GAMESTOP CORP.
10-Ks and 10-Qs
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Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
Washington, D.C. 20549
Form 10-K
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þ
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the fiscal year ended January 30, 2010 | ||
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OR
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||
|
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from to | ||
Commission File
No. 1-32637
GameStop Corp.
(Exact name of registrant as
specified in its Charter)
| Delaware | 20-2733559 | |
|
(State or other jurisdiction
of
incorporation or organization) |
(I.R.S. Employer
Identification No.) |
|
|
625 Westport Parkway
Grapevine, Texas (Address of principal executive offices) |
76051
(Zip Code) |
Registrant’s telephone number, including area code:
(817) 424-2000
Securities registered pursuant to Section 12(b) of the
Act:
|
(Title of Class)
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(Name of Exchange on Which Registered)
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Class A Common Stock, $.001 par value per share
|
New York Stock Exchange | |
|
Rights to Purchase Series A Junior Participating
Preferred
Stock, $.001 par value per share |
New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
þ
No
o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the
Act. Yes
o
No
þ
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes
þ
No
o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes
þ
No
o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K.
þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule
12b-2
of the
Exchange Act. (Check one):
| Large Accelerated Filer þ | Accelerated Filer o | Non-accelerated Filer o | Smaller reporting company o |
(Do
not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes
o
No
þ
The aggregate market value of the voting and non-voting stock
held by non-affiliates of the registrant was approximately
$3,604,000,000, based upon the closing market price of $21.89
per share of Class A Common Stock on the New York Stock
Exchange as of July 31, 2009.
Number of shares of $.001 par value Class A Common
Stock outstanding as of March 25, 2010: 152,824,100
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the definitive proxy statement of the registrant to
be filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended, for the 2010 Annual Meeting of
Stockholders are incorporated by reference into Part III.
TABLE OF
CONTENTS
1
Table of Contents
| Item 1. | Business |
General
GameStop Corp. (together with its predecessor companies,
“GameStop,” “we,” “us,”
“our,” or the “Company”) is the world’s
largest retailer of video game products and PC entertainment
software. We sell new and used video game hardware, video game
software and accessories, as well as PC entertainment software,
and related accessories and other merchandise. As of
January 30, 2010, we operated 6,450 stores in the United
States, Australia, Canada and Europe, primarily under the names
GameStop and EB Games. We also operate electronic commerce Web
sites, including
www.gamestop.com
, and publish
Game
Informer
, the industry’s largest multi-platform video
game magazine in the United States based on circulation, with
approximately 4.0 million subscribers.
In the fiscal year ended January 30, 2010, we operated our
business in the following segments: United States, Canada,
Australia and Europe. Of our 6,450 stores, 4,429 stores are
included in the United States segment and 337, 388 and 1,296
stores are included in the Canadian, Australian and European
segments, respectively. Each of the segments consists primarily
of retail operations, with all stores engaged in the sale of new
and used video game systems, software and accessories, which we
refer to as video game products, and PC entertainment software
and related accessories. Our used video game products provide a
unique value proposition to our customers, and our purchasing of
used video game products provides our customers with an
opportunity to trade in their used video game products for store
credits and apply those credits towards other merchandise, which
in turn, increases sales. Our products are substantially the
same regardless of geographic location, with the primary
differences in merchandise carried being the timing of release
of new products in the various segments and language
translations. Stores in all segments are similar in size at an
average of approximately 1,400 square feet. Our corporate
office and one of our distribution facilities are housed in a
510,000 square foot facility in Grapevine, Texas.
The Company began operations in November 1996. In October 1999,
the Company was acquired by, and became a wholly-owned
subsidiary of, Barnes & Noble, Inc.
(“Barnes & Noble”). In February 2002,
GameStop completed an initial public offering of its
Class A common stock and was a majority-owned subsidiary of
Barnes & Noble until November 2004, when
Barnes & Noble distributed its holdings of our common
stock to its stockholders. In October 2005, GameStop acquired
the operations of Electronics Boutique Holdings Corp.
(“EB”), a 2,300-store video game retailer in the
U.S. and 12 other countries, by merging its existing
operations with EB under GameStop Corp. (the “EB
merger”).
On March 16, 2007, the Company completed a
two-for-one
stock split of its Class A common stock (the “Stock
Split”). As of January 30, 2010, our Class A
common stock traded on the New York Stock Exchange
(“NYSE”) under the symbol GME.
On November 17, 2008, GameStop France SAS, a wholly-owned
subsidiary of the Company, completed the acquisition of
substantially all of the outstanding capital stock of SFMI
Micromania SAS (“Micromania”) for $580.4 million,
net of cash acquired (the “Micromania acquisition”).
Micromania is a leading retailer of video and computer games in
France with 368 locations, 328 of which were operating at the
date of acquisition. The Company’s operating results for
the 52 weeks ended January 30, 2010 (“fiscal
2009”) include Micromania’s results; whereas, the
Company’s operating results for the 52 weeks ended
January 31, 2009 (“fiscal 2008”) include only
11 weeks of Micromania’s results.
Disclosure
Regarding Forward-looking Statements
This report on
Form 10-K
and other oral and written statements made by the Company to the
public contain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”), and Section 21E of the
Securities Exchange Act of 1934, as amended (the “Exchange
Act”). The forward-looking statements involve a number of
risks and uncertainties. A number of factors could cause our
actual results, performance, achievements or industry results to
be materially different from any future results,
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Table of Contents
performance or achievements expressed or implied by these
forward-looking statements. These factors include, but are not
limited to:
| • | our reliance on suppliers and vendors for sufficient quantities of their products and for new product releases; | |
| • | general economic conditions internationally and in the U.S., and specifically, economic conditions affecting the electronic game industry, the retail industry and the banking and financial services market; | |
| • | alternate sources of distribution of video game software; | |
| • | the competitive environment in the electronic game industry; | |
| • | our ability to open and operate new stores; | |
| • | our ability to attract and retain qualified personnel; | |
| • | the impact and costs of litigation and regulatory compliance; | |
| • | unanticipated litigation results; | |
| • | the risks involved with our international operations; and | |
| • | other factors described in this Form 10-K, including those set forth under the caption, “Item 1A. Risk Factors.” |
In some cases, forward-looking statements can be identified by
the use of terms such as “anticipates,”
“believes,” “continues,” “could,”
“estimates,” “expects,” “intends,”
“may,” “plans,” “potential,”
“predicts,” “will,” “should,”
“seeks,” “pro forma” or similar expressions.
These statements are only predictions based on current
expectations and assumptions and involve known and unknown
risks, uncertainties and other factors that may cause our or our
industry’s actual results, levels of activity, performance
or achievements to be materially different from any future
results, levels of activity, performance or achievements
expressed or implied by such forward-looking statements. You
should not place undue reliance on these forward-looking
statements.
Although we believe that the expectations reflected in our
forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements.
We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new
information, future events or otherwise after the date of this
Form 10-K.
In light of these risks and uncertainties, the forward-looking
events and circumstances contained in this
Form 10-K
may not occur, causing actual results to differ materially from
those anticipated or implied by our forward-looking statements.
Industry
Background
Based upon estimates compiled by various market research firms,
management estimates that the combined market for video game
products and PC entertainment software exceeded $41 billion
in 2009 in the parts of the world in which we operate. According
to NPD Group, Inc., a market research firm (the “NPD
Group”), the electronic game industry was an approximately
$20 billion market in the United States in 2009, the
majority of which was attributable to video game products,
excluding sales of used video game products. International
Development Group, a market research firm (“IDG”),
estimates that retail sales of video game hardware and software
and PC entertainment software totaled approximately
$17.5 billion in Europe in 2009. The NPD Group has reported
that video game retail sales in Canada were approximately
$1.8 billion in 2009. According to the independent market
research firm GfK Group, the Australian market for video game
products was approximately $2.0 billion in 2009.
New Video Game Products.
The Entertainment
Software Association (“ESA”) estimates that 65% of all
American households play video or computer games. We expect the
following trends to result in increased sales of video game
products:
| • | Hardware Platform Technology Evolution. Video game hardware has evolved significantly from the early products launched in the 1980s. The processing speed of video game hardware has increased with each generation of hardware to high speed processors in today’s gaming systems, such as the Sony PlayStation 3, |
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| the Nintendo Wii and Microsoft Xbox 360, which all launched between 2005 and 2007. In addition, portable handheld video game devices have evolved from the 8-bit Nintendo Game Boy to the 128-bit Nintendo DSi, which was introduced in 2009 and the Sony PlayStation Portable (the “PSP”), which was introduced in 2005. Technological developments in both chip processing speed and data storage have provided significant improvements in advanced graphics and audio quality, which allow software developers to create more advanced games, encourage existing players to upgrade their hardware platforms and attract new video game players to purchase an initial system. As general computer technology advances, we expect video game technology to make similar advances. |
| • | Today’s Gaming Systems Provide Multiple Capabilities Beyond Gaming. Most current hardware platforms, including the Sony PlayStation 2 and 3 and Microsoft Xbox and Xbox 360, utilize a DVD software format and have the potential to serve as multi-purpose entertainment centers by doubling as a player for DVD movies and compact discs. In addition, the Sony PlayStation 3 and PSP, the Nintendo DSi and Wii and Microsoft Xbox 360 all provide internet connectivity and the Sony PlayStation 3 plays Blu-ray discs. | |
| • | Backward Compatibility. The Sony PlayStation 3, the Nintendo DS and Wii and Microsoft Xbox 360 are, to some extent, backward compatible, meaning that titles produced for the earlier version of the hardware platform may be used on the new hardware platform. We believe that during the initial launch phase of next-generation platforms, backward compatibility results in more stable industry growth because the decrease in consumer demand for products associated with existing hardware platforms that typically precedes the release of next-generation hardware platforms is diminished. | |
| • | Introduction of Next-Generation Hardware Platforms Drives Software Demand. Sales of video game software generally increase as next-generation platforms mature and gain wider acceptance. Historically, when a new platform is released, a limited number of compatible game titles are immediately available, but the selection grows rapidly as manufacturers and third-party publishers develop and release game titles for that new platform. | |
| • | Broadening Demographic Appeal. While the typical electronic game enthusiast is male between the ages of 14 and 49, the electronic game industry is broadening its appeal. More females are playing electronic video games, in part due to the development of video game products that appeal to them. According to ESA, approximately 40% of all electronic game players are female. ESA also states the average game player is 35 years old and the average age of the most frequent game purchaser is 39; however, the video game market also includes approximately 25% of Americans over the age of 50. In addition, the availability of used video game products for sale has enabled a lower-economic demographic, that may not have been able to afford the considerably more expensive new video game products, to participate in the video game industry. |
Used Video Game Products.
As the installed
base of video game hardware platforms has increased and new
hardware platforms are introduced, a considerable market for
used video game hardware and software has developed. Based on
reports published by NPD Group, we believe that, as of December
2009, the installed base of video game hardware systems in the
United States, based on original sales, totaled over
220 million units of handheld and console video game
systems. Of the total installed base, 112 million was
comprised of the current generation of video game platforms as
follows: 11.1 million Sony PlayStation 3 units,
27.1 million Nintendo Wii units, 18.6 million
Microsoft Xbox 360 units, 16.8 million Sony PSP units
and 38.6 million Nintendo DS units. The remainder of the
installed base consists of legacy video game platforms,
including Sony PlayStation 2, Microsoft Xbox, Nintendo’s
GameCube and Game Boy Advance. According to IDG, the installed
base of hardware systems as of December 2009 in Europe is
approximately 133 million units. The Interactive
Entertainment Association of Australia reported as of the end of
2009, the installed base on the current video game platforms
stood at 1.7 million Nintendo Wii units, 850,000 Microsoft
Xbox 360 units, and 700,000 Sony PlayStation 3 units.
Hardware manufacturers and third-party software publishers have
produced a wide variety of software titles for each of these
hardware platforms. Based on internal Company estimates, we
believe that the installed base of video game software units in
the United States currently exceeds 1.75 billion units. As
the substantial installed base of video game hardware and
software continues to expand, there is a growing demand for used
video game products.
PC Entertainment Software.
PC entertainment
software is generally played on multimedia PCs featuring fast
processors, expanded memories, and enhanced graphics and audio
capabilities.
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Table of Contents
Business
and Growth Strategy
Our goal is to continue to be the world’s largest retailer
of new and used video game products and PC entertainment
software and strengthen that position by executing the following
strategies:
Continuing to Execute our Proven Growth
Strategies.
We intend to continue to execute our
proven growth strategies, including:
| • | Open New Stores. Because of the continued success of our new store performance over the past three years, we intend to continue opening new stores in our targeted markets. We opened 388 new stores in fiscal 2009. We opened 674 new stores in fiscal 2008 and acquired 328 stores in France, a new market for us. On average, our new stores opened in the past three years have had a cash payback of less than two years. We plan to open approximately 400 new stores in the 52 weeks ending January 29, 2011 (“fiscal 2010”). Our primary growth vehicles will be the expansion of our strip center store base in the United States and the expansion of our international store base. Our strategy within the U.S. is to open strip center stores in targeted major metropolitan markets and in regional shopping centers in other markets. Our international strategy is to continue our expansion in Europe and the opening of new stores in advantageous markets and locations in Canada and Australia. We analyze each market relative to target population and other demographic indices, real estate availability, competitive factors and past operating history, if available. In some cases, these new stores may adversely impact sales at existing stores, but our goal is to minimize the impact. | |
| • | Increase Comparable Store Sales. We plan to increase our comparable store sales by capitalizing on the growth in demand, expanding our sales of used video game products, increasing market share and awareness of the GameStop brand. |
| • | Increase Sales of Used Video Game Products. We believe we are the largest retailer of used video game products in the world and carry the broadest selection of used video game products for both current and previous generation platforms, giving us a unique advantage in the video game retail industry. The opportunity to trade in and purchase used video game products offers our customers a unique value proposition generally unavailable at most mass merchants, toy stores and consumer electronics retailers. We obtain most of our used video game products from trade-ins made in our stores by our customers. We will continue to expand the selection and availability of used video game products in our stores. Used video game products generate significantly higher gross margins than new video game products. Our strategy consists of increasing consumer awareness of the benefits of trading in and buying used video game products at our stores through increased marketing activities. We expect the continued growth of new platform technology to drive trade-ins of previous generation products, as well as trade-ins of next generation platform products, thereby expanding the supply of used video game products. | |
| • | Increase GameStop Brand Awareness. Substantially all of GameStop’s U.S. and European stores are operated under the GameStop name, with the exception of the Micromania stores acquired in France. In 2007, GameStop introduced its new brand tagline “Power to the Players” and launched a television, radio and newspaper advertising campaign to increase awareness of the GameStop brand. Building the GameStop brand has enabled us to leverage brand awareness and to capture advertising and marketing efficiencies. Our branding strategy is further supported by the GameStop “Edge” loyalty card and our Web site. The “Edge” card, which is obtained as a bonus with a paid subscription to our Game Informer Magazine , offers customers discounts on selected merchandise in our stores. Our Web sites allow our customers to buy games online and to learn about the latest video game products and PC entertainment software and their availability in our stores. We intend to increase customer awareness of the GameStop brand. In connection with our brand-building efforts, in each of the last three fiscal years, we increased the amount of media advertising in targeted markets. In fiscal 2010, we plan to continue to increase media advertising to increase brand awareness over a broader demographic area, to expand our GameStop loyalty card program, to aggressively promote trade-ins of used video game products in our stores and to leverage our Web sites at www.gamestop.com , www.ebgames.com.au , www.gamestop.ca , www.gamestop.it , and www.micromania.fr. |
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| • | Capitalize on Growth in Demand. While sales of new video game hardware decreased from fiscal 2008 to fiscal 2009, the customer base related to the new hardware platforms has expanded. Our sales of new video game software and used video game products grew by approximately 1% and 18%, respectively, in fiscal 2009 primarily due to new store growth, the acquisition of Micromania and the acceptance of used video game products internationally. Our sales of used video game products and new video game software grew by approximately 28% and 32%, respectively, in fiscal 2008 primarily due to new and acquired store growth. |
Targeting a Broad Audience of Game Players.
