<PAGE>
--------------------------------------------------------------------------------
United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
[X] Quarterly Report Pursuant to Section 13 of 15(d) of the Securities Exchange
Act of 1934
For the quarterly report ended JUNE 30, 2000
-------------------------------------------
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
-------------------------------------------
Mothers Work, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 133045573
---------------------------------------------- ------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
456 North 5th Street, Philadelphia, Pennsylvania 19123
--------------------------------------------------------------------
(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.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Common Stock, $.01 par value - 3,451,370 shares outstanding as of August 1, 2000
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<PAGE>
MOTHERS WORK, INC. AND SUBSIDIARY
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 7
Item 3. Quantitative and Qualitative Disclosures about Market Risk 12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Exhibit Index 14
<PAGE>
<TABLE>
<CAPTION>
CONFIDENTIAL
MOTHERS WORK, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, September 30,
ASSETS 2000 1999
---------------- -----------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,306,272 $ 1,139,563
Receivables 3,969,070 3,617,824
Inventories 72,725,848 74,954,635
Deferred income taxes 6,120,791 6,120,791
Prepaid expenses and other current assets 1,511,497 1,625,694
---------------- -----------------
Total current assets 86,633,478 87,458,507
PROPERTY, PLANT AND EQUIPMENT, net 45,023,482 39,610,762
OTHER ASSETS:
Goodwill, net of accumulated amortization of $11,746,167
and $10,084,350, respectively 32,647,291 34,309,108
Deferred income taxes 7,722,246 11,687,319
Deferred financing costs, net of accumulated amortization of
$2,163,959 and $1,808,032, respectively 2,264,054 2,619,981
Other intangible assets, net of accumulated amortization of $2,088,389
and $1,865,046, respectively 1,023,926 1,115,444
Other non-current assets 870,891 807,268
---------------- -----------------
Total other assets 44,528,408 50,539,120
---------------- -----------------
$176,185,368 $177,608,389
---------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 26,137,516 $ 32,003,464
Current portion of long-term debt 718,833 495,829
Accounts payable 13,656,811 17,461,343
Accrued expenses 16,021,926 13,477,555
---------------- -----------------
Total current liabilities 56,535,086 63,438,191
---------------- -----------------
LONG-TERM DEBT 96,280,190 96,161,561
ACCRUED DIVIDENDS ON PREFERRED STOCK 5,689,801 4,648,124
DEFERRED RENT 4,729,121 4,292,164
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,
3,451,370 and 3,446,353 shares issued and outstanding, respectively 34,513 34,463
Additional paid-in capital 26,199,911 26,179,805
Accumulated deficit (24,783,254) (28,645,919)
---------------- -----------------
Total stockholders' equity 12,951,170 9,068,349
---------------- -----------------
$176,185,368 $177,608,389
---------------- -----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
CONFIDENTIAL
MOTHERS WORK, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------------------- ----------------------------------
2000 1999 2000 1999
---------------- ---------------- -------------- -------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 98,494,892 $ 79,887,022 $ 274,043,140 $ 223,098,471
Cost of goods sold 49,061,014 37,984,500 137,678,449 109,972,607
---------------- ---------------- ---------------- ----------------
Gross profit 49,433,878 41,902,522 136,364,691 113,125,864
Selling, general and administrative expenses 39,996,346 32,858,225 115,469,307 94,421,552
---------------- ---------------- ---------------- ----------------
Operating Income 9,437,532 9,044,297 20,895,384 18,704,312
Interest expense, net 3,964,251 3,754,979 11,913,059 11,317,503
---------------- ---------------- ---------------- ----------------
Income before income taxes 5,473,281 5,289,318 8,982,325 7,386,809
Income tax provision 2,505,941 2,551,807 4,077,995 3,582,944
---------------- ---------------- ---------------- ----------------
Net income 2,967,340 2,737,511 4,904,330 3,803,865
Preferred dividends 347,226 312,801 1,041,678 938,403
---------------- ---------------- ---------------- ----------------
Net income available to common stockholders $ 2,620,114 $ 2,424,710 $ 3,862,652 $ 2,865,462
---------------- ---------------- ---------------- ----------------
Income per share - basic $ 0.76 $ 0.69 $ 1.12 $ 0.82
---------------- ---------------- ---------------- ----------------
Average shares outstanding - basic 3,449,539 3,489,231 3,439,927 3,489,231
---------------- ---------------- ---------------- ----------------
Income per share - assuming dilution $ 0.72 $ 0.66 $ 1.06 $ 0.78
---------------- ---------------- ---------------- ----------------
Average shares outstanding - assuming dilution 3,651,717 3,680,000 3,654,254 3,695,117
---------------- ---------------- ---------------- ----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
CONFIDENTIAL
MOTHERS WORK, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
June 30,
----------------------------------
2000 1999
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $4,904,330 $ 3,803,865
Adjustments to reconcile net income to
net cash provided by operating activities -
Depreciation and amortization 8,510,220 7,546,297
Deferred income taxes 3,965,073 3,575,697
