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United States
Securities and Exchange Commission
Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended June 30, 2002

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

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 ý No o

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Common Stock, $.01 par value—4,979,996 shares outstanding as of August 12, 2002

MOTHERS WORK, INC. AND SUBSIDIARIES

INDEX

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MOTHERS WORK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)

The accompanying notes are an integral part of these consolidated financial statements.

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MOTHERS WORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

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MOTHERS WORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

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MOTHERS WORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(unaudited)

1.    BASIS OF FINANCIAL STATEMENT PRESENTATION

        The accompanying unaudited consolidated financial statements are prepared in accordance with the requirements for Form 10-Q and Article 10 of Regulation S-X and, accordingly, certain information and footnote disclosures have been condensed or omitted. Reference should be made to the Form 10-K, as amended, as of and for the year ended September 30, 2001 for Mothers Work, Inc. and Subsidiary (the "Company") as filed with the Securities and Exchange Commission for additional disclosures including a summary of the Company's accounting policies.

        In the opinion of management, the consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, necessary to present fairly the consolidated financial position of the Company for the periods presented. Since the Company's operations are seasonal, the interim operating results of the Company may not be indicative of operating results for the full year.

        Certain prior year balances in the financial statements have been reclassified to confirm with the current year presentation.

2.    STOCK OPTIONS AND WARRANTS

        During the quarter and nine months ended June 30, 2002, a total of 69,610 and 275,960 options, respectively, were granted to certain employees and non-employee directors for the purchase of the Company's common stock at prices not less than the fair market value of the Company's common stock on the date of grant.

        In connection with the acquisition of iMaternity on October 17, 2001 (see Note 8), the Company issued warrants to the sellers for the purchase of 350,000 shares of the Company's common stock at an exercise price of $22.50 per share, with an estimated fair value of approximately $874,000. The Company obtained an independent appraisal to determine the fair value of the warrants, estimated at the date of issuance using the Black-Scholes pricing model with a 30% discount applied due to lack of marketability. The following assumptions were used in the pricing model: dividend yield of zero, risk free interest rate of 4.45%, volatility factor of the expected market price of the Company's common stock of 60.0%, and an expected life equal to the contractual term of the warrants of 7 years. The fair value of the warrants was recorded to additional paid-in capital at the date of grant. The warrants were immediately vested upon grant and are exercisable for 7 years. None of these warrants were exercised as of June 30, 2002 (see Note 11).

        In conjunction with debt issued in the acquisition of A Pea in the Pod in 1995, the Company issued 140,123 warrants for the purchase of the Company's common stock at $.01 per share. These warrants were exercised on March 12, 2002.

3.    COMMITMENTS AND CONTINGENCIES

        On July 17, 2002, a purported class action was filed against the Company in the Superior Court of California for Los Angeles County. The complaint alleges that, under California law, certain former and current employees should have received overtime compensation, meal breaks and rest breaks. The Company is currently a party to an action alleging similar claims under Washington law in Spokane County Superior Court. The plaintiffs in these cases are seeking unspecified actual damages, penalties and attorneys' fees. At this stage in these proceedings, the Company is unable to predict the outcome of these cases, which it is vigorously defending.

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        In addition, 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, including the matters specifically described above, cannot be accurately predicted, the Company does not believe that the resolution of any pending action will have a material adverse effect on its financial position.

4.    EARNINGS PER SHARE (EPS)

        Basic EPS is computed by dividing net income available to common stockholders by the weighted average number of outstanding common shares. Diluted EPS is computed by dividing net income available to common stockholders by the weighted average number of outstanding common shares, after giving effect to the potential dilutive effect from the assumed exercise of stock options and warrants as well as the assumed conversion of dilutive preferred stock and subordinated notes.

        The following summarizes the diluted EPS calculation (in thousands, except per share amounts):

        Options to purchase 10,000 and 947,335 shares were outstanding as of June 30, 2002 and 2001, respectively, but were not included in the computation of diluted EPS as their effect would have been antidilutive. These options could potentially dilute EPS in the future.

