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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended September 30, 2001
or

For the transition period from to Commission file number 0-21196

Mothers Work, Inc.

(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code
(215) 873-2200

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share

(Title of class)

    Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/  No / /

    Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K / /.

    On December 14, 2001, the aggregate market value of the Registrant's common stock, $.01 par value, held by nonaffiliates of the Registrant was approximately $22,952,196.

    On December 14, 2001, 3,480,122 shares of the Registrant's common stock, $.01 par value, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

    Portions of the Registrant's Proxy Statement to be filed with the Commission in connection with the Annual Meeting of Stockholders scheduled to be held on January 17, 2002 are incorporated by reference into Part III of this Form 10-K.

PART I.

Item 1. Business

General

    Mothers Work®, Inc. ("Mothers Work" or the "Company")¹ is the world's largest maternity apparel retailer. The Company was incorporated under the laws of the State of Delaware in 1982. Its principal executive offices and production/distribution facility are located at 456 North Fifth Street, Philadelphia, Pennsylvania 19123 and its telephone number is (215) 873-2200. The Company is vertically integrated, performing design, initial stages of the manufacturing process, distribution, and retail sales functions primarily in-house. The Company also markets its brands and takes sales orders over the phone, by mail order catalogs and brochures and on its Internet sites.

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The terms Mothers Work and the Company, as used in this Report, include Mothers Work, Inc. and Cave Springs, Inc., its wholly-owned subsidiary. All references in this Report to stores or Company-owned stores include leased departments.

    The Company's maternity wear retail stores have distinctly positioned brands with different merchandising and marketing strategies targeted to women seeking to purchase moderate to upscale maternity fashions. As of September 30, 2001, the Company operated a total of 771 stores, including 639 through the Mimi Maternity®, A Pea in the Pod®, Motherhood Maternity® ("Motherhood") and Motherhood Maternity Outlet® store concepts and 132 leased maternity departments, offering a full range of career, casual, and special occasion maternity apparel. The Company locates its stores primarily in regional shopping malls, factory-direct outlet centers and, to a lesser extent, in lifestyle centers and in central business districts within major metropolitan areas. All of the Company's maternity store concepts sell clothing that is designed to meet an expectant mother's entire lifestyle fashion needs, including her career requirements, as well as her casual and special occasion needs. Mimi Maternity is designed to meet the needs of fashion-forward women who are willing to spend more to make a fashion statement. A Pea in the Pod markets the most upscale of the Company's maternity fashions in boutique store locations, offering a premium merchandise selection manufactured by the Company, including the Mimi Maternity line of clothing as well as certain designer labels produced exclusively for A Pea in the Pod. Mimi Maternity and A Pea in the Pod collectively constitute the Company's "high-end" line. Motherhood, the broadest of the Company's lines, is positioned to offer everyday low pricing and an extraordinary assortment of career, casual, exercise, lingerie, nursing apparel and accessories and plus sizes at moderate price points. Motherhood Maternity Outlets offer the Motherhood concept in moderate market factory-direct store locations, serving women who seek maternity clothing but cannot or will not purchase at full retail prices.

    The Company's strategy is to:

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Respond quickly to customer fashion demand utilizing its Real Time Retailing® business model.



•

Secure and maintain desirable retail locations within regional shopping malls and lifestyle centers, exclusive street address locations, and factory-direct outlet centers.



•

Use a combination of domestic and international production to ensure responsiveness to market demands as well as cost efficiencies.



•

Maintain positions at all price points, "giving the customer what she wants when she wants it," at the price point she selects.



•

Expand its presence in the moderate price market by identifying key items and offering them at everyday low prices.



•

Maintain a strategic presence in high visibility online portals and sites and have the full line of brands available for shopping and purchasing online.

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•

Deliver marketing and branding communications in venues that influence and reach first time pregnant women early in their pregnancy.

The Maternity Apparel Market

    The Company is unaware of any reliable data on the revenue size of the maternity apparel market. The Company believes that the number of maternity clothing wholesale vendors has decreased over the last few years as full service retailers are attempting to be more competitive in this endeavor. Vertical integration reduces the Company's reliance on the availability of merchandise from outside vendors and provides it with a competitive advantage over other maternity retailers. Management believes that the fact that women may choose to shop the regular market or decide to purchase loose-fitting or larger-sized clothing as a substitute for maternity wear impacts the maternity apparel market.

Strategy

    The key components of the Company's strategic objectives are described below.

    Real Time Retailing—Real Time Retailing is the Company's proprietary and comprehensive capability to monitor better and respond more quickly to consumer fashion demand, thereby reducing the fashion risk inherent in the apparel business. Through the use of computerized point of sale and merchandising systems, daily replenishment of inventory to the stores, "quick-response" design, "quick-turn" domestic manufacturing and cost efficient international production, the Company is able to provide its customers with the merchandise that they want when they want it. The objective is to maximize the sales potential of each store by matching the profile of the store's customers with the proper merchandise. Real Time Retailing also assists the Company in maximizing its in-store inventory turns and sales per square foot, reducing its cost of goods sold and improving gross profit margins.

