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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended MAY 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the transition period from_____________ to _____________
COMMISSION FILE NUMBER 1-8546
SYMS CORP
(Exact Name of Registrant as Specified in Its Charter)
NEW JERSEY 22-2465228
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
SYMS WAY, SECAUCUS, NEW JERSEY 07094
(Address of Principal Executive Offices) (Zip Code)
(201) 902-9600
(Registrant's Telephone Number, Including Area Code)
NOT APPLICABLE
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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 such
filing requirements for the past 90 days. Yes _X_ No __
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes __ No _X_
At July 7, 2003 the latest practicable date, there were 15,440,478 shares
outstanding of Common Stock, par value $0.05 per share.
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SYMS CORP AND SUBSIDIARIES
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INDEX
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PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of
May 31, 2003, March 1, 2003 and June 1, 2002 1
Condensed Consolidated Statements of Operations for the
13 Weeks Ended May 31, 2003 and June 1, 2002 2
Condensed Consolidated Statements of Cash Flows for the
13 Weeks Ended May 31, 2003 and June 1, 2002 3
Notes to Condensed Consolidated Financial Statements 4-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-12
Item 3. Quantitative and Qualitative Disclosure about Market Risk 12
Item 4. Controls and Procedures 13
PART II. OTHER INFORMATION
13
Item 1. Legal Proceedings
Item 2. Changes In Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES 14
CERTIFICATIONS 15-16
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SYMS CORP AND SUBSIDIARIES
----------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
(IN THOUSANDS)
MAY 31, MARCH 1, JUNE 1,
2003 2003 2002
-------- -------- --------
(UNAUDITED) (NOTE) (UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 30,434 $ 19,197 $ 33,264
Merchandise inventories 88,277 78,151 94,854
Deferred income taxes 4,143 4,143 6,514
Prepaid expenses and other current assets 5,133 6,280 3,724
-------- -------- --------
TOTAL CURRENT ASSETS 127,987 107,771 138,356
PROPERTY AND EQUIPMENT - Net 133,312 135,460 145,490
DEFERRED INCOME TAXES 9,397 9,397 4,392
OTHER ASSETS 11,637 9,845 8,659
-------- -------- --------
TOTAL ASSETS $282,333 $262,473 $296,897
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 35,647 $ 12,639 $ 36,188
Accrued expenses 11,219 12,099 10,224
Accrued insurance 1,835 2,339 2,907
Obligations to customers 3,317 3,352 3,022
-------- -------- --------
TOTAL CURRENT LIABILITIES 52,018 30,429 52,341
OTHER LONG TERM LIABILITIES 1,886 1,891 2,140
-------- -------- --------
SHAREHOLDERS' EQUITY
Preferred stock, par value $100 per share
Authorized 1,000 shares; none outstanding -- -- --
Common stock, par value $0.05 per share
Authorized 30,000 shares; 15,440 shares
outstanding (net of 2,513 in treasury
shares) on May 31, 2003, 15,435 shares
outstanding as of March 1, 2003 (net of
2,513 treasury shares) and 15,782 shares
outstanding (net of 2,152 treasury shares)
on June 1, 2002 772 772 793
Additional paid-in capital 14,117 14,092 14,007
Treasury Stock (21,572) (21,572) (18,987)
Retained earnings 235,112 236,862 246,603
-------- -------- --------
TOTAL SHAREHOLDERS' EQUITY 228,429 230,154 242,416
-------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $282,333 $262,473 $296,897
======== ======== ========
NOTE: The balance sheet at March 1, 2003 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See Notes to Condensed Consolidated Financial Statements
1
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SYMS CORP AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
13 WEEKS ENDED
-----------------------
MAY 31, JUNE 1,
2003 2002
-------- --------
(Unaudited)
Net sales $ 63,534 $ 67,950
Cost of goods sold 37,620 38,853
-------- --------
Gross profit 25,914 29,097
Expenses:
Selling, general and administrative 19,169 18,765
Advertising 2,380 2,244
Occupancy 4,164 4,501
Depreciation and amortization 2,623 2,810
Other income (110) (454)
-------- --------
Income/(loss) from operations (2,312) 1,231
Interest income (12) (54)
-------- --------
Income/(loss) before income taxes (2,300) 1,285
Provision (benefit) for income taxes (551) 578
-------- --------
Net income/(loss) $ (1,749) $ 707
Net income/(loss) per share-basic $ (0.11) $ 0.04
======== ========
Weighted average shares outstanding-basic 15,439 15,754
======== ========
Net income/(loss) per share-diluted $ (0.11) $ 0.04
======== ========
Weighted average shares outstanding- diluted 15,439 15,754
======== ========
See Notes to Condensed Consolidated Financial Statements
2
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SYMS CORP AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
(IN THOUSANDS)
13 WEEKS ENDED
-----------------------
MAY 31, JUNE 1,
2003 2002
-------- --------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,749) $ 707
-------- --------
Adjustments to reconcile net income/(loss) to
net cash provided by operating activities:
