================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended AUGUST 28, 2004 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from_____________ to _____________ COMMISSION FILE NUMBER 1-8546 SYMS CORP (Exact Name of Registrant as Specified in Its Charter) NEW JERSEY 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) (201) 902-9600 (Registrant's Telephone Number, Including Area Code) NOT APPLICABLE (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] At October 1, 2004, the latest practicable date, there were 15,177,403 shares outstanding of Common Stock, par value $0.05 per share. ================================================================================
---------------------------- SYMS CORP AND SUBSIDIARIES ---------------------------- INDEX <TABLE> <CAPTION> PAGE NO. -------- <S> <C> <C> PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets as of August 28, 2004, February 28, 2004 and August 30, 2003 1 Condensed Consolidated Statements of Operations for the 13 Weeks and 26 Weeks Ended August 28, 2004 and August 30, 2003 2 Condensed Consolidated Statements of Cash Flows for the 26 Weeks Ended August 28, 2004 and August 30, 2003 3 Notes to Condensed Consolidated Financial Statements 4-6 Item 2. Management's Discussion and Analysis of Financial Condition 7-10 and Results of Operations Item 3. Quantitative and Qualitative Disclosures about Market Risk 10 Item 4. Disclosure Controls and Procedures 10-11 PART II. OTHER INFORMATION Item 1. Legal Proceedings 11 Item 2. Unregistered Sale of Equity Securities and Use of Proceeds 11 Item 3. Defaults Upon Senior Securities 11 Item 4. Submission of Matters to a Vote of Security Holders 11-12 Item 5. Other Information 12 Item 6. Exhibits 12 SIGNATURES 13 </TABLE>
---------------------------- SYMS CORP AND SUBSIDIARIES ---------------------------- CONDENSED CONSOLIDATED BALANCE SHEETS - -------------------------------------------------------------------------------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) <TABLE> <CAPTION> AUGUST 28, FEBRUARY 28, AUGUST 30, 2004 2004 2003 ------------- ------------- ------------- (UNAUDITED) (NOTE) (UNAUDITED) <S> <C> <C> <C> ASSETS Current Assets Cash and cash equivalents $ 21,451 $ 21,386 $ 19,828 Merchandise inventories 80,153 69,226 87,061 Deferred income taxes 3,627 3,627 4,143 Assets held for sale 2,376 4,495 -- Prepaid expenses and other current assets 6,607 6,173 6,588 --------- --------- --------- TOTAL CURRENT ASSETS 114,214 104,907 117,620 --------- --------- --------- PROPERTY AND EQUIPMENT - Net 120,831 123,757 131,056 DEFERRED INCOME TAXES 11,094 11,094 9,397 OTHER ASSETS 14,867 13,980 12,977 --------- --------- --------- TOTAL ASSETS $ 261,006 $ 253,738 $ 271,050 ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 28,676 $ 16,154 $ 31,506 Accrued expenses 6,232 7,714 9,877 Accrued insurance 840 1,264 1,708 Obligations to customers 3,540 3,570 3,250 --------- --------- --------- TOTAL CURRENT LIABILITIES 39,288 28,702 46,341 --------- --------- --------- OTHER LONG TERM LIABILITIES 1,838 1,862 1,881 --------- --------- --------- COMMITMENTS AND CONTINGENCIES 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; 15,177 shares outstanding (net of 2,895 treasury shares) on August 28, 2004; 15,092 shares outstanding as of February 28, 2004 (net of 2,879 treasury shares) and 15,034 shares outstanding (net of 2,650 treasury shares) on August 30, 2003 759 755 765 Additional paid-in capital 14,794 14,239 14,121 Treasury stock (24,118) (23,993) (22,487) Retained earnings 228,445 232,173 230,429 --------- --------- --------- TOTAL SHAREHOLDERS' EQUITY 219,880 223,174 222,828 --------- --------- --------- </TABLE> NOTE: The balance sheet at February 28, 2004 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See Notes to Condensed Consolidated Financial Statements 1
---------------------------- SYMS CORP AND SUBSIDIARIES ---------------------------- CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - -------------------------------------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <TABLE> <CAPTION> 13 WEEKS ENDED 26 WEEKS ENDED -------------- -------------- AUGUST 28, AUGUST 30, AUGUST 28, AUGUST 30, 2004 2003 2004 2003 ---- ---- ---- ---- (Unaudited) (Unaudited) <S> <C> <C> <C> <C> Net sales $ 61,254 $ 62,102 $ 129,575 $ 125,636 Cost of goods sold 37,985 39,996 78,150 77,616 --------- --------- --------- --------- Gross profit 23,269 22,106 51,425 48,020 Expenses: Selling, general and administrative 19,306 19,706 37,959 38,875 Advertising 898 1,421 3,642 3,801 Occupancy 4,611 4,456 8,830 8,620 Depreciation and amortization 2,416 2,784 5,025 5,407 Loss on sale of building 1,271 -- 1,271 -- --------- --------- --------- --------- Loss from operations (5,233) (6,261) (5,302) (8,683) Other income (7) (68) (29) (178) Interest income (76) (31) (130) (43) --------- --------- --------- --------- Loss