Effect of exchange rate changes on cash and cash equivalents
`
`Net Increase (Decrease) in Cash and Cash Equivalents
`
`Cash and Cash Equivalents, Beginning of Year
`
`Cash and Cash Equivalents, End of Year
`
`(26)
`
`2,179
`
`(12)
`
`7,091
`
`(13)
`
`(9,348)
`
`22,376
`
`15,285
`
`24,633
`
`$ 24,555
`
`$ 22,376
`
`$ 15,285
`
`Source: Destination Maternity Corp, XBRL, 12/13/2013 | Powered by Intelligize
`
`DMC Exhibit 2042_107
`
`Target v. DMC
`lPR2013-00530, 531, 532, 533
`
`

`
`Notes to Financial Statements - Nature of Business
`
`Nature of Operations
`
`Delaware in 1982.
`
`.
`
`NATURE OF BUSINESS
`Destination Maternity Corporation and subsidiaries (the “Company”) is a specialty designer and
`retailer of maternity clothing. The Company operated 1,907 retail locations as of September 30. 2013,
`including 596 stores and l,3ll leased departments, throughout the United States, Puerto Rico and Canada,
`and markets its maternity apparel on the Internet through its DestinationMaternity.com and brand-specific
`websites. The Company also markets maternity apparel at Kohl"s® stores throughout the United States
`under an exclusive product and license agreement. Further the Company has store franchise and product
`supply relationships in the Middle East, South Korea and India. The Company was incorporated in
`
`Source: Destination Maternity Corp, XBRL, 12/13/2013 | Powered by Intelligize
`
`DMC Exhibit 2042_108
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`Notes to Financial Statements - Summary of Significant Accounting Policies
`
`Summary of Significant
`Accounting Policies
`Summary of Significant
`
`2.
`
`12 Months Ended
`sep, 30, 2013
`SUMMARY or SIGNIFICANT ACCOUNTING PoI.ICIEs
`
`Accounting Policies
`
`Principles of Consolidation. and Basis of FlIl(lIlCl(ll Statement Presentation
`(1.
`The accompanying consolidated financial statements include the accounts of the Company a11d its
`direct and indirect wholly-owned subsidiaries: Cave Springs, Inc.. Mothers Work Canada, Inc., Destination
`Maternity Apparel Private Limited and Mothers Work Services, Inc. All significant intercompany
`transactions and accounts have been eliminated in consolidation.
`
`b.
`
`Fiscal Year—Enzl
`
`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 2013” ended on September 30, 2013.
`
`c.
`
`Use ofEstimates
`
`The 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.
`
`zl.
`
`Cash and Cash Equivalents
`
`Cash and cash equivalents include cash 011 hand, cash in the bank and short—term investments with
`an original maturity of three months or less when purchased. Book cash overdrafts, which are outstanding
`checks in excess of funds on deposit, of $4,730,000 and $3,452,000 were included in accounts payable as of
`September 30, 2013 and 2012, respectively.
`
`The Company maintains cash accounts that, at times. may exceed federally insured limits. The
`Company has r1ot experienced any losses fiom r11ai11tairIir1g cash accounts ir1 excess of such linrits.
`Management believes that it is not exposed to any significant credit risks 011 its cash accounts.
`
`e.
`
`Inventories
`
`Inventories are valued at the lower of cost or market. Cost is determined by the “first-in, first-out”
`(FIFO) method. I11ve11tories of goods nranufactured by the Company include the cost of materials, fieight,
`direct labor, and manufacturing and distribution overhead.
`
`f
`
`Property, Plant and Equipment
`
`Property, plant and equipment are stated at cost. Depreciation and amortization are computed for
`financial reporting purposes on a straight-line basis, 11si11g service lives ranging principally fi‘om five to ten
`years for furniture and equipment and forty years for the building. Leasehold improvements are amortized
`using the straight-line method over the shorter of the lease term or their usefiil life. The cost ofassets 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 betterments that extend the life of the asset. Long-lived assets are
`reviewed for impairment whenever adverse events, or changes ir1 circumstances or business climate,
`indicate that the carrying value may not 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 2013, 2012 and 2011, the Company recorded inrpairment write-downs of property, plant ar1d
`equipment totaling $754,000, $1,875,000 and $759,000, respectively, on a pretax basis.
`
`2.
`
`SI IMMARV OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
`
`g.
`
`Intangible Assets
`
`Intangible assets with definite useful lives consist primarily of patent and lease acquisition costs.
