Results of Operations
`
`The following table sets forth certain operating data fro1n our consolidated statements of inco111e as a percentage of net sales a11d as a
`percentage change for the periods indicated:
`
`“A: of Net Sales (1)
`Year Ended September 30,
`2012
`
`2011
`
`2013
`
`"/1: Period to Period
`Favorable (Unfavorable)
`Year Ended September 30,
`2013 vs. 2012
`2012 vs. 2011
`
`100.0%
`46.1
`53.9
`46.6
`
`0.3
`—
`6.9
`0.1
`0.0
`6.8
`2.4
`4.4%
`
`100.0%
`46.3
`53.7
`47.2
`
`0.4
`—
`6.1
`0.2
`0.0
`5.9
`2.3
`3.6%
`
`100.0%
`45.6
`54.4
`47.2
`
`0.2
`0.0
`7.0
`0.4
`0.0
`6.6
`2.4
`4.2%
`
`(0.2)%
`0.6
`0.1
`1.4
`
`27.3
`—
`13.3
`56.2
`59.1
`16.0
`(4.1)
`23.6%
`
`(0.7)%
`(0.9)
`2.1)
`0.7
`
`(90.9)
`100.0
`(13.4)
`45.6
`40.5
`(11.4)
`3.8
`(15.7)%
`
`.\Iet sales
`Cost of goods sold (2)
`Gross profit
`Selling, general and administrative expenses (3)
`Store closing, asset impairment and asset disposal
`expenses
`Other charges
`Operating income
`Interest expense, net
`Loss on extinguishment of debt
`Income before income taxes
`Income tax provision
`Net income
`
`Components 111ay r1ot add to total d11e to ro1111ding.
`
`The “cost of goods sold” lir1e item includes: merchandise costs (including customs duty expenses), expenses related to inventory
`shrinkage, product-related corporate expenses (including expenses related to our payroll, benefit costs and operating expenses of our
`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, a11d the other costs of o11r distrih11tio11 network.
`
`The “selling, general and administrative expenses” line item includes: advertising and marketing expenses, corporate administrative
`expenses, store expenses (including store payroll and store occupancy expenses), and store opening expenses.
`
`(1)
`
`(2)
`
`(3)
`
`The following tables set forth certain information regarding the number of our retail locations and international franchised locations, for the
`fiscal years indicated. Retail locations include stores a11d leased maternity apparel departments and exclude (1) locations where Kohl’s sells our
`products under a11 exclusive product and license agreenlerit, and (2) ir1te1‘natio11al franchised locations.
`
`Retail Locations 11)
`
`Beginning Of period
`Opened
`Closed
`End of period
`
`20 1 3
`
`Leased
`Stores Departments
`
`Total
`Retail
`Locations
`
`Year Ended September 30,
`20 12
`
`Leased
`Departments
`
`Stores
`
`Total
`Retail
`Locations
`
`20 1 1
`
`Leased
`Departments
`
`Stores
`
`Total
`Retail
`Locations
`
`625
`15
`(44)
`596
`
`1,383
`74
`(146)
`1,311
`
`2,008
`89
`(190)
`1,907
`
`658
`8
`(41)
`625
`
`1,694
`13
`(324)
`1,383
`
`2.352
`21
`(365)
`2,008
`
`698
`12
`(52)
`658
`
`1,027
`694
`(27)
`1,694
`
`1,725
`706
`(79)
`2,352
`
`(1)
`
`Excludes (1) locations where Kohl’s sells our products under an exclusive product and lice11se agreement, and (ii) international franchised
`locations.
`
`34
`
`Source: Destination Maternity Corp, 104K, 12/13/2013 I Powered by Intetligize
`
`
`
`DMC Exhibit 2042_O34
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`International
`Franchised Locations 11!
`
`Beginning of period
`Opened
`Closed
`End of period (1)
`
`2013
`
`Shop-in-
`Shnp
`Stores Locations
`
`Total
`International
`Franchised
`Locations
`
`Shop-in-
`Shop
`Stores Locations
`
`Year Ended September 30,
`2012
`
`Total
`International
`Franchised
`Locations
`
`2011
`
`Shop-in-
`Shop
`Stores Locations
`
`Total
`International
`Franchised
`Locations
`
`16
`5
`<1)
`20
`
`103
`30
`<10)
`12.3
`
`119
`35
`<11)
`143
`
`15
`2
`(1)
`16
`
`51
`54
`(2)
`103
`
`66
`56
`(3)
`119
`
`8
`7
`—
`15
`
`Z?
