15. INCOME TAXES (Continued)
`
`DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES
`
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
`
`A reconciliation of gross unrecognized tax benefits follows (in thousands):
`
`Balance—October 1, 2007
`Additions for current year tax positions
`Additions for prior year tax positions
`Reductions of prior year tax positions
`Settlements
`Balance—Septernber 30, 2008
`Additions for current year tax positions
`Additions for prior year tax positions
`Reductions of prior year tax positions
`Balance—September 30, 2009
`
`$2,315
`158
`126
`(98)
`(222)
`2,279
`257
`143
`(79)
`$2,600
`
`As of September 30, 2009, gross unrecognized tax benefits included accrued interest and penalties of $1,214,000. During fiscal 2009 and 2008,
`interest and penalties of $1 88,000 and $145,000, respectively, related to unrecognized tax benefits were included in i11co1ne tax provision (benefit). If
`recognized, the portion of the liability for unrecognized tax benefits that would impact the Company’s effective tax rate was $1,831,000, net of
`federal tax benefit.
`
`During the twelve n1onths subsequent to September 30, 2009, it is reasonably possible that the gross unrecognized tax benefits could
`potentially increase by approximately $131,000 (of which approximately $80,000 would affect the effective tax rate, net of federal benefit) for federal
`and state tax positions related to the effect of interest on unrecognized tax benefits and limitations on certain potential tax credits, partially offset
`by the effect of expiring statutes oflimitations and settlements.
`The Company’s U.S. Federal income tax returns for the years ended September 30, 2008 and thereafter remain subject to examination by the
`U.S. Internal Revenue Service. The Company also files returns in Canada and numerous state jurisdictions, which have varying statutes of
`limitations. Generally, Canadian tax returns for years ended September 30, 2004 and thereafter a11d state tax returns for years ended September 30.
`2005 and thereafter, depending upon the jurisdiction, remain subject to examination. However, the statutes of limitations on certain ofthe
`Company’s state returns remain open for years prior to fiscal 2005.
`16. COMMlTMEl\ TS AND CONTL\JGEl\ClES
`
`The Company leases its retail facilities and certain equipment under various non-cancelable operating leases. Certain of these leases have
`renewal options. Total rent expense (including related occupancy costs, such as insurance, maintenance and taxes, paid to landlords) under
`operating leases amounted to $72,687,000, $74,198,000 and $73,012,000 in fiscal 2009, 2008 and 2007, respectively. Such amounts include contingent
`rentals based upon a percentage of sales totaling $1,146,000, $l.232,000 and $1,022,000 in fiscal 2009, 2008 and 2007, respectively.
`F-27
`
`Source: DESTINATION MAT'ERNITY CORR, 10~K, 12/'14/2009 | Powered by Intelligize
`
`DMC Exhibit 2040_O86
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES
`
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
`16. COMNIITMENTS AND CONTINGENCIES (Continued)
`
`Store operating leases a11d warehouse leases generally provide for payment of direct operating costs in addition to rent. Future annual
`minimum operating lease payments, excluding sucl1 direct operating costs, as well as leases for equipment rental as of September 30, 2009 are as
`follows (in thousands):
`Fiscal Year
`2010
`201 1
`2012
`2013
`2014
`2015 and thereafter
`
`$
`
`52,689
`47,161
`39,789
`32.593
`22,218
`37,736
`$ 232186
`
`From time to time, the Company is named as a defendant in legal actions arising from normal business activities. Litigation is inherently
`unpredictable and although the amount of any liability that could arise with respect to currently pending actions 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, results of
`operations or liquidity.
`17. EMPLOYMENT AGREEMENTS
`
`On September 26, 2008, the Board of Directors appointed Edward M. Krell, the Company’s Chief Operating Oflieer & ChiefFinancial Ofiicer
`at that time, to serve as Chief Executive Officer (“CEO”) of the Company, effective as of October 1, 2008, replacing Dan Matthias. In connection
`with Mr. Krell’s promotion to CEO, the Company entered into an amendment to his May 15, 2007 employment agreement. The amendment provided
`for an increase in Mr. Krell’s annual base salary from $531,000 to $650,000. The Company previously entered into employment agreements with Mr.
