Famous Footwear 2012 Annual Report Download - page 55

2012 BROWN SHOE COMPANY, INC. FORM 10-K 53
Total advertising and marketing expense was $86.2 million, $94.8 million and $91.4 million in 2012, 2011 and 2010,
respectively. In 2012, 2011 and 2010, these costs were oset by co-op advertising allowances recovered by the Company’s
retail divisions of $8.6 million, $7.8 million and $9.4 million, respectively. Total co-op advertising costs reflected as a
reduction of net sales were $10.5 million in 2012, $11.5 million in 2011 and $7.7 million in 2010. Total advertising costs
attributable to future periods that are deferred and recognized as a component of prepaid expenses and other current
assets were $2.3 million and $2.6 million at February 2, 2013 and January 28, 2012, respectively.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary
dierences between the consolidated financial statement carrying amounts and the tax bases of its assets and liabilities.
The Company establishes valuation allowances if it believes that it is more-likely-than-not that some or all of its deferred tax
assets will not be realized. The Company does not recognize a tax benefit unless it concludes that it is more-likely-than-not
that the benefit will be sustained on audit by the taxing authority based solely on the technical merits of the associated tax
position. If the recognition threshold is met, the Company recognizes a tax benefit measured at the largest amount of the tax
benefit that, in its judgment, is greater than 50% likely to be realized. The Company records interest and penalties related to
unrecognized tax positions within the income tax provision on the consolidated statements of earnings.
Operating Leases
The Company leases its store premises and certain distribution centers under operating leases. Approximately one-half of
the leases entered into by the Company include options under which allows the Company to extend the lease term beyond
the initial commitment period, subject to terms agreed to at lease inception. Some leases also include early termination
options that can be exercised under specific conditions.
Contingent Rentals
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.
Construction Allowances Received From Landlords
At the time its retail facilities are initially leased, the Company often receives consideration from landlords to be applied
against the cost of leasehold improvements necessary to open the store. The Company treats these construction allowances
as a lease incentive. The allowances are recorded as a deferred rent obligation upon receipt and amortized to income over
the lease term as a reduction of rent expense. The allowances are reflected as a component of other accrued expenses and
deferred rent on the consolidated balance sheets.
Straight-Line Rents and Rent Holidays
The Company records rent expense on a straight-line basis over the lease term for all of its leased facilities. 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 dierence between the recognized rental expense and amounts payable under the
lease as deferred rent. At the time its retail facilities are leased, the Company is frequently not charged rent for a specified
period of time, typically 30 to 60 days, while the store is being prepared for opening. This rent-free period is referred to
as a rent holiday. The Company recognizes rent expense over the lease term, including any rent holiday, within selling and
administrative expenses on the consolidated statements of earnings.
Preopening Costs
Preopening costs associated with opening retail stores, including payroll, supplies and facility costs, are expensed as incurred.
Earnings Per Common Share Attributable to Brown Shoe Company, Inc. Shareholders
The Company uses the two-class method to calculate basic and diluted earnings per common share attributable to Brown
Shoe Company, Inc. shareholders. Unvested restricted stock awards are considered participating units because they entitle
holders to non-forfeitable rights to dividends or dividend equivalents during the vesting term. Under the two-class method,
basic earnings per common share attributable to Brown Shoe Company, Inc. shareholders is computed by dividing the net
earnings attributable to Brown Shoe Company, Inc. after allocation of earnings to participating securities by the weighted-
average number of common shares outstanding during the year. Diluted earnings per common share attributable to Brown
Shoe Company, Inc. shareholders is computed by dividing the net earnings attributable to Brown Shoe Company, Inc. after
allocation of earnings to participating securities by the weighted-average number of common shares and potential dilutive
securities outstanding during the year. Potential dilutive securities consist of outstanding stock options. See Note 3 to
the consolidated financial statements for additional information related to the calculation of earnings per common share
attributable to Brown Shoe Company, Inc. shareholders.
Comprehensive Income
Comprehensive income includes the eect of foreign currency translation adjustments, unrealized gains or losses from
derivatives used for hedging activities and pension and other postretirement benefits adjustments.
Foreign Currency Translation
For certain of the Company’s international subsidiaries, the local currency is the functional currency. Assets and liabilities
of these subsidiaries are translated into United States dollars at the fiscal year-end exchange rate or historical rates as
appropriate. Consolidated statements of earnings amounts are translated at average exchange rates for the period. The
cumulative translation adjustments resulting from changes in exchange rates are included in the consolidated balance sheets
as a component of accumulated other comprehensive income in total Brown Shoe Company, Inc. shareholders’ equity.
Transaction gains and losses are included in the consolidated statements of earnings.
Derivative Financial Instruments
The Company recognizes all derivative financial instruments as either assets or liabilities in the consolidated balance sheets
and measures those instruments at fair value. The Company evaluates its exposure to volatility in foreign currency rates
and may enter into derivative transactions as it deems necessary. These derivative financial instruments are viewed as risk