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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, 1998
------------------------------------------------
Or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
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
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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 - 3,619,079 shares
outstanding as of February 1, 1999
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<PAGE>
MOTHERS WORK, INC. AND SUBSIDIARY
INDEX
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Page
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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
Item 3. Qualitative and Quantative Disclosures about Market Risk 10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Exhibit Index 12
<PAGE>
MOTHERS WORK, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1998 1998
-------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,623,003 $ 3,323,943
Receivables
Trade 3,422,848 2,875,393
Other 131,940 164,627
Inventories 61,678,014 62,242,677
Deferred income taxes 8,846,921 8,846,921
Prepaid expenses and other 5,992,273 1,244,388
------------- -------------
Total current assets 83,694,999 78,697,949
PROPERTY, PLANT AND EQUIPMENT, net 37,334,250 36,266,972
OTHER ASSETS:
Goodwill, net 36,524,960 35,970,997
Deferred income taxes 9,918,455 8,368,813
Deferred financing costs, net 3,118,042 2,993,578
Other intangible assets, net 1,154,801 1,128,603
Other assets 723,558 918,084
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Total other assets 51,439,816 49,380,075
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$ 172,469,065 $ 164,344,996
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of Credit $ 23,095,934 $ 19,660,009
Current portion of long-term debt 464,408 464,408
Accounts payable 14,108,610 11,377,963
Accrued expenses 22,411,762 18,731,244
------------- -------------
Total current liabilities 60,080,714 50,233,624
LONG TERM DEBT 96,421,707 96,370,676
ACCRUED DIVIDENDS ON PREFERRED STOCK 3,396,916 3,709,718
DEFERRED RENT 3,819,998 3,923,147
COMMITMENTS AND CONTINGENCIES (NOTE 3)
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, none outstanding -- --
Common stock, $.01 par value, 10,000,000 shares authorized,
3,597,997 and 3,609,097 shares issued and outstanding 35,980 36,091
Additional paid-in capital 27,995,694 28,019,247
Accumulated deficit (30,781,944) (29,447,507)
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Total stockholders' equity 8,749,730 10,107,831
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$ 172,469,065 $ 164,344,996
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</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
MOTHERS WORK, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
December 31,
------------------------------
1997 1998
NET SALES $77,396,876 $76,741,956
COST OF GOODS SOLD 37,015,489 38,139,938
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Gross profit 40,381,387 38,602,018
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 35,049,872 31,382,215
----------- -----------
Operating income 5,331,515 7,219,803
INTEREST EXPENSE, NET 3,541,187 4,022,922
----------- -----------
Income before income taxes 1,790,328 3,196,881
INCOME TAX EXPENSE 886,371 1,549,642
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NET INCOME 903,957 1,647,239
PREFERRED DIVIDENDS 292,054 312,802
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NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 611,903 $ 1,334,437
----------- -----------
NET INCOME PER COMMON SHARE:
BASIC $ 0.17 $ 0.37
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DILUTED $ 0.16 $ 0.35
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WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
BASIC 3,564,709 3,604,064
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DILUTED 3,723,352 3,794,354
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The accompanying notes are an integral part of these statements.
2
<PAGE>
MOTHERS WORK, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
-----------------------------
1997 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 903,957 $ 1,647,239
Adjustments to reconcile net income to
net cash provided by operating activities--
Depreciation and amortization 2,972,040 2,555,430
Deferred tax benefit 886,371 1,549,642
Provision for deferred rent 277,757 103,149
Amortization of deferred financing costs 106,264 124,463
Imputed interest on debt 31,490 36,443
Changes in assets and liabilities:
(Increase) decrease in--
Receivables (362,542) 514,768
Inventories 1,242,535 (564,663)
Prepaid expenses and other (19,058) 4,553,359
Increase (decrease) in--
Accounts payable and accrued expense 1,005,709 (6,723,967)
Other liabilities 292,054 312,802
----------- -----------
Net cash provided by operating activities 7,336,577 4,108,665
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (2,919,907) (871,666)
Increase in intangibles and other assets (55,554) (36,324)
----------- -----------
Net cash used in investing activities (2,975,461) (907,990)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in line of credit and cash overdrafts, net (4,303,493) (3,435,925)
Repayments of long-term debt (158,524) (87,474)
Proceeds from exercise of options 25,022 23,664
=========== ===========
Net cash used in financing activities (4,436,995) (3,499,735)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (75,879) (299,060)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,665,760 3,623,003
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,589,881 $ 3,323,943
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 569,110 $ 763,143
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Cash paid for income taxes $ -- $ --
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Capital lease obligations incurred $ -- $ --
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</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
MOTHERS WORK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(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, 1998 for Mothers Work, Inc. and Subsidiary (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 adjustments, necessary to present
fairly the consolidated financial position of the Company for the periods
presented. Since the Company's operations are seasonal, the interim operating
results of the Company may not be indicative of operating results for the full
year.
