ITEM 1. BUSINESS
GENERAL
Syms Corp operates a chain of 40 "off-price" retail stores located throughout the Northeastern and Middle Atlantic regions and in the Midwest, Southeast and Southwest. Each Syms store offers a broad range of first quality, in-season merchandise bearing nationally recognized designer or brand-name labels 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 40 stores and the aggregate amount of selling space in Syms stores increased from approximately 2,000 square feet to approximately 1,606,000 square feet. The Company maintains a 277,000 square foot distribution center and executive headquarters in Secaucus, New Jersey.
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 40 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.
MERCHANDISE
For the year ended March 1, 2003, net sales were generated by the following categories:
Men's tailored clothes and haberdashery .............. 52% Women's dresses, suits, separates and accessories .... 30% Shoes ................................................ 7% Children's wear ...................................... 8% 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.
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 273 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 4.5 % 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. 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 to coordinate with the store managers, among other things, in 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 March 1, 2003, the Company had 2,081 employees of whom approximately 743 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 31, 2003 and covers 145 sales and tailor employees. The Company's collective bargaining agreements Local 1102 of the Retail, Wholesale and Department Store Union and the United Food and Commercial Workers Union expired on March 28, 2003 and April 30, 2003, respectively, which together cover 1,327 sales and tailor employees. The Company is currently in negotiations with the unions to enter into new collective bargaining agreements. The Company believes its relationships with the unions are good.
ITEM 2.
ITEM 2. PROPERTIES
THE STORES
LOCATION
At March 1, 2003, the Company had 40 stores, 17 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.
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.
Syms also owns land in Roseland, New Jersey in a commercially zoned area which the Company agreed to sell on March 31, 2003. The closing of the sale is subject to certain conditions, including conditions relating to environmental standards. Syms also owns land and buildings in Northern Ohio at the site of a closed store.
LEASE TERMS
Seventeen of the Company's 40 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) ------- --------- --------------- ------------------
2003 0 0 0 2004 2 1 5 years 2005 4 3 1 - 10 years 2006 1 1 0 2007 1 0 0 2008 and thereafter 9 8 2.5 - 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 $4.30 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 provides for rent based on a percentage of sales. Minimum rental payments for Syms' leased stores aggregated $8,655,842 for the year ended March 1, 2003, of which $649,125 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.
In addition, the Company has a lease for its Chicago store, which closed on September 14, 2002, expiring in 2011.
STORE OPENINGS/CLOSINGS
No new stores were opened this year. Two stores were closed this fiscal year. These stores were located in Pittsburgh, PA and Chicago, IL.
ITEM 3.
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.
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.
PART II -------
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The common stock of the Company (the "Common Stock") is listed for trading on the NewYork 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 March 1, 2003 $7.71 $7.07 Quarter ended November 30, 2002 7.79 6.45 Quarter ended August 31, 2002 7.50 5.85 Quarter ended June 1, 2002 6.15 5.45
Quarter ended March 2, 2002 $6.40 $5.00 Quarter ended December 1, 2001 5.80 4.85 Quarter ended September 1, 2001 6.95 5.43 Quarter ended June 2, 2001 8.00 5.72
HOLDERS
As of May 5, 2003, there were 123 record holders of the Company's Common Stock. The Company believes that there were in excess of 1,416 beneficial owners of the Company's Common Stock as of that date.
DIVIDENDS
The Board of Directors of the Company did not declare dividends in the fiscal years ended March 1, 2003 and March 2, 2002. 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. The Company does not plan on paying dividends in the near term.
ITEM 6.
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 March 1, 2003, March 2, 2002, March 3, 2001, February 26, 2000 and February 27, 1999. The selected financial data presented below should be read in conjunction with such Financial Statements and notes thereto.
ITEM 7.
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) 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 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.
CRITICAL ACCOUNTING POLICIES AND ESTIMATE
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the appropriate application of certain accounting policies, many of which require us to make estimates and assumptions about future events and their impact on amounts reported in the financial statements and related notes. Since future events and their impact cannot be determined with certainty, the actual results will inevitably differ from our estimates. Such differences could be material to the consolidated financial statements.
The Company believes application of accounting policies, and the estimates inherently required by the policies, are reasonable. These accounting policies and estimates are constantly reevaluated, and adjustments are made when facts and circumstances dictate a change. Historically, the Company has found the application of accounting policies to be appropriate, and actual results have not differed materially from those determined using necessary estimates.
The Company's accounting policies are more fully described in Note 1 to the Consolidated Financial Statements, located in 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 ASSET - In evaluation of the fair value and future benefits of long-lived assets, the Company performs an 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.
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 March 1, 2003, March 2, 2002 and March 3, 2001. The fiscal years ended March 1, 2003 and March 2, 2002 were each comprised of 52 weeks. The fiscal year ended March 3, 2001 was comprised of 53 weeks.
FISCAL YEAR ENDED MARCH 1, 2003 (FISCAL 2002) COMPARED TO FISCAL YEAR ENDED MARCH 2, 2002 (FISCAL 2001)
Net sales for the fiscal year ended March 1, 2003 were $281,505,000, a decrease of $6,239,000 (2.2%) as compared to net sales of $287,744,000 for the fiscal year ended March 2, 2002. The decline in sales for fiscal 2002 is largely attributable to the five closed stores amounting to approximately $9,850,000, located in Chicago, IL, Pittsburgh, PA, Sharonville, OH, Franklin Mills, PA and Potomac, VA. Comparable store sales increased 1.1% for the fiscal year ended March 1, 2003 compared to the fiscal year ended March 2, 2002.
Gross profit for the fiscal year ended March 1, 2003 was $108,468,000, a decrease of $113,000 (38.5% as a percentage of net sales) as compared to $108,581,000 (37.7% as a percentage of net sales) for the fiscal year ended March 2, 2002. Although the gross profit percentage of net sales improved in fiscal 2002, the decline in net sales, as noted above, accounts for the shortfall in gross profit dollars.
