reflect the effects of certain minimum state tax requirements, partially offset by allowable federal tax credits. See Note 15 of the Notes to
`Consolidated Financial Statements, included elsewhere i11 this report, for the reconciliation of the statutory federal income tax rate to our effective
`tax rate.
`
`NetL0ss. Net loss for fiscal 2008 was $(1.4) million, or $(0.23) per share (diluted), compared to net loss of $(0.4) million for fiscal 2007, or
`$(0.07) per share (diluted). Before the restructuring a11d other charges, and loss on extinguishment of debt in fiscal 2008, and the loss on
`extinguishment of debt in fiscal 2007, net income for fiscal 2008 was $0.9 million, or $0.14 per share (diluted), compared to net income of $5.4 million
`for fiscal 2007, or $0.87 per share (diluted).
`The average diluted shares outstanding of 5,924,000 shares for fiscal 2008 was 2.1% higher than the 5,802,000 shares outstanding for fiscal
`2007. The increase in average diluted shares outstanding reflects higher shares outstanding i11 fiscal 2008 compared to fiscal 2007, as a result of
`stock option exercises and vesting of restricted stock awards.
`Following is a reconciliation ofnet loss and net loss per share (diluted) to net income before restructuring and other charges, and loss on
`extinguishment ofdebt, and net income per share before restructuring and other charges, and loss on extinguishment of debt (diluted) for the years
`ended September 30, 2008 a11d 2007 (in thousands, except per share amounts):
`
`As reported
`Restructuring and other charges, net of tax
`Loss on extinguishment of debt, net of tax
`Incrcmcntal shares from thc assumcd lapse of rcstrictions on rcstrictcd stock awards
`Incremental shares from the assumed exercise of outstanding stock options
`As adjusted before restructuring and other charges, and loss on extinguishment of debt
`
`Year Ended
`September 30, 2008
`Net
`Income
`Diluted
`(Loss)
`RPS
`$(1,389)
`$(0.23)
`2,171
`61
`
`Shares
`5,924
`—
`
`22
`102
`
`el1 6,048
`
`%
`
`Year Ended
`September 30, 2007
`Net
`Income
`Diluted
`(Loss)
`EPS
`$ (393)
`$(0.07)
`—
`5,748
`—
`—
`$5,355
`
`Shares
`5,802
`—
`
`36
`297
`6,135
`
`$0.87
`
`$0.14
`
`Liquidity and Capital Resources
`Our cash needs have pri111arily bee11 for: (i) debt service, i11cludi11g prepayments, (ii) capital expenditures, including leasehold improvements,
`fixtures and equipment for new stores, store relocations and expansions of our existing stores, as well as improvements and new equipment for our
`distribution and corporate facilities and information systems, and (iii) working capital, including inventory to support our business. We have
`historically financed thcsc capital rcquircmcnts from cash flows from opcrations, borrowings u11dcr our credit facilitics or availablc cash balanccs.
`Cash and cash equivalents increased by $8.5 million during fiscal 2009 compared to an increase of $2.0 million during fiscal 2008.
`Cash provided by operations of $42.5 million for fiscal 2009 increased by $14.7 million from $27.8 million for fiscal 2008. This increase i11 cash
`provided by operations versus the prior year was primarily the result ofthe net income before non-cash goodwill impairment charges in fiscal 2009
`as co111pared with a net loss in fiscal 2008, a11d to a lesser extent, working capital cl1a11ges that provided 111ore cash in fiscal 2009 compared to fiscal
`2008. The working capital changes were primarily (i) a slight increase in accounts payable, accrued expenses and other current and non-current
`liabilities in fiscal 2009 compared to a significant decrease in fiscal 2008, and (ii) a decrease in other current assets in fiscal 2009, which primarily
`reflected the receipt of a $1.5 million federal income tax refund, partially offset by (iii) a slight decrease in trade accounts receivable i11 fiscal 2009
`compared to a much larger decrease in fiscal 2008, and (iv) a smaller decrease in inventories in fiscal 2009 compared to the fiscal 2008 decrease.