`Krell dated April 26, 2005. when Mr. Krell was the Company’s Executive Vice President—Chief Financial Officer, and May 15, 2007, in connection
`with Mr. Krell’s promotion to Chief Operating Oiticer & Chief Financial Oflicer. Base compensation for Mr. Krell was $650,000, $531,000 and
`$471,000 for fiscal 2009, 2008 and 2007, respectively. Mr. KIell’s base compensation is subject to potential increase in the future by the Company i11
`an amount to be determined by the Compensation Committee at its discretion. The agreement also provides for salary continuation and severance
`payments should the employment of Mr. Krell be terminated under specified conditions, as defined therein. Additionally, Mr. Krell is eligible for an
`annual cash bonus based on performance, as specified by the Compensation Committee. The agreement continues in effect until terminated by
`either the Company or Mr. Krell in accordance with the termination provisions of the agreement. In co11nection with Mr. Krell’s appointment as
`CEO, the Company granted to Mr. Krell two stock options, each to purchase 100,000 shares of common stock, 11nder the Company’s 2005 Equity
`Incentive Plan (see Note 14).
`During fiscal 2008 and 2007, the Company had an employment agreement with Dan W. Matthias, the Company’s Chairman of the Board a11d
`Fomier CEO. Base compensation for Mr. Matthias was $542,000 and S532,000 for fiscal 2008 and 2007, respectively. Effective September 30, 2008,
`Mr. Matthias retired as CEO. I11 connection with Mr. Matthias’ retirernent as CEO, the Company entered i11to a Transition Agreement (the “D.
`Matthias Transition Agreement”) with Mr. Matthias. The D. Matthias Transition Agreement, which has a term of four years expiring September 30,
`2012, provides that Mr. Matthias will make himself available to the Company
`F-28
`
`Source: DESTIN»'¥l'ION F¢’|AT'ERNITY CORR, 10~K, 12714-/2009 | Powered by Intelligize
`
`DMC Exhibit 2040_O87
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
`17. EMPLOYMENT AGREEMENTS (Continued)
`
`DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES
`
`for strategic planning, corporate development and other matters as requested by the Board of Directors or the Company’s CEO. Subsequent to his
`retirement, Mr. Matthias continued to serve the Company as non-executive Chairman ofthc Board and is available to the Company as stipulated in
`the D. Matthias Transition Agreement. In consideration of Mr. Matthias’ advisory and board services (and in lieu of all other director
`compensation), the Company will pay Mr. Matthias an annual retainer of $200,000 and continue certain insurance and fringe benefits during the
`term of the D. Matthias Transition Agreement. In November 2009, Mr. Matthias entered into a letter agreement with the Company, which confirmed
`that he would not seek reelection to the Board of Directors afier the expiration of his current term in January 2010. The letter agreement does not
`change the terms of payment under the annual retainer for advisory services, however the Company will incur a pretax charge of $583,000 primarily
`in the first quarter of fiscal 2010, representing the amount due for the remaining term of the advisory arrangement. Payment of the retainer and
`continuation of the benefits is subject to certain specified conditions, as defined in the D. Matthias Transition Agreement. The D. Matthias
`Transition Agreement also provides for the restrictive covenants set forth in Mr. Matthias’ employment agreement to continue in effect until two
`years after Mr. Matthias ceases to serve the Company in any capacity (including service as a Board member or advisor).
