entirety by the cautionary statements in this paragraph and described elsewhere in this Annual Report and other reports filed with the Securities and Exchange Commission.
The Company does not assume the obligation to update any forward-looking statement. Shareholders should carefully evaluate such statements in light of factors, including risk factors, described in the Company’s filings with the SEC, especially on Forms 10-K, 10-Q and 8-K. In Item 1A., “Risk Factors” of this Annual Report on Form 10-K, the Company discusses in more detail various important risk factors that could cause actual results to differ from expected or historic results. The Company notes these factors for readers as permitted by the Private Securities Litigation Reform Act of 1995. Shareholders should understand that it is not possible to predict or identify all such factors. Consequently, shareholders should not consider any such list to be a complete statement of all potential risks or uncertainties.
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 constantly reevaluated, and adjustments are made when facts and circumstances dictate a change. Historically, the Company has found the application of accounting policies to be appropriate, and actual results have not differed materially from those determined using necessary estimates.
The Company’s accounting policies are more fully described in Note 1 to the Financial Statements presented elsewhere in this Annual Report. The Company has identified certain critical accounting policies that are described below.
Factors considered in the determination of permanent markdowns include current and anticipated demand, customer preferences and 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 is made to permanently markdown merchandise, the resulting gross margin reduction is recognized in the period the markdown is recorded. The timing of the decision, particularly surrounding the balance sheet date, can have a significant effect on the results of operations.
Shrinkage is 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 are taken at least annually for all stores and inventory records are adjusted accordingly. The shrinkage rate from the most recent physical inventory, in combination with historical experience, is 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.
growth and profit margins, are 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. Should the Company determine that it will not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset will be charged to income in the period such determination is made.
Results of Operations
The following discussion compares the fiscal years ended February 27, 2010, February 28, 2009 and March 1, 2008. All of the fiscal years were comprised of 52 weeks.
Fiscal Year Ended February 27, 2010 (Fiscal 2009) Compared to Fiscal Year Ended February 28, 2009 (Fiscal 2008)
Net sales for fiscal 2009 were $377,309,000, an increase of $135,309,000 (55.9%) as compared to net sales of $242,000,000 or fiscal 2008. Net sales for fiscal 2009 included sales from Filene’s from June 19, 2009 (first date of operating ownership) of $177,483,000. Comparable store sales, which are for Syms stores only, decreased 14.9% or approximately $32.4 million, reflective of the continued economic recession in the U.S. which resulted in lower retail sales across most markets. In our comparable store computation, we only include stores that have been opened for a period of at least 12 months and stores that were open during both fiscal years. Syms closed a store in Virginia and opened a new store in close proximity to the previous location. This location is included in the comparable store comparisons. We opened no new locations in fiscal 2009 and there was no expansion in square footage in existing stores. The remaining $9.8 million decline in sales relates primarily to stores closed in fiscal 2009.
Gross profit for fiscal 2009 was $145,102,000 or 38.5% of net sales compared with $100,525,000 or 41.5% of net sales for the prior year, an increase of $44,577,000 or 44.3%. Gross profit for fiscal 2009 included gross profit from Filene’s from June 19, 2009 (first date of operating ownership) of $69,012,000. Gross profit for Syms, exclusive of Filene’s, decreased by $24.4 million which is attributable to decreased sales from declines in store traffic commensurate with the recessionary trend in the U.S. economy and a reduction in gross profit percentage from 41.5% to 38.1%. This decline in gross profit percentage is attributable to reduced margin on close-out sales at five stores -- Hurst, TX, Towson, MD, Commack, NY, Providence, RI, and Peabody, MA -- that were closed in fiscal 2009, reduced margin on selected merchandise at two stores in preparation for co-branding of Syms and Filene’s merchandise in the same location (Fairfield, CT and Norwood, MA), and overall margin decline across all stores due to a re-pricing strategy to reduce prices to 2001 retail levels. The Company’s gross profit may not be comparable to those of other entities, since some retail entities may include all costs related to their distribution network in cost of goods sold while others, like the Company, exclude a portion of those costs from gross profit and, instead, include them in operating expenses such as selling and administrative expenses and occupancy costs.
Selling, general and administrative expense (“SG&A”) increased $39,218,000 to $113,908,000 (30.2% as a percentage of net sales) for fiscal 2009 as compared to $74,690,000 (30.9% as a percentage of net sales) for fiscal 2008. SG&A for fiscal 2009 included SG&A from Filene’s from June 19, 2009 (first date of operating ownership) of $46,042,000. SG&A for Syms, exclusive of Filene’s, decreased by $6,824,000, predominately as a result of reductions in personnel and other controllable expenses commensurate with the reduction in sales previously discussed.
Advertising expense for fiscal 2009 was $8,193,000 or 2.2% of net sales compared with $6,339,000 or 2.6% of net sales for the prior year, an increase of $1,854,000 or 29.2%. Advertising expense for fiscal 2009 included advertising expense from Filene’s from June 19, 2009 (first date of operating ownership) of $3,127,000. For fiscal 2009 vs. fiscal 2008, advertising expense for Syms, exclusive of Filene’s, decreased by $1,273,000, primarily due to shifts away from TV advertising to a lower-cost and more geographically focused usage of radio, e-mail and in-store promotional activities.
Occupancy costs for fiscal 2009 were $45,087,000 or 12.0% of net sales compared with $15,557,000 or 6.4% of net sales for the prior year, an increase of $29,530,000. Occupancy costs for fiscal 2009 included occupancy costs from Filene’s from June 19, 2009 (first date of operating ownership) of $30,844,000. Occupancy costs for Syms, exclusive of Filene’s, decreased by $1,314,000, primarily as a result of the closure of five store locations. In addition, increased occupancy in
13
certain rental properties resulted in the Company offsetting occupancy costs with net rental income of $2,372,000 in fiscal 2009 compared to $2,026,000 in fiscal 2008.
Depreciation and amortization expense for fiscal 2009 was $11,414,000 or 3.0% of net sales compared with $8,003,000 or 3.3% of net sales for the prior year, an increase of $3,250,000. Depreciation and amortization expense for fiscal 2009 included depreciation and amortization expense from Filene’s from June 19, 2009 (first date of operating ownership) of $3,767,000. For fiscal 2009, depreciation and amortization expense for Syms, exclusive of Filene’s, decreased by $356,000 due primarily to assets reaching fully depreciated status.
In conjunction with the acquisition of Filene’s, 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, based upon valuations of inventory, fixed assets, equipment and intangible assets, net of deferred taxes, customer obligations and other adjustments. Acquisition costs inclusive of investment banking, legal, professional and other costs aggregating $4.9 million were expensed in the periods incurred.
During Fiscal 2009 the Company recorded an impairment charge of $80,000 related to estimated impairments in carrying value of one retail location and a loss of $1,168,000 from the disposition of assets related to the closure of five store locations. During Fiscal 2008 the Company recorded an impairment charge of $530,000 and a gain from the sale of assets of $503,000.
Other income was $25,049,000 for fiscal 2009 as compared to $53,000 for fiscal 2008. This increase is due to the receipt of life insurance proceeds from officers’ life insurance policies on the life of the Company’s founder (Sy Syms), who died on November 17, 2009.
Interest expense was $1,538,000 for fiscal 2009 as compared to $38,000 for fiscal 2008. This increase is due to interest incurred on a cash surrender value advance and interest incurred on borrowings under a revolving credit facility with Bank of America and an unused credit line with IDB.
Net loss before the recovery of income taxes for fiscal 2009 was $6,380,000 or (1.7%) of net sales compared with net loss before income taxes of $4,031,000 or (1.7%) of net sales for fiscal 2008, a decrease of $2,349,000. The decrease in operating results before income taxes resulted from the factors discussed above.
For Fiscal 2009 the effective income tax rate was 230.2% as compared to 15.1% for Fiscal 2008. The increase in the effective tax rate for Fiscal 2009 reflects the impact of permanent differences of certain income items not taxable.
Fiscal Year Ended February 28, 2009 (Fiscal 2008) Compared to Fiscal Year Ended March 1, 2008 (Fiscal 2007)
Net sales for Fiscal 2008 were $242,000,000, a decrease of $25,149,000 (9.4%) as compared to net sales of $267,149,000 for Fiscal 2007. The decrease in sales is largely attributable to reductions in store traffic, especially in the latter half of Fiscal 2008, as general economic conditions resulted in lower retail sales across most markets. Comparable store sales in Fiscal 2008 decreased 7.9% or approximately $20.5 million. In our comparable store computation, we only include locations that were open for a period of at least twelve months and stores that were open during both fiscal years. We opened no new locations in Fiscal 2008 and there was no expansion in square footage in existing stores.
Gross profit for Fiscal 2008 was $100,525,000 or 41.5% of net sales compared with $109,981,000 or 41.2% of net sales for the prior year, a decrease of $9,456,000 or 8.6%. The gross profit percentage increased 0.3% in Fiscal 2008 primarily reflective of improved physical controls over inventory coupled with reductions in mark-downs reflective of changes in inventory mix. The Company’s gross profit may not be comparable to those of other entities that include all of the costs related to their distribution network in cost of goods sold because the Company excludes a portion of those costs from gross profit. Instead, the Company includes such costs in other items such as SG&A costs and/or occupancy costs.
SG&A expense for Fiscal 2008 was $74,690,000 or 30.9% of net sales compared with $76,959,000 or 28.8% of net sales for the prior year, a decrease of $2,269,000 or 2.9%. SG&A expenses decreased primarily as a result of costs cut in the face of declining sales, with the greatest reductions in costs realized in payroll related expenses offset by increases in health insurance, union and certain other insurance costs.
14
Advertising expense for Fiscal 2008 was $6,339,000 or 2.6% of net sales compared with $8,561,000 or 3.2% of net sales for the prior year, a decrease of $2,222,000 or 25.9% due primarily to general reductions in advertising across all lines of media coupled with higher concentration in electronic and direct to consumer promotions which tend to be lower cost.
Occupancy costs for Fiscal 2008 were $15,557,000 or 6.4% of net sales compared with $14,323,000 or 5.4% of net sales for the prior year, an increase of $1,234,000 or 8.6%. The increase in occupancy costs is largely attributable to higher common area charges at leased locations and higher utility costs. In addition, increased vacancy from tenancy in owned buildings resulted in the Company offsetting occupancy costs with net rental income of $2,026,000 in fiscal 2008 compared to $3,006,000 in fiscal 2007.
