Famous Footwear 2011 Annual Report Download - page 18

16 2011 BROWN SHOE COMPANY, INC. FORM 10-K
Foreign currency fl uctuations may result in higher costs and decreased gross profi ts.
Although we purchase most of our products from foreign manufacturers in United States dollars and otherwise engage
in foreign currency hedging transactions, we cannot ensure that we will not experience cost variations with respect to
exchange rate changes. For example, although we purchase footwear made in China using United States dollars, Chinese
manufacturers have been increasing their United States dollar prices to compensate for the appreciation of the Chinese
currency against the United States dollar. Currency exchange rate fl uctuations may also adversely impact third parties who
manufacture the Company’s products by making their purchases of raw materials or other production costs more expensive
and more di cult to fi nance, resulting in higher prices and lower margins for the Company, its distributors and licensees.
Additional duties, quotas, tari s and other trade restrictions may be imposed on our foreign sourced products,
adversely a ecting our sales and profi tability.
Our foreign sourced products are subject to duties collected by customs authorities when imported to the United States
or other countries. We cannot predict whether additional customs duties, quotas, tari s, anti-dumping duties, safeguard
measures, cargo restrictions or other trade restrictions may be imposed on the importation of our products in the future. Such
additional charges may result in increases in the cost of our products and may adversely a ect our sales and profi tability.
Our business, sales and brand value could be harmed by violations of labor, trade or other laws.
We focus on doing business with those suppliers who share our commitment to responsible business practices and
the principles set forth in our Production Code of Conduct (the “PCOC”). By requiring our suppliers to comply with the
PCOC, we encourage our suppliers to promote best practices and work towards continual improvement throughout their
production operations. The PCOC sets forth standards for working conditions and other matters, including compliance
with applicable labor practices, workplace environment and compliance with laws. Although we promote ethical business
practices, we do not control our suppliers or their labor practices. A failure by any of our suppliers to adhere to these
standards or laws could cause us to incur additional costs for our products, could cause negative publicity and harm our
business and reputation. We also require our suppliers to meet our standards for product safety, including compliance
with applicable laws and standards with respect to safety issues, including lead content in paint. A failure by any of our
suppliers to adhere to product safety standards could lead to a product recall, which could result in critical media coverage,
harm our business and reputation and cause us to incur additional costs.
In addition, if we, or our suppliers or foreign manufacturers, violate United States or foreign trade laws or regulations,
we may be subject to additional duties, signifi cant monetary penalties, the seizure and forfeiture of the products we are
attempting to import or the loss of our import privileges. Possible violations of United States or foreign laws or regulations
could include inadequate record keeping of our imported products, misstatements or errors as to the origin, classifi cation,
marketing or valuation of our imported products, fraudulent visas or labor violations. The e ects of these factors could
render our conduct of business in a particular country undesirable or impractical and have a negative impact on our
operating results.
We face additional risks relating to operating manufacturing facilities in China.
We operate manufacturing facilities in China. These manufacturing facilities are subject to many of the same risks as our
third-party foreign sourcing arrangements, described above, but we may be more directly impacted by any negative
developments in China with respect to our manufacturing facilities. Our operations in China and, consequently, our ability
to deliver products on time and on terms satisfactory to us may be subject to risks such as the following:
• infl ation or changes in political and economic conditions;
• unstable regulatory environments;
• changes in import and export duties;
• domestic and foreign customs and tari s;
• potentially adverse tax consequences;
• trade restrictions;
• possible expropriation and nationalization;
• restrictions on the transfer of funds into or out of China;
• labor unrest and/or shortages; and
• logistical and communications challenges.
In addition, we lease the land on which these Chinese manufacturing facilities are located from the Chinese government
through land use rights agreements. Although we believe that we have a positive relationship with the Chinese government,
if the Chinese government decided to terminate our land use rights agreements, our ability to fulfi ll our customers’ orders
may be negatively impacted. These risks may have an adverse e ect on our Chinese manufacturing operations and our
overall business and results of operations.