`During fiscal 2009, 2008 ar1d 2007, the Company had an employment agreement with Rebecca C. Matthias, the Company’s President and
`Chief Creative Olficer. Base compensation for Ms. Matthias was $572,000, $542,000 and $532,000, for fiscal 2009, 2008 and 2007, respectively. On
`November 6, 2009, the Company announced the retirement of Ms. Matthias at the end of fiscal 2010. In connection with Ms. Matthias’ retirement,
`the Company entered into a Transition Agreement (the “R. Matthias Transition Agreement”) with Ms. Matthias on November 6, 2009 (the
`“Effective Date”). The R. Matthias Transition Agreement. which expires on September 30, 2012, provides that Ms. Matthias will be a full-time
`employee of tire Company until June 15, 2010 (the “Transition Date”). Following the Transition Date, Ms. Matthias agrees to serve the Company
`as a part-time employee until September 30, 2010 (the “Tennination Date"), at which point Ms. Matthias’ employment with the Company will
`terminate. Following the Termination Date a11d through September 30, 2012, Ms. Matthias agrees to make herself available to the Company on a
`limited basis for strategic planning, merchandising, public relations, publicity and other matters as requested by the Company’s CEO. The R.
`Matthias Transition Agreement also provides for the restrictive covenants set forth in Ms. Matthias’ employment agreement to continue in effect
`until two years after Ms. Matthias ceases to serve the Company in any capacity (including service as a Board member or advisor).
`In consideration of the services described above, the Company will pay Ms. Matthias: (i) a base salary at an annualized rate of $572,000 from
`the Effective Date through the Transition Date; (ii) a base salary at an annualized rate of$114,000 from the Transition Date to the Termination Date,
`and (iii) certain fringe benefits, which will continue through the Termination Date. The R. Matthias Transition Agreement also provides that Ms.
`Matthias will be eligible for a pro-rata cash bonus based on performance, as specified by the Compensation Committee, for fiscal 2010.
`Effective January 24, 2008, the Company entered into a letter agreement and an employment agreement with Lisa Hendriekson in connection
`with Ms. 1-1cndrickson’s promotion to ChicfMcrchandising Officer. The letter agreement provided that .\4s. 1-lendrickson’s annual base salary for
`the remainder offiscal 2008 would be $425,000. Ms. I-Iendrickson’s base compensation is subject to potential increase in the future by the
`Company in an amount to be determined by the Compensation Committee at its discretion. Base Compensation for Ms. Hendrickson was $434,000
`for fiscal 2009. Additionally, Ms. Hendrickson is eligible for an annual cash bonus based on performance, as specified by the Compensation
`Committee. The agreements continue in effect until terminated by either the Company or Ms. Hendrickson.
`F-29
`
`Source: DESTINATION MATERNITY CORP., 10-K, 12/14/2009 I Powered by Intelligize
`
`DMC Exhibit 2040_O88
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
`17. EMPLOYMENT AGREEMENTS (Continued)
`
`DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES
`
`Effective July 23, 2008, the Company entered into an employment agreement with Judd P. Tirnauer, in connection with Mr. Timauer°s
`promotion to Scnior Vice President & Chief Financial Otticcr. The agreement providcd that Mr. Timauer’s annual basc salary tor the remainder of
`fiscal 2008 would be $325,000. Mr. Timauer’s base compensation is subject to potential increase in the future by the Company in an amountto be
`determined by the Compensation Committee at its discretion. Base compensation for Mr. Tirnauer was $325,000 for fiscal 2009. The agreement also
`provides for salary co11ti11uation and severance payments should employment of the executive be terminated under specified conditions, as
`defined therein. Additionally, Mr. Timauer is eligible for an annual cash bonus based 011 performance, as specified by the Compensation
`Committee. The agreement continues in cffcct until tcrminatcd by either the Company or the executive i11 accordance with the termination
`provisions ofthe agreement.
`18. RETIREl\IENT PLANS
`
`On March 2, 2007, the Company entered into Supplemental Executive Retirement Agreements with Mr. and Ms. Matthias (the “SERP
`Agreement(s)”). The purpose of the SERP Agreements is to provide the executives with supplemental pension benefits following their cessation of
`employment.
