10-K 1 e88864_10-k.txt ANNUAL REPORT ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM 10-K ---------- (Mark one) [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED MARCH 2, 2002 or { ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 COMMISSION FILE NUMBER 1-8546 SYMS CORP ------------------------------------------------------ (Exact name of registrant as specified in its charter) NEW JERSEY NO. 22-2465228 ------------------------------- ------------------------------------ (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) SYMS WAY, SECAUCUS, NEW JERSEY 07094 --------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (201) 902-9600 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Name of Each Exchange on Title of Each class Which Registered ----------------------------- ------------------------ Common Stock, $ .05 Par Value New York Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT: NONE Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of the voting stock of the registrant held by non-affiliates on May 6, 2002 was $45,144,640 based upon the closing price of such stock on that date. As of May 2, 2002, 15,782,278 shares of Common Stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant's Proxy Statement for the 2002 annual meeting of stockholders to be filed pursuant to Regulation 14A are incorporated in Part III hereof by reference. ================================================================================ PART I ITEM 1. BUSINESS GENERAL Syms Corp operates a chain of 42 "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 42 stores and the aggregate amount of selling space in Syms stores increased from approximately 2,000 square feet to approximately 1,685,000 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 42 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 2, 2002, net sales were generated by the following categories: Men's tailored clothes and haberdashery ........... 51% Women's dresses, suits, separates and accessories.. 31% 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 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. 2 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 274 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 4.6 % 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 to its credit card customer base. 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. 3 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 2, 2002, the Company had 2,168 employees of whom approximately 722 work part time. The Company has collective bargaining agreements with the Retail, Wholesale and Department Store Union and the United Food and Commercial Workers Union which expire in the year 2003 and cover 1,616 sales and tailor employees. The Company believes its relationships with the unions are good. Approximately 30 to 100 persons, consisting mostly of sales personnel, are employed at each Syms store. ITEM 2. PROPERTIES THE STORES Location At March 2, 2002, the Company had 42 stores, 19 of which are located in leased facilities. The following table indicates the locations of the stores and the approximate selling space of each location. In addition to the selling space indicated, each store contains between approximately 2,000 to 12,000 square feet for inspection and ticketing of merchandise and administrative functions. LEASED/ SELLING STATE LOCATION OWNED SPACE ----- -------- ----- ----- CONNECTICUT Fairfield Owned 32,000 Hartford Leased 31,000 FLORIDA Fort Lauderdale Owned 44,000 Miami Owned 45,000 West Palm Beach Owned 36,000 Tampa Owned 38,000 Kendall Leased 32,000 GEORGIA Norcross Owned 51,000 Marietta Owned 39,000 ILLINOIS Addison Owned 47,000 Niles Leased 32,000 Chicago Leased 39,000 MARYLAND Baltimore Leased 43,000 Rockville Owned 61,000 Towson Leased 41,000 MASSACHUSETTS Norwood Leased 36,000 Peabody Leased 39,000 MICHIGAN Southfield Owned 46,000 Troy Leased 37,000 MISSOURI St. Louis Leased 33,000 4 LEASED/ SELLING STATE LOCATION OWNED SPACE ----- -------- ----- ----- NEW YORK/NEW JERSEY Park Avenue Leased 45,000 Trinity Owned 40,000 Westbury Owned 72,000 Commack Owned 36,000 Westchester Leased 50,000 Rochester Owned 32,000 Buffalo Owned 39,000 Paramus Owned 56,000 Woodbridge Leased 32,000 Secaucus Owned 29,000 Cherry Hill Owned 40,000 Lawrenceville Leased 54,000 NORTH CAROLINA Charlotte Leased 30,000 OHIO Highland Heights Leased 36,000 PENNSYLVANIA King of Prussia Owned 41,000 Monroeville Owned 31,000 Pittsburgh Leased 40,000 RHODE ISLAND N. Cranston Leased 27,000 TEXAS Dallas Owned 42,000 Houston Owned 34,000 Hurst Owned 38,000 VIRGINIA Falls Church Leased 39,000 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 and the one downtown Chicago store. 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 central New Jersey in a commercial zoned area where it does not intend to build, and land and buildings and Northern Ohio at the site of a closed store. Lease Terms Nineteen of the Company's 42 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 (1) Renewal Options Option Periods (2) -------- ------------ --------------- ------------------ 2002 ..................... 1 0 0 2003 ..................... 1 0 0 2004 ..................... 1 1 1 - 10 years 2005 ..................... 4 4 5 2006 ..................... 1 1 3 - 5 years 2007 and thereafter ...... 11 7 2.5 - 5 years
---------- (1) The Elmsford, New York store is occupied on a month to month basis. (2) 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. 5 Store leases provide for a base rental of between approximately $4.00 and $18.23 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. Four of the Company's stores have a percentage of sales rental as well as a fixed minimum rent. Minimum rental payments for Syms' leased stores aggregated $9,341,297 for the year ended March 2, 2002, of which $600,000 was paid to Sy Syms as fixed rent. Store Openings/Closings No new stores were opened this year. Three stores were closed this fiscal year. These stores were located in Sharonville, OH, Franklin Mills, PA and Potomac, VA. ITEM 3. LEGAL PROCEEDINGS The Company is a party to routine litigation incident to its business. Management of the Company believes, based upon its assessment of the actions and claims outstanding against the Company, and after discussion with counsel, that there are no legal proceedings that will have a material adverse effect on the financial condition or results of operations of the Company. Some of the lawsuits to which the Company is a party are covered by insurance and are being defended by the Company's insurance carriers. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this Annual Report. 6 PART II 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 New York Stock Exchange under the symbol "SYM". The following table sets forth the high and low sales prices for the Company's Common Stock as reported by the New York Stock Exchange within the two most recent fiscal years of the Company. HIGH LOW ---- --- 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 Quarter ended March 3, 2001 ............. $ 5.85 $4.437 Quarter ended November 25, 2000 ......... 6.125 3.687 Quarter ended August 26, 2000 ........... 4.625 3.375 Quarter ended May 27, 2000 .............. 4.375 3.312 HOLDERS As of May 2, 2002 there were 130 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 2, 2002 and March 3, 2001. 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. 7 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 2, 2002, March 3, 2001, February 26, 2000, February 27, 1999 and February 28, 1998. The selected financial data presented below should be read in conjunction with such Financial Statements and notes thereto.
