UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: January 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to __________ Commission file number: 0-21360 SHOE CARNIVAL, INC. (Exact name of registrant as specified in its charter) Indiana 35-1736614 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 8233 Baumgart Road Evansville, Indiana 47711 (Address of principal executive offices) (Zip Code) (812) 867-6471 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $. 01 PAR VALUE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Indicate by check mark if disclosure of delinquent filers pursuant of Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ X ] Aggregate market value of the voting stock held by non-affiliates of the Registrant based on the last sale price for such stock at March 31, 1999 was approximately $101,308,488 (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 16, 1999 was 13,236,642. 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 15, 1999 is incorporated by reference into Part III hereof.
Shoe Carnival, Inc. Evansville, Indiana Annual Report to Securities and Exchange Commission January 30, 1999 PART I ITEM 1. BUSINESS General Shoe Carnival, Inc. (the "Company") is a high volume, value-oriented retailer of family footwear operating predominately in the Midwest, South and Southeastern regions of the United States. The Company adheres to a highly promotional marketing concept that enables it to be competitive in the retail markets it enters. The Company's stores are characterized by a high energy atmosphere designed to encourage customer participation and provide a fun and exciting shopping experience. Business Strategy The Company's goal is to establish itself as one of the nation's leading family footwear retailers and the dominant footwear retailer in each market it serves. To accomplish its goal, the Company provides a selection and variety of footwear normally associated with a "category killer" superstore in an exciting retail environment. In the 52 week period ended January 30, 1999 ("fiscal 1998"), the average size, annual sales and sales per square foot for Shoe Carnival's stores open the full year were approximately 11,500 square feet, $2.8 million and $250, respectively, each substantially above the industry averages. Management believes that shoppers prefer the value, convenience and selection of the superstore retail format and that, as a result, superstores will continue to grow and increase their market share at the expense of department stores, mass merchandisers and traditional specialty retailers. This trend is evidenced by the acceptance of superstores in other specialty niches, including, among others, toys, office products, consumer electronics and do-it-yourself home improvement. Management believes that the Company differentiates itself from its competitors and gains significant competitive advantage through certain business strategies which include: Distinctive Retail Approach. The Company's stores are larger than traditional shoe stores. The Company seeks to create a carnival-like atmosphere in each of its stores by decorating with bright lights, colors and neon signs, and by featuring an in-store "barker" who advertises current specials, organizes contests and games, and assists and educates customers with the features and location of merchandise. This exciting in-store atmosphere is designed to encourage customer participation and spontaneity, producing a sense of urgency to buy. Management believes this highly promotional atmosphere results in various competitive advantages, including increased multiple unit sales, the building of a loyal repeat customer base and the creation of word-of-mouth advertising. Broad Merchandise Assortment. The Company's merchandising strategy is to provide superior value to its customers by offering a broad selection of competitively priced name brand and private label merchandise. The average store carries over 28,800 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 sale and earnings growth is expected to result from the opening of new stores. The opening of new stores will be dependent upon, among other things, the availability of desirable locations, the negotiation of acceptable lease terms and general economic and business conditions affecting consumer spending in the areas the Company targets for expansion. The Company's strategy is to expand into new markets and to consolidate and improve its market share position in its existing markets through the clustering of stores. Clustering involves the operation of multiple locations in a particular metropolitan area or in several smaller markets located in reasonable proximity to one another. Management believes this strategy enables the Company to obtain economies of scale with respect to advertising, distribution and management costs. The Company plans to open 25 to 30 stores in 1999. Thereafter, the Company intends to expand at a rate of approximately 20% to 25% per year. During fiscal 1999, new stores are expected to be located primarily in the North Central, Midwest, Midsouth and Southeast. The Company intends to enter larger markets (populations greater than 400,000) by opening two or more stores at approximately the same time. In smaller markets that can only support a single store, the Company will seek locations in reasonably close proximity to other Company markets. This strategy allows for more efficient management and reduces distribution costs. In addition to new market expansion and consistent with its clustering approach, the Company has targeted certain of its existing markets for additional new stores when appropriate store locations become available. Although opening new stores in existing markets may adversely affect the sales of existing stores, management believes that cost efficiencies and overall incremental sales gains should more than offset any detrimental effect. Prior to entering a new market, the Company performs a market, demographic and competition analysis to evaluate the suitability of the potential market. Potential store site selection criteria include, among other factors, market demographics, traffic counts, the retail mix of a potential strip center, visibility within the center and from major thoroughfares, overall retail activity of the area and proposed lease terms. The time required to open a store after signing a lease depends primarily upon the landlord's ability to deliver the premises to the Company. Upon acceptance of the premises from the landlord, the Company can generally open a store within 30 to 45 days. 3
Merchandising The Company's merchandising strategy is designed to provide a very large selection of quality family footwear at a price competitive with or slightly below that of competitors. The Company's stores carry a broad assortment of current season name brand footwear, supplemented with the Company's private label merchandise and select name brand close-out merchandise. The combination of name brand and private label footwear gives the Company a merchandise assortment that enables it to compete effectively. The mix of merchandise and the name brands offered in a particular store are based upon the demographics of each market, among other factors. The Company typically offers lower prices on both name brand and private label merchandise than department stores and traditional shoe stores. Furthermore, the Company competes with off-price retailers, mass merchandisers and discount stores by offering a wider and deeper selection of merchandise at competitive prices. The Company's stores also carry selected other merchandise such as handbags, wallets, shoe care items, socks and sports apparel. 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 75% 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 1998, 1997 and 1996. 1998 1997 1996 ------ ------ ------ Women's 27.4% 27.2% 27.2% Men's 17.5 16.9 17.7 Children's 16.2 16.4 16.4 Athletic 34.2 34.6 34.0 Accessories and Miscellaneous Items 4.7 4.9 4.7 ------ ------ ------ 100.0% 100.0% 100.0% ====== ====== ====== Pricing The Company's pricing strategy is designed to emphasize value. Initial pricing decisions are guided by gross profit margin targets which vary by merchandise category and depend on whether the item is name brand or private label merchandise. Markdowns are centrally managed by the buying staff through the use of weekly sales and inventory analysis generated by the Company's management information system. In-store signage is used extensively to highlight special promotional markdowns and to advertise markdowns to meet or beat competitors' sale prices. 4