`The Company capitalizes legal costs incurred to defend its patents when 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 2013 the Company capitalized $1.093,000
`of legal costs incurred in connection with a lawsuit asserting infringement of Company patents. During
`fiscal 2013, 2012 and 2011, the Company recorded write-downs of intangible assets totaling $32,000, $1,000
`and $9,000, respectively, on a pretax basis. The Company has not identified any irrdefinite-lived intangible
`
`Source: Destination Maternity Corp, XBRL, 12/13/2013 | Powered by Intelligize
`
`DMC Exhibit 2042_109
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`assets. Aggregate amortization expense of intangible assets in fiscal 2013, 2012 and 2011 was $149,000,
`$142,000 and $135,000, respectively.
`
`Estimated amortization expense of the Company’s intangible assets as of September 30, 2013, for the
`next five fiscal years, is as follows (in thousands):
`
`Fiscal Year
`2014
`2015
`2016
`2017
`2018
`
`$ 198
`180
`175
`168
`163
`
`h.
`
`InterestRr1te Derivatives
`
`The Company mitigated a portion of its floating rate interest risk on variable rate lo11g-term debt
`through an interest rate swap agreement that expired on April 18, 2012. On the date the derivative
`instrument was entered into, the Company designated it as a hedge ofthe variability of cash flows to be
`received or paid related to a recognized asset or liability (“cash flow hedge”) and recognized the derivative
`on the balance s11eet at fair value. In accordance with applicable accounting standards for derivative
`instruments, changes in the fair value of a derivative that is designated as. and meets all the criteria for, a
`cash flow hedge were recorded in accumulated other comprehensive loss and reclassified into earnings as
`the underlying hedged item affected earnings. The Company formally documented the relationship
`between the hedging instrument a11d hedged items. The Company formally assessed at the inception of the
`hedge and on a quarterly basis, whether the derivative was highly effective in offsetting changes i11 cash
`flows of the hedged item. For fiscal 2012 and 2011, the Company’s interest rate swap was determined to
`have no ineffectiveness.
`
`i.
`
`Deferred Fimmcing Casts
`
`Deferred financing Costs are anioitized to interest expense over the te1n1 of the related debt
`agreement. Amortization expense of deferred financing costs in fiscal 2013, 2012 and 2011 was $203,000,
`$105,000 and $170,000, respectively. In connection with debt extinguishments, in fiscal 2013, 2012 and 201 1
`the Company wrote off $9,000, $22,000 and $37,000, respectively, of unamortized deferred financing costs
`(see Note 9). In connection with its current credit facility entered i11to on November 1, 2012, the Company
`incurred approximately $988,000 in deferred financing costs, of which $927,000 was paid in fiscal 2013 and
`$61,000 was paid i11 fiscal 2012 (see Note 8).
`
`Estimated amortization expense of the Company‘s deferred financing costs as of September 30, 2013
`is as follows (in thousands):
`
`Fiscal Year
`
`20 14
`20 1 5
`20 l 6
`20 17
`20 18
`2 .
`
`$ 198
`1 98
`1 98
`1 98
`1 5
`SUMIVIARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
`
`j.
`
`Deferred Rent
`
`Rent expense on operating leases, including rent holidays and scheduled re11t increases, is recorded
`on a straight—line basis over the term of the 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 cash paid has been recorded as a deferred rent liability i11 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 of rent expense over the term of the lease from the possession date.
`
`k.
`
`Treasuljv (Reaequired) Sh ares
`
`Sl1ares repurchased are retired and treated as authorized but unissued shares, with the cost i11 excess
`of par value of the reacquired shares charged to additional paid-in capital and the par value charged to
`common stock.
`
`L
`
`Fair Value ofFinancial Instruments
`
`The carrying values of cash and cash equivalents, trade receivables and accounts payable
`approximate fair value due to the short-term nature of those instruments. The majority of the Company’s
`long—term debt bore interest at variable rates, which adjusted based on market conditions, and the carrying
`value of the long—term debt approximated fair value. The fair value of the Company’s debt was determined
`using a discounted cash fiow analysis based on interest rates available to the Company. A significant
`portion of the Company’s floating rate interest risk on variable rate long—term debt was mitigated through
`an interest rate swap agreement that expired on April 18, 2012.