Provision for deferred rent 436,957 255,557
Amortization of deferred financing costs 355,927 373,519
Imputed interest on debt 127,569 80,463
Changes in assets and liabilities:
(Increase) decrease in -
Receivables (351,246) (541,235)
Inventories 2,228,787 (9,636,222)
Prepaid expenses and other current assets 50,574 4,553,659
Increase (decrease) in -
Accounts payable and accrued expenses and other liabilities 328,902 (5,013,452)
---------------- ----------------
Net cash provided by operating activities 20,557,093 4,998,148
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (12,383,948) (5,530,888)
(Increase) decrease in intangibles and other assets 223,343 (96,136)
---------------- ----------------
Net cash used in investing activities (12,160,605) (5,627,024)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in line of credit and cash overdrafts, net (7,463,999) 1,341,631
Purchase of the Company's common stock (178,661) (1,660,805)
Repayment of (increase in) long-term debt 214,064 (223,890)
Proceeds from exercise of options 198,817 169,494
---------------- ----------------
Net cash used by financing activities (7,229,779) (373,570)
---------------- ----------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,166,709 (1,002,446)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,139,563 3,623,003
---------------- ----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $2,306,272 $ 2,620,557
================ ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $6,093,978 $ 7,808,651
================ ================
Cash paid for income taxes $ 262,246 $ -
---------------- ----------------
Capital lease obligations incurred $ 510,696 $ -
---------------- ----------------
The accompanying notes are an integral part of these financial statements.
3
</TABLE>
<PAGE>
MOTHERS WORK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(Unaudited)
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
-----------------------------------------
The accompanying unaudited consolidated financial statements are prepared in
accordance with the requirements for Form 10-Q and Article 10 of Regulation S-X
and accordingly certain information and footnote disclosures have been condensed
or omitted. Reference should be made to the Form 10-K as of and for the year
ended September 30, 1999 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 quarter ended June 30, 2000, a total of 66,400 options were granted
to certain 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
<PAGE>
MOTHERS WORK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(Unaudited)
4. EARNINGS PER SHARE ("EPS")
--------------------------
The Company accounts for EPS in accordance with Statement of Financial
Accounting Standards No. 128 ("SFAS 128") which requires dual presentation of
basic and diluted EPS. SFAS 128 also requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. Basic EPS is based upon the weighted average
number of common shares outstanding and diluted EPS is based upon the weighted
average number of common shares outstanding plus the dilutive common stock
equivalents outstanding during the period.
The following is a reconciliation of the denominators of the basic and diluted
EPS computations shown on the face of the accompanying Statements of Operations:
<TABLE>
<CAPTION>
For the Quarter Ended For the Quarter Ended
June 30, 2000 June 30, 1999
-------------------------------------- ------------------------------------
Per share Per share
Income Shares Amount Income Shares Amount
----------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $2,620,114 3,449,539 $0.76 $2,424,710 3,489,231 $0.69
========= ==========
Effect of dilutive
securities:
Warrants - 140,000 - 140,000
Stock options - 62,178 - 50,769
----------- --------- ---------- ----------
Diluted EPS $2,620,114 3,651,717 $0.72 $2,424,710 3,680,000 $0.66
=========== ========= ========= ========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended For the Nine Months Ended
June 30, 2000 June 30, 1999
-------------------------------------- ------------------------------------
Per share Per share
Income Shares Amount Income Shares Amount
----------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $3,862,652 3,439,927 $1.12 $2,865,462 3,489,231 $0.82
========= ==========
Effect of Dilutive
Securities:
Warrants - 140,000 - 140,000
Stock options - 74,327 - 65,886
----------- --------- ---------- ----------
DILUTED EPS $3,862,652 3,654,254 $1.06 $2,865,462 3,695,117 $0.78
=========== ========= ========= ========== ========= ==========
</TABLE>
5
<PAGE>
MOTHERS WORK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(Unaudited)
Options and warrants were included in the computation of diluted EPS to the
extent that they were dilutive. Options to purchase 1,051,022 shares of common
stock at prices ranging from $1.67 to $18.75 per share were outstanding during
the first nine months of fiscal 2000. Options to purchase 989,621 shares of
common stock at prices ranging from $6.625 to $18.75 per share were outstanding
for the three months ended June 30, 2000. The outstanding options expire
between 2003 and 2010. For the quarter and nine months ended June 30, 2000,
there were 140,123 warrants outstanding to purchase common stock at a price of
$0.01 per share. The warrants expire on April 5, 2002. In addition, the 41,000
shares of Series A Cumulative Convertible Preferred Stock (the "Series A
Preferred Stock") and certain options were not dilutive for the periods
presented, and accordingly, were not included in the EPS computations. The
Series A Preferred Stock could potentially dilute basic EPS in the future.