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. The Company directs approximately 59% of its total advertising budget to television and radio, but also utilizes print media (including newspaper inserts and direct mail) and outdoor advertising. A special effort is made to utilize the cooperative advertising dollars offered by vendors whenever possible. By widely advertising through newspaper, television and radio prior to a grand opening, the Company strives to make each new store opening a major retail event. Major promotions during the grand openings and peak selling periods allow customers to win prizes such as cruises, computers, merchandise or cash. Store Operations Management of store operations is the responsibility of the Company's Senior Vice President - Store Operations, who is assisted by divisional managers, regional managers and the individual store managers. The Company's store management structure is flat relative to most other retailers. This permits the Company to reduce management expense by eliminating the district manager position and delegating more responsibility to store managers. Currently, there are two divisions designated as the North and South Divisions. The divisional managers are currently responsible for six and eight regions, but ultimately are expected to manage between ten and fifteen regions. Each regional manager is responsible for the operation of between five and thirteen stores and is required to visit each store periodically, concentrating more heavily on underperforming stores. Regional managers collectively meet with their respective divisional manager on a monthly basis, except during peak sales periods, and quarterly with the Senior Vice President - Store Operations and other members of senior management to discuss Company strategies, merchandise, advertising, financial performance and personnel requirements. Each store has a store manager and one to three assistant managers, depending on the sales volume of the store. The sales staff ranges from 3 to 62 employees depending on the size of the store and the time of year. Store managers and most assistant managers are paid a salary, while all other store employees are paid on an hourly basis. The Company provides an incentive compensation plan for virtually all employees. Regional and store manager incentive plans are based primarily upon the sales and profitability of their respective stores as compared to defined goals. Assistant store managers and other store employees earn incentive compensation based on the store exceeding inventory shrinkage goals. Administrative functions are centrally controlled from corporate headquarters. These functions include accounting, purchasing, store maintenance, information systems, advertising, distribution and pricing. Regional and store managers are expected and encouraged to provide feedback to all corporate departments to improve efficiencies. Regional and store managers are charged with making merchandising decisions necessary to maximize sales and profits primarily though merchandise placement, signage and timely clearance of slower selling items. The Company maintains inventory shrinkage rates (.4% of sales in fiscal 1998) substantially below the retail industry average. Management attributes this success to an in-store loss prevention staff, improved information reporting and surveillance systems in many of the Company's stores. Management also believes that tying incentive compensation for store employees to the achievement of targeted shrinkage levels raises employee awareness of loss prevention. 5
Store Location and Design The number of stores opened and closed for fiscal years 1998, 1997 and 1996 are as follows: Fiscal Year 1998 1997 1996 ------ ------ ------ Stores open at beginning of year 92 93 95 Opened during year 20 4 5 Closed during year 1 5 7 ------ ------ ------ Stores open at end of year 111 92 93 ====== ====== ====== At January 30, 1999, the Company had 111 stores located in 18 states, primarily in the Midwest, South and Southeastern regions of the United States. Although three 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 underperforming stores. In a particular market, potential store site selection criteria include, among other factors, market demographics, traffic counts, the retail mix of a potential retail strip center, visibility within the center and from major thoroughfares, overall retail activity of the area and proposed lease terms. The Company's stores are designed and fixtured to reflect the high energy level of its retail concept and to convey a carnival-like atmosphere. Stores are typically equipped with a sound system, microphone, "Money Machine" and Spin-N-Win(TM) wheel. Open-stock inventories, neon signs, flashing colored lights and large mirrors, striking fixtures and colorful carpet are utilized to make the stores appear larger and more exciting. Merchandise is typically displayed within a store by category, with athletic footwear (and licensed team sports apparel in certain stores) generally located in the center of the store to provide a transition between women's and men's footwear. Checkout counters are located at the front of each store, supermarket style, to facilitate high-volume throughput and minimize inventory shrinkage. The average store has approximately five checkout lanes. As of January 30, 1999, the Company's stores averaged approximately 11,500 square feet, ranging in size from 6,600 to 26,500 square feet, except for an atypical mall store of approximately 2,100 square feet. Currently, the new store prototype calls for between 12,000 and 15,000 square feet but stores in the 8,000 square foot range will be considered. The size of the stores is dependent upon, among other factors, the location of the store and the population base the store is expected to service. The sales area of most stores is approximately 85% of the gross store size. Capital expenditures for new stores are expected to average approximately $350,000, including point-of-sale equipment which is generally acquired through equipment leasing transactions. The average inventory in a new store is expected to range from $550,000 to $850,000, 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. 6
Distribution The Company operates a single distribution facility in Evansville, Indiana. A 92,000 square foot addition to the distribution center is expected to be completed by mid-1999, bringing the facility to a total of 200,000 square feet. Management anticipates that the expanded facility will be able to meet the distribution needs of up to 400 stores. The distribution center processes virtually all merchandise prior to shipping to the stores. At a minimum, this includes count verification, price and bar code labeling of each unit, redistribution of an order into size assortments and allocation of shipments to individual stores. Once a distribution order form is received from the buying staff, the remainder of the distribution process, including packing, allocating, storing and shipping is essentially paperless. Merchandise is shipped to each store from one to two times a week, depending on store volume, proximity to other stores and proximity to the distribution center. The majority of shipments are handled by a dedicated carrier, with occasional use of common carriers. Management Information Systems The Company has devoted significant resources to expand its sophisticated information technology systems. The corporate mainframe is connected to every store via a Wide Area Network, providing up-to-date sales and inventory information as required. Each store has an independent point-of-sale controller, with two to 13 point-of-sale terminals per store. To provide maximum flexibility and maintain data integrity, the Company's mainframe 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. Competition The retail footwear business is highly competitive. The Company believes that the principal competitive factors in its industry are merchandise selection, price, fashion, quality, location, store environment and service. The Company competes primarily with department stores, shoe stores, sporting goods stores and mass merchandisers. Many of the Company's competitors are significantly larger and have substantially greater financial and other resources than the Company. However, management believes that its distinctive retail format, in combination with its wide merchandise selection, competitive prices and low operating costs, enable the Company to compete effectively in each market that it enters. Employees At January 30, 1999, the Company had approximately 2,027 employees, of which approximately 930 were employed on a part-time or seasonal basis. The number of employees fluctuates during the year primarily due to seasonality. None of the Company's employees is represented by a labor union. Management attributes a large portion of the Company's success in various areas of cost control to its inclusion of virtually all employees in incentive compensation plans. The Company also contributes all or a portion of the cost of medical, disability and life insurance coverage for those employees who are eligible to participate in Company sponsored plans. All employees also receive discounts on Company merchandise. The Company considers its relationship with its employees to be satisfactory. 7
