What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-06-04 compared with 2020-12-04 · 103 added, 207 removed, 234 unchanged (57% of the section changed)

3 unchanged sentences

(In thousands, except share data)

October 31, 2020

February 1, 2020

November 2, 2019

January 30, 2021

Current Assets:

17 unchanged sentences

Shareholders’ Equity:

Common stock, $ .01 par value, 50,000,000 shares authorized,

20,524,601 shares, 20,524,601 shares and 20,527,244 shares issued,

Common stock, $ 0.01 par value, 50,000,000 shares authorized and

20,524,601 shares issued in each period, respectively

Additional paid-in capital

8 unchanged sentences

(In thousands, except per share data)

October 31, 2020

November 2, 2019

October 31, 2020

November 2, 2019

Cost of sales (including buying, distribution

1 unchanged sentence

Selling, general and administrative expenses

Operating income

Operating income/(loss)

Interest income

Interest expense

Income before income taxes

Income tax expense

Net income per share:

Income/(loss) before income taxes

Income tax expense/(benefit)

Net income/(loss)

Net income/(loss) per share:

Weighted average shares:

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Thirteen Weeks Ended

(In thousands, except per share data)

Balance at August 1, 2020

Dividends declared ($ 0.090 per share)

Employee stock purchase plan purchases

Restricted stock awards

Shares surrendered by employees to pay taxes

on restricted stock

Stock-based compensation expense

Balance at October 31, 2020

Balance at August 3, 2019

Dividends declared ($ 0.085 per share)

Employee stock purchase plan purchases

Restricted stock awards

Shares surrendered by employees to pay taxes

on restricted stock

Purchase of common stock for treasury

Stock-based compensation expense

Balance at November 2, 2019

Thirty-nine Weeks Ended

(In thousands, except per share data)

Balance at February 1, 2020

Balance at January 30, 2021

Dividends declared ($ 0.140 per share)

4 unchanged sentences

Stock-based compensation expense

Balance at October 31, 2020

Balance at May 1, 2021

Balance at February 1, 2020

Adoption of Accounting Standards Codification

Topic 842, Leases

Dividends declared ($ 0.085 per share)

3 unchanged sentences

on restricted stock

Purchase of common stock for treasury

Stock-based compensation expense

Balance at November 2, 2019

Balance at May 2, 2020

See notes to Condensed Consolidated Financial Statements.

2 unchanged sentences

(In thousands)

October 31, 2020

November 2, 2019

Cash Flows From Operating Activities

Adjustments to reconcile net income to net cash provided by operating activities:

Net income/(loss)

Adjustments to reconcile net income/(loss) to net cash

provided by (used in) operating activities:

Depreciation and amortization

8 unchanged sentences

Accounts payable and accrued liabilities

Net cash provided by operating activities

Net cash provided by (used in) operating activities

Cash Flows From Investing Activities

6 unchanged sentences

Dividends paid

Purchase of common stock for treasury

Shares surrendered by employees to pay taxes on restricted stock

Net cash used in financing activities

Net decrease in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

11 unchanged sentences

is one of the nation’s largest family footwear retailers, providing customers the convenience of shopping at any of our store locations or online.

We offer customers a broad assortment of moderately priced dress, casual and athletic footwear for men, women and children with an emphasis on national name brands.

We offer customers a broad assortment of dress, casual and athletic footwear for men, women and children with an emphasis on national name brands.

We differentiate our retail concept from our competitors by our distinctive, fun and promotional marketing efforts.

5 unchanged sentences

The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.

The unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended February 1, 2020.

