**UnitedStatesSecurities and Exchange Commission**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

 

| **ý**                                                                                                                                                 |   | **Quarterly Report Pursuant to Section 13 or 15(d) of  the Securities Exchange Act of 1934**  |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------|
|                                                                                                                                                       |   |                                                                                               |
| **For  the quarterly period ended March 31, 2004**                                                                                                         |
|                                                                                                                                                       |   |                                                                                               |
| **or**                                                                                                                                                     |
|                                                                                                                                                       |   |                                                                                               |
| **o**                                                                                                                                                      |   | **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 asspecified in its charter)

 

| **Delaware**                                                                     |   | **13-3045573**                     |
|----------------------------------------------------------------------------------|--------|------------------------------------|
| (State or other jurisdiction of  incorporation or organization)                  |   | (IRS Employer 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 (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past90 days. Yesý No o

 

Indicate by check mark whether the Registrantis an accelerated filer (as defined in Rule 12b-2 of the Act). Yesý No o

 

Indicate the number of shares outstanding ofeach of the issuer’s classes of common stock, as of the latest practicabledate.

 

Common Stock, $.01 par value—5,197,956 shares outstanding as of May 13, 2004

 

 

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**MOTHERS WORK, INC. AND SUBSIDIARIES**

**INDEX**

 

 
| PART I —  FINANCIAL INFORMATION | 1                                                                                           |
|------------------------------------------------|---------------------------------------------------------------------------------------------|
|                                           |                                                                                        |   |
| Item 1.                                        | Financial Statements (unaudited)                                                            | 1 |
|                                           | 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 | 11 |
| Item 3.                                        | Quantitative and Qualitative Disclosures about Market Risk                                  | 16 |
| Item 4.                                        | Controls and Procedures                                                                     | 16 |
|                                           |                                                                                        |   |
| PART II — OTHER INFORMATION     | 18                                                                                          |
| Item 1.                                        | Legal Proceedings                                                                           | 18 |
| Item 2.                                        | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity  Securities           | 18 |
| Item 4.                                        | Submission of Matters to a Vote of Security Holders                                         | 18 |
| Item 6.                                        | Exhibits and Reports on Form 8-K                                                            | 19 |
| Signatures                                     |                                                                                        |   |
| Certifications                                 |                                                                                        |
|                                                |                                                                                             |  |  |

 

ii

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**PART I****.  FINANCIALINFORMATION**

 

**Item 1****.  FinancialStatements**

 

**MOTHERS WORK, INC. AND SUBSIDIARIES**

**CONSOLIDATEDBALANCE SHEETS**

(in thousands, except share andper share amounts)

 
|                                                                                                                             |   | **March 31,  2004** |    | **September 30, 2003** |   |
|----------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|---------|----------------------------------|--------|
|                                                                                                                             |   | **(unaudited)**     |    |                             |   |
| **ASSETS**                                                                                                                       |   |                |    |                             |   |
| Current  Assets:                                                                                                                 |   |                |    |                             |   |
| Cash and cash equivalents                                                                                                        |   | $                   | 20,753  |                             | $      | 20,731 |   |
| Trade receivables                                                                                                                |   | 2,879               |    | 2,385                            |   |
| Inventories                                                                                                                      |   | 86,670              |    | 84,505                           |   |
| Deferred income taxes                                                                                                            |   | 4,688               |    | 4,655                            |   |
| Prepaid expenses and other current assets                                                                                        |   | 5,515               |    | 5,166                            |   |
| Total Current Assets                                                                                                             |   | 120,505             |    | 117,442                          |   |
| Property, Plant and Equipment, net                                                                                               |   | 58,370              |    | 57,811                           |   |
| Assets Held for Sale                                                                                                             |   | 1,200               |    | 1,200                            |   |
| Other Assets:                                                                                                                    |   |                |    |                             |   |
| Goodwill                                                                                                                         |   | 50,389              |    | 50,389                           |   |
| Deferred financing costs, net of accumulated amortization of $1,053  and $852                                                    |   | 3,879               |    | 4,080                            |   |
| Other intangible assets, net of accumulated amortization of $2,547  and $2,447                                                   |   | 1,023               |    | 1,126                            |   |
| Deferred income taxes                                                                                                            |   | 13,646              |    | 13,586                           |   |
| Other non-current assets                                                                                                         |   | 979                 |    | 969                              |   |
| Total Other Assets                                                                                                               |   | 69,916              |    | 70,150                           |   |
| Total Assets                                                                                                                     |   | $                   | 249,991 |                             | $      | 246,603 |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                    |   |                |    |                             |   |
| Current  Liabilities:                                                                                                            |   |                |    |                             |   |
| Line of credit borrowings                                                                                                        |   | $                   | —  |                             | $      | — |   |
| Current portion of long-term debt                                                                                                |   | 279                 |    | 279                              |   |
| Accounts payable                                                                                                                 |   | 20,161              |    | 19,585                           |   |
| Accrued expenses and other current liabilities                                                                                   |   | 31,849              |    | 31,346                           |   |
| Total Current Liabilities                                                                                                        |   | 52,289              |    | 51,210                           |   |
| Long-Term Debt                                                                                                                   |   | 127,764             |    | 127,768                          |   |
| Deferred Rent                                                                                                                    |   | 6,747               |    | 6,234                            |   |
| Total Liabilities                                                                                                                |   | 186,800             |    | 185,212                          |   |
|                                                                                                                             |   |                |    |                             |   |
| Commitments and Contingencies (Note 8)                                                                                           |   |                |    |                             |   |
|                                                                                                                             |   |                |    |                             |   |
| Stockholders’ Equity:                                                                                                       |   |                |    |                             |   |
| Preferred Stock, 2,000,000 shares authorized                                                                                     |   |                |    |                             |   |
| Series A cumulative convertible preferred stock, $.01 par value;  41,000 shares authorized, none outstanding                     |   | —              |    | —                           |   |
| Series B junior participating preferred stock, $.01 par value;  300,000 shares authorized, none outstanding                      |   | —              |    | —                           |   |
| Common stock, $.01 par value; 20,000,000 shares authorized, 5,208,810  and 5,231,114 shares issued and outstanding, respectively |   | 52                  |    | 52                               |   |
| Additional paid-in capital                                                                                                       |   | 62,861              |    | 63,559                           |   |
| Retained earnings (accumulated deficit)                                                                                          |   | 278                 |    | (2,220                           | )      |
| Total Stockholders’ Equity                                                                                                  |   | 63,191              |    | 61,391                           |   |
| Total Liabilities and Stockholders’ Equity                                                                                  |   | $                   | 249,991 |                             | $      | 246,603 |   |

 

The accompanying notes are anintegral part of these Consolidated Financial Statements.

 

1

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**MOTHERS WORK, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

(in thousands, except per shareamounts)

(unaudited)

 
|                                          |   | **Three Months Ended  March 31,** |    | **Six Months Ended  March 31,** |   |
|-----------------------------------------------|--------|-----------------------------------|---------|---------------------------------|--------|
|                                          |   | **2004**                          |    | **2003**                        |   | **2004** |   | **2003** |   |
| Net sales                                     |   | $                                 | 125,803 |                            | $      | 111,304 |   | $ | 257,498 |   | $ | 237,644 |   |
| Cost of goods sold                            |   | 59,726                            |    | 52,324                          |   | 121,391 |   | 112,021 |   |
| Gross profit                                  |   | 66,077                            |    | 58,980                          |   | 136,107 |   | 125,623 |   |
| Selling, general and  administrative expenses |   | 61,635                            |    | 55,038                          |   | 124,550 |   | 112,159 |   |
| Operating income                              |   | 4,442                             |    | 3,942                           |   | 11,557 |   | 13,464 |   |
| Interest expense, net                         |   | 3,702                             |    | 3,412                           |   | 7,393 |   | 7,154 |   |
| Income before income taxes                    |   | 740                               |    | 530                             |   | 4,164 |   | 6,310 |   |
| Income tax provision                          |   | 296                               |    | 199                             |   | 1,666 |   | 2,367 |   |
| Net income                                    |   | $                                 | 444     |                            | $      | 331 |   | $ | 2,498 |   | $ | 3,943 |   |
|                                          |   |                              |    |                            |   |   |   |   |   |
| Income per share—Basic                   |   | $                                 | 0.09    |                            | $      | 0.06 |   | $ | 0.48 |   | $ | 0.75 |   |
| Average shares  outstanding—Basic        |   | 5,210                             |    | 5,267                           |   | 5,222 |   | 5,241 |   |
| Income per share—Diluted                 |   | $                                 | 0.08    |                            | $      | 0.06 |   | $ | 0.45 |   | $ | 0.69 |   |
| Average shares  outstanding—Diluted      |   | 5,549                             |    | 5,660                           |   | 5,554 |   | 5,691 |   |

 

The accompanying notes are anintegral part of these Consolidated Financial Statements.