    Prime Locations and Broad Distribution—The Company's ability to generate high sales per square foot, in addition to the high quality image and design of the Company's stores and its multiple concept approach, have enabled the Company to secure and maintain desirable retail locations within regional shopping malls throughout the United States, factory-direct outlet centers and select real estate street locations. These factors have enabled the Company not only to locate stores at many of the most desirable shopping malls and factory-direct outlet centers in the country, but also to obtain desirable locations within such malls and centers.

    By operating four different store concepts, the Company is positioned to satisfy demand for maternity clothing throughout the moderate and high-end segments of the market by offering a full range of career, casual, exercise, and special occasion maternity wear and lingerie. Mall operators require an appropriate mix of stores for the mall's consumer and market position. For regional malls that require one maternity store, the Company provides several different concepts within the moderate and high-end segments of the market from which the mall can choose to meet its consumer needs. In the case of multi-mall operators, the Company has the flexibility to supply packages of stores in multiple malls utilizing all of its concepts.

    Key Products—The Company's strategy is to continue to expand in the moderate item market by offering seasonal items at everyday low prices. Typical seasonal offerings include denim blue jeans, turtlenecks, t-shirts, leggings and lingerie.

    Production—The Company uses a combination of international and domestic production. International sources are used for items such as those in the moderate apparel market where lower costs are necessary for competitive reasons, and the fashion marketability of the item is not adversely affected by the longer lead times that are inherent when a product is acquired from an international vendor. Domestic production helps to ensure (1) in-season manufacturing capability for fast selling moderate priced product to reduce stock-outs; (2) pre-season production of time-sensitive fashion

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apparel; and (3) in-season production of fashion items identified during the season. Domestic manufacturing capability allows the Company to react in real-time to changing market trends, thereby providing the Company with a competitive advantage over other apparel retailers who source the majority of their product entirely overseas.

Expansion Strategy

    Since the time of its initial public offering in March 1993, the Company has grown its maternity store base from 67 to 771 stores as of September 30, 2001. Reflected in this increase are stores that were obtained as a result of the Company's January 1994 acquisition of 22 Page Boy stores, its April 1995 acquisition of 66 A Pea in the Pod stores and its August 1995 acquisition of 217 Motherhood stores.

    The Company opened 68 new locations (net of closures) in fiscal 2001, consisting of 45 Motherhood and Motherhood Maternity Outlet stores, 21 leased departments and two high-end stores compared with 78 new locations (net of closures) in fiscal 2000, consisting of 62 Motherhood and Motherhood Maternity Outlet stores, 14 leased departments and two high-end stores. In fiscal 2002, the Company plans to add approximately 61 new maternity locations, principally Motherhood stores and Motherhood Maternity Outlets.

    A significant portion of the Company's growth has been attributable to the addition of new stores, the acquisition of existing maternity stores and the increased sales volume from such stores. The Company's ability to open new stores on a timely basis will depend upon its success in identifying suitable store sites, obtaining leases for those sites on acceptable terms, constructing or refurbishing the sites where necessary, hiring and training skilled store managers and personnel, and cash availability. There can be no assurance that suitable sites will be available for new stores or that new stores will generate sales volumes comparable to those of the Company's existing stores. In addition, the costs associated with opening such stores may adversely affect the Company's profitability. Further, the Company periodically monitors and analyzes the need for store closures.

    The Company continually identifies and evaluates real estate opportunities. In addition to its current stores, the Company has identified additional malls and other locations in the United States that would be well suited for maternity stores. The Company considers markets nationwide but favors metropolitan areas with populations greater than 500,000. Additional malls and outlet centers that do not meet the Company's primary site selection criteria may nevertheless be attractive store locations if favorable lease terms can be negotiated. The addition of non-mall locations is likely to continue during fiscal 2002.

    On October 17, 2001 (the "Closing Date"), the Company completed its acquisition of eSpecialty Brands, LLC ("iMaternity®") pursuant to an Agreement and Plan of Merger (the "Merger Agreement") dated October 15, 2001, by and among the Company, iMaternity Acquisition Corp., a wholly-owned subsidiary of the Company ("Newco"), iMaternity and the holders of all of the outstanding equity interests of iMaternity (the "Sellers"). Pursuant to the Merger Agreement, Newco merged with and into iMaternity with iMaternity surviving as a wholly-owned subsidiary of the Company.

