-----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, OTlbYh9Y4Ny/BDrD+M0vKPdo/hnv/75NVy9RRNVY7dvF+s7atix+WNlqcybrdzjK khN/zRwEBA/eJRJnedAE9A== 0000884940-98-000003.txt : 19980403 0000884940-98-000003.hdr.sgml : 19980403 ACCESSION NUMBER: 0000884940-98-000003 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980103 FILED AS OF DATE: 19980402 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: SEC FILE NUMBER: 000-20052 FILM NUMBER: 98586255 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 PERIOD ENDED 1/3/98 FOR 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 January 3, 1998 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 12 (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 Stock Market) of the Common Stock of the registrant held by non-affiliates of the registrant was $483,712,309 on February 27, 1998. 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 14,969,820 shares. The number of shares of Common Stock, $0.01 par value per share, outstanding as of February 27, 1998, was 22,968,956. DOCUMENTS INCORPORATED BY REFERENCE ----------------------------------- 1. Portions of the registrant's 1997 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 1998 Annual Meeting are incorporated in Part III. Stein Mart, Inc. Form 10-K January 3, 1998 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 14 2 PART I ITEM 1. BUSINESS At January 3, 1998, Stein Mart, Inc., (the "Company" or "Stein Mart") was a 151-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 51 in 14 states at year-end 1992 to 151 in 26 states at January 3, 1998. 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 department 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 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 approximately 30 stores in 1998. 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 typical 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. 4 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 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 30, December 28, January 3, 1995 1996 1998 ------------ ------------ ---------- Ladies' and Boutique apparel 35% 36% 38% Ladies' accessories 11 11 11 Men's and young men's 20 20 19 Gifts and linens 18 18 17 Shoes (leased department) 8 8 8 Children's 6 6 6 Other 2 1 1 ---- ---- ---- 100% 100% 100% ==== ==== ==== 5 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 employed on a part-time basis who are civically and socially prominent 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 better sportswear. 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. 6 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 typical store is approximately 38,000 gross square feet with convenient check-out and customer service areas and attractive, individual dressing rooms. The Company seeks to create excitement in 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 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 1997, 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) 7 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 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 Executive Vice President, Merchandising, who is supported by four Vice Presidents - General Merchandising Managers, nine Divisional Merchandising Managers and 32 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. The Company's merchandise planning and allocation system enables the merchandise buyers 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. A computerized time management system assists management in scheduling store associates' hours based on individual store's own customer traffic patterns and necessary tasks. This system helps to maximize customer service levels and enhance efficiency. 8 Store Operations The Company has five Vice Presidents - Regional Directors of Stores who report to the Executive Vice President, Stores. Each oversees between 4 and 15 stores. Three of the Vice Presidents have District Directors of Stores reporting to them, who are each responsible for overseeing 7 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 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. 9 Employees At January 3, 1998, the Company's work force consisted of approximately 9,100 employees (6,200 40-hour equivalent employees). The number of employees fluctuates based on the particular selling season. 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 1997 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. Wherever used, the words "plan", "expect", "anticipate", "believe", "estimate" and similar expressions identify forward-looking statements. Any such forward-looking statements contained herein are subject to risks and uncertainties that could cause the Company's actual results of operations to differ materially from historical results or current expectations. These risks include, without limitation, ongoing 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 Company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make clear that any projected results expressed or implied therein will not be realized. 