`44
`
`Source: DESTIN»'¥l'ION MAT'ERNITY CORR, 10~K, 12714-/2009 | Powered by Intelligize
`
`DMC Exhibit 2040_O44
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`During fiscal 2009 we used cash provided by operations primarily to fund repayments oflong-term debt and to pay for capital expenditures.
`Our repayments of long-term debt in fiscal 2009 consisted predominately of $20.0 million of prepayments of our Term Loan, including a $0.6 million
`prepayment required u11der the annual excess cash flow provision of the Term Loan. For fiscal 2009 we spent $12.6 million on capital expenditures,
`including $9.5 million for lcaschold improvcmcnts, fixtures and cquipmcnt principally for new store facilities, as wcll as improvements to cxisting
`stores, and $3.1 million for our information systems and distribution and corporate facilities.
`Cash provided by operations of $27.8 million for fiscal 2008 increased by $0.4 million from S27.4 million for fiscal 2007. This increase i11 cash
`provided by operations versus the prior year was primarily the result of working capital changes that provided more cash in fiscal 2008 compared
`to 2007, primarily due to a decrease in inventories in fiscal 2008, partially offset by the larger net loss and smaller loss on extinguishment of debt in
`fiscal 2008 compared to fiscal 2007. Total inventories as of September 30, 2008 were $88.1 million, a decrease of S12.4 million or 12.4% below the
`$100.5 million inventories balance as of September 30, 2007.
`During fiscal 2008 we used the majority of our casl1 provided by operations to pay for capital expenditures. For fiscal 2008 we spent $15.7
`million in capital expenditures, including $12.3 million for leasehold improvements, fixtures and equipment principally for new store facilities, as well
`as improvements to existing stores, and $3.4 million for our information systems and distribution and corporate facilities. We funded repayments of
`long-terrn debt in fiscal 2008, consisting predominately of $13.0 million of prepayments of our Term Loan, by using the remaining cash provided by
`operations and the cash received from the Grantor Trust related to amendments to certain supplemental executive retirement agreements (as
`described later in this section).
`On December 8, 2006, we completed the repurchase of $25.0 million principal amount of our Senior Notes at l05.625% of the principal amount,
`plus accrued and unpaid interest. On April 18, 2007, we completed the redemption of the remaining $90.0 million principal amount of our
`outstanding Senior Notes through our Term Loan financing. The December 2006 and April 2007 redemptions of the Senior Notes, which were both
`at a price of 105.625% of principal amount, plus accrued interest, rcsultcd in “loss on cxtinguishment of dcbt” of $9.4 million on a prctax basis,
`consisting of the $6.5 million cash redemption premium and $2.9 million of non-cash expense from the write-off ofunamortized deferred financing
`costs and debt issuance costs.
`
`We have in place an agreement for a senior secured Term Loan B (the “Term Loan Agreement”). which matures on March 13, 2013, the
`proceeds of which were used to redeem the Senior Notes. The interest rate on the Term Loan is equal to, at our election. either (i) the prime rate
`plus 1.00%, or (ii) a LIBOR rate plus the applicable margin. The applicable margin for LIBOR rate borrowings is either 2.25% or 2.50%, depending
`on our Consolidated Leverage Ratio (as defined). Based upon our applicable quarterly Consolidated Leverage Ratio during fiscal 2009, the
`applicable margin for LIBOR rate borrowings remained at 2.50% for fiscal 2009 and the first quarter of fiscal 2010. Based upon our Consolidated
`Leverage Ratio as of September 30, 2009, the applicable margin for LIBOR rate borrowings will be 2.25% effective for the second quarter of fiscal
`2010. We are required to make minimum repayments ofthe principal amount of the Term Loan in quarterly installments of $225,000 each. We are
`also required to make an annual principal repayment equal to 25% or 50% of Excess Cash Flow (as defined) in excess of $5.0 million for each fiscal
`year, with the 25% or 50% factor depending on our Consolidated Leverage Ratio. The effect of any non-cash goodwill impairment charges is
`excluded from the calculation of Excess Cash Flow under our Term Loan Agreement. The required principal repayment for fiscal 2009, which was
`calculated based on the 25% factor. is $5.8 million and is due i11 December 2009. The required principal repayment for fiscal 2008, which was
`calculated based on thc 50% factor, was $0.6 million and was paid in December 2008. Additionally, the Term Loan can bc prcpaid at our option, in
`part or ir1 whole, at any time witl1o11t any prepayment premium or penalty. For fiscal 2009 we made the following prepayments: $10.0 million in tlie
`first quarter, including the $0.6 million prepayment required under the annual excess cash [low provision of the Term Loan, $5.0 million in the third
`quarter and $5.0 million in the fourth quarter. For fiscal 2008 we made the following prepayments: $5.0 million in the second quarter and $8.0 million
`in the third quarter. At September 30, 2009, our indebtedness u11der the Term Loan Agreement was $54.8 million.
