-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RKWzYjUOti8akO+RV7TyvsthrL5njRh5OcChGkOS8UtKNcBHe8weKYrK3pV0gMoH 9Cc6VvBujRciGJShswb8QQ== 0000884940-97-000003.txt : 19970328 0000884940-97-000003.hdr.sgml : 19970328 ACCESSION NUMBER: 0000884940-97-000003 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961228 FILED AS OF DATE: 19970327 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: STEIN MART INC CENTRAL INDEX KEY: 0000884940 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-FAMILY CLOTHING STORES [5651] IRS NUMBER: 640466198 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-20052 FILM NUMBER: 97565734 BUSINESS ADDRESS: STREET 1: 1200 RIVERPLACE BLVD CITY: JACKSONVILLE STATE: FL ZIP: 32207 BUSINESS PHONE: 9043461500 MAIL ADDRESS: STREET 1: 1200 RIVERPLACE BLVD CITY: JACKSONVILLE STATE: FL ZIP: 32207 10-K405 1 FORM 10-K405 YEAR ENDED 12/28/96 STEIN MART, INC. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 28, 1996 Commission File number 0-20052 STEIN MART, INC. (Exact name of registrant as specified in its charter) Florida 64-0466198 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1200 Riverplace Blvd., Jacksonville, Florida 32207 (Address of principal executive offices) (Zip Code) (904) 346-1500 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12of the(g) of the Act: Title of each class Common Stock $.01 par value Indicate whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate 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]. The aggregate market value (based on the closing price on the NASDAQ) of the Common Stock of the registrant held by non-affiliates of the registrant was $328,826,453 on February 20, 1997. For purposes of this response, executive officers and directors are deemed to be the affiliates of the registrant and the holdings by non-affiliates was computed as 14,453,910 shares. The number of shares of Common Stock, $0.01 par value per share, outstanding as of February 20, 1997, was 22,825,919. DOCUMENTS INCORPORATED BY REFERENCE 1. Portions of the registrant's 1996 Annual Report to Shareholders shown in Exhibit 13 are incorporated in Parts II and IV. 2. Portions of the registrant's Proxy Statement for its 1997 Annual Meeting are incorporated in Part III. Stein Mart, Inc. Form 10-K December 28, 1996 Table of Contents
Page Part I Item 1. Business 3 Item 2. Properties 11 Item 3. Legal Proceedings 12 Item 4. Submission of Matters to a Vote of Security Holders 12 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 13 Item 6. Selected Financial Data 13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 8. Financial Statements and Supplementary Data 13 Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 13 Part III Item 10. Directors and Executive Officers of the Registrant 14 Item 11. Executive Compensation 14 Item 12. Security Ownership of Certain Beneficial Owners and Management 14 Item 13. Certain Relationships and Related Transactions 14 Part IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 15
2 PART I ITEM 1. BUSINESS At December 28, 1996, Stein Mart, Inc., (the "Company" or "Stein Mart") was a 123-store retail chain offering fashionable, current-season, primarily branded merchandise comparable in quality and presentation to that of traditional department and fine specialty stores at prices typically 25% to 60% below those regularly charged by such stores. The Company's focused assortment of merchandise features moderate to designer brand-name apparel for women, men and children, as well as accessories, gifts, linens, shoes and fragrances. Stein Mart operated a single store in Greenville, Mississippi from the early 1900's until 1977, when it began its expansion program. During the last five years, the Company has more than doubled the number of Stein Mart stores from 45 in 15 states at year-end 1991 to 123 in 21 states at December 28, 1996. The Company's stores, which average approximately 38,000 gross square feet, are located primarily in neighborhood shopping centers in metropolitan areas. Business Strategy The Company's business strategy is to (i) maintain the quality of merchandise, store appearance, merchandise presentation and customer service levels typical of traditional department and fine specialty stores and (ii) offer value pricing to its customers through its vendor relationships, tight control over corporate and store expenses and efficient management of inventory. The principal elements of the Company's business strategy are as follows: Timely, Consistent, Upscale Merchandise. The Company purchases upscale, branded merchandise primarily through preplanned buying programs similar to those used by traditional department and fine specialty stores. These preplanned buying programs enable the Company to offer fashionable, current-season assortments on a consistent basis. Appealing Store Appearance and Merchandise Presentation. The Company creates an ambiance in its stores similar to that of upscale retailers through attractive in-store layout and signage. Merchandise is displayed in lifestyle groupings to encourage multiple purchases. Emphasis on Customer Service. Customer service is fundamental to Stein Mart's objective of building customer loyalty. Management believes that the Company offers customer service superior to off-price retailers and more comparable to traditional and fine specialty stores. Value Pricing through Vendor Relationships. In negotiating with Stein Mart, vendors do not build into their pricing structure anticipated returns or markdown and advertising allowances which are typical in the department store 3 industry. Stein Mart passes these savings on to its customers through prices which are typically 25% to 60% below those regularly charged by traditional department and fine specialty stores. Efficient Inventory Handling. Stein Mart does not rely on a large distribution center or warehousing facility. Rather, it primarily utilizes drop shipments by common carriers from its vendors directly to its stores. This system enables the Company to receive merchandise at each store on a timely basis and to save the time and expense of handling merchandise twice, which is typical of a traditional distribution center structure. Operating Efficiencies. Management believes that there will be opportunities to create additional operating efficiencies as the Company continues to add stores in new and existing markets. Expansion Strategy The Company's expansion strategy is to add stores in new markets, including those markets with the potential for multiple stores, and existing markets to capture advertising and management efficiencies. The Company plans to open 26 to 28 stores in 1997. The Company targets metropolitan statistical areas with populations of 125,000 or more for new store expansion. In determining where to locate new stores, the Company evaluates detailed demographic information, including, among other factors, data relating to income, education levels, age, occupation, the availability of prime real estate locations, existing and potential competitors, and the number of Stein Mart stores that a market can support. As a result of processing only 10% of its merchandise through its distribution center, the Company is not constrained geographically or by the capacity limits of a central facility. This allows management to concentrate on the best real estate opportunities in targeted markets. The Company refurbishes existing retail locations or occupies newly constructed stores, which typically are anchor stores in new or existing shopping centers situated near upscale residential areas, ideally with co-tenants that cater to a similar customer base. The Company's ability to negotiate favorable leases and to construct attractive stores with a relatively low investment provides a significant cost advantage over traditional department and fine specialty stores. The cost of opening a prototypical new store includes approximately $450,000 to $650,000 for fixtures, equipment, leasehold improvements and pre-opening expenses (primarily advertising, stocking and training). Pre- opening costs are expensed in the year of opening. Initial inventory investment for a new store is approximately $1 million (a portion of which is financed through vendor credit). New stores typically generate operating profit in the first year of operation. Merchandising Stein Mart's focused assortment of merchandise features moderate to designer brand-name apparel for women, men and children, as well as accessories, gifts, linens, shoes and fragrances. Branded 4 merchandise is complemented by a limited private label program that enhances the Company's assortments of current fashion trends and provides key upper-end classifications in complete size ranges. Management