5. SUBSIDIARY GUARANTOR
--------------------
Pursuant to the terms of the indenture for the 12 5/8% Senior Unsecured Exchange
Notes due 2005 (the "Notes"), the Company's wholly-owned subsidiary, Cave
Springs, Inc. (the "Guarantor"), has unconditionally guaranteed the obligations
of Mothers Work, Inc. with respect to the 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 summarized financial information (within the
meaning of Section 1-02(bb) of Regulation S-X) for the Guarantor:
<TABLE>
<CAPTION>
June 30, 2000 September 30, 1999
----------------- ------------------
<S> <C> <C>
Current assets $ 2,865 $ 2,865
Non-current assets 76,798,413 59,105,843
Non-current liabilities 15,193,315 9,148,142
Nine Months Ended Year Ended
June 30, 2000 September 30, 1999
----------- -----------
Net sales $17,692,570 $19,376,700
Costs and expenses 45,000 60,000
Net income 11,647,396 12,749,022
</TABLE>
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. All intercompany transactions included in the Guarantor's
records are eliminated in consolidation. Allocations are made by the Company to
the Guarantor for 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. Management believes these allocation
methods are reasonable.
6
<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)
----------------------------------
Percentage of Net Sales
---------------------------------------- Three Months Nine Months
Three Nine Ended Ended
Months Ended Months Ended June 30, June 30,
June 30, June 30, 2000 2000
---------------------------------------- Compared to Compared to
2000 1999 2000 1999 1999 1999
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 100.0 % 23.3 % 22.8 %
Cost of goods sold 49.8 47.5 50.2 49.3 29.2 25.2
------ ------ ------ ------
Gross profit 50.2 52.5 49.8 50.7 18.0 20.5
Selling, general
and administrative
expenses 40.6 41.2 42.2 42.3 21.7 22.3
------ ------ ------ ------
Operating income 9.6 11.3 7.6 8.4 4.3 11.7
Interest expense, net 4.0 4.7 4.3 5.1 5.6 5.3
------ ------ ------ ------
Income before
Income taxes 5.6 6.6 3.3 3.3 3.5 21.6
Income tax provision 2.6 3.2 1.5 1.6 (1.8) 13.8
------ ------ ------ ------
Net income 3.0 % 3.4 % 1.8 % 1.7 % 8.4 28.9
====== ====== ====== ======
7
</TABLE>
<PAGE>
The following table sets forth certain information representing growth in the
number of leased departments and Company-operated stores for the periods
indicated:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------------------- ----------------------------------
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Beginning of period:
Maternity stores 572 486 528 460
Leased maternity departments 97 94 97 123
-------------- -------------- -------------- --------------
Total 669 580 625 583
Opened:
Maternity stores 15 20 62 48
Leased maternity departments - 1 - 6
Closed:
Maternity stores - (4) (3) (6)
Leased maternity departments (1) (2) (1) (36)
End of period:
Maternity stores 587 502 587 502
Leased maternity departments 96 93 96 93
-------------- -------------- -------------- --------------
Total 683 595 683 595
============== ============== ============== ==============
</TABLE>
Three Months Ended June 30, 2000 and 1999
Net Sales
---------
Net sales of $98.5 million in the third quarter of fiscal 2000 were $18.6
million (23.3%) higher than sales of $79.9 million in the third quarter of
fiscal 1999. The increase in net sales was comprised of incremental revenues
generated by net 88 new maternity locations which opened since June 30, 1999, as
well as a 7.7% comparable store sales increase during the third quarter of
fiscal 2000 (based on 556 locations).
