Famous Footwear 2013 Annual Report Download - page 40

38 2013 BROWN SHOE COMPANY, INC. FORM 10-K
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 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 as expense 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
respective term of the award, or individual vesting portion of an award. 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 2013 was
8.25%. A decrease of 50 basis points in the weighted-average expected rate of return on plan assets would impact
pension expense by approximately $1.5 million. The actual return on plan assets in a given year may dier from the
expected long-term rate of return, and the resulting gain or loss is deferred and recognized into the plans’ expense
over time.
• Discount rate – Discount rates used to measure the present value of our benefit obligations for our pension and other
postretirement benefit plans are based on a hypothetical bond portfolio constructed from a subset of high-quality
bonds for which the timing and amount of cash outflows approximate the estimated payouts of the plans. The
weighted-average discount rate selected to measure the present value of our benefit obligations under our pension
and other postretirement benefit plans was 5.0% for each. A decrease of 50 basis points in the weighted-average
discount rate would have increased the projected benefit obligation of the pension and other postretirement benefit
plans by approximately $22.8 million and $0.1 million, respectively.
See Note 5 to the consolidated financial statements for additional information related to our retirement and other benefit plans.
Impact of Prospective Accounting Pronouncements
Recent accounting pronouncements and their impact on the Company are described in Note 1 to the consolidated
financial statements.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no o-balance sheet arrangements as of February 1, 2014.