=============================================================================== 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 FEBRUARY 28, 1998 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 April 28, 1998 was $127,138,955 based upon the closing price of such stock on that date. As of April 28, 1998 17,869,090 shares of Common Stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant's Proxy Statement for the 1998 annual meeting of stockholders to be filed pursuant to Regulation 14A are incorporated in Part III hereof by reference. ================================================================================
PART I ITEM 1. BUSINESS GENERAL Syms Corp operates a chain of forty-one "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-one stores and the aggregate amount of selling space in the Syms stores increased from approximately 2,000 square feet to approximately 1,584,000 square feet. In March 1987, the Company relocated to an approximately 277,000 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. DESCRIPTION OF BUSINESS The Syms chain of forty-one 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 February 28, 1998 net sales were generated by the following categories: Men's tailored clothes and haberdashery............................... 54% Women's dresses, suits, separates and accessories..................... 31% Shoes................................................................. 8% Children's wear....................................................... 5% 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 278 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 February 28, 1998, the Company had 2,300 employees of whom approximately 470 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 in the year 2000 and cover 1,641 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 February 28, 1998 the Company had forty-one stores, nineteen 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 FEBRUARY 28, LEASED STORES SPACE AT FEBRUARY 28, LOCATION 1998 (SQ. FT.) LOCATION 1998 (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 Rockville, MD 61,000 N. Cranston, Rhode Island 27,000 Buffalo, New York 39,000 Norwood, Massachusetts 36,000 Rochester, New York 32,000 Peabody, Massachusetts 39,000 Paramus, New Jersey 56,000 Franklin Mills Mall, Pennsylvania 22,000 Secaucus, New Jersey 29,000 Falls Church, Virginia 28,000 Cherry Hill, New Jersey 40,000 Potomac Mills Mall, Virginia 33,000 Fairfield, Connecticut 32,000 Baltimore, Maryland 43,000 King of Prussia, Pennsylvania 41,000 West Palm Beach, Florida 36,000 Monroeville, Pennsylvania 31,000 Gurnee Mills Mall, Illinois 33,000 Fort Lauderdale, Florida 44,000 Niles, Illinois 32,000 Miami, Florida 45,000 St. Louis, Missouri 33,000 Tampa, Florida 38,000 Charlotte, North Carolina 30,000 Addison, Illinois 47,000 Sharonville, Ohio 31,000 Marietta, Georgia 39,000 Highland Heights, Ohio 36,000 Norcross, Georgia 51,000 Parkway Center Mall, Pittsburgh 40,000 Southfield, Michigan 46,000 Park Avenue, NYC, New York 39,000 Dallas, Texas 42,000 Hurst, Texas 38,000 Houston, Texas 34,000 ------- ------- Total Owned Space 933,000 Total Leased Space 651,000 ======= ======= </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 Eighteen of the Company's forty-one 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: <TABLE> <CAPTION> NUMBER OF NUMBER OF RANGE IN YEARS OF CALENDAR LEASES LEASES WITH RENEWAL OPTION PERIODS EXPIRING OPTIONS PERIODS (1) - -------- -------- ------------------- ------------------ <S> <C> <C> <C> 1998 3 3 5 1999 3 1 5 2000 1 1 5 2001 0 0 0 2002 2 1 4 2003 and thereafter 14 10 3 - 5 -- -- (2) 23 16 </TABLE> - ------------ (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. (2) Includes lease obligations for stores not yet opened. Store leases provide for a base rental of between approximately $2.90 and $34.06 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 $7,724,000 for the year ended February 28, 1998, of which $600,000 was paid to Mr. Sy Syms as fixed rent. STORE OPENINGS/CLOSINGS On October 23, 1997 the Company moved its Rockville, MD store (approximately 56,000 square feet of selling space) to a newly built location (approximately 61,000 square feet of selling space). On November 20, 1997 the Company opened a new store in Marietta, Georgia (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. 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. 4
<TABLE> <CAPTION> HIGH LOW ---- --- <S> <C> <C> <C> 1998 First Quarter (through April 28, 1998) $14 9/16 $13 5/8 1997 Quarter ended February 28, 1998 $ 14 1/4 $11 5/8 Quarter ended November 29, 1997 Quarter ended August 30, 1997 14 15/16 11 1/4 Quarter ended June 1, 1997 14 9 3/8 10 1/8 9 1996 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 </TABLE> HOLDERS As of April 28, 1998 there were 187 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 fiscal years ended March 1, 1997 and February 28, 1998. 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). The Company has also announced that its Board of Directors has authorized the repurchase of up to 15% of its outstanding shares of common stock at prevailing market prices during the current and following fiscal years ended February 26, 2000. 