We
have created a store environment targeting a broad audience,
including the electronic game enthusiast, the casual gamer and
the seasonal gift giver. Our stores focus on the electronic game
enthusiast who demands the latest merchandise featuring the
“hottest” technology immediately on the day of release
and the value-oriented customer who wants a wide selection of
value-priced used video game products. Our stores offer the
opportunity to trade in used video game products in exchange for
store credits applicable to future purchases, which, in turn,
drives more sales.
Enhancing our Image as a Destination
Location.
Our stores serve as destination
locations for game players and gift givers due to our broad
selection of products, knowledgeable sales associates,
game-oriented environment and unique pricing proposition. We
offer all major video game platforms, provide a broad assortment
of video game products and offer a larger and more current
selection of merchandise than other retailers. We provide a high
level of customer service by hiring game enthusiasts and
providing them with ongoing sales training, as well as training
in the latest technical and functional elements of our products
and services, making them the most knowledgeable associates in
the video game retail market. Our stores are equipped with
several video game sampling areas, which provide our customers
with the opportunity to play games before purchase, as well as
equipment to play video game clips.
Providing a
First-to-Market
Distribution Network.
We employ a variety of
rapid-response distribution methods in our efforts to be the
first-to-market
for new video game products and PC entertainment software. This
highly efficient distribution network is essential, as a
significant portion of a new title’s sales will be
generated in the first few days and weeks following its release.
As the world’s largest retailer of video game products and
PC entertainment software with a proven capability to distribute
new releases to our customers quickly, we believe that we
regularly receive a large allocation of popular new video game
products and PC entertainment software. On a daily basis, we
actively monitor sales trends, customer reservations and store
manager feedback to ensure a high in-stock position for each
store. To assist our customers in obtaining immediate access to
new releases, we offer our customers the opportunity to
pre-order products in our stores or through our Web sites prior
to their release.
Investing in our Information Systems and Distribution
Capabilities.
We employ sophisticated and
fully-integrated inventory management, store-level point of sale
and financial systems and
state-of-the-art
distribution facilities. These systems enable us to maximize the
efficiency of the flow of over 4,500 SKUs, improve store
efficiency, optimize store in-stock positions and carry a broad
selection of inventory. Our proprietary inventory management
systems enable us to maximize sales of new release titles and
avoid markdowns as titles mature and utilize electronic
point-of-sale
equipment that provides corporate and regional headquarters with
daily information regarding store-level sales and available
inventory levels to automatically generate replenishment
shipments to each store at least twice a week. In addition, our
highly-customized inventory management systems allow us to
actively manage the pricing and product availability of our used
video game products across our store base and to reallocate our
inventory as necessary. Our systems enable each store to carry a
merchandise assortment uniquely tailored to its own sales mix
and customer needs. Our ability to react quickly to consumer
purchasing trends has resulted in a target mix of inventory,
reduced shipping and handling costs for overstocks and reduced
our need to discount products.
Expand our Digital Growth Strategy to Protect and Expand our
Market Leadership Position.
We currently sell
various types of products that relate to the digital category,
including Xbox live, Playstation and Nintendo network point
cards, as well as prepaid digital and online timecards and
digitally downloaded software. We continue to make significant
investments in
e-commerce,
online game development, digital kiosks and in-store and Web
site functionality to enable our customers to access digital
content and eliminate friction in the digital sales and delivery
process. We plan to continue to invest in these types of
processes and channels to grow our digital sales base and
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enhance our market leadership position in the video game
industry and in the digital aggregation and distribution
category.
Operating
Segments
We identified our four operating segments based on a combination
of geographic areas, the methods with which we analyze
performance and how we divide management responsibility. Segment
results for the United States include retail operations in
the 50 states, the District of Columbia, Guam and Puerto
Rico, the electronic commerce Web site
www.gamestop.com
and
Game Informer Magazine
. Segment results for Canada
include retail and
e-commerce
operations in stores throughout Canada and segment results for
Australia include retail and
e-commerce
operations in Australia and New Zealand. Segment results for
Europe include retail and
e-commerce
operations in 13 European countries.
Our U.S. segment is supported by distribution centers in
Texas and Kentucky, and further supported by the use of
third-party distribution centers for new release titles. We
distribute merchandise to our Canadian segment from distribution
centers in Ontario. We have a distribution center near Brisbane,
Australia which supports our Australian operations and a small
distribution facility in New Zealand which supports the stores
in New Zealand. European segment operations are supported by six
regionally-located distribution centers.
All of our segments purchase products from many of the same
vendors, including Sony Corporation (“Sony”) and
Electronic Arts. Products from certain other vendors such as
Microsoft and Nintendo are obtained either directly from the
manufacturer or publisher or through distributors depending upon
the particular market in which we operate.
Additional information, including financial information,
regarding our operating segments can be found in
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” elsewhere in this
Annual Report on
Form 10-K
and in Note 17 of “Notes to Consolidated Financial
Statements.”
Merchandise
Substantially all of our revenues are derived from the sale of
tangible products. Our product offerings consist of new and used
video game products, PC entertainment software, and related
products, such as trading cards and strategy guides. Our
in-store inventory generally consists of a constantly changing
selection of over 4,500 SKUs. We have buying groups in each of
our segments that negotiate terms, discounts and cooperative
advertising allowances for the stores in their respective
geographic areas. We use customer requests and feedback, advance
orders, industry magazines and product reviews to determine
which new releases are expected to be hits. Advance orders are
tracked at individual stores to distribute titles and capture
demand effectively. This merchandise management is essential
because a significant portion of a game’s sales are usually
generated in the first days and weeks following its release.
Video Game Hardware.
We offer the video game
platforms of all major manufacturers, including the Sony
PlayStation 2 and 3 and PSP, Microsoft Xbox 360, the Nintendo
Wii and DSi. We also offer extended service agreements on video
game hardware and software. In support of our strategy to be the
destination location for electronic game players, we
aggressively promote the sale of video game platforms. Video
game hardware sales are generally driven by the introduction of
new platform technology and the reduction in price points as
platforms mature. Due to our strong relationships with the
manufacturers of these platforms, we often receive
disproportionately large allocations of new release hardware
products, which is an important component of our strategy to be
the destination of choice for electronic game players. We
believe that selling video game hardware increases store traffic
and promotes customer loyalty, leading to increased sales of
video game software and accessories, which have higher gross
margins than video game hardware.
Video Game Software.
We purchase new video
game software from the leading manufacturers, including Sony,
Nintendo and Microsoft, as well as over 40 third-party game
publishers, such as Electronic Arts and Activision. We are one
of the largest customers of video game titles sold by these
publishers. We generally carry over 1,000 SKUs of new video game
software at any given time across a variety of genres, including
Sports, Action, Strategy, Adventure/Role Playing and Simulation.
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Used Video Game Products.
We believe we are
the largest retailer of used video games in the world. We
provide our customers with an opportunity to trade in their used
video game products in our stores in exchange for store credits
which can be applied towards the purchase of other products,
primarily new merchandise. We have the largest selection
(approximately 3,000 SKUs) of used video game titles which have
an average price of $18 as compared to an average price of $43
for new video game titles and which generate significantly
higher gross margins than new video game products. Our trade-in
program provides our customers with a unique value proposition
which is generally unavailable at mass merchants, toy stores and
consumer electronics retailers. This program provides us with an
inventory of used video game products which we resell to our
more value-oriented customers. In addition, our
highly-customized inventory management system allows us to
actively manage the pricing and product availability of our used
video game products across our store base and to reallocate our
inventory as necessary. Our trade-in program also allows us to
be one of the only suppliers of previous generation platforms
and related video games. We also operate refurbishment centers
in the U.S., Canada, Australia and Europe where defective video
game products can be tested, repaired, relabeled, repackaged and
redistributed back to our stores.
PC Entertainment and Other Software.
We
purchase PC entertainment software from over 25 publishers,
including Electronic Arts, Microsoft and Vivendi Universal. We
offer PC entertainment software across a variety of genres,
including Sports, Action, Strategy, Adventure/Role Playing and
Simulation.
Accessories and Other Products.
Video game
accessories consist primarily of controllers, memory cards and
other add-ons. We also carry strategy guides, magazines and
trading cards. We carry over 300 SKUs of accessories and other
products. In general, this category has higher margins than new
video game and PC entertainment products.
Store
Operations
As of January 30, 2010, we operated 6,450 stores, primarily
under the GameStop name. We design our stores to provide an
electronic gaming atmosphere with an engaging and visually
captivating layout. Our stores are typically equipped with
several video game sampling areas, which provide our customers
the opportunity to play games before purchase, as well as
equipment to play video game clips. We use store configuration,
in-store signage and product demonstrations to produce marketing
opportunities both for our vendors and for us.
Our stores average approximately 1,400 square feet and
carry a balanced mix of new and used video game products and PC
entertainment software. Our stores are generally located in
high-traffic “power strip centers,” local neighborhood
strip centers, high-traffic shopping malls and pedestrian areas,
primarily in major metropolitan areas. These locations provide
easy access and high frequency of visits and, in the case of
strip centers and high-traffic pedestrian stores, high
visibility. We target strip centers that are conveniently
located, have a mass merchant or supermarket anchor tenant and
have a high volume of customers.
Site
Selection and Locations
Site Selection.
Site selections for new stores
are made after an extensive review of demographic data and other
information relating to market potential, competitor access and
visibility, compatible nearby tenants, accessible parking,
location visibility, lease terms and the location of our other
stores. Most of our stores are located in highly visible
locations within malls and strip centers. In each of our
geographic segments, we have a dedicated staff of real estate
personnel experienced in selecting store locations.
8
Table of Contents
Locations.
The table below sets forth the
number of our stores located in the U.S., Canada, Europe and
Australia as of January 30, 2010:
|
Number
|
||||
|
United States
|
of Stores | |||
|
Alabama
|
75 | |||
|
Alaska
|
7 | |||
|
Arizona
|
87 | |||
|
Arkansas
|
27 | |||
|
California
|
478 | |||
|
Colorado
|
62 | |||
|
Connecticut
|
64 | |||
|
Delaware
|
18 | |||
|
District of Columbia
|
3 | |||
|
Florida
|
313 | |||
|
Georgia
|
141 | |||
|
Guam
|
3 | |||
|
Hawaii
|
24 | |||
|
Idaho
|
12 | |||
|
Illinois
|
196 | |||
|
Indiana
|
83 | |||
|
Iowa
|
32 | |||
|
Kansas
|
37 | |||
|
Kentucky
|
64 | |||
|
Louisiana
|
68 | |||
|
Maine
|
13 | |||
|
Maryland
|
102 | |||
|
Massachusetts
|
100 | |||
|
Michigan
|
124 | |||
|
Minnesota
|
54 | |||
|
Mississippi
|
41 | |||
|
Missouri
|
73 | |||
|
Montana
|
9 | |||
|
Nebraska
|
22 | |||
|
Nevada
|
42 | |||
|
New Hampshire
|
27 | |||
|
New Jersey
|
166 | |||
|
New Mexico
|
25 | |||
|
New York
|
253 | |||
|
North Carolina
|
142 | |||
|
North Dakota
|
8 | |||
|
Ohio
|
191 | |||
|
Oklahoma
|
47 | |||
|
Oregon
|
32 | |||
|
Pennsylvania
|
212 | |||
|
Puerto Rico
|
46 | |||
|
Rhode Island
|
14 | |||
9
Table of Contents
|
Number
|
||||
|
United States
|
of Stores | |||
|
South Carolina
|
68 | |||
|
South Dakota
|
4 | |||
|
Tennessee
|
91 | |||
|
Texas
|
374 | |||
|
Utah
|
29 | |||
|
Vermont
|
6 | |||
|
Virginia
|
150 | |||
|
Washington
|
78 | |||
|
West Virginia
|
31 | |||
|
Wisconsin
|
53 | |||
|
Wyoming
|
8 | |||
|
Sub-total
for United States
|
4,429 | |||
|
Number
|
||||
|
International
|
of Stores | |||
|
Canada
|
337 | |||
|
Australia
|
350 | |||
|
New Zealand
|
38 | |||
|
Sub-total
for Australia
|
388 | |||
|
Austria
|
22 | |||
|
Denmark
|
42 | |||
|
Finland
|
14 | |||
|
France
|
368 | |||
|
Germany
|
195 | |||
|
Ireland
|
50 | |||
|
Italy
|
328 | |||
|
Norway
|
56 | |||
|
Portugal
|
14 | |||
|
Spain
|
124 | |||
|
Sweden
|
58 | |||
|
Switzerland
|
18 | |||
|
United Kingdom
|
7 | |||
|
Sub-total
for Europe
|
1,296 | |||
|
Sub-total
for International
|
2,021 | |||
|
Total stores
|
6,450 | |||
Game
Informer
We publish
Game Informer Magazine
, a monthly video game
magazine featuring reviews of new title releases, tips and
secrets about existing games and news regarding current
developments in the electronic game industry. Versions of the
magazine are sold through subscription and through displays in
our stores throughout most of the world.
Game Informer
is
the twelfth largest consumer publication in the U.S. and
for its January 2010 issue, the magazine had approximately
4.0 million paid subscriptions.
Game Informer
revenues are also generated through the sale of advertising
space. In addition, we offer the GameStop loyalty card as a
bonus with each paid subscription,
10
Table of Contents
providing our subscribers with a discount on selected
merchandise. We also operate the Web site
www.gameinformer.com
, which is the premier destination
for
moment-by-moment
news, features and reviews related to video gaming. English
version results from
Game Informer
operations are
included in the United States segment where the majority of
subscriptions and sales are generated. Other international
version results from
Game Informer
operations are
included in the segment in which the sales are generated.
