<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 March 31, 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.
- --------------------------------------------------------------------------------
(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 Yes [X] No days. [_]
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 - 3,446,424 shares outstanding as of May 1, 2000
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
MOTHERS WORK, INC. AND SUBSIDIARY
INDEX
- --------------------------------------------------------------------------------
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
<S> <C> <C>
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 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
Exhibit Index 14
</TABLE>
<PAGE>
CONFIDENTIAL
------------
MOTHERS WORK, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, September 30,
ASSETS 2000 1999
------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,445,638 $ 1,139,563
Receivables 4,336,106 3,617,824
Inventories 73,754,148 74,954,635
Deferred income taxes 6,120,791 6,120,791
Prepaid expenses and other 1,752,139 1,625,694
------------- -------------
Total current assets 89,408,822 87,458,507
PROPERTY, PLANT AND EQUIPMENT, net 44,041,930 39,610,762
OTHER ASSETS:
Goodwill, net of accumulated amortization of $11,192,253
and $10,084,350 33,201,205 34,309,108
Deferred income taxes 10,115,266 11,687,319
Deferred financing costs, net of accumulated amortization of
$2,048,319 and $1,808,032 2,379,694 2,619,981
Other intangible assets, net of accumulated amortization of $2,002,209
and $1,865,046 1,081,148 1,115,444
Other assets 997,631 807,268
------------- -------------
Total other assets 47,774,944 50,539,120
------------- -------------
$ 181,225,696 $ 177,608,389
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 34,649,739 $ 32,003,464
Current portion of long-term debt 590,829 495,829
Accounts payable 16,147,968 17,461,343
Accrued expenses 13,663,001 13,477,555
------------- -------------
Total current liabilities 65,051,537 63,438,191
LONG-TERM DEBT 95,958,841 96,161,561
ACCRUED DIVIDENDS ON PREFERRED STOCK 5,342,575 4,648,124
DEFERRED RENT 4,589,730 4,292,164
STOCKHOLDERS' EQUITY:
Series A Cumulative convertible preferred stock, $.01 par value, $280.49
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,
3,445,304 and 3,446,353 shares issued and outstanding 34,452 34,463
Additional paid-in capital 26,151,929 26,179,805
Accumulated deficit (27,403,368) (28,645,919)
------------- -------------
Total stockholders' equity 10,283,013 9,068,349
------------- -------------
$ 181,225,696 $ 177,608,389
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
CONFIDENTIAL
------------
MOTHERS WORK, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
---------------------------- ---------------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net sales $ 83,683,097 $ 66,469,493 $175,548,248 $143,211,449
Cost of goods sold 42,310,141 33,848,170 88,617,435 71,988,108
------------ ------------ ------------ ------------
Gross profit 41,372,956 32,621,323 86,930,813 71,223,341
Selling, general and administrative expenses 38,334,648 30,215,746 75,472,961 61,597,961
------------ ------------ ------------ ------------
Operating income 3,038,308 2,405,577 11,457,852 9,625,380
Interest expense, net 3,955,142 3,504,965 7,948,808 7,527,887
------------ ------------ ------------ ------------
Income(loss) before income taxes (916,834) (1,099,388) 3,509,044 2,097,493
Income tax provision(benefit) (428,048) (518,505) 1,572,054 1,031,137
------------ ------------ ------------ ------------
Net income(loss) (488,786) (580,883) 1,936,990 1,066,356
Preferred dividends 347,226 312,802 694,452 625,604
------------ ------------ ------------ ------------
Net income(loss) available to
common stockholders $ (836,012) $ (893,685) $ 1,242,538 $ 440,752
============ ============ ============ ============
Income(loss) per share - basic $ (0.24) $ (0.25) $ 0.36 $ 0.12
============ ============ ============ ============
Average shares outstanding - basic 3,437,598 3,594,860 3,435,122 3,599,462
============ ============ ============ ============
Income(loss) per share - assuming dilution $ (0.24) $ (0.25) $ 0.34 $ 0.12
============ ============ ============ ============
Average shares outstanding - assuming dilution 3,437,598 3,594,860 3,655,524 3,797,438
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
CONFIDENTIAL
------------
MOTHERS WORK, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
--------------------------
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,936,990 $ 1,066,356
Adjustments to reconcile net income to
net cash provided by operating activities--
Depreciation and amortization 5,863,850 5,093,373
Deferred income taxes 1,572,053 1,031,137
