10-K 1 c32040_10-k.txt ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM 10-K ---------- FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (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, 2004 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, $0.05 Par Value Per Share 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. [X] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12-b2 of the Exchange Act). Yes ___ No _X_ The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $49,502,211 based upon the closing market price of $6.89 per share of the Common Stock on the New York Stock Exchange as of August 29, 2003, the last business day of the registrant's most recently completed second fiscal quarter. As of May 3, 2004, 15,104,653 shares of Common Stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant's Proxy Statement for the 2004 Annual Meeting of Shareholders are incorporated by reference into Part III of this Annual Report. ================================================================================ PART I ITEM 1. BUSINESS GENERAL Syms Corp operates a chain of 40 "off-price" retail stores located throughout the United States in the Northeastern and Middle Atlantic regions and in the Midwest, Southeast and Southwest. Each Syms store offers a broad range of first quality, in-season merchandise bearing nationally recognized designer or brand-name labels 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 40 stores and the aggregate amount of selling space in Syms stores increased from approximately 2,000 square feet to approximately 1,606,000 square feet. The Company maintains a 277,000 square foot distribution center and executive headquarters in Secaucus, New Jersey. 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 40 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. Please refer to Note 1 of the Consolidated Financial Statements for information on segment reporting. MERCHANDISE For the year ended February 28, 2004, net sales were generated by the following categories: Men's tailored clothes and haberdashery ............. 52% Women's dresses, suits, separates and accessories ... 30% Shoes ............................................... 8% Children's wear ..................................... 3% --- Luggage, domestics and fragrances ................... 100% Most of the items sold by the Company consist of nationally recognized fashion brand-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 the General Merchandise Manager and several other key divisional merchandise managers. 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 272 years. Most merchandise is received from manufacturers at the distribution center where it is inspected, ticketed and allocated to particular stores. 1 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 4.0 % 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 advertises principally on television, radio and, more recently, has enhanced its advertising by including print media as well as direct mail. 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 and other major credit cards 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 a 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. EMPLOYEES At February 28, 2004, the Company had 1,837 employees of whom approximately 659 work on a part time basis. Approximately 30 to 100 persons, consisting mostly of sales personnel, are employed at each Syms store. The Company has a collective bargaining agreement with Local 108 of the Retail, Wholesale and Department Store Union which expires on May 27, 2006 and covers 134 sales and tailor employees. The Company's collective bargaining agreements with Local 1102 of the Retail, Wholesale and Department Store Union and the United Food and Commercial Workers Union expire on March 31, 2006 and April 30, 2006, respectively, which together cover sales and tailor employees. The Company believes its relationships with the unions are good. 2 ITEM 2. PROPERTIES THE STORES LOCATION At February 28, 2004, the Company had 40 stores, 17 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. LEASED/ SELLING STATE LOCATION OWNED SPACE ----- -------- ------- ------- CONNECTICUT Fairfield Owned 32,000 Hartford Leased 31,000 FLORIDA Fort Lauderdale Owned 44,000 Miami Owned 45,000 West Palm Beach Owned 36,000 Tampa Owned 38,000 Kendall Leased 32,000 GEORGIA Norcross Owned 51,000 Marietta Owned 39,000 ILLINOIS Addison Owned 47,000 Niles Leased 32,000 MARYLAND Baltimore Leased 43,000 Rockville Owned 61,000 Towson Leased 41,000 MASSACHUSETTS Norwood Leased 36,000 Peabody Leased 39,000 MICHIGAN Southfield Owned 46,000 Troy Leased 37,000 MISSOURI St. Louis Leased 33,000 NEW YORK/NEW JERSEY Park Avenue Leased 45,000 Trinity Owned 40,000 Westbury Owned 72,000 Commack Owned 36,000 Westchester Leased 50,000 Rochester Owned 32,000 Buffalo Owned 39,000 Paramus Owned 56,000 Woodbridge Leased 32,000 Secaucus Owned 29,000 Cherry Hill Owned 40,000 Lawrenceville Leased 54,000 NORTH CAROLINA Charlotte Leased 30,000 OHIO Highland Heights Leased 36,000 PENNSYLVANIA King of Prussia Owned 41,000 Monroeville Owned 31,000 RHODE ISLAND N. Cranston Leased 27,000 TEXAS Dallas Owned 42,000 Houston Owned 34,000 Hurst Owned 38,000 VIRGINIA Falls Church Leased 39,000 3 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 two New York City stores. Syms stores are usually located near a major highway or thoroughfare in suburban areas populated by at least 1,000,000 people and are readily accessible to customers by automobile. In certain areas where the population is in excess of 2,000,000 people, Syms has opened more than one store in the same general vicinity. Syms also owns land in Roseland, New Jersey in a commercially zoned area which the Company agreed to sell pursuant to an agreement entered into as of March 31, 2003. The closing of the sale is subject to certain conditions, including conditions relating to environmental standards. Syms also owns land and buildings in Northern Ohio at the site of a closed store which the Company has agreed to sell pursuant to an agreement entered into in March 2004. The closings on these properties have not been consumated. LEASE TERMS Sixteen of the Company's 40 stores are currently leased from unrelated parties, and the Elmsford, New York store is leased from Sy Syms, the Chairman of Syms Corp. The following table summarizes lease expirations and any renewal options: NUMBER OF NUMBER OF CALENDAR LEASES LEASES WITH RANGE IN YEARS OF PERIODS EXPIRING RENEWAL OPTIONS OPTION PERIODS (1) ------- --------- --------------- ------------------ 2004 2 1 10 years 2005 4 3 5 years 2006 1 1 3-5 years 2007 1 0 0 2008 2 1 5 years 2009 and thereafter 7 6 5 years (1) Depending on the applicable option, the minimum rent due during the renewal option periods may be based upon a formula contained in the existing lease or negotiations between the parties. Store leases provide for a base rental of between approximately $4.30 and $40.79 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. Two of the Company's stores provide for rent based on a percentage of sales. Minimum rental payments for Syms' leased stores aggregated $8,064,503 for the year ended February 28, 2004, of which $796,500 was paid to Sy Syms as fixed rent. On December 1, 2002, Syms Corp and Sy Syms signed a lease for the Elmsford store for an annual rent of $796,500 which expires on November 30, 2010. STORE OPENINGS/CLOSINGS No new stores were opened this year, and no stores were closed. 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 Annual Report. 4 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES MARKET INFORMATION The common stock of the Company (the "Common Stock") is listed for trading on the New York Stock Exchange under the symbol "SYM". The following table sets forth the high and low sales prices for the Company's Common Stock as reported by the New York Stock Exchange for each quarter within the two most recent fiscal years of the Company. HIGH LOW Quarter ended February 28, 2004 $8.08 $6.75 Quarter ended November 29, 2003 7.12 6.41 Quarter ended August 30, 2003 7.06 6.38 Quarter ended May 31, 2003 8.17 6.95 Quarter ended March 1, 2003 $7.71 $7.07 Quarter ended November 30, 2002 7.79 6.45 Quarter ended August 31, 2002 7.50 5.85 Quarter ended June 1, 2002 6.15 5.45 HOLDERS As of May 3, 2004, there were 122 record holders of the Company's Common Stock. DIVIDENDS The Board of Directors of the Company did not declare dividends in the fiscal years ended February 28, 2004 and March 1, 2003. Payment of dividends is within the discretion of the Company's Board of Directors and depends 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 intends generally to retain earnings, if any, to fund development and growth of its business. The Company does not plan on paying dividends in the near term. PURCHASES OF EQUITY SECURITIES BY THE ISSUER -------------------- ----------- ---------- ------------------ ----------------- (c) TOTAL NUMBER (d) MAXIMUM (b) OF SHARES NUMBER OF SHARES (a) TOTAL AVERAGE PURCHASED AS THAT MAY YET BE NUMBER OF PRICE PART OF PUBLICLY PURCHASED UNDER SHARES PAID PER ANNOUNCED PLANS THE PLANS OR PERIOD PURCHASED SHARE OR PROGRAMS PROGRAMS(1) -------------------- ----------- ---------- ------------------ ----------------- NOVEMBER 30, 2003 - JANUARY 3, 2004 0 0 0 0 -------------------- ----------- ---------- ------------------ ----------------- JANUARY 4, 2004 - JANUARY 31, 2004 0 0 0 0 -------------------- ----------- ---------- ------------------ ----------------- FEBRUARY 1, 2004 - FEBRUARY 28, 2004 50,000 $6.98 50,000 2,472,700 -------------------- ----------- ---------- ------------------ ----------------- TOTAL 50,000 $6.98 50,000 2,472,700 -------------------- ----------- ---------- ------------------ ----------------- 5 (1) On June 7, 2002, the Company's Board of Directors' authorized the repurchase of up to 20% of its outstanding shares of common stock (not to exceed 3,200,000 shares) at prevailing market prices through June 7, 2004. For equity compensation plan information, see Item 12. ITEM 6. SELECTED FINANCIAL DATA The selected financial data presented below has been derived from the Company's audited Consolidated Financial Statements for the fiscal years ended February 28, 2004, March 1, 2003, March 2, 2002, March 3, 2001 and February 26, 2000. The selected financial data presented below should be read in conjunction with such Financial Statements and notes thereto.