    Pursuant to the merger, the Company issued to the Sellers 302,619 shares of Series C Cumulative Preferred Stock, par value $.01 per share, with a stated value of $19.5 million (the "Series C Preferred Shares"), and warrants to purchase 350,000 shares of the Company's common stock, par value $.01 per share, at a price of $22.50 per share (the "Warrants") valued at approximately $2.0 million. The Series C Preferred Shares bear dividends at a rate of 8.625% per annum. Such dividends are cumulative and compound quarterly. Dividends accrue for the first year and are thereafter paid in part in cash with the balance accruing. Each Series C Preferred share is entitled to one vote and votes together with the holders of the common stock as a single class. The holders of Series C Preferred

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Shares have the right to receive in a liquidation, dissolution or winding up of the Company, after payment to the holders of the outstanding shares of the Company's Series A Preferred Stock (par value $.01 per share) and before any payments to holders of junior stock, an amount per share equal to the stated value plus the greater of accrued dividends or the "participation amount." The "participation amount" is an amount equal to 10% of the increase in the market value per share of common stock for the period from the Closing Date (using the average closing price per share of common stock for the five trading days before closing) until the date of liquidation, dissolution or winding up of the Company. Beginning on the earlier of October 18, 2006, a "change of control", or other "fundamental transaction" of the Company (as such terms are defined in the Series C Cumulative Preferred Stock Certificate of Designation, filed with the Secretary of State of Delaware on October 17, 2001) the holders of outstanding Series C Preferred Shares have the right to require the Company to purchase their shares for an amount equal to the stated value per share plus accrued dividends (the "Put Right"). If the Company defaults on its obligations under the Put Right, the holders of outstanding Series C Preferred shares have the right to convert their Series C Preferred Shares into shares of common stock, on the terms described in the Certificate of Designation, provided, that, in no event shall the aggregate number of shares of common stock issued upon such conversion plus 350,000 (the number of shares of common stock underlying the Warrants) exceed an amount equal to 19.9% of the number of outstanding shares of common stock immediately before the merger.

    Under the terms of the Merger Agreement, from the Closing Date through April 17, 2004, the Company has the right to make an offer to purchase all outstanding Series C Preferred Shares at a purchase price per share of stated value plus accrued dividends. If a majority of the holders of outstanding Series C Preferred Shares fail to accept such offer to purchase, then such holders forfeit their Warrants or, if any Warrant has been exercised and the underlying shares of common stock have been sold by any holder, then such holder forfeits accrued dividends on such Series C Preferred Shares. Further, upon such failure to accept such an offer to purchase, all holders of outstanding Series C Preferred Shares forfeit certain protective provisions under the Merger Agreement, including prohibitions on issuing senior or parity stock, and redeeming junior securities. The Warrants are exercisable until October 17, 2008. Beginning on October 17, 2004, the Company has the right to require the Warrant holders to exercise their Warrants if the last reported sales price of the common stock equals or exceeds $40.00 per share for at least 90 consecutive trading days. Beginning on April 18, 2004, the purchase price per share becomes equal to the stated value plus the greater of accrued dividends or the participation amount.

    iMaternity operated a total of 170 Dan-Howard and Mothertime maternity clothing stores, including some under the tradename iMaternity, as well as the online iMaternity.com website. The Company plans to continue to operate a majority of the acquired store locations under the existing Mothers Work stores concepts of Motherhood and Mimi Maternity, and to close the iMaternity headquarters and distribution center in Chicago, Illinois, an Internet development center in San Diego, California, and manufacturing and warehousing facilities in the United States and Costa Rica. It is anticipated that the plan will be essentially completed within 12 months of the acquisition date.

Store Concepts

    The Company operates its maternity stores under four concepts offering a full range of career, casual, exercise and special occasion maternity wear. The following table sets forth certain information

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regarding the Company's store composition as of September 30, 2001, including each store concept's target location, product description and price points for dresses:

Summary of Store Concepts

    Most malls require only one moderate to high-end maternity store; however, major regional malls with several department stores may be able to accommodate two. The Company has the potential to fill both positions at a given mall with Mimi Maternity and A Pea in the Pod as the Company's prestige offerings and Motherhood as the value-oriented, mostly casual basics. As of September 30, 2001, the Company had two or more maternity stores in 34 major regional malls.

Store Operations

    The Company employs skilled, motivated sales associates who are trained to provide the detailed assistance and the reassurance needed by the customer. The Company's centralized operations allow the store associates to focus on selling and the physical maintenance of the merchandise and store appearance. Visual merchants coordinate with the merchandising department to develop space allocation plans, design store display windows, and to define and enhance the product presentation.

Merchandising, Design and Store Inventory Planning

    Merchandising.  Guided by Real Time Retailing, the Company's merchandising department combines input from Company designers, current trends seen generally in women's clothing, outside vendor resources and store management input, with TrendTrack™ computer analysis of customer preferences to provide a constant flow of merchandise to the Company's stores. The Company strives to maintain an appropriate balance between new merchandise and proven successful styles and utilizes TrendTrack's open-to-buy system to plan its domestic and international production to control inventory quantity and mix.

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    Design.  The Design department creates and produces samples and patterns for the Company's manufactured products under the guidance of the Merchandising department. The design of a product begins with a review of European and New York trends and current retail trends through fashion reporting service slides and fabric samples. The designers review the Company's best selling items from prior seasons and integrate current fashion ideas from the non-maternity retail market.

