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: February 2, 2002
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, 47725
Evansville, Indiana (Zip Code)
(Address of principal executive offices)
(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 April 19_, 2002 was
approximately $145,425,005 (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 19, 2002
was 12,543,837.
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 5, 2002 is incorporated
by reference into Part III hereof.
1
Shoe Carnival, Inc.
Evansville, Indiana
Annual Report to Securities and Exchange Commission
February 2, 2002
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. The Company was incorporated in 1988.
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 February 2, 2002 ("fiscal 2001"), the
average size, annual sales and sales per square foot for Shoe Carnival's stores
open the full year were approximately 11,600 square feet, $2.7 million and $237,
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 distinctive 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 almost 30,000 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.
2
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 sales 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 approximately 25 stores in 2002. Thereafter, the
Company intends to expand at a rate of approximately 20% per year. During fiscal
2002, new stores are expected to be located primarily in the North Central,
Midwest, South 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
3
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.
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 70% 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 2001, 2000 and 1999.
2001 2000 1999
------------- ------------ ------------
Women's 25% 27% 28%
Men's 16 17 17
Children's 17 16 16
Athletic 37 35 34
Accessories and Miscellaneous Items 5 5 5
------------- ------------ ------------
100% 100% 100%
============= ============ ============
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 daily 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.
4
The Company directs about 60% 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 Executive
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 approximately ten regions, but ultimately
are expected to manage up to fifteen regions. Each regional manager is
responsible for the operation of between five and fourteen 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 Executive 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 per store can range up to 60
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 all regional and store managers. The incentive plans are
based primarily upon the sales, expense control and profitability of their
respective stores as compared to defined 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
through merchandise placement, signage and timely clearance of slower selling
items.
The Company maintains inventory shrinkage rates (.5% of sales in fiscal 2001)
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 managers and loss prevention
personnel to the achievement of targeted shrinkage levels raises the awareness
of loss prevention.
Store Location and Design
The number of stores opened and closed for fiscal years 2001, 2000 and 1999 are
as follows:
Fiscal Year 2001 2000 1999
--------- -------- ---------
Stores open at beginning of year 165 138 111
Opened during year 18 32 28
Closed during year 1 5 1
--------- -------- ---------
Stores open at end of year 182 165 138
========= ======== =========
At February 2, 2002, the Company had 182 stores located in 23 states, primarily
in the Midwest, South and Southeastern regions of the United States. Although
seven 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.
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
5
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, distinctive 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 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 February 2, 2002 the Company's stores averaged approximately 11,600 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 a store 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 has traditionally been
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 $75,000 per store.
Distribution
The Company operates a single 200,000 square foot distribution facility in
Evansville, Indiana. Management estimates that with only a moderate investment
in additional equipment and technology, the existing distribution facility can
service over 300 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 (when not performed by the manufacturer), 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.
6
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 February 2, 2002, the Company had approximately 3,200 employees, of which
approximately 1,700 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 management level 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 Brittney'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 2001 fiscal year.
7
Executive Officers of the Company
Name Age Position
- --------------- --- ----------------------------------------------------
J. Wayne Weaver 67 Chairman of the Board and Director
Mark L. Lemond 47 President, Chief Executive Officer and Director
Timothy T. Baker 45 Executive Vice President-Store Operations
Clifton E. Sifford 48 Executive Vice President-General Merchandise Manager
W. Kerry Jackson 40 Senior Vice President-Chief Financial Officer and
Treasurer
David A. Kapp 38 Vice President-Merchandise Allocation and Secretary
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
capacities 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 Executive Vice President - Store
Operations since June 2001. From March 1994 to June 2001, Mr. Baker served as
Senior Vice President - Store Operations. From May 1992 to March 1994, Mr. Baker
served as Vice President - Store Operations. Prior to that time, he served as a
Regional Manager of the Company. From 1983 to June 1989, Mr. Baker held various
retail positions with Payless ShoeSource.
Mr. Sifford has been employed by the Company as Executive Vice President -
General Merchandise Manager since June 2001. From April 13, 1997 to June 2001,
Mr. Sifford served as Senior Vice President - General Merchandise Manager. 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 Senior Vice President - Chief
Financial Officer and Treasurer since June 2001. From September 1996 to June
2001, Mr. Jackson served as Vice President - Chief Financial Officer and
Treasurer. 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.
Mr. Kapp has been employed by the Company since March 1988, most recently as
Vice President - Merchandise Allocation and Secretary. Prior to assuming his
current position, Mr. Kapp held various accounting and retail positions with the
Company and its predecessor.
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 2002 Annual Meeting of
Shareholders.)
8
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 2001 and 2000 are as follows:
High Low
------------- -------------
Fiscal Year 2001
First Quarter $ 11.00 $ 8.22
Second Quarter 13.00 9.30
Third Quarter 13.85 8.60
Fourth Quarter 14.70 8.40
Fiscal Year 2000
First Quarter $ 13.75 $ 7.22
Second Quarter 9.75 4.81
Third Quarter 7.13 4.75
Fourth Quarter 7.00 3.94
As of February 20, 2002, there were approximately 225 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 2001.
