-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IbZk/mFNqGRpqBKBHKQNjVTyJ1FvXzZxl94oAKVA3SvrQMgKuoMxlsRWPGIc0QT1 m94BAC1wAypWpDInjSKzhg== 0000912057-01-005156.txt : 20010214 0000912057-01-005156.hdr.sgml : 20010214 ACCESSION NUMBER: 0000912057-01-005156 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010213 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOTHERS WORK INC CENTRAL INDEX KEY: 0000896985 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-WOMEN'S CLOTHING STORES [5621] IRS NUMBER: 133045573 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21196 FILM NUMBER: 1538561 BUSINESS ADDRESS: STREET 1: 456 N 5TH ST CITY: PHILADELPHIA STATE: PA ZIP: 19123 BUSINESS PHONE: 2158732200 10-Q 1 a2038593z10-q.txt 10-Q 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 period ended DECEMBER 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 (I.R.S. Employer of incorporation or organization) Identification No.) 456 North 5th Street, Philadelphia, Pennsylvania 19123 - --------------------------------------------------- ---------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (215) 873-2200 ------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for Such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. - -------------------------------------------------------------------------------- Common Stock, $.01 par value - 3,453,910 shares outstanding as of February 12, 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 10 PART II - OTHER INFORMATION 10
MOTHERS WORK, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts)
DECEMBER 31, SEPTEMBER 30, ASSETS 2000 2000 -------------------- --------------------- (UNAUDITED) Current Assets Cash and cash equivalents $ 3,161 $ 3,076 Trade receivables 4,507 4,280 Inventories 69,355 75,747 Deferred income taxes 3,851 3,851 Prepaid expenses and other current assets 2,525 2,593 -------------------- --------------------- TOTAL CURRENT ASSETS 83,399 89,547 Property, Plant and Equipment, net 45,139 44,260 Other Assets Goodwill, net of accumulated amortization of $12,699 and $12,300 31,542 32,093 Deferred financing costs, net of accumulated amortization of $2,414 and $2,289 2,014 2,139 Other intangible assets, net of accumulated amortization of $1,797 and $2,144 914 1,045 Deferred income taxes 8,632 9,821 Other non-current assets 607 681 -------------------- --------------------- Total other assets 43,709 45,779 -------------------- --------------------- $ 172,247 $ 179,586 ==================== ===================== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Line of Credit $ 20,519 $ 30,548 Current portion of long-term debt 424 543 Accounts payable 12,264 15,445 Accrued expenses and other current liabilities 17,875 13,327 -------------------- --------------------- TOTAL CURRENT LIABILITIES 51,082 59,863 Long-Term Debt 96,062 96,088 Accrued Dividends on Preferred Stock 6,410 6,037 Deferred Rent 4,937 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 (23,998) (24,987) -------------------- --------------------- Total stockholders' equity 13,756 12,750 -------------------- --------------------- $ 172,247 $ 179,586 ==================== =====================
The accompanying notes are an integral part of these statements. 1 MOTHERS WORK, INC AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, ---------------------------------------- 2000 1999 ----------------- ------------------ Net sales $ 102,670 $ 91,866 Cost of goods sold 52,818 46,307 ----------------- ------------------ Gross profit 49,852 45,559 Selling, general and administrative expenses 43,412 37,138 ----------------- ------------------ Operating income 6,440 8,421 Interest expense 3,883 3,994 ----------------- ------------------ Income before income taxes 2,557 4,427 Income tax provision 1,189 2,000 ----------------- ------------------ Net income 1,368 2,427 Dividends on preferred stock 373 347 ----------------- ------------------ Net income available to common stockholders $ 995 $ 2,080 ================= ================== Income per share - basic $ 0.29 $ 0.61 ================= ================== Average shares outstanding - basic 3,453 3,433 ================= ================== Income per share - diluted $ 0.28 $ 0.57 ================= ================== Average shares outstanding - diluted 3,606 3,650 ================= ==================
The accompanying notes are an integral part of these financial statements. 2 MOTHERS WORK, INC. & SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, ------------------------------- 2000 1999 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 1,368 $ 2,427 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,588 2,873 Deferred taxes 1,189 2,000 Amortization of deferred financing costs 125 125 Accretion of discount on Notes 46 42 Provision for deferred rent 90 168 Changes in assets and liabilities: (Increase) decrease in - Receivables (227) (404) Inventories 6,393 852 Prepaid expenses and other assets 140 (864) Increase (decrease) in - Accounts payable and accrued expenses and other liabilities 2,552 2,423 ------------- ------------- Net cash provided by operating activities 14,264 9,642 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property, plant and equipment (3,262) (5,944) (Increase) decrease in