Maidenform Brands, Inc.
PART II      ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES   Price Range and Number of Holders           Since July 22, 2005, Maidenform Brands, Inc.'s common stock has been traded on the New York Stock Exchange under the symbol MFB. Prior to July 22, 2005, Maidenform Brands, Inc's common stock was not publicly traded. The last reported sales price per share of Maidenform Brands, Inc.'s common stock on March 21, 2006 was $10.75, and on that date there were approximately 11 holders of record of Maidenform Brands, Inc.'s common stock.          The following table sets forth for the period indicated the high and low sales price per share of common stock as reported by the New York Stock Exchange:     Fiscal 2005    High   Low   Third quarter (commencing July 22, 2005)   $ 19.85   $ 13.75   Fourth quarter     14.17     11.30    Issuer Purchases of Equity Securities           No purchases of Maidenform Brands, Inc.'s common stock were made by or on behalf of the Company or any affiliated purchaser during 2005.          The Company announced on February 8, 2006 that its Board of Directors has approved a stock repurchase program in an amount up to $20 million. The Company's current credit facility was amended to permit the plan subject to certain restrictions and limitations set forth in the amendment to the credit facility. The stock repurchase program, which is open-ended, will allow us to repurchase our shares on the open market, depending on market conditions and other corporate considerations, from available cash flow and borrowings under the Amended and Restated Credit Facility dated June 29, 2005, as amended.  Dividend Policy           We do not anticipate paying cash dividends on Maidenform Brands, Inc.'s common stock in the foreseeable future but intend to retain future earnings, if any, for reinvestment in the future operations, expansion of our business and related development activities and to facilitate the stock repurchase program. Any future determination to pay cash dividends will be at the discretion of our Board of Directors and will depend upon our financial condition, results of operations, terms of financing agreements, capital requirements, and such other factors as our Board of Directors deems relevant.  Securities Authorized for Issuance Under Equity Compensation Plans           Information regarding our equity compensation plans is hereby incorporated by reference to the table in Item 12 of this Form 10-K.  Use of Proceeds           On July 22, 2005, we priced our initial public offering, pursuant to a registration statement (Registration No. 333-124228) that was declared effective by the Securities and Exchange Commission on July 21, 2005. The offering closed on July 27, 2005. The managing underwriters were UBS Investment Bank, Credit Suisse First Boston and Goldman, Sachs & Co.          We received net proceeds from the sale of the shares of our common stock in the offering of $52.6 million, at an initial public offering price of $17.00 per share, after deducting underwriting discounts and commissions and other offering expenses as more fully described below.          Selling stockholders in the offering received net proceeds of $176.1 million. We did not receive any proceeds from the sale of our common stock by the selling stockholders.          The offering did not terminate until after the sale of all of the shares registered on the registration statement.   32                None of the proceeds from the offering have been paid by us, directly or indirectly, to any of our directors or officers or any of their affiliates, or to any persons owning 10% or more of our outstanding stock or to any of their affiliates, except as described below:    •Messrs. Ward, Reznik and Masket received payments from us at the closing of the initial public offering in connection with the redemption of shares of preferred stock held by them resulting from the exercise of options to purchase shares of preferred stock. •Ares Corporate Opportunities Fund, L.P., entities affiliated with Oaktree Capital Management, entities affiliated with AIG and Paribas North America, Inc. received payments from us at the closing of the initial public offering in connection with the redemption of shares of preferred stock held by them. •We paid an affiliate of Ares Corporate Opportunities Fund, L.P. a fee of $750,000 at the closing of the initial public offering as consideration for their agreement to terminate an advisory agreement with us. •We paid Oaktree Capital Management a fee of $250,000 at the closing of the initial public offering as consideration for their advisory services to us.           We invested the net proceeds of the offering in short-term, interest bearing, investment-grade securities, pending their use to fund general corporate purposes, including working capital.  Recent Sales of Unregistered Securities           The registrant was incorporated on March 11, 2004 under the laws of the State of Delaware and has issued the following securities that were not registered under the Act:    1.In connection with its formation, the registrant issued 100 shares of common stock for $100 to Ares Corporate Opportunities Fund, L.P. 2.On May 11, 2004, the registrant issued 19,800,000 shares of common stock, 360,000 shares of preferred stock, options to purchase 773,032 shares of common stock and options to purchase 14,056 shares of preferred stock, in each case in connection with the acquisition of Maidenform, Inc. by the registrant. 3.As of December 31, 2005, the registrant had outstanding options to purchase 2,521,870 shares of our common stock, all of which were granted to employees or non-employee directors of the registrant on or after May 11, 2004.           The issuances of securities in the transactions described in items 1 and 2 above were determined to be exempt from registration under Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act") and Rule 506 of Regulation D thereunder as transactions by an issuer not involving a public offering. The issuances of securities listed above in item 3 were deemed to be exempt from registration under the Securities Act in reliance on Rule 701 promulgated under Section 3(b) of the Securities Act as transactions pursuant to compensatory benefit plans and contracts relating to compensation. The recipients of securities in each such transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and other instruments issued in such transactions. All recipients either received adequate information about us or had access, through employment or other relationships, to such information. There were no underwriters employed in connection with any of the transactions set forth in this Item 5, Recent Sales of Unregistered Securities. After giving effect to the sale of shares by us and selling stockholders in connection with our initial public offering, and the filing of a S-8 registration statement with respect to our stock option plans pursuant to which the options referred to above were granted, the balance of the foregoing securities are deemed restricted securities for purposes of the Securities Act.   33         ITEM 6. SELECTED FINANCIAL DATA           On May 11, 2004, MF Acquisition Corporation acquired Maidenform, Inc. (the "Acquisition") through a merger of its wholly owned subsidiary into Maidenform, Inc. Stockholders of Maidenform, Inc. received either cash or stock of MF Acquisition Corporation in exchange for their shares of Maidenform, Inc. On April 5, 2005, MF Acquisition Corporation changed its name to Maidenform Brands, Inc. The financial statements for the period including and after May 11, 2004 are those of Maidenform Brands, Inc. and subsidiaries (the "Successor"). The financial statements for periods prior to May 11, 2004 are those of Maidenform Inc. and subsidiaries (the "Predecessor"). The Acquisition was accounted for as a purchase in accordance with Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations," and Emerging Issues Task Force (EITF) No. 88-16, "Basis in Leveraged Buyout Transactions." As a result of the Acquisition, the financial statements for the period including and after May 11, 2004 are not comparable to those prior to that date.          The selected historical consolidated financial data presented below as of and for the fiscal year ended December 29, 2001 (Predecessor) are derived from our consolidated financial statements, which have been audited by independent auditors (Arthur Andersen LLP) who have ceased operations, and are not included elsewhere in this Annual Report on Form 10-K. We made certain unaudited adjustments to the consolidated financial statements for the fiscal year ended December 29, 2001 (Predecessor) to conform to the requirements of EITF No. 01-09, "Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Product)" and reclassified certain co-op advertising allowances from accounts receivable to accrued expenses and other current liabilities and to present earnings per share data to conform the presentation of this period to subsequent periods. The selected historical consolidated financial data presented below as of December 28, 2002 (Predecessor) and as of December 27, 2003 (Predecessor), as well as the selected historical consolidated financial data for the year ended December 28, 2002 (Predecessor) have been derived from our audited consolidated financial statements not included elsewhere in this Annual Report on Form 10-K. The selected financial data presented below as of and for the fiscal years ended December 31, 2005 (Successor), for the period from May 11, 2004 through January 1, 2005 (Successor) and as of January 1, 2005 (Successor), for the period from December 28, 2003 through May 10, 2004 (Predecessor), and for the fiscal year ended December 27, 2003 (Predecessor) have been derived from our audited consolidated financial statements.          The historical consolidated financial data included below and elsewhere in this Annual Report on Form 10-K are not necessarily indicative of future performance. The following selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," and our audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.   34                The following table sets forth selected financial data as of and for the five fiscal years ended December 31, 2005.         Successor(2)   Predecessor(1)                 For the period from December 28, 2003 through May 10, 2004                         For the period from May 11, 2004 through January 1, 2005   For the years ended         For the year ended December 31, 2005         December 27, 2003   December 28, 2002   December 29, 2001         (in thousands, except share and per share amounts)     OPERATING DATA:                                         Wholesale   $ 327,799   $ 176,515   $ 105,225   $ 238,400   $ 207,358   $ 179,254     Retail     54,370     38,098     17,190     54,473     56,001     54,949                             Net sales     382,169     214,613     122,415     292,873     263,359     234,203     Cost of sales(3)     247,037     151,954     77,113     189,225     178,968     169,957                             Gross Profit     135,132     62,659     45,302     103,648     84,391     64,246     Selling, general and administrative expenses(4)     101,604     59,973     31,960     80,094     73,214     69,596     Acquisition-related charges(5)     —     —     14,286     —     —     —     Goodwill amortization(6)     —     —     —     —     —     1,260                             Operating income (loss)     33,528     2,686     (944 )   23,554     11,177     (6,610 )   Interest expense, net(7)     15,853     7,622     2,180     1,445     7,136     7,347     Other income(8)     —     —     —     —     (2,104 )   —                             Income (loss) before income taxes     17,675     (4,936 )   (3,124 )   22,109     6,145     (13,957 )   Income tax expense (benefit)(9)     8,735     (1,568 )   1,122     (4,921 )   754     438                             Net income (loss)     8,940     (3,368 )   (4,246 )   27,030     5,391     (14,395 )   Preferred stock dividends and changes in redemption value     (17,264 )   (4,756 )   —     —     —     —                             Net (loss) income available to common stockholders   $ (8,324 ) $ (8,124 ) $ (4,246 ) $ 27,030   $ 5,391   $ (14,395 )                           (LOSS) EARNINGS PER SHARE DATA(10)(11)(12):                                               Basic (loss) earnings per common share   $ (0.39 ) $ (0.41 ) $ (0.31 ) $ 1.93   $ 3.88   $ (43.19 )                           Diluted (loss) earnings per common share   $ (0.39 ) $ (0.41 ) $ (0.31 ) $ 1.88   $ 0.38   $ (43.19 )                           Basic weighted average number of shares outstanding     21,451,654     19,800,000     13,727,879     14,034,230     1,388,986     333,333                             Diluted weighted average number of shares outstanding     21,451,654     19,800,000     13,727,879     14,404,130     14,062,022     333,333                             Dividends per share   $ —   $ —   $ —   $ 3.64   $ 2.00   $ —                              (footnotes appear on following page)   35              Successor(2)   Predecessor(1)               For the period from December 28, 2003 through May 10, 2004                       For the period from May 11, 2004 through January 1, 2005   For the years ended       For the year ended December 31, 2005       December 27, 2003   December 28, 2002   December 29, 2001       (in thousands, except share and per share amounts)   BALANCE SHEET DATA (end of period):                                     Cash and cash equivalents   $ 30,978   $ 23,212       $ 1,234   $ 1,476   $ 1,679   Total assets     247,348     244,131         153,332     134,405     171,229   Total indebtedness, including current maturities     137,500     147,750         48,035     25,034     59,306   Redeemable preferred stock     —     41,491         —     —     —   Common stock subject to put option     —     6,356         —     —     —   Total stockholders' equity (deficit)     52,703     (1,122 )       68,269     72,337     70,269    NOTES TO SELECTED FINANCIAL DATA    (1)Predecessor periods include all periods prior to the Acquisition that occurred on May 11, 2004. Fiscal years 2003, 2002, and 2001 all include 52 weeks. The Predecessor period from December 28, 2003 through May 10, 2004 includes 19 weeks. (2)The Successor period from May 11, 2004 through January 1, 2005 includes 34 weeks. Fiscal year 2005 includes 52 weeks. (3)Includes $19.8 million of non-cash purchase accounting adjustments to record inventory at fair market value on May 11, 2004 that was subsequently sold in the Successor period from May 11, 2004 through January 1, 2005. (4)Effective December 29, 2002, we adopted the fair-value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." We selected the modified prospective method of adoption described in SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure." In accordance with the modified prospective method of adoption, results for prior years have not been restated to reflect the change. Therefore, fiscal years 2002 and 2001 are not comparable to subsequent periods. (5)Acquisition-related charges of $14.3 million for the Predecessor period from December 28, 2003 through May 10, 2004 include $6.6 million for sellers' transaction fees and expenses, $2.0 million in special compensation paid to management, $5.6 million in stock compensation expense from settlement of stock options, and $0.1 million of other Acquisition-related charges. (6)Goodwill amortization ceased with the adoption of SFAS No. 142, "Goodwill and Other Intangible Assets" at the beginning of Predecessor year 2002. (7)Interest expense includes charges of $4.9 million for deferred financing fees in connection with the amendment of the First Lien Facilities and the prepayment of the Second Lien Facility during the Successor year 2005, charges of $0.4 million for a debt redemption premium paid in connection with the retirement of all of the Predecessor's outstanding debt at May 10, 2004 and $0.8 million for deferred financing fees in connection with the retirement of all of Predecessor's outstanding debt at May 10, 2004. (8)Represents the recovery of preference payments that were made prior to bankruptcy. (9)Section 382 imposes limitations on a corporation's ability to utilize its net operating losses (NOLs) if it experiences an "ownership change." In general terms, an ownership change results from   36        transactions increasing the ownership of certain existing stockholders and, or, new stockholders in the stock of a corporation by more than 50 percentage points during a three year testing period. Upon emergence from bankruptcy, our NOLs were subject to Section 382 limitations. As a result of the Acquisition, we experienced a change in control, as defined by Section 382. As a result of this ownership change, the utilization of our NOLs are subject to a new annual limitation under Section 382. Any unused annual limitation may be carried over to later years, and the amount of the limitation may, under certain circumstances, be increased to reflect both recognized and deemed recognized "built-in gains" that occur during the 60-month period after the ownership change. Based on fair values of certain assets as determined in connection with the Acquisition, we have approximately $66.7 million of deemed built-in gains that are anticipated to be recognized or deemed recognized during the aforementioned sixty-month period. In addition, the sale of shares in the July 2005 initial public offering resulted in an ownership change for the purpose of Section 382. This ownership change resulted in an increase to the annual limitation, however, since the 2004 annual limitation was less than the 2005 limitation, our NOLs will continue to be subject to the 2004 Section 382 limitation, including the effect of recognized and deemed recognized "built-in-gains." At December 31, 2005, we had approximately $73.8 million federal and state NOLs available for future utilization during the years of 2006 through 2023. During the Successor year 2005, our combined limitation for our NOLs was approximately $20.9 million and we utilized approximately $19.5 million of NOLs. During the Successor period May 11, 2004 through January 1, 2005, we utilized approximately $16.0 million. During the Predecessor year 2003, we utilized approximately $14.1 million of NOLs. For the Predecessor years 2001 and 2002, we had a valuation allowance against our net deferred tax assets due to the uncertainty of the future recognition of such assets as a result of prior financial results and timing of NOL expirations. During Predecessor year 2003, we concluded that it was more likely than not that the net deferred tax assets would be realized in future periods and the valuation allowance in the amount of $52.7 million was reversed. The reversal of the valuation allowance reduced the carrying value of goodwill by $28.3 million and increased additional paid-in capital by $19.0 million. See notes to the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.    (10)During Predecessor year 2001, we executed a 1-for-30 reverse stock split. (11)As a result of the Acquisition, our capital structure and the number of outstanding shares were changed. Accordingly, earnings per share in Predecessor periods are not comparable to earnings per share in the Successor period. (12)For the calculation of earnings per share, see notes to the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.   37         ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS           The following is a discussion of our results of operations and financial condition. This discussion should be read in conjunction with our audited consolidated financial statements and notes included elsewhere in this Annual Report on Form 10-K. The discussion of our results of operations and financial condition includes various forward-looking statements about our markets, the demand for our products, and our future results and is intended to provide the reader of our audited consolidated financial statements with a narrative discussion about our business. This discussion is presented in the following sections:    •Management Overview, •Results of Operations, •Liquidity and Capital Resources, and •Critical Accounting Policies.           We based our statements on assumptions or estimates that we consider reasonable. Actual results may differ materially from those suggested by our forward-looking statements for various reasons including those discussed in Item 1A, "Risk Factors" included elsewhere in this Annual Report on Form 10-K.  MANAGEMENT OVERVIEW           We are a global intimate apparel company with a portfolio of established, well-known brands, top-selling products and an iconic heritage. We design, source and market an extensive range of intimate apparel products, including bras, panties and shapewear. We sell through multiple distribution channels, including department stores and national chain stores, mass merchants (including warehouse clubs), other (including specialty stores, off-price retailers and licensing income), and our company-operated outlet stores and our websites.          We sell our products under some of the most recognized brands in the intimate apparel industry, including Maidenform, Flexees, Lilyette, Sweet Nothings, Self Expressions, Rendezvous, Subtract and Bodymates. Our Maidenform, Flexees and Lilyette brands are broadly sold in department stores and national chain stores. Our other brands are distributed through national chain stores and selected mass merchants. These other brands carry our corporate endorsement and leverage our product technology, but are separate brands with distinctly different logos. In addition to our owned brands, we also supply private brand products to selected retailers.  Trends in our business           We operate in two segments, wholesale and retail. Our wholesale segment includes both our domestic and international wholesale markets. Our retail segment includes our company-operated outlet stores and our websites.          We have identified many near-term opportunities for growth and operational improvements, as well as challenges to our business. In particular, management believes that there are many factors influencing the intimate apparel industry, including but not limited to: consistent demand for foundation garments, consumer demand for product innovation and leading brands, sourcing and supply chain efficiencies, continued growth of the mass merchant channel, pressure from retailers caused by the ongoing consolidation in the retail industry, increases in the cost of the raw materials used in intimate apparel products and uncertainty surrounding import restrictions.          We believe we are well-positioned to capitalize on or address these trends by, among other things:    •increasing consumer identification with our brands through further marketing investments; •continuing to launch innovative products, such as the Maidenform Dream collection first introduced in 2005; •increasing our presence in department stores and national chain stores through the use of Maidenform, Flexees, Lilyette, Rendezvous, Subtract and private brands;    38           •increasing our presence in the mass merchant channel through the use of our Self Expressions, Sweet Nothings, Bodymates and private brands; •expanding our international presence; •being a marketer, rather than a manufacturer, of intimate apparel by sourcing all of our products from third-party suppliers; •making selective acquisitions, entering into licenses, and developing products and marketing that will complement our existing products or distribution channels; and •merchandising, marketing and selling private brand product for selected retailers.   Wholesale Segment           The following trends are among the key variables that will affect our wholesale segment:          Department Stores and National Chain Stores.    The department stores and national chain stores are where we generally sell the Maidenform, Flexees and Lilyette brands. We plan to continue to invest in increasing our net sales with department store customers, which we believe is important to our long-term positioning in the channel. There has been a growing trend toward consolidation of department stores, such as the merger of Federated Department Stores, Inc. and May Company. As a result of planned store closings announced by Federated Department Stores, Inc., we expect sales in department stores to be lower next year but expect continued growth in the remaining department stores. We expect the rate of our future net sales growth with department stores to be moderated by the reduction in both the number of department store customers and the number of doors (distinct locations operated by a particular retailer) operated by those customers. We have grown both our market share and our net sales significantly in the past several years with national chain stores. We expect to see continued growth with national chain stores in the future as consumers continue to seek out value alternatives and as our customers in this channel continue to open new doors. We have customers located outside the United States that purchase our Maidenform, Flexees and Lilyette brands. The majority of these net sales to these customers are included in the department store and national chain store channel.          Mass Merchants.    The mass merchant channel includes both mass merchants and warehouse clubs. We intend to improve our penetration with mass merchants through the use of our Self Expressions, Sweet Nothings, Bodymates, and private brands. We have experienced significant growth in this channel over the past several years and expect to achieve significant growth in the future as we are able to increase both the floor space and number of doors at which our products are sold. We expect that both our net sales to this channel and our net sales to this channel as a percentage of our total net sales is likely to increase over time. Net sales to customers in the mass channel that are located outside the United States are included in this channel.          Other.    Our net sales from this channel, which include sales to specialty retailers and to off-price retailers, have historically been a relatively small component of our overall net sales. We participate in private brands in the specialty retailer area as opportunities present themselves. Because of fluctuations in opportunities in this channel, we continually reevaluate for growth opportunities. Our licensing income is included in this channel as well as sales to foreign distributors.          We will selectively target strategic acquisitions or licenses to grow our consumer base and would utilize the acquired companies to complement the products, channels and geographic reach of our existing portfolio. We believe that acquisitions could enhance our product offerings to retailers and provide potential growth. We believe we can leverage our core competencies such as product development, brand management, logistics and marketing to create significant value   39        from the acquired businesses. The opportunity to license designer brands is also a potential opportunity for us.  Retail Segment           We believe our retail sales volume is driven by our ability to service our existing consumers and obtain new consumers, as well as overall general economic conditions, such as the general retail environment, that can affect our consumers and ultimately their levels of overall spending. Additionally, identifying optimal retail outlet locations, favorable leasing arrangements, and improving our store productivity are factors important to growing our retail segment's net sales. We also sell our products through our websites,  www.maidenform.com and www.maidenform.co.uk. Although we currently do not generate a significant amount of net sales through these sites, we do expect it to continue to grow.          Our objectives in our retail segment are to continue to increase the productivity of our portfolio of stores through effective merchandising and focused advertising, as well as selectively closing a few of our less productive locations and potentially opening new stores in more productive locations. Even in those situations where we selectively close less productive outlet stores and do not open a new location in that region, we believe those consumers still purchase many of our Maidenform brands from our other outlet stores, our websites or our wholesale segment customers that carry these brands. Historically, we have primarily sold excess and, to a lesser extent, obsolete inventories through our outlet stores at a higher margin than that achieved through other liquidation alternatives.  