        During the third quarter of fiscal 2002, certain holders of the Series A Cumulative Convertible Preferred Stock (the "Series A Preferred Stock") elected to convert 964 of such shares, with a stated value of $271,000 and at a conversion rate equal to ten shares of common stock for each share of Series A Preferred Stock (a total of 9,640 shares of common stock). During the first nine months of fiscal 2002, a total of 11,496 shares with a stated value of $3,224,000 were converted into 114,955 shares of common stock.

        For the quarter ended June 30, 2002, the calculation of diluted earnings per share was based on average diluted shares outstanding of 5,097,000, which included approximately 612,000 potential shares that were required to be included in respect of the conversion features of the Company's Series A Preferred Stock and Series C Cumulative Redeemable Preferred Stock (the "Series C Preferred Stock"). These potential shares were included in the diluted EPS computation for the quarter ended

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June 30, 2002 total because the level of net income for the quarter had the effect, when factored into the calculation, of making the potential shares dilutive to earnings. The 26,913 and 41,000 shares of Series A Preferred Stock outstanding at June 30, 2002 and 2001, respectively, which were convertible into 269,128 and 410,000 shares of common stock, respectively, were determined to be antidilutive and therefore excluded from the EPS computation for the nine months ended June 30, 2002 and the third quarter and nine months ended of June 30 2001.

        The Company was restricted under the terms of the Indenture governing the $92,000,000 of 12⁵/8% Senior Unsecured Exchange Notes due 2005 (the "Senior Notes"), from paying cash dividends to the holders of the Series A Preferred Stock upon conversion. As a result, the Company issued subordinated notes totaling $159,000 and $2,214,000 in the third quarter and first nine months of fiscal 2002, respectively, on which unpaid interest accumulates and compounds annually at the prime rate until paid. The subordinated notes are convertible after August 1, 2003 into common stock in accordance with the terms of those notes. For the quarter and nine months ended June 30, 2002, the conversion feature of the subordinated notes outstanding, which had an aggregate value of $2,544,000 was determined to make such notes dilutive and, therefore, they were included in the diluted EPS computation.

        Additionally, in connection with the acquisition of iMaternity on October 17, 2001 (see Note 8), the Company issued 302,619 shares of Series C Preferred Stock with detachable warrants. The Series C Preferred Stock is convertible into common stock only if the Company were to default on its obligation under the provision of the put right which gives the holders of the Series C Preferred Stock the right, under certain circumstances, to require the Company to purchase their shares of Series C Preferred Stock for cash. All of the shares of Series C Preferred Stock and warrants were outstanding as of June 30, 2002 and were included in the dilutive EPS computations for the quarter ended June 30, 2002 as their effect was dilutive and were excluded from the dilutive EPS computation for the nine months ended June 30, 2002 as their effect was antidilutive. The warrants issued in connection with the Series C Preferred Stock were included in the dilutive EPS computations for the quarter and nine months ended June 30, 2002 as their effect was dilutive. On August 6, 2002 the Company purchased all outstanding shares of the Series C Preferred Stock (see Note 11).

5.    INVENTORIES

        Inventories were comprised of the following (in thousands):

6.    ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

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

        Interest payments are made semiannually in February and August to the holders of the Senior Notes.

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7.    ACCOUNTING FOR GOODWILL

        In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141 "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS No. 141 also specifies the criteria applicable to intangible assets acquired in a purchase method business combination to be recognized and reported apart from goodwill. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually. SFAS No. 142 further requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values and be reviewed for impairment.

        The Company adopted SFAS Nos. 141 and 142 effective October 1, 2001. In adopting SFAS No. 142, the Company no longer amortizes goodwill. The following table reflects the adjustment to exclude goodwill amortization expense recognized in the prior periods as presented (in thousands, except per share amounts):

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        As of October 1, 2001, management determined that the Company had one reporting unit for purposes of applying SFAS No. 142 based on its reporting structure. The Company has made its initial assessment of impairment for the transition period as of October 1, 2001. The fair value of the Company's single reporting unit was determined based on the then fair market value of the Company's outstanding common stock on a control basis. Based on this initial assessment, no impairment loss was recognized. The Company plans to perform an annual assessment for goodwill impairment at the end of each fiscal year or as impairment indicators arise.

