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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended AUGUST 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the transition period from_____________ to _____________
COMMISSION FILE NUMBER 1-8546
SYMS CORP
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(Exact Name of Registrant as Specified in Its Charter)
NEW JERSEY 22-2465228
------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
SYMS WAY, SECAUCUS, NEW JERSEY 07094
- ----------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(201) 902-9600
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(Registrant's Telephone Number, Including Area Code)
NOT APPLICABLE
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
At October 4, 2002, the latest practicable date, there were 15,621,278
shares outstanding of Common Stock, par value $0.05 per share.
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SYMS CORP AND SUBSIDIARIES
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INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of
August 31, 2002, March 2, 2002 and September 1, 2001 .............. 1
Condensed Consolidated Statements of Operations for the
13 Weeks and 26 Weeks Ended August 31, 2002 and September 1, 2001 . 2
Condensed Consolidated Statements of Cash Flows for the
26 Weeks Ended August 31, 2002 and September 1, 2001 .............. 3
Notes to Condensed Consolidated Financial Statements .............. 4-7
Item 2. Management's Discussion and Analysis of Financial Condition ....... 7-11
and Results of Operations
Item 3. Quantitative and Qualitative Disclosure about Market Risk ......... 11
Item 4. Controls and Procedures ........................................... 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ........................................ 11
Item 2. Changes In Securities and Use of Proceeds 11
Item 3. Defaults Upon Senior Securities .......................... 11
Item 4. Submission of Matters to a Vote of Security Holders ...... 11
Item 5. Other Information ........................................ 12
Item 6. Exhibits and Reports on Form 8-K ......................... 12
SIGNATURES ................................................................ 13
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SYMS CORP AND SUBSIDIARIES
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CONDENSED CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
(IN THOUSANDS)
AUGUST 31, MARCH 2, SEPTEMBER 1,
2002 2002 2001
----------- ---------- ------------
(UNAUDITED) (NOTE) (UNAUDITED)
ASSETS
Current Assets
Cash and cash equivalents ........................................ $ 23,166 $ 19,485 $ 6,176
Merchandise inventories .......................................... 99,025 86,810 113,737
Deferred income taxes ............................................ 6,514 6,514 8,831
Prepaid expenses and other current assets ........................ 3,946 6,071 6,165
--------- --------- ---------
TOTAL CURRENT ASSETS ........................................... 132,651 118,880 134,909
--------- --------- ---------
PROPERTY AND EQUIPMENT - Net ........................................ 139,806 147,186 150,959
DEFERRED INCOME TAXES ............................................... 4,392 2,309 2,383
OTHER ASSETS ........................................................ 8,998 8,119 8,042
--------- --------- ---------
TOTAL ASSETS ................................................... $ 285,847 $ 276,494 $ 296,293
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................. 35,671 17,867 39,029
Accrued expenses ................................................. 7,232 8,845 8,451
Accrued insurance ................................................ 2,667 3,144 2,993
Obligations to customers ......................................... 3,027 3,063 2,798
--------- --------- ---------
TOTAL CURRENT LIABILITIES ...................................... 48,597 32,919 53,271
--------- --------- ---------
OTHER LONG TERM LIABILITIES ......................................... 2,163 2,118 2,101
--------- --------- ---------
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; 15,621 shares outstanding (net of 2,313 in treasury stock)
on August 31, 2002; 15,737 shares outstanding as of March 2,
2002 (net of 2,152 treasury shares) and 15,736 shares outstanding
(net of 2,152 treasury shares) on September 1, 2001 ............. 793 787 787
Additional paid-in capital ....................................... 14,007 13,760 13,759
Treasury stock ................................................... (20,147) (18,987) (18,987)
Retained earnings ................................................ 240,434 245,897 245,362
--------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY ..................................... 235,087 241,457 240,921
--------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..................... $ 285,847 $ 276,494 $ 296,293
========= ========= =========
NOTE: The balance sheet at March 2, 2002 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See Notes to Condensed Consolidated Financial Statements
1
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SYMS CORP AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
13 WEEKS ENDED 26 WEEKS ENDED
------------------------------ -----------------------------
