`
`CONSOLIDATED STATEl\IENTS OF STOCKHOLDERS’ EQUITY
`AND COMPREHENSIVE LOSS (Continued)
`(in thousands)
`Common Stock
`Number
`of
`Shares
`6.071
`—
`
`Balance as of September 30, 2008
`Nct loss
`Amortization of prior service cost for
`retirement plans, nel oflax
`Change in fair value of interest rate swap, net
`oftax
`Comprehensive loss
`Stock-based compensation
`Exercise of stock options
`Tax benefit shortfall from stock option
`exercises and restricted stock vesting
`Repurchase and retirement of common shares
`Balance as of September 30, 2009
`
`Additional
`Paid-in
`Capital
`$ 83,274
`—
`
`Amount
`$
`61
`—
`
`—
`
`—
`
`—
`
`38
`5
`
`—
`(2)
`
`6,112
`
`$
`
`—
`—
`
`—
`—
`
`61
`
`2,031
`55
`
`(789)
`(14)
`
`Retained
`Earnings
`(Accumulated
`Deficit)
`7,505
`(40,682)
`
`$
`
`Accumulated
`Other
`Comprehensive
`Loss
`(1.372)
`—
`
`$
`
`—
`
`—
`—
`
`—
`—
`
`123
`
`(392)
`
`—
`—
`
`—
`—
`
`Comprehensive
`Loss
`
`EB
`
`$
`
`(40.682)
`
`123
`
`(392)
`140,951)
`
`Total
`$ 89.468
`(40,682)
`
`123
`
`(392)
`
`2,031
`55
`
`(789)
`(14)
`
`$ 84,557
`
`$
`
`(33,177)
`
`$
`
`(1,641)
`
`$ 49,800
`
`The accompanying notes are an integral part of these Consolidated Financial State1ne11ts.
`F-6
`
`Source: DESTINATION WIATERNITY CORR, 10-K, 12/'14/2039 | Powered by Intelligize
`
`
`
`DMC Exhibit 2040_O65
`
`Target v. DMC
`|PR2013—OO530, 531, 532, 533
`
`
`
`DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES
`CONSOLIDATED STATEIVIENTS OF CASH FLOWS
`
`(in thousands)
`
`Operating Activities
`Net loss
`Adjustments to reconcile net loss to net cash provided by operating activities:
`Depreciation and amortization
`Stock-based conrpensation expense
`Loss on impairment of long-lived assets
`Loss on impairment of goodwill
`(Gain) loss on disposal of assets
`Loss on cxtinguishmcnt of debt
`Accretion of discount on notes
`Deferred income tax provision (benefit)
`Amortization of deferred financing costs
`Changes i11 assets and liabilities:
`Decrease (increase) in:
`Trade receivables
`Inventories
`Prepaid expenses and other current assets
`Other non—current assets
`Increase (decrease) in:
`Accounts payable, accrued expenses and other current liabilities
`Deferred rent and other non-current liabilities
`Net cash provided by operating activities
`Investing Activities
`Purchase of slrort-term irrvestments
`Proceeds from sale of short-term investments
`Withdrawal from (contribution to) grantor trust
`Capital expenditures
`Proceeds from sale of property, plant and equipment
`Proceeds fi‘o111 sale of assets held for sale
`Purchase of intangible assets
`Net cash used in investing activities
`Financing Activities
`Increase (decrease) in cash overdrafts
`Proceeds from issuance of long-term debt
`Repayment of long—term debt
`Premium 011 rcpurchasc of long—term debt
`Deferred financing costs
`Repurchase ofcommon stock
`Payout of redeemed Series A preferred stock
`Proceeds from exercise of stock options
`Excess tax benefit from cxcrcisc of stock options
`Net cash used i11 financing activities
`Net Increase (Decrease) in Cash and Cash Equivalents
`Cash and Cash Equivalents, Beginning of Year
`Cash and Cash Equivalents, End of Year
`
`2009
`
`Year Ended September 30,
`2008
`
`2007
`
`$(40,682)
`
`$ (1,389)
`
`$
`
`(393)
`
`14,982
`2,031
`667
`50,389
`(48)
`123
`—
`1,318
`221
`
`556
`9,184
`2,920
`(15)
`
`769
`110
`42,525
`
`—
`—
`—
`(12,639)
`—
`526
`(342)
`(12,455)
`
`(380)
`—
`(21,237)
`K
`—
`(14)
`(16)
`55
`i
`(21,592)
`8,478
`12,148
`$ 20,626
`
`15,974
`2,281
`1,628
`—
`546
`97
`—
`(969)
`246
`
`5,009
`12,429
`(784)
`247
`
`(14,702)
`7,209
`27,822
`
`—
`—
`2,684
`(15,688)
`—
`—
`(343)
`(13,347)
`
`1,524
`—
`(14.534)
`/
`(21)
`(118)
`—
`692
`/
`(12,457)
`2,018
`10,130
`$ 12,148
`
`16,410
`2,101
`1,781
`—
`(422)
`9.423
`89
`(3,067)
`437
`
`(463)
`(6,226)
`1,788
`(44)
`
`7,389
`(1,405)
`27,398
`
`(19,550)
`28,975
`(2.662)
`(15.444)
`85
`493
`(9)
`(8,112)
`
`(584)
`90,000
`(116.039)
`(6.469)
`(1,065)
`—
`—
`3,737
`2.360
`(28,060)
`(8,774)
`18,904
`10,130
`
`$
`
`The accompanying notes are an integral part of these Consolidated Financial Statements.
