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United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 of 15(d) of the Securities
Exchange Act of 1934
For the quarterly report ended December 31, 1996
-------------------------------------------------
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
--------------------- --------------------------
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 incorporation (I.R.S. Employer
or organization) Identification No.)
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 - 3,559,317 shares outstanding
as of January 31, 1997
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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 6
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Exhibit Index 13
<PAGE>
MOTHERS WORK, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1996 1996
------------- -------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 1,262,435 $ 1,262,330
Receivables
Trade 2,141,102 2,254,696
Other 146,924 247,486
Inventories 57,209,499 52,424,019
Deferred income taxes 3,815,002 3,815,002
Prepaid expenses and other 1,791,070 2,045,689
------------- -------------
Total current assets 66,366,032 62,049,222
------------- -------------
PROPERTY, PLANT AND EQUIPMENT, net 45,451,114 45,390,528
------------- -------------
OTHER ASSETS:
Deferred income taxes 4,741,869 3,998,401
Goodwill, net 40,989,708 40,429,307
Other intangible assets, net 1,310,900 1,295,376
Deferred financing costs, net 3,736,937 3,631,406
Other assets 2,016,178 1,822,308
------------- -------------
Total other assets 52,795,592 51,176,798
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$ 164,612,738 $ 158,616,548
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 6,558,193 $ --
Current portion of long-term debt 758,911 781,671
Accounts payable 9,102,185 5,825,221
Accrued expenses 12,511,600 15,678,591
------------- -------------
Total current liabilities 28,930,889 22,285,483
------------- -------------
LONG-TERM DEBT 96,680,722 96,583,687
------------- -------------
ACCRUED DIVIDENDS ON PREFERRED STOCK 1,140,416 1,412,487
------------- -------------
DEFERRED RENT 2,754,197 3,004,282
------------- -------------
COMMITMENTS AND CONTINGENCIES (NOTE 6)
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
Series B Junior participating preferred stock, $.01 par value
10,000 shares authorized in 1996, none outstanding -- --
Common stock, $.01 par value, 10,000,000 shares authorized,
3,559,277 and 3,559,317 shares issued and outstanding 35,593 35,593
Additional paid-in capital 27,740,483 27,740,892
Accumulated deficit (4,169,562) (3,945,876)
------------- -------------
Total stockholders' equity 35,106,514 35,330,609
------------- -------------
$ 164,612,738 $ 158,616,548
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
MOTHERS WORK, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
December 31,
-------------------------------
1995 1996
----------- -----------
NET SALES $50,050,409 $61,233,328
COST OF GOODS SOLD 20,723,321 27,500,762
----------- -----------
Gross Profit 29,327,088 33,732,566
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 23,235,097 28,940,999
ASSET IMPAIRMENTS -- 247,900
----------- -----------
Operating income 6,091,991 4,543,667
INTEREST EXPENSE, NET 3,077,040 3,332,138
----------- -----------
Income before income taxes 3,014,951 1,211,529
INCOME TAXES 1,435,372 743,468
----------- -----------
NET INCOME 1,579,579 468,061
PREFERRED DIVIDENDS 244,375 244,375
----------- -----------
NET INCOME AVAILABLE TO
COMMON STOCKHOLDERS $ 1,335,204 $ 223,686
=========== ===========
NET INCOME PER COMMON SHARE $ 0.40 $ 0.06
=========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 3,340,872 3,725,824
=========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
MOTHERS WORK, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
------------------------------------
1995 1996
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 1,579,579 $ 468,061
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization 2,420,562 2,866,735
Imputed interest on debt 24,478 27,763
Asset impairments -- 247,900
Deferred tax expense 1,151,787 743,468
Amortization of deferred financing costs 99,758 105,991
Provision for deferred rent 217,411 250,085
Changes in assets and liabilities, net of effects
from purchase of businesses-
Decrease (increase) in--
Receivables 1,020,875 (214,156)
Inventories (8,148,183) 4,785,480
Prepaid expenses and other 81,013 (277,979)
(Decrease) increase in--
Accounts payable and accrued expense 5,655,761 880,410
Accrued store closings (694,261) --
Other liabilities 244,375 272,071
------------ ------------
Net cash provided by operating activities 3,653,155 10,155,829
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of businesses, net of cash acquired (278,000) --
Purchases of property, plant and equipment (2,561,469) (2,190,924)
Increase in intangibles and other assets (54,627) (69,970)
------------ ------------
Net cash used in investing activities (2,894,096) (2,260,894)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in line of credit and cash overdrafts, net -- (7,792,951)
Repayments of long-term debt (59,425) (102,038)
Debt issuance costs (139,135) --
Other -- (51)
------------ ------------
Net cash used in financing activities (198,560) (7,895,040)
------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 560,499 (105)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 9,130,480 1,262,435
============ ============
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,690,979 $ 1,262,330
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for:
Interest $ 232,081 $ 400,577
============ ============
Income taxes $ -- $ --
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
MOTHERS WORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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, 1996 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. PROPERTY, PLANT AND EQUIPMENT
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that full
recoverability is questionable. Management evaluates the recoverability of
goodwill and other long-lived assets and several factors are used in the
valuation including, but not limited to, management's future operating plans,
recent operating results and projected cash flows. The Company adopted SFAS No.
