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 1, 2000 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)
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Securities registered pursuant to Section 12(g) of the Act:
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 $114,053,945 on February 25, 2000. 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 27,236,763 shares.
The number of shares of Common Stock, $0.01 par value per share, outstanding as of February 25, 2000, was 43,348,635.
Stein Mart, Inc.
Form 10-K
January 1, 2000
Table of Contents
Part I
Page
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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 13
Matters
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial Condition and 13
Results of Operations
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes In and Disagreements With Accountants on Accounting and 13
Financial Disclosure
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
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PART I
ITEM 1. BUSINESS
At January 1, 2000, Stein Mart, Inc. (together with its wholly owned subsidiary, the "Company" or "Stein Mart") was a 205-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 six years, the Company has more than tripled the number of Stein Mart stores from 66 in 16 states at year-end 1993 to 205 in 28 states at January 1, 2000. 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.
Stein Mart has longstanding relationships with many key vendors. Management
believes that the Company's purchase terms enable it to negotiate more
favorable prices from vendors than are typical in the department store
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 20-23 stores in 2000.
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 less than 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 when incurred. Initial inventory investment for a new store is approximately $1 million (a portion of which is financed through vendor credit).
Store Closings
In October 1999, the Company's Board of Directors approved a plan to improve overall profitability of the Company by closing certain under-performing stores. In accordance with the plan, four stores were closed on December 31, 1999 and six more will be closed during 2000. Pursuant to the plan, the Company recorded a $20.5 million pre-tax charge in 1999 for store closing and asset impairment expenses. The charge includes $4.6 million for inventory write-downs and $15.9 million primarily for the estimated cost of lease terminations and write-off of leasehold improvements. See Item 7 of this Form 10-K - "Management's Discussion and Analysis of Financial Condition and Results of Operations" for further discussion of these charges.
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 prices regularly charged by traditional department and fine specialty stores, therefore offering distinct value to the Stein Mart customer.
The following reflects the percentage of the Company's sales by major merchandise category (including sales from leased shoe and fragrance departments) for the periods indicated:
Fiscal Year Ended
--------------------------------------
January 3, January 2, January 1,
1998 1999 2000
---------- ---------- ----------
Ladies' and Boutique apparel 38% 38% 38%
Ladies' accessories 11 11 11
Men's and young men's 19 19 19
Gifts and linens 17 18 18
Leased departments 8 7 7
Children's 6 6 6
Other 1 1 1
---- ---- ----
100% 100% 100%
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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. More than half of the leases currently pay on the percentage of sales basis.
The Company leases 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 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 2,800 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 1999, 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.
The Company's buying staff is headed by the Executive Vice President, Merchandising, who is supported by four Vice Presidents - General Merchandising Managers, ten Divisional Merchandising Managers and 36 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.
Store Operations
The store organization is supervised by three Vice Presidents-Regional Directors of Stores who report to the Executive Vice President, Stores. District Directors of Stores and two Vice President-Regional Directors of Stores report to the three supervising Regional Directors. Each of these field supervisors is responsible for overseeing 11 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 55 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 and color inserts will continue to be an integral part of the media mix, radio, television and direct mail will be utilized in selected markets. 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 January 1, 2000, the Company's work force consisted of approximately 12,300 employees (7,600 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.
ITEM 2. PROPERTIES
At January 1, 2000, the Company operated stores in the following states:
State Number of Stores
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Alabama 6
Arizona 6
Arkansas 5
California 6
Colorado 4
Florida 26
Georgia 16
Illinois 4
Indiana 5
Iowa 1
Kansas 2
Kentucky 3
Louisiana 8
Mississippi 4
Missouri 3
Nebraska 1
Nevada 3
New Mexico 2
New York 2
North Carolina 14
Ohio 10
Oklahoma 5
Pennsylvania 2
South Carolina 8
Tennessee 11
Texas 37
Virginia 6
Wisconsin 5
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205
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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.
The table below reflects (i) the number of the Company's leases (as of January 1, 2000) 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
------------------ ------------------
2000 2 -
2001 7 -
2002 8 1
2003 14 1
2004 15 2
2005-2009 119 15
2010-2014 42 20
2015-2045 - 168
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The Company has made consistent capital commitments to maintain and improve existing store facilities. During 1999, approximately $4.8 million was spent to upgrade computer equipment, fixtures, equipment and leasehold improvements in stores opened prior to 1999.
The Company leases approximately 66,000 gross square feet of office space for its corporate headquarters in Jacksonville, Florida. The Company also leases a 92,000 square foot distribution center in Jacksonville for the purpose of processing a limited amount of merchandise (less than 10%).
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 1999.
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 PricewaterhouseCoopers LLP report dated February 25, 2000, 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.
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 2000 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 2000 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 2000 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 2000 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 1, 2000.
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
~*10E - Form of Director's and Officer's Indemnification Agreement
10F - Amendment dated October 29, 1999 to Loan Agreement dated August 25, 1998 between the registrant and Bank of America, N.A. and SunTrust Bank, North Florida, N.A.
~*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
~10M - Executive Split Dollar Plan
~10N - Executive Deferral Plan
13 - Portions of 1999 Annual Report incorporated by reference into 1999 Annual Report on Form 10-K
23 - Consent of PricewaterhouseCoopers 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).
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 30, 2000 By: /s/ Jay Stein
--------------------------------
Jay Stein, Chairman of the Board
and Chief Executive Officer
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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 30th day of March, 2000.
/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/ Linda McFarland Farthing
----------------------------- --------------------------------
Clayton E. Roberson, Jr. Linda McFarland Farthing
Vice President, Controller Director
/s/ Michael D. Rose
--------------------------------
Michael D. Rose
Director
/s/ James H. Winston
--------------------------------
James H. Winston
Director
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THIS AMENDMENT is made this 29th day of October, 1999, by and between STEIN MART, INC. (the "Borrower"), a Florida corporation, BANK OF AMERICA, N.A., successor to NationsBank, N.A., successor to Barnett Bank, N.A. ("Bank of America"), SUNTRUST BANK, NORTH FLORIDA, N.A. ("SunTrust") and BANK OF AMERICA, N.A., successor to NationsBank, N.A., successor to Barnett Bank, N.A. (in such capacity, and for so long as it shall serve in such capacity hereunder, the "Agent"), as Agent for Bank of America and SunTrust. Bank of America and SunTrust are collectively referred to herein as, the "Lenders".
NOW, THEREFORE, for good and valuable consideration, the parties agree as follows:
1. Section 1.04 of the Loan Agreement is hereby amended so that, from and after the date hereof, such section shall read as follows:
1.04 Letters of Credit. Bank of America hereby establishes a letter of credit facility in an amount not to exceed $5,000,000.00 for the issuance of standby and commercial letters of credit (the "Letters of Credit"). From time to time prior to June 30, 2001, Bank of America, upon the Borrower s request, may issue Letters of Credit. The parties hereto acknowledge that SunTrust will not participate in the issuance of Letters of Credit hereunder. The Borrower shall give Bank of America at least one business day's notice prior to requesting the issuance of any Letter of Credit, and shall, with such request, fill out an application in form acceptable to Bank of America and execute such terms, conditions and reimbursement agreements (each, a "Reimbursement Agreement") concerning such Letter of Credit as Bank of America may require. The amount available under the letter of credit facility shall be reduced by the face amount of outstanding Letters of Credit (together with the amount of drafts under Letters of Credit no longer outstanding for which Bank of America has not been reimbursed). No Letter of Credit shall be issued which could be drawn on after the expiration of the Revolving Period. In the event of a draw on a Letter of Credit, an advance under the Revolving Notes or, if advances are available thereunder, under the Seasonal Notes, shall be made to the extent that amounts are then available for borrowing under such notes to reimburse Bank of America for such draw. If any draw is made under any Letter of Credit after the expiration of the Revolving Period or if funds are not then available for advances under such notes, the Borrower shall immediately upon demand reimburse Bank of America for the amount of the draw together with interest thereon and such other amounts as may be due under any applicable Reimbursement Agreement. As to any Letter of Credit issued, the Borrower agrees to pay Bank of America upon demand any applicable fees quoted by Bank of America on or before the issuance of the Letter of Credit, including, without limitation, issuance fees and negotiation fees. Bank of America shall not in any event be required to issue a Letter of Credit after the occurrence of a Default or Event of Default hereunder.
2. The Loan Agreement is hereby amended so that, from and after the date hereof, all references therein to "Barnett" shall mean Bank of America, N.A.
3. The Borrower certifies that as of the date hereof: (a) all of its representations and warranties in the Loan Agreement are true and correct as if made on the date hereof; and (b) no Default or Event of Default has occurred under the Loan Agreement. The Loan Agreement shall continue in full force and effect except as modified herein.
DATED the day and year first above written.
STEIN MART, INC.
By: /s/ James G. Delfs ---------------------------------- Its: Senior Vice President - CFO ---------------------------------- |
BANK OF AMERICA, N.A.,
as agent
By:/s/ Susan Delgado ---------------------------------- Its: Vice-President ---------------------------------- |
BANK OF AMERICA, N.A.
By:/s/ Susan Delgado ---------------------------------- Its: Vice-President ---------------------------------- |
SUNTRUST BANK, NORTH FLORIDA, N.A.
By:/s/ C. William Buchholz ---------------------------------- Its: First Vice-President ---------------------------------- |
Dated as of October 29th, 1999.
STEIN MART BUYING CORP.
By:/s/ James G. Delfs
------------------------------
Its: Senior Vice President-CFO
------------------------------
ACCEPTED:
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BANK OF AMERICA, N.A.,
as agent for Lenders
By:/s/ Susan Delgado -------------------- Its: Vice-President -------------------- |
The undersigned certifies to Bank of America, N.A. and SunTrust Bank, North
Florida, N.A. that:
1. The undersigned is currently serving as Secretary of Stein Mart Buying
Corp. (the "Company"), a Florida corporation.
2. On the date of this Certificate, the persons below are duly qualified
and acting officers of the Company. Each such officer was duly elected or
appointed as an officer by the directors of the Company. The signature opposite
the name of each such officer is his authentic signature.
