Famous Footwear 2011 Annual Report Download - page 49

2011 BROWN SHOE COMPANY, INC. FORM 10-K 47
Inventories
All inventories are valued at the lower of cost or market with 84% of consolidated inventories using the last-in, fi rst-out
(“LIFO”) method. An actual valuation of inventory under the LIFO method can be made only at the end of each year based
on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management’s estimates
of expected year-end inventory levels and costs and are subject to the fi nal year-end LIFO inventory valuation. If the fi rst-in,
fi rst-out (“FIFO”) method had been used, consolidated inventories would have been $5.0 million and $4.4 million higher at
both January 28, 2012, and January 29, 2011, respectively. Substantially all inventory is fi nished goods.
The costs of inventory, inbound freight and duties, markdowns, shrinkage and royalty expense are classifi ed in cost of
goods sold. Costs of warehousing and distribution are classifi ed in selling and administrative expenses and are expensed
as incurred. Such warehousing and distribution costs totaled $76.5 million, $65.0 million and $63.0 million in 2011, 2010
and 2009, respectively. Costs of overseas sourcing o ces and other inventory procurement costs are refl ected in selling
and administrative expenses and are expensed as incurred. Such sourcing and procurement costs totaled $21.7 million,
$21.3 million and $19.1 million in 2011, 2010 and 2009, respectively.
Markdowns are recorded to refl ect expected adjustments to sales prices. In determining markdowns, management
considers current and recently recorded sales prices, the length of time the product is held in inventory and quantities of
various product styles contained in inventory, among other factors. The ultimate amount realized from the sale of certain
products could di er from management estimates. The Company physically counts all merchandise inventory on hand
at least annually and adjusts the recorded balance to refl ect the results of the physical counts. The Company records
estimated shrinkage between physical inventory counts based on historical results.
Computer Software Costs
The Company capitalizes certain costs in other assets, including internal payroll costs incurred in connection with the
development or acquisition of software for internal use. Other assets on the consolidated balance sheets include $59.4 million
and $60.9 million of unamortized computer software costs as of January 28, 2012 and January 29, 2011, respectively.
Property and Equipment
Property and equipment are stated at cost. Depreciation of property and equipment is provided over the estimated useful
lives of the assets or the remaining lease terms, where applicable, using the straight-line method.
Interest
Capitalized Interest
Interest costs applicable to major asset additions are capitalized during the construction or development period and
amortized over the lives of the related assets. The Company capitalized interest of less than $0.1 million in 2011, $1.3 million
in 2010 and $1.0 million in 2009.
Interest Expense
Interest expense includes interest for borrowings under both the Company’s short-term and long-term debt. Interest
expense includes fees paid under the short-term revolving credit agreement for the unused portion of its line of credit.
Interest expense also includes the amortization of deferred debt issuance costs as well as the accretion of certain
discounted noncurrent liabilities.
Goodwill and Intangible Assets
Goodwill and intangible assets deemed to have indefi nite lives are not amortized but are subject to annual impairment
tests using primarily a discounted cash fl ow approach. The Company performs impairment tests during the fourth quarter
of each fi scal year unless events indicate an interim test is required. Other intangible assets are amortized over their useful
lives and are reviewed for impairment if and when impairment indicators are present.
Self-Insurance Reserves
The Company is self-insured and/or retains high deductibles for a signifi cant portion of its workers’ compensation,
employment practices, health, disability, cyber risk, general liability, automobile and property programs, among others.
Liabilities associated with the risks that are retained by the Company are estimated by considering historical claims
experience, trends of the Company and the industry and other actuarial assumptions. The estimated accruals for these
liabilities could be a ected if development of costs on claims di er from these assumptions and historical trends. Based
on information known at January 28, 2012, the Company believes it has provided adequate reserves for its self-insurance
exposure. As of January 28, 2012 and January 29, 2011, self-insurance reserves were $11.5 million and $10.8 million, respectively.
Revenue Recognition
Retail sales, recognized at the point of sale, are recorded net of returns and exclude sales tax. Wholesale sales and sales
through the Company’s internet sites are recorded, net of returns, allowances and discounts, when the merchandise has
been shipped and title and risk of loss have passed to the customer. Retail items sold through the Company’s internet sites
are made pursuant to a sales agreement that provides for transfer of both title and risk of loss upon delivery to the carrier.
Reserves for projected merchandise returns, discounts and allowances are determined based on historical experience and
current expectations. Revenue is recognized on license fees related to Company-owned brand-names, where the Company
is the licensor, when the related sales of the licensee are made.