Depreciation and amortization expense for Fiscal 2008 was $8,003,000 or 3.3% of net sales compared with $7,659,000 or 2.9% of net sales for the prior year. Depreciation and amortization expense increased $344,000 or 4.5% largely as a result of capital improvements, such as roofing and HVAC upgrades at various retail locations, as well as in Syms our distribution center.
During Fiscal 2008 the Company recorded an impairment charge of $530,000 related to estimated impairments in carrying values of two retail locations and a gain of $548,000 from the sale of a small parcel of realty. During Fiscal 2007 the Company recorded an impairment charge of $745,000 relating to the closure of a store in Cleveland, Ohio in July 2007. No sales of Company properties occurred in Fiscal 2007.
Net loss before the recovery of income taxes for Fiscal 2008 was $4,031,000 or (1.7%) of net sales compared with net income before income taxes of $3,136,000 or 1.2% of net sales for the prior year, a decrease of $7,167,000. The decline in operating results before income taxes resulted from the factors discussed above.
For Fiscal 2008 the effective income tax rate was 15.1% as compared to 74.3% for Fiscal 2007. The decrease in the effective tax rate for Fiscal 2008 reflects the impact of permanent differences of certain expense items not deductible for tax purposes.
Liquidity and Capital Resources
Working capital at February 27, 2010 was $52,798,000, an increase of $9,583,000 from February 28, 2009, and the ratio of current assets to current liabilities was 1.84 to 1 as compared to 2.53 to 1 at February 28, 2009. The Company’s merchandise inventory was $29,754,000 higher at fiscal year-end primarily due to the acquisition of Filene’s partially offset by the Company’s efforts to reduce inventory in the face of reduced store traffic in the current economic environment. Accounts payable increased $32,420,000 from February 28, 2009 primarily due to the acquisition of Filene’s. Assets Held For Sale increased $7,190,000 from February 28, 2009 as a result of the closing of the Hurst, TX and Commack, NY stores in fiscal 2009 and actively pursuing the sale of these properties.
Net cash provided by operating activities totaled $26,877,000 for Fiscal 2009 as compared to $3,215,000 for Fiscal 2008. This increase is primarily due to receipt of life insurance proceeds from officers’ life insurance policies on the Company’s founder, who died during fiscal 2009.
Net cash used in investing activities was $51,097,000 for fiscal 2009 as compared to net cash used of $12,778,000 for fiscal 2008. The acquisition of the assets of Filene’s largely accounts for this increase.
Net cash provided by financing activities was $24,447,000 for fiscal 2009 as compared to net cash used of $519,000 for fiscal 2008. For fiscal 2009, this reflects an advance of $16,000,000 of cash value of officers’ life insurance and proceeds from credit borrowings of $8,402,000 to cover operating expenses. For fiscal 2008, this reflects the purchase of treasury shares of $2,817,000 offset in substantial part by proceeds from options exercises of $2,298,000.
The Company had an unsecured $40 million, revolving credit facility with Israel Discount Bank (“IDB”) through June 4, 2009, the agreement for which contained various financial covenants and ratio requirements. There were no borrowings under this facility during its term and the Company was in compliance with its covenants during the period in which this facility was available. Effective June 5, 2009 the Company revised this facility to a secured $40 million, revolving credit facility with the same bank and in connection with the acquisition of Filene’s, borrowed $24.0 million under this facility. On August 27, 2009 the Company entered into a $75 million, secured, revolving credit facility with Bank of America which replaced the IDB facility. The Company is in compliance in all respects with this facility at February 27, 2010. As of February 27, 2010, $8 million is outstanding under this facility. Each of the Company’s loan
15
facilities have had sub-limits for letters of credit which, when utilized, reduce availability under the facility. At February 27, 2010 and February 28, 2009 the Company had outstanding letters of credit of $6,552,000 and $741,000 respectively.
The Company had budgeted capital expenditures of approximately $8 million for the fiscal year ending February 27, 2010. For the year, the Company incurred $12 million of capital expenditures. Capital expenditures exceeded budget due primarily to unforeseen expenditures for a new roof at the Secaucus, NJ facility of $1.5 million, additional IT costs related to the Epicor conversion of $1.5 million and expenditures to refurbish Co-branded stores and Filene’s stores which were not known at the time the budget was prepared. Capital expenditures are expected to range from $15 million to $17 million for Fiscal 2010. Although some of the anticipated expenditures are discretionary, we believe that they are necessary to maintain efficient, orderly and safe operating environments. We expect to fund these expenditures from cash generated by operations and the Company’s existing credit facilities.
The Company’s acquisition of Filene’s was effected pursuant to an order of the United States Bankruptcy Court for the District of Delaware entered under Sections 105, 363 and 365 of the United States Bankruptcy Code and a purchase agreement (the “Purchase Agreement”) entered into by a wholly-owned subsidiary of the Company and other parties. Pursuant to the Purchase Agreement, the Company acquired real property leases relating to 23 Filene’s store locations and a distribution center, fixed assets and equipment at such locations, inventory at all Filene’s locations (regardless of whether the Company assumed the real property lease for the subject location), certain of Filene’s contracts, certain intellectual property and certain other related assets. The Company also assumed certain obligations under such contracts and the real property leases relating to the acquired locations. The purchase price (the “Purchase Price”) paid at closing for the assets acquired by the Company, Vornado Realty Trust and its fifty percent owned joint venture (unrelated to the Company) was $64,392,120, of which the Company paid $38,926,800 and, as more fully described below, Vornado and its joint venture paid $25,050,000. The Company funded its portion of the Purchase Price, as well as other amounts it paid at closing, with borrowings under the Company’s secured credit facility with Israel Discount Bank, and from a withdrawal of $16.0 million of accumulated cash value from a life insurance policy. Vornado’s $25,050,000 payment was comprised of the following: (i) a joint venture (unrelated to the Company) fifty percent owned by Vornado paying approximately $16,800,000 of the Purchase Price to acquire from the seller a termination of the venture’s existing lease in Boston, Massachusetts with the seller; and (ii) Vornado’s funding $8,250,000 in connection with the Company’s agreeing to amend Vornado’s lease assumed by the Company at 4 Union Square South in New York, New York, to provide, among other things, for a minimum $1,500,000 increase in annual rent. The lease between Vornado and Filene’s at Vornado’s Bergen Town Center in Paramus, New Jersey was also assumed by the Company.
The U.S. economy is continuing to experience weakness across virtually every sector. Such continued weakness could negatively affect the Company’s cash, sales and/or operating performance and, further, could limit additional capital if needed and increase concomitant costs. Management believes that existing cash, internally generated funds, trade credit and funds available from the revolving credit facility will be sufficient for working capital and capital expenditure requirements for the fiscal year ending February 28, 2011.
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.
Contractual Obligations and Commercial Commitments
To facilitate an understanding of our contractual obligations and commercial commitments, the following data is provided:
| | | | | | | | | | | | | | | | |
| | Payments Due by Period | | | | |
| |
|
|
|
|
|
|
|
|
|
| |
| | Total | | Less than
1 year | | 2-3 years | | 4-5 years | | More than
5 years | |
| |
|
|
|
|
|
|
|
|
| |
Contractual Obligations | | | | | | | | | | | | | | | | |
Operating Leases | | $ | 318,061,000 | | $ | 35,526,000 | | $ | 65,285,000 | | $ | 60,832,000 | | $ | 156,418,000 | |
Revolving Credit Facility | | | 8,402,000 | | | | | | 8,402,000 | | | | | | | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total Contractual Cash Obligations | | $ | 326,463,000 | | $ | 35,526,000 | | $ | 73,687,000 | | $ | 60,832,000 | | $ | 156,418,000 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
16
| | | | | | | | | | | | | | | | |
| | Amount of Commitment Expiration Per Period | |
| |
| |
| | Total Amounts
Committed | | Within
1 year | | 2-3 years | | 4-5 years | | After 5
Years | |
| |
|
|
|
|
|
|
|
|
| |
Other Commercial Commitments | | | | | | | | | | | | | | | | |
Lines of Credit | | $ | — | | $ | — | | | — | | | — | | | — | |
Letters of Credit | | | 6,552,000 | | | 6,552,000 | | | — | | | — | | | — | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total Commercial Commitments | | $ | 6,552,000 | | $ | 6,552,000 | | | — | | | — | | | — | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
We took into account the material nature of operating agreements and lines of credit for merchandise in determining whether to include these items in contractual obligations and commercial commitments.
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 1 of the 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’s operations are not currently subject to material market risks for interest rates, foreign currency rates or other market price risks.
| |
Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The information required by this Item is incorporated herein by reference to the financial statements and supplementary 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 |
Under the supervision and with the participation of our management, including Marcy Syms, the Chief Executive Officer of the Company, and Raymond Siconolfi, the Controller and Chief Accounting Officer of the Company, we have evaluated the effectiveness of our disclosure controls and procedures as required by Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Accounting Officer have concluded that these disclosure controls and procedures are effective at a reasonable assurance level. 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.
17
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
May 13, 2010
To the Shareholders of Syms Corp.
The management of Syms Corp. is responsible for the preparation, integrity, objectivity 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 27, 2010. 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, referred to as 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 undersigned officers concluded that our internal controls and procedures are effective in timely alerting them to material information required to be included in our periodic SEC filings and 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 Company has excluded Filene’s Basement from its Report on Internal Control over Financial Reporting for fiscal 2009 due to the timing of closing date of the acquisition on June 18, 2009 and the expectation that internal control over financial reporting related to Filene’s Basement will be changed to conform with our internal control over financial reporting in 2010. Activity related to Filene’s Basement will be included in management’s 2010 internal control assessment. Filene’s Basement constituted approximately 13% of consolidated assets as of February 27, 2010. Filene’s Basement net sales and net loss constituted 47% and 26% of net sales and net income (before inclusion of Filene’s net loss), respectively, for the year then ended.
There have been no significant changes in the Company’s internal controls or in other factors which could materially affect internal controls subsequent to the date the Company’s management carried out its evaluation.
The Audit Committee of our Board of Directors, 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 Seidman, LLP, the independent registered public accounting firm which audits our financial statements, has audited internal control over financial reporting as of February 27, 2010 and has expressed an unqualified opinion thereon.
| |
/s/ Marcy Syms | /s/ Raymond Siconolfi |
Marcy Syms | Raymond Siconolfi |
Chairman and Chief Executive Officer | Controller and Chief Accounting Officer |
18
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Syms Corp
Secaucus, NJ
We have audited the Syms Corp’s internal control over financial reporting as of February 27, 2010, based on criteria established 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 opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing 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 that 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) pertain to 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.