E-Commerce
We operate several electronic commerce Web sites in various
countries, including
www.gamestop.com
,
www.ebgames.com.au
,
www.gamestop.ca
,
www.gamestop.it
, and
www.micromania.fr
, that allow
our customers to buy video game products and other merchandise
online. The sites also offer customers information and content
about available games, release dates for upcoming games, and
access to store information, such as location and product
availability. In 2005, we entered into an arrangement with
Barnes & Noble under which
www.gamestop.com
became the exclusive specialty video game retailer listed on
www.bn.com
, Barnes & Noble’s
e-commerce
site.
E-commerce
results are included in the geographic segment where the sales
originate.
Advertising
Our stores are primarily located in high traffic, high
visibility areas of regional shopping malls, strip centers and
pedestrian shopping areas. Given the high foot traffic drawn
past the stores themselves, we use in-store marketing efforts
such as window displays and “coming soon” signs to
attract customers, as well as to promote used video game
products. Inside the stores, we feature selected products
through the use of vendor displays, “coming soon” or
preview videos, signs, catalogs,
point-of-purchase
materials and end-cap displays. These advertising efforts are
designed to increase the initial sales of new titles upon their
release.
On a global basis, we receive cooperative advertising and market
development funds from manufacturers, distributors, software
publishers and accessory suppliers to promote their respective
products. Generally, vendors agree to purchase advertising space
in one of our advertising vehicles. Once we run the advertising,
the vendor pays to us an agreed amount.
In the last several years, as part of our brand-building efforts
and targeted growth strategies, we expanded our advertising and
promotional activities in certain targeted markets at certain
key times of the year. In addition, we expanded our use of
television and radio advertising in certain markets to promote
brand awareness and store openings.
Information
Management
Our operating strategy involves providing a broad merchandise
selection to our customers as quickly and as cost-effectively as
possible. We use our inventory management systems to maximize
the efficiency of the flow of products to our stores, enhance
store efficiency and optimize store in-stock and overall
investment in inventory.
Distribution.
We operate distribution
facilities in various locations throughout the world, with each
location strategically located to support the operations in a
particular country or region. In order to enhance our
first-to-market
distribution network, we also utilize the services of several
off-site, third-party operated distribution centers that pick up
products from our suppliers, repackage the products for each of
our stores and ship those products to our stores by package
carriers. Our ability to rapidly process incoming shipments of
new release titles at our facilities and third-party facilities
and deliver those shipments to all of our stores, either that
day or by the next morning, enables us to meet peak demand and
replenish stores. Inventory is shipped to each store at least
twice a week, or daily, if necessary, in order to keep stores in
supply of products. Our distribution facilities also typically
support refurbishment of used products to be redistributed to
our stores.
We distribute products to our U.S. stores through a
410,000 square foot distribution center in Grapevine, Texas
and a 260,000 square foot distribution center in
Louisville, Kentucky. We currently use the center in Louisville,
Kentucky to support our
first-to-market
distribution efforts, while our Grapevine, Texas facility
supports efforts to replenish stores. The
state-of-the-art
facilities in both U.S. locations are designed to
effectively control and minimize inventory levels.
Technologically-advanced conveyor systems and flow-through racks
control costs and
11
Table of Contents
improve speed of fulfillment in both facilities. The technology
used in the distribution centers allows for high-volume
receiving, distributions to stores and returns to vendors.
We distribute merchandise to our Canadian segment from two
distribution centers in Brampton, Ontario. We have a
distribution center near Brisbane, Australia which supports our
Australian operations and a small distribution facility in New
Zealand which supports the stores in New Zealand. European
segment operations are supported by six regionally-located
distribution centers in Milan, Italy; Memmingen, Germany; Arlov,
Sweden; Valencia, Spain; Dublin, Ireland; and Paris, France. We
continue to invest in
state-of-the-art
facilities in our distribution centers as the distribution
volume, number of stores supported and returns on such
investments permit.
Management Information Systems.
Our
proprietary inventory management systems and
point-of-sale
technology show daily sales and in-store stock by title by
store. Our systems use this data to automatically generate
replenishment shipments to each store from our distribution
centers, enabling each store to carry a merchandise assortment
uniquely tailored to its own sales mix and rate of sale. Our
call lists and reservation system also provide our buying staff
with information to determine order size and inventory
management for
store-by-store
inventory allocation. We constantly review and edit our
merchandise categories with the objective of ensuring that
inventory is
up-to-date
and meets customer needs.
To support most of our operations, we use a large-scale,
Intel-based computing environment with a
state-of-the-art
storage area network and a wired and wireless corporate network
installed at our U.S. and regional headquarters, and a
secure, virtual private network to access and provide services
to computing assets located in our stores, distribution centers
and satellite offices and to our mobile workforce. This strategy
has proven to minimize initial outlay of capital while allowing
for flexibility and growth as operations expand. To support
certain of our international operations, we use a mid-range,
scalable computing environment and a
state-of-the-art
storage area network. Computing assets and our mobile workforce
around the globe access this environment via a secure, virtual
private network. Regional communication links exist to each of
our distribution centers and offices in international locations
with connectivity to our U.S. data center as required by
our international, distributed applications.
Our in-store
point-of-sale
system enables us to efficiently manage in-store transactions.
This proprietary
point-of-sale
system has been enhanced to facilitate trade-in transactions,
including automatic
look-up
of
trade-in prices and printing of machine-readable bar codes to
facilitate in-store restocking of used video games. In addition,
our central database of all used video game products allows us
to actively manage the pricing and product availability of our
used video game products across our store base and reallocate
our used video game products as necessary.
Field
Management and Staff
Each of our stores employs, on average, one manager, one
assistant manager and between two and ten sales associates, many
of whom are part-time employees. Each store manager is
responsible for managing their personnel and the economic
performance of their store. We have cultivated a work
environment that attracts employees who are actively interested
in electronic games. We seek to hire and retain employees who
know and enjoy working with our products so that they are better
able to assist customers. To encourage them to sell the full
range of our products and to maximize our profitability, we
provide our employees with targeted incentive programs to drive
overall sales and sales of higher margin products. In certain
locations, we also provide certain employees with the
opportunity to take home and try new video games, which enables
them to better discuss those games with our customers. In
addition, employees are casually dressed to encourage customer
access and increase the “game-oriented” focus of the
stores.
Our stores communicate with our corporate offices daily via
e-mail.
This
e-mail
allows for better tracking of trends in upcoming titles,
competitor strategies and in-stock inventory positions. In
addition, this communication allows title selection in each
store to be continuously updated and tailored to reflect the
tastes and buying patterns of the store’s local market.
These communications also give field management access to
relevant inventory levels and loss prevention information. We
have invested in significant management training programs for
our store managers and our district managers to enhance their
business management skills. We also sponsor annual store
managers’ conferences at which we operate an intense
educational training program to provide our employees with
12
Table of Contents
information about the video game products that will be released
by publishers in the holiday season. All video game software
publishers are invited to attend the conferences.
GameStop’s U.S. store operations are managed by a
centrally-located senior vice president of stores, three vice
presidents of stores and 31 regional store operations directors.
The regions are further divided into districts, each with a
district manager covering an average of 14 stores. In total,
there are approximately 305 districts. Our international
operations are managed by a senior executive, with stores in
Europe managed by a senior vice president, two vice presidents
and managing directors in each country and our stores in
Australia and Canada each managed by a vice president. We also
employ regional loss prevention managers who assist the stores
in implementing security measures to prevent theft of our
products.
Customer
Service
Our store personnel provide value-added services to each
customer, such as maintaining lists of regular customers and
reserving new releases for customers with a down payment to
ensure product availability. In addition, our store personnel
readily provide product reviews to ensure customers are making
informed purchasing decisions and inform customers of available
resources, including
Game Informer
, to increase a
customer’s enjoyment of the product upon purchase.
Vendors
We purchase substantially all of our new products worldwide from
approximately 75 manufacturers and software publishers and
several distributors. Purchases from the top ten vendors
accounted for approximately 85% of our new product purchases in
fiscal 2009. Only Nintendo, Sony, Microsoft, Electronic Arts and
Activision (which accounted for 23%, 17%, 12%, 12%, and 11%,
respectively) individually accounted for more than 10% of our
new product purchases during fiscal 2009. We have established
price protections and return privileges with our primary vendors
in order to reduce our risk of inventory obsolescence. In
addition, we have few purchase contracts with trade vendors and
generally conduct business on an
order-by-order
basis, a practice that is typical throughout the industry. We
believe that maintaining and strengthening our long-term
relationships with our vendors is essential to our operations
and continued expansion. We believe that we have very good
relationships with our vendors.
Competition
The electronic game industry is intensely competitive and
subject to rapid changes in consumer preferences and frequent
new product introductions. We compete with mass merchants and
regional chains; computer product and consumer electronics
stores; other video game and PC software specialty stores; toy
retail chains; mail-order businesses; catalogs; direct sales by
software publishers; and online retailers and game rental
companies. In addition, video games are available for sale and
rental from many video stores. Video game products are also
distributed through other methods such as digital delivery. We
also compete with sellers of used video game products.
Additionally, we compete with other forms of entertainment
activities, including movies, television, theater, sporting
events, casual and mobile games and family entertainment centers.
In the U.S., we compete with Wal-Mart Stores, Inc.
(“Wal-Mart”); Target Corporation (“Target”);
Best Buy Co., Inc. (“Best Buy”); Movie Gallery, Inc.
(“Movie Gallery”); and Blockbuster, Inc.
(“Blockbuster”). Competitors in Europe include Game
Group plc (“Game Group”) and its subsidiaries, which
operate in the United Kingdom, Ireland, Scandinavia, France,
Spain and Portugal, and Media Markt and Carrefour, which operate
throughout Europe, and other regional hypermarket chains.
Competitors in Canada include Wal-Mart, Best Buy and its
subsidiary Future Shop. In Australia, competitors include Game
Group, K-Mart, Target and JB HiFi stores.
Seasonality
Our business, like that of many retailers, is seasonal, with the
major portion of our sales and operating profit realized during
the fourth fiscal quarter, which includes the holiday selling
season. During fiscal 2009, we generated approximately 39% of
our sales and approximately 55% of our operating earnings during
the fourth quarter. During fiscal 2008, we generated
approximately 40% of our sales and approximately 56% of our
operating earnings during the fourth quarter.
13
Table of Contents
Trademarks
We have a number of trademarks and servicemarks, including
“GameStop,” “Game Informer,” “EB
Games,” “Electronics Boutique” and “Power to
the Players,” which have been registered by us with the
United States Patent and Trademark Office. For many of our
trademarks and servicemarks, including Micromania, we also have
registered or have registrations pending with the trademark
authorities throughout the world. We maintain a policy of
pursuing registration of our principal marks and opposing any
infringement of our marks.
Employees
We have approximately 17,000 full-time salaried and hourly
employees and between 28,000 and 42,000 part-time hourly
employees worldwide, depending on the time of year. Fluctuation
in the number of part-time hourly employees is due to the
seasonality of our business. We believe that our relationship
with our employees is excellent. Some of our international
employees are covered by collective bargaining agreements, while
none of our U.S. employees are represented by a labor union
or are members of a collective bargaining unit.
Available
Information
We make available on our corporate Web site
(
www.gamestopcorp.com
), under “Investor
Relations — SEC Filings,” free of charge, our
annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to those reports as soon as reasonably
practicable after we electronically file or furnish such
material with the Securities and Exchange Commission
(“SEC”). You may read and copy this information or
obtain copies of this information by mail from the Public
Reference Room of the SEC, 100 F Street, N.E.,
Washington, D.C. 20549, at prescribed rates. Further
information on the operation of the SEC’s Public Reference
Room in Washington, D.C. can be obtained by calling the SEC
at
1-800-SEC-0330.
The SEC also maintains a Web site that contains reports, proxy
statements and other information about issuers, like GameStop,
who file electronically with the SEC. The address of that site
is
http://www.sec.gov.
In addition to copies of our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to those reports, the Company’s Code of
Standards, Ethics and Conduct is available on our Web site under
“Investor Relations — Corporate Governance”
and is available to our stockholders in print, free of charge,
upon written request to the Company’s Investor Relations
Department at GameStop Corp., 625 Westport Parkway,
Grapevine, Texas 76051.
| Item 1A. | Risk Factors |
An investment in our Company involves a high degree of risk. You
should carefully consider the risks below, together with the
other information contained in this report, before you make an
investment decision with respect to our Company. The risks
described below are not the only ones facing our Company.
Additional risks not presently known to us, or that we consider
immaterial, may also impair our business operations. Any of the
following risks could materially adversely affect our business,
operating results or financial condition, and could cause a
decline in the trading price of our common stock and the value
of your investment.
Risks
Related to Our Business
We
depend upon our key personnel and they would be difficult to
replace.
Our success depends upon our ability to attract, motivate and
retain key management for our stores and skilled merchandising,
marketing, financial and administrative personnel at our
headquarters. We depend upon the continued services of our key
executive officers, Daniel A. DeMatteo, our Chief Executive
Officer; R. Richard Fontaine, our Executive Chairman of the
Board; J. Paul Raines, our Chief Operating Officer; and Tony D.
Bartel, our Executive Vice President of Merchandising and
Marketing. The loss of services of any of our key personnel
could have a negative impact on our business.
14
Table of Contents
We
depend upon the timely delivery of products.
We depend on major hardware manufacturers, primarily Sony,
Nintendo and Microsoft, to deliver new and existing video game
platforms on a timely basis and in anticipated quantities. In
addition, we depend on software publishers to introduce new and
updated software titles. Any material delay in the introduction
or delivery, or limited allocations, of hardware platforms or
software titles could result in reduced sales in one or more
fiscal quarters.
We
depend upon third parties to develop products and
software.
Our business depends upon the continued development of new and
enhanced video game platforms, PC hardware and video game
and PC entertainment software. Our business could suffer due to
the failure of manufacturers to develop new or enhanced video
game platforms, a decline in the continued technological
development and use of multimedia PCs, or the failure of
software publishers to develop popular game and entertainment
titles for current or future generation video game systems or PC
hardware.
Our
ability to obtain favorable terms from our suppliers may impact
our financial results.
Our financial results depend significantly upon the business
terms we can obtain from our suppliers, including competitive
prices, unsold product return policies, advertising and market
development allowances, freight charges and payment terms. We
purchase substantially all of our products directly from
manufacturers, software publishers and, in some cases,
distributors. Our largest vendors worldwide are Nintendo, Sony,
Microsoft, Electronic Arts and Activision, which accounted for
23%, 17%, 12%, 12% and 11%, respectively, of our new product
purchases in fiscal 2009. If our suppliers do not provide us
with favorable business terms, we may not be able to offer
products to our customers at competitive prices.
If our
vendors fail to provide marketing and merchandising support at
historical levels, our sales and earnings could be negatively
impacted.
The manufacturers of video game hardware and software and PC
entertainment software have typically provided retailers with
significant marketing and merchandising support for their
products. As part of this support, we receive cooperative
advertising and market development payments from these vendors.
