Famous Footwear 2013 Annual Report Download - page 52

50 2013 BROWN SHOE COMPANY, INC. FORM 10-K
The Company reviewed goodwill for impairment utilizing a discounted cash flow analysis. A fair value-based test is applied
at the reporting unit level, which is generally at or one level below the operating segment level. The test compares the
fair value of the Company’s reporting units to the carrying value of those reporting units. This test requires significant
assumptions, estimates, and judgments by management, and is subject to inherent uncertainties and subjectivity. The fair
value of goodwill is determined using an estimate of future cash flows of the reporting units and a risk-adjusted discount
rate to compute a net present value of future cash flows. Projected net sales, gross profit, selling and administrative expense,
capital expenditures, depreciation, amortization, and working capital requirements are based on the Company’s internal
projections. Discount rates reflect market-based estimates of the risks associated with the projected cash flows of the
reporting units directly resulting from the use of its assets in its operations. The Company also considered assumptions that
market participants may use. Both the estimates of the fair value of the Company’s reporting units and the allocation of
the estimated fair value of the reporting units are based on the best information available to the Company’s management
as of the date of the assessment.
The Company performs impairment tests as of the first day of the fourth quarter of each fiscal year unless events indicate
an interim test is required. The indefinite-lived intangible asset impairment reviews performed as of the first day of the
Company’s fourth fiscal quarter resulted in no impairment charges. Based on the results of the Company’s most recent
goodwill impairment test, the fair value of the Wholesale Operations reporting unit exceeded its carrying value and
therefore, no impairment was recognized. As of February 1, 2014, the goodwill allocated to the Wholesale Operations
reporting unit was $14.0 million. Other definite-lived 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 significant 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 available information as of
February 1, 2014, the Company believes it has provided adequate reserves for its self-insurance exposure. As of February 1, 2014
and February 2, 2013, self-insurance reserves were $10.9 million and $12.3 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, generally 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.
Gift Cards
The Company sells gift cards to its consumers in its retail stores and through its internet sites. The Company’s gift cards
do not have expiration dates or inactivity fees. The Company recognizes revenue from gift cards when (i) the gift card is
redeemed by the consumer or (ii) the likelihood of the gift card being redeemed by the consumer is remote (“gift card
breakage”) and the Company determines that it does not have a legal obligation to remit the value of unredeemed gift
cards to the relevant jurisdictions. The Company determines its gift card breakage rate based upon historical redemption
patterns. The Company recognizes gift card breakage during the 24-month period following the sale of the gift card,
according to the Company’s historical redemption pattern. Gift card breakage income is included in net sales in the
consolidated statements of earnings and the liability established upon the sale of a gift card is included in other accrued
expenses within the consolidated balance sheets. The Company recognized $0.5 million of gift card breakage in 2013 and
2012 and $0.6 million in 2011.
Loyalty Program
The Company maintains a loyalty program (“Rewards”) for Famous Footwear stores in which consumers earn points toward
savings certificates for qualifying purchases. Upon reaching specified point values, consumers are issued a savings certificate,
which they may redeem for purchases at Famous Footwear stores. In addition to the savings certificates, the Company also
oers exclusive member mailings that oer additional incentives to purchase. Savings certificates earned must be redeemed
within stated expiration dates. The value of points and rewards earned by Famous Footwear’s Rewards program members
are recorded as a reduction of net sales and a liability is established within other accrued expenses at the time the points
are earned based on historical conversion and redemption rates. Approximately 70% of net sales in the Company’s Famous
Footwear segment were made to its Rewards members in 2013, compared to 66% in 2012, and 62% in 2011.
Store Closing and Impairment Charges
The costs of closing stores, including lease termination costs, property and equipment write-os and severance, as applicable,
are recorded when the store is closed or when a binding agreement is reached with the landlord to close the store.
The Company regularly analyzes the results of all of its stores and assesses the viability of underperforming stores to
determine whether events or circumstances exist that indicate the stores should be closed or whether the carrying amount
of their long-lived assets may not be recoverable. After allowing for an appropriate start-up period, unusual nonrecurring
events or favorable trends, property and equipment at stores indicated as impaired are written down to fair value