-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NVkzYqo1cepwHCaX9kZLzDax3H9By7LwFIt41/qDcKatPpKh3JVjSUTqtVBIcI7g cctZ28VZl+iPIBM6ivoEcg== 0000895447-02-000015.txt : 20020917 0000895447-02-000015.hdr.sgml : 20020917 20020917144856 ACCESSION NUMBER: 0000895447-02-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020803 FILED AS OF DATE: 20020917 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHOE CARNIVAL INC CENTRAL INDEX KEY: 0000895447 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-SHOE STORES [5661] IRS NUMBER: 351736614 STATE OF INCORPORATION: IN FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-21360 FILM NUMBER: 02765827 BUSINESS ADDRESS: STREET 1: 8233 BAUMGART ROAD CITY: EVANSVILLE STATE: IN ZIP: 47725 BUSINESS PHONE: 8128674039 MAIL ADDRESS: STREET 1: 8233 BAUMGART RD CITY: EVANSVILLE STATE: IN ZIP: 47725 10-Q 1 scvl2ndqtrq2002.txt SHOE CARNIVAL, INC. - 2002 2ND QUARTER FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended August 3, 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 (IRS Employer Identification Number) of incorporation or organization) 8233 Baumgart Road, Evansville, Indiana 47725 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (812) 867-6471 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) NOT APPLICABLE - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X ] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.01 par value, 12,593,656 shares outstanding as of September 12, 2002. - -------------------------------------------------------------------------------- SHOE CARNIVAL, INC. INDEX TO FORM 10-Q Page Part I Financial Information Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets .................... 3 Condensed Consolidated Statements of Income............... 4 Condensed Consolidated Statement of Shareholders' Equity.. 5 Condensed Consolidated Statements of Cash Flows........... 6 Notes to Condensed Consolidated Financial Statements...... 7 Item 2. Management's Discussion and Analysis................. 8-11 Item 3. Quantitative and Qualitative Disclosures............. 11 Part II Other Information Item 6. Exhibits and Reports on Form 8-K..................... 12 Signature..................................................... 13 Certifications................................................ 14 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SHOE CARNIVAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS Unaudited
August 3, February 2, August 4, 2002 2002 2001 -------- ----------- --------- (In thousands) ASSETS Current Assets: Cash and cash equivalents....... $ 6,316 $ 5,459 $ 6,748 Accounts receivable............. 954 1,298 714 Merchandise inventories......... 146,615 135,648 142,528 Deferred income tax benefit..... 316 449 687 Other........................... 3,275 1,816 2,871 ---------- ---------- ---------- Total Current Assets............... 157,476 144,670 153,548 Property and equipment-net......... 62,016 57,249 59,233 ---------- ---------- ---------- Total Assets....................... $ 219,492 $ 201,919 $ 212,781 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable................ $ 49,432 $ 42,108 $ 42,535 Accrued and other liabilities... 12,970 10,452 11,092 Current portion of long-term debt........................... 586 834 946 ---------- ---------- ---------- Total Current Liabilities.......... 62,988 53,394 54,573 Long-term debt..................... 23,447 27,672 45,798 Deferred lease incentives.......... 4,513 4,197 4,229 Deferred income taxes.............. 4,041 4,223 3,660 Other.............................. 511 331 192 ---------- ---------- ---------- Total Liabilities.................. 95,500 89,817 108,452 ---------- ---------- ---------- Shareholders' Equity: Common stock, $.01 par value, 50,000 shares authorized, 13,363 shares issued at August 3, 2002, February 2, 2002 and August 4, 2001................. 134 134 134 Additional paid-in capital...... 65,407 64,752 64,289 Retained earnings............... 63,467 54,251 48,468 Treasury stock, at cost 773, 1,000 and 1,218 shares at August 3, 2002, February 2, 2002 and August 4, 2001........ (5,016) (7,035) (8,562) ---------- ----------- ---------- Total Shareholders' Equity.......... 123,992 112,102 104,329 ---------- ----------- ---------- Total Liabilities and Shareholders' Equity............... $ 219,492 $ 201,919 $ 212,781 ========== =========== ==========
See Notes to Condensed Consolidated Financial Statements 3 SHOE CARNIVAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME Unaudited
Thirteen Thirteen Twenty-six Twenty-six Weeks Ended Weeks Ended Weeks Ended Weeks Ended August 3, 2002 August 4, 2001 August 3, 2002 August 4, 2001 -------------- -------------- -------------- -------------- (In thousands, except per share data) Net sales...... $ 124,626 $ 113,986 $ 254,010 $ 231,172 Cost of sales (including buying, distribution and occupancy costs)........ 88,865 81,732 179,167 163,962 ----------- ----------- ----------- ----------- Gross profit.... 35,761 32,254 74,843 67,210 Selling, general and administrative expenses....... 29,873 27,625 59,634 54,912 ----------- ----------- ----------- ----------- Operating income......... 5,888 4,629 15,209 12,298 Interest expense, net... 200 626 464 1,431 ----------- ----------- ----------- ----------- Income before income taxes... 5,688 4,003 14,745 10,867 Income taxes.... 2,133 1,501 5,529 4,075 ----------- ----------- ----------- ----------- Net income...... $ 3,555 $ 2,502 $ 9,216 $ 6,792 =========== =========== =========== =========== Net income per share: Basic........ $ .28 $ .21 $ .74 $ .57 =========== =========== =========== ========== Diluted...... $ .27 $ .20 $ .71 $ .55 =========== =========== =========== ========== Average shares outstanding: Basic........ 12,566 12,066 12,518 12,018 =========== =========== =========== ========== Diluted...... 13,065 12,467 12,995 12,389 =========== =========== =========== ==========
See Notes to Condensed Consolidated Financial Statements 4 SHOE CARNIVAL, INC. CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY Unaudited
Add'l Common Stock Paid-In Retained Treasury Issued Treasury Amount Capital Earnings Stock Total ------ -------- ------ ------- -------- -------- ----- (In thousands) Balance at February 2, 2002... 13,363 (1,000) $ 134 $64,752 $54,251 $(7,035) $112,102 Exercise of stock options........... 221 655 1,924 2,579 Employee stock purchase plan purchases........ 6 95 95 Net income ........ 9,216 9,216 ------ ----- ----- ------- ------- ------- -------- Balance at August 3, 2002...... 13,363 (773) $ 134 $65,407 $63,467 $(5,016) $123,992 ====== ===== ===== ======= ======= ======= ========
See Notes to Condensed Consolidated Financial Statements 5 SHOE CARNIVAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Unaudited
Twenty-six Twenty-six Weeks Ended Weeks Ended August 3, 2002 August 4, 2001 -------------- -------------- (In thousands) Cash flows from operating activities: Net income.............................. $ 9,216 $ 6,792 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization......... 5,970 5,414 Loss on retirement of assets......... 6 127 Deferred income taxes................ (49) (685) Other .............................. (21) (130) Changes in operating assets and liabilities: Merchandise inventories............. (10,967) (19,493) Accounts receivable................. 344 353 Accounts payable and accrued liabilities........................ 9,842 12,719 Other............................... (1,459) (1,455) ----------- ---------- Net cash provided by operating activities.. 12,882 3,642 ----------- ---------- Cash flows from investing activities: Purchases of property and equipment..... (10,693) (6,735) Lease incentives........................ 514 831 ----------- ---------- Net cash used in investing activities...... (10,179) (5,904) ----------- ---------- Cash flows from financing activities: Borrowings under line of credit......... 124,150 259,525 Payments on line of credit.............. (128,150) (254,525) Payments on capital lease obligations... (520) (441) Proceeds from issuance of stock......... 2,674 1,224 ----------- ---------- Net cash (used in) provided by financing activities................................ (1,846) 5,783 ----------- ---------- Net increase in cash and cash equivalents.. 857 3,521 Cash and cash equivalents at beginning of period................................. 5,459 3,227 ----------- ---------- Cash and cash equivalents at end of period.. $ 6,316 $ 6,748 =========== ========== Supplemental disclosures of cash flow information: Cash paid during period for interest..... $ 605 $ 1,599 Cash paid during period for income taxes. $ 5,312 $ 5,206 Supplemental disclosure of noncash investing activities: Capital lease obligations incurred....... $ 47 $ 174