As indicated in the accompanying Item 9A, “Management’s Report on Internal Control over Financial Reporting”, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Filenes Basement, which was acquired on June 18, 2009, and the accounts of which are included in the consolidated balance sheet of Syms Corp as of February 27, 2010, and the related consolidated statements of operations, shareholder’s equity, and cash flows for the year then ended. Filenes Basement assets and net liabilities constituted 13% and 2% of total assets and net assets, respectively, as of February 27, 2010. Filene’s Basement net sales and net loss constituted 47% and 26% of net sales and net income (before inclusion of Filene’s net loss), respectively, for the year then ended. Management did not assess the effectiveness of internal control over financial reporting of Filenes Basement because of the timing of the acquisition which was completed on June 18, 2009. Our audit of internal control over financial reporting of Syms Corp also did not include an evaluation of the internal control over financial reporting of Filenes Basement.
In our opinion, Syms Corp maintained, in all material respects, effective internal control over financial reporting as of February 27, 2010, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Syms Corp as of February 27, 2010, and the related consolidated statements of operations, shareholder’s equity, and cash flows for the year then ended and our report dated May 13, 2010 expressed an unqualified opinion thereon.
BDO Seidman, LLP
New York, New York
May 13, 2010
19
| |
Item 9B. | OTHER INFORMATION - None. |
PART III
| |
Item 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The Company maintains a code of ethics applicable to the Company’s chief executive officer and senior financial and professional personnel (including the Company’s chief financial officer, principal accounting officer or controller and persons performing similar functions). The Company has posted a copy of such code of ethics on its website. The internet address for such code of ethics is http://www.syms.com/pressreleases/corp_gov.asp.
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 Securities Exchange Act of 1934, as amended, which the Company will file not later than 120 days after the end of the fiscal year covered by this Annual Report.
| |
Item 11. | EXECUTIVE COMPENSATION |
In accordance with General Instruction G (3) of the General Instructions to Form 10-K, the information called for by Item 11 is omitted from this Annual Report and is incorporated by reference to the definitive Proxy Statement to be filed by the Company pursuant to Regulation 14A of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, which the Company will file not later than 120 days after the end of the fiscal year covered by this report.
| |
Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS |
In accordance with General Instruction G(3) of the General Instructions to Form 10-K, the other information called for by Item 12 is omitted from this Annual Report and is incorporated by reference to the definitive Proxy Statement to be filed by the Company pursuant to Regulation 14A of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, which the Company will file not later than 120 days after the end of the fiscal year covered by this Annual Report.
Equity Plan Compensation Information
The following table provides information as of February 27, 2010, about the shares of our common stock that may be issued upon exercise of options granted to employees or members of our Board under all of our existing equity compensation plans, including our 2005 stock option plan.
| | | | | | | | | | |
| | COLUMN (A) | | COLUMN (B) | | COLUMN (C) | |
| |
| |
| |
| |
| | Securities to be issued upon
exercise of outstanding
Options | | Weighted average exercise
price of outstanding options | | 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 | | | — | |
| |
| |
| |
| |
| |
Item 13. | CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE |
In accordance with General Instruction G(3) of the General Instructions to Form 10-K, the information called for by Item 13 is omitted from this Annual Report and is incorporated by reference to the definitive Proxy Statement to be filed by the Company pursuant to Regulation 14A of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, which the Company will file not later than 120 days after the end of the fiscal year covered by this Annual Report.
| |
Item 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
In accordance with General Instruction G(3) of the General Instructions to Form 10-K, the information called for by Item 14 is omitted from this Annual Report and is incorporated by reference to the definitive Proxy Statement to be filed by the Company pursuant to Regulation 14A of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, which the Company will file not later than 120 days after the end of the fiscal year covered by this Annual Report.
20
PART IV
| |
Item 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
The following exhibits which are marked with an asterisk are filed as part of this Annual Report and the other exhibits set forth below are incorporated by reference from (i) the Company’s Registration Statement on Form S-1 under the Securities Act of 1933 (Registration No. 2-85554) filed August 2, 1983 and declared effective September 23, 1983 (the “Registration Statement”) or (ii) where indicated, the Company’s reports on Form 8-K, Form 10-Q or Form 10-K or the Company’s Proxy Statement (Commission File No. 1-8564).
| |
2.1 | Purchase Agreement, dated as of June 18, 2009, by and among SYL, LLC, a wholly owned subsidiary of Syms Corp Filene’s Basement, Inc. and FB Leasing Services (exhibit 10.1 to Current Report dated June 24, 2009). |
| |
3.1 | Certificate of Incorporation of Syms Corp, as filed in the Registration Statement. |
| |
3.2 | Amended and Restated By-laws of Syms Corp (exhibit 3.1 to Current Report on Form 8-K dated January 12, 2009). |
| |
4.1 | Specimen Certificate of Common Stock as filed in the Registration Statement. |
| |
10.1 | Ground Lease at One Emerson Lane, Township of Secaucus, Hudson County, New Jersey Assignment and Assumption of Ground Lease, dated May 8, 1986, to Registrant (exhibit 28.1 to Current Report on Form 8-K dated May 1986) |
| |
10.4 | Syms Corp 2005 Stock Option Plan, as amended (exhibit 10.4 to Current Report on Form 8-K dated August 5, 2005) |
| |
10.4.1 | Form of Nonqualified Stock Option Award Agreement for 2005 Stock Option Plan (exhibit 10.1 to Current Report on Form 8-K dated August 5, 2005) |
| |
10.4.2 | Form of Incentive Option Award for 2005 Stock Option Plan (exhibit 10.2 to Current Report on Form 8-K dated August 5, 2005) |
| |
10.4.3 | Form of Restricted Stock Award for 2005 Stock Option Plan (exhibit 10.3 to Current Report on Form 8-K dated August 5, 2005) |
| |
10.5 | Credit Agreement, dated as of August 27, 2009, by and among Syms Corp, SYL LLC, the guarantors party thereto from time to time, (iii) the lenders party thereto from time to time and (iv) Bank of America, N.A., as administrative agent, collateral agent and letter of credit issuer to Current Report on Form 8-K dated September 1, 2009) |
| |
21.1* | List of Subsidiaries |
| |
23.1* | Consent of BDO Seidman, LLP |
| |
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 Accounting 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 Accounting 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 |
21
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 CORP | |
| |
By: | /s/ Marcy Syms | |
|
| |
| Marcy Syms | |
| Chairman and Chief Executive Officer |
Date: May 13, 2010
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/ Marcy Syms | | Chairman of the Board/ Chief Executive Officer and Director
(Principal executive officer) | | May 13, 2010 |
| | | |
Marcy Syms | | | |
| | | | |
/s/ Raymond Siconolfi | | Controller and Chief Accounting Officer | | May 13, 2010 |
| | (Principal financial and accounting officer) | | |
| | | | |
/s/ Bernard H. Tenenbaum | | Director | | May 13, 2010 |
| | | | |
Bernard H. Tenenbaum | | | | |
| | | | |
/s/ Thomas E. Zanecchia | | Director | | May 13, 2010 |
| | | | |
Thomas E. Zanecchia | | | | |
| | | | |
/s/ Henry M. Chidgey | | Director | | May 13, 2010 |
| | | | |
Henry M. Chidgey | | | | |
22
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Syms Corp
Secaucus, New Jersey
The audits referred to in our report dated May 13, 2010 relating to the financial statements of Syms Corp, 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 Seidman, LLP
BDO Seidman, LLP
New York, New York
May 13, 2010
SCHEDULE II
|
SYMS CORP |
Valuation and qualifying accounts |
Fiscal years ended February 27, 2010, February 28, 2009 and March 1, 2008 |
|
| | | | | | | | | | | | | | | | |
| | | | | Additions | | | | | | | |
| | | | |
| | | | | | | |
| | 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 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Fiscal 2007 | | | 4,201,000 | | | — | | | — | | | (1,381,000 | ) | | 2,820,000 | |
Fiscal 2008 | | | 2,820,000 | | | — | | | — | | | (624,000 | ) | | 2,196,000 | |
Fiscal 2009 | | | 2,196,000 | | | 2,603,313 | | | | | | (398,000 | ) | | 4,401,313 | |
| | | | | | | | | | | | | | | | |
Deferred tax valuation allowance | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Fiscal 2007 | | | — | | | — | | | — | | | — | | | — | |
Fiscal 2008 | | | — | | | — | | | — | | | — | | | — | |
Fiscal 2009 | | | — | | | — | | | 346,000 | | | | | | 346,000 | |
23
This page intentionally left blank.