    Store Inventory Planning.  The Company establishes target inventories for each store using its inventory planning system to enhance store merchandise coordination and stock balance, maintain adequate depth of merchandise by style, and manage close-out merchandise and end-of-season consolidation of merchandise. Integral to the Company's inventory management program are its proprietary methods guided by Real Time Retailing and managed by its TrendTrack information system.

Production and Distribution

    The Company designs and manages production for a substantial portion of its merchandise. The Company contracts its sewing to factories throughout the world, including domestic facilities located in the Philadelphia metropolitan and surrounding area, and works with more than 40 contractors. No individual contractor represents a material portion of the Company's sewing. Merchandise is produced abroad utilizing Company designs. The Company continues to seek additional contractors throughout the world for its sourcing needs, including independent foreign contractors principally in Mexico, India and the Far East, as well as the Dominican Republic, Costa Rica, Guatemala and Honduras. A majority of the Company's merchandise is purchased "full package" (finished products purchased and made to the Company's specifications) typically utilizing the Company's patterns, markers and designs. Fabric, trim and other supplies are obtained from a variety of sources.

    The Company believes that as it continues to increase its number of store locations, there will continue to be adequate sources of fabrics and other supplies to produce a sufficient supply of quality goods in a timely manner and on satisfactory economic terms.

    The Company's production and quality assurance teams monitor production at contractor facilities in the United States and abroad to ensure quality control, compliance with its design specifications and timely delivery of finished goods. Finished garments from contractors and other manufacturers are received at the Company's central warehouse in Philadelphia, Pennsylvania, where they are inspected and stored for picking. Shipments to stores are primarily made by common carrier, typically UPS, Airborne, Federal Express or a similar service providing one or two-day delivery throughout the United States.

    The majority of the Company's merchandise is imported into the United States and is subject to duty. Duties on Mexican imports are controlled in accordance with the North American Free Trade Agreement. The Company cannot predict whether any of the other foreign countries in which its products are manufactured, currently or at any future date, will be subject to new or increased import restrictions by the United States government, including the likelihood, type or effect of any trade restrictions. Such trade restrictions, including increased tariffs or decreased quotas, imposed on items sold by the Company could affect the importation of such merchandise generally and, in that event, could increase the cost or reduce the supply of merchandise available to the Company and adversely affect the Company's business, financial condition, results of operations and liquidity. The Company's merchandise flow may also be adversely affected by political or economic instability in any of the countries in which its goods are manufactured to the extent it affects the production or export of merchandise from such countries, significant fluctuation in the value of the U.S. dollar against foreign currencies, and/or any restrictions on the transfer of funds.

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Management Information and Control Systems

    The Company's stores have point-of-sale terminals that provide information used in the Company's customized TrendTrack item and classification tracking system. This system provides daily financial and merchandising information that is integral to the Company's Real Time Retailing strategy. The TrendTrack system has numerous features designed to integrate the Company's retail operations with its design, manufacturing and financial functions. These features include custom merchandise profiles for each store, daily inventory replenishment, item-tracking providing daily updated selling information for every style, classification open-to-buy and inventory control, as well as the daily collection of credit card sales data.

    In fiscal 2002, the Company will commence deployment of a next generation point-of-sale system. This proprietary Internet-based point-of-sale system will provide real-time access to financial and merchandising information in addition to instant credit authorization. The rollout to stores is scheduled to continue through fiscal 2003.

    The Company employs a comprehensive materials requirements planning system to manage its production inventories, documentation, work orders and scheduling. This system provides a perpetual inventory of raw materials, actual job costing, scheduling and bill of materials capabilities.

Advertising, Marketing and Strategic Alliances

    The Company's advertising, promotion and publicity efforts leverage in-store marketing utilizing store windows, prenatal consumer-targeted advertising for its brands and its Internet website, MaternityMall.com. The Company runs full-page ads for all its brands in pregnancy-targeted publications as well as prenatal issues of leading baby magazines. Key prenatal magazines in which the Company advertises include Shape Fit Pregnancy, Pregnancy and American Baby. A Pea in the Pod and Mimi Maternity are also advertised in fashion magazines such as Vogue and In Style. In addition, the Company produces and distributes maternity brochures quarterly to obstetric and gynecological offices as well as upon direct requests to customers, doctors' offices and hospitals. Nursing products are offered through a mail order catalog as well as marketed in Motherhood ads. Strategic alliance partners offer additional brand visibility through well-negotiated business agreements to increase mutual brand visibility and deliver incremental revenue. Publicity initiatives begun in fiscal 2000 to drive editorial coverage of the Company in magazines, TV and newsprint were focused initially on A Pea in the Pod and have been expanded to include Motherhood and Mimi Maternity in fiscal 2001 and 2002. Publicity efforts provide product samples and photography to major magazines and newspapers to reach millions of additional consumers. Investment in photography has been increased to drive advertisements, public relations and in-store imagery expected by customers. During fiscal 2002, the Company plans to continue its investment in advertising and marketing; however, there can be no assurances that this investment will result in increased sales or profitability. The customer mailing list, which by its nature is constantly changing, is regularly updated through the Company's point-of-sale collection system. The database is an important asset in striking strategic relationships and providing access to the major brands and partners desiring to target our pregnant customer, as well as providing an added source of revenue.

