UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR |
For the fiscal year ended February 25, 2012March 2, 2013
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR |
Commission file number 1-8546
SYMS CORP.TRINITY PLACE HOLDINGS INC.
(Exact name of registrant as specified in its charter)
No. 22-2465228 | ||
(State or Other Jurisdiction of | (I.R.S. Employer Identification No.) | |
Incorporation or Organization) |
One 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: NONE
Securities registered pursuant to Section 12 (g) of the Act: NoneCommon Stock, $0.01 Par Value Per Share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act
Yes¨ Noþ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes¨ Noþ
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes¨þ Noþ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes¨þ No¨ Not Applicableþ
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. ¨þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer ¨ Accelerated Filer þ¨ Non-Accelerated Filer¨ Smaller Reporting Company¨þ
(Do not check if smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ Noþ
As of August 26, 2011,25, 2012, the aggregate market value of the registrant’s common stockCommon Stock held by non-affiliates of the registrant was approximately $129,311,296 based on the closing sale price as reported on the NASDAQ Global Select Market.$19,112,000.
As of May 25, 2012, 14,448,18824, 2013, 16,630,554 shares of the registrant’s Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for the 20122013 Annual Meeting of Shareholders are incorporated by reference into Part III of this Annual Report.
Form 10-K Index
PAGE | ||||
PART I | ||||
Item 1. | Business | |||
Item 1B. | Unresolved Staff Comments | |||
Item 2. | Properties | |||
Item 3. | Legal Proceedings | |||
Item 4. | Mine Safety Disclosures | |||
PART II | ||||
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
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Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 8. | Financial Statements and Supplementary | |||
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
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Item 9A. | Controls and Procedures | |||
Item 9B. | Other Information | |||
PART III | ||||
Item 10. | Directors, Executive Officers and Corporate Governance | |||
Item 11. | Executive Compensation | |||
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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Item 13. | Certain Relationships and Related Transactions, and Director Independence | |||
Item 14. | Principal Accountant Fees and Services | |||
PART IV | ||||
Item 15. | Exhibits and Financial Statement Schedules | |||
Signatures |
PART I
Item 1.BUSINESS
General
As further described below, the predecessor to Trinity Place Holdings Inc. (“Trinity” or the “Company”), Syms Corp. (“Syms” or the “Company”) and, together with its subsidiaries, filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Bankruptcy Code (“Bankruptcy Code” or “Chapter 11”) in the United States Bankruptcy Court for the District of Delaware (the “Court”). On August 30, 2012, the Court entered an order confirming the Modified Second Amended Joint Chapter 11 Plan of Reorganization of Syms Corp. and are currently operatingits Subsidiaries (the “Plan”). On September 14, 2012, the Plan became effective and Syms and its subsidiaries (collectively, the “Debtors”) consummated their reorganization under Chapter 11 through a series of transactions contemplated by the Plan and emerged from bankruptcy. As part of those transactions, reorganized Syms merged with and into Trinity, with Trinity as “debtors-in-possession”the surviving corporation and successor issuer pursuant to Rule 12g-3 under the jurisdictionSecurities Exchange Act of the Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Court.1934 (the “Exchange Act”).
Overview.Overview
Prior to filing for bankruptcy, the CompanySyms and its wholly-owned subsidiary, Filene’s Basement, LLC (“Filene’s,” “Filene’s, LLC” or “Filene’s Basement”), collectively owned and operated a chain of 46 “off-price” retail stores under the “Syms” name (which were owned and operated by Syms) and the Company) and “Filene’s Basement” name (which were owned and operated by Filene’s, LLC). The stores were located in the United States throughout the Northeastern and Middle Atlantic regions and in the Midwest, Southeast and Southwest. Each Syms and Filene’s Basement stores offered 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, nowwhich became 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.”), then a Chapter 11 debtor-in-possession operating a retail clothing chain, pursuant to an auction conducted in accordance with §section 363 of the Bankruptcy Code. As a result, Filene’s, LLC thereafter owned and operated 21 Filene’s Basement stores then located in the Northeastern, Middle Atlantic, Midwest and Southeast regions until Filene’s, LLC itself became a Chapter 11 debtor, along with the Company,Syms, and discontinued its retail operations on or about December 31, 2011. In addition, Syms owned and operated five co-branded Syms/Filene’s Basement stores. Syms and Filene’s, LLC operated in a single operating segment – the “off-price” retail stores segment.
The Company was incorporated in New Jersey in 1983. The Company maintains its headquarters at One Syms Way, Secaucus, New Jersey 07094. The Company’s headquarters may be reached by telephone at (201) 902-9600. Unless otherwise noted, and notwithstanding (i) that Syms owned and operated Syms and co-branded Syms/Filene’s Basement stores and (ii) that Filene’s, LLC is a separate legal entity and owned and operated Filene’s Basement stores, references to the “Company”, “we” or “our” relate to Syms, including its wholly-owned subsidiary Filene’s, LLC. Our fiscal year ends on the Saturday closest to the last day of February each year. Fiscal 2011 ended on February 25, 2012, fiscal 2010 ended on February 26, 2011, and fiscal 2009 ended on February 27, 2010.
The discussion below is herein presented on a consolidated basis and includes information regarding the Company and its wholly-owned subsidiary Filene’s, LLC.
Chapter 11 Cases.Cases The Company
Syms and its subsidiaries filed voluntary petitions for reorganization relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware and are currently operating as “debtors-in-possession”. The following discussion provides general background information regarding our Chapter 11 cases as relevant to the consolidated financial statements of the Company and its subsidiaries and is not intended to be an exhaustive summary.
Additional information on the Company’s filing under the Bankruptcy Code, including access to Court documents and other general information about the Chapter 11 cases, is available online at www.kccllc.net/filenes. Financial information available on that website generally is prepared according to requirements of federal bankruptcy law. While such financial information accurately reflects information required under federal bankruptcy law, such information may be unconsolidated, unaudited, and prepared in a format different from that used in the Company’s consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and filed under the U.S. securities laws. Moreover, the materials filed with the Court are not prepared for the purpose of providing a basis for an investment decision relating to the Company’s securities or for comparison with other financial information filed with the U.S. Securities and Exchange Commission (“SEC”).
Commencement of Cases
On November 2, 2011 (the “Petition Date”), and were operating as debtors-in-possession through September 14, 2012, at which time the Plan became effective and reorganized Syms merged with and its subsidiaries (collectively,into Trinity. Shortly after the “Debtors”) filed voluntary petitions for reorganization under Chapter 11filing of Title 11 of the United States Code in the United States Bankruptcy Court for the District of Delaware (the “Chapter 11 Filings”). The Court is jointly administering these cases as “In re Filene’s Basement, L.L.C., et al, Case No. 11-13511 (KJC).”
Court Orders
On the Petition Date, the Debtors filed various motions with the Bankruptcy Court requesting permission to continue operating various aspects of their business as the Debtors wound down their retail operations. The Debtors were granted authority to continue honoring their obligations to their employees and customers; to continue paying their tax obligations in the ordinary course; and to continue operating their existing cash management system in the ordinary course.
The Office of the United States Trustee thereafter appointed two statutory committees in these Chapter 11 cases (together, the "Committees"): an Official Committee of Unsecured Creditors (the "Creditors Committee"), charged with a fiduciary duty to represent the interests of the Debtors' unsecured creditors, and an Official Committee of Syms' Equity Security Holders (the "Equity Committee"), charged with a fiduciary duty to represent the interests of Syms' shareholders. The members of the Creditors' Committee are (i) PVH Corp., (ii) Rabina Properties, LLC, (iii) Rosenthal & Rosenthal, Inc. and (iv) Vornado Realty Trust; the members of the Equity Committee are (i) DS Fund I, LLC, (ii) Esopus Creek Value Series Fund LP – Series "L", (iii) Franklin Value Investors Trust, Franklin Balance Sheet Investment Fund, (iv) Kahn Brothers Group, Inc., and (v) Marcato Capital Management, LLC.
Activity During the Chapter 11 Cases
Store Closing Sales. Immediately upon filing their Chapter 11 petitions, the Debtors sought Bankruptcy Court approval to conduct going-out-of-business sales with the assistance of a liquidation agent. On November 16, 2011, the Bankruptcy Court entered an order that authorized the Debtors to enter into an agency agreement with a joint venture between Gordon Brothers Retail Partners, LLC and Hilco Merchant Resources, LLC as liquidation agent to commence the store closing sales at the Debtors' then remaining forty-one store locations. The Bankruptcy Court further authorized the Debtors to assume an agency agreement that they had entered into prior to filing the Chapter 11 cases with respect to five Filene's retail locations and to continue store closing sales that had been commenced at those locations.
The commencement of these Chapter 11 cases and the store closing sales were timed to coincide with the holiday shopping season so that the Debtors could have the benefit of, among other things, the "Black Friday" shopping weekend after the Thanksgiving holiday. The Debtors sold virtually all their inventory and much of their furniture, fixtures and equipment during the storea closing process.process at each of their stores. The sales concluded across their various locations in the last days of December 2011. On or about December 31, 2011, the Debtors had ceased retail operations at all of their stores and vacated all their leased retail store and distribution center locations.
Real Estate Matters.As of the Petition Date, the Debtors were lessees under thirty-five commercial real estate leases. The Debtors, with the assistance of the Committees, developed a process for marketing those leases in an effort to sell them or to terminate one or more of them with the agreement of their landlords in order to minimize costs and claims under such leases. On December 16, 2011, the Bankruptcy Court entered an order that approved the Debtors'Debtors’ proposed procedures for the marketing and disposition of their leases. Hilco Real Estate, LLC ("Hilco Real Estate") was retained to assist the Debtors, and conducted an extensive lease marketing process.
The lease marketing process resulted in the sale of the Debtors'Debtors’ interest in, or consensual termination of, certain of the Debtors'Debtors’ leases. The Debtors rejected several other leases effective as of December 31, 2011. Under the Bankruptcy Code, when a debtor rejects a real estate lease, the rejection is considered a breach that gives rise to a claim for breach by the landlord against the debtor. However, the Bankruptcy Code imposes certain caps on the maximum amount of breach claims that a landlord may assert.
Treatment of Prepetition Claims.Chapter 11 Plan Under section 362 of the Bankruptcy Code, actions to collect most of the Debtors’ prepetition liabilities, including payments owing to vendors in respect of goods furnished and services provided prior to the Petition Date, are automatically stayed and other prepetition contractual obligations of the Debtors generally may not be enforced.
The stay of proceedings provisions of section 362 of the Bankruptcy Code also apply to actions to collect prepetition indebtedness or to exercise control over the property of the Debtors’ estate. The rights of and ultimate paymentsPlan, which was co-proposed by the Debtors under prepetition obligations will be addressed in any planand the Official Committee of reorganization and may be substantially altered. This could result in unsecured claims being compromised at less, and possibly substantially less, than 100% of their face value.
Contract Rejection and Assumption Process. Section 365Syms’ Equity Security Holders (together, the “Plan Proponents”), was filed with the Court on May 24, 2012. The Plan was subsequently amended, concluding on July 27, 2012 with the support of the Bankruptcy Code permitsOfficial Committee of Unsecured Creditors. On August 30, 2012, the DebtorsCourt entered an order confirming the Plan, and the Plan became effective on September 14, 2012.
Upon the effective date of the Plan and pursuant to assume, assumeits terms, Syms and assign, or reject certain prepetition executory contractsits subsidiaries were reorganized and, subject to the approvalobligations under the Plan, discharged of all claims. To effect the reorganization, Syms was reincorporated in Delaware by way of a merger with and into Trinity. As a result of the Courtmerger, each share of Syms was converted into one share of Trinity. Under the Plan, Trinity will attempt to monetize its real estate assets over time in a manner intended to maximize their value for the benefit of creditors and shareholders, as further described below. Under the Plan, Syms creditors holding allowed claims are entitled to payment of those claims in full. The Plan also provides for Filene’s, LLC creditors to receive recoveries from the monetization of certain other conditions. Rejection constitutesof Trinity’s assets. Filene’s, LLC short-term creditors are entitled to payment in full on their allowed claims and Filene’s, LLC long-term creditors with allowed claims are entitled to a court-authorized breachrecovery of 75% on their claims.
The Company is in the contract in question and, subject to certain exceptions, relieves the Debtorsprocess of their future obligations under such contract but creates a deemed prepetition claim for damages caused by such breach or rejection. Parties whose contracts are rejected may filereconciling claims against its books and records, and objecting to and resolving various claims associated with the rejecting Debtor for damages. Generally,discharge of liabilities pursuant to the assumption, or assumptionPlan. The Company has engaged Alvarez & Marsal and assignment, of an executory contract requires the DebtorsMorris, Nichols Arsht & Tunnell, LLP to cure all prior defaults under such executory contractadvise and to provide adequate assurance of future performance. In this regard,assist the Company expects that additional liabilities subjectwith respect to compromisethe claims reconciliation work. Immediately following emergence from Chapter 11, the Company paid approximately $9.7 million in allowed administrative claims and resolutionhas since paid approximately $16.5 million more through March 2, 2013. As of March 2, 2013, the Company had in reserve approximately $5.2 million for other administrative claims.
A total of 3,096 proofs of claims and one motion for payment of professional fees for substantial contribution were filed in the Chapter 11 cases may arise as a resultthat asserted claims in the aggregate amount of damage claims created by the Debtors’ rejection of executory contracts. Conversely, the Company would expect that the assumption of certain executory contracts may convert existing liabilities shown as subject to compromise to liabilities not subject to compromise in future financial statements. Due to the uncertain nature of many of the potential claims, the Company is unable to project the magnitude of such claims with any degree of certainty at this time.
Case Resolution
Exclusivity. Under the Bankruptcy Code, the Debtors have the exclusive right for 120 days from the date of the filing to file a plan of reorganization and 60 additional days to obtain necessary acceptances. As of May 15, 2012, the Debtors have filed motions to extend such exclusive periods and the Equity Committee has filed a motion to terminate same. The Bankruptcy Court may render a decision on such motions at any time.
Proofs of Claim. On January 18, 2012, the Bankruptcy Court entered an order establishing March 1, 2012 as the bar date for creditors to file their claimsapproximately $316.6 million. When combined with the Bankruptcy Court. Shortly thereafter, the Debtors commenced notification, including publication, to all reasonably ascertainable actual and potential creditors informing them of the bar date and the required procedures with respect to the filing of proofs of claim with the Court. The Debtors are in the process of reviewing and reconciling claims, and anticipate filing objections to numerous claims over the course of the next several months. Any differences between claim amounts listed by the Debtors in their Schedules of Assets and Liabilities and claims filed by creditors will be investigated and, if necessary, the Court will make the final determination as to the amount, nature, and validity of claims.
Chapter 11 Plan.After a Chapter 11 plan of reorganization or liquidation has been filed with the Court, the plan, along with a disclosure statement approved by the Court, will be sent to all creditors, equity holders and parties in interest. Following the solicitation period, the Court will consider whether to confirm the plan. In addition to being voted on by holders of impaired claims and equity interests, a plan of reorganization or liquidation must satisfy certain requirements of the Bankruptcy Code and must be approved, or confirmed, by the Court in order to become effective. Under certain circumstances, the Court may confirm a plan even if such plan has not been accepted by all impaired classes of claims and equity interests. A class of claims or equity interests that does not receive or retain any property under the plan on account of such claims or interests is deemed to have voted to reject the plan. The precise requirements and evidentiary showing for confirming a plan notwithstanding its rejection by one or more impaired classes of claims or equity interests depends upon a number of factors, including the status and seniority of the claims or equity interests in the rejecting class, i.e., secured claims or unsecured claims, subordinated or senior claims, preferred or common stock.
As a result of the Chapter 11 Filings, realization of assets and liquidation of liabilities are subject to uncertainty. Further, a plan of reorganization or liquidation could or will materially change the amounts and classifications reported in the consolidated financial statements, which do not give effect to any adjustments to the carrying value of assets or amountsschedules of liabilities that might be necessary as a consequence of confirmation of a Chapter 11 plan.
Under the priority scheme established by the Bankruptcy Code, unless creditors agree otherwise, post-petition liabilities and prepetition liabilities must be satisfied in full before shareholders are entitled to receive any distribution or retain any property under a plan of reorganization or liquidation. The ultimate recovery to creditors and/or shareholders, if any, will not be determined until confirmation of a Chapter 11 plan. No assurance can be given as to what values, if any, will be ascribedwere filed in the Chapter 11 cases, to each of these constituencies or what types or amounts of distributions, if any, they would receive.
A plan of reorganization or liquidation could result in holders of Syms’ stock receiving no distribution on account of their interests and cancellation of their existing stock. If certain requirementsthe aggregate “as filed” claims totaled approximately $320.2 million (exclusive of the Bankruptcy Code are met, a Chapter 11 plan can be confirmed notwithstanding its rejection by Syms’ equity security holders and notwithstandingamounts due to the fact that such equity security holders do not receive or retain any property on account of their equity interestsformer Majority Shareholder under the plan. Syms considersPlan). In the value of its common stock to be highly speculative and strongly cautions equity holders that the stock may ultimately be determined to have no value. Accordingly, the Company urges that appropriate caution be exercised with respect to existing and future investments in its common stock or other equity securities, or any claims relating to prepetition liabilities.
Costs. We have incurred, and will continue to incur, significant costs associated with the reorganization for professional fees for advisors to the Debtors, and to other stakeholders in the Chapter 11 cases.
Merchandise
Mostexperience of the items soldCompany’s advisors, however, claims filed by creditors typically vastly exceed the Company consisted of nationally recognized designeramounts reflected on a company’s books and brand-name merchandise. Merchandise was generally displayed by department, classrecords and size on conveniently arranged racks, fixtures, tables or counters. No emphasis was placed on any particular “label” or brand. Most Syms branded stores offered minor alterations for an additional charge.
Purchasing
The Company purchased first quality, in-season, brand-name merchandise directly from manufacturers on terms it believed were more favorable than those generally obtained by departmentthe amounts that are eventually allowed and specialty stores. We estimated that approximately 900 designer and brand-name manufacturers of merchandise were represented in our stores. The Company generally does not maintain large out-of-season inventories. However, we occasionally purchased certain basic clothing which does not change in style from year to year at attractive prices for storage until the following season. Purchasing was performed by a buying staff in conjunction with Merchandise Managers.
Co-Branding
The Company converted four former Syms stores (Norwood, MA, Berlin, CT, Elmsford, NY and Westbury, NY) to co-branded stores in fiscal 2010. In fiscal 2009, the Company converted one former Syms store (Fairfield, CT) to a co-branded store. These stores carried the names of both Syms and Filene’s Basement and combined the strengths of both brands with an expanded selection of women’s merchandise in the former Syms stores.
Distributionactually paid.
As of January 2011May 24, 2013, based on the reconciliation work to date and an analysis from Alvarez & Marsal, the Company operated a 457,000 square foot leased distribution facility situated on 32.8 acres in Auburn, Massachusetts.believes that the estimated aggregate allowed amount of creditor claims, together with the net amount due to the former Majority Shareholder, is between $103 million and $123 million. In addition, because the Company ownsFilene’s, LLC long-term allowed claims are only entitled to a facility75% recovery, the estimated aggregate amount of distributions to creditors and the former Majority Shareholder under the Plan is between $94 million and $113 million. The differences between the “as filed” amounts and these estimates primarily reflect duplicative claims (including identical claims filed against more than one debtor entity or in Secaucus, New Jersey. This facility contains approximately 276,000 square feet of warehousemore than one priority class), amounts in the “as filed” claims that exceed the amounts for those claims shown on the Company’s books and distribution space, 36,000 square feet of office spacerecords, and 29,000 square feet of store space. The facility is located on an 18.6 acre parcel of landasserted claims for which the Company holdsdoes not believe it has any liability.
The process of reconciling claims is different than the process of actually resolving claims. Accordingly, the above estimates are based primarily on the work of the Company’s advisors in identifying and reconciling the amount of asserted claims to the Company’s books and records, and not on the negotiation or settlement of specific claims. Because of the large number of claims filed, the ongoing reconciliation and settlement processes and the litigation of certain claims, and although management believes the best current estimate has been recorded, the ultimate amount of allowed claims and the ultimate amount of distributions under the Plan could be materially different than the Company’s current estimates. Nonetheless, the estimates reflect what the Company’s advisors believe will be the amount of allowed claims and the amount of distributions after all of the claims are resolved, and they are the Company’s best estimates of those amounts as of May 24, 2013.
If the Syms and Filene's convenience class claims and the Syms general unsecured claims (as described in the Plan) are not paid in full under the Plan by October 1, 2013, with the full amount per the Plan subject to change, then the director designated by the holder of the Series A Preferred Stock will be entitled to direct the sale process for any "near term properties" (as defined in the Plan and listed in Item 2 below) that remain unsold, if any, pursuant to a ground leasecommercially reasonable process consistent with maximizing the value of those properties.
If the Filene's general unsecured claims (as described in the Plan) are not paid in full under the Plan by October 1, 2014, with the full amount per the Plan subject to change, then, subject to the extension of that date to April 1, 2015 under certain circumstances, the director designated by the holder of the Series A Preferred Stock will be entitled to direct the sale process for any "near term properties" or “medium term properties” (as defined in the Plan and listed in Item 2 below) that remain unsold, if any, pursuant to a commercially reasonable process consistent with maximizing the value of those properties.
Rights Offering and Redemption
In connection with proposal of the Plan, Syms entered into an Equity Commitment Agreement (the “ECA”) among (i) Syms, (ii) Marcy Syms, (iii) the Laura Merns Living Trust, (iv) the Marcy Syms Revocable Living Trust, as amended (the “Marcy Syms Trust” and, together with Marcy Syms and the Laura Merns Living Trust, the “Majority Shareholder”) and (v) the certain specified members of the Official Committee of Syms Equity Security Holders and their affiliates (the “Backstop Parties”). The ECA provided that, pursuant to and upon the effective date of the Plan, the former Majority Shareholder would sell all of its shares of Syms common stock to Syms at a price of $2.49 per share. Accordingly, on September 14, 2012, immediately following the effectiveness of the Plan, the former Majority Shareholder sold all of its 7,857,794 shares of common stock to Syms. Payment for the shares will be made to the former Majority Shareholder in accordance with the Plan as the Company’s real estate assets are monetized. The net amount due to the former Majority Shareholder is $17.8 million and is included as a liability on the Company’s Consolidated Statements of Net Assets as of March 2, 2013.
Under the terms of the Plan, the Company is restricted from paying any distributions, dividends or redemptions until after the former Majority Shareholder payments are made in full. The Certificate of Incorporation of the Company provides for a remaining termshare of approximately 265 years.Series B Preferred Stock owned by the former Majority Shareholder and entitling the former Majority Shareholder to control a majority of the Board of Directors if the former Majority Shareholder Payments are not made by October 16, 2016, so long as the general unsecured claim satisfaction has occurred.
SinceIn connection with the acquisitionECA and pursuant to the Plan, Syms offered to sell to existing shareholders other than the former Majority Shareholder, who qualified as “accredited investors” within the meaning of assets from Filene’s Basement, Inc.Regulation D under the Securities Exchange Act of 1934, the right to purchase 10,040,160 new shares of the Company’s common stock at a price equal to $2.49 per share, or approximately $25 million in June 2009,the aggregate (the “Rights Offering”). Pursuant to the ECA, the Backstop Parties agreed to purchase each of their pro rata share of the new shares made available in the Rights Offering, as well as new shares that were not subscribed for by other shareholders in the Rights Offering. Accordingly, on September 14, 2012, immediately following the effectiveness of the Plan, the Company sold the 10,040,160 shares of common stock pursuant to the Rights Offering.
The foregoing descriptions of certain transactions contemplated by the Plan are summaries only and do not purport to be complete and are qualified, in all respects, by the actual provisions of the Plan and related documents.
General Business Plan
As of September 14, 2012, Trinity owned 16 commercial real estate properties and a residential condominium. Trinity’s business plan includes the sale of 15 of those properties and the condominium, and the sale or development of 28-42 Trinity Place in Lower Manhattan (which is generally referred to herein as the “Trinity Place Property”). As of March 2, 2013, the Company had continuedsold its properties in Houston, Texas and Fairfield, Connecticut, as well as the condominium. Subsequent to assessMarch 2, 2013, the mostCompany has sold its property in Southfield, Michigan. The Company has also leased its property in Elmsford, New York. In addition, the Company’s property in Miami, Florida was sold shortly before the effective manner in which to integrate the operations of Filene’s and Syms to maximize the synergiesdate of the two businesses. This plan includedPlan. At present, the consolidationCompany believes that substantially all of distribution center functions. The consolidation of distribution center functions involved a shift of most merchandise processingits real estate properties are likely to be monetized prior to the Company’s Massachusetts distribution center.end of 2014, but there can be no assurance that this will happen, and the Company may consider alternatives if and as they arise.
The New Jersey distribution center servedTrinity also plans to replenishexplore the high volume New York City stores, process Bridallicensing of its intellectual property, including its rights to theFilene’s Basement trademark, theStanley Blacker and Vault (fashion/designer apparel)Maine Bay brands, and housed the adjoining retail store and corporate offices. Mostintellectual property associated with theRunning of the merchandise was processedBrides event and distributed from the Massachusetts distribution facility where it was received from manufacturers, inspected, ticketed and allocated to particular stores.
Marketing
The Company’s stores offered everyday low pricing in key fashion categories along with home goods and accessories. Syms stores had as their tagline “AnAn Educated Consumer is Our Best Customer”™, one of the best known and longest lasting taglines in retail. The Company believed that the Syms store customers were very loyal and appreciated and understood great brands at great prices. Filene’s Basement’s tagline, “Where Bargains Were Born”™, illustrated its long standing position as the original off-price retailer. The Company believed that the Filene’s Basement customer had a high fashion IQ and recognized the value in what was being offered. They had continued to enhance the “Running of the Brides” events, a bridal gown event that was unique to Filene’s Basement and garnered a great deal of media attention.
Historically, the Company advertised principally on radio. The Company also utilized print and billboard ads, as well as direct mail and electronic media including e-mail communication to registered customers. In addition, the Company utilized social media to enable it to communicate directly with its customer base.
The Company’s policy was to affix a price ticket on most items displaying its selling price as well as the price the Company regarded as the traditional full retail price of that item at department or specialty stores. All garments were sold with the brand-name as affixed by the manufacturer. The Company utilized vendor names and “our price, their price” on its in-store signage.Customer slogan.
The Company historically had excellent, longstanding relationships withis undertaking a review of various strategic and developmental alternatives related to the Trinity Place Property. To date no specific course of action has been determined. The Company intends to retain advisors including zoning architects, attorneys, construction experts and brokers to assist it in its suppliers. This madereview of monetization strategies for the Trinity Place Property. In light of the ongoing review, there remains a range of estimated values that may be realized for the Trinity Place Property under the various sale or development alternatives. The estimated value for the Company’s properties including the Trinity Place Property is discussed in the Notes to Consolidated Financial Statements.