Provision for deferred rent 297,566 185,994
Amortization of deferred financing costs 240,287 248,978
Imputed interest on debt 84,425 73,708
Changes in assets and liabilities:
(Increase) decrease in--
Receivables (718,282) 268,564
Inventories 1,200,487 (1,096,712)
Prepaid expenses and other (316,808) 3,981,336
Increase (decrease) in--
Accounts payable and accrued expenses (1,310,419) (8,542,534)
----------- -----------
Net cash provided by operating activities 8,850,149 2,310,200
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (9,040,952) (2,802,669)
Increase in intangibles and other assets (102,867) (64,680)
----------- -----------
Net cash used in investing activities (9,143,819) (2,867,349)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in line of credit and cash overdrafts, net 2,819,777 1,993,850
Purchase of common stock (178,661) (1,207,500)
Repayments of long-term debt (192,145) (174,951)
Proceeds from exercise of options 150,774 110,708
----------- -----------
Net cash provided by financing activities 2,599,745 722,107
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,306,075 164,958
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,139,563 3,623,003
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,445,638 $ 3,787,961
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 4,693,349 $ 6,939,541
=========== ===========
Cash paid for income taxes $ -- $ --
=========== ===========
Capital lease obligations incurred $ -- $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
MOTHERS WORK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(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, 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 March 31, 2000, a total of 30,000 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.
4
<PAGE>
MOTHERS WORK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
3. 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 March 31, 2000
---------------------------------------
Loss Shares Per share
(Numerator) (Denominator) Amount
------------ ------------- ----------
<S> <C> <C> <C>
Basic EPS
Loss available to common stockholders $ (836,012) 3,437,598 $(0.24)
For the Quarter Ended March 31, 1999
---------------------------------------
Loss Shares Per share
(Numerator) (Denominator) Amount
----------- --------- ---------
Basic EPS
Loss available to common stockholders $ (893,685) 3,594,860 $(0.25)
For the Six Months Ended March 31, 2000
-----------------------------------------
Income Shares Per share
(Numerator) (Denominator) Amount
----------- --------- ---------
Basic EPS
Income available to common stockholders $1,242,538 3,435,122 $ 0.36
EFFECT OF DILUTIVE SECURITIES
Warrants - 140,000
Stock options - 80,402
----------- ---------
Diluted EPS
Income available to common stockholders $1,242,538 3,655,524 $ 0.34
=========== =========
For the Six Months Ended March 31, 1999
-----------------------------------------
Income Shares Per share
(Numerator) (Denominator) Amount
----------- --------- ---------
Basic EPS
Income available to common stockholders $ 440,752 3,599,462 $ 0.12
EFFECT OF DILUTIVE SECURITIES
Warrants - 140,000
Stock options - 57,976
----------- ---------
Diluted EPS
Income available to common stockholders $ 440,752 3,797,438 $ 0.12
=========== =========
</TABLE>
5
<PAGE>
Options and warrants were included in the computation of diluted EPS to the
extent that they were dilutive. Options to purchase 1,081,369 shares of common
stock at prices ranging from $1.67 to $18.25 per share were outstanding during
the first six months of fiscal 2000. Options to purchase 974,466 shares of
common stock at prices ranging from $6.63 to $18.25 per share were outstanding
for the three months ended March 31, 2000. The outstanding options expire
between 2003 and 2008. For the quarter and six months ended March 31, 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 could potentially
dilute basic EPS in the future, although they were not dilutive for the quarter
and six months ended March 31, 2000, and were accordingly, not included in the
EPS computations.
4. 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>
March 31, 2000 September 30, 1999
---------------- ------------------
<S> <C> <C>
Current assets $ 2,865 $ 2,865
Non-current assets $70,443,673 $59,105,843
Current liabilities $ -- $ --
Non-current liabilities $13,022,803 $ 9,148,142
Six Months Ended Year Ended
March 31, 2000 September 30, 1999
---------------- ------------------
Net sales $11,337,830 $19,376,700
Costs and expenses $ 30,000 $ 60,000
Net income $ 7,463,168 $12,749,022
</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 Guarantor's
records are eliminated in consolidation. The Company, 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.