`The Company’s D. Matthias Transition Agreement, entered i11to ir1 September 2008 in connection with M1: Matthias’ retirernent as CEO,
`amended his SERP Agreement to provide for full vesting of the benefits payable to Mr. Matthias and to increase the total of the amounts payable
`under the SERP Agreement to approximately 10% more than the amount that would have been payable on September 30, 2012 (the date the SERP
`Agreement had otherwise been expected to fully vest). The SERP Agreement benefits, totaling $3,960,000, will be paid to Mr. Matthias in
`installments, which commenced on April 1, 2009, with the final installment due on October 1, 2012. On April 1, 2009, tl1e Company paid Mr.
`Matthias $960,000 representing the first installment of the SERP benefits. 011 July 1, 2009, tl1e Company paid Mr. Matthias $600,000 representing
`the second installment of tl1e SERP benefits.
`
`The amount of thc benefit payable under Ms. Matthias’ SERP Agreement is the actuarial prcscnt valuc ofa single life annuity equal to 60%
`of Ms. Matthias’ “deemed final pay,” commencing upon cessation of employment. For this purpose, “deemed final pay” means Ms. Matthias’
`base salary on March 2, 2007, increased by 3% for each new fiscal year that begins before Ms. Matthias’ cessation of e111ployr11e11t. This benefit
`vested 33 1/3% on March 2, 2007. On each September 30 thereafier for fiscal 2007, 2008 and 2009 the benefit vested 15% annually based on Ms.
`Matthias continuous full—time service provided to the Company during each entire fiscal year. The Company’s R. Matthias Transition Agreement,
`entered into on l\ovc1nbcr 6, 2009 in connection with Ms. Matthias’ schcdulcd rctircmcnt, amended hcr SERP Agreement to provide that she will
`be credited with having served on a full—time basis during the 2010 fiscal year and tl1e SERP will vest an additional l 5% effective on the Transition
`Date, to a cumulative total vested percentage of 93 1/3%. Pursuant to the R. Matthias Transition Agreement, Ms. Matthias will receive a lump sum
`payment of the SERP Agreement benefits of approximately $4,166,000 on December 16, 2010. Notwithstanding the foregoing, the benefit is subject
`to full acceleration if, following a change in control, Ms. Matthias’ employment ceases due to a termination without cause or a resignation with
`good reason.
`
`F-30
`
`Source: DESTINATION MATERNITY CORP., 10-K, 12/14/2009 I Powered by Intelligize
`
`DMC Exhibit 2040_O89
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES
`
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
`18. RETIREMENT PLANS (Continued)
`
`The Company is accounting for the SERP Agreements in accordance with the accounting requirements for defined benefit pension a11d other
`post-retirement plans. Changes in the benefit obligation under the SERP Agreements as ofSeptcmbcr 30 were as follows (in thousands):
`2009
`2008
`
`Benefit obligation at beginning of year
`Service cost
`Interest cost
`Change in discount rate
`Plan amendment and curtailment
`Benefit payments
`Benefit obligation at end of year
`Less: current portion included in accrued expenses and other current liabilities
`Non-c11rrent benefit obligation at end of year
`
`$ 5,883
`573
`316
`114
`—
`(1,560)
`5,326
`(900)
`$ 4,426
`
`$ 2,957
`973
`178
`—
`1,775
`—
`5,883
`(1,560)
`$ 4,323
`
`The non-current benefit obligation at end of year was included in “deferred rent and other non-current liabilities” in the accompanying
`Consolidated Balance Sheets. Estimated benefits expected to be paid during the next four fiscal years are as follows (in thousands):
`Fiscal Year
`2010
`201 1
`2012
`2013
`
`$ 900
`4,916
`600
`150
`
`The components of net periodic pension cost on a prctax basis were as follows for the years ended September 30 (in thousands):
`2009
`2008
`573
`973
`316
`178
`196
`353
`114
`—
`—
`2,402
`$ 1,199
`$3,906
`
`Service cost
`Interest cost
`Amortization of prior service cost
`Amortization of change in discount rate
`Plan amendment and curtailment
`Total net periodic benefit cost
`
`$
`
`$
`
`$
`
`2007
`918
`68
`206
`—
`—
`$ 1,192
`
`F-31
`
`Source: DESTINATION MATERNITY CORR,
`
`‘lO~K, 12/'14/2089 | Powered by Intelligize
`
`DMC Exhibit 2040_O90
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES
`
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
`18. RETIREMENT PLANS (Continued)
`
`The following weighted—average assumptions were used to determine net periodic benefit cost for the years ended September 30, 2009. 2008,
`and 2007: discount rate — 5.0% for fiscal 2009 and 6.0% for fiscal 2008 and 2007'. compcnsation incrcasc ratc — 3.0%.
