GameStop 2007 Annual Report Download - page 53

2006, the Company purchased Game Brands Inc., a 72-store video game retailer, for $11.3 million. These investing
activities were offset by $19.3 million of cash provided by the sale of the Pennsylvania corporate office and
distribution center which were acquired in the mergers. During fiscal 2005, $886.1 million of cash was used to
acquire EB. Our capital expenditures in fiscal 2005 also included approximately $9.7 million to complete the build-
out of our new corporate headquarters and distribution center facility in Grapevine, Texas. The remaining
$101.0 million in capital expenditures was used to open new stores, remodel existing stores and invest in
information and distribution systems in support of the integration of the operations of EB and GameStop.
Cash used in financing activities in fiscal 2007 was $131.8 million and $46.6 million during fiscal 2006. The
cash used in financing activities in fiscal 2007 was due to the repurchase of $20.0 million and $250.0 million of
principal value of the Company’s senior notes and senior floating rate notes, respectively, and the $12.2 million
principal payment in October 2007 on the Barnes & Noble promissory note. The fiscal 2007 cash outflows were
offset by $64.9 million received for the issuance of shares relating to stock option exercises and $93.3 million for the
realization of tax benefits relating to the stock option exercises and vested restricted stock. The cash used in
financing activities in fiscal 2006 was due to the repurchase of $50.0 million each of the senior notes and the senior
floating rate notes, the payment of the $12.2 million principal due in October 2006 on the Barnes & Noble
promissory note and the repayment of the $9.2 million mortgage on EB’s Pennsylvania distribution center. The
fiscal 2006 cash outflows were offset by $33.9 million received for the issuance of shares relating to stock option
exercises and $43.8 million for the realization of tax benefits relating to the stock option exercises and vested
restricted stock. Cash flows provided by financing activities were $935.7 million during fiscal 2005 which were
primarily due to the issuance of the senior notes and the senior floating rate notes in connection with the mergers.
Our future capital requirements will depend on the number of new stores we open and the timing of those
openings within a given fiscal year. We opened 586 stores in fiscal 2007 and expect to open approximately 575 to
600 stores in fiscal 2008. Capital expenditures for fiscal 2008 are projected to be approximately $170.0 million to
$180.0 million, to be used primarily to fund new store openings and invest in distribution and information systems
in support of operations.
In October 2005, in connection with the merger, the Company entered into a five-year, $400 million Credit
Agreement (the “Revolver”), including a $50 million letter of credit sub-limit, secured by the assets of the Company
and its U.S. subsidiaries. The Revolver places certain restrictions on the Company and its U.S. subsidiaries,
including limitations on asset sales, additional liens and the incurrence of additional indebtedness.
In April 2007, the Company amended the Revolver to extend the maturity date from October 11, 2010 to
April 25, 2012, reduce the LIBO interest rate margin, reduce and fix the rate of the unused commitment fee and
modify or delete certain other covenants.
The availability under the Revolver is limited to a borrowing base which allows the Company to borrow up to
the lesser of (x) approximately 70% of eligible inventory and (y) 90% of the appraisal value of the inventory, in each
case plus 85% of eligible credit card receivables, net of certain reserves. Letters of credit reduce the amount
available to borrow by their face value. The Company’s ability to pay cash dividends, redeem options and
repurchase shares is generally prohibited, except that if availability under the Revolver is, or will be after any such
payment, equal to or greater than 25% of the borrowing base, the Company may repurchase its capital stock and pay
cash dividends. In addition, in the event that credit extensions under the Revolver at any time exceed 80% of the
lesser of the total commitment or the borrowing base, the Company will be subject to a fixed charge coverage ratio
covenant of 1.5:1.0.
The interest rate on the Revolver is variable and, at the Company’s option, is calculated by applying a margin
of (1) 0.0% to 0.25% above the higher of the prime rate of the administrative agent or the federal funds effective rate
plus 0.50% or (2) 1.00% to 1.50% above the LIBO rate. The applicable margin is determined quarterly as a function
of the Company’s consolidated leverage ratio. As of February 2, 2008, the applicable margin was 0.0% for prime
rate loans and 1.00% for LIBO rate loans. In addition, the Company is required to pay a commitment fee of 0.25%
for any unused portion of the total commitment under the Revolver.
As of February 2, 2008, there were no borrowings outstanding under the Revolver and letters of credit
outstanding totaled $6.8 million.
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