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 Six Months
Three Six Ended Ended
Months Ended Months Ended March 31, March 31,
March 31, March 31 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% 25.9% 22.6%
Cost of goods sold 50.6 50.9 50.5 50.3 25.0 23.1
------- ------- ------- -------
Gross profit 49.4 49.1 49.5 49.7 26.8 22.1
Selling, general
and administrative
expenses 45.8 45.5 43.0 43.0 26.9 22.5
------- ------- ------- -------
Operating income 3.6 3.6 6.5 6.7 NM NM
Interest expense, net 4.7 5.3 4.5 5.2 12.8 5.6
------- ------- ------- -------
Income (loss) before
Income taxes (1.1) (1.7) 2.0 1.5 NM NM
Income tax provision
(benefit) (0.5) (0.8) 0.9 0.8 NM NM
------- ------- ------- -------
Net income (loss) (0.6)% (0.9)% 1.1% 0.7% NM NM
======= ======= ======= =======
NM - Not Meaningful.
</TABLE>
7
<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 Three Six Six
Months Months Months Months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Beginning of period:
Maternity stores 551 473 528 460
Leased maternity departments 97 106 97 123
---------- --------- --------- ---------
Total 648 579 625 583
Opened:
Maternity stores 23 15 47 28
Leased maternity departments - - - 5
Closed:
Maternity stores (2) (2) (3) (2)
Leased maternity departments - (12) - (34)
---------- --------- --------- ---------
End of period:
Maternity stores 572 486 572 486
Leased maternity departments 97 94 97 94
---------- --------- --------- ---------
Total 669 580 669 580
========== ========= ========= =========
</TABLE>
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Net Sales
Net sales of $83.7 million in the second quarter of fiscal 2000 were $17.2
million (25.9%) higher than sales of $66.5 million in the second quarter of
fiscal 1999. The increase in net sales was comprised of incremental revenues
generated by 23 new maternity stores which opened during the quarter as well as
an 11.1% comparable store sales increase during the second quarter of fiscal
2000 (based on 539 stores). At March 31, 2000, the Company had 669 locations
compared to 580 at March 31, 1999.
Gross Profit
Second quarter fiscal 2000 gross profit was $8.7 million (26.8%) higher than the
$32.6 million gross profit for the second quarter fiscal 1999. The increase was
largely attributable to the increase in sales. Gross profit as a percentage of
sales in the second quarter fiscal 2000 increased to 49.4% from 49.1% in fiscal
1999. This improvement was primarily due to factory overhead increasing at a
slower rate than the increase in manufacturing volume resulting from the
increase in sales.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $8.1 million (26.9%)
in fiscal 2000 compared to 1999 and, as a percentage of net sales, increased
from 45.5% to 45.8%. This increase was primarily due to increases in corporate
operating leases and wages and benefits at the store level, which in turn were
primarily due to the increase in the number of stores during fiscal 2000.
Higher advertising, marketing, depreciation and amortization also contributed to
this increase.
8
<PAGE>
Operating Income
Operating income increased to $3 million in the second quarter of fiscal 2000
compared to $2.4 million in the second quarter of fiscal 1999. The increase in
operating income is primarily a result of the increased sales volume.
Interest Expense, Net
Net interest expense increased by $0.4 million in fiscal 2000 compared to fiscal
1999. This increase reflects additional borrowings under the Company's line of
credit.
Income Taxes
The effective income tax rate was 46.7% in the second quarter of fiscal 2000
compared to 47.2% in the second quarter 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.
SIX MONTHS ENDED MARCH 31, 2000 AND 1999
Net Sales
Net sales of $175.5 million in the first six months of fiscal 2000 were $32.3
million (22.6%) higher than sales of $143.2 million in the first six months of
fiscal 1999. The increase in net sales is due to a 9.5% comparable store sales
increase during the first six months of fiscal 2000 (based on 535 stores) as
well as the incremental revenues generated by 47 new maternity stores which
opened during the first six months of fiscal 2000.
Gross Profit
Gross profit in the first six months of fiscal 2000 was $15.7 million (22.1%)
higher than the $71.2 million gross profit in the first six months of fiscal
1999 reflecting the increased sales volume. Gross profit as a percentage of net
sales for the first six months of fiscal 2000 decreased to 49.5% from 49.7% in
the comparable period of fiscal 1999. The decrease in margins was primarily due
to sales in the Motherhood division, which operates at a lower gross profit,
growing at a faster rate than the higher margin sales in the high-end maternity
division. The Company also reduced selling prices in its moderate division in
an effort to counter aggressive competition.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $13.9 million or 22.5%
in fiscal 2000 to $75.5 million compared to 1999 and, as a percentage of net
sales, remained constant at 43%.