`29
`<1)
`51
`
`31
`36
`(1)
`66
`
`(1)
`
`As of September 30, 2013, includes one store and 110 shop-in-shop locations operated by our India franchisee that are expected to close in
`March 2014.
`
`In fiscal 2012 we also operated leased departments in Babies“R”Us stores. However, in connection with our broad-based partnership with
`Bed Bath & Beyond Inc. and its subsidiary, Buy Buy Baby. Inc., we discontinued operation of our 124 remaining leased departments in
`Babies“R”Ifs in late October 2012 and began to open leased departments in select buybuy BABY stores. According to Bed Bath & Beyond Inc.’s
`latest public disclosure, as of October 9, 2013 there are 86 buybuy BABY stores. As of September 30, 2013 we operate leased departments in 59
`buybuy BABY storcs. We expect to continuc to incrcasc thc numbcr of buybuy BABY storcs in which wc havc a matcrnity apparcl lcascd
`department. The decrease in leased department locations at tl1e end of September 2013 compared to September 2012 predominantly reflects this
`change of partners i11 October 2012.
`
`Year Ended Septerr1lIer30, 2013 Compared to Year Ended September 30, 2012
`
`Net Sales. Our net sales for fiscal 2013 decreased by 0.2% or $1.2 million, to $540.3 million from $541.5 million for fiscal 2012. Comparable sales
`increased 2.6% duri11g fiscal 2013 versus a comparable sales decrease of 0.3% during fiscal 2012. Adjusting for the calendar timing shift, as
`described ir1 Item 6 ir1 this report, o11r calendar-adjusted comparable sales increased 3.2% for fiscal 2013 ar1d decreased 0.8% for fiscal 2012. O11r
`Internet sales, which are included in comparable sales, increased 13.3% for fiscal 2013, 011 top of a 26.2% increase for fiscal 2012. "Ihe decrease in
`total reported sales for fiscal 2013 compared to fiscal 201 2 resulted primarily from decreased sales related to our continued efforts to close
`underperforming stores and decreased sales due to the closure of all of our remaining leased departments within Babies“R”Us stores during the
`month of Octobcr 2012, substantially offsct by thc incrcasc in comparable salcs and i11crcascd salcs from our liccnscd brand rclationship.
`
`As of September 30, 2013, we operated a total of 596 stores and 1,907 total retail locations: 476 Motherhood Maternity stores (including 86
`Motherhood Maternity Outlet stores), 31 A Pea in the Pod stores, 89 Destination Maternity stores, and 1,31 1 leased maternity apparel departments,
`of which 502 were in Sears stores under the Two Hearts Maternity brand and the balance were in other department stores and baby specialty
`storcs. In addition, our Oh Baby by Mothcrhood collcction is available at Kohl’s storcs throughout thc Unitcd Statcs. In comparison, as of
`September 30, 2012, we operated a total of625 stores and 2,008 total retail locations: 507 Motherhood Maternity stores (including 84 Motherhood
`Maternity Outlet stores), 36 A Pea in the Pod stores, 82 Destination Maternity stores, and 1,383 leased maternity apparel departments. As of
`September 30, 2013, o11r store total included 89 multi—brand Destination Maternity nameplate stores, including 56 Destination Maternity combo
`stores and 33 Destination Maternity superstores. In comparison, as of September 30, 2012, we operated 82 multi—brand Destination Matemity
`nameplate stores, including 50 Destination Maternity combo stores and 32 Destination Maternity superstores. During fiscal 2013. we opened 15
`stores, including nine Destination Matemity nameplate stores, and closed 44 stores, with 14 of these store closings related to Destination
`Maternity nameplate store openings. In addition, duri11g fiscal 2013, we opened 74 leased department locations and closed 146 leased department
`locations.