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 February 28, 1998, March 1, 1997, March 2, 1996, December 31, 1994, January 1, 1994 and the two months ended February 25, 1995, except that the balance sheets at February 25, 1995 to February 26, 1994 are unaudited. The selected financial information presented below should be read in conjunction with such financial statements and notes thereto. <TABLE> <CAPTION> FISCAL YEAR ENDED ------------------------------------------------------------------------------------ FEBRUARY 28, MARCH 1, MARCH 2, DECEMBER 31, JANUARY 1, 1998 1997 1996 1994 1994 ------------ -------- ------- ------------ ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> <C> <C> Income statement data: Net sales ............................... $352,959 $346,792 $334,750 $326,651 $318,939 ======== ======== ======== ======== ======== Net income .............................. $ 23,036 $ 19,065 $ 10,411 $ 8,491 $ 10,847 ======== ======== ======== ======== ======== Net income per share - basic ............ $ 1.30 $ 1.08 $ 0.59 $ 0.48 $ 0.61 ======== ======== ======== ======== ======== Net income per share - diluted .......... $ 1.29 $ 1.08 $ 0.59 $ 0.48 $ 0.61 ======== ======== ======== ======== ======== Cash Dividends Per Share ................ $ -- $ -- $ -- $ 0.10 $ 0.05 ======== ======== ======== ======== ======== Balance sheet data: Working Capital ......................... $ 99,728 $ 78,228 $ 75,521 $ 59,918 $ 59,871 Total Assets ............................ $294,192 $284,018 $260,144 $245,385 $221,152 Long term debt and capitalized leases (A) ............................. $ 419 $ 900 $ 1,304 $ 1,696 $ 1,974 Shareholders' equity .................... $250,870 $226,434 $207,369 $197,341 $190,605 </TABLE> TWO MONTHS ENDED --------------------------- FEBRUARY 25, FEBRUARY 26, 1995 1994 ------------ ------------ Income statement data: Net sales ................................... $ 46,632 $ 41,642 ========= ========= Net income .................................. $ (383) $ 50 ========= ========= Net income per share - basic ................ $ (0.02) $ -- ========= ========= Net income per share - diluted .............. $ (0.02) $ -- ========= ========= Cash Dividends Per Share .................... $ -- $ -- ========= ========= Balance sheet data: Working Capital ............................. $ 60,703 $ 52,539 Total Assets ................................ $ 255,612 $ 238,203 Long term debt and capitalized leases (A) ................................ $ 1,645 $ 1,931 Shareholders' equity ........................ $ 196,958 $ 190,655 - ---------- (A) Excludes current maturities. 5
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This report includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements in this report other than statements of historical fact, including, without limitation, certain statements under the "Liquidity and Capital Resources," "Year 2000 Compliance" and "Impact of Inflation and Changing Prices" sub-headings in this Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" are forward-looking statements. Although management believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that those expectations will prove to have been correct. Important factors that could cause actual results to differ materially from management's expectations ("Cautionary Factors") include, without limitation, the changing nature of the apparel retailing industry, the Company's ability to maintain favorable relationship with vendors, expansion in the number of the Company's stores, competition which the Company faces and general economic conditions. All written and oral forward-looking statements by or attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these Cautionary Factors. The following discussion compares the fiscal years ended February 28, 1998, March 1, 1997 and March 2, 1996. The fiscal years ended February 28, 1998 and March 1, 1997 were comprised of 52 weeks. The fiscal year ended March 2, 1996 was comprised of 53 weeks. RESULTS OF OPERATIONS Fiscal Year Ended February 28, 1998 Compared to March 1, 1997 For the year ended February 28, 1998, net sales were $352,959,000, an increase of $6,167,000 or 1.8% as compared to net sales of $346,792,000 for the fiscal year ended March 1, 1997. This increase is largely attributable to an increase in the number of stores in year ended February 28, 1998. Comparable store sales for the fiscal year ended February 28, 1998 declined 2.5%. Gross Profit for the fiscal year ended February 28, 1998 was $142,338,000, an increase of $8,659,000 (6.5%) as compared to $133,679,000 for the fiscal year ended March 1, 1997. This increase is largely attributable to the increased net sales of $6,167,000 and the Company's gross profits as a percent of total sales increasing from 38.5% last year to 40.3% this year. The 1.8% improvement in gross profit 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 $71,020,000 (20.1% as a percentage of net sales) for the fiscal year ended February 28, 1998 versus $71,028,000 (20.5% as a percentage of net sales) for last year. The improvement in SG&A expenses this fiscal year is due to a continued effort by management to control store and corporate operational expenses particularly in general liability and workmen's compensation insurance. Advertising expense for the fiscal year ended February 28, 1998 was $8,097,000 compared to $6,626,000 for the fiscal year ended March 1, 1997. This increase of $1,471,000 resulted from a continued effort to expand the Company's advertising effort through radio and direct mail advertising. In addition, the Company advertised its semi-annual sale event ("Bash") in the newspaper and radio for the first time. Occupancy costs were $15,300,000 (4.3% as a percentage of net sales) for the fiscal year ended February 28, 1998 compared to $14,215,000 (4.1% as a percentage of net sales) last year. This increase is largely attributable to the addition of the Park Avenue store in New York City. Depreciation and amortization amounted to $8,627,000 (2.4% as a percentage of net sales) for this year compared to $7,971,000 (2.3% as a percentage of net sales) for the year ended March 1, 1997. This increase resulted principally from the addition of the Park Avenue store in New York City. Income before income taxes was $39,046,000 (an increase of $5,304,000 or 15.7%) for the fiscal year ended February 28, 1998, compared to $33,742,000 for last year. This increase for the most part is the result of improved gross profit margins. For the fiscal year ended February 28, 1998 the effective income tax rate was 41.0% compared to 43.5% last year. Last year's effective tax rate was adversely affected by the addition of tax reserves pertaining to certain states. 