9
ITEM 6. Selected Financial Data
(In thousands, except share and operating data)
Fiscal years (1) 2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
Income Statement Data:
Net sales $ 476,556 $ 418,164 $ 339,929 $ 280,157 $ 246,520
Cost of sales
(including buying,
distribution and
occupancy costs) 341,425 298,233 238,097 196,141 173,953
--------- --------- --------- --------- ---------
Gross profit 135,131 119,931 101,832 84,016 72,567
Selling, general and
administrative
expenses 112,736 100,692 80,888 66,464 59,438
--------- --------- --------- --------- ---------
Operating income 22,395 19,239 20,944 17,552 13,129
Interest expense 2,275 3,168 1,010 507 912
--------- --------- --------- --------- ---------
Income before income
taxes 20,120 16,071 19,934 17,045 12,217
Income tax expense 7,545 6,348 7,973 6,818 4,826
--------- --------- --------- --------- ---------
Net income $ 12,575 $ 9,723 $ 11,961 $ 10,227 $ 7,391
========= ========= ========= ========= =========
Net income per share:
Basic $ 1.04 $ .79 $ .90 $ .78 $ .57
Diluted $ 1.01 $ .78 $ .88 $ .76 $ .56
Average shares
outstanding:
Basic 12,124 12,354 13,284 13,150 13,049
Diluted 12,483 12,455 13,578 13,429 13,238
Selected Operating
Data (2):
Stores open at end
of year 182 165 138 111 92
Square footage of
store space at
year-end (000's) 2,104 1,911 1,590 1,274 1,021
Average sales per
store (000's) $ 2,743 $ 2,744 $ 2,744 $ 2,791 $ 2,720
Average sales per
square foot $ 237 $ 237 $ 238 $ 250 $ 245
Comparable store
sales 3.0% 2.5% 1.4% 3.6% 6.1%
- --------------------------------------------------------------------------------
Balance Sheet Data:
Working capital $ 91,276 $ 87,691 $ 68,346 $ 47,668 $ 48,889
Total assets 201,919 187,351 162,853 120,761 96,201
Long-term debt and
other indebtedness 27,672 41,137 22,338 1,361 6,133
Total shareholders'
equity 112,102 96,313 93,345 82,667 71,609
- --------------------------------------------------------------------------------
<FN>
(1) The Company's fiscal year is a 52/53 week year ending on the Saturday
closest to January 31. Unless otherwise stated, references to years 2001,
2000, 1999, 1998, and 1997 relate respectively to the fiscal years ended
February 2, 2002, February 3, 2001, January 29, 2000, January 30, 1999,
and January 31, 1998. Fiscal year 2000 consisted of 53 weeks and the other
fiscal years consisted of 52 weeks.
(2) Selected Operating Data has been adjusted to a comparable 52 week basis
for 2000.
</FN>
10
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 2001,
2000 and 1999 relate respectively to the fiscal years ended February 2, 2002,
February 3, 2001, and January 29, 2000. Fiscal years 2001 and 1999 consisted of
52 weeks and fiscal year 2000 consisted of 53 weeks.
Critical Accounting Policies
It is necessary for management to include certain judgements in the reported
financial results of the Company. These judgements involve estimates that are
inherently uncertain and actual results could differ materially from these
estimates. The accounting policies that require the more significant judgements
by management are:
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.
Valuation of Long-lived Assets - The Company reviews long-lived assets whenever
events or circumstances indicate the carrying value of an asset may not be
recoverable. In evaluating whether an asset has been impaired, the Company
projects the anticipated future cash flows expected to be generated by the
assets. While we believe that our estimates of future cash flows are reasonable,
different assumptions regarding such cash flows could materially affect our
evaluations.
Deferred Income Taxes - Estimates are made by management for deferred income
taxes and the significant items giving rise to deferred assets and liabilities.
These estimates include assessments of future taxes to be paid on items
reflected in the financial statements, giving consideration to both timing and
probability of realization. Actual income taxes could vary from these estimates
due to among other factors future changes in the income tax laws or changes
resulting from audit of tax returns by taxing authorities.
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:
2001 2000 1999
---------- --------- ---------
Net sales 100.0% 100.0% 100.0%
Cost of sales (including buying,
distribution and occupancy costs) 71.6 71.3 70.0
--------- --------- ---------
Gross profit 28.4 28.7 30.0
Selling, general and
administrative expenses 23.7 24.1 23.8
---------- --------- ---------
Operating income 4.7 4.6 6.2
Interest expense 0.5 0.8 0.3
---------- --------- ---------
Income before income taxes 4.2 3.8 5.9
Income tax expense 1.6 1.5 2.4
---------- --------- ---------
Net income 2.6% 2.3% 3.5%
========== ========= =========
11
2001 Compared to 2000
Net Sales
Net sales increased $58.4 million to $476.6 million in 2001, a 14.0% increase
over net sales of $418.2 million in 2000. The increase was attributable to the
sales generated by the 18 stores opened in 2001, the effect of a full year's
worth of sales for the 27 stores opened in 2000 (net of five stores closed) and
a comparable store sales increase of 3.0%. Partially offsetting the sales
increase was an additional week of sales included in 2000. Excluding the impact
of the extra week of sales, total sales increased 15.5% from the year
2000 to the year 2001. The increase in comparable store sales was generated by
athletic footwear and children's non-athletic footwear.