See Notes to Condensed Consolidated Financial Statements 6 SHOE CARNIVAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Unaudited Note 1 - Basis of Presentation In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments necessary to present fairly the financial position of the Company and the results of its operations and its cash flows for the periods presented. Certain information and disclosures normally included in notes to financial statements have been condensed or omitted according to the rules and regulations of the Securities and Exchange Commission, although the Company believes that the disclosures are adequate to make the information presented not misleading. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. It is suggested that these financial statements be read in conjunction with the financial statements and financial notes thereto included in the Company's 2001 Annual Report. Note 2 - New Accounting Pronouncements In July 2001, the Financial Accounting Standards Board (the "FASB"), issued SFAS No. 143, "Accounting for Asset Retirement Obligations". SFAS No. 143 provides accounting requirements for retirement obligations associated with tangible long-lived assets. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. Management does not believe that the adoption of SFAS No. 143 will have a significant impact on the Company's consolidated financial statements. Effective February 4, 2002 the Company adopted SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The adoption of SFAS No. 144 has not had a significant impact on the financial position or results from operations of the Company. In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections". SFAS No. 145 primarily affects the reporting requirements and classification of gains and losses from the extinguishment of debt, rescinds the transitional accounting requirements for intangible assets of motor carriers, and requires that certain lease modifications with economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. SFAS No. 145 is effective for financial statements issued after April 2002, with the exception of the provisions affecting the accounting for lease transactions, which should be applied for transactions entered into after May 15, 2002, and the provisions affecting classification of gains and losses from the extinguishment of debt, which should be applied in fiscal years beginning after May 15, 2002. Management has determined that the adoption of SFAS No. 145 will have no impact on the Company's consolidated financial statements. In June 2002, the FASB issued SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses accounting for restructuring and similar costs. SFAS 146 supersedes previous accounting guidance, principally Emerging Issues Task Force Issue No. 94-3. The Company will adopt the provisions of SFAS 146 for restructuring activities initiated after December 31, 2002. SFAS 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue 94-3, a liability for an exit cost was recognized at the date of the Company's commitment to an exit plan. SFAS 146 also establishes that the liability should initially be measured and recorded at fair value. Accordingly, SFAS 146 may affect the timing of recognizing future restructuring costs as well as the amounts recognized. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations
Comparable Number of Stores Store Square Footage Store Sales Beginning End of Net End of Increase/ Quarter Ended of Period Opened Closed Period Change Period Decrease - ------------- --------- ------ ------ ------ ------- ------ ----------- May 4, 2002 182 6 0 188 71,000 2,175,000 1.1% August 3, 2002 188 9 0 197 112,000 2,287,000 (0.5%) Year-to-date 182 15 0 197 183,000 2,287,000 0.4% May 5, 2001 165 3 0 168 26,000 1,937,000 2.3% August 4, 2001 168 10 0 178 123,000 2,060,000 2.1% Year-to-date 165 13 0 178 149,000 2,060,000 2.1%
The following table sets forth the Company's results of operations expressed as a percentage of net sales for the periods indicated:
Thirteen Thirteen Twenty-six Twenty-six Weeks Ended Weeks Ended Weeks Ended Weeks Ended August 3, 2002 August 4, 2001 August 3, 2002 August 4, 2001 -------------- -------------- -------------- -------------- Net sales...... 100.0% 100.0% 100.0% 100.0% Cost of sales (including buying, distribution and occupancy costs)....... 71.3 71.7 70.5 70.9 --------- ---------- ---------- --------- Gross profit... 28.7 28.3 29.5 29.1 Selling, general and administra- tive expenses...... 24.0 24.2 23.5 23.8 --------- ---------- ---------- --------- Operating income........ 4.7 4.1 6.0 5.3 Interest expense-net... .1 .6 .2 .6 --------- ---------- ---------- --------- Income before income taxes... 4.6 3.5 5.8 4.7 Income taxes.... 1.7 1.3 2.2 1.8 --------- ---------- ---------- --------- Net income...... 2.9% 2.2% 3.6% 2.9% ========= ========== ========== =========
Net Sales Net sales increased $10.6 million to $124.6 million in the second quarter of 2002, a 9.3% increase over net sales of $114 million in the comparable prior year period. The increase was attributable to the 29 stores opened since May 2001 (net of one store closed), partially offset by a comparable store sales decrease of 0.5%. Athletic sales for the quarter achieved comparable store increases, offsetting, for the most part, the comparable store sales decreases in the men's, women's and children's non-athletic categories. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Net sales increased $22.8 million to $254 million in the first half of 2002, a 9.9% increase over net sales of $231.2 million in the comparable prior year period. The increase was attributable to a 0.4% comparable store sales increase and the sales generated by the 32 new stores opened in 2001 and 2002 (net of one store closed). Gross Profit Gross profit increased $3.5 million to $35.8 million in the second quarter of 2002, a 10.9% increase over gross profit of $32.3 million in the comparable prior year period. The Company's gross profit margin increased to 28.7% from 28.3%. As a percentage of sales, the merchandise gross profit margin increased 0.5% and buying, distribution and occupancy costs increased 0.1% as compared to the same period last year. The increase in the merchandise gross profit margin was due to increased margins obtained on the sale of athletic footwear and women's non-athletic footwear. In the first half of 2002, the key merchandise strategy was centered on lowering merchandise inventory levels of seasonal fashion product, particularly women's non-athletic product, in order to reduce our exposure to markdowns, thereby increasing the overall gross profit margin. Gross profit increased $7.6 million to $74.8 million in the first half of 2002, an 11.4% increase over gross profit of $67.2 million in the comparable prior year period. The Company's gross profit margin increased to 29.5% from 29.1% for the first six months of 2001. As a percentage of sales, the merchandise gross profit margin increased 0.5% and buying, distribution and occupancy costs increased 0.1%. Selling, General and Administrative Expenses Selling, general and administrative expenses increased $2.2 million to $29.9 million in the second quarter of 2002 from $27.6 million in the comparable prior year period. As a percentage of sales, these expenses decreased 0.3% to 24.0% from 24.2% last year. During the second quarter of 2002, the Company opened nine stores as compared to 10 stores opened in the second quarter of 2001. Total pre-opening costs in the second quarter of 2002 were $663,000 or 0.5% of sales, as compared to $667,000 or 0.6% of sales, for the second quarter of 2001. Selling, general and administrative expenses increased $4.7 million to $59.6 