Note 2 - Net Income Per Share

The following tables set forth the computation of basic and diluted net income per share as shown on the face of the accompanying Condensed Consolidated Statements of Income:

Note 2 - Net Income/(Loss) Per Share

The following tables set forth the computation of basic and diluted net income/(loss) per share as shown on the face of the accompanying Condensed Consolidated Statements of Income:

Thirteen Weeks Ended

October 31, 2020

November 2, 2019

(In thousands, except per share data)

Basic Net Income per Share:

Conversion of stock-based compensation

Net income available for basic common shares

and basic net income per share

Diluted Net Income per Share:

Conversion of stock-based compensation

Net income available for diluted common

shares and diluted net income per share

Thirty-nine Weeks Ended

October 31, 2020

November 2, 2019

(In thousands, except per share data)

Basic Net Income per Share:

Conversion of share-based compensation

Net income available for basic common shares

and basic net income per share

Diluted Net Income per Share:

Basic Net Income/(Loss) per Share:

Income/(Loss)

Net income/(loss) available for basic common shares

and basic net income/(loss) per share

Diluted Net Income/(Loss) per Share:

Net income/(loss)

Conversion of share-based compensation

Net income available for diluted common

shares and diluted net income per share

The computation of basic net income per share of common stock is based on the weighted average number of common shares outstanding during the period.

The computation of diluted net income per share is based on the weighted average number of shares outstanding plus the dilutive incremental shares that would be outstanding assuming the vesting of restricted stock awards, restricted stock units and performance stock units.

A small portion of these awards that were outstanding at the beginning of fiscal 2020 and vested during the thirty-nine weeks ended October 31, 2020, had a non-forfeitable right to dividends.

The computation of diluted net income per share excluded approximately 2,000 unvested share-settled awards for the third quarter of fiscal 2020 and 3,000 unvested share-settled equity awards for the first nine months of fiscal 2020 because the impact would be anti-dilutive.

For the other periods presented, all unvested share-settled equity awards were dilutive.

Note 3 – COVID-19 Impacts

Net income/(loss) available for diluted common

shares and diluted net income/(loss) per share

The computation of basic net income/(loss) per share of common stock is based on the weighted average number of common shares outstanding during the period.

The computation of diluted net income/(loss) per share is based on the weighted average number of shares outstanding plus the dilutive incremental shares that would be outstanding assuming the vesting of share-settled compensation arrangements involving restricted stock, restricted stock units and performance stock units.

A small portion of these awards that were outstanding at the beginning of fiscal 2020 had a non-forfeitable right to dividends.

The computation of diluted net income/(loss) per share excluded approximately 3,000 unvested share-settled awards for the first quarter of fiscal 2021 because the impact would be anti-dilutive.

During the first quarter of fiscal 2020, approximately 198,000 unvested share-settled awards were excluded from the computation because the impact would have been anti-dilutive.

Note 3 – Recently Issued Accounting Pronouncements

The Financial Accounting Standards Board issued guidance related to reference rate reform, which addresses contract modifications that may be necessary due to the expected discontinuance of LIBOR as a broadly used reference rate.

The guidance was effective immediately but is only available for contract modifications made through December 31, 2022.

Our credit facility currently allows for LIBOR-based borrowings and, as amended in 2020, contains provisions providing for a benchmark replacement in the event LIBOR is discontinued.

We will adopt this guidance when LIBOR is discontinued and do not expect the adoption will have a material impact on our consolidated financial statements or related disclosures.

Note 4 – Risk and Uncertainties Associated with the COVID-19 Pandemic

Our operations have been significantly disrupted by the outbreak of a novel strain of coronavirus (“COVID-19”).

4 unchanged sentences

We began reopening physical stores in accordance with applicable public health guidelines in late April 2020.

By the beginning of the second fiscal quarter, approximately 50 percent of our stores were reopened, and by early June , substantially all of our stores had reopened.

Our website and mobile app have been fully operational during the pandemic with digital orders generally fulfilled by our store locations.

As of October 31, 2020, we do not have any stores closed due to the pandemic;

however, the COVID-19 pandemic will likely continue to impact our financial condition and results of operations for the foreseeable future.

By the beginning of the second quarter of fiscal 2020, approximately 50 % of our stores were reopened, and by early June 2020 , substantially all of our stores had reopened.

Our e-commerce platform has been fully operational during the pandemic with e-commerce orders generally fulfilled by our store locations.

Due to the pandemic, we did not have any stores closed as of May 1, 2021 or for extended periods during the first quarter of fiscal 2021.

