Famous Footwear 2014 Annual Report Download - page 50

2014 BROWN SHOE COMPANY, INC. FORM 10-K 49
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 oce locations, distribution centers and equipment under operating
leases. Approximately one-half of the leases entered into by the Company include options that 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 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.