Definitions           In reviewing our operating performance, we evaluate both the wholesale and retail segments by focusing on each segment's operating income, cash flows from operations and inventory turns.          Net Sales.    Our net sales are derived from two operating segments, wholesale and retail. Our net sales in the wholesale segment are sales recorded net of cooperative advertising allowances, sales returns, sales discounts, and markdown allowances provided to our customers. Net sales in our retail segment are recorded at the point-of-sale.          Cost of Sales.    During 2005, we closed our remaining manufacturing facilities in Mexico and Florida; therefore, the principal elements of our cost of sales are for finished goods inventories purchased from our sourced vendors. Included in cost of sales and affecting our overall gross margins are freight expenses from the manufacturers to our distribution centers in situations where such expenses are charged separately. Also included in cost of sales is the cost of warehousing, labor and overhead related to receiving and warehousing at our distribution centers, and depreciation of assets related to our receiving and warehousing in our distribution centers. Direct labor, cost of fabrics, as well as raw materials for fabrics, are the primary components driving the overall cost of our sourced finished goods inventories from our sourcing vendors.          Selling, General and Administrative (SG&A).    Our SG&A expenses include all of our marketing, selling, distribution and general and administrative expenses for both the wholesale and retail segments (which include our retail outlet store payroll and related benefits), and rent expense. General and administrative expenses include management payroll, benefits, travel, information systems, accounting, insurance and legal. Additionally, depreciation related to the shipping function in our distribution centers and our corporate office assets such as furniture, fixtures, and equipment, as well as amortization of intellectual property, is included in SG&A.          Income Taxes.    We account for income taxes using the liability method, which recognizes the amount of income tax payable or refundable for the current year and recognizes deferred tax   40        liabilities and assets for the future tax consequences of the events that have been recognized in the financial statements or tax returns. We routinely evaluate all deferred tax assets to determine the likelihood of their realization and record a valuation allowance if it is more likely than not that a deferred tax asset will not be realized. For more information, see notes to the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Net operating loss carryforwards (NOLs) enable a company to apply net operating losses incurred during a current period against a future period's profits in order to reduce cash tax liabilities in those future periods. In periods when a company is generating operating losses, its NOLs will increase. The tax effect of the NOLs is recorded as a deferred tax asset. If the company does not believe that it is more likely than not that it will be able to utilize the NOLs, it records a valuation allowance against the deferred tax asset. Additionally, Section 382 imposes limitations on a corporation's ability to utilize its NOLs if it experiences an "ownership change." In general terms, an ownership change results from transactions increasing the ownership of certain existing stockholders and, or, new stockholders in the stock of a corporation by more than 50 percentage points during a three year testing period. Upon emergence from bankruptcy in 1999, our NOLs were subject to Section 382 limitations. As a result of the Acquisition (defined below) in 2004, we experienced an ownership change, as defined by Section 382. As a result of this ownership change, the utilization of our NOLs were subject to a new annual limitation under Section 382. Any unused annual limitation may be carried over to later years, and the amount of the limitation may, under certain circumstances, be increased to reflect both recognized and deemed recognized "built-in gains" that occur during the 60-month period after the ownership change. In addition, the sale of shares in the July 2005 initial public offering resulted in an ownership change for the purpose of Section 382. This ownership change resulted in an increase to the annual limitation, however, since the 2004 annual limitation was less than the 2005 limitation, our NOLs will continue to be subject to the 2004 Section 382 limitation, including the effect of recognized and deemed recognized "built-in-gains." Based on fair values of certain assets as determined in connection with the Acquisition, we had approximately $66.7 million of deemed built-in gains that are anticipated to be recognized or deemed recognized during the aforementioned 60-month period. At December 31, 2005, we had approximately $73.8 million of NOLs available for utilization in the years from 2006 through 2023.          Acquisition-Related Charges.    On May 11, 2004, MF Acquisition Corporation acquired 100% of Maidenform, Inc. (the "Acquisition") through a merger of its wholly owned subsidiary into Maidenform, Inc. Stockholders of Maidenform, Inc. received either cash or stock of MF Acquisition Corporation in exchange for their shares of Maidenform, Inc. On April 5, 2005, MF Acquisition Corporation changed its name to Maidenform Brands, Inc. Our capitalization structure changed significantly as a result of the Acquisition. Financing for the Acquisition totaled $237.3 million and was provided by a first lien term loan of $100.0 million, revolver borrowings of $12.5 million, a second lien term loan of $50.0 million and $74.8 million of cash and capital invested by MF Acquisition Corporation and other investors, including rollover equity by certain members of management of $2.8 million and continuing stockholders of $15.0 million.          The Acquisition was accounted for as a purchase in accordance with Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations," and Emerging Issues Task Force (EITF) No. 88-16, "Basis In Leveraged Buyout Transactions." Accordingly, the retained interest of the continuing stockholders (the 23.8% retained by certain members of management and continuing stockholders) was recorded at carryover basis. The remainder of the investment in the assets and liabilities acquired (the 76.2% acquired by new stockholders) was recorded at fair value. The excess of the purchase price over carryover basis of net assets acquired, treated as a deemed dividend of $21.5 million to continuing stockholders, was recognized as a reduction of stockholders' equity (deficit). As a result, the total purchase price of $205.2 million was allocated to the assets and liabilities based on their estimated fair values at the Acquisition date, after taking into account carryover basis as discussed above. The estimated fair values were determined by valuation reports provided by independent third-party appraisals.   41         RESULTS OF OPERATIONS           For discussion purposes only, our fiscal 2004 results discussed below represent the mathematical addition of the historical results for the Predecessor period from December 28, 2003 through May 10, 2004 and the Successor period from May 11, 2004 through January 1, 2005. This approach is not consistent with generally accepted accounting principles and yields results that are not comparable on a period-to-period basis due to the new basis of accounting established at the Acquisition date. However, we believe it is the most meaningful way to comment on the results of operations for 2004 compared to those of 2005 and 2003 because a discussion of the partial period from December 28, 2003 through May 10, 2004 (Predecessor) separately from the period from May 11, 2004 through January 1, 2005 (Successor) compared to the Successor period from January 2, 2005 through December 31, 2005 and the Predecessor period from December 29, 2002 through December 27, 2003 would not be meaningful.          Fiscal 2004 includes the periods from December 28, 2003 through May 10, 2004 (Predecessor) and May 11, 2004 through January 1, 2005 (Successor). The combined fiscal 2004 consisted of 53 weeks. Although fiscal 2004 had 53 weeks compared to only 52 weeks in fiscal 2005 and fiscal 2003, fiscal 2004 had only one more shipping day for our wholesale segment. Therefore, the financial results for the three fiscal years are comparable. Our company-operated outlet stores and our internet operations include one more week in fiscal 2004 compared to fiscal 2005 and fiscal 2003 but the effect of this extra week on our results of operations is not material.         Successor   Combined for the period from December 28, 2003 through January 1, 2005   Predecessor       For the year ended December 31, 2005   For the year ended December 27, 2003       (in thousands)    OPERATING DATA:                     Wholesale sales   $ 327,799   $ 281,740   $ 238,400   Retail sales     54,370     55,288     54,473                Net sales     382,169     337,028     292,873   Cost of sales     247,037     229,067 (1)   189,225                Gross profit     135,132     107,961     103,648   Selling, general and administrative     101,604     91,933     80,094   Acquisition-related charges     —     14,286 (2)   —                Operating income   $ 33,528   $ 1,742   $ 23,554                 (footnotes appear on following page)   42              As a percentage of net sales         Successor   Combined for the period from December 28, 2003 through January 1, 2005   Predecessor         For the year ended December 31, 2005   For the year ended December 27, 2003     OPERATING DATA:                 Wholesale sales   85.8 % 83.6 % 81.4 %   Retail sales   14.2   16.4   18.6                    Net sales   100.0   100.0   100.0     Cost of sales   64.7   68.0 (1) 64.6                    Gross profit   35.3   32.0   35.4     Selling, general and administrative   26.6   27.3   27.3     Acquisition-related charges   —   4.2 (2) —                    Operating income   8.7 % 0.5 % 8.1 %                     (1)Cost of sales includes $19.8 million of non-cash purchase accounting adjustments to record inventory at fair market value on May 11, 2004. In addition, cost of sales includes $2.8 million of additional depreciation as a result of the Acquisition. (2)Acquisition-related charges of $14.3 million for the Predecessor period from December 28, 2003 through May 10, 2004 include $6.6 million for sellers' transaction fees and expenses, $2.0 million in special compensation paid to management, $5.6 million in stock compensation expense from settlement of stock options, and $0.1 million of other Acquisition-related charges.          Our net sales are derived from two segments, wholesale and retail. Our net sales within the wholesale segment are grouped by channel, based upon the brands we sell and the customers we sell them to, as follows: (1) department stores and national chain stores, (2) mass merchants and (3) other.          Our department store and national chain store channel primarily consists of sales of our Maidenform, Flexees, Lilyette, and private brands on a worldwide basis to customers within this category. Within the mass merchants channel, we sell brands such as Self Expressions, Sweet Nothings, Bodymates and private brands that are primarily dedicated to specific customers. These brands are all sold on a worldwide basis to mass merchants and, to a lesser degree, warehouse clubs. Our remaining sales are grouped within a channel designated as other and include private brand products sold to specialty retailers and all brand sales to off-price retail stores. In addition, licensing income is included in our other channel.          During 2005, we revised the way we categorized our net sales within the wholesale segment as discussed above. This is summarized below and compared to 2004. Our discussion of 2004 compared to 2003 for each of these three channels has not been revised to reflect this change in the way we are managing our net sales by channel.   43              Successor   Combined for the period from December 28, 2003 through January 1, 2005                 For the year ended December 31, 2005   $ Change   % Change         (in thousands)      Department Store and National Chain Store   $ 202,819   $ 189,306   $ 13,513   7.1 %   Mass Merchant     75,219     46,726     28,493   61.0 %   Other     49,761     45,708     4,053   9.0 %                     Total Wholesale     327,799     281,740     46,059   16.4 %                     Retail     54,370     55,288     (918 ) -1.6 %                     Total Consolidated Net Sales   $ 382,169   $ 337,028   $ 45,141   13.4 %                      Fiscal year ended December 31, 2005 compared with fiscal year ended January 1, 2005 (52 weeks as compared to 53 weeks)           Net Sales.    Consolidated net sales increased $45.2 million, or 13.4%, from $337.0 million in 2004 to $382.2 million in 2005. Wholesale segment net sales increased by $46.1 million, or 16.4%, from $281.7 million in 2004 to $327.8 million in 2005. Net sales in our retail segment decreased by $0.9 million, or 1.6%, from $55.3 million in 2004 to $54.4 million in 2005.          Of the $46.1 million increase in the wholesale segment, $28.5 million of this increase was due to growth in net sales to mass merchants, which included an $8.0 million increase in the first quarter of 2005 due to the product placement in all stores for a mass merchant customer. In addition, net sales in this channel grew from new store openings and floor space growth within existing stores, new product introductions, and existing product rollouts. An additional $13.5 million of the increase in the wholesale segment was from increased sales to department stores and national chain stores driven by a $2.0 million launch of a line of panties at a national chain store, the introduction of the Dream Bra, strong demand for the Lilyette and Flexees brands, continued growth in international net sales, and new store growth. In the second half of 2005, we were negatively affected by unusually large reserves for markdowns and returns, particularly for the Full Support line. This product has been redesigned with an improved alternative, containing a Flex-to-Fit feature, which will be delivered to customers in the Spring of 2006. We were also negatively affected by certain customers in this channel cautiously driving down inventory levels toward year-end. Additionally, other net sales, which include sales to specialty retailers, off-price retailers, and licensing income, increased by $4.1 million largely driven by increased program sales and liquidations with off-price retailers and an increase in licensing income. Our international sales, which are included across all three channels of the wholesale segment, increased $8.6 million to $26.8 million in 2005.          Retail segment net sales decreased $0.9 million reflecting select store closings in 2005 as a result of our efforts to optimize our portfolio of outlet stores. We operated 74 outlet stores at the end of 2005 as compared to 81 stores at the end of 2004. The decline in retail net sales in 2005 caused by fewer stores was offset, in part, by increased same store sales, defined as stores that have been open for more than one year, of 5.5%, and Internet sales nearly doubling to approximately $2.4 million.          Gross Profit.    Consolidated gross profit increased by $27.1 million from $108.0 million in 2004 to $135.1 million in 2005. As a percentage of net sales, gross profit increased by 3.3 percentage points from 32.0% in 2004 to 35.3% in 2005. In our wholesale segment, our gross margins for 2005 were negatively affected by $5.7 million of plant closing costs, including negative manufacturing variances associated with operating our plants at less than optimum capacity as we phased out our internal manufacturing, and a loss on the disposal of plant assets. The 2004 margins were impacted by non-recurring adjustments of $19.8 million ($15.5 million recognized by our wholesale   44        segment and $4.3 million recognized by our retail segment) related to increasing inventories to fair market value and $2.8 million of additional depreciation expense. The impact of closing our manufacturing facilities during 2005 on our consolidated gross margin as a percentage of net sales, was a decrease in gross margin of 1.5 percentage points to 35.3%. The impact of non-cash purchase accounting adjustments and the additional depreciation expense on our consolidated gross margin as a percentage of net sales, was a decrease in gross margin of 6.7 percentage points to 32.0% for 2004. Excluding these items, consolidated gross profit decreased 1.9 percentage points primarily due to the change in the sales mix by channel, excess and close-out inventories particularly associated with our Full Support product line totaling approximately $3.9 million, and a highly promotional environment causing increased markdown expenses for excess and close-out inventories.          Gross profit from our wholesale segment increased by $22.7 million from $83.3 million in 2004 to $106.0 million in 2005. As a percentage of net sales, gross profit from our wholesale segment increased by 2.7 percentage points from 29.6% in 2004 to 32.3% in 2005. The costs associated with the closing of our manufacturing facilities during 2005 decreased our wholesale gross margin by 1.7 percentage points. The impact of the non-cash purchase accounting adjustments and additional depreciation expense to our 2004 wholesale gross profit was a decrease in gross margin of 6.5 percentage points. Excluding these items, wholesale gross profit decreased 2.1 percentage points primarily due to a change in the mix of net sales by channel, increased markdown expenses for excess and close-out inventories associated with our Full Support product line of $3.9 million, and a highly promotional environment.          Gross profit from our retail segment increased by $4.4 million from $24.7 million in 2004 to $29.1 million in 2005. As a percentage of net sales, gross profit from our retail segment increased by 8.8 percentage points from 44.7% in 2004 to 53.5% in 2005. Our gross margins for 2005 were favorably impacted by increased Internet sales at a higher gross margin, offset in part by a change in sales mix in our retail stores. Our gross margins for 2004 were negatively impacted by the non-recurring purchase accounting adjustments related to increasing inventories to fair market value at the date of the Acquisition. The impact of these adjustments on our 2004 retail gross profit was a decrease in gross margins of 7.8 percentage points to 44.7%.          Selling, General and Administrative Expenses (SG&A).    Our consolidated SG&A expenses increased by $9.7 million, or 10.6%, from $91.9 million in 2004 to $101.6 million in 2005. However, as a percentage of net sales, SG&A decreased from 27.3% to 26.6%, primarily as a result of increased net sales. The $9.7 million increase is primarily a result of the following items within our wholesale segment: $3.8 million of expenses associated with our initial public offering; $1.7 million of payroll and related benefits, primarily higher payroll expense with certain new positions, partially offset by $0.6 million incentive bonus waived by our Chief Executive Officer; $0.8 million related to the cheap stock portion of stock compensation expense; $1.5 million special cash bonus paid in connection with the credit facility amendment; $1.3 million severance expense and other expenses associated with the closing of the manufacturing facilities; and $1.6 million of other expenses. These increases are offset in part by a reduction in SG&A for our retail segment of $1.0 million primarily as a result of seven fewer stores in 2005. Our 2004 SG&A included $1.1 million of additional depreciation and amortization expense from non-cash purchase accounting adjustments as a result of the Acquisition.          Wholesale segment SG&A, which includes corporate-related expenses, increased by $10.7 million, or 16.9%, to $74.1 million in 2005 from $63.4 million in 2004. As a percentage of net sales, wholesale segment SG&A increased slightly from 22.5% to 22.6%. The increase of $10.7 million is a result of the items discussed above.   45                Retail segment SG&A decreased by $1.0 million, or 3.5%, to $27.5 million in 2005 from $28.5 million in 2004. As a percentage of net sales, retail segment SG&A decreased slightly from 51.5% to 50.6%. This decrease was primarily as result of seven fewer stores in 2005 when compared to 2004.          Acquisition-Related Charges.    Acquisition-related charges of $14.3 million were recorded in 2004 in connection with the Acquisition, including (i) $6.6 million for sellers' transaction fees and expenses, (ii) $5.6 million for stock compensation expense from settlement of stock options on May 10, 2004, (iii) $2.0 million in special compensation paid to management and (iv) $0.1 million in other Acquisition-related charges.          Operating Income.    Our consolidated operating income increased $31.8 million from $1.7 million in 2004 to $33.5 million in 2005. Operating income, as a percentage of net sales, increased from 0.5% in 2004 to 8.7% in 2005. Our 2005 consolidated operating income was negatively affected by $7.4 million of unusual charges, including initial public offering expenses, severance expense and other expenses, a special cash bonus paid in connection with the credit facility amendment, cheap stock portion of stock compensation expense and $5.7 million of plant closing costs. Our 2004 operating income was negatively affected by non-cash purchase accounting adjustments and additional depreciation and amortization both totaling $23.7 million and $14.3 million of Acquisition-related charges. Excluding these items, operating income as a percentage of net sales would have increased from 11.8% in 2004 to 12.2% in 2005.          For the foregoing reasons, operating income for the wholesale segment was $31.9 million in 2005 as compared to $19.8 million in 2004. Also, for the reasons discussed above, operating income for the retail segment increased $5.4 million, from a loss of $3.8 million in 2004 to income of $1.6 million in 2005.          Interest Expense, Net.    On June 29, 2005, we amended our credit facility by prepaying the total balance of $50.0 million outstanding on our Second Lien Facility bearing an interest rate of LIBOR plus 7.5%. Simultaneously, we increased the borrowings on our First Lien Term Facility from $88.9 million to $150.0 million and modified the interest rate from LIBOR plus 2.75% to LIBOR plus 2.25%. The interest rate margin was reduced by 0.25% on December 29, 2005 due to the completion of our initial public offering and further reduced by 0.25% as a result of our having a debt to earnings before interest, taxes, depreciation, and amortization (EBITDA) leverage ratio of less than 3 to 1 as of the third quarter of 2005. The Prime rate margin and the LIBOR margin will be determined on a quarterly basis based on our leverage ratio for the preceding four quarters.          Interest expense, net increased by $6.0 million from $9.8 million in 2004 to $15.8 million in 2005. This increase was a result of expensing deferred financing costs of $4.9 million in connection with the amendment of our Credit Facility on June 29, 2005, and higher debt outstanding at a higher interest rate during 2005. Interest expense in 2004 included $1.2 million related to the early termination of our credit facilities and the acceleration of deferred financing fees as of May 10, 2004 in connection with the Acquisition.          Our highest level of debt outstanding for 2005 was $160.0 million, at an average interest rate of 6.8%. Our highest level of debt outstanding for the Successor period from May 11, 2004 through January 1, 2005 was $162.5 million, at an average interest rate of 6.6%, and our highest level of debt outstanding for the Predecessor period from December 28, 2003 through May 10, 2004 was $57.8 million, at an average interest rate of 4.2%.          Income Taxes.    We had an income tax expense in 2005 of $8.7 million as compared to income tax benefit of $0.4 million in 2004. The effective tax rate for 2005 was 49.4% as compared to (5.5)% for 2004. Our income tax expense for 2005 was negatively impacted by non-deductible expenses incurred during 2005 in connection with our initial public offering. During 2004, we   46        incurred losses before the provision for income taxes. The income tax benefit from the losses was negatively impacted by non-deductible expenses incurred during 2004 in connection with the Acquisition.          Because of significant net operating loss carryforwards (NOLs) available to offset income taxes payable, our cash income taxes to be paid are expected to be at a rate significantly lower than our effective income tax rate for the next several years.          Net Income (Loss).    For the foregoing reasons, our net income (loss) increased from a loss of $7.6 million in 2004 to income of $8.9 million in 2005.          Preferred Stock Dividends and Changes in Redemption Value.    On July 27, 2005, our preferred stock and options to purchase our preferred stock were redeemed in connection with our initial public offering. For 2005, preferred stock dividends and changes in redemption value include a special preferred stock dividend of $13.3 million. For 2004, there was no such special dividend.          Net Loss Available to Common Stockholders.    For the foregoing reasons, our net loss available to common stockholders decreased from a loss of $12.4 million in 2004 to a loss of $8.3 million in 2005.  Fiscal year ended January 1, 2005 compared with fiscal year ended December 27, 2003 (53 weeks as compared to 52 weeks)           As discussed above, during 2005, we revised the way we categorized our net sales within the wholesale segment to group such sales as follows: (1) department stores and national chain stores, (2) mass merchants and (3) other. Our discussion of fiscal 2004 compared to fiscal 2003 has not been revised to reflect this change in the way we are managing our net sales by channel, but instead reflects the way in which we managed our net sales at that time.         Net Sales.    Consolidated net sales increased $44.1 million, or 15.1%, from $292.9 million in 2003 to $337.0 million in 2004. Wholesale sales increased by $43.3 million, or 18.2%, from $238.4 million in 2003 to $281.7 million in 2004. Net sales in our retail segment increased by $0.8 million, or 1.5%, from $54.5 million in 2003 to $55.3 million in 2004.          Our wholesale sales are derived from the following channels: department stores, national chains, mass merchants, specialty stores and off-price retailers. Of the $43.3 million increase in the wholesale segment, $18.8 million was due to growth in our sales to mass merchants. This growth was driven by increased allotted selling space within the stores, higher productivity of our brands and programs within this channel, and increased distribution with these customers during 2004. An additional $17.5 million of the increase in the wholesale segment was due to increased sales to national chains primarily driven by new door growth and improved inventory turns in existing doors. Sales to department stores accounted for $8.0 million of the increase, and were driven by higher productivity within existing stores from both the Maidenform and Flexees brands, partially offset by decreased sales in our Lilyette brand. Additionally, our private label sales to a specialty retailer decreased by $7.7 million due to a lack of new products purchased during 2004. The remaining increase of $6.7 million in the wholesale segment was primarily due to higher sales in our international markets, partially offset by lower sales in the off-price retailer channel.          In our retail segment, we had 87 stores open through the end of fiscal 2004. Six of these stores closed on the last day of fiscal 2004 (January 1, 2005). We had 94 stores open at the end of 2003. Same store sales for 2004 (which included one more week than in fiscal 2003), defined as stores that have been open for more than one year, increased by 3.4% as compared to a decline in same store sales of 2.6% for 2003. Excluding the impact of the 53rd week in 2004, our same store sales would have increased by approximately 1.0%.   47                 Gross Profit.    Consolidated gross profit increased by $4.4 million from $103.6 million in 2003 to $108.0 million in 2004. As a percentage of net sales, gross profit decreased by 3.4 percentage points from 35.4% in 2003 to 32.0% in 2004, due to the effect of non-cash purchase accounting adjustments made as a result of the Acquisition. The non-cash adjustments that increased cost of sales during 2004 included $19.8 million of non-cash expense related to increasing inventories to fair market value at May 11, 2004, and approximately $2.8 million of additional depreciation expense. The impact of these non-cash purchase accounting adjustments to our consolidated gross profit, on a percentage of net sales basis, was a decrease in gross margin of 6.7 percentage points to 32.0%.          