=============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------- FORM 10-K ------------------- (Mark one) [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED MARCH 1, 1997 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 COMMISSION FILE NUMBER 1-8546 SYMS CORP ------------------------------------------------------ (Exact name of registrant as specified in its charter) NEW JERSEY No. 22-2465228 ------------------------------- ----------------------------------- (State or other jurisdiction of (I.R.S. employer identification no.) incorporation or organization) SYMS WAY, SECAUCUS, NEW JERSEY 07094 - - --------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (201) 902-9600 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: Name of each exchange on Title of each class which registered ------------------------------ ------------------------ Common Stock, $ .05 Par Value New York Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock of the registrant held by non-affiliates on May 2, 1997 was $64,242,711 based upon the closing price of such stock on that date. As of May 2, 1997, 17,694,015 shares of Common Stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE: NONE ================================================================================
PART I ITEM 1. BUSINESS GENERAL Syms Corp operates a chain of forty "off-price" retail stores located throughout the Northeastern and middle Atlantic regions and in the Midwest, Southeast and Southwest. Each Syms store offers a broad range of first quality, in-season merchandise bearing nationally recognized designer or brand-name labels at prices substantially lower than those generally found in department and specialty stores. Syms directs its merchandising efforts at predominantly middle-income, fashion-minded and price conscious customers. Since the first Syms store opened in New York City in 1959, the Company has expanded to forty stores and the aggregate amount of selling space in the Syms stores increased from approximately 2,000 square feet to approximately 1,540,000 square feet. In March 1987, the Company relocated to an approximately 275,000 square foot distribution center and executive headquarters. Syms Corp was incorporated in New Jersey in 1983. On July 25, 1983, a reorganization was effected pursuant to which Syms Inc. and a newly formed corporation, Syms Advertising, Inc., became wholly owned subsidiaries of Syms Corp. Syms Advertising Agency, a sole proprietorship owned by Sy Syms, was transferred to Syms Advertising Inc. On December 31, 1985, Syms Inc. was merged into Syms Corp. Syms Inc. was the principal retailing subsidiary of Syms Corp and the operations previously conducted by Syms Inc. are now being conducted by Syms Corp. The Company maintains its executive offices at Syms Way, Secaucus, New Jersey 07094, telephone (201) 902-9600. Unless otherwise noted, references to the "Company" or to "Syms" relate to Syms Corp, its subsidiaries and their predecessors. As reported on March 17, 1995, the Company changed its fiscal year end to the Saturday nearest to the end of February. Prior to this change the Company maintained its records on the basis of a 52-53 week fiscal year ending the Saturday closest to December 31. DESCRIPTION OF BUSINESS The Syms chain of forty apparel stores offers a broad range of "off-price" first quality, in-season merchandise consisting primarily of men's tailored clothing and haberdashery, women's dresses, suits and separates, children's apparel and men's, women's and children's shoes. Syms stores emphasize better quality, nationally recognized designer and brand name merchandise at prices substantially below those generally charged by department and specialty stores. Syms carries a wide selection of sizes and styles of men's, women's and children's wear. Syms operates in a single industry segment and has no foreign operations. No material part of the Company's consolidated revenues is received from a single customer or group of customers. MERCHANDISE For the year ended March 1, 1997 net sales were generated by the following categories: Men's tailored clothes and haberdashery................. 54% Women's dresses, suits, separates and accessories....... 31 Shoes................................................... 7 Children's wear......................................... 6 Luggage, domestics and fragrances....................... 2 --- 100% === Most of the items sold by the Company consist of nationally recognized fashion name merchandise. Merchandise is displayed by type and size on conveniently arranged racks or counters. No emphasis is placed on any particular "label". The stores generally offer minor alterations for an additional charge. PURCHASING The Company purchases first-quality, in-season, brand-name merchandise directly from manufacturers on terms more favorable than those generally obtained by department and specialty stores. Syms estimates that approximately 200 brand-name manufacturers of apparel are represented in its stores. The Company does not maintain large out-of-season inventories. However, Syms occasionally buys certain basic clothing which does not change in style from year to year at attractive prices for storage until the following season. Purchasing is performed by a buying staff in conjunction with their General Merchandise Managers and several other key divisional merchandise managers. 1
DISTRIBUTION The Company owns a distribution center, located at Syms Way, Secaucus, New Jersey. The facility contains approximately 277,000 square feet of warehouse and distribution space, 34,000 square feet of office space and 29,000 square feet of store space. The facility is located on an 18.6 acre parcel of land for which the Company holds a ground lease for a remaining term of 279 years. Most merchandise is received from manufacturers at the distribution center where it is inspected, ticketed and allocated to particular stores. MARKETING The Company's pricing policy is to affix a ticket to each item displaying Syms selling price as well as the price the Company regards as the traditional full retail price of that item at department or specialty stores. All garments are sold with the brand-name as affixed by the manufacturer. Because women's dresses are vulnerable to considerable style fluctuation, Syms has long utilized a ten-day automatic markdown pricing policy to promote movement of merchandise. The date of placement on the selling floor of each women's dress is stamped on the back of the price ticket. The front of each ticket contains what the Company believes to be the nationally advertised price, the initial Syms price and three reduced prices. Each reduced price becomes effective after the passage of ten selling days. Women's dresses represent approximately 4.8% of net sales. The Company also offers "dividend" prices consisting of additional price reductions on various types of merchandise. Syms has as its tag line "An Educated Consumer is Our Best Customer"(R), one of the best known in retail advertising. The Company historically has advertised principally on television and radio. In the Fall of 1994, the Company revised its strategy and began to enhance its advertising by including print media as well as direct mail to its Syms credit card customer base. The Company sells its merchandise for cash, checks, national credit cards, and its own Syms credit card. Syms sells its own credit card receivables on a non-recourse basis to a third party for a fee. Merchandise purchased from the Company may be returned within a reasonable amount of time, within season. The Company does not offer cash refunds for purchases, but issues credits toward the Syms charge card or store merchandise credits which may be used toward the purchase of other merchandise. TRADEMARKS "Syms", "An Educated Consumer is Our Best Customer"(R), "Names You Must Know"(R), and "The More You Know About Clothing, the Better it is for Syms"(R) have been registered with the United States Patent and Trademark Office. COMPETITION The retail apparel business is highly competitive, and the Company accounts for only a small fraction of the total market for men's, women's and children's apparel. The Company's stores compete with discount stores, apparel specialty stores, department stores, manufacturer-owned factory outlet stores and others. Many of the stores with which the Company competes are units of large national or regional chains that have substantially greater resources than the Company. Retailers having substantially greater resources than the Company have indicated their intention to enter the "off-price" apparel business, and the "off-price" apparel business itself has become increasingly competitive especially with respect to the increased use by manufacturers of their own factory outlets. At various times of the year, department store chains and specialty shops offer brand-name merchandise at substantial markdowns. OPERATIONS AND CONTROL SYSTEMS The Company has implemented a merchandise control system which tracks product from its purchase to its ultimate sale in the Company's stores. The system tracks the product by store in approximately 750 categories. All the information regarding the product is transmitted daily through telephone lines to the Company's database at its executive headquarters. Each week the Company's executives receive detail reports regarding sales and inventory levels in units and retail dollars on a store by store basis. Management of the Company visit stores on a regular basis to coordinate with the store managers, among other things, in the training of employees in loss prevention methods. Each store has on premises security personnel during normal hours and a security system after hours. 2
EMPLOYEES At March 1, 1997, the Company had 2,206 employees of whom approximately 657 work part time. The Company has collective bargaining agreements with the Retail, Wholesale and Department Store Union and the United Food and Commercial Workers Union which expire at various dates between 1997 and the year 2000 and cover 1,625 sales and tailor employees. The Company believes its relationships with the Unions are good. Approximately 30 to 100 persons, consisting mostly of sales personnel, are employed at each Syms store. ITEM 2. PROPERTIES THE STORES Location At March 1, 1997 the Company had forty stores, twenty of which are located in leased facilities. The following table indicates the locations of the stores and the approximate selling space of each location. In addition to the selling space indicated, each store contains between approximately 2,000 to 12,000 square feet for inspection and ticketing of merchandise and administrative functions. <TABLE> <CAPTION> Approximate Selling Approximate Selling Owned Stores Space at March 1, Leased Stores Space at March 1, Location 1997 (sq. ft.) Location 1997 (sq. ft.) - - -------- -------------------- ------------ ------------------- <S> <C> <C> <C> Lower Manhattan, NYC, New York .... 40,000 Elmsford, New York ................ 50,000 Westbury, Long Island ............. 72,000 Woodbridge, New Jersey ............ 32,000 Commack, Long Island .............. 36,000 Berlin, Connecticut ............... 31,000 Buffalo, New York ................. 39,000 N. Cranston, Rhode Island ......... 27,000 Rochester, New York ............... 32,000 Norwood, Massachusetts ............ 36,000 Paramus, New Jersey ............... 56,000 Peabody, Massachusetts ............ 39,000 Secaucus, New Jersey .............. 