FISCAL YEAR ENDED -------------------------------------------------------------------------------- MARCH 2, MARCH 3, FEBRUARY 26, FEBRUARY 27, FEBRUARY 28, 2002 2001 2000 1999 1998 --------- --------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) INCOME STATEMENT DATA: Net sales .............................. $ 287,744 $ 342,316 $ 341,570 $ 343,858 $ 352,959 Net income (loss) ..................... (2,319) (8,333) 2,224 17,449 23,036 Net income (loss) per share - basic .... (0.15) (0.52) 0.14 1.00 1.30 Net income (loss) per share - diluted.. (0.15) (0.52) 0.14 1.00 1.29 BALANCE SHEET DATA: Working capital ........................ $ 85,961 $ 86,638 $ 87,812 $ 101,592 $ 99,728 Total assets ........................... 276,494 276,867 300,314 298,742 294,192 Capitalized leases ..................... -- -- -- -- 419 Other long term liabilities ............ 2,118 2,409 2,436 1,567 964 Shareholders' equity ................... 241,457 243,935 253,428 258,760 250,870
8 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 generally accepted accounting principles requires the appropriate application of certain accounting policies, many of which require us to make estimates and assumptions about future events and their impact on amounts reported in the financial statements and related notes. Since future events and their impact cannot be determined with certainty, the actual results will inevitably differ from our estimates. Such differences could be material to the consolidated financial statements. 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. 9 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. RESULTS OF OPERATIONS The following discussion compares the fiscal years ended March 2, 2002, March 3, 2001 and February 26, 2000. The fiscal years ended March 2, 2002 and February 26, 2000 were each comprised of 52 weeks. The fiscal year ended March 3, 2001 was comprised of 53 weeks. 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. 10 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. Fiscal Year Ended March 3, 2001 (Fiscal 2000) Compared to February 26, 2000 (Fiscal 1999) Net sales for the fiscal year ended March 3, 2001, were $342,316,000, an increase of $746,000 (.2%) as compared to net sales of $341,570,000 for the fiscal year ended February 26, 2000. Comparable store sales for the fiscal year ended March 3, 2001 declined .5%. The Company estimates that the extra week in the fiscal year ended March 3, 2001 added approximately $4,013,000 in net sales compared to the previous year. The closing of the Boston store on October 29, 2000 accounted for approximately a $2,000,000 decline in sales. Gross profit for the fiscal year ended March 3, 2001 was $126,887,000, a decrease of $1,838,000 (37.1% as a percentage of net sales) as compared to $128,725,000 (37.7% as a percentage of net sales) for the fiscal year ended February 26, 2000. This decrease is largely due to higher markdowns taken in the third quarter of approximately $2,600,000 to cover an increased amount of aged merchandise and inventory for closed stores, which was partially offset by an improved shrinkage performance. Selling, general and administrative (SG&A) expense was $84,810,000 (24.8% as a percentage of net sales) for the fiscal year ended March 3, 2001 as compared to $83,592,000 (24.5% as a percentage of net sales) for the fiscal year ended February 26, 2000. This increase in SG&A expenses of $1,218,000 is largely attributable to the opening of three new stores in fiscal 1999, which were not open for the entire fiscal year in 1999. Advertising expense for the fiscal year ended March 3, 2001 was $10,122,000 (3.0% as a percentage of net sales) as compared to $10,210,000 (3.0% as a percentage of net sales) for the fiscal year ended February 26, 2000. Occupancy costs were $21,366,000 (6.2% as a percentage of net sales) for the fiscal year ended March 3, 2001 as compared to $20,688,000 (6.1% as a percentage of net sales) for the fiscal year ended February 26, 2000. This increase is largely attributable to the expense of new stores opened in fiscal 1999 which were not opened for the entire fiscal year 1999. Depreciation and amortization amounted to $11,468,000 (3.4% as a percentage of net sales) for the fiscal year ended March 3, 2001, as compared to $10,580,000 (3.1% as a percentage of net sales) for the fiscal year ended February 26, 2000. This increase is attributable to the addition of new stores opened in fiscal 1999 and the acquisition of new MIS systems and equipment. 11 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 (which closed on October 29, 2000), 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 $13,661,000 for the fiscal year ended March 3, 2001 as compared to a net profit before income taxes of $3,645,000 for the fiscal year ended February 26, 2000. This variance is largely attributable to the recording of a store closing charge in the third quarter 2000 for the closing of certain stores. For the fiscal year ended March 3, 2001, the effective income tax rate was 39.0% which was the same as the fiscal year ended February 26, 2000. LIQUIDITY AND CAPITAL RESOURCES Working capital at March 2, 2002 was $85,961,000 a decrease of $677,000 from March 3, 2001, and the ratio of current assets to current liabilities was 3.61 to 1 as compared to 3.84 to 1 at March 3, 2001. Net cash provided by operating activities totaled $20,145,000 for fiscal 2002 as compared to $4,654,000 for fiscal 2001. The major reasons for the increase in cash provided by operating activities can be attributed to lower inventory levels and lower net loss compared to a year ago. Net cash used in investing activities was $7,985,000 for fiscal 2002 as compared to $5,691,000 for fiscal 2001. Purchases of property and equipment totaled $7,990,000 and $6,073,000 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. The Company's West Palm Beach store is located in this shopping center. Net cash used in financing activities was $160,000 for the fiscal year ended March 2, 2002 as compared to $1,160,000 for fiscal 2001. The Company has a revolving credit agreement with a bank for a line of credit not to exceed $20,000,000 through May 3, 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 2, 2002, under the revolving credit agreement, the borrowings peaked at $1,250,000 compared to $3,425,000 for the period ended March 3, 2001. For the fiscal year ended March 3, 2001, the average amount of borrowings under the revolving credit agreement was $488,000 with a weighted average interest rate of 8.0%. 