Gross profit from our wholesale segment increased by $7.5 million from $75.8 million in 2003 to $83.3 million in 2004. As a percentage of net sales, gross profit from our wholesale segment decreased by 2.2 percentage points from 31.8% in 2003 to 29.6% in 2004, due primarily to the effect of non-cash purchase accounting adjustments made as a result of the Acquisition. Of the $19.8 million in purchase accounting adjustments referred to above, the amount related to the wholesale segment included a non-cash expense of $15.5 million in cost of sales for inventories. In addition, cost of sales includes a non-cash expense of $2.8 million related to additional depreciation expense as a result of the Acquisition, which together decreased gross profit as a percentage of net sales by 6.5 percentage points to 29.6%. The decline in gross margin from our wholesale segment from non-cash purchase accounting adjustments was partially offset by cost savings realized in shifting more internal manufacturing to third-party sourcing, which included the expansion of our network of manufacturing partners and our increased scale of production volume. In fiscal 2004, we sourced approximately 84% of our overall production volume as compared to 77% in fiscal 2003.          Gross profit for our retail segment decreased by $3.1 million from $27.8 million in 2003 to $24.7 million in 2004. As a percentage of net sales, gross profit for our retail segment decreased by 6.3 percentage points from 51.0% in 2003 to 44.7% in 2004, due primarily to the effect of a non-cash purchase accounting adjustment made as a result of the Acquisition. Included in cost of sales was $4.3 million related to purchase accounting adjustments for inventories, which decreased gross margin by 7.8 percentage points to 44.7%. The gross margin decline in 2004 from non-cash purchase accounting adjustments was partially offset by a mix of higher margin products sold through our company-operated outlet stores in 2004 as compared to 2003.          Selling, General and Administrative Expenses (SG&A).    Our consolidated SG&A expenses increased by $11.8 million, or 14.7%, from $80.1 million in 2003 to $91.9 million in 2004. However, as a percentage of net sales, SG&A was flat from 2003 to 2004 at 27.3%. Wholesale segment SG&A increased by $10.0 million, or 18.7%, to $63.4 million in 2004 from $53.4 million in 2003. As a percentage of net sales, wholesale segment SG&A increased slightly from 22.4% to 22.5%. The major components of the increases were higher compensation and related benefits of approximately $4.8 million; additional professional fees of approximately $2.8 million as a result of our Sarbanes-Oxley compliance, the Acquisition, and recruiting expenses; increased advertising expenses of approximately $2.4 million as we continue to promote our brands; and higher amortization expense of $0.7 million; offset in part by a decrease of $0.7 million of other expenses as compared to fiscal 2003. The increase in compensation and related benefits was primarily due to increased head count, and higher incentive compensation and other benefits.          Retail segment SG&A increased by $1.8 million, or 6.7%, to $28.5 million in 2004 from $26.7 million in 2003 and was flat as a percentage of net sales at 50.0%. This slight increase was primarily due to higher depreciation expense of $0.4 million from non-cash purchase accounting adjustments as a result of the Acquisition, higher salaries and related benefits of $0.5 million, promotional expenses of $0.3 million and various individually insignificant items totaling $0.6 million.   48                Acquisition-Related Charges.    Acquisition-related charges of $14.3 million were recorded in 2004 in connection with the Acquisition, including (i) $6.6 million for sellers' transaction fees and expenses, (ii) $5.6 million for stock compensation expense from settlement of stock options on May 10, 2004, (iii) $2.0 million in special compensation paid to management and (iv) $0.1 million in other Acquisition-related charges.          Operating Income.    Operating income decreased by $21.9 million, from $23.6 million in 2003 to $1.7 million in 2004. Operating income as a percentage of net sales decreased from 8.0% in 2003 to 0.5% in 2004. This reduction was primarily a result of non-recurring purchase accounting adjustments including a non-cash $19.8 million expense related to recording inventory at fair market value, $14.3 million of Acquisition-related charges in 2004 and $3.9 million related to incremental depreciation and amortization expense as a result of the Acquisition. These purchase accounting adjustments, including the Acquisition-related charges, had the effect of reducing operating income by $38.0 million in 2004 to $1.7 million as compared to $23.6 million in 2003. The impact of these adjustments to our operating income, on a percentage of net sales basis, was a decrease in operating margin of 11.3 percentage points to 0.5%.          Our wholesale segment operating income decreased by $2.7 million, or 12.0%, to $19.8 million from $22.5 million in 2003. Wholesale segment operating income was reduced by $19.0 million as a result of the non-cash inventory adjustment of $15.5 million and $3.5 million in depreciation and amortization related to purchase accounting adjustments for fixed assets and intangibles as discussed above. Retail segment operating income decreased by $4.9 million from an operating income of $1.1 million in 2003 to an operating loss of $3.8 million in 2004. Retail segment operating income decreased by $4.3 million as a result of the non-cash inventory adjustment and incremental depreciation of $0.4 million as discussed above.          Interest Expense.    Interest expense increased by $8.4 million from $1.4 million in 2003 to $9.8 million in 2004. Interest expense in 2004 included $1.2 million related to the early termination of our credit facilities and the acceleration of deferred financing fees as of May 10, 2004 in connection with the Acquisition. The remaining increase was a result of higher debt outstanding during 2004. Our highest level of debt outstanding for Successor 2004 was $162.5 million, at an average interest rate of 6.6%, and our highest level of debt outstanding for Predecessor 2004 was $57.8 million, at an average interest rate of 4.2%. This is in comparison to our highest level of debt outstanding for 2003 of $48.0 million, at an average interest rate of 3.7%.          Income Taxes.    Income tax benefit in 2004 decreased by $4.5 million, or 91.3%, to $0.4 million. The effective tax rate for fiscal 2003 was (22.3)% as compared to (5.5)% for the combined Predecessor period of December 28, 2003 through May 10, 2004 and Successor period of May 11, 2004 through January 1, 2005. In 2003, we concluded that it was more likely than not that our net deferred tax assets would be realized in the future and reversed our valuation allowance. The reversal of that valuation allowance reduced goodwill by $28.3 million and increased additional paid-in capital by $19.0 million, resulting in an income tax benefit in 2003 of $5.4 million. In 2004, the reduction in the income tax benefit was principally driven by non-deductible Acquisition-related charges and certain changes in our state tax rates.          Net Income (Loss).    For the foregoing reasons, our net income (loss) decreased from income of $27.0 million in 2003 to a loss of $7.6 million in 2004.          Preferred Stock Dividends and Changes in Redemption Value.    The accretion of the preferred stock redemption premium of $2.2 million and the accrual of $2.6 million of preferred stock dividends in 2004 is a result of preferred stock issued in connection with the Acquisition. During 2003, we did not have preferred stock outstanding.   49                Net Income (Loss) Available to Common Stockholders.    For the foregoing reasons, the net loss available to common stockholders for 2004 was $12.4 million as compared to net income of $27.0 million in 2003.  LIQUIDITY AND CAPITAL RESOURCES           For discussion purposes only, our fiscal 2004 cash flow data discussed below represent the mathematical addition of the historical cash flow data for the Predecessor period from December 28, 2003 through May 10, 2004 and the Successor period from May 11, 2004 through January 1, 2005. This approach is not consistent with generally accepted accounting principles and yields results that are not comparable on a period-to-period basis due to the new basis of accounting established at the Acquisition date. However, we believe it is the most meaningful way to comment on the cash flows for fiscal 2004 compared to both fiscal 2005 and 2003 because a discussion of partial periods would not be meaningful.          Our cash requirements are primarily for working capital, debt service, and to a lesser extent, capital expenditures. An additional cash requirement will relate to our stock repurchase program of up to $20.0 million announced on February 8, 2006. Our primary source of liquidity will continue to be cash flows from operations and borrowings under our revolving credit facility.          In fiscal 2006, we expect to spend a total of approximately $5.4 million on capital expenditures, driven by system enhancements in the Fayetteville, North Carolina distribution center due to sales growth, information technology upgrades in the Bayonne corporate office, and expansion in the Hong Kong sourcing office.          We had $31.0 million and $23.2 million in cash and cash equivalents as of December 31, 2005 and January 1, 2005, respectively. The increase in cash from January 1, 2005 to December 31, 2005 primarily relates to an increase in net income during 2005 compared to 2004.          On June 29, 2005, we amended and restated our First Lien Facilities and prepaid the outstanding balance of our Second Lien Facility. The amended and restated First Lien Facilities ("Restated Credit Facility") provide for borrowings in the aggregate amount of $200.0 million maturing on May 11, 2010 and is comprised of: (i) a $150.0 million amortizing term loan facility (the "Term Loan Facility") and (ii) a $50.0 million revolving credit facility (the "Revolving Facility"). In connection with the Restated Credit Facility, we paid fees of $2.4 million, and in connection with the repayment of the Second Lien Facility, we paid a prepayment penalty fee of $1.0 million. For 2005, amortization of deferred financing costs included in interest expense was $6.0 million which includes $4.9 million of deferred financing expense in connection with the amendment of the First Lien Facilities and the prepayment of the Second Lien Facility.          The Restated Credit Facility contains affirmative and restrictive covenants, including: (a) maintenance of a minimum fixed charge coverage ratio, (b) maintenance of a maximum leverage ratio, (c) limitations on consolidated capital expenditures, (d) limitations on the incurrence of indebtedness and liens, (e) limitations on investments/acquisitions and (f) restrictions on payments between Maidenform Brands, Inc. and its subsidiaries. There are a number of circumstances in which additional partial prepayments are required based upon conditions set forth in the Restated Credit Facility, including net asset sales and net insurance/condemnation proceeds not reinvested in other assets of the business, net securities proceeds from the issuance of capital stock (excluding the initial public offering proceeds), additional debt facilities, and a percentage of annual consolidated excess cash flows, as defined. We were in compliance with all debt covenants at December 31, 2005. On February 8, 2006, we entered into the First Amendment to the Restated Credit Facility. This amendment amends certain provisions of the Restated Credit Facility to enable us to initiate our stock repurchase program of up to $20.0 million.   50                The financial covenants for this facility include various restrictions with respect to the Company and its wholly owned subsidiary Maidenform, Inc., including the transfer of assets or the payment of dividends between Maidenform Inc. and its subsidiaries and the Company. At December 31, 2005 and January 1, 2005, Maidenform, Inc. had restricted net assets of approximately $30.9 million or 58.7% of total net assets and $2.2 million or 42.7% of total net assets, respectively.          As of December 31, 2005, we had $137.5 million outstanding under our Term Loan Facility. At December 31, 2005, we had $0 outstanding and approximately $43.5 million available for borrowings under the Revolving Facility after giving effect to $2.2 million of outstanding letters of credit and our borrowing base limits. We use the letters of credit as collateral for our workers' compensation insurance programs and bonds issued on our behalf to secure our obligation to pay customs duties. In connection with the June 29, 2005 credit facility amendment and restatement, we borrowed $10.0 million under the Revolving Facility and repaid this amount during the third quarter 2005. We voluntarily prepaid $12.5 million on our Term Loan Facility during the third and fourth quarters of 2005.          On July 22, 2005, we priced an initial public offering of 14,513,889 shares of common stock of which 3,375,000 and 11,138,889 shares were offered by us and selling stockholders, respectively, at a price of $17.00 per share. Upon the consummation of the offering on July 27, 2005, net proceeds of $52.6 million and $176.1 million were distributed to us and selling stockholders, respectively. We did not receive any of the proceeds from the sale of shares by the selling stockholders. Approximately $46.8 million of the net proceeds to us was used to redeem all the outstanding shares of our preferred stock, including shares of preferred stock acquired upon the exercise of all outstanding options to purchase shares of our preferred stock, and to pay all accrued and unpaid dividends associated with the preferred stock and preferred stock options. In addition, the put option on certain shares of common stock classified as temporary equity was extinguished as a result of the initial public offering and such common stock is no longer classified as temporary equity.          We believe that our existing cash balances and available borrowings under the Revolving Facility, along with our future cash flow from operations, will enable us to meet our liquidity needs and capital expenditure requirements for at least the next twelve months.          Operating activities.    In fiscal years 2005, 2004 and 2003, we generated $25.4 million, $33.5 million and $33.4 million, respectively, in cash flow from operations. Cash flow from operations during fiscal 2005 was negatively impacted by non-recurring items such as expenses associated with the initial public offering, a special bonus paid in connection with the credit facility amendment, incremental manufacturing costs as a result of phasing out all internal manufacturing, and prepayment fees in connection with our Credit Facility amendment. The reduction in cash provided by operations compared to 2004 is primarily due to these non-recurring items and an increase in working capital requirements in 2005 partially offset by an increase in net income, as adjusted for non-cash items. The primary reason for the larger increase in working capital requirements in 2005 was a $10.2 million increase in accounts receivable at the end of 2005 versus a decrease of $3.4 million in 2004. This increase in accounts receivable was primarily due to wholesale net sales increasing 9.4% in the fourth quarter of 2005 as compared to the fourth quarter of 2004. In addition, accrued expenses decreased largely as a result of severance payments made in 2005. These factors were partially offset by an increase in accounts payable as a result of the timing of payments and an increase in income taxes payable as a result of income tax payments in 2005 as compared to 2004. The reduction in cash provided by operations did not result in increased borrowings due to the availability of the cash on hand.   51                Total net cash flows provided from operating activities were $33.4 million in 2003 and were $33.5 million in 2004. However, within the components of our current assets and liabilities, our accrued expenses and other liabilities increased over prior year as a result of the timing of year-end payments. Our accounts receivable decreased by 12.4% as a result of lower sales during the fourth quarter of 2004 and the resulting collection of accounts receivable before year-end. Our net income tax payable and income tax receivable accounts decreased over the prior year balance as a result of higher income tax payments made prior to the end of 2004 as compared to 2003.          Investing activities.    Cash flows provided by investing activities were $2.9 million in 2005 compared to cash flows used in investing activities of $161.1 million in 2004 and cash flows used in investing activities of $2.8 million in 2003. The cash flows provided by investing activities in 2005 was primarily due to the cash proceeds received from the sale of our manufacturing facilities, net of capital expenditures. The significant use of cash in 2004 was primarily due to payments of $158.5 million related to the Acquisition.          Financing activities.    Cash flows used in financing activities were $20.4 million in 2005 compared to cash flows provided by financing activities of $149.8 million in 2004 and cash flow used in financing activities in 2003 of $30.4 million. The decrease is mainly due to lower net borrowings and the payment of a special preferred stock dividend partially offset by the net proceeds from our initial public offering during 2005. The cash provided from financing activities during 2004 was primarily from borrowings from new credit facilities entered into at the time of the Acquisition, offset by the payment of all debt outstanding at May 11, 2004. The cash flow used in 2003 was primarily due to bank borrowings offset by cash dividends paid.  Contractual obligations, commitments and off balance sheet arrangements           We have various contractual obligations which are recorded as liabilities in our consolidated financial statements. Other items, such as certain purchase commitments and other executory contracts, are not recognized as liabilities in our consolidated financial statements but are required to be disclosed. For example, we are contractually committed to make certain minimum lease payments for the use of property under operating lease agreements.          The following table summarizes our significant contractual obligations and commercial commitments at December 31, 2005 and the future periods in which such obligations are expected to be settled in cash. In addition, the table reflects the timing of principal payments on outstanding borrowings. Additional details regarding these obligations are provided in the notes to   52        the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.         In fiscal 2006   In fiscal 2007   In fiscal 2008   In fiscal 2009   In fiscal 2010   Thereafter   Total       (in millions)    Long-term debt(1)   $ —   $ —   $ 0.3   $ 35.1   $ 102.1   $ —   $ 137.5   Interest on long-term debt(2)     9.2     9.2     9.2     8.6     1.7     —     37.9   Operating leases     4.9     3.4     2.5     1.2     0.6     0.4     13.0                            Total financial obligations     14.1     12.6     12.0     44.9     104.4     0.4     188.4                            Purchase obligations(3)     56.8     —     —     —     —     —     56.8                            Total financial obligations and commitments   $ 70.9   $ 12.6   $ 12.0   $ 44.9   $ 104.4   $ 0.4   $ 245.2                               (1)For the years 2006 through the expiration date of the Restated Credit Facility, we may be required to make annual consolidated excess cash flow payments depending on applicable leverage ratios. (2)The interest rate for the variable portion of long-term debt was the rate in effect at December 31, 2005. (3)Unconditional purchase obligations are defined as agreements to purchase goods that are enforceable and legally binding on us and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. The purchase obligations category above relates to commitments for inventory purchases. Amounts reflected in our consolidated balance sheets in accounts payable or other current liabilities are excluded from the table above.          In addition to the total contractual obligations and commitments included in the table above, we have pension and post-retirement benefit obligations included in other non-current liabilities, as further described in the notes to the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. In connection therewith, we expect to contribute approximately $2.0 million to our pension and post-retirement plans before the end of September 2006.          Off-Balance Sheet Agreements.    Our most significant off-balance sheet financing arrangements as of December 31, 2005 are non-cancelable operating lease agreements, primarily for our company-operated outlet stores and our warehouse distribution center in Ireland. We do not participate in any off-balance sheet arrangements involving unconsolidated subsidiaries that provide financing or potentially expose us to unrecorded financial obligations.  CRITICAL ACCOUNTING POLICIES           Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.   53                Our significant accounting policies are described in our notes to the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The following discussion addresses our critical accounting policies, which are those that require our most difficult and subjective judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.          Accounts Receivable.    Accounts receivable consist primarily of amounts due from customers. We provide reserves for accounts receivable that may not be realized as a result of uncollectibility, sales returns, markdowns, and other customer allowances. Reserves are determined based on historical experience, credit quality, age of accounts receivable balances, and economic conditions that may affect a customer's ability to pay. We believe that our reserves provide reasonable assurance that such balances are reflected at net realizable value.          Inventories.    Inventories are stated at the lower of cost or market. The cost of wholesale inventory is based on standard costs, which approximate first-in, first-out (FIFO), while the cost of product acquired from third parties for sale through our retail segment is based on the retail inventory method. We provide reserves for slow-moving inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those we project, additional reserves may be required.          Goodwill and Intangible Assets.    SFAS No. 142, "Goodwill and Other Intangible Assets," requires that goodwill and other intangible assets with indefinite useful lives be evaluated for impairment on an annual basis, or more frequently if certain events occur or circumstances exist. We evaluated goodwill and intangible assets during the fourth quarter of 2005 and determined that no impairment exists and will perform the impairment evaluation annually during the fourth quarter of each fiscal year.          We allocate our goodwill to our reporting units. In evaluating goodwill for impairment, we compare the fair value of the reporting unit to its carrying amount. If the fair value is less than the carrying amount, an impairment loss is recorded to the extent that the implied fair value of the goodwill is less than its carrying amount. To determine the fair values, we use both a discounted cash flow approach and a market approach.          In reviewing intangible assets with indefinite useful lives for impairment, we compare the carrying amount of such asset to its fair value. We estimate the fair value using discounted cash flows expected from the use of the asset. When the estimated fair value is less than its carrying amount, an impairment loss is recognized equal to the difference between the asset's fair value and its carrying amount. In addition, intangible assets with indefinite useful lives are reviewed for impairment whenever events such as product discontinuance or other changes in circumstances indicate that the carrying amount may not be recoverable.          The performance of the goodwill and intangible asset impairment tests are subject to significant judgment in determining the estimation of future cash flows, the estimation of discount rates, and other assumptions. Changes in these estimates and assumptions could have a significant impact on the fair value and impairment of goodwill and intangible assets.          Impairment of Long-Lived Assets.    Long-lived assets, primarily property, plant and equipment and intangible assets with finite lives, are periodically reviewed and evaluated by us when events and circumstances indicate that the carrying amount of these assets may not be recoverable. For long-lived assets, this evaluation is based on the expected future undiscounted operating cash flows of the related assets. Should such evaluation result in us concluding that the carrying amount of long-lived assets has been impaired, an appropriate write-down to their fair value is recorded.   54                Revenue Recognition.    Net sales from the wholesale segment are recognized when merchandise is shipped to customers, at which time title and the risks and rewards of ownership pass to the customer and persuasive evidence of a sale arrangement exists, delivery of the product has occurred, the price is fixed or determinable, and payment is reasonably assured. In the case of sales by our retail segment, net sales are recognized at the time the customer takes possession of the merchandise at the point of sale in our stores. Reserves for sales returns, markdown allowances, cooperative advertising, discounts and other customer deductions are provided when sales are recorded or when the commitment is incurred.          Income Taxes.    We account for income taxes using the liability method which recognizes the amount of income tax payable or refundable for the current year and recognizes deferred tax liabilities and assets for the future tax consequences of the events that have been recognized in the financial statements or tax returns. We routinely evaluate all deferred tax assets to determine the likelihood of their realization and record a valuation allowance if it is more likely than not that a deferred tax asset will not be realized. The assessment requires us to consider all available positive and negative evidence to determine whether, based on such evidence, it is more likely than not that our net deferred tax assets will be realized in future periods.          Application of Purchase Accounting.    The consummation of the Acquisition on May 11, 2004 resulted in purchase accounting adjustments to our consolidated balance sheet in accordance with SFAS No. 141, "Business Combinations" and EITF 88-16, "Basis in Leveraged Buyout Transactions." See notes to the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. These purchase accounting entries resulted in a partial step-up of our consolidated balance sheet whereby certain of our assets and liabilities were adjusted to reflect approximately 76% of their fair market value and approximately 24% of their historic carrying value. The fair values of the majority of our assets and liabilities were determined based upon a variety of valuation methods including present value, depreciated replacement cost, market values (where available) and selling prices less cost to dispose. Valuations were performed by various independent valuation specialists and actuaries for a significant portion of our assets and liabilities. The most significant assumptions, which were made by us in consultation with specialists, related to discount rates, growth rates, cost of capital, royalty rates, tax rates and remaining useful lives. We believe that the assumptions used were appropriate and consistent with observable market comparables. Changes to these assumptions could have resulted in significantly different values attributed to assets and liabilities. These values impact the amount of annual depreciation and amortization expense and could impact the results of future impairment reviews.          