UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended January 29, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commissions file number 0-20052
STEIN MART, INC.
(Exact name of registrant as specified in its charter)
Florida 64-0466198
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1200 Riverplace Blvd., Jacksonville, Florida 32207
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (904) 346-1500
Securities registered pursuant to Section 12(g) of the Act:
Title of each class: Name of each exchange on which registered:
Common Stock $.01 par value The Nasdaq Stock Market(R)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes [X] No [ ]
The aggregate market value of the voting common stock held by non-affiliates of
the Registrant as of April 1, 2005 was $595,574,425. For purposes of this
response, executive officers and directors are deemed to be the affiliates of
the registrant and the holdings by non-affiliates was computed as 26,949,069
shares. At April 1, 2005, the Registrant had issued and outstanding an aggregate
of 43,229,411 shares of its common stock.
Documents Incorporated By Reference:
Portions of the Proxy Statement for Registrant's 2005 Annual Meeting of
Stockholders are incorporated in Part III and Part IV.
STEIN MART, INC.
TABLE OF CONTENTS
FORM
10-K
REPORT
ITEM NO. PAGE
- -------- ----
PART I
1. Business 3
2. Properties 8
3. Legal Proceedings 9
4. Submission of Matters to a Vote of Security Holders 9
PART II
5. Market for Registrant's Common Equity, Related Stockholder 9
Matters and Issuer of Equity Securities 10
6. Selected Consolidated Financial Data
7. Management's Discussion and Analysis of Financial Condition 11
and Results of Operations
7A. Quantitative and Qualitative Disclosures about Market Risk 17
8. Financial Statements and Supplementary Data 17
9. Changes in and Disagreements With Accountants on Accounting 18
and Financial Disclosure
9A. Disclosure Controls and Procedures 18
9B. Other Information 18
PART III
10. Directors and Executive Officers of the Registrant 18
11. Executive Compensation 19
12. Security Ownership of Certain Beneficial Owners and Management 19
and Related Stockholder Matters
13. Certain Relationships and Related Transactions 19
14. Principal Accountant Fees and Services 19
PART IV
15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 19
SIGNATURES 20
2
PART I
ITEM 1. BUSINESS
As of January 29, 2005, Stein Mart, Inc. operated a 261-store retail chain with
stores that offer the fashion merchandise, service and presentation of a
traditional, better department or specialty store at prices typically 25% to 60%
less than department stores. The Company's focused assortment of merchandise
features moderate to designer brand-name apparel for women, men and young
children, as well as accessories, gifts, linens and shoes. Founded by the
current chairman's grandfather, the Company operated one store in Greenville,
Mississippi, until 1977, when expansion began. The Company's initial public
offering took place in April, 1992. Today, the Company has stores in 30 states
and the District of Columbia.
As used herein, the terms "Company" and "Stein Mart" refer to Stein Mart, Inc.
and its wholly-owned subsidiary. The Company's fiscal year ends on Saturday
closest to January 31, and follows the National Retail Federation fiscal
calendar. For instance, "2004" refers to the 52-week fiscal year ended January
29, 2005.
Business Strategy
The Company's goal is to provide a retailing concept which combines the fashion
assortment, store appearance, merchandise presentation and customer service
levels of better department and specialty stores with the value pricing of an
off-price retail format. This retail concept is targeted towards a 35-60
year-old female customer who typically occupies a household with above average
income. Stein Mart's target customer is attracted to a department store level of
fashion, presentation and service, but she prefers to visit large-format
shopping malls only occasionally. Conversely, she tends to be more
discriminating than a typical off-price customer.
The principal elements of the Company's business strategy are as follows:
Timely, Consistent, Upscale Merchandise
The Company purchases upscale, branded merchandise primarily through
pre-planned buying programs similar to those used by department stores.
These pre-planned buying programs enable the Company to offer fashionable,
current-season coordinated assortments on a consistent basis. During the
past two years, the Company has emphasized decreasing the overall amount of
inventory, while increasing the percentage of current season merchandise on
the selling floor, improving the "freshness factor" in the assortment at any
given time, and increasing inventory turn.
Convenient Store Location, Appealing Appearance and Merchandise Presentation
The Company locates its stores primarily in neighborhood shopping centers in
order to attract target customers in upscale residential neighborhoods.
Optimal co-tenancy is with favored supermarkets, drug stores, specialty
retailers and restaurants that cater to customers with above average
household income and education. Within the store, attractive displays and
signage create an upscale ambiance and merchandise is displayed in lifestyle
groupings to assist the customer in assembling outfits.
Emphasis on Customer Service
Customer service is fundamental to Stein Mart's objective of building
customer loyalty. Management believes that the Company offers customer
service superior to off-price retailers and comparable to better department
stores.
Value Pricing through Vendor Relationships
Stein Mart strives to provide a compelling value on desirable merchandise.
Through long-standing relationships with many key vendors and streamlined
purchase terms, the Company's buyers are able to negotiate more favorable
prices from vendors than are typical in the department store industry. Stein
Mart passes these savings on to its customers through prices that are
typically 25% to 60% below those regularly charged by traditional department
stores.
Merchandising, Purchasing and Pricing
Stein Mart's fashion assortment is driven primarily by its own merchandising
plan which identifies seasonal fashion, silhouette and color trends, and how
each should be represented on the selling floor in order to serve the Company's
target customer. Once the plan is finalized, buyers shop a variety of primary
and secondary marketplaces to identify and negotiate with vendors for the
assortment of merchandise to achieve the plan. In most cases, the merchandise is
bought
3
directly from the manufacturers' lines, similar to department stores' purchasing
programs. In other cases, Stein Mart merchants work with manufacturers to
customize pieces on the vendor's line for Stein Mart's inventory. Occasionally,
Stein Mart develops a proprietary product line through established vendors in
order to provide customers with a unique product. Private label merchandise
comprises less than ten percent of Stein Mart's inventory.
The Company enjoys long-standing working relationships with vendors who
manufacture merchandise in the United States and overseas. In order to obtain
more favorable pricing, the Company typically does not ask manufacturers for
advertising allowances or return privileges; instead, the merchants negotiate
for a lower initial price. Additional cost savings are realized when the Company
is able to purchase some in-season, off-price and end-of-season close-out
merchandise to supplement core merchandise assortments.
Stein Mart buys from approximately 1,700 vendors and does not have long-term or
exclusive contracts with any particular vendor. In 2004, approximately 5% of
Stein Mart's purchases were from a single vendor and less than 2 % of total
purchases were from any other single vendor.
The Company's shoe department in individual stores is leased by one of two shoe
retailers. The women's and men's shoe assortment is a complement to the apparel
areas, with a focus on fashionable, current-season footwear at value prices.
Shoe department leases provide for the Company to be paid base rent and/or a
percentage of sales.
The following reflects the percentage of the Company's sales by major
merchandise category (including sales from leased shoe departments) for the
fiscal years indicated:
2004 2003 2002
---------- ---------- ----------
Ladies' and Boutique apparel 41% 39% 38%
Ladies' accessories 12 12 12
Men's 18 17 17
Gifts and linens 17 19 20
Leased shoe departments 7 7 6
Children's 3 4 5
Other 2 2 2
---- ---- ----
100% 100% 100%
==== ==== ====
In 2002, Stein Mart began a series of productivity initiatives designed to
increase the dollars generated in each square foot of the stores. These
initiatives included reformatting all stores to allocate greater space and more
inventory dollars to areas where the core customer shops most intensely, e.g.
ladies apparel and Boutique, ladies' accessories and gifts. Square footage in
the men's and children's areas was reduced and merchandise in those areas was
more highly concentrated to key categories. In 2003, Home Decor was added in all
stores.
Store Network and Appearance
The Company primarily locates its stores in neighborhood shopping centers in
close proximity to the better residential neighborhoods of a given community. A
majority of Stein Mart's stores are located in such centers, with the remainder
found in power centers, in freestanding buildings or in traditional shopping
malls. All Stein Mart stores and the Company headquarters are leased.
The typical store is approximately 37,000 gross square feet with a racetrack
design, convenient centralized check-out and customer service areas, and
attractive, individual dressing rooms. The Company seeks to create excitement in
its stores through the continual flow of brand-name merchandise, sales
promotions, store layout, merchandise presentation, and the quality, value and
depth of its merchandise assortment. A portion of each Stein Mart store is
identified as the Boutique, a store-within-a store, which carries better to
designer ladies' apparel and offers the presentation and service levels of a
specialty boutique. The Boutique is primarily staffed by specially-recruited
women (Boutique Ladies) who generally work one day a week, and who add
credibility and fashion integrity to the department.
4
The Company's growth philosophy is to finance growth with internally generated
funds and continue to fill in existing markets as well as pioneer new markets.
Since less than five percent of merchandise is handled through its distribution
center, the Company is not constrained geographically or by the capacity limits
of a central facility (see Distribution Methodology). Three tenant
representative brokers scout potential locations for future expansion across the
United States. The Company refurbishes existing retail locations or occupies
newly constructed stores, which typically are anchor stores in new or existing
shopping centers situated near upscale residential areas, ideally with
co-tenants that cater to a similar customer base. The Company's historical
ability to negotiate favorable leases and to construct attractive stores with a
relatively low investment has provided a significant cost advantage over
traditional department and fine specialty stores.
The cost of opening a typical new store includes approximately $500,000 to
$700,000 for fixtures, equipment, leasehold improvements and pre-opening
expenses (primarily advertising, stocking and training). Pre-opening costs are
expensed when incurred. The cost of the initial inventory investment for a new
store is approximately $1.0 million.
The Company revised its approach to selecting new store locations effective with
stores opening in 2002. Prior to that time, the Company's principal
consideration was population demographics, including data relating to income,
education levels, age and occupation. The availability of prime real estate
locations, existing and potential competitors, and the number of Stein Mart
stores that a market can support was also considered. The Company has since
expanded its analysis to consider psychographics (such as fashion consciousness
in the marketplace) as well as local area market research. The Company has also
retained a third-party consulting firm to analyze each potential market.
Finally, a committee of senior officers considers the collected data and
analysis, and determines whether to approve or reject potential new store
locations. Continuing to use this approach, the Company plans to open 15 new
stores in 2005.
The Company regularly reviews each store's performance and profitability.
Under-performing stores are identified and strategies to improve their
performance are implemented. If, after a period of time, a store's profitability
does not improve, the store is considered for closure. Sixteen under-performing
stores were closed during 2003 and seven more stores were closed in 2004. At
this time, eight stores are slated for closure in 2005.
In 2002, a smaller (sub-15,000 square foot) store concept was created to test
the Company's entry into resort and premium markets where a full-sized Stein
Mart is not feasible. The first collections of Stein Mart opened in Rolling
Hills, California in October 2002 and was followed by collections of Stein Mart
stores in Pasadena, California; Hendersonville, North Carolina, and Amelia
Island, Florida over the past two years. The Company believes that this format
has continued promise in certain locations where either real estate availability
or costs are prohibitive for a traditional, 37,000 square foot store.
Customer Service
Customer service is fundamental to Stein Mart's goal of building customer
loyalty. The Company's stores offer most of the same services typically found in
better department and specialty stores, such as a liberal merchandise return
policy, a preferred customer program and electronic gift certificates. Each
store is staffed to provide a number of sales associates to properly attend to
customer needs.
Distribution Methodology
Stein Mart primarily utilizes drop shipments from its vendors directly to its
stores, as opposed to having merchandise flow through a centralized distribution
center. Most apparel merchandise is received pre-ticketed and on hangers ("floor
ready"). This system enables the Company to receive merchandise at each store on
a timely basis and to save the time and expense of handling merchandise twice,
which is typical of a traditional distribution center structure. Management
reviews the current system on a regular basis and at this time, does not plan to
change its drop ship delivery system. The Company does lease a small
distribution/warehouse facility in Jacksonville, but less than five percent of
the Company's merchandise is handled there.