`F-7
`
`Source: DESTINATION MATERNITY CORR,
`
`‘lO~K, 12/'14/2009 | Powered by Intelligize
`
`DMC Exhibit 2040_O66
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`
`
`DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
`
`1. NATURE OF BUSINESS
`
`Destination Maternity Corporation (formerly Mothers Work, Inc.) and subsidiaries (the “Company”) is a specialty designer and retailer of
`maternity clothing. On December 8, 2008, the Company changed its corporate name from “Mothers Work, Inc.” to “Destination Maternity
`Corporation.” The name change was accomplished through the merger ofa newly-fonned, wholly-owned subsidiary, DM Newco, Inc., into
`Mothers Work, Inc. The Company operated 1,084 retail locations as of September 30, 2009, including 724 stores and 360 leased departments,
`throughout the United States Puerto Rico, Guam and Canada and markets its maternity apparel on the I11temet through its
`DestinationMaternity.com and brand—specific websites. In addition, the Company markets maternity apparel at Kohl’s® stores throughout the
`United States under an exclusive product and license agreement. The Company is expanding internationally and has entered into exclusive store
`franchise and product supply relationships in India and the Middle East. The Company was incorporated in Delaware in 1982.
`
`2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
`
`a. Principles of Consalidatian
`The accompanying consolidated financial statements include the accounts of the Company and its direct and indirect wholly-owned
`subsidiaries of Cave Springs, Inc., Mothers Work Canada, Inc., Maternity Factory Warehouse Centre, Inc. (a wholly—ow11ed subsidiary of Mothers
`Work Canada, Inc.), Mothers Work Services, Inc., Destination Matemity Apparel Private Limited and Confecciones Acona S.A. All significant
`intercom pany transactions and accounts have been eliminated in consolidation.
`17. Fiscal Year-End
`
`The Company operates on a fiscal year ending September 30 of each year. All references to fiscal years of the Company refer to the fiscal
`years ended on September 30 in those years. For example, the Company’s “fiscal 2009” ended on September 30, 2009.
`
`c. Use ofEstimates
`Tl1e preparation of financial staternents i11 confornlity with accounting principles generally accepted in the United States requires
`management to make certain estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent
`assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
`results could differ from those estimates.
`
`it Cash and Cash Equivalents
`Cash and cash equivalents include cash on hand, cash in the ba11k and short-terrn investments with an original maturity of three months or
`less when purchased. Cash overdrafts of $4,450,000 and $4,830,000 were included in accounts payable as of September 30, 2009 and 2008,
`respectively.
`The Company maintains cash accounts that, at times, may exceed federally insured limits. The Company has not experienced any losses from
`maintaining cash accounts in excess of such limits. Management believes that it is not exposed to any significant credit risks on its casl1 accounts.
`e. Investments
`
`The Company’s investments may be classified as either held-to-maturity or available-for-sale. Held-to-maturity securities are carried at
`amortized cost and represent those securities that the Company has both the intent and ability to hold to maturity. Available-for-sale securities are
`carried at fair value, and are classified
`
`F-8
`
`Source: DESTINATION MATERNITY CORP., 10-K, 12/14/2009 I Powered by Intelligize
`
`DMC Exhibit 2040_O67
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`
`
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
`2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
`
`DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES
`
`as such because these securities are not actively traded and do not meet the classification of held—to—maturity. Interest on investments, as well as
`amortization of discounts and premiums, is included in interest income. Unrcalizcd gains and losses on availablc-for-salc sccuritics are excluded
`from earnings and are reported as accumulated other comprehensive income (loss) until realized. When available-for-sale securities are sold, the
`cost of the securities is specifically identified and is used to determine the realized gain or loss.
