Foot Locker 2009 Annual Report Download - page 38

Download and view the complete annual report

Please find page 38 of the 2009 Foot Locker annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 100

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100

Capital Structure
Credit Agreement
On March 20, 2009, the Company entered into a new credit agreement (the ‘‘2009 Credit Agreement’’) with its
banks, providing for a $200 million asset-based revolving credit facility maturing on March 20, 2013, which
replaced the Company’s prior credit agreement. The 2009 Credit Agreement also provides for an incremental
facility of up to $100 million under certain circumstances. The 2009 Credit Agreement provides for a security
interest in certain of the Company’s domestic assets, including certain inventory assets. The Company is not
required to comply with any financial covenants as long as there are no outstanding borrowings. If the Company
is borrowing, then it may not make Restricted Payments, such as dividends or share repurchases, unless there is at
least $50 million of Excess Availability (as defined in the 2009 Credit Agreement), and the Company’s projected
fixed charge coverage ratio, which is a Non-GAAP financial ratio pursuant to the 2009 Credit Agreement designed
as a measure of the Company’s ability to meet current and future obligations (Consolidated EBITDA less capital
expenditures less cash taxes divided by Debt Service Charges and Restricted Payments), is at least 1.1 to 1.0. The
Company’s management does not currently expect to borrow under the facility in 2010.
Credit Rating
As of March 29, 2010, the Company’s corporate credit ratings from Standard & Poor’s and Moody’s Investors
Service are B+ and Ba3, respectively. Additionally, as of March 29, 2010, Moody’s Investors Service 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 15 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:
2009 2008
(in millions)
Long-term debt ......................................... $ 138 $ 142
Present value of operating leases ............................. 1,923 1,952
Total debt including the present value of operating leases ........... 2,061 2,094
Less:
Cash and cash equivalents .................................. 582 385
Short-term investments.................................... 7 23
Total net debt including the present value of operating leases ........ 1,472 1,686
Shareholders’ equity ...................................... 1,948 1,924
Total capitalization ...................................... $3,420 $3,610
Total net debt capitalization percent including the present value of
operating leases....................................... 43.0% 46.7%
20