10 ITEM 2. PROPERTIES At January 3, 1998, the Company operated stores in the following states: State Number of Stores ----- ---------------- Alabama 5 Arizona 6 Arkansas 3 California 1 Colorado 2 Florida 20 Georgia 11 Illinois 2 Indiana 5 Iowa 1 Kansas 2 Kentucky 3 Louisiana 8 Mississippi 4 Missouri 2 Nebraska 1 Nevada 2 North Carolina 10 Ohio 10 Oklahoma 2 Pennsylvania 1 South Carolina 3 Tennessee 9 Texas 30 Virginia 5 Wisconsin 3 --- 151 === 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 January 3, 1998) 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 ------------------ ------------------ 1998 3 0 1999 9 0 2000 6 0 2001 9 0 2002 7 0 2003-2007 82 9 2008-2012 34 18 2013-2030 1 124 The Company has made consistent capital commitments to maintain and improve existing store facilities. During 1997, approximately $3.5 million was spent to upgrade computer equipment, fixtures, equipment and leasehold improvements in stores opened prior to 1997. The Company leases approximately 54,000 gross square feet of office space for its corporate headquarters in Jacksonville, Florida. The Company also leases an 87,000 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 1997. 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 20, 1998, 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 1998 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 1998 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 1998 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 1998 Annual Meeting of Stockholders and is incorporated by reference. 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 January 3, 1998. 14 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 September 27, 1997 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 1997 Annual Report incorporated by reference into 1997 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). 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. STEIN MART, INC. Date: April 2, 1998 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 2nd day of April, 1998. /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/ James G. Delfs /s/ Mitchell W. Legler - -------------------------------- -------------------------------- James G. Delfs Mitchell W. Legler Senior Vice President, Director Chief Financial Officer /s/ Clayton E. Roberson, Jr. /s/ Michael D. Rose - -------------------------------- -------------------------------- Clayton E. Roberson, Jr. Michael D. Rose Vice President, Controller Director /s/ Mason Allen /s/ James H. Winston - -------------------------------- -------------------------------- Mason Allen James H. Winston Director Director 16 EX-13 2 PORTIONS OF 1997 ANNUAL REPORT
Stein Mart, Inc. Selected Financial Data (Dollars in Thousands Except Per Share Amounts and Operating Data) 1997 (1) 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- Statement of Income Data: Net Sales $792,655 $616,150 $496,006 $419,220 $342,730 Cost of Merchandise Sold 579,747 451,232 366,781 305,672 247,334 ----------- ----------- ----------- ----------- ----------- Gross Profit 212,908 164,918 129,225 113,548 95,396 Selling, General and Administrative Expenses 163,953 128,427 105,195 87,397 71,468 Other Income, Net 9,243 7,624 6,378 5,062 3,992 ----------- ----------- ----------- ----------- ----------- Income From Operations 58,198 44,115 30,408 31,213 27,920 Interest Expense 1,203 1,567 1,289 744 464 ----------- ----------- ----------- ------------ ----------- Income Before Income Taxes 56,995 42,548 29,119 30,469 27,456 Income Tax Provision 22,228 16,594 11,361 12,050 10,774 ----------- ----------- ----------- ----------- ----------- Net Income $ 34,767 $ 25,954 $ 17,758 $ 18,419 $ 16,682 =========== =========== =========== =========== =========== Earnings Per Share - Basic (2) $1.51 $1.16 $0.79 $0.82 $0.74 Earnings Per Share - Diluted (2) $1.47 $1.12 $0.77 $0.79 $0.71 Selected Operating Data: Stores Open at End of Period 151 123 100 80 66 Average Sales Per Store (000's) (3) $ 6,261 $ 6,176 $ 6,129 $ 6,335 $ 6,429 Average Sales Per Square Foot of Selling Area (4) $ 194 $ 191 $ 189 $ 196 $ 205 Comparable Store Net Sales Increase (Decrease) (5) 7.2% 6.1% (0.7%) 2.4% 2.3% Balance Sheet Data: Working Capital $110,296 $ 86,588 $ 63,685 $ 53,668 $ 42,489 Total Assets 270,604 218,264 173,517 154,039 116,401 Long-term Debt, Less Current Portion - 1 1 1 1 Total Stockholders' Equity 165,803 132,143 101,436 85,277 66,858 (1) 1997 is a 53-week year; all others are 52-week years. (2) Basic and Diluted Earnings Per Share are presented for all periods in accordance with Financial Accounting Standards No. 128, "Earnings Per Share" which the Company adopted in 1997. (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. All periods are calculated on a 52-week basis. (4) Includes sales and selling space of the leased shoe and fragrance departments. Selling area excludes administrative, receiving and storage areas. All periods are calculated on a 52-week basis. (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 similiar market strategy continues. All periods are calculated on a 52-week basis.