`
`f Inventories
`Inventories are valued at the lower of cost or market. Cost is determined by the “first—in, frst—out” (FIFO) method. Inventories of goods
`manufactured by the Company include the cost of nraterials, freight, direct labor, and manufacturing and distribution overhead.
`
`g. Property, Plant and Equipment
`Property, plant and equipment are stated at cost. Depreciation and amortization are computed for financial reporting purposes on a straight-
`line basis, using service lives ranging principally from five to ten years for furniture and equipment and forty years for the building. Leasehold
`improvements are amortized using the straight-line method over the shorter of the lease term or their usefirl life. The cost of assets sold or retired
`and the related accumulated depreciation or amortization are removed from the accounts with any resulting gain or loss included in net income
`(loss). Maintenance and repairs are expensed as incurred except for the capitalization of maj or renewals and betterrnents that extend the life of the
`asset. Long-lived assets are reviewed for impairment whenever adverse events, or changes in circumstances or business climate indicate that the
`carrying value may not be recoverable. Factors used in the evaluation include, but are not limited to, managemenfs plans for future operations,
`brand initiatives, recent operating results and projected cash flows. If the associated undiscounted cash flows are insufficient to support the
`recorded asset, an impairment loss is recognized to reduce the carrying value of the asset. The amount ofthe impairment loss is determined by
`comparing tl1e discounted expected future cash flows with the carrying value.
`During fiscal 2009, 2008 and 2007. the Company recorded impairment write—downs of property. plant and equipment totaling $665,000,
`$1,615,000 and $1,776,000, respectively, on a pretax basis.
`
`h. Goodwill and Intangible Assets
`Goodwill represents the excess ofcost over the fair value of net assets acquired in business combinations. Goodwill is reviewed for
`impairment at least annually or when events or changes in circumstances indicate the carrying value of the goodwill might exceed the fair value in
`accordance with applicable accounting standards. Management has determined that the Company has one reporting unit based on its reporting
`structure. The Company makes its annual assessment of impairment as ofscptembcr 30 of each fiscal year. The fair value of the Company’s single
`reporting unit at each measurement date is determined based on a combination ofthe fair market value of the Company’s outstanding common
`stock on a control basis, a discounted cash [low analysis and other generally accepted valuation methodologies and, ifnecessary, with the
`assistance of an outside independent valuation specialist. As part of the Company's impairment analysis as of September 30, 2008, an outside
`independent valuation was obtained and the fair value of the Company’s single reporting unit exceeded the carrying value. As a result of a
`substantial dccrcasc in the market price ofthe Company’s common stock subsequent to September 30, 2008, reflecting dctcriorating overall
`economic conditions and the very difficult equity market conditions, the Company reassessed the carrying value of its goodwill as ofI)ece1nher 31,
`2008, in accordance with interim period accounting requirements, and concluded that the goodwill was fully impaired.
`F-9
`
`Source: DESTINATION MATERNITY CORP., 10-K, 12/14/2009 I Powered by Intelligize
`
`DMC Exhibit 2040_O68
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`
`
`DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES
`
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
`2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
`
`Consequently, the Company recorded non—cash goodwill impairment charges of $50,389,000, on both a pretax and after tax basis, in fiscal 2009 (see
`Note 5).
`Intangible assets with definite useful lives, which primarily consist of lease acquisition costs and patents, are amortized over the shorter of
`their useful life or, if applicable, the lease term. Management reviews the carrying amount of these intangible assets as impairment indicators arise,
`to assess the continued recoverability based on future undiscounted cash flows and operating results fro1n the related asset. future asset
`utilization and changes in market conditions. During fiscal 2009, 2008 and 2007, the Company recorded write-downs ofintangible assets totaling
`$2,000, $13,000 and $5,000, respectively, on a pretax basis. The Company has r1ot identified any indefinite-lived intangible assets. Aggregate
`amortization expense of intangible assets in fiscal 2009, 2008 and 2007 was $109,000, $119,000 and $153,000, respectively.