Trademarks The Company owns the following federally registered trademarks and servicemarks: Shoe Carnival(R), The Carnival(R), Nuff Said(R), Donna Lawrence(R), Oak Meadow(R), Victoria Spenser(R), Chase and Brittany's(R), Via Nova(R), Fresh Stuff(R), Innocence(R) and Carnival Lites(R). The Company believes its marks are valuable and, accordingly, intends to maintain its marks and the related registrations. The Company is not aware of any pending claims of infringement or other challenges to the Company's right to use its marks. ITEM 2. PROPERTIES The Company leases all existing stores and intends to lease all future stores. All leases for existing stores provide for fixed minimum rentals and most provide for contingent rental payments based upon various specified percentages of sales above minimum levels. Certain leases also contain escalator clauses for increases in minimum rentals, operating costs and taxes. The Company owns its headquarters and distribution center which are located at 8233 Baumgart Road, Evansville, Indiana. See ITEM 1 "Business--Distribution." ITEM 3. LEGAL PROCEEDINGS The Company is involved in various legal proceedings incidental to the conduct of its business. Management does not expect that any such proceedings will have a material adverse effect on the Company's financial position and results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company did not submit any matters to a vote of security holders during the fourth quarter of the 1998 fiscal year. 8
Executive Officers of the Company Name Age Position - ------------------ --- ----------------------------------------------- J. Wayne Weaver 64 Chairman of the Board and Director Mark L. Lemond 44 President, Chief Executive Officer and Director Timothy T. Baker 42 Senior Vice President - Store Operations Clifton E. Sifford 45 Senior Vice President - General Merchandise Manager Larry L. Linville 56 Vice President - Information Systems W. Kerry Jackson 37 Vice President - Chief Financial Officer and Treasurer David A. Kapp 35 Vice President - Inventory Controller 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 capabilities with Russell's Shoe Biz, Inc. Prior to joining Russell's Shoe Biz, Inc. in 1987, Mr. Lemond was a partner with a public accounting firm. He is a Certified Public Accountant. Mr. Baker has been employed by the Company as Vice President - Store Operations since May 1992. Prior to that time, he served as a Regional Manager of the Company. Mr. Baker was promoted to Senior Vice President on March 25, 1994. From 1983 to June 1989, Mr. Baker held various retail positions with Payless ShoeSource. Mr. Sifford has been employed by the Company as Senior Vice President - General Merchandise Manager since April 13, 1997. Prior to joining the Company and for at least the past five years, Mr. Sifford served as merchandise manager-shoes for Belk Store Services, Inc. Mr. Linville has been employed by the Company as Vice President - Management Information Systems since August 1994. From February 1990 to February 1994, he served as vice president of information systems for Dollar General Corporation. Prior to 1990, Mr. Linville was employed in various management positions within the information systems areas of Hecks Department Stores (2 years) and Service Merchandise, Inc. (11 years). Mr. Jackson has been employed by the Company as Vice President - Chief Financial Officer and Treasurer since September 1996. From January 1993 to September 1996, Mr. Jackson served as Vice President - Controller and Chief Accounting Officer. Prior to January 1993, Mr. Jackson held various accounting positions with the Company. Prior to joining the Company in 1988, Mr. Jackson was associated with a public accounting firm. He is a Certified Public Accountant. Mr. Kapp has been employed by the Company since March 1988, most recently as Vice President - Inventory Controller and Secretary. Prior to assuming his current position, Mr. Kapp held various accounting and retail positions with the Company and its predecessor. He is a Certified Cash Manager. 9
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 1999 Annual Meeting of Shareholders.) 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 1998 and 1997 are as follows: High Low -------- -------- Fiscal Year 1998 First Quarter $ 12.75 $ 8.13 Second Quarter 15.00 10.06 Third Quarter 11.06 6.50 Fourth Quarter 11.31 8.50 Fiscal Year 1997 First Quarter $ 6.50 $ 4.38 Second Quarter 11.00 6.25 Third Quarter 11.50 6.88 Fourth Quarter 9.63 7.50 On March 23, 1993, the Company consummated its initial public offering of 3,622,500 shares of Common Stock at a price to the public of $8.67 per share. As of April 16, 1999, there were approximately 310 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 1998. 10
ITEM 6. Selected Financial Data <TABLE> <CAPTION> (In thousands, except share and operating data) Fiscal years (1) 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- <S> <C> <C> <C> <C> <C> Income Statement Data: Net sales $280,157 $246,520 $233,945 $228,263 $214,528 Cost of sales (including buying, distribution and occupancy costs) 196,141 173,953 168,814 176,019 158,614 -------- -------- -------- -------- -------- Gross profit 84,016 72,567 65,131 52,244 55,914 Selling, general and administrative expenses 66,464 59,438 57,405 58,946 52,907 Restructuring (credit) charge (474) 3,282 267 -------- -------- -------- -------- -------- Operating income (loss) 17,552 13,129 8,200 (9,984) 2,740 Interest expense 507 912 1,242 1,626 665 -------- -------- -------- -------- -------- Income (loss) before income taxes 17,045 12,217 6,958 (11,610) 2,075 Income tax expense (benefit) 6,818 4,826 2,818 (4,420) 874 -------- -------- -------- -------- -------- Net income (loss) $ 10,227 $ 7,391 $ 4,140 $ (7,190) $ 1,201 ======== ======== ======== ======== ======== Net income (loss) per share: Basic (2) $ .78 $ .57 $ .32 $ (.55) $ .09 Diluted (2) $ .76 $ .56 $ .32 $ (.55) $ .09 Average shares outstanding: Basic 13,150 13,049 13,023 13,019 13,024 Diluted 13,429 13,238 13,029 13,031 13,051 - -------------------------------------------------------------------------------- Selected Operating Data (3): Stores open at end of period 111 92 93 95 87 Square footage of store space at year end (000's) 1,274 1,021 1,026 1,024 939 Average sales per store (000's)$ 2,791 $ 2,720 $ 2,543 $ 2,497 $ 3,145 Average sales per square foot $ 250 $ 245 $ 233 $ 230 $ 277 Comparable store sales 3.6% 6.1% (1.1%) (10.0%) (3.4%) - -------------------------------------------------------------------------------- Balance Sheet Data: Working capital $ 47,668 $ 48,889 $ 45,090 $ 50,206 $ 60,766 Total assets 120,761 96,201 93,926 102,265 105,155 Long-term debt and other indebtedness 1,361 6,133 9,621 18,922 20,597 Total shareholders' equity 82,667 71,609 63,772 59,571 67,577 - -------------------------------------------------------------------------------- <FN> (1) On February 9, 1995, the Company's Board of Directors approved a change in the fiscal year to a 52/53 week year ending on the Saturday closest to January 31. Unless otherwise stated, references to years 1998, 1997, 1996, 1995 and 1994 relate respectively to the fiscal years ended January 30, 1999, January 31, 1998, February 1, 1997, February 3, 1996 and December 31, 1994. Fiscal year 1995 consisted of 53 weeks and the other fiscal years consisted of 52 weeks. The Company recorded a net loss of $816,000 for the four week transition period ended January 28, 1995. (2) Per share data have been restated for the adoption of SFAS 128. (3) Selected Operating Data has been adjusted to a comparable 52 week basis for 1995. </FN> </TABLE> 11
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 1998, 1997 and 1996 relate respectively to the fiscal years ended January 30, 1999, January 31, 1998 and February 1, 1997. 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: 1998 1997 1996 ------- ------- ------- Net sales 100.0% 100.0% 100.0% Cost of sales (including buying, distribution and occupancy costs) 70.0 70.6 72.2 ------- ------- ------- Gross profit 30.0 29.4 27.8 Selling, general and administrative expenses 23.7 24.1 24.5 Restructuring credit (0.2) ------- ------- ------- Operating income 6.3 5.3 3.5 Interest expense 0.2 0.3 0.5 ------- ------- ------- Income before income taxes 6.1 5.0 3.0 Income tax expense 2.4 2.0 1.2 ------- ------- ------- Net income 3.7% 3.0% 1.8% ======= ======= ======= 1998 Compared to 1997 Net Sales Net sales increased $33.6 million to $280.2 million in 1998, a 13.6% increase over net sales of $246.5 million in 1997. The increase was attributable to the opening of 20 stores in 1998, four stores in 1997 and a comparable store sales increase of 3.6%. Increases in comparable store sales were realized in all major footwear categories with the exception of the women's category which was even for the year. Average sales per square foot in stores open the full year increased to $250 in 1998 from $245 in 1997. Sales of private label and non-name brand footwear constituted 13.5% and 16.6% of total footwear sales in 1998 and 1997, respectively. Gross Profit Gross profit increased $11.4 million to $84.0 million in 1998, a 15.8% increase from gross profit of $72.6 million in 1997. The Company's gross profit margin increased to 30.0% from 29.4%. As a percentage of sales, the merchandise gross profit margin increased by 0.4% while buying, distribution and occupancy costs decreased 0.2%. The increase in the merchandise gross profit margin was largely the result of the increased margin realized on the sale of athletic footwear. 12