17 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. Wherever used, the words "plan", "expect", "anticipate", "believe", "estimate" and similar expressions identify forward-looking statements. Any such forward-looking statements contained herein are subject to risks and uncertainties that could cause the Company's actual results of operations to differ materially from historical results or current expectations. These risks include, without limitation, ongoing 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 Company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make clear that any projected results expressed or implied therein will not be realized. 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 ------------------------------ Jan 3, Dec 28, Dec 30, 1998 (1) 1996 1995 ------- ------- ------ Net Sales 100.0% 100.0% 100.0% Cost of Merchandise Sold 73.1 73.2 73.9 ------- ------- ------ Gross Profit 26.9 26.8 26.1 Selling, General and Administrative Expenses 20.7 20.8 21.2 Other Income, Net 1.1 1.2 1.2 ------- ------- ------ Income From Operations 7.3 7.2 6.1 Interest Expense .1 .3 .2 ------- ------- ------ Income Before Income Taxes 7.2% 6.9% 5.9% ======= ======= ====== (1) Fifty-three week fiscal year. 18 1997 Compared to 1996 In 1997 the Company opened 28 stores bringing to 151 the number of stores in operation at year-end. Net sales of $792.7 million were achieved for the fifty-three week fiscal year 1997, an increase of $176.5 million, or 28.6 percent over net sales of $616.2 million for the fifty-two week fiscal year 1996. The 28 new stores opened in 1997 contributed $72.7 million to net sales and the fifty-third week contributed $11.7 million. Comparable store net sales on a fifty-two week basis increased 7.2 percent over 1996. Gross profit for 1997 was $212.9 million, an increase of $48.0 million over the gross profit of $164.9 million for the previous year. Gross profit as a percentage of net sales increased 0.1 percent to 26.9 percent from 26.8 percent in the previous year. This increase is the result of improved mark-up and leveraging occupancy costs, partially offset by higher markdowns. Selling, general and administrative expenses were $164.0 million, or 20.7 percent of net sales for 1997, as compared to $128.4 million, or 20.8 percent of net sales for 1996. The increase in expense dollars is primarily due to the additional stores in operation during 1997 as compared to the number of stores in operation in 1996. The decrease of 0.1 percent of net sales was due to leveraging stores and corporate office expenses. Included in selling, general and administrative expenses were pre-opening expenses for the 28 stores opened in 1997 in the amount of $4.2 million and for the 24 stores opened in 1996 in the amount of $3.2 million. Other income, primarily from in-store leased shoe departments, amounted to $9.2 million in 1997, an increase of $1.6 million over the $7.6 million for 1996. The increase was due to the additional 28 stores opened in 1997. Interest expense for 1997 was $1.2 million, compared to $1.6 million in 1996. This decrease is primarily due to decreased average levels of borrowings. The effective tax rate for 1997 and 1996 was 39.0 percent. The factors discussed above resulted in net income for 1997 of $34.8 million, an increase of 34.0 percent from net income of $26.0 million in 1996. Basic and Diluted Earnings Per Share are presented in accordance with Financial Accounting Standards No. 128, "Earnings Per Share" which the Company adopted in 1997. Diluted earnings per share resulting from the new standard are higher by $.02, $.02 and $.01 for 1997, 1996 and 1995, respectively, than earnings per share for those years calculated in accordance with the previous standard. 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. 19 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 million 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. 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 borrowings 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. 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. Net cash provided by operating activities for 1997 amounted to $25.2 million, compared to $19.8 million for 1996. Net income for 1997 was $34.8 million, an increase of $8.8 million over net income for 1996. Cash was also provided by a $5.8 million increase in accounts payable and a $7.5 million increase in income taxes payable. The $36.4 million increase in inventories is primarily related to the new stores opened in 1997. 