Notes to Consolidated Financial Statements
Note 1 – Organization and Description of Business
Our consolidated financial statements include the accounts of Shoe Carnival, Inc. and its wholly-owned subsidiaries SCHC, Inc. and Shoe Carnival Ventures, LLC, and SCLC, Inc., a wholly-owned subsidiary of SCHC, Inc. (collectively referred to as “we”, “our”, “us” or the “Company”). All intercompany accounts and transactions have been eliminated. Our primary activity is the sale of footwear and related products through our retail stores in 35 states within the continental United States and in Puerto Rico. We also offer online shopping on our e-commerce site at www.shoecarnival.com.
Note 2 – Summary of Significant Accounting Policies
Fiscal Year
Our fiscal year is a 52/53 week year ending on the Saturday closest to January 31. Unless otherwise stated, references to years 2018, 2017 and 2016 relate to the fiscal years ended February 2, 2019, February 3, 2018 and January 28, 2017, respectively. Fiscal year 2017 consisted of 53 weeks and the other fiscal years consisted of 52 weeks.
Use of Estimates in the Preparation of Consolidated Financial Statements
The preparation of our consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities as of the financial statement reporting date in addition to the reported amounts of certain revenues and expenses for the reporting period. The assumptions used by management in future estimates could change significantly due to changes in circumstances and actual results could differ from those estimates.
Cash and Cash Equivalents
We had cash and cash equivalents of $67.0 million at February 2, 2019 and $48.3 million at February 3, 2018. Credit and debit card receivables and receivables due from a third party totaling $8.2 million and $5.4 million were included in cash equivalents at February 2, 2019 and February 3, 2018, respectively. Credit and debit card receivables generally settle within three days; receivables due from a third party generally settle within 15 days.
We consider all short-term investments with an original maturity date of three months or less to be cash equivalents. As of February 2, 2019, all invested cash was held in money market mutual funds. There was no invested cash as of February 3, 2018. While investments are not considered by management to be at significant risk, they could be impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets. To date, we have experienced no loss or lack of access to either invested cash or cash held in our bank accounts.
Fair Value of Financial Instruments and Non-Financial Assets
Our financial assets as of February 2, 2019 and February 3, 2018 included cash and cash equivalents. The carrying value of cash and cash equivalents approximates fair value due to its short-term nature. We did not have any financial liabilities measured at fair value for these periods. Non-financial assets measured at fair value included on our consolidated balance sheets as of February 2, 2019 and February 3, 2018 were those long-lived assets for which an impairment charge has been recorded. We did not have any non-financial liabilities measured at fair value for these periods. See Note 3 – “Fair Value Measurements” for further discussion.
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Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
Merchandise Inventories and Cost of Sales
Merchandise inventories are stated at the lower of cost or net realizable value using the first-in, first-out (FIFO) method. For determining net market value, we estimate the future demand and related sale price of merchandise contained in inventory as of the balance sheet date. The stated value of merchandise inventories contained on our consolidated balance sheets also includes freight, certain capitalized overhead costs and reserves. Factors considered in determining if our inventory is properly stated at the lower of cost or net realizable value includes, among others, recent sale prices, the length of time merchandise has been held in inventory, quantities of various styles held in inventory, seasonality of merchandise, expected consideration to be received from our vendors and current and expected future sales trends. We reduce the value of our inventory to its estimated net realizable value where cost exceeds the estimated future selling price. Material changes in the factors previously noted could have a significant impact on the actual net realizable value of our inventory and our reported operating results.
Cost of sales includes the cost of merchandise sold, buying, distribution, and occupancy costs, inbound freight expense, provision for inventory obsolescence, inventory shrink and credits and allowances from merchandise vendors. Cost of sales related to our e-commerce orders include charges paid to a third-party service provider in addition to the freight expense for delivering merchandise to our customer.
Property and Equipment-Net
Property and equipment is stated at cost. Depreciation and amortization of property, equipment and leasehold improvements are taken 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 twenty-five years. Expenditures for maintenance and repairs are charged to expense as incurred. Expenditures that 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.
We periodically evaluate our long-lived assets if events or circumstances indicate the carrying value may not be recoverable. The carrying value of long-lived assets is considered impaired when the carrying value of the assets exceeds the expected future cash flows to be derived from their use. Assets are grouped, and the evaluation performed, at the lowest level for which there are identifiable cash flows, which is generally at a store level. If the estimated, undiscounted future cash flows for a store are determined to be less than the carrying value of the store’s assets, an impairment loss is recorded for the difference between estimated fair value and carrying value. Assets subject to impairment are adjusted to estimated fair value and, if applicable, an impairment loss is recorded in selling, general and administrative expenses. We estimate the fair value of our long-lived assets using store specific cash flow assumptions discounted by a rate commensurate with the risk involved with such assets while incorporating marketplace assumptions. Our assumptions and estimates used in the evaluation of impairment, including current and future economic trends for stores, are subject to a high degree of judgment. If actual operating results or market conditions differ from those anticipated, the carrying value of certain of our assets may prove unrecoverable and we may incur additional impairment charges in the future. There were no impairments of long-lived assets recorded in fiscal 2018. We recorded non-cash impairment charges of approximately $5.1 million and $4.5 million in fiscal years 2017 and 2016, respectively.
Insurance Reserves
We self-insure a significant portion of our workers’ compensation, general liability and employee health care costs and also maintain insurance in each area of risk to protect us from individual and aggregate losses over specified dollar values. We review the liability reserved for our self-insured portions on a quarterly basis, taking into consideration a number of factors, including historical claims experience, severity factors, statistical trends and, in certain instances, valuation assistance provided by independent third parties. Self-insurance reserves include estimates of claims filed, carried at their expected ultimate settlement value, and claims incurred but not yet reported. As of February 2, 2019 and February 3, 2018, our self-insurance reserves totaled $3.4 million and $3.6 million, respectively. We record self-insurance expense as a component of selling, general and administrative expenses in our consolidated statements of income. While we believe that the recorded amounts are adequate, there can be no assurance that changes to management’s estimates will not occur due to limitations inherent in the estimating process. If actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material.