For our trademarks and royalty licenses, which were valued by a third-party appraiser, we determined that certain trademarks and royalty licenses have indefinite lives. This determination was made after consideration of qualitative factors such as the length of time the trade names have been in existence, the strength of the name, the overall legal, regulatory, contractual, competitive and economic environment in which these intangible assets exist and the lack of other factors that would limit the useful life of the underlying asset. Should factors change which would require us to amortize these intangibles, the resulting amortization expense could be material to our results of operations.          Accrued Expenses.    Accrued expenses for health insurance, workers' compensation insurance, incentive compensation, professional fees, and other outstanding obligations are based on actual commitments. These estimates are updated periodically as additional information becomes available.   55               Benefit Plans (including postretirement plans).    The long-term rate of return for our pension plan is established via a building block approach with proper consideration of diversification and rebalancing. Historical markets are studied and long-term historical relationships between equity and fixed-income securities are preserved consistent with the widely accepted capital market principle that assets with higher volatility generate a greater return over the long run. Current market factors, such as inflation and interest rates, are evaluated before long-term capital market assumptions are determined. We employ a total return investment approach whereby a mix of equities and fixed-income investments are used to maximize the long-term return of plan assets for a prudent level of risk. Risk tolerance is established through careful consideration of plan liabilities, plan funded status, and corporate financial condition. The assets of our pension plan are held in pooled-separate accounts and are invested in mutual funds consisting of a diversified blend of equity and fixed income securities. We use this investment approach in order to meet its diversification and asset allocation goals. Furthermore, equity investments are diversified across domestic and foreign stocks, as well as growth, value, and small and large capitalizations. Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews, annual liability measurements, and periodic asset/liability studies. We expect to contribute approximately $1.9 million to our pension plan in 2006 based upon the current funded status and expected asset return assumptions.          At December 31, 2005, we reduced the discount rate assumption from 5.75% to 5.50% for the pension plan. At December 31, 2005, we used a long-term rate of return assumption of 8.5% based on the investment return of our pension plan assets, which are primarily in equity securities. While we do not presently anticipate a change in the 2006 assumptions, a 0.5% decline in the discount rate would result in an increase in pension expense of approximately $0.4 million and a 0.5% increase in the discount rate would result in a decrease in our pension expense of approximately $0.2 million. Similarly, a 0.5% decrease or increase in the expected return on plan assets would affect our pension expense by less than $0.1 million.          The postretirement medical plans are unfunded plans. As such, we expect to contribute to the plans an amount equal to benefit payments to be made in 2006 which are estimated to be $0.1 million. Changes in assumptions related to our post retirement plans would not materially impact our consolidated statements of financial position, results of operations or cash flows.  Recently issued accounting standards           In December 2004, the FASB issued SFAS No. 123-R (revised 2004), "Share Based Payment," which is a revision of SFAS No. 123, "Accounting for Stock-Based Compensation." This Statement supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees," and its related implementation guidance. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions and is effective for fiscal years beginning after June 15, 2005. As we have already adopted SFAS No. 123, we do not believe that this revision, upon adoption on January 1, 2006, will have a significant effect on our consolidated statements of financial position, results of operations or cash flows.   56         ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK           Foreign Currency Risk.    We do not believe that we have significant foreign currency transactional exposures. Our net sales for the years ended 2005 and 2004 in currencies other than U.S. dollars were approximately $23.3 million and $16.2 million, respectively, of our total net sales. During the years ended 2005 and 2004, our net sales were favorably impacted by $0.6 million and $1.2 million, respectively, due to foreign exchange rates. Most of our purchases are denominated in U.S. dollars. Approximately 70% of our total sourcing is concentrated in two foreign countries, China and Indonesia. The impact of a 10% unfavorable change in the exchange rate of the U.S. dollar against the prevailing market rates of the foreign currencies in which we have transactional exposures would be immaterial.          Interest Rate Risk.    Interest rate risk is managed through a combination of variable and fixed rate debt composed of long-term instruments. The objective is to maintain a cost-effective mix that we deem appropriate and have entered into interest rate swap agreements to maintain that balance. At December 31, 2005, our debt portfolio was composed of variable-rate debt of which we hedge approximately 16% to a fixed-rate. With respect to our variable-rate debt, a 1% change in interest rates would have had a $1.2 million impact on our interest expense for fiscal year 2005, a $1.0 million impact on our interest expense for the period from May 11, 2004 through January 1, 2005 (Successor), a $0.2 million impact on our interest expense for the period from December 28, 2003 through May 10, 2004 (Predecessor), and an immaterial impact for fiscal 2003.          Commodity Price Risk.    We are subject primarily to commodity price risk arising from fluctuations in the market prices of raw materials used in the garments purchased from our sourcing vendors if they pass along these increased costs. During the past five years, there has been no significant impact from commodity price fluctuations, nor do we currently use derivative instruments in the management of these risks. On a going-forward basis, fluctuations in crude oil prices or petroleum based product prices may also influence the prices of the related items such as chemicals, dyestuffs, man-made fibers and foam. Any raw material price increase would increase our cost of sales and decrease our profitability unless we are able to pass our higher costs on to our customers.          Inflation Risk.    We are affected by inflation and changing prices from our suppliers primarily through the cost of raw materials, increased operating costs and expenses, and fluctuations in interest rates. The effects of inflation on our net sales and operations have not been material in recent years. We do not believe that inflation risk is material to our business or our consolidated financial position, results of operations or cash flows.          Seasonality.    We have not experienced any significant seasonal fluctuations in our net sales or our profitability.   57
PAGE   Reports of Independent Registered Public Accounting Firm   59    Consolidated Balance Sheets at December 31, 2005 and January 1, 2005    61    Consolidated Statements of Operations for the year ended December 31, 2005, for the period from May 11, 2004 through January 1, 2005 (Successor) and from December 28, 2003 through May 10, 2004 (Predecessor), and for the year ended December 27, 2003 (Predecessor)    62    Consolidated Statements of Stockholders' Equity (Deficit) for the year ended December 31, 2005, for the period from May 11, 2004 through January 1, 2005 (Successor) and from December 28, 2003 through May 10, 2004 (Predecessor), and for the year ended December 27, 2003 (Predecessor)    63    Consolidated Statements of Cash Flows for the year ended December 31, 2005, for the period from May 11, 2004 through January 1, 2005 (Successor) and from December 28, 2003 through May 10, 2004 (Predecessor), and for the year ended December 27, 2003 (Predecessor)    64    Notes to Consolidated Financial Statements    65     58              Report of Independent Registered Public Accounting Firm      To the Board of Directors and Stockholders of Maidenform Brands, Inc. and Subsidiaries:          In our opinion, the accompanying consolidated statements of income, stockholders' equity and cash flows present fairly, in all material respects, the results of the operations and cash flows of Maidenform Brands, Inc. and its subsidiaries (Predecessor Company) for the period from December 28, 2003 through May 10, 2004 and for the year ended December 27, 2003 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Predecessor Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the Standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.          As explained in Note 4 to the consolidated financial statements, controlling ownership of the Predecessor Company was acquired in a purchase transaction as of May 11, 2004. The acquisition was accounted for as a purchase and, accordingly, the consolidated financial statements of the successor company are not comparable to those of the Predecessor Company.  /s/ PricewaterhouseCoopers LLP  Florham Park, New Jersey April 21, 2005   59              Report of Independent Registered Public Accounting Firm      To the Board of Directors and Stockholders of Maidenform Brands, Inc. and Subsidiaries:          In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, stockholders' equity (deficit), and cash flows present fairly, in all material respects, the financial position of Maidenform Brands, Inc. and its subsidiaries (Successor Company) at December 31, 2005 and January 1, 2005, and the results of their operations and their cash flows for the year ended December 31, 2005 and for the period from May 11, 2004 through January 1, 2005 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Successor Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.          As explained in Note 4 to the consolidated financial statements, the Successor Company acquired controlling ownership of its predecessor in a purchase transaction as of May 11, 2004. The acquisition was accounted for as a purchase and, accordingly, the consolidated financial statements of the Successor Company are not comparable to those of its predecessor.  /s/ PricewaterhouseCoopers LLP  Florham Park, New Jersey March 7, 2006   60              MAIDENFORM BRANDS, INC. AND SUBSIDIARIES         CONSOLIDATED BALANCE SHEETS         (in thousands, except share and per share amounts)             December 31, 2005   January 1, 2005     Assets                 Current assets                   Cash and cash equivalents   $ 30,978   $ 23,212       Accounts receivable, net     34,169     24,004       Inventories     35,255     37,067       Deferred income taxes     8,724     9,103       Prepaid expenses and other current assets     8,059     7,562                     Total current assets     117,185     100,948     Property, plant and equipment, net     18,230     27,944     Goodwill     7,884     7,884     Intangible assets, net     100,838     101,998     Other non-current assets     3,211     5,357                     Total assets   $ 247,348   $ 244,131                 Liabilities and stockholders' equity (deficit)                   Current liabilities                   Current portion of long-term debt   $ —   $ 12,162       Accounts payable     19,212     11,724       Accrued expenses and other current liabilities     18,253     22,334                     Total current liabilities     37,465     46,220     Long-term debt     137,500     135,588     Deferred income taxes     10,754     7,002     Other non-current liabilities     8,926     8,596                     Total liabilities     194,645     197,406                  Commitments and contingencies (Note 11 and 20)                    Preferred stock—Subject to redemption, $0.01 par value; liquidation value $100; 50,000,000 shares authorized; 360,000 shares issued and outstanding at January 1, 2005      —      41,491     Common stock—Subject to put option, $0.01 par value; 4,125,000 issued and outstanding at January 1, 2005 (out of a total 100,000,000 shares authorized)     —     6,356      Stockholders' equity (deficit)                     Preferred stock—Subject to redemption, $0.01 par value; 10,000,000 shares authorized and none issued and outstanding     —     —       Common stock—$0.01 par value; 100,000,000 shares authorized; 23,488,357 shares at December 31, 2005 and 15,675,000 shares at January 1, 2005 issued and outstanding     235     157       Additional paid-in capital     59,063     2,098       Accumulated deficit     (6,809 )   (3,368 )     Accumulated other comprehensive income (loss)     214     (9 )                   Total stockholders' equity (deficit)     52,703     (1,122 )                   Total liabilities and stockholders' equity (deficit)   $ 247,348   $ 244,131                  The accompanying notes are an integral part of these consolidated financial statements.   61              MAIDENFORM BRANDS, INC. AND SUBSIDIARIES         CONSOLIDATED STATEMENTS OF OPERATIONS         (in thousands, except share and per share amounts)             Successor   Predecessor         For the year ended December 31, 2005   For the period from May 11, 2004 through January 1, 2005   For the period from December 28, 2003 through May 10, 2004   For the year ended December 27, 2003     Net sales   $ 382,169   $ 214,613   $ 122,415   $ 292,873     Cost of sales     247,037     151,954     77,113     189,225                         Gross profit     135,132     62,659     45,302     103,648     Selling, general and administrative expenses     101,604     59,973     31,960     80,094     Acquisition-related charges     —     —     14,286     —                         Operating income (loss)     33,528     2,686     (944 )   23,554     Interest expense, net     15,853     7,622     2,180     1,445                         Income (loss) before provision for income taxes     17,675     (4,936 )   (3,124 )   22,109     Income tax expense (benefit)     8,735     (1,568 )   1,122     (4,921 )                       Net income (loss)     8,940     (3,368 )   (4,246 )   27,030     Preferred stock dividends and changes in redemption value     (17,264 )   (4,756 )   —     —                         Net (loss) income available to common stockholders   $ (8,324 ) $ (8,124 ) $ (4,246 ) $ 27,030                       Basic (loss) earnings per common share   $ (0.39 ) $ (0.41 ) $ (0.31 ) $ 1.93                       Diluted (loss) earnings per common share   $ (0.39 ) $ (0.41 ) $ (0.31 ) $ 1.88                       Basic weighted average number of shares outstanding     21,451,654     19,800,000     13,727,879     14,034,230                       Diluted weighted average number of shares outstanding     21,451,654     19,800,000     13,727,879     14,404,130                        The accompanying notes are an integral part of these consolidated financial statements.   62              MAIDENFORM BRANDS, INC. AND SUBSIDIARIES         CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)         (in thousands, except share amounts)             Common Stock   Treasury Stock                                 Accumulated Other Comprehensive Income (Loss)   Total Stockholders' (Deficit) Equity         Additional Paid-in Capital   Accumulated Deficit         Shares   $   Shares   $     Predecessor:                                                 Balance at December 28, 2002   14,056,822   $ 141   —   $ —   $ 109,866   $ (34,973 ) $ (2,697 ) $ 72,337     Repurchase of common stock (328,943 shares at $8.25 per share)             (328,943 )   (2,714 )                     (2,714 )   Reversal of valuation allowance previously recorded against deferred tax assets                         19,001                 19,001     Stock compensation                         1,811                 1,811     Dividends declared                         (49,969 )               (49,969 )   Comprehensive income                                                 Net income                               27,030           27,030     Changes during the year                                     773     773                                                      Total comprehensive income                                           27,803                                   Balance at December 27, 2003   14,056,822     141   (328,943 )   (2,714 )   80,709     (7,943 )   (1,924 )   68,269     Stock compensation                         6,869                 6,869     Tax effect on stock compensation                         1,420                 1,420     Comprehensive loss                                                 Net loss                               (4,246 )         (4,246 )   Changes during the period                                     (328 )   (328 )                                                  Total comprehensive loss                                           (4,574 )                                 Balance at May 10, 2004   14,056,822   $ 141   (328,943 ) $ (2,714 ) $ 88,998   $ (12,189 ) $ (2,252 ) $ 71,984                                   Successor:                                                 Issuance of common stock at fair market value   15,675,000   $ 157   —   $ —   $ 27,761   $ —   $ —   $ 27,918     Deemed dividend to continuing stockholders                         (21,529 )               (21,529 )   Preferred stock dividends and changes in redemption value                         (4,756 )               (4,756 )   Adjust common stock, subject to put option, to redemption value                         511                 511     Stock compensation                         251                 251     Other stock transactions                         (140 )               (140 )   Comprehensive loss                                                 Net loss                               (3,368 )         (3,368 )   Changes during the period                                     (9 )   (9 )                                                    Total comprehensive loss                                           (3,377 )                                 Balance at January 1, 2005   15,675,000     157   —     —     2,098     (3,368 )   (9 )   (1,122 )   Preferred stock dividends and changes in redemption value                         (4,883 )   (12,381 )         (17,264 )   Initial public offering and exercise of stock options   3,688,357     37               52,542                 52,579     Reclassification of common stock subject to put option — upon extinguishment of put option   4,125,000     41               5,547                 5,588     Preferred stock options purchased                         (1,393 )               (1,393 )   Adjust common stock, subject to put option, to redemption value                         768                 768     Tax effect from exercise of stock options                         2,775                 2,775     Stock compensation                         1,609                 1,609     Comprehensive income                                                 Net income                               8,940           8,940     Changes during the period                                     223     223                                                      Total comprehensive income                                           9,163                                   Balance at December 31, 2005   23,488,357   $ 235   —   $ —   $ 59,063   $ (6,809 ) $ 214   $ 52,703                                    The accompanying notes are an integral part of these consolidated financial statements.   63              MAIDENFORM BRANDS, INC. AND SUBSIDIARIES         CONSOLIDATED STATEMENTS OF CASH FLOWS         (in thousands)             Successor   Predecessor         For the year ended December 31, 2005   For the period from May 11, 2004 through January 1, 2005   For the period from December 28, 2003 through May 10, 2004   For the year ended December 27, 2003     Cash flows from operating activities                             Net income (loss)   $ 8,940   $ (3,368 ) $ (4,246 ) $ 27,030     Adjustments to reconcile net income (loss) to net cash from operating activities                               Depreciation and amortization     5,647     5,461     1,636     5,494       Amortization of intangible assets     1,160     719     —     —       Amortization of deferred financing costs     5,953     804     895     335       Purchase accounting step-up of inventory     —     19,838     —     —       Stock compensation     1,609     251     6,869     1,811       Deferred income taxes     3,988     (2,398 )   (1,637 )   (5,377 )     Tax benefit from exercise of stock options     2,775     —     1,420     —       Other non-cash items     1,097     39     —     21       Payments of obligations under the reorganization     —     —     —     (821 )     Net changes in operating assets and liabilities, (net of Acquisition)                                 Accounts receivable     (10,165 )   20,148     (16,746 )   (3,515 )       Inventories     1,812     5,329     (6,358 )   7,536         Prepaid expenses and other current and non-current assets     (4,018 )   (376 )   1,313     (1,824 )       Accounts payable     7,488     (8,215 )   6,874     (406 )       Accrued expenses and other current and non-current liabilities     (4,449 )   204     8,176     3,860         Income taxes payable     3,550     (4,192 )   1,017     (754 )                           Net cash from operating activities     25,387     34,244     (787 )   33,390                       Cash flows from investing activities                             Capital expenditures     (2,229 )   (1,980 )   (681 )   (3,690 )   Proceeds from sale of assets     5,160     —     —     60     Cash released from restriction     —     —     —     831     Payments in connection with the Acquisition     —     (158,473 )   —     —                             Net cash from investing activities     2,931     (160,453 )   (681 )   (2,799 )                     Cash flows from financing activities                             Borrowings under revolving facility     10,000     12,500     109,391     290,598     Repayments under revolving facility     (10,000 )   (43,265 )   (101,661 )   (292,597 )   Term loan facility borrowings     61,037     150,000     —     25,000     Term loan facility repayments     (71,287 )   (25,170 )   (2,080 )   —     Common stock options purchased     (140 )   —     —     —     Cash dividends paid     (13,320 )   —     —     (49,969 )   Proceeds from issuance of preferred and common stock     52,579     57,000     —     —     Redemption of preferred stock and preferred options and payment of accumulated dividends     (46,828 )   —     —     —     Treasury stock purchase     —     —     —     (2,714 )   Deferred financing costs     (2,423 )   (6,684 )   (217 )   (710 )                           Net cash from financing activities     (20,382 )   144,381     5,433     (30,392 )   Effects of exchange rate changes on cash     (170 )   169     (328 )   (441 )                           Net increase (decrease) in cash     7,766     18,341     3,637     (242 )   Cash and cash equivalents                             Beginning of period     23,212     4,871     1,234     1,476                       End of period   $ 30,978   $ 23,212   $ 4,871   $ 1,234                       Supplementary disclosure of cash flow information                             Cash paid during the period                             Interest   $ 9,996   $ 6,096   $ 884   $ 835                       Income taxes   $ 1,677   $ 4,597   $ 144   $ 375                        The accompanying notes are an integral part of these consolidated financial statements.   64              MAIDENFORM BRANDS, INC. AND SUBSIDIARIES         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS         (in thousands, except share and per share amounts)      1. NATURE OF OPERATIONS           Maidenform Brands, Inc. and its subsidiaries (the "Company," "we," "us" or "our") design, source and market an extensive range of intimate apparel products, including bras, panties and shapewear. We sell through multiple distribution channels including department stores and national chain stores, mass merchants (including warehouse clubs), and other (including specialty stores, off-price retailers and licensing income). In addition, we also operated 74 and 81 retail outlet stores as of December 31, 2005 and January 1, 2005, respectively, and sell products on our websites.  2. INITIAL PUBLIC OFFERING           On July 22, 2005, we priced an initial public offering of 14,513,889 shares of common stock of which 3,375,000 and 11,138,889 shares were offered by us and selling stockholders, respectively, at a price of $17.00 per share. Upon the consummation of the offering on July 27, 2005, net proceeds of $52,579 and $176,106 were distributed to us and selling stockholders, respectively. We did not receive any of the proceeds from the sale of shares by the selling stockholders.          Net proceeds of $46,828 were used to redeem all the outstanding shares of our preferred stock, including shares of preferred stock acquired upon the exercise of all outstanding options to purchase shares of our preferred stock, and pay all accrued and unpaid dividends associated with the preferred stock and preferred stock options. In addition, the put option on certain shares of common stock classified as temporary equity was extinguished as a result of the initial public offering and such common stock is no longer classified as temporary equity.  3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES   Basis of presentation           The accompanying consolidated financial statements include the accounts of Maidenform Brands, Inc. and its subsidiaries and the accounts of its Predecessor. All significant intercompany transactions and balances have been eliminated in consolidation.  Use of estimates           The preparation of these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that 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 net sales and expenses during the reporting period. The more significant estimates and assumptions are those used in determining accounts receivable and inventory reserves, deferred income tax valuation reserves, pension and postretirement liabilities, and goodwill and intangible impairment analyses. Actual results could ultimately differ from these estimates.  Fiscal reporting period           We report our annual results of operations based on a fiscal period comprised of 52 or 53 weeks. On May 11, 2004, we changed our year end to the Saturday, in December or January, closest to December 31 from the last Saturday in the year. Our Successor fiscal year 2005 ended December 31, 2005. Our fiscal year 2004 is presented in the Successor period from May 11, 2004 through January 1, 2005, which included 34 weeks, and Predecessor period from December 28, 2003 through May 10, 2004, which included 19 weeks. Our Predecessor fiscal year 2003 ended December 27, 2003 and included 52 weeks. Unless otherwise stated, references to years in the financial statements refer to fiscal years.   65       Fair value of financial instruments           Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosures about Fair Value of Financial Instruments," requires disclosure of the fair value of certain financial instruments. Cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are reflected at fair value because of the short-term maturity of these instruments. The carrying amount of debt at December 31, 2005 and January 1, 2005 approximates fair value as a result of the variable interest rates being accrued and paid on the majority of our debt. In addition, amounts related to preferred stock, and common stock subject to the put option, approximate fair value as they are recorded at their redemption or put value.  Foreign currency translation           We have wholly owned subsidiaries operating in Hong Kong, Indonesia, Mexico and Ireland. Subsidiaries operating in Mexico and Ireland function as distributors for us. The subsidiaries in Hong Kong and Indonesia function as quality control centers for inventory purchases from third party vendors and other sourcing support services. These foreign operations use their respective local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at the current exchange rates in effect at the balance sheet date while net sales and expenses are translated at the average exchange rate for the period. The resulting translation adjustments are recorded as a component of accumulated other comprehensive income (loss) within stockholders' equity (deficit).  