Notes to Financial Statements - Retirement Plans
`
`Retirement Plans
`
`Retirement Plans [Abstract]
`
`REFIREMENT PLANS
`
`18. RETIREMENT PLANS
`
`12 Months Ended
`Sep. 30, 2012
`
`O11 March 2, 2007, t11e Company entered into Supplemental Executive Retireinent Agreements (the
`“SERP Agreement(s)”) with Mr. and Ms. Matthias (the “SERP Executives”). The purpose of the SERP
`Agreements was to provide the executives with supplemental pension benefits following their cessation of
`employment.
`The Company’s T). Matthias Transition Agreement, entered into in September 2008 in connection with
`Mr. Matthias’ retirement 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 tl1e amount that would have bee11 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, were being paid to Mr. Matthias ir1 installments, wl1icl1 commenced on April 1, 2009, with the
`final installment paid on October 1, 2012. The Company paid SERP benefits to Mr. Matthias totaling
`$600,000, $750,000 and $900,000 in fiscal 2012, 2011 and 2010, respectively.
`The amount of the benefit payable under Ms. Matthias’ SERP Agreement was the actuarial present
`value ofa single life annuity equal to 60% ofMs. Matthias’ “deemed final pay,” commencing upon
`cessation of employment. For this purpose, “deemed final pay” meant Ms. Matthias’ base salary 011
`March 2, 2007, increased by 3% for each new fiscal year that began before Ms. Matthias’ cessation of
`employment. This benefit vested 33 ‘/3 % on March 2, 2007. On each September 30 thereafter 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 Cornpany’s R. Matthias Transition
`Agreement, entered into on November 6, 2009 in connection with Ms. Matthias’ scheduled retirement,
`amended her SERP Agreement to provide that she would be credited with having served on a full-time
`basis during the 2010 fiscal year and the SERP vested an additional 15% effective on the Transition Date,
`to a cumulative total vested percentage of 93 1/3 %. Pursuant to the R. Matthias Transition Agreement.
`Ms. Matthias received a lump surri payment ofthe SERP Agreement benefits of$4, 166,000 011 Decerriber 16,
`2010.
`
`The Company accounted for the SERP Agreements in accordance with the accounting requirements
`for defined benefit pension and other post-retirenrent plans. Changes ir1 the benefit obligation under the
`SERP Agreements as of September 30 were as follows (in thousands):
`
`Benefit obligation at beginning of year
`Interest cost
`
`Benefit payments
`Benefit obligation at end of year
`Less: current portion included in accrued expenses and other
`current liabilities
`Non—current benefit obligation at end of year
`
`2012
`
`S 732
`18
`
`2011
`
`$ 5,560
`88
`
`fl) M)
`150
`732
`
`Aw)
`S —
`
`fl)
`$
`132
`
`The non—current benefit obligation at end of fiscal 2011 was included in “deferred rent and other non-
`current liabilities” in the accompanying Consolidated Balance Sheet.
`The components of net periodic pension cost on a pretax basis were as follows for the years ended
`September 30 (in thousands):
`
`Service cost
`Interest cost
`Amortization of prior service cost
`Plan amendment and curtailment
`
`Total net periodic benefit cost
`
`2010
`2011
`2012
`$ — $ — $ 439
`18
`88
`257
`—
`—
`139
`—
`—
`888
`
`$
`
`18
`
`$
`
`88
`
`$1,723
`
`The following weighted—average assumptions were used to determine net periodic benefit cost for the
`years ended September 30, 2012. 2011 and 2010: discount rate — 5.0%; co111pe11satio11 increase rate — 3.0%.
`Amounts recorded in accumulated other comprehensive loss in fiscal 2010 were as follows (in
`thousands):
`
`Source: Destination Maternity Corp, XBRL, 12/14/2012 | Powered by Intelligize
`
`Unrecognized prior service cost—beginning of year
`Amortization of prior service cost
`
`2010
`
`$(589)
`139
`
`
`
`DMC Exhibit 2041_141
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`Prior service cost recognized for plan amendment and curtailment
`Unrecognized prior service cost
`end of year
`
`0
`
`45
`
`The Company has a grantor trust, which was established for the purpose of accumulating assets in
`anticipation of the Company’s payment obligations under tl1e SERP Agreements (the “Grantor Trust”).
