UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended May 4, 1996
[ ] 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: 0-21360
Shoe Carnival, Inc.
(Exact name of registrant as specified in its charter)
Delaware 35-1736614
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
8233 Baumgart Road
Evansville, Indiana 47711
(Address of principal executive offices) (Zip Code)
(812) 867-6471
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if
changed since last report)
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 [ ]
Common Stock, $.10 par value, 13,018,588 shares outstanding as of May 31,
1996.
<PAGE> 1
Shoe Carnival, Inc.
Index to Financial Statements
Page
----
Part I Financial Information
Item 1 - Financial Statements (Unaudited)
Condensed Balance Sheets 3
Condensed Statements of Income 4
Condensed Statement of Shareholders' Equity 5
Condensed Statements of Cash Flows 6
Notes to Condensed Financial Statements 7-8
Item 2 - Management's Discussion and Analysis 9-12
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
2
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SHOE CARNIVAL, INC.
CONDENSED BALANCE SHEETS
Unaudited
May 4, February 3, April 29,
1996 1996 1995
--------- ---------- -----------
(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents $ 1,607 $ 900 $ 2,324
Accounts receivable 912 986 496
Notes receivable from shareholders 40 40 42
Merchandise inventories 61,197 62,699 69,828
Deferred income tax benefit 1,070 1,820 695
Other 3,622 4,660 1,968
-------- -------- --------
Total Current Assets 68,448 71,105 75,353
Property and equipment-net 31,044 31,160 31,254
-------- -------- --------
Total Assets $ 99,492 $102,265 $106,607
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 8,402 $ 12,783 $ 9,230
Accrued and other liabilities 7,491 7,504 5,147
Current portion of long-term debt 650 612 583
-------- -------- --------
Total Current Liabilities 16,543 20,899 14,960
Long-term debt 19,878 18,922 21,001
Deferred lease incentives 1,668 1,948 1,938
Deferred income taxes 911 925 1,664
-------- -------- --------
Total Liabilities 39,000 42,694 39,563
-------- -------- --------
Shareholders' Equity:
Common stock, $.10 par value, 50,000
shares authorized, 13,019 shares
and outstanding at May 4, 1996,
February 3, 1996 and April 29, 1995 1,302 1,302 1,302
Additional paid-in capital 60,035 60,035 60,035
Retained earnings (deficit) (845) (1,766) 5,707
-------- -------- --------
Total Shareholders' Equity 60,492 59,571 67,044
-------- -------- --------
Total Liabilities and Shareholders'
Equity $ 99,492 $102,265 $106,607
======== ======== ========
See Notes to Condensed Financial Statements
3
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SHOE CARNIVAL, INC.
CONDENSED STATEMENTS OF INCOME
Unaudited
Thirteen Thirteen
Weeks Ended Weeks Ended
May 4, 1996 April 29, 1995
------------ --------------
(In thousands, except per share data)
Net sales $58,208 $55,063
Cost of sales (including buying, distribution
and occupancy costs) 41,859 40,868
------- -------
Gross profit 16,349 14,195
Selling, general and administrative expenses 14,349 13,233
------- -------
Operating income 2,000 962
Interest expense, net 439 483
------- -------
Income before income taxes 1,561 479
Income taxes 640 196
------- -------
Net income $ 921 $ 283
======= =======
Net income per share $ .07 $ .02
======= =======
Weighted average common shares and
common equivalent shares outstanding 13,019 13,023
======= =======
See Notes to Condensed Financial Statements
4
<PAGE> 4
SHOE CARNIVAL, INC.
CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
Unaudited
Common Stock Additional Retained
----------------- Paid-In Earnings
Shares Amount Capital (Deficit) Total
------ ------ ------- -------- -----
(In thousands)
Balance at February 3, 1996 13,019 $1,302 $60,035 $(1,766) $59,571
Net income 0 0 0 921 921
------ ------ ------- ------- -------
Balance at May 4, 1996 13,019 $1,302 $60,035 $ (845) $60,492
====== ====== ======= ======= =======
See Notes to Condensed Financial Statements
5
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SHOE CARNIVAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
Unaudited
Thirteen Thirteen
Weeks Ended Weeks Ended
May 4, 1996 April 29, 1995
------------- --------------
(In thousands)
Cash flows from operating activities:
Net income $ 921 $ 283
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,273 1,132
Loss on retirement of assets 48 0
Deferred income taxes 735 45
Other (41) (59)
Changes in operating assets and liabilities:
Merchandise inventories 1,503 542
Accounts receivable 74 65
Accounts payable and accrued liabilities (3,729) (263)
Other 1,036 1,485
------ -------
Net cash provided by operating activities 1,820 3,230
------ -------
Cash flows from investing activities:
Purchases of property and equipment (1,719) (1,444)
Notes from shareholders 0 32
Lease incentives (241) 294
Other 0 3
------ -------
Net cash used in investing activities (1,960) (1,115)
------ -------
Cash flows from financing activities:
Borrowings under lines of credit 67,525 25,600
Payments on lines of credit (66,525) (27,000)
Payments on capital lease obligations (153) (150)
------ ------
Net cash provided by (used in) financing
activities 847 (1,550)
------ ------
Net increase in cash and cash equivalents 707 565
Cash and cash equivalents at beginning of period 900 1,759
------ ------
Cash and cash equivalents at end of period $1,607 $2,324
====== ======
Supplemental disclosures of cash flow information:
Cash paid during period for interest $ 423 $ 513
Cash paid (refunded)during period for income taxes $(1,888) $ 196
Supplemental disclosure of noncash investing activities:
Capital lease obligations incurred $ 147 $ 110
See Notes to Condensed Financial Statements
6
<PAGE> 6
SHOE CARNIVAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Unaudited
Note 1 - Basis of Presentation
- - ------------------------------
In the opinion of management, the accompanying unaudited condensed
financial statements contain all adjustments necessary to present fairly the
financial position of the Company and the results of its operations and its
cash flows for the periods presented. Certain information and disclosures
normally included in notes to financial statements have been condensed or
omitted according to the rules and regulations of the Securities and Exchange
Commission, although the Company believes that the disclosures are adequate to
make the information presented not misleading.