AUGUST 31, SEPTEMBER 1, AUGUST 31, SEPTEMBER 1,
2002 2001 2002 2001
--------- ------------ --------- ------------
(Unaudited) (Unaudited)
Net sales ................................. $ 65,058 $ 65,319 $ 133,008 $ 136,873
Cost of goods sold ........................ 42,079 42,845 80,932 84,929
--------- --------- --------- ---------
Gross profit .............................. 22,979 22,474 52,076 51,944
Expenses:
Selling, general and administrative ....... 19,053 19,460 37,818 39,961
Advertising ............................... 2,045 1,511 4,289 4,158
Occupancy ................................. 4,650 4,712 9,151 9,452
Depreciation and amortization ............. 2,762 2,923 5,572 5,870
Special charge ............................ 4,000 -- 4,000 --
--------- --------- --------- ---------
Loss from operations ...................... (9,531) (6,132) (8,754) (7,497)
Other income .............................. (355) (3,000) (809) (3,000)
Interest income ........................... (45) (15) (99) (107)
--------- --------- --------- ---------
Loss before income taxes .................. (9,131) (3,117) (7,846) (4,390)
Provision benefit for income taxes ........ (2,962) (1,040) (2,384) (1,536)
--------- --------- --------- ---------
Net loss .................................. $ (6,169) $ (2,077) $ (5,462) $ (2,854)
========= ========= ========= =========
Net loss per share-basic .................. $ (0.39) $ (0.13) $ (0.35) $ (0.18)
========= ========= ========= =========
Weighted average shares outstanding-basic . 15,721 15,744 15,721 15,744
========= ========= ========= =========
Net loss per share-diluted ................ $ (0.39) $ (0.13) $ (0.35) $ (0.18)
========= ========= ========= =========
Weighted average shares outstanding-diluted 15,721 15,744 15,721 15,744
========= ========= ========= =========
See Notes to Condensed Consolidated Financial Statements
2
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SYMS CORP AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
(IN THOUSANDS)
26 WEEKS ENDED
------------------------------
AUGUST 31, SEPTEMBER 1,
2002 2001
----------- ------------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................................. $ (5,462) $ (2,854)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization ........................................ 5,572 5,870
Deferred income taxes ................................................ -- (2,038)
Gain on sale of property and equipment ............................... -- (31)
Loss of disposal of assets ........................................... 4,033 29
(Increase) decrease in operating assets:
Merchandise inventories ......................................... (12,215) (14,551)
Prepaid expenses and other current assets ....................... 2,125 (1,927)
Other assets .................................................... (775) (1,862)
(Increase) decrease of operating liabilities:
Accounts payable ................................................ 17,772 22,576
Accrued expenses ................................................ (2,090) 284
Obligations to customers ........................................ (36) (112)
Other long term liabilities ..................................... 45 (308)
-------- --------
Net cash provided by operating activities .................. 8,969 5,076
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Stanley Blacker, Inc. ................................. (1,906) --
Expenditures for property and equipment .............................. (2,225) (6,256)
Proceeds from sale of property and equipment ......................... -- 31
-------- --------
Net cash used in investing activities ...................... (4,131) (6,225)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of options .................................................. 253 7
Stock repurchase ..................................................... (1,160) (167)
-------- --------
Net cash used in financing activities ...................... (907) (160)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ...................... 3,681 (1,309)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ............................ 19,485 7,485
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD .................................. $ 23,166 $ 6,176
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) ............................ $ -- $ 299
======== ========
Income taxes paid (refunds received) ............................ $ -- $ 75
======== ========
Stanley Blacker, Inc. acquisition financed through stock issuance $ 250 $ --
======== ========
See Notes to Condensed Consolidated Financial Statements
3
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SYMS CORP AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
13 AND 26 WEEKS ENDED AUGUST 31, 2002 AND SEPTEMBER 1, 2001
- --------------------------------------------------------------------------------
(UNAUDITED)
NOTE 1 - THE COMPANY
Syms Corp (the "Company") operates a chain of 41 "off-price" retail stores
located throughout the Northeastern and Middle Atlantic regions and in the
Midwest, Southeast and Southwest. Each Syms store offers a broad range of first
quality, in season merchandise bearing nationally recognized designer or
brand-name labels for men, women and children.
