Foot Locker 2008 Annual Report Download - page 35

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Capital Structure
May 2008 Amended Credit Agreement
On May 16, 2008, the Company entered into an amended credit agreement with its banks, providing for a $175
million revolving credit facility and extending the maturity date to May 16, 2011 (the “Credit Agreement”). The Credit
Agreement also provides an incremental facility of up to $100 million under certain circumstances. Simultaneously
with entering into the Credit Agreement, the Company repaid the $88 million that was outstanding on its term loan
with the banks, which was scheduled to mature in May 2009.
The Credit Agreement provides that the Company comply with certain financial covenants, including (i) a fixed
charge coverage ratio of 1.25:1 for the 2008 fiscal year, 1.50:1 for the 2009 fiscal year, and 1.75:1 for each year
thereafter and (ii) a minimum liquidity/excess cash flow covenant, which provides that if at the end of any fiscal
quarter minimum liquidity, as defined in the Credit Agreement, is less than $350 million, the excess cash flow for the
four consecutive fiscal quarters ended on such date must be at least $25 million. The amount permitted to be paid
by the Company as dividends in any fiscal year is $105 million under the terms of the Credit Agreement. With regard
to stock purchases, the Credit Agreement provides that not more than $50 million in the aggregate may be expended
unless the fixed charge coverage ratio is at least 2.0:1 for the period of four consecutive fiscal quarters most recently
ended prior to any stock repurchase. Additionally, the Credit Agreement provides for a security interest in certain of
the Company’s intellectual property and certain other non-inventory assets. The Company was in compliance with all
covenants on January 31, 2009.
During 2008, the Company purchased and retired $6 million of the $200 million 8.50 percent debentures payable
in 2022, bringing the outstanding balance to $123 million, excluding the fair value of the interest rate swap, for the
year ended January 31, 2009. The fair value of the interest rate swaps, included in other assets, was approximately $19
million and the carrying value of the 8.50 debentures was increased by the corresponding amount.
March 2009 New Credit Agreement
On March 20, 2009, the Company entered into a new credit agreement with its banks, providing for a $200 million
revolving credit facility maturing on March 20, 2013 (the “New Credit Agreement”), which replaces the existing Credit
Agreement. The New Credit Agreement also provides an incremental facility of up to $100 million under certain
circumstances. The New Credit Agreement provides for a security interest in certain of the Company’s domestic
assets, including certain inventory assets. However, no material covenants or payment restrictions exist until the
Company is borrowing under the agreement and, in that event, the restrictions may vary depending upon the level
of borrowings.
Credit Rating
As of March 30, 2009, the Company’s corporate credit ratings from Standard & Poor’s and Moody’s Investors Service
are BB- and Ba3, respectively. Additionally, as of March 30, 2009, 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 leases 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: