UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended April 30, 2011
or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 0-20052
STEIN MART, INC.
(Exact name of registrant as specified in its charter)
Florida | 64-0466198 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
|
1200 Riverplace Blvd., Jacksonville, Florida | 32207 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code: (904) 346-1500
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | x | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares outstanding of the Registrants common stock as of May 27, 2011 was 44,946,512.
STEIN MART, INC.
TABLE OF CONTENTS
PAGE | ||||||
PART I |
FINANCIAL INFORMATION | |||||
Item 1. | Condensed Consolidated Financial Statements (Unaudited): | |||||
Condensed Consolidated Balance Sheets at April 30, 2011, January 29, 2011 and May 1, 2010 | 3 | |||||
Condensed Consolidated Statements of Income for the 13 Weeks Ended April 30, 2011 and May 1, 2010 | 4 | |||||
Condensed Consolidated Statements of Cash Flows for the 13 Weeks Ended April 30, 2011 and May 1, 2010 | 5 | |||||
Notes to Condensed Consolidated Financial Statements | 6 | |||||
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations | 9 | ||||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 11 | ||||
Item 4. | Controls and Procedures | 11 | ||||
PART II | OTHER INFORMATION | |||||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 12 | ||||
Item 6. | Exhibits | 12 | ||||
SIGNATURES | 13 |
2
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except for share data)
April 30, 2011 | January 29, 2011 | May 1, 2010 | ||||||||||
ASSETS |
||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 94,163 | $ | 80,171 | $ | 71,624 | ||||||
Trade and other receivables |
8,864 | 10,360 | 7,910 | |||||||||
Inventories |
258,804 | 232,295 | 237,524 | |||||||||
Income taxes receivable |
| 2,382 | | |||||||||
Prepaid expenses and other current assets |
14,386 | 15,226 | 12,430 | |||||||||
Total current assets |
376,217 | 340,434 | 329,488 | |||||||||
Property and equipment, net |
81,072 | 79,964 | 73,139 | |||||||||
Other assets |
14,992 | 16,046 | 16,198 | |||||||||
Total assets |
$ | 472,281 | $ | 436,444 | $ | 418,825 | ||||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||||||
Current liabilities: |
||||||||||||
Accounts payable |
$ | 117,039 | $ | 95,545 | $ | 82,783 | ||||||
Accrued liabilities |
63,184 | 72,587 | 80,363 | |||||||||
Income taxes payable |
5,010 | | 4,551 | |||||||||
Total current liabilities |
185,233 | 168,132 | 167,697 | |||||||||
Other liabilities |
20,949 | 21,061 | 20,444 | |||||||||
Total liabilities |
206,182 | 189,193 | 188,141 | |||||||||
COMMITMENTS AND CONTINGENCIES |
||||||||||||
Shareholders equity: |
||||||||||||
Preferred stock - $.01 par value; 1,000,000 shares authorized; no shares issued or outstanding |
||||||||||||
Common stock - $.01 par value; 100,000,000 shares authorized; 44,659,326, 44,396,504 and 43,381,693 shares issued and outstanding, respectively |
447 | 444 | 434 | |||||||||
Additional paid-in capital |
24,071 | 21,126 | 16,622 | |||||||||
Retained earnings |
241,125 | 225,225 | 213,053 | |||||||||
Accumulated other comprehensive income |
456 | 456 | 575 | |||||||||
Total shareholders equity |
266,099 | 247,251 | 230,684 | |||||||||
Total liabilities and shareholders equity |
$ | 472,281 | $ | 436,444 | $ | 418,825 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands, except per share amounts)
13 Weeks
Ended
April 30, 2011 |
13 Weeks Ended
May 1, 2010 |
|||||||
Net sales |
$ | 303,546 | $ | 300,998 | ||||
Cost of merchandise sold |
213,626 | 213,495 | ||||||
Gross profit |
89,920 | 87,503 | ||||||
Selling, general and administrative expenses |
72,025 | 71,598 | ||||||
Other income, net |
8,316 | 5,273 | ||||||
Operating income |
26,211 | 21,178 | ||||||
Interest income, net |
4 | 8 | ||||||
Income before income taxes |
26,215 | 21,186 | ||||||
Provision for income taxes |
10,315 | 6,838 | ||||||
Net income |
$ | 15,900 | $ | 14,348 | ||||
Net income per share: |
||||||||
Basic |
$ | 0.35 | $ | 0.33 | ||||
Diluted |
$ | 0.35 | $ | 0.32 | ||||
Weighted-average shares outstanding: |
||||||||
Basic |
43,851 | 42,512 | ||||||
Diluted |
44,186 | 43,657 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
13 Weeks Ended
April 30, 2011 |
13 Weeks Ended
May 1, 2010 |
|||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 15,900 | $ | 14,348 | ||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
||||||||
Depreciation and amortization |
4,286 | 4,336 | ||||||
Change in valuation allowance for deferred tax assets |
| (798 | ) | |||||
Deferred income taxes |
4,595 | 798 | ||||||
Store closing charges |
143 | 138 | ||||||
Share-based compensation |
914 | 198 | ||||||
Tax benefit from equity issuances |
80 | 2,041 | ||||||
Excess tax benefits from share-based compensation |
(124 | ) | (1,998 | ) | ||||
Changes in assets and liabilities: |
||||||||
Trade and other receivables |
1,496 | 2,268 | ||||||
Inventories |
(26,509 | ) | (19,399 | ) | ||||
Income taxes receivable |
2,382 | | ||||||
Prepaid expenses and other current assets |
(2,303 | ) | (1,318 | ) | ||||
Other assets |
(501 | ) | (645 | ) | ||||
Accounts payable |
21,494 | 2,465 | ||||||
Accrued liabilities |
(9,454 | ) | (4,334 | ) | ||||
Income taxes payable |
5,010 | 1,590 | ||||||
Other liabilities |
(71 | ) | (579 | ) | ||||
Net cash provided by (used in) operating activities |
17,338 | (889 | ) | |||||
Cash flows from investing activities: |
||||||||
Capital expenditures |
(5,424 | ) | (8,871 | ) | ||||
Net cash used in investing activities |
(5,424 | ) | (8,871 | ) | ||||
Cash flows from financing activities: |
||||||||
Excess tax benefits from share-based compensation |
124 | 1,998 | ||||||
Proceeds from exercise of stock options |
2,009 | 434 | ||||||
Repurchase of common stock for employee withholdings |
(55 | ) | (2,023 | ) | ||||
Net cash provided by financing activities |
2,078 | 409 | ||||||
Net increase (decrease) in cash and cash equivalents |
13,992 | (9,351 | ) | |||||
Cash and cash equivalents at beginning of period |
80,171 | 80,975 | ||||||
Cash and cash equivalents at end of period |
$ | 94,163 | $ | 71,624 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in tables in thousands, except per share amounts)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting primarily of normal and recurring adjustments) considered necessary for a fair statement have been included. Due to the seasonality of our business, results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year. For further information, refer to the consolidated financial statements and footnotes thereto included in our annual report on Form 10-K for the year ended January 29, 2011.
As used herein, the terms we, our, us, Stein Mart and the Company refer to Stein Mart, Inc. and its wholly-owned subsidiaries.
Recent Accounting Pronouncements
In October 2009, the Financial Accounting Standards Board issued guidance impacting the determination of when individual deliverables included in an arrangement with multiple deliverables may be treated as separate units of accounting. The guidance, which was incorporated into Accounting Standards Codification (ASC) Topic 605, Revenue Recognition , eliminates the residual method of allocation for multiple-deliverable revenue arrangements and requires that arrangement consideration be allocated to deliverables using the relative selling price method. This guidance is effective for fiscal years beginning on or after June 15, 2010, however early adoption is permitted. We use this guidance to account for our Co-Brand Credit Card Consumer Program Agreement.
