Famous Footwear 2011 Annual Report Download - page 70

68 2011 BROWN SHOE COMPANY, INC. FORM 10-K
Measurement of Fair Value
The Company measures fair value as an exit price, the price to sell an asset or transfer a liability in an orderly transaction
between market participants at the measurement date, using the procedures described below for all fi nancial and non-
fi nancial assets and liabilities measured at fair value.
Money Market Funds
The Company has cash equivalents consisting of short-term money market funds backed by U.S. Treasury securities.
The primary objective of these investing activities is to preserve its capital for the purpose of funding operations and it
does not enter into money market funds for trading or speculative purposes. The fair value is based on unadjusted
quoted market prices for the funds in active markets with su cient volume and frequency (Level 1).
Deferred Compensation Plan Assets and Liabilities
The Company maintains a Deferred Compensation Plan for the benefi t of certain management employees. The investment
funds o ered to the participant generally correspond to the funds o ered in the Company’s 401(k) plan, and the account
balance fl uctuates with the investment returns on those funds. The fair value of the assets and corresponding liabilities are
based on unadjusted quoted market prices for the funds in active markets with su cient volume and frequency (Level 1).
Additional information related to the Company’s Deferred Compensation Plan is disclosed in Note 6 to the consolidated
fi nancial statements.
Deferred Compensation Plan for Non-Employee Directors
Non-employee directors are eligible to participate in a deferred compensation plan, whereby deferred compensation
amounts are valued as if invested in the Company’s common stock through the use of PSUs. Under the plan, each
participating director’s account is credited with the number of PSUs equal to the number of shares of the Company’s
common stock that the participant could purchase or receive with the amount of the deferred compensation, based upon
the fair value (as determined based on the average of the high and low prices) of the Company’s common stock on the last
trading day of the fi scal quarter when the cash compensation was earned. Dividend equivalents are paid on PSUs at the
same rate as dividends on the Company’s common stock and are re-invested in additional PSUs at the next fi scal quarter-
end. The PSUs are payable in cash based on the number of PSUs credited to the participating director’s account, valued
on the basis of the fair value at fi scal quarter-end on or following termination of the director’s service. The fair value of
the liabilities is based on an unadjusted quoted market price for the Company’s common stock in an active market with
su cient volume and frequency (Level 1). Additional information related to the Company’s Deferred Compensation Plan
for Non-Employee Directors is disclosed in Note 6 to the consolidated fi nancial statements.
Derivative Financial Instruments
The Company uses derivative fi nancial instruments, primarily foreign exchange contracts, to reduce its exposure to market risks
from changes in foreign exchange rates. These foreign exchange contracts are measured at fair value using quoted forward
foreign exchange prices from counterparties corroborated by market-based pricing (Level 2). Additional information related to
the Company’s derivative fi nancial instruments is disclosed in Note 1 and Note 13 to the consolidated fi nancial statements.
The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis at
January 28, 2012 and January 29, 2011. The Company did not have any transfers between Level 1 and Level 2 during 2011 or 2010.
Fair Value Measurements
($ thousands) Total Level 1 Level 2 Level 3
Asset (Liability)
As of January 28, 2012:
Cash equivalents – money market funds . . . . . . . . . . . . . . . . . . . $ 5,063 $ 5,063 $ – $ –
Non-qualifi ed deferred compensation plan assets . . . . . . . . . . . . . 1,081 1,081 – –
Non-qualifi ed deferred compensation plan liabilities . . . . . . . . . . . (1,081) (1,081) – –
Deferred compensation plan liabilities for non-employee directors. . . (620) (620) – –
Derivative fi nancial instruments, net . . . . . . . . . . . . . . . . . . . . . 206 – 206 –
As of January 29, 2011:
Cash equivalents – money market funds . . . . . . . . . . . . . . . . . . $ 50,000 $ 50,000 $ – $ –
Non-qualifi ed deferred compensation plan assets . . . . . . . . . . . . . 1,447 1,447 – –
Non-qualifi ed deferred compensation plan liabilities . . . . . . . . . . . (1,447) (1,447) – –
Deferred compensation plan liabilities for non-employee directors . . . (792) (792) – –
Derivative fi nancial instruments, net . . . . . . . . . . . . . . . . . . . . . (344) – (344) –
Impairment Charges
The Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Factors the Company considers important that could trigger an impairment review
include underperformance relative to expected historical or projected future operating results, a signifi cant change in the
manner of the use of the asset or a negative industry or economic trend. When the Company determines that the carrying
value of long-lived assets may not be recoverable based upon the existence of one or more of the aforementioned factors,
impairment is measured based on a projected discounted cash fl ow method. Certain factors, such as estimated store sales
and expenses, used for this nonrecurring fair value measurement are considered Level 3 inputs. Long-lived assets held and
used with a carrying amount of $50.2 million were written down to their fair value, resulting in an impairment charge of
$1.9 million, which was recorded within selling and administrative expenses in 2011. Of the $1.9 million impairment charge,
$1.4 million related to the Famous Footwear segment and $0.5 million related to the Specialty Retail segment.