NOTE 2 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the 13 week and 26 week periods ended
August 31, 2002 are not necessarily indicative of the results that may be
expected for the entire fiscal year ending March 1, 2003. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the fiscal year
ended March 2, 2002.
NOTE 3 - ACCOUNTING PERIOD
The Company's fiscal year ends the Saturday nearest to the end of February. The
fiscal year ending March 1, 2003 will be comprised of 52 weeks. The fiscal year
ended March 2, 2002 was comprised of 52 weeks.
NOTE 4 - MERCHANDISE INVENTORIES
Merchandise inventories are stated at the lower of cost (first in, first out) or
market, as determined by the retail inventory method.
NOTE 5 - BANK CREDIT FACILITIES
The Company has an unsecured revolving credit agreement with a bank for a line
of credit not to exceed $20,000,000 through July 31, 2003. Interest on
individual advances is payable quarterly at 1/2% per annum below the bank's base
rate, except that at the time of advance, the Company has the option to select
an interest rate based upon one other alternative calculation, with such rate to
be fixed for a period not to exceed 90 days. The average daily unused portion is
subject to a commitment fee of 3/8 of 1% per annum. As of August 31, 2002, March
2, 2002 and September 1, 2001, respectively, there were no outstanding
borrowings under this agreement.
The agreement contains financial covenants, with respect to consolidated
tangible net worth, as defined, working capital and maximum capital
expenditures, including dividends (defined to include cash repurchases of
capital stock), as well as other financial ratios. The Company was in compliance
with all covenants as of August 31, 2002.
In addition, the Company has a separate $10,000,000 credit facility with another
bank available for the issuance of letters of credit for the purchase of foreign
merchandise. This agreement may be canceled at any time by either party. At
August 31, 2002, March 2, 2002 and September 1, 2001, the Company had
$6,258,000, $4,564,000 and $4,784,000, respectively, in outstanding letters of
credit.
4
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SYMS CORP AND SUBSIDIARIES
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NOTE 6 - NET INCOME PER SHARE
In accordance with SFAS 128, basic net income per share has been computed
based upon the weighted average common shares outstanding. Diluted net income
per share gives effect to outstanding stock options.
Net loss income per share has been computed as follows:
13 WEEKS ENDED 26 WEEKS ENDED
---------------------------------- -----------------------------------
AUGUST 31, 2002 SEPTEMBER 1, 2001 AUGUST 31, 2002 SEPTEMBER 1, 2001
--------------- ----------------- --------------- -----------------
BASIC NET LOSS PER SHARE:
Net loss ....................... $ (6,169) $ (2,077) $ (5,462) $ (2,854)
Average shares outstanding ..... 15,721 15,744 15,721 15,744
Basic net loss per share ....... $ (0.39) $ (0.13) $ (0.35) $ (0.18)
DILUTED NET LOSS PER SHARE:
Net loss ....................... $ (6,169) $ (2,077) $ (5,462) $ (2,854)
Average shares outstanding ..... 15,721 15,744 15,721 15,744
Stock options .................. -- -- -- --
Total average equivalent
shares ......................... 15,721 15,744 15,721 15,744
Diluted net loss per share ..... $ (0.39) $ (0.13) $ (0.35) $ (0.18)
In periods with losses, options were excluded from the computation of diluted
net income per share because the effect would be anti-dilutive.
