**United StatesSecurities 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 December 31, 2003**                                                                                                        |
|                                                                                                                                                              |                                                                                               |
| **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 —5,195,980 shares outstanding as of February 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 | 12 |
| Item 3.                             | Quantitative and Qualitative Disclosures  About Market Risk                                 | 17 |
| Item 4.                             | Controls and Procedures                                                                     | 17 |
| PART II.  OTHER INFORMATION    | 18                                                                                          |
| Item 1.                             | Legal Proceedings                                                                           | 18 |
| Item 6.                             | Exhibits and Reports on Form 8-K                                                            | 18 |
| Signatures                          |                                                                                        | 19 |
| Certifications                      |                                                                                        |   |

 

----

 

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

 

**Item 1.****  Financial Statements**

 

**MOTHERS WORK, INC. AND SUBSIDIARIES**

**CONSOLIDATEDBALANCE SHEETS**

(in thousands, except share andper share amounts)

 
|                                                                                                                              |   | **December 31,  2003** |    | **September 30, 2003** |   |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|---------|----------------------------------|--------|
|                                                                                                                              |   | **(unaudited)**             |    |                             |   |
| **ASSETS**                                                                                                                        |   |                        |    |                             |   |
| Current  Assets:                                                                                                                  |   |                        |    |                             |   |
| Cash and cash  equivalents                                                                                                        |   | $                           | 26,527  |                             | $      | 20,731 |   |
| Trade  receivables                                                                                                                |   | 2,470                       |    | 2,385                            |   |
| Inventories                                                                                                                       |   | 80,778                      |    | 84,505                           |   |
| Deferred  income taxes                                                                                                            |   | 4,693                       |    | 4,655                            |   |
| Prepaid  expenses and other current assets                                                                                        |   | 5,240                       |    | 5,166                            |   |
| Total Current  Assets                                                                                                             |   | 119,708                     |    | 117,442                          |   |
| Property,  Plant and Equipment, net                                                                                               |   | 56,989                      |    | 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 $951 and $852                                                       |   | 3,981                       |    | 4,080                            |   |
| Other  intangible assets, net of accumulated amortization of $2,498 and $2,447                                                    |   | 1,078                       |    | 1,126                            |   |
| Deferred  income taxes                                                                                                            |   | 13,586                      |    | 13,586                           |   |
| Other  non-current assets                                                                                                         |   | 964                         |    | 969                              |   |
| Total Other  Assets                                                                                                               |   | 69,998                      |    | 70,150                           |   |
| Total Assets                                                                                                                      |   | $                           | 247,895 |                             | $      | 246,603 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                    |   |                        |    |                             |   |
| Current  Liabilities:                                                                                                             |   |                        |    |                             |   |
| Line of credit  borrowings                                                                                                        |   | $                           | —  |                             | $      | — |   |
| Current  portion of long-term debt                                                                                                |   | 279                         |    | 279                              |   |
| Accounts  payable                                                                                                                 |   | 16,230                      |    | 19,585                           |   |
| Accrued  expenses and other current liabilities                                                                                   |   | 33,839                      |    | 31,346                           |   |
| Total Current  Liabilities                                                                                                        |   | 50,348                      |    | 51,210                           |   |
| Long-Term Debt                                                                                                                    |   | 127,766                     |    | 127,768                          |   |
| Deferred Rent                                                                                                                     |   | 6,621                       |    | 6,234                            |   |
| Total  Liabilities                                                                                                                |   | 184,735                     |    | 185,212                          |   |
|                                                                                                                              |   |                        |    |                             |   |
| Commitments  and Contingencies (Note 9)                                                                                           |   |                        |    |                             |   |
|                                                                                                                              |   |                        |    |                             |   |
| 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, 5,220,914 and 5,231,114 shares  issued and outstanding, respectively |   | 52                          |    | 52                               |   |
| Additional  paid-in capital                                                                                                       |   | 63,274                      |    | 63,559                           |   |
| Accumulated  deficit                                                                                                              |   | (166                        | )       | (2,220                           | )      |
| Total  Stockholders’ Equity                                                                                                  |   | 63,160                      |    | 61,391                           |   |
| Total  Liabilities and Stockholders’ Equity                                                                                  |   | $                           | 247,895 |                             | $      | 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****December 31,** |    |
|-----------------------------------------------|--------|---------------------------------------------|---------|
|                                          |   | **2003**                                    |    | **2002** |   |
| Net sales                                     |   | $                                           | 131,695 |   | $ | 126,340 |   |
| Cost of goods  sold                           |   | 61,665                                      |    | 59,697 |   |
| Gross profit                                  |   | 70,030                                      |    | 66,643 |   |
| Selling,  general and administrative expenses |   | 62,915                                      |    | 57,121 |   |
| Operating  income                             |   | 7,115                                       |    | 9,522 |   |
| Interest  expense, net                        |   | (3,691                                      | )       | (3,742 | ) |
| Income before  income taxes                   |   | 3,424                                       |    | 5,780 |   |
| Income tax  provision                         |   | 1,370                                       |    | 2,168 |   |
| Net income                                    |   | $                                           | 2,054   |   | $ | 3,612 |   |
|                                          |   |                                        |    |   |   |
| Income per  share—Basic                  |   | $                                           | 0.39    |   | $ | 0.69 |   |
| Average shares  outstanding—Basic        |   | 5,234                                       |    | 5,214 |   |
| Income per  share—Diluted                |   | $                                           | 0.37    |   | $ | 0.63 |   |
| Average shares  outstanding—Diluted      |   | 5,559                                       |    | 5,721 |   |

 

The accompanying notes are an integral partof these Consolidated Financial Statements.

 

2

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**MOTHERS WORK, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

(in thousands)

(unaudited)

 
|                                                                               |   | **Three Months Ended****December 31,** |   |
|------------------------------------------------------------------------------------|--------|---------------------------------------------|--------|
|                                                                               |   | **2003**                                    |   | **2002** |   |
| **Cash  Flows from Operating Activities**                                          |   |                                        |   |   |   |
| Net income                                                                         |   | $                                           | 2,054  |   | $ | 3,612 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |   |                                        |   |   |   |
| Depreciation  and amortization                                                     |   | 2,487                                       |   | 2,436 |   |
| Loss on  impairment of long-lived assets                                           |   | 142                                         |   | — |   |
| Loss on  disposal of assets                                                        |   | 77                                          |   | — |   |
| Accretion of  discount on senior notes                                             |   | 36                                          |   | 33 |   |
| Deferred  income tax provision (benefit)                                           |   | (38                                         | )      | 2,168 |   |
| Tax benefit of  stock option exercises                                             |   | 38                                          |   | 420 |   |
| Amortization  of deferred financing costs                                          |   | 99                                          |   | 85 |   |
| Provision for  deferred rent                                                       |   | 159                                         |   | 146 |   |
| Changes in  assets and liabilities:                                                |   |                                        |   |   |   |
| Decrease  (increase) in —                                                     |   |                                        |   |   |   |
| Trade  receivables                                                                 |   | (85                                         | )      | 2,032 |   |
| Inventories                                                                        |   | 3,727                                       |   | 4,301 |   |
| Prepaid  expenses and other current assets                                         |   | 787                                         |   | 39 |   |
| Increase  (decrease) in —                                                     |   |                                        |   |   |   |
| Accounts  payable, accrued expenses and other current liabilities                  |   | (1,688                                      | )      | 1,631 |   |
| Net cash  provided by operating activities                                         |   | 7,795                                       |   | 16,903 |   |
|                                                                               |   |                                        |   |   |   |
| **Cash  Flows from Investing Activities**                                          |   |                                        |   |   |   |
| Capital  expenditures                                                              |   | (3,635                                      | )      | (5,234 | ) |
| Purchase of  intangible assets                                                     |   | (8                                          | )      | (128 | ) |
| Net cash used  in investing activities                                             |   | (3,643                                      | )      | (5,362 | ) |
|                                                                               |   |                                        |   |   |   |
| **Cash  Flows from Financing Activities**                                          |   |                                        |   |   |   |
| Increase in  cash overdrafts                                                       |   | 2,329                                       |   | 3,459 |   |
| Repayment of  long-term debt                                                       |   | (38                                         | )      | (86 | ) |
| Repurchase of  common stock                                                        |   | (392                                        | )      | — |   |
| Payout of  redeemed Series A Preferred Stock                                       |   | (324                                        | )      | (1,277 | ) |
| Payment of  issuance costs of long-term debt                                       |   | —                                      |   | (242 | ) |
| Payment of  issuance costs of common stock                                         |   | —                                      |   | (210 | ) |
| Proceeds from  exercise of stock options and warrants                              |   | 69                                          |   | 418 |   |
| Net cash  provided by financing activities                                         |   | 1,644                                       |   | 2,062 |   |
| **Net  Increase in Cash and Cash Equivalents**                                     |   | 5,796                                       |   | 13,603 |   |
| **Cash  and Cash Equivalents, Beginning of Period**                                |   | 20,731                                      |   | 14,759 |   |
| **Cash  and Cash Equivalents, End of Period**                                      |   | $                                           | 26,527 |   | $ | 28,362 |   |
|                                                                               |   |                                        |   |   |   |
| Supplemental  Disclosures of Cash Flow Information:                                |   |                                        |   |   |   |
| Cash paid for  interest                                                            |   | $                                           | 212    |   | $ | 146 |   |
| Cash paid for  income taxes                                                        |   | $                                           | 2,188  |   | $ | 136 |   |

