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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED FEBRUARY 26, 2005
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-8546
SYMS CORP
(Exact name of registrant as specified in its charter)
NEW JERSEY NO. 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)
Registrant's telephone number, including area code (201) 902-9600
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange on
Title of Each class Which Registered
--------------------- -----------------------------
Common Stock, $0.05 Par Value Per Share New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT: None
Indicate by check mark whether 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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12-b2 of the Exchange Act).
Yes ___ No _X_
The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant was approximately $72,585,103 based upon the
closing market price of $9.85 per share of the Common Stock on the New York
Stock Exchange as of August 28, 2004, the last business day of the registrant's
most recently completed second fiscal quarter.
As of May 2, 2005, 15,022,953 shares of Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's Proxy Statement for the 2004 Annual Meeting of
Shareholders are incorporated by reference into Part III of this Annual Report.
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PART I
ITEM 1. BUSINESS
GENERAL
Syms Corp operates a chain of 37 "off-price" retail stores located
throughout the United States in 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 at prices substantially lower than
those generally found in department and specialty stores. Syms directs its
merchandising efforts at predominantly middle-income, fashion-minded and price
conscious customers.
Since the first Syms store opened in New York City in 1959, the Company has
expanded to 37 stores and the aggregate amount of selling space in Syms stores
has increased from approximately 2,000 square feet to approximately 1,479,000
square feet. The Company maintains a 277,000 square foot distribution center and
executive headquarters in Secaucus, New Jersey.
Syms Corp was incorporated in New Jersey in 1983. The Company maintains its
executive offices at Syms Way, Secaucus, New Jersey 07094, telephone (201)
902-9600. Unless otherwise noted, references to the "Company" or to "Syms"
relate to Syms Corp, its subsidiaries and their predecessors.
DESCRIPTION OF BUSINESS
The Syms chain of 37 apparel stores offers a broad range of "off-price"
first quality, in-season merchandise consisting primarily of men's tailored
clothing and haberdashery, women's dresses, suits and separates, children's
apparel and men's, women's and children's shoes. Syms stores emphasize better
quality, nationally recognized designer and brand name merchandise at prices
substantially below those generally charged by department and specialty stores.
Syms carries a wide selection of sizes and styles of men's, women's and
children's wear.
Syms operates in a single industry segment and has no foreign operations.
No material part of the Company's consolidated revenues is received from a
single customer or group of customers. Please refer to Note 1 of the
Consolidated Financial Statements for information on segment reporting.
MERCHANDISE
For the year ended February 26, 2005, net sales were generated by the
following categories:
Men's tailored clothes and haberdashery...................... 53%
Women's dresses, suits, separates and accessories............ 29%
Shoes......................................................... 8%
Children's wear............................................... 7%
Luggage, domestics and fragrances............................. 3%
----
100%
Most of the items sold by the Company consist of nationally recognized
fashion brand-name merchandise. Merchandise is displayed by type and size on
conveniently arranged racks or counters. No emphasis is placed on any particular
"label". The stores generally offer minor alterations for an additional charge.
PURCHASING
The Company purchases first-quality, in-season, brand-name merchandise
directly from manufacturers on terms more favorable than those generally
obtained by department and specialty stores. Syms estimates that approximately
200 brand-name manufacturers of apparel are represented in its stores. The
Company does not maintain large out-of-season inventories. However, Syms
occasionally buys certain basic clothing which does not change in style from
year to year at attractive prices for storage until the following season.
Purchasing is performed by a buying staff in conjunction with the General
Merchandise Manager and several other key divisional merchandise managers.
1
DISTRIBUTION
The Company owns a distribution center, located at Syms Way, Secaucus, New
Jersey. The facility contains approximately 277,000 square feet of warehouse and
distribution space, 34,000 square feet of office space and 29,000 square feet of
store space. The facility is located on an 18.6 acre parcel of land for which
the Company holds a ground lease for a remaining term of 271 years. Most
merchandise is received from manufacturers at the distribution center where it
is inspected, ticketed and allocated to particular stores.
MARKETING
The Company's pricing policy is to affix a ticket to each item displaying
Syms' selling price as well as the price the Company regards as the traditional
full retail price of that item at department or specialty stores. All garments
are sold with the brand-name as affixed by the manufacturer. Because women's
dresses are vulnerable to considerable style fluctuation, Syms has long utilized
a ten-day automatic markdown pricing policy to promote movement of merchandise.
The date of placement on the selling floor of each women's dress is stamped on
the back of the price ticket. The front of each ticket contains what the Company
believes to be the nationally advertised price, the initial Syms price and three
reduced prices. Each reduced price becomes effective after the passage of ten
selling days. Women's dresses represent approximately 3.3 % of net sales. The
Company also offers "dividend " prices consisting of additional price reductions
on various types of merchandise.
Syms has as its tag line "An Educated Consumer is Our Best Customer"(R),
one of the best known in retail advertising. The Company advertises principally
on television, radio and, more recently, has enhanced its advertising by
including print media as well as direct mail.
The Company sells its merchandise for cash, checks, national credit cards,
and its own Syms credit card. Syms sells its own credit card receivables on a
non-recourse basis to a third party for a fee. Merchandise purchased from the
Company may be returned within a reasonable amount of time, within season. The
Company does not offer cash refunds for purchases, but issues credits toward the
Syms charge card and other major credit cards or store merchandise credits which
may be used toward the purchase of other merchandise.
TRADEMARKS
"Syms", "An Educated Consumer is Our Best Customer "(R), "Names You Must
Know"(R), and "The More You Know About Clothing, the Better it is for Syms"(R)
have been registered with the United States Patent and Trademark Office.
COMPETITION
The retail apparel business is highly competitive, and the Company accounts
for only a small fraction of the total market for men's, women's and children's
apparel. The Company's stores compete with discount stores, apparel specialty
stores, department stores, manufacturer-owned factory outlet stores and others.
Many of the stores with which the Company competes are units of large national
or regional chains that have substantially greater resources than the Company.
Retailers having substantially greater resources than the Company have indicated
their intention to enter the "off-price" apparel business, and the "off-price"
apparel business itself has become increasingly competitive, especially with
respect to the increased use by manufacturers of their own factory outlets and
the use of on-line sites by other retailers. At various times of the year,
department store chains and specialty shops offer brand-name merchandise at
substantial markdowns.
OPERATIONS AND CONTROL SYSTEMS
The Company has implemented a merchandise control system which tracks a
product from its purchase to its ultimate sale in the Company's stores. The
system tracks the product by store in approximately 750 categories. All the
information regarding the product is transmitted daily through telephone lines
to the Company's database at its executive headquarters. Each week the Company's
executives receive detail reports regarding sales and inventory levels in units
and retail dollars on a store-by-store basis.
Management of the Company visit stores on a regular basis, among other
things, to coordinate with the store managers, the training of employees in loss
prevention methods. Each store has on premises security personnel during normal
hours and a security system after hours.
EMPLOYEES
At February 26, 2005, the Company had 1,749 employees, of whom
approximately 633 work on a part time basis. Approximately 30 to 100 persons,
consisting mostly of sales personnel, are employed at each Syms store. The
Company has a collective bargaining agreement with Local 108 of the Retail,
Wholesale and Department Store Union which expires on May 27, 2006 and covers
134 sales and tailor employees. The Company's collective bargaining agreements
with Local 1102 of the Retail, Wholesale and Department Store Union and the
United Food and Commercial Workers Union expire on March 31, 2006 and April 30,
2006, respectively, which together
2
cover sales and tailor employees. The Company believes its relationships with
the unions are good. The Company expects to negotiate with the unions to renew
these contracts.
CERTIFICATIONS
On July 29, 2004 the Company submitted to the New York Stock Exchange ("NYSE")
the certification of its Chief Executive Officer pursuant to Section 303A.12(a)
of the NYSE's Listed Company Manual.
ITEM 2. PROPERTIES
THE STORES
LOCATION
At February 26, 2005, the Company had 37 stores, 14 of which are located in
leased facilities. The following table indicates the locations of the stores and
the approximate selling space of each location. In addition to the selling space
indicated, each store contains between approximately 2,000 to 12,000 square feet
for inspection and ticketing of merchandise and administrative functions.
LEASED/ SELLING LEASED/ SELLING
STATE LOCATION OWNED SPACE STATE LOCATION OWNED SPACE
----- -------- ----- ----- ----- -------- ----- -----
CONNECTICUT NEW YORK/NEW JERSEY
Fairfield Owned 32,000 Park Avenue Leased 45,000
Hartford Leased 31,000 Trinity Owned 40,000
Westbury Owned 72,000
FLORIDA Commack Owned 36,000
Fort Lauderdale Owned 44,000 Westchester Leased 50,000
Miami Owned 45,000 Rochester Owned 32,000
West Palm Beach Owned 36,000 Buffalo Owned 39,000
Tampa Owned 38,000 Paramus Owned 56,000
Kendall Leased 32,000 Woodbridge Leased 32,000
Secaucus Owned 29,000
GEORGIA Cherry Hill Owned 40,000
Norcross Owned 51,000
Marietta Owned 39,000 OHIO
Highland Heights Leased 36,000
ILLINOIS
Addison Owned 47,000 PENNSYLVANIA
Niles Leased 32,000 King of Prussia Owned 41,000
Monroeville Owned 31,000
MARYLAND
Rockville Owned 61,000 RHODE ISLAND
Towson Leased 41,000 N. Cranston Leased 27,000
MASSACHUSETTS TEXAS
Norwood Leased 36,000 Dallas Owned 42,000
Peabody Leased 39,000 Houston Owned 34,000
Hurst Owned 38,000
MICHIGAN
Southfield Owned 46,000 VIRGINIA
Troy Leased 37,000 Falls Church Leased 39,000
MISSOURI
St. Louis Leased 33,000
3
Syms stores are either "free standing" or located in shopping centers or
indoor malls, and all are surrounded by adequate parking areas, except for the
two New York City stores. Syms stores are usually located near a major highway
or thoroughfare in suburban areas populated by at least 1,000,000 people and are
readily accessible to customers by automobile. In certain areas where the
population is in excess of 2,000,000 people, Syms has opened more than one store
in the same general vicinity.