Depreciation and amortization 2,621 2,810
Gain of disposal of assets -- (94)
(Increase) decrease in operating assets:
Merchandising inventories (10,126) (8,044)
Prepaid expenses and other current assets 1,147 2,451
Other assets (1,792) (540)
Increase (decrease) in operating liabilities:
Accounts payable 23,008 18,321
Accrued expenses (1,419) 1,069
-------- --------
Other long term liabilities (5) 22
-------- --------
Net cash provided by operating activities 11,685 16,702
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Stanley Blacker Acquisition -- (1,906)
Expenditures for property and equipment (473) (1,020)
-------- --------
Net cash used in investing activities (473) (2,926)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of options/Issuance of stock 25 3
-------- --------
Net cash provided by financing activities 25 3
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 11,237 13,779
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 19,197 19,485
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 30,434 $ 33,264
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $ -- $ --
======== ========
Income taxes paid (refunds received) $ -- $ --
======== ========
Stanley Blacker, Inc. acquisition
financed through stock $ -- $ 250
======== ========
See Notes to Condensed Consolidated Financial Statements
3
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SYMS CORP AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
13 WEEKS ENDED MAY 31, 2003 AND JUNE 1, 2002
- --------------------------------------------------------------------------------
(UNAUDITED)
..
NOTE 1 - THE COMPANY
Syms Corp (the "Company") operates a chain of 40 "off-price" retail clothing
stores located throughout the Northeastern and Middle Atlantic regions and in
the Midwest, Southeast and Southwest. Each Syms store offers a broad range of
first quality, in season merchandise bearing nationally recognized designer or
brand-name labels for men, women and children.
NOTE 2 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the 13-week period ended May 31, 2003 is
not necessarily indicative of the results that may be expected for the entire
fiscal year ending February 28, 2004. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the fiscal year ended March 1, 2003.
NOTE 3 - ACCOUNTING PERIOD
The Company's fiscal year ends the Saturday nearest to the end of February. The
fiscal year ending March 1, 2003 was comprised of 52 weeks. The fiscal year
ended February 28, 2004 will be comprised of 52 weeks.
NOTE 4 - MERCHANDISE INVENTORIES
Merchandise inventories are stated at the lower of cost (first in, first out) or
market, as determined by the retail inventory method.
NOTE 5 - BANK CREDIT FACILITIES
The Company has an unsecured revolving credit agreement with a bank for a line
of credit not to exceed $20,000,000 through July 31, 2003. A renewal of the
current facility for a one-year period is now in progress and expected to be
finalized shortly. Interest on individual advances is payable quarterly at 1/2%
per annum below the bank's base rate, except that at the time of advance, the
Company has the option to select an interest rate based upon one other
alternative calculation, with such rate to be fixed for a period not to exceed
90 days. The average daily unused portion is subject to a commitment fee of 3/8
of 1% per annum. As of May 31, 2003, March 1, 2003 and June 1, 2002 there were
no outstanding borrowings under this agreement.
The agreement contains financial covenants with respect to consolidated tangible
net worth, as defined therein, working capital and maximum capital expenditures,
including dividends (defined to include cash repurchases of capital stock), as
well as other financial ratios. The Company was in compliance with all covenants
as of May 31, 2003.
In addition, the Company has a separate $10,000,000 credit facility with another
bank available for the issuance of letters of credit for the purchase of foreign
merchandise. This agreement may be canceled at any time by either party. At May
31, 2003, March 1, 2003 and June 1, 2002 the Company had $4,462,000, $2,755,000
and $4,523,000, respectively, in outstanding letters of credit.
4
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SYMS CORP AND SUBSIDIARIES
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NOTE 6 - NET INCOME/(LOSS) PER SHARE
In accordance with SFAS 128, basic net income/(loss) per share has been computed
based upon the weighted average of the common shares outstanding. Diluted net
income/(loss) per share gives effect to outstanding stock options.
Net income (loss) per share has been computed as follows:
13 WEEKS ENDED
-----------------------
MAY 31, JUNE 1,
2003 2002
-------- --------
Basic net income/(loss) per share:
Net income/(loss) $ (1,749) $ 707
Average shares outstanding 15,439 15,754
Basic net income (loss) per share $ (0.11) $ 0.04
Diluted net income per share:
Net income/(loss) $ (1,749) $ 707
Average shares outstanding 15,439 15,754
Stock options -- --
Total average equivalent shares 15,439 15,754
Diluted net income/(loss) per share $ (0.11) $ 0.04
In periods with losses, options were excluded from the computation of diluted
net income per share because the effect would be anti-dilutive.