 

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**

**December 31, 2003**

(unaudited)

 

**1.****     BASIS OF 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 oromitted.  Reference is made to theAnnual Report on Form 10-K as of and for the year ended September 30,2003 for Mothers Work, Inc. and Subsidiaries (the “Company” or “MothersWork”) as filed with the Securities and Exchange Commission, for additionaldisclosures including a summary of the Company’s accounting 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 Financial Accounting Standards(“SFAS”) 128, “Earnings Per Share.” Basic earnings per share (“Basic EPS”) is computed by dividing netincome by the weighted average number of common shares outstanding. Diluted earnings per share (“Diluted EPS”) is computed by dividing net incomeby the weighted average number of common shares outstanding, after givingeffect to the potential dilution from the exercise of securities, such as stockoptions and warrants, into shares of common stock as if those securities wereexercised.

 

The following table summarizes the Basic EPS and Diluted EPScalculation (in thousands, except per share amounts):

 
|                                                                                    |   | **Three Months Ended****December 31, 2003** |   | **Three Months Ended****December 31, 2002** |   |
|-----------------------------------------------------------------------------------------|--------|-------------------------------------------------------|--------|-------------------------------------------------------|--------|
|                                                                                    |   | **Net****Income**                                     |   | **Shares**                                            |   | **EPS** |   | **Net****Income** |   | **Shares** |   | **EPS** |   |
| Basic EPS                                                                               |   | $                                                     | 2,054  |                                                  | 5,234  |   | $ | 0.39 |   | $ | 3,612 |   | 5,214 |   | $ | 0.69 |   |
| Incremental  shares from the assumed exercise of outstanding stock options and warrants |   | —                                                |   | 325                                                   |   |   |   | — |   | 507 |   |   |   |
|                                                                                    |   |                                                  |   |                                                  |   |   |   |   |   |   |   |   |   |
| Diluted EPS                                                                             |   | $                                                     | 2,054  |                                                  | 5,559  |   | $ | 0.37 |   | $ | 3,612 |   | 5,721 |   | $ | 0.63 |   |

 

Options to purchase 272,250 and 193,250shares were outstanding as of December 31, 2003 and 2002, respectively,but were not included in the computation of Diluted EPS as their effect wouldhave been antidilutive. These options could potentially dilute EPS in thefuture.

 

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 untilMarch 2005.  Pursuant to this program, the Company had repurchased83,104 shares of its common stock at a cost of $1,861,000 throughDecember 31, 2003, including repurchases during the quarter endedDecember 31, 2003 of 16,550 shares of its common stock at a cost of$392,000.

 

**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 Stock Issuedto Employees,” and related interpretations (see Note 7). The following tablesillustrate the effect on net income and earnings per share if the Companyhad accounted for its stock option plans using the fair value method ofaccounting under SFAS 123, “Accounting for Stock-Based Compensation,” asamended by SFAS 148, “Accounting for Stock-Based Compensation—Transition andDisclosure” (in thousands, except per share amounts):

 

4

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|                                                                                                                                    |   | **Three Months Ended  December 31,** |       |
|-----------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|------------|
|                                                                                                                                    |   | **2003**                                  |       | **2002** |   |
| Net income, as  reported                                                                                                                |   | $                                         | 2,054      |   | $ | 3,612 |   |
| Deduct:  Total  stock-based employee compensation expense determined under the fair value  based method for all grants, net of tax |   | (482                                      | )          | (2,073 | ) |
| Pro forma net  income                                                                                                                   |   | $                                         | 1,572      |   | $ | 1,539 |   |
|                                                                                                                                    |   |                                      |       |   |   |
| Basic EPS:                                                                                                                              |   |                                      |       |   |   |
| As reported                                                                                                                             |   | $                                         |  0.39 |   | $ |  0.69 |   |
| Pro forma                                                                                                                               |   | $                                         |  0.30 |   | $ |  0.30 |   |
|                                                                                                                                    |   |                                      |       |   |   |
| Diluted EPS:                                                                                                                            |   |                                      |       |   |   |
| As reported                                                                                                                             |   | $                                         |  0.37 |   | $ |  0.63 |   |
| Pro forma                                                                                                                               |   | $                                         |  0.29 |   | $ |  0.27 |   |

 

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.

 

During the three months ended December 31, 2003 and 2002, a totalof 150,200 and 194,000 stock options, respectively, were granted to certainemployees and non-employee directors for the purchase of the Company’s commonstock at prices not less than the fair market value of the Company’s commonstock on the date of grant.

 

The weighted average fair value of theoptions granted during the three months ended December 31,****2003and 2002 is estimated at $16.04 and $24.44 per share, respectively. Theweighted average fair value is calculated based on the date of grant using theBlack-Scholes option-pricing model with the following weighted averageassumptions:

 
|                       |   | **Three Months Ended December 31,** |   |
|----------------------------|--------|------------------------------------------|--------|
|                       |   | **2003**                                 |   | **2002** |   |
| Dividend yield             |   | none                                     |   | none |   |
| Expected price  volatility |   | 62.7                                     | %      | 61.3 | % |
| Risk-free  interest rates  |   | 3.3                                      | %      | 2.7 | % |
| Expected lives             |   | 8.3 years                                |   | 8.3 years |   |

 

**4.****     INVENTORIES**

 

Inventories were comprised of the following(in thousands):

 
|             |   | **December 31, 2003** |         | **September 30, 2003** |   |
|------------------|--------|----------------------------|--------------|-----------------------------|--------|
| Finished goods   |   | $                          |  69,407 |                        | $      |  73,583 |   |
| Work-in-progress |   | 2,356                      |         | 2,778                       |   |
| Raw materials    |   | 9,015                      |         | 8,144                       |   |
|             |   | $                          |  80,778 |                        | $      |  84,505 |   |

 

5

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**5.****     ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES**

 