Operating Reserves
Under the Plan, the Company’s corporate budget is composed of certain operating reserves to fund working capital and the Company’s operations. For the two year period from September 14, 2012 through September 13, 2014, the amounts to be funded and used in these reserves were set as follows: (i) a corporate overhead reserve of $5.0 million in the aggregate, (ii) a $3,829,088 pension fund reserve (of which $2.0 million shall fund the minimum annual payments due under the Syms pension plan and $1,829,088 shall fund the minimum quarterly payments due to Local 1102 for the allowed amount of the claims for pension withdrawal liability), (iii) a carry cost/repair/tenant improvement reserve of $9.0 million in the aggregate, and (iv) a reserve for carry costs of the Trinity Place Property of $3.0 million in the aggregate. After September 14, 2014, additional amounts are to be funded to those four reserves plus a discretionary reserve and an emergency fund reserve of $500,000 each.
Under the Plan, the reserves are to be funded from the proceeds realized by the Company a preferred choice for vendors with designer and famous brand overruns, department store cancellations and unmet volume objectives. These vendors understood that goods would be soldfrom the sale of assets, settlements or any other sources in an environment that supported the stature of their brands. The buyers were encouraged to purchase merchandisefirst year following the conclusion of the qualityChapter 11 cases. Absent the consent of the holder of the Series A Preferred Stock, the aggregate cap for any reserve may not be increased and namesthe amounts in each reserve may not be used to fund any expenses designated to be paid from another reserve, except that, (i) by a majority vote of the customers desired.Board of Directors, amounts in the corporate overhead reserve may be reallocated to the carry cost/repair/tenant improvement reserve and (ii) by a majority vote of the Board of Directors, and with the consent of the “Independent Director” (as described in the Plan), amounts in the corporate overhead reserve may be reallocated to the Trinity Place Property carry reserve.
TrademarksCertain Historical Financial Information
Various trademarks including: “Syms”â, “An Educated Consumer is Our Best Customer”â, “Names You Must Know”â, “The More You Know About Clothing, the Better it is for Syms”â, “Rediscover Syms. Off price - On style”â, “RunningIn fiscal 2010, Syms reported annual revenues of $445.1 million, a net loss of $32.9 million and total assets of $270.8 million. In fiscal 2011, Syms reported annual revenues of $258.2 million, a net loss of $76.0 million and total assets of $178.2 million. Syms switched to liquidation accounting on October 30, 2011, and Syms merged into Trinity on September 14, 2012. As of the Brides”â,“Where Bargains Were Born”âand “I just got a bargain”âend of fiscal 2012, the Company had total assets of $159.1 million.
Sold Properties
Certain information about the Company’s properties as of May 24, 2013 is set forth in Item 2 “Properties”. Certain information about the properties of the Company that have been registeredsold, including the net proceeds generated by the sold properties, net of brokerage commissions and sale costs, are set forth below. Each of these properties was a “short term property” under the Plan:
Property Location | Size (square feet) | Net Proceeds ($ in millions) | Date of Sale | |||||||
Miami, FL | 53,000 | $ | 4.1 | September, 2012 | ||||||
Houston, TX | 42,000 | $ | 3.6 | November, 2012 | ||||||
Fairfield, CT | 43,000 | $ | 5.5 | December, 2012 | ||||||
Secaucus, NJ (Condo) | 2,000 | $ | 0.3 | January, 2013 | ||||||
Southfield, MI | 60,000 | $ | 2.5 | April, 2013 | ||||||
Total | 200,000 | $ | 16.0 |
Marketing
Trinity has chosen to engage commercial real estate brokers to coordinate the marketing and other aspects of the process of selling certain of its properties. While terms vary, these brokers are typically due a commission payable only upon closing of the sale of the subject property based on the sale price. With respect to certain other properties, brokers have also been engaged to seek tenants with commissions based on the United States Patentrents called for under an executed lease. Currently, the Company has five properties subject to brokerage agreements for the sale or lease of its properties and Trademark Office. The Company’s registered trademarks are currentlyis in the process of engaging brokers on additional properties. In certain cases, sales of properties are being liquidated pursuant to an auction process conducted bypursued without the Company’s advisors.assistance of brokers. Engaging brokers familiar with and experienced in the markets in which the properties are located often provides important expertise on local market conditions, potential buyers and pricing variables.
Competition
The retail apparel business is highlymarkets in which the Company’s properties are located are inherently competitive with respect to prospective buyers and tenants for property and space. In most cases, there may be a limited number of prospective buyers or tenants in any given market, while there may be a number of available properties with characteristics more or less attractive than the Company’s property. In some of the markets, we expect that there may be few buyer or tenant prospects for the Company’s property and the Company accounted for only a small fraction ofability to successfully sell or lease the total market for men’s, women’s and children’s apparel. The Company’s stores competed with discount stores, specialty apparel stores, department stores, manufacturer-owned factory outlet stores and others. Many of the stores with which the Company competed are units of large national or regional chains that have substantially greater resources than the Company.property is uncertain.
Retailers having substantially greater resources than the Company have entered or have indicated their intention to enter the “off-price” apparel business, and the “off-price” apparel business itself has become increasingly competitive, especiallyCompetitive factors with respect to the increased use by manufacturersCompany’s Trinity Place Property may have a particularly material effect on the Company as it is likely the Company’s most valuable asset. The projected supply, demand and pricing for residential rental or condominium apartments and for commercial space will have a meaningful impact on investors’ interests for this property. There are numerous development projects in the surrounding area of their own factory outletsLower Manhattan that will compete against this property to attract owners and renters of space. Timing of delivery of future inventory of commercial and residential space in the use of on-line sites byarea is uncertain and will be an important consideration for investors and other retailers. At various timespotential buyers. In particular, the future demand for residential condominium units in Lower Manhattan is highly uncertain and will be a critical variable in the marketing of the year, department store chains and specialty shops offer brand-name merchandise at substantial markdowns.property.
Operations and Control Systems
In fiscal 2011, the Company continued the integration and upgrading of the Syms and Filene’s Basement management information systems. Product was tracked in approximately 450 different categories from its purchase to its ultimate sale in the Company’s stores. Prior to the Company’s liquidation all information regarding the product was transmitted daily to the Company’s centralized databases. The Company’s executives received detailed reports regarding sales and inventory at both the unit and retail dollar level on a store-by-store basis daily. In addition, reports monitoring critical business processes were made available daily.
In 2010, the Company completed deploying its Point of Sale system in all the Company’s stores, providing the flexibility needed to better service its customers and enhance their in-store experience. In 2011, the Company upgraded its Allocation system in order to improve its ability to get the right product into the right store at the right time.
Management of the Company visited stores on a regular basis to evaluate store performance. During these visits, merchandise needs, visual displays, staffing and employee issues, statistical store performance, and loss prevention issues were reviewed. Stores had some combination of on-premises loss prevention or security personnel and various theft deterrent and prevention systems during normal hours and monitored security systems after hours.
Employees
As of February 25, 2012, the Company had approximately 26 employees primarily staffed in an accounting and information technology capacity. Prior to the Company’s Chapter 11 filing, the Company had approximately 2,500 employees, of which approximately 1,400 worked on a part time basis. Each store employed approximately 30 to 160 associates, consisting mostly of sales personnel. Syms has collective bargaining agreements with Local 1102 and Local 108, both of the Retail Wholesale Department Store Workers Union (RWDSU). These contracts were renegotiated in 2010 and have expiration dates of October 31, 2013 and November 1, 2013, respectively. Syms also has a collective bargaining agreement with Local 400 of the United Food and Commercial Workers Union. This agreement was also renegotiated in 2010 and expired on April 30, 2012. Combined, these three local unions represented approximately 850 hourly employees at the Syms store locations. In 2010, the majority of Filene’s Basement store employees voted to be represented by RWDSU Local 1102. A new agreement was negotiated which covered approximately 1,100 Filene’s Basement store employees and expires on June 21, 2012.
Available Information
The Company makes available on its website at www.syms.com under “Investor Information” - “Press Releases and Financial Reports,” free of charge, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after the Company electronically files such material with, or furnishes such material to, the SEC. On the website, the Company also offers a link to all of the Company’s SEC filings and to all beneficial ownership reports filed by the Company’s directors and executive officers, via the SEC’s EDGAR filing system.
The following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risk and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks materialize, the financial condition and cash flows could be materially adversely affected.
Risk Related to the Chapter 11 Proceedings
Environmental Compliance
The Company Will Be Subject To The Uncertainties Of The Bankruptcy Process
For the duration of the Chapter 11 Proceedings, the Company will be subject to the risks and uncertainties associated with our being in bankruptcy. These risks include:
Syms will also be subject to risks and uncertainties with respect to the actions and decisions of the creditors and third parties who have interests in the Chapter 11 Proceedings that may be inconsistent with Syms’ restructuring or liquidation and business goals.
These risks and uncertainties could affect the Company’s business and operations in various ways. Because of the risks and uncertainties associated with the Chapter 11 Proceedings, Syms cannot predict or quantify the ultimate impact that eventsoccurring during the liquidation or reorganization process will have on its business, financial condition and results of operations.
Among other bankruptcy risks are costs and expenses of the Chapter 11 process that may exceed the Company’s projections and diminish recoveries for creditors and shareholders; the costs and uncertainties of litigation associated with disputed claims and other bankruptcy issues; and the possibility that creditor claims against Filene’s, LLC might be determined to be, or otherwise might be treated as, liabilities of Syms and thereby reduce value available to Syms shareholders.
As a result of the Chapter 11 Proceedings, the realization of assets and the satisfaction of liabilities are subject to uncertainty. While operating as debtors-in-possession, and subject to approval of the Court, or otherwise as permitted in the normal course of business, the Company may sell or otherwise dispose of assets and liquidate or settle liabilities for amounts other than those reflected in the consolidated financial statements. Further, a confirmed plan of reorganization could materially change the amounts and classifications of assets and liabilities reported in the consolidated financial statements. The historical consolidated financial statements do not include any adjustments to the reported amounts of assets or liabilities that might be necessary as a result of confirmation of a plan of reorganization.
The Company also expects that in the bankruptcy case, various claims may be asserted against it, and it cannot give any assurances that these claims will not have a material adverse effect on its financial condition, results of operations or the market price of its securities.
Risks related to Current Operations
Capital market, regional and general economic conditions, especially in the retail sector, could adversely affect the value of the Company’s real estate portfolio and its results of operations and, consequently, its ability to service current debt and to pay dividends to stockholders.
The value of the real estate owned by Syms may be affected by volatility and illiquidity in the financial and credit markets and other market or economic challenges experienced by the U.S. economy or real estate industry as a whole. For instance, as a result of the economic downturn and global recession that began in the second half of 2007, demand for retail space such as that owned by Syms declined nationwide due to industry slowdowns, bankruptcies, downsizing, layoffs and cost cutting. Real estate transactions and development opportunities lessened compared to the period prior to the current economic downturn. A return to the strong real estate conditions that prevailed in the first half of 2007 is not expected in the near term, and demand for retail space such as the real estate owned by Syms may continue to be flat or decline further. Given the current economic conditions, it may be difficult to lease space, collect rent, and attract new tenants for the real estate owned by Syms, and it may become more difficult to market and sell any particular parcel of the real estate owned by Syms. Further, the cost and availability of credit may be adversely affected by, illiquid credit markets and wider credit spreads, which may adversely affect the liquidity and financial condition of Syms tenants.
The real estate owned by Syms is located predominately in the New York City metropolitan area, as well as in markets in the Southeastern section of the United States. A downturn in the economies of any these local markets could reduce demand for retail space even in the event of a general market upswing. Because the Syms portfolio consists primarily of retail space (as compared to a more diversified real estate portfolio), a decrease in demand for retail space in turn could adversely affect the value of the real estate owned by Syms.
It may be difficult to sell real estate quickly, and transfer restrictions apply to some of the Company’s properties.
Real estate investments are relatively illiquid, and as a result, Syms' ability to sell one or more parcels of its real estate may be limited. There can be no assurance that Syms will be able to dispose of any particular parcel of its real estate within a stated time period or for a stated price. In addition, significant carrying costs are associated with each parcel of real property, such as insurance, real estate taxes and maintenance costs.
The Company may be unable to renew leases or relet space as leases expire.
The value of the real estate owned by Syms will depend in part on whether the properties are leased up with long term credit worthy tenants. Therefore, if current tenants decide not to renew their leases when such leases expire, Syms may have difficulty finding replacement tenants for those leases. Moreover, even if existing tenants do renew their leases or Syms can relet the space, it may not be able to retain favorable economic terms because of, among other factors, the cost of required renovations for any particular property. If Syms is unable to promptly renew the leases or relet the space at similar rates, the value of the affected real property could be adversely affected.
The Company depends on leasing space to tenants on economically favorable terms and collecting rent from tenants who may not be able to pay.
The value of the real estate owned by Syms will depend in part on tenants' ability to remain current on their rent. If a significant number of tenants cannot pay their rent or if Syms is not able to maintain occupancy levels on favorable terms the sale value of the affected property may decline. In addition, if a tenant does not pay its rent, Syms may incur costs to enforce its rights as landlord. During economic downturns in the economy, there may be an increase in the number of tenants that cannot pay their rent and a corresponding increase in vacancy rates.
Real estate is a competitive business.
The real estate owned by Syms is located in various locations across the United States, some of which are highly competitive environments. In operating its properties, Syms will compete with a large number of property owners and developers, some of which may be willing to accept lower returns on their investments. Principal competitive factors include rents charged, attractiveness of location, the quality of the property and the breadth and quality of services provided.
The value of the real estate owned by Syms depends upon, among other factors, trends in the national, regional and local economies, financial condition and operating results of current and prospective tenants and customers, availability and cost of capital, construction and renovation costs, taxes, governmental regulation, legislation and population trends.
The Company may suffer adverse consequences if its revenues decline, since its operating costs do not necessarily decline in proportion to its revenue.
Pending disposition of the real estate owned by Syms, Syms will earn a substantial majority of its income from renting its properties. Its operating costs, however, do not fluctuate in relation to changes in rental revenue. As a result, costs will not necessarily decline even if revenues do. Similarly, operating costs could increase while revenues stay flat or decline. In either such event, Syms may be forced to borrow to cover costs, it may incur losses or it may not have cash available for distributions to creditors or shareholders.
The Company relies on a small number of properties for a significant portion of its revenue.
The Company currently owns 18 properties, and its revenue and cash available for distribution to creditors and dividends to shareholders would be materially adversely affected if any of its properties were materially damaged or destroyed. Additionally, revenue and cash available for distribution could be materially adversely affected if tenants at these properties fail to make timely rental payments due to adverse financial conditions or otherwise default under their leases or file for bankruptcy.
The Company may be required to incur costs in order to comply with various environmental laws.
Under various federal, state and local laws, ordinances and regulations, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances released at a property, and may be held liable to a governmental entity or to third parties for property damage or personal injuries and for investigation and clean-up costs incurred by the parties in connection with the contamination. These laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of the hazardous or toxic substances. The presence of contamination or the failure to remediate contamination may adversely affect the owner's ability to sell or lease real estate or to borrow using the real estate as collateral.
Other federal, state and local laws, ordinances and regulations require abatement or removal of asbestos-containing materials in the event of demolition or certain renovations or remodeling, the cost of which may be substantial for certain redevelopment projects that a potential purchaser would want to undertake with respect to any particular parcel of real estate owned by Syms.the Company. Such laws, ordinances and regulations also govern emissions of and exposure to asbestos fibers in the air. Federal and state laws also regulate the operation and removal of underground storage tanks. Inconnection with the ownership and management of certain properties, Symsthe Company could be held liable for the costs of remedial action with respect to these regulated substances or related claims.
The Company estimates that it will incur at least $0.15 million in fees for Phase 1, Phase 2 and asbestos studies when selling its remaining properties, excluding the Trinity Place Property.
Based on a 2012 Phase 1 Environmental Assessment for the Trinity Place Property, the following conditions were noted for further investigation: an underground storage tank, asbestos containing materials and lead based paint. The Company estimates it will incur a minimum of $0.5 million to $0.75 million in fees and abatement related to the Trinity Place Property.
Employees
As of March 2, 2013, the Company had approximately eight employees primarily staffed in accounting, administration and information technology capacities. Prior to the Company’s Chapter 11 filing, the Company had approximately 2,500 employees, consisting mostly of sales personnel, of which approximately 1,400 worked on a part time basis.
General Information about Syms and Trinity
Syms was incorporated in New Jersey in 1983. Trinity was incorporated in Delaware immediately prior to the effective date of the Plan. Syms maintained its headquarters at One Syms Way, Secaucus, New Jersey 07094, and the telephone number was (201) 902-9600. Trinity is now using the same headquarters and telephone number.
Unless otherwise noted, and notwithstanding that Syms merged into Trinity on September 14, 2012, references to the “Company”, “we” or “our” relate to Syms prior to the merger and to Trinity following the merger. The Company’s fiscal year ends on the Saturday closest to the last day of February each year.
Available Information
The Company makes available on its website at www.tphs.com under “Investor Information” - “Press Releases and Financial Reports,” free of charge, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after the Company electronically files such materials with, or furnishes such materials to, the SEC. On the website, the Company also offers a link to all of the Company’s SEC filings and to all beneficial ownership reports filed by the Company’s directors and executive officers, via the SEC’s EDGAR filing system.
Risk Factors
The following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks materialize, the financial condition and cash flows of the Company could be materially adversely affected.
There can be no assurance that the Company will be able to monetize its assets in an amount that will be sufficient to satisfy its near term obligations to creditors under the Plan.
If the Syms and Filene's convenience class claims and the Syms general unsecured claims (as described in the Plan) are not paid in full under the Plan by October 1, 2013, then the director designated by the holder of the Series A Preferred Stock will be entitled to direct the sale process for any “near term properties” that remain unsold pursuant to a commercially reasonable process consistent with maximizing the value of those properties. The Company may not have sufficient cash generated from the monetization of its properties in the next four months to satisfy 100% of the Syms and Filene's convenience class claims and Syms general unsecured claims. It is unclear how the director referred to above would exercise his right to direct the sales or what effect that may have on the sale of the “near term properties”. The Company may seek to raise money through the sale of common equity, or the sale of other properties or assets, but it may decide to not raise money for the purpose of paying claims by October 1, 2013 and, in any event, such money may or may not be available on acceptable terms.
There can be no assurance that the Company's reserves for operating expenses will be sufficient.
As part of the Plan, the Company established a reserve of $5 million for overhead expenses to be incurred in the first two years following the effectiveness of the Plan. The Company’s overhead expenses have exceeded the original expectations, and at its current level of expenditures, the Company is likely to exhaust the overhead reserve in July 2013 or August 2013, absent an alternative arrangement or the consent described below. The Plan similarly established reserves for other operating expenses in the first two years following the effectiveness of the Plan, including one for general carrying costs and tenant improvements and one specifically for the Trinity Place Property, and there can be no assurance that those reserves will be sufficient. The Company is currently pursuing various alternatives within the parameters of the Plan, including, obtaining the consent of the holder of the Series A Preferred Stock to increase these reserves, which consent it has not yet received. The Company may also seek to raise money through the sale of common equity or by seeking other forms of capital. There can be no assurance that any such alternatives would be available to the Company on acceptable terms or that such consent will be obtained.
Proceeds from the monetization of the Company’s assets, after the payment of budgeted costs and transaction expenses, must be used to pay the Company’s obligations under the Plan.
Under the Plan, any proceeds generated from the monetization of the Company’s assets are first used to pay transaction expenses and to fund the Company’s operating budget. All net proceeds must then be used to satisfy creditor claims under the Plan and the Majority Shareholder redemption payment. As of May 24, 2013, based on the reconciliation work to date, the Company believes that the estimated aggregate allowed amount of creditor claims, together with the net amount due to the former Majority Shareholder, is between $103 million and $123 million. In addition, because Filene’s long-term allowed claims are only entitled to a 75% recovery, the estimated aggregate amount of distributions to creditors and the former Majority Shareholder under the Plan is between $94 million and $113 million. Only if there are proceeds remaining after the satisfaction of such obligations can they be used in the business of the Company or distributed to stockholders. There can be no assurance that the Company will be able to monetize its assets in an amount that will be sufficient to satisfy its obligations under the Plan or that would result in distributable proceeds.
If certain of the Company’s obligations are not satisfied by specific dates, the Plan and the Company’s Certificate of Incorporation provide for certain shifts in control.
If the Company is unable to satisfy all of its general unsecured claims by October 1, 2016, then the Company’s Certificate of Incorporation provides for the Board of Directors to automatically increase to nine members, seven of which are to be elected by the holder of the Series A Preferred Stock. Also, if the general unsecured claims have been satisfied but the required payment to the Majority Shareholder has not been made by October 16, 2016, then the Board of Directors shall automatically be adjusted to have four members, three of whom are to be elected by the Majority Shareholder. In each case, the Board of Directors shall remain controlled by the holder of the Series A Preferred Stock or the Majority Shareholder, as applicable, until the required payments are made.
In addition, as described above, if the Syms and Filene’s convenience class claims and the Syms general unsecured claims (as described in the Plan) are not paid in full under the Plan by October 1, 2013, then the director designated by the holder of the Series A Preferred Stock will be entitled to direct the sale process for any “near term properties” that remain unsold pursuant to a commercially reasonable process consistent with maximizing the value of those properties. It is unclear how the director referred to above would exercise his right to direct the sales or what effect that may have on the sale of the “near term properties”.
Similarly, if the Filene’s general unsecured claims (as described in the Plan) are not paid in full under the Plan by October 1, 2014, then, absent approval of a six-month extension under the circumstances described in the Plan, the director designated by the holder of the Series A Preferred Stock will be entitled to direct the sale process for any “medium term properties” and “near term properties” that remain unsold pursuant to a commercially reasonable process consistent with maximizing the value of those properties.
Capital market, regional and general economic conditions could adversely affect the value of the Company’s real estate portfolio.
The value of the real estate owned by the Company may be affected by volatility and illiquidity in the financial and credit markets and other market or economic challenges experienced by the U.S. economy or real estate industry as a whole. For instance, as a result of the economic downturn and global recession that began in the second half of 2007, demand for retail space such as that owned by the Company declined nationwide due to industry slowdowns, bankruptcies, downsizing, layoffs and cost cutting. Real estate transactions and development opportunities lessened compared to the period prior to the economic downturn. Depending on economic conditions, it may be difficult to sell any particular parcel of real estate owned by the Company, and it may be difficult to lease space, collect rent, and attract new tenants.
The real estate owned by the Company is located predominately in the New York City metropolitan area, as well as in Florida, Georgia and Illinois. A downturn in the economies of any these local markets could reduce demand for retail space even in the event of a general market upswing. Because the Company’s portfolio consists primarily of retail space (as compared to a more diversified real estate portfolio), a decrease in demand for retail space in turn could adversely affect the value of the real estate owned by the Company.
It may be difficult to sell real estate quickly and there are certain transfer and other restrictions applicable to some of the Company’s properties.
The ability to sell properties is subject to a number of issues and conditions, including delivery of marketable title, satisfactory environmental reports and purchasers’ reviews of the physical condition of the properties.
Real estate investments are relatively illiquid, and as a result, the Company’s ability to sell one or more parcels of its real estate may be limited. There can be no assurance that the Company will be able to dispose of any particular parcel of its real estate within a stated time period or for a stated price. In addition, significant carrying costs are associated with each parcel of real property, including insurance, real estate taxes and maintenance costs.
While most of the Company’s properties are predominantly vacant, the Company may be unable to lease, renew leases or relet space as current or future leases expire.
The value of certain real estate owned by the Company will depend in part on whether the properties are leased up with long term credit worthy tenants. Therefore, if current tenants decide not to renew their leases when such leases expire, the Company or the buyers of the parcels may have difficulty finding replacement tenants for those leases. Moreover, even if existing tenants renew their leases or the Company can relet the space, it may not be able to retain favorable economic terms because of, among other factors, the cost of required renovations for any particular property. If the Company is unable to promptly renew the leases or relet the space at similar rates, the value of the affected real property could be adversely affected and it could become more difficult to sell.
A portion of the Company’s income is from rent, and there is a risk that the tenants may not be able to pay their rents or that they may otherwise default under the terms of their leases.
The single largest lease to the Company is the lease to The Sports Authority located at the former Syms store in Elmsford, NY, which the tenant is currently refurbishing and preparing for an opening later in 2013. While there is no specific risk that the Company is aware of at this time, anything that causes a disruption of the rent with respect to this lease, or a description with respect to the business or credit quality of The Sports Authority, would likely be material to the Company and the potential sale of the Elmsford property. In addition, if The Sports Authority or another tenant does not pay its rent, the Company may incur costs to enforce its rights as landlord. During economic downturns in the economy, there may be an increase in the number of tenants that cannot pay their rent and a corresponding increase in vacancy rates.
Selling real estate is a competitive business.
Much of the real estate owned by the Company is located in markets where there are other similar parcels for sale, meaning that buyers often have a number of alternatives, and this can depress sale prices or prolong the time it may take to achieve a sale. Also, the value of the real estate owned by the Company depends upon, among other factors, trends in the national, regional and local economies, the financial condition and operating results of potential buyers, current and prospective tenants and customers, the availability and cost of capital, construction and renovation costs, taxes, governmental regulation, legislation and population trends. The ability to sell and the price of any individual property is also dependent on the state of title, the physical condition of the property (including the state of the roof and the heating, cooling and ventilation systems), available parking and environmental conditions, among other factors. Contracts of sale are often subject to due diligence periods in which the prospective purchaser is permitted to review and raise objections to various physical and legal conditions while the property is under contract and is no longer being marketed.
As described above, the Trinity Place Property is subject to a myriad of competitive and uncertain market conditions that may affect its value. In addition, its physical condition has not been fully investigated and may require significant expenditures. The Company is currently restoring a full exterior wall on one of the component buildings of this property.
The majority of the value in the Company’s real estate holdings are concentrated in just a few parcels.
Although the Company owns 13 parcels as of May 24, 2013, a significant majority of the anticipated value of those properties is concentrated in just five properties, including the Trinity Place Property in Lower Manhattan and properties in Secaucus, NJ, Elmsford, NY, Paramus, NJ, and Westbury, NY.
The Company may be required to incur costs in order to comply with various environmental laws.
Under various federal, state and local laws, ordinances and regulations, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances released at a property, and may be held liable to a governmental entity or to third parties for property damage or personal injuries and for investigation and clean-up costs incurred by the parties in connection with the contamination. These laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of the hazardous or toxic substances. The presence of contamination or the failure to remediate contamination may adversely affect the owner's ability to sell or lease real estate or to borrow using the real estate as collateral.
Other federal, state and local laws, ordinances and regulations require abatement or removal of asbestos-containing materials in the event of demolition or certain renovations or remodeling, the cost of which may be substantial for certain redevelopment projects that a potential purchaser would want to undertake with respect to any particular parcel of real estate owned by the Company. Such laws, ordinances and regulations also govern emissions of and exposure to asbestos fibers in the air. Federal and state laws also regulate the operation and removal of underground storage tanks. In connection with the ownership and management of certain properties, the Company could be held liable for the costs of remedial action with respect to these regulated substances or related claims.
