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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended AUGUST 30, 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 October 3, 2003, the latest practicable date, there were 15,304,178 shares
outstanding of Common Stock, par value $0.05 per share.
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SYMS CORP AND SUBSIDIARIES
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INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of
August 30, 2003, March 1, 2003 and August 31, 2002 1
Condensed Consolidated Statements of Operations for
the 13 Weeks and 26 Weeks Ended August 30, 2003
and August 31, 2002 2
Condensed Consolidated Statements of Cash Flows for the
26 Weeks Ended August 30, 2003 and August 31, 2002 3
Notes to Condensed Consolidated Financial Statements 4-8
Item 2. Management's Discussion and Analysis of Financial Condition 8-12
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
Item 4. Controls and Procedures 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes In Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
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SYMS CORP AND SUBSIDIARIES
------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
AUGUST 30, MARCH 1, AUGUST 31,
2003 2003 2002
--------- -------- ---------
(UNAUDITED) (NOTE) (UNAUDITED)
ASSETS
Current Assets
Cash and cash equivalents $ 19,828 $ 19,197 $ 23,166
Merchandise inventories 87,061 78,151 99,025
Deferred income taxes 4,143 4,143 6,514
Prepaid expenses and other current assets 6,588 6,280 3,946
-------- -------- --------
TOTAL CURRENT ASSETS 117,620 107,771 132,651
-------- -------- --------
PROPERTY AND EQUIPMENT - Net 131,056 135,460 139,806
DEFERRED INCOME TAXES 9,397 9,397 4,392
OTHER ASSETS 12,977 9,845 8,998
-------- -------- --------
TOTAL ASSETS $271,050 $262,473 $285,847
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 31,506 $ 12,639 $ 35,671
Accrued expenses 9,877 12,099 7,232
Accrued insurance 1,708 2,339 2,667
Obligations to customers 3,250 3,352 3,027
-------- -------- --------
TOTAL CURRENT LIABILITIES 46,341 30,429 48,597
-------- -------- --------
OTHER LONG TERM LIABILITIES 1,881 1,891 2,163
-------- -------- --------
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; 15,304 shares
outstanding (net of 2,650 treasury shares)
on August 30, 2003; 15,435 shares
outstanding as of March 1, 2003 (net of
2,513 treasury shares) and 15,621 shares
outstanding (net of 2,313 treasury shares)
on August 31, 2002 765 772 793
Additional paid-in capital 14,121 14,092 14,007
Treasury stock (22,487) (21,572) (20,147)
Retained earnings 230,429 236,861 240,434
-------- -------- --------
TOTAL SHAREHOLDERS' EQUITY 222,828 230,153 235,087
-------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $271,050 $262,473 $285,847
======== ======== ========
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 26 WEEKS ENDED
-------------- --------------
AUGUST 30, AUGUST 31, AUGUST 30, AUGUST 31,
2003 2002 2003 2002
--------- --------- --------- ---------
(Unaudited) (Unaudited)
Net sales $ 62,102 $ 65,058 $ 125,636 $ 133,008
Cost of goods sold 39,996 42,079 77,616 80,932
-------- -------- --------- ---------
Gross profit 22,106 22,979 48,020 52,076
Expenses:
Selling, general and administrative 19,706 19,053 38,875 37,818
Advertising 1,421 2,045 3,801 4,289
Occupancy 4,456 4,650 8,620 9,151
Depreciation and amortization 2,784 2,762 5,407 5,572
Special charge -- 4,000 -- 4,000
-------- -------- --------- ---------
Loss from operations (6,261) (9,531) (8,683) (8,754)
Other income (68) (355) (178) (809)
Interest income (31) (45) (43) (99)
-------- -------- --------- ---------
Loss before income taxes (6,162) (9,131) (8,462) (7,846)
Provision benefit for income taxes (1,479) (2,962) (2,030) (2,384)
-------- -------- --------- ---------
Net loss $ (4,683) $ (6,169) $ (6,432) $ (5,462)
======== ======== ========= =========
Net loss per share-basic $ (0.30) $ (0.39) $ (0.42) $ (0.35)
======== ======== ========= =========
Weighted average shares outstanding-basic 15,412 15,721 15,412 15,721
======== ======== ========= =========
Net loss per share-diluted $ (0.30) $ (0.39) $ (0.42) $ (0.35)
======== ======== ========= =========
Weighted average shares outstanding- diluted 15,412 15,721 15,412 15,721
======== ======== ========= =========
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)
26 WEEKS ENDED
--------------
AUGUST 30, AUGUST 31,
2003 2002
--------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,432) $ (5,462)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 5,407 5,572
Loss on disposal of assets 440 4,033
(Increase) decrease in operating assets:
Merchandise inventories (8,910) (12,215)
Prepaid expenses and other current assets (308) 2,125
Other assets (3,132) (775)
Increase (decrease) of operating liabilities:
Accounts payable 18,867 17,772
Accrued expenses (2,853) (2,090)
Obligations to customers (102) (36)
Other long term liabilities (10) 45
-------- --------
Net cash provided by operating activities 2,967 8,969
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Stanley Blacker, Inc. -- (1,906)
Expenditures for property and equipment (1,443) (2,225)
-------- --------
Net cash used in investing activities (1,443) (4,131)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of options 22 3
Stock repurchase (915) (1,160)
-------- --------
Net cash used in financing activities (893) (907)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 631 3,681
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 19,197 19,485
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 19,828 $ 23,166
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Stanley Blacker, Inc. acquisition financed
through stock issuance $ -- $ 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 AND 26 WEEKS ENDED AUGUST 30, 2003 AND AUGUST 31, 2002
- --------------------------------------------------------------------------------
(UNAUDITED)
..
NOTE 1 - THE COMPANY
Syms Corp (the "Company") operates a chain of 40 "off-price" retail 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 and 26 week periods ended
August 30, 2003 are 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 February 28, 2004 will be comprised of 52 weeks. The fiscal
year ended March 1, 2003 was 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 October 29, 2003. The Company
intends to enter into a new unsecured revolving credit agreement with another
bank upon the expiration of the term of the existing credit facility. 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 August 30,
2003, March 1, 2003 and August 31, 2002, respectively, there were no outstanding
borrowings under this agreement.
The agreement contains financial covenants, with respect to consolidated
tangible net worth, as defined, 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 August 30, 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
August 30, 2003, March 1, 2003 and August 31, 2002, the Company had $3,321,000,
$2,755,000 and $6,258,000, 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 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 26 WEEKS ENDED
---------------------- ----------------------
AUGUST 30, AUGUST 31, AUGUST 30, AUGUST 31,
2003 2002 2003 2002
--------- --------- --------- ---------
BASIC NET LOSS PER SHARE:
Net loss ......................... $ (4,683) $ (6,169) $ (6,432) $ (5,462)
Average shares outstanding ....... 15,412 15,721 15,412 15,721
Basic net loss per share ......... $ (0.30) $ (0.39) $ (0.42) $ (0.35)
DILUTED NET LOSS PER SHARE:
Net loss ......................... $ (4,683) $ (6,169) $ (6,432) $ (5,462)
Average shares outstanding ....... 15,412 15,721 15,412 15,721
Stock options .................... -- -- -- --
Total average equivalent shares .. 15,412 15,721 15,412 15,721
Diluted net loss per share ....... $ (0.30) $ (0.39) $ (0.42) $ (0.35)
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 920,875 and 1,020,175 shares of common stock at prices
ranging from $5.63 to $10.69 per share were outstanding as of August 30, 2003
and August 31, 2002, respectively, but were not included in the computation of
diluted net income per share because the exercise price of the options exceed
the average market price and would have been anti-dilutive.
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 adoption of SFAS 145 did not 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 did not 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. The
Company has 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. The adoption of SFAS 149 did not have a material impact on the
Company's 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. The Company does not expect the provisions of
SFAS 150 to have a material impact on the Company's 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 twenty six weeks ended August
30, 2003 and August 31, 2002, respectively. 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 26 WEEKS ENDED
------------------- --------------------
8/30/03 8/31/02 8/30/03 8/31/02
------- ------- ------- -------
Net income/(loss): ($4,683) ($6,169) ($6,432) ($5,462)
Total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of related
tax effects ($7) ($14) ($14) ($27)
Pro forma net income/(loss) ($4,676) ($6,183) ($6,446) ($5,489)
======== ======== ======== ========
Earnings (loss) per share:
Basic, as reported ($.30) ($.39) ($0.42) ($0.35)
Basic, pro forma ($.30) ($.39) ($0.42) ($0.35)
Diluted, as reported ($.30) ($.39) ($0.42) ($0.35)
Diluted, pro forma ($.30) ($.39) ($0.42) ($0.35)
7
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SYMS CORP AND SUBSIDIARIES
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This pro forma information may not be representative of the amounts
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.