`Estimated amortization expense for the next five fiscal years is as follows (in thousands):
`Fiscal Year
`2010
`2011
`2012
`2013
`20 l 4
`
`$109
`96
`87
`80
`66
`
`i. Interest Rate Derivatives
`
`The Company mitigates a portion of its floating rate interest risk on variable rate long-term debt through an interest rate swap agreement. In
`accordance with applicable accounting standards for derivative instruments, the Company recognizes the derivative on the balance sheet at fair
`value. On the datc thc dcrivativc instrumcnt was cntcrcd into, the Company designated it as a hcdgc ofthc variability of cash flows to bc rcccivcd
`or paid related to a recognized asset or liability (“cash flow hedge”). Changes in the fair value ofa derivative that is designated as, and meets all
`tl1e criteria for‘, a cash flow hedge are recorded i11 accunrulated other conrprehensive loss a11d reclassified i11to earnings as the underlying hedged
`item affects earnings. The Company formally documents the relationship between hedging instruments and hedged items. The Company also
`formally assesses at the inception of the hedge and on a quarterly basis, whether the derivative is highly effective in offsetting changes in cash
`flows of thc hcdgcd itcn1. Any portion of the change in fair valuc of thc dcrivativc associatcd with hcdgc incffcctivcncss is includcd in currcnt
`earnings. As of September 30, 2009 and for the year then ended, the Com pany’s interest rate swap was determined to have no ineffectiveness.
`
`j. Deferred Financing Casts
`Deferred financing costs (see Note 10) are amortized to interest expense over the term of the related debt agreement. Amortization expense of
`deferred financing costs in fiscal 2009, 2008 and 2007 was $221,000, $246,000 and $437,000, respectively. In connection with debt extinguishments,
`i11 fiscal 2009, 2008 and 2007 t11c Company wrotc ofi'$l23,000, $97,000 and $2,173,000 ofunamortizcd dcfcrrcd financing costs (scc Notc 10).
`F-10
`
`Source: DESTINATION MAT'ERNITY CORR,
`
`lO~K, 1.?/'14/2009 | Powered by Intelligize
`
`DMC Exhibit 2040_O69
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`
`
`DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES
`
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
`2. SUIVIMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
`
`Estimated amortization expense of deferred financing costs for the next five fiscal years is as follows (in thousands):
`
`20 l 0
`2011
`20 l2
`2013
`20 l4
`
`$204
`203
`l37
`41
`—
`
`k. Deferred Rent
`Rent expense on operating leases, including rent holidays and scheduled rent increases, is recorded on a straight-line basis over the term of
`the lease commencing on the date the Company takes possession of the leased property, which is generally four to six weeks prior to a store's
`opening date. The net excess of rent expense over the actual cash paid has been recorded as a deferred rent liability in the accompanying
`Consolidatcd Balancc Shccts. Tcna11t improvcmcnt allowanccs rcccivcd from landlords arc also includcd in thc accompanying Consolidatcd
`Balance Sheets as deferred rent liabilities and are amortized as a reduction of rent expense over the term of the lease from the possession date.
`
`L Treasury (Reacquired) Shares
`Shares repurchased are retired and treated as authorized but unissued shares, with the cost in excess of par value of the reacquired shares
`charged to additional paid-in capital and the par value charged to common stock.
`
`In Fair Value of Financial Instruments
`The carrying val11es of ca sh and cash equivalents, i11vestr11e11ts, trade receivables and accounts payable approximate fair val11e due to the
`short-term nature of those instruments. The majority of the Company’s long-term debt bears interest at variable rates, w11ich adjust based on
`market conditions, and the carrying value of the long-term debt approximates fair value. The difference between the carrying value and fair value of
`long-term debt held by the Company with fixed rates of interest is not significant. A portion of the Company’s floating rate interest risk on variable
`rate long-term debt is mitigated through an interest rate swap agreement. As of September 30, 2009 and 2008, the estimated fair value of the interest
`rate swap was an unrealized loss of $(2,025,000) and $(l,404,000), respectively.
`
`11. Revenue Recognition, Sales Returns and Allawances
`Revenue is recognized at tl1e poi11t of sale for retail store sales, including leased department sales, or when merchandise is shipped to
`customers for liccnscd product and lntcmct salcs, and whc11 mcrchandisc is shippcd to thc intcrnational franchisccs. Allowanccs for rcturns arc
`recorded as a reduction of revenue, based 011 the Company’s historical experience. Revenues are recorded net of applicable sales taxes.