Selling, General and Administrative Expenses Selling, general and administrative expenses increased $7.0 million to $66.4 million in 1998 from $59.4 million in 1997. As a percentage of sales, these expenses decreased 0.4% in 1998. An increasing sales base helped to leverage administrative and hourly payroll expenses and reduce overall expenses as a percent of sales in spite of increases in advertising and pre-opening costs. The Company's policy is to expense all non-capital expenditures incurred prior to the opening of a new store in the month of opening. The aggregate of pre-opening expenses for 20 new stores in 1998 was approximately $1.7 million, or 0.6% of sales, and $211,000, or 0.1% of sales for four new stores in 1997. Interest Expense Net interest expense of $507,000 in 1998 resulted from interest expense of $553,000 and interest income of $46,000. Net interest expense of $912,000 in 1997 resulted from interest expense of $946,000 and interest income of $34,000. The decrease in interest expense was attributable to lower average debt balances in 1998. The weighted average interest rate on total debt was 8.5% in 1998 and 7.7% in 1997. Income Taxes The increase in the effective income tax rate for 1998 to 40.0%, as compared to 39.5% in 1997 was primarily due to an increase in the statutory rate resulting from higher taxable income. The effective income tax rate in 1998 differed from the statutory rate due primarily to state and local income taxes, net of the federal tax benefit. 1997 Compared to 1996 Net Sales Net sales increased $12.6 million to $246.5 million in 1997, a 5.4% increase over net sales of $233.9 million in 1996. The increase was attributable to the opening of four stores in 1997, five stores in 1996 and a comparable store sales increase of 6.1%, partially offset by the closing of five stores in 1997. All major product categories recorded increases in comparable store sales resulting from increases in the average price realized on the sale of merchandise. Average sales per square foot in stores open the full year increased 5.2% to $245 in 1997 from $233 in 1996. The increase was a result of the comparable store increase and the closing of low productivity stores. Sales of private label and non-name brand footwear constituted 16.6% and 17.3% of total footwear sales in 1997 and 1996, respectively. Gross Profit Gross profit increased $7.4 million to $72.6 million in 1997, an 11.4% increase from gross profit of $65.1 million in 1996. The Company's gross profit margin increased to 29.4% from 27.8%. As a percentage of sales, buying, distribution and occupancy costs decreased 0.3% while the merchandise gross profit margin increased by 1.3%. The increase in the gross profit margin was broad based with all major product categories improving over the prior year. During 1996, certain initiatives were undertaken to improve the gross profit margin. These initiatives included raising the average sale price realized on the sale of footwear by reducing the discounting allowed on merchandise sold and improving the quality of footwear sold. 13
Selling, General and Administrative Expenses Selling, general and administrative expenses increased $2.0 million to $59.4 million in 1997 from $57.4 million in 1996. As a percentage of sales, these expenses decreased 0.4% in 1997. The Company implemented a new advertising campaign and consequently increased advertising expenditures in 1997. However, an increase in comparable store sales combined with cost control initiatives in payroll and other cost areas resulted in a decrease in total expenses as a percent of sales. The Company's policy is to expense all non-capital expenditures incurred prior to the opening of a new store in the month of opening. Pre-opening expenses for new stores aggregated approximately $211,000, or 0.1% of sales for four new stores in 1997, and $427,000, or 0.2% of sales for five new stores in 1996. Interest Expense Net interest expense of $912,000 in 1997 resulted from interest expense of $946,000 and interest income of $34,000. Net interest expense of $1.2 million in 1996 resulted from interest expense of $1.3 million and interest income of $43,000. The decrease in interest expense was attributable to lower average debt balances in 1997 and a decrease in the weighted average interest rate on total debt to 7.7% in 1997 from 8.3% in 1996. Income Taxes The reduction in the effective income tax rate for 1997 to 39.5%, as compared to 40.5% in 1996 was primarily due to lower effective income tax rates in certain states. The effective income tax rate in 1997 differed from the statutory rate due primarily to state and local income taxes, net of the federal tax benefit. Restructuring During the fourth quarter of 1995, the Company recorded a restructuring charge of $3.3 million to close eight unprofitable stores. The results of operations in the fourth quarter of 1996 includes a credit of $474,000 resulting from the partial reversal of the restructuring expense recorded in 1995. The expense reversal was primarily due to the favorable negotiation of lease termination costs for the stores closed in 1996. Liquidity and Capital Resources The Company's sources and uses of cash are summarized as follows: (000's) Fiscal years 1998 1997 1996 -------- -------- -------- Net income plus depreciation and amortization $ 16,795 $ 13,145 $ 9,376 Restructuring credit (474) Deferred income taxes 414 219 1,550 Working capital decreases (increases) 1,326 (3,149) 6,059 Other operating activities 80 400 117 -------- ------- -------- Net cash provided by operating activities 18,615 10,615 16,628 Net cash used in investing activities (12,487) (7,469) (6,577) Net cash used in financing activities (5,755) (3,200) (9,326) -------- ------- -------- Net increase (decrease) in cash and cash equivalents 373 (54) 725 Cash and cash equivalents at beginning of year 1,571 1,625 900 -------- ------- -------- Cash and cash equivalents at end of year $ 1,944 $ 1,571 $ 1,625 ======== ======= ======== 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 $18.6 million, $10.6 million and $16.6 million in 1998, 1997 and 1996, respectively. Excluding changes in operating assets and liabilities, $17.3 million, $13.8 million and $10.6 million was provided by operating activities in 1998, 1997 and 1996, respectively. Merchandise inventories increased $15.3 million to $75.4 million at January 30, 1999 compared with $60.1 million at January 31, 1998. The increase in merchandise inventories resulted primarily from the 19 additional stores operated at January 30, 1999. Cash provided by operating activities was used during 1998 to fund capital expenditures and to reduce long-term debt by $4.7 million. 14
Working capital was $47.7 million at January 30, 1999 and $48.9 million at January 31, 1998. The current ratio at January 30, 1999 was 2.5 as compared to 4.3 at January 31, 1998. The decrease from the prior year was primarily a result of an increase in accounts payable due to higher receipts of spring merchandise in January 1999 as compared to the prior year. As a result of a $4.7 million reduction in debt, long-term debt as a percentage of total capital (long-term debt plus shareholders' equity) was reduced to 1.6% at January 30, 1999 as compared to 7.9% at January 31, 1998. Capital expenditures net of lease incentives were $14.6 million in 1998, $7.5 million in 1997 and $6.2 million in 1996. These amounts include $1.9 million and $162,000 of capital lease obligations incurred in 1998 and 1996, respectively. No capital lease obligations were incurred in 1997. Of the 1998 expenditures, $6.9 million was incurred for new stores, $2.3 million was incurred for the expansion of the existing distribution center and $2.2 million was incurred for a major upgrade to the point-of-sale system. The remaining capital expenditures in 1998 were primarily for various store improvements, enhancements to computer systems and distribution equipment. Capital expenditures, including assets acquired through leasing arrangements but net of lease incentives, are expected to be $19 million to $21 million in fiscal 1999. 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 1999, the Company intends to open approximately 25 to 30 stores at an expected aggregate cost of between $9 million and $11 million. In addition, the completion of a 92,000 square foot addition to the existing distribution system is expected to cost approximately $4.6 million. The remaining capital expenditures are expected to be incurred for various store improvements and visual presentation enhancements and upgrades to administrative computer systems. The Company's current store prototype utilizes between 12,000 and 15,000 square feet depending upon, among other factors, the location of the store and the population base the store is expected to service. Net capital expenditures for a new store is expected to average approximately $350,000, including point-of-sale equipment which is generally acquired through equipment leasing transactions. The average inventory investment in a new store is expected to range from $550,000 to $850,000, depending on the size and sales expectation of the store and the timing of the new store opening. Pre-opening expenses, such as advertising, salaries, supplies and utilities, are expected to average approximately $80,000 per store. On a per-store basis, for the 20 stores opened during 1998, the initial inventory investment averaged $617,000, capital expenditures averaged $403,000 and pre-opening expenses averaged $83,000. At January 31, 1998, the Company's credit facility provided for $35 million in cash advances and letters of credit issuances. Borrowings under the credit facility are based on eligible inventory. At January 30, 1999, there were no cash advances outstanding on the credit facility. Letters of credit outstanding at January 30, 1999, were $6.9 million. On April 16, 1999, the credit agreement was amended to allow for up to $45 million in cash advances and letters of credit and to extend the maturity date to March 31, 2001. Additionally, a covenant limiting the payment of dividends was eliminated. 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. 15