Gross Profit
Gross profit increased $15.2 million to $135.1 million in 2001, a 12.7% increase
from gross profit of $119.9 million in 2000. The Company's gross profit margin
decreased to 28.4% from 28.7% in 2000 due to a decrease in the merchandise gross
profit margin. Buying, distribution and occupancy costs, as a percentage of
sales, were flat with last year. The decrease in merchandise margins resulted
from a decline in the gross profit margins realized from the sale and
liquidation of fall and winter product during the fourth quarter. Due to
unseasonably warm weather and a very competitive retail environment throughout
the fourth quarter, it was necessary to take substantial markdowns, particularly
in the seasonal dress and casual shoes, and boots.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $12.0 million to $112.7
million in 2001 from $100.7 million in 2000. As a percentage of sales, these
expenses decreased 0.4% in 2001 primarily as a result of lower pre-opening
costs. The aggregate of pre-opening expenses for the 18 new stores in 2001 was
approximately $1.2 million, or 0.3% of sales, and $2.4 million, or 0.6% of
sales, for the 32 new stores in 2000.
Interest Expense
Interest expense decreased to $2.3 million (net of interest income of $72,000)
in 2001 from $3.2 million (net of interest income of $49,000) in 2000. The
decrease was attributable to a lower effective interest rate. Partially
offsetting the benefit of the lower interest rates was a slight increase in the
average borrowings outstanding over last year. The weighted average interest
rate on total debt was 5.6% in 2001 and 8.2% in 2000.
Income Taxes
The effective income tax rate decreased to 37.5% for 2001 from 39.5% for 2000.
The decrease resulted from lower state income taxes. 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.
2000 Compared to 1999
Net Sales
Net sales increased $78.2 million to $418.2 million in 2000, a 23.0% increase
over net sales of $339.9 million in 1999. The increase was attributable to the
sales generated by the 27 stores opened in 2000 (net of five stores closed), the
effect of a full year's worth of sales for the 27 stores opened in 1999 (net of
one store closed), sales in the additional week included in 2000 and a
comparable store sales increase of 2.5%. Increases in comparable store sales
were realized in all major footwear categories with the exception of the women's
non-athletic category.
Gross Profit
Gross profit increased $18.1 million to $119.9 million in 2000, a 17.8% increase
from gross profit of $101.8 million in 1999. The Company's gross profit margin
decreased to 28.7% from 30.0% in 1999. As a percentage of sales, the merchandise
gross profit margin decreased by 1.0% and buying, distribution and occupancy
costs increased by .3%.The decrease in merchandise margins resulted from a
12
decline in the gross profit margins realized from the sale and liquidation of
spring season product, particularly sandals and dress shoes. This was partially
offset by higher gross margins realized on fall season product, especially
women's, men's and children's boots. The increase in the buying, distribution
and occupancy costs was largely the result of higher occupancy costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $19.8 million to $100.7
million in 2000 from $80.9 million in 1999. As a percentage of sales, these
expenses increased .3% in 2000 primarily as a result of higher advertising
costs. The aggregate of pre-opening expenses for the 32 new stores in 2000 was
approximately $2.4 million, or .6% of sales, and $2.1 million, or 0.6% of sales,
for the 28 new stores in 1999.
Interest Expense
Interest expense increased to $3.2 million (net of interest income of $49,000)
in 2000 from $1.0 million (net of interest income of $32,000) in 1999. The
increase was attributable to a higher effective interest rate and increased
borrowings used to fund the Company's store expansion and the common share
repurchase program. The weighted average interest rate on total debt was 8.2% in
2000 and 7.3% in 1999.
Income Taxes
The effective income tax rate for 2000 was 39.5% and 40% for 1999. 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.
Liquidity and Capital Resources
The Company's sources and uses of cash are summarized as follows:
(000's)
Fiscal years 2001 2000 1999
---------- -------- ---------
Net income plus depreciation
and amortization $ 23,747 $ 20,069 $ 20,339
Deferred income taxes 116 1,237 1,131
Working capital increases (1,594) (18,100) (20,787)
Other operating activities 61 (96) (328)
---------- -------- ---------
Net cash provided by operating activities 22,330 3,110 355
Net cash used in investing activities (9,369) (12,979) (19,441)
Net cash used to repurchase common shares 0 (7,576) (2,424)
Net cash (used in) provided by other
financing activities (10,729) 18,997 21,241
---------- -------- ---------
Net increase (decrease) in cash and cash
equivalents 2,232 1,552 (269)
Cash and cash equivalents at beginning
of year 3,227 1,675 1,944
---------- -------- ---------
Cash and cash equivalents at end of year $ 5,459 $ 3,227 $ 1,675
========== ======== =========
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 $22.3 million, $3.1 million and $355,000 in 2001, 2000 and 1999,
respectively. Excluding changes in operating assets and liabilities, $23.9
million, $21.2 million and $21.1 million was provided by operating activities
in 2001, 2000 and 1999, respectively. Merchandise inventories increased $12.6
million (10.3%) to $135.6 million at February 2, 2002 compared with $123.0
million at February 3, 2001. The increase in merchandise inventories resulted
primarily from the 17 additional stores operated at February 2, 2002(a 10.3%
increase).
Working capital was $91.3 million at February 2, 2002 and $87.7 million at
February 3, 2001. The current ratio at February 2, 2002 was 2.7 as compared to
3.1 at February 3, 2001. The decrease from the prior year was primarily a result
of an increase in accounts payable and accrued and other liabilities. Long-term
debt as a percentage of total capital (long-term debt plus shareholders' equity)
decreased to 19.8% at February 2, 2002 as compared to 29.9% at February 3, 2001.