Selling, general and administrative (SG&A) expense was $76,998,000 (27.4% as a percentage of net sales) for the fiscal year ended March 1, 2003 as compared to $78,261,000 (27.2% as a percentage of net sales) for the fiscal year ended March 2, 2002. The reduced expenses in fiscal 2002 is largely attributable to the closing of five stores located in Chicago, IL, Pittsburgh, PA, Sharonville, OH, Franklin Mills, PA and Potomac, VA which was partially offset by increases in health insurance, pension and insurance premiums in the existing stores. SG&A increased as a percentage of sales slightly due to some inefficiencies associated operating less stores.
Advertising expense for the fiscal year ended March 1, 2003 was $10,126,000 (3.6% as a percentage of net sales) as compared to $8,936,000 (3.1% as a percentage of net sales) for the fiscal year ended March 2, 2002. The increase in fiscal 2002 compared to fiscal 2001 of $1,190,000 is primarily due to reduced advertising in September of fiscal 2001 due to the terrorist attacks of September 11, 2001 and to increased direct mail advertising expenditures in fiscal 2002.
Occupancy costs were $17,702,000 (6.3% as a percentage of net sales) for the fiscal year ended March 1, 2003 as compared to $18,807,000 (6.5% as a percentage of net sales) for the fiscal year ended March 2, 2002. Total occupancy costs declined by approximately $1,105,000 compared to a year ago. The decline is attributable to a decrease of $1,300,000 for the five closed stores (Chicago, IL, Pittsburgh, PA, Sharonville, OH, Franklin Mills, PA and Potomac, VA) which was partially offset by an increase in existing stores.
Depreciation and amortization expense amounted to $10,908,000 (3.9% as a percentage of net sales) for the fiscal year ended March 1, 2003 as compared to $11,520,000 (4.0% as a percentage of net sales) for the fiscal year ended March 2, 2002.
Other income was recorded by the Company for fiscal 2002 and 2001 amounting to $1,298,000 and $6,289,000, respectively, as follows:
FISCAL 2002 FISCAL 2001 ----------- ----------- Insurance recovery from employee theft $ -- $3,000,000 Restitution from employee relating to theft 750,000 1,811,000 Insurance recovery on Trinity store loss (9/11) 416,000 Gain on stock due demutualization -- 1,058,000 Reversal of closed store lease liability -- 377,000 Wal-Mart penalty on Dallas store purchase 100,000 Other 32,000 43,000 ---------- ---------- Total $1,298,000 $6,289,000 ========== ==========
During the second quarter of fiscal 2002, 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. 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. The Company has estimated and recorded an additional charge of $4,000,000 for the write off of capital assets and other potential liabilities in the fourth quarter of this fiscal year. The Company has a potential rent liability of $11,282,000 for the remainder of the nine-year lease term, and the landlord has commenced an action relating to the rent liability which the Company is defending.
The net loss before income taxes was $13,840,000 for the fiscal year ended March 1, 2003 as compared to a net loss of $2,559,000 for the fiscal year ended March 2, 2002. This $11,281,000 variance is attributable to the recording of store closing costs of $8,000,000 in the second and fourth quarters of this fiscal year, increased advertising expenses of $1,189,000, and insurance recoveries of $4,061,000 and stock due demutualization of $1,058,000 recorded during fiscal 2001 and not received during the current year. These decreases were partially offset by reductions to selling, general, and administrative expenses of $1,261,000, occupancy costs of $1,108,000 and depreciation expense of $612,000.
For the fiscal year ended March 1, 2003, the effective income tax rate was 34.7% compared to 9.4% for the fiscal year ended March 2, 2002. The fluctuation on the effective income tax rate is due to the non-deductibility of officer's life insurance premiums.
FISCAL YEAR ENDED MARCH 2, 2002 (FISCAL 2001) COMPARED TO FISCAL YEAR ENDED MARCH 3, 2001 (FISCAL 2000)
Net sales for the fiscal year ended March 2, 2002, were $287,744,000, a decrease of $54,572,000 (15.9%) as compared to net sales of $342,316,000 for the fiscal year ended March 3, 2001. The decline in sales for fiscal 2001 as compared to fiscal 2000 can be largely attributable to (1) a 13.2% decline in comparable store sales due to the difficult economic environment, (2) the extra week in fiscal 2000 which amounted to approximately $4,013,000, (3) the closing of three stores located in Boston, MA, Gurnee, IL and Sharonville, OH, which sales in fiscal 2000 amounted to approximately $9,200,000 and (4) the closing of the Trinity store located near the World Trade Center site for a period of 18 days following September 11, 2001, which store suffered a sales decline in fiscal 2001 of approximately $4,500,000.
Gross profit for the fiscal year ended March 2, 2002 was $108,581,000, a decrease of $18,306,000 (37.7% as a percentage of net sales) as compared to $126,887,000 (37.1% as a percentage of net sales) for the fiscal year ended March 31, 2001. Although the gross profit percentage improved in fiscal 2001, the decline in sales, as noted above, accounts for the shortfall in gross profit dollars.
Selling, general and administrative (SG&A) expense was $78,261,000 (27.2% as a percentage of net sales) for the fiscal year ended March 2, 2002 as compared to $84,810,000 (24.8% as a percentage of net sales) for the fiscal year ended March 3, 2001. The expenses of the closed stores (Gurnee, IL, Boston, MA, Sharonville, OH, Franklin Mills, PA and Potomac, VA) amounted to approximately $3,900,000, and the remainder of the decline results from greater expense efficiencies in the existing stores. The increase as a percentage of sales is due principally to a lack of sales leverage in relation to our fixed costs.
Advertising expense for the fiscal year ended March 2, 2002 was $8,936,000 (3.1% as a percentage of net sales) as compared to $10,122,000 (3.0% as a percentage of net sales) for the fiscal year ended March 3, 2001. The decrease is primarily due to reduced advertising in certain markets.
Occupancy costs were $18,807,000 (6.5% as a percentage of net sales) for the fiscal year ended March 2, 2002 as compared to $21,366,000 (6.2% as a percentage of net sales) for the fiscal year ended March 3, 2001. Total occupancy costs declined by approximately $2,559,000 compared to a year ago. Of this decline, $2,400,000 is attributable to the five closed stores (Gurnee, IL, Boston, MA, Sharonville, OH, Franklin Mills, PA and Potomac, VA).