million in the first half of 2002 from $54.9 million in the comparable prior year period. As a percentage of sales, these expenses decreased to 23.5% from 23.8% last year. Total pre-opening costs in the first half of 2002 were $1.1 million or 0.4% of sales, as compared to $854,000 million or 0.4% of sales, in the first half of 2001. Fifteen stores were opened in the first half of 2002 and 13 stores were opened in the first half of 2001. Pre-opening costs in the third quarter are anticipated to be approximately $950,000 compared to $342,000 in the third quarter last year. The expected higher pre-opening costs are a result of the anticipated opening of ten stores in the third quarter this year versus five stores in the third quarter last year and the grand opening costs expensed in the third quarter for two stores that opened in the last week of the second quarter. Excluding pre-opening costs, selling, general and administrative costs are expected to be flat or slightly down as a percentage of sales in the third quarter of 2002 as compared to the same period in 2001. Interest Expense The decrease in net interest expense in the second quarter and first six months of 2002, as compared with the second quarter and first six months of 2001 resulted from substantially lower average borrowings and a lower effective interest rate. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Income Taxes The effective income tax rate was 37.5% in the second quarter and the first six months of 2002 and for the same time periods in 2001. The effective income tax rate differed from the statutory federal rates due primarily to state and local income taxes, net of the federal tax benefit. Liquidity and Capital Resources The Company's primary sources of funds are cash flows from operations and borrowings under its revolving credit facility. For the first six months of 2002, cash generated by operating activities was $12.9 million compared with an increase of cash of $3.6 million from operations for the first six months of last year. Excluding changes in operating assets and liabilities, cash provided by operating activities was $15.1 million in the first half of 2002 versus $11.5 million in the comparable prior year period. Merchandise inventories increased $4.1 million to $146.6 million at August 3, 2002 from $142.5 million at August 4, 2001. In 2002, the key merchandise strategy is centered on lowering merchandise inventory levels of seasonal fashion product in order to increase the overall gross profit margin. Leaner inventories in the seasonal fashion categories, particularly women's product, are expected to reduce our exposure to markdowns and increase cashflow. While the number of stores operated at the end of the second quarter increased 10.7%, merchandise inventories only increased 2.9%. This resulted in a decrease in merchandise inventories on a per-store basis at the end of the second quarter of 7.1% compared with the end of the second quarter last year. Decreases in merchandise inventories on a per- store basis at quarter-end for the remainder of the year are expected to range from 3% to 6% Working capital decreased to $94.5 million at August 3, 2002 from $99 million at August 4, 2001 and the current ratio was 2.5 to 1 at August 3, 2002 as compared with 2.8 to 1 at August 4, 2001. Long-term debt as a percentage of total capital reduced to 15.9% at the end of the first half of 2002 from 30.5% at the end of the first half of 2001. The decrease in working capital was primarily due to the increase in accounts payable and accrued liabilities. Capital expenditures, net of lease incentives of $514,000, were $10.2 million in the first half of 2002. Of these expenditures, $5.9 million was incurred for new stores. Computer hardware and software purchases totaled $2.2 million, including the purchase in the first quarter of our existing point-of-sale software from the vendor for $1.8 million. Additional conveyors and technology for the distribution center was purchased for $500,000. All other capital additions totaled $1.6 million. The Company opened nine stores in the second quarter bringing the total number of stores opened in 2002 to 15. With the anticipated opening of ten stores in the second half of the year, 25 new stores will have been opened during 2002. Of the 13 stores opened during the first half of 2001, ten stores were opened in the second quarter. Five stores were opened and one store were closed in the second half of 2001, for a total net addition of 17 stores in 2001. The Company currently expects to accelerate the number of new store openings in 2003 to 40 stores, or a 20% store growth rate. Capital expenditures for 2003 are expected to be approximately $17 million to $19 million, of which $13 million to $15 million will be expended for new stores. The actual amount of the Company's cash requirements for capital expenditures depends in part on the number of new stores opened, the amount of lease incentives, if any, received from landlords and the number of stores remodeled. The opening of new stores will be dependent upon, among other things, the availability of desirable locations, the negotiation of acceptable lease terms and general economic and business conditions affecting consumer spending in areas the Company targets for expansion. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The Company's current 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. Capital expenditures, net of lease incentives, for 2002 new stores are expected to average approximately $365,000. The average inventory investment in a new store is expected to range from $450,000 to $750,000, depending on the size and sales expectation of the store and the timing of the new store opening. Pre-opening expenses, such as advertising, salaries, supplies and utilities, are expected to average approximately $80,000 per store in 2002. The Company's credit facility provides for up to $70 million in cash advances and letters of credit. Borrowings under the revolving credit line are based on eligible inventory. Borrowings and letters of credit outstanding under this facility at August 3, 2002 were $23 million and $8.4 million, respectively. The Company anticipates that its existing cash and cash flow from operations, supplemented by borrowings under the credit facility, will be sufficient to fund its planned expansion and other operating cash requirements for at least the next 12 months. Seasonality The Company's quarterly results of operations have fluctuated, and are expected to continue to fluctuate in the future primarily as a result of seasonal variances and the timing of sales and costs associated with opening new stores. Non-capital expenditures, such as advertising and payroll, incurred prior to opening of a new store are charged to expense 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 selling periods: Easter, back-to-school and Christmas. Factors That May Effect Future Results This report on Form 10-Q 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS 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 $100,000 for the first six months of 2002 and $197,000 for the first six months of 2001. 11 SHOE CARNIVAL, INC. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10-R Employment and Noncompetition agreement dated July 1, 2002, between Registrant and Mark L. Lemond 99.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 99.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended August 3, 2002. 12 SHOE CARNIVAL, INC. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed, on its behalf by the undersigned thereunto duly authorized. Date: September 17, 2002 SHOE CARNIVAL, INC. (Registrant) By: /s/ W. Kerry Jackson -------------------- W. Kerry Jackson Senior Vice President and Chief Financial Officer 13 SHOE CARNIVAL, INC. CERTIFICATIONS I, Mark L. Lemond, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Shoe Carnival, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. Date: September 17, 2002 /s/ Mark L. Lemond ------------------ Mark L. Lemond President and Chief Executive Officer I, W. Kerry Jackson, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Shoe Carnival, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. Date: September 17, 2002 /s/ W. Kerry Jackson -------------------- W. Kerry Jackson Senior Vice President and Chief Financial Officer 14 EX-99 3 scvl2qexhibit99-1.txt SHOE CARNIVAL - LEMOND OATH Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Shoe Carnival, Inc. (the "Company") on Form 10-Q for the period ending August 3, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Mark L. Lemond, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Mark L. Lemond - ------------------ President and Chief Executive Officer September 17, 2002 EX-99 4 scvl2qexhibit99-2.txt SHOE CARNIVAL - JACKSON OATH Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Shoe Carnival, Inc. (the "Company") on Form 10-Q for the period ending August 3, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, W. Kerry Jackson, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ W. Kerry Jackson - -------------------- Chief Financial Officer September 17, 2002 EX-10 5 employagree.txt EMPLOYMENT AGREEMENT - LEMOND EMPLOYMENT AND NONCOMPETITION AGREEMENT This EMPLOYMENT AND NONCOMPETITION AGREEMENT (the "Agreement") is made and entered into as of the 1st day of July, 2002, by and between SHOE CARNIVAL, INC., an Indiana corporation with its principle offices located at 8233 Baumgart Road, Evansville, Indiana (the "Company"), and MARK L. LEMOND, an individual residing at 11631 Bluegrass Rd., Evansville, Indiana (the "Employee"). RECITALS WHEREAS, the Company is one of the leading retailers of family shoes in the United States; WHEREAS, the Company desires to retain the services of the Employee upon the terms and conditions set forth herein; and WHEREAS, the Employee desires to be so employed by the Company, to be eligible for potential compensation increases and potential bonus payments for fiscal year 2002 and later, and to be given access to confidential and proprietary information necessary to perform his job, but which the Company would not make available to him but for his signing and agreeing to abide by the terms of this Agreement as a condition of his continuing employment with the Company; and WHEREAS, the Company and the Employee desire to enter into this Agreement to set forth the terms and conditions of the employment relationship between the Company and the Employee; and WHEREAS, in connection with its business, the Company has expended a substantial amount of time, money, and effort to develop and maintain its confidential, proprietary and trade secret information, and that this information, if misused or disclosed, could be very harmful to Company's business and its competitive position in the marketplace. AGREEMENT 1. Term of Employment. The Company hereby agrees to employ Employee and Employee hereby agrees to be employed by the Company, in accordance with the terms and conditions of this Agreement. This Agreement shall become effective on July 1, 2002, and shall end on June 30, 2006. The term shall be extended automatically for one (1) year on each July 1 ("Anniversary Date") beginning July 1, 2003, unless either party hereto gives written notice to the other party not more than ninety (90) days and not less than thirty (30) days prior to an Anniversary Date, in which case no further automatic extension shall occur and the term of this Agreement shall end four (4) years subsequent to the Anniversary Date immediately following such written notice (such term, including any extension is referred to as the "Term"). Notwithstanding the foregoing, the Term shall end on the date of Employee's voluntary retirement from the Company. 2. Duties. The Employee is engaged by the Company as its President and Chief Executive Officer. Unless otherwise consented to by the Employee, the Employee's positions with the Company shall be as its President and Chief Executive Officer. The Employee shall have all the powers and agrees to perform all of the duties associated with those positions, subject to the direction of the Chairman of the Board and the Board of Directors of the Company, and to the provisions of the Articles of Incorporation and Bylaws of the Company. The Employee shall have general executive charge of the Company with all such powers as may be reasonably incident to such responsibilities; and he shall have such other powers and duties as designated in accordance with the Company's Bylaws and as may be assigned to him from time to time by the Chairman of the Board and the Board of Directors. The Employee shall report directly to the Company's Chairman of the Board and the Board of Directors and any executive committee of the Board. The Company agrees to provide the Employee with such accommodations as are suitable to the character of his positions with the Company and adequate for the performance of his duties. During his employment under this Agreement, the Employee agrees to devote substantially his full time, attention and energies to the Company's business. This Agreement shall not be construed as preventing the Employee from investing assets in such form or manner as will not require his services in the daily operations of the affairs of the companies in which such investments are made. This Agreement shall also not be construed as preventing the Employee from serving as an outside director of up to two other for-profit companies (and such additional companies as the Board of Directors may hereafter approve) or from participating in charitable or other not-for-profit activities as long as such activities do not materially interfere with his work for the Company. 3. Compensation of Employee. For all services rendered by the Employee under this Agreement, the Company shall compensate the Employee as follows: 3.1 Base Salary. The Base Salary payable to the Employee under this Agreement shall be that amount set forth in the minutes of the Compensation Committee of the Company's Board of Directors dated April 4, 2002 for the period beginning February 3, 2002 and ending February 1, 2003 ("Base Salary"), payable in accordance with the Company's usual payroll procedures, and subject to all taxes, withholdings and deductions as required by law and as the Employee may authorize. The Compensation Committee of the Company's Board of Directors will review the Base Salary on an annual basis during the Term to determine whether the Base Salary should be adjusted upward. Any such upward adjustment shall take effect at the beginning of each fiscal year. 3.2 Incentive Bonus. The Employee is entitled to participate in the Company's discretionary incentive bonus program in accordance with the terms contained in the then current Incentive Bonus Plan for his position, as may be amended or modified by the Company from time to time. However, Employee agrees that the failure of the Company to award any such bonus and/or other incentive compensation shall not give rise to any claim against the Company. 2 4. Additional Compensation, Benefits, and Obligations. During his employment under this Agreement, Employee is entitled to participate in any and all employee welfare and health benefit plans (including, but not limited to, life insurance, health and medical, dental and disability plans, and Exec-U-Care) and other employee benefit plans, including but not limited to, qualified pension plans, stock purchase plans, and nonqualified deferred compensation plans, established by the Company from time to time; provided, however, the Employee's participation in such plans is subject to the eligibility requirements and other terms of such plans. The Company may change, amend or discontinue any of its employee welfare and health benefit plans at any time during the Term, and nothing in this Agreement shall obligate the Company to institute, maintain or refrain from changing, amending or discontinuing any such plans or programs. 5. Termination of Employment. Employee's employment may be terminated as follows: 5.1 Termination Due to Death. If the Employee dies during the Term, this Agreement shall terminate as of the date of the Employee's death and the Employee's benefits shall be determined in accordance with the survivor's benefits, insurance and other applicable programs of the Company then in effect. Within fifteen (15) days of the Employee's death, the Company shall pay the Employee's designee or his estate (a) that portion of his Base Salary which shall have been earned through the termination date and (b) a bonus in an amount determined by multiplying the bonus earned by the Employee with respect to the Company's last completed fiscal year by a fraction, the numerator of which is the number of days elapsed in the Company's current fiscal year through the termination date and the denominator of which is 365. 