UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]
For the fiscal year ended February 2, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
Commission file number 0-20052
STEIN MART, INC.
(Exact name of registrant as specified in its charter)
Florida 64-0466198
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1200 Riverplace Blvd., Jacksonville, Florida 32207
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (904) 346-1500
Securities registered pursuant to Section 12 (g) of the Act:
Title of each class: Name of each exchange on which registered:
Common Stock $.01 par value The Nasdaq Stock Market(R)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of voting stock held by non-affiliates of the registrant,
Common Stock, based on the $10.05 closing sale price on April 1, 2002 was
$255,771,224. For purposes of this response, executive officers and directors
are deemed to be the affiliates of the registrant and the holdings by
non-affiliates was computed as 25,449,873 shares.
Indicate the number of shares outstanding of each of the registrant's classes of
Common Stock, as of the latest practicable date: 41,586,976 shares were
outstanding as of April 1, 2002.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of the registrant's Proxy Statement for its 2002 Annual Meeting are
incorporated in Part III.
STEIN MART, INC.
TABLE OF CONTENTS
FORM
10-K
REPORT
ITEM NO. PAGE
- -------- ----
PART I
1. Business 3
2. Properties 9
3. Legal Proceedings 10
4. Submission of Matters to a Vote of Security Holders 10
PART II
5. Market for Registrant's Common Equity and Related Stockholder 10
Matters
6. Selected Financial Data 12
7. Management's Discussion and Analysis of Financial Condition 13
and Results of Operations
7A. Quantitative and Qualitative Disclosures about Market Risk 17
8. Financial Statements and Supplementary Data 17
9. Changes In and Disagreements With Accountants on Accounting 17
and Financial Disclosure
PART III
10. Directors and Executive Officers of the Registrant 17
11. Executive Compensation 17
12. Security Ownership of Certain Beneficial Owners and Management 17
13. Certain Relationships and Related Transactions 17
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 18
Signatures 19
TABLE OF CONTENTS TO FINANCIAL STATEMENTS AND SCHEDULES
Independent Accountants' Report F-1
Balance Sheets F-2
Statement of Income F-3
Statement of Stockholders' Equity F-4
Statement of Cash Flows F-5
Notes to Financial Statements F-6
SCHEDULES NONE
INDEX TO EXHIBITS E-1
2
PART I
ITEM 1. BUSINESS
At February 2, 2002, Stein Mart, Inc. (together with its wholly owned
subsidiary, the "Company" or "Stein Mart") was a 253-store retail chain offering
fashionable, current-season, primarily branded merchandise comparable in quality
and presentation to that of traditional department and fine specialty stores at
prices typically 25% to 60% below those regularly charged by such stores. The
Company's focused assortment of merchandise features moderate to designer
brand-name apparel for women, men and children, as well as accessories, gifts,
linens, shoes and fragrances. Stein Mart operated a single store in Greenville,
Mississippi from the early 1900's until 1977, when it began its expansion
program. The Company has more than doubled the number of Stein Mart stores from
123 in 21 states at year-end 1996 to 253 in 29 states at February 2, 2002. The
Company's stores, which average approximately 37,000 gross square feet, are
located primarily in neighborhood shopping centers in metropolitan areas.
Change in Fiscal Year End
In November 2001, the Company changed its fiscal year end from the Saturday
closest to December 31 to the Saturday closest to January 31. The five-week
transition period of December 31, 2000 through February 3, 2001 (the "Transition
Period") precedes the start of the new fiscal year. Results for 2001, 2000 and
1999 are for the 52 weeks ended February 2, 2002, December 30, 2000 and January
1, 2000, respectively.
Business Strategy
The Company's business strategy is to (i) maintain the quality of merchandise,
store appearance, merchandise presentation and customer service levels typical
of traditional department and fine specialty stores and (ii) offer value pricing
to its customers through its vendor relationships, tight control over corporate
and store expenses and efficient management of inventory. The principal elements
of the Company's business strategy are as follows:
Timely, Consistent, Upscale Merchandise.
The Company purchases upscale, branded merchandise primarily through
preplanned buying programs similar to those used by traditional department
and fine specialty stores. These preplanned buying programs enable the
Company to offer fashionable, current-season assortments on a consistent
basis.
Appealing Store Appearance and Merchandise Presentation.
The Company creates an ambiance in its stores similar to that of upscale
retailers through attractive in-store layout and signage. Merchandise
is displayed in lifestyle groupings to encourage multiple purchases.
Emphasis on Customer Service.
Customer service is fundamental to Stein Mart's objective of building
customer loyalty. Management believes that the Company offers customer
service superior to off-price retailers and more comparable to traditional
department and fine specialty stores.
Value Pricing through Vendor Relationships.
Stein Mart has longstanding relationships with many key vendors. Management
believes that the Company's purchase terms enable it to negotiate more
favorable prices from vendors than are typical in the department store
industry. Stein Mart passes these savings on to its customers through prices
which are typically 25% to 60% below those regularly charged by traditional
department and fine specialty stores.
Efficient Inventory Handling.
Stein Mart does not rely on a large distribution center or warehousing
facility. Rather, it primarily utilizes drop shipments from its vendors
directly to its stores. This system enables the Company to receive
merchandise at each store on a timely basis and to save the time and expense
of handling merchandise twice, which is typical of a traditional
distribution center structure.
3
Operating Efficiencies.
Management believes that there will be opportunities to create additional
operating efficiencies as the Company continues to add stores in new and
existing markets.
Productivity Initiatives
The goal of Stein Mart for 2002 is to improve store productivity. By increasing
the dollars generated in each square foot of the stores, the Company can
leverage its expenses more efficiently and move more profit dollars to the
bottom line. Actions that will push this objective forward include:
Reformatting floor layouts in every store to magnify strongest sales
opportunities: Boutique, Ladies apparel, Ladies Accessories and Home. This
should maximize sell through and improve inventory turn.
Introduction of Power Pricing, a series of highlighted items within the
store which represent extraordinary values (at least 50% savings) on
desirable merchandise; this concept was successfully tested during the
holiday shopping season.
Additional support to stores in the top ten and bottom ten percent of sales
volume. These stores will receive additional resources as needed to maximize
performance.
Expansion Strategy
The Company's expansion strategy is to add stores in new markets, including
those markets with the potential for multiple stores, and existing markets to
capture advertising and management efficiencies. The Company plans to open 15-18
new stores in 2002.
The Company targets metropolitan statistical areas with populations of 125,000
or more for new store expansion. In determining where to locate new stores, the
Company evaluates detailed demographic information, including, among other
factors, data relating to income, education levels, age, occupation, the
availability of prime real estate locations, existing and potential competitors,
and the number of Stein Mart stores that a market can support. As a result of
processing less than 10% of its merchandise through its distribution center, the
Company is not constrained geographically or by the capacity limits of a central
facility. This allows management to concentrate on the best real estate
opportunities in targeted markets.
The Company refurbishes existing retail locations or occupies newly constructed
stores, which typically are anchor stores in new or existing shopping centers
situated near upscale residential areas, ideally with co-tenants that cater to a
similar customer base. The Company's historical ability to negotiate favorable
leases and to construct attractive stores with a relatively low investment has
provided a significant cost advantage over traditional department and fine
specialty stores. The cost of opening a typical new store includes approximately
$450,000 to $650,000 for fixtures, equipment, leasehold improvements and
pre-opening expenses (primarily advertising, stocking and training). Pre-opening
costs are expensed when incurred. Initial inventory investment for a new store
is approximately $1.1 million (a portion of which is financed through vendor
credit).
Merchandising
Stein Mart's focused assortment of merchandise features moderate to designer
brand-name apparel for women, men and children, as well as accessories, gifts,
linens, shoes and fragrances. Branded merchandise is complemented by a limited
private label program that enhances the Company's assortment of current fashion
trends and provides key upper-end classifications in complete size ranges.
Management believes that Stein Mart differentiates itself from typical off-price
retailers by offering: (i) a higher percentage of current-season merchandise
carried by traditional department and fine specialty stores at moderate to
better price levels, (ii) a stronger merchandising "statement," consistently
offering more depth of color and size in
4
individual stockkeeping units, and (iii) a merchandise presentation more
comparable to traditional department and fine specialty stores.
The Company identifies and responds to the latest fashion trends. Within each
major merchandise category, the Company seeks to offer a focused assortment of
the best-selling department and fine specialty store items. Stein Mart's
merchandise selection is driven primarily by its own merchandising plans which
are based on management's assessment of fashion trends, color, and market
conditions. This strategy distinguishes Stein Mart from traditional off-price
retailers who achieve cost savings by responding to unplanned buying
opportunities. The Company's merchandise is typically priced at levels 25% to
60% below prices regularly charged by traditional department and fine specialty
stores, therefore offering distinct value to the Stein Mart customer.