Cash generated by operations in 2001 was used in pay down long-term debt.
13
Capital expenditures, net of lease incentives, were $9.8 million in 2001, $13.8
million in 2000 and $20.3 million in 1999. These amounts include $440,000,
$783,000 and $808,000 of capital lease obligations incurred in 2001, 2000 and
1999, respectively. Of the 2001 expenditures, $6.6 million was incurred for new
stores and $1.2 million was incurred for the remodeling of certain stores. The
remaining capital expenditures in 2001 were primarily for various store
improvements, loss prevention and technology.
Capital expenditures, including assets acquired through leasing arrangements but
net of lease incentives, are expected to be $13 million to $14 million in fiscal
2002. 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.
In fiscal 2002, the Company intends to open approximately 25 stores at an
expected aggregate cost of between $8.5 million and $9 million. The remaining
capital expenditures are expected to be incurred for store remodels, visual
presentation enhancements and various other store improvements along with
continued investments 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 are 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 and supplies, are expected to average approximately
$75,000 per store. On a per-store basis, for the 18 stores opened during 2001,
the initial inventory investment averaged $627,000, capital expenditures
averaged $348,000 and pre-opening expenses averaged $67,000.
The Company's unsecured credit facility provides for up to $70 million in cash
advances on a revolving basis and commercial letters of credit. Borrowings under
the revolving credit line are based on eligible inventory. Cash generated by
operations in 2001 was partially used to reduce the outstanding borrowings under
this facility by $13 million. Borrowings outstanding under the credit facility
were $27 million at February 2, 2002 and $40 million at February 3, 2001.
Letters of credit outstanding at February 2, 2002 were $8.6 million. On March
18, 2002, the credit agreement was amended to extend the maturity date to March
31, 2004.
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.
Significant contractual obligations as of February 2, 2002 and the periods in
which payments are due include:
(000's) Payments Due By Period
----------------------------------------------------
Less Than 1-3 4-5 After 5
Contractual Obligations Total 1 Year Years Years Years
- ----------------------- ----------------------------------------------------
Line of credit $ 27,000 $ 27,000
Capital lease
obligations 1,646 $ 923 676 $ 47
Operating leases 179,672 25,798 47,590 40,978 $ 65,306
-------- -------- -------- -------- ---------
Total Contractual
Cash Obligations $208,318 $ 26,721 $ 75,266 $ 41,025 $ 65,306
========= ======== ======== ======== =========
See Note 5 for a discussion of long-term debt and Note 6 for a discussion of
leases.
The Company has other commercial commitments in the form of letters of credit
where payment is contingent upon the occurrence of certain events. As of
February 2, 2002, letters of credit outstanding were $8.6 million.
14
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 as incurred. Therefore, the
Company's results of operations may be adversely affected in any quarter in
which the Company incurs pre-opening expenses related to the opening of 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 potential impact of national and international
security concerns on the retail environment; the impact of competition and
pricing; changes in weather patterns, consumer buying trends and the ability of
the Company to identify and respond to emerging fashion trends; risks associated
with the seasonality of the retail industry; the availability of desirable store
locations at acceptable lease terms and the ability of the Company to open new
stores in a timely manner; higher than anticipated costs associated with the
closing of underperforming stores; the inability of manufacturers to deliver
products in a timely manner; and changes in the political and economic
environments in the People's Republic of China, a major manufacturer of
footwear, 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
$335,000 in 2001 and $370,000 in 2000.
15
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 February 2, 2002 and February 3, 2001 and the related consolidated
statements of income, shareholders' equity and cash flows for the years ended
February 2, 2002, February 3, 2001 and January 29, 2000. 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 February 2,
2002 and February 3, 2001 and the results of its operations and its cash flows
for the years ended February 2, 2002, February 3, 2001 and January 29, 2000, 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
San Francisco, California
March 8, 2002 (March 18, 2002 as to Note 5)
16
Shoe Carnival, Inc.
Consolidated Balance Sheets
February 2, February 3,
(In thousands) 2002 2001
----------------- -----------------
Assets
Current Assets:
Cash and cash equivalents $ 5,459 $ 3,227
Accounts receivable 1,298 1,067
Merchandise inventories 135,648 123,035
Deferred income tax benefit 449 728
Other 1,816 1,434
------------- -------------
Total Current Assets 144,670 129,491
Property and equipment-net 57,249 57,860
------------- -------------
Total Assets $ 201,919 $ 187,351
============= =============
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 42,108 $ 33,030
Accrued and other liabilities 10,452 7,896
Current portion of long-term debt 834 874
------------- -------------
Total Current Liabilities 53,394 41,800
Long-term debt 27,672 41,137
Deferred lease incentives 4,197 3,651
Deferred income taxes 4,223 4,386
Other 331 64
------------- -------------
Total Liabilities 89,817 91,038
------------- -------------
Shareholders' Equity:
Common stock, $. 01 par value,
50,000 shares authorized 13,363
shares issued 134 134
Additional paid-in capital 64,752 64,288
Retained earnings 54,251 41,676
Treasury stock, at cost,
1,000 and 1,406 shares (7,035) (9,785)
-------------- -------------
Total Shareholders' Equity 112,102 96,313
-------------- -------------
Total Liabilities and Shareholders'
Equity $ 201,919 $ 187,351
============== =============
See notes to consolidated financial statements
17
Shoe Carnival, Inc.