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Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
Deferred Lease Incentives
All cash incentives received from landlords are recorded as deferred income and amortized over the life of the lease on a straight-line basis as a reduction of rental expense.
Accrued Rent
We are party to various lease agreements, which require scheduled rent increases over the initial lease term. Rent expense for such leases is recognized on a straight-line basis over the initial lease term beginning the earlier of the start date of the lease or when we take possession of the property. The difference between rent based upon scheduled monthly payments and rent expense recognized on a straight-line basis is recorded as accrued rent.
Revenue Recognition
Substantially all of our revenue is for a single performance obligation and is recognized when control passes to customers. We consider control to have transferred when we have a present right to payment, the customer has title to the product, physical possession of the product has been transferred and the risks and rewards of the product that we retain are minimal. For our brick-and-mortar stores, we satisfy our performance obligation and control is transferred at the point of sale when the customer takes possession of the products. This also includes the “buy online, pick up in store” scenario and includes Shoes 2U if the customer chooses the option of picking up their goods in-store. For sales made through our e-commerce site or mobile app in which the customer chooses home delivery, we transfer control and recognize revenue when the product is shipped from our stores or distribution center. This also includes Shoes 2U if the customer chooses the option of having goods delivered to their home. The redemption of loyalty points under our Shoe Perks loyalty rewards program and redemptions of gift cards may be part of any transaction. These situations represent separate performance obligations that are embedded in the contract and are more fully described below.
In the regular course of business, we offer our customers sales incentives including coupons, discounts, and free merchandise. Sales are recorded net of such incentives and returns and allowances. If an incentive involves free merchandise, that merchandise is recorded as a zero sale and the cost is included in cost of sales. Gift card revenue is recognized at the time of redemption.
See Note 4 – “Revenue” for additional discussion of our revenue recognition policies as well as additional disclosures on revenue from contracts with customers.
Consideration Received From a Vendor
Consideration is primarily received from merchandise vendors. Consideration is either recorded as a reduction of the price paid for the vendor’s products and recorded as a reduction of our cost of sales, or if the consideration represents a reimbursement of a specific, incremental and identifiable cost, then it is recorded as an offset to the same financial statement line item.
Consideration received from our vendors includes co-operative advertising/promotion, margin assistance, damage allowances and rebates earned for a specific level of purchases over a defined period. Consideration principally takes the form of credits that we can apply against trade amounts owed.
Consideration received after the related merchandise has been sold is recorded as an offset to cost of sales in the period negotiations are finalized. For consideration received on merchandise still in inventory, the allowance is recorded as a reduction to the cost of on-hand inventory and recorded as a reduction of our cost of sales at the time of sale. Should the allowances received exceed the incremental cost, then the excess consideration is recorded as a reduction to the cost of on-hand inventory and allocated to cost of sales in future periods utilizing an average inventory turn rate.
Store Opening and Start-up Costs
Non-capital expenditures, such as advertising, payroll, supplies and rent incurred prior to the opening of a new store, are charged to expense in the period they are incurred.
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Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
Advertising Costs
Print, television, radio, outdoor and digital media costs are generally expensed when incurred. Internal production costs are expensed when incurred and external production costs are expensed in the period the advertisement first takes place. Advertising expenses included in selling, general and administrative expenses were $41.2 million, $40.1 million and $42.9 million in fiscal years 2018, 2017 and 2016, respectively.
Stock-Based Compensation
We recognize compensation expense for stock-based awards based on a fair value based method. Stock-based awards may include stock options, stock appreciation rights, restricted stock, stock units and other stock-based awards under our stock-based compensation plans. Additionally, we recognize stock-based compensation expense for the discount on shares sold to employees through our employee stock purchase plan. This discount represents the difference between the market price and the employee purchase price. Stock-based compensation expense is included in selling, general and administrative expense.
We account for forfeitures as they occur in calculating stock-based compensation expense for the period. For performance-based stock awards, we estimate the probability of vesting based on the likelihood that the awards will meet their performance goals.
Segment Information
We have identified each retail store and our e-commerce store as individual operating segments. Our operating segments have been aggregated and are reported as one reportable segment based on the similar nature of products sold, merchandising and distribution processes involved, target customers and economic characteristics. Due to our multi-channel retailer strategy, we view our e-commerce sales as an extension of our physical stores.
Income Taxes
We compute income taxes using the asset and liability method, under which deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of our assets and liabilities. Deferred tax assets are reduced, if necessary, by a valuation allowance to the extent future realization of those tax benefits are uncertain. We account for uncertain tax positions in accordance with current authoritative guidance and report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. We recognize interest expense and penalties, if any, related to uncertain tax positions in income tax expense.