 

2

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**MOTHERS WORK, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

(in thousands)

(unaudited)

 
|                                                                               |   | **Six Months Ended  March 31,** |   |
|------------------------------------------------------------------------------------|--------|---------------------------------|--------|
|                                                                               |   | **2004**                        |   | **2003** |   |
| **Cash Flows  from Operating Activities**                                          |   |                            |   |   |   |
| Net income                                                                         |   | $                               | 2,498  |   | $ | 3,943 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities: |   |                            |   |   |   |
| Depreciation and amortization                                                      |   | 4,967                           |   | 4,741 |   |
| Loss on impairment of long-lived assets                                            |   | 173                             |   | 89 |   |
| Loss on disposal of assets                                                         |   | 220                             |   | 125 |   |
| Accretion of discount on senior notes                                              |   | 72                              |   | 67 |   |
| Deferred income tax provision (benefit)                                            |   | (93                             | )      | 2,332 |   |
| Tax benefit of stock option exercises                                              |   | 92                              |   | 453 |   |
| Amortization of deferred financing costs                                           |   | 201                             |   | 184 |   |
| Provision for deferred rent                                                        |   | 352                             |   | 179 |   |
| Changes in assets and liabilities:                                                 |   |                            |   |   |   |
| Decrease (increase) in —                                                      |   |                            |   |   |   |
| Trade receivables                                                                  |   | (494                            | )      | (574 | ) |
| Inventories                                                                        |   | (2,165                          | )      | 1,166 |   |
| Prepaid expenses and other current assets                                          |   | 670                             |   | (1,591 | ) |
| Increase (decrease) in —                                                      |   |                            |   |   |   |
| Accounts payable, accrued expenses and other current liabilities                   |   | (105                            | )      | 532 |   |
| Net cash provided by operating activities                                          |   | 6,388                           |   | 11,646 |   |
|                                                                               |   |                            |   |   |   |
| **Cash Flows  from Investing Activities**                                          |   |                            |   |   |   |
| Capital expenditures                                                               |   | (6,406                          | )      | (10,842 | ) |
| Purchase of intangible assets                                                      |   | (13                             | )      | (156 | ) |
| Net cash used in investing activities                                              |   | (6,419                          | )      | (10,998 | ) |
|                                                                               |   |                            |   |   |   |
| **Cash Flows  from Financing Activities**                                          |   |                            |   |   |   |
| Increase in cash overdrafts                                                        |   | 1,325                           |   | 2,951 |   |
| Repayment of long-term debt                                                        |   | (76                             | )      | (176 | ) |
| Repurchase of common stock                                                         |   | (1,019                          | )      | (123 | ) |
| Payout for redeemed Series A Preferred Stock                                       |   | (406                            | )      | (1,310 | ) |
| Payment of issuance costs of long-term debt                                        |   | —                          |   | (210 | ) |
| Payment of issuance costs of common stock                                          |   | —                          |   | (242 | ) |
| Proceeds from exercise of stock options and warrants                               |   | 229                             |   | 449 |   |
| Net cash provided by financing activities                                          |   | 53                              |   | 1,339 |   |
| **Net Increase  in Cash and Cash Equivalents**                                     |   | 22                              |   | 1,987 |   |
| **Cash and Cash  Equivalents, Beginning of Period**                                |   | 20,731                          |   | 14,759 |   |
| **Cash and Cash  Equivalents, End of Period**                                      |   | $                               | 20,753 |   | $ | 16,746 |   |
|                                                                               |   |                            |   |   |   |
| Supplemental Disclosures of Cash Flow Information:                                 |   |                            |   |   |   |
| Cash paid for interest                                                             |   | $                               | 7,187  |   | $ | 6,710 |   |
| Cash paid for income taxes                                                         |   | $                               | 2,772  |   | $ | 2,484 |   |

 

The accompanying notes are anintegral part of these Consolidated Financial Statements.

 

3

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**MOTHERS WORK, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**March 31, 2004**

(unaudited)

 

**1.   BASISOF FINANCIAL STATEMENT PRESENTATION**

 

The accompanying unaudited consolidatedfinancial statements have been prepared in accordance with the requirements forForm 10-Q and Article 10 of Regulation S-X and, accordingly,certain information and footnote disclosures have been condensed or omitted.Reference is made to the Annual Report on Form 10-K as of and for the yearended September 30, 2003 for Mothers Work, Inc. and Subsidiaries (the“Company” or “Mothers Work”) as filed with the Securities and ExchangeCommission for additional disclosures including a summary of the Company’saccounting policies.

 

In the opinion of management, theconsolidated financial statements contain all adjustments, consisting of normalrecurring adjustments, necessary to present fairly the consolidated financialposition of the Company for the periods presented. Since the Company’soperations are seasonal, the interim operating results of the Company may notbe indicative of operating results for the full year.

 

**2.  EARNINGS PER SHARE (EPS)**

 

The Company follows Statement of FinancialAccounting Standards (“SFAS”) 128, “Earnings Per Share.”  Basic earningsper share (“Basic EPS”) are computed by dividing net income by the weightedaverage number of common shares outstanding.  Diluted earnings per share(“Diluted EPS”) is computed by dividing net income by the weighted averagenumber of shares of common shares outstanding, after giving effect to thepotential dilution from the exercise of securities, such as stock options andwarrants, into shares of common stock as if those securities were exercised.

 

The following tables summarize theBasic EPS and Diluted EPS calculation (inthousands, except per share amounts):

 
|                                                                                    |   | **Three Months Ended  March 31, 2004** |   | **Three Months Ended  March 31, 2003** |   |
|-----------------------------------------------------------------------------------------|--------|----------------------------------------|--------|----------------------------------------|--------|
|                                                                                    |   | **Net****Income**                      |   | **Shares**                             |   | **EPS** |   | **Net****Income** |   | **Shares** |   | **EPS** |   |
| Basic EPS                                                                               |   | $                                      | 444    |                                   | 5,210  |   | $ | 0.09 |   | $ | 331 |   | 5,267 |   | $ | 0.06 |   |
| Incremental shares from the assumed exercise of outstanding stock  options and warrants |   | —                                 |   | 339                                    |   |   |   | — |   | 393 |   |   |   |
| Diluted EPS                                                                             |   | $                                      | 444    |                                   | 5,549  |   | $ | 0.08 |   | $ | 331 |   | 5,660 |   | $ | 0.06 |   |

 
|                                                                                    |   | **Six Months Ended  March 31, 2004** |   | **Six Months Ended  March 31, 2003** |   |
|-----------------------------------------------------------------------------------------|--------|--------------------------------------|--------|-------------------------------------------|--------|
|                                                                                    |   | **Net****Income**                    |   | **Shares**                                |   | **EPS** |   | **Net****Income** |   | **Shares** |   | **EPS** |   |
| Basic EPS                                                                               |   | $                                    | 2,498  |                                      | 5,222  |   | $ | 0.48 |   | $ | 3,943 |   | 5,241 |   | $ | 0.75 |   |
| Incremental shares from the assumed exercise of outstanding stock  options and warrants |   | —                               |   | 332                                       |   |   |   | — |   | 450 |   |   |   |
| Diluted EPS                                                                             |   | $                                    | 2,498  |                                      | 5,554  |   | $ | 0.45 |   | $ | 3,943 |   | 5,691 |   | $ | 0.69 |   |

 

For the three months endedMarch 31, 2004 and 2003, options topurchase 276,150 and 238,550 shares, respectively, were excluded from thecalculation of Diluted EPS as their effect would have been antidilutive. For thesix months ended March 31, 2004 and 2003, optionsto purchase 274,200 and 215,900 shares, respectively, were excluded from thecalculation of Diluted EPS as their effect would have been antidilutive.  These options could potentially dilute EPS inthe future.

 

In March 2003, the Board of Directorsapproved a share repurchase program under which the Company may repurchase upto $10,000,000 of its outstanding common stock from time to time until March2005.  Pursuant to this program, the Company had repurchased 109,098shares of its common stock at a cost of $2,487,000 through March 31, 2004,including repurchases during the six months ended March 31, 2004 of 42,544shares of its common stock at a cost of $1,019,000.

 

4

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**3.   STOCK-BASED COMPENSATION**

 

The Company follows the intrinsic valuemethod of accounting for stock-based employee compensation in accordance withAccounting Principles Board (“APB”) Opinion No. 25, “Accounting for StockIssued to Employees,” and related interpretations.  The following tables illustrate the effect on net income andearnings per share if the Company had accounted for its stock option plansusing the fair value method of accounting under SFAS No. 123, “Accounting forStock-Based Compensation,” as amended by SFAS No. 148, “Accounting forStock-Based Compensation—Transition and Disclosure” (in thousands, except pershare amounts):

 
|                        |                                                                                                                      | **Three Months Ended  March 31,** |      | **Six Months Ended  March 31,** |   |
|-----------------------------|---------------------------------------------------------------------------------------------------------------------------|----------------------------------------|-----------|---------------------------------|--------|
|                        |                                                                                                                      | **2004**                               |      | **2003**                        |   | **2004** |   | **2003** |   |
| Net income, as reported     |                                                                                                                      | $                                      | 444       |                            | $      | 331 |   | $ | 2,498 |   | $ | 3,943 |   |
| Deduct:                     | Total stock-based employee  compensation expense determined under  the fair value-based method for all grants, net of tax |                                   | 418       |                            | 439    |   | 900 |   | 2,512 |   |
| Pro forma net income (loss) |                                                                                                                      | $                                      |   26 |                            | $      |   (108 | ) | $ |   1,598 |   | $ |   1,431 |   |
|                        |                                                                                                                      |                                   |      |                            |   |   |   |   |   |
| Basic EPS:                  |                                                                                                                      |                                   |      |                            |   |   |   |   |   |
| As reported                 |                                                                                                                      | $                                      | 0.09      |                            | $      | 0.06 |   | $ | 0.48 |   | $ | 0.75 |   |
| Pro forma                   |                                                                                                                      | $                                      | 0.01      |                            | $      | (0.02 | ) | $ | 0.31 |   | $ | 0.27 |   |
|                        |                                                                                                                      |                                   |      |                            |   |   |   |   |   |
| Diluted EPS:                |                                                                                                                      |                                   |      |                            |   |   |   |   |   |
| As reported                 |                                                                                                                      | $                                      | 0.08      |                            | $      | 0.06 |   | $ | 0.45 |   | $ | 0.69 |   |
| Pro forma                   |                                                                                                                      | $                                      | 0.00      |                            | $      | (0.02 | ) | $ | 0.29 |   | $ | 0.26 |   |
|                             |                                                                                                                           |                                        |           |                                 |        |  |  |  |  |  |  |  |  |  |

 

Pro forma Diluted EPS is computed by dividing pro forma net income bythe pro forma weighted average number of shares outstanding after giving effectto the potential dilution from the exercise of securities, such as stockoptions, into shares of common stock as if those securities were exercised asof the beginning of the period presented. Since the Company had incurred a pro forma loss for the three monthsended March 31, 2003, all of the outstanding stock options and warrants duringthis period were determined to be antidilutive, and therefore excluded from thecomputations.