        A summary of changes in the carrying amount of goodwill for the first nine months of fiscal 2002 is as follows (in thousands):

8.    ACQUISITION

        On October 17, 2001 (the "Acquisition Date"), the Company acquired eSpecialty Brands, LLC ("iMaternity") for $19,863,000, including transaction costs. The purchase price consisted of 302,619 shares of Series C Preferred Stock valued at an estimated $59.48 per share, or $17,999,000, as determined by an independent third party appraiser, detachable warrants to purchase 350,000 shares of the Company's common stock with an estimated fair value of $874,000 (see Note 2), and transaction costs of $990,000. The excess by which the stated value of the Series C Preferred Stock exceeds its carrying value is being accreted to the earliest redemption date using the effective interest method. This accretion is recorded as dividends in the accompanying consolidated statements of operations. Additionally, the holders of the Series C Preferred Stock are entitled to receive dividends at an annual rate of 8.625% of the stated value, compounding quarterly. The discount accretion and the dividends on the Series C Preferred Stock are included in the carrying value of the Series C Preferred Stock in the accompanying consolidated balance sheets.

        The rights and preferences relating to dividends and distributions upon liquidation of the Series C Preferred Shares are senior to those of the common stock. The holders of the Series C Preferred Stock 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 and before any payments to holders of junior stock, which includes the common stock, an amount per share equal to the stated value plus the greater of accrued dividends or the participation amount (defined as an amount based on 10% of the increase in the market value of the Company's common stock for the period from the Acquisition Date until the date of liquidation, dissolution or winding up of the Company). The liquidation value of the Series C Preferred Stock as of June 30, 2002 was $20,710,000. On August 6, 2002 the Company purchased all outstanding shares of the Series C Preferred Stock (see Note 11).

        The acquisition has been accounted for under the purchase method of accounting, and the results of operations of iMaternity are included in the Company's results of operations from the Acquisition Date. Prior period results have not been restated. Assets acquired and liabilities assumed have been recorded at their estimated fair values. The recorded values of assets acquired and liabilities assumed are preliminary and subject to adjustment pending final determination of their acquisition values.

        Based on the preliminary allocation of purchase price, the application of the purchase method of accounting resulted in approximately $25,785,000 of excess purchase price over the estimated fair value of the net tangible assets acquired of $21,150,000 less assumed liabilities of $17,995,000 and costs to exit certain operations and locations of iMaternity of $9,077,000. The Company recognizes that certain identifiable intangible assets were acquired, primarily trademarks, trade names, and Internet domain names. However, as determined by an independent third party appraiser, based on the nature of the

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items and use within the Company's business and industry, no value was assigned to any of the identifiable intangibles. Accordingly, the excess purchase price has been assigned to goodwill.

        In connection with the purchase price allocation, the fair value of the acquired finished goods inventory was based on an estimate of the net realizable value of the inventory less estimated costs to dispose. A significant portion of the acquired inventory is expected to be sold at substantial discounts in connection with store closures or required changes in assortment mix at the acquired stores to align with the Company's merchandising strategies.

        Additionally, as part of the purchase price allocation, the Company recorded $1,700,000 of vendor-related liabilities that were not disclosed by the sellers at the Acquisition Date. Further, there are also amounts being claimed as due from iMaternity by a number of vendors that are currently being investigated, but which have not yet been established as legal liabilities as of the Acquisition Date and, accordingly, have not been recorded. The amount of liabilities and goodwill recorded in the purchase price allocation could increase for additional vendor-related liabilities not yet identified (see Note 11).

        At the Acquisition Date, iMaternity operated a total of 166 Dan-Howard and Mothertime maternity clothing stores, including some under the trade name iMaternity, and the online iMaternity.com website. The Company developed a plan in conjunction with the acquisition to close approximately 92 iMaternity stores and convert the remaining acquired locations to the Company's existing store concepts of Motherhood and Mimi Maternity. Further, the plan included the shutdown of iMaternity's corporate headquarters and warehouse operation in Chicago, as well as its manufacturing and warehousing facilities in Costa Rica. In connection with the plan, the Company recorded severance costs for involuntarily terminated employees of the acquired business of $2,922,000, lease termination fees and related legal costs of $4,200,000, and accrued for other costs to be incurred to complete the exit activities of the acquired business totaling $1,955,000. Approximately 850 employees of the acquired business were expected to be terminated as part of the plan, consisting of 528 corporate and 322 store employees. The Company anticipates substantially completing the entire integration plan within 12 months of the Acquisition Date.