`0. Other Revenues
`
`Included in net sales are revenues earned by the Company through a variety of marketing partnership programs utilizing the Company’s opt-
`in customer database and various in—store marketing initiatives, focused on baby and parent—related products and services. Also included in net
`salcs arc fccs and royalties rclatcd to intcrnational franchisc agrccmcnts. Franchisc fccs arc carncd by the Company when all matcrial scrviccs or
`conditions related to the franchise agreement have been substantially performed or satisfied and royalties are eamed based on net sales ofthe
`Company’s international franchisees and may include minimum guaranteed royalties.
`F-ll
`
`Source: DESTIl\l»'¥l'ION Fr’|AT'ERNITY CORR, 10~l<, 12714-/2089 | Powered by Intelligize
`
`DMC Exhibit 2040_O70
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`
`
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
`2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
`
`DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES
`
`p. Cost of Gnarls Sold
`Cost of goods sold i11 the accompanying Consolidated Statements of Operations includes: merchandise costs (including customs duty
`expenses), expenses related to inventory shrinkage, product—related corporate expenses (including expenses related to payroll, benefit costs and
`operating expenses of the Company’s buying departments), inventory reserves (including lower of cost or market reserves), inbound freight
`charges, purchasing and receiving costs, inspection costs, warehousing costs, internal transfer costs, and the other costs ofthe Company’s
`distribution network.
`
`q. Shipping and IIandling Fees and Costs
`The Company includes shipping and handling revenue earned fron1 its e—con1merce activities in net sales. Shipping and handling costs,
`which are included in cost of goods sold in the accompanying Consolidated Statements of Operations, include shipping supplies, related labor
`costs and third-party shipping costs.
`
`r. Selling, General and Administrative Expenses
`Selling, general and administrative expenses in the accompanying Consolidated Statements of Operations include: advertising and marketing
`expenses, corporate administrative expenses, store expenses (including store payroll and store occupancy expenses), and store opening expenses.
`
`s. Advertising Costs
`The Company expenses the costs ofadvertising when the advertising first occurs. Advertising expenses, including Internet advertising
`expenses, were $11,213,000, $12,697,000 and $11,938,000 in fiscal 2009, 2008 and 2007, respectively.
`
`t. Stare Closing, Asset Impairment and Asset Disposal Expenses
`Store closing expenses include lease termination fees, gains or losses on disposal of closed store assets and recognition of unamortized
`deferred rent. Asset impairment expenses represent losses recognized to reduce the carrying value of impaired long-lived assets. Asset disposal
`expenses represent gains or losses on disposal of assets other than i11 connection with store closings, including assets disposed from remodeling
`or relocation of stores.
`
`u. lncnme Taxes
`
`The Company utilizes the asset and liability method of accounting for income taxes. Under this method. deferred tax assets and liabilities are
`recognized for the expected future tax consequences of tem porary differences between the carrying amounts and the tax bases of assets and
`liabilities as well as fron1 net operating loss carryforwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in
`operations in the period that includes the enactment date.
`
`The Company adopted the provisions of the accounting standard for 11ncertai11 income tax positions effective as of October 1, 2007. Under
`this standard, recognition of a tax benefit occurs when a tax position is more-likely-than-not to be sustained upon examination, based solely on its
`technical merits. Derecognition of a previously recognized tax position would occur if it is subsequently determined that the tax position no longer
`meets the more-likely-than-not threshold of being sustained. The accounting standard also provided guidance on the measurement of uncertain
`income tax positions. The Company records interest and penalties related to unrecognized tax benefits in income tax provision (benefit).
`F-12
`
`Source: DESTINATION MATERNITY CORP., 10-K, 12/14/2009 I Powered by Intelligize
`
`DMC Exhibit 2040_O71
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`
`
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
`2. SUTVIMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
`
`DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES
`
`v. Earnings (Loss) per Share
`Basic earnings (loss) per share (“Basic EPS”) is computed by dividing net income (loss) by the weighted average number of common shares
`outstanding, excluding restricted stock awards for which the restrictions have not lapsed. Diluted earnings (loss) per share (“Diluted EPS”) is
`computed by dividing net income (loss) by the weighted average number of common shares outstanding. after giving effect to the potential
`dilution, if applicable, from the assumed lapse of restrictions on restricted stock awards and from the exercise of stock options into shares of
`co1111no11 stock as if those stock options were exercised (see Note 14).
