Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
[X] Quarterly Report Pursuant to Section 13 of 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 2001
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 13-3045573
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
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 - 3,453,910 shares outstanding as of August 7, 2001
- --------------------------------------------------------------------------------
1
MOTHERS WORK, INC. AND SUBSIDIARY
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MOTHERS WORK, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
June 30, September 30,
ASSETS 2001 2000
--------- ---------
(unaudited)
Current Assets:
Cash and cash equivalents $ 1,980 $ 3,076
Trade receivables 3,022 3,833
Inventories 70,178 75,747
Deferred income taxes 3,851 3,851
Prepaid expenses and other current assets 3,281 3,040
--------- ---------
Total current assets 82,312 89,547
Property, Plant and Equipment, net 45,034 44,260
Other Assets:
Goodwill, net of accumulated amortization of $13,827 and $12,300 30,414 32,093
Deferred financing costs, net of accumulated amortization of
$2,663 and $2,289 1,765 2,139
Other intangible assets, net of accumulated amortization of $1,927
and $2,144 1,126 1,045
Deferred income taxes 7,008 9,821
Other assets 617 681
--------- ---------
Total other assets 40,930 45,779
--------- ---------
$ 168,276 $ 179,586
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit $ 14,879 $ 30,548
Current portion of long-term debt 404 543
Accounts payable 14,518 15,445
Accrued expenses and other current liabilities 15,288 13,327
--------- ---------
Total current liabilities 45,089 59,863
Long-Term Debt 96,010 96,088
Accrued Dividends on Preferred Stock 7,155 6,037
Deferred Rent 5,104 4,848
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 11,500
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,
3,453,910 and 3,451,770 shares issued and outstanding 34 34
Additional paid-in capital 26,220 26,203
Accumulated deficit (22,836) (24,987)
--------- ---------
Total stockholders' equity 14,918 12,750
--------- ---------
$ 168,276 $ 179,586
========= =========
The accompanying notes are an integral part of these financial statements.
3
MOTHERS WORK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------- -------------------------
2001 2000 2001 2000
-------- -------- -------- --------
Net sales $103,970 $ 98,495 $295,669 $274,043
Cost of goods sold 49,743 49,061 148,473 137,678
-------- -------- -------- --------
Gross profit 54,227 49,434 147,196 136,365
Selling, general and administrative expenses 43,565 39,997 129,810 115,470
-------- -------- -------- --------
Operating income 10,662 9,437 17,386 20,895
Interest expense 3,584 3,964 11,298 11,913
-------- -------- -------- --------
Income before income taxes 7,078 5,473 6,088 8,982
Income tax provision 3,282 2,506 2,813 4,078
-------- -------- -------- --------
Net income 3,796 2,967 3,275 4,904
Dividends on preferred stock 373 347 1,118 1,042
-------- -------- -------- --------
Net income available to common stockholders $ 3,423 $ 2,620 $ 2,157 $ 3,862
======== ======== ======== ========
Income per share - basic $ 0.99 $ 0.76 $ 0.62 $ 1.12
======== ======== ======== ========
Average shares outstanding - basic 3,454 3,450 3,454 3,440
======== ======== ======== ========
Income per share - diluted $ 0.95 $ 0.72 $ 0.60 $ 1.06
======== ======== ======== ========
Average shares outstanding - diluted 3,594 3,652 3,599 3,654
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
4
MOTHERS WORK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended
June 30,
------------------------
2001 2000
-------- --------
Cash flows from operating activities:
Net income $ 3,275 $ 4,904
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 8,967 8,510
Deferred taxes 2,813 3,965
Amortization of deferred financing costs 374 356
Accretion of debt discount 143 128
Provision for deferred rent 256 437
Changes in assets and liabilities:
(Increase) decrease in -
Trade receivables 811 (351)
Inventories 5,569 2,229
Prepaid expenses and other assets (177) 50
Increase (decrease) in -
Accounts payable, accrued expenses and other
current liabilities (692) 329
-------- --------
Net cash provided by operating activities 21,339 20,557
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (8,116) (12,384)
Increase in intangibles (360) 223
-------- --------
Net cash used in investing activities (8,476) (12,161)
-------- --------
Cash flows from financing activities:
Decrease in line of credit and cash overdrafts, net (13,616) (7,464)
Repurchase of common stock -- (179)
(Repayments) increase of long-term debt (360) 214
Proceeds from exercise of options 17 199
-------- --------
Net cash used in financing activities (13,959) (7,230)
-------- --------
Net (decrease) increase in cash and cash equivalents (1,096) 1,166
Cash and cash equivalents, beginning of period 3,076 1,140
-------- --------
Cash and cash equivalents, end of period $ 1,980 $ 2,306
======== ========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 8,049 $ 8,565
======== ========
Cash paid for income taxes $ 345 $ 262
======== ========
Capital lease obligations incurred $ -- $ 511
======== ========
The accompanying notes are an integral part of these financial statements.