The COVID-19 pandemic will likely continue to impact our financial condition and results of operations for the foreseeable future.

Note 5 - Fair Value Measurements

11 unchanged sentences

Fair Value of Financial Instruments

The following table presents financial instruments that are measured at fair value on a recurring basis at October 31, 2020, February 1, 2020 and November 2, 2019.

The following table presents financial instruments that are measured at fair value on a recurring basis at May 1, 2021, January 30, 2021 and May 2, 2020.

Fair Value Measurements

(In thousands)

As of October 31, 2020

As of May 1, 2021

Cash equivalents - money market mutual funds

As of February 1, 2020

As of January 30, 2021

Cash equivalents - money market mutual funds

As of November 2, 2019

As of May 2, 2020

Cash equivalents - money market mutual funds

6 unchanged sentences

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.

Assets subject to impairment are adjusted to estimated fair value and, if applicable, an impairment loss is recorded in selling, general

and administrative expenses.

If the operating lease right-of-use asset is impaired, we would amortize the remaining right-of-use asset on a straight-line basis over the remaining lease term .

7 unchanged sentences

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.

During the thirteen weeks ended October 31, 2020, we recorded an impairment charge of $ 211,000 associated with one store.

During the thirty-nine weeks ended October 31, 2020, we recorded impairment charges of $ 2.7 million associated with nine stores.

During the thirteen weeks ended November 2 , 2019, we recorded impairment charges of $ 561,000 related to three stores.

During the thirty-nine weeks ended November 2, 2019, we recorded an impairment charges of $ 604,000 associated with four stores.

During the thirteen weeks ended May 1, 2021 and May 2, 2020, we recorded impairment charges of $ 724,000 and $ 2.3 million associated with two stores and seven stores, respectively.

These charges were included in selling, general and administrative expenses.

No impairments of operating right-of-use assets have been recorded in any of these periods.

No impairments of operating right-of-use assets have been recorded in either period.

Note 6 - Stock-Based Compensation

At our 2017 annual meeting of shareholders, 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”).

Under the 2017 Plan, we may issue stock units, restricted stock, stock appreciation rights, stock options and other stock-based awards to eligible participants.

According to the terms of the 2017 Plan, 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 restricted stock units and performance stock units, restricted stock awards, and cash-settled stock appreciation rights.

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 31, 2020, stock-based compensation expense for the employee stock purchase plan was $ 8,000 before the income tax benefit of $ 2,000 and $ 27,000 before the income tax benefit of $ 6,000 , respectively.

For the thirteen and thirty-nine weeks ended November 2, 2019, stock-based compensation expense for the employee stock purchase plan was $ 8,000 before the income tax benefit of $ 2,000 and $ 25,000 before the income tax benefit of $ 5,000 , respectively.

Stock-based compensation includes share-settled awards issued pursuant to our shareholder approved Shoe Carnival, Inc.

2017 Equity Incentive Plan in the form of restricted stock units, performance stock units, and restricted stock.

Additionally, we recognize stock-based compensation expense for the discount on shares sold to employees through our employee stock purchase plan and for cash-settled stock appreciation rights.

Stock-based compensation expense for the employee stock purchase plan was $ 11,000 before the income tax benefit of $ 3,000 for each of the thirteen weeks ended May 1, 2021 and May 2, 2020, respectively.

Share-Settled Equity Awards

The following table summarizes transactions for our restricted stock units and performance stock units pursuant to our stock-based compensation plans:

The following table summarizes transactions for our restricted stock units and performance stock units:

Average Grant

1 unchanged sentence

Restricted stock units and performance stock units at

February 1, 2020

Forfeited or expired

January 30, 2021

Restricted stock units and performance stock units at

October 31, 2020

The total fair value at grant date of restricted stock units and performance stock units that vested during the thirty-nine weeks ended October 31, 2020 and November 2, 2019 was $ 4.4 million and $ 2.3 million, respectively.

