.4% compared to thesame period last year.  Comparable store sales for the quarter ended March 31,2009 decreased by 9.5 % comprised of a 1.7% decrease in customer transactionsand a 7.8% decrease in average ticket.  Net loss for the quarter was $6.8million and diluted loss per share was $0.16.

 

For the nine months endedMarch 31, 2009, net sales were $613.1 million compared to $688.8 millionfor the same period last year.  Comparable store sales for the nine monthperiod ended March 31, 2009 decreased 14.2% compared to the same periodlast year.  This decrease was comprised of an 8.3% decrease in customertransactions and a 5.9% decrease in average ticket.  Net income for theyear-to-date period was $1.6 million and diluted earnings per share were $0.04.

 

We continue to remainfocused on our long-term growth and profitability. The home furnishings andhigh-end decorative sectors of the U.S. economy continue to be challenged bythe highly competitive promotional environment and weakness in the housing anddebt markets.

 

We opened six new storesduring the third quarter of fiscal 2009.  In addition, we relocated 15existing stores and expanded one existing store.

 

**Resultsof Operations**

 

The following table setsforth certain financial information from our consolidated statements ofoperations expressed as a percentage of net sales.  Our business is highlyseasonal, with a significant portion of our net sales and most of our operatingincome generated in the quarter ending December 31, which includes theholiday season. There can be no assurance that the trends in sales or operatingresults will continue in the future.

 
| ** **                                       | ** ** | **Three Months Ended  March 31,** | ** ** | **Nine Months Ended  March 31,** | ** ** |
|--------------------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                       | ** ** | **2009**                                         | ** ** | **2008**                                        | ** ** | **2009** | ** ** | **2008** | ** ** |
| Net sales                                        |       | 100.0                                            | %          | 100.0                                           | %          | 100.0 | % | 100.0 | % |
| Cost of sales                                    |       | 63.5                                             |       | 64.1                                            |       | 63.1 |   | 63.0 |   |
| Gross profit                                     |       | 36.5                                             |       | 35.9                                            |       | 36.9 |   | 37.0 |   |
| Selling, general  and administrative expense     |       | 42.1                                             |       | 40.0                                            |       | 36.1 |   | 32.6 |   |
| Operating income  (loss)                         |       | (5.6                                             | )          | (4.1                                            | )          | 0.7 |   | 4.4 |   |
| Net interest  expense and other income (expense) |       | (0.6                                             | )          | (0.1                                            | )          | (0.3 | ) | (0.4 | ) |
| Income (loss)  before income taxes               |       | (6.2                                             | )          | (4.2                                            | )          | 0.4 |   | 4.0 |   |
| Income tax  expense (benefit)                    |       | (2.2                                             | )          | (1.6                                            | )          | 0.2 |   | 1.5 |   |
|                                             |       |                                             |       |                                            |       |   |   |   |   |
| Net income  (loss)                               |       | (4.1                                             | )%         | (2.6                                            | )%         | 0.3 | % | 2.5 | % |

 

**ThreeMonths Ended March 31, 2009**

**Comparedto the Three Months Ended March 31, 2008**

 

During the third quarterof fiscal 2009, net sales decreased to $167.0 million from $178.4 million, adecrease of $11.4 million or 6.4% compared to the quarter ended March 31,2008. The decrease in third quarter sales is primarily due to a 9.5% decreasein comparable store sales.  The decrease in comparable sales for the thirdquarter of fiscal 2009 was comprised of a 1.7% decrease in the number oftransactions and a 7.8% decrease in the average transaction amount. Comparable store sales and sales per store decreased primarily due to loweraverage spending levels than last year.  Management believes trafficlevels and average ticket sales are lower due to a number of factors, includingthe economic pressures impacting the discretionary income of consumers, an increasein supply of home furnishing products, a weakness in the housing market, andthe competitive promotional environment of the home furnishings retail sector.