Information Systems
The Company's inventory control system enables it to achieve economies of scale
from bulk purchases while at the same time ordering and tracking separate drop
shipments by store. Store inventory levels are regularly monitored and adjusted
as sales trends dictate. The inventory control system provides information that
enhances management's ability to make
5
informed buying decisions and accommodate unexpected increases or decreases in
demand for a particular item. The Company uses bar codes and bar code scanners
as part of an integrated inventory management and check-out system in its
stores.
The Company's merchandise planning and allocation system enables the buyers and
planners to customize their merchandise assortments at the individual store and
class level, based on selected criteria, such as a store's selling patterns,
climate and merchandise color preferences. The ability to customize individual
store assortments enables the Company to more effectively manage inventory,
capitalize on sales trends and reduce markdowns.
The Company hosts an Internet site (www.steinmart.com) to provide information
for customers regarding stores, company management and selected sales promotion
activity; however, the Company does not sell merchandise online at this time.
Visitors to the website may sign up to be Preferred Customers (see "Marketing")
and may purchase Panache cards (electronic gift certificates).
Marketing
The Company's advertising stresses upscale, fashion merchandise at significant
savings. In recent years, the Company has transitioned from spending the
majority of its marketing budget on newspaper advertising to the production of
color pre-print inserts and national cable and local affiliate television
advertising. This evolution is a reallocation of dollars, as the percentage of
sales has remained relatively constant during that time. Management believes the
Company also enjoys substantial word-of-mouth advertising benefits from its
customer base.
Two major events affected marketing in recent years. In August 2003, the Company
discontinued the regular use of various coupons that allowed customers to take a
specified percentage discount off of full-priced merchandise. This action
created pressure on sales for the remainder of 2003 and continued as a factor
(albeit diminishing) until the summer of 2004. In the fall of 2003, the Company
launched a nationwide, cable-TV based advertising campaign featuring Stein Mart
customers and their comments about shopping at Stein Mart stores. The television
ads, which now include local affiliate television programming, run during the
height of the spring and fall selling season, and are reinforced by color
pre-print circulars, both inserted in newspapers and mailed directly to
customers. During major clearance seasons, the Company utilizes run-of-press
newspaper advertising.
Stein Mart's Preferred Customer Program, launched in May 2001, recognizes and
rewards the Company's most devoted shoppers. Over two million active Preferred
Customers receive regular mailings regarding key events, promotions, special
members-only shopping days and special discounts exclusive to these individuals.
The Company regularly conducts consumer research projects designed to clarify
specific information regarding current and prospective customers.
Competition
Management believes that the Company occupies a market niche closer to better
department and specialty stores than typical off-price retail chains. Management
believes that Stein Mart differentiates itself from typical off-price retailers
by offering: (i) primarily current-season merchandise carried by better
department and specialty stores at moderate to better price levels, (ii) a
stronger merchandising "statement," consistently offering more depth of color
and size in individual stock-keeping units, and (iii) a merchandise presentation
more comparable to other upscale retailers.
The Company faces competition for customers and for access to quality
merchandise from better department stores, fine specialty stores and, to a
lesser degree, from off-price retail chains. Many of these competitors are units
of large national or regional chains that have substantially greater resources
than the Company. The retail apparel industry is highly fragmented and
competitive, and the off-price retail business may become even more competitive
in the future.
The principal competitive factors in the retail apparel industry are assortment,
presentation, quality of merchandise, price, customer service, vendor relations
and store location. Management believes that the Company is well positioned to
compete on the basis of each of these factors.
6
Employees
At January 29, 2005, the Company's work force consisted of approximately 14,000
employees (8,700 40-hour equivalent employees). Each Stein Mart store employs an
average of 55 persons as area managers, sales associates, cashiers and other
positions. The number of employees fluctuates based on the particular selling
season.
Trademarks
The Company owns the federally registered trademark Stein Mart(R), together with
a number of other marks used in conjunction with its private label merchandise
program. Stein Mart primarily sells branded merchandise. However, in certain
classifications of merchandise, the Company uses several private label programs
to provide additional availability of items. Management believes that its
trademarks are important but, with the exception of Stein Mart(R), not critical
to the Company's merchandising strategy.
Available Information
The Company's annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to those reports are made available
free of charge on or through the Company's website, www.steinmart.com as soon as
practicable after the reports are filed with or furnished to the Securities and
Exchange Commission. In addition, the Company's Board of Directors has adopted a
Code of Ethics and written charters for its Audit, Compensation and Corporate
Governance Committees, copies of which are available on the Company's website or
in print to any shareholder who requests them.
7
ITEM 2. PROPERTIES
At January 29, 2005, the Company operated stores in the following states and the
District of Columbia:
State Number of Store
----- ---------------
Alabama 12
Arizona 6
Arkansas 3
California 19
Colorado 2
Florida 40
Georgia 17
Illinois 5
Indiana 8
Iowa 1
Kansas 2
Kentucky 3
Louisiana 10
Michigan 1
Mississippi 5
Missouri 3
Nebraska 1
Nevada 4
New Jersey 1
New York 2
North Carolina 19
Ohio 10
Oklahoma 5
Pennsylvania 3
South Carolina 12
Tennessee 13
Texas 41
Utah 1
Virginia 10
Washington DC 1
Wisconsin 1
---
261
===
The Company leases all of its store locations and therefore has been able to
grow without incurring indebtedness to acquire real estate. Management believes
that the Company has earned a reputation as an "anchor tenant," which, along
with its established operating history, has enabled it to negotiate favorable
lease terms. Most of the leases provide for minimum rents, as well as percentage
rents that are based on sales in excess of predetermined levels.
The table below reflects (i) the number of the Company's leases (as of January
29, 2005) that will expire each year if the Company does not exercise any of its
renewal options, and (ii) the number of the Company's leases that will expire
each year if the Company exercises all of its renewal options (assuming the
lease is not otherwise terminated by either party pursuant to any other
provision). The table includes the leases for the 261 store locations operated
at January 29, 2005 and 11 previously closed store locations for which the
Company has subleased or is actively seeking to sublease the property.
8
Number of Leases Number of Leases
Expiring Each Year Expiring Each Year
if no Renewals if all Renewals
Exercised Exercised
---------------------- ----------------------
2005 14 -
2006 27 1
2007 22 1
2008 35 4
2009 35 6
2010-2014 112 19
2015-2019 27 22
2020-2046 - 219
The Company has made consistent capital commitments to maintain and improve
existing store facilities. During 2004, approximately $14.1 million was spent
for fixtures, equipment and leasehold improvements in stores opened prior to
2004.
The Company leases approximately 73,000 gross square feet of office space for
its corporate headquarters in Jacksonville, Florida. The Company also leases a
92,000 square foot distribution center in Jacksonville for the purpose of
processing a limited amount of merchandise purchases (less than 5% of total
purchases).
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various routine legal proceedings incidental to the
conduct of its business. Management does not believe that any of these legal
proceedings will have a material adverse effect on the financial condition,
results of operations or cash flows of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of fiscal 2004.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS AND ISSUER OF EQUITY SECURITIES
The following table sets forth the high and low sales prices of the Common Stock
for each fiscal quarter in fiscal 2004 and 2003:
HIGH LOW
---------- ----------
Fiscal 2004:
May 1, 2004 $14.52 $10.10
July 31, 2004 18.59 12.70
October 30, 2004 18.96 13.71
January 29, 2005 19.75 15.75
Fiscal 2003:
May 3, 2003 $ 5.69 $ 4.22
August 2, 2003 6.27 5.35
November 1, 2003 7.58 5.00
January 31, 2004 10.94 7.07
Stein Mart's common stock trades on The Nasdaq Stock Market(R) under the trading
symbol SMRT. On April 6, 2005, there were 1,131 stockholders of record.
9
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (Dollars in Thousands Except
Per Share and Per Square Foot Data)
The Company's consolidated financial statements have been restated to classify
the results of operations for three stores closed during 2003 and 2004 as
discontinued operations for all periods.
Statement of Operations Data: 2004 2003 2002 2001 (1) 2000
------------ ------------ ------------ ------------ ------------
Net sales $1,459,607 $1,351,623 $1,397,851 $1,309,429 $1,196,166
Cost of merchandise sold 1,070,803 1,013,175 1,053,109 996,211 889,387
------------ ------------ ------------ ------------ ------------
Gross profit 388,804 338,448 344,742 313,218 306,779
Selling, general and administrative expenses (2) 341,932 343,354 322,115 297,846 253,207
Other income, net 14,277 13,004 13,825 13,938 13,625
------------ ------------ ------------ ------------ ------------
Income from operations 61,149 8,098 36,452 29,310 67,197
Interest income (expense), net 332 (1,688) (2,604) (4,000) (3,309)
------------ ------------ ------------ ------------ ------------
Income from continuing operations before income taxes 61,481 6,410 33,848 25,310 63,888
Provision for income taxes 23,363 2,436 12,862 9,617 24,277
------------ ------------ ------------ ------------ ------------
Income from continuing operations 38,118 3,974 20,986 15,693 39,611
Loss from discontinued operations, net of tax benefit (145) (1,773) (296) (339) (254)
------------ ------------ ------------ ------------ ------------
Net income $ 37,973 $ 2,201 $ 20,690 $ 15,354 $ 39,357
============ ============ ============ ============ ============
Basic income (loss) per share:
Continuing operations $0.90 $0.09 $0.51 $0.38 $0.93
Discontinued operations - (0.04) (0.01) (0.01) (0.01)
------------ ------------ ------------ ------------ ------------
Total $0.90 $0.05 $0.50 $0.37 $0.92
============ ============ ============ ============ ============
Diluted income (loss) per share:
Continuing operations $0.89 $0.09 $0.51 $0.38 $0.92
Discontinued operations - (0.04) (0.01) (0.01) (0.01)
------------ ------------ ------------ ------------ ------------
Total $0.89 $0.05 $0.50 $0.37 $0.91
============ ============ ============ ============ ============
Operating Data:
Stores open at end of period 261 261 265 253 226
Sales per store including leased departments (3) $ 6,058 $ 5,564 $ 5,741 $ 5,922 $ 6,068
Sales per store excluding leased departments (4) $ 5,642 $ 5,179 $ 5,373 $ 5,520 $ 5,643
Sales per square foot including leased departments (3) $ 199 $ 181 $ 184 $ 189 $ 192
Sales per square foot excluding leased departments (4) $ 200 $ 182 $ 187 $ 191 $ 194
Comparable store net sales increase (decrease) (5) 9.1% (4.7%) (0.8%) (0.7%) 9.7%
Balance Sheet Data:
Working capital $ 211,242 $ 186,799 $ 146,609 $ 179,212 $ 120,602
Total assets 474,580 399,101 415,846 417,672 389,989
Long-term debt (6) - 24,962 - 57,750 -
Total stockholders' equity 276,510 227,678 223,307 201,895 194,028
(1) Beginning with fiscal 2001, the Company changed to a 52-53 week year ending
on the Saturday closest to January 31; previously, the Company's fiscal
year ended on the Saturday closest to December 31. Financial data for the
five-week Transition Period ended February 3, 2001 (restated for
discontinued operations) is as follows: net sales $83,332, cost of
merchandise sold $69,964, gross profit $13,368, selling, general and
administrative expenses $22,861, other income net $822, interest expense
$186, loss from continuing operations ($5,491), loss from discontinued
operations ($123), net loss ($5,614), basic and diluted loss per
share/continuing operations $(0.14).
(2) Selling, general and administrative expenses include store closing and
asset impairment charges of $4.7 million in 2004, $12.0 million in 2003,
$2.5 million in 2002 and $2.9 million in 2001. A $3.4 million credit
related to store closings was recorded in 2000.