The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the full year.
It is suggested that these financial statements be read in conjunction
with the financial statements and financial notes thereto included in the
Company's 1995 Annual Report.
Note 2 - Long-Term Debt
- - -----------------------
During fiscal 1995, the Company had an unsecured $40 million credit agreement
(the "Credit Agreement") with a bank group which provided for a $30 million
revolving line of credit and a $10 million line of credit reserved for the
issuance of letters of credit. The Company was in violation of certain
financial ratio covenants contained in the Credit Agreement for the year ended
February 3, 1996. These covenant violations were waived by the bank group on
April 3, 1996.
On April 10, 1996, the Credit Agreement, including the financial covenants
contained therein, was amended, reducing the total credit facility to $35
million. Sublimits for cash borrowings and letter of credit issuances were
eliminated under the amended Credit Agreement. Borrowings are based on
eligible inventory and bear interest, at the Company's option, at the agent
bank's prime rate or the applicable London Inter-Bank Offered Rate (LIBOR)
plus from 1.0% to 2.0%, depending on the Company's achievement of certain
performance criteria. A commitment fee of .25% per annum is charged on the
unused portion of the first $30 million of the bank group's commitment. The
Credit Agreement contains various restrictive and financial covenants,
including the maintenance of specific financial ratios, and a limitation on
the payment of dividends. The most restrictive covenant limits capital
expenditures to $8 million in fiscal 1996. The Company was in compliance with
all covenants in the amended agreement for the quarter ended May 4, 1996, and
expects to maintain compliance for the remainder of fiscal 1996. The Credit
Agreement expires on November 14, 1997.
7
<PAGE> 7
Note 3 - Restructuring Charge
- - -----------------------------
In the fourth quarters of 1995 and 1994, the Company recorded restructuring
charges related to its plan to close a total of nine unprofitable stores. Of
the nine stores, one was closed in January 1995, four in the first quarter of
1996 and two in May 1996. The remaining two stores are expected to be closed
during the remainder of 1996. An analysis of the amounts charged against the
reserve are outlined in the following table:
Thirteen
Weeks Ended
May 4, 1996
-------------
(In thousands)
Beginning restructuring reserve $3,468
Costs applied against reserve:
Store closing and lease termination costs (764)
Equipment and leasehold improvements
write-offs (662)
------
Ending restructuring reserve $2,042
======
In the aggregate, the eight stores expected to be closed in 1996 generated
sales of $9.6 million and operating losses of $1.8 million (including
depreciation expense of $375,000) during 1995. For the first quarter of 1996
these eight stores generated sales of $2.6 million compared to $2.2 million in
the first quarter of 1995. An aggregate loss of approximately $1 million was
incurred in the operations of the stores in the first quarter of 1996,
compared to an aggregate loss of approximately $300,000 incurred by these
stores in the first quarter of 1995.
Total cash expenditures of $1 million in the first quarter of 1996 consisted
of $764,000 for lease termination and store closing costs and $276,000 for the
repayment of lease incentives which were recorded as a deferred liability.
Expected cash requirements for the remainder of 1996 of $1.5 million are for
the lease termination and store closing costs of $1.3 million and for the
repayment of $200,000 of lease incentives.
The restructuring charges include management's best estimates of amounts
required to be paid for store closing and lease termination costs. The total
amount of the cash payments ultimately required could differ materially from
the amounts recorded.
8
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
----------------------------------------------
RESULTS OF OPERATIONS
- - ---------------------
Number of Stores Store Square Footage
------------------------------ --------------------
Beginning End Of Net End Comparable
Quarter Ended of Period Opened Closed Period Change of Period Store Sales
- - ------------- --------- ------ ------ ------ ------- --------- -----------
May 4,1996 95 2 4 93 (2,000) 1,022,000 (4.4%)
April 29,1995 86 3 0 89 30,000 962,000 (9.2%)
Restructuring
- - -------------
In the fourth quarter of 1995 the Company's management adopted a plan to close
eight unprofitable stores during its 1996 fiscal year. Four stores were
closed in the first quarter of 1996 and two additional stores were closed on
May 15, 1996. Sales generated by the eight stores which have either been
closed or are expected to be closed were $2.6 million in the first quarter of
1996, compared to $2.2 million in the first quarter of 1995. An aggregate
loss of approximately $1 million was incurred in the operation of these eight
stores in the first quarter of 1996, compared to an aggregate loss of
approximately $300,000 incurred by these stores in the first quarter of 1995.