before income taxes (5,150) (6,162) (5,143) (8,462) Provision benefit for income taxes (1,418) (1,479) (1,415) (2,030) --------- --------- --------- --------- Net loss $ (3,732) $ (4,683) $ (3,728) $ (6,432) ========= ========= ========= ========= Net loss per share-basic $ (0.25) $ (0.30) $ (0.25) $ (0.42) ========= ========= ========= ========= Weighted average shares outstanding-basic 15,124 15,412 15,124 15,412 ========= ========= ========= ========= Net loss per share-diluted $ (0.25) $ (0.30) $ (0.25) $ (0.42) ========= ========= ========= ========= Weighted average shares outstanding-diluted 15,124 15,412 15,124 15,412 ========= ========= ========= ========= </TABLE> See Notes to Condensed Consolidated Financial Statements 2
---------------------------- SYMS CORP AND SUBSIDIARIES ---------------------------- CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------- (IN THOUSANDS) <TABLE> <CAPTION> 26 WEEKS ENDED -------------- AUGUST 28, AUGUST 30, 2004 2003 ---- ---- (UNAUDITED) <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (3,728) $ (6,432) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 5,025 5,407 Loss on sale of building 1,271 440 Loss on disposal of assets 126 -- (Increase) decrease in operating assets: Merchandise inventories (10,927) (8,910) Prepaid expenses and other current assets (434) (308) Other assets (894) (3,132) Increase (decrease) of operating liabilities: Accounts payable 12,522 18,867 Accrued expenses (1,906) (2,853) Obligations to customers (30) (102) Other long term liabilities (24) (10) -------- -------- Net cash provided by operating activities 1,001 2,967 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for property and equipment (1,466) (1,443) Proceeds from sale of building 96 -- -------- -------- Net cash used in investing activities (1,370) (1,443) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Exercise of options 560 22 Stock repurchase (126) (915) -------- -------- Net cash provided by (used in) financing activities 434 (893) -------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS 65 631 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 21,386 19,197 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 21,451 $ 19,828 ======== ======== </TABLE> See Notes to Condensed Consolidated Financial Statements 3
---------------------------- SYMS CORP AND SUBSIDIARIES ---------------------------- NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 13 AND 26 WEEKS ENDED AUGUST 28, 2004 AND AUGUST 30, 2003 - -------------------------------------------------------------------------------- (UNAUDITED) NOTE 1 - THE COMPANY Syms Corp (the "Company") operates a chain of 38 "off-price" retail clothing stores located throughout the United States in 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. NOTE 2 - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the 13 week and 26 week periods ended August 28, 2004 are not necessarily indicative of the results that may be expected for the entire fiscal year ending February 26, 2005. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the fiscal year ended February 28, 2004. NOTE 3 - ACCOUNTING PERIOD The Company's fiscal year ends the Saturday nearest to the end of February. The fiscal year ending February 26, 2005 will be comprised of 52 weeks. The fiscal year ended February 28, 2004 was comprised of 52 weeks. NOTE 4 - MERCHANDISE INVENTORIES Merchandise inventories are stated at the lower of cost (first in, first out) or market, as determined by the retail inventory method. NOTE 5 - BANK CREDIT FACILITIES On November 5, 2003, the Company entered into an unsecured revolving credit agreement with a bank for a line of credit not to exceed $20,000,000 through April 30, 2005. The unsecured revolving credit agreement replaced the Company's prior unsecured revolving credit agreement which expired by its terms. Under the new credit agreement, interest on individual advances is payable quarterly at 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 other alternative calculation, 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 0.5 of 1% per annum. As of August 28, 2004 and February 28, 2004, there were no outstanding borrowings under this new agreement and as of August 30, 2003, there were no outstanding borrowings under the prior credit agreement. At August 28, 2004 and February 28, 2004, the Company had $1,676,000 and $2,597,000, respectively, in outstanding letters of credit under this new agreement. The prior credit agreement did not provide for the issuance of letters of credit. The agreement contains financial covenants with respect to consolidated tangible net worth, as defined therein, working capital and maximum capital expenditures, including dividends (defined to include cash repurchases of capital stock), as well as other financial ratios. The Company was in compliance with all covenants as of August 28, 2004. 4
