in fiscal 2010. Net income for fiscal 2011 includes (net of tax) stock-based compensation expense of $1.5 million, restructuring and other charges of
`$0.1 million, and loss on extinguishment of debt of $23,000. Net income for fiscal 2010 includes (net of tax) stock-based compensation expense of
`$1.2 million, restructuring and other charges of $3.5 million, and loss on extinguishment of debt of $32,000. Before stock—based compensation
`expcnsc, restructuring and othcr chargcs, and loss on cxtinguishmcnt of debt, our fiscal 2011 nct inconrc was $24.6 million or $1.87 pcr sharc
`(diluted) compared to $21.6 million or $1.70 per share (diluted) for fiscal 2010.
`Our average diluted shares outstanding of 13.1 million for fiscal 2011 was 3.4% higher than the 12.7 million average diluted shares
`outstanding for fiscal 2010. The increase in average shares outstanding reflects the higher shares outstanding in fiscal 2011 compared to fiscal
`2010, primarily as a result of the exercise of stock options and vesting ofrestricted stock, slightly offset by lower dilutive impact of outstanding
`stock options and restricted stock for fiscal 2011 compared to fiscal 2010.
`Following is a reconciliation of net income and Diluted EPS to net income and Diluted EPS before stock—based compensation expense,
`restructuring and other charges, and loss on extinguishment of debt for the years ended September 30. 2011 and 2010 (in thousands, except per
`share amounts):
`
`As reported
`Add: stock-based compensation expense, net of tax
`Add: restructuring and other charges, net of tax
`Add: loss on cxtinguishmcnt of dcbt, nct of tax
`As adjusted before stock—based compensation expense, restructuring and other
`chargcs, and loss on cxtinguishmcnt ofdcbt
`
`Year Ended
`September 30. 2011
`Net
`Diluted
`Diluted
`Income
`Shares
`EPS
`
`Year Ended
`September 30. 2010
`Net
`Diluted
`Diluted
`Income
`Shares
`EPS
`
`$ 1.75
`
`$22,988
`1,467
`120
`Z5
`
`13,120
`—
`
`—
`
`$ 1.33
`
`$16,829
`1,210
`3,514
`32
`
`12,691
`—
`
`—
`
`$24,598
`
`13,120
`
`$ 1.87
`
`$21,585
`
`12,691
`
`$ 1.70
`
`Restructuring and Other Charges
`111 Jilly 2008, we arrrrorrrrced that we were streamlining our merchandise brands and store nameplates and implementing cost reductions in
`order to simplify our business model, reduce overhead costs and improve and tighten our merchandise assortments, and during fiscal 2009 we
`began to implement actions to achieve further cost reductions. The objectives of our restructuring and cost reduction program were to improve
`and simplify critical processes, consolidate activities and infrastructure, and reduce our expense structure. As of September 30, 2010, we had
`completed the planned activities of these initiatives and we incurred $3.9 million of pretax expense substantially related to these initiatives in fiscal
`2010, primarily for consulting services. These initiatives resulted in approximate pretax savings of $12r11illior1 in fiscal 2009, with irrcrerrrerrtal pretax
`savings of approximately $11 million in fiscal 2010 and an additional approximately $6 million in fiscal 2011. Thus we estimated that we realized total
`pretax savings of approximately $29 million in fiscal 2011 as a result of our cost reduction initiatives, which included the savings realized i11 fiscal
`2009 and fiscal 2010.
`
`After his retirement on September 30, 2008, Dan Matthias, our former Chief Executive Ollicer (“Fonner CEO"), agreed to continue to serve us
`as a director and as norr-executive Chairman of the Board of Directors and agreed to remain available to us in an advisory capacity through
`September 2012. For these services, we agreed to pay the Former CEO an annual retainer of $200,000 through September 2012. In November 2009,
`the Former CEO entered into a letter agreement with us, which confirmed that he would not seek reelection to the Board of Directors (and,
`therefore, would no longer serve as our non-executive Chairman of the Board) after the expiration of his term in January 2010. The letter agreement
`did not change the terms of payrrrerrt under the annual retainer’ for advisory services, however we incurred a pretax charge of $0.6 million in fiscal
`2010, representing the amount due for the remaining term of the arrangement.