`45
`
`Source: DESTINATION MATERNITY CORP., 10-K, 12/14/2009 I Powered by Intelligize
`
`DMC Exhibit 2040_O45
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`The Term Loan is secured by a security interest in our accounts receivable, inventory, real estate interests, letter of credit rights, cash,
`intangibles and certain other assets. The security interest granted to the Term Lenders is, in certain respects, subordinate to the security interest
`granted to the credit facility lender. The Temi Loan Agreement imposes certain restrictions on our ability to, among other things, incur additional
`indebtedness, pay dividends, repurchase stock, and enter into other various types of transactions. The Term Loan Agreement also co11tains
`quarterly fi11ancial covenants that require us to maintain a specified maximum pennitted Consolidated Leverage Ratio and a specified minimum
`permitted Consolidated Interest Coverage Ratio (as defined). Since the inception of the Term Loan Agreement we have been in compliance with all
`covenants of our Term Loan Agreement.
`In order to mitigate our floating rate interest risk on the variable rate Term Loan, we entered into an interest rate swap agreement with the
`Agent bank for the Term Loan that commenced on April 18, 2007, the date the Tern1 Loan proceeds were received, and expires on April 18, 2012.
`The interest rate swap agreement enables us to effectively convert an amount ofthe Term Loan equal to the 11otional amount of the interest rate
`swap from a floating interest rate of LIBOR plus 2.50% (subject to reduction to LIBOR plus 2.25% if we achieve a specified leverage ratio), to a
`fixed interest rate of 7.50% (subject to reduction to 7.25% if we achieve a specified leverage ratio) for the significant majority of the Term Loa11. The
`notional amount of the interest rate swap was $75.0 million at the inception of the swap agreement and decreases over time to a notional amount of
`$5.0 million at the expiration date. The notional amount ofthe swap was $42.5 million as of September 30, 2009 and over the next eighteen months
`decreases as follows: to $35.0 million starting October 19, 2009; to $27.5 million starting April 19, 2010; and to $20.0 million starting October 18,
`2010.
`
`We also have in place a S65.0 million revolving credit facility (the “Credit Facility”). which matures on March 13, 2012. There are no financial
`covenant requirenlents under the Credit Facility provided that Excess Availability (as defined) does 11ot fall below 10% of t11e Borrowing Base (as
`defined). If Excess Availability were to fall below 10% of the Borrowing Base, we would be required to meet a specified minimum Fixed Charge
`Coverage Ratio (as defined). During all of fiscal 2009 and fiscal 2008, we exceeded the minimum requirements for Excess Availability under the
`Credit Facility.
`As of September 30, 2009, we had no outstanding borrowings under the Credit Facility and $11.5 million in letters of credit, with $36.0 million
`of availability under our credit line based on our Borrowing Base formula, compared to no outstanding borrowings and $10.6 million in letters of
`credit, with $45.9 million of availability under our credit line as of September 30, 2008. Borrowings under the Credit Facility as of September 30, 2009
`would have borne interest at a rate of betwee11 approximately 1.25% and 3.25% per an11um. During fiscal 2009 and 2008, our average level of direct
`borrowings under the Credit Facility was $0.2 million and $5.2 million, respectively. We expect that we will have borrowings under our Credit
`Facility d11ri11g Certain periods of fiscal 2010, reflecting seasonal and other timing variations in cash flow.