Impact of Year 2000 The "Year 2000 Issue" generally refers to computer systems that were designed and developed using two digits, rather than four, to specify the year. As a result, such systems that utilize a two digit date may not be able to distinguish the year 2000 from the year 1900. This could result in erroneous data or complete failure of some systems unless corrective actions are taken. Management initiated a company wide program in 1998 to address the Year 2000 issue. The phases of the program include (1) creating awareness of the issues through education and training; (2) assessing the extent of the problem and determining resource requirements; (3) renovation of the systems by modifying, upgrading or replacing affected systems; (4) validation of the renovations through testing and implementation; and (5) contingency planning. The Company has completed the awareness and assessment phases and is 75% complete on the renovation phase. The testing phase is ongoing as hardware or system software is modified, upgraded or replaced but is expected to be completed by the third quarter of 1999. Revisions to existing business interruption contingency plans to address specific issues related to the Year 2000 problem will also be completed in the third quarter of 1999. The Company estimates the total cost of the two year Year 2000 project to be approximately $280,000, of which approximately $142,000 was incurred and expensed in 1998. Allocating existing resources rather than incurring incremental costs should fund the majority of the estimated Year 2000 compliance costs. The above costs do not include expenditures of approximately $2.2 million for a major upgrade to the Company's point-of-sale systems, which upgrade was not made for Year 2000 compliance purposes. The Company does not anticipate the costs of the Year 2000 project will have a material adverse effect on the Company's financial position, results of operations or cash flows in future periods. The anticipated impact and costs of the Year 2000 project, as well as the date on which the Company expects to complete the project, are based on management's best estimates using information currently available and numerous assumptions about future events. However, there can be no guarantee that the estimates will be achieved and actual results could differ materially from those planned. Formal inquiries are being made by the Company of its major suppliers and other third-party entities with which it has business relations to obtain assurances of their Year 2000 compliance. Appropriate contingency plans will be developed in the event that a significant exposure is identified relative to the dependencies on third-party systems. However, there can be no assurance that the systems of other companies on which the Company relies upon will be corrected in a timely manner, or that any such failure would not have a material adverse effect on the Company. Seasonality and Inflation 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 in the month the store is opened. Therefore, results of operations may be adversely affected in any quarter in which the Company opens new stores. The Company has three distinct peak selling periods: Easter, back-to-school and Christmas. Factors That May Effect Future Results This Annual Report contains certain forward looking statements that involve a number of risks and uncertainties. Among the factors that could cause actual results to differ materially are the following: general economic conditions in the areas of the United States in which the Company's stores are located; changes in the overall retail environment and more specifically in the apparel and footwear retail sectors; the impact of competition, weather patterns, consumer buying trends and the ability of the Company to identify and respond to emerging fashion trends; the availability of desirable store locations and management's ability to negotiate acceptable lease terms and open new stores in a timely manner; and changes in the political and economic environments in the People's Republic of China, where most of the Company's private label products are manufactured, and the continued favorable trade relationships between China and the United States. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is not currently subject to any material market risk. 16
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 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 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 balance sheets of Shoe Carnival, Inc., as of January 30, 1999 and January 31, 1998 and the related statements of income, shareholders' equity and cash flows for the years ended January 30, 1999, January 31, 1998 and February 1, 1997. 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 based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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 financial statements present fairly, in all material respects, the financial position of Shoe Carnival, Inc., at January 30, 1999 and January 31, 1998, and the results of its operations and its cash flows for the years ended January 30, 1999, January 31, 1998 and February 1, 1997, in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth. /s/ Deloitte & Touche LLP Deloitte & Touche LLP Stamford, Connecticut March 5, 1999 (April 16, 1999 as to Note 5) 17
<TABLE> <CAPTION> Shoe Carnival, Inc. Balance Sheets January 30, January 31, (In thousands) 1999 1998 ----------- ----------- <S> <C> <C> Assets Current Assets: Cash and cash equivalents $ 1,944 $ 1,571 Accounts receivable 567 781 Notes receivable from shareholders 22 Merchandise inventories 75,390 60,091 Deferred income tax benefit 782 933 Other 1,222 834 ----------- ----------- Total Current Assets 79,905 64,232 Property and equipment-net 40,856 31,969 ----------- ----------- Total Assets $ 120,761 $ 96,201 =========== =========== Liabilities and Shareholders' Equity Current Liabilities: Accounts payable $ 25,698 $ 10,168 Accrued and other liabilities 5,757 4,487 Current portion of long-term debt 782 688 ----------- ----------- Total Current Liabilities 32,237 15,343 Long-term debt 1,361 6,133 Deferred lease incentives 2,424 1,308 Deferred income taxes 2,072 1,808 ----------- ----------- Total Liabilities 38,094 24,592 ----------- ----------- Shareholders' Equity: Common stock, $. 01 and no par value, 50,000 shares authorized 13,179 and 13,088 shares issued and outstanding 132 Additional paid-in capital 62,543 61,844 Retained earnings 19,992 9,765 ----------- ----------- Total Shareholders' Equity 82,667 71,609 ----------- ----------- Total Liabilities and Shareholders' Equity $ 120,761 $ 96,201 =========== =========== </TABLE> See notes to financial statements 18
<TABLE> <CAPTION> Shoe Carnival, Inc. Statements of Income (In thousands, except per share data) For fiscal years ended January 30, January 31, February 1, 1999 1998 1997 ----------- ----------- ----------- <S> <C> <C> <C> Net sales $ 280,157 $ 246,520 $ 233,945 Cost of sales (including buying, distribution and occupancy costs) 196,141 173,953 168,814 ----------- ----------- ----------- Gross profit 84,016 72,567 65,131 Selling, general and administrative expenses 66,464 59,438 57,405 Restructuring credit (474) ----------- ----------- ----------- Operating income 17,552 13,129 8,200 Interest expense 507 912 1,242 ----------- ----------- ----------- Income before income taxes 17,045 12,217 6,958 Income tax expense 6,818 4,826 2,818 ----------- ----------- ----------- Net income $ 10,227 $ 7,391 $ 4,140 =========== =========== =========== Net income per share: Basic $ .78 $ .57 $ .32 Diluted $ .76 $ .56 $ .32 Average shares outstanding: Basic 13,150 13,049 13,023 Diluted 13,429 13,238 13,029 </TABLE> See notes to financial statements 19
<TABLE> <CAPTION> Shoe Carnival, Inc. Statements of Shareholders' Equity (In thousands) Additional Retained Common Stock Paid-In Earnings Shares Amount Capital (Deficit) Total ---------------- ---------- --------- -------- <S> <C> <C> <C> <C> <C> Balance at February 3, 1996 13,019 $ 1,302 $ 60,035 $ (1,766) $ 59,571 Employee stock purchase plan purchases 13 61 61 Elimination of par value (1,302) 1,302 Net income 4,140 4,140 ------ ------- -------- -------- -------- Balance at February 1, 1997 13,032 0 61,398 2,374 63,772 Compensation from stock option grant 158 158 Exercise of stock options 41 191 191 Employee stock purchase plan purchases 15 97 97 Net income 7,391 7,391 ------ ------- -------- -------- -------- Balance at January 31, 1998 13,088 0 61,844 9,765 71,609 Exercise of stock options 76 690 690 Employee stock purchase plan purchases 15 141 141 Increase in par value 132 (132) Net income 10,227 10,227 ------ ------- -------- -------- -------- Balance at January 30, 1999 13,179 $ 132 $ 62,543 $ 19,992 $ 82,667 ====== ======= ======== ======== ======== </TABLE> See notes to financial statements 20