Cash and cash equivalents           All highly liquid investments with a remaining maturity of three months or less at the date of our balance sheet are classified as cash.  Accounts receivable           Accounts receivable consist primarily of amounts due from customers. We provide reserves for accounts receivable that may not be realized as a result of uncollectibility, sales returns, markdowns, and other customer allowances. Reserves are determined based on actual commitments, historical experience, credit quality, age of accounts receivable balances, and existing economic conditions. Reserves provided for accounts receivable aggregated $9,566 and $7,165 at December 31, 2005 and January 1, 2005, respectively. We believe that these reserves provide reasonable assurance that such balances are reflected at net realizable value.  Inventories           Inventories are stated at the lower of cost or market. The cost of wholesale inventory is based on standard costs, which approximate first-in, first-out (FIFO), while the cost of product acquired from third parties for sale through our retail segment is based on the retail inventory method.  Property, plant and equipment           Property, plant and equipment were adjusted in connection with the Acquisition to reflect their estimated fair market value, subject to carryover basis. Additions subsequent to the Acquisition are   66        recorded at cost. Depreciation and leasehold amortization are calculated using the straight-line method over the estimated useful lives of the assets, as follows:     Buildings and building improvements   10-50 years   Machinery and production equipment   3-12 years   Furniture, fixtures and equipment   5-12 years   Leasehold improvements   Lesser of initial lease term or estimated useful life            Useful lives for property, plant and equipment are established for each common asset class and are based on our historical experience.          Repairs and maintenance are expensed in the year they are incurred. When fixed assets are sold or otherwise disposed, the original costs of the assets and the related accumulated depreciation and any resulting profit or loss is credited or charged to earnings.  Operating leases           Several of our operating leases contain rent holidays and/or predetermined rent increases during the term of such leases. For these leases, the aggregate rental expense is recognized on a straight-line basis over the initial lease term. The difference in expense charged to earnings in any year and amounts payable under the leases during that year is recorded as deferred rent.          Amortization of improvements to leased properties is computed using the straight-line method based upon the non-cancelable lease term of the applicable lease or the estimated useful life of the improvements, whichever is less, and ranges from 4 months to 10 years. If we receive landlord incentives or allowances for leasehold improvements, the incentive or allowance is recorded as deferred rent and amortized as a reduction to lease expense over the initial lease term.  Goodwill and intangible assets           SFAS No. 142, "Goodwill and Other Intangible Assets," requires that goodwill and other intangible assets with indefinite useful lives be evaluated for impairment on an annual basis, or more frequently if certain events occur or circumstances exist. We evaluated goodwill and intangible assets during the fourth quarter of 2005 and determined that no impairment exists and will perform the impairment evaluation annually during the fourth quarter of each fiscal year.          We allocate our goodwill to our reporting units. In evaluating goodwill for impairment, we compare the fair value of the reporting unit to its carrying amount. If the fair value is less than the carrying amount, an impairment loss is recorded to the extent that the implied fair value of the goodwill is less than its carrying amount. To determine the fair values, we use both a discounted cash flow approach and a market approach.          In reviewing intangible assets with indefinite useful lives for impairment, we compare the carrying amount of such asset to its fair value. We estimate the fair value using discounted cash flows expected from the use of the asset. When the estimated fair value is less than its carrying amount, an impairment loss is recognized equal to the difference between the asset's fair value and its carrying amount. In addition, intangible assets with indefinite useful lives are reviewed for impairment whenever events such as product discontinuance or other changes in circumstances indicate that the carrying amount may not be recoverable.          The performance of the goodwill and intangible asset impairment tests are subject to significant judgment in determining the estimation of future cash flows, the estimation of discount   67        rates, and other assumptions. Changes in these estimates and assumptions could have a significant impact on the fair value and impairment of goodwill and intangible assets.  Impairment of long-lived assets           Long-lived assets, primarily property, plant and equipment and intangible assets with finite lives, are periodically reviewed and evaluated by us when events and circumstances indicate that the carrying amount of these assets may not be recoverable. For long-lived assets, this evaluation is based on the expected future undiscounted operating cash flows of the related assets. Should such evaluation result in us concluding that the carrying amount of long-lived assets has been impaired, an appropriate write-down to their fair value is recorded.  Deferred financing costs           Debt financing costs are deferred and amortized to interest expense using the effective interest method over the term of the related debt instrument.  Interest rate swap agreements           We utilize interest rate swap agreements to manage interest rate exposure. The net interest paid or received on the swaps is recognized as interest expense. These swaps are accounted for in accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137, SFAS No. 138 and SFAS No. 149 (collectively, SFAS No. 133). SFAS No. 133 requires that all derivatives be recognized in the balance sheet as either an asset or liability measured at its fair value. The swaps are designated as cash flow hedges and changes in fair value, to the extent the hedges are effective, will be recognized as components of other comprehensive income (loss) and subsequently reclassified into interest expense when the hedged exposure effects earnings. Hedge ineffectiveness is measured at least quarterly based on the relative changes in fair value between the swap contract and the hedged item over time. Any change in fair value resulting from ineffectiveness will be reported in earnings. There were no significant gains or losses recognized in earnings for hedge ineffectiveness.  Comprehensive income (loss)           Comprehensive income (loss) includes net income (loss) and adjustments for foreign currency translation, minimum pension liability and unrealized income (loss) on interest rate swap agreements.  Revenue recognition           Net sales from our wholesale operations are recognized when merchandise is shipped to customers, at which time title and the risks and rewards of ownership pass to the customer and persuasive evidence of a sale arrangement exists, delivery of the product has occurred, the price is fixed or determinable, and payment is reasonably assured. Reserves for sales returns, markdown allowances, cooperative advertising, discounts and other customer deductions are provided when net sales are recorded or when the commitment is incurred. In the case of sales by our retail operations, net sales are recognized at the time the customer takes possession of the merchandise at the point of sale in our stores.  Royalties and license fees           We license certain of our trademarks including Maidenform, Sweet Nothings, Self Expressions, Rendezvous and others to qualified companies for use on intimate apparel, sleepwear and other   68        products. These royalties are recorded as earned, based upon the sale of licensed products by our licensees. The royalty income included in net sales amounted to $1,884 for the Successor year 2005, $971 for the Successor period May 11, 2004 through January 1, 2005 and $376 for the Predecessor period December 28, 2003 through May 10, 2004, and $976 for the Predecessor year 2003.  Shipping and handling expense           Shipping and handling expense incurred in connection with our distribution centers include shipping supplies, related labor costs, third-party shipping costs, and certain distribution overhead. Such costs are generally absorbed by us and are included in selling, general and administrative expenses. These costs amounted to $11,455 for the Successor year 2005, $7,040 for the Successor period May 11, 2004 through January 1, 2005 and $3,698 for the Predecessor period December 28, 2003 through May 10, 2004, and $10,237 for the Predecessor year 2003. With respect to the freight component of our shipping and handling costs, most customers arrange for shipping of our product and pay the related freight costs directly to third party freight carriers. However, in limited circumstances, we arrange and pay the freight for these customers and bill them for this service and those amounts are immaterial.  Advertising expense           All production costs are charged to expense when the advertisement is first shown in media. Advertising expense included in selling, general and administrative expenses are $8,539 for the Successor year 2005, $4,791 for the Successor period May 11, 2004 through January 1, 2005 and $3,448 for the Predecessor period December 28, 2003 through May 10, 2004, and $5,804 for the Predecessor year 2003.  Stock-based compensation           We account for stock options in accordance with SFAS No. 123, "Accounting for Stock-Based Compensation." The fair value of stock options as determined on the date of grant using the Black-Scholes option-pricing model is being expensed over the vesting period of the related stock options.          The weighted average fair value of stock options granted during the Successor year 2005 was $3.15. The fair value was estimated using the Black-Scholes option-pricing model based on the weighted average market price at grant date of $6.39 for the Successor year 2005.          The weighted average fair value of stock options granted during the Successor period May 11, 2004 through January 1, 2005, was $1.80. The fair value was estimated using the Black-Scholes option-pricing model based on the weighted average market price at grant date of $3.42.          The weighted average fair value of stock options granted during the Predecessor year 2003 was $1.10. The fair value was estimated using the Black-Scholes option-pricing model based on the weighted average market price at grant date of $9.92 for the Predecessor year 2003.   69                 The range of assumptions consists of the following:         Successor   Predecessor         For the year ended December 31, 2005   For the period from May 11, 2004 through January 1, 2005   For the period from December 28, 2003 through May 10, 2004(1)   For the year ended December 27, 2003     Dividend yield   0.0%   0.0%   N/A   0.0 %   Risk-free interest rate   4.00% – 4.60%   4.43% – 4.47%   N/A   2.0 %   Expected life (years)   5 & 10   10   N/A   10     Volatility   0.0% & 39.4%   0.0%   N/A   0.0 %      (1)No stock options were granted during the Predecessor period December 28, 2003 through May 10, 2004.  See Note 17, "Stock Option Plans," for additional information regarding our stock option plans.  Earnings (loss) per share           Basic earnings (loss) per share are computed by dividing income (loss) available to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted earnings (loss) per share reflect the potential dilution that could occur if common stock equivalents were issued and exercised.  Income taxes           We account for income taxes using the liability method which recognizes the amount of income tax payable or refundable for the current year and recognizes deferred tax liabilities and assets for the future tax consequences of the events that have been recognized in the financial statements or tax returns. We routinely evaluate all deferred tax assets to determine the likelihood of their realization and record a valuation allowance if it is more likely than not that a deferred tax asset will not be realized. See Note 19, "Income Taxes," for discussion of income taxes.  Reclassifications           Certain prior period amounts in the consolidated financial statements have been reclassified to conform to the current year presentation.  4. CHANGE IN OWNERSHIP           On May 11, 2004, MF Acquisition Corporation acquired 100% of Maidenform, Inc. (the "Acquisition") through a merger of its wholly owned subsidiary into Maidenform, Inc. Stockholders of Maidenform, Inc. received either cash or stock of MF Acquisition Corporation in exchange for their shares of Maidenform, Inc. On April 5, 2005, MF Acquisition Corporation changed its name to Maidenform Brands, Inc. Financing for this Acquisition totaled $237,265 and was provided by a first lien term loan of $100,000, revolver borrowings of $12,500, a second lien term loan of $50,000 and $74,765 of cash and capital from investors, including rollover equity by certain members of management of $2,765 and continuing stockholders of $15,000. The financial statements for the period including and after May 11, 2004 are those of Maidenform Brands, Inc. and subsidiaries (the "Successor"). The financial statements for periods prior to May 11, 2004 are those of Maidenform, Inc. and subsidiaries (the "Predecessor"). As a result of the Acquisition, the financial statements including and after May 11, 2004 are not comparable to those prior to that date.   70                The proceeds of the Acquisition and financing were used to pay selling stockholders $147,430, selling stockholders' transaction expenses of $6,570, special compensation of $1,567 paid to management, buyers' transaction expenses of $2,526, and to retire all of Maidenform, Inc.'s previously outstanding current and long-term debt of $54,065, including a debt redemption premium of $380. In addition, $658 of proceeds were held as cash for working capital purposes and $6,684 was used to pay debt issuance costs.          The Acquisition was accounted for as a purchase in accordance with SFAS No. 141, "Business Combinations," and Emerging Issues Task Force (EITF) No. 88-16, "Basis In Leveraged Buyout Transactions." In accordance with EITF 88-16, the basis of continuing stockholders that have a residual interest in Maidenform Brands, Inc. and have a 20% or greater voting interest has been carried over at their predecessor basis. In addition, in accordance with EITF 88-16, the basis of management's residual interest, which consisted of stock options, has also been carried over at their predecessor basis, as management actively participated in promoting the transaction. The retained interest of the stockholders has been recorded at predecessor basis (carryover basis) and aggregated 23.8% (20.1% related to continuing stockholders and 3.7% related to certain members of management). The remainder of the investment in the assets and liabilities acquired (the 76.2% acquired by new stockholders) was recorded at fair value. As a result, the assets and liabilities were assigned new values, which are part carryover basis and part fair value basis. The excess of the purchase price over carryover basis of net assets acquired, the deemed dividend to continuing stockholders, was recognized as a reduction of stockholders' equity (deficit).          The following table summarizes both the cash and non-cash consideration, including transaction costs related to the Acquisition.     Cash consideration(1)           Cash paid to sellers   $ 147,430     Repayment of seller's debt     54,065     Transaction costs     10,663     Non-cash consideration           Securities issued to continuing stockholders at carryover basis(2)     14,520     Carryover basis allocated to management's residual interest(3)     —     Deemed dividend to continuing stockholders     (21,529 )            Total purchase price   $ 205,149                 (1)Cash consideration was paid with new financing of $155,158, net of debt issuance costs of $6,684 and proceeds held as cash of $658, and cash from new stockholders of $57,000. New stockholders received half of their interest in preferred stock and half of their interest in common stock. The allocation of the equity interest for the preferred stock and common stock was based on their fair values as determined by an independent third-party appraisal. Securities issued to new stockholders amounted to 285,000 shares of preferred stock and 15,675,000 shares of common stock. (2)Securities issued to the continuing stockholders were 75,000 shares of preferred stock and 4,125,000 shares of common stock. (3)As management's residual interest consisted entirely of options which had no predecessor basis, no carryover basis was allocated to their residual interest.   71               The total purchase price of $205,149 was allocated to the acquired assets and liabilities based on their estimated fair values at the Acquisition date, after taking into account the carryover basis discussed above. These allocations were determined by valuation reports provided by independent third party appraisal firms. The excess of the purchase price over the underlying assets acquired and liabilities assumed was allocated to goodwill, none of which is deductible for tax purposes. The following table summarizes the estimated values of the assets acquired and liabilities assumed on May 11, 2004.     Other current assets   $ 51,254   Inventory     62,234   Deferred income taxes     9,716   Property, plant and equipment     31,425   Intangible assets, amortizing     26,241   Intangible assets, non-amortizing     76,476   Other non-current assets     707   Goodwill     7,884            Total assets acquired     265,937          Other current liabilities     39,522   Employee termination costs     2,159   Defined benefit pension plan     7,378   Postretirement plans     1,240   Deferred income taxes     10,013   Other non-current liabilities     476            Total liabilities assumed     60,788            Net assets acquired   $ 205,149           5. RECENTLY ISSUED ACCOUNTING STANDARDS           In December 2004, the FASB issued SFAS No. 123-R (revised 2004), "Share Based Payment," which is a revision of SFAS No. 123, "Accounting for Stock-Based Compensation." This Statement supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees," and its related implementation guidance. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions and is effective for fiscal years beginning after June 15, 2005. As we have already adopted SFAS No. 123, we do not believe that this revision, upon adoption on January 1, 2006, will have a significant effect on our consolidated statements of financial position, results of operations or cash flows.  6. INVENTORIES           Inventories at December 31, 2005 and January 1, 2005 consist of the following:         2005   2004   Raw materials   $ —   $ 1,741   Work-in-process     —     2,335   Finished goods     35,255     32,991                 $ 35,255   $ 37,067               72       7. PROPERTY, PLANT AND EQUIPMENT           Property, plant and equipment at December 31, 2005 and January 1, 2005 consist of the following:         2005   2004     Land   $ 1,239   $ 2,810     Buildings and building improvements     8,291     15,538     Machinery and production equipment     2,614     5,129     Furniture, fixtures and equipment     5,428     4,971     Construction-in-progress     123     491     Leasehold improvements     4,843     4,355                       22,538     33,294     Less—Accumulated depreciation     (4,308 )   (5,350 )                   $ 18,230   $ 27,944                          Depreciation and amortization expense included in selling, general and administrative expenses and cost of sales is $5,647 for the Successor year 2005, $5,461 for the Successor period May 11, 2004 through January 1, 2005 and $1,636 for the Predecessor period December 28, 2003 through May 10, 2004, and $5,494 for the Predecessor year 2003.  8. GOODWILL AND OTHER INTANGIBLE ASSETS           In connection with the Acquisition, we recognized the excess cost of the acquired entity over the net amounts assigned for all assets, including intangible assets, and liabilities assumed, as goodwill. Our goodwill and certain trademarks have been deemed to have indefinite lives and are not amortizable. Our licensing agreements and certain trademarks that do not have indefinite lives are being amortized on a straight-line basis over 15 to 25 years.          Components of our intangible assets by segment at December 31, 2005 consist of the following:         Wholesale   Retail   Total       Gross Carrying Amount   Accumulated Amortization   Gross Carrying Amount   Accumulated Amortization   Gross Carrying Amount   Accumulated Amortization   Amortizing intangible assets                                       Trademarks   $ 16,849   $ 1,229   $ 1,074   $ 112   $ 17,923   $ 1,341   Royalty licenses     8,318     538     —     —     8,318     538                             $ 25,167   $ 1,767   $ 1,074   $ 112   $ 26,241   $ 1,879                         Non-amortizing intangible assets                                       Trademarks   $ 64,600         $ 11,876         $ 76,476                                          73                 Components of our intangible assets by segment at January 1, 2005 consist of the following:         Wholesale   Retail   Total       Gross Carrying Amount   Accumulated Amortization   Gross Carrying Amount   Accumulated Amortization   Gross Carrying Amount   Accumulated Amortization   Amortizing intangible assets                                       Trademarks   $ 16,849   $ 470   $ 1,074   $ 43   $ 17,923   $ 513   Royalty licenses     8,318     206     —     —     8,318     206                             $ 25,167   $ 676   $ 1,074   $ 43   $ 26,241   $ 719                         Non-amortizing intangible assets                                       Trademarks   $ 64,600         $ 11,876         $ 76,476                                                 Our non-amortizing intangible assets consist of trademarks for Maidenform and Flexees, as it is expected that these trademarks will contribute to cash flows indefinitely. These trademarks have been in existence for many years and there is no foreseeable limit on the period of time over which they are expected to contribute cash flows. Aggregate amortization expense related to intangible assets was $1,160 for the Successor year 2005 and $719 for the Successor period May 11, 2004 through January 1, 2005. Estimated amortization expense for the next five fiscal years beginning with fiscal year 2006 is as follows:     2006   $ 1,160   2007     1,160   2008     1,160   2009     1,160   2010     1,160            Components of our goodwill by segment at December 31, 2005 and January 1, 2005 consist of the following:         Wholesale   Retail   Total   Goodwill acquired during 2004   $ 7,435   $ 449   $ 7,884                 9. DEBT          2005   2004   Long-term debt               Term loan facility   $ 137,500   $ 97,750   Second lien term loan     —     50,000                   137,500     147,750   Current maturities of long-term debt     —     12,162             Non-current portion of long-term debt   $ 137,500   $ 135,588                      On June 29, 2005, we amended and restated our existing First Lien Facilities and prepaid the outstanding balance of our Second Lien Facility. The amended and restated First Lien Facilities ("Restated Credit Facility") provides for borrowings in the aggregate amount of $200,000 maturing on May 11, 2010 and is composed of: (i) a $150,000 amortizing term loan facility (the "Term Loan   74        Facility") and (ii) a $50,000 revolving credit facility (the "Revolving Facility"). The Restated Credit Facility is collateralized by a first priority perfected lien, subject to certain permitted liens, on substantially all of the personal property assets and certain real property of Maidenform, Inc. and the guarantors.          In general, borrowings under the Term Loan Facility bear interest based, at our option, on the Prime rate or the London Interbank Offered Rate ("LIBOR"), plus a margin. Through December 29, 2005, the Prime rate margin was fixed at 1.25% and the LIBOR rate margin was fixed at 2.25%. The interest rate margin was reduced by 0.25% on December 29, 2005 due to the completion of our initial public offering and further reduced by 0.25% as a result of our having a debt to earnings before interest, taxes, depreciation, and amortization (EBITDA) leverage ratio of less than 3 to 1 as of the third quarter of 2005. The Prime rate margin and the LIBOR margin will be determined on a quarterly basis based on our leverage ratio for the preceding four fiscal quarters, effective upon our delivery of a pricing certificate. Payments of principal will be made in quarterly installments based on an amortization schedule.          The Revolving Facility provides direct borrowings and issuance of stand-by letters of credit on our behalf. Borrowings under the Revolving Facility are limited by the borrowing base, which consists of eligible accounts receivable and inventory, as defined. Borrowings under the Revolving Facility will bear interest at the same rate as the Term Loan Facility. Additional fees, including a letter of credit fee equal to the applicable LIBOR interest rate margin and a letter of credit fronting fee of 0.25%, are charged on the outstanding stand-by letters of credit. Additionally, an unused line of credit fee of 0.50% is charged on the maximum principal amount available under the Revolving Facility.          As of December 31, 2005, we had $137,500 outstanding under our Term Loan Facility. At December 31, 2005, $0 was outstanding and approximately $43,508 was available for borrowings under the Revolving Facility, after giving effect to $2,182 of outstanding letters of credit and our borrowing base limitations. We use the letters of credit as collateral for our workers' compensation insurance programs and bonds issued on our behalf to collateralize our obligation to pay customs duties. In connection with the June 29, 2005 credit facility amendment and restatement, we borrowed $10,000 under the Revolving Facility and repaid this amount during the third quarter 2005. We voluntarily prepaid $12,500 of our Term Loan Facility during the third and fourth quarters of 2005. As a result of the Term Loan Facility prepayments, there will be no mandatory excess cash flow prepayment for 2005 and our amortization schedule has been revised. Our next scheduled principal payment is not due until September 2008.          Our highest level of debt outstanding for 2005 was $160,000 at an average interest rate of 6.8%.          Our highest level of debt outstanding for Successor 2004 was $162,500 million, at an average interest rate of 6.6%, and our highest level of debt outstanding for Predecessor 2004 was $57,802, at an average interest rate of 4.2%. This is in comparison to our highest level of debt outstanding for 2003 of $48,035, at an average interest rate of 3.7%.          The Restated Credit Facility contains affirmative and restrictive covenants, including: (a) maintenance of a minimum fixed charge coverage ratio, (b) maintenance of a maximum leverage ratio, (c) limitations on consolidated capital expenditures, (d) limitations on the incurrence of indebtedness and liens, (e) limitations on investments/acquisitions and (f) restrictions on payments between Maidenform Brands, Inc. and its subsidiaries. There are a number of circumstances in which additional partial prepayments are required based upon conditions set forth in the Restated Credit Facility, including net asset sales and net insurance/condemnation proceeds not reinvested in other assets of the business, net securities proceeds from the issuance of capital stock (excluding the initial public offering proceeds), additional debt facilities, and a percentage of annual   75        consolidated excess cash flows, as defined. We were in compliance with all debt covenants at December 31, 2005. On February 8, 2006, we entered into the First Amendment to the Restated Credit Facility. This amendment amends certain provisions of the Restated Credit Facility to enable us to initiate our stock repurchase program of up to $20,000.          