`
`Source: Destination Maternity Corp, XBRL, 12/13/2013 | Powered by Intelligize
`
`DMC Exhibit 2042_110
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`m
`
`Revenue Recognition, Sales Returns and Allowances
`
`Revenue is recognized at the point of sale for retail store sales, including leased department sales, or
`when merchandise is delivered to customers for licensed brand product and Internet sales, and when
`merchandise is shipped to international franchisees. A liability is established for the retail value of gift
`cards sold and 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 returns are recorded as a reduction of revenue, based on the Company’s historical experience.
`Revenues are recorded net of applicable sales taxes.
`
`n
`
`Other Revenues
`
`Included in net sales are revenues earned by the Company through a variety of marketing
`partnership programs utilizing the Company’s opt-irr customer database and various irr-store marketing
`initiatives, focused on baby and parent—related products and services. Revenue from 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. International franchise fees are earned by the
`Company when all material services or conditions related to the international franchise agreement have
`been substantially perfornred or satisfied and royalties are earned based on net sales of the Company’s
`international franchisees and may include minimum guaranteed royalties.
`
`0.
`
`Cost of Goods Sold
`
`Cost of goods sold in the accompanying Consolidated Statements of Income includes: merchandise
`costs (including cu storrrs duty expenses), expenses related to inventory shrinkage, product-related
`corporate expenses (including expenses related to payroll, benefit costs and operating expenses of the
`Com pany’s huyin g 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 thc othcr costs of the Company’s distribution nctwork.
`
`p.
`
`Shipping and Handling Fees and Costs
`
`The Company includes shipping and handling revenue earned from its Internet activities in net sales.
`Shipping and handling costs, which are included in cost of goods sold in the accompanying Consolidated
`Statements of Income, include shipping supplies, related labor costs and third-party shipping costs.
`2.
`SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
`
`q.
`
`Selling, General and Administrative Expenses
`
`Selling, general and administrative expenses in the accompanying Consolidated Statements of
`Income include advertising and marketing expenses, corporate administrative expenses, store expenses
`(including store payroll and store occupancy expenses), and store opening expenses.
`
`r.
`
`Advertising Costs
`
`The Company expenses the costs of advertising when the advertising first occurs. Advertising
`expenses, including Internet advertising expenses, were $16,984,000, $13,878,000 and $11,712,000 in fiscal
`2013, 2012 and 2011, 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 cash inflows.
`
`t.
`
`Store Closing, Asset Impairment and Asset Disposal Expenses
`
`Store closing expenses include lease termination fees, gains or losses on disposal ofclosed store
`assets and recognition of urramortized 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.
`
`n
`
`Income Taxes
`
`The Company utilizes the asset and liability method of accounting for income taxes. Under this
`method, deferred tax assets and liabilities are recognized for the expected future tax consequences of
`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 of a change in tax
`rates is recognized in operations in the period that includes the enactment date.
`
`Source: Destination Maternity Corp, XBRL, 12/13/2013 | Powered by Intelligize
`
`DMC Exhibit 2042_111
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`Under the accou11ti11g 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 on its technical merits. Derecognition of a previously recognized tax position
`would occur if it is subsequently determined that the tax position no longer meets the more-likely-than-not
`threshold of being sustained. 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.
`
`v.
`
`Net Income per Share and Cash Dividend:
`
`Basic net income (or earnings) per share (“Basic EPS”) is computed by dividing net income by the
`weighted average number of con1mo11 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 on 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 pcrfonnance-based restricted stock units (“RSUs”) are excluded
`from the calculation of EPS until the RSUs’ performance conditions are achieved and the shares in respect
`ofthe RSUs become issuable (see Note 13).
`2.
`SUMIVIARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
`
`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
`
`Average number of shares outstanding—Di1uted
`
`Year Ended Septenl-her 30,
`20 13
`20 12
`20 1 1
`
`$ 23,943
`
`$ 19,372
`
`$ 22,988
`
`35
`35
`
`1-80
`1-78
`13,272
`
`$
`$
`
`1-48
`1-46
`13,096
`
`$
`$
`
`1-79
`1-75
`12,820
`
`108
`
`59
`
`122
`
`49
`
`239
`
`61
`
`13.439
`
`13267
`
`135120
`
`In addition to performance-based RSUs, for fiscal 2013, 2012 and 2011, stock options and unvested
`restricted stock totaling approximately 196,000, 321,000 and 164,000 shares, respectively. were excluded
`from the calculation of Diluted EPS as their effect would have been anti dilutive.
`
`On January 26, 2011, the Company announced the initiation of a regular quarterly cash dividend.