<TABLE> <CAPTION> Shoe Carnival, Inc. Statements of Cash Flows (In thousands) Fiscal years ended January 30, January 31, February 1, 1999 1998 1997 ----------- ----------- ----------- <S> <C> <C> <C> Cash Flows From Operating Activities Net income $ 10,227 $ 7,391 $ 4,140 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,568 5,754 5,236 Restructuring credit (474) Loss on retirement of assets 380 392 305 Deferred income taxes 414 219 1,550 Compensation for forgiveness of debt 158 Other (300) (150) (188) Changes in operating assets and liabilities: Merchandise inventories (15,299) (851) 3,459 Accounts receivable 214 137 69 Accounts payable and accrued liabilities 16,801 (2,506) (1,221) Other (390) 71 3,752 ----------- ----------- ---------- Net cash provided by operating activities 18,615 10,615 16,628 ----------- ----------- ---------- Cash Flows From Investing Activities Purchases of property and equipment (14,061) (7,493) (6,294) Notes from shareholders 18 Lease incentives 1,416 (303) Other 158 24 2 ----------- ----------- ---------- Net cash used in investing activities (12,487) (7,469) (6,577) ----------- ----------- ---------- Cash Flows From Financing Activities Borrowings under line of credit 102,675 141,600 174,450 Payments on line of credit (108,375) (144,400) (183,200) Payments on long-term debt (886) (688) (637) Proceeds from issuance of stock 831 288 61 ----------- ----------- ---------- Net cash used in financing activities (5,755) (3,200) (9,326) ----------- ----------- ---------- Net increase (decrease) in cash and cash equivalents 373 (54) 725 Cash and cash equivalents at beginning of year 1,571 1,625 900 ----------- ----------- ---------- Cash and Cash Equivalents at End of Year $ 1,944 $ 1,571 $ 1,625 =========== =========== ========== Supplemental disclosures of cash flow information: Cash paid during year for interest $ 580 $ 953 $ 1,337 Cash paid (refunded) during year for income taxes 6,651 4,350 (2,150) Capital lease obligations incurred 1,908 162 </TABLE> See notes to financial statements 21
Shoe Carnival, Inc. Notes to Financial Statements Note 1 - Organization and Description of Business Shoe Carnival, Inc. (the "Company"), was incorporated on February 25, 1988 under the name of DAR Group Investments, Inc. The Company changed its name to Shoe Carnival, Inc., on January 15, 1993. 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 1998, 1997 and 1996 relate respectively to the fiscal years ended January 30, 1999, January 31, 1998 and February 1, 1997. All three fiscal years consisted of 52 weeks. Cash and Cash Equivalents The Company considers all certificates of deposit and other short-term investments with an original maturity date of three months or less to be cash equivalents. Merchandise Inventories Merchandise inventories are stated at the lower of cost or market using the first-in, first-out (FIFO) method. In determining market value, management estimates the future sales price of items of merchandise contained in the inventory as of the balance sheet date. Factors considered in this determination include among others, current and recently recorded sales prices, the length of time product has been held in inventory and quantities of various product styles contained in inventory. The ultimate amount realized from the sale of certain product could differ materially from management's estimates. Property and Equipment Property and equipment is stated at cost. Depreciation and amortization of property, equipment and leasehold improvements are provided on the straight-line method over the shorter of the estimated useful lives of the assets or the applicable lease terms. Lives used in computing depreciation and amortization range from two to 30 years. Expenditures for maintenance and repairs are charged to expense as incurred. Expenditures which materially increase values, improve capacities or extend useful lives are capitalized. Upon sale or retirement, the costs and related accumulated depreciation or amortization are eliminated from the respective accounts and any resulting gain or loss is included in operations. Deferred Lease Incentives All incentives received from landlords for leasehold improvements and fixturing of new stores are recorded as deferred income and amortized over the life of the lease on a straight-line basis as a reduction of rental expense. Revenue Recognition Sales are recorded net of an estimate for returns and allowances. 22
Shoe Carnival, Inc. Notes to Financial Statements - Continued Store Opening Costs Non-capital expenditures incurred prior to the opening of a new store have been charged to expense in the month the store was opened during 1998 and prior. Statement of Position 98-5, "Reporting on the Costs of Start-up Activities" requires that beginning in 1999 all pre-opening and other start-up costs be expensed in the period incurred. Accordingly, with the adoption of SOP 98-5 in 1999, all future pre-opening costs will be expensed in the period incurred. This change will not have a material impact on the Company's financial statements. Advertising Costs Print, radio and television communication costs are generally expensed when incurred. Internal production costs are expensed when incurred and external production costs are expensed in the year the advertisement first takes place. Advertising expenses included in selling, general and administrative expenses were $11.5 million in 1998, $9.0 million in 1997 and $7.9 million in 1996. Comprehensive Income In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Comprehensive Income," which was adopted by the Company in 1998. SFAS No. 130 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 In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". SFAS No. 131 requires the disclosure of segment related information based on how management makes decisions about allocating resources to segments and measuring their performance. The Company has one business segment that offers the same principal product and service throughout the Midwest, South and Southeastern regions of the United States. Based on the current organizational structure of the Company, the financial information presented is in compliance with this accounting pronouncement. Derivative Instruments and Hedging Activities In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 requires that derivative instruments be recognized as assets or liabilities in the statement of financial position. The Company is currently assessing the effect of the adoption of SFAS No. 133 in fiscal year 2000, but does not anticipate a material impact on its financial position. Use of Management Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires that management make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. The reported amounts of revenues and expenses during the reporting period may be affected by the estimates and assumptions management is required to make. Actual results could differ from those estimates. 23
Shoe Carnival, Inc. Notes to Financial Statements - Continued Reclassifications Certain reclassifications to the 1997 financial statements have been made to conform to the current year's presentation. Note 3 - Property and Equipment-net The following is a summary of property and equipment: (000's) January 30, January 31, 1999 1998 ----------- ----------- Land $ 205 $ 205 Buildings 5,863 5,845 Furniture, fixtures and equipment 32,389 25,674 Leasehold improvements 22,848 18,558 Equipment under capital leases 5,242 3,737 Construction in progress 2,263 ----------- ----------- Total 68,810 54,019 Less accumulated depreciation and amortization 27,954 22,050 ----------- ----------- Property and equipment-net $ 40,856 $ 31,969 =========== =========== Note 4 - Accrued and Other Liabilities Accrued and other liabilities consisted of the following: (000's) January 30, January 31, 1999 1998 ----------- ----------- Employee compensation and benefits $ 2,009 $ 1,919 Accrued rent 1,060 884 Other 2,688 1,684 ----------- ----------- Total accrued and other liabilities $ 5,757 $ 4,487 =========== =========== Note 5 - Long-Term Debt Long-term debt consisted of the following: (000's) January 30, January 31, 1999 1998 ----------- ----------- Revolving line of credit $ 5,700 Capital lease obligations (see Note 6) $ 2,143 1,121 ----------- ----------- Total 2,143 6,821 Less current portion 782 688 ----------- ----------- Total long-term debt, net of current portion $ 1,361 $ 6,133 =========== =========== 24