5.2 Termination Due to Disability. If the Employee suffers a Disability (as defined in Section 6.2) during the Term, the Company shall have the right to terminate this Agreement by giving the Employee Notice of Termination to which has attached to it a copy of the medical opinion that forms the basis of the determination of Disability. The Employee's employment shall terminate at the close of business on the last day of the Notice Period (as defined in Section 6.6). Upon the termination of this Agreement because of Disability, the Company shall pay the Employee within fifteen (15) business days of the termination date (a) that portion of his Base Salary, at the rate then in effect as provided, which shall have been earned through the termination date and (b) a bonus in an amount determined by multiplying the bonus earned by the Employee with respect to the Company's last completed fiscal year by a fraction, the numerator of which is the number of days elapsed in the Company's current fiscal year through the termination date and the denominator of which is 365. The Employee shall also be entitled to receive any applicable disability insurance benefits resulting from any insurance or other employee benefit programs of the Company. 5.3 Termination by the Company for "Cause" or by the Employee Without "Good Reason." At any time during the Term, the Company may terminate this Agreement for "Cause" as defined in Section 3 6.1 by giving the Employee a Notice of Termination, which has attached to it copies of the Board determination that forms the basis of the Company's action. The Employee's employment shall terminate at the close of business on the last day of the Notice Period. At any time during the Term, the Employee may terminate this Agreement without "Good Reason" as defined in Section 6.3 hereof by giving the Board of Directors of the Company a Notice of Termination. The Employee's employment by the Company shall terminate at the close of business on the last day of the Notice Period. Within fifteen (15) business days after such termination date, the Company shall pay the Employee that portion of his Base Salary, which shall have been earned through the termination date. 5.4 Termination by the Company Without "Cause" or by the Employee for Good Reason." At any time during the Term, the Board of Directors of the Company may terminate this Agreement without Cause by giving the Employee a Notice of Termination, and the Employee's employment by the Company shall terminate at the close of business on the last day of the Notice Period. At any time during the Term, the Employee may terminate this Agreement with "Good Reason" by giving the Company a Notice of Termination which describes the actions, events or beliefs that form the basis of the Employee's action. The Employee's employment shall terminate at the close of business on the last day of the Notice Period. Within five (5) business days after such termination date, the Company shall pay to the Employee (a) that portion of his Base Salary which shall have been earned through the termination date (b) a bonus in an amount determined by multiplying the bonus earned by the Employee with respect to the Company's last completed fiscal year by a fraction, the numerator of which is the number of days elapsed in the Company's current fiscal year through the termination date and the denominator of which is 365 and (c) an amount equal to two times the "Salary Continuation Benefit," as defined in Section 6.4. The Company shall also pay to the Employee an amount equal to one-twelfth of the Salary Continuation Benefit on the first day of each of the 24 calendar months following the date of termination. The Company shall also provide the Employee with the "Medical and Dental Benefits," as defined in Section 6.4, for the remainder of the Term. All of Employee's stock options granted after the date of this Agreement shall contain provisions requiring that such options shall automatically vest upon the termination of Employee under this Section 5.4 and all of such options shall be exercisable by Employee during the remainder of the Term. All of Employee's current stock options shall automatically vest upon the termination of Employee under this Section 5.4. Termination of this Agreement for Good Reason, shall not be deemed to be a voluntary termination by Employee for purposes of any stock option plans of the Company. 4 5.5 Termination by the Employee Upon Retirement. At any time during the Term, the Employee may terminate this Agreement by giving the Company a Notice of Termination advising the Company that he intends to voluntarily retire in accordance with the Company's retirement policies on a date specified in the Notice of Termination. The Employee's employment shall terminate on the date specified in the Notice of Termination. Within fifteen (15) business days after such termination date, the Company shall pay the Employee (a) that portion of his Base Salary which shall have been earned through the termination date and (b) a bonus in an amount determined by multiplying the bonus earned by the Employee with respect to the Company's last completed fiscal year by a fraction, the numerator of which is the number of days elapsed in the Company's current fiscal year through the termination date and the denominator of which is 365. 5.6 Split-Dollar Life Insurance. During the Term, the Company shall keep in effect the current split-dollar life insurance policy or policies on the life of Employee and his spouse in the face amount of $1,000,000. In the event of the termination of this Agreement pursuant to Section 5.2 or Section 5.4, the Company shall pay to Employee a bonus in the amount of (a) the "Company Investment," as defined in the Split Dollar Agreement and (b) an additional amount sufficient to reimburse Employee for all federal, state and local taxes imposed on the amount in (a) above. Employee shall, upon receipt of the above bonus, immediately reimburse the Company for the Company Investment and the Company shall relinquish all interests in the policy or policies. 5.7 Accrued Compensation and Benefits. Notwithstanding any other provision of this Agreement, upon termination of Employee's employment for any reason, Employee shall be entitled to receive all accrued but unpaid compensation, bonuses and benefits under all of the Company's compensation, bonus and benefit plans in which employee is a participant, all in accordance with the terms of such plans. These plans include, without limitation, the Company's 401(k) plan, deferred compensation plan and bonus plans which are earned in a fiscal year, but paid in the following year. 5.8 Internal Revenue Code Limits. Should any payments by the Company to or for the benefit of Employee under this Agreement constitute an "excess parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), then the Company shall pay Employee an additional amount of money that will equal the sum of (a) all excise or other taxes imposed upon Employee by Section 4999 of the Code (excluding any penalties or interest) and (b) all additional state and federal taxes, interest and/or penalties attributable to the additional payments made to Employee pursuant to this Section 5. If an excise tax is imposed pursuant to the Internal Revenue Code of 1986, Employee agrees to immediately notify the Company within ten (10) days of the event, in writing, and Employee hereby gives the Company the right to challenge said imposition. 5 5.9 Payroll Withholdings. The Company may withhold from any compensation or benefits payable under this Agreement all federal, state, city, or other taxes or deductions as may be required pursuant to any law or governmental regulation or ruling. 