On September 20, 2004, Syms sold certain real property in Roseland, New
Jersey in a commercially zoned area. The Company has also entered into a
Contract of Sale with Seitz Group, Inc. on February 3, 2005 to sell certain real
property in Dallas, Texas, and the buildings and improvements on such property
including the building currently the site of the Company's Dallas store. Syms
also owns land and buildings in Northern Ohio at the site of a closed store
which the Company has agreed to sell pursuant to an agreement entered into on
January 25, 2005. The closings on the Ohio and Dallas properties have not been
consummated.
LEASE TERMS
Fourteen of the Company's 37 stores are currently leased from unrelated
parties, and the Elmsford, New York store is leased from Sy Syms, the Chairman
of Syms Corp. The following table summarizes lease expirations and any renewal
options:
NUMBER OF NUMBER OF
CALENDAR LEASES LEASES WITH RANGE IN YEARS OF
PERIODS EXPIRING RENEWAL OPTIONS OPTION PERIODS (1)
------- --------- --------------- ------------------
2005 0 0 0
2006 1 1 3-5 years
2007 1 0 0
2008 2 1 5 years
2009 3 2 5 years
2010 and thereafter 7 6 5 years
(1) Depending on the applicable option, the minimum rent due
during the renewal option periods may be based upon a
formula contained in the existing lease or negotiations
between the parties.
Store leases provide for a base rental of between approximately $5.06 and
$40.79 per square foot. In addition, under the "net" terms of all of the leases,
the Company must also pay maintenance expenses, real estate taxes and other
charges. One of the Company's stores provide for rent based on a percentage of
sales. Minimum rental payments for Syms' leased stores aggregated $7,587,990 for
the year ended February 26, 2005, of which $796,500 was paid to Sy Syms as fixed
rent. On December 1, 2002, Syms Corp and Sy Syms signed a lease for the Elmsford
store for an annual rent of $796,500 which expires on November 30, 2010.
STORE OPENINGS/CLOSINGS
Three stores located in Charlotte, NC, Baltimore, MD and Lawrenceville, NJ
were closed and no new stores were opened.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to routine litigation incident to its business.
Management of the Company believes, based upon its assessment of the actions and
claims outstanding against the Company, and after discussion with counsel, that
there are no legal proceedings that will have a material adverse effect on the
financial condition or results of operations of the Company. Some of the
lawsuits to which the Company is a party are covered by insurance and are being
defended by the Company's insurance carriers.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this Annual Report.
4
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
MARKET INFORMATION
The common stock of the Company (the "Common Stock") is listed for trading
on the New York Stock Exchange under the symbol "SYM". The following table sets
forth the high and low sales prices for the Company's Common Stock as reported
by the New York Stock Exchange for each quarter within the two most recent
fiscal years of the Company.
HIGH LOW
---- ---
Quarter ended February 26, 2005 $13.91 $11.85
Quarter ended November 27, 2004 12.54 9.95
Quarter ended August 28, 2004 11.58 7.93
Quarter ended May 29, 2004 8.25 7.62
Quarter ended February 28, 2004 $ 8.08 $ 6.75
Quarter ended November 29, 2003 7.12 6.41
Quarter ended August 30, 2003 7.06 6.38
Quarter ended May 31, 2003 8.17 6.95
HOLDERS
As of May 20, 2005, there were 112 record holders of the Company's Common
Stock.
DIVIDENDS
The Board of Directors of the Company did not declare dividends in the
fiscal years ended February 26, 2005 and February 28, 2004. Payment of dividends
is within the discretion of the Company's Board of Directors and depends upon
various factors including the earnings, capital requirements and financial
condition of the Company (see Note 4 to Notes to Consolidated Financial
Statements regarding covenants in the Company's revolving credit agreement). The
Company intends generally to retain earnings, if any, to fund development and
growth of its business. On April 7, 2005, the Company's Board of Directors
declared a special one-time cash dividend of $1.00 per common share, payable May
12, 2005, to shareholders of record as of April 27, 2005.
ISSUER PURCHASES OF EQUITY SECURITIES
- ------------------ ----------------- ---------------- -------------------------------- -------------------------------
(C) TOTAL NUMBER
OF SHARES
PURCHASED AS PART (D) MAXIMUM NUMBER
(A) TOTAL (B) OF PUBLICLY OF SHARES THAT
NUMBER OF AVERAGE PRICE ANNOUNCED PLANS MAY YET BE PURCHASED UNDER
PERIOD SHARES PURCHASED PAID PER SHARE OR PROGRAMS THE PLANS OR PROGRAMS (1)
- ------------------ ----------------- ---------------- -------------------------------- -------------------------------
NOVEMBER 28,
2004 - JANUARY
1, 2005 27,500 $12.03 27,500 3,013,100
- ------------------ ----------------- ---------------- -------------------------------- -------------------------------
JANUARY 2, 2005
- - JANUARY 29,
2005 57,400 $12.78 57,400 2,955,700
- ------------------ ----------------- ---------------- -------------------------------- -------------------------------
JANUARY 30, 2005
- - FEBRUARY 26,
2005 15,300 $13.39 15,300 2,940,400
- ------------------ ----------------- ---------------- -------------------------------- -------------------------------
TOTAL 100,200 $12.67 100,200 2,940,400
- ------------------ ----------------- ---------------- -------------------------------- -------------------------------
5
(1) On April 22, 2004, the Company's Board of Directors' approved the
repurchase by the Company through June 7, 2006 of up to 20% of its
outstanding shares of common stock (not to exceed 3,100,000 shares) at
prevailing market prices.
For equity compensation plan information, see Item 12.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below has been derived from the
Company's audited Consolidated Financial Statements for the fiscal years ended
February 26, 2005, February 28, 2004, March 1, 2003, March 2, 2002 and March 3,
2001. The selected financial data presented below should be read in conjunction
with such Financial Statements and notes thereto.
FISCAL YEAR ENDED
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FEBRUARY 26, FEBRUARY 28, MARCH 1, MARCH 2, MARCH 3,
2005 2004 2003 2002 2001
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT DATA:
Net sales......................... $283,567 $275,219 $281,505 $287,744 $342,316
Net income (loss)................ 2,177 (4,688) (9,035) (2,319) (8,333)
Net income (loss) per share -
basic ............................ 0.14 (0. 31) (0.58) (0.15) (0.52)
Net income (loss) per share -
diluted .......................... 0.14 (0.31) (0.58) (0.15) (0.52)
BALANCE SHEET DATA:
Working capital................... $ 92,428 $ 76,205 $ 77,342 $ 85,961 $ 86,638
Total assets...................... 253,808 253,738 262,473 276,494 276,867
Other long term liabilities....... 1,610 1,862 1,891 2,118 2,409
Shareholders' equity............. 224,596 223,174 230,153 241,457 243,935
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual 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 Annual Report on
Form 10-K) may include certain forward-looking statements (within the meaning of
Sections 27A of the Securities Act of 1933 and 21E of the Securities Exchange
Act of 1934) 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 Annual 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 Annual Report and other reports filed
with the Securities and Exchange Commission.
EXECUTIVE OVERVIEW
Syms is an off-price retailer which operates a chain of thirty seven
apparel stores located throughout the Northeastern and middle Atlantic regions,
the Midwest, Southeast and Southwest. Syms stores offer a broad range of first
quality, in-season merchandise bearing nationally recognized designer and
brand-name labels in men's, women's and children's apparel.
The Company experienced an improved performance in fiscal 2004 as compared
to fiscal 2003. The increase of total store sales of 3.0% (5.3% increase in
comparable store sales), lower expenses and lower inventory levels accounts for
this improvement in operating
6
performance. In fiscal 2005, we will continue our focus on sales improvement,
expense and inventory management which will allow us to maintain our strong cash
position and minimize our debt.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
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 this Annual Report. 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 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 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 an analysis 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.
SELF INSURANCE ACCRUALS - The Company had been self-insured for workers'
compensation liability claims. The Company is responsible for the payment of
claims from prior years. In estimating the obligation associated with incurred
losses, the Company utilizes loss development factors. These development factors
utilize historical data to project incurred losses. Loss estimates are adjusted
based upon actual claims settlements and reported claims.
RESULTS OF OPERATIONS
The following discussion compares the fiscal years ended February 26, 2005,
February 28, 2004 and March 1, 2003. The fiscal years ended February 26, 2005,
February 28, 2004 and March 1, 2003 were each comprised of 52 weeks.
7
FISCAL YEAR ENDED FEBRUARY 26, 2005 (FISCAL 2004) COMPARED TO FISCAL YEAR
ENDED FEBRUARY 28, 2004 (FISCAL 2003)
Net sales for the fiscal year ended February 26, 2005 were $283,567,000, an
increase of $8,348,000 (3.0%) as compared to net sales of $275,219,000 for the
fiscal year ended February 28, 2004. The increased sales can be largely
attributed to management's focus on providing improved merchandise assortments
and an improved retail economic climate. Comparable store sales increased 5.3%
for the fiscal year ended February 26, 2005, as compared to fiscal year ended
February 28, 2004. In our comparable store computation, we only include stores
that have been opened for a period of at least twelve months and stores that
were open during both fiscal years. We did not have any relocated stores or
expansion in square footage in the fiscal years 2004 and 2003.
Gross profit for the fiscal year ended February 26, 2005 was $111,882,000,
an increase of $4,131,000 (39.5% as a percentage of net sales) as compared to
$107,751,000 (39.2% as a percentage of net sales) for the fiscal year ended
February 28, 2004. The increase in net sales as noted above accounts for the
increase in gross margin dollars in fiscal 2004 as compared to fiscal 2003. The
Company's gross margin may not be comparable to those of other entities, since
other entities may include all of the costs related to their distribution
network in cost of goods sold and others, like the Company, exclude a portion of
those costs from gross margin and, instead, include them in other line items,
such as selling and general and administrative expenses and occupancy costs.