24
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
SYMS Corp
Secaucus, New Jersey
We have audited the accompanying consolidated balance sheets of Syms Corp as of February 27, 2010 and February 28, 2009 and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three fiscal years in the period ended February 27, 2010. These financial statements are the responsibility of 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 from material misstatement. 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.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Syms Corp at February 27, 2010 and February 28, 2009, and the results of its operations and its cash flows for each of the three fiscal years in the period ended February 27, 2010, in conformity 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 27, 2010, based on criteria established inInternal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated May 13, 2010 expressed an unqualified opinion thereon.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
New York, New York
May 13, 2010
F-1
|
Consolidated Balance Sheets |
|
(In thousands except per share amounts) |
| | | | | | | |
| | February 27,
2010 | | February 28,
2009 | |
| |
| |
| |
ASSETS | | | | | | | |
CURRENT ASSETS: | | | | | | | |
Cash and cash equivalents | | $ | 2,049 | | $ | 1,822 | |
Receivables | | | 3,195 | | | 1,589 | |
Merchandise inventories - net | | | 82,234 | | | 52,480 | |
Deferred income taxes | | | 5,912 | | | 3,045 | |
Assets held for sale | | | 14,392 | | | 7,202 | |
Prepaid expenses and other current assets | | | 7,645 | | | 5,317 | |
| |
|
| |
|
| |
TOTAL CURRENT ASSETS | | | 115,427 | | | 71,455 | |
| |
|
| |
|
| |
| | | | | | | |
PROPERTY AND EQUIPMENT - Net | | | 118,539 | | | 95,956 | |
DEFERRED INCOME TAXES | | | 18,113 | | | 15,209 | |
BUILDING AND AIR RIGHTS | | | 9,134 | | | 9,134 | |
OTHER ASSETS | | | 7,866 | | | 23,369 | |
| |
|
| |
|
| |
TOTAL ASSETS | | $ | 269,079 | | $ | 215,123 | |
| |
|
| |
|
| |
| | | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | |
CURRENT LIABILITIES: | | | | | | | |
Accounts payable | | $ | 47,356 | | $ | 14,936 | |
Accrued expenses | | | 9,945 | | | 9,012 | |
Obligations to customers | | | 5,328 | | | 4,292 | |
| |
|
| |
|
| |
TOTAL CURRENT LIABILITIES | | | 62,629 | | | 28,240 | |
| |
|
| |
|
| |
|
OTHER LONG TERM LIABILITIES | | | 3,016 | | | 840 | |
| | | | | | | |
LONG TERM DEBT | | | 8,402 | | | — | |
| | | | | | | |
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; 14,598 shares outstanding (net of 4,298 treasury shares) as of February 27, 2010, and 14,590 shares outstanding (net of 4,298 treasury shares) as of February 28, 2009. | | | 800 | | | 800 | |
Additional paid-in capital | | | 21,605 | | | 21,560 | |
Treasury stock | | | (45,903 | ) | | (45,903 | ) |
Accumulated Other Comprehensive Income | | | (1,491 | ) | | (2,127 | ) |
Retained earnings | | | 220,021 | | | 211,713 | |
| |
|
| |
|
| |
TOTAL SHAREHOLDERS’ EQUITY | | | 195,032 | | | 186,043 | |
| |
|
| |
|
| |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | $ | 269,079 | | $ | 215,123 | |
| |
|
| |
|
| |
See Notes to Consolidated Financial Statements
F-2
|
Consolidated Statements of Operations |
|
(In thousands, except per share amounts) |
| | | | | | | | | | |
| | Fiscal Year Ended | |
| |
| |
| | February 27,
2010 | | February 28,
2009 | | March 1,
2008 | |
| |
| |
| |
| |
|
Net sales | | $ | 377,309 | | $ | 242,000 | | $ | 267,149 | |
Cost of goods sold | | | 232,207 | | | 141,475 | | | 157,168 | |
| |
|
| |
|
| |
|
| |
Gross profit | | | 145,102 | | | 100,525 | | | 109,981 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Expenses: | | | | | | | | | | |
Selling, general and administrative | | | 113,908 | | | 74,690 | | | 76,959 | |
Advertising | | | 8,193 | | | 6,339 | | | 8,561 | |
Occupancy, net | | | 45,087 | | | 15,557 | | | 14,323 | |
Depreciation and amortization | | | 11,414 | | | 8,003 | | | 7,659 | |
Asset impairment charge | | | 80 | | | 530 | | | 745 | |
Bargain purchase gain | | | (9,714 | ) | | — | | | — | |
Acquisition costs | | | 4,857 | | | — | | | — | |
Gain from life insurance proceeds and other income | | | (25,049 | ) | | (53 | ) | | (491 | ) |
(Gain) loss on disposition of assets | | | 1,168 | | | (548 | ) | | — | |
| |
|
| |
|
| |
|
| |
Total expenses | | | 149,944 | | | 104,518 | | | 107,756 | |
| |
|
| |
|
| |
|
| |
Net income (loss) from operations | | | (4,842 | ) | | (3,993 | ) | | 2,225 | |
| | | | | | | | | | |
Interest (expense) income | | | (1,538 | ) | | (38 | ) | | 911 | |
| |
|
| |
|
| |
|
| |
Net income (loss) before income taxes | | | (6,380 | ) | | (4,031 | ) | | 3,136 | |
| | | | | | | | | | |
Income tax provision (benefit) | | | (14,688 | ) | | (608 | ) | | 2,329 | |
| |
|
| |
|
| |
|
| |
Net income (loss) | | $ | 8,308 | | $ | (3,423 | ) | $ | 807 | |
| |
|
| |
|
| |
|
| |
Net income (loss) per share - basic | | $ | 0.57 | | $ | (0.23 | ) | $ | 0.06 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Weighted average shares outstanding - basic | | | 14,593 | | | 14,589 | | | 14,659 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Net income (loss) per share - diluted | | $ | 0.57 | | $ | (0.23 | ) | $ | 0.05 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Weighted average shares outstanding - diluted | | | 14,593 | | | 14,589 | | | 14,760 | |
| |
|
| |
|
| |
|
| |
See Notes to Consolidated Financial Statements
F-3
|
SYMS CORP |
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY |
|
(In thousands) |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | Additional
Paid-in
Capital | | | | | | Accumulated
Other Com-
prehensive
Income (Loss) | | | |
| | Common Stock | | | Treasury Stock | | | | | | |
| |
| | |
| | Retained
Earnings | | | | |
| | Shares | | Amount | | | Shares | | Amount | | | | Total | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| | | | | | | | | | | | | | | | | | | | | | | |
BALANCE AS OF
March 3, 2007 | | 18,669 | | $ | 789 | | $ | 19,264 | | (3,968 | ) | $ | (41,383 | ) | $ | 223,399 | | $ | — | | $ | 202,069 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Exercise of options | | 1 | | | | | | 4 | | — | | | — | | | — | | | — | | | 4 | |
Tax benefit derived from exercise of options | | — | | | — | | | 5 | | — | | | — | | | — | | | — | | | 5 | |
Stock buyback | | — | | | — | | | — | | (114 | ) | | (1,703 | ) | | — | | | — | | | (1,703 | ) |
Payment of dividends | | — | | | — | | | — | | — | | | — | | | (8,820 | ) | | — | | | (8,820 | ) |
FIN 48 reserve | | — | | | — | | | — | | — | | | — | | | (250 | ) | | — | | | (250 | ) |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | — | | | — | | | — | | — | | | — | | | 807 | | | — | | | 807 | |
Deferred pension gain, net of tax | | — | | | — | | | — | | — | | | — | | | — | | | 23 | | | 23 | |
| | | | | | | | | | | | | | | | | | | | |
|
| |
Total comprehensive income | | — | | | — | | | — | | — | | | — | | | — | | | — | | | 830 | |
| |
| |
|
| |
|
| |
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | | | | | | | | | | | |
BALANCE AS OF
March 1, 2008 | | 18,670 | | $ | 789 | | $ | 19,273 | | (4,082 | ) | $ | (43,086 | ) | $ | 215,136 | | $ | 23 | | $ | 192,135 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Exercise of options | | 218 | | | 11 | | | 2,137 | | — | | | — | | | — | | | — | | | 2,148 | |
Tax benefit derived from exercise of options | | — | | | — | | | 150 | | — | | | — | | | — | | | — | | | 150 | |
Stock buyback | | — | | | — | | | — | | (216 | ) | | (2,817 | ) | | — | | | — | | | (2,817 | ) |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | |
Net (loss) | | — | | | — | | | — | | — | | | — | | | (3,423 | ) | | — | | | (3,423 | ) |
Deferred pension (loss), net of tax | | — | | | — | | | — | | — | | | — | | | — | | | (2,150 | ) | | (2,150 | ) |
| | | | | | | | | | | | | | | | | | | | |
|
| |
Total comprehensive (loss) | | — | | | — | | | — | | — | | | — | | | — | | | — | | | (5,682 | ) |
| |
| |
|
| |
|
| |
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | | | | | | | | | | | |
BALANCE AS OF
February 28, 2009 | | 18,888 | | $ | 800 | | $ | 21,560 | | (4,298 | ) | $ | (45,903 | ) | $ | 211,713 | | $ | (2,127 | ) | $ | 186,043 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Exercise of options | | 9 | | | | | | 45 | | | | | | | | | | | | | | 45 | |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | — | | | — | | | — | | — | | | — | | | 8,308 | | | — | | | 8,308 | |
Deferred pension gain, 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 | |
| |
| |
|
| |
|
| |
| |
|
| |
|
| |
|
| |
|
| |
See Notes to Consolidated Financial Statements
F-4
|
Consolidated Statements of Cash Flows |
|
(In thousands) |
| | | | | | | | | | |
| | Fiscal Year Ended | |
| |
| |
| | February 27,
2010 | | February 28,
2009 | | March 1,
2008 | |
| |
| |
| |
| |
| | | | | | | | | | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | |
Net income (loss) | | $ | 8,308 | | $ | (3,423 | ) | $ | 807 | |
| |
|
| |
|
| |
|
| |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | | | | |
Depreciation and amortization | | | 11,414 | | | 8,003 | | | 7,659 | |
Asset impairment | | | 80 | | | 530 | | | 745 | |
Bargain purchase gain | | | (9,714 | ) | | — | | | — | |
Deferred income taxes | | | (9,316 | ) | | (615 | ) | | (497 | ) |
(Gain) loss on disposition of assets | | | 1,168 | | | (503 | ) | | 10 | |
(Increase) decrease in operating assets, net of Filene’s acquisition: | | | | | | | | | | |
Receivables | | | (1,606 | ) | | 856 | | | (719 | ) |
Merchandise inventories | | | (8,438 | ) | | 13,606 | | | (2,277 | ) |
Prepaid expenses and other current assets | | | (1,827 | ) | | (1,170 | ) | | 907 | |
Other assets | | | 1,078 | | | (1,995 | ) | | (2,152 | ) |
Increase (decrease) in operating liabilities, net of Filene’s acquisition: | | | | | | | | | | |
Accounts payable | | | 32,420 | | | (10,674 | ) | | 3,932 | |
Accrued expenses | | | 5,703 | | | (262 | ) | | (2,522 | ) |
Obligations to customers | | | (160 | ) | | (151 | ) | | 485 | |
Other long term liabilities | | | 2,176 | | | (338 | ) | | (370 | ) |
Income taxes | | | (4,409 | ) | | (940 | ) | | (1,732 | ) |
| |
|
| |
|
| |
|
| |
Net cash provided by operating activities | | | 26,877 | | | 3,215 | | | 4,276 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | |
Investment in building and air rights | | | — | | | (6,034 | ) | | (3,100 | ) |
Purchase of Filene’s Basement | | | (38,927 | ) | | — | | | — | |
Expenditures for property and equipment | | | (12,224 | ) | | (7,667 | ) | | (6,687 | ) |
Proceeds from sale of land and other assets | | | 54 | | | 923 | | | 17 | |
| |
|
| |
|
| |
|
| |
Net cash used in investing activities | | | (51,097 | ) | | (12,778 | ) | | (9,770 | ) |
| |
|
| |
|
| |
|
| |
|
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | |
Cash surrender value advance | | | 16,000 | | | — | | | — | |
Payment of dividend | | | — | | | — | | | (8,820 | ) |
Exercise of stock options | | | 45 | | | 2,148 | | | 4 | |
Stock repurchase | | | — | | | (2,817 | ) | | (1,703 | ) |
Tax benefit of options | | | — | | | 150 | | | 5 | |
Borrowings on revolving credit facilities | | | 51,494 | | | | | | | |
Repayments on revolving credit facilities | | | (43,092 | ) | | — | | | — | |
| |
|
| |
|
| |
|
| |
Net cash provided by (used in) financing activities | | | 24,447 | | | (519 | ) | | (10,514 | ) |
| |
|
| |
|
| |
|
| |
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENT | | | 227 | | | (10,082 | ) | | (16,008 | ) |
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | | | 1,822 | | | 11,904 | | | 27,912 | |
| |
|
| |
|
| |
|
| |
CASH AND CASH EQUIVALENTS, END OF PERIOD | | $ | 2,049 | | $ | 1,822 | | $ | 11,904 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