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

 
|                                                         |   | **December 31, 2003** |   | **September 30, 2003** |   |
|--------------------------------------------------------------|--------|----------------------------|--------|-----------------------------|--------|
| Salaries,  wages, and employee benefits                      |   | $                          | 6,898  |                        | $      | 8,089 |   |
| Income taxes  payable                                        |   | 1,345                      |   | 1,991                       |   |
| Interest                                                     |   | 5,873                      |   | 2,356                       |   |
| Sales taxes                                                  |   | 2,684                      |   | 2,306                       |   |
| Insurance                                                    |   | 2,430                      |   | 2,135                       |   |
| Rent                                                         |   | 937                        |   | 802                         |   |
| Audit and  legal                                             |   | 2,495                      |   | 2,368                       |   |
| Reserves  recorded in the iMaternity acquisition (Note 6)    |   | 1,208                      |   | 1,593                       |   |
| Remaining  payout for redemption of Series A Preferred Stock |   | 2,091                      |   | 2,415                       |   |
| Accrued store  construction costs                            |   | 653                        |   | 1,991                       |   |
| Gift  certificates and store credits                         |   | 4,384                      |   | 1,988                       |   |
| Other                                                        |   | 2,841                      |   | 3,312                       |   |
|                                                         |   | $                          | 33,839 |                        | $      | 31,346 |   |

 

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

 

**6.****     ACQUISITION OF IMATERNITY**

 

The Company acquired eSpecialty Brands, LLC(“iMaternity”) on October 17, 2001 (the “Acquisition Date”) for$19,748,000, including transaction costs of $875,000.  The acquisition wasaccounted for under the purchase method of accounting, and the results ofoperations of iMaternity were included in the Company’s results of operationsfrom the Acquisition Date.  Prior periodresults were not restated.  Assetsacquired and liabilities assumed were recorded at their estimated fair values.

 

Based on the allocation of purchase price,the application of the purchase method of accounting resulted in $23,093,000 ofexcess purchase price (or goodwill) over the estimated fair value of the nettangible assets acquired of $22,145,000, less assumed liabilities of $16,553,000and costs to exit certain operations and locations of iMaternity of$8,937,000.  Included as part of the$16,553,000 of liabilities assumed, the Company assumed certain liabilitieswith trade creditors of $1,700,000 that were in dispute. Duringthe fiscal year ended September 30, 2003 (“fiscal 2003”), a determinationwas made that a portion of these liabilities and certain other acquiredpayables would not be paid. Accordingly, the Company reduced the iMaternity purchase accountingreserves by $1,784,000, reflected a related reduction of deferred income taxassets of $625,000, and reduced the acquired payables by $1,129,000, resultingin a reduction to goodwill of $2,288,000.

 

At the Acquisition Date, iMaternity operateda total of 166 Dan-Howard and Mothertime maternity clothing stores, includingsome under the trade name iMaternity, and the online iMaternity.com website.The Company developed a plan in conjunction with the acquisition to close 92iMaternity stores and convert the remaining acquired locations to the Company’sexisting store concepts of Motherhood and Mimi Maternity. TheCompany determined it would not close 12 of the original stores that wereintended to be closed, and the estimated lease termination costs accrued forthese anticipated closures of $1,519,000, less a related tax effect of$532,000, were reversed against goodwill. Further,the plan included the shutdown of iMaternity’s corporate headquarters andwarehouse operation in Chicago, as well as its manufacturing and warehousingfacilities in Costa Rica.  In connection with the plan, the Companyrecorded severance costs for involuntarily terminated employees of the acquiredbusiness of $2,587,000, lease termination fees and related legal costs of$4,200,000, and accrued for other costs to be incurred to complete the exitactivities of the acquired business totaling $2,150,000. Approximately 850employees of the acquired business were expected to be terminated as part ofthe plan, consisting of 528 corporate and 322 store employees.

 

As of December 31, 2003, the Company had closed 99 acquirediMaternity stores, of which 78 were included as part of the 92 planned storeclosures.  During the first quarter ofthe fiscal year ending September 30, 2004 (“fiscal 2004”), the Companyclosed 3 acquired iMaternity stores which were not part of the 92 planned storeclosures.  In accordance with its plan, the Company is continuing tonegotiate with the landlords to close 2 additional acquired iMaternitystores.  The timing of these store closures is dependent upon theCompany’s ability to negotiate and complete the lease termination settlements.

 

6

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During fiscal 2002, the Company closed the corporate headquarters andwarehouse operation in Chicago, an Internet–related development center in SanDiego, California and other domestic warehousing facilities. The iMaternitymanufacturing and warehousing operations in Costa Rica have been shut down andare being marketed for sale.  The carrying values of the Costa Ricafacilities were reduced by $200,000 during fiscal 2002 to their estimatedrealizable values as of the Acquisition Date, which was determined based on amarket survey received from an independent third party, less estimated sellingcosts, and is classified as “Assets Held for Sale” in the accompanyingconsolidated balance sheets.  Theremaining reserve for exit costs  atDecember 31, 2003 of $243,000 is principally for the expected costsrelated to the Costa Rican properties.

 

In connection with the store closures and the shutdown of the variousfacilities as described above, the Company terminated 820 employees (524corporate and 296 store employees), to whom a total of $1,890,000 ($1,687,000through fiscal 2002 and $203,000 in fiscal 2003) in accrued severance was paidout and charged against the liability as of September 30, 2003. Included in the severance payouts are monthly installments made with regard toa non-compete covenant and severance arrangement with a former executive ofiMaternity.  At September 30, 2003, the severance accrual of $697,000was reduced by $97,000, less a related tax effect of $34,000, againstgoodwill.  The remaining balance of theseverance reserve at December 31, 2003 of $550,000 reflects a non-competeand severance arrangement that is payable ratably on a monthly basis throughSeptember 2006.

 

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

 
|                    |   | **Adjustments and****Reserves Recorded in  Purchase Accounting** |   | **Balance as of  September 30, 2003** |   | **First Quarter****Fiscal 2004 Charges** |   | **Balance as of  December 31, 2003** |   |
|-------------------------|--------|------------------------------------------------------------------|--------|--------------------------------------------|--------|------------------------------------------|--------|-------------------------------------------|--------|
| Lease  termination fees |   | $                                                                | 4,200  |                                       | $      | 668                                      |   | $                                         | (253   | ) | $ | 415 |   |
| Severance               |   | 2,587                                                            |   | 600                                        |   | (50                                      | )      | 550                                       |   |
| Exit and other  costs   |   | 2,150                                                            |   | 325                                        |   | (82                                      | )      | 243                                       |   |
|                    |   | $                                                                | 8,937  |                                       | $      | 1,593                                    |   | $                                         | (385   | ) | $ | 1,208 |   |

 

**7.****     NEW ACCOUNTING PRONOUNCEMENTS**

 

*SFAS 148.* In December 2002, the FASB issued SFAS 148 which supercedes aportion of SFAS 123 and is effective for fiscal years ending afterDecember 15, 2002.  SFAS 148provides alternative methods of transition for a voluntary change to the fairvalue based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to requireprominent disclosures in both annual and interim financial statements about themethod of accounting for stock-based employee compensation and the effect ofthe method used on reported results.  The Company adopted the disclosurerequirements for interim financial statements beginning with the quarter endedMarch 31, 2003.  The Company has not completed its evaluation of thealternative methods of transition, and thus has not yet made a determination onwhether it will adopt the fair value method of accounting for stock-basedemployee compensation under the transition guidance of SFAS 148.  As such, the Company has not yet been ableto determine what impact, if any, the adoption of this statement will have onthe Company’s financial position or results of operations.