`Amounts recorded in accumulated other comprehensive loss as of September 30 were as follows (in thousands):
`2009
`
`2007
`
`2003
`
`Unrecognized prior service cost—beginning of year
`Initial prior service cost
`Amortization of prior service cost
`Prior service cost recognized for plan amendment and curtailment
`Lhrecognized prior service cost—end of year
`Deferred income tax benefit
`Unrecognized prior service cost, net of tax—end of year
`
`$(785)
`—
`196
`—
`(589)
`E
`$ 369
`
`$(l,765)
`—
`353
`627
`(785)
`293
`492)
`
`$
`
`EB —
`(l,97l)
`206
`—
`(1,765)
`689
`E 1,076)
`
`In connection with the amendment to Ms. Matthias’ SERP Agreement pursuant to the R. \Iatthias Transition Agreement, the Company
`expects to fully amortize the $589,000 of prior service cost on a pretax basis from accumulated other comprehensive loss into net periodic pension
`cost in fiscal 2010.
`
`On April 30, 2007, the Company made an initial rcquircd contribution of $2.662,000 to a Grantor Trust, which was established for the purpose
`of accumulating assets i11 anticipation of the Company’s payment obligations under the SERP Agreements. On November 27, 2007, the Company
`made an additional required contribution to the Grantor Trust of$l,l60,000. In order to impact positively the Company’s ability to comply with the
`Consolidated Leverage Ratio covenant of its Term Loan Agreement at March 31, 2008, with the consent of the SERP executives, the Company
`withdrew $1,000,000 fron1 the Grantor Trust 011 March 28, 2008. The withdrawn funds were used to repay indebtedness under the Credit Facility.
`On May 20, 2008, the Company entered ir1to (i) a Letter Agreement with the SERP executives and the trustee for the Gra11tor 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 the Company to deliver an irrevocable standby letter of credit to the Trustee in
`an amount equal to the Company’s then current funding obligation under the SERP Agreements, which was $3,885,000. As provided in the
`Agreements, iii the third quarter of fiscal 2008 the Company received a distribution of the remaining assets held in the Grantor Trust. amounting to
`$2,844,000.
`The amendments effected by the May 20, 2008 Agreements also allow for. at the Company’s option, the issuance from time to time of
`irrcvocablc standby lcttcrs of crcdit. or thc increase of sizc of an irrcvocablc standby lcttcr of credit alrcady 11cld by the Trustee, in licu of any
`deposit to the Grantor Trust otherwise required in the fiiture. In addition, the Agreements permit the Company, from time to time at its sole
`discretion, to reduce tl1e size of any irrevocable standby letter of credit issued to the Trustee, so long as the Company simultaneously funds the
`Grantor Trust with an amount of cash equal to the amount of tlie reduction of the letter of credit. In October 2008, the Company increased the
`irrevocable standby letter of credit issued to the Trustee to a total of $6,779,000, i11 lieu of deposits to the Grantor Trust, in connection with the full
`vesting of Mr. Matthias’ benefits u11der the L). Matthias Transition Agreement and the annual increase in vesting of Ms. Matthias’ benefits. In
`April and July 2009, the Company reduced the irrevocable standby letter of credithy $960,000 and S600,000, respectively, to a total of $5,2l 9,000, in
`co11r1ectior1 with tl1e April and July 2009 benefit payments r11ade to
`
`I7-32
`
`Source: DESTIl\l»'¥l'ION F¢’|AT'ERNITY CORR, 10~l<, 12714-/2009 | Powered by Intelligize
`
`DMC Exhibit 2040_O91
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES
`
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
`18. RETIREMENT PLANS (Continued)
`
`Mr. Matthias. In November 2009. the Company increased the irrevocable standby letter of credit by $718,000 to a total of $5,937,000, in connection
`with thc annual increase in vcsting ofMs. Matthias’ bcncfits.