Options to purchase 1,020,175 and 1,068,750 shares of common stock at prices
ranging from $5.63 to $11.50 per share were outstanding as of August 31, 2002
and September 1, 2001, respectively, but were not included in the computation of
diluted net income per share because the exercise price of the options exceed
the average market price and would have been anti-dilutive.
NOTE 7 - SPECIAL CHARGES
The Company closed its downtown Chicago store on September 14, 2002. The
decision to close this store resulted from construction at neighboring premises
which substantially impaired ingress and egress of this location. It is
estimated this construction will last two or three more years. As a result of
this decision, the Company recorded a $4,000,000 charge (write-off of capital
assets) to the second quarter results for the period ended August 31, 2002. The
Company has a potential rent liability of $11,282,000 for the remainder of the
nine-year lease term; however, the Company is unable to quantify the extent of
any liability at this time.
During the third quarter of fiscal 2000, the Company recorded a store closing
cost of $12,935,000 relating to a plan to close five stores and an additional
lease commitment cost associated with a previously closed store. As of August
31, 2002, the amount remaining in the closed store accrual recorded in the third
quarter of fiscal 2000 is $78,562. Primarily relating to severance and lease
obligations, which will be paid out periodically through January, 2004. The
total restructuring accrual at August 31, 2002 of $78,562 is included within
accrued expenses.
5
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SYMS CORP AND SUBSIDIARIES
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NOTE 8 - STANLEY BLACKER, INC. ACQUISITION
On January 10, 2002, an independent 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 trademarks and trade names licensed to third party
manufacturers of clothing and accessories. 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 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.
Purchase Price:
Cash ................................... $1,905,000
Stock .................................. 250,000
Purchase price ......................... 2,155,000
Preliminary 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 the 26
weeks ended August 31, 2002 was not material.
NOTE 9 - OTHER INCOME
Other income was recorded by the Company amounting to approximately $809,000
resulting primarily from $650,000 of restitution on an employee theft and
partial insurance recovery of $150,000 related to business interruption at the
Trinity store. Other income for last year reflects an insurance recovery of
$3,000,000 related to employee theft.
NOTE 10 - RECENTLY ISSUED ACCOUNTING STANDARDS
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 addresses the accounting and
reporting for the impairment or disposal of long-lived assets. The statement
provides a single accounting model for long-lived assets to be disposed of. New
criteria must be met to classify the asset as an asset held-for-sale. This
statement also focuses on reporting the effects of a disposal of a segment of a
business. This statement is effective for fiscal years beginning after December
15, 2001. The Company has determined that the adoption of SFAS No. 144 will not
have a material impact on the Company's financial position or results of
operations.
6
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SYMS CORP AND SUBSIDIARIES
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NOTE 11 - NEW ACCOUNTING STANDARDS
In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical Corrections" ("SFAS 145") was
issued. SFAS 145 rescinds SFAS 4 and 64, which required gains and losses from
extinguishment of debt to be classified as extraordinary items. SFAS also
rescinds SFAS 44 since the provisions of the Motor Carrier Act of 1980 are
complete. SFAS 145 also amends SFAS 13 eliminating inconsistencies in certain
sale-leaseback transactions. The provisions of SFAS 145 are effective for fiscal
years beginning after May 15, 2002. Any gain or loss on extinguishment of debt
that was classified as an extraordinary item in prior periods presented shall be
reclassified. The Company does not expect that the adoption of SFAS 145 will
have a material effect on the Company's financial position or results of
operations.
SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities,
was issued in July 2002. SFAS No. 146 replaces current accounting literature and
requires the recognition of costs associated with exit or disposal activities
when they are incurred rather than at the date of commitment to an exit or
disposal plan. The provisions of the Statement are effective for exit or
disposal activities that are initiated after December 31, 2002. The Company does
not anticipate the adoption of this statement will have a material effect on the
Company's financial position or results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Quarterly Report (including but not limited to factors discussed below, in
the Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as those discussed elsewhere in this Quarterly Report on
Form 10-Q) includes forward-looking statements (as such term is defined in the
Private Securities Litigation Reform Act of 1995) and information relating to
the Company that are based on the beliefs of the management of the Company as
well as assumptions made by and information currently available to the
management of the Company. When used in this Quarterly Report, the words
"anticipate," "believe," "estimate," "expect," "intend," "plan," and similar
expressions, as they relate to the Company or the management of the Company,
identify forward-looking statements. Such statements reflect the current views
of the Company with respect to future events, the outcome of which is subject to
certain risks, including among others general economic and market conditions,
decreased consumer demand for the Company's products, possible disruptions in
the Company's computer or telephone systems, possible work stoppages, or
increases in labor costs, effects of competition, possible disruptions or delays
in the opening of new stores or inability to obtain suitable sites for new
stores, higher than anticipated store closings or relocation costs, higher
interest rates, unanticipated increases in merchandise or occupancy costs and
other factors which may be outside the Company's control. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results or outcomes may vary materially from those described
therein as anticipated, believed, estimated, expected, intended or planned.
Subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the cautionary statements in this paragraph and elsewhere described
in this Quarterly Report and other reports filed with the Securities and
Exchange Commission.
CRITICAL ACCOUNTING POLICIES AND ESTIMATE
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
7
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SYMS CORP AND SUBSIDIARIES
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The Company believes application of accounting policies, and the estimates
inherently required by the policies, are reasonable. These accounting policies
and estimates are constantly reevaluated, and adjustments are made when facts
and circumstances dictate a change. Historically, the Company has found the
application of accounting policies to be appropriate, and actual results have
not differed materially from those determined using necessary estimates.
The Company's accounting policies are more fully described in Note 1 to the
Consolidated Financial Statements, located in the Annual Report for the year
ended March 2, 2002. 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 ASSET - In evaluation of the fair value and future benefits of
long-lived assets, the Company performs analyses of the anticipated undiscounted
future net cash flows of the related long-lived assets. If the carrying value of
the related asset exceeds the undiscounted cash flows, the Company reduces the
carrying value to its fair value, which is generally calculated using discounted
cash flows. Various factors including future sales growth and profit margins are
included in this analysis. To the extent these future projections or our
strategies change, the conclusion regarding impairment may differ from the
Company's current estimates.
DEFERRED TAX VALUATION ALLOWANCE - The Company records a valuation
allowance to reduce its deferred tax assets to the amount that is more likely
than not to be realized. The Company has considered future taxable income and
ongoing prudent and feasible tax planning strategies in assessing the need for
the valuation allowance, if the Company were to determine that it would be able
to realize its deferred tax assets in the future in excess of its net recorded
amount, an adjustment to the deferred tax asset would increase income in the
period such determination was made. Likewise, should the Company determine that
it would not be able to realize all or part of our net deferred tax asset in the
future, an adjustment to the deferred tax asset would be charged to income in
the period such determination was made.
RESULTS OF OPERATIONS
13 and 26 Weeks Ended August 31, 2002 Compared to 13 and 26 Weeks Ended
September 1, 2001
Net sales of $65,058,000 for the 13 weeks ended August 31, 2002 decreased
$261,000 (.4%) as compared to net sales of $65,319,000 for the 13 weeks ended
September 1, 2001. For the 26 weeks ended August 31, 2002, net sales decreased
$3,865,000 (2.8%) to $133,008,000 as compared to net sales of $136,873,000 for
the 26 weeks ended August 26, 2000. Comparable store sales increased 0.5% for
the 13 weeks ended August 31, 2002 and decreased 0.7% for the 26 weeks ended
August 31, 2002, as compared to the comparable periods in the prior fiscal year.
The sales decrease in the 26 week period is largely attributable to the closing
of the Sharonville, OH, Potomac, VA and Franklin Mills, PA stores (sales of
closed stores amounted to $1,388,000 for the 13 weeks and $3,578,000 for the 26
weeks) during the same period in the prior fiscal year.