The adoption of this guidance on January 30, 2011 had no effect on our consolidated financial statements as it did not change the manner in which we designate units of accounting or allocate arrangement consideration to the delivered items because the selling prices of our deliverables, which is the principal change in the guidance, approximates fair value.
2. Correction of an Error
During the quarter ended April 30, 2011, we identified an error in our liability for credit card rewards earned under the Stein Mart MasterCard program. The error was the result of inaccuracies in data used to calculate breakage income for expired rewards during fiscal years 2008 through 2010 which overstated the rewards liability and understated income for those periods. In accordance with ASC Topic 250, Accounting Changes and Error Corrections , we evaluated the materiality of the error from a qualitative and quantitative perspective and concluded that the error was not material to any prior period. Further, we evaluated the materiality of the error on the results of operations for the first quarter of 2011, as well as the expected results of operations for the full year, and concluded that although the error was quantitatively significant to the first quarter financial statements, it is not anticipated to be material to the full year or the trend of financial results. Accordingly, we corrected the error in the current quarter by reducing accrued liabilities and increasing other income by $2.0 million.
3. Fair Value Measurements
We follow the guidance of ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This guidance also establishes the following three-level hierarchy based upon the transparency of inputs to the valuation of an asset or liability on the measurement date:
Level 1: | Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets. | |
Level 2: | Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. | |
Level 3: | Unobservable inputs that reflect assumptions about what market participants would use in pricing assets or liabilities based on the best information available. |
Assets and Liabilities Measured at Fair Value on a Recurring Basis
We have money market fund investments classified as cash equivalents which are Level 1 assets because fair value is based on readily available market prices. The fair value of these assets was $78.1 million at April 30, 2011, $68.1 million at January 29, 2011 and $56.0 million at May 1, 2010.
6
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Fair value, as used in our asset impairment calculations, is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. Store-related assets are considered Level 3 assets in the fair value hierarchy as the inputs for calculating the fair value of these assets are based on historical transactions for similar assets. Based on our historical experience, the resale value of used fixtures and equipment is de minimis and since we lease all our store locations, our leasehold improvements cannot be sold in a market transaction, and therefore have little to no fair value.
There were no asset impairment charges recorded during the first quarter of 2011. Previously impaired store-related assets have no fair value at April 30, 2011.
4. Revolving Credit Agreement
We have a $150 million senior revolving secured credit agreement (the Agreement) with a group of lenders which extends through January 2012. We expect to enter into a new credit agreement before the end of fiscal 2011. Reserves, as defined in the Agreement, reduced availability as of April 30, 2011 to $143.3 million. Availability was further reduced by outstanding letters of credit of $8.6 million to $134.7 million available for borrowings. We had no direct borrowings at April 30, 2011 and are in compliance with the terms of the Agreement.
5. Income Taxes
As a result of a three-year cumulative loss, we carried a valuation allowance against deferred tax assets from the fourth quarter of 2008 through the third quarter of 2010. We reversed the remaining valuation allowance in the fourth quarter of 2010, as we were no longer in a cumulative three-year loss position and expectations of future earnings were positive.
The effective tax rate (ETR) for the first quarter of 2011 and 2010 was 39.3 percent and 32.3 percent, respectively. The ETR for the first quarter of 2010 was lower than the 2011 rate due to a benefit from the projected annual reduction in our valuation allowance for deferred taxes. This was the result of favorable changes in the book/tax differences that reduced deferred tax assets.
During the first quarter of 2011, the Internal Revenue Service completed its examination of our 2007 and 2008 federal income tax returns. As a result, gross unrecognized tax benefits (UTBs) decreased by $2.0 million with no effect on the Condensed Consolidated Statement of Income. The remaining gross UTBs as of April 30, 2011 were $0.8 million.
6. Shareholders Equity
Stock Repurchase Plan
During the first quarter of 2010, we repurchased 244,390 shares of our common stock from employees related to taxes due on the vesting of employee stock awards at a total cost of $2.0 million. Repurchases during the first quarter of 2011 were immaterial.
Share-Based Compensation
For the 13 weeks ended April 30, 2011 and May 1, 2010, pre-tax share-based compensation expense was recorded as follows:
13 Weeks Ended
April 30, 2011 |
13 Weeks Ended
May 1, 2010 |
|||||||
Cost of merchandise sold |
$ | 607 | $ | 129 | ||||
Selling, general and administrative expenses |
307 | 69 | ||||||
Total share-based compensation expense |
$ | 914 | $ | 198 | ||||
Share-based compensation expense was lower during the first quarter of 2010 due to pre-vesting forfeitures of employee stock options.
7
7. Earnings Per Share
We calculate earnings per share (EPS) using the two-class method. Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of EPS. Our restricted stock awards are considered participating securities because they contain non-forfeitable rights to dividends.
The following table presents the calculation of basic and diluted income per common share (shares in thousands):
13 Weeks
Ended
April 30, 2011 |
13 Weeks Ended
May 1, 2010 |
|||||||
Numerator: |
||||||||
Net income |
$ | 15,900 | $ | 14,348 | ||||
Income allocated to participating securities |
393 | 271 | ||||||
Net income available to common stockholders |
$ | 15,507 | $ | 14,077 | ||||
Denominator: |
||||||||
Basic weighted-average shares outstanding |
43,851 | 42,512 | ||||||
Incremental shares from share-based compensation plans |
335 | 1,145 | ||||||
Diluted weighted-average shares outstanding |
44,186 | 43,657 | ||||||
Net income per share: |
||||||||
Basic |
$ | 0.35 | $ | 0.33 | ||||
Diluted |
$ | 0.35 | $ | 0.32 |
Options to purchase approximately 1.1 million and 1.2 million shares of common stock that were outstanding during the first quarters of 2011 and 2010, respectively, were not included in the computation of diluted net income per share as the exercise prices of these options were greater than the average market price of the common shares and, as a result, their inclusion in the computation would have been anti-dilutive.
8
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
As used herein, the terms we, our, us, Stein Mart and the Company refer to Stein Mart, Inc. and its wholly-owned subsidiaries.
Forward-Looking Statements
This report contains forward-looking statements which are subject to certain risks, uncertainties or assumptions and may be affected by certain factors, including but not limited to the matters discussed in Item A. Risk Factors of our Form 10-K for the fiscal year ended January 29, 2011. Wherever used, the words plan, expect, anticipate, believe, estimate and similar expressions identify forward-looking statements. Should one or more of these risks, uncertainties or other factors materialize, or should underlying assumptions prove incorrect, actual results, performance or achievements may vary materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements are based on beliefs and assumptions of our management and on information currently available to such management. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update or revise our forward-looking statements in light of new information or future events. Undue reliance should not be placed on such forward-looking statements, which are based on current expectations. Forward-looking statements are no guarantees of performance.
Overview
Stein Mart is a national retailer offering the fashion merchandise, service and presentation of a better department or specialty store at prices competitive with off-price retail chains. Our focused assortment of merchandise features current-season moderate to better fashion apparel for women and men, as well as accessories, shoes and home fashions.
First quarter results include higher comparable store sales and improved operating income. We have made progress on our 2011 strategies to increase sales by attracting more customers and building our share of their spending. Our strategic initiatives to drive sales growth include a continued focus on offering distinctive merchandise at great values, enhancing our marketing to attract more customers, including younger and Hispanic shoppers, and improving our customer shopping experience. We are making significant progress in expanding our selection of designer and national brands that are recognized by and resonate with our customers.