5
MOTHERS WORK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
(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, 2000 for Mothers Work, Inc. and Subsidiary (the "Company")
as filed with the Securities and Exchange Commission 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, 2001, a total of 18,500 options were granted
to certain employees for the purchase of the Company's common stock at prices
not less than the fair market value of the Company's common stock 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 management 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")
Basic EPS is computed by dividing net income available to common stockholders by
the weighted average number of outstanding common shares. Diluted EPS is
computed based upon the weighted average number of outstanding common shares,
after giving effect to the potential dilutive effect from the assumed exercise
of stock options and warrants as well as the assumed conversion of dilutive
preferred stock.
The following summarizes those effects for the diluted EPS calculation (in
thousands, except per share amounts):
For the Three Months Ended For the Three Months Ended
June 30, 2001 June 30, 2000
------------------------------- ---------------------------------
Earnings Earnings
Income Shares Per Share Income Shares Per Share
------ ------ --------- ------ ------ ---------
Basic EPS $3,423 3,454 $ 0.99 $2,620 3,450 $ 0.76
====== ======
Incremental shares from the
assumed exercise of outstanding
stock options and warrants -- 140 -- 202
----- -----
Diluted EPS $3,423 3,594 $ 0.95 $2,620 3,652 $ 0.72
====== ===== ====== ====== ===== ======
6
MOTHERS WORK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
(unaudited)
For the Nine Months Ended For the Nine Months Ended
June 30, 2001 June 30, 2000
--------------------------------- -------------------------------
Earnings Earnings
Income Shares Per Share Income Shares Per Share
------ ------ --------- ------ ------ ---------
Basic EPS $2,157 3,454 $0.62 $3,862 3,440 $ 1.12
===== ======
Incremental shares from the
assumed exercise of outstanding
stock options and warrants -- 145 -- 214
----- ------ ----- -----
Diluted EPS $2,157 3,599 $0.60 $3,862 3,654 $ 1.06
====== ===== ===== ====== ===== ======
Options to purchase 947,335 and 272,740 shares were outstanding as of June 30,
2001 and 2000, respectively, but were not included in the computation of diluted
EPS as their effect would have been antidilutive. Additionally, the 41,000
shares of Series A Cumulative Convertible Preferred Stock (the "Series A
Preferred Stock"), currently convertible into 410,000 shares of common, were
determined to be antidilutive and therefore excluded from the EPS computation.
The antidilutive options and Series A Preferred Stock could potentially dilute
EPS in the future.
5. RECLASSIFICATIONS
Certain prior year balances in the financial statements have been reclassified
to conform with the current year presentation.
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities were comprised of the following
(in thousands):
June 30, 2001 September 30, 2000
------------- ------------------
Salaries, wages and employee benefits $ 4,025 $ 5,078
Interest 5,025 2,293
Other 6,238 5,956
------- -------
$15,288 $13,327
======= =======
Interest payments on the $92,000,000 of 12 5/8% Senior Unsecured Exchange Notes
due 2005 (the "Notes") are made semiannually in February and August.
7
MOTHERS WORK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
(unaudited)
7. RESTRUCTURING CHARGES
In 1998, the Company announced that all of its non-maternity Episode stores
would be closed or converted into maternity clothing stores. In connection with
the closure, the Company recorded charges totaling $20.9 million ($13.8 million
net of a tax benefit of $7.1 million) which were reflected as cost of goods sold
($10.3 million) and restructuring charges ($10.6 million). The charges recorded
to cost of goods sold related to inventory purchase commitments and inventory
write-downs based on estimated liquidation values. Approximately 159 employees
were expected to be terminated as part of the restructuring plan, which
consisted of 15 corporate employees and 144 store employees. The 1998
restructuring costs were comprised of $2.9 million of legal and other fees
associated with the transfer of leases, $7.3 million for losses on fixed assets
and leasehold improvements, $0.2 million for severance (relative to the
termination of 69 employees) and the remainder for other costs. During fiscal
1999, the Company recorded charges of $3.6 million against the reserve
(including $2.0 million of charges to settle purchase commitments for inventory
and leasehold improvements and $1.6 million of costs incurred to settle lease
transfers) and terminated the remaining 90 employees, to whom no severance was
paid. During fiscal 2000, the Company finalized its remaining lease transfer and
incurred costs for miscellaneous related matters associated with this
divestiture and to settle inventory purchase commitments. At September 30, 2000,
$0.3 million of the restructuring costs remained in accrued expenses including
$0.2 million of legal and other fees related to the final lease transfer and
$0.1 million to settle vendor disputes. For the nine months ended June 30, 2001,
the Company has charged $0.1 million against the reserve for legal fees related
to the lease transfer and settlement of a vendor dispute, leaving a balance of
$0.1 million for any outstanding fees.