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Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
Net Income Per Share
The following table sets forth the computation of basic and diluted earnings per share as shown on the face of the accompanying consolidated statements of income:
|
|
Fiscal Year Ended
|
|
|
|
February 2, 2019
|
|
|
February 3, 2018
|
|
|
January 28, 2017
|
|
|
|
(In thousands, except per share data)
|
|
Basic Earnings per Share:
|
|
Net
Income
|
|
|
Shares
|
|
|
Per
Share
Amount
|
|
|
Net
Income
|
|
|
Shares
|
|
|
Per
Share
Amount
|
|
|
Net
Income
|
|
|
Shares
|
|
|
Per
Share
Amount
|
|
Net income
|
|
$
|
38,135
|
|
|
|
|
|
|
|
|
|
|
$
|
18,933
|
|
|
|
|
|
|
|
|
|
|
$
|
23,517
|
|
|
|
|
|
|
|
|
|
Amount allocated to participating
securities
|
|
|
(152
|
)
|
|
|
|
|
|
|
|
|
|
|
(250
|
)
|
|
|
|
|
|
|
|
|
|
|
(487
|
)
|
|
|
|
|
|
|
|
|
Net income available for basic
common shares and basic
earnings per share
|
|
$
|
37,983
|
|
|
|
15,111
|
|
|
$
|
2.51
|
|
|
$
|
18,683
|
|
|
|
16,220
|
|
|
$
|
1.15
|
|
|
$
|
23,030
|
|
|
|
18,017
|
|
|
$
|
1.28
|
|
Diluted Earnings per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
38,135
|
|
|
|
|
|
|
|
|
|
|
$
|
18,933
|
|
|
|
|
|
|
|
|
|
|
$
|
23,517
|
|
|
|
|
|
|
|
|
|
Amount allocated to participating
securities
|
|
|
(152
|
)
|
|
|
|
|
|
|
|
|
|
|
(250
|
)
|
|
|
|
|
|
|
|
|
|
|
(487
|
)
|
|
|
|
|
|
|
|
|
Adjustment for dilutive potential
common shares
|
|
|
4
|
|
|
|
388
|
|
|
|
|
|
|
|
0
|
|
|
|
7
|
|
|
|
|
|
|
|
0
|
|
|
|
5
|
|
|
|
|
|
Net income available for diluted
common shares and diluted
earnings per share
|
|
$
|
37,987
|
|
|
|
15,499
|
|
|
$
|
2.45
|
|
|
$
|
18,683
|
|
|
|
16,227
|
|
|
$
|
1.15
|
|
|
$
|
23,030
|
|
|
|
18,022
|
|
|
$
|
1.28
|
|
Our basic and diluted earnings per share are computed using the two-class method. The two-class method is an earnings allocation that determines net income per share for each class of common stock and participating securities according to their participation rights in dividends and undistributed earnings or losses. Non-vested restricted stock awards that include non-forfeitable rights to dividends are considered participating securities. During periods of undistributed losses, however, no effect is given to our participating securities because they do not share in the losses. Per share amounts are computed by dividing net income available to common shareholders by the weighted average shares outstanding during each period. No options to purchase shares of common stock were excluded in the computation of diluted shares for the periods presented.
New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued guidance on the recognition of revenue for all contracts with customers designed to improve comparability and enhance financial statement disclosures. Subsequently, the FASB also issued accounting standards updates which clarify this guidance. The underlying principle of this comprehensive model is that revenue is recognized to depict the transfer of promised goods or services to customers in an amount that reflects the payment to which the company expects to be entitled in exchange for those goods or services. We adopted the new revenue guidance on February 4, 2018, using a modified retrospective transition approach. We recorded an increase in retained earnings of $620,000 as a cumulative effect of the adoption based on our evaluation of incomplete contracts as of the adoption date. This increase to retained earnings included pre-tax adjustments in connection with e-commerce revenue of $171,000 and recognition of breakage revenue for unredeemed gift cards of $649,000, partially offset by a $200,000 adjustment related to the tax impact of the cumulative effect adjustments. The cumulative effect e-commerce adjustment is related to recognizing revenue when products are shipped from our stores or distribution center under the new guidance rather than recognizing revenue when the shipments were delivered under the previous revenue guidance. The cumulative effect gift card breakage adjustment is related to the unredeemed portion of our gift cards, which are now estimated using historical breakage percentages and recognized based on expected gift card usage, rather than waiting until the likelihood of redemption becomes remote. In addition to these changes, we also now record a right of return asset in inventory for the estimated cost of the inventory expected to be returned. Under the previous revenue guidance, we
45
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
recorded a net returns reserve in accrued and other liabilities. The adoption of this guidance did not have a material impact on our consolidated financial statements. See Note
4 – “Revenue”
for additional discussion of this adoption as well as additional disclosures on revenue from contracts with customers.
In February 2016, the FASB issued guidance which will replace most existing lease accounting guidance. This update requires an entity to recognize leased assets and the rights and obligations created by those leased assets on the balance sheet and to disclose key information about the entity's leasing arrangements. This guidance was updated in July 2018. This update, among other things, added a transition option allowing entities to initially apply the requirements by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption rather than the earliest period presented. This guidance became effective for us on February 3, 2019 and will include interim periods in fiscal 2019.
We have elected the optional transition method to apply the standard as of the effective date and therefore, we will not apply the standard to the comparative periods presented in our financial statements.
We did not elect the transition package of practical expedients that is permitted by the guidance, so we were required to reassess previous accounting conclusions regarding whether existing arrangements are or contain leases, the classification of existing leases and the treatment of initial direct costs. We also did not elect the transition practical expedients that permits entities to use hindsight when determining lease term and impairment of right-of-use assets or that permits entities to account for lease and non-lease components as a single lease component. We did elect the practical expedient that permits us not to recognize right-of-use assets and related liabilities that arise from short-term leases (i.e., leases with terms of twelve months or less). We are finalizing the impact of the standard to our accounting policies, processes, disclosures, and internal control over financial reporting and have implemented necessary upgrades to our existing lease system. Substantially all of our retail store locations, our distribution center and our corporate headquarters are subject to operating lease accounting under the new guidance
. Therefore, the adoption of standard will have a material impact on our consolidated balance sheet. While we are continuing to assess all potential impacts of the standard, we expect to record lease liabilities of approximately $240 million to $260 million based on the present value of the remaining minimum rental payments using incremental borrowing rates as of the effective date.
The right-of-use assets will be based upon the lease liabilities adjusted for accrued rent, unamortized deferred lease incentives and impairment charges of right-of-use assets recognized at transition, if applicable. We do not expect a material impact on our consolidated statement of income or our consolidated statement of cash flows.
In May 2017, the FASB issued guidance which clarifies what constitutes a modification of a share-based payment award. We adopted the provisions of this guidance on February 4, 2018. The adoption of this guidance did not have a material impact on our consolidated financial statements.
In March 2018, the FASB issued guidance on the income tax accounting implications of the U.S. Tax Cuts and Jobs Act (the “Tax Act”), to address the application of guidance in situations when a company does not have the necessary information available, prepared, or analyzed to complete the accounting for certain income tax effects of the Tax Act. The guidance provides a one-year measurement period to assess the Tax Act, which began in the reporting period of the enactment date of the Tax Act. Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, we initially made reasonable estimates of the effects and recorded provisional amounts in our financial statements. We recorded $4.4 million of additional income tax expense in the fourth quarter of fiscal 2017 and an income tax benefit of $0.1 million during fiscal 2018 related to the remeasurement of certain deferred tax assets and liabilities based on the rates at which they were expected to reverse in the future. As of the end of fiscal 2018, we have filed our fiscal 2017 federal income tax return and have completed our assessment of the final impact of the Tax Act.