FISCAL YEAR ENDED ---------------------------------------------------------------------------- FEBRUARY 28, MARCH 1, MARCH 2, MARCH 3, FEBRUARY 26, 2004 2003 2002 2001 2000 --------- --------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) INCOME STATEMENT DATA: Net sales .................................. $ 275,219 $ 281,505 $ 287,744 $ 342,316 $ 341,570 Net income (loss) .......................... (4,668) (9,035) (2,319) (8,333) 2,224 Net income (loss) per share - basic ........ (0. 31) (0.58) (0.15) (0.52) 0.14 Net income (loss) per share - diluted ...... (0.31) (0.58) (0.15) (0.52) 0.14 BALANCE SHEET DATA: Working capital ............................ $ 71,710 $ 77,342 $ 85,961 $ 86,638 $ 87,812 Total assets ............................... 253,738 262,473 276,494 276,867 300,314 Other long term liabilities ................ 1,862 1,891 2,118 2,409 2,436 Shareholders' equity ....................... 223,174 230,153 241,457 243,935 253,428
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This Annual 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 Annual Report on Form 10-K) may include certain forward-looking statements (within the meaning of Sections 27A of the Securities Act of 1933 and 21E of the Securities 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 Annual 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 Annual Report and other reports filed with the Securities and Exchange Commission. EXECUTIVE OVERVIEW Syms is an off-price retailer which operates a chain of forty apparel stores located throughout the Northeastern and middle Atlantic regions, the Midwest, Southeast and Southwest. Syms stores offer a broad range of first quality, in-season merchandise bearing nationally recognized designer and brand-name labels in men's, women's and children's apparel. The retail environment continues to be challenging, although the Company experienced an improved performance in the third and fourth quarters of fiscal 2003. The uncertainty of economic conditions continues to make the forecasting of near-term results difficult; however, the Company believes that current economic indicators suggest that the Company may achieve improved performance in fiscal 2004 compared to fiscal 2003 levels. This improvement may include moderate comparable store sales growth accompanied by slight improvement in gross margin rate, coupled with continued focus on attaining further expense efficiencies. 6 During the difficult past few years, the Company has lowered its expenses and inventories enabling it to maintain a strong cash position and to remain debt free. In fiscal 2004, the Company will continue to focus on strong inventory and expense management which will allow it to maintain its strong cash position and minimize its debt. CRITICAL ACCOUNTING POLICIES AND ESTIMATES 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 this Annual Report. 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, first-out assumption and results in 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 an analysis 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 The following discussion compares the fiscal years ended February 28, 2004, March 1, 2003 and March 2, 2002. The fiscal years ended February 28, 2004, March 1, 2003 and March 2, 2002 were each comprised of 52 weeks. 7 FISCAL YEAR ENDED FEBRUARY 28, 2004 (FISCAL 2003) COMPARED TO FISCAL YEAR ENDED MARCH 1, 2003 (FISCAL 2002) Net sales for the fiscal year ended February 28, 2004 were $275,219,000, a decrease of $6,286,000 (2.2%) as compared to net sales of $281,505,000 for the fiscal year ended March 1, 2003. The decline in sales for fiscal 2003 is largely attributable to the two closed stores amounting to approximately $4,344,000, located in Chicago, IL and Pittsburgh, PA. Comparable store sales decreased 0.8% for the fiscal year ended February 28, 2004, as compared to the fiscal year ended March 1, 2003. Gross profit for the fiscal year ended February 28, 2004 was $107,751,000, a decrease of $717,000 (39.2% as a percentage of net sales) as compared to $108,468,000 (38.5% as a percentage of net sales) for the fiscal year ended March 1, 2003. Although the gross profit percentage of net sales improved in fiscal 2003 due to lower markdowns, the decline in net sales, as noted above, accounts for the shortfall in gross profit dollars. Selling, general and administrative (SG&A) expense was $76,304,000 (27.7% as a percentage of net sales) for the fiscal year ended February 28, 2004 as compared to $76,998,000 (27.4% as a percentage of net sales) for the fiscal year ended March 1, 2003. The decline in expenses for fiscal 2003 is largely attributable to the closing of two stores located in Chicago, IL and Pittsburgh, PA which was partially offset by an increase in union benefits, pension and maintenance and repairs. Advertising expense for the fiscal year ended February 28, 2004 was $8,409,000 (3.1% as a percentage of net sales) as compared to $10,126,000 (3.6% as a percentage of net sales) for the fiscal year ended March 1, 2003. The decrease in advertising expense is largely attributable to the cancellation of certain print media advertising in the fourth quarter of this fiscal year. Occupancy costs were $17,418,000 (6.3% as a percentage of net sales) for the fiscal year ended February 28, 2004 as compared to $17,702,000 (6.3% as a percentage of net sales) for the fiscal year ended March 1, 2003. This decline is attributable primarily to the closing of the Pittsburgh, PA and Chicago, IL stores which was partially offset by an increase in occupancy costs of existing stores. Depreciation and amortization expense amounted to $10,896,000 (4.0% as a percentage of net sales) for the fiscal year ended February 28, 2004 as compared to $10,908,000 (3.9% as a percentage of net sales) for the fiscal year ended March 1, 2003. During fiscal 2002, the Company recorded a store closing cost of $8,000,000 relating to the closing on September 14, 2002 of its downtown Chicago store. This action was taken by the Company to cut losses being incurred at the store because ongoing construction at or near the premises, expected to continue for several years, rendered the store "unusable" for a retailer. The Company had a potential rent liability of $11,282,000 for the remainder of the nine-year lease term and the landlord had commenced an action relating to the rents liability which the Company was defending. The Company reached a settlement with the landlord in January 2004 resulting in the Company recording an additional $500,000 in closing costs which were charged to the fourth quarter of fiscal 2003 which ended on February 28, 2004. Net loss before income taxes was $5,433,000 for the fiscal year ended February 28, 2004 as compared to a net loss of $13,840,000 for the fiscal year ended March 1, 2003. This variance is primarily attributable to the recording of store closing costs of $8,000,000 in fiscal 2002. For the fiscal year ended February 28, 2004, the effective income tax rate was 13.7% as compared to 34.7% for the fiscal year ended March 1, 2003. The fluctuation on the effective income tax rate is due primarily to the recording of the valuation allowance, prior period adjustments and non-deductibility officer's life insurance premiums. FISCAL YEAR ENDED MARCH 1, 2003 (FISCAL 2002) COMPARED TO FISCAL YEAR ENDED MARCH 2, 2002 (FISCAL 2001) Net sales for the fiscal year ended March 1, 2003 were $281,505,000, a decrease of $6,239,000 (2.2%) as compared to net sales of $287,744,000 for the fiscal year ended March 2, 2002. The decline in sales for fiscal 2002 is largely attributable to the five closed stores amounting to approximately $9,850,000, located in Chicago, IL, Pittsburgh, PA, Sharonville, OH, Franklin Mills, PA and Potomac, VA. Comparable store sales increased 1.1% for the fiscal year ended March 1, 2003 compared to the fiscal year ended March 2, 2002. Gross profit for the fiscal year ended March 1, 2003 was $108,468,000, a decrease of $113,000 (38.5% as a percentage of net sales) as compared to $108,581,000 (37.7% as a percentage of net sales) for the fiscal year ended March 2, 2002. Although the gross profit percentage of net sales improved in fiscal 2002, the decline in net sales, as noted above, accounts for the shortfall in gross profit dollars. Selling, general and administrative (SG&A) expense was $76,998,000 (27.4% as a percentage of net sales) for the fiscal year ended March 1, 2003 as compared to $78,261,000 (27.2% as a percentage of net sales) for the fiscal year ended March 2, 2002. The reduced expenses in fiscal 2002 is largely attributable to the closing of five stores located in Chicago, IL, Pittsburgh, PA, Sharonville, OH, Franklin 8 Mills, PA and Potomac, VA which was partially offset by increases in health insurance, pension and insurance premiums in the existing stores. SG&A increased as a percentage of sales slightly due to some inefficiencies associated operating less stores. Advertising expense for the fiscal year ended March 1, 2003 was $10,126,000 (3.6% as a percentage of net sales) as compared to $8,936,000 (3.1% as a percentage of net sales) for the fiscal year ended March 2, 2002. The increase in fiscal 2002 compared to fiscal 2001 of $1,190,000 is primarily due to reduced advertising in September of fiscal 2001 due to the terrorist attacks of September 11, 2001 and to increased direct mail advertising expenditures in fiscal 2002. Occupancy costs were $17,702,000 (6.3% as a percentage of net sales) for the fiscal year ended March 1, 2003 as compared to $18,807,000 (6.5% as a percentage of net sales) for the fiscal year ended March 2, 2002. Total occupancy costs declined by approximately $1,105,000 as compared to a year ago. The decline is attributable to a decrease of $1,300,000 for the five closed stores (Chicago, IL, Pittsburgh, PA, Sharonville, OH, Franklin Mills, PA and Potomac, VA) which was partially offset by an increase in occupancy costs of existing stores. Depreciation and amortization expense amounted to $10,908,000 (3.9% as a percentage of net sales) for the fiscal year ended March 1, 2003 as compared to $11,520,000 (4.0% as a percentage of net sales) for the fiscal year ended March 2, 2002. Other income was recorded by the Company for fiscal 2002 and 2001 amounting to $1,298,000 and $6,289,000, respectively, as follows: FISCAL 2002 FISCAL 2001 ----------- ----------- Insurance recovery from employee theft $ -- $3,000,000 Restitution from employee relating to theft 750,000 1,811,000 Insurance recovery on Trinity store loss (9/11) 416,000 Gain on stock due demutualization -- 1,058,000 Reversal of closed store lease liability -- 377,000 Wal-Mart penalty on Dallas store purchase 100,000 Other 32,000 43,000 ---------- ---------- Total $1,298,000 $6,289,000 ========== ========== During the second quarter of fiscal 2002, the Company recorded a store closing cost of $4,000,000 relating to the closing of its downtown Chicago store which closed September 14, 2002. This action was taken by the Company to cut losses being incurred at the store due to construction at the neighboring premises which will continue over a two to three year period. The Company has estimated and recorded an additional charge of $4,000,000 for the write off of capital assets and other potential liabilities in the fourth quarter of fiscal 2002. The Company has a potential rent liability of $11,282,000 for the remainder of the nine-year lease term, and the landlord has commenced an action relating to the rent liability which the Company is defending. The net loss before income taxes was $13,840,000 for the fiscal year ended March 1, 2003 as compared to a net loss of $2,559,000 for the fiscal year ended March 2, 2002. This $11,281,000 variance is attributable to the recording of store closing costs of $8,000,000 in the second and fourth quarters of fiscal 2002, increased advertising expenses of $1,189,000, and insurance recoveries of $4,061,000 and stock due demutualization of $1,058,000 recorded during fiscal 2001 and not received during the current year. These decreases were partially offset by reductions to selling, general, and administrative expenses of $1,261,000, occupancy costs of $1,108,000 and depreciation expense of $612,000. For the fiscal year ended March 1, 2003, the effective income tax rate was 34.7% compared to 9.4% for the fiscal year ended March 2, 2002. The fluctuation on the effective income tax rate is due to the non-deductibility of officer's life insurance premiums. LIQUIDITY AND CAPITAL RESOURCES Working capital at February 28, 2004 was $76,205,000, a decrease of $1,137,000 from March 1, 2003, and the ratio of current assets to current liabilities was 3.66 to 1 as compared to 3.54 to 1 at March 1, 2003. The Company's continued efforts to reduce inventory levels and, in addition to expenditures for treasury stock partially offset by a reclassification to current assets for fixed assets to be sold in the next fiscal year, contributed to the decline in working capital. Net cash provided by operating activities totaled $6,806,000 for fiscal 2003 as compared to $7,251,000 for fiscal 2002. Net cash used in investing activities was $2,326,000 for fiscal 2003 as compared to $5,021,000 for fiscal 2002. Purchases of property and equipment totaled $2,392,000 and $3,116,000 for fiscal years 2003 and 2002, respectively. This variance is primarily attributable to the purchase during fiscal 2002 of the assets of Stanley Blacker, Inc. for $1,905,000. 9 Net cash used in financing activities was $2,291,000 for the fiscal year ended February 28, 2004 as compared to $2,518,000 for the fiscal year ended March 1, 2003. This amount represents the purchase of the Company's stock in fiscal years 2003 and 2002. On November 5, 2003, the Company entered into a revolving credit agreement with a bank for a line of credit not to exceed $20,000,000 through April 30, 2005. 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. Except for funds provided from this revolving credit agreement, the Company has satisfied its operating and capital expenditure requirements, including those for the operation and expansion of stores, from internally generated funds. For the fiscal year ended February 28, 2004 and March 1, 2003, there were no borrowings under the revolving credit agreement. At February 28, 2004 and at March 1, 2003, the Company had $2,597,266 and $2,754,872, respectively, in outstanding letters of credit. The outstanding letters of credit for the period ended February 28, 2004 are part of the unsecured $20,000,000 line of credit. In addition, the Company has a separate $10,000,000 credit facility with another bank available for the issuance of letters of credit for the purchase of merchandise. This agreement may be cancelled at any time by either party. The Company is not utilizing this facility. The Company has planned capital expenditures of approximately $5,000,000 for the fiscal year ending February 26, 2005. The Company's Board of Directors had authorized the repurchase of up to 20% of its outstanding shares of Common Stock at prevailing market prices through June 7, 2004. During the year ended February 28, 2004, the Company purchased 366,300 shares which represented 2.4% of its outstanding shares at a total cost of $2,438,000. 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 2004. 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. CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS To facilitate an understanding of our contractual obligations and commercial commitments, the following data is provided:
PAYMENTS DUE BY PERIOD ------------------ ---------------- ----------------- ----------------- ----------------- Less than More than Total 1 year 1-3 years 3-5 years 5 years ------------------ ---------------- ----------------- ----------------- ----------------- CONTRACTUAL OBLIGATIONS Employment Agreements $ 2,150,000 $ 400,000 $ 850,000 $ 900,000 $ -- ------------------ ---------------- ----------------- ----------------- ----------------- Operating Leases 41,878,612 7,825,472 12,845,621 11,702,131 9,505,388 ------------------ ---------------- ----------------- ----------------- ----------------- Total Contractual Cash Obligations $44,028,612 $8,225,472 $13,695,621 $12,602,131 $ 9,505,388 ------------------ ---------------- ----------------- ----------------- ----------------- ================== ================ ================= ================= ================= AMOUNT OF COMMITMENT EXPIRATION PER PERIOD ------------------ ---------------- ----------------- ----------------- ----------------- (in thousands of dollars) Total Amounts Within After 5 Committed 1 year 2-3 years 4-5 years Years ------------------ ---------------- ----------------- ----------------- ----------------- OTHER COMMERCIAL COMMITMENTS Lines of Credit $ -- $ -- -- -- -- Letters of Credit 2,597,266 2,597,266 ------------------ ---------------- ----------------- ----------------- ----------------- Total Commercial Commitments $2,597,266 $2,597,266 -- -- -- ================== ================ ================= ================= =================