The Company is subject to risks associated with natural or other disasters.
A number of the parcels comprising the real estate owned by Symsthe Company are located in areas which could be subject to natural or other disasters, including hurricanes, severe tropical storms and tornados. For example, the Trinity Place Property sustained damage in connection with Hurricane Sandy in October 2012, only a portion of which may be recoverable through insurance; however, the amount of the uninsured loss is not expected to have a material effect on the Company.
The Company is subject to potential uninsured losses and/or claims.
SymsThe Company carries comprehensive liability, fire, flood, earthquake, extended coverage and rental loss insurance on all properties, which it believes will be adequate and appropriate. There are, however, some types of losses, including lease and other contract claims, which may not be covered by insurance. If an uninsured loss or a loss in excess of insured limits occurs, such loss could have a negative impact on Symsthe Company and/or the anticipated future revenue from any particular parcel of real estate owned by Syms.the Company.
Possible terrorist activity or other acts of violence could adversely affect the Company’s financial condition and results of operations.condition.
Future terrorist attacks in the United States or other acts of violence may result in declining economic activity, which could harm the demand for goods and services offered by Syms tenants and the value of its properties. Such a resulting decrease in retail demand could make it difficult for Syms to renew, re-lease or sell Syms properties.
Terrorist activities or violence also could directly affect the value of the Company’s properties through damage, destruction or loss, and the availability of insurance for such acts, or of insurance generally, might be lower or cost more, which could increase Syms'the Company’s operating expensesexpenses. Terrorist activities and adversely affect its financial condition and resultsother acts of operations. To the extent that Syms' tenants are affected by future attacks, their businesses similarlyviolence could be adversely affected, including their ability to continue to meet obligations under their existing leases. These acts might erode business and consumer confidence and spending and might result in increased volatility in national and international financial markets and economies. Any one of these events might decrease demand for real estate and decrease or delay the occupancy of Syms' new or redeveloped properties.
Inflation or deflation may adverselyalso indirectly affect the Company’s financial condition and resultsbecause of operations.the impact they can have on the economy generally.
Increased inflation could have a pronounced negative impact on Syms' general and administrative expenses, as these costs could increase at a rate higher than Syms' rents. Conversely, deflation could lead to downward pressure on rents and other sources of income.
The Company may incur significant costs complying with the Americans with Disabilities Act and similar laws.
Syms'The Company’s properties may be subject to risks relating to current or future laws, including laws benefiting disabled persons, and other state or local zoning, construction or other regulations. These laws may require significant property modifications in the future. Noncompliance with these laws could result in fines being levied against Syms. The occurrence of any of these events could have an adverse impact on our cash flows and ability to make timely distributions.the Company.
Under the Americans with Disabilities Act, (the “ADA”), all public accommodations must meet federal requirements related to access and use by disabled persons. Additional federal, state and local laws also may require modifications to Syms'the Company’s properties, or restrict Symsthe Company’s ability to renovate its properties. If one or more of Syms'the Company’s properties is not in compliance with the ADA or other legislation, then Symsthe Company may be required to incur additional costs to bring the property into compliance with the ADA or similar state or local laws.
Syms cannot predict the ultimate amount of the cost of compliance with the ADA or other legislation. If Syms incurs substantial costs to comply with the ADA and any other legislation, our financial condition, results of operations and cash flow and/or ability to satisfy our debt service obligations and to make distributions could be adversely affected.
Changes in governmental regulation could adversely affect the Company’s operations.
Laws and regulations at boththe local, state and federal levels frequently change and the ultimate cost of compliance cannot be precisely estimated. In addition, we cannot predict the impact that may result from the changes in governmental regulation under different political administrations. Changes in regulations, the imposition of additional regulations, or the enactment ofnew legislation that impacts employment, labor, trade, transportation or logistics, health care, tax or environmental issues, among others, could have a material adverse impact on our financial condition condition.
The legal status of the CEO’s engagement agreement remains in question.
Lauren Krueger served as the Company’s Chief Executive Officer from September 14, 2012 until the effective date of her resignation on January 11, 2013. The Board of Directors then elected Mark D. Ettenger as Chairman, and in such capacity he served as the Company’s principal executive officer from January 12, 2013 until April 21, 2013. On April 22, 2013, the Company and Mr. Ettenger executed an engagement agreement for his CEO services, and his title became Chairman, President and Chief Executive Officer. As disclosed in the Company’s Current Report on Form 8-K filed with the SEC on April 26, 2013 and discussed below in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” Alan Cohen, the Company director appointed by the holder of the Series A Preferred Stock, has informed the Company of his belief that under the Company’s Certificate of Incorporation and the Plan, his approval is required in order for the Company to enter into and/or resultsperform its obligations under the CEO engagement agreement between the Company and Mr. Ettenger. Mr. Cohen has not approved the engagement agreement and has indicated that he does not intend to approve it in its current form. The Company, Mr. Cohen and Mr. Ettenger are engaged in discussions attempting to resolve the issue, but there can be no assurance as to the outcome of operations.those discussions. If the matter is not resolved, it could result in the Company not having a principal executive officer and/or in the need for legal proceedings, which could cause further distraction and negatively affect the Company’s business.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
At February 25, 2012,As of May 24, 2013, the Company has onlyCompany’s remaining “near term properties” as defined under the Plan are as follows. Each property is owned locations. The following table is a listing of these locations and respective square footage:in fee, except as noted.
Total | ||||||||
Square | ||||||||
Location | Notes | Feet | ||||||
Fairfield, CT | (1) | 43,000 | ||||||
Ft. Lauderdale, FL | 55,000 | |||||||
Miami, FL | 53,000 | |||||||
West Palm Beach, FL | 112,000 | |||||||
Marietta, GA | 77,000 | |||||||
Norcross, GA | 69,000 | |||||||
Addison, IL | 68,000 | |||||||
Southfield, MI | 60,000 | |||||||
Cherry Hill, NJ | 150,000 | |||||||
Paramus, NJ | 77,000 | |||||||
Secaucus, NJ | (2) | 340,000 | ||||||
Elmsford, NY | (3) | 59,000 | ||||||
New York, NY | 57,000 | |||||||
Westbury, NY | 92,000 | |||||||
Williamsville, NY | 102,000 | |||||||
Berwyn, PA | 69,000 | |||||||
Houston, TX | 42,000 | |||||||
1,525,000 |
Total | ||||
Square | ||||
Property Location | Feet | |||
Addison, IL | 68,000 | |||
Berwyn, PA | 69,000 | |||
Cherry Hill, NJ | 150,000 | |||
Ft. Lauderdale, FL | 55,000 | |||
Marietta, GA | 77,000 | |||
Norcross, GA | 69,000 | |||
Secaucus, NJ (1) | 340,000 | |||
West Palm Beach, FL | 112,000 | |||
Williamsville, NY | 102,000 | |||
Total | 1,042,000 |
(1) |
Ground lease dated June 1, 1977, expiring May 31, 2276. Under the terms of the ground lease, the Company is obligated to pay additional rents equal to 15% of any annual net cash flow plus 15% of any net proceeds from a refinancing of this property. |
As of May 24, 2013, the Company’s “medium term properties” as defined under the Plan are as follows. Each property is owned in fee, except as noted.
Total | ||||
Square | ||||
Property Location | Feet | |||
Elmsford, NY (1) | 59,000 | |||
Westbury, NY | 92,000 | |||
Paramus, NJ | 77,000 | |||
Total | 228,000 |
Ground |
Below is certain information about the Company’s property generally referred to as the “Trinity Place Property”, which is owned in fee. The Trinity Place Property also has associated air rights.
Total | ||||
Square | ||||
Property Location | Feet | |||
New York, NY | 57,000 |
7 |
Item 3. LEGAL PROCEEDINGS
The Company is a party to routine legal proceedings, which are primarily incidental to its former business. Some of the actions to which the Company is a party are covered by insurance and are being defended or reimbursed by the Company’s insurance carriers. Additionally, as discussed in Part I,Item 1, the Company operates under the Plan that was approved in connection with the resolution of the Chapter 11 cases involving Syms and its subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Code in the United States Bankruptcy Court for the District of Delaware. Additional information regarding this filing was reported in the Company’s current reports on Form 8-K, filed with the SEC on November 2, 2011 and November 23, 2011, which are hereby incorporated by reference.subsidiaries.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
Item 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
On November 4, 2011, the Company received notice from the NASDAQ Listing Qualifications Staff stating that the Staff has determined that the Company’s securities would beThe Common Stock of Syms was delisted from the NASDAQ Stock Market LLC (the “NASDAQ”).
The decision was reached by the Staff under NASDAQ Listing Rules 5101, 5110 (b) and IM-5101-1 following the Company’s announcement on November 2, 2011 that it and each of its subsidiaries filed a petition for protection under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. Syms stock was delisted by NASDAQ prior to the market opening on November 15, 2011. NASDAQ filed Form 25-NSE with the SEC removingSince that time, the Company’s securities from listing and registration on the NASDAQ. Effective November 15, 2011, the Company’s stock began trading onCommon Stock has been quoted in the OTCQB marketplace, (the “Pink Sheets”), trading symbol SYMSQ.PK. Prior to November 15, 2011, stock traded on NASDAQ, under the symbol SYMS.Operatedoperated by OTC Markets Group Inc. Initially, the stock’s OTCQB trading symbol was “SYMSQ”, the OTCQB is a market tier for OTC traded companies that are registered and reportingbut it was changed to “TPHS” in connection with the SEC.
Trading in stock or optionsconclusion of the Company is restricted by order of the United States Bankruptcy Court for the District of Delaware.Chapter 11 cases.
The following table summarizes the quarterly high and low bid quotations prices per share of the Common Stock as reported onin the Pink SheetsOTCQB since November 15, 2011 and by the high and low sales prices on NASDAQ prior to the date trading was suspended by NASDAQ.that date. The Pink SheetOTCQB quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
Fiscal Year Ended March 2, 2013 | Fiscal Year Ended February 25, 2012 | |||||||||||||||||||||||||||||||
Year ended February 25, 2012 | Year ended February 26, 2011 | High | Low | High | Low | |||||||||||||||||||||||||||
High | Low | High | Low | |||||||||||||||||||||||||||||
First Quarter | $ | 10.20 | $ | 6.45 | $ | 10.68 | $ | 6.80 | $ | 11.25 | $ | 8.95 | $ | 10.20 | $ | 6.45 | ||||||||||||||||
Second Quarter | 12.99 | 8.40 | 7.84 | 7.00 | $ | 9.10 | $ | 2.60 | $ | 12.99 | $ | 8.40 | ||||||||||||||||||||
Third Quarter | 10.45 | 5.64 | 8.49 | 6.91 | $ | 4.45 | $ | 2.91 | $ | 10.45 | $ | 5.64 | ||||||||||||||||||||
Fourth Quarter | 12.80 | 8.10 | 7.31 | 6.11 | $ | 5.45 | $ | 4.04 | $ | 12.80 | $ | 8.10 |
Holders
As of May 10, 2012,24, 2013, there were approximately 304record373 record holders of the Company’s Common Stock, par value $0.05 per share (the “Common Stock”).Stock.
Dividends
No dividends were paid in fiscal 2012 or fiscal 2011. The payment of any dividends on the Common Stock is strictly limited by the terms of the Plan, and the Company has no intention of and is unable to pay dividends to the holders of Common Stock until at least such time as the Company’s distribution obligations under the Plan have been satisfied.
Performance Graph
Item 6. SELECTED FINANCIAL DATA
The selected financial data presented below has been derived from the Company’s audited financial statements for the eight months ended October 29, 2011, and the fiscal years ended February 26, 2011, February 27, 2010, February 28, 2009 and March 1, 2008. The selected financial data presented below should be read in conjunction with such financial statements and notes thereto.
Eight Months Ended October 29, 2011(1) | Fiscal Year Ended February 26, 2011 | Fiscal Year Ended February 27, 2010(2) | Fiscal Year Ended February 28 2009 | Fiscal Year Ended March 1, 2008 | ||||||||||||||||
(in thousands, except per share amounts) | ||||||||||||||||||||
Statement of Operations data: | ||||||||||||||||||||
Net sales | $ | 258,214 | $ | 445,133 | $ | 377,309 | $ | 242,000 | $ | 267,149 | ||||||||||
Net (loss) income from operations(3) | (28,561 | ) | (50,380 | ) | (4,842 | ) | (3,993 | ) | 2,225 | |||||||||||
Net (loss) income | (76,027 | ) | (32,857 | ) | 8,308 | (3,423 | ) | 807 | ||||||||||||
Net (loss) income per share – basic | $ | (5.26 | ) | (2.27 | ) | 0.57 | (0.23 | ) | 0.06 | |||||||||||
Dividends paid | - | - | - | - | 8,820 | |||||||||||||||
Net (loss) income per share – diluted | $ | (5.26 | ) | (2.27 | ) | 0.57 | (0.23 | ) | 0.05 | |||||||||||
Balance Sheet data: | ||||||||||||||||||||
Working capital | Not Applicable | $ | 31,563 | $ | 52,798 | $ | 43,215 | $ | 57,090 | |||||||||||
Total assets | Not Applicable | 270,774 | 269,079 | 215,123 | 229,629 | |||||||||||||||
Long-term liabilities | Not Applicable | 41,421 | 11,418 | 840 | 1,178 | |||||||||||||||
Shareholders’ equity | Not Applicable | 160,979 | 195,032 | 186,043 | 192,135 |
(1) Reflects eight months of activity through October 29, 2011, the end of the fiscal month closest to the date on which the Company filed voluntary petitions for reorganization under Chapter 11 and subsequent to which has been reporting under the liquidation basis of accounting. Amounts are not comparable to prior fiscal years.
(2) Reflects the acquisition by Filene’s, LLC on June 18, 2009 of certain real property leases, inventory, equipment and other assets of Filene’s Basement, Inc. pursuant to an auction conducted in accordance with § 363 of the Bankruptcy Code. The acquisition has been accounted for as a purchase. See Note 7 to Consolidated Financial Statements.
(3) Fiscal 2009 (the year ended February 27, 2010) includes a gainof $24.8 million from the receipt of insurance proceeds from officers’ life insurance policies on the life of the Company’s founder who died on November 17, 2009 and a bargain purchase gain of $9.7 million attributable to the acquisition of assets from Filene’s, Inc.
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 reportreport) includes forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934) and information relating to the Company that are based on the beliefs of management of the Company as well as assumptions made by and information currently available to 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, the restrictions contained in the Plan, general economic and market conditions, possible disruptions in the Company’s information or communication systems, possible work stoppages or increases in labor costs, higher than anticipated costs, higher interest rates, unanticipated difficulties which may arise with respect to the Company and other factors which may be outside the Company’s control.control, many of which are described above in “Risk Factors”. 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 SEC.
On November 2, 2011, Syms and its subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Code (“Bankruptcy Code” or “Chapter 11”) in the United States Bankruptcy Court (“Court”) for the District of Delaware.
Disposition of the Company’s and Filene’s Businesses
Prior to November 2, 2011, all of the Company’s and Filene’s business operations consisted primarily of running retail operations. As the economy worsened, sales continued to erode and, as a result, cash flow suffered. Notwithstanding the best efforts of the Companysuffered and Filene’s, significant operational losses continued to threaten the on-going businesses. Trade vendors tightened and/or ceased providing credit terms. As a result, the Company and Filene’s projected that absent additional financing or measures to monetize certain assets, liquidity would come to an end. On November 2, 2011, Syms and its subsidiaries filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code.
In response to the Chapter 11 filing, the Company implemented the liquidation basis of accounting effective on October 30, 2011, which was the beginning of the fiscal month closest to the petition date. Net operating results from October 30, 2011 to November 1, 2011 were not material. 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 on October 30, 2011. Under this basis of accounting, assets and liabilities are stated at their net realizable value and estimated costs through the liquidation date are provided to the extent reasonably determinable.
The consolidated financial statements for the periodperiods ended October 29, 2011 and February 26, 2011 and February 27, 2010 were prepared on the going concern basis of accounting, which contemplated realization of assets and satisfaction of liabilities in the normal course of business. In the opinion of management, the accompanying Consolidated Statements of Operations, Shareholders’ Equity and Cash Flows contain all adjustments, including normal recurring adjustments, necessary to present fairly the financial position of the Company as of February 26,October 29, 2011 and February 27, 2010.26, 2011.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the appropriate application of certain accounting policies, many of which require us to make estimates and assumptions about future events and their impact on amounts reported in the financial statements and related notes. Since future events and their impact cannot be determined with certainty, the actual results will inevitably differ from the Company’s estimates. Such differences could be material to the financial statements.
The Company believes that its application of accounting policies, and the estimates inherently required by the policies, are reasonable. These accounting policies and estimates are reevaluated periodically, 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 has identified certain critical accounting policies that applied to the Company’s financial reporting until the adoption of the liquidation basis of accounting on October 30, 2011. These policies are described below.
9 |
Merchandise InventoInventoryry – Merchandise inventories arewere stated at the lower of cost or market on a first-in, first-out (FIFO) basis, as determined by the retail inventory method. Under the retail method, inventory cost and the resulting gross margins arewere calculated by applying a cost to retail ratio between the costs of goods available for sale and the retail value of inventories. 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. Under the moving weighted average cost method, inventory cost and the resulting gross margins arewere calculated by applying an average cost based on the cost of goods available for sale divided by the number of units available for sale. After the Company completed the acquisition of certain assets of Filene’s Basement Inc., the Company found itself in the position that a portion of its business was utilizing the moving average cost method and a portion of its business was utilizing the retail inventory method.
The Company thus was faced with the choice of either converting Filene’s to the moving average cost method or transitioning the Syms stores back to the system that they had previously utilized. The Company determined that it would be more effective to revert back to the retail inventory method. The change in the method of recording Syms inventory in the third quarter of fiscal 2009 and the third quarter of fiscal 2010 did not have a material impact on reported results of operations. The significant estimates used arewere for markdowns and shrinkage.
Factors considered in the determination of permanent markdowns includeincluded current and anticipated demand, customer preferences, age of the merchandise, fashion trends and weather conditions. In addition, inventory is also evaluated against corporate pre-determined historical markdown trends. When a decision iswas made to permanently markdown merchandise, the resulting gross margin reduction iswas recognized in the period the markdown iswas recorded. The timing of the decision, particularly surrounding the balance sheet date, can have a significant effect on the results of operations.
Shrinkage iswas estimated as a percentage of sales for the period from the date of the last physical inventory to the end of the fiscal year. Physical inventories arewere taken at least annually for all stores and inventory records arewere adjusted accordingly. The shrinkage rate from the most recent physical inventory, in combination with historical experience, iswas used as the standard for the shrinkage accrual following the physical inventory.
The Company has found the use of these estimates to be appropriate and actual results have not differed materially. However, the Company is subject to certain risks and uncertainties that could cause its future estimates to differ materially from past experience.
Long-Lived Assets- In evaluating and measuring an impairment loss, the Company considersconsidered individual retail locations to be the appropriate asset group, since the store level iswas the lowest level at which identifiable cash flows arewere independent of the cash flows of other assets and liabilities.
The Company evaluatesevaluated long-lived assets for impairment at all of ourits retail locations on at least an annual basis at the end of each fiscal year, after the holiday selling season, when the Company hashad the most visibility into the operations of the individual store. The Company will also testtested an asset group for impairment during the year if any impairment indicators arewere identified that could result in a potential impairment.
If it iswas determined that such indicators arewere present and the review disclosesdisclosed that the assets willwould not be fully recoverable, based on undiscounted estimated cash flows over the remaining useful lives, their carrying values arewere reduced to estimated fair value. Various factors, including future sales growth and profit margins, arewere included in this analysis. To the extent these future projections or the Company’s strategies change, the conclusion regarding impairment may differ from the Company’s current estimates.
Deferred Tax Valuation Allowance–The Company has considered future taxable income and ongoing prudent and feasible tax planning strategies that could produce additional future taxable income in assessing the need for a valuation allowance.
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$46.5 million was recorded during the eight-monththirty-five weeks period ended October 29, 2011. FurtherA further valuation allowance of approximately $38,599,000$38.6 million was recorded in the subsequent period from October 30, 2011 through February 25, 2012.2012 and a reduction of approximately $1.4 million was recorded in the fiscal year ended March 2, 2013.
The Company has identified certain significant accounting policies that have been applied to the Company’s financial reporting after the adoption of liquidation basis of accounting on October 30, 2011. These policies are described below.
a. | 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 work required for the claims settlement process, changes in market conditions and changes in the strategy surrounding the sale of properties. 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. |
b. | Pension Expense – The Company will terminate its pension plans. Under the liquidation basis of accounting, actuarial valuation analyses are prepared annually to determine the fair value, or termination value, of the plans. These valuations and the ultimate liability to settle the plans may result in adjustments driven by changes in assumptions due to market conditions. The liabilities related to these pension plans will be settled at the same payout percentage as all other unsecured creditor claims. |
c. | Long-Lived Assets – Real estate and other long-lived assets are recorded at estimated net realizable value based on valuations, purchase agreements and/or letters of intent from interested third parties, when available. |
d. | Income Taxes –To the extent that income taxes, including alternate minimum income taxes, are expected to be incurred as a result of the liquidation of the Company’s properties, such costs are reflected in accrued liquidation costs, as described above. As of March 2, 2013 a total of $0.9 million has been accrued. As part of the process of estimating the amount of income taxes to be incurred during the liquidation period, management has taken into consideration the extent to which net operating loss carry forwards (“NOLs”) are expected to be available to offset the amount of income otherwise taxable on the sale of properties. This involved a process of estimating the extent to which each property had a fair value in excess of its tax basis (a “built in gain”) as of the date of emerging from bankruptcy on September 14, 2012. At that point in time, the Company believes there was a change in control of the Company that imposed a restriction on the extent to which the Company can use prior NOLs, except to the extent of a built in gain that existed as of the date of the change in control. |
Results of Operations
For an entity reporting under the liquidation basis of accounting, the entity is required to present a statement of net assets (which replaces a balance sheet), whereby the assets are reported at estimated realizable amounts and the liabilities are reported at estimated settlement amounts; and a statement of changes in net assets in liquidation (which replaces the statement of operations), which reports the estimated gains and losses on liquidation. The following discussion comparesCompany began presenting its financial statements under the eight months endedliquidation basis of accounting as of October 29,30, 2011 and discontinued its retail operations on or about December 31, 2011. Because all retail operations have ceased as of December 31, 2011 and the twelve monthsCompany is now focused on monitizing its real estate properties, the results of operations for the fiscal year ended March 2, 2013 are not comparable to the fiscal year ended February 26,28, 2012.
During September 2012, Syms sold its Miami, FL property, the building of which is 53,000 square feet, in a Court-approved transaction. The net proceeds from the sale were approximately $4.1 million.
During November 2012, the Company sold its Houston, TX property, the building of which is 42,000 square feet, on an “as-is,” basis. The net proceeds from the sale were approximately $3.6 million.
During December 2012, the Company sold its Fairfield, CT property, the building of which is 43,000 square feet, on an “as-is” basis. The lessor of the land exercised its option to terminate its leasehold interest with net proceeds from the sale of the property of $5.5 million paid to the Company.
During December 2012, the Company entered into an agreement to lease its unoccupied space at its Elmsford, NY property. The carrying value of this property as of March 2, 2013 has been adjusted to reflect the impact of this transaction.
During December 2012,the Company received a $0.9 million settlement on its Marietta, GA property. This was the result of the second and final payment regarding the partial condemnation of the property adjacent to the Marietta store in 2011.
During January 2013, the Company sold its Secaucus, NJ condominium. The net proceeds from the sale were approximately $0.3 million.
During April 2013, the Company sold its Southfield, MI property, the building of which is 60,000 square feet, on an “as-is” basis. The net proceeds from the sale were approximately $2.5 million. The value recorded in the financial statements as of March 2, 2013 is consistent with the amount realized from this subsequent transaction.
In addition to these transactions, which generated aggregate net proceeds to the Company of approximately $14.4 million, the Company received an additional $2.9 million in rents and other income during the fiscal year ended March 2, 2013, $1.1 million of which was received after September 14, 2012. The Company’s operating costs and expenses in the fiscal year ended March 2, 2013 were $19.9 million, with $8.1 million of that amount incurred after September 14, 2012. As noted above, overhead expenses have exceeded the original projections and are outpacing the budgeted reserves, primarily due to professional fees.
As of March 2, 2013, the net assets of the Company available to Common Shareholders was $24.8 million, up from $21.2 million as of February 25, 2012, primarily due to an increase in the estimated fair value of the Company’s real estate properties and a decrease in the estimated claims distributions partially offset by a reduction of $12.9 million in the amount of cash and cash equivalents, which was spent on the prosecution of the Plan and the Company’s operating expenses, and the inclusion of the Companys obligation to pay $17.8 million to the former Majority Shareholder in exchange for its shares in Syms. The decrease in total assets from $178.2 million at the end of fiscal 2011 to $159.1 million at the end of fiscal 2012 was partially offset by a $22.7 million reduction in accounts payable, accrued expenses, accrued liquidation costs, and February 27, 2010. Both February 26, 2011 and February 27, 2010 were comprised of 52 weeks.other liabilities, primarily lease settlement costs.
Comparison of the Eight MonthsThirty-five Weeks Ended October 29, 2011 (Fiscal 2011) Compared to Twelve Months Ended February 26, 2011 (Fiscal 2010)
TheAs noted above, the Company adopted the liquidation basis of accounting effective October 30, 2011 and accordingly reported no revenue from the sale of merchandise, no cost of goods sold and no operating expenses thereafter. As a result the amounts reported for fiscal 2011 and fiscal 2010 are not comparable.
Sales for the eight monthsthirty-five weeks ended October 29, 2011 were $258.2 million versus $445.1 million for the twelve-month period ended February 26, 2011. Sales volume for the eight monthsthirty-five weeks ended October 29, 2012, was impacted by the fact that Gordon BrothersSyms undertook the liquidation of five stores (Rockville Pike, MD; Watertown, MA; Peabody, MA; Braintree, MA and Saugus, MA) for approximately 18 days during the period.
By merchandise category, our Women’sthe women’s business grew to 47% of total Company net sales from 46% in the prior year and Shoesthe shoes business grew to 6% from 5% lastin the prior year. Shoes increased partially due to the introduction of DSW into seven Syms locations during the third quarter of fiscal 2011. These increases came at the expense of Men’sthe men’s business which decreased to 37% of total Company net sales from 38% lastin the prior year, and Domesticsthe domestics business which declined slightly to 5% from 6% lastin the prior year. Children’s apparel did not change, remaining at 5% of total companyCompany net sales.
Gross profit was $100.2 million, or 38.8% of net sales, for the eight monthsthirty-five weeks ended October 29, 2011 compared with $173.8 million, or 39.0% of sales, for the twelve months ended February 26, 2011. This decrease as a percent of net sales was due primarily to lower inventory levels, compared to the prior year, higher levels of markdowns, in the current year, increased advertising and promotions to generate sales as well as the impact of the five store liquidation run by Gordon Brothers that started mid October 2011.