The weighted-average grant date fair value of restricted stock units and performance stock units granted during the thirty-nine weeks ended October 31, 2020 and November 2, 2019 was $ 14.88 and $ 31.29 , respectively.

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

Average Grant

Date Fair Value

Restricted stock at February 1, 2020

Forfeited or expired

Restricted stock at October 31, 2020

The total fair value at grant date of restricted stock awards that vested during the thirty-nine weeks ended October 31, 2020 and November 2, 2019 was $ 1.3 million and $ 17.0 million, respectively.

The weighted-average grant date fair value of restricted stock awards granted during the thirty-nine weeks ended October 31, 2020 and November 2, 2019 was $ 24.91 and $ 26.58 , respectively.

The total fair value at grant date of restricted stock units and performance stock units that vested during the thirteen weeks ended May 1, 2021 and May 2, 2020 was $ 3.1 million and $ 4.4 million, respectively.

The weighted-average grant date fair value of restricted stock units and performance stock units granted during the thirteen weeks ended May 1, 2021 and May 2, 2020 was $ 56.42 and $ 14.88 , respectively.

There were no restricted stock awards granted during the thirteen weeks ended May 1, 2021 or May 2, 2020.

There were no restricted stock awards that vested during the thirteen weeks ended May 1, 2021 and the total fair value at grant date of restricted stock awards that vested during the thirteen weeks ended May 2, 2020 was $ 1.2 million.

The following table summarizes information regarding stock-based compensation expense recognized for all share-settled equity awards (restricted stock units, performance stock units and restricted stock awards):

(In thousands)

Weeks Ended October 31, 2020

Weeks Ended November 2, 2019

Weeks Ended October 31, 2020

Weeks Ended November 2, 2019

Weeks Ended May 1, 2021

Weeks Ended May 2, 2020

Stock-based compensation expense before the

recognized income tax effect

Income tax effect

Included in the thirty-nine week period ended October 31, 2020 was a tax expense of $ 81,000 in connection with the vesting of stock-based compensation.

The thirty-nine week period ended November 2, 2019 included a tax benefit in connection with the vesting of stock-based compensation of approximately $ 2.0 million.

As of October 31, 2020, approximately $ 2.6 million of unrecognized compensation expense remained related to our restricted stock units, performance stock units and service-based restricted stock awards.

Income tax effect at statutory rate

Additional income tax (benefit)/expense on vesting of awards

As of May 1, 2021 approximately $ 7.8 million of unrecognized compensation expense remained related to our share-settled equity awards.

The cost is expected to be recognized over a weighted average period of approximately 1.6 years.

4 unchanged sentences

SARs granted during the first quarter of fiscal 2020 vested and became fully exercisable on March 31, 2021 and any unexercised SARs will expire on March 31, 2023.

SARs granted during the first quarter of fiscal 2019 vested and became fully exercisable on March 31, 2020.

The remaining unexercised SARs from the first quarter fiscal 2019 grant were exercised in the first quarter of fiscal 2021.

The SARs issued have a defined maximum gain of $ 10.00 over the exercise price of $ 61.88 for awards granted in fiscal 2021 and over the exercise price of $ 13.79 for awards granted in fiscal 2020.

1 unchanged sentence

Exercise Price

Outstanding at February 1, 2020

Forfeited or expired

Outstanding at October 31, 2020

Outstanding at January 30, 2021

Outstanding at May 1, 2021

The fair value of these liability awards are remeasured, 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 31, 2020 was $ 8.54 .

The weighted-average fair value of outstanding SAR awards as of May 1, 2021 was $ 2.70 .

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

October 31, 2020

November 2, 2019

Risk free interest rate yield curve

3 unchanged sentences

Expected volatility

1.92 - 2.92 Years

1.91 - 2.91 Years

Exercise multiple

5 unchanged sentences

Expected volatility was based on the historical volatility of our common stock.

The exercise multiple and employee exit rate were calculated based on historical option data.

The exercise multiple and employee exit rate were calculated based on historical data.