 

Gross profit decreased$3.0 million, or 4.7%, to $61.0 million for the three months ended March 31,2009 as compared to the same quarter last year of $64.0 million, primarily as aresult of lower sales volume. Our gross profit percentage increased from 35.9%in the third quarter of fiscal 2008 to 36.5% in the third quarter of fiscal2009. This increase of 0.6% in gross profit percentage is primarily due todecreases in the purchase cost of our products representing 0.4% of sales and adecrease in freight costs representing 0.2% of sales.   The costs ofour products have declined as overall economic activity and demand for homeproducts has been weak.  Freight costshave decreased due primarily to the decline in fuel costs.

 

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Selling, general andadministrative expenses decreased $1.0 million, or 1.4%, to $70.4 million inthe three months ended March 31, 2009 from $71.4 million in the samequarter last year.  The decrease was attributable to decreases of $1.3 millionin advertising costs, $0.7 million in self-insurance costs and $0.3 million inlegal and consulting fees.  Partiallyoffsetting these decreases was an increase in store occupancy costs of $1.5million primarily due to the expansion of our store base.  As a percentageof net sales, these selling, general and administrative expenses increased to42.1% in the third fiscal quarter of 2009 from 40.0% in the same quarter lastyear due to the deleveraging of fixed costs over a smaller sales base. Selling, general, and administrative expenses per average store declined by4.7% for the third quarter of fiscal 2009 as compared to the same period infiscal 2008.

 

The income tax benefitfor the three month periods ended March 31, 2009 and 2008 was $3.6 millionand $2.9 million, respectively, reflecting an effective tax rate of 34.5% and38.2%, respectively.  The effective taxrate is lower due to state income taxes.

 

**NineMonths Ended March 31, 2009**

**Comparedto the Nine Months Ended March 31, 2008**

 

During the nine monthsended March 31, 2009, net sales decreased to $613.1 million from $688.8million, a decrease of $75.7 million or 11.0% compared to the nine month periodended March 31, 2008. The decrease in sales for the first nine months offiscal 2009 was primarily due to the 14.2% decrease in comparable store sales.The decrease in comparable sales for the first nine months of fiscal 2009 wascomprised of an 8.3% decrease in the number of transactions and a 5.9% decreasein the average transaction amount.  Total average store sales for thefirst nine months of fiscal 2009 decreased 14.5% when compared to the sameprior year period.  Comparable store sales and sales per store decreasedprimarily due to lower traffic levels and average ticket sales.  Managementbelieves traffic levels and average ticket sales were lower due to a number offactors, including the economic pressures impacting the discretionary income ofconsumers, an increase in supply of home furnishing products, a weakness in thehousing market, and the competitive promotional environment of the homefurnishings retail sector.

 

Gross profit decreased$28.6 million, or 11.2%, to $226.0 million for the nine months ended March 31,2009 as compared to the same nine month period last year of $254.6 million,primarily a result of decreased net sales.  In the nine month period endedMarch 31, 2009, our gross profit percentage decreased to 36.9% from 37.0%in the same period last year.  This 0.1% decrease in the gross profitpercentage is comprised of a decrease in markdowns as a percentage of sales of0.3% resulting from changes in our inventory markdown strategy, offset by aslight increase in freight and distribution expenses as a percentage of salesof 0.5%.   Freight and distribution expenses were slightly higher asa percentage of sales due to the increase in freight rates as a result ofhigher fuel surcharges in the first quarter of fiscal 2009 and due to thedeleveraging of fixed costs over a smaller sales base.

 

Selling, general andadministrative expenses during the nine months ended March 31, 2009decreased $3.0 million, or 1.3%, to $221.6 million from $224.6 million duringthe nine months ended March 31, 2008.  The decrease was primarilyattributable to a decrease in advertising expenses of $2.9 million, a decreasein store salary expenses of $1.8 million, a decrease in bank charges of $1.0million, a decrease in insurance costs of $0.8 million, a decrease instock-based compensation expenses of $0.7, and a decrease in depreciation of$0.5 million.  These decreases werepartially offset by an increase in store occupancy costs of $4.4 million and anincrease in utilities of $1.4 million, primarily due to the expansion in ourstore base.  As a percentage of net sales, these expenses increased 3.5% to36.1% in the first nine months of fiscal 2009 from 32.6% in the same periodlast year.  The increased percentage is primarily due to the reducedexpense leveraging given our negative comparable store sales and includes a2.5% increase related to store occupancy costs and store personnel costs as apercentage of sales.  Selling, general and administrative expenses peraverage store was $261.0 thousand for the nine months ended March 31,2009 compared to $274.7 thousand in the same period last year,representing a decrease of 4.8%.