5.10 Compliance With Post-Employment Restrictions. If Employee breaches any of the covenants or provisions set forth in Sections 7 and 8 of this Agreement, then in such event the Company shall have the right immediately and permanently to discontinue payment and provision of any of the severance compensation and benefits payable under this Agreement. The Employee and Company acknowledge and agree that such remedy is in addition to, and not in lieu of, any and all other legal and/or equitable remedies that may be available to the Company in connection with the Employee's breach or threatened breach of any of the covenants or provisions of this Agreement. 5.11 Mitigation or Reduction of Benefits. Employee shall not be required to mitigate the amount of any payments provided for in this Section 5 by seeking other employment or otherwise. Except as specifically set forth herein, the amount of any payment for benefits provided in this Section 5 shall not be reduced by any compensation or benefits or the amount paid to or earned by the Employee as a result of employment by another employer after the Employee's termination date or otherwise. 5.12 Release Agreement. As a condition of receiving the severance benefits described in Section 5, Employee will be required to sign a standard release agreement acceptable to the Company in which he releases and waives all claims which he may have against the Company or any affiliate, employee, shareholder, officer, director, agent or representative of the Company (except for his rights under this Agreement or any other vested rights Employee may have under any insurance, pension, employee stock ownership or stock option plans sponsored or made available by the Company). The Company will provide such release agreement to Employee at the termination of Employee's employment with the Company. As part of the release agreement, Employee will be required (a) to agree to cooperate with the Company with respect to any business matters about which he has knowledge, including any litigation or threatened litigation (b) agree not to cooperate with any claimants against the Company unless required by law to do so, (c) agree not to make any negative or derogatory comments about the Company or its executives and (d) affirm his post-termination obligations under this Agreement, including without limitation the obligations set forth in Sections 7 and 8. 6. Definitions. 6.1 "Cause" means the occurrence of any one or more of the following events: (a) Employee's conviction for a felony or other crime involving moral turpitude; (b) Employee's willful engaging in illegal conduct or gross misconduct which is injurious to the Company; (c) Employee's willful engaging in any fraudulent or dishonest conduct in his dealings with, or on behalf of, the Company; (d) Employee's willful failure or refusal to follow the lawful and reasonable instructions of the Company's Chairman of the Board or the Board of Directors if such 6 failure or refusal continues for a period of ten (10) days after the Company delivers to Employee a written notice stating the instructions which Employee has failed or refused to follow; (e) Employee's willful material breach of any of his obligations under this Agreement; (f) Employee's material breach of the Company's policies; (g) Employee's use of alcohol or drugs which substantially interferes with the performance of his duties for the Company or which compromises the integrity or reputation of the Company; or (h) Employee's willful engaging in any conduct, which as a result of such conduct, the Company's integrity or reputation is substantially compromised. No act or omission on the part of the Employee shall be considered "willful" unless it is done or omitted in bad faith or without reasonable belief that the action or omission was in the best interests of the Company. Notwithstanding the foregoing, the Employee shall not be deemed to have been terminated for Cause without (i) reasonable notice to the Employee setting forth the reasons for the Company's intention to terminate for Cause, (ii) an opportunity for the Employee, together with his counsel, to be heard before the Board of Directors, and (iii) delivery to the Employee of a Notice of Termination from the Board of Directors finding that in the good faith opinion of a majority of the Board of Directors the Employee was guilty of conduct set forth in one or more of the clauses above and specifying the particulars thereof in detail. 6.2 "Disability" means the inability, in the written opinion of a licensed physician chosen by the Board of Directors, of the Employee, because of injury, illness, disease or bodily or mental infirmity to perform a substantial portion of his ordinary duties and that this condition has existed for a least six months and will more probably than not extend for an additional six months into the future. 6.3 "Good Reason" means: (a) without the Employee's express written consent and excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Employee, (i) the assignment to the Employee of any duties inconsistent in any respect with the Employee's position, authority, duties or responsibilities as contemplated by Section 2, (ii) any other action by the Company which results in a significant diminution in such position, authority, duties or responsibilities, or (iii) any reduction in the Employee's Base Salary or any failure by the Company to comply with any of the provisions of Section 5; (b) any requirement for the Employee to relocate outside of the metropolitan area of his current residence or any relocation of the principal executive office of the Company outside of Evansville, Indiana; (c) any failure of the Company to comply with and satisfy Section 14.1 hereof; 7 (d) any breach by the Company of any other material provision of this Agreement; or (e) notice from the Company pursuant to Section 1 of this Agreement that the Term shall not be automatically extended, but only if Employee terminates his employment within six month's after the date of such notice. 6.4 "Medical and Dental Benefits" refers to the coverage for the Employee and his spouse and dependants under the Company's group medical and dental plan, at no expense to the Employee, as if the Employee had continued as an employee, provided that such continued participation is possible under the terms and provisions of the group medical and dental plan. In the event that participation by the Employee as a former employee, or by his spouse and dependants, in the group medical and dental plan is barred, or if the benefits to the Employee and his spouse and dependants (after taking into account Medicare benefits provided by Title XVIII of the Social Security Act) are reduced to a level below what they were on the date of his termination, or if the Employee elects at any time by notice in writing to the Company, the Company shall arrange to provide the Employee and his spouse and dependants with benefits substantially similar to those which they were receiving under such group medical and dental plan immediately prior to the date of his termination, such benefits to be provided at the Company's expense by means of individual insurance policies, or if such policies cannot be obtained, from the Company's assets. If at any time after termination of his employment, the Employee should accept employment with another employer and if the Employee should become covered under that employer's medical benefit plan, then effective on the date that such coverage commences, the obligation of the Company to provide any medical and dental benefits to the Employee and his spouse and dependants, shall terminate. The medical and dental benefits provided to the Employee and his spouse and dependants after the date of the Employee's termination of employment are intended by the parties to be in lieu of the rights of the Employee to continuation coverage (commonly known as "COBRA") under Section 601 et seq. of the Employee Retirement Income Security Act of 1974 (ERISA), and Section 4908B of the Internal Revenue Code of 1986, as amended (the "Code"), as either of the foregoing statutes may be amended. 