SUPPLEMENTAL CASH FLOW INFORMATION: | | | | | | | | | | |
Cash paid during the period for: | | | | | | | | | | |
Interest | | $ | 975 | | $ | 170 | | $ | 166 | |
| |
|
| |
|
| |
|
| |
See Notes to Consolidated Financial Statements
F-5
|
Notes to Consolidated Financial Statements |
|
FISCAL YEARS ENDED FEBRUARY 27, 2010, FEBRUARY 28, 2009 AND MARCH 1, 2008 |
|
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
| |
a. | Principal Business - Syms Corp (the “Company”) operates a chain of 27 “off-price” retail clothing stores located in the Northeastern and Middle Atlantic regions and in the Midwest, Southeast and Southwest. Each Syms store offers a broad range of first quality, in season merchandise bearing nationally recognized designer or brand-name labels for men, women and children. On June 18, 2009 the Company, through a wholly-owned subsidiary, acquired certain real property leases, inventory, other property, equipment and other assets of Filene’s Basement (“Filene’s”), a retail clothing chain, pursuant to an auction conducted in accordance with § 363 of the Federal Bankruptcy Code (see Note 6). As a result, in addition to the 27 Syms stores, since June 19, 2009, the Company has also operated 23 Filene’s Basement stores that are located in the Northeastern, Middle Atlantic, Midwest and Southeast regions. Filene’s Basement also offers a broad range of first quality brand name and designer clothing for men, women and children. The Company operates in a single operating segment – the operation of “off-price” retail stores. |
| |
b. | Principles of Consolidation - The financial statements include the accounts of the Company and its wholly-owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation. |
| |
c. | Accounting Period -Fiscal 2009 ended on February 27, 2010; fiscal 2008 ended on February 28, 2009, and fiscal 2007 ended on March 1, 2008. The fiscal years ended February 27, 2010, February 28, 2009 and March 1, 2008 were comprised of 52 weeks. |
| |
d. | Occupancy Costs –Occupancy expenses for fiscal 2009, 2008 and 2007 have been reduced by net rental income of $2,373,000, $2,026,000 and $3,006,000, respectively from real estate holdings incidental to the Company’s retail operations. |
| |
e. | Cash and Cash Equivalents- Cash and cash equivalents include securities with original maturities of three months or less. |
| |
f. | Concentrations of Credit Risk – The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash. The Company has 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 represent third party credit card receivables. |
| |
h. | Merchandise Inventories - Merchandise inventories are stated at the lower of cost (first in, first out) or market, as determined by the moving average cost method for Syms and by the retail inventory method for Filene’s. Prior to October 4, 2009, all of the Company’s inventories were stated at first in, first out as determined by the retail inventory method. The change in the method of recording Syms inventory in the current fiscal year did not have a material impact on reported results of operations. |
| |
i. | Property and Equipment- Property and equipment are stated at cost. Depreciation and amortization are principally determined by the straight-line method over the following estimated useful lives: |
| |
Buildings and improvements | 15 - 39 years |
Machinery and equipment | 4 - 7 years |
Furniture and fixtures | 7-10 years |
Leasehold improvements | Lesser of life of the asset or life of lease |
Computer software | 3 years |
| |
| |
| The Company’s policy is to amortize leasehold improvements over the original lease term and not include any renewal terms. The Company’s policy is to capitalize costs incurred during the application-development stage for software acquired and further customized by outside vendors for the Company’s use. Computer software is included in property, plant and equipment on the balance sheet. |
F-6
| |
j. | Impairment of Long-Lived Assets – The Company periodically reviews long-lived assets for impairment whenever changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Company considers relevant cash flow, management’s strategic plans, significant decreases in the market value of the asset and other available information in assessing whether the carrying value of the assets can be recovered. When such events occur, the Company compares the carrying amount of the assets to the undiscounted expected future cash flows from the use and eventual disposition of the asset. If this comparison indicates an impairment, the carrying amount would then be compared to the estimated fair value of the long-lived asset. An impairment loss would be measured as the amount by which the carrying value of the long-lived asset exceeds its estimated fair value. |
| |
k. | Deferred Income Taxes -Deferred income taxes reflect the future tax consequences of differences between the tax bases of assets and liabilities and their financial reporting amounts at year end. |
| |
l. | Other Assets –The Company has historically recorded the cash surrender value of officers’ life insurance policies on the balance sheet as a non-current asset. Such amounts were $1.9 million and $22.0 million at February 27, 2010 and February 28, 2009, respectively. In March 2009, as a result of uncertainties surrounding the financial viability of the life insurance company underwriting two of these policies, the Company withdrew $16.0 million of accumulated cash value which was ultimately used in connection with the Company’s acquisition of Filene’s, more fully discussed in Note 6 below. The Company continued to be a beneficiary of life insurance policies insuring Mr. Sy Syms, the Company’s founder and Chairman, who died on November 17, 2009. Pursuant to those policies, in December 2009, the Company received cash proceeds of approximately $29.9 million, which was net of the aforementioned, previously received $16.0 million in cash values. Net of the cash surrender value of officer’s life insurance of $5.1 million recorded as of August 29, 2009 in other assets, the Company realized a net gain of $24.8 million. Upon receipt, the aforementioned cash proceeds were used for working capital purposes and to repay a portion of the Company’s senior debt facility. |
| |
m. | Accrued Expenses –Accrued expenses include accrued payroll of $2.7 million and $1.5 million in fiscal 2009 and fiscal 2008, respectively. |
| |
n. | Obligation to Customers - Obligations to customers represent credits issued for returned merchandise as well as gift certificates. When the Company sells a gift certificate to a customer, it is recorded as a liability in the period the sale occurred. When the customer redeems the gift certificate for the purchase of merchandise, a sale is recorded and the liability reduced. The Company’s policy is that these credits do not expire. |
| |
o. | Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include inventory provisions, sales returns, self-insurance accruals, deferred tax valuation allowances, any estimated impairment and the useful lives of long-lived assets. Actual results could differ from those estimates. |
| |
p. | Revenue Recognition –The Company recognizes revenue at the “point of sale”. Allowance for sales returns is recorded as a component of net sales in the period in which the related sales are recorded. |
| |
q. | Comprehensive Income (Loss) – Comprehensive income (loss) was $8.9 million, ($5.7) million and $0.8 million for fiscal years 2009, 2008 and 2007, respectively. |
| |
r. | Segment Reporting - Statement of Financial Accounting Standards (SFAS) No. 131 “Disclosures about Segments of an Enterprise and Related Information” (now ASC 280) establishes standards for reporting information about a company’s operating segments. It also establishes standards for related disclosures about products and services, |
F-7
| |
| geographic areas and major customers. The Company operates in a single reporting segment - the operation of off-price retail stores. Revenues from external customers are derived from merchandise sales. The Company’s merchandise sales mix by product category for the last three fiscal years was as follows: |
| | | | | | | | | | |
| | Fiscal Year | |
| |
| |
| | 2009 | | 2008 | | 2007 | |
| |
| |
| |
| |
Women’s dresses, suits, separates and accessories | | | 44 | % | | 29 | % | | 29 | % |
Men’s tailored clothes and haberdashery | | | 42 | % | | 53 | % | | 53 | % |
Luggage, domestics and fragrances | | | 5 | % | | 3 | % | | 3 | % |
Children’s wear | | | 5 | % | | 7 | % | | 7 | % |
Shoes | | | 4 | % | | 8 | % | | 8 | % |
| |
|
| |
|
| |
|
| |
| | | 100 | % | | 100 | % | | 100 | % |
| |
| The Company does not rely on any major customers as a source of revenue. |
| |
s. | Gross Profit - The Company’s gross profit may not be comparable to those of other entities, since other entities may include all of the costs related to their distribution network in cost of goods sold and others, like the Company, exclude a portion of those costs from gross profit and instead, include them in other items, such as selling, general and administrative expenses and occupancy costs. |
| |
t. | Computer Software Costs – The Company capitalizes the cost of software developed or purchased for internal use. |
| |
u. | Advertising Costs – Advertising and sales promotion costs are expensed at the time the advertising occurs. Advertising and sales promotion costs were $8,193,000, $6,339,000 and $8,561,000 in fiscal 2009, 2008 and 2007, respectively. The Company does not receive any allowances or credits from vendors in connection with the purchase or promotion of the vendor’s product, such as co-operative advertising and other considerations. |
| |
v. | Accounting for Stock-Based Compensation– The Company accounts for stock-based compensation costs in accordance with Statement of Financial Accounting Standards No. 123(R), “Share-Based Payments” (“FAS123(R)”) (now ASC 718). Consistent with ASC 718 “Share-Based Payments”, share-based compensation cost is measured at grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service period. The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model. Expected volatility is based on the historical volatility of the price of the Company’s stock. The risk-free interest rate is based on U.S. Treasury issues with a term equal to the expected life of the option. The Company uses historical data to estimate expected dividend yield, expected life and forfeiture rates. There were no options granted during fiscal 2009, and all options previously issued are fully vested. |
| |
w. | New Accounting Pronouncements– In April 2009, the FASB issued FASB Staff Position No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (now ASC Subtopic 320-10-65), which amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This Staff Position is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The adoption of this Staff Position did not have an effect on our operations. |
| |
| In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (now ASC Subtopic 855-10). This standard establishes principles and requirements for subsequent events, which are events or transactions that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, this standard sets forth (a) the period after the balance sheet date during which management of a reporting entity shall evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (b) the circumstances under which an entity shall recognize events or transactions occurring after the balance sheet date in its financial statements, and (c) the disclosures that an entity shall make about events or transactions that occurred after the balance sheet date. This standard is effective for interim or annual financial periods ending after June 15, 2009 and is to be applied prospectively. The adoption of this standard did not have a material impact on our results of operations or our financial position. |