2. STOCK OPTIONS AND WARRANTS
During the three months ended December 31, 1998, 128,500 options were granted to
certain 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 grant.
3. 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.
4. EARNINGS PER SHARE (EPS)
Earnings per share is computed in accordance with Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share". The calculation of
EPS is as follows:
<TABLE>
<CAPTION>
For the Quarter Ended December 31, 1998
----------------------------------------
Income Shares Per share
(Numerator) (Denominator) Amount
----------------------------------------
<S> <C> <C> <C>
Basic EPS
Income available to common stockholders $1,334,437 3,604,064 $ 0.37
Effect of dilutive securities
Warrants 139,993
Stock options -- 50,297
---------- ---------
Diluted EPS
Income available to common stockholders $1,334,437 3,794,355 $ 0.35
---------- ---------
</TABLE>
4
<PAGE>
MOTHERS WORK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
For the Quarter Ended December 31, 1997
----------------------------------------
Income Shares Per share
(Numerator) (Denominator) Amount
----------------------------------------
<S> <C> <C> <C>
Basic EPS
Income available to common stockholders $611,903 3,564,709 $0.17
Effect of dilutive securities
Warrants 139,965
Stock options -- 18,678
-------- ---------
Diluted EPS $611,903 3,732,352 $0.16
-------- ---------
</TABLE>
Options to purchase 863,319 shares of common stock at prices ranging from $2.93
to $18.75 per share were outstanding during the first quarter of fiscal 1999,
and were included in the computation of diluted EPS to the extent that they were
dilutive. The outstanding expire between 2003 and 2008. In addition, the 41,000
shares of Series A Cumulative Convertible Preferred Stock could potentially
dilute basic EPS in the future.
5. RESTRUCTURING CHARGES
During fiscal 1998, the Company closed its Episode division, incurring charges
totaling $20,925,000. At December 31, 1998, approximately $2.0 million of the
restructuring costs remain in accrued expenses. Of the $2.0 million, most of it
relates to legal and other fees associated with the transfer of leases, and the
remainder is for other miscellaneous charges.
6. SUBSIDIARY GUARANTOR
Pursuant to the terms of an indenture relating to the 12 5/8% Senior Unsecured
Exchange Notes due 2005 (the "Notes"), the Company's direct subsidiary, Cave
Springs, Inc., has, unconditionally guaranteed the obligations of Mothers Work,
Inc. with respect to these Notes. There are no restrictions on the ability of
the Guarantor 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 Guarantor:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1998
------------------ -----------------
<S> <C> <C>
Current assets $ 2,865 $ 2,865
Non-current assets $ 39,729,143 $ 44,662,183
Current liabilities $ -- $ --
Non-current liabilities $ 2,520,464 $ 4,207,597
Net sales $ 15,420,959 $ 4,933,030
Costs and expenses $ 9,764,874 $ 15,000
Net income $ 3,733,016 $ 3,245,906
</TABLE>
This summarized financial information for the Guarantor has been prepared from
the books and records maintained by the Guarantor and the Company. The
summarized financial information may not necessarily be indicative of the
results of operations or financial position had the Guarantor operated as an
independent entity. Certain intercompany sales included in the Subsidiary's
records are eliminated in consolidation. The Guarantor receives all inventory
from and transfer all cash to Mothers Work, Inc., who, in turn, pays all
expenditures on behalf of the Guarantor. 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 consistently 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:
<TABLE>
<CAPTION>
Percentage of Net Sales % Increase (Decrease)
Three Months Ended Three Months Ended
1997 1998 December 31, 1997 and 1998
---- ---- --------------------------
<S> <C> <C> <C>
Net Sales 100.0% 100.0% (0.8)%
Cost of goods sold 47.8 49.7 3.0
------ ------
Gross profit 52.2 50.3 (4.4)
Selling, general and
Administrative expenses 45.3 40.9 (10.5)
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Operating income 6.9 9.4 35.4
Interest expense, net 4.6 5.2 13.6
------ ------
Income before income taxes 2.3 4.2 78.6
Income tax expense 1.1 2.1 74.8
------ ------
Net income 1.2% 2.1% 82.2%
------ ------
</TABLE>
6
<PAGE>
The following table sets forth certain information representing growth in the
number of leased departments and Company-owned stores for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
December 31, 1997 December 31, 1998
----------------- -----------------
<S> <C> <C>
Beginning of period:
Maternity stores 431 460
Non-maternity stores 42 -
Lease maternity departments 114 123
--- ---
Total 587 583
Opened:
Maternity stores 15 13
Non-maternity stores 8 -
Lease maternity departments 12 5
Closed:
Maternity stores - -
Non-maternity stores - -
Lease department stores (1) (22)
--- ----
End of period:
Maternity stores 446 473
Non-maternity stores 50 -
Lease maternity departments 125 106
--- ---
Total 621 579
--- ---
</TABLE>
In 1998, the Company terminated its Episode operations. The Company's results of
operations for the first quarter of fiscal 1998 included the following amounts
for the Episode division:
Revenues $ 13,356,000
Cost of goods sold 7,521,000
Gross profit 5,835,000
Contribution margin (loss) $ (2,255,000)
* Contribution margin is comprised of gross margin less cost of store
operations, royalties, and certain related expenses.