`The Company’s agreements with the SERP Executives and the trustee for the Grantor Trust (the “Trustee”)
`allowed the Company to make casl1 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. In December 2009, in connection with the additional
`vesting and scheduled payment of SERP Executives’ benefits i11 2010, the Company 1I1ade a partial cash
`contribution to the Gra11t0r Trust of $1,500,000, with a corresponding reduction of the SERP Letter of Credit
`to $4,437,000 as of December 31, 2009. In December 2010, the Company received a distribution of the
`remaining assets iii the Grantor Trust totaling $1,504,000. The amount withdrawn was used to partially fund
`the December 2010 lump sum payment of $4,166,000 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 benefit paid to
`Mr. Matthias on October 1, 2012.
`
`Source: Destination Maternity Corp, XBRL, 12/14/2012 | Powered by Intelligize
`
`DMC Exhibit 2041_142
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`Notes to Financial Statements - Employee Benefit Plans
`
`Employee Benefit Plans
`[Abstract]
`EM PLOYEE BENEFIT PLANS
`
`19. EMPLOYEE BENEFIT PLANS
`
`discretionary contributions.
`
`Tl1e 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 and vest over a period of
`approximately six years from each em pl oyee’s commencement of employment with the Company. Company
`matching contributions totaling $39,000 (net of $100,000 of cumulative plan forfeitures), $146,000 and
`$153,000, were made in fiscal 2012, 2011 and 2010, respectively. In addition, the Company may make
`discretionary contributions to the plan, which vest over a period of approximately six years from each
`employee’s commencement of employment with the Company. The Company l1as not made any
`
`Source: Destination Maternity Corp, XBRL, 12/14/2012 | Powered by Intelligize
`
`DMC Exhibit 2041_143
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`Notes to Financial Statements - Quarterly Financial Information (Unaudited)
`
`Quarterly Financial
`Information (Unaudited)
`Quarterly Financial
`Information Disclosure
`[Abstract]
`QUARTERLY FINANCIAL
`IN F0 RMA-l-[ON (U NAU D1-FED)
`
`12 Months Ended
`sep, 30, 2012
`
`V
`20. QUARTERLY Hl\ANCIAL INFORNLATION (UNAUDITED)
`Quarterly financial results for the years ended September 30, 2012 and 201 l were as follows (in
`thousands, except per share amounts):
`
`Quarter Ended
`Fiscal 2012
`N61 53165
`$128,487
`$138,847
`$137,792
`$136,350
`Gross profit
`71,588
`75,756
`73,761
`69,606
`Net income
`5,189
`6,941
`4,979
`2,263
`Net income per share Basic
`0.39
`0.53
`0.38
`0.17
`Net income per sl1are—Diluted
`0.39
`0.52
`0.38
`0.17
`
`Quarter Ended
`Fiscal 2011
`Net sales
`$129,442
`$146,684
`$133,833
`$135,435
`Gross profit
`68,840
`80,935
`74,189
`72,933
`Net income
`2,687
`9,460
`5,593
`5,248
`Net income per sharc—Basic
`0.21
`0.73
`0.44
`0.42
`Net income per share—DiluleLl
`0.20
`0.72
`0.43
`0.40
`
`The Con1pany’s business, like that of other retailers, is seasonal. The Con1pany’s quarterly net sales
`have historically been highest in its third fiscal quarter, corresponding to the peak Spring 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 Company has typically generated a very
`significant pcrccntagc of its full year operating income and net income during its third fiscal quarter.