121 in the first quarter of fiscal 1997 and recorded a charge of approximately
$248,000, related to leasehold improvements and furniture and equipment at two
store locations. An impairment was recognized because future net cash flows for
each store are expected to be less than the carrying amount of the assets. The
fair value of each store asset was determined based on a forecast of expected
cash flows.
3. STOCK OPTIONS
During the three months ended December 31, 1996, 130,000 options were granted to
certain officers (not the Chairman and President) 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.
4. 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.
<PAGE>
MOTHERS WORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Unaudited)
-- (continued) --
5. SUBSIDIARY GUARANTORS
Pursuant to the terms of an indenture relating to the 12 5/8% Senior Unsecured
Exchange Notes due 2005, 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, jointly and severally, unconditionally
guaranteed the obligations of Mothers Work, Inc. with respect to the Notes. The
operations of Motherhood Maternity Shops, Inc. were merged into the operations
of Mothers Work, Inc. as of September 30, 1996. The only subsidiary of the
Company that is not a Guarantor is Motherhood International, Inc.
("International"). International, an indirect wholly-owned subsidiary of the
Company and inconsequential to the assets and operations of the Company and to
the Guarantors in that it has no assets or operations, was dissolved as of
November 28, 1996. 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 three months ended December 31, 1996.
December 31, 1996
-----------------
Current assets $ 3,771,085
Noncurrent assets 21,262,433
Current liabilities 2,987,661
Noncurrent liabilities 1,043,032
Three Months Ended
December 31, 1996
-----------------
Net sales $ 12,077,349
Costs and expenses 8,624,992
Net income 1,332,811
This summarized financial information for the Guarantors has been prepared from
the books and records maintained by the Guarantors and the Company. The
summarized financial information may not necessarily be indicative of the
results of operations or financial position had the Guarantors operated as
independent entities. Certain intercompany sales included in the subsidiary
records are eliminated in consolidation. The subsidiary guarantors receive all
inventory and administrative support from and transfer all cash to Mothers Work,
Inc., who, in turn, pays all expenditures on behalf of the 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.
<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:
% Period to Period
Increase (Decrease)
-------------------
Three Months
Ended
Percentage of Net Sales December 31,
----------------------- 1996
Three Compared to
Months Ended Three Months
December 31, Ended
----------------------- December 31,
1995 1996 1995
------ ------ ------------------
Net Sales 100.0% 100.0% 22.3%
Cost of goods sold 41.4 44.9 32.7
------ ------
Gross profit 58.6 55.1 15.0
Selling, general and
administrative expenses 46.4 47.3 24.6
Asset Impairment 0.0 0.4
------ ------
Operating income 12.2 7.4 (25.4)
Interest expense, net 6.2 5.4 8.3
------ ------
Income before income taxes 6.0 2.0 (59.8)
Income taxes 2.8 1.2 (48.2)
------ ------
Net income 3.2% 0.8% (70.4)%
====== ======
<PAGE>
The following table sets forth certain information representing growth in the
number of leased departments and Company-owned stores for the periods indicated:
Three Three
Months Months
Ended Ended
December 31, December 31,
1995 1996
------------ ------------
Beginning of period 451 468
Opened:
Company-owned 6 14
Leased maternity departments -- 15
Closed:
Company-owned (19) (1)
Leased maternity departments -- --
---- ----
End of Period:
Company-owned 414 455
Leased maternity departments 24 41
---- ----
Total 438 496
==== ====
Three Months Ended December 31, 1996 and 1995
Net Sales
Net sales in the first quarter of fiscal 1997 increased by $11.2 million or
22.3%, as compared to the first quarter of fiscal 1996. This increase was
primarily due to sales generated by the June 1, 1996 acquisition of Episode(R)
America stores of $6.9 million and a quarterly comparable store sales increase
in the maternity stores of $2.0 million. The same store sales increase in the
first quarter of fiscal 1997 of 4.4% was based on 386 stores which have been
opened since October 1, 1995. The Company had 496 Company-owned stores and
leased departments (218 Motherhood Maternity(R) stores, 74 Maternite(R) stores,
50 Mimi Maternity(R) stores, 41 Maternity Works(R) outlet stores, 39 A Pea in
the Pod(R) stores, 33 Episode upscale "bridge" women's apparel stores and 41
leased maternity departments) at December 31, 1996 compared to 438 (181
Motherhood Maternity stores, 95 Maternite stores, 61 Mimi Maternity stores, 41
Maternity Works outlet stores, 36 A Pea in the Pod stores and 24 leased
maternity departments) at December 31, 1995.
