GameStop 2005 Annual Report Download - page 29

Because of our incurrence of floating rate debt resulting from financing arrangements entered into in
connection with the mergers, we may be adversely affected by interest rate changes.
Our financial position is affected, in part, by fluctuations in interest rates. Significant portions of our
outstanding debt are held at floating interest rates, including the Senior Floating Rate Notes and our Senior
Credit Facility. In addition, under the terms of the indenture for the notes, if we do not complete an offer to exchange
the notes for substantially identical publicly registered notes by June 23, 2006, the interest rate on the notes will
increase by 25 basis points until we complete the exchange offer. Increased interest rates may adversely affect our
earnings and cash flow by increasing the amount of interest expense that we are obligated to pay on our floating rate
debt.
Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and
international economic and political conditions and other factors beyond our control. A significant increase in
interest rates could have a material adverse effect on our financial position and results of operations.
Our operations are substantially restricted by the indenture governing the notes and the terms of our
Senior Credit Facility.
The indenture for the notes imposes, and the terms of any future debt may impose, significant operating and
financial restrictions on us. These restrictions, among other things, limit the issuers of the notes ability and the
ability of GameStop’s restricted subsidiaries to:
• incur, assume or permit to exist additional indebtedness or guaranty obligations;
• incur liens or agree to negative pledges in other agreements;
• engage in sale and leaseback transactions;
• make loans and investments;
• declare dividends, make payments or redeem or repurchase capital stock;
• engage in mergers, acquisitions and other business combinations;
• prepay, redeem or purchase certain indebtedness;
• amend or otherwise alter the terms of our organizational documents and our indebtedness, including the
notes;
• sell assets; and
• transact with affiliates.
We cannot assure you that these covenants will not adversely affect our ability to finance our future operations
or capital needs or to pursue available business opportunities.
The Senior Credit Facility contains various restrictive covenants prohibiting us, in certain circumstances, from,
among other things, prepaying, redeeming or purchasing certain indebtedness.
Despite current anticipated indebtedness levels and restrictive covenants, we may incur additional
indebtedness in the future.
Despite our current level of indebtedness, we may be able to incur substantial additional indebtedness in the
future, including additional secured indebtedness. Although the terms of the indenture governing the notes and our
Senior Credit Facility restrict the issuers of the notes and GameStop’s restricted subsidiaries from incurring
additional indebtedness, these restrictions are subject to important exceptions and qualifications. If we incur
additional indebtedness, the risks that we now face as a result of our leverage could intensify.
Item 1B. Unresolved Staff Comments
None.
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