        During the first nine months of fiscal 2002, the Company closed 83 iMaternity stores of the 92 planned store closures, the corporate headquarters and warehouse operation in Chicago, an Internet-related development center in San Diego, California and other domestic warehousing facilities. The iMaternity manufacturing and warehousing operations in Costa Rica have been operationally shut down. The carrying value of the Costa Rica facility was reduced to its estimated realizable value as of the Acquisition Date, which was determined based on a market survey received from an independent third party, and is classified as "Assets Held for Sale" in the accompanying unaudited consolidated balance sheet as of June 30, 2002. In accordance with its plan, the Company expects to close an additional 6 store locations within the next three months. The timing of the store closures is dependent primarily upon the Company's ability to negotiate and complete the lease termination settlements.

        In connection with the store closures and the shutdown of the corporate headquarters and warehouse operation in Chicago, the Internet-related development center in San Diego, California, and the iMaternity manufacturing and warehousing operations in Costa Rica, the Company terminated 805 employees (524 corporate and 281 store employees), to whom $1,710,000 in accrued severance was paid out and charged against the liability during the nine months ended June 30, 2002. Included in the severance payouts are quarterly installments made on the non-compete covenant and severance arrangement with a former executive of iMaternity. As of June 30, 2002, the remaining severance accrual of $1,212,000 principally reflects the balance of the non-compete and severance arrangement of $850,000 that is payable ratably over approximately the next 4 years. Also, included in the accrual are severance and vacation payouts anticipated to be made in regards to approximately 15 store employees that may be terminated upon the closure of the remaining store locations, as planned.

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        A summary of the charges incurred and reserves recorded in connection with the iMaternity acquisition exit/restructuring activities during the first nine months of fiscal 2002 is as follows (in thousands):

        The following table displays the net non-cash assets that were acquired as a result of the iMaternity acquisition (in thousands):

        The following unaudited pro forma summary combines the consolidated results of operations of Mothers Work, Inc. and iMaternity as if the transaction occurred as of the beginning of the respective periods presented giving effect to certain adjustments including recognition of an income tax benefit for operating losses generated by the acquired business, recognition of accrued and unpaid dividends on the Series C Preferred Stock, discount accretion associated with the Series C Preferred Stock, and reduction in depreciation expense as a result of the revaluation of property, plant and equipment. This pro forma summary is not necessarily indicative of the results of operations that would have occurred if the Company and iMaternity had been combined during such periods. Moreover, the pro forma summary is not intended to be indicative of the results of operations that may be attained in the future.

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        The sales generated by the iMaternity-acquired stores that have closed during the first nine months of fiscal 2002 totaled approximately $5.0 million.

9.    OTHER RESTRUCTURING CHARGES

        During fiscal 1998, the Company announced that it would close or convert all of its non-maternity Episode stores into maternity clothing stores. In connection with the restructuring plan, the Company recorded accrued restructuring charges of $10,635,000. During the quarter ended June 30, 2002, the Company utilized the $128,000 remaining reserve for the final lease transfer fee.

10.  NEW ACCOUNTING PRONOUNCEMENTS

        In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 is effective for fiscal years beginning after June 15, 2002, and addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. Although early adoption is encouraged, the Company plans to adopt this statement in fiscal 2003. Adoption of SFAS No. 143 is not expected to have a material impact on the Company's financial position or results of operations.

        In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which established a single accounting model, based on the framework established in SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of," and resolved significant implementation issues related to SFAS No. 121. SFAS No. 144 superceded SFAS No. 121 and Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations—Reporting the Effects of a Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001 and early adoption is encouraged. The Company plans to adopt this statement in fiscal 2003. Management believes that the adoption of SFAS No. 144 will not have a material impact on the Company's financial condition or results of operations.

        On April 30, 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("SFAS No. 145"). The provisions of this Statement related to the rescission of Statement 4 shall be applied in fiscal years beginning after May 15, 2002. Any gain or loss on extinguishment of debt that was classified as an extraordinary item in prior periods presented that does not meet the criteria in Opinion 30 for classification as an extraordinary item shall be reclassified. Early application of the provisions of this Statement related to the rescission of Statement 4 is encouraged. Management believes that the adoption of SFAS No. 145 will not have a material impact on the Company's financial condition or results of operations.