Gross Profit
------------
Third quarter fiscal 2000 gross profit was $7.5 million (18.0%) higher than the
$41.9 million gross profit for the third quarter of fiscal 1999. The increase
was largely attributable to the increase in sales. Gross profit as a percentage
of sales in the third quarter of fiscal 2000 decreased to 50.2% from 52.5% in
the third quarter of fiscal 1999. Sales in the Company's moderately-priced
Motherhood products, which generate a lower gross profit percentage, continue to
grow at a faster rate than sales in the Company's high end maternity locations.
Selling, General and Administrative Expenses
--------------------------------------------
Selling, general and administrative expenses in the third quarter of fiscal 2000
increased by $7.1 million (18.0%) to $40.0 million compared to the third quarter
of 1999, primarily related to costs associated with the Company's additional
retail locations. As a percentage of net sales, operating expenses improved
from 41.2% to 40.6% reflecting the Company's continued cost reduction
initiatives and improved operating leverage.
8
<PAGE>
Operating Income
----------------
Operating income improved to $9.4 million in the third quarter of fiscal 2000
compared to $9.0 million in the third quarter of fiscal 1999. The marginal
increase in operating income is principally a result of the higher sales volume.
Interest Expense, Net
---------------------
Net interest expense increased by $0.2 million in fiscal 2000 compared to fiscal
1999. Additional borrowings were made under the Company's line of credit
primarily to fund the Company's store expansions.
Income Taxes
------------
The effective income tax rate was 45.8% in the third quarter of fiscal 2000
compared to 48.2% in the third quarter of fiscal 1999. The reduction in the tax
rate was primarily due to the relationship of non-deductible goodwill
amortization to income before income taxes.
Nine Months Ended JUNE 30, 2000 and 1999
Net Sales
---------
Net sales of $274.0 million in the first nine months of fiscal 2000 were $50.9
million (22.8%) higher than sales of $223.1 million in the first nine months of
fiscal 1999. Comparable store sales increased 8.8% during the first nine months
of fiscal 2000 (based on 533 locations). The increased sales are also
attributable to the incremental revenues generated by net 58 new maternity
locations which opened during the first nine months of fiscal 2000.
Gross Profit
------------
Gross profit of $136.4 million for the first nine months of fiscal 2000 was
$23.2 million (20.5%) higher than the $113.1 million gross profit in the first
nine months of fiscal 1999 reflecting the increased sales volume. Gross profit
as a percentage of net sales for the first nine months of fiscal 2000 decreased
to 49.8% from 50.7% in the comparable period of fiscal 1999. Sales in the
Company's moderately-priced Motherhood products, which generate a lower gross
profit percentage, continue to grow at a faster rate than sales in the Company's
high end maternity locations.
Selling, General and Administrative Expenses
--------------------------------------------
Selling, general and administrative expenses increased by $21.0 million or 22.3%
in the first nine months of fiscal 2000 to $115.5 million compared to the first
nine months of 1999, primarily reflective of the additional costs associated
with the store expansions. As a percentage of net sales, operating expenses
remained constant at 42.0%.
Operating Income
----------------
Operating income increased to $20.9 million in the first nine months of fiscal
2000 compared to $18.7 million in the first nine months of fiscal 1999. The
increase in operating income is primarily a result of the higher sales volume.
9
<PAGE>
Interest Expense, Net
---------------------
Net interest expense increased by $0.6 million in the first nine months of
fiscal 2000 compared with the first nine months of fiscal 1999, and as a
percentage of sales, improved from 5.1% to 4.3%. The decrease as a percentage
of sales is attributable to the higher sales volume.
Income Taxes
------------
The effective income tax rate was 45.4% in the first nine months of fiscal 2000
compared to 48.5% in the first nine months of fiscal 1999. The change in the
effective income tax rate was primarily due to the relationship of non-
deductible goodwill amortization to income before income taxes.
SEASONALITY
-----------
The Company's business, like that of most retailers, is subject to seasonal
influences. A significant portion of the Company's net sales and profits are
realized during the Company's first fiscal quarter, which includes the holiday
selling season. Results for any quarter are not necessarily indicative of the
results that may be achieved for a full fiscal year. Quarterly results may
fluctuate materially depending upon, among other things, the timing of new store
openings, net sales and profitability contributed by new stores, increases or
decreases in comparable store sales, adverse weather conditions, shifts in the
timing of certain holidays and promotions, and changes in the Company's
merchandise mix.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's primary sources of working capital consist of income from
operations and its $56.0 million working capital facility (the "Capital
Facility"). The Capital Facility was amended and restated as of April 11, 2000
to increase borrowings to the current level, to raise the annual capital
expenditure limitation, and to extend the maturity until September 15, 2004.