`
`Gross Profit. Our gross profit for fiscal 2013 increased by 0.1%, or $0.3 million, to $291 .0 million compared to $290.7 million for fiscal 201 2, and
`our gross profit as a percentage of net sales (gross margin) for fiscal 2013 was 53.9% compared to 53.7% for fiscal 2012. The increase in gross profit
`for fiscal 2013 comparcd to fiscal 2012 was duc to our highcr gross margin. 'l'hc incrcasc in gross margin for fiscal 2013 compared to fiscal 2012 was
`primarily due to lower product costs.
`
`Sellmg, General and ,4dmz'rzz'stra1‘z've Expenses. Our selling, general and administrative expenses for fiscal 2013 decreased by 1 .4%, or $3.6
`million, to $252.0 million fro1n S255.6 million for fiscal 2012. As a percentage of net sales, selling, general and administrative expenses decreased to
`46.6% for fiscal 2013 comparcd to 47.2% for fiscal 2012. 'lhis dccrcasc in cxpcnsc and cxpcnsc pcrccntagc for fiscal 2013 comparcd to fiscal 2012
`resulted primarily from lower expenses (primarily payroll and occupancy costs) related to our continued closure of underperforming stores and the
`closure of all of our remaining leased departments within Babies“R”Us stores during October 2012, and continued tight expense controls. partially
`offset by higher expenses for variable incentive compensation, advertising and marketing, and corporate payroll to drive increased sales. We also
`recognized a non-recurring
`
`35
`
`‘:3eurce: Destination Maternity Corp, 102K, 12/13/2013 I Powered by Intelligize
`
`
`
`DMC Exhibit 2042_O35
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`reduction to selling, general a11d ad111i11istrative expenses of $0.9 n1i1lio11 during the fourth quarter of fiscal 2013, for tl1e sale of our rights to a portion
`of a Visa®/MasterCard® class action settlement fund.
`
`Store Closzng, Asset Impairment and Asset Dzsposal Expenses. Our store closing, asset i1npai1me11t and asset disposal expenses for fiscal
`2013 dccrcascd by approximatcly $0.6 million, to $1.4 million from $2.0 million for fiscal 2012, rcflccting lowcr impairmcnt charges for write-downs of
`long-lived assets.
`
`Operating [min/ne. Our operating income for fiscal 2013 increased by 13.3%, or $4.4 million, to S37.5 million fiom S33.1 million for fiscal 2012.
`Operating income as a percentage of net sales for fiscal 2013 increased to 6.9% from 6.1% for fiscal 2012. The increase in operating income and
`operating income percentage was primarily due to our lower selling, general and administrative expenses.
`
`Interest Expense, Net. Our net interest expense for fiscal 2013 decreased by 56.2%, or $0.7 million, to $0.5 million from $1.2 million in fiscal
`2012. This decrease was due to our lower debt level, primarily as a result of the $15.3 million of debt repayments we made in fiscal 2013.
`
`Loss on Extznguzslzment 0/"Debt. In November 2012, we prepaid the remaining S13.4 million of our outstanding Term Loan. The $13.4 million
`Term Loan prepayment resulted in a pretax charge of $9,000 in fiscal 2013, representing the write-off of unamortized deferred financing costs. During
`fiscal 2012, we prepaid $15.0 million principal amount of our outstanding Term Loan, which resulted in pretax charges of $22,000, representing the
`vuite-off of unamortized defened financing costs.
`
`Income Taxes. Income tax expense for fiscal 2013 includes a reduction of state income tax expense, net of federal expense, of $1 .2 million, or
`S0.09 per diluted share, for the estimated carryforward tax benefit of certain state net operating losses based upon recently enacted changes in
`applicablc state income tax regulations, which was recognized in the fourth quarter of fiscal 2013. For fiscal 2013, our clfcctivc tax ratc was 35.2%
`compared to 39.2% for fiscal 2012. Our effective tax rate for fiscal 2013 was slightly higher than the statutory federal tax rate of 35% primarily due to
`the effect of state income taxes, net of federal tax benefit, and to a lesser extent, additional income tax expense (including interest and penalties)
`recognized as required by the accounting standard for uncertain income tax positions, largely offset by the recognition of the estimated tax benefit
`of the state net operating loss carryforwards. Our effective tax rate for fiscal 2012 was higher than the statutory federal tax rate of 35% primarily due
`to the effect of state income taxes, net of federal tax benefit, and to a lesser extent, additional income tax expense (including interest a11d penalties)
`recognized as required by the accounting standard for uncertain income tax positions. See Note 14 of the Notes to Consolidated Financial
`Statements. included elsewhere in this report. for the reconciliation of the statutory federal income tax rate to our effective tax rate.