Name Title Signature
---- ----- ---------
James G. Delfs Senior Vice President-CFO /s/ James G. Delfs
------------------- ------------------------- ------------------
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3. The Company s Board of Directors or Executive Committee has duly adopted
the resolutions attached hereto as Exhibit "A." Such resolutions have not been
amended or rescinded as of the date of this Certificate.
Dated this 29th day of October, 1999.
Signature:/s/ James G. Delfs ------------------------------- Print Name: James G. Delfs ------------------------------- |
EXHIBIT "A"
WHEREAS, Stein Mart, Inc. (the "Company"), Bank of America, N.A., successor to NationsBank, N.A., successor to Barnett Bank, N.A. ("Bank of America") and SunTrust Bank, North Florida, N.A. ("SunTrust") (Bank of America and SunTrust being collectively referred to herein as, the "Lenders") have entered into that certain loan agreement (as amended or restated from time to time, the "Loan Agreement") dated August 25, 1998, pursuant to which the Lenders have provided certain credit facilities to the Company; and
WHEREAS, the Company has requested that the Lenders amend the terms of the Loan Agreement;
RESOLVED, that the Company's officers, and each of them, be and they are hereby authorized and directed to execute and deliver such loan documents as are necessary to amend the Loan Agreement on such terms and conditions as are acceptable to such officers, or any of them;
FURTHER RESOLVED, that the Company's officers, or any of them, are hereby authorized and directed to deliver to the Lenders such corporate papers, certificates and other papers and documents as may be necessary or proper in order to consummate the transactions authorized in this and preceding resolutions; and,
FURTHER RESOLVED, that the execution by the Company's officers, or any of them, of any documents or instruments authorized by the foregoing resolutions or any document or instrument executed in the accomplishment of any action or actions authorized or the execution of any amendment or modification of any such document or instrument shall be deemed to be conclusive approval thereof by this Company and the binding act and obligation of this Company.
The undersigned certifies to Bank of America, N.A. and SunTrust Bank, North
Florida, N.A. that:
1. The undersigned is currently serving as Secretary of Stein Mart, Inc.
(the "Company"), a Florida corporation.
2. On the date of this Certificate, the persons below are duly qualified
and acting officers of the Company. Each such officer was duly elected or
appointed as an officer by the directors of the Company. The signature opposite
the name of each such officer is his authentic signature.
Name Title Signature
----- ----- ---------
James G. Delfs Senior Vice President-CFO /s/ James G. Delfs
------------------- -------------------------- ---------------------
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3. The Company's Board of Directors or Executive Committee has duly adopted
the resolutions attached hereto as Exhibit "A." Such resolutions have not been
amended or rescinded as of the date of this Certificate.
Dated this 29th day of October, 1999.
Signature: /s/ James G. Delfs -------------------------------- Print Name: James G. Delfs -------------------------------- |
EXHIBIT "A"
WHEREAS, Stein Mart Buying Corp. (the "Company") has previously executed a Guaranty of Payment (as amended or restated from time to time, the "Guaranty"), dated August 25, 1998, pursuant to which the Company has guaranteed certain obligations of Stein Mart, Inc. (the "Borrower") to Bank of America, N.A., successor to NationsBank, N.A., successor to Barnett Bank, N.A. ("Bank of America") and SunTrust Bank, North Florida, N.A. ("SunTrust"), as more particularly described in the Guaranty; and
WHEREAS, the Borrower is this day entering into an amendment (the "Amendment") to that certain loan agreement (as amended or restated from time to time, the "Loan Agreement"), dated August 25, 1998, entered into between the Borrower, Bank of America and SunTrust;
RESOLVED, that Stein Mart Buying Corp. (the "Company") hereby consents to the execution of the Amendment between the Borrower, Bank of America and SunTrust;
FURTHER RESOLVED, that the Company's officers, and each of them, be and they are hereby authorized and directed to execute and deliver such consents and such other documents as are necessary to consummate the transactions described in the preceding paragraph on behalf of the Company and such other instruments or written obligations that may be required by Bank of America or SunTrust in connection with the execution of the Amendment containing such terms and conditions as are acceptable to such officers, or any of them;
FURTHER RESOLVED, that the Company's officers, or any of them, are hereby authorized and directed to deliver to Bank of America and SunTrust such corporate papers, certificates and other papers and documents as may be necessary or proper in order to consummate the transactions authorized in this and preceding resolutions; and,
FURTHER RESOLVED, that the execution by the Company's officers, or any of them, of any documents or instruments authorized by the foregoing resolutions or any document or instrument executed in the accomplishment of any action or actions authorized or the execution of any amendment or modification of any such document or instrument shall be deemed to be conclusive approval thereof by this Company and the binding act and obligation of this Company.
STEIN MART, INC.
SPLIT DOLLAR AGREEMENT
THIS AGREEMENT, made as of this 1st day of September 1999 by and between STEIN MART, INC., a Corporation with its principal place of business at Jacksonville, Florida, (hereinafter referred to as the "Corporation"), and <<EXECUTIVE NAME>> (hereinafter referred to as the "Executive").
WHEREAS, the Executive is a valued employee of the Corporation and the Corporation wishes to secure, for itself, the benefits of a continuing association with the Executive; and
WHEREAS, the Executive is expected to perform his or her duties in a capable and efficient manner, resulting in substantial growth and productivity to the Corporation; and
WHEREAS, the experience of the Executive is such that assurance of his or her continued services is essential to the future growth and profitability of the Corporation.
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereto agree as follows:
ARTICLE I
INSURANCE COVERAGE
The Corporation will enter into various contracts of insurance on the life of the Executive which are listed on Exhibit A. ("Policies")
ARTICLE II
PREMIUM PAYMENTS
On or before the due date of each premium payment on the Policies, or within the grace period provided therein, the Corporation shall pay the full amount of the premium to the insurance company providing the insurance coverage.
ARTICLE III
BENEFICIARY DESIGNATION
Contemporaneously with the execution of this Agreement, the Executive has executed a Beneficiary Designation form setting forth the name or names of the beneficiary or beneficiaries ("Beneficiary") entitled to receive benefits hereunder. The Executive shall have the right, from time to time, to change the Beneficiary by executing a Beneficiary Designation form and submitting it to the Corporation.
ARTICLE IV
DEATH BENEFITS
The Executive shall be entitled to the following as a Death Benefit:
a. In the event of the Executive's death prior to Retirement (as defined in Article V.), the Beneficiary shall receive from the death proceeds an amount equal to five (5) times the Executive's current annual compensation determined as of July 1 of each Plan Year.
b. In the event of the Executive's death after Retirement, the Beneficiary shall receive from the death proceeds an amount equal to 50% of the amount determined under a, above, as of the Executive's date of Retirement.
All death proceeds of the Policies remaining after the payment of Death Benefits to the Beneficiary shall be paid directly to the Corporation.
ARTICLE V
RETIREMENT
Retirement shall mean the first day of the month following the month in which the Executive ceases employment with the Corporation on or after attaining age 62.
ARTICLE VI
PLAN ANNIVERSARY DATE
Plan Anniversary Date shall be every September 1, subsequent to the date this
Agreement is executed.
ARTICLE VII
TERMINATION OF AGREEMENT
This Agreement shall terminate 30 days after the first to occur of the following events; (A) upon the giving of prior written notice of termination by either party to the other party to this Agreement, with or without the consent of the other party; or (B) the date of the Executive's termination of employment for any reason other than Retirement. Upon Termination of this Agreement, Corporation shall offer the Policies for sale to the Executive for the greater of the policy cash value or the cumulative premiums paid on the policy. If the Executive chooses not to purchase the Policies, the Executive shall cooperate with the Corporation by executing all such documents as are necessary to transfer the Policies to the sole and absolute ownership of the Corporation.
ARTICLE VIII
OWNERSHIP OF POLICY
The Corporation shall be the sole and absolute owner of the Policies, and may exercise all ownership rights granted to the owner thereof by the terms of the Policies, except as may be provided herein. In addition, the Corporation shall keep possession of the Policies, but agrees, from time to time, to make the Policies available to the Executive.
ARTICLE IX
BORROWING
The Corporation shall have the right to borrow against the cash value of the Policies, but only in an amount such that the total outstanding loan, plus accrued interest thereon, shall not reduce the net death benefit of the insurance policy to less than the amount payable to the Beneficiary. The Corporation agrees to repay the borrowed amounts to the extent required to ensure the full payment of the Death Benefits to the Beneficiary.
ARTICLE X
STATUS OF AGREEMENT
The benefits payable under this Agreement shall be independent of, and in addition to, any other employment agreement that may exist from time to time between the parties hereto, or any other compensation payable by the Corporation to the Executive, whether as salary, bonus or otherwise. This Agreement shall not be deemed to constitute a contract of employment between the parties hereto, nor shall any provision hereof restrict the right of the Corporation to discharge the Executive, or restrict the right of the Executive to terminate his employment, except as to the vesting of benefits under Article VII.
ARTICLE XI
REVOCATION AND AMENDMENT
This Agreement may be revoked or be amended in whole or in part by a written agreement signed by both of the parties hereto.
ARTICLE XII
CONSTRUCTION
This Agreement is a Florida contract and shall be construed and enforced in accordance with the laws of the State of Florida.
ARTICLE XIII
NAMED FIDUCIARY
The Compensation Committee of the Board of Directors (or its successor) is hereby designated the "Named Fiduciary" until resignation or removal by the Corporation's Board of Directors. The Named Fiduciary shall be responsible for, and shall have the sole discretion to decide all matters pertaining to the management, control, interpretation and administration of this Agreement. Such discretion includes, but is not limited to, determining the qualification for, and the amount of, benefits payable under this Agreement, and employment or retirement status. The Named Fiduciary shall apply its discretion in good faith and any decisions made in good faith shall be binding upon all parties to this Agreement. The Named Fiduciary may delegate to others certain aspects of the management and operational responsibilities of this Agreement, including the employment of advisors and the delegation of any ministerial duties to qualified individuals.
ARTICEL XIV
CLAIMS PROCEDURE
Claim forms or claim information as to the Policy can be obtained by contacting the Senior Vice President of Human Resources of Stein Mart, Inc., at its corporate headquarters.