 

The income tax provisionfor the nine month periods ended March 31, 2009 and 2008 was $1.0 millionand $10.4 million, respectively, reflecting an effective tax rate of 37.8% and38.0%, respectively.  The effective tax rate is lower due to a reductionof state income taxes.

 

**Liquidityand Capital Resources**

 

We have financed ouroperations with funds generated from operating activities and borrowings underour revolving credit facility.  Our borrowings have historically peaked inthe quarter ended September 30 as we build inventory levels prior to theholiday selling season.  Given the seasonality of our business, the amountof borrowings under our revolving credit facility may fluctuate materiallydepending on various factors, including the time of year, our needs, and theopportunity to acquire merchandise inventory.  We have no off-balancesheet arrangements or transactions with unconsolidated, limited purpose orvariable interest entities, nor do we have material transactions or commitmentsinvolving related persons or entities.

 

Net cash flows providedby operating activities for the nine months ended March 31, 2009 was $2.9million, primarily due to net income of $1.6 million along with adjustments fornon cash charges of $12.6 million for depreciation and $1.7 million forstock-based compensation.  We also hadincreases in accounts payable of $5.4 million and in income taxes payable of$1.6 million.  These inflows werepartially offset by an increase in inventory of $19.6 million.   Theincrease in inventory was primarily due to lower sales volumes along with a netincrease of eight stores during the nine month period.  The increase inaccounts payable was partially offset by the

 

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change in cash overdraftdue to the timing of payments and is discussed below.  There has been nomaterial change in our payment policy to vendors.  The increase in incometaxes payable was due to the timing of payments related to income taxes.

 

Net cash used ininvesting activities of $9.9 million for the nine months ended March 31,2009 was primarily a result of capital expenditures that relate to opening newstores and store relocations in addition to the purchase of warehouse equipmentand corporate hardware and software.  We expect to spend approximately$1.5 million for additional capital expenditures during the remainder of fiscal2009.  These will include the replacementcapital necessary to operate our stores along with expenditures for therelocation and enhancement of selected existing stores.

 

Net cash provided byfinancing activities for the nine months ended March 31, 2009 of $3.9million was primarily due to borrowings under the revolving credit facility of$206.7 million offset by repayments under the revolving credit facility of$193.2 million, an increase in cash overdraft of $5.1 million and payment ofdebt financing costs of $4.4 million.

 

Revolving credit facility— On December 15, 2008, we entered into a new credit agreement providingfor an asset-based, five-year senior secured revolving credit facility (the “RevolvingCredit Facility”) in the amount of up to $150.0 million.  On January 28,2009, we entered into an amendment to increase the amount from $150.0 millionto $180.0 million.

 

Availability on therevolving credit facility is calculated on a monthly basis and is dependantupon inventory valuation requirements as specified in the agreement.  The revolving credit facility may beincreased by up to $70.0 million, not to exceed an aggregate total commitmentof $250.0 million.  Our indebtedness under the credit facility is securedby a lien on substantially all of our assets.  The revolving credit facilitycontains, among other things, a “clean down” provision requiring that the sumof the aggregate principal amount of the outstanding loans and undrawn lettersof credit may not exceed $45.0 million for 30 consecutive days during theperiod from December 28 through January 31.  The revolvingcredit facility contains certain restrictive covenants, which affect, amongothers, our ability to incur liens or incur additional indebtedness, sellassets or merge or consolidate with any other entity. Unless borrowings andletters of credit exceed 82.5% of the maximum amounts available under therevolving credit facility or an event of default exists, the Company does nothave to comply with any financial covenants. Should such an event occur, theCompany is required to comply with a consolidated fixed charge coverage ratioof 1:1.  As of March 31, 2009, we were in compliance with allcovenants.

