NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Liquidation Basis of Accounting

The liquidation basis of accounting is appropriate when the liquidation of a company appears imminent and the net realizable value of its assets is reasonably determinable. Accordingly, the Company implemented the liquidation basis of accounting effective on October 30, 2011. Under this basis of accounting, assets are stated at their net realizable value and liabilities are stated at their net settlement amount and estimated costs over the period of liquidation are accrued to the extent reasonably determinable.

Accrued Liquidation Costs - Under the liquidation basis of accounting, management is required to make significant estimates and judgments regarding the anticipated costs of liquidation. These estimates are subject to change based upon the timing of the Chapter 11 proceedings and changes in market conditions. The Company reviews, on a quarterly basis, the estimated fair value of its assets and all other remaining operating expenses and contractual commitments such as payroll and related expenses, lease termination costs, professional fees, alternative minimum income taxes and other outside services to determine the estimated costs to be incurred during the liquidation period.

Pension Expense - The Company will terminate its pension plans. Under the liquidation basis of accounting, actuarial valuation analyses are prepared quarterly to determine the fair value, or termination value, of the plan. These valuations and the ultimate liability to settle the plan may result in adjustments driven by changes in assumptions due to market conditions.

The Company accrued the termination value of the pension plan under the going concern basis of accounting. The liabilities related to these pension plans will be settled at the same payout percentage as all other unsecured creditor claims.

Long-Lived Assets – Owned real estate and other long-lived assets are recorded at net realizable value based on valuations, purchase agreements and/or letters of intent from interested third parties, when available.

Going Concern Basis of Accounting

Principal Business - Syms Corp. (”Syms” or the “Company”) and its wholly-owned subsidiary Filene’s Basement, LLC (“Filene’s”, “Filene’s, LLC” or “Filene’s Basement”) collectively own and operate a chain of 46 “off-price” retail stores under the “Syms” name (which are owned and operated by the Company) and “Filene’s Basement” name (which are owned and operated by Filene’s, LLC). The stores are located in the United States 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 at prices substantially lower than those generally found in department and specialty stores.

On June 18, 2009, the Company’s, wholly-owned subsidiary, SYL, LLC now known as Filene’s Basement, LLC acquired certain real property leases, inventory, equipment and other assets of Filene’s Basement Inc. (“Filene’s Inc.” or “Filene’s Basement Inc.”), a retail clothing chain, pursuant to an auction conducted in accordance with § 363 of the Bankruptcy Code. As a result, Filene’s, LLC owns and operates 21 Filene’s Basement stores that are located in the Northeastern, Middle Atlantic, Midwest and Southeast regions. Filene’s Basement also offers a broad range of first quality brand name and designer clothing for men, women and children. In addition, Syms owns and operates 5 co-branded Syms/Filene’s Basement stores. Syms and Filene’s, LLC operate in a single operating segment – the “off-price” retail stores segment.

Principles of Consolidation - The financial statements include the accounts of the Company including its wholly-owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation.

Accounting Period - Fiscal 2011 ended on February 25, 2012; fiscal 2010 ended on February 26, 2011, and fiscal 2009 ended on February 27, 2010. The Company’s fiscal year is a 52-week or 53-week period ending on the Saturday on or nearest to February 28. The fiscal years ended February 25, 2012, February 26, 2011 and February 27, 2010 were comprised of 52 weeks.

Reclassifications – Certain reclassifications have been applied to prior year amounts to conform to current year presentation.

Cash and Cash Equivalents - Cash and cash equivalents include securities with original maturities of three months or less.

Concentrations of Credit Risk – The Company’s financial instruments that are exposed to concentrations of credit risk consisted primarily of cash. The Company had substantially all of its cash in banks. Such cash balances at times exceed federally-insured limits. The Company has not experienced any losses in such accounts.

Receivables – Receivables consisted of third party credit and debit card receivables and other miscellaneous items

Merchandise Inventories - Merchandise inventories were stated at the lower of cost or market on a first-in, first-out (FIFO) basis, as determined by the retail inventory method. Prior to October 4, 2009, all of the Company’s inventories were determined by the retail inventory method.

For a brief period, from October 4, 2009 through October 2, 2010, the Syms stores utilized a different method, the moving weighted average cost method. As part of the integration plan for the Company, the Syms stores converted their merchandise systems over to that used by Filene’s, effective October 3, 2010 and thus reverted back to the retail inventory method. The change in the method of recording Syms inventory in the third quarter of fiscal 2009 and in the third quarter of fiscal 2010 did not have a material impact on reported results of operations.

The Company maintained a reserve for inventory obsolescence, which is a reduction to merchandise inventories. During fiscal 2010 the Company increased its reserve for inventory obsolescence by $6.2 million as it determined that it had not adequately cleared out old-season merchandise.

Property and Equipment - Property and equipment are stated at cost. Depreciation and amortization are 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
	Computer software	3 years

The Company’s policy is to amortize leasehold improvements over the original lease term and not include any renewal terms. The Company’s policy is to capitalize costs incurred during the application-development stage for software acquired and further customized by outside vendors for the Company’s use. Computer software is included in property, plant and equipment on the balance sheet.

Impairment of Long-Lived Assets – The Company periodically reviews long-lived assets for impairment whenever changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable.