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

(In thousands)

Weeks Ended October 31, 2020

Weeks Ended November 2, 2019

Weeks Ended October 31, 2020

Weeks Ended November 2, 2019

Stock-based compensation expense before the

Weeks Ended May 1, 2021

Weeks Ended May 2, 2020

Stock-based compensation expense/(benefit) before the

recognized income tax effect

Income tax effect

As of October 31, 2020, approximately $ 145,000 in unrecognized compensation expense remained related to non-vested SARs.

Income tax effect at statutory rate

As of May 1, 2021, approximately $ 109,000 in unrecognized compensation expense remained related to non-vested SARs.

This expense is expected to be recognized over a period of approximately 0.9 years.

2 unchanged sentences

Revenue is disaggregated by product category below.

Net sales and percentage of net sales for the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019 were as follows:

Net sales and percentage of net sales for the thirteen weeks ended May 1, 2021 and May 2, 2020 were as follows:

(In thousands)

Thirteen Weeks

Ended October 31, 2020

Ended May 1, 2021

Thirteen Weeks

Ended November 2, 2019

Non-Athletics:

Accessories and Other

(In thousands)

Thirty-nine Weeks

Ended October 31, 2020

Thirty-nine Weeks

Ended November 2, 2019

Ended May 2, 2020

Non-Athletics:

1 unchanged sentence

Accounting Policy and Performance Obligations

We operate as a multi-channel, family footwear retailer and provide the convenience of shopping at our physical stores or shopping online through our e-commerce and mobile platforms.

We operate as a multi-channel, family footwear retailer and provide the convenience of shopping at our physical stores or shopping online through our e-commerce platform.

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 at a particular store.

3 unchanged sentences

This also includes the “buy online, pick up in store” scenario described above and includes sales made via our Shoes 2U program when customers choose to pick up their goods at a physical 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.

For sales made through our e-commerce platform in which the customer chooses home delivery, we transfer control and recognize revenue when the product is shipped.

This also includes sales made via our Shoes 2U program when the customer chooses home delivery.

6 unchanged sentences

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 transaction price may be variable due to terms that permit customers to exchange

or return products for a refund.

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.

3 unchanged sentences

These include cash, checks, credit/debit cards and gift cards.

Our e-commerce and mobile platforms accept credit/debit cards, PayPal, Apple Pay, Klarna and gift cards as forms of payment.

Our e-commerce platform accepts credit/debit cards, PayPal, Apple Pay, Klarna 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.

2 unchanged sentences

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 shipped to the customer).

Unearned revenue related to our Shoes 2U program was not material to our Condensed Consolidated Financial Statements at October 31, 2020, February 1, 2020 and November 2, 2019.

Unearned revenue related to our Shoes 2U program was not material to our Condensed Consolidated Financial Statements at May 1, 2021, January 30, 2021 and May 2, 2020.

Returns and Refunds

Customers can 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.

We have established an allowance based upon historical experience in order to estimate return and refund 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.

Approximately $ 718,000 of refund liabilities and $ 500,000 of right of return assets associated with estimated product returns were recorded in accrued and other liabilities at each of October 31, 2020 and February 1, 2020.

Approximately $ 600,000 of refund liabilities and $ 410,000 of right of return assets associated with estimated product returns were recorded in accrued and other liabilities at November 2, 2019.

Approximately $ 740,000 of refund liabilities and $ 495,000 of right of return assets associated with estimated product returns were recorded in accrued and other liabilities as of May 1, 2021 and January 30, 2021.

Approximately $ 718,000 of refund liabilities and $ 500,000 of right of return assets associated with estimated product returns were recorded in accrued and other liabilities at May 2, 2020.

Contract Liabilities

We offer gift cards in our stores and through our e-commerce and mobile platforms.

When a gift card is issued, the issuance is recorded as an increase to contract liabilities at the time of issuance and a decrease to contract liabilities when a customer redeems a gift card.

1 unchanged sentence

We do not record breakage revenue when escheat liability to relevant jurisdictions exists.