6
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 1995 being comprised of 53 weeks vs. 52 weeks in fiscal 1996. The Company estimates that the extra week added approximately $5,100,000 in net sales to the 1995 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 1996. As a percent of sales, SG&A expense decreased in fiscal 1997, due to a continued effort by management to control store and corporate operational expenses. Advertising expense for fiscal 1996 increased to $6,626,000, as compared to $5,905,000 in the year ended 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 year 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 1996. 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 1996, 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. The increase was the result of additional tax provisions provided for certain states. LIQUIDITY AND CAPITAL RESOURCES Working capital at February 28, 1998 was $99,728,000, an increase of $21,500,000 from March 1, 1997, and the ratio of current assets to current liabilities increased to 3.40 to 1 as compared to 2.40 to 1 at March 1, 1997. 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. Net cash provided by operating activities totaled $16,661,000 for the fiscal year ended February 28, 1998 and increased by $1,088,000 compared to $15,573,000 for the fiscal year ended March 1, 1997. The major reasons for the increase in cash provided by operating activities was attributed to the increase in the Company's net income of $3,971,000 and increases in deferred income taxes and depreciation and amortization. These changes were offset by increases in merchandise inventories and reductions in operating liabilities predominantly in accounts payable and income taxes. Net cash provided by operating activities totaled $15,573,000 in fiscal year ended March 1, 1997 compared to $11,136,000 for the fiscal year ended March 2, 1996. Net Income in this period was $19,065,000 compared to $10,411,000 the previous year, an increase of 7
$8,654,000. In the fiscal year ended March 1, 1997, merchandise inventories increased $9,586,000 and accounts payable decreased $2,177,000. Net cash used in investing activities was $12,210,000 for the fiscal year ended February 28, 1998 compared to $21,644,000 for the fiscal year ended March 1, 1997 and $4,452,000 for the fiscal year ended March 2, 1996. Purchases of property and equipment totaled $12,273,000, $21,709,000 and $4,777,000 for the fiscal years ended February 28, 1998, March 1, 1997 and March 2, 1996, respectively. Net cash used in financing activities was $3,955,000 for the fiscal year ended February 28, 1998. For the fiscal year ended March 1, 1997 net cash provided by financing activities was $4,611,000. In the fiscal year ended March 2, 1996, net cash used in financing activities was $2,337,000. The Company has a revolving credit agreement with a bank for a line of credit not to exceed $40,000,000 through December 1, 2000. At December 1, 2000 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, 2004. Except for funds provided from this credit agreement, the Company has satisfied its operating and capital expenditure requirements, including those for operating and expansion of stores, from internally generated funds. For the fiscal year ended February 28, 1998, under the revolving credit agreement, the borrowings peaked at $22,500,000 and the average amount of borrowings was $4,982,000 with a weighted average interest rate of 6.22 %. For the fiscal year ended March 1, 1997, under the revolving agreement 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%. The Company has planned capital expenditures of approximately $13,411,000 for the fiscal year ending February 27, 1999, which includes plans to open four new stores. The Company has also announced that its Board of Directors has authorized the repurchase of up to 15% of its outstanding shares of common stock at prevailing market prices during the current and following fiscal years ended February 26, 2000. Management believes that existing cash, internally generated funds, trade credit and funds available from the revolving credit agreement will be sufficient for working capital, capital expenditure and stock repurchase program requirements for the fiscal year ending February 27, 1999. YEAR 2000 COMPLIANCE The Company has identified all significant applications that will require modification to ensure Year 2000 Compliance. Internal and external resources are being used to make the required modifications and test Year 2000 Compliance. The modification process of all significant applications is substantially complete. The Company plans on completing the testing process of all significant applications by December 31, 1998. In addition, the Company has communicated with others with whom it does significant business to determine their Year 2000 Compliance readiness and the extent to which the Company is vulnerable to any third party Year 2000 issues. However, there can be no guarantee that the systems of other companies on which the Company's systems rely will be timely converted, or that a failure to convert by another company, or a conversion that is incompatible with the Company's systems, would not have a material adverse effect on the Company. The total cost to the Company of these Year 2000 Compliance activities has not been and is not anticipated to be material to its financial position or results of operations in any given year. These costs and the date on which the Company plans to complete the Year 2000 modification and testing processes are based on management's best estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ from those plans. 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. 8
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)............................. 72 Chairman of the Board and Director of the Company Marcy Syms (1) (2)........................... 47 Chief Executive Officer/President and Director of the Company Stephen A. Merns (2)........................ 45 Vice President, Secretary, Merchandise Manager - Men's Tailored Clothing and Director of the Company Antone F. Moreira ......................... 61 Vice President, Treasurer and Chief Financial Officer and Director of the Company Harvey A. Weinberg (3) (4) ................. 60 Director of the Company Wilbur L. Ross, Jr. (3) (4) ................ 60 Director of the Company David Messer (3) (4)........................ 36 Director of the Company Philip Barach (4)........................... 68 Director of the Company Ronald Zindman.............................. 48 Executive Vice President - General Merchandise Manager Allen Brailsford............................ 53 Vice President - Operations Douglas C. Meyer............................ 45 Vice President - Marketing, Advertising and Sales Promotion Isabel Regan .............................. 43 Vice President - Divisional Merchandise Manager Ladies Robert Syms ................................ 43 Vice President - Real Estate </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 Stock Option - Compensation Committee of the Company. (4) Member of the Audit Committee of the Company. 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, Stephen A. Merns and Robert Syms 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. 9
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. On January 22, 1998 Mr. Syms relinquished his position as Chief Executive Officer to Marcy Syms. As of that date Mr. Syms will remain as Chairman of the Board. MARCY SYMS has been President and a Director of the Company since 1983 and Chief Operating Officer of the Company since 1984. On January 22, 1998 Marcy Syms was named Chief Executive Officer/President. 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. In January 1998 AIG Trading Corporation's name was changed to Sempra Energy Trading in connection with the sale of the Company to Enova Corporation (NYSE:ENA) and Pacific Enterprises (PET). STEPHEN A. MERNS has been Vice President, Secretary and Merchandise Manager Men's 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. ANTONE F. MOREIRA has been Vice President, Chief Financial Officer and Treasurer of Syms Corp. since May 1997. From 1996 to May 1997 Mr. Moreira was a financial consultant with Equitable, a financial services organization. From 1990 to 1995, Mr. Moreira was Executive Vice President, Chief Financial Officer of Stuarts Department Stores, Inc., a regional discount department store chain operating in New England. RONALD ZINDMAN has been Executive Vice President - General Merchandise Manager since March, 1997. He was Vice President, General Merchandise Manager, Ladies, Mens and Haberdashery from July 1994 to March 1997. 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 1972, including buyer of women's apparel. 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. ROBERT G. SYMS has been Vice President - Real Estate since January, 1998. He was Merchandise Manager - Men's Clothing from October, 1984 to October, 1991. He first joined Syms Corp. in 1976. 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. 10
ITEM 11. EXECUTIVE COMPENSATION In accordance with General Instruction G(3) of the General Instructions to Form 10-K, the information called for by Item 11 is omitted from this Report and is incorporated by reference to the definitive Proxy Statement to be filed by the Company pursuant to Regulation 14A of the General Rules and Regulations under the Securities Exchange Act of 1934, which the Company will file not later than 120 days after February 28, 1998, the end of the fiscal year covered by this Report. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT In accordance with General Instruction G(3) of the General Instructions to Form 10-K, the information called for by Item 11 is omitted from this Report and is incorporated by reference to the definitive Proxy Statement to be filed by the Company pursuant to Regulation 14A of the General Rules and Regulations under the Securities Exchange Act of 1934, which the Company will file not later than 120 days after February 28, 1998, the end of the fiscal year covered by this Report. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In accordance with General Instruction G(3) of the General Instructions to Form 10-K, the information called for by Item 11 is omitted from this Report and is incorporated by reference to the definitive Proxy Statement to be filed by the Company pursuant to Regulation 14A of the General Rules and Regulations under the Securities Exchange Act of 1934, which the Company will file not later than 120 days after February 28, 1998, the end of the fiscal year covered by this Report. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) Financial Statements: PAGE NUMBER 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-17 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 11