    The Company's websites are well known and are reached primarily by the customer keying in the Company's brandnames, such as apeainthepod.com and motherhood.com. MaternityMall.com is the second most likely way for a consumer to reach one of the Company's apparel websites for surfing or shopping. The Company launched the MaternityMall.com website on the Internet in January 1999 with five tenants. The MaternityMall.com website has significantly grown by increasing the number of e-commerce tenants and by expanding the services offered and information provided. Cross-selling of brands occurs through the website where customers can search to find the ideal maternity brand in

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addition to store locations. The iMaternity.com website, acquired in conjunction with the acquisition of iMaternity, now automatically links to the MaternityMall.com website.

Competition

    The Company's business is highly competitive. Depth of selection in sizes, colors and styles of merchandise, product procurement and pricing, ability to anticipate fashion trends and customer preferences, inventory control, reputation, quality of merchandise, store design and location, advertising and customer service are all important factors in competing successfully in the retail industry. The Company faces competition in its maternity and nursing apparel lines from various full-price maternity clothing chains, a number of off-price specialty retailers, Internet businesses and catalog retailers as well as from local, regional and national department stores and women's and, to some extent, men's clothing stores. The Company faces competition in the moderate maternity market from retailers such as Target, Kohl's, J.C. Penney, K Mart, Wal-Mart, Mervyn's, Sears, Gap and others. Many of these competitors are larger and have significantly greater financial resources than the Company.

Employees

    At September 30, 2001, the Company had 2,097 full-time and 2,133 part-time employees nationwide. None of the Company's employees are covered by a collective bargaining agreement. The Company considers its employee relations to be good.

Executive Officers of the Company

    The executive officers of the Company are as follows:

    Dan W. Matthias joined the Company in 1982 and has served as Chairman of the Board since its inception. From 1983 to 1993, he served as the Company's Executive Vice President, and since January 1993, Mr. Matthias has been the Company's Chief Executive Officer. Prior to Mothers Work, Mr. Matthias had been involved in the computer and electronics industry, serving as a director of Zilog, Inc. and as the President of a division of a subsidiary of Exxon Corporation.

    Rebecca C. Matthias founded the Company in 1982 and has served as a director of the Company and its President since its inception. Since January 1993, Ms. Matthias has served as the Company's Chief Operating Officer. In 1992, she was chosen as "Regional Entrepreneur of the Year" by Inc. magazine and Merrill Lynch Corporation. Prior to 1982, she was a construction engineer for the Gilbane Building Company. Ms. Matthias also serves as a member of the Board of Trustees of Drexel University.

    David Mangini joined the Company in August 2001 as Executive Vice President, responsible for all Product Design, Merchandising, Manufacturing, Planning and Distribution and Marketing. Beginning his career as an early strategic team member at The Gap, Inc., managing Gap and Banana Republic, Mr. Mangini went on to drive the Foley's business as Senior Vice President, then as President, built the Structure Division for the Limited, Inc. to 650 stores.

    Vana Longwell joined the Company in 1994 as Vice President—Merchandising and from April 1999 to August 2001 served as Senior Vice President—Merchandising. In August 2001, she was promoted to

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President of Motherhood Maternity. Prior to 1994, she served as President of Wainscott Sportswear from 1989 to 1993 and from 1980 to 1989, she was the Executive Vice President and general manager of Apparel Affiliates.

    Frank C. Mullay joined the Company in September 1999 as Senior Vice President—Stores. Mr. Mullay was previously employed by The Limited, Inc. from 1983 to 1999, most recently at the Limited Too division as Interim Director of Stores and East Coast Senior Regional Manager.

    The Company's executive officers are elected annually by the Board of Directors and serve at the discretion of the Board. Other than the husband and wife relationship between Dan and Rebecca Matthias, there are no family relationships among any of the other executive officers of the Company.

Trademarks

    The Company owns such rights to the trademarks and service marks as it believes are necessary to conduct its business as currently operated. The Company, through its wholly-owned subsidiary, Cave Springs, Inc., owns trademarks including Mothers Work®, A Pea in The Pod®, Mimi Maternity®, Motherhood®, Motherhood Maternity Outlet®, Steena®, MaternityMall.com™ and Maternité®. As a result of the iMaternity acquisition, the Company also owns the trademarks iMaternity®, Dan-Howard™, Mothertime® and iMaternity.com™. Additionally, the Company owns the service marks Real Time Retailing®, What's Showing is Your Style®, Motherhood is Everything Good...™, and Maternity Redefined®. The Company is not aware of any pending claims of infringement or other challenges to the Company's rights to use its marks in the United States as currently used by the Company.

Item 2. Properties

    The Company's principal executive offices, manufacturing and distribution facilities are located at 456 North Fifth Street, Philadelphia, Pennsylvania 19123. This facility consists of approximately 318,000 square feet of which 44,000 square feet is dedicated to office space and the remaining square footage to manufacturing, warehousing and distribution.

