Foot Locker, Inc., reported an $18 million loss on sales of $1,283 million for the quarter ended August 4, 2007. The quarterly financial filing (10-Q) also contained this warning for investors and creditors.

1. What is a minimum fixed charge coverage ratio, and what purpose does it serve in the company’s loan agreements?
2. Why would Foot Locker agree to restrict dividends to just 50% of its prior year’s net income?
3. In general terms, explain how a company such as Foot Locker alters its accounting choices to avoid violating debt covenants tied to financial statement numbers.
4. What is likely to happen if Foot Locker does not satisfy one or more of the loan covenants atyear-end?

  • CreatedSeptember 10, 2014
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