`111 March 2007, we entered into Supplemental Executive Retirement Agreements (the “SERP Agreements”) with our Chairman of the Board
`and Former CEO and our President and Chief Creative Officer (the “SERP Executives”). In April 2007, we made an initial required contribution of
`$2.7 million to a Grantor Trust, which was established for the purpose ofaccumulating assets in anticipation of our payment obligations under the
`SERP Agreements. In November 2007, we made an additional required contribution to the Grantor Trust of $1.2 million. In order to impact positively
`our ability to comply with the Consolidated Leverage Ratio covenant of our Term Loan Agreement at March 31, 2008, with the consent of the SERP
`Executives we withdrew $1.0 million from the Grantor Trust on March 28, 2008. The withdrawn funds were used to repay indebtedness under our
`credit facility. On May 20, 2008, we entered into (i) a Letter Agreement with the SERP Executives and the trustee for the Grantor Trust (the
`“Trustee”) and (ii) an amendment to the Grantor Trust agreement with the Trustee (collectively, the “Agreements”). The Agreements amended the
`SERP Agreements and the Grantor Trust agreement to provide for us to deliver an irrevocable standby letter of credit to the Trustee in an amount
`equal to our then current funding obligation under the SERP Agreements, which was $3 .9 million. As provided in the Agreements, in the third
`quarter of fiscal 2008 we received a distribution of the remaining assets held in the Grantor Trust amounting to $2.8 million. The amendments
`affected by the Agreements also allow for the issuance, from time to time, of irrevocable standby letters of credit, or the increase of size of an
`irrevocable
`
`46
`
`Source: DESTINATION MATERNITY CORP., 10-K, 12/14/2009 I Powered by Intelligize
`
`DMC Exhibit 2040_046
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`standby letter of credit already held by the Trustee, in lieu of a11y deposit to the Grantor Trust otherwise required in the future. In addition, the
`Agreements permit us, from time to time at our sole discretion, to reduce the size of any irrevocable standby letter of credit issued to the Trustee,
`so long as we simultaneously fiand the Grantor Trust with an amount of cash equal to the amount of the reduction of the letter of credit. In October
`2008, we increased the irrevocable standby letter of credit issued to the Trustee to a total of $6.8 million, in lieu of deposits to the Grantor Trust, in
`connection with additional vesting of the SERP Executives’ benefits. In April and July 2009, we reduced the irrevocable standby letter of credit by
`$1.0 million and $0.6 million, respectively, to a total of$5.2 million as ofSeptember 30, 2009, in connection with corresponding SERP benefit
`payments made in April and July 2009. In November 2009, we increased the irrevocable standby letter of credit by $0.7 million to a total of $5.9
`million, in connection with additional vesting of the SERP Executives’ benefits.
`Our management believes that o11r current ea sh and working capital positions, expected operating cash flows and available borrowing
`capacity u11der our Credit Facility, will be sufficient to fund our working capital, capital expenditures and debt repayment requirements a11d to fund
`stock repurchases and/or debt repayments, if any, for at least the next twelve months.
`
`Contractual Obligations and Commercial Commitments
`We have entered into agreements that create contractual obligations and commercial commitments. These obligations and commitments will
`have an impact on future liquidity and the availability of capital resources. The tables below set forth a summary of tl1ese obligations and
`comnlitinents as of September 30, 2009 (in tl1ousands):
`
`Contractual Oblz'gatz'0r7s.'
`
`Description
`Long-term debt
`Interest related to long-term debt (2)
`Operating leases (3)
`Purchase obligations (4)
`Total contractual cash obligations
`
`Total
`Obligations (1)
`$
`57,409
`7,320
`232,186
`90,897
`387,812
`
`$
`
`Less Than
`One Year
`$
`7,013
`2,913
`52,689
`90.897
`$153,512
`
`Payments Due by Period
`One to
`Three
`Three to
`Years
`Five Years
`$ 2,281
`$ 46,675
`3,501
`616
`86,950
`54,811
`—
`—
`$ 92,732
`$102,102
`
`After
`Five
`Years
`$ 1,440
`290
`37,736
`—
`$39,466
`
`(1)
`
`(2)
`
`The amounts i11 this table exclude obligations under employment and retirement agreements. For a discussion of the compensation of our
`executive officers, see the information contained under the caption “Executive Compensation” in our proxy statement, which will be filed with
`the Securities and Exchange Commission in connection with the Annual Meeting of Stockholders scheduled to be held on January 22, 2010.
