Stock-Based Compensation

9 Months Ended

Nov. 03, 2018

Share-based Compensation [Abstract]

Stock-Based Compensation

Note 5 - Stock-Based Compensation

At our 2017 annual meeting of shareholders held on June 13, 2017, our shareholders approved a new equity incentive plan, the Shoe Carnival, Inc. 2017 Equity Incentive Plan (the “2017 Plan”), which replaced our 2000 Stock Option and Incentive Plan, as amended (the “2000 Plan”). According to the terms of the 2017 Plan, upon approval of the 2017 Plan by our shareholders, no further awards may be made under the 2000 Plan. A maximum of 1,000,000 shares of our common stock are available for issuance and sale under the 2017 Plan. In addition, any shares of our common stock subject to an award granted under the 2017 Plan, or to an award granted under the 2000 Plan that was outstanding on the date our shareholders approved the 2017 Plan, that expires, is cancelled or forfeited, or is settled for cash will, to the extent of such cancellation, forfeiture, expiration or cash settlement, automatically become available for future awards under the 2017 Plan.

Stock-based compensation includes cash-settled stock appreciation rights (“SARs”), restricted stock awards (“RSAs”) and restricted stock units (“RSUs”). Additionally, we recognize stock-based compensation expense for the discount on shares sold to employees through our employee stock purchase plan. For the thirteen and thirty-nine weeks ended November 3, 2018, stock-based compensation expense for the employee stock purchase plan was $7,000 before the income tax benefit of $2,000 and $26,000 before the income tax benefit of $6,000, respectively. For the thirteen and thirty-nine weeks ended October 28, 2017, stock-based compensation expense for the employee stock purchase plan was $10,000 before the income tax benefit of $4,000 and $30,000 before the income tax benefit of $12,000, respectively.

The following table summarizes transactions for our RSAs pursuant to our stock-based compensation plans:

	Number of Shares			Weighted- Average Grant Date Fair Value
RSAs at February 3, 2018		915,925		$	23.62
Granted		10,998			32.74
Vested		(38,994	)		24.88
Forfeited or expired		(51,650	)		17.65
RSAs at November 3, 2018		836,279		$	24.05

The weighted-average grant date fair value of RSAs granted during the thirty-nine week periods ended November 3, 2018 and October 28, 2017 was $32.74 and $24.09, respectively. The total fair value at grant date of RSAs that vested during the first nine months of fiscal 2018 was $970,000. The total fair value at grant date of RSAs that vested during the first nine months of fiscal 2017 was $2.9 million. The 51,650 shares of RSAs that expired in the first nine months of fiscal 2018 were awards in which the performance measures were not achieved. These awards represented the third tier of RSAs granted on March 19, 2012.

As of November 3, 2018, approximately $2.6 million of unrecognized compensation expense remained related to both our performance-based and service-based RSAs. The cost is expected to be recognized over a weighted average period of approximately 0.5 years. This incorporates our current assumptions with respect to the estimated requisite service period required to achieve the designated performance conditions for performance-based RSAs.

The following table summarizes transactions for our RSUs pursuant to our stock-based compensation plans:

	Number of Shares		Weighted- Average Grant Date Fair Value
RSUs at February 3, 2018		4,000	$	19.55
Granted		200,000		25.05
RSUs at November 3, 2018		204,000	$	24.95

As of November 3, 2018, approximately $3.9 million of unrecognized compensation expense remained related to both our performance-based and service-based RSUs. The cost is expected to be recognized over a weighted average period of approximately 1.4 years.

The following table summarizes information regarding stock-based compensation expense recognized for both RSAs and RSUs:

(In thousands)	Thirteen Weeks Ended November 3, 2018		Thirteen Weeks Ended October 28, 2017		Thirty-nine Weeks Ended November 3, 2018		Thirty-nine Weeks Ended October 28, 2017
Stock-based compensation before the recognized income tax effect	$	4,193	$	996	$	7,037	$	2,140
Income tax effect	$	1,085	$	398	$	1,706	$	830

The increase in compensation expense for the thirteen and thirty-nine weeks ended November 3, 2018 compared to the comparative periods in fiscal 2017 was due in part to a cumulative catch-up expense of $2.2 million, which was recorded in the third quarter of fiscal 2018. This cumulative catch-up expense was related to performance-based RSAs, which management had previously determined were not probable to vest prior to their expiration, but given our financial performance to date in fiscal 2018, in the third quarter of fiscal 2018, such awards were deemed by management as probable to vest.

The following table summarizes SARs activity:

	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)
Outstanding at February 3, 2018		103,475		$	24.26
Exercised		(103,475	)		24.26
Outstanding at November 3, 2018		0		$	0.00		0.0

SARs were granted during the first quarter of fiscal 2015 to certain non-executive employees, such that one-third of the shares underlying the SARs vested and became fully exercisable on each of the first three anniversaries of the date of the grant and were assigned a five-year term from the date of grant, after which any unexercised SARs would expire. Each SAR entitled the holder, upon exercise of their vested shares, to receive cash in an amount equal to the closing price of our common stock on the date of exercise less the exercise price, with a maximum amount of gain defined. The SARs granted during the first quarter of fiscal 2015 were issued with a defined maximum gain of $10.00 over the exercise price of $24.26. During the second quarter of fiscal 2018, all remaining SARs granted during the first quarter of fiscal 2015 were exercised.

The fair value of these liability awards were remeasured, using a trinomial lattice model, at each reporting period until the date of settlement. Increases or decreases in stock-based compensation expense were recognized over the vesting period, or immediately for vested awards. As of November 3, 2018, all outstanding SARs were exercised. The weighted-average fair value of outstanding, non-vested SAR awards as of October 28, 2017 was $3.22.

The fair value was estimated using a trinomial lattice model with the following assumptions:

	October 28, 2017
Risk free interest rate yield curve	1.01% - 2.06%
Expected dividend yield	1.4%
Expected volatility	37.34%
Maximum life	2.4 Years
Exercise multiple	1.34
Maximum payout	$10.00
Employee exit rate	2.2% - 9.0%

The risk free interest rate was based on the U.S. Treasury yield curve in effect at the end of the reporting period. The expected dividend yield was based on our historical quarterly cash dividends, with the assumption that quarterly dividends would continue at that rate. Expected volatility was based on the historical volatility of our common stock. The exercise multiple and employee exit rate were based on historical option data.

The following table summarizes information regarding stock-based compensation recognized for SARs:

(In thousands)	Thirteen Weeks Ended November 3, 2018		Thirteen Weeks Ended October 28, 2017		Thirty-nine Weeks Ended November 3, 2018		Thirty-nine Weeks Ended October 28, 2017
Stock-based compensation before the recognized income tax effect	$	0	$	140	$	129	$	(97	)
Income tax effect	$	0	$	56	$	30	$	(38	)

As of November 3, 2018, no unrecognized compensation expense remained related to the SARs.