`
`Source: Destination Maternity Corp, XBRL, 12/14/2012 | Powered by Intelligize
`
`DMC Exhibit 2041_144
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`Notes to Financial Statements - Segment and Enterprise Wide Disclosures
`
`Segment and Enterprise
`Wide Disclosures
`Segment and Enterprise
`Wide Disclosures [Abstract]
`SEGMENT AND ENTERPRISE
`
`WIDE DISCLOSURES
`
`12 Months Ended
`Sep, 30,, 2012
`
`21. SEGMENT AN) ENTERPRISE WIDE DISCLOSURES
`
`Operating Segment. For purposes of the disclosure rcq11ircn1ents for segments of a business
`enterprise, the Company has determined t11at its business is comprised of one operating segment: the
`design, manufacture and sale ofmaternity apparel a11d related accessories. While the Company otters a
`wide range of products for sale, the substantial portion of its products are initially distributed through the
`same distribution facilities, many of the Company’s products are manufactured at common contract
`manufacturer production facilities, the Company’s products are marketed through a common marketing
`department, and these products are sold to a similar customer base, consisting of expectant mothers.
`Geographic Infunnatiun.
`Information concerning the Company’s operations by geographic area is
`as follows (in thousands):
`
`Net Sales to Unaiflliated Customers
`
`United States
`Foreign
`
`Long-Lived Assets, Net
`United States
`Foreign
`
`Year Ended September 30:
`2011
`
`2010
`
`2012
`
`$514,779
`26,697
`
`$520,023
`25,371
`
`$505621
`25,571
`
`September 31],
`2012
`
`September 30,
`2011
`
`$
`
`51,449
`976
`
`$
`
`55,497
`1,605
`
`Major Customers. For the periods presented, the Company did not have any one customer who
`represerlted more than 10% of its net sales.
`
`Source: Destination Maternity Corp, XBRL, 12/14/2012 | Powered by Intelligize
`
`DMC Exhibit 2041_145
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`Notes to Financial Statements - Interest Expense, Net
`
` {’=
`
`‘.1
`
`",
`
`V "
`
`Interest Expense Disclosure
`[Abstract]
`INTEREST EXPENSE, NE|'
`
`.$3;;31a@‘
`
`22. INTEREST EXPENSE, NET
`
`Interest expense, net for the years ended September 30 is comprised of the following (in
`thousands):
`
`Interest income
`Ii*it2ér*es.t.e::{3éfi’
`
`121,2,
`
`@011,
`
`2,010 ,
`
`£41)
`$~1,21s;
`
`£33)
`
`£30)
`
`Source: Destination Maternity Corp, XBRL, 12/14/2012 | Powered by Intelligize
`
`DMC Exhibit 2041_146
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`Notes to Financial Statements - Related Party Transactions
`
`Related Party Transactions
`[Abstract]
`
`RELATED PARTY
`TRANSACTIONS
`
`outstandirlg to this law firm of $15,000 and $31,000, respectively.
`
`‘
`‘
`‘
`V
`I
`23. RELATED PARTY TRANSACTIONS
`There is a husband and wife relationship between Mr. Matthias and Ms. Matthias. There are no family
`relationships among any of the Company’s current executive officers or directors.
`The former non—executive Chairman of the Company’s Board, who did not stand for reelection in
`February 2011, provided consulting services to Pepper Ilamilton LLP, which provides legal services to the
`Company. The Company paid legal fees to this law firm of $271,000, $754,000 and $288,000 in fiscal 2012,
`2011 a11d 2010, respectively. As of September 30. 2012 and 2011, the Company had accrued amounts
`
`Source: Destination Maternity Corp, XBRL, 12/14/2012 | Powered by Intelligize
`
`DMC Exhibit 2041_147
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`Notes to Financial Statements - Valuation and Qualifying Accounts
`
`Valuation and Qualifying
`Accounts
`Valuation and Qualifying
`Accounts [Abstract]
`
`VALUATION AN D QUALIFYING
`ACCOU NTS
`
`12 Months Ended
`sep. 30, 2012
`
`SCHEDULE II—VALUATION AND QUALIFYING ACCOLNTS
`(in tliousands)
`
`Year Ended Scptcmbcr 30, 2012
`Product return reserve
`
`Year Ended September 30, 2011
`Product return reserve
`
`Year Ended September 30, 2010
`Product return reserve
`
`Balance at
`heginning
`of period 1
`
`$
`
`$
`
`$
`
`2,083
`
`1,469
`
`324
`
`Additions
`charged to
`costs and
`expenses
`
`$
`
`$
`
`$
`
`142
`
`614
`
`896 (2)
`
`Deductions
`and
`reclassifications
`
`Balance at
`end of
`period 11!
