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United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
(Mark One)
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X Quarterly Report Pursuant to Section 13 of 15(d) of the Securities
Exchange Act of 1934
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For the quarterly report ended June 30, 1996
----------------------------------------------
or
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Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
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For the transition period from to
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Commission file number 0-21196
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Mothers Work, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 133045573
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
456 North 5th Street, Philadelphia, Pennsylvania 19123
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 873-2200
-----------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. ---- ----
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
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Common Stock, $.01 par value - 3,559,027 shares outstanding as of August 1, 1996
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<PAGE>
MOTHERS WORK, INC. AND SUBSIDIARIES
INDEX
Page
-----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets 1
Consolidated Statements of Operations 2
Consolidated Statements of Cash Flows 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
Exhibit Index 18
<PAGE>
MOTHERS WORK, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, June 30,
ASSETS 1995 1996
-------------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 9,130,480 $ 1,023,243
Receivables
Trade 2,318,614 2,541,476
Income taxes 2,808,109 --
Other 147,314 131,346
Inventories 38,421,186 58,167,000
Deferred income taxes 3,169,720 4,049,913
Prepaid expenses and other 1,807,117 1,871,417
-------------- ------------
Total current assets 57,802,540 67,784,395
-------------- ------------
PROPERTY, PLANT AND EQUIPMENT, net 38,443,200 42,662,998
-------------- ------------
OTHER ASSETS:
Deferred income taxes 5,707,729 3,311,298
Goodwill, net 40,842,586 43,059,386
Other intangible assets, net 1,441,843 1,345,826
Deferred financing costs, net 3,849,744 3,824,232
Other assets 474,533 613,452
-------------- ------------
Total other assets 52,316,435 52,154,194
-------------- ------------
$ 148,562,175 $162,601,587
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of Credit $ -- $ 1,500,000
Current portion of long-term debt 770,133 709,441
Accounts payable 9,985,319 7,283,381
Accrued expenses 10,540,578 16,666,757
Accrued store closings 5,058,199 --
-------------- ------------
Total current liabilities 26,354,229 26,159,579
-------------- ------------
LONG-TERM DEBT 94,602,679 96,888,389
-------------- ------------
DEFERRED RENT 2,068,448 2,546,400
-------------- ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Series A Cumulative convertible preferred stock, $.01
par value, $280.4878 stated value, 2,000,000 shares
authorized, 41,000 shares issued and outstanding
(liquidation value of $11,500,000) 11,500,000 11,500,000
Common stock, $.01 par value, 10,000,000 shares
authorized, 3,122,197 and 3,546,082 shares issued
and outstanding 31,222 35,461
Additional paid-in capital 18,101,425 27,560,268
Accumulated deficit (4,095,828) (2,088,510)
-------------- ------------
Total stockholders' equity 25,536,819 37,007,219
-------------- ------------
$ 148,562,175 $162,601,587
============== ============
</TABLE>
The accompanying notes are an integral part of these statements.
- 1 -
<PAGE>
MOTHERS WORK, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------------- ----------------------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 29,486,360 $ 51,552,000 $ 67,216,030 $146,616,883
COST OF GOODS SOLD 12,278,802 22,830,973 28,932,373 62,898,164
------------ ------------ ------------ ------------
Gross profit 17,207,558 28,721,027 38,283,657 83,718,719
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 14,747,553 23,178,633 34,414,361 69,168,116
NONRECURRING CHARGES -- -- 4,526,779 --
------------ ------------ ------------ ------------
Operating income (loss) 2,460,005 5,542,394 (657,483) 14,550,603
INTEREST EXPENSE, NET 1,349,214 3,194,813 1,915,842 9,337,137
------------ ------------ ------------ ------------
Income (loss) before income taxes 1,110,791 2,347,581 (2,573,325) 5,213,466
INCOME TAXES (BENEFIT) 461,507 1,108,862 (864,775) 2,473,023
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 649,284 $ 1,238,719 $ (1,708,550) $ 2,740,443
============ ============ ============ ============
NET INCOME (LOSS) PER COMMON SHARE $ 0.20 $ 0.28 $ (0.55) $ 0.58
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 3,304,602 3,578,953 3,120,161 3,441,233
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
- 2 -
<PAGE>
MOTHERS WORK, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
--------------------------------
1995 1996
------------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,708,550) $ 2,740,443
Adjustments to reconcile net income (loss) to
net cash used in operating activities-
Depreciation and amortization 3,634,449 7,392,699
Non-cash portion of nonrecurring charges 2,107,773 --
Imputed interest on debt 22,014 76,085
Deferred tax expense (benefit) (658,347) 2,189,438
Amortization of deferred financing costs -- 313,703
Compensation expense on options granted 9,621 --
Provision for deferred rent 547,390 477,952
Changes in assets and liabilities, net of effects
from purchase of businesses--
Decrease (increase) in--
Receivables (8,873) 2,601,215
Inventories (4,613,277) (16,365,148)
Prepaid expenses and other 944,087 320,721
Increase (decrease) in--
Accounts payable and accrued expense (2,330,620) 3,134,664
Accrued store closings (146,426) (3,084,311)
Accrued income taxes (547,377) --
------------ -----------
Net cash used in operating activities (2,748,136) (202,539)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of businesses, net of cash acquired (25,487,394) (6,251,513)
Purchases of property, plant and equipment (3,078,074) (9,190,851)
Increase in intangibles and other assets (277,785) (286,762)
------------ -----------
Net cash used in investing activities (28,843,253) (15,729,126)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit -- 1,500,000
Proceeds from issuance of long-term debt 42,524,121 2,340,000
Repayments of long-term debt (12,024,389) (191,068)
Debt issuance costs -- (288,191)
Net proceeds from sale of common stock -- 4,392,002
Issuance of warrants 1,000,000 --
Proceeds from exercise of options 5,200 71,685
------------ ------------
Net cash provided by financing activities 31,504,932 7,824,428
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (86,457) (8,107,237)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 284,357 9,130,480
------------ -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 197,900 $ 1,023,243
============ =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for:
Interest $ 549,250 $ 6,174,218
=========== ============
Income taxes $ 340,949 $ --
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 3 -
<PAGE>
MOTHERS WORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited consolidated financial statements are presented in
accordance with the requirements for Form 10-Q and do not include all the
disclosures required by generally accepted accounting principles for complete
financial statements. Reference should be made to the Form 10-K as of and for
the year ended September 30, 1995 for Mothers Work, Inc. and subsidiaries (the
"Company") for additional disclosures including a summary of the Company's
accounting policies.