`Interest costs on our floating rate long-term debt were estimated using the interest rates in effect as of September 30, 2009. This presentation
`of interest costs on our floating rate long-term debt includes the effect of our interest rate swap agreement further described above in
`“Liquidity and Capital Resources.”
`Includes store operating leases, which generally provide for payment of direct operating costs in addition to re11t. The amounts reflected
`include future minimum lease payments and exclude such direct operating costs.
`(4) Our purchase orders with contract manufacturers are cancelable by us at any time prior to our acceptance of the merchandise. Excludes
`purchase orders for supplies in the normal course of business.
`
`(3)
`
`47
`
`Source: DESTIN»'¥l'lON F¢’|AT'ERNITY CORR, 10~l<, 12714-/2009 | Powered by Intelligize
`
`DMC Exhibit 2040_O47
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`Commercial Commitments.‘
`
`D€Sl»'l‘iflti0Il
`Credit facility(l)
`Other standby letters of credit
`Total commercial commitments
`
`Amount of Commitment Per Period
`Less
`One
`Three
`After
`Than
`to
`to
`Five
`One
`Three
`Five
`Years
`Year
`Years
`Years
`llil L545
`f
`7 ll; *
`
`Total
`Obligations
`S
`ll,545
`
`S
`
`ll,545
`
`$11,545
`
`$ — $ — $ —
`
`(1)
`
`Consists of outstanding letter of credit commitments u11der our credit facility.
`
`New Accounting Proliolmcements
`111 June 2009, the FASB issued Statement of Financial Accou11ti11g Standards (“SFAS”) No. 168, The FASB Accounting Standards
`Codzficatzorzwl and the Hierarc/zy 0fGenerally Acceptedzlccounting Princzp/es. Sl-'AS ,\lo. 168 establishes the FASB Accounting Standards
`Codification (“ASC”) as the source of authoritative accounting principles recognized by the FASB to be applied to nongovernmental entities in
`the preparation of financial statements in co11formity with generally accepted accounting principles (“GAAP”). Rules and interpretive releases of
`the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. SFAS ,\To. 168 is effective for
`financial statements issued for interim and annual periods ending after September 15, 2009. SFAS No. 168 and the ASC are not intended to change
`GAAP and the adoption of SFAS No. 168 did not have any impact on the Company’s consolidated financial position or results of operations but
`does change the way specific accounting standards are referenced.
`
`111 June 2008, the FASB issued Staff l’osition (“FSl’”) EITF 03-6-1, Ueterminirzg W/iet/zer Instruments Granted znS/2are—Based1’ayment
`Transactions Are Participating Secmities. FSP EITF 03-6-l provides guidance for the calculation of earnings per share under FASB ASC 260,
`Earnings Per Share, for share-based payment awards with rights to dividends or dividend equivalents. The guidance is effective for financial
`statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. The adoption of this guidance will not
`have any impact on our consolidated financial position, results of operations or reported earnings per sl1are.
`Inflation
`
`We do not believe that the relatively moderate levels of inflation which have been experienced in the Lnited States in recent years have had
`a significant effect on our net sales or profitability. However, there can be no assurance that our business will not be affected by inflation in the
`future.
`
`Forward-Looking Statements
`Some of the information i11 this report, including the information incorporated by reference (as well as information included in oral statements
`or other written statements made or to be made by us), contains forward—looking statements within the meaning of Section 27A of the Securities
`Act of 1933, as amended, and Sectio11 21E ofthe Securities Exchange Act of 1934, as amended (the “Exchange Act”). The forward-looking
`statements involve a number of risks and uncertainties. A number of factors could cause our actual results, performance, achievements or industry
`results to be materially different fron1 any future results, performance or achievements expressed or implied by these forward-looking statements.