`
`$
`
`$
`
`$
`
`—
`
`$
`
`2,225
`
`$
`
`2,083
`
`249 (3)
`
`$
`
`1,469
`
`(1) As of September 30, 2012, 2011 and 2010, the Company’s product return reserve reflects the estimated
`gross sales value of estimated product returns, which had an estimated cost value of $919, $853 and
`$617, respectively. For the year ended September 30, 2009, the Company’s product return reserve was
`presented in the above tablc 11ct of the estimated cost valuc ofcstimatcd product rctur11s of $249.
`(2) During fiscal 2010 the Company changed its store merchandise return policy to allow customers to
`return nierchandise purchased in its retail stores for a filll refund within 30 days of purchase.
`
`(3) Represents the reclassification ofthe September 30, 2009 estimated cost value of estimated product
`returns to present the product return reserve in the above table 011 a gross basis.
`
`Source: Destination Maternity Corp, I><BRL, 12/14/2012 | Powered by Intelligize
`
`DMC Exhibit 2041_148
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`Accounting Policies - Summary of Significant Accounting Policies (Policies)
`
`Summary of Significant
`Accounting Policies
`(Policies)
`Summary of Significant
`Accounting Policies
`[Abstract]
`Principles of Consolidation and
`Basis of Financial Statement
`Presentation
`
`12 Months Ended
`
`Sep. 30, 2012
`
`a. Principles of Consolidation and Basis of Financial Statement Presentation
`The accompanying consolidated financial statements include the accounts of the Company and its
`direct and indirect wholly-owned subsidiaries: Cave Springs, Inc., Mothers Work Canada, Ir1c., Destination
`Maternity Apparel Private Limited and Mothers Work Services, Inc. All significant intercompany
`transactions and accounts have been eliminated in consolidation.
`
`Fiscal Year-End
`
`/1. Fiscal Year-End
`
`The Company operates on a fiscal year ending September 30 of each year. All references to fiscal years
`of the Company refer to the fiscal years ended on September 30 in those years. For example, the
`Company’s “fiscal 2012” ended on September 30, 2012.
`
`Use of Estimates
`
`c. Use of Estimates
`
`Tl1e preparation of financial statements in conformity with accounting principles generally accepted in
`the United States requires management to make certain estimates and assumptions that may affect the
`reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
`the financial statements and the reported amounts of revenues and expenses during the reporting period.
`Actual results could differ from those estimates.
`
`Cash and Cash Equivalents
`
`d. Cash and Cash Equivalents
`
`Cash a11d cash equivalents include cash on hand. cash in the bank and short—term investments with an
`original maturity of three months or less when purchased. Cash overdrafts of $3,45 2,000 and $3,853,000
`were included in accounts payable as of September 30, 2012 a11d 2011, respectively.
`The Company n1air1tair1s cash accounts that, at times, may exceed federally insured limits. The
`Company has not experienced any losses from maintaining cash accounts in excess of such limits.
`Management believes that it is not exposed to any significant credit risks 011 its cash accounts.
`
`Inventories
`
`e. Inventories
`
`Property, Plant and Equipment
`
`Intangible Assets
`
`Inventories are valued at the lower of cost or market. Cost is determined by the “first-in, first-out”
`(FIFO) method. Inventories of goods manufactured by the Company include the cost of materials, freight,
`direct labor, and manufacturing and distribution overhead.