Options to purchase 977,000 and 1,060,000 shares of common stock at prices
ranging from $5.63 to $10.69 per share were outstanding as of May 31, 2003 and
June 1, 2002, respectively, but were not included in the computation of diluted
net income per share because they would have been antidilutive.
NOTE 7 - RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the FASB issued Statement of Financial Accounting Standards No.
141, "BUSINESS COMBINATIONS" ("SFAS 141") AND STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 142, "GOODWILL AND OTHER INTANGIBLE ASSETS" ("SFAS 142"). SFAS 141
eliminates the pooling-of-interests method of accounting for business
combinations initiated after June 30, 2001 and modifies the application of the
purchase accounting method effective for transactions that are completed after
June 30, 2001. SFAS 142 eliminates the requirement to amortize goodwill and
intangible assets having indefinite useful lives but requires that they be
assessed at least annually for impairment. Intangible assets that have finite
lives will continue to be amortized over their useful lives. The adoption of
SFAS 141 and 142 did not have a material effect on the Company's financial
position or operations.
In October 2001, the FASB issued Statement of Financial Accounting Standards
144, "ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS" ("SFAS
144"). SFAS No. 144 addresses the accounting and reporting for the impairment or
disposal of long-lived assets. The statement provides a single accounting model
for long-lived assets to be disposed of. New criteria must be met to classify
the asset as an asset held-for-sale. This statement also focuses on reporting
the effects of a disposal of a segment of business. This statement is effective
for fiscal years beginning after December 15, 2001. The Company adopted SFAS 144
as of March 3, 2002, and the adoption did not have a material impact on the
Company's financial position or results of operations.
5
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SYMS CORP AND SUBSIDIARIES
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In April 2002, Statement of Financial Accounting Standards, No. 145,
"RESCISSION OF FASB STATEMENTS NO. 4, 44 AND 64, AMENDMENT OF FASB STATEMENT NO.
13, AND TECHNICAL CORRECTIONS" ("SFAS 145") was issued. SFAS 145 rescinds SFAS 4
and 64, which required gains and losses from extinguishment of debt to be
classified as extraordinary items. SFAS also rescinds SFAS 44 since the
provisions of the Motor Carrier Act of 1980 are complete. SFAS 145 also amends
SFAS 13 eliminating inconsistencies in certain sale-leaseback transactions. The
provisions of SFAS 145 are effective for fiscal years beginning after May 15,
2002. Any gain or loss on extinguishment of debt that was classified as an
extraordinary item in prior periods presented shall be reclassified to interest
expense. The Company does not expect that the adoption of SFAS 145 will have a
material effect on the Company's financial position or results of operations.
Statement of Financial Accounting Standards, No. 146, "ACCOUNTING FOR COSTS
ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES" ("SFAS 146"), was issued in July
2002. SFAS 146 requires companies to recognize costs associated with exit or
disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. SFAS 146 supercedes EITF Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (Including Certain Costs Incurred in a Restructuring)." SFAS
146 is to be applied prospectively to exit or disposal activities initiated
after December 31, 2002. This pronouncement did not have a material effect on
the Company's financial position or results of operations.
On December 31, 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, "ACCOUNTING FOR STOCK-BASED COMPENSATION -TRANSITION AND
DISCLOSURE" ("SFAS 148"). This standard amends SFAS No. 123, to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, SFAS
148 amends the disclosure requirements of SFAS 123 to require more frequent and
prominent disclosures in financial statements of the effects of stock-based
compensation. The transition guidance and annual disclosure provisions of SFAS
148 are effective for fiscal years ending after December 15, 2002. The interim
disclosure provisions are effective for financial reports containing financial
statements for interim periods beginning after December 15, 2002. The Company
has adopted the disclosure provisions of SFAS 148 as of March 1, 2003, as
required.
In November 2002, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 45, "GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR
GUARANTEES, INCLUDING INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS ("FIN 45").
FIN 45 requires the recognition of a liability for certain guarantee obligations
issued or modified after December 31, 2002. It also clarifies disclosure
requirements to be made by a guarantor for certain guarantees. The disclosure
provisions of FIN 45 are effective for fiscal years ending after December 15,
2002. FIN 45 is not expected to have a material impact on the Company's results
of operations, financial position or cash flows, and the Company has adopted the
disclosure provisions of FIN 45 as of March 1, 2003.