`
`Net Income. Net income for fiscal 2013 increased by 23.6%, to $23 .9 million from $19.4 million for fiscal 2012. Net income per share (diluted) for
`fiscal 2013 increased by 21.9%, to $1.78 per share from $1.46 per share i11 fiscal 2012. Net income for fiscal 2013 includes (net of tax) loss on
`extinguishment of debt of $6,000 and $1.2 million of state income tax benefits resulting from regulation changes. Net income for fiscal 2012 includes
`(nct of tax) loss on extinguishment of debt of $14,000. Bcforc thcsc charges or crcdits, our fiscal 2013 adjustcd net income was $22.7 million or $1.69
`per share (diluted) compared to $19.4 million or $1.46 per share (diluted) for fiscal 2012.
`
`Our average diluted shares outstanding of13.4 million for fiscal 2013 was 1.3% higher than the 13.3 million average diluted shares
`outstanding for fiscal 2012. The increase in average shares outstanding refiects the higher shares outstanding in fiscal 2013 compared to fiscal
`2012, primarily as a rcsult of the cxcrcisc of stock options and vcsting of restricted stock.
`
`Following is a reconciliation of net income and net income per share (diluted) (“Diluted EPS”) to adjusted net income and adjusted Diluted
`EPS for the years ended September 30, 2013 and 2012 (in thousands, except per share amounts):
`
`As rcportcd
`Add: loss on extinguishment of debt, net of tax
`Less: recognition of state income tax benefits resulting from
`regulation changes
`As adjusted
`
`Year Ended
`September 30, 2013
`Diluted
`Diluted
`Shares
`EPS
`
`Net
`Income
`
`Year Ended
`September 30,2012
`Diluted
`Diluted
`Shares
`EPS
`
`Net
`Income
`
`13,439
`—
`
`—
`13,439
`
`$
`
`$
`
`1.78
`
`$
`
`1.69
`
`$
`
`19,372
`14
`
`—
`19,386
`
`13.267
`—
`
`—
`13,267
`
`$
`
`$
`
`1.46
`
`1.46
`
`$
`
`$
`
`23,943
`6
`
`(1,216)
`22,733
`
`36
`
`Source: Destination Maternity Corp, 102K, 12/13/2013 I Pewered by Intelligize
`
`
`
`DMC Exhibit 2042_O36
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`Year Ended Septernller 30, 2012 Compared to Year Ended Septernlrer 30, 2011
`
`Net Sales. Our net sales for fiscal 2012 decreased by 0.7% or $3.9 million, to $541.5 million from $545.4 million for fiscal 2011. Comparable sales
`decreased 0.3% during fiscal 2012 versus a comparable sales increase of 0.1% during fiscal 2011. Adjusting for the calendar timing shifi, as
`described in Itenr 6 in this report, our calerrdar-adjusted corrrparable sales decreased 0.8% for fiscal 2012 and increased 0.1% for fiscal 2011. O11r
`Internet sales, which are included in comparable sales, increased 26.2% for fiscal 2012, on top of a 28.3% increase for fiscal 2011. The decrease in
`total reported sales for fiscal 2012 compared to fiscal 2011 resulted primarily from decreased sales related to our continued efforts to close
`underperforming stores and decreased sales from our licensed brand relationship, partially offset by increased sales due to the full-year impact of
`the expansion of our maternity apparel leased department relationship with Macy’s in the second quarter of fiscal 2011.