OFF BALANCE SHEET ARRANGEMENTS The Company has no off-balance sheet arrangements (as defined in Item 303 of Regulation S-K). 10 RECENT ACCOUNTING PRONOUNCEMENTS See Note 1 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has exposure to interest rates under its unsecured revolving credit facility. 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 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 0.5 of 1% per annum. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Our financial statements and supplementary data required by this Item are provided in the financial statements of the Company included in this Annual Report on Form 10-K as listed in Item 15(a) of the Annual Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES Disclosure Controls and Procedures - Based on the evaluation of the Company's disclosure controls and procedures as of the end of the period covered by this Annual Report, each of Marcy Syms, the Chief Executive Officer of the Company, and Antone F. Moreira, the Chief Financial Officer of the Company, have 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, 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. 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 III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The directors and executive officers of the Company are as follows: NAME AGE TITLE ---- --- ----- Sy Syms (1)(2) .................... 78 Chairman of the Board and Director of the Company Marcy Syms (1)(2) ................. 53 Chief Executive Officer / President and Director of the Company Antone F. Moreira ................. 67 Vice President, Chief Financial Officer, Treasurer, Assistant Secretary and Director of the Company Harvey A. Weinberg (3)(4) ......... 66 Director of the Company David A. Messer (3)(4)............. 42 Director of the Company Wilbur L. Ross, Jr (3) (4)......... 66 Director of the Company 11 NAME AGE TITLE ---- --- ----- Ronald Zindman..................... 54 Executive Vice President - General Merchandise Manager Allen Brailsford................... 60 Executive Vice President - Operations Myra Butensky...................... 45 Vice President - Divisional Merchandise Manager Men's Tailored Clothing James Donato....................... 48 Vice President - Operations Elyse Marks........................ 51 Vice President - MIS John Tyzbir........................ 50 Vice President - Human Resources (1) Member of the Executive Committee of the Company. (2) Sy Syms is the father of Marcy Syms. (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 is the daughter of Sy Syms. There are no other family relationships between any directors or executive officers of the Company. None of the organizations with which these persons were previously associated is a parent, subsidiary or other affiliate of the Company except as otherwise set forth. SY SYMS has been Chairman of the Board, Chief Executive Officer and a Director of the Company and/or its predecessors since 1959. Mr. Syms was Chief Operating Officer of the Company from 1983 to 1984. Mr. Syms has been a Director of Israel Discount Bank of New York since December 1991. On January 22, 1998, Sy Syms resigned his position as Chief Executive Officer. Since that date, Mr. Syms has been 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. ANTONE F. MOREIRA has been Vice President, Chief Financial Officer, Treasurer and Assistant Secretary of Syms Corp since May 1997. From 1996 to May 1997, Mr. Moreira was a financial consultant with Equitable Assurance Society, a financial services organization. From 1990 to 1995, Mr. Moreira was Executive Vice President and Chief Financial Officer of Stuarts Department Stores, Inc., a regional discount department store chain operating in New England. Mr. Moreira has been a Director of the Company since May 1997. HARVEY A. WEINBERG has been a consultant in various industries 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, he served as Chairman of the Board of Hartmarx Corporation. He is a trustee of Glimcher Realty Trust, a real estate investment trust. He is also a Director of R.G. Barry Corp. He has been a Director of the Company since December 1992. DAVID A. MESSER has been President of Sempra Energy Trading, a subsidiary of Sempra Energy, Inc. (NYSE: SRE), since January 1998. Prior to January 1998, Mr. Messer was President of AIG Trading Corporation, where he had been employed since March 1990. He has been a Director of the Company since July 1996. WILBUR L. ROSS, JR. has been a principal of W L Ross & Company LLC since 2000. Prior to 2000, Mr. Ross was Managing Director of Rothchild, Inc. from 1976 to 1999. He was a Director of the Company from 1983 through March 1999 and was reappointed Director in October 2000. 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. 12 ALLEN BRAILSFORD has been Executive Vice President since April 2001. Mr. Brailsford was Vice President of Operations of the Company from March 1992 to March 2001, and from March 1985 to March 1992, he was Director of Distribution of the Company. MYRA BUTENSKY has been Vice President - Divisional Merchandise Manager, Men's Tailored Clothing of the Company since January 1999. From May 1998 to January 1999, Ms. Butensky was Divisional Merchandise Manager, Ladies of the Company. From June 1991 to April 1998, Ms. Butensky was a ladies buyer. Prior to joining the Company in 1991, Ms. Butensky was a buyer with Popular Trading Club, Inc, and also spent 10 years with Macy's in a number of buying positions. JAMES DONATO has been Vice President of Operations of the Company since April 2001. From November 1997 to March 2001 he was Director of Store Planning of the Company. Prior to November 1997, Mr. Donato was in store management as a District Manager and Store Manager of the Company. ELYSE MARKS has been Vice President of MIS of the Company since April 2001. From November 1999 to March 2001 Ms. Marks was Director of MIS of the Company. From January 1998 to November 1999, Ms. Marks was manager of MIS and store systems of the Company. From 1983 to 1987, she was also in store management for the Company. JOHN TYZBIR has been Vice President - Human Resources of the Company since April 1999. From January 1995 to October 1997, Mr. Tyzbir was Director of Human Resources of Zallie Supermarkets Corp. From June 1991 to January 1995, Mr. Tyzbir was Director of Human Resources and Planning of Carson Pirie Scott Inc. In accordance with General Instruction G(3) of the General Instructions to Form 10-K, the other information called for by Item 10 is omitted from this Annual Report and is incorporated by reference to the definitive Proxy Statement to be filed by the Company pursuant to Regulation 14A of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, which the Company will file not later than 120 days after February 28, 2004, the end of the fiscal year covered by this Annual Report. ITEM 11. EXECUTIVE COMPENSATION In accordance with General Instruction G(3) of the General Instructions to Form 10-K, the information called for by Item 11 is omitted from this Annual Report and is incorporated by reference to the definitive Proxy Statement to be filed by the Company pursuant to Regulation 14A of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, which the Company will file not later than 120 days after February 28, 2004, the end of the fiscal year covered by this report. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth equity compensation plan information as of February 28, 2004: -------------------------- ----------------------------------------------------- EQUITY COMPENSATION PLAN INFORMATION -------------------------- ----------------------------------------------------- Number of Number of securities securities to be remaining available issued upon Weighted-average for future issuance exercise of exercise price under equity outstanding of outstanding compensation plans options, options (excluding warrants warrants securities reflected Plan Category and rights and rights in column (a)) ------------- ------------- ------------------ ---------------------- (a) (b) (c) ---------------------- ------------- ------------------ ---------------------- Equity compensation plans approved by security holders..... 887,650 $7.13 336,260 ---------------------- ------------- ------------------ ---------------------- Equity compensation plans not approved by security holders...... N/A N/A N/A ---------------------- ------------- ------------------ ---------------------- Total................. 887,650 $7.13 336,260 ---------------------- ------------- ------------------ ---------------------- In accordance with General Instruction G(3) of the General Instructions to Form 10-K, the other information called for by Item 12 is omitted from this Annual Report and is incorporated by reference to the definitive Proxy Statement to be filed by the Company pursuant to Regulation 14A of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, which the Company will file not later than 120 days after February 28, 2004, the end of the fiscal year covered by this Annual Report. 