`These factors include, but are not limited to: the impact of the current global economic slowdown on the retail industry in general and on apparel
`purchases i11 particular. our ability to successfully manage various business initiatives, our ability to successfully implement our merchandise
`brand and retail nameplate restructuring, the success of our international expansion, our ability to successfully manage and retain our leased
`department and licensed relationships and marketing partnerships, future sales trends in our existing store base, unusual weather patterns,
`changes in consumer
`
`48
`
`Source: DESTIl\l»'¥l'ION lr’|AT'ERNITY CORR, 10~l<, 12714-/2089 | Powered by Intelligize
`
`DMC Exhibit 2040_O48
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`spending patterns, raw material price increases, overall economic conditions and other factors alfecting consumer confidence, demographics and
`other macroeconomic factors that may impact the level of spending for maternity apparel, expense savings initiatives, our ability to anticipate and
`respond to fashion trends and consumer preferences, anticipated fluctuations in our operating results, the impact of competition and fluctuations
`iii the price, availability and quality of raw materials and contractcd products, availability of suitable store locations, continued availability of
`capital and financing, goodwill impairment charges, our ability to hire and develop senior management and sales associates, our ability to develop
`and source merchandise, our ability to receive production from foreign sources on a timely basis, potential stock repurchases, potential debt
`prepayments, changes in market interest rates, war or acts of terrorism and other factors referenced in this report, including those set forth under
`the caption “Item 1A. Risk Factors.”
`I11 addition, these forward—looking statements necessarily depend upon assumptions, estimates and dates that may be incorrect or imprecise
`and involve known and unknown risks, uncertainties and other factors. Accordingly, any forward—looking statements included in this report do
`:7 <6
`not purport to be predictions of future events or circumstances and may not be realized. Forward—looking statements can be identified by, among
`77 4;
`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 the negative of any of these terms, or
`comparable terminology, or by discussions of our outlook, plans, goals, strategy or intentions. Forward-looking statements speak only as oftlie
`date made. Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the SEC, we
`assume no obligation to update any of these forward-looking statements to reflect actual results, changes in assumptions or changes in other
`factors affecting these forward—looking statements.
`
`49
`
`Source: DESTINATION MATERNITY CORP., 10-K, 12/14/2009 I Powered by Intelligize
`
`DMC Exhibit 2040_O49
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`Quantitative and Qualitative Disclosures About Market Risk
`Item 7A.
`Destination Maternity Corporation is exposed to market risk from changes in interest rates. We have not entered into any market sensitive
`instruments for trading purposes. The analysis below presents the sensitivity of the market value of our financial instruments to selected changes
`ir1 market interest rates. The range of changes presented reflects our View of changes that are reasonably possible over a one-year period.
`As of September 30, 2009, we had cash and cash equivalents of $20.6 million. Our cash equivalents consist of money market accounts that
`bear interest at variable rates. A change in market interest rates earned on our investments impacts the interest income and cash flows, but does
`not materially impact the fair market value of the financial instruments. Due to the average maturity and conservative nature of our investment
`portfolio, we believe a sudden change in interest rates worrld not have a material effect on the valrre of our investment portfolio. The irrrpact on our
`future interest income resulting from changes in investment yields wil depend largely on the gross amount of our investment portfolio at that time.
`However, based upon the conservative nature of our investment portfolio and current experience, we do not believe a decrease in investment
`yields would have a material negative effect on our interest income.
`As of September 30, 2009, the principal components of our debt aortfolio were the $54.8 million Temr Loan and the $65.0 million Credit
`Facility, both of which are denominated in United States dollars.
`Our Credit Facility carries a variable interest rate that is tied to market indices. As of Septcnrbcr 30, 2009, we had no direct borrowings and
`$11.5 million of letters of credit outstanding rrnder our Credit Facility. Borrowings rrnder the Credit Facility would have resulted ir1 interest at a rate
`between approximately 1.25% and 3.25% per annum as of September 30, 2009. Any future borrowings under the Credit Facility would, to the extent
`of outstanding borrowings, be affected by changes in market interest rates. A change in market interest rates on the variable rate portion of the
`debt portfolio impacts the interest expense incurred and cash flows.