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
8
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SYMS CORP AND SUBSIDIARIES
------------------------------
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 ASSETS - 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 AND 26 WEEKS ENDED AUGUST 30, 2003 COMPARED TO 13 AND 26 WEEKS ENDED
AUGUST 31, 2002
Net sales for the 13 weeks ended August 30, 2003 were $62,102,000, a decrease of
$2,956,000 (4.5%), as compared to net sales of $65,058,000 for the 13 weeks
ended August 31, 2002. For the 26 weeks ended August 30, 2003, net sales
decreased $7,372,000 (5.5%) to $125,636,000 as compared to net sales of
$133,008,000 for the 26 weeks ended August 31, 2002. Comparable store sales
decreased 1.6% for the 13 weeks ended August 30, 2003 and decreased 2.7% for the
26 weeks ended August 30, 2003, as compared to the comparable periods in the
prior fiscal year. The sales decrease in the 13 week and 26 week periods is
largely attributable to the closing of the Pittsburgh, PA and Chicago, IL stores
(sales of closed stores amounted to $2,075,000 for the 13 weeks and $4,083,000
for the 26 weeks ended during the same period in the prior fiscal year). Our
"Bash" sales promotion, which took place in August 2003, had two less selling
days in this fiscal year, accounting for approximately $1,300,000 of the sales
decline.
Gross profit for the 13 weeks ended August 30, 2003 was $22,106,000 (35.6% as a
percentage of net sales), a decrease of $873,000 as compared to $22,979,000
(35.3% as a percentage of net sales) for the 13 weeks ended August 31, 2002.
Gross profit for the 26 weeks ended August 30, 2003 was $48,020,000 (38.2% as a
percentage of net sales), a decrease of $4,056,000 as compared to $52,076,000
(39.2% as a percentage of net sales) for the 26 weeks ended August 31, 2002. The
decrease in gross margin dollars in the 13 and 26 week periods is largely due to
lower sales and higher markdowns on merchandise sold compared to the same
periods in the prior fiscal year.
Selling, general and administrative expense increased $653,000 to $19,706,000
(31.7% as a percentage of net sales) for the 13 weeks ended August 30, 2003 as
compared to $19,053,000 (29.3% as a percentage of net sales) for the 13 weeks
ended August 31, 2002. Selling, general and administrative expense increased
$1,057,000 to $38,875,000 (30.9% as a percentage of net sales) for the 26 weeks
ended August 30, 2003 as compared to $37,818,000 (28.4% as a percentage of net
sales) for the 26 weeks ended August 31, 2002. The increased expenditures in the
existing stores for the 26 week period ended August 30, 2003 is largely due to
higher medical insurance costs, pension costs and maintenance and repair costs.
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Advertising expense for the 13 weeks ended August 30, 2003 was $1,421,000 (2.3%
as a percentage of net sales) as compared to $2,045,000 (3.1% as a percentage of
net sales) in the 13 week period ended August 31, 2002. Advertising expense for
the 26 weeks ended August 30, 2003 was $3,801,000 (3.0% as a percentage of net
sales) as compared to $4,289,000 (3.2% as a percentage of net sales) in the 26
weeks ended August 31, 2002.
Occupancy costs were $4,456,000 (7.2% as a percentage of net sales) for the 13
weeks ended August 30, 2003 as compared to $4,650,000 (7.2% as a percentage of
net sales) for the 13 weeks ended August 31, 2002. Occupancy costs were
$8,620,000 (6.9% as a percentage of net sales) for the 26 weeks ended August 30,
2003 as compared to $9,151,000 (6.9% as a percentage of net sales) for the
period ended August 31, 2002. The closing of two stores during the same periods
in the prior fiscal years (Pittsburgh, PA and Chicago, IL) accounted for this
reduction in the 13 and 26 week periods.
Depreciation and amortization was $2,784,000 (4.5% as a percentage of net sales)
for the 13 weeks ended August 30, 2003 as compared to $2,762,000 (4.3% as a
percentage of net sales) for the 13 weeks ended August 31, 2002. Depreciation
and amortization for the 26 weeks ended August 30, 2003 was $5,407,000 (4.3% as
a percentage of net sales) as compared to $5,572,000 (4.2% as a percentage of
net sales) for the 26 weeks ended August 31, 2002.
The results for the second quarter ended August 31, 2002 reflect a $4,000,000
charge (write off of capital assets) resulting from the previously announced
closing of our downtown Chicago store. This action was taken by the Company to
cut losses being incurred at the store because ongoing construction at or near
the premises, expected to continue for several years, rendered the store
"unusable" for a retailer.
The loss before income taxes for the 13 weeks ended August 30, 2003 was
$6,162,000, a decrease of $2,969,000 as compared to a loss of $9,131,000 for the
13 weeks ended August 31, 2002. The loss before income taxes for the 26 weeks
ended August 30, 2003 was $8,462,000 as compared to a loss before income taxes
of $7,846,000 for the 26 weeks ended August 31, 2002. This increase in loss
resulted largely from lower sales and higher markdowns on merchandise sold which
was offset by the $4,000,000 special charge last year.