29,000 Franklin Mills Mall, Pennsylvania . 22,000 Cherry Hill, New Jersey ........... 40,000 Falls Church, Virginia ............ 28,000 Fairfield, Connecticut ............ 32,000 Potomac Mills Mall, Virginia ...... 33,000 King of Prussia, Pennsylvania ..... 41,000 Rockville, Maryland ............... 56,000 Monroeville, Pennsylvania ......... 31,000 Baltimore, Maryland ............... 43,000 Fort Lauderdale, Florida .......... 44,000 West Palm Beach, Florida .......... 36,000 Miami, Florida .................... 45,000 Gurnee Mills Mall, Illinois ....... 33,000 Tampa, Florida .................... 38,000 Niles, Illinois ................... 32,000 Addison, Illinois ................. 47,000 St. Louis, Missouri ............... 33,000 Norcross, Georgia ................. 51,000 Charlotte, North Carolina ......... 30,000 Southfield, Michigan .............. 46,000 Sharonville, Ohio ................. 31,000 Dallas, Texas ..................... 42,000 Highland Heights, Ohio ............ 36,000 Hurst, Texas ...................... 38,000 Parkway Center Mall, Pittsburgh ... 40,000 Houston, Texas .................... 34,000 Park Avenue, NYC, New York ........ 39,000 ------- ------- Total Owned Space ................. 833,000 Total Leased Space ................ 707,000 ======= ======= </TABLE> Syms stores are either "free standing", or located in shopping centers or indoor malls and all are surrounded by adequate parking areas, except for the New York City stores. Syms stores are usually located near a major highway or thoroughfare in suburban areas populated by at least one million people and are readily accessible to customers by automobile. In certain areas where there is a population in excess of two million people, Syms has opened more than one store in the same general vicinity. 3
Lease Terms Nineteen of the Company's forty stores are currently leased from unrelated parties, and the Elmsford, New York store is leased from Mr. Sy Syms, the Chairman of Syms Corp. The following table summarizes lease expirations and any renewal options: Range Number of Number of in Years of Calendar Leases Leases with Renewal Option Periods Expiring Options Periods (1) - - ------- -------- ------- ----------- 1997 ...................... 2 1 5 1998 ...................... 4 4 4-5 1999 ...................... 3 1 5 2000 ...................... 1 1 5 2001 ...................... 0 0 0 2002 and thereafter ....... 10 7 3-5 -- -- 20 14 == == - - ---------- (1) Depending on the applicable option, the minimum rent due during the renewal option periods may be based upon a formula contained in the existing lease or negotiations between the parties. Store leases provide for a base rental of between approximately $2.50 and $34.00 per square foot. In addition, under the "net" terms of all of the leases, the Company must also pay maintenance expenses, real estate taxes and other charges. Four of the Company's stores have a percentage of sales rental as well as a fixed minimum rent. Rental payments for Syms' leased stores aggregated $5,868,000 for the year ended March 1, 1997, of which $600,000 was paid to Mr. Sy Syms as fixed rent. Store Openings/Closings On March 14, 1996 the Company moved its North Randall, Ohio store (approximately 40,000 square feet of selling space) to Highland Heights, Ohio (approximately 36,000 square feet of selling space). On May 2, 1996 the Company opened a new store in Pittsburgh, Pennsylvania (approximately 40,000 square feet of selling space) and on November 21, 1996 opened its second store in New York City (approximately 39,000 square feet of selling space). ITEM 3. LEGAL PROCEEDINGS The Company is a party to routine litigation incident to its business. Management of the Company believes, based upon its assessment of the actions and claims outstanding against the Company, and after discussion with counsel, that there are no legal proceedings that will have a material adverse effect on the financial condition or results of operations of the Company. Some of the lawsuits to which the Company is a party are covered by insurance and are being defended by the Company's insurance carriers. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. 4
PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION The following table sets forth for the period indicated the high and low sales prices for the Company's common stock as reported by the New York Stock Exchange using the trading symbol SYM. HIGH LOW ---- --- 1998 First Quarter (through May 2, 1997) ......... $10 $ 9 1997 Quarter ended March 1, 1997 ................. $10 1/4 $8 3/4 Quarter ended November 30, 1996 ............. 8 7/8 8 1/8 Quarter ended August 31, 1996 ............... 8 1/2 7 1/8 Quarter ended June 1, 1996 .................. 8 3/8 7 5/8 1996 Quarter ended March 2, 1996 ................. $ 8 1/4 $7 1/8 Quarter ended November 25, 1995 ............. 9 1/2 7 1/8 Quarter ended August 26, 1995 ............... 8 3/8 6 3/4 Quarter ended May 27, 1995 .................. 7 7/8 6 7/8 1995 Two months ended February 25, 1995 .......... $ 7 $6 5/8 HOLDERS As of May 2, 1997 there were 301 record holders of the Company's Common Stock. The Company believes that there were in excess of 1,700 beneficial owners of the Company's Common Stock as of that date. DIVIDENDS The Board of Directors of the Company elected not to declare dividends in the two month transition period ended February 25, 1995, in the fiscal years ended March 2, 1996 and March 1, 1997, and through May 2, 1997. Payment of dividends is within the discretion of the Company's Board of Directors and will depend upon various factors including the earnings, capital requirements and financial condition of the Company (see Note 4 to notes to consolidated financial statements regarding covenants in the Company's revolving credit agreement). 5
ITEM 6. SELECTED FINANCIAL DATA The selected financial information presented below has been derived from the Company's audited Consolidated Financial Statements for the fiscal years ended March 1, 1997, March 2, 1996, December 31, 1994, January 1, 1994 and January 2, 1993 and the two months ended February 25, 1995, except that the balance sheets at February 25, 1995 and February 26, 1994 are unaudited. The selected financial information presented below should be read in conjunction with such financial statements and notes thereto. The two months ended February 26, 1994 is unaudited and presented only for comparative purposes. <TABLE> <CAPTION> Fiscal Year Ended Two Months Ended -------------------------------------------------------------- ----------------------------- March 1, March 2, December January 1, January 2, February 25, February 26, 1997 1996 1994 1994 1993 1995 1994 ------- -------- -------- --------- --------- ------------ ------------ (In thousands, except per share amounts) <S> <C> <C> <C> <C> <C> <C> <C> Income statement data: Net sales ...................... $ 346,792 $334,750 $326,651 $318,939 $319,623 $ 46,632 $ 41,642 ========= ======== ======== ======== ======== ======== ======== Net income (loss) .............. $ 19,065 $ 10,411 $ 8,491 $ 10,847 $ 15,148 $ (383) $ 50 ========= ======== ======== ======== ======== ======== ======== Net income (loss) per share .... $ 1.08 $ 0.59 $ 0.48 $ 0.61 $ 0.86 $ (0.02) $ -- ========= ======== ======== ======== ======== ======== ======== Weighted Average Shares Outstanding ........... 17,694 17,694 17,694 17,690 17,690 17,694 17,692 ========= ======== ======== ======== ======== ======== ======== Cash Dividends Per Share ....... $ -- $ -- $ 0.10 $ 0.05 $ -- $ -- $ -- ========= ======== ======== ======== ======== ======== ======== Balance sheet data: Working Capital ................ $ 78,228 $ 75,521 $ 59,918 $ 59,871 $ 61,338 $ 60,703 $ 52,539 Total Assets ................... 284,018 260,144 245,385 221,152 204,071 255,612 238,203 Long term debt and capitalized leases (A) ....... 900 1,304 1,696 1,974 2,209 1,645 1,931 Shareholders' equity ........... 226,434 207,369 197,341 190,605 180,625 196,958 190,655 - - -------- </TABLE> (A) Excludes current maturities. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company has changed its fiscal year end to the Saturday nearest to the end of February. This change was reported on March 17, 1995. Prior to this change the Company maintained its records on the basis of a 52-53 week fiscal year ending the Saturday closest to December 31. The following discussion compares the fiscal years ended March 1, 1997, March 2, 1996, December 31, 1994 and the two months ended February 25, 1995 and February 26, 1994. The fiscal years ended March 1, 1997 and December 31, 1994 was comprised of 52 weeks. The fiscal year ended March 2, 1996 were comprised of 53 weeks. RESULTS OF OPERATIONS Fiscal Year Ended March 1, 1997 Compared to March 2, 1996 Net sales of $346,792,000 for the fiscal year ended March 1, 1997 increased $12,042,000 (3.6%) as compared to net sales of $334,750,000 for the fiscal year ended March 2, 1996. The increase was, for the most part, the result of an increase in the number of stores in the year ended March 1, 1997. Comparable store sales decreased by $736,000 (0.2%), caused mainly by fiscal 1996 being comprised of 53 weeks vs. 52 weeks in fiscal 1997. The Company estimates that the extra week added approximately $5,100,000 in net sales to the 1996 fiscal year. Gross profit for the fiscal year ended March 1, 1997 was $133,679,000, an increase of $16,490,000 (14.1%) as compared to $117,189,000 for the fiscal year ended March 2, 1996. This increase resulted mainly from increased net sales of $12,042,000 and the Company's gross margin increasing to 38.5% from 35.0%. The 3.5% improvement in gross margin resulted primarily from increased levels of opportunistic and in-season purchases which created better values for the Company's customers. Selling, general and administrative (SG&A) expense was $71,028,000 (20.5% as a percentage of net sales) for the period ended March 1, 1997 as compared to $70,579,000 (21.1% as a percentage of net sales) for the fiscal year ended March 2, 1996. The increase of $449,000 resulted from three additional stores in fiscal 1997. As a percent to sales, SG&A expense decreased in fiscal 1997, due to a continued effort by management to control store and corporate operational expenses. 6