    During October 1999, the Company entered into a multi-year lease for fabric warehouse space located at 10430 Drummond Road, Philadelphia, Pennsylvania 19152. Of the 50,000 square feet leased, 5,000 square feet is dedicated to office space and the remaining square footage to the warehouse.

    The Company leases its store premises for terms averaging from seven to ten years. Certain leases allow the Company to terminate its obligations in the event the applicable store does not achieve a specified sales volume. Certain clauses provide for contingent payments based on sales volume and others contain clauses for escalations of the base rent as well as increases in operating costs, marketing costs and real estate taxes. The following number of store leases, excluding leased departments, are set to expire as follows (most of the real estate leases will be renewed):

    Generally, start-up and operating costs for a leased department are substantially less than a stand-alone store. The Company operates leased store locations in department stores such as Macy's, Rich's, Babies "R" Us and Lazarus. The inventory of the leased departments is merchandised and owned by

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the Company and includes fashions from Motherhood, Mimi Maternity, and A Pea in The Pod as well as a line of maternity clothing designed exclusively for them under the Steena label.

Item 3. Legal Proceedings

    From time to time, the Company is named as a defendant in legal actions arising from its normal business activities. Although the amount of any liability that could arise with respect to currently pending actions of this nature cannot be accurately predicted, in the opinion of management, no liability for any pending action will have a material adverse effect on the financial position of the Company.

Item 4. Submission of Matters to a Vote of Security Holders

    Not applicable.

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PART II.

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

    The Company's common stock is traded on the Nasdaq National Market under the symbol "MWRK." The following table sets forth, for the fiscal quarters indicated, the high and low closing bid prices per share for the Company's common stock, as reported on the Nasdaq National Market:

    As of December 14, 2001, there were 54 holders of record and 700 estimated beneficial holders of the Company's common stock.

    The Company currently intends to retain any future earnings to fund operations and the continued development of its business and, therefore, does not anticipate paying cash dividends on its common stock in the immediate future. No dividends may be paid on common stock or any other shares of capital stock of the Company ranking junior to the Series A Preferred Stock (other than dividends payable in shares of common stock), until all cumulative and current dividends on the Series A Preferred Stock have been declared and paid in full. Any payment of future dividends will be at the discretion of the Company's Board of Directors and will be based upon certain restrictive financial covenants, earnings, capital requirements and the operating and financial condition of the Company, among other factors, at the time any such dividends are considered. See Notes 7 and 12 of "Notes to Consolidated Financial Statements" for further discussion of preferred stock dividends.

Item 6. Selected Financial Data

    The following selected consolidated financial data as of September 30, 2001, 2000, 1999, 1998 and 1997, and for the fiscal years then ended, have been derived from the financial statements of the Company which have been audited by Arthur Andersen LLP, independent public accountants. The information set forth below should be read in conjunction with the financial statements and notes thereto as well as "Management's Discussion and Analysis of Financial Condition and Results of Operations."

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(1)

See Note 1 of "Notes to Consolidated Financial Statements."

(2)

Based on stores opened at least 24 months in their current store format.

(3)

Based on locations in operation during the entire fiscal year.

(4)

September 30, 1998 excludes 30 Episode stores which, while owned by the Company, were operated by a liquidator.

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

    The following tables set forth the percentages that the items in the Company's Consolidated Statements of Operations bear to net sales for the fiscal years ended September 30:

    The following table sets forth certain information representing growth in the number of stores and leased maternity departments for the periods indicated:

(a)

Includes 30 Episode stores at the beginning of period fiscal 1999. The Company completed the closure of these remaining Episode stores during the second quarter of fiscal 1999.

Year Ended September 30, 2001 and 2000

    Net Sales.  Net sales for fiscal 2001 increased 6.0% to $388.3 million from $366.3 million in fiscal 2000. The increase was primarily due to the 68 net new stores the Company opened since September 30, 2000. Comparable store sales decreased by 2.4% during fiscal 2001 (based on 600 locations) versus a comparable store sales increase of 8.3% during fiscal 2000 (based on 532 locations). The decline in comparable store sales is primarily due to the difficult selling environment and the resulting lower consumer confidence, as further heightened by the tragic events that took place on September 11, 2001. As of September 30, 2001, the Company operated a total of 771 maternity locations: 441 moderately-priced Motherhood stores, 116 high-end A Pea in the Pod/Mimi Maternity stores, 82 Motherhood Maternity Outlets, and 132 leased maternity departments. In comparison, at September 30, 2000, the Company had 703 store locations: 405 Motherhood stores, 112 Pea/Mimi Maternity stores, 75 Motherhood Maternity Outlets and 111 leased maternity departments.

