Famous Footwear 2013 Annual Report Download - page 54

52 2013 BROWN SHOE COMPANY, INC. FORM 10-K
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.
Pension and Other Postretirement Benefits Adjustments
The Company determines the expense and obligations for retirement and other benefit plans using assumptions related to
discount rates, expected long-term rates of return on invested plan assets, expected salary increases, and certain employee-
related factors. The unrecognized portion of the gain or loss on plan assets is included in the consolidated balance sheets as
a component of accumulated other comprehensive income in total Brown Shoe Company, Inc. shareholders’ equity. The gain
or loss is recognized into the plans’ expense over time. See additional information related to pension and other postretirement
benefits in Note 5 and Note 14 to the consolidated financial statements.
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 management
tools and are not used for trading or speculative purposes. See additional information related to derivative financial instruments
in Note 12, Note 13, and Note 14 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 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 as expense 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 respective term of the award, or
individual vesting portion of an award. 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.