Advertising expense for fiscal 1997 increased to $6,626,000, as compared to $5,905,000 in the year ending March 2, 1996, resulting from a continued commitment to expand the Company's advertising effort. Occupancy costs were $14,215,000 (4.1% as a percentage of net sales) for the period ended March 1, 1997, up from $12,330,000 (3.7% as a percentage of net sales) for the year ended March 2, 1996. This increase was the result of three additional leased locations in fiscal 1997. Depreciation and amortization amounted to $7,971,000, an increase of $220,000, as compared to $7,751,000 for the fiscal year ended March 2, 1996, resulting from the new stores which opened in fiscal 1997, and a 40,000 square foot addition to the Secaucus, NJ distribution center. The provision for contractor advance and special charges for the fiscal year ended March 2, 1996 include a $2,200,000 provision made in the fourth quarter in recognition of then current information that a contractor advance might not be fully recoverable, a charge in the first quarter of $1,200,000 for costs associated with closing the store in Sterling Heights, Michigan, offset by a $714,000 adjustment to the $2,935,000 special charges taken in the two month period ended February 25, 1995, part of which relates to the write-off of costs associated with a lease in Cincinnati, Ohio in which the Company had initially decided to not open a store. The $714,000 adjustment arose when the Company, based on subsequent experience with the real estate market in Cincinnati, Ohio, concluded in November 1995 that the property would not be subleased in a reasonable time frame and at an acceptable rate. The Company then decided to open the store in February, 1996, operating with a reduced expense structure. Income before income taxes of $33,742,000 increased $16,097,000 (91.2%), as compared to $17,645,000 for the fiscal year ended March 2, 1996. This increase for the most part reflects higher gross profit and no special charge in the current period, offset by increased selling, general and administrative expense, advertising, and occupancy expense. For the fiscal year ended March 1, 1997 the effective income tax rate was 43.5% as compared to 41.0% last year. Fiscal Year Ended March 2, 1996 Compared to December 31, 1994 For the year ended March 2, 1996, net sales were $334,750,000, an increase of $8,099,000 or 2.5% from 1994. The increase was mainly a result of fiscal 1996 being 53 weeks compared to 52 weeks in the fiscal year ended December 31, 1994. The extra week added approximately $5,100,000 in net sales to the 1996 fiscal year. For the year ended March 2, 1996, the Company's gross margin increased to 35.0% from 33.3% in 1994. The increase was the result of a higher initial markup partially offset by additional markdowns. For the fiscal year ended December 31, 1994, the Company's interim gross margin was estimated based principally upon historical experience. The determination of cost of sales for that fiscal year was based on a physical inventory at the end of December 31, 1994. Using estimated gross margins for the first three quarters resulted in upward adjustments to gross margin in the fourth quarter. In 1994 the adjustment was due primarily to a higher initial markup. These adjustments resulted in an increase to gross profit of approximately $1,787,000 for the fourth quarter ended December 31, 1994. Beginning in January 1995, Syms has been utilizing the retail inventory method for quarterly inventory valuation. As a percentage of net sales, selling, general and administrative expenses and advertising (excluding occupancy, depreciation and amortization) were 22.8% in 1996 and 22.5% in 1994. The increase in the 1996 fiscal year selling, general and administrative expenses and advertising (excluding occupancy, depreciation and amortization) was principally due to the added week (53 weeks vs. 52 weeks) of payroll and payroll related expenses and higher legal and professional fees as a result of the change in the fiscal year and the proposed, but subsequently abandoned, "Going Private" transaction. As a percentage of net sales, occupancy expenses were 3.7% in 1996, unchanged from 3.7% in 1994. Income before the provision for income taxes was 5.3% in 1996 and 4.4% in 1994. This increase reflects higher gross profit, offset by an increase in selling, general and administrative expenses as well as occupancy expenses and the special charges as discussed above. In the fiscal year ended March 2, 1996 the effective income tax rate increased to 41.0% from 40.9% in 1994. Two Months Ended February 25, 1995 Compared to Two Months Ended February 26, 1994 Net sales for the eight weeks ended February 25, 1995 were $46,632,000, an increase of $4,990,000 or 12.0% when compared with $41,642,000 for the eight weeks ended February 26, 1994. Comparable store net sales increased by $2,098,000 or 5.5%. This was augmented by an increase of $2,892,000 for stores opened less than one year. 7
The gross margin for the eight weeks ended February 25, 1995 was 36.1% compared with 32.5% for the prior period. The prior period's gross margin was estimated by management. Commencing January 1, 1995, the Company implemented a retail stock ledger to determine its interim inventory and gross margin. As a percentage to net sales, selling, general and administrative and advertising expenses (excluding occupancy, depreciation and amortization) were 24.1% for the eight weeks ended February 25, 1995 and 25.2% for the eight weeks ended February 26, 1994. The decrease in selling, general and administrative expenses as a percentage to sales is attributable to an increase in net sales. As a percentage of net sales, occupancy expenses were 4.0% for the eight weeks ended February 25, 1995 and 4.1% for the eight weeks ended February 26, 1994. The special charges in the 1995 two month period of $2,935,000 include costs associated with the close down of the Hoffman, Illinois store, write-off of costs associated with a lease in Cincinnati, Ohio in which the Company had initially decided not to open a store and write-off of pre-development costs associated with property located in Roseland, New Jersey. Loss before the benefit from income taxes was $567,000 or 1.0% of net sales for the eight weeks ended February 25, 1995, compared with income before income taxes of $84,000 for the eight weeks ended February 26, 1994. The decrease in net income was attributable to the special charges, offset by the increase in net sales and a higher gross margin. Provision (benefit) for income taxes, as a percentage of income before income taxes, reflected a benefit of 32.4% for the transition period ended February 25, 1995, and an expense of 40.5% for the prior period ended February 26, 1994. The period ended February 25, 1995 includes a benefit of federal and state income taxes offset by certain other state income taxes. LIQUIDITY AND CAPITAL RESOURCES Working capital at March 1, 1997 was $78,228,000, an increase of $2,707,000 from March 2, 1996, and the ratio of current assets to current liabilities decreased to 2.40 to 1 as compared to 2.48 to 1 at March 2, 1996. Working capital at March 2, 1996 was $75,521,000, an increase of $15,603,000 from December 31, 1994. The ratio of current assets to current liabilities improved to 2.48 to 1 at March 2, 1996 as compared to 2.32 to 1 at December 31, 1994. Net cash provided by operating activities totaled $15,573,000 for the fiscal year ended March 1, 1997 and increased by $4,437,000 compared to $11,136,000 for the fiscal year ended March 2, 1996. Net income for 1997 amounted to $19,065,000 compared to $10,411,000 in 1996, an increase of $8,654,000. In the period ended March 1, 1997, cash provided from operating activities was mainly used to increase inventory by $9,586,000. Net cash provided by operating activities totaled $11,136,000 in 1996 compared to $12,936,000 in 1994. Net income for 1996 amounted to $10,411,000 compared to $8,491,000 in 1994, an increase of $1,920,000. In 1996 merchandise inventories increased by $2,694,000 and accounts payable decreased $4,721,000. Net cash used in investing activities was $21,644,000 for the fiscal year ended March 1, 1997. Net cash used in investing activities was $4,452,000 in 1996 compared to $14,488,000 in 1994. Purchases of property and equipment totaled $21,709,000, $4,777,000, and $14,591,000 for the fiscal years ended March 1, 1997, March 2, 1996 and December 31, 1994, respectively. Net cash provided by financing activities was $4,611,000 for the fiscal year ended March 1, 1997, resulting for the most part from the $4,950,000 in short term borrowings. Net cash used in financing activities was $2,337,000 in 1996. Net cash provided by financing activities was $911,000 in 1994. The Company paid cash dividends of $0.10 per share in 1994, which totaled $1,769,000. The Company had net borrowings of $2,900,000 in 1994. The Company has a revolving credit agreement with a bank for a line of credit not to exceed $40,000,000 through December 1, 1997. At December 1, 1997 the Company has the option to reduce this commitment to zero or convert the revolving credit agreement to a term loan with a maturity date of December 1, 2000. Except for funds provided from this credit agreement, the Company has satisfied its operating and capital expenditure requirements, including those for the opening and expansion of stores, from internally generated funds. For the fiscal year ended March 1, 1997, under the revolving credit agreement, the borrowings peaked at $21,450,000 and the average amount of borrowings was $4,122,000 with a weighted average interest rate of 5.97%. For the fiscal year ended March 2, 1996, under the revolving credit agreement, the average amount of borrowings was $3,500,000 with a weighted average interest rate of 7.3%. For the fiscal year ended December 31, 1994, under the revolving credit agreement, the average amount of borrowings was $6,800,000 with a weighted average interest rate of 5.2%. The Company has planned capital expenditures of approximately $12,000,000 for the fiscal year ending February 28, 1998, which includes plans to open two new stores, and to relocate one store from a leased location to a Company built store. 8
Management believes that existing cash, internally generated funds, trade credit and funds available from the revolving credit agreement will be sufficient for working capital and capital expenditure requirements for the fiscal year ending February 28, 1998. RECENT ACCOUNTING PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128"), which is effective for the Company for the year ended February 28, 1998. SFAS No. 128 simplifies the standards for computing earnings per share previously found in Accounting Principles Board Opinion No. 15 and establishes new standards for computing and presenting earnings per share. Application of SFAS No. 128 is not expected to have a significant effect on the Company's earnings per share. IMPACT OF INFLATION AND CHANGING PRICES Although the Company cannot accurately determine the precise effect of inflation on its operations, it does not believe inflation has had a material effect on sales or results of operations. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's consolidated financial statements are filed together with this report. See index to Consolidated Financial Statements in Item 14. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The directors and executive officers of the Company are as follows : <TABLE> <CAPTION> Name Age Title ---- --- ----- <S> <C> <C> Sy Syms (1) (2) (3) .................. 71 Chairman of the Board, Chief Executive Officer and Director of the Company Marcy Syms (1) (2)................... 46 President, Chief Operating Officer and Director of the Company Stephen A. Merns (2)................. 44 Vice President, Secretary, Merchandise Manager Men's Tailored Clothing, and Director of the Company Harvey A. Weinberg (3) (4) (5) ...... 59 Director of the Company Wilbur L. Ross, Jr. (3) (4) (5)...... 59 Director of the Company David Messer ....................... 35 Director of the Company Philip Barach........................ 67 Director of the Company </TABLE> - - ---------- (1) Member of the Executive Committee of the Company. (2) Sy Syms is the father of Marcy Syms and Stephen A. Merns. (3) Member of the Compensation Committee of the Company. (4) Member of the Audit Committee of the Company. (5) Member of the Stock Option Committee of the Company. 9