The reserve established for expected restructuring costs was $3.5 million at
February 3, 1996. Costs incurred by the Company and applied against such
reserve were $1.4 million in the first quarter of 1996, including $662,000 for
the write-off of fixed assets. Cash expenditures for lease termination and
store closing costs and the repayment of lease incentives were $1.0 million in
the first quarter. (See Note 3 of Notes to Condensed Financial Statements)
The following table sets forth the Company's results of operations expressed
as a percentage of net sales for the periods indicated:
Thirteen Thirteen
Weeks Ended Weeks Ended
May 4, 1996 April 29, 1995
------------- --------------
Net sales 100.0% 100.0%
Cost of sales (including buying,
distribution and occupancy costs 71.9 74.2
------ ------
Gross profit 28.1 25.8
Selling, general and administrative
expenses 24.6 24.0
------ ------
Operating income 3.5 1.8
Interest expense .8 .9
------ ------
9
<PAGE> 9
Income before income taxes 2.7 .9
Income taxes 1.1 .4
------ ------
Net income 1.6% .5%
====== ======
Net Sales
- - ---------
Net sales increased $3.1 million to $58.2 million in the first quarter of
1996, a 5.7% increase over net sales of $55.1 million in the comparable prior
year period. The increase was attributable to sales generated by nine new
stores opened in 1995, two new stores opened in the first quarter of 1996, and
an increase in sales generated by stores in which the Company is conducting
store closing sales, partially offset by a comparable store sales decrease of
3.0% when compared to the thirteen week quarter ended April 29, 1995. Due to
the inclusion of 53 weeks in the Company's 1995 fiscal year, the ending date
of each quarter in 1996 is one week later than the ending date of each quarter
in 1995. On a comparable week basis, comparable store sales declined by 4.4%.
Comparable store sales results exclude in both years the sales generated by
stores the Company has either closed or expects to close in 1996.
Sales of private label and non-name brand footwear constituted 16.0% of total
footwear sales in the first quarter of 1996 as compared with 21.2% in the
prior year quarter. This reduction is due to the Company's strategy of
reducing the percentage of women's private label footwear inventory relative
to the total women's inventory.
Gross Profit
- - ------------
Gross profit increased $2.2 million to $16.4 million in the first quarter of
1996, a 15.2% increase over gross profit of $14.2 million in the comparable
prior year period. The Company's gross profit margin increased to 28.1% from
25.8%. As a percentage of sales, buying, distribution and occupancy costs
decreased 0.1%. The increase in merchandise gross profit margin of 2.2% of
sales resulted primarily from increased gross profit margins on the sale of
men's and women's private label footwear.
Selling, General and Administrative Expenses
- - --------------------------------------------
Selling, general and administrative expenses increased $1.1 million to $14.3
million in the first quarter of 1996 from $13.2 million in the comparable
prior year period. As a percentage of sales, these expenses increased 0.6% as
a result of higher store-level labor costs and the effect of the comparable
store sales decrease, partially offset by lower advertising costs. Total pre-
opening costs for the two stores opened in the first quarter of 1996 were
$240,000 or 0.4% of sales, as compared to $159,000 or 0.3% of sales, for the
three stores opened in the first quarter of 1995.
10
<PAGE> 10
Interest Expense
- - ----------------
The reduction in net interest expense to $439,000 in the first quarter of 1996
from $483,000 in the first quarter of 1995 resulted from a combination of
reduced borrowings and lower interest rates.
Income Taxes
- - ------------
The effective income tax rate of 41.0% in the first quarters of 1996 and 1995
differed from the statutory federal rates due primarily to state and local
income taxes, net of the federal tax benefit.
Liquidity and Capital Resources
- - -------------------------------
The Company's primary sources of funds are cash flows from operations and
borrowings under its revolving credit facility. Net cash provided by
operating activities was $1.8 million during the first quarter of 1996.
Excluding changes in operating assets and liabilities, cash provided by
operating activities was $2.9 million in the first quarter of 1996.
Working capital increased to $51.9 million at May 4, 1996 from $50.2 million
at February 3, 1996 and the current ratio improved to 4.1 to 1 from 3.4 to 1.
Long-term debt as a percentage of total capital was 24.7% at May 4, 1996,
compared to 24.1% at February 3, 1996.
Capital expenditures were $1.9 million in the first quarter of 1996 (including
$147,000 of capital lease assets). Of these expenditures, approximately
$817,000 was incurred for new stores. The remaining capital expenditures in
the first quarter of 1996 were primarily for the remodeling of certain stores
The Company intends to open approximately five stores in 1996, including the
two stores opened in the first quarter. Two stores are expected to be opened
in the second quarter of 1996. The Company opened three stores in the first
quarter of 1995 and no stores in the second quarter of 1995.
The actual amount of the Company's cash requirements for capital expenditures
depends in part on the number of new stores opened, the amount of lease
incentives, if any, received from landlords and the number of stores
remodeled. The opening of new stores will be dependent upon, among other
things, the availability of desirable locations, the negotiation of acceptable
lease terms and general economic and business conditions affecting consumer
spending in areas the Company targets for expansion.
The average inventory investment in a new store is expected to range from
$550,000 to $850,000, depending on the size and sales expectations of the
store and the timing of the new store opening. Capital expenditures for the
new stores are expected to average approximately $450,000, including point-of-
sale equipment which is generally acquired through equipment leasing
11
<PAGE> 11
transactions. In addition, pre-opening expenses, such as advertising,
salaries, supplies and utilities, typically average $60,000 to $70,000 per
store.
The Company's $35 million credit facility provides for a combination of cash
advances on a revolving basis and the issuance of commercial letters of
credit. Borrowings under the revolving credit line are based on eligible
inventory. Borrowings and letters of credit outstanding under this facility
at May 4, 1996 were $18.3 million and $4.3 million, respectively.
The credit agreement to which the credit facility is subject contains certain
restrictive and financial covenants, including the maintenance of specific
financial ratios and a limitation on the payment of dividends. The most
restrictive covenants limit capital expenditures to $8 million in fiscal 1996
and require a minimum net worth (as defined) of $59.5 million at the end of
the first and second quarters and $60.0 million at the end of the third and
fourth quarters of 1996. The Company was in compliance with all covenants at
May 4, 1996.
The Company anticipates that its existing cash and cash flow from operations,
supplemented by borrowings under the credit facility will be sufficient to
fund its planned expansion and other operating cash requirements for at least
the next 12 months.