In the opinion of management, the consolidated financial statements contain all
adjustments, consisting of normal recurring accruals, necessary to present
fairly the consolidated financial position of the Company for the periods
presented. The interim operating results of the Company may not be indicative of
operating results for the full year. Certain reclassifications were made to the
prior years' financial statements to conform to the current year presentation.
2. NET INCOME PER COMMON SHARE
For the quarter and nine months ended June 30, 1996 primary and fully diluted
earnings (loss) per common share is calculated using the modified treasury stock
method because the Company's outstanding options and warrants exceed 20% of the
number of common shares outstanding at the end of the period. Presently, per
share computations under the modified treasury stock method are the same as the
treasury stock method. All per share amounts are based upon the weighted average
common shares and dilutive common share equivalents outstanding during the
period, except where anti-dilutive.
Primary and fully diluted earnings per common share for the quarter and nine
months ended June 30, 1996 has been computed after deducting dividends accrued
on preferred stock of $244,375 and $733,125, respectively. Primary and fully
diluted earnings per share are the same. Fully diluted earnings per share
excludes the effect of the preferred stock conversion as this would be
anti-dilutive.
3. ACQUISITIONS
On June 1, 1996, the Company acquired leases, associated assets and inventory of
21 stores of Episode USA Inc. (Episode) for $7.3 million, including transaction
costs. Approximately $2.3 million was paid in cash and $5.0 million was paid
through the issuance of 217,365 shares of Mothers Work common stock. The
purchase price was allocated to the fair value of the net assets acquired under
the purchase method of accounting. Simultaneously, with the purchase of the
aforementioned assets, the Company entered into a licensing agreement and
distribution agreement to operate the Episode stores in their
4
<PAGE>
MOTHERS WORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
-- (continued) --
current format and under their current name. The Company will license the
Episode trademark, payable through a royalty of 5% of sales, not to exceed $4.5
million. Concurrent with the above transaction, the working capital facility was
increased from $15 million to $20 million.
If the Episode acquisition would have occurred on October 1, 1995, net sales
would have been approximately $158,000,000, net income from continuing
operations would have been approximately $530,000 and pro forma net loss per
share would have been approximately $0.06, after deducting the preferred
dividends, for the nine months ended June 30, 1996.
On April 5, 1995, the Company acquired A Pea in the Pod, Inc. (Pea) and on
August 1, 1995, the Company acquired Motherhood Maternity Shops, Inc.
(Motherhood). The purchase price of each acquisition was allocated to the fair
value of the net assets acquired under the purchase method of accounting.
If the Pea and Motherhood acquisitions would have occurred on October 1, 1994,
net sales would have been approximately $122,462,000 net loss from continuing
operations would have been approximately $5,114,000 and pro forma net loss per
share would have been approximately $1.64 for the nine months ended June 30,
1995.
4. STOCKHOLDERS' EQUITY AND STOCK OPTIONS
On May 31, 1996 the Company consummated a private placement of an aggregate of
200,000 shares of its common stock to an institutional investor. The purchase
price for the shares was $22.25 per share, and the net proceeds to the Company,
after deducting expenses, were approximately $4.4 million. The Company is using
the proceeds of the offering to pay the cash portion of the purchase price for
the Episode assets referenced above, to finance the opening of additional stores
and for general working capital purposes.
During the nine months ended June 30, 1996, 222,000 options were granted to
certain directors, officers and employees for the purchase of the Company's
common stock at prices at least equal to the fair market value on the date of
the grant. In fiscal 1996, the 1987 Stock Option Plan was amended to provide for
the grant of up to 725,000 shares of common stock.
5. STORE CLOSINGS
On March 31, 1995, the Company implemented a one-year plan, due to excess
capacity in certain markets, to close 38 Mothers Work stores and, in conjunction
with the Pea acquisition, to close 15 Pea stores. Under the terms of the plan,
stores were closed, leases terminated and inventory shipped to
5
<PAGE>
MOTHERS WORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
-- (continued) --
other store locations. As a result of further negotiations and changes in the
market place, the Company will actually close 42 Mothers Work stores and 11 Pea
stores. As of June 30, 1996 all stores have been closed. The net sales and store
operating income before corporate overhead allocations for the stores closed in
fiscal 1996 that are included in the accompanying statement of operations for
the nine months ended June 30, 1996 are $3,273,678 and $295,123, respectively.
6. CONTINGENCIES
From time to time, the Company is named as a defendant in legal actions arising
from its normal business activities. Although the amount of any liability that
could arise with respect to currently pending actions cannot be accurately
predicted, in the opinion of the Company, any such liability will not have a
material adverse effect on the financial position or operating results of the
Company.
In connection with the Pea acquisition, Mothers Work (R.E.), Inc., a subsidiary
of Mothers Work, Inc., assumed Pea's outstanding litigation and potential
claims. On February 7, 1994, a civil complaint was filed in a United States
District Court against Pea and its then officers and Board of Directors, and its
former preferred shareholders. The complaint alleges omissions by the defendants
in connection with Pea's initial public offering and seeks recision or damages
and attorney's fees. The complaint has been certified as a class action for
certain claims and denied class action status for one claim. While the ultimate
outcome of this matter cannot be determined at this time, management and legal
counsel believe the Company's potential liability, if any, has been adequately
reserved.
In August 1995, Pea's founders, formerly members of its management, filed a
lawsuit claiming damages for wrongful termination, breach of employment
agreement, mental anguish, emotional distress and punitive damages. The Company
vigorously denies any liability under the employment agreement or for wrongful
termination. In April 1996, in order to avoid the costs and uncertainties of
further litigation, the Company settled this lawsuit. This settlement has been
accounted for in conjunction with the purchase method of accounting for the Pea
acquisition.
7. SUBSIDIARY GUARANTORS
Pursuant to the terms of an indenture relating to the 12 5/8% Senior Unsecured
Notes due 2005 (the Notes) with a face amount of $92,000,000, the direct
subsidiaries of Mothers Work, Inc., consisting of Cave Springs, Inc., The Page
Boy Company, Inc., Mothers Work (R.E.), Inc. (d/b/a A Pea in the Pod, Inc.),
and Motherhood Maternity Shops, Inc. (collectively, the "Guarantors") have,
6
<PAGE>
MOTHERS WORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
-- (continued) --
jointly and severally, unconditionally guaranteed the obligations of Mothers
Work, Inc. with respect to the Notes. The only subsidiary of the Company that is
not a Guarantor is Motherhood International, Inc. ("International").