`19. EMPLOYEE BE1\EFIT PLANS
`
`The Company has a 401(k) savings plan for all employees who have at least six months of service and are at least 18 years of age. Employees
`can contribute up to 20% of their annual salary. Employees who meet certain criteria are eligible for a matching contribution from the Company
`based on a sliding scale. Company matches are made in the first quarter of the succeeding calendar year. Company matches vest over a period of
`approximately six years from each employee’s commencement of employment with the Company. Company matching contributions totaling
`$162,000, $175,000 and $158,000, were made in fiscal 2009. 2008 and 2007, respectively. In addition, the Company may make discretionary
`contributions to the plan, which vest over a period of approximately six years from each em ployee’s commencement of employment with the
`Company. The Company has not made any discretionary contributions.
`
`20. Q1 TARTERI 1V FINANCIAL INFORMATION (I INAI IDITED)
`Quarterly financial results for the years ended September 30, 2009 and 2008 were as follows (in thousands, except per share amounts):
`
`Fiscal 2009
`Net sales
`Gross profit
`Net income (loss)
`Net income (loss) per share—Basic
`Net income (loss) per share—Diluted
`
`Fiscal 2008
`Net sales
`Gross profit
`Net income (loss)
`Net income (loss) per share—Basic
`Net income (loss) per share—Diluted
`
`09/30/09
`$123,828
`67,537
`1,365
`0.23
`0.22
`
`09/30/08
`$130,497
`63,191
`(4,784)
`(0.80)
`(0.80)
`
`06/30/09
`$142,529
`77,528
`6,783
`1.13
`1.12
`
`Quarter Ended
`03/31/09
`$130,082
`69,855
`(1,915) (1)
`(0.32) (1)
`(0.32) (1)
`
`06/30/08
`$152,224
`78,202
`4,137
`0.69
`0.68
`
`Quarter Ended
`03/31/08
`$139,005
`69,686
`(390)
`(0.07)
`(0.07)
`
`12/31/08
`$134,812
`67,855
`(46,915) (2)
`(7.86) (2)
`(7.86) (2)
`
`12/31/07
`$142,876
`71,962
`(352)
`(0.06)
`(0.06)
`
`(1)
`(2)
`
`Includes goodwill impairment expense of $3,389,000. or $(0.57) per share (see Note 5).
`I11cl11des goodwill inipaiiinent expense of S47,000,000, or S(7.88) per share (see Note 5).
`The Company’s business, like that of other retailers, is seasonal. The Company’s quarterly net sales have historically been highest in its
`third fiscal quarter. corresponding to the Spring selling season, followed by its first fiscal quarter, corresponding to the Fall/holiday selling season.
`Given the historically higher sales level in its third fiscal quarter and the relatively fixed nature of most of the Company’s operating expenses and
`interest expense, the Co111pa11y has typically generated a very significant percentage of its full year operating income and net income d11ri11g its
`third fiscal quarter.
