UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: January 29, 2000
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: 0-21360
SHOE CARNIVAL, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1736614
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8233 Baumgart Road
Evansville, Indiana 47725
(Address of principal executive offices) (Zip Code)
(812) 867-6471
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $. 01 PAR VALUE
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 if disclosure of delinquent filers pursuant of Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant based on the last sale price for such stock at March 29, 2000 was
approximately $67,914,797 (assuming solely for the purposes of this calculation
that all Directors and executive officers of the Registrant are "affiliates").
Number of Shares of Common Stock, $.01 par value, outstanding at April 14, 2000
was 12,948,206.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the Definitive Proxy Statement for the Annual
Meeting of Shareholders of Registrant to be held on June 8, 2000 is incorporated
by reference into Part III hereof.
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Shoe Carnival, Inc.
Evansville, Indiana
Annual Report to Securities and Exchange Commission
January 29, 2000
PART I
ITEM 1. BUSINESS
General
Shoe Carnival, Inc. (the "Company") is a high volume, value-oriented retailer of
family footwear operating predominately in the Midwest, South and Southeastern
regions of the United States. The Company adheres to a highly promotional
marketing concept that enables it to be competitive in the retail markets it
enters. The Company's stores are characterized by a high energy atmosphere
designed to encourage customer participation and provide a fun and exciting
shopping experience.
Business Strategy
The Company's goal is to establish itself as one of the nation's leading family
footwear retailers and the dominant footwear retailer in each market it serves.
To accomplish its goal, the Company provides a selection and variety of footwear
normally associated with a "category killer" superstore in an exciting retail
environment. In the 52 week period ended January 29, 2000 ("fiscal 1999"), the
average size, annual sales and sales per square foot for Shoe Carnival's stores
open the full year were approximately 11,500 square feet, $2.7 million and $238,
respectively, each substantially above the industry averages.
Management believes that shoppers prefer the value, convenience and selection of
the superstore retail format and that, as a result, superstores will continue to
grow and increase their market share at the expense of department stores, mass
merchandisers and traditional specialty retailers. This trend is evidenced by
the acceptance of superstores in other specialty niches, including, among
others, toys, office products, consumer electronics and do-it-yourself home
improvement. Management believes that the Company differentiates itself from its
competitors and gains significant competitive advantage through certain business
strategies which include:
Distinctive Retail Approach. The Company's stores are larger than
traditional shoe stores. The Company seeks to create a carnival-like
atmosphere in each of its stores by decorating with bright lights, colors
and neon signs, and by featuring an in-store "barker" who advertises
current specials, organizes contests and games, and assists and educates
customers with the features and location of merchandise. This exciting
in-store atmosphere is designed to encourage customer participation and
spontaneity, producing a sense of urgency to buy. Management believes this
highly promotional atmosphere results in various competitive advantages,
including increased multiple unit sales, the building of a loyal repeat
customer base and the creation of word-of-mouth advertising.
Broad Merchandise Assortment. The Company's merchandising strategy is to
provide superior value to its customers by offering a broad selection of
competitively priced name brand and private label merchandise. The average
store carries over 27,700 pairs of shoes in four general categories --
men's, women's, children's and athletics. The Company buys dress, casual
and athletic shoes as well as boots and sandals from a wide variety of
vendors. In addition to footwear, Shoe Carnival stores also carry selected
accessory items complimentary to the sale of footwear.
Emphasis on Value. Management believes that its wide selection of popular
styles of name brand merchandise at competitive prices generates broad
customer appeal. To supplement its name brand offerings, the Company has
established a private label program that offers the consumer quality
footwear at lower prices than name brand merchandise. Sales of private
label merchandise generally result in higher gross profit margins for the
Company than sales of name brand merchandise. The Company believes that
providing a wide selection of competitively priced name brand and quality
private label footwear provides superior value to its customers.
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Low Operating Costs. The Company's operating methods, cost control programs
and store locations are all designed to minimize operating costs.
Merchandise in the Company's stores is displayed by style and color on the
selling floor, enabling customers who so choose to serve themselves. This
approach, in conjunction with wage and inventory control programs, results
in lower labor costs than those incurred by department stores and
traditional shoe stores. In addition, the Company prefers to locate stores
predominantly in strip shopping centers, as opposed to enclosed malls, to
take advantage of the generally lower occupancy costs.
Competitive Pricing. The Company, as a result of its low-cost operating
structure and high volume, is able to price its merchandise below that of
traditional department stores and shoe store chains. The Company offers
value to customers with specialized promotions, competitive pricing and a
vast selection of name brand and private label merchandise.
Emphasis on Information Technology. The Company has invested significant
resources in information technology. The Company's systems are designed to
provide management with the timely information necessary to monitor and
control all phases of operations. Management is planning further
technological enhancements related to point-of-sale, purchasing and
inventory control, labor management and distribution, which should enable
the Company to better manage its operations.
Expansion Strategy
The majority of the Company's sale and earnings growth is expected to result
from the opening of new stores. 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 the areas the Company targets for
expansion. The Company's strategy is to expand into new markets and to
consolidate and improve its market share position in its existing markets
through the clustering of stores. Clustering involves the operation of multiple
locations in a particular metropolitan area or in several smaller markets
located in reasonable proximity to one another. Management believes this
strategy enables the Company to obtain economies of scale with respect to
advertising, distribution and management costs.
The Company plans to open 30 to 35 stores in 2000. Thereafter, the Company
intends to expand at a rate of approximately 20% to 25% per year. During fiscal
2000, new stores are expected to be located primarily in the North Central,
Midwest, Midsouth and Southeast. The Company intends to enter larger markets
(populations greater than 400,000) by opening two or more stores at
approximately the same time. In smaller markets that can only support a single
store, the Company will seek locations in reasonably close proximity to other
Company markets. This strategy allows for more efficient management and reduces
distribution costs. In addition to new market expansion and consistent with its
clustering approach, the Company has targeted certain of its existing markets
for additional new stores when appropriate store locations become available.
Although opening new stores in existing markets may adversely affect the sales
of existing stores, management believes that cost efficiencies and overall
incremental sales gains should more than offset any detrimental effect.
Prior to entering a new market, the Company performs a market, demographic and
competition analysis to evaluate the suitability of the potential market.
Potential store site selection criteria include, among other factors, market
demographics, traffic counts, the retail mix of a potential strip center,
visibility within the center and from major thoroughfares, overall retail
activity of the area and proposed lease terms. The time required to open a store
after signing a lease depends primarily upon the landlord's ability to deliver
the premises to the Company. Upon acceptance of the premises from the landlord,
the Company can generally open a store within 30 to 45 days.
Merchandising
The Company's merchandising strategy is designed to provide a very large
selection of quality family footwear at a price competitive with or slightly
below that of competitors. The Company's stores carry a broad assortment of
current season name brand footwear, supplemented with the Company's private
label merchandise and select name brand close-out merchandise.
The combination of name brand and private label footwear gives the Company a
merchandise assortment that enables it to compete effectively. The mix of
merchandise and the name brands offered in a particular store are based upon the
demographics of each market, among other factors. The Company typically offers
lower prices on both name brand and private label merchandise than department
stores and traditional shoe stores. Furthermore, the Company competes with
off-price retailers, mass merchandisers and discount stores by offering a wider
and deeper selection of merchandise at competitive prices. The Company's stores
also carry selected other merchandise such as handbags, wallets, shoe care
items, socks and sports apparel.
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Women's. The women's department offers current season name brand, branded
close-out and private label merchandise providing a wider selection than that of
most of the Company's competitors. This department is further segmented into
women's dress shoes, casual shoes, sandals, boots and sport shoes, thus covering
all facets of a woman's footwear needs.
Men's. The men's department offers primarily name brand footwear and is
segmented into men's dress shoes, casual shoes, sandals and boots. The Company's
stores offer a complete assortment of men's footwear at affordable prices. As in
the women's department, this assortment is supplemented with name brand
close-outs and private label products.
Children's. Children's footwear is segmented into dress shoes, casual shoes,
boots, athletic shoes, sandals and infant shoes, again offering a complete
selection of footwear for the child. Approximately 71% of the children's
business is done in the athletic shoe category.
Athletics. The men's and women's athletic business is divided into a number of
buying groups representing a complete assortment of athletic footwear. The
Company carries court shoes, fitness and aerobic shoes, leisure shoes, walking
shoes, running shoes and many specialty shoes such as cleats and soccer shoes.
The table below sets forth the Company's percentage of sales by product category
for fiscal 1999, 1998 and 1997.
1999 1998 1997
------ ------ ------
Women's 27.9% 27.4% 27.2%
Men's 17.4 17.5 16.9
Children's 15.6 16.2 16.4
Athletic 34.4 34.2 34.6
Accessories and Miscellaneous Items 4.7 4.7 4.9
------ ------ ------
100.0% 100.0% 100.0%
====== ====== ======
Pricing
The Company's pricing strategy is designed to emphasize value. Initial pricing
decisions are guided by gross profit margin targets which vary by merchandise
category and depend on whether the item is name brand or private label
merchandise. Markdowns are centrally managed by the buying staff through the use
of weekly sales and inventory analysis generated by the Company's management
information system.
In-store signage is used extensively to highlight special promotional markdowns
and to advertise markdowns to meet or beat competitors' sale prices.
Advertising and Promotion
In-store promotions are a key ingredient in the Company's marketing effort.
Although most in-store promotions are pre-planned, store managers are encouraged
to use their own creativity in devising on-the-spot promotional activities, such
as customer contests and games. The Company has several standardized promotions,
including a Spin-N-Win(TM) wheel, where a customer can win instant discounts,
and a "Money Machine," where randomly selected customers attempt to catch cash
and coupons during a 30-second period inside a transparent booth where cash and
coupons are blown furiously around them. Both of these promotions exemplify the
Company's emphasis on fun and excitement in order to enhance the customer's
total shopping experience.
The Company uses various forms of media advertising in conjunction with its
extensive in-store promotions. The focus of the Company's media advertising is
to communicate the exceptional value offered by the Company on name brand and
private label footwear. Print ads typically display a selection of special sale
items or desirable new products. Radio and television spots utilize an
entertaining format to capture the consumers attention while highlighting on
sale items or special promotions.