These cooperative advertising and market development payments
enable us to actively promote and merchandise the products we
sell and drive sales at our stores and on our Web site. We
cannot assure you that vendors will continue to provide this
support at historical levels. If they fail to do so, our sales
and earnings could be negatively impacted.
The
electronic game industry is cyclical, which could cause
significant fluctuation in our earnings.
The electronic game industry has been cyclical in nature in
response to the introduction and maturation of new technology.
Following the introduction of new video game platforms, sales of
these platforms and related software and accessories generally
increase due to initial demand, while sales of older platforms
and related products generally decrease as customers migrate
toward the new platforms. New video game platforms have
historically been introduced approximately every five years. If
video game platform manufacturers fail to develop new hardware
platforms, our sales of video game products could decline.
Pressure
from our competitors may force us to reduce our prices or
increase spending, which could decrease our
profitability.
The electronic game industry is intensely competitive and
subject to rapid changes in consumer preferences and frequent
new product introductions. We compete with mass merchants and
regional chains, including Wal-Mart and Target; computer product
and consumer electronics stores, including Best Buy; other
U.S. and international video game and PC software specialty
stores located in malls and other locations, such as Game Group,
Carrefour and Media Markt; toy retail chains; mail-order
businesses; catalogs; direct sales by software publishers; and
online retailers and game rental companies. In addition, video
games are available for sale and rental from many video stores,
such as Movie Gallery and Blockbuster. Video game products and
content may also be distributed through methods such as digital
distribution and other methods which may emerge in the future.
We also compete with an
15
Table of Contents
increasing number of sellers of used video game products. Some
of our competitors in the electronic game industry have longer
operating histories and may have greater financial resources
than we do. Additionally, we compete with other forms of
entertainment activities, including movies, television, theater,
sporting events, casual and mobile games and family
entertainment centers. If we lose customers to our competitors,
or if we reduce our prices or increase our spending to maintain
our customers, we may be less profitable.
International
events could delay or prevent the delivery of products to our
suppliers.
Our suppliers rely on foreign sources, primarily in Asia, to
manufacture a portion of the products we purchase from them. As
a result, any event causing a disruption of imports, including
the imposition of import restrictions or trade restrictions in
the form of tariffs or quotas, could increase the cost and
reduce the supply of products available to us, which could lower
our sales and profitability.
Our
international operations expose us to numerous
risks.
We have international retail operations in Australia, Canada and
Europe. Because release schedules for hardware and software
introduction in these markets often differ from release
schedules in the United States, the timing of increases and
decreases in foreign sales may differ from the timing of
increases and decreases in domestic sales. We are also subject
to a number of other factors that may affect our current or
future international operations. These include:
| • | economic downturns; | |
| • | currency exchange rate fluctuations; | |
| • | international incidents; | |
| • | government instability; and | |
| • | competitors entering our current and potential markets. |
There
may be possible changes in our global tax rate.
As a result of our operations in many foreign countries, our
global tax rate is derived from a combination of applicable tax
rates in the various jurisdictions in which we operate.
Depending upon the sources of our income, any agreements we may
have with taxing authorities in various jurisdictions and the
tax filing positions we take in various jurisdictions, our
overall tax rate may be higher than other companies or higher
than our tax rates have been in the past. We base our estimate
of an annual effective tax rate at any given point in time on a
calculated mix of the tax rates applicable to our Company and to
estimates of the amount of income to be derived in any given
jurisdiction. A change in the mix of our business from year to
year and from country to country, changes in rules related to
accounting for income taxes, changes in tax laws in any of the
multiple jurisdictions in which we operate or adverse outcomes
from the tax audits that regularly are in process in any
jurisdiction in which we operate could result in an unfavorable
change in our overall tax rate, which could have a material
adverse effect on our business and results of our operations.
If we
are unable to renew or enter into new leases on favorable terms,
our revenue growth may decline.
All of our retail stores are located in leased premises. If the
cost of leasing existing stores increases, we cannot assure you
that we will be able to maintain our existing store locations as
leases expire. In addition, we may not be able to enter into new
leases on favorable terms or at all, or we may not be able to
locate suitable alternative sites or additional sites for new
store expansion in a timely manner. Our revenues and earnings
may decline if we fail to maintain existing store locations,
enter into new leases, locate alternative sites or find
additional sites for new store expansion.
16
Table of Contents
Restrictions
on our ability to take trade-ins of and sell used video game
products could negatively affect our financial condition and
results of operations.
Our financial results depend on our ability to take trade-ins
of, and sell, used video game products within our stores.
Actions by manufacturers or publishers of video game products or
governmental authorities to limit our ability to take trade-ins
or sell used video game products could have a negative impact on
our sales and earnings.
If we
fail to keep pace with changing industry technology, we will be
at a competitive disadvantage.
The interactive entertainment industry is characterized by
swiftly changing technology, evolving industry standards,
frequent new and enhanced product introductions and product
obsolescence. These characteristics require us to respond
quickly to technological changes and to understand their impact
on our customers’ preferences. If we fail to keep pace with
these changes, our business may suffer.
Technological
advances in the delivery and types of video games and PC
entertainment software, as well as changes in consumer behavior
related to these new technologies, could lower our
sales.
While it is currently only possible to download a limited amount
of video game content to the next generation video game systems,
at some point in the future this technology may become more
prevalent. If advances in technology continue to expand our
customers’ ability to access the current format of video
games, PC entertainment software and incremental content for
their games, as well as new types of browser and casual games
through these and other sources, our customers may no longer
choose to purchase video games or PC entertainment software in
our stores. As a result, sales and earnings could decline. While
the Company is currently pursuing various strategies to
integrate these new delivery methods and competing content into
the Company’s business model, we can provide no assurances
that they will be successful or profitable.
An
adverse trend in sales during the holiday selling season could
impact our financial results.
Our business, like that of many retailers, is seasonal, with the
major portion of our sales and operating profit realized during
the fourth fiscal quarter, which includes the holiday selling
season. During fiscal 2009, we generated approximately 39% of
our sales and approximately 55% of our operating earnings during
the fourth quarter. Any adverse trend in sales during the
holiday selling season could lower our results of operations for
the fourth quarter and the entire fiscal year.
Our
results of operations may fluctuate from quarter to quarter,
which could affect our business, financial condition and results
of operations.
Our results of operations may fluctuate from quarter to quarter
depending upon several factors, some of which are beyond our
control. These factors include:
| • | the timing and allocations of new product releases; | |
| • | the timing of new store openings; | |
| • | shifts in the timing of certain promotions; and | |
| • | changes in foreign currency exchange rates. |
These and other factors could affect our business, financial
condition and results of operations, and this makes the
prediction of our financial results on a quarterly basis
difficult. Also, it is possible that our quarterly financial
results may be below the expectations of public market analysts.
Failure
to effectively manage our new store openings could lower our
sales and profitability.
Our growth strategy is largely dependent upon opening new stores
and operating them profitably. We opened 388 stores in fiscal
2009 and expect to open approximately 400 new stores in fiscal
2010. Our ability to open new
17
Table of Contents
stores and operate them profitably depends upon a number of
factors, some of which may be beyond our control. These factors
include:
| • | the ability to identify new store locations, negotiate suitable leases and build out the stores in a timely and cost efficient manner; | |
| • | the ability to hire and train skilled associates; | |
| • | the ability to integrate new stores into our existing operations; and | |
| • | the ability to increase sales at new store locations. |
Our growth will also depend on our ability to process increased
merchandise volume resulting from new store openings through our
inventory management systems and distribution facilities in a
timely manner. If we fail to manage new store openings in a
timely and cost efficient manner, our growth may decrease.
If our management information systems fail to perform or
are inadequate, our ability to manage our business could be
disrupted.
We rely on computerized inventory and management systems to
coordinate and manage the activities in our distribution
centers, as well as to communicate distribution information to
the off-site, third-party operated distribution centers with
which we work. The third-party distribution centers pick up
products from our suppliers, repackage the products for each of
our stores and ship those products to our stores by package
carriers. We use inventory replenishment systems to track sales
and inventory. Our ability to rapidly process incoming shipments
of new release titles and deliver them to all of our stores,
either that day or by the next morning, enables us to meet peak
demand and replenish stores at least twice a week, to keep our
stores in stock at optimum levels and to move inventory
efficiently. If our inventory or management information systems
fail to adequately perform these functions, our business could
be adversely affected. In addition, if operations in any of our
distribution centers were to shut down or be disrupted for a
prolonged period of time or if these centers were unable to
accommodate the continued store growth in a particular region,
our business could suffer.
We may
engage in acquisitions which could negatively impact our
business if we fail to successfully complete and integrate
them.
To enhance our efforts to grow and compete, we may engage in
acquisitions. Our plans to pursue future acquisitions are
subject to our ability to identify potential acquisition
candidates and negotiate favorable terms for these acquisitions.
Accordingly, we cannot assure you that future acquisitions will
be completed. In addition, to facilitate future acquisitions, we
may take actions that could dilute the equity interests of our
stockholders, increase our debt or cause us to assume contingent
liabilities, all of which may have a detrimental effect on the
price of our common stock. Finally, if any acquisitions are not
successfully integrated with our business, our ongoing
operations could be adversely affected.
Litigation
and litigation results could negatively impact our future
financial condition and results of operations.
In the ordinary course of our business, the Company is, from
time to time, subject to various litigation and legal
proceedings. In the future, the costs or results of such legal
proceedings, individually or in the aggregate, could have a
negative impact on the Company’s results of operations or
financial condition.
Legislative
actions may cause our general and administrative expenses or
income tax expense to increase and impact our future financial
condition and results of operations.
In order to comply with laws adopted by the U.S. government
or other regulatory bodies, we may be required to increase our
expenditures and hire additional personnel and additional
outside legal, accounting and advisory services, all of which
may cause our general and administrative costs or income tax
expenses to increase. Changes in the accounting rules could
materially increase the expenses that we report under
U.S. generally accepted accounting principles
(“GAAP”) and adversely affect our operating results.
18
Table of Contents
To
service our indebtedness, we will require a significant amount
of cash, the availability of which depends on many factors
beyond our control.
Our ability to make scheduled payments or to refinance our debt
obligations depends on our financial and operating performance,
which is subject to prevailing economic and competitive
conditions and to certain financial, business and other factors
beyond our control. These factors include:
| • | our reliance on suppliers and vendors for sufficient quantities of their products and new product releases and our ability to obtain favorable terms from these suppliers and vendors; | |
| • | economic conditions affecting the electronic game industry, the retail industry and the banking and financial services industry; | |
| • | the highly competitive environment in the electronic game industry and the resulting pressure from our competitors potentially forcing us to reduce our prices or increase spending; | |
| • | our ability to open and operate new stores; | |
| • | our ability to attract and retain qualified personnel; and | |
| • | 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.
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.
As of January 30, 2010, we had approximately
$447 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.
19
Table of Contents
Because
of our floating rate credit facility, 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; | |
| • | 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 senior notes; | |
| • | sell assets; and | |
| • | engage in transactions 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 senior notes and our senior credit
facility restrict the issuers of the senior 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.
20
Table of Contents
| Item 2. | Properties |
All of our stores are leased. Store leases typically provide for
an initial lease term of three to ten years, plus renewal
options. This arrangement gives us the flexibility to pursue
extension or relocation opportunities that arise from changing
market conditions. We believe that, as current leases expire, we
will be able to obtain either renewals at present locations or
leases for equivalent locations in the same area.
The terms of the store leases for the 6,450 leased stores open
as of January 30, 2010 expire as follows:
|
Number
|
||||
|
Lease Terms to Expire During
|
of Stores | |||
|
(12 Months Ending on or About
January 31)
|
||||
|
Expired and in negotiations
|
24 | |||
|
2011
|
1,156 | |||
|
2012
|
984 | |||
|
2013
|
1,098 | |||
|
2014
|
1,549 | |||
|
2015 and later
|
1,639 | |||
| 6,450 | ||||
At January 30, 2010, the Company owned or leased office and
distribution facilities, with lease expiration dates ranging
from 2010 to 2019 and an average remaining lease life of
approximately four years, in the following locations:
|
Square
|
Owned or
|
|||||||
|
Location
|
Footage
|
Leased
|
Use
|
|||||
|
United States
|
||||||||
|
Grapevine, Texas, USA
|
510,000 | Owned | Distribution and administration | |||||
|
Grapevine, Texas, USA
|
65,000 | Owned | Manufacturing and distribution | |||||
|
Louisville, Kentucky, USA
|
260,000 | Leased | Distribution | |||||
|
Minneapolis, Minnesota, USA
|
11,700 | Leased | Administration | |||||
|
West Chester, Pennsylvania, USA
|
6,100 | Leased | Administration | |||||
|
Canada
|
||||||||
|
Brampton, Ontario, Canada
|
119,000 | Owned | Distribution and administration | |||||
|
Brampton, Ontario, Canada
|
59,000 | Leased | Distribution and administration | |||||
|
Australia
|
||||||||
|
Pinkenba, Queensland, Australia
|
70,000 | Owned | Distribution | |||||
|
Auckland, New Zealand
|
13,000 | Leased | Distribution | |||||
|
Europe
|
||||||||
|
Arlov, Sweden
|
80,000 | Owned | Distribution and administration | |||||
|
Milan, Italy
|
120,000 | Owned | Distribution and administration | |||||
|
Memmingen, Germany
|
67,000 | Owned | Distribution and administration | |||||
|
Valencia, Spain
|
22,000 | Leased | Distribution | |||||
|
Valencia, Spain
|
15,000 | Leased | Administration | |||||
|
Dublin, Ireland
|
15,000 | Leased | Distribution and administration | |||||
|
Paris, France
|
54,000 | Leased | Distribution | |||||
|
Sophia Antipolis, France
|
16,300 | Leased | Administration | |||||
21
Table of Contents
| Item 3. | Legal Proceedings |
On February 14, 2005, and as amended, Steve Strickland, as
personal representative of the Estate of Arnold Strickland,
deceased, Henry Mealer, as personal representative of the Estate
of Ace Mealer, deceased, and Willie Crump, as personal
representative of the Estate of James Crump, deceased, filed a
wrongful death lawsuit against GameStop, Sony, Take-Two
Interactive, Rock Star Games and Wal-Mart (collectively, the
“Defendants”) and Devin Moore, alleging that
Defendants’ actions in designing, manufacturing, marketing
and supplying Defendant Moore with violent video games were
negligent and contributed to Defendant Moore killing Arnold
Strickland, Ace Mealer and James Crump. Moore was found guilty
of capital murder in a criminal trial and was sentenced to death
in August 2005.
Plaintiffs’ counsel named an expert who plaintiffs
indicated would testify that violent video games were a
substantial factor in causing the murders. The testimony of
plaintiffs’ psychologist expert was heard by the Court on
October 30, 2008, and the motion to exclude that testimony
was argued on December 12, 2008. On July 30, 2009, the
trial court entered its Order granting summary judgment for all
defendants, dismissing the case with prejudice on the grounds
that plaintiffs’ expert’s testimony did not satisfy
the Frye standard for expert admissibility. Subsequent to the
entry of the Order, plaintiffs filed a notice of appeal. The
Company does not believe there is sufficient information to
estimate the amount of the possible loss, if any, resulting from
the lawsuit if the plaintiffs’ appeal is successful.
