Famous Footwear 2012 Annual Report Download - page 44

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42 2012 BROWN SHOE COMPANY, INC. FORM 10-K
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
AND FORWARD-LOOKING STATEMENTS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could dier materially
from those projected as they are subject to various risks and uncertainties. These risks and uncertainties include, without
limitation, the risks detailed in Item 1A, Risk Factors, and those described in other documents and reports filed from time to
time with the SEC, press releases and other communications. We do not undertake any obligation or plan to update these
forward-looking statements, even though our situation may change.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN CURRENCY EXCHANGE RATES
The market risk inherent in our financial instruments and positions represents the potential loss arising from adverse changes
in foreign currency exchange rates and interest rates. To address these risks, we enter into various hedging transactions to
the extent described below. All decisions on hedging transactions are authorized and executed pursuant to our policies and
procedures, which do not allow the use of financial instruments for trading purposes. We also are exposed to credit-related
losses in the event of nonperformance by counterparties to these financial instruments. Counterparties to these agreements,
however, are major international financial institutions, and we believe the risk of loss due to nonperformance is minimal.
A description of our accounting policies for derivative financial instruments is included in Notes 1 and 12 to the consolidated
financial statements.
In addition, we are exposed to translation risk because certain of our foreign operations utilize the local currency as their
functional currency and those financial results must be translated into United States dollars. As currency exchange rates
fluctuate, translation of our financial statements of foreign businesses into United States dollars aects the comparability of
financial results between years.
INTEREST RATES
Our financing arrangements include $105.0 million of outstanding variable rate debt under the Credit Agreement at
February 2, 2013. We also have $200.0 million in principal value of Senior Notes, which bear interest at a fixed rate of
7.125%. Changes in interest rates impact fixed and variable rate debt dierently. For fixed rate debt, a change in interest
rates will only impact the fair value of the debt, whereas a change in the interest rates on variable rate debt will impact
interest expense and cash flows.
At February 2, 2013, the fair value of our long-term debt is estimated at approximately $208.0 million based upon the pricing
of our Senior Notes at that time. Market risk is viewed as the potential change in fair value of our debt resulting from a
hypothetical 10% adverse change in interest rates and would be $6.5 million for our long-term debt at February 2, 2013.
Information appearing under the caption Risk Management and Derivatives in Note 12 and Fair Value Measurements in
Note 13 to the consolidated financial statements is incorporated herein by reference.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as
such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of
our management, including our principal executive ocer and principal financial ocer, we conducted an evaluation of
the eectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation,
our principal executive ocer and principal financial ocer have concluded that the Company’s internal control over
financial reporting was eective as of February 2, 2013. The eectiveness of our internal control over financial reporting
as of February 2, 2013, has been audited by Ernst & Young LLP, an independent registered public accounting firm, as
stated in its report which is included herein.