When a claimant has a claim which may be covered under the Policy, he or she should contact the Named Fiduciary who will contact the office or the person named above, who will either complete a claim form and forward it to an authorized representative of the Insurer or advise the Named Fiduciary what further requirements are necessary. Under normal circumstances, the Insurer will evaluate the claim and make a decision as to payment within 45 days after receipt of the claim. However, if special circumstances require an extension of time to process a claim, a final decision may be deferred up to 90 days after receipt of the claim if prior to the end of the initial 45-day period the Named Fiduciary is furnished written notice of the special circumstances requiring the extension and the anticipated date of a final decision. If the claim is denied within the applicable period of time set out above, the Named Fiduciary shall receive written notification of the denial, which notice shall set forth the specific reasons for the denial, the relevant provisions of the Policy on which the denial is based, and the claim review procedure under the Policy.
If the claim is payable, a benefit check will be issued to Executive's Named Beneficiary in an amount equal to the benefits payable to such person(s) pursuant to this Agreement and a benefit check will be issued to Corporation in an amount equal to the remaining Policy Proceeds. Benefit checks will be forwarded through the Director of Human Resources of Stein Mart, Inc. In the event a claim is denied or in the event no action is taken on the claim within the above-described period(s) of time, the following procedure shall be used:
a. First in the event that the Named Fiduciary does not timely receive the above-described written notification, the Named Fiduciary's request for benefits shall be deemed to be denied as of the last day of the relevant period.
b. Second, the Named Fiduciary shall, in its discretion, take any and all reasonable actions as it deems necessary to perfect the claim.
c. Once a decision has been rendered as to the distribution of proceeds under the claim procedure described above as to the Policy, claims for any benefits due under this Agreement may be made in writing by Corporation or the Executive's Named Beneficiary, as the case may be, to the Named Fiduciary. Under normal circumstances, a final decision on a claimant's request for benefits shall be made within 45 days after receipt of the claim. However, if special circumstances require an extension of time to process a claim, a final decision may be deferred up to 90 days after receipt of the claim if prior to the end of the initial 45-day period the claimant is furnished written notice of the special circumstances requiring the extension and the anticipated date of a final decision. If the claim is denied, in whole or in part, within the applicable period of time set out above, the claimant shall receive written notification of the denial, which notice shall set forth the specific reasons for the denial, the relevant provisions of the Agreement on which the denial is based, and the claim review procedure under the Agreement.
d. In the event a claim is denied or in the event no action is taken on the claim within the above-described period(s) of time, the following procedure shall be used:
1) First, in the event that the claimant does not timely receive the above-described written notification, the claimant's request for benefits shall be deemed to be denied as of the last day of the relevant period.
2) Second, a claimant is entitled to a full review of his or her claim after actual or constructive notification of a denial. A claimant desiring a review must make a written request to the Named Fiduciary requesting such a review, which may include whatever comments or arguments the claimant wishes to submit. Incident to the review, the claimant may represent himself or herself or appoint a representative to do so, and will have the right to inspect all documents pertaining to the issue. The Named Fiduciary, in its sole discretion, may schedule any meeting(s) with the claimant and/or the claimant's representative it deems necessary or appropriate to facilitate or expedite its review of a denied claim.
3) A request for a review must be filed with the Named Fiduciary within 60 days after the denial of the claim for benefits was actually or constructively received by the claimant. If no request is received within the 60-day time limit, the denial of benefits will be final. However, if a request for review of a denied claim is timely filed, the Named Fiduciary must render its decision under normal circumstances within 45 days of the receipt of the request for review. In special circumstances the decision may be delayed if prior to expiration of the initial 45-day period the claimant is notified of the extension, but must in any event be rendered no later than 90 days after the receipt of the request. If the decision on review is not furnished to the claimant within the applicable time period(s) set out above, the claim shall be deemed denied on the last day of the relevant period. All decisions of the Named Fiduciary shall be in writing and shall include specific reasons for whatever action has been taken, and the provisions of the Agreement on which the decision is based.
IN WITNESS WHEREOF, the said Corporation has caused this Agreement to be signed in its corporate name by its duly authorized officer, and properly attested to, and the said Executive has hereunto set his hand, all as of the day and year first above written.
STEIN MART, INC. <<EXECUTIVE NAME>>
By:----------------------- ------------------------------
STEIN MART, INC.
EXHIBIT A TO SPLIT DOLLAR AGREEMENT
The various contracts of insurance as referred to in Article I of the attached Split Dollar Agreement are as follows:
Insurance Policy
Insured Carrier Number(s)
------- --------- ---------
<<Executive Name>>
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STEIN MART, INC.
EXECUTIVE DEFERRAL PLAN
ARTICLE I
ESTABLISHMENT OF PLAN
1.01 Background of Plan. Stein Mart, Inc. hereby establishes, effective as of September 1, 1999, a deferred compensation plan known as the Stein Mart, Inc. Executive Deferral Plan. The Plan will be effective for Compensation payable on or after September 1, 1999.
1.02 Purpose. The Company desires to recognize the valuable contribution of certain selected executives by providing this Deferral Plan, under which participants may voluntarily defer compensation, which, the Company will partially match.
1.03 Status of Plan. The Plan is intended to be a nonqualified, unfunded plan of deferred compensation under the Internal Revenue Code of 1986, as amended ("Code"). Although the plan is unfunded for tax purposes, the Company may establish a trust under Revenue Procedure 92-64 to provide benefits under the Plan. (See Section 1.04).
1.04 Establishment of Trust. As noted in Section 1.03, the Company may establish a "rabbi" trust to provide for the payment of benefits under the terms of the Plan ("Trust"). It is intended that a transfer of assets into the Trust will not generate taxable income (for federal income tax purposes) to the Participants until such assets are actually distributed or otherwise made available to the Participants.
ARTICLE 2
DEFINITIONS
2.01 Definitions. Certain terms of the Plan have defined meanings set forth in this Article and which shall govern unless the context in which they are used clearly indicates that some other meaning is intended.
Beneficiary. Any person or persons designated by a Participant, in accordance with procedures established by the Committee or Plan Administrator, to receive benefits hereunder in the event of the Participant's death. If any Participant shall fail to designate a Beneficiary or shall designate a Beneficiary who shall fail to survive the Participant, the Beneficiary shall be the Participant's surviving spouse, or, if none, the Participant's surviving descendants (who shall take per stirpes) and if there are no surviving descendants, the Beneficiary shall be the Participant's estate.
Board. The Board of Directors of the Company.
Change in Control. As defined in Section 9.03.
Committee. The Compensation Committee of the Board.
Company. Stein Mart, Inc. and its subsidiaries and affiliates which choose to participate in the Plan, and their corporate successors.
Company Matching Contribution. The matching contributions made by the Company to Participants' Deferral Accounts in accordance with Section 5.03.
Compensation. The total salary and cash bonus payable by the Company to a Participant for services to the Company or any of its affiliates, as such amount may be changed from time to time.
Deferral Account. The account established by the Company for each Participant for Compensation deferred pursuant to the Plan and Company Matching Contributions which account shall be credited or debited with interest, earnings and changes in value in the investment indexes chosen by the Participant as the value measurements for the Deferral Account. The maintenance of individual Deferral Accounts is for bookkeeping purposes only.
Disability. Total and permanent disability as determined under the Company's long term disability program, whether or not the Participant is covered under such program. If no such program is in effect, the Disability of a Participant shall be determined in good faith by the Board.
Effective Date. The Plan will be effective for Compensation payable on or after September 1, 1999.
Election Form. A form, substantially in the form attached hereto as Exhibit A, pursuant to which a Participant elects to defer Compensation under the Plan.
Election Date. The date established by the Plan as the date by which a
Participant must submit a valid Election Form to the Plan Administrator
in order to participate in the Plan for a Plan Year. For each Plan
Year, the Election Date is December 31 of the preceding Plan Year,
except that, employees becoming newly eligible may elect within thirty
(30) days after eligibility for the Plan to defer Compensation to be
earned for services performed in the balance of the year remaining
after the deferral is made.
Participant. Any Selected Executive who has elected to participate in the Plan.
Plan. The Stein Mart, Inc. Executive Deferral Plan as set forth in this document together with any subsequent amendments hereto.
Plan Administrator. The Committee or its delegee of administrative duties under the Plan pursuant to Section 3.02.
Plan Fiduciary. The Fiduciary of this Plan shall be the Committee.
Plan Year. The Plan Year shall be the twelve-month period from January 1 of each year though December 31 of that year.
Retirement. Retirement shall mean the first day of the month in which the Participant ceases employment with the Company and such retirement is either on or after the Participant's attainment of age 62.
Selected Executive. With respect to a Plan Year, a highly compensated and/or management employee of the Company or any of its affiliates who has been selected by the Committee to be an eligible participant in the Plan for such Plan Year.
Termination of Employment. A Termination of Employment occurs when a Participant ceases for any reason to be an employee of the Company or any of its affiliates.
ARTICLE 3
ADMIN1STRATION OF THE PLAN
3.01 Administrator of the Plan. The Plan shall be administered by the
Committee.
3.02 Authority of Committee. The Committee shall have full power and
authority to: (i) interpret and construe the Plan and adopt such rules
and regulations as it shall deem necessary and advisable to implement
and administer the Plan, (ii) determine the benefits of the Plan to
which any Participant, Beneficiary or other person may be entitled,
(iii) keep records of all acts and determinations of the Committee and
Plan Administrator, and to keep all such records, books of accounts,
data and other documents as may be necessary for the proper
administration of the Plan, (iv) prepare and distribute to all
Participants and Beneficiaries information concerning the Plan and
their rights under the Plan, (v) do all things necessary to operate and
administer the Plan in accordance with its provisions, and (iv)
designate persons other than members of the Committee or the Board to
carry out its responsibilities, subject to such limitations,
restrictions and conditions as it may prescribe. The Committee may
delegate administrative duties under the Plan to one or more agents as
it shall deem necessary or advisable.
3.03 Effect of Committee Determinations. No member of the Committee or the
Board or the Plan Administrator shall be personally liable for any
action or determination made in good faith with respect to the Plan or
to any settlement of any dispute between a Participant and the Company.
Any decision or action taken by the Committee or the Board with respect
to the administration or interpretation of the Plan shall be conclusive
and binding upon all persons.