On January 17, 2003, the FASB issued Interpretation No. 46, "CONSOLIDATION
OF VARIABLE INTEREST ENTITIES" ("FIN 46"). FIN 46 requires certain variable
interest entities to be consolidated by the primary beneficiary of the entity if
the equity investors in the entity do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. FIN 46 is effective for all new variable interest
entities created or acquired after January 31, 2003. For variable interest
entities created or acquired prior to February 1, 2003, the provisions of FIN 46
must be applied for the first interim or annual period beginning after June 15,
2003. The adoption of FIN 46 did not have an impact on the Company's results of
operations, financial position or cash flows.
In February 2003, the Emerging Issues Task Force ("EITF") addressed EITF
Statement No. 02-16 ("EITF 02-16"), "ACCOUNTING BY A RESELLER FOR CASH
CONSIDERATION RECEIVED FROM A VENDOR." EITF 02-16 provides accounting guidance
on how a reseller should characterize consideration given by a vendor and when
to recognize and how to measure that consideration in its income statement. EITF
02-16 is effective for all agreements entered into after December 31, 2002. We
have evaluated the provisions of EITF 02-16 and determined that this statement
did not have a material effect on our consolidated financial statements.
6
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SYMS CORP AND SUBSIDIARIES
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In April 2003, the FASB issued SFAS 149, "AMENDMENT OF STATEMENT 133 ON
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES" ("SFAS 149"). SFAS 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
133. The new guidance amends SFAS 133 for decisions made: (a) as part of the
Derivatives Implementation Group process that effectively required amendments to
SFAS 133, (b) in connection with other Board projects dealing with financial
instruments, and (c) regarding implementation issues raised in relation to the
application of the definition of a derivative, particularly regarding the
meaning of an "underlying" and the characteristics of a derivative that contains
financing components. The amendments set forth in SFAS 149 improve financial
reporting by requiring that contracts with comparable characteristics be
accounted for similarly. SFAS 149 is generally effective for contracts entered
into or modified after June 30, 2003 (with a few exceptions) and for hedging
relationships designated after June 30, 2003. The guidance is to be applied
prospectively. We do not expect the provisions of SFAS 149 to have a material
impact on our financial position or results of operations.
In May 2003, the FASB issued Statement No. 150, "ACCOUNTING FOR CERTAIN
FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY"
("SFAS 150"). SFAS 150 improves the accounting for certain financial instruments
that, under previous guidance, issuers could account for as equity. The new
Statement requires that those instruments be classified as liabilities in
statements of financial position. We do not expect the provisions of SFAS 150 to
have a material impact on our financial position or results of operations.
NOTE 8 - ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company complies with Statement of Financial Accounting Standards No.
123 "ACCOUNTING FOR STOCK-BASED COMPENSATION" ("SFAS No. 123"). This statement
defines a fair value based method whereby compensation cost is measured at the
grant date based on the fair value of the award and is recognized over the
service period, which is usually the vesting period. Under SFAS No. 123,
companies are encouraged, but are not required, to adopt the fair value method
of accounting for employee stock-based transactions. The Company accounts for
such transactions under Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, but discloses pro forma net loss as if the
Company had applied the SFAS No. 123 method of accounting.
Pro forma information, assuming the Company had accounted for its employee
stock options granted under the fair value method prescribed by SFAS No. 123, as
amended by Financial Accounting Standards Board Statement No. 148, "Accounting
for Stock Based Compensation - Transition and Disclosure, an Amendment of FASB
Statement No. 123," is presented below. The fair value of each option grant is
estimated on the date of each grant using the Black-Scholes option-pricing
model. There were no stock options granted in the first quarter of fiscal 2003
or of fiscal 2002. The fair value generated by the Black-Scholes model may not
be indicative of the future benefit, if any, that may be received by the option
holder.
13 WEEKS ENDED
-----------------------
5/31/03 6/01/02
-------- --------
Net income/(loss): ($1,749) $707
Total stock-based employee compensation expense
determined under fair value based method for all
awards, net of related tax effects ($7) ($20)
-------- -----
Pro forma net income/(loss) ($1,756) $687
======== =====
Earnings (loss) per share:
Basic, as reported ($0.11) $.04
Basic, pro forma ($0.11) $.04
Diluted, as reported ($0.11) $.04
Diluted, pro forma ($0.11) $.04
7
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SYMS CORP AND SUBSIDIARIES
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This pro forma information may not be representative of the amounts to
expected in future years as the fair value method of accounting prescribed by
SFAS No. 123 has not been applied to options granted prior to fiscal 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Quarterly Report (including but not limited to factors discussed below, in
the Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as those discussed elsewhere in this Quarterly Report on
Form 10-Q) includes forward-looking statements (as such term is defined in the
Private Securities Litigation Reform Act of 1995) and information relating to
the Company that are based on the beliefs of the management of the Company as
well as assumptions made by and information currently available to the
management of the Company. When used in this Quarterly Report, the words
"anticipate," "believe," "estimate," "expect," "intend," "plan," and similar
expressions, as they relate to the Company or the management of the Company,
identify forward-looking statements. Such statements reflect the current views
of the Company with respect to future events, the outcome of which is subject to
certain risks, including among others general economic and market conditions,
decreased consumer demand for the Company's products, possible disruptions in
the Company's computer or telephone systems, possible work stoppages, or
increases in labor costs, effects of competition, possible disruptions or delays
in the opening of new stores or inability to obtain suitable sites for new
stores, higher than anticipated store closings or relocation costs, higher
interest rates, unanticipated increases in merchandise or occupancy costs and
other factors which may be outside the Company's control. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results or outcomes may vary materially from those described
herein as anticipated, believed, estimated, expected, intended or planned.
Subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the cautionary statements in this paragraph and elsewhere described
in this Quarterly Report and other reports filed with the Securities and
Exchange Commission.
CRITICAL ACCOUNTING POLICIES AND ESTIMATE
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires the
appropriate application of certain accounting policies, many of which require us
to make estimates and assumptions about future events and their impact on
amounts reported in the financial statements and related notes. Since future
events and their impact cannot be determined with certainty, the actual results
will inevitably differ from our estimates. Such differences could be material to
the consolidated financial statements.
The Company believes application of accounting policies, and the estimates
inherently required by the policies, are reasonable. These accounting policies
and estimates are constantly reevaluated, and adjustments are made when facts
and circumstances dictate a change. Historically, the Company has found the
application of accounting policies to be appropriate, and actual results have
not differed materially from those determined using necessary estimates.
The Company's accounting policies are more fully described in Note 1 to the
Consolidated Financial Statements, located in the Annual Report on Form 10-K for
the year ended March 1, 2003. The Company has identified certain critical
accounting policies that are described below.
8
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SYMS CORP AND SUBSIDIARIES
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MERCHANDISE INVENTORY - Inventories are valued at lower of cost or market
using the retail first-in, first-out ("FIFO") inventory method. Under the retail
inventory method ("RIM"), the valuation of inventories at cost and the resulting
gross margins are calculated by applying a calculated cost to retail ratio to
the retail value of inventories. RIM is an averaging method that has been widely
used in the retail industry due to its practicality. Additionally, it is
recognized that the use of RIM will result in valuing inventories at the lower
of cost or market if markdowns are currently taken as a reduction of the retail
value of inventories. Inherent in the RIM calculation are certain significant
management judgments and estimates including, among others, merchandise markon,
markups, and markdowns, which significantly impact the ending inventory
valuation at cost as well as resulting gross margins. Management believes that
the Company's RIM and application of FIFO provides an inventory valuation which
reasonably approximates cost using a first-in, first-out assumption and results
in a carrying value at the lower of cost or market. If actual market conditions
are less favorable than those projected by management, additional markdowns may
be required.
LONG-LIVED ASSET - In evaluation of the fair value and future benefits of
long-lived assets, the Company performs analyses of the anticipated undiscounted
future net cash flows of the related long-lived assets. If the carrying value of
the related asset exceeds the undiscounted cash flows, the Company reduces the
carrying value to its fair value, which is generally calculated using discounted
cash flows. Various factors including future sales growth and profit margins are
included in this analysis. To the extent these future projections or our
strategies change, the conclusion regarding impairment may differ from the
Company's current estimates.
DEFERRED TAX VALUATION ALLOWANCE - The Company records a valuation
allowance to reduce its deferred tax assets to the amount that is more likely
than not to be realized. The Company has considered future taxable income and
ongoing prudent and feasible tax planning strategies in assessing the need for
the valuation allowance. If the Company were to determine that it would be able
to realize its deferred tax assets in the future in excess of its net recorded
amount, an adjustment to the deferred tax asset would increase income in the
period such determination was made. Likewise, should the Company determine that
it would not be able to realize all or part of our net deferred tax asset in the
future, an adjustment to the deferred tax asset would be charged to income in
the period such determination was made.
RESULTS OF OPERATIONS
13 WEEKS ENDED MAY 31, 2003 COMPARED TO 13 WEEKS ENDED JUNE 1, 2002
Net sales for the 13 weeks ended May 31, 2003 were $63,534,000, a decrease of
$4,416,000 (6.5%), as compared to net sales of $67,950,000 for the 13 weeks
ended June 1, 2002. The closing of the Pittsburgh, PA and Chicago, IL stores
accounted for approximately $2,000,000 of the decrease in net sales in the first
quarter of 2003. Comparable store sales decreased 3.8% from the comparable 13
week period in fiscal 2002. The difficult economic environment that the Company
and other retailers are experiencing contributed to this decline for the period
ending May 31, 2003.