Selling, general and administrative (SG&A) expense was $75,156,000 (26.5%
as a percentage of net sales) for the fiscal year ended February 26, 2005 as
compared to $76,304,000 (27.7% as a percentage of net sales) for the fiscal year
ended February 28, 2004. The decline in expenses for fiscal 2004 is largely
attributable to the closing of three stores located in Charlotte, NC, Baltimore,
MD and Lawrenceville, NJ.
Advertising expense for the fiscal year ended February 26, 2005 was
$7,666,000 (2.7% as a percentage of net sales) as compared to $8,409,000 (3.1%
as a percentage of net sales) for the fiscal year ended February 28, 2004. The
reduction in advertising expense is largely attributable to a reduction in TV
advertising with a larger emphasis on radio and print media.
Occupancy costs were $17,117,000 (6.0% as a percentage of net sales) for
the fiscal year ended February 26, 2005 as compared to $17,418,000 (6.3% as a
percentage of net sales) for the fiscal year ended February 28, 2004. This
decline is due primarily to the closing of three stores located in Charlotte,
NC, Baltimore, MD and Lawrenceville, NJ, which was partially offset by an
increase in occupancy costs of existing stores.
Depreciation and amortization expense amounted to $9,574,000 (3.4% as a
percentage of net sales) for the fiscal year ended February 26, 2005 as compared
to $10,896,000 (4.0% as a percentage of net sales) for the fiscal year ended
February 28, 2004. This decline in depreciation expense resulted from some
computer software assets becoming fully depreciated in fiscal 2004, and the
closing of three stores located in Charlotte, NC, Baltimore, MD and
Lawrenceville, NJ.
In the fiscal year ended February 26, 2005, the Company recorded a gain of
$721,000 from the sale of land in Roseland, New Jersey. This gain was offset by
a charge of $1,271,000 resulting from the exercise by the Company of its option
to purchase the Lawrenceville store and the simultaneous sale of the
Lawrenceville store resulting in a net loss on the sales of assets of $550,000.
The Lawrenceville store was closed on October 16, 2004. This action was taken by
the Company as part of its continued efforts to improve profitability.
Net income before income taxes was $2,306,000 for the fiscal year ended
February 26, 2005 as compared to net loss before tax of $5,433,000 for the
fiscal year ended February 28, 2004. This improvement in profit performance is
due largely to higher sales and lower expenses in fiscal 2004.
For the fiscal year ended February 26, 2005 the effective income tax rate
was 5.6% as compared to 13.7% for the fiscal year ended February 28, 2004.
Included in the 52 weeks ended February 26, 2005 was a tax refund from the State
of Maryland for approximately $1,400,000.
FISCAL YEAR ENDED FEBRUARY 28, 2004 (FISCAL 2003) COMPARED TO FISCAL YEAR
ENDED MARCH 1, 2003 (FISCAL 2002)
Net sales for the fiscal year ended February 28, 2004 were $275,219,000, a
decrease of $6,286,000 (2.2%) as compared to net sales of $281,505,000 for the
fiscal year ended March 1, 2003. The decline in sales for fiscal 2003 is largely
attributable to the two closed stores amounting to approximately $4,344,000,
located in Chicago, IL and Pittsburgh, PA. In our comparable store computation,
we only include stores that have been opened for a period of at least twelve
months and stores that were open during both fiscal years. We did not have any
relocated stores or expansion in square footage in the fiscal years 2003 and
2002. Comparable store sales decreased 0.8% for the fiscal year ended February
28, 2004, as compared to the fiscal year ended March 1, 2003.
8
Gross profit for the fiscal year ended February 28, 2004 was $107,751,000,
a decrease of $717,000 (39.2% as a percentage of net sales) as compared to
$108,468,000 (38.5% as a percentage of net sales) for the fiscal year ended
March 1, 2003. Although the gross profit percentage of net sales improved in
fiscal 2003 due to lower markdowns, the decline in net sales, as noted above,
accounts for the shortfall in gross profit dollars. The Company's gross margin
may not be comparable to those of other entities, since other entities may
include all of the costs related to their distribution network in cost of goods
sold and others, like the Company, exclude a portion of those costs from gross
margin and, instead, include them in other line items, such as selling and
general and administrative expenses and occupancy costs.
Selling, general and administrative (SG&A) expense was $76,304,000 (27.7%
as a percentage of net sales) for the fiscal year ended February 28, 2004 as
compared to $76,998,000 (27.4% as a percentage of net sales) for the fiscal year
ended March 1, 2003. The decline in expenses for fiscal 2003 is largely
attributable to the closing of two stores located in Chicago, IL and Pittsburgh,
PA which was partially offset by an increase in union benefits, pension and
maintenance and repairs.
Advertising expense for the fiscal year ended February 28, 2004 was
$8,409,000 (3.1% as a percentage of net sales) as compared to $10,126,000 (3.6%
as a percentage of net sales) for the fiscal year ended March 1, 2003. The
decrease in advertising expense is largely attributable to the cancellation of
certain print media advertising in the fourth quarter of fiscal 2004.
Occupancy costs were $17,418,000 (6.3% as a percentage of net sales) for
the fiscal year ended February 28, 2004 as compared to $17,702,000 (6.3% as a
percentage of net sales) for the fiscal year ended March 1, 2003. This decline
is attributable primarily to the closing of the Pittsburgh, PA and Chicago, IL
stores which was partially offset by an increase in occupancy costs of existing
stores.
Depreciation and amortization expense amounted to $10,896,000 (4.0% as a
percentage of net sales) for the fiscal year ended February 28, 2004 as compared
to $10,908,000 (3.9% as a percentage of net sales) for the fiscal year ended
March 1, 2003.
During fiscal 2002, the Company recorded a store closing cost of $8,000,000
relating to the closing on September 14, 2002 of its 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 Company had a
potential rent liability of $11,282,000 for the remainder of the nine-year lease
term and the landlord had commenced an action relating to the rents liability
which the Company was defending. The Company reached a settlement with the
landlord in January 2004 resulting in the Company recording an additional
$500,000 in closing costs which were charged to the fourth quarter of fiscal
2003 which ended on February 28, 2004.
Net loss before income taxes was $5,433,000 for the fiscal year ended
February 28, 2004 as compared to a net loss of $13,840,000 for the fiscal year
ended March 1, 2003. This variance is primarily attributable to the recording of
store closing costs of $8,000,000 in fiscal 2002.
For the fiscal year ended February 28, 2004, the effective income tax rate
was 13.7% as compared to 34.7% for the fiscal year ended March 1, 2003. The
fluctuation on the effective income tax rate is due primarily to the recording
of the valuation allowance, prior period adjustments and non-deductibility
officer's life insurance premiums.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at February 26, 2005 was $92,428,000, an increase of
$16,223,000 from February 28, 2004, and the ratio of current assets to current
liabilities was 4.35 to 1 as compared to 3.66 to 1 at February 28, 2004. The
Company's return to profitability and its improved cash position contributed to
the increase in working capital.
Net cash provided by operating activities totaled $12,498,000 for fiscal
2004 as compared to $6,106,000 for fiscal 2003.
Net cash provided by investing activities was $490,000 for fiscal 2004 as
compared to $2,326,000 net cash used in investing activities for fiscal 2003.
Purchases of property and equipment totaled $2,704,000 and $2,392,000 for fiscal
years 2004 and 2003, respectively.
Net cash used in financing activities was $1,064,000 for the fiscal year
ended February 26, 2005 as compared to $2,291,000 for the fiscal year ended
February 28, 2004. This amount represents the purchase of the Company's stock in
fiscal years 2004 and 2003 which was offset by the exercise of stock options.
On November 5, 2003, the Company entered into a revolving credit agreement
with a bank for a line of credit not to exceed $20,000,000 through April 30,
2005. This agreement has been extended through May 1, 2008 under similar terms
and conditions and the line of credit has been increased from $20,000,000 to
$30,000,000. The agreement contains financial covenants, with respect to
consolidated tangible net worth, as defined as working capital and maximum
capital expenditures,
9
including dividends (defined to include cash repurchases of capital stock), as
well as other financial ratios. Except for funds provided from this revolving
credit agreement, the Company has satisfied its operating and capital
expenditure requirements, including those for the operations and expansion of
stores, from internally generated funds. For the fiscal years ended February 26,
2005 and February 28, 2004, there were no borrowings under the revolving credit
agreement. At February 26, 2005 and February 28, 2004, the Company had $744,517
and $2,597,266, respectively, in outstanding letters of credit 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
merchandise. This agreement may be cancelled at any time by either party. The
Company is not utilizing this facility.
The Company has planned capital expenditures of approximately $5,000,000
for the fiscal year ending February 25, 2006.
The Company's Board of Directors had authorized the repurchase of up to 20%
of its outstanding shares of Common Stock at prevailing market prices through
June 7, 2006. During the year ended February 26, 2005, the Company purchased
175,700 shares which represented 1.2% of its outstanding shares at a total cost
of $2,020,000.
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 2005.
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.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
To facilitate an understanding of our contractual obligations and
commercial commitments, the following data is provided:
PAYMENTS DUE BY PERIOD
-----------------------------------------------------------------------------
Less than More than
Total 1 year 1-3 years 3-5 years 5 years
-----------------------------------------------------------------------------
CONTRACTUAL OBLIGATIONS
Employment Agreements $ 1,750,000 $ 400,000 $ 900,000 $ 450,000 $ --
Operating Leases 41,790,269 7,413,147 14,412,754 12,092,606 7,871,762
-----------------------------------------------------------------------------
Total Contractual Cash
Obligations $ 43,540,269 $ 7,813,147 $ 15,312,754 $ 12,542,606 $ 7,871,762
=============================================================================
AMOUNT OF COMMITMENT EXPIRATION PER PERIOD
--------------------------------------------------------------------
(in thousands of dollars) Total Amounts Within After 5
Committed 1 year 2-3 years 4-5 years Years
--------------------------------------------------------------------
OTHER COMMERCIAL COMMITMENTS
Lines of Credit $ -- $ -- -- -- --
Letters of Credit 744,517 744,517
--------------------------------------------------------------------
Total Commercial Commitments $ 744,517 $ 744,517 -- -- --
====================================================================
We took into account the material nature of employment agreements,
operating agreements and lines of credit for merchandise in determining whether
to include these items in contractual obligations and commercial commitments.