At October 31, 2020, February 1, 2020 and November 2, 2019, approximately $ 1.2 million, $ 1.5 million and $ 1.1 million of contract liabilities associated with unredeemed gift cards were recorded in accrued and other liabilities, respectively.

At May 1, 2021, January 30, 2021 and May 2, 2020, approximately $ 1.4 million, $ 1.7 million and $ 1.3 million of contract liabilities associated with unredeemed gift cards were recorded in accrued and other liabilities, respectively.

We expect the revenue associated with these liabilities to be recognized in proportion to the pattern of customer redemptions within two years.

Breakage revenue associated with our gift cards of $ 27,000 and $ 69,000 was recognized in net sales during the thirteen and thirty-nine weeks ended October 31, 2020, respectively.

Breakage revenue associated with our gift cards of $ 29,000 and $ 91,000 was recognized in net sales during the thirteen and thirty-nine weeks ended November 2, 2019, respectively.

Breakage revenue associated with our gift cards of $ 42,000 and $ 19,000 was recognized in net sales during the thirteen weeks ended May 1, 2021 and May 2, 2020, respectively.

Our Shoe Perks rewards program allows customers to accrue 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.

Points under Shoe Perks are earned primarily by making purchases through any of our multi-channel points of sale.

Once a certain threshold of accumulated points is reached, the customer earns a reward certificate, which is redeemable through any of our sales channels.

When a Shoe Perks customer makes a purchase, we allocate the transaction price between the goods purchased and the loyalty reward points earned based on the relative standalone selling price.

1 unchanged sentence

We then recognize revenue based on an estimate of when customers redeem rewards, which incorporates an estimate of points expected to expire using historical rates.

During the thirteen and thirty-nine weeks ended October 31, 2020, approximately $ 1.3 million and $ 3.2 million, respectively, of loyalty rewards were recognized in net sales.

During the thirteen and thirty-nine weeks ended November 2, 2019, approximately $ 632,000 and $ 1.5 million, respectively, of loyalty rewards were recognized in net sales.

At October 31, 2020, February 1, 2020 and November 2, 2019, approximately $ 828,000 , $ 679,000 and $ 533,000 , respectively, of contract liabilities associated with loyalty rewards were recorded in accrued and other liabilities.

During the thirteen weeks ended May 1, 2021 and May 2, 2020, approximately $ 1.3 million and $ 957,000 , respectively, of loyalty rewards were recognized in net sales.

At May 1, 2021, January 30, 2021 and May 2, 2020, approximately $ 1.1 million, $ 755,000 and $ 406,000 of contract liabilities associated with loyalty rewards were recorded in our Condensed Consolidated Balance Sheets, respectively.

We expect the revenue associated with these liabilities to be recognized in proportion to the pattern of customer redemptions in less than one year.

Note 7 – Debt

On April 16, 2020, we entered into a third amendment (the “Third Amendment”) of our existing credit agreement (the “Credit Agreement”).

Pursuant to the Third Amendment, we (1) exercised the full $ 50.0 million accordion feature, which increased the revolving commitment under the Credit Agreement from $ 50.0 million to $ 100.0 million, and increased the swing line sublimit from $ 10.0 million to $ 15.0 million;

(2) granted a security interest in our inventory to the lenders;

and (3) increased the maximum ratio of funded debt plus three times rent expense to EBITDA (as defined in the Credit Agreement) plus rent expense from 2.5 to 1.0 to 3.0 to 1.0.

In addition, the Third Amendment, among other things, increased certain LIBOR margins applicable to borrowings under the Credit Agreement, increased the commitment fee charged on the unused portion of the lenders’ commitment and made customary updates to certain representations, covenants and other terms contained in the Credit Agreement.

On July 20, 2020, we entered into a fourth amendment (the “Fourth Amendment”) to our Credit Agreement.

Pursuant to the Fourth Amendment, we (1) eliminated the covenant involving the ratio of funded debt plus three times rent expense to EBITDA (as defined in the Credit Agreement) plus rent expense for the fiscal quarters ending on or about July 31, 2020;

October 31, 2020;

and January 31, 2021;

(2) amended the definition of LIBOR to establish a minimum LIBOR rate of 0.75% per annum;

and (3) established increased reporting requirements to the lenders through January 31, 2021.