Financial Highlights for the First Quarter of 2011
|
Sales increased 0.8 percent to $303.5 million from $301.0 million in the first quarter of 2010. |
|
Comparable store sales increased 1.5 percent compared to the first quarter of 2010. |
|
Net income was $15.9 million or $0.35 per diluted share compared to net income of $14.3 million or $0.32 per diluted share in 2010. |
|
Results include a $2.0 million pre-tax gain ($1.2 million after-tax or $0.03 per diluted share) to correct an error in our credit card reward liability (see discussion at Other income below). |
|
Operating income, excluding the above gain, increased 14.2 percent to $24.2 million or 8.0 percent of sales, from $21.2 million or 7.0 percent of sales, as a result of higher gross profit and other income. |
|
The effective tax rate (ETR) was 39.3 percent compared to 32.3 percent for the first quarter of 2010. The lower ETR in 2010 benefitted first quarter 2010 earnings by $0.03 per diluted share. |
|
Cash at the end of the quarter was $94.2 million compared to $71.6 million at the end of the first quarter last year, and we have no debt. |
Stores
There were 262 stores open as of April 30, 2011 and 265 stores open as of May 1, 2010. We plan to relocate approximately five stores to better locations in their respective markets during 2011. We completed two of these relocations during the first quarter. We also plan to close a total of three to five stores and open approximately two to three stores during 2011.
13 Weeks Ended
April 30, 2011 |
13 Weeks Ended
May 1, 2010 |
|||||||
Stores at beginning of period |
264 | 267 | ||||||
Stores opened during the period |
| | ||||||
Stores closed during the period |
(2 | ) | (2 | ) | ||||
Stores at the end of period |
262 | 265 | ||||||
9
Results of Operations
The following table sets forth each line item of the Condensed Consolidated Statements of Income expressed as a percentage of our net sales (numbers may not add due to rounding):
13 Weeks
Ended
April 30, 2011 |
13 Weeks Ended
May 1, 2010 |
|||||||
Net sales |
100.0 | % | 100.0 | % | ||||
Cost of merchandise sold |
70.4 | 70.9 | ||||||
Gross profit |
29.6 | 29.1 | ||||||
Selling, general and administrative expenses |
23.7 | 23.8 | ||||||
Other income, net |
2.7 | 1.8 | ||||||
Income from operations |
8.6 | 7.0 | ||||||
Interest income, net |
| | ||||||
Income before income taxes |
8.6 | 7.0 | ||||||
Provision for income taxes |
3.4 | 2.3 | ||||||
Net income |
5.2 | % | 4.8 | % | ||||
Quarter Ended April 30, 2011 Compared to the Quarter ended May 1, 2010
Net sales for the first quarter of 2011 of $303.5 million increased 0.8 percent from $301.0 million in last years first quarter. The $2.5 million sales increase is net of a $3.6 million decrease in sales for two stores closed in 2011 and five stores closed in 2010. The sales increase was driven by increases in transactions, average units per transaction and average unit retail. We believe the increase is also attributable to expanding our assortment of designer and national brands and better editing of our assortment to fit our target customer.
Gross profit for the first quarter of 2011 was $89.9 million or 29.6 percent of net sales compared to $87.5 million or 29.1 percent of net sales for the first quarter of 2010. The $2.4 million increase is net of a $0.5 million decrease from closed stores. Gross profit dollars and as a percent of sales increased during the first quarter of 2011 as a result of lower markdowns and occupancy costs offset by an increase in buying costs.
Selling, general and administrative (SG&A) expenses were $72.0 million or 23.7 percent of net sales for the first quarter of 2011 compared to $71.6 million or 23.8 percent of net sales for the same 2010 period. We continued to maintain tight expense controls during the quarter. The slight increase in SG&A dollars includes a $0.9 million increase in advertising spend as we continue to enhance our marketing.
Other income for the first quarter of 2011 includes a pre-tax gain of $2.0 million to correct an error in our liability for credit card rewards earned under the Stein Mart MasterCard program. The error was due to inaccuracies in the data used to calculate breakage income for expired rewards in fiscal years 2008 through 2010 which overstated the rewards liability and understated income for those periods. This correction was not material to any previously reported period. Excluding the $2.0 million gain, other income increased to $6.3 million from $5.3 million for the first quarter of 2010. The $1.0 million increase includes higher income from the credit card program, leased shoe department and breakage on unused gift and merchandise return cards which we began recognizing during the second quarter of 2010.
The effective tax rate (ETR) for the first quarter of 2011 and 2010 was 39.3 percent and 32.3 percent, respectively. The ETR for the first quarter of 2010 was lower than the 2011 rate due to a benefit from the projected annual reduction in our valuation allowance for deferred taxes. This was the result of favorable changes in the book/tax differences that reduced deferred tax assets. We reversed the valuation allowance in the fourth quarter of 2010.
Inflation
Although we expect that our business will be influenced by general economic factors, we do not believe that inflation has had a material effect on our results of operations to-date. However, there can be no assurance that our business will not be affected in the future.
We are beginning to see some merchandise price increases from vendors in the single-digit percentage range and expect to experience high single to low double-digit percentage increases in some categories in the second half of the year. Our goal is to continue to deliver distinctive fashion at competitive prices to our customers. To that end, we continue to work with our vendors to mitigate the impact of price increases through design changes, while upgrading the value of our offerings.
Liquidity and Capital Resources
Our primary source of liquidity is the sale of merchandise inventories. Capital requirements and working capital needs are funded through a combination of internally generated funds, available cash, credit terms from vendors and a revolving credit facility. Working capital is needed to support store inventories and capital investments for system improvements, new store openings and to maintain existing stores. Historically, our working capital needs are lowest in the first quarter and highest at the end of the third quarter and beginning of the fourth
10
quarter as we build inventories for the holiday selling season. As of April 30, 2011, we had $94.2 million in cash and cash equivalents and no direct borrowings on our revolving credit facility.
Net cash provided by operating activities was $17.3 million for the first quarter of 2011 compared to net cash used in operating activities of $0.9 million for the first quarter of 2010. More cash was provided by operating activities during the first quarter of 2011 compared to the first quarter of 2010 primarily due to $11.9 million less cash used for inventories and accounts payable and $6.7 million more cash provided by net income plus non-cash charges, offset by $0.4 million less cash provided by other operating activities. Although both inventories and accounts payable balances were higher at the end of the first quarter this year compared to the end of the first quarter last year, accounts payable increased more than inventories due to lengthening payment terms in the first quarter of 2011 to be more consistent with industry practices. The increase in inventories at the end of the first quarter this year resulted from higher basic replenishment and year-round merchandise, lower than expected sales in April 2011 and increased opportunistic purchases for next season. We will continue our focus on inventory freshness and expect inventories to be more in line with sales performance at the end of the second quarter.
Net cash used in investing activities was $5.4 million for the first quarter of 2011 compared to $8.9 million for the first quarter of 2010. Capital expenditures are planned at approximately $30 to $35 million for 2011 compared to $30 million in 2010. Approximately $20 million is for information systems improvements, with the largest portion for our new merchandise information system scheduled for implementation later this year. The remaining capital amounts are for improvements in our point-of-sale system, including replacing hardware, and opening, relocating and remodeling stores. We are planning upgrades to fitting rooms, lighting, flooring and fixtures in 10 to 15 percent of our stores.
Net cash provided by financing activities increased to $2.1 million for the first quarter of 2011 compared to $0.4 million for the first quarter of 2010 due to more proceeds from exercise of stock options.
