GameStop 2007 Annual Report Download - page 34

• our dependence upon software publishers to develop popular game and entertainment titles for video game
systems and PCs.
If our financial condition or operating results materially deteriorate, our relations with our creditors, including
holders of our senior notes, the lenders under our senior credit facility and our suppliers, may be materially and
adversely impacted.
As a result of the mergers, we have significant debt that could adversely impact cash availability for
growth and operations and may increase our vulnerability to general adverse economic and industry
conditions.
We incurred $950 million in debt as a result of the mergers in 2005. As of February 2, 2008, we had
approximately $574 million of indebtedness. Our debt service obligations with respect to this indebtedness could
have an adverse impact on our earnings and cash flows for as long as the indebtedness is outstanding.
Our indebtedness could have important consequences, including the following:
• our ability to obtain additional financing for working capital, capital expenditures, acquisitions or general
corporate purposes may be impaired;
• we may use a portion of our cash flow from operations to make debt service payments on the senior notes and
our senior credit facility, which will reduce the funds available to us for other purposes such as potential
acquisitions and capital expenditures;
• we may have a higher level of indebtedness than some of our competitors, which may put us at a competitive
disadvantage and reduce our flexibility in planning for, or responding to, changing conditions in our
industry, including increased competition; and
• we may be more vulnerable to general economic downturns and adverse developments in our business.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to
reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness,
including the senior notes. These alternative measures may not be successful and may not permit us to meet our
scheduled debt service obligations. Our senior credit facility and the indenture governing the senior notes restrict
our ability to dispose of assets and use the proceeds from such dispositions. We may not be able to consummate
those dispositions, dispose of our assets at prices that we believe are fair or use the proceeds from asset sales to make
payments on the notes and these proceeds may not be adequate to meet any debt service obligations then due.
Because of our floating rate credit facilities, we may be adversely affected by interest rate changes.
Our financial position may be affected by fluctuations in interest rates, as our senior credit facility is subject to
floating interest rates.
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. If we were to borrow against
our senior credit facility, a significant increase in interest rates could have an adverse effect on our financial position
and results of operations.
Our operations are substantially restricted by the indenture governing the senior notes and the terms of
our senior credit facility.
The indenture for the senior 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 ability of the issuers of the senior
notes and 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;
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