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) 10.32 Revolving Credit Agreement dated as of December 1, 1993 between Syms Corp and Summit Bank (successor to 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-K Report for fiscal year ended March 2, 1996) 10.34 Credit Plan Agreement dated December 11, 1995 between Citicorp Retail Services, Inc. and Registrant (10-K Report for fiscal year ended March 2, 1996) +10.35 Employment Agreement dated November 1, 1996 between Syms Corp and Ronald Zindman (10-K Report for fiscal year ended March 1, 1997) +10.36 Stock Option Certificate for Ronald Zindman (10-K Report for fiscal year ended March 1, 1997) 10.37 Promissory note and mortgage from Syms Corp to Marcy Syms (10-K Report for fiscal year ended March 1, 1997) *10.38 First Amendment to Revolving Credit Agreement, dated as of November 24, 1997, between Syms Corp and Summit Bank. 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 February 28, 1998 no reports on Form 8-K were filed. 12
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/ MARCY SYMS ----------------------------------- Marcy Syms Chief Executive Officer/President Date: May 13, 1998 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 13, 1998 Sy Syms and Director /s/ MARCY SYMS - -------------------------- Chief Executive Officer/President May 13, 1998 Marcy Syms and Director (Principal executive officer) /s/ ANTONE F. MOREIRA - -------------------------- Vice President, Treasurer and May 13, 1998 Antone F. Moreira Chief Financial Officer and Director (Principal financial and accounting officer) /s/ WILBUR L. ROSS, JR - -------------------------- Director May 13, 1998 Wilbur L. Ross, Jr /s/ HARVEY WEINBERG - -------------------------- Director May 13, 1998 Harvey Weinberg /s/ DAVID MESSER - -------------------------- Director May 13, 1998 David Messer /s/ PHILIP BARACH - -------------------------- Director May 13, 1998 Philip Barach /s/ STEPHEN A. MERNS - -------------------------- Director May 13, 1998 Stephen A. Merns </TABLE> 13
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 February 28, 1998 and March 1, 1997, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three fiscal years ended February 28, 1998, March 1, 1997, and March 2, 1996. 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 February 28, 1998, 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 February 28, 1998, March 1, 1997, and March 2, 1996 in conformity with generally accepted accounting principles. Deloitte & Touche LLP New York, New York April 13, 1998 F-1
<TABLE> <CAPTION> SYMS CORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - --------------------------------------------------------------------------------------- (IN THOUSANDS) FEBRUARY 28, MARCH 1, 1998 1997 ------------ --------- <S> <C> <C> ASSETS CURRENT ASSETS: Cash and cash equivalents 3,840 $ 3,344 Merchandise inventories 127,028 122,540 Deferred income taxes 5,614 6,639 Prepaid expenses and other current assets 4,621 1,756 -------- -------- Total current assets 141,103 134,279 PROPERTY AND EQUIPMENT - Net 146,378 142,741 DEFERRED INCOME TAXES -- 197 OTHER ASSETS 6,711 6,801 -------- -------- TOTAL ASSETS $294,192 $284,018 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 21,986 $ 28,723 Accrued expenses 11,725 11,055 Obligations to customers 4,508 5,085 Income taxes payable 2,675 5,833 Current portion of obligations under capital lease 481 405 Short term borrowings -- 4,950 -------- -------- Total current liabilities 41,375 56,051 OBLIGATIONS UNDER CAPITAL LEASE 419 900 DEFERRED INCOME TAXES 564 -- OTHER LONG TERM LIABILITIES 964 633 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; 17,849 shares outstanding as of February 28, 1998 and 17,694 shares outstanding as of March 1, 1997 892 885 Additional paid-in capital 13,102 11,709 Retained earnings 236,876 213,840 -------- -------- Total shareholders' equity 250,870 226,434 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $294,192 $284,018 ======== ======== </TABLE> See notes to consolidated financial statements F-2
SYMS CORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME - -------------------------------------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) FISCAL YEAR ENDED --------------------------------- FEBRUARY 28, MARCH 1, MARCH 2, 1998 1997 1996 ----------- -------- -------- NET SALES $352,959 $346,792 $334,750 Cost of goods sold 210,621 213,113 217,561 -------- -------- -------- Gross profit 142,338 133,679 117,189 EXPENSES Selling, general and administrative 71,020 71,028 70,579 Advertising 8,097 6,626 5,905 Occupancy 15,300 14,215 12,330 Depreciation and amortization 8,627 7,971 7,751 Provision for contractor advance and special charges -- -- 2,686 -------- -------- -------- Income from operations 39,294 33,839 17,938 Interest expense - net 248 97 293 -------- -------- -------- Income before income taxes 39,046 33,742 17,645 Provision for income taxes 16,010 14,677 7,234 -------- -------- -------- NET INCOME $ 23,036 $ 19,065 $ 10,411 ======== ======== ======== Net Income Per Share - basic $ 1.30 $ 1.08 $ 0.59 ======== ======== ======== Weighted Average Shares Outstanding - basic 17,770 17,694 17,694 ======== ======== ======== Net Income Per Share - diluted $ 1.29 $ 1.08 $ 0.59 ======== ======== ======== Weighted Average Shares Outstanding - diluted 17,841 17,705 17,695 ======== ======== ======== See notes to consolidated financial statements F-3
