Famous Footwear 2011 Annual Report Download - page 41

2011 BROWN SHOE COMPANY, INC. FORM 10-K 39
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 fi led 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 fi nancial 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 fi nancial instruments for trading purposes. We also are exposed to credit-related
losses in the event of nonperformance by counterparties to these fi nancial instruments. Counterparties to these agreements,
however, are major international fi nancial institutions, and we believe the risk of loss due to nonperformance is minimal.
A description of our accounting policies for derivative fi nancial instruments is included in Notes 1 and 13 to the consolidated
fi nancial statements.
In addition, we are exposed to translation risk because some of our foreign operations are in local currency and must be
translated into United States dollars. As currency exchange rates fl uctuate, translation of our fi nancial statements of foreign
businesses into United States dollars a ects the comparability of fi nancial results between years.
INTEREST RATES
Our fi nancing arrangements include $201.0 million of outstanding variable rate debt under the Credit Agreement at
January 28, 2012. We also have $200.0 million in principal value of Senior Notes, which bear interest at a fi xed rate of 7.125%.
Changes in interest rates impact fi xed and variable rate debt di erently. For fi xed 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 fl ows.
At January 28, 2012, the fair value of our long-term debt is estimated at approximately $190.0 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 $8.2 million for our long-term debt at January 28, 2012.
Information appearing under the caption Risk Management and Derivatives in Note 13 and Fair Value Measurements in Note 14
to the consolidated fi nancial 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 fi nancial reporting as
such term is defi ned 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 fi nancial o cer, we conducted an evaluation of
the e ectiveness of our internal control over fi nancial reporting based on the framework in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As permitted, our evaluation
excluded the business operations of American Sporting Goods Corporation, which was acquired in 2011. The acquired
business operations excluded from our evaluation constituted $176.5 million of our total assets as of January 28, 2012, and
$135.5 million and $14.5 million of net sales and net earnings, respectively, for the year then ended. The operations of the
acquired businesses will be included in our 2012 evaluation. Based on our evaluation, our principal executive o cer and
principal fi nancial o cer have concluded that the Company’s internal control over fi nancial reporting was e ective as of
January 28, 2012. The e ectiveness of our internal control over fi nancial reporting as of January 28, 2012, has been audited
by Ernst & Young LLP, an independent registered public accounting fi rm, as stated in its report which is included herein.