`
`44
`
`Source: Destination ivtat:erni'ty' Carp, 10~’t<, 12,/1/t;‘20:t2.
`
`| Powered by Intelltgize
`
`DMC Exhibit 2041_O44
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`In connection with the retirement of Rebecca Matthias, our former President and Chief Creative Olficer, at the end of fiscal 2010, we incurred
`a pretax charge of $0.9 million in fiscal 2010. The charge reflects benefit costs related to an amendment to the executives supplemental retirement
`agreement with us.
`In April 2011, we announced the hiring of Chris Daniel as our President effective June 1, 2011. In connection with our efforts to hire a new
`President, we incurred pretax charges of $0.2 million in fiscal 2011 for relocation costs and $0.3 million in fiscal 2010, primarily for executive
`recruiting costs.
`
`Liquidity and Capital Resources
`Our cash needs have primarily been for: (i) debt service, including principal prepayments. (ii) capital expenditures. including leasehold
`improvements, fixtures and equipment for new stores, store relocations and expansions of our existing stores, as well as improvements and new
`equipment for our distribution and corporate facilities and information systems, a_nd (iii) working capital, including inventory to support our
`business. In addition, during the second quarter of fiscal 2011, we initiated a regular quarterly cash dividend. 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 $7.1 million during fiscal 2012 compared to a decrease of $9.3 million during fiscal 201 1 .
`Cash provided by operations of S42.7 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 of net working capital changes that provided cash in fiscal 2012 versus cash used in
`fiscal 2011, partially offset by lower net income in fiscal 2012 compared to fiscal 2011. The net working capital changes were primarily (i) an increase
`in accounts payable, accrued expenses and other liabilities in fiscal 2012, compared to a fiscal 201 1 decrease that was primarily due to a $4.2 million
`supplemental executive retirement plan (“SERP") benefit payment made in December 2010, and (ii) 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 2011.
`During fiscal 2012 we used cash provided by operations to fund repayments of long-terrn debt, to pay our quarterly cash dividends, and to
`pay for capital expenditures. Our $16.1 million of repayments of long-terrn 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.
`Cash provided by operations of $21.4 million for fiscal 2011 decreased by approximately $4.6 million from $26.0 million for fiscal 2010. This
`decrease in cash provided by operations versus the prior year was primarily the result of net working capital changes that used a greater amount of
`cash in fiscal 201 1 than in fiscal 2010, partially offset by higher pretax income in fiscal 201 1 compared to fiscal 2010. The networking capital
`changes were primarily (i) a decrease in accounts payable, accrued expenses and other liabilities in fiscal 2011, primarily due to the $4.2 million
`SERP benefit payment made in December 2010 and lower accrued variable incentive compensation expense, compared to a small increase in fiscal
`2010, and (ii) a larger increase in inventories in fiscal 2011 compared to fiscal 2010, which reflects our increased number of leased department
`locations during fiscal 2011 and somewhat weaker than planned sales during fiscal 2011, partially offset by (iii) a smaller increase in trade
`receivables in fiscal 2011 than in fiscal 2010.
`
`I11 addition to our cash provided by operations in fiscal 2011, we withdrew $1.5 million from our grantor trust, which was used to partially
`fund the $4.2 million December 2010 SERP benefit payment, and we generated $2.3 million of cash from the proceeds of option exercises. During
`fiscal 2011 we used cash provided by operations, cash provided by option exercises, and the Withdrawal from the Grantor Trust to fund
`repayments of
`
`45
`
`Source: Destination Maternity Corp, 10—K, 12/14/2012 | Powered by Intelligize
`
`DMC Exhibit 2041_O45
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`long-term debt, to pay for capital expenditures, and to pay our quarterly cash dividends. Our $13.8 million of repayments oflong-term debt in fiscal
`2011 consisted predominantly of $12.6 million of prepayments of our Term Loan, including a $2.6 million prepayment required under the annual
`excess cash flow provision of the Term Loan. For fiscal 2011 we spent $12.3 million 011 capital expenditures. including $8.2 million for leasehold
`improvements, fixtures and equipment principally for new store facilities, as well as improvements to existing stores, and $4.1 million for our
`information systems and distribution and corporate facilities.