13 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 13 is omitted from this Annual Report and is incorporated by reference to the definitive Proxy Statement to be filed by the Company pursuant to Regulation 14A of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, which the Company will file not later than 120 days after March 1, 2003, the end of the fiscal year covered by this Annual Report. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES In accordance with General Instruction G(3) of the General Instructions to Form 10-K, the information called for by Item 14 is omitted from this Annual Report and is incorporated by reference to the definitive Proxy Statement to be filed by the Company pursuant to Regulation 14A of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, which the Company will file not later than 120 days after February 28, 2004, the end of the fiscal year covered by this Annual Report. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K PAGE NUMBER (a)(1) Financial Statements: Report of Independent Certified Public Accountants, BDO Seidman, LLP........ F-1 Independent Auditors' Report, Deloitte & Touche, LLP........................ F-2 Consolidated Balance Sheets ................................................ F-3 Consolidated Statements of Operations ...................................... F-4 Consolidated Statements of Shareholders' Equity ............................ F-5 Consolidated Statements of Cash Flows ...................................... F-6 Notes to Consolidated Financial Statements ................................. F-7 (a)(2) Financial Statement Schedules: 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 Annual 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 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 10.3j Third Lease Modification Agreement, December 1, 2002 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) 14 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) 10.35+ 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) 10.38 First Amendment to Revolving Credit Agreement, dated November 24, 1997, between Syms Corp and Summit Bank. (10-K Report for fiscal year ended February 28, 1998) 10.39 Credit Program Agreement, dated January 27, 2000 between Syms Corp and Conseco Finance Corp (10K Report for fiscal year ended February 26, 2000) 10.40 Second Amendment to Revolving Credit Agreement, dated as of May 27, 2000, between Syms Corp and Fleet National Bank (successor to Summit Bank) (10-Q Report for quarter ended May 27, 2000) 10.41+ Amendment to the Amended and Restated Incentive Stock Option and Appreciation (10-Q Report for quarter ended November 25, 2000) 10.42 Third Amendment to Revolving Credit Agreement, dated as November 24, 2000, between Syms Corp and Fleet National Bank (successor to Summit Bank) (10-K Report for fiscal year ended March 3, 2001) 10.43 Fourth Amendment to Revolving Credit Agreement, dated as of May 4, 2001, between Syms Corp and Fleet National Bank (10-K Report for fiscal year ended March 3, 2001) 10.45 Fifth Amendment to Revolving Credit Agreement dated as of May 3, 2002, between Syms Corp and Fleet National Bank 10.46 Agreement and Plan of Reorganization, dated as of May 1, 2002, between Stanley Blacker, Inc. and Syms Corp 10.47 Sixth Amendment to Revolving Credit Agreement, dated as of August 19, 2002, between Syms Corp and Fleet National Bank (10-Q Report for fiscal quarter ended August 31, 2002) 10.48+ Amendment to Syms Corp Amended and Restated Incentive Stock Option and Appreciation Plan (10-Q Report for fiscal quarter ended August 30, 2003) 10.49 Seventh Amendment to Revolving Credit Agreement and Second Amendment to Promissory Note, dated as of July 23, 2003, between Syms Corp and Fleet National Bank (10-Q Report for fiscal quarter ended August 30, 2003) 10.50 Loan Agreement, dated as of November 5, 2003, between Syms Corp and Israel Discount Bank of New York (10-Q Report for fiscal quarter ended November 29, 2003) 21* List of Subsidiaries of the Company 23.1* Consent of BDO Seidman, LLP 23.2* Consent of Deloitte & Touche LLP 31.1* Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2* Certification of Chief 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 (b) Reports on Form 8-K: On December 23, 2003, the Company filed a Report on Form 8-K pursuant to Items 7 and 12 of such Form regarding its results of operations for the quarter ended November 29, 2003 15 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SYMS CORP By: /s/ Marcy Syms --------------------- Marcy Syms Chief Executive Officer / President Date: May 20, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE --------- ----- ---- /s/ Sy Syms Chairman of the Board May 20, 2004 ------------------------ and Director Sy Syms /s/ Marcy Syms Chief Executive Officer/President May 20, 2004 ------------------------ and Director Marcy Syms (Principal executive officer) /s/ Antone F. Moreira Vice President, Chief Financial May 20, 2004 ------------------------ Officer, Assistant Secretary and Antone F. Moreira Director (Principal financial and accounting officer) /s/ Harvey A. Weinberg Director May 20, 2004 ------------------------ Harvey A. Weinberg /s/ David A. Messer Director May 20, 2004 ------------------------ David A. Messer /s/ Wilbur L. Ross, Jr. Director May 20, 2004 ------------------------ Wilbur L. Ross, Jr. 16 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors Syms Corp Secaucus, New Jersey We have audited the accompanying consolidated balance sheet of Syms Corp and subsidiaries as of February 28, 2004 and the related consolidated statements of operations, shareholders' equity and cash flows for the year then ended. These financial statements are the responsibility of Syms Corp's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit 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, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Syms Corp and subsidiaries as of February 28, 2004 and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. New York, New York /s/ BDO Seidman, LLP April 16, 2004 BDO Seidman, LLP F-1 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders Syms Corp Secaucus, New Jersey We have audited the accompanying consolidated balance sheet of Syms Corp and Subsidiaries as of March 1, 2003, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the two years in the period ended March 1, 2003. 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Syms Corp and Subsidiaries as of March 1, 2003 and the results of their operations and their cash flows for each of the two years in the period ended March 1, 2003, in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP Parsippany, New Jersey April 24, 2003 F-2 SYMS CORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS -------------------------------------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) FEBRUARY 28, MARCH 1, 2004 2003 -------- -------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 21,386 $ 19,197 Merchandise inventories 69,226 78,151 Deferred income taxes 3,627 4,143 Assets held for sale 4,495 -- Prepaid expenses and other current assets 6,173 6,280 -------- -------- Total current assets 104,907 107,771 PROPERTY AND EQUIPMENT - NET 123,757 135,460 DEFERRED INCOME TAXES 11,094 9,397 OTHER ASSETS 13,980 9,845 -------- -------- TOTAL ASSETS $253,738 $262,473 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 16,154 $ 12,639 Accrued expenses 7,714 12,099 Accrued insurance 1,264 2,339 Obligation to customers 3,570 3,352 -------- -------- Total current liabilities 28,702 30,429 OTHER LONG TERM LIABILITIES 1,862 1,891 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; 15,092 shares outstanding as of February 28, 2004 (net 2,879 treasury shares) and 15,435 shares outstanding as of March 1, 2003 (net of 2,513 treasury shares) 755 772 Additional paid-in capital 14,239 14,093 Treasury stock (23,993) (21,573) Retained earnings 232,173 236,861 -------- -------- Total shareholders' equity 223,174 230,153 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $253,738 $262,473 ======== ======== See Notes to Consolidated Financial Statements F-3 SYMS CORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS -------------------------------------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) FISCAL YEAR ENDED -------------------------------------- FEBRUARY 28, MARCH 1, MARCH 2, 2004 2003 2002 ------------ -------- -------- NET SALES $275,219 $281,505 $287,744 Cost of goods sold 167,468 173,037 179,163 -------- -------- -------- Gross profit 107,751 108,468 108,581 EXPENSES Selling, general and administrative 76,304 76,998 78,261 Advertising 8,409 10,126 8,936 Occupancy 17,418 17,702 18,807 Depreciation and amortization 10,896 10,908 11,520 Other income (368) (1,298) (6,289) Special charges 500 8,000 -- -------- -------- -------- Loss from operations (5,408) (13,968) (2,654) Interest expense (income) net 25 (128) (95) -------- -------- -------- Loss before income taxes (5,433) (13,840) (2,559) Benefit for income taxes (745) (4,805) (240) -------- -------- -------- NET LOSS $ (4,688) $ (9,035) $ (2,319) ======== ======== ======== Net Loss Per Share - basic and diluted $ (0.31) $ (0.58) $ (0.15) ======== ======== ======== Weighted Average Shares Outstanding 15,285 15,661 15,741 ======== ======== ======== See Notes to Consolidated Financial Statements F-4 SYMS CORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY -------------------------------------------------------------------------------- (IN THOUSANDS)