The following reflects the percentage of the Company's sales by major
merchandise category (including sales from leased shoe and fragrance
departments) for the periods indicated:
For The 52 Weeks Ended
-----------------------------------------------
February 2, December 30, January 1,
2002 2000 2000
-------------- -------------- -------------
Ladies' and Boutique apparel 40% 38% 38%
Ladies' accessories 10 11 11
Men's and young men's 17 18 19
Gifts and linens 19 19 18
Leased departments 7 7 7
Children's 5 5 6
Other 2 2 1
------ ------ ------
100% 100% 100%
====== ====== ======
Ladies' apparel, the Company's largest contributor of revenues, consists of
distinctive presentations of dresses, sportswear, petites, juniors and women's
sizes at moderate to upper-moderate prices. Stein Mart's distinctive Boutique is
a key element of the Company's merchandising strategy to attract the more
fashion-conscious customers. The Boutique, a store-within-a-store department,
carries better to designer ladies' apparel and offers the presentation and
service levels of a fine specialty boutique. Each Stein Mart store has its own
Boutique, staffed generally by women employed on a part-time basis who are
civically and socially prominent in the community. The Boutique highlights the
Company's strategy of offering upscale merchandise, presentation and service
levels at value prices. Following the successful introduction of the Boutique
Petite area last year, plans are underway to launch a Boutique Women area as
well. As such, the Company is allocating greater space and more inventory
dollars to the Ladies' and Boutique areas where the core customer shops the most
intensely.
The Company's typical store layout emphasizes ladies' accessories as the fashion
focus at the front of each store. The key merchandise in this department is
fashion-oriented, brand-name, designer and private label jewelry, as well as
scarves, hosiery, leather goods, bath products and fragrances.
Men's and young men's areas include sportswear, sportcoats, slacks and dress
furnishings. Corresponding to a national pattern, Stein Mart's men's business
struggled somewhat during the year. To counteract that trend, merchants
concentrated on putting sharper, more focused fashion in this area.
Stein Mart's gifts and linens departments consist primarily of a broad
assortment of fashion-oriented gifts (rather than basic items) for the home and
a wide range of table, bath and bed linens. The presentation in this distinctive
department emphasizes fashion, lifestyle and seasonal themes and includes the
full range of merchandise available in typical department and specialty gift
stores. Both gifts and linens continued to perform well in 2001, particularly
5
with the well-documented cocooning trend that kept people inside their homes.
Luxury linens and decorative gifts were the leaders in this area. The strength
of this category has been the consistent presentation with a higher percentage
mix of better goods.
Stein Mart's children's department offers a range of apparel for infants and
children and features an infants' gift boutique.
The Company's shoe department is a leased department operated in individual
stores by one of two shoe retailers. The merchandise in this department is
presented in a manner consistent with the Company's overall presentation in
other departments, stressing fashionable, current-season footwear at value
prices. This department offers a variety of men's and women's casual and dress
shoes, which complement the range of apparel available in other departments.
Shoe department leases provide for the Company to be paid the greater of an
annual base rent or a percentage of sales. More than half of the leases
currently pay on the percentage of sales basis.
The Company leases its fragrance department to a third-party operator. The
operating agreement requires the third-party operator to pay the Company the
greater of an annual base amount or a percentage of sales.
Store Appearance
Stein Mart's stores are designed to reflect the upscale ambiance and appearance
of traditional department and fine specialty stores through attractive layout,
displays and in-store signage. The typical store is approximately 37,000 gross
square feet with convenient check-out and customer service areas and attractive,
individual dressing rooms. The Company seeks to create excitement in its stores
through the continual flow of brand-name merchandise, sales promotions, store
layout, merchandise presentation, and the quality, value and depth of its
merchandise assortment.
The Company displays merchandise in lifestyle groupings of apparel and
accessories. Management believes that the lifestyle grouping concept strengthens
the fashion image of its merchandise and enables the customer to locate desired
merchandise in a manner that encourages multiple purchases.
Customer Service
Customer service is fundamental to Stein Mart's objective of building customer
loyalty. The Company's stores offer most of the same services typically found in
traditional department and fine specialty stores such as alterations and a
liberal merchandise return policy. Each store is staffed to provide a number of
sales associates to properly attend to customer needs.
The Company's training programs for sales associates and cashiers emphasize
attentiveness, courtesy and the effective use of selling techniques. The Company
reinforces its training programs by employing independent shopping services to
monitor associates' success in implementing the principles taught in sales
training. Associates who are highly rated by the shopping service receive both
formal recognition and cash awards. Management believes this program emphasizes
the importance of customer service necessary to create customer loyalty.
Vendor Relationships and Buying
Stein Mart buys from over 1,900 vendors. Many of these are considered key
vendors, with whom the Company enjoys longstanding working relationships that
create a continuity of preplanned buying opportunities for upscale,
current-season merchandise. Most of the Company's vendors are based in the
United States, which generally reduces the time necessary to purchase and obtain
shipments and allows the Company to react to merchandise trends in a timely
fashion. The Company does not have long-term or exclusive contracts with any
particular vendor. In fiscal 2001, approximately 7% of Stein Mart's purchases
were from a single vendor and less than 3% of total purchases were from any
other single vendor.
6
The Company's buying staff is headed by the Executive Vice President,
Merchandising, who is supported by four Vice Presidents-General Merchandising
Managers, ten Divisional Merchandising Managers, a Vice President-Planning, 37
buyers and 37 merchandise planners. In addition to base salary, the
merchandising staff receives incentive compensation for achieving certain sales
goals within their areas of responsibility.
The Company employs several purchasing strategies to provide its customers with
a consistent selection of quality, fashionable merchandise at value prices: (i)
Stein Mart commits to its purchases from vendors well in advance of the selling
season, in the same manner as department stores, unlike typical off-price
retailers who rely heavily on buys of close-out merchandise or overruns; (ii)
the Company purchases some in-season off-price and end-of-season close-out
merchandise to supplement core merchandise assortments; (iii) the Company's
information systems enable it to acquire merchandise and track sales information
on a store-by-store basis, allowing its buying staff to respond quickly to
customer buying trends; and (iv) an in-house merchandise development department
works with buyers and brand-name vendors to ensure that the merchandise
assortments offered are unique, fashionable, color-forward and of high quality.
The correct distribution of merchandise goes hand in and hand with choosing the
right items. The newly installed planning organization has greatly improved the
selectivity of merchandise by store, allowing for more targeted seasonal,
lifestyle and volume characteristics in each location. This capability was put
to the test as the Company dramatically reduced its planned inventory following
the September 11 terrorist attacks, and planners led the effort to reallocate
and distribute the reduced level of merchandise to appropriate stores. As a
result, this year's inventory is somewhat leaner and more current and new
standards are in place to make the inventory work harder.
As the Company continues to analyze sales, profitability and marketing
information, the planners will further refine the assortments. They will be
aided by a more sophisticated basic stock replenishment program that will
improve the Company's ability to be in-stock every day in every store, at a
level that maximizes the inventory investment.
Information Systems
The Company's information systems provide daily financial and merchandising
information that is used by management to make timely and effective purchasing
and pricing decisions and for inventory control.
The Company's inventory control system enables it to achieve economies of scale
from bulk purchases while at the same time ordering and tracking separate drop
shipments by store. Store inventory levels are regularly monitored and adjusted
as sales trends dictate. The inventory control system provides information that
enhances management's ability to make informed buying decisions and accommodate
unexpected increases or decreases in demand for a particular item. The Company
uses bar codes and bar code scanners as part of an integrated inventory
management and check-out system in its stores.
The Company's merchandise planning and allocation system enables the buyers and
planners to customize their merchandise assortments at the individual store and
department level, based on selected criteria, such as a store's selling
patterns, geography and merchandise color preferences. The ability to customize
individual store assortments enables the Company to more effectively manage
inventory, capitalize on sales trends and reduce markdowns.
A computerized time management system assists management in scheduling store
associates' hours based on individual store's own customer traffic patterns and
necessary tasks. This system helps to maximize customer service levels and
enhance efficiency.
Store Operations
The store organization is supervised by three Vice Presidents-Regional Directors
of Stores who report to the Senior Vice President-Director of Stores. District
Directors of Stores and two Vice President-Regional Directors of Stores report
to the three supervising Regional Directors. Each of these field supervisors is
responsible for overseeing 9 to 14 stores. Each Vice President's and District
Director's compensation includes an incentive component based on
7
overall performance. Each Stein Mart store is managed by a general manager who
reports directly to a Vice President or a District Director. Store general
managers are responsible for individual store operations, including hiring,
motivating and supervising sales associates; receiving and effectively
presenting merchandise; and implementing price change determinations made by the
Company's buying staff. Store general managers receive incentive compensation
based upon operating results in several key areas, including increases in store
sales. In addition to the store general manager and two assistant store
managers, each Stein Mart store employs an average of 55 persons as department
managers, sales associates, cashiers and in other positions.
Stein Mart stores are generally open 11 hours per day, 6 days a week, and on
Sunday afternoons. The store hours are extended during the Christmas selling
season.
Marketing
The Company's advertising strategy stresses the offering of upscale, branded
merchandise at significant savings. The Company generally allocates the majority
of its advertising budget to newspaper advertising, employing a combination of
image, price-and-item and sales event approaches. While newspaper and color
inserts will continue to be an integral part of the media mix, radio and direct
mail will be utilized to a much greater degree. Stein Mart's per-store
advertising expense is reduced by spreading its advertising over multiple stores
in a single market. Management believes the Company also enjoys substantial
word-of-mouth advertising benefits from its customer base.
In May, 2001, Stein Mart launched its Preferred Customer program to its most
devoted shoppers. Approximately 700,000 participants have enrolled in the past
year, and are now receiving mailings at least once a month. These mailings are
filled with enticements to visit the store for special discounts, member-only
shopping opportunities or an early peek at new merchandise and upcoming fashion
events. Stein Mart will continue to examine the information gleaned from these
customers to further refine its merchandising and marketing efforts.