(3) These sales per store and sales per square foot calculations include sales
from leased shoe and fragrance departments. Sales per store is calculated
by dividing (a) total sales including leased department sales by (b) the
number of stores open at the end of such period, exclusive of stores open
for less than 12 months. Sales per square foot includes sales and selling
space of leased departments and excludes administrative, receiving and
storage areas.
(4) These sales per store and sales per square foot calculations exclude sales
from leased departments. Sales per store is calculated by dividing (a)
total sales, excluding leased department sales by (b) the number of stores
open at the end of such period, exclusive of stores open for less than 12
months. Sales per square foot excludes sales and selling space of leased
departments, administrative, receiving and storage areas.
(5) Comparable store information for a period reflects stores open throughout
that period and for the same 52-week period in the prior year.
(6) Notes payable to banks of $41,350 at February 1, 2003 was classified as
current.
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This document includes a number of forward-looking statements which reflect the
Company's current views with respect to future events and financial performance.
Wherever used, the words "plan", "expect", "anticipate", "believe", "estimate"
and similar expressions identify forward-looking statements.
All such forward-looking statements contained in this document are subject to
risks and uncertainties that could cause the Company's actual results of
operations to differ materially from historical results or current expectations.
These risks include, without limitation, ongoing competition from other
retailers many of whom are larger and have greater financial and marketing
resources, the availability of suitable new store sites at acceptable lease
terms, ability to successfully implement strategies to exit or improve
under-performing stores, changing preferences in apparel, changes in consumer
spending due to current events and/or general economic conditions, the
effectiveness of new advertising, marketing and promotional strategies, adequate
sources of merchandise at acceptable prices, and the Company's ability to
attract and retain qualified employees to support planned growth.
The Company does not undertake to publicly update or revise its forward-looking
statements even if experience or future changes make clear that any projected
results expressed or implied therein will not be realized.
The following should be read in conjunction with the "Selected Consolidated
Financial Data" and the notes thereto and the consolidated financial statements
and notes thereto of the Company.
Overview
Stein Mart's 261 stores offer the fashion merchandise, service and presentation
of a better department or specialty store, at prices competitive with off-price
retail chains. Currently with locations from California to New York, Stein
Mart's focused assortment of merchandise features moderate to designer
brand-name apparel for women, men and children, as well as accessories, gifts,
linens and shoes. Management believes that Stein Mart differentiates itself from
typical off-price retailers by offering: (i) current-season merchandise carried
by better department and specialty stores at value prices, (ii) a stronger
merchandising "statement," with more depth of color and size, and (iii)
merchandise presentation more comparable to other upscale retailers.
The Company faces competition for customers and for access to quality
merchandise from better department stores, fine specialty stores and, to a
lesser degree, from off-price retail chains. Many of these competitors are units
of large national or regional chains that have substantially greater resources
than the Company. The retail apparel industry is highly fragmented and
competitive, and the off-price retail business may become even more competitive
in the future.
Stein Mart's accomplishments during 2004 include:
o Increased total sales by 8.0 percent overall and comparable store
sales by 9.1 percent
o Improved net income to $0.89 per share compared to $0.05 per share in
2003
o Improved gross profit as a percentage of sales by 1.6 percent
o Improved selling, general and administrative expenses by 2.0 percent
o Improved sales per store (including leased departments) from $5.6
million to $6.1 million
o Opened seven new locations during the year which produced $19.4
million in sales by year-end; relocated two stores to more
advantageous locations and closed seven under-performing stores
o Reduced average store inventories by 2.2 percent
o Reduced inventory shrinkage for a pre-tax benefit of $2.2 million
o Eliminated borrowings and ended the year with more than $92 million
in cash and short-term investments
11
Outlook
Over the past three years, the Company has reduced inventory levels,
re-formatted its stores, closed a number of unprofitable locations, eliminated
full-price coupons and created a new marketing campaign. As such, the Company's
preliminary outlook for 2005 is as follows:
o Increase sales at a more modest rate, yet producing substantial
profit growth due to better inventory productivity
o Improve gross margin as a result of fewer markdowns on less inventory
as well as a larger percentage of current merchandise
o Strengthen the store network with a plan to open 15 new stores,
including one relocation, and close eight under-performing locations
o Continue strong cash position with no debt, expected capital
expenditures of approximately $25 million and a return to
repurchasing shares of Company stock.
Stores
The number of stores open as of January 29, 2005, January 31, 2004 and February
1, 2003 were 261, 261 and 265, respectively.
2004 2003 2002
---------- ---------- ----------
Stores at beginning of year 261 265 253
Stores opened during the year 7 12 16
Stores closed during the year (7) (16) (4)
---------- ---------- ----------
Stores at the end of year 261 261 265
========== ========== ==========
Reclassifications
As discussed in Note 1 to the consolidated financial statements,
"Reclassifications", certain reclassifications have been made to prior years'
financial statements to conform to classifications used in the current year. The
accompanying Management's Discussion and Analysis gives effect to those
reclassifications.
Results of Operations
The following table sets forth each line item of the Consolidated Statement of
Operations expressed as a percentage of the Company's net sales (numbers may not
add due to rounding):
2004 2003 2002
---------- ---------- ----------
Net sales 100.0% 100.0% 100.0%
Cost of merchandise sold 73.4 75.0 75.3
---------- ---------- ----------
Gross profit 26.6 25.0 24.7
Selling, general and administrative expenses 23.4 25.4 23.0
Other income, net 1.0 1.0 1.0
---------- ---------- ----------
Income from operations 4.2 0.6 2.6
Interest income - - -
Interest expense - 0.1 0.2
---------- ---------- ----------
Income from continuing operations before income taxes 4.2 0.5 2.4
Provision for income taxes 1.6 0.2 0.9
---------- ---------- ----------
Income from continuing operations 2.6 0.3 1.5
Loss from discontinued operations, net of tax benefit - (0.1) -
---------- ---------- ----------
Net income 2.6% 0.2% 1.5%
========== ========== ==========
Store Closings
During 2004 and 2003, the Company closed 23 under-performing stores (see Notes 3
and 4 to the consolidated financial statements) whose aggregate losses from
operations for 2004 and 2003 were $3.8 million and $26.4 million, respectively.
Two of the stores closed during 2003 and one store closed during 2004 resulted
in the exit from certain markets and, in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 144, are classified as discontinued
operations, as cash flows of these stores have been eliminated from ongoing
operations.
12
The Company plans to close eight more stores during 2005 primarily at natural
lease exit dates, so lease termination costs in 2005 should not be significant.
Sales and operating losses for the seven stores closed in 2004 and 16 stores
closed in 2003 are shown below for the years ended January 29, 2005 and January
31, 2004. Included in the 2003 column are operating results of the 16 stores
closed in 2003, in addition to the seven stores closed in 2004.
2004 2003
------------ ------------
Sales from closed stores:
Included in continuing operations $ 7,142 $ 49,814
Included in discontinued operations 942 10,009
------------ ------------
$ 8,084 $ 59,823
============ ============
Operating losses from closed stores:
Included in continuing operations $(3,602) $(23,521)
Included in discontinued operations (234) (2,860)
------------ ------------
$(3,836) $(26,381)
============ ============
Operating losses from closed stores include the following store closing and
asset impairment expenses:
Continuing operations: 2004 2003
------------ ------------
Lease termination costs $ 1,028 $ 6,561
Asset impairment (recovery) charges (245) 1,544
Severance 647 723
Other 215 1,058
------------ ------------
1,645 9,886
------------ ------------
Discontinued operations:
Lease termination costs 77 172
Asset impairment charges - 228
Severance 77 148
------------ ------------
154 548
------------ ------------
Total $ 1,799 $ 10,434
============ ============
Continuing Operations
Year Ended January 29, 2005 Compared to Year Ended January 31, 2004
The 8.0% total sales increase for the year ended January 29, 2005 from the prior
year reflects a 9.1% increase in sales from comparable stores, the opening of
seven new stores which contributed $19.4 million to net sales, and the closing
of seven stores.
Gross profit for the year ended January 29, 2005 was $388.8 million or 26.6
percent of net sales, a 1.6 percentage point increase over gross profit of
$338.4 million or 25.0 percent of net sales for the year ended January 31, 2004.
The increase was due to a 1.2 percentage point increase in mark-up, a 0.5
percentage point improvement in occupancy leverage as a result of higher per
store sales productivity this year compared to last year and a 0.2 percentage
point improvement in shrinkage, partially offset by a 0.3 percentage point
increase in markdowns. Continued improvements in the loss prevention
organization and its system enhancements contributed to the shrinkage
improvement. Gross profit also includes a $1.5 million inventory charge to
reduce merchandise inventories to the lower of cost or market value in five
stores closing in Spring 2005.
Selling, general and administrative ("SG&A") expenses were $341.9 million or
23.4 percent of net sales for the year ended January 29, 2005, a $1.5 million
decrease from SG&A expenses of $343.4 million or 25.4 percent of net sales for
2003. The 2.0 percentage point decrease in SG&A expenses as a percent of sales
is primarily due to the leveraging of expenses as a result of the 9.1 percent
increase in comparable store sales and a $7.3 million decrease in store closing
and asset impairment charges. Included in SG&A expenses for fiscal 2004 and 2003
are store closing and asset impairment charges of $4.7 million and $12.0
million, respectively. Charges were higher in 2003
13
primarily because ongoing lease obligations were recorded for several of the 14
stores (excluding discontinued operations) closed during 2003 while the six
stores (excluding discontinued operations) closed in 2004 had minimal lease
termination and severance costs.
Pre-opening expenses for the seven stores opened in 2004 amounted to $1.4
million and for the 12 stores opened in 2003, amounted to $1.8 million.
Income from operations for the year ended January 29, 2005 was $61.1 million
compared to $8.1 million for 2003. Approximately $19.9 million of this earnings
improvement is the result of reducing the effect of operating losses of stores
closed during 2003 and 2004 and the remainder is due to improved operating
results of ongoing stores.
Interest expense was $39,000 and $1.7 million for 2004 and 2003, respectively.
As a result of increased sales, decreased inventories and ongoing expense
control, the Company only had borrowings on its revolving credit agreement
during the first quarter of 2004. The Company earned interest income of $371,000
on its cash and short-term investments during 2004. There was no interest income
or short-term investments in 2003.
Year Ended January 31, 2004 Compared to Year Ended February 1, 2003
The 3.3% total sales decrease for the year ended January 31, 2004 from the prior
year reflects a 4.7% decrease in sales from comparable stores, the opening of 12
new stores which contributed $38.2 million to net sales, and the closing of 16
stores. In recent years, as a marketing vehicle to attract new customers, the
Company used various coupons that allowed customers to take a specified
percentage discount off of full-priced merchandise. As this practice escalated,
it became apparent that these coupons did not support the Company's unique
selling proposition. As a result, the Company discontinued these `percentage off
full price' coupons in July 2003. While such coupons may continue to be used on
a limited basis in new markets and specific circumstances, the widespread
distribution of full-price, percentage off coupons has ceased. As anticipated,
the discontinuation of these customer traffic incentives hindered 2003 sales
growth. However, discounts that had previously been devoted to these coupon
incentives were used to clear seasonal goods more efficiently and create
additional freshness in the inventory.
Gross profit for the year ended January 31, 2004 was $338.4 million or 25.0
percent of net sales, a 0.3 percentage point increase over gross profit of
$344.7 million or 24.7 percent of net sales for the year ended February 1, 2003.
Mark-up improved 2.1 percentage points over last year, but was offset by a 1.6
percentage point increase in markdowns and a 0.5 percentage point increase due
to lack of occupancy leverage. Markdowns in the stores that were going out of
business accounted for almost half of the markdown impact. Gross profit also
includes a $1.6 million inventory charge to reduce merchandise inventories to
the lower of cost or market value in the six stores planned for closing in
Spring 2004. Lastly, gross profit was favorably impacted by a 0.3 percentage
point improvement in shrinkage from last year as a result of a restructured loss
prevention organization and enhanced systems.