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ARTICLE 4
PARTICIPATION
4.01 Election to Participate. Each Selected Executive is automatically
eligible to participate in the Plan. He or she may participate in the
Plan by delivering a properly completed and signed Election Form to the
Plan Administrator on or before the Election Date. The Participant's
participation in the Plan will be effective as of the first day of the
Plan Year beginning after the Plan Administrator receives the
Participant's Election Form, or, in the case of the first Plan Year,
September 1, 1999. A Participant shall not be entitled to any benefit
hereunder unless such Participant has properly completed an Election
Form and deferred the receipt of Compensation pursuant to the Plan.
4.02 Voluntary-Termination of Election Form. A Participant may terminate
his or her Election Form at any time. Such termination will be
effective on the first day of the calendar quarter after the
Participant notifies the Plan Administrator of the Participant's
termination of the Election Form. If a Participant terminates his or
her Election Form, the Participant may not activate a new Election Form
to defer Compensation for the remainder of the Plan Year in which the
Participant's former Election Form was terminated. Any Compensation
deferred prior to the termination of the Election Form shall remain
subject to the original Election Form and the Plan. On or before the
Election Date for the following Plan Year or of any subsequent Plan
Year, the Participant may deliver a new Election Form and thereby defer
the receipt of any future Compensation. Such new Election Form shall be
effective only for Compensation applicable to the Participant's service
after the first day of the Plan Year following the Plan Administrator's
receipt of the Participant's new Election Form.
4.03 Continuation of Election Form. Prior to the commencement of each Plan
Year, a Participant shall have the right, by executing and delivering
to the Plan Administrator a new Election Form, to modify the percentage
of his or her Compensation which is deferred under the Plan. If the
Participant fails to deliver a new Election Form prior to the
commencement of the new Plan Year, the Participant's Election Form in
effect during the previous Plan Year shall continue in effect during
the new Plan Year.
4.04 Automatic Termination of Election Form. A Participant's Election
Form will automatically terminate at the earlier of (i) the
Participant's Termination of Employment, or (ii) the termination of
the Plan.
4.05 No Implied Rights, Effect on Other Benefits. Nothing contained in the
Plan shall be deemed to give any Selected Executive the right to
continue in such status or to remain as an employee of the Company.
Except as otherwise required by applicable law, the Compensation
deferred by a Participant shall be included in the Participant's annual
compensation for calculating the Participant's bonuses and awards,
insurance and other employee benefits, except that in accordance with
the terms of any plan qualified under Section 401 of the Code
maintained by the Company, the amount deferred shall not be included as
calendar year compensation in calculating the Participant's benefits or
contributions by or on behalf of the Participant under such plan or
plans. Benefits under the Plan shall be excluded from compensation in
years paid for purposes of calculating a Participant's bonuses and
awards, insurance and other employee benefits.
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ARTICLE 5
PLAN BENEFIT'S
5.01 Deferred Compensation. A Participant may elect to defer up to 100% of
his or her Compensation to his or her Deferral Account in accordance
with the terms of the Plan and the Election Form; provided, however,
that the Company Matching Contribution shall apply only with respect to
deferrals of up to 10% of the employee's basic salary and 10% of his or
her bonus. For bookkeeping purposes, the amount of the Compensation
which the Participant elects to defer pursuant to the Plan shall be
transferred to and held in individual Deferral Accounts.
5.02 Time of Election of Deferral. A Participant who wishes to defer
Compensation for a Plan Year must irrevocably elect to do so on or
prior to the Election Date for such Plan Year, by delivering a valid
Election Form to the Plan Administrator. The Election Form shall
indicate the percentage of Compensation (with a minimum of $5,000) to
be credited to the Participant's Deferral Account.
5.03 Company Matching Contributions. For each dollar ($1.00) that a
Participant defers into his or her Deferral Account (up to 10% of
salary and 10% of bonus), the Company will make a matching contribution
of one dollar ($1.00). Company Matching Contributions will be paid into
the Participant's Deferral Account and will earn in accordance with
Section 5.04. The Board may change the amount of the Company Matching
Contributions for any future Plan Year by giving written notice to
eligible Participants prior to the Election Date for such Plan Year.
Any such change will be prospective only.
5.04 Deferral Account.
(a) Deferral Account. Amounts in a Participant's Deferral
Account will be credited or debited with interest, earnings
and changes in value in the investment indexes chosen by the
Participant as the value measurements for the Deferral
Account as of the dates on which Compensation is deposited
into the Deferral Account (or such other day as determined
by the Plan Administrator). The Participant shall choose
from among the financial pools offered in Schedule B,
attached hereto, the investment indexes from which to
determine the value of his or her Deferral Account with the
result that the Deferral Account shall be valued as if the
Participant's deferrals had actually been invested in the
pools chosen by the Participant. A Participant may change
his or her investment index choices quarterly by submitting
a new election form before the beginning of the calendar
quarter for which the change is to be effective.
35
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(b) Sub-Accounts. To the extent required for bookkeeping
purposes, a Participant's Deferral Account will be
subdivided to reflect deferred Compensation on a
year-by-year basis. For example, a 1999 Sub-Account, a 2000
Sub-Account, and so on.
(c) Reports. Participants will be provided with quarterly
reports as to the status of their
5.05 Vesting. Vesting refers to a Participant's ability to receive benefits
upon Termination of Employment. Participants are always 100% vested in
their Deferral Accounts other than Company Matching Contributions and
earnings thereon. Company Matching Contributions and interest thereon
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become vested in accordance with the following schedule:
Years since first Vested % of Company Matching
deferral under the Plan Contributions and earnings thereon
--------------------------- ----------------------------------
Less than 4 Years 0%
4 Years 20%
5 Years 40%
6 Years 60%
7 Years 80%
8 Years 100%
Earlier death or Disability 100%
of Participant
A successor to the Company terminates 100%
the Plan
A successor to the Company terminates 100%
the employment of Participant without
cause within 24 months of a Change
in Control
Retirement, as defined herein 100%
5.06 Form of Payment.
(a) Payment Date. Payment of Plan benefits shall commence on the
earliest of (i) the Participant's Termination of Employment,
(ii) the Participant's death, or (iii) the Participant's
Disability. The termination of a Participant's status as a
Selected Executive will not, absent Termination of
Employment, cause a payout of such Participant's Deferral
Account, and such person may continue to defer Compensation
into the Plan, but no Company Matching Contributions will be
made on Compensation deferred while he or she is not a
Selected Executive. Earnings will continue to accrue on such
person's Deferral Account as provided in Section 5.04.
36
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(b) Method of Distribution. Upon a Participant's Termination of
Employment which is not also a Retirement, distribution of
vested amounts from a Participant's Deferral Account shall
be paid to the Participant in a lump sum to a maximum of
$100,000 with the balance paid in as many as five
approximately equal annual installments. The distribution
shall be valued as of the quarter end immediately following
the Termination of Employment. The distribution(s) shall
commence as soon as practicable after the generation of the
report contemplated in Section 5.04(c). Upon a Participant's
Termination of Employment which is also a Retirement,
distribution of vested amounts from a Participant's Deferral
Account shall be paid to the Participant in a lump sum or in
ten or fifteen approximately equal annual installments as
designated by the Participant on the initial Election Form.
If the Deferral Account for such retiree is less than
$50,000, the balance will be paid in a lump sum regardless
of the designation on the Election Form. The unpaid portion
of the Deferral Account shall continue to receive
allocations of earnings as provided in Section 5.04. Upon
the Participant's death, all unpaid amounts held in the
Participant's Deferral Account shall be paid to the
Participant's Beneficiary in a lump sum. Such payment will
be paid no later than the first business day of the fourth
month following the Participant's death.
5.07 Early Withdrawals. The Plan Administrator may, in its sole discretion,
accelerate the payment to a Participant of an amount reasonably
necessary to pay for the college tuition of such Participant's
dependents. Such payment may be made even if the Participant has not
incurred a Termination of Employment, provided that he or she has been
a Participant for at least five years and has given two year's advance
written notice to the Plan Administrator of the Participant's desire to
receive an accelerated payment under this Section 5.07. All such
distributions shall be made in a lump sum. Such payments will be
subject to a forfeiture (withdrawal fee) of 15% of the amount withdrawn
which shall be an additional debit from the Deferral Account.
5.08 Financial Hardship. The Plan Administrator may, in its sole discretion,
accelerate the payment to a Participant of an amount reasonably
necessary to handle a severe financial hardship of a sudden and
unexpected nature due to causes not within the control of the
Participant. Such payment may be made even if the Participant has not
incurred a Termination of Employment and regardless of the number of
years he or she has been a Participant. All financial hardship
distributions shall be made in cash in a lump sum. Such payments will
be made on a first-in, first-out basis so that the oldest Compensation
deferred under the Plan shall be deemed distributed first in a
financial hardship.
37
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5.09 Payment to Minors and Incapacitated Persons. In the event that any
amount is payable to a minor or to any person who, in the judgment of
the Plan Administrator, is incapable of making proper disposition
thereof, such payment shall be made for the benefit of such minor or
such person in any of the following ways as the Plan Administrator, in
its sole discretion, shall determine:
(a) By payment to the legal representative of such minor or such
person;
(b) By payment directly to such minor or such person;
(c) By payment in discharge of bills incurred by or for the
benefit of such minor or such person. The Plan Administrator
shall make such payments without the necessary intervention
of any guardian or like fiduciary, and without any
obligation to require bond or to see to the further
application of such payment. Any payment so made shall be in
complete discharge of the Plan's obligation to the
Participant and his or her Beneficiaries.
5.10 Application for Benefits. The Plan Administrator may require a
Participant or Beneficiary to complete and file certain forms as a
condition precedent to receiving the payment of benefits, including
without limitation a consent to participation in any corporate owned
life insurance program which the Company sponsors. The Plan
Administrator may rely upon all such information given to it, including
the Participant's current mailing address. It is the responsibility of
all persons interested in receiving a distribution pursuant to the Plan
to keep the Plan Administrator informed of their current mailing
addresses.
5.11 Designation of Beneficiary. Each Participant from time to time may
designate any person or persons (who may be designated contingently or
successively and who may be an entity other than a natural person) as
his or her Beneficiary or Beneficiaries to whom the Participant's
Deferral Account is to be paid if the Participant dies before receipt
of all such benefits. Each Beneficiary designation shall be on the form
prescribed by the Plan Administrator and will be effective only when
filed with the Plan Administrator during the Participant's lifetime.