`On November 1, 2012, we entered into a five—year $61.0 million senior secured revolving credit facility (tl1e “Credit Facility”), which replaced
`our former $55.0 million credit facility. The Credit Facility consists of two tranches: (a) a senior secured revolving credit and letter of credit facility
`ofup to $55.0 million, (“Tranche A”) and (b) a senior secured first-in-last-out revolving credit facility ofup to $6.0 million (“Tranche A-1”). The
`Credit Facility will mature on November 1, 2017. Upon our request and with the consent of the 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, may be used to repay our existing term loan or other debt, and 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% of the 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.
`Prior to entering into the Credit Facility, we had in place a senior secured revolving credit facility (the “Prior Credit Facility”), which was
`amended on July 25, 2011 to decrease the maximum available for borrowings from S65.0 million to $55.0 million and to erdend its maturity date from
`March 13, 2012 to January 13, 2013. The amendment also increased our effective interest rate on borrowings, if any, by approximately 0.75% per
`annum. There were no financial covenant requirements under the Prior Credit Facility provided that Excess Availability (as defined in the related
`Prior Credit Facility agreement) did not fall below 10% of the Borrowing Base (as defined in the related Prior Credit Facility agreement). If Excess
`Availability fell below l0°/o ofthe Borrowing Base, we would have been required to meet a specified minimum Fixed Charge Coverage Ratio (as
`defmed i11 the related Prior Credit Facility agreement). Since the inception of the Prior Credit Facility, we have exceeded the minimum requirements
`for Excess Availability under the Prior Credit Facility and therefore, have not been subject to any financial covenants.
`As of September 30, 2012, we had no outstanding borrowings under the Prior Credit Facility and $7.1 million i11 letters of credit, with $47.9
`million of availability under o11r Prior Credit Facility, compared to no outstanding borrowings and $7.5 million ir1 letters of credit, with $47.5 million
`of availability under our Prior Credit Facility, as of September 30, 2011. Borrowings under the Prior Credit Facility as of September 30, 2012 would
`have borne interest at a rate of between approximately 1.97% and 4.00% per annum. During fiscal 2012 and 2011, we did not have any direct
`borrowings under the Prior Credit Facility. We may have borrowings under our new Credit Facility during certain periods of fiscal 2013, reflecting
`seasonal and other timing variations in cash flow. Also, in November 2012 we had average outstanding borrowings of $2.5 million under the Credit
`Facility that resulted from our need to deposit S7.l million with the agent bank for the Prior Credit Facility as cash collateral on an interim basis
`while letters of credit issued under the Prior Credit Facility are replaced with letters of credit issued under the Credit Facility (see Commercial
`Commitments below).
`As of September 30, 2012, we had in place an agreement (the “Term Loan Agreement”) for our Term Loan. On \lovember l, 201 2, we prepaid
`the remaining Term Loan balance of $13.4 million ir1 connection with the execution of our new Credit Facility. The interest rate o11 the Term Loan
`was equal to, at our election, either (i) the prime rate plus 1.00%, or (ii) a LIBOR rate plus an applicable margin. The applicable margin was initially
`fixed at 2.50% through and including the fiscal quarter ended September 30, 2007. Thereafter, the applicable margin for LIBOR rate borrowings was
`either 2.25% or 2.50%. depending on our Consolidated Leverage Ratio (as defined in the Term Loan Agreement). Based upon our applicable
`quarterly Consolidated Leverage Ratios, the applicable margin for LIBOR rate borrowings was 2.50% prior to December 30, 2009 and was reduced
`to
`
`46
`
`Source: Destination Maternity Corp, 10—K, 12/14/2012 | Powered by Intelligize
`
`DMC Exhibit 2041_046
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`2.25% elTective from December 30, 2009. We were required to make minimum repayments of the principal amount of the Term Loan in quarterly
`installments of $225,000 each. We were also required to make an annual principal repayment equal to 25% or 50% of Excess Cash Flow (as defined
`in the Term Loan Agreement) i11 excess of $5.0 million for each fiscal year, with the 25% or 50% factor depending on our Consolidated Leverage
`Ratio. There was no required principal repayment related to fiscal 2011 results. Additionally, the Term Loan could be prepaid at our option, in part
`or iii whole, at any time without any prepayment premium or penalty. For fiscal 2012 we made the following prepayments: $5.0 million in the first
`quarter a11d $10.0 million in the third quarter. For fiscal 2011 we made the following prepayments: $2.6 million in the first quarter, representing the
`prepayment required under the annual excess cash flow provision of the Term Loan, and $10.0 million in the third quarter. At September 30, 2012,
`our indebtedness under the Term Loan Agreement was $13.4 million, which was prepaid on November 1, 2012 as described above.