---------------------------- SYMS CORP AND SUBSIDIARIES ---------------------------- 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 foreign merchandise. This agreement may be canceled at any time by either party. At August 28, 2004, February 28, 2004 and August 30, 2003, the Company had $0, $0 and $3,321,000, respectively, in outstanding letters of credit. The Company is not currently utilizing this facility. NOTE 6 - NET INCOME/(LOSS) PER SHARE In accordance with SFAS 128, basic net income/(loss) per share has been computed based upon the weighted average common shares outstanding. Diluted net income/(loss) per share gives effect to outstanding stock options. Net income/(loss) per share has been computed as follows: <TABLE> <CAPTION> 13 WEEKS ENDED 26 WEEKS ENDED ----------------------------------- ---------------------------------- AUGUST 28, 2004 AUGUST 30, 2003 AUGUST 28, 2004 AUGUST 30, 2003 --------------- --------------- --------------- --------------- BASIC NET LOSS PER SHARE: <S> <C> <C> <C> <C> Net loss ...................... $ (3,732) $ (4,683) $ (3,728) $ (6,432) Average shares outstanding .... 15,124 15,412 15,124 15,412 Basic net loss per share ...... $ (0.25) $ (0.30) $ (0.25) $ (0.42) DILUTED NET LOSS PER SHARE: Net loss ...................... $ (3,732) $ (4,683) $ (3,728) $ (6,432) Average shares outstanding .... 15,124 15,412 15,124 15,412 Stock options ................. -- -- -- -- Total average equivalent shares ........................ 15,124 15,412 15,124 15,412 Diluted net loss per share .... $ (0.25) $ (0.30) $ (0.25) $ (0.42) </TABLE> In periods with losses, options were excluded from the computation of diluted net income per share because the effect would be anti-dilutive. Options to purchase 781,850 and 920,875 shares of common stock at prices ranging from $5.63 to $10.69 per share were outstanding as of August 28, 2004 and August 30, 2003, 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 anti-dilutive. NOTE 7 - RECENT ACCOUNTING PRONOUNCEMENTS In January 2003, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 46, Consolidation of Variable Interest Entities ("FIN 46"). The objective of this interpretation is to provide guidance on how to identify a variable interest entity ("VIE") and determine when the assets, liabilities, non-controlling interests, and results of operations of a VIE need to be included in a company's consolidated financial statements. A company that holds variable interests in an entity will need to consolidate the entity if the company's interest in the VIE is such that the company will absorb a majority of the VIE's expected losses and/or receive a majority of the entity's expected residual returns, if they occur. FIN 46 also requires additional disclosures by primary beneficiaries and other significant variable interest holders. In December 2003, the FASB completed deliberations of proposed modifications to FIN 46 ("Revised Interpretations") resulting in multiple effective dates based on the nature as well as the creation date of the VIE. VIE's created after January 31, 2003, but prior to January 1, 2004, may be accounted for 5
---------------------------- SYMS CORP AND SUBSIDIARIES ---------------------------- either based on the original interpretation or the Revised Interpretations. However, the Revised Interpretations must be applied no later than the Company's first quarter of fiscal 2004. VIE's created after January 1, 2004 must be accounted for under the Revised Interpretations. Special Purpose Entities ("SPE's") created prior to February 1, 2003 may be accounted for under the original or revised interpretation's provisions no later than the Company's first quarter of fiscal 2004. Non-SPE's created prior to February 1, 2003, should be accounted for under the revised interpretation's provisions no later than the Company's first quarter of fiscal 2004. The Company has not entered into any material arrangements with VIE's created after January 31, 2003. The Company has determined that the adoption of FIN 46 did not have a material effect on its results of operations and financial condition. NOTE 8 - ACCOUNTING FOR STOCK-BASED COMPENSATION The Company complies with Statement of Financial Accounting Standards No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION" ("SFAS No. 123"). This statement defines a fair value based method whereby compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period, which is usually the vesting period. Under SFAS No. 123, companies are encouraged, but are not required, to adopt the fair value method of accounting for employee stock-based transactions. The Company accounts for such transactions under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, but discloses pro forma net loss as if the Company had applied the SFAS No. 123 method of accounting. Pro forma information, assuming the Company had accounted for its employee stock options granted under the fair value method prescribed by SFAS No. 123, as amended by FASB Statement No. 148, "Accounting for Stock Based Compensation - Transition and Disclosure, an Amendment of FASB Statement No. 123," is presented below. The fair value of each option grant is estimated on the date of each grant using the Black-Scholes option-pricing model. There were no stock options granted in the twenty six weeks ended August 28, 2004 and August 30, 2003, respectively. 