8. BUSINESS COMBINATIONS
On June 29, 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards number 141, "Business Combinations" ("SFAS No.
141"), and SFAS No. 142, "Goodwill and other Intangible Assets." SFAS No. 141
requires that all business combinations consummated after June 30, 2001 be
accounted for under the purchase method of accounting. SFAS #142 provides for
the discontinuance of amortization of goodwill effective January 1, 2002, and
establishes methodologies for determining the impairment of the carrying value
of goodwill. During the nine months ended June 30, 2001 and 2000, the Company
recorded goodwill amortization of $1.7 million and $1.7 million, respectively.
Management is currently evaluating the methodologies for determining the
impairment of the carrying value of goodwill. Any adjustments as a result of the
new impairment tests will be recorded as a cumulative effect of a change in
accounting principle effective October 1, 2001. Net unamortized goodwill at June
30, 2001 was $30.4 million.
8
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 net
sales and as a percentage change for the periods indicated:
% Period to Period
Percentage of Net Sales Increase (Decrease)
----------------------------------------------- ---------------------------
Three Nine Three Months Nine Months
Months Ended Months Ended Ended Ended
June 30, June 30, June 30, June 30,
------------------- -------------------- 2001 2001
Compared to Compared to
2001 2000 2001 2000 2000 2000
------ ------ ------ ------ ----------- -----------
Net sales 100.0% 100.0% 100.0% 100.0% 5.6% 7.9%
Cost of goods sold 47.8 49.8 50.2 50.2 1.4 7.8
------ ------ ------ ------
Gross profit 52.2 50.2 49.8 49.8 9.7 7.9
Selling, general and
Administrative expenses 42.0 40.6 43.9 42.2 8.9 12.4
------ ------ ------ ------
Operating income 10.3 9.6 5.9 7.6 13.0 (16.8)
Interest expense 3.5 4.0 3.8 4.3 (9.6) (5.2)
------ ------ ------ ------
Income before taxes 6.8 5.6 2.1 3.3 29.3 (32.2)
Income tax provision 3.1 2.6 1.0 1.5 31.0 (31.0)
------ ------ ------ ------
Net income 3.7 3.0 1.1 1.8 27.9 (33.2)
====== ====== ====== ======
The following table sets forth certain information concerning the number of
Company-owned stores and leased departments for the three months ended June 30:
2001 2000
----------------------------------- -----------------------------------
Maternity Leased Maternity Leased
Stores Departments Total Stores Departments Total
------ ----------- ----- ------ ----------- -----
Beginning of period 618 133 751 572 97 669
Opened 15 1 16 15 -- 15
Closed (2) -- (2) -- (1) (1)
--- --- --- --- -- ---
End of period 631 134 765 587 96 683
=== === === === == ===
9
Three Months Ended June 30, 2001 and 2000
Net Sales
Net sales of $104.0 million for the third quarter of fiscal 2001 were $5.5
million (5.6%) higher than the $98.5 million reported for the third quarter of
fiscal 2000. The sales increase reflects primarily the incremental revenues
generated by the 82 net maternity locations opened since June 30, 2000 and
growth in our Internet business. Comparable store sales during the third quarter
of fiscal 2001 decreased 2.0% (based on 638 locations) compared to an increase
of 7.7% (based on 556 locations) for the quarter ended June 30, 2000. The
decline in comparable store sales is primarily due to the difficult retail
environment and the resulting lower consumer confidence.