Depreciation and amortization amounted to $11,520,000 (4.0% as a percentage of net sales) for the fiscal year ended March 2, 2002 as compared to $11,468,000 (3.4% as a percentage of net sales) for the fiscal year ended March 3, 2001.
Other income was recorded by the Company amounting to $6,289,000 as follows:
Insurance recovery from employee theft $3,000,000 Restitution from the employee relating to the theft 1,811,000 Gain on stock due demutualization 1,058,000 Reversal of closed store lease liability 377,000 Other 43,000 ---------- Total $6,289,000 ==========
During the third quarter of fiscal 2000, the Company recorded a store closing charge of $12.9 million relating to a plan to close five stores, including its store in Boston, Massachusetts, and an additional lease commitment associated with a previously closed store. The action was taken by the Company to enhance competitiveness, reduce expenses and to improve efficiencies.
The net loss before income taxes was $2,559,000 for the fiscal year ended March 2, 2002 as compared to a net loss before income taxes of $13,661,000 for the fiscal year ended March 3, 2001. This variance is largely attributable to the recording of a store closing charge in the third quarter of fiscal 2000 for the closing of certain stores.
For the fiscal year ended March 2, 2002, the effective income tax rate was 9.4% compared to 39% for the fiscal year ended March 3, 2001. The reduced income tax rate is due to the non-deductibility of officer's life insurance premiums.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at March 1, 2003 was $77,342,000 a decrease of $8,619,000 from March 2, 2002, and the ratio of current assets to current liabilities was 3.54 to 1 as compared to 3.61 to 1 at March 2, 2002. The increased loss this year is largely attributable to the decline in working capital.
Net cash provided by operating activities totaled $7,251,000 for fiscal 2002 as compared to $20,145,000 for fiscal 2001. The major reasons for this decrease in cash provided by operating activities can be attributed to higher net loss and decreases in accounts payable.
Net cash used in investing activities was $5,021,000 for fiscal 2002 as compared to $7,985,000 for fiscal 2001. Purchase of property and equipment totaled $3,116,000 and $7,990,000 for fiscal years 2002 and 2001, respectively. The Company purchased a shopping center in West Palm Beach, FL, for approximately $5,700,000 in July 2001 (fiscal 2001). The Company's West Palm Beach store is located in this shopping center.
Net cash used in financing activities was $2,518,000 for the fiscal year ended March 1, 2003 as compared to $160,000 for the fiscal year ended March 2, 2002. This increase in net cash used in financing activities resulted from the repurchase of Company stock in fiscal 2002 amounting to $2,585,000 which was partially offset by the exercise of stock options amounting to $67,000.
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. 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. Except for funds provided from this revolving credit agreement, the Company has satisfied its operating and capital expenditure requirements, including those for the operation and expansion of stores, from internally generated funds. For the fiscal year ended March 1, 2003, under the revolving credit agreement, there were no borrowings compared to $1,250,000 for the period ended March 2, 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 merchandise. This agreement may be canceled at any time by either party. At March 1, 2003 and at March 2, 2002, the Company had $2,754,872 and $4,564,076, respectively, in outstanding letters of credit.
The Company has planned capital expenditures of approximately $5,000,000 for the fiscal year ending February 28, 2004.
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, 2004. During the year ended March 1, 2003, the Company has purchased 361,000 shares which represented 2.3% of its outstanding shares at a total cost of $2,604,000.
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 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.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
To facilitate an understanding of our contractual obligations and commercial commitments, the following data is provided:
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the FASB issued Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141") and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141 eliminates the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001 and modifies the application of the purchase accounting method effective for transactions that are completed after June 30, 2001. SFAS 142 eliminates the requirement to amortize goodwill and intangible assets having indefinite useful lives but requires that at least annually for impairment. Intangible assets that have finite lives will continue to be amortized over their useful lives. The adoption of SFAS 141 and 142 did not have a material effect on the Company's financial position or operations.
In October 2001, the FASB issued Statement of Financial Accounting Standards 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS No. 144 addresses the accounting and reporting for the impairment or disposal of long-lived assets. The statement provides a single accounting model for long-lived assets to be disposed of. New criteria must be met to classify the asset as an asset held-for-sale. This statement also focuses on reporting the effects of a disposal of a segment of business. This statement is effective for fiscal years beginning after December 15, 2001. The Company adopted SFAS 144 as of March 3, 2002, and the adoption did not have a material impact on the Company's financial position or results of operations.
In April 2002, Statement of Financial Accounting Standards, No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("SFAS 145") was issued. SFAS 145 rescinds SFAS 4 and 64, which required gains and losses from extinguishment of debt to be classified as extraordinary items. SFAS also rescinds SFAS 44 since the provisions of the Motor Carrier Act of 1980 are complete. SFAS 145 also amends SFAS 13 eliminating inconsistencies in certain sale-leaseback transactions. The provisions of SFAS 145 are effective for fiscal years beginning after May 15, 2002. Any gain or loss on extinguishment of debt that was classified as an extraordinary item in prior periods presented shall be reclassified to interest expense. The Company does not expect that the adoption of SFAS 145 will have a material effect on the Company's financial position or results of operations.
Statement of Financial Accounting Standards, No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"), was issued in July 2002. SFAS 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS 146 supercedes EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)." SFAS 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. This pronouncement did not have a material effect on the Company's financial position or results of operations.
On December 31, 2002, the FASB issued Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation -Transition and Disclosure" ("SFAS 148"). This standard amends SFAS No. 123, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require more frequent and prominent disclosures in financial statements of the effects of stock-based compensation. The transition guidance and annual disclosure provisions of SFAS 148 are effective for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. The Company has adopted the disclosure provisions of SFAS 148 as of March 1, 2003, as required.
In November 2002, the Financial Accounting Standards Board ("FASB") issued Interpretation Interpretation No. 45," Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others ("FIN 45"). FIN 45 requires the recognition of a liability for certain guarantee obligations issued or modified after December 31, 2002. It also clarifies disclosure requirements to be made by a guarantor for certain guarantees. The disclosure provisions of FIN 45 are effective for fiscal years ending after December 15, 2002. FIN 45 is not expected to have a material impact on the Company's results of operations, financial position or cash flows, and the Company has adopted the disclosure provisions of FIN 45 as of March 1, 2003.