Operating Income
Operating income increased to $11.5 million in the first six months of fiscal
2000 compared to $9.6 million in the first six months of fiscal 1999. The
increase in operating income is primarily a result of the increased sales
volume.
9
<PAGE>
Interest Expense, Net
Net interest expense increased by $0.4 million in the first six months of fiscal
2000 compared with the first six months of fiscal 1999, and as a percentage of
sales, decreased from 5.2% to 4.5%. The decrease as a percentage of sales is
largely attributable to the increased sales volume.
Income Taxes
The effective income tax rate was 44.8% in the first six months of fiscal 2000
compared to 49.2% in the first six 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.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months ended March 31, 2000, the Company purchased $9
million in furniture, fixtures and leasehold improvements related to its newly
opened retail locations. The Company funded its needs from its operations,
supplemented by additional draws on the line of credit. At March 31, 2000, the
Company had available cash and cash equivalents of $3.4 million compared to $1.1
million at September 30, 1999.
Net cash provided by operating activities was $8.8 million in the first six
months of fiscal 2000 compared to $2.3 million in the first six months of fiscal
1999. For the six months ended March 31, 2000, income from operations,
including adjustments for non-cash items totaling $8.1 million, was partially
offset by a $1.3 million decrease in accounts payable and accrued expenses.
During the same period in fiscal 1999, income from operations, including
adjustments for non-cash items totaling $6.6 million, in addition to a $4
million decrease in prepaid expenses, was offset by a $8.5 million reduction in
accounts payable and accrued expenses.
Net cash used in investing activities increased to $9.1 million in the six
months ended March 31, 2000 from $2.9 million in the six months ended March 31,
1999. Consistent with the prior year, the Company made capital expenditures for
new store facilities and corporate improvements.
Funding from financing activities increased to $2.6 million for the six months
ended March 31, 2000 from $0.7 million for the six months ended March 31, 1999,
principally due to the higher buyback of stock in the prior year. During the
first six months of fiscal 2000, the Company's borrowings on the line of credit
and its cash overdrafts increased by $2.8 million. This compares with a $2
million increase in the line of credit and cash overdrafts which was offset by
the purchase of 115,000 Company shares at a total cost of $1.2 million in the
six months ended March 31, 1999.
In April 2000, the Company entered into an amendment to its working capital
facility with its lender. The amendment increased its $44 million working
capital facility to $56 million and extended the term of the facility from April
2001 to September 2004 subject to the terms of the amendment, including
limitations based upon eligible capital expenditures. As of May 5, 2000, the
Company had $31.7 million in borrowings and $3 million in letters of credit
under the working capital facility. In addition to the working capital
facility, the Company also has an outstanding $4 million letter of credit to
collateralize an Industrial Revenue Bond. 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, as also defined in
the agreement, of not less than zero. During the first six months of fiscal 2000
the Company achieved a positive cash flow, as defined, and the AAA did not fall
below $10 million.
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 its operations will be sufficient to fund the
Company's working capital requirements and required principal and interest
payments for fiscal 2000.
10
<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 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 March 31, 2000, the major components of the Company's debt portfolio are the
Senior Unsecured Exchange Notes (the "Notes") and a line of credit (the "Line");
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 March 31,
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 March 31, 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 March 31, 2000. A 100 basis point
decline in market interest rates would cause the debt value to increase by $0.9
million at March 31, 2000.
Based on the variable rate debt included in the Company's debt portfolio at
March 31, 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on January 20,
2000, the stockholders of the Company elected two directors of the
Company and ratified the appointment of Arthur Andersen LLP as the
Company's independent auditors for the fiscal year ending September
30, 2000.
Mr. Stanley C. Tuttleman and Mr. William A. Schwartz, Jr. were elected
to serve as directors at the meeting. The voting results were
2,282,662 shares in favor and 3,679 shares withheld for Mr. Tuttleman
and 2,282,662 shares in favor and 3,679 shares withheld for Mr.