 

**8. GUARANTOR SUBSIDIARIES**

 

Pursuant to the terms of the indenturerelating to the $125,000,000 of 111⁄4% Senior Notes due 2010 (the “New SeniorNotes”), each of the domestic subsidiaries of Mothers Work, Inc. has jointlyand severally provided an unconditional guarantee of the obligations of MothersWork with respect to the New Senior Notes. There are no restrictions on any ofthe assets of the Guarantor Subsidiaries which would limit their ability totransfer funds to Mothers Work in the form of loans, advances or cashdividends, except as provided by applicable law. None of the Company’s foreignsubsidiaries have guaranteed the New Senior Notes. The condensed consolidatingfinancial information for the Company, the Guarantor Subsidiaries, and theCompany’s Non–Guarantor Subsidiaries as of and for the three months endedDecember 31, 2003 as presented below has been prepared from the books andrecords maintained by the Guarantor Subsidiaries and the Company. The condensedfinancial information may not be necessarily indicative of the results ofoperations or financial position had the Guarantor Subsidiaries operated asindependent entities. Certain intercompany revenues included in the subsidiaryrecords are eliminated in consolidation. As a result of this activity, an amount due to/due from parent willexist at any time.

 

7

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**Mothers Work, Inc.**

**Condensed Consolidating Balance Sheet**

**December 31, 2003**

(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                        |   | $                                    | 25,760        |                          | $      | 44                                                       |   | $                                 | 723       |                             | $      | — |   | $ | 26,527 |   |
| Trade  receivables                                |   | 2,460                                |          | —                        |   | 10                                                       |   | —                            |      | 2,470                            |   |
| Inventories                                       |   | 80,127                               |          | —                        |   | 651                                                      |   | —                            |      | 80,778                           |   |
| Deferred  income taxes                            |   | 4,692                                |          | —                        |   | —                                                   |   | —                            |      | 4,692                            |   |
| Prepaid  expenses and other current assets        |   | 5,214                                |          | —                        |   | 26                                                       |   | —                            |      | 5,240                            |   |
| Total Current  Assets                             |   | 118,253                              |          | 44                            |   | 1,410                                                    |   | —                            |      | 119,707                          |   |
| Property,  Plant and Equipment, net               |   | 55,956                               |          | —                        |   | 1,033                                                    |   | —                            |      | 56,989                           |   |
| Assets Held  for Sale                             |   | —                               |          | —                        |   | 1,200                                                    |   | —                            |      | 1,200                            |   |
| Other Assets                                      |   | 69,999                               |          | —                        |   | —                                                   |   | —                            |      | 69,999                           |   |
| Investments in  and Advances to (from) Affiliates |   | (14,030                              | )             | 208,213                       |   | (2,937                                                   | )      | (191,246                          | )         | —                           |   |
| Total Assets                                      |   | $                                    |  230,178 |                          | $      |  208,257                                            |   | $                                 |  706 |                             | $      |  (191,246 | ) | $ |  247,895 |   |
|                                              |   |                                 |          |                          |   |                                                     |   |                              |      |                             |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**     |   |                                 |          |                          |   |                                                     |   |                              |      |                             |   |
| Current Liabilities:                              |   |                                 |          |                          |   |                                                     |   |                              |      |                             |   |
| Line of credit  borrowings                        |   | $                                    | —        |                          | $      | —                                                   |   | $                                 | —    |                             | $      | — |   | $ | — |   |
| Current  portion of long-term debt                |   | 279                                  |          | —                        |   | —                                                   |   | —                            |      | 279                              |   |
| Accounts  payable                                 |   | 16,194                               |          | 36                            |   | —                                                   |   | —                            |      | 16,230                           |   |
| Accrued  expenses and other current liabilities   |   | 16,210                               |          | 17,333                        |   | 296                                                      |   | —                            |      | 33,839                           |   |
| Total Current  Liabilities                        |   | 32,683                               |          | 17,369                        |   | 296                                                      |   | —                            |      | 50,348                           |   |
| Long-Term Debt                                    |   | 127,766                              |          | —                        |   | —                                                   |   | —                            |      | 127,766                          |   |
| Deferred Rent                                     |   | 6,569                                |          | —                        |   | 52                                                       |   | —                            |      | 6,621                            |   |
| Total  Liabilities                                |   | 167,018                              |          | 17,369                        |   | 348                                                      |   | —                            |      | 184,735                          |   |
|                                              |   |                                 |          |                          |   |                                                     |   |                              |      |                             |   |
| Total  Stockholders’ Equity                  |   | 63,160                               |          | 190,888                       |   | 358                                                      |   | (191,246                          | )         | 63,160                           |   |
| Total  Liabilities and Stockholders’ Equity  |   | $                                    | 230,178       |                          | $      | 208,257                                                  |   | $                                 | 706       |                             | $      | (191,246 | ) | $ | 247,895 |   |

 

8

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**Mothers Work, Inc.**

**Consolidating Statement of Operations**

**For The Three Months Ended December 31,2003**

(in thousands)

 
|                                          |   | **Mothers Work****(Parent Company)** |    | **Guarantor****Subsidiaries** |   | **Non-Guarantor****Subsidiaries (Foreign  Companies)** |   | **Consolidating****Eliminations** |   | **Mothers Work****Consolidated** |   |
|-----------------------------------------------|--------|--------------------------------------|---------|-------------------------------|--------|--------------------------------------------------------|--------|-----------------------------------|--------|----------------------------------|--------|
| Net sales                                     |   | $                                    | 130,050 |                          | $      | 7,003                                                  |   | $                                 | 1,645  |                             | $      | (7,003 | ) | $ | 131,695 |   |
| Cost of goods  sold                           |   | 61,067                               |    | —                        |   | 598                                                    |   | —                            |   | 61,665                           |   |
| Gross profit                                  |   | 68,983                               |    | 7,003                         |   | 1,047                                                  |   | (7,003                            | )      | 70,030                           |   |
| Selling,  general and administrative expenses |   | 68,998                               |    | 34                            |   | 886                                                    |   | (7,003                            | )      | 62,915                           |   |
| Operating  income (loss)                      |   | (15                                  | )       | 6,969                         |   | 161                                                    |   | —                            |   | 7,115                            |   |
| Interest  income (expense)                    |   | (5,953                               | )       | 2,262                         |   | —                                                 |   | —                            |   | (3,691                           | )      |
| Equity in  earnings of subsidiaries           |   | 9,392                                |    | —                        |   | —                                                 |   | (9,392                            | )      | —                           |   |
| Income before  income taxes                   |   | 3,424                                |    | 9,231                         |   | 161                                                    |   | (9,392                            | )      | 3,424                            |   |
| Income tax  provision                         |   | 1,370                                |    | 3,231                         |   | 62                                                     |   | (3,293                            | )      | 1,370                            |   |
| Net income                                    |   | $                                    | 2,054   |                          | $      | 6,000                                                  |   | $                                 | 99     |                             | $      | (6,099 | ) | $ | 2,054 |   |

 

9

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**Mothers Work, Inc.**

**Consolidating Cash Flow Statement**

**For The Three Months Ended December 31,2003**

(in thousands)