International is an indirect, wholly-owned subsidiary of the Company which is
inconsequential to the assets and operations of the Company and to the
Guarantors in that it has no assets or operations and, accordingly, does not
contribute to the revenue or profits of the Company or any of the Guarantors.
There are no restrictions on the ability of any of the Guarantors to transfer
funds to Mothers Work, Inc. in the form of loans, advances, or dividends, except
as provided by applicable law.
Accordingly, set forth below is certain summarized financial information (within
the meaning of Section 1-02(bb) of Regulation S-X) for the Guarantors, as at and
for the nine months ended June 30, 1996.
June 30, 1996
-------------
Current assets $ 21,383,000
Noncurrent assets 43,762,000
Current liabilities 5,634,000
Noncurrent liabilities 31,130,000
Nine Months Ended
June 30, 1996
-----------------
Net sales $ 89,787,000
Costs and expenses 79,262,000
Net income 5,533,000
This summarized financial information for the subsidiary guarantors has been
prepared from the books and records maintained by the subsidiary guarantors and
the Company. The summarized financial information may not necessarily be
indicative of the results of operation or financial position had the subsidiary
guarantors operated as an independent entity. Certain intercompany sales
included in the subsidiary records are eliminated in consolidation. The
subsidiary guarantors receive all inventory from and transfer all cash to
Mothers Work, Inc. who in turn pays all expenditures on behalf of the subsidiary
guarantors. An amount due to/due from parent will exist at any time as a result
of this activity. The summarized financial information includes the allocation
of material amounts of expenses such as corporate services, administration, and
taxes on income. The allocations are generally based on proportional amounts of
sales or assets, and taxes on income are allocated consistent with the asset and
liability approach used for consolidated financial statement purposes.
Management believes these allocation methods are reasonable.
7
<PAGE>
MOTHERS WORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
-- (continued) --
The Company does not believe that separate financial statements for the
subsidiaries are material to investors. Prior to the Pea and Motherhood
acquisitions, activity of the subsidiaries of Mothers Work, Inc. consisted
solely of inter-company transactions and thirteen retail leases. All inventory,
employees and operating expenses related to these retail locations were paid by
Mothers Work, Inc.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
The following tables set forth certain operating data as a percentage of sales
and as a percentage change for the periods indicated:
<TABLE>
<CAPTION>
% Period to Period
Increase (Decrease)
---------------------------------------
Three Months Nine Months
Ended Ended
Percentage of Net Sales June 30, June 30,
-------------------------------------------------- 1996 1996
Three Nine Compared to Compared to
Months Ended Months Ended Three Months Nine Months
June 30, June 30, Ended Ended
------------------------ ------------------------ June 30, June 30,
1995 1996 1995 1996 1995 1995
------- -------- -------- -------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0% 74.8% 118.1%
Cost of goods sold 41.6 44.3 43.0 42.9 85.9 117.4
------- -------- -------- --------
Gross profit 58.4 55.7 57.0 57.1 66.9 118.7
Selling, general
and administrative
expenses 50.0 45.0 51.2 47.2 57.2 101.0
Loss on store closings -- -- 6.7 -- -- (100.0)
------- -------- -------- --------
Operating income
(loss) 8.4 10.7 (0.9) 9.9 125.3 2,313.1
Interest expense, net 4.6 6.2 2.9 6.4 136.8 387.4
------- -------- -------- --------
Income (loss) before
income taxes 3.8 4.5 (3.8) 3.5 111.3 302.6
Income taxes (benefit) 1.6 2.2 (1.3) 1.7 140.3 386.0
------- -------- -------- --------
Net income (loss) 2.2% 2.3% (2.5)% 1.8% 90.8% 260.4%
======= ======== ======== ========
</TABLE>
<PAGE>
The following table sets forth certain information representing growth in the
number of Company-owned stores for the periods indicated:
<TABLE>
<CAPTION>
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1995 1996 1995 1996
---------- ---------- -------- ---------
<S> <C> <C> <C> <C>
Beginning of period 192 431 168 451
Opened 2 8 29 28
Acquired 66 21 66 21
Closed (25) (5) (28) (45)
----- ----- ------ -----
End of period 235 455 235 455
===== ===== ====== =====
</TABLE>
Three Months Ended June 30, 1996 and 1995
Net Sales
Net sales in the third quarter of fiscal 1996 increased by $22.1 million or
74.8%, as compared to the third quarter of fiscal 1995. This increase was
generated primarily by a $16.9 million increase in sales from stores acquired in
the Motherhood Acquisition. In addition, the 14.7% same store sales increase in
the third quarter of fiscal 1996, based on 193 stores in their current format
which have been opened since April 1, 1995, contributed $3.7 million. The
Company had 455 Company-owned stores (225 Motherhood stores, 78 Mothers Work
stores, 51 Mimi Maternity stores, 40 Maternity Works outlet stores, 40 Pea
stores and 21 Episode upscale "bridge" women's apparel stores) at June 30, 1996
compared to 235 (82 Mothers Work stores, 56 Mimi Maternity stores, 37 Maternity
Works outlet stores and 60 Peas stores) at June 30, 1995. The Company added 21
stores as a result of the Episode acquisition, opened 8 stores, closed 5 stores
and converted 2 stores in the third quarter of fiscal 1996.
Gross Profit
Gross profit in the third quarter of fiscal 1996 increased $11.5 million or
66.9%, as compared to the third quarter of fiscal 1995. This increase was
generated by the increase in sales noted above. Gross profit as a percentage of
net sales decreased to 55.7% in the third quarter of fiscal 1996 as compared to
58.4% in the comparable period of the prior year. This third quarter decline was
primarily due to the lower gross margins generated by the Motherhood and Episode
sales, absent in the third quarter of fiscal 1995. Absent significant changes,
the Company anticipates that its gross margins will decrease due to further
growth and integration of the Motherhood and Episode operations into the
consolidated results.
Selling, General & Administrative Expenses
Selling, general and administrative expenses increased by $8.4 million or 57.2%
in the third quarter of fiscal 1996 as compared to the third quarter of fiscal
1995 and, as a percentage of net sales, decreased from 50.0% to 45.0%.