F-8
| |
| In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets - an amendment of FASB Statement No. 140” (now part of ASC Topic 860, also issued as ASU No. 2009-16). The objective of this standard is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement in transferred financial assets. Additionally, on and after the effective date, the concept of a qualifying special-purpose entity is no longer relevant for accounting purposes. This standard is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. The recognition and measurement provisions of this standard are to be applied to transfers that occur on or after the effective date. The adoption of this standard is not expected to have a material impact on our results of operations or our financial position. |
| |
| In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (now part of ASC Subtopic 810, also issued as ASU No. 2009-17). This standard amends FASB Interpretation 46(R) to require an enterprise to perform an analysis to determine whether an enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity by replacing the quantitative-based risks and rewards calculation for determining which enterprise, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and has the obligation to absorb losses of or the right to receive benefits from the entity. This standard also requires ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. This standard is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. The adoption of this standard is not expected to have a material impact on our results of operations or our financial position. |
| |
| In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles - a replacement of FASB Statement No. 162” (now ASC Subtopic 105-10, also issued as ASU No. 2009-01). This standard establishes the ASC as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles. This standard is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of this standard did not have an impact on our results of operations or our financial position. |
| |
| In August 2009, the FASB issued ASU No. 2009-5, “Fair Value Measurements and Disclosures (Topic 820) - Measuring Liabilities at Fair Value.” ASU No. 2009-5 provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using a valuation technique that uses the quoted price of the identical liability when traded as an asset, quoted prices for similar liabilities or similar liabilities when traded as assets, or another valuation technique that is consistent with the principles of ASC Topic 820. ASU No. 2009-5 is effective for the first reporting period (including interim periods) beginning after issuance. The adoption of ASU No. 2009-5 did not have a material impact on our results of operations or our financial position. |
| |
| In October 2009, the FASB issued ASU No. 2009-13, “Revenue Recognition (Topic 605) - Multiple Deliverable Revenue Arrangements.” ASU No. 2009-13 eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method and expands the disclosures related to multiple-deliverable revenue arrangements. ASU No. 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with earlier adoption permitted. The adoption of ASU No. 2009-13 will not have a material impact on our results of operations or our financial position. |
| |
| In January 2010, the FASB issued ASU No. 2010-02, “Consolidation (Topic 810) - Accounting and Reporting for Decreases in Ownership of a Subsidiary - a Scope Clarification.” ASU No. 2010-02 clarifies that the scope of the |
F-9
| |
| decrease in ownership provisions of Topic 810 applies to a subsidiary or group of assets that is a business, a subsidiary that is a business that is transferred to an equity method investee or a joint venture or an exchange of a group of assets that constitutes a business for a noncontrolling interest in an entity and does not apply to sales in substance of real estate. ASU No. 2010-02 is effective as of the beginning of the period in which an entity adopts Topic 810 or, if Topic 810 has been previously adopted, the first interim or annual period ending on or after December 15, 2009, applied retrospectively to the first period that the entity adopted Topic 810. The adoption of ASU No. 2010-02 did not have an impact on our results of operations or our financial position. |
| |
| In January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820) - Improving Disclosures about Fair Value Measurements.” ASU 2010-06 requires new disclosures regarding transfers in and out of the Level 1 and 2 and activity within Level 3 fair value measurements and clarifies existing disclosures of inputs and valuation techniques for Level 2 and 3 fair value measurements. ASU 2010-06 also includes conforming amendments to employers’ disclosures about postretirement benefit plan assets. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosure of activity within Level 3 fair value measurements, which is effective for fiscal years beginning after December 15, 2010, and for interim periods within those years. The adoption of ASU No. 2010-06 will not have a material effect on our results of operations or our financial position. |
| |
| In February 2010, the FASB issued ASU 2010-09, “Subsequent Events (Topic 855) - Amendments to Certain Recognition and Disclosure Requirements.” ASU 2010-09 requires an entity that is an SEC filer to evaluate subsequent events through the date that the financial statements are issued and removes the requirement that an SEC filer disclose the date through which subsequent events have been evaluated. ASC 2010-09 was effective upon issuance. The adoption of this standard had no effect on our results of operation or our financial position. |
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of:
| | | | | | | |
| | February 27,
2010 | | February 28,
2009 | |
| |
| |
| |
| | (in thousands) | |
Land | | $ | 37,615 | | $ | 42,125 | |
Buildings and building improvements | | | 109,919 | | | 112,011 | |
Leasehold and leasehold improvements | | | 39,037 | | | 28,531 | |
Machinery and equipment | | | 22,233 | | | 23,212 | |
Furniture and fixtures | | | 28,303 | | | 19,721 | |
Construction in progress | | | 1,685 | | | 1,933 | |
Computer software | | | 16,002 | | | 14,521 | |
| |
|
| |
|
| |
| | | 254,794 | | | 242,054 | |
Less: accumulated depreciation and amortization | | | 136,255 | | | 146,098 | |
| |
|
| |
|
| |
| | $ | 118,539 | | $ | 95,956 | |
| |
|
| |
|
| |
In addition to the properties reflected in the above amounts, the Company has four properties, in Ohio, Pennsylvania, Texas and New York that are held for sale. In conjunction with the above, the Company recorded impairment charges in fiscal 2009 of $80,000 and in fiscal 2008 of $530,000. The New York property was sold subsequent to year end for an amount greater than the value recorded at February 27, 2010.
F-10
NOTE 3 - INCOME TAXES
The provision (benefit) for income taxes is as follows:
| | | | | | | | | | |
| | Fiscal Year Ended | |
| |
| |
| | February 27,
2010 | | February 28,
2009 | | March 1,
2008 | |
| |
| |
| |
| |
| | (in thousands) | |
Current: | | | | | | | | | | |
Federal | | $ | (5,954 | ) | $ | (437 | ) | $ | 3,154 | |
State | | | 582 | | | 197 | | | (328 | ) |
| |
|
| |
|
| |
|
| |
| | | (5,372 | ) | | (240 | ) | | 2,826 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Deferred: | | | | | | | | | | |
Federal | | $ | (7,321 | ) | $ | (55 | ) | $ | (1,790 | ) |
State | | | (1,995 | ) | | (313 | ) | | 1,293 | |
| |
|
| |
|
| |
|
| |
| | | (9,316 | ) | | (368 | ) | | (497 | ) |
| |
|
| |
|
| |
|
| |
(Benefit)/provision for income taxes | | $ | (14,688 | ) | $ | (608 | ) | $ | 2,329 | |
| |
|
| |
|
| |
|
| |
The following is a reconciliation of income taxes computed at the U.S. Federal statutory rate to the (recovery)/provision for income taxes:
| | | | | | | | | | |
| | Fiscal Year Ended | |
| |
| |
| | February 27,
2010 | | February 28,
2009 | | March 1,
2008 | |
| |
| |
| |
| |
| | (in thousands) | |
Statutory Federal income tax rate | | | 35.0 | % | | 35.0 | % | | 35.0 | % |
State taxes1 | | | 25.1 | | | 3.8 | | | 13.3 | |
Non-deductible insurance premiums | | | (10.9 | ) | | (18.6 | ) | | 23.2 | |
Non-taxable insurance proceeds | | | 135.8 | | | — | | | — | |
Non-taxable bargain purchase gain | | | 53.4 | | | — | | | — | |
Change of valuation allowance | | | (5.4 | ) | | — | | | — | |
Other | | | (2.8 | ) | | (5.1 | ) | | 2.8 | |
| |
|
| |
|
| |
|
| |
Effective income tax rate | | | 230.2 | % | | 15.1 | % | | 74.3 | % |
| |
|
| |
|
| |
|
| |
1 Includes adjustment in fiscal 2007 of prior year accrual and true-up of state net operating losses.
F-11
The composition of the Company’s deferred tax assets and liabilities is as follows:
| | | | | | | |
| | Fiscal Year Ended | |
| |
| |
| | February 27,
2010 | | February 28,
2009 | |
| |
| |
| |
| | (in thousands) | |
Deferred tax assets: | | | | | | | |
Capitalization of inventory costs | | $ | 1,783 | | $ | 979 | |
Pension cost | | | 28 | | | 16 | |
| | | | | | | |
Reserves not currently deductible for tax purposes | | | 4,431 | | | 2,450 | |
Net operating loss carry forwards | | | 6,889 | | | 390 | |
Depreciation | | | 12,183 | | | 12,877 | |
Step rent | | | 936 | | | 78 | |
Pension Plan Obligation adjustment | | | 995 | | | 1,464 | |
| |
|
| |
|
| |
Total deferred tax assets | | $ | 27,245 | | $ | 18,254 | |
Valuation Allowance | | | (346 | ) | | — | |
| |
|
| |
|
| |
Deferred tax assets after valuation allowance | | | 26,899 | | | 18,254 | |
Deferred tax liabilities: | | | | | | | |
Depreciation | | | (2,074 | ) | | — | |
Intangibles | | | (778 | ) | | — | |
Other | | | (22 | ) | | — | |
| |
|
| |
|
| |
Total deferred tax liabilities | | | (2,874 | ) | | — | |
| |
|
| |
|
| |
Net deferred tax assets | | $ | 24,025 | | $ | 18,254 | |
| |
|
| |
|
| |
| | | | | | | |
Current deferred tax assets | | $ | 5,912 | | $ | 3,045 | |
Long term deferred tax assets | | | 18,113 | | | 15,209 | |
| |
|
| |
|
| |
Total deferred tax assets | | $ | 24,025 | | $ | 18,254 | |
| |
|
| |
|
| |
At February 27, 2010, the Company had state net operating loss carry forwards of approximately $37,634,000. These net operating losses expire in years through fiscal 2029. The Company also had federal net operating loss carry forwards of approximately $13,080,000. These net operating losses will expire in the year 2029.
Based on management’s assessment it is more likely than not that, for federal purposes, deferred tax assets will be realized by future taxable income or tax planning strategies. A valuation allowance of approximately $346,000 was recorded in fiscal 2009 for certain state net operating losses not expected to be fully utilized.
Effective March 4, 2007, the Company adopted FIN 48 (now ASC Subtopic 740-10),Accounting for Uncertainty in Income Taxes, which clarifies the accounting and disclosure for uncertainty in income taxes. As a result of the adoption, the Company recorded as a cumulative effect adjustment, a decrease to retained earnings at the beginning of fiscal 2007 of approximately $250,000 and increased accruals for uncertain tax positions and related interest and penalties by a corresponding amount. The Company has continued to recognize interest and, if applicable, penalties, which could be assessed, related to uncertain tax positions in income tax expense. For fiscal 2009, the Company recorded approximately $14,000 in interest before federal and state tax effect. The aggregate tax liability as related to uncertain tax positions, plus related interest and penalties, as of February 27, 2010 is approximately $308,000.