We have a $150 million senior revolving secured credit agreement (the Agreement) with a group of lenders which extends through January 2012. We expect to enter into a new credit agreement before the end of fiscal 2011. Reserves, as defined in the Agreement, reduced availability as of April 30, 2011 to $143.3 million. Availability was further reduced by outstanding letters of credit of $8.6 million to $134.7 million available for borrowings. We had no direct borrowings at April 30, 2011, and are in compliance with the terms of the Agreement.
We believe that we will generate positive cash flow from operations on a full year basis, which, along with our available cash and borrowing capacity under the revolving credit agreement, will provide the means needed to fund our operations for the foreseeable future.
Recent Accounting Pronouncements
In October 2009, the Financial Accounting Standards Board issued guidance impacting the determination of when individual deliverables included in an arrangement with multiple deliverables may be treated as separate units of accounting. The guidance, which was incorporated into Accounting Standards Codification (ASC) Topic 605, Revenue Recognition , eliminates the residual method of allocation for multiple-deliverable revenue arrangements, and requires that arrangement consideration be allocated to deliverables using the relative selling price method. This guidance is effective for fiscal years beginning on or after June 15, 2010, however early adoption is permitted. We use this guidance to account for our Co-Brand Credit Card Consumer Program Agreement.
The adoption of this guidance on January 30, 2011 had no effect on our consolidated financial statements as it did not change the manner in which we designate units of accounting or allocate arrangement consideration to the delivered items because the selling prices of our deliverables, which is the principal change in the guidance, approximates fair value.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
For information regarding our exposure to certain market risk, see Quantitative and Qualitative Disclosures About Market Risk in Part II, Item 7A of our Form 10-K for the year ended January 29, 2011, filed with the Securities and Exchange Commission on April 1, 2011. There were no material changes to our market risk during the quarter ended April 30, 2011.
ITEM 4. | CONTROLS AND PROCEDURES |
Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of April 30, 2011 to provide reasonable assurance that the objectives of disclosure controls and procedures are met.
11
There were no changes in the Companys internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
The following table provides information regarding repurchases of our common stock during the quarter ended April 30, 2011:
ISSUER PURCHASES OF EQUITY SECURITIES |
||||||||||||||||
Period |
Total
number of shares purchased |
Average
price paid per share |
Total number of
shares purchased as part of publicly announced plans or programs (1) |
Maximum number of
shares that may yet be purchased under the plans or programs (1) |
||||||||||||
January 30, 2011 February 26, 2011 |
1,472 | $ | 8.09 | 1,472 | 617,988 | |||||||||||
February 27, 2011 April 2, 2011 |
964 | 10.01 | 964 | 617,024 | ||||||||||||
April 3, 2011 April 30, 2011 |
3,172 | 10.38 | 3,172 | 613,852 | ||||||||||||
Total |
5,608 | $ | 9.72 | 5,608 | 613,852 | |||||||||||
(1) | Our Open Market Repurchase Program is conducted pursuant to authorizations made from time to time by our Board of Directors. The shares reported in this table are covered by an April 17, 2007 Board authorization to repurchase 2.5 million shares of common stock and a December 14, 2010 Board authorization to repurchase 700,000 shares of common stock, neither of which have an expiration date. This quarters repurchases are related to taxes due on the vesting of employee stock awards which fall under the repurchase program. |
ITEM 6. | EXHIBITS |
10.1 Law Firm Engagement Agreement with Stein Mart, Inc. |
31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a) 31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) |
32.1 Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 |
32.2 Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
STEIN MART, INC. | ||||
Date: June 8, 2011 | By: |
/s/ David H. Stovall, Jr. |
||
David H. Stovall, Jr. | ||||
President and Chief Executive Officer | ||||
/s/ Gregory W. Kleffner |
||||
Gregory W. Kleffner | ||||
Executive Vice President and Chief Financial Officer |
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Exhibit 10.1
LAW FIRM ENGAGEMENT
AGREEMENT
WITH
STEIN MART, INC.
This Agreement (this Agreement ) entered into in the City of Jacksonville and State of Florida between Stein Mart, Inc ., a Florida corporation and its divisions, subsidiaries and affiliates (the Company ), and KIRSCHNER & LEGLER, P.A. (which, together with its president, Mitchell W. Legler, Legler, and with Legler and Kirschner & Legler, P.A. collectively called the Firm ), is made as of April 1, 2011 (the Effective Date ).
In consideration of the promises and mutual covenants contained herein, the parties, intending to be legally bound, agree as follows:
SECTION | 1. TERM OF ENGAGEMENT |
(a) | Term . The Company agrees to employ the Firm, and the Firm agrees to be employed by the Company, for a period of two (2) year(s) beginning on the Effective Date (the Term). |
SECTION | 2. DEFINITIONS |
Board of Directors means the Board of Directors of Stein Mart, Inc. and any of its divisions, affiliates or subsidiaries.
Cause means the occurrence of any one or more of the following:
(a) | the Firm has been convicted of, or pleads guilty or nolo contendere to, a felony involving dishonesty, theft, misappropriation, embezzlement, fraud crimes against property or person, or moral turpitude which negatively impacts the Company; or |
(b) | the Firm intentionally furnishes materially false, misleading, or omissive information concerning a substantial matter to the Company or persons to whom the Firm reports; or |
(c) | the Firm intentionally fails to fulfill any assigned responsibilities for compliance with the Sarbanes-Oxley Act of 2002 or violates the same; or |
(d) | the Firm intentionally and wrongfully damages material assets of the Company; or |
(e) | the Firm intentionally and wrongfully discloses material Confidential Information of the Company; or |
(f) | the Firm intentionally and wrongfully engages in any competitive activity which would constitute a material breach of the duty of loyalty; or |
(g) | the Firm intentionally breaches any stated material policy or any material provision of the Companys Ethics Policy which could reasonably be expected to expose the Company to liability, or |
(h) | the Firm intentionally commits a material breach of this Agreement, or |
(i) | the Firm intentionally engages in acts or omissions which constitute failure to follow reasonable and lawful directives of the Company, provided, however, that such acts or omissions are not cured within five (5) days following the Companys giving notice to the Firm that the Company considers such acts or omissions to be Cause under this Agreement. |
No act, or failure to act, on the part of the Firm shall be deemed intentional if it was due primarily to an error in judgment or negligence, but shall be deemed intentional only if done, or omitted to be done, by the Firm not in good faith and without reasonable belief that his action or omission was in or not opposed to the best interests of the Company. Failure to meet performance standards or objectives shall not constitute Cause for purposes hereof, nor shall actions or inactions taken or not taken by the firm in the good faith belief that such actions or inactions were required in order to comply with the Florida Bar Associations Code of Professional Conduct.
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Change in Control means the occurrence of any of the following: (a) the Board approves the sale of all or substantially all of the assets of the Company in a single transaction or series of related transactions; (b) the Company sells and/or one or more shareholders sells a sufficient amount of its capital stock (whether by tender offer, original issuance, or a single or series of related stock purchase and sale agreements and/or transactions) sufficient to confer on the purchaser or purchasers thereof (whether individually or a group acting in concert) beneficial ownership of at least 35% of the combined voting power of the voting securities of the Company; (c) the Company is party to a merger, consolidation or combination, other than any merger, consolidation or combination that would result in the holders of the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the Company (or such surviving entity) outstanding immediately after such merger, consolidation or combination; or (d) a majority of the board of directors consists of individuals who are not Continuing Directors (for this purpose, a Continuing Director is an individual who (i) was a director of the Company on January 1, 2010 or (ii) whose election or nomination as a director of the Company is approved by a vote of at least a majority of the directors then comprising the Continuing Directors). For purposes hereof, the definition of a Change of Control shall be construed and interpreted so as to comply with the definition contained in Code Section 409A.