Gross Profit
Gross profit in the first quarter of fiscal 1997 increased $4.4 million or
15.0%, as compared to the first quarter of fiscal 1996. This increase was
primarily generated by the increase in sales noted above. Gross profit as a
percentage of net sales decreased to 55.1% in the first quarter of fiscal 1997
as compared to 58.6% in the comparable period of the prior year. The continued
growth of the Motherhood Maternity sales as a percentage of overall maternity
sales has contributed to the decrease in gross profit as a percentage of sales
because Motherhood operates with a lower gross margin percentage than the
upscale maternity divisions. In addition, the Episode sales have generated
overall lower margins than the maternity sales, due to the high degree of
competition in upscale bridge women's apparel. The Company anticipates that its
gross margins could decrease further as Episode becomes more significant to the
Company's operations.
<PAGE>
Selling, General & Administrative Expenses
Selling, general and administrative expenses increased by $5.7 million or 24.6%
in the first quarter of fiscal 1997 as compared to the first quarter of fiscal
1996 and, as a percentage of net sales, increased from 46.4% to 47.3%. The
increase as a percentage of sales was primarily due to higher rents and wages
necessary to operate the Episode stores, when compared to the maternity stores.
In addition, in order to license the Episode trademark, the Company is paying a
royalty of 5% of Episode sales, which will end when the cumulative royalty
payment reaches $4.5 million. The royalty is being charged to selling, general
and administrative expenses. The dollar increase during the first quarter of
fiscal 1997 as compared to the first quarter of fiscal 1996 was primarily due to
increases in store rents, wages and benefits and operating expenses at the store
level, which accounted for $1.9 million, $1.4 million and $1.0 million of the
increase, respectively. The increases in rents, wages and benefits and operating
expenses at the store level were due to the increase in the number of stores
acquired and additional employees required to operate these stores. In addition,
royalty expense, higher advertising, marketing, depreciation and amortization,
and shipping costs contributed to the increase in selling, general and
administrative expenses.
Further, the Company adopted Statement of Financial Accounting Standards No. 121
in the first quarter of fiscal 1997 and recorded a charge of approximately
$248,000, related to leasehold improvements and furniture and equipment at two
store locations.
Operating Income
The operating income in the first quarter of fiscal 1997 was $4.5 million or
7.4% of net sales, compared to $6.1 million or 12.2% of net sales, in the first
quarter of fiscal 1996. The decline in operating income, as a percentage of
sales and in total dollars, was primarily due to the addition of Episode in June
1996 and the increased significance of the reduced gross margin percentage at
Motherhood. The Episode stores had negative operating income in the first
quarter of fiscal 1997 which contributed to the overall decline in the Company's
operating income. In general, the Episode stores have higher selling, general
and administrative expenses, than the maternity stores. The Company believes
increased revenue, achieved through the introduction of new merchandise for the
division, re-training of sales associates and a new incentive program for sales
associates, will be sufficient to support the higher selling, general and
administrative expenses of this division. However, there can be no assurances
that the Company's actual performance will improve as a result of these steps.
In addition, due to factors affecting gross profit discussed above, the gross
margin percentage declined at a faster rate than the decline in the selling,
general and administrative expense percentage related to the maternity stores.
Interest Expense, Net
Net interest expense increased by $0.3 million in the first quarter of fiscal
1997 compared with the first quarter of fiscal 1996, and as a percentage of
sales, decreased from 6.2% to 5.4%. The dollar increase was primarily due to
short-term borrowings under the line of credit agreement.