20 Net cash provided by operating activities for 1996 amounted to $19.8 million, compared to $9.2 million for 1995. Net income for 1996 was $26.0 million, an increase of $8.2 million over net income for 1995. Cash was also provided by an $11.6 million increase in accounts payable. The $26.2 million increase in inventories is primarily related to the new stores opened during 1996. For 1997 and 1996, cash flows used in investing activities amounted to $19.7 million and $16.1 million, respectively, primarily for the acquisition of fixtures, equipment and leasehold improvements for the opening of new stores and for information system enhancements. Cash used in financing activities in 1997 was for the repurchase of 329,000 shares of common stock offset by proceeds and related income tax benefits received from the exercise of stock options. As of February 20, 1998 a total of 933,500 shares had been repurchased pursuant to the Board of Directors' authorizations to repurchase a total of 2,000,000 shares. The cost of opening a typical new store generally ranges from $500,000 to $700,000 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 1998 (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 January 3, 1998, there was no loan balance under the agreement. The Company had cash and cash equivalents at January 3, 1998 of $28.0 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 percent 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 Year 2000 Issue The Company has studied the "Year 2000" issues affecting its operations and is in the process of implementing required modifications to its systems. The underlying issues are not expected to have a material adverse affect on the Company's operations or financial position. The cost of addressing "Year 2000" issues has not been material to the Company to date and is not expected to be in future periods. 22 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 22 of this annual report present fairly, in all material aspects, the financial position of Stein Mart, Inc. at January 3, 1998 and December 28, 1996, and the results of its operations and its cash flows for each of the three fiscal years in the period ended January 3, 1998, 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 20, 1998 23
Stein Mart, Inc. Balance Sheet (In thousands) January 3, December 28, 1998 1996 ---------- ------------ ASSETS Current assets: Cash and cash equivalents $ 27,979 $ 23,551 Trade and other receivables 2,518 2,291 Inventories 175,620 139,180 Prepaid expenses and other current assets 2,170 1,874 ---------- ------------ Total current assets 208,287 166,896 Property and equipment, net 61,087 50,151 Other assets 1,230 1,217 ---------- ------------ Total assets $270,604 $218,264 ========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 65,013 $ 59,176 Accrued liabilities 21,527 17,187 Income taxes payable 11,451 3,945 ---------- ------------ Total current liabilities 97,991 80,308 Notes payable to bank - 1 Deferred income taxes 6,810 5,812 ---------- ------------ Total liabilities 104,801 86,121 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; 23,005,354 shares issued and outstanding at January 3, 1998 and 22,811,444 shares issued and outstanding at December 28, 1996 230 228 Paid-in capital 39,795 40,904 Retained earnings 125,778 91,011 ---------- ------------ Total stockholders' equity 165,803 132,143 ---------- ------------ Total liabilities and stockholders' equity $270,604 $218,264 ========== ============
The accompanying notes are an integral part of these financial statements. 24
Stein Mart, Inc. Statement of Income (In thousands except per share amounts) For The Years Ended ------------------------------------------------------ January 3, December 28, December 30, 1998 1996 1995 ---------- ------------ ------------ Net sales $792,655 $616,150 $496,006 Cost of merchandise sold 579,747 451,232 366,781 ---------- ------------ ------------ Gross profit 212,908 164,918 129,225 Selling, general and administrative expenses 163,953 128,427 105,195 Other income, net 9,243 7,624 6,378 ---------- ------------ ------------ Income from operations 58,198 44,115 30,408 Interest expense 1,203 1,567 1,289 ---------- ------------ ------------ Income before income taxes 56,995 42,548 29,119 Provision for income taxes 22,228 16,594 11,361 ---------- ------------ ------------ Net income $ 34,767 $ 25,954 $ 17,758 ========== ============ ============= Earnings per share - Basic $1.51 $1.16 $0.79 ========== ============ ============= Earnings per share - Diluted $1.47 $1.12 $0.77 ========== ============ =============