Competition
Management believes that the Company occupies a market niche closer to
traditional department and better specialty stores than typical off-price retail
chains. The Company faces competition for customers and for access to quality
merchandise from traditional department stores, fine specialty stores and, to a
lesser degree, from off-price retail chains. Many of these competitors are units
of large national or regional chains that have substantially greater resources
than the Company. The retail apparel industry is highly fragmented and
competitive, and the off-price retail business may become even more competitive
in the future.
The principal competitive factors in the retail apparel industry are assortment,
presentation, quality of merchandise, price, customer service, vendor relations
and store location. Management believes that the Company is well-positioned to
compete on the basis of each of these factors.
Employees
At February 2, 2002, the Company's work force consisted of approximately 14,000
employees (8,400 40-hour equivalent employees). The number of employees
fluctuates based on the particular selling season.
Trademarks
The Company owns the federally registered trademark Stein Mart(R), together with
a number of other marks used in conjunction with its private label merchandise
program. Stein Mart primarily sells branded merchandise. However, in certain
classifications of merchandise, the Company uses several private label programs
to provide additional availability of items. Management believes that its
trademarks are important but, with the exception of Stein Mart(R), not critical
to the Company's merchandising strategy.
8
ITEM 2. PROPERTIES
At February 2, 2002, the Company operated stores in the following states:
State Number of Stores
----- ----------------
Alabama 11
Arizona 6
Arkansas 5
California 13
Colorado 5
Florida 33
Georgia 18
Illinois 5
Indiana 8
Iowa 1
Kansas 2
Kentucky 3
Louisiana 10
Michigan 1
Mississippi 4
Missouri 4
Nevada 4
New Mexico 2
New York 1
North Carolina 17
Ohio 10
Oklahoma 5
Pennsylvania 2
South Carolina 11
Tennessee 13
Texas 43
Utah 3
Virginia 8
Wisconsin 5
---
253
===
The Company leases all of its store locations and therefore has been able to
grow without incurring indebtedness to acquire real estate. Management believes
that the Company has earned a reputation as an "anchor tenant," which, along
with its established operating history, has enabled it to negotiate favorable
lease terms. Most of the leases provide for minimum rents, as well as percentage
rents that are based on sales in excess of predetermined levels.
The table below reflects (i) the number of the Company's leases (as of February
2, 2002) that will expire each year if the Company does not exercise any of its
renewal options, and (ii) the number of the Company's leases that will expire
each year if the Company exercises all of its renewal options (assuming the
lease is not otherwise terminated by either party pursuant to any other
provision).
9
Number of Leases Number of Leases
Expiring Each Year Expiring Each Year
if no Renewals if all Renewals
Exercised Exercised
---------------------- ----------------------
2002 5 1
2003 15 1
2004 16 1
2005 24 -
2006 27 1
2007-2011 125 16
2012-2016 41 28
2017-2045 - 205
The Company has made consistent capital commitments to maintain and improve
existing store facilities. During 2001, approximately $5.8 million was spent for
fixtures, equipment and leasehold improvements in stores opened prior to 2001.
The Company leases approximately 73,000 gross square feet of office space for
its corporate headquarters in Jacksonville, Florida. The Company also leases a
92,000 square foot distribution center in Jacksonville for the purpose of
processing a limited amount of merchandise purchases (less than 10% of total
purchases).
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various routine legal proceedings incidental to the
conduct of its business. Management does not believe that any of these legal
proceedings will have a material adverse effect on the financial condition or
results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of fiscal 2001.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table sets forth the high and low sales prices of the Common Stock
for each fiscal quarter in fiscal 2000 and 2001:
HIGH LOW
Fiscal 2000:
April 1, 2000 $ 8.25 $4.00
July 1, 2000 10.63 6.48
September 30, 2000 13.38 9.75
December 30, 2000 15.88 8.94
Fiscal 2001:
May 5, 2001 $12.31 $8.69
August 4, 2001 12.47 7.85
November 3, 2001 9.08 6.12
February 2, 2002 9.20 7.96
10
Beginning with 2001, the Company changed to a 52-53 week ending on the Saturday
closest to January 31; previously, the Company's fiscal year ended on the
Saturday closest to December 31. The high and low sales prices of the Common
Stock for the Transition Period, December 31, 2000 to February 3, 2001, were
$13.25 and $10.13, respectively.
Stein Mart's common stock trades on The Nasdaq Stock Market(R) under the trading
symbol SMRT. On April 12, 2002, there were 1,109 stockholders of record.
The Company intends to reinvest future earnings in the business and accordingly
does not anticipate paying dividends in the foreseeable future.
11
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in Thousands Except Per Share Amounts and Operating Data)
For the Fiscal Year Ended
----------------------------------------------------------------------------
Feb. 2, Dec. 30, Jan. 1, Jan. 2, Jan. 3,
2002 (1) 2000 2000 1999 1998 (3)
------------ ------------ ------------ ------------ ------------
Statement of Income Data:
Net Sales $1,320,190 $1,206,624 $1,034,561 $897,821 $792,655
Cost of Merchandise Sold 1,003,567 896,560 781,038 677,334 579,747
------------ ------------ ------------ ------------ ------------
Gross Profit 316,623 310,064 253,523 220,487 212,908
Selling, General and Administrative Expenses (2) 301,937 257,042 244,100 195,460 163,953
Other Income, Net 14,078 13,766 12,129 10,420 9,243
------------ ------------ ------------ ------------ ------------
Income From Operations 28,764 66,788 21,552 35,447 58,198
Interest Expense 4,000 3,309 2,485 2,368 1,203
------------ ------------ ------------ ------------ ------------
Income Before Income Taxes 24,764 63,479 19,067 33,079 56,995
Provision For Income Taxes 9,410 24,122 7,245 12,570 22,228
------------ ------------ ------------ ------------ ------------
Net Income $ 15,354 $ 39,357 $ 11,822 $ 20,509 $ 34,767
============ ============ ============ ============ ============
Earnings Per Share - Basic (4) $0.37 $0.92 $0.26 $0.45 $0.75
Earnings Per Share - Diluted (4) $0.37 $0.91 $0.26 $0.44 $0.73
Selected Operating Data:
Stores Open at End of Period 253 226 205 182 151
Average Sales Per Store (000's) (5) $ 5,922 $ 6,068 $ 5,663 $ 5,958 $ 6,261
Average Sales Per Square Foot of Selling Area (6) $ 189 $ 192 $ 176 $ 185 $ 194
Comparable Store Net Sales (Decrease) Increase (7) (0.7%) 9.7% 2.3% 1.2% 7.2%
Balance Sheet Data:
Working Capital $ 179,212 $ 120,602 $ 117,284 $110,985 $110,296
Total Assets 417,672 389,989 354,094 318,012 270,604
Long-term Debt 57,750 - - - -
Total Stockholders' Equity 201,895 194,028 179,912 177,979 165,803
(1) Beginning with fiscal 2001, the Company changed to a 52-53 week year ending
on the Saturday closest to January 31; previously, the Company's fiscal
year ended on the Saturday closest to December 31. See Note 12 to the
Financial Statements for financial data for the five-week Transition Period
ended February 3, 2001.
(2) Selling, General and Administrative Expenses include a store closing charge
of $2.9 million, a store closing credit of $3.4 million and a store closing
charge of $15.9 million in fiscal 2001, 2000 and 1999, respectively.
(3) The fiscal year ended January 3, 1998 is a 53-week year; all others are
52-week years.
(4) Basic and Diluted Earnings Per Share are presented for all periods in
accordance with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" which the Company adopted in 1997 and have been
restated for the two-for-one stock split declared in 1998.
(5) Average sales per store (including sales from leased shoe and fragrance
departments)for each period have been calculated by dividing (a) total sales
during such period by (b) the number of stores open at the end of such
period, in each case exclusive of stores open for less than 12 months. All
periods are calculated on a 52-week basis.
(6) Includes sales and selling space of the leased shoe and fragrance
departments. Selling area excludes administrative, receiving and storage
areas. All periods are calculated on a 52-week basis.
(7) Comparable store information for a period reflects stores open throughout
that period and for the same 52-week period in the prior year.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
This document includes a number of forward-looking statements which reflect the
Company's current views with respect to future events and financial performance.
Wherever used, the words "plan", "expect", "anticipate", "believe", "estimate"
and similar expressions identify forward-looking statements.
All such forward-looking statements contained in this document are subject to
risks and uncertainties that could cause the Company's actual results of
operations to differ materially from historical results or current expectations.
These risks include, without limitation, ongoing competition from other
retailers many of whom are larger and have greater financial and marketing
resources, the availability of suitable new store sites at acceptable lease
terms, ability to successfully implement strategy to exit or improve
under-performing stores, changing preferences in apparel, changes in the level
of consumer spending due to current events and/or general economic conditions,
adequate sources of designer and brand-name merchandise at acceptable prices,
and the Company's ability to attract and retain qualified employees to support
planned growth.
The Company does not undertake to publicly update or revise its forward-looking
statements even if experience or future changes make clear that any projected
results expressed or implied therein will not be realized.
The following should be read in conjunction with the "Selected Financial Data"
and the notes thereto and the Financial Statements and notes thereto of the
Company.