Seasonality
- - -----------
The Company's quarterly results of operations have fluctuated, and are
expected to continue to fluctuate in the future primarily as a result of
seasonal variances and the timing of sales and costs associated with opening
new stores. Non-capital expenditures, such as advertising and payroll,
incurred prior to opening of a new store are charged to expense in the month
the store is opened. Therefore, the Company's results of operations may be
adversely affected in any quarter in which the Company opens new stores.
The Company has three distinct selling periods: Easter, back-to-school
and Christmas.
12
<PAGE> 12
SHOE CARNIVAL, INC.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(4) (viii) Fifth Amendment to Amended and (Page 15)
Restated Credit Agreement and Promissory
Notes dated April 10, 1996 (excluding
exhibits and schedules which will be
presented upon request)
(12) Financial Data Schedule (Page 25)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended May 4,
1996
13
<PAGE> 13
SHOE CARNIVAL, INC.
SIGNATURE
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.
Date: June 12, 1996 SHOE CARNIVAL, INC.
(Registrant)
By: /s/ W. Kerry Jackson
______________________
W. Kerry Jackson
Vice President - Controller
and Chief Accounting Officer
14
<PAGE> 14
FIFTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT, effective as of
the 10th day of April, 1996 is made by and between MERCANTILE BANK OF ST.
LOUIS NATIONAL ASSOCIATION ("Mercantile"), FIRSTAR BANK MILWAUKEE, N.A.
("Firstar"), HARRIS TRUST AND SAVINGS BANK ("Harris"), FIRST UNION NATIONAL
BANK OF FLORIDA ("First Union," and collectively with Mercantile, Firstar and
Harris referred to herein as the "Banks"), MERCANTILE BANK OF ST. LOUIS
NATIONAL ASSOCIATION, as Agent (in such capacity, the "Agent"), and SHOE
CARNIVAL, INC. ("Borrower").
WITNESSETH:
WHEREAS, Mercantile, Firstar, Harris and Borrower are parties to a certain
Amended and Restated Credit Agreement dated as of November 15, 1994, as
previously amended by such parties and First Union pursuant to an Amendment to
Amended and Restated Credit Agreement dated as of November 22, 1994, as
further amended by Banks, Agent and Borrower pursuant to a Second Amendment to
Amended and Restated Credit Agreement dated as of February 10, 1995, as
further amended by Banks, Agent and Borrower pursuant to a Third Amendment to
Amended and Restated Credit Agreement dated as of June 26, 1995 and as further
amended by Banks, Agent and Borrower pursuant to a Fourth Amendment to Amended
and Restated Credit Agreement dated as of November 15, 1995 (as amended, the
"Agreement"), pursuant to which Banks have agreed to loan Borrower such sums,
not to exceed $40,000,000.00 outstanding at any one time, as Borrower may
request from time to time, which obligations of Borrower are presently
evidenced by the Agreement and by a certain Amended and Restated Promissory
Note dated November 15, 1995 made by Borrower payable to the order of
Mercantile in the original principal amount of Twelve Million Dollars
($12,000,000.00), by a certain Amended and Restated Promissory Note dated
November 15, 1995 made by Borrower payable to the order of Firstar in the
original principal amount of Twelve Million Dollars ($12,000,000.00), by a
certain Promissory Note dated November 15, 1995 made by Borrower payable to
the order of First Union in the original principal amount of Eight Million
Dollars ($8,000,000.00) and by a certain Amended and Restated Promissory Note
dated November 15, 1995 made by Borrower payable to the order of Harris in the
original principal amount of Eight Million Dollars ($8,000,000.00) (as
amended, the "Notes");
WHEREAS, Borrower has requested certain waivers from Banks of its covenant
defaults as of Borrower's fiscal year ended February 3, 1996;
WHEREAS, Borrower and Banks wish to further amend the Agreement and the Notes
to reduce the maximum aggregate principal amount available thereunder to
$35,000,000.00, to change certain covenants contained in the Agreement and to
make certain other revisions to the Agreement as hereinafter set forth;
NOW, THEREFORE, in order to effect such amendments and in consideration of the
premises herein set forth, Borrower and Banks agree as follows:
Banks hereby agree to waive Borrower's noncompliance under Sections
5.1(e)(iii), 5.1(e)(iv) and 5.1(e)(v) of the Agreement for the fiscal quarter
ended February 3, 1996, and Banks further waive any default caused by such
<PAGE> 15
noncompliance under the Agreement for the fiscal quarter ending February 3,
1996. These waivers shall constitute waivers of the above-referenced
covenants only and only for the fiscal quarter ending February 3, 1996. Such
waivers shall not be deemed waivers of any other occurrence under the above-
referenced sections, as amended herein, or of any other provision contained in
the Agreement, nor shall they be deemed waivers of any other default or
noncompliance by Borrower under the Agreement for any period other than the
fiscal quarter ending February 3, 1996.
The definition of "Commitment" in Section 1.1 of the Agreement is hereby
amended to provide as follow:
"Commitment" means Thirty-Five Million Dollars ($35,000,000.00), and with
respect to each Bank, the amount specified as such Bank's Commitment and set
forth opposite the name of such Bank on the signature pages of that certain
Fifth Amendment to Amended and Restated Credit Agreement dated as of April 10,
1996 made by and among Borrower, Agent and Banks.
The definition of "Facility A Commitment" in Section 1.1 of the Agreement is
hereby amended to provide as follows:
"Facility A Commitment" means the amount of Thirty-Five Million Dollars
($35,000,000.00), and with respect to each Bank, shall mean such Bank's Pro
Rata Share of the Facility A Commitment.
The definition of "Tangible Net Worth" in Section 1.1 of the Agreement is
hereby deleted in its entirety and is left blank intentionally. All
references in the Agreement to the "Tangible Net Worth" of the Borrower are
hereby amended and deemed to refer to the Net Worth of the Borrower. The
definition of "Net Worth" in Section 1.1 of the Agreement is hereby amended to
provide as follows:
"Net Worth" of any Person means, at any date, the stockholders' equity of such
Person determined in accordance with generally accepted accounting principles,
consistently applied.