Consolidated Statements of Income
(In thousands, except per share data)
Fiscal years ended February 2, February 3, January 29,
2002 2001 2000
------------ ------------ -------------
Net sales $ 476,556 $ 418,164 $ 339,929
Cost of sales (including
buying, distribution
and occupancy costs) 341,425 298,233 238,097
------------ ------------- -------------
Gross profit 135,131 119,931 101,832
Selling, general and
administrative expenses 112,736 100,692 80,888
------------ ------------- -------------
Operating income 22,395 19,239 20,944
Interest expense 2,275 3,168 1,010
------------ ------------- -------------
Income before income taxes 20,120 16,071 19,934
Income tax expense 7,545 6,348 7,973
------------ ------------- -------------
Net income $ 12,575 $ 9,723 $ 11,961
============ ============= =============
Net income per share:
Basic $ 1.04 $ .79 $ .90
Diluted $ 1.01 $ .78 $ .88
Average shares outstanding:
Basic 12,124 12,354 13,284
Diluted 12,483 12,455 13,578
See notes to consolidated financial statements
18
Shoe Carnival, Inc.
Consolidated Statements of Shareholders' Equity
(In thousands)
Common Stock Additional
---------------------- Paid-In Retained Treasury
Issued Treasury Amount Capital Earnings Stock Total
------ -------- ------ ------- -------- -------- -----
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
Exercise of stock
options 18 17 1 605 90 696
Employee stock
purchase plan
purchases 22 125 125
Common stock
repurchased (1,153) (7,576) (7,576)
Net income 9,723 9,723
------ -------- ------ ------- ------- -------- -------
Balance at
February 3, 2001 13,363 (1,406) 134 64,288 41,676 (9,785) 96,313
Exercise of stock
options 392 464 2,622 3,086
Employee stock
purchase plan
purchases 14 128 128
Net income 12,575 12,575
------ -------- ------ ------- ------- -------- --------
Balance at
February 2, 2002 13,363 (1,000)$ 134 $ 64,752 $ 54,251 $(7,035) $112,102
====== ======== ====== ======== ======== ======= ========
See notes to consolidated financial statements
19
Shoe Carnival, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Fiscal years ended
February 2, February 3, January 29,
2002 2001 2000
----------- ----------- -----------
Cash Flows From Operating Activities
Net income $ 12,575 $ 9,723 $ 11,961
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 11,172 10,346 8,378
Loss on retirement of assets 283 321 35
Deferred income taxes 116 1,237 1,131
Other (222) (417) (363)
Changes in operating assets and
liabilities:
Merchandise inventories (12,613) (18,305) (29,340)
Accounts receivable (231) (373) (128)
Accounts payable and accrued
liabilities 11,650 844 8,628
Other (400) (266) 53
----------- ----------- ----------
Net cash provided by operating
activities 22,330 3,110 355
----------- ----------- ----------
Cash Flows From Investing Activities
Purchases of property and equipment (10,395) (14,029) (20,478)
Lease incentives 1,026 1,048 1,016
Other 0 2 21
----------- ----------- ----------
Net cash used in investing activities (9,369) (12,979) (19,441)
------------ ----------- ----------
Cash Flows From Financing Activities
Borrowings under line of credit 417,525 413,400 203,625
Payments on line of credit (430,525) (394,400) (182,625)
Payments on long-term debt (943) (824) (899)
Proceeds from issuance of stock 3,214 821 1,140
Common stock repurchased 0 (7,576) (2,424)
----------- ----------- ----------
Net cash (used in) provided by
financing activities (10,729) 11,421 18,817
----------- ----------- ----------
Net increase (decrease) in cash and
cash equivalents 2,232 1,552 (269)
Cash and cash equivalents at beginning
of year 3,227 1,675 1,944
----------- ----------- ----------
Cash and Cash Equivalents at End
of Year $ 5,459 $ 3,227 $ 1,675
=========== =========== ==========
Supplemental disclosures of cash flow
information:
Cash paid during year for interest $ 2,506 $ 2,013 $ 901
Cash paid during year for income
taxes 7,226 4,627 6,443
Capital lease obligations incurred 440 783 808
See notes to consolidated financial statements
20
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 SCHC, Inc. (collectively the "Company").
Shoe Carnival, Inc., 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. SCHC, Inc. was incorporated on May 1, 2001 and has a
wholly-owned subsidiary SCLC, Inc. which was incorporated on February 1, 1999.
On May 1, 2001 the ownership of SCLC, Inc. was transferred from Shoe Carnival,
Inc. to SCHC, Inc. 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 2001,
2000 and 1999 relate respectively to the fiscal years ended February 2, 2002,
February 3, 2001 and January 29, 2000. Fiscal years 2001 and 1999 consisted of
52 weeks and fiscal 2000 consisted of 53 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
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - Continued
Store Opening Costs
Non-capital expenditures, such as advertising, payroll and supplies, incurred
prior to the opening of a new store are charged to expense in the period they
are incurred.
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 $22.8 million in 2001, $19.7 million in 2000 and $14.8 million in 1999.
Comprehensive Income
Statement of Financial Accounting Standards ("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
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and hedging activities. The Company has adopted SFAS No. 133 effective
February 4, 2001. The adoption of SFAS No. 133 did not have a significant impact
on the financial position, results of operations or cash flows of the Company.
New Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
No. 141, "Business Combinations," and Statement No. 142, "Goodwill and Other
Intangible Assets." Statement 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001.