10
<PAGE>
The decrease as a percentage of sales was primarily due to the increase in
sales and the economies of scale realized through the acquisitions. The dollar
increase during the third quarter of fiscal 1996 as compared to the third
quarter of fiscal 1995 was primarily due to increases in (i) wages and benefits
and (ii) rents at the store level, which accounted for $3.2 million and $2.3
million of the increase, respectively. The increases in wages and benefits and
rents at the store level were due to the increases in the number of stores
acquired and additional employees required to operate these stores. In addition,
higher advertising, marketing, depreciation and amortization, and shipping costs
contributed to the increase in selling, general and administrative expenses.
Operating Income
The operating income in the third quarter of fiscal 1996 was $5.5 million or
10.7% of net sales, compared to $2.5 million or 8.4% of net sales, in the third
quarter of fiscal 1995. The dollar increase of $3.0 million is primarily a
result of the increased sales volume and the percentage of sales improvement is
primarily due to the increase in sales exceeding the increase in selling,
general and administrative expenses necessary to support the acquisitions.
Interest Expense, Net
Net interest expense increased by $1.8 million from the third quarter of fiscal
1996 compared with the third quarter of fiscal 1995, and as a percentage of
sales, increased from 4.6% to 6.2%. The increase was due to higher outstanding
borrowings resulting primarily from the Company's issuance of the 12 5/8% Senior
Unsecured Notes due 2005 (the "Notes") to fund the Motherhood Acquisition and
repay the debt incurred in the Pea Acquisition.
Income Taxes
The effective income tax rate was 47.2% in the third quarter of fiscal 1996 as
compared to 41.5% in the third quarter of fiscal 1995. The increase in the
effective income tax rate was primarily due to the impact of increased
non-deductible amortization of goodwill.
Nine Months Ended June 30, 1996 and 1995
Net Sales
Net sales in the nine months ended June 30, 1996 increased by $79.4 million or
118.1%, as compared to the nine months ended June 30, 1995. This increase was
generated primarily by a $47.8 million increase in sales from stores acquired in
the Motherhood Acquisition and a $23.0 million increase in sales from stores
acquired in the Pea Acquisition. In addition, the 9.7% same store sales increase
for the nine months ended June 30, 1996, based on 118 stores which have been
opened since October 1, 1994, contributed $4.0 million. The Company had 455
Company-owned stores (225 Motherhood stores, 78 Mothers Work stores, 51 Mimi
Maternity stores, 40 Maternity Works outlet stores, 40 Pea stores and 21 Episode
upscale "bridge" women's apparel stores) at June 30, 1996 compared to 235 (82
Mothers Work stores, 56 Mimi Maternity stores, 37 Maternity Works
11
<PAGE>
outlet stores and 60 Peas stores) at June 30, 1995. The Company added 21 stores
as a result of the Episode acquisition, opened 28 stores, closed 45 stores and
converted 11 stores in the nine months ended June 30, 1996
Gross Profit
Gross profit in the nine months ended June 30, 1996 increased $45.4 million or
118.7%, as compared to the comparable period of the prior year. This increase
was generated by the increase in sales noted above. Gross profit as a percentage
of net sales increased slightly to 57.1% in the nine months ended June 30, 1996
as compared to 57.0% in the prior year period. This slight improvement was due
to factory overhead increasing at a slower rate than the increase in
manufacturing volume, primarily as a result of the increase in the number of
stores the Company operates, and through efficiencies gained as a result of the
relocation of the Company's manufacturing and distribution facilities. Partially
offsetting these favorable items was an increase in lower margin sales from
Motherhood and Episode. Absent significant changes, the Company anticipates that
its gross margins will decrease due to further growth and integration of the
Motherhood and Episode operations into the consolidated results.
Selling, General & Administrative Expenses
Selling, general and administrative expenses increased by $34.8 million or
101.0% in the first nine months of fiscal 1996 as compared to the first nine
months of fiscal 1995 and, as a percentage of net sales, decreased from 51.2% to
47.2%. The decrease as a percentage of sales was primarily due to the increase
in sales and the economies of scale realized through the acquisitions. The
dollar increase through the third quarter of fiscal 1996 as compared to the
comparable period of the prior year was primarily due to increases in (i) wages
and benefits and (ii) rents at the store level, which accounted for $12.5
million and $9.9 million of the increase, respectively. The increases in wages
and benefits and rents at the store level were due to the increases in the
number of stores acquired and additional employees required to operate these
stores. In addition, higher advertising, marketing, depreciation and
amortization contributed to the increase in selling, general and administrative
expenses.
Operating Income
The operating income in the nine months ended June 30, 1996 was $14.6 million or
9.9% of net sales compared to operating income, excluding the prior years' loss
on store closings, of $3.8 million, or 5.8% of net sales. The dollar increase of
$10.8 million is primarily a result of the increased sales volume and the
percentage of sales improvement is primarily due to the increase in sales
exceeding the increase in selling, general and administrative expenses necessary
to support the acquisitions. In fiscal 1995 the Company took a pre-tax charge of
$4.5 million related to a one-year plan to close 38 Mothers Work stores due to
excess capacity in certain markets, as a result of the Pea acquisition.
12
<PAGE>
Interest Expense, Net
Net interest expense increased by $7.4 million for the nine months ended June
30, 1996 compared with the comparable period of fiscal 1995, and as a percentage
of sales, increased from 2.9% to 6.4%. The increase was due to higher
outstanding borrowings resulting primarily from the Company's issuance of the
12 5/8% Senior Unsecured Notes due 2005 (the "Notes") to fund the Motherhood
Acquisition and repay the debt incurred in the Pea Acquisition.
Income Taxes
The effective income tax rate was 47.4% in the nine months ended June 30, 1996
as compared to 33.6% in the comparable period of fiscal 1995. The increase in
the effective income tax rate was primarily due to the impact of increased
non-deductible amortization of goodwill.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash needs during the nine months ended June 30, 1996 have
been for working capital (primarily for increased inventories) and renovations
of a new Company headquarters, manufacturing and distribution facility. Since
the Company is vertically integrated, it must maintain inventories of fabric and
other raw materials which other retailers without manufacturing capabilities do
not maintain. The Company's cash sources have primarily been from operations,
vendor credit and the sale of common stock. At June 30, 1996 the Company had
available cash and cash equivalents of $1.0 million, compared to $9.1 million at
September 30, 1995.
Net cash used in operating activities decreased from $2.7 million in the nine
months ended June 30, 1995 to $0.2 million in the same period for fiscal 1996.