believes that Stein Mart differentiates itself from typical off-price retailers by offering: (i) a higher percentage of current-season merchandise carried by traditional department and fine specialty stores at moderate to better price levels, (ii) a stronger merchandising "statement," consistently offering more depth of color and size in individual stockkeeping units, and (iii) a merchandise presentation more comparable to traditional department and fine specialty stores. The Company identifies and responds to the latest fashion trends. Within each major merchandise category, the Company offers a focused assortment of the best-selling department and fine specialty store items. Stein Mart's merchandise selection is driven primarily by its own merchandising plans which are based on management's assessment of fashion trends, color, and market conditions. This strategy distinguishes Stein Mart from traditional off-price retailers who achieve cost savings by responding to unplanned buying opportunities. The Company's merchandise is typically priced at levels 25% to 60% below regular prices at these stores, therefore offering distinct value to the Stein Mart customer. The following reflects the percentage of the Company's revenues by major merchandise category for the periods indicated: Fiscal Year Ended ------------------------------------------------ December 31, December 30, December 28, 1994 1995 1996 ------------ ------------ ------------ Ladies' and Boutique apparel 33% 35% 36% Ladies' accessories 10 11 11 Men's and young men's 21 20 20 Gifts and linens 19 18 18 Shoes (leased department) 9 8 8 Children's 6 6 6 Other 2 2 1 ---- ---- ---- 100% 100% 100% ==== ==== ==== Ladies' apparel, the Company's largest contributor of revenues, consists of distinctive presentations of dresses, sportswear, petites, juniors and women's sizes at moderate to upper- moderate prices. Stein Mart's distinctive Boutique is a key element of the Company's merchandising strategy to attract the more fashion-conscious customers. The Boutique, a store-within-a-store department, carries better to designer ladies' apparel and offers the presentation and service levels of a fine specialty boutique. Each Stein Mart store has its own Boutique, staffed generally by women 5 employed on a part-time basis who are civically and socially active in the community. The Boutique highlights the Company's strategy of offering upscale merchandise, presentation and service levels at value prices. The Company's typical store layout emphasizes ladies' accessories as the fashion focus at the front of each store. The key merchandise in this department is fashion-oriented, brand-name, designer and private label jewelry, as well as scarves, hosiery, leather goods, bath products and fragrances. Men's and young men's areas together provide the second largest contribution to revenues. Menswear consists of sportswear, suits, sportcoats, slacks, dress furnishings and a Big and Tall assortment. The Company believes that its merchandise presentation is particularly strong in men's dress furnishings, including branded and private label neckwear and dress shirts. The Exterior departments present a more contemporary fashion-forward attitude designed to appeal to both ladies and men in the 18 to 40 year old age range. Stein Mart's gifts and linens departments consist primarily of a broad assortment of fashion- oriented gifts (rather than basic items) for the home and a wide range of table, bath and bed linens and, in some stores, decorative fabrics. The presentation in this distinctive department emphasizes fashion, lifestyle and seasonal themes and includes the full range of merchandise available in a typical department store. The strength of this category has been the consistent presentation with a higher percentage mix of better goods. Stein Mart's children's department offers a range of apparel for infants and children and features an infants gift boutique. The Company's shoe department is a leased department operated in individual stores by one of two shoe retailers. The merchandise in this department is presented in a manner consistent with the Company's overall presentation in other departments, stressing fashionable, current-season footwear at value prices. This department offers a variety of men's and women's casual and dress shoes, which complement the range of apparel available in other departments. Shoe department leases provide for the Company to be paid the greater of an annual base rent or a percentage of sales. Almost all of the leases currently pay on the percentage of sales basis. In 1995, the Company began leasing its fragrance department to a third-party operator. The operating agreement requires the third-party operator to pay the Company the greater of an annual base amount or a percentage of sales. Store Appearance Stein Mart's stores are designed to reflect the upscale ambiance and appearance of traditional department and fine specialty stores through attractive layout, displays and in-store signage. The prototypical store is approximately 36,000 gross square feet with convenient check-out and customer service areas and attractive, individual dressing rooms. The Company seeks to create excitement in 6 its stores through the continual flow of brand-name merchandise, sales promotions, store layout, merchandise presentation, and the quality, value and depth of its merchandise assortment. The Company displays merchandise in lifestyle groupings of apparel and accessories. Management believes that the lifestyle grouping concept strengthens the fashion image of its merchandise and enables the customer to locate desired merchandise in a manner that encourages multiple purchases. Customer Service Customer service is fundamental to Stein Mart's objective of building customer loyalty. The Company's stores offer most of the same services typically found in traditional department and fine specialty stores such as menswear alterations and a liberal merchandise return policy. Each store is staffed to provide a number of sales associates to properly attend to customer needs. The Company's training programs for sales associates and cashiers emphasize attentiveness, courtesy and the effective use of selling techniques. The Company reinforces its training programs by employing independent shopping services to monitor associates' success in implementing the principles taught in sales training. Associates who are highly rated by the shopping service receive both formal recognition and cash awards. Management believes this program emphasizes the importance of customer service necessary to create customer loyalty. Vendor Relationships and Buying Stein Mart buys from over 3,500 vendors. Many of these are considered key vendors, with whom the Company enjoys longstanding working relationships that create a continuity of preplanned buying opportunities for upscale, current-season merchandise. Most of the Company's vendors are based in the United States, which generally reduces the time necessary to purchase and obtain shipments and allows the Company to react to merchandise trends in a timely fashion. The Company does not have long-term or exclusive contracts with any particular vendor. In 1996, less than 2% of Stein Mart's purchases were from any single vendor. The Company employs several purchasing strategies to provide its customers with a consistent selection of quality, fashionable merchandise at value prices: (i) Stein Mart commits to its purchases from vendors well in advance of the selling season, in the same manner as department stores, unlike typical off-price retailers who rely heavily on buys of close-out merchandise or overruns; (ii) the Company's information systems enable it to acquire merchandise and track sales information on a store-by-store basis, allowing its buying staff to respond quickly to customer buying trends; and (iii) an in-house merchandise development department works with buyers and brand-name vendors to ensure that the merchandise assortments offered are unique, fashionable, color-forward and of high quality. Stein Mart negotiates favorable prices from its vendors by not requiring advertising and markdown allowances or return privileges that are typical in the department store industry, resulting 7 in savings that the Company passes along to its customers in the form of prices that are typically 25% to 60% below those regularly charged by traditional department and fine specialty stores. The Company's buying staff is headed by the Chief Merchandising Officer, who is supported by four Vice Presidents - General Merchandising Managers, seven Divisional Merchandising Managers and 28 buyers. In addition to base salary, the merchandising staff receives incentive