Gross Profit
Third quarter fiscal 2001 gross profit increased by $4.8 million (9.7%) to $54.2
million (52.2% of sales) compared to $49.4 million (50.2% of sales) for the
third quarter of fiscal 2000 due principally to increased sales. Specific focus
on product sourcing in recent months has resulted in lower product costs and
improved margins.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the third quarter of fiscal
2001 increased by $3.6 million (8.9%) to $43.6 million from $40.0 million for
the third quarter of fiscal 2000. Store wages and related benefit costs
increased by $0.7 million and rent was $1.8 million higher in conjunction with
the new store openings since June 30, 2000. Operating expenses increased from
40.6% to 42.0% of net sales due principally to the negative comparable store
sales during the three months ended June 30, 2001.
Operating Income
Operating income improved to $10.7 million (10.3% of net sales) in the third
quarter of fiscal 2001 compared to $9.4 million (9.6% of net sales) in the third
quarter of fiscal 2000. The increase in operating income is principally a result
of the additional new store sales and 200 basis point improvement in gross
profit rate.
Interest Expense
Interest expense was lower by $0.4 million for the third quarter of fiscal 2001
compared to the same period in fiscal 2000. The Company reduced its average
borrowings under the $56.0 million working capital facility (the "Working
Capital Facility") by $8.4 million to $21.2 million for the quarter ended June
30, 2001 from $29.6 million for the quarter ended June 30, 2000 by financing
more of its activities with cash from operations. The effective interest rate on
borrowings decreased to 7.0% for the third quarter of fiscal 2001 from 8.8% for
the third quarter of fiscal 2000.
Income Taxes
The effective income tax rate was 46.4% in the third quarter of fiscal 2001
compared to 45.8% in the third quarter of fiscal 2000. The increase in the tax
rate was primarily due to the relationship of non-deductible goodwill
amortization to income before income taxes.
10
Nine Months Ended June 30, 2001 and 2000
Net Sales
Net sales of $295.7 million in the first nine months of fiscal 2001 were $21.7
million (7.9%) higher than sales of $274.0 million in the first nine months of
fiscal 2000. The sales increase reflects primarily the incremental revenues
generated by the new store locations opened in the last twelve months in
addition to strong Internet sales. Comparable store sales during the first nine
months of fiscal 2001 decreased 1.0% (based on 607 locations) compared to an
increase of 8.8% (based on 533 locations) for the nine months ended June 30,
2000. The difficult retail environment combined with adverse weather conditions
negatively impacted comparable store sales.
Gross Profit
Gross profit in the first nine months of fiscal 2001 was $10.8 million (7.9%)
higher than the $136.4 million gross profit in the first nine months of fiscal
2000 reflecting the increased sales volume. As a percentage of net sales, gross
profit remained constant at 49.8%. During fiscal 2001, gross margin improvements
made in the second quarter were offset by the $1.2 million non-cash overhead
allocation charge taken to cost of sales in the first quarter.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $14.3 million or 12.4%
in fiscal 2001 compared to 2000 and, as a percentage of net sales, increased
from 42.2% to 43.9%. The increase was primarily due to $4.6 million increase in
store wages and related benefit costs in addition to increased store rents by
$5.1 million, which were in-line with the new store expansions and additions.
Initiatives taken in February 2001 to reduce store level wage-related expenses
have served to limit the Company's increasing operating expenditures.
Operating Income
Operating income was $17.4 million in the first nine months of fiscal 2001
compared to $20.9 million in the first nine months of fiscal 2000. The decrease
in operating income is reflective of higher operating expenses, principally wage
and rent expenses associated with the new store locations, as well as the $1.2
million non-cash overhead allocation charge taken to cost of sales during the
first quarter of fiscal 2001.
Interest Expense
Interest expense was lower by $0.6 million in the first nine months of fiscal
2001 compared with the first nine months of fiscal 2000. The Company reduced its
average borrowings under the $56.0 million working capital facility (the
"Working Capital Facility") by $7.2 million to $27.4 million for the nine months
ended June 30, 2001 from $34.6 million for the nine months ended June 30, 2000.
The effective interest rate on borrowings was 8.3% for the first nine months of
fiscal 2001 compared to 8.5% for the first nine months of fiscal 2000.
Income Taxes
The effective income tax rate was 46.2% in the first nine months of fiscal 2001
compared to 45.4% in the first nine months of fiscal 2000. The change in the
effective income tax rate was primarily due to the relationship of
non-deductible goodwill to pre-tax earnings.
11
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
typically realized during the Company's first and third fiscal quarters, which
include the holiday selling season and Spring seasonal sales, respectively.