 

The weighted average fair value of theoptions granted during the three and six months ended March 31, 2004 wasestimated at $17.21 and $16.30 per share, respectively.  For the three and six month periods endingMarch 31, 2003, the weighted average fairvalue of the options granted during those periods was estimated at $19.99 and$24.43 per share, respectively. The weighted average fair value is calculatedon the date of grant using the Black-Scholes option-pricing model with thefollowing weighted average assumptions:

 
|                      |   | **Three Months Ended  March 31,** |   | **Six Months Ended  March 31,** |   |
|---------------------------|--------|-----------------------------------|--------|---------------------------------|--------|
|                      |   | **2004**                          |   | **2003**                        |   | **2004** |   | **2003** |   |
| Dividend yield            |   | None                              |   | None                            |   | None |   | None |   |
| Expected price volatility |   | 61.2                              | %      | 61.0                            | %      | 61.7 | % | 61.2 | % |
| Risk-free interest rates  |   | 3.6                               | %      | 3.7                             | %      | 3.8 | % | 3.8 | % |
| Expected lives            |   | 8.0 years                         |   | 8.0 years                       |   | 8.0 years |   | 8.0 years |   |

 

**4.   INVENTORIES**

 

Inventories were comprised of the following(in thousands):

 
|             |   | **March 31, 2004** |   | **September 30, 2003** |   |
|------------------|--------|-------------------------|--------|-----------------------------|--------|
| Finished goods   |   | $                       | 74,163 |                        | $      | 73,583 |   |
| Work-in-progress |   | 3,329                   |   | 2,778                       |   |
| Raw materials    |   | 9,178                   |   | 8,144                       |   |
|             |   | $                       | 86,670 |                        | $      | 84,505 |   |

 

5

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**5.   ACCRUEDEXPENSES AND OTHER CURRENT LIABILITIES**

 

Accrued expenses and other currentliabilities were comprised of the following (in thousands):

 
|                                                        |   | **March 31, 2004** |   | **September 30, 2003** |   |
|-------------------------------------------------------------|--------|--------------------|--------|-----------------------------|--------|
| Salaries, wages, and employee benefits                      |   | $                  | 9,635  |                        | $      | 8,089 |   |
| Income taxes payable                                        |   | 1,016              |   | 1,991                       |   |
| Interest                                                    |   | 2,357              |   | 2,356                       |   |
| Sales taxes                                                 |   | 2,685              |   | 2,306                       |   |
| Insurance                                                   |   | 2,547              |   | 2,135                       |   |
| Rent                                                        |   | 788                |   | 802                         |   |
| Audit and legal                                             |   | 2,450              |   | 2,368                       |   |
| Reserves recorded in the iMaternity acquisition (Note 6)    |   | 1,122              |   | 1,593                       |   |
| Remaining payout for redemption of Series A Preferred Stock |   | 2,009              |   | 2,415                       |   |
| Accrued store construction costs                            |   | 1,305              |   | 1,991                       |   |
| Gift certificates and store credits                         |   | 2,734              |   | 1,988                       |   |
| Other                                                       |   | 3,201              |   | 3,312                       |   |
|                                                        |   | $                  | 31,849 |                        | $      | 31,346 |   |

 

Interest payments on the senior notes aremade semiannually on February 1st and August 1st.

 

**6.   IMATERNITY ACQUISITION EXIT/RESTRUCTURINGACTIVITY**

 

The Company acquired eSpecialty Brands, LLC(“iMaternity”) on October 17, 2001 (the “Acquisition Date”). The iMaternitymanufacturing and warehousing operations in Costa Rica have been shut down andare being marketed for sale.  The carrying value of the Costa Ricafacilities was recorded at the estimated realizable value as of the AcquisitionDate, which was determined based on a market survey received from anindependent third party, less estimated selling costs, and is classified as“Assets Held for Sale” in the accompanying consolidated balance sheets.

 

At March 31, 2004, the remaining iMaternityacquisition reserves consisted of: (a) lease termination fees of $392,000related to the planned store closures; (b) the severance reserveoutstanding of $500,000 that reflects the remainder of a non-compete and severance arrangement with aformer executive of iMaternity that is payable ratably on a monthly basisthrough September 2006; and (c) the reserve for exit costs of $230,000 that isprincipally for the expected costs related to the Costa Rican properties.

 

A summary of the charges incurred and thereserve balances in connection with the iMaternity acquisitionexit/restructuring activities as of September 30, 2003 and for the first sixmonths of fiscal 2004 is as follows (in thousands):

 
|                   |   | **Balance as of  September 30, 2003** |   | **Charges During the****Six Months Ended  March 31, 2004** |   | **Balance as of  March 31, 2004** |   |
|------------------------|--------|--------------------------------------------|--------|-----------------------------------------------------------------|--------|----------------------------------------|--------|
| Lease termination fees |   | $                                          | 668    |                                                            | $      | (276                                   | )      | $ | 392 |   |
| Severance              |   | 600                                        |   | (100                                                            | )      | 500                                    |   |
| Exit and other costs   |   | 325                                        |   | (95                                                             | )      | 230                                    |   |
|                   |   | $                                          | 1,593  |                                                            | $      | (471                                   | )      | $ | 1,122 |   |

 

**7.   GUARANTORSUBSIDIARIES**

 

Pursuant to the terms ofthe indenture relating to the $125,000,000 of 111⁄4% Senior Notes due 2010 (the“New Senior Notes”), each of the domestic subsidiaries of Mothers Work, Inc.has jointly and severally provided an unconditional guarantee of theobligations of Mothers Work with respect to the New Senior Notes. There are norestrictions on any of the assets of the Guarantor Subsidiaries which wouldlimit their ability to transfer funds to Mothers Work in the form of loans,advances or cash dividends, except as provided by applicable law.  None of the Company’s foreign subsidiarieshave guaranteed the New Senior Notes. The condensed consolidating financial information for the Company, theGuarantor Subsidiaries, and the Company’s Non-Guarantor Subsidiaries as of andfor the six months ended March 31, 2004 as presented below has been preparedfrom the books and records maintained by the Guarantor Subsidiaries and theCompany. The condensed financial information may not be necessarily indicativeof the results of operations or financial position had the GuarantorSubsidiaries operated as independent entities. Certain intercompany revenuesincluded in the subsidiary records are eliminated in consolidation. As a resultof this activity, an amount due to/due from parent will exist at any time.

 

6

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**Mothers Work, Inc.**

**Condensed Consolidating Balance Sheet**

**March 31, 2004**

(unaudited)

(in thousands)