The accompanying notes are an integral part of these financial statements. 25
Stein Mart, Inc. Statement of Stockholders' Equity (In thousands) Total Common Paid-in Retained Stockholders' Stock Capital Earnings Equity ------- --------- ---------- -------------- 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 Net income 34,767 34,767 Common shares issued under stock option plan and related income tax benefits 5 7,829 7,834 Reacquired shares (3) (8,938) (8,941) ------- --------- ---------- -------------- Balance at January 3, 1998 $230 $39,795 $125,778 $165,803 ======= ========= ========== ==============
The accompanying notes are an integral part of these financial statements. 26
Stein Mart, Inc. Statement of Cash Flows (In thousands) For the Years Ended ------------------------------------------------ January 3, December 28, December 30, 1998 1996 1995 ---------- -------------- ------------ Cash flows from operating activities: Net income $34,767 $ 25,954 $ 17,758 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,766 6,659 5,176 (Increase) decrease in: Trade and other receivables (227) (980) (311) Inventories (36,440) (26,219) (18,017) Prepaid expenses and other current assets (296) 81 (88) Other assets (13) 241 1,403 Increase (decrease) in: Accounts payable 5,837 11,560 596 Accrued liabilities 4,340 2,565 1,843 Income taxes payable 7,506 (1,500) (193) Deferred income taxes 998 1,415 1,073 ---------- -------------- ------------ Net cash provided by operating activities 25,238 19,776 9,240 Cash flows used in investing activities: Net acquisition of property and equipment (19,703) (16,119) (13,794) Cash flows from financing activities: Proceeds from exercise of stock options and related income tax benefits 7,834 9,319 254 Purchase of common stock (8,941) (4,566) (1,853) ---------- -------------- ------------ Net cash provided by (used in) financing activities (1,107) 4,753 (1,599) ---------- -------------- ------------ Net increase (decrease) in cash and cash equivalents 4,428 8,410 (6,153) Cash and cash equivalents at beginning of year 23,551 15,141 21,294 ---------- -------------- ------------ Cash and cash equivalents at end of year $27,979 $ 23,551 $ 15,141 ========== ============== ============ Supplemental disclosures of cash flow information: Interest paid $ 1,153 $ 1,372 $ 1,144 Income taxes paid 9,296 12,142 10,456
The accompanying notes are an integral part of these financial statements. 27 STEIN MART, INC. NOTES TO FINANCIAL STATEMENTS January 3, 1998 (Dollars in tables in thousands except per share amounts) 1. Summary of Significant Accounting Policies At January 3, 1998 the Company operated a chain of 151 off-price retail stores in 26 states. Each store offers women's, men's and children's apparel, as well as accessories, gifts, linens and shoes. Fiscal Year The Company's fiscal year ends on the Saturday closest to December 31. Results for 1997 are for the 53 weeks ended January 3, 1998. Results for 1996 and 1995 are for the 52 weeks ended December 28, 1996 and December 30, 1995, respectively. 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 $27,632,000, $21,089,000 and $18,114,000 are reflected in the Statement of Income for 1997, 1996 and 1995, 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. Earnings Per Share The Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share" in the fourth quarter of 1997. Accordingly, the Company has restated all periods presented in these financial statements to reflect "basic" and "diluted" earnings per share. Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares outstanding plus common stock equivalents related to stock options for each period. Diluted earnings per share resulting from the new standard are higher by $.02, $.02 and $.01 for 1997, 1996 and 1995, respectively, than earnings per share for those years calculated in accordance with the previous standard. 