Each Beneficiary designation filed with the Plan Administrator will
cancel all Beneficiary designations previously filed with the Plan
Administrator. The revocation of a Beneficiary designation, no matter
how effected, shall not require the consent of any designated
Beneficiary.
|
ARTICLE 6
BENEFITS PAID FROM GENERAL ASSETS
6.01 Benefit Payments from General Assets. Plan benefits shall be paid from
the general assets of the Company or as otherwise directed by the
Company. To the extent that any Participant acquires the right to
receive payments under the Plan (from whatever source), such right
shall be no greater than that of an unsecured general creditor of the
Company. Participants and their Beneficiaries shall not have any
preference or security interest in the assets of the Company other than
as a general unsecured creditor.
ARTICLE 7
AMENDMENT AND TERMINATION
7.01 Amendment and Termination. The Committee reserves the right to modify,
alter, amend, or terminate the Plan, at any time and from time to time,
without notice, to any extent deemed advisable; provided, however, that
no such amendment or termination shall (without the written consent of
the Participant, if living, and if not, the Participant's Beneficiary)
adversely affect any benefit under the Plan which has accrued with
respect to the Participant or Beneficiary as of the date of such
amendment or termination regardless of whether such benefit is in pay
status.
ARTICLE 8
CLAIMS PROCEDURE
8.01 Claims Procedure. Deferral Accounts shall be paid in accordance with
the provisions of this Agreement. If the Participant or his or her
Beneficiary requests payment of benefits, and such request is denied in
whole or in part, the Participant or his designated Beneficiary may
request a review of the Company's denial of benefits within sixty days
of the date the Participant or his Beneficiary receives written notice
of such denial. If the Company again denies the Participant's or his
Beneficiary's request for payment of benefits, the Company shall
provide written notice of the denial of benefits to the Participant or
his Beneficiary and shall include in such notice a claims appeal
procedure, all in accordance with Section 503 of the ERISA and DOL
Regulation ss.2560.503-1 and such procedures are incorporated in this
Agreement by reference.
ARTICLE 9
MISCELLANEOUS
9.01 Headings. The headings and sub-headings in the Plan have been inserted
for convenience of reference only and are to be ignored in any
construction of the provisions hereof.
39
|
9.02 Spendthrift Clause. None of the benefits, payments, proceeds or
distributions under the Plan shall be subject to the claim of any
creditor of any Participant or Beneficiary, or to any legal process by
any creditor of such Participant or Beneficiary, and none of them shall
have any right to alienate, commute, anticipate or assign any of the
benefits, payments, proceeds or distributions under the Plan except to
the extent expressly provided herein to the contrary.
9.03 Change in Control. A change of Control is the purchase or other
acquisition by any person, entity or group of persons, within the
meaning of section 13(d) of the Securities Exchange Act of 1934
("Act"), or any comparable successor provisions, or beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Act)
of 30 percent or more of either the outstanding shares of common stock
or the combined voting power of Company's then outstanding voting
securities entitled to vote generally, or the approval by the
stockholders of Company of a reorganization, merger, or consolidation,
in each case, with respect to which persons who were stockholders of
Company immediately prior to such reorganization, merger or
consolidation do not, immediately thereafter, own more than 50 percent
of the combined voting power entitled to vote generally in the election
of directors of the reorganized, merged or consolidated Company's then
outstanding securities, or a liquidation or dissolution of Company or
of the sale of all or substantially all of Company's assets. The Plan
shall not be automatically terminated by the Company's acquisition by,
merger into, or sale of substantially all of its assets to any other
organization, but the Plan shall be continued thereafter by such
successor organization. All rights to amend, modify, suspend or
terminate the Plan shall be transferred to the successor organization,
effective as of the date of the Change in Control. If the successor
terminates the Plan, all Participants shall thereupon become 100%
vested in their Deferral Accounts, including Company Matching
Contributions and earnings thereon. If within 24 months of the Change
in Control a Participant incurs a Termination of Employment other than
for cause, such Participant shall thereupon become 100% vested in his
or her Deferral Account, including Company Matching Contributions and
earnings thereon.
9.04 Release. Any payment to Participant or Beneficiary, or to their legal
representatives, in accordance with the provisions of the Plan, shall
to the extent thereof be in full satisfaction of all claims hereunder
against the Committee, the Plan Administrator and the Company, any of
whom may require such Participant, Beneficiary, or legal
representative, as a condition precedent to such payment, to execute a
receipt and release therefor in such form as shall be determined by the
Plan Administrator, the Committee, or the Company, as the case may be,
9.05 Governing Law and Venue. To the extent not governed by federal law,
the Plan shall be construed in accordance with and governed by the
laws of the State of Florida. Venue shall lie in Duval County, Florida.
40
|
9.06 Successors and Assigns. The Plan shall be binding upon the successors
and assigns of the parties hereto.
9.07 Tax Withholding. Notwithstanding any other provision of this Plan, the
Company may withhold from any payment made by it under the Plan such
amount or amounts as may be required for purposes of complying with the
tax, withholding or other provisions of the Code or the Social Security
Act or any state or local income or unemployment tax act or for
purposes of paying any estate, inheritance or other tax attributable to
any amounts payable hereunder.
IN WITNESS WHEREOF, the Company has caused this Plan to be duly executed
|
and its seal to be hereunto affixed on the date indicated below, but effective as of September 1, 1999.
STEIN MART, INC.
By: /s/ D. Hunt Hawkins
------------------------------------------------
Title: Senior Vice President, Human Resources
------------------------------------------------
Date: 9/13/99
------------------------------------------------
[CORPORATE SEAL]
Attest:
|
Stein Mart, Inc.
Selected Financial Data
(Dollars in Thousands Except Per Share Amounts and Operating Data)
1999 (1) 1998 1997 (2) 1996 1995
------------ ------------ ------------ ------------ -----------
Statement of Income Data:
Net Sales $1,034,561 $897,821 $792,655 $616,150 $496,006
Cost of Merchandise Sold 781,038 677,334 579,747 451,232 366,781
------------ ------------- ------------ ------------ -----------
Gross Profit 253,523 220,487 212,908 164,918 129,225
Selling, General and Administrative Expenses 228,194 195,460 163,953 128,427 105,195
Store Closing and Asset Impairment Charges 15,906 - - - -
Other Income, Net 12,129 10,420 9,243 7,624 6,378
------------ ------------ ------------ ------------ -----------
Income From Operations 21,552 35,447 58,198 44,115 30,408
Interest Expense 2,485 2,368 1,203 1,567 1,289
------------ ------------ ------------ ----------- -----------
Income Before Income Taxes 19,067 33,079 56,995 42,548 29,119
Provision For Income Taxes 7,245 12,570 22,228 16,594 11,361
------------ ------------ ------------ ----------- -----------
Net Income $ 11,822 $ 20,509 $ 34,767 $ 25,954 $ 17,758
============ ============ ============ =========== ===========
Earnings Per Share - Basic (3) $ 0.26 $ 0.45 $ 0.75 $ 0.58 $ 0.40
Earnings Per Share - Diluted (3) $ 0.26 $ 0.44 $ 0.73 $ 0.56 $ 0.38
Selected Operating Data:
Stores Open at End of Period 205 182 151 123 100
Average Sales Per Store (000's) (4) $ 5,663 $ 5,958 $ 6,261 $ 6,176 $ 6,129
Average Sales Per Square Foot of Selling Area (5) $ 176 $ 185 $ 194 $ 191 $ 189
Comparable Store Net Sales Increase (Decrease) (6) 2.3% 1.2% 7.2% 6.1% (0.7%)
Balance Sheet Data:
Working Capital $ 115,390 $110,985 $110,296 $ 86,588 $ 63,685
Total Assets 352,200 318,012 270,604 218,264 173,517
Long-term Debt - - - 1 1
Total Stockholders' Equity 179,912 177,979 165,803 132,143 101,436
(1) 1999 includes a $20.5 million pre-tax charge for ten store closings
and asset impairment expenses. The charge includes $4.6 million for
inventory write-downs and $15.9 million primarily for the estimated cost
of lease terminations and write-off of leasehold improvements.
(2) 1997 is a 53-week year; all others are 52-week years.
(3) Basic and Diluted Earnings Per Share are presented for all periods in
accordance with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" which the Company adopted in 1997 and have been
restated for the two-for-one stock split declared in 1998.
(4) 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.
(5) 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.
(6) Comparable store information for a period reflects stores open throughout
that period and for the full prior year. All periods are calculated on a
52-week basis.
|
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, ability to successfully implement strategy to exit or improve under-performing stores, 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
In October 1999, the Company's Board of Directors approved a plan to improve overall profitability of the Company by closing certain under-performing stores. In accordance with the plan, four stores were closed on December 31, 1999 and six more will be closed during 2000. Pursuant to the plan, the Company recorded a $20.5 million pre-tax charge for store closing and asset impairment expenses. The charge includes $4.6 million, included in cost of merchandise sold, for inventory write-downs resulting from additional markdowns in the four stores that closed in 1999 and markdowns associated with clearance merchandise. The charge also includes $15.9 million for the estimated cost of lease terminations in the amount of $13.4 million and $2.5 million which represents primarily costs to write-down certain leasehold improvements and other assets.
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 1, Jan 2, Jan 3,
2000 1999 1998 (1)
------- ------- ---------
Net Sales 100.0% 100.0% 100.0%
Cost of Merchandise Sold 75.5 75.4 73.1
------- ------- ---------
Gross Profit 24.5 24.6 26.9
Selling, General and Administrative Expenses 22.1 21.8 20.7
Store Closing and Asset Impairment Charges 1.5 - -
Other Income, Net 1.2 1.2 1.1
------- ------- ---------
Income From Operations 2.1 4.0 7.3
Interest Expense .3 .3 .1
------- ------- ---------
Income Before Income Taxes 1.8% 3.7% 7.2%
======= ======= =========
|
(1) 1997 is a 53-week year; others are 52-week years.
1999 Compared to 1998
In 1999 the Company opened 28 stores and closed five stores bringing to 205 the number of stores in operation at year-end. The five closed stores include four under-performing stores plus one store where the lease term expired and a new location is being considered.