intangibles and other assets 478 (46) ------------- ------------- Net cash used in investing activities (2,784) (5,990) CASH FLOWS FROM FINANCING ACTIVITIES Decrease in line of credit and cash overdrafts, net (11,221) (1,227) Repurchase of common stock - (179) Repayments of long-term debt (191) (93) Proceeds from exercise of options 17 34 ------------- ------------- Net cash used in financing activities (11,395) (1,465) ------------- ------------- NET INCREASE IN CASH AND CASH EQUIVALENTS 85 2,187 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,076 1,139 ------------- ------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,161 $ 3,326 ============= ============= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest $ 870 $ 1,039 ============= ============= Cash paid for income taxes $ 63 $ - ============= =============
The accompanying notes are an integral part of these financial statements. 3 MOTHERS WORK, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 (unaudited) 1. BASIS OF FINANCIAL STATEMENT PRESENTATION The accompanying unaudited consolidated financial statements are prepared in accordance with the requirements for Form 10-Q and Article 10 of Regulation S-X and accordingly certain information and footnote disclosures have been condensed or omitted. Reference should be made to the Form 10-K as of and for the year ended September 30, 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 December 31, 2000, a total of 120,000 options were granted to certain executive officers for the purchase of the Company's common stock at prices not less than the fair market value on the date of grant. 3. CONTINGENCIES From time to time, the Company is named as a defendant in legal actions arising from its normal business activities. Although the amount of any liability that could arise with respect to currently pending actions cannot be accurately predicted, in the opinion of 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 earnings per share is computed by dividing net income available to common stockholders by the weighted average number of outstanding common shares. Diluted earnings per share 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 earnings per share calculation (in thousands, except share amounts):
FOR THE QUARTER ENDED For the Quarter Ended DECEMBER 31, 2000 December 31, 1999 ------------------------------------- --------------------------------- EARNINGS Earnings INCOME SHARES PER SHARE Income Shares Per Share ------ ------ --------- ------ ------ --------- Basic EPS $995 3,453 $0.29 $2,080 3,433 $0.61 ===== ===== Incremental shares from the assumed exercise of outstanding stock options and warrants - 153 - 217 ---- ----- ------ ----- Diluted EPS $995 3,606 $0.28 $2,080 3,650 $0.57 ==== ===== ===== ====== ===== =====
4 MOTHERS WORK, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 (unaudited) Options to purchase 626,021 and 683,908 shares were outstanding during the first quarter of fiscal 2001 and 2000, respectively, but were not included in the computation of diluted earnings per share as their effect would have been antidilutive. For the quarters ended December 31, 2000 and 1999, the 41,000 shares of Series A Cumulative Convertible Preferred Stock (the "Series A Preferred Stock"), currently convertible into 410,000 shares of common stock, were also antidilutive and therefore excluded from the EPS computation. The Series A Preferred Stock could potentially dilute EPS in the future. 5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITES Accrued expenses and other current liabilities were comprised of the following (in thousands):
DECEMBER 31, 2000 SEPTEMBER 30, 2000 ----------------- ------------------ Salaries, wages and employee benefits $ 5,514 $ 5,078 Interest 5,136 2,293 Other 7,225 5,956 ------- ------- $17,875 $13,327 ======= =======
6. SUBSIDIARY GUARANTOR Pursuant to the terms of the indenture for the 125/8% Senior Unsecured Exchange Notes due 2005 (the "Notes"), the Company's wholly-owned subsidiary, Cave Springs, Inc. (the "Guarantor"), has fully and unconditionally guaranteed the obligations of Mothers Work with respect to the Notes. Furthermore, there are no restrictions on the ability of the Guarantor to transfer funds to Mothers Work in the form of loans, advances, or dividends, except as provided by applicable law. Accordingly, set forth below is summarized financial information (within the meaning of Section 1-02(bb) of Regulation S-X) for the Guarantor (unaudited):
DECEMBER 31, 2000 SEPTEMBER 30, 2000 ----------------- ------------------ Current assets $ 3 $ 3 Non-current assets 89,341 82,740 Non-current liabilities 19,490 17,223 Net sales 6,582 23,634 Costs and expenses 15 60 Net income 4,334 15,559