The decrease in cash used of $2.5 million was due to the increase in cash
provided by operations of $9.2 million, after excluding non-cash charges,
partially offset by the cash used to support working capital needs of $6.7
million. The increase in cash provided by operations is primarily due to
significantly higher sales and gross profit, partially offset by increased cash
expenses for selling, general, administrative and interest. The increase in cash
used to support working capital needs primarily resulted from a significant
increase in inventories and payments related to planned store closings,
partially offset by a decrease in receivables and an increase in accounts
payable and accrued expenses.
Net cash used in investing activities decreased from $28.8 million in the nine
months ended June 30, 1995 to $15.7 million in the nine months ended June 30,
1996. The cash used in investing activities for the first nine months of fiscal
1996 included $2.3 million used in connection with the Episode acquisition, $3.9
million in additional acquisition costs for Pea and Motherhood, $3.9 million
used for building improvements to the new Company headquarters, manufacturing
and distribution facility, $4.4 million used for capital expenditures for new
store facilities and $1.2 million for other corporate capital expenditures and
intangible assets. This compares with
13
<PAGE>
$25.5 million used in connection with the Pea Acquisition, $3.1 million used for
capital expenditures for new store facilities, and a $0.2 million increase in
intangible and other assets.
Net cash provided by financing activities decreased $23.7 million, from $31.5
million provided by financing activities in the nine months ended June 30, 1995
to $7.8 million provided by financing activities for the nine months ended June
30, 1996. The $7.8 million provided by financing activities resulted primarily
from $4.4 million of net proceeds from the sale of common stock, $1.5 million in
short-term borrowings under the line of credit agreement, $2.3 million of
proceeds from the issuance of long-term debt, and $0.1 million of proceeds from
the exercise of options, partially offset by $0.2 million in repayments of
long-term debt and $0.3 million in debt issuance costs. This compares with $31.5
million provided by financing activities for the nine months ended June 30,
1995, primarily from the proceeds from the issuance of long-term debt and
warrants of $43.5 million, partially offset by repayments of long-term debt of
$12.0 million.
In April 1996, the Company received $2.0 million from the Pennsylvania
Industrial Development Authority ("PIDA"). The proceeds from this loan were used
to pay a portion of the improvements to the newly acquired headquarters. A
portion of the PIDA loan is secured by a bank letter of credit.
In connection with the financing of the Episode acquisition, to finance the
opening of additional stores and for general working capital purposes, the
Company consummated a private placement of an aggregate of 200,000 shares of its
common stock to an institutional investor. The purchase price for the shares was
$22.25 per share, and the net proceeds to the Company, after deducting expenses,
were approximately $4.4 million.
Concurrent with the Episode acquisition, and in order to provide the Company
with additional borrowing capacity under its working capital revolving line of
credit facility ("Working Capital Facility"), the Working Capital Facility was
increased from $15.0 million to $20.0 million. The Working Capital Facility
expires in August 1998 and provides for a revolving credit and letter of credit
facility and for an additional $4.0 million letter of credit to collateralize an
Industrial Revenue Bond. The Company had $1.5 million in borrowings and $6.8
million in additional letters of credit issued under the Working Capital
Facility at June 30, 1996.
The Company's consolidated balance sheet at June 30, 1996 includes a net
deferred tax asset of $7.4 million. The Company believes it is more likely than
not that future taxable income will be at a sufficient level to utilize the net
operating loss carryforwards and the deductions that will be created upon the
reversal of existing temporary differences that comprise the deferred tax asset.
The Company's conclusion that it is "more likely than not" that the net deferred
tax asset will be realized is based on its history of earnings, forecasted
earnings for fiscal 1996 and the prospects of continued earnings after 1996.
However, there can be no assurance that the Company's actual earnings for 1996
and thereafter will be as currently projected, and, consequently, there can be
no assurance that the Company's deferred tax asset
14
<PAGE>
will be realized. The inability of the Company to realize the deferred tax asset
could have a material adverse effect on the Company's financial position and
results of operations. The Company will continue to periodically review the tax
criteria related to the recognition of the deferred tax asset.
The Company intends to focus on integrating and consolidating the Motherhood and
Pea businesses throughout the remainder of fiscal 1996. The near-term strategy
for the acquisition of Episode is to stabilize the operations, broaden the
product line and add approximately three stores in major metropolitan areas. The
Company plans to apply its proven Real Time RetailingTM concept to this chain.
The Company's entry into bridge fashion with the Episode acquisition could
result in the incurrence of additional indebtedness, which in turn could result
in an increase in the degree of financial leverage of the Company and a decrease
in the Company's financial flexibility.
The Company believes that its current cash and working capital positions,
available borrowing capacity and net cash expected to be generated from
operations will be sufficient to fund the Company's anticipated capital
expenditures, working capital requirements and semi-annual interest payments on
the Notes through fiscal 1996. There are currently no restrictions on the
ability of the Guarantors to transfer funds to the Company in the form of cash
dividends, loans or advances other than restrictions imposed by applicable law.
15
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) 10.1 Third Amendment to Credit Agreement dated May 31, 1996 between
the Company, its subsidiaries and Meridian Bank.
11 Statement re: Computation of per share earnings.
27 Financial Data Schedule (schedule submitted in electronic
format only)
(b) Reports on Form 8-K.
During the quarter ended June 30, 1996, the Company filed a Current
Report on Form 8-K dated June 17, 1996 ("Form 8-K"), as later amended by
Amendment No. 1 thereto ("Amendment No. 1") dated June 18, 1996, relating to the
Company's acquisition of Episode USA ("Episode") and the sale of 200,000 shares
of common stock. The audited financial statements and pro forma financial
information relating to the acquisition will be filed as soon as practicable,
but not later than August 16, 1996.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MOTHERS WORK, INC.
Date: August 14, 1996 By: /s/ Dan W. Matthias
---------------------------------
Dan W. Matthias
Chief Executive Officer
and
Chairman of the Board
Date: August 14, 1996 By: /s/ Thomas Frank
---------------------------------
Thomas Frank
Chief Financial Officer
and
Vice President -- Finance
17
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description Page No.