In August 2018, the FASB issued guidance that addressed the diversity in practice surrounding the accounting for costs incurred to implement a cloud computing hosting arrangement that is a service contract by establishing a model for capitalizing or expensing such costs, depending on their nature and the stage of the implementation project during which they are incurred. Any capitalized costs are to be amortized over the reasonably certain term of the hosting arrangement and presented in the same line as the service arrangement's fees within the consolidated statements of operations. This guidance also requires enhanced qualitative and quantitative disclosures surrounding hosting arrangements that are service contracts. We are presently in the process of implementing a cloud computing hosting arrangement that is a service contract in connection with our Customer Relationship Management (“CRM”) program. The costs incurred during the application-development stage of our CRM program are being capitalized in accordance with this new guidance and amortized over the term of the contract with our third-party service provider,
46
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
and b
ecause
our CRM program is a significant component of our strategic plan
,
these costs have a
material
impact o
n our consolidated financial statements an
d related disclosures.
We early adopted this guida
nce on a prospective basis on
November 4, 2018
.
In August 2018, the FASB issued guidance which modifies the disclosure requirements on fair value measurements, including the consideration of costs and benefits. This guidance is effective for annual reporting periods and interim periods within those annual periods beginning after December 15, 2019. We are in the process of evaluating the impact of this guidance on our consolidated financial statements.
Note 3 – Fair Value Measurements
The accounting standards related to fair value measurements define fair value and provide a consistent framework for measuring fair value under the authoritative literature. Valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect market assumptions. This guidance only applies when other standards require or permit the fair value measurement of assets and liabilities. The guidance does not expand the use of fair value measurements. A fair value hierarchy was established, which prioritizes the inputs used in measuring fair value into three broad levels.
•
|
Level 1 – Quoted prices in active markets for identical assets or liabilities;
|
•
|
Level 2 – Observable market-based inputs or unobservable inputs that are corroborated by market data;
|
•
|
Level 3 – Significant unobservable inputs that are not corroborated by market data. Generally, these fair value measures are model-based valuation techniques such as discounted cash flows, and are based on the best information available, including our own data. Fair values of our long-lived assets are estimated using an income-based approach and are classified within Level 3 of the valuation hierarchy.
|
The following table presents assets that are measured at fair value on a recurring basis at February 2, 2019 and February 3, 2018. We have no material liabilities measured at fair value on a recurring or non-recurring basis.
|
|
Fair Value Measurements
|
|
(In thousands)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
As of February 2, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents – money market mutual fund
|
|
$
|
68,500
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
68,500
|
|
As of February 3, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents – money market mutual fund
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The fair values of cash and cash equivalents, receivables, accounts payable, accrued expenses and other current liabilities approximate their carrying values because of their short-term nature.
From time to time, we measure certain assets at fair value on a non-recurring basis, specifically long-lived assets evaluated for impairment. These are typically store-specific assets, which are reviewed for impairment whenever events or changes in circumstances indicate that recoverability of their carrying value is questionable. If the expected undiscounted future cash flows related to a store’s assets are less than their carrying value, an impairment loss would be recognized for the difference between estimated fair value and carrying value and recorded in selling, general and administrative expenses. We estimate the fair value of store assets using an income-based approach considering the cash flows expected over the remaining lease term for each location. These projections are primarily based on management’s estimates of store-level sales, gross margins, direct expenses, exercise of future lease renewal options and resulting cash flows and, by their nature, include judgments about how current initiatives will impact future performance. External factors, such as the local environment in which the store resides, including strip-mall traffic and competition, are evaluated in terms of their effect on sales trends. Changes in sales and operating income assumptions or unfavorable changes in external factors can significantly impact estimated future cash flows. An increase or decrease in projected cash flow can significantly decrease or increase the fair value of these assets, which would have an effect on the impairment recorded.
There were no impairments of long-lived assets recorded during the 52 weeks ended February 2, 2019. During the 53 weeks ended February 3, 2018, we recorded an impairment charge of $5.1 million on long-lived assets held and used, which was included in selling, general and administrative expenses for the period. Subsequent to this
47
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
impairment, these long-lived assets had a remaining unamortized
basis of $4.7 million.
During the 52 weeks ended January 28, 2017, we recorded an impairment charge of $4.5 million on long-lived assets held and used, which was included in selling, general and administrative expenses for the period. Subsequent to this i
mpairment, these long-lived assets had a remaining unamortized basis of $4.7 million.
Note 4 – Revenue
Revenue Recognition Adoption and Practical Expedients
We adopted and applied the new revenue guidance in Accounting Standards Codification 606 (“ASC 606”) as of February 4, 2018 using the modified retrospective transition approach. Based on this approach, the consolidated financial statements for prior fiscal years were not restated and are reported under the prior revenue guidance in effect for the fiscal years presented. We elected the practical expedient to treat shipping and handling activities associated with freight charges that occur after control of the product transfers to the customer as fulfillment activities. These costs are expensed as incurred and included in cost of sales in our consolidated statements of income. We also elected the practical expedient for sales tax collected, which allows us to exclude from our transaction price any amounts collected from customers for sales tax and other similar taxes. There were no changes to our comparative reporting of shipping and handling costs included in cost of sales or accounting for sales tax as a result of the adoption of ASC 606.
Accounting Policy and Performance Obligations
We operate as a multi-channel, family footwear retailer and provide the convenience of shopping at our brick-and-mortar stores or shopping online through our e-commerce and mobile platforms. As part of our multi-channel strategy, we offer Shoes 2U, a program that enables us to ship product to a customer’s home or selected store if the product is not in stock. We also offer “buy online, pick up in store” services for our customers. “Buy online, pick up in store” provides the convenience of local pickup for our customers.