28 STEIN MART, INC. NOTES TO FINANCIAL STATEMENTS January 3, 1998 (Dollars in tables in thousands except per share amounts) A reconciliation of weighted average number of common shares to weighted average number of common shares plus common stock equivalents is as follows: 1997 1996 1995 -------- -------- -------- Weighted average number of common shares 23,079 22,436 22,452 Stock options 576 685 612 -------- -------- -------- Weighted average number of common shares plus common stock equivalents 23,655 23,121 23,064 ========= ======== ======== 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: 1997 1996 ---------- ---------- Furniture, fixtures and equipment $75,146 $60,974 Building and leasehold improvements 23,717 18,380 Land 128 128 ---------- ---------- 98,991 79,482 Less: accumulated depreciation and amortization 37,904 29,331 ---------- ---------- $61,087 $50,151 ========== ========== 29 STEIN MART, INC. NOTES TO FINANCIAL STATEMENTS January 3, 1998 (Dollars in tables in thousands except per share amounts) 3. Accrued Liabilities The major components of accrued liabilities are as follows: 1997 1996 ---------- ---------- Taxes, other than income taxes $11,784 $ 8,973 Salary, wages, bonuses and benefits 2,887 2,218 Other 6,856 5,996 ---------- ---------- $21,527 $17,187 ========== ========== 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, 2000 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, 1998 and a $25 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 1.50% below the prime rate or .35% over the London Inter-Bank Offering Rate (LIBOR), at the option of the Company. 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 January 3, 1998. 5. Stockholders' Equity During 1997, the Company repurchased 329,000 shares of its common stock in the open market at a total cost of $8,941,000. During 1996 and 1995, 370,000 and 166,500 shares were repurchased for $4,566,000 and $1,853,000, respectively. 6. Stock Option and Purchase Plans The Company has an Employee Stock Plan which provides that a maximum of 4,500,000 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. 30
STEIN MART, INC. NOTES TO FINANCIAL STATEMENTS January 3, 1998 (Dollars in tables in thousands except per share amounts) Information regarding these fixed-price option plans for 1997, 1996 and 1995 is as follows: 1997 1996 1995 ------------------------ --------------------------- --------------------------- Number Weighted- Number Weighted- Number Weighted- of Average of Average of Average Shares Exercise Shares Exercise Shares Exercise (000) Price (000) Price (000) Price ----------- ----------- ----------- ----------- ----------- ----------- Options outstanding at beginning of year 1,706 $ 10 2,430 $ 8 2,261 $ 8 Options granted 1,562 28 144 18 258 12 Options exercised (523) 7 (816) 6 (32) 5 Options forfeited (235) 25 (52) 13 (57) 12 -------- -------- ----------- Options outstanding at end of year 2,510 20 1,706 10 2,430 8 ======== ======== =========== Options exercisable at end of year 686 487 625
The weighted-average fair value of options granted during 1997, 1996 and 1995 is $16, $10 and $7, respectively. The following table summarizes information about fixed-price stock options outstanding at January 3, 1998:
Options Outstanding Options Exercisable -------------------------------------------------------- ------------------------------------ Weighted- Average Weighted- Weighted- Range of Number Remaining Average Number Average Exercise Outstanding Contractual Exercise Exercisable Exercise Prices (000) Life (Years) Price (000) Price - -------------- ------------ -------------- -------------- -------------- -------------- $ 5 to 9 611 4.2 $ 7 611 $ 7 10 to 14 262 7.5 12 10 14 15 to 19 170 7.3 17 33 17 20 to 24 149 7.6 22 32 20 25 to 30 1,318 9.3 28 - - ------------ -------------- $ 5 to 30 2,510 7.6 20 686 8 ============ ==============
31 STEIN MART, INC. NOTES TO FINANCIAL STATEMENTS January 3, 1998 (Dollars in tables in thousands except per share amounts) The Company has adopted the disclosure only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," and intends to retain the intrinsic value method of accounting for stock based compensation which it currently uses. Accordingly, no compensation cost has been recognized for the stock option plans. During the initial phase-in period, the effects of applying this Statement for pro forma disclosures are not likely to be representative of the effects on reported net income for future years, for example, because options vest over several years and additional awards are made each year. The compensation cost for 1997, 1996 and 1995 is $4.0 million, $0.5 million and $0.1 million, respectively. Had compensation cost of the Company's two