Examinations by federal tax authorities have been completed through fiscal 2006. State examinations occur at various dates covering various periods; one of the larger such examinations, the State of New Jersey, has concluded its examination through fiscal 2005.
NOTE 4 - BANK CREDIT FACILITIES
The Company had an unsecured $40 million, revolving credit facility with Israel Discount Bank (“IDB”) through June 4, 2009, the agreement for which contained various financial covenants and ratio requirements. There were no borrowings under this facility during its term and the Company was in compliance with its covenants during the period in which this facility was available. Effective June 5, 2009 the Company revised this facility to a secured $40 million, revolving credit facility with the same bank and in connection with the acquisition of Filene’s, borrowed $24.0 million under this facility. On August 27, 2009 the Company entered into a $75 million, secured, revolving credit facility with Bank of America which replaced the IDB facility, and expires on August 27, 2012. In connection with the new Bank of America facility, the company recognized approximately $1.1 million of deferred financing costs, which are being amortized over the term of the agreement. This facility calculates availability to borrow utilizing a formula which considers accounts receivable, inventory and certain real estate and bears interest at various rates depending on availability under formula, currently LIBOR +3%. The Company is in compliance in all respects with the Bank of America facility at February 27, 2010. As of February 27, 2010, $8.4 million is outstanding under this facility. Each of the Company’s loan facilities have had sub-limits for letters of credit which when utilized, reduce availability under the facility. At February 27, 2010 and February 28, 2009 the Company had outstanding letters of credit of $6,552,000 and $741,000, respectively. Total interest charges incurred for
F-12
fiscal 2009, fiscal 2008 and fiscal 2007 were $1,628,000, $170,000, and $171,000, respectively. There was no capitalized interest for fiscal 2009, 2008 or 2007.
NOTE 5 – FAIR VALUE MEASUREMENTS
Effective March 1, 2009, the Company adopted the Financial Accounting Standards Board (“FASB”) Statement No. 157 (now ASC Subtopic 820-10), Fair Value Measurements (“ASC 820-10”), for financial assets and liabilities. This statement defines fair value, establishes a framework for measuring fair value and expands the related disclosure requirements. The statement 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. The Company adopted the provisions of ASC 820-10 with respect to its non-financial assets and liabilities during the first quarter of fiscal 2009. However, there were no non-financial assets or liabilities requiring initial measurement or subsequent re-measurement during fiscal 2009.
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:
| | |
| • | Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. |
| | |
| • | Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data. |
| | |
| • | Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs. |
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.
Assets measured at fair value on a recurring basis include the following as of February 27, 2010 and February 28, 2009:
| | | | | | | | | | | | | |
Fair Value Measurement at February 27, 2010 Using | |
| |
| | Quoted
Prices in
Active
Markets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) | | Total
Carrying
Value at
February 27,
2010 | |
| |
| |
| |
| |
| |
| | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 2,049,000 | | $ | — | | $ | — | | $ | 2,049,000 | |
| | | | | | | | | | | | | |
Cash surrender value – Officers’ Life Insurance | | $ | — | | $ | 1,905,000 | | $ | — | | $ | 1,905,000 | |
| | | | | | | | | | | | | |
Fair Value Measurement at February 28, 2009 Using | |
| |
| | Quoted
Prices in
Active
Markets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) | | Total
Carrying
Value at
February 27,
2010 | |
| |
| |
| |
| |
| |
|
Cash and cash equivalents | | $ | 1,822,000 | | $ | — | | $ | — | | $ | 1,822,000 | |
| | | | | | | | | | | | | |
Cash surrender value – Officers’ Life Insurance | | $ | — | | $ | 22,033,000 | | $ | — | | $ | 22,033,000 | |
F-13
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 required to determine the fair value of the Company’s pension plan assets as of February 27, 2010. The fair value of pension plan assets was $7.0 million at February 27, 2010. These assets are valued in active liquid markets.
Additionally, on a nonrecurring basis, the Company uses 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. Measurements based on undiscounted cash flows are considered to be level 3 inputs.
NOTE 6 – ACQUISITION OF FILENE’S BASEMENT
On June 19, 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. Filene’s was 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 $64.4 million in cash, of which $38.9 million was paid for by the Company. Approximately $25.0 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 SFAS 141(R) (now ASC Topic 805), Business Combinations.
The consolidated condensed financial statements presented herein include the results of operations for Filene’s from the period June 19, 2009 through February 27, 2010.
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. The gain of approximately $13,122,000, before netting of the related deferred tax liabilities of $3,408,000, was recognized for book purposes only. The gain is not recognized currently for tax purposes and the bargain purchase 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 V assets (fixed assets and prepaid expenses) and elimination of basis for Class VI (Trade name and customer list). The cost of acquisition, in the amount of approximately $4.9 million, is capitalized for tax and deducted as a current expense for book purposes.
The following table presents (in thousands) the estimated 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 | | | 2,090 | |
| |
|
| |
Fair value | | | 53,457 | |
Purchase Price | | | 38,927 | |
| |
|
| |
Excess of fair value over purchase price | | | 14,530 | |
Less: Deferred taxes | | | (3,408 | ) |
Obligations to customers | | | (1,197 | ) |
Other adjustments | | | (211 | ) |
| |
|
| |
Bargain purchase gain | | $ | 9,714 | |
| |
|
| |
F-14
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 $4.9 million were expensed in the periods incurred.
Included in the accompanying consolidated financial statements are Filene’s net sales of $177.4 million and a net loss of $2.9 million since June 19, 2009 (first date of operating ownership and consolidation) and is included in the consolidated statement of operations. The following table summarizes, on a pro-forma basis, the combined results of operations of the Company and Filene’s as though the acquisition had occurred as of March 2, 2008. The pro-forma amounts give effect to adjustments to exclude Filene’s store locations not acquired. The pro-forma amounts presented are not necessarily indicative of either the actual consolidated operating results had the acquisition occurred as of March 2, 2008 or of future consolidated operating results.
| | | | | | | |
| | Fiscal Year ended (in thousands) | |
| |
| |
| | Feb. 27, 2010 | | Feb. 28, 2009 | |
| |
| |
| |
Revenues | | $ | 441,925 | | $ | 580,117 | |
Net income (1) | | $ | (2,878 | ) | $ | (355 | ) |
| |
(1) | Fiscal 2009 includes a gain of $24,764,000 from the receipt of insurance proceeds from officers’ life insurance policies on the life of the Company’s founder and fiscal 2008 includes a bargain purchase gain of $9,714,000 attributable to the acquisition of Filene’s. |
NOTE 7 - PENSION AND PROFIT SHARING PLANS
| |
a. | Pension Plan - The Company has a defined benefit pension plan for all employees other than those covered under collective bargaining agreements through December 31, 2006. This Pension Plan was frozen effective December 31, 2006. |
| |
| 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. Equities are primarily S&P 500 securities which make up approximately 51% of plan assets. Fixed income securities make up the remaining approximate 49% and consist primarily of securities in the Barclay’s Capital Aggregate (formerly the Lehman Aggregate) and Merrill Lynch 1-3 year Government Corporate indexes. The measurement date used for fiscal 2009 is February 27, 2010. For fiscal 2008, the measurement date was February 28, 2009. For fiscal 2007and prior, the measurement date used was December 31 immediately prior to each fiscal year end. |
Presented below is financial information relating to this plan for the fiscal years indicated:
| | | | | | | |
| | February 27,
2010 | | February 28,
2009 | |
| |
| |
| |
| | (in thousands) | |
CHANGE IN BENEFIT OBLIGATION: | | | | | | | |
Net benefit obligation – beginning of period | | $ | 10,034 | | $ | 9,736 | |
Interest cost | | | 558 | | | 682 | |
Actuarial loss | | | 132 | | | 153 | |
Gross benefits paid | | | (1,051 | ) | | (537 | ) |
| |
|
| |
|
| |
Net benefit obligation – end of period | | $ | 9,673 | | $ | 10,034 | |
| |
|
| |
|
| |
| | | | | | | |
CHANGE IN PLAN ASSETS: | | | | | | | |
Fair value of plan assets – beginning of period | | $ | 6,338 | | $ | 9,723 | |
Gross benefits paid | | | (1,051 | ) | | (537 | ) |
Actual (loss)/return on plan assets | | | 1,746 | | | (2,848 | ) |
| |
|
| |
|
| |
Fair value of plan assets – end of period | | $ | 7,033 | | $ | 6,338 | |
| |
|
| |
|
| |
|
Funded status at year end | | $ | (2,640 | ) | $ | (3,696 | ) |
| |
|
| |
|
| |
F-15
Pension expense (benefit) includes the following components:
| | | | | | | | | | |
| | February 27,
2010 | | February 28,
2009 | | March 1,
2008 | |
| |
| |
| |
| |
| | (in thousands) |
COMPONENTS OF NET PERIODIC (BENEFIT) COST: | | | | | | | | | | |
Service cost | | $ | — | | $ | — | | $ | — | |
Interest cost | | | 558 | | | 682 | | | 544 | |
(Return) loss on assets | | | (1,746 | ) | | 2,848 | | | (756 | ) |
Amortization of (gain) loss | | | 1,350 | | | (3,577 | ) | | 24 | |
| |
|
| |
|
| |
|
| |
Net periodic (benefit) cost | | $ | 162 | | $ | (47 | ) | $ | (188 | ) |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
WEIGHTED-AVERAGE ASSUMPTIONS USED: | | | | | | | | | | |
Discount rate | | | 6.1 | % | | 6.3 | % | | 5.8 | % |
Rate of compensation increase | | | — | | | — | | | 4.5 | % |
The expected long-term rate of return on plan assets was 8.0% for all years.
As of February 27, 2010 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):
| | | | |
2010 | | $ | 598 | |
2011 | | | 602 | |
2012 | | | 596 | |
2013 | | | 610 | |
2014 | | | 635 | |
2015-2019 | | $ | 3,426 | |
The fair values and asset allocation of the Company’s plan assets as of February 27, 2010 and the target allocation for fiscal 2010, by asset category, are presented in the following table. All fair values are based on quoted prices in active markets for identical assets (Level 1 in the fair value hierarchy).
| | | | | | | | | | | | |
| Asset Category | | | Asset Allocation | | Fair Value | | % of Plan
Assets | |
|
| | |
| |
| |
| |
Cash and equivalents | | | 0% to 5% | | $ | 65 | | | 1 | % |
Equity Securities | | | 45% to 55% | | | 3,652 | | | 52 | % |
Fixed Income Securities | | | 45% to 55% | | | 3,316 | | | 47 | % |
| | | | |
|
| |
|
| |
Total | | | | | $ | 7,033 | | | 100 | % |
| | | | |
|
| |
|
| |
The Company adopted SFAS 158 (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, this is equal to the accumulated benefit obligation.
