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 March 31, 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 (I.R.S. 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 May 10, 2001
- --------------------------------------------------------------------------------
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 11
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 11
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MOTHERS WORK, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
March 31, September 30,
2001 2000
--------- ---------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 2,429 $ 3,076
Trade receivables 3,466 3,833
Inventories 69,693 75,747
Deferred income taxes 3,851 3,851
Prepaid expenses and other current assets 2,711 3,040
--------- ---------
Total current assets 82,150 89,547
Property, Plant and Equipment, net 45,199 44,260
Other Assets:
Goodwill, net of accumulated amortization of $13,247 and $12,300 30,994 32,093
Deferred financing costs, net of accumulated amortization of
$2,538 and $2,289 1,890 2,139
Other intangible assets, net of accumulated amortization of $1,862
and $2,144 934 1,045
Deferred income taxes 10,290 9,821
Other assets 608 681
--------- ---------
Total other assets 44,716 45,779
--------- ---------
$ 172,065 $ 179,586
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit $ 28,106 $ 30,548
Current portion of long-term debt 406 543
Accounts payable 11,341 15,445
Accrued expenses and other current liabilities 12,848 13,327
--------- ---------
Total current liabilities 52,701 59,863
--------- ---------
Long-Term Debt 96,036 96,088
Accrued Dividends on Preferred Stock 6,783 6,037
Deferred Rent 5,050 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 (26,259) (24,987)
--------- ---------
Total stockholders' equity 11,495 12,750
--------- ---------
$ 172,065 $ 179,586
========= =========
The accompanying notes are an integral part of these financial statements.
1
MOTHERS WORK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------- --------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Net sales $ 89,029 $ 83,683 $ 191,699 $ 175,548
Cost of goods sold 45,912 42,310 98,730 88,617
--------- --------- --------- ---------
Gross profit 43,117 41,373 92,969 86,931
Selling, general and administrative expenses 42,833 38,335 86,245 75,473
--------- --------- --------- ---------
Operating income 284 3,038 6,724 11,458
Interest expense 3,831 3,955 7,714 7,949
--------- --------- --------- ---------
Income (loss) before income taxes (3,547) (917) (990) 3,509
Income tax provision (benefit) (1,658) (428) (469) 1,572
--------- --------- --------- ---------
Net income (loss) (1,889) (489) (521) 1,937
Dividends on preferred stock 373 347 746 694
--------- --------- --------- ---------
Net income (loss) available to common stockholders $ (2,262) $ (836) $ (1,267) $ 1,243
========= ========= ========= =========
Income (loss) per share - basic $ (0.65) $ (0.24) $ (0.37) $ 0.36
========= ========= ========= =========
Average shares outstanding - basic 3,454 3,438 3,453 3,435
========= ========= ========= =========
Income (loss) per share - diluted $ (0.65) $ (0.24) $ (0.37) $ 0.34
========= ========= ========= =========
Average shares outstanding - diluted 3,454 3,438 3,453 3,655
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
2
MOTHERS WORK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended
March 31,
-------------------------
2001 2000
------- -------
Cash flows from operating activities
Net income (loss) $ (521) $ 1,937
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 5,923 5,864
Deferred taxes (469) 1,572
Amortization of deferred financing costs 249 240
Accretion of debt discount on Notes 94 84
Provision for deferred rent 202 298
Changes in assets and liabilities:
(Increase) decrease in -
Trade receivables 367 (718)
Inventories 6,054 1,200
Prepaid expenses and other current assets 401 (317)
Increase (decrease) in -
Accounts payable and accrued expenses and other current liabilities (3,346) (1,310)
------- -------
Net cash provided by operating activities 8,954 8,850
------- -------
Cash flows from investing activities
Purchase of property and equipment (5,717) (9,041)
Increase in intangibles and other assets (103) (103)
------- -------
Net cash used in investing activities (5,820) (9,144)
------- -------
Cash flows from financing activities
(Decrease) increase in line of credit and cash overdrafts, net (3,516) 2,820
Repurchase of common stock -- (179)
Repayments of long-term debt (283) (192)
Proceeds from exercise of options 17 151
------- -------
Net cash (used in) provided by financing activities (3,782) 2,600
------- -------
Net increase in cash and cash equivalents 647 2,306
Cash and cash equivalents, beginning of period 3,076 1,140
------- -------
Cash and cash equivalents, end of period $ 2,429 $ 3,446
======= =======
Supplemental disclosures of cash flow information:
Cash paid for interest $ 7,435 $ 7,323
======= =======
Cash paid for income taxes $ 294 $ --
======= =======
The accompanying notes are an integral part of these financial statements.