<TABLE> <CAPTION> SYMS CORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------------------------------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 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 AS OF MARCH 2, 1996 -- $ -- 17,694 $885 $11,709 $194,775 $207,369 Net income -- -- -- -- -- 19,065 19,065 ------ ----- ------ ---- ------- -------- -------- BALANCE AS OF MARCH 1, 1997 -- -- 17,694 885 11,709 213,840 226,434 Exercise of stock options -- -- 155 7 1,393 -- 1,400 Net income -- -- -- -- -- 23,036 23,036 ------ ----- ------ ---- ------- -------- -------- BALANCE AS OF FEBRUARY 28, 1998 -- $ -- 17,849 $892 $13,102 $236,876 $250,870 ====== ===== ====== ==== ======= ======== ======== </TABLE> See notes to consolidated financial statements F-4
<TABLE> <CAPTION> SYMS CORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) FISCAL YEAR ENDED ---------------------------------- FEBRUARY 28, MARCH 1, MARCH 2, 1998 1997 1996 ----------- --------- -------- <S> <C> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income $23,036 $ 19,065 $10,411 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,627 7,971 7,751 Deferred income taxes 1,786 (1,870) (3,539) (Gain) loss on sale of property and equipment (58) (52) 10 Loss on disposal of assets 50 244 1,142 (Increase) decrease in operating assets: Merchandising inventories (4,488) (9,586) (2,694) Prepaid expenses and other current assets (2,865) 1,765 2,158 Other assets 44 (2,417) (306) Increase (decrease) in operating liabilities: Accounts payable (6,737) (2,177) (4,721) Accrued expenses 670 1,137 1,203 Obligations to customers (577) 595 (271) Other long term liabilities 331 396 237 Income taxes (3,158) 502 (245) ------- -------- ------- Net cash provided by operating activities 16,661 15,573 11,136 ------- -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (12,273) (21,709) (4,777) Proceeds from sale of property and equipment 63 65 325 ------- -------- ------- Net cash used in investing activities (12,210) (21,644) (4,452) ------- -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of obligations under capital lease (405) (339) (287) Revolving line of credit (repayments) borrowings (4,950) 4,950 (2,050) Proceeds from shares issued 1,400 -- -- ------- -------- ------- Net cash (used in) provided by financing activities (3,955) 4,611 (2,337) ------- -------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 496 (1,460) 4,347 CASH AND CASH EQUIVALENTS. BEGINNING OF PERIOD 3,344 4,804 457 ------- -------- ------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,840 $ 3,344 $ 4,804 ======= ======== ======= SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for: Interest (net of amount capitalized) 397 291 399 ======= ======== ======= Income taxes paid (refunds received) - net $19,364 $ 16,041 $11,026 ======= ======== ======= </TABLE> See notes to consolidated financial statements F-5
SYMS CORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FISCAL YEARS ENDED FEBRUARY 28, 1998, MARCH 1, 1997, AND MARCH 2, 1996 - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Principal Business - Syms Corp and subsidiaries (the "Company") operates a chain of forty-one "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 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 fiscal years ended February 28, 1998 and March 1, 1997 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. e. Property and Equipment - Property and equipment are stated at cost. Depreciation and amortization are principally by the straight-line method over the following estimated useful lives: Buildings and improvements 15 - 39 years Machinery and equipment 4 - 7 years Furniture and fixtures 10 years Leasehold improvements Lesser of life of the asset or life of lease 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. Net Income Per Share - During the fourth quarter of fiscal 1998, the Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per share," as required. It was not necessary to restate previously recorded net income per share for any periods presented. 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. 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. 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. F-6
k. 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. l. 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: FEBRUARY 28, MARCH 1, 1998 1997 ------------ -------- (IN THOUSANDS) Land $ 40,961 $ 40,061 Buildings and building improvements 114,178 105,511 Leasehold and leasehold improvements 31,743 32,142 Machinery and equipment 17,327 16,747 Furniture and fixtures 15,972 15,661 Capital lease 3,763 3,763 Construction in progress 1,135 692 -------- -------- 225,079 214,577 Less accumulated depreciation and amortization 78,701 71,836 -------- -------- $146,378 $142,741 ======== ======== NOTE 3 - INCOME TAXES The provision for income taxes is as follows: FISCAL YEAR ENDED ------------------------------------------------ FEBRUARY 28, MARCH 1, MARCH 2, 1998 1997 1996 ------------- -------- -------- (In thousands) Current: Federal $ 12,343 $ 13,799 $ 9,109 State 1,881 2,748 1,664 -------- -------- -------- 14,224 16,547 10,773 -------- -------- -------- Deferred: Federal 1,490 (1,560) (2,622) State 296 (310) (917) -------- -------- -------- 1,786 (1,870) (3,539) -------- -------- -------- $ 16,010 $ 14,677 $ 7,234 ======== ======== ======== F-8