Net sales of $1.035 billion were achieved for the fiscal year 1999, an increase of $136.7 million, or 15.2% percent over net sales of $897.8 million for the fiscal year 1998. The 28 new stores opened in 1999 contributed $76.4 million to net sales. Comparable store net sales increased 2.3 percent over 1998.
Gross profit for 1999 was $253.5 million or 24.5 percent of net sales compared to $220.5 million or 24.6 percent of net sales for 1998. The 0.1 percent decrease in the gross profit percent resulted primarily from the $4.6 million write-down offset by slightly lower markdowns.
Selling, general and administrative expenses were $228.2 million or 22.1 percent of net sales for 1999, as compared to $195.5 million or 21.8 percent of net sales for 1998. The $32.7 million increase in selling, general and administrative expenses is primarily due to the additional stores in operation during 1999 as compared to the number of stores in operation in 1998. The increase of 0.3 percent of net sales is primarily due to increased selling expenses as a percent of net sales resulting from lower per store sales productivity. Included in selling, general and administrative expenses were pre-opening expenses for the 28 stores opened in 1999 in the amount of $4.0 million and for the 32 stores opened in 1998 in the amount of $4.6 million.
Store closing and asset impairment charges of $15.9 million consist primarily of the estimated costs of lease terminations and write-down of certain property and other assets for ten specifically identified stores.
Other income, primarily from in-store leased shoe departments, amounted to $12.1 million in 1999, an increase of $1.7 million over the $10.4 million for 1998. The increase was due to the additional 28 stores opened in 1999.
Interest expense for 1999 was $2.5 million, compared to $2.4 million in 1998. The increase resulted from higher average borrowings offset by slightly lower interest rates during this year compared to last year. The increased borrowings were used to fund operating activities and to repurchase common stock.
Net income for 1999 was $11.8 million or $0.26 per diluted share compared to net income of $20.5 million or $0.44 per diluted share for 1998.
1998 Compared to 1997
In 1998 the Company opened 32 stores and closed one store bringing to 182 the number of stores in operation at year-end.
Net sales of $897.8 million were achieved for the fifty-two week fiscal year 1998, an increase of $105.1 million, or 13.3 percent over net sales of $792.7 million for the fifty-three week fiscal year 1997. The 32 new stores opened in 1998 contributed $71.0 million to net sales. Comparable store net sales on a fifty-two week basis increased 1.2 percent over 1997.
Gross profit for 1998 was $220.5 million or 24.6 percent of net sales compared to $212.9 million or 26.9 percent of net sales for 1997. The 2.3 percent decrease in the gross profit percent resulted primarily from increases in markdowns and occupancy costs as a percent of net sales due to lower per store sales productivity.
Selling, general and administrative expenses were $195.5 million or 21.8 percent of net sales for 1998, as compared to $164.0 million or 20.7 percent of net sales for 1997. The $31.5 million increase in selling, general and administrative expenses is primarily due to the additional stores in operation during 1998 as compared to the number of stores in operation in 1997. The increase of 1.1 percent of net sales is primarily due to increased selling and advertising expenses as a percent of net sales resulting from lower per store sales productivity. Included in selling, general and administrative expenses were pre-opening expenses for the 32 stores opened in 1998 in the amount of $4.6 million and for the 28 stores opened in 1997 in the amount of $4.2 million.
Other income, primarily from in-store leased shoe departments, amounted to $10.4 million in 1998, an increase of $1.2 million over the $9.2 million for 1997. The increase was due to the additional 32 stores opened in 1998.
Interest expense for 1998 was $2.4 million, compared to $1.2 million in 1997. This increase resulted from higher average borrowings offset by slightly lower interest rates during this year compared to last year. The increased borrowings were used to fund operating activities and to repurchase common stock.
Net income for 1998 was $20.5 million or $0.44 per diluted share compared to net income of $34.8 million or $0.73 per diluted share for 1997.
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 1999 amounted to $23.7 million, compared to $24.1 million for 1998. Net income for 1999 was $11.8 million, a decrease of $8.7 million from net income in 1998. The $34.4 million increase in inventories is primarily related to the new stores opened in 1999. Cash was provided by an $18.2 million increase in accounts payable. In addition, the store closing reserve increased $12.6 million and deferred income taxes decreased $4.7 million.
Net cash provided by operating activities for 1998 amounted to $24.1 million, compared to $25.2 million for 1997. Net income for 1998 was $20.5 million, a decrease of $14.3 million from net income in 1997. Cash was also provided by a $37.5 million increase in accounts payable. The $35.2 million increase in inventories is primarily related to the new stores opened in 1998. Cash was also used by a $9.4 million decrease in income taxes payable.
For 1999 and 1998, cash flows used in investing activities amounted to $19.0 million and $21.5 million, respectively, primarily for the acquisition of fixtures, equipment and leasehold improvements for new stores and for information system enhancements.
Cash used in financing activities was $9.9 million for 1999 and $8.3 million for 1998. During 1999, cash was used to repurchase 1,702,300 shares of the Company's common stock for $11.3 million and in 1998, 1,193,500 shares were repurchased for $12.8 million. Included in 1999 is $0.4 million of proceeds from the exercise of stock options and related income tax benefits and $1.0 million of proceeds from the employee stock purchase plan compared to $3.6 million of proceeds from the exercise of stock options and
related tax benefits and $0.9 million of proceeds from the employee stock purchase plan in 1998. As of March 6, 2000 the Company repurchased an additional 770,000 shares of its common stock in the open market at a total cost of $3.7 million. As discussed in Note 6 to the financial statements, on March 6, 2000, the Board of Directors authorized the repurchase of an additional 2,500,000 shares.
The cost of opening a typical 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 at the time of opening. Initial inventory investment for a new store is approximately $1 million (a portion of which is normally financed through vendor credit). The Company's total capital expenditures for 2000 (including amounts budgeted for new store expansion, improvements to existing stores and information system enhancements) are anticipated to be $15-18 million.
The Company may borrow up to $60 million throughout the year and an additional $30 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 quarter, as the Company builds its inventory for the Christmas selling season. At January 1, 2000, there was no loan balance under the agreement. The Company had cash and cash equivalents at January 1, 2000 of $17.1 million.
The Company believes that expected net cash provided by operating activities, bank borrowings and vendor credit will be sufficient to fund anticipated current and long-term 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 35% of the Company's annual net sales and 65% of the Company's income from operations (before the $20.5 million pre-tax charge for store closing and asset impairment expenses recorded in the fourth quarter of 1999). 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 been successful in offsetting 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.
Year 2000 Issue
Beginning in 1997, the Company conducted a comprehensive review of its information technology systems and other equipment and services to determine those which would be impacted by the Year 2000 Issue (i.e., the inability of some technology and equipment to accurately read and process certain dates including all dates in the Year 2000 and thereafter). As a result of this review, the Company developed and successfully completed a program to resolve its Year 2000 issues.
The Company performs system upgrades and purchases new systems, applications, software and hardware in the ordinary course of business and, since 1996, has only purchased software and systems that are Year 2000 compliant or require little modification to remedy Year 2000 issues. As a result, the Company has been able to minimize the financial impact of its Year 2000 costs and such costs have not been material to the Company's financial position, results of operations or cash flows.
The Company has not experienced any Year 2000 difficulties to date. However, there can be no assurance that all of the Company's Year 2000 issues or those of key third parties upon whom the Company relies for goods and services have surfaced. If the Company or its key vendors fail to address future Year 2000 issues in a timely manner, and there are no alternatives available to the Company, then the Company could experience a material adverse impact on its results of operations or financial position.
Report of Independent Certified Public Accountants
To the Board of Directors
and Stockholders of Stein Mart, Inc.
In our opinion, the financial statements appearing on pages 12 through 21 of this annual report present fairly, in all material aspects, the financial position of Stein Mart, Inc. at January 1, 2000 and January 2, 1999, and the results of its operations and its cash flows for each of the three fiscal years in the period ended January 1, 2000, in conformity with accounting principles generally accepted in the United States. 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 auditing standards generally accepted in the United States, 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/ PricewaterhouseCoopers LLP ------------------------------ Jacksonville, Florida February 25, 2000 |
Stein Mart, Inc.
Balance Sheet
(In thousands)
January 1, January 2,
2000 1999
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 17,055 $ 22,257
Trade and other receivables 4,472 4,580
Inventories 245,186 210,781
Prepaid expenses and other current assets 4,089 4,392
---------- ----------
Total current assets 270,802 242,010
Property and equipment, net 76,503 72,022
Other assets 4,895 3,980
---------- -----------
Total assets $ 352,200 $ 318,012
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 120,640 $ 102,474
Accrued liabilities 30,086 26,453
Income taxes payable 4,686 2,098
---------- -----------
Total current liabilities 155,412 131,025
Store closing reserve 12,589 -
Deferred income taxes 4,287 9,008
---------- -----------
Total liabilities 172,288 140,033
Stockholders' equity:
Preferred stock - $.01 par value; 1,000,000 shares
authorized; no shares outstanding
Common stock - $.01 par value; 100,000,000 shares
authorized; 43,904,450 shares issued and outstanding
at January 1, 2000 and 45,371,476 shares issued and
outstanding at January 2, 1999 439 454
Paid-in capital 21,364 31,238
Retained earnings 158,109 146,287
---------- -----------
Total stockholders' equity 179,912 177,979
---------- -----------
Total liabilities and stockholders' equity $ 352,200 $ 318,012
========== ===========
|
The accompanying notes are an integral part of these financial statements.
Stein Mart, Inc.
Statement of Income
(In thousands except per share amounts)
For The Years Ended
---------------------------------------------------
January 1, January 2, January 3,
2000 1999 1998
---------- ---------- ----------
Net sales $1,034,561 $ 897,821 $ 792,655
Cost of merchandise sold 781,038 677,334 579,747
---------- ---------- ----------
Gross profit 253,523 220,487 212,908
Selling, general and administrative expenses 228,194 195,460 163,953
Store closing and asset impairment charges 15,906 - -
Other income, net 12,129 10,420 9,243
---------- ---------- ----------
Income from operations 21,552 35,447 58,198
Interest expense 2,485 2,368 1,203
---------- ---------- ----------
Income before income taxes 19,067 33,079 56,995
Provision for income taxes 7,245 12,570 22,228
---------- ---------- ----------
Net income $ 11,822 $ 20,509 $ 34,767
========== ========== ==========
Earnings per share - Basic $ 0.26 $ 0.45 $ 0.75
========== ========== ==========
Earnings per share - Diluted $ 0.26 $ 0.44 $ 0.73
========== ========== ==========
Weighted-average shares outstanding - Basic 44,948 45,787 46,158
========== ========== ==========
Weighted-average shares outstanding - Diluted 45,307 46,498 47,310
========== ========== ==========
|
The accompanying notes are an integral part of these financial statements.