Statement 141 also specifies criteria that must be met in order for intangible
assets acquired in a purchase method business combination to be recognized and
reported apart from goodwill. Statement 142 requires goodwill and intangible
assets with indefinite useful lives no longer be amortized, but instead reviewed
for impairment at least annually. SFAS No. 142 is effective for the Company's
2002 fiscal year. Management does not believe any impairment charges will result
from the adoption of this statement.
In August 2001, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations." Statement 143 requires recording the fair market value
of an asset retirement cost as a liability in the period in which a legal
obligation associated with the retirement of tangible long-lived assets is
incurred. The associated asset retirement costs are capitalized as part of the
carrying amount of the long-lived asset. SFAS No. 143 is effective for the
Company's 2003 fiscal year. Management has not determined the impact, if any,
that this statement will have on its consolidated financial position or results
of operations.
22
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - Continued
In October 2001, the FASB issued Statement No. 144, "Accounting for Impairment
or Disposal of Long-Lived Assets." Statement 144 addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. SFAS No. 144
is effective for the Company's 2002 fiscal year. Management does not expect the
adoption of SFAS No. 144 will have a significant impact on the financial
position or results from operations.
Use of Management Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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.
Note 3 - Property and Equipment-net
The following is a summary of property and equipment:
(000's) February 2, February 3,
2002 2001
------------- -------------
Land $ 205 $ 205
Buildings 9,034 8,953
Furniture, fixtures and equipment 56,329 50,899
Leasehold improvements 37,607 33,913
Equipment under capital leases 4,259 3,818
------------- -------------
Total 107,434 97,788
Less accumulated depreciation
and amortization 50,185 39,928
------------- -------------
Property and equipment-net $ 57,249 $ 57,860
============= =============
Note 4 - Accrued and Other Liabilities
Accrued and other liabilities consisted of the following:
(000's) February 2, February 3,
2002 2001
------------- -------------
Employee compensation and benefits $ 4,027 $ 2,906
Accrued rent 2,217 1,863
Other 4,208 3,127
------------- -------------
Total accrued and other liabilities $ 10,452 $ 7,896
============= =============
Note 5 - Long-Term Debt
Long-term debt consisted of the following:
(000's) February 2, February 3,
2002 2001
------------- -------------
Credit agreement $ 27,000 $ 40,000
Capital lease obligations (see Note 6) 1,506 2,011
------------- -------------
23
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - Continued
Total 28,506 42,011
Less current portion 834 874
------------- -------------
Total long-term debt, net of
current portion $ 27,672 $ 41,137
============= =============
The Company has an unsecured credit agreement (the "Credit Agreement") with a
bank group, which allows for both cash advances and the issuance of letters of
credit. On March 24, 2000, the credit agreement was amended to increase the
total facility to $55 million and extend the maturity date to March 31, 2002. On
November 8, 2000, the credit agreement was amended to increase the total credit
facility to $70 million and to extend the maturity date to March 31, 2003. On
March 18, 2002, the credit agreement was amended to extend the maturity date to
March 31, 2004.
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 (4.75% at
February 2, 2002) 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 February 2, 2002 outstanding
letters of credit were approximately $8.6 million.
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
sixty-five 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 2005.
Rental expense for the Company's operating leases consisted of:
(000's)
Fiscal years 2001 2000 1999
---------- ----------- ----------
Rentals for real property $ 25,670 $ 22,102 $ 17,394
Equipment rentals 446 419 386
---------- ----------- ----------
Total $ 26,116 $ 22,521 $ 17,780
========== =========== ==========
Future minimum lease payments at February 2, 2002 are as follows:
(000's) Operating Capital
Fiscal years Leases Leases
----------- -----------
2002 $ 25,798 $ 923
2003 24,934 454
2004 22,656 222
2005 20,991 47
2006 19,987
Thereafter to 2014 65,306
----------- -----------
Minimum lease payments $ 179,672 1,646
==========
Less imputed interest at rates
ranging from 7.5% to 9.3% 140
-----------
Present value of net minimum lease
payments of which $834 is
included in current liabilities $ 1,506
===========
24
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - Continued
The present value of minimum lease payments for equipment under capital lease is
included in long-term debt (see Note 5).
Investment in equipment under capital lease, which is included in property and
equipment, was:
(000's) February 2, February 3,
2002 2001
----------- -----------
Equipment $ 4,259 $ 3,818
Less accumulated
amortization 2,205 1,485
----------- -----------
Equipment under capital
lease-net $ 2,054 $ 2,333
=========== ===========
Note 7 - Income Taxes
The provision for income taxes consisted of:
(000's)
Fiscal years 2001 2000 1999
----------- ----------- -----------
Current:
Federal $ 6,845 $ 4,518 $ 5,857
State 584 593 985
----------- ----------- -----------
Total current 7,429 5,111 6,842
----------- ----------- -----------
Deferred:
Federal 109 1,096 990
State 7 141 141
----------- ----------- -----------
Total deferred 116 1,237 1,131
----------- ----------- -----------
Total provision $ 7,545 $ 6,348 $ 7,973
=========== =========== ============
Included in other current assets are income tax receivables in the amounts of
$263,000 and $1,000 as of February 2, 2002 and February 3, 2001, respectively.
The Company realized a tax benefit of $464,000 in 2001 and $38,000 in 2000 as a
result of the exercise of stock options.