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 2, 2002 and at March 3, 2001, the Company had $4,564,076 and $2,592,704, respectively, in outstanding letters of credit. The Company has planned capital expenditures of approximately $5,000,000 for the fiscal year ending March 1, 2003. The Company's Board of Directors had authorized the repurchase of up to 15% of its outstanding shares of Common Stock at prevailing market prices through October 12, 2001. During the year ended March 2, 2002, the Company has purchased 23,700 shares which represented 0.2% of its outstanding shares at a total cost of $167,048. Management believes that existing cash, internally generated funds, trade credit and funds available from the revolving credit agreement will be sufficient for working capital and capital expenditure requirements for the fiscal year ending March 1, 2003. IMPACT OF INFLATION AND CHANGING PRICES Although the Company cannot accurately determine the precise effect of inflation on its operations, it does not believe inflation has had a material effect on sales or results of operations. 12 CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS To facilitate an understanding of our contractual obligations and commercial commitments, the following data is provided:
Payments Due by Period ---------------------------------------------------------------------------------------- (in thousands of dollars) Within After 5 Total 1 year 2-3 years 4-5 years years ---------------------------------------------------------------------------------------- Contractual Obligations ----------------------- Employment Agreements ................ $ 2,900,000 $ 350,000 $ 800,000 $ 850,000 $ 900,000 ---------------------------------------------------------------------------------------- Acquisition .......................... 2,155,000 2,155,000 -- -- -- ---------------------------------------------------------------------------------------- Operating Leases ..................... 67,817,277 9,173,123 15,425,533 13,929,837 29,288,784 ---------------------------------------------------------------------------------------- Total Contractual Cash Obligations ... $72,872,277 $11,678,123 $16,225,533 $14,779,837 $30,188,784 ======================================================================================== Amount of Commitment Expiration Per Period ---------------------------------------------------------------------------------------- (in thousands of dollars) Total Amounts Within After 5 Committed 1 year 2-3 years 4-5 years years ---------------------------------------------------------------------------------------- Other Commercial Commitments ---------------------------- Lines of Credit, nothing outstanding.. $ -- $ -- -- -- -- Letters of Credit .................... 4,564,076 4,564,076 ---------------------------------------------------------------------------------------- Total Commercial Commitments ......... $ 4,564,076 $ 4,564,076 -- -- -- ========================================================================================
RECENT ACCOUNTING PRONOUNCEMENTS In July 2001, the FASB issued Statement of Financial Standards No. 141, "Business Combinations" and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets". 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 testing at least annually for impairment. Intangible assets that have finite lives will continue to be amortized over their useful lives. SFAS 142 will apply to goodwill and intangible assets arising from transactions completed before and after the Statement's effective date of January 1, 2002. The adoption of SFQAS 141 did not have a material effect on the Company's financial position or operations in fiscal 2001, and SFAS 141 and the adoption of SFAS 142 are not anticipated to have any effect in fiscal 2002. In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 requires the Company to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets. The Company also records a corresponding asset which is depreciated over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation will be adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. Management has not yet determined the impact that the adoption of SFAS No. 143 will have on the Company's financial position and operations. 13 In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and requires companies to separately report discontinued operations and extends that reporting to a component of an entity that either has been disposed of or is classified as held for sale. This Statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The adoption of SFAS No. 144 will not have any impact on the Company's financial statements. 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. 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 14. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable 14 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The directors and executive officers of the Company are as follows: NAME AGE TITLE ---- --- ----- Sy Syms(1)(2) .............. 76 Chairman of the Board and Director of the Company Marcy Syms(1)(2) ........... 51 Chief Executive Officer / President and Director of the Company Antone F. Moreira .......... 65 Vice President, Treasurer and Chief Financial Officer and Director of the Company Harvey A. Weinberg(3)(4) ... 64 Director of the Company David A. Messer(3)(4) ...... 40 Director of the Company Wilbur L. Ross, Jr(3)(4) ... 64 Director of the Company Ronald Zindman ............. 52 Executive Vice President--General Merchandise Manager Allen Brailsford ........... 58 Executive Vice President - Operations Myra Butensky .............. 43 Vice President--Divisional Merchandise Manager Men's Tailored Clothing James Donato ............... 46 Vice President - Operations Elyse Marks ................ 49 Vice President--Information Services John Tyzbir ................ 48 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. 15 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 relinquished his position as Chief Executive Officer to Marcy Syms. 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 and Treasurer 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 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 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 from March 1992 to March 2001, and from March 1985 to March 1992, he was Director of Distribution. MYRA BUTENSKY has been Vice President - Divisional Merchandise Manager, Men's Tailored Clothing since January 1999. From May 1998 to January 1999, Ms. Butensky was Divisional Merchandise Manager, Ladies. 