OFF BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements (as defined in Item 303
of Regulation S-K).
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1 of the Consolidated Financial Statements for a full description
of the Recent Accounting Pronouncements including the respective dates of
adoption and the effects on Results of Operation and Financial Condition.
10
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has exposure to interest rates under its unsecured revolving
credit facility. Interest on individual advances is payable quarterly at 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 of two other alternative calculations,
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 0.5 of 1% per annum.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our financial statements and supplementary data required by this Item are
provided in the financial statements of the Company included in this Annual
Report on Form 10-K as listed in Item 15(a) of the Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
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 Annual 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
Company's most recently completed fiscal quarter that have materially affected,
or are reasonably likely to materially affect the Company's internal control
over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as follows :
NAME AGE TITLE
---- --- -----
Sy Syms (1) (2) (4) .................. 79 Chairman of the Board and
Director of the Company
Marcy Syms (1) (2) (4) ................. 54 Chief Executive Officer / President
and Director of the Company
Antone F. Moreira ..................... 68 Vice President, Chief Financial Officer, Treasurer,
Assistant Secretary and Director of the Company
Harvey A. Weinberg (3) (5) ............. 67 Director of the Company
Amber Brookman (3) (5)................. 63 Director of the Company
Wilbur L. Ross, Jr (3) (5).............. 67 Director of the Company
Ronald Zindman.......................... 55 Executive Vice President - General Merchandise Manager
11
Allen Brailsford........................ 61 Executive Vice President - Operations
Myra Butensky........................... 46 Vice President - Divisional Merchandise
Manager Men's Tailored Clothing
James Donato............................ 49 Vice President - Operations
Elyse Marks............................. 52 Vice President - MIS
John Tyzbir............................. 51 Vice President - Human Resources
(1) Member of the Executive Committee of the Company.
(2) Sy Syms is the father of Marcy Syms.
(3) Member of the Stock Option Committee of the Company.
(4) Member of the Compensation Committee of the Company.
(5) Member of the Audit Committee of the Company.
The members of the Company's Board of Directors hold office until the next
annual meeting of shareholders and until their successors are duly elected and
qualified. Executive officers are elected annually by the Board of Directors of
the Company and serve at the pleasure of the Board. Marcy Syms is the daughter
of Sy Syms. There are no other family relationships between any directors or
executive officers of the Company. None of the organizations with which these
persons were previously associated is a parent, subsidiary or other affiliate of
the Company except as otherwise set forth.
SY SYMS has been Chairman of the Board, Chief Executive Officer and a
Director of the Company and/or its predecessors since 1959. Mr. Syms was Chief
Operating Officer of the Company from 1983 to 1984. Mr. Syms has been a Director
of Israel Discount Bank of New York since December 1991. On January 22, 1998, Sy
Syms resigned his position as Chief Executive Officer. Since that date, Mr. Syms
has been Chairman of the Board.
MARCY SYMS has been President and a Director of the Company since 1983 and
Chief Operating Officer of the Company since 1984. On January 22, 1998, Marcy
Syms was named Chief Executive Officer / President.
ANTONE F. MOREIRA has been Vice President, Chief Financial Officer,
Treasurer and Assistant Secretary of Syms Corp since May 1997. From 1996 to May
1997, Mr. Moreira was a financial consultant with Equitable Assurance Society, a
financial services organization. From 1990 to 1995, Mr. Moreira was Executive
Vice President and Chief Financial Officer of Stuarts Department Stores, Inc., a
regional discount department store chain operating in New England. Mr. Moreira
has been a Director of the Company since May 1997.
HARVEY A. WEINBERG has been a consultant in various industries since April
1994. From April 1992 to April 1994, he was President and Chief Executive
Officer of HSSI, Inc., a retailer of men's and women's apparel. From 1987 to
September 1990, he was Chief Executive Officer and Vice Chairman of the Board of
Directors of Hartmarx Corporation and from 1990 to September 1992, he served as
Chairman of the Board of Hartmarx Corporation. He is a trustee of Glimcher
Realty Trust, a real estate investment trust. He is also a Director of R.G.
Barry Corp. He has been a Director of the Company since December 1992.
AMBER M. BROOKMAN has been President and Chief Executive Officer of
Brookwood Companies for the past fourteen years. Brookwood Companies is a
textile and apparel company. Ms. Brookman manages the activities of five
divisions of Brookwood, as well as its wholly owned subsidiaries Brookwood
Laminating, Kenyon Industries, Inc., Xtra Mile and Solutions 4. Ms. Brookman has
been a Director of the Company since July 2004.
WILBUR L. ROSS, JR. has been a principal of W L Ross & Company LLC since
2000. Prior to 2000, Mr. Ross was Managing Director of Rothchild, Inc. from 1976
to 1999. He was a Director of the Company from 1983 through March 1999 and was
reappointed Director in October 2000.
RONALD ZINDMAN has been Executive Vice President - General Merchandise
Manager since March 1997. He was Vice President, General Merchandise Manager,
Ladies, Mens and Haberdashery from July 1994 to March 1997. Previously, Mr.
Zindman was Vice President - General Merchandise Manager Ladies from March 1993
to July 1994 and a buyer of men's and women's merchandise from March 1990 to
March 1993.
12
ALLEN BRAILSFORD has been Executive Vice President since April 2001. Mr.
Brailsford was Vice President of Operations of the Company from March 1992 to
March 2001, and from March 1985 to March 1992, he was Director of Distribution
of the Company.
MYRA BUTENSKY has been Vice President - Divisional Merchandise Manager,
Men's Tailored Clothing of the Company since January 1999. From May 1998 to
January 1999, Ms. Butensky was Divisional Merchandise Manager, Ladies of the
Company. From June 1991 to April 1998, Ms. Butensky was a ladies buyer. Prior to
joining the Company in 1991, Ms. Butensky was a buyer with Popular Trading Club,
Inc, and also spent 10 years with Macy's in a number of buying positions.
JAMES DONATO has been Vice President of Operations of the Company since
April 2001. From November 1997 to March 2001 he was Director of Store Planning
of the Company. Prior to November 1997, Mr. Donato was in store management as a
District Manager and Store Manager of the Company.
ELYSE MARKS has been Vice President of MIS of the Company since April 2001.
From November 1999 to March 2001 Ms. Marks was Director of MIS of the Company.
From January 1998 to November 1999, Ms. Marks was manager of MIS and store
systems of the Company. From 1983 to 1987, she was also in store management for
the Company.
JOHN TYZBIR has been Vice President - Human Resources of the Company since
April 1999. From January 1995 to October 1997, Mr. Tyzbir was Director of Human
Resources of Zallie Supermarkets Corp. From June 1991 to January 1995, Mr.
Tyzbir was Director of Human Resources and Planning of Carson Pirie Scott Inc.
In accordance with General Instruction G(3) of the General Instructions to Form
10-K, the other information called for by Item 10 is omitted from this Annual
Report and is incorporated by reference to the definitive Proxy Statement to be
filed by the Company pursuant to Regulation 14A of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended, which the
Company will file not later than 120 days after the end of the fiscal year
covered by this Annual Report.
ITEM 11. EXECUTIVE COMPENSATION
In accordance with General Instruction G(3) of the General Instructions to
Form 10-K, the information called for by Item 11 is omitted from this Annual
Report and is incorporated by reference to the definitive Proxy Statement to be
filed by the Company pursuant to Regulation 14A of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended, which the
Company will file not later than 120 days after the end of the fiscal year
covered by this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS
The following table sets forth equity compensation plan information as of
February 26, 2005:
- -------------------------- ----------------------------------------------------------------------
EQUITY COMPENSATION PLAN INFORMATION
- -------------------------- ----------------------------------------------------------------------
Number of securities
remaining available
Number of securities for future issuance
to be issued Weighted-average under equity
upon exercise of exercise price of compensation plans
outstanding options, outstanding options (excluding securities
Plan category warrants and rights warrants and rights reflected in column (a))
- ------------- ------------------- ------------------- ------------------------
(a) (b) (c)
- -------------------------- --------------------- ---------------------- -------------------------
Equity compensation
plans approved by
security holders......... 711,375 $7.49 342,335
- -------------------------- --------------------- ---------------------- -------------------------
Equity compensation
plans not approved by
security holders.......... N/A N/A N/A
- -------------------------- --------------------- ---------------------- -------------------------
Total..................... 711,375 $7.49 342,335
- -------------------------- --------------------- ---------------------- -------------------------
In accordance with General Instruction G(3) of the General Instructions to
Form 10-K, the other information called for by Item 12 is omitted from this
Annual Report and is incorporated by reference to the definitive Proxy Statement
to be filed by the Company pursuant to Regulation 14A of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended, which the
Company will file not later than 120 days after February 26, 2005, the end of
the fiscal year covered by this Annual Report.
13
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In accordance with General Instruction G(3) of the General Instructions to
Form 10-K, the information called for by Item 13 is omitted from this Annual
Report and is incorporated by reference to the definitive Proxy Statement to be
filed by the Company pursuant to Regulation 14A of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended, which the
Company will file not later than 120 days after the end of the fiscal year
covered by this Annual Report.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
In accordance with General Instruction G(3) of the General Instructions to
Form 10-K, the information called for by Item 14 is omitted from this Annual
Report and is incorporated by reference to the definitive Proxy Statement to be
filed by the Company pursuant to Regulation 14A of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended, which the
Company will file not later than 120 days after the end of the fiscal year
covered by this Annual Report.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PAGE NUMBER
(a) (1) Financial Statements:
Report of Independent Registered Public Accounting Firm, BDO Seidman, LLP......... F-1
Report of Independent Registered Public Accounting Firm, Deloitte & Touche, LLP... F-2
Consolidated Balance Sheets....................................................... F-3
Consolidated Statements of Operations............................................. F-4
Consolidated Statements of Shareholders' Equity................................... F-5
Consolidated Statements of Cash Flows............................................. F-6
Notes to Consolidated Financial Statements........................................ F-7
(a)(2) List of Financial Statement Schedules:
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the consolidated
financial statements or notes thereto.