Additional Common Stock Paid-in Treasury Retained Shares Amount Capital Stock Earnings Total ------- ----- ------- -------- --------- --------- BALANCE AS OF MARCH 3, 2001 15,760 788 13,752 (18,821) 248,216 243,935 Exercise of options 1 -- 8 -- -- 8 Stock buyback (24) (1) -- (166) -- (167) Net loss -- -- -- -- (2,319) (2,319) ------- ----- ------- -------- --------- --------- BALANCE AS OF MARCH 2, 2002 15,737 787 13,760 (18,987) 245,897 241,457 Exercise of stock options 15 1 85 -- -- 86 Issuance of stock for Stanley Blacker acquisition 44 2 248 -- -- 250 Stock buyback (361) (18) -- (2,586) -- (2,604) Net loss -- -- -- -- (9,035) (9,035) ------- ----- ------- -------- --------- --------- BALANCE AS OF MARCH 1, 2003 15,435 772 14,093 (21,573) 236,861 230,153 Exercise of options 23 1 146 0 0 147 Stock buyback (366) (18) -- (2,420) -- (2,438) Net loss -- -- -- -- (4,688) (4,688) ------- ----- ------- -------- --------- --------- BALANCE AS OF FEBRUARY 28, 2004 15,092 $ 755 $14,239 $(23,993) $ 232,173 $ 223,174 ======= ===== ======= ======== ========= =========
See Notes to Consolidated Financial Statements F-5 SYMS CORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS -------------------------------------------------------------------------------- (IN THOUSANDS) FISCAL YEAR ENDED --------------------------------- February 28, March 1, March 2, 2004 2003 2002 ------------ -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(4,688) $(9,035) $(2,319) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 10,896 10,908 11,520 Deferred income taxes (1,181) (2,634) 353 Loss (gain) on sale of property and equipment 394 -- (133) Fixed asset impairment -- 3,933 -- (Increase) decrease in operating assets: Merchandise inventories 8,925 8,659 12,376 Prepaid expenses and other current assets 107 (105) (1,833) Other assets (5,891) (1,726) (1,924) Increase (decrease) in operating liabilities: Accounts payable 3,515 (5,260) 1,414 Accrued expenses (5,460) 2,449 829 Obligations to customers 218 289 153 Other long term liabilities (29) (227) (291) ------- ------- ------- Net cash provided by operating activities 6,806 7,251 20,145 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of Stanley Blacker, Inc. -- (1,905) -- Purchase of property and equipment (2,392) (3,116) (7,990) Proceeds from sale of property and equipment 66 -- 5 ------- ------- ------- Net cash used in investing activities (2,326) (5,021) (7,985) ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of treasury shares (2,438) (2,604) (167) Exercise of options 147 86 7 ------- ------- ------- Net cash used in financing activities (2,291) (2,518) (160) ------- ------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,189 (288) 12,000 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 19,197 19,485 7,485 ------- ------- ------- CASH AND CASH EQUIVALENTS, END OF PERIOD $21,386 $19,197 $19,485 ======= ======= ======= SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 272 $ 374 $ 299 ======= ======= ======= Income taxes paid, net of refunds $ 4,267 $ -- $ 3,127 ======= ======= ======= Stanley Blacker, Inc. acquisition financed through stock issuance $ -- $ 250 $ -- ======= ======= ======= See Notes to Consolidated Financial Statements F-6 SYMS CORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FISCAL YEARS ENDED FEBRUARY 28, 2004, MARCH 1, 2003 AND MARCH 2, 2002 -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. PRINCIPAL BUSINESS - Syms Corp and subsidiaries (the "Company") operate a chain of 40 "off-price" retail stores located throughout the United States in the Northeastern and Middle Atlantic regions and in the Midwest, Southeast and Southwest. Each Syms store offers a broad range of first quality, in-season merchandise bearing nationally recognized designer or brand-name labels for men, women and children. 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, 2004, March 1, 2003 and March 2, 2002 were comprised of 52 weeks. d. CASH AND CASH EQUIVALENTS - Syms Corp considers credit card receivables and all short-term investments with an original maturity of three months or less as cash equivalents. e. 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. f. PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Depreciation and amortization are principally determined by the straight-line method over the following estimated useful lives: Buildings and improvements 15 - 39 years Machinery and equipment 4 - 7 years Furniture and fixtures 7 - 10 years Leasehold improvements Lesser of life of the asset or life of lease g. IMPAIRMENT OF LONG-LIVED ASSETS - The Company periodically reviews long-lived assets for impairment whenever changes in the circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Company considers relevant cash flow, management's strategic plans, significant decreases in the market value of the asset and other available information in assessing whether the carrying value of the assets can be recovered. When such events occur, the Company compares the carrying amount of the assets to undiscounted expected future cash flows from the use and eventual disposition of the asset. If this comparison indicates an impairment, the carrying amount would then be compared to the fair value of the long-lived asset. An impairment loss would be measured as the amount by which the carrying value of the long-lived asset exceeds its fair value. The difference would be recorded as an impairment of assets. h. INCOME TAXES - Deferred income taxes reflect the future tax consequences of differences between the tax bases of assets and liabilities and their financial reporting amounts at year end. i. OBLIGATION TO CUSTOMERS - Obligations to customers represent credits issued for returned merchandise as well as gift certificates. F-7 j. USE OF ESTIMATES - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include inventory provision, sales return, self-insurance accruals and lives of long-lived assets. Actual results could differ from those estimates. k. REVENUE RECOGNITION - The Company recognizes revenue at the "point of sale". Allowance for sales returns is recorded as a component of net sales in the period in which the related sales are recorded. l. COMPREHENSIVE INCOME - Comprehensive income is equivalent to the Company's net income for fiscal years 2003, 2002 and 2001. m. SEGMENT REPORTING - Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related Information" establishes standards for reporting information about a company's operating segments. It also establishes standards for related disclosures about products and services, geographic areas and major customers. The Company operates in a single operating segment - the operation of retail off-price stores. Revenues from external customers are derived from merchandise sales. The Company's merchandise sales mix by product category for the last three fiscal years was as follows: FISCAL YEAR -------------------- 2003 2002 2001 ---- ---- ---- Men's tailored clothes and haberdashery 52% 52% 51% Women's dresses, suits, separates and accessories 30% 30% 31% Shoes 8% 7% 7% Children's wear 7% 8% 8% Luggage, domestics and fragrances 3% 3% 3% --- --- --- 100% 100% 100% The Company does not rely on any major customers as a source of revenue. n. COMPUTER SOFTWARE COSTS - The Company capitalizes the cost of software developed or purchased for internal use. o. OTHER ASSETS - Other assets include $13,521,000 and $9,497,000 of cash surrender value of officer's life insurance, and $459,000 and $349,000 of other miscellaneous assets such as security deposits, step rent receivables and deferred lease acquisition costs at February 28, 2004 and March 1, 2003, respectively. p. ADVERTISING COSTS - Advertising and sales promotion costs are expensed at the time the advertising occurs. Advertising and sales promotion costs were $8,409,000, $10,126,000 and $8,936,000 in 2003, 2002 and 2001, respectively. q. 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, F-8 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 Financial Accounting Standards Board 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 fiscal 2003, 2002 and 2001. 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. 2003 2002 2001 ------- ------- ------- Net loss as reported ($4,688) ($9,035) ($2,319) Less stock option expense using fair value method ($484) ($181) ($188) Pro forma net loss ($5,172) ($9,216) ($2,507) Net loss per share basic and diluted as reported ($.31) ($.58) ($.15) Net loss per share basic and diluted pro forma ($.34) ($.59) ($.16) This pro forma information may not be representative of the amounts to 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. RECENT ACCOUNTING PRONOUNCEMENTS In November 2002, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others"("FIN 45"). FIN 45 requires the recognition of a liability for certain guarantee obligations issued or modified after December 31, 2002. It also clarifies disclosure requirements to be made by a guarantor for certain guarantees. The disclosure provisions of FIN 45 became effective for fiscal years ending after December 15, 2002. The adoption of FIN 45 did not effect the Company's consolidated financial statements. In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities. 