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 since April 2001. From November 1997 to March 2001 he was Director of Store Planning. 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 since April 2001. From November 1999 to March 2001 Ms. Marks was Director of MIS. Prior to November 1999, Ms. Marks was manager of MIS and store systems. From 1983 to 1987, she was also in store management for the Company. JOHN TYZBIR has been Vice President - Human Resources 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. 16 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 2, 2002, the end of the fiscal year covered by this Annual Report. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT In accordance with General Instruction G(3) of the General Instructions to Form 10-K, the 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 2, 2002, the end of the fiscal year covered by this Annual Report. 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 2, 2002, the end of the fiscal year covered by this Annual Report. 17 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K PAGE NUMBER ----------- (a)(1) Financial Statements: Independent Auditors' Report ........................ F-1 Consolidated Balance Sheets ......................... F-2 Consolidated Statements of Operations ............... F-3 Consolidated Statements of Shareholders' Equity ..... F-4 Consolidated Statements of Cash Flows ............... F-5 Notes to Consolidated Financial Statements .......... F-6 (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 4.3 $5,600,000 New Jersey Economic Development Authority Revenue Bond Agreement dated December 1, 1981 4.4 Amendments to the New Jersey Economic Development Authority Revenue Bond Agreement 4.4a First Amendment dated April 14, 1982 4.4b Second Amendment dated May 17, 1982 4.4c Third Amendment dated June 27, 1983 4.4d Fourth Amendment dated July 14, 1983 18 4.5 Mortgage & Note dated December 11, 1981 between Syms Inc. and New Jersey Economic Development Authority 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 10.4 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) 10.29 Credit Card Program Agreement dated as of March 12, 1987 and as amended as of March 16, 1987 between General Electric Credit Card Corporation and Registrant (10-K Report for fiscal year ended December 31, 1987) 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) 10.34 Credit Plan Agreement dated December 11, 1995 between Citicorp Retail Services, Inc. and 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) 10.37 Promissory note and mortgage from Syms Corp to Marcy Syms (10-K Report for fiscal year ended March 1, 1997) 10.38 First Amendment to Revolving Credit Agreement, dated as of 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) 10.44 Promissory note and mortgage from Marcy Syms to Syms Corp dated April 1, 2001 (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. 21 List of Subsidiaries of the Company 23* Consent of Deloitte & Touche LLP (b) Reports on Form 8-K: During the quarter ended March 2, 2002 no reports on Form 8-K were filed. 19 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 __, 2002 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 __, 2002 ------------------------- and Director Sy Syms /s/ MARCY SYMS Chief Executive Officer/President May __, 2002 ------------------------- and Director Marcy Syms (Principal executive officer) /s/ ANTONE F. MOREIRA Vice President, Treasurer and ------------------------- Chief Financial Officer and Director Antone F. Moreira (Principal financial and accounting officer) May __, 2002 /s/ HARVEY A. WEINBERG Director May __, 2002 ------------------------- Harvey A. Weinberg /s/ DAVID A. MESSER Director May __, 2002 ------------------------- David A. Messer /s/ WILBUR L. ROSS, JR. Director May __, 2002 ------------------------- Wilbur L. Ross, Jr.
20 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 2, 2002 and March 3, 2001, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended March 2, 2002. 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 2, 2002 and March 1, 2001, and the results of their operations and their cash flows for each of the three years in the period ended March 2, 2002, in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP April 18, 2002 F-1 SYMS CORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS --------------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
MARCH 2, MARCH 3, 2002 2001 --------- --------- ASSETS CURRENT ASSETS: Cash and cash equivalents ......................................... $ 19,485 $ 7,485 Merchandise inventories ........................................... 86,810 99,186 Deferred income taxes ............................................. 6,514 6,252 Prepaid expenses and other current assets ......................... 6,071 4,238 --------- --------- Total current assets .......................... 118,880 117,161 PROPERTY AND EQUIPMENT - NET ............................................ 147,186 150,587 DEFERRED INCOME TAXES ................................................... 2,309 2,924 OTHER ASSETS ............................................................ 8,119 6,195 --------- --------- TOTAL ASSETS ............................................................ $ 276,494 $ 276,867 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable .................................................. $ 17,867 $ 16,453 Accrued expenses .................................................. 8,845 8,347 Accrued insurance ................................................. 3,144 2,813 Obligation to customers ........................................... 3,063 2,910 --------- --------- Total current liabilities ..................... 32,919 30,523 OTHER LONG TERM LIABILITIES ............................................. 2,118 2,409 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; 15,737 shares outstanding as of March 2, 2002 (net 2,152 treasury shares) and 15,760 shares outstanding as of March 3, 2001 (net of 2,128 treasury shares) ............................................ 787 788 Additional paid-in capital ........................................ 13,760 13,752 Treasury stock .................................................... (18,987) (18,821) Retained earnings ................................................. 245,897 248,216 --------- --------- Total shareholders' equity ..................... 241,457 243,935 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .............................. $ 276,494 $ 276,867 ========= ========= See notes to consolidated financial statements.