The definition of "Notes" in Section 1.1 of the Agreement is hereby amended to
provide as follows:
"Notes" mean the amended and restated promissory notes of Borrower in the form
of Exhibits A, B, C and I attached to that certain Fifth Amendment to Amended
and Restated Credit Agreement dated as of April 10, 1996, evidencing the
obligation of Borrower to repay the Loans and amounts outstanding under any
Reimbursement Agreements.
The Note of Borrower payable to the order of Mercantile shall hereafter be
amended and restated in the form of that Note attached to this Fifth Amendment
as Exhibit A and incorporated herein by reference. The Note of Borrower
payable to the order of Firstar shall hereafter be amended and restated in the
form of that Note attached to this Fifth Amendment as Exhibit B and
incorporated herein by reference. The Note of Borrower payable to the order
of Harris shall hereafter be amended and restated in the form of that Note
attached to this Fifth Amendment as Exhibit C and incorporated herein by
reference. The Note of Borrower payable to the order of First Union shall
<PAGE> 16
hereafter be amended and restated in the form of that Note attached to this
Fifth Amendment as Exhibit I and incorporated herein by reference. Hereafter,
all references in the Agreement and herein to the "Notes" shall be amended and
deemed to refer to the Amended and Restated Promissory Notes of Borrower in
favor of Mercantile, Firstar, Harris and First Union as attached hereto.
Section 2.1(a) of the Agreement is hereby amended to provide as follows:
Facility A. During the Term hereof, Banks agree, on the terms and conditions
set forth in this Agreement, to lend to Borrower from time to time their Pro
Rata Shares of Loans requested by Borrower, and Agent further agrees, subject
to the terms and conditions of this Agreement and of the applicable
Reimbursement Agreement, to issue its Letters of Credit for the account of
Borrower upon Borrower's application therefor, and each Bank agrees to accept
a risk participation in an amount equal to its Pro Rata Share of the from time
to time maximum outstanding amount of each such Letter of Credit issued under
this Section 2.1(a) and in Borrower's reimbursement obligation therefor and
any guaranties or other collateral security therefor. The aggregate principal
amount of all Loans at any one time outstanding under this Section 2.1(a)
shall not exceed the lesser of (i) the amount of the Facility A Commitment
minus the face amount of all Letters of Credit then outstanding under this
Section 2.1(a), or (ii) the Borrowing Base; provided, however, that no Bank
shall be required to advance any Loan and Agent shall not issue any Letter of
Credit requested by Borrower hereunder which, when added to the principal
amount of such Bank's then outstanding Loans and its risk participation in the
then outstanding Letters of Credit under this Section 2.1(a), would exceed the
amount of such Bank's Facility A Commitment. Borrower may borrow under this
Section, prepay under Section 2.8 and reborrow at any time during the Term
hereof under this Section subject to the terms of this Agreement. The failure
of any Bank to advance any requested Loan under this Agreement shall not
release any other Bank from its obligation to make any such Loan as provided
herein.
Facility B under the Agreement is being combined into Facility A as part of
this Fifth Amendment. The definition of "Facility B Commitment" is hereby
deleted in its entirety and is left blank intentionally. Section 2.1(b) of
the Agreement is hereby deleted in its entirety and is left blank
intentionally. All other references in the Agreement to Section 2.1(b), to
"Facility B," to the "Facility B Commitment" of the Banks or of any Bank and
all other references of similar import are hereby deleted in their entirety
and are left blank intentionally. All Letters of Credit or other obligations
of Borrower presently outstanding under Section 2.1(b) and Facility B are
henceforth deemed to have been obtained pursuant to Section 2.1(a) of the
Agreement under Facility A.
Section 2.1(c) of the Agreement is hereby amended to provide as follows:
For purposes of computing the amount of availability of Loans under the Banks'
Facility A Commitment, the Borrowing Base shall mean an amount equal to Fifty
Percent (50%) of the value of Eligible Inventory of Borrower (the "Borrowing
Base").
Section 2.1(d) of the Agreement is hereby amended to provide as follows:
<PAGE> 17
(d) Borrower shall deliver to Agent on the date of execution hereof (with
respect to the fiscal month ended January 1, 1994) and on the thirtieth (30th)
day following the end of each fiscal month thereafter commencing with the
fiscal month ending January 29, 1994, a borrowing base certificate in the form
of Exhibit E attached hereto and incorporated herein by reference (a
"Borrowing Base Certificate") setting forth:
The Borrowing Base and its components as of the end of the immediately
preceding month;
The aggregate principal amount of all outstanding Loans under Facility A; and
The difference, if any, between the Borrowing Base and the aggregate principal
amount of all outstanding Loans under Facility A.
The Borrowing Base shown in such Borrowing Base Certificate shall be and
remain the Borrowing Base hereunder until the next Borrowing Base Certificate
is delivered to Banks, at which time the Borrowing Base shall be the amount
shown in such subsequent Borrowing Base Certificate. Each Borrowing Base
Certificate shall be certified (subject to normal year-end adjustments) as to
truth and accuracy by the President, principal financial officer or principal
accounting officer of Borrower.
Section 2.1(e) of the Agreement is hereby amended to provide as follows:
(e) If at any time the Borrowing Base should be less than the aggregate
principal amount of all Loans outstanding under Section 2.1(a), whether as a
result of a reduction in the Borrowing Base or otherwise, Borrower shall be
automatically required (without demand or notice of any kind by Banks, all of
which are hereby expressly waived by Borrower) to immediately repay the Loans
in an amount sufficient to reduce such aggregate principal amount of Loans
outstanding to the amount of the then available Borrowing Base.