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. <TABLE> <CAPTION> 13 WEEKS ENDED 26 WEEKS ENDED -------------- -------------- 8/28/04 8/30/03 8/28/04 8/30/03 ------- ------- ------- ------- <S> <C> <C> <C> <C> Net income/(loss): ($3,732) ($4,683) ($3,728) ($6,432) Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects $ -- ($7) $ -- ($14) ---- ---- ---- ----- Pro forma net income/(loss) ($3,732) ($4,690) ($3,728) ($6,446) ======== ======== ======== ======== Earnings (loss) per share: Basic, as reported ($.25) ($.30) ($.25) ($0.42) Basic, pro forma ($.25) ($.30) ($.25) ($0.42) Diluted, as reported ($.25) ($.30) ($.25) ($0.42) Diluted, pro forma ($.25) ($.30) ($.25) ($0.42) </TABLE> This pro forma information may not be representative of the amounts 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 fiscal 1996. 6
---------------------------- SYMS CORP AND SUBSIDIARIES ---------------------------- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS The Quarterly Report (including but not limited to factors discussed below, in the "Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as those discussed elsewhere in this Quarterly Report on Form 10-Q) includes forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934) and information relating to the Company that are based on the beliefs of the management of the Company as well as assumptions made by and information currently available to the management of the Company. When used in this Quarterly Report, the words "anticipate," "believe," "estimate," "expect," "intend," "plan," and similar expressions, as they relate to the Company or the management of the Company, identify forward-looking statements. Such statements reflect the current views of the Company with respect to future events, the outcome of which is subject to certain risks, including among others general economic and market conditions, decreased consumer demand for the Company's products, possible disruptions in the Company's computer or telephone systems, possible work stoppages, or increases in labor costs, effects of competition, possible disruptions or delays in the opening of new stores or inability to obtain suitable sites for new stores, higher than anticipated store closings or relocation costs, higher interest rates, unanticipated increases in merchandise or occupancy costs and other factors which may be outside the Company's control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described herein as anticipated, believed, estimated, expected, intended or planned. Subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements in this paragraph and elsewhere described in this Quarterly Report and other reports filed with the Securities and Exchange Commission. CRITICAL ACCOUNTING POLICIES AND ESTIMATE The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the appropriate application of certain accounting policies, many of which require us to make estimates and assumptions about future events and their impact on amounts reported in the financial statements and related notes. Since future events and their impact cannot be determined with certainty, the actual results will inevitably differ from our estimates. Such differences could be material to the consolidated financial statements. The Company believes application of accounting policies, and the estimates inherently required by the policies, are reasonable. These accounting policies and estimates are constantly reevaluated, and adjustments are made when facts and circumstances dictate a change. Historically, the Company has found the application of accounting policies to be appropriate, and actual results have not differed materially from those determined using necessary estimates. The Company's accounting policies are more fully described in Note 1 to the Consolidated Financial Statements, located in the Annual Report on Form 10-K for the year ended February 28, 2004. The Company has identified certain critical accounting policies that are described below. MERCHANDISE INVENTORY - Inventories are valued at lower of cost or market using the retail first-in, first-out ("FIFO") inventory method. Under the retail inventory method ("RIM"), the valuation of inventories at cost and the resulting gross margins are calculated by applying a calculated cost to retail ratio