`f Property, Plant and Equipment
`
`Property, plant a11d equipment are stated at cost. Depreciation and amortization are computed for
`financial reporting purposes or1 a straight-line basis, using service lives ranging principally fro111 five to ter1
`years for fiimiture a11d equipment and forty years for the building. Leasehold improvements are amortized
`using the straight-line method over the shorter of the lease term or their useful life. The cost of assets sold
`or retired and the related accumulated depreciation or amortization are removed from the accounts with any
`resulting gain or loss included in net income. Maintenance and repairs are expensed as incurred, except for
`the capitalization of maj or renewals and betterrnents that extend the life of the asset. Long-lived assets are
`reviewed for impairment whenever adverse events, or changes in circumstances or business climate,
`indicate that the carrying value may 11ot be recoverable. Factors used in the evaluation include, but are not
`limited to, management’s plans for future operations, brand initiatives, recent operating results and
`projected cash flows. If the associated undiscounted cash flows are insufficient to support the recorded
`asset, an impairment loss is recognized to reduce the carrying value of the asset. The amount of the
`impairment loss is determined by comparing the fair value of the asset with the carrying value.
`During fiscal 2012, 2011 and 2010, the Company recorded impairment write-downs of property, plant
`and equipment totaling $1,875,000, $759,000 and $1,863,000, respectively, on a pretax basis.
`
`g. Intangible Assets
`Intangible assets with definite useful lives consist primarily ofpatent and lease acquisition costs. The
`Company capitalizcs lcgal costs incurred to dcfcnd its patcnts whcn a successful outcome is deemed
`probable and to the extent of an evident increase in the value of the patents. Intangible assets are
`amortized over the shorter of their useful life or, if applicable, the lease term. Management reviews the
`carrying amount of these intangible assets as impairment indicators arise, to assess the continued
`recoverability based on future undiscounted cash flows and operating results from the related asset, fiiture
`asset utilization and changes in market conditions. During fiscal 2012, 2011 and 2010, the Company
`recorded write-downs of intangible assets totaling $1,000, $9,000 and $2,000, respectively, on a pretax
`basis. 'l'hc Company has not idcntificd any indcfinitc-livcd intangiblc asscts. Aggrcgatc amortization
`expense ofintangible assets in fiscal 2012, 2011 and 2010 was $142,000, $135,000 and S119,000,
`respectively.
`
`Source: Destination Maternity Corp, XBRL, 12/14/2012 | Powered by Intelligize
`
`
`
`DMC Exhibit 2041_149
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`Estimated amortization expense ofthe Company’s intangible assets as of September 30, 2012, for the
`next five fiscal years, is as follows (in thousands):
`
`FiscalYear
`2013
`2014
`2015
`2016
`2017
`
`Interest Rate Derivatives
`
`h. Interest Rate Derivatives
`
`S151
`134
`117
`112
`105
`
`The Company mitigated a portion of its floating rate interest risk on variable rate long-term debt
`through an interest rate swap agreement that expired on April 18, 2012. In accordance with applicable
`accounting standards for derivative instruments, the Company recognized the derivative on the balance
`sheet at fair val11e. O11 t11e date the derivative instrument was entered into, the Company designated it as a
`hedge of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash
`flow hedge”). Changes in the fair value ofa derivative that is designated as, and meets all the criteria for, a
`cash flow hedge are recorded in accumulated other comprehensive loss and reclassified into earnings as
`the underlying hedged item affects ear11ings. When applicable, the Company formally documents the
`relationship betwee11 hedging instrume11ts and hedged items. Also when applicable, the Company formally
`assesses at the inception of the hedge and on a quarterly basis. whether the derivative is highly effective
`in offsetting changes in cash flows of the hedged item. Any portion of the change in fair value of the
`derivative associated with hedge ineffectiveness is included in curre11t earnings. For fiscal 2012, 2011 and
`2010. the Company’s interest rate swap was determined to have no ineffectiveness.