8
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SYMS CORP AND SUBSIDIARIES
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Gross profit for the 13 weeks ended August 31, 2002 was $22,979,000 (35.3% as a
percentage of net sales), an increase of $505,000 as compared to $22,474,000
(34.4% as a percentage of net sales) for the 13 weeks ended September 1, 2001.
Gross profit for the 26 weeks ended August 31, 2002 was $52,076,000, an increase
of $132,000 as compared to $51,944,000 for the 26 weeks ended September 1, 2001.
The increase sin gross profit in the 13 and 26 week periods are largely
attributable to less markdowns on merchandise sold compared to the same periods
in the prior fiscal year.
Selling, general and administrative expense decreased $407,000 to $19,053,000
(29.3% as a percentage of net sales) for the 13 weeks ended August 31, 2002 as
compared to $19,460,000 (29.8% as a percentage of net sales) for the 13 weeks
ended September 1, 2001. Selling, general and administrative expense decreased
$2,143,000 to $37,818,000 (28.4% as a percentage of total net sales) for the 26
weeks ended August 31, 2002 as compared to $39,961,000 (29.2% as a percentage of
total net sales) for the 26 weeks ended September 1, 2001. The decrease in both
the 13 week and 26 week periods results primarily from the closing of three
stores (a decrease of $639,000 in the 13 weeks and $1,444,000 in the 26 weeks)
during the same periods in the prior fiscal year (Sharonville, OH, Potomac, VA
and Franklin Mills, PA) and a continued focus on further expense reductions in
all areas of the Company.
Advertising expense for the 13 weeks ended August 31, 2002 was $2,045,000 (3.1%
as a percentage of net sales) as compared to $1,511,000 (2.3% as a percentage of
net sales) in the 13 weeks ended September 1, 2001. Advertising expense for the
26 weeks ended August 31, 2002 was $4,289,000 (3.2% as a percentage of net
sales) as compared to $4,158,000 (3.0% as a percentage of net sales) in the 26
weeks ended September 1, 2001.
Occupancy costs were $4,650,000 (7.2% as a percentage of net sales) for the 13
weeks ended August 31, 2002 as compared to $4,712,000 (7.2% as a percentage of
net sales) for the 13 weeks ended September 1, 2001. Occupancy costs were
$9,151,000 (6.9% as a percentage of net sales) for the 26 weeks ended August 31,
2002 as compared to $9,452,000 (6.9% as a percentage of net sales) for the
period ended September 1, 2001. The closing of three stores during the same
periods in the prior fiscal year (Sharonville, OH, Potomac, VA and Franklin
Mills, PA) accounted for this reduction in the 13 and 26 week periods.
Depreciation and amortization was $2,762,000 (4.3% as a percentage of net sales)
for the 13 weeks ended August 31, 2002 as compared to $2,923,000 (4.5% as a
percentage of net sales) for the 13 weeks ended September 1, 2001. Depreciation
and amortization for the 26 weeks ended August 31, 2002 was $5,572,000 (4.2% as
a percentage of net sales) as compared to $5,870,000 (4.3% as a percentage of
net sales) for the 26 weeks ended September 1, 2001.
During the second quarter, the Company recorded a store closing cost of
$4,000,000 relating to the closing of its downtown Chicago store which closed
September 14, 2002. The Company has a potential rent liability of $11,282,000
for the remainder of the nine-year lease term; however, the Company is unable to
quantify the extent of any liability at this time. This action was taken by the
Company to cut losses being incurred at the store due to construction at the
neighboring premises which will continue over a two to three year period.
In the 13 and 26 week periods ended August 31, 2002, the Company recorded other
income of $809,000 (primarily $650,000 restitution on employee theft and
$150,000 advance payment or business interruption insurance). The results for
the second quarter of last fiscal year reflect income from an insurance recovery
relating to an employee theft of approximately $3,000,000.