The following officers are significant employees of the Company: Name Age Title ---- --- ----- Ronald Zindman....................... 47 Executive Vice President-- General Merchandise Manager Allen Brailsford..................... 52 Vice President--Operations Douglas C. Meyer..................... 44 Vice President--Marketing, Advertising and Sales Promotion Isabel Regan ....................... 42 Vice President--Divisional Merchandise Manager Ladies Gail Margolin ...................... 44 Vice President--Human Resources & Development The officers and directors of Syms Advertising, Inc. are: Sy Syms - Chairman of the Board, Chief Executive Officer and Director; Marcy Syms - President, Chief Operating Officer and Director and Stephen A. Merns, Secretary. The members of the Company's Board of Directors hold office until the next annual meeting of shareholders and until their successors are duly elected and qualified. Executive officers are elected annually by the Board of Directors of the Company and serve at the pleasure of the Board. Marcy Syms and Stephen A. Merns are the children of Sy Syms. There are no other family relationships between any directors or executive officers of the Company. None of the organizations with which these persons were previously associated is a parent, subsidiary or other affiliate of the Company except as otherwise set forth. SY SYMS has been Chairman of the Board, Chief Executive Officer and a Director of the Company and/or its predecessors since 1959. Mr. Syms was Chief Operating Officer of the Company from 1983 to 1984. Mr. Syms has been a Director of Israel Discount Bank of New York since December 1991. MARCY SYMS has been President and a Director of the Company since 1983 and Chief Operating Officer of the Company since 1984. WILBUR L. ROSS, JR. has been a Managing Director of Rothschild Inc. since 1976. He is a member of the Board of Directors of Mego Corp. He has been a director of the Company since 1983. HARVEY A. WEINBERG has been a consultant since April 1994. From April 1992 to April 1994 he was President and Chief Executive Officer of HSSI, Inc., a retailer of men's and women's apparel. From 1987 to September, 1990 he was Chief Executive Officer and Vice Chairman of the Board of Directors of Hartmarx Corporation and from 1990 to September 1992 served as Chairman of the Board of Hartmarx Corporation. He is a trustee of Glimcher Realty Trust (a real estate investment trust). He has been a Director of the Company since December 1992. PHILIP G. BARACH has been a consultant since March 1993. From 1968 to March 1993 he was Chairman of the Board or Chairman of the Board, President and Chief Executive Officer of the United States Shoe Corp. (manufacturer and retailer of footwear, apparel and eyewear). He is a member of the Board of Directors of Bernard Chaus, Inc. (manufacturer of women's apparel), Glimcher Realty Trust (a real estate investment trust), R.G. Barry Corp. (manufacturer of foldable slippers and heat/cold preservation products) and Union Central Insurance Co. (life insurance). He has been a Director of the Company since July 1996. DAVID A. MESSER has been President of AIG Trading Corporation, a subsidiary of American International Group, Inc. (NYSE: AIG), since January 1994. Prior to January 1994, Mr. Messer was a Senior Vice President of AIG Trading Corporation, where he has been employed since March 1990. He has been a Director of the Company since July 1996. STEPHEN A. MERNS has been Vice President, Secretary and Merchandise Manager Mens Tailored Clothing of the Company since January 1, 1986. He was Vice President and a buyer of men's haberdashery of Syms Inc. from 1980 through 1985 and Secretary of Syms Inc. from 1983 through 1985. He has been a Director of the Company since July 1996. RONALD ZINDMAN has been Executive Vice President - General Merchandise Manager since March 2, 1997. He was Vice President, General Merchandise Manager, Ladies, Mens and Haberdashery since July 10, 1994. Previously, Mr. Zindman was Vice President - General Merchandise Manager Ladies from March 1993 to July 1994 and a buyer of men's and women's merchandise from March 1990 to March 1993. ALLEN BRAILSFORD has been Vice President - Operations since January 1993. Previously Mr. Brailsford was Director of Operations from March 1992 to January 1993 and Director of Distribution from March 1985 to March 1992. ISABEL REGAN has been Vice President - Divisional Merchandise Manager, Ladies since March 1993. She has held various positions at Syms since November 1, 1972, including buyer of women's apparel. 10
DOUGLAS C. MEYER has been Vice President - Marketing, Advertising and Sales Promotion since July 1994. Mr. Meyer was Vice President, Marketing and Creative Services for Loehmann's from 1987 to 1994. GAIL MARGOLIN has been Vice President - Human Resources and Development since October 1996. Ms. Margolin has been employed by the Company since 1993 and has held the positions of Director of Human Resources and Personnel Manager. Ms. Margolin worked for Burlington Coat Factory from 1986 to 1993 and held various corporate management positions in Executive Recruitment, College Relations and Training and Development. During 1994 HSSI, Inc., of which Mr. Weinberg was President, Chief Executive Officer and a Director, filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Ronald Zindman inadvertently failed to timely file a Form 3 upon becoming an officer of the Company in 1993 and to timely file a Form 5 in connection with his September 1996 stock option grant. Such reports were subsequently filed. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth the compensation paid by the Company and its subsidiaries for the past three fiscal years, and for the 1995 calendar year, to its five most highly compensated executive officers, including the Chief Executive Officer, serving as such at the end of the most recently completed fiscal year. <TABLE> <CAPTION> SUMMARY COMPENSATION TABLE Long-Term Annual Compensation Compensation (1) All Other ----------------------------------- Options/ Compen- Name and Principal Position Year* Salary Bonus SARs (#) sation (2) --------------------------- ----- ------ ----- --------------- ---------- <S> <C> <C> <C> <C> <C> Sy Syms ...................................... 1997 $824,988(4) 0 0 $3,616 Chairman of the Board and 1996 $855,756(3)(4) 0 0 $2,306 Chief Executive Officer 1995 $824,988(4) 0 0 $2,306 1994 $624,988(4) 0 0 $2,368 Marcy Syms ................................... 1997 $469,000 0 0 $3,616 President and Chief Operating 1996 $515,154(3)(5) 0 0 $2,306 Officer 1995 $469,000(5) 0 0 $2,306 1994 $469,000(5) 0 0 $2,368 Ronald Zindman................................ 1997 $233,000 10,000 100,000 $3,616 Executive Vice President-General 1996 $206,000 0 0 $2,306 Merchandise Manager 1995 $198,000 0 0 $2,306 1994 $142,000 10,000 0 $2,368 Stephen A. Merns.............................. 1997 $145,200 0 0 $3,441 Vice President, Secretary and 1996 $137,800 0 0 $2,069 Merchandise Manager Men's 1995 $135,200 0 0 $2,069 Tailored Clothing 1994 $130,000 0 0 $2,030 Allen Brailsford .............................. 1997 $103,800 10,000 0 $2,423 Vice President - Operations 1996 $100,200 0 0 $1,453 1995 $ 97,500 0 0 $1,453 1994 $ 93,600 10,000 0 $1,583 </TABLE> - - --------- * During 1995, the Company changed its fiscal year end to the Saturday nearest to the end of February. Accordingly, fiscal year information is provided for the 52 weeks ended March 1, 1997, for the 53 weeks ended March 2, 1996, for the 1995 calendar year, and for 1994 fiscal year, which ended December 31, 1994. (1) During the period covered by the table, the Company did not make any restricted stock awards or have in effect (or make payments under) any long term incentive plan other than the Option Plan, pursuant to which only stock options, but no stock appreciation rights, were awarded. (2) Company's contributions to a defined contribution profit sharing retirement plan. (3) Mr. Sy Syms is paid at a weekly rate of $15,865.15 and Ms. Marcy Syms is paid at a weekly rate of $9,019.23. The compensation reported for Mr. Syms and Ms. Syms for the period ended March 2, 1996 is for 53 weeks and reflects certain adjustments recorded in the second half of calendar 1995 in order for their calendar 1995 salary to amount to $824,988 and $469,000, respectively. 11
(4) Excludes payments made under the lease of the Elmsford store. See "Other Transactions." (5) Includes payment of $300,000 for the fiscal years ended March 1, 1997 and March 2, 1996, $300,000 for 1995 and $300,000 for 1994 by Syms Advertising, Inc., a subsidiary of the Company, as performance fees for advertising during such years. OPTION/SAR GRANTS IN LAST FISCAL YEAR The following table provides information concerning stock options granted during fiscal 1997 to the executive officers name in the Summary Compensation Table and related value information. No stock appreciation rights ("SARs") were made granted to the named executive officers. All grants were made pursuant to the Option Plan. <TABLE> <CAPTION> Individual Grants Potential Realizable Values at ------------------ Assumed Annual Rates of Stock % of Total Price Appreciation for Option Options/SARs Term Compounded Annually Options/ Granted to Exercise or ----------------------------- SARs Employees in Base Price Expiration Name Granted Fiscal 1997 ($/Share)(2) Date 5% 10% - - --------- -------- ------------ ------------ ---------- -------- -------- <S> <C> <C> <C> <C> <C> <C> Ronald Zindman ...... 100,000(1) 100 $8.00 9/18/2006 $503,116 $1,274,994 </TABLE> - - -------- (1) Consists of incentive stock options at a per share option exercise price equal to the fair market value of the Company's Common Stock in the date of the grant. The term of the option is ten years. The options become exercisable at the rate of 12.5% per year. (2) The exercise price may be paid by delivery of already owned shares of the Company's Common Stock. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES The following table provides information concerning exercises of stock options during fiscal 1997 by the executive officers named in the Summary Compensation Table and the value of unexercised options held by them at year end. <TABLE> <CAPTION> Number of Unexercised Value of Unexercised Number of Options/SARs In-the-Money Options/SARs Shares at Fiscal Year End(1) at Fiscal Year End(2) Acquired on Value --------------------------- ------------------------- Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable ---- -------- -------- ----------- ------------- ----------- ------------- <S> <C> <C> <C> <C> <C> <C> Marcy Syms................... 0 0 76,000 24,000 $35,000 2,500 Ronald Zindman............... 0 0 28,000 75,000 28,125 84,375 Stephen A. Merns............. 0 0 4,000 0 2,000 0 Allen Brailsford ............ 0 0 6,000 0 6,000 0 </TABLE> - - ------------ (1) No SARs are held. (2) Based upon a closing price of $9.125 per share of Common Stock on February 28, 1997. PENSION PLAN The following table sets forth the estimated annual benefits payable on retirement to persons in specified remuneration and years of participation classifications under the Company's defined benefit pension plan (the "Pension Plan") for employees not covered under collective bargaining agreements: Highest Five 5 15 25 Year Average Years of Years of Years of Compensation Participation Participation Participation ------------ ------------- ------------- ------------- $50,000......................... $1,900 $ 5,700 $ 9,500 75,000......................... 2,850 8,550 14,250 100,000......................... 3,800 11,400 19,000 125,000......................... 4,750 14,250 23,750 150,000......................... 5,700 17,100 28,500 12