`The Term Loan Agreement contained quarterly financial covenants that required us to maintain a specified maximum permitted Consolidated
`Leverage Ratio and a specified minimum permitted Consolidated Interest Coverage Ratio (as defined in the Term Loa.11 Agreement). Since the
`inception of the Term Loan Agreement we were in compliance with all covenants of our Term Loan Agreement.
`In order to mitigate our floating rate interest risk on the variable rate Term Loan, we entered into an interest rate swap agreement with the
`agent bank for the Term Loan that commenced on April 18, 2007, the date the Term Loan proceeds were received, and expired on April 18, 2012.
`The interest rate swap agreement enabled us to effectively convert a significant portion of the Term Loan (equal to the 11otional amount of the
`interest rate swap) from a floating interest rate (LIBOR plus 2.50% prior to December 30, 2009, reduced to LIBOR plus 2.25% effective from
`December 30, 2009, based on our specified leverage ratios), to a fixed interest rate (7.50% prior to December 30, 2009, reduced to 7.25% effective
`from December 30, 2009, based on our specified leverage ratios). The notional amount of the interest rate swap was $75.0 million at the inception of
`the swap agreement and decreased overtime to a 11otio11al amount of $5.0 million at the expiration date of April 18, 2012.
`We have $1.8 million outstanding under an Industrial Revenue Bond (“IRB”) at September 30, 2012. The IRB has a variable interest rate that
`may be converted to a fixed interest rate at our option. At any time prior to conversion to a fixed interest rate structure, bondholdcrs may put back
`to us (i .e. require us to repurchase) all or part of the IRB upon notice to the bond trustee, after which the remarketing agent would attempt to resell
`to third parties the put portion of the IRB. If the remarketing agent is unsuccessful in reselling the put portion of the IRB, the bond trustee may
`then draw on a letter of credit issued under the Credit Facility to repurchase the put bonds from bondholders on our behalf. During fiscal 2012 and
`2011 bondholders put $1.4 million and $0.1 million, respectively, of the IRB back to us, and these put bonds were successfully resold by the
`remarketing agent to third parties. The letter of credit issued to secure the bonds has never been drawn upon. In the event that the bondholders
`put the bonds back to us and the reinarketing agent fails to resell the bonds, which we believe is unlikely, we expect the acceleration of the
`payment of tlie bonds would 11ot l1ave a material adverse effect on our financial position or liquidity.
`111 March 2007, we entered into Supplemental Executive Retirement Agreements, which have been periodically amended (the “SERP
`Agreements”), with Dan a11d Rebeeca Matthias (the “SERP Executives”). We also have a grantor trust, which was established for the purpose of
`accumulating assets in anticipation of our payment obligations under the SERP Agreements (the “Grantor Trust”). Our agreements with the SERP
`Executives and the trustee for the Grantor Trust (the “Trustee”) allow us to make cash deposits to the Grantor Trust, or provide an irrevocable
`standby letter of credit (the “ SERP Letter of Credit”) to the Trustee, in lieu of any deposits otherwise required, for funding obligations under the
`SERP Agreements. 111 December 2009, in connection with the additional vesting and scheduled payment of SERP Executives’ benefits in 2010, we
`made a partial cash contribution to the Grantor Trust of$1.5 million, with a corresponding reduction ofthe SERP Letter of Credit to a total of $4.4
`million as of December 31, 2009. In December 2010, we received a distribution ofthe remaining assets in the Grantor Trust totaling $1.5 million. The
`amount withdrawn was used to partially fund the $4.2 million December 2010 lump sum payment of SERP benefits to Ms. Matthias. As of
`September 30, 2012, the SERP Letter of Credit was $150,000, which was equal to the remaining SERP benefits paid to Mr. Matthias on October 1,
`2012.