3
MOTHERS WORK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 2001, a total of 19,100 options were granted
to certain employees and non-employee directors 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 (LOSS) 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 Quarter Ended For the Quarter Ended
March 31, 2001 March 31, 2000
--------------------- ---------------------
Loss Loss
Loss Shares Per Share Loss Shares Per Share
---- ------ --------- ---- ------ ---------
Basic and Diluted EPS $(2,262) 3,454 $(0.65) $(836) 3,438 $(0.24)
====== ======
4
MOTHERS WORK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(unaudited)
For the Six Months Ended For the Six Months Ended
March 31, 2001 March 31, 2001
------------------------ ------------------------
Loss Earnings
Loss Shares Per Share Income Shares Per Share
---- ------ --------- ------ ------ ---------
Basic EPS $(1,267) 3,453 $(0.37) $1,243 3,435 $0.36
====== =====
Incremental shares from the
assumed exercise of outstanding
stock options and warrants
-- -- -- 220
------- ----- ------ -----
Diluted EPS $(1,267) 3,453 $(0.37) $1,243 3,655 $0.34
======= ===== ====== ====== ===== =====
Options to purchase 840,635 and 130,550 shares were outstanding as of March 31,
2001 and 2000, respectively, but were not included in the computation of diluted
EPS as their effect would have been antidilutive. Warrants outstanding for the
purchase of 140,123 shares during the quarter and six months ended March 31,
2001 and quarter ended March 31, 2000 were also determined to be 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, warrants 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):
March 31, 2001 September 30, 2000
-------------- ------------------
Salaries, wages and employee benefits $ 4,518 $ 5,078
Interest 2,228 2,293
Other 6,102 5,956
------- -------
$12,848 $13,327
======= =======
5
MOTHERS WORK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 basd 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. As of March 31, 2001, the Company
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. RECENT ACCOUNTING PRONOUCEMENTS
EITF Issue 00-14, Accounting for Certain Sales Incentives, provides guidance on
the recognition, measurement and income statement classification for sales
incentives offered voluntarily by a vendor without charge to customers. This
consensus must be adopted no later than the third quarter of fiscal 2001. The
Company does not expect this consensus to have a material impact on its
consolidated financial statements.
6
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
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, 2001 2001
------------------- ------------------- Compared to Compared to
2001 2000 2001 2000 2000 2000
------ ------ ------ ------ ------ ------
Net sales 100.0% 100.0% 100.0% 100.0% 6.4% 9.2%
Cost of goods sold 51.6 50.6 51.5 50.5 8.5 11.4
------ ------ ------ ------
Gross pr Profit 48.4 49.4 48.5 49.5 4.2 6.9
Selling, general and
administrative expenses 48.1 45.8 45.0 43.0 11.7 14.3
------ ------ ------ ------
Operating income 0.3 3.6 3.5 6.5 (90.7) (41.3)
Interest expense 4.3 4.7 4.0 4.5 (3.1) (3.0)
------ ------ ------ ------
Income (loss) before
Income taxes (4.0) (1.1) (0.5) 2.0 286.8 (128.2)
Income tax provision
(benefit) (1.9) (0.5) (0.2) 0.9 287.4 (129.8)
------ ------ ------ ------
Net income (loss) (2.1)% (0.6)% (0.3)% 1.1% 286.4 (126.9)
====== ====== ====== ======
The following table sets forth certain information concerning the number of
Company-owned stores and leased departments for the three months ended March 31:
2001 2000
-------------------------------------- ------------------------------------
Maternity Leased Maternity Leased
Stores Departments Total Stores Departments Total
--------- ----------- ----- --------- ----------- -----
Beginning of period 613 132 745 551 97 648
Opened 9 1 10 23 -- 23
Closed (4) -- (4) (2) -- (2)
--- --- --- --- -- ---
End of period 618 133 751 572 97 669
=== === === === == ===
7
Three Months Ended March 31, 2001 and 2000
Net Sales
Net sales of $89.0 million for the second quarter of fiscal 2001 were $5.3
million (6.4%) higher than the $83.7 million reported for the second quarter of
fiscal 2000. The sales increase reflects primarily the incremental revenues
generated by the 82 net maternity locations opened since March 31, 2000.