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The Company directs approximately 59% of its total advertising budget to
television and radio, but also utilizes print media (including newspaper inserts
and direct mail) and outdoor advertising. A special effort is made to utilize
the cooperative advertising dollars offered by vendors whenever possible. By
widely advertising through newspaper, television and radio prior to a grand
opening, the Company strives to make each new store opening a major retail
event. Major promotions during the grand openings and peak selling periods allow
customers to win prizes such as cruises, computers, merchandise or cash.
Store Operations
Management of store operations is the responsibility of the Company's Senior
Vice President - Store Operations, who is assisted by divisional managers,
regional managers and the individual store managers. The Company's store
management structure is flat relative to most other retailers. This permits the
Company to reduce management expense by eliminating the district manager
position and delegating more responsibility to store managers. Currently there
are two divisions designated as the North and South Divisions. The divisional
managers are currently responsible for eight and nine regions, but ultimately
are expected to manage between ten and fifteen regions. Each regional manager is
responsible for the operation of between six and thirteen stores and is required
to visit each store periodically, concentrating more heavily on under-performing
stores. Regional managers collectively meet with their respective divisional
manager on a monthly basis, except during peak sales periods, and quarterly with
the Senior Vice President - Store Operations and other members of senior
management to discuss Company strategies, merchandise, advertising, financial
performance and personnel requirements.
Each store has a store manager and one to four assistant managers, depending on
the sales volume of the store. The sales staff ranges from 2 to 63 employees
depending on the size of the store and the time of year. Store managers and most
assistant managers are paid a salary, while all other store employees are paid
on an hourly basis. The Company provides an incentive compensation plan for
virtually all employees. Regional and store manager incentive plans are based
primarily upon the sales and profitability of their respective stores as
compared to defined goals. Assistant store managers and other store employees
earn incentive compensation based on the store exceeding inventory shrinkage
goals.
Administrative functions are centrally controlled from corporate headquarters.
These functions include accounting, purchasing, store maintenance, information
systems, advertising, distribution and pricing. Regional and store managers are
expected and encouraged to provide feedback to all corporate departments to
improve efficiencies. Regional and store managers are charged with making
merchandising decisions necessary to maximize sales and profits primarily though
merchandise placement, signage and timely clearance of slower selling items.
The Company maintains inventory shrinkage rates (.4% of sales in fiscal 1999)
substantially below the retail industry average. Management attributes this
success to an in-store loss prevention staff, improved information reporting and
surveillance systems in many of the Company's stores. Management also believes
that tying incentive compensation for store employees to the achievement of
targeted shrinkage levels raises employee awareness of loss prevention.
Store Location and Design
The number of stores opened and closed for fiscal years 1999, 1998 and 1997 are
as follows:
Fiscal Year 1999 1998 1997
------ ------ ------
Stores open at beginning of year 111 92 93
Opened during year 28 20 4
Closed during year 1 1 5
------ ------ ------
Stores open at end of year 138 111 92
====== ====== ======
At January 29, 2000, the Company had 138 stores located in 20 states, primarily
in the Midwest, South and Southeastern regions of the United States. Although
five stores are located in enclosed malls, the Company prefers strip shopping
center locations, where occupancy costs are typically lower and the Company
enjoys greater operating freedom to implement its non-traditional retail
methods. Management feels that most consumers enjoy the convenience offered by
strip shopping centers as opposed to enclosed malls.
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All of the Company's stores are leased rather than owned. Management believes
that the flexibility afforded by leasing allows the Company to avoid the
inherent risk of owning real estate, particularly with respect to
under-performing stores. In a particular market, potential store site selection
criteria include, among other factors, market demographics, traffic counts, the
retail mix of a potential retail strip center, visibility within the center and
from major thoroughfares, overall retail activity of the area and proposed lease
terms.
The Company's stores are designed and fixtured to reflect the high energy level
of its retail concept and to convey a carnival-like atmosphere. Stores are
typically equipped with a sound system, microphone, "Money Machine" and
Spin-N-Win(TM) wheel. Open-stock inventories, neon signs, flashing colored
lights and large mirrors, striking fixtures and colorful carpet are utilized to
make the stores appear larger and more exciting. Merchandise is typically
displayed within a store by category, with athletic footwear (and licensed team
sports apparel in certain stores) generally located in the center of the store
to provide a transition between women's and men's footwear. Checkout counters
are located at the front of each store, supermarket style, to facilitate
high-volume throughput and minimize inventory shrinkage. The average store has
approximately five checkout lanes.
As of January 29, 2000, the Company's stores averaged approximately 11,500
square feet, ranging in size from 6,600 to 26,500 square feet, except for an
atypical mall store of approximately 2,100 square feet. Currently, the new store
prototype calls for between 12,000 and 15,000 square feet but stores in the
8,000 square foot range will be considered. The size of the stores is dependent
upon, among other factors, the location of the store and the population base the
store is expected to service. The sales area of most stores is approximately 85%
of the gross store size.
Capital expenditures for new stores are expected to average approximately
$350,000, including point-of-sale equipment which is generally acquired through
equipment leasing transactions. The average inventory in a new store is expected
to range from $450,000 to $750,000, depending on the size and sales expectation
of the store and the timing of the new store opening. Pre-opening expenses, such
as advertising, salaries, supplies and utilities are expected to average
approximately $80,000 per store.
Distribution
The Company operates a single distribution facility in Evansville, Indiana. A
92,000 square foot addition to the distribution center which began in the Fall
of 1998, was completed in 1999 at a total cost of $7.6 million. The expansion
doubled the size of the distribution center to 200,000 square feet and installed
state-of-the-art material handling, picking, sorting equipment and software. The
enhanced facility should result in operating efficiencies in the near future and
increase the Company's distribution capacity to at least 400 stores.
The distribution center processes virtually all merchandise prior to shipping to
the stores. At a minimum, this includes count verification, price and bar code
labeling of each unit, redistribution of an order into size assortments and
allocation of shipments to individual stores. Once a distribution order form is
received from the buying staff, the remainder of the distribution process,
including packing, allocating, storing and shipping is essentially paperless.
Merchandise is shipped to each store from one to two times a week, depending on
store volume, proximity to other stores and proximity to the distribution
center. The majority of shipments are handled by a dedicated carrier, with
occasional use of common carriers.
Management Information Systems
The Company has devoted significant resources to expand its sophisticated
information technology systems. The corporate computer network connects every
store, providing up-to-date sales and inventory information as required. Each
store has an independent point-of-sale controller, with two to 12 point-of-sale
terminals per store. To provide maximum flexibility and maintain data integrity,
the Company's information systems are based upon relational database technology.
The Company's distribution facility utilizes a spread spectrum radio frequency
network to assure accurate, real-time information throughout the distribution
operation. Each member of the buying and distribution staff has on-line access
to up-to-date sales and inventory information broken down by store, style,
color, size and width. Additional data analysis can be quickly provided on
demand by using either a fourth generation language programming tool or personal
computer tools that access the Company's database.
State of the art point-of-sales systems utilize bar code technology to capture
sales, gross margin and inventory information. The system provides, in addition
to other features, full price management (including price look-up), promotional
tracking capabilities (in support of the spontaneous nature of the in-store
price promotions), real-time margin analysis by product category at the store
level, check approval and customer tracking.
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Competition
The retail footwear business is highly competitive. The Company believes that
the principal competitive factors in its industry are merchandise selection,
price, fashion, quality, location, store environment and service. The Company
competes primarily with department stores, shoe stores, sporting goods stores
and mass merchandisers.
Many of the Company's competitors are significantly larger and have
substantially greater financial and other resources than the Company. However,
management believes that its distinctive retail format, in combination with its
wide merchandise selection, competitive prices and low operating costs, enable
the Company to compete effectively in each market that it enters.
Employees
At January 29, 2000, the Company had approximately 2,700 employees, of which
approximately 1,360 were employed on a part-time or seasonal basis. The number
of employees fluctuates during the year primarily due to seasonality. None of
the Company's employees is represented by a labor union.
Management attributes a large portion of the Company's success in various areas
of cost control to its inclusion of virtually all employees in incentive
compensation plans. The Company also contributes all or a portion of the cost of
medical, disability and life insurance coverage for those employees who are
eligible to participate in Company sponsored plans. All employees also receive
discounts on Company merchandise. The Company considers its relationship with
its employees to be satisfactory.
Trademarks
The Company owns the following federally registered trademarks and servicemarks:
Shoe Carnival(R), The Carnival(R), Nuff Said(R), Donna Lawrence(R), Oak
Meadow(R), Victoria Spenser(R), Chase and Brittany's(R), Via Nova(R), Fresh
Stuff(R), Innocence(R) and Carnival Lites(R). The Company believes its marks are
valuable and, accordingly, intends to maintain its marks and the related
registrations. The Company is not aware of any pending claims of infringement or
other challenges to the Company's right to use its marks.
ITEM 2. PROPERTIES
The Company leases all existing stores and intends to lease all future stores.
All leases for existing stores provide for fixed minimum rentals and most
provide for contingent rental payments based upon various specified percentages
of sales above minimum levels. Certain leases also contain escalator clauses for
increases in minimum rentals, operating costs and taxes.
The Company owns its headquarters and distribution center which are located at
8233 Baumgart Road, Evansville, Indiana. See ITEM 1 "Business--Distribution."
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings incidental to the conduct
of its business. Management does not expect that any such proceedings will have
a material adverse effect on the Company's financial position and results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders during the
fourth quarter of the 1999 fiscal year.
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Executive Officers of the Company
Name Age Position
- ------------------ --- -----------------------------------------------
J. Wayne Weaver 65 Chairman of the Board and Director
Mark L. Lemond 45 President, Chief Executive Officer and Director
Timothy T. Baker 43 Senior Vice President - Store Operations
Clifton E. Sifford 46 Senior Vice President - General Merchandise
Manager
W. Kerry Jackson 38 Vice President - Chief Financial Officer and
Treasurer
Mr. Weaver is the Company's principal shareholder and has served as Chairman of
the Board of the Company since March 1988. From 1978 until February 2, 1993, Mr.
Weaver had served as president and chief executive officer of Nine West Group
Inc., a designer, developer and marketer of women's footwear. He has over 40
years of experience in the footwear industry. Mr. Weaver is a former director of
Nine West Group Inc. Mr. Weaver serves as chairman and chief executive officer
of Jacksonville Jaguars, LTD and chairman and chief executive officer of LC
Footwear, LLC.