F-2 SYMS CORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS ------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR ENDED ----------------------------------------------- MARCH 2, MARCH 3, FEBRUARY 26, 2002 2001 2000 --------- --------- -------- NET SALES ..................................... $ 287,744 $ 342,316 $341,570 Cost of goods sold ............................ 179,163 215,429 212,845 --------- --------- -------- Gross profit .................................. 108,581 126,887 128,725 EXPENSES Selling, general and administrative ........... 78,261 84,810 83,592 Advertising ................................... 8,936 10,122 10, 210 Occupancy ..................................... 18,807 21,366 20,688 Depreciation and amortization ................. 11,520 11,468 10,580 Other income .................................. (6,289) 0 0 Special charges ............................... 0 12,935 0 --------- --------- -------- Income (loss) from operations ................. (2,654) (13,814) 3,655 Interest expense (income) - net ............... (95) (153) 10 --------- --------- -------- Income (loss) before income taxes ............. (2,559) (13,661) 3,645 Provision (benefit) for income taxes .......... (240) (5,328) 1,421 --------- --------- -------- NET INCOME (LOSS) ............................. $ (2,319) $ (8,333) $ 2,224 ========= ========= ======== Net Income (loss) Per Share - basic ........... $ (0.15) $ (0.52) $ 0.14 ========= ========= ======== Weighted Average Shares Outstanding - basic ... 15,741 15,950 16,351 ========= ========= ======== Net Income (loss) Per Share - diluted ......... $ (0.15) $ (0.52) $ 0.14 ========= ========= ======== Weighted Average Shares Outstanding - diluted.. 15,741 15,950 16,362 ========= ========= ========
See notes to consolidated financial statements. F-3 SYMS CORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ----------------------------------------------- (IN THOUSANDS)
Preferred Stock Common Stock Additional --------------- ---------------- Paid Treasury Retained Shares Amount Shares Amount Capital Stock Earnings Total ------ ------ ------ ------ ---------- -------- --------- -------- BALANCE AS OF FEBRUARY 27, 1999 .... -- $ -- 17,024 $ 851 $ 13,752 $(10,168) $254,325 $258,760 Stock buyback .............. -- -- (1,064) (53) -- (7,503) -- (7,556) Net income ................. -- -- -- -- -- -- 2,224 2,224 ------ ------ ------ ------ -------- -------- -------- -------- BALANCE AS OF FEBRUARY 26, 2000 ..... -- -- 15,960 798 13,752 (17,671) 256,549 253,428 Stock buyback .............. -- -- (200) (10) -- (1,150) -- (1,160) Net loss/income ............ -- -- -- -- -- -- (8,333) (8,333) ------ ------ ------ ------ -------- -------- -------- -------- BALANCE AS OF MARCH 3, 2001 ......... -- -- 15,760 788 13,752 (18,821) 248,216 243,935 Exercise of stock options .. -- -- 1 -- 8 -- -- 8 Stock buyback .............. -- -- (24) (1) -- (166) -- (167) Net loss/income ............ -- -- -- -- -- -- (2,319) (2,319) ------ ------ ------ ------ -------- -------- -------- -------- BALANCE AS OF MARCH 2, 2002 ......... -- $ -- 15,737 $ 787 $ 13,760 $(18,987) $245,897 $241,457 ====== ====== ====== ====== ======== ======== ======== ========
See notes to consolidated financial statements. F-4 SYMS CORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- (IN THOUSANDS)
FISCAL YEAR ENDED --------------------------------------------- March 2, March 3, February 26, 2002 2001 2000 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ...................................... $ (2,319) $ (8,333) $ 2,224 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization .......................... 11,520 11,468 10,580 Deferred income taxes .................................. 353 (5,039) (1,103) Loss (gain) on sale of property and equipment .......... 253 (337) (139) Fixed asset allowance adjustment ....................... (386) -- -- Non cash impairment charge ............................. -- 6,473 -- (Increase) decrease in operating assets: Merchandising inventories ........................... 12,376 17,171 13,081 Prepaid expenses and other current assets ........... (1,833) (1,236) 751 Other assets ........................................ (1,924) (1,559) 637 Increase (decrease) in operating liabilities: Accounts payable ..................................... 1,414 (10,921) 8,106 Accrued expenses ..................................... 829 (3,183) 1,844 Obligations to customers ............................. 153 177 (718) Other long term liabilities .......................... (291) (27) 869 -------- -------- -------- Net cash provided by operating activities .... 20,145 4,654 36,132 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment ..................... (7,990) (6,073) (19,203) Proceeds from sale of property and equipment ........... 5 382 152 -------- -------- -------- Net cash used in investing activities ........ (7,985) (5,691) (19,051) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of treasury shares ............................ (167) (1,160) (7,556) Repayments of obligations under capital lease .......... -- -- (419) Revolving line of credit (repayments) borrowings ....... -- -- (2,350) Exercise of options .................................... 7 -- -- -------- -------- -------- Net cash used in financing activities ........ (160) (1,160) (10,325) -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ... 12,000 (2,197) 6,756 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ......... 7,485 9,682 2,926 -------- -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD ............... $ 19,485 $ 7,485 $ 9,682 ======== ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for: Interest (net of amount capitalized) ................ $ 299 $ 311 $ 191 ======== ======== ======== Income taxes paid, net of refunds ................... $ 3,127 $ 1,827 $ 694 ======== ======== ========
See notes to consolidated financial statements. F-5 SYMS CORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FISCAL YEARS ENDED MARCH 2, 2002, MARCH 3, 2001 AND FEBRUARY 26, 2000 --------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. PRINCIPAL BUSINESS - Syms Corp and subsidiaries (the "Company") operate a chain of 42 "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 2, 2002 and February 26, 2000 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. RECLASSIFICATION - Certain items in prior years in specific captions of the accompanying consolidated financial statements and notes to consolidated financial statements have been reclassified for comparative purposes. F-6 k. 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. l. COMPREHENSIVE INCOME - Comprehensive income is equivalent to the Company's net income for fiscal years 2001, 2000 and 1999. m. 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 ---------------------------- 2001 2000 1999 ---- ---- ---- Men's tailored clothes and haberdashery ............. 51% 54% 54% Women's dresses, suits, separates and accessories ... 31% 31% 30% Shoes ............................................... 7% 6% 7% Children's wear ..................................... 8% 7% 7% Luggage, domestics and fragrances .................... 3% 2% 2% --- --- --- 100% 100% 100%