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. Interpretation No. 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 either based on the original interpretation or the Revised Interpretations. However, the Revised Interpretations must be applied no later than the Company's first F-9 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 is currently evaluating the effect that the adoption of FIN 46 for VIE's created prior to February 1, 2003 will have on its results of operations and financial condition. In February 2003, the Emerging Issues Task Force ("EITF") addressed EITF Statement No. 02-16 ("EITF 02-16"), "Accounting by a Reseller for Cash Consideration Received From a Vendor." EITF 02-16 provides accounting guidance on how a reseller should characterize consideration given by a vendor and when to recognize and how to measure that consideration in its income statement. EITF 02-16 is effective for all agreements entered into after December 31, 2002. The Company evaluated the provisions of EITF 02-16 and determined that this statement did not have a material effect on its consolidated financial statements. In May 2003, the FASB issued Statement No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150"). SFAS 150 improves the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity. The new Statement requires that those instruments be classified as liabilities in statements of financial position. The adoption of the provisions of SFAS 150 did not have a material impact on our financial position or results of operations. NOTE 2 - PROPERTY AND EQUIPMENT Property and equipment consists of: FEBRUARY 28, MARCH 1, 2004 2003 ----------- --------- (IN THOUSANDS) Land $ 40,360 $ 44,855 Buildings and building improvements 120,889 120,192 Leasehold and leasehold improvements 34,820 34,733 Machinery and equipment 33,146 33,197 Furniture and fixtures 22,044 20,136 Construction in progress 2,521 2,434 --------- --------- 253,780 255,547 Less accumulated depreciation and amortization 130,023 120,087 --------- --------- $ 123,757 $ 135,460 ========= ========= Included in assets held for sale is property that the Company intends to sell (property located in Roseland, New Jersey and North Kendall, Ohio). The Company presently has contracts to sell both properties at amounts in excess of its carrying value. Such assets have carrying value of approximately $4,494,664 as of February 28, 2004. F-10 NOTE 3 - INCOME TAXES The benefit for income taxes is as follows: FISCAL YEAR ENDED -------------------------------------- FEBRUARY 28, MARCH 1, MARCH 2, 2004 2003 2002 ----------- ------- ------- (In thousands) Current: Federal $ -- $ -- $(593) State 436 429 -- ------- ------- ----- 436 429 (593) ------- ------- ----- Deferred: Federal (279) (4,081) 318 State (902) (1,154) 35 ------- ------- ----- (1,181) (5,233) 353 ------- ------- ----- $ (745) $(4,805) $(240) ======= ======= ===== 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, 2004 2003 2002 ----------- ------- ------- Statutory Federal income tax rate (35.0%) (35.0%) (35.0%) State taxes, net of Federal income tax benefits (5.6%) (5.3%) (0.1%) Officers' life insurance 9.3% 5.5% 26.2% Additional deferred tax assets purchased (12.0%) -- -- Other 2.0% 0.1% (.5) Valuation allowance 27.6% -- -- ------ ------ ------ Effective income tax rate (13.7%) (34.7%) (9.4%) ====== ====== ====== F-11 The composition of the Company's deferred tax assets and liabilities is as follows: FISCAL YEAR ENDED ----------------------------- February 28, March 1, 2004 2003 ------------- ------------- (In thousands) (In thousands) Deferred tax assets: Capitalization of inventory costs $ 1,156 $ 1,286 Accrued pension costs 151 -- Reserves not currently deductible for tax purposes 3,196 4,417 Net operating losses 8,524 6,331 Depreciation 2,525 822 Step Rent 632 649 Other 36 35 -------- ------- Deferred tax assets before valuation allowance 16,220 13,540 Valuation allowance (1,500) -- -------- ------- Net deferred tax assets $ 14,720 $13,540 ======== ======= Current deferred tax asset $ 3,627 $ 4,143 Long term deferred tax asset 11,094 9,397 -------- ------- Total $ 14,720 $13,540 ======== ======= At February 28, 2004, the Company had federal and state net operating loss carry forwards of $16,210,397 and $57,009,697, respectively. The Company recorded a valuation allowance in the amount of $1,500,000 with regard to net operating loss carry forwards expiring in the next two years. The valuation allowance relates to in part to additional net operating loss carry forwards identified in 2003 relating to the Stanley Blacker acquisition. The federal net operating losses expire in years through 2024. The state net operating losses will begin to expire in 2006. Based on management's assessment it is more likely than not that deferred tax assets will be realized by future taxable income or tax planning strategies. NOTE 4 - 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 2005. 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 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 1/2 of 1% per annum. There were no outstanding borrowings against this agreement as of February 28, 2004. At February 28, 2004 and at March 1, 2003, the Company had $2,597,266 and $2,754,872 respectively, in outstanding letters of credit. The outstanding letters of credit for the period ended February 28, 2004 are part of the unsecured $20,000,000 line of credit. 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. The Company is in compliance with all covenants as of February 28, 2004. F-12 Total interest charges incurred for the years ended February 28, 2004, March 1, 2003 and March 2, 2002 were $206,000, $237,000 and $302,000, respectively. There was no capitalized interest for fiscal 2003, 2002 and 2001. In addition, the Company has a separate $10,000,000 credit facility with another bank available for the issuance of letters of credit for the purchase of merchandise. This agreement may be cancelled at any time by either party. The Company is not using this facility. NOTE 5 - STORE CLOSING COSTS During fiscal 2002, the Company recorded a store closing cost of $8,000,000 relating to the closing on September 14, 2002 of its downtown Chicago store. This action was taken by the Company to cut losses being incurred at the store because ongoing construction, at or near the premises, expected to continue for several years, rendered the store "unusable" for a retailer. The Company had a potential rent liability of $11,282,000 for the remainder of the nine year lease term and the landlord had commenced an action relating to the rents liability which the Company was defending. The Company reached a settlement with the landlord in January 2004 resulting in the Company recording an additional $500,000 in closing costs which were charged to the fourth quarter of fiscal 2003 which ended on February 28, 2004. NOTE 6 - 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 accounts payable approximates their carrying values at February 28, 2004 and March 1, 2003 due to the short-term maturities of these instruments. NOTE 7 - PENSION AND PROFIT SHARING PLANS a. PENSION PLAN - The Company has a defined benefit pension plan for all employees other than those covered under collective bargaining agreements. The benefits are based on years of service and the employee's highest average pay during any five consecutive years within the ten-year period prior to retirement. Pension plan costs are funded annually. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future. The investment strategy objectives of the plan are continued growth and income. All plan assets are managed by outside investment managers. Asset allocations are reviewed on a regular basis by the investment management company. Equity securities are primarily S&P 500 which make up 53% of plan assets. Fixed securities make up the remaining 47% and are made up of the Lehman Aggregate and Merrill Lynch 1-3 year Government Corp. The Company uses a December 31 measurement date. F-13 The following information on the Company's pension plan is provided: FEBRUARY 28, MARCH 1, 2004 2003 ------------ -------- (IN THOUSANDS) CHANGE IN BENEFIT OBLIGATION: Net benefit obligation at beginning of year $ 7,842 $ 6,792 Service cost 642 604 Interest cost 494 470 Actuarial loss 506 245 Gross benefits paid (307) (269) ------- ------- Net benefit obligation at end of year $ 9,177 $ 7,842 ======= ======= CHANGE IN PLAN ASSETS: Fair value of plan assets at beginning of year $ 5,224 $ 5,555 Employer contributions 542 402 Gross benefits paid (307) (269) Actual return on plan assets 1,003 (464) ------- ------- Fair value of plan assets at end of year $ 6,462 $ 5,224 ======= ======= Funded status at end of year $(2,714) $(2,618) Unrecognized net actuarial loss 1,789 1,921 Unrecognized transition amount -- -- ------- ------- Accrued benefit costs $ (925) $ (697) ======= ======= Pension expenses includes the following components: FISCAL YEAR ENDED FEBRUARY 28, MARCH 1, MARCH 2, 2004 2003 2002 ----------- ------- ------- (IN THOUSANDS) COMPONENTS OF NET PERIODIC BENEFIT COST: Service cost $ 642 $ 604 $ 532 Interest cost 494 470 424 Return on assets (1,003) 464 338 Amortization of (gain) loss 637 (939) (877) ------- ----- ----- Net periodic benefit cost $ 770 $ 599 $ 417 ======= ===== ===== WEIGHTED-AVERAGE ASSUMPTIONS USED: Discount rate 6% 6.75% 7.00% Rate of compensation increase 4.5% 4.50% 4.50% The expected long-term rate of return on plan assets was 8.5% for all years. F-14 As of December 31, 2003, the benefits expected to be paid in the next five years and in the aggregate for the five years thereafter are as follows: 2004 $ 316 2005 338 2006 365 2007 406 2008 450 2009-2013 $3,094 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 during the fiscal years ended February 28, 2004, March 1, 2003 and March 2, 2002. NOTE 8 - COMMITMENTS a. LEASES - The Company has various operating leases for its retail stores, with terms expiring between 2002 and 2011. 