Foot Locker 2014 Annual Report Download - page 50

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The 2011 Restated Credit Agreement provides for a security interest in certain of the Company’s domestic
assets, including certain inventory assets, but excluding intellectual property. The Company is not required to
comply with any financial covenants as long as there are no outstanding borrowings. With regard to the
payment of dividends and share repurchases, there are no restrictions if the Company is not borrowing and the
payments are funded through cash on hand. If the Company is borrowing, Availability as of the end of each
fiscal month during the subsequent projected six fiscal months following the payment must be at least
20 percent of the lesser of the Aggregate Commitments and the Borrowing Base (all terms as defined in the
2011 Restated Credit Agreement). The Company’s management currently does not expect to borrow under the
facility in 2015, other than amounts used to support standby letters of credit.
Credit Rating
As of March 30, 2015, the Company’s corporate credit ratings from Standard & Poor’s and Moody’s Investors
Service are BB+ and Ba1, respectively. In addition, Moody’s Investors Service has rated the Company’s senior
unsecured notes Ba2.
Debt Capitalization and Equity (non-GAAP Measure)
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 2.8 percent to 14.5 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:
2014 2013
(in millions)
Long-term debt and obligations under capital leases $ 134 $ 139
Present value of operating leases 2,745 2,571
Total debt including the present value of operating leases 2,879 2,710
Less:
Cash and cash equivalents 967 858
Short-term investments —9
Total net debt including the present value of operating leases 1,912 1,843
Shareholders’ equity 2,496 2,496
Total capitalization $4,408 $4,339
Total net debt capitalization percent —% —%
Total net debt capitalization percent including the present value of
operating leases (non-GAAP) 43.4% 42.5%
The Company’s cash, cash equivalents, and short-term investments increased by $100 million during 2014,
which was the result of strong cash flow generation from operating activities. Including the present value of
operating leases, the Company’s net debt capitalization percent increased 90 basis points in 2014. The change
in total debt including the present value of the operating leases, as compared with the prior-year period,
primarily reflects the effect of lease renewals, partially offset by foreign exchange fluctuations.
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