On January 17, 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The adoption of FIN 46 did not have an impact on the Company's results of operations, financial position or cash flows.
In February 2003, the Emerging Issues Task Force ("EITF") addressed EITF Statement No. 02-16 ("EITF 02-16"), "Accounting by a Reseller for Cash Consideration Received From a Vendor." EITF 02-16 provides accounting guidance on how a reseller should characterize consideration given by a vendor and when to recognize and how to measure that consideration in its income statement. EITF 02-16 is effective for all agreements entered into after December 31, 2002. We have evaluated the provisions of EITF 02-16 and determined that this statement did not have a material effect on our consolidated financial statements.
In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS 149"). SFAS 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS 133. The new guidance amends SFAS 133 for decisions made: (a) as part of the Derivatives Implementation Group process that effectively required amendments to SFAS 133, (b) in connection with other Board projects dealing with financial instruments, and (c) regarding implementation issues raised in relation to the application of the definition of a derivative, particularly regarding the meaning of an "underlying" and the characteristics of a derivative that contains financing components. The amendments set forth in SFAS 149 improve financial reporting by requiring that contracts with comparable characteristics be accounted for similarly. SFAS 149 is generally effective for contracts entered into or modified after June 30, 2003 (with a few exceptions) and for hedging relationships designated after June 30, 2003. The guidance is to be applied prospectively. We do not expect the provisions of SFAS 149 to have a material impact on our financial position or results of operations.
In May 2003, the FASB issued Statement No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150"). SFAS 150 improves the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity. The new Statement requires that those instruments be classified as liabilities in statements of financial position. We do not expect the provisions of SFAS 150 to have a material impact on our financial position or results of operations.
ITEM 7A.
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 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 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 3/8 of 1% per annum.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements are filed together with this Annual Report. See Index to Consolidated Financial Statements in Item 5.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
PART III --------
ITEM 10.
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)............... 77 Chairman of the Board and Director of the Company
Marcy Syms (1) (2)............ 52 Chief Executive Officer / President and Director of the Company
Antone F. Moreira ........... 66 Vice President, Chief Financial Officer, Treasurer, Assistant Secretary and Director of the Company
Harvey A. Weinberg (3) (4) ... 65 Director of the Company
David A. Messer (3) (4)...... 41 Director of the Company
Wilbur L. Ross, Jr (3) (4).... 65 Director of the Company
Ronald Zindman................ 53 Executive Vice President - General Merchandise Manager
Allen Brailsford.............. 59 Executive Vice President - Operations
Myra Butensky................. 44 Vice President - Divisional Merchandise Manager Men's Tailored Clothing
James Donato.................. 47 Vice President - Operations
Elyse Marks................... 50 Vice President - MIS
John Tyzbir................... 49 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 - Compensation Committee of the Company. (4) 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.
DAVID A. MESSER has been President of Sempra Energy Trading, a subsidiary of Sempra Energy, Inc. (NYSE: SRE), since January 1998. Prior to January 1998, Mr. Messer was President of AIG Trading Corporation, where he had been employed since March 1990. He has been a Director of the Company since July 1996.
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.
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.
ITEM 11.
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 March 1, 2003, the end of the fiscal year covered by this Annual Report.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth equity compensation plan information as of March 1, 2003:
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 March 1, 2003, the end of the fiscal year covered by this Annual Report.
ITEM 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 March 1, 2003, the end of the fiscal year covered by this Annual Report.
ITEM 14.
ITEM 14. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure 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 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 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.
(b) Changes in Internal Controls
There were no specific 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 IV -------
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
PAGE NUMBER
(a)(1) Financial Statements:
Independent Auditors' Report .............................. Consolidated Balance Sheets ............................... Consolidated Statements of Operations ..................... Consolidated Statements of Shareholders' Equity ........... Consolidated Statements of Cash Flows ..................... Notes to Consolidated Financial Statements ................
(a)(2) Financial Statement Schedules:
All 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)
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 (10K Report for fiscal year ended February 26, 2000)
10.40 Second Amendment to Revolving Credit Agreement, dated as of May 27, 2000, between Syms Corp and Fleet National Bank (successor to Summit Bank) (10-Q Report for quarter ended May 27, 2000)
10.41+ Amendment to the Amended and Restated Incentive Stock Option and Appreciation (10-Q Report for quarter ended November 25, 2000)
10.42 Third Amendment to Revolving Credit Agreement, dated as November 24, 2000, between Syms Corp and Fleet National Bank (successor to Summit Bank) (10-K Report for fiscal year ended March 3, 2001)
10.43 Fourth Amendment to Revolving Credit Agreement, dated as of May 4, 2001, between Syms Corp and Fleet National Bank (10-K Report for fiscal year ended March 3, 2001)
10.45 Fifth Amendment to Revolving Credit Agreement dated as of May 3, 2002, between Syms Corp and Fleet National Bank
10.46 Agreement and Plan of Reorganization, dated as of May 1, 2002, between Stanley Blacker, Inc. and Syms Corp.
10.47 Sixth Amendment to Revolving Credit Agreement, dated as of August 19, 2002, between Syms Corp and Fleet National Bank (10-Q Report for fiscal quarter ended August 31, 2002)
21 List of Subsidiaries of the Company
23* Consent of Deloitte & Touche LLP
99.1* Certification of Marcy Syms pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2* Certification of Antone F. Moreira pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K:
During the quarter ended March 1, 2003, no reports on Form 8-K were filed.
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual 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 28, 2003
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 28, 2003 - ----------------------- and Director Sy Syms
/s/ Marcy Syms Chief Executive Officer/President May 28, 2003 - ----------------------- and Director Marcy Syms (Principal executive officer)
/s/ Antone F. Moreira Vice President, - ----------------------- Chief Financial Officer, Antone F. Moreira Assistant Secretary and Director May 28, 2003 (Principal financial and accounting officer)
/s/ Harvey A. Weinberg Director May 28, 2003 - ----------------------- Harvey A. Weinberg
/s/ David A. Messer Director May 28, 2003 - ----------------------- David A. Messer
/s/ Wilbur L. Ross, Jr. Director May 28, 2003 - ----------------------- Wilbur L. Ross, Jr.