`
`Deferred Financing Costs
`
`i. Deferred Financing Costs
`
`Deferred financing costs are amortized to interest expense over the term of the related debt agreement.
`Amortization expense ofdeferred financing costs in fiscal 2012, 201 l and 2010 was $105,000, $170,000 and
`$196,000, respectively. In connection with debt extinguishments, i11 fiscal 2012, 2011 a11d 2010 the Company
`wrote off $22,000, $37,000 and $51,000. respectively, ofunamortizcd deferred financing costs (see Note 10).
`In connection with its new credit facility entered into on November 1, 2012, the Company incurred
`approximately $825,000 in deferred financing costs. of which $61,000 was paid in fiscal 2012 (see Note 9).
`Estimated amortization expense of the Company’s deferred financing costs as of September 30, 2012
`plus those incurred in November 2012, for the next five fiscal years, is as follows (in thousands):
`
`Fiscal Year
`2013
`2014
`2015
`2016
`2017
`
`Deferred Rent
`
`j. Deferred Rent
`
`S1 73
`165
`165
`165
`165
`
`Rent expense on operating leases, including rent holidays and scheduled rent increases, is recorded
`on a straight-line basis over the term ofthe lease commencing on the date the Company takes possession
`ofthe leased property, which is generally four to six weeks prior to a store’s opening date. The net excess
`of rent expense over the actual easl1 paid has been recorded as a deferred rent liability in the
`accompanying Consolidated Balance Sheets. Tenant improvement allowances received from landlords are
`also included in the accompanying Consolidated Balance Sheets as deferred rent liabilities and are
`amortized as a reduction ofrent expense over the term ofthe lease from the possession date.
`
`Treasury (Reacquired) Shares
`
`k. Treasatjv (Reacquired) Shares
`
`Shares repurchased are retired and treated as authorized but unissued shares. with the cost in excess
`of par value ofthe reacquired shares charged to additional paid-in capital and the par value charged to
`common stock.
`
`Fair Value of Financial
`Instruments
`
`L Fair Value of Finunciul Instruments
`
`The carrying values of cash a11d cash equivalents, trade receivables and accounts payable
`approximate fair value due to the short—terrn nature of those instruments. The majority of the Company’s
`long-term debt bears interest at variable rates, which adjust based o11 market conditions, and the carrying
`value of the long-term debt approximates fair value. The fair value of the Company’s debt was determined
`using a discounted cash flow analysis based on interest rates currently available to the Company or for
`similar instruments available to companies with comparable Credit quality. A significant portion of t11e
`Company’s floating rate interest risk on variable rate long—terrn debt was mitigated through an interest rate
`swap agreement that expired on April 1 8, 201 2. As ofSeptember 30, 201 1, the estimated fair value ofthe
`interest rate swap was an unrealized loss of $(145,000).
`
`Revenue Recognition, Sales
`Returns and Allowances
`
`m. Revenue Recugnitiun, Sales Returns and Allowances
`
`Revenue is recognized at the poi11t of sale for retail store sales, including leased department sales, or
`Source: Destination Maternity Corp, XBRL, 12/14/2012 | Powered by Intelligize
`
`
`
`DMC Exhibit 2041_150
`
`Target v. DMC
`lPR2013-00530, 531, 532, 533
`
`

`
`when merchandise is delivered to customers for licensed product and Internet sales. and when
`merchandise is shipped to international franchisees. A liability is established for the retail value of gift
`cards sold a11d merchandise credits issued. The liability is relieved and revenue is recognized when gift
`cards or merchandise credits are redeemed by customers as tender for merchandise purchased. Allowances
`for retur11s are recorded as a reduction of revenue, based on the Company’s historical experience.
`Revenues are recorded net of applicable sales taxes.
