Famous Footwear 2014 Annual Report Download - page 35

34 2014 BROWN SHOE COMPANY, INC. FORM 10-K
is prepared to estimate fair value. If the recorded values of these assets are not recoverable, based on either the assessment
screen or discounted cash flow analysis, management performs the next step, which compares the fair value of the
reporting unit to the recorded value of the tangible and intangible assets of the reporting units. Goodwill is considered
impaired if the fair value of the tangible and intangible assets exceeds the fair value of the reporting unit.
We elected to bypass the optional qualitative assessment for the goodwill impairment test performed as of the first
day of the fourth quarter of 2014 and therefore, we 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 our 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 unit 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 our
internal projections. Discount rates reflect market-based estimates of the risks associated with the projected cash flows of
the reporting unit directly resulting from the use of its assets in its operations. We also considered assumptions that market
participants may use. Both the estimates of the fair value of our reporting units and the allocation of the estimated fair
value of the reporting units are based on the best information available to us as of the date of the assessment.
An adjustment to goodwill will be recorded for any goodwill that is determined to be impaired. Impairment of goodwill is
measured as the excess of the carrying amount of goodwill over the fair values of recognized assets and liabilities of the
reporting unit. We perform impairment tests during the fourth quarter of each fiscal year unless events indicate an interim
test is required. The goodwill impairment testing and other indefinite-lived intangible asset impairment reviews were
performed as of the first day of our fourth fiscal quarter and resulted in no impairment charges.
During 2012, we terminated the Etienne Aigner license agreement, due to a dispute with the licensor and recognized
an impairment charge of $5.8 million, to reduce the remaining unamortized value of the licensed trademark intangible
asset to zero.
Other intangible assets are amortized over their useful lives and are reviewed for impairment if and when impairment
indicators are present. Refer to Note 9 to the consolidated financial statements for additional information related to the
impairment of goodwill and intangible assets.
Store Closing and Impairment Charges
We regularly analyze the results of all of our stores and assess 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, we write down to fair value the fixed assets of stores indicated as impaired.
Litigation Contingencies
We are the defendant in several claims and lawsuits arising in the ordinary course of business. We do not believe any of
these ordinary- course-of-business proceedings will have a material adverse eect on our consolidated financial position
or results of operations. We accrue our best estimate of the cost of resolution of these claims. Legal defense costs of such
claims are recognized in the period in which we incur the costs. See Note 17 to the consolidated financial statements for a
further description of commitments and contingencies.
Environmental Matters
We are involved in environmental remediation and ongoing compliance activities at several sites. We are remediating,
under the oversight of Colorado authorities, the groundwater and indoor air at our Redfield site and residential
neighborhoods adjacent to and near the property, which have been aected by solvents previously used at the facility.
In addition, various federal and state authorities have identified us as a potentially responsible party for remediation at
certain landfills. While we currently do not operate manufacturing facilities in the United States, prior operations included
numerous manufacturing and other facilities for which we may have responsibility under various environmental laws to
address conditions that may be identified in the future. See Note 17 to the consolidated financial statements for a further
description of specific properties.
Environmental expenditures relating to an existing condition caused by past operations and that do not contribute to
current or future revenue generation are expensed. Liabilities are recorded when environmental assessments and/or
remedial eorts are probable and the costs can be reasonably estimated and are evaluated independently of any future
claims recovery. Generally, the timing of these accruals coincides with completion of a feasibility study or our commitment
to a formal plan of action, and our estimates of cost are subject to change as new information becomes available. Costs
of future expenditures for environmental remediation obligations are discounted to their present value in those situations
requiring only continuing maintenance and monitoring based upon a schedule of fixed payments.