compensation for achieving certain sales goals within their areas of responsibility. Historically, the Company has had very low turnover within its buying staff, enabling it to capitalize on an experienced, respected group of buyers capable of maintaining and enhancing the Company's vendor relationships. Information Systems The Company's information systems provide daily financial and merchandising information that is used by management to make timely and effective purchasing and pricing decisions and for inventory control. The Company's inventory control system enables it to achieve economies of scale from bulk purchases while at the same time ordering and tracking separate drop shipments by store. Store inventory levels are regularly monitored and adjusted as sales trends dictate. The inventory control system provides information that enhances management's ability to make informed buying decisions and accommodate unexpected increases or decreases in demand for a particular item. The Company uses bar codes and bar code scanners as part of an integrated inventory management and check-out system in its stores. In 1996, the Company installed an upgraded merchandise planning and allocation system which enables the Company to better utilize individual store data. Merchandise buyers will use the system to customize their merchandise assortments at the individual store and department level, based on selected criteria, such as a store's selling patterns, geography and merchandise color preferences. The ability to customize individual store assortments enables the Company to more effectively manage inventory, capitalize on sales trends and reduce markdowns. The Company also implemented a computerized time management system in 1996 which assists management in scheduling store associates' hours based on individual store's own customer traffic patterns and necessary tasks. This system will help maximize customer service levels and enhance efficiency. Store Operations The Company has seven Vice Presidents - Regional Directors of Stores who report to the Executive Vice President, Stores. Each oversees between 3 and 15 stores. Two of the Vice Presidents have District Directors of Stores reporting to them, who are each responsible for overseeing 8 to 13 stores. Each Vice President's and District Director's compensation includes an incentive component based on overall performance. Each Stein Mart store is managed by a general 8 manager who reports directly to a Vice President or a District Director. Store general managers are responsible for individual store operations, including hiring, motivating and supervising sales associates; receiving and effectively presenting merchandise; and implementing price change determinations made by the Company's buying staff. Store general managers receive incentive compensation based upon operating results in several key areas, including increases in store sales. In addition to the store general manager and two assistant store managers, each Stein Mart store employs an average of 60 persons as department managers, sales associates, cashiers and in other positions. Stein Mart stores are generally open 11 hours per day, 6 days a week, and on Sunday afternoons. The store hours are extended during the Christmas selling season. Advertising and Sales Promotion The Company's advertising strategy stresses the offering of upscale, branded merchandise at significant savings. The Company generally allocates the majority of its advertising budget to newspaper advertising, employing a combination of image, price-and-item and sales event approaches. While newspaper will continue to be the dominant advertising media, some emphasis will shift to national and regional magazines and local radio. Stein Mart's per-store advertising expense is reduced by spreading its advertising over multiple stores in a single market. Management believes the Company also enjoys substantial word-of-mouth advertising benefits from its customer base. Competition Management believes that the Company occupies a market niche closer to traditional department stores than typical off-price retail chains. The Company faces competition for customers and for access to quality merchandise from traditional department stores, fine specialty stores and, to a lesser degree, from off-price retail chains. Many of these competitors are units of large national or regional chains that have substantially greater resources than the Company. The retail apparel industry is highly fragmented and competitive, and the off-price retail business may become even more competitive in the future. The principal competitive factors in the retail apparel industry are assortment, presentation, quality of merchandise, price, customer service, vendor relations and store location. Management believes that the Company is well-positioned to compete on the basis of each of these factors. Employees At December 28, 1996, the Company's work force consisted of approximately 7,600 employees (5,100 40-hour equivalent employees). The number of employees fluctuates based on the particular selling season. 9 Trademarks The Company owns the federally registered trademark Stein Mart(R), together with a number of other marks used in conjunction with its private label merchandise program. Stein Mart primarily sells branded merchandise. However, in certain classifications of merchandise, the Company uses several private label programs to provide additional availability of items. Management believes that its trademarks are important but, with the exception of Stein Mart(R) , not critical to the Company's merchandising strategy. Forward-Looking Statements and Information This report and the portions of this report which are incorporated by reference from the 1996 Annual Report to Shareholders include a number of forward-looking statements which reflect the Company's current views with respect to future events and financial performance. In these reports the words "may", "expect", "anticipate", "believe", "estimate" and similar expressions identify forward-looking statements. Any such forward-looking statements contained herein are subject to certain risks and uncertainties that could cause the Company's actual results of operations to differ materially from historical results or current expectations. These factors include, without limitation, intense competition from other retailers many of whom are larger and have greater financial and marketing resources, the availability of suitable new store sites at acceptable lease terms, changes in the level of consumer spending or preferences in apparel, adequate sources of designer and brand-name merchandise at acceptable prices, and the Company's ability to attract and retain qualified employees to support planned growth. 10 ITEM 2. PROPERTIES At December 28, 1996, the Company operated stores in the following states: State Number of Stores ----- ---------------- Alabama 5 Arizona 6 Arkansas 3 Colorado 2 Florida 18 Georgia 9 Indiana 4 Kansas 2 Kentucky 2 Louisiana 8 Mississippi 4 Missouri 1 Nebraska 1 North Carolina 10 Ohio 6 Oklahoma 2 Pennsylvania 1 South Carolina 3 Tennessee 7 Texas 24 Virginia 5 ---- 123 The Company leases all of its store locations and therefore has been able to grow without incurring indebtedness to acquire real estate. Management believes that the Company has earned a reputation as an "anchor tenant," which, along with its established operating history, has enabled it to negotiate favorable lease terms. Most of the leases provide for minimum rents, as well as percentage rents that are based on sales in excess of predetermined levels. 11 The table below reflects (i) the number of the Company's leases (as of December 28, 1996) that will expire each year if the Company does not exercise any of its renewal options, and (ii) the number of the Company's leases that will expire each year if the Company exercises all of its renewal options (assuming the lease is not otherwise terminated by either party pursuant to any other provision). Number of Leases Number of Leases Expiring Each Year Expiring Each Year if no Renewals if all Renewals Exercised Exercised -------------- --------------- 1997 2 0 1998 3 0 1999 9 0 2000 6 0 2001 7 0 2002-2006 64 8 2007-2011 31 17 2012-2029 1 98 The Company has made consistent capital commitments to maintain and improve existing store facilities. During 1996 approximately $3.4 million was spent to upgrade computer equipment, fixtures, equipment and leasehold improvements in stores opened prior to 1996. The Company leases approximately 50,000 gross square feet of office space for its corporate headquarters in Jacksonville, Florida. The Company also leases a 56,000 square foot distribution center in Jacksonville for the purpose of processing a limited amount of merchandise (approximately 10%). The Company continually evaluates underperforming stores and may choose to close selected underperforming stores. In accordance with this policy, the Company closed its Denver, Colorado store in May, 1992, but opened a new store at a different location in Denver in March, 1996, and closed its Plantation, Florida store in February, 1996. ITEM 3. LEGAL PROCEEDINGS The Company is involved in various routine legal proceedings incidental to the conduct of its business. Management does not believe that any of these legal proceedings will have a material adverse effect on the financial condition or results of operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of 1996. 