 

At March 31, 2009,we had $22.0 million of outstanding loans under the revolving credit facility,$10.1 million of outstanding letters of credit and availability of $103.1million under the revolving credit facility.  We incur commitment fees ofup to 0.75% on the unused portion of the revolving credit facility. Anyborrowing under the revolving credit facility incurs interest at LIBOR or theprime rate, depending on the type of borrowing, plus an applicable margin.These rates are increased or reduced as our average daily availabilitychanges.   The weighted average interest rate at March 31, 2009for LIBOR loans was 3.28%. The weighted average interest rate for prime rateloans at March 31, 2009 was 6.02%.

 

**StoreOpenings/Closings**

 
| ** **                          | ** ** | **Nine Months  Ended  March 31,  2009** | ** ** | **Nine Months  Ended  March 31,  2008** | ** ** | **Fiscal Year  Ended  June 30,  2008** | ** ** |
|-------------------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------|------------|--------------------------------------------------|------------|
|                                |       |                                              |       |                                              |       |                                             |       |
| Stores open at  beginning of period |       | 842                                               |       | 810                                               |       | 810                                              |       |
| Stores opened  during the period    |       | 27                                                |       | 27                                                |       | 48                                               |       |
| Stores closed  during the period    |       | (19                                               | )          | (16                                               | )          | (16                                              | )          |
| Stores open at  end of period       |       | 850                                               |       | 821                                               |       | 842                                              |       |

 

**Item3.  Quantitative and Qualitative Disclosures About Market Risk**

 

We are exposed to variousmarket risks, including changes in foreign currency exchange rates and interestrates. Market risk is the potential loss arising from adverse changes in marketprices and rates, such as foreign currency exchange and interest rates. Based onour market risk sensitive instruments outstanding as of March 31, 2009, wehave determined that there were no material changes in market risk exposure toour consolidated financial position, results of operations or cash flows as ofsuch date since June 30, 2008. Our market risk is discussed in more detailin our Annual Report on Form 10-K for the fiscal year ended June 30,2008. We do not enter into derivatives or other financial instruments fortrading or speculative purposes. There have been no significant changes in theforeign currency exchange rate or interest rate market risks since June 30,2008.

 

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**Item4.  Controls and Procedures**

 

**DisclosureControls and Procedures**

 

Based on our management’sevaluation (with participation of our principal executive officer and ourprincipal financial officer), our principal executive officer and our principalfinancial officer have concluded that our disclosure controls and procedures(as defined in Rule 13a-15(e) or Rule 15d-15(e) under theSecurities Exchange Act of 1934, as amended (the “Exchange Act”)) wereeffective as of March 31, 2009 to ensure that information required to bedisclosed by us in this Quarterly Report on Form 10-Q was (1) recorded,processed, summarized and reported within the time periods specified in theSecurities and Exchange Commission’s rules and forms and (2) accumulatedand communicated to our management, including our principal executive andprincipal financial officers, to allow timely decisions regarding requireddisclosure.

 

A control system, nomatter how well conceived and operated, can provide only reasonable, notabsolute, assurance that the objectives of the control system are met. Becauseof inherent limitations in all control systems, no evaluation of controls canprovide absolute assurance that all control issues, if any, within a companyhave been detected. Accordingly, our disclosure controls and procedures aredesigned to provide reasonable, not absolute, assurance that the objectives ofour disclosure control system are met and, as set forth above, our chiefexecutive officer and chief financial officer have concluded, based on theirevaluation as of the end of the period covered by this report, that ourdisclosure controls and procedures were effective to provide reasonableassurance that the objectives of our disclosure control system were met.

 

**Changes in Internal Control Over Financial Reporting**

 

There were no changes inour internal control over financial reporting that occurred during the quarterended March 31, 2009 that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.