 
|                                                                               |   | **Mothers Work****(Parent Company)** |   | **Guarantor****Subsidiaries** |   | **Non-Guarantor****Subsidiaries  (Foreign  Companies)** |   | **Consolidating****Eliminations** |   | **Mothers Work****Consolidated** |   |
|------------------------------------------------------------------------------------|--------|--------------------------------------|--------|-------------------------------|--------|---------------------------------------------------------|--------|-----------------------------------|--------|----------------------------------|--------|
| **Cash Flows from  Operating Activities:**                                         |   |                                 |   |                          |   |                                                    |   |                              |   |                             |   |
| Net income                                                                         |   | $                                    | 2,054  |                          | $      | 6,000                                                   |   | $                                 | 99     |                             | $      | (6,099 | ) | $ | 2,054 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |   |                                 |   |                          |   |                                                    |   |                              |   |                             |   |
| Depreciation  and amortization                                                     |   | 2,455                                |   | —                        |   | 32                                                      |   | —                            |   | 2,487                            |   |
| Loss on  impairment of long-lived assets                                           |   | 142                                  |   | —                        |   | —                                                  |   | —                            |   | 142                              |   |
| Loss on  disposal of assets                                                        |   | 77                                   |   | —                        |   | —                                                  |   | —                            |   | 77                               |   |
| Accretion of  discount on senior notes                                             |   | 36                                   |   | —                        |   | —                                                  |   | —                            |   | 36                               |   |
| Deferred  income tax benefit                                                       |   | (38                                  | )      | —                        |   | —                                                  |   | —                            |   | (38                              | )      |
| Tax benefit of  stock option exercises                                             |   | 38                                   |   | —                        |   | —                                                  |   | —                            |   | 38                               |   |
| Amortization  of deferred financing costs                                          |   | 99                                   |   | —                        |   | —                                                  |   | —                            |   | 99                               |   |
| Provision for  deferred rent                                                       |   | 146                                  |   | —                        |   | 13                                                      |   | —                            |   | 159                              |   |
| Changes in  assets and liabilities:                                                |   |                                 |   |                          |   |                                                    |   |                              |   |                             |   |
| Decrease  (increase) in—                                                      |   |                                 |   |                          |   |                                                    |   |                              |   |                             |   |
| Trade  receivables                                                                 |   | (57                                  | )      | —                        |   | (28                                                     | )      | —                            |   | (85                              | )      |
| Inventories                                                                        |   | 3,094                                |   | —                        |   | 633                                                     |   | —                            |   | 3,727                            |   |
| Prepaid  expenses and other current assets                                         |   | 1,305                                |   | —                        |   | (518                                                    | )      | —                            |   | 787                              |   |
| Investments in  and advances to (from) affiliates                                  |   | 3,134                                |   | (9,233                        | )      | —                                                  |   | 6,099                             |   | —                           |   |
| Increase  (decrease) in—                                                      |   |                                 |   |                          |   |                                                    |   |                              |   |                             |   |
| Accounts payable,  accrued expenses and other current liabilities                  |   | (4,977                               | )      | 3,244                         |   | 45                                                      |   | —                            |   | (1,688                           | )      |
| Net cash  provided by operating activities                                         |   | 7,508                                |   | 11                            |   | 276                                                     |   | —                            |   | 7,795                            |   |
| **Cash  Flows from Investing Activities:**                                         |   |                                 |   |                          |   |                                                    |   |                              |   |                             |   |
| Capital  expenditures                                                              |   | (3,619                               | )      | —                        |   | (16                                                     | )      | —                            |   | (3,635                           | )      |
| Purchase of  intangible assets                                                     |   | (8                                   | )      | —                        |   | —                                                  |   | —                            |   | (8                               | )      |
| Net cash used  in investing activities                                             |   | (3,627                               | )      | —                        |   | (16                                                     | )      | —                            |   | (3,643                           | )      |
| **Cash  Flows from Financing Activities:**                                         |   |                                 |   |                          |   |                                                    |   |                              |   |                             |   |
| Increase  (decrease) in line of credit borrowings                                  |   | —                               |   | —                        |   | —                                                  |   | —                            |   | —                           |   |
| Increase in  cash overdrafts                                                       |   | 2,329                                |   | —                        |   | —                                                  |   | —                            |   | 2,329                            |   |
| Repayment of  long-term debt                                                       |   | (38                                  | )      | —                        |   | —                                                  |   | —                            |   | (38                              | )      |
| Repurchase of  common stock                                                        |   | (392                                 | )      | —                        |   | —                                                  |   | —                            |   | (392                             | )      |
| Payout for  redeemed Series A Preferred Stock                                      |   | (324                                 | )      | —                        |   | —                                                  |   | —                            |   | (324                             | )      |
| Proceeds from  exercise of stock options                                           |   | 69                                   |   | —                        |   | —                                                  |   | —                            |   | 69                               |   |
| Net cash  provided by financing activities                                         |   | 1,644                                |   | —                        |   | —                                                  |   | —                            |   | 1,644                            |   |
| **Net  Increase in Cash and Cash Equivalents**                                     |   | 5,525                                |   | 11                            |   | 260                                                     |   | —                            |   | 5,796                            |   |
| **Cash  and Cash Equivalents, Beginning of Period**                                |   | 20,235                               |   | 33                            |   | 463                                                     |   | —                            |   | 20,731                           |   |
| **Cash  and Cash Equivalents, End of Period**                                      |   | $                                    | 25,760 |                          | $      | 44                                                      |   | $                                 | 723    |                             | $      | — |   | $ | 26,527 |   |

 

10

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**9.****     COMMITMENTS AND CONTINGENCIES**

 

The Company was party to an action allegingthat certain former and current employees should have received overtimecompensation, meal breaks and rest breaks under Washington law in SpokaneCounty Superior Court. The plaintiffs in the Washington case sought unspecifiedactual damages, penalties and attorneys’ fees. On or about April 23, 2003,one purported subclass of the plaintiffs accepted a settlement arrangement inthe amount of $50,000, plus attorney’s fees and costs incurred through suchdate.  After a trial with the remaining purported subclass, in May 2003,the jury found for the Company on all but one claim, for which it awarded theremaining plaintiffs damages in the amount of $106,000.  The parties arecurrently contesting costs and expenses being sought by the plaintiffs in theamount of approximately $390,000.  Accordingly, during fiscal 2003, theCompany recorded a charge and set up a related accrual of approximately$546,000 for the estimated legal fees and settlement costs of this case.  The remaining balance of the accrual isincluded in accrued expenses in the accompanying consolidated balance sheet.

 

In addition, from time to time, the Company is named as a defendant inlegal actions arising from its normal business activities. Although the amountof any liability that could arise with respect to currently pending actions,including the matter specifically described above, cannot be accuratelypredicted, the Company does not believe that the resolution of any pendingaction will have a material adverse effect on its financial position or resultsof operations.

 

11

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

 

**Resultsof Operations**

 

The following tables set forth certain operating data as a percentageof net sales and as a percentage change for the three months endedDecember 31:

 
|                                          |   | **2003** |   | **2002** |   | **% Increase (Decrease)****Three Months Ended  December 31,  2003 vs. 2002** |   |
|-----------------------------------------------|--------|----------|--------|----------|--------|-----------------------------------------------------------------------------------|--------|
| Net sales                                     |   | 100.0    | %      | 100.0    | %      | 4.2                                                                               | %      |
| Cost of goods  sold                           |   | 46.8     |   | 47.3     |   | 3.3                                                                               |   |
| Gross profit                                  |   | 53.2     |   | 52.7     |   | 5.1                                                                               |   |
| Selling,  general and administrative expenses |   | 47.8     |   | 45.2     |   | 10.1                                                                              |   |
| Operating  income                             |   | 5.4      |   | 7.5      |   | (25.3                                                                             | )      |
| Interest  expense, net                        |   | 2.8      |   | 3.0      |   | (1.4                                                                              | )      |
| Income before  income taxes                   |   | 2.6      |   | 4.5      |   | (40.8                                                                             | )      |
| Income tax  provision                         |   | 1.0      |   | 1.6      |   | (36.8                                                                             | )      |
| Net income                                    |   | 1.6      | %      | 2.9      | %      | (43.1                                                                             | )%     |

 

The following table sets forth certaininformation concerning the number of Company stores and leased departments forthe three months ended December 31:

 
|                         |   | **2003**   |   | **2002**                  |   |
|------------------------------|--------|------------|--------|---------------------------|--------|
|                         |   | **Stores** |   | **Leased****Departments** |   | **Total Retail  Locations** |   | **Stores** |   | **Leased****Departments** |   | **Total Retail  Locations** |   |
| Beginning of  period         |   | 851        |   | 155                       |   | 1,006 |   | 763 |   | 146 |   | 909 |   |
| Closed  iMaternity locations |   | (3         | )      | —                    |   | (3 | ) | (2 | ) | — |   | (2 | ) |
| Opened                       |   | 24         |   | 3                         |   | 27 |   | 26 |   | 4 |   | 30 |   |
| Closed                       |   | (2         | )      | (1                        | )      | (3 | ) | (2 | ) | — |   | (2 | ) |
| End of period                |   | 870        |   | 157                       |   | 1,027 |   | 785 |   | 150 |   | 935 |   |