Three Months Ended December 31, 1998 and 1997
Net Sales
Net sales of $76.7 million in the first quarter of fiscal 1999 decreased by $0.7
million or 0.8%, as compared to the first quarter of fiscal 1998 of $77.4
million, which included $13.4 million of sales from the now closed Episode
America stores. Net sales for its maternity business increased 19.8% to $76.7
million in the first quarter of fiscal 1999 from $64.0 million in the same
quarter of the preceding year. The increase was primarily due to a comparable
store sales increase in its maternity business of 15.0% during the first quarter
of fiscal 1999 (based on 492 stores) versus a comparable sales increase of 11.6%
during the first quarter of fiscal 1998 (based on 386 stores). At December 31,
1998 the Company had 579 maternity clothing locations, as compared to 571
maternity clothing locations and 50 Episode(R) upscale "bridge" women's apparel
stores at December 31, 1997. All of the Episode stores were closed as of
December 31, 1998.
Gross Profit
Gross profit in the maternity business in the first quarter of fiscal 1999
increased $4.1 million or 11.7%, as compared to the first quarter of fiscal 1998
gross profit for the maternity division which was $34.5 million. Gross profit as
a percentage of net sales decreased to 50.3% in the first quarter of fiscal 1999
as compared to maternity
7
<PAGE>
gross profit of 54.0% in the comparable period of the prior year. The decrease
in gross profit as a percentage of sales results from sales in the Motherhood
division, which operates at a lower gross profit percentage, growing at a faster
rate than sales in the high end maternity division. Gross profit was also
reduced as the company reduced selling prices in its moderate division, in an
effort to counter aggressive competition.
Selling, General & Administrative Expenses
Selling, general and administrative expenses decreased $3.7 million or 10.5% in
the first quarter of fiscal 1999 as compared to the first quarter of fiscal 1998
and, as a percentage of net sales, decreased from 45.3% to 40.9%. The decrease
as a percentage of sales was primarily due to the increase in net sales, but
also benefited from the elimination of certain Episode related selling, general
and administrative costs. The dollar decrease in the first quarter of fiscal
1999, as compared to the first quarter of fiscal 1998, was primarily due to the
elimination of Episode related store wages, rents and operating expenses at the
store level, offset by increases in the same expenses for the maternity
business. The increase in the number of maternity stores is the principal cause
of the increase in maternity business expenses.
Operating Income
The operating income in the first quarter of fiscal 1999 was $7.2 million, or
9.4% of sales, as compared to $5.3 million, or 6.9% of sales, in the first
quarter of fiscal 1998. Operating income for the maternity business decreased
$0.1 million in the first quarter of fiscal 1999 when compared to the first
quarter of fiscal 1998.
Interest Expense, Net
Net interest expense increased by $0.5 million in the first quarter of fiscal
1999 compared with the first quarter of fiscal 1998, and as a percentage of
sales, increased from 4.6% to 5.2%. The dollar increase was primarily due to
short-term borrowings under the line of credit agreement.
Income Taxes
The effective income tax rate was 48.5% in the first quarter of fiscal 1999 as
compared to 49.5% in the first quarter of fiscal 1998. The change in the
effective income tax rate was primarily due to the relationship of
non-deductible goodwill amortization to income before income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash needs during the quarter ended December 31, 1998 have been
primarily for furniture and fixtures and leasehold improvements required to
increase the number of retail locations. The Company also used excess cash flow
to reduce its outstanding borrowings on its line of credit. The Company's cash
source for the first quarter of fiscal 1999 has primarily been from operations.