Gross profit for the 13 weeks ended May 31, 2003 was $25,914,000 (40.8% as a
percentage of net sales), a decrease of $3,183,000 as compared to $29,097,000
(42.8% as a percentage of net sales) for the fiscal period ended June 1, 2002.
The decline in gross profit during this period is largely attributable to lower
sales and higher markdowns on merchandise sold compared to the same period in
the prior year.
Selling, general and administrative expense increased $404,000 to $19,169,000
(30.2% as a percentage of net sales) for the 13 weeks ended May 31, 2003, as
compared to $18,765,000 (27.6% as a percentage of net sales) for the period
ended June 1, 2002. The expense of the closed stores (Pittsburgh, PA and
Chicago, IL) accounted for approximately $523,000 for the period ended June 1,
2002. The increased expenditures in the existing stores of approximately
$927,000 is largely due to higher payrolls and higher medical insurance costs.
9
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SYMS CORP AND SUBSIDIARIES
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Advertising expense for the 13 weeks ended May 31, 2003 was $2,380,000 (3.8% as
a percentage of net sales) as compared to $2,244,000 (3.3% as a percentage of
net sales) for the period ended June 1, 2002.
Occupancy costs were $4,164,000 (6.6% as a percentage of net sales) for the 13
week period ended May 31, 2003 as compared to $4,501,000 (6.6% as a percentage
of net sales) for the 13 weeks ended June 1, 2002. The occupancy costs of the
closed stores (Pittsburgh, PA and Chicago, IL) amounted to $386,000.
Depreciation and amortization amounted to $2,623,000 (4.1% as a percentage of
net sales), a decrease of $187,000 for the 13 weeks ended May 31, 2003, as
compared to $2,810,000 (4.1% as a percentage of net sales) for the 13 weeks
ended June 1, 2002.
Net loss before income taxes for the 13 weeks ended May 31, 2003 was $2,300,000,
as compared to net income before income taxes of $1,285,000 for the 13 weeks
ended June 1, 2002. The net loss this year resulted principally from lower sales
and higher markdowns on merchandise sold and increased expenses.
For the 13 week period ended May 31, 2003, the effective income tax rate was
24%, compared to 45% for the period ended June 1, 2002. The fluctuation on the
effective income tax rate is due to the non-deductibility of officer's life
insurance premiums.
LIQUIDITY AND CAPITAL RESOURCES
Working capital as of May 31, 2003 was $75,969,000, a decrease of $10,046,000,
as compared to $86,015,000 as of June 1, 2002. The ratio of current assets to
current liabilities was 2.46 to 1 as compared to 2.64 to 1 as of June 1, 2002.
Net cash provided by operating activities totaled $11,685,000 for the 13 weeks
ended May 31, 2003, a decrease of $5,017,000 as compared to $16,702,000 for the
13 weeks ended June 1, 2002. Net cash used in investing activities was $473,000
for the 13 weeks ended May 31, 2003, as compared to $2,926,000 for the 13 weeks
ended June 1, 2002. Expenditures for property and equipment totaled $473,000 and
$1,020,000 for the 13 weeks ended May 31, 2003 and June 1, 2002, respectively.
Net cash provided by financing activities was $25,000 for the 13 weeks ended May
31, 2003, as compared to the 13 weeks ended June 1, 2002.
The Company has a revolving credit agreement with a bank for a line of credit
not to exceed $20,000,000 through July 31, 2003. A renewal of the current
facility for a one year period is currently in progress and expected to be
finalized shortly. Except for funds provided from this credit agreement, the
Company has satisfied its operating and capital expenditure requirements needs.
As of May 31, 2003 and June 1, 2002, there were no outstanding borrowings under
the revolving credit agreement.
In addition, the Company has a separate $10,000,000 credit facility with another
bank available for the issuance of letters of credit for the purchase of foreign
merchandise. This agreement may be canceled at any time by either party. At May
31, 2003, March 1, 2003 and June 1, 2002 the Company had $4,462,000, $2,755,000
and $4,523,000, respectively, in outstanding letters of credit.
The Company has planned capital expenditures of approximately $5,000,000 for the
fiscal year ending February 28, 2004. Through the 13 week period ended May 31,
2003, the Company has incurred $473,000 of capital expenditures.
On June 7, 2002, the Company's Board of Directors authorized the repurchase of
up to 20% of its outstanding shares of common stock (not to exceed 3,200,000
shares) at prevailing market prices through June 7, 2004. No purchases of stock
were made during the quarter ended May 31, 2003. During the year ended March 1,
2003, the Company purchased 361,000 shares, representing 2.3% of its outstanding
shares, at a total cost of $2,604,000.