 

**ThreeMonths Ended December 31, 2003 and 2002**

 

*Net Sales.*  Our netsales for the first quarter of our fiscal year ending September 30, 2004(fiscal 2004) increased by 4.2%, a $5.4 million increase, to $131.7 millionfrom $126.3 million for the first quarter of our fiscal year endedSeptember 30, 2003 (fiscal 2003). Comparable store sales for the firstquarter of fiscal 2004 decreased by 5.0%, based on 845 locations, versus acomparable store sales increase of 5.1% during the first quarter of fiscal2003, based on 746 locations.  Theincrease in sales for the quarter resulted primarily from the addition of newretail locations, with the total number of our retail locations increasing to1,027 at December 31, 2003 compared to 935 at December 31, 2002,partially offset by the decline in comparable store sales. The decreasein comparable store sales in the first quarter of fiscal 2004 reflected someweakness in the fashion portion of our product line, the continued difficultretail environment, some cannibalization impact on our existing stores by ournew stores opened in the same geographic markets and, perhaps, the effect ofincreased competitive pressures in the maternity apparel market.

 

*Gross Profit.*  Ourgross profit for the first quarter of fiscal 2004 increased by 5.1%, a $3.4million increase, to $70.0 million from $66.6 million for fiscal 2003.  This increase resulted primarily from ourincreased net sales and, to a lesser extent, our improved gross margin comparedto last year.  Gross profit as a percentage of net sales for the firstquarter of fiscal 2004 increased by 43 basis points (0.43 percentage points ofnet sales) to 53.2% from 52.7% for the first quarter of fiscal 2003.  Theincrease in gross margin versus last year primarily reflects the reduction ofour product costs as a result of the continued expansion and refinement of ourglobal sourcing initiatives, partially offset by additional markdownstaken to manage inventory levels in the face of weaker than expected sales.

 

*Selling, General and Administrative Expenses.*  Ourselling, general and administrative expenses for the first quarter of fiscal2004 increased by 10.1%, a $5.8 million increase, to $62.9 million from$57.1 million for the first quarter of fiscal 2003. Compared to the firstquarter of fiscal 2003, store wages and related benefit costs increased by$2.5 million and store rent and related expenses increased by $3.1 millionfor the first quarter of fiscal 2004, primarily resulting from our new storeopenings during the past twelve months.  As a percentage of net sales,these operating expenses increased to 47.8% for the first quarter of fiscal2004 compared to

 

12

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45.2% for the first quarter of fiscal2003.  This increase resulted primarilyfrom increased store occupancy, store payroll and employee benefits expenseratios resulting from the negative 5.0% comparable store salesfor the quarter and the planned higher store expense ratios of our new storeopenings.

 

*Operating Income.*  Our operating income for the first quarterof fiscal 2004 decreased by 25.3%, a $2.4 million decrease, to $7.1 millionfrom $9.5 million for the first quarter of fiscal 2003, due to ourincreased store operating expenses, only partially offset by our increasedsales volume and improved gross margin. Operating income as a percentage of netsales for the first quarter of fiscal 2004 decreased to 5.4% from 7.5% for thefirst quarter of fiscal 2003 due to our increased operating expense ratio.

 

*Interest Expense, Net.*  Our netinterest expense for the first quarter of fiscal 2004 decreased by 1.4%, a$0.05 million decrease, to $3.69 million from $3.74 million for the firstquarter of fiscal 2003.

 

*Income Taxes.*  Oureffective income tax rate increased to 40.0% for the first quarter of fiscal2004 from 37.5% for the first 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.*  Netincome for the first quarter of fiscal 2004 was $2.1 million, or $0.37 percommon share (diluted) compared to $3.6 million, or $0.63 per common share(diluted) for the first quarter of fiscal 2003, representing a $1.6 million, or43.1%, decrease in net income and a 41.3% decrease in diluted earnings pershare.  Our average diluted shares outstanding for the first quarter offiscal 2004 were 5,559,000, a 2.8% decrease from the 5,721,000 average dilutedshares outstanding for the first quarter of fiscal 2003.  The decrease inaverage diluted shares outstanding reflects our repurchase of shares of ourcommon stock pursuant to our stock repurchase program and the reduced dilutiveeffect of outstanding options and warrants compared to last year, offset by theimpact of stock option and warrant exercises. As of December 31, 2003, we had repurchased 83,104 shares of ourcommon stock pursuant to our share repurchase program, of which 16,550 wererepurchased in the first quarter of fiscal 2004.

 

**Seasonality**

 

Our business, like that of many otherretailers, is seasonal.  Our quarterly net sales have historically been highest in ourthird fiscal quarter, corresponding to the Spring selling season, followed byour first fiscal quarter, corresponding to the Fall/holiday selling season.Given the typically higher gross margin we experience in the third fiscalquarter compared to other quarters, the relatively fixed nature of most of ouroperating expenses and interest expense, and the historically higher saleslevel 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 notnecessarily indicative of the results that may be achieved for a full fiscalyear.  Quarterly results may fluctuate materially depending upon, amongother things, the timing of new store openings, net sales and profitabilitycontributed by new stores, increases or decreases in comparable store sales,adverse weather conditions, shifts in the timing of certain holidays andpromotions, changes in inventory and production levels and the timing ofdeliveries of inventory, and changes in our merchandise mix.

 

**Liquidityand Capital Resources**

 

Our cash needs have primarily been for:(i) debt service on our senior notes and our credit facility,(ii) capital expenditures, including leasehold improvements, fixtures andequipment for new stores; store relocations and expansions of our existingstores as well as improvements and new equipment for our distribution andcorporate facilities and information systems, and (iii) working capital,including inventory to support our new and existing stores. We havehistorically financed these capital requirements from cash flows fromoperations and borrowings under our credit facility.

 

In August 2002, we completed debt andequity offerings whereby we issued $125.0 million of 111⁄4% senior notes due 2010(the New Senior Notes) and 1,165,000 new shares of common stock, and used thenet proceeds: (i) to repay the existing 125/8% senior notes, plus accrued and unpaid interestand related fees and expenses; (ii) to repay the subordinated notes that hadbeen issued to former holders of shares of our Series A Preferred Stock in lieuof accrued and unpaid dividends; (iii) to redeem all of the outstanding sharesof our Series A Preferred Stock and to purchase, through an offer to purchase,all of the outstanding shares of our Series C Preferred Stock, in each case,for a price which included all accrued and unpaid dividends; (iv) to repay theoutstanding borrowings under our credit facility; and (v) for general corporatepurposes. We received net proceeds from these debt and equity offerings ofapproximately $147.9 million, after deducting fees and expenses of theofferings, and including approximately $0.6 million of cash proceeds from theexercise of stock options by certain selling stockholders in conjunction withthe equity offering.  We planned to useapproximately $13.4 million to redeem all of the outstanding Series A PreferredStock, including accrued and unpaid dividends, of which $11.3 million has beenpaid as of December 31, 2003, and approximately $2.1 million will be paidout upon submission of proper documentation from the remaining holders of theSeries A Preferred Stock**.** The $2.1 million is reflected in our consolidated balance sheet as ofDecember 31, 2003 in accrued expenses and other current liabilities.