The Company’s gross profit excludesexcluded the cost of its distribution network. For the eight monthsthirty-five weeks ended October 29, 2011 and the twelve months ended February 26, 2011, the amounts incurred for ourthe Company’s distribution network that were classified in selling, general and administrative expenses and occupancy costs were $9.5 million and $19.0 million, respectively.
Selling, general and administrative expense (“SG&A”) for the eight-monththirty-five week period ended October 29, 2011 were $76.1 million, or 29.5% of net sales, compared to $124.4 million, or 27.9% of net sales, for the twelve month period ended February 26, 2011.
Advertising expense for the eight-monththirty-five week period ended October 29, 2011 was $2.5 million as compared to $7.0 million for the twelve month period ended February 26, 2011. During the course of fiscal year 2011, the Company refocused the level and timing of its advertising expenditures and campaigns by decreasing spending on radio, print and outdoor signage. The use of social media and enhanced messaging to customers through email blasts and the Company websites enabled the Company to actively market in a targeted manner while reducing advertising expenses throughout the year.
Occupancy costs (net) for the eight monthsthirty-five weeks ended October 29, 2011 was $43.1 million compared to $64.2 million for the twelve months ended February 26, 2011. Included as a reduction of net occupancy cost iswas rental income from third parties on real estate holdings incidental to the Company’s retail operations. For the eight monthsthirty-five weeks ended October 29, 2011 and the twelve months ended February 26, 2011, the rental income was $1.4 million and $2.3 million, respectively.
Depreciation and amortization expense was $9.8 million and $14.6 million for the eight monthsthirty-five weeks ended October 29, 2011 and for the twelve months ended February 26, 2011, respectively.
Gain on disposition of assets for the eight monthsthirty-five weeks ended October 29, 2011 was $7.6 million due primarily to the gain on the sale and leaseback of the Tampa, FL location, the sale of the store located in Rockville, MD and the proceeds of a partial condemnation of the property adjacent to the Marietta, GA store, offset by the loss from the sale of the North Randall, OH location.Loss on disposition of assets for fiscal 2010 was $0.5 million, which was the net result of closing four stores, selling three stores and downsizing one store.
The Company recorded no asset impairment charge during the eight monthsthirty-five weeks ended October 29, 2011. Asset impairment charges for fiscal 2010 were $4.3 million or 1.0% of net sales. During fiscal 2010, the Company determined that six stores’ long-lived assets had been impaired. In addition, the Company shifted most of its merchandise processing from its New Jersey distribution center to its Massachusetts distribution center, in order to reduce distribution costs. This shift resulted in a partial impairment of the New Jersey facility. In conjunction with this move, an office in Massachusetts was closed giving rise to a further impairment charge.
Other expenses for the eight monthsthirty-five weeks ended October 29, 2011 was $4.8 million, of which $1.5 million were estimated costs associated with the retro-fit of the Park Avenue, NY store, the settlement of the Fulton, NY store lease obligation of $1.1 million and the settlement of the Fifth Avenue, NY store lease obligation of $2.6 million.The Fifth Avenue, NY Store obligation of $2.6 million was subsequently reimbursed to the Company and was later adjusted as part of the liquidation leases adjustment.
The Company recorded no restructuring charges during the eight monthsthirty-five weeks ended October 29, 2011. During fiscal 2010, the Company recorded $9.3 million of restructuring charges. The Company opened one store and closed four stores during fiscal 2010. The Company was required to continue to make lease payments on two of these closed stores, one through May 2012 and the other through September 2017. The Company had recorded the present value of these payments as a restructuring charge, totaling approximately $7.2 million. In addition, as part of the integration of the Syms and Filene’s operations, a total of $2.1 million of information technology related professional fees, legal fees and severance costs associated with staffing level reductions, which were incurred and were recorded as restructuring charges in fiscal 2010.
Interest expense for the eight monthsthirty-five weeks ended October 29, 2011 and the twelve months ended February 26, 2011 was $1.1 million and $1.4 million, respectively. These expenses were the result of borrowings on the Company’s revolving credit facility during these periods.
As a result of the above-noted items, the loss before income taxes for the eight monththirty-five week period ended October 29, 2011 was $29.6 million compared with $51.7 million for the twelve-month period ended February 26, 2011.
For the eight-monththirty-five weeks period ended October 29, 2011, (pre-filing period), the Company wrote off its short-term and long-term deferred tax assets of approximately $46.3 million as a result of management making the determination that the recovery of the assets was not likely. The effective income tax rate for the eight-monththirty-five week period ended October 29, 2011 was (156.7%). For fiscal 2010, the effective income tax rate was 36.5%. In fiscal 2010, the difference between the effective income tax rate and the federal statutory rate resulted primarily from state income taxes, adjustments related to prior year income taxes, and to a lesser extent permanent differences in the deductibility of expenses for book and tax.
Fiscal Year Ended February 26, 2011 (Fiscal 2010) Compared to Fiscal Year Ended February 27, 2010 (Fiscal 2009)
Net sales increased by $67.8 million or 18% to $445.1 million during fiscal 2010 from $377.3 million in fiscal 2009. This increase was primarily the result of having a full twelve months of sales in fiscal 2010 from the Filene’s stores which were acquired in fiscal 2009. Net sales in fiscal 2009 included sales from Filene’s from June 19, 2009 (the Company’s first day of operating ownership of Filene’s). Comparable store sales, including Filene’s sales for comparable periods, were flat in fiscal 2010. Comparable store sales in the prior year, excluding Filene’s sales, decreased 15%. The Company’s comparable store sales computation only includes stores that have been owned and operated by the Company for a period of at least twelve full fiscal months. In addition, the Company opened one store during fiscal 2010 which contributed $1.9 million of the sales increase. Partially offsetting the above sales increases was the loss of $24.7 million of sales in fiscal 2010 resulting from the closing of four stores during fiscal 2010 and five stores during fiscal 2009.
By merchandise category, our Women’s business grew to 46% of total company net sales from 44% in the prior year, Domestics grew to 6% from 5% last year and Shoes grew to 5% from 4% in fiscal 2009. This was primarily the result of having a full twelve months of sales in fiscal 2010 from the Filene’s stores which were acquired in fiscal 2009. These increases came at the expense of Men’s which decreased 4%, from 42% of total Company net sales in fiscal 2009 to 38% this year. Children’s apparel did not change, remaining at 5% of total company net sales.
Comparable store sales for the stores in the New York metropolitan area were negative low single digits. Offsetting this were the stores in the South that had flat comparable store sales and stores in other areas of the country that had comparable store sales increase in the low single digits.
Gross profit increased by $28.7 million to $173.8 million during fiscal 2010 from $145.1 million during fiscal 2009. This increase was primarily the result of having a full 12 months of sales in fiscal 2010 from the Filene’s stores which were acquired in fiscal 2009. Gross profit as a percent of net sales increased 50 basis points to 39.0% during fiscal 2010 from 38.5% during the comparable prior year period. This increase was primarily due to the Company taking fewer markdowns this year as a result of it being less promotional. Partially offsetting the lower markdowns, 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 as of year-end. In addition, the Company’s leased department income increased during fiscal 2010. Partially offsetting these increases was a lower markup, as the Company continued to reduce prices in order to maintain competitiveness with other retailers.
The Company’s gross profit excludes the cost of its distribution network. For 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 $19.0 million and $15.6 million, respectively.
SG&A increased $14.9 million to $124.4 million during fiscal 2010 as compared to $109.5 million during fiscal 2009. This increase was primarily the result of having a full 12 months of expenses in fiscal 2010 from the Filene’s stores, which were acquired in fiscal 2009. As a percent of net sales, SG&A decreased approximately 110 basis points to 27.9% of net sales during fiscal 2010 from 29.0% of net sales in the comparable prior year period. SG&A as a percent of net sales decreased primarily as a result of lower payroll expenses as a percent of net sales during fiscal 2010. In addition, the prior year period included life insurance premiums on the policy covering the Company’s founder prior to his death in November 2009.
Advertising expense for fiscal 2010 was $7.0 million or 1.6% of net sales as compared to $8.2 million or 2.2% of net sales for fiscal 2009. Advertising expense for fiscal 2010 decreased primarily due to the Company being less promotional this year, a reallocation of advertising efforts to less expensive social media from more traditional media and the fact that the Company incurred expenses celebrating Filene’s 100th anniversary and Syms’ 50th anniversary in fiscal 2009.
Occupancy costs, net, were $64.2 million or 14.4% of net sales for fiscal 2010 as compared to $49.5 million or 13.1% of net sales for fiscal 2009. This increase was primarily the result of having a full 12 months of occupancy costs in fiscal 2010 from the Filene’s stores which were acquired in fiscal 2009. Partially offsetting this increase was the closing of four stores during fiscal 2010 and five stores during fiscal 2009. The Company reduces its net occupancy costs by the amount of rental income from third parties on real estate holdings incidental to the Company’s retail operations. That factor did not materially impact comparative results during fiscal 2010. For fiscal 2010 and fiscal 2009, rental income was $2.3 million and $2.4 million, respectively.
Depreciation and amortization expense was $14.6 million or 3.3% of net sales for fiscal 2010 as compared to $11.4 million or 3.0% of net sales for fiscal 2009. The increase in depreciation and amortization expense was primarily a result of the acquisition of Filene’s, Inc. assets and capital expenditure additions during the past two fiscal years.
Asset impairment charge for fiscal 2010 was $4.3 million or 1.0% of net sales as compared to $0.1 million or 0.0% of net sales for fiscal 2009. During fiscal 2010, the Company determined that six stores’ long-lived assets had been impaired. In addition, the Company shifted most of its merchandise processing from its New Jersey distribution center to its Massachusetts distribution center, in order to reduce distribution costs. This shift resulted in a partial impairment of the New Jersey facility. In conjunction with this move, an office in Massachusetts was closed giving rise to a further impairment charge. During fiscal 2009, one store’s long-lived assets had been determined to be impaired.
In conjunction with the acquisition of assets from Filene’s, Inc. in June 2009, the Company determined that the fair values of assets acquired exceeded the purchase price by approximately $9.7 million, resulting in a bargain purchase gain in fiscal 2009, based upon valuations of inventory, fixed assets, equipment and intangible assets net of deferred taxes, customer obligations and other adjustments. Acquisition costs of $4.9 million, including investment banking, legal, professional and other costs, were expensed in fiscal 2009.
Other income was $0 for fiscal 2010 as compared to $25.0 million for fiscal 2009. Last year’s income resulted from a gain on life insurance proceeds from officers’ life insurance policies on the Company’s founder, who passed away during fiscal 2009.
Loss on disposition of assets for fiscal 2010 was $0.5 million or 0.1% of net sales as compared to $1.2 million or 0.3% of net sales for fiscal 2009. During fiscal 2010 the loss on disposition of assets was the net result of closing four stores, selling three stores and downsizing one store. The related charge in fiscal 2009 was related to the closure of five stores.
The Company recorded $9.3 million of restructuring charges during fiscal 2010 and had no such charges in fiscal 2009. The Company opened one store and closed four stores during fiscal 2010. The Company is required to continue to make lease payments on two of these closed stores, one through May 2012 and the other through September 2017. The Company has recorded the present value of these payments as a restructuring charge, totaling approximately $7.2 million. In addition, as part of the integration of the Syms and Filene’s operations, a total of $2.1 million of IT related professional fees, legal fees and severance costs associated with staffing level reductions were incurred and have been recorded as restructuring charges.
Interest expense was $1.4 million or 0.3% of net sales during fiscal 2010 compared to $1.5 million or 0.4% of net sales during fiscal 2009. For fiscal 2010, interest expense was a result of borrowings on the Company’s revolving credit facility. During the prior year period, interest expense was due to borrowings against the cash surrender value of officers’ life insurance policies and borrowings on the Company’s revolving credit facility.
The sales and gross profit increase attributable to the acquisition of assets from Filene’s, Inc. were insufficient to offset the expense increases and impairment and restructuring charges incurred during fiscal 2010. As a result of the above-noted items, the loss before income taxes for fiscal 2010 was $51.7 million as compared to a loss of $6.4 million for fiscal 2009.
For fiscal 2010, the effective income tax rate was 36.5% as compared to 230.2% for fiscal 2009. In fiscal 2010, the difference between the effective income tax rate and the federal statutory rate resulted primarily from state income taxes, adjustments related to prior year income taxes, and to a lesser extent permanent differences in the deductibility of expenses for book and tax. In fiscal 2009, this difference related mostly to the non-taxable nature of the life insurance proceeds received and recorded in income, partially offset by the effect of adjustments related to prior year taxes.
Liquidity and Capital Resources
As of March 2, 2013, the Company had cash and cash equivalents of $13.5 million. Prior to September 14, 2012, the Company used its cash and cash equivalents primarily for the payment of professional fees related to the Chapter 11 cases, as well as its daily operations. After September 14, 2012, the Company used its cash and equivalents primarily for the payment of professional fees and claims related to the Chapter 11 cases, as well as its daily operations and to fund reserves under the Plan.
The Company believes that it will be able to fund its operations through its cash flows from property sales, but as noted above, the Plan imposes restrictions on the amount of operating expenses that the Company is allowed to incur and pay from cash flows. If the Company requires additional funds beyond those reserved to pay for its operating expenses, it may seek equity or debt financing, or it may seek relief from the holder of the Series A Preferred Stock, who has the right to consent to an increase in the operating reserves. As noted above, the Company has asked the holder of the Series A Preferred Stock for an increase in its operating reserves, and the Company is awaiting a response. Pursuant to the Plan, with limited exceptions, any excess cash not applied to fund operating expenses must be distributed in accordance with the priorities established in the Plan.
Until October 29, 2011, the Company purchased first-quality, in-season designer and brand name merchandise from more than 900 vendors at prices we believed to be below those generally available to major department and specialty stores. We areThe Company no longer makingmakes merchandise purchases from these vendors as a result of our Chapter 11 filing. However, until we ceased merchandise purchases, we were highly reliant on the trade credit from factors, vendors and service providers. Decreasing availability of trade credit throughout the eight months ending October 29, 2011 limited our available liquidity.purchases.
Net cash used in operating activities totaled $10.0 million for the eight monthsthirty-five weeks ended October 29, 2011 as compared with $15.6 million for the twelve months ended February 26, 2011. The net cash used in operating activities for the eight monthsthirty-five weeks ended October 29, 2011 reflects the net loss and a change in working capital due to lower operating expenses partially offset by the impact of reduced inventory.
Net cash provided by investing activities was $20.9 million for the eight monthsthirty-five weeks ended October 29, 2011 was comprised of proceeds from the sale of land, buildings and other assets for four store locations for $22.0 million, partially offset by capital expenditures for property and equipment of $1.2 million. Net cash used of $4.8 million for the twelve months ended February 26, 2011 was comprised of capital expenditures for property and equipment for $15.5 million partially offset by the proceeds from the sale of land, building and other assets of three locations for $10.8 million.
Net cash used in financing activities was $10.9 million for the eight months ended October 29, 2011, as compared to net cash provided by financing activities of $20.6 million for the twelve months ended February 26, 2011. The cash used this year was the result of net repayments on our credit facility as compared to net borrowings last year which were needed to provide for operating expenses.
On August 27, 2009, the Company entered into a secured $75 million revolving credit agreement which was set to expire onwith Bank of America as administrative agent and collateral agent in August 27, 2012.2009. That credit agreement which was amended as of January 7, 2011, March 8, 2011 and June 16, 2011, was among Syms, as Lead Borrower, Filene’s Basement, LLC (together with the Lead Borrower, collectively the “Borrowers”), the guarantors named therein, the lenders party thereto and Bank of America, N.A., as Administrative Agent and Collateral Agent (the “Credit Agreement”).
The Credit Agreement was paid off and terminated on November 18,11, 2011. Availability under the Credit Agreement was based on a borrowing base consisting generally of certain inventory, credit card receivables, mortgaged real estate and cash collateral (the “Borrowing Base”). In connection with the Credit Agreement, the Company recognized approximately $1.1 million of deferred financing costs, which were being amortized over the term of the agreement.
The Credit Agreement bore interest at various rates depending on availability under a formula set forth in the Credit Agreement. As of November 18, 2011, the date in which the Credit Agreement was paid off, the interest rate was Prime +2.50% or LIBOR +3.50%. In addition, the Borrowers were subject to certain negative covenants customary for credit facilities of this size, type and purpose. These covenants restricted or limited, among other things, their ability to incur additional indebtedness, grant liens on their assets, dispose of assets, make acquisitions and investments, merge, dissolve or consolidate and pay dividends, redeem equity and make other restricted payments.
The Credit Agreement contained a financial covenant which required that the Borrowers maintain at all times unutilized borrowing capacity under the Credit Agreement in an amount of not less than 10% of the Borrowing Base described above (or $7.5 million, whichever is less).
As of February 25, 2012, Syms had no outstanding debt under this facility, had repaid all its obligations and terminated its Credit Agreement with Bank Of America. The Credit Agreement had sub-limits for letters of credit (“LC”), which, when utilized, reduced availability under the Credit Agreement. At February 25, 2012 the Company had outstanding letters of credit of $1.3 million, of which $1.1 million is for a standby LC for workers compensation and general liability insurance and $0.2 million is a standby LC for merchandise. At February 26, 2011, the Company had outstanding letters of credit under the facility of $10.1 million.
Total interest charges incurred for the eight months ended October 29, 2011, and fiscal years 2010 and 2009 were approximately $1.1 million, $1.5 million and $1.6 million, respectively. There was no capitalized interest for fiscal 2011, 2010 and 2009.
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 for its last three fiscal years.
Off - Balance Sheet Arrangements
The Company has no off-balance sheet arrangements (as defined in Item 303 of Regulation S-K).
Recent Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements for a full description of the Recent Accounting Pronouncements, including the respective dates of adoption and the effects on our results of operations and financial condition.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is not currently a party to any credit agreement and it has no outstanding borrowings of any kind.
Net Operating Losses
The Company believes that the Rights Offering and the redemption of the Syms shares owned by the former Majority Shareholder resulted in the Company undergoing an “ownership change,” as that term is used in Section 382 of the Internal Revenue Code (“Section 382”). Accordingly, the Company’s net operating losses (“NOLs”) that can be used to offset future income for U.S. federal income tax purposes are limited in the manner set forth in Section 382. Generally, the NOLs that can be used each year will be limited to the product of the applicable long-term tax-exempt rate and the fair market value of the Company’s stock immediately before the ownership change, with certain adjustments. Any unused portion of the annual limitation may be carried forward until expiration. The Company believes that, subject to material market riskscertain requirements and limitations, its annual NOL limitation may be increased by its gain on the sale, prior to 2017, of certain properties held by the Company at the time of the ownership change (i.e., September 14, 2012), to the extent of the Company’s built-in gain in such properties at such change date, and subject to an aggregate increase for interest rates, foreign currency ratesall years equal to the Company’s aggregate net built-in gain in its assets at such change date. The Company believes that its U.S. federal NOLs as of that date were approximately $162.8 million. However, even if all of the Company’s regular U.S. federal income tax liability for a given year is reduced to zero by virtue of the NOLs, the Company may still be subject to the U.S. federal alternative minimum tax (which imposes a tax generally equal to the amount by which 20% of a corporation’s alternative minimum taxable income exceeds the corporation’s regular tax liability, and is calculated in a manner that may reduce the benefit of NOLs) or to state, local or other market price risks, however, may experience real estate valuation risk duenon-federal income taxes.
CEO Engagement Agreement
As disclosed in the Company’s Current Report on Form 8-K filed with the SEC on April 26, 2013, subsequent to changing market conditions.the approval and execution of the engagement agreement for CEO services between Mark D. Ettenger and the Company, Alan Cohen, the Company director appointed by the holder of the Series A Preferred Stock, informed the Board of Directors that he is of the belief that, under the Company’s Certificate of Incorporation and the Plan, his approval is required in order for the Company to enter into and/or perform its obligations under the engagement agreement. Mr. Cohen has not approved the engagement agreement and has indicated that he does not intend to approve it in its current form (which is attached to this Annual Report as Exhibit 10.2). The Company, Mr. Cohen and Mr. Ettenger are engaged in discussions attempting to resolve the issue.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated herein by reference to the financial statements and supplemental data set forth in “Item 15 – Exhibits and Financial Statement Schedules” of this Annual Report on Form 10-K.
Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
Item 9A. CONTROLS AND PROCEDURES
(a) | Evaluation of Disclosure Controls and Procedures |
The Company maintains disclosure controls and procedures that are designed to ensure (i) that information required to be disclosed in its reports filed or submitted pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and (ii) that information required to be disclosed by the Company in its Exchange Act reports is accumulated and communicated to management including the Company’s ChiefPrincipal Executive Officer and ChiefPrincipal Financial Officer, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including the ChiefPrincipal Executive Officer of the Company and the ChiefPrincipal Financial Officer of the Company, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as required by Rule 13a-15(b) of the Exchange Act, as of the end of the period covered by this report.
Based upon that evaluation, the Company’s ChiefPrincipal Executive Officer and ChiefPrincipal Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of such date as described below in “Management’s Report on Internal Control Over Financial Reporting.” Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose information otherwise required to be set forth in the Company’s periodic reports.
date.
(b) | Management’s Report on Internal Control Over Financial Reporting |
The Company’s management of the Company is responsible for the preparation, integrity, objectivityestablishing and fair presentation of the financial statements and other financial information presented in this report. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and reflect the effects of certain judgments and estimates made by management.
In order to ensure that our internal control over financial reporting is effective, management regularly assesses such controls and did so most recently for our financial reporting as of February 25, 2012. This assessment was based on criteria for effective internal control over financial reporting described in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Our assessment included the documentation and understanding of our internal control over financial reporting. We have evaluated the design effectiveness and tested the operating effectiveness of internal controls to form our conclusion.
Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Our internal control over financial reporting includes those policies and procedures that pertain to maintaining records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets, providing reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, assuring that receipts and expenditures are being made in accordance with authorizations of our management and directors and providing reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Based on this assessment, the management of the Company has concluded (i) that our internal controls and procedures are effective in timely alerting it to material information required to be included in our periodic SEC filings and (ii) that information required to be disclosed by us in these periodic filings is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that our internal controls are effective to provide reasonable assurance that our financial statements are fairly presented in conformity with generally accepted accounting principles.
The Audit Committee of the Board, which consists of independent, non-executive directors, meets regularly with management, the internal auditors and the independent registered public accountants to review accounting, reporting, auditing and internal control matters. The Committee has direct and private access to both internal and external auditors.
BDO USA, LLP, the independent registered public accounting firm which audits our financial statements, has auditedadequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of February 25, 20121934. Under the supervision and has issuedwith the below attestation report on management’s assessmentparticipation of the Company’s Principal Executive Officer and Principal Financial Officer, the Company’s management evaluated the effectiveness of the Company’s internal control over financial reporting.
Board of Directors and Stockholders
Syms Corp.
Secaucus, NJ
We have audited Syms Corp’s internal control over financial reporting as of February 25, 2012, based on criteria establishedthe framework inInternal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Syms Corp’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, “Management’s Report on Internal Control Over Financial Reporting”. Our responsibility is to express an opinionCommission. Based on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance withevaluation under that framework and applicable SEC rules, the standards ofCompany’s management concluded that the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effectiveCompany’s internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understandingeffective as of internal control over financial reporting, assessingMarch 2, 2013. BDO USA, LLP, the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe thatindependent registered public accounting firm which audits our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements, for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertainis not required to audit the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Syms Corp. maintained, in all material respects, effectiveCompany’s internal control over financial reporting as of February 25, 2012, based on the COSO criteria.March 2, 2013.
(c) | Changes in Internal Controls Over Financial Reporting |
We also
There have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the accompanying consolidated statement of net assets as of February 25, 2012, and the related consolidated statement ofbeen no changes in net assets for the period October 30, 2011 to February 25, 2012.
We have audited the accompanying consolidated statements of operations, shareholders’ equity and cash flows for the period February 27, 2011 to October 29, 2011. We have also audited the accompanying consolidated balance sheet of the Company as of February 26, 2011, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the two fiscal years ended February 26, 2011 and our report dated May 25, 2012 expressed an unqualified opinion thereon.
/s/ BDO USA, LLP
BDO USA, LLP
New York, New York
May 25, 2012
(d) Changes in Internal Controls Over Financial Reporting
As a result of the Company’s decision to file Chapter 11 Bankruptcy and liquidate the retail operations, certain operating processes and the relatedinternal control over financial reporting controlsthat have changed in naturematerially affected or have been discontinued. As noted above,are reasonably likely to materially affect the Company’s management believe that theinternal control over financial reporting controls in place as of February 25, 2012 are effective.
Item 9B. OTHER INFORMATION
None.during the fiscal year ended March 2, 2013.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information set forth in the tables, the notes thereto, and the paragraphs under the captions “Election of Directors”, “Corporate Governance” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s forthcoming proxy statement for the 2013 annual meeting of stockholders (the “Proxy Statement”), is incorporated herein by reference.
The Company maintains a code of ethics applicable to the Company’s chief executive officerPrincipal Executive Officer and senior financial and professional personnel (including the Company’s chief financial officer, principal accounting officerPrincipal Financial Officer, Principal Accounting Officer or controller and persons performing similar functions). The Company has posted a copy of suchCompany’s code of ethics on its website atwww.syms.com under “Investor Information” – “Corporate Governance”. The Company will also make copies of such code of ethics available to investors upon request. Any such request should be sent by mail to Syms Corp, One Syms Way, Secaucus, NJ 07094 Attn: Corporate Secretary or should be made by telephone by calling 201-902-9600.
In accordance with General Instruction G(3) of the General Instructions to Form 10-K, the other information called for by Item 10 is omitted from this Annual Report and is incorporated by reference to the definitive Proxy Statement to be filed by the Company pursuant to Regulation 14A of the General Rules and Regulations under the Exchange Act, which the Company will file not later than 120 days after the end of the fiscal year covered by this Annual Report.as Exhibit 14 hereto.
Item 11. EXECUTIVE COMPENSATION
In accordance with General Instruction G(3) ofThe information set forth under the General Instructions to Form 10-K,captions “Executive Compensation” and “Corporate Governance” in the information called for by Item 11 is omitted from this Annual Report andProxy Statement is incorporated herein 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 Exchange Act, which the Company will file not later than 120 days after the end of the fiscal year covered by this Annual Report.reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information set forth under the caption “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement is incorporated herein by reference.
Equity Plan Compensation Information
The following table provides information as of February 25,At September 14, 2012, about the shares of our commonSyms stock that may be issued upon exercise of options granted to employees or members of our Board under all of our existingoption plans were terminated and the Company no longer maintains any equity compensation plans, including our 2005 stock option plan.plans.