 
|                                             |   | **Mothers Work  (Parent Company)** |    | **Guarantor  Subsidiaries** |   | **Non-Guarantor****Subsidiaries  (Foreign  Operations)** |   | **Consolidating****Eliminations** |   | **Mothers Work****Consolidated** |   |
|--------------------------------------------------|--------|------------------------------------|---------|-----------------------------|--------|----------------------------------------------------------|--------|-----------------------------------|--------|----------------------------------|--------|
| **ASSETS**                                       |   |                               |    |                        |   |                                                     |   |                              |   |                             |   |
| Current  Assets:                                 |   |                               |    |                        |   |                                                     |   |                              |   |                             |   |
| Cash and cash equivalents                        |   | $                                  | 19,505  |                        | $      | 43                                                       |   | $                                 | 1,205  |                             | $      | — |   | $ | 20,753 |   |
| Trade receivables                                |   | 2,862                              |    | —                      |   | 17                                                       |   | —                            |   | 2,879                            |   |
| Inventories                                      |   | 86,054                             |    | —                      |   | 616                                                      |   | —                            |   | 86,670                           |   |
| Deferred income taxes                            |   | 4,688                              |    | —                      |   | —                                                   |   | —                            |   | 4,688                            |   |
| Prepaid expenses and other current assets        |   | 5,514                              |    | 1                           |   | —                                                   |   | —                            |   | 5,515                            |   |
| Total Current Assets                             |   | 118,623                            |    | 44                          |   | 1,838                                                    |   | —                            |   | 120,505                          |   |
| Property, Plant and Equipment, net               |   | 57,355                             |    | —                      |   | 1,015                                                    |   | —                            |   | 58,370                           |   |
| Assets Held for Sale                             |   | —                             |    | —                      |   | 1,200                                                    |   | —                            |   | 1,200                            |   |
| Other Assets                                     |   | 69,916                             |    | —                      |   | —                                                   |   | —                            |   | 69,916                           |   |
| Investments in and Advances to (from) Affiliates |   | (12,365                            | )       | 198,062                     |   | (3,300                                                   | )      | (182,397                          | )      | —                           |   |
| Total Assets                                     |   | $                                  | 233,529 |                        | $      | 198,106                                                  |   | $                                 | 753    |                             | $      | (182,397 | ) | $ | 249,991 |   |
|                                             |   |                               |    |                        |   |                                                     |   |                              |   |                             |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**    |   |                               |    |                        |   |                                                     |   |                              |   |                             |   |
| Current  Liabilities:                            |   |                               |    |                        |   |                                                     |   |                              |   |                             |   |
| Line of credit borrowings                        |   | $                                  | —  |                        | $      | —                                                   |   | $                                 | — |                             | $      | — |   | $ | — |   |
| Current portion of long-term debt                |   | 279                                |    | —                      |   | —                                                   |   | —                            |   | 279                              |   |
| Accounts payable                                 |   | 20,151                             |    | 10                          |   | —                                                   |   | —                            |   | 20,161                           |   |
| Accrued expenses and other current liabilities   |   | 15,464                             |    | 16,064                      |   | 321                                                      |   | —                            |   | 31,849                           |   |
| Total Current Liabilities                        |   | 35,894                             |    | 16,074                      |   | 321                                                      |   | —                            |   | 52,289                           |   |
| Long-Term Debt                                   |   | 127,764                            |    | —                      |   | —                                                   |   | —                            |   | 127,764                          |   |
| Deferred Rent                                    |   | 6,680                              |    | —                      |   | 67                                                       |   | —                            |   | 6,747                            |   |
| Total Liabilities                                |   | 170,338                            |    | 16,074                      |   | 388                                                      |   | —                            |   | 186,800                          |   |
|                                             |   |                               |    |                        |   |                                                     |   |                              |   |                             |   |
| Total Stockholders’ Equity                  |   | 63,191                             |    | 182,032                     |   | 365                                                      |   | (182,397                          | )      | 63,191                           |   |
| Total Liabilities and Stockholders’ Equity  |   | $                                  | 233,529 |                        | $      | 198,106                                                  |   | $                                 | 753    |                             | $      | (182,397 | ) | $ | 249,991 |   |

 

7

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**Mothers Work, Inc.**

**Consolidating Statement of Operations**

**For The Six Months Ended March 31, 2004**

(unaudited)

(in thousands)

 
|                                         |   | **Mothers Work  (Parent Company)** |    | **Guarantor  Subsidiaries** |   | **Non-Guarantor****Subsidiaries  (Foreign  Operations)** |   | **Consolidating****Eliminations** |   | **Mothers Work****Consolidated** |   |
|----------------------------------------------|--------|------------------------------------|---------|-----------------------------|--------|----------------------------------------------------------|--------|-----------------------------------|--------|----------------------------------|--------|
| Net sales                                    |   | $                                  | 254,414 |                        | $      | 13,578                                                   |   | $                                 | 3,084  |                             | $      | (13,578 | ) | $ | 257,498 |   |
| Cost of goods sold                           |   | 120,162                            |    | —                      |   | 1,229                                                    |   | —                            |   | 121,391                          |   |
| Gross profit                                 |   | 134,252                            |    | 13,578                      |   | 1,855                                                    |   | (13,578                           | )      | 136,107                          |   |
| Selling, general and administrative expenses |   | 136,400                            |    | 45                          |   | 1,683                                                    |   | (13,578                           | )      | 124,550                          |   |
| Operating income (loss)                      |   | (2,148                             | )       | 13,533                      |   | 172                                                      |   | —                            |   | 11,557                           |   |
| Interest (income) expense, net               |   | 12,031                             |    | (4,638                      | )      | —                                                   |   | —                            |   | 7,393                            |   |
| Equity in earnings of subsidiaries           |   | (18,343                            | )       | —                      |   | —                                                   |   | 18,343                            |   | —                           |   |
| Income before income taxes                   |   | 4,164                              |    | 18,171                      |   | 172                                                      |   | (18,343                           | )      | 4,164                            |   |
| Income tax provision                         |   | 1,666                              |    | 6,360                       |   | 66                                                       |   | (6,426                            | )      | 1,666                            |   |
| Net income                                   |   | $                                  | 2,498   |                        | $      | 11,811                                                   |   | $                                 | 106    |                             | $      | (11,917 | ) | $ | 2,498 |   |

 

8

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**Mothers Work, Inc.**

**Consolidating Statement of Cash Flow**

**For The Six Months Ended March 31, 2004**

(unaudited)

(in thousands)

 
|                                                                               |   | **Mothers Work  (Parent Company)** |       | **Guarantor****Subsidiaries** |       | **Non-Guarantor****Subsidiaries  (Foreign  Operations)** |       | **Consolidating****Eliminations** |       | **Mothers Work****Consolidated** |       |
|------------------------------------------------------------------------------------|--------|------------------------------------|------------|-------------------------------|------------|----------------------------------------------------------|------------|-----------------------------------|------------|----------------------------------|------------|
| **Cash Flows  from Operating Activities**                                          |   |                               | ** ** |                          | ** ** |                                                     | ** ** |                              | ** ** |                             | ** ** |
| Net income                                                                         |   | $                                  | 2,498      |                          | $          | 11,811                                                   |       | $                                 | 106        |                             | $          | (11,917 | ) | $ | 2,498 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities: |   |                               |       |                          |       |                                                     |       |                              |       |                             |       |
| Depreciation and amortization                                                      |   | 4,754                              |       | —                        |       | 213                                                      |       | —                            |       | 4,967                            |       |
| Loss on impairment of long-lived assets                                            |   | 173                                |       | —                        |       | —                                                   |       | —                            |       | 173                              |       |
| Loss on disposal of assets                                                         |   | 220                                |       | —                        |       | —                                                   |       | —                            |       | 220                              |       |
| Accretion of discount on senior notes           |   | 72                                 |       | —                        |       | —                                                   |       | —                            |       | 72                               |       |
| Deferred income tax benefit                                                        |   | (93                                | )          | —                        |       | —                                                   |       | —                            |       | (93                              | )          |
| Tax benefit of stock option exercises                                              |   | 92                                 |       | —                        |       | —                                                   |       | —                            |       | 92                               |       |
| Amortization of deferred financing costs                                           |   | 201                                |       | —                        |       | —                                                   |       | —                            |       | 201                              |       |
| Provision for deferred rent                                                        |   | 324                                |       | —                        |       | 28                                                       |       | —                            |       | 352                              |       |
| Changes in assets and liabilities:                                                 |   |                               |       |                          |       |                                                     |       |                              |       |                             |       |
| Decrease (increase) in—                                                       |   |                               |       |                          |       |                                                     |       |                              |       |                             |       |
| Trade receivables                                                                  |   | (485                               | )          | —                        |       | (9                                                       | )          | —                            |       | (494                             | )          |
| Inventories                                                                        |   | (2,833                             | )          | —                        |       | 668                                                      |       | —                            |       | (2,165                           | )          |
| Prepaid expenses and other current assets                                          |   | 825                                |       | —                        |       | (155                                                     | )          | —                            |       | 670                              |       |
| Investments in and advances to (from) affiliates                                   |   | (12,835                            | )          | 918                           |       | —                                                   |       | 11,917                            |       | —                           |       |
| Increase (decrease) in—                                                       |   |                               |       |                          |       |                                                     |       |                              |       |                             |       |
| Accounts payable, accrued expenses and other current liabilities                   |   | (2,124                             | )          | 1,949                         |       | 70                                                       |       | —                            |       | (105                             | )          |
| Net cash provided by operating activities                                          |   | (9,211                             | )          | 14,678                        |       | 921                                                      |       | —                            |       | 6,388                            |       |
| **Cash Flows  from Investing Activities**                                          |   |                               |       |                          |       |                                                     |       |                              |       |                             |       |
| Capital expenditures                                                               |   | (6,227                             | )          | —                        |       | (179                                                     | )          | —                            |       | (6,406                           | )          |
| Purchase of intangible assets                                                      |   | (13                                | )          | —                        |       | —                                                   |       | —                            |       | (13                              | )          |
| Net cash used in investing activities                                              |   | (6,240                             | )          | —                        |       | (179                                                     | )          | —                            |       | (6,419                           | )          |
| **Cash Flows  from Financing Activities**                                          |   |                               |       |                          |       |                                                     |       |                              |       |                             |       |
| Increase in cash overdrafts                                                        |   | 1,325                              |       | —                        |       | —                                                   |       | —                            |       | 1,325                            |       |
| Repayment of long-term debt                                                        |   | (76                                | )          | —                        |       | —                                                   |       | —                            |       | (76                              | )          |
| Repurchase of common stock                                                         |   | (1,019                             | )          | —                        |       | —                                                   |       | —                            |       | (1,019                           | )          |
| Payout for redeemed Series A Preferred Stock                                       |   | (406                               | )          | —                        |       | —                                                   |       | —                            |       | (406                             | )          |
| Proceeds from exercise of stock options.....                                       |   | 229                                |       | —                        |       | —                                                   |       | —                            |       | 229                              |       |
| Net cash provided by financing activities                                          |   | 53                                 |       | —                        |       | —                                                   |       | —                            |       | 53                               |       |
| **Net Increase  in Cash and Cash Equivalents**                                     |   | (15,398                            | )          | 14,678                        |       | 742                                                      |       | —                            |       | 22                               |       |
| **Cash and Cash  Equivalents, Beginning of Period**                                |   | 20,235                             |       | 33                            |       | 463                                                      |       | —                            |       | 20,731                           |       |
| **Cash and Cash  Equivalents, End of Period**                                      |   | $                                  | 4,837      |                          | $          | 14,711                                                   |       | $                                 | 1,205      |                             | $          | — |   | $ | 20,753 |   |

 

9

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**8.   COMMITMENTS ANDCONTINGENCIES**

 

From time to time, the Company is named as a defendant in legal actionsarising from its normal business activities. Although the amount of any liability that could arise with respect tocurrently pending actions cannot be accurately predicted, the Company does notbelieve that the resolution of any pending action will have a material adverseeffect on its financial position, results of operations, or liquidity.