Each participant in the Pension Plan is entitled to an annual retirement benefit equal to 19% of the average compensation (excluding bonuses) during his five consecutive highest paid calendar years during the ten years prior to retirement except that the annual benefit payable to Sy Syms at normal retirement, as per the plan, cannot exceed $70,000. For the executive officers named in the Summary Compensation Table, compensation for purposes of the Pension Plan generally corresponds to the amounts shown in the "Salary" column of the Summary Compensation Table, but exclusive of the performance fees from Syms Advertising, Inc. Currently no more than $150,000 (as adjusted from time to time by the Internal Revenue Service) of cash compensation may be taken into account in calculating benefits payable under the Pension Plan. Executive officers in the Summary Compensation Table were credited with the following years of service at December 31, 1996: Sy Syms, 15 or more years; Marcy Syms, 15 or more years; Ronald Zindman, 7 years; Stephen A. Merns, 15 or more years; and Allen Brailsford, 15 or more years. Benefits under the Pension Plan are not subject to any deduction for social security or other offset amount. The annual retirement benefit is reduced pro rata if the employee has completed less than fifteen years of service. Effective December 31, 1994, the plan was amended to change the pro rata reduction to be based on 25 years of participation. A participant is entitled to be paid his benefits upon his retirement at age 65. If a participant has completed at least 15 years of service he may retire upon reaching age 55 but the benefits he receives will be actuarially reduced to reflect the longer period during which he will receive a benefit. A participant who leaves the Company for any reason other than death, disability or retirement will be entitled to receive the vested portion of his benefit payable over different periods of time depending on the aggregate amount vested and payment option elected. A participant's interest vests over a 7 year period commencing in the third year at the rate of 20% after completing three years of employment and 20% for each year thereafter, and is 100% vested after the completion of 7 years of service. Benefit payments are made in the form of one of five annuity payment options elected by the participant. Amounts in the table are based on a straight life annuity. COMPENSATION OF DIRECTORS Each member of the Board of Directors who is not an officer or employee of the Company receives a Director's Fee presently established at the rate of $2,000 per meeting for attending regular or special meetings of the Board of Directors, or any committee of the Board of Directors, together with travel expenses related to such attendance. EMPLOYMENT AGREEMENTS The company has entered into an employment agreement dated November 1, 1996 with its Executive Vice-President, General Merchandising Manager, Ronald Zindman. This agreement stipulates a minimum yearly salary to be paid to this employee, and will remain in effect until March 1, 2009. Termination by the Company before that date will require a payment to the employee equal to 150% of one year's salary (at the employee's then current rate). If this agreement is terminated by the employee prior to its final term, the company must pay to the employee a sum equal to 60% of one year's salary (also at the employee's then current rate). COMPENSATION COMMITTEE INTERLOCKS AND INSIDER INFORMATION The members of the Compensation Committee of the Board of Directors are Wilbur L. Ross, Jr. and Harvey Weinberg, each of whom is a non-employee director, and Sy Syms, who is Chairman of the Board and Chief Executive Officer of the Company (see "Other Transactions"). No executive officer of the Company served during fiscal 1997 (i) as a member of the compensation committee or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors, of another entity, one of whose executive officers serves on the compensation committee of the Company; (ii) as a director of another entity, one of whose executive officers served on the compensation committee of the Company; or (iii) as a member of the compensation committee or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors, of another entity, one of whose executive officers served as a director of the Company. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT SECURITY OWNERSHIP OF MANAGEMENT The following table sets forth the beneficial ownership of Common Stock, by each person known to the Company to be the beneficial owner of more than 5% of Common Stock, each director, each of the executive officers named in the Summary Compensation Table, and by all directors and executive officers of the Company as a group. 13
Amount and Nature of Beneficial Ownership of Common Stock Percent Name of Beneficial Owner as of May 28, 1997 of Class (1) ------------------------ ------------------------- ------------ Sy Syms................................... 9,781,507(1) 55.3% Tweedy, Browne Company, L.P. 52 Vanderbilt Avenue, New York, NY 10017................................ 1,226,647 6.9% Marcy Syms................................ 693,075(2) 3.9% Ronald Zindman............................ 28,000(2) * Stephen A. Merns.......................... 734,775(2) 4.2% Wilbur L. Ross, Jr........................ 500 * Harvey A. Weinberg........................ 200 * Allen Brailsford.......................... 6,000(2) Philip G. Barach.......................... 1,000 * David A. Messer........................... -- * All directors and executive officers as a group (9 persons).................... 11,245,057 63.5% - - ------------- * Less than one percent. (1) Includes (a) 9,552,145 (54.0%) shares held in the Sy Syms Revocable Living Trust, dated March 17, 1989, as amended, (b) 229,262 shares held for Laura Merns and (c) 100 shares held by Sy Syms as custodian for Jillian E. Merns. (2) Includes shares issuable upon the exercise of options granted under the Option Plan and either currently exercisable or exercisable within 60 days after May 2, 1997. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OTHER TRANSACTIONS The Company leases its store in Elmsford, New York of approximately 60,000 square feet from Sy Syms. Sy Syms voluntarily amended the lease as of August 1, 1983 as to its rental provisions based upon independent appraisals. Under the original and amended leases, the rent payable by the Company consisted of a fixed annual rent plus a percentage rent based on gross sales of the Elmsford store. Not more frequently than once every five years, the rental terms may be adjusted based upon independent appraisals if requested by Sy Syms. Effective January, 1991, the rental terms were adjusted based upon independent appraisal, which resulted in a fixed annual rental of $600,000 and the elimination of the percentage rent based on gross sales. During the fiscal year ended March 1, 1997, the Company paid to Sy Syms $600,000 in fixed rent. Pursuant to loan and stock purchase agreements entered into between Sy Syms and Stanley Blacker, Inc. in 1987, as subsequently amended, Sy Syms personally loaned to Stanley Blacker, Inc. approximately $6,000,000 and became a majority stockholder and member of the Board of Directors of Stanley Blacker, Inc. During 1990, such shares were assigned to the Revocable Living Trust. Sy Syms retains the right to vote such shares. During 1990, Marcy Syms became a member of the Board of Directors of Stanley Blacker, Inc. Sy Syms and Marcy Syms constitute a majority of the Board of Directors of Stanley Blacker, Inc. Neither Sy Syms nor Marcy Syms have received any salary or other cash compensation from Stanley Blacker, Inc. The Company's purchases of merchandise from Stanley Blacker, Inc. and a licensee during fiscal 1997 was approximately $5,471,000. The Company entered into an agreement with the licensee in 1991 to purchase annually approximately $4,200,000 of suits for a five year period ending December 31, 1996. This agreement has been extended until further notice. The Company believes the terms upon which it purchases merchandise from Stanley Blacker, Inc. and the licensee are comparable to those obtained from unrelated third parties. As of March 1, 1997, the Company had advanced funds to the licensee, totaling approximately $2,459,000 for purchases to be received in the Spring and Fall of 1997. A $2,200,000 provision was made for the fiscal year and fourth quarter ended March 2, 1996 in recognition of current information that the licensee advance may not be fully recoverable. In addition, the Company has guaranteed a letter of credit on behalf of the licensee totaling $150,000 which expires on July 5, 1997 and has advanced fabric in the approximate amount of $311,000. On November 22, 1996 the Company loaned the Marcy Syms Revocable Trust $500,000 toward the purchase of a house for Ms. Syms in Westchester County, New York. The loan is evidenced by the Trust's note, which is guaranteed by Ms. Syms, and is secured by a first priority mortgage on the real estate purchased. The note bears interest at the rate of 6.6% per annum (the then Federal Mid-Term Rate) payable annually, and the principal of the note is due November 22, 2001. 14
PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K PAGE NUMBER ----------- (a) (1) Financial Statements: Report of Independent Public Accountants................... F-1 Consolidated Balance Sheets ............................... F-2 Consolidated Statements of Income ......................... F-3 Consolidated Statements of Shareholders' Equity ........... F-4 Consolidated Statements of Cash Flow ...................... F-5 Notes to Consolidated Financial Statements ................ F-6 - F-15 All schedules are omitted because they are not applicable, or not required, or because the required information is included in the consolidated financial statements or notes thereto. (a) (3) List of Exhibits: The following exhibits which are marked with an asterisk are filed as part of this Report and the other exhibits set forth below are incorporated by reference (utilizing the same exhibit numbers, except as stated otherwise below) from (i) the Company's Registration Statement on Form S-1 under the Securities Act of 1933 (Registration No. 2-85554) filed August 2, 1983 and declared effective September 23, 1983 or (ii) where indicated, the Company's reports on Form 8-K, Form 10-Q or Form 10-K or the Company's Proxy Statement (Commission File No. 1-8564). Management contracts or compensatory plans or arrangements required to be filed as exhibits are identified by a (+). 3.1 Certificate of Incorporation of Syms Corp, as amended 3.2 By-laws of Syms Corp 4.1 Specimen Certificate of Common stock 4.3 $5,600,000 New Jersey Economic Development Authority Revenue Bond Agreement dated December 1, 1981 4.4 Amendments to the New Jersey Economic Development Authority Revenue Bond Agreement 4.4a First Amendment dated April 14, 1982 4.4b Second Amendment dated May 17, 1982 4.4c Third Amendment dated June 27, 1983 4.4d Fourth Amendment dated July 14, 1983 4.5 Mortgage & Note dated December 11, 1981 between Syms Inc. and New Jersey Economic Development Authority 10.3 Elmsford (White Plains), New York Leased Premises 10.3a Lease, June 21, 1977 10.3b Lease Modification, December 28, 1978 10.3c Lease Modification, July 26, 1983 10.3d Consent, July 29, 1983 10.3e Parking Area Lease No. 1, July 29, 1969 10.3f Parking Area Sublease No.1, November 29, 1974 10.3g Parking Area Lease No. 2, June 23, 1969 10.3h Parking Area Sublease No. 2, November 29, 1974 10.3i Assignment and Assumption, July 29, 1983 10.4 Ground Lease at One Emerson Lane, Township of Secaucus, Hudson County, New Jersey Assignment and Assumption of Ground Lease, dated May 8, 1986, to Registrant (exhibit 28.1 to 8-K Report dated May 1986) +10.21 Syms Corp 1983 Incentive Stock Option and Appreciation Plan as Amended and Restated (Exhibit A to Company's Proxy Statement for the 1993 Annual Meeting of Shareholders) 10.29 Credit Card Program Agreement dated as of March 12, 1987 and as amended as of March 16, 1987 between General Electric Credit Card Corporation and Registrant (10-K Report for fiscal year ended December 31, 1987) 15