COLUMN (A) | COLUMN (B) | COLUMN (C) | ||||||||||
Number of securities to be issued upon exercise of outstanding Options | Weighted average exercise price of outstanding options | Number of securities remaining available for future issuances under equity compensation plans (excluding securities reflected in Column (A)) | ||||||||||
Plan Category: | ||||||||||||
Equity compensation plans approved by security holders | 97,500 | $ | 15.01 | - | ||||||||
Equity compensation plans not approved by security holders | - | - | - | |||||||||
Total | 97,500 | $ | 15.01 | - |
In accordance with General Instruction G(3) of the General Instructions to Form 10-K, the other information called for by Item 12 is omitted from this Annual Report and is incorporated by reference to the definitive Proxy Statement to be filed by the Company pursuant to Regulation 14A of the General Rules and Regulations under the Exchange Act, which the Company will file not later than 120 days after the end of the fiscal year covered by this Annual Report.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
In accordance with General Instruction G(3) ofThe information set forth under the General Instructions to Form 10-K,caption “Corporate Governance” in the information called for by Item 13 is omitted from this Annual Report andProxy Statement is incorporated herein 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 Exchange Act, which the Company will file not later than 120 days after the end of the fiscal year covered by this Annual Report.reference.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
In accordance with General Instruction G(3) ofThe information set forth under the General Instructions to Form 10-K,caption “Other Matters Regarding Independent Registered Public Accounting Firm” in the information called for by Item 14 is omitted from this Annual Report andProxy Statement is incorporated herein 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 Exchange Act, which the Company will file not later than 120 days after the end of the fiscal year covered by this Annual Report.reference.
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) | Financial Statements filed as part of this Annual Report: | |
Report of Independent Registered Public Accounting Firm | F-1 | |
Consolidated Statement of Changes in Net Assets | F-2 | |
Consolidated | F-3 | |
Consolidated Statements of Operations for the | F-4 | |
Consolidated Statements of Shareholders’ Equity for the | F-5 | |
Consolidated Statements of Cash Flows for the | F-6 | |
Notes to Consolidated Financial Statements | F-7 | |
(a)(2) | List of Financial Statement Schedules filed as part of this Annual Report: |
Report of Independent Registered Public Accounting Firm on Schedule II. | |
Schedule II: Valuation and qualifying accounts. | |
Schedules, other than the one listed above, are omitted because they are not applicable, or not required, or because the required information is included in the financial statements or notes thereto. |
Report of Independent Registered Public Accounting Firm on Schedule II.
Schedule II: Valuation and qualifying accounts.
Schedules, other than the one listed above, are omitted because they are not applicable, or not required, or because the required information is included in the financial statements or notes thereto.
(a)(3) |
The following exhibits that are marked with an asterisk are filed as part2.1 Modified Second Amended Joint Chapter 11 Plan of this Annual Report, the following exhibits that are marked with a double asterisk are submitted with this Annual ReportReorganization of Syms Corp. and the other exhibits set forth below are incorporatedits Subsidiaries (incorporated by reference from (i)to Exhibit 99.1 of the Company’s Registration StatementForm 8-K filed by the Company on September 6, 2012)
2.2 Agreement and Plan of Merger by and between Syms Corp. and Trinity Place Holdings Inc. dated September 14, 2012 (incorporated by reference to Exhibit 2.1 of the Form S-18-K12G3 filed by the Company on September 19, 2012)
3.1 Certificate of Incorporation of Trinity Place Holdings Inc. (incorporated by reference to Exhibit 3.1 of the Form 8-K filed by the Company on September 19, 2012)
3.2 Bylaws of Trinity Place Holdings Inc. (incorporated by reference to Exhibit 3.2 of the Form 8-K filed by the Company on September 19, 2012)
10.1 Engagement Agreement for CEO Services, dated September 14, 2012, between Trinity Place Holdings Inc. and Esopus Creek Management LLC (incorporated by reference to Exhibit 10.1 of the Form 10-Q filed by the Company on October 9, 2012)*
10.2 Engagement Agreement for CEO Services, dated April 22, 2013, between Trinity Place Holdings Inc. and Mark D. Ettenger*
10.3 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 (incorporated by reference to Exhibit 28.1 of the Form 8-K filed by Syms in May 1986)
14.1 Code of Ethics
21.1 List of Subsidiaries
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1933 (Registration No. 2-85554) filed August 2, 19831934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities and declared effective September 23, 1983 (the “Registration Statement”) or (ii) where indicated,Exchange Act of 1934, as adopted pursuant to Section 302 of the Company’s reports on Form 8-K, Form 10-Q or Form 10-K orSarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(b) under the Company’s Proxy Statement (Commission File No. 1-8564).Securities and Exchange Act of 1934 and 18.U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities and Exchange Act of 1934 and 18.U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS** | XBRL Instance Document |
101.SCH** | XBRL Taxonomy Extension Schema Document |
101.CAL** | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF** | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB** | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE** | XBRL Taxonomy Extension Presentation Linkbase Document |
* Filed herewith.
+ Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission in accordance with an order granting confidential treatment pursuant to the Securities Exchange Act of 1934, as amended.
† Management contract, compensatory plan or arrangement.
** Pursuant to Rule 406T of Regulation S-T this data is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities and Exchange Act of 1934, and otherwise is not subject to liability under these sections.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SYMS CORPTrinity Place Holdings Inc.
By: | /s/ | |
Chairman, President and Chief Executive Officer |
Date: May 25, 201231, 2013
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/ | Chairman, | May | ||
/s/ | Chief Financial Officer, Treasurer and Secretary | May | ||
(Principal Financial Officer and Principal Accounting Officer) | ||||
/s/ Marina Shevyrtalova | Director | May 31, 2013 | ||
Marina Shevyrtalova | ||||
/s/ | Director | May | ||
/s/ | Director | May | ||
May 31, 2013 | ||||
Alexander Matina |
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Syms Corp.Trinity Place Holdings Inc.
Secaucus, New Jersey
The audits referred to in our report dated May 25, 201231, 2013 relating to the financial statements of Syms Corp,Trinity Place Holdings Inc., which is contained in Item 15 of this Form 10-K also included the audit of the financial statement schedule listed in the accompanying index. This financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.
In our opinion such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ BDO USA, LLP | |
BDO USA, LLP | |
New York, New York | |
May |
SCHEDULE II
SYMS CORPTRINITY PLACE HOLDINGS INC.
Valuation and qualifying accounts
Fiscal years ended March 2, 2013, February 25, 2012 and February 26, 2011 and February 27, 2010
Additions | Additions | |||||||||||||||||||||||||||||||||||||||
Balance at beginning of period | Charged against revenues or to costs & expenses | Charged to other accounts | Deductions | Balance at end of period | Balance at beginning of period | Charged against revenues or to costs & expenses | Charged to other accounts | Deductions | Balance at end of period | |||||||||||||||||||||||||||||||
Reserve for inventory obsolescence (1): | ||||||||||||||||||||||||||||||||||||||||
Fiscal 2009 | 2,196,000 | 2,304,313 | - | (99,000 | ) | 4,401,313 | ||||||||||||||||||||||||||||||||||
Fiscal 2010 | 4,401,313 | 7,428,200 | - | (1,222,080 | ) | 10,607,433 | 4,401,313 | 7,428,200 | - | (1,222,080 | ) | 10,607,433 | ||||||||||||||||||||||||||||
Fiscal 2011 (2) | 10,607,433 | 1,780,388 | - | (12,387,821 | ) | - | 10,607,433 | 1,780,388 | - | (12,387,821 | ) | - | ||||||||||||||||||||||||||||
Deferred tax valuating allowance: | ||||||||||||||||||||||||||||||||||||||||
Deferred tax valuation allowance: | ||||||||||||||||||||||||||||||||||||||||
Fiscal 2009 | - | - | 346,000 | - | 346,000 | |||||||||||||||||||||||||||||||||||
Fiscal 2010 | 346,000 | - | 1,154,000 | 1,500,000 | 346,000 | - | 1,154,000 | 1,500,000 | ||||||||||||||||||||||||||||||||
Fiscal 2011(3) | 1,500,000 | - | 83,617,000 | - | 85,117,000 | |||||||||||||||||||||||||||||||||||
Fiscal 2011 | 1,500,000 | - | 83,617,000 | - | 85,117,000 | |||||||||||||||||||||||||||||||||||
Fiscal 2012 | 85,117,000 | - | - | (1,441,000 | ) | 83,676,000 |
(1) | Reflects adjustments of obsolete or out-of-season merchandise inventories to realizable value. Additions represent increases to the reserve and deductions represent decreases to the reserve based on quarterly assessments of the reserve. |
(2) | Deductions for |
(3) | The change for |
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Report of Independent Registered Public Accounting Firm
Board of Directors and ShareholdersStockholders
Syms Corp.Trinity Place Holdings, Inc.
Secaucus, New Jersey
We have audited the accompanying consolidated financial statements of Trinity Placing Holdings, Inc., which comprise the consolidated statement of net assets of Syms Corp. (the “Company”) as of March 2, 2013 and February 25, 2012, and the related consolidated statement of changes in net assets for the period October 30,29, 2011 to February 25, 2012.March 2, 2013. We have also audited the accompanying consolidated statements of operations, shareholders’shareholder’s equity and cash flows for the period February 27, 2011 to October 29, 2011. We have also audited the accompanying consolidated balance sheet of the Company as of February 26, 2011 and for the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the two fiscal yearsyear ended February 26, 2011.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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the consolidated financial statements, the shareholders of the Company approved a plan of liquidation on November 1, 2011. As a result the Company changed its basis of accounting from the going concern basis to the liquidation basis of accounting effective October 30, 2011.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated net assets of Syms Corp.Trinity Place Holdings, Inc. as of March 2, 2013 and February 25, 2012, the consolidated statement of changes in net assets for the period October 30,29, 2011 to February 25, 2012,March 2, 2013 and the results of their operations and itstheir cash flows for the for the period February 27, 2011 to October 29, 2011 and for the financial position as of February 26, 2011, and the results of its operations and its cash flows for each of the two fiscal yearsyear ended February 26, 2011 in conformityaccordance with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Accounting Oversight Board (United States), Syms Corp’s internal control over financial reporting as of February 25, 2012, based on criteria established inInternal Control – Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated May 25, 2012 expressed an unqualified opinion thereon.
/s/ BDO USA, LLP
BDO USA LLP
New York, New York
May 25, 201231, 2013
SYMS CORP.TRINITY PLACE HOLDINGS INC.
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS FOR THE
PERIOD OCTOBER 29, 2011 TO MARCH 2, 2013 (LIQUIDATION BASIS)
FOR THE PERIOD OCTOBER 30, 2011 TO FEBRUARY 25, 2012
(in thousands)
(in thousands)
Shareholders' Equity at October 29, 2011 | $ | 84,956 | $ | 84,956 | ||||
Liquidation basis adjustments: | ||||||||
Adjust assets to estimated net realizable value and liabilities to estimated statement value | 5,056 | |||||||
Adjust assets to estimated net realizable value and liabilities to estimated settlement value | 5,056 | |||||||
Accrued costs of liquidation | (42,124 | ) | (42,124 | ) | ||||
Subtotal | (37,068 | ) | (37,068 | ) | ||||
Net Assets (liquidation basis) as of October 30, 2011 | 47,888 | |||||||
Net Assets (liquidation basis) as of October 30, 2011 available to common shareholders | 47,888 | |||||||
Adjustment to fair value of assets and liabilities | (23,566 | ) | (23,566 | ) | ||||
Adjustment to accrued costs of liquidation | (3,139 | ) | (3,139 | ) | ||||
Subtotal | (26,705 | ) | (26,705 | ) | ||||
Net Assets (liquidation basis as of February 25, 2012 available to common shareholders) | $ | 21,183 | ||||||
Net Assets (liquidation basis) as of February 25, 2012 available to common shareholders | 21,183 | |||||||
Adjustment to fair value of assets and liabilities | 12,353 | |||||||
Adjustment to accrued costs of liquidation | (33,739 | ) | ||||||
Sale of common stock pursuant to rights offering | 25,002 | |||||||
Subtotal | 3,616 | |||||||
Net Assets (liquidation basis) as of March 2, 2013 available to common shareholders | $ | 24,799 |
See Notes to Consolidated Financial Statements
SYMS CORP.TRINITY PLACE HOLDINGS INC.
CONSOLIDATED STATEMENTSTATEMENTS OF NET ASSETS
AS OF MARCH 2, 2013 AND FEBRUARY 25, 2012 (LIQUIDATION BASIS)
CONSOLIDATED BALANCE SHEET AS OF FEBRUARY 26, 2011 (GOING CONCERN BASIS)
(in thousands except per share data)thousands)
February 25, | February 26, | |||||||
2012 | 2011 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 26,304 | $ | 2,298 | ||||
Receivables | 2,716 | 2,619 | ||||||
Merchandise inventories | - | 76,595 | ||||||
Deferred income taxes | - | 9,180 | ||||||
Assets held for sale | - | 1,900 | ||||||
Prepaid expenses and other current assets | 9,533 | 7,345 | ||||||
Owned real estate, including air rights | 139,631 | - | ||||||
TOTAL CURRENT ASSETS | 178,184 | 99,937 | ||||||
OWNED REAL ESTATE, including air rights | - | 71,390 | ||||||
EQUIPMENT | - | 54,944 | ||||||
DEFERRED INCOME TAXES | - | 37,086 | ||||||
OTHER ASSETS | - | 7,417 | ||||||
TOTAL ASSETS | $ | 178,184 | $ | 270,774 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable | $ | 30,556 | $ | 41,701 | ||||
Accrued expenses | 32,975 | 21,114 | ||||||
Accrued liquidation costs | 32,316 | - | ||||||
Other liabilities, primarily lease settlement costs | 56,547 | - | ||||||
Obligations to customers | 4,607 | 5,559 | ||||||
TOTAL CURRENT LIABILITIES | 157,001 | 68,374 | ||||||
LONG TERM DEBT | - | 30,192 | ||||||
OTHER LONG TERM LIABILITIES | - | 11,229 | ||||||
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; 14,448 shares outstanding (net of 4,448 in treasury shares) on February 25, 2012 and February 26, 2011 | - | 800 | ||||||
Additional paid-in capital | - | 21,605 | ||||||
Treasury stock | - | (47,110 | ) | |||||
Accumulated other comprehensive loss | - | (1,480 | ) | |||||
Retained earnings | - | 187,164 | ||||||
TOTAL SHAREHOLDERS' EQUITY | - | 160,979 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 157,001 | $ | 270,774 | ||||
Net assets (liquidation basis - available to common shareholders) | $ | 21,183 |
March 2, | February 25, | |||||||
2013 | 2012 | |||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 13,454 | $ | 26,304 | ||||
Receivables | 342 | 2,716 | ||||||
Prepaid expenses and other assets | 2,708 | 9,533 | ||||||
Real estate, including air rights | 142,600 | 139,631 | ||||||
TOTAL ASSETS | $ | 159,104 | $ | 178,184 | ||||
LIABILITIES | ||||||||
Accounts payable | $ | 21,814 | $ | 30,556 | ||||
Accrued expenses | 25,611 | 32,975 | ||||||
Accrued liquidation costs | 24,487 | 32,316 | ||||||
Other liabilities, primarily lease settlement costs | 44,595 | 56,547 | ||||||
Obligation to former majority shareholder | 17,792 | - | ||||||
Obligations to customers | 6 | 4,607 | ||||||
TOTAL LIABILITIES | $ | 134,305 | $ | 157,001 | ||||
Net assets (liquidation basis) available to common shareholders | $ | 24,799 | $ | 21,183 |
See Notes to Consolidated Financial Statements
SYMS CORP.TRINITY PLACE HOLDINGS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE EIGHT MONTHTHIRTY-FIVE WEEK PERIOD ENDED OCTOBER 29, 2011
AND THE FISCAL YEARSYEAR ENDED FEBRUARY 26, 2011 AND FEBRUARY 27, 2010
(GOING CONCERN BASIS)
(in thousands, except per share amounts)
For the | For the | For the | ||||||||||
Eight Months | Fiscal Year | Fiscal Year | ||||||||||
Ended | Ended | Ended | ||||||||||
October 29, 2011 | February 26, 2011 | February 27, 2010 | ||||||||||
Net sales | $ | 258,214 | $ | 445,133 | $ | 377,309 | ||||||
Cost of goods sold | 158,029 | 271,341 | 232,207 | |||||||||
Gross profit | 100,185 | 173,792 | 145,102 | |||||||||
Expenses: | ||||||||||||
Selling, general and administrative | 76,081 | 124,385 | 109,460 | |||||||||
Advertising | 2,476 | 7,021 | 8,193 | |||||||||
Occupancy, net | 43,120 | 64,203 | 49,535 | |||||||||
Depreciation and amortization | 9,819 | 14,581 | 11,414 | |||||||||
Gain on disposition of assets | (7,565 | ) | 457 | 1,168 | ||||||||
Asset impairment charges | - | 4,255 | 80 | |||||||||
Acquisition costs | - | - | 4,857 | |||||||||
Bargain purchase gain | - | - | (9,714 | ) | ||||||||
Gain from life insurance proceeds and other expense (income) | 4,815 | (36 | ) | (25,049 | ) | |||||||
Restructuring charges | - | 9,306 | - | |||||||||
Total operating expenses | 128,746 | 224,172 | 149,944 | |||||||||
Loss from operations | (28,561 | ) | (50,380 | ) | (4,842 | ) | ||||||
Interest expense, net | 1,062 | 1,366 | 1,538 | |||||||||
Loss before income taxes | (29,623 | ) | (51,746 | ) | (6,380 | ) | ||||||
Income tax expense (benefit) | 46,404 | (18,889 | ) | (14,688 | ) | |||||||
Net (loss) income | $ | (76,027 | ) | $ | (32,857 | ) | $ | 8,308 | ||||
Net (loss) income per share - basic and diluted | $ | (5.26 | ) | $ | (2.27 | ) | $ | 0.57 | ||||
Weighted average shares outstanding - basic and diluted | 14,448 | 14,456 | 14,593 |
See Notes to Consolidated Financial Statements
SYMS CORP.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE EIGHT MONTH PERIOD ENDED OCTOBER 29, 2011 AND
THE FISCAL YEARS ENDED FEBRUARY 26, 2011 AND FEBRUARY 27, 2010
(in thousands)
Accumulated | ||||||||||||||||||||||||||||||||
Other | ||||||||||||||||||||||||||||||||
Common Stock | Additional | Treasury Stock | Retained | Comprehensive | ||||||||||||||||||||||||||||
Shares | Amount | Paid-In Capital | Shares | Amount | Earnings | Income (Loss) | Total | |||||||||||||||||||||||||
Balance as of February 28, 2009 | 18,888 | $ | 800 | $ | 21,560 | (4,298 | ) | $ | (45,903 | ) | $ | 211,713 | $ | (2,127 | ) | $ | 186,043 | |||||||||||||||
Exercise of Options | 8 | - | 45 | - | - | - | - | 45 | ||||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||
Net Income | - | - | - | - | - | 8,308 | - | 8,308 | ||||||||||||||||||||||||
Deferred pension, net of tax | - | - | - | - | - | - | 636 | 636 | ||||||||||||||||||||||||
Total comprehensive income | - | - | - | - | - | - | - | 8,944 | ||||||||||||||||||||||||
Balance as of February 27, 2010 | 18,896 | $ | 800 | $ | 21,605 | (4,298 | ) | $ | (45,903 | ) | $ | 220,021 | $ | (1,491 | ) | $ | 195,032 | |||||||||||||||
Stock Buy-Back | - | - | - | (150 | ) | (1,207 | ) | - | - | (1,207 | ) | |||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | (32,857 | ) | - | (32,857 | ) | ||||||||||||||||||||||
Deferred pension, net of tax | - | - | - | - | - | - | 11 | 11 | ||||||||||||||||||||||||
Total comprehensive loss | - | - | - | - | - | - | - | (32,846 | ) | |||||||||||||||||||||||
Balance as of February 26, 2011 | 18,896 | $ | 800 | $ | 21,605 | (4,448 | ) | $ | (47,110 | ) | $ | 187,164 | $ | (1,480 | ) | $ | 160,979 | |||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | (76,027 | ) | - | (76,027 | ) | ||||||||||||||||||||||
Deferred pension, net of tax | - | - | - | - | - | - | 4 | 4 | ||||||||||||||||||||||||
Total comprehensive loss | - | - | - | - | - | - | - | (76,023 | ) | |||||||||||||||||||||||
Balance as of October 29, 2011 | 18,896 | $ | 800 | $ | 21,605 | (4,448 | ) | $ | (47,110 | ) | $ | 111,137 | $ | (1,476 | ) | $ | 84,956 |
For the | For the | |||||||
Thirty-Five Week | Fiscal Year | |||||||
Period Ended | Ended | |||||||
October 29, 2011 | February 26, 2011 | |||||||
Net sales | $ | 258,214 | $ | 445,133 | ||||
Cost of goods sold | 158,029 | 271,341 | ||||||
Gross profit | 100,185 | 173,792 | ||||||
Expenses: | ||||||||
Selling, general and administrative | 76,081 | 124,385 | ||||||
Advertising | 2,476 | 7,021 | ||||||
Occupancy, net | 43,120 | 64,203 | ||||||
Depreciation and amortization | 9,819 | 14,581 | ||||||
(Gain) loss on disposition of assets | (7,565 | ) | 457 | |||||
Asset impairment charges | - | 4,255 | ||||||
Other expense (income) | 4,815 | (36 | ) | |||||
Restructuring charges | - | 9,306 | ||||||
Total Operating Expenses | 128,746 | 224,172 | ||||||
Loss from operations | (28,561 | ) | (50,380 | ) | ||||
Interest expense, net | 1,062 | 1,366 | ||||||
Loss before income taxes | (29,623 | ) | (51,746 | ) | ||||
Income tax expense (benefit) | 46,404 | (18,889 | ) | |||||
Net loss | $ | (76,027 | ) | $ | (32,857 | ) | ||
Net loss per share - basic and diluted | $ | (5.26 | ) | $ | (2.27 | ) | ||
Weighted average shares outstanding - basic and diluted | 14,448 | 14,456 |
See Notes to Consolidated Financial Statements
SYMS CORP.TRINITY PLACE HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWSSHAREHOLDERS' EQUITY
FOR THE EIGHT MONTHTHIRTY-FIVE WEEK PERIOD ENDED OCTOBER 29, 2011 AND
AND THE FISCAL YEARSYEAR ENDED FEBRUARY 26, 2011 AND FEBRUARY 27, 2010
(GOING CONCERN BASIS)
(in thousands)
For the Eight | For the | For the | ||||||||||
Months Ended | Fiscal Year | Fiscal Year | ||||||||||
October 29, 2011 | February 26, 2011 | February 27, 2010 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
Net (loss) income | $ | (76,027 | ) | $ | (32,857 | ) | $ | 8,308 | ||||
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities | ||||||||||||
Depreciation and amortization | 9,819 | 14,581 | 11,414 | |||||||||
Asset impairment | - | 4,255 | 80 | |||||||||
Bargain purchase gain | - | - | (9,714 | ) | ||||||||
Deferred income taxes | 46,266 | (22,241 | ) | (9,316 | ) | |||||||
(Gain) loss on disposition of assets | (7,565 | ) | 457 | 1,168 | ||||||||
(Increase) decrease in operating assets: | ||||||||||||
Receivables | (618 | ) | 576 | (1,606 | ) | |||||||
Merchandise inventories | 15,938 | 5,640 | (8,438 | ) | ||||||||
Prepaid expenses and other current assets | 4,332 | 299 | (1,827 | ) | ||||||||
Other assets | (838 | ) | (242 | ) | 1,078 | |||||||
Increase (decrease) in operating liabilities: | ||||||||||||
Accounts payable | (6,359 | ) | (5,655 | ) | 32,420 | |||||||
Accrued expenses | 3,342 | 4,867 | 5,703 | |||||||||
Obligations to customers | (127 | ) | 231 | (160 | ) | |||||||
Other long term liabilities | 1,830 | 8,213 | 2,176 | |||||||||
Income taxes | - | 6,318 | (4,409 | ) | ||||||||
Net cash (used in) provided by operating activities | (10,007 | ) | (15,558 | ) | 26,877 | |||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Purchase of Filene's Basement | - | - | (38,927 | ) | ||||||||
Expenditures for property and equipment | (1,154 | ) | (15,540 | ) | (12,224 | ) | ||||||
Proceeds from sale of land, building and other assets | 22,023 | 10,764 | 54 | |||||||||
Net cash provided by (used in) investing activities | 20,869 | (4,776 | ) | (51,097 | ) | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Cash surrender value advance | - | - | 16,000 | |||||||||
Exercise of stock options | - | - | 45 | |||||||||
Purchase of treasury shares | - | (1,207 | ) | - | ||||||||
(Repayment) borrowings on revolving credit facility (net) | (10,885 | ) | 21,790 | 8,402 | ||||||||
Net cash (used in) provided by financing activities | (10,885 | ) | 20,583 | 24,447 | ||||||||
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (23 | ) | 249 | 227 | ||||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 2,298 | 2,049 | 1,822 | |||||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 2,275 | $ | 2,298 | $ | 2,049 | ||||||
SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||||||
Cash paid during the period for: | ||||||||||||
Interest | $ | 1,228 | $ | 1,387 | $ | 975 | ||||||
Income taxes (net of refunds) | $ | (119 | ) | $ | (2,702 | ) | $ | 506 |
Accumulated | ||||||||||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||||||||||
Common Stock | Paid-In | Treasury Stock | Retained | Comprehensive | ||||||||||||||||||||||||||||
Shares | Amount | Capital | Shares | Amount | Earnings | Income | Total | |||||||||||||||||||||||||
Balance as of February 27, 2010 | 18,896 | $ | 800 | $ | 21,605 | (4,298 | ) | $ | (45,903 | ) | $ | 220,021 | $ | (1,491 | ) | $ | 195,032 | |||||||||||||||
Stock Buy-Back | - | - | - | (150 | ) | (1,207 | ) | - | - | (1,207 | ) | |||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | (32,857 | ) | - | (32,857 | ) | ||||||||||||||||||||||
Deferred pension, net of tax | - | - | - | - | - | - | 11 | 11 | ||||||||||||||||||||||||
Total comprehensive loss | - | - | - | - | - | - | - | (32,846 | ) | |||||||||||||||||||||||
Balance as of February 26, 2011 | 18,896 | $ | 800 | $ | 21,605 | (4,448 | ) | $ | (47,110 | ) | $ | 187,164 | $ | (1,480 | ) | $ | 160,979 | |||||||||||||||
�� | ||||||||||||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | (76,027 | ) | - | (76,027 | ) | ||||||||||||||||||||||
Deferred pension, net of tax | - | - | - | - | - | - | 4 | 4 | ||||||||||||||||||||||||
Total comprehensive loss | - | - | - | - | - | - | - | (76,023 | ) | |||||||||||||||||||||||
Balance as of October 29, 2011 | 18,896 | $ | 800 | $ | 21,605 | (4,448 | ) | $ | (47,110 | ) | $ | 111,137 | $ | (1,480 | ) | $ | 84,956 |
See Notes to Consolidated Financial Statements
TRINITY PLACE HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTY-FIVE WEEK PERIOD ENDED OCTOBER 29, 2011 AND
THE FISCAL YEAR ENDED FEBRUARY 26, 2011 (GOING CONCERN BASIS)
(in thousands)
For the | ||||||||
Thirty-Five Week | For the | |||||||
Period Ended | Fiscal Year | |||||||
October 29, 2011 | February 26, 2011 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net loss | $ | (76,027 | ) | $ | (32,857 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
Depreciation and amortization | 9,819 | 14,581 | ||||||
Asset impairment | - | 4,255 | ||||||
Deferred income taxes | 46,266 | (22,241 | ) | |||||
(Gain) loss on disposition of assets | (7,565 | ) | 457 | |||||
(Increase) decrease in operating assets: | ||||||||
Receivables | (618 | ) | 576 | |||||
Merchandise inventories | 15,938 | 5,640 | ||||||
Prepaid expenses and other current assets | 4,332 | 299 | ||||||
Other assets | (838 | ) | (242 | ) | ||||
Increase (decrease) in operating liabilities: | ||||||||
Accounts payable | (6,359 | ) | (5,655 | ) | ||||
Accrued expenses | 3,342 | 4,867 | ||||||
Obligations to customers | (127 | ) | 231 | |||||
Other long term liabilities | 1,830 | 8,213 | ||||||
Income taxes | - | 6,318 | ||||||
Net cash used in operating activities | (10,007 | ) | (15,558 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Expenditures for property and equipment | (1,154 | ) | (15,540 | ) | ||||
Proceeds from sale of land, building and other assets | 22,023 | 10,764 | ||||||
Net cash provided by (used in) investing activities | 20,869 | (4,776 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Purchase of treasury shares | - | (1,207 | ) | |||||
Borrowings/repayment on revolving credit facility (net) | (10,885 | ) | 21,790 | |||||
Net cash (used in) provided by financing activities | (10,885 | ) | 20,583 | |||||
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (23 | ) | 249 | |||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 2,298 | 2,049 | ||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 2,275 | $ | 2,298 | ||||
SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 1,228 | $ | 1,387 | ||||
Income taxes (net of refunds) | $ | (119 | ) | $ | (2,702 | ) |
See Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
NOTE 1 – BASIS OF PRESENTATION
Description of Former Business Operations
The Company’s 46 stores offered a broad range of “off-price” first quality, in-season merchandise consisting primarily of women’s dresses, suits, separates and accessories, men’s tailored clothing and haberdashery, children’s apparel, luggage, domestics and fragrances and shoes. The stores emphasized first quality, nationally recognized designer and brand name merchandise at prices substantially below those generally found in department and specialty stores. In addition several stores also carried a selection of fine jewelry.
