10-K 1 scvl10-k2001.txt 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 -------------------------------------------------------------------------------- (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.
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