The definition of "Eurocurrency Margin" in Section 2.5(b) of the Agreement is
hereby deleted in its entirety, and in its place shall be substituted the
following:
"Eurocurrency Margin" applicable to any Interest Period means Two Percent
(2.00%) for any Interest Period commencing prior to the date upon which
Borrower delivers to Agent its fiscal quarter-end financial statements as
required under Section 5.1(a)(iii) for the fiscal quarter ending August 3,
1996, and for any Interest Period commencing after delivery of Borrower's
August 3, 1996 quarter-end financial statements, and each subsequent quarter-
end and year-end financial statements, shall be determined as follows: (i)
Two Percent (2.00%) for any Interest Period commencing after delivery of
Borrower's then most recent quarter-end or fiscal year-end financial
statements delivered to Banks pursuant to Sections 5.1(a)(i) or (iii), which
financial statements disclose the Borrower's ratio of Funded Debt to EBITDA
(as defined below) as of the end of the immediately preceding fiscal quarter
was greater than or equal to 1.50 to 1.0; (ii) One and One Half Percent
(1.50%) for any Interest Period commencing after delivery of Borrower's then
most recent quarter-end or fiscal year-end financial statements delivered to
Banks pursuant to Sections 5.1(a)(i) or (iii), which financial statements
disclose that Borrower's ratio of Funded Debt to EBITDA as of the end of the
<PAGE> 18
immediately preceding fiscal quarter was less than 1.50 to 1.0 but greater
than or equal to 1.25 to 1.0; and (iii) One Percent (1.00%) for any Interest
Period commencing after delivery of Borrower's then most recent quarter-end or
fiscal year-end financial statements delivered to Banks pursuant to Section
5.1(a)(i) or (iii), which financial statements disclose that Borrower's ratio
of Funded Debt to EBITDA as of the end of the immediately preceding fiscal
quarter was less than 1.25 to 1.0.
As used herein, the term "Funded Debt" at any date shall mean all Indebtedness
of Borrower for borrowed money as of such date, including, but not limited to,
all liabilities of Borrower under any Capitalized Leases. As used herein, the
term "EBITDA" as of any date shall mean Borrower's net income before taxes,
plus interest expense, plus depreciation, plus amortization, as determined in
accordance with generally accepted accounting principles consistently applied,
for that portion of Borrower's fiscal year to date as the date of such
calculation, annualized for a full fiscal year (i.e. multiplied by 365 and
divided by the number of days in the fiscal year to date period for which such
actual EBITDA amount has been calculated).
Section 2.6 of the Agreement is hereby amended to provide as follows:
2.6 Commitment Fee. Borrower shall pay to Agent for the benefit of Banks a
nonrefundable commitment fee of One-Fourth of One Percent (.25%) per annum
times the average daily difference between (i) the Facility A Commitment minus
Five Million Dollars ($5,000,000.00) and (ii) the principal amount of all
Loans plus the undrawn face amount of all Letters of Credit outstanding as of
each such day under Section 2.1(a) during the Term hereof. Said fee shall be
payable quarterly in arrears, on each April 30, July 30, October 30 and
January 30 during the Term hereof, and on the last day of the Term hereof.
Upon Agent's receipt of the Commitment Fee payable under this Section 2.6,
Agent shall promptly deliver to each Bank its Pro Rata Share of such
Commitment Fee actually received by Agent.
Section 5.1(e)(i) of the Agreement is hereby amended to provide as follows:
(e) Financial Covenants. Borrower will:
(I) Have a ratio of Total Liabilities to Net Worth of not more than 0.75 to
1 as of the end of Borrower's first fiscal quarter on May 4, 1996, not more
than 0.80 to 1 as of the end of Borrower's second fiscal quarter on August 3,
1996, not more than 0.65 to 1 as of the end of Borrower's third fiscal quarter
on November 2, 1996, and not more than 0.55 to 1 as of the end of Borrower's
fourth fiscal quarter on February 1, 1997. For purposes of this subsection
(i) only, "Total Liabilities" shall mean total liabilities, determined in
accordance with generally accepted accounting principles, consistently
applied.
Section 5.1(e)(ii) of the Agreement is hereby amended to provide as follows:
(ii) Borrower will maintain an Annualized Inventory Turnover, tested as of
the end of each of the following fiscal quarters, of at least the following:
<PAGE> 19
Fiscal Quarter Ended Annualized Inventory Turnover
- - -------------------- -----------------------------
May 4, 1996 2.50 times per year
August 3, 1996 2.40 times per year
November 2, 1996 2.50 times per year
February 1, 1997 2.60 times per year
"Annualized Inventory Turnover" shall mean Borrower's cost of goods sold for
that portion of Borrower's fiscal year to date as of the date of such
calculation, annualized for a full fiscal year (i.e. multiplied by 365 and
divided by the number of days in the fiscal year-to-date period for which such
cost of goods sold amount has been calculated), divided by Borrower's total
Inventory as of the date of any such calculation, valued at the lower of cost
or market (as set forth in Borrower's consolidated balance sheet) as of the
date of such calculation, all determined in accordance with generally accepted
accounting principles, consistently applied.
Section 5.1(e)(iii) of the Agreement is hereby amended to provide as follows:
(iii) Have a Net Worth of not less than $59,500,000.00 as of the end of
Borrower's first fiscal quarter on May 4, 1996, not less than $59,500,000.00
as of the end of Borrower's second fiscal quarter on August 3, 1996, not less
than $60,000,000.00 as of the end of Borrower's third fiscal quarter on
November 2, 1996, and not less than $60,000,000.00 as of the end of Borrower's
fourth fiscal quarter on February 1, 1997.