The following is a reconciliation of income taxes computed at the U.S. Federal statutory rate to the provision for income taxes: FISCAL YEAR ENDED --------------------------------- FEBRUARY 28, MARCH 1, MARCH 2, 1998 1997 1996 ------------ -------- -------- Statutory Federal income tax rate 35.0% 35.0% 35.0% State taxes, net of Federal income tax benefits 5.8 8.4 5.3 Officers' life insurance 0.2 0.1 0.7 ----- ---- ---- Effective income tax rate 41.0% 43.5% 41.0% ==== ==== ==== The composition of the Company's deferred tax assets and liabilities is as follows: <TABLE> <CAPTION> FEBRUARY 28, MARCH 1, 1998 1997 ------------ -------- (IN THOUSANDS) <S> <C> <C> Deferred tax assets: Capitalization of inventory costs $ 3,274 $ 4,085 Accounts receivable 106 1,143 Other 3,514 3,049 ------- ------- Total deferred tax assets 6,894 8,277 Deferred tax liability: Depreciation method and different estimated lives (1,371) (425) Other (473) (1,016) ------- ------- Total deferred tax liabilities (1,844) (1,441) ======= ======= Net $ 5,050 $ 6,836 ======= ======= Classified in balance sheet as follows: Current deferred tax asset $ 5,614 $ 6,639 Long term deferred tax liability (net of non-current deferred tax asset) (564) -- Long term deferred tax asset (net of noncurrent deferred tax liability) -- 197 ------- ------- Net $ 5,050 6,836 ======= ======= </TABLE> 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, 2000. 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. At February 28, 1998 there were no outstanding borrowings compared to $4,950,000 in outstanding borrowings at March 1, 1997. The agreement contains financial covenants, with respect to consolidated tangible net worth, as defined, working capital and maximum capital expenditures, including dividends, (defined to include cash repurchases of capital stock), as well as other financial ratios. Total interest charges incurred for the years ended February 28, 1998, March 1, 1997 and March 2, 1996, including amounts related to capital leases, were $617,000, $586,000, and $623,000, respectively, of which $160,000, $152,000, and $105,000 were capitalized in fiscal 1997, 1996 and 1995, respectively, in connection with the purchase and construction of new facilities. In addition, the Company has a separate $20,000,000 credit facility with another bank available for the issuance of letters of credit for the purchase of merchandise and other borrowings. This agreement may be cancelled at any time by either party. At February 28, 1998 and at March 1, 1997, the Company had $6,023,000 and $6,094,000, 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 February 28, 1998 and March 1, 1997 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: <TABLE> <CAPTION> FEBRUARY 28, MARCH 1, 1998 1997 ------------ -------- (IN THOUSANDS) <S> <C> <C> Actuarial present value of benefit obligation: Accumulated benefit obligation, including vested benefits of $3,324 at February 28, 1998 and $3,128 at March 1, 1997 $ 3,770 $ 3,254 ======= ======= Projected benefit obligation $ 4,890 $ 4,180 Plan assets at fair value, primarily mutual funds and United States Treasury bills 4,654 3,869 ------- ------- Plan assets less than projected benefit obligation (236) (311) Unrecognized net Loss 165 147 Unamortized net asset at transition (101) (127) ------- ------- Accrued pension cost (included in accrued expenses) $ (172) $ (291) ======= ======= </TABLE> F-11
Pension expense includes the following components: FISCAL YEAR ENDED ---------------------------------- FEBRUARY 28, MARCH 1, MARCH 2, 1998 1997 1996 ------------ ------- -------- (IN THOUSANDS) Service cost-benefits earned during the period $ 384 $ 326 $ 330 Interest cost on the projected benefit obligation 303 282 242 Actual return on plan assets (207) (159) (191) Net amortization and deferral (166) (155) (80) ----- ----- ----- Net periodic pension cost $ 314 $ 294 $ 301 ===== ===== ===== The weighted average discount rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation was 7.0% during the year ended February 28, 1998, and 7.75% for the fiscal years ended March 1, 1997, and March 2, 1996. The expected long-term rate of return on plan assets was 8.5% during each of the years ended February 28, 1998, March 1, 1997 and March 2, 1996. 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 $222,000 for year ended February 28, 1998, $200,000 for the year ended March 1, 1997, and $130,000 for the year ended March 2, 1996. 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 1998 and 2019. 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 February 28, 1998 are as follows: CAPITAL LEASE OPERATING REAL ESTATE LEASES ------------- ---------- (IN THOUSANDS) 1998 $ 600 $ 7,342 1999 450 8,341 2000 -- 7,981 2001 -- 7,980 2002 -- 7,700 2003 and thereafter -- 67,354 ------ --------- Total minimum payments 1,050 $ 106,698 ========= Less amount representing interest 150 Present value of net minimum lease payments 900 ------ Less current maturities 481 ------ $ 419 ======= 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 February 28, 1998, March 1, 1997 and March 2, 1996. Rent expense for operating leases are as follows: FISCAL YEAR ENDED --------------------------------------------- FEBRUARY 28, MARCH 1, MARCH 2, 1998 1997 1996 ------------ -------- -------- (IN THOUSANDS) Minimum rentals $ 7,011 $ 5,832 $ 4,308 Escalation rentals 331 413 24 Contingent rentals 32 36 40 Sublease rentals (867) (743) (386) ------- ------- ------- $ 6,507 $ 5,538 $ 3,986 ======= ======= ======= 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. d. LETTER OF CREDIT - The Company has guaranteed a letter of credit on behalf of the licensee totaling approximately $150,000, which expires on July 5, 1998. 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 1996. 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 pro forma net income and earnings per share would be as follows: 1997 1996 1995 ---- ---- ---- Net Income (in thousands) $ 22,971 $19,042 $10,411 Net Income per share - basic 1.29 1.08 .59 Net Income per share - diluted 1.29 1.08 .59 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 1996. F-14