The loss before income taxes for the 13 weeks ended August 31, 2002 was
$9,131,000, an increase of $6,014,000 as compared to a loss of $3,117,000 for
the 13 weeks ended September 1, 2001. The loss before income taxes for the 26
weeks ended August 31, 2002 was $7,846,000 as compared to a loss before taxes
$4,390,000 for the 26 weeks ended September 1, 2001. This increase in loss
resulted principally from the special store closing charge of $4,000,000 and the
insurance recovery non-recurring charge last year of $3,000,000.
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SYMS CORP AND SUBSIDIARIES
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For the 26 week period ended August 31, 2002, the effective income tax rate was
30.0%, as compared to 35% for the comparable period a year ago. The reduced
income tax rate is due to the non-deductibility of officer's life insurance
premiums.
LIQUIDITY AND CAPITAL RESOURCES
Working capital as of August 31, 2002 was $84,054,000, an increase of $2,416,000
as compared to $81,638,000 as of September 1, 2001. The ratio of current assets
to current liabilities was 2.73 to 1 as of August 31, 2002 as compared to 2.53
to 1 as of September 1, 2001.
Net cash provided by operating activities totaled $8,969,000 for the 26 weeks
ended August 31, 2002, as compared to $5,076,000 for the 26 weeks ended
September 1, 2001. In the 26 weeks ended August 31, 2002, net cash provided by
operating activities was largely impacted by a decrease in merchandise
inventories and an increase in accounts payable.
Net cash used in investing activities was $4,131,000 for the 26 weeks ended
August 31, 2002, as compared to $6,225,000 for the 26 weeks ended September 1,
2001. Expenditures for property and equipment were $2,225,000 and $6,256,000 for
the 26 weeks ended August 31, 2002 and September 1, 2001, respectively. The
purchase in July 2001 of a shopping center in West Palm Beach, Florida for
approximately $5,700,000 accounted for a substantial amount of the expenditures
during the last fiscal year.
Net cash used in financing activities was $907,000 for the 26 weeks ended August
31, 2002, as compared to $160,000 for the 26 weeks ended September 1, 2001.
The Company has a revolving credit agreement with a bank for a line of credit
not to exceed $20,000,000 through July 31, 2003. Except for funds provided from
this credit agreement, the Company has satisfied its operating and capital
expenditure requirements from internally generated funds. As of August 31, 2002
and September 1, 2001, there were no outstanding borrowings under the revolving
credit agreement.
The Company has planned capital expenditures of approximately $5,000,000 for the
fiscal year ending March 1, 2003. Through the 26 week period ended August 31,
2002, the Company has incurred $2,225,000 of capital expenditures.
On June 7, 2002, the Company's Board of Directors authorized the repurchase of
up to 20% of its outstanding shares of common stock (not to exceed 3,200,000
shares) at prevailing market prices through June 7, 2004. During the 13 week
period ended August 31, 2002, the Company purchased 161,000 shares of common
stock, which represented 1.0% of its outstanding shares, at a total cost of
$1,168,435.
Management believes that existing cash, internally generated funds, trade credit
and funds available from the revolving credit agreement will be sufficient for
working capital and capital expenditure requirements for the fiscal year ending
March 1, 2003.
IMPACT OF INFLATION AND CHANGING PRICES
Although the Company cannot accurately determine the precise effect of inflation
on its operations, it does not believe inflation has had a material effect on
sales or results of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 addresses the accounting and
reporting for the impairment or disposal of long-lived assets. The statement
provides a single accounting model for long-lived assets to be disposed of. New
criteria must be met to classify the asset as an asset held-for-sale. This
statement also focuses on reporting the effects of a disposal of a segment of
business. This statement is effective for fiscal years
10
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SYMS CORP AND SUBSIDIARIES
-----------------------------
beginning after December 15, 2001. The Company has determined that the adoption
of SFAS No. 144 will not have a material impact on the Company's financial
position or results of operations.