6.5 "Notice of Termination" means a written notice delivered by one party notifying the other party of the notifying party's intention to terminate the Employee's employment pursuant to this Agreement. A Notice of Termination shall not be effective unless (a) it specifies the specific provision of Section 5 which forms the basis of the proposed termination; (b) sets forth a proposed termination date not less than fifteen (15) calendar days from the sending of the Notice of Termination, and (c) otherwise complies with the requirements of this Agreement. 6.6 "Notice Period" means the period between the sending of the Notice of Termination and the proposed termination date set forth in such Notice. 8 6.7 "Salary Continuation Benefit" means an annual amount equal to the sum of: (a) the annualized Base Salary of the Employee in effect at the time of termination; plus (b) the largest of the annual bonuses paid to the Employee for the two fiscal years preceding the termination date, or 25% of the Base Salary in effect at the time of termination, whichever is greater. 7. Non-competition. 7.1 General. Employee acknowledges that his position with the Company is special, unique and intellectual in character and his position in the Company places him in a position of confidence and trust with employees and customers of the Company. Employee further acknowledges, recognizes, and represents receipt of sufficient consideration for these restraints in the form of the increased Base Salary and other valuable consideration contained herein. The restrictions and obligations contained in this Section 6 shall survive the term of this Agreement. 7.2 Non-competition. Employee agrees that during his employment with the Company and for a period of two (2) years immediately after the termination of Employee's employment with the Company, whether such employment is pursuant to this Agreement or is without an agreement, thereafter Employee shall not: 7.2.1 Either alone or in concert with others, whether as director, officer, consultant, principal, employee, agent or otherwise, engage in or contribute Employee's knowledge and abilities to any business or entity in competition with the Company ("Competing Business"); 7.2.2 Be employed by, work for, consult with, or act in any other capacity for, any person or entity that is engaged in any Competing Business if in such employment, work or capacity Employee likely would, because of the nature of his position with, or work for, the competitor and his knowledge of the Company's Confidential Information, inevitably use and/or disclose any of the Company's Confidential Information in his work for or with such competitor; 7.2.3 Solicit, recruit, hire, employ or attempt to hire or employ any person who is then or within the preceding thirty (30) day period was, an employee of the Company, or otherwise urge, induce or seek to induce any person to terminate his/her employment with the Company; 7.2.4 Solicit, urge, induce or seek to induce any of the Company's independent contractors, subcontractors, vendors, suppliers, customers or consultants to terminate their relationship with, or representation of, the Company or to cancel, withdraw, reduce, limit or in any manner modify any such person's or entity's business with or representation of, the Company for whatever purpose or reason; 9 7.2.5 Take any action intended to harm the Company or its reputation, which the Company reasonably concludes could lead to unwanted or unfavorable publicity to the Company; 7.2.6 The restrictive time periods set forth in this Section 7.2 shall not expire during any period in which Employee is in violation of any of the restrictive covenants set forth in this Section 7.2, and all restrictions shall automatically be extended by the period Employee was in violation of any such restrictions; 7.2.7 The restrictive covenants contained in this Section 7.2 prohibit Employee from engaging in certain activities directly or indirectly, whether on his own behalf or on behalf of any other person or entity. 7.2.8 The covenants and restrictions in this Section 7.2 are separate and divisible, and to the extent any covenant, provision or portion of Section 7.2 is determined to be unenforceable or invalid for any reason, such unenforceability or invalidity shall not affect the enforceability or validity of the remainder of the Agreement. Should any particular covenant, restriction, provision or portion of Section 7.2 be held unreasonable or unenforceable for any reason, including, without limitation, the time period, geographical area, and/or scope of activity covered by any restrictive covenant, provision or clause, such covenant, provision or clause shall automatically be deemed reformed such that the contested covenant, provision or portion will have the closest affect permitted by applicable law to the original form and shall be given effect and enforced as so reformed to the extent reasonable and enforceable under applicable law. 7.3 Definition of "Competing Business": The term "Competing Business" shall include, but not be limited to: 7.3.1 Any retail business, or any company affiliated with such a business, whether subsidiary, affiliated or a joint venture, which sells footwear at retail to consumers at price points competitive, or likely to be competitive with the Company (including, without limitation, Payless ShoeSource, Inc.; Brown Shoe Company, Inc.; Discount Shoe Warehouse, a division of Value City Department Stores, Inc.; Rack Room (dba); Kohls Corporation; Shoe Station (dba); Shoe City (dba); Shoe Department (dba); Foot Star, Inc.; Finish Line, Inc., and/or any subsidiary or affiliate of any of the aforementioned competitors) within 25 miles of any Company store. 7.3.2 Ownership of an investment of less than 5% of any class of equity or debt security of a publicly-held Competing Business shall not constitute ownership or participation in violation of the above. 7.4 Acknowledgment Regarding Restrictions. Employee acknowledges and agrees that he understands the restrictions in Section 7; that they are reasonable and enforceable, in view of, among other 10 things, the Employee's position within the Company, the highly competitive nature of the Company's business, and the confidential nature of the information the Employee has been provided. Employee further agrees that the Company would not have adequate protection if Employee were permitted to work for its competitors in violation of the terms of this Agreement since the Company would be unable to verify whether its Confidential Information was being disclosed and/ or misused, and whether Employee was involved in diverting the Company's customers and/or its customer goodwill. 7.5 Disclosures Concerning New Employment. Employee agrees that he (a) will immediately, within ten (10) days, notify the Company in writing of his employment, engagement or other affiliation with any other business or entity during the two (2) years immediately following the termination of Employee's employment with the Company and (b) will provide a copy of Section 6 and 7 of this Agreement to any prospective employer before accepting employment or other work engagement with any such employer. 8. Confidential or Proprietary Information 8.1 Confidentiality. As used in this Agreement, the term "Confidential Information" means any and all of the Company's trade secrets, confidential and proprietary information and all other information and data of the Company that is not generally known to third persons who could derive economic value from its use or disclosure, including, without limitation, the Company's profile of prospective or current vendors or customers, business methods and structure, details of the Company's contracts and business matters, employee compensation, personnel information, marketing strategies and plans, business plans, pricing information and strategies, costs information, and financial data, whether or not reduced to writing or other tangible medium of expression, including work product created by Employee in rendering services to the Company. During his employment with the Company and thereafter, Employee will not use or disclose to others any of the Confidential Information except as authorized in writing by the Company or in the performance of work assigned Employee by the Company. Employee also will abide by the Company's policies protecting the Confidential Information. Employee's confidentiality obligations shall continue as long as the Confidential Information remains confidential, and shall not apply to information which becomes generally known to the public through no fault or action of Employee. Employee agrees that the Company owns the Confidential Information and Employee has no rights, title or interest in any of the Confidential Information. At the Company's request or upon termination of Employee's employment with the Company for any reason, Employee will immediately deliver to the Company all materials (including all copies and electronically stored data) containing any Confidential Information in Employee's possession, custody or control. 