Income Taxes
The effective income tax rate was 61.4% in the first quarter of fiscal 1997 as
compared to 47.6% in the first quarter of fiscal 1996. The increase in the
effective income tax rate was primarily due to the impact of non-deductible
amortization of goodwill relative to income before income taxes.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash needs during the quarter ended December 31, 1996 have
been for capital expenditures at the store level. In addition, the Company used
excess cash flow to reduce its line of credit balance to zero. The Company's
cash sources for the first quarter of fiscal 1997 have primarily been from
operations. At December 31, 1996 the Company had available cash and cash
equivalents of $1.3 million, consistent with the September 30, 1996 cash
balance.
Net cash provided by operating activities increased from $3.7 million in the
quarter ended December 31, 1995 to $10.2 million in the same period for fiscal
1997. The increase in cash provided by operating activities of $6.5 million was
primarily due to a decrease in inventories, partially offset by a decrease in
net income and decreases in cash provided by accounts receivable, accounts
payable and accrued expenses. The decrease in cash used for inventories is a
result of company-wide efforts to increase inventory turn-over ratio for fiscal
1997. In addition, in the prior year first quarter inventories increased as the
Company started to supply product to the newly acquired Motherhood division.
Net cash used in investing activities decreased from $2.9 million in the quarter
ended December 31, 1995 to $2.3 million in the quarter ended December 31, 1996.
The cash used in investing activities for the first quarter of fiscal 1997
included $1.8 million used for capital expenditures for new store facilities and
improvements to existing stores and $0.4 million for other corporate capital
expenditures. This compares with $1.6 million used for building improvements to
the Company headquarters, manufacturing and distribution facility, $0.7 million
for other corporate capital expenditures, $0.3 million used for capital
expenditures for new store facilities, and $0.3 million used in connection with
the Pea acquisition during the quarter ended December 31, 1995.
Net cash used in financing activities increased $7.7 million, from $.2 million
used in financing activities in the quarter ended December 31, 1995 to $7.9
million used in financing activities for the quarter ended December 31, 1996.
The $7.9 million used in financing activities resulted primarily from $7.8
million in repayment of the line of credit and $0.1 million in repayment of
long-term debt. This compares with $0.2 million used in financing activities for
the first quarter ended December 31, 1995, resulting primarily from debt
issuance costs and the repayment of long-term debt.
The Company currently has a $20 million working capital revolving line of credit
facility ("Working Capital Facility"), which expires in August 1998. The Working
Capital Facility 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 zero borrowings and $6.3 million in
additional letters of credit issued under the Working Capital Facility at
December 31, 1996.
In its maternity operations, the Company intends to focus on growing the leased
department business. Secondarily, the Company intends to grow the Motherhood
business, subject to capital availability. These businesses represent the
Company's biggest opportunity for growth, subject to capital and marketplace
availability. Relative to the leased departments, the Company does not
anticipate materially different gross profit and selling, general and
administrative expenses as a percentage of sales. The near-term strategy for the
Episode division is to broaden the product line through the addition of the
Daniel & Rebecca(R) label and to add several stores in major metropolitan areas,
subject to capital and marketplace availability. The Company has fully
<PAGE>
integrated this chain into its proven Real Time RetailingTM process. 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 fiscal 1997 anticipated
capital expenditures, working capital requirements and the $5.8 million
semi-annual interest payments on the Notes, due in February and August 1997.
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.
SAFE HARBOR STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995
The Company cautions that any forward-looking statements (as such term is
defined in the Private Securities Litigation Reform Act of 1995) contained in
Item 2, Management's Discussion and Analysis of Financial Condition and Results
of Operations, of this Report or made from time to time by management of the
Company involve risks and uncertainties, and are subject to change based on
various important factors. The following factors, among others, in some cases
have affected and in the future could affect the Company's financial performance
and actual results and could cause actual results for fiscal 1997 and beyond to
differ materially from those expressed or implied in any such forward-looking
statements: changes in consumer spending patterns, raw material price increases,
consumer preferences and overall economic conditions, the impact of competition
and pricing, changes in weather patterns, availability of suitable store
locations at appropriate terms, continued availability of capital and financing,
ability to develop and source merchandise, consumer acceptance of merchandise
and ability to hire, train and provide incentive to associates, changes in
fertility and birth rates, global stability, currency and exchange risks and
changes in existing or potential duties, tariffs or quotas, postal rate
increases and charges, paper and printing costs, and other factors affecting the
Company's business beyond the Company's control.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) 10.1 Fifth Amendment to Credit Agreement dated January 31, 1997
between the Company, its subsidiaries and CoreStates 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.