SG&A expenses were $343.4 million or 25.4 percent of net sales for the year
ended January 31, 2004, a $21.0 million increase over SG&A expenses of $322.1
million or 23.0 percent of net sales for 2002. Included in SG&A expenses for
fiscal 2003 and 2002 are store closing and asset impairment charges of $12.0
million and $2.5 million, respectively. The increase in these charges accounted
for approximately one-third of the 2.4 percentage point increase in SG&A
expenses as a percent of sales. SG&A expenses increased 0.5 percent of net sales
due to an increase in expenses related to the new advertising campaign and the
remaining increase is due to a lack of leverage resulting from the 4.7% decrease
in comparable store sales for fiscal year 2003.
Pre-opening expenses for the 12 stores opened in 2003 amounted to $1.8 million
and for the 16 stores opened in 2002, amounted to $3.1 million.
Income from operations was $8.1 million or 0.6 percent of net sales for 2003 and
$36.5 million or 2.6 percent of net sales for 2002. The decrease in income from
continuing operations is due to the overall reduction in net sales, as well as
increased operating losses from the stores closed in 2003 and 2002 and other
changes discussed above.
14
Other income, primarily from in-store leased shoe departments, was $13.0 million
in 2003, a slight decrease from the $13.8 million in 2002, but remained at 1.0%
of sales. An improvement in the shoe business was offset by the elimination of
fragrance as a leased department in May 2003.
Interest expense for 2003 was $1.7 million, compared to $2.6 million in 2002.
The decrease resulted from lower average borrowings at lower interest rates this
year compared to last year.
Liquidity and Capital Resources
The Company's primary source of liquidity is the sale of its merchandise
inventories. Capital requirements and working capital needs are funded through a
combination of internally generated funds, a revolving credit facility and
credit terms from vendors. Working capital is needed to support store
inventories and capital investments for new store openings and to maintain
existing stores. Historically, the Company's working capital needs are lowest in
the first quarter and highest in either the third or fourth quarter in
anticipation of the fourth quarter peak selling season. As of January 29, 2005,
the Company had $20.2 million in cash and cash equivalents and $72.5 million in
short-term investments.
Net cash provided by operating activities was $116.0 million in 2004 and $30.4
million in 2003. The increase in 2004 is primarily attributable to an increase
in net income including non-cash items, increases in accounts payable, accrued
liabilities and income taxes payable, and a decrease in inventories. Accounts
payable increased while total inventories decreased from the prior year-end
reflecting more current purchases and improved turnover of inventories. On an
average store basis, inventories were reduced 2.2% from the prior year due to
increased sales resulting from the Company's continued focus on marketing, sales
promotion and clearance strategies.
Cash used in investing activities was $91.5 million in 2004 and $13.9 million in
2003. The additional cash provided by operations enabled the Company to invest
in short-term investments during 2004. Capital expenditures, primarily for the
acquisition of store fixtures, equipment and leasehold improvements and
information system enhancements, were $19.1 million and $13.9 million for 2004
and 2003, respectively. Capital expenditures were higher in 2004 compared to
2003 due to enhancements to the point of sale and merchandising systems and
remodeling costs for several existing stores.
Cash used in financing activities was $16.2 million in 2004 and $14.4 million in
2003. The Company eliminated borrowings under its revolving credit agreement
during the first quarter 2004. During 2003, cash was used to repurchase 50,000
shares of the Company's common stock for $0.2 million. As of January 29, 2005,
there are 1,994,200 shares which can be repurchased pursuant to the Board of
Directors current authorizations.
The Company plans to open 15 new stores in 2005. The cost of opening a typical
new store generally ranges from $500,000 to $700,000 for fixtures, equipment,
leasehold improvements and pre-opening costs (primarily advertising, stocking
and training). Pre-opening costs are expensed at the time of opening. Initial
inventory investment for a new store is approximately $1.0 million. The
Company's total capital expenditures for 2005 (including amounts budgeted for
new store expansion, improvements to existing stores and information system
enhancements) are anticipated to be approximately $25 million.
The Company has a revolving credit agreement with a group of lenders, with an
initial term ending July 2006. The agreement, which was completed in July 2003,
provides a $150 million senior revolving credit facility. Borrowings are based
on and secured by eligible inventory and certain other assets. At January 29,
2005 there were no direct borrowings under the credit facility and no Event of
Default existed under the terms of the Agreement. At January 31, 2004,
outstanding borrowings were $25.0 million.
The interest rates on borrowings under the Agreement range from Prime to Prime
plus .25% per annum for Prime Rate Loans and LIBOR plus 1.50% to LIBOR plus
2.25% per annum for Eurodollar Rate Loans and are established quarterly, based
on excess availability as defined in the Agreement. An unused line fee of .25%
to .375% per annum (.375% as of January 29, 2005) is charged on the unused
portion of the revolving credit facility, based on excess availability.
15
The Company believes that expected net cash provided by operating activities and
unused borrowing capacity under the revolving credit agreement will be
sufficient to fund anticipated current and long-term capital expenditures and
working capital requirements. Should current operating conditions deteriorate,
management can borrow on the revolving credit agreement or adjust operating
plans, including new store rollout.
Contractual Obligations
To facilitate an understanding of the Company's contractual obligations, the
following payments due by period data is provided:
Less than 1 - 2 3 - 5 After 5
Total 1 Year Years Years Years
------------ ------------ ------------ ------------ ------------
Operating leases $386,510 $64,108 $59,715 $143,612 $119,075
============ ============ ============ ============ ============
At January 29, 2005, the Company had no direct borrowings on its credit
facility. Other long-term liabilities on the balance sheet include deferred
income taxes, deferred compensation and other long-term liabilities that do not
have specific due dates, so are excluded from the preceding table. Other
long-term liabilities also include long-term store closing reserves, a component
of which is future minimum payments under non-cancelable leases for closed
stores. These future minimum lease payments total $17.1 million and are included
in the above table.
Off-Balance Sheet Arrangements
The Company has outstanding standby letters of credit totaling $5.3 million
securing certain insurance programs at January 29, 2005. If certain conditions
occurred under these arrangements, the Company would be required to satisfy the
obligations in cash. Due to the nature of these arrangements and based on
historical experience, the Company does not expect to make any payments;
therefore, the letters of credit are excluded from the preceding table. There
are no other off-balance sheet arrangements that could affect the financial
condition of the Company.
Seasonality
The Company's business is seasonal in nature with a higher percentage of the
Company's merchandise sales and earnings generated in the fall and holiday
selling seasons. Accordingly, selling, general and administrative expenses are
typically higher as a percent of net sales during the first three quarters of
each year.
Critical Accounting Policies
The preparation of the Company's consolidated financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, expenses and related disclosure of contingent assets and
liabilities. Management bases its estimates and judgments on historical
experience and other relevant factors, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. While the Company believes that the
historical experience and other factors considered provide a meaningful basis
for the accounting policies applied in the preparation of the financial
statements, the Company cannot guarantee that its estimates and assumptions will
be accurate, which could require the Company to make adjustments to these
estimates in future periods. Following is a summary of the more significant
accounting policies:
Inventories
Merchandise inventories are valued at the lower of average cost or market, on a
first-in first-out basis, using the retail inventory method (RIM). RIM is an
averaging method that is widely used in the retail industry. The use of RIM
results in inventories being valued at the lower of cost or market as markdowns
are taken as a reduction of the retail values of inventories.
Based on a review of historical markdowns, current business trends and seasonal
inventory categories, additional inventory reserves may be recorded to reflect
estimated markdowns which may be required to liquidate certain inventories and
reduce inventories to the lower of cost or market. Management believes its
inventory valuation methods approximate the net realizable value of clearance
inventory and result in valuing inventory at the lower of cost or market.
16
Long-Lived Assets
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. Factors used in the review include management's plans for future
operations, recent operating results and projected cash flows. For long-lived
assets held for use, an impairment loss is recognized if the sum of the future
undiscounted cash flows from the use of the assets is less than the carrying
value of the assets. The amount of the impairment charge is the excess of the
carrying value of the assets over its fair value. Fair value is based on
estimated market values for similar assets.
Store Closing Costs
The Company follows SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities," to record store closing costs. SFAS No. 146 requires the
recognition of costs associated with exit or disposal activities when they are
incurred rather than at the date of commitment to an exit or disposal plan.
Insurance Reserve Estimates
The Company uses a combination of insurance and self-insurance for various risks
including workers' compensation, general liability and associate-related health
care benefits, a portion of which is paid by the covered employees. The Company
is responsible for paying the claims that are less than the insured limits. The
reserves recorded for these claims are estimated actuarially, based on claims
filed and claims incurred but not reported. These reserve estimates are adjusted
based upon actual claims filed and settled. The estimated accruals for these
reserves could be significantly affected if future claims differ from historical
trends and other actuarial assumptions.
Revenue Recognition
Revenue from sales of the Company's merchandise is recognized at the time of
sale, net of any returns and allowances, discounts and percentage-off coupons.
Future merchandise returns are estimated based on historical experience. Leased
department sales are excluded from net sales; commissions, net of related
selling expenses, and rental income from leased departments are included in
other income, net.
Operating Leases
The Company leases retail stores under operating leases. Certain lease
agreements contain rent holidays, rent escalation clauses and/or contingent rent
provisions. The Company recognizes rent expense on a straight-line basis over
the expected lease term and records the difference between the amounts charged
to expense and the rent paid as a deferred rent liability.
The landlord/lessor constructs the building leasehold improvements for the
majority of the Company's stores. For other store operating leases which require
the Company/lessee to construct the building leasehold improvements, these
assets are considered to be landlord assets and the Company records the cost of
these leasehold improvements in excess of any landlord construction allowance
received as prepaid rent which is amortized to rent expense over the lease term.
For a complete listing of our significant accounting policies, see Note 1 to the
consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate risk primarily through borrowings under
its revolving credit facility. The facility permits debt commitments up to
$150.0 million, has a July 2006 maturity date and bears interest at spreads over
the prime rate and LIBOR. The Company eliminated borrowings under its credit
facility during the first quarter of 2004 and, at January 29, 2005, had no
direct borrowings on its credit facility. The average outstanding borrowings
during fiscal 2003 and 2002 were $50.0 million and $66.0 million at
weighted-average interest rates of 3.4% and 3.9%. Management believes that its
exposure to market risk associated with its borrowings is not material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and the Report of
Independent Registered Certified Public Accounting Firm thereon are filed
pursuant to this Item 8 and are included in this report beginning on page F-1.
17
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. DISCLOSURE CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures and Changes in Internal Control
The Company, under the supervision and with the participation of the Company's
management, including the Chief Executive Officer and Chief Financial Officer,
has carried out an evaluation of the effectiveness of the design and operation
of the Company's disclosure controls and procedures, as defined in Rule
13a-15(e) under the Securities Exchange Act of 1934, as amended, as of the end
of the period covered by this report. Based on this evaluation, the Company's
Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures were effective to provide reasonable
assurance that material information required to be disclosed in periodic reports
filed with the Securities Exchange Commission was recorded, processed,
summarized and reported within the time periods specified in the Securities
Exchange Commissions rules and forms.
There were no significant changes in the Company's internal control over
financial reporting during the last fiscal quarter that has materially affected,
or are reasonably likely to materially affect the Company's internal control
over financial reporting.
Management's Report on Internal Control Over Financial Reporting
The Company's management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is defined in
Exchange Act Rule 13a-15(f). The Company's internal control over financial
reporting was 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.
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.
Management assessed the effectiveness of the Company's internal control over
financial reporting as of January 29, 2005. In making this assessment,
management used the criteria set forth in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on that assessment, management concluded that the Company's internal
control over financial reporting was effective as of January 29, 2005.