A reconciliation between the statutory federal income tax rate and the effective
income tax rate is as follows:
Fiscal years 2001 2000 1999
----------- ----------- -----------
U.S. Federal statutory
tax rate 35.0% 35.0% 35.0%
State and local income
taxes, net of federal
tax benefit 1.9 5.0 5.1
Other 0.6 (0.5) (0.1)
----------- ----------- -----------
Effective income tax rate 37.5% 39.5% 40.0%
=========== =========== ===========
25
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) February 2, February 3,
2002 2001
------------ -----------
Deferred tax assets:
Accrued rent $ 769 $ 653
Accrued compensation 313 252
Accrued employee benefits 246 122
Federal net operating loss carryforward 41 87
Lease incentives 10 37
Other 180 49
------------ -----------
Total deferred tax assets $ 1,559 $ 1,200
============ ===========
Deferred tax liabilities:
Depreciation $ 2,246 $ 2,484
Purchase accounting adjustments 654 788
Inventory valuation 1,075 559
Inventory purchase discounts 1,358 1,027
------------ -----------
Total deferred tax liabilities $ 5,333 $ 4,858
============ ===========
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 three years
of participation in the Retirement Plan. Contributions charged to expense in
2001, 2000 and 1999 were $304,000, $334,000 and $256,000, 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 2001, 14,000 shares of common
stock were purchased by participants in the plan and proceeds to the Company for
the sale of those shares were approximately $128,000.
26
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - Continued
Deferred Compensation Plan
In 2000, the Company established a non-qualified deferred compensation plan for
certain key employees who, due to Internal Revenue Service guidelines, cannot
take full advantage of the Company sponsored 401(k) plan. Participants in the
plan elect on an annual basis to defer, on a pre-tax basis, portions of their
current compensation until retirement, or earlier if so elected. While not
required to, the Company can match a portion of the employees' contributions,
which would be subject to vesting requirements. The plan is currently unfunded.
Compensation expense for the Company's match and earnings on the deferred
amounts for 2001 and 2000 were $65,000 and $18,000, respectively. Total deferred
compensation liability at February 2, 2002 and February 3, 2001 was $331,000 and
$64,000, respectively.
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 February 2, 2002, 144,326 shares of unissued common stock
were reserved for future grants under the plan.
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 February 2, 2002, 19,000 shares of unissued common stock were reserved for
future grants under the plan.
2000 Stock Option and Incentive Plan
Effective June 8, 2000, the Company's Board of Directors and shareholders
approved the 2000 Stock Option and Incentive Plan (the "2000 Plan"). The 2000
Plan reserves for issuance 1,000,000 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 2000 Plan. The 2000 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 February 2, 2002, 593,500 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," in accounting for employee stock options.
Accordingly, no compensation expense has been recognized for the 1993 Plan, the
Directors Plan or the 2000 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:
27
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - Continued
Fiscal years 2001 2000 1999
----------- ----------- -----------
Risk free interest rate 4.3% 5.9% 5.4%
Expected dividend yield 0.0% 0.0% 0.0%
Expected volatility 70.8% 71.5% 72.1%
Expected term 5 Years 5 Years 5 Years
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 2001 2000 1999
----------- ----------- -----------
Pro forma net income $ 11,714 $ 8,675 $ 11,243
Pro forma net income
per share-Basic $ .97 $ .70 $ .85
Pro forma net income
per share-Diluted $ .94 $ .70 $ .83
The weighted-average fair value of options granted was $6.82, $3.68 and $7.03
for 2001, 2000 and 1999, respectively.
The following table summarizes the transactions pursuant to the stock option
plans for the three-year period ended February 2, 2002:
Weighted Average
Shares Exercise Price
-------------------------- --------------------------
Outstanding Exercisable Outstanding Exercisable
----------- ----------- ----------- -----------
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
Granted 579,800 5.79
Cancelled (66,750) 9.80
Exercised (35,735) 8.96
----------- ------
Balance at
February 3, 2001 1,486,661 656,131 7.50 $ 7.66
Granted 15,000 11.08
Cancelled (55,954) 6.97
Exercised (392,791) 6.68
----------- ------
Balance at
February 2, 2002 1,052,916 681,741 $ 7.89 $ 8.21
=========== ======
The following table summarizes information regarding outstanding and exercisable
options at February 2, 2002:
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
- --------------- ----------- ---------- -------- ----------- --------
$ 4.38 - $ 6.00 481,003 7.0 $ 4.91 302,982 $ 5.19
$ 6.25 - $10.88 177,281 6.8 $ 8.63 79,076 $ 8.60
$11.00 - $11.50 372,632 6.8 $11.08 288,017 $11.07
$11.63 - $17.25 22,000 6.2 $13.19 11,666 $13.40
28
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 allowed the Company to purchase up to $10 million of the
outstanding common stock. During 1999 the Company purchased 291,900 shares at an
approximate cost of $2.4 million. An additional 1,153,450 shares were purchased
in 2000 at an approximate cost of $7.6 million to complete the repurchase
program.
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 $146,000, $352,000 and $798,000 of
merchandise from LC Footwear, LLC in 2001, 2000 and 1999, respectively.