Substantially all of our revenue is for a single performance obligation and is recognized when control passes to customers. We consider control to have transferred when we have a present right to payment, the customer has title to the product, physical possession of the product has been transferred and the risks and rewards of the product that we retain are minimal. For our brick-and-mortar stores, we satisfy our performance obligation and control is transferred at the point of sale when the customer takes possession of the products. This also includes the “buy online, pick up in store” scenario described above and includes Shoes 2U if the customer chooses the option of picking up their goods in-store. For sales made through our e-commerce site or mobile app in which the customer chooses home delivery, we transfer control and recognize revenue when the product is shipped from our stores or distribution center. This also includes Shoes 2U if the customer chooses the option of having goods delivered to their home.
The redemption of loyalty points under our Shoe Perks loyalty rewards program (“Shoe Perks”) and redemptions of gift cards may be part of any transaction. These situations represent separate performance obligations that are embedded in the contract.
Transaction Price and Payment Terms
The transaction price is the amount of consideration we expect to receive from our customers and is reduced by any stated promotional discounts at the time of purchase. The transaction price may be variable due to terms that permit customers to exchange or return products for a refund within a limited period of time. The implicit contract with the customer reflected in the transaction receipt states the final terms of the sale, including the description, quantity, and price of each product purchased. The customer agrees to a stated price in the contract that does not vary over the term of the contract. Taxes imposed by governmental authorities such as sales taxes are excluded from net sales.
Our brick-and-mortar stores accept various forms of payment from customers at the point of sale. These include cash, checks, credit/debit cards and gift cards. Our e-commerce and mobile platforms accept credit/debit cards, PayPal and gift cards as forms of payment. Payments made for products are generally collected when control passes to the customer, either at the point of sale or at the time the customer order is shipped. For Shoes 2U transactions,
48
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
customers may order the product at the point of
sale. For these transactions, customers pay in advance and unearned revenue is recorded as a contract liability. We recognize the related revenue when control has been transferred to the customer (i.e., when the product is picked up by the customer or s
hipped to the customer). Unearned revenue related to Shoes 2U was not material to our consolidated financial statements at
February 2, 2019
.
Returns and Refunds
It is our policy to allow brick-and-mortar and online customers to exchange or return products for a refund within a limited period of time. We have established a returns allowance based upon historical experience in order to estimate these transactions. This allowance is recorded as a reduction in sales with a corresponding refund liability recorded in accrued and other liabilities. The estimated cost of merchandise inventory is recorded as a reduction to cost of sales and an increase in merchandise inventories. At February 2, 2019, approximately $600,000 of refund liabilities and $410,000 of right of return assets associated with estimated product returns were recorded in our consolidated balance sheet.
Contract Liabilities
We sell gift cards in our brick-and-mortar stores and through our e-commerce and mobile platforms. Gift card purchases are recorded as an increase to contract liabilities at the time of purchase and a decrease to contract liabilities when a customer redeems a gift card. Under the previous revenue guidance, when a customer did not use the entire value of their gift card, we recorded this unredeemed portion of the gift card as revenue when the likelihood of redemption became remote (i.e., breakage). Under ASC 606, estimated breakage is determined based on historical breakage percentages and recognized as revenue based on expected gift card usage. This new policy results in earlier recognition of breakage revenue compared to the previous guidance. Consistent with the previous guidance, we do not record breakage revenue when escheat liability to relevant jurisdictions exists. At February 2, 2019, approximately $1.6 million of contract liabilities associated with unredeemed gift cards were recorded in our consolidated balance sheet. We expect the revenue associated with these liabilities to be recognized in proportion to the pattern of customer redemptions within two years.
We offer our customers the opportunity to enroll in our Shoe Perks program, which accrues points and provides customers with the opportunity to earn rewards. Points under Shoe Perks are earned primarily by making purchases either in-store or through our online platform. Once a certain threshold of accumulated points is reached, the customer earns a reward certificate, which is redeemable at any of our stores or online. Under the previous guidance, after the certificates were batched, issued and awarded to customers at the end of the month, we recorded a liability for the estimated cost of the reward certificates expected to be redeemed. This liability was immaterial at the adoption date and all related certificates expired prior to May 5, 2018 in accordance with the terms of the awards. Under ASC 606, when a Shoe Perks customer makes a purchase, we allocate the transaction price between the goods and the loyalty reward points based on the relative standalone selling price. The portion allocated to the material right is recorded as a contract liability for rewards that are expected to be redeemed. We then recognize revenue based on an estimate of when customers exercise their rights to redeem the rewards, which incorporates an estimate of points expected to expire using historical rates. At February 2, 2019, approximately $245,000 of contract liabilities associated with loyalty rewards were recorded in our consolidated balance sheet. We expect the revenue associated with these liabilities to be recognized in proportion to the pattern of customer redemptions in less than one year.
We are a multi-channel retailer that provides our customers with the convenience of home delivery. Our customers may choose this delivery method when purchasing products online, through our mobile app or via Shoes 2U. These products are picked up at our stores or distribution center and delivered by third-party freight companies. Under the previous guidance, which was primarily based on a risks and rewards approach, when product was shipped to our customers, we recognized revenue based on an estimated customer receipt date. Since we collect payment upon shipment, this resulted in deferred revenue, which was recognized when the customer took receipt of the product. Under ASC 606, which is control-based, we transfer control and recognize revenue when the product is shipped from our stores or distribution center. This change had the effect of eliminating the deferred revenue accounting treatment under the previous guidance, and we no longer record an initial liability when sales are shipped to our customers.