`During fiscal 2013, 2012 and 2011 the Company paid cash dividends totaling $9,799,000 ($0.725 per share),
`$9,325,000 ($0.70 per share) and $6,901,000 ($0.525 per share), respectively. On November 14, 2013 the
`Company declared a quarterly cash dividend of $0.1875 per share payable on December 27, 2013, which will
`require approximately $2,600,000 of available cash.
`
`w.
`
`Statements of Cash Flows
`
`In fiscal 2013, 2012 and 2011, the Company paid interest, including payments made on its interest rate
`swap agreement (see Note 9), of $360,000, $1,359,000 and $2,266,000, respectively, and made income tax
`payments, net of refunds, of $16,188,000, $7,432,000 and $9,804,000, respectively.
`
`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 investments in highly liquid funds and instruments. Trade receivables
`associated with third-party credit cards are processed by financial institutions, which are monitored for
`financial stability. Trade receivables associated with licensed brand, leased department, international
`franchise and other relationships are evaluated for collectibility based on a combination of factors.
`including aging oftrade receivables, write-off experience and past payment trends. The Company is
`dependent on key suppliers to provide sufficient quantities of inventory at competitive prices. No single
`supplier represented 10% or more of net purchases in fiscal 2013, 2012 or 2011. A significant majority of the
`Company’s purchases during fiscal 2013, 2012 and 2011 were imported. Management believes that any
`event causing a disruption of imports from any specific country could be mitigated by moving production
`to readily available alternative sources.
`
`y.
`
`Insurance
`
`The Company is self-insured for workers’ compensation, general liability and automotive liability
`claims, and employee-related healthcare claims, up to certain stop-loss limits. Such costs are accrued based
`on known claims ar1d an estimate of incurred b11t not reported claims. Further, the Company utilizes a
`cooperative arrangement with a number of other companies to assist i11 managing certain workers’
`compensation and general liability insurance risks for loss occurrences prior to March 1, 2010. The
`
`Source: Destination Maternity Corp, XBRL, 12/13/2013 | Powered by Intelligize
`
`DMC Exhibit 2042_112
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`Company’s expenses associated with this relationship could be impacted by the loss history associated
`with the cooperative as a whole. Liabilities associated with these risks are estimated by considering
`historical claims experience and other actuarial assumptions.
`2.
`SUMMARY OF SIGNIFICANI‘ ACCOUNTING POLICIES (Continued)
`
`z
`
`Store Preopening Casts
`
`Non-capital expenditures, such as payroll costs incurred prior to the opening ofa new store, are
`charged to expense in the period in which they were incurred.
`
`a a.
`
`Recent A ccounting Pranauncements
`
`In July 2013, the Financial Accounting Standards Board (“FASB”) issucd Accounting Standards
`Update (“ASU") No. 2013-11, Income Taxes (Topic .740): Presentation ofan Unrecognized Tax Benefit
`When a Net Operating Loss Carr_vforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU
`No. 2013-1 1 requires presentation of an unrecognized tax benefit in the financial statements as a reduction
`to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward.
`To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not
`available at tl1e reporting date under the tax law of the applicablejurisdiction to settle any additional
`income taxes that would result from the disallowance of a tax position or the tax law of the applicable
`jurisdiction does not require tl1e entity to 11se, and the entity does not intend to use, tl1e deferred tax asset
`for such purpose, the unrecognized tax benefit would be presented in the financial statements as a liability
`and would not be combined with deferred tax assets. ASU No. 2013-1 1 is effective for financial statements
`issued for annual reporting periods beginning after December 15, 2013 and interim periods within those
`years. Adoption of the new requirements of ASU No. 2013-11 is not expected to have a material impact on
`the Company’s consolidated financial position or results of operations.
`
`In February 2013, the FASB issued ASI I No. 2013-02, Comprehensive Income (Topic 220):
`Reporting Of/IMOZIVIZS Reclassified Oiit ofAcciimiz1ated Other Comprehensive Income. ASU No. 2013-02
`requires companies to provide information about the amounts reclassified out of accumulated other
`comprehensive income by component. In addition, companies are required to present, either on the face of
`the income statement or in the notes, significant amounts reclassified out of accumulated other
`comprehensive income by the respective line items ofnet income but only ifthe amount reclassified is
`required under generally accepted accounting principles in the United States (“GAAP”) to be reclassified
`to net income in its entirety in tlie same reporting period. For other amounts that are not required u11der
`GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other
`disclosures required under GAAP that provide additional detail about those amounts. The standard does
`11ot change the current requirenlerlts for reporting 11eti11co111e or other comprehensive income i11 financial
`statements. ASU No. 2013-02 is effective for financial statements issued for annual reporting periods
`beginning after December 15. 2012 and interim periods within those years. Because this guidance impacts
`presentation only, the adoption of the new requirements of ASU No. 2013-02 will not have any impact on
`the Company’s consolidated financial position or results of operations.