`
`As of September 30, 2012, we operated a total of 625 stores and 2,008 total retail locations: 507 Motherhood Maternity stores (including 84
`Motherhood Maternity Outlet stores), 36 A Pea in the Pod stores, 82 Destination Maternity stores, and 1,383 leased maternity apparel departments,
`of which 515 were in Sears stores under the Two Hearts Matemity brand and the balance were in other department stores and baby specialty
`stores, primarily under the Motherhood brand. ln addition, our Oh Baby by Motherhood collection is available at Kohl’s stores throughout the
`United States. In comparison, as of September 30, 2011, we operated a total of 658 stores and 2,352 total retail locations: 535 Motherhood Matemity
`stores (including 85 Motherhood Maternity Outlet stores), 43 A Pea in the Pod stores, 80 Destination Matemity stores, and 1,694 leased maternity
`apparel departments. The decrease in leased department locations at September 30, 201 2 versus September 30, 201 l predominantly refiects the
`closing of our remaining 291 Kmart leased department locations in October 2011. As of September 30, 2012, our store total included 82 multi-brand
`Destination Matcrnity nameplate stores, including 50 Destination Matemity combo stores and 32 Destination Maternity superstores. In
`comparison, as of September 30, 2011, we operated 80 Destination Maternity nameplate stores, including 52 Destination Matcrnity combo stores
`and 28 Destination Matemity superstores. During fiscal 2012, we opened eight stores, including six Destination Maternity nameplate stores, and
`closed 41 stores, with 12 of these store closings related to Destination Maternity nameplate store openings. In addition, during fiscal 2012, we
`opened 13 leased department locations and closed 324 leased department locations, reflecting the closing of our remaining 291 Kmart leased
`department locations in October 2011.
`
`Gross Profit. Our gross profit for fiscal 2012 decreased by 2.1%, or S6.2 million, to $290.7 million compared to $296.‘) million for fiscal 2011. and
`our gross profit as a percentage of net sales (gross margin) for fiscal 2012 was 53.7% conrpared to 54.4% for fiscal 2011. The decrease in gross profit
`for fiscal 2012 compared to fiscal 2011 was due primarily to our lower gross margin, and to a lesser extent, lower gross profit due to our decreased
`sales. The decrease in gross margin for fiscal 2012 compared to fiscal 201 l was primarily due to lower merchandise margin driven by higher product
`costs and somewhat higher levels of promotional activity and markdowns.
`
`Sellzng, General andrldministratir/e Expenses. Our selling, general and administrative expenses for fiscal 2012 decreased by 0.7%, or $1.8
`million, to $255.6 million from $257.4 million for fiscal 2011. As a percentage of net sales. selling, general and administrative expenses was 47.2% for
`both fiscal 201 2 and fiscal 201 l . The slight decrease in expense for fiscal 2012 compared to fiscal 201 1 resulted primarily from lower expenses related
`to our continued efforts to close underperforrning stores (primarily payroll and occupancy costs), our continued tight expense controls, and lower
`variable incentive compensation expense, substantially offset by higher expenses related to the operation of our additional Macy’s leased
`department locations (primarily payroll and employee benefit costs, and percentage of net sales occupancy payments to Macy’s) and higher
`advertising and marketing expenses.
`
`Store Closzng, Asset Impazrment and Asset Dzsposal Expenses. Our store closing, asset impairment and asset disposal expenses for fiscal
`2012 increased by approximately $1.0 million, to $2.0 million from $1.0 million for fiscal 2011, which primarily refleeted higher impairment charges for
`write-downs of long-lived assets.
`
`Other Charges. In fiscal 2011, we incurred pretax expense of $0.2 million for relocation costs in connection with the hiring of our new
`President. We did not incur other charges in fiscal 2012.
`
`Operating Income. Our operating income for fiscal 2012 decreased by 13.4%, or $5.1 million, to $33.1 million from $38.2 million for fiscal 2011.
`Operating income as a percentage of net sales for fiscal 2012 decreased to 6.1% from 7.0% for fiscal 2011. The decrease in operating income and
`operating income percentage was primarily due to our lower gross profit and lower gross margin.
`
`Interest Exrpense. Net. Our net interest expense for fiscal 2012 decreased by 45.6%, or $10 million, to S1.2 million from $2.2 million in fiscal
`2011. This decrease was due to our lower debt level, primarily as a result of the $15 .0 million of Term Loan prepayments we made in fiscal 2012 and
`the Sl2.6 million of Term Loan prepayments we made in fiscal 2011, a11d to a lesser extent, lower interest rates. During fiscal 2012 and 2011, we did
`not have any direct borrowings under our credit facility and we did not have any direct borrowings outstanding as of September 30, 2012.