Results of Operations
The following table sets forth, for the periods indicated, the percentage of the
Company's net sales represented by each line item presented:
52 Weeks Ended
------------------------------------
Feb. 2, Dec. 30, Jan. 1,
2002 2000 2000
---------- ---------- ----------
Net sales 100.0% 100.0% 100.0%
Cost of merchandise sold 76.0 74.3 75.5
---------- ---------- ----------
Gross profit 24.0 25.7 24.5
Selling, general and administrative expenses 22.9 21.3 23.6
Other income, net 1.1 1.2 1.2
---------- ---------- ----------
Income from operations 2.2 5.6 2.1
Interest expense .3 .3 .3
---------- ---------- ----------
Income before income taxes 1.9% 5.3% 1.8%
========== ========== ==========
Year Ended February 2, 2002 Compared to Year Ended December 30, 2000
In November 2001, the Company changed its year end (see Note 1 to the Financial
Statements). The following discussion compares the 52 weeks ended February 2,
2002 to the 52 weeks ended December 30, 2000.
In 2001 the Company opened 30 stores and closed three stores bringing to 253 the
number of stores in operation at year-end.
Net sales of $1.320 billion were achieved for the fiscal year 2001, an increase
of $113.6 million, or 9.4 percent over net sales of $1.207 billion for the
fiscal year 2000. The 30 new stores opened in 2001 contributed $74.3 million to
net sales. Comparable store net sales, which decreased 0.7 percent from 2000,
began to decline in early 2001, reversing strong, double digit increases from
2000. This trend continued in the fall season as shopping declined following the
September 11 terrorist attacks.
13
Gross profit for 2001 was $316.6 million or 24.0 percent of net sales compared
to $310.1 million or 25.7 percent of net sales for 2000. The 1.7 percent
decrease in the gross profit percent resulted primarily from higher markdowns as
a percent of sales and decreased leverage of occupancy expenses in 2001.
Markdowns were particularly high during the fall season, primarily in the weeks
following September 11, in order to reduce in-store inventories through
promotion and markdowns.
Selling, general and administrative expenses were $301.9 million or 22.9 percent
of net sales for 2001, as compared to $257.0 million or 21.3 percent of net
sales in 2001. In 2001, selling, general and administrative expenses includes a
pre-tax charge of $2.9 million for four stores that will be closed in fiscal
2002. Fiscal 2000 includes a $3.4 million store closing credit related to
adjustments of store closing reserves recorded in fiscal 1999. The increase of
1.6 percent of net sales is primarily due to the effect of the store closing
charge and credit, increased advertising and decreased leverage of selling and
administrative expenses.
Pre-opening expenses for the 30 stores opened in 2001 amounted to $5.0 million
and for the 22 stores opened in 2000, amounted to $3.4 million.
Other income, primarily from in-store leased shoe departments, was $14.1 million
in 2001, a slight increase over the $13.8 million for 2000. The increase was
primarily from the additional stores operated during 2001.
Interest expense for 2001 was $4.0 million, compared to $3.3 million in 2000.
The increase resulted from higher average borrowings offset by lower interest
rates during this year compared to last year. The increased borrowings were used
to fund operating activities and to repurchase common stock.
Net income for 2001 was $15.4 million or $0.37 per diluted share compared to net
income of $39.4 million or $0.91 per diluted share for 2000.
Five-Week Transition Period Ended February 3, 2001
See Note 12 to the Financial Statements for audited financial data for the
five-week transition period of December 31, 2000 through February 3, 2001. This
period precedes the start of the new fiscal year and no comparable period
information is presented herein.
Year Ended December 30, 2000 Compared to Year Ended January 1, 2000
In fiscal 2000 the Company opened 22 stores and closed one store bringing to 226
the number of stores in operation at year-end.
Net sales of $1.207 billion were achieved for the fiscal year 2000, an increase
of $172.0 million, or 16.6 percent over net sales of $1.035 billion for the
fiscal year 1999. The 22 new stores opened in 2000 contributed $47.4 million to
net sales. Comparable store net sales increased 9.7 percent over 1999.
During 1999, the Company approved a plan to close ten under-performing stores
and recorded a $20.5 million pre-tax charge for store closing and asset
impairment costs. The charge included $4.6 million, included in cost of
merchandise sold, for inventory write-downs resulting from additional markdowns
in four stores that were closed in 1999 and markdowns associated with clearance
merchandise. The charge also included $15.9 million for the estimated cost of
lease terminations in the amount of $13.4 million and $2.5 million which
represented primarily costs to write-down certain leasehold improvements
included in property and equipment. During 2000, the Company recorded a net
pre-tax credit of $3.4 million related to the 1999 store closing reserve. The
credit resulted from adjustments to estimated lease obligations for changes in
anticipated closing dates and for favorable lease settlements ($2.5 million),
unsatisfactory lease negotiations to close two stores ($1.9 million), offset by
a $1.0 million charge for the write-down of furniture, fixtures and equipment
related to store closings. The 1999 store closing charge and the related 2000
credit are included in Selling, general and administrative expenses.
14
Gross profit for 2000 was $310.1 million or 25.7 percent of net sales compared
to $253.5 million or 24.5 percent of net sales for 1999. The 1.2 percent
increase in the gross profit percent resulted primarily from lower markdowns as
a percent of sales, leveraging occupancy expenses, and the effect of the $4.6
million inventory write-down in 1999 discussed above.
Selling, general and administrative expenses were $257.0 million or 21.3 percent
of net sales for 2000, as compared to $244.1 million or 23.6 percent of net
sales for 1999. As discussed above, these amounts include a $3.4 million store
closing credit in 2000 and a $15.9 million store closing charge in 1999.
Excluding the effect of store closing charges and credits, selling, general and
administrative expenses increased $32.3 million, but decreased 0.5 percent of
net sales from 1999. The increase in dollars is primarily due to the additional
stores in operation during 2000 as compared to the number of stores in operation
in 1999 and the decrease of 0.5 percent of net sales is primarily due to
improved leveraging of selling and administrative expenses, offset by slightly
higher advertising expenses.
Pre-opening expenses for the 22 stores opened in 2000 amounted to $3.4 million
and for the 28 stores opened in 1999, amounted to $4.0 million.
Other income, primarily from in-store leased shoe departments, was $13.8 million
in 2000, an increase of $1.7 million over the $12.1 million for 1999. The
increase was primarily from the additional stores operated during 2000.
Interest expense for 2000 was $3.3 million, compared to $2.5 million in 1999.
The increase resulted from higher average borrowings and higher interest rates
in 2000. The increased borrowings were used to fund operating activities and to
repurchase common stock.
Net income for 2000 was $39.4 million or $0.91 per diluted share compared to net
income of $11.8 million or $0.26 per diluted share for 1999.
Liquidity and Capital Resources
The Company's primary capital requirements are to support inventory and capital
investments for the opening of new stores, to maintain and improve existing
stores, and to meet seasonal working capital needs. The Company's capital
requirements and working capital needs are funded through a combination of
internally generated funds, a bank line of credit and credit terms from vendors.
As of February 2, 2002, the Company had $10.3 million in cash and cash
equivalents. During the course of the Company's seasonal business cycle, working
capital is needed to support inventory for existing stores, especially during
peak selling seasons. Historically, the Company's working capital needs are
lowest in the first quarter and peak in either the third or fourth quarter in
anticipation of the fourth quarter selling season.
Net cash provided by operating activities for 2001 amounted to $29.7 million,
compared to $42.4 million for 2000. Net cash provided by operating activities in
2001 decreased from the prior year primarily due to decreased net income and
less cash required for the procurement of merchandise due to the Company's focus
on reducing its inventory levels, which resulted in a 6.5 percent decrease in
inventories in an average store for fiscal 2001 compared to fiscal 2000. The net
decrease in accounts payable and accrued liabilities in 2001 compared to 2000
related primarily to the timing of payments caused by this year ending on
February 2 versus last year ending on December 30.
For 2001 and 2000, cash flows used in investing activities amounted to $25.0
million and $20.9 million, respectively, primarily for the acquisition of store
fixtures, equipment and leasehold improvements and for information system
enhancements.
15
Cash used in financing activities was $5.5 million in 2001 and $26.1 million in
2000. During 2001, cash was used to repurchase 657,600 shares of the Company's
common stock for $6.0 million and in 2000, 2,910,600 shares were repurchased for
$28.4 million.
To facilitate an understanding of the Company's contractual obligations, the
following data is provided:
Payments Due By Period
----------------------------------------------------------------------
Within 2 - 3 4 - 5 After 5
Contractual Obligations Total 1 Year Years Years Years
- ----------------------- ---------- ---------- ---------- ---------- ----------
Long-term debt $ 57,750 $ - $ 57,750 $ - $ -
Operating leases 414,612 57,006 107,362 91,205 159,039
---------- ---------- ---------- ---------- ----------
Total $472,362 $57,006 $165,112 $91,205 $159,039
========== ========== ========== ========== ==========
The Company has a revolving credit agreement with a group of banks, which
extends through June 2004. The agreement, which was amended in April 2002,
provides a $135 million senior revolving credit facility, including a $10
million letter of credit sub-facility. Borrowings are secured by trade and other
receivables and inventories. Due to the seasonal nature of the Company's
business, the Company's bank borrowings fluctuate during the year, typically
reaching their highest levels during the third or fourth quarter, as the Company
builds its inventory for the Christmas selling season. At February 2, 2002,
there was $57.8 million outstanding and at December 30, 2000, there was no
balance outstanding under the agreement. The agreement requires the Company to
maintain certain financial ratios and meet required net worth and indebtedness
tests.
The cost of opening a typical new store generally ranges from $450,000 to
$650,000 for fixtures, equipment, leasehold improvements and pre-opening costs
(primarily advertising, stocking and training). Pre-opening costs are expensed
at the time of opening. Initial inventory investment for a new store is
approximately $1.1 million (a portion of which is normally financed through
vendor credit). The Company's total capital expenditures for 2002 (including
amounts budgeted for new store expansion, improvements to existing stores and
information system enhancements) are anticipated to be approximately $15
million.