Schwartz. The vote ratifying the appointment of Arthur Andersen LLP
as independent auditors was 2,285,041 shares for, 1,300 shares against
and zero shares withheld.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Amendment to Loan and Security Agreement dated as of April 11,
2000 by and among, Mothers Work, Inc., Cave Springs, Inc. and
Fleet Capital Corporation.
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: May 11, 2000 By: /s/ Dan W. Matthias
------------------------------
Dan W. Matthias
Chief Executive Officer
And
Chairman of the Board
Date: May 11, 2000 By: /s/ Michael F. Devine, III
------------------------------
Michael F. Devine, III
Chief Financial Officer
And
Vice President - Finance
13
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
No. Description Page No.
- ----------- ----------- --------
10.1 Amendment to Loan and Security Agreement dated
as of April 11, 2000 by and among, Mothers Work,
Inc., Cave Springs, Inc. and Fleet Capital Corporation 15
27 Financial Data Schedule (schedule submitted in
electronic format only) 19
14
<PAGE>
Exhibit 10.1
AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Amendment to Loan and Security Agreement ("Amendment") is made this
11th day of April, 2000, by MOTHERS WORK, INC., a Delaware corporation
("Parent"), CAVE SPRINGS, INC., a Delaware corporation ("Cave Springs")
(collectively, "Borrowers" and singly each is a "Borrower"), and FLEET CAPITAL
CORPORATION, a Rhode Island corporation ("Lender").
BACKGROUND
A. Borrowers and Lender are parties to a certain Loan and Security
Agreement dated April 24,1998 (as amended, modified, supplemented or restated
from time to time, "Loan Agreement"), pursuant to which certain financing
arrangements were established with Lender for the benefit of Borrowers. The Loan
Agreement and all instruments, documents and agreements executed in connection
therewith, or related thereto, are referred to herein collectively as the
"Existing Loan Documents." All capitalized terms not otherwise defined herein
shall have the respective meanings ascribed thereto in the Loan Agreement.
B. Borrowers have requested that Lender modify, in certain respects, the
Loan Agreement and Lender has agreed to make such modifications, all as more
fully set forth herein and subject to the terms and conditions hereof.
NOW, THEREFORE, with the foregoing Background incorporated by reference
herein and made part hereof, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Amendments to Loan Agreement.
a. Upon the Effective Date, clause (i) of the definition of Borrowing
Base A is hereby amended and restated in its entirety and shall read as follows:
(i) an amount equal to (a) $56,000,000 minus (b) the LC Amount; or
b. Upon the Effective Date, the definition of Maximum Revolving Credit
Amount is hereby amended and restated in its entirety and shall read as follows:
Maximum Revolving Credit Amount - Fifty-Six Million Dollars
($56,000,000).
c. (i) Upon the Effective Date, the definition of Total Credit Facility
is hereby amended and secured in its entirety and shall read as follows:
Total Credit Facility - Sixty Million Dollars ($60,000,000).
15
<PAGE>
(ii) To effectuate such amendment, the dollar figure of $48,000,000
contained in the preamble of Section 1 of the Loan Agreement is hereby deleted
and replaced with the dollar figure of $60,000,000.
d. Upon the Effective Date, the Collateral Management Fee payable
pursuant to Section 2.4 of the Loan Agreement is increased from $25,000 per year
to $30,000 per year.
e. Upon the Effective Date, the Original Term shall mean the period from
April 24, 1998, through September 15, 2004.
f. Effective for Parent's fiscal year beginning October 1, 1999, the
limitation on Capital Expenditures contained in Section 8.2.11 of the Loan
Agreement is increased from $13,000,000 to $17,000,000.
2. Effectiveness Conditions. This Amendment shall become effective upon the
date ("Effective Date") of the satisfactory completion, as determined by Lender
in its discretion, of the following conditions (all documents to be in form and
substance satisfactory to Lender):
a. Execution of this Amendment and execution and delivery by Borrowers
of the Amended and Restated Revolving Credit Note.
b. Delivery of a Certificate of Corporate Resolutions, signed by
Borrowers' Secretary reflecting the authorization to execute, deliver and
perform under this Amendment.
c. Payment by Borrowers to Lender of a non-refundable fee in the amount
of $60,000 ("Amendment Closing Fee").
3. Collateral. Borrowers hereby confirm that all Collateral, liens, and
security interests at any time granted by Borrowers to Lender shall continue
unimpaired and in full force and effect and shall continue to cover and secure
the Obligations of Borrowers to Lender to the full extent set forth in the
Existing Loan Documents, including without limitation, all of Borrowers'
Obligations under the Revolving Credit.