The Company does not rely on any major customers as a source of revenue. n. COMPUTER SOFTWARE COSTS - Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" requires capitalization of costs of software developed or purchased for internal use. The Company adopted the SOP for 1999 which resulted in the capitalization of software development costs of approximately $4,428,000. The after tax effect on net income in 1999 was approximately $2,399,000 or $.15 per diluted share. o. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - During the first quarter of 2001, the Company adopted SFAS No. 133 and 183, Accounting for Derivative Instruments and Hedging Activities. SFAS 133 established accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and hedging activities requiring all companies to recognize derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. SFAS 138 is an amendment to SFAS 133, which amended or modified certain issues discussed in SFAS 133. Implementation of SFAS 133 and SFAS 138 did not have a material impact on the Company's consolidated financial statements. RECENT ACCOUNTING PRONOUNCEMENTS In July 2001, the FASB issued Statement of Financial Standards No. 141, "Business Combinations" and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets". 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 F-7 eliminates the requirement to amortize goodwill and intangible assets having indefinite useful lives but requires testing at least annually for impairment. Intangible assets that have finite lives will continue to be amortized over their useful lives. SFAS 142 will apply to goodwill and intangible assets arising from transactions completed before and after the Statement's effective date of January 1, 2002. The adoption of SFAS 141 did not have a material effect on the Company's financial position or operations in fiscal 2001, and SFAS 141 and the adoption of SFAS 142 are not anticipated to have any effect in fiscal 2002. In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 requires the Company to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets. The Company also records a corresponding asset which is depreciated over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation will be adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. Management does not believe that the adoption of SFAS No. 143 will have a significant impact on the Company's financial statements. In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and requires companies to separately report discontinued operations and extends that reporting to a component of an entity that either has been disposed of or is classified as held for sale. This Statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The adoption of SFAS No. 144 will not have any impact on the Company's financial statements. NOTE 2 - PROPERTY AND EQUIPMENT Property and equipment consists of: MARCH 2, MARCH 3, 2002 2001 -------- -------- (IN THOUSANDS) Land ............................................ $ 44,855 $ 40,584 Buildings and building improvements ............. 119,724 115,788 Leasehold and leasehold improvements ............ 39,713 44,793 Machinery and equipment ......................... 31,003 30,077 Furniture and fixtures .......................... 20,811 21,480 Construction in progress ........................ 2,372 1,248 -------- -------- 258,478 253,970 Less accumulated depreciation and amortization .. 111,292 103,383 -------- -------- $147,186 $150,587 ======== ======== Included in property and equipment is property held for sale with a net book value of approximately $1,474,249 and $1,577,828 at 2001 and 2000, respectively. F-8 The Company has entered into an agreement to sell its store (including the real property) located in Dallas, Texas to Wal-Mart Stores, Inc. The closing of this sale is subject to certain zoning changes. The Company is unable to determine at this time whether such approval will be granted. If such approvals are granted, the Company has selected a site where it will relocate its existing Dallas store. NOTE 3 - INCOME TAXES The provision (benefit) for income taxes is as follows: FISCAL YEAR ENDED ----------------------------------------- March 2, March 3, February 26, 2002 2001 2000 ------- ------- ------- (In thousands) Current: Federal ..... $ (593) $ -- $ 2,366 State ...... -- (289) 158 ------- ------- ------- (593) (289) 2,524 ------- ------- ------- Deferred: Federal .... 318 (4,047) (190) State ..... 35 (992) (913) ------- ------- ------- 353 (5,039) (1,103) ------- ------- ------- $ (240) $(5,328) $ 1,421 ======= ======= ======= 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 2, MARCH 3, FEBRUARY 26, 2002 2001 2000 ------ ------ ------ Statutory Federal income tax rate .. (35.0%) (35.0%) 35.0% State taxes, net of Federal income tax benefits ..................... (0.1%) (8.1%) (10.3) Officers' life insurance ........... 26.2% 4.1% 14.3 Other .............................. (.5) 0 0 ===== ===== ==== Effective income tax rate .......... (9.4%) (39.0%) 39.0% ===== ===== ==== F-9 The composition of the Company's deferred tax assets and liabilities is as follows:
FISCAL YEAR ENDED ------------------------ MARCH 2, MARCH 3, 2002 2001 ------- ------- (In thousands) Deferred tax assets: Capitalization of inventory costs ...................................... $ 1,261 $ 1,266 Accounts receivable .................................................... 76 76 Reserves not currently deductible for tax purposes ..................... 3,384 714 Net operating losses ................................................... 1,918 4,559 Other .................................................................. 2,689 3,174 ------- ------- Total deferred tax assets .............................................. 9,328 9,789 Deferred tax liability: Depreciation method and different estimated lives ...................... (1) (536) Other .................................................................. (504) (77) ------- ------- Total deferred tax liabilities ......................................... (505) (613) ------- ------- Net .................................................................... $ 8,823 $ 9,176 ======= ======= Current deferred tax asset ............................................. $ 6,514 $ 6,252 Long term deferred tax asset (net of non-current deferred tax liability) 2,309 2,924 ------- ------- Net .................................................................... $ 8,823 $ 9,176 ======= =======