The Company believes that expected net cash provided by operating activities,
bank borrowings and vendor credit will be sufficient to fund anticipated current
and long-term capital expenditures and working capital requirements.
Seasonality
The Company's business is seasonal in nature with a higher percentage of the
Company's merchandise sales and earnings generated in the fall and holiday
selling seasons. Accordingly, selling, general and administrative expenses are
typically higher as a percent of net sales during the first three quarters of
each year.
Critical Accounting Policies
The preparation of these financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, expenses and related disclosure of contingent assets and
liabilities. On an ongoing basis, management evaluates its estimates and
judgments, including those related to inventory valuation, the impairment of
long-lived assets and store closing costs.
Management bases its estimates and judgments on historical experience and other
relevant factors, 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. While the Company believes that the historical experience and
other factors considered provide a meaningful basis for the accounting policies
applied in the preparation of the financial statements, the Company cannot
guarantee that its estimates and assumptions will be accurate, which could
16
require the Company to make adjustments to these estimates in future periods.
See Note 1 to the Company's Financial Statements for a discussion of its
significant accounting policies.
New Accounting Pronouncements
In August 2001, Statement of Financial Accounting Standards ("SFAS") No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" was issued.
SFAS No. 144 supercedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be disposed of." The Company will
adopt SFAS No. 144 in 2002 and does not expect its provisions to have a
significant impact on financial position or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate risk primarily through borrowings under
its revolving credit facility. At February 2, 2002, direct borrowings aggregated
$57.8 million. The facility, as amended in April 2002, permits debt commitments
up to $135.0 million, has a June 2004 maturity date and bears interest at
spreads over LIBOR. The average outstanding borrowings during fiscal 2001, 2000
and 1999 were $82.3 million, $48.8 million and $44.2 million, respectively, at
weighted-average interest rates of 4.9%, 6.7% and 5.7% respectively. Management
believes that its exposure to market risk associated with its borrowings is not
material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and financial statement schedules of the Company and
the Independent Auditors' Report thereon are filed pursuant to this Item 8 and
are included in this report beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item appears under the caption "Election of
Directors" in the Company's Proxy Statement for its 2002 Annual Meeting of
Stockholders and is incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item appears under the caption "Executive
Compensation" in the Company's Proxy Statement for its 2002 Annual Meeting of
Stockholders and is incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item appears under the caption "Voting
Securities" in the Company's Proxy Statement for its 2002 Annual Meeting of
Stockholders and is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item appears under the caption "Certain
Transactions; Compensation Committee Interlocks and Insider Participation" in
the Company's Proxy Statement for its 2002 Annual Meeting of Stockholders and is
incorporated by reference.
17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
14(a)(1) Financial Statements
The documents listed below are filed as part of this Form 10-K:
Page in
Form 10-K
---------
Independent Accountants' Report F-1
Balance Sheets at February 2, 2002 and February 3, 2001 F-2
Statement of Income for the fiscal years ended February 2, 2002, December 30, 2000
and January 1, 2000 F-3
Statement of Stockholders' Equity for the fiscal years ended February 2, 2002,
December 30, 2000 and January 1, 2000 and the five-week Transition Period
ended February 3, 2001 F-4
Statement of Cash Flows for the fiscal years ended February 2, 2002, December 30, 2000
and January 1, 2000 F-5
Notes to Financial Statements F-6
Statement of Income and Statement of Cash Flows for the five-week Transition Period ended
February 3, 2001 (see Note 12 to Financial Statements) F-14
14(a)(2) Financial Statement Schedules
All schedules are omitted because they are not applicable or the required
information is presented in the financial statements or notes thereto.
14(a)(3) Exhibits
See Index to Exhibits which begins on Page E-1.
14(b) Reports on Form 8-K
The Company did not file a report on Form 8-K during the quarter ended February
2, 2002.
18
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.
STEIN MART, INC.
Date: May 1, 2002 By: /s/ John H. Williams, Jr.
--------------------------------------
John H. Williams, Jr., Vice Chairman,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities indicated on the 1st day of May, 2002.
/s/ Jay Stein /s/ Linda McFarland Farthing
- -------------------------------------- --------------------------------------
Jay Stein Linda McFarland Farthing
Chairman of the Board Director
/s/ John H. Williams, Jr. /s/ Mitchell W. Legler
- -------------------------------------- --------------------------------------
John H. Williams, Jr. Mitchell W. Legler
Vice Chairman, Chief Executive Officer Director
and Director
/s/ Michael D. Fisher /s/ Michael D. Rose
- -------------------------------------- --------------------------------------
Michael D. Fisher Michael D. Rose
President and Chief Operating Officer Director
/s/ James G. Delfs /s/ Martin E. Stein, Jr.
- -------------------------------------- --------------------------------------
James G. Delfs Martin E. Stein, Jr.
Senior Vice President and Chief Director
Financial Officer
/s/ Clayton E. Roberson, Jr. /s/ J. Wayne Weaver
- -------------------------------------- --------------------------------------
Clayton E. Roberson, Jr. J. Wayne Weaver
Vice President and Controller Director
/s/ Alvin R. Carpenter /s/ James H. Winston
- -------------------------------------- --------------------------------------
Alvin R. Carpenter James H. Winston
Director Director
19
Report of Independent Certified Public Accountants
To the Board of Directors
and Stockholders of Stein Mart, Inc.
In our opinion, the accompanying financial statements appearing on pages F-2
through F-15 of this annual report present fairly, in all material respects, the
financial position of Stein Mart, Inc. at February 2, 2002 and February 3, 2001,
and the results of its operations and its cash flows for the year ended February
2, 2002, for the five-week Transition Period ended February 3, 2001, and for
each of the two years in the period ended December 30, 2000, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the 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
auditing standards generally accepted in the United States of America, which
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.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
Jacksonville, Florida
March 29, 2002, except for Note 4, as to which the date is April 17, 2002
F-1
Stein Mart, Inc.
Balance Sheet
(In thousands)
February 2, February 3,
2002 2001
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 10,276 $ 11,066
Trade and other receivables 5,201 3,449
Inventories 296,158 282,898
Prepaid expenses and other current assets 11,324 5,623
------------- -------------
Total current assets 322,959 303,036
Property and equipment, net 88,601 81,555
Other assets 6,112 5,493
------------- -------------
Total assets $417,672 $390,084
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 93,675 $ 80,495
Accrued liabilities 46,001 43,200
Income taxes payable 4,071 4,799
------------- -------------
Total current liabilities 143,747 128,494
Notes payable to banks 57,750 60,236
Other liabilities 14,280 12,863
------------- -------------
Total liabilities 215,777 201,593
COMMITMENTS AND CONTINGENCIES
Stockholders' equity:
Preferred stock - $.01 par value; 1,000,000 shares
authorized; no shares outstanding
Common stock - $.01 par value; 100,000,000 shares
authorized; 41,495,876 and 41,477,187 shares issued
and outstanding, respectively. 415 415
Paid in capital - 77
Retained earnings 201,480 187,999
------------- -------------
Total stockholders' equity 201,895 188,491
------------- -------------
Total liabilities and stockholders' equity $417,672 $390,084
============= =============
The accompanying notes are an integral part of these financial statements.
F-2
Stein Mart, Inc.
Statement of Income
(In thousands except per share amounts)
For The 52 Weeks Ended
-------------------------------------------------
February 2, December 30, January 1,
2002 2000 2000
------------- ------------- -------------
Net sales $1,320,190 $1,206,624 $1,034,561
Cost of merchandise sold 1,003,567 896,560 781,038
------------- ------------- -------------
Gross profit 316,623 310,064 253,523
Selling, general and administrative expenses 301,937 257,042 244,100
Other income, net 14,078 13,766 12,129
------------- ------------- -------------
Income from operations 28,764 66,788 21,552
Interest expense 4,000 3,309 2,485
------------- ------------- -------------
Income before income taxes 24,764 63,479 19,067
Provision for income taxes 9,410 24,122 7,245
------------- ------------- -------------
Net income $ 15,354 $ 39,357 $ 11,822
============= ============= =============
Earnings per share - Basic $0.37 $0.92 $0.26
============= ============= =============
Earnings per share - Diluted $0.37 $0.91 $0.26
============= ============= =============
Weighted-average shares outstanding - Basic 41,176 42,909 44,948
============= ============= =============
Weighted-average shares outstanding - Diluted 41,493 43,409 45,307
============= ============= =============
The accompanying notes are an integral part of these financial statements.
F-3
Stein Mart, Inc.