 

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**PART II — OTHER INFORMATION**

 

**Item1. Legal Proceedings**

 

During 2001 and 2002, wewere named as a defendant in three complaints filed in the Superior Court ofCalifornia in and for the County of Los Angeles.  The plaintiffs sought tocertify a statewide class made up of some of our current and former employees,which they claim are owed compensation for overtime wages, penalties andinterest. The plaintiffs also sought attorney’s fees and costs. In October 2003,we entered into a settlement agreement with a sub-class of these plaintiffsconsisting of managers-in-training and management trainees which was paid in November 2005with no material impact to our financial statements.  In August 2008,our motion for de-certification of the class of remaining plaintiffs wasgranted, thereby dismissing their class action claim.  The plaintiffs haveappealed this ruling and some may pursue their claims individually.

 

A similar lawsuit, whichalso alleges claims concerning meal and rest periods, was filed in OrangeCounty, California in 2004, by managers, managers-in-training and assistantmanagers, and an amended complaint was filed in January 2007. In September 2008,the four plaintiffs abandoned their class action claim and have elected topursue their individual claims as well as claims under California’s PrivateAttorney General Act.  This matter is set for trial in September 2009. A companion lawsuit alleging the same claims was filed on December 26,2008 on behalf of approximately thirty-four additional individualplaintiffs.  This lawsuit includes a claim under California’s PrivateAttorney General Act.  The companion lawsuit is still in the initialstages of litigation.  We do not expect either of these complaints to havea material impact to our financial statements.

 

In December 2008, aclass action lawsuit was filed by hourly, non-exempt employees in the SuperiorCourt of California in and for the County of Los Angeles, alleging claimscovering meal and rest period violations.  This case is still in theinitial stages of litigation.

 

We intend to vigorouslydefend all pending actions. We do not believe these or any other legalproceedings pending or threatened against us would have a material adverseeffect on our financial condition or results of operations.

 

**Item1A. Risk Factors**

 

There have been nomaterial changes from our risk factors previously disclosed in “Item 1A. RiskFactors” of our Form 10-K for the fiscal year ended June 30, 2008.

 

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**Item6. Exhibits**

** **
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|----------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 3.1                  |       | 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                 |       | Amended and Restated  Employment Agreement, dated September 29, 2008, between the Company and  Kathleen Mason (incorporated by reference to Exhibit 10.1 to the  Company’s Form 8-K filed with the Commission on October 3, 2008)                                                                                                                                                                                                                                                                                                                                 |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.2                 |       | Employment Agreement  dated October 2, 2008, between the Company and Michael J. Marchetti  (incorporated by reference to Exhibit 10.2 to the Company’s  Form 8-K as filed with the Commission on October 3, 2008)                                                                                                                                                                                                                                                                                                                                                 |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.3                 |       | Form of  Performance Stock Award Agreement under the Tuesday Morning Corporation 2004  Long-Term Equity Incentive Plan (incorporated by reference to  Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on  October 10, 2008)                                                                                                                                                                                                                                                                                                                      |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.4                 |       | Form of Restricted  Stock Award Agreement under the Tuesday Morning Corporation 2004 Long-Term  Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the  Company’s Form 8-K filed with the Commission on October 10, 2008)                                                                                                                                                                                                                                                                                                                        |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.5                 |       | Form of  Nonqualified Stock Option Agreement for Employees under the Tuesday Morning  Corporation 2004 Long-Term Incentive Plan (incorporated by reference to  Exhibit 10.3 to the Company’s Form 8-K filed with the Commission on  October 10, 2008)                                                                                                                                                                                                                                                                                                             |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.6                 |       | Tuesday Morning  Corporation 2008 Long-Term Equity Incentive Plan (incorporated by reference  to Exhibit 10.1 to the Company’s Form 8-K filed with the Commission  on November 19, 2008.)                                                                                                                                                                                                                                                                                                                                                                              |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.7                 |       | Credit Agreement, dated  December 15, 2008, by and among the Company, Bank of America, N.A., as  administrative agent, Swing Line Lender, L/C Issuer, Banc of America  Securities LLC and Wells Fargo Retail Finance, LLC, as Joint Lead Arrangers  and Joint Bookrunners, Wells Fargo Retail Finance, LLC, as Syndication Agent,  and the several banks and other financial institutions or entities from time  to time parties thereto (incorporated by reference to Exhibit 10.1 to  the Company’s Form 8-K/A filed with the Commission on December 23,  2008) |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.8                 |       | Joinder and First  Amendment to Credit Agreement, dated January 28, 2009, by and among the  Company, Bank of America, N.A., Wells Fargo Retail Finance, LLC and Regions  Bank (incorporated by reference to Exhibit 10.1 to the Company’s  Form 8-K filed with the Commission on January 30, 2009)                                                                                                                                                                                                                                                                |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.9                 |       | First Amendment to the  Amended and Restated Employment Agreement, dated January 28, 2009, by  and between Tuesday Morning Corporation and Kathleen Mason (incorporated by  reference to Exhibit 10.9 to the Company’s Form 10-Q filed with the  Commission on January 30, 2009)                                                                                                                                                                                                                                                                                  |