8.2 Trade Secrets-Developments. All improvements, developments, concepts, and ideas ("Developments") relating to the Company's business, or capable of beneficial use by the Company, including, but not limited to, marketing, confidential and trade secret information, techniques, discoveries, slogans, designs, artwork, and 11 writings, which the Employee has made or will make during his employment with the Company are the sole and exclusive property of the Company without charge to the Company other than the Employee's compensation. 8.3 Acknowledgement. Employee agrees that the restrictions set forth in Sections 8.1 and 8.2 are reasonable and necessary to protect the trade secrets, confidential information, intellectual property rights and goodwill of the Company. The restrictions and obligations contained in this Section 8 shall survive the term of this Agreement. 9. Remedies. In the event of a breach or threatened breach by the Employee of any of the provisions of Sections 7 or 8, the Company shall be entitled to an injunction restraining Employee from such breach, in addition to all other remedies which the Company shall be entitled to pursue. The Company also shall be entitled to recover from Employee all litigation costs and attorneys' fees incurred by the Company in any action or proceeding relating to enforcement of the provisions of Sections 7 or 8 this Agreement in which the Company prevails. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available for such breach, threatened breach, or any breach of this Agreement. 10. Survival of Post-Termination Obligations. Employee acknowledges and agrees that his post-termination obligations under this Agreement, including without limitation Employee's non-competition and confidentiality obligations set forth in Sections 7 and 8 of this Agreement, shall survive the termination of Employee's employment with the Company, regardless whether such termination is voluntary or involuntary, or is with or without cause. 11. Notices. All notices, requests, consents, and other communications under this Agreement shall be in writing and shall be deemed to have been delivered on the date personally delivered or the dated mailed, postage prepaid, by certified mail, return receipt requested, or telegraphed and confirmed, or faxed and confirmed, if addressed to the respective parties as follows; To Employee: Mark L. Lemond 11631 Bluegrass Rd. Evansville, Indiana 47725 To Company: Chairman Shoe Carnival, Inc. 8233 Baumgart Road Evansville, Indiana 47725 Either party hereto may designate a different address by providing written notice of such new address to the other party hereto. 12. Waiver. The failure or delay of any party at any time or times to require performance of, or to exercise any of its powers, rights or remedies with respect to, any term or provision of this Agreement shall not affect such party's right to later enforce any such term or provision. 12 13. Entire Agreement. This Agreement cancels and supersedes all prior negotiations, discussions, commitments and understandings between the parties relating hereto, whether oral or written. This Agreement embodies the entire agreement and understanding between such parties with respect to the matters covered hereby. Neither party shall be bound by any term or condition other than as is expressly set forth herein. This Agreement may not be amended, supplemented or modified except by a written document signed by both Employee and a duly authorized officer of the Company. 14. Assignment. 14.1 Assignment by Company. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the capital stock, business and/or assets of the Company, by agreement in form and substance satisfactory to the Employee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Employee to compensation from the Company in the same amount and on the same terms as the Employee would be entitled hereunder if the Employee terminated his employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the termination date. As used in this Agreement, "Company" shall mean the Company and any successor to its business and/or assets which executes and delivers the agreement provided for in this Section 14.1 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. 14.2 Assignment by Employee. The services to be provided by the Employee to the Company hereunder are personal to the Employee, and the Employee's duties may not be assigned by the Employee; provided, however that this Agreement shall inure to the benefit of and be enforceable by the Employee's personal or legal representatives, executors, and administrators, successors, heirs, distributees, devisees and legatees. If the Employee dies while any amounts payable to the Employee hereunder remain outstanding, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Employee's devisee, legatee, or other designee or, in the absence of such designee, to the Employee's estate. 15. Dispute Resolution. Except as otherwise contemplated by Section 9, the Employee agrees that any dispute or controversy arising under or in connection with this Agreement shall be submitted to binding arbitration. Such arbitration proceeding shall be conducted before an arbitrator selected by mutual agreement of the Employee and the Company and shall be governed by the Employment Dispute Resolution Rules of the American Arbitration Association then in effect. If the parties are unable to select an arbitrator by mutual agreement within thirty (30) days, the arbitrator shall be selected in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association then in effect. Such arbitration shall take place in Evansville, Indiana. Judgment may be entered on the award of the 13 arbitrator in any court having competent jurisdiction; provided, however, that the Employee shall be entitled to seek specific performance of his right to any payments or benefits to be provided until the date of termination of his employment during the pendency of any dispute or controversy arising under or in connection with this Agreement. All of the Employee's costs and expenses of arbitration, including attorney's fees, shall be borne by the Company and paid as incurred, whether or not the Employee prevails in the arbitration. 16. Governing Law: Forum Selection. This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Indiana, without regard to the conflicts of law rules thereof. Any legal action relating to this Agreement shall be commenced and maintained exclusively before any appropriate state court of record in Vanderburgh County, Indiana, or, if necessary because of a federal question mandating jurisdiction in the federal courts is involved, the United States District Court for the Southern District of Indiana, Evansville Division, and the parties hereby submit to the jurisdiction of such courts and waive any right to challenge or otherwise raise questions of personal jurisdiction or venue in any action commenced or maintained in such courts. 17. Severability. The parties intend that the provisions of this Agreement shall be enforced to the fullest extent permissible under the applicable law. Should any provision of this Agreement be unenforceable or invalid for any reason, such unenforceability or invalidity shall not affect the enforceability or validity of the remainder of the Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written. SHOE CARNIVAL, INC.: "Company" MARK L. LEMOND: "Employee" By: /s/ J. Wayne Weaver /s/ Mark L. Lemond ------------------- ------------------ Its: Chairman of the Board of Directors 14 -----END PRIVACY-ENHANCED MESSAGE-----