Statement of Stockholders' Equity
(In thousands)
Total
Common Paid-in Retained Stockholders'
Stock Capital Earnings Equity
---------- ----------- ------------ -----------------
Balance at January 2, 1999 $454 $31,238 $146,287 $177,979
Net income 11,822 11,822
Common shares issued under stock
option plan and related income
tax benefits 1 381 382
Common shares issued under employee
stock purchase plan 1 1,021 1,022
Reacquired shares (17) (11,276) (11,293)
---------- ----------- ------------ -----------------
Balance at January 1, 2000 439 21,364 158,109 179,912
Net income 39,357 39,357
Common shares issued under stock
option plan and related income
tax benefits 3 2,192 2,195
Common shares issued under employee
stock purchase plan 2 955 957
Reacquired shares (29) (24,511) (3,853) (28,393)
---------- ----------- ------------ -----------------
Balance at December 30, 2000 415 - 193,613 194,028
Transition period December 31, 2000
to February 3, 2001:
Net loss (5,614) (5,614)
Common shares issued under stock
option plan and related income
tax benefits 62 62
Common shares issued under employee
stock purchase plan 469 469
Reacquired shares (454) (454)
---------- ----------- ------------ -----------------
Balance at February 3, 2001 415 77 187,999 188,491
Net income 15,354 15,354
Common shares issued under stock
option plan and related income
tax benefits 5 3,067 3,072
Common shares issued under employee
stock purchase plan 2 995 997
Reacquired shares (7) (4,139) (1,873) (6,019)
---------- ----------- ------------ -----------------
Balance at February 2, 2002 $415 $ - $201,480 $201,895
========== =========== ============ =================
The accompanying notes are an integral part of these financial statements.
F-4
Stein Mart, Inc.
Statement of Cash Flows
(In thousands)
For The 52 Weeks Ended
-------------------------------------------------
February 2, December 30, January 1,
2002 2000 2000
------------- ------------- -------------
Cash flows from operating activities:
Net income $15,354 $39,357 $11,822
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 16,822 14,373 12,950
Write-down of property and other assets 1,114 1,038 2,528
Deferred income taxes (4,999) 2,910 (4,722)
Tax benefit from exercise of stock options 1,024 810 96
Changes in assets and liabilities:
Trade and other receivables (1,752) (286) 108
Inventories (13,260) (32,267) (34,405)
Prepaid expenses and other current assets (641) 4 304
Other assets (619) (648) (1,845)
Accounts payable 13,180 4,465 14,639
Accrued liabilities 2,801 18,143 7,160
Income taxes payable (728) 3,818 2,588
Other liabilities 1,356 (9,281) 12,589
------------- ------------- -------------
Net cash provided by operating activities 29,652 42,436 23,812
Cash flows used in investing activities:
Capital expenditures (24,982) (20,914) (19,029)
Cash flows from financing activities:
Net borrowings under notes payable to banks (2,486) - -
Proceeds from exercise of stock options 2,048 1,385 286
Proceeds from employee stock purchase plan 997 957 1,022
Purchase of common stock (6,019) (28,393) (11,293)
------------- ------------- -------------
Net cash used in financing activities (5,460) (26,051) (9,985)
------------- ------------- -------------
Net decrease in cash and cash equivalents (790) (4,529) (5,202)
Cash and cash equivalents at beginning of year 11,066 17,055 22,257
------------- ------------- -------------
Cash and cash equivalents at end of year $10,276 $12,526 $17,055
============= ============= =============
Supplemental disclosures of cash flow information:
Interest paid $ 3,980 $ 3,141 $ 2,450
Income taxes paid 14,221 16,887 9,493
The accompanying notes are an integral part of these financial statements.
F-5
STEIN MART, INC.
NOTES TO FINANCIAL STATEMENTS
February 2, 2002
(Dollars in tables in thousands except per share amounts)
1. Summary of Significant Accounting Policies
At February 2, 2002 the Company operated a chain of 253 off-price retail stores
in 29 states. Each store offers women's, men's and children's apparel, as well
as accessories, gifts, linens and shoes.
Change in Fiscal Year End
In November 2001, the Company changed its fiscal year end from the Saturday
closest to December 31 to the Saturday closest to January 31. The five-week
transition period of December 31, 2000 through February 3, 2001 (the "Transition
Period") precedes the start of the new fiscal year. Audited financial
information for the Transition Period is presented in Note 12. Results for 2001,
2000 and 1999 are for the 52 weeks ended February 2, 2002, December 30, 2000 and
January 1, 2000, respectively.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposits and short-term
investments with original maturities of three months or less.
Inventories
Merchandise inventories are valued at the lower of average cost or market, on a
first-in first-out basis, using the retail inventory method.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is provided on a straight-line method using estimated
useful lives of 3-10 years. Leasehold improvements are amortized over the
shorter of the estimated useful lives of the improvements or the term of the
lease.
The Company follows Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. In evaluation of the fair value and
future benefits of long-lived assets, the Company performs an analysis of the
anticipated undiscounted future net cash flows of the related long-lived assets
and reduces their carrying value by the excess, if any, of the results of such
calculation. Management believes at this time that carrying values and useful
lives continue to be appropriate, after adjusting for the impairment charge
recorded in 2001, as disclosed in Note 10.
Store Pre-Opening and Closing Costs
New store pre-opening costs are expensed as incurred. In the event a store is
closed before its lease has expired, the estimated costs of the lease
termination and write-down of property and equipment is recorded upon
Management's decision to close the store.
Advertising Expense
Advertising costs are expensed as incurred. Advertising expenses of $47,007,000,
$2,256,000, $43,092,000 and $35,522,000 are reflected in Selling, general and
administrative expenses in the Statement of Income for 2001, the Transition
Period, 2000 and 1999, respectively.
Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
F-6
STEIN MART, INC.
NOTES TO FINANCIAL STATEMENTS
February 2, 2002
(Dollars in tables in thousands except per share amounts)
Earnings Per Share
Basic earnings per share is computed by dividing net income by the
weighted-average number of common shares outstanding for the period. Diluted
earnings per share is computed by dividing net income by the weighted-average
number of common shares outstanding plus common stock equivalents related to
stock options for each period. Stock options are not included in the diluted
loss per share calculation for the Transition Period because they are
anti-dilutive.
A reconciliation of weighted-average number of common shares to weighted-average
number of common shares plus common stock equivalents is as follows (000's):
Transition
2001 Period 2000 1999
-------- ---------- -------- --------
Weighted-average number of common shares 41,176 41,476 42,909 44,948
Stock options 317 - 500 359
-------- ---------- -------- --------
Weighted-average number of common
shares plus common stock equivalents 41,493 41,476 43,409 45,307
======== ========== ======== ========
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management 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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications
Certain amounts in the 1999 and 2000 financial statements have been reclassified
to conform to the 2001 presentation.
New Accounting Pronouncements
In August 2001, SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" was issued. SFAS No. 144 supercedes SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of." The Company will adopt SFAS No. 144 in 2002 and does not expect its
provisions to have a significant impact on financial position or results of
operations.
2. Property and Equipment, Net
Property and equipment and the related accumulated depreciation and amortization
are as follows:
Feb. 2, Feb. 3,
2002 2001
----------- -----------
Furniture, fixtures and equipment $133,072 $116,987
Leasehold improvements 46,677 40,018
----------- -----------
179,749 157,005
Less: accumulated depreciation and amortization 91,148 75,450
----------- -----------
$ 88,601 $ 81,555
=========== ===========
F-7
STEIN MART, INC.
NOTES TO FINANCIAL STATEMENTS
February 2, 2002
(Dollars in tables in thousands except per share amounts)
3. Accrued Liabilities
The major components of accrued liabilities are as follows:
Feb. 2, Feb. 3,
2002 2001
----------- -----------
Taxes, other than income taxes $16,256 $14,441
Salary, wages, bonuses and benefits 10,246 11,229
Other 19,499 17,530
----------- -----------
$46,001 $43,200
=========== ===========
4. Notes Payable to Banks
In June 2001, the Company entered into a new revolving credit agreement with a
group of banks, which extends through June 2004. The agreement, which was
amended in April 2002, provides a $135 million senior revolving credit facility,
including a $10 million letter of credit sub-facility. Borrowings are secured by
trade and other receivables and inventories. Interest is payable at rates based
on spreads over the London Interbank Offering Rate (LIBOR) or the Prime Rate. A
quarterly commitment fee ranging from 0.375% to 0.50% per annum is paid on the
unused portion of the commitment. The weighted average interest rates on
borrowings during 2001, the Transition Period, 2000 and 1999 were 4.9%, 6.4%,
6.7% and 5.7%, respectively.
The agreement requires the Company to maintain certain financial ratios and
indebtedness tests. At February 2, 2002, the Company was in compliance with all
requirements of the amended agreement.
5. Stockholders' Equity
During 2001, the Transition Period, 2000 and 1999, the Company repurchased
657,600, 40,800, 2,910,600 and 1,702,300 shares of its common stock in the open
market at a total cost of $6,019,000, $454,000, $28,393,000 and $11,293,000,
respectively. As of February 2, 2002, there are 2,264,200 shares which can be
repurchased pursuant to the Board of Directors' current authorizations.
6. Stock Option and Purchase Plans
On May 7, 2001, the shareholders approved a new stock option plan (the "Omnibus
Plan") with options available under the plan for 4,500,000 shares of the
Company's common stock. The Omnibus Plan replaced the Company's Employee Stock
and Director Stock Option Plans. The term of the plan is indefinite, except that
no incentive stock option award can be granted after the tenth anniversary of
the plan.
The Omnibus Plan, consistent with the prior Employee Stock and Director Stock
Option Plans, provides that shares of common stock may be granted to certain key
employees and outside directors through non-qualified stock options, incentive
stock options, stock appreciation rights, performance awards, or any other award
made under the terms of the plan. The Board of Directors, or its delegated
authority, determines the exercise price and all other terms of all grants. In
general, one-third of the options granted in the past have become exercisable on
the third, fourth and fifth anniversary dates of grant and expire ten years
after the date of grant. No stock appreciation rights or restricted stock awards
have been granted under this or the prior plan.
F-8
STEIN MART, INC.