 

10

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**Item 2****. Management’s Discussion and Analysis of Financial Conditionand Results of Operations**

 

**Resultsof Operations**

 

The following tables setforth certain operating data from our consolidated statements of operations asa percentage of net sales and as a percentage change for the periods indicated:

** **
|                                         |   | **Percentage of Net Sales**        |   | **% Period to Period  Increase (Decrease)** |   |
|----------------------------------------------|--------|------------------------------------|--------|---------------------------------------------|--------|
|                                         |   | **Three  Months Ended  March 31,** |   | **Six  Months Ended  March 31,**            |   | **Three Months****Ended  March 31,** |   | **Six Months  Ended  March 31,** |   |
|                                         |   | **2004**                           |   | **2003**                                    |   | **2004** |   | **2003** |   | **2004 vs.  2003** |   | **2004 vs.  2003** |   |
| Net sales                                    |   | 100.0                              | %      | 100.0                                       | %      | 100.0 | % | 100.0 | % | 13.0 | % | 8.4 | % |
| Cost of goods sold                           |   | 47.5                               |   | 47.0                                        |   | 47.1 |   | 47.1 |   | 14.1 |   | 8.4 |   |
| Gross profit                                 |   | 52.5                               |   | 53.0                                        |   | 52.9 |   | 52.9 |   | 12.0 |   | 8.3 |   |
| Selling, general and administrative expenses |   | 49.0                               |   | 49.5                                        |   | 48.4 |   | 47.2 |   | 12.0 |   | 11.0 |   |
| Operating income                             |   | 3.5                                |   | 3.5                                         |   | 4.5 |   | 5.7 |   | 12.7 |   | (14.2 | ) |
| Interest expense, net                        |   | 2.9                                |   | 3.0                                         |   | 2.9 |   | 3.0 |   | 8.5 |   | 3.3 |   |
| Income before income taxes                   |   | 0.6                                |   | 0.5                                         |   | 1.6 |   | 2.7 |   | 39.6 |   | (34.0 | ) |
| Income tax provision                         |   | 0.2                                |   | 0.2                                         |   | 0.6 |   | 1.0 |   | 48.7 |   | (29.6 | ) |
| Net income                                   |   | 0.4                                | %      | 0.3                                         | %      | 1.0 | % | 1.7 | % | 34.1 | % | (36.6 | )% |

 

The following tables set forth certaininformation concerning the number of our retail locations, including stores andleased maternity departments for the periods indicated:

 
|                 |   | **Three Months Ended** |   |
|----------------------|--------|------------------------|--------|
|                 |   | **March 31, 2004**     |   | **March 31, 2003** |   |
| **Retail Locations** |   | **Stores**             |   | **Leased  Departments** |   | **Total Retail  Locations** |   | **Stores** |   | **Leased  Departments** |   | **Total Retail  Locations** |   |
| Beginning of period  |   | 870                    |   | 157 |   | 1,027 |   | 785 |   | 150 |   | 935 |   |
| Opened               |   | 22                     |   | — |   | 22 |   | 22 |   | — |   | 22 |   |
| Closed               |   | (15                    | )      | (2 | ) | (17 | ) | (6 | ) | (2 | ) | (8 | ) |
| End of period        |   | 877                    |   | 155 |   | 1,032 |   | 801 |   | 148 |   | 949 |   |

 
|                 |   | **Six Months Ended** |   |
|----------------------|--------|----------------------|--------|
|                 |   | **March 31, 2004**   |   | **March 31, 2003** |   |
| **Retail Locations** |   | **Stores**           |   | **Leased  Departments** |   | **Total Retail  Locations** |   | **Stores** |   | **Leased  Departments** |   | **Total Retail  Locations** |   |
| Beginning of period  |   | 851                  |   | 155 |   | 1,006 |   | 763 |   | 146 |   | 909 |   |
| Opened               |   | 46                   |   | 3 |   | 49 |   | 48 |   | 4 |   | 52 |   |
| Closed               |   | (20                  | )      | (3 | ) | (23 | ) | (10 | ) | (2 | ) | (12 | ) |
| End of period        |   | 877                  |   | 155 |   | 1,032 |   | 801 |   | 148 |   | 949 |   |

 

**ThreeMonths Ended March 31, 2004 and 2003**

 

*Net Sales.*  Our net sales for the second quarter ofour fiscal year ended September 30, 2004 (fiscal 2004) increased 13.0%, a$14.5 million increase, to $125.8 million from $111.3 million for thesecond quarter of our fiscal year ended September 30, 2003 (fiscal 2003). Net sales for the second quarter increased primarily from the addition of newstores, with the total number of retail locations increasing to 1,032 at March31, 2004 compared to 949 at March 31, 2003. Comparable store sales increased 0.2% for both the second quarter offiscal 2004 and 2003, based on 849 and 825 retail locations, respectively.

 

*Gross Profit.*  Our gross profit for the second quarter offiscal 2004 increased by 12.0%, a $7.1 million increase, to $66.1 million from$59.0 million for the second quarter of fiscal 2003, reflecting the increase innet sales. Gross profit as a percentage of net sales for the second quarter offiscal 2004 decreased by 47 basis points (0.47 percentage points of net sales)to 52.5% from 53.0% for the second quarter of fiscal 2003.  The decreasein gross margin versus last year primarily reflects the aggressive markdownstaken to

 

11

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stimulate sales of slower-moving styles andto enable us to bring in “fashion-right” styles for Spring while managingoverall inventory levels.  We expectthat the aggressive markdowns will continue to have an impact on our grossmargin during the remainder of this fiscal year.

 

*Selling, General and Administrative Expenses.*  Ourselling, general and administrative expenses for the second quarter of fiscal2004 increased by 12.0%, a $6.6 million increase, to $61.6 millionfrom $55.0 million for the second quarter of fiscal 2003. Compared to thesecond quarter of fiscal 2003, store wages and related benefit costs increasedby $2.6 million and store rent and related expenses increased by $3.1million for the second quarter of fiscal 2004, primarily resulting from our newstore openings during the past twelve months.  As a percentage of netsales, operating expenses decreased to 49.0% for the second quarter of fiscal2004 compared to 49.5% for the second quarter of fiscal 2003, principally dueto lower legal expense and lower store payroll expense ratios.

 

*Operating Income.*  Our operating income for the secondquarter of fiscal 2004 increased by 12.7%, a $0.5 million increase, to$4.4 million from $3.9 million for the second quarter of fiscal 2003due to our increased sales volume, offset in part by lower gross margin.Operating income as a percentage of net sales was 3.5% for both the secondquarter of fiscal 2004 and 2003, with reduced gross margin offset by reducedoperating expense ratios.

 

*Interest Expense, Net.*  Our net interest expense for the secondquarter of fiscal 2004 increased by 8.5%, a $0.3 million increase, to $3.7million from $3.4 million for the second quarter of fiscal 2003.  Last year’s interest expense was reduced bya $0.3 million non-recurring interest expense credit related to our creditfacility.

 

*Income Taxes. *Oureffective income tax rate increased to 40.0% for the second quarter of fiscal2004 from 37.5% for the second quarter of fiscal 2003, due to a projectedincrease in our composite estimated effective state income tax rate for thefull year fiscal 2004.  For the fullyear fiscal 2003, our effective income tax rate was 38.5%.

 

*Net Income. *Net income for the second quarter of fiscal 2004was $0.4 million, or $0.08 per common share (diluted) for the second quarter offiscal 2004, compared to $0.3 million, or $0.06 per common share (diluted) forthe second quarter of fiscal 2003, representing a 34.1% increase in net incomeand a 33.3% increase in diluted earnings per share.  Our average dilutedshares outstanding of 5,549,000 for the second quarter of fiscal 2004 were 2.0%lower than the 5,660,000 shares for the second quarter of fiscal 2003. The decrease in average diluted shares outstanding reflects our repurchase ofshares of our common stock pursuant to our stock repurchase program, partiallyoffset by the impact of stock option exercises.  As of March 31, 2004, we had repurchased 109,098 shares of ourcommon stock pursuant to our share repurchase program, of which 25,994 wererepurchased in the second quarter of fiscal 2004.

 

**SixMonths Ended March 31, 2004 and 2003**

 

*Net Sales.*  Our net sales for the first six months offiscal 2004 increased 8.4%, a $19.9 million increase, to$257.5 million from $237.6 million for the first six months of fiscal2003.  Net sales for the first six months increased due to the addition ofnew stores, offset somewhat by a decrease in comparable store sales. Comparable store sales for the first six months of fiscal 2004 decreased by2.7%, based on 820 retail locations, versus a comparable store sales increaseof 2.4% during the first six months of fiscal 2003, based on 736 retaillocations.