At December 31, 1998 the Company had available cash and cash equivalents of $3.3
million, compared to $3.6 million at September 30, 1998.
Net cash provided by operating activities was $4.1 million in the first quarter
of fiscal 1999 compared with $7.3 million in the first quarter of fiscal 1998.
The net cash provided by operating activities in the first quarter of fiscal
1999 includes cash provided by net income, including adjustments for non-cash
items of $6.0 million, less cash used by working capital of $1.9 million. The
principal component of cash used for working capital in the first quarter of
fiscal 1999 was a $6.7 million decrease in accounts payable and accrued
expenses, which was partially offset by a decrease in prepaid expenses. The
reduction in accrued expenses and prepaid expenses largely related to Episode
related expenses and cash receipts. The net cash provided by working capital in
the first quarter of fiscal 1998 derived from cash provided by net income, after
adjustments for non-cash items of $5.1 million, plus cash provided by working
capital of $2.2 million. The cash provided by working capital in the first
quarter of fiscal 1998 consisted of a $1.2 million reduction in inventories and
an increase in accounts payable and
8
<PAGE>
accrued expenses, all of which were partially offset by increases in
receivables, prepaid expenses, and other assets.
Net cash used in investing activities decreased from $3.0 million in the quarter
ended December 31, 1997 to $0.9 million in the quarter ended December 31, 1998.
The cash used in investing activities for the first quarter of fiscal 1998
included $2.7 million used for capital expenditures for new store facilities,
primarily Motherhood and Episode, and improvements to existing stores, $0.2
million for other corporate capital expenditures and $0.1 million for intangible
and other assets. This compares with investing activities amounting to $0.9
million for the first quarter of fiscal 1999, which derives principally from
capital expenditures for new stores.
Net cash used in financing activities decreased $0.9 million, from $4.4 million
used in financing activities in the quarter ended December 31, 1997 to $3.5
million used in financing activities for the quarter ended December 31, 1998.
The $3.5 million used in financing activities in the first quarter of fiscal
1999 was used to repay $3.4 million on the line of credit and cash overdraft
activity and $0.1 million in repayment of long-term debt, offset by proceeds
from the exercise of stock options. This compares with $4.3 million in repayment
of borrowings on the line of credit and cash overdraft activity and $0.2 million
in repayment of long-term debt in the same quarter of the preceding year.
In April, 1998 the Company entered into a $44 million Working Capital Facility
Agreement (the "Agreement") which expires in April, 2001. In addition to the
Working Capital Facility, which can be used for borrowings and letters of
credit, the Company also has an additional $4 million letter of credit to
collateralize an Industrial Revenue Bond. Further, there are no financial
requirements under the Agreement unless the Aggregate Adjusted Availability
("AAA"), as defined in the Agreement, falls below $10 million. If the AAA falls
below $10 million, then the Company must achieve a Minimum Cash Flow, also
defined in the Agreement, of not less than zero. During the first quarter of
fiscal 1999 the Company achieved a positive cash flow, and the AAA did not fall
below $10 million. As of February 10, 1999 the Company had $26.4 million in
borrowings and $8.7 million in additional letters of credit under the Working
Capital Facility, which includes approximately $4 million collateralizing the
Industrial Revenue Bond.
In its maternity operations, the Company intends to focus primarily on growing
the moderate priced Motherhood business. The gross margin from Motherhood is
typically lower than the remainder of the maternity business, and consequently
as revenues from the Motherhood business increase as a percentage of total
Company revenues gross margin percentages for the Company may decline.
The Company believes that its current cash and working capital positions,
available borrowing capacity through the Working Capital Facility and net cash
expected to be generated from operations will be sufficient to fund the
Company's working capital requirements and required principal and interest
payments for fiscal 1999. Based on the Company's fiscal 1999 expansion plan, the
Company expects capital expenditures to be approximately $5.4 million, of which
approximately $0.9 million was expended by December 31, 1998. Most of the
planned capital expenditures related to new store openings and computer
equipment. There are currently no restrictions on the ability of the Guarantor
to transfer funds to the Company in the form of cash dividends, loans or
advances other than restrictions imposed by applicable law.
