Famous Footwear 2012 Annual Report Download - page 15

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2012 BROWN SHOE COMPANY, INC. FORM 10-K 13
During 2012, we terminated our Etienne Aigner license agreement (“former license agreement”), due to a dispute with the
licensor. In conjunction with the termination, the Company recognized an impairment charge of $5.8 million to reduce the
remaining unamortized value of the licensed trademark intangible asset to zero. The termination of the Etienne Aigner
license agreement is also considered part of our portfolio realignment initiatives.
Brown Shoe Company Sourcing and Product Development Operations
Brown Shoe Company sourcing and product development operations source and develop footwear for our Wholesale
Operations and Specialty Retail segments and also a portion of the footwear sold by our Famous Footwear segment.
We have sourcing and product development oces in China, Hong Kong, Italy, Macau, St. Louis, Los Angeles and New York.
Sourcing Operations
In 2012, the sourcing operations sourced approximately 52 million pairs of shoes through a global network of third-party
independent footwear manufacturers. Of the approximate 52 million pairs sourced in 2012, our owned and operated
factories in central China produced approximately six million pairs for our Avia, Ryka, Dr. Scholl’s Shoes and Naturalizer
brands. This structure enables us to source footwear at various price levels from key shoe manufacturing regions of the
world. The majority of our footwear sourced is provided by approximately 55 manufacturers operating approximately
80 manufacturing facilities.
In certain countries, we utilize agents to facilitate and manage the development, production and shipment of product.
We attribute our ability to achieve consistent quality, competitive prices and on-time delivery to the breadth of these
established relationships. While we do not have any significant contractual commitments with our suppliers, we do enter
into sourcing agreements with certain independent sourcing agents.
Prior to production, we monitor the quality of all of our footwear components and also inspect the prototypes of each
footwear style. We have leading lab testing facilities in our Dongguan, Putian and JiangXi, China oces, which provide high
quality footwear for our customers. We also perform random in-line quality control checks during production and before
any footwear leaves the manufacturing facility.
In 2012, approximately 97% of the footwear we sourced was from manufacturing facilities in China. The following table
provides an overview of our foreign sourcing in 2012:
Country Millions of Pairs
China. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50.6
All other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.8
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52.4
Product Development Operations
In our Dongguan, Putian and JiangXi, China oces, we operate a total of four sample-making facilities with unique and
diverse capabilities. By operating these facilities, we have greater control over our product development, in terms of
accuracy, execution and time to market.
We maintain design teams for our brands in St. Louis, Los Angeles, New York and China as well as other select fashion
locations, including Italy. These teams, which include independent designers, are responsible for the creation and
development of new product styles. Our designers monitor trends in apparel and footwear fashion and work closely with
retailers to identify consumer footwear preferences. Our design teams create collections of footwear and work closely with
our product development and sourcing oces to convert our designs into new footwear styles.
Our long range plans include expanding into new markets outside China, developing more progressive processes to improve
factory capacity and material planning and continuing to understand ways to drive excellence in product value and execution
in a rapidly changing manufacturing landscape.
Backlog
At February 2, 2013, our Wholesale Operations segment had a backlog of unfilled orders of approximately $302.0 million
compared to $296.8 million on January 28, 2012. Most orders are for delivery within the next 90 to 120 days, and although
orders are subject to cancellation, we have not experienced significant cancellations in the past. The backlog at any
particular time is aected by a number of factors, including seasonality, the continuing trend among customers to reduce
the lead time on their orders and capacity shifts in China. Accordingly, a comparison of backlog from period to period is not
necessarily meaningful and may not be indicative of eventual actual shipments or the growth rate of sales from one period
to the next.