49
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
Impact of Adoption
The impact of the new guidance on our consolidated balance sheet as of February 2, 2019 is below. In the table, the adjustments for merchandise inventories relate to: (1) the classification of the right of return assets associated with product returns previously recorded net of the refund liability in accrued and other liabilities, and (2) the cost basis of inventory for product shipped to customers not yet received under the previous revenue guidance. The adjustment for deferred income taxes relates to the tax effect of the cumulative effect adjustments. The adjustments to accrued and other liabilities relate to: (1) the classification of the right of return assets from accrued and other liabilities to merchandise inventories, (2) recognition of deferred revenue for product shipped to customers not yet received, and (3) the adjustment to contract liabilities for unredeemed gift cards and award certificates.
|
|
February 2, 2019
|
(In thousands)
|
|
As Reported
|
|
Adjustments
|
|
As Adjusted
|
|
|
|
|
|
|
|
Merchandise inventories
|
|
$257,539
|
|
$(253)
|
|
$257,286
|
Deferred income taxes
|
|
9,622
|
|
100
|
|
9,722
|
Accrued and other liabilities
|
|
(22,069)
|
|
(363)
|
|
(22,432)
|
The impact of the new guidance on our consolidated statement of income for the fiscal year ended February 2, 2019 is below. In the table, the adjustments to net sales relate to: (1) deferred revenue for product shipped to customers not yet received, (2) breakage revenue for unredeemed gift cards, and (3) adjustments associated with our rewards program. The adjustment to cost of sales relates to the cost associated with product shipped to customers not yet received under the previous revenue guidance. The impact of the new guidance on income tax expense was immaterial for the fiscal year ended February 2, 2019.
|
|
February 2, 2019
|
(In thousands)
|
|
As Reported
|
|
Adjustments
|
|
As Adjusted
|
|
|
|
|
|
|
|
Net sales
|
|
$1,029,650
|
|
$47
|
|
$1,029,697
|
Cost of sales (including buying,
distribution and occupancy costs)
|
|
720,658
|
|
(73)
|
|
720,585
|
Disaggregation of Revenue by Product Category
Revenue is disaggregated by product category below. Net sales and percentage of net sales for the fiscal years ended February 2, 2019, February 3, 2018 and January 28, 2017 were as follows:
(In thousands)
|
|
February 2,
2019
|
|
|
February 3,
2018
|
|
|
January 28,
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Athletics:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Women's
|
|
$
|
250,320
|
|
|
24
|
%
|
|
$
|
244,945
|
|
|
24
|
%
|
|
$
|
256,271
|
|
|
26
|
%
|
Men's
|
|
|
144,628
|
|
|
14
|
|
|
|
141,295
|
|
|
14
|
|
|
|
137,729
|
|
|
14
|
|
Children's
|
|
|
51,963
|
|
|
5
|
|
|
|
50,255
|
|
|
5
|
|
|
|
51,496
|
|
|
5
|
|
Total
|
|
|
446,911
|
|
|
43
|
|
|
|
436,495
|
|
|
43
|
|
|
|
445,496
|
|
|
45
|
|
Athletics:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Women's
|
|
|
179,411
|
|
|
18
|
|
|
|
177,627
|
|
|
17
|
|
|
|
165,179
|
|
|
16
|
|
Men's
|
|
|
215,796
|
|
|
21
|
|
|
|
219,224
|
|
|
22
|
|
|
|
217,969
|
|
|
22
|
|
Children's
|
|
|
138,686
|
|
|
14
|
|
|
|
138,074
|
|
|
14
|
|
|
|
127,858
|
|
|
13
|
|
Total
|
|
|
533,893
|
|
|
53
|
|
|
|
534,925
|
|
|
53
|
|
|
|
511,006
|
|
|
51
|
|
Accessories
|
|
|
45,100
|
|
|
4
|
|
|
|
43,606
|
|
|
4
|
|
|
|
41,259
|
|
|
4
|
|
Other
|
|
|
3,746
|
|
|
-
|
|
|
|
4,128
|
|
|
-
|
|
|
|
3,341
|
|
|
-
|
|
Total
|
|
$
|
1,029,650
|
|
|
100
|
%
|
|
$
|
1,019,154
|
|
|
100
|
%
|
|
$
|
1,001,102
|
|
|
100
|
%
|
50
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
Note
5
–
Property and Equipment
-
Net
The following is a summary of property and equipment:
(In thousands)
|
|
February 2,
2019
|
|
|
February 3,
2018
|
|
Furniture, fixtures and equipment
|
|
$
|
156,596
|
|
|
$
|
154,844
|
|
Leasehold improvements
|
|
|
110,824
|
|
|
|
111,967
|
|
Total
|
|
|
267,420
|
|
|
|
266,811
|
|
Less accumulated depreciation and amortization
|
|
|
(196,815
|
)
|
|
|
(180,535
|
)
|
Property and equipment – net
|
|
$
|
70,605
|
|
|
$
|
86,276
|
|
Note 6 – Accrued and Other Liabilities
Accrued and other liabilities consisted of the following:
(In thousands)
|
|
February 2,
2019
|
|
|
February 3,
2018
|
|
|
Employee compensation and benefits
|
|
$
|
9,771
|
|
|
$
|
3,231
|
|
Self-insurance reserves
|
|
|
3,447
|
|
|
|
3,565
|
|
Gift cards
|
|
|
1,558
|
|
|
|
2,382
|
|
Sales and use tax
|
|
|
2,131
|
|
|
|
1,797
|
|
Other
|
|
|
5,162
|
|
|
|
4,070
|
|
Total accrued and other liabilities
|
|
$
|
22,069
|
|
|
$
|
15,045
|
|
Note 7 – Long-Term Debt
On March 27, 2017 we entered into a second amendment of our current unsecured credit agreement (the “Credit Agreement”) to extend the expiration date by five years and renegotiate certain terms and conditions. The Credit Agreement
continues to provide for up to $50.0 million in cash advances and commercial and standby letters of credit with borrowing limits based on eligible inventory.
The Credit Agreement contains covenants which stipulate: (1) Total Shareholders’ Equity will not fall below $250.0 million at the end of each fiscal quarter; (2) the ratio of funded debt plus three times rent to EBITDA plus rent will not exceed 2.5 to 1.0; (3) the aggregate amount of cash dividends for a fiscal year will not exceed $10 million; and (4) distributions in the form of redemptions of Equity Interests can be made solely with cash on hand so long as before and immediately after such distributions there are no revolving loans outstanding under the Credit Agreement. Should a default condition be reported, the lenders may preclude additional borrowings and call all loans and accrued interest at their discretion. As of February 2, 2019, there were $1.2 million in letters of credit outstanding and $48.8 million available to us for borrowing under the Credit Agreement.