`
`In June 2011, the FASB issued ASU No. 2011-05., Comprehensive Income (Topic 220): Presentation
`ofComprehensive Income. ASI I No. 201 1-05 required companies to present the components of net income
`and other comprehensive income either as one continuous statement or as two consecutive statements. It
`eliminated the option to present components of other comprehensive income as part of the statement of
`stockholders‘ equity. The standard did not change the items which must be reported in other
`comprehensive income. In December 2011, the FASB issued ASU No. 2011-12, Deferral ofihe Effective
`Date for /4meIidmeIits to the PI’8.YZflTLlft(')I’l of/’?eclossifloatioris ofIteni.s Out ofAccumulated Other
`Comprehensive Income in Accounting Standards Update No. 2011-05, which deferred the effective date
`of the requirement to present separate line items on the statement of income for reclassification
`adjustments out of accumulated other comprehensive income into net income. ASU No. 2011-05 and
`No. 2011-12 were effective for financial statements issued for annual reporting periods beginning after
`December 15, 2011 and interirn periods within those years. In accordance with ASU No. 2011-05 and
`No. 2011-12 the Company has presented two separate but consecutive statements, which include tl1e
`components of net income and other comprehensive income. Because this guidance impacted presentation
`only, the adoption of the 11ew requirements of ASU No. 2011-05 and No. 2011-12 did not have any impact
`011 the Company’s consolidated f111ancial position or results of operations.
`
`Source: Destination Maternity Corp, XBRL, 12/13/2013 | Powered by Intelligize
`
`DMC Exhibit 2042_113
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`Notes to Financial Statements - Trade Receivables
`
`l Trade Receivables
`
`.
`
`TRADE RFCETVABLES
`
`trade receivables were net of allowance for doubtful accounts of $147,000 and $201,000, respectively.
`
`Trade receivables are recorded based on revenue recognized for sales of the Con1pany’s
`merchandise and for other revenue earned by the Company through its marketing partnership programs
`and international franchise agreements, and are non-interest hearing. The Company evaluates the
`collectability of trade receivables based on a combination of factors, including aging of trade receivables,
`write-off experience, analysis of historical trends and expectations of future performance. An allowance for l
`doubtful accounts is recorded for the amount of lrade receivables that are considered unlikely to be
`collected. When the Company's collection efforts are unsuccessful, uncollectible trade receivables are
`charged against the allowance for doubtfiil accounts. As of September 30, 20l 3 and 2012, the Company’s
`
`Source: Destination Maternity Corp, XBRL, 12/13/2013 | Powered by Intelligize
`
`DMC Exhibit 2042_114
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`Notes to Financial Statements - Inventories
`
`Inventories
`
`4.
`
`INVFNTORIES
`
`Invelltofias as of Sepiember 30 were conlprised ofthe following (i11 thousands):
`
`$ 88,754
`
`F’i»‘I'i’1"§¥:‘,11‘S?§1,/‘Vg;K?J.véJ€1:éfi
`Work-in-progress
`Rwwérmafedals
`
`:3 812,795
`2,804
`
`?’9,;©3Tj-“I
`2,709
`45559
`$ 86,546
`
`Source: Destination Maternity Corp, XBRL, 12/13/2013 | Powered by Intelligize
`
`DMC Exhibit 2042_115
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`Notes to Financial Statements - Property, Plant and Equipment, Net
`
`Property, Plant and
`Equipment. Net
`Property, P|ant and Equipment, 5.
`
`12 Months Ended
`sep. 30, 2013
`PROPERTY, PLANT AND EQUIPMENT, NET
`
`Net
`
`Property, plant and equip111ent as of September 30 was comprised of t11e following (i11 thousands):
`2013
`2012
`
`Land
`Building and improvements
`Furniture and equipment
`Leasehold improvements
`
`Less: accumulated depreciation and amortization
`
`$
`
`$
`
`$
`
`1,400
`16,211
`73,363
`33,298
`179,272
`(125,825)
`53,447 $
`
`1,400
`15,843
`69,504
`84,702
`171,449
`(120,371)
`51,078
`
`Aggregate depreciation and amortization expense of property, plant and equipment in fiscal 2013,
`2012 and 2011 was $12,275,000, $12,303,000 and $12,634,000, respectively. During fiscal 2013, 2012 and 2011,
`the Company recorded pretax charges of $754,000, S1,875,000 and $759,000, respectively, related to the
`impairment of leasehold improvements and furniture and equipment at certain of its retail locations.