I, Marcy Syms, certify that:
1. I have reviewed this annual report on Form 10-K of Syms Corp;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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 annual 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 annual report (the "Evaluation Date"); and
c) presented in this annual 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 annual 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: May 28, 2003
/s/ Marcy Syms -------------- Marcy Syms Chief Executive Officer
I, Antone F. Moreira, certify that:
1. I have reviewed this annual report on Form 10-K of Syms Corp;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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 annual 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 annual report (the "Evaluation Date"); and
c) presented in this annual 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 annual 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: May 28, 2003
/s/ Antone F. Moreira --------------------- Antone F. Moreira Chief Financial Officer
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders Syms Corp Secaucus, New Jersey
We have audited the accompanying consolidated balance sheets of Syms Corp and Subsidiaries as of March 1, 2003 and March 2, 2002, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended March 1, 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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, such consolidated financial statements present fairly, in all material respects, the financial position of Syms Corp and Subsidiaries as of March 1, 2003 and March 2, 2002, and the results of their operations and their cash flows for each of the three years in the period ended March 1, 2003, in conformity with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP /s/ Parsippany, New Jersey
April 24, 2003
SYMS CORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - -------------------------------------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) MARCH 1, MARCH 2, 2003 2002 -------- -------- ASSETS
CURRENT ASSETS: Cash and cash equivalents $ 19,197 $ 19,485 Merchandise inventories 78,151 86,810 Deferred income taxes 4,143 6,514 Prepaid expenses and other current assets 6,280 6,071 -------- -------- Total current assets 107,771 118,880
PROPERTY AND EQUIPMENT - NET 135,460 147,186
DEFERRED INCOME TAXES 9,397 2,309
OTHER ASSETS 9,845 8,119 -------- --------
TOTAL ASSETS $262,473 $276,494 ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES: Accounts payable $ 12,639 $ 17,867 Accrued expenses 12,099 8,845 Accrued insurance 2,339 3,144 Obligation to customers 3,352 3,063 -------- -------- Total current liabilities 30,429 32,919
OTHER LONG TERM LIABILITIES 1,891 2,118
COMMITMENTS (Note 8) -- --
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; 15,435 shares outstanding as of March 1, 2003 (net 2,513 treasury shares) and 15,737 shares outstanding as of March 2, 2002 (net of 2,152 treasury shares) 772 787 Additional paid-in capital 14,092 13,760 Treasury stock (21,572) (18,987) Retained earnings 236,862 245,897 -------- --------
Total shareholders' equity 230,154 241,457 -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $262,473 $276,494 ======== ========
See Notes to Consolidated Financial Statements
SYMS CORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS ================================================================================ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR ENDED -------------------------------------
MARCH 1, MARCH 2, MARCH 3, 2003 2002 2001 --------- --------- ---------
NET SALES $ 281,505 $ 287,744 $ 342,316 Cost of goods sold 173,037 179,163 215,429 --------- --------- --------- Gross profit 108,468 108,581 126,887
EXPENSES Selling, general and administrative 76,998 78,261 84,810 Advertising 10,126 8,936 10,122 Occupancy 17,702 18,807 21,366 Depreciation and amortization 10,908 11,520 11,468 Other income (1,298) (6,289) -- Special charges 8,000 -- 12,935 --------- --------- ---------
Loss from operations (13,968) (2,654) (13,814) Interest income - net (128) (95) (153) --------- --------- --------- Loss before income taxes (13,840) (2,559) (13,661) Benefit for income taxes (4,805) (240) (5,328) --------- --------- ---------
NET LOSS $ (9,035) $ (2,319) $ (8,333) ========= ========= =========
Net Loss Per Share - basic $ (0.58) $ (0.15) $ (0.52) ========= ========= =========
Weighted Average Shares Outstanding -- basic 15,661 15,741 15,950 ========= ========= =========
Net Loss Per Share - diluted $ (0.58) $ (0.15) $ (0.52) ========= ========= =========
Weighted Average Shares Outstanding -- diluted 15,661 15,741 15,950 ========= ========= =========
See Notes to Consolidated Financial Statements
SYMS CORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - -------------------------------------------------------------------------------- (IN THOUSANDS)
See Notes to Consolidated Financial Statements
SYMS CORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
See Notes to Consolidated Financial Statements
SYMS CORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FISCAL YEARS ENDED MARCH 1, 2003, MARCH 2, 2002 AND MARCH 3, 2001 - --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. PRINCIPAL BUSINESS - Syms Corp and subsidiaries (the "Company") operate a chain of 40 "off-price" retail stores located throughout the Northeastern and Middle Atlantic regions and in the Midwest, Southeast and Southwest. Each Syms store offers a broad range of first quality, in-season merchandise bearing nationally recognized designer or brand-name labels for men, women and children.
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 March 1, 2003 and March 2, 2002 were comprised of 52 weeks. The fiscal year ended March 3, 2001 was comprised of 53 weeks.
d. CASH AND CASH EQUIVALENTS- Syms Corp considers credit card receivables and all short-term investments with an original maturity of three months or less as cash equivalents.
e. 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.
f. 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
g. INCOME TAXES - Deferred income taxes reflect the future tax consequences of differences between the tax basis of assets and liabilities and their financial reporting amounts at year end.
h. OBLIGATION TO CUSTOMERS - Obligations to customers represent credits issued for returned merchandise as well as gift certificates.
i. 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.
j. 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.
k. COMPREHENSIVE INCOME - Comprehensive income is equivalent to the Company's net income for fiscal years 2002, 2001 and 2000.
l. 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 ---------------------- 2002 2001 2000 ---- ---- ----
Men's tailored clothes and haberdashery 52% 51% 54% Women's dresses, suits, separates and accessories 30% 31% 31% Shoes 7% 7% 6% Children's wear 8% 8% 7% Luggage, domestics and fragrances 3% 3% 2% --- --- --- 100% 100% 100%
The Company does not rely on any major customers as a source of revenue.
m. COMPUTER SOFTWARE COSTS - The Company capitalizes the cost of software developed or purchased for internal use.
n. OTHER ASSETS - Other assets include $9,497,000 and $7,021,000 of cash surrender value of officer's life insurance, and $349,000 and $1,099,000 of other miscellaneous assets such as security deposits, a loan receivable only at March 2, 2002, step rent receivables and deferred lease acquisition costs at March 1, 2003 and March 2, 2002, respectively.
o. ACCOUNTING FOR STOCK-BASED COMPENSATION - The Company complies with Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS No. 123"). This statement defines a fair value based method whereby compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period, which is usually the vesting period. Under SFAS No. 123, companies are encouraged, but are not required, to adopt the fair value method of accounting for employee stock-based transactions. The Company accounts for such transactions under Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, but discloses pro forma net loss as if the Company had applied the SFAS No. 123 method of accounting.