In addition, ASC 715 requires the Company to recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during 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 resulting 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.
F-16
| |
b. | Profit-Sharing and 401(k) Plan- The Company has a profit-sharing plan and 401(k) plan for all employees other than those covered under collective bargaining agreements. In 1995, the Company established a defined contribution savings plan 401(k) for substantially all of its eligible employees. Employees may contribute a percentage of their salary to the plan subject to statutory limits. The Company made contributions to this plan of $450,000 in fiscal 2007. No contributions were made in fiscal 2008 and fiscal 2009. |
| |
NOTE 8 - COMMITMENTS |
| |
a. | Leases- The Company has various operating leases for its retail stores, with terms expiring between 2010 and 2031. Under most lease agreements, the Company pays real estate taxes, maintenance and other operating expenses. Certain store leases also provide for additional contingent rentals based upon a percentage of sales in excess of certain minimum amounts. Future minimum lease payments under operating leases as of February 27, 2010 for each of the next five years and in the aggregate are as follows (in thousands): |
| | | | |
Fiscal 2010 | | $ | 35,526 | |
Fiscal 2011 | | | 33,902 | |
Fiscal 2012 | | | 31,383 | |
Fiscal 2013 | | | 30,704 | |
Fiscal 2014 | | | 30,128 | |
Thereafter | | | 156,418 | |
| |
|
| |
Total | | $ | 318,061 | |
| |
|
| |
Rent expense for operating leases (in thousands) is as follows:
| | | | | | | | | | |
| | Fiscal Year Ended |
| |
|
| | February 27,
2010 | | February 28,
2009 | | March 1,
2008 | |
| |
| |
| |
| |
Minimum rentals due | | $ | 27,060 | | $ | 6,581 | | $ | 6,683 | |
Escalation rentals accrued | | | 2,167 | | | (338 | ) | | (369 | ) |
Sublease rentals | | | (1,319 | ) | | (250 | ) | | (250 | ) |
| |
|
| |
|
| |
|
| |
Total | | $ | 27,908 | | $ | 5,993 | | $ | 6,064 | |
| |
|
| |
|
| |
|
| |
| |
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. |
| |
| In December 2007, the Company announced its decision to voluntarily delist its common stock from trading on the New York Stock Exchange (“NYSE”) and, given that there were fewer than 300 holders of record of its common |
| |
| shares, simultaneously deregister its common stock under federal securities laws. The Company’s decision to deregister with the Securities and Exchange Commission (“SEC”) and delist from NYSE was principally motivated by the desire to minimize the financial and administrative burdens associated with being an SEC reporting company and further minimize or eliminate the compliance obligations incident to the Sarbanes-Oxley Act of 2002. In January 2008 certain institutional investors commenced a campaign to cause certain shareholders to register shares individually and simultaneously brought two actions seeking injunctive relief from the aforementioned deregistration and delisting, counsel fees and unspecified damages. Although the Company believes that its actions were appropriate, the Company determined that the costs and expenses associated with protracted litigation could not be justified and, in February 2008, reregistered its common stock and listed its shares for trading on NASDAQ. The costs associated with this litigation were substantially covered by insurance. All litigation associated with these matters has either been dismissed in the Company’s favor or settled within the limits of the Company’s insurance policies, less a nominal deductible. |
F-17
NOTE 9 - PREFERRED STOCK
The Company is authorized to issue up to 1,000,000 shares of preferred stock, in one or more series of preferred stock. The Board of Directors is authorized to establish the number of shares to be included in each such series, and to fix the designation, relative rights, preferences, qualifications and limitations of the shares of each such series. No such shares have been issued or are outstanding.
NOTE 10 - STOCK OPTION PLAN
The Company’s Amended and Restated Stock Option and Appreciation Plan allows for the granting of incentive stock options, as defined in Section 422A of the Internal Revenue Code of 1986 (as amended), non-qualified stock options and stock appreciation rights. The plan requires that incentive stock options be granted at an exercise price not less than the fair market value of the Common Stock on the date the option is granted. The exercise price of the option for holders of more than 10% of the voting rights of the Company must be not less than 110% of the fair market value of the Common Stock on the date of grant. Non-qualified options and stock appreciation rights may be granted at any exercise price. The Company has reserved 1,500,000 shares of common stock for issuance thereunder. The Company is no longer issuing 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 permits 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 are selected by a committee designated by the Board of Directors of the Company are eligible to participate in the 2005 Plan. The maximum number of shares of Common Stock issuable under the Plan is 850,000, subject to certain adjustments in the event of changes to the Company’s capital structure.
The 2005 Plan requires 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 is granted. The exercise price of such options for holders of more than 10% of the voting stock of the Company must be not less than 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 must not be less than fair market value on the date such benefits are 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).
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 fiscal 2009 and fiscal 2008 was approximately $0 and $932,000, respectively. The aggregate intrinsic values of options exercised during fiscal 2009 and fiscal 2008 were approximately $17,000 and $706,000, respectively.
F-18
The following table summarizes stock option activity for each of the past three fiscal years:
| | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended |
| |
|
| | (in thousands except per share amounts) |
| | February 27, 2010 | | February 28, 2009 | | March 1, 2008 | |
| |
| |
| |
| |
| | Fiscal
2005
Shares | | Weighted
Average
Exercise
Price | | Fiscal
2005
Shares | | Weighted
Average
Exercise
Price | | Fiscal
2005
Shares | | Weighted
Average
Exercise
Price | |
| |
| |
| |
| |
| |
| |
| |
FIXED OPTIONS | | | | | | | | | | | | | | | | | | | |
Outstanding – beginning of year | | | 111 | | $ | 13.81 | | | 329 | | $ | 11.19 | | | 330 | | $ | 11.17 | |
Exercised | | | (9 | ) | | 7.18 | | | (218 | ) | | 9.81 | | | (0.8 | ) | | 13.74 | |
Cancelled | | | (4 | ) | | 5.21 | | | — | | | — | | | (0.5 | ) | | 5.21 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Outstanding – end of year | | | 98 | | $ | 15.01 | | | 111 | | $ | 13.81 | | | 329 | | $ | 11.19 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | | | | | | | | | | | |
Options exercisable at year end | | | 98 | | $ | 15.01 | | | 111 | | $ | 13.81 | | | 329 | | $ | 11.19 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
During 2009, stock options for 8,822 shares were exercised and 4,790 shares were cancelled by the Company. The remaining outstanding options expire in 2015.
NOTE 11 -NET INCOME (LOSS) PER SHARE
In accordance with SFAS 128 (now ASC Topic 260), basic net income (loss) per share has been computed based upon the weighted average common shares outstanding. Diluted net income (loss) per share gives effect to outstanding stock options, if they are dilutive.
Net income (loss) per share has been computed as follows:
| | | | | | | | | | |
| | Fiscal 2009 | | Fiscal 2008 | | Fiscal 2007 | |
| |
| |
| |
| |
| | (in thousands except per share amounts) | |
Basic and diluted net income (loss) per share: | | | | | | | | | | |
|
Net income (loss) | | $ | 8,308 | | $ | (3,423 | ) | $ | 807 | |
Average shares outstanding - basic | | | 14,593 | | | 14,589 | | | 14,659 | |
|
Net income (loss) per share – basic | | $ | 0.57 | | $ | (0.23 | ) | $ | 0.06 | |
|
Average shares outstanding – diluted | | | 14,593 | * | | 14,589 | * | | 14,760 | |
|
Net income (loss) per share – diluted | | $ | 0.57 | | $ | (0.23 | ) | $ | 0.05 | |
*All outstanding options were anti-dilutive for fiscal 2009 and fiscal 2008
F-19
NOTE 12 - UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
| | | | | | | | | | | | | |
| | Quarter |
| | First | | Second | | Third | | Fourth | |
| |
| |
| |
| |
| |
| | (In thousands, except per share amounts) |
YEAR ENDED FEBRUARY 27, 2010 (1) | | | | | | | | | | | | | |
Net sales | | $ | 50,256 | | $ | 76,437 | | $ | 135,159 | | $ | 115,457 | |
Gross profit | | | 21,061 | | | 28,173 | | | 57,868 | | | 38,000 | |
Net income (loss) (2) (3) | | $ | (2,035 | ) | $ | (7,889 | ) | $ | 25,646 | | $ | (7,414 | ) |
Net income (loss) per share – basic | | $ | (0.14 | ) | $ | (0.54 | ) | $ | 1.76 | | $ | (0.51 | ) |
Net income (loss) per share – diluted | | $ | (0.14 | ) | $ | (0.54 | ) | $ | 1.76 | | $ | (0.51 | ) |
| | | | | | | | | | | | | |
| | Quarter |
| | First | | Second | | Third | | Fourth | |
| |
| |
| |
| |
| |
| | (In thousands, except per share amounts) |
YEAR ENDED FEBRUARY 28, 2009 | | | | | | | | | | | | | |
Net sales | | $ | 64,588 | | $ | 59,030 | | $ | 64,330 | | $ | 54,052 | |
Gross profit | | | 28,178 | | | 23,140 | | | 26,632 | | | 22,575 | |
Net income (loss) (2) (4) (5) | | $ | 626 | | $ | (1,271 | ) | $ | (891 | ) | $ | (1,887 | ) |
Net income (loss) per share – basic | | $ | 0.04 | | $ | (0.09 | ) | $ | (0.06 | ) | $ | (0.12 | ) |
Net income (loss) per share – diluted | | $ | 0.04 | | $ | (0.09 | ) | $ | (0.06 | ) | $ | (0.12 | ) |
| |
(1) | Results for fiscal 2009 are materially impacted by the acquisition of Filene’s Basement in the second quarter. (See Note 6). |
| |
(2) | Includes impairment charges of $80 and $530 in the fourth quarter of Fiscal 2009 and Fiscal 2008 respectively, relating to certain leased properties or properties held for sale. |
| |
(3) | Includes income of $24.8 million from the receipt of life insurance proceeds from officers’ life insurance policies in the third quarter and a bargain purchase gain of $9.7 million attributable to the acquisition of Filene’s in the second quarter. |
| |
(4) | Includes adjustment for $209,000 in the fourth quarter reflecting accelerated depreciation for the anticipated closing of one store and the related tax effect of $109,000. |
| |
(5) | Includes a $290,000 fourth quarter adjustment to the income tax payable account related to prior year taxes. |
F-20