to the retail value of inventories. RIM is an averaging method that has been widely used in the retail industry due to its practicality. Additionally, it is recognized that the use of RIM will result in valuing inventories at the lower of cost or market if markdowns are currently taken as a reduction of the retail value of inventories. Inherent in the RIM calculation are certain significant management judgments and estimates including, among others, merchandise markon, markups, and markdowns, which significantly impact the ending inventory valuation at cost as well as resulting gross margins. Management believes that the Company's RIM and application of FIFO provides an inventory valuation which reasonably approximates cost using a first-in, 7
---------------------------- SYMS CORP AND SUBSIDIARIES ---------------------------- first-out assumption and results in a carrying value at the lower of cost or market. If actual market conditions are less favorable than those projected by management, additional markdowns may be required. LONG-LIVED ASSETS - In evaluation of the fair value and future benefits of long-lived assets, the Company performs analyses of the anticipated undiscounted future net cash flows of the related long-lived assets. If the carrying value of the related asset exceeds the undiscounted cash flows, the Company reduces the carrying value to its fair value, which is generally calculated using discounted cash flows. Various factors including future sales growth and profit margins are included in this analysis. To the extent these future projections or our strategies change, the conclusion regarding impairment may differ from the Company's current estimates. DEFERRED TAX VALUATION ALLOWANCE - The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. The Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. If the Company were to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should the Company determine that it would not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made. SELF-INSURANCE ACCRUALS - The Company had been self-insured for workers' compensation liability claims. The Company is responsible for the payment of claims from prior years. In estimating the obligation associated with incurred losses, the Company utilizes loss development factors. These development factors utilize historical data to project incurred losses. Loss estimates are adjusted based upon actual claims settlements and reported claims. RESULTS OF OPERATIONS 13 WEEKS AND 26 WEEKS ENDED AUGUST 28, 2004 COMPARED TO 13 AND 26 WEEKS ENDED AUGUST 30, 2003 Net sales for the 13 weeks ended August 28, 2004 were $61,254,000, a decrease of $848,000 (1.4%) as compared to net sales of $62,102,000 for the 13 weeks ended August 30, 2003. For the 26 weeks ended August 28, 2004, net sales increased $3,939,000 (3.1%) to $129,575,000 as compared to net sales of $125,636,000 for the 26 weeks ended August 30, 2003. Comparable store sales increased 0.2% for the 13 weeks ended August 28, 2004 and 3.7% for the 26 weeks ended August 28, 2004, as compared to the comparable periods in the prior fiscal year. Our "Bash" sales promotion, which took place in August 2004, had seven less selling days in this fiscal quarter than during the promotion in the same period last fiscal year. Sales during such promotion were $3,500,000 less than sales during the promotion in the same period last fiscal year, contributing to the decrease in net sales for the 13 weeks ended August 28, 2004. Gross profit for the 13 weeks ended August 28, 2004 was $23,269,000 (38.0% as a percentage of net sales), an increase of $1,163,000 as compared to $22,106,000 (35.6% as a percentage of net sales) for the 13 weeks ended August 30, 2003. Gross profit for the 26 weeks ended August 28, 2004 was $51,425,000 (39.7% as a percentage of net sales), an increase of $3,405,000 as compared to $48,020,000 (38.2% as a percentage of net sales) for the 26 weeks ended August 30, 2003. The increase in gross profit in the 13 and 26 week periods is largely due to fewer markdowns on merchandise sold as compared to the same periods in the prior fiscal year. Selling, general and administrative expense decreased $438,000 to $19,268,000 (31.5% as a percentage of net sales) for the 13 weeks ended August 28, 2004 as compared to $19,706,000 (31.7% as a percentage of net sales) for the 13 weeks ended August 30, 2003. Selling, general and administrative expense decreased $954,000 to $37,921,000 (29.3% as a percentage of net sales) for the 26 weeks ended August 28, 2004 as compared to $38,875,000 (30.9% as a percentage of net sales) for the 26 weeks ended August 30, 2003. The reduced expenditures in existing locations and the closing of the Baltimore and Charlotte stores contributed to the reduction in selling, general and administrative expenses in the 13 and 26 weeks ended August 28, 2004. 8
