Famous Footwear 2004 Annual Report Download - page 44

Table of Contents
Notes to Consolidated Financial Statements (continued)
BROWN SHOE COMPANY, INC. 2003 FORM 10-K
customers of $3.7 million, $6.4 million and $6.1 million and are offset by co-op advertising allowances recovered by the Company’s retail
divisions of $5.4 million, $4.5 million and $3.2 million, respectively. Total co-op advertising costs reflected as a reduction of net sales were
$4.6 million in fiscal 2003 and $0 for each of fiscal 2002 and 2001.
Income Taxes
Provision is made for the tax effects of timing differences between financial and tax reporting. These differences relate principally to employee
benefit plans, accrued expenses, foreign tax credit carryforwards, bad debt reserves, inventory and depreciation.
Operating Leases
The Company leases its store premises under operating leases. Many leases entered into by the Company include options under which the
Company may extend the lease term beyond the initial commitment period, subject to terms agreed to at lease inception. Some leases also
include early termination options which can be exercised under specific conditions.
For leases that have predetermined fixed escalations of the minimum rentals, the Company recognizes the related rental expense on a
straight-line basis and records the difference between the recognized rental expense and amounts payable under the lease as accrued rent,
which is reflected as a component of other accrued expenses on the accompanying balance sheets.
Many of the leases covering retail stores require contingent rentals in addition to the minimum monthly rental charge, based on retail sales
volume. The Company records expense for contingent rentals during the period in which the retail sales volume exceeds the respective
targets.
Earnings per Share
Basic earnings per common share is computed using the weighted average number of common shares outstanding during the year. Diluted
earnings per common share is computed using the weighted average number of common shares and potential dilutive securities
outstanding during the period. Potential dilutive securities consist of outstanding stock options and unvested restricted stock awards.
Comprehensive Income
Comprehensive income includes the effect of foreign currency translation adjustments and unrealized gains and losses on derivative
instruments. The accumulated other comprehensive loss for the Company is comprised of cumulative foreign currency translation
adjustments of $2.1 million, $7.6 million and $9.3 million in fiscal 2003, 2002 and 2001, respectively, and unrealized losses on derivative
financial instruments used for hedging activities of $2.8 million, $3.5 million and $0.7 million in fiscal 2003, 2002 and 2001, respectively.
Share-Based Compensation
As of January 31, 2004, the Company had four share-based compensation plans, which are described more fully in Note 16. The Company
accounts for those plans under the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations. Compensation expense is recognized in net earnings for stock
appreciation units, stock performance plans and restricted stock grants. No compensation cost is reflected in net earnings for stock options, as
all option grants had an exercise price equal to the market value of the underlying common stock on the date of grant. The following
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