The summarized financial information for the Guarantor (and its predecessors) 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. Intercompany transactions included in the subsidiary records are eliminated in consolidation. 5 MOTHERS WORK, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 (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 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 and the remainder for other costs. During fiscal 1999, the Company recorded charges of $3.6 million against the reserve which included $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. 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. During the first quarter fiscal 2001, the Company charged $75,000 against the reserve which included $48,000 in legal fees and $27,000 for settling vendor disputes. At December 31, 2000, the remaining balance of $0.2 million is reserved for any remaining legal and other fees related to the final lease transfer. 8. RECENT ACCOUNTING PRONOUCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes standards for the recognition and measurement of derivatives and hedging activities and requires that all derivative instruments be recorded on the balance sheet at their fair value. This statement, as amended by Statement No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133," and Statement No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," is effective for all quarters of fiscal years beginning after June 15, 2000. The Company does not currently engage in these types of risk management or investment activities. Therefore, SFAS No. 133 is not anticipated to have any impact on the Company's financial position or results of operations. Emerging Issues Task Force Issue 00-10, "Accounting for Shipping and Handling Fees and Costs," requires that all amounts billed to a customer in a sale transaction related to shipping and handling, if any, should be recorded as revenue. The Company has adopted this consensus during the first quarter of fiscal 2001. The adoption had no effect on the Company's financial condition or results of operations. In December 1999, the U.S. Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"). This pronouncement provides the staff's views in applying generally accepted accounting principles to selected revenue recognition issues. Accordingly, guidance is provided with respect to the recognition, presentation and disclosure of revenue in the financial statements. Adoption of SAB 101, as amended by SAB Nos. 101A and 101B, is to be effective by the fourth quarter of 2000. While this SAB could impact the recognition of revenue with respect to certain contractual arrangements, as well as the recognition of revenue in sales transactions when a right of return exists, the adoption has had no effect on the Company's financial condition or results of operations. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth certain operating data as a percentage of sales and as a percentage change for the periods indicated:
PERCENTAGE OF NET SALES % INCREASE (DECREASE) THREE MONTHS ENDED DECEMBER 31, IN THE DOLLAR AMOUNT -------------------------------- THREE MONTHS ENDED DECEMBER 31, 2000 1999 2000 VERSUS 1999 ---- ---- ---------------- Net sales 100.0% 100.0% 11.8% Cost of goods sold 51.4 50.4 14.1 ------ ------ Gross profit 48.6 49.6 9.4 Selling, general and administrative expenses 42.3 40.4 16.9 ------ ------ Operating income 6.3 9.2 (23.5) Interest expense 3.8 4.3 (2.8) ------ ------ Income before income taxes 2.5 4.9 (42.2) Income tax provision 1.2 2.2 (40.6) ------ ------ Net income 1.3% 2.6% (43.6)% ====== ======
The following table sets forth certain information concerning the number of Company-owned stores and leased departments for the three months ended December 31:
2000 1999 ---------------------------------------------- --------------------------------------------- MATERNITY LEASED Maternity Leased STORES DEPARTMENTS TOTAL Stores Departments Total --------- ----------- ----- --------- ----------- ----- Beginning of period 592 111 703 528 97 625 Opened 22 21 43 24 - 24 Closed (1) - (1) (1) - (1) --- --- --- --- -- --- End of period 613 132 745 551 97 648 === === === === == ===
7 THREE MONTHS ENDED DECEMBER 31, 2000 AND 1999 NET SALES Net sales of $102.7 million for the first quarter of fiscal 2001 were $10.8 million (11.8%) higher than the $91.9 million reported for the first quarter of fiscal 2000. The sales increase reflects the incremental revenues generated by the 97 net maternity locations opened in the twelve month period ended December 31, 2000. Comparable store sales during the first quarter of fiscal 2001 increased by 1.5% (based on 615 locations) compared to an increase of 8.2% (based on 538 locations) for the quarter ended December 1999. A weak gift-giving holiday season combined with inclement weather conditions adversely impacted sales for the first quarter of fiscal 2001. GROSS PROFIT First quarter fiscal 2001 gross profit increased by $4.3 million (9.4%) to $49.9 million (48.6% of sales) compared to $45.5 million (49.6% of sales) for the first quarter of fiscal 2000 due principally to the increased sales, offset in part, by the decrease in margins. Efficiency improvements in inventory management and logistics accounted for the major reduction in the levels of inventory on hand at December 2000, as well as a reduction in the allocation of overhead costs to that inventory. The lower ending inventory, coupled with the reduced overhead capitalization, resulted in a $1.2 million non-cash charge to cost of sales during the first quarter of fiscal 2001. Margins were also negatively impacted as sales of the Company's moderately-priced Motherhood products continued to outpace sales of its higher margin product lines. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses for the first quarter of fiscal 2001 increased by $6.3 million (16.9%) to $43.4 million from $37.1 million for the first quarter of fiscal 2000. Store wages and related benefit costs increased by $2.4 million and rent expenses were $1.5 million higher in conjunction with the new store locations. Operating expenses increased from 40.4% to 42.3% of net sales due principally to the higher store wages and related benefits as a percentage of net sales during the three months ended December 31, 2000 compared to the three months ended December 31, 1999. OPERATING INCOME Operating income declined to $6.4 million (6.3% of net sales) for the first quarter of fiscal 2001 compared to $8.4 million (9.2% of net sales) for the first quarter of fiscal 2000. The decrease in operating income is reflective of higher selling and administrative expenses, principally wage and rent expenses associated with both pre-existing and new store locations, in addition to the manufacturing overhead charge taken in the first quarter of fiscal 2001. INTEREST EXPENSE Interest expense was lower by $0.1 million for the first quarter of fiscal 2001 compared to same period in fiscal 2000. The Company reduced its average borrowings under the $56.0 million working capital facility (the "Working Capital Facility") by $8.1 million to $28.8 million for the quarter ended December 31, 2000 from $36.9 million for the quarter ended December 31, 1999. The net paydown on the line was offset, however, by a higher effective interest rate on borrowings (8.9% and 8.2% for the first quarter of fiscal 2001 and 2000, respectively). INCOME TAXES The effective income tax rate was 46.5% for the first quarter of fiscal 2001 compared to 45.2% for the first quarter of fiscal 2000. The increased effective tax rate reflects the impact of non-deductible goodwill amortization on the first quarter of fiscal 2001 compared to the same quarter of fiscal 2000. 8 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 first quarter of fiscal 2001, the Company's primary sources of working capital were provided by $14.3 million of operating cash flows (an increase of $4.7 million over the first quarter of fiscal 2000) and from direct borrowings under the Working Capital Facility. 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 three months of fiscal 2001 and 2000, the Company exceeded the AAA minimum. As of December 31, 2000, outstanding borrowings under the Working Capital Facility consisted of $20.5 million in direct borrowings, $3.0 million in letters of credit with available borrowings of $24.8 million compared to $46.6 million of direct borrowings and $3.0 million in letters of credit as of December 31, 1999. In addition to the direct borrowings, the Company has had a $4.0 million standby letter of credit outstanding for all of fiscal 2000 and as of December 2000 to collateralize an outstanding Industrial Revenue Bond. The Company's cash needs have been primarily for debt service and capital expenditures. During the first quarter of fiscal 2001, the Company spent $2.7 million on furniture, fixtures, and leasehold improvements for new store facilities and improvements to existing stores in addition to $0.6 million for corporate additions and other assets. In comparison, $5.9 million was spent on store facilities for the first quarter of fiscal 2000 with a greater amount expended on remolding and expanding existing stores. Operating cash flows increased by $4.7 million to $14.3 million for the first three months of fiscal 2001 compared to $9.6 million for the first three months of fiscal 2000. The increase was primarily the result of improvements made in inventory management as reflected by the $6.4 million reduction in inventory levels as of December 2000. Funds utilized by financing activities increased to $11.4 million for the three months ended December 31, 2000 from $1.5 million for the three months ended December 31, 1999. The Company reduced its direct borrowings under the Working Capital Facility by a net of $10 million and $1.5 million for the first quarters of fiscal 2001 and 2000, respectively. 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 remainder of fiscal 2001. 9 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 December 31, 2000, 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 December 31, 2000, was approximately 8 3/4%. 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 December 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 December 31, 2000. Conversely, a 100 basis point decline in market interest rates would cause the debt value to increase by $0.9 million at December 31, 2000. Based on the variable rate debt included in the Company's debt portfolio at December 31, 2000, 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 No applicable items. 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MOTHERS WORK, INC. Date: February 12, 2001 By: /s/ Dan W. Matthias -------------------------------------- Dan W. Matthias CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD Date: February 12, 2001 By: /s/ Michael F. Devine, III -------------------------------------- Michael F. Devine, III CHIEF FINANCIAL OFFICER AND VICE PRESIDENT - FINANCE 11 -----END PRIVACY-ENHANCED MESSAGE-----