10.32 Revolving Credit Agreement dated as of December 1, 1993 between Syms Corp and United Jersey Bank (8-K Report dated December 7, 1993) 10.33 Form of Indemnification Agreement between Registrant and Directors and Executive Officers of the Registrant 10.34 Credit Plan Agreement dated December 11, 1995 between Citicorp Retail Services, Inc. and Registrant *+10.35 Employment Agreement dated November 1, 1996 between Syms Corp and Ronald Zindman *+10.36 Stock Option Certificate for Ronald Zindman. *10.37 Promissory note and mortgage from Syms Corp to Marcy Syms. 21 List of Subsidiaries of the Company * 23 Consent of Deloitte & Touche LLP * 27 Financial Data Schedule (b) Reports on Form 8-K: During the quarter ended March 1, 1997 no reports on Form 8-K were filed. OTHER MATTERS - FORM S-8 UNDERTAKINGS For the purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned registrant hereby undertakes as follows, which undertakings shall be incorporated by reference into registrant's Registration Statements on Form S-8 Nos. 2-85554 and 2-97033: (a) Rule 415 offering. The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) To reflect in the prospectus any facts or events arising after the effective date of this Registration Statement (or the most recent posteffective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this Registration Statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in this Registration Statement or any material change to such information in this Registration Statement; Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the registration statement is on Form S-3 or Form S-8, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) Filings incorporating subsequent Exchange Act documents by reference. The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in this Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (h) Filing of Registration Statement on Form S-8. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. 16
SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. SYMS CORP By /s/ SY SYMS ------------------------ Sy Syms Chairman of the Board Date: May 28, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. <TABLE> <CAPTION> Signature Title Date - - --------- ----- ---- <S> <C> <C> /s/ SY SYMS Chairman of the Board, May 28, 1997 - - --------------------------- Chief Executive Officer Sy Syms and Director (principal executive officer) /s/ MARCY SYMS President, Chief Operating - - --------------------------- Officer and Director May 28, 1997 Marcy Syms /s/ KIRK R. ONEY Controller May 28, 1997 - - --------------------------- (Acting Principal Financial Kirk R. Oney and Accounting Officer) /s/ WILBUR L. ROSS, JR Director May 28, 1997 - - --------------------------- Wilbur L. Ross, Jr /s/ HARVEY WEINBERG Director May 28, 1997 - - --------------------------- Harvey Weinberg /s/ DAVID MESSER Director May 28, 1997 - - --------------------------- David Messer /s/ PHILIP BARACH Director May 28, 1997 - - --------------------------- Philip Barach /s/ STEPHEN A. MERNS Director May 28, 1997 - - --------------------------- Stephen A. Merns </TABLE> 17
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors of Syms Corp Secaucus, New Jersey We have audited the accompanying consolidated balance sheets of Syms Corp and its subsidiaries as of March 1, 1997 and March 2, 1996, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three fiscal years ended March 1, 1997, March 2, 1996 and December 31, 1994 and the two month period ended February 25, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Syms Corp and subsidiaries as of March 1, 1997 and March 2, 1996 and the results of their operations and their cash flows for each of the three fiscal years ended March 1, 1997, March 2, 1996 and December 31, 1994 and the two month period ended February 25, 1995 in conformity with generally accepted accounting principles. Deloitte & Touche LLP New York, New York April 28, 1997 F-1
SYMS CORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) <TABLE> <CAPTION> MARCH 1, MARCH 2, 1997 1996 -------- -------- <S> <C> <C> ASSETS CURRENT ASSETS: Cash and cash equivalents $ 3,344 $ 4,804 Merchandise inventories 122,540 112,954 Deferred income taxes 6,639 5,221 Prepaid expenses and other current assets 1,756 3,521 -------- -------- Total current assets 134,279 126,500 PROPERTY AND EQUIPMENT - Net 142,741 129,235 DEFERRED INCOME TAXES 197 OTHER ASSETS 6,801 4,409 -------- -------- TOTAL ASSETS $284,018 $260,144 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 28,723 $ 30,900 Accrued expenses 11,055 9,918 Obligations to customers 5,085 4,490 Income taxes payable 5,833 5,331 Short term borrowings 4,950 -- Current portion of obligations under capital lease 405 340 -------- -------- Total current liabilities 56,051 50,979 OBLIGATIONS UNDER CAPITAL LEASE 900 1,304 DEFERRED INCOME TAXES 0 255 OTHER LONG TERM LIABILITIES 633 237 COMMITMENTS -- -- SHAREHOLDERS' EQUITY: Preferred stock, par value $100 per share - authorized 1,000 shares; none outstanding -- -- Common stock, par value $0.05 per share - authorized 30,000 shares; 17,694 shares outstanding as of March 1, 1997 and March 2, 1996 885 885 Additional paid-in capital 11,709 11,709 Retained earnings 213,840 194,775 -------- -------- Total shareholders' equity 226,434 207,369 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $284,018 $260,144 ======== ======== </TABLE> See notes to consolidated financial statements F-2
SYMS CORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <TABLE> <CAPTION> FISCAL YEAR ENDED TWO MONTHS ENDED ---------------------------------- --------------------------- MARCH 1, MARCH 2, DECEMBER 31, FEBRUARY 25, FEBRUARY 26, 1997 1996 1994 1995 1994 ---- ---- ---- ---- ---- (Unaudited) <S> <C> <C> <C> <C> <C> NET SALES $346,792 $334,750 $326,651 $ 46,632 $41,642 Cost of goods sold 213,113 217,561 217,912 29,776 28,108 -------- -------- -------- -------- ------- Gross profit 133,679 117,189 108,739 16,856 13,534 EXPENSES Selling, general and administrative 71,028 70,579 68,370 10,652 10,133 Advertising 6,626 5,905 5,069 576 364 Occupancy 14,215 12,330 12,017 1,841 1,702 Depreciation and amortization 7,971 7,751 8,854 1,359 1,190 Provision for contractor advance and special charges -- 2,686 -- 2,935 -- -------- -------- -------- -------- ------- Income (loss) from operations 33,839 17,938 14,429 (507) 145 Interest expense (income) - net 97 293 59 60 61 -------- -------- -------- -------- ------- Income (loss) before income taxes 33,742 17,645 14,370 (567) 84 Provision (benefit) for income taxes 14,677 7,234 5,879 (184) 34 -------- -------- -------- -------- ------- NET INCOME (LOSS) $ 19,065 $ 10,411 $ 8,491 $ (383) $ 50 ======== ======== ======== ======== ======= Net Income (Loss) Per Share $ 1.08 $ 0.59 $ 0.48 $ (0.02) $ -- ======== ======== ======== ======== ======= Weighted Average Shares Outstanding 17,694 17,694 17,694 17,694 17,692 ======== ======== ======== ======== ======= Cash Dividends Per Share $ -- $ -- $ 0.10 $ -- $ -- ======== ======== ======== ======== ======= </TABLE> See notes to consolidated financial statements F-3
SYMS CORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <TABLE> <CAPTION> PREFERRED STOCK, COMMON STOCK, 1,000 SHARES; 30,000 SHARES; $100 PAR VALUE $0.05 PAR VALUE ADDITIONAL --------------- --------------- PAID-IN RETAINED SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL ------ ------ ------ ------ ------- -------- ----- <S> <C> <C> <C> <C> <C> <C> <C> BALANCE JANUARY 1, 1994 -- -- 17,692 $885 $11,695 $ 178,025 $ 190,605 Exercise of stock options -- -- 2 -- 14 -- 14 Cash dividend -- -- -- -- -- (1,769) (1,769) Net income -- -- -- -- -- 8,491 8,491 ------ ------ ------ ---- ------- --------- --------- BALANCE DECEMBER 31, 1994 -- -- 17,694 885 11,709 184,747 197,341 Net loss for the two months ended - February 25, 1995 -- -- -- -- -- (383) (383) Net income for the fiscal year ended - March 2, 1996 -- -- -- -- -- 10,411 10,411 ------ ------ ------ ---- ------- --------- --------- BALANCE MARCH 2, 1996 -- -- 17,694 885 11,709 194,775 207,369 Net income -- -- -- -- -- 19,065 19,065 ------ ------ ------ ---- ------- --------- --------- BALANCE MARCH 1, 1997 -- -- 17,694 $885 $11,709 $ 213,840 $ 226,434 ====== ====== ====== ==== ======= ========= ========= </TABLE> See notes to consolidated financial statements F-4
SYMS CORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) <TABLE> <CAPTION> FISCAL YEAR ENDED TWO MONTHS ENDED ----------------- ---------------- MARCH 1, MARCH 2, DECEMBER 31, FEBRUARY 25, FEBRUARY 26, 1997 1996 1994 1995 1994 ---- ---- ---- ---- ---- (Unaudited) <S> <C> <C> <C> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 19,065 $ 10,411 $ 8,491 $ (383) $ 50 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 7,971 7,751 8,854 1,359 1,190 Deferred income taxes (1,870) (3,539) (1,484) 47 -- (Gain) loss on sale of property and equipment (52) 10 (73) (16) -- Loss on disposal of assets 244 1,142 -- 1,360 -- (Increase) decrease in operating assets: Merchandising inventories (9,586) (2,694) (17,389) (13,453) (9,000) Prepaid expenses and other current assets 1,765 2,158 (418) (404) 2,403 Other assets (2,417) (306) (290) 4 (2) Increase (decrease) in operating liabilities: Accounts payable (2,177) (4,721) 8,535 12,222 14,573 Accrued expenses 1,137 1,203 4,164 133 (2,596) Obligations to customers 595 (271) 805 456 (166) Other long term liabilities 396 237 -- -- -- Income taxes 502 (245) 1,741 (306) (3,036) -------- -------- -------- -------- -------- Net cash provided by operating activities 15,573 11,136 12,936 1,019 3,416 -------- -------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (21,709) (4,777) (14,591) (388) (1,910) Proceeds from sale of property and equipment 65 325 103 13 -- -------- -------- -------- -------- -------- Net cash used in investing activities (21,644) (4,452) (14,488) (375) (1,910) -------- -------- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Payment of dividends -- -- (1,769) -- -- Repayments of obligations under capital lease (339) (287) (234) (43) (36) Revolving line of credit borrowings (repayments) 4,950 (2,050) 2,900 (850) -- Exercise of options -- -- 14 -- -- -------- -------- -------- -------- -------- Net cash provided by (used in) financing activities 4,611 (2,337) 911 (893) (36) -------- -------- -------- -------- -------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,460) 4,347 (641) (249) 1,470 CASH AND CASH EQUIVALENTS. BEGINNING OF PERIOD 4,804 457 1,347 706 1,347 -------- -------- -------- -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,344 $ 4,804 $ 706 $ 457 $ 2,817 ======== ======== ======== ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for: Interest (net of amount capitalized) $ 291 $ 399 $ 253 $ -- $ -- ======== ======== ======== ======== ======== Income taxes paid (refunds received) - net $ 16,041 $ 11,026 $ 5,106 $ (33) $ -- ======== ======== ======== ======== ======== </TABLE> See notes to consolidated financial statements F-5