Shoe Carnival, Inc. Notes to Financial Statements - Continued During 1998, the Company had an unsecured $35 million credit agreement (the "Credit Agreement") with a bank group. Borrowings are based on eligible inventory and bear interest, at the Company's option, at the agent bank's prime rate (7.75% at January 30, 1999) or the applicable London Inter-Bank Offered Rate (LIBOR) plus from 0.75% to 2%, depending on the Company's achievement of certain performance criteria. A commitment fee of 0.25% per annum is charged on the unused portion of the first $30 million of the bank group's commitment. The Credit Agreement contains various restrictive and financial covenants, including the maintenance of specific financial ratios and a limitation on the payment of dividends. At January 30, 1999, outstanding letters of credit were approximately $6.9 million. On April 16, 1999, the Credit Agreement was amended to increase the total credit facility to $45 million and to extend the maturity date to March 31, 2001. The amendment also adjusted certain economic terms and financial covenants. Borrowings will now bear interest, at the Company's option, at the agent bank's prime rate 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 will be 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. Certain adjustments were made to the financial covenants including the elimination of the limitation on the payment of dividends. Note 6 - Leases The Company leases all of its retail locations and certain equipment under operating leases expiring at various dates through 2015. Ninety 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 2002. Rental expense for the Company's operating leases consisted of: (000's) Fiscal years 1998 1997 1996 -------- -------- -------- Rentals for real property $ 13,822 $ 12,210 $ 12,208 Equipment rentals 437 393 411 -------- -------- -------- Total $ 14,259 $ 12,603 $ 12,619 ======== ======== ======== 25
Shoe Carnival, Inc. Notes to Financial Statements - Continued Future minimum lease payments at January 30, 1999 are as follows: (000's) Operating Capital Fiscal years Leases Leases --------- ------- 1999 $ 14,658 $ 932 2000 14,217 619 2001 13,637 546 2002 13,466 336 2003 12,069 Thereafter to 2015 34,363 --------- ------- Minimum lease payments $ 102,410 2,433 ========= Less imputed interest at rates ranging from 7.5% to 11.9% 290 ------- Present value of net minimum lease payments of which $782 is included in current liabilities $ 2,143 ======= 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) January 30, January 31, 1999 1998 ----------- ----------- Equipment $ 5,242 $ 3,737 Less accumulated amortization 3,037 2,758 ----------- ----------- Equipment under capital lease-net $ 2,205 $ 979 =========== =========== Note 7 - Restructuring Charge In the fourth quarters of 1995 and 1994, the Company recorded restructuring charges aggregating $3.5 million related to its plan to close a total of nine unprofitable stores. At February 1, 1997, eight stores had been closed with the final store closing in February 1997. The components of the restructuring charge and an analysis of the amounts charged against the reserve are outlined in the following table: (000's) January 31, February 1, 1998 1997 ----------- ----------- Beginning restructuring reserve $ 318 $ 3,468 Restructuring credit: Store closing and lease termination costs (474) ----------- ----------- Total restructuring credit 0 (474) Costs applied against reserve: Store closing and lease termination costs (147) (1,418) Equipment and leasehold improvement write-offs (171) (1,258) ----------- ----------- Ending restructuring reserve $ 0 $ 318 =========== =========== 26
Shoe Carnival, Inc. Notes to Financial Statements - Continued In the aggregate, the eight stores closed in fiscal 1996 and February 1997 generated sales of $3.9 million and an operating loss of $1.7 million (including depreciation expense of $127,000) during 1996. Cash outlays for 1997 and 1996 were $147,000 and $1.7 million, respectively. The 1996 cash outlays consisted of $1.4 million for lease termination, store closing costs and the repayment of $293,000 of lease incentives which were recorded as a deferred liability. The restructuring credit recorded in the fourth quarter of 1996 resulted primarily from favorable negotiation of lease termination costs. Note 8 - Income Taxes The provision for income taxes consisted of: (000's) Fiscal years 1998 1997 1996 -------- -------- -------- Current: Federal $ 5,591 $ 3,965 $ 976 State 813 641 292 -------- -------- -------- Total current 6,404 4,606 1,268 -------- -------- -------- Deferred: Federal 375 189 1,390 State 39 31 160 -------- -------- -------- Total deferred 414 220 1,550 -------- -------- -------- Total provision $ 6,818 $ 4,826 $ 2,818 ======== ======== ======== Included in other current assets are income tax receivables in the amounts of $159,000, $29,000 and $285,000 as of January 30, 1999, January 31, 1998 and February 1, 1997, respectively. A reconciliation between the statutory federal income tax rate and the effective income tax rate is as follows: Fiscal years 1998 1997 1996 -------- -------- -------- U.S. Federal statutory tax rate 35.0% 34.0% 34.0% State and local income taxes, net of federal tax benefit 5.1 5.1 5.5 Other (0.1) 0.4 1.0 -------- -------- -------- Effective income tax rate 40.0% 39.5% 40.5% ======== ======== ======== 27
Shoe Carnival, Inc. Notes to Financial Statements - Continued Deferred income taxes are the result of temporary differences in the recognition of revenue and expense for tax and financial reporting purposes. The sources of these differences and the tax effect of each are as follows: (000's) January 30, January 31, 1999 1998 ----------- ----------- Deferred tax assets: Accrued rent $ 421 $ 348 Accrued compensation 203 173 Federal net operating loss carryforward 176 218 Lease incentives 14 33 Inventory valuation 264 Other 137 107 ----------- ----------- Total deferred tax assets $ 951 $ 1,143 =========== =========== Deferred tax liabilities: Depreciation $ 1,378 $ 1,052 Purchase accounting adjustments 852 966 Inventory valuation 11 ----------- ----------- Total deferred tax liabilities $ 2,241 $ 2,018 =========== =========== Note 9 - Employee Benefit Plans Retirement Savings Plan On February 24, 1994, the Company's Board of Directors approved the Shoe Carnival Retirement Savings Plan (the "Retirement Plan"). The Retirement Plan is open to all employees who have been employed for one year, are at least 21 years of age and who work at least 1,000 hours per year. The primary savings mechanism under the Retirement Plan is a 401(k) plan under which an employee may contribute up to 15% of earnings with the Company matching the first 4% at a rate of 50%. Employee and Company contributions are paid to a trustee and invested in up to 16 investment options at the participants' direction. The Company contributions to the participants' accounts become fully vested upon completion of five years of participation in the Retirement Plan. Contributions charged to expense in 1998, 1997 and 1996 were $199,000, $214,000 and $198,000, 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 1998, 14,966 shares of common stock were purchased by participants in the plan and proceeds to the Company for the sale of those shares totaled approximately $141,000. 28
Shoe Carnival, Inc. Notes to Financial Statements - Continued Note 10 - Stock Option and Incentive Plans 1989 Stock Option Plan Non-qualified stock options for a total of 1,500,000 shares of common stock were granted to certain officers, directors and other key employees prior to 1993. On November 1, 1992, the participants exercised all outstanding stock options and the plan was effectively terminated. Net proceeds to the Company from the sale of such shares were $239,000. In November 1992, the Company loaned an aggregate of $633,000 on a fully recourse basis to the participants to permit them to pay an estimated amount of income taxes due as a result of the stock option exercise. Of this amount, $239,000 was classified as a reduction to paid-in capital and $158,000 was recorded as a current asset. The notes evidencing such loans bear interest at a rate of 6% per annum and were originally due in four equal annual installments, the first of which was paid in 1993. The 1995 principal payment was extended for one year for participants who were employees of the Company on the date the payment was originally due. In 1996, certain participants paid an aggregate of $18,000 in principal (plus accrued interest) to the Company to retire their outstanding notes. The 1995 and 1996 principal payment for the remaining participants was extended for one year. In May 1997, an outstanding balance of $158,000 for the Company's former vice chairman, president and chief executive officer was forgiven as part of a retirement package. The aggregate principal balance outstanding on the loans to the participants was $103,000 as of January 31, 1998. The outstanding principal balance for the remaining participants was paid in March 1998. 1993 Stock Option and Incentive Plan Effective January 15, 1993, the Company's Board of Directors and shareholders approved the 1993 Stock Option and Incentive Plan (the "1993 Plan"). The 1993 Plan reserves for issuance 1,500,000 shares of the Company's common stock (subject to adjustment for any subsequent stock splits, stock dividends and certain other changes in the common stock) pursuant to any incentive awards granted by the Stock Option Committee of the Board of Directors which administers the 1993 Plan. The 1993 Plan provides for the grant of incentive awards in the form of stock options or restricted stock to officers and other key employees of the Company. Stock options granted under the plan may be either options intended to qualify for federal income tax purposes as "incentive stock options" or options not qualifying for favorable tax treatment ("non-qualified stock options"). At January 30, 1999, options to purchase 517,842 common shares were exercisable and 508,578 shares of unissued common stock were reserved for future grants under the plan. On March 4, 1999, the Stock Option Committee granted options for an aggregate of 275,250 shares of the Company's common stock to certain officers and key employees. The options were granted at an exercise price of $11.125 per share, and have a term of 10 years. The options become exercisable in thirds on each of the first three anniversaries of the grant date. The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No. 25), in accounting for employee stock options. Accordingly, no compensation expense has been recognized for the 1993 Plan. Pro forma information regarding net income and earnings per share is required by SFAS No. 123, "Accounting for Stock-Based Compensation," and has been determined as if the Company had accounted for its stock options under SFAS No. 123's fair value method. The fair value of these options was estimated at grant date using Black-Scholes option pricing model with the following weighted average assumptions: Fiscal years 1998 1997 1996 -------- -------- -------- Risk free interest rate 5.6% 6.8% 6.8% Expected dividend yield 0.0% 0.0% 0.0% Expected volatility 74.3% 53.4% 50.5% Expected term 5 Years 5 Years 5 Years 29