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 and 1996: risk-free interest rate 5.5% and 6.83%, expected life 5 and 10 years, expected volatility of 33.25% and 33.29%, and 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. Stock option transactions are summarized below: <TABLE> <CAPTION> FISCAL YEAR ENDED ------------------------------------------------------------------------------------- FEBRUARY 28, 1998 MARCH 1, 1997 MARCH 2, 1996 ----------------- ------------- ------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ------------------------------------------------------------------------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE FIXED OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE ------ -------- ------ -------- ------ --------- <S> <C> <C> <C> <C> <C> <C> Outstanding beginning of year 490 $ 9.52 426 $ 9.94 464 $ 9.90 Granted 25 9.88 100 8.00 -- -- Exercised (155) 9.03 -- -- -- -- Cancelled (13) 9.96 (36) 10.27 (38) 9.53 - ----------------------------------------------------------------------------------------------------------------------- Outstanding, end of period 347 $ 9.75 490 $ 9.52 426 $ 9.94 ======================================================================================================================= Options exerciseable at year end 282 $10.15 360 $ 9.83 320 $10.02 Weighted-average fair value of options granted during the year $ 3.84 $ 4.99 N/A </TABLE> The following table summarizes information about stock options outstanding at February 28, 1998: <TABLE> <CAPTION> OPTIONS OUTSTANDING OPTIONS EXERCISABLE - ---------------------------------------------------------------------------- ---------------------------------- WEIGHTED-AVERAGE NUMBER REMAINING WEIGHTED- NUMBER WEIGHTED- RANGE OF OUTSTANDING AT CONTRACTURAL AVERAGE EXERCISABLE AT AVERAGE EXERCISE PRICES FEBRUARY 28, 1998 LIFE (YEARS) EXERCISE PRICE FEBRUARY 28, 1998 EXERCISE PRICE - ------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> $7.125 - $12.250 347,450 5.2 $9.75 282,050 $10.15 </TABLE> NOTE 10 - NET INCOME PER SHARE In accordance with SFAS 128, basic net income per share has been computed based upon the weighted average common shares outstanding. Diluted net income per share gives effect to outstanding stock options. F-15
Net income per share have been computed as follows: <TABLE> <CAPTION> FISCAL 1997 FISCAL 1996 FISCAL 1995 ----------- ----------- ----------- <S> <C> <C> <C> BASIC NET INCOME PER SHARE: Net income $ 23,036 $ 19,065 $ 10,411 Average shares outstanding 17,770 17,694 17,694 Basic net income per share $ 1.30 $ 1.08 $ .59 DILUTED NET INCOME PER SHARE: Net Income $ 23,036 $ 19,065 $ 10,411 Average shares outstanding 17,770 17,694 17,694 Stock options 71 11 1 Total average equivalent shares 17,841 17,705 17,695 Diluted net income per share $ 1.29 $ 1.08 $ .59 </TABLE> Options to purchase 0, 236,000 and 412,000 shares of common stock at prices ranging from $7.125 to $12.250 per share were outstanding in 1997, 1996 and 1995, respectively, but were not included in the computation of diluted net income per share because the exercise price of the options exceed the average market price and would have been antidilutive. NOTE 11 - RELATED PARTY TRANSACTIONS The Company has entered into a capital lease with an officer. Included in the Statement of Income are the following expense relating to this agreement: FEBRUARY 28, MARCH 1, MARCH 2, 1998 1997 1996 ------------- --------- -------- (IN THOUSANDS) Depreciation $ 156 $ 238 $ 238 Interest 195 261 313 The balance sheet includes the following items relating to this agreement: FEBRUARY 28, 1998 MARCH 1, 1997 ----------------- ------------- (IN THOUSANDS) Assets under Capital Lease $ 3,763 $ 3,763 Accumulated Depreciation (3,495) (3,339) Capital Lease Obligation 900 1,305 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 F-16
Federal Mid-Term Rate) payable annually, and the principal of the note is due November 22, 2001. The principal balance on this loan as of February 28, 1998 was reduced by prepayment to $200,000. NOTE 12 - UNAUDITED SELECTED QUARTERLY FINANCIAL DATA <TABLE> <CAPTION> QUARTER ----------------------------------------------- FIRST SECOND THIRD FOURTH -------- -------- -------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> <C> YEAR ENDED FEBRUARY 28, 1998 Net sales $ 85,650 $ 78,589 $ 97,867 $ 90,853 Gross profit $ 34,173 $ 30,271 $ 42,043 $ 35,851 Net income $ 4,675 $ 2,821 $ 9,021 $ 6,519 Net income per share - basic $ 0.26 $ 0.16 $ 0.51 $ 0.37 Net income per share - diluted $ 0.26 $ 0.16 $ 0.51 $ 0.36 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 - basic $ 0.19 $ 0.08 $ 0.49 $ 0.32 Net income per share - diluted $ 0.19 $ 0.08 $ 0.49 $ 0.32 </TABLE> F-17