At March 2, 2002 the Company had state net operating loss carry forwards resulting in a deferred tax asset of $2,000,000. These net operating losses expire beginning 2006. 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 May 3, 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 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. There were no outstanding borrowings against this agreement at the end of the fiscal years March 2, 2002 and March 3, 2001. F-10 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 2, 2002. Total interest charges incurred for the years ended March 2, 2002, March 3, 2001 and February 26, 2000, including amounts related to capital leases, were $302,000, $319,000 and $577,000, respectively, of which $14,000 and $40,000 were capitalized in fiscal 2000 and 1999, respectively, in connection with the construction of new facilities. There was no capitalized interest for fiscal 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 2, 2002 and at March 3, 2001 the Company had $4,564,076 and $2,592,704, respectively, in outstanding letters of credit. NOTE 5 - OTHER INCOME Other income was recorded by the Company amounting to $6,289,000 as outlined below: 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 ========== NOTE 6 - STORE CLOSING COSTS During the third quarter of fiscal 2000, 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. The action was taken by the Company to enhance competitiveness, reduce expenses and to improve efficiencies. The Company anticipates other stores will close in the next twelve months. The charges and related remaining accruals consist of the following (in thousands):
Amount remaining Amount remaining Charges At March 3, 2001 At March 2, 2002 ------- ---------------- ---------------- Store closing costs: Lease commitments ............. $ 6,033 $1,077 $600 Impairment of property & equipment (non cash) .......... 6,417 -- -- Severance and other employee benefits ...................... 160 14 -- Other ......................... 325 342 83 ------- ------ ---- Total ......................... $12,935 $1,433 $683 ======= ====== ====
Lease commitment costs, including a termination charge, were incurred for contractual obligations that existed on two stores. F-11 An impairment charge was recorded where management's estimates indicated that projected operations yielded cumulative operating losses before depreciation and amortization, on both an undiscounted and discounted basis. The Company did not believe it could improve the profitability and expected cash flows to continue to be negative. The amount of impairment was measured on the basis of projected discounted operating income using a discount rate indicative of the Company's average cost of funds, before the effects of depreciation and amortization. As a result of this evaluation, the Company determined that the fixed assets could not be recovered. The costs incurred included the write-off of leasehold improvements and furniture and fixtures to their net realizable value. 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 2, 2002 and March 3, 2001 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. F-12 The following information on the Company's pension plan is provided: MARCH 2, MARCH 3, 2002 2001 ------- ------- (In thousands) CHANGE IN BENEFIT OBLIGATION: Net benefit obligation at beginning of year ...... $ 6,029 $ 5,195 Service cost ..................................... 532 510 Interest cost .................................... 424 385 Actuarial loss ................................... 85 183 Gross benefits paid .............................. (278) (244) ------- ------- Net benefit obligation at end of year ............ $ 6,792 $ 6,029 ======= ======= CHANGE IN PLAN ASSETS: Fair value of plan assets at beginning of year ... $ 5,814 $ 5,684 Employer contributions ........................... 357 345 Gross benefits paid .............................. (278) (244) Actual return on plan assets ..................... (338) 29 ------- ------- Fair value of plan assets at end of year ......... $ 5,555 $ 5,814 ======= ======= Funded status at end of year ..................... $(1,237) $ (214) Unrecognized net actuarial loss (gain) ........... 737 (199) Unrecognized transition amount ................... -- (25) ------- ------- Accrued benefit costs ............................ $ (500) $ (438) ======= ======= Pension expenses includes the following components:
FISCAL YEAR ENDED ---------------------------------------- MARCH 2, MARCH 3, FEBRUARY 26, 2002 2001 2000 -------- -------- ------------ (IN THOUSANDS) COMPONENTS OF NET PERIODIC BENEFIT COST: Service cost .................................. $ 532 $ 510 $ 437 Interest cost ................................. 424 385 356 Return on assets .............................. 338 (29) (603) Amortization of (gain) loss ................... (877) (504) 125 ----- ----- ----- Net periodic benefit cost ..................... $ 417 $ 362 $ 315 ===== ===== ===== WEIGHTED-AVERAGE ASSUMPTIONS USED: Discount rate ................................. 7.0% 7.25% 7.75% Rate of compensation increase ................. 4.5% 4.50% 4.50%
The expected long-term rate of return on plan assets was 8.5% for all years. F-13 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 2, 2002 and March 3, 2001. However, profit-sharing contributions were made in the amounts of $18,900 for year ended February 26, 2000. 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 2, 2002 are as follows: OPERATING LEASES ------------ 2002 .................................................. $ 9,173,123 2003 .................................................. 7,901,100 2004 .................................................. 7,524,433 2005 .................................................. 7,527,975 2006 .................................................. 6,401,862 2007 and thereafter ................................... 29,288,784 ------------ Total minimum payments ................................ $ 67,817,277 ============ Rent expense for operating leases are as follows: FISCAL YEAR ENDED -------------------------------------------- MARCH 2, MARCH 3, FEBRUARY 26, 2002 2001 2000 -------- -------- -------- (IN THOUSANDS) Minimum rentals due ........... $ 9,341 $ 11,131 $ 10,477 Escalation rentals accrued .... 324 516 868 Contingent rentals ............ (20) 15 16 Sublease rentals .............. (360) (528) (512) -------- -------- -------- $ 9,285 $ 11,134 $ 10,849 ======== ======== ======== F-14 b. EMPLOYMENT AGREEMENT - The Company has an employment agreement with its General Merchandising Manager, expiring 2009, pursuant to which annual compensation of approximately $350,000 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. 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). SFAS No. 123 encourages (but does not require) compensation expense to be measured based on the fair value of the equity instrument awarded. In accordance with APB No. 25, no compensation cost has been recognized in the Consolidated Statements of Operations for the Company's stock option plans. If compensation cost for the Company's stock option plans had been determined in accordance with the fair value method prescribed by SFAS No. 123, the Company's pro forma net income (loss) and earnings per share would be as follows: 2001 2000 1999 ------- ------- ------ Net Income (loss) (in thousands) ......... ($2,507) ($8,892) $1,893 Net Income (loss) per share - basic ...... ($ .16) ($ .56) $ 0.12 Net Income (loss) per share - diluted .... ($ .16) ($ .56) $ 0.12 This pro forma information may not be representative of the amounts to be 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. F-15 The fair value of each option grant is estimated on the date of each grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in fiscal 1999: risk-free interest rate of 6.47 expected life 5 and 10 years, expected volatility of 35.38% and dividend yield 0%. There were no stock options granted in fiscal 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. Stock option transactions are summarized below:
FISCAL YEAR ENDED ------------------------------------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ------------------------------------------------------------------------------- MARCH 2, 2002 MARCH 3, 2001 FEBRUARY 26, 2000 ---------------------- ---------------------- ----------------------- WEIGHTED WEIGHTED WEIGHTED FISCAL AVERAGE FISCAL AVERAGE FISCAL AVERAGE 2001 EXERCISE 2000 EXERCISE 1999 EXERCISE FIXED OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE ------ -------- ------ -------- ------ --------- Outstanding beginning of year .............. 1,106 $ 7.24 1,184 $ 7.33 493 $ 10.01 Granted ........................ -- -- -- -- 724 5.63 Exercised ...................... (1) 5.62 -- -- 0 0.00 Cancelled ...................... (45) 5.63 (78) 8.64 (33) 9.98 ------------------------------------------------------------------------------------------------------------------------- Outstanding, end of period .......... 1,060 $ 7.24 1,106 $ 7.24 1,184 $ 7.33 ========================================================================================================================= Options exerciseable at year end .... 786 $ 7.76 672 $ 8.19 550 $ 9.02 Weighted-average fair value of options granted during the year ... -- -- $ 2.36
The following table summarizes information about stock options outstanding at March 2, 2002: OPTIONS OUTSTANDING OPTIONS EXERCISABLE -------------------------------------------------------- ------------------- WEIGHTED-AVERAGE NUMBER REMAINING NUMBER RANGE OF OUTSTANDING AT CONTRACTURAL EXERCISABLE AT EXERCISE PRICES MARCH 2, 2002 LIFE (YEARS) MARCH 2, 2002 --------------- -------------- ---------------- -------------- 5.625 ........ 654,050 7.7 392,430 8.00 ......... 87,500 4.6 75,000 8.50 ......... 25,100 0.6 25,100 9.75 ......... 50,000 1.3 50,000 9.88 ......... 25,000 5.2 25,000 10.625 ........ 5,650 1.1 5,650 10.6875 ....... 200,000 6.6 200,000 11.50 ......... 12,500 0.1 12,500 --------- ------- 1,059,800 785,680 F-16 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 2001 FISCAL 2000 FISCAL 1999 ----------- ------------ ----------- BASIC NET INCOME PER SHARE: Net Income (loss) ..................... ($ 2,319) ($ 8,333) $ 2,224 Average shares outstanding ............ 15,741 15,950 16,351 Basic net income (loss) per share ..... ($ 0.15) ($ 0.52) $ 0.14 DILUTED NET INCOME PER SHARE: Net Income (loss) ..................... ($ 2,319) ($ 8,333) $ 2,224 Average shares outstanding ............ 15,741 15,950 16,351 Stock options ......................... 0 0 11 -------- ------- ------- Total average equivalent shares ....... 15,741 15,950 16,362 Diluted net income (loss) per share ... ($ 0.15) ($ 0.52) $ .14
Options to purchase 1,060,000, 1,106,000 and 367,000 shares of common stock at prices ranging from $5.625 to $10.6875 per share were outstanding in 2001, 2000 and 1999, respectively, but were not included in the computation of diluted net income (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 capital lease with an officer for the Elmsford, New York store, which lease expired November 30, 1999 and which property is now occupied by the Company on a month-to-month basis. During fiscal year 2001 and 2000 the Company paid to Sy Syms $600,000 in fixed rent. The Company recorded depreciation and interest expenses associated with the capital lease in fiscal 1999 of $100 and $31, respectively. On April 2, 2001, the Company loaned the Marcy Syms Revocable Trust $800,000. The loan is evidenced by the Trust's ten-year Note which is guaranteed by Ms. Syms and is secured by a first priority mortgage on the real estate which Ms. Syms owns in Westchester County. The Note bears interest at the rate of 5.43% per annum (the then applicable federal long-term rate) payable annually. 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 F-17 April 18, 2002, the Board of Directors approved the acquisition based on the independent committee's recommendation to acquire the assets of Stanley Blacker, Inc. The assets of Stanley Blacker, Inc. consisted substantially of trademarks and trade names licensed to third party manufacturers of clothing and accessories. The acquisition of such assets was consummated on May 1, 2002, for a purchase price consisting of $250,000 paid in cash, $250,000 paid by the issuance of 44,138 shares o 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 $11,355.14, which note was paid in full by the Company. NOTE 14 - UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
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) 0.17 0.01 QUARTER ---------------------------------------------------------- FIRST SECOND THIRD FOURTH -------- -------- -------- ------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) YEAR ENDED MARCH 3, 2001 Net sales ................................. $ 81,192 $ 74,621 $ 94,309 $92,194 Gross profit .............................. 31,317 26,725 33,417 35,428 Net income (loss) ......................... 144 (2,976) (7,699) 2,198 Net income (loss) per share - basic ..... 0.01 (0.19) (0.48) 0.14 Net income (loss) per share - diluted ... 0.01 (0.19) (0.48) 0.14
F-18