(a) (3) List of Exhibits:
The following exhibits which are marked with an asterisk are filed as part
of this Annual Report and the other exhibits set forth below are incorporated by
reference (utilizing the same exhibit numbers, except as stated otherwise below)
from (i) the Company's Registration Statement on Form S-1 under the Securities
Act of 1933 (Registration No. 2-85554) filed August 2, 1983 and declared
effective September 23, 1983 or (ii) where indicated, the Company's reports on
Form 8-K, Form 10-Q or Form 10-K or the Company's Proxy Statement (Commission
File No. 1-8564). Management contracts or compensatory plans or arrangements
required to be filed as exhibits are identified by a (+).
3.1 Certificate of Incorporation of Syms Corp, as amended
3.2 By-laws of Syms Corp
4.1 Specimen Certificate of Common stock
10.3 Elmsford (White Plains), New York Leased Premises 10.3a Lease, June 21,
1977 10.3b Lease Modification, December 28, 1978 10.3c Lease
Modification, July 26, 1983 10.3d Consent, July 29, 1983 10.3e Parking
Area Lease No. 1, July 29, 1969 10.3f Parking Area Sublease No. 1,
November 29, 1974 10.3g Parking Area Lease No. 2, June 23, 1969 10.3h
Parking Area Sublease No. 2, November 29, 1974 10.3i Assignment and
Assumption, July 29, 1983 10.3j Third Lease Modification Agreement,
December 1, 2002
10.4 Ground Lease at One Emerson Lane, Township of Secaucus, Hudson County,
New Jersey Assignment and Assumption of Ground Lease, dated May 8,
1986, to Registrant (exhibit 28.1 to 8-K Report dated May 1986)
14
10.21+ Syms Corp 1983 Incentive Stock Option and Appreciation Plan as Amended
and Restated (Exhibit A to Company's Proxy Statement for the 1993
Annual Meeting of Shareholders)
10.32 Revolving Credit Agreement dated as of December 1, 1993 between Syms
Corp and Summit Bank (successor to United Jersey Bank) (8-K Report
dated December 7, 1993)
10.33 Form of Indemnification Agreement between Registrant and Directors and
Executive Officers of the Registrant (10-K Report for fiscal year ended
March 2, 1996)
10.35+ Employment Agreement dated November 1, 1996 between Syms Corp and
Ronald Zindman (10-K Report for fiscal year ended March 1, 1997)
10.36+ Stock Option Certificate for Ronald Zindman (10-K Report for fiscal
year ended March 1, 1997)
10.38 First Amendment to Revolving Credit Agreement, dated November 24, 1997,
between Syms Corp and Summit Bank. (10-K Report for fiscal year ended
February 28, 1998)
10.39 Credit Program Agreement, dated January 27, 2000 between Syms Corp and
Conseco Finance Corp (10-K Report for fiscal year ended February 26,
2000)
10.41+ Amendment to the Amended and Restated Incentive Stock Option and
Appreciation (10-Q Report for quarter ended November 25, 2000)
10.46 Agreement and Plan of Reorganization, dated as of May 1, 2002, between
Stanley Blacker, Inc. and Syms Corp
10.48+ Amendment to Syms Corp Amended and Restated Incentive Stock Option and
Appreciation Plan (10-Q Report for fiscal quarter ended August 30,
2003)
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 (10-Q Report for fiscal quarter ended August 30, 2003)
10.50 Loan Agreement, dated as of November 5, 2003, between Syms Corp and
Israel Discount Bank of New York (10-Q Report for fiscal quarter ended
November 29, 2003)
10.51 First Amendment to Loan Agreement, dated April 7, 2005, between Syms
Corp and Israel Discount Bank of New York (current report on Form 8-K
dated April 8, 2005.)
23.1* Consent of BDO Seidman, LLP
23.2* Consent of Deloitte & Touche LLP
31.1* Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
under the Securities and Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2* Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
under the Securities and Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1* Certification of Chief Executive Officer pursuant to Rule 13a-14(b)
under the Securities and Exchange Act of 1934 and 18.U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
32.2* Certification of Chief Financial Officer pursuant to Rule 13a-14(b)
under the Securities and Exchange Act of 1934 and 18.U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SYMS CORP
By: /s/ MARCY SYMS
-------------------------------
Marcy Syms
Chief Executive Officer / President
Date: May 23, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ SY SYMS Chairman of the Board May 23, 2005
- ------------------------------- and Director
Sy Syms
/s/ MARCY SYMS Chief Executive Officer/President May 23, 2005
- ------------------------------- and Director
Marcy Syms (Principal executive officer)
/s/ ANTONE F. MOREIRA Vice President, Chief Financial Officer, May 23, 2005
- ------------------------------- Assistant Secretary and Director
Antone F. Moreira (Principal financial and accounting officer)
/s/ HARVEY A. WEINBERG Director May 23, 2005
- -------------------------------
Harvey A. Weinberg
/s/ AMBER M. BROOKMAN Director May 23, 2005
- -------------------------------
Amber M. Brookman
/s/ WILBUR L. ROSS, JR. Director May 23, 2005
- -------------------------------
Wilbur L. Ross, Jr.
16
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and the Shareholders
Syms Corporation
Secaucus, New Jersey
We have audited the accompanying consolidated balance sheets of Syms Corp as of
February 26, 2005 and February 28, 2004 and the related consolidated statements
of operations, shareholders' equity, and cash flows for each of the two years in
the period ended February 26, 2005. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Syms Corp at
February 26, 2005 and February 28, 2004, and the results of its operations and
its cash flows for each of the two years in the period ended February 26, 2005,
in conformity with accounting principles generally accepted in the United States
of America.
/s/ BDO Seidman, LLP
New York, New York
April 8, 2005
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Syms Corp
Secaucus, New Jersey
We have audited the accompanying consolidated statements of operations,
shareholders' equity, and cash flows for year ended March 1, 2003 of Syms Corp
and Subsidiaries. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of operations and cash flows for the year ended
March 1, 2003 of Syms Corp and Subsidiaries, in conformity with accounting
principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
April 24, 2003
F-2
SYMS CORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ---------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FEBRUARY 26, FEBRUARY 28,
2005 2004
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 31,669 $ 19,745
Receivables 3,475 3,804
Merchandise inventories 66,124 69,226
Deferred income taxes 6,382 3,627
Assets held for sale 6,878 4,495
Prepaid expenses and other current assets 5,502 4,010
--------- ---------
Total current assets 120,030 104,907
PROPERTY AND EQUIPMENT - NET 110,614 123,757
DEFERRED INCOME TAXES 7,212 11,094
OTHER ASSETS 15,952 13,980
--------- ---------
TOTAL ASSETS $ 253,808 $ 253,738
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 16,114 $ 16,154
Accrued expenses 7,535 7,714
Accrued insurance 570 1,264
Obligation to customers 3,383 3,570
--------- ---------
Total current 27,602 28,702
liabilities
OTHER LONG TERM LIABILITIES 1,610 1,862
COMMITMENTS AND CONTINGENCIES
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;
15,087 shares outstanding as of February 26, 2005 (net 3,055
treasury shares) and 15,092 shares outstanding as of
February 28, 2004 (net of 2,879 treasury shares) 763 755
Additional paid-in capital 15,496 14,239
Treasury stock (26,013) (23,993)
Retained earnings 234,350 232,173
--------- ---------
Total shareholders' equity 224,596 223,174
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 253,808 $ 253,738
========= =========
See Notes to Consolidated Financial Statements
F-3
SYMS CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR ENDED
--------------------------------------
FEBRUARY 26, FEBRUARY 28, MARCH 1,
2005 2004 2003
---- ---- -----
NET SALES $ 283,567 $ 275,219 $ 281,505
Cost of goods sold 171,685 167,468 173,037
--------- --------- ---------
Gross profit 111,882 107,751 108,468
EXPENSES
Selling, general and administrative 75,156 76,304 76,998
Advertising 7,666 8,409 10,126
Occupancy 17,117 17,418 17,702
Depreciation and amortization 9,574 10,896 10,908
Loss on sale of assets 550 -- --
Other income (55) (368) (1,298)
Special charges -- 500 8,000
--------- --------- ---------
Income (loss) from operations 1,874 (5,408) (13,968)
Interest expense (income) net (432) 25 (128)
--------- --------- ---------
Income (loss) before income taxes 2,306 (5,433) (13,840)
Provision (benefit) for income taxes 129 (745) (4,805)
--------- --------- ---------
NET INCOME (LOSS) $ 2,177 $ (4,688) $ (9,035)
========= ========= =========
Net Income (loss) Per Share - basic $ 0.14 $ (0.31) $ (0.58)
========= ========= =========
Weighted Average Shares Outstanding - basic 15,139 15,285 15,661
========= ========= =========
Net Income (loss) Per Share - diluted $ 0.14 $ (0.31) $ (0.58)
========= ========= =========
Weighted Average Shares Outstanding - diluted 15,340 15,285 15,661
========= ========= =========
See Notes to Consolidated Financial Statements
F-4
SYMS CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- -----------------------------------------------
(IN THOUSANDS)
ADDITIONAL
COMMON STOCK PAID-IN TREASURY RETAINED
SHARES AMOUNT CAPITAL STOCK EARNINGS TOTAL
-------- -------- -------- -------- -------- --------
BALANCE AS OF
MARCH 2, 2002 15,737 $ 787 $ 13,760 $(18,987) $245,897 $241,457
Exercise of stock options 15 1 85 -- -- 86
Issuance of stock for
Stanley Blacker acquisition 44 2 248 -- -- 250
Stock buyback (361) (18) -- (2,586) -- (2,604)
Net loss -- -- -- -- (9,035) (9,035)
-------- -------- -------- -------- -------- --------
BALANCE AS OF
MARCH 1, 2003 15,435 772 14,093 (21,573) 236,861 230,153
Exercise of options 23 1 146 0 0 147
Stock buyback (366) (18) -- (2,420) -- (2,438)
Net loss -- -- -- -- (4,688) (4,688)
-------- -------- -------- -------- -------- --------
BALANCE AS OF
FEBRUARY 26, 2004 15,092 755 14,239 (23,993) 232,173 223,174
Exercise of options 170 8 948 -- -- 956
Tax benefit derived from
exercise of options -- -- 309 -- -- 309
Stock buyback (175) -- -- (2,020) -- (2,020)
Net profit -- -- -- -- 2,177 2,177
BALANCE AS OF
-------- -------- -------- -------- -------- --------
FEBRUARY 26, 2005 15,087 $ 763 $ 15,496 $(26,013) $234,350 $224,596
======== ======== ======== ======== ======== ========
See Notes to Consolidated Financial Statements
F-5
SYMS CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------
(IN THOUSANDS)
FISCAL YEAR ENDED
--------------------------------------
FEBRUARY 26, FEBRUARY 28, MARCH 1,
2005 2004 2003
---- ---- -----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,177 $ (4,688) $ (9,035)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 9,574 10,896 10,908
Deferred income taxes 1,430 (1,181) (2,634)
Loss on sale of property and equipment 696 394 --
Fixed asset impairment -- -- 3,933
(Increase) decrease in operating assets:
Receivables 329 (2,346) 652
Merchandise inventories 3,102 8,925 8,659
Prepaid expenses and other current assets (1,492) (1,753) (915)
Other assets (1,972) (5,891) (1,726)
Increase (decrease) in operating liabilities:
Accounts payable (40) 3,515 (5,260)
Accrued expenses (867) (5,460) 2,449
Obligations to customers (187) 218 289
Other long term liabilities (252) (29) (227)
-------- -------- --------
Net cash provided by operating activities 12,498 6,106 7,093
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Stanley Blacker, Inc. -- -- (1,905)
Purchase of property and equipment (2,704) (2,392) (3,116)
Proceeds from sale of property and equipment 3,194 66 --
-------- -------- --------
Net cash provided by (used in) investing activities 490 (2,326) (5,021)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury shares (2,020) (2,438) (2,604)
Exercise of options 956 147 86
-------- -------- --------
Net cash used in financing activities (1,064) (2,291) (2,518)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 11,924 1,489 (446)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 19,745 18,256 18,702
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 31,669 $ 19,745 $ 18,256
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 170 $ 272 $ 374
======== ======== ========
Income taxes paid, net of refunds $ (1,387) $ 4,267 $ --
======== ======== ========
Stanley Blacker, Inc. acquisition financed through stock issuance $ -- $ -- $ 250
======== ======== ========
See Notes to Consolidated Financial Statements
F-6
SYMS CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED FEBRUARY 26, 2005, FEBRUARY 28, 2004 AND MARCH 1, 2003
- -------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. PRINCIPAL BUSINESS - Syms Corp and subsidiaries (the "Company") operate a
chain of 37 "off-price" retail stores located throughout the United States
in 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.
b. PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
c. ACCOUNTING PERIOD - The fiscal years ended February 26, 2005, February 28,
2004 and March 1, 2003 were comprised of 52 weeks.
d. CASH AND CASH EQUIVALENTS- Cash and cash equivalents include securities
with original maturities of three months or less.
e. RECEIVABLES - Receivables represent third party credit card receivables.
f. MERCHANDISE INVENTORIES - Merchandise inventories are stated at the lower
of cost or market on a first-in first- out (FIFO) basis, as determined by
the retail inventory method.
g. PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Depreciation and amortization are principally determined by the
straight-line method over the following estimated useful lives:
Buildings and improvements 15 - 39 years
Machinery and equipment 4 - 7 years
Furniture and fixtures 7-10 years
Leasehold improvements Lesser of life of the asset
or life of lease
The Company's policy is to amortize leasehold improvements over the
original lease term and not include any renewal terms.
h. IMPAIRMENT OF LONG-LIVED ASSETS - The Company periodically reviews
long-lived assets for impairment whenever changes in the circumstances
indicate that the carrying amount of the assets may not be fully
recoverable. The Company considers relevant cash flow, management's
strategic plans, significant decreases in the market value of the asset
and other available information in assessing whether the carrying value of
the assets can be recovered. When such events occur, the Company compares
the carrying amount of the assets to undiscounted expected future cash
flows from the use and eventual disposition of the asset. If this
comparison indicates an impairment, the carrying amount would then be
compared to the fair value of the long-lived asset. An impairment loss
would be measured as the amount by which the carrying value of the
long-lived asset exceeds its fair value. The difference would be recorded
as an impairment of assets.
i. INCOME TAXES - Deferred income taxes reflect the future tax consequences
of differences between the tax bases of assets and liabilities and their
financial reporting amounts at year end.
F-7
j. OBLIGATION TO CUSTOMERS - Obligations to customers represent credits
issued for returned merchandise as well as gift certificates. When the
Company sells a gift certificate to a customer, it is recorded as a
liability in the period it occurred. When the customer redeems the gift
certificate for the purchase of merchandise, a sale is recorded and the
liability reduced.
k. USE OF ESTIMATES - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Significant estimates include inventory provision, sales return,
self-insurance accruals and lives of long-lived assets. Actual results
could differ from those estimates.
l. REVENUE RECOGNITION - The Company recognizes revenue at the "point of
sale". Allowance for sales returns is recorded as a component of net sales
in the period in which the related sales are recorded.
m. COMPREHENSIVE INCOME - Comprehensive income is equivalent to the Company's
net income for fiscal years 2004, 2003 and 2002.
n. SEGMENT REPORTING - Statement of Financial Accounting Standards (SFAS) No.
131, "Disclosures about Segments of an Enterprise and Related Information"
establishes standards for reporting information about a company's
operating segments. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. The
Company operates in a single operating segment - the operation of retail
off-price stores. Revenues from external customers are derived from
merchandise sales. The Company's merchandise sales mix by product category
for the last three fiscal years was as follows:
FISCAL YEAR
------------------
2004 2003 2002
---- ---- ----
Men's tailored clothes and haberdashery 53% 52% 52%
Women's dresses, suits, separates and accessories 29% 30% 30%
Shoes 8% 8% 7%
Children's wear 7% 7% 8%
Luggage, domestics and fragrances 3% 3% 3%
--- --- ---
100% 100% 100%
The Company does not rely on any major customers as a source of revenue.
o. COMPUTER SOFTWARE COSTS - The Company capitalizes the cost of software
developed or purchased for internal use.
p. OTHER ASSETS - Other assets include $15,266,000 and $13,521,000 of cash
surrender value of officer's life insurance, and $686,000 and $459,000 of
other miscellaneous assets such as security deposits, step rent
receivables and deferred lease acquisition costs at February 26, 2005 and
February 28, 2004, respectively.
q. Advertising Costs - Advertising and sales promotion costs are expensed at
the time the advertising occurs. Advertising and sales promotion costs
were $7,666,000, $8,409,000 and $10,126,000 in 2004, 2003 and 2002,
respectively. The Company does not receive any allowances and credits from
vendors in connection with the purchase or promotion of the vendor's
product, such as, co-operative advertising and other considerations.
r. Reclassifications - Certain amounts in the 2003 and 2002 financial
statements have been reclassified to conform with the 2004 presentation.
F-8
s. 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 the Financial Accounting Standards Board ("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 fiscal 2004, 2003 and 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.
2004 2003 2002
---- ---- ----
Net income (loss) as reported $ 2,177 ($4,688) ($9,035)
Less stock option expense using fair value method 0 ($ 484) ($ 181)
------- ------- -------
Pro forma net income (loss) $ 2,177 ($5,172) ($9,216)
======= ======= =======
Net income (loss) per share basic and diluted as reported $ .14 ($ .31) ($ .58)
Net income (loss) per share basic and diluted pro forma $ .14 ($ .34) ($ .59)
The Black-Scholes calculation for fiscal 2003 resulted in an expense
attribution of $484,000. There were 888,000 option shares outstanding and
exercisable at a weighted average exercise price of $7.13. The assumptions
used in the Black-Scholes calculation were interest rates of 4.75% and
6.47% for the years 1998 and 1999, respectively. No options have been
granted by the Company since 1999. Stock volatility was .31 and .35 for
1998 and 1999, respectively.
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.
t. The Company's gross margin may not be comparable to those of other
entities, since other entities may include all of the costs related to
their distribution network in cost of goods sold and others, like the
Company, exclude a portion of those costs from gross margin and, instead,
include them in other line items, such as selling and general and
administrative expenses and occupancy costs.
F-9
NEW ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued SFAS 123R, "Share-Based Payment." This
statement is a revision of SFAS 123, "Accounting for Stock-Based Compensation"
and supercedes APB 25, "Accounting for Stock Issued to Employees," and is
effective as of the beginning of the first annual reporting period that begins
after June 15, 2005. SFAS 123R establishes standards on accounting for
transactions in which an entity obtains employee services in share-based payment
transactions. This statement requires measurement of the cost of employee
services received in exchange for an award of equity instruments based on the
grant-date fair value of the award. That cost will be recognized over the period
during which an employee is required to provide service in exchange for the
award, which is usually the vesting period. SFAS 123R also addresses
transactions in which an entity incurs liabilities in exchange for goods or
services that are based on the fair value of the entity's equity instruments or
that may be settled by the issuance of those equity instruments. The adoption of
this statement is not expected to have a material effect on our financial
position or results of operations. We intend to implement this statement in our
first quarter of 2006.
In December 2004, the FASB issued SFAS 151, "Inventory Costs," which is
effective for inventory costs incurred during fiscal years beginning after June
15, 2005. This statement amends ARB No. 43, Chapter 4, "Inventory Pricing," to
clarify the accounting for abnormal amounts of idle facility expense, freight,
handling costs and wasted material (spoilage). SFAS 151 requires that these
items be recognized as current-period charges regardless of whether they meet
the criterion of "so abnormal". In addition, allocation of fixed production
overheads to the costs of conversion must be based on the normal capacity of the
production facilities. The adoption of this statement is not expected to have a
material effect on our financial position or results of operations.