`
`Source: Destination Maternity Corp, XBRL, 12/13/2013 | Powered by Intelligize
`
`DMC Exhibit 2042_116
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`Notes to Financial Statements - Accrued Expenses and Other Current Liabilities
`
`Accrued Expenses and Other
`Current Liabilities
`Accrued Expenses and Other Current
`
`Liabilities
`
`12 M0nthS Ended
`sep, 30, 2013
`
`6.
`
`ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
`As of September 30, accrued expenses and other current liabilities were comprised of the
`following (i11 thousands):
`
`Employee compensation and benefits
`Insurance, primarily self-insurarice reserves
`Gift certificates and store credits
`Deferred rent
`Sales taxes
`Product return reserve
`Accounting and legal
`Income taxes payable
`Other
`
`2015
`
`2012
`
`$
`
`9,243
`5,899
`4,182
`3,400
`2,876
`2,702
`1,106
`166
`9,843
`$ 39,417
`
`S
`
`5,918
`5,341
`4,194
`3,599
`3,097
`2,225
`1,215
`1.350
`8,605
`s 35,544
`
`Source: Destination Maternity Corp, XBRL, 12/13/2013 | Powered by Intelligize
`
`DMC Exhibit 2042_117
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`Notes to Financial Statements - Deferred Rent and Other Non Current Liabilities
`
`Deferred Rent and Other Non-Current
`Liabilities
`
`7.
`
`DEFERRED RENT AND OTHER NON-CURRENT LIABILITIES
`
`Other
`
`As of September 30, deferred rent and other non-current liabilities were comprised of the
`following (in thousands):
`
`Deferred rent
`Less: current portion included in accrued expenses and other current
`liabilities
`N_en—eurrent deferred rent
`Accrued income taxes
`
`Source: Destination Maternity Corp, XBRL, 12/13/2013 | Powered by Intelligize
`
`DMC Exhibit 2042_118
`
`Target v. DMC
`|PR2013-00530, 531, 532, 533
`
`

`
`Notes to Financial Statements - Line of Credit
`
`Line of Credit
`
`Line Of Credit
`
`8.
`
`LINE OF CREDIT
`
`12 Months Ended
`
`Sep. 30, 2013
`
`On November 1, 2012, the Company entered into a five-year $61,000,000 senior secured revolving
`credit facility (the “Credit Facility”), which replaced the Company’s former $55,000,000 credit facility (the
`“Prior Credit Facility”). The Credit Facility consists oftwo tranches: (l) a senior secured revolving credit
`and letter of credit facility of up to $55,000,000 (“Tranche A”) and (2) a senior secured first-in, last-out
`revolving credit facility of up to $6,000,000 (“Tranche A-1”). The Credit Facility will mature on November 1,
`2017. Upon the Company’s request and with the consent of the lender, permitted borrowings under
`Tranche A may be increased up to an additional $15,000,000, in increments of $2,500,000, up to a Tranche
`A maximum lim it of$70,000,000. Proceeds from advances under the Credit Facility, with certain restrictions,
`were permitted to be used to repay then existing term loan or other debt (see Note 9), and may be used to
`provide financing for working capital, letters of credit, capital expenditures, dividends, share repurchases
`and other general corporate purposes.
`
`The Credit Facility contains various affirmative and negative covenants a11d representations and
`warranties. Under the Credit Facility, the Company is 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 the Company’s
`trade receivables, inventory, real estate interests, letter of credit rights, cash, intangibles and certain other
`assets. The interest rate on outstanding borrowings is equal to, at the Company’s election, either (1) the
`lender’s base rate plus the applicable margin, or (2) a LIBOR rate plus the applicable margin. The applicable
`margin for base rate borrowings is 0.50% for Tranche A borrowings and 2.00% for Tranche A-l
`borrowings. The applicable margin for LIBOR rate borrowings is 1.50% for Tranche A borrowings a11d
`3.00% for Tranche A-1 borrowings. Tranche A-