Famous Footwear 2014 Annual Report Download - page 36

2014 BROWN SHOE COMPANY, INC. FORM 10-K 35
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 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 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 experience 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 2014
was 8.25%. A decrease of 50 basis points in the weighted-average expected rate of return on plan assets would
increase 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 benet 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 3.9% 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 $33.8 million and $0.1 million, respectively.
• Mortality table – At February 1, 2014, the domestic dened benet pension plan mortality assumption was based on
the RP-2000 mortality table using mortality improvement scale AA. In October 2014, the Society of Actuaries issued
an updated set of mortality tables and improvement scale collectively known as RP-2014 and MP-2014, respectively.
We have reviewed the findings and recommendations of these reports with our actuary and our actuary performed a
mortality study based on our plan’s participant population. Based on the results of that study, we have elected to use
the Society of Actuaries’ RP-2014 Bottom Quartile tables, projected using generational scale MP-2014 to better reflect
anticipated future experience. Actuarial losses, related to the change in mortality tables, increased the pension plan
liability by approximately $18.4 million as of January 31, 2015.
Refer to 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.