`
`Other Revenues
`
`n. Other Revenues
`
`Cost of Goods Sold
`
`Shipping and Handling Fees and
`Costs
`
`Selling, General and
`Administrative Expenses
`
`Advertising Costs
`
`Stock-based Compensation
`
`Store Closing, Asset Impairment
`and Asset Disposal Expenses
`
`Included in net sales are revenues earned by the Company through a variety of marketing partnership
`programs utilizing the Company’s opt-in customer database and various in-store marketing initiatives,
`focused o11 baby and parent-related products a11d services. Revenue fi‘om marketing partnership programs
`is recognized when goods or services are provided. Also included in net sales are fees and royalties
`related to international franchise agreements. Franchise fees are earned by the Company when all material
`services or conditions related to the franchise agreement have been substantially performed or satisfied
`and royalties are earned based on net sales of the Company’s international franchisees and may include
`minimum guaranteed royalties.
`
`0. Cost 0fGoor1s Sold
`Cost of goods sold in the accompanying Consolidated Statements oflneome includes: merchandise
`costs (including customs duty expenses), expenses related to inventory shrinkage, product-related
`corporate expenses (including expenses related to payroll, benefit costs and operating expenses of the
`Company’s buying departments), inventory reserves (including lower of cost or market reserves), inbound
`freight charges, purchasing and receiving costs, inspection costs, warehousing costs, internal transfer
`costs, and the other costs of the Company’s distribution network.
`
`,
`y
`.
`p. S/upping and Handling Fees and Costs
`The Company includes shipping a11d handling revenue earned from its Internet activities in net sales.
`Shipping and handling costs, which are included i11 cost of goods sold i11 the accompanying Consolidated
`Statements of Income, include shipping supplies, related labor costs and third—party shipping costs.
`
`.
`.
`.
`.
`q. Sellzng, General and Adm/znzstratzve Expenses
`Selling, general and administrative expenses in the accompanying Consolidated Statements of I11co1ne
`include advertising and marketing expenses. corporate administrative expenses, store expenses (including
`store payroll a11d store occupancy expenses), a11d store opening expenses.
`
`.
`.
`r. Advertzszng Costs
`The Company expenses tl1e costs of advertising when the advertising first occurs. Advertising
`expenses, including Internet advertising expenses, were $13,878,000, $11,712,000 and $12,147,000 in fiscal
`2012, 2011 and 2010, respectively.
`s. Stock-based Compensation
`The Company recognizes employee stock-based compensation as a cost in the accompanying
`Consolidated Statements of Income. Stock-based awards are measured at the grant date fair value and are
`recorded generally on a straight-line basis over the vesting period, net of estimated forfeitures. Excess tax
`benefits related to stock option exercises and restricted stock vesting, which are recognized in
`stockholders’ equity, are reflected as financing casl1 inflows.
`
`.
`.
`.
`t. Store Claszng, Asset Impazrment and Asset Dzsposal Expenses
`Store closing expenses include lease termination fees, gains or losses on disposal of closed store
`assets and recognition of unamortized deferred rent. Asset impairment expenses represent losses
`recognized to reduce the carrying value ofimpaired long-lived assets. Asset disposal expenses represent
`gains or losses on disposal of assets other than in connection with store closings. including assets
`disposed from remodeling or relocation of stores.
`
`Income Taxes
`
`u. Income Taxes
`
`The Company utilizes the asset and liability method of accou11ti11g for income taxes. Under this
`method, deferred tax assets a11d liabilities are recognized for the expected future tax consequences of
`temporary differences between the carrying amounts and the tax bases of assets and liabilities as well as
`from net operating loss carryforwards. The effect on deferred tax assets and liabilities ofa change in tax
`rates is recognized in operations in the period that includes the enactment date.
`Under the accounting standard for uncertain income tax positions, recognition of a tax benefit occurs
`when a tax position is estimated by management to be more likely than not to be sustained upon
`examination, based solely 011 its technical merits. Dereeognition of a previously recognized tax position
`would occur if it is subsequently determined that the tax position no longer meets the more-likely-than-not
`threshold of being sustained. Recognized tax positions are measured at the largest amount that
`management believes has a greater than 50% likelihood ofbeing finalized. The Company records interest
`and penalties related to unrecognized tax benefits in income tax provision.