In the ordinary course of the Company’s business, the
Company is, from time to time, subject to various other legal
proceedings, including matters involving wage and hour employee
class actions. The Company may enter into discussions regarding
settlement of these and other types of lawsuits, and may enter
into settlement agreements, if it believes settlement is in the
best interest of the Company’s shareholders. Management
does not believe that any such other legal proceedings or
settlements, individually or in the aggregate, will have a
material adverse effect on the Company’s financial
condition, results of operations or liquidity.
| Item 4. | Reserved |
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Price
Range of Common Stock
The Company’s Class A common stock is traded on the
NYSE under the symbol “GME.” The Company’s
Class B common stock was traded on the NYSE under the
symbol “GME.B” until February 7, 2007 when,
immediately following approval by a majority of the Class B
common stockholders in a Special Meeting of the Company’s
Class B common stockholders, all outstanding Class B
common shares were converted into Class A common shares on
a
one-for-one
basis.
The following table sets forth, for the periods indicated, the
high and low sales prices (as adjusted for the Stock Split) of
the Class A common stock on the NYSE Composite Tape:
| Fiscal 2009 | ||||||||
| High | Low | |||||||
|
Fourth Quarter
|
$ | 26.05 | $ | 19.42 | ||||
|
Third Quarter
|
$ | 28.62 | $ | 22.04 | ||||
|
Second Quarter
|
$ | 30.29 | $ | 20.02 | ||||
|
First Quarter
|
$ | 32.82 | $ | 21.81 | ||||
22
Table of Contents
| Fiscal 2008 | ||||||||
| High | Low | |||||||
|
Fourth Quarter
|
$ | 28.23 | $ | 16.91 | ||||
|
Third Quarter
|
$ | 47.69 | $ | 24.09 | ||||
|
Second Quarter
|
$ | 56.00 | $ | 37.62 | ||||
|
First Quarter
|
$ | 59.13 | $ | 40.78 | ||||
Approximate
Number of Holders of Common Equity
As of March 5, 2010, there were approximately 1,456 record
holders of the Company’s Class A common stock, par
value $.001 per share.
Dividends
The Company has never declared or paid any dividends on its
common stock. We may consider in the future the advisability of
paying dividends. However, our payment of dividends is and will
continue to be restricted by or subject to, among other
limitations, applicable provisions of federal and state laws,
our earnings and various business considerations, including our
financial condition, results of operations, cash flow, the level
of our capital expenditures, our future business prospects, our
status as a holding company and such other matters that our
Board of Directors deems relevant. In addition, the terms of the
senior credit facility and the terms of the indenture governing
the senior notes each restrict our ability to pay dividends. See
“Liquidity and Capital Resources” included in
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in this
Form 10-K.
Issuer
Purchases of Equity Securities
Purchases by the Company of its equity securities during the
fourth quarter of the fiscal year ended January 30, 2010
were as follows:
|
(c)
|
(d)
|
|||||||||||||||
|
(a)
|
Total Number of
|
Approximate Dollar
|
||||||||||||||
|
Total
|
(b)
|
Shares Purchased
|
Value of Shares that
|
|||||||||||||
|
Number of
|
Average
|
as Part of Publicly
|
May Yet Be Purchased
|
|||||||||||||
|
Shares
|
Price Paid per
|
Announced Plans or
|
Under the Plans or
|
|||||||||||||
|
Period
|
Purchased | Share | Programs | Programs(1) | ||||||||||||
| (In thousands of dollars) | ||||||||||||||||
|
November 1 through
November 28, 2009 |
— | $ | — | — | $ | — | ||||||||||
|
November 29 through
January 2, 2010 |
— | $ | — | — | $ | — | ||||||||||
|
January 3 through
January 30, 2010 |
6,114,500 | $ | 20.12 | 6,114,500 | $ | 177,005 | ||||||||||
|
Total
|
6,114,500 | $ | 20.12 | 6,114,500 | ||||||||||||
| (1) | In January 2010, our Board of Directors approved a $300 million share repurchase program that has no expiration date. |
23
Table of Contents
GameStop
Stock Comparative Performance Graph
The following graph compares the cumulative total stockholder
return on our Class A common stock for the period
commencing January 28, 2005 through January 29, 2010
(the last trading date of fiscal 2009) with the cumulative
total return on the Standard & Poor’s 500 Stock
Index (the “S&P 500”) and the Dow Jones
Retailers, Other Specialty Industry Group Index (the “Dow
Jones Specialty Retailers Index”) over the same period.
Total return values were calculated based on cumulative total
return assuming (i) the investment of $100 in our
Class A common stock, the S&P 500 and the Dow Jones
Specialty Retailers Index on January 28, 2005 and
(ii) reinvestment of dividends. The Class A common
stock reflects a
two-for-one
stock split on March 16, 2007.
The following stock performance graph and related information
shall not be deemed “soliciting material” or
“filed” with the SEC, nor should such information be
incorporated by reference into any future filings under the
Securities Act or the Exchange Act, except to the extent that we
specifically incorporate it by reference in such filing.
| 1/28/2005 | 1/27/2006 | 2/2/2007 | 2/1/2008 | 1/30/2009 | 1/29/2010 | |||||||||||||||||||||||||
|
GME
|
100.00 | 208.19 | 286.70 | 558.72 | 263.62 | 210.32 | ||||||||||||||||||||||||
|
S&P 500 Index
|
100.00 | 109.59 | 123.65 | 119.13 | 70.51 | 91.68 | ||||||||||||||||||||||||
|
Dow Jones Specialty Retailers Index
|
100.00 | 115.98 | 126.64 | 114.17 | 71.55 | 103.41 | ||||||||||||||||||||||||
| Item 6. | Selected Consolidated Financial Data |
The following table sets forth our selected consolidated
financial and operating data for the periods and at the dates
indicated. Our fiscal year is composed of 52 or 53 weeks
ending on the Saturday closest to January 31. The fiscal
year ended February 3, 2007 consisted of 53 weeks and
the fiscal years ended January 30, 2010, January 31,
2009, February 2, 2008 and January 28, 2006 consisted
of 52 weeks. The “Statement of Operations Data”
for the fiscal years ended January 30, 2010,
January 31, 2009 and February 2, 2008 and the
“Balance Sheet Data” as of January 30, 2010 and
January 31, 2009 are derived from, and are qualified by
reference to, our audited financial statements which are
included elsewhere in this
Form 10-K.
The “Statement of Operations Data” for fiscal years
ended February 3, 2007 and January 28, 2006 and the
“Balance Sheet Data” as of February 2, 2008,
February 3, 2007 and January 28, 2006 are derived from
our audited financial statements which are not included
elsewhere in this
Form 10-K.
24
Table of Contents
Our selected financial data set forth below should be read in
conjunction with “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” and the
consolidated financial statements and notes thereto included
elsewhere in this
Form 10-K.
|
52 Weeks
|
52 Weeks
|
52 Weeks
|
53 Weeks
|
52 Weeks
|
||||||||||||||||
|
Ended
|
Ended
|
Ended
|
Ended
|
Ended
|
||||||||||||||||
|
January 30,
|
January 31,
|
February 2,
|
February 3,
|
January 28,
|
||||||||||||||||
| 2010 | 2009 | 2008 | 2007 | 2006(1) | ||||||||||||||||
| (In thousands, except per share data and statistical data) | ||||||||||||||||||||
|
Statement of Operations Data:
|
||||||||||||||||||||
|
Sales
|
$ | 9,077,997 | $ | 8,805,897 | $ | 7,093,962 | $ | 5,318,900 | $ | 3,091,783 | ||||||||||
|
Cost of sales
|
6,643,345 | 6,535,762 | 5,280,255 | 3,847,458 | 2,219,753 | |||||||||||||||
|
Gross profit
|
2,434,652 | 2,270,135 | 1,813,707 | 1,471,442 | 872,030 | |||||||||||||||
|
Selling, general and administrative
expenses(2)
|
1,635,124 | 1,445,419 | 1,182,016 | 1,021,113 | 599,343 | |||||||||||||||
|
Depreciation and amortization
|
162,495 | 145,004 | 130,270 | 109,862 | 66,355 | |||||||||||||||
|
Merger-related expenses(3)
|
— | 4,593 | — | 6,788 | 13,600 | |||||||||||||||
|
Operating earnings
|
637,033 | 675,119 | 501,421 | 333,679 | 192,732 | |||||||||||||||
|
Interest expense (income), net
|
43,177 | 38,837 | 47,774 | 73,324 | 25,292 | |||||||||||||||
|
Merger-related interest expense(3)
|
— | — | — | — | 7,518 | |||||||||||||||
|
Debt extinguishment expense
|
5,323 | 2,331 | 12,591 | 6,059 | — | |||||||||||||||
|
Earnings before income tax expense
|
588,533 | 633,951 | 441,056 | 254,296 | 159,922 | |||||||||||||||
|
Income tax expense
|
212,804 | 235,669 | 152,765 | 96,046 | 59,138 | |||||||||||||||
|
Consolidated net income
|
375,729 | 398,282 | 288,291 | 158,250 | 100,784 | |||||||||||||||
|
Net loss attributable to noncontrolling interests
|
1,536 | — | — | — | — | |||||||||||||||
|
Consolidated net income attributable to GameStop
|
$ | 377,265 | $ | 398,282 | $ | 288,291 | $ | 158,250 | $ | 100,784 | ||||||||||
|
Basic net income per common share(4)
|
$ | 2.29 | $ | 2.44 | $ | 1.82 | $ | 1.06 | $ | 0.87 | ||||||||||
|
Diluted net income per common share(4)
|
$ | 2.25 | $ | 2.38 | $ | 1.75 | $ | 1.00 | $ | 0.81 | ||||||||||
|
Weighted average shares outstanding — basic(4)
|
164,525 | 163,190 | 158,226 | 149,924 | 115,840 | |||||||||||||||
|
Weighted average shares outstanding — diluted(4)
|
167,875 | 167,671 | 164,844 | 158,284 | 124,972 | |||||||||||||||
|
Store Operating Data:
|
||||||||||||||||||||
|
Number of stores by segment
|
||||||||||||||||||||
|
United States
|
4,429 | 4,331 | 4,061 | 3,799 | 3,624 | |||||||||||||||
|
Canada
|
337 | 325 | 287 | 267 | 261 | |||||||||||||||
|
Australia
|
388 | 350 | 280 | 219 | 177 | |||||||||||||||
|
Europe
|
1,296 | 1,201 | 636 | 493 | 428 | |||||||||||||||
|
Total
|
6,450 | 6,207 | 5,264 | 4,778 | 4,490 | |||||||||||||||
|
Comparable store sales increase
(decrease)(5)
|
(7.9 | )% | 12.3 | % | 24.7 | % | 11.9 | % | (1.4 | )% | ||||||||||
|
Inventory turnover
|
5.2 | 5.8 | 6.0 | 5.2 | 5.0 | |||||||||||||||
|
Balance Sheet Data:
|
||||||||||||||||||||
|
Working capital
|
$ | 471,628 | $ | 255,330 | $ | 534,160 | $ | 353,284 | $ | 234,293 | ||||||||||
|
Total assets
|
4,955,327 | 4,483,494 | 3,775,891 | 3,349,584 | 3,015,821 | |||||||||||||||
|
Total debt, net
|
447,343 | 545,712 | 574,473 | 855,484 | 975,990 | |||||||||||||||
|
Total liabilities
|
2,232,316 | 2,212,909 | 1,913,445 | 1,973,706 | 1,901,108 | |||||||||||||||
|
Total equity
|
2,723,011 | 2,270,585 | 1,862,446 | 1,375,878 | 1,114,713 | |||||||||||||||
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Table of Contents
| (1) | Includes the results of operations of EB from October 9, 2005, the day after completion of the EB merger, through January 28, 2006. | |
| (2) | On the first day of the 53 weeks ended February 3, 2007 (“fiscal 2006”), the Company adopted new accounting guidance on share-based payments, which required companies to expense the estimated fair value of stock options and similar equity instruments issued to employees in its financial statements. The implementation of the new accounting guidance affects the comparability of amounts from fiscal periods before fiscal 2006. The amount of stock-based compensation included was $37.8 million, $35.4 million, $26.9 million and $21.0 million for the fiscal years 2009, 2008, 2007 and 2006, respectively. | |
| (3) | The Company’s results of operations for fiscal 2008, fiscal 2006 and the 52 weeks ended January 28, 2006 (“fiscal 2005”) include expenses believed to be of a one-time or short-term nature associated with the Micromania acquisition (fiscal 2008) and the EB merger (fiscal 2006 and fiscal 2005), which included $4.6 million, $6.8 million and $13.6 million, respectively, considered in operating earnings and $7.5 million included in fiscal 2005 in interest expense. In fiscal 2008, the $4.6 million included $3.5 million related to foreign currency losses on funds used to purchase Micromania. In fiscal 2006 and fiscal 2005, the $6.8 million and $13.6 million, respectively, included $1.9 million and $9.0 million in charges associated with assets of the Company considered to be impaired as a result of the EB merger and $4.9 million and $4.6 million, respectively, in costs associated with integrating the operations of GameStop and EB. Costs related to the EB merger included in interest expense in fiscal 2005 include a fee of $7.1 million for an unused bridge financing facility which the Company obtained as financing insurance in connection with the EB merger. | |
| (4) | Weighted average shares outstanding and earnings per common share have been adjusted to reflect the Conversion and the Stock Split. | |
| (5) | Stores are included in our comparable store sales base beginning in the 13th month of operation. |
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion should be read in conjunction with
the information contained in our consolidated financial
statements, including the notes thereto. Statements regarding
future economic performance, management’s plans and
objectives, and any statements concerning assumptions related to
the foregoing contained in Management’s Discussion and
Analysis of Financial Condition and Results of Operations
constitute forward-looking statements. Certain factors, which
may cause actual results to vary materially from these
forward-looking statements, accompany such statements or appear
elsewhere in this
Form 10-K,
including the factors disclosed under
“Item 1A. — Risk Factors.”
General
GameStop Corp. (together with its predecessor companies,
“GameStop,” “we,” “us,”
“our,” or the “Company”) is the world’s
largest retailer of video game products and PC entertainment
software. We sell new and used video game hardware, video game
software and accessories, as well as PC entertainment software
and other merchandise. As of January 30, 2010, we operated
6,450 stores, in the United States, Australia, Canada and
Europe, primarily under the names GameStop and EB Games. We also
operate electronic commerce Web sites under the names
www.gamestop.com
,
www.ebgames.com.au
,
www.gamestop.ca
,
www.gamestop.it
, and
www.micromania.fr
and publish
Game Informer
, the
industry’s largest multi-platform video game magazine in
the United States based on circulation.