SYMS CORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FISCAL YEARS ENDED MARCH 1, 1997, MARCH 2, 1996, DECEMBER 31, 1994 AND THE TWO MONTHS ENDED FEBRUARY 25, 1995 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Principal Business - Syms Corp and subsidiaries (the "Company") operates a chain of forty "off-price" retail stores (thirty-eight in 1996) located throughout the Northeastern and middle Atlantic regions and in the Midwest, Southeast and Southwest. Each Syms store offers a broad range of first quality, in season merchandise bearing nationally recognized designer or brand-name labels for men, women and children. b. Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. c. Accounting Period - The Company has changed its fiscal year end to the Saturday nearest to the end of February. This change was reported on March 17, 1995. The fiscal years ended March 1, 1997 and December 31, 1994 were comprised of 52 weeks. The fiscal year ended March 2, 1996 was comprised of 53 weeks. d. Merchandise Inventories - Merchandise inventories are stated at the lower of cost or market on a first-in first- out (FIFO) basis, as determined by the retail inventory method. During the fiscal year ended December 31, 1994, the Company changed its method of valuing inventory by computing separate cost complements for each department within its five merchandise categories. In the past, the Company computed a single cost complement for each of its five merchandise categories. Management believes the change results in a more accurate inventory valuation. This change resulted in a total increase to gross margin of $780,000 of which approximately one half relates to prior years. The Company considers that the effect on fiscal year end 1994 and prior years is not material. e. Property and Equipment - Property and equipment are stated at cost. Depreciation and amortization are computed principally by the straight-line method at rates adequate to allocate the cost of applicable assets over their expected useful lives. The cost of leaseholds and leasehold improvements are amortized over the terms of the leases or the useful lives of the assets, whichever is shorter. Facilities' leases (Note 7) having the substance of financing transactions have been capitalized. The related lease obligations have been included as obligations under capital lease. The leased assets are being amortized as described above. f. Income Taxes - Deferred income taxes reflect the future tax consequences of differences between the tax basis of assets and liabilities and their financial reporting amounts at year end. g. Earnings Per Share - Net income per share is computed by dividing net income by the weighted average number of common shares and common stock equivalents outstanding during each period. The Company's common stock equivalents consist of outstanding stock options and for the periods ended March 1, 1997, March 2, 1996 and December 31, 1994, the effect of outstanding common stock options was not dilutive. h. Cash and Cash Equivalents- Syms Corp considers credit card receivables and all short-term investments with a maturity of three months or less as cash equivalents. F-6
i. Pre-opening Costs - Store pre-opening costs are deferred until the store's opening, at which time they are expensed over the first 12 months of store operation. j. Closed Store Expense - Closed store costs, such as future rent and real estate taxes net of expected sublease recovery, are accrued when management makes the determination that no future economic benefit from operations exists and are recorded in SG&A expenses. k. Obligation to Customers - Obligations to customers represent credits issued for returned merchandise as well as gift certificates. The Company's policy is to allow customers to exchange credits issued for other merchandise or credit to the Syms charge card. l. 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. m. Recent Accounting Pronouncement - In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 121 requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, and is effective for fiscal years beginning after December 15, 1995. The adoption of SFAS No. 121 did not have an effect on the Company's financial position or results of operations. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128"), which is effective for the Company for the year ended February 28, 1998. SFAS No. 128 simplifies the standards for computing earnings per share previously found in Accounting Principles Board Opinion No. 15 and establishes new standards for computing and presenting earnings per share. Application of SFAS No. 128 is not expected to have a significant effect on the Company's earnings per share. n. Reclassification - Certain items in prior years in specific captions of the accompanying consolidated financial statements and notes to consolidated financial statements have been reclassified for comparative purposes. F-7
NOTE 2 - PROPERTY AND EQUIPMENT Property and equipment consists of: MARCH 1, MARCH 2, 1997 1996 ---- ---- (IN THOUSANDS) Land ......................................... $ 40,061 $ 34,060 Buildings and building improvements .......... 105,511 102,244 Leasehold and leasehold improvements ......... 32,142 20,365 Machinery and equipment ...................... 16,747 14,893 Furniture and fixtures ....................... 15,661 15,547 Capital lease ................................ 3,763 3,763 Construction in progress ..................... 692 2,774 -------- -------- 214,577 193,646 Less accumulated depreciation and amortization 71,836 64,411 -------- -------- $142,741 $129,235 ======== ======== NOTE 3 - INCOME TAXES The provision (benefit) for income taxes is as follows: FISCAL YEAR ENDED TWO MONTHS ENDED ------------------------------------ --------------------- MARCH 1, MARCH 2, DECEMBER 31, FEBRUARY 25, 1997 1996 1994 1995 (In thousands) Current: Federal $ 13,799 $ 9,109 $ 5,956 $(223) State 2,748 1,664 1,407 ( 8) -------- -------- ------- ----- 16,547 10,773 7,363 (231) -------- -------- ------- ----- Deferred: Federal (1,560) (2,622) (1,202) 43 State (310) (917) (282) 4 -------- -------- ------- ----- (1,870) (3,539) (1,484) 47 -------- -------- ------- ----- $ 14,677 $ 7,234 $ 5,879 $(184) ======== ======== ======= ===== The following is a reconciliation of income taxes computed at the U.S. Federal statutory rate to the provision for income taxes: F-8
The following is a reconciliation of income taxes computed at the U.S. Federal statutory rate to the provision for income taxes: <TABLE> <CAPTION> FISCAL YEAR ENDED TWO MONTHS ENDED ------------------------------------- ---------------- MARCH 1, MARCH 2, DECEMBER 31, FEBRUARY 25, 1997 1996 1994 1995 ------ ------ ------ ------ <S> <C> <C> <C> <C> Statutory Federal income tax rate 35.0 % 35.0 % 35.0 % (35.0) % State taxes, net of Federal income tax benefits 8.4 5.3 5.5 (3.2) Officers' life insurance 0.1 0.7 0.4 5.2 Other, net -- -- -- 0.6 ------ ------ ------ ------ Effective income tax rate 43.5 % 41.0 % 40.9 % (32.4) % ====== ====== ====== ====== </TABLE> The composition of the Company's deferred tax assets and liabilities is as follows: MARCH 1, MARCH 2, 1997 1996 ------- ------- (IN THOUSANDS) Deferred tax assets: Capitalization of inventory costs $ 4,085 $ 3,800 Capital lease 404 333 Accounts receivable 1,143 1,018 Other 2,645 650 ------- ------- Total deferred tax assets 8,277 5,801 Deferred tax liability: Depreciation method and different estimated lives (425) (835) Other (1,016) -- ------- ------- Total deferred tax liabilities $(1,441) $ (835) ======= ======= Net $ 6,836 $ 4,966 ======= ======= Classified in balance sheet as follows: Current deferred tax asset $ 6,639 $ 5,221 Long term deferred tax asset (net of noncurrent deferred tax liability) 197 Long term deferred tax liability (net of noncurrent deferred tax asset) (255) ------- ------- Net $ 6,836 $ 4,966 ======= ======= F-9
NOTE 4 - BANK CREDIT FACILITIES The Company has an unsecured revolving credit agreement with a bank for a line of credit not to exceed $40,000,000 through December 1, 1997. Interest on individual advances is payable quarterly at 1 1/2% per annum below the bank's base rate, except that at the time of advance, the Company has the option to select an interest rate based upon one of two other alternative calculations, with such rate to be fixed for a period not to exceed 90 days. The average daily unused portion is subject to a commitment fee of 1/8 of 1% per annum. The interest rate on short term borrowings was 6.75% at March 1, 1997. At March 1, 1997 there was $4,950,000 in outstanding borrowings and there were no borrowings at March 2, 1996. The agreement contains financial covenants, with respect to consolidated tangible net worth, as defined, working capital and maximum capital expenditures, including dividends, as well as other financial ratios. Total interest charges incurred for the years ended March 1, 1997, March 2, 1996 and December 31, 1994 including amounts related to capital leases, were $586,000, $623,000 and $865,000, respectively, of which $152,000, $105,000 and $612,000 were capitalized in fiscals 1997, 1996 and 1994, respectively, in connection with the purchase and construction of new facilities. In addition, the Company has a separate $10,000,000 credit facility with another bank available for the issuance of letters of credit for the purchase of merchandise. This agreement may be cancelled at any time by either party. At March 1, 1997 and at March 2, 1996, the Company had $6,094,004 and $3,786,000, respectively, in outstanding letters of credit. NOTE 5 - FAIR VALUE DISCLOSURES The estimated fair values of financial instruments which are presented herein have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of amounts the Company could realize in a current market exchange. The fair value of the Company's cash and cash equivalents, accounts receivable and short-term borrowings approximates their carrying values at March 1, 1997 and March 2, 1996 due to the short-term maturities of these instruments. F-10
NOTE 6 - PENSION AND PROFIT SHARING PLANS a. PENSION PLAN - The Company has a defined benefit pension plan for all employees other than those covered under collective bargaining agreements. The benefits are based on years of service and the employee's highest average pay during any five consecutive years within the ten-year period prior to retirement. Pension plan costs are funded annually. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future. The following table sets forth the Plan's funded status and amounts recognized in the Company's consolidated balance sheet: MARCH 1, MARCH 2, 1997 1996 ------- ------- (IN THOUSANDS) Actuarial present value of benefit obligation: Accumulated benefit obligation, including vested benefits of $3,128 at March 1, 1997 and $2,552 at March 2, 1996 $ 3,254 $ 2,711 ======= ======= Projected benefit obligation $ 4,180 $ 3,592 Plan assets at fair value, primarily mutual funds and United States Treasury bills 3,869 3,249 ------- ------- Plan assets less than projected benefit obligation (311) (343) Unrecognized net loss 147 186 Unamortized net asset at transition (127) (152) ------- ------- Accrued pension cost (included in accrued expenses) $ (291) $ (309) ======= ======= F-11