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SYMS CORP AND SUBSIDIARIES
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Management believes that existing cash, internally generated funds, trade credit
and funds available from the revolving credit agreement will be sufficient for
working capital and capital expenditure requirements for the fiscal year ending
February 28, 2004.
IMPACT OF INFLATION AND CHANGING PRICES
Although the Company cannot accurately determine the precise effect of inflation
on its operations, it does not believe inflation has had a material effect on
sales or results of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 141, "BUSINESS COMBINATIONS" ("SFAS 141") AND STATEMENT OF FINANCIAL
ACCOUNTING STANDARDS NO. 142, "GOODWILL AND OTHER INTANGIBLE ASSETS" ("SFAS
142"). SFAS 141 eliminates the pooling-of-interests method of accounting for
business combinations initiated after June 30, 2001 and modifies the application
of the purchase accounting method effective for transactions that are completed
after June 30, 2001. SFAS 142 eliminates the requirement to amortize goodwill
and intangible assets having indefinite useful lives but requires that they be
assessed at least annually for impairment. Intangible assets that have finite
lives will continue to be amortized over their useful lives. The adoption of
SFAS 141 and 142 did not have a material effect on the Company's financial
position or operations.
In October 2001, the FASB issued Statement of Financial Accounting
Standards 144, "ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS"
("SFAS 144"). SFAS No. 144 addresses the accounting and reporting for the
impairment or disposal of long-lived assets. The statement provides a single
accounting model for long-lived assets to be disposed of. New criteria must be
met to classify the asset as an asset held-for-sale. This statement also focuses
on reporting the effects of a disposal of a segment of business. This statement
is effective for fiscal years beginning after December 15, 2001. The Company
adopted SFAS 144 as of March 3, 2002, and the adoption did not have a material
impact on the Company's financial position or results of operations.
In April 2002, Statement of Financial Accounting Standards, No. 145,
"RESCISSION OF FASB STATEMENTS NO. 4, 44 AND 64, AMENDMENT OF FASB STATEMENT NO.
13, AND TECHNICAL CORRECTIONS" ("SFAS 145") was issued. SFAS 145 rescinds SFAS 4
and 64, which required gains and losses from extinguishment of debt to be
classified as extraordinary items. SFAS also rescinds SFAS 44 since the
provisions of the Motor Carrier Act of 1980 are complete. SFAS 145 also amends
SFAS 13 eliminating inconsistencies in certain sale-leaseback transactions. The
provisions of SFAS 145 are effective for fiscal years beginning after May 15,
2002. Any gain or loss on extinguishment of debt that was classified as an
extraordinary item in prior periods presented shall be reclassified to interest
expense. The Company does not expect that the adoption of SFAS 145 will have a
material effect on the Company's financial position or results of operations.
Statement of Financial Accounting Standards, No. 146, "ACCOUNTING FOR COSTS
ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES" ("SFAS 146"), was issued in July
2002. SFAS 146 requires companies to recognize costs associated with exit or
disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. SFAS 146 supersedes EITF Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (Including Certain Costs Incurred in a Restructuring)." SFAS
146 is to be applied prospectively to exit or disposal activities initiated
after December 31, 2002. This pronouncement did not have a material effect on
the Company's financial position or results of operations.
On December 31, 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, "ACCOUNTING FOR STOCK-BASED COMPENSATION -TRANSITION AND
DISCLOSURE" ("SFAS 148"). This standard amends SFAS No. 123, to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, SFAS
148 amends the disclosure requirements of SFAS 123 to require more frequent and
prominent disclosures in financial statements of the effects of stock-based
compensation. The transition guidance and annual disclosure provisions of SFAS
148 are effective for fiscal years ending after December 15, 2002. The interim
disclosure provisions are effective for financial reports containing financial
statements for interim periods beginning after December 15, 2002. The Company
has adopted the disclosure provisions of SFAS 148 as of March 1, 2003, as
required.
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SYMS CORP AND SUBSIDIARIES
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In November 2002, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 45, "GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR
GUARANTEES, INCLUDING INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS ("FIN 45").
FIN 45 requires the recognition of a liability for certain guarantee obligations
issued or modified after December 31, 2002. It also clarifies disclosure
requirements to be made by a guarantor for certain guarantees. The disclosure
provisions of FIN 45 are effective for fiscal years ending after December 15,
2002. FIN 45 is not expected to have a material impact on the Company's results
of operations, financial position or cash flows, and the Company has adopted the
disclosure provisions of FIN 45 as of March 1, 2003.