NOTES TO FINANCIAL STATEMENTS
February 2, 2002
(Dollars in tables in thousands except per share amounts)
Activity for these fixed-price option plans is as follows:
Number Weighted-
of Average
Shares Exercise
(000) Price
----------- -----------
Outstanding at January 2, 1999 4,626 $10.92
Granted 308 7.50
Exercised (57) 3.76
Forfeited (252) 12.51
----------- -----------
Outstanding at January 1, 2000 4,625 10.69
Granted 614 9.11
Exercised (260) 4.89
Forfeited (396) 12.65
----------- -----------
Outstanding at December 30, 2000 4,583 10.64
Granted - -
Exercised (8) 5.28
Forfeited (33) 12.68
----------- -----------
Outstanding at February 3, 2001 4,542 10.63
Granted 1,146 8.54
Exercised (549) 3.58
Forfeited (359) 13.90
----------- -----------
Outstanding at February 2, 2002 4,780 $10.70
=========== ===========
Exercisable stock options were 2.004 million, 1.860 million, 1.870 million and
1.317 million at February 2, 2002, February 3, 2001, December 30, 2000 and
January 1, 2000, respectively.
The following table summarizes information about fixed-price stock options
outstanding at February 2, 2002:
Options Outstanding Options Exercisable
------------------------------------------------- -------------------------------
Weighted-
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices (000) Life (Years) Price (000) Price
- ---------------- ------------- ------------- ------------- ------------- -------------
$ 2.50 - 5.75 612 5.0 $ 5.29 318 $ 5.03
$ 6.53 - 9.63 1,648 8.1 8.12 269 8.00
$10.00 - 13.81 1,965 5.4 13.24 1,181 13.39
$14.25 - 16.59 555 6.3 15.31 236 15.04
------------- ------------- ------------- ------------- -------------
4,780 6.4 $10.70 2,004 $11.53
============= ============= ============= ============= =============
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," and intends to retain the intrinsic
value method of accounting for stock-based compensation which it currently uses.
Accordingly, no compensation cost has been recognized for the stock option
plans. Had compensation cost of the Company's stock option plans been determined
consistent with the provisions of SFAS No. 123, the Company's net income (loss)
and earnings (loss) per share would have been reduced to the following pro forma
amounts:
F-9
STEIN MART, INC.
NOTES TO FINANCIAL STATEMENTS
February 2, 2002
(Dollars in tables in thousands except per share amounts)
Transition
2001 Period 2000 1999
------------ ------------ ------------ ------------
Net income (loss) - as reported $15,354 $(5,614) $39,357 $11,822
Net income (loss) - pro forma 13,267 (5,793) 36,466 8,141
Basic earnings (loss) per share - as reported $0.37 $(0.14) $0.92 $0.26
Diluted earnings (loss) per share - as reported 0.37 (0.14) 0.91 0.26
Basic earnings (loss) per share - pro forma $0.32 $(0.14) $0.85 $0.18
Diluted earnings (loss) per share - pro forma 0.32 (0.14) 0.84 0.18
The effects of applying this Statement for pro forma disclosures are not likely
to be representative of the effects on reported net income for future years,
because options vest over several years and additional awards are made each
year. No options were granted during the Transition Period. In determining the
pro forma compensation cost, the weighted-average fair value of options granted
during fiscal 2001, 2000 and 1999 was estimated to be $5, $5 and $4,
respectively, using the Black-Scholes options pricing model. The following
weighted-average assumptions were used for grants made during 2001, 2000 and
1999: dividend yield of 0.0%, expected volatility of 51.7%, 51.1% and 48.7%,
respectively, risk-free interest rate of 4.8%, 5.2% and 6.5%, respectively and
expected lives of 7.0 years.
The Company has an Employee Stock Purchase Plan (the "Stock Purchase Plan")
whereby all employees who complete six months employment with the Company and
who work on a full-time basis or are regularly scheduled to work more than 20
hours per week are eligible to participate in the Stock Purchase Plan.
Participants in the Stock Purchase Plan are permitted to use their payroll
deductions to acquire shares at 85% of the fair market value of the Company's
stock determined at either the beginning or end of each option period. In 2001,
the Transition Period, 2000 and 1999, the participants acquired 127,220 shares,
53,856 shares, 198,051 shares and 172,494 shares of the Company's common stock
at weighted average per-share prices of $7.84, $8.71, $4.83 and $5.92 per share,
respectively.
On May 7, 2001, the shareholders approved an amendment to the Stock Purchase
Plan, increasing the number of shares eligible for issuance under the Plan by
1,000,000 and extending the Plan until December 31, 2005.
7. Leased Facilities and Commitments
The Company leases all of its retail and support facilities. Annual store rent
is generally comprised of a fixed minimum amount plus a contingent amount based
on a percentage of sales exceeding a stipulated amount. Most leases also require
additional payments covering real estate taxes, common area costs and insurance.
Rent expense is as follows:
Transition
2001 Period 2000 1999
---------- ---------- ---------- ----------
Minimum rental $55,278 $4,335 $48,329 $44,423
Contingent rentals 889 52 689 715
---------- ---------- ---------- ----------
$56,167 $4,387 $49,018 $45,138
========== ========== ========== ==========
F-10
STEIN MART, INC.
NOTES TO FINANCIAL STATEMENTS
February 2, 2002
(Dollars in tables in thousands except per share amounts)
At February 2, 2002, for the majority of its retail and corporate facilities,
the Company was committed under noncancellable leases with remaining terms of up
to 20 years. Future minimum payments under noncancellable leases are:
2002 $ 57,006
2003 55,187
2004 52,175
2005 48,215
2006 42,990
Thereafter 159,039
----------
$414,612
==========
The Company subleases shoe department and fragrance department space in all of
its stores. Sales from leased departments are excluded from sales of the
Company. Sublease rental income of $12,610,000, $752,000, $12,710,000 and
$11,388,000 is included in other income, net for 2001, the Transition Period,
2000 and 1999, respectively. Total future minimum rental income under these
noncancellable subleases is $7,830,000 at February 2, 2002.
8. Employee Benefit Plans
The Company has a defined contribution retirement plan covering employees who
are at least 21 years of age and have completed at least one year of service.
Under the profit sharing portion of the plan, the Company makes discretionary
contributions, which vest at a rate of 20 percent per year after two years of
service. Under the 401(k) portion of the plan the Company contributes one
percent of the employee's compensation and matches 50 percent of the employee's
voluntary pre-tax contributions up to a maximum of four percent of the
employee's compensation. The Company's base 401(k) contribution vests
immediately while the matching portion vests in accordance with the plan's
vesting schedule. Total Company contributions under the retirement plan were
$1,571,000, $66,000, $1,750,000 and $1,500,000 for 2001, the Transition Period,
2000 and 1999, respectively.
During 1999, the Company implemented an executive split dollar life insurance
plan wherein eligible executives are provided with pre-retirement life insurance
protection based upon three to five times base salary. Upon retirement, the
executive is provided with life insurance protection based upon one and one-half
to two and one-half times final base salary. The expense for this plan was
$293,000, $248,000 and $25,000 in 2001, 2000 and 1999, respectively. There was
no expense recorded during the Transition Period.
Also during 1999, the Company implemented an executive deferral plan providing
officers and key executives with the opportunity to participate in an unfunded,
deferred compensation program. Under the program, participants may defer up to
100% of their base compensation and bonuses earned. The Company will match the
executives' contributions 100% up to the first 10% of income deferred. The total
of participant deferrals, which is reflected in accrued liabilities, was
$814,000 at February 2, 2002 and $402,000 at February 3, 2001. The expense for
this plan was $495,000, $25,000, $486,000 and $57,000 in 2001, the Transition
Period, 2000 and 1999, respectively.
In connection with the above two plans, whole life insurance contracts were
purchased on the related participants. At February 2, 2002 and February 3, 2001
the cash surrender value of these policies was $2,773,000 and $1,949,000,
respectively, and is included in Other assets.
F-11
STEIN MART, INC.
NOTES TO FINANCIAL STATEMENTS
February 2, 2002
(Dollars in tables in thousands except per share amounts)
9. Income Taxes
The income tax provision (benefit) is as follows:
Transition
2001 Period 2000 1999
---------- ---------- ---------- ----------
Current:
Federal $13,271 $(3,387) $19,537 $11,022
State 1,138 (290) 1,675 945
---------- ---------- ---------- ----------
Total current 14,409 (3,677) 21,212 11,967
---------- ---------- ---------- ----------
Deferred:
Federal (4,604) 217 2,680 (4,349)
State (395) 19 230 (373)
---------- ---------- ---------- ----------
Total deferred (4,999) 236 2,910 (4,722)
---------- ---------- ---------- ----------
Income tax provision (benefit) $ 9,410 $(3,441) $24,122 $ 7,245
========== ========== ========== ==========
Income tax expense (benefit) differed from the amounts computed by applying the
federal statutory rate of 35 percent to income before taxes as follows:
Transition
2001 Period 2000 1999
---------- ---------- ---------- ----------
Federal tax at the statutory rate $ 8,667 $(3,169) $22,218 $ 6,673
State income taxes, net of federal benefit 743 (272) 1,904 572
---------- ---------- ---------- ----------
$ 9,410 $(3,441) $24,122 $ 7,245
========== ========== ========== ==========
Effective tax rate 38.0% 38.0% 38.0% 38.0%
========== ========== ========== ==========
Temporary differences, which give rise to deferred tax assets and liabilities,
are as follows:
Feb. 2, Feb. 3,
2002 2001
---------- ----------
Deferred tax assets:
NOL carryforward $ 5,417 $ -
Store closing reserve 2,158 1,894
Inventories 650 1,782
Accrued liabilities 2,012 1,325
Other 1,384 1,104
---------- ---------
11,621 6,105
---------- ---------
Deferred tax liabilities:
Depreciation 12,019 11,853
Other 2,036 1,685
---------- ---------
14,055 13,538
---------- ---------
Net deferred tax liability $(2,434) $(7,433)
========== =========
At February 2, 2002, the Company has approximately $14 million in federal and
state net operating loss ("NOL") carryforwards, which it expects to fully
utilize in 2002. The NOL carryforwards, which expire in 2022, were generated in
the five-week tax period ended February 2, 2002. This five-week tax period is
the result of the Company's change in fiscal year (see Note 1).
F-12
STEIN MART, INC.
NOTES TO FINANCIAL STATEMENTS
February 2, 2002
(Dollars in tables in thousands except per share amounts)
On March 14, 2002, the Internal Revenue Service released new rules (Rev. Proc.
2002-19), which allow the Company an accelerated deduction of certain components
of the Company's deferred tax asset relating to inventories. As a result, the
Company's income tax payable and the corresponding deferred tax asset relating
to inventories will be reduced by $3.8 million in the first quarter of fiscal
2002.
Deferred tax assets and liabilities are reflected on the Company's balance sheet
as follows:
Feb. 2, Feb. 3,
2002 2001
---------- ----------
Current deferred tax assets (included in
Prepaid expenses and other current assets) $ 7,127 $ 2,067
Non-current deferred tax liabilities (included in
Other liabilities) (9,561) (9,500)
---------- ----------
Net deferred tax liabilities $(2,434) $(7,433)
========== =========
The exercise of certain stock options which have been granted under the
Company's stock option plans gives rise to compensation which is includable in
the taxable income of the applicable employees and deductible by the Company for
federal and state income tax purposes. Such compensation results from increases
in the market value of the Company's common stock subsequent to the date of
grant of the applicable exercised stock options, and in accordance with
Accounting Principles Board Opinion No. 25, such compensation is not recognized
as an expense for financial accounting purposes and the related tax benefits are
recorded directly in Paid-in Capital.
10. Store Closing and Asset Impairment Charges and Credits
During the fourth quarter of 2001, Management approved a plan to close four
stores in 2002. As a result, the Company recorded a pre-tax charge of $2.9
million, including $2.2 million for the estimated cost of lease terminations and
$0.7 million for the write-down of certain property and equipment. The charge is
included in Selling, general and administrative expenses in the Statement of
Income. The Company does not expect to incur significant additional exit costs
upon the closing of these stores.
During 1999, the Company approved a plan to close ten under-performing stores
and recorded a $20.5 million pre-tax charge for store closing and asset
impairment costs. The charge included $4.6 million, included in cost of
merchandise sold, for inventory write-downs resulting from additional markdowns
in four stores that were closed in 1999 and markdowns associated with clearance
merchandise. The charge also included $15.9 million for the estimated cost of
lease terminations in the amount of $13.4 million and $2.5 million which
represented primarily costs to write-down certain leasehold improvements
included in property and equipment. During 2000, the Company recorded a net
pre-tax credit of $3.4 million related to the 1999 store closing reserve. The
credit resulted from adjustments to estimated lease obligations for changes in
anticipated closing dates and for favorable lease settlements ($2.5 million),
unsatisfactory lease negotiations to close two stores ($1.9 million), offset by
a $1.0 million charge for the write-down of furniture, fixtures and equipment
related to store closings. The 1999 store closing charge and the related 2000
credit are included in Selling, general and administrative expenses in the
Statement of Income.
The store closing reserve at February 2, 2002 includes primarily the lease
obligations for four stores that will close in 2002 and the remaining lease
obligation for one store closed in December 1999. Payments during 2001 include
lease termination and ongoing lease costs. Activity in the store closing reserve
is as follows:
F-13
STEIN MART, INC.
NOTES TO FINANCIAL STATEMENTS
February 2, 2002
(Dollars in tables in thousands except per share amounts)
Balance at February 3, 2001 $4,984
Additions for 2002 closings 2,206
Payments on 1999 closings (1,510)
----------
Balance at February 2, 2002 $5,680
==========
The store closing reserve includes a current portion of $1.0 million and a
long-term portion of $4.7 million which are included in Accrued liabilities and
Other liabilities, respectively.
11. Quarterly Results of Operations (Unaudited)
As discussed in Note 1, the Company changed its fiscal year in 2001. The 13 week
periods of 2001 reflect this change.
13 Weeks Ended
-------------------------------------------------------------
May 5, Aug. 4, Nov. 3, Feb. 2,
Year Ended February 2, 2002 2001 2001 2001 2002
-------------------------------------------------------------
Net Sales $317,069 $291,473 $304,367 $407,281
Gross Profit 83,077 71,810 64,179 97,557
Net income (loss) 9,132 3,048 (5,828) 9,002
Earnings (loss) per share - Basic $0.22 $0.07 $(0.14) $0.22
Earnings (loss) per share - Diluted $0.22 $0.07 $(0.14) $0.22
13 Weeks Ended
-------------------------------------------------------------
Apr. 1, Jul. 1, Sept. 30, Dec. 30,
Year Ended December 30, 2000 2000 2000 2000 2000
-------------------------------------------------------------
Net sales $245,451 $291,188 $267,561 $402,424
Gross profit 57,155 82,279 63,077 107,553
Net income 999 13,830 2,082 22,446
Earnings per share - Basic $0.02 $0.32 $0.05 $0.53
Earnings per share - Diluted $0.02 $0.32 $0.05 $0.52
12. Transition Period Financial Information
Statement of Income for the five-week Transition Period ended February 3, 2001:
Net sales $84,013
Cost of merchandise sold 70,609
----------
Gross profit 13,404
Selling, general and administrative expenses 23,106
Other income, net 833
----------
Loss from operations (8,869)
Interest expense 186
----------
Loss before income tax benefit (9,055)
Income tax benefit 3,441
----------
Net loss $(5,614)
==========
Loss per share - Basic and Diluted $(0.14)
==========
F-14
STEIN MART, INC.
NOTES TO FINANCIAL STATEMENTS
February 2, 2002
(Dollars in tables in thousands except per share amounts)
Statement of Cash Flows for the five-week Transition Period ended February 3,
2001:
Cash flows from operating activities:
Net loss $(5,614)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,299
Tax benefit from exercise of stock options 22
Deferred income taxes 236
Changes in assets and liabilities:
Trade and other receivables 1,309
Inventories (5,445)
Prepaid expenses and other current assets 529
Other assets 50
Accounts payable (41,083)
Accrued liabilities (8,556)
Income taxes payable (3,705)
Other liabilities 55
----------
Net cash used in operating activities (60,903)
Cash flows used in investing activities:
Capital expenditures (848)
Cash flows from financing activities:
Net borrowings under notes payable to banks 60,236
Proceeds from exercise of stock options 40
Proceeds from employee stock purchase plan 469
Purchase of common stock (454)
----------
Net cash provided by financing activities 60,291
----------
Net decrease in cash and cash equivalents (1,460)
Cash and cash equivalents at December 30, 2000 12,526
----------
Cash and cash equivalents at February 3, 2001 $11,066
==========
Interest and taxes paid during the five-week Transition Period ended February 3,
2001 were $1,072,000 and $17,000, respectively.
13. Legal Proceedings
The Company is involved in various routine legal proceedings incidental to the
conduct of its business. Management does not believe that any of these legal
proceedings will have a material adverse effect on the Company's financial
condition or results of operations.
F-15
INDEX TO EXHIBITS
*3.1 Articles of Incorporation of the registrant
3.2 Bylaws of the registrant (amended November 6, 2000)
4.1 Provisions of the Articles of Incorporation and Bylaws of the
Registrant defining rights of shareholders of Common Stock of the
Registrant (incorporated by reference to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 30, 2000)
*4.2 Form of stock certificate for Common Stock
~*10.1 Form of Director's and Officer's Indemnification Agreement
10.2 Revolving Credit Agreement dated as of June 28, 2001 between Stein
Mart, Inc. and SunTrust Bank, as Administrative Agent (incorporated
by reference to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2001)
10.2.1 First Amendment to Revolving Credit Agreement dated as of November
9, 2001 among Stein Mart, Inc. and SunTrust Bank, as Administrative
Agent (incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q for the quarter year ended September 29, 2001)
~*10.3 Employee Stock Plan
~*10.4 Form of Non-Qualified Stock Option Agreement
~*10.5 Form of Incentive Stock Option Agreement
*10.6 Profit Sharing Plan
~*10.7 Executive Health Plan
~*10.8 Director Stock Option Plan
~^10.9 Executive Split Dollar Plan
~^10.10 Executive Deferral Plan
10.11 2001 Omnibus Plan (incorporated by reference to the Company's Form
S-8 Registration Statement filed on August 7, 2001)
23 Consent of PricewaterhouseCoopers LLP (filed herein)
* Previously filed as Exhibit to Form S-1 Registration Statement 33-46322 and
incorporated herein by reference.
^ Previously filed as Exhibit to the Company's Form 10-K for the fiscal year
ended January 1, 2000 and incorporated herein by reference.
~ Management Contracts or Compensatory Plan or Arrangements filed pursuant to
S-K 601 (10) (iii)(A).
E-1