---------------------------- SYMS CORP AND SUBSIDIARIES ---------------------------- Advertising expense for the 13 weeks ended August 28, 2004 was $898,000 (1.5% as a percentage of net sales) as compared to $1,421,000 (2.3% as a percentage of net sales) for the 13 week period ended August 30, 2003. Advertising expense for the 26 weeks ended August 28, 2004 was $3,642,000 (2.8% as a percentage of net sales as compared to $3,801,000 (3.0% as a percentage of net sales) in the 26 weeks ended August 30, 2003. Occupancy costs were $4,611,000 (7.5% as a percentage of net sales) for the 13 weeks ended August 28, 2004 as compared to $4,456,000 (7.2% as a percentage of net sales) for the 13 weeks ended August 30, 2003. Occupancy costs were $8,830,000 (6.8% as a percentage of net sales) for the 26 weeks ended August 28, 2004 compared to $8,620,000 (6.9% as a percentage of net sales) for the 26 week period ended August 30, 2003. The increased expenditures of utilities and real estate taxes in existing stores accounts for this increase in both the 13 and 26 week periods as compared to the comparable periods a year ago. Depreciation and amortization was $2,416,000 (3.9% as a percentage of net sales) for the 13 weeks ended August 28, 2004 as compared to $2,784,000 (4.5% as a percentage of net sales) for the 13 weeks ended August 30, 2003. Depreciation and amortization for the 26 weeks ended August 28, 2004 was $5,025,000 (3.9% as a percentage of net sales) as compared to $5,407,000 (4.3% as a percentage of net sales) for the 26 weeks ended August 30, 2003. The results for the 13 weeks ended August 28, 2004 reflect a $1,271,000 charge resulting from the exercise by the Company of its option to purchase the Lawrenceville store and the simultaneous sale of the Lawrenceville store. Such store will be closed on October 16, 2004. This action was taken by the Company as part of its continuing efforts to improve profitability. The loss before income taxes for the 13 weeks ended August 28, 2004 was $5,150,000, a decrease of $1,012,000 as compared to a loss of $6,162,000 for the 13 weeks ended August 30, 2003. The loss before income taxes for the 26 weeks ended August 28, 2004 was $5,143,000 as compared to a loss before income taxes of $8,462,000 for the 26 weeks ended August 30, 2003. This reduction in loss before income taxes for the 13 and 26 week periods as compared to the previous fiscal year resulted principally from improved gross profit margins and lower expenses. For the 26 week period ended August 28, 2004, the effective income tax rate was 27.5% as compared to 24.0% for the comparable period a year ago. Included in the 13 weeks ended August 28, 2004 was a tax refund from the State of Maryland for approximately $1,400,000. LIQUIDITY AND CAPITAL RESOURCES Working capital as of August 28, 2004 was $74,926,000, an increase of $3,647,000 as compared to $71,279,000 as of August 30, 2003. The ratio of current assets to current liabilities was 2.91 to 1 as of August 28, 2004 as compared to 2.54 to 1 as of August 30, 2003. Net cash provided by operating activities totaled $1,001,000 for the 26 weeks ended August 28, 2004, as compared to $2,967,000 for the 26 weeks ended August 30, 2003. Net cash used in investing activities was $1,370,000 for the 26 weeks ended August 28, 2004, as compared to $1,443,000 for the 26 weeks ended August 30, 2003. Expenditures for property and equipment were $1,466,000 and $1,443,000 for the 26 weeks ended August 28, 2004 and August 30, 2003, respectively. Net cash provided by financing activities was $434,000 for the 26 weeks ended August 28, 2004, as compared to net cash used in financing activities of $893,000 for the 26 weeks ended August 30, 2003. On November 5, 2003, the Company entered into an unsecured revolving credit agreement with a bank for a line of credit not to exceed $20,000,000 through April 30, 2005. The unsecured revolving credit agreement replaced the Company's prior unsecured revolving credit agreement which expired by its terms. Under the new credit agreement, interest on individual advances is payable quarterly at 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 other 9