Mr. Lemond has been employed by the Company as President and Chief Executive
Officer since September 1996. From March 1988 to September 1996, Mr. Lemond
served as Executive Vice President, Chief Financial Officer, Treasurer and
Assistant Secretary. On February 3, 1994, Mr. Lemond was promoted to the
position of Chief Operating Officer. Mr. Lemond has served as a director of the
Company since March 1988. Prior to March 1988, he served in similar officer
capabilities with Russell's Shoe Biz, Inc. Prior to joining Russell's Shoe Biz,
Inc. in 1987, Mr. Lemond was a partner with a public accounting firm. He is a
Certified Public Accountant.
Mr. Baker has been employed by the Company as Vice President - Store Operations
since May 1992. Prior to that time, he served as a Regional Manager of the
Company. Mr. Baker was promoted to Senior Vice President on March 25, 1994. From
1983 to June 1989, Mr. Baker held various retail positions with Payless
ShoeSource.
Mr. Sifford has been employed by the Company as Senior Vice President - General
Merchandise Manager since April 13, 1997. Prior to joining the Company, Mr.
Sifford served as merchandise manager-shoes for Belk Store Services, Inc.
Mr. Jackson has been employed by the Company as Vice President - Chief Financial
Officer and Treasurer since September 1996. From January 1993 to September 1996,
Mr. Jackson served as Vice President - Controller and Chief Accounting Officer.
Prior to January 1993, Mr. Jackson held various accounting positions with the
Company. Prior to joining the Company in 1988, Mr. Jackson was associated with a
public accounting firm. He is a Certified Public Accountant.
Executive officers of the Company serve at the discretion of the Board of
Directors. There is no family relationship between any of the directors or
executive officers of the Company.
(Pursuant to General Instruction G(3) of Form 10-K, the foregoing information is
included as an unnumbered Item in Part I of this Annual Report in lieu of being
included in the Company's Proxy Statement for its 2000 Annual Meeting of
Shareholders.)
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock has been quoted on the Nasdaq Stock Market under the trading
symbol "SCVL" since March 16, 1993.
The quarterly high and low trading prices for 1999 and 1998 are as follows:
High Low
------- -------
Fiscal Year 1999
First Quarter $ 15.50 $ 8.88
Second Quarter 17.13 13.00
Third Quarter 13.31 8.50
Fourth Quarter 10.69 7.13
Fiscal Year 1998
First Quarter $ 12.75 $ 8.13
Second Quarter 15.00 10.06
Third Quarter 11.06 6.50
Fourth Quarter 11.31 8.50
As of April 14, 2000, there were approximately 266 holders of record of the
Common Stock.
The Company does not currently intend to pay cash dividends on its Common Stock
in the foreseeable future. The payment of any future dividends will be at the
discretion of the Company's Board of Directors and will depend upon, among other
things, future earnings, operations, capital requirements, the general financial
condition of the Company and general business conditions.
No unregistered equity securities were sold by the Company during fiscal 1999.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(In thousands, except share and operating data)
Fiscal years (1) 1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales $339,929 $280,157 $246,520 $233,945 $228,263
Cost of sales (including
buying,distribution and
occupancy costs) 238,097 196,141 173,953 168,814 176,019
-------- -------- -------- -------- --------
Gross profit 101,832 84,016 72,567 65,131 52,244
Selling, general and
administrative expenses 80,888 66,464 59,438 57,405 58,946
Restructuring (credit) charge (474) 3,282
-------- -------- -------- -------- --------
Operating income (loss) 20,944 17,552 13,129 8,200 (9,984)
Interest expense 1,010 507 912 1,242 1,626
-------- -------- -------- -------- --------
Income (loss) before income 19,934 17,045 12,217 6,958 (11,610)
taxes
Income tax expense (benefit) 7,973 6,818 4,826 2,818 (4,420)
-------- -------- -------- -------- --------
Net income (loss) $ 11,961 $ 10,227 $ 7,391 $ 4,140 $ (7,190)
======== ======== ======== ======== ========
Net income (loss) per share:
Basic (2) $ .90 $ .78 $ .57 $ .32 $ (.55)
Diluted (2) $ .88 $ .76 $ .56 $ .32 $ (.55)
Average shares outstanding:
Basic 13,284 13,150 13,049 13,023 13,019
Diluted 13,578 13,429 13,238 13,029 13,031
- -------------------------------------------------------------------------------
Selected Operating Data (3):
Stores open at end of period 138 111 92 93 95
Square footage of store space
at year end (000's) 1,590 1,274 1,021 1,026 1,024
Average sales per store (000's)$ 2,744 $ 2,791 $ 2,720 $ 2,543 $ 2,497
Average sales per square foot $ 238 $ 250 $ 245 $ 233 $ 230
Comparable store sales 1.4% 3.6% 6.1% (1.1%) (10.0%)
- -------------------------------------------------------------------------------
Balance Sheet Data:
Working capital $ 68,346 $ 47,668 $ 48,889 $ 45,090 $ 50,206
Total assets 162,853 120,761 96,201 93,926 102,265
Long-term debt and other
indebtedness 22,338 1,361 6,133 9,621 18,922
Total shareholders' equity 93,345 82,667 71,609 63,772 59,571
- -------------------------------------------------------------------------------
<FN>
(1) On February 9, 1995, the Company's Board of Directors approved a change in
the fiscal year to a 52/53 week year ending on the Saturday closest to
January 31. Unless otherwise stated, references to years 1999, 1998, 1997,
1996, and 1995 relate respectively to the fiscal years ended January 29,
2000, January 30, 1999, January 31, 1998, February 1, 1997, and February
3, 1996. Fiscal year 1995 consisted of 53 weeks and the other fiscal years
consisted of 52 weeks.
(2) Per share data has been restated for the adoption of SFAS 128.
(3) Selected Operating Data has been adjusted to a comparable 52 week basis
for 1995.
</FN>
</TABLE>
10
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company's fiscal year consists of a 52/53 week period ending on the Saturday
closest to January 31. Unless otherwise stated, references to the years 1999,
1998 and 1997 relate respectively to the fiscal years ended January 29, 2000,
January 30, 1999 and January 31, 1998. Each of the years presented consist of 52
weeks. The Company's fiscal year ending February 3, 2001 will consist of 53
weeks.
Results of Operations
The following table sets forth the Company's results of operations expressed as
a percentage of net sales for the following fiscal years:
1999 1998 1997
------ ------ ------
Net sales 100.0% 100.0% 100.0%
Cost of sales (including buying,
distribution and occupancy costs) 70.0 70.0 70.6
------ ------ ------
Gross profit 30.0 30.0 29.4
Selling, general and
administrative expenses 23.8 23.7 24.1
------ ------ ------
Operating income 6.2 6.3 5.3
Interest expense 0.3 0.2 0.3
------ ------ ------
Income before income taxes 5.9 6.1 5.0
Income tax expense 2.4 2.4 2.0
------ ------ ------
Net income 3.5% 3.7% 3.0%
====== ====== ======
1999 Compared to 1998
Net Sales
Net sales increased $59.8 million to $339.9 million in 1999, a 21.3% increase
over net sales of $280.2 million in 1998. The increase was attributable to the
sales generated by the 27 new stores in 1999 (net of one store closed), the
effect of a full year's worth of sales for the 19 new stores in 1998 (net of one
store closed) and a comparable store sales increase of 1.4%. Increases in
comparable store sales were realized in all major footwear categories with the
exception of the children's category. Average sales per square foot in stores
open the full year decreased to $238 in 1999 from $250 in 1998 due to the lower
sales productivity of stores opened in 1998. Average footwear unit prices in
comparable stores increased 1.8% for the year while footwear unit sales
decreased 0.3%.
Gross Profit
Gross profit increased $17.8 million to $101.8 million in 1999, a 21.2% increase
from gross profit of $84.0 million in 1998. The Company's gross profit margin
remained steady at 30.0% for the two years. As a percentage of sales, an
increase in the merchandise gross profit margin of 0.3% was offset by an
increase of 0.3% in buying, distribution and occupancy costs. The increase in
the buying, distribution and occupancy costs was largely the result of higher
distribution costs associated with inefficiencies experienced during the
expansion of the Company's distribution center. (See discussion of capital asset
acquisitions under "Liquidity and Capital Resources".)
11
<PAGE>
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $14.4 million to $80.9
million in 1999 from $66.5 million in 1998. As a percentage of sales, these
expenses increased 0.1% in 1999 primarily as a result of the higher advertising
costs. The Company's policy is to expense all non-capital pre-opening
expenditures as they are incurred. The aggregate of pre-opening expenses for the
28 new stores in 1999 was approximately $2.1 million, or 0.6% of sales, and $1.7
million, or 0.6% of sales for the 20 new stores in 1998.
Interest Expense
Net interest expense of $1.01 million in 1999 resulted from interest expense of
$1.04 million and interest income of $32,000. Net interest expense of $507,000
in 1998 resulted from interest expense of $553,000 and interest income of
$46,000. The increase in interest expense was attributable to higher average
debt balances in 1999. The weighted average interest rate on total debt was 7.3%
in 1999 and 8.5% in 1998.
Income Taxes
The effective income tax rate for 1999 and 1998 was 40%. The effective income
tax rate for both years differed from the statutory rate due primarily to state
and local income taxes, net of the federal tax benefit.
1998 Compared to 1997
Net Sales
Net sales increased $33.6 million to $280.2 million in 1998, a 13.6% increase
over net sales of $246.5 million in 1997. The increase was attributable to the
opening of 20 stores in 1998, the effect of a full year's worth of sales for the
four stores in 1997 and a comparable store sales increase of 3.6%. Increases in
comparable store sales were realized in all major footwear categories with the
exception of the women's category which was even for the year. Average sales per
square foot in stores open the full year increased to $250 in 1998 from $245 in
1997.
Gross Profit
Gross profit increased $11.4 million to $84.0 million in 1998, a 15.8% increase
from gross profit of $72.6 million in 1997. The Company's gross profit margin
increased to 30.0% from 29.4%. As a percentage of sales, the merchandise gross
profit margin increased by 0.4% while buying, distribution and occupancy costs
decreased 0.2%. The increase in the merchandise gross profit margin was largely
the result of the increased margin realized on the sale of athletic footwear.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $7.0 million to $66.4
million in 1998 from $59.4 million in 1997. As a percentage of sales, these
expenses decreased 0.4% in 1998. An increasing sales base helped to leverage
administrative and hourly payroll expenses and reduce overall expenses as a
percent of sales in spite of increases in advertising and pre-opening costs. The
aggregate of pre-opening expenses for 20 new stores in 1998 was approximately
$1.7 million, or 0.6% of sales, and $211,000, or 0.1% of sales for four new
stores in 1997.