 

*Gross Profit*.    Our gross profit for thefirst six months of fiscal 2004 increased 8.3%, a $10.5 million increase, to$136.1 million compared to $125.6 million for the first six months of fiscal2003, reflecting the increase in net sales. Gross profit as a percentage of netsales was 52.9% for both the first six months of fiscal 2004 and 2003.  The flat gross margin compared to last yearprimarily reflects the reduction of our product costs as a result of continuedexpansion and refinement of our global sourcing initiatives and, to a lesserextent, the increased revenue generated from our marketing partnership programs,offset by the aggressive markdowns taken.

 

*Selling, General and Administrative Expenses*.  Our selling, general andadministrative expenses for the first six months of fiscal 2004 increased by11.0%, a $12.4 million increase, to $124.6 million from $112.2 million for thefirst six months of fiscal 2003. Compared to the first six months of fiscal2003, store wages and related benefit costs increased by $5.1 million and storerent and related expenses increased by $6.1 million, primarily resulting fromour new store openings during the past twelve months.  As a percentage ofnet sales, operating expenses increased to 48.4% for the first six months offiscal 2004 compared to 47.2% for the first six months of fiscal 2003.  This increase resulted primarily from increasedstore rent, store payroll, and benefits expense ratios.  The increase in store expenses as apercentage of net sales primarily reflects the negative comparable store salesresults for the first six months of fiscal 2004.

 

*Operating Income*.    Our operating income for thefirst six months of fiscal 2004 decreased by 14.2%, a $1.9 million decrease, to$11.6 million compared to $13.5 million in the first six months of fiscal 2003,due to the decrease in gross margin and higher selling, general and administrativeexpenses which more than offset the higher sales volume.  Operating income as a percentage of netsales for the first six months of fiscal 2004 decreased to 4.5% from 5.7% inthe comparable period of fiscal 2003, reflecting our

 

12

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increased operating expense ratio.

 

*Interest Expense, Net*.   Our net interest expense for thefirst six months of fiscal 2004 increased by 3.3%, or $0.2 million, to$7.4 million compared to $7.2 million for the first six months of fiscal2003.  Last year’s expense for the firstsix months was reduced by a $0.3 million non-recurring interest expense creditrelated to our credit facility.

 

*Income Taxes*.    Our effective income tax ratewas a provision of 40.0% for the first six months of fiscal 2004 compared to37.5% for the first six months of fiscal 2003, due to a projected increase inour composite estimated effective state income tax rate for the full yearfiscal 2004.  For the full year fiscal2003, our effective income tax rate was 38.5%.

 

*Net Income. *Net income for the first six months of fiscal2004 was $2.5 million, or $0.45 per common share (diluted), compared to $3.9million, or $0.69 per common share (diluted), for the first six months offiscal 2003, representing a 36.6% decrease in net income and a 34.8% decreasein diluted earnings per share.  Our average diluted shares outstanding of5,554,000 for the first six months of fiscal 2004 were 2.4% lower than the5,691,000 shares outstanding for the first six months of fiscal 2003.  The decrease in average diluted sharesoutstanding reflects our repurchase of shares of our common stock pursuant toour stock repurchase program, partially offset by the impact of stock option andwarrant exercises.  As of March 31, 2004,we had repurchased 109,098 shares of our common stock pursuant to our sharerepurchase program, of which 42,544 were repurchased in the first six months offiscal 2004.

 

**Seasonality**

 

Our business, like that of many otherretailers, is seasonal. Our quarterly net sales have historically been highestin our third fiscal quarter, corresponding to the Spring selling season,followed by our first fiscal quarter, corresponding to the Fall/holiday sellingseason. Given the typically higher gross margin we experience in the thirdfiscal quarter compared to other quarters, the relatively fixed nature of mostof our operating expenses and interest expense, and the historically highersales level in the third quarter, we have typically generated a very significantpercentage of our full year operating income and net income during the thirdquarter. Results for any quarter are not necessarily indicative of the resultsthat may be achieved for a full fiscal year.  Quarterly results mayfluctuate materially depending upon, among other things, the timing of newstore 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, changes in inventoryand production levels and the timing of deliveries of inventory, and changes inour merchandise mix.

 

**Liquidityand Capital Resources**

 

Our cash needs have primarily been for (i) debtservice on our senior notes and our credit facility, (ii) capitalexpenditures, including leasehold improvements, fixtures and equipment for newstores, store relocations and expansions of our existing stores as well asimprovements and new equipment for our distribution and corporate facilitiesand information systems, and (iii) working capital, including inventory tosupport our new and existing stores. We have historically financed thesecapital requirements from cash flows from operations and borrowings under ourcredit facility.

 

Cash and cash equivalents remainedessentially unchanged for the first six months of fiscal 2004, compared to anincrease of $2.0 million for the first six months of fiscal 2003.  Cashprovided by operations was $6.4 million for the first six months of fiscal2004, a decrease of $5.3 million from the $11.6 million for the first sixmonths of fiscal 2003.  The lower cash from operations was primarily dueto the lower amount of net income and the increase in inventories.  During the first six months of fiscal 2004and 2003, we used our cash provided by operations primarily to pay for capitalexpenditures.

 

For the first six months of fiscal 2004, wespent $6.4 million on capital expenditures, including approximately $4.4million on furniture, fixtures and leasehold improvements principally for newstore facilities, as well as improvements to existing stores, and approximately$2.0 million for our distribution and corporate facilities and informationsystems. This compares to $10.8 million in capital expenditures in the firstsix months of fiscal 2003, of which $7.3 million was spent for new storefacilities and improvements to existing stores and retail locations, and $3.5million for our distribution and corporate facilities and informationsystems.  The decrease in capital expenditures is due to several one-timeprojects completed in fiscal 2003 primarily relating to expanding the capacityand throughput of our distribution center and the rollout of our newproprietary point-of-sale system.

 

In March 2003, our Board of Directorsapproved a share repurchase program, under which we may repurchase up to $10.0million of our outstanding common stock from time to time in privatetransactions or open market purchases though March 2005.  As of March 31,2004, we have repurchased and retired 109,098 shares in theaggregate pursuant to this program ata total cost of approximately $2.5 million, for an average cost of $22.79 pershare, including repurchases during thefirst six months ended March 31, 2004 of 42,544 shares of our common stock at acost of approximately $1.0 million.  In addition, since March 31, 2004, we haverepurchased an additional 26,608 shares at a cost of approximately $0.6million, which amount includes a repurchase of an aggregate of 14,954 sharesfrom Dan W. Matthias, our Chairman and Chief Executive Officer, and Rebecca C.Matthias, our President and Chief Operating Officer.  The indenture governing the New Senior Notes and the termsof our credit facility contain restrictions that place limits on certainpayments by us, including payments to repurchase shares of our common stock.Our repurchases of common stock

 

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have been made in compliance with all restrictions under the indenturegoverning the New Senior Notes and the terms of our credit facility.

 

We have a $60 million credit facilitymaturing on September 15, 2004, which includes a $56.0 million borrowingbase revolving line of credit and approximately $4 million to support aspecial purpose letter of credit facility.  The credit facility hasan unused facility fee of 10 basis points per annum.  Interest onborrowings outstanding is currently based on the lender’s prime rate or, at ourelection, an alternative rate of LIBOR plus 200 basis points for all or part ofthe direct borrowings outstanding. At March 31, 2004, there were no directborrowings under the credit facility.  Borrowings under the creditfacility would have borne interest at the rate of between approximately 3.4%and 4.0% per annum as of March 31, 2004.  Amounts available for directborrowings, net of letters of credit outstanding, are limited to the lesser of(a) the unused portion of the credit facility or (b) the AggregateAdjusted Availability (“AAA”) as defined in the agreement based on a percentageof eligible inventory, receivables and cash. The credit facility is secured bya security interest in our accounts receivable, inventory, equipment, fixtures,cash and other assets. There are no financial covenant requirements in theagreement unless the AAA falls below $10.0 million. In such event, wewould have to achieve minimum cash flow, as defined in the agreement, of notless than zero. During the first six months of fiscal 2004 and all of fiscal2003, we always exceeded the minimum required AAA.  As of March 31, 2004,outstanding borrowings under the credit facility consisted of no directborrowings and $3.9 million in letters of credit, with AAA and availableborrowings of $52.1 million, compared to no direct borrowings and$3.9 million in letters of credit, with AAA and available borrowings of$52.1 million as of September 30, 2003. In addition, as of March 31, 2004and September 30, 2003, pursuant to the special purpose letter of creditfacility, we have an outstanding $3.3 million standby letter of credit tocollateralize an outstanding industrial revenue bond and a $1.0 millionstandby letter of credit to collateralize a government mortgage note.

 

Our management believes that our current cashand working capital positions, expected operating cash flows and availableborrowing capacity under the credit facility (including any successor creditfacilities to our current facility which expires September 15, 2004) will besufficient to fund our working capital, capital expenditures and debt repaymentrequirements and to fund stock repurchases, if any, for the foreseeablefuture.  Management also believes thateither the existing credit facility will renew or a successor to the existingcredit facility will be effective upon the maturation of the existing facility.

 

**CriticalAccounting Policies and Estimates**

 

Our Consolidated Financial Statements havebeen prepared in accordance with accounting principles generally accepted inthe United States. These generally accepted accounting principles requiremanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the Consolidated Financial Statements and the reported amountsof net sales and expenses during the reporting period.

 

Our significant accounting policies weredescribed in Note 2 of “Notes to Consolidated Financial Statements”contained in the Annual Report on Form 10-K as filed for the fiscal year endedSeptember 30, 2003.  We believe that the following discussionaddresses our critical accounting policies, which are those that are mostimportant to the portrayal of our financial condition and results of operationsand require management’s most difficult, subjective and complex judgments,often as a result of the need to make estimates about the effect of mattersthat are inherently uncertain.  If actual results were to differsignificantly from estimates made, the reported results could be materiallyaffected.  However, the Company is not currently aware of any reasonablylikely events or circumstances that would result in materially differentresults.