Comparable store sales during the second quarter of fiscal 2001 decreased 2.8%
(based on 634 locations) compared to an increase of 11.1% (based on 539
locations) for the quarter ended March 31, 2000. The extended cold winter
experienced throughout most of the country combined with a difficult retail
environment resulted in the Company's first negative comparable store sales
quarter in more than six years.
Gross Profit
Second quarter fiscal 2001 gross profit increased by $1.7 million (4.2%) to
$43.1 million (48.4% of sales) compared to $41.4 million (49.4% of sales) for
the second quarter of fiscal 2000 due principally to the increased sales. Gross
profit margins for the quarter declined compared to the prior year comparable
quarter due to markdowns. Margins were also negatively impacted as sales of the
Company's moderately priced Motherhood products continued to grow faster than
sales of the higher margin product lines.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the second quarter of fiscal
2001 increased by $4.5 million (11.7%) to $42.8 million from $38.3 million for
the second quarter of fiscal 2000. Store wages and related benefit costs
increased by $1.5 million and rent expenses were $1.7 million higher in
conjunction with the 82 new store locations in the second quarter of fiscal 2001
compared to the second quarter of fiscal 2000. Operating expenses increased from
45.8% to 48.1% of net sales due principally to growth in store-operating
expenses as they more than offset some leveraging of corporate expenses during
the three months ended March 31, 2001 compared to the three months ended March
31, 2000.
Operating Income
Operating income decreased to $0.3 million (0.3% of net sales) for the second
quarter of fiscal 2001 compared to $3.0 million (3.6% of net sales) for the
second quarter of fiscal 2000. The decrease in operating income is reflective of
higher operating expenses, principally wage and rent expenses associated with
both pre-existing and new store locations, in the second quarter of fiscal 2001.
Interest Expense
Interest expense was lower by $0.1 million for the second 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 $6.7 million to $29.7 million for the quarter ended March
31, 2001 from $36.4 million for the quarter ended March 31, 2000. The effective
interest rate on borrowings was lowered to 8.05% for the second quarter of
fiscal 2001 from 8.47% for the second quarter of fiscal 2000.
Income Taxes
The Company's effective income tax rate was 46.7% for both the second quarter of
fiscal 2001 and fiscal 2000.
8
Six Months Ended March 31, 2001 and 2000
Net Sales
Net sales of $191.7 million in the first six months of fiscal 2001 were $16.2
million (9.2%) higher than sales of $175.5 million in the first six 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 six
months of fiscal 2001 decreased 0.6% (based on 609 locations) compared to an
increase of 9.5% (based on 535 locations) for the six months ended March 31,
2000. The difficult retail environment combined with adverse weather conditions
negatively impacted comparable store sales.
Gross Profit
Gross profit in the first six months of fiscal 2001 was $6.1 million (6.9%)
higher than the $86.9 million gross profit in the first six months of fiscal
2000 reflecting the increased sales volume. Gross profit as a percentage of net
sales for the first six months of fiscal 2001 decreased to 48.5% from 49.5% in
the comparable period of fiscal 2000. The decrease in margins was primarily due
to the $1.2 million non-cash overhead allocation charge taken to cost of sales
during the first quarter of fiscal 2001, markdowns, and product mix favoring the
lower gross profit Motherhood products versus the Company's high-end maternity
products.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $10.8 million or 14.3%
in fiscal 2001 compared to 2000 and, as a percentage of net sales, increased
from 43.0% to 45.0%. The increase was primarily due to higher store wages and
related benefit costs in addition to increased store rents, which were in-line
with the new store expansions and additions.