Code means the Internal Revenue Code of 1986, as amended. Any reference to a specific provision of the Code shall be deemed to refer to any successor provision thereto and the regulations promulgated thereunder.
Commencement Date means the Effective Date.
Compensation Committee means the Companys Compensation Committee or, if no such committee exists, the term Compensation Committee shall mean the Companys Board of Directors.
Competing Business means any business which (i) at the time of determination, is substantially similar to the whole or a substantial part of the business conducted by the Company or any of its divisions or affiliates; (ii) at the time of determination, is operating a store or stores which, during its or their fiscal year preceding the determination, had aggregate net sales, including sales in leased and licensed departments, in excess of $10,000,000, if such store or any such stores is or are located in a city or within a radius of 25 miles from the outer limits of a city where the Company, or any of its divisions or affiliates, is operating a store or stores which, during their fiscal year preceding the determination, had aggregate net sales, including sales in leased and licensed departments, in excess of $10,000,000; and (iii) had aggregate net sales at all locations, including sales in leased and licensed departments and sales by its divisions and affiliates, during its fiscal year preceding that in which the Firm first rendered personal services thereto, in excess of $25,000,000.
Continuation Period means a period following the Termination Date of the Firms the Engagement with the company equal to:
(i) | twelve (12) months (a) following a termination by the Company due to a non-renewal of the Term of this Agreement under §5(a) hereof, or (b) following a termination by the Company without Cause or by the Firm for Good Reason under §5(b) hereof, or |
(ii) | twenty-four (24) months following a termination (a) by the Company without Cause following a Change in Control under §5(f)(i) hereof, or (b) by the Firm for Good Reason following a Change in Control under §5(b) as the definition of Good Reason is expanded in §5(b)(i) hereof |
Current Insurance Coverage means medical and dental insurance with coverage consistent with the lesser of (i) the coverage in effect at the Firms termination, or (ii) the coverage in effect from time to time as applied to persons in a Senior Vice President position with the Company at the time of termination.
Disability means the Leglers incapacity due to physical or mental illness or cause, which results in the Firm being unable to perform his duties with Company under this Agreement for a period of six (6) consecutive months. Any dispute as to disability shall be conclusively determined by written opinions rendered by two qualified physicians, one selected by the Firm, and one selected by Company; provided that if such opinions are conflicting, then such physicians shall select a mutually agreeable third physician whose opinion shall be conclusive and binding.
Earned Bonus means the bonus paid, if any, pursuant to the Companys incentive compensation plans in effect from time to time. Earned Bonus shall be prorated based on the ratio of the number of days during such year that the Firm was employed to 365.
Engagement means the Engagement of Kirschner & Legler, P.A. and Legler to perform legal services for the Company as provided in this Agreement.
Good Reason means the occurrence of any one or more of the following:
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(i) | a material and continuing failure to pay to the Firm compensation and benefits (as described in Section 4 ) that have been earned, if any, by the Firm, except failure to pay or provide compensation or benefits that are in dispute between the Company and the Firm unless such failure continues following the resolution of such dispute; or |
(ii) | a material reduction in the Firms compensation or benefits (as described in Section 4 ) which is materially more adverse to the Firm than similar reductions applicable to other executives of a similar level of status within the Company as the Firm; or |
(iii) | any failure by the Company to comply with any of the material provisions of this Agreement and which is not remedied by the Company within thirty (30) days after receipt of notice thereof given by the Firm; or |
(iv) | any requirement that the Firm perform duties that, in the good faith and reasonable professional judgment of the Firm, after consultation with the Board of Directors of the Company, are inconsistent with ethical or lawful business practices; or |
(v) | the Firms being required to relocate to a principal place of Engagement more than one-hundred (100) miles from his current principal place of Engagement in Jacksonville, Florida during the Term unless the Company shall pay all reasonable costs and expenses related thereto; or |
(vi) | if following a Change in Control only, there occurs a material change in the Firms duties, roles, or responsibilities. For purposes of this subsection, material change shall be of such a character that a reasonable person serving in a like or similar executive capacity would feel compelled to resign from the Engagement. Examples of material change include, but are not limited to substantial reduction of the Firms authority to make decisions relating to his or its business responsibilities; the Firm being required to assume or perform substantially greater responsibilities (without additional compensation) than previously required to perform; substantial reduction of the Firms responsibilities for personnel matters relating to his or her business operations; substantial alteration or change in the Firms work schedule; any restructuring or reassignment of any of the Firms responsibilities, in a manner that diminishes them or is materially adverse to the Firm, from that which was in effect at the time of the Change in Control; and other substantial changes in the Firms terms or conditions of Engagement not related to the Firms principal business responsibilities. Good Reason pursuant to this subsection shall not exist unless (a) the Firms material change has existed for a period of at least six months; (b) the Firm has consulted with management senior to the Firm and his or her supervisor, in a good faith effort to resolve the issues giving the Firm reason to believe a material change has occurred; and (c) the Firm gives written notice of the Firms resignation for Good Reason under this paragraph within eight months following the commencement of the material change. |
Termination Date means the date of the Firms termination of the Engagement, or if the Firm continues to provide services to Stein Mart, Inc. or its 409A affiliates following his termination of the Engagement, such later date as is considered a separation from service from Stein Mart, Inc. and its 409A affiliates within the meaning of Code Section 409A. For purposes of this Agreement, the Firms termination of the Engagement shall be presumed to occur when Stein Mart, Inc. and the Firm reasonably anticipate that no further services will be performed by the Firm for Stein Mart, Inc. and its 409A affiliates or that the level of bona fide services the Firm will perform as general counsel of Stein Mart, Inc. and its 409A affiliates will permanently decrease to no more than 20% of the average level of bona fide services performed by the Firm for Stein Mart, Inc. and its 409A affiliates over the immediately preceding 36-month period (or such lesser period of services). Whether the Firm has experienced a termination of the Engagement shall be determined by Stein Mart, Inc. in good faith and consistent with Section 409A of the Code to the extent such section is applicable to the Engagement.