Section 5.1(e)(iv) of the Agreement is hereby amended to provide as follows:
(iv) Have a minimum year-to-date cumulative EBITDA at each of the fiscal
quarter-ends set forth below of not less than the amounts set forth opposite
such quarter-ends:
Fiscal Quarter Ended Minimum Cumulative EBITDA
- - -------------------- -------------------------
May 4, 1996 $2,500,000
August 3, 1996 $4,400,000
November 2, 1996 $8,700,000
February 1, 1997 $9,475,000
As used in this Section 5.1(e)(iv), the term "EBITDA" shall mean Borrower's
net income before taxes, plus interest expense, plus depreciation, plus
amortization, as determined in accordance with generally accepted accounting
principles consistently applied, for the year-to-date period ending on the
date of such calculation.
Section 5.1(e)(v) of the Agreement is hereby amended to provide as follows:
(v) Maintain Average Comparable Store Sales (1) as of the end of the fiscal
quarter ending May 4, 1996 which is not less than 95% of Average Comparable
Store Sales for the fiscal quarter ended April 29, 1995, and (2) as of the end
of each fiscal quarter thereafter during the Term hereof, which is not less
than 95% of Average Comparable Store Sales for the fiscal quarter ending as of
the same fiscal quarter end during the immediately preceding fiscal year.
<PAGE> 20
Section 5.2(c) of the Agreement is hereby amended to provide as follows:
(c) Sale of Property. Borrower will not sell, lease, transfer or otherwise
dispose of any Property or assets of Borrower except for sales of assets in
the ordinary course of business during Borrower's fiscal year 1996 which have
an aggregate book value of not more than $2,250,000.00 and except for sales of
assets in the ordinary course of business during any fiscal year thereafter
which have an aggregate book value of not more than $500,000.00;
A new Section 5.2(m) shall be added to the Agreement immediately following
Section 5.2(l) therein as follows:
(m) Capital Expenditures. Borrower shall not make or incur any obligation
to make any Capital Expenditures or enter into any Capitalized Leases in
excess of Eight Million Dollars ($8,000,000.00) in the aggregate for all such
obligations during the Borrower's fiscal year 1996.
Following delivery of Borrower's projections for its fiscal year 1997 pursuant
to Section 5.1(a)(vi) of the Agreement, Borrower and Banks shall agree prior
to April 1, 1997 to new ratios and/or amounts for the covenants contained in
Sections 5.1(e)(i) through (v) and Section 5.2(m) of the Agreement for the
fiscal quarters ending during fiscal year 1997. In the event Borrower and
Banks fail to agree to such new covenants on or before April 1, 1997, such
failure shall constitute an Event of Default hereunder, and shall entitle
Lender to exercise all of its rights and remedies under the Agreement and the
other transaction documents executed by Borrower in connection therewith.
Section 9.8 of the Agreement is hereby amended to provide as follows:
9.8 Amendments and Waivers. Any provision of this Agreement, the Notes or
any of the other Transaction Documents may be amended or waived if, but only
if, such amendment or waiver is in writing and is signed by Borrower and
Agent, which amendment or waiver Agent shall sign only upon the direction of
the Majority Banks; provided that no such amendment or waiver shall, unless
signed by all of the Banks, (i) increase the Commitment of any Bank, (ii)
change the Pro Rata Share of any of the Banks as to the Commitments or of the
aggregate unpaid principal amount of any Loan, (iii) reduce the principal of
or rate of interest on any Loan hereunder or any other amount payable
hereunder, (iv) postpone the date fixed for any payment of principal or
interest on any Loan hereunder, (v) amend Section 9.7 or this Section 9.8,
(vi) make any change in the Borrowing Base or its calculation, (vii) waive
compliance with or otherwise amend the cumulative EBITDA covenant contained in
Section 5.1(e)(iv) or (viii) amend the definition of Majority Banks.
The Compliance Certificate (as defined in the Agreement) attached as Exhibit D
to the Agreement, shall be amended and restated in the form of that certain
Compliance Certificate attached hereto as Exhibit D. All references in the
Agreement to the "Compliance Certificate" and other references of similar
import shall hereafter be amended and deemed to refer to the Compliance
Certificate in the form of that attached hereto as Exhibit D, which shall be
submitted by Borrower to Banks as required in the Agreement.
The Borrowing Base Certificate (as defined in the Agreement) attached as
Exhibit E to the Agreement, shall be amended and restated in the form of that
<PAGE> 21
certain Compliance Certificate attached hereto as Exhibit E. All references
in the Agreement to the "Borrowing Base Certificate" and other references of
similar import shall hereafter be amended and deemed to refer to the Borrowing
Base Certificate in the form of that attached hereto as Exhibit E, which shall
be submitted by Borrower to Banks as required in the Agreement.
Borrower agrees to pay to Agent for the benefit of Banks an amendment fee in
the amount of Seventy-Five Thousand Dollars ($75,000.00), which amendment fee
shall be due and payable on the date hereof and shall be shared between Banks
in accordance with their Pro Rata Shares. Banks hereby agree that no
additional fee shall be charged by Banks in connection with the establishment
of new covenant levels by Banks for Borrower's 1997 fiscal year as required by
Paragraph 18 above, or in the event Banks agree to increase the Commitments of
Banks under the Agreement prior to its current maturity of November 14, 1997.
Nothing contained herein shall obligate the Agent or any Bank to agree to any
increase of such Commitments or any renewal of the Agreement.