`
`37
`
`Source: Destination Maternity Corp, 10—K, 12/13/2013 | Powered by Intelligize
`
`
`
`DMC Exhibit 2042_037
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`Loss on Exrznguzslrmem ofDebI. During fiscal 2012, we prepaid $15.0 million principal ar11o11r1t of our o11tstar1dir1g Tenn Loan, which resulted
`in pretax charges of $22,000, representing the write—off of unamortized deferred financing costs. During fiscal 2011, we prepaid $12.6 million principal
`amount of our outstanding Term Loan, which resulted in pretax charges totaling $37.000.
`
`Income Twces. For fiscal 2012, our effective tax rate was 39.2% compared to 36.1% for fiscal 2011. Our effective tax rate for fiscal 2012 was
`higher than the statutory federal tax rate of 35% primarily due to the elfect of state income taxes, net of federal tax benefit, and to a lesser extent,
`additional income tax expense (including interest and penalties) recognized as required by the accounting standard for uncertain income tax
`positions. Our effective tax rate for fiscal 2011 was slightly higher than the statutory federal tax rate of 35% primarily due to the effect of state
`income taxes, net of federal benefit, on our pretax income for fiscal 2011, partially offset by reductions of state income tax expense, net of federal
`expense, of $0.9 million recorded in the second quarter of fiscal 2011. which were related to settlements ofuncertain income tax positions. See Note
`14 of the Notes to Consolidated Financial Statements, included elsewhere in this report, for the reconciliation of the statutory federal income tax rate
`to our effective tax rate.
`
`Net Income. Net income for fiscal 2012 decreased by 15.7%, to $19.4 million from $23 .0 million for fiscal 2011. Net income per share (diluted) for
`fiscal 2012 decreased by 16.6%, to Sl.46 per share from $1.75 per share ir1 fiscal 2011. Net income for fiscal 2012 includes (net oftax) loss on
`extinguishment of debt of $14,000. Net income for fiscal 2011 includes (net oftax) other charges of $0.1 million, and loss 011 extinguishment of debt
`of $23,000. Before these charges, our fiscal 2012 net income was $19.4 million or $1.46 per share (diluted) compared to $23.1 million or $1.76 per share
`(diluted) for fiscal 2011.
`
`Our average diluted shares outstanding ofl3.3 million for fiscal 2012 was 1.1 % higher than the 13.1 million average diluted shares
`outstanding for fiscal 2011. The increase in average shares outstanding reflects the higher shares outstanding in fiscal 2012 compared to fiscal
`2011, primarily as a result of the exercise of stock options and vesting of restricted stock, slightly offset by lower dilutive impact of outstanding
`stock options and restricted stock for fiscal 2012 compared to fiscal 2011.
`
`Following is a reconciliation of net income and net income per share (diluted) (“Diluted EPS”) to adjusted net income and adjusted Diluted
`EPS for the years ended September 30, 2012 and 2011 (in thousands, except per share amounts):
`
`Year Ended
`September 30, 2012
`Diluted
`Diluted
`Shares
`EPS
`
`Net
`Income
`
`Year Ended
`September 30. 2011
`Diluted
`Shares
`
`Diluted
`EPS
`
`Net
`Income
`
`$
`
`$
`
`19,372
`—
`14
`19,386
`
`13,267
`—
`
`13,267
`
`$
`
`$
`
`1.46
`
`1.46
`
`$
`
`$
`
`22,988
`120
`Z5
`23,131
`
`13,120
`—
`
`13,120
`
`$
`
`$
`
`1.75
`
`1.76
`
`AS reported
`Add: other charges, net of tax
`Add: loss on exti11guishme11t of debt, net of tax
`AS adjusted
`
`Liquidity and Capital Resources
`
`Our cash needs have primarily been for: (1) debt service, including principal prepayments, (2) capital expenditures, including leasehold
`improvements, fixtures and equipment for new stores, store relocations a11d expansions of our existing stores, as well as improvements and new
`equipment for our distribution and corporate facilities and information systems, (3) quarterly cash dividends, which we initiated during the second
`quarter of fiscal 2011, and (4) working capital, including inventory to support our business. We have historically financed our capital requirements
`from cash flows from operations, borrowings under our credit facilities or available cash balances.