12 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by this item is incorporated by reference and is shown in Exhibit 13. ITEM 6. SELECTED FINANCIAL DATA The information required by this item is incorporated by reference and is shown in Exhibit 13. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is incorporated by reference and is shown in Exhibit 13. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements with Price Waterhouse LLP report dated February 14, 1997, are incorporated by reference in the Form 10-K Annual Report and are shown in Exhibit 13. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 13 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item appears under the caption "Election of Directors" in the Company's Proxy Statement for its 1997 Annual Meeting of Stockholders and is incorporated by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this item appears under the caption "Executive Compensation" in the Company's Proxy Statement for its 1997 Annual Meeting of Stockholders and is incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item appears under the caption "Voting Securities" in the Company's Proxy Statement for its 1997 Annual Meeting of Stockholders and is incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item appears under the caption "Certain Transactions; Compensation Committee Interlocks and Insider Participation" in the Company's Proxy Statement for its 1997 Annual Meeting of Stockholders and is incorporated by reference. 14 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K Financial Statements The financial statements shown in Exhibit 13 are hereby incorporated by reference. Financial Statement Schedules All schedules are omitted because they are not applicable or the required information is presented in the financial statements or notes thereto. . Reports on Form 8-K The Company did not file a report on Form 8-K during the quarter ended December 28, 1996. 15 Exhibits * 3A - Articles of Incorporation of the registrant * 3B - Bylaws of the registrant 4A - See Exhibits 3A and 3B for provisions of the Articles of Incorporation and Bylaws of the Registrant defining rights of holders of Common Stock of the registrant * 4B - Form of stock certificate for Common Stock *10A - Tax Indemnification Agreement between the registrant and Jay Stein and Cynthia G. Stein ~*10E - Form of Director's and Officer's Indemnification Agreement 10F - Loan Agreement amendments and related promissory notes between the registrant and Barnett Bank of Jacksonville, N.A. (previously filed as Exhibit 10 to Registrant's 10-Q for the quarter ended June 29, 1996 and incorporated herein by reference) ~*10G - Employee Stock Plan ~*10H - Form of Non-Qualified Stock Option Agreement ~*10I - Form of Incentive Stock Option Agreement *10J - Profit Sharing Plan ~*10K - Executive Health Plan ~*10L - Director Stock Option Plan 13 - Portions of 1996 Annual Report incorporated by reference into 1996 Annual Report on Form 10K. 23 - Consent of Price Waterhouse LLP 27 - Financial Data Schedule * Previously filed as Exhibit to Form S-1 Registration Statement 33-46322 and incorporated herein by reference. ~ Management Contracts or Compensatory Plan or Arrangements filed pursuant to S-K 601 (10) (iii)(A). 16 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. STEIN MART, INC. Date: March 27, 1997 By: /s/ Jay Stein -------------------------------- Jay Stein, Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities indicated on the 27th day of March, 1997. /s/ Jay Stein /s/ Alvin R. Carpenter - ----------------------------- ------------------------------ Jay Stein Alvin R. Carpenter Chairman of the Board and Director Chief Executive Officer /s/ John H. Williams, Jr. /s/ Albert Ernest, Jr. - ----------------------------- ------------------------------ John H. Williams, Jr. Albert Ernest, Jr. President, Chief Operating Director Officer and Director /s/ Mason Allen /s/ Mitchell W. Legler - ----------------------------- ------------------------------ Mason Allen Mitchell W. Legler Senior Executive Vice President, Director Chief Merchandising Officer and Director /s/ James G. Delfs /s/ Michael D. Rose - ----------------------------- ------------------------------ James G. Delfs Michael D. Rose Senior Vice President, Director Chief Financial Officer /s/ Clayton E. Roberson, Jr. /s/ James H. Winston - ----------------------------- ------------------------------ Clayton E. Roberson, Jr. James H. Winston Vice President, Controller Director 17 EX-13 2 PORTIONS OF 96 ANNUAL REPORT
STEIN MART, INC. SELECTED FINANCIAL DATA (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS AND OPERATING DATA) STATEMENT OF INCOME DATA: 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- Net Sales $616,150 $496,006 $419,220 $342,730 $278,254 Cost of Merchandise Sold 451,232 366,781 305,672 247,334 201,129 -------- -------- -------- -------- -------- Gross Profit 164,918 129,225 113,548 95,396 77,125 Selling, General and Administrative Expenses 128,427 105,195 87,397 71,468 58,064 Other Income, Net 7,624 6,378 5,062 3,992 3,234 -------- -------- -------- -------- -------- Income From Operations 44,115 30,408 31,213 27,920 22,295 Interest Expense 1,567 1,289 744 464 852 -------- -------- -------- -------- -------- Income Before Income Taxes 42,548 29,119 30,469 27,456 21,443 Income Tax Provision 16,594 11,361 12,050 10,774 7,522 -------- -------- -------- -------- -------- Net Income $ 25,954 $ 17,758 $ 18,419 $ 16,682 $ 13,921 ======== ======== ======== ======== ======== Net Income Per Share $1.10 $0.76 $0.78 $0.70 Pro Forms Net Income (1) $ 13,293 ======== Pro Forma Net Income Per Share (1)(2) $0.61 Weighted Average Shares Outstanding (2) 23,594 23,454 23,721 23,895 21,785 SELECTED OPERATING DATA: Stores Open at End of Period 123 100 80 66 51 Average Sales Per Store (000's)(3) $ 6,176 $ 6,129 $ 6,335 $ 6,429 $ 6,452 Average Sales Per Square Foot of Selling Area (4) $ 191 $ 189 $ 196 $ 205 $ 206 Comparable Store Net Sales Increase (Decrease)(5) 6.1% (0.7%) 2.4% 2.3% 10.9% BALANCE SHEET DATA: Working Capital $ 86,588 $ 63,685 $ 53,668 $ 42,489 $ 35,751 Total Assets 218,264 173,517 154,039 116,401 87,198 Long-term Debt, Less Current Portion 1 1 1 1 1 Total Stockholders' Equity (6) 132,143 101,436 85,277 66,858 50,176 - ---------- (1) From February 1, 1987 until its initial public offering in April 1992, the Company was treated for federal income tax purposes as an S Corporation and elected S Corporation status in all but three states in which it operated during the same period. The pro forma information has been computed as if the Company were subject to federal and state income taxes for all periods presented, based on the tax laws in effect during the respective periods. (2) At its meeting on August 9, 1993, the Company's Board of Directors declared a three-for-two stock split in the form of a 50% stock dividend. The additional shares were distributed September 10,1993 to shareholders of record on August 25, 1993. The weighted average shares outstanding and the income per share for all periods presented reflect the effect of this stock split. (3) Average sales per store (including sales from leased shoe and fragrance departments) for each period have been calculated by dividing (a) total sales during such period by (b) the number of stores open at the end of such period, in each case exclusive of stores open for less than 12 months. 4) Includes sales and selling space of the leased shoe and fragrance departments. Selling area excludes administrative, receiving and storage areas. (5) Comparable store information for a period reflects stores open throughout that period and for the full prior year. Stores remodeled or relocated continue to be included if no more than 20% additional square footage is added, the store continues to serve the same market, and a same or similar market strategy continues. (6) Net of historical stockholder distributions during the periods the Company was an S Corporation.