`
`F-33
`
`Source: DESTINATION MAT'ERNITY CORR,
`
`‘lO~K, 1.?/'14/2009 | Powered by Intelligize
`
`DMC Exhibit 2040_O92
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
`2]. SEGMENT AND ENTERPRISE VVIDE DISCLOSURES
`
`DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES
`
`Operating Segment. For purposes of the disclosure requirements for segments of a business enterprise, the Company has determined that
`its business is comprised of one operati11g segment: the design, ma11ufacturc and sale ofmaternity apparel and related accessories. While the
`Company offers a wide range of products for sale, the substantial portion of its products are initially distributed through the same distribution
`facilities, 111a11y of the Company’s products are lnanufactured at common contractmanufact111‘e1‘ production facilities, the Company’s products are
`marketed through a common marketing department, a11d these products are sold to a similar customer base, consisting of expectant mothers.
`Geagrapltic Information. Information conecmi11g the Company’s operations by geographic area is as follows (in thousands):
`
`Net Sales to Unaffiliated Customers
`United States
`Foreign
`
`Long-Lived Assets, Net
`United States
`Foreign
`
`2009
`
`Year Ended September 30,
`2008
`
`2007
`
`$ 510,669
`20,582
`
`$ 543,339
`21,263
`
`September
`30,
`2009
`
`$ 61,612
`2,164
`
`$ 562,519
`18,852
`
`September
`30,
`2008
`
`$ 64,699
`2,301
`
`Jllajur Customers. For the periods presented, tl1e Company did not have any one customer who represented more than 10% ofits net sales.
`
`22. INTEREST EXPENSE, NET
`Interest expense, net for the years ended September 30 is comprised of the following (in thousands):
`
`Interest expense
`Interest income
`Other investment loss, net
`Interest expense, net
`
`23. RELATED PARTY TRANSACTIONS
`
`2009
`
`$4,758
`(38)
`—
`$4,720
`
`2008
`
`$6,971
`(27)
`30
`$6,974
`
`2007
`
`Sl0,226
`(378)
`—
`S 9,848
`
`There is a husband and wife relationship between Mr. Matthias and Ms. Matthias. There are no family relationships among any of the
`Company’s other executive officers or directors.
`A director of the Company currently provides consulting services to Pepper Hamilton LLP, which provides legal services to the Company.
`The Company paid legal fees to this law firm of $595,000, $728,000 and S1,06l,000, in fiscal 2009, 2008 and 2007, respectively. As of September 30,
`2009 and 2008, the Company had accrued amounts outstanding to this law firm of $71,000 and $191,000, respectively.
`F-34
`
`Source: DESTINATION MAT'ERNITY CORR,
`
`lO~K, 12/'14/2009 | Powered by Intelligize
`
`DMC Exhibit 2040_O93
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES
`
`SCHEDULE 1I—VALUATION AND QUALIFYING ACCOUNTS
`
`(in thousands)
`
`Balance
`at
`beginning
`of period
`
`S
`
`S
`
`S
`
`202
`
`181
`
`206
`
`Additions
`charged
`to
`costs and
`eygenses
`
`$
`
`$
`
`122
`
`21
`
`$ —
`
`Balance
`at
`end of
`Qeriod
`
`$ 324
`
`TS
`
`$
`
`202
`
`181
`
`Deductions
`
`$
`
`$
`
`$
`
`—
`
`—
`
`(25)
`
`17-35
`
`Year Ended September 30, 2009
`Product return reserve
`
`Year Ended September 30, 2008
`Product return reserve
`
`Year Ended September 30, 2007
`Product 1‘e‘ru1‘11 reserve
`
`Source: DESTINATION MATERNITY CORR, 10-K, 12/14/2009 I Powered by Intelligize
`
`DMC Exhibit 2040_O94
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`Exhibit No.
`
`21
`23
`
`Subsidiaries of the Company.
`Consent of KPMG LLP.
`
`II\1)EX OF EXHIBITS
`Description
`
`31.1
`
`Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
`
`31.2 Certification of the Senior Vice President & Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
`32.1
`Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 13 50, as Adopted Pursuant to Section 906 of the Sarbanes-
`Oxley Act of2002.
`
`32.2 Certification of the Senior Vice President & Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
`Section 906 of the Sarbanes—Oxley Act of 2002.