SECTION 3. TITLE, POWERS AND RESPONSIBILITIES
(a) | Title . The Firm shall be general counsel to the Company and Legler shall have the status and authority of a Senior Vice-President of the Company or such other title as designated by the Chief the Firm Officer or the Companys Board of Directors. The Firm shall assume those duties on the Commencement Date. |
(b) | Powers and Responsibilities . |
(i) | The Firm shall use the Firms best efforts to faithfully perform the duties of the Engagement and shall perform such duties as are usually performed by a person serving in the Firms position with a business similar in size and scope as the Company and such other additional duties as may be prescribed from time to time by the Company which are reasonable and consistent with the Companys operations, and in accordance with all professional and ethical standards applicable to the Firm. Legler shall serve on such boards and in such offices of the Company or its subsidiaries as the Companys Board of Directors reasonably requests without additional compensation. |
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(ii) | The Firm, as a condition to the Engagement under this Agreement, represents and warrants that it can assume and fulfill responsibilities described in Section 3(b)(i) without any risk of violating any non-compete or other restrictive covenant or other agreement to which he is a party. During the Employment Term the Firm shall not enter into any agreement that would preclude, hinder or impair his ability to fulfill responsibilities described in Section 3(b)(i) specifically or this Agreement generally. |
SECTION 4. COMPENSATION AND BENEFITS
(a) | Annual Base Fee . The Firms base fee shall be $180,000.00 per year ( Annual Base Fee ) payable quarterly in advance based on the Companys fiscal quarters, which amount may be periodically reviewed at the discretion of the Company. |
(b) | Earned Bonus; Incentive Compensation . The Firm shall be eligible to receive an Earned Bonus. The Firm shall also be eligible to participate in such annual and long term incentive plans as are in effect from time to time as applicable to persons at the Senior Vice President level of authority and position. |
(c) | Limited Participation in Benefit Plans . The Firm shall not be entitled to receive any other benefits which a Senior Vice President would be eligible to receive except that Legler shall be entitled to participate in the Companys Current Insurance Coverage as though he were a Senior Vice President of the Company. For avoidance of doubt, the Firm will not participate in the companys Deferred Compensation Plan, 401K Plan, Split Dollar Insurance Plan or other benefit plans unless expressly incorporated into this Agreement. |
(d) | Stock Options . The Board of Directors, in its discretion, may grant rights to the Firm under the Stein Mart, Inc. Omnibus Plan (the Option Plan ) on terms set by the Board of Directors or the Compensation Committee. |
(e) | Expense Reimbursements . The Firm shall have the right to expense reimbursements in accordance with the Firms standard policy on expense reimbursements as in effect from time to time. |
(f) | Indemnification . If and to the extent Legler acts in a capacity as an officer or agent of the Company, with respect to his acts or failures to act in that capacity, the Firm shall be entitled to indemnification from the Company, and to liability insurance coverage (if any), on the same basis as other officers of the Company. The Firm shall be indemnified by Company, and Company shall pay the Firms related expenses when and as incurred, all to the full extent permitted by law. Subject to applicable law, the Company reserves the right to discontinue indemnification in the event the Company determines that the Firm has breached this Agreement or the Firm has advances, or intends to advance, a business or legal position contrary to the Companys interests. Notwithstanding the foregoing, the Firm shall not be entitled to any indemnification if a judgment or other final adjudication establishes that any act or omission of the Firm was material to the cause of action so adjudicated and that such act or omission constituted: (i) a criminal violation, unless the Firm had reasonable cause to believe that the Firms conduct was lawful or had no reasonable cause to believe that such conduct was unlawful, (ii) a transaction from which the Firm derived an improper personal benefit, or (iii) willful misconduct or a conscious disregard for the best interests of the Company. |
(g) | Limitation . The Company reserves the right to alter, modify, revise or eliminate any or all benefit plans and perquisites applicable to the Firm including, without limitation, the Annual Incentive Compensation Plan, the Long Term Incentive Compensation Plan and the Current Insurance Coverage; provided that any such change to the terms will apply to the Firm and similarly situated participants. |
SECTION 5. TERMINATION OF EMPLOYMENT
(a) |
General; Non-Renewal . The Board of Directors shall have the right to terminate the Firms Engagement and this Agreement at any time with or without Cause, and the Firm shall have the right to terminate the Engagement and this Agreement at any time with or without Good Reason; provided that obligations under this Section 5, Section 6 and Section 7 shall survive termination of the Agreement. The Board of Directors may delegate its powers to terminate the Firm to the persons to whom the Firm reports. In the event the Company elects not to renew the Firms the Engagement following the end of the Term with compensation and benefits not materially less advantageous to the Firm than those set forth in this Agreement, but the Firm is willing and able to enter into a renewal of this Agreement with compensation and benefits not materially less advantageous to the Firm than those set forth in this Agreement, then upon termination of the Firms the Engagement, (i) the Company shall pay the Firm its normal Annual Base Fee |
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over a six month following the Termination Date, and (ii) the Company shall continue until the end of the Continuation Period to maintain in effect for such the Firm at the Companys cost the Firms Current Insurance Coverage. |
(b) | Termination by Board of Directors without Cause or by the Firm for Good Reason . If (i) the Board of Directors terminates the Firms the Engagement without Cause, or (ii) the Firm resigns for Good Reason, then in either of those circumstances, the Companys only obligation to the Firm under this Agreement (except as provided in §5(f) hereof) shall be to pay the Firm its earned but unpaid Annual Base Fee, if any, pro-rated up to the Termination Date, plus 100% of the then total Annual Base Fee as specified in Section 4(a) payable in periodic payments for twelve (12) consecutive months beginning on the Termination Date. During the Continuation Period Legler shall also continue to receive, at the Companys cost, the Current Insurance Coverage. |
(c) | Termination by the Board of Directors for Cause or by the Firm without Good Reason . If the Board of Directors of the Company terminates the Firms Engagement for Cause or the Firm resigns without Good Reason, the Companys only obligation to the Firm under this Agreement shall be to pay the Firm its earned but unpaid Annual Base Fee, if any, pro-rata up to the date of his termination of the Engagement, and the Company shall have no obligation to pay any Earned Bonus with respect to the year during which the Termination Date occurs. |
(d) | Termination for Disability . Subject to the definitions and requirements of Section 2 (Disability), after six (6) consecutive months of such disability leave of absence by Legler, the Firms service may be terminated by Company. In the event the Firm is terminated from the Engagement due to Disability, the Company shall: |
(i) | pay the Firm its Annual Base Fee pro-rata through the end of the month in which the Engagement terminates as soon as practicable after his the Engagement terminates; |
(ii) | pay the Firm its Earned Bonus, pro rata and if any, for the fiscal year in which such termination of the Engagement occurs, which amount shall be paid at the same time the Earned Bonus would have been paid had the Firm remained in the Engagement; |
(iii) | pay the Firm an additional nine (9) months of compensation at then-Annual Base Fee, which aggregate amount shall be payable in equal semi-monthly installments beginning on the Termination Date and continuing for nine (9) months thereafter; |
(iv) | pay premiums for COBRA coverage as provided in Section 5(g); and |
(v) | in the event the Firm has any options or restricted shares (but excluding performance shares which shall be governed by the terms set forth in the grant as to such shares) which are not vested on the date of termination for Disability, then pay to the Firm (i) as to any unvested options, the net value of the excess, if any, of the closing price of the Companys shares on the NASDAQ for the day on which the termination due to Disability occurs and the exercise price of such unvested options multiplied by the number of shares subject to options which failed to vest; and (ii) as to any unvested restricted shares, the value of the closing price of the Companys shares on the NASDAQ for the day on which the termination due to Disability occurs multiplied by the number of restricted shares, if any, which failed to vest due to such termination of the Engagement for Disability. |
Notwithstanding Leglers Disability, during the period of Disability leave, the Firm shall be paid in full (net of insurance) as if he were actively performing services. During the period of such Disability leave of absence, the Board of Directors may designate another person or law firm to perform the Firms duties. The Firm shall have the right to return to full-time service so long as Legler is able to resume and faithfully perform his full-time duties.
(e) | Death . If the Firms the Engagement terminates as a result of Leglers death, the Company shall: |
(i) | pay to the Firms its Annual Base Fee pro-rata through the end of the month in which his the Engagement terminates as soon as practicable after his death; |
(ii) | pay to the Firms its Earned Bonus, when actually determined, for the year in which the Firms death occurs; and |
(iii) | in the event the Firm has any options or restricted shares (but excluding performance shares which shall be governed by the terms set forth in the grant as to such shares) which are not vested on the date of termination for death, then pay to the Firms (i) as to any unvested options, the net value of the excess, if any, of the closing price of the Companys shares on the NASDAQ for the day on which the death occurred and the exercise price of such unvested options multiplied by the number of shares subject to options which failed to vest; and (ii) as to any unvested restricted shares, the value of the closing price of the Companys shares on the NASDAQ for the day on which the death occurred multiplied by the number of restricted shares, if any, which failed to vest due to such termination of the Engagement for death. |
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Any amounts payable to the Firm under this Agreement which are unpaid at the date of the Leglers death or payable hereunder or otherwise by reason of his death, shall be paid in accordance with the terms of this Agreement to the Firms estate.
