Famous Footwear 2012 Annual Report Download - page 56

54 2012 BROWN SHOE COMPANY, INC. FORM 10-K
management tools and are not used for trading or speculative purposes. See additional information related to derivative
financial instruments in Note 12 to the consolidated financial statements.
Accumulated Other Comprehensive Income
Accumulated other comprehensive income consists of foreign currency translation gains, unrealized gains (losses) on derivative
financial instruments and pension and other postretirement benefits adjustments (charges), which are shown net of tax.
Accumulated other comprehensive income, after tax, as of February 2, 2013 consisted of foreign currency translation gains of
$6.9 million, unrealized losses on derivative financial instruments of $0.1 million and pension and other postretirement benefits
charges of $5.9 million. As of January 28, 2012, accumulated other comprehensive income, after tax, consisted of foreign
currency translation gains of $6.4 million, unrealized gains on derivative financial instruments of $0.1 million and pension and
other postretirement benefits adjustments of $3.1 million. As of January 29, 2011, accumulated other comprehensive income,
after tax, consisted of foreign currency translation gains of $6.3 million, unrealized losses on derivative financial instruments
of $0.3 million and pension and other postretirement benefits adjustments of $0.1 million. See additional information related
to derivative financial instruments in Note 12 and Note 13 to the consolidated financial statements and additional information
related to pension and other postretirement benefits in Note 5 to the consolidated financial statements.
Business Combination Accounting
The Company allocates the purchase price of an acquired entity to the assets and liabilities acquired based upon their
estimated fair values at the business combination date. The Company also identifies and estimates 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.
The Company has 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, the Company uses all available information to make the best estimates of their fair values at
the business combination date.
The Company’s 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 the Company’s fair value estimates, including assumptions regarding industry economic factors
and business strategies.
Share-based Compensation
The Company has share-based incentive compensation plans under which certain ocers, employees and members of
the Board of Directors are participants and may be granted stock option, restricted stock and stock performance awards.
Additionally, share-based grants may be made to non-employee members of the Board of Directors in the form of cash-
equivalent restricted stock units (“RSUs”) at no cost to the non-employee member of the Board of Directors. The Company
accounts for share-based compensation in accordance with the fair value recognition provisions of ASC 718, Compensation –
Stock Compensation, and ASC 505, Equity, which require all share-based payments to employees and members of the Board of
Directors, 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 using the Black-Scholes option pricing formula that requires estimates for
expected volatility, expected dividends, the risk-free interest rate and the expected 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 restricted stock is based on the fair value of the restricted stock on the date
of grant and is recognized on a straight-line basis generally over a four-year vesting period. 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. Expense for the initial grant of RSUs is recognized
ratably over the one-year vesting period based upon the fair value of the RSUs, as remeasured at the end of each 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.
Impact of New Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-04,
Fair Value Measurement, which amends prior fair value guidance. This standard requires additional disclosures related to
fair value measurements. The Company adopted the standard on January 29, 2012 and it did not have an impact on the
Company’s consolidated financial statements, although changes in related disclosures were required.
In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (ASC Topic 220) Presentation of Comprehensive
Income, which amends prior comprehensive income guidance. This standard eliminates the option to present the
components of other comprehensive income as part of the statement of shareholders’ equity. Instead, the Company must
report comprehensive income in either a single continuous statement of comprehensive income that contains two sections,
net earnings and other comprehensive income, or in two separate but consecutive statements. The Company adopted
the standard on January 29, 2012 and it did not have an impact on the Company’s consolidated balance sheets, results of
operations or cash flows as it only requires a change in the format of the current presentation and related disclosures.
In September 2011, the FASB issued ASU No. 2011-08, Intangibles-Goodwill and Other (ASC Topic 350) Testing Goodwill for
Impairment, which amends prior goodwill impairment testing guidance. This standard will allow companies the option to first
assess qualitative factors to determine whether it is more likely than not (a likelihood of more than 50%) that the fair value
of a reporting unit is less than its carrying amount. If, after considering the totality of events and circumstances, an entity
determines it is more likely than not that the fair value of a reporting unit is more than its carrying amount, performing the
two-step impairment test is unnecessary. The Company adopted the standard on January 29, 2012 and it did not have an
impact on the Company’s consolidated financial statements.