`
`Cash and cash equivalents increased by $2.2 million during fiscal 2013 compared to an increase of $7.1 million during fiscal 2012.
`
`Cash provided by operations of $42.2 million for fiscal 2013 decreased by $0.5 million from $42.7 million for fiscal 2012. This decrease in cash
`provided by operations versus the prior year was primarily the result of net working capital changes that provided less cash in fiscal 2013 than was
`provided i11 fiscal 2012, largely offset by higher net income ir1 fiscal 2013 compared to fiscal 2012. The net working capital changes were pri111arily: (1)
`an increase in prepaid expenses and other current assets in fiscal 2013 compared to a decrease in fiscal 2012, primarily reflecting timing of federal,
`state and foreign income tax payments, and (2) an increase in accounts payable, accrued expenses and other liabilities i11 fiscal 2013 that provided
`less cash compared to the fiscal 2012 increase, partially offset by (1) a decrease in accounts receivable i11 fiscal 2013 compared to an increase in
`fiscal 2012, and (2) a decrease in inventories in fiscal 2013 that provided somewhat more cash compared to the decrease in fiscal 2012.
`
`38
`
`‘:3ource: Destination Maternity Corp, 102K, 12/13/2013 I Powered by Intelligize
`
`
`
`DMC Exhibit 2042_O38
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`During fiscal 2013 we used cash provided by operations to fund repayments of long-term debt, to pay for capital expenditures, and to pay our
`quarterly cash dividends. On November 1, 2012, we prepaid the remaining Term Loan balance of $13.4 million in connection with the execution of
`our current Credit Facility, and on April 3, 2013, we prepaid the remaining $1.8 million principal amount of our Industrial Revenue Bond (“IRB”)
`debt. In fiscal 2013, we paid $9.8 million for our quarterly cash dividends. For fiscal 2013, we spent $15.1 million on capital expenditures, including
`$12.0 million for leasehold improvements, fixtures and equipment for new store facilities, as well as improvements to existing stores, and $3.1 million
`for our information systems and distribution and corporate facilities. The remaining cash provided by operations during fiscal 2013 was used
`primarily to increase our available cash.
`
`Cash provided by operations of $42.7 million for fiscal 2012 increased by $21.3 million from $21.4 million for fiscal 2011. This increase in cash
`provided by operations versus the prior year was the result ofnet working capital changes that provided cash in fiscal 2012 versus cash used in
`fiscal 2011, partially offset by lower net income i11 fiscal 2012 compared to fiscal 2011. The net working capital changes were primarily: (1) an
`increase in accou11ts payable, accrued expenses and other liabilities in fiscal 2012, compared to a fiscal 2011 decrease that was primarily due to a
`S4.2 million supplemental executive retirement plan (“SERP”) benefit payment made in December 2010, and (2) a decrease in inventories in fiscal
`2012 compared to an increase in fiscal 2011, which reflects our efforts to tightly control our inventory levels in fiscal 2012 and the significant
`number of additional Macy’s leased department locations opened in fiscal 201 1.
`
`During fiscal 2012 we used cash provided by operations to fund repayments of long-term debt, to pay our quarterly cash dividends, and to
`pay for capital expenditures. O11r S16.l million of repayments of long-term debt in fiscal 2012 consisted predominantly of $15.0 million in optional
`prepayments of our Term Loan. In fiscal 2012, we paid $9.3 million in quarterly cash dividends. For fiscal 2012, we also spent $9.3 million on capital
`expenditures, including $7.1 million for leasehold improvements, fixtures and equipment for new store facilities, as well as improvements to existing
`stores, and $2.2 million for our information systems and distribution and corporate facilities. The remaining cash provided by operations during
`fiscal 2012 was used primarily to increase our available cash.
`
`On November 1, 2012, we entered into a five—year $61.0 million senior secured revolving credit facility (the “Credit Facility”), which replaced
`our fonner $55.0 million credit facility (the “Prior Credit Facility”). The Credit Facility consists of two tranches: (1) a senior secured revolving credit
`a11d letter of credit facility of up to $55.0 million, (“Tranche A”) and (2) a senior secured first—in—last—out revolving credit facility of up to $6.0 million
`(“Tranche A-1”). The Credit Facility will mature on November 1, 2017. Upon our request and with the consent ofthe lender, permitted borrowings
`under Tranche A may be increased up to an additional $15.0 million, in increments of $2.5 million, up to a Tranche A maximum limit of $70 million.