Pro forma information, assuming the Company had accounted for its employee stock options granted under the fair value method prescribed by SFAS No. 123, as amended by Financial Accounting Standards Board Statement No. 148, "Accounting for Stock Based Compensation - Transition and Disclosure, an Amendment of FASB Statement No. 123" is presented below. The fair value of each option grant is estimated on the date of each grant using the Black-Scholes option-pricing model. There were no stock options granted in fiscal 2002, 2001 and 2000. 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.
2002 2001 2000 ------- ------- ------- Net loss: As reported ($9,035) ($2,319) ($8,333) Stock option expense using intrinsic value method Stock option expense using fair value method ($ 181) ($ 188) ($ 559)
Pro forma ($9,216) ($2,507) ($8,892)
Net loss per share basic and diluted as reported ($.58) ($.15) ($.52)
Net loss per share basic and diluted pro forma ($.59) ($.16) ($.56)
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.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the FASB issued Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141") and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141 eliminates the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001 and modifies the application of the purchase accounting method effective for transactions that are completed after June 30, 2001. SFAS 142 eliminates the requirement to amortize goodwill and intangible assets having indefinite useful lives but requires that at least annually for impairment. Intangible assets that have finite lives will continue to be amortized over their useful lives. The adoption of SFAS 141 and 142 did not have a material effect on the Company's financial position or operations.
In October 2001, the FASB issued Statement of Financial Accounting Standards 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS No. 144 addresses the accounting and reporting for the impairment or disposal of long-lived assets. The statement provides a single accounting model for long-lived assets to be disposed of. New criteria must be met to classify the asset as an asset held-for-sale. This statement also focuses on reporting the effects of a disposal of a segment of business. This statement is effective for fiscal years beginning after December 15, 2001. The Company adopted SFAS 144 as of March 3, 2002, and the adoption did not have a material impact on the Company's financial position or results of operations.
In April 2002, Statement of Financial Accounting Standards, No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("SFAS 145") was issued. SFAS 145 rescinds SFAS 4 and 64, which required gains and losses from extinguishment of debt to be classified as extraordinary items. SFAS also rescinds SFAS 44 since the provisions of the Motor Carrier Act of 1980 are complete. SFAS 145 also amends SFAS 13 eliminating inconsistencies in certain sale-leaseback transactions. The provisions of SFAS 145 are effective for fiscal years beginning after May 15, 2002. Any gain or loss on extinguishment of debt that was classified as an extraordinary item in prior periods presented shall be reclassified to interest expense. The Company does not expect that the adoption of SFAS 145 will have a material effect on the Company's financial position or results of operations.
Statement of Financial Accounting Standards, No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"), was issued in July 2002. SFAS 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS 146 supercedes EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)." SFAS 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. This pronouncement did not have a material effect on the Company's financial position or results of operations.
On December 31, 2002, the FASB issued Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation -Transition and Disclosure" ("SFAS 148"). This standard amends SFAS No. 123, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require more frequent and prominent disclosures in financial statements of the effects of stock-based compensation. The transition guidance and annual disclosure provisions of SFAS 148 are effective for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. The Company has adopted the disclosure provisions of SFAS 148 as of March 1, 2003, as required.
In November 2002, the Financial Accounting Standards Board ("FASB") issued Interpretation Interpretation No. 45," Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others ("FIN 45"). FIN 45 requires the recognition of a liability for certain guarantee obligations issued or modified after December 31, 2002. It also clarifies disclosure requirements to be made by a guarantor for certain guarantees. The disclosure provisions of FIN 45 are effective for fiscal years ending after December 15, 2002. FIN 45 is not expected to have a material impact on the Company's results of operations, financial position or cash flows, and the Company has adopted the disclosure provisions of FIN 45 as of March 1, 2003.
On January 17, 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The adoption of FIN 46 did not have an impact on the Company's results of operations, financial position or cash flows.
In February 2003, the Emerging Issues Task Force ("EITF") addressed EITF Statement No. 02-16 ("EITF 02-16"), "Accounting by a Reseller for Cash Consideration Received From a Vendor." EITF 02-16 provides accounting guidance on how a reseller should characterize consideration given by a vendor and when to recognize and how to measure that consideration in its income statement. EITF 02-16 is effective for all agreements entered into after December 31, 2002. We have evaluated the provisions of EITF 02-16 and determined that this statement did not have a material effect on our consolidated financial statements.
In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS 149"). SFAS 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS 133. The new guidance amends SFAS 133 for decisions made: (a) as part of the Derivatives Implementation Group process that effectively required amendments to SFAS 133, (b) in connection with other Board projects dealing with financial instruments, and (c) regarding implementation issues raised in relation to the application of the definition of a derivative, particularly regarding the meaning of an "underlying" and the characteristics of a derivative that contains financing components. The amendments set forth in SFAS 149 improve financial reporting by requiring that contracts with comparable characteristics be accounted for similarly. SFAS 149 is generally effective for contracts entered into or modified after June 30, 2003 (with a few exceptions) and for hedging relationships designated after June 30, 2003. The guidance is to be applied prospectively. We do not expect the provisions of SFAS 149 to have a material impact on our financial position or results of operations.