Interest Expense
Net interest expense of $507,000 in 1998 resulted from interest expense of
$553,000 and interest income of $46,000. Net interest expense of $912,000 in
1997 resulted from interest expense of $946,000 and interest income of $34,000.
The decrease in interest expense was attributable to lower average debt balances
in 1998. The weighted average interest rate on total debt was 8.5% in 1998 and
7.7% in 1997.
12
<PAGE>
Income Taxes
The increase in the effective income tax rate for 1998 to 40.0%, as compared to
39.5% in 1997, was primarily due to an increase in the statutory rate resulting
from higher taxable income. The effective income tax rate in 1998 differed from
the statutory rate due primarily to state and local income taxes, net of the
federal tax benefit.
Liquidity and Capital Resources
The Company's sources and uses of cash are summarized as follows:
(000's)
Fiscal years 1999 1998 1997
-------- -------- --------
Net income plus depreciation and amortization $ 20,339 $ 16,795 $ 13,145
Deferred income taxes 1,131 414 219
Working capital (increases) decreases (20,787) 1,326 (3,149)
Other operating activities (328) 80 400
-------- -------- --------
Net cash provided by operating activities 355 18,615 10,615
Net cash used in investing activities (19,441) (12,487) (7,469)
Net cash provided by (used in) financing
activities 18,817 (5,755) (3,200)
-------- -------- --------
Net (decrease) increase in cash and cash
equivalents (269) 373 (54)
Cash and cash equivalents at beginning of year 1,944 1,571 1,625
-------- -------- --------
Cash and cash equivalents at end of year $ 1,675 $ 1,944 $ 1,571
======== ======== ========
The Company's primary sources of funds are cash flows from operations and
borrowings under its revolving credit facility. Cash provided from operating
activities was $355,000, $18.6 million and $10.6 million in 1999, 1998 and 1997,
respectively. Excluding changes in operating assets and liabilities, $21.1
million, $17.3 million and $13.8 million was provided by operating activities in
1999, 1998 and 1997, respectively. Merchandise inventories increased $29.3
million to $104.7 million at January 29, 2000 compared with $75.4 million at
January 30, 1999. The increase in merchandise inventories resulted primarily
from the 27 additional stores operated at January 29, 2000, and the early
receipt of approximately $8 million of spring merchandise in order to take
advantage of any early warm weather and to help mitigate any potential vendor
Year 2000 issues.
Working capital was $68.3 million at January 29, 2000 and $47.7 million at
January 30, 1999. The current ratio at January 29, 2000 was 2.7 as compared to
2.5 at January 30, 1999. The increase from the prior year was primarily a result
of an increase in merchandise inventories due to higher receipts of spring
merchandise in January 2000 as compared to the prior year. As a result of
outstanding borrowings of $21.0 million under the revolving line of credit,
long-term debt as a percentage of total capital (long-term debt plus
shareholders' equity) increased to 19.3% at January 29, 2000 as compared to 1.6%
at January 30, 1999.
Capital expenditures, net of lease incentives, were $20.3 million in 1999, $14.6
million in 1998 and $7.5 million in 1997. These amounts include $808,000 and
$1.9 million of capital lease obligations incurred in 1999 and 1998,
respectively. No capital lease obligations were incurred in 1997. Of the 1999
expenditures, $10.0 million was incurred for new stores and $5.3 million was
incurred for the expansion of the existing distribution center. The remaining
capital expenditures in 1999 were primarily for various store improvements,
remodels and enhancements to computer systems.
An expansion of the Company's distribution center, which began in the Fall of
1998, was completed in 1999 at a total cost of $7.6 million, of which $5.3
million was spent during 1999. The expansion doubled the size of the
distribution center to 200,000 square feet and installed state-of-the-art
material handling, picking and sorting equipment and software. The enhanced
facility should result in operating efficiencies in the near future and increase
the Company's distribution capacity to at least 400 stores.
Capital expenditures, including assets acquired through leasing arrangements but
net of lease incentives, are expected to be $16 million to $18 million in fiscal
2000. The actual amount of cash required 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.
13
<PAGE>
In fiscal 2000, the Company intends to open 30 to 35 stores at an expected
aggregate cost of between $11 million and $13 million. The remaining capital
expenditures are expected to be incurred for store remodels, visual presentation
enhancements and various other store improvements along with a continued
investment in technology.
The Company's current store prototype utilizes between 8,000 and 15,000 square
feet depending upon, among other factors, the location of the store and the
population base the store is expected to service. Net capital expenditures for a
new store is expected to average approximately $350,000, including point-of-sale
equipment which is generally acquired through equipment leasing transactions.
The average inventory investment in a new store is expected to range from
$450,000 to $750,000, depending on the size and sales expectation of the store
and the timing of the new store opening. Pre-opening expenses, such as
advertising, salaries, supplies and utilities, are expected to average
approximately $80,000 per store. On a per-store basis, for the 28 stores opened
during 1999, the initial inventory investment averaged $632,000, capital
expenditures averaged $330,000 and pre-opening expenses averaged $76,000.
On January 7, 2000, the Company's Board of Directors authorized a share
repurchase program that will allow the Company to purchase up to $10 million of
the outstanding common stock. As of January 29, 2000, the Company had purchased
291,900 shares at an approximate cost of $2.4 million. Additional share
repurchases will continue as market conditions allow and will be funded by
borrowings under the line of credit. The treasury shares may be reissued in
connection with possible future stock offerings, dividends, stock based
compensation programs and other general corporate uses.
At January 29, 2000, the Company's credit facility provided for $45 million in
cash advances and letters of credit issuances. Borrowings under the credit
facility are based on eligible inventory. At January 29, 2000, outstanding cash
advances and letters of credit were $21.0 million and $11.2 million,
respectively. On March 24, 2000, the credit agreement was amended to allow for
up to $55 million in cash advances and letters of credit and to extend the
maturity date to March 31, 2002.
The Company anticipates that its existing cash and cash flow from operations,
supplemented by borrowings under its revolving credit line will be sufficient to
fund its planned expansion and other operating cash requirements for at least
the next 12 months.
Impact of Year 2000
The "Year 2000 Issue" generally refers to computer systems that were designed
and developed using two digits, rather than four, to specify the year. As a
result, such systems that utilize a two digit date may not be able to
distinguish the year 2000 from the year 1900. This could result in erroneous
data or complete failure of some systems unless corrective actions are taken.
Management initiated a company-wide program in 1998 to address the Year 2000
Issue. All phases of the program were completed in 1999. The total cost of the
two year Year 2000 project was approximately $201,000, of which approximately
$142,000 was incurred and expensed in 1998 and $59,000 was incurred and expensed
in 1999. Allocating existing resources rather than incurring incremental costs
funded the majority of the Year 2000 compliance costs.
The Company has not experienced any significant disruption or changes in its
operations as a result of the Year 2000 Issue. Additionally, the Company is not
aware of any significant issues that have arisen as a result of product or
supplier Year 2000-related failures. As there can be no assurance that the
Company's efforts to achieve Year 2000 readiness have been successful, or that
critical suppliers and customers will not experience Year 2000-related failures
in the future, the Company will continue to monitor its exposure to Year 2000
issues and will leave its contingency plans in place in the event that any
significant Year 2000 issues arise.
14
<PAGE>
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 the
opening of a new store are charged to expense. Therefore, results of operations
may be adversely affected in any quarter in which the Company opens new stores.
The Company has three distinct peak selling periods: Easter, back-to-school and
Christmas.
Factors That May Effect Future Results
This Annual Report contains certain forward looking statements that involve a
number of risks and uncertainties. Among the factors that could cause actual
results to differ materially are the following: general economic conditions in
the areas of the United States in which the Company's stores are located;
changes in the overall retail environment and more specifically in the apparel
and footwear retail sectors; the impact of competition, weather patterns,
consumer buying trends and the ability of the Company to identify and respond to
emerging fashion trends; the availability of desirable store locations and
management's ability to negotiate acceptable lease terms and open new stores in
a timely manner; and changes in the political and economic environments in the
People's Republic of China, where most of the Company's private label products
are manufactured, and the continued favorable trade relationships between China
and the United States.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk in that the interest payable on the
Company's Credit Agreement is based on variable interest rates and therefore is
affected by changes in market rates. The Company does not use interest rate
derivative instruments to manage exposure to changes in market interest rates. A
1% change in the weighted average interest rate charged under the Credit
Agreement would have resulted in interest expense fluctuating by approximately
$108,000 in 1999 and $49,000 in 1998.
15
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Management
Management of the Company is responsible for the preparation, integrity and
objectivity of the financial information included in this Annual Report. The
consolidated financial statements have been prepared in conformity with
generally accepted accounting principles and necessarily include amounts which
are based upon estimates and judgments by management.
Management maintains internal accounting control systems designed to provide
reasonable assurance that assets are safeguarded, transactions are executed in
accordance with management's authorization and the accounting records may be
relied upon for the preparation of financial statements and other financial
information. This system of internal controls has been designed and is
maintained in recognition of the concept that the cost of controls should not
exceed the benefit derived therefrom.
The Audit Committee of the Board of Directors meets periodically with management
and the independent auditors to review matters relating to the Company's
financial reporting, the adequacy of internal control systems and the scope and
results of the annual audit. Representatives of the independent auditors have
free access to the Audit Committee and the Board of Directors.
The Company's consolidated financial statements have been audited by Deloitte &
Touche LLP, whose report, which follows, expresses an opinion as to the fair
presentation of the financial statements and is based on an independent audit
performed in accordance with generally accepted auditing standards.
Independent Auditors' Report
To the Board of Directors and Shareholders of Shoe Carnival, Inc.:
We have audited the accompanying consolidated balance sheets of Shoe Carnival,
Inc., as of January 29, 2000 and January 30, 1999 and the related consolidated
statements of income, shareholders' equity and cash flows for the years ended
January 29, 2000, January 30, 1999 and January 31, 1998. Our audits also
included the financial statement schedule listed in the Index at Item 14. These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audits provide a reasonable
basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Shoe Carnival, Inc., at January 29,
2000 and January 30, 1999, and the results of its operations and its cash flows
for the years ended January 29, 2000, January 30, 1999 and January 31, 1998, in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Stamford, Connecticut
March 10, 2000
(March 24, 2000 as to Note 5)
16
<PAGE>
<TABLE>
<CAPTION>
Shoe Carnival, Inc.