 

The New Senior Notes were issued at 98.719%of their face amount, resulting in an annual effective interest rate of11.50%.  Interest on the New Senior Notes is payable semi-annually in cashon February 1st and August 1st and commenced onFebruary 1, 2003.  The New Senior Notes were issued by Mothers Work,are senior unsecured obligations of Mothers Work, and are

 

13

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unconditionally guaranteed on a senior basisby our domestic subsidiaries.  See Note 8 of “Notes to ConsolidatedFinancial Statements.”  The New Senior Notes are redeemable at our option,in whole or in part at any time on or after August 1, 2006 at 105.625% oftheir face amount, plus accrued and unpaid interest, declining ratably to 100% oftheir face amount, plus accrued and unpaid interest, on and afterAugust 1, 2009.  Additionally, before August 1, 2005, we mayredeem, at our option, up to 35% of the aggregate principal amount of the NewSenior Notes with the proceeds from equity offerings at 111.25% of theirprincipal amount, plus accrued and unpaid interest.  The New Senior Notesimpose certain restrictions on our ability to, among other things, incuradditional indebtedness, pay dividends, repurchase stock, and enter into othervarious types of transactions.

 

Cash and cash equivalents increased by $5.8million during the first quarter of fiscal 2004 compared to an increase of$13.6 million for the first quarter of fiscal 2003.  Cash provided byoperations decreased by $9.1 million to $7.8 million for the first quarter offiscal 2004 from $16.9 million for the first quarter of fiscal 2003.  Thisdecrease in cash from operations was primarily the result of lower net income,higher income tax payments, and less cash provided from changes in working capitalaccounts such as accounts payable, accrued expenses, and trade receivables.  Duringthe first quarters of fiscal 2004 and fiscal 2003, we used our cash provided byoperations primarily to increase our cash and cash equivalents, as well as topay for capital expenditures.

 

For the first quarter of fiscal 2004, we spent $3.6 million oncapital expenditures, including $2.5 million for leasehold improvements,fixtures and equipment principally for new store facilities, as well asimprovements to existing stores, and $1.1 million for our distribution andcorporate facilities and information systems. This compares to$5.2 million in capital expenditures for the first quarter of fiscal 2003,including $4.3 million for new store facilities and improvement to existingstores and retail locations, and $0.9 million for our distribution andcorporate facilities and information systems.  The decrease in capitalexpenditures primarily reflects the decrease in new store capital expenditures.

 

In March 2003, our Board of Directors approved a share repurchaseprogram under which we may repurchase up to $10.0 million of our outstandingcommon stock from time to time in private transactions or on the open marketthrough March 2005.  As ofDecember 31, 2003, pursuant to this program, we have repurchased andretired 83,104 shares in the aggregate at a total cost of approximately $1.9million, for an average cost of $22.39 per share, including repurchases during the quarter ended December 31, 2003 of16,550 shares of our common stock at a cost of approximately $0.4 million.  In addition, since December 31, 2003, we have repurchased an additional 25,994 sharesat a cost of approximately $0.6 million. The indenture governing the New Senior Notes and the terms of ourcredit facility contain restrictions that place limits on certain payments byus, including payments to repurchase shares of our common stock. Ourrepurchases of common stock have been made in compliance with all restrictionsunder the indenture governing the New Senior Notes and the terms of our creditfacility.

 

We have a $60 million credit facilitymaturing on September 15, 2004, which includes a $56.0 millionborrowing base revolving line of credit and approximately $4 million tosupport a special purpose letter of credit facility. The credit facility has anunused facility fee of 10 basis points per annum.  Interest on borrowingsoutstanding is currently based on the lender’s prime rate or, at our election,an alternative rate of LIBOR plus 200 basis points for all or part of thedirect borrowings outstanding. As of December 31, 2003 and 2002, therewere no direct borrowings under the credit facility.  Borrowings under thecredit facility would have borne interest at the rate of between approximately3.1% and 4.0% per annum as of December 31, 2003.  Amounts availablefor direct borrowings, net of letters of credit outstanding, are limited to thelesser of (a) the unused portion of the credit facility or (b) theAggregate Adjusted Availability (“AAA”) as defined in the agreement based on apercentage of eligible inventory, receivables and cash.  The credit facility is secured by a securityinterest in our accounts receivable, inventory, equipment, fixtures, cash andother assets. There are no financial covenant requirements in the agreementunless the AAA falls below $10.0 million. In such event, we would have toachieve minimum cash flow, as defined in the agreement, of not less than zero.During the first quarter of fiscal 2004 and all of fiscal 2003, we always exceededthe minimum required AAA.  As of December 31, 2003, outstandingborrowings under the credit facility consisted of no direct borrowings and $3.9million in letters of credit, with AAA and available borrowings of $52.1million, compared to no direct borrowings and $3.1 million in letters ofcredit, with AAA and available borrowings of $48.1 million as ofDecember 31, 2002.  In addition,pursuant to the special purpose letter of credit facility, as of December 31,2003 and 2002, we have an outstanding standby letter of credit of $3.3 millionand $3.4 million, respectively, to collateralize an outstanding industrialrevenue bond.  As of December 31,2003 and 2002, pursuant to the special purpose letter of credit facility, wealso had an outstanding standby letter of credit of $1.0 million tocollateralize a government mortgage note.

 

Our management believes that our current cashand working capital positions, expected operating cash flows and availableborrowing capacity under our credit facility (including successor creditfacilities to our current facility, which expires on September 15, 2004)will be sufficient to fund our working capital, capital expenditures and debtrepayment requirements and to fund stock repurchases, if any, for theforeseeable future.

 

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**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 materially affected. However, the Company is not currently aware of any reasonably likely events orcircumstances that would result in materially different results.

 

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 ofmerchandise, freight, duty and broker fees. A periodic review of inventoryquantities on hand is performed in order to determine if inventory is properlyvalued at the lower of cost or market. Factors related to current inventoriessuch as future consumer demand and fashion trends, current aging, currentanalysis of merchandise based on receipt date, current and anticipated retailmarkdowns or wholesale discounts, and class or type of inventory are analyzedto determine estimated net realizable values.  Criteria utilized by theCompany to quantify aging trends include factors such as the amount ofmerchandise received within the past twelve months, merchandise received morethan one year before with quantities on-hand in excess of 12 months of sales,and merchandise currently selling below cost.  A provision is recorded toreduce the cost of inventories to the estimated net realizable values, ifrequired. Inventories as of December 31, 2003 and September 30, 2003totaled $80.8 million and $84.5 million, respectively, representingapproximately 32.6% and 34.3% of total assets, respectively. Given thesignificance of inventories to the Company’s Consolidated Financial Statements,the determination of net realizable values is considered to be a criticalaccounting estimate. Any significant unanticipated changes in the factors notedabove could have a significant impact on the value of our inventories and ourreported operating results.

 

*Long-Lived Assets.*  Ourlong-lived assets consist principally of store leasehold improvements and areincluded in the “Property, Plant and Equipment, net” line item in ourconsolidated balance sheets. These long-lived assets are recorded at cost andare amortized using the straight-line method over the lesser of the applicablestore lease term or the estimated useful life of the leasehold improvements.The typical initial lease term for our stores averages from seven to tenyears.  Net property, plant and equipment as of December 31, 2003 andSeptember 30, 2003 totaled $57.0 million and $57.8 million, respectively,representing approximately 23.0% 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,that is, Motherhood, Mimi, 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. If economic conditions are substantiallydifferent from our expectations, the carrying value of certain of ourlong-lived assets may become impaired.  As a result of our impairmentassessment, we recorded write-downs of long-lived assets of $142,000 for thefirst quarter of fiscal 2004, and we had no write-downs of long-lived assetsfor the first quarter 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 balancesheets.  As of both December 31, 2003 and September 30, 2003,goodwill totaled $50.4 million, respectively, representing approximately 20.3%and 20.4% of total assets, respectively.  In June 2001, the FinancialAccounting Standards Board (FASB) issued Statement of Financial AccountingStandards (SFAS) 142, “Goodwill and Other Intangible Assets.” SFAS 142 requiresthat goodwill no longer be amortized, but instead be tested for impairment atleast annually or as impairment indicators arise. Prior to our adoption of SFAS142 on October 1, 2001, goodwill was amortized using the straight-linemethod over a period of 20 years.