In November 2004, the FASB issued Emerging Issues Task Force ("EITF")
03-13, "Applying the Conditions in Paragraph 42 of SFAS 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, in Determining Whether to Report
Discontinued Operations." This guidance is applied to a component of an
enterprise that is either disposed of or classified as "held for sale" in fiscal
periods after December 15, 2004. The application of this guidance was adopted in
December 2004, as permitted, and had no material effect on our financial
position or results of operations.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of:
FEBRUARY 26, FEBRUARY 28,
2005 2004
---- ----
(IN THOUSANDS)
Land $ 40,279 $ 40,360
Buildings and building improvements 116,251 120,889
Leasehold and leasehold improvements 30,139 34,820
Machinery and equipment 33,525 33,146
Furniture and fixtures 20,943 22,044
Construction in progress 249 2,521
-------- --------
241,386 253,780
Less accumulated depreciation and amortization 130,772 130,023
-------- --------
$110,614 $123,757
======== ========
F-10
Included in assets held for sale is property that the Company intends to sell
(property located in Dallas, Texas and North Randall, Ohio). The Company
presently has contracts to sell both properties at amounts in excess of its
carrying value. Such assets have carrying value of approximately $6,878,000 as
of February 26, 2005. It is the Company's policy to write off leasehold
improvement assets to the original lease term and does not include any renewal
periods.
NOTE 3 - INCOME TAXES
The provision (benefit) for income taxes is as follows:
FISCAL YEAR ENDED
-----------------------------------------------------------
FEBRUARY 26, FEBRUARY 28, MARCH 1,
2005 2004 2003
---- ---- ----
(in thousands)
Current:
Federal $ -- $ -- $ --
State (1,301) 436 429
------- ------- -------
(1,301) 436 429
------- ------- -------
Current:
Federal $ 1,279 $ (279) $(4,081)
State 151 (902) (1,154)
------- ------- -------
1,430 (1,181) (5,233)
------- ------- -------
$ 129 $ (745) $(4,805)
======= ======= =======
Included in the fiscal 2004 state provision is a tax refund in the amount of
$1,400,000 from the State of Maryland. This refund was received as part of a tax
amnesty plan for taxes paid under a settlement agreement related to prior years.
The following is a reconciliation of income taxes computed at the U.S. Federal
statutory rate to the provision for income taxes:
FISCAL YEAR ENDED
---------------------------------------------
FEBRUARY 26, FEBRUARY 28, MARCH 1,
2005 2004 2003
---- ---- ----
Statutory Federal income tax rate 35.0% (35.0%) (35.0%)
State taxes (32.4%) (5.6%) (5.3%)
Officers' life insurance 22.2% 9.3% 5.5%
Expiration of net operating loss -- (12.0%) --
Release of valuation allowance (21.7%) 27.6% --
Other (2.5%) 2.0% 0.1%
----- ----- -----
Effective income tax rate 5.6% (13.7%) (34.7%)
===== ===== =====
F-11
The composition of the Company's deferred tax assets and liabilities is as
follows:
FISCAL YEAR ENDED
-------------------------------------
FEBRUARY 26, FEBRUARY 28,
2005 2004
---- ----
(IN THOUSANDS) (IN THOUSANDS)
Deferred tax assets:
Capitalization of inventory costs $ 1,199 $ 1,156
Accounts receivable 240 151
Reserves not currently deductible for tax purposes 2,068 3,196
Net operating losses 7,845 8,524
Depreciation 2,687 2,525
Step Rent 522 632
Other 33 36
-------- --------
Deferred tax assets before valuation allowance 14,594 16,220
Valuation allowance (1,000) (1,500)
-------- --------
Net deferred tax assets $ 13,594 $ 14,720
======== ========
Current deferred tax asset $ 6,382 $ 3,627
Long term deferred tax asset 7,212 11,094
-------- --------
Total $ 13,594 $ 14,720
======== ========
At February 26, 2005, the Company had federal and state net operating loss carry
forwards of $15,448,021 and $56,659,655, respectively. The Company maintains a
valuation allowance of approximately $1,000,000 with regard to a net operating
loss carry forward which expires within the next year. The valuation allowance
relates in part to additional net operating loss carry forwards identified in
2003 relating to the Stanley Blacker acquisition. The federal net operating
losses expire in years through 2024. The state net operating losses will begin
to expire in 2006.
Based on management's assessment it is more likely than not that deferred tax
assets will be realized by future taxable income or tax planning strategies.
NOTE 4 - BANK CREDIT FACILITIES
On November 5, 2003, the Company entered into a revolving credit agreement with
a bank for a line of credit not to exceed $20,000,000 through April 30, 2005.
This agreement has been extended through May 1, 2008 under similar terms and
conditions except that the line of credit has been increased from $20,000,000 to
$30,000,000. The agreement contains financial covenants, with respect to
consolidated tangible net worth, as defined as working capital and maximum
capital expenditures, including dividends (defined to include cash repurchases
of capital stock), as well as other financial ratios. The Company is in
compliance with all covenants as of February 26, 2005. Except for funds provided
from this revolving credit agreement, the Company has satisfied its operating
and capital expenditure requirements, including those for the operations and
expansion of stores, from internally generated funds. For the fiscal years ended
February 26, 2005 and February 28, 2004, there were no borrowings under the
revolving credit agreement. At February 26, 2005 and February 28, 2004, the
Company had $744,517 and $2,597,266, respectively, in outstanding letters of
credit under the Revolving Credit Agreement. The outstanding letters of credit
for the fiscal years ended February 26, 2005 and February 28, 2004 are part of
the unsecured $20,000,000 line of credit.
Total interest charges incurred for the fiscal years ended February 26, 2005,
February 28, 2004 and March 1, 2003 were $154,000, $206,000 and $237,000,
respectively. There was no capitalized interest for fiscal years 2004, 2003 and
2002.
F-12
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
merchandise. This agreement may be cancelled at any time by either party. The
Company is not currently using this facility.
NOTE 5 - STORE CLOSING COSTS
In fiscal 2002 a store closing reserve was established for the closing of the
Chicago store in the amount of $8,000,000. This action was taken by the Company
to cut losses being incurred at the store because of ongoing construction, at or
near the premises, expected to continue for several years, rendered the store
"unusable" for a retailer. The Company had a potential rent liability of
$11,282,000 for the remainder of the nine year lease term and the landlord had
commenced an action relating to rents liability which the Company was defending.
In fiscal 2002, $4,000,000 of this $8,000,000 reserve was used to write off
assets of this store, the remaining $4,000,000 was for the settlement with the
landlord resulting in the Company recording an additional $500,000 in closing
costs, which were charged to fourth quarter of fiscal 2003 (which ended on
February 28, 2004) resulting in a provision of $4,500,000. In February 2004, the
Company paid the landlord $2,250,000 and in August 2004 the Company paid the
landlord $2,250,000, reducing this balance to zero. In our analysis, the closing
of this store was not material in accordance with SFAS 144 to disclose as a
discontinued operation. In addition, in fiscal 2004, the Company closed three
stores which are located in Charlotte, NC, Baltimore, MD and Lawrenceville, NJ.
The closing of these stores was not material in accordance with SFAS 144 to
disclose as discontinued operations.
NOTE 6 - FAIR VALUE DISCLOSURES
The estimated fair values of financial instruments which are presented herein
have been determined by the Company using available market information and
appropriate valuation methodologies. However, considerable judgment is required
in interpreting market data to develop estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of amounts the Company
could realize in a current market exchange.
The fair value of the Company's cash and cash equivalents, accounts receivable
and accounts payable approximates their carrying values at February 26, 2005 and
February 28, 2004 due to the short-term maturities of these instruments.
NOTE 7 - PENSION AND PROFIT SHARING PLANS
a. PENSION PLAN - The Company has a defined benefit pension plan for all
employees other than those covered under collective bargaining agreements.
The benefits are based on years of service and the employee's highest
average pay during any five consecutive years within the ten-year period
prior to retirement. Pension plan costs are funded annually. Contributions
are intended to provide not only for benefits attributed to service to
date, but also for those expected to be earned in the future.
The investment strategy objectives of the plan are continued growth and
income.
All plan assets are managed by outside investment managers. Asset
allocations are reviewed on a regular basis by the investment management
company. Equity securities are primarily S&P 500 which make up 55% of plan
assets. Fixed securities make up the remaining 45% and are made up of the
Lehman Aggregate and Merrill Lynch 1-3 year Government Corp.
The Company uses a December 31 measurement date.
F-13
The following information on the Company's pension plan is
provided:
FEBRUARY 26, FEBRUARY 28,
2005 2004
-------- -------
(IN THOUSANDS)
CHANGE IN BENEFIT OBLIGATION:
Net benefit obligation at beginning of year $ 9,177 $ 7,842
Service cost 672 642
Interest cost 554 494
Actuarial loss 130 506
Gross benefits paid (276) (307)
-------- -------
Net benefit obligation at end of year $ 10,257 $ 9,177
======== =======
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year $ 6,462 $ 5,224
Employer contributions 616 542
Gross benefits paid (276) (307)
Actual return on plan assets 601 1,003
-------- -------
Fair value of plan assets at end of year $ 7,403 $ 6,462
======== =======
Funded status at end of year $ (2,853) $(2,714)
Unrecognized net actuarial loss 1,836 1,789
Unrecognized transition amount -- --
-------- -------
Accrued benefit costs $ (1,017) $ (925)
======== =======
Pension expenses includes the following components:
FISCAL YEAR ENDED
FEBRUARY 26, FEBRUARY 28, MARCH 1,
2005 2004 2003
------- ------- -------
(IN THOUSANDS)
COMPONENTS OF NET PERIODIC BENEFIT
COST:
Service cost $ 672 $ 642 $ 604
Interest cost 554 494 470
Return on assets (601) (1,003) 464
Amortization of (gain) loss 82 637 (939)
------- ------- -------
Net periodic benefit cost $ 707 $ 770 $ 599
======= ======= =======
WEIGHTED-AVERAGE ASSUMPTIONS USED:
Discount rate 6% 6% 6.75%
Rate of compensation increase 4.5% 4.5% 4.50%
The expected long-term rate of return on plan assets was 8.5% for all years.