- ------ ----------- --------
10.1 Third Amendment to Credit Agreement dated May 31, 1996
between the Company, its subsidiaries and Meridian Bank 19
11 Statement re: Computation of per share earnings 26
27 Financial Data Schedule (schedule submitted in
electronic format only) 27
18
THIRD AMENDMENT TO CREDIT AGREEMENT dated as of May 31, 1996 by and
among Mothers Work, Inc., a Delaware corporation ("MWI"), Cave Springs, Inc., a
Delaware corporation ("Cave"), The Page Boy Company, Inc., a Delaware
corporation ("Page Boy"), Mothers Work (R.E.), Inc., a Pennsylvania corporation
("MW-RE"), Motherhood Maternity Shops, Inc., a Delaware corporation
("Motherhood") (each, a "Borrower", and collectively, jointly and severally, the
"Borrowers"), and Meridian Bank ("Bank").
BACKGROUND
The Borrowers and the Bank are parties to a Credit Agreement dated as
of August 1, 1995, as first amended September 1, 1995, and as second amended
January 25, 1996 (the "Credit Agreement") pursuant to which the Bank
established, in favor of the Borrowers, a credit facility in an aggregate
principal amount of $19,094,684.93, subject to the terms and conditions set
forth therein. Borrowers have requested the Bank to increase the amount of the
Revolving Credit Commitment to $20,000,000, to increase the sublimit with
respect to the issuance of Letters of Credit, and to effect certain other
changes to the Credit Agreement, which Bank is willing to do, all on the terms
and conditions set forth herein. Capitalized terms used herein, and not
otherwise defined, shall have the meanings ascribed to them in the Credit
Agreement.
AGREEMENTS
The parties hereto, intending to be legally bound, hereby agree:
1. Section 1.01 of the Credit Agreement shall be modified by adding the
following defined terms (to the extent such terms are not currently defined in
the Credit Agreement) and by deleting the definition of each of the following
terms (to the extent those terms are defined in the Credit Agreement), and
substituting therefor the language set forth below:
"Domestic Lending Office" shall mean 1345 Chestnut Street, FC
1-8-8-14, Philadelphia, PA 19101, or such other office of the
Bank as the Bank may from time to time specify to the
Borrowers.
"Episode Transaction" shall have the meaning assigned to such
term in Section 7.06 hereof.
"Eurodollar Lending Office" shall mean 1345 Chestnut Street,
FC 1-8-8-14, Philadelphia, PA 19101, or such other office of
the Bank as the Bank may from time to time specify to the
Borrowers.
19
<PAGE>
"Revolving Credit Commitment" shall mean $20,000,000, as the
same may be reduced from time to time pursuant to Section 2.07
hereof."
2. Section 2.03 of the Credit Agreement shall be amended
by deleting the first sentence thereof in its entirety, and by
substituting therefor the following:
"The Borrowers shall, through a Responsible Officer of the
Borrowers, give the Bank an irrevocable telephonic voice
notification (promptly thereafter confirmed in writing) of
each borrowing (including, without limitation, a conversion as
permitted by Section 2.02(e) hereof) not later than 10:00 a.m.
Philadelphia time, (i) three Business Days before a proposed
Eurodollar Loan borrowing or conversion, and (ii) on the date
of an Alternate Base Loan borrowing or conversion."
3. Section 2.04(a) of the Credit Agreement shall be
amended by deleting the first sentence thereof in its entirety,
and by substituting therefor the following:
"All Revolving Credit Loans made by the Bank to the Borrower
shall be evidenced by a single Revolving Credit Note, duly
executed on behalf of each of the Borrowers, dated the date of
this Third Amendment, in substantially the form of Exhibit "A"
annexed hereto, delivered and payable to the Bank in a
principal amount equal to $20,000,000."
From and after the date hereof, all references to the Revolving Credit Note in
the Credit Agreement and all other Loan Documents shall be deemed to be
references to such new Revolving Credit Note. Exhibit "A" to the Credit
Agreement is hereby replaced with Exhibit "A" attached hereto. The indebtedness
evidenced by the previous Revolving Credit Note remains outstanding as of the
date hereof and continues to be secured by the Collateral. The parties hereby
expressly acknowledge and agree that the new Revolving Credit Note merely
re-evidences the indebtedness evidenced by the previous Revolving Credit Note
while increasing the principal amount thereof, shall not extinguish the
Obligations evidenced thereby or constitute a novation thereof, and is given in
substitution of, and not as payment of, the previous Revolving Credit Note.
4. Section 2.15 of the Credit Agreement shall be amended by deleting
the amount "$8,000,000", as found at the end of the first sentence in Section
2.15, and by substituting therefor the amount "$12,000,000".
20
<PAGE>
5. Section 2.18 of the Credit Agreement shall be amended by deleting
the first sentence thereof in its entirety, and by substituting therefor the
following:
"The Borrower agrees to pay the Bank (i) with respect to each
commercial Letter of Credit, a letter of credit fee equal to one and
one-half percent (1 1/2%) of the face amount thereof per annum, and
(ii) with respect to each standby Letter of Credit, a letter of
credit fee equal to two percent (2%) of the face amount thereof per
annum plus, in each case, an issuance fee charged by the Bank for
transactions of this nature (but in no event less than $100), all of
which amounts shall be payable to the Bank in advance at its
Domestic Lending Office on the date of issuance of such Letter of
Credit in immediately available funds."
6. Section 5.01(d) of the Credit Agreement shall be
amended by deleting the language found therein in its entirety,
and by substituting therefor the following:
"The Bank shall have received, either on the date on which a Credit
Event is to occur, or within seven (7) business days thereafter, a
certificate signed by the Financial Officer of the Borrowers (i) as
to the compliance with (b) and (c) above, and (ii) with respect to
each Revolving Credit Loan and each Letter of Credit, demonstrating
that after giving effect thereto, the Borrowers are in compliance
with the Availability requirement."
7. Section 7.06 of the Credit Agreement shall be amended by deleting
the word "and", at the end of subsection (h), and by deleting the "." at the end
of subsection (i), and by substituting therefor "; and", and by adding a new
section (j), as follows:
"(j) The purchase of certain assets of Episode USA, Inc., all as
more fully described in, and pursuant to, that certain Asset
Purchase Agreement dated April 25, 1996, between Episode USA, Inc.,
Mothers Work, Inc. and T3 Acquisition, Inc. (the "Episode
Transaction"), copies of which heretofore have been furnished to the
Bank."
8. Section 7.11 of the Credit Agreement shall be amended by changing
the "." found at the end of such section to a ";", and by adding the following
at the end of such section:
"provided, however, that the Borrowers may effect the
Episode Transaction as described in Section 7.06(j)
21
<PAGE>
hereof and may conduct the business acquired in such transaction."