The Company had no foreign operations. No material part of the Company’s revenues was received from a single customer or group of customers.
Disposition of the Company’s and Filene’s Businesses
On November 2, 2011, Syms Corp. and its subsidiaries filed voluntary petitions for reorganization under Chapter 11 of Title 11 of the United States Code (“Bankruptcy Code” or “Chapter 11”) in the United States Bankruptcy Court for the District of Delaware (“Court”).
Prior to November 2, 2011, all of the Company’s and Filene’s business operations consisted primarily of running retail operations. As the economy worsened, sales continued to erode and, as a result, cash flow suffered. Notwithstanding the best efforts of the Companysuffered and Filene’s, significant operational losses continued to threaten the on-going businesses. Trade vendors tightened and/or ceased credit terms. As a result, the Company and Filene’s projected that, absent additional financing or measures to monetize certain assets, liquidity would cease to exist.
At a meeting held on November 1, 2011, the Company’s Board of Directors determined that it was in the best interests of the Company and its shareholders for it and its subsidiaries to file voluntary petitions for reorganization under Chapter 11 and liquidate the retail operations. On November 2, 2011, the Company and Filene’s filed for voluntary petitions for reorganization under Chapter 11 in Delaware.the Court. On August 30, 2012, the Court entered an order confirming the Plan by which the Company and its subsidiaries would be reorganized, and the Plan became effective on September 14, 2012.
If the Company and Filene’s are able to generate value in excess of what is needed to satisfy all of their obligations under the Plan, the Company willcurrently intends to distribute any such excess to shareholders; the actual amount and timing of future distributions, if any, to shareholders, will depend upon a variety of factors, including, but not limited to, disposalthe monetization of real estate assets and the ultimate settlement amounts of the Company’s and Filene’s liabilities and obligations, including lease obligations and actual costs incurred in connection with the Chapter 11 case.cases. In response to the Chapter 11 filing the Company adopted the liquidation basis of accounting effective on October 30, 2011, which was the beginning of the fiscal month closest to the petition date. Net operating results from October 30 to November 1, 2011 were not material.
The consolidated financial statements for the period ended October 29, 2011 were prepared on the going concern basis of accounting, which contemplated realization of assets and satisfaction of liabilities in the normal course of business. In the opinion of management, the accompanying Statements of Operations and Cash Flows for the period ended October 29, 2011 contain all adjustments, including normal recurring adjustments, necessary to present fairly the shareholders’ equity of the Company as of October 29, 2011.
Description of Former Business Operations
The Company’s 46 stores offered a broad range of “off-price” first quality, in-season merchandise consisting primarily of, women’s dresses, suits, separates and accessories, men’s tailored clothing and haberdashery, children’s apparel, luggage, domestics and fragrances and shoes. The stores emphasized first quality, nationally recognized designer and brand name merchandise at prices substantially below those generally found in department and specialty stores. The stores carried a wide selection of sizes and styles of men’s, women’s and children’s wear. In addition several stores also carried a selection of fine jewelry.
The Company had no foreign operations. No material part of the Company’s revenues was received from a single customer or group of customers. Please refer to Note 2 of the Notes to Consolidated Financial Statements for information on segment reporting.
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 and liabilities are stated at their net realizable value and estimated costs over the anticipated period of liquidation are accrued to the extent reasonably determinable.
Notes to Consolidated Financial Statements, continued
The transition from the going concern basis of accounting to the liquidation basis of accounting required management to make significant estimates and judgments. The recording of assets at estimated net realizable value and liabilities at estimated settlement amounts under the liquidation basis of accounting required the Company to record the following adjustments as of October 30, 2011, (in thousands):
Adjust assets and liabilities | Amount | Amount | ||||||
Write up of real estate to estimated net realizable value | $ | (78,604 | ) | $ | (78,604 | ) | ||
Estimated lease settlement costs | 51,150 | 51,150 | ||||||
Write down of other fixed assets | 35,567 | 35,567 | ||||||
Reversal of existing deferred rent liability | (8,741 | ) | (8,741 | ) | ||||
Write up of inventory to net realizable value | (6,063 | ) | ||||||
Write down of pre paid assets | 3,000 | |||||||
Other liquidation adjustments | (1,365 | ) | ||||||
Write up inventory to net realizable value | (6,063 | ) | ||||||
Write down prepaid assets | 3,000 | |||||||
Adjust other liquidation costs | (1,365 | ) | ||||||
Total | $ | (5,056 | ) | $ | (5,056 | ) |
The Company adjusted the real estate assets to reflect the estimated net realizable value of the owned property. This value was estimated, with the input of a third party valuation expert, by assessing several possible sales alternatives and weighting the estimated value realized in each of those alternatives according to management’s best estimate of the likelihood of each alternative being achieved. These alternatives included selling the properties in the short term as vacant, unleased properties and selling the properties within two to three years after having identified and secured new tenants. These sales alternatives produced a possible range of net realizable values between $135.0 million and $185.0 million. The basis for determining this range of estimated net realizable values took into consideration many factors which are difficult to predict, including but not limited to local market conditions, vacancy rates, redevelopment opportunities, investor types/profiles, and anticipated timing of sale transactions. Based on management’s weighting of the likelihood of each alternative being achieved an estimated net realizable value of real estate of $146.8 million was recorded at October 30, 2011. While this amount represents management’s best estimate at the time of finalizing the accompanying statement of net assets, the amount ultimately realized in the sale of the real estate could materially differ from this estimate. However, this estimate should not be construed as a final determination by the Company to liquidate all its owned real estate.
As of November 15, 2011, the Company and Filene’s entered into an agency agreement to liquidate all of their inventory, furniture and fixtures. The agent guaranteed the debtors’ receipt of 90% of the aggregate cost value of merchandise, subject to certain inventory levels and cost factor adjustments. In addition, the agent agreed to a furniture and fixture guarantee of $2 million.
As a result of the adoption of the liquidation basis of accounting, the Company recorded the estimated cost for settling the existing leases at a total of $56.6 million, adjusted for the Company’s settlement to terminate its lease at 530 Fifth Avenue, which settlement was approved by the Bankruptcy Court on January 6, 2012. This required an accrual of $51.1 million at October 30, 2011, in addition to the lease exit accrual already recorded for the Paramus, NJ and Plano, TX locations of $5.5 million.
The Company and Filene’s reviewed all other remaining operating expenses and contractual commitments such as payroll and related expenses, lease termination costs, professional fees and other outside services to determine their best estimate of costs to be incurred during the liquidation period.
The CompanyEstimated Costs of Liquidation
Significant estimates and Filene’s werejudgment are required to make significant estimates and exercise judgment in determiningdetermine the accrued costs of liquidation at October 30, 2011 and February 25, 2012. Upon transition to the liquidation basis of accounting, the Company and Filene’sliquidation. The company’s accrued the following costs expected to be incurred in liquidation and recorded payments made related to the accrued liquidation costs are as follows (in thousands):
Notes to Consolidated Financial Statements, continued
Balance | Balance | Balance | ||||||||||||||||||||||||||
October 30, | Adjustments | February 25, | Adjustments | March 2, | ||||||||||||||||||||||||
Estimated Costs of Liquidation | 2011 | to Reserves | Payments | 2012 | to Reserves | Payments | 2013 | |||||||||||||||||||||
Real estate related carrying costs | $ | 14,267 | $ | (4,918 | ) | $ | (1,699 | ) | $ | 7,650 | $ | 13,763 | $ | (5,760 | ) | $ | 15,653 | |||||||||||
Professional fees | 16,868 | 7,210 | (1,158 | ) | 22,920 | 13,879 | (31,753 | ) | 5,046 | |||||||||||||||||||
Payroll related costs | 7,775 | 2,123 | (8,321 | ) | �� | 1,577 | 4,938 | (3,087 | ) | 3,428 | ||||||||||||||||||
Other | 3,214 | (1,276 | ) | (1,769 | ) | 169 | 1,159 | (968 | ) | 360 | ||||||||||||||||||
$ | 42,124 | $ | 3,139 | $ | (12,947 | ) | $ | 32,316 | $ | 33,739 | $ | (41,568 | ) | $ | 24,487 |
Estimated costs of liquidation | ||||||||||||||||
Balance at | Adjustments | Balance at | ||||||||||||||
October 30, 2011 | to Reserves | Payments | February 25, 2012 | |||||||||||||
Real estate related carrying costs | $ | 14,267 | $ | (4,918 | ) | $ | (1,699 | ) | $ | 7,650 | ||||||
Professional fees | 16,868 | 7,210 | (1,158 | ) | 22,920 | |||||||||||
Payroll related costs | 7,775 | 2,123 | (8,321 | ) | 1,577 | |||||||||||
Other | 3,214 | (1,276 | ) | (1,769 | ) | 169 | ||||||||||
TOTAL | $ | 42,124 | $ | 3,139 | $ | (12,947 | ) | $ | 32,316 |
The assumptions underlying the estimated accrued costs of liquidation of $24.5 million as of March 2, 2013 contemplated all changes in estimates resulting from the Plan.
The Company reviewed all operating expenses and contractual commitments such as payroll and related expenses, lease terminations cost, ownedtermination costs, property carrying costs as well asand professional fees to determine the estimated costs to be incurred during the liquidation period. The liquidation period, as recorded in the third quarter,which was initially anticipated to conclude in OctoberAugust 2012, and since has beenwas amended in Fiscal 2012 after the Company emerged from bankruptcy to conclude in August 2012.calendar year 2016 based on the timeframe contemplated by the Plan and current business plans. Since then, the liquidation period has been shortened to conclude in July 2015 based on the current belief of the Company that substantially all of its real estate properties are likely to be monetized prior to the end of 2014, with a short period thereafter to conclude the liquidation.
The following discussion explains the adjustments to the costs of liquidation reserves as recorded from the period October 30, 2011 through February 25, 2012:
The reserve for real estate carrying costs decreased by approximately $4.9 million in total, partially due to timing differences of the wind-down period as well as expense reimbursements from the third party liquidator. Utilities, maintenance and real estate expenses were partially offset by the store closure/going out of business sale agreement with Gordon Brothers which resulted in a $2.0 million dollar reduction in the reserve. In addition the extension of the liquidation period was planned through October 2012 and is currently anticipated to conclude in August 2012 resultingresulted in $1.8 million in savings.Outsidesavings. Outside services for real estate brokerage fees, leasing commissions and legal and selling expenses havewere also been reduced by approximately $1.1 million.
Professional fees during the liquidation period increased by $7.2 million from $16.9 million to $22.9 million. The initial budget reflected an eleven month process to liquidate the entire estate. The planPlan reflects expenses relating to the debtors, as well as the unsecured creditors and the equity committee’s advisors, the hiring of a fee examiner and has increased due to the complexities of litigating the estate.
The initial payroll and related liquidation expenses included in the accrued costs of liquidation increased by $2.1 million for the period October 30, 2011 through February 25, 2012. This increase iswas principally attributed to higher than anticipated payroll expense and related benefits in the first four months of the liquidation period, partially offset by reduced costs due to winding down earlier than anticipated.
Other liquidation expenses include general operating expense of the corporate facility as well as information technology and communication expenses related to the corporate facility. These liquidation costs were estimated at $1.6 million and have beenwere reduced to $0.3 million resulting in a savings of $1.3 million to the estate.
NotesThe following discussion explain the adjustments to Consolidated Financial Statements, continuedthe costs of liquidation reserves as recorded during the fiscal year ended March 2, 2013:
Adjustments to increase the reserve for real estate carrying costs of approximately $13.8 million were recorded during the fiscal year ended March 2, 2013. The adjustments were mainly the result of increasing the estimated expenses to reflect a liquidation period concluding in July 2015. The estimates assume that eight of the Company’s properties will be sold or monetized by October 2013, another four of its properties will be sold or monetized by October 2014, and the Trinity Place Property will be sold by the end of 2014.
Adjustments to increase the reserve for professional fees of approximately $13.9 million were recorded during the fiscal year ended March 2, 2013. The majority of the increase reflects the costs of professionals as a result of extending the expected liquidation period to conclude in July 2015. This also reflects increased costs due to the complexities of litigating the estate as well as the unplanned hiring of a fee examiner during the pre-emergence time period.
Adjustments to increase the reserve for payroll and related liquidation expenses of approximately $4.9 million were recorded during the fiscal year ended March 2, 2013 primarily as a result of extending the expected liquidation period to conclude in July 2015.
Adjustments To Net RealizableFair Value of Assets and Liabilities
The following table summarizes adjustments to Net Realizable Valuethe fair value of assets and liabilities under the liquidation basis of accounting
(in during the eighteen week period ended February 25, 2012 and the fiscal year ended March 2, 2013 (in thousands):
Adjustment of Assets and Liabilities to Net Realizable Value | October 30, 2011 Through February 25, 2012 | |||||||||||
Adjustments of Assets and Liabilities to Net Realizable Value | October 30, 2011 through February 25, 2012 | February 26, 2012 through March 2, 2013 | ||||||||||
Adjust real estate to estimated net realizable value | $ | (7,189 | ) | $ | 16,688 | |||||||
Adjust other assets to estimated net realizable value | 18 | (2,891 | ) | |||||||||
Adjust estimated lease settlement costs to net realizable value | 3,064 | 11,922 | ||||||||||
Adjust liability to restore properties | (5,184 | ) | 311 | |||||||||
Adjust obligation to former majority shareholder | - | (19,566 | ) | |||||||||
Adjust obligation to customers | - | 4,601 | ||||||||||
Adjust pension liability | $ | 11,970 | (11,970 | ) | 1,860 | |||||||
Adjust real estate to estimated net realizable value | 7,189 | |||||||||||
Adjust liability to restore properties | 5,184 | |||||||||||
Adjust write up of inventory to net realizable value | 2,314 | - | ||||||||||
Adjust other liquidation costs | 4,619 | (4,619 | ) | - | ||||||||
Adjust other fixed assets to net realizable value | (18 | ) | ||||||||||
Adjust write up of inventory to net realizable value | (2,314 | ) | ||||||||||
Adjust estimated lease settlement costs to net realizable value | (3,064 | ) | ||||||||||
Adjust other claims to net realizable value | - | (572 | ) | |||||||||
$ | 23,566 | $ | (23,566 | ) | $ | 12,353 |
Pension -The Company had a defined Pension Plan for all employees other than those covered under the Collective Bargaining Agreement through December 31, 2006. The Pension Plan was frozen effective December 31, 2006. As of February 25, 2012, the Company accrued $7.9 million which represents the estimated cost to make the plan whole and subsequently terminate the plan under a standard termination. The company had contemplated other courses of action, including a distress termination, where-by the Pension Benefit Guarantee Corporation (“PBGC”) takes over the plan. However the estimated total cost associated with a distress termination was approximately $15 million. As a result of the cost savings associated with the standard termination approach, the Company has elected a standard termination and reflected the total estimated cost accordingly.
Certain employees covered by collective bargaining agreements, participated in a multi employee pension plan in accordance with the Multi Employer Pension Plan Amendment Act of 1980 (MPPAA). Syms ceased to have an obligation to contribute to these plans in 2012. Under the law, the Company has effected a complete withdrawal from the funds, within the meaning of Section 4203(a) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Consequently, the Company is subject to the payment of a withdrawal liability to these pension funds. The additional costs have been estimated at approximately $6.4 million for the multi employee pension plans that is reflected infollowing discussion explains the adjustments to the fair value of assets and liabilities to net realizable value. The withdrawal liability is only an estimate at this time and may or may not result in higher costs whenunder the actuarial valuation for the most recent plan year (2012) is completed.liquidation basis of accounting as recorded from October 30, 2011 through February 25, 2012:
The combined adjustments for the single employer pension liability of $5.5 million and the multi employee pension plans of $6.4 million resulted in a pension liability adjustment of $12.0 million.
Real Estate -The net realizable value of real estate assets was adjusted downward in aggregate by $7.2 million to reflect the then current collective belief of the Company and third party real estate experts. The basis for determining the estimated net realizable values took into consideration many factors which are difficult to predict, including but not limited to local market conditions, vacancy rates, redevelopment opportunities, investor types/profiles, and anticipated timing of sale transactions. Based on management’s weighting of the likelihood of each alternative being achieved an estimated net realizable value of real estate of $139.6 million was recorded. While this amount representsrepresented management’s best estimate at the time of finalizing the accompanying statement of net assets for the fiscal year ended February 25, 2012, the amount ultimately realized in the sale of the real estate could materially differ from this estimate. However,
Lease Settlement Costs - Lease settlement costs decreased by $3.1 million primarily driven by a decrease of $5.4 million for the Broadway location as this estimate should not be construed as a final determinationlease was assumed by DSW, partially offset by an increase in the Company to liquidate all its owned real estate.lease liability claim at the Union Square location of $3.1 million.
F - 9 |
Notes to Consolidated Financial Statements, continued
Liability to restore propertiesRestore Properties -It has beenwas estimated that adjustments of $5.2 million willwould be required to restore certain properties to a salable condition: for the Trinity locationPlace Property approximately $2.0 million for renovations and repairs to ensure the property has been brought back to a landmark status, $1.9 million for repairs at the Broadway location, an additional $1.0 million for the Park Avenue location for elevator and escalator repairs, and $0.3 million for the Houston location roof repair.
NotesPension - The Company had a defined Pension Plan for all employees other than those covered under the Collective Bargaining Agreement through December 31, 2006. The Pension Plan was frozen effective December 31, 2006. As of February 25, 2012, the Company accrued $7.9 million which represents the estimated cost to Consolidated Financial Statements, continuedmake the plan whole and subsequently terminate the plan under a standard termination. The Company had contemplated other courses of action, including a distress termination, whereby the Pension Benefit Guarantee Corporation (“PBGC”) takes over the plan. However the estimated total cost associated with a distress termination was approximately $15 million. As a result of the cost savings associated with the standard termination approach, the Company had elected a standard termination and reflected the total estimated cost accordingly.
Certain employees covered by collective bargaining agreements participated in a multi-employee pension plan in accordance with the Multi Employer Pension Plan Amendment Act of 1980 (MPPAA). Syms ceased to have an obligation to contribute to these plans in 2012. Under the law, the Company had effected a complete withdrawal from the funds, within the meaning of Section 4203(a) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Consequently, the Company was subject to the payment of a withdrawal liability to these pension funds. The additional costs had been estimated at approximately $6.4 million for the multi-employee pension plans that is reflected in the adjustments to assets and liabilities to net realizable value. The withdrawal liability is only an estimate at this time and may or may not result in higher costs when the actuarial valuation for the most recent plan year (2012) is completed.
The combined adjustments for the single employer pension liability of $5.5 million and the multi-employee pension plans of $6.4 million resulted in a pension liability adjustment of $12.0 million.
Other liquidation assetsLiquidation Assets -Expenses related to the wind-down of the companyCompany have increased by $4.6 million, primarily due to increases in professional fee estimates offset in part by a reduction in real estate carrying costs.
The following discussion explains the adjustments to the fair value of assets and liabilities under the liquidation basis of accounting as recorded during the fiscal year ended March 2, 2013:
Real Estate - The net realizable value of real estate assets was adjusted upward in the aggregate by approximately $16.7 million to reflect $15.1 million of revised estimates of management utilizing information obtained from third party real estate experts as of March 2, 2013 as well as $1.6 million in the net incremental sales price of three properties that were sold during fiscal 2012. Based on management’s assessment of available information, an estimated net realizable value of $142.6 million has been recorded as of March 2, 2013. See Note 3 - Real Estate for a discussion on valuation methodology.
F - 10 |
Notes to Consolidated Financial Statements, continued
Other Assets– Other assets have decreased by approximately $2.9 million due mainly to the netting out of assets with corresponding claim liabilities.
Lease settlement costs -Settlement Costs –Lease settlement costs have decreased by $3.1$11.9 million primarily driven bydue to adjustments from 22 locations. These reductions were mainly the result of the Plan which stipulated that the long-term Filene’s, LLC general unsecured creditors with allowed claims are entitled to a decreaserecovery of $5.4 million foronly 75% on their claims.
Liability to Restore Properties – The Houston, Texas property was sold in November 2012 and the Broadway location as this leasepreviously recorded liability to repair the roof was assumed by DSW, partially offset by an increasethe acquirer of the property, thus the Company reversed the liability upon the consummation of the sale.
Obligation to Former Majority Shareholder – This represents the recording of the settlement with the former Majority Shareholder during fiscal 2012 in accordance with the lease liability claimterms of the Plan. On September 14, 2012, immediately following the effectiveness of the Plan, the former Majority Shareholder sold all of its 7,857,794 shares of common stock to Syms at $2.49 per share. Payment for the Union Square locationshares will be made to the former Majority Shareholder in accordance with the Plan as Trinity’s real estate assets are monetized. As further discussed in Note 2, $1.8 million due from the Majority Shareholder was reclassified from other assets resulting in a net obligation to the former Majority Shareholder of $3.1 million.approximately $17.8 million as of March 2, 2013.
Obligation to Customers– Obligations to customers represented credits issued for returned merchandise as well as gift certificates. The Company has determined that it no longer has a legal liability to the customers and accordingly the amount of $4.6 million has been derecognized.
Other Claims –This amount mainly represents a decrease in various claims pursuant to the final Plan document and further review by the Company of the validity of the claims made against the Company.
Financial Position
The Company and Filene’s believebelieves that cash provided from the liquidation process couldmonetization of its real estate and intellectual property assets should provide sufficient liquidity to fund their day-to-day cost of liquidation provided that they are able to sell their remaining assets (which consist primarily of owned real estate inclusive of the Company’s corporate headquarters in Secaucus, New Jersey) at anticipated selling prices and within a reasonable period of time.
Ifcosts. However, if the Company and Filene’s areis unable to sell theirmonetize its assets in a reasonable period of time, as outlined in the Plan, or if they receivethe Company receives substantially less than anticipated, theirthe Company’s ability to settle their liabilities andits obligations in full while incurring necessary wind-down costs would be in doubt.
Throughdoubt, and alternative financing could be required. Also, the estimated liquidation period, ifPlan imposes strict budgets on the Company is able to generate cash proceeds in excess of what is needed to satisfy alloperations of the Company’s obligations, the Company will distribute any such excessbusiness, and not all proceeds from asset sales can be used to shareholders. fund operations.
Whether there will be any excess cash proceeds for distribution to shareholdersgenerated by the monetization of the Company’s assets is subject to a number of material risks and uncertainties that may preventuncertainties. If there are any such distribution from occurring. Accordingly, while the Company believes that a cash distribution is possible, actual results may differ from current estimates, perhaps materially, possibly resulting in no excess cash proceeds, being available for distribution to shareholders. Moreover,they will be used by the Company continuesin the manner determined by the Board of Directors. It is the current intention of the Board of Directors to consider other possible strategic alternatives other than liquidation of its assets.distribute any such excess to shareholders, but there can be no assurance that there will be any excess cash proceeds, or that if there are, that they will be distributed to shareholders.