`Options and restricted stock totaling 947,338, 1,039,866 and 962,220 shares of the Company’s common stock were outstanding as of
`Scptcmbcr 30, 2009, 2008 and 2007, rcspcctivcly, but were not included in thc computation of Diluted EPS for fiscal 2009, 2008 and 2007, duc to thc
`Con1pany’s net loss position. Had the Company reported a profit for fiscal 2009, 2008 and 2007, the average number of dilutive shares outstanding
`for computation of Diluted EPS would l1ave bee11 approximately 6,067,000, 6,048,000, a_11d 6,135,000, respectively.
`
`w. Statements ofCash Flaws
`I11 fiscal 2009, 2008 and 2007, the Company paid interest, including payments made on its interest rate swap agreement (see Note 10), of
`$4,809,000, $7,169,000 and S10,415,000, respectively, and made income tax payments, net of refunds, of $2,357,000, S552,000 and $(972,000),
`respectively.
`
`x. Subsequent Events
`The Company has evaluated sub sequent events through December 14, 2009, the date these consolidated financial statements were issued.
`
`y. Business and Credit Risk
`Financial instruments, primarily cash and cash equivalents, investments and accounts receivable, potentially subject the Company to
`concentrations of credit risk. The Co111pa11y limits its credit risk associated with casl1 and cash equivalents a11d investments by placing such
`investments in highly liquid funds and instruments. Receivables associated with third-party credit cards are processed by financial institutions,
`which are monitored for financial stability. The Company is dependent on key suppliers to provide sufficient quantities of inventory at competitive
`prices. No single supplier represented 10% or more of net purchases in fiscal 2009, 2008 or 2007. A significant majority of the Company’s
`purchases during fiscal 2009, 2008 and 2007 were imported. Management believes that any event causing a disruption of imports from any specific
`country could be partially mitigated by moving production to readily available alternative sources.
`
`z. Insurance
`
`The Company is self—i11sured for workers’ compensation and en1ployee—related health care benefits, up to certain stop—loss limits. Such costs
`arc accrued bascd on known claims and an cstimatc of incurrcd but not rcportcd claims. Furthcr, thc Company utilizcs a cooperative arrangement
`with a number of other companies to assist i11 managing certain workers’ compensation a11d general liability insurance risks. The Company’s
`expenses associated with this relationship could be impacted by the loss history associated with the cooperative as a whole. Liabilities associated
`with these risks are estimated by considering historical claims experience and other actuarial assumptions.
`
`ml. Stare Prenpening Costs
`N on-capital cxpcnditurcs, such as payroll costs incurrcd prior to thc opcning ofa ncw store, arc charged to cxpcnsc in thc pcriod in which
`they were in curred.
`
`l"- 13
`
`Source: DESTINATION MATERNITY CORP., 10-K, 12/14/2009 I Powered by Intelligize
`
`DMC Exhibit 2040_072
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`
`
`DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES
`
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
`2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
`
`bb. New Accounting Pranaimcements
`In June 2009, the Financial Accounting Standards Board (“FASB") issued Statement of Financial Accounting Standards (“SFAS”) No. 168,
`The FASB Accounting Standards Codi/"icatz0nTM and the Hierarchy 0fGenerallyAccepted/lccouniing Principles. SFAS No. 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 conformity with generally accepted accounting principles (“GAAP”). Rules
`and interpretive releases of tl1e SEC u11der a11t11ority of federal securities laws are also sources of authoritative GAAP for SEC registrants. SFAS
`No. 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.
`
`I11 June 2008, the FASB issued Staff Position (“FSP”) EITF 03-6-1, Determining Whether Instruments Granted in SI/2are—Based Payment
`Transactions Are Participating Securities. FSP EITF 03-6-1 provides guidance for the calculation of earnings per share under FASB ASC 260,
`Earnings Per Share, for sharc-b ascd payment awards with rights to dividends or dividc11d 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 011 the Company‘s consolidated financial position, results of operations or reported earnings per share.