`The Term Loan carries a variable interest rate that is tied to nrarcet indices. The sensitivity analysis as it relates to this portion of our debt
`portfolio assumes an instantaneous 100 basis point move in interest rates from their levels as of September 30, 2009, with all other variables held
`constant. The principal amount of the Term Loan was $54.8 million as of September 30, 2009. A 100 basis point increase in market interest rates
`would result in additional annual interest expense on the Term Loan of approximately $0.5 million. A 100 basis point decline in market interest rates
`would correspondingly lower our annual interest expense on the Term _oan by approximately $0.5 million.
`111 order to mitigate our floating rate interest risk on the variable rate Ternr Loan, we entered into an interest rate swap agreement with the
`Agent bank for the Term Loan that commenced on April 18, 2007. The interest rate swap agreement enables us to effectively convert an amount of
`the 'l'em1 Loan equal to the notional amount of the interest rate swap from a floating interest rate (LIBOR plus 2.50%. subject to reduction to LIBOR
`plus 2.25% if we achieve a specified leverage ratio), to a fixed interest rate (7.50%), subj eet to reduction to 7.25% if we achieve a specified leverage
`ratio). The notional amount ofthe interest rate swap was $75.0 million at inception of the swap agreement and decreases over time to a notional
`amount of $5.0 million at the expiration date. The notional amount of the swap was $42.5 million as of September 30, 2009 and over the next twelve
`months decreases as follows: to $35.0 million starting October 19, 2009; and to $27.5 million starting April 19, 2010. Based on the scheduled swap
`notional amount during the next 12 months of the swap agreement, a 100 basis point increase in market interest rates would result in interest
`expense savings for the year of approximately $0.3 million related to the swap agreement. A 100 basis point decline in market interest rates would
`correspondingly increase our interest expense for the year by approximately $0.3 million related to the swap agreement. Thus, a 100 basis point
`increase in market interest rates during the next 12 months of the swap agreement would result in additional interest expense for the year of
`approximately $0.2 million on the Term Loan and swap agreement combined. A 100 basis point decline in market interest rates during the next 12
`months of the swap agreement would correspondingly lower our interest expense for the year by approximately $0.2 million on the Term Loan and
`swap agreement combined.
`Based on the limited other variable rate debt included in our debt portfolio as of September 30, 2009, a 100 basis point increase in interest
`rates would result in additional interest incurred for the year of less than
`
`50
`
`Source: DESTINATION MATERNITY CORP., 10-K, 12/14/2009 I Powered by Intelligize
`
`DMC Exhibit 2040_050
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`$0.1 million. A 100 basis point decrease in interest rates would correspondingly lower our interest expense for the year by less than $0.1 million.
`Other than as described above, we do not believe that the market risk exposure on other financial instruments is material.
`
`Financial Statements and Supplementary Data
`Item 8.
`Our Consolidated Financial Statements appear on pages F—l through F-34, as set forth in Item 15.
`
`Item 9.
`None.
`
`Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
`
`Controls and Procedures
`Item 9A.
`Disclosure Controls and Procedures
`
`Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that are filed or
`submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SF.C’s rules and forms.
`These disclosure controls and procedures include controls a11d procedures designed to ensure that infoimation required to be disclosed under the
`Exchange Act is accumulated and communicated to our management on a timely basis to allow decisions regarding required disclosure. We
`evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2009. Based on this
`evaluation, the Company’s Chief Executive ()fficcr and Chief Financial Officcr have concluded that as of September 30, 2009, thcsc controls and
`procedures were effective.
`
`Internal Control over Financial Reporting
`(a) ]\.{anagement’s Annual Report on Internal Control over Financial Reportzng
`The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting to provide
`reasonable assurance regarding the reliability of the Company’s financial reporting and the preparation of financial statements for external
`purposes i11 accordance with generally accepted accounting principles. Internal control over financial reporting i11cl11des those policies and
`procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of
`the assets of the Company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
`statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only
`in accordance with authorizations ofmanagement and directors of the Company, and (iii) provide reasonable assurance regarding prevention or
`timely detection of unauthorized acquisition, use or disposition ofthe Company’s assets that could have a material effect on the financial
`statements.
`
`Management a