The credit facility bears interest, at our option, at (1) the agent bank’s prime rate as defined in the Credit Agreement plus 1.0% with the prime rate defined as the greater of (a) the Federal Fund rate plus 0.50% or (b) the interest rate announced from time to time by the agent bank as its “prime rate” or (2) LIBOR plus 1.25% to 2.50%, depending on our achievement of certain performance criteria. A commitment fee is charged at 0.20% to 0.35% per annum, depending on our achievement of certain performance criteria, on the unused portion of the bank group’s commitment. The Credit Agreement expires on March 27, 2022.
Note 8 – Leases
We lease all of our retail locations and certain equipment under operating leases expiring at various dates through fiscal 2031. Various lease agreements require scheduled rent increases over the initial lease term. Rent expense for such leases is recognized on a straight-line basis over the initial lease term beginning the earlier of the start date of the lease or when we take possession of the property. The difference between rent based upon scheduled monthly
51
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
payments and rent expense recognized on a straight-line basis is recorded as accrued rent.
All incentives received from landlords are recorded as deferred income and amortized over the life of the lease on a straight-line basis as
a reduction of rental expense.
Certain leases provide for contingent rents that are not measurable at inception. These contingent rents are primarily based on a percentage of sales that are in excess of a predetermined level. These amounts are excluded from minimum rent and are included in the determination of total rent expense when it is probable that the expense has been incurred and the amount is reasonably estimable. Certain leases also contain escalation clauses for increases in operating costs and taxes. There were no assignments of operating leases to third parties in fiscal 2018, fiscal 2017 or fiscal 2016.
Rental expense for our operating leases consisted of:
(In thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Rentals for real property
|
|
$
|
61,127
|
|
|
$
|
66,835
|
|
|
$
|
65,900
|
|
Contingent rent
|
|
|
46
|
|
|
|
70
|
|
|
|
92
|
|
Equipment rentals
|
|
|
55
|
|
|
|
41
|
|
|
|
62
|
|
Total
|
|
$
|
61,228
|
|
|
$
|
66,946
|
|
|
$
|
66,054
|
|
Future minimum lease payments at February 2, 2019 were as follows:
(In thousands)
|
|
Operating Leases
|
|
2019
|
|
$
|
60,807
|
|
2020
|
|
|
51,937
|
|
2021
|
|
|
50,687
|
|
2022
|
|
|
41,536
|
|
2023
|
|
|
34,035
|
|
Thereafter to 2031
|
|
|
56,437
|
|
Total
|
|
$
|
295,439
|
|
Note 9 – Income Taxes
The provision for income taxes consisted of:
(In thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
11,468
|
|
|
$
|
14,579
|
|
|
$
|
13,366
|
|
State
|
|
|
1,693
|
|
|
|
2,241
|
|
|
|
1,997
|
|
Puerto Rico
|
|
|
700
|
|
|
|
242
|
|
|
|
250
|
|
Total current
|
|
|
13,861
|
|
|
|
17,062
|
|
|
|
15,613
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(894
|
)
|
|
|
2,383
|
|
|
|
(153
|
)
|
State
|
|
|
(745
|
)
|
|
|
(965
|
)
|
|
|
(1,228
|
)
|
Puerto Rico
|
|
|
643
|
|
|
|
2,500
|
|
|
|
(1,494
|
)
|
Total deferred
|
|
|
(996
|
)
|
|
|
3,918
|
|
|
|
(2,875
|
)
|
Valuation allowance
|
|
|
(643
|
)
|
|
|
(2,500
|
)
|
|
|
1,494
|
|
Total provision
|
|
$
|
12,222
|
|
|
$
|
18,480
|
|
|
$
|
14,232
|
|
We realized a tax benefit of $26,100 in fiscal year 2018, tax expense of $17,800 in fiscal year 2017, and a tax benefit of $2,900 in fiscal year 2016 as a result of the exercise of stock options and the vesting of restricted stock. These amounts were recorded in tax expense in fiscal 2018 and shareholder’s equity in fiscal 2017 and fiscal 2016.
52
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
Reconciliation between the statutory federal income ta
x rate and the effective
income tax rate is as follows:
Fiscal years
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
U.S. Federal statutory tax rate
|
|
|
21.0
|
%
|
|
|
33.7
|
%
|
|
|
35.0
|
%
|
State and local income taxes, net of federal tax
benefit
|
|
|
3.0
|
|
|
|
3.0
|
|
|
|
2.1
|
|
Puerto Rico
|
|
|
4.2
|
|
|
|
0.7
|
|
|
|
0.2
|
|
Valuation allowance
|
|
|
(1.3
|
)
|
|
|
(6.7
|
)
|
|
|
4.0
|
|
Tax impact of foreign losses
|
|
|
(2.7
|
)
|
|
|
6.3
|
|
|
|
(3.6
|
)
|
Remeasurement of deferred tax assets and liabilities
due to the Tax Act
|
|
|
0.0
|
|
|
|
11.6
|
|
|
|
0.0
|
|
Other
|
|
|
0.1
|
|
|
|
0.8
|
|
|
|
0.0
|
|
Effective income tax rate
|
|
|
24.3
|
%
|
|
|
49.4
|
%
|
|
|
37.7
|
%
|
We recorded $310,000, $223,000 and $224,000 in federal employment-related tax credits in fiscal 2018, 2017 and 2016, respectively.