Our fiscal year is composed of 52 or 53 weeks ending on the
Saturday closest to January 31. The fiscal years ended
January 30, 2010 (“fiscal 2009”),
January 31, 2009 (“fiscal 2008”) and
February 2, 2008 (“fiscal 2007”) consisted of
52 weeks.
The Company began operations in November 1996. In October 1999,
the Company was acquired by, and became a wholly-owned
subsidiary of, Barnes & Noble, Inc.
(“Barnes & Noble”). In February 2002,
GameStop completed an initial public offering of its
Class A common stock and was a majority-owned subsidiary of
Barnes & Noble until November 2004, when
Barnes & Noble distributed its holdings of our common
stock to its stockholders. In October 2005, GameStop acquired
the operations of Electronics Boutique Holdings Corp.
(“EB”), a 2,300-store
26
Table of Contents
video game retailer in the U.S. and 12 other countries, by
merging its existing operations with EB under GameStop Corp.
(the “EB merger”).
On February 9, 2007, the Board of Directors of the Company
authorized a
two-for-one
stock split, effected by a
one-for-one
stock dividend to stockholders of record at the close of
business on February 20, 2007, paid on March 16, 2007
(the “Stock Split”). Unless otherwise indicated, all
numbers in this “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” have been
restated to reflect the Stock Split.
On November 17, 2008, GameStop France SAS, a wholly-owned
subsidiary of the Company, completed the acquisition of
substantially all of the outstanding capital stock of SFMI
Micromania SAS (“Micromania”) for $580.4 million,
net of cash acquired in the transaction. Micromania is the
leading retailer of video and computer games in France with 368
locations, 328 of which were operating on the date of
acquisition (the “Micromania acquisition”). The
Company’s operating results for fiscal 2009 include
Micromania’s results and the Company’s operating
results for fiscal 2008 include 11 weeks of
Micromania’s results.
The acquisition of Micromania is an important part of the
Company’s European and overall growth strategy and gave the
Company an immediate entrance into the second largest video game
market in Europe. The amount the Company paid in excess of the
fair value of the net assets acquired was primarily for
(i) the expected future cash flows derived from the
existing business and its infrastructure, (ii) the
geographical benefits from adding stores in a new large, growing
market without cannibalizing existing sales,
(iii) expanding the Company’s expertise in the
European video game market as a whole, and (iv) increasing
the Company’s impact on the European market, including
increasing its purchasing power.
Growth in the video game industry is driven by the introduction
of new technology. The current generation of hardware consoles
(the Sony PlayStation 3, the Microsoft Xbox 360 and the Nintendo
Wii) were introduced between 2005 and 2007. The Sony PlayStation
Portable (the “PSP”) was introduced in 2005. The
Nintendo DSi was introduced in early 2009. Typically, following
the introduction of new video game platforms, sales of new video
game hardware increase as a percentage of total sales in the
first full year following introduction. As video game platforms
mature, the sales mix attributable to complementary video game
software and accessories, which generate higher gross margins,
generally increases in the subsequent years. The net effect is
generally a decline in gross margins in the first full year
following new platform releases and an increase in gross margins
in the years subsequent to the first full year following the
launch period. Unit sales of maturing video game platforms are
typically also driven by manufacturer-funded retail price
reductions, further driving sales of related software and
accessories. We expect that the installed base of the hardware
platforms listed above and sales of related software and
accessories will increase in the future.
Critical
Accounting Policies
The Company believes that the following are its most significant
accounting policies which are important in determining the
reporting of transactions and events:
Use of Estimates.
The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States of America (“GAAP”)
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. In preparing these
financial statements, management has made its best estimates and
judgments of certain amounts included in the financial
statements, giving due consideration to materiality. Changes in
the estimates and assumptions used by management could have
significant impact on the Company’s financial results.
Actual results could differ from those estimates.
Revenue Recognition.
Revenue from the sales of
the Company’s products is recognized at the time of sale
and is stated net of sales discounts. The sales of used video
game products are recorded at the retail price charged to the
customer. Sales returns (which are not significant) are
recognized at the time returns are made. Subscription and
advertising revenues are recorded upon release of magazines for
sale to consumers. Magazine subscription revenue is recognized
on a straight-line basis over the subscription period. Revenue
27
Table of Contents
from the sales of product replacement plans is recognized on a
straight-line basis over the coverage period. Gift cards sold to
customers are recognized as a liability on the balance sheet
until redeemed.
Stock-Based Compensation.
The Company records
share-based compensation expense in earnings based on the
grant-date fair value of options or restricted stock granted. As
of January 30, 2010, the unrecognized compensation expense
related to the unvested portion of our stock options and
restricted stock was $13.3 million and $19.8 million,
respectively, which is expected to be recognized over a weighted
average period of 1.6 and 1.7 years, respectively.
Note 1 of “Notes to Consolidated Financial
Statements” provides additional information on stock-based
compensation.
Merchandise Inventories.
Our merchandise
inventories are carried at the lower of cost or market generally
using the average cost method. Under the average cost method, as
new product is received from vendors, its current cost is added
to the existing cost of product on-hand and this amount is
re-averaged over the cumulative units. Used video game products
traded in by customers are recorded as inventory at the amount
of the store credit given to the customer. In valuing inventory,
management is required to make assumptions regarding the
necessity of reserves required to value potentially obsolete or
over-valued items at the lower of cost or market. Management
considers quantities on hand, recent sales, potential price
protections and returns to vendors, among other factors, when
making these assumptions. Our ability to gauge these factors is
dependent upon our ability to forecast customer demand and to
provide a well-balanced merchandise assortment. Any inability to
forecast customer demand properly could lead to increased costs
associated with inventory markdowns. We also adjust inventory
based on anticipated physical inventory losses or shrinkage.
Physical inventory counts are taken on a regular basis to ensure
the reported inventory is accurate. During interim periods,
estimates of shrinkage are recorded based on historical losses
in the context of current period circumstances.
Property and Equipment.
Property and equipment
are carried at cost less accumulated depreciation and
amortization. Depreciation on furniture, fixtures and equipment
is computed using the straight-line method over estimated useful
lives (ranging from two to eight years). Maintenance and repairs
are expensed as incurred, while betterments and major remodeling
costs are capitalized. Leasehold improvements are capitalized
and amortized over the shorter of their estimated useful lives
or the terms of the respective leases, including renewal options
in which the exercise of the option is reasonably assured
(generally ranging from three to ten years). Costs incurred to
third parties in purchasing management information systems are
capitalized and included in property and equipment. These costs
are amortized over their estimated useful lives from the date
the systems become operational. The Company periodically reviews
its property and equipment whenever events or changes in
circumstances indicate that their carrying amounts may not be
recoverable or their depreciation or amortization periods should
be accelerated. The Company assesses recoverability based on
several factors, including management’s intention with
respect to its stores and those stores’ projected
undiscounted cash flows. An impairment loss is recognized for
the amount by which the carrying amount of the assets exceeds
their fair value, as approximated by the present value of their
projected cash flows. Write-downs incurred by the Company
through January 30, 2010 have not been material.
Goodwill.
Goodwill, aggregating
$1,946.5 million, has been recorded as of January 30,
2010 related to various acquisitions. Goodwill represents the
excess purchase price over tangible net assets and identifiable
intangible assets acquired. The Company is required to evaluate
goodwill and other intangible assets not subject to amortization
for impairment at least annually. This test is completed at the
beginning of the fourth quarter each fiscal year or when
circumstances indicate the carrying value of the goodwill or
other intangible assets might be impaired. Goodwill has been
assigned to reporting units for the purpose of impairment
testing. The Company has four business segments, the United
States, Australia, Canada and Europe, which also define our
reporting units based upon the similar economic characteristics
of operations within each segment, including the nature of
products, product distribution and the type of customer and
separate management within those regions. The Company estimates
fair value based on the discounted cash flows of each reporting
unit. The Company uses a two-step process to measure goodwill
impairment. If the fair value of the reporting unit is higher
than its carrying value, then goodwill is not impaired. If the
carrying value of the reporting unit is higher than the fair
value, then the second test of goodwill impairment is needed.
The second test compares the implied fair value of the reporting
unit’s goodwill with its carrying amount. If the carrying
amount of the
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Table of Contents
reporting unit’s goodwill exceeds the implied fair value,
then an impairment loss is recognized in the amount of the
excess. If the carrying value of an individual indefinite-life
intangible asset exceeds its fair value, such individual
indefinite-life intangible asset is written down by the amount
of the excess. The Company completed its annual impairment test
of goodwill on the first day of the fourth quarter of fiscal
2007, fiscal 2008 and fiscal 2009 and concluded that none of its
goodwill was impaired. Note 8 of “Notes to
Consolidated Financial Statements” provides additional
information concerning goodwill.
The discounted cash flow method used to determine the fair value
of reporting units requires management to make significant
judgments based on the Company’s projected sales and gross
margin, annual business plans, future business strategies and
economic factors. Discount rates used in the analysis reflect
the Company’s weighted average cost of capital, current
market rates and the risks associated with the projected cash
flows. The impairment testing process is subject to inherent
uncertainties and subjectivity, particularly related to sales
and gross margin which can be impacted by various factors
including the items listed in Item 1A. Risk Factors. While
the fair value is determined based on the best available
information at the time of assessment, any changes in business
or economic conditions could materially increase or decrease the
fair value of the reporting unit’s net assets and,
accordingly, could materially increase or decrease any related
impairment charge. Based on currently available information and
forecasts of the Company’s annual results, we do not
anticipate recording any impairment of goodwill or other
intangible assets in any of the Company’s reporting units
for the fiscal year ending January 29, 2011.
Other Intangible Assets and Other Noncurrent
Assets.
Other intangible assets consist primarily
of tradenames, leasehold rights and amounts attributed to
favorable leasehold interests recorded as a result of the
Micromania acquisition and the EB merger. We record intangible
assets apart from goodwill if they arise from a contractual
right and are capable of being separated from the entity and
sold, transferred, licensed, rented or exchanged individually.
The useful life and amortization methodology of intangible
assets are amortized over the period in which they are expected
to contribute directly to cash flows.
Tradenames which were recorded as a result of the Micromania
acquisition are considered indefinite life intangible assets as
they are expected to contribute to cash flows indefinitely and
are not subject to amortization, but they are subject to annual
impairment testing. Leasehold rights which were recorded as a
result of the Micromania acquisition represent the value of
rights of tenancy under commercial property leases for
properties located in France. Rights pertaining to individual
leases can be sold by us to a new tenant or recovered by us from
the landlord if the exercise of the automatic right of renewal
is refused. Leasehold rights are amortized on a straight-line
basis over the expected lease term not to exceed 20 years
with no residual value. Favorable leasehold interests represent
the value of the contractual monthly rental payments that are
less than the current market rent at stores acquired as part of
the Micromania acquisition or the EB merger. Favorable leasehold
interests are amortized on a straight-line basis over their
remaining lease term with no expected residual value. For
additional information related to the Company’s intangible
assets, see Note 8 of “Notes to Consolidated Financial
Statements.”
Other non-current assets are made up of deposits and deferred
financing fees. The deferred financing fees are associated with
the Company’s revolving credit facility and the senior
notes issued in October 2005 in connection with the financing of
the EB merger. The deferred financing fees are being amortized
over five and seven years to match the terms of the revolving
credit facility and the senior notes, respectively. Deferred
financing fees incurred in connection with the issuance of the
senior floating rate notes in October 2005 in connection with
the EB merger were included in deferred financing fees in the
balance sheet and were being amortized over six years to match
the term of the senior floating rate notes. The remaining
balance of the deferred financing fees on the senior floating
rate notes was written off to debt extinguishment expense during
fiscal 2007 when the notes were redeemed.
Cash Consideration Received from Vendors.
The
Company and its vendors participate in cooperative advertising
programs and other vendor marketing programs in which the
vendors provide the Company with cash consideration in exchange
for marketing and advertising the vendors’ products. Our
accounting for cooperative advertising arrangements and other
vendor marketing programs results in a portion of the
consideration received from our vendors reducing the product
costs in inventory. The consideration serving
29
Table of Contents
as a reduction in inventory is recognized in cost of sales as
inventory is sold. The amount of vendor allowances recorded as a
reduction of inventory is determined by calculating the ratio of
vendor allowances in excess of specific, incremental and
identifiable advertising and promotional costs to merchandise
purchases. The Company then applies this ratio to the value of
inventory in determining the amount of vendor reimbursements
recorded as a reduction to inventory reflected on the balance
sheet. Because of the variability in the timing of our
advertising and marketing programs throughout the year, the
Company uses significant estimates in determining the amount of
vendor allowances recorded as a reduction of inventory in
interim periods, including estimates of full year vendor
allowances, specific, incremental and identifiable advertising
and promotional costs, merchandise purchases and value of
inventory. Estimates of full year vendor allowances and the
value of inventory are dependent upon estimates of full year
merchandise purchases. Determining the amount of vendor
allowances recorded as a reduction of inventory at the end of
the fiscal year no longer requires the use of estimates as all
vendor allowances, specific, incremental and identifiable
advertising and promotional costs, merchandise purchases and
value of inventory are known.
Although management considers its advertising and marketing
programs to be effective, we do not believe that we would be
able to incur the same level of advertising expenditures if the
vendors decreased or discontinued their allowances. In addition,
management believes that the Company’s revenues would be
adversely affected if its vendors decreased or discontinued
their allowances, but management is unable to quantify the
impact.
Lease Accounting.
The Company’s method of
accounting for rent expense (and related deferred rent
liability) and leasehold improvements funded by landlord
incentives for allowances under operating leases (tenant
improvement allowances) is in conformance with GAAP. For leases
that contain predetermined fixed escalations of the minimum
rent, we recognize the related rent expense on a straight-line
basis and include the impact of escalating rents for periods in
which we are reasonably assured of exercising lease options and
we include in the lease term any period during which the Company
is not obligated to pay rent while the store is being
constructed, or “rent holiday.”
Income Taxes.
The Company accounts for income
taxes utilizing an asset and liability approach, and deferred
taxes are determined based on the estimated future tax effect of
differences between the financial reporting and tax bases of
assets and liabilities using enacted tax rates. As a result of
our operations in many foreign countries, our global tax rate is
derived from a combination of applicable tax rates in the
various jurisdictions in which we operate. We base our estimate
of an annual effective tax rate at any given point in time on a
calculated mix of the tax rates applicable to our Company and to
estimates of the amount of income to be derived in any given
jurisdiction. We file our tax returns based on our understanding
of the appropriate tax rules and regulations. However,
complexities in the tax rules and our operations, as well as
positions taken publicly by the taxing authorities, may lead us
to conclude that accruals for uncertain tax positions are
required. We generally maintain accruals for uncertain tax
positions until examination of the tax year is completed by the
taxing authority, available review periods expire or additional
facts and circumstances cause us to change our assessment of the
appropriate accrual amount.
