Famous Footwear 2012 Annual Report Download - page 54

52 2012 BROWN SHOE COMPANY, INC. FORM 10-K
projections. Discount rates reflect market-based estimates of the risks associated with the projected cash flows of the
reporting unit directly resulting from the use of its assets in its operations. The Company also considered assumptions that
market participants may use. Both the estimates of the fair value of the Company’s reporting units and the allocation of the
estimated fair value of the reporting units are based on the best information available to the Company’s management as of
the date of the assessment.
An adjustment to goodwill will be recorded for any goodwill that is determined to be impaired. Impairment of goodwill is
measured as the excess of the carrying amount of goodwill over the fair values of recognized assets and liabilities of the
reporting unit. The Company performs impairment tests during the fourth quarter of each fiscal year unless events indicate
an interim test is required. The goodwill impairment test performed as of the first day of the Company’s fourth fiscal quarter
resulted in no impairment charges. Based on the results of the Company’s most recent impairment test, the fair value of a
reporting unit exceeded its carrying value by less than 20%. As of February 2, 2013, the goodwill allocated to the reporting
unit was $39.6 million. Other intangible assets are amortized over their useful lives and are reviewed for impairment if and
when impairment indicators are present.
Self-Insurance Reserves
The Company is self-insured and/or retains high deductibles for a significant portion of its workers’ compensation,
employment practices, health, disability, cyber risk, general liability, automobile and property programs, among others.
Liabilities associated with the risks that are retained by the Company are estimated by considering historical claims
experience, trends of the Company and the industry and other actuarial assumptions. The estimated accruals for these
liabilities could be aected if development of costs on claims dier from these assumptions and historical trends. Based
on information known at February 2, 2013, the Company believes it has provided adequate reserves for its self-insurance
exposure. As of February 2, 2013 and January 28, 2012, self-insurance reserves were $12.3 million and $11.5 million, respectively.
Revenue Recognition
Retail sales, recognized at the point of sale, are recorded net of returns and exclude sales tax. Wholesale sales and sales
through the Company’s internet sites are recorded, net of returns, allowances and discounts, when the merchandise has
been shipped and title and risk of loss have passed to the customer. Retail items sold through the Company’s internet sites
are made pursuant to a sales agreement that provides for transfer of both title and risk of loss upon delivery to the carrier.
Reserves for projected merchandise returns, discounts and allowances are determined based on historical experience and
current expectations. Revenue is recognized on license fees related to Company-owned brand-names, where the Company is
the licensor, when the related sales of the licensee are made.
Gift Cards
The Company sells gift cards to its consumers in its retail stores and through its internet sites. The Company’s gift cards
do not have expiration dates or inactivity fees. The Company recognizes revenue from gift cards when (i) the gift card is
redeemed by the consumer or (ii) the likelihood of the gift card being redeemed by the consumer is remote (“gift card
breakage”) and the Company determines that it does not have a legal obligation to remit the value of unredeemed gift cards
to the relevant jurisdictions. The Company determines its gift card breakage rate based upon historical redemption patterns.
The Company recognizes gift card breakage during the 24-month period following the sale of the gift card, according
to the Company’s historical redemption pattern. Gift card breakage income is included in net sales in the consolidated
statements of earnings and the liability established upon the sale of a gift card is included in other accrued expenses within
the consolidated balance sheets. The Company recognized $0.5 million, $0.6 million and $0.6 million of gift card breakage in
2012, 2011 and 2010, respectively.
Loyalty Program
The Company maintains a loyalty program (“Rewards”) for Famous Footwear stores in which consumers earn points
toward savings certificates for qualifying purchases. Upon reaching specified point values, consumers are issued a savings
certificate, which they may redeem for purchases at Famous Footwear stores. In addition to the savings certificates, the
Company also oers exclusive member mailings that oer additional incentives to purchase. Savings certificates earned
must be redeemed within stated expiration dates. The value of points and rewards earned by Famous Footwear’s Rewards
program members are recorded as a reduction of net sales and a liability is established within other accrued expenses at
the time the points are earned based on historical conversion and redemption rates. Approximately 66% of net sales in the
Company’s Famous Footwear segment were made to its Rewards members in 2012, compared to 62% in 2011 and 61% in 2010.
Store Closing and Impairment Charges
The costs of closing stores, including lease termination costs, property and equipment write-os and severance, as applicable,
are recorded when the store is closed or when a binding agreement is reached with the landlord to close the store.
The Company regularly analyzes the results of all of its stores and assesses the viability of underperforming stores to
determine whether events or circumstances exist that indicate the stores should be closed or whether the carrying amount of
their long-lived assets may not be recoverable. After allowing for an appropriate start-up period, unusual nonrecurring events
or favorable trends, property and equipment at stores indicated as impaired are written down to fair value using primarily a
discounted cash flow method. The Company recorded asset impairment charges, primarily related to underperforming retail
stores, of $4.1 million in 2012, $1.9 million in 2011 and $2.8 million in 2010.
Advertising and Marketing Expense
All advertising and marketing costs are expensed at the time the expense is incurred or the promotion first appears in
media or in the store, except for direct response advertising that relates primarily to the production and distribution of the
Company’s catalogs and coupon mailers. Direct response advertising costs are amortized over the expected future revenue
stream, which is one to three months from the date materials are mailed.
In addition, the Company participates in co-op advertising programs with certain of its wholesale customers. For those
co-op advertising programs where the Company has validated the fair value of the advertising received, co-op advertising
costs are reflected as advertising expense within selling and administrative expenses. Otherwise, co-op advertising costs are
reflected as a reduction of net sales.