Pension expense includes the following components: FISCAL YEAR ENDED ----------------------------------- MARCH 1, MARCH 2, DECEMBER 31, 1997 1996 1994 ----- ----- ----- (IN THOUSANDS) Service cost-benefits earned during the period $ 326 $ 330 $ 384 Interest cost on the projected benefit obligation 282 242 248 Actual return on plan assets (159) (191) (193) Net amortization and deferral (155) (80) (82) ----- ----- ----- Net periodic pension cost $ 294 $ 301 $ 357 ===== ===== ===== The weighted average discount rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation was 7.75% during each of the years ended March 1, 1997, March 2, 1996, and December 31, 1994. The expected long-term rate of return on plan assets was 8.5% during each of the years ended March 1, 1997, March 2, 1996 and December 31, 1994. b. PROFIT-SHARING AND 401-K PLAN - The Company has a profit-sharing plan and 401(K) plan for all employees other than those covered under collective bargaining agreements. In 1995, the Company established a defined contribution savings plan 401(K) for substantially all of its eligible employees. Employees may contribute a percentage of their salary to the plan subject to statutory limits. The Company has not made any matching contributions to this plan, however, profit-sharing contributions were made in the amounts of $200,000 for year ended March 1, 1997, and $130,000 for each of the years ended March 2, 1996, and December 31, 1994. F-12
NOTE 7 - COMMITMENTS a. LEASES - The Company has various operating leases and one capital lease for its retail stores, with terms expiring between 1997 and 2016. Under most lease agreements, the Company pays real estate taxes, maintenance and other operating expenses. Certain store leases also provide for additional contingent rentals based upon a percentage of sales in excess of certain minimum amounts. Future minimum lease payments at March 1, 1997 are as follows: CAPITAL LEASE OPERATING REAL ESTATE LEASES ----------- ------ (IN THOUSANDS) 1998 $ 600 $ 6,974 1999 600 6,158 2000 450 5,442 2001 -- 5,062 2002 -- 5,171 2003 and thereafter -- 39,785 ------ ------- Total minimum payments 1,650 $68,592 ======= Less amount representing interest 345 ------ Present value of net minimum lease payments 1,305 ------ Less current maturities 405 ------ $ 900 ====== Payments under the real estate capital lease, which expires in 1999, are payable to the Company's principal shareholder. Rental payments were $600,000 during each of the years ended March 1, 1997, March 2, 1996 and December 31, 1994. Rent expense for operating leases are as follows: FISCAL YEAR ENDED TWO MONTHS ENDED --------------------------------------- ------------ MARCH 1, MARCH 2, DECEMBER 31, FEBRUARY 25, 1997 1996 1994 1995 ---- ---- ---- ---- (IN THOUSANDS) Minimum rentals $ 5,832 $ 4,308 $ 4,030 $ 698 Escalation rentals 413 24 9 28 Contingent rentals 36 40 25 4 Sublease rentals (743) (386) (192) (32) ------- ------- ------- ----- $ 5,538 $ 3,986 $ 3,872 $ 698 ======= ======= ======= ===== b. EMPLOYMENT AGREEMENT - At March 1, 1997 the Company had an employment agreement with its General Merchandising Manager, expiring 2009, pursuant to which annual compensation of approximately $300,000 is required. In addition, that employee is entitled to additional compensation upon occurrence of certain events. F-13
c. LEGAL PROCEEDINGS - The Company is a party to routine litigation incident to its business. Management of the Company believes, based upon its assessment of the actions and claims outstanding against the Company, and after discussion with counsel, that there are no legal proceedings that will have a material adverse effect on the financial condition or results of operations of the Company. Some of the lawsuits to which the Company is a party are covered by insurance and are being defended by the Company's insurance carriers. NOTE 8 - PREFERRED STOCK The Company is authorized to issue up to 1,000,000 shares of preferred stock, in one or more series of preferred stock. The Board of Directors is authorized to establish the number of shares to be included in each such series, and to fix the designation, relative rights, preferences, qualifications and limitations of the shares of each such series. NOTE 9 - STOCK OPTION PLAN The Company's Stock Option Plan allows for the granting of incentive stock options, as defined in Section 422A of the Internal Revenue Code of 1986 (as amended), non-qualified stock options or stock appreciation rights. The plan requires that incentive stock options be granted at an exercise price not less than the fair market value of the common shares on the date the option is granted. The exercise price of the option for holders of more than 10% of the voting rights of the Company must be not less than 110% of the fair market value of the common shares on the date of grant. Non-qualified options and stock appreciation rights may be granted at any exercise price. The Company has reserved 1,000,000 shares of common stock for issuance thereunder. No option or stock appreciation rights may be granted under the stock option plan after July 2003. The maximum exercise period for any option or stock appreciation right under the plan is ten years from the date the option is granted (five years for any optionee who holds more than 10% of the voting rights of the Company). Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), was effective for the Company for fiscal 1997. SFAS No. 123 encourages (but does not require) compensation expense to be measured based on the fair value of the equity instrument awarded. In accordance with APB No. 25, no compensation cost has been recognized in the Consolidated Statements of Income for the Company's stock option plans. If compensation cost for the Company's stock option plans had been determined in accordance with the fair value method prescribed by SFAS No. 123, the Company's net income would have been $19,042,000 and $10,411,000 for 1997 and 1996, respectively, and the earnings per share would have been $1.08 and $0.59 for 1997 and 1996, respectively. This pro forma information may not be representative of the amounts to be expected in future years as the fair value method of accounting prescribed by SFAS No. 123 has not been applied to options granted prior to 1997. F-14
Stock option transactions are summarized below: <TABLE> <CAPTION> FISCAL YEAR ENDED TWO MONTHS ENDED ---------------------------------------------------------------- ---------------------- MARCH 1, 1997 MARCH 2, 1996 DECEMBER 31, 1994 FEBRUARY 25, 1995 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ------------------------------------------------------------------------------------------- WEIGHTED WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE EXERCISE FIXED OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE ------- ------ ------- ------ ------- ------ ------- ----- <S> <C> <C> <C> <C> <C> <C> <C> <C> Outstanding beginning of year 426 $ 9.94 464 $9.90 547 $10.04 496 $ 9.96 Granted 100 8.00 - - 57 8.50 - - Exercised - - - - (2) 8.63 - - Cancelled (36) 10.27 (38) 9.53 (106) 9.81 (32) 10.65 - - ------------------------------------------------------------------------------------------------------------------------------- Outstanding, end of period 490 $ 9.52 426 $9.94 496 $ 9.96 464 $ 9.91 =============================================================================================================================== Options exerciseable at year end 360 $ 9.83 320 $10.02 288 $10.11 256 $10.04 Weighted-average fair value of options granted during the year $ 4.99 - $ 4.99 - </TABLE> The following table summarizes information about stock options outstanding at March 1, 1997: <TABLE> <CAPTION> OPTIONS OUTSTANDING OPTIONS EXERCISABLE - - ------------------------------------------------------------------------------ ---------------------------------------- WEIGHTED-AVERAGE NUMBER REMAINING WEIGHTED- NUMBER WEIGHTED- RANGE OF OUTSTANDING AT CONTRACTURAL AVERAGE EXERCISABLE AT AVERAGE EXERCISE PRICES MARCH 1, 1997 LIFE (YEARS) EXERCISE PRICE MARCH 1, 1997 EXERCISE PRICE - - --------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> $7.125 - $12.250 490,625 4.8 $9.52 359,815 $9.83 </TABLE> The fair value of each option grant is estimated on the date of each grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 1997: risk-free interest rate 6.83%, expected life 10 years, expected volatility of 33.29%, dividend yield 0%. The fair value generated by the Black-Scholes model may not be indicative of the future benefit, if any, that may be received by the option holder. NOTE 10 - OTHER TRANSACTIONS Included in cost of sales for the three fiscal years ended March 1, 1997, March 2, 1996 and December 31, 1994 are purchases of approximately $5,471,000, $5,139,000 and $6,322,000, respectively, from a company related to the principal shareholder, as well as a licensee of the related company. In 1991 the Company entered into an agreement with the licensee to purchase annually approximately $4,200,000 of suits. Included in prepaid expenses and other current assets at March 1, 1997 and March 2, 1996 are advances to the licensee totaling approximately $2,182,000 and $3,438,000, respectively. The advances at March 1, 1997 are for purchases to be received in the Spring and Fall of 1997 and are to be received by the Company prior to December 31, 1997. A $2,200,000 provision was made for the fiscal year and fourth quarter ended March 2, 1996 in recognition of current information that the licensee advance may not be fully recoverable. In addition, the F-15
Company has guaranteed a letter of credit on behalf of the licensee totaling approximately $150,000, which expires on July 5, 1997 and at March 1, 1997 has advanced fabric in the approximate amount of $311,000. The Company has entered into a capital lease with the Chief Executive Officer. Included in the Statement of Income are the following expense relating to this agreement: FISCAL YEAR ENDED TWO MONTHS ENDED ----------------- ---------------- MARCH 1, MARCH 2, DECEMBER 31, FEBRUARY 25, 1997 1996 1994 1995 --------- -------- ------------- ------------ (IN THOUSANDS) Depreciation $238 $238 $238 $40 Interest 261 313 366 57 The balance sheet includes the following items relating to this agreement: MARCH 1, 1997 MARCH 2, 1996 ------------- ------------- (IN THOUSANDS) Assets under Capital Lease $ 3,763 $ 3,763 Accumulated Depreciation (3,339) (3,101) Capital Lease Obligation 1,305 1,644 On November 22, 1996 the Company loaned the Marcy Syms Revocable Trust $500,000 toward the purchase of a house for Ms. Syms in Westchester County, New York. The loan is evidenced by the Trust's note, which is guaranteed by Ms. Syms, and is secured by a first priority mortgage on the real estate purchased. The note bears interest at the rate of 6.6% per annum (the then Federal Mid-Term Rate) payable annually, and the principal of the note is due November 22, 2001. NOTE 11 - UNAUDITED SELECTED QUARTERLY FINANCIAL DATA QUARTER ------- FIRST SECOND THIRD FOURTH ----- ------ ----- ------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) YEAR ENDED MARCH 1, 1997 Net sales $83,377 $75,128 $96,225 $92,062 Gross profit $30,456 $26,133 $41,494 $35,596 Net income $ 3,381 $ 1,441 $ 8,637 $ 5,606 Net income per share $ 0.19 $ 0.08 $ 0.49 $ 0.32 YEAR ENDED MARCH 2, 1996 Net sales $79,252 $72,814 $93,439 $89,245 Gross profit $27,174 $24,535 $34,577 $30,903 Net income $ 1,036 $ 741 $ 5,561 $ 3,073 Net income per share $ 0.06 $ 0.04 $ 0.32 $ 0.17 F-16