18 STEIN MART, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS This report includes a number of forward-looking statements which reflect the Company's current views with respect to future events and financial performance. In these reports the words "may", "expect", "anticipate", "believe", "estimate" and similar expressions identify forward looking statements. Any such forward-looking statements contained herein are subject to certain risks and uncertainties that could cause the Company's actual results of operations to differ materially from historical results or current expectations. These factors include, without limitation, intense competition from other retailers many of whom are larger and have greater financial and marketing resources, the availability of suitable new store sites at acceptable lease terms, changes in the level of consumer spending or preferences in apparel, adequate sources of designer and brand-name merchandise at acceptable prices, and the Company's ability to attract and retain qualified employees to support planned growth. The following should be read in conjunction with the "Selected Financial Data" and the notes thereto and the Financial Statements and notes thereto of the Company. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentage of the Company's net sales represented by each line item presented: YEARS ENDED --------------------------- DEC. 28, DEC. 30, DEC. 31, 1996 1995 1994 -------- ------- -------- Net Sales 100.0% 100.0% 100.0% Cost of Merchandise Sold 73.2 73.9 72.9 ----- ----- ----- Gross Profit 26.8 26.1 27.1 Selling, General and Administrative Expenses 20.8 21.2 20.8 Other Income, Net 1.2 1.2 1.2 ----- ----- ----- Income From Operations 7.2 6.1 7.5 Interest Expense .3 .2 .2 ----- ----- ----- Income Before Income Taxes 6.9% 5.9% 7.3% ===== ===== ===== 1996 COMPARED TO 1995 In 1996 the Company opened 24 stores and closed 1 store bringing to 123 the number of stores in operation at year-end. In accordance with the Company policy of evaluating underperforming stores, the Company chose to close its Plantation, Florida store in February 1996. Net sales of $616.2 million were achieved in 1996, an increase of $120.2 million, or 24.2 percent over net sales of $496.0 in 1995. The 24 new stores opened in 1996 contributed $57.4 million to net sales. Comparable store net sales in 1996 increased by 6.1 percent from 1995. Gross profit for 1996 was $164.9 million, an increase of $35.7 million over the gross profit of $129.2 million for the previous year. Gross profit as a percentage of net sales increased 0.7 percent to 26.8 percent from 26.1 percent in the previous year. This increase is primarily the result of decreased markdowns, notably in the fourth quarter. Selling, general and administrative expenses were $128.4 million, or 20.8 percent of net sales for 1996, as compared to $105.2 million, or 21.2 percent of net sales for 1995. The increase in expense dollars is primarily due to the additional stores in operation during 1996 as compared to the number of stores in operation in 1995. The decrease of 0.4 percent of net sales was due to leveraging selling and advertising expenses. Included in selling, general and administrative expenses were pre-opening expenses for the 24 stores opened in 1996 in the amount of $3.2 million and for the 20 stores opened in 1995 in the amount of $2.3 million. 19 STEIN MART, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS Other income, primarily from in-store leased shoe departments, amounted to $7.6 million in 1996, an increase of $1.2 million over the $6.4 million for 1995. The increase was due to the additional stores opened in 1996. Interest expense for 1996 was $1.6 million, compared to $1.3 million in 1995. This increase is due to increased average levels of borrowing partially offset by lower interest rates. The effective tax rate for 1996 and 1995 was 39.0 percent The factors discussed above resulted in net income for 1996 of $26.0 million, an increase of 46.2 percent from net income of $17.8 million in 1995. 1995 COMPARED TO 1994 In 1995 the Company opened 20 stores bringing to 100 the number of stores in operation at year-end. Net sales of $496.0 million were achieved in 1995, an increase of $76.8 million, or 18.3 percent over net sales of $419.2 million in 1994. The 20 new stores opened in 1995 contributed $50.4 million to net sales. Comparable store net sales in 1995 decreased by 0.7 percent from 1994. Gross profit for 1995 was $129.2 million, an increase of $15.7 million over the gross profit of $113.5 million for the previous year. Gross profit as a percentage of net sales decreased 1.0 percent to 26.1 percent from 27.1 percent in the previous year. This decrease is primarily the result of increased markdowns reflecting a higher level of promotional activity, notably in the fourth quarter, and a slight increase in occupancy costs as a percent of net sales due to lower than expected sales. Selling, general and administrative expenses were $105.2 million, or 21.2 percent of net sales for 1995, as compared to $87.4 million, or 20.8 percent of net sales for 1994. The increase in expense dollars is primarily due to the additional stores in operation during 1995 as compared to the number of stores in operation in 1994. The increase of 0.4 percent of net sales was due to lower sales productivity. Included in selling, general and administrative expenses were pre-opening expenses for the 20 stores opened in 1995 in the amount of $2.3 million and for the 14 stores opened in 1994 in the amount of $1.7 million. Other income, primarily from in-store leased shoe departments, amounted to $6.4 million in 1995, an increase of $1.3 million over the $5.1 million for 1994. The increase was due to the additional 20 stores in 1995 and the change during 1995 to operating the fragrance department as a leased department instead of an owned department. Interest expense for 1995 was $1,289,000, compared to $744,000 in 1994. This increase is due to a combination of higher interest rates and increased average levels of borrowing. The effective tax rate for 1995 was 39.0 percent as compared to 39.5 percent for 1994. The lower effective tax rate resulted from federal income tax audit adjustments included in 1994. The factors discussed above resulted in net income for 1995 of $17.8 million, a decrease of 3.6 percent from net income of $18.4 million in 1994. LIQUIDITY AND CAPITAL RESOURCES The Company's primary capital requirements are to support inventory and capital investments for the opening of new stores, to maintain and improve existing stores, and to meet seasonal working capital needs. The Company's capital requirements and working capital needs are funded through a combination of internally generated funds, a bank line of credit and credit terms from vendors. During the course of the Company's seasonal business cycle, working capital is needed to support inventory for existing stores, especially during peak selling seasons. Historically, the Company's working capital needs are lowest in the first quarter and peak in either the third or fourth quarter in anticipation of the fourth quarter selling season. 20 STEIN MART, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS Net cash provided by operating activities for 1996 amounted to $19.8 million, compared to $9.2 million for 1995. The $26.2 million increase in inventory levels is primarily related to the new stores opened during 1996. Net cash provided by operating activities for 1995 amounted to $9.2 million, compared to $22.9 million for 1994. Most of the $18.0 million increase in inventories related to the 20 new stores opened during 1995 offset partially by a decrease in average store inventories in 1995. For 1996 and 1995, cash flows used in investing activities amounted to $16.1 million and $13.8 million, respectively, primarily for the acquisition of fixtures, equipment and leasehold improvements for the opening of new stores and for information system enhancements. Cash provided by financing activities in 1996 was from proceeds and related income tax benefits received from the exercise of stock options offset partially by cash used to repurchase 370,000 shares of common stock. As of February 20, 1997 a total of 551,500 shares had been repurchased pursuant to the Board of Directors' authorizations to repurchase a total of 1,000,000 shares. There was no effect on cash flow from the line of credit during 1996 or 1995 as the