Consolidated Balance Sheets
January 29, January 30,
(In thousands) 2000 1999
------------- -------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 1,675 $ 1,944
Accounts receivable 694 567
Merchandise inventories 104,730 75,390
Deferred income tax benefit 876 782
Other 1,168 1,222
------------- -------------
Total Current Assets 109,143 79,905
Property and equipment-net 53,710 40,856
------------- -------------
Total Assets $ 162,853 $ 120,761
============= =============
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 33,817 $ 25,698
Accrued and other liabilities 6,266 5,757
Current portion of long-term debt 714 782
------------- -------------
Total Current Liabilities 40,797 32,237
Long-term debt 22,338 1,361
Deferred lease incentives 3,077 2,424
Deferred income taxes 3,296 2,072
------------- -------------
Total Liabilities 69,508 38,094
------------- -------------
Shareholders' Equity:
Common stock, $. 01 par value,
50,000 shares authorized
13,345 and 13,179 shares issued 133 132
Additional paid-in capital 63,683 62,543
Retained earnings 31,953 19,992
Treasury stock, at cost, 292 shares (2,424)
------------- -------------
Total Shareholders' Equity 93,345 82,667
------------- -------------
Total Liabilities and Shareholders' Equity $ 162,853 $ 120,761
============= =============
</TABLE>
See notes to consolidated financial statements
17
<PAGE>
<TABLE>
<CAPTION>
Shoe Carnival, Inc.
Consolidated Statements of Income
(In thousands, except per share data)
Fiscal years ended January 29, January 30, January 31,
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $ 339,929 $ 280,157 $ 246,520
Cost of sales (including buying,
distribution and occupancy costs) 238,097 196,141 173,953
----------- ----------- -----------
Gross profit 101,832 84,016 72,567
Selling, general and administrative
expenses 80,888 66,464 59,438
----------- ----------- -----------
Operating income 20,944 17,552 13,129
Interest expense 1,010 507 912
----------- ----------- -----------
Income before income taxes 19,934 17,045 12,217
Income tax expense 7,973 6,818 4,826
----------- ----------- -----------
Net income $ 11,961 $ 10,227 $ 7,391
=========== =========== ===========
Net income per share:
Basic $ .90 $ .78 $ .57
Diluted $ .88 $ .76 $ .56
Average shares outstanding:
Basic 13,284 13,150 13,049
Diluted 13,578 13,429 13,238
</TABLE>
See notes to consolidated financial statements
18
<PAGE>
<TABLE>
<CAPTION>
Shoe Carnival, Inc.
Consolidated Statements of Shareholders' Equity
(In thousands)
Common Stock Additional
---------------------- Paid-In Retained Treasury
Issued Treasury Amount Capital Earnings Stock Total
------ -------- ------ ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
February 1, 1997 13,032 0 $ 0 $61,398 $ 2,374 $ 0 $63,772
Compensation from
stock option grant 158 158
Exercise of stock
options 41 191 191
Employee stock
purchase plan
purchases 15 97 97
Net income 7,391 7,391
------ -------- ------ ------- -------- ------- --------
Balance at
January 31, 1998 13,088 0 0 61,844 9,765 0 71,609
Exercise of stock
options 76 690 690
Employee stock purchase
plan purchases 15 141 141
Increase in par value 132 (132)
Net income 10,227 10,227
------ -------- ------ ------- -------- ------- --------
Balance at
January 30, 1999 13,179 0 132 62,543 19,992 0 82,667
Exercise of stock
options 153 1 1,002 1,003
Employee stock purchase
plan purchases 13 138 138
Common stock repurchased (292) (2,424) (2,424)
Net income 11,961 11,961
------ -------- ------ ------- -------- -------- --------
Balance at
January 29, 2000 13,345 (292) $ 133 $63,683 $ 31,953 $(2,424) $93,345
====== ======== ====== ======= ======== ======== ========
</TABLE>
See notes to consolidated financial statements
19
<PAGE>
<TABLE>
<CAPTION>
Shoe Carnival, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Fiscal years ended
January 29, January 30, January 31,
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income $ 11,961 $ 10,227 $ 7,391
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 8,378 6,568 5,754
Loss on retirement of assets 35 380 392
Deferred income taxes 1,131 414 219
Compensation for forgiveness of debt 158
Other (363) (300) (150)
Changes in operating assets and
liabilities:
Merchandise inventories (29,340) (15,299) (851)
Accounts receivable (128) 214 137
Accounts payable and accrued
liabilities 8,628 16,801 (2,506)
Other 53 (390) 71
----------- ----------- -----------
Net cash provided by operating activities 355 18,615 10,615
----------- ----------- -----------
Cash Flows From Investing Activities
Purchases of property and equipment (20,478) (14,061) (7,493)
Lease incentives 1,016 1,416
Other 21 158 24
----------- ----------- -----------
Net cash used in investing activities (19,441) (12,487) (7,469)
----------- ----------- -----------
Cash Flows From Financing Activities
Borrowings under line of credit 203,625 102,675 141,600
Payments on line of credit (182,625) (108,375 (144,400)
Payments on long-term debt (899) (886) (688)
Proceeds from issuance of stock 1,140 831 288
Common stock repurchased (2,424)
----------- ----------- -----------
Net cash provided by (used in) financing
activities 18,817 (5,755) (3,200)
----------- ----------- -----------
Net (decrease) increase in cash and cash
equivalents (269) 373 (54)
Cash and cash equivalents at beginning of
year 1,944 1,571 1,625
----------- ----------- -----------
Cash and Cash Equivalents at End of Year $ 1,675 $ 1,944 $ 1,571
=========== =========== ===========
Supplemental disclosures of cash flow
information:
Cash paid during year for interest $ 901 $ 580 $ 953
Cash paid during year for income taxes 6,443 6,651 4,350
Capital lease obligations incurred 808 1,908
</TABLE>
See notes to consolidated financial statements
20
<PAGE>
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements
Note 1 - Organization and Description of Business
The consolidated financial statements include the accounts of Shoe Carnival,
Inc. and its wholly-owned subsidiary SCLC, Inc. (collectively the "Company").
Shoe Carnival, Inc. (the "Company"), was incorporated on February 25, 1988 under
the name of DAR Group Investments, Inc. The Company changed its name to Shoe
Carnival, Inc., on January 15, 1993. SCLC, Inc. was incorporated on February 1,
1999. The Company's primary activity is the sale of footwear and related
products through Company-operated retail stores in the Midwest, South and
Southeastern regions of the United States.
Note 2 - Summary of Significant Accounting Policies
Fiscal Year
The Company's fiscal year consists of a 52/53 week period ending on the Saturday
closest to January 31. Unless otherwise stated, references to the years 1999,
1998 and 1997 relate respectively to the fiscal years ended January 29, 2000,
January 30, 1999 and January 31, 1998. All three fiscal years consisted of 52
weeks.
Cash and Cash Equivalents
The Company considers all certificates of deposit and other short-term
investments with an original maturity date of three months or less to be cash
equivalents.
Merchandise Inventories
Merchandise inventories are stated at the lower of cost or market using the
first-in, first-out (FIFO) method. In determining market value, management
estimates the future sales price of items of merchandise contained in the
inventory as of the balance sheet date. Factors considered in this determination
include among others, current and recently recorded sales prices, the length of
time product has been held in inventory and quantities of various product styles
contained in inventory. The ultimate amount realized from the sale of certain
product could differ materially from management's estimates.
Property and Equipment
Property and equipment is stated at cost. Depreciation and amortization of
property, equipment and leasehold improvements are provided on the straight-line
method over the shorter of the estimated useful lives of the assets or the
applicable lease terms. Lives used in computing depreciation and amortization
range from two to 30 years. Expenditures for maintenance and repairs are charged
to expense as incurred. Expenditures which materially increase values, improve
capacities or extend useful lives are capitalized. Upon sale or retirement, the
costs and related accumulated depreciation or amortization are eliminated from
the respective accounts and any resulting gain or loss is included in
operations.
Deferred Lease Incentives
All incentives received from landlords for leasehold improvements and fixturing
of new stores are recorded as deferred income and amortized over the life of the
lease on a straight-line basis as a reduction of rental expense.
Revenue Recognition
Sales are recorded net of an estimate for returns and allowances.
21
<PAGE>
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - Continued
Store Opening Costs
Non-capital expenditures incurred prior to the opening of a new store have been
charged to expense in the month the store was opened prior to 1999. Statement of
Position 98-5, "Reporting on the Costs of Start-up Activities" requires that
beginning in 1999 all pre-opening and other start-up costs be expensed in the
period incurred. Accordingly, with the adoption of SOP 98-5 in 1999, all
pre-opening costs were expensed in the period incurred. This change did not have
a material impact on the Company's consolidated financial statements.
Advertising Costs
Print, radio and television communication costs are generally expensed when
incurred. Internal production costs are expensed when incurred and external
production costs are expensed in the year the advertisement first takes place.
Advertising expenses included in selling, general and administrative expenses
were $14.8 million in 1999, $11.5 million in 1998 and $9.0 million in 1997.
Comprehensive Income
Statement of Financial Standard ("SFAS") No. 130, "Comprehensive Income,"
requires the presentation of comprehensive income, in addition to the existing
income statement. Comprehensive income is defined as the change in equity during
a period from transactions and other events, excluding changes resulting from
investments by owners and distributions to owners. For all years presented,
there are no items requiring separate disclosure in accordance with this
statement.
Segments of an Enterprise and Related Information
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" requires the disclosure of segment related information based on how
management makes decisions about allocating resources to segments and measuring
their performance. The Company has one business segment that offers the same
principal product and service throughout the Midwest, South and Southeastern
regions of the United States. Based on the current organizational structure of
the Company, the financial information presented is in compliance with this
accounting pronouncement.
Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
requires that derivative instruments be recognized as assets or liabilities in
the statement of financial position. In June 1999, SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of Effective Date of
FASB Statement No. 133", deferred the implementation of SFAS No. 133 for the
Company until the quarter ended May 5, 2001. The Company is currently assessing
the effect of the adoption of SFAS No. 133 in fiscal year 2001, but does not
anticipate a material impact on its financial position.