`
`47
`
`Source: Destination Maternity Corp, 10—K, 12/14/2012 | Powered by Intelligize
`
`DMC Exhibit 2041_O47
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`On January 26, 2011, we a11nounced the initiation ofa regular quarterly cash dividend. During fiscal 2012 and 2011 we paid cash dividends of
`$9.3 million (reflecting four quarterly dividend payments or a total of $0.70 per share) and $6.9 million (reflecting three quarterly dividend payments
`or a total of $0.525 per share), respectively. On November 8, 2012 we declared a quarterly cash dividend of$0. 175 per share payable on December
`28, 2012, which will rcquirc approximately $2.4 million of available cash. Based on our current quarterly dividend rate of $0.175 per share, wc project
`that we will pay approximately $9.4 million of cash dividends during fiscal 2013.
`Our management believes that our current cash and working capital positions, expected operating cash flows and available borrowing
`capacity will be sufficient to fund our cash requirements for working capital, capital expenditures, debt repayments and dividend payments, as well
`
`UNITED STATES
`
`SECURITIES AND EXCHANGE COMMISSION
`VVashington, D.C. 20549
`
`(Mark One)
`
`FORM 10-K
`
`ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
`OF 1934
`
`For the fiscal year ended September 30, 2012
`or
`
`TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
`ACT OF 1934
`
`For the transition period from to
`Commission file number 0-2 1 1 96
`
`Destination Maternity Corporation
`(Exact name of Registrant as specified in its charter)
`
`Delaware
`(State or other jurisdiction
`of incorporation or organization)
`456 North Fifth Street,
`Philadelphia, PA
`(Address of principal executive offices)
`
`1 3-3 045573
`(IRS Employer
`Identification .\lo.)
`
`19123
`(Zip Code)
`
`(215) 873-2200
`(Registrant's telephone number, including area code)
`Securities registered pursuant to Section l2(b) of the Act:
`Title of each class
`Name of each exchange on which registered
`The NA Ql\/kl) Q4.“-I: A/I...,.Imo I
`I I‘
`l‘nwnnnnn Q4-nnly n-un Ivnliin ‘E III mom nknvln
`
`Source: Destination Maternity Corp, 10—K, 12/14/2012 | Powered by Intelligize
`
`
`
`DMC Exhibit 2041_O48
`
`Target v. DMC
`|PR2013—OO530, 531, 532, 533
`
`

`
`111: LVAOUAQ >JlULl\1V1i:lll\Cl J_iJ_i\,
`LUllllllUll olukn, pal Valuc .1).U1 [IE1 aunlc
`Securities registered pursuant to Section l2(g) of the Act:
`Series B Junior Participating Preferred Stock Purchase Rights
`(Title of class)
`Indicate by check mark ifthe Registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act. Yes El No
`lndicatc by check mark if the Registrant is not required to file rcports pursuant to Section 13 or Section 15(d) of the Act. Yes El N 0
`Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or l5(d) of the Securities Exchange
`Act of 1934 duri11g the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been
`subject to such filing requirements for the past 90 days. Yes
`No El
`lndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every lnteraetivc
`Data File required to he submitted a11d posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
`that the registrant was required to submit and post such files). Yes
`No El
`Indicate by check mark if disclosure of delinquent filers pursuant to Ite111 405 of Regulation S-K is not contained herein and will not be
`contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-
`K or any amendment to this Form 10-K.
`Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
`company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule l2b—2 of the Exchange Act.