    Gross Profit.  Gross profit increased by $11.0 million, or 6.0%, to $194.0 million in fiscal 2001 primarily reflective of the higher sales volume. As a percentage of net sales, gross margins remained constant at 50.0%. During fiscal 2001, specific focus on product sourcing resulted in lower product

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costs. Additionally, the Company improved its delivery of products to its stores both in terms of time and cost, and reduced manufacturing costs by shifting from in-house cutting of fabric to lower cost outside contractors. Further, the benefits from newly automated warehousing systems served to reduce labor costs included in the overhead allocation pool, while increasing production volumes. The impact of these business changes were negatively affected by the tragic events of September 11^th and as sales of the Company's moderately-priced Motherhood products continued to outpace sales of its higher margin product lines.

    Selling, General & Administrative Expenses.  Selling, general and administrative expenses increased by $15.0 million or 9.5% in fiscal 2001 compared to fiscal 2000. The increase in operating expenses was primarily due to an increase in wages and benefit related costs of $7.8 million and store rents of $3.7 million, which were in-line with the new store expansions offset by a slight decrease in depreciation and amortization of $0.3 million. Operating expenses, as a percentage of net sales, increased from 43.1% to 44.5% principally due to the deleveraging impact of the negative comparable store sales decrease.

    Operating Income.  Operating income in fiscal 2001 was $21.2 million (5.5% of net sales) compared to $25.2 million (6.9% of net sales) in fiscal 2000. The decrease in operating income (and as a percentage of net sales) was primarily due to negative comparable store sales.

    Interest Expense.  The Company reduced its interest expense by $1.0 million in fiscal 2001 from fiscal 2000 by maintaining average borrowings under its working capital facility at levels below fiscal 2000 coupled with lower interest rates. Average borrowings and the corresponding effective interest rate was $26.4 million at 7.8% in fiscal 2001 compared to $33.7 million at 8.6% in fiscal 2000.

    Other Income.  During the fourth quarter of fiscal 2001, the Company negotiated buy-outs of two lease arrangements in connection with the planned closure of these stores. Due to the level of the rental rates, the Company recognized income from the proceeds being paid under these buy-out agreements of $1.2 million and wrote off related leasehold improvements and other costs of $0.6 million, resulting in a net gain of $0.6 million.

    Income Taxes.  The Company's effective tax rate increased to 50.0% in fiscal 2001 from 45.7% in fiscal 2000 primarily due to the relationship of non-deductible goodwill amortization to the lower pre-tax income in fiscal 2001. See Note 10 of "Notes to Consolidated Financial Statements" for the reconciliation of the statutory federal income tax rate to the Company's effective tax rate.

Year Ended September 30, 2000 and 1999

    Net Sales.  The Company's 22.2% sales growth in fiscal 2000 compared to fiscal 1999 was attributable to the Company's continued store expansion program and the 8.3% increase in comparable store sales. For fiscal 2000, comparable store sales increased by $23.3 million based on 532 locations versus a comparable store sales increase of $29.6 million, or 12.9%, during fiscal 1999 based on 473 locations. The Company opened 78 new stores (net of closures) during fiscal 2000. As of September 30, 2000, the Company operated a total of 703 maternity stores and leased departments: 405 moderately-priced Motherhood stores, 112 high-end A Pea in the Pod/Mimi Maternity stores, 75 Motherhood Maternity Outlets, and 111 leased maternity departments. In comparison, at September 30, 1999, the Company had 625 store locations: 351 Motherhood stores, 112 Pea/Mimi Maternity stores, 65 Motherhood Maternity Outlets and 97 leased maternity departments. Fiscal 1999 also included 30 Episode stores that were sold or closed by the end of the second quarter of fiscal 1999.

    Gross Profit.  Gross profit increased by $33.6 million, or 22.5%, to $183.0 million in fiscal 2000 primarily reflective of the higher sales volume. As a percentage of net sales, margins improved to 50.0% in fiscal 2000 compared to 49.8% in fiscal 1999. Improvements made to reduce vendor costs,

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tighter controls over managing inventory levels and lower shipping costs served to strengthen margins in fiscal 2000.

    Selling, General & Administrative Expenses.  Selling, general and administrative expenses increased by $30.4 million or 23.9% in fiscal 2000 compared to fiscal 1999. The increase in operating expenses was primarily due to an increase in wages and benefit related costs of $15.2 million, an increase in store rents of $5.6 million and an increase in depreciation and amortization of $1.3 million, all of which were in-line with the new store expansions. Operating expenses as a percentage of net sales increased from 42.5% to 43.1% principally due to the higher store wages and related benefits.

    Operating Income.  Operating income for fiscal 2000 improved to $25.2 million (6.9% of net sales) compared to $21.9 million (7.3% of net sales) in fiscal 1999. The increase of $3.3 million is primarily reflective of higher sales volume.

    Interest Expense.  Interest expense increased by $0.7 million in fiscal 2000 compared to fiscal 1999, reflecting higher average borrowings under the Company's working capital facility at a higher effective interest rate. Average borrowings and the corresponding effective interest rates were $33.7 million at 8.6% and $27.0 million at 7.7% in fiscal 2000 and 1999, respectively.