The Company considers relevant cash flow, management’s strategic plans, significant decreases in the market value of the asset and other available information in assessing whether the carrying value of the assets can be recovered. When such events occur, the Company compares the carrying amount of the assets to the undiscounted expected future cash flows from the use and eventual disposition of the asset. If this comparison indicates an impairment, the carrying amount would then be compared to the estimated fair value of the long-lived asset. An impairment loss would be measured as the amount by which the carrying value of the long-lived asset exceeds its estimated fair value.

Deferred Income Taxes - Deferred income taxes reflect the future tax consequences of differences between the tax bases of assets and liabilities and their financial reporting amounts at year end. Based on management's assessment, it is more likely than not that, for federal and state purposes, deferred tax assets will not be realized by future taxable income or tax planning strategies. A net valuation allowance of approximately $46,518,000 was recorded during the eight-month period ended October 29, 2011. Further valuation allowance of approximately $38,599,000 was recorded in the subsequent period from October 30, 2011 through February 25, 2012.

Other Assets – The Company has historically recorded the cash surrender value of officers’ life insurance policies on the balance sheet as a non-current asset. In March 2009, as a result of uncertainties surrounding the financial viability of the life insurance company underwriting two of these policies, the Company withdrew $16.0 million of accumulated cash value which was ultimately used in connection with the Company’s acquisition of the assets from Filene’s, Inc. more fully discussed in Note 6 below. The Company continued to be a beneficiary of life insurance policies insuring Mr. Sy Syms, the Company’s founder and Chairman, who died on November 17, 2009. Pursuant to those policies, in December 2009, the Company received cash proceeds of approximately $29.9 million, which was net of the aforementioned, previously received $16.0 million in cash values. Net of the cash surrender value of officer’s life insurance of $5.1 million recorded in other assets, the Company realized a net gain of $24.8 million. Upon receipt, the aforementioned cash proceeds were used for working capital purposes and to repay a portion of the Company’s senior debt facility.

Obligation to Customers - Obligations to customers represented credits issued for returned merchandise as well as gift certificates. When the Company sold a gift certificate to a customer, it was recorded as a liability in the period the sale occurred. When the customer redeemed the gift certificate for the purchase of merchandise, a sale was recorded and the liability reduced. The Company’s policy is that these credits and gift certificates do not expire.

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 included inventory provisions, sales returns, self-insurance accruals, deferred tax valuation allowances, any estimated impairment and the useful lives of long-lived assets. Actual results could differ from those estimates.

Revenue Recognition – The Company recognized 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 were recorded.

Comprehensive Income (Loss) – Comprehensive income (loss) was ($76.0) million, ($32.8) million and $8.9 million for the eight months ended October 29, 2011 and fiscal years 2010 and 2009, respectively.

Segment Reporting - ASC 280, “Segment Reporting” 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 operated in a single reporting segment - the operation of “off-price” retail stores. Revenues from external customers were derived from merchandise sales.

The Company’s merchandise sales mix by product category for the eight months ended October 29, 2011 and fiscal years 2010 and 2009 was as follows:

	Eight Months
	Ended			Fiscal Year			Fiscal Year
	October 29,			Ended			Ended
	2011			2010			2009

Women’s dresses, suits, separates and accessories		47	%		46	%		44	%
Men’s tailored clothes and haberdashery		37	%		38	%		42	%
Children’s apparel		5	%		5	%		5	%
Luggage, domestics and fragrances		5	%		6	%		5	%
Shoes		6	%		5	%		4	%
Total		100	%		100	%		100	%

The Company did not rely on any major customers as a source of revenue.

Gross Profit - The Company’s gross profit excluded the cost of its distribution network. For the eight months ended October 29, 2011 and the fiscal years ended February 26, 2011 and February 27, 2010, the amounts incurred for our distribution network that were classified in selling, general and administrative expenses and occupancy costs were $9.5 million, $19.0 million and $15.6 million, respectively.

Computer Software Costs – The Company capitalized the cost of software developed or purchased for internal use.

Advertising Costs – Advertising and sales promotion costs were expensed at the time the advertising occurs. Advertising and sales promotion costs were $2.5 million, $7.0 million and $8.2 million for the eight months ended October 29, 2011 and the fiscal years ended February 26, 2011 and February 27, 2010, respectively. The Company did not receive any allowances or credits from vendors in connection with the purchase or promotion of the vendor’s product, such as cooperative advertising and other considerations.

Occupancy Costs – Occupancy expenses for the eight months ended October 29, 2011 and the fiscal years ended February 26, 2011 and February 27, 2010 have been reduced by net rental income of $1.4 million, $2.3 million and $2.4 million, respectively, from real estate holdings incidental to the Company’s retail operations.

Accounting for Stock-Based Compensation – The Company accounts for stock-based compensation costs in accordance with ASC 718, “Stock Compensation”. Consistent with ASC 718, share-based compensation cost is measured at grant date, based on the estimated fair value of the award, and was recognized as expense over the requisite service period.

The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model. Expected volatility is based on the historical volatility of the price of the Company’s stock. The risk-free interest rate is based on U.S. Treasury issues with a term equal to the expected life of the option. The Company uses historical data to estimate expected dividend yield, expected life and forfeiture rates. There were no options granted during fiscal 2011, and all options previously issued were fully vested.

New Accounting Pronouncements – In April 2010, the FASB issued ASU 2010-13, “Compensation – Stock Compensation (Topic 718) – Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades.” ASU 2010-13 provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in ASU 2010-13 are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The adoption of this standard did not have a material impact on the Company’s results of operation or our financial position.