Use of Management Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires that management make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. The reported amounts of revenues and expenses during the reporting
period may be affected by the estimates and assumptions management is required
to make. Actual results could differ from those estimates.
22
<PAGE>
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - Continued
Note 3 - Property and Equipment-net
The following is a summary of property and equipment:
(000's) January 29, January 30,
2000 1999
------------- -------------
Land $ 205 $ 205
Buildings 8,912 5,863
Furniture, fixtures and equipment 46,615 32,389
Leasehold improvements 29,601 22,848
Equipment under capital leases 4,305 5,242
Construction in progress 2,263
------------- -------------
Total 89,638 68,810
Less accumulated depreciation
and amortization 35,928 27,954
------------- -------------
Property and equipment-net $ 53,710 $ 40,856
============= =============
Note 4 - Accrued and Other Liabilities
Accrued and other liabilities consisted of the following:
(000's) January 29, January 30,
2000 1999
------------- -------------
Employee compensation and benefits $ 1,848 $ 2,009
Accrued rent 1,336 1,060
Other 3,082 2,688
------------- -------------
Total accrued and other liabilities $ 6,266 $ 5,757
============= =============
Note 5 - Long-Term Debt
Long-term debt consisted of the following:
(000's) January 29, January 30,
2000 1999
------------- -------------
Credit agreement $ 21,000
Capital lease obligations (see Note 6) 2,052 $ 2,143
------------- -------------
Total 23,052 2,143
Less current portion 714 782
------------- -------------
Total long-term debt, net of
current portion $ 22,338 $ 1,361
============= =============
23
<PAGE>
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - Continued
During 1998 and until April 16, 1999, the Company had an unsecured $35 million
credit agreement (the "Credit Agreement") with a bank group which allowed for
both cash advances and the issuance of letters of credit. On April 16, 1999, the
Credit Agreement was amended to increase the total credit facility to $45
million, to adjust certain economic terms and financial covenants and to extend
the maturity date to March 31, 2001.
Borrowings under the amended facility are based on eligible inventory and bear
interest, at the Company's option, at the agent bank's prime rate (8.50% at
January 29, 2000) minus 0.5% or LIBOR plus from 0.75% to 1.5%, depending on the
Company's achievement of certain performance criteria. A commitment fee is
charged, at the Company's option, at 0.3% per annum on the unused portion of the
bank group's commitment or 0.15% per annum of the total commitment. The Credit
Agreement contains various restrictive and financial covenants, including the
maintenance of specific financial ratios. At January 29, 2000, outstanding
letters of credit were approximately $11.2 million.
On March 24, 2000, the Credit Agreement was amended to increase the total credit
facility to $55 million and to extend the maturity date to March 31, 2002.
Note 6 - Leases
The Company leases all of its retail locations and certain equipment under
operating leases expiring at various dates through 2015. One hundred and
thirty-two leases provide for contingent rental payments of between 2% and 5% of
sales in excess of stated amounts. Certain leases also contain escalation
clauses for increases in minimum rentals, operating costs and taxes. In
addition, the Company leases equipment under capitalized leases expiring at
various dates through 2003.
Rental expense for the Company's operating leases consisted of:
(000's)
Fiscal years 1999 1998 1997
--------- --------- ---------
Rentals for real property $ 17,394 $ 13,822 $ 12,210
Equipment rentals 386 437 393
--------- --------- ---------
Total $ 17,780 $ 14,259 $ 12,603
========= ========= =========
Future minimum lease payments at January 29, 2000 are as follows:
(000's) Operating Capital
Fiscal years Leases Leases
--------- ---------
2000 $ 20,898 $ 853
2001 20,316 780
2002 20,065 570
2003 18,865 102
2004 16,740
Thereafter to 2015 64,374
--------- ---------
Minimum lease payments $ 161,258 2,305
=========
Less imputed interest at rates
ranging from 7.5% to 11.9% 253
---------
Present value of net minimum lease
payments of which $714 is
included in current liabilities $ 2,052
=========
The present value of minimum lease payments for equipment under capital lease is
included in long-term debt (see Note 5).
24
<PAGE>
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - Continued
Investment in equipment under capital lease, which is included in property and
equipment, was:
(000's) January 29, January 30,
2000 1999
----------- -----------
Equipment $ 4,305 $ 5,242
Less accumulated amortization 2,075 3,037
----------- -----------
Equipment under capital
lease-net $ 2,230 $ 2,205
=========== ===========
Note 7 - Income Taxes
The provision for income taxes consisted of:
(000's)
Fiscal years 1999 1998 1997
-------- -------- --------
Current:
Federal $ 5,857 $ 5,591 $ 3,965
State 985 813 641
-------- -------- --------
Total current 6,842 6,404 4,606
Deferred:
Federal 990 375 189
State 141 39 31
-------- -------- --------
Total deferred 1,131 414 220
-------- -------- --------
Total provision $ 7,973 $ 6,818 $ 4,826
======== ======== ========
Included in other current assets are income tax receivables in the amounts of
$7,000 and $159,000 as of January 29, 2000 and January 30, 1999, respectively.
A reconciliation between the statutory federal income tax rate and the effective
income tax rate is as follows:
Fiscal years 1999 1998 1997
-------- -------- --------
U.S. Federal statutory tax rate 35.0% 35.0% 34.0%
State and local income taxes,
net of federal tax benefit 5.1 5.1 5.1
Other (0.1) (0.1) 0.4
-------- -------- --------
Effective income tax rate 40.0% 40.0% 39.5%
======== ======== ========
25
<PAGE>
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - Continued
Deferred income taxes are the result of temporary differences in the recognition
of revenue and expense for tax and financial reporting purposes. The sources of
these differences and the tax effect of each are as follows:
(000's) January 29, January 30,
2000 1999
------------- -------------
Deferred tax assets:
Accrued rent $ 524 $ 421
Accrued compensation 241 203
Federal net operating loss carryforward 131 176
Lease incentives 10 14
Other 149 137
------------- -------------
Total deferred tax assets $ 1,055 $ 951
============= =============
Deferred tax liabilities:
Depreciation $ 1,781 $ 1,378
Purchase accounting adjustments 844 852
Inventory valuation 190 11
Inventory purchase discounts 660
------------- -------------
Total deferred tax liabilities $ 3,475 $ 2,241
============= =============
Note 8 - Employee Benefit Plans
Retirement Savings Plan
On February 24, 1994, the Company's Board of Directors approved the Shoe
Carnival Retirement Savings Plan (the "Retirement Plan"). The Retirement Plan is
open to all employees who have been employed for one year, are at least 21 years
of age and who work at least 1,000 hours per year. The primary savings mechanism
under the Retirement Plan is a 401(k) plan under which an employee may
contribute up to 15% of earnings with the Company matching the first 4% at a
rate of 50%.
Employee and Company contributions are paid to a trustee and invested in up to
16 investment options at the participants' direction. The Company contributions
to the participants' accounts become fully vested upon completion of five years
of participation in the Retirement Plan. Contributions charged to expense in
1999, 1998 and 1997 were $256,000, $199,000 and $214,000, respectively.
Stock Purchase Plan
On May 11, 1995, the Company's shareholders approved the Shoe Carnival, Inc.
Employee Stock Purchase Plan (the "Stock Purchase Plan") as adopted by the
Company's Board of Directors on February 9, 1995. The Stock Purchase Plan
reserves 300,000 shares of the Company's common stock (subject to adjustment for
any subsequent stock splits, stock dividends and certain other changes in the
common stock) for issuance and sale to any employee who has been employed for
more than a year at the beginning of the calendar year, and who is not a 10%
owner of the Company's stock, at 85% of the then fair market value up to a
maximum of $5,000 in any calendar year. During 1999, 13,020 shares of common
stock were purchased by participants in the plan and proceeds to the Company for
the sale of those shares totaled approximately $138,000.
26
<PAGE>
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - Continued
Note 9 - Stock Option and Incentive Plans
1993 Stock Option and Incentive Plan
Effective January 15, 1993, the Company's Board of Directors and shareholders
approved the 1993 Stock Option and Incentive Plan (the "1993 Plan"). The 1993
Plan reserves for issuance 1,500,000 shares of the Company's common stock
(subject to adjustment for any subsequent stock splits, stock dividends and
certain other changes in the common stock) pursuant to any incentive awards
granted by the Stock Option Committee of the Board of Directors which
administers the 1993 Plan. The 1993 Plan provides for the grant of incentive
awards in the form of stock options or restricted stock to officers and other
key employees of the Company. Stock options granted under the plan may be either
options intended to qualify for federal income tax purposes as "incentive stock
options" or options not qualifying for favorable tax treatment ("non-qualified
stock options"). At January 29, 2000, 205,922 shares of unissued common stock
were reserved for future grants under the plan.
On March 7, 2000, the Stock Option Committee granted options for an aggregate of
136,300 shares of the Company's common stock to certain officers and key
employees. The options were granted at fair market value and have a term of 10
years. The options become exercisable in thirds on each of the first three
anniversaries of the grant date.
Outside Directors Stock Option Plan
Effective March 4, 1999, the Company's Board of Directors approved the Outside
Directors Stock Option Plan (the "Directors Plan"). The Directors Plan reserves
for issuance 25,000 shares of the Company's common stock (subject to adjustment
for any subsequent stock splits, stock dividends and certain other changes to
the common stock). The Directors Plan calls for each non-employee Director to
receive on April 1st of each year an option to purchase 1,000 shares of the
Company's common stock at the market price on the date of grant. The option will
vest six months from the grant date and expire ten years from the date of grant.
At January 29, 2000, 23,000 shares of unissued common stock were reserved for
future grants under the plan.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB No. 25), in accounting for employee stock
options. Accordingly, no compensation expense has been recognized for the 1993
Plan or the Directors Plan.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, "Accounting for Stock-Based Compensation," and has been determined
as if the Company had accounted for its stock options under SFAS No. 123's fair
value method. The fair value of these options was estimated at grant date using
Black-Scholes option pricing model with the following weighted average
assumptions:
Fiscal years 1999 1998 1997
-------- -------- --------
Risk free interest rate 5.4% 5.6% 6.8%
Expected dividend yield 0.0% 0.0% 0.0%
Expected volatility 72.1% 74.3% 53.4%
Expected term 5 Years 5 Years 5 Years
27
<PAGE>
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - Continued
For the purpose of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
(000's, except per share data)
Fiscal years 1999 1998 1997
--------- --------- ---------
Pro forma net income $ 11,243 $ 9,832 $ 6,789
Pro forma net income per share-Basic $ .85 $ .75 $ .52
Pro forma net income per share-Diluted $ .83 $ .73 $ .51
The weighted-average fair value of options granted was $7.03, $7.12 and $3.29
for 1999, 1998 and 1997, respectively.