`Large accelerated filer El
`Accelerated filer
`Non-accelerated filer El
`Smaller reporting company El
`(Do not check if a smaller
`reporting company)
`Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes El No
`The aggregate market value of the Voting a11d non—voting common equity held by non—affiliates computed using $18.57, the price at which
`the common equity was last sold as of .\4arch 31, 2012 (the last business day of the Rcgistrant’s most recently completed second fiscal quarter),
`was approximately $241,000,000.
`On December 3, 2012, there were 13,487,694 shares ofthe Registrant’s common stock, $.01 par value, outstanding.
`DOCUMENTS INCORPORATED BY REFERENCE
`
`Portions of the Registrant’s Proxy Statement to be filed with the Securities a.i1d Exchange Commission in con11ection with the Annual
`Meeting of Stockholders, expected to be held in the second quarter of fiscal 2013. are incorporated by reference into Part III of this Form 10-K.
`
`Ourfscal year ends on September 30. All references in this report to oiirfiscalyears refer to thefiscalyear ended on September 30 in the
`year mentioned. For example, our ‘fiscal 2012" ended on September 30, 2012. Unless otherwise indicated, operating data referred to in this
`report is as ofSeptember 30, 2012. As used in this report, the term "retai l lticat‘/"ans" includes our stores and leased departments and excliides
`locations where Kohl’s® sells our products under an exclusive product and license agreement, and internationalfranchise locations. As iisedin
`this report, “st0res" means our stand—al0ne stores in the United States, Puerto Rico and Canada which we operate.
`
`PART I.
`
`Item 1.
`Overview
`
`Business
`
`Destination Matemity Corporation (the “Company”, “we”, “u s”, "our”) is the leading designer and retailer of maternity apparel i11 the United
`States and is the only nationwide chain ofinaternity apparel specialty stores. As of September 30, 2012, we operate 2,008 retail location s, including
`625 stores in all 50 states, Puerto Rico and Canada, and 1,383 leased departments located within department stores and baby specialty stores
`throughout the United States and Puerto Rico. We are also the exclusive provider of maternity apparel to Kohl’s, which operates approximately
`I 145 QTIWTRQ thrniiohniit the United Rtntes “fie nnernte nnr 675 Qtnrec under three retail n:Imenl:|te<' l\/lntherhnnrl l\/lnternitv® /\ Pen in the l3n(l®
`
`Source: Destination Maternity Corp, 10—K, 12/14/2012 | Powered by Intelligize
`
`DMC Exhibit 2041_O49
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`‘(V .4 \/yvnutw um \l&./ mu. vu unnuvn uuyy Jvuuxj Axwxjnuyxutvu. n.uunuuuu.. Iu.uuru..J , r . A \/u u. um A uu
`1,1 .1; utvnvu uuuc.buuu. um g/Annuvx» LlLu.|,\Iu.
`and Destination Maternity®. In addition to our 625 stores, we operate L383 maternity apparel departments, which we refer to as leased
`departments, within leading retailers such as Macy’s®, Sears®, Gordmans® and Boscov’s®. We are the exclusive maternity apparel provider in each
`of our leased department relationships. In fiscal 20l 2 we also operated leased departments in Babies“R”I Is® stores. However, in connection with
`our new broad-based parlnership wilh Bed Bath & Beyond Inc. and its subsidiary, Buy Buy Baby, Inc., (which we announced in May 2012) we
`discontinued operation of our 124 remaining leased departments in Babies“R”Us in late October 2012 and opened leased departments in select
`buybuy BABY® stores. As of November 30, 2012 we operate 10 leased departments in buybuy BABY stores. As of August 25, 2012, Bed Bath &
`Beyond Inc. had 71 buybuy BABY stores. Over time, we expect to significantly increase the number of buybuy BABY stores in which we have a
`maternity apparel leased department.