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:
(In thousands)
|
|
February 2,
2019
|
|
|
February 3,
2018
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accrued rent
|
|
$
|
2,051
|
|
|
$
|
2,464
|
|
Accrued compensation
|
|
|
7,843
|
|
|
|
5,752
|
|
Accrued employee benefits
|
|
|
129
|
|
|
|
349
|
|
Inventory
|
|
|
787
|
|
|
|
699
|
|
Self-insurance reserves
|
|
|
510
|
|
|
|
518
|
|
Lease incentives
|
|
|
5,429
|
|
|
|
7,145
|
|
Net operating loss carry forward
|
|
|
563
|
|
|
|
1,218
|
|
Other
|
|
|
288
|
|
|
|
488
|
|
Total deferred tax assets
|
|
|
17,600
|
|
|
|
18,633
|
|
Valuation allowance
|
|
|
(574
|
)
|
|
|
(1,217
|
)
|
Total deferred tax assets – net of valuation
allowance
|
|
|
17,026
|
|
|
|
17,416
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
6,484
|
|
|
|
8,588
|
|
Capitalized costs
|
|
|
636
|
|
|
|
646
|
|
Other
|
|
|
284
|
|
|
|
0
|
|
Total deferred tax liabilities
|
|
|
7,404
|
|
|
|
9,234
|
|
Long-term deferred income taxes, net
|
|
$
|
9,622
|
|
|
$
|
8,182
|
|
At the end of fiscal 2018, we estimated foreign net operating loss carry forwards of $1.5 million, which expire between fiscal 2024 and fiscal 2027. At February 2, 2019, we had a valuation allowance of $574,000 against these net operating losses that would be realizable only upon the generation of future taxable income in the jurisdiction in which the losses were incurred.
At February 2, 2019 and February 3, 2018, there were no unrecognized tax liabilities or related accrued penalties or interest in other liabilities on the consolidated balance sheets.
On December 22, 2017, the U.S. government enacted the Tax Act, which made significant changes to the Internal Revenue Code of 1986, as amended, including, but not limited to, reducing the U.S. corporate statutory tax rate from 35% to 21%, and eliminating or limiting deduction of several expenses which were previously deductible. In connection with the Tax Act, the Securities and Exchange Commission staff issued Staff Accounting Bulletin 118
53
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
(“SAB 118”), which provides guidance
on accounting for the tax effects of the Tax Act. SAB 118 provide
d
a measurement period
of
one year from the Tax Act
’s
enactment date for companies to complete the
ir
accounting under
the
income tax guidance
.
For our
initial analysis of the impact of the
Tax Act,
we recorded additional income tax expense of $4.4
million for the
fiscal
year
ended
February 3, 2018, which was related to the remeasurement of certain deferred tax assets and liabilities based on the rates at which they were expected to reverse in the future.
We also calculated our fiscal 2017 income tax expense using a blended rate of
33.7%, which is based on the applicable tax rates before and after the Tax Act and the number of days in the fiscal year that the respective tax rates were in effect. We have determined that these provisions were the only provisions of the Tax Act that im
pact
ed
fiscal 2017 results.
In
fiscal
2018,
we
obtained
additional information
and recorded an income tax benefit of
$
0.1 million
.
As of the end of fiscal 2018, we have filed our fiscal 2017 federal income tax return and have completed our assessment of
the final impact of the Tax Act.
Note 10 – Employee Benefit Plans
Retirement Savings Plans
On February 24, 1994, our Board of Directors approved the Shoe Carnival Retirement Savings Plan (the “Domestic Savings Plan”). The Domestic Savings Plan is open to all employees working in the continental United States who have been employed for at least one year, are at least 21 years of age and who work at least 1,000 hours in a defined year. The primary savings mechanism under the Domestic Savings Plan is a 401(k) plan under which an employee may contribute up to 20% of annual earnings with us matching the first 4% at a rate of 50%. Our contributions to the participants’ accounts become fully vested when the participant reaches their third anniversary of employment with us. Contributions charged to expense were $738,000, $733,000, and $695,000 in fiscal years 2018, 2017, and 2016, respectively.
On March 19, 2012, our Board of Directors approved the Shoe Carnival Puerto Rico Savings Plan (the “Puerto Rico Savings Plan”). The Puerto Rico Savings Plan is open to all employees working in Puerto Rico who have been employed for at least one year, are at least 21 years of age and who work at least 1,000 hours in a defined year. This plan is similar to our Domestic Savings Plan, whereby an employee may contribute up to 20% of his or her annual earnings, with us matching the first 4% at a rate of 50%. Contributions charged to expense were $16,000, $18,000 and $15,000 in fiscal years 2018, 2017 and 2016, respectively.
Stock Purchase Plan
On May 11, 1995, our shareholders approved the Shoe Carnival, Inc. Employee Stock Purchase Plan (the “Stock Purchase Plan”) as adopted by our Board of Directors on February 9, 1995. The Stock Purchase Plan reserves 450,000 shares of our common stock (subject to adjustment for any subsequent stock splits, stock dividends and certain other changes in our 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 our common stock, at 85% of the then fair market value up to a maximum of $5,000 in any calendar year. Under the Stock Purchase Plan, 7,000, 10,000 and 10,000 shares of common stock were purchased by participants in the plan and proceeds to us for the sale of those shares were approximately $177,000, $205,000 and $223,000 for fiscal years 2018, 2017 and 2016, respectively. At February 2, 2019, there were 77,000 shares of unissued common stock reserved for future purchase under the Stock Purchase Plan.
The following table summarizes information regarding stock-based compensation expense recognized for the Stock Purchase Plan:
(In thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Stock-based compensation expense before the
recognized income tax benefit
(1)
|
|
$
|
31
|
|
|
$
|
36
|
|
|
$
|
39
|
|
Income tax benefit
|
|
$
|
8
|
|
|
$
|
18
|
|
|
$
|
15
|
|
(1)
|
Amounts are representative of the 15% discount employees are provided for purchases under the Stock Purchase Plan.
|
54
Shoe Carnival, Inc.
Notes to Consolidated Financial Statements - continued
Deferred Compensation Plan
In fiscal 2000, we established a non-qualified deferred compensation plan for certain key employees who, due to Internal Revenue Service guidelines, cannot take full advantage of the employer-sponsored 401(k) plan. Participants in the plan elect on an annual basis to defer, on a pre-tax basis, portions of their current compensation until retirement, or earlier if so elected. While not required to, we can match a portion of the employees’ contributions, which would be subject to vesting requirements. The compensation deferred under this plan is credited with earnings or losses measured by the rate of return on investments elected by plan participants. The plan is currently unfunded. Compensation expense for our match and earnings on the deferred amounts was $154,000 for fiscal 2018, $1.8 million for fiscal 2017 and $1.5 million for fiscal 2016. The total deferred compensation liability at February 2, 2019 and February 3, 2018 was $12.1 million and $11.6 million, respectively.