Operating Income
Operating income declined to $6.7 million in the first six months of fiscal 2001
compared to $11.5 million in the first six months of fiscal 2000. The decrease
in operating income is reflective of higher operating expenses, principally wage
and rent expenses associated with both pre-existing and 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 $0.2 million in the first six months of fiscal
2001 compared with the first six months of fiscal 2000. The Company reduced its
average borrowings under the $56.0 million working capital facility (the
"Working Capital Facility") by $6.7 million to $30.4 million for the six months
ended March 31, 2001 from $37.1 million for the six months ended March 31, 2000.
The effective interest rate on borrowings was 8.7% for the first six months of
fiscal 2001 compared to 8.39% for the first six months of fiscal 2000.
Income Taxes
The Company's effective income tax rate was a benefit of 47.4% for the first six
months of fiscal 2001 compared to a provision of 44.8% for the first six months
of fiscal 2000. The change in the effective income tax rate was primarily due to
the current year pre-tax loss compared to the prior year income and the
relationship of non-deductible goodwill to pre-tax earnings.
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
9
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 second quarter of fiscal 2001, the Company's primary sources of
working capital were provided by the $9.0 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 six months of fiscal 2001 and 2000, the
Company exceeded the AAA minimum. As of March 31, 2000, outstanding borrowings
under the Working Capital Facility consisted of $28.1 million in direct
borrowings and $2.7 million in letters of credit with available borrowings of
$17.3 million compared to $34.7 million of direct borrowings and $3.0 million in
letters of credit with available borrowings of $11.7 million as of March 31,
2000. In addition to the direct borrowings, the Company has had a $4.0 million
standby letter of credit outstanding as of March 2001 and for all of fiscal 2000
to collateralize an outstanding Industrial Revenue Bond.
The Company's cash needs have been primarily for debt service and capital
expenditures. For the first six months of fiscal 2001, the Company spent $4.6
million on furniture, fixtures, and leasehold improvements for new store
facilities and improvements to existing stores in addition to $1.1 million for
corporate additions and other assets. In comparison, $9.0 million was spent on
store facilities for the second quarter of fiscal 2000 with a greater amount
expended on remolding and expanding existing stores.
Cash flows from operations increased by $0.1 million to $9.0 million for the six
months of fiscal 2001 compared to $8.9 million for the first six months of
fiscal 2000. Improvements made in inventory management as reflected by the $6.1
million reduction in inventory levels were offset, in part, by $2.4 million
lower net income and a $3.3 million decrease in accruals during the six months
ended March 31, 2001.
Funds utilized by financing activities were $3.8 million for the six months
ended March 31, 2001 compared to $2.6 million of funds provided during the six
months ended March 31, 2000. The Company reduced its direct borrowings under the
Working Capital Facility and cash overdrafts by a net of $3.5 million for the
first six months of fiscal 2001 compared to an increase of $2.8 million for the
first six 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.
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,
10
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 March 31, 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 125/8%, and the Working Capital Facility bears interest at a variable
rate which, at March 31, 2001, was approximately 8%. 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, 2001. Conversely, a 100 basis
point decline in market interest rates would cause the debt value to increase by
$0.9 million at March 31, 2001.
Based on the variable rate debt included in the Company's debt portfolio at
March 31, 2001, a 100 basis point increase in interest rates would result in an
additional $0.2 million of interest incurred for the period. A 100 basis point
decrease would correspondingly lower interest expense for the period by $0.2
million.
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 18, 2001, the
stockholders of the Company elected two directors of the Company, approved an
amendment to the Company's 1987 Option Plan, as amended and restated (the
"Restated Option Plan"), and ratified the appointment of Arthur Andersen LLP as
the Company's independent auditors for the fiscal year ending September 30,
2001.
Mr. Dan W. Matthias and Mr. Elam M. Hitchner III were elected to serve as
directors at the meeting. The voting results were 2,043,246 shares for and
284,725 shares withheld for Mr. Matthias and 2,045,746 shares for and 282,225
shares withheld for Mr. Hitchner. The vote for the approval of the amendment to
the Restated Option Plan was 1,146,058 shares for, 582,314 shares against and
120 shares abstained. The vote ratifying the appointment of Arthur Andersen LLP
as independent auditors was 2,325,851 shares for, 2,000 shares against and zero
shares abstained.
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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
Vice President - Finance
12