Commissions paid to PL Footwear, Inc. were $1.0 million, $1.2 million and $1.1
million in 2001, 2000 and 1999, 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 2001 and 2000 include results for 13 weeks except
for the fourth quarter of 2000, which includes results for 14 weeks. The
following table summarizes results for 2001 and 2000:
(000's, except per share data)
First Second Third Fourth
2001 Quarter Quarter Quarter Quarter
------- ------- ------- -------
Net sales $117,186 $113,986 $124,778 $120,606
Gross profit 34,956 32,254 36,813 31,108
Operating income 7,669 4,629 7,881 2,216
Net income 4,290 2,502 4,625 1,158
Net income per share - Basic $ .36 $ .21 $ .38 $ .09
Net income per share - Diluted $ .35 $ .20 $ .37 $ .09
(000's, except per share data)
First Second Third Fourth
2000 Quarter Quarter Quarter Quarter
------- ------- ------- -------
Net sales $ 95,405 $ 95,611 $114,710 $112,438
Gross profit 28,193 27,391 33,929 30,418
Operating income 6,250 3,655 7,071 2,263
Net income 3,431 1,746 3,805 741
Net income per share - Basic $ .26 $ .14 $ .32 $ .06
Net income per share - Diluted $ .26 $ .14 $ .32 $ .06
29
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 29, 2000
Reserve for sales returns
and allowances $ 114,492 $ 0 $ 114,492
Inventory reserve $1,600,000 $ 0 $1,600,000
Year ended February 3, 2001
Reserve for sales returns
and allowances $ 114,492 $ 0 $ 114,492
Inventory reserve $1,600,000 $ 550,000 $2,150,000
Year ended February 2, 2002
Reserve for sales returns
and allowances $ 114,492 $ 0 $ 114,492
Inventory reserve $2,150,000 $ (100,000) $2,050,000
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
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 under
Section 16(a) of the Exchange Act is incorporated herein by reference to the
Company's definitive Proxy Statement for its 2002 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 2002 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 2002 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 2002 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
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 February 2, 2002 and
February 3, 2001.
Consolidated Statements of Income for the years ended February 2,
2002, February 3, 2001 and January 29, 2000.
Consolidated Statements of Shareholders' Equity for the years ended
February 2, 2002, February 3, 2001 and January 29, 2000.
Consolidated Statements of Cash Flows for the years ended
February 2, 2002, February 3, 2001 and January 29, 2000.
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
February 2, 2002.
32
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 4, 2002 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 4, 2002
- ------------------------
J. Wayne Weaver
/s/ Mark L. Lemond President, Chief Executive Officer April 4, 2002
- ------------------------ and Director
Mark L. Lemond (Principal Executive Officer)
/s/ William E. Bindley Director April 4, 2002
- ------------------------
William E. Bindley
/s/ Gerald W. Schoor Director April 4, 2002
- ------------------------
Gerald W. Schoor
/s/ James A. Aschleman Director April 4, 2002
- ------------------------
James A. Aschleman
/s/ W. Kerry Jackson Senior Vice President - Chief April 4, 2002
- ------------------------ Financial Officer and Treasurer
W. Kerry Jackson (Principal Financial and Accounting
Officer)
33
INDEX TO EXHIBITS
Exhibit
No. Description
- -------- ------------------------------------------------------------------
3-A (i) Restated Articles of Incorporation of Registrant
(1)(ii) Articles of Amendment of Restated Articles of Incorporation
of Registrant
3-B By-laws of Registrant, as amended to date
4 (2)(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
(3)(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
(4)(iii) Second Amendment to Amended and Restated Credit Agreement
and Promissory Notes dated November 8, 2000, between Registrant
and Firstar Bank N.A., First Union National Bank, Old National
Bank and LaSalle Bank National Association
(iv) Third Amendment to Amended and Restated Credit Agreement
and Promissory Notes dated March 18, 2000, between Registrant and
U.S. Bank National Association, First Union National Bank, Old
National Bank and LaSalle Bank National Association
10-D* (5)1989 Stock Option Plan of Registrant and amendments to such Plan
10-E* (6)1993 Stock Option and Incentive Plan of Registrant, as amended
10-F* (5)Executive Incentive Compensation Plan of Registrant
10-G* (7)Outside Directors Stock Option Plan
10-I (5)Non-competition Agreement dated as of January 15, 1993, between
Registrant and J. Wayne Weaver
10-K (5)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* (6)Employee Stock Purchase Plan of Registrant, as amended
10-O* (8)2000 Stock Option and Incentive Plan of Registrant
10-P* (9)Employment and Noncompetition agreement dated August 1, 2001,
between Registrant and Timothy T. Baker
10-Q* (9)Employment and Noncompetition agreement dated August 1, 2001,
between Registrant and Clifton E. Sifford
21 A list of subsidiaries of Shoe Carnival, Inc.
23 Written consent of Deloitte & Touche LLP
-------------------------------------------
34
* 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 exhibit number 3-A(i) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
August 1, 1998 is incorporated herein by reference.
(2) 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.
(3) The copy of this exhibit filed as the same exhibit number to the
Company's Annual Report on Form 10-K for the year ended January 29,
2000 is incorporated herein by reference.
(4) 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 October
28, 2000 is incorporated herein by reference.
(5) 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.
(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 2, 1997 is incorporated herein by reference.
(7) 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.
(8) The copy of this exhibit filed as exhibit number 4.4 to the
Company's Registration Statement on Form S-8 Registration No.
333-60114) is incorporated herein by reference.
(9) 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 4, 2001 is incorporated herein by reference.
35