`We also have expanded internationally and have entered into exclusive store franchise and product supply relationships in the Middle East,
`India and South Korea. As of September 30, 2012, we have ll9 international franchised locations, comprised of 16 stand-alone stores in the Middle
`East, South Korea and India operated under the Destination Maternity retail nameplate, and 103 shop-in-shop locations in India and South Korea,
`in which we have a Company branded department operated u11der retail narneplates owned by our fianchise partners. Finally, we also sell
`merchandise on the Internet, primarily through Desti11ationMaternity.corn and our various brand-specific websites.
`We maintain our leading position across all major price points of maternity apparel through our four distinct merchandise brands. which
`enable us to reach a broad range of maternity customers. Through our 625 stores and certain of our leased departments, we offer m atemity apparel
`under our two primary rI1ercl1a11dise brands, Motherhood Maternity (“Motherhood” or “Motherhood Maternity”) at value prices and A Pea in the
`Pod (“Pea” or “A Pea in the Pod”) at both contemporary and luxury prices. Our A Pea in the Pod Collectionfi (“Pea Collection”) is the distinctive
`premier maternity apparel line within the A Pea in the Pod brand, featuring exclusive designer label product at luxury prices. We also have two
`additional value-priced maternity apparel brands: our Oh Baby by Motherhood® collection, which we sell exclusively through Kohl’s. and our 'l'wo
`I-Iearts® Maternity by Destination \Iaternity® collection, available exclusively at Sears stores. Our brands are the exclusive maternity apparel
`offering in each of these chains.
`We believe that one of our key competitive advantages is our ability to fulfill, in a l1igh—serVice store environment, all of an expectant or
`nursing mother’s clothing needs, including casual and career wear, formal attire, lingerie, sportswear and outerwear, in sizes that cover all
`trimesters of the maternity cycle. We believe that our vertically-integrated business model enables 11s to offer the broadest assortment of in-stock,
`fashionable
`
`K\)
`
`matemity apparel. We design and contract for the production of over 90% of the merchandise we sell using sewing factories located throughout
`the world, predominantly outside ofthe United States.
`In recent years, we have developed and introduced new multi—brand store concepts to offer merchandise from our various brands in a single
`location, in order to provide a broader product assortment at multiple price ranges to our customers and to increase average store sales and
`profitability. We believe the continued rollout of our multi—brand store initiative provides the opportunity for us to improve store operating profit
`margins over time by reducing store operating expense percentages through eco11on1ies of scale, a11d may increase overall sales in the
`geographical markets they serve. Our multi—brand stores are operated under our Destination Maternity nameplate, which includes Destination
`Maternity combo stores (carrying Motherhood Matemity and A Pea in the Pod merchandise) and Destination Maternity superstores, which also
`carry both our Motherhood and Pea merchandise brands, as well as a significant array of maternity-related products and customer service features.
`These Destination Maternity stores are larger and have historically had higher average sales than our average store. Opening these Destination
`Maternity stores will typically involve closing two or 111ore sr11aller stores and may result ir1 one-tirne store closing costs resulting primarily from
`early lease terminations. In fiscal 2012 we closed 12 stores in connection with the opening of Destination Maternity nameplate stores and, from
`fiscal 2005 through fiscal 2012, we have closed 129 stores in connection with the opening of Destination Maternity nameplate stores.
`In recent years, in addition to having closed some stores in connection with the opening of Destination Maternity nameplate stores, we have
`
`Source: Destination Maternity Corp, 10—K, 12/14/2012 | Powered by Intelligize
`
`DMC Exhibit 2041_050
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`also evaluated our retail store base to identify and, i11 many cases, elose underperforming stores (referred to as “prunings”) where we can do so
`without disproportionate exit cost. These prunings typically add to our profitability by eliminating the operating expense of an underperforrning
`store while also typically transferring some of the sales from the closed store to other stores and/or leased departments we operate in that
`geographical area. In fiscal 20l 2 we closed 29 underrperforming stores and, from fiscal 2005 through fiscal 20l 2, we have closed 263
`underperforrning stores.
`We plan to open approximately 14 — 20 new retail stores during fiscal 2013, of which we expect approximately 7 — 10 will be new Destination
`Maternity combo or superstorcs. We estimate that we will close approximately 34 — 51 stores in fiscal 2013, with approximately 14 — "0 of tl1es