In May 2003, the FASB issued Statement No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150"). SFAS 150 improves the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity. The new Statement requires that those instruments be classified as liabilities in statements of financial position. We do not expect the provisions of SFAS 150 to have a material impact on our financial position or results of operations.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of: MARCH 1, MARCH 2, 2003 2002 -------- --------
(IN THOUSANDS)
Land $ 44,855 $ 44,855 Buildings and building improvements 120,192 119,724 Leasehold and leasehold improvements 34,733 39,713 Machinery and equipment 33,197 31,003 Furniture and fixtures 20,136 20,811 Construction in progress 2,433 2,372 -------- --------
255,547 258,478
Less accumulated depreciation and amortization 120,087 111,292 -------- -------- $135,460 $147,186 ======== ========
Included in property and equipment is property that the Company intends to sell but has determined that a sale is not probable within the next year. Such assets have a book value of approximately $4,667,349 as of March 1, 2003 and a net book value of approximately $1,474,249 as of March 2, 2002.
NOTE 3 - INCOME TAXES
The benefit for income taxes is as follows:
FISCAL YEAR ENDED ------------------------------- MARCH 1, MARCH 2, MARCH 3, 2003 2002 2001 ------- ------- ------- (In thousands)
Current: Federal $ -- $ (593) $ -- State 429 -- (289) ------- ------- ------- 429 (593) (289) ------- ------- -------
Deferred: Federal (4,081) 318 (4,047) State (1,154) 35 (992) ------- ------- ------- (5,233) 353 (5,039) ------- ------- ------- $(4,805) $ (240) $(5,328) ======= ======= =======
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 ---------------------------------- MARCH 1, MARCH 2, MARCH 3, 2003 2002 2001 ------ ------ ------
Statutory Federal income tax rate (35.0%) (35.0%) (35.0%) State taxes, net of Federal income tax benefits (5.3%) (0.1%) (8.1%) Officers' life insurance 5.5% 26.2% 4.1% Other 0.1% (.5) 0 ------ ------ ------
Effective income tax rate (34.7%) (9.4%) (39.0%) ====== ====== ======
The composition of the Company's deferred tax assets and liabilities is as follows:
FISCAL YEAR ENDED ------------------- March 1, March 2, 2003 2002 ------- ------- (In thousands) Deferred tax assets: Capitalization of inventory costs $ 1,286 $ 1,261 Accounts receivable -- 76 Reserves not currently deductible for tax purposes 4,417 3,384 Net operating losses 6,331 1,918 Depreciation 822 -- Step Rent 649 -- Other 35 2,689 ------- ------- Total deferred tax assets 13,540 9,328
Deferred tax liability: Depreciation method and different estimated lives -- (1) Other -- (504) ------- ------- Total deferred tax liabilities -- (505) ------- ------- Net $13,540 $ 8,823 ======= =======
Current deferred tax asset $ 4,143 $ 6,514 Long term deferred tax asset (net of non-current deferred tax liability) 9,397 2,309 ------- ------- Net $13,540 $ 8,823 ======= =======
At March 1, 2003 and March 2, 2002, the Company had federal and state net operating loss carry forwards resulting in a deferred tax asset of $6,331,000 and $1,918,000 respectively. The federal net operating losses will begin to expire 2006 through 2023. 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
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 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 3/8 of 1% per annum. There were no outstanding borrowings against this agreement as of March 1, 2003 and March 2, 2002.
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 is in compliance with all covenants as of March 1, 2003.
Total interest charges incurred for the years ended March 1, 2003, March 2, 2002 and March 3, 2001 were $237,000, $302,000 and $319,000, respectively, of which $14,000 were capitalized in fiscal 2000, in connection with the construction of new facilities. There was no capitalized interest for fiscal 2002 and 2001.
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 canceled at any time by either party. At March 1, 2003 and at March 2, 2002, the Company had $2,754,872 and $4,564,076, respectively, in outstanding letters of credit.
NOTE 5 - OTHER INCOME
Other income was recorded by the Company amounting to $1,289,000 during fiscal 2002 as outlined below:
NOTE 6 - STORE CLOSING COSTS
During the second quarter of fiscal 2002, 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. 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. The Company has estimated and recorded an additional $4,000,000 in potential closing costs in the fourth quarter of this fiscal year, which represents management's best estimate of its potential future liability at this time. As of March 1, 2003, the Company has a potential rent liability of $11,282,000 for the remainder of the nine-year lease term.
During the third quarter of fiscal 2002, the Company recorded a store closing cost of $12.9 million relating to a plan to close five stores, including its Boston, Massachusetts store (which closed October 29, 2000), and an additional lease commitment cost associated with a previously closed store. At March 1, 2003 and March 2, 2002, $0 and $683,000 remained accrued respectively related to this restructuring.
BALANCE BALANCE BALANCE AT MARCH 1, AT MARCH 2, AT MARCH 3, CHARGES 2003 2002 2001 ------- ----------- ----------- ----------- Store closing costs: Lease commitments $ 6,033 -- $600 $1,077 Impairment of property & equipment (non cash) 6,417 -- -- -- Severance and other employee benefits 160 -- -- 14 Other 325 -- 83 342 Total $12,935 -- $683 $1,433
NOTE 7 - 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 March 1, 2003 and March 2, 2002 due to the short-term maturities of these instruments.
NOTE 8 - 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 following information on the Company's pension plan is provided:
MARCH 1, MARCH 2, 2003 2002 ------- ------- (In thousands) CHANGE IN BENEFIT OBLIGATION: Net benefit obligation at beginning of year $ 6,792 $ 6,029 Service cost 604 532 Interest cost 470 424 Actuarial loss 245 85 Gross benefits paid (269) (278) ------- ------- Net benefit obligation at end of year $ 7,842 $ 6,792 ======= =======
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year $ 5,555 $ 5,814 Employer contributions 402 357 Gross benefits paid (269) (278) Actual return on plan assets (464) (338) ------- ------- Fair value of plan assets at end of year $ 5,224 $ 5,555 ======= =======
Funded status at end of year $(2,618) $(1,237) Unrecognized net actuarial loss 1,921 737 Unrecognized transition amount -- -- ------- ------- Accrued benefit costs $ (697) $ (500) ======= =======
Pension expenses includes the following components:
FISCAL YEAR ENDED ------------------------------ MARCH 1, MARCH 2, MARCH 3, 2003 2002 2001 ----- ----- ----- (IN THOUSANDS) COMPONENTS OF NET PERIODIC BENEFIT COST: Service cost $ 604 $ 532 $ 510 Interest cost 470 424 385 Return on assets 464 338 (29) Amortization of (gain) loss (939) (877) (504) ----- ----- ----- Net periodic benefit cost $ 599 $ 417 $ 362 ===== ===== =====
WEIGHTED-AVERAGE ASSUMPTIONS USED: Discount rate 6.75% 7.00% 7.25% Rate of compensation increase 4.50% 4.50% 4.50%
The expected long-term rate of return on plan assets was 8.5% for all years.