`
`Source: DESTINATION MATERNITY CORP., 10-K, 12/14/2009 I Powered by Intelligize
`
`DMC Exhibit 2040_O95
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`NAME or SUBSIDIARY
`Cave Springs, Inc.
`Destination Maternity Apparel Private Limited
`
`Maternity Factory Warehouse Centre, Inc.
`Mothers Work Canada, Inc.
`Mothers Work Services, Inc.
`
`SUBSIDIARIES OF THE COMPANY
`
`STATE OR OTHER
`JURISDICTION OF
`INCORPORATION OR
`ORGANIZATION
`Delaware
`India
`
`Canada
`Delaware
`Delaware
`
`Exhibit 2 1
`
`OTHER NAMES UNDER
`VVHICH SUBSIDIARY
`DOES BUSINESS
`_\I/A
`_\I/A
`
`_\I/A
`_\I/A
`
`, /A
`
`Source: DESTINATION MATERNITY CORP., EX-21, 12/14/2009 I Powered by Intelligize
`
`
`
`DMC Exhibit 2040_096
`
`Target v. DMC
`|PR2013—OO530, 531, 532, 533
`
`

`
`CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
`Tl1e Board of Directors and Stockholders
`Destination Maternity Corporation:
`We consent to the incorporation by reference in the registration statements on Form S-3 (Nos. 333-59309, 333-12321, 333-”76ll and 333-
`90110) and registration statements on Form S-8 (Nos. 33-64580, 33-89726, 333-2404, 333-3480, 333-59529, 333-57766, 333-112158 and 333-137136) of
`Destination Maternity Corporation (formerly Mothers Work, Inc.) of our reports dated December 14, 2009, with respect to the consolidated balance
`sheets of Destination \/laternity Corporation and subsidiaries as of September 30, 2009 and 2008, and the related consolidated statements of
`operations, stockholders’ equity and comprellensive loss and Cash flows for each of the years i11 the three-year period ended Septe1I1ber30, 2009,
`and the related financial statement schedule, and the effectiveness of internal control over financial reporting as of September 30, 2009, which
`reports appear in the September 30, 2009 annual report on Form 10-K of Destination Maternity Corporation.
`/s/ KPMG LLP
`
`Exhibit 23
`
`Philadelphia, Pennsylvania
`December 14, 2009
`
`Source: DESTINATION MATERNITY CORP., EX-23, 12/14/2009 I Powered by Intelligize
`
`DMC Exhibit 2040_O97
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`SARBANE S-OXLEY
`SECTION 302 CERTIFICATION
`
`Exhibit 31.1
`
`1, Edward M. Krell, certify that:
`l. I have reviewed this Annual Report on Form 10-K of Destination Maternity Corporation;
`2. Based on my knowledge, this report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to
`make the statements made, in light of the circumstances 1111der which such statements were n1ade, not misleading with respect to the period
`covered by this report;
`3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
`respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
`4. The registranfs other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
`defned in Exchange Act Rules l3a—l5(e) and l5d—l5(e)) and internal control over financial reporting (as defined in Exchange Act Rules l3a—l5(f)
`and l5d-15(1)) for the registrant and have:
`(a) Designed such disclosure controls a11d procedures, or caused such disclosure controls and procedures to be designed u11der our
`supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
`others within those entities, particularly during the period in which this report is being prepared:
`(b) Designed such internal co11trol over financial reporting, or caused such internal control over financial reporting to be designed
`under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
`statements for external purposes in accordance with generally accepted accounting principles;
`(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
`about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
`evaluation; and
`(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
`most recent fiscal quarter (the regist1'ant’s fouith fiscal quarter i11 the case of a11 an1111al report) that has materially affected, or is reasonably
`likely to materially affect, the registrants internal control over financial reporting; and
`5. The rcgistrant’s other certifying officcr and I have disclosed, based on our most recent evaluation of internal control over financial
`reporting, to the registranfs auditors and the audit committee of the registrant’s board of directors:
`(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
`reasonably l