Management's assessment of the effectiveness of the Company's internal control
over financial reporting as of January 29, 2005 has been audited by
PricewaterhouseCoopers LLP, an independent registered certified public
accounting firm, as stated in their report which is included on page F-1 herein.
ITEM 9B. OTHER INFORMATION
The Company did not file a report on Form 8-K during the quarter ended January
29, 2005.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item appears under the captions "Section 16(a)
Beneficial Ownership Reporting Compliance", "Election of Directors" and
"Executive Officers" in the Company's Proxy Statement for its 2005 Annual
Meeting of Stockholders and is incorporated by reference.
The Company has adopted a code of ethics applicable to all of the Company's
officers, directors and employees, including the Company's principal executive
officer, principal financial officer, principal accounting officer and persons
performing similar functions. The text of this code of ethics may be found on
our web site at
18
www.steinmart.com. The Company intends to post notice of any
waiver from, or amendment to, any provision of our code of ethics on our web
site.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item appears under the caption "Executive
Compensation" and "Certain Transactions; Compensation Committee Interlocks and
Insider Participation" in the Company's Proxy Statement for its 2005 Annual
Meeting of Stockholders and is incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The information required by this item appears under the caption "Voting
Securities" in the Company's Proxy Statement for its 2005 Annual Meeting of
Stockholders and is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item appears under the caption "Certain
Transactions; Compensation Committee Interlocks and Insider Participation" in
the Company's Proxy Statement for its 2005 Annual Meeting of Stockholders and is
incorporated by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item appears under the caption "Independent
Certified Public Accountants" in the Company's Proxy Statement for its 2005
Annual Meeting of Stockholders and is incorporated by reference.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
15(a)(1) Consolidated Financial Statements
The documents listed below are filed as part of this Form 10-K:
Page in
Form 10-K
---------
Report of Independent Registered Certified Public Accounting Firm F-1
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
15(a)(2) Financial Statement Schedules
All schedules are omitted because they are not applicable or the required
information is presented in the financial statements or notes thereto.
15(a)(3) Exhibits
See Index to Exhibits which begins on Page E-1.
19
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.
STEIN MART, INC.
Date: April 13, 2005 By: /s/ Michael D. Fisher
--------------------------------------
Michael D. Fisher, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities indicated on the 13th day of April, 2005.
/s/ Jay Stein /s/ Linda McFarland Farthing
- ------------------------------------- --------------------------------------
Jay Stein Linda McFarland Farthing
Chairman of the Board Director
/s/ John H. Williams, Jr. /s/ Mitchell W. Legler
- ------------------------------------- --------------------------------------
John H. Williams, Jr. Mitchell W. Legler
Vice Chairman Director
/s/ Michael D. Fisher /s/ Michael D. Rose
- ------------------------------------- --------------------------------------
Michael D. Fisher Michael D. Rose
President and Chief Executive Officer Director
/s/ James G. Delfs /s/ Richard L. Sisisky
- ------------------------------------- --------------------------------------
James G. Delfs Richard L. Sisisky
Senior Vice President and Chief Director
Financial Officer
/s/ Clayton E. Roberson, Jr. /s/ Martin E. Stein, Jr.
- ------------------------------------- --------------------------------------
Clayton E. Roberson, Jr. Martin E. Stein, Jr.
Vice President and Controller Director
/s/ Alvin R. Carpenter /s/ J. Wayne Weaver
- ------------------------------------- --------------------------------------
Alvin R. Carpenter J. Wayne Weaver
Director Director
/s/ James H. Winston
--------------------------------------
James H. Winston
Director
20
Report of Independent Registered Certified Public Accounting Firm
To the Board of Directors
and Stockholders of Stein Mart, Inc.
We have completed an integrated audit of Stein Mart, Inc.'s January 29, 2005
consolidated financial statements and of its internal control over financial
reporting as of January 29, 2005 and audits of its January 31, 2004 and February
1, 2003 consolidated financial statements in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Our opinions,
based on our audits, are presented below.
Consolidated financial statements
- ---------------------------------
In our opinion, the consolidated financial statements listed in the index
appearing under Item 15(a)(1) present fairly, in all material respects, the
financial position of Stein Mart, Inc. and its subsidiary at January 29, 2005
and January 31, 2004, and the results of their operations and their cash flows
for each of the three years in the period ended January 29, 2005 in conformity
with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit of financial statements 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, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
Internal control over financial reporting
- -----------------------------------------
Also, in our opinion, management's assessment, included in Management's Report
on Internal Controls over Financial Reporting appearing under Item 9A, that the
Company maintained effective internal control over financial reporting as of
January 29, 2005 based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), is fairly stated, in all material respects, based on those
criteria. Furthermore, in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of January 29,
2005, based on criteria established in Internal Control - Integrated Framework
issued by the COSO. The Company'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. Our
responsibility is to express opinions on management's assessment and on the
effectiveness of the Company's internal control over financial reporting based
on our audit. We conducted our audit of internal control over financial
reporting 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. An audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial reporting,
evaluating management's assessment, testing and evaluating the design and
operating effectiveness of internal control, and performing such other
procedures as we consider necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinions.
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 (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii)
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 (iii) 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
F-1
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.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
Jacksonville, Florida
April 8, 2005
F-2
Stein Mart, Inc.
Consolidated Balance Sheets
(In thousands)
January 29, January 31,
2005 2004
-------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 20,250 $ 11,965
Short-term investments 72,475 -
Trade and other receivables 5,852 4,227
Inventories 277,164 283,379
Prepaid expenses and other current assets 13,010 13,528
-------------- --------------
Total current assets 388,751 313,099
Property and equipment, net 71,048 70,811
Other assets 14,781 15,191
-------------- --------------
Total assets $474,580 $399,101
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 99,163 $ 65,118
Accrued liabilities 73,257 61,182
Income taxes payable 5,089 -
-------------- --------------
Total current liabilities 177,509 126,300
Notes payable to banks - 24,962
Other liabilities 20,561 20,161
-------------- --------------
Total liabilities 198,070 171,423
COMMITMENTS AND CONTINGENCIES (Note 8)
Stockholders' equity:
Preferred stock - $.01 par value; 1,000,000 shares
authorized; no shares issued or outstanding
Common stock - $.01 par value; 100,000,000 shares
authorized; 42,880,031 and 41,993,529 shares issued
and outstanding, respectively 429 420
Paid-in capital 14,340 3,196
Unearned compensation (603) (309)
Retained earnings 262,344 224,371
-------------- --------------
Total stockholders' equity 276,510 227,678
-------------- --------------
Total liabilities and stockholders' equity $474,580 $399,101
============== ==============
The accompanying notes are an integral part of these consolidated financial statements.
F-3
Stein Mart, Inc.
Consolidated Statements of Operations
(In thousands except per share amounts)
For The 52 Weeks Ended
------------------------------------------------
January 29, January 31, February 1,
2005 2004 2003
-------------- -------------- --------------
Net sales $1,459,607 $1,351,623 $1,397,851
Cost of merchandise sold 1,070,803 1,013,175 1,053,109
-------------- -------------- --------------
Gross profit 388,804 338,448 344,742
Selling, general and administrative expenses 341,932 343,354 322,115
Other income, net 14,277 13,004 13,825
-------------- -------------- --------------
Income from operations 61,149 8,098 36,452
Interest income 371 - -
Interest expense 39 1,688 2,604
-------------- -------------- --------------
Income from continuing operations before income taxes 61,481 6,410 33,848
Provision for income taxes 23,363 2,436 12,862
-------------- -------------- --------------
Income from continuing operations 38,118 3,974 20,986
Loss from discontinued operations, net of tax benefit (145) (1,773) (296)
-------------- -------------- --------------
Net income $ 37,973 $ 2,201 $ 20,690
============== ============== ==============
Basic income (loss) per share:
Continuing operations $0.90 $0.09 $0.51
Discontinued operations - (0.04) (0.01)
-------------- -------------- --------------
Total $0.90 $0.05 $0.50
============== ============== ==============
Diluted income (loss) per share:
Continuing operations $0.89 $0.09 $0.51
Discontinued operations - (0.04) (0.01)
-------------- -------------- --------------
Total $0.89 $0.05 $0.50
============== ============== ==============
Weighted-average shares outstanding - Basic 42,268 41,649 41,575
============== ============== ==============
Weighted-average shares outstanding - Diluted 42,786 41,701 41,764
============== ============== ==============
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Stein Mart, Inc.
Consolidated Statements of Stockholders' Equity
(In thousands)
Total
Common Paid-in Unearned Retained Stockholders'
Stock Capital Compensation Earnings Equity
-------------- -------------- -------------- -------------- --------------
Balance at February 2, 2002 $415 $ - $- $201,480 $201,895
Net income 20,690 20,690
Common shares issued under
stock option plan and related
income tax benefits 2 1,193 1,195
Common shares issued under
employee stock purchase plan 1 1,027 1,028
Reacquired shares (2) (1,499) (1,501)
-------------- -------------- -------------- -------------- --------------
Balance at February 1, 2003 416 721 - 222,170 223,307
Net income 2,201 2,201
Common shares issued under
stock option plan and related
income tax benefits 2 1,433 1,435
Common shares issued under
employee stock purchase plan 2 908 910
Reacquired shares (212) (212)
Restricted stock compensation 346 (309) 37
-------------- -------------- -------------- -------------- --------------
Balance at January 31, 2004 420 3,196 (309) 224,371 227,678
Net income 37,973 37,973
Common shares issued under
stock option plan and related
income tax benefits 8 9,785 9,793
Common shares issued under
employee stock purchase plan 1 951 952
Restricted stock compensation 408 (294) 114
-------------- -------------- -------------- -------------- --------------
Balance at January 29, 2005 $429 $14,340 $(603) $262,344 $276,510
============== ============== ============== ============== ==============
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Stein Mart, Inc.
Consolidated Statements of Cash Flows
(In thousands)
For The 52 Weeks Ended
------------------------------------------------
January 29, January 31, February 1,
2005 2004 2003
-------------- -------------- --------------
Cash flows from operating activities:
Net income $37,973 $ 2,201 $20,690
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 18,018 19,543 18,770
Impairment of property and other assets 2,103 3,881 2,709
Store closing charges 1,382 5,883 113
Deferred income taxes 57 (1,734) 9,193
Restricted stock compensation 114 37 -
Tax benefit from exercise of stock options 1,938 164 385
Changes in assets and liabilities:
Trade and other receivables (1,625) 692 282
Inventories 6,215 13,851 (1,072)
Prepaid expenses and other current assets 603 (2,408) 761
Other assets (109) (2,483) (2,328)
Accounts payable 34,045 (11,179) (23,203)
Accrued liabilities 12,145 4,499 7,601
Income taxes payable 5,089 (5,353) 1,282
Other liabilities (1,967) 2,784 (1,230)
-------------- -------------- --------------
Net cash provided by operating activities 115,981 30,378 33,953
-------------- -------------- --------------
Cash flows from investing activities:
Capital expenditures (19,066) (13,853) (18,307)
Purchases of short-term investments (912,525) - -
Sales of short-term investments 840,050 - -
-------------- -------------- --------------
Net cash used in investing activities (91,541) (13,853) (18,307)
-------------- -------------- --------------
Cash flows from financing activities:
Net payments under notes payable to banks (24,962) (16,388) (16,400)
Proceeds from exercise of stock options 7,855 1,271 810
Proceeds from employee stock purchase plan 952 910 1,028
Purchase of common stock - (212) (1,501)
-------------- -------------- --------------
Net cash used in financing activities (16,155) (14,419) (16,063)
-------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents 8,285 2,106 (417)
Cash and cash equivalents at beginning of year 11,965 9,859 10,276
-------------- -------------- --------------
Cash and cash equivalents at end of year $20,250 $11,965 $ 9,859
============== ============== ==============
Supplemental disclosures of cash flow information:
Interest paid $ 63 $ 1,702 $ 2,567
Income taxes paid 17,154 7,723 2,392
The accompanying notes are an integral part of these consolidated financial statements.