F-14
As of December 31, 2004, the benefits expected to be paid in the next five
years and in the aggregate for the five years thereafter are as follows:
2005 $ 344
2006 364
2007 398
2008 432
2009 475
2010-2014 $ 2,922
The asset allocation for the Company's primary pension plans at the end of
2004 and 2003 and the target allocation of 2005, by asset category, are as
follows:
Range of Target % of Plan Assets % of Plan Assets
Asset Category Asset Allocation 2004 2003
-------------- ---------------- ---------------- ----------------
Equity Securities 50% 55% 53%
Fixed Income Securities 50% 45% 47%
---- ----
TOTAL 100% 100%
b. PROFIT-SHARING AND 401(K) PLAN - The Company has a profit-sharing plan and
401(k) plan for all employees other than those covered under collective
bargaining agreements. In 1995, the Company established a defined
contribution savings plan 401(k) for substantially all of its eligible
employees. Employees may contribute a percentage of their salary to the
plan subject to statutory limits. The Company has not made any matching
contributions to this plan during the fiscal years ended February 26, 2005,
February 28, 2004 and March 1, 2003.
NOTE 8 - COMMITMENTS
A. LEASES - The Company has various operating leases for its retail stores,
with terms expiring between 2006 and 2015. Under most lease agreements, the
Company pays real estate taxes, maintenance and other operating expenses.
Certain store leases also provide for additional contingent rentals based
upon a percentage of sales in excess of certain minimum amounts.
Future minimum lease payments at February 26, 2005 are as follows:
F-15
OPERATING
LEASES
-------------
2005 $ 7,413,147
2006 7,266,746
2007 7,146,008
2008 6,498,092
2009 5,594,514
2010 and thereafter 7,871,762
------------
Total minimum payments $ 41,790,269
============
Rent expense for operating leases are as follows:
FISCAL YEAR ENDED
-------------------------------------------------
FEBRUARY 26, FEBRUARY 28, MARCH 1,
2005 2004 2003
---- ---- ----
(IN THOUSANDS)
Minimum rentals due $ 7,841 $ 8,095 $ 8,656
Escalation rentals accrued (253) (31) 67
Contingent rentals -- -- 9
Sublease rentals (240) (228) (228)
------- ------- -------
$ 7,348 $ 7,836 $ 8,504
======= ======= =======
B. EMPLOYMENT AGREEMENT - The Company has an employment agreement with its
General Merchandising Manager, expiring 2009, pursuant to which the current
annual compensation is approximately $400,000. In addition, this employee
is entitled to additional compensation upon occurrence of certain events.
c. LEGAL PROCEEDINGS - The Company is a party to routine litigation incident
to its business. Management of the Company believes, based upon its
assessment of the actions and claims outstanding against the Company, and
after discussion with counsel, that there are no legal proceedings that
will have a material adverse effect on the financial condition or results
of operations of the Company. Some of the lawsuits to which the Company is
a party are covered by insurance and are being defended by the Company's
insurance carriers.
d. GUARANTEES - The Company does not have any guarantees as of February 26,
2005.
NOTE 9 - PREFERRED STOCK
The Company is authorized to issue up to 1,000,000 shares of preferred stock, in
one or more series of preferred stock. The Board of Directors is authorized to
establish the number of shares to be included in each such series, and to fix
the designation, relative rights, preferences, qualifications and limitations of
the shares of each such series.
F-16
NOTE 10 - STOCK OPTION PLAN
The Company's Stock Option Plan allows for the granting of incentive stock
options, as defined in Section 422A of the Internal Revenue Code of 1986 (as
amended), non-qualified stock options or stock appreciation rights. The plan
requires that incentive stock options be granted at an exercise price not less
than the fair market value of the common shares on the date the option is
granted. The exercise price of the option for holders of more than 10% of the
voting rights of the Company must be not less than 110% of the fair market value
of the common shares on the date of grant. Non-qualified options and stock
appreciation rights may be granted at any exercise price. The Company has
reserved 1,500,000 shares of common stock for issuance thereunder.
No option or stock appreciation rights may be granted under the Stock Option
Plan after July 28, 2013. The maximum exercise period for any option or stock
appreciation right under the plan is ten years from the date the option is
granted (five years for any optionee who holds more than 10% of the voting
rights of the Company).
On April 7, 2005, the Board of Directors of the Company approved, subject to
shareholder approval, the 2005 Stock Option Plan. The Plan provides for the
issuance of 850,000 shares of common stock.
Stock option transactions are summarized below:
FISCAL YEAR ENDED
------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
------------------------------------------------------------------------------
FEBRUARY 26, 2005 FEBRUARY 28, 2004 MARCH 1, 2003
--------------------- -------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
FISCAL AVERAGE FISCAL AVERAGE FISCAL AVERAGE
2004 EXERCISE 2003 EXERCISE 2002 EXERCISE
FIXED OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE
------- ---------- ------- -------- ------ ---------
Outstanding
beginning of year 888 $ 7.13 991 $ 7.21 1,060 $ 7.24
Granted -- -- -- -- -- --
Exercised (170) 5.63 (23) 5.63 (15) 5.63
Cancelled (7) 5.63 (80) 8.58 (54) 8.07
- ------------------------------------------------------------------------------------------------------------------------
Outstanding, end of period 711 $ 7.49 888 $ 7.13 991 $ 7.21
========================================================================================================================
Options exerciseable at year end 711 $ 7.49 888 $ 7.13 868 $ 7.44
The following table summarizes information about stock options outstanding at
February 26, 2005:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------------- ----------------------
WEIGHTED-AVERAGE
NUMBER REMAINING NUMBER
RANGE OF OUTSTANDING AT CONTRACTUAL EXERCISABLE AT
EXERCISE PRICES FEBRUARY 26, 2005 LIFE (YEARS) FEBRUARY 26, 2005
------------------------------------------------------------------- ----------------------
5.625 398,875 4.7 398,875
8.00 87,500 1.6 87,500
9.875 25,000 2.2 25,000
10.6875 200,000 3.6 200,000
------- -------
711,375 711,375
F-17
NOTE 11 - NET INCOME 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
per share gives effect to outstanding stock options, if they are dilutive.
Net income (loss) per share have been computed as follows:
FISCAL 2004 FISCAL 2003 FISCAL 2002
----------- ----------- -----------
(IN THOUSANDS)
BASIC AND DILUTED NET LOSS PER SHARE:
Net income (loss) $ 2,177 ($ 4,688) ($9,035)
Average shares outstanding - basic 15,139 15,285 15,661
Net income (loss) per share - basic $ 0.14 ($0.31) ($0.58)
Average shares outstanding - diluted 15,340 $15,285 $ 15,661
Net income (loss) per share - diluted $ 0.14 ($0.31) ($0.58)
Options to purchase 711,000, 888,000 and 991,000 shares of common stock at
prices ranging from $5.625 to $10.6875 per share were outstanding in fiscal
years 2004, 2003 and 2002, respectively. Options to purchase 888,000 and 991,000
shares of common stock were not included in the computation of diluted net loss
per share because the exercise price of the options exceeded the average market
price and would have been antidilutive for 2003 and 2002. Included in the
calculation of diluted earnings per share for 2004 are 201,000 options to
purchase common stock.
NOTE 12 - RELATED PARTY TRANSACTIONS
Included in the Statements of Operations are the expenses relating to a real
estate lease with Sy Syms, Chairman of the Board of the Company, for the
Elmsford, New York store. During fiscal years 2004, 2003 and 2002, the Company
paid to Sy Syms $796,500, $796,500 and $649,125 respectively, in fixed rent.
On January 10, 2002, an independent audit committee of the Board of Directors
was established to review the potential acquisition of Stanley Blacker, Inc. a
corporation owned by the Sy Syms Revocable Living Trust. This committee obtained
an independent appraisal as to the fair market value of the business enterprise
of Stanley Blacker, Inc. and on April 18, 2002, the Board of Directors approved
the acquisition based on the independent committee's recommendation to acquire
the assets of Stanley Blacker, Inc. The assets of Stanley Blacker, Inc.
consisted substantially of deferred tax assets, trademarks and trade names
licensed to third party manufacturers of clothing and accessories. Based on the
purchase price allocation, no value was given to the trademarks and trade names.
The acquisition of such assets was consummated on May 1, 2002, for a purchase
price consisting of $250,000 paid in cash, $250,000 paid by the issuance of
44,138 shares of the Company's Common Stock and the balance by the taking of the
assets subject to a note payable to Fleet National Bank in the principal amount
of $1,655,000 together with interest thereon of approximately $11,355, which
note was paid in full by the Company. The Company's financial statements include
the results of operations of Stanley Blacker, Inc. from the date of acquisition.
F-18
Purchase Price:
Cash $ 1,905,000
Stock 250,000
-----------
Purchase price $ 2,155,000
===========
Allocation of Purchase Price:
Receivables $ 104,000
Deferred Tax Assets 2,083,000
Payables 32,000
The impact on earnings from the Stanley Blacker, Inc. acquisition for fiscal
year 2002 was not material.
The assets of Stanley Blacker, Inc. consisted solely of deferred tax assets
amounting to $2,083,000 relating to the net operating losses at the time of the
acquisition. Based on the review of the fair value appraisal, no allocation of
the purchase price was attributable to the trademarks and patents as the value
of such trademarks and patents was immaterial. A valuation allowance was
established in fiscal 2003 in the amount of $1,500,000. This was established in
the event that tax loss carry forward expiring in the next two years was not
used.
NOTE 13 - UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
QUARTER
-------
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED FEBRUARY 26, 2005
Net sales $68,321 $61,254 $75,980 $78,012
Gross profit 28,156 23,269 30,074 30,383
Net income (loss) 4 (3,732) 2,018 3,887
Net income (loss) per share - basic -- (0.25) 0.13 0.26
Net income (loss) per share - diluted -- (0.25) 0.13 0.25
QUARTER
-------
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED FEBRUARY 28, 2004
Net sales $63,534 $62,102 $74,345 $75,238
Gross profit 25,914 22,106 31,385 28,346
Net income (loss) (1,749) (4,683) 1,024 720
Net income (loss) per share - basic (0.11) (0.30) 0.07 0.05
Net income (loss) per share - diluted (0.11) (0.30) 0.06 0.05
F-19