`3. INVENTORIES
`
`Inventories as of September 30 were comprised of the following (in thousands):
`
`Finished goods
`Work-in-progress
`Raw materials
`
`4. PROPERTY, PLANT AND EQUIPMENT, NET
`Property, plant and equipment as of September 30 was comprised of the following (in thousands):
`
`Land
`Building and improvements
`Furniture and equipinenl
`Leasehold improvements
`
`Less: accumulated depreciation a11d amortization
`
`2009
`
`$72,814
`2,470
`3,588
`$78,872
`
`2008
`
`$81,028
`2,904
`4,124
`$88,056
`
`35
`
`2009
`1,400
`14,252
`65,903
`105,474
`187,029
`(124,177)
`$ 62,852
`
`$
`
`2008
`1,400
`13,469
`62,937
`105,657
`183,463
`(117,365)
`$ 66,098
`
`During fiscal 2009, 2008 a11d 2007, the Co1I1pany recorded pretax charges of $665,000, $1,615,000 and $1,776,000, respectively, related to the
`impairment of leasehold improvements and furniture and equipment at
`
`F-14
`
`Source: DESTINATION MAT'ERNITY CORR,
`
`lO~K, 12/'14/2089 | Powered by Intelligize
`
`DMC Exhibit 2040_O73
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`
`
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
`4. PROPERTY, PLANT AND EQUIPMENT, NET (Continued)
`
`DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES
`
`certain of its retail locations. Aggregate depreciation and amortization expense of property, plant and equipment in fiscal 2009, 2008 and 2007 was
`$14,873,000, $15,855,000 and $16,257,000, respectively.
`As of September 30, 2008, $207,000 of assets (not included above) were separately reflected in the accompanying Consolidated Balance
`Sheet as “assets held for sale.” The assets held for sale related to manufacturing and warehouse facilities located in Costa Rica that were acquired
`and shut down in a fiscal 2002 business purchase. Two of these facilities were previously sold for a11 aggregate of $718,000. The remaining facility
`was sold during the first quarter of fiscal 2009 for $526,000 and the Company recognized a $319,000 gain on disposal of assets.
`5. GOODWILL IMPAIRMENT
`
`For purposes of the Company’s impairment tesfing 11r1der the accounting standard for goodwill, the Company l1as one reporting unit based
`on the Company‘s reporting structure. The fair value of the Company’s single reporting unit is determined based on a combination of the fair
`market value of the Company’s outstanding common stock 011 a control basis, a discounted cash flow analysis and other generally accepted
`valuation methodologies and, if necessary, with the assistance of an outside independent valuation specialist. As a result of a substantial
`decrease in the market price of the Company’s common stock subsequent to September 30, 2008, reflecting deteriorating overall economic
`co11ditior1s ar1d tl1e very difficult equity market cor1ditio11s, the Company reassessed the carrying value of its goodwill as of December 31, 2008, in
`accordance with interim period accounting requirements, and concluded that its goodwill was impaired. Consequently, the Company recorded a
`preliminary non—cash goodwill impairment charge of $47,000,000, on both a pretax and after tax basis, i11 the first quarter of fiscal 2009. The final
`results of the Company’s evaluation completed during the second quarter of fiscal 2009 indicated the goodwill was fully impaired. Accordingly, the
`Company recorded a S3,389,000 non—cash goodwill impairment charge, on both a pretax and after tax basis, in the second quarter of fiscal 2009.
`representing the rer11air1i11g carrying value of tl1e goodwill as of December 31, 2008. The goodwill i111pai1n1er1tar1alysis involved calculating the
`implied fair value of the Company‘s goodwill by allocating the fair value of the Company’s single reporting unit to all assets and liabilities other
`than goodwill (including both recognized and unrecognized intangible assets) and comparing the residual amount to the carrying value of
`goodwill. The non—cash goodwill impairment charges do 11ot have any adverse effect on the covenant calculations under the Company’s debt
`agreements or the Company’s overall compliance with the covenants of the Company’s debt agreements.
`6. RESTRUCTURING AND OTHER CHARGES
`
`011 July 1, 2008, the Company armounced that it was streanrlining its merchandise brands ar1d store nameplates ar1d was implementing cost
`reductions in order to simplify its business model, reduce overhead costs and improve its merchandise assortments. Pursuant to the strategic
`restructuring, the Company rebranded its Mimi Maternity® merchandise brand under its A Pea in the Pod® brand beginning with the Spring 2009
`collection. which initially debuted in November 2008. The Company also streamlined its store nameplates, by renaming its single-brand Mimi
`Maternity stores as A Pea in the Pod, and by renaming its multi-brand Mimi Maternity stores as I)estination Maternity®. In conn