F-6
STEIN MART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 29, 2005
(Dollars in tables in thousands except per share amounts)
1. Summary of Significant Accounting Policies and Other Information
As of January 29, 2005 the Company operated a chain of 261 off-price retail
stores in 30 states and the District of Columbia that feature women's, men's and
young children's apparel, as well as accessories, gifts, linens and shoes.
Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary. All inter-company accounts have been eliminated in
consolidation.
Fiscal Year End
The Company's fiscal year ends on the Saturday closest to January 31. Results
for 2004, 2003 and 2002 are for the 52 weeks ended January 29, 2005, January 31,
2004 and February 1, 2003, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles 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.
Actual results could differ from those estimates.
Cash Equivalents
Cash equivalents include money market funds and are stated at cost, which
approximates fair value.
Short-Term Investments
Short-term investments include investment grade variable-rate debt obligations
and are classified as available-for-sale securities. These securities are
recorded at cost, which approximates fair value due to their variable interest
rates, which reset every 7-35 days. Despite the long-term nature of their stated
contractual maturities, the Company has the ability to quickly liquidate these
securities. As a result of the resetting variable rates, there are no cumulative
gross unrealized or realized holding gains or losses from these investments. All
income generated from these investments is recorded as interest income.
Inventories
Merchandise inventories are valued at the lower of average cost or market, on a
first-in first-out basis, using the retail inventory method (RIM). RIM is an
averaging method that is widely used in the retail industry. The use of RIM
results in inventories being valued at the lower of cost or market as markdowns
are taken as a reduction of the retail values of inventories.
Based on a review of historical markdowns, current business trends and seasonal
inventory categories, additional inventory reserves may be recorded to reflect
estimated markdowns which may be required to liquidate certain inventories and
reduce inventories to the lower of cost or market. Management believes its
inventory valuation methods approximate the net realizable value of clearance
inventory and result in valuing inventory at the lower of cost or market.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method over
estimated useful lives of 3-10 years for furniture, fixtures and equipment and
5-15 years for leasehold improvements. Leasehold improvements are amortized over
the shorter of the estimated useful lives of the improvements or the term of the
lease.
Impairment of Long-Lived Assets
The Company follows Statement of Financial Accounting Standards ("SFAS") No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which
requires impairment losses to be recorded on long-lived assets used in
operations whenever events or changes in circumstances indicate that the net
carrying amounts may not be recoverable. For long-lived assets held for use, an
impairment loss is recognized if the sum of the future undiscounted cash flows
from the use of the assets is less than the carrying value of the assets. The
amount of the impairment is the excess of the
F-7
STEIN MART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
carrying value of the asset over its fair value. Fair value is based on
estimated market values of similar assets. Impairment reviews are performed for
individual stores. Factors used in the review include management's plans for
future operations, recent operating results and projected cash flows.
Store Closing Costs
The Company follows SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities," to record store closing costs. SFAS No. 146 requires the
recognition of costs associated with exit or disposal activities when they are
incurred rather than at the date of commitment to an exit or disposal plan.
Insurance Reserves
The Company uses a combination of insurance and self-insurance for various risks
including workers' compensation, general liability and associate-related health
care benefits. Claim liabilities are estimated actuarially, based on claims
filed and claims incurred but not reported.
Store Pre-Opening Costs
Costs incurred prior to the date that new stores open are expensed as incurred.
Comprehensive Income
Net income for all years presented is the same as comprehensive income.
Revenue Recognition
Revenue from sales of the Company's merchandise is recognized at the time of
sale, net of any returns and allowances, discounts and percentage-off coupons.
Future merchandise returns are estimated based on historical experience. Leased
department sales are excluded from net sales; commissions, net of related
selling expenses, and rental income from leased departments are included in
other income, net.
Operating Leases
The Company leases retail stores under operating leases. Certain lease
agreements contain rent holidays, rent escalation clauses and/or contingent rent
provisions. The Company recognizes rent expense on a straight-line basis over
the expected lease term and records the difference between the amounts charged
to expense and the rent paid as a deferred rent liability.
The landlord/lessor constructs the building leasehold improvements for the
majority of the Company's stores. For other store operating leases which require
the Company/lessee to construct the building leasehold improvements, these
assets are considered to be landlord assets and the Company records the cost of
these leasehold improvements in excess of any landlord construction allowance
received as prepaid rent which is amortized to rent expense over the lease term.
Advertising Expense
Advertising costs are expensed as incurred. Advertising expenses of $52.2
million, $57.2 million and $51.5 million are reflected in selling, general and
administrative expenses in the Consolidated Statements of Operations for 2004,
2003 and 2002, respectively.
Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Earnings Per Share
Basic earnings per share is computed by dividing net income by the
weighted-average number of common shares outstanding for the period. Diluted
earnings per share is computed by dividing net income by the weighted-average
number of common shares outstanding plus common stock equivalents related to
stock options for each period.
F-8
STEIN MART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of weighted-average number of common shares to weighted-average
number of common shares plus common stock equivalents is as follows (000's):
2004 2003 2002
-------- -------- --------
Weighted-average number of common shares 42,268 41,649 41,575
Stock options 518 52 189
-------- -------- --------
Weighted-average number of common
shares plus common stock equivalents 42,786 41,701 41,764
======== ======== ========
Statements of Operations Classifications
Cost of merchandise sold includes merchandise costs, net of vendor discounts and
allowances; freight; inventory shrinkage; store occupancy costs (including rent,
common area maintenance, real estate taxes, utilities and maintenance); payroll,
benefits and travel costs directly associated with buying inventory; and costs
of operating the distribution warehouse.
Selling, general and administrative expenses include store operating expenses,
such as payroll and benefit costs, advertising, store supplies, depreciation and
other direct selling costs, and costs associated with the Company's corporate
functions.
Reclassifications
Certain reclassifications have been made in prior years' financial statements to
conform to classifications used in the current year.
Stock-Based Compensation
The Company currently follows the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation", as amended by SFAS No. 148.
Accordingly, no compensation cost has been recognized for the Company's stock
option plans. Restricted stock awards issued by the Company are accounted for in
accordance with Accounting Principles Board Opinion ("APB") No. 25, "Accounting
for Stock Issued to Employees". The employee compensation cost is included in
net income, as reported, throughout the vesting period. Had compensation cost of
the Company's stock-based plans been determined consistent with the provisions
of SFAS No. 123, the Company's net income and earnings per share would have been
changed to the following pro forma amounts (in thousands except per share
amounts):
2004 2003 2002
-------------- -------------- --------------
Net income - as reported $37,973 $2,201 $20,690
Add: Restricted stock-based employee
compensation expense included in reported
net income, net of related tax effects 71 23 -
Deduct: Total stock-based employee
compensation expense determined under the
fair value based method for all awards, net of
related tax effects (1,055) (1,209) (1,741)
-------------- -------------- --------------
Net income - pro forma $36,989 $1,015 $18,949
============== ============== ==============
Basic earnings per share - as reported $0.90 $0.05 $0.50
Diluted earnings per share - as reported $0.89 $0.05 $0.50
Basic earnings per share - pro forma $0.88 $0.02 $0.46
Diluted earnings per share - pro forma $0.86 $0.02 $0.45
F-9
STEIN MART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The effects of applying SFAS No. 123 for pro forma disclosures are not likely to
be representative of the effects on reported net income for future years,
because options vest over several years and additional awards are made each
year. In determining the pro forma compensation cost, the weighted-average fair
value of options granted during fiscal 2004, 2003 and 2002 was estimated to be
$8, $3 and $5, respectively, using the Black-Scholes options pricing model. The
following weighted-average assumptions were used for grants made during 2004,
2003 and 2002: dividend yield of 0.0%, expected volatility of 51.4%, 51.8% and
51.9%, respectively, risk-free interest rate of 3.5%, 3.0% and 3.8%,
respectively and expected lives of 5.0 years.
In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment", which
revises SFAS No. 123 and supersedes APB Opinion No. 25. This Statement focuses
primarily on accounting for transactions in which an entity obtains employee
services in share-based payment transactions. This Statement requires an entity
to recognize the cost of employee services received in share-based payment
transactions and measure the cost on a grant-date fair value of the award. That
cost will be recognized over the period during which an employee is required to
provide service in exchange for the award. The provisions of SFAS No. 123R will
be effective for the Company's financial statements issued for periods beginning
after June 15, 2005. The Company is evaluating the requirements of SFAS No. 123R
and has not yet determined the method of adoption or the effect of adopting SFAS
No. 123R, nor has the Company determined whether the adoption will result in
amounts that are similar to the current pro forma disclosures under SFAS No.
123.
2. Discontinued Operations
Two of the stores closed during 2003 and one store closed during 2004 resulted
in the exit from certain markets. SFAS No. 144 requires closed stores to be
classified as discontinued operations when the operations and cash flows of the
stores have been eliminated from ongoing operations. To determine if cash flows
have been eliminated from ongoing operations, management evaluated a number of
factors, including: proximity to a remaining store, physical location within a
metropolitan or non-metropolitan area and transferability of sales between open
and closed locations. Based on these criteria, management determined that these
three closed stores should be accounted for as discontinued operations. The
prior years' operating activities for these stores have also been reclassified
to "Loss from discontinued operations" in the accompanying Consolidated
Statements of Operations.
Discontinued operations generated sales of $0.9 million, $10.0 million and $10.8
million, in 2004, 2003 and 2002, respectively. Loss from discontinued operations
includes the following components:
2004 2003 2002
-------------- -------------- --------------
Loss from operations $(234) $(2,860) $(477)
Income tax benefit 89 1,087 181
-------------- -------------- --------------
Loss from discontinued operations, net of tax benefit $(145) $(1,773) $(296)
============== ============== ==============
See Notes 3 and 4 for a description of store closing costs and asset impairment
charges included in loss from discontinued operations for 2003 and 2004.
3. Store Closing Charges
The Company plans to close eight stores during 2005. A $1.5 million inventory
charge was recorded in 2004 to reduce merchandise inventories in five of these
stores closing in Spring 2005 to their estimated realizable value. Lease
termination fees of $1.0 million were also paid and expensed during 2004 related
to 2005 store closings. The estimated remaining charges that will be recorded in
2005 are approximately $1.2 million for lease termination costs and severance
charges.
The Company closed seven stores during 2004, incurring pre-tax charges of $1.1
million for lease termination costs and $0.7 million for severance costs. The
Company closed 16 under-performing stores during 2003 incurring pre-tax charges
of $6.7 million for lease termination costs and $0.9 million for severance
costs. During 2004, the Company recorded a $0.9 million pre-tax charge to adjust
estimated sublease income for four locations closed in 2003 and an early lease
termination for one other location. Lease termination costs are net of estimated
sublease income that could reasonably be
F-10
STEIN MART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
obtained for the properties. In the event the Company is not successful in
subleasing closed store locations when management expects, additional reserves
for store closing costs may be recorded. Store closing charges are included in
selling, general and administrative expenses in the Consolidated Statements of
Operations, except for $154,000 in 2004 and $320,000 in 2003 which are included
in loss from discontinued operations, net of tax benefits.