 

The Company’s senior management has reviewedthese critical accounting policies and estimates and the related Management’sDiscussion and Analysis with the Audit Committee of our Board of Directors.

 

*Inventories.*  We value our inventories, which consistprimarily of maternity apparel, at the lower of cost or market. Cost isdetermined on the first-in, first-out method (FIFO) and includes the cost of merchandise,freight, duty and broker fees.  Aperiodic review of inventory quantities on hand is performed in order todetermine if inventory is properly valued at the lower of cost or market.Factors related to current inventories such as future consumer demand andfashion trends, current aging, current analysis of merchandise based on receiptdate, current and anticipated retail markdowns or wholesale discounts, andclass or type of inventory are analyzed to determine estimated net realizablevalues.  Criteria utilized by the Company to quantify aging trends includefactors such as the amount of merchandise received within the past twelvemonths, merchandise received more than one year before with quantities on-handin excess of 12 months of sales, and merchandise currently selling belowcost.  A provision is recorded to reduce the cost of inventories to theestimated net realizable values, if required. Inventories as of March 31, 2004and September 30, 2003 totaled $86.7 million and $84.5 million, respectively,representing approximately 34.7% and 34.3% of total assets, respectively. Giventhe significance of inventories to the Company’s Consolidated FinancialStatements, the determination of net realizable values is considered to be acritical accounting estimate. Any significant unanticipated changes in thefactors noted above could have a significant impact on the value of ourinventories and our reported operating results.

 

*Long-Lived Assets.*  Our long-lived assets consist principallyof store leasehold improvements and are included in the “Property, Plant andEquipment, net” line item in our consolidated balance sheets. These long-livedassets are recorded at cost and are amortized using the straight-line methodover the lesser of the applicable store lease term or the estimated useful lifeof the leasehold

 

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improvements.  The typical initial lease term for our stores averages from sevento ten years.  Net property, plant and equipment as of March 31, 2004 andSeptember 30, 2003 totaled $58.4 million and $57.8 million, respectively,representing approximately 23.3% and 23.4% of total assets, respectively.

 

In assessing potential impairment of theseassets, we periodically evaluate the historical and forecasted operatingresults and cash flows on a store-by-store basis. Newly opened stores may taketime to generate positive operating and cash flow results. Factors such as (i)store type, that is, company store or leased department, (ii) store concept, thatis, Motherhood, Mimi Maternity, or A Pea in the Pod, (iii) store location, forexample, urban area versus suburb, (iv) current marketplace awareness of ourbrands, (v) local customer demographic data and (vi) current fashion trends areall considered in determining the time frame required for a store to achievepositive financial results, which is assumed to be within two years from thedate a store location is opened.  Ifeconomic conditions are substantially different from our expectations, thecarrying value of certain of our long-lived assets may become impaired. As a result of our impairment assessment, we recorded write-downs of long-livedassets of $173,000 for the first six months of fiscal 2004 and $89,000 for thefirst six months of fiscal 2003.

 

*Goodwill*.  The purchase method of accounting forbusiness combinations requires the use of estimates and judgments to allocatethe purchase price paid for acquisitions to the fair value of the net tangibleand identifiable intangible assets.  Goodwill represents the excess of theaggregate purchase price over the fair value of net assets acquired in businesscombinations and is separately disclosed in our consolidated balancesheet.  As of both March 31, 2004 and September 30, 2003, goodwill totaled$50.4 million, representing approximately 20.2% and 20.4% of total assets,respectively.  In June 2001, the Financial Accounting Standards Board(FASB) issued Statement of Financial Accounting Standards (SFAS) 142, “Goodwilland Other Intangible Assets.” SFAS 142 requires that goodwill no longer beamortized, but instead be tested for impairment at least annually or asimpairment indicators arise. Prior to our adoption of SFAS 142 on October 1,2001, goodwill was amortized using the straight-line method over a period of 20years.

 

The impairment test requires the Company tocompare the fair value of business reporting units to their carrying value,including assigned goodwill.  In assessing potential impairment ofgoodwill, we have determined that we have one reporting unit for purposes ofapplying SFAS 142 based on our reporting structure. The fair value of oursingle reporting unit is determined based on the fair market value of ouroutstanding common stock on a control basis. The Company performed the initialadoption impairment test in early fiscal 2002.  The results of the initialimpairment test and the annual impairment test performed as of September 30,2003 indicated fair value amounts exceeded carrying amounts by a substantialmargin.  If any significant unanticipated change in the fair value of ouroutstanding common stock on a control basis were to occur in the future, thecarrying balance of our goodwill may become impaired.

 

*Accounting for Income Taxes.*  As part of the process of preparing ourConsolidated Financial Statements, we are required to estimate our income taxesin each of the jurisdictions in which we operate. This process requires us toestimate our actual current tax exposure together with assessing temporarydifferences resulting from differing treatment of items, such as depreciationof property and equipment and valuation of inventories, for tax and accountingpurposes.  We determine our provision for income taxes based on federaland state tax laws and regulations currently in effect, some of which have beenrecently revised.  Legislation changescurrently proposed by certain of the states in which we operate, if enacted,could increase our transactions or activities subject to tax. Any such legislationthat becomes law could result in an increase in our state income tax expenseand our state income taxes paid, which could have a material and adverse effecton our net income.

 

The temporary differences result in deferredtax assets and liabilities, which are included within our consolidated balancesheets. We must then assess the likelihood that our deferred tax assets will berecovered from future taxable income. Actual results could differ from thisassessment if adequate taxable income is not generated in future periods. Netdeferred tax assets as of March 31, 2004 and September 30, 2003 totaled $18.3million and $18.2 million, respectively, representing approximately 7.3% and7.4% of total assets, respectively. To the extent we believe that recovery ofthe deferred tax assets is not more likely than not, we must establish avaluation allowance. To the extent we establish a valuation allowance or changethe allowance in a period, income tax expense will be impacted.

 

*Accounting for Contingencies*.  From time to time, we are named as a defendantin legal actions arising from our normal business activities.  We accountfor contingencies such as these in accordance with SFAS 5, “Accounting forContingencies.”  SFAS 5 requires us to record an estimated losscontingency when information available prior to issuance of our financialstatements indicates that it is probable that an asset has been impaired or aliability has been incurred at the date of the financial statements and theamount of the loss can be reasonably estimated.  SFAS 5 further statesthat when there is a range of loss and no amount within that range is a betterestimate than any other, then the minimum amount of the range shall beaccrued.  Accounting for contingencies arising from contractual or legalproceedings requires Company management to use its best judgment whenestimating an accrual related to such contingencies, which includesconsultation with the Company’s legal counsel. As of March 31, 2004, included in our accruals for loss contingencies is$0.6 million in connection with the previously disclosed employment-relatedaction filed against us in Washington. As additional information becomes known, our accrual for a losscontingency could fluctuate, thereby creating variability in our results ofoperations from period to period. Likewise, an actual loss arising from a losscontingency which significantly exceeds the amount accrued for in our financialstatements could have a material adverse impact on our operating results forthe period in which such actual loss becomes known.

 

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**Forward-LookingStatements**

 

Some of the information in this report,including the information incorporated by reference (as well as informationincluded in oral statements or other written statements made or to be made byus), contains forward-looking statements within the meaning of Section 27Aof the Securities Act of 1933, as amended, and Section 21E of theSecurities Exchange Act of 1934, as amended. The forward-looking statementsinvolve a number of risks and uncertainties. A number of factors could causeour actual results, performance, achievements or industry results to bematerially different from any future results, performance or achievementsexpressed or implied by these forward-looking statements. These factorsinclude, but are not limited to: changes in consumer spending patterns, rawmaterial price increases, consumer preferences and overall economic conditions,the impact of competition and pricing, availability of suitable store locations,continued availability of capital and financing, ability to hire and developsenior management and sales associates, ability to develop and sourcemerchandise, ability to receive production from foreign sources on a timelybasis, potential stock repurchases, war or acts of terrorism and other factorsreferenced in our Annual Report on Form 10-K, including those set forth underthe caption “Risk Factors.”

 

In addition, these forward-looking statementsnecessarily depend upon assumptions, estimates and dates that may be incorrector imprecise and involve known and unknown risks, uncertainties and otherfactors. Accordingly, any forward-looking statements included in this report donot purport to be predictions of future events or circumstances and may not berealized. Forward-looking statements can be identified by, among other things,the use of forward-looking terms such as “believes,” “expects,” “may,” “will,”“should,” “seeks,” “pro forma,” “anticipates,” “intends,” “continues,” “could,”“estimates,” “plans,” “potential,” “predicts,” “goal,” “objective,” or thenegative of any of these terms, or comparable terminology, or by discussions ofoutlook, plans, goals, strategy or intentions. Forward-looking statements speakonly as of the date made. We assume no obligation to update any of theseforward-looking statements to reflect actual results, changes in assumptions orchanges in other factors affecting these forward-looking statements.

 

**Item 3****. Quantitative and Qualitative Disclosures About Market Risk**

 

Mothers Work is exposed to market risk fromchanges in interest rates.  We have not entered into any market sensitiveinstruments for trading purposes.  The analysis below presents thesensitivity of the market value of our financial instruments to selectedchanges in market interest rates.  The range of changes presented reflectsour view of changes that are reasonably possible over a one-year period.