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.
a. | Accrued Liquidation Costs |
b. | Pension Expense |
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.
c. | Long-Lived Assets – |
Notes to Consolidated Financial Statements, continued
d. | Income Taxes –To the extent that income taxes, including alternate minimum income taxes, are expected to be incurred as a result of the liquidation of the Company’s properties, such costs are reflected in accrued liquidation costs, as described above. As of March 2, 2013 a total of $0.9 million has been accrued. As part of the process of estimating the amount of income taxes to be incurred during the liquidation period, management has taken into consideration the extent to which net operating loss carry forwards (“NOLs”) are expected to be available to offset the amount of income otherwise taxable on the sale of properties. This involved a process of estimating the extent to which each property had a fair value in excess of its tax basis (a “built in gain”) as of the date of emerging from bankruptcy on September 14, 2012. At that point in time, the Company believes there was a change in control of the Company that imposed a restriction on the extent to which the Company can use prior NOLs, except to the extent of a built in gain that existed as of the date of the change in control. |
Since under liquidation basis accounting all future estimated taxes are accrued as of the reporting date net of the benefit expected to be derived from available NOLs, it is not appropriate to record a separate deferred tax asset on the same NOLs. Accordingly, a valuation allowance of approximately $85.1 million was recorded through February 25, 2012. The valuation allowance was reduced by approximately $1.4 million during the fiscal year ended March 2, 2013. |
e. | Other Assets – The Company had recorded the cash surrender value of officers’ life insurance policies on the statement of net assets as part of prepaid expenses and other assets in the amounts of $1.8 million at February 25, 2012. During the finalizing of the Plan, the former Majority Shareholder agreed to reimburse the Company for an equivalent amount and the $1.8 million was therefore recorded as an offset to the $19.6 million obligation to the former Majority Shareholder as of March 2, 2013 resulting in a net amount due of $17.8 million. Other assets also include trademark license intangibles, with a balance of $0.9 million and security deposits with a balance of $1.7 million as of March 2, 2013. |
f. | 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. During fiscal 2012, the Company determined that it no longer has a legal liability to these customers and accordingly the amount was derecognized. |
Going Concern Basis of Accounting
a. | Principal Business |
Each Syms store |
On June 18, 2009, the Company’s wholly-owned subsidiary, SYL, LLC |
b. | Principles of Consolidation - The financial statements include the accounts of the Company |
c. | Accounting Period |
d. | Reclassifications –Certain reclassifications have been applied to prior year amounts to conform to current year presentation. |
e. | Cash and Cash Equivalents- Cash and cash equivalents include securities with original maturities of three months or less. |
F - 12 |
Notes to Consolidated Financial Statements, continued
f. | 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. |
g. | Receivables– Receivables consisted of third party credit and debit card receivables and other miscellaneous |
h. | 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. |
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. |
Notes to Consolidated Financial Statements, continued
i. |
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 iswas to amortize leasehold improvements over the original lease term and not include any renewal terms. The Company’s policy iswas 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.
j. | Impairment of Long-Lived Assets – The Company had periodically |
The Company |
k. | Deferred Income Taxes - Deferred income taxes |
l. |
Notes to Consolidated Financial Statements, continued
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 |
Revenue Recognition –The Company recognized revenue at the “point of sale”. Allowance for sales returns |
F - 13 |
Notes to Consolidated Financial Statements, continued
Comprehensive |
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 | 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.
Thirty-Five | Fiscal Year | |||||||
Weeks Ended | Ended | |||||||
October 29, 2011 | February 26, 2011 | |||||||
Women's dresses, suits, separatges and accessories | 47 | % | 46 | % | ||||
Men's tailored clothes and haberdashery | 37 | % | 38 | % | ||||
Children's apparel | 5 | % | 5 | % | ||||
Luggage, domestics and fragrances | 5 | % | 6 | % | ||||
Shoes | 6 | % | 5 | % | ||||
Total | 100 | % | 100 | % |
Gross Profit - The Company’s gross profit excluded the cost of its distribution network. For the |
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 |
Occupancy Costs –Occupancy expenses for the |
Notes to Consolidated Financial Statements, continued
Accounting for Stock-Based Compensation– The Company |
The fair value of each option award |
New Accounting |
F - 14 |
NOTE 3 - PROPERTY AND EQUIPMENT
Notes to Consolidated Financial Statements, continued
Property and equipment consists of: NOTE 3 – REAL ESTATE
February 25, 2012 | February 26, 2011 | |||||||
(Net Realizable Value) | (Historical Cost) | |||||||
(in thousands) | ||||||||
Land, buildings and building improvements | $ | 139,631 | $ | 152,510 | ||||
Leasehold and leasehold improvements | - | 27,107 | ||||||
Machinery and equipment | - | 18,186 | ||||||
Furniture and fixtures | - | 25,784 | ||||||
Construction in progress | - | 733 | ||||||
Computer software | - | 17,342 | ||||||
139,631 | 241,662 | |||||||
Less: accumulated depreciation and amortization | - | 124,462 | ||||||
$ | 139,631 | $ | 117,200 |
The estimated net realizable value of owned real estate, including land, building, building improvements and air rights, amounted to $142.6 million and $139.6 million as of March 2, 2013 and February 25, 2012, respectively. While $142.6 million represents management’s best estimate of the net realizable value of the Company’s real estate properties at the time of finalizing the accompanying statement of net assets, the amount ultimately realized in the monetization of the real estate could materially differ from this estimate.
The Company recorded no impairment charges as ofthrough the thirty-five weeks ended October 29, 2011 and recorded impairment charges of $4.3 million induring the fiscal 2010.year ended February 26, 2011.
As of October 30, 2011 and thereafter, the Company adjusted the carrying value of the real estate assets to reflect the estimated net realizable value of owned property. This value was estimated withby considering a number of factors and the views of multiple parties from various vantage points, including input offrom a third party valuation expert by assessingon several possible sales alternatives and weighting the estimated value realized in each of those alternatives according to management’s best estimate of the likelihoodproperties. Some of each alternative being achieved. These alternatives included selling the properties inhave received offer letters, brokers’ views on value when soliciting the short term as vacant, unleased properties and sellingassignments to sell or lease the properties, have been or are in negotiation for sale, or are being marketed, while others have been subject to only minimal market feedback. In some cases, the ranges of values ascribed to certain properties by the third party valuation expert have been higher than the ranges developed by the Company. Similarly, interest expressed by prospective buyers and brokers have been both above and below, as well as within two to three years after having identified and secured new tenants.the ranges developed by the Company.
The basis for determining the estimated net realizable values took into consideration many factorsestimates are by their nature imperfect assessments of value, are not formulaic and are based on a number of subjective considerations about which were difficult to predict, including but not limited to local market conditions, vacancy rates, redevelopment opportunities, investor types/profiles, and anticipated timing of sale transactions. Based on management’s weighting of the likelihood of each alternative being achieved an estimatedopinions could vary widely. The net realizable value of real estate assets was estimated after developing a likely range of $139.6 million was recorded. While this amount represented management’s best estimate at the time of finalizing the accompanying statement of net assets, the amount ultimately realized in the salevalues for each of the real estate could materially differ from this estimate. However, this estimate should not be construed asproperties, then selecting a final determinationvalue within each properties range (not necessarily the mid point) and aggregating those selected values. The ultimate sales price obtained by the Company with respect to liquidateany one or all its owned real estate.
Notesof the properties may, and will likely, vary materially from these estimates. The ultimate price received by the Company with respect to Consolidated Financial Statements, continuedany particular property is highly uncertain and could vary materially from the Company’s estimates. This will depend upon numerous factors, including macro and local market conditions, the potential for the Company or a prospective buyer to lease the property or to redevelop it, and physical and legal (e.g., title) conditions affecting the property, among others. The constraints on the ability of the Company to deploy capital for leasing activity or to repair or cure issues with respect to the properties, as well as to carry the properties through a customary or prolonged marketing process, may have an adverse effect on pricing.
AsThe estimate of November 15, 2011,value of the Trinity Place Property is uncertain and subject to a number of complex factors which could materially affect the value of the property. The Trinity Place Property has not been marketed since the merger of Syms into Trinity, nor has the Company entered into an agency agreementengaged any third parties with Gordon Brothers whereby the agent agreedrespect to a furnituresale or lease of that property. The Company expects to commence interviewing potential brokers, consultants and/or advisors with respect to a potential sale or other monetization of the Trinity Place Property in the near future. The estimate of value for this property is subject to additional uncertainty due to the inherent complexities and fixture guaranteeuncertainties of $2.0 million. This guarantee wasmonetizing the site as a Lower Manhattan mixed use development project, whether developed by the Company or a third party investor, including zoning and planning issues, hard and soft costs of construction, potential rents or prices of commercial and/or residential space and the mix thereof, the availability of capital to support development, the availability of tax incentives, and competitive projects and forces in the market that are unique to Lower Manhattan. The Company is in the process of beginning its analysis of these and other factors, and its estimate of value may change materially as its analysis proceeds. The Company is currently evaluating various strategic alternatives related to its Trinity Place Property. To date no specific course of action has been determined. As a result, there remains a range of estimated values that may be realized for the purchase of all property and equipment, excluding land and buildings and building improvements. The $2.0 million cash was received in November 2011.Trinity Place Property under the various sale or development alternatives.
NOTE 4 - INCOME TAXES
The provision (benefit) for income taxes iswas as follows:
Thirty-Five | Fiscal Year | |||||||||||||||||||
Eight Months Ended | Fiscal Year Ended | Fiscal Year Ended | Weeks Ended | Ended | ||||||||||||||||
October 29, 2011 | February 26, 2011 | February 27, 2010 | October 29, 2011 | February 26, 2011 | ||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||
Current: | ||||||||||||||||||||
Federal | $ | - | $ | 3,368 | $ | (5,954 | ) | $ | - | $ | 3,368 | |||||||||
State | 138 | 62 | 582 | 138 | 62 | |||||||||||||||
138 | 3,430 | (5,372 | ) | $ | 138 | $ | 3,430 | |||||||||||||
Deferred: | ||||||||||||||||||||
Federal | $ | 30,318 | $ | (20,107 | ) | $ | (7,321 | ) | $ | 30,318 | $ | (20,107 | ) | |||||||
State | 15,948 | (2,212 | ) | (1,995 | ) | 15,948 | (2,212 | ) | ||||||||||||
46,266 | (22,319 | ) | (9,316 | ) | $ | 46,266 | $ | (22,319 | ) | |||||||||||
Provision (benefit) for income taxes | $ | 46,404 | $ | (18,889 | ) | $ | (14,688 | ) | $ | 46,404 | $ | (18,889 | ) |
The following is a reconciliation of income taxes computed at the U.S. Federal statutory rate to the (benefit) provision for income taxes:
Thirty-Five | Fiscal Year | |||||||
Weeks Ended | Ended | |||||||
October 29, 2011 | February 26, 2011 | |||||||
Statutory Federal income tax rate | 35.0 | % | 35.0 | % | ||||
State taxes | -0.3 | % | 5.6 | % | ||||
Change in valuation allowance | -191.2 | % | -2.1 | % | ||||
Effect on deferred taxes for change in state tax rate | 0.0 | % | 0.6 | % | ||||
Other | -0.2 | % | -2.6 | % | ||||
Effective income tax rate | -156.7 | % | 36.5 | % |
Eight Months Ended | Fiscal Year Ended | Fiscal Year Ended | ||||||||||
October 29, 2011 | February 26, 2011 | February 27, 2010 | ||||||||||
Statutory Federal income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
State taxes | (0.3 | ) | 5.6 | (1) | 21.3 | |||||||
Non-deductible insurance premiums | - | - | (10.9 | ) | ||||||||
Life insurance proceeds | - | - | 135.8 | |||||||||
Acquisition of Filene’s Basement | - | - | 53.4 | |||||||||
Change in valuation allowance | (191.2 | ) | (2.1 | ) | (5.4 | ) | ||||||
Effect on deferred taxes for change in state tax rate | - | 0.6 | 3.8 | |||||||||
Other | (0.2 | ) | (2.6 | ) | (2.8 | ) | ||||||
Effective income tax rate | (156.7 | )% | 36.5 | % | 230.2 | % |
(1) Includes adjustment of prior year accrual and true-up of state net operating losses.
Notes to Consolidated Financial Statements, continued
The composition of the Company’s deferred tax assets and liabilities is as follows:
Fiscal Year Ended | ||||||||||||||||
Fiscal Year Ended | March 2, 2013 | February 25, 2012 | ||||||||||||||
February 25, 2012 | February 26, 2011 | (in thousands) | ||||||||||||||
(in thousands) | ||||||||||||||||
Deferred tax assets: | ||||||||||||||||
Capitalization of inventory costs | $ | - | $ | 1,917 | ||||||||||||
Pension cost | 5,901 | - | ||||||||||||||
Pension costs | $ | 4,004 | $ | 5,901 | ||||||||||||
Reserves not currently deductible for tax purposes | 1,954 | 6,651 | 69 | 1,954 | ||||||||||||
Net operating loss carry forwards | 51,173 | 16,610 | 70,746 | 51,173 | ||||||||||||
Depreciation | 12,197 | 13,282 | 13,124 | 12,197 | ||||||||||||
Step rent | - | 2,557 | ||||||||||||||
Deferred rent | 2,238 | 2,954 | - | 2,238 | ||||||||||||
AMT credit | 3,182 | 3,181 | 3,182 | 3,182 | ||||||||||||
Accrued Expenses | 2,331 | 434 | ||||||||||||||
Accrued expenses | 4,086 | 2,331 | ||||||||||||||
Other | 83 | 80 | 81 | 83 | ||||||||||||
Wind-down expenses | 13,227 | - | 8,752 | 13,227 | ||||||||||||
Air right | 3,757 | - | 3,641 | 3,757 | ||||||||||||
Lease claim | 21,875 | - | 14,439 | 21,875 | ||||||||||||
Store closing cost | 2,733 | - | 2,650 | 2,733 | ||||||||||||
SFAS 158 adjustment | - | 918 | ||||||||||||||
Total deferred tax assets | $ | 120,651 | $ | 48,584 | $ | 124,774 | $ | 120,651 | ||||||||
Valuation allowance | (85,117 | ) | (1,500 | ) | ||||||||||||
Deferred tax assets after valuation allowance | $ | 35,534 | $ | 47,084 | ||||||||||||
Valuation Allowance | (83,676 | ) | (85,117 | ) | ||||||||||||
Deferred tax asset after valuation allowance | $ | 41,098 | $ | 35,534 | ||||||||||||
Deferred tax liabilities: | ||||||||||||||||
Depreciation | - | - | ||||||||||||||
Intangibles | (364 | ) | (413 | ) | $ | (356 | ) | $ | (364 | ) | ||||||
Step rent | - | (299 | ) | |||||||||||||
Write up of real estates | (35,170 | ) | - | |||||||||||||
Pension cost | - | (106 | ) | |||||||||||||
Other | - | - | ||||||||||||||
Write up of owned real estate | (40,742 | ) | (35,170 | ) | ||||||||||||
Total deferred tax liabilities | (35,534 | ) | (818 | ) | $ | (41,098 | ) | $ | (35,534 | ) | ||||||
Net deferred tax assets | $ | - | $ | 46,266 | $ | - | $ | - | ||||||||
Current deferred tax assets | $ | - | $ | 9,180 | $ | - | $ | - | ||||||||
Long term deferred tax assets | - | 37,086 | - | - | ||||||||||||
Total deferred tax assets | $ | - | $ | 46,266 | $ | - | $ | - |
At February 25, 2012,March 2, 2013, the Company had state net operating loss carry forwards of approximately $180,723,000.$215.8 million. These net operating losses expire in years through fiscal 2031. The Company also had federal net operating loss carry forwards of approximately $119,515,000.$173.6 million. These net operating losses will expire in years through fiscal 2031.
Based on management’s assessmentSince under liquidation basis accounting all future estimated taxes are accrued as of the reporting date net of the benefit expected to be derived from available NOLs, it is more likely than not that, for federal purposes,appropriate to record a separate deferred tax assets will not be realized by future taxable income or tax planning strategies. Aasset on the same NOLs. Accordingly, a valuation allowance of approximately $85,117,000$85.1 million was recorded for all deferred tax assets.
The Company recognizes interest and, if applicable, penalties, which could be assessed, related to uncertain tax positions in income tax expense. For fiscal 2011, the Company recorded approximately $13,000 in interest before federal and state tax effect. The aggregate tax liability as related to uncertain tax positions, plus related interest and penalties, as ofthrough February 25, 2012 is2012. The valuation allowance was reduced by approximately $309,000.$1.4 million during the fiscal year ended March 2, 2013.
Notes to Consolidated Financial Statements, continued
The Company is currently under examination by federal tax authorities for fiscal years 2008 and 2009. During the current year, an examination with respect to fiscal years 2005 through 2008 has been concluded by the State of New York that resulted in additional income tax expenses of approximately $138,000. Examination conducted by the State of Florida with respect to fiscal year 2008 and 2009 resulted in no change in tax liability. In addition, recent inquiry by the State of Georgia also resulted in no change through the period ended February 2011. There is currently no outstanding state examination.
NOTE 5 - BANK CREDIT FACILITIES
On August 27, 2009, the Company entered into a secured $75 million revolving credit agreement, which was set to expire on August 27, 2012. That Credit Agreement, which was amended as of January 7, 2011, March 8, 2011 and June 16, 2011, was among Syms as Lead Borrower, Filene’s Basement, LLC (together with the Lead Borrower, collectively the “Borrowers”), the guarantors named therein, the lenders party thereto and Bank of America, N.A., as Administrative Agent and Collateral Agent (the “Credit Agreement”). Subsequent to the bankruptcy filing, the Credit Agreement was paid off and terminated on November 18, 2011.
Availability under the Credit Agreement was based on a borrowing base consisting generally of certain inventory, credit card receivables, mortgaged real estate and cash collateral (the “Borrowing Base”). In connection with the Credit Agreement, the Company recognized approximately $1.1 million of deferred financing costs, which were being amortized over the term of the agreement. The Credit Agreement bore interest at various rates depending on availability under a formula set forth in the Credit Agreement. As of November 18, 2011, the date in which the Credit Agreement was paid off, the interest rate was Prime +2.50% or LIBOR +3.50%. In addition, the Borrowers were subject to certain negative covenants customary for credit facilities of this size, type and purpose. These covenants restricted or limited, among other things, their ability to incur additional indebtedness, grant liens on their assets, dispose of assets, make acquisitions and investments, merge, dissolve or consolidate and pay dividends, redeem equity and make other restricted payments.
The Credit Agreement set forth financial conditions which were required in order for a Borrower (i) to (a) acquire a controlling interest in another entity, all or substantially all of the assets of another entity or a business unit of another entity; (b) enter into a merger or consolidation having the same effect; or (c) acquire additional store locations from another entity; (ii) to purchase, redeem or otherwise acquire equity interests issued by it or (iii) to make a voluntary prepayment, repurchase, redemption or defeasance of indebtedness permitted by the Credit Agreement (other than indebtedness subordinated to the indebtedness under the Credit Agreement). These conditions require that:
“Average Daily Availability” was computed for each month as follows: (a) for each day during such month the excess of the Loan Cap at the close of business over the outstanding principal amount of the loans and letter of credit obligations at the close of business is determined, (b) the sum of the figures resulting from the computations in clause (a) is determined and (c) such sum is divided by the number of days in such month.
The “Loan Cap” for each day is an amount equal to the lesser of $75 million and the Borrowing Base for such day, plus, in each case, the outstanding principal amount of the term loan for such day. Determination of whether the second or third condition described above was satisfied requires the Company to give effect to the contemplated transaction. Thus, unless and until a specific transaction was proposed, no calculation was required or could be made with respect to these conditions. No transactions giving rise to this calculation occurred during the fiscal year ended February 25, 2012.
In addition, the restriction on indebtedness provided for an availability of up to $5.0 million at any time outstanding for indebtedness incurred to acquire fixed or capital assets, as well as customary carve-outs for existing debt, intercompany debt, guaranties in favor of suppliers and the like. As of the fiscal year endedMarch 2, 2013 and February 25, 2012, the Borrowers have no such indebtedness outstanding.
Notes to Consolidated Financial Statements, continued
The Credit Agreement contained a financial covenant which required that the Borrowers maintain at all times unutilized borrowing capacity under the Credit Agreement in an amount of not less than 10% of the Borrowing Base described above (or $7.5 million, whichever is less).
As of February 25, 2012, SymsCompany had no outstanding debt under this facility, had repaid all its obligationswhich was paid off and terminated its Credit Agreement with Bank of America. The Credit Agreementon November 18, 2011.
At March 2, 2013, the Company had sub-limits forno outstanding letters of credit, which, when utilized, reduced availability under the Credit Agreement.
credit. At February 25, 2012, the Company had outstanding letters of credit of $1.3 million, of which $1.1 million iswas for a standby LCletter of credit for workers compensation and general liability insurance and $0.2 million iswas a standby LCletter of credit for merchandise. At February 26, 2011, the Company had outstanding letters of credit under the facility of $10.1 million.
Total interest charges incurred for the eight monthsthirty-five weeks ended October 29, 2011 and fiscal 2010 and 2009year ended February 26, 2011 were $1.1 million and $1.5 million, and $1.6 million, respectively. There was no capitalized interest for fiscal 2011, 2010 and 2009.
NOTE 6 – FAIR VALUE MEASUREMENTS
ASC Subtopic 820-10 defines fair value, establishes a framework for measuring fair value and expands the related disclosure requirements. ASC 820-10 indicates, among other things, that a fair value measurement assumes a transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. Prior to adopting liquidation basis accounting on October 30, 2011, we did not have any non-financial assets or liabilities that are required to be measured at fair value on a recurring basis.
In order to increase consistency and comparability in fair value measurements, ASC 820-10 establishes a hierarchy for observable and unobservable inputs used to measure fair value into three broad levels, which are described below:
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.
Notes to Consolidated Financial Statements, continued
Assets measured at fair value on a recurring basis include the following as of February 25, 2012 and February 26, 2011:
Fair Value Measurement at February 25, 2012 Using | ||||||||||||||||
Quoted | Significant | Total | ||||||||||||||
Prices in | Other | Significant | Carrying | |||||||||||||
Active | Observable | Unobservable | Value at | |||||||||||||
Markets | Inputs | Inputs | February 25, | |||||||||||||
(Level 1) | (Level 2) | (Level 3) | 2012 | |||||||||||||
Cash and cash equivalents | $ | 26,304,000 | $ | - | $ | - | $ | 26,304,000 | ||||||||
Cash surrender value | ||||||||||||||||
– Officers’ Life Insurance | $ | - | $ | 1,774,000 | $ | - | $ | 1,774,000 |
Fair Value Measurement at February 26, 2011 Using | ||||||||||||||||
Quoted | Significant | Total | ||||||||||||||
Prices in | Other | Significant | Carrying | |||||||||||||
Active | Observable | Unobservable | Value at | |||||||||||||
Markets | Inputs | Inputs | February 26, | |||||||||||||
(Level 1) | (Level 2) | (Level 3) | 2011 | |||||||||||||
Cash and cash equivalents | $ | 2,298,000 | $ | - | $ | - | $ | 2,298,000 | ||||||||
Cash surrender value | ||||||||||||||||
– Officers’ Life Insurance | $ | - | $ | 2,192,000 | $ | - | $ | 2,192,000 |
On an annual recurring basis, the Company is required to use fair value measures when measuring plan assets of the Company's pension plans. As the Company elected to adopt the measurement date provisions of ASC 715, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans," as of March 4, 2007, the Company was requiredto determine the fair value of the Company's pension plan assets through October 29, 2011, the last day prior to adopting liquidation basis accounting. The fair value of pension plan assets was$8.1 million at October 29, 2011 andFebruary 25, 2012, respectively. These assets are valued in active liquid markets.
Additionally, on a nonrecurring basis, prior to adopting liquidation basis accounting the Company used fair value measures when analyzing asset impairment. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined that such indicators are present and the review indicates that the assets will not be fully recoverable, based on undiscounted estimated cash flows over the remaining amortization periods, their carrying values are reduced to estimated fair value. During fiscal 2010, the Company wrote down assets with carrying amounts of $10.4 million to a fair value of $6.1 million and recorded an asset impairment charge of $4.3 million. Measurements based on undiscounted cash flows are considered to be level 3 inputs.
Financial Instruments
At February 26, 2011, the fair values of cash and cash equivalents, receivables and accounts payable approximated their carrying values due to the short-term nature of these instruments. The fair value of long term debt approximates carrying value as it is a variable-rate instrument.
Notes to Consolidated Financial Statements, continued
NOTE 7 – ACQUISITION OF FILENE’S BASEMENT
On June 18, 2009 the Company, through its wholly-owned subsidiary, SYL, LLC, acquired certain inventory, fixed assets, equipment, intellectual property and real property leases and certain other net assets of Filene’s Basement, Inc., an off-price retail clothing chain, pursuant to an order of the United States Bankruptcy Court for the District of Delaware in accordance with Sections 105, 363 and 365 of the United States Bankruptcy Code. Assets of Filene’s, Inc. were acquired for a variety of reasons including the opportunity to capitalize on the strength of brand awareness, leverage the utilization of combined infrastructure and personnel, and to expand market share in the off-price retail clothing market. The purchase price paid at closing was approximately $64.0 million in cash, of which $38.9 million was paid for by the Company. Approximately $25.1 million was paid for by Vornado Realty Trust and its joint venture partners to acquire a termination of their lease in Boston, Massachusetts and to make changes to their lease for a Filene’s Basement location in New York, New York. The Company’s portion of the purchase price was paid for through $23.9 million in borrowings under the Company’s asset-based revolving credit facility (Note 4), and the remainder from cash on hand. The acquisition was accounted for as a business combination using the purchase method of accounting under the provisions of ASC Topic 805, Business Combinations.
The consolidated financial statements presented herein include the results of operations for Filene’s, LLC from June 19, 2009, the date of acquisition.
The Company determined that the fair values of assets acquired exceeded the purchase price by approximately $9.7 million, which was recorded as a bargain purchase gain, and is shown as a separate component of operating expenses in the consolidated financial statements for fiscal 2009. Of the $25.1 million paid for by Vornado Realty Trust and its joint venture partners, $8.3 million is considered to be taxable income to the Company. The balance of the bargain purchase gain is not recognized currently for tax purposes and resulted in a downward adjustment of the tax basis of the assets acquired. In accordance with Reg. 1.1060-1(c)(2) and 1.338-6(b), the residual method was used to allocate the purchase price among the assets classes. This resulted in reduction of basis for Class VI assets (Trade name and customer list). The cost of acquisition, in the amount of approximately $4.7 million, is capitalized for tax and deducted as a current expense for book purposes.
The following table presents (in thousands) fair values of the net assets acquired and the excess of such net assets over the purchase price at acquisition date:
Inventory | $ | 21,316 | ||
Fixed assets and equipment | 30,051 | |||
Intangible assets | 2,591 | |||
Less: assumed liability | (1,909 | ) | ||
Fair value | 52,049 | |||
Purchase price | 38,927 | |||
Excess of fair value over purchase price | 13,122 | |||
Less: Current taxes | (3,325 | ) | ||
Deferred taxes | (83 | ) | ||
Bargain purchase gain | $ | 9,714 |
Intangible assets are comprised primarily of trademarks with a 10 year life, while the customer list acquired having a value of $40,000 has a useful life of 5 years. In conjunction with the transaction, acquisition costs inclusive of investment banking, legal, professional and other costs aggregating $4.7 million were expensed in the periods incurred.
Notes to Consolidated Financial Statements, continued
NOTE 8 -6 – PENSION AND PROFIT SHARING PLANS
a. | Pension Plan |
The benefits are based on years of service and the employee’s highest average pay during any five consecutive years within the ten-year period prior to retirement. Pension plan costs are funded annually. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future.
The investment strategy objectives of the plan are continued growth and income. All plan assets are managed by outside investment managers. Asset allocations are reviewed on a regular basis by the investment management company. Fixed income securities make up approximately 46% of plan assets. Equities, primarily S&P 500 securities, make up approximately 43% of plan assets. The remaining 11% of the plan assets are in alternative investments and cash. The measurement date used for fiscal 2011 is February 29, 2012. For fiscal 2010, the measurement date was February 28, 2011.