stock option plans been based on the fair value at the grant date for awards made during 1997, 1996 and 1995 consistent with the provisions of SFAS No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below: 1997 1996 1995 --------- ---------- ---------- Net income - as reported $34,767 $25,954 $17,758 Net income - pro forma 32,340 25,676 17,676 Basic earnings per share - as reported $1.51 $1.16 $0.79 Diluted earnings per share - as reported 1.47 1.12 0.77 Basic earnings per share - pro forma $1.40 $1.14 $0.79 Diluted earnings per share - pro forma 1.37 1.11 0.77 The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants made during 1997, 1996 and 1995: dividend yield of 0.0%, expected volatility of 44.7%, 47.2% and 47.2% respectively, risk-free interest rate of 6.2%, 6.3% and 6.2% respectively and expected lives of 7.0 years. In May 1997, the stockholders approved the Employee Stock Purchase Plan (the "Stock Purchase Plan"). Under the Stock Purchase Plan, all employees who complete six months employment with the Company and who work on a full-time basis or are regularly scheduled to work more than 20 hours per week are eligible to participate in the Stock Purchase Plan. Participants in the Stock Purchase Plan are permitted to use their payroll deductions to acquire shares at 85% of the fair market value of the Company's stock determined at either the beginning or end of each option period. Shares eligible under the Plan are limited to 400,000 shares in the aggregate and the Plan will be effective for the years 1997 through 2000, with no more than 100,000 shares being made available in each calendar year. In January 1998, the participants acquired 19,751 shares of the Company's common stock at $22.74 per share. 7. Leased Facilities and Commitments The Company leases substantially all of its retail and support facilities. Annual store rent is generally comprised of 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. 32 STEIN MART, INC. NOTES TO FINANCIAL STATEMENTS January 3, 1998 (Dollars in tables in thousands except per share amounts) Rent expense for 1997, 1996 and 1995 was as follows: 1997 1996 1995 ---------- ---------- ---------- Minimum rentals $29,915 $23,315 $19,069 Contingent rentals 751 527 580 ---------- ---------- ---------- $30,666 $23,842 $19,649 =========== ========== ========== At January 3, 1998, 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: 1998 $ 33,177 1999 32,219 2000 30,315 2001 28,797 2002 27,014 Thereafter 122,845 ---------- $274,367 ========== The Company subleases shoe department and fragrance department space in all of its stores. Sales from leased departments are excluded from sales of the Company. Sublease rental income of $8,798,000, $7,248,000 and $5,869,000 is included in other income, net for 1997, 1996 and 1995, respectively. Total future minimum rental income under these noncancellable subleases is $11,004,000 at January 3, 1998. 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 $1,360,000, $1,150,000 and $780,000 for 1997, 1996 and 1995, respectively. 33 STEIN MART, INC. NOTES TO FINANCIAL STATEMENTS January 3, 1998 (Dollars in tables in thousands except per share amounts) 9. Income Taxes The provision for income taxes for 1997, 1996 and 1995 consisted of: 1997 1996 1995 ------- ---------- ---------- Current: Federal $18,622 $12,844 $ 8,751 State 2,608 2,335 1,537 ------- ---------- ---------- Total current 21,230 15,179 10,288 Deferred: Federal 898 1,269 962 State 100 146 111 ------- ---------- ---------- Total deferred 998 1,415 1,073 ------- ---------- ---------- Total income tax expense $22,228 $16,594 $11,361 ======= ======= ======= Income tax expense differed from the amounts computed by applying the Federal statutory rate of 35 percent to income before taxes as follows: 1997 1996 1995 ---------- ---------- ---------- Tax expense at the statutory rate $19,948 $14,892 $10,192 State income taxes, net of federal benefit 2,280 1,702 1,145 Other - - 24 ---------- ---------- ---------- $22,228 $16,594 $11,361 ========== ========== ========== Effective tax rate 39.0% 39.0% 39.0% ========== ========== ========= Deferred income tax assets and liabilities resulted from the following temporary differences: 1997 1996 1995 -------- -------- -------- Excess of tax over book depreciation $ 7,102 $ 5,715 $ 4,401 Other (292) 97 (4) -------- -------- -------- $ 6,810 $ 5,812 $ 4,397 ======== ======== ======== 34 STEIN MART, INC. NOTES TO FINANCIAL STATEMENTS January 3, 1998 (Dollars in tables in thousands except per share amounts) The exercise of certain 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 Paid-in Capital. In the years ended January 3, 1998 and 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. 