(f) | Change in Control . If a Change in Control occurs, then for a period beginning on the occurrence of the Change in Control and ending two years following that occurrence (the Post Change in Control Period ): |
(i) | In addition to the other events constituting Good Reason under this Agreement, the following shall also constitute Good Reason: if the Firm is willing and able to continue the Engagement with the Company but the Company exercises its right to either not renew this Agreement, or only offers to renew this Agreement only under conditions or terms which would constitute a material change (as that term is defined in the definition of Good Reason), provided, however, that notice of exercise of the Firms termination for Good Reason must be received by the Company during the Post Change in Control Period and not later than thirty (30) days after the Company exercises its right not to renew this Agreement or to renew the Agreement only on terms which would constitute a material change ; and |
(ii) | In the event of termination of the Firms the Engagement with the Company pursuant to §5(b) hereof either by the Company without Cause, or by the Firm for Good Reason (as such term is expanded to include the circumstances described in §5(f)(i) above), with notice of such termination given within the Post Change in Control Period, then the Firm shall receive the following (the CIC Severance Payments ) in a lump sum payable in funds immediately available in Jacksonville, Florida on the Termination Date: an amount equal to 200% of the sum of (A) the total of severance payments (other than continued insurance coverage) provided under §5(b) of this agreement (and in lieu thereof), and (B) the Earned Bonus in the year of the Termination Date. For purposes of this subsection (f) Earned Bonus shall not be prorated and shall be an amount equal to Target bonus as defined in the Companys incentive compensation plan in effect from time to time. |
(g) | Benefit Continuation . Provided Legler is eligible for COBRA coverage, and has not been terminated from the Engagement for Cause or resigned without Good Reason, then the Company shall pay Leglers COBRA premiums commencing on the date of the Firms termination of the Engagement and continuing for the applicable Continuation Period in order to continue Leglers health insurance coverage and maintain such coverage in effect; provided that following the end of the COBRA continuation period, if Leglers health insurance coverage is provided under a health plan that is subject to Code Section 105(h), benefits payable under such health plan shall comply with the requirements of Treasury Regulation Section 1.409A-3(i)(1)(iv) and, if necessary, the Company shall amend such health plan to comply therewith. |
(h) | Relinquishment of Corporate Positions . Legler shall automatically cease to be an officer and/or director of the Company and its affiliates as of his date of termination of the Engagement. |
(i) | Limitation. Anything in this Agreement to the contrary notwithstanding, the Firms entitlement to or payments under any other plan or agreement shall be limited to the extent necessary so that no payment to be made to the Firm on account of termination of his the Engagement with the Company will be subject to the excise tax imposed by Code Section 4999, but only if, by reason of such limitation, the Firms net after tax benefit shall exceed the net after tax benefit if such reduction were not made. Net after tax benefit shall mean (i) the sum of all payments and benefits that the Firm is then entitled to receive under any section of this Agreement or other plan or agreement that would constitute a parachute payment within the meaning of Section 280G of the Code, less (ii) the amount of federal income tax payable with respect to the payments and benefits described in clause (i) above calculated at the maximum marginal income tax rate for each year in which such payments and benefits shall be paid to the Firm (based upon the rate in effect for such year as set forth in the Code at the time of the first payment of the foregoing), less (iii) the amount of excise tax imposed with respect to the payments and benefits described in clause (i) above by Section 4999 of the Code. Any limitation under this Section 5(i) of the Firms entitlement to payments shall be made in the manner and in the order directed by the Firm. |
SECTION 6. COVENANTS BY EXECUTIVE
(a) |
Company Property . Upon the termination of the Firms Engagement for any reason, the Firm shall promptly return all Company Property which had been entrusted or made available to the Firm by the Company. Property means all records, files, memoranda, communication, reports, price lists, plans for current or prospective business operations, customer lists, drawings, plans, sketches, keys, codes, computer hardware and software and other property of any kind or description prepared, used or possessed by the Firm during the Firms the Engagement by the Company (and any duplicates of any such Property) together with any and all information, ideas, concepts, discoveries, processes, |
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intellectual property, inventions and the like conceived, made, developed or acquired at any time by the Firm individually or with others during the Firms the Engagement which relate to the Company or its products or services or operations. |
(b) | Trade Secrets . The Firm agrees that the Firm shall hold in a fiduciary capacity for the benefit of the Company and shall not directly or indirectly use or disclose any Trade Secret that the Firm may have acquired during the term of the Firms the Engagement by the Company for so long as such information remains a Trade Secret. Trade Secret means information, including, but not limited to, technical or non-technical data, a formula, a pattern, a compilation, a program, a device, a method, a technique, a drawing or a process that (1) derives economic value, actual or potential, from not being generally known to, and not being generally readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use and (2) is the subject of reasonable efforts by the Company to maintain its secrecy. This Section 6(b) is intended to provide rights to the Company which are in addition to, not in lieu of, those rights the Company has under the common law or applicable statutes for the protection of trade secrets. |
(c) | Confidential Information . During the Employment Term and continuing thereafter indefinitely, the Firm shall hold in a fiduciary capacity for the benefit of the Company, and shall not directly or indirectly use or disclose, any Confidential Information that the Firm may have acquired (whether or not developed or compiled by the Firm and whether or not the Firm is authorized to have access to such information) during the term of, and in the course of, or as a result of the Firms the Engagement by the Company without the prior written consent of the Board of Directors unless and except to the extent that such disclosure is (i) made in the ordinary course of the Firms performance of his duties under this Agreement or (ii) required by any subpoena or other legal process (in which event the Firm will give the Company prompt notice of such subpoena or other legal process in order to permit the Company to seek appropriate protective orders). Confidential Information means any secret, confidential or proprietary information possessed by the Company or any of its subsidiaries or affiliates, including, without limitation, trade secrets, customer or supplier lists, details of client or consultant contracts, current and anticipated customer requirements, pricing policies, price lists, market studies, business plans, operational methods, marketing plans or strategies, advertising campaigns, information regarding customers or suppliers, computer software programs (including object code and source code), data and documentation data, base technologies, systems, structures and architectures, inventions and ideas, past current and planned research and development, compilations, devices, methods, techniques, processes, financial information and data, business acquisition plans and new personnel acquisition plans and the terms and conditions of this Agreement that has not become generally available to the public. |
(d) |
Non-Competition . The Firm recognizes that his duties will entail the receipt of Trade Secrets and Confidential Information as defined in this Section 6. Those Trade Secrets and Confidential Information have been developed by the Company at substantial cost and constitute valuable and unique property of the Company. Accordingly, the Firm acknowledges that protection of Trade Secrets and Confidential Information is a legitimate business interest. The Firm agrees not to compete with the Company during the Employment Term and for a reasonable and limited period thereafter. Therefore, during the Employment Term and during the applicable Continuation Period thereafter (or, in the event of as termination for Cause by the Company or without Good Reason by the Firm, a period of two (2) years following the Termination Date), the Firm shall not have an investment of $100,000.00 or more in a Competing Business (as defined herein) and shall not render legal services to any such Competing Business in any manner, including, without limitation, as owner, partner, director, trustee, officer, employee, consultant or advisor thereof. If the Firm shall breach the covenants contained in this Non-Competition provision, the Company shall have no further obligation to make any payment to the Firm pursuant to this Agreement and may recover from the Firm all such damages as it may be entitled to at law or in equity. In addition, the Firm acknowledges that any such breach is likely to result in irreparable harm to the Company. The Company shall be entitled to specific performance of the covenants in this Section 6, including entry of a temporary restraining order in state or federal court, preliminary and permanent injunctive relief against activities in violation of this Section 6, or both, or other appropriate judicial remedy, writ or order, in addition to any damages and legal expenses which the Company may be legally entitled to recover. The Firm acknowledges and agrees that the covenants in this Section 6 shall be construed as agreements independent of any other provision of this Agreement or any other agreement between the Company and the Firm, and that the existence of any claim or cause of action by the Firm against the Company, whether predicated upon this Agreement or any other agreement, shall not constitute a defense to the enforcement by the Company of such covenants. The provisions of this subsection (d) shall not be applicable to the Firm if (i) the Firm is terminated from the Engagement without Cause, (ii) the Firm resigns from the Engagement for Good Reason, or (iii) the Company elects not to renew the Firms the Engagement following the end of the Term with compensation and benefits not materially less advantageous to the Firm than those set forth in this Agreement, but the Firm is willing and able to enter into a renewal |