---------------------------- SYMS CORP AND SUBSIDIARIES ---------------------------- alternative calculation, 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 0.5 of 1% per annum. As of August 28, 2004 and February 28, 2004, there were no outstanding borrowings under this new agreement and as of August 30, 2003, there were no outstanding borrowings under the prior credit agreement. At August 28, 2004 and February 28, 2004, the Company had $1,676,000 and $2,597,000, respectively, in outstanding letters of credit under this new agreement. The prior credit agreement did not provide for the issuance of letters of credit. The agreement contains financial covenants with respect to consolidated tangible net worth, as defined therein, working capital and maximum capital expenditures, including dividends (defined to include cash repurchases of capital stock), as well as other financial ratios. The Company was in compliance with all covenants as of August 28, 2004. 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 foreign merchandise. This agreement may be canceled at any time by either party. At August 28, 2004, February 28, 2004 and August 30, 2003, the Company had $0, $0 and $3,321,000, respectively, in outstanding letters of credit. The Company is not currently utilizing this facility. The Company has planned capital expenditures of approximately $5,000,000 for the fiscal year ending February 26, 2005. Through the 26 week period ended August 28, 2004, the Company has incurred $1,466,000 of capital expenditures. On April 22, 2004, the Company's Board of Directors approved the repurchase of the Company through June 7, 2006 of up to an additional 3,100,000 shares of common stock at prevailing market prices. All shares repurchased will be held as treasury stock. Under prior authorization, the Company repurchased during the 13 week period ended May 29, 2004, 16,100 shares of common stock at a total cost of $126,002. The Company did not make any repurchases during the 13 week period ended August 28, 2004 of shares of common stock. 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 26, 2005. 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. RECENT ACCOUNTING PRONOUNCEMENTS See Note 7 of the Consolidated Financial Statements for a full description of the Recent Accounting Pronouncements including the respective dates of adoption and the effects on Results of Operation and Financial Condition. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's operations are not currently subject to material market risks for interest rates, foreign currency rates or other market price risks. ITEM 4. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures Based on the evaluation of the Company's disclosure controls and procedures as of the end of the period 10
---------------------------- SYMS CORP AND SUBSIDIARIES ---------------------------- covered by this Quarterly Report, each of Marcy Syms, the Chief Executive Officer of the Company, and Antone F. Moreira, the Chief Financial Officer of the Company, has concluded that the Company's disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Securities and Exchange Act of 1934 (the "Exchange Act"), as amended, is recorded, processed, summarized and reported, within the time period specified by the Securities and Exchange Commission's rules and forms. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the Company's periodic reports. (b) Internal Control Over Financial Reporting There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Company's most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. PART II. OTHER INFORMATION - -------------------------------------------------------------------------------- Item 1. LEGAL PROCEEDINGS - None Item 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS - None Item 3. DEFAULTS UPON SENIOR SECURITIES - None Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the annual meeting of shareholders held on July 15, 2004, the Company's shareholders holding a majority of the shares of the Common Stock outstanding as of the close of business on June 11, 2004, voted to approve each of the two proposals included in the Company's proxy statement as follows: To elect six directors to hold office for one year or until their respective successors are duly elected and qualified. FOR WITHHELD --- -------- Sy Syms 13,096,825 1,016,175 Marcy Syms 13,096,925 1,016,175 Antone F. Moreira 11,853,543 2,259,457 Harvey A. Weinberg 13,853,657 259,343 Wilbur L. Ross, Jr. 13,853,657 259,343 Amber A. Brookman 13,853,657 259,343 To ratify the appointment of BDO Seidman, LLP as independent accountants of the Company for the fiscal year ending February 26, 2005: For: 14,007,206 Against: 102,170 Abstain: 3,624 Item 5. OTHER INFORMATION - None Item 6. EXHIBITS 11
---------------------------- SYMS CORP AND SUBSIDIARIES ---------------------------- (a) Exhibits filed with this Form 10-Q 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(b) under the Securities and Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities and Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 12
---------------------------- SYMS CORP AND SUBSIDIARIES ---------------------------- SIGNATURES Pursuant to the requirements 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 DATE: OCTOBER 7, 2004 BY /s/ Marcy Syms ----------------------------------- MARCY SYMS CHIEF EXECUTIVE OFFICER DATE: OCTOBER 7, 2004 BY /s/ Antone F. Moreira ----------------------------------- ANTONE F. MOREIRA VICE PRESIDENT, CHIEF FINANCIAL OFFICER (Principal Financial and Accounting Officer) 13