4. Representations and Warranties. Each Borrower warrants and represents to
Lender that:
a. Prior Representations. By execution of this Amendment, such Borrower
reaffirms that, except as set forth on Schedule A hereto, all warranties and
representations made to Lender under the Loan Agreement and Existing Loan
Documents are true and correct in all material respects as of the Effective
Date.
16
<PAGE>
b. Authorization. The execution and delivery by such Borrower of this
Amendment and the performance by it of the transactions herein contemplated (i)
are and will be within its powers, (ii) have been authorized by all necessary
corporate action, and (iii) are not and will not be in contravention of any
order of court or other agency of government, of law or of any indenture,
agreement or undertaking to which such Borrower is a party or by which the
property of such Borrower is bound, or be in conflict with, result in a breach
of or constitute (with due notice and/or lapse of time) a default under any such
indenture, agreement or undertaking, or result in the imposition of any lien,
charge or encumbrance of any nature on any of the properties of such Borrower by
any party other than Lender.
c. Valid, Binding and Enforceable. This Amendment and any assignment or
other instrument, document or agreement executed and delivered in connection
herewith, will be valid, binding and enforceable in accordance with their
respective terms.
d. No Default. There is no Default or Event of Default outstanding under
the Loan Agreement.
e. Consent. No consent, approval or authorization of, or registration,
filing or qualification with, any governmental authority is required to be
obtained or made by such Borrower in connection with the transactions
contemplated hereunder.
5. Incorporation into Existing Loan Documents. The parties acknowledge and
agree that this Amendment is incorporated into and made part of the Existing
Loan Documents, the terms and provisions of which, unless expressly modified
herein, are hereby ratified and confirmed and continue unchanged and in full
force and effect. Any future reference to the Loan Agreement or Existing Loan
Documents shall mean the Loan Agreement or Existing Loan Documents as amended
hereby. To the extent that any term or provision of this Amendment is or may be
deemed expressly inconsistent with any term or provision in the Existing Loan
Documents, the terms and provisions hereof shall control.
6. Miscellaneous.
a. Headings. The headings of any paragraph of this Amendment are for
convenience only and shall not be used to interpret any provision hereof.
b. Other Instruments. Borrowers shall execute any other documents,
instruments and writings, in form and substance satisfactory to Lender, as
Lender may reasonably request, to carry out the intentions of the parties
hereunder.
c. Modifications. No modification hereof or any agreement referred to
herein shall be binding or enforceable unless in writing and signed on behalf of
the party against whom enforcement is sought.
17
<PAGE>
d. Counterparts. This Amendment may be executed in any number of
counterparts each of which shall constitute an original and all of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Amendment the day and
year first above written.
FLEET CAPITAL CORPORATION MOTHERS WORK, INC.
By: /s/ Kim Bushey By: /s/ Michael F. Devine, III
------------------------------ ------------------------------
Kim Bushey Michael F. Devine, III
Vice President Chief Financial Officer and
Vice President - Finance
CAVE SPRINGS, INC.
By: /s/ Dan W. Matthias
------------------------------
Chief Executive Officer and
Chairman of the Board
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S SECOND QUARTER 10-Q FOR THE PERIOD ENDED MARCH 31, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 3,445,638
<SECURITIES> 0
<RECEIVABLES> 4,336,106
<ALLOWANCES> 0
<INVENTORY> 73,754,148
<CURRENT-ASSETS> 89,408,822
<PP&E> 82,543,846
<DEPRECIATION> 38,501,916
<TOTAL-ASSETS> 181,225,696
<CURRENT-LIABILITIES> 65,051,537
<BONDS> 95,958,841
0
11,500,000
<COMMON> 34,452
<OTHER-SE> (1,251,439)
<TOTAL-LIABILITY-AND-EQUITY> 181,225,696
<SALES> 175,548,248
<TOTAL-REVENUES> 175,548,248
<CGS> 88,617,435
<TOTAL-COSTS> 75,472,961
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,948,808
<INCOME-PRETAX> 3,509,044
<INCOME-TAX> 1,572,054
<INCOME-CONTINUING> 1,936,990
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,936,990
<EPS-BASIC> 0.36
<EPS-DILUTED> 0.34
</TABLE>