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, 2004 are as follows: OPERATING LEASES ----------- 2004 $ 7,825,472 2005 6,549,859 2006 6,295,762 2007 6,175,024 2008 5,527,107 2009 and thereafter 9,505,388 ----------- Total minimum payments $41,878,612 =========== Rent expense for operating leases are as follows: F-15 FISCAL YEAR ENDED ----------------------------------- February 28, March 1, March 2, 2004 2003 2002 ----------- ------- ------- (In thousands) Minimum rentals due $ 8,095 $ 8,656 $ 9,341 Escalation rentals accrued (31) 67 324 Contingent rentals -- 9 (20) Sublease rentals (228) (228) (360) ------- ------- ------- $ 7,836 $ 8,504 $ 9,285 ======= ======= ======= b. EMPLOYMENT AGREEMENT - The Company has an employment agreement with its General Merchandising Manager, expiring 2009, pursuant to which the current annual compensation is approximately $400,000. In addition, that employee is entitled to additional compensation upon occurrence of certain events. 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. GUARANTEES - The Company does not have any guarantees as of February 28, 2004. NOTE 9 - PREFERRED STOCK The Company is authorized to issue up to 1,000,000 shares of preferred stock, in one or more series of preferred stock. The Board of Directors is authorized to establish the number of shares to be included in each such series, and to fix the designation, relative rights, preferences, qualifications and limitations of the shares of each such series. NOTE 10 - 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 1,500,000 shares of common stock for issuance thereunder. No option or stock appreciation rights may be granted under the Stock Option Plan after July 28, 2013. The maximum exercise period for any option or stock appreciation right under the plan is ten years from the date the option is granted (five years for any optionee who holds more than 10% of the voting rights of the Company). The Board of Directors of the Company has approved a submission to shareholders for approval of an amendment extending the term of the Stock Option Plan for another ten years. Stock option transactions are summarized below: F-16 FISCAL YEAR ENDED ----------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ----------------------------------------------------- FEBRUARY 28, 2004 MARCH 1, 2003 MARCH 2, 2002 ----------------- ---------------- ---------------- WEIGHTED WEIGHTED WEIGHTED FISCAL AVERAGE FISCAL AVERAGE FISCAL AVERAGE 2003 EXERCISE 2002 EXERCISE 2001 EXERCISE FIXED OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE ----- ----- ----- ----- ----- ----- Outstanding beginning of year 991 $7.21 1,060 $7.24 1,106 $7.24 Granted -- -- -- -- -- -- Exercised (23) 5.63 (15) 5.63 (1) 5.62 Cancelled (80) 8.58 (54) 8.07 (45) 5.63 -------------------------------------------------------------------------------- Outstanding, end of period 888 $7.13 991 $7.21 1,060 $7.24 ================================================================================ Options exerciseable at year end 888 $7.13 868 $7.44 786 $7.76 The following table summarizes information about stock options outstanding at February 28, 2004: OPTIONS OUTSTANDING OPTIONS EXERCISABLE ---------------------------------------------------------- -------------------- WEIGHTED-AVERAGE NUMBER REMAINING NUMBER RANGE OF OUTSTANDING AT CONTRACTUAL EXERCISABLE AT EXERCISE PRICES FEBRUARY 28, 2004 LIFE (YEARS) FEBRUARY 28, 2004 ---------------------------------------------------------- -------------------- 5.625 571,550 5.7 571,550 8.00 87,500 2.6 87,500 8.50 3,600 0.1 3,600 9.875 25,000 3.2 25,000 10.6875 200,000 4.6 200,000 ------- ------- 887,650 887,650 NOTE 11 - NET INCOME PER SHARE In accordance with SFAS 128, basic net income (loss) per share has been computed based upon the weighted average common shares outstanding. Diluted net income per share gives effect to outstanding stock options, if they are dilutive. Net loss per share have been computed as follows: FISCAL 2003 FISCAL 2002 FISCAL 2001 ----------- ----------- ----------- (IN THOUSANDS) BASIC AND DILUTED NET LOSS PER SHARE: Net loss ($ 4,668) ($ 9,035) ($ 2,319) Average shares outstanding 15,285 15,661 15,741 Net loss per share ($ 0.31) ($ 0.58) ($ 0.15) Options to purchase 888,000, 991,000 and 1,060,000 shares of common stock at prices ranging from $5.625 to $10.6875 per share were outstanding in 2003, 2002 and 2001, respectively, but were not included in the computation F-17 of diluted net loss per share because the exercise price of the options exceed the average market price and would have been antidilutive. NOTE 12 - RELATED PARTY TRANSACTIONS Included in the Statements of Operations are the expenses relating to a real estate lease with Sy Syms, Chairman of the Board of the Company, for the Elmsford, New York store. During fiscal years 2003, 2002 and 2001, the Company paid to Sy Syms $796,500, $649,125 and $600,000, respectively, in fixed rent. On January 10, 2002, an independent audit committee of the Board of Directors was established to review the potential acquisition of Stanley Blacker, Inc. a corporation owned by the Sy Syms Revocable Living Trust. This committee obtained an independent appraisal as to the fair market value of the business enterprise of Stanley Blacker, Inc. and on April 18, 2002, the Board of Directors approved the acquisition based on the independent committee's recommendation to acquire the assets of Stanley Blacker, Inc. The assets of Stanley Blacker, Inc. consisted substantially of deferred tax assets, trademarks and trade names licensed to third party manufacturers of clothing and accessories. Based on the purchase price allocation, no value was given to the trademarks and trade names. The acquisition of such assets was consummated on May 1, 2002, for a purchase price consisting of $250,000 paid in cash, $250,000 paid by the issuance of 44,138 shares of the Company's Common Stock and the balance by the taking of the assets subject to a note payable to Fleet National Bank in the principal amount of $1,655,000 together with interest thereon of approximately $11,355, which note was paid in full by the Company. The Company's financial statements include the results of operations of Stanley Blacker, Inc. from the date of acquisition. Purchase Price: Cash $1,905,000 Stock 250,000 Purchase price 2,155,000 Allocation of Purchase Price: Receivables $ 104,000 Deferred Tax Assets 2,083,000 Payables 32,000 The impact on earnings from the Stanley Blacker, Inc. acquisition for fiscal years 2002 and 2001 was not material. NOTE 13 - UNAUDITED SELECTED QUARTERLY FINANCIAL DATA QUARTER FIRST SECOND THIRD FOURTH ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) YEAR ENDED FEBRUARY 28, 2004 Net sales $63,534 $62,102 $74,345 $75,238 Gross profit 25,914 22,106 31,385 28,346 Net income (loss) (1,749) (4,683) 1,024 720 Net income (loss) per share - basic (0.11) (0.30) 0.07 0.05 Net income (loss) per share - diluted (0.11) (0.30) 0.06 0.05 F-18 QUARTER FIRST SECOND THIRD FOURTH ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) YEAR ENDED MARCH 1, 2003 Net sales $67,950 $65,058 $73,271 $75,226 Gross profit 29,097 22,979 30,149 26,243 Net income (loss) 707 (6,169) 753 (4,326) Net income (loss) per share - basic 0.04 (0.39) 0.05 (0.28) Net income (loss) per share - diluted 0.04 (0.39) 0.05 (0.28) In the fourth quarter 2003, the Company recorded a valuation allowance in the amount of $1,500,000 with regard to expiring net operating loss carry forwards in the next two years. F-19 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Syms Corp Secaucus, New Jersey We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-44254) of Syms Corp of our report dated April 16, 2004, relating to the consolidated financial statements, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. /s/ BDO Seidman, LLP BDO Seidman, LLP New York, New York May 19, 2004 F-20 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Registration Statement of Syms Corp on Form S-8 of our report dated April 24, 2003, appearing in and incorporated by reference in the Annual Report on Form 10-K of Syms Corp for the year ended February 28, 2004. /s/ Deloitte & Touche LLP Parsippany, New Jersey May 17, 2004 F-21