Famous Footwear 2013 Annual Report Download - page 53

2013 BROWN SHOE COMPANY, INC. FORM 10-K 51
using primarily a discounted cash flow method. The Company recorded asset impairment charges, primarily related to
underperforming retail stores, of $1.6 million in 2013, $4.1 million in 2012, and $1.9 million in 2011.
Advertising and Marketing Expense
All advertising and marketing costs are expensed at the time the expense is incurred or the promotion first appears in
media or in the store, except for direct response advertising that relates primarily to the production and distribution of
the Company’s catalogs and coupon mailers. Direct response advertising costs are amortized over the expected future
revenue stream, which is one to three months from the date materials are mailed.
In addition, the Company participates in co-op advertising programs with certain of its wholesale customers. For those
co-op advertising programs where the Company has validated the fair value of the advertising received, co-op advertising
costs are reflected as advertising expense within selling and administrative expenses. Otherwise, co-op advertising costs
are reflected as a reduction of net sales.
Total advertising and marketing expense was $82.2 million, $83.0 million, and $90.8 million in 2013, 2012, and 2011,
respectively. In 2013, 2012, and 2011, these costs were oset by co-op advertising allowances recovered by the Company’s
retail divisions of $7.8 million, $7.1 million, and $6.3 million, respectively. Total co-op advertising costs reflected as a
reduction of net sales were $8.3 million in 2013, $8.1 million in 2012, and $8.2 million in 2011. Total advertising costs
attributable to future periods that are deferred and recognized as a component of prepaid expenses and other current
assets were $2.0 million and $2.1 million at February 1, 2014 and February 2, 2013, respectively.
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 distribution centers 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