Borrower hereby represents and warrants to Agent and to Banks that:
The execution, delivery and performance by Borrower of this Fifth Amendment
are within the corporate powers of Borrower, have been duly authorized by all
necessary corporate action and require no action by or in respect of, or
filing with, any governmental or regulatory body, agency or official. The
execution, delivery and performance by Borrower of this Fifth Amendment do not
conflict with, or result in a breach of the terms, conditions or provisions
of, or constitute a default under or result in any violation of, and Borrower
is not now in default under or in violation of, the terms of the Articles of
Incorporation or Bylaws of Borrower, any applicable law, any rule, regulation,
order, writ, judgment or decree of any court or governmental or regulatory
agency or instrumentality, or any agreement or instrument to which Borrower is
a party or by which it is bound or to which it is subject;
This Fifth Amendment has been duly executed and delivered and constitutes the
legal, valid and binding obligation of Borrower enforceable in accordance with
its terms; and
As of the date hereof, all of the covenants, representations and warranties of
Borrower set forth in the Agreement are true and correct and no "Event of
Default" (as defined therein) under or within the meaning of the Agreement, as
hereby amended, has occurred and is continuing.
The Agreement, as hereby amended, and the Notes, as hereby amended, are and
shall remain the binding obligations of Borrower, and except to the extent
amended by this Fifth Amendment, all of the terms, provisions, conditions,
agreements, covenants, representations, warranties and powers contained in the
Agreement and the Notes shall be and remain in full force and effect and the
same are hereby ratified and confirmed.
All references in the Agreement to "this Agreement" and to the "Notes" and any
other references of similar import shall henceforth mean the Agreement or the
Notes, as the case may be, as amended by this Fifth Amendment. All references
in the Notes or other documents to "the Agreement" and to the "Notes" and any
other references of similar import shall henceforth mean the Agreement or the
Notes, as the case may be, as amended by this Fifth Amendment.
<PAGE> 22
This Fifth Amendment shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, except that
Borrower may not assign, transfer or delegate any of its rights or obligations
hereunder.
This Fifth Amendment is made solely for the benefit of Borrower, Agent and
Banks as set forth herein, and is not intended to be relied upon or enforced
by any other person or entity.
ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FOREBEAR
FROM ENFORCING REPAYMENT OF A DEBT, INCLUDING PROMISES TO EXTEND OR RENEW SUCH
DEBT, ARE NOT ENFORCEABLE. TO PROTECT BORROWER, AGENT AND BANKS FROM ANY
MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS REACHED BY BORROWER, AGENT
AND BANKS COVERING SUCH MATTERS ARE CONTAINED IN THIS FIFTH AMENDMENT, THE
NOTES AND THE AGREEMENT, WHICH CONSTITUTE A COMPLETE AND EXCLUSIVE STATEMENT
OF THE AGREEMENTS BETWEEN BORROWER, AGENT AND BANKS EXCEPT AS BORROWER, AGENT
AND BANKS MAY LATER AGREE IN WRITING TO MODIFY. THIS FIFTH AMENDMENT, THE
NOTES AND THE AGREEMENT EMBODY THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN
THE PARTIES HERETO AND SUPERSEDE ALL PRIOR AGREEMENTS AND UNDERSTANDINGS (ORAL
OR WRITTEN) RELATING TO THE SUBJECT MATTER HEREOF.
This Fifth Amendment shall be governed by and construed in accordance with the
internal laws of the State of Missouri.
In the event of any inconsistency or conflict between this Fifth Amendment and
the Agreement or the Notes, the terms, provisions and conditions of this Fifth
Amendment shall govern and control.
IN WITNESS WHEREOF the parties hereto have executed this Fifth Amendment to
Amended and Restated Credit Agreement and Promissory Notes as of the day and
year first above written on this 10th day of April, 1996.
SHOE CARNIVAL, INC.
By: /s/ Mark L. Lemond
-----------------------------------------
Mark L. Lemond, Executive Vice President
and Chief Financial Officer
Commitment: MERCANTILE BANK OF ST. LOUIS
NATIONAL ASSOCIATION
Facility A: $10,500,000.00 (30%)
By: /s/ Joseph L. Sooter, Jr.
-------------------------------------
Joseph L. Sooter, Jr., Vice President
<PAGE> 23
Commitment: FIRSTAR BANK MILWAUKEE, N.A.
Facility A: $10,500,000.00 (30%)
By: /s/ Douglas A. Gallun
---------------------------------
Douglas A. Gallun, Vice President
Commitment: HARRIS TRUST AND SAVINGS BANK
Facility A: $7,000,000.00 (20%)
By: /s/ Peter Krawchuk
------------------------------
Peter Krawchuk, Vice President
Commitment: FIRST UNION NATIONAL BANK OF FLORIDA
Facility A: $7,000,000.00 (20%)
By: /s/ Michael J. Carlin
----------------------------------------
Michael J. Carlin, Senior Vice President
MERCANTILE BANK OF ST. LOUIS
NATIONAL ASSOCIATION, AS AGENT
By: /s/ Joseph L. Sooter, Jr.
-------------------------------------
Joseph L. Sooter, Jr., Vice President
<PAGE> 24
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED FINANCIAL STATEMENTS FOR THE PERIOD ENDED MAY 4, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> MAY-04-1996
<CASH> 1,607
<SECURITIES> 0
<RECEIVABLES> 952
<ALLOWANCES> 0
<INVENTORY> 61,197
<CURRENT-ASSETS> 68,448
<PP&E> 45,219
<DEPRECIATION> 14,175
<TOTAL-ASSETS> 99,492
<CURRENT-LIABILITIES> 16,543
<BONDS> 19,878
0
0
<COMMON> 1,302
<OTHER-SE> 59,190
<TOTAL-LIABILITY-AND-EQUITY> 99,492
<SALES> 58,208
<TOTAL-REVENUES> 58,208
<CGS> 41,859
<TOTAL-COSTS> 41,859
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 439
<INCOME-PRETAX> 1,561
<INCOME-TAX> 640
<INCOME-CONTINUING> 921
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 921
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