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 March 1, 2003, March 2, 2002 and March 3, 2001.
NOTE 9 - COMMITMENTS
a. LEASES - The Company has various operating leases for its retail stores, with terms expiring between 2002 and 2011. 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 March 1, 2003 are as follows:
OPERATING LEASES -----------
2003 7,861,892 2004 8,000,933 2005 7,705,827 2006 6,549,859 2007 6,291,539 2008 and thereafter 22,001,750 ----------- Total minimum payments $58,411,800 ===========
Rent expense for operating leases are as follows:
FISCAL YEAR ENDED --------------------------------- March 1, March 2, March 3, 2003 2002 2001 ------- -------- -------- (IN THOUSANDS) Minimum rentals due $ 8,656 $ 9,341 $ 11,131 Escalation rentals accrued 67 324 516 Contingent rentals 9 (20) 15 Sublease rentals (228) (360) (528) ------- -------- -------- $ 8,504 $ 9,285 $ 11,134 ======= ======== ========
b. EMPLOYMENT AGREEMENT - The Company has an employment agreement with its General Merchandising Manager, expiring 2009, pursuant to which annual compensation of approximately $400,000 is required. In addition, that 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 March 1, 2003.
NOTE 10 - 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.
NOTE 11 - 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 2003. 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). The Board of Directors of the Company has approved a submission to shareholders for approval of an amendment extending the term of the Stock Option Plan for another ten years.
Stock option transactions are summarized below:
FISCAL YEAR ENDED ------------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) -------------------------------------------------------
MARCH 1, 2003 MARCH 2, 2002 MARCH 3, 2001 ----------------- ----------------- ----------------- WEIGHTED WEIGHTED WEIGHTED FISCAL AVERAGE FISCAL AVERAGE FISCAL AVERAGE 2002 EXERCISE 2001 EXERCISE 2000 EXERCISE FIXED OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE ------ ------ ------ ------ ------ ------- Outstanding beginning of year 1,060 $ 7.24 1,106 $ 7.24 1,184 $ 7.73 Granted -- -- -- -- -- -- Exercised (15) 5.63 (1) 5.62 -- -- Cancelled (54) 8.07 (45) 5.63 (78) 8.64 - -------------------------------------------------------------------------------- Outstanding, end of period 991 $ 7.21 1,060 $ 7.24 1,106 $ 7.24 ================================================================================
Options exerciseable at year end 868 $ 7.44 786 $ 7.76 672 $ 8.19
The following table summarizes information about stock options outstanding at March 1, 2003:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE - ---------------------------------------------------------- ------------------- WEIGHTED-AVERAGE NUMBER REMAINING NUMBER RANGE OF OUTSTANDING AT CONTRACTURAL EXERCISABLE AT EXERCISE PRICES MARCH 1, 2003 LIFE (YEARS) MARCH 1, 2003 - ---------------------------------------------------------- ------------------- 5.625 617,900 6.7 494,320 8.00 87,500 3.6 87,500 8.50 5,100 1.1 5,100 9.75 50,000 0.3 50,000 9.88 25,000 4.2 25,000 10.625 5,650 0.1 5,650 10.6875 200,000 5.6 200,000 ------- ------------------- 991,150 867,570
NOTE 12 - 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.
Net income per share have been computed as follows:
FISCAL 2002 FISCAL 2001 FISCAL 2000 ----------- ----------- ----------- BASIC NET LOSS PER SHARE:
Net loss ($ 9,035) ($ 2,319) ($ 8,333) Average shares outstanding 15,661 15,741 15,950
Basic net loss per share ($ 0.58) ($ 0.15) ($ 0.52)
DILUTED NET LOSS PER SHARE:
Net loss ($ 9,035) ($ 2,319) ($ 8,333)
Average shares outstanding 15,661 15,741 15,950 Stock options 0 0 0 -------- -------- -------- Total average equivalent shares 15,661 15,741 15,950
Diluted net loss per share ($ 0.58) ($ 0.15) ($ 0.52)
Options to purchase 991,000, 1,060,000 and 1,106,000 shares of common stock at prices ranging from $5.625 to $10.6875 per share were outstanding in 2002, 2001 and 2000, respectively, but were not included in the computation of diluted net loss per share because the exercise price of the options exceed the average market price and would have been antidilutive.
NOTE 13 - 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, which lease expired November 30, 1999 and which property was occupied by the Company on a month-to-month basis through November 30, 2002. During fiscal years 2002, 2001 and 2000, the Company paid to Sy Syms $649,125 and $600,000, respectively, in fixed rent. The Company and Mr. Syms signed a lease agreement dated December 1,2002 through November 30, 2010 for annual rent of $796,500.
In fiscal 2002, the Marcy Syms Revocable Trust paid in full a note to the Company in the amount of $800,000.
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.
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 fiscal years 2002, 2001 and 2000 was not material.
NOTE 14 - UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
QUARTER --------------------------------------- FIRST SECOND THIRD FOURTH -------- -------- ------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) YEAR ENDED MARCH 1, 2003 Net sales $ 67,950 $ 65,058 $73,271 $ 75,226 Gross profit 29,097 22,979 30,149 26,243 Net income (loss) 707 (6,169) 753 (4,326) Net income (loss) per share - basic 0.04 (0.39) 0.05 (0.28) Net income (loss) per share - diluted 0.04 (0.39) 0.05 (0.28)
QUARTER --------------------------------------- FIRST SECOND THIRD FOURTH -------- -------- ------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) YEAR ENDED MARCH 2, 2002 Net sales $ 71,554 $ 65,319 $75,043 $ 75,828 Gross profit 29,470 22,474 29,819 26,818 Net income (loss) (777) (2,077) 425 110 Net income (loss) per share - basic (0.05) (0.13) 0.03 0.01 Net income (loss) per share - diluted (0.05) (0.13) 0.03 0.01