In July 2006, the Financial Accounting Standards Board
(“FASB”) issued accounting guidance that clarified the
accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements. This guidance prescribes
a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. It also
provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and
transition. Our Company adopted the provisions of this
accounting guidance and changed our accounting policy effective
on February 4, 2007. For additional information, see
Note 12 of “Notes to Consolidated Financial
Statements.”
30
Table of Contents
Consolidated
Results of Operations
The following table sets forth certain statement of operations
items as a percentage of sales for the periods indicated:
|
52 Weeks Ended
|
52 Weeks Ended
|
52 Weeks Ended
|
||||||||||
|
January 30,
|
January 31,
|
February 2,
|
||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Statement of Operations Data:
|
||||||||||||
|
Sales
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
|
Cost of sales
|
73.2 | 74.2 | 74.4 | |||||||||
|
Gross profit
|
26.8 | 25.8 | 25.6 | |||||||||
|
Selling, general and administrative expenses
|
18.0 | 16.4 | 16.7 | |||||||||
|
Depreciation and amortization
|
1.8 | 1.6 | 1.8 | |||||||||
|
Merger-related expenses
|
— | 0.1 | — | |||||||||
|
Operating earnings
|
7.0 | 7.7 | 7.1 | |||||||||
|
Interest expense, net
|
0.4 | 0.5 | 0.7 | |||||||||
|
Debt extinguishment expense
|
0.1 | — | 0.2 | |||||||||
|
Earnings before income taxes
|
6.5 | 7.2 | 6.2 | |||||||||
|
Income tax expense
|
2.4 | 2.7 | 2.1 | |||||||||
|
Consolidated net income
|
4.1 | 4.5 | 4.1 | |||||||||
|
Net loss attributable to noncontrolling interests
|
0.1 | — | — | |||||||||
|
Consolidated net income attributable to GameStop
|
4.2 | % | 4.5 | % | 4.1 | % | ||||||
The Company includes purchasing, receiving and distribution
costs in selling, general and administrative expenses, rather
than cost of sales, in the statement of operations. The Company
includes processing fees associated with purchases made by check
and credit cards in cost of sales, rather than selling, general
and administrative expenses, in the statement of operations. As
a result of these classifications, our gross margins are not
comparable to those retailers that include purchasing, receiving
and distribution costs in cost of sales and include processing
fees associated with purchases made by check and credit cards in
selling, general and administrative expenses. The net effect of
these classifications as a percentage of sales has not
historically been material.
The following table sets forth sales (in millions) by
significant product category for the periods indicated:
|
52 Weeks
|
52 Weeks
|
52 Weeks
|
||||||||||||||||||||||
|
Ended
|
Ended
|
Ended
|
||||||||||||||||||||||
|
January 30,
|
January 31,
|
February 2,
|
||||||||||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||||||||||||
|
Percent
|
Percent
|
Percent
|
||||||||||||||||||||||
| Sales | of Total | Sales | of Total | Sales | of Total | |||||||||||||||||||
|
Sales:
|
||||||||||||||||||||||||
|
New video game hardware
|
$ | 1,756.5 | 19.3 | % | $ | 1,860.2 | 21.1 | % | $ | 1,668.9 | 23.5 | % | ||||||||||||
|
New video game software
|
3,730.9 | 41.1 | % | 3,685.0 | 41.9 | % | 2,800.7 | 39.5 | % | |||||||||||||||
|
Used video game products
|
2,394.1 | 26.4 | % | 2,026.6 | 23.0 | % | 1,586.7 | 22.4 | % | |||||||||||||||
|
Other
|
1,196.5 | 13.2 | % | 1,234.1 | 14.0 | % | 1,037.7 | 14.6 | % | |||||||||||||||
|
Total
|
$ | 9,078.0 | 100.0 | % | $ | 8,805.9 | 100.0 | % | $ | 7,094.0 | 100.0 | % | ||||||||||||
Other products include PC entertainment and other software,
accessories and magazines.
31
Table of Contents
The following table sets forth gross profit (in millions) and
gross profit percentages by significant product category for the
periods indicated:
|
52 Weeks
|
52 Weeks
|
52 Weeks
|
||||||||||||||||||||||
|
Ended
|
Ended
|
Ended
|
||||||||||||||||||||||
|
January 30,
|
January 31,
|
February 2,
|
||||||||||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||||||||||||
|
Gross
|
Gross
|
Gross
|
||||||||||||||||||||||
|
Gross
|
Profit
|
Gross
|
Profit
|
Gross
|
Profit
|
|||||||||||||||||||
| Profit | Percent | Profit | Percent | Profit | Percent | |||||||||||||||||||
|
Gross Profit:
|
||||||||||||||||||||||||
|
New video game hardware
|
$ | 113.5 | 6.5 | % | $ | 112.6 | 6.1 | % | $ | 108.2 | 6.5 | % | ||||||||||||
|
New video game software
|
795.0 | 21.3 | % | 768.4 | 20.9 | % | 581.7 | 20.8 | % | |||||||||||||||
|
Used video game products
|
1,121.2 | 46.8 | % | 974.5 | 48.1 | % | 772.2 | 48.7 | % | |||||||||||||||
|
Other
|
405.0 | 33.8 | % | 414.6 | 33.6 | % | 351.6 | 33.9 | % | |||||||||||||||
|
Total
|
$ | 2,434.7 | 26.8 | % | $ | 2,270.1 | 25.8 | % | $ | 1,813.7 | 25.6 | % | ||||||||||||
Fiscal
2009 Compared to Fiscal 2008
Sales increased $272.1 million, or 3.1%, to
$9,078.0 million in the 52 weeks of fiscal 2009
compared to $8,805.9 million in the 52 weeks of fiscal
2008. The increase in sales was attributable to the addition of
non-comparable store sales from the 1,062 stores opened since
February 2, 2008, combined with the additional sales from
the Micromania acquisition for an approximate total of
$896 million and increases related to changes in foreign
exchange rates of $25.9 million, offset by a decrease in
comparable store sales of 7.9%. The decrease in comparable store
sales was due primarily to a decrease in consumer traffic
worldwide as a result of the continued macroeconomic weakness
and a slow-down in hardware unit sell-through. Stores are
included in our comparable store sales base beginning in the
thirteenth month of operation and exclude the effect of changes
in foreign exchange rates.
New video game hardware sales decreased $103.7 million, or
5.6%, from fiscal 2008 to fiscal 2009, primarily due to a
decrease in consumer traffic as discussed above and price cuts
on hardware consoles, partially offset by the additional sales
at the new stores added since last year through growth and
acquisition. New video game hardware sales decreased as a
percentage of sales from 21.1% in fiscal 2008 to 19.3% in fiscal
2009, primarily due to the slow-down in hardware unit
sell-through as the new platforms mature, as well as price
decreases initiated by the manufacturers in fiscal 2009.
New video game software sales increased $45.9 million, or
1.2%, from fiscal 2008 to fiscal 2009, primarily due to the
addition of sales at the new and acquired stores added since
fiscal 2008. New video game software sales decreased as a
percentage of total sales from 41.9% in fiscal 2008 to 41.1% in
fiscal 2009, primarily due to the 18% growth in used video game
product sales as discussed below.
Used video game product sales increased $367.5 million, or
18.1%, from fiscal 2008 to fiscal 2009, primarily due to an
increase in the availability of hardware and software associated
with the current generation hardware platforms as those
platforms age and expand, the strong growth of used video game
product sales internationally, as well as the addition of sales
at the new and acquired stores added since fiscal 2008. As a
percentage of sales, used video game product sales increased
from 23.0% to 26.4%, primarily due to the continued expansion of
the installed base of new video game consoles and the
availability of used hardware and software from those consoles.
Sales of other product categories, including PC entertainment
and other software and accessories, decreased 3.0%, or
$37.6 million, from fiscal 2008 to fiscal 2009, primarily
due to stronger sales of newly released PC entertainment
software titles in fiscal 2008.
Cost of sales increased by $107.5 million, or 1.6%, from
$6,535.8 million in fiscal 2008 to $6,643.3 million in
fiscal 2009 as a result of the increase in sales and the changes
in gross profit discussed below.
Gross profit increased by $164.6 million, or 7.3%, from
$2,270.1 million in fiscal 2008 to $2,434.7 million in
fiscal 2009. Gross profit as a percentage of sales increased
from 25.8% in fiscal 2008 to 26.8% in fiscal 2009. The gross
profit percentage increase was caused primarily by the increase
in sales of higher margin used video game products as a
percentage of total sales in fiscal 2009. Used video game
product sales carry a significantly higher
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margin than new video game hardware or new video game software.
Gross profit as a percentage of sales on new video game hardware
increased from 6.1% in fiscal 2008 to 6.5% in fiscal 2009 due
primarily to an increase in product replacement plan sales.
Gross profit as a percentage of sales on new video game software
increased from 20.9% in fiscal 2008 to 21.3% in fiscal 2009,
primarily due to the mix of software sales and margin in the
various countries in which we operate. Gross profit as a
percentage of sales on used video game products decreased from
48.1% in fiscal 2008 to 46.8% in fiscal 2009 primarily due to
increased sales of used products in the international segments
as a percentage of total sales. International used product sales
have a lower margin due to the immaturity of the used business
model in those segments. Gross profit as a percentage of sales
on the other product sales category increased slightly in fiscal
2009 when compared to fiscal 2008.
Selling, general and administrative expenses increased by
$189.7 million, or 13.1%, from $1,445.4 million in
fiscal 2008 to $1,635.1 million in fiscal 2009. The
increase was primarily attributable to the full year effect of
the acquisition of Micromania in November of fiscal 2008 and the
increase in the number of stores in operation and the related
increases in store, distribution and corporate office operating
expenses to support the store growth. Selling, general and
administrative expenses as a percentage of sales increased from
16.4% in fiscal 2008 to 18.0% in fiscal 2009. The increase in
selling, general and administrative expenses as a percentage of
sales was primarily due to deleveraging of fixed costs as a
result of the decrease in comparable store sales in fiscal 2009.
Selling, general and administrative expenses include
$37.8 million and $35.4 million in stock-based
compensation expense for fiscal 2009 and fiscal 2008,
respectively. Foreign currency transaction gains and (losses)
are included in selling, general and administrative expenses and
amounted to $3.8 million in fiscal 2009, compared to
($6.4) million in fiscal 2008.
Depreciation and amortization expense increased
$17.5 million from $145.0 million in fiscal 2008 to
$162.5 million in fiscal 2009. This increase was primarily
due to the acquisition of Micromania, capital expenditures
associated with the opening of 388 new stores during fiscal 2009
and investments in management information systems. Depreciation
and amortization expense is expected to increase from fiscal
2009 to fiscal 2010 due to continued investments in new stores,
management information systems and other strategic initiatives.
Interest income from the investment of excess cash balances
decreased from $11.6 million in fiscal 2008 to
$2.2 million in fiscal 2009 as a result of lower invested
cash balances due to the prior year acquisitions and lower
interest rates. Interest expense decreased from
$50.5 million in fiscal 2008 to $45.4 million in
fiscal 2009, primarily due to the retirement of
$100.0 million of the Company’s senior notes since
January 31, 2009 and the retirement of $30.0 million
of the Company’s senior notes during fiscal 2008. Debt
extinguishment expense of $5.3 million and
$2.3 million was recognized in fiscal 2009 and fiscal 2008,
respectively, as a result of the premiums paid related to debt
retirement and the recognition of deferred financing fees and
unamortized original issue discount.
Income tax expense decreased by $22.9 million, from
$235.7 million in fiscal 2008 to $212.8 million in
fiscal 2009. The Company’s effective tax rate decreased
from 37.2% in fiscal 2008 to 36.2% in fiscal 2009 due primarily
to audit settlements and statute expirations. See Note 12
of “Notes to Consolidated Financial Statements” for
additional information regarding income taxes.
The factors described above led to a decrease in operating
earnings of $38.1 million, or 5.6%, from
$675.1 million in fiscal 2008 to $637.0 million in
fiscal 2009 and a decrease in consolidated net income of
$22.6 million, or 5.7%, from $398.3 million in fiscal
2008 to $375.7 million in fiscal 2009.
In 2009, the FASB issued new guidance related to the reporting
of non-controlling interests in subsidiaries. The
$1.5 million increase in consolidated net income
attributable to GameStop shareholders represents the portion of
the minority interest shareholders’ net loss of the
Company’s non-wholly owned subsidiaries during fiscal 2009.
Fiscal
2008 Compared to Fiscal 2007
Sales increased $1,711.9 million, or 24.1%, to
$8,805.9 million in the 52 weeks of fiscal 2008
compared to $7,094.0 million in the 52 weeks of fiscal
2007. The increase in sales was attributable to the comparable
store sales increase of 12.3% for fiscal 2008 when compared to
fiscal 2007, the addition of non-comparable store sales from the
1,588 stores opened since February 3, 2007 of approximately
$698.2 million and the acquisition of Micromania, offset by
decreases related to changes in foreign exchange rates of
$71.6 million. The comparable store sales increase was
driven by strong sales of new and used video game software which
is typical as the installed base of
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new hardware platforms increases in the years following their
launch. Stores are included in our comparable store sales base
beginning in the thirteenth month of operation and exclude the
effect of changes in foreign exchange rates.
New video game hardware sales increased $191.3 million, or
11.5%, from fiscal 2007 to fiscal 2008, primarily due to the
continued expansion of the installed base of new hardware
platforms and the increase in store count since the end of
fiscal 2007, including the Micromania acquisition. New video
game hardware sales decreased as a percentage of sales from
23.5% in fiscal 2007 to 21.1% in fiscal 2008, primarily due to
strong sales of new video game software driven by the continued
expansion of the installed base of new video game consoles and a
strong lineup of video game titles in fiscal 2008.
New video game software sales increased $884.3 million, or
31.6%, from fiscal 2007 to fiscal 2008, primarily due to the
strong sales of new video game titles released in fiscal 2008
and the increased sales of software related to the new hardware
platforms, as well as the new and acquired stores added since
the end of fiscal 2007. New video game software sales increased
as a percentage of total sales from 39.5% in fiscal 2007 to
41.9% in fiscal 2008 due to the continued expansion of the
installed base of new video game consoles, as well as the
availability of several strong new titles in fiscal 2008.
Used video game product sales increased $439.9 million, or
27.7%, from fiscal 2007 to fiscal 2008, primarily due to an
increase in store count and an increase in the availability of
hardware and software associated with the new hardware platforms
as those platforms age and expand. As a percentage of sales,
used video game product sales increased from 22.4% to 23.0%
primarily due to the continued expansion of the installed base
of new video game consoles and the availability of used hardware
and software from those consoles. Sales of other product
categories, including PC entertainment and other software and
accessories, magazines and trading cards, grew 18.9%, or
$196.4 million, from fiscal 2007 to fiscal 2008, primarily
due to the increase in store count and strong sales of new PC
entertainment software and sales of accessories related to new
hardware platforms.