`Proceeds from advances under the Credit Facility, with certain restrictions, were permitted to be used to repay our then existing term loan or other
`debt, and may be used to provide financing for working capital, letters of credit, capital expenditures, dividends, share repurchases and other
`general corporate purposes. Under the Credit Facility, we are required to maintain minimum Excess Availability (as defined in the related Credit
`Facility agreement) equal to 10% ofthe Borrowing Base (as defined in the related Credit Facility agreement). The Credit Facility is secured by a
`security interest in our trade receivables, inventory, equipment, real estate interests, letter of credit rights, cash, intangibles and certain other
`assets.
`
`As of September 30, 2013, we had no outstanding borrowings under the Credit Facility and $5.7 million i11 letters of credit, with $55.3 million of
`availability under our Credit Facility. As offieptember 30, 2012, we had no outstanding borrowings under the Prior Credit Facility and $7.1 million in
`letters of credit, with $47.9 million of availability under our Prior Credit Facility. As of September 30, 2013, Tranche A borrowings under the Credit
`Facility would have resulted in interest at a rate between approximately 1.68% and 3.75% per annum, and 'l'ranche A-1 borrowings under the Credit
`Facility would have resulted in interest at a rate between approximately 3.18% and 5.25% per annum. During fiscal 2013, our average level of direct
`borrowings (all of which was under the Credit Facility) was $0.2 million, and our maximum borrowings at any time were $6.2 million. During fiscal
`2012 we did not have any direct borrowings under the Prior Credit Facility.
`
`On November 1, 2012, we prepaid the remaining Term Loan balance of $13.4 million in connection with the execution of our new Credit
`Facility. Prior to its repayment, the Term Loa11 required minimum principal repayments in quarterly installments of $225,000 each, in addition to an
`annual principal repayment equal to 25% of Excess Cash Flow (as defined in the Term Loan Agreement) in excess of $5.0 million for each fiscal year,
`based on our Consolidated Leverage Ratio. There was no required principal repayment related to fiscal 2011 results. The Term Loan was permitted
`to be prepaid at our option, in part or in whole, at any time without any prepayment premium or penalty. During fiscal 2013 and 2012, we made
`optional prepayments of$l3.4 million and $15.0 million, respectively, on the outstanding Term Loan.
`
`We had $1.8 million outstanding u11der an IRB at September 30, 2012. On February 11, 2013, we notified the IRB trustee of our intention to
`redeem all remaining outstanding bonds effective April 3, 2013. As provided under the indenture of trust for the bonds, on April 3, 2013, the IRB
`trustee drew down $1.8 million plus accrued interest under the letter of credit issued as security for the bonds, at which time we had no further
`obligations, and the bonds had no further rights, under the indenture.
`
`39
`
`Source: Destination Maternity Corp, 10—K, 12/13/2013 | Powered by Intelligize
`
`
`
`DMC Exhibit 2042_O39
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`Duri11g fiscal 2013 a11d 2012 we paid cash dividends of $9.8 million (or $0.725 per share) and $9.3 111illio11 (or $0.70 per share), respectively. 011
`November 14, 2013 we declared a quarterly cash dividend of $0.1875 per share payable on December 27, 2013, which will require approximately $2.6
`million of available cash. The $0. 1875 per share cash dividend, which was initially paid in June 2013. represents a 7.1% increase from our previous
`quarterly dividend rate of $0.175 per share and an annual dividend rate of $0.75 per share compared to our previous annual rate of $0.70 per share.
`Based on our new current quarterly dividend rate of $0.1875 per share, we project that we will pay approximately $10.3 million of cash dividends
`during fiscal 2014.
`
`In September 2013 we announced o11r plans to relocate our corporate headquarters and distribution operations from Philadelphia,
`Pennsylvania to southern New Jersey. To help us offset the costs of these relocations, the Board of the New Jersey Economic Dev