`
`Net Income per Share and Cash
`Dividends
`
`v. Net Income per Share and Cash Dividemis
`Basic net income (or earnings) per share (“Basic EPS”) is computed by dividing net income by the
`
`Source: Destination Maternity Corp, XBRL, 12/14/2012 | Powered by Intelligize
`
`
`
`DMC Exhibit 2041_151
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`weighted average number of common shares outstanding. excluding restricted stock awards for which the
`restrictions have not lapsed. Diluted net income per share (“Diluted EPS”) is computed by dividing net
`income by the weighted average number of common shares outstanding, after giving effect to the potential
`dilution, if applicable, from the assumed lapse of restrictions 011 restricted stock awards and exercise of
`stock options into shares of common stock as if those stock options were exercised. Common shares
`issuable in connection with the award of perforrnance—based restricted stock units (“RSUs”) are excluded
`from the calculation of FPS until the RSI Is’ performance conditions are achieved and the shares in respect
`ofthe RSUs become issuable (see Note 14).
`
`The following table summarizes those effects for the diluted net income per share calculation (in
`thousands, except per share amounts):
`
`Net income
`Net income per share—Basic
`Net income per share—Diluted
`Average number of shares outstanding—Basic
`Incremental shares from the assumed exercise of outstanding stock
`options
`Incremental shares from the assumed lapse of restrictions on restricted
`stock awards
`
`Year Ended SBEIBIIIIIBI 30:
`2012
`2011
`2010
`
`$1 9,372
`$
`1.48
`$
`1.46
`13,096
`
`122
`
`49
`
`$22,988
`$
`1.79
`$
`1.75
`12,820
`
`239
`
`61
`
`$16,829
`$
`1.37
`$
`1.33
`12,304
`
`316
`
`71
`
`Average number of shares outstandi11g—Diluted
`
`13,267
`
`13,120
`
`12,691
`
`In addition to performance-based RSUs, for fiscal 2012, 2011 and 2010, stock options and unvested
`restricted stock totaling approximately 321,000, 164,000 and 292,000 shares, respectively, were excluded
`from the calculation of Diluted EPS as their effect would have been antidilutive.
`
`On January 26, 2011, the Company announced the initiation of a regular quarterly cash dividend.
`During fiscal 2012 and 2011 the Company paid cash dividends totaling $9,325,000 ($0.70 per share) and
`$6,901,000 ($0.525 per share), respectively. On November 8, 2012 the Company declared a quarterly cash
`dividend of$0. 175 per share payable on December 28, 2012, which will require approximately $2,400,000 of
`available cash.
`
`Statements of Cash Flows
`
`w. Statements of Cash Flaws
`
`in fiscal 2012, 2011 and 2010, the Company paid interest, including payments made on its interest rate
`swap agreement (see Note 10), of$l,359,000, $2,266,000 and $3,414,000, respectively, and made income tax
`payments. net of refunds, of $7,432,000. $9,804,000 and $2,357,000. respectively.
`
`Business and Credit Risk
`
`x. Business and Credit Risk
`
`Financial instruments, primarily cash and cash equivalents and trade receivables, potentially subject
`the Company to concentrations of credit risk. The Company limits its credit risk associated with cash and
`cash equivalents by placing such investrnents ir1 highly liquid funds and iristiiirnents. Trade receivables
`associated with third—party credit cards are processed by financial institutions, which are monitored for
`financial stability. Trade receivables associated with licensed, leased department and other relationships
`are evaluated for collectibility based on a combination of factors, including aging of trade receivables,
`write-offcxperiencc and past payment trends. The Company is dependent on key suppliers to provide
`sullicient quantities of inventory at competitive prices. No single supplier represented 10% or more ofnet
`purchases i11 fiscal 2012, 2011 or 2010. A significant majority of the Company’s purchases during fiscal
`2012, 201 l and 2010 were imported. Management believes that any event causing a disruption ofimports
`from any specific count