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Stock-Based Compensation

9 Months Ended

Oct. 28, 2017

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 replaces 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 stock options, cash-settled stock appreciation rights (SARs) and restricted stock awards. 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 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. For the thirteen and thirty-nine weeks ended October 29, 2016, stock-based compensation expense for the employee stock purchase plan was $9,000 before the income tax benefit of $3,000 and $33,000 before the income tax benefit of $12,000, respectively.

No stock options have been granted since fiscal 2008. All outstanding options had vested as of the end of fiscal 2011; therefore no unrecognized compensation expense remains. In the first nine months of fiscal 2017 there were 3,500 options exercised and there were 3,500 options outstanding and exercisable as of October 28, 2017.

The following section summarizes the share transactions for our restricted stock awards:

		Number of Shares				Weighted- Average Grant Date Fair Value
Restricted stock at January 28, 2017			964,858			$	22.63
Granted			274,346				24.09
Vested			(119,107	)			24.27
Forfeited or expired			(168,937	)			18.46
Restricted stock at October 28, 2017			951,160			$	23.59

The weighted-average grant date fair value of stock awards granted during the thirty-nine week periods ended October 28, 2017, and October 29, 2016, was $24.09 and $24.98, respectively. The total fair value at grant date of restricted stock awards that vested during the first nine months of fiscal 2017 was $2.9 million. The total fair value at grant date of restricted stock awards that vested during the first nine months of fiscal 2016 was $854,000. Of the 168,937 shares of restricted stock that were forfeited or that expired in the first nine months of fiscal 2017, 135,000 shares were restricted stock awards that expired unvested in the first quarter of fiscal 2017, as the performance measures were not achieved. These awards represented the three tiers of the restricted stock awards granted on March 15, 2011.

The following table summarizes information regarding stock-based compensation expense recognized for restricted stock awards:

(In thousands)

Thirteen

Weeks Ended

October 28,

2017

Thirteen

Weeks Ended

October 29,

2016

Thirty-nine

Weeks Ended

October 28,

2017

Thirty-nine

Weeks Ended

October 29,

2016

Stock-based compensation before the recognized income tax effect

$

996

$

1,295

$

2,140

$

3,197

Income tax effect

$

398

$

482

$

830

$

1,208

The $2.1 million of expense recognized in the first nine months of fiscal 2017 was comprised of compensation expense of $3.1 million, partially offset by income of $916,000. The income was attributable to the reversal of the cumulative prior period expense for performance-based awards, which were deemed by management to be no longer probable to vest prior to their expiration.

As of October 28, 2017, approximately $4.9 million of unrecognized compensation expense remained related to both our performance-based and service-based restricted stock awards. The cost is expected to be recognized over a weighted average period of approximately 1.7 years. This incorporates our current assumptions with respect to the estimated requisite service period required to achieve the designated performance conditions for performance-based stock awards.

The following table summarizes the SARs activity:

			Number of Shares				Weighted- Average Exercise Price				Weighted- Average Remaining Contractual Term (Years)
Outstanding at January 28, 2017				111,300			$	24.26
Forfeited				(3,500	)			24.26
Exercised				0				0.00
Outstanding at October 28, 2017				107,800			$	24.26				2.4

Exercisable at October 28, 2017				62,991			$	24.26				2.4

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 will vest and become 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 will expire. Each SAR entitles 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.

The fair value of these liability awards are re-measured, using a trinomial lattice model, at each reporting period until the date of settlement. Increases or decreases in stock-based compensation expense are recognized over the vesting period, or immediately for vested awards. The weighted-average fair value of outstanding, non-vested SAR awards as of October 28, 2017 and October 29, 2016 was $3.22 and $4.53, respectively.

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

		October 28, 2017				October 29, 2016
Risk free interest rate yield curve			1.01% - 2.06%				0.18% - 1.33%
Expected dividend yield			1.4	%			1.1	%
Expected volatility			37.34	%			35.06	%
Maximum life			2.4 Years				3.4 Years
Exercise multiple			1.34				1.34
Maximum payout		$	10.00			$	10.00
Employee exit rate			2.2% - 9.0%				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

October 28,
2017

Thirteen

Weeks Ended

October 29,
2016

Thirty-nine

Weeks Ended

October 28,
2017

Thirty-nine

Weeks Ended

October 29,
2016

Stock-based compensation before the recognized income tax effect

$

140

$

12

$

(97

)

$

208

Income tax effect

$

56

$

4

$

(38

)

$

79

As of October 28, 2017, approximately $23,000 in unrecognized compensation expense remained related to non-vested SARs. This expense is expected to be recognized over the five month period following the third quarter of fiscal 2017.