The following tables show the activity in the store closing reserve:
Jan. 31, Jan. 29,
2004 Charges Payments 2005
-------------- -------------- -------------- --------------
Continuing operations:
Lease termination costs $8,780 $1,991 $3,873 $6,898
Severance 131 647 647 131
Other 105 - 105 -
-------------- -------------- -------------- --------------
9,016 2,638 4,625 7,029
-------------- -------------- -------------- --------------
Discontinued operations:
Lease termination costs 159 77 236 -
Severance 19 77 96 -
-------------- -------------- -------------- --------------
178 154 332 -
-------------- -------------- -------------- --------------
Total store closing reserve $9,194 $2,792 $4,957 $7,029
============== ============== ============== ==============
Feb. 1, Jan. 31,
2003 Charges Payments 2004
-------------- -------------- -------------- --------------
Continuing operations:
Lease termination costs $4,982 $6,561 $2,763 $8,780
Severance - 723 592 131
Other - 105 - 105
-------------- -------------- -------------- --------------
4,982 7,389 3,355 9,016
-------------- -------------- -------------- --------------
Discontinued operations:
Lease termination costs - 172 13 159
Severance - 148 129 19
-------------- -------------- -------------- --------------
- 320 142 178
-------------- -------------- -------------- --------------
Total store closing reserve $4,982 $7,709 $3,497 $9,194
============== ============== ============== ==============
Feb. 2, Feb. 1,
Continuing operations 2002 Charges Payments 2003
-------------- -------------- -------------- --------------
Lease termination costs $5,680 $ 113 $ 811 $4,982
============== ============== ============== ==============
The store closing reserve at January 29, 2005, January 31, 2004 and February 1,
2003 includes a current portion (in accrued liabilities) of $3.0 million, $2.8
million and $1.5 million, respectively, and a long-term portion (in other
liabilities) of $4.0 million, $6.4 million and $3.5 million, respectively.
F-11
STEIN MART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below sets forth the components of loss from operations for stores
closed during 2004, 2003 and 2002. The 2004 table presents the losses from the
seven stores that closed during 2004; the 2003 table presents the losses from
the seven stores closed during 2004 and the 16 stores that closed in 2003; and
the 2002 table presents the sum of the losses from the seven stores closed
during 2004, the 16 stores closed in 2003 and the four stores closed in 2002.
Operating Results Of Closed Stores Included In:
------------------------------------------------
Continuing Discontinued Total Closed
Year ended January 29, 2005: Operations Operations Stores
- ---------------------------- -------------- -------------- --------------
Sales $ 7,142 $ 942 $ 8,084
Cost of sales 7,174 752 7,926
-------------- -------------- --------------
Gross margin (32) 190 158
Selling, general and administrative expenses 3,615 424 4,039
Other income, net 45 - 45
-------------- -------------- --------------
Loss from operations $(3,602) $(234) $(3,836)
============== ============== ==============
# of stores closed in 2004 6 1 7
============== ============== ==============
Continuing Discontinued Total Closed
Year ended January 31, 2004: Operations Operations Stores
- ---------------------------- -------------- -------------- --------------
Sales $ 49,814 $10,009 $ 59,823
Cost of sales 50,380 9,611 59,991
-------------- -------------- --------------
Gross margin (566) 398 (168)
Selling, general and administrative expenses 23,401 3,327 26,728
Other income, net 446 69 515
-------------- -------------- --------------
Loss from operations $(23,521) $(2,860) $(26,381)
============== ============== ==============
# of stores closed in 2004 and 2003 20 3 23
============== ============== ==============
Continuing Discontinued Total Closed
Year ended February 1, 2003: Operations Operations Stores
- ---------------------------- -------------- -------------- --------------
Sales $77,925 $10,797 $ 88,722
Cost of sales 65,137 8,356 73,493
-------------- -------------- --------------
Gross margin 12,788 2,441 15,229
Selling, general and administrative expenses 23,836 3,046 26,882
Other income, net 1,060 128 1,188
-------------- -------------- --------------
Loss from operations $(9,988) $ (477) $(10,465)
============== ============== ==============
# of stores closed in 2004, 2003 and 2002 24 3 27
============== ============== ==============
4. Impairment of Long-lived Assets
During 2004, the Company recorded a net $1.8 million pre-tax asset impairment
charge to reduce the carrying value of furniture, fixtures, equipment and
leasehold improvements held for use in stores closing during 2005 and certain
other under-performing stores to their respective estimated fair value. This
charge is included in selling, general and administrative expenses in the
Consolidated Statements of Operations for the year ended January 29, 2005.
During 2003, the Company recorded pre-tax asset impairment charges of $1.3
million to reduce the carrying value of furniture, fixtures, equipment and
leasehold improvements held for use in stores closed in 2004 and $2.6 million
related to stores closed in 2003 and other under-performing stores. These
charges are included in selling, general and administrative expenses in the
Consolidated Statements of Operations for the year ended January 31, 2004,
except for $228,000 which is included in loss from discontinued operations, net
of tax benefit.
F-12
STEIN MART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Property and Equipment, Net
Property and equipment and the related accumulated depreciation and amortization
are as follows:
Jan. 29, Jan. 31,
2005 2004
-------------- --------------
Furniture, fixtures and equipment $157,550 $151,100
Leasehold improvements 42,187 36,721
-------------- --------------
199,737 187,821
Accumulated depreciation and amortization 128,689 117,010
-------------- --------------
$ 71,048 $ 70,811
============== ==============
6. Accrued Liabilities
The major components of accrued liabilities are as follows:
Jan. 29, Jan. 31,
2005 2004
-------------- --------------
Compensation and employee benefits $22,892 $14,389
Unredeemed gift and returns cards 17,538 14,434
Property taxes 11,458 10,668
Payroll and other taxes 7,477 6,312
Store closing reserve 3,041 2,827
Other 10,851 12,552
-------------- --------------
$73,257 $61,182
============== ==============
7. Notes Payable to Banks
The Company has a three-year $150 million senior revolving credit agreement (the
"Agreement") with a group of lenders, with an initial term ending July 2006.
Under the terms of the Agreement, the Company has the option to increase the
facility by an additional $25 million and to extend the terms for an additional
year. At January 29, 2005, there were no direct borrowings and no Event of
Default existed under the terms of the Agreement.
Borrowings under the Agreement are based on and secured by eligible inventory
and certain other assets. The Company routinely issues commercial and standby
letters of credit for purposes of securing foreign sourced merchandise and
certain insurance programs. Outstanding letters of credit reduce availability
under the credit agreement. The Company had outstanding commercial and stand-by
letters of credit of $0.5 million and $5.3 million, respectively, at January 29,
2005.
The interest rates on borrowings under the Agreement range from Prime to Prime
plus .25% per annum for Prime Rate Loans and LIBOR plus 1.50% to LIBOR plus
2.25% per annum for Eurodollar Rate Loans and are established quarterly, based
on excess availability as defined in the Agreement. An unused line fee of .25%
to .375% per annum (.375% as of January 29, 2005) is charged on the unused
portion of the revolving credit facility, based on excess availability.
All borrowings bear interest at variable rates that approximate current market
rates and therefore the carrying value of these borrowings approximates fair
value.
F-13
STEIN MART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Leased Facilities and Commitments
The Company leases all of its retail and support facilities. Annual store rent
is generally comprised of a fixed minimum amount plus a contingent amount based
on a percentage of sales exceeding a stipulated amount. Most leases also require
additional payments covering real estate taxes, common area costs and insurance.
Rent expense is as follows:
2004 2003 2002
-------------- -------------- --------------
Minimum rentals $64,010 $64,195 $62,151
Contingent rentals 531 441 678
-------------- -------------- -------------
$64,541 $64,636 $62,829
============== ============== =============
At January 29, 2005, for the majority of its retail and corporate facilities,
the Company was committed under non-cancelable leases with remaining terms of up
to 15 years. Future minimum payments under non-cancelable leases are:
2005 $ 64,108
2006 59,715
2007 54,748
2008 48,904
2009 39,960
Thereafter 119,075
-------------
$386,510
=============
The Company subleases the space for shoe departments in all of its stores. The
Company owns and operates the fragrance department, but subleased that
department through March 2003. Sales from leased departments are excluded from
sales of the Company. Sublease rental income of $12.8 million, $12.1 million and
$12.4 million is included in other income, net in the Consolidated Statements of
Operations for 2004, 2003 and 2002, respectively.
9. Income Taxes
The income tax provision is as follows:
2004 2003 2002
-------------- -------------- --------------
Current:
Federal $21,466 $3,841 $ 3,379
State 1,840 329 290
-------------- -------------- --------------
Total 23,306 4,170 3,669
-------------- -------------- --------------
Deferred:
Federal 52 (1,597) 8,467
State 5 (137) 726
-------------- -------------- --------------
Total 57 (1,734) 9,193
-------------- -------------- --------------
Income tax provision $23,363 $2,436 $12,862
============== ============== ==============
The income tax provision excludes the income tax benefit related to losses from
discontinued operations in the amount of $0.1 million in 2004, $1.1 million in
2003 and $0.2 million in 2002 (see Note 2).
F-14
STEIN MART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income taxes at the federal statutory rate of 35 percent differ from amounts
provided as follows:
2004 2003 2002
-------------- -------------- --------------
Federal tax at the statutory rate $21,519 $2,244 $11,847
State income taxes, net of federal benefit 1,438 329 536
Other, net 406 (137) 479
-------------- -------------- --------------
Total income tax provision $23,363 $2,436 $12,862
============== ============== ==============
Effective tax rate 38.0% 38.0% 38.0%
============== ============== ==============
Temporary differences, which give rise to deferred tax assets and liabilities,
are as follows:
Jan. 29, Jan. 31,
2005 2004
-------------- --------------
Deferred tax assets:
Store closing reserves $ 2,671 $ 3,437
Accrued liabilities 6,141 3,752
NOL carryforward - 684
Other 57 14
-------------- --------------
8,869 7,887
-------------- --------------
Deferred tax liabilities:
Property and equipment 12,384 10,812
Inventory 3,165 2,971
Prepaid items 1,762 2,137
Other assets 1,508 1,860
-------------- --------------
18,819 17,780
-------------- --------------
Net deferred tax liability $(9,950) $(9,893)
============== ==============
Deferred tax assets and liabilities are reflected on the Company's Consolidated
Balance Sheets as follows:
Jan. 29, Jan. 31,
2005 2004
-------------- --------------
Current deferred tax assets (included in
prepaid expenses and other current assets) $ 85 $ -
Current deferred tax liabilities (included in
accrued liabilities) - (668)
Non-current deferred tax liabilities (included
in other liabilities) (10,035) (9,225)
-------------- --------------
Net deferred tax liability $ (9,950) $(9,893)
============== ==============
The exercise of certain stock options which have been granted under the
Company's stock option plans gives rise to compensation which is includable in
the taxable income of the applicable employees and deductible by the Company for
federal and state income tax purposes. Such compensation results from increases
in the market value of the Company's common stock subsequent to the date of
grant of the applicable exercised stock options, and in accordance with APB No.
25, such compensation is not recognized as an expense for financial accounting
purposes and the related tax benefits are recorded directly in paid-in capital.
10. Stockholders' Equity
During 2003 and 2002, the Company repurchased 50,000 and 220,000 shares of its
common stock in the open market at a total cost of $212,000 and $1,501,000,
respectively. As of January 29, 2005, there are 1,994,200 shares which can be
repurchased pursuant to the Board of Directors' current authorizations.
F-15
STEIN MART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Stock Option and Purchase Plans
In 2001, the shareholders approved a stock option plan (the "Omnibus Plan"),
under which a maximum of 4,500,000 shares of the Company's common stock may be
issued. Shares covered by unexercised options that terminate or shares that are
forfeited may be subject to new awards. The Omnibus Plan replaced the Company's
Employee Stock and Director Stock Option Plans (the "Previous Plans") under
which there were 2,301,575 options to purchase shares outstanding as of January
29, 2005. Upon approval of the Omnibus Plan, no further options have been or
will be issued under the Previous Plans. The term of the Omnibus Plan is
indefinite, except that no incentive stock option award can be granted after the
tenth anniversary of the plan.