        In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 which supersedes Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity," and is effective for transactions initiated after December 31, 2002. Under SFAS No. 146, a company will record a liability for a cost associated with an exit or disposal activity when that liability is incurred and can be measured at fair value. A liability is incurred when an event obligates the entity to transfer or use assets. Management does not expect the adoption of this statement to have a material impact on the Company's financial position or results of operations.

11.  SUBSEQUENT EVENTS

iMaternity Settlement

        On October 17, 2001, the Company acquired iMaternity, a maternity apparel retailer. As previously disclosed, following the closing of the iMaternity acquisition, iMaternity vendors made claims for

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amounts owed by iMaternity that had not been disclosed to the Company by the sellers prior to the closing. If the Company has liability for these undisclosed amounts, it has the right to seek indemnification from the sellers.

        On August 6, 2002, the Company entered into a settlement and release agreement with the sellers to resolve these issues. Under the agreement, the Company and the sellers have mutually released each other from all claims relating to the accounts payable of the iMaternity business prior to the closing. Certain obligations of the Company and the iMaternity subsidiaries owed to the sellers in the amount of approximately $500,000, which arose prior to or in connection with the acquisition, have been terminated. The Company has purchased all outstanding shares of the Series C Preferred Stock held by the sellers for $20,890,000, as well as 50,000 warrants issued to certain of the sellers for $225,000. The Company may elect to purchase up to an additional 75,000 warrants from certain other sellers, with the amount eligible to be purchased being determined by a formula that is based on whether the underwriters of the offering of 1,100,000 shares of the Company's common stock, which occurred on July 31, 2002 and closed on August 5, 2002, exercise their 30-day over-allotment option to purchase at least 50% of the shares available under such option.

Credit Facility Amendment

        On August 5, 2002, the Company entered into an amendment of its credit facility. The amendment includes, among other changes, a modification to the covenants to increase the annual capital expenditures limit to $30,000,000 and permit acquisitions, capital stock repurchases and early redemption of the senior notes within specified limits (see below). The amendment also added an unused facility fee of 10 basis points per annum.

Debt and Equity Offerings

        On August 5, 2002, the Company closed two public offerings, one of which was the offering of $125,000,000 of 11¹/4% Senior Notes due 2010, and the other of which was the offering of 1,100,000 shares of common stock, including 100,000 shares sold by selling stockholders, at $27.00 per share, before underwriting discounts and commissions. The Company received net proceeds from these offerings of approximately $144,200,000. The Company plans to use the net proceeds of these offerings (i) to repay the existing 12⁵/8% senior notes, plus accrued and unpaid interest; (ii) to repay the subordinated notes issued to former holders of shares of Series A Preferred Stock in lieu of accrued and unpaid dividends; (iii) to pay all accrued and unpaid dividends on the outstanding shares of Series A Preferred Stock and Series C Preferred Stock; (iv) to redeem all of the outstanding shares of Series A Preferred Stock and to purchase, through an offer to purchase, all of the outstanding shares of Series C Preferred Stock; (v) to repay the outstanding borrowings under the credit facility and (vi) for general corporate purposes. In conjunction with the offering, certain selling stockholders exercised options, which resulted in additional cash proceeds of approximately $574,000.

        Payment obligations under the $125,000,000 of senior notes due 2010 offered by the Company in the debt offering are fully and unconditionally guaranteed on a joint and several basis by its wholly-owned U.S. subsidiaries (the "Guarantor Subsidiaries"). None of the Company's foreign subsidiaries have guaranteed these notes. Condensed consolidating financial information for the Company, the Guarantor Subsidiaries and the Company's non-guarantor subsidiaries as of and for the nine months ended June 30, 2002 is presented below.

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Mothers Work, Inc.
Condensed Consolidating Balance Sheet
June 30, 2002
(unaudited)
(in thousands)

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Mothers Work, Inc.
Condensed Consolidating Statement of Operations
For The Nine Months Ended June 30, 2002
(unaudited)
(in thousands)

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Mothers Work, Inc.
Condensed Consolidating Cash Flow Statement
For The Nine Months Ended June 30, 2002
(unaudited)
(in thousands)