Stein Mart, Inc.
Statement of Stockholders' Equity
(In thousands)
Total
Common Paid-in Retained Stockholders'
Stock Capital Earnings Equity
----------- ----------- ------------ ------------
Balance at December 28, 1996 $ 456 $ 40,676 $ 91,011 $ 132,143
Net income 34,767 34,767
Common shares issued under stock
option plan and related income
tax benefits 10 7,824 7,834
Reacquired shares (6) (8,935) (8,941)
----------- ----------- ------------ ------------
Balance at January 3, 1998 460 39,565 125,778 165,803
Net income 20,509 20,509
Common shares issued under stock
option plan and related income
tax benefits 4 3,572 3,576
Common shares issued under employee
stock purchase plan 1 928 929
Reacquired shares (11) (12,827) (12,838)
----------- ----------- ------------ ------------
Balance at January 2, 1999 454 31,238 146,287 177,979
Net income 11,822 11,822
Common shares issued under stock
option plan and related income
tax benefits 1 381 382
Common shares issued under employee
stock purchase plan 1 1,021 1,022
Reacquired shares (17) (11,276) (11,293)
------------ ----------- ------------ ------------
Balance at January 1, 2000 $ 439 $ 21,364 $ 158,109 $ 179,912
============ =========== ============ ============
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The accompanying notes are an integral part of these financial statements.
Stein Mart, Inc.
Statement of Cash Flows
(In thousands)
For The Years Ended
-------------------------------------------
January 1, January 2, January 3,
2000 1999 1998
---------- ---------- ----------
Cash flows from operating activities:
Net income $11,822 $20,509 $34,767
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 12,950 10,545 8,766
Write-down of property and other assets 2,528 - -
(Increase) decrease in:
Trade and other receivables 108 (2,062) (227)
Inventories (34,405) (35,161) (36,440)
Prepaid expenses and other current assets 303 (2,222) (296)
Other assets (1,845) (2,750) (13)
Increase (decrease) in:
Accounts payable 18,166 37,461 5,837
Accrued liabilities 3,633 4,926 4,340
Income taxes payable 2,588 (9,353) 7,506
Store closing reserve 12,589 - -
Deferred income taxes (4,721) 2,198 998
---------- ---------- ----------
Net cash provided by operating activities 23,716 24,091 25,238
Cash flows used in investing activities:
Net acquisition of property and equipment (19,029) (21,480) (19,703)
Cash flows from financing activities:
Proceeds from exercise of stock options and related
income tax benefits 382 3,576 7,834
Proceeds from employee stock purchase plan 1,022 929 -
Purchase of common stock (11,293) (12,838) (8,941)
---------- ---------- ----------
Net cash used in financing activities (9,889) (8,333) (1,107)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents (5,202) (5,722) 4,428
Cash and cash equivalents at beginning of year 22,257 27,979 23,551
---------- ---------- ----------
Cash and cash equivalents at end of year $17,055 $22,257 $27,979
========== ========== ==========
Supplemental disclosures of cash flow information:
Interest paid $ 2,450 $ 1,975 $ 1,153
Income taxes paid 9,493 18,167 9,296
|
The accompanying notes are an integral part of these financial statements.
STEIN MART, INC.
NOTES TO FINANCIAL STATEMENTS
January 1, 2000
(Dollars in tables in thousands except per share amounts)
1. Summary of Significant Accounting Policies
At January 1, 2000 the Company operated a chain of 205 off-price retail stores in 28 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 1999 and 1998 are for the 52 weeks ended January 1, 2000 and January 2,
1999, respectively. Results for 1997 are for the 53 weeks ended January 3, 1998.
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 3-10 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. In the event that facts and circumstances indicate that the carrying value of a long-lived asset may be impaired, an evaluation of recoverability is performed by comparing the estimated future undiscounted cash flows associated with the asset to the asset's carrying amount to determine if a write-down to market value or discounted cash flow is required.
Pre-Opening Expenses
The Company adopted AICPA Statement of Position 98-5, Reporting on the Costs of
Start-Up Activities ("SOP 98-5"), effective January 4, 1998. SOP 98-5, issued
April 1998, requires that costs of start-up activities be expensed as incurred.
The Company previously capitalized store pre-opening expenses and amortized such
amounts over the balance of the fiscal year.
Advertising Expense
Advertising costs are expensed as incurred. Advertising expenses of $35,522,000,
$33,731,000 and $27,632,000 are reflected in the Statement of Income for 1999,
1998 and 1997, 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.
STEIN MART, INC.
NOTES TO FINANCIAL STATEMENTS
January 1, 2000
(Dollars in tables in thousands except per share amounts)
Stock Split
On April 24, 1998, the Board of Directors authorized a two-for-one stock split
that was distributed in the form of a stock dividend on May 22, 1998 to
shareholders of record as of May 8, 1998. In this report, all references to
number of shares and per share amounts have been restated. In addition,
stockholders' equity has been restated to give retroactive recognition to the
stock split in prior periods by reclassifying from paid-in capital to common
stock the $.01 par value of the additional shares arising from the split.
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.
A reconciliation of weighted-average number of common shares to weighted-average number of common shares plus common stock equivalents is as follows (000's):
1999 1998 1997
-------- -------- -------
Weighted-average number
of common shares 44,948 45,787 46,158
Stock options 359 711 1,152
-------- -------- -------
Weighted-average number of common
shares plus common stock equivalents 45,307 46,498 47,310
======== ======== =======
|
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. Store Closing and Asset Impairment Charges
In October 1999, the Company's Board of Directors approved a plan to improve overall profitability of the Company by closing certain under-performing stores. In accordance with the plan, four stores were closed on December 31, 1999 and six more will be closed during 2000. Pursuant to the plan, the Company recorded a $20.5 million pre-tax charge for store closing and asset impairment expenses. The charge includes $4.6 million, included in cost of merchandise sold, for inventory write-downs resulting from additional markdowns in the four stores that closed in 1999 and markdowns associated with clearance merchandise. The charge also includes $15.9 million for the estimated cost of lease terminations in the amount of $13.4 million (as shown in the following table) and $2.5 million which represents primarily costs to write-down certain leasehold improvements, included in property and equipment, and other assets. Activity in the store closing reserve for 1999 is as follows (in 000's):
1999 Paid in January 1,
Expense 1999 2000
---------- ----------- -------------
Store closing reserve $13,378 $(789) $12,589
========== =========== =============
|
STEIN MART, INC.
NOTES TO FINANCIAL STATEMENTS
January 1, 2000
(Dollars in tables in thousands except per share amounts)
3. Property and Equipment, Net
Property and equipment and the related accumulated depreciation and amortization consist of:
1999 1998
------------ ------------
Furniture, fixtures and
equipment $105,050 $ 89,643
Building and leasehold
improvements 32,373 30,700
Land 128 128
------------ ------------
137,551 120,471
Less: accumulated depreciation
and amortization 61,048 48,449
------------ ------------
$ 76,503 $ 72,022
============ ============
|
4. Accrued Liabilities
The major components of accrued liabilities are as follows:
1999 1998
------------ ------------
Taxes, other than income taxes $14,219 $13,755
Salary, wages, bonuses and benefits 4,944 4,137
Other 10,923 8,561
------------ ------------
$30,086 $26,453
============ ============
|
5. Notes Payable to Banks
In August 1998, the Company entered into a new credit facility with two banks. This agreement, which expires June 30, 2001, provides a $60 million revolving line of credit and a $30 million seasonal line of credit. The seasonal line of credit is available during the periods March 15 through June 30 and September 15 through December 31 of each year. The agreement includes a $5 million letter of credit facility. In October 1999, the Company amended its loan agreement to extend the expiration date of the letter of credit facility to June 30, 2001.
Interest on the outstanding balance is payable quarterly at 1.50% below the prime rate or .35% over the London Interbank 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 1, 2000.
STEIN MART, INC.
NOTES TO FINANCIAL STATEMENTS
January 1, 2000
(Dollars in tables in thousands except per share amounts)
6. Stockholders' Equity
In August 1999, the Board of Directors authorized the repurchase of an additional 1,500,000 shares of the Company's common stock in the open market, bringing the total repurchases authorized to 5,500,000 shares as of January 1, 2000. During 1999, the Company repurchased 1,702,300 shares of its common stock in the open market at a total cost of $11,293,000. During 1998 and 1997, 1,193,500 and 658,000 shares were repurchased for $12,838,000 and $8,941,000, respectively.
On March 6, 2000, the Board of Directors authorized the repurchase of an additional 2,500,000 shares of the Company's common stock. During the period from January 2, 2000 through March 6, 2000 the Company repurchased an additional 770,000 shares of its common stock in the open market at a total cost of $3.7 million.