None.
<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: February 14, 1997 By: /s/ Dan W. Matthias
--------------------------------
Dan W. Matthias
Chief Executive Officer
and
Chairman of the Board
Date: February 14, 1997 By: /s/ Thomas Frank
--------------------------------
Thomas Frank
Chief Financial Officer
and
Vice President - Finance
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
No. Description Page No.
--- ----------- --------
10.1 Fifth Amendment to Credit Agreement dated January 31,
1997 between the Company, its subsidiaries and
CoreStates Bank 1
11 Statement re: Computation of per share earnings
27 Financial Data Schedule (schedule submitted in
electronic format only)
FIFTH AMENDMENT TO CREDIT AGREEMENT dated as of January 31, 1997 by and
among Mothers Work, Inc., a Delaware corporation ("MWI") on its own behalf and
as successor, by merger, to Motherhood Maternity Shops, Inc., a Delaware
corporation ("Motherhood"), Cave Springs, Inc., a Delaware corporation ("Cave"),
The Page Boy Company, Inc., a Delaware corporation ("Page Boy") and Mothers Work
(R.E.), Inc., a Pennsylvania corporation ("MW-RE") (each, a "Borrower", and
collectively, jointly and severally, the "Borrowers"), and CoreStates Bank,
N.A., successor to 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, as second amended January
25, 1996, as third amended May 31, 1996, and as fourth amended September 30,
1996 (the "Credit Agreement") pursuant to which the Bank established, in favor
of the Borrowers, a credit facility in an aggregate principal amount of
$24,094,684.93, subject to the terms and conditions set forth therein. Borrowers
have requested the Bank to modify certain of the financial covenants set forth
in the Credit Agreement, which the 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:
"Capital Expenditures" shall mean, with respect to any person
for any period, all amounts paid or accrued during such period
in respect of the cost of any fixed asset or improvement, or
any replacement, substitution or addition thereto, which have
a useful life of more than one year, including, without
limitation, those arising in connection with the direct or
indirect acquisition of such assets by way of increased
product or service charges or offset items, and including the
cash component of any Capitalized Lease Obligation,
Indebtedness secured by Liens permitted under Section 7.01
hereof, relocation costs incurred in moving Borrower's plant,
factory or offices, or costs incurred in store closings, but
excluding any costs directly related to the Episode
Transaction and excluding any
<PAGE>
one-time costs associated with the Borrowers' relocation to
its new offices in fiscal year 1996.
"Current Portion of Long-Term Debt" shall mean, with respect
to any person for any period, the aggregate of regularly
scheduled principal payments on all long-term Indebtedness
(including, without limitation, Subordinated Indebtedness)
payable by such person within the ensuing twelve month period
on a Consolidated basis in accordance with GAAP.
2. Section 7.07 of the Credit Agreement shall be
amended by deleting the language found therein in its entirety,
and by substituting therefor the following:
"SECTION 7.07. Total Senior Funded Debt to Operating Cash Flow
Ratio. Permit, at any time, the ratio of (x) Total Senior
Funded Debt of MWI and its Subsidiaries on a Consolidated
basis, to (y) Operating Cash Flow of MWI and its Subsidiaries
on a Consolidated basis for the four most recent consecutive
fiscal quarters ending on or immediately preceding such date
of determination to be greater than the respective amounts set
forth below for the periods indicated:
Period Ratio
------ -----
During the Fiscal Quarter
ending Dec. 31, 1996 4.35:1.00
During the Fiscal Quarter
ending March 31, 1997 4.35:1.00
During the Fiscal Quarter
ending June 30, 1997 4.20:1.00
During the Fiscal Quarter
ending Sept. 30, 1997 4.00:1.00
During the Fiscal Quarter
ending Dec. 31, 1997,
and thereafter; 4.00:1.00
provided, however, that for purposes of these calculations, any charges incurred
in fiscal year 1996 resulting from the application of FASB 121 (Accounting for
the Impairment of Long-Lived Assets, and Long-Lived Assets to be Disposed Of)
shall not be included for purposes of determining Net Income.