The Credit Agreement, as amended, contains covenants which stipulate:

(1) Total Shareholders’ Equity (as defined in the Credit Agreement) will not fall below $250.0 million at the end of each fiscal quarter;

(2) the ratio of funded debt plus three times rent expense to EBITDA (as defined in the Credit Agreement) plus rent expense will not exceed 3.0 to 1.0, except for the fiscal quarters ending on or about July 31, 2020;

October 31, 2020;

and January 31, 2021;

(3) the aggregate amount of cash dividends for a fiscal year will not exceed $10.0 million;

and (4) distributions in the form of redemptions of Equity Interests (as defined in the Credit Agreement) 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.

We were in compliance with these covenants at October 31, 2020.

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 1.50% to 2.50%, depending on our achievement of certain performance criteria.

If the stated LIBOR rate is less than 0.75%, the LIBOR rate for purposes of calculating the interest rate under the credit facility shall be 0.75%.

A commitment fee is charged at 0.30 % to 0.40 % per annum, depending on our achievement of certain performance criteria, on the unused portion of the lenders’ commitment.

The Credit Agreement expires on March 27, 2022 .

No borrowings were outstanding under the Credit Agreement as of October 31, 2020, February 1, 2020 or November 2, 2019.

There were no borrowings outstanding during the thirteen weeks ended October 31, 2020 and November 2, 2019.

The maximum borrowings outstanding during the thirty-nine weeks ended October 31, 2020 and November 2, 2019 were $ 8.7 million and $ 20.0 million, respectively.

As of October 31, 2020, there were $ 1.2 million in letters of credit outstanding and $ 98.8 million available to us for borrowing under the Credit Agreement.

Note 8 – Leases

We lease all of our physical stores and our single distribution center, which has a current lease term of 15 years, expiring in 2034 .

We lease all of our physical stores and our single distribution center, which has a current lease term expiring in 2034 .

We also enter into leases of equipment, copiers and billboards.

All of our leases are operating leases.

Leases with terms of twelve months or less are immaterial and are expensed as incurred, and we did not have any leases with related parties as of October 31, 2020.

In response to the COVID-19 pandemic and related government restrictions impacting our operations, we began seeking relief from our landlords while our stores were temporarily closed to customers.

On April 10, 2020, the Financial Accounting Standards Board staff issued a question-and-answer document providing guidance for lease concessions provided to lessees in response to the effects of COVID-19.

Such guidance allows lessees to make an election to forgo the evaluation of the enforceable rights and obligations of the original lease contract and whether a lease concession provided by a lessor should be accounted for as a lease modification in the event the concession does not result in a substantial increase in the rights of the lessor or the obligations of the lessee.

Based on the nature of the agreements reached with many of our landlords, we have accounted for lease concessions as if they were part of the enforceable rights and obligations of the existing lease contracts and did not account for the concessions as lease modifications.

When agreements with landlords to defer rent payments were reached, amounts that would have otherwise been due were reclassified as operating lease liabilities, all of which are reflected in the current portion of operating lease liabilities on our Condensed Consolidated Balance Sheet as of October 31, 2020.

For negotiations with landlords that did not result in lease concessions, we have increased accounts payable for rents that are due.

We have continued to recognize lease expense on a straight-line basis for our leases over the related lease terms.

Lease costs, including related common area maintenance (“CAM”), property taxes, and insurance, reported in our Condensed Consolidated Statements of Income were as follows for the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019:

Leases with terms of twelve months or less are immaterial and are expensed as incurred, and we did not have any leases with related parties as of May 1, 2021.

(In thousands)

Weeks Ended October 31, 2020

Weeks Ended November 2, 2019

Weeks Ended October 31, 2020

Weeks Ended November 2, 2019

Weeks Ended May 1, 2021

Weeks Ended May 2, 2020

Operating lease cost

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements