Famous Footwear 2012 Annual Report Download - page 42

40 2012 BROWN SHOE COMPANY, INC. FORM 10-K
Environmental Matters
We are involved in environmental remediation and ongoing compliance activities at several sites. We are remediating, under
the oversight of Colorado authorities, the groundwater and indoor air at our Redfield site and residential neighborhoods
adjacent to and near the property, which have been aected by solvents previously used at the facility. In addition, various
federal and state authorities have identified us as a potentially responsible party for remediation at certain landfills. While
we currently do not operate manufacturing facilities in the United States, prior operations included numerous manufacturing
and other facilities for which we may have responsibility under various environmental laws to address conditions that may be
identified in the future. See Note 17 to the consolidated financial statements for a further description of specific properties.
Environmental expenditures relating to an existing condition caused by past operations and that do not contribute to current
or future revenue generation are expensed. Liabilities are recorded when environmental assessments and/or remedial eorts
are probable and the costs can be reasonably estimated and are evaluated independently of any future claims recovery.
Generally, the timing of these accruals coincides with completion of a feasibility study or our commitment to a formal plan of
action, and our estimates of cost are subject to change as new information becomes available. Costs of future expenditures
for environmental remediation obligations are discounted to their present value in those situations requiring only continuing
maintenance and monitoring based upon a schedule of fixed payments.
Business Combination Accounting
We allocate the purchase price of an acquired entity to the assets and liabilities acquired based upon their estimated fair
values at the business combination date. We also identify and estimate the fair values of intangible assets that should be
recognized as assets apart from goodwill. A single estimate of fair value results from a complex series of judgments about
future events and uncertainties and relies heavily on estimates and assumptions. We have historically relied in part upon the
use of reports from third-party valuation specialists to assist in the estimation of fair values for intangible assets other than
goodwill. The carrying values of acquired receivables and trade accounts payable have historically approximated their fair
values at the business combination date. With respect to other acquired assets and liabilities, we use all available information
to make our best estimates of their fair values at the business combination date.
Our purchase price allocation methodology contains uncertainties because it requires management to make assumptions
and to apply judgment to estimate the fair value of acquired assets and liabilities. Management estimates the fair value
of assets and liabilities based upon quoted market prices, the carrying value of the acquired assets and widely accepted
valuation techniques, including discounted cash flows. Unanticipated events or circumstances may occur which could aect
the accuracy of our fair value estimates, including assumptions regarding industry economic factors and business strategies.
Share-based Compensation
We account for share-based compensation in accordance with ASC 718, Compensation – Stock Compensation, and ASC 505,
Equity, which require all share-based payments to employees, including grants of employee stock options, to be recognized
in the consolidated financial statements based on their fair values. The fair value of stock options is calculated by using
the Black-Scholes option pricing formula that requires estimates for expected volatility, expected dividends, the risk-free
interest rate and the term of the option. Stock options generally vest over four years, with 25% vesting annually, and expense
is recognized on a straight-line basis separately for each vesting portion of the stock option award. Expense for stock
performance awards is recognized based upon the fair value of the awards on the date of grant and the anticipated number
of shares or units to be awarded on a straight-line basis over the three-year service period. If any of the assumptions used in
the Black-Scholes model or the anticipated number of shares to be awarded change significantly, share-based compensation
expense may dier materially in the future from that recorded in the current period. See additional information related to
share-based compensation in Note 15 to the consolidated financial statements.
Retirement and Other Benefit Plans
We sponsor pension plans in both the United States and Canada. Our domestic pension plans cover substantially all United
States employees, and our Canadian pension plans cover certain employees based on plan specifications. In addition, we
maintain an unfunded Supplemental Executive Retirement Plan (“SERP”) and sponsor unfunded defined benefit postretirement
life insurance plans that cover both salaried and hourly employees who had become eligible for benefits by January 1, 1995.
We determine our expense and obligations for retirement and other benefit plans based on assumptions related to discount
rates, expected long-term rates of return on invested plan assets, expected salary increases and certain employee-related
factors, such as turnover, retirement age and mortality among others. Our assumptions reflect our historical experiences and
our best judgment regarding future expectations. Additional information related to our assumptions is as follows:
• Expected long-term rate of return – The expected long-term rate of return on plan assets is based on historical and
projected rates of return for current and planned asset classes in the plan’s investment portfolio. Assumed projected
rates of return for each asset class were selected after analyzing experience and future expectations of the returns.
The overall expected rate of return for the portfolio was developed based on the target allocation for each asset class.
The weighted-average expected rate of return on plan assets used to determine our pension expense for 2012 was 8.25%.