For the 26 week period ended August 30, 2003, the effective income tax rate was
24.0%, as compared to 30.0% for the comparable period a year ago. The reduction
in 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 August 30, 2003 was $71,279,000, a decrease of $12,775,000
as compared to $84,054,000 as of August 31, 2002. The ratio of current assets to
current liabilities was 2.54 to 1 as of August 30, 2003 as compared to 2.73 to 1
as of August 31, 2002. The decrease in working capital results mainly from a
reduction in merchandise inventory.
Net cash provided by operating activities totaled $2,967,000 for the 26 weeks
ended August 30, 2003, as compared to $8,969,000 for the 26 weeks ended August
31, 2002. In the 26 weeks ended August 30, 2003, net cash provided by operating
activities was largely impacted by an increased loss and decreased loss on
disposal of assets.
Net cash used in investing activities was $1,443,000 for the 26 weeks ended
August 30, 2003, as compared to $4,131,000 for the 26 weeks ended August 31,
2002. Expenditures for property and equipment were $1,443,000 and $2,225,000 for
the 26 weeks ended August 30, 2003 and August 31, 2002, respectively.
Net cash used in financing activities was $893,000 for the 26 weeks ended August
30, 2003, as compared to $907,000 for the 26 weeks ended August 31, 2002.
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The Company has an unsecured revolving credit agreement with a bank for a line
of credit not to exceed $20,000,000 through October 29, 2003. The Company
intends to enter into a new unsecured revolving credit agreement with another
bank upon the expiration of the term of the existing credit facility. Except for
funds provided from this credit agreement, the Company has satisfied its
operating and capital expenditure requirements from internally generated funds.
As of August 30, 2003 and August 31, 2002, there were no outstanding borrowings
under the revolving credit agreement.
The Company has planned capital expenditures of approximately $5,000,000 for the
fiscal year ending February 28, 2004. Through the 26 week period ended August
30, 2003, the Company has incurred $1,443,000 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. During the 13 week
period ended August 30, 2003, the Company purchased 136,900 shares of common
stock, which represented 1.0% of its outstanding shares, at a total cost of
$921,160.
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 adoption of SFAS 145 did not 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.
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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 did not 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. The
Company has 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. The adoption of SFAS 149 did not have a material impact on the
Company's 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. The
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Company does not expect the provisions of SFAS 150 to have a material impact on
the Company's 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.
ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES
Based on the evaluation of the Company's disclosure controls and procedures as
of the end of the period covered by 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. Notwithstanding the foregoing, a control
system, no matter how well designed and operated, can provide only reasonable,
not absolute, assurance that it will detect or uncover failures within the
Company to disclose material information otherwise required to be set forth in
the Company's periodic reports.
Internal Control Over Financial Reporting
There have not been any changes in the Company's internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the fiscal quarter to which this report relates that have
materially affected, or are reasonably likely to materially affect the Company's
internal control over financial reporting.
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
At the annual meeting of shareholders held on July 17, 2003, the
Company's shareholders holding a majority of the shares of the Common
Stock outstanding as of the close of business on June 13, 2003, voted
to approve each of the three proposals included in the Company's proxy
statement as follows:
To elect six directors to hold office for one year or until their
respective successors are duly elected and qualified.
FOR WITHHELD
Sy Syms 11,167,408 3,302,470
Marcy Syms 11,167,408 3,302,470
Antone F. Moreira 11,167,408 3,302,470
Harvey A. Weinberg 13,217,028 1,252,850
David A. Messer 13,217,028 1,252,850
Wilbur L. Ross, Jr. 13,217,028 1,252,850
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SYMS CORP AND SUBSIDIARIES
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To ratify the appointment of BDO Seidman, LLP as independent
accountants of the Company for the fiscal year ending February 28,
2004:
For: 14,369,677
Against: 97,051
Abstain: 3,150
To approve an amendment to the Syms Corp Amended and Restated
Incentive Stock Option and Appreciation Plan extending the term of the
Plan from July 28, 2003 to July 28, 2013:
For: 7,880,791
Against: 2,822,897
Abstain: 26,101
Item 5. OTHER INFORMATION - None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed with this Form 10-Q
Exhibit 10.48 Amendment to Syms Corp Amended and Restated Incentive
Stock Option and Appreciation Plan
Exhibit 10.49 Seventh Amendment to Revolving Credit Agreement and
Second Amendment to Promissory Note, dated as of July
23, 2003, between Syms Corp and Fleet National Bank
Exhibit 31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2 Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1 Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2 Certification of Chief Financial Officer 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 June 26, 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 fiscal quarter ended May 31, 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: OCTOBER 10, 2003 BY /s/ Marcy Syms
-----------------------
MARCY SYMS
CHIEF EXECUTIVE OFFICER
DATE: OCTOBER 10, 2003 BY /s/ Antone F. Moreira
-----------------------
ANTONE F. MOREIRA
VICE PRESIDENT, CHIEF FINANCIAL OFFICER
(Principal Financial and Accounting Officer)
15