In 2002, the Compensation Committee of the Board of Directors determined that it
was appropriate to undertake an overall review of the Company's compensation
strategies. As part of this review, it was decided that starting in fiscal 2003
restricted stock awards as provided for in the Omnibus Plan, in addition to
stock options would, be granted. A total of 10,944 shares, 18,200 shares and
72,026 shares were issued to key employees and directors in January 2005, April
2004 and May 2003, respectively, at $18.27, $13.45 and $5.53 per share,
respectively, the market value at date of grant. At January 29, 2005, these
awards, net of forfeitures, aggregated 85,111 shares. Shares awarded under the
plan entitle the shareholder to all rights of common stock ownership except that
the shares may not be sold, transferred, pledged, exchanged or otherwise
disposed of during the restriction period. Vesting occurs either (1) seven years
following the date of grant or at the end of the second fiscal year following
the date of grant, if certain defined Company performance goals are achieved or
(2) at the rate of 33%, 33% and 34%, respectively, at the end of each of the
first three years. Unvested shares are forfeited upon termination of employment.
The Omnibus Plan, consistent with the Previous Plans, provides that shares of
common stock may be granted to certain key employees and outside directors
through non-qualified stock options, incentive stock options, stock appreciation
rights, performance awards, restricted stock, or any other award made under the
terms of the plan. The Board of Directors, or its delegated authority,
determines the exercise price and all other terms of all grants. In general,
one-third of the options granted in the past have become exercisable on the
third, fourth and fifth anniversary dates of grant and expire ten years after
the date of grant. No stock appreciation rights have been granted under this or
the prior plan.
Activity for the fixed-price stock option plans is as follows (shares in
thousands):
Weighted-
Number Average
of Exercise
Shares Price
-------------- --------------
Outstanding at February 2, 2002 4,780 $10.70
Granted 514 10.63
Exercised (166) 4.58
Forfeited (97) 10.49
-------------- --------------
Outstanding at February 1, 2003 5,031 10.90
Granted 303 4.74
Exercised (251) 4.79
Forfeited (727) 9.06
-------------- --------------
Outstanding at January 31, 2004 4,356 11.13
Granted 180 15.24
Exercised (765) 10.11
Forfeited (129) 10.91
-------------- -------------
Outstanding at January 29, 2005 3,642 $11.55
============== =============
Exercisable stock options were 2.248 million, 2.611 million and 2.625 million,
at January 29, 2005, January 31, 2004 and February 1, 2003, respectively.
F-16
STEIN MART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about the weighted-average remaining
contractual life (in years) and the weighted-average exercise prices for
fixed-price stock options outstanding at January 29, 2005 (shares in thousands):
Options Outstanding Options Exercisable
---------------------------------------------------- ---------------------------------
Range of Number Remaining Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- ---------------- --------------- ---------------- --------------- --------------- ---------------
$ 5.00 - 7.00 392 5.6 $ 5.92 186 $ 6.16
$ 7.75 - 10.19 887 6.1 8.41 311 8.60
$10.90 - 13.82 1,854 3.4 13.11 1,409 13.68
$14.25 - 16.62 509 5.1 15.69 342 15.54
--------------- ---------------- --------------- --------------- ---------------
3,642 4.5 $11.55 2,248 $12.64
=============== ================ =============== =============== ===============
The Company has an Employee Stock Purchase Plan (the "Stock Purchase Plan")
whereby all employees who complete six months employment with the Company and
who work on a full-time basis or are regularly scheduled to work more than 20
hours per week are eligible to participate in the Stock Purchase Plan.
Participants in the Stock Purchase Plan are permitted to use their payroll
deductions to acquire shares at 85% of the lower of the fair market value of the
Company's stock determined at either the beginning or the end of each option
period. In 2004, 2003 and 2002, the participants acquired 97,836 shares, 179,902
shares and 173,048 shares of the Company's common stock at weighted-average per
share prices of $9.73, $4.92 and $5.94 per share, respectively.
12. Employee Benefit Plans
The Company has a defined contribution retirement plan covering employees who
are at least 21 years of age, have completed at least one year of service and
who work at least 1,000 hours annually. Under the profit sharing portion of the
plan, the Company can make discretionary contributions which vest at a rate of
20 percent per year after two years of service. The Company matches 50 percent
of the employee's voluntary pre-tax contributions up to a maximum of four
percent of the employee's compensation. The Company's matching portion vests in
accordance with the plan's vesting schedule. Total Company contributions under
the retirement plan were $985,000, $1,044,000 and $1,627,000 for 2004, 2003 and
2002, respectively.
The Company has an executive split dollar life insurance plan wherein eligible
executives are provided with pre-retirement life insurance protection based upon
three to five times base salary. Upon retirement, the executive is provided with
life insurance protection based upon one and one-half to two and one-half times
final base salary. The expense for this plan was $290,000, $229,000 and $331,000
in 2004, 2003 and 2002, respectively.
The Company also has an executive deferral plan providing officers and key
executives with the opportunity to participate in an unfunded, deferred
compensation program. Effective November 1, 2002, the plan was amended to
include director-level employees. Under the program, participants may defer up
to 100% of their base compensation and bonuses earned. The Company will match
the officers' and key executives' contributions 100%, and the director-level
employees' contributions 50%, up to the first 10% of compensation deferred. A
participant's Company matching contributions and related investment earnings are
20% vested after four years of participation in the plan and increase 20% per
year through the eighth year, at which time a participant is fully vested. The
total of participant deferrals and Company matching contributions was $4,051,000
at January 29, 2005, $3,446,000 at January 31, 2004 and $2,286,000 at February
1, 2003 and is included in other liabilities. The expense for this plan was
$1,084,000, $747,000 and $611,000 in 2004, 2003 and 2002, respectively.
In connection with the above two plans, whole life insurance contracts were
purchased on the related participants. At January 29, 2005 and January 31, 2004
the cash surrender value of these policies was $7,160,000 and $5,515,000,
respectively, and is included in other assets.
F-17
STEIN MART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Sales by Major Merchandise Category
The Company is a single business segment as defined by SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information". SFAS No.
131 requires that companies report revenues for each product or group of similar
products. The following table summaries the Company's sales by major merchandise
category:
2004 2003 2002
-------------- -------------- --------------
Ladies' apparel and accessories $ 843,616 $ 743,323 $ 744,410
Men's apparel and accessories 281,730 250,555 250,449
Gifts and linens 260,018 277,150 306,272
Other 74,243 80,595 96,720
-------------- -------------- --------------
Net sales $1,459,607 $1,351,623 $1,397,851
============== ============== ==============
14. Quarterly Results of Operations (Unaudited)
The Company's quarterly operating results have been restated to reflect
discontinued operations (Note 2) for all periods presented.
13 Weeks Ended
-----------------------------------------------------------------
May 1, Jul. 31, Oct. 30, Jan. 29,
Year Ended January 29, 2005 2004 2004 2004 2005
- --------------------------- -----------------------------------------------------------------
Net sales $363,608 $320,624 $330,432 $444,943
Gross profit 98,738 83,920 76,204 129,942
Income (loss) from continuing operations 11,654 5,660 (2,033) 22,837
Loss from discontinued operations (139) (6) - -
Net income (loss) 11,515 5,654 (2,033) 22,837
Basic income (loss) per share:
Continuing operations $ 0.27 $ 0.13 $ (0.05) $ 0.54
Discontinued operations - - - -
-------------- -------------- -------------- --------------
Total $ 0.27 $ 0.13 $ (0.05) $ 0.54
============== ============== ============= ==============
Diluted income (loss) per share:
Continuing operations $ 0.27 $ 0.13 $ (0.05) $ 0.53
Discontinued operations - - - -
-------------- -------------- ------------- --------------
Total $ 0.27 $ 0.13 $ (0.05) $ 0.53
============== ============== ============= ==============
13 Weeks Ended
-----------------------------------------------------------------
May 3, Aug. 2, Nov. 1, Jan. 31,
Year Ended January 31, 2004 2003 2003 2003 2004
- --------------------------- -----------------------------------------------------------------
Net sales $328,201 $300,954 $313,559 $408,909
Gross profit 82,889 70,415 73,088 112,056
Income (loss) from continuing operations 1,671 (2,615) (10,072) 14,990
Loss from discontinued operations (158) (158) (327) (1,130)
Net income (loss) 1,513 (2,773) (10,399) 13,860
Basic income (loss) per share:
Continuing operations $ 0.04 $ (0.06) $ (0.24) $ 0.36
Discontinued operations - (0.01) (0.01) (0.03)
-------------- -------------- -------------- --------------
Total $ 0.04 $ (0.07) $ (0.25) $ 0.33
============== ============== ============== ==============
Diluted income (loss) per share:
Continuing operations $ 0.04 $ (0.06) $ (0.24) $ 0.36
Discontinued operations - (0.01) (0.01) (0.03)
-------------- -------------- -------------- --------------
Total $ 0.04 $ (0.07) $ (0.25) $ 0.33
============== ============== ============== ==============
F-18
STEIN MART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Legal Proceedings
The Company is involved in various routine legal proceedings incidental to the
conduct of its business. Management, based upon the advice of outside legal
counsel, does not believe that any of these legal proceedings will have a
material adverse effect on the Company's financial condition, results of
operations or cash flows.
F-19
INDEX TO EXHIBITS
*3.1 Articles of Incorporation of the Registrant
^3.2 Bylaws of the registrant, amended September 8, 2003
4.1 Provisions of the Articles of Incorporation and Bylaws of the
Registrant defining rights of shareholders of Common Stock of
the Registrant (incorporated by reference to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December
30, 2000)
*4.2 Form of stock certificate for Common Stock
~*10.1 Form of Director's and Officer's Indemnification Agreement
10.2 Loan and Security Agreement dated July 18, 2003, among Stein Mart,
Inc., Wachovia Bank, National Association and Fleet Retail Finance,
Inc. as Co-Arrangers, Congress Financial Corporation (Florida)
as Administrative and Collateral Agent, General Electric capital
Corporation as Documentation Agent and the Lenders (as such terms
are defined in the Credit Agreement) (incorporated by reference
to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended August 2, 2003)
~*10.3 Employee Stock Plan
~*10.4 Form of Non-Qualified Stock Option Agreement
~*10.5 Form of Incentive Stock Option Agreement
*10.6 Profit Sharing Plan
~*10.7 Executive Health Plan
~*10.8 Director Stock Option Plan
~10.9 Executive Split Dollar Plan, incorporated by reference to the
Company's Form 10-K for the fiscal year ended January 1, 2000
^10.10 Executive Deferral Plan, amended November 1, 2002
10.11 2001 Omnibus Plan (incorporated by reference to the Company's Form
S-8 Registration Statement filed on August 7, 2001)
^10.12 Form of Restricted Share Award Agreement for Key Employees, pursuant
to Omnibus Plan
~10.13 Management Incentive Compensation Plan (incorporated by reference
to the Company's Proxy Statement for its 2005 Annual Meeting of
Stockholders)
23.1 Consent of PricewaterhouseCoopers LLP (filed herein)
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes Oxley Act of 2002 (filed herein)
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of
the Sarbanes Oxley Act of 2002 (filed herein)
32.1 Certification of the Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350 (filed herein)
32.2 Certification of the Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350 (filed herein)
99.3 Audit Committee Charter, amended December 7, 2004 (incorporated by
reference to the Company's Proxy Statement for its 2005 Annual
Meeting of Stockholders)
^99.4 Compensation Committee Charter, amended April 7, 2004
^99.5 Corporate Governance Committee Charter, amended April 7, 2004
* Previously filed as Exhibit to Form S-1 Registration Statement 33-46322
and incorporated herein by reference.
^ Previously filed as Exhibit to the Company's Form 10-K for the fiscal
year ended January 31, 2004 and incorporated herein by reference.
~ Management Contracts or Compensatory Plan or arrangements filed pursuant
to S-K 601 (10) (iii) (A).
E-1