balance due under the credit agreement remained unchanged at $1,000 at year-end for 1996, 1995 and 1994. The cost of opening a prototypical new store generally ranges from $450,000 to $650,000 for fixtures, equipment, leasehold improvements and pre-opening costs (primarily advertising, stocking and training). Pre-opening costs are expensed in the year of opening. Initial inventory investment for a new store is approximately $1 million (a portion of which is normally financed through vendor credit). New stores typically generate operating profit in the first year of operation. The Company's total anticipated capital expenditures for 1997 (including amounts budgeted for new store expansion, improvements to existing stores and information system enhancements), are approximately $22 million. The Company may borrow up to $40 million throughout the year and an additional $10 million seasonally under its existing credit agreement. Due to the seasonal nature of the Company's business, the Company's bank borrowings fluctuate during the year, typically reaching their highest levels during the third or fourth quarters, as the Company builds its inventory for the Christmas selling season. At December 28, 1996, the loan balance was reduced to $1,000, a minimum balance to avoid termination of the loan agreement. The Company had cash and cash equivalents at December 28, 1996 of $23.6 million. The Company believes that expected net cash provided by operating activities, bank borrowings and vendor credit will be sufficient to fund current and long-term anticipated capital expenditures and working capital requirements. SEASONALITY AND INFLATION The Company's business is seasonal in nature with the fourth quarter, which includes the Christmas selling season, historically accounting for the largest percentage of the Company's net sales volume and operating profit. During the past three years, the fourth quarter accounted for an average of 37% of the Company's annual net sales and 63% of the Company's income from operations. Accordingly, selling, general and administrative expenses are typically higher as a percentage of net sales during the first three quarters of each year. Inflation affects the costs incurred by the Company in the purchase of merchandise, the leasing of its stores, and certain components of its selling, general and administrative expenses. The Company has offset the effects of inflation through the control of expenses during the past three years. However, there can be no assurance that inflation will not have a material effect in the future. 21 STEIN MART, INC. REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS PRICE WATERHOUSE LLP [LOGO] To the Board of Directors and Stockholders of Stein Mart, Inc. In our opinion, the financial statements appearing on pages 9 through 21 of this annual report present fairly, in all material respects, the financial position of Stein Mart, Inc. at December 28, 1996 and December 30, 1995, and the results of its operations and its cash flows for each of the three fiscal years in the period ended December 28, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP Orlando, Florida February 14, 1997 22
STEIN MART, INC. BALANCE SHEET (IN THOUSANDS) DECEMBER 28, DECEMBER 30, 1996 1995 ------------ ------------ ASSETS Current assets: Cash and cash equivalents .......................... $ 23,551 $ 15,141 Trade and other receivables ........................ 2,291 1,311 Inventories ........................................ 139,180 112,961 Prepaid expenses and other current assets........... 1,874 1,955 -------- -------- Total current assets .......................... 166,896 131,368 Property and equipment, net .......................... 50,151 40,691 Other assets ......................................... 1,217 1,458 -------- -------- Total assets .................................. $218,264 $173,517 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ................................... $ 59,176 $ 47,616 Accrued liabilities ................................ 17,187 14,622 Income taxes payable ............................... 3,945 5,445 -------- -------- Total current liabilities...................... 80,308 67,683 Notes payable to bank ................................ 1 1 Deferred income taxes ................................ 5,812 4,397 -------- -------- Total liabilities ............................. 86,121 72,081 Stockholders' equity: Preferred stock, $.01 par value; 1,000,000 shares authorized; no shares outstanding Common stock, $.01 par value; 50,000,000 shares authorized; 22,811,444 shares issued and outstanding at December 28, 1996 and 22,365,584 shares issued and outstanding at December 30, 1995 .......................... 228 224 Paid-in capital.................................... 40,904 36,155 Retained earnings ................................. 91,011 65,057 -------- -------- Total stockholders' equity .................... 132,143 101,436 -------- -------- Total liabilities and stockholder's equity .... $218,264 $173,517 ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 23
STEINMART, INC. STATEMENT OF INCOME (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) FOR THE YEARS ENDED ------------------------------------------ DECEMBER 28, DECEMBER 30, DECEMBER 31, 1996 1995 1994 ------------ ------------ ------------ Net sales .................................... $616,150 $496,006 $419,220 Costs of merchandise sold .................... 451,232 366,781 305,672 -------- -------- -------- Gross profit ............................... 164,918 129,225 113,548 Selling, general and administrative expenses . 128,427 105,195 87,397 Other income, net ............................ 7,624 6,378 5,062 -------- -------- -------- Income from operations...................... 44,115 30,408 31,213 Interest expense ............................. 1,567 1,289 744 -------- -------- -------- Income before income taxes ................... 42,548 29,119 30,469 Provision for income taxes ................... 16,594 11,361 12,050 -------- -------- -------- Net income ................................. $ 25,954 $ 17,758 $ 18,419 ======== ======== ======== Weighted average shares outstanding .......... 23,594 23,454 23,721 ======== ======== ======== Net income per share ......................... $1.10 $0.76 $0.78 ======== ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 24
STEINMART, INC. STATEMENT OF STOCKHOLDERS' EQUITY (IN THOUSANDS) TOTAL COMMON PAID-IN RETAINED STOCKHOLDERS' STOCK CAPITAL EARNINGS EQUITY ------ ------- -------- ------------- Balance at December 31, 1993 ............... $225 $37,753 $28,880 $ 66,858 Net income .............................. 18,419 18,419 ---- ------- ------- -------- Balance at December 31, 1994 ............... 225 37,753 47,299 85,277 Net income .............................. 17,758 17,758 Common shares issued under stock option plan and related income tax benefits. 254 254 Reacquired shares ....................... (1) (1,852) (1,853) ---- ------- ------- -------- Balance at December 30, 1995 ............... 224 36,155 65,057 101,436 Net income .............................. 25,954 25,954 Common shares issued under stock option plan and related income tax benefits . 8 9,311 9,319 Reacquired shares ....................... (4) (4,562) (4,566) ---- ------- ------- -------- Balance at December 28, 1996 ............... $228 $40,904 $91,011 $132,143 ==== ======= ======= ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 25
STEINMART, INC. STATEMENT OF CASH FLOWS (IN THOUSANDS) FOR THE YEARS ENDED ------------------------------------------ DECEMBER 28, DECEMBER 30, DECEMBER 31, 1996 1995 1994 ------------ ------------ ------------ Cash flows from operating activities: Net income ............................................ $ 25,954 $ 17,758 $ 18,419 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ..................... 6,659 5,176 4,121 Loss on disposition of property and equipment ................................... 240 (Increase) decrease in: Trade and other receivables ..................... (980) (311) 433 Inventories ..................................... (26,219) (18,017) (18,758) Prepaid expenses and other current assets ....... 81 (88) (150) Other assets .................................... 241 1,403 (668) Increase (decrease) in: Accounts payable ................................ 11,560 596 15,911 Accrued liabilities ............................. 2,565 1,843 2,255 Income taxes payable ............................ (1,500) (193) 492 Deferred income taxes ........................... 1,415 1,073 561 ------- ------- ------- Net cash provided by operating activities ............. 19,776 9,240 22,856 Cash flows used in investing activities: Net acquisition of property and equipment ............. (16,119) (13,794) (11,494) Cash flows from financing activities: Proceeds from exercise of stock options and related income tax benefits ................................. 9,319 254 Purchase of common stock ................................ (4,566) (1,853) ------- ------- ------- Net cash provided by (used in) financing activities ... 4,753 (1,599) -- ------- ------- ------- Net increase (decrease) in cash and cash equivalents ........................................... 8,410 (6,153) 11,362 Cash and cash equivalents at beginning of year .......... 15,141 21,294 9,932 ------- ------- ------- Cash and cash equivalents at end of year ................ $23,551 $15,141 $21,294 ======= ======= ======= Supplemental disclosures of cash flow information: Interest paid ......................................... $ 1,372 $ 1,144 $ 590 Income taxes paid ..................................... 12,142 10,456 10,899
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 26 STEINMART, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 28, 1996 (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES At December 28, 1996 the Company operated a chain of 123 off-price retail stores in 21 states. Each store offers women's, men's and children's apparel, as well as accessories, gifts, linens and shoes. FISCAL YEAR In 1995 the Company changed its reporting period from a calendar year to a 52-53 week fiscal year ending on the Saturday closest to December 31. Results for 1996 and 1995 are for the 52 weeks ended December 28, 1996 and December 30, 1995, respectively. The effect of the change was not material to the Company's 1995 financial statements. CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash on hand, demand deposits and short-term investments with original maturities of three months or less. INVENTORIES Merchandise inventories are valued at the lower of average cost or market, on a first-in first-out basis, using the retail inventory method. PROPERTY AND EQUIPMENT Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is provided on a straight-line method using estimated useful lives of 5-10 years. Leasehold improvements are amortized over the shorter of the estimated useful lives of the improvements or the term of the lease. Routine maintenance and repairs are charged to expense when incurred. Major replacements and improvements are capitalized. The cost of assets sold or retired and the related accumulated depreciation or amortization are removed from the accounts with any resulting gain or loss included in net income. The Company reviews long-lived assets, and reserves for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be fully recoverable. PRE-OPENING EXPENSES Non-capital expenditures incurred prior to the opening of new stores are amortized ratably over the period from the date of the store opening to the end of the fiscal year. ADVERTISING EXPENSE Advertising costs are expensed as incurred. Advertising expenses of $21,089,000, $18,114,000 and $15,560,000 are reflected in the Statement of Income for 1996, 1995 and 1994, respectively. INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. NET INCOME PER SHARE Net income per share is computed by dividing net income by the weighted average number of shares of common stock outstanding plus the common stock equivalents related to stock options for each period. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. PROPERTY AND EQUIPMENT, NET Property and equipment and the related accumulated depreciation and amortization consist of: 1996 1995 ------- ------ Furniture, fixtures and equipment $60,974 $48,493 Building and leasehold improvements 18,380 14,806 Land 128 128 ------- ------- 79,482 63,427 Less: accumulated depreciation and amortization 29,331 22,736 ------- ------- $50,151 $40,691 ======= ======= 27 STEINMART, INC. NOTES TO FINANCIAL STATEMENTS, CONT'D 3. ACCRUED LIABILITIES The major components of accrued liabilities are as follows: 1996 1995 ------- ------- Taxes, other than income taxes $ 8,973 $ 7,104 Salaries, wages, bonuses and benefits 2,218 2,542 Other 5,996 4,976 ------- ------- $17,187 $14,622 ======= ======= 4. NOTES PAYABLE TO BANK The Company's revolving credit agreement with a banking institution provides a line of credit of $40 million and an additional $10 million seasonal line of credit. The agreement expires on June 29, 1999 at which time any outstanding loan balance becomes due in 16 equal quarterly installments. The agreement includes a $4 million letter of credit facility which expires on June 30, 1997 and a $10 million bankers acceptance facility. Borrowings under the agreement are classified as long-term debt based on the maturity date of the agreement and the Company's ability to convert the outstanding balance to a term note at maturity. Interest on the outstanding balance is payable quarterly, at the option of the Company, at 1.50% below the prime rate or at .5% over the London Inter-Bank Offering Rate (LIBOR). The Company is obligated to pay a quarterly commitment fee of 1/8 percent per annum based on the daily average unused balance of the commitment during the term of the agreement. The agreement also requires the Company to maintain certain financial ratios and meet certain working capital, net worth and indebtedness tests for which the Company is in compliance at December 28, 1996. 5. STOCKHOLDERS' EQUITY During 1996, the Company repurchased 370,000 shares of its common stock in the open market at a total cost of $4,566,000. During 1995, 166,500 shares were repurchased for $1,853,000. 6. STOCK OPTION PLANS The Company has an Employee Stock Plan which provides that a maximum of 3,000,000 shares of common stock may be granted to certain key employees through non-qualified stock options, incentive stock options, stock appreciation rights and restricted stock. The Compensation Committee of the Board of Directors determines the exercise price of options which cannot be less than the fair market value on the date of grant for incentive stock options or 50% of the fair market value for non-qualified options. One-third of the options granted become exercisable on each of the third, fourth and fifth anniversary dates of grant and expire ten years after the date of grant. No stock appreciation rights or restricted stock awards have been granted under this plan. The Company also has a Director Stock Option Plan which provides that a total of 42,000 shares of common stock may be issued to outside directors through stock options which are exercisable at a price equal to the fair market value at the date of grant and which become exercisable on the same basis as options issued under the Employee Stock Plan. Information regarding these fixed-price option plans for 1996, 1995 and 1994 is as follows:
1996 1995 1994 --------------------- -------------------- ------ NUMBER WEIGHTED- NUMBER WEIGHTED- NUMBER OF AVERAGE OF AVERAGE OF SHARES EXERCISE SHARES EXERCISE SHARES (000) PRICE (000) PRICE (000) ------- --------- ------- --------- ------ Options outstanding at beginning of year 2,430 $ 8 2,261 $ 8 2,144 Options granted 144 18 258 12 150 Options exercised (816) 6 (32) 5 - Options forfeited (52) 13 (57) 12 (33) ------- ------- ------ Option outstanding at end of year 1,706 10 2,430 8 2,261 ======= ======= ====== Options exercisable at end of year 487 625 --
28 STEINMART, INC. NOTES TO FINANCIAL STATEMENTS, CONT'D The following table summarizes information about fixed-price stock options outstanding at December 28, 1996: OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------------- ---------------------- WEIGHTED- AVERAGE WEIGHTED- WEIGHTED- RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE PRICES (000) LIFE PRICE (000) PRICE - --------- ----------- ----------- -------- ----------- --------- $ 5 to 9 1,091 5.1 years $ 6 441 $ 7 10 to 14 292 8.5 12 4 10 15 to 19 211 8.2 17 18 16 20 to 24 112 7.4 21 24 20 ----- --- $ 5 to 24 1,706 6.2 10 487 8 ===== === The Company has adopted the disclosure only option under Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," and accordingly has retained the intrinsic value method of accounting for stock based compensation. Accordingly, no compensation cost has been recognized for the stock option plans. If the accounting provisions of the new Statement had been adopted as of the beginning of 1995, the effect on 1996 and 1995 net earnings would not have been significant. 7. LEASED FACILITIES AND COMMITMENTS The Company leases substantially all of its retail and support facilities. Annual store rent generally comprises a fixed minimum amount plus a contingent amount based on a percentage of sales exceeding a stipulated amount. Most leases also require additional payments covering real estate taxes, common area costs and insurance. Rent expense for 1996, 1995 and 1994 was as follows: 1996 1995 1994 ------- ------- ------- Minimum rentals $23,315 $19,069 $15,531 Contingent rentals 527 580 404 ------- ------- ------- $23,842 $19,649 $15,935 ======= ======= ======= At December 28, 1996, the Company was committed under noncancellable leases with remaining terms of up to 20 years for the majority of its retail and corporate facilities. Future minimum payments under noncancellable leases are: 1997 $ 25,816 1998 25,557 1999 24,633 2000 22,944 2001 21,781 Thereafter 108,657 -------- $229,388 ======== The Company subleases shoe department space and, beginning in 1995, fragrance department space in all of its stores. Sales from leased departments are excluded from sales of the Company. Sublease rental income of $7,248,000, $5,869,000 and $4,636,000 is included in other income, net for 1996, 1995 and 1994, respectively. Total future minimum rental income under these noncancellable subleases is $7,309,000 at December 28, 1996. 8. PROFIT SHARING PLAN The Company has a defined contribution retirement plan covering employees who are at least 21 years of age and have completed at least one year of service. Under the profit sharing portion of the plan, the Company makes discretionary contributions which vest at a rate of 20 percent per year after three years of service. Under the 401(k) portion of the plan the Company contributes one percent of the employee's compensation and matches 25 percent of the employee's voluntary pre-tax contributions up to a maximum of four percent of the employee's compensation. The Company's base 401(k) contribution vests immediately while the matching portion vests in accordance with the plan's vesting schedule. Total Company contributions under the retirement plan were $1,150,000, $780,000 and $720,000 for 1996, 1995 and 1994, respectively. 29 NOTES TO FINANCIAL STATEMENTS CONT'D. 9. INCOME TAXES The provision for income taxes for 1996, 1995 and 1994 consisted of: 1996 1995 1994 ------- ------- ------- Current: Federal $12,844 $ 8,751 $ 9,796 State 2,335 1,537 1,693 ------- ------- ------- Total current 15,179 20,288 11,489 Deferred: Federal 1,197 848 476 State 218 225 85 ------- ------- ------- Total deferred 1,415 1,073 561 ------- ------- ------- Total income tax expense $16,594 $11,361 $12,050 ======= ======= ======= Income tax expense differed from the amounts computed by applying the Federal statutory rate of 35 percent to income before taxes as follows: 1996 1995 1994 ------- ------- ------- Tax expense at the statutory rate $14,892 $10,192 $10,664 State income taxes, net of federal benefit 1,702 1,145 1,229 Other -- 24 157 ------- ------- ------- $16,594 $11,361 $12,050 ======= ======= ======= Effective tax rate 39.0% 39.0% 39.5% ======= ======= ======= Deferred income tax assets and liabilities resulted from the following temporary differences: 1996 1995 1994 ------- ------- ------- Excess of tax over book depreciation $ 5,715 $ 4,401 $ 3,316 Other 97 (4) 8 ------- ------- ------- $ 5,812 $ 4,397 $ 3,324 ======= ======= ======= The exercise of stock options which have been granted under the Company's various stock option plans gives rise to compensation which is includable in the taxable income of the applicable employees and deductible by the Company for federal and state income tax purposes. Such compensation results from increases in the fair market value of the Company's common stock subsequent to the date of grant of the applicable exercised stock options, and, in accordance with Accounting Principles Board Opinion No. 25, such compensation is not recognized as an expense for financial accounting purposes and the related tax benefits are recorded directly in Additional Paid-in Capital. In the year ended December 28, 1996, such deductions resulted in significant federal and state tax deductions for the Company. In the year ended December 30, 1995, such deductions resulted in minor federal and state tax deductions for the Company. In the year ended December 31, 1994, there were no stock options exercised. 10. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following table shows unaudited quarterly results of operations for 1996 and 1995:
QUARTER ENDED QUARTER ENDED ----------------------------------------------- ---------------------------------------------- MAR. 31, JUN. 29, SEPT. 28, DEC. 28, APR. 1, JUL. 1, SEPT. 30, DEC. 30, 1996 1996 1996 1996 1995 1995 1995 1995 ----------------------------------------------- ---------------------------------------------- Net sales $108,517 $149,400 $131,264 $226,969 $87,709 $116,530 $108,221 $183,546 Gross profit 24,880 42,803 31,183 66,052 19,063 33,153 25,495 51,514 Net income (loss) (564) 7,712 2,411 16,395 (1,261) 5,229 1,565 12,225 EPS $ (0.02) $ 0.33 $ 0.10 $ 0.69 $ (0.05) $ 0.22 $ 0.07 $ 0.52
11. SUBSEQUENT EVENTS In addition to the shares repurchased as described in Note 5, as of February 20, 1997 the Company had repurchased an additional 15,000 shares of its common stock in the open market at a total cost of $295,000. 30 Stein Mart, Inc. Stockholder Information CORPORATE HEADQUARTERS Stein Mart, Inc. 1200 Riverplace Boulevard Jacksonville, FL 32207 (904) 346-1500 NOTICE OF ANNUAL MEETING OF STOCKHOLDERS The annual meeting of stockholders will be held at two o'clock in the afternoon, Monday, May 12, 1997 at the Jacksonville Hilton and Towers, 1201 Riverplace Boulevard, Jacksonville, Florida. TRANSFER AGENT AND REGISTRAR ChaseMellon Shareholder Services (CMSS) Overpeck Centre 85 Challenger Road Ridgefield Park, NJ 07660 CMSS shareholder services: 1-800-756-3353 CMSS website: http://www.cmssonline.com LEGAL COUNSEL Mitchell W. Legler, P.A. 1 Independent Drive Suite 3104 Jacksonville, Florida 32202 INDEPENDENT AUDITORS Price Waterhouse LLP Orlando, Florida COMMON STOCK INFORMATION Stein Mart's common stock is traded on the NASDAQ National Market under the trading symbol SMRT. On March 11, 1997, there were 987 stockholders of record. The following table reflects the high and low sales prices of the common stock for each fiscal quarter in 1995 and 1996. (Quarter ending dates) High Low ---------- ---------- April 1, 1995 $15.00 $ 9.25 July 1,1995 $13.88 $ 8.88 September 30, 1995 $14.75 $10.50 December 30, 1995 $13.13 $10.50 March 30, 1996 $15.25 $ 8.50 June 29, 1996 $20.75 $14.38 September 28, 1996 $24.75 $15.63 December 28, 1996 $23.50 $17.75 The Company intends to reinvest future earnings in the business and accordingly does not anticipate paying dividends in the foreseeable future. FINANCIAL INFORMATION Investor inquiries are welcome. Individuals may contact the Company by letter to request information, including a copy of Stein Mart's Annual Report to the Securities and Exchange Commission on Form 10-K. Additional copies and other financial reports are available without charge upon request to : Susan Datz Edelman Director, Stockholder Relations Stein Mart, Inc. 1200 Riverplace Boulevard 10th Floor Jacksonville, FL 32207 Requests for stockholder information may also be sent by electronic mail to SteinMrt@aol.com. 31 EX-23 3 CONSENT LETTER OF PRICE WATERHOUSE CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-88176 and 33-90028) of Stein Mart, Inc. of our report dated February 14, 1997, which appears on page 13 of the 1996 Annual Report to Shareholders, which is incorporated by reference in this Annual Report on Form 10-K. Price Waterhouse LLP Orlando, Florida March 11, 1997 32 EX-27 4 FDS FOR YEAR ENDED 12/28/96
5 This schedule contains summary financial information extracted from the statements of income and balance sheets and is qualified in its entirety by reference to such financial statements. 1000 YEAR DEC-28-1996 DEC-31-1995 DEC-28-1996 23551 0 2863 572 139180 166896 79482 29331 218264 80308 0 0 0 228 131915 218264 616150 623774 451232 579659 0 0 1567 42548 16594 25954 0 0 0 25954 1.10 1.10
-----END PRIVACY-ENHANCED MESSAGE-----