3. Section 7.08 of the Credit Agreement shall be
amended by deleting the language found therein in its entirety,
and by substituting therefor the following:
-2-
<PAGE>
SECTION 7.08. Ratio of Operating Cash Flow to Interest
Expense, Current Portion of Long-Term Debt and Capital
Expenditures. Permit, at any time, the ratio of Operating Cash
Flow of MWI and its Subsidiaries on a Consolidated basis for
the four most recent consecutive fiscal quarters ending on or
immediately preceding such date of determination to the
aggregate of (x) the Interest Expense plus (y) the Capital
Expenditures incurred during the same four most recent fiscal
quarters, plus (z) the Current Portion of Long-Term Debt,
calculated as of the date of such determination, to be less
than the respective amounts set forth below for the periods
indicated:
Period Ratio
------ -----
During the Fiscal Quarter
ending Dec. 31, 1996 1.00:1.00
During the Fiscal Quarter
ending March 31, 1997 1.05:1.00
During the Fiscal Quarter
ending June 30, 1997 1.15:1.00
During the Fiscal Quarter
ending Sept. 30, 1997 1.40:1.00
During the Fiscal Quarter
ending Dec. 31, 1997,
and thereafter; 1.50:1.00
provided, however, that for purposes of these calculations, any charges incurred
in fiscal year 1996 resulting from the application of FASB 121 (Accounting for
the Impairment of Long-Lived Assets, and Long-Lived Assets to be Disposed Of)
shall not be included for purposes of determining Net Income.
4. As a condition to the execution and delivery of this Fifth
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 Fifth Amendment, and all of the documents and
instruments required by the Bank for the implementation of this Agreement;
(b) The favorable written opinion of Pepper,
Hamilton & Scheetz, counsel to the Borrowers, substantially in
-3-
<PAGE>
the form of Exhibit "A" hereto, dated the date of this Fifth Amendment,
addressed to the Bank and satisfactory to it; and
(c) An amendment fee in the amount of $2,500.
5. The Borrowers hereby:
(a) 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 5(a) attached to this Fifth 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, 1996;
(ii) in Section 4.07(a), the referenced date for
consolidated balance sheet shall be September 30, 1996;
(iii) in Section 4.07(b), the referenced date shall be
1997; and
(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.
(b) 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
(c) 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.
6. 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 Fifth 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.
7. All other terms and conditions of the Credit Agreement and
of the Loan Documents, not inconsistent with the
-4-
<PAGE>
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 Fifth
Amendment to Credit Agreement to be executed by their 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
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
CORESTATES BANK, N.A.
By: /s/ Randal D. Southern
-----------------------
Name: Randal D. Southern
Title: Vice President
-5-
<PAGE>
QUALIFICATIONS, EXCEPTIONS
TO REPRESENTATIONS
NONE
SCHEDULE 6(a)
-6-
EXHIBIT 11
MOTHERS WORK, INC. AND SUBSIDIARIES
COMPUTATION OF PRIMARY EARNINGS PER COMMON SHARE
Three Three
Months Months
Ended Ended
December 31, December 31,
1995 1996
----------- ------------
PRIMARY EARNINGS PER COMMON SHARE:
Common shares outstanding 3,122,197 3,559,315
Net effect of dilutive stock options and warrants 218,675 166,508
----------- -----------
Weighted average shares outstanding 3,340,872 3,725,824
=========== ===========
Net income $1,579,579 $ 468,061
Preferred stock dividends 244,375 244,375
----------- -----------
Net income applicable to common stockholders $1,335,204 $ 223,686
=========== ===========
Per common share amount $ 0.40 $ 0.06
=========== ===========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FIRST QUARTER 10-Q FOR THE PERIOD ENDED DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,262,330
<SECURITIES> 0
<RECEIVABLES> 2,502,182
<ALLOWANCES> 0
<INVENTORY> 52,424,019
<CURRENT-ASSETS> 62,049,222
<PP&E> 60,823,257
<DEPRECIATION> 15,432,729
<TOTAL-ASSETS> 158,616,548
<CURRENT-LIABILITIES> 22,285,483
<BONDS> 96,583,687
0
11,500,000
<COMMON> 35,593
<OTHER-SE> 23,795,016
<TOTAL-LIABILITY-AND-EQUITY> 158,616,548
<SALES> 61,233,328
<TOTAL-REVENUES> 61,233,328
<CGS> 27,500,762
<TOTAL-COSTS> 27,500,762
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,332,138
<INCOME-PRETAX> 1,211,529
<INCOME-TAX> 743,468
<INCOME-CONTINUING> 468,061
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 468,061
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