10. Quarterly Results of Operations (Unaudited) The following table shows unaudited quarterly results of operations for 1997 and 1996: Quarter Ended Mar 29, Jun 28, Sep 29, Jan 3, --------------------------------------------------------------- 1997 1997 1997 1998 --------------------------------------------------------------- Net sales $151,387 $183,604 $166,734 $290,930 Gross profit 35,554 52,794 40,002 84,558 Net income 1,395 9,683 3,040 20,649 EPS - Basic $ 0.06 $ 0.42 $ 0.14 $ 0.89 EPS - Diluted $ 0.06 $ 0.41 $ 0.13 $ 0.87 Quarter Ended --------------------------------------------------------------- Mar 31, Jun 29, Sep 28, Dec 28, 1996 1996 1996 1996 --------------------------------------------------------------- Net sales $108,517 $149,400 $131,264 $226,969 Gross profit 24,880 42,803 31,183 66,052 Net income (loss) (564) 7,712 2,411 16,395 EPS - Basic $ (0.02) $ 0.35 $ 0.11 $ 0.72 EPS - Diluted $ (0.02) $ 0.34 $ 0.10 $ 0.70 35 STEIN MART, INC. NOTES TO FINANCIAL STATEMENTS January 3, 1998 (Dollars in tables in thousands except per share amounts) 11. Subsequent Events In February 1998, the Board of Directors authorized the repurchase of an additional 1,000,000 shares of the Company's common stock in the open market, bringing the total repurchases authorized to 2,000,000 shares. In addition to the shares repurchased as described in Note 5, as of February 20, 1998 the Company had repurchased an additional 68,000 shares of its common stock in the open market at a total cost of $1,768,000. 36 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 18, 1998 at the Jacksonville Hilton and Towers, 1201 Riverplace Boulevard, Jacksonville, Florida. Transfer Agent and Registrar Chase Mellon Shareholder Services, L.L.C. Overpeck Centre 85 Challenger Road Ridgefield Park, NJ 07660 Shareholder services: 1-800-756-3353 Website: www.chasemellon.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 trades on the NASDAQ Stock Market [service mark] under the trading symbol SMRT. On March 17, 1998, there were 992 stockholders of record. The following table reflects the high and low sales prices of the common stock for each fiscal quarter in 1996 and 1997. (Quarter ending dates) High Low - ------------------------------------------------------------------------------- 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 March 29, 1997 $30.00 $18.75 June 28, 1997 $32.00 $25.50 September 27, 1997 $33.75 $26.00 January 3, 1998 $31.50 $23.56 The Company intends to reinvest future earnings in the business and accordingly does not anticipate paying dividends in the foreseeable future. 37 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 from our Stockholder Relations Department at the Company's corporate address, listed above. We encourage you to take advantage of other, more immediate methods of receiving Stein Mart investor information. To receive Stein Mart information electronically, you may choose to: o Access the Stein Mart website at www.steinmart.com o E-mail your request to smrt@steinmart.com o Call 1-800-239-0927 for the latest news release/other information to be faxed directly to you o Call 904: 346-1535, x. 5888, to leave a recorded request for mailed information and/or hear highlights of the latest news release. If you are a member of the financial community or the news media and need to address specific financial information, please call Susan Datz Edelman, Director of Stockholder Relations, at (904) 346-1506. 38 EX-23 3 CONSENT 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. 333-27991, 33-88176, and 333-39323) of Stein Mart, Inc. of our report dated February 20, 1998, which appears on page 13 of the 1997 Annual Report to Shareholders, which is incorporated by reference in this Annual Report on Form 10-K. Price Waterhouse LLP Orlando, Florida April 1, 1998 39 EX-27 4 FDS FOR YEAR ENDED 1/3/98
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 JAN-3-1998 DEC-29-1996 JAN-3-1998 27979 0 3543 1025 175620 208287 98991 37904 270604 97991 0 0 0 230 165573 270604 762655 801898 579747 743700 0 0 1203 56995 22228 34767 0 0 0 34767 1.51 1.47
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