In connection with the June 29, 2005 amendment and restatement of the Credit Facility, we paid fees of $2,423, and in connection with the repayment of the Second Lien Facility, we paid a prepayment penalty fee of $1,000. For the Successor year 2005, amortization of financing costs included in interest expense was $5,953 (which includes the write-off of deferred financing costs of $4,943 in connection with the amendment of the First Lien Facilities and the prepayment of the Second Lien Facility). Included in interest expense was amortization of financing costs for the Successor period May 11, 2004 through January 1, 2005 of $804, for the Predecessor period December 28, 2003 through May 10, 2004 of $895 (which includes the write-off of unamortized deferred financing cost at the date of Acquisition in the amount of $772), and $335 for the Predecessor year 2003.          Payments due on long-term debt during each of the five years subsequent to December 31, 2005, are as follows:     2006   $ —   2007     —   2008     354   2009     35,084   2010     102,062            We had $97,750 outstanding under our first lien facility, $50,000 outstanding under the second lien term loan and had approximately $28,093 available for borrowings under the revolver after considering outstanding stand-by letters of credit of $1,907 under the credit facility that was in effect at January 1, 2005.          Borrowings under the first lien facility and under the revolver bore interest at the London Interbank Offered Rate (LIBOR) plus 2.75% for LIBOR Rate loans, or at prime plus 1.75% for Prime Rate loans, at our option. Interest was payable quarterly. Additional fees included servicing fees equal to 2.75% charged annually on outstanding stand-by letters of credit, letter of credit fronting fee equal to 0.25% charged annually on outstanding stand-by letters of credit and a 0.50% unused line fee.          The second lien term loan, a non-amortizing term loan, bore interest at LIBOR plus 7.5% for LIBOR Rate loans, or at prime plus 6.5% for Prime Rate loans, at our option. Interest was payable quarterly.          The first lien facility required a mandatory prepayment based on a percentage of consolidated excess cash flow, as determined based on applicable leverage ratios. Accordingly, with respect to our consolidated excess cash flow for 2004, we made a principal prepayment of approximately $7,662 in April 2005. Such amount was included in current maturities of long-term debt on the January 1, 2005 consolidated balance sheet.  10. INTEREST RATE SWAP AGREEMENTS           Effective August 16, 2004, we entered into two interest rate swap agreements, each having a notional amount of $5,625 for the period August 16, 2004 through August 15, 2005, $11,250 for the period August 16, 2005 through February 15, 2006, and $15,000 for the period February 16, 2006 through the expiration date of August 15, 2007. Under these swap agreements, we converted a   76        floating interest rate for the notional amount of the swaps into a fixed interest rate of 4.05% and 3.885%. These swap contracts are not held for trading purposes. During the Successor year 2005 and Successor period May 11, 2004 through January 1, 2005, there were no significant gains or losses recognized in interest expense for hedge ineffectiveness. The cash flow effects of the swap arrangements are included in interest expense on the consolidated statement of operations as an expense of $66 for the Successor year 2005 and $89 for the Successor period May 11, 2004 through January 1, 2005.          In addition to the interest rate swap agreements, we purchased an interest rate cap as an economic hedge against approximately $52,500 of variable rate debt. The interest rate is capped at 5.92% on a notional amount of $63,750 for the period July 6, 2004 through July 5, 2005, 6.52% on a notional amount of $52,500 for the period July 6, 2005 through January 5, 2006, and 8.08% on a notional amount of $45,000 for the period January 6, 2006 through the expiration date of July 6, 2007. The interest rate cap is recognized on the consolidated balance sheet at its fair value and any change in fair value is reported in interest expense and was $5 for Successor year 2005 and $46 for the Successor period May 11, 2004 through January 1, 2005.  11. LEASES           We lease warehouse, retail, showroom, office facilities and equipment under non-cancelable operating leases which expire on various dates through 2016. In addition to minimum rentals, certain leases provide for annual rent increases for real estate taxes, maintenance and inflation. Several of our operating leases contain renewal options and contingent rental payments based on individual store sales.          Minimum annual cash rent obligations under non-cancelable operating leases at December 31, 2005 are as follows:     2006   $ 4,862   2007     3,380   2008     2,466   2009     1,257   2010     611   2011 and thereafter     405            Total minimum lease payments   $ 12,981                   Total rent expense included in selling, general and administrative expenses under operating leases, exclusive of property taxes and other property related expenses charged to earnings, was $5,492 for the Successor year 2005, $3,690 for the Successor period May 11, 2004 through January 1, 2005 and $2,216 for the Predecessor period December 28, 2003 through May 10, 2004, and $5,530 for the Predecessor year 2003.  12. BENEFIT PLANS           We sponsor a defined benefit pension plan, the Maidenform, Inc. Retirement Plan (the "Retirement Plan"), covering substantially all eligible employees not covered by the union plans described below. The benefits are based on years of service and the employees' compensation through their retirement date. The Retirement Plan is the result of the merger between the Restated Replacement Maidenform, Inc. Retirement Plan and the NCC Defined Benefit Pension Plan (the "NCC Plan") on April 14, 1999. Benefits under the NCC Plan have been frozen since 1991.   77                We also make contributions to multiemployer plans that provide defined pension benefits and health and welfare benefits to our unionized employees represented by UNITE-HERE. The contributions for the multiemployer defined benefit pension plans amounted to $268, $168, $118, and $292 for the Successor year 2005, for the Successor period May 11, 2004 through January 1, 2005 and for the Predecessor period December 28, 2003 through May 10, 2004, and for the Predecessor year 2003, respectively. The contributions for the health and welfare plans, including a prescription drug program, amounted to $1,031, $643, $443 and $1,023 for the Successor year 2005, for the Successor period May 11, 2004 through January 1, 2005 and for the Predecessor period December 28, 2003 through May 10, 2004, and for the Predecessor year 2003, respectively.          We sponsor the Maidenform, Inc. Savings Plan (the "401(k) Plan"), which operates pursuant to Section 401(k) of the Internal Revenue Code and covers substantially all eligible employees not covered by the multiemployer union pension plan described above. Eligible participating employees, excluding "highly compensated employees," may contribute up to 20% of their pre-tax wages, subject to certain IRC limitations. Highly compensated employees may contribute up to 6% of their pre-tax wages, subject to certain IRC limitations. The 401(k) Plan provides for employer matching contributions to a maximum of 1.5% of pre-tax wages. During the Successor year 2005, the Successor period May 11, 2004 through January 1, 2005 and the Predecessor period December 28, 2003 through May 10, 2004, and the Predecessor year 2003, we funded $315, $146, $147 and $256 of employer matching contributions, respectively.          We use a December 31 measurement date for our defined benefit pension plan.   78         Obligations and funded status          Successor   Predecessor         For the year ended December 31, 2005   For the period from May 11, 2004 through January 1, 2005   For the period from December 28, 2003 through May 10, 2004     Changes in benefit obligation                       Benefit obligation, beginning of period   $ 21,474   $ 17,358   $ 16,716       Service cost     1,714     848     416       Interest cost     1,234     719     347       Plan participants' contributions     98     59     37       Assumption changes     1,189     2,798     —       Actuarial (gain) loss     135     (35 )   (22 )     Benefits paid     (407 )   (273 )   (136 )                      Benefit obligation, end of period     25,437     21,474     17,358                    Change in plan assets                       Fair value of plan assets, beginning of period     12,218     9,980     10,061       Return on plan assets     683     1,019     45       Employer contributions     1,617     1,434     —       Plan participants' contributions     98     59     37       Plan expenses     (51 )   (1 )   (27 )     Benefits paid     (407 )   (273 )   (136 )                      Fair value of plan assets, end of period     14,158     12,218     9,980                    Funded status     (11,279 )   (9,256 )   (7,378 )   Additional minimum liability     —     —     (1,953 )   Unrecognized net actuarial loss     4,137     2,381     6,992                        Net amount recognized   $ (7,142 ) $ (6,875 ) $ (2,339 )                           Amounts recognized in the consolidated balance sheets consist of:         2005   2004     Accrued benefit liability   $ (7,142 ) $ (6,875 )                        The accumulated benefit obligation for the Retirement Plan was $18,264 and $15,008 at December 31, 2005 and January 1, 2005, respectively.   79              Successor   Predecessor         For the year ended December 31, 2005   For the period from May 11, 2004 through January 1, 2005   For the period from December 28, 2003 through May 10, 2004   For the year ended December 27, 2003     Components of net periodic benefit cost                             Service cost   $ 1,714   $ 848   $ 416   $ 1,074     Interest cost     1,234     719     347     909     Expected return on plan assets     (1,094 )   (636 )   (300 )   (781 )   Recognized net actuarial loss     30     —     132     409                         Net periodic benefit cost   $ 1,884   $ 931   $ 595   $ 1,611                       Additional information                             Increase (decrease) in minimum pension liability included in other comprehensive income (loss)   $ —   $ —   $ 179   $ (1,062 )                      Assumptions           Weighted average assumptions used to determine benefit obligations:         2005   2004     Discount rate   5.50 % 5.75 %   Rate of compensation increase   4.00 % 4.00 %            Weighted average assumptions were used to determine net periodic benefit cost:         Successor   Predecessor         For the year ended December 31, 2005   For the period from May 11, 2004 through January 1, 2005   For the period from December 28, 2003 through May 10, 2004   For the year ended December 27, 2003     Discount rate   5.75 % 6.25 % 6.25 % 6.75 %   Expected return on plan assets   8.50 % 9.00 % 9.00 % 10.00 %   Rate of compensation increase   4.00 % 4.00 % 4.00 % 4.00 %            The long-term rate of return for our pension plan is established via a building block approach with proper consideration of diversification and rebalancing. Historical markets are studied and long-term historical relationships between equity and fixed-income securities are preserved consistent with the widely accepted capital market principle that assets with higher volatility generate a greater return over the long run. Current market factors, such as inflation and interest rates, are evaluated before long-term capital market assumptions are determined.   80        Plan assets           Weighted average asset allocations for the Retirement Plan at December 31, 2005 and January 1, 2005 and the targeted asset allocation for 2006 by asset category are as follows:         2006 Targeted   2005   2004     Equity Securities   70 % 70 % 71 %   Fixed Income Securities   30   30   29                        100 % 100 % 100 %                           We employ a total return on investment approach whereby a mix of equities and fixed-income investments are used to maximize the long-term return of plan assets for a prudent level of risk. Risk tolerance is established through careful consideration of plan liabilities, plan funded status, and corporate financial condition. The assets of the Retirement Plan are held in pooled-separate accounts and are invested in mutual funds consisting of a diversified blend of equity and fixed income securities. We use this investment approach in order to meet its diversification and asset allocation goals. Furthermore, equity investments are diversified across domestic and foreign stocks, as well as growth, value, and small and large capitalizations. Investments risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews, annual liability measurements, and periodic asset/liability studies.  Cash flows   Contributions           We expect to contribute approximately $1,853 to the Retirement Plan in 2006, relating to the 2005 plan year, based upon the current funded status and expected asset return assumptions.  Estimated future benefit payments           Benefit payments, which reflect future service, as appropriate, are expected to be paid as follows:     2006   $ 451   2007     529   2008     594   2009     652   2010     726   2011-2015     5,436     81         13. POSTRETIREMENT PLANS           We use a December 31 measurement date for the postretirement plans.  Obligations and funded status          Successor   Predecessor         For the year ended December 31, 2005   For the period from May 11, 2004 through January 1, 2005   For the period from December 28, 2003 through May 10, 2004         NCC Plan   Company Plan   NCC Plan   Company Plan   NCC Plan   Company Plan     Changes in benefit obligation                                         Benefit obligation, beginning of period   $ 877   $ 260   $ 906   $ 334   $ 734   $ 332       Interest cost     49     14     36     13     17     6       Actuarial (gain) loss     (14 )   61     3     (58 )   189     12       Benefits paid     (33 )   (33 )   (68 )   (29 )   (34 )   (16 )                               Benefit obligation, end of period   $ 879   $ 302   $ 877   $ 260   $ 906   $ 334                             Fair value of plan assets, beginning of period   $ —   $ —   $ —   $ —   $ —   $ —     Employer contribution     33     33     68     29     34     16     Benefits paid and settlements     (33 )   (33 )   (68 )   (29 )   (34 )   (16 )                               Fair value of plan assets, end of period   $ —   $ —   $ —   $ —   $ —   $ —                             Fair value of plan assets, end of period   $ —   $ —   $ —   $ —   $ —   $ —     Funded status     (879 )   (302 )   (877 )   (260 )   (906 )   (334 )   Unrecognized prior service cost     —     —     —     —     155     —     Unrecognized actuarial net (gain) loss     (11 )   —     3     —     75     —                                 Accrued benefit cost   $ (890 ) $ (302 ) $ (874 ) $ (260 ) $ (676 ) $ (334 )                           Amounts recognized in the consolidated balance sheets consist of                                         Accrued benefit liability   $ (890 ) $ (302 ) $ (874 ) $ (260 ) $ (676 ) $ (334 )                                   Successor   Predecessor         For the year ended December 31, 2005   For the period from May 11, 2004 through January 1, 2005   For the period from December 28, 2003 through May 10, 2004   For the year ended December 27, 2003         NCC Plan   Company Plan   NCC Plan   Company Plan   NCC Plan   Company Plan   NCC Plan   Company Plan     Components of net periodic benefit cost                                                     Interest cost   $ 49   $ 14   $ 36   $ 13   $ 17   $ 6   $ 46   $ 22     Amortization of gains and losses     —     61     —     (58 )   20     12     28     (17 )                                   Net periodic benefit costs   $ 49   $ 75   $ 36   $ (45 ) $ 37   $ 18   $ 74   $ 5                                     82       Assumptions           Weighted average assumptions used to determine benefit obligations:         2005   2004         NCC Plan   Company Plan   NCC Plan   Company Plan     Discount rate   5.50 % 5.50 % 5.75 % 5.75 %            Weighted average assumptions used to determine net periodic benefit costs:         Successor   Predecessor         For the year ended December 31, 2005   For the period from May 11, 2004 through January 1, 2005   For the period from December 28, 2003 through May 10, 2004   For the year ended December 27, 2003         NCC Plan   Company Plan   NCC Plan   Company Plan   NCC Plan   Company Plan   NCC Plan   Company Plan     Discount rate   5.75 % 5.75 % 6.25 % 6.25 % 5.75 % 6.25 % 6.25 % 6.50 %    Assumed healthcare cost trend rates          Successor   Predecessor         For the year ended December 31, 2005   For the period from May 11, 2004 through January 1, 2005   For the period from December 28, 2003 through May 10, 2004   For the year ended December 27, 2003         NCC Plan   Company Plan   NCC Plan   Company Plan   NCC Plan   Company Plan   NCC Plan   Company Plan     Healthcare cost trend rate assumed for next year   9.00 % 10.25 % 8.00 % 10.25 % 8.00 % 9.75 % 8.50 % 9.75 %   Rate to which the cost trend rate is assumed to decline   5.00 % 4.50 % 5.00 % 4.50 % 5.00 % 4.50 % 5.00 % 4.50 %   Year that the rate reaches the ultimate trend rate   2013   2014   2010   2013   2010   2011   2010   2010              Assumed healthcare cost trend rates have a significant effect on the amounts reported for the healthcare plans. A 1% point change in assumed healthcare cost trend rates would have the following effects on the NCC Plan:         1% Point Increase   1% Point Decrease     Effect on total of service and interest cost components   $ 2   $ (2 )   Effect on postretirement benefit obligation     30     (30 )            A 1% point change in assumed healthcare cost trend rates would have the following effects on the Company Plan:         1% Point Increase   1% Point Decrease     Effect on total of service and interest cost components   $ 1   $ (1 )   Effect on postretirement benefit obligation     14     (13 )     83       Cash flows   Contributions           The postretirement plans are unfunded plans. As such, we expect to contribute to the plan an amount equal to benefit payments to be made in 2006 which are estimated to be $139.  Estimated future benefit payments           Benefit payments, which reflect future service, as appropriate, are expected to be paid as follows:     2006   $ 139   2007     134   2008     128   2009     122   2010     114   2011-2015     451    14.  CLOSING OF MANUFACTURING FACILITIES           In connection with the Acquisition, we made the decision to exit our cutting and sewing facilities located in Mexico and Florida. We closed one facility in Mexico in January 2005, closed the facility in Florida in June 2005, and closed the remaining facility in Mexico in July 2005. As part of the allocation of the purchase price, we accrued probable employee termination costs of $2,159 relating to services already rendered and vested for employees at these locations. Other costs of $446 associated with retention bonuses have been expensed during the Successor period from May 11, 2004 through January 1, 2005. At January 1, 2005, we had accrued employee termination costs of $2,077 related to the closing of these facilities. During the year ended December 31, 2005, we incurred additional retention bonus expense of $261 and paid $2,103. At December 31, 2005, we have accrued employee termination costs of $235. The retention bonus expense is recorded as part of our wholesale segment.          During 2005, we sold the Mexican and Florida facilities and recognized a loss of $971 which was recorded as a component of cost of sales.  15.  PREFERRED STOCK SUBJECT TO REDEMPTION AND COMMON STOCK SUBJECT TO PUT.           In connection with our initial public offering, we redeemed all the outstanding shares of our preferred stock, including shares of preferred stock acquired upon the exercise of all outstanding options to purchase shares of our preferred stock, and paid all accrued and unpaid dividends associated with the preferred stock and preferred stock options. In addition, the put option on certain shares of common stock classified as temporary equity was extinguished as a result of the initial public offering and such common stock is no longer being classified as temporary equity.          On June 1, 2005, the Board of Directors approved a special cash dividend to all holders of preferred stock as of June 1, 2005 in the aggregate amount of $13,320. This dividend was paid on June 21, 2005 and was accounted for as a reduction to additional paid-in capital to the extent available and as a reduction to retained earnings (accumulated deficit).          We issued 360,000 shares of preferred stock, $0.01 par value, with a liquidation value of $36,000 in connection with the Acquisition. All preferred shares were redeemable at the option of the Board of Directors. Our majority stockholder, who owned approximately 65% of our outstanding   84        common and preferred stock at the time of the Acquisition, had the right to designate a majority of the members of our Board of Directors. Therefore, because any redemption of the preferred stock would be ratable across all preferred stockholders, the redemption of all shares of preferred stock were deemed to be within the control of our majority stockholder and were classified outside of total stockholders' equity (deficit) on our consolidated balance sheet beginning May 11, 2004. We obtained an appraisal by an independent third party which determined the fair market value for the preferred stock to be $36,735 at May 11, 2004.          The preferred stock, which had a redemption premium of $2,145, if redeemed during the period from May 11, 2004 through May 1, 2005, was accreted to $38,880 on May 11, 2004. Accordingly, this accretion was recorded as a reduction in net income (loss) available to common stockholders. The redemption premium was 108% at May 11, 2004 and was scheduled to reduce by two percentage points each year commencing on May 1, 2005 until reaching 100% on May 1, 2008. We reduced the redemption value from $108 per share to $106 per share on May 1, 2005. Accordingly, this change in redemption value of $720 was recorded as an increase in net income (loss) available to common stockholders.          Dividends were cumulative, accrued quarterly on the first day of August, November, February and May, and accrue at 15% per annum. At January 1, 2005, we had accrued $2,611 in dividends on preferred stock which is included with preferred stock outside of total stockholders' equity (deficit) on our consolidated balance sheet. During the Successor year 2005, we accrued $4,664 in dividends on preferred stock and dividends on preferred stock options. In connection with the initial public offering, we paid all accrued and unpaid dividends associated with the preferred stock and preferred stock options.          In connection with the Acquisition, we granted 14,055 preferred stock options to key employees. In accordance with the terms of the option agreement, when the outstanding preferred stock is redeemed then the underlying rollover preferred stock options would also be redeemed at the same terms, net of the exercise price.          In connection with the Acquisition, a majority stockholder of Predecessor who was also a stockholder of Successor received 75,000 of the 360,000 shares of preferred stock, $0.01 per value, and also received 4,125,000 of the 19,800,000 shares of common stock, $0.01 par value, as rollover equity valued at $15,000. This stockholder had a put option, with some limitations, to put these shares back to us in an amount equal to 85% of the fair market value at the time of the put election (May 10, 2007), limited to $15,000, less any amount already received from previously sold shares, cash dividends and cash distributions. In addition, the put terminates upon a liquidity event such as an initial public offering. Because of this put option, these shares were classified outside of total stockholders' equity (deficit) on our consolidated balance sheet and stated as common stock of $6,356 and preferred stock of $8,644 at January 1, 2005. As the carrying amount of the preferred stock increases as a result of dividends and accretion, the carrying amount of the common stock classified outside of total stockholders' equity (deficit) was reclassified to additional paid-in capital to the extent the combined amount was greater than the put of $15,000. This reclassification amounted to $768 and $511 during Successor year 2005 and during the Successor period May 11, 2004 through January 1, 2005, respectively.   85         16.  STOCKHOLDERS' EQUITY (DEFICIT)           On July 22, 2005, we priced an initial public offering of 14,513,889 shares of common stock of which 3,375,000 and 11,138,889 shares were offered by us and selling stockholders, respectively, at a price of $17.00 per share. Upon the consummation of the offering on July 27, 2005, net proceeds of $52,579 and $176,106 were distributed to us and selling stockholders, respectively. We did not receive any of the proceeds from the sale of shares by the selling stockholders.          In connection with the Acquisition, we issued 19,800,000 shares of common stock, $0.01 par value, of which 4,125,000 shares were classified outside of total stockholders' equity (deficit), see Note 15, "Preferred Stock Subject to Redemption and Common Stock Subject to Put." This put option on 4,125,000 shares of common stock classified as temporary equity was extinguished as a result of the initial public offering and such common stock is no longer being classified as temporary equity.          On December 2, 2003, we repurchased 328,943 shares of common stock from a stockholder at a price of $8.25 per share for a total of $2,714. On December 12, 2003, the Board of Directors approved a cash dividend to be paid to all holders of shares of common stock as of a record date of December 12, 2003 in the amount of $3.64 per share. The total dividend of $49,969 was paid on December 22, 2003. The dividend was accounted for as a reduction to additional paid-in capital.  17.  STOCK OPTION PLANS           On July 6, 2005, the Board of Directors adopted the Maidenform Brands, Inc. 2005 Stock Incentive Plan pursuant to which the Company can grant to employees, consultants and non-employee directors equity-based awards. Under this plan, 1,750,000 shares were set aside and reserved for issuance. The plan provides for a variety of vesting dates with the majority of the options vesting in an annual increment of 25% of the number of options granted over the first four years of the grant and expiring no later than ten years after date of grant.          The Board of Directors also amended the Maidenform Brands, Inc. 2004 Rollover Stock Option Plan, the Maidenform Brands, Inc. 2004 Stock Option Plan and the Maidenform Brands, Inc. 2004 Stock Option Plan for Non-Employees Directors to provide that no additional equity-based awards shall be available for issuance under these plans, although previously granted stock options will continue to remain outstanding in accordance with the terms of the applicable option agreement and the applicable plan.          The fair value of the stock options on the grant dates were $4,439, $3,644 and $8,680 for stock options granted during the Successor year 2005, during the Successor period May 11, 2004 through January 1, 2005, and Predecessor year 2003 and prior, respectively. These amounts are being expensed over the vesting periods. We recorded stock compensation expense, which represents the amortization of the fair value of the stock options issued, of approximately, $1,609 for the Successor year 2005, $251 for the Successor period May 11, 2004 through January 1, 2005 and $6,869 for the Predecessor period December 28, 2003 through May 10, 2004, and $1,811 for the Predecessor year 2003.          In connection with the Acquisition, we terminated all existing Employee Stock Option Plans, Non-Employee Directors Stock Option Plans and Employment Option Agreements of the Predecessor which had been formed to provide incentives to our employees and directors in Predecessor periods (the "Former Plans"). All outstanding options under the Former Plans expired or were cashed out, canceled, or exchanged for Successor options.   