Famous Footwear 2011 Annual Report Download - page 52

50 2011 BROWN SHOE COMPANY, INC. FORM 10-K
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 identifi es 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 fl ows. Unanticipated events or circumstances may occur which
could a ect the accuracy of the Company’s fair value 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 Accounting
Standards Codifi cation (“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 in the consolidated fi nancial 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 to be awarded on a straight-
line basis over the three-year service period. 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 signifi cantly, 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 16 to the consolidated fi nancial statements.
Impact of New Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board (“FASB”) issued guidance that provides amendments to ASC
820, Fair Value Measurements and Disclosures, and requires more extensive disclosures about (a) transfers in and out of
Levels 1 and 2, (b) activity in Level 3 fair value measurements, (c) di erent classes of assets and liabilities measured at
fair value, and (d) the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair
value measurements. The Company adopted the guidance, except for certain disclosures applicable to Level 3 fair value
measurements, at the beginning of 2010 and adopted the guidance applicable to Level 3 fair value measurements at the
beginning of 2011.
In December 2010, the FASB issued Emerging Issues Task Force Issue No. 10-G, Disclosure of Supplementary Pro Forma
Information for Business Combinations, requiring entities that have entered into a material business combination or a series
of immaterial business combinations that are material in the aggregate to present pro forma disclosures required under
ASC 805, Business Combinations, as if the business combination occurred at the beginning of the prior annual period when
preparing pro forma fi nancial information for both the current and prior annual periods. Additional disclosures describing
the nature and amount of material, nonrecurring pro forma adjustments are also required. The Company adopted the
guidance at the beginning of 2011. See Note 2 to the consolidated fi nancial statements for additional information.
Impact of Prospective Accounting Pronouncements
In June 2011, the FASB issued Accounting Standards Update No. 2011-05, Comprehensive Income (ASC Topic 220)
Presentation of Comprehensive Income, (“ASU 2011-05”), which amends current comprehensive income guidance. This
accounting update eliminates the option to present the components of other comprehensive income as part of the
statement of shareholders’ equity. Instead, the Company must report comprehensive income in either a single continuous
statement of comprehensive income that contains two sections, net earnings and other comprehensive income, or in two
separate but consecutive statements. ASU 2011-05 will be e ective for public companies during the interim and annual
periods beginning after December 15, 2011 with early adoption permitted. The Company plans on adopting the standard
in 2012. The adoption of ASU 2011-05 will not have an impact on the Company’s consolidated balance sheets, results of
operations or cash fl ows as it only requires a change in the format of the current presentation.