On January 17, 2003, the FASB issued Interpretation No. 46, "CONSOLIDATION
OF VARIABLE INTEREST ENTITIES" ("FIN 46"). FIN 46 requires certain variable
interest entities to be consolidated by the primary beneficiary of the entity if
the equity investors in the entity do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. FIN 46 is effective for all new variable interest
entities created or acquired after January 31, 2003. For variable interest
entities created or acquired prior to February 1, 2003, the provisions of FIN 46
must be applied for the first interim or annual period beginning after June 15,
2003. The adoption of FIN 46 did not have an impact on the Company's results of
operations, financial position or cash flows.
In February 2003, the Emerging Issues Task Force ("EITF") addressed EITF
Statement No. 02-16 ("EITF 02-16"), "ACCOUNTING BY A RESELLER FOR CASH
CONSIDERATION RECEIVED FROM A VENDOR." EITF 02-16 provides accounting guidance
on how a reseller should characterize consideration given by a vendor and when
to recognize and how to measure that consideration in its income statement. EITF
02-16 is effective for all agreements entered into after December 31, 2002. We
have evaluated the provisions of EITF 02-16 and determined that this statement
did not have a material effect on our consolidated financial statements.
In April 2003, the FASB issued SFAS 149, "AMENDMENT OF STATEMENT 133 ON
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES" ("SFAS 149"). SFAS 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
133. The new guidance amends SFAS 133 for decisions made: (a) as part of the
Derivatives Implementation Group process that effectively required amendments to
SFAS 133, (b) in connection with other Board projects dealing with financial
instruments, and (c) regarding implementation issues raised in relation to the
application of the definition of a derivative, particularly regarding the
meaning of an "underlying" and the characteristics of a derivative that contains
financing components. The amendments set forth in SFAS 149 improve financial
reporting by requiring that contracts with comparable characteristics be
accounted for similarly. SFAS 149 is generally effective for contracts entered
into or modified after June 30, 2003 (with a few exceptions) and for hedging
relationships designated after June 30, 2003. The guidance is to be applied
prospectively. We do not expect the provisions of SFAS 149 to have a material
impact on our financial position or results of operations.
In May 2003, the FASB issued Statement No. 150, "ACCOUNTING FOR CERTAIN
FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY"
("SFAS 150"). SFAS 150 improves the accounting for certain financial instruments
that, under previous guidance, issuers could account for as equity. The new
Statement requires that those instruments be classified as liabilities in
statements of financial position. We do not expect the provisions of SFAS 150 to
have a material impact on our financial position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's operations are not currently subject to material market risks for
interest rates, foreign currency rates or other market price risks.
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SYMS CORP AND SUBSIDIARIES
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ITEM 4. CONTROLS AND PROCEDURES
Based on the evaluation of the Company's disclosure controls and procedures as
of a date within 90 days of the filing date of this quarterly report, each of
Marcy Syms, the Chief Executive Officer of the Company, and Antone F. Moreira,
the Chief Financial Officer of the Company, have concluded that the Company's
disclosure controls and procedures are effective in ensuring that information
required to be disclosed by the Company in the reports that it files or submits
under the Securities and Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported, within the time period specified by the
Securities and Exchange Commission's rules and forms.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS - None
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS - None
Item 3. DEFAULTS UPON SENIOR SECURITIES - None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None
Item 5. OTHER INFORMATION - None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed with this Form 10-Q
99.1 Certification of Marcy Syms pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
99.2 Certification of Antone F. Moreira pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
On April 29, 2003, the Company furnished a Report on Form 8-K
pursuant to Items 7 and 9 of such form regarding its results of
operations for the fourth quarter and fiscal year ended March 1,
2003.
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SYMS CORP AND SUBSIDIARIES
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SIGNATURES
Pursuant to the requirements 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.
SYMS CORP
DATE: July 8, 2003 BY /s/ Marcy Syms
--------------
MARCY SYMS
CHIEF EXECUTIVE OFFICER
DATE: July 8, 2003 BY /s/ Antone F. Moreira
---------------------
ANTONE F. MOREIRA
VICE PRESIDENT, CHIEF FINANCIAL OFFICER
(Principal Financial and Accounting Officer)
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SYMS CORP AND SUBSIDIARIES
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I, Marcy Syms, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Syms Corp;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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 quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: July 8, 2003
/s/ Marcy Syms
--------------
Marcy Syms
Chief Executive Officer
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SYMS CORP AND SUBSIDIARIES
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I, Antone F. Moreira, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Syms Corp;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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 quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: July 8, 2003
/s/ Antone F. Moreira
---------------------
Antone F. Moreira
Chief Financial Officer
16