The Year 2000 issue arises from computer programs, commercial systems and
embedded chips that will be unable to properly interpret dates beyond the year
1999 ("Y2K"). The Company uses numerous proprietary and third party computer
technologies -- both hardware and software -- directly in its business. The
Company also relies on numerous third parties and their systems' ability to
address the Y2K issue. The Company's critical management information systems
include: point-of-sale equipment; procurement, manufacturing and distribution
equipment; credit card and banking services; and business and accounting
management systems. In order to assess its readiness for the Y2K issue, the
Company conducted a comprehensive review of its internal computer systems to
identify any potential applications that could be compromised by the Year 2000
issue. The Company also reviewed the Y2K readiness of its key vendors and
suppliers. Based on the results of the reviews, the Company believes that the
reasonably likely worst case scenario would involve short-term disruption of
systems affecting its supply and distribution channels. The Company is
developing contingency plans and identifying the necessary actions it would need
to take if critical systems or service providers were not Y2K compliant. The
Company expects to finalize these contingency plans by mid-1999.
At the present time, the Company is not aware of any Y2K issues that are
expected to materially affect its products, services, competitive position or
financial performance. Notwithstanding the Company's efforts in this regard,
there does exist the risk that the Y2K issue will manifest itself in
unanticipated ways, thereby adversely affecting the Company's performance in the
future. In addition, the Company can not give assurance that the third parties
with whom it does business will address any Y2K issues in their own systems on a
timely basis. Total incremental expenses incurred to date, and those yet to be
incurred, related to review and remediation of the Y2K issue have not had and
are not expected to have a material impact on the Company's financial position.
9
<PAGE>
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 1999 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, ability to hire and train associates,
changes in fertility and birth rates, political stability, currency and exchange
risks, 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 which are beyond the Company's control.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The analysis below presents the sensitivity of the market value of the Company's
financial instruments to selected changes in market rates. The range of changes
chosen reflects the Company's view of changes which are reasonably possible over
a one-year period. The Company's financial instruments consist principally of
its debt portfolio. The Company believes that the market risk exposure on other
financial instruments is immaterial.
At December 31, 1998, the major components of the Company's debt portfolio are
Senior Unsecured Exchange Notes (the " Notes") and a Line of Credit (the
"Line"), both denominated in US dollars. The Notes bear interest at a fixed
rated of 125/8%, and the Line bears interest at a variable rate which, at
December 31, 1998 was approximately 81/2%. While a change in interest rates
would not affect the interest incurred or cash flow related to the fixed portion
of the debt portfolio, the Debt Value would be affected. A change in interest
rates on the variable portion of the debt portfolio impacts the interest
incurred and cash flows, but does not impact the net financial instrument
position.
The sensitivity analysis as it relates to the fixed portion of the Company's
debt portfolio assumes an instantaneous 100 basis point move in interest rates
from their levels at December 31, 1998 with all other variables held constant. A
100 basis point increase in market interest rates would result in a decrease in
Debt Value of $0.9 million at December 31, 1998. A 100 basis point decrease in
market interest rates would result in a $0.9 million increase in Debt Value at
December 31, 1998.
Based on the variable rate debt included in the Company's debt portfolio at
December 31, 1998, a 100 basis point increase in interest rates would result in
an additional $0.2 million of interest incurred per year. A 100 basis point
decrease would lower interest expense by $0.2 million.
10
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) 27 Financial Data Schedule (schedule submitted in
electronic format only)
(b) Reports on Form 8-K.
None.
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 12, 1999 By: /s/ Dan W. Matthias
--------------------------------------
Dan W. Matthias
Chief Executive Officer
And
Chairman of the Board
Date: February 12, 1999 By: /s/ Thomas Frank
--------------------------------------
Thomas Frank
Chief Financial Officer
And
Vice President - Finance
11
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description Page No.
- -------------- ---------------
27 Financial Data Schedule (schedule submitted in
Electronic format only) 13
12
<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, 1998 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-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,323,943
<SECURITIES> 0
<RECEIVABLES> 3,040,020
<ALLOWANCES> 0
<INVENTORY> 62,242,677
<CURRENT-ASSETS> 78,697,949
<PP&E> 64,814,782
<DEPRECIATION> 28,547,810
<TOTAL-ASSETS> 164,344,996
<CURRENT-LIABILITIES> 50,233,624
<BONDS> 96,370,676
0
11,500,000
<COMMON> 36,091
<OTHER-SE> 1,482,260
<TOTAL-LIABILITY-AND-EQUITY> 164,344,996
<SALES> 76,741,956
<TOTAL-REVENUES> 76,741,956
<CGS> 38,139,938
<TOTAL-COSTS> 31,382,215
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,022,922
<INCOME-PRETAX> 3,196,881
<INCOME-TAX> 1,549,642
<INCOME-CONTINUING> 1,647,239
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,647,239
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.35
</TABLE>