The interest rate on direct borrowings outstanding is based on the prime rate of
the Company's lender plus .25 percent. At any time, the Company at its option
may elect an alternative rate for all or part of the direct borrowings
outstanding at LIBOR plus 2.25 percent. Amounts available for direct borrowings
(i.e. net of letters of credit outstanding) are limited to the lesser of (a) the
unused portion of the Capital Facility or (b) the Aggregate Adjusted
Availability ("AAA"), as defined in the agreement as a percentage of inventory
and receivables. The Capital Facility is secured by a security interest in the
Company's inventory, equipment, fixtures, and cash. In addition to the direct
borrowings, the Company opened a $4.0 million letter of credit to collateralize
an Industrial Revenue Bond. There are no financial requirements under the
Capital Facility unless the AAA falls below $10.0 million. If the AAA were to
fall below $10.0 million, the Company would have to achieve a Minimum Cash Flow,
as also defined in the agreement, of not less than zero. During the first nine
months of fiscal 2000, the Company met the AAA minimum. As of June 30, 2000,
there were $26.1 million of direct borrowings, $3.0 million of outstanding
letters of credit and available borrowings under the Capital Facility of $19.9
million.
During the first nine months ended June 30, 2000, the Company purchased $12.4
million of furniture, fixtures, and leasehold improvements related primarily to
its newly opened retail locations. The Company funded its needs from its
operations, supplemented by additional draws on the line of credit. At June 30,
2000, the Company had available cash and cash equivalents of $2.3 million
compared to $1.1 million at September 30, 1999.
Net cash provided by operating activities was $20.6 million in the first nine
months of fiscal 2000 compared to $5.0 million in the first nine months of
fiscal 1999. For the nine months ended June 30, 2000, included in income from
operations were adjustments for non-cash items totaling $13.4 million. During
the same period in fiscal 1999, adjustments for non-cash items were $11.8
million. The increase in cash provided by operations primarily relates to the
decrease in inventory levels.
10
<PAGE>
Cash used in investing activities was $12.2 million for the nine months ended
June 30, 2000 compared to $5.6 million for the nine months ended June 30, 1999.
Consistent with the prior year, the Company continues to make capital
expenditures for new store facilities as well as for general corporate
improvements.
Funds used in financing activities increased to $7.2 million for the nine months
ended June 30, 2000 from $0.4 million for the nine months ended June 30, 1999.
Since the prior year ended September 30, 1999, the Company has repaid its Credit
Facility by $5.9 million. Additionally, the buyback of Company stock was
limited to only $0.2 million in accordance with certain restrictions under the
Indenture to the Notes for the first nine months of 2000 compared to $1.7
million in stock repurchased during the same period last year.
The Company believes that its current cash and working capital positions,
available borrowing capacity through the Capital facility and net cash expected
to be generated from its operations will be sufficient to fund the Company's
working capital requirements and required principal and interest payments
through June 2001.
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 2000 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.
11
<PAGE>
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 are primarily comprised
of its debt portfolio. The Company believes that the market risk exposure on
other financial instruments is immaterial.
At June 30, 2000, the major components of the Company's debt portfolio are the
Senior Unsecured Exchange Notes (the "Notes") and a line of credit (the "Capital
Facility"); both are denominated in US dollars. The Notes bear interest at a
fixed rated of 12 5/8%, and the Line bears interest at a variable rate which, at
June 30, 2000, was approximately 9 1/4%. 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 value of the financial
instrument.
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 June 30, 2000 with all other variables held constant. A
100 basis point increase in market interest rates would result in a decrease in
the value of the debt by $0.9 million at June 30, 2000. A 100 basis point
decline in market interest rates would cause the debt value to increase by $0.9
million at June 30, 2000.
Based on the variable rate debt included in the Company's debt portfolio at June
30, 2000, a 100 basis point increase in interest rates would result in an
additional $0.3 million of interest incurred for the period. A 100 basis point
decrease would correspondingly lower interest expense by $0.3 million.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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: August 7, 2000 By: /s/ Dan W. Matthias
--------------------------------------
Dan W. Matthias
Chief Executive Officer
And
Chairman of the Board
Date: August 7, 2000 By: /s/ Michael F. Devine, III
--------------------------------------
Michael F. Devine, III
Chief Financial Officer
And
Vice President - Finance
13
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit
No. Description Page No.
----------- -------------- -----------------
<S> <C> <C>
27 Financial Data Schedule (schedule submitted in electronic format
only) 15
</TABLE>
14