9. As a condition to the execution and delivery of this Third Amendment
to Credit Agreement, the Borrowers shall deliver to the Bank, in form and
content satisfactory to the Bank and its counsel, the following documents,
instruments or payments:
(a) A certified copy of resolutions adopted by the Board of
Directors of each of the Borrowers authorizing the execution, delivery and
performance of this Third Amendment, and all of the documents and instruments
required by the Bank for the implementation of this Third Amendment, including,
but not limited to, the replacement Revolving Credit Note;
(b) Copies of all the Asset Purchase Agreement executed in
connection with the Episode Transaction, together with all related documents,
which shall be certified to the Bank by the Borrowers' Financial Officer as
being complete and correct copies of the original documents, in full force and
effect, and the Bank shall be satisfied with its review, and the review of its
counsel, of all such documents, and the completion of the Episode Transaction;
(c) Evidence acceptable to it, and to its counsel, that all Liens
attaching to, or otherwise affecting, the assets acquired in the Episode
Transaction have been satisfied, terminated or discharged, and that all
consents, filings and approvals required by applicable law in connection with
the Episode Transaction shall have been obtained and made;
(d) A copy of the "Sale Order", in form and substance similar to the
draft previously delivered to the Bank and its counsel, duly executed by the
Honorable James L. Garrity, Jr. in the matter styled In re Episode USA, Inc.
(Case No. 96-B-40371 (JLG - U.S. Bankruptcy Court, Southern District of New
York), pursuant to which, inter alia, MWI shall be authorized to acquire certain
assets of Episode USA, Inc., and to assume certain leases, all free and clear of
all Liens, and containing such other terms as shall be acceptable to the Bank
and its counsel;
(e) The favorable written opinion of Pepper Hamilton & Scheetz,
counsel for the Borrowers, substantially in the form of Exhibit "B" hereto,
dated the date of this Third Amendment, addressed to the Bank and satisfactory
to it;
(f) A certificate, dated the date of this Third Amendment and signed
by the Financial Officer of the Borrowers, setting forth the additional
jurisdictions in which the Borrowers are required to qualify to do business
resulting from the Episode Transaction, together with evidence, satisfactory to
the Bank and its counsel, that the Borrowers are so qualified;
22
<PAGE>
(g) UCC-1s, executed and appropriate for filing, in order to perfect
the security interest of the Bank in the inventory or other Collateral acquired
in the Episode Transaction;
(h) The replacement Revolving Credit Note, duly executed by the
Borrowers, payable to its order and otherwise complying with the provisions of
Section 2.04 of the Credit Agreement;
(i) Copies of all lease agreements relating to premises to be
occupied by the Borrowers as a result of the Episode Transaction, and it and its
counsel shall have had an opportunity to review such leases and to determine
them to be in form and substance satisfactory to the Bank; and
(j) Consent Agreements, executed by Episode USA, Inc. and Toppy
International Limited, in which such parties consent to the collateral
assignment and security interest granted by MWI to the Bank pursuant to the
terms of the Security Agreement and Mortgage - Patents and Trademarks dated
August 1, 1995 in the tradenames "EPISODE", "EPISODE and design", "EXCURSION",
and "EXCURSIONS".
10. The Borrowers hereby:
(a) ratify and confirm all of the representations, warranties and
covenants contained in the Credit Agreement, and in the Loan Documents, as any
of the foregoing relate to the assets acquired in connection with the Episode
Transaction;
(b) acknowledge and agree that all of their representations,
warranties and covenants contained in the Credit Agreement and/or in the Loan
Documents, as amended hereby, are true, accurate and correct on and as of the
date hereof as if made on and as of the date hereof, except as set forth on
Schedule 10(b) attached to this Third Amendment; provided, however, that with
respect to the dates set forth in certain representations, such dates shall be
updated as follows:
(i) in Section 4.05, the referenced date shall be September 30,
1995;
(ii) in Section 4.07(a), the referenced date for consolidated
balance sheet shall be September 30, 1995;
(iii) in Section 4.07(b), the referenced date shall be 1996;
(iv) in Section 4.07(c), the referenced 1995 Fiscal Year and
1996 Fiscal Year shall be changed to 1996 Fiscal Year and 1997 Fiscal Year
respectively,
23
<PAGE>
and provided, further that the letter delivered to the Bank concurrently with
the execution hereof with respect to the 401(k) Plan of MWI and issues
concerning such Plan's ERISA compliance shall be deemed included in, and shall
supplement, the Disclosure Letter.
(c) acknowledge and agree that they have no defense, set-off,
counterclaim or challenge against the payment of any sums owing under the Credit
Agreement or the Loan Documents or the Obligations, or the enforcement of any of
the terms of the Credit Agreement or the Loan Documents, as amended hereby; and
(d) represent and warrant that no Event of Default, as defined in
the Credit Agreement, exists or will exist upon the delivery of notice, passage
of time or both.
11. In the event that the Borrowers, or any of them, intend to record
with the United States Patent and Trademark Office the license granted to MWI in
the names "EPISODE", "EXCURSION" or any similar name, the Borrowers shall, prior
to effecting such recording, notify the Bank and shall execute such document as
the Bank shall request in order to perfect the mortgage, pledge and security
agreement granted to the Bank in such license.
12. The Borrowers will pay all of Bank's out-of-pocket costs and
expenses incurred in connection with the review, preparation, negotiation,
documentation and closing of this Third Amendment and the consummation of the
transactions contemplated herein, including, without limitation, fees, expenses
and disbursements of counsel retained by Bank and all fees related to filings,
recording of documents and searches, appraisal costs, whether or not the
transactions contemplated hereunder are consummated.
13. All other terms and conditions of the Credit Agreement and of the
Loan Documents, not inconsistent with the terms hereof, shall remain in full
force and effect and are hereby ratified and confirmed by the Borrowers.
IN WITNESS WHEREOF, the Borrowers and the Bank have caused this Third
Amendment to Credit Agreement to be executed by their
24
<PAGE>
respective authorized officers as of the day and year first above
written.
MOTHERS WORK, INC.
By: /s/ Thomas Frank
------------------------------
Name: Thomas Frank
Title: Vice President
MOTHERHOOD MATERNITY SHOPS, INC.
By: /s/ Thomas Frank
------------------------------
Name: Thomas Frank
Title: Vice President
CAVE SPRINGS, INC.
By: /s/ Thomas Frank
------------------------------
Name: Thomas Frank
Title: Vice President
THE PAGE BOY COMPANY, INC.