 

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| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                                                          |
|----------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                                                                                                                                                                                     |
| 10.10                |       | First Amendment to the  Employment Agreement, dated January 28, 2009, by and between Tuesday  Morning Corporation and Michael Marchetti (incorporated by reference to  Exhibit 10.10 to the Company’s Form 10-Q filed with the Commission  on January 30, 2009) |
|                 |       |                                                                                                                                                                                                                                                                                     |
| 10.11                |       | Form of  Nonqualified Stock Option with Service Award Agreement under the Tuesday  Morning Corporation 2004 Long-Term Equity Incentive Plan (incorporated by  reference to Exhibit 10.1 to the Company’s Form 8-K filed with the  Commission on March 3, 2009)  |
|                 |       |                                                                                                                                                                                                                                                                                     |
| 10.12                |       | Form of Incentive  Stock Option Award Agreement for Employees under the Tuesday Morning  Corporation 2008 Long-Term Equity Incentive Plan (incorporated by reference  to Exhibit 10.2 to the Company’s Form 8-K filed with the Commission  on March 3, 2009)    |
|                 |       |                                                                                                                                                                                                                                                                                     |
| 10.13                |       | Form of  Nonqualified Stock Option Award Agreement for Employees under the Tuesday  Morning Corporation 2008 Long-Term Equity Incentive Plan (incorporated by  reference to Exhibit 10.3 to the Company’s Form 8-K filed with the  Commission on March 3, 2009) |
|                 |       |                                                                                                                                                                                                                                                                                     |
| 10.14                |       | Form of Restricted  Stock Award Agreement under the Tuesday Morning Corporation 2008 Long-Term  Equity Incentive Plan (incorporated by reference to Exhibit 10.4 to the  Company’s Form 8-K filed with the Commission on March 3, 2009)                         |
|                 |       |                                                                                                                                                                                                                                                                                     |
| 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*                                                                                                            |

 

----

| * |   | 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. |
|---|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

17

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Table of Contents

 

SIGNATURE

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|                                     | ** ** | **TUESDAY  MORNING CORPORATION** |
|------------------------------------------|------------|----------------------------------|
| ** **                               |       | (Registrant)                     |   |
| ** **                               |       |                             |   |
|                                     |       |                             |   |
| DATE:    May 6, 2009 |       | By:                              | /s/ Stephanie Bowman |
|                                     |       |                             | Stephanie Bowman,  Executive Vice President, Chief Financial Officer, Treasurer and Secretary |
|                                          |            |                                  |  |  |

 