In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical Corrections" ("SFAS 145") was
issued. SFAS 145 rescinds SFAS 4 and 64, which required gains and losses from
extinguishment of debt to be classified as extraordinary items. SFAS also
rescinds SFAS 44 since the provisions of the Motor Carrier Act of 1980 are
complete. SFAS 145 also amends SFAS 13 eliminating inconsistencies in certain
sale-leaseback transactions. The provisions of SFAS 145 are effective for fiscal
years beginning after May 15, 2002. Any gain or loss on extinguishment of debt
that was classified as an extraordinary item in prior periods presented shall be
reclassified. The Company does not expect that the adoption of SFAS 145 will
have a material effect on the Company's financial position or results of
operations.
SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities,
was issued in July 2002. SFAS No. 146 replaces current accounting literature and
requires the recognition of costs associated with exit or disposal activities
when they are incurred rather than at the date of commitment to an exit or
disposal plan. The provisions of the Statement are effective for exit or
disposal activities that are initiated after December 31, 2002. The Company does
not anticipate the adoption of this statement will have a material effect on the
Company's financial position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's operations are not currently subject to material market risks for
interest rates, foreign currency rates or other market price risks.
ITEM 4. CONTROLS AND PROCEDURES
Based on the evaluation of the Company's disclosure controls and procedures as
of a date within 90 days of the filing date of this quarterly report, each of
Marcy Syms, the Chief Executive Officer of the Company, and Antone F. Moreira,
the Chief Financial Officer of the Company, have concluded that the Company's
disclosure controls and procedures are effective in ensuring that information
required to be disclosed by the Company in the reports that it files or submits
under the Securities and Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported, within the time period specified by the
Securities and Exchange Commission's rules and forms.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART II. OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 1. LEGAL PROCEEDINGS - None
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS - None
Item 3. DEFAULTS UPON SENIOR SECURITIES - None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of shareholders held on July 18, 2002, the
Company's shareholders holding a majority of the shares of the Common
Stock outstanding as
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SYMS CORP AND SUBSIDIARIES
-----------------------------
of the close of business on June 14, 2002, voted to approve each of the
two proposals included in the Company's proxy statement as follows:
To elect six directors to hold office for one year or until successors
are duly elected and qualified.
FOR WITHHELD
---------- ---------
Sy Syms 12,368,405 2,035,246
Marcy Syms 12,368,405 2,035,246
Antone F. Moreira 12,368,405 2,035,246
Harvey A. Weinberg 14,298,931 104,720
David A. Messer 14,298,931 104,720
Wilbur L. Ross, Jr. 14,298,931 104,720
To ratify the selection of Deloitte & Touche LLP as independent auditors
of the Company for fiscal 2002:
For: 14,362,431
Against: 38,600
Item 5. OTHER INFORMATION - None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 10.47 Sixth Amendment to Revolving Credit Agreement and First
Amendment to Promissory Note, dated as of August 19,
2002, between Syms Corp and Fleet National Bank
12
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SYMS CORP AND SUBSIDIARIES
-----------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYMS CORP
DATE: OCTOBER 10, 2002 BY /s/Marcy Syms
-------------------- ------------------------
MARCY SYMS
CHIEF EXECUTIVE OFFICER
DATE: OCTOBER 10, 2002 BY /s/ Antone F. Moreira
-------------------- ------------------------
ANTONE F. MOREIRA
VICE PRESIDENT, CHIEF FINANCIAL OFFICER
(Principal Financial and Accounting Officer)
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SYMS CORP AND SUBSIDIARIES
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I, Marcy Syms, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Syms Corp;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: October 10, 2002
/s/ Marcy Syms
------------------------
Marcy Syms
Chief Executive Officer
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SYMS CORP AND SUBSIDIARIES
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I, Antone F. Moreira, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Syms Corp;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: October 10, 2002
/s/ Antone F. Moreira
------------------------
Antone F. Moreira
Chief Financial Officer
15