Foot Locker 2007 Annual Report Download - page 33

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17
Credit Rating
As of March 31, 2008, the Company’s corporate credit ratings from Standard & Poor’s and Moody’s Investors Service
are BB and Ba3, respectively. Additionally, as of March 31, 2008, Moody’s Investor Services has rated the Company’s
senior unsecured notes B1.
Debt Capitalization and Equity
For purposes of calculating debt to total capitalization, the Company includes the present value of operating
lease commitments in total net debt. Total net debt including the present value of operating leases is considered a non-
GAAP financial measure. The present value of operating leases is discounted using various interest rates ranging from
4 percent to 13 percent, which represent the Company’s incremental borrowing rate at inception of the lease. Operating
leases are the primary financing vehicle used to fund store expansion and, therefore, we believe that the inclusion of
the present value of operating lease in total debt is useful to our investors, credit constituencies, and rating agencies.
The following table sets forth the components of the Company’s capitalization, both with and without the present
value of operating leases:
2007 2006
(in millions)
Long-term debt and obligations under capital lease. . . . . . . . . . . . . . . . . . . . . . . . $ 221 $234
Present value of operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,126 2,069
Total debt including the present value of operating leases. . . . . . . . . . . . . . . . . 2,347 2,303
Less:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 488 221
Short-term investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 249
Total net debt including the present value of operating leases. . . . . . . . . . . . . . 1,854 1,833
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,2712,295
Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,125 $4,128
Total net debt capitalization percent including the present value of
operating leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44.9% 44.4%
Net debt capitalization percent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —% —%
The Company reduced debt and capital lease obligations by $13 million, and increased cash, cash equivalents, and
short-term investments by $23 million during 2007. Additionally, the present value of the operating leases increased
by $57 million representing the net change of lease renewals and the effect of foreign currency fluctuations primarily
related to the euro. Including the present value of operating leases, the Company’s net debt capitalization percent
increased 50 basis points in 2007. The decrease in shareholders’ equity of $24 million in 2007 relates to the following:
net income of $51 million in 2007, $77 million in dividends paid, $21 million related to stock plans, and an increase
of $60 million in the foreign exchange currency translation adjustment, primarily related to the value of the euro in
relation to the U.S. dollar. Additionally, the Company repurchased 2,283,254 shares of common stock for approximately
$50 million during the year. As required by SFAS No. 158, during 2007 the Company recognized, within accumulated
other comprehensive loss, amortization of prior service costs and net actuarial gains and losses, as well as an additional
charge representing the change in the funded status of the pension plans which totaled $29 million, after-tax.