18

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**EXHIBITINDEX**

** **
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|----------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 3.1                  |       | 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                 |       | Amended and Restated  Employment Agreement, dated September 29, 2008, between the Company and  Kathleen Mason (incorporated by reference to Exhibit 10.1 to the  Company’s Form 8-K filed with the Commission on October 3, 2008)                                                                                                                                                                                                                                                                                                                                 |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.2                 |       | Employment Agreement  dated October 2, 2008, between the Company and Michael J. Marchetti  (incorporated by reference to Exhibit 10.2 to the Company’s  Form 8-K as filed with the Commission on October 3, 2008)                                                                                                                                                                                                                                                                                                                                                 |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.3                 |       | Form of  Performance Stock Award Agreement under the Tuesday Morning Corporation 2004  Long-Term Equity Incentive Plan (incorporated by reference to  Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on  October 10, 2008)                                                                                                                                                                                                                                                                                                                      |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.4                 |       | Form of Restricted  Stock Award Agreement under the Tuesday Morning Corporation 2004 Long-Term  Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the  Company’s Form 8-K filed with the Commission on October 10, 2008)                                                                                                                                                                                                                                                                                                                        |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.5                 |       | Form of  Nonqualified Stock Option Agreement for Employees under the Tuesday Morning  Corporation 2004 Long-Term Incentive Plan (incorporated by reference to  Exhibit 10.3 to the Company’s Form 8-K filed with the Commission on  October 10, 2008)                                                                                                                                                                                                                                                                                                             |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.6                 |       | Tuesday Morning  Corporation 2008 Long-Term Equity Incentive Plan (incorporated by reference  to Exhibit 10.1 to the Company’s Form 8-K filed with the Commission  on November 19, 2008.)                                                                                                                                                                                                                                                                                                                                                                              |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.7                 |       | Credit Agreement, dated  December 15, 2008, by and among the Company, Bank of America, N.A., as  administrative agent, Swing Line Lender, L/C Issuer, Banc of America  Securities LLC and Wells Fargo Retail Finance, LLC, as Joint Lead Arrangers  and Joint Bookrunners, Wells Fargo Retail Finance, LLC, as Syndication Agent,  and the several banks and other financial institutions or entities from time  to time parties thereto (incorporated by reference to Exhibit 10.1 to  the Company’s Form 8-K/A filed with the Commission on December 23,  2008) |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.8                 |       | Joinder and First  Amendment to Credit Agreement, dated January 28, 2009, by and among the  Company, Bank of America, N.A., Wells Fargo Retail Finance, LLC and Regions  Bank (incorporated by reference to Exhibit 10.1 to the Company’s  Form 8-K filed with the Commission on January 30, 2009)                                                                                                                                                                                                                                                                |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.9                 |       | First Amendment to the  Amended and Restated Employment Agreement, dated January 28, 2009, by  and between Tuesday Morning Corporation and Kathleen Mason (incorporated by  reference to Exhibit 10.9 to the Company’s Form 10-Q filed with the  Commission on January 30, 2009)                                                                                                                                                                                                                                                                                  |

 

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| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                                                          |
|----------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                                                                                                                                                                                     |
| 10.10                |       | First Amendment to the  Employment Agreement, dated January 28, 2009, by and between Tuesday  Morning Corporation and Michael Marchetti (incorporated by reference to  Exhibit 10.10 to the Company’s Form 10-Q filed with the Commission  on January 30, 2009) |
|                 |       |                                                                                                                                                                                                                                                                                     |
| 10.11                |       | Form of  Nonqualified Stock Option with Service Award Agreement under the Tuesday  Morning Corporation 2004 Long-Term Equity Incentive Plan (incorporated by  reference to Exhibit 10.1 to the Company’s Form 8-K filed with the  Commission on March 3, 2009)  |
|                 |       |                                                                                                                                                                                                                                                                                     |
| 10.12                |       | Form of Incentive  Stock Option Award Agreement for Employees under the Tuesday Morning  Corporation 2008 Long-Term Equity Incentive Plan (incorporated by reference  to Exhibit 10.2 to the Company’s Form 8-K filed with the Commission  on March 3, 2009)    |
|                 |       |                                                                                                                                                                                                                                                                                     |
| 10.13                |       | Form of  Nonqualified Stock Option Award Agreement for Employees under the Tuesday  Morning Corporation 2008 Long-Term Equity Incentive Plan (incorporated by  reference to Exhibit 10.3 to the Company’s Form 8-K filed with the  Commission on March 3, 2009) |
|                 |       |                                                                                                                                                                                                                                                                                     |
| 10.14                |       | Form of Restricted  Stock Award Agreement under the Tuesday Morning Corporation 2008 Long-Term  Equity Incentive Plan (incorporated by reference to Exhibit 10.4 to the  Company’s Form 8-K filed with the Commission on March 3, 2009)                         |
|                 |       |                                                                                                                                                                                                                                                                                     |
| 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*                                                                                                            |

 

----

| * |   | 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. |
|---|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

20

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