Presented below is financial information relating to this plan for the fiscal years indicated:
February 25, 2012 | February 26, 2011 | |||||||
(in thousands) | ||||||||
CHANGE IN BENEFIT OBLIGATION: | ||||||||
Net benefit obligation – beginning of period | $ | 10,077 | $ | 9,673 | ||||
Interest cost | 600 | 584 | ||||||
Actuarial (loss) return | (197 | ) | 378 | |||||
Gross benefits received (paid) | 737 | (558 | ) | |||||
Net benefit obligation – end of period | $ | 11,217 | $ | 10,077 | ||||
CHANGE IN PLAN ASSETS: | ||||||||
Fair value of plan assets – beginning of period | $ | 7,862 | $ | 7,033 | ||||
Employer contributions | 515 | 397 | ||||||
Gross benefits paid | (577 | ) | (558 | ) | ||||
Actual return on plan assets | 294 | 990 | ||||||
Fair value of plan assets – end of period | $ | 8,094 | $ | 7,862 | ||||
Funded status at year end | $ | (3,123 | ) | $ | (2,215 | ) |
March 2, 2013 | February 25, 2012 | |||||||
(in thousands) | ||||||||
CHANGE IN BENEFIT OBLIGATION: | ||||||||
Net benefit obligation - beginning of period | $ | 11,217 | $ | 10,077 | ||||
Interest cost | 556 | 600 | ||||||
Actuarial loss | (821 | ) | (197 | ) | ||||
Gross benefits received | 562 | 737 | ||||||
Net benefit obligation - end of period | $ | 11,514 | $ | 11,217 | ||||
CHANGE IN PLAN ASSETS: | ||||||||
Fair value of plan assets - beginning of period | $ | 8,094 | $ | 7,862 | ||||
Employer contributions | 685 | 515 | ||||||
Gross benefits paid | (562 | ) | (577 | ) | ||||
Actual return on plan assets | 520 | 294 | ||||||
Fair value of plan assets - end of period | $ | 8,737 | $ | 8,094 | ||||
Funded Status at end of year | $ | (2,777 | ) | $ | (3,123 | ) |
Pension expense (benefit) includes the following components:
February 25, 2012 | February 26, 2011 | February 27, 2010 | ||||||||||
(in thousands) | ||||||||||||
COMPONENTS OF NET PERIODIC (BENEFIT) COST: | ||||||||||||
Service cost | $ | - | $ | - | $ | - | ||||||
Interest cost | 600 | 584 | 558 | |||||||||
Loss on assets | (294 | ) | (990 | ) | (1,746 | ) | ||||||
Amortization of (gain) loss | (174 | ) | 553 | 1,350 | ||||||||
Net periodic (benefit) cost | $ | 132 | $ | 147 | $ | 162 | ||||||
WEIGHTED-AVERAGE ASSUMPTION USED: | ||||||||||||
Discount rate | 6.1 | % | 6.1 | % | 6.1 | % | ||||||
Rate of compensation increase | - | - | - |
The expected long-term rate of return on plan assets was 8.0% for all years.
March 2, 2013 | February 25, 2012 | February 26, 2011 | ||||||||||
(in thousands) | ||||||||||||
COMPONENTS OF NET PERIODIC COST: | ||||||||||||
Service cost | $ | - | $ | - | $ | - | ||||||
Interest cost | 556 | 600 | 584 | |||||||||
Loss of assets | (520 | ) | (294 | ) | (990 | ) | ||||||
Amortization of loss (gain) | 204 | (174 | ) | 553 | ||||||||
Net periodic cost | $ | 240 | $ | 132 | $ | 147 | ||||||
WEIGHTED-AVERAGE ASSUMPTION USED: | ||||||||||||
Discount rate | 5.0 | % | 6.1 | % | 6.1 | % | ||||||
Rate of compensation increase | 0.0 | % | 0.0 | % | 0.0 | % |
Notes to Consolidated Financial Statements, continued
As of February 25, 2012March 2, 2013 the benefits expected to be paid in the next five fiscal years and in the aggregate for the five fiscal years thereafter are as follows (in thousands):
2012 | $ | 607 | ||||||
Year | Amount | |||||||
2013 | 615 | $ | 257 | |||||
2014 | 635 | 437 | ||||||
2015 | 642 | 353 | ||||||
2016 | 682 | 711 | ||||||
2017-2021 | 3,678 | |||||||
2017 | 384 | |||||||
2018-2022 | 2,777 |
The fair values and asset allocation of the Company’s plan assets as of February 25, 2012March 2, 2013 and the target allocation for fiscal 2012,2013, by asset category, are presented in the following table (in thousands). All fair values are based on quoted prices in active markets for identical assets (Level 1 in the fair value hierarchy).
% of Plan | % of Plan | ||||||||||||||||||||
Asset Category | Asset Allocation | Fair Value | Assets | Asset Allocation | Fair Value | Assets | |||||||||||||||
(in thousands) | |||||||||||||||||||||
Cash and equivalents | 0% to 10 | % | $ | 295 | 4 | % | 0% to 10% | $ | 347 | 4 | % | ||||||||||
Equity Securities | 30% to 50 | % | 3,456 | 43 | % | 30% to 50% | 3,756 | 43 | % | ||||||||||||
Fixed Income Securities | 35% to 55 | % | 3,762 | 46 | % | 35% to 55% | 4,023 | 46 | % | ||||||||||||
Alternative Investments | 5% to 25 | % | 581 | 7 | % | 5% to 25% | 611 | 7 | % | ||||||||||||
Total | $ | 8,094 | 100 | % | $ | 8,737 | 100 | % |
The Company adopted SFAS 158(now (now ASC Topic 715) for fiscal 2006. Under the provisions of ASC 715, the Company is required to recognize in its consolidated balance sheet the unfunded status of a benefit plan. This is measured as the difference between plan assets at fair value and the projected benefit obligation. For the Pension Plan,pension plan, this is equal to the accumulated benefit obligation.
Certain employees covered by collective bargaining agreements participate in multiemployer pension plans. Syms ceased to have an obligation to contribute to these plans in 2012, thereby triggering a complete withdrawal from the plans within the meaning of section 4203 of ERISA. Consequently, the Company is subject to the payment of a withdrawal liability to these pension funds. The additional costs have been estimated at approximately $6.9 million for the multiemployer pension plans. The Company had a recorded liability of $6.1 million and $6.9 million which is reflected in accrued expenses as of March 2, 2013 and February 25, 2012, respectively.
In addition, ASC 715 requiresaccordance with minimum funding requirements, the Company paid approximately $0.8 million to recognize as a component of other comprehensive income, net of tax, the gains or lossesSyms sponsored plan and prior service costs or credits that arise duringapproximately $0.8 million to the period but are not recognized as components of net periodic benefit cost. Gains or losses represent changes in the amount of either the projected benefit obligations or plan assets resultingmultiemployer plans from changes in assumptions, actuarial gains/losses and actual investment returns. ASC 715 did not change the recognition of pension income or expense in the statement of operations. Since the Company has recognized the funded status of its defined benefit pension plans since its adoption of the Accelerated Method, the adoption of ASC 715 did not have a material effect on the Company’s reported pension liability or pension expense in any period presented. Effective with fiscal 2008, the measurement date for the plan coincides with the fiscal year end date.September 17, 2012 through March 2, 2013.
b. | Profit-Sharing and 401(k) Plan- The Company |
F - 19 |
Notes to Consolidated Financial Statements, continued
NOTE 97 – COMMITMENTS
a) | Leases- The Company no longer has retail stores subject to ongoing operating leases |
Notes to Consolidated Financial Statements, continued
Rent expense for operating leases (in thousands) iswas as follows:
Thirty-Five | Fiscal Year | |||||||||||||||||||
Weeks Ended | Ended | |||||||||||||||||||
Eight Months Ended | Fiscal Year Ended | Fiscal Year Ended | October 29, 2011 | February 26, 2011 | ||||||||||||||||
October 29, 2011 | February 26, 2011 | February 27, 2010 | ||||||||||||||||||
Minimum rentals due | $ | 23,416 | $ | 35,684 | $ | 27,060 | $ | 23,416 | $ | 35,684 | ||||||||||
Escalation rentals accrued | 3,058 | 3,516 | 2,167 | 3,058 | 3,516 | |||||||||||||||
Sublease rentals | (812 | ) | (1,257 | ) | (1,319 | ) | (812 | ) | (1,257 | ) | ||||||||||
Total | $ | 25,662 | $ | 37,943 | $ | 27,908 | $ | 25,662 | $ | 37,943 |
b) | Legal Proceedings -The Company is a party to routine litigation incidental to its business. Some of the actions to which the Company is a party are covered by insurance and are being defended or reimbursed by the Company’s insurance carriers. |
As discussed in Note 1, Syms and its subsidiaries filed voluntary petitions for relief under Chapter 11 on November 2, 2011. On September 14, 2012, a plan of reorganization became effective and Syms and its subsidiaries emerged from bankruptcy, with reorganized Syms merging with and into Trinity.
NOTE 10 -8 – PREFERRED STOCK
The Company is authorized to issue up to 1,000,000two shares of preferred stock, in one or more series of preferred stock. The Board of DirectorsOne share, designated as the Series A Preferred Share, is authorized to establishheld by a trustee acting for the number of shares to be included in each such series, and to fix the designation, relative rights, preferences, qualifications and limitationsbenefit of the shares of each such series. No such shares have been issued or are outstanding.Company’s creditors. The other share, designated as the Series B Preferred Share, is held by the former Majority Shareholder.
NOTE 11 -9 – STOCK OPTION PLAN
The Company’sCompany formerly had an Amended and Restated Incentive Stock Option and Appreciation Plan allowsthat allowed 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 and stock appreciation rights. The plan requiresrequired that incentive stock options be granted at an exercise price not less than the fair market value of the Common Stock on the date the option iswas granted. The exercise price of the option for holders of more than 10% of the voting rights of the Company mustneeded to be not less thanat least 110% of the fair market value of the Common Stock on the date of grant. Non-qualified options and stock appreciation rights maycould be granted at any exercise price, subject to applicable laws. The Company hashad reserved 1,500,000 shares of common stock for such issuances. The Company is no longer granting options under its Amended and Restated Incentive Stock Option and Appreciation Plan.
No option or stock appreciation rights may be granted under the Amended and Restated Incentive Stock Option Plan after July 28, 2013. The maximum exercise period for any option or stock appreciation right under the plan is ten years from the date the option is granted (five years for any optionee who holds more than 10% of the voting rights of the Company).
On July 14, 2005, at the annual meeting of shareholders of the Company, the shareholders of the Company approved the 2005 Stock Option Plan (the "2005 Plan"), which 2005 Plan was adopted by the Board of Directors of the Company on April 7, 2005 subject to shareholder approval.. The 2005 Plan permitspermitted the grant of options, share appreciation rights, restricted shares, restricted share units, performance units, performance shares, cash-based awards and other share-based awards. Key employees, non-employee directors, and third party service providers of the Company who arewere selected by a committee designated by the Board of Directors of the Company arewere eligible to participate in the 2005 Plan. The maximum number of shares of Common Stock issuable under the Plan iswas 850,000, subject to certain adjustments in the event of changes to the Company’s capital structure.
The 2005 Plan requiresrequired that incentive stock options be granted at an exercise price not less than the fair market value of the Common Stock on the date the option iswas granted. The exercise price of such options for holders of more than 10% of the voting stock of the Company mustneeded to be not less thanat least 110% of the fair market value of the Common Stock on the date of grant. The exercise price of non-qualified options and stock appreciation rights mustcould not be less than fair market value on the date such benefits arewere granted.
The maximum exercise period for any option or stock appreciation right under the 2005 Plan is ten years from the date the option is granted (five years for any incentive stock options issued to a person who holds more than 10% of the voting stock of the Company).
Notes to Consolidated Financial Statements, continued
TheDuring 2011 no stock options were exercised or cancelled by the Company. All outstanding options were cancelled when the Company emerged from bankruptcy on September 14, 2012. Neither the Amended and Restated Incentive Stock Option Plan nor the 2005 Plan permits the Company to issue restricted shares, restricted share units, performance units, cash-based awards and other share-based awards with such terms and conditions (including applicable vesting conditions) as the Company shall determine, subject to certain terms and conditions set forth in the 2005 Plan.
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. The aggregate intrinsic value of the outstanding and exercisable options during both fiscal 2011 and fiscal 2010 was approximately $0. The aggregate intrinsic values of options exercised during fiscal 2011 and fiscal 2010 were approximately $0.available for additional grants.
The following table summarizes stock option activity for each of the past three fiscal years:
Fiscal Year Ended | Fiscal Year Ended | |||||||||||||||||||||||||||||||||||||||||||||||
(in thousands except per share amounts) | March 2, 2013 | February 25, 2012 | February 26, 2011 | |||||||||||||||||||||||||||||||||||||||||||||
February 25, 2012 | February 26, 2011 | February 27, 2010 | Options | Weighted Average Exercise Price per Share | Options | Weighted Average Exercise Price per Share | Options | Weighted Average Exercise Price per Share | ||||||||||||||||||||||||||||||||||||||||
Options | Weighted Average Exercise Price Per Share | Options | Weighted Average Exercise Price Per Share | Options | Weighted Average Exercise Price Per Share | (in thousands, except pre share amounts) | ||||||||||||||||||||||||||||||||||||||||||
Outstanding – beginning of year | 98 | $ | 15.01 | 98 | $ | 15.01 | 111 | $ | 13.81 | |||||||||||||||||||||||||||||||||||||||
Outstanding - beginning of year | 98 | $ | 15.01 | 98 | $ | 15.01 | 98 | $ | 15.01 | |||||||||||||||||||||||||||||||||||||||
Exercised | - | - | - | - | (9 | ) | 7.18 | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
Cancelled | - | - | - | - | (4 | ) | 5.21 | (98 | ) | (15.01 | ) | - | - | - | - | |||||||||||||||||||||||||||||||||
Outstanding – end of year | 98 | $ | 15.01 | 98 | $ | 15.01 | 98 | $ | 15.01 | |||||||||||||||||||||||||||||||||||||||
Outstanding - end of year | - | $ | - | 98 | $ | 15.01 | 98 | $ | 15.01 | |||||||||||||||||||||||||||||||||||||||
Options exercisable at year end | 98 | $ | 15.01 | 98 | $ | 15.01 | 98 | $ | 15.01 | - | $ | - | 98 | $ | 15.01 | 98 | $ | 15.01 |
During fiscal 2011, no stock options were exercised or cancelled by the Company. The remaining outstanding options expire in 2015.
NOTE 1210 - NET (LOSS) INCOMELOSS PER SHARE
In accordance with ASC Topic 260 “Earnings Per Share”, basic net (loss) incomeloss per share has been computed based upon the weighted average common shares outstanding. Diluted net (loss) incomeloss per share gives effect to outstanding stock options, if they are dilutive.
Net (loss) incomeloss per share has beenwas computed as follows:
Eight Months Ended | ||||||||||||
October 29, 2011 | Fiscal 2010 | Fiscal 2009 | ||||||||||
(in thousands except per share amounts) | ||||||||||||
Basic and diluted net (loss) income per share: | ||||||||||||
Net (loss) income | $ | (76,027 | ) | $ | (32,857 | ) | $ | 8,308 | ||||
Average shares outstanding – basic and diluted (1) | 14,448 | 14,456 | 14,593 | |||||||||
Net (loss) income per share – basic and diluted | $ | (5.26 | ) | $ | (2.27 | ) | $ | 0.57 |
Thirty-Five | Fiscal Year | |||||||
Weeks Ended | Ended | |||||||
October 29, 2011 | February 26, 2011 | |||||||
(in thousands, except pre share amounts) | ||||||||
Basic and diluted net loss per share: | ||||||||
Net loss | $ | (76,027 | ) | $ | (32,857 | ) | ||
Average shares outstanding - basic and diluted (1) | 14,448 | 14,456 | ||||||
Net loss per share - basic and diluted | $ | (5.26 | ) | $ | (2.27 | ) |
(1) All outstanding options were anti-dilutive for the eight monthsthirty-five weeks ended October 29, 2011 fiscal 2010 and fiscal 2009.2010.
Notes to Consolidated Financial Statements, continued
NOTE 1311 - UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
Quarter | ||||||||||||||||
First | Second | Third | Fourth(1) | |||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||
EIGHT MONTH ENDED OCTOBER 29, 2011 | ||||||||||||||||
Net sales | $ | 105,355 | $ | 86,319 | $ | 66,540 | N/A | |||||||||
Gross profit | $ | 44,642 | $ | 31,800 | $ | 23,743 | N/A | |||||||||
Net income (loss)(2) | $ | 1,474 | $ | (11,546 | ) | $ | (65,955 | ) | N/A | |||||||
Net income (loss) per share – basic and diluted | $ | 0.10 | $ | (0.80 | ) | $ | (4.57 | ) | N/A |
First | Second | Third | Fourth (1) | |||||||||||||
(in thousands, except pre share amounts) | ||||||||||||||||
Thirty Five Weeks Ended October 29, 2011: | ||||||||||||||||
Net sales | $ | 105,355 | $ | 86,319 | $ | 66,540 | N/A | |||||||||
Gross profit | $ | 44,642 | $ | 31,800 | $ | 23,743 | N/A | |||||||||
Net loss (2) | $ | 1,474 | $ | (11,546 | ) | $ | (65,955 | ) | N/A | |||||||
Net loss per share - basic and diluted | $ | 0.10 | $ | (0.80 | ) | $ | (4.57 | ) | N/A | |||||||
Year Ended February 26, 2011: | ||||||||||||||||
Net sales | $ | 121,445 | $ | 102,073 | $ | 120,739 | $ | 100,876 | ||||||||
Gross profit | $ | 53,743 | $ | 37,123 | $ | 51,345 | $ | 31,581 | ||||||||
Net loss (3) (4) (5) | $ | (809 | ) | $ | (10,930 | ) | $ | (3,315 | ) | $ | (17,803 | ) | ||||
Net loss per share - basic and diluted | $ | (0.06 | ) | $ | (0.76 | ) | $ | (0.23 | ) | $ | (1.23 | ) |
Quarter | ||||||||||||||||
First | Second | Third | Fourth | |||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||
YEAR ENDED FEBRUARY 26, 2011 | ||||||||||||||||
Net sales | $ | 121,445 | $ | 102,073 | $ | 120,739 | $ | 100,876 | ||||||||
Gross profit | $ | 53,743 | $ | 37,123 | $ | 51,345 | $ | 31,581 | ||||||||
Net loss(3)(4) (5) | $ | (809 | ) | $ | (10,930 | ) | $ | (3,315 | ) | $ | (17,803 | ) | ||||
Net loss per share – basic and diluted | $ | (0.06 | ) | $ | (0.76 | ) | $ | (0.23 | ) | $ | (1.23 | ) |
(1) Adopted liquidation basis of accounting on October 30, 2011 and therefore not applicable ("N/A").
(2) Includes write off of deferred tax assets of $46,266 in the third quarter.
(3) Includes loss on disposition of assets of $504 in the third quarter of 2010.
(4) Includes asset impairment charge of $1,721 and $2,534 in the third and fourth quarters, respectively.
(5) Includes restructuring charges of $831, $471, $831, and $7,173 in the first, second, third and fourth quarters, respectively.
NOTE 1412 – RELATED PARTY TRANSACTIONS
On March 9, 2010,Under the terms of the Plan, the Company purchased 150,196 sharesis restricted from paying any distributions, dividends or redemptions until after the former Majority Shareholder payments are made in full. The Certificate of Incorporation of Trinity provides for a preferred series share, held by the Company’s Common Stock fromformer Majority Shareholder and which is pledged as security and held in escrow, entitling the Sy Syms Revocable Living Trust atMajority Shareholder to control a price of $8.04 per share. The purchase was approved by a committeemajority of the Board consisting solelyof Directors if the former Majority Shareholder Payments are not made by October 16, 2016, provided that and conditioned upon the general unsecured claim satisfaction having occurred.
In addition, as part of the independent members ofPlan, the Board. The price approved by the committee, after consultation with a financial consultant and counsel, represented a 5% discount to a thirty-day volume weighted average price.
As of April 2012, the Company is resolved to file a motion with the Bankruptcy Court that would require Marcy Symsformer Majority Shareholder agreed to repay the Company $1.6 million for all post Sarbanes-Oxley premiums paid by the Company on her behalf after the adoption of the Sarbanes-Oxley Act of 2002, as well as $0.2 million for the net present value of Pre Sarbanes-Oxleypre-Sarbanes-Oxley premiums, for a total of $1.8 million. TheAt March 2, 2013, the value of these premiums continues to bewas recorded as an assetoffset against the payment due under the Plan to the former Majority Shareholder (i.e., Marcy Syms and isher related trusts) on account of the redemption of the former Majority Shareholder’s shares of Syms common stock.
Ms. Syms, the Company and Filene’s, LLC also entered into an agreement in connection with the Plan whereby all rights to the commercial use of the “Syms” name and to any images of Ms. Syms and her family members were assigned to Ms. Syms. The impact of this provision of the Plan has been reflected in the estimated net realizable value of the trademarks used by the Company and included in prepaid expenses andwithin other current assets on the statementas of net assets.March 2, 2013.
NOTE 1513 – RESTRUCTURING CHARGES
SinceFollowing the acquisition of the assets from Filene’s, Inc. in June 2009, the Company had continued to assess the most effective manner in which to integrate the operations of Filene’s, LLC and Syms to maximize the synergies of the two businesses. This plan included the integration of the two IT systems into one common platform, the consolidation of distribution center functions, the co-branding of several stores, the closing of Filene’s Massachusetts office and related reductions in staffing levels. In addition, the Company closed four under-performing stores in fiscal 2010. The Company was required to continue to make lease payments on two of these closed stores, one through May 2012 and the other through September 2017. The Company had recorded the present value of these payments (net of estimated sub-lease income) as a restructuring charge totaling $7.2 million in 2010.
Notes to Consolidated Financial Statements, continued
The consolidation of distribution center functions in 2010 involved a shift of most merchandise processing to the Company’s Massachusetts distribution center. The New Jersey distribution center served to replenish the high volume New York City stores, process Bridal and Vault and continued to house the adjoining retail store and corporate offices. Severance costs associated with staffing level reductions for approximately 200 employees, including store, distribution center and corporate support staff, totaled $1.1 million.million in fiscal 2010. In addition, $0.8 million in professional fees related to the integration of the two IT systems and $0.3 million of legal costs were incurred and havehad been recorded as restructuring charges.charges in fiscal 2010.
Due to the Chapter 11 Bankruptcy filing in November 2011, any remaining lease obligations were written offconsidered in November 2011 and anyestimating the future amounts due to the Landlord and were recorded in total currentother liabilities, primarily lease settlement costs. (See Note 9)7).
NOTE 14–DISPOSITIONS OF ASSETS
During September 2012, Syms sold its Miami, FL property, the building of which is 53,000 square feet, in a Court-approved transaction. The net proceeds from the sale were approximately $4.1 million.
During November 2012, the Company sold its Houston, TX property, the building of which is 42,000 square feet, on an “as-is” basis.
The net proceeds from the sale were approximately $3.6 million.
During December 2012, the Company sold its Fairfield, CT property, the building of which is 43,000 square feet, on an “as-is” basis. The lessor of the land exercised its option to terminate its leasehold interest with net proceeds from the sale of the property of $5.5 million to the Company.
During December 2012, the Company received a $0.9 million settlement on its Marietta, GA location. This was the result of the second and final payment regarding the 2011 partial condemnation.
During January 2013, the Company sold its Secaucus, NJ condominium. The net proceeds from the sale were approximately $0.3 million.
The detailscarrying value of the restructuring accruals areproperties have been adjusted as follows (in thousands):of March 2, 2013 to reflect the impact of these transactions.
Lease obligations | One-time termination benefits | Other associated costs | Total | |||||||||||||
Balance, February 28, 2010 | $ | - | $ | - | $ | - | $ | - | ||||||||
Additions | 7,171 | 1,082 | 1,053 | 9,306 | ||||||||||||
Payments and other adjustments | 37 | (976 | ) | (1,053 | ) | 1,992 | ||||||||||
Balance, February 26, 2011 | $ | 7,208 | $ | 106 | $ | - | $ | 7,314 | ||||||||
Payments and other adjustments | (1,654 | ) | (106 | ) | - | (1,760 | ) | |||||||||
Write off due to Bankruptcy | (5,554 | ) | - | - | (5,554 | ) | ||||||||||
Balance, February 25, 2012 | $ | - | $ | - | $ | - | $ | - |
The gain for the thirty-five week period ended October 29, 2011 of $7.6 million was primarily from the sale of the Syms store located in Rockville, MD and the sale and leaseback of the Tampa, FL location, partially offset by the impairment of assets for the lease expiration of the Park Avenue, NY location, and to a lesser degree the proceeds from a partial condemnation of property adjacent to the Marietta, GA store and sale of the North Randall, OH location.
NOTE 15–SUBSEQUENT EVENT
During April 2013, the Company sold its Southfield, MI property, the building of which is 60,000 square feet, on an “as-is” basis. The net accrualproceeds from the sale were approximately $2.5 million. The value recorded in the financial statements as of $7,314 at February 26, 2011March 2, 2013 is reported as $2,322 in accrued expenses and $4,992 in other long-term liabilities.consistent with the amount realized from this subsequent transaction.
Exhibits Index
2.1 Modified Second Amended Joint Chapter 11 Plan of Reorganization of Syms Corp. and its Subsidiaries (incorporated by reference to Exhibit 99.1 of the Form 8-K filed by the Company on September 6, 2012)
2.2 Agreement and Plan of Merger by and between Syms Corp. and Trinity Place Holdings Inc. dated September 14, 2012 (incorporated by reference to Exhibit 2.1 of the Form 8-K12G3 filed by the Company on September 19, 2012)
3.1 Certificate of Incorporation of Trinity Place Holdings Inc. (incorporated by reference to Exhibit 3.1 of the Form 8-K filed by the Company on September 19, 2012)
3.2 Bylaws of Trinity Place Holdings Inc. (incorporated by reference to Exhibit 3.2 of the Form 8-K filed by the Company on September 19, 2012)
10.1 Engagement Agreement for CEO Services, dated September 14, 2012, between Trinity Place Holdings Inc. and Esopus Creek Management LLC (incorporated by reference to Exhibit 10.1 of the Form 10-Q filed by the Company on October 9, 2012)*
10.2 Engagement Agreement for CEO Services, dated April 22, 2013, between Trinity Place Holdings Inc. and Mark D. Ettenger*
10.3 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 (incorporated by reference to Exhibit 28.1 of the Form 8-K filed by Syms in May 1986)
14.1 Code of Ethics
21.1 List of Subsidiaries
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(b) under the Securities and Exchange Act of 1934 and 18.U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities and Exchange Act of 1934 and 18.U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS** | XBRL Instance Document |
101.SCH** | XBRL Taxonomy Extension Schema Document |
101.CAL** | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF** | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB** | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE** | XBRL Taxonomy Extension Presentation Linkbase Document |
*Management contract, compensatory plan or arrangement.
** Pursuant to Rule 406T of Regulation S-T this data is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities and Exchange Act of 1934, and otherwise is not subject to liability under these sections.