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of this Agreement with compensation and benefits not materially less advantageous to the Firm than those set forth in this Agreement. |
(e) | Non-Solicitation . During the Employment Term and for a period of two years hereafter (such period is referred to as the No Recruit Period ), the Firm will not solicit, either directly or indirectly, any person that he or it knows or should reasonably know to be an employee of the Company, whether any such employees are now or hereafter through the No Recruit Period so employed or engaged to terminate their the Engagement with the Company. The foregoing is not intended to limit any legal rights or remedies that any employee of the Company may have under common law with regard to any interference by the Firm at any time with the contractual relationship the Company may have with any of its employees. |
(f) | Reasonable and Continuing Obligations . The Firm agrees that the Firms obligations under this Section 6 are obligations which will continue beyond the date the Firms the Engagement terminates and that such obligations are reasonable, fair and equitable in scope. The terms and duration are necessary to protect the Companys legitimate business interests and are a material inducement to the Company to enter into this Agreement. the Firm further acknowledges that the consideration for this Section 6 is his the Engagement or continued the Engagement. The Firm will not be paid any additional compensation during this Restricted Period for application or enforcement of the restrictive covenants contained in this Section 6. |
(g) | Work Product. The term Work Product includes any and all information, programs, concepts, processes, discoveries, improvements, formulas, know-how and inventions, in any form whatsoever, relating to the business or activities of the Company, or resulting from or suggested by any work developed by the Firm in connection with the Company, or by the Firm at the Companys request. The Firm acknowledges that all Work Product developed during the Term is property of the Company and accordingly, the Firm does hereby irrevocably assign all Work Product developed by the Firm to the Company and agrees: (a) to assign to the Company, free from any obligation of the Company to the Firm, all of the Firms right, title and interest in and to Work Product conceived, discovered, researched, or developed by the Firm either solely or jointly with others during the term of this Agreement and for three (3) months after the termination or nonrenewal of this Agreement; and (b) to disclose to the Company promptly and in writing such Work Product upon the Firms acquisition thereof. |
SECTION 7. MISCELLANEOUS
(a) | Notices . Notices and all other communications shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail. Notices to the Company shall be sent to: |
STEIN MART, INC
Attention: Chief Executive Officer
1200 Riverplace Boulevard, 10th Floor
Jacksonville, FL 32207
Facsimile: (904) 346-1297
Notices and communications to the Firm shall be sent to the address the Firm most recently provided to the Company.
(b) | No Waiver . No failure by either the Company or the Firm at any time to give notice of any breach by the other of, or to require compliance with, any condition or provision of this Agreement shall be deemed a waiver of any provisions or conditions of this Agreement. |
(c) | Governing Law . This Agreement shall be governed by Florida law without reference to the choice of law principles thereof. |
(d) |
Assignment . This Agreement shall be binding upon and inure to the benefit of the Company and any successor in interest to the Company or any segment of such business. The Company may assign this Agreement to any affiliate or successor that acquires all or substantially all of the assets and business of the Company or a majority of the voting interests of the Company. The Company will require any successor (whether direct or indirect, by operation of law, by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of Company) to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Company would be required to perform it if no such succession had taken place. As used in this Agreement, Company shall |
21
mean Company as defined above and, unless the context otherwise requires, any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. the Firms rights and obligations under this Agreement are personal and shall not be assigned or transferred. |
(e) | Other Agreements . This Agreement replaces and merges any and all previous agreements and understandings regarding all the terms and conditions of the Firms Engagement relationship with the Company, and this Agreement constitutes the entire agreement between the Company and the Firm with respect to such terms and conditions. |
(f) | Amendment . No amendment to this Agreement shall be effective unless it is in writing and signed by the Company and by the Firm. |
(g) | Invalidity and Severability . If any part of this Agreement is held by a court of competent jurisdiction to be invalid or otherwise unenforceable, the remaining part shall be unaffected and shall continue in full force and effect, and the invalid or otherwise unenforceable part shall be deemed not to be part of this Agreement. |
(h) | Litigation . In the event that either party to this Agreement institutes litigation against the other party to enforce his or its respective rights under this Agreement, each party shall pay its own costs and expenses incurred in connection with such litigation. As a material part of the consideration for this Agreement, BOTH PARTIES HERETO WAIVE ANY RIGHT TO A TRIAL BY A JURY in the event of any litigation arising from this Agreement. All legal actions arising out of or connected with this Agreement must be instituted solely in the Circuit Court of Duval County, Florida, or in the Federal District Court for the Middle District of Florida, Jacksonville Division, and all parties hereto do hereby agree to submit to the exclusive personal jurisdiction of such courts. Each of the parties hereby expressly and irrevocably submits to the jurisdiction of such courts for the purposes of any such action and expressly and irrevocably waives, to the fullest extent permitted by law, any objection which it may have or hereafter may have to the laying of venue of any such action brought in any such court and any claim that any such action has been brought in an inconvenient forum. |
(i) | Counterparts . This Agreement may be executed in counterparts each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. |
IN WITNESS WHEREOF, the Company and the Firm have executed this Agreement effective as of the Effective Date.
STEIN MART, INC. | KIRSCHNER & LEGLER, P.A. | |||
By: /s/ D. Hunt Hawkins |
By: /s/ Mitchell W. Legler |
|||
Name: D. Hunt Hawkins | Mitchell W. Legler, President | |||
Title: EVP, Chief Administrative Officer | ||||
Date: 3/29/11 | Date: 3/29/11 |
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Exhibit 31.1
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a)
I, David H. Stovall, Jr., certify that:
1. | I have reviewed this report on Form 10-Q of Stein Mart, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: June 8, 2011 |
/s/ David H. Stovall, Jr. |
|
David H. Stovall, Jr. | ||
President and Chief Executive Officer |
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Exhibit 31.2
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a)
I, Gregory W. Kleffner, certify that:
1. | I have reviewed this report on Form 10-Q of Stein Mart, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: June 8, 2011 |
/s/ Gregory W. Kleffner |
|||||
Gregory W. Kleffner | ||||||
Executive Vice President and Chief Financial Officer |
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Exhibit 32.1
Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
In connection with the Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2011 of Stein Mart, Inc. (the Form 10-Q), I, David H. Stovall, Jr., President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. | The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: June 8, 2011 |
/s/ David H. Stovall, Jr. |
|
David H. Stovall, Jr. | ||
President and Chief Executive Officer |
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Exhibit 32.2
Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
In connection with the Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2011 of Stein Mart, Inc. (the Form 10-Q), I, Gregory W. Kleffner, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. | The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: June 8, 2011 |
/s/ Gregory W. Kleffner |
|
Gregory W. Kleffner | ||
Executive Vice President and Chief Financial Officer |
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