 

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

 

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purposes of applying SFAS 142 based on ourreporting structure. The fair value of our single reporting unit is determinedbased on the fair market value of our outstanding common stock on a controlbasis. The Company performed the initial adoption impairment test in earlyfiscal 2002.  The results of the initial impairment test and the annualimpairment test performed as of September 30, 2003 indicated fair valueamounts exceeded carrying amounts by a substantial margin.  If anysignificant unanticipated change in the fair value of our outstanding commonstock on a control basis were to occur in the future, the carrying balance ofour goodwill may become impaired.

 

*Accounting for Income Taxes.*  As partof the process of preparing our Consolidated Financial Statements, we arerequired to estimate our income taxes in each of the jurisdictions in which weoperate. This process requires us to estimate our actual current tax exposuretogether with assessing temporary differences resulting from differingtreatment of items, such as depreciation of property and equipment andvaluation of inventories, for tax and accounting purposes. We determine ourprovision for income taxes based on federal and state tax laws and regulationscurrently in effect, some of which have been recently revised. Legislationchanges currently proposed by certain of the states in which we operate, ifenacted, could increase our transactions or activities subject to tax. Any suchlegislation that becomes law could result in an increase in our state incometax expense and our state income taxes paid, which could have a material andadverse effect on 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 December 31, 2003 and September 30, 2003totaled $18.3 million and $18.2 million, respectively, representingapproximately 7.4% of total assets at each of these dates. To the extent webelieve that recovery of the deferred tax assets is not more likely than not,we must establish a valuation allowance. To the extent we establish a valuationallowance or change the allowance in a period, income tax expense will beimpacted.

 

*Accounting for Contingencies*.  From time to time, we are named as adefendant in legal actions arising from our normal business activities. We account for contingencies such as these in accordance with SFAS 5,“Accounting for Contingencies.”  SFAS 5 requires us to record an estimatedloss contingency 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 states that when there is a range of loss and noamount within that range is a better estimate than any other, then the minimumamount of the range shall be accrued.  Accounting for contingenciesarising from contractual or legal proceedings requires company management touse its best judgment when estimating an accrual related to such contingencies,which includes consultation with the Company’s legal counsel. As of both December 31,2003 and September 30, 2003, included in our accrual for losscontingencies is $0.5 million in connection with the previously disclosedemployment-related action filed against us in Washington.  As additionalinformation becomes known, our accrual for a loss contingency could fluctuate,thereby creating variability in our results of operations from period toperiod. Likewise, an actual loss arising from a loss contingency whichsignificantly exceeds the amount accrued for in our financial statements couldhave a material adverse impact on our operating results for the period in whichsuch actual loss becomes known.

 

**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 storelocations, continued availability of capital and financing, ability to hire anddevelop senior 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.

 

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**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.

 

As of December 31, 2003, the principalcomponents of our debt portfolio were the $125.0 million of New SeniorNotes due 2010 and the $60 million credit facility, both of which aredenominated in U.S. dollars.  The fair value of the debt portfolio isreferred to as the “debt value.”  The New Senior Notes bear interest at afixed rated of 111⁄4%.  While a change in market interest rates would notaffect the interest incurred or cash flow related to this fixed rate portion ofthe debt portfolio, the debt value would be affected.

 

Our revolving credit facility carries avariable interest rate that is tied to market indices.  As ofDecember 31, 2003, we had no direct borrowings and $3.9 million of lettersof credit outstanding under our credit facility (plus an additional $4.3million of letters of credit outstanding under a special purpose letter ofcredit facility).  Borrowings under the credit facility would have borneinterest at a rate between approximately 3.1% and 4.0% per annum as of December 31,2003.  Any future borrowings under the credit facility would, to theextent of outstanding borrowings, be affected by changes in market interestrates. A change in market interest rates on the variable portion of the debtportfolio impacts the interest incurred and cash flows, but does not impact thevalue of the financial instrument.

 

The sensitivity analysis as it relates to thefixed portion of our debt portfolio assumes an instantaneous 100 basis pointmove in interest rates from their levels as of December 31, 2003, with allother variables held constant.  A 100 basis point increase in marketinterest rates would result in a decrease in the value of the debt byapproximately $5.6 million as of December 31, 2003.  A 100 basis pointdecline in market interest rates would cause the debt value to increase byapproximately $5.9 million as of December 31, 2003.

 

Based on the variable rate debt included in our debt portfolio as ofDecember 31, 2003, a 100 basis point increase in interest rates wouldresult in additional interest incurred for the year of less than $100,000. A100 basis point decrease in interest rates would correspondingly lower ourinterest expense for the year by less than $100,000.

 

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

 

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

 

We carried out an evaluation under thesupervision and with the participation of our internal review committee and ourmanagement, including our Chief Executive Officer and Chief Financial Officer,of the effectiveness of the design and operation of our disclosure controls andprocedures (as defined in Rules 13a-15(e) and 15d-15(e) under theSecurities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the endof the period covered by this Quarterly Report on Form 10-Q (the“Evaluation Date”). Based on that evaluation, our Chief Executive Officer andChief Financial Officer concluded that, as of the Evaluation Date, ourdisclosure controls and procedures are effective to ensure that informationrequired to be disclosed by us in our Exchange Act reports was recorded,processed, summarized and reported within the applicable time periods. There have been no significant changes in internal controls or in other factorsthat could significantly affect internal controls subsequent to the date ofsuch evaluation.

 

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

 

**Item 1.****  Legal Proceedings**

 

We are party to an action alleging thatcertain former and current employees should have received overtimecompensation, meal breaks and rest breaks under Washington law in SpokaneCounty Superior Court. The plaintiffs in the Washington case sought unspecifiedactual damages, penalties and attorneys’ fees. On or about April 23, 2003,one purported subclass of the plaintiffs accepted a settlement arrangement inthe amount of $50,000, plus attorney’s fees and costs incurred through suchdate.  After a trial with the remaining purported subclass, in May 2003,the jury found for the Company on all but one claim, for which it awarded theremaining plaintiffs damages in the amount of $106,000.  The parties arecurrently contesting costs and expenses being sought by the plaintiffs in theamount of approximately $390,000.  Accordingly, during fiscal 2003, werecorded a charge and set up a related accrual of approximately $546,000 forthe estimated legal fees and settlement costs of this case. The remainingbalance of the accrual is included in accrued expenses in the accompanyingconsolidated balance sheet.

 

In addition, from time to time, we are namedas a defendant in legal actions arising from our normal business activities.Although the amount of any liability that could arise with respect to currentlypending actions, including the matter specifically described above, cannot beaccurately predicted, we do not believe that the resolution of any pendingaction will have a material adverse effect on our financial position or resultsof operations.

 

**Item 6.****  Exhibits and Reportson 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 to 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 the Sarbanes-Oxley Act of 2002. |
|------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

(b)   Reports on Form 8-K.

 

The Company did not file any Current Reports on Form 8-K during thefirst quarter of fiscal 2004.  Thefollowing is a list of Current Reports on Form 8-K furnished by the Companyduring the first quarter of fiscal 2004:

 

The Company furnished a Form 8-K onOctober 14, 2003, announcing that ithad issued a press release on October 9, 2003, discussing its salesresults for both the month of September 2003 and for the fourth quarterended September 30, 2003.

 

The Companyfurnished a Form 8-K on November 25, 2003, announcing that it had issued apress release on November 19, 2003, and held a broadly accessibleconference call to discuss its financialresults for both the fourth fiscal quarter and fiscal year endedSeptember 30, 2003.

 

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**Signatures**

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

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

 

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