7. Stock Option and Purchase Plans
The Company has an Employee Stock Plan which provides that a maximum of 9,000,000 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 84,000 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 1999, 1998 and 1997 is
as follows:
1999 1998 1997
------------------------- ------------------------- -------------------------
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 4,626 $11 5,020 $10 3,412 $5
Options granted 308 8 542 14 3,124 14
Options exercised (57) 4 (469) 4 (1,046) 3
Options forfeited (252) 13 (467) 12 (470) 12
---------- ---------- ---------- ---------- ---------- ----------
Options outstanding
at end of year 4,625 11 4,626 11 5,020 10
========== ========== ==========
Options exercisable
at end of year 1,317 1,148 1,372
|
The following table summarizes information about fixed-price stock options
outstanding at January 1, 2000:
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
--------------- --------------- --------------- --------------- --------------- --------------
$ 2.50 - 5.75 1,066 3.0 $ 4.03 965 $ 3.87
$ 6.53 - 9.62 721 7.4 7.76 243 7.80
$10.00 - 13.81 1,983 7.1 13.37 109 10.28
$14.25 - 16.59 855 7.9 15.25 - -
--------------- ---------------
4,625 6.3 $10.69 1,317 $ 5.12
=============== ===============
|
The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards ("SFAS") 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. Had compensation cost of the Company's two stock option plans been determined consistent with the provisions of SFAS No. 123, the Company's net income and earnings per share would have been reduced to the following pro forma amounts:
1999 1998 1997
--------- --------- --------
Net income - as reported $11,822 $20,509 $34,767
Net income - pro forma 8,141 16,979 32,340
Basic earnings per share - as reported $0.26 $0.45 $0.75
Diluted earnings per share - as reported 0.26 0.44 0.73
Basic earnings per share - pro forma $0.18 $0.37 $0.70
Diluted earnings per share - pro forma 0.18 0.37 0.68
|
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. In determining the pro forma compensation cost, the weighted-average fair value of options granted during 1999, 1998 and 1997 was estimated to be $4, $8 and $8, respectively, using the Black-Scholes options pricing model. The following weighted-average assumptions were used for grants made during 1999, 1998 and 1997: dividend yield of 0.0%, expected volatility of 48.7%, 45.8% and 44.7%, respectively, risk-free interest rate of 6.5%, 5.0% and 6.2%, respectively and expected lives of 7.0 years.
STEIN MART, INC.
NOTES TO FINANCIAL STATEMENTS
January 1, 2000
(Dollars in tables in thousands except per share amounts)
The Company has an Employee Stock Purchase Plan (the "Stock Purchase Plan") whereby 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 800,000 shares in the aggregate and the Plan will be effective for the years 1997 through 2000, with no more than 200,000 shares being made available in each calendar year. In 1999 and 1998, the participants acquired 172,494 and 81,700 shares of the Company's common stock at $5.92 and $11.37 per share, respectively.
8. Leased Facilities and Commitments
The Company leases 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.
Rent expense for 1999, 1998 and 1997 was as follows:
1999 1998 1997
------------ ------------ ------------
Minimum rental $44,423 $36,707 $29,915
Contingent rentals 715 783 751
------------ ------------ ------------
$45,138 $37,490 $30,666
============ ============ ============
|
At January 1, 2000, for the majority of its retail and corporate facilities, the Company was committed under noncancellable leases with remaining terms of up to 20 years. Future minimum payments under noncancellable leases are:
2000 $ 46,021
2001 45,554
2002 44,217
2003 42,145
2004 39,235
Thereafter 154,306
------------
$371,478
============
|
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 $11,388,000, $9,904,000 and $8,798,000 is included in other income, net for 1999, 1998 and 1997, respectively. Total future minimum rental income under these noncancellable subleases is $17,415,000 at January 1, 2000.
STEIN MART, INC.
NOTES TO FINANCIAL STATEMENTS
January 1, 2000
(Dollars in tables in thousands except per share amounts)
9. Employee Benefit Plans
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 $1,500,000, $1,301,000 and $1,360,000 for 1999, 1998 and 1997, respectively.
During 1999, the Company implemented an executive split dollar life insurance plan wherein eligible executives are provided with pre-retirement life insurance protection based upon three to five times base salary. Upon retirement, the executive is provided with life insurance protection based upon one and one-half to two and one-half times final base salary. The expense for this plan was $25,000 in 1999.
Also during 1999, the Company implemented an executive deferral plan providing officers and key executives with the opportunity to participate in an unfunded, deferred compensation program. Under the program, participants may defer up to 100% of their base compensation and bonuses earned. The Company will match the executives' contributions 100% up to the first 10% of income deferred. The total of participant deferrals, which is reflected in accrued liabilities, was $58,000 at January 1, 2000. The expense for this plan was $57,000 in 1999.
In connection with the above two plans, whole life insurance contracts were purchased on the related participants. At January 1, 2000 the cash surrender value of these policies was $1,302,000 and is included in other assets.
10. Income Taxes
The provision for income taxes for 1999, 1998 and 1997 consisted of:
1999 1998 1997
---------- ---------- ----------
Current:
Federal $11,022 $ 9,554 $18,622
State 945 818 2,608
---------- ---------- ----------
Total current 11,967 10,372 21,230
Deferred:
Federal (4,349) 2,024 898
State (373) 174 100
---------- ---------- ----------
Total deferred (4,722) 2,198 998
---------- ---------- ----------
Total income tax expense $ 7,245 $12,570 $22,228
========== ========== ==========
|
STEIN MART, INC.
NOTES TO FINANCIAL STATEMENTS
January 1, 2000
(Dollars in tables in thousands except per share amounts)
Income tax expense differed from the amounts computed by applying the federal statutory rate of 35 percent to income before taxes as follows:
1999 1998 1997
----------- ----------- -------------
Tax expense at the
statutory rate $6,673 $11,578 $19,948
State income taxes,
net of federal benefit 572 992 2,280
----------- ----------- -------------
$7,245 $12,570 $22,228
=========== =========== =============
Effective tax rate 38.0% 38.0% 39.0%
========== =========== =============
|
Temporary differences which give rise to deferred tax (assets) and liabilities are as follows:
1999 1998 1997
------------ ------------ ------------
Excess of tax over
book depreciation $10,007 $8,616 $7,102
Store closing reserve (4,647) - -
Inventories (1,401) - -
Other 328 392 (292)
------------ ------------- ------------
Net deferred tax liability $ 4,287 $9,008 $6,810
============ ============= ============
|
The exercise of certain stock options which have been granted under the Company's 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 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 1, 2000, January 2, 1999 and January 3, 1998, such deductions resulted in significant federal and state tax deductions for the Company.
STEIN MART, INC.
NOTES TO FINANCIAL STATEMENTS
January 1, 2000
(Dollars in tables in thousands except per share amounts)
11. Quarterly Results of Operations (Unaudited)
The following table shows unaudited quarterly results of operations for 1999 and 1998:
Quarter Ended
-------------------------------------------------------------
Apr. 3, July 3, Oct. 2, Jan. 1,
1999 1999 1999 2000
-------------------------------------------------------------
Net sales $212,087 $244,920 $227,625 $349,929
Gross profit 48,643 67,958 48,366 88,556
Net income (loss) 243 9,394 (2,751) 4,936
EPS - Basic $ 0.01 $ 0.21 $ (0.06) $ 0.11
EPS - Diluted $ 0.01 $ 0.21 $ (0.06) $ 0.11
Quarter Ended
-------------------------------------------------------------
Apr. 4, July 4, Oct. 3, Jan. 2,
1998 1998 1998 1999
-------------------------------------------------------------
Net sales $169,482 $213,967 $192,138 $322,234
Gross profit 39,898 59,269 37,606 83,714
Net income (loss) 183 9,066 (4,724) 15,984
EPS - Basic $ 0.01 $ 0.20 $ (0.10) $ 0.35
EPS - Diluted $ 0.01 $ 0.19 $ (0.10) $ 0.35
|
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 1, in The Radisson Riverwalk Hotel and Conference Center, 1515 Prudential Drive, Jacksonville, Florida.
Transfer Agent and Registrar
ChaseMellon Shareholder Services, L.L.C.
P. O. Box 3315
South Hackensack, NJ 07606-1915
Shareholder services: 1-800-756-3353
Website: www.chasemellon.com
Legal Counsel
Mitchell W. Legler, P.A.
300A Wharfside Way
Jacksonville, Florida 32207
Independent Auditors
PricewaterhouseCoopers LLP
Jacksonville, Florida
Common stock information
Stein Mart's common stock trades on The Nasdaq Stock Market(R) under the
trading symbol SMRT. On March 10, 2000, there were 1,115 stockholders of
record.
The following table reflects the high and low sales prices of the common stock for each fiscal quarter in 1998 and 1999 (adjusted for the 2-for-1
stock split in May, 1998.) (Quarter ending dates) High Low ---------------------- ------ ------ April 4, 1998 $18.25 $11.56 July 4, 1998 $19.43 $10.88 October 3, 1998 $13.50 $ 6.19 January 2, 1999 $ 9.81 $ 6.00 April 3, 1999 $12.00 $ 6.50 July 3, 1999 $11.75 $ 8.63 October 2, 1999 $ 9.69 $ 6.50 January 1, 2000 $ 7.75 $ 4.88 |
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. You many 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.
To receive Stein Mart information electronically, you may choose to:
. Access the Stein Mart website at www.steinmart.com
. E-mail your request to smrt@steinmart.com
. Call 1-800-239-0927 for current and past news releases to be faxed
directly to you, at no charge
. 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.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration Statements on Forms S-8 (Nos. 333-27991, 33-88176 and 333-39323) of our report dated February 25, 2000 relating to the financial statements, which appears on page 21 of the 1999 Annual Report to Shareholders of Stein Mart, Inc., which is incorporated by reference in Stein Mart, Inc. Annual Report on Form 10-K for the year ended January 1, 2000.
/s/ PricewaterhouseCoopers LLP ------------------------------ Jacksonville, Florida March 30, 2000 |
| ARTICLE 5 |
| This schedule contains summary financial information extracted from the statements of income and balance sheets found in the Company's Form 10-K for the fiscal year ended January 1, 2000 and is qualified in its entirety by reference to such financial statements |
| MULTIPLIER: 1000 |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | JAN 1 2000 |
| PERIOD START | JAN 3 1999 |
| PERIOD END | JAN 1 2000 |
| CASH | 17055 |
| SECURITIES | 0 |
| RECEIVABLES | 4472 |
| ALLOWANCES | 0 |
| INVENTORY | 245186 |
| CURRENT ASSETS | 270802 |
| PP&E | 137551 |
| DEPRECIATION | 61048 |
| TOTAL ASSETS | 352200 |
| CURRENT LIABILITIES | 155412 |
| BONDS | 0 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 439 |
| OTHER SE | 179473 |
| TOTAL LIABILITY AND EQUITY | 352200 |
| SALES | 1034561 |
| TOTAL REVENUES | 1046690 |
| CGS | 781038 |
| TOTAL COSTS | 1009232 |
| OTHER EXPENSES | 15906 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 2485 |
| INCOME PRETAX | 19067 |
| INCOME TAX | 7245 |
| INCOME CONTINUING | 11822 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 11822 |
| EPS BASIC | 0.26 |
| EPS DILUTED | 0.26 |