The following table summarizes the transactions pursuant to the stock option
plans for the three-year period ended January 29, 2000:
Weighted Average
Shares Exercise Price
------------------------ ------------------------
Outstanding Exercisable Outstanding Exercisable
----------- ----------- ----------- -----------
Balance at February 1, 1997 643,925 207,374 $ 6.15 $ 7.95
Granted 208,500 6.10
Cancelled (73,836) 5.73
Exercised (51,121) 5.70
----------- ------
Balance at January 31, 1998 727,468 507,683 6.21 $ 6.52
Granted 212,500 11.00
Cancelled (2,767) 9.39
Exercised (79,927) 6.68
----------- ------
Balance at January 30, 1999 857,274 517,842 7.34 $ 6.30
Granted 322,750 11.09
Cancelled (18,094) 10.32
Exercised (152,584) 6.58
----------- ------
Balance at January 29, 2000 1,009,346 534,382 $ 8.60 $ 6.68
=========== ======
The following table summarizes information regarding outstanding and exercisable
options at January 29, 2000:
Options Outstanding Options Exercisable
---------------------------------- -------------------------
Weighted Weighted Weighted
Number Average Average Number Average
Range of of Options Remaining Exercise of Options Exercise
Exercise Price Outstanding Life Price Exercisable Price
- --------------- ----------- --------- ---------- ----------- -------------
$ 4.25 - $ 6.00 408,484 6.7 $ 5.54 387,572 $ 5.53
$ 6.25 - $10.88 122,400 5.2 $ 8.73 82,650 $ 8.45
$11.00 - $11.13 456,962 8.7 $ 11.07 55,160 $ 11.00
$11.63 - $17.25 21,500 7.6 $ 13.26 9,000 $ 13.51
28
<PAGE>
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - Continued
Note 10 - Shareholders' Equity
On January 7, 2000, the Company's Board of Directors authorized a share
repurchase program that will allow the Company to purchase up to $10 million of
the outstanding common stock. As of January 29, 2000, the Company had purchased
291,900 shares at an approximate cost of $2.4 million.
Note 11 - Contingencies
Litigation
The Company is involved in various routine legal proceedings incidental to the
conduct of its business, none of which is expected to have a material adverse
effect on the Company's financial position.
Note 12 - Other Related Party Transactions
The Company's Chairman and Principal Shareholder and his son are principal
shareholders of LC Footwear, LLC and PL Footwear, Inc. The Company purchases
name brand merchandise from LC Footwear, LLC, while PL Footwear, Inc. serves as
an import agent for the Company. PL Footwear, Inc. represents the Company on a
commission basis in dealings with shoe factories in mainland China, where most
of the Company's private label shoes are manufactured.
The Company purchased approximately $798,000 and $138,000 of merchandise from LC
Footwear, LLC in 1999 and 1998, respectively. Commissions paid to PL Footwear,
Inc. were $1,061,000 and $912,000 in 1999 and 1998, respectively.
Note 13 - Quarterly Results (Unaudited)
Quarterly results are determined in accordance with the accounting policies used
for annual data and include certain items based upon estimates for the entire
year. All fiscal quarters in 1999 and 1998 include results for 13 weeks. The
following table summarizes results for 1999 and 1998:
(000's, except per share data)
First Second Third Fourth
1999 Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Net sales $ 78,111 $ 83,206 $ 94,223 $ 84,389
Gross profit 24,858 25,094 29,455 22,425
Operating income 6,890 5,630 7,291 1,133
Net income 4,044 3,264 4,233 420
Net income per share - Basic $ .31 $ .25 $ .32 $ .03
Net income per share - Diluted $ .30 $ .24 $ .31 $ .03
(000's, except per share data)
First Second Third Fourth
1998 Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Net sales $ 65,694 $ 68,104 $ 76,442 $ 69,917
Gross profit 20,674 20,550 24,217 18,575
Operating income 5,365 4,810 6,139 1,238
Net income 3,115 2,822 3,620 670
Net income per share - Basic $ .24 $ .21 $ .27 $ .05
Net income per share - Diluted $ .23 $ .21 $ .27 $ .05
29
<PAGE>
SHOE CARNIVAL, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Charged
Balance at (Credited) to Balance at
Beginning Costs and End of
Descriptions of Period Expenses Period
----------- ------------- -----------
Year ended January 31, 1998
Reserve for sales returns
and allowances $ 114,492 $ 0 $ 114,492
Inventory reserve $ 1,300,000 $ 125,000 $ 1,425,000
Year ended January 30, 1999
Reserve for sales returns
and allowances $ 114,492 $ 0 $ 114,492
Inventory reserve $ 1,425,000 $ 175,000 $ 1,600,000
Year ended January 29, 2000
Reserve for sales returns
and allowances $ 114,492 $ 0 $ 114,492
Inventory reserve $ 1,600,000 $ 0 $ 1,600,000
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with the Company's independent
accountants on accounting or financial disclosures.
30
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item concerning the Directors and nominees for
Director of the Company and concerning any disclosure of delinquent filers is
incorporated herein by reference to the Company's definitive Proxy Statement for
its 2000 Annual Meeting of Shareholders, to be filed with the Commission
pursuant to Regulation 14A within 120 days after the end of the Company's fiscal
year. Information concerning the executive officers of the Company is included
under the caption "Executive Officers of the Company" at the end of Part I of
this Annual Report. Such information is incorporated herein by reference, in
accordance with General Instruction G(3) to Form 10-K and Instruction 3 to Item
401(b) of Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item concerning remuneration of the Company's
officers and Directors and information concerning material transactions
involving such officers and Directors is incorporated herein by reference to the
Company's definitive Proxy Statement for its 2000 Annual Meeting of Shareholders
which will be filed pursuant to Regulation 14A within 120 days after the end of
the Company's fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item concerning the stock ownership of
management and five percent beneficial owners is incorporated herein by
reference to the Company's definitive Proxy Statement for its 2000 Annual
Meeting of Shareholders which will be filed pursuant to Regulation 14A within
120 days after the end of the Company's last fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item concerning certain relationships and
related transactions is incorporated herein by reference to the Company's
definitive Proxy Statement for its 2000 Annual Meeting of Shareholders which
will be filed pursuant to Regulation 14A within 120 days after the end of the
Company's last fiscal year.
31
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
The following financial statements of the Company are set
forth in Part II, Item 8.
Report of Management
Independent Auditors' Report
Consolidated Balance Sheets at January 29, 2000 and January 30, 1999
Consolidated Statements of Income for the years ended January 29,
2000, January 30, 1999 and January 31, 1998
Consolidated Statements of Shareholders' Equity for the years ended
January 29, 2000, January 30, 1999 and January 31, 1998
Consolidated Statements of Cash Flows for the years ended January 29,
2000, January 30, 1999 and January 31, 1998
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
The following financial statement schedule of the Company is
set forth in Part II, Item 8.
Schedule II Valuation and Qualifying Accounts
3. Exhibits:
A list of exhibits required to be filed as part of this report is set
forth in the Index to Exhibits, which immediately precedes such
exhibits, and is incorporated herein by reference.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
January 29, 2000.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Shoe Carnival, Inc.
Date: April 26, 2000 By: /s/ Mark L. Lemond
----------------------
Mark L. Lemond
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
----------- ----------- ----------
/s/ J. Wayne Weaver Chairman of the Board and Director April 26, 2000
- -------------------
J. Wayne Weaver
/s/ Mark L. Lemond President, Chief Executive Officer April 26, 2000
- ------------------ and Director
Mark L. Lemond (Principal Executive Officer)
/s/ William E. Bindley Director April 26, 2000
- ----------------------
William E. Bindley
/s/ Gerald W. Schoor Director April 26, 2000
- --------------------
Gerald W. Schoor
/s/ W. Kerry Jackson Vice President - Chief Financial April 26, 2000
- -------------------- Officer and Treasurer
W. Kerry Jackson (Principal Financial and Accounting
Officer)
33
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Description
- -------- -------------
3-A (7) (i) Restated Articles of Incorporation of Registrant
(6) (ii) Articles of Amendment of Restated Articles of Incorporation
of Registrant
3-B (3) By-laws of Registrant, as amended to date
4 (8) (i) Amended and Restated Credit Agreement and Promissory Notes
dated April 16, 1999, between Registrant and Mercantile Bank
National Association, First Union National Bank and Old
National Bank
(ii) Amendment to Amended and Restated Credit Agreement and
Promissory Notes dated March 24, 2000, between Registrant and
Mercantile Bank National Association, First Union National Bank
and Old National Bank
10-D* (1) 1989 Stock Option Plan of Registrant and amendments to such Plan
10-E* (2) 1993 Stock Option and Incentive Plan of Registrant, as amended
10-F* (1) Executive Incentive Compensation Plan of Registrant
10-G* (9) Outside Directors Stock Option Plan
10-I (1) Non-competition Agreement dated as of January 15, 1993, between
Registrant and J. Wayne Weaver
10-K (1) Form of stock option exercise documents dated November 1, 1992,
between Registrant and each of fourteen executive officers and
key employees, including: (i) Exercise Notice; (ii) Subscription
Agreement; (iii) Promissory Note; (iv) Pledge Agreement;
(v) Stock Power
10-L* (2) Employee Stock Purchase Plan of Registrant, as amended
10-M* (4) Consulting agreement dated May 28, 1997, between Registrant and
David H. Russell
10-N* (5) Employment agreement dated April 14, 1997, between Registrant and
Clifton E. Sifford
21 A list of subsidiaries of Shoe Carnival, Inc.
23 Written consent of Deloitte & Touche LLP
27 Financial Data Schedule
* The indicated exhibit is a management contract, compensatory plan
or arrangement required to filed by Item 601 of Regulation S-K.
(1) The copy of this exhibit filed as the same exhibit number to the
Company's Registration Statement on Form S-1 (Registration No. 33-57902)
is incorporated herein by reference.