Shoe Carnival, Inc. Notes to Financial Statements - Continued For the purpose of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows: (000's, except per share data) Fiscal years 1998 1997 1996 -------- -------- -------- Pro forma net income $ 9,832 $ 6,789 $ 3,984 Pro forma net income per share-Basic $ .75 $ .52 $ .31 Pro forma net income per share-Diluted $ .73 $ .51 $ .31 The weighted-average fair value of options granted was $7.12, $3.29 and $2.79 for 1998, 1997 and 1996, respectively. The following table summarizes the transactions pursuant to the stock option plans for the three-year period ended January 30, 1999: Weighted Average Shares Exercise Price -------- ---------------- Balance at February 3, 1996 558,300 $ 9.27 Granted 339,500 5.31 Cancelled (253,875) 11.94 -------- ------ Balance at February 1, 1997 643,925 6.15 Granted 208,500 6.10 Cancelled (73,836) 5.73 Exercised (51,121) 5.70 -------- ------ Balance at January 31, 1998 727,468 6.21 Granted 212,500 11.00 Cancelled (2,767) 9.39 Exercised (79,927) 6.68 -------- ------ Balance at January 30, 1999 857,274 $ 7.34 ======== ====== 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 Chairman's son also owns and operates Weaver International Footwear, Inc. ("Weaver International"). The Company purchases name brand merchandise from LC Footwear, LLC., while Weaver International and PL Footwear, Inc. serve as import agents for the Company. Weaver International and PL Footwear, Inc. have represented 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. 30
Shoe Carnival, Inc. Notes to Financial Statements - Continued The Company purchased approximately $138,000 and $34,000 of merchandise from LC Footwear, LLC. in 1998 and 1997, respectively. Commissions paid to Weaver International were $730,000 and $915,000 in 1997 and 1996, respectively. Commissions paid to PL Footwear, Inc. were $912,000 and $26,000 in 1998 and 1997, 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 1998 and 1997 include results for 13 weeks. The following table summarizes results for 1998 and 1997: (000's, except per share data) First Second Third Fourth 1998 Quarter Quarter Quarter Quarter -------- -------- -------- -------- Net sales $ 65,694 $ 68,104 $ 76,442 $ 69,917 Gross profit 20,674 20,550 24,217 18,575 Operating income 5,365 4,810 6,139 1,238 Net income 3,115 2,822 3,620 670 Net income per share - Basic $ .24 $ .21 $ .27 $ .05 Net income per share - Diluted $ .23 $ .21 $ .27 $ .05 (000's, except per share data) First Second Third Fourth 1997 Quarter Quarter Quarter Quarter -------- -------- -------- -------- Net sales $ 59,328 $ 62,393 $ 66,364 $ 58,435 Gross profit 18,330 18,122 20,490 15,625 Operating income 3,286 3,547 5,307 989 Net income 1,818 1,963 3,090 520 Net income per share - Basic $ .14 $ .15 $ .24 $ .04 Net income per share - Diluted $ .14 $ .15 $ .23 $ .04 31
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 February 1, 1997 Reserve for sales returns and allowances $ 114,492 $ 0 $ 114,492 Inventory reserve $ 4,300,000 $ (3,000,000) $ 1,300,000 Year ended January 31, 1998 Reserve for sales returns and allowances $ 114,492 $ 0 $ 114,492 Inventory reserve $ 1,300,000 $ 125,000 $ 1,425,000 Year ended January 30, 1999 Reserve for sales returns and allowances $ 114,492 $ 0 $ 114,492 Inventory reserve $ 1,425,000 $ 175,000 $ 1,600,000 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. 32
PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item concerning the Directors and nominees for Director of the Company and concerning any disclosure of delinquent filers is incorporated herein by reference to the Company's definitive Proxy Statement for its 1999 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 1999 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 1999 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 1999 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. 33
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 Balance Sheets at January 30, 1999 and January 31, 1998 Statements of Income for the years ended January 30, 1999, January 31, 1998 and February 1, 1997 Statements of Shareholders' Equity for the years ended January 30, 1999, January 31, 1998 and February 1, 1997 Statements of Cash Flows for the years ended January 30, 1999, January 31, 1998 and February 1, 1997 Notes to Financial Statements 2. Financial Statement Schedules: The following financial statement schedule of the Company is set forth in Part II, Item 8. Schedule II Valuation and Qualifying Accounts 3. Exhibits: A list of exhibits required to be filed as part of this report is set forth in the Index to Exhibits, which immediately precedes such exhibits, and is incorporated herein by reference. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended January 30, 1999. 34
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 27, 1999 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 27, 1999 - ------------------- J. Wayne Weaver /s/ Mark L. Lemond President, Chief Executive Officer April 27, 1999 - ------------------- and Director Mark L. Lemond (Principal Executive Officer) /s/ William E. Bindley Director April 27, 1999 - ---------------------- William E. Bindley /s/ Gerald W. Schoor Director April 27, 1999 - -------------------- Gerald W. Schoor /s/ W. Kerry Jackson Vice President - Chief Financial April 27, 1999 - -------------------- Officer and Treasurer W. Kerry Jackson (Principal Financial and Accounting Officer) 35
INDEX TO EXHIBITS Exhibit No. Description - ------- ----------- 3-A (7) (i)Restated Articles of Incorporation of Registrant (6) (ii)Articles of Amendment of Restated Articles of Incorporation of Registrant 3-B (3) By-laws of Registrant, as amended to date 4 (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 10-D* (1) 1989 Stock Option Plan of Registrant and amendments to such Plan 10-E* (2) 1993 Stock Option and Incentive Plan of Registrant, as amended 10-F* (1) Executive Incentive Compensation Plan of Registrant 10-I (1) Non-competition Agreement dated as of January 15, 1993, between Registrant J. Wayne Weaver 10-K (1) Form of stock option exercise documents dated November 1, 1992, between Registrant and each of fourteen executive officers and key employees, including: (I) Exercise Notice; (ii) Subscription Agreement; (iii) Promissory Note; (iv) Pledge Agreement; (v) Stock Power 10-L* (2) Employee Stock Purchase Plan of Registrant, as amended 10-M* (4) Consulting agreement dated May 28, 1997, between Registrant and David H. Russell 10-N* (5) Employment agreement dated April 14, 1997, between Registrant and Clifton E. Sifford 23 Written consent of Deloitte & Touche LLP 27 Financial Data Schedule * The indicated exhibit is a management contract, compensatory plan or arrangement required to filed by Item 601 of Regulation S-K. (1) The copy of this exhibit filed as the same exhibit number to the Company's Registration Statement on Form S-1 (Registration No. 33-57902) is incorporated herein by reference. (2) The copy of this exhibit filed as the same exhibit number to the Company's Quarterly Report on Form 10-Q for the quarter ended August 2, 1997 is incorporated herein by reference. (3) The copy of this exhibit filed as the same exhibit number to the Company's Quarterly Report on Form 10-Q for the quarter ended November 2, 1996 is incorporated herein by reference. (4) The copy of this exhibit filed as the same exhibit number to the Company's current Report on Form 8-K dated June 9, 1997 is incorporated herein by reference. (5) The copy of this exhibit filed as the same exhibit number to the Company's Quarterly Report on Form 10-Q for the quarter ended May 3, 1997 is incorporated herein by reference. (6) The copy of this exhibit filed as the same exhibit number to the Company's Quarterly Report on Form 10-Q for the quarter ended August 1, 1998 is incorporated herein by reference. (7) The copy of this exhibit filed as exhibit number 3.1 to the Company's current Report on Form 8-K dated July 17, 1996 is incorporated herin by reference. 36