By: /s/ Thomas Frank
------------------------------
Name: Thomas Frank
Title: Vice President
MOTHERS WORK (R.E.), INC.
By: /s/ Thomas Frank
------------------------------
Name: Thomas Frank
Title: Vice President
MERIDIAN BANK
By: /s/ David W. Mills
------------------------------
Name: David W. Mills
Title: Vice President
25
EXHIBIT "A"
REVOLVING CREDIT NOTE
$20,000,000 May 31, 1996
FOR VALUE RECEIVED, the undersigned, MOTHERS WORK, INC., a Delaware
corporation, CAVE SPRINGS, INC., a Delaware corporation, THE PAGE BOY COMPANY,
INC., a Delaware corporation, MOTHERHOOD MATERNITY SHOPS, INC., a Delaware
corporation, and MOTHERS WORK (R.E.), INC., a Pennsylvania corporation
(collectively, the "Maker"), hereby, jointly and severally, promise to pay to
the order of MERIDIAN BANK (the "Bank") at its offices at 1345 Chestnut Street,
FC 1-8-8-14, Philadelphia, PA 19101 on the Final Maturity Date as defined in the
Credit Agreement dated as August 1, 1995 among the Maker and the Bank (as
amended, modified or supplemented from time to time in accordance with its terms
the "Credit Agreement") or earlier as provided for in the Credit Agreement, the
lesser of the principal sum of TWENTY MILLION DOLLARS ($20,000,000) or the
aggregate unpaid principal amount of all Revolving Credit Loans to the Maker
from the Bank pursuant to the terms of the Credit Agreement, in lawful money of
the United States of America in immediately available funds, and to pay interest
from the date thereof on the principal amount hereof from time to time
outstanding, in like funds, at said office, at a rate or rates per annum and, in
each case, payable on such dates as determined pursuant to the terms of the
Credit Agreement.
The Maker promises to pay, on demand, interest, on any overdue
principal and fees and, to the extent permitted by law, interest on any overdue
interest, from their due dates at a rate or rates determined as set forth in the
Credit Agreement.
The Maker hereby waives diligence, presentment, demand, protest and
notice of any kind whatsoever. The non-exercise by the holder of any of its
rights hereunder in any particular instance shall not constitute a waiver
thereof in that or any subsequent instance.
All borrowings evidenced by this Revolving Credit Note and all payments
and prepayments of the principal hereof and interest hereon and the respective
dates thereof shall be endorsed by the holder hereof on the schedule attached
hereto and made a part hereof, or on a continuation thereof which shall be
attached hereto and made a part hereof, or otherwise recorded by such holder in
its internal records; provided, however, that the failure of the holder hereof
to make such a notation or any error in such a notation shall not in any manner
affect the obligation of the Maker to make payments of principal and interest in
accordance with the terms of this Revolving Credit Note and the Credit
Agreement.
<PAGE>
This Revolving Credit Note is the Revolving Credit Note referred to in
the Credit Agreement, which, among other things, contains provisions for the
acceleration of the maturity hereof upon the happening of certain events, for
optional and mandatory prepayment of the principal hereof prior to the maturity
hereof and for the amendment or waiver of certain provisions of the Credit
Agreement, all upon the terms and conditions therein specified. THIS REVOLVING
CREDIT NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF
THE COMMONWEALTH OF PENNSYLVANIA, WITHOUT REGARD TO CHOICE OF LAW DOCTRINE, AND
ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.
This Revolving Credit Note re-evidences certain indebtedness previosuly
evidenced by that certain $15,000,000 Revolving Credit Note dated August 1,
1995, and has been given in substitution and replacement thereof and not as
payment of such prior Note and is not intended to extinguish the liabilities
evidenced thereby or as a novation thereof.
MOTHERS WORK, INC.
By: /s/ Thomas Frank
-----------------------------
Name: Thomas Frank
Title: Vice President
CAVE SPRINGS, INC.
By: /s/ Thomas Frank
-----------------------------
Name: Thomas Frank
Title: Vice President
MOTHERS WORK (R.E.), INC.
By: /s/ Thomas Frank
-----------------------------
Name: Thomas Frank
Title: Vice President
MOTHERHOOD MATERNITY SHOPS, INC.
By: /s/ Thomas Frank
-----------------------------
Name: Thomas Frank
Title: Vice President
THE PAGE BOY COMPANY, INC.
By: /s/ Thomas Frank
-----------------------------
Name: Thomas Frank
Title: Vice President
-2-
<PAGE>
Loans and Payment
Unpaid Name of
Principal Person
Amount and Payments Balance of Making
Type of Loan Principal Interest Note Notation
-3-
<PAGE>
MOTHERS WORK, INC. AND SUBSIDIARIES
COMPUTATION OF PRIMARY EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Three Nine
Months Months
Ended Ended
June 30, June 30,
1996 1996
------------ ------------
<S> <C> <C>
PRIMARY EARNINGS PER COMMON SHARE:
Common shares outstanding 3,257,978 3,167,615
Net effect of dilutive stock options and warrants 320,976 273,617
------------ ------------
Weighted average shares outstanding 3,578,953 3,441,233
============ ============
Net income $ 1,238,719 $ 2,740,443
Preferred stock dividends (244,375) (733,125)
------------ ------------
Net income applicable to common stockholders $ 994,344 $ 2,007,318
============ ============
Per common share amount $ 0.28 $ 0.58
============ ============
</TABLE>
26
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE COMPANY'S THIRD QUARTER 10-Q
FOR THE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,023,243
<SECURITIES> 0
<RECEIVABLES> 2,672,822
<ALLOWANCES> 0
<INVENTORY> 58,167,000
<CURRENT-ASSETS> 67,784,395
<PP&E> 55,452,948
<DEPRECIATION> 12,789,950
<TOTAL-ASSETS> 162,601,587
<CURRENT-LIABILITIES> 26,159,579
<BONDS> 96,888,389
0
11,500,000
<COMMON> 35,461
<OTHER-SE> 25,471,758
<TOTAL-LIABILITY-AND-EQUITY> 162,601,587
<SALES> 146,616,683
<TOTAL-REVENUES> 146,616,683
<CGS> 62,898,164
<TOTAL-COSTS> 62,898,164
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,549,532
<INCOME-PRETAX> 5,213,466
<INCOME-TAX> 2,473,023
<INCOME-CONTINUING> 2,740,443
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,740,433
<EPS-PRIMARY> .58
<EPS-DILUTED> .58
</TABLE>