86                In connection with the Acquisition, we granted options under the Rollover Plan in substitution for certain in-the-money options under the Former Plans. Those options issued under the Former Plans were vested as a result of the Acquisition and compensation expense had been recognized in the Predecessor periods. Under this plan, 775,000 shares of common stock and 14,100 shares of preferred stock were reserved for issuance upon exercise of options granted to key employees. Each Rollover Plan option vested in full on the date of grant and expires no later than ten years after the initial date of grant. No additional equity-based awards shall be available for issuance under the Rollover Plan, although previously granted stock options will continue to remain outstanding in accordance with the original terms of the awards under this plan.          On May 11, 2004, we adopted the 2004 Employee Stock Option Plan. Under this plan, 2,500,000 shares were reserved for issuance upon exercise of options granted to key employees. The plan provides for a variety of vesting dates with the majority of the options vesting in an annual increment of 25% of the number of options granted over the first four years of the grant and expiring no later than ten years after date of grant. No additional equity-based awards shall be available for issuance under the Employee Stock Option Plan, although previously granted stock options will continue to remain outstanding in accordance with the original terms of the awards under this plan.          On July 28, 2004, we adopted the 2004 Stock Option Plan for Non-Employee Directors. Under this plan, 250,000 shares were reserved for issuance upon exercise of options granted to non-employee directors with vesting over a three year period and expiring no later than ten years after date of grant. No additional equity-based awards shall be available for issuance under the Stock Option plan for Non-Employee Directors, although previously granted stock options will continue to remain outstanding in accordance with the original terms of the awards under this plan.          The following table summarizes stock options outstanding and exercisable at December 31, 2005:         Options Outstanding   Options Exercisable   Range of Exercise Prices   Options Outstanding   Weighted Average Remaining Contract Life   Weighted Average Exercise Price   Number Exercisable   Weighted Average Exercise Price   $1.82   1,049,585   8.8 years   $ 1.82   318,254   $ 1.82   3.64   1,049,585   8.8 years     3.64   318,254     3.64   11.85 – 17.00   519,000   7.6 years     16.89   —     —   0.01   317,529 (1) 6.8 years     0.01   317,529     .01   0.06   102,172 (1) 6.0 years     0.06   102,172     .06                                 3,037,871             1,056,209                                      (1)Options outstanding under the 2004 Rollover Stock Option Plan.   87               Changes in options outstanding are summarized as follows:         Successor   Predecessor       For the year ended December 31, 2005   For the period from May 11, 2004 through January 1, 2005   For the period from December 28, 2003 through May 10, 2004   For the year ended December 27, 2003       Number of Options   Weighted Average Exercise Price   Number of Options   Weighted Average Exercise Price   Number of Options   Weighted Average Exercise Price   Number of Options   Weighted Average Exercise Price   Options outstanding, beginning of year   2,815,409   $ 1.98   —   $ —   1,566,406   $ 10.77   1,518,817   $ 10.80   Options granted—common   608,148     15.01   2,892,790     2.01   —     —   51,080     10.77   Options granted—preferred   —     —   14,055     1.63   —     —   —     —   Options cancelled or forfeited   (59,001 )   2.95   (91,436 )   2.73   (33,181 )   225.30   (6,354 )   14.14   Options cashed out   —     —   —     —   (1,274,078 )   6.19   —     —   Options exercised—common   (313,357 )   .02   —     —   —     —   —     —   Options exercised—preferred   (13,328 )   1.52   —     —   —     —   —     —   Predecessor options exchanged for Successor options   —     —   —     —   (259,147 )   5.82   —     —   Additional options issued due to anti-dilution features   —     —   —     —   —     —   2,863     —                                 Options outstanding, end of year   3,037,871   $ 4.77   2,815,409   $ 1.98   —   $ —   1,566,406   $ 10.77                               Options exercisable, end of year, common   1,056,209   $ 1.65   901,614   $ .41   —   $ —   1,395,377   $ 11.19                               Options exercisable, end of year, preferred   —   $ —   14,055   $ 1.63   —   $ —   —   $ —                                        The following table summarizes stock options issued and outstanding, excluding the 2004 rollover stock options outstanding, at December 31, 2005 whose exercise price equals, exceeds, or is less than the fair market value of the stock on the date of grant.     Options Outstanding   Weighted Average Exercise Price   Weighted Average Fair Market Value   1,033,325   $ 9.39   $ 9.39   905,754     3.64     2.15   679,091     2.25     7.63                  2,618,170                                88         18.  ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)           The components of and changes in accumulated other comprehensive income (loss) are as follows:         Foreign Currency Translation Adjustment(1)   Minimum Pension Liability(2)   Interest Rate Swaps, (net of tax)   Accumulated Other Comprehensive Income (Loss)     Predecessor                             Balance, at December 28, 2002   $ 139   $ (2,836 ) $ —   $ (2,697 )   Changes during the year     (289 )   1,062     —     773                       Balance, at December 27, 2003     (150 )   (1,774 )   —     (1,924 )   Changes during the period     (149 )   (179 )   —     (328 )                     Balance, at May 10, 2004   $ (299 ) $ (1,953 ) $ —   $ (2,252 )                     Successor                             Changes during the period   $ 169   $ —   $ (178 ) $ (9 )                     Balance, at January 1, 2005     169     —     (178 )   (9 )   Changes during the period   $ (169 ) $ —   $ 392   $ 223                       Balance, at December 31, 2005   $ —   $ —   $ 214   $ 214                          (1)No tax benefit has been provided associated with the foreign currency translation adjustment due to management's decision to reinvest the earnings of our foreign subsidiaries indefinitely. (2)No tax benefit has been provided associated with the minimum pension liability due to the limitations of the realizability of deferred tax assets.   19.  INCOME TAXES           Income (loss) before provision for income taxes consists of the following:         Successor   Predecessor       For the year ended December 31, 2005   For the period from May 11, 2004 through January 1, 2005   For the period from December 28, 2003 through May 10, 2004   For the year ended December 27, 2003   Domestic   $ 17,522   $ (5,625 ) $ (3,144 ) $ 21,556   Foreign     153     689     20     553                     Total   $ 17,675   $ (4,936 ) $ (3,124 ) $ 22,109                     89               Our provision (benefit) for income taxes consists of the following:           Successor    Predecessor         For the year ended December 31, 2005   For the period from May 11, 2004 through January 1, 2005   For the period from December 28, 2003 through May 10, 2004   For the year ended December 27, 2003     Current                             Federal   $ 1,675   $ 334   $ 1,295   $ (318 )   State and local     1,502     186     (42 )   465     Foreign     466     310     86     309                             3,643     830     1,339     456                       Deferred                             Federal     4,799     (2,368 )   (1,028 )   (4,790 )   State and local     602     (30 )   811     (587 )   Foreign     (309 )   —     —     —                             5,092     (2,398 )   (217 )   (5,377 )                       Total income tax provision (benefit)   $ 8,735   $ (1,568 ) $ 1,122   $ (4,921 )                              Our income tax rate is reconciled to the U.S. federal statutory tax rate as follows:         Successor   Predecessor         For the year ended December 31, 2005   For the period from May 11, 2004 through January 1, 2005   For the period from December 28, 2003 through May 10, 2004   For the year ended December 27, 2003     Federal statutory tax rate   35.0 % (35.0 )% (35.0 )% 35.0 %   Foreign income taxes   (0.3 ) (0.1 ) 2.3   (2.2 )   State and local income taxes, net of federal benefit   7.8   1.8   19.4   1.4     Equity related costs   7.6   —   —   —     Foreign deemed dividend   1.1   —   —   —     Change in tax method   (2.1 ) —   —   —     Acquisition-related costs   —   —   47.9   —     Change in deferred tax valuation allowance   —   —   —   (56.8 )   Other   0.3   1.5   1.3   0.3                         Effective tax rate   49.4 % (31.8 )% 35.9 % (22.3 )%                       90               Deferred tax assets (liabilities) at December 31, 2005 and January 1, 2005 are comprised of the following:         2005   2004     Deferred tax assets—current                 Accounts receivable reserves   $ 4,118   $ 2,031     Inventory reserves     2,172     2,933     Accrued liabilities     1,925     3,270     Other, net     509     869                       8,724     9,103                 Deferred tax (liabilities) assets—noncurrent                 Depreciation and amortization     (105 )   (1,118 )   Net operating losses     23,575     30,106     AMT credit     1,437     1,069     Intangible assets     (40,353 )   (40,632 )   Pension and postretirement liabilities     2,579     2,532     Other, net     2,113     1,041                       (10,754 )   (7,002 )                 Net deferred tax (liabilities) assets   $ (2,030 ) $ 2,101                          Our income tax payable of $930 at December 31, 2005 was included in accrued expenses and other current liabilities. Our income tax receivable of $2,493 at January 1, 2005 was included in prepaid expenses and other current assets.          In the Successor year 2005, we recorded an increase in additional paid-in capital of approximately $2,775 for tax benefits from the exercise of stock options.          Section 382 of the Internal Revenue Code (Section 382) imposes limitations on a corporation's ability to utilize its net operating losses (NOLs) if it experiences an "ownership change." In general terms, an ownership change results from transactions increasing the ownership of certain existing stockholders and, or, new stockholders in the stock of a corporation by more than 50 percentage points during a three year testing period. Upon emergence from bankruptcy, our NOLs were subject to Section 382 limitations. As a result of the Acquisition, we experienced an ownership change, as defined by Section 382. As a result of this ownership change, the utilization of our NOLs are subject to a new annual limitation under Section 382. Any unused annual limitation may be carried over to later years, and the amount of the limitation may, under certain circumstances, be increased to reflect both recognized and deemed recognized "built-in gains" that occur during the 60-month period after the ownership change. Based on fair values of certain assets as determined in connection with the Acquisition (see Note 4, "Change in Ownership"), we had approximately $66,700 of built-in gains that are anticipated to be recognized or deemed recognized during the aforementioned 60-month period. In addition, the sale of shares in the July 2005 initial public offering resulted in an ownership change for the purpose of Section 382. This ownership change resulted in an increase to the annual limitation, however, since the 2004 annual limitation was less than the 2005 limitation, our NOLs will continue to be subject to the 2004 Section 382 limitation, including the effect of recognized and deemed recognized "built-in-gains." At December 31, 2005, we had approximately $73,800 federal and state NOLs available for future utilization during the years of 2006 through 2023. During the Successor year 2005, our combined limitation for our NOLs was approximately $20,900 and we utilized approximately $19,500 of NOLs. During the Successor   91        period May 11, 2004 through January 1, 2005, we utilized approximately $16,000 of NOLs. During the Predecessor year 2003, we utilized approximately $14,100 of NOLs.          At December 31, 2005, we had approximately $1,900 of undistributed earnings from foreign operations. No deferred taxes have been provided because we believe these earnings will be permanently reinvested abroad.          SFAS No. 109 requires us to evaluate the recoverability of our deferred tax assets on an ongoing basis. The assessment requires us to consider all available positive and negative evidence to determine whether, based on such evidence, it is more likely than not that our net deferred tax assets will be realized in future periods. Upon emergence from bankruptcy in 1999, we provided a valuation allowance against our net deferred tax assets due to the uncertainty of the future recognition of such assets as a result of prior financial results and the timing of net operating loss carryforward expirations. We generated losses before provision for income taxes for all years subsequent to our emergence from bankruptcy until 2002.          During the Predecessor year 2003, we determined that the available positive evidence carried more weight than the historical negative evidence and concluded it was more likely than not that the net deferred tax assets would be realized in future periods. Therefore, the valuation allowance in the amount of $52,683 was reversed in the Predecessor year 2003. The positive evidence we considered included operating income and cash flows for the Predecessor years 2002 and 2003, and anticipated operating income and cash flows for future periods in sufficient amounts to realize the net deferred tax assets.          In accordance with SOP 90-7, income tax benefits realized from periods before the Bankruptcy ("pre-confirmation") net operating loss carryforwards and reductions in pre-confirmation deferred tax asset valuation allowances are first credited against goodwill and then to paid-in capital. The reversal of the valuation allowance in Predecessor year 2003 reduced the carrying value of goodwill by $28,305 and increased paid-in capital by $19,001. Income tax benefits realized from post-confirmation net operating loss carryforwards and reductions in post-confirmation deferred tax asset valuation allowances were recorded in the amount of $5,377 for the Predecessor year 2003.  20.  COMMITMENTS AND CONTINGENCIES   Purchase commitments           In the normal course of business, we enter into purchase commitments covering inventory requirements both of raw materials and finished goods. At December 31, 2005, we had purchase commitments of $56,791 and believe that we have adequate reserves for expected losses arising from all purchase commitments.  Litigation           We are party to various legal actions arising in the ordinary course of business. Based on information presently available to us, we believe that we have adequate legal defenses, reserves or insurance coverage for these actions and that the ultimate outcome of these actions will not have a material adverse effect on our consolidated statements of financial position, results of operations or cash flows.   92         21.  ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES          2005   2004   Accrued wages, incentive compensation and payroll taxes   $ 6,724   $ 7,497   Accrued employee termination costs     235     2,077   Accrued professional fees     1,249     2,036   Accrued trade promotion     2,277     1,152   Accrued other     7,768     9,572                 $ 18,253   $ 22,334                      Other accrued expenses and current liabilities include, among other items, accrued interest, accrued medical insurance, and accrued advertising.  22.  VALUATION AND QUALIFYING ACCOUNTS          Allowance for         Doubtful Accounts   Inventory Valuation   Sales Returns and Allowance     Predecessor                       Balance, at December 28, 2002   $ 312   $ 5,896   $ 7,950     Additions, charged to expense     53     2,493     22,994     Write-offs     (10 )   (5,156 )   (25,345 )                  Balance, at December 27, 2003     355     3,233     5,599     Additions, charged to expense     (82 )   3,188     7,778     Write-offs     —     (945 )   (9,556 )                  Balance, at May 10, 2004   $ 273   $ 5,476   $ 3,821                    Successor                          Balance, at May 11, 2004   $ 273   $ —   $ 3,821     Additions, charged to expense     (127 )   5,143     23,749     Write-offs     42     (1,551 )   (21,829 )                  Balance, at January 1, 2005     188     3,592     5,741     Additions, charged to expense     60     4,184     40,894     Write-offs     (24 )   (4,976 )   (38,859 )                  Balance, at December 31, 2005   $ 224   $ 2,800   $ 7,776                             In addition to the allowances for doubtful accounts and sales returns, we also include in accounts receivable reserves a reserve for markdowns and co-op advertising commitments.   93        23.  MAJOR CUSTOMERS AND SUPPLIERS           Each of the following wholesale segment customers were greater than 10% of our total net sales:         Successor   Predecessor         For the year ended December 31, 2005   For the period from May 11, 2004 through January 1, 2005   For the period from December 28, 2003 through May 10, 2004   For the year ended December 27, 2003     Customer A   12.9 % 16.0 % 10.6 % 13.8 %   Customer B   12.4 %     10.4 % 10.8 %            At December 31, 2005 and January 1, 2005, our five largest uncollateralized receivables represented approximately 53% and 55% of total accounts receivable.         Successor   Predecessor       For the year ended December 31, 2005   For the period from May 11, 2004 through January 1, 2005   For the period from December 28, 2003 through May 10, 2004   For the year ended December 27, 2003   Major suppliers information                   Number of major suppliers     3         4         4         3       % of total purchases   57%   56%   57%   56%                    24.  RELATED PARTY TRANSACTIONS           We enter into various lease agreements for our retail stores with entities controlled by Chelsea Property Group ("Chelsea"). An executive officer of Chelsea is the spouse of our Senior Vice President of Retail and Licensing. At December 31, 2005, January 1, 2005, and December 27, 2003, we had 22, 26 and 30 leases with Chelsea, respectively. We incurred rent expense in the amount of $2,227 for the Successor year 2005, $1,430 for the Successor period May 11, 2004 through January 1, 2005 and $861 for the Predecessor period December 28, 2003 through May 10, 2004, and $2,044 for the Predecessor year 2003, in connection with these leases.          As a result of the initial public offering, Ares Corporate Opportunity Fund, L.P. (the "Fund") reduced its holdings from 12,925,000 shares of common stock and 235,000 shares of preferred stock, which represented approximately 65% of our outstanding common and preferred stock, to holdings of 7,400,000 shares of common stock which represents approximately 31.5% of our common stock. In connection with the Acquisition, we entered into an advisory agreement with ACOF Operating Manager, L.P. (together with the Fund, the "Ares Entities"), whereby we pay the Ares Entities an annual advisory fee of $250 plus reimbursements for reasonable expenses. In connection with the initial public offering, we terminated the advisory agreement and paid Ares Entities $893 during fiscal 2005 for a prorated portion of the advisory fee and a termination fee. Through January 1, 2005, we paid the Ares Entities $160 under this agreement. In addition, upon completion of the Acquisition, we paid the Ares Entities a fee for services rendered in connection with structuring the Acquisition of $2,000, $600 of which is included in deferred financing costs and being amortized over the life of the obligation and $1,400 is included in the cost of the Acquisition.   94                Our Restated Credit Facility, which includes a consortium of institutions, was arranged with a financial institution who acts as the Administrative Agent for our Restated Credit Facility. The Administrative Agent is also a stockholder of the Company beginning May 11, 2004. See Note 9, "Debt," for details related to our Restated Credit Facility. In connection with the amendment on June 29, 2005 and original financing on May 11, 2004, we paid normal transaction costs in the amount of $3,223 and $4,660, respectively. We also incurred interest expense of $10,288 and $6,674 for the Successor year 2005 and Successor period May 11, 2004 through January 1, 2005, respectively.          Entities affiliated with Oaktree Capital sold their holdings in common stock of 4,125,000 shares as a result of the initial public offering. In addition, we paid Oaktree Capital an advisory fee of $250 for their advisory services. In connection with the Acquisition, we paid Oaktree Capital, who manages accounts and funds that hold a majority interest in the Predecessor and some of which are also stockholders of the Successor, a transaction fee of $2,150. This amount was expensed as a cost of the Acquisition during the Predecessor period December 28, 2003 through May 10, 2004.          We obtained various insurance policies in the amount of $393 during the Successor year 2005 and $1,735 during the Successor period May 11, 2004 through January 1, 2005 and the Predecessor period December 28, 2003 through May 10, 2004 from an affiliate of American International Group, Inc. ("AIG"). The policies obtained during the Successor year 2005 were recorded as prepaid expenses and other current assets and amortized over the term of the policies. Of the $1,735, $242 was included in prepaid expenses and other current assets and amortized over the term of the policies and $1,493 was expensed as a cost of the Acquisition during the Predecessor December 28, 2003 through May 10, 2004. In addition, affiliates of AIG also hold a portion of our debt under our existing Restated Credit Facility. AIG manages certain private equity funds which are stockholders of the Company.  25.  SEGMENT INFORMATION           We report segment information in accordance with the provisions of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which requires segment information to be disclosed based on a "management approach." The management approach refers to the internal reporting that we use for making operating decisions and assessing the performance of reportable segments. SFAS No. 131 also requires disclosure about products and services, geographic areas and major customers. For purposes of complying with SFAS No. 131, we identified our two reportable segments as "Wholesale" and "Retail." Our wholesale sales are to department stores, national chain store, mass merchants (including warehouse clubs), specialty stores, off-price retailers, and third party distributors servicing similar customers in foreign countries while our retail segment reflects our operations from our retail stores and Internet operations. Royalty income is also included in our wholesale segment. Within our reportable segments, wholesale includes corporate-related assets. The accounting policies of the segments are the same as those described in Note 3, "Summary of Significant Accounting Policies." Each segment's results include the costs directly related to the segment's net sales and all other costs allocated based on the relationship to consolidated net sales to support each segment's net sales. Intersegment sales and transfers are recorded at cost and treated as a transfer of inventory.   95                Successor   Predecessor       For the year ended December 31, 2005   For the period from May 11, 2004 through January 1, 2005   For the period from December 28, 2003 through May 10, 2004   For the year ended December 27, 2003   Net sales                             Wholesale   $ 327,799   $ 176,515   $ 105,225   $ 238,400     Retail     54,370     38,098     17,190     54,473                       Total   $ 382,169   $ 214,613   $ 122,415   $ 292,873                   Operating (loss) income                             Wholesale   $ 31,936   $ 5,261   $ 14,558   $ 22,494     Retail     1,592     (2,575 )   (1,216 )   1,060      Acquisition—related charges     —     —     (14,286 )   —                       Operating income (loss)     33,528     2,686     (944 )   23,554       Interest expense, net     15,853     7,622     2,180     1,445                       Income (loss) before provision for income taxes   $ 17,675   $ (4,936 ) $ (3,124 ) $ 22,109                   Depreciation and Amortization                               Wholesale   $ 5,265   $ 5,033   $ 1,164   $ 4,368       Retail     1,542     1,147     472     1,126                         Total   $ 6,807   $ 6,180   $ 1,636   $ 5,494                   Net sales by geographic area                               United States   $ 355,379   $ 202,211   $ 116,574   $ 279,229       International     26,790     12,402     5,841     13,644                         Total   $ 382,169   $ 214,613   $ 122,415   $ 292,873                   Intercompany sales from wholesale to retail   $ 12,634   $ 7,374   $ 4,508   $ 13,050                     96               2005    2004   Inventories                 Wholesale(1)   $ 28,432   $ 28,343     Retail     6,823     8,724                 Total   $ 35,255   $ 37,067             Identifiable assets                 Wholesale   $ 221,597   $ 215,959     Retail     25,751     28,172                 Total   $ 247,348   $ 244,131             Property, plant and equipment, net, by geographic area                 United States   $ 17,960   $ 26,519     International     270     1,425                 Total   $ 18,230   $ 27,944                (1)Wholesale inventories include inventories warehoused for the retail segment.   97         26.  EARNINGS (LOSS) PER SHARE           The following is a reconciliation of basic number of common shares outstanding to diluted common and common equivalent shares outstanding:         Successor   Predecessor       For the year ended December 31, 2005   For the period from May 11, 2004 through January 1, 2005   For the period from December 28, 2003 through May 10, 2004   For the year ended December 27, 2003   Net income (loss)   $ 8,940   $ (3,368 ) $ (4,246 ) $ 27,030   Less: Preferred stock dividends and changes in redemption value     (17,264 )   (4,756 )   —     —                   Net (loss) income available to common stockholders   $ (8,324 ) $ (8,124 ) $ (4,246 ) $ 27,030                   Weighted average number of common and common equivalent shares outstanding                           Basic number of common shares outstanding     21,451,654     19,800,000     13,727,879     14,034,230   Dilutive effect of stock options     —     —     —     369,900                   Dilutive number of common and common equivalent shares outstanding     21,451,654     19,800,000     13,727,879     14,404,130                   Basic net (loss) earnings per common share   $ (0.39 ) $ (0.41 ) $ (0.31 ) $ 1.93                   Diluted net (loss) earnings per common share   $ (0.39 ) $ (0.41 ) $ (0.31 ) $ 1.88                            Options to purchase approximately 509,000 and 112,403 shares of common stock were outstanding during the Successor year 2005 and Predecessor year 2003, respectively, but were not included in the computation of diluted earnings per share because the option exercise prices were greater than the average market price of the shares of common stock.          Options to purchase shares of common stock of 1,248,691 for the Successor year 2005, 430,298 for the Successor period May 11, 2004 through January 1, 2005 and 468,261 for the Predecessor period December 28, 2003 through May 10, 2004, were not included in the computation of diluted earnings per share because of their anti-dilutive effect.   98        27.  SELECTED QUARTERLY FINANCIAL DATA (unaudited)           The following table sets forth certain unaudited quarterly financial information:         2005         Successor     Fiscal 2005 (52 weeks)    April 2, 2005   July 2, 2005   October 1, 2005   December 31, 2005     Net sales   $ 100,210   $ 102,291   $ 100,121   $ 79,547     Gross Profit     34,320     38,008     36,663     26,141     Operating income     10,884     13,273     7,960     1,411     Net income (loss)     4,471     2,563     2,115     (209 )   Net income (loss) available to common stockholders     3,023     (11,539 )   401     (209 )   Basic earnings (loss) per share   $ 0.15   $ (0.58 ) $ 0.02   $ (0.01 )   Diluted earnings (loss) per share   $ 0.14   $ (0.58 ) $ 0.02   $ (0.01 )           2004     Fiscal 2004 (53 weeks)    Predecessor March 27, 2004   Predecessor For the period from March 28, 2004 through May 10, 2004   Successor For the period from May 11, 2004 through June 26, 2004   Successor September 25, 2004   Successor January 1, 2005     Net sales   $ 78,574   $ 43,841   $ 50,056   $ 90,060   $ 74,497     Gross Profit     27,358     17,944     10,846     29,030     22,783     Operating income (loss)     6,201     (7,145 )   (2,238 )   5,837     (913 )   Net income (loss)     3,310     (7,556 )   (2,402 )   1,677     (2,643 )   Net income (loss) available to common stockholders     3,310     (7,556 )   (4,547 )   462     (4,039 )   Basic earnings (loss) per share   $ 0.24   $ (0.55 ) $ (0.23 ) $ 0.02   $ (0.20 )   Diluted earnings (loss) per share   $ 0.23   $ (0.55 ) $ (0.23 ) $ 0.02   $ (0.20 )     99         28.  CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY   Maidenform Brands, Inc. Condensed Balance Sheet (in thousands, except share and per share amounts)        December 31, 2005   January 1, 2005     Assets                   Investment in Maidenform, Inc.   $ 51,948   $ 46,766       Other assets     12     —                     Total current assets     51,960     46,766       Deferred tax asset     743     —                     Total assets   $ 52,703   $ 46,766                 Liabilities and stockholders' equity (deficit)                   Current liabilities                   Accrued expenses   $ —   $ 41                     Total current liabilities     —     41                  Preferred stock, Subject to redemption, $0.01 par value; liquidation value $100; 50,000,000 shares authorized; 360,000 shares issued and outstanding at January 1, 2005      —      41,491     Common stock, Subject to put option, $0.01 par value; 4,125,000 issued and outstanding at January 1, 2005 (out of a total 100,000,000 shares authorized)     —     6,356      Stockholders' equity (deficit)                     Preferred stock—Subject to redemption, $0.01 par value, 10,000,000 shares authorized and none issued and outstanding     —     —       Common stock, $0.01 par value; 100,000,000 shares authorized; 23,488,357 shares at December 31, 2005 and 15,675,000 shares at January 1, 2005 issued and outstanding     235     157       Additional paid-in capital     59,063     2,098       Accumulated deficit     (6,809 )   (3,368 )     Accumulated other comprehensive income (loss)     214     (9 )                   Total stockholders' equity (deficit)     52,703     (1,122 )                   Total liabilities and stockholders' equity (deficit)   $ 52,703   $ 46,766                  The accompanying note is an integral part of these condensed financial statements.   100       Maidenform Brands, Inc. Condensed Statement of Income (in thousands, except share and per share amounts)        Successor         For the year ended December 31, 2005   For the period from May 11, 2004 through January 1, 2005     Selling, general and administrative expense   $ (5,486 ) $ (251 )   Income tax benefit     656     99                 Loss before equity in net income (loss) of Maidenform, Inc.     (4,830 )   (152 )   Equity in net income (loss) of Maidenform, Inc. (net of tax)     13,770     (3,216 )                 Net income (loss)     8,940     (3,368 )    Preferred stock dividends and change in redemption value      (17,264 )    (4,756 )                  Net loss available to common stockholders   $  (8,324 ) $  (8,124 )                Basic loss per common share   $  (0.39 ) $  (0.41 )               Diluted loss per common share   $ (0.39 ) $ (0.41 )                Basic weighted average number of shares outstanding      21,451,654      19,800,000                 Diluted weighted average number of shares outstanding     21,451,654     19,800,000                  The accompanying note is an integral part of these condensed financial statements.   101         Maidenform Brands, Inc. Condensed Statement of Stockholders' Equity (Deficit) (in thousands, except share amounts)          Common Stock                                  Accumulated Other Comprehensive Income (Loss)   Total Stockholders' (Deficit) Equity         Shares    $   Additional Paid-in Capital   Accumulated Deficit     Successor:                                       Issuance of common stock at fair market value   15,675,000   $ 157   $ 27,761   $ —   $ —   $ 27,918     Deemed dividend to continuing stockholders               (21,529 )               (21,529 )   Preferred stock dividends and changes in redemption value               (4,756 )               (4,756 )   Adjust common stock, subject to put option, to redemption value               511                 511     Stock compensation               251                 251     Other stock transactions               (140 )               (140 )   Comprehensive loss                                       Net loss                     (3,368 )         (3,368 )   Changes during the period                           (9 )   (9 )                                          Total comprehensive loss                                 (3,377 )                           Balance at January 1, 2005   15,675,000     157     2,098     (3,368 )   (9 )   (1,122 )   Preferred stock dividends and changes in redemption value               (4,883 )   (12,381 )         (17,264 )   Initial public offering and exercise of stock options   3,688,357     37     52,542                 52,579     Reclassification of common stock subject to put option—upon extinguishment of put option   4,125,000     41     5,547                 5,588     Preferred stock options purchased               (1,393 )               (1,393 )   Adjust common stock, subject to put option, to redemption value               768                 768     Tax effect from exercise of stock options               2,775                 2,775     Stock compensation               1,609                 1,609     Comprehensive income                                       Net income                     8,940           8,940     Changes during the period                           223     223                                            Total comprehensive income                                 9,163                             Balance at December 31, 2005   23,488,357   $ 235   $ 59,063   $ (6,809 ) $ 214   $ 52,703                              The accompanying note is an integral part of these condensed financial statements.   102       Maidenform Brands, Inc. Condensed Statement of Cash Flows (in thousands)          Successor         For the year ended December 31, 2005   For the period from May 11, 2004 through January 1, 2005     Cash flows from operating activities                 Net income (loss)   $ 8,940   $ (3,368 )   Adjustments to reconcile net income (loss) to net cash provided by operating activities                   Stock compensation     1,609     251       Deferred income taxes     (644 )   —       Tax benefit from exercise of stock options     2,775     —       Equity in net income (loss) of Maidenform, Inc.     (13,770 )   3,216       Net change in operating activities                     Other assets     (12 )   —         Accrued expenses     —     (99 )                     Net cash from operating activities     (1,102 )   —                 Cash flows from investing activities                 Investment in Maidenform, Inc.     8,811     (57,000 )                     Net cash from investing activities     8,811     (57,000 )               Cash flows from financing activities                 Proceeds from issuance of preferred and common stock     52,579     57,000     Redemption of preferred stock and preferred options and payment of accumulated dividends     (46,828 )   —     Special cash dividend paid to preferred stockholders     (13,320 )   —     Common stock options purchased     (140 )   —                       Net cash from financing activities     (7,709 )   57,000                       Net change in cash     —     —     Cash and cash equivalents                 Beginning of period     —     —                 End of period   $ —   $ —                 Supplementary disclosure of cash flow information                 Non-cash intercompany transaction   $ —   $ (7,009 )                The accompanying note is an integral part of these condensed financial statements.   103       Maidenform Brands, Inc. Note to Condensed Financial Statement of Parent Company (in thousands)   BASIS OF PRESENTATION           On May 11, 2004, a wholly owned subsidiary of MF Acquisition Corporation acquired Maidenform Inc. (the "Acquisition"), pursuant to an Agreement and Plan of Merger (the "Merger Agreement") dated March 16, 2004, as amended on May 3, 2004, by and among Maidenform, Inc., MF Merger Corporation, MF Acquisition Corporation, and Ares Corporate Opportunities Fund, L.P. ("Ares"). Financing for the Acquisition totaled $237,265 (including $8,137 of transaction-related fees and expenses). Stockholders of Maidenform, Inc. received either cash or stock of MF Acquisition Corporation in exchange for their shares of Maidenform, Inc. On April 5, 2005, MF Acquisition Corporation changed its name to Maidenform Brands, Inc. (the "Parent Company"). The condensed financial statements for the period including and after May 11, 2004 are designated as Successor. For the predecessor periods, the Company (as defined below) did not have a holding company structure, therefore the results of operations of the Parent Company are the same as those of the Company.          The Parent Company follows the accounting policies as described in Note 3 to the Consolidated Financial Statements of Maidenform Brands, Inc. and subsidiaries (the "Company") included in the accompanying prospectus with the exception of its investment in its subsidiary for which the Parent Company uses the equity method of accounting.          For further information, reference should be made to the Notes to Consolidated Financial Statements of the Company included in this Annual Report of Form 10-K.  29.  SUBSEQUENT EVENT           On February 8, 2006, the Board of Directors approved a stock repurchase program in an amount up to $20 million. Our current Credit Facility was amended to permit the plan, subject to certain restrictions and limitations set forth in the amendment to the Credit Facility. The stock repurchase program, which is open-ended, will allow us to repurchase our shares on the open market, depending on market conditions and other corporate considerations, from available cash flow and borrowings under the Revolving Facility. All shares will be purchased at prevailing market prices. Repurchased shares will be held in treasury for use in connection with our stock option plans and for general corporate purposes.   104       ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE           None.  ITEM 9A.    CONTROLS AND PROCEDURES   Evaluation of Disclosure Controls and Procedures.           Our management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our "disclosure controls and procedures," as that term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of December 31, 2005. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and to ensure that information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.  Changes in Internal Controls Over Financial Reporting.           There were no changes in our internal controls over financial reporting during the quarter ended December 31, 2005 identified in connection with the evaluation thereof by our management, including the Chief Executive Officer and Chief Financial Officer, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.  ITEM 9B.    OTHER INFORMATION           None.   105              PART III      ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT           The information required by this Item 10 is incorporated by reference from the definitive proxy statement for our 2006 Annual Meeting of Stockholders, to be filed not later than April 28, 2006.  ITEM 11. EXECUTIVE COMPENSATION           The information required by this Item 11 is incorporated by reference from the definitive proxy statement for our 2006 Annual Meeting of Stockholders, to be filed not later than April 28, 2006.  ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS           The information required by this Item 12 with respect to the security ownership of certain beneficial owners and management is incorporated by reference from the definitive proxy statement for our 2006 Annual Meeting of Stockholders, to be filed not later than April 28, 2006.          The following table provides certain information regarding the common stock authorized for issuance under our equity compensation plans, as of December 31, 2005.     Plan Category    Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a)   Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (b)   Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (2) (c)   Equity compensation plans approved by stockholders(1)   3,037,871   $ 4.77   1,234,000   Equity compensation plans not approved by stockholders   —     —   —                Total   3,037,871   $ 4.77   1,234,000                   (1)Our equity compensation plans which were approved by our stockholders are the 2004 Rollover Stock Option Plan, as amended, 2004 Stock Option Plan, as amended, 2004 Stock Option Plan for Non-Employees Directors, as amended, and the 2005 Stock Incentive Plan. (2)Excludes securities reflected in column (a). Effective July 6, 2005, we amended our 2004 Rollover Stock Option Plan, our 2004 Stock Option Plan, and our 2004 Stock Option Plan for Non-Employees Directors to provide that no additional equity-based awards shall be available for issuance under these plans, although previously granted stock options will continue to remain outstanding in accordance with the terms of the applicable option agreement and the applicable plan. Also see notes to the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.  ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS           The information required by this Item 13 is incorporated by reference from the definitive proxy statement for our 2006 Annual Meeting of Stockholders, to be filed not later than April 28, 2006.  ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES           The information required by this Item 14 is incorporated by reference from the definitive proxy statement for our 2006 Annual Meeting of Stockholders, to be filed not later than April 28, 2006.   106              PART IV      ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES    (a)Financial Statements and Schedules   (1)The financial statements required to be filed as part of this report are set forth in Item 8 of Part II of this report. (2)Exhibits. See Item 15(b) below.  (b)Exhibits required by Item 601 of Regulation S-K     Exhibit No.    Description   3.1(a)*   Amended and Restated Certificate of Incorporation   3.1(b)*   Certificate of Amendment of Amended and Restated Certificate of Incorporation   3.1(c)*   Second Certificate of Amendment of Amended and Restated Certificate of Incorporation   3.2*   Form of Amended and Restated Certificate of Incorporation to be in effect upon the consummation of this offering   3.3*   Bylaws   3.4*   Form of Amended and Restated Bylaws to be in effect upon the consummation of this offering   4.1*   Specimen Common Stock Certificate   4.2*   Amended and Restated Stockholders Agreement, dated as of July 8, 2005, by and among the Registrant and the stockholders of the Registrant listed on the signature pages thereto   4.3*   See Exhibits 3.1, 3.2, 3.3 and 3.4 for provisions defining the rights of holders of common stock of the Registrant   10.1*   Employment Agreement, dated as of May 11, 2004, between Maidenform, Inc. and Thomas J. Ward #   10.2*   Employment Agreement, dated as of June 14, 2005, between Maidenform, Inc. and Maurice Reznik #   10.3*   Employment Agreement, dated as of October 14, 2004, between Maidenform, Inc. and Dorvin D. Lively #   10.4*   Employment Agreement, dated as of November 1, 1999, between Maidenform, Inc. and Steven N. Masket #   10.5(a)*   2004 Stock Option Plan #   10.5(b)*   Amendment to 2004 Stock Option Plan #   10.6(a)*   2004 Rollover Stock Option Plan #   10.6(b)*   Amendment to 2004 Rollover Stock Option Plan #   10.7(a)*   2004 Stock Option Plan for Non-Employee Directors #   10.7(b)*   Amendment to 2004 Stock Option Plan for Non-Employee Directors #   10.8*   2004 Incentive Plan for Designated Key Employees #   10.9*   2005 Stock Incentive Plan #   10.10*   2005 Annual Performance Bonus Plan #   10.11(a)*   Nonqualified Rollover Common Stock Option Agreement, dated as of May 11, 2004, by and between Maidenform Brands, Inc. and Thomas J. Ward #   10.11(b)*   Nonqualified Rollover Common Stock Option Agreement, dated as of May 11, 2004, by and between Maidenform Brands, Inc. and Thomas J. Ward #              107          10.11(c)*   Nonqualified Rollover Common Stock Option Agreement, dated as of May 11, 2004, by and between Maidenform Brands, Inc. and Maurice S. Reznik #   10.11(d)*   Nonqualified Rollover Common Stock Option Agreement, dated as of May 11, 2004, by and between Maidenform Brands, Inc. and Steven N. Masket #   10.12*   Form of Irrevocable Waiver   10.13(a)*   Amended and Restated Credit Agreement, dated as of June 29, 2005, entered into by and among Maidenform, Inc., Maidenform Brands, Inc., BNP Paribas, as administrative agent, and the financial institutions listed on the signature pages thereto   10.13(b)**   First Amendment to Amended and Restated Credit Agreement, dated as of February 8, 2006, entered into by and among Maidenform, Inc., Maidenform Brands, Inc., BNP Paribas, as administrative agent, and the financial institutions listed on the signature pages thereto   10.14(a)*   Advisory Agreement, dated as of May 11, 2004, by and among MF Merger Corporation, MF Acquisition Corporation, ACOF Operating Manager, L.P. and Ares Corporate Opportunities Fund, L.P.   10.14(b)*   Termination Agreement, dated as of July 18, 2005, by and among Maidenform Brands, Inc., Maidenform, Inc., ACOF Operating Manager, L.P. and Ares Corporate Opportunities Fund, L.P.   10.15*   Form of Indemnification Agreement   10.16*   Form of Sales Restriction Agreement   21.1*   Subsidiaries of the Registrant   23.1***   Consent of Independent Registered Public Accounting Firm, PricewaterhouseCoopers LLP   31.1***   Certification by Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002   31.2***   Certification by Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002   32.1***   Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002   32.2***   Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002      *Incorporated by reference to the identically-numbered exhibit to the registrant's Registration Statement on Form S-1, as amended (Registration Statement No. 333-124228). **Incorporated by reference to Exhibit 99.1 to the registrant's Report on Form 8-K filed on February 9, 2006. ***Filed herewith. #Management contract or compensatory plan or arrangement   108              SIGNATURES              Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 29, 2006.         Maidenform Brands, Inc. (Registrant)         /s/  DORVIN D. LIVELY       Dorvin D. Lively Executive Vice President and Chief Financial Officer            Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 29th day of March 2006.     Signature   Title            /s/  THOMAS J. WARD       Thomas J. Ward   Chief Executive Officer and Vice Chairman of the Board    /s/  DORVIN D. LIVELY       Dorvin D. Lively    Executive Vice President and Chief Financial Officer    /s/  DAVID B. KAPLAN       David B. Kaplan    Chairman of the Board    /s/  NORMAN AXELROD       Norman Axelrod    Director    /s/  BARBARA EISENBERG       Barbara Eisenberg    Director    /s/  KAREN ROSE       Karen Rose    Director    /s/  BENNETT ROSENTHAL       Bennett Rosenthal    Director    /s/  ADAM L. STEIN       Adam L. Stein    Director     109              INDEX TO EXHIBITS              The following is a list of all exhibits filed as part of this Report:     Exhibit No.    Description   3.1(a)*   Amended and Restated Certificate of Incorporation    3.1(b)*    Certificate of Amendment of Amended and Restated Certificate of Incorporation   3.1(c)*   Second Certificate of Amendment of Amended and Restated Certificate of Incorporation   3.2*   Form of Amended and Restated Certificate of Incorporation to be in effect upon the consummation of this offering   3.3*   Bylaws   3.4*   Form of Amended and Restated Bylaws to be in effect upon the consummation of this offering   4.1*   Specimen Common Stock Certificate   4.2*   Amended and Restated Stockholders Agreement, dated as of July 8, 2005, by and among the Registrant and the stockholders of the Registrant listed on the signature pages thereto   4.3*   See Exhibits 3.1, 3.2, 3.3 and 3.4 for provisions defining the rights of holders of common stock of the Registrant   10.1*   Employment Agreement, dated as of May 11, 2004, between Maidenform, Inc. and Thomas J. Ward #   10.2*   Employment Agreement, dated as of June 14, 2005, between Maidenform, Inc. and Maurice Reznik #   10.3*   Employment Agreement, dated as of October 14, 2004, between Maidenform, Inc. and Dorvin D. Lively #   10.4*   Employment Agreement, dated as of November 1, 1999, between Maidenform, Inc. and Steven N. Masket #   10.5(a)*   2004 Stock Option Plan #   10.5(b)*   Amendment to 2004 Stock Option Plan #   10.6(a)*   2004 Rollover Stock Option Plan #   10.6(b)*   Amendment to 2004 Rollover Stock Option Plan #   10.7(a)*   2004 Stock Option Plan for Non-Employee Directors #   10.7(b)*   Amendment to 2004 Stock Option Plan for Non-Employee Directors #   10.8*   2004 Incentive Plan for Designated Key Employees #   10.9*   2005 Stock Incentive Plan #   10.10*   2005 Annual Performance Bonus Plan #   10.11(a)*   Nonqualified Rollover Common Stock Option Agreement, dated as of May 11, 2004, by and between Maidenform Brands, Inc. and Thomas J. Ward #   10.11(b)*   Nonqualified Rollover Common Stock Option Agreement, dated as of May 11, 2004, by and between Maidenform Brands, Inc. and Thomas J. Ward #   10.11(c)*   Nonqualified Rollover Common Stock Option Agreement, dated as of May 11, 2004, by and between Maidenform Brands, Inc. and Maurice S. Reznik #   10.11(d)*   Nonqualified Rollover Common Stock Option Agreement, dated as of May 11, 2004, by and between Maidenform Brands, Inc. and Steven N. Masket #   10.12*   Form of Irrevocable Waiver             110          10.13(a)*   Amended and Restated Credit Agreement, dated as of June 29, 2005, entered into by and among Maidenform, Inc., Maidenform Brands, Inc., BNP Paribas, as administrative agent, and the financial institutions listed on the signature pages thereto   10.13(b)**   First Amendment to Amended and Restated Credit Agreement, dated as of February 8, 2006, entered into by and among Maidenform, Inc., Maidenform Brands, Inc., BNP Paribas, as administrative agent, and the financial institutions listed on the signature pages thereto   10.14(a)*   Advisory Agreement, dated as of May 11, 2004, by and among MF Merger Corporation, MF Acquisition Corporation, ACOF Operating Manager, L.P. and Ares Corporate Opportunities Fund, L.P.   10.14(b)*   Termination Agreement, dated as of July 18, 2005, by and among Maidenform Brands, Inc., Maidenform, Inc., ACOF Operating Manager, L.P. and Ares Corporate Opportunities Fund, L.P.   10.15*   Form of Indemnification Agreement   10.16*   Form of Sales Restriction Agreement   21.1*   Subsidiaries of the Registrant   23.1***   Consent of Independent Registered Public Accounting Firm, PricewaterhouseCoopers LLP   31.1***   Certification by Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002   31.2***   Certification by Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002   32.1***   Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002   32.2***   Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002      *Incorporated by reference to the identically-numbered exhibit to the registrant's Registration Statement on Form S-1, as amended (Registration Statement No. 333-124228). **Incorporated by reference to Exhibit 99.1 to the registrant's Report on Form 8-K filed on February 9, 2006. ***Filed herewith. #Management contract or compensatory plan or arrangement   111       QuickLinks MAIDENFORM BRANDS, INC. INDEX TO ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005  FORWARD-LOOKING STATEMENTS  PART I  PART II  MAIDENFORM BRANDS, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS  Report of Independent Registered Public Accounting Firm  Report of Independent Registered Public Accounting Firm  MAIDENFORM BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts)  MAIDENFORM BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share amounts)  MAIDENFORM BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (in thousands, except share amounts)  MAIDENFORM BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)  MAIDENFORM BRANDS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share amounts)  PART III  PART IV  SIGNATURES  INDEX TO EXHIBITS        EX-23.1 2 a2168810zex-23_1.htm CONSENT OF PWC       QuickLinks  -- Click here to rapidly navigate through this document  Exhibit 23.1       CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM      We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-126777) of Maidenform Brands, Inc. of our report dated March 7, 2006 relating to the financial statements, which appears in this Form 10-K.  We also hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-126777) of Maidenform Brands, Inc. of our report dated April 21, 2005 relating to the financial statements, which appears in this Form 10-K.  PricewaterhouseCoopers LLP Florham Park, New Jersey March 29, 2006       QuickLinks CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM        EX-31.1 3 a2168810zex-31_1.htm 302 CERTIFICATION       QuickLinks  -- Click here to rapidly navigate through this document  Exhibit 31.1       CERTIFICATIONS      I, Thomas J. Ward, certify that:   1.I have reviewed this annual report on Form 10-K of Maidenform Brands, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:   (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and  5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):   (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.           By: /s/  THOMAS J. WARD               Name:   Thomas J. Ward         Title:   Chief Executive Officer and Vice Chairman of the Board of Directors (principal executive officer)    Date: March 29, 2006       QuickLinks CERTIFICATIONS        EX-31.2 4 a2168810zex-31_2.htm 302 CERTIFICATION       QuickLinks  -- Click here to rapidly navigate through this document  Exhibit 31.2       CERTIFICATIONS      I, Dorvin D. Lively, certify that:   1.I have reviewed this annual report on Form 10-K of Maidenform Brands, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:   (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and  5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):   (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.           By: /s/  DORVIN D. LIVELY               Name:   Dorvin D. Lively         Title:   Executive Vice President and Chief Financial Officer (principal financial officer)    Date: March 29, 2006       QuickLinks CERTIFICATIONS        EX-32.1 5 a2168810zex-32_1.htm 906 CERTIFICATION       QuickLinks  -- Click here to rapidly navigate through this document  Exhibit 32.1       Certification Pursuant to 18 U.S.C. Section 1350,  As Adopted Pursuant to Section 906 of the Sarbanes—Oxley Act of 2002              In connection with the Annual Report on Form 10-K of Maidenform Brands, Inc. (the "Company") for the year ended December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Thomas J. Ward, Chief Executive Officer and Vice Chairman of the Board of Directors of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:    (1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.           By: /s/  THOMAS J. WARD               Name:   Thomas J. Ward         Title:   Chief Executive Officer and Vice Chairman of the Board of Directors    Date: March 29, 2006       QuickLinks Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes—Oxley Act of 2002        EX-32.2 6 a2168810zex-32_2.htm 906 CERTIFICATION       QuickLinks  -- Click here to rapidly navigate through this document  Exhibit 32.2       Certification Pursuant to 18 U.S.C. Section 1350,  As Adopted Pursuant to Section 906 of the Sarbanes—Oxley Act of 2002              In connection with the Annual Report on Form 10-K of Maidenform Brands, Inc. (the "Company") for the year ended December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Dorvin D. Lively, Executive Vice President and Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:    (1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.           By: /s/  DORVIN D. LIVELY               Name:   Dorvin D. Lively         Title:   Executive Vice President and Chief Financial Officer    Date: March 29, 2006       QuickLinks Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes—Oxley Act of 2002        -----END PRIVACY-ENHANCED MESSAGE-----