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
During the third quarter of fiscal 2001, the Company's primary sources of
working capital were provided by the $21.3 million of cash flows from
operations. Effective November 2000, interest on the Working Capital Facility
was reduced by 25 basis points to the lender's prime rate. At any time, the
Company at its option may elect an alternative rate for all or part of the
direct borrowings outstanding at a rate of LIBOR plus 200 basis points (also
reflecting a 25 basis point reduction on LIBOR borrowings made after November
2000). Amounts available for direct borrowings, net of letters of credit
outstanding, are limited to the lesser of (a) the unused portion of the Working
Capital Facility or (b) the Aggregate Adjusted Availability ("AAA"), as defined
in the agreement as a percentage of eligible inventory, equipment, fixtures and
cash. There are no financial covenant requirements in the agreement unless the
AAA falls below $10.0 million. In the event that the AAA were to fall below
$10.0 million, the Company would have to achieve a Minimum Cash Flow, as defined
in the agreement, of not less than zero. During the first nine months of fiscal
2001 and 2000, the Company exceeded the AAA minimum. As of June 30, 2001,
outstanding borrowings under the Working Capital Facility consisted of $14.9
million in direct borrowings and $3.7 million in letters of credit with
available borrowings of $29.8 million compared to $26.1 million of direct
borrowings and $3.0 million in letters of credit with available borrowings of
$20.0 million as of June 30, 2000. In addition to the direct borrowings, the
Company has a $4.0 million standby letter of credit outstanding as collateral
for an Industrial Revenue Bond.
The Company's cash needs have been primarily for debt service and capital
expenditures. For the first nine months of fiscal 2001, the Company spent $6.5
million on furniture, fixtures, and leasehold improvements for new store
facilities and improvements to existing stores, in addition to $1.6 million for
corporate additions and other assets. In comparison, $12.4 million was spent on
store facilities for the first nine months of fiscal 2000 with a greater amount
expended on remodeling and expanding existing stores.
Cash flows from operations increased by $0.8 million to $21.3 million for the
first nine months of fiscal 2001 compared to $20.6 million for the first nine
months of fiscal 2000. Cash flow improvements as reflected by the $3.3 million
reduction in inventory levels along with a $1.2 million decrease in receivables,
were offset, by a $1.6 million decrease in net income, and a $1.2 million
decrease in deferred income taxes during the nine months ended June 30, 2001.
Funds utilized by financing activities were $14.0 million for the nine months
ended June 30, 2001 compared to $7.2 million of funds utilized during the nine
months ended June 30, 2000. The Company reduced its direct borrowings under the
Working Capital Facility and cash overdrafts by a net of $13.6 million for the
first nine months of fiscal 2001 compared to $7.5 million for the first nine
months of fiscal 2000.
Management of the Company believes that its current cash and working capital
positions, expected operating cash flows as well as available borrowing capacity
under the Working Capital Facility will be sufficient to fund the Company's
working capital and debt repayment requirements for the next twelve months.
12
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 2001 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 merchandise and 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 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 that are reasonably possible over
a one-year period. The Company's financial instruments consist principally of
its debt portfolio. The market value of the debt portfolio is referred to below
as the "Debt Value". The Company believes that the market risk exposure on other
financial instruments is immaterial.
At June 30, 2001, the principal components of the Company's debt portfolio are
the $92 million of Senior Unsecured Exchange Notes due 2005 (the "Notes") and
the $56.0 million working capital facility (the "Working Capital Facility"),
both of which are denominated in US dollars. The Notes bear interest at a fixed
rated of 12 5/8%, and the Working Capital Facility bears interest at a variable
rate, which at June 30, 2001, was approximately 6.75%. 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, 2001. Conversely, a 100 basis
point decline in market interest rates would cause the debt value to increase by
$0.9 million at June 30, 2001.
Based on the variable rate debt included in the Company's debt portfolio at June
30, 2001, a 100 basis point increase in interest rates would result in an
additional $0.1 million of interest incurred for the period. A 100 basis point
decrease would correspondingly lower interest expense for the period by $0.1
million.
13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K.
None.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to the report to be signed on its
behalf by the undersigned thereunto duly authorized.
MOTHERS WORK, INC.
Date: December 17, 2001 By: /s/ Dan W. Matthias
------------------------------
Dan W. Matthias
Chief Executive Officer
and
Chairman of the Board
Date: December 17, 2001 By: /s/ Michael F. Devine, III
------------------------------
Michael F. Devine, III
Chief Financial Officer
and
Sr. Vice President -- Finance
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