    Income Taxes.  The Company's effective tax rate decreased to 45.7% in fiscal 2000 from 50.3% in fiscal 1999. The reduction in the effective tax rate in fiscal 2000 was primarily due to the relationship of non-deductible goodwill amortization to the higher pre-tax income. See Note 10 of "Notes to Consolidated Financial Statements" for the reconciliation of the statutory federal income tax rate to the Company's effective tax rate.

Liquidity and Capital Resources

    In fiscal 2001, the Company's primary sources of working capital were the $19.5 million of cash flows from operations in addition to borrowings under its $56.0 million working capital facility (the "Working Capital Facility"). In October 2001, the Working Capital Facility was amended and restated to primarily increase the collateral base to include the assets acquired in the purchase of eSpecialty Brands LLC ("iMaternity"). The Working Capital Facility had been previously amended and restated in April 2000 to increase borrowings to the current level from $44.0 million, to raise the annual capital expenditure limitation and to extend the maturity until September 15, 2004. The interest rate is based on the lender's prime plus 25 basis points. At any time, the Company at its option may elect an alternative rate for all or part of the direct borrowings outstanding at a rate of LIBOR plus 225 basis points. The blended rate for all borrowings under the Working Capital Facility at September 30, 2001 was approximately 5.5%. Amounts available for direct borrowings, net of letters of credit outstanding, are limited to the lesser of (a) the unused portion of the Working Capital Facility or (b) the Aggregate Adjusted Availability ("AAA"), as defined in the agreement as a percentage of eligible inventory and receivables. The Working Capital Facility is secured by a security interest in the Company's inventory, equipment, fixtures and cash. In addition to the direct borrowings, a $4.0 million standby letter of credit has been utilized in fiscal years 2001 and 2000 to collateralize an Industrial Revenue Bond. There are no financial covenant requirements in the Agreement unless the AAA falls below $10.0 million. In such event, the Company would have to achieve Minimum Cash Flow, as defined in the Agreement, of not less than zero. During fiscal 2001 and 2000, the Company exceeded the AAA minimum. As of September 30, 2001, outstanding borrowings under the Working Capital Facility consisted of $32.2 million in direct borrowings and $4.1 million in letters of credit with available borrowings of $23.9 million compared to $30.5 million of direct borrowings and $3.0 million in letters of credit and available borrowings of $18.5 million as of September 30, 2000.

    In 1995, the Company sold 12⁵/8% Senior Unsecured Exchange Notes due 2005 (the "Notes") with a face amount of $92.0 million. The Notes were issued at 97.934% of their face amount, resulting in an

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annual effective interest rate of 13.0%. Interest on the Notes is payable semiannually in cash on February 1^st and August 1^st. The Notes were issued by Mothers Work and are unconditionally guaranteed on a senior basis by its wholly-owned subsidiary (see Note 14 of Notes to the Consolidated Financial Statements). The Notes are redeemable at the option of the Company, in whole or in part, at any time after August 1, 2000, at 106.25% of their face amount plus accrued interest, declining ratably to 100% of their face amount on and after August 1, 2002, plus accrued interest.

    The Notes impose certain limitations on the ability of the Company to, among other things, incur additional indebtedness, pay dividends and enter into certain types of transactions. The most restrictive of these covenants limits the Company's ability to repurchase outstanding common stock or pay dividends.

    The Company's cash needs have been primarily for debt service, furniture, buildouts of new store locations, increased inventories to support the additional locations and building improvements and equipment for its existing stores and corporate headquarters. During fiscal 2001, the Company spent $12.2 million in capital expenditures, including $10.1 million in furniture, fixtures, and leasehold improvements for new store facilities (primarily Motherhood stores) and improvements to existing stores, in addition to another $2.1 million for corporate additions and other assets. This compares to $13.6 million in capital expenditure spending for fiscal 2000, of which $12.1 million was for new and existing store facilities and $1.5 million was for corporate additions and other assets. As of September 30, 2001, the Company's cash balance included $8.2 million of cash in the bank held in anticipation of paying down the iMaternity line of credit in conjunction with the acquisition, which was completed on October 17, 2001.

    During fiscal 2001, certain shares of Series A Preferred Stock were converted at the election of the holders into shares of common stock at an initial conversion rate equal to ten shares of common stock for each share of Series A Preferred Stock, at a stated value of $0.7 million. The Company was restricted under the terms of its senior debt from paying cash dividends to the holders upon conversion. Accordingly, the Company issued $0.3 million of subordinated notes with unpaid interest compounding annually at the prime rate until paid. The subordinated notes are convertible into common stock, in accordance with the note terms, after August 1, 2003 (reference is made to Note 7 of "Notes to the Consolidated Financial Statements").

    Management of the Company believes that its current cash and working capital positions, expected operating cash flows as well as available borrowing capacity under the Working Capital Facility will be sufficient to fund the Company's working capital and debt repayment requirements for fiscal 2002.

Statements of Financial Accounting Standards Not Yet Adopted

    In July 2001, the FASB issued Statement of