(2) The copy of this exhibit filed as the same exhibit number to the
Company's Quarterly Report on Form 10-Q for the quarter ended
August 2, 1997 is incorporated herein by reference.
(3) The copy of this exhibit filed as the same exhibit number to the
Company's Quarterly Report on Form 10-Q for the quarter ended
November 2, 1996 is incorporated herein by reference.
(4) The copy of this exhibit filed as the same exhibit number to the Company's
current Report on Form 8-K dated June 9, 1997 is incorporated herein
by reference.
34
<PAGE>
(5) The copy of this exhibit filed as the same exhibit number to the Company's
Quarterly Report on Form 10-Q for the quarter ended May 3, 1997 is
incorporated herein by reference.
(6) The copy of this exhibit filed as the same exhibit number to the Company's
Quarterly Report on Form 10-Q for the quarter ended August 1, 1998 is
incorporated herein by reference.
(7) The copy of this exhibit filed as exhibit number 3.1 to the Company's
current report on Form 8-K dated July 17, 1996 is incorporated herein
by reference.
(8) The copy of this exhibit as exhibit 4(i) to the Company's Annual Report
on Form 10-K for the year ended January 30, 1999 is incorporated herein
by reference.
(9) The copy of this exhibit filed as exhibit number 4.4 to the Company's
Registration Statement on Form S-8 (Registration No 333-82819)
is incorporated herein by reference.
35
<PAGE>
AMENDMENT
TO
AMENDED AND RESTATED CREDIT AGREEMENT
-------------------------------------
THIS AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT,
effective as of the 24th day of March, 2000 is made by and between MERCANTILE
BANK NATIONAL ASSOCIATION, a national banking association ("Mercantile"), FIRST
UNION NATIONAL BANK, a national bank ("First Union"), and OLD NATIONAL BANK, a
national bank ("Old National," and collectively with Mercantile and First Union
referred to herein as "Banks"), and MERCANTILE BANK NATIONAL ASSOCIATION, a
national banking association, as agent for the Banks (in such capacity, the
"Agent"), and SHOE CARNIVAL, INC. ("Borrower").
WITNESSETH:
----------
WHEREAS, Banks, Agent and Borrower are parties to a certain
Amended and Restated Credit Agreement dated as of April 16, 1999 (as amended,
the "Agreement"), pursuant to which Banks have agreed to loan Borrower such
sums, not to exceed $45,000,000.00 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 Promissory Note dated April 16, 1999 made by
Borrower payable to the order of Mercantile in the original principal amount of
Seventeen Million Five Hundred Thousand Dollars ($17,500,000.00), by a certain
Promissory Note dated April 16, 1999 made by Borrower payable to the order of
Old National in the original principal amount of Ten Million Dollars
($10,000,000.00), and by a certain Promissory Note dated April 16, 1999 made by
Borrower payable to the order of First Union in the original principal amount of
Seventeen Million Five Hundred Thousand Dollars ($17,500,000.00) (as amended,
the "Notes");
WHEREAS, Borrower, Agent and Banks wish to further amend the
Agreement and the Notes to increase the maximum principal amount available to
Borrower thereunder, to extend the term thereof, 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, Agent and Banks agree
as follows:
1. The definition of "Commitment" in Section 1.1 of the
Agreement is hereby amended to provide as follows:
"Commitment" means Fifty-Five Million Dollars
($55,000,000.00), and, with respect to each Bank, the amount specified
as such and set opposite the name of such Bank on the signature pages
of that certain Amendment to Amended and Restated Credit Agreement
dated as of March 24, 2000.
2. Paragraph (b) in the definition of "Interest Period"
in Section 1.1 of the Agreement is hereby amended to provide as follows:
(b) Any Interest Period which includes March 31,
2002 shall end on such date.
1
<PAGE>
3. 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 and C attached to that
certain Amendment to Amended and Restated Credit Agreement dated March
24, 2000, evidencing the obligation of Borrower to repay the Loans and
amounts outstanding under any Reimbursement Agreements.
4. 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 Amendment as Exhibit A and incorporated herein by reference.
The Note of Borrower payable to the order of Old National shall hereafter be
restated in the form of that Note attached to this Amendment as Exhibit B and
amended and incorporated herein by reference. The Note of Borrower payable to
the order of First Union shall hereafter be amended and restated in the form
of that Note attached to this Amendment as Exhibit C and incorporated herein
by reference.
5. The definition of "Pro Rata Share" in Section 1.1 of
the Agreement is hereby amended to provide as follows:
"Pro Rata Share" shall mean the pro rata share of
loans to be made by each of the Banks hereunder or of other amounts to
be shared between Banks, which shall be 39.0909% for Mercantile,
21.8182% for Old National, and 39.0909% for First Union.
6. The definition of "Term" in Section 1.1 of the
Agreement is hereby amended to provide as follows:
"Term" means the period from the Effective Date up to
and including March 31, 2002; except that (i) all, but not less than
all, of the Banks may, in their sole discretion, extend such Term for
additional one-year periods by notifying Borrower of each such
extension at least 12 months prior to the expiration of the then
current Term end of their intention to extend the Term by an additional
year; and (ii) Agent may terminate Banks' obligations hereunder at any
time prior to such stated maturity date or any extension thereof
pursuant to Article 6 herein.
7. Section 5.1(e)(i) of the Agreement is hereby deleted
in its entirety and in its place shall be substituted the following:
(i) Have a Net Worth of not less than $93,344,000.00
as of the end of each fiscal quarter during the Term hereof, less the
aggregate amount of Distributions made by Borrower after the date of
this Agreement to repurchase its capital stock as permitted under
Section 5.2(e) herein, provided that any such reduction in the minimum
Net Worth requirement of this Section 5.1(e)(i) for any such aggregate
stock repurchases shall not exceed $10,000,000.00.
8. 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.
2
<PAGE>
9. 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 certain Borrowing Base 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.
10. The form of Notice of Borrowing (as defined in the
Agreement) attached as Exhibit F to the Agreement, shall be amended and restated
in the form of that certain Notice of Borrowing attached hereto as Exhibit F.
All references in the Agreement to the "Notice of Borrowing" and other
references of similar import shall hereafter be amended and deemed to refer to
the Notice of Borrowing in the form of that attached hereto as Exhibit F.
11. Borrower agrees to pay to Agent for the benefit of
Banks an amendment fee in the amount of Fifteen Thousand Dollars ($15,000.00),
which amendment fee shall be distributed by Agent to the Banks as follows:
$6,000.00 to Mercantile, $3,000.00 to Old National and $6,000.00 to First Union.
12. Borrower hereby represents and warrants to Agent and
to Banks that:
(a) The execution, delivery and performance
by Borrower of this 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 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;
(b) This Amendment has been duly executed and
delivered and constitutes the legal, valid and binding obligation of
Borrower enforceable in accordance with its terms; and
(c) 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.
13. 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 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. This Amendment amends
the Agreement and is not a novation thereof.
14. 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
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
Amendment.
3
<PAGE>
15. This 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.
16. This 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.
17. 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 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 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.
18. This Amendment shall be governed by and construed
in accordance with the internal laws of the State of Missouri.
19. In the event of any inconsistency or conflict between
this Amendment and the Agreement or the Notes, the terms, provisions and
conditions of this Amendment shall govern and control.
IN WITNESS WHEREOF the parties hereto have executed this
Amendment to Amended and Restated Credit Agreement as of the day and year first
above written on this 24th day of March, 2000.
SHOE CARNIVAL, INC.
By: /s/ W. Kerry Jackson
-----------------------------------------
W. Kerry Jackson, Vice President,
Chief Financial Officer and Treasurer
4
<PAGE>
Commitment: MERCANTILE BANK
Facility A: NATIONAL ASSOCIATION
$21,500,000.00 (39.0909%)
By: /s/ J. Eric Hartman
-----------------------------------------
J. Eric Hartman, Assistant Vice President
Commitment: OLD NATIONAL BANK
Facility A:
$12,000,000.00 (21.8182%)
By: /s/ John Lamb
-----------------------------------------
John Lamb, Vice President
Commitment: FIRST UNION NATIONAL BANK
Facility A:
$21,500,000.00 (39.0909%)
By: /s/ Richard P. Silva
-----------------------------------------
Richard P. Silva, Senior Vice President
MERCANTILE BANK
NATIONAL ASSOCIATION, AS AGENT
By: /s/ J. Eric Hartman
-----------------------------------------
J. Eric Hartman, Assistant Vice President
<PAGE>
SUBSIDIARIES OF SHOE CARNIVAL, INC.
Subsidiary State of Incorporation Percentage of Ownership
- ---------- ---------------------- -----------------------
SCLC, Inc. Delaware 100%
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (Nos. 33-74050 and 333-44047) relating to the 1993 Stock Option and
Incentive Plan of Shoe Carnival, Inc., and the Registration Statement on Form S-
8 (No. 33-80979) relating to the Employee Stock Purchase Plan of Shoe Carnival,
Inc., and the Registration Statement on Form S-8 (No. 333-82819) relating to the
Outside Directors Stock Option Plan of Shoe Carnival, Inc. of our report dated
March 10, 2000 (March 24, 2000 as to Note 5), appearing in the Annual Report on
Form 10-K of Shoe Carnival, Inc. for the year ended January 29, 2000.
/s/ Deloitte & Touche LLP
Stamford, Connecticut
April 27, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR THE PERIOD ENDED JANUARY 29, 2000, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> JAN-29-2000
<CASH> 1,675
<SECURITIES> 0
<RECEIVABLES> 694
<ALLOWANCES> 0
<INVENTORY> 104,730
<CURRENT-ASSETS> 109,143
<PP&E> 89,638
<DEPRECIATION> 35,928
<TOTAL-ASSETS> 162,853
<CURRENT-LIABILITIES> 40,797
<BONDS> 22,338
0
0
<COMMON> 133
<OTHER-SE> 93,212
<TOTAL-LIABILITY-AND-EQUITY> 162,853
<SALES> 339,929
<TOTAL-REVENUES> 339,929
<CGS> 238,097
<TOTAL-COSTS> 238,097
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,010
<INCOME-PRETAX> 19,934
<INCOME-TAX> 7,973
<INCOME-CONTINUING> 11,961
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,961
<EPS-BASIC> .90
<EPS-DILUTED> .88
</TABLE>