 

At March 31, 2004, the principal componentsof our debt portfolio were the $125.0 million of New Senior Notes due 2010and the $60 million credit facility, both of which are denominated in U.S.dollars.  The fair value of the debt portfolio is referred to as the “debtvalue.”  The New Senior Notes bear interest at a fixed rate of 111⁄4%. While a change in market interest rates would not affect the interest incurredor cash flow related to this fixed rate portion of the debt portfolio, the debtvalue would be affected.

 

Our revolving credit facility carries avariable interest rate that is tied to market indices.  At March 31, 2004,we had no direct borrowings and $3.9 million of letters of credit outstandingunder our credit facility (plus an additional $4.3 million of letters of creditoutstanding under a special purpose letter of credit facility).  Borrowingsunder the credit facility would have borne interest at a rate betweenapproximately 3.4% and 4.0% per annum as of March 31, 2004.  Any futureborrowings under the credit facility would, to the extent of outstandingborrowings, be affected by changes in market interest rates. A change in marketinterest rates on the variable portion of the debt portfolio impacts theinterest incurred and cash flows, but does not impact the value of thefinancial instrument.

 

The sensitivity analysis as it relates to thefixed portion of our debt portfolio assumes an instantaneous 100 basis pointchange in interest rates from their levels as of March 31, 2004 with all othervariables held constant.  A 100 basis point increase in market interestrates would result in a decrease in the value of the debt by approximately $5.4million as of March 31, 2004.  A 100 basis point decline in marketinterest rates would cause the debt value to increase by approximately $5.7million as of March 31, 2004.

 

Based on the variable rate debt included in our debt portfolio as ofMarch 31, 2004, a 100 basis point increase in interest rates would result inadditional interest incurred for the year of less than $0.1 million. A 100basis point decrease in interest rates would correspondingly lower our interestexpense for the year by less than $0.1 million.

 

Other than as described above, we do notbelieve that the market risk exposure on other financial instruments ismaterial.

 

**Item 4****. Controls and Procedures**

 

*(a) Evaluation of disclosure controls andprocedures*.  Our disclosure controls and procedures are designed to ensure thatinformation required to be disclosed by us in the reports that are filed orsubmitted under the Securities Exchange Act of 1934 is recorded, processed,summarized and reported, within the time periods specified in the Securitiesand Exchange Commission’s rules and forms.  These disclosure controls and procedures include controls and proceduresdesigned to ensure that information required to be disclosed under the SecuritiesExchange Act of 1934 is accumulated and communicated to our management on atimely basis to allow decisions regarding required disclosure.  We evaluated the effectiveness of the designand operation of our disclosure controls

 

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and procedures as of March 31, 2004. Based on this evaluation, ourChief Executive Officer and Chief Financial Officer have concluded that as ofMarch 31, 2004, these controls and procedures were effective.

 

*(b) Change in Internal Controls*.   There have been no changes in internalcontrols over financial reporting identified in connection with the foregoingevaluation that occurred during our last fiscal quarter that have materiallyaffected, or are reasonably likely to materially affect, our internal controlover financial reporting.

 

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**PART II****. OTHER INFORMATION**

 

**Item 1. LegalProceedings**

 

From time to time, we are named as adefendant in legal actions arising from our normal business activities.Although the amount of any liability that could arise with respect to currentlypending actions cannot be accurately predicted, we do not believe that theresolution of any pending action will have a material adverse effect on our financialposition, results of operations or liquidity.

 

**Item 2. Changesin Securities, Use of Proceeds and Issuer Purchases of Equity Securities**

 

The following table provides informationabout purchases by us during the quarter ended March 31, 2004 of equity securitiesthat are registered by us pursuant to Section 12 of the Securities Exchange Actof 1934:

 

**Issuer Purchases of Equity Securities**

 
| **Period**                                       |   | **(a) Total  Number of  Shares  Purchased** |   | **(b) Average Price  Paid per Share** |        | **(c) Total Number of  Shares Purchased as  Part of a Publicly  Announced Program (1)** |    | **(d) Maximum  Approximate Dollar  Value of Shares that  May Yet Be Purchased  Under the Program (2)** |      |
|--------------------------------------------------|--------|---------------------------------------------|--------|---------------------------------------|-------------|-----------------------------------------------------------------------------------------|---------|--------------------------------------------------------------------------------------------------------|-----------|
| Month # 1  January 1  to January 31, 2004        |   | 25,894                                      |   | $                                     | 24.09       |                                                                                    | 108,998 |                                                                                                   | $         | 7,515,635 |   |
| Month # 2   February 1 to February 29, 2004 |   | 100                                         |   | $                                     | 24.84       |                                                                                    | 109,098 |                                                                                                   | $         | 7,513,151 |   |
| Month # 3   March 1 to March 31, 2004       |   | —                                      |   | —                                |        | 109,098                                                                                 |    | $                                                                                                      | 7,513,151 |   |
| Total                                            |   | 25,994                                      |   | $                                     |  24.09 |                                                                                    | 109,098 |                                                                                                   | $         |  7,513,151 |   |

 

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(1) As of March 31, 2004, we had repurchasedan aggregate of 109,098 shares at a total cost of approximately $2.5 millionpursuant to the repurchase program that we publicly announced in March 2003.

 

(2)On March 6, 2003, we announcedthat our board of directors had approved a share repurchase program under whichwe may buy up to $10.0 million of our outstanding common stock from time totime in open market purchases or through private transactions until March 2005.

 

**Item 4. Submissionof Matters to a Vote of Security Holders**

 

At the Company’s Annual Meeting of Stockholders heldon January 22, 2004, the stockholders of the Company elected two directors ofthe Company and ratified the Audit Committee’s appointment of KPMG LLP as theCompany’s independent auditors for the fiscal year ending September 30,2004.  The shareholders voted 4,073,957shares for, 222,676 shares against, and 24 shares abstained for theratification of the appointment of KPMG LLP.

 

Mr. Dan W. Matthias and Mr. Elam M.Hitchner, III were elected to serve as directors at the meeting.  The voting results were 3,917,371 shares forand 379,287 shares abstained for Mr. Matthias and 3,801,560 shares for and495,098 shares abstained for Mr. Hitchner.  Rebecca C. Matthias, Joseph A. Goldblum, David Schlessinger,William A. Schwartz, Jr. and Stanley C. Tuttleman continue to serve their termsas directors.

 

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**Item 6****. Exhibits and Reports on Form 8-K**

 

(a)   Exhibits.

 

 
| **Exhibit No.** |   | **Description**                                                                                                                                                                       |
|-----------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1            |   | Certification of the Chief Executive  Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                              |
|            |   |                                                                                                                                                                                  |
| 31.2            |   | Certification of the Executive Vice  President-Chief Financial Officer Pursuant of Section 302 of the  Sarbanes-Oxley Act of 2002.                                                    |
|            |   |                                                                                                                                                                                  |
| 32.1            |   | Certification of the Chief Executive  Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section  906 of the Sarbanes-Oxley Act of 2002.                              |
|            |   |                                                                                                                                                                                  |
| 32.2            |   | Certification of the Executive Vice  President-Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as  Adopted Pursuant to Section 906 of Section Sarbanes-Oxley Act of 2002. |

 

 

(b)   Reports on Form 8-K.

 

As of the date of filing of this Form 10-Q,the Company did not file any Current Reports on Form 8-K during or after thesecond quarter of fiscal 2004.  Thefollowing is a list of Current Reports on Form 8-K furnished by the Companyduring the second quarter of fiscal 2004:

 

The Companyfurnished a Current Report on Form 8-K dated January 8, 2004, under Item 12 —Results of Operations and Financial Condition, announcing that it had issued apress release on January 8, 2004, discussing its sales results for both themonth of December 2003 and for the first quarter of fiscal year 2004 endedDecember 31, 2003.

 

The Companyfurnished a Current Report on Form 8-K dated January 27, 2004, under Item 12 —Results of Operations and Financial Condition, disclosing that it issued apress release and held a broadly accessible conference call to discuss itsfinancial results for its first fiscal quarter of fiscal year 2004 endedDecember 31, 2003.

 

The following is a list of Current Reports onForm 8-K furnished by the Company after the second quarter of fiscal 2004 andprior to the filing of this Form 10-Q:

 

The Companyfurnished a Current Report on Form 8-K dated April 8, 2004, under Item 12 —Results of Operations and Financial Condition, announcing that it had issued apress release on April 8, 2004, discussing its sales results for both the monthof March 2004 and for the second quarter of fiscal year 2004 ended March 31,2004.

 

The Companyfurnished a Current Report on Form 8-K dated April 27, 2004, under Item 12 —Results of Operations and Financial Condition, announcing that it had issued apress release and held a broadly accessible conference call to discuss itsfinancial results for its second fiscal quarter of fiscal year 2004 ended March31, 2004.

 

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**Signatures**

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.

 

 
|               | MOTHERS WORK, INC. |
|--------------------|--------------------|
|               |               |   |
| Date: May 17, 2004 | By:                | **/s/ DAN W. MATTHIAS** |   |
|               |               | Dan W. Matthias |   |
|               |               | *Chairman of the Board and Chief Executive  Officer* |   |
|               |               |   |   |
|               |               |   |   |
| Date: May 17, 2004 | By:                | **/s/ EDWARD M. KRELL** |   |
|               |               | Edward M. Krell |   |
|               |               | *Executive Vice President—**Chief Financial Officer* |   |
|                    |                    |  |  |  |

 

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