Cost of sales increased by $1,255.5 million, or 23.8%, from
$5,280.3 million in fiscal 2007 to $6,535.8 million in
fiscal 2008 as a result of the increase in sales and the changes
in gross profit discussed below.
Gross profit increased by $456.4 million, or 25.2%, from
$1,813.7 million in fiscal 2007 to $2,270.1 million in
fiscal 2008. Gross profit as a percentage of sales increased
from 25.6% in fiscal 2007 to 25.8% in fiscal 2008. The gross
profit percentage increase was caused primarily by the shift in
sales from new video game hardware to new video game software
and used video game products as a percentage of total sales in
fiscal 2008 as the new platforms mature. These product
categories carry a significantly higher margin than new video
game hardware. Gross profit as a percentage of sales on new
video game hardware decreased from 6.5% in fiscal 2007 to 6.1%
in fiscal 2008 due primarily to a decrease in product
replacement plan sales. Gross profit as a percentage of sales on
new video game software and other products remained relatively
consistent from 20.8% and 33.9%, respectively, in fiscal 2007
compared to 20.9% and 33.6%, respectively, in fiscal 2008. Gross
profit as a percentage of sales on used video game products
decreased from 48.7% in fiscal 2007 to 48.1% in fiscal 2008 due
to increased promotional activities and higher refurbishment
costs associated with an increase in production of refurbished
hardware platforms during fiscal 2008.
Selling, general and administrative expenses increased by
$263.4 million, or 22.3%, from $1,182.0 million in
fiscal 2007 to $1,445.4 million in fiscal 2008. The
increase was primarily attributable to the increase in the
number of stores in operation, and the related increases in
store, distribution and corporate office operating expenses.
Selling, general and administrative expenses as a percentage of
sales decreased from 16.7% in fiscal 2007 to 16.4% in fiscal
2008. The decrease in selling, general and administrative
expenses as a percentage of sales was primarily due to
leveraging as a result of the higher sales associated with the
growth of the video game market and cost control efforts.
Foreign currency transaction gains and (losses) are included in
selling, general and administrative expenses and amounted to
($6.4) million in fiscal 2008, compared to
$8.6 million in fiscal 2007.
Depreciation and amortization expense increased from
$130.3 million in fiscal 2007 to $145.0 million in
fiscal 2008. This increase of $14.7 million was due
primarily to capital expenditures associated with the opening of
674 new stores during fiscal 2008.
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Table of Contents
Interest income from the investment of excess cash balances
decreased from $13.8 million in fiscal 2007 to
$11.6 million in fiscal 2008 as a result of lower invested
cash balances due to acquisitions and lower interest rates.
Interest expense decreased from $61.6 million in fiscal
2007 to $50.5 million in fiscal 2008, primarily due to the
retirement of $30.0 million of the Company’s senior
notes since February 2, 2008 and the retirement of
$270.0 million in senior notes and senior floating rate
notes during fiscal 2007. Debt extinguishment expense of
$2.3 million and $12.6 million was recognized in
fiscal 2008 and fiscal 2007, respectively, as a result of the
premiums paid related to debt retirement and the recognition of
deferred financing fees and unamortized original issue discount.
Income tax expense increased by $82.9 million, from
$152.8 million in fiscal 2007 to $235.7 million in
fiscal 2008. The Company’s effective tax rate increased
from 34.6% in fiscal 2007 to 37.2% in fiscal 2008 due to
expenses related to mergers and acquisitions and associated
corporate structuring and the deemed repatriation of earnings
from foreign subsidiaries. In addition, during fiscal 2007 there
were valuation allowances released on foreign net operating
losses. See Note 12 of “Notes to Consolidated
Financial Statements” for additional information regarding
income taxes.
The factors described above led to an increase in operating
earnings of $173.7 million, or 34.6%, from
$501.4 million in fiscal 2007 to $675.1 million in
fiscal 2008 and an increase in net earnings of
$110.0 million, or 38.2%, from $288.3 million in
fiscal 2007 to $398.3 million in fiscal 2008.
Segment
Performance
The Company operates its business in the following segments:
United States, Canada, Australia and Europe. We identified these
segments based on a combination of geographic areas, the methods
with which we analyze performance and how we divide management
responsibility. Each of the segments consists primarily of
retail operations, with all stores engaged in the sale of new
and used video game systems, software and accessories which we
refer to as video game products and PC entertainment software
and related accessories. These products are substantially the
same regardless of geographic location, with the primary
differences in merchandise carried being the timing of the
release of new products in the various segments. Stores in all
segments are similar in size at an average of approximately
1,400 square feet.
As we have expanded our presence in international markets, the
Company has increased its operations in foreign currencies,
including the euro, Australian dollar, New Zealand dollar,
Canadian dollar, British pound, Swiss franc, Danish kroner,
Swedish krona, and the Norwegian kroner. The notes issued in
connection with the acquisition of Micromania and the EB merger
are reflected in the United States segment. See Note 17 of
“Notes to Consolidated Financial Statements” for more
information.
Sales by operating segment in U.S. dollars were as follows
(in millions):
|
52 Weeks
|
52 Weeks
|
52 Weeks
|
||||||||||
|
Ended
|
Ended
|
Ended
|
||||||||||
|
January 30,
|
January 31,
|
February 2,
|
||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
United States
|
$ | 6,275.0 | $ | 6,466.7 | $ | 5,438.8 | ||||||
|
Canada
|
491.4 | 548.2 | 473.0 | |||||||||
|
Australia
|
530.2 | 520.0 | 420.8 | |||||||||
|
Europe
|
1,781.4 | 1,271.0 | 761.4 | |||||||||
|
Total
|
$ | 9,078.0 | $ | 8,805.9 | $ | 7,094.0 | ||||||
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Operating earnings by operating segment, defined as income from
continuing operations before intercompany royalty fees, net
interest expense and income taxes, in U.S. dollars were as
follows (in millions):
|
52 Weeks
|
52 Weeks
|
52 Weeks
|
||||||||||
|
Ended
|
Ended
|
Ended
|
||||||||||
|
January 30,
|
January 31,
|
February 2,
|
||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
United States
|
$ | 488.8 | $ | 530.1 | $ | 391.2 | ||||||
|
Canada
|
35.0 | 32.6 | 35.8 | |||||||||
|
Australia
|
46.0 | 46.8 | 41.8 | |||||||||
|
Europe
|
67.2 | 65.6 | 32.6 | |||||||||
|
Total
|
$ | 637.0 | $ | 675.1 | $ | 501.4 | ||||||
Total assets by operating segment in U.S. dollars were as
follows (in millions):
|
January 30,
|
January 31,
|
February 2,
|
||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
United States
|
$ | 2,864.9 | $ | 2,592.5 | $ | 2,742.0 | ||||||
|
Canada
|
337.8 | 288.8 | 274.7 | |||||||||
|
Australia
|
399.9 | 290.7 | 251.1 | |||||||||
|
Europe
|
1,352.7 | 1,311.5 | 508.1 | |||||||||
|
Total
|
$ | 4,955.3 | $ | 4,483.5 | $ | 3,775.9 | ||||||
Fiscal
2009 Compared to Fiscal 2008
United
States
Segment results for the United States include retail operations
in 50 states, the District of Columbia, Puerto Rico
and Guam, the electronic commerce Web site
www.gamestop.com
and
Game Informer Magazine
. As of
January 30, 2010, the United States segment included 4,429
GameStop stores, compared to 4,331 stores on January 31,
2009. Sales for the 52 weeks ended January 30, 2010
decreased 3.0% compared to the 52 weeks ended
January 31, 2009 as a result of decreased sales at existing
stores offset by the opening of 514 new stores since
February 3, 2008, including 207 stores in the 52 weeks
ended January 30, 2010. Sales at existing stores decreased
partially due to a decrease in consumer traffic as a result of
the continued macroeconomic weakness and a slow-down in hardware
units sales, offset by an increase in used video game product
sales due to an increase in the availability of hardware and
software associated with the current generation of hardware
platforms as those platforms age and expand. Segment operating
income for the 52 weeks ended January 30, 2010
decreased by 7.8% compared to the 52 weeks ended
January 31, 2009, driven by the decrease in sales and the
deleveraging of the fixed components of selling, general and
administrative expenses.
Canada
Sales in the Canadian segment in the 52 weeks ended
January 30, 2010 decreased 10.4% compared to the
52 weeks ended January 31, 2009. The decrease in sales
was primarily attributable to decreased sales at existing stores
offset by the additional sales at the 47 stores opened since
February 3, 2008. As of January 30, 2010, the Canadian
segment had 337 stores compared to 325 stores as of
January 31, 2009. The decrease in sales at existing stores
was primarily due to weak consumer traffic and a slow-down in
hardware unit sell-through. Segment operating income for the
52 weeks ended January 30, 2010 increased by 7.4% to
$35.0 million compared to the 52 weeks ended
January 31, 2009. The increase in operating income when
compared to the prior year was primarily due to the increase in
gross margin, driven by the increase in used product sales and
the favorable impact of changes in exchange rates which had the
effect of increasing operating earnings by $1.2 million
when compared to fiscal 2008.
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Table of Contents
Australia
Segment results for Australia include retail operations in
Australia and New Zealand. As of January 30, 2010, the
Australian segment included 388 stores, compared to 350 stores
as of January 31, 2009. Sales for the 52 weeks ended
January 30, 2010 increased 2.0% compared to the
52 weeks ended January 31, 2009. The increase in sales
was due to the additional sales at the 112 stores opened since
February 3, 2008 and the favorable impact of changes in
exchange rates, which had the effect of increasing sales by
$5.2 million, offset by a decrease in sales at existing
stores. The decrease in sales at existing stores was primarily
due to weak consumer traffic and a slow-down in hardware unit
sell-through. Segment operating income in the 52 weeks
ended January 30, 2010 decreased by 1.7% to
$46.0 million when compared to the 52 weeks ended
January 31, 2009. The decrease in operating earnings for
the 52 weeks ended January 30, 2010 was due to the
decrease in sales at existing stores and the increase in
selling, general and administrative expenses associated with the
increase in the number of stores in operation. Selling, general
and administrative expenses will rise as a percentage of sales
during periods of store count growth due to the fixed nature of
many store expenses compared to the immature sales at new
stores. This decrease in operating earnings was offset by the
favorable impact of changes in exchange rates which had the
effect of increasing operating earnings by $3.6 million
when compared to fiscal 2008.
Europe
Segment results for Europe include retail operations in 13
European countries including France, in which we commenced
operations on November 17, 2008 as a result of the
Micromania acquisition. As of January 30, 2010, the
European segment operated 1,296 stores, compared to 1,201 stores
as of January 31, 2009. For the 52 weeks ended
January 30, 2010, European sales increased 40.2% compared
to the 52 weeks ended January 31, 2009. The increase
in sales was primarily due to the additional sales at the 703
new and acquired stores opened since February 3, 2008,
including the 328 stores from the Micromania acquisition in
November 2008. This increase in sales was offset by the decrease
in sales at existing stores and the unfavorable impact of
changes in exchange rates recognized in fiscal 2009, which had
the effect of decreasing sales by $15.3 million when
compared to fiscal 2008. The decrease in existing store sales
was primarily driven by weak consumer traffic due to the
continued macroeconomic weakness and a slow-down in hardware
unit sell-through.
The segment operating income in Europe for the 52 weeks
ended January 30, 2010 increased by 2.4% to
$67.2 million compared to $65.6 million in the
52 weeks ended January 31, 2009. The increase in the
operating income was primarily due to the favorable impact of
changes in exchange rates which had the effect of increasing
operating earnings by $5.2 million when compared to fiscal
2008. The decrease in operating earnings excluding the exchange
rate effect from fiscal 2008 was due to the decrease in sales at
existing stores and the increase in selling, general and
administrative expenses associated with the increase in the
number of stores in operation.
Fiscal
2008 Compared to Fiscal 2007
United
States
As of January 31, 2009, the United States segment included
4,331 GameStop stores, compared to 4,061 stores on
February 2, 2008. Sales for the 52 weeks ended
January 31, 2009 increased 18.9% compared to the
52 weeks ended February 2, 2008 as a result of
increased sales at existing stores and the opening of 643 new
stores since February 3, 2007, including 315 stores in the
52 weeks ended January 31, 2009. Sales at existing
stores increased due to strong sales of new video game software
and used video game products which is typical in the years
following the release of new hardware platforms. As the
installed base of the new hardware platforms expands, more new
software titles become available and trade-ins of used video
game products applied toward the purchase of new video games
lead to increased sales of new and used video game products.
Segment operating income for the 52 weeks ended
January 31, 2009 increased by 35.5% compared to the
52 weeks ended February 2, 2008, driven by strong
sales of new video game software and used video game products
and their related accessories, as well as the leveraging of
selling, general and administrative expenses.
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Table of Contents
Canada
Sales in the Canadian segment in the 52 weeks ended
January 31, 2009 increased 15.9% compared to the
52 weeks ended February 2, 2008. The increase in sales
was primarily attributable to increased sales at existing stores
and the additional sales at the 58 stores opened since
February 3, 2007. As of January 31, 2009, the Canadian
segment had 325 stores compared to 287 stores as of
February 2, 2008. The increase in sales at existing stores
was driven by strong sales of new video game software related to
the continued expansion of the installed base of new hardware
platforms. Segment operating income for the 52 weeks ended
January 31, 2009 decreased by 8.9% compared to the
52 weeks ended February 2, 2008. The decrease in
operating income when compared to the prior year was due
primarily to a lower gross margin percentage driven by economic
issues and competitive issues stemming from changes in foreign
exchange rates. For the 52 weeks ended January 31,
2009, changes in exchange rates when compared to the prior year
had the effect of decreasing operating earnings by
$2.7 million.
Australia
As of January 31, 2009, the Australian segment included 350
stores, compared to 280 stores as of February 2, 2008.
Sales for the 52 weeks ended January 31, 2009
increased 23.6% compared to the 52 weeks ended
February 2, 2008. The increase in sales was due to higher
sales at existing stores and the additional sales at the 133
stores opened since February 3, 2007. The increase in sales
at existing stores was due to a strong video game software title
lineup and the availability of the new hardware platforms in
fiscal 2008 when compared to the prior fiscal year following the
launch of the Sony PlayStation 3 in the first quarter of fiscal
2007. In addition, the new hardware platforms drove an increase
in used product sales as the installed base of platforms
increased and more software became available. Segment operating
income in the 52 weeks ended January 31, 2009
increased by 12.0% when compared to the 52 weeks ended
February 2, 2008. The increase in operating earnings for
the 52 weeks ended January 31, 2009 was due to the
higher sales and related gross margin offset by the higher
selling, general and administrative expenses associated with the
increase in the number of stores in operation and the
unfavorable impact of changes in exchange rates since the prior
year. For the 52 weeks ended January 31, 2009, changes
in exchange rates when compared to the prior year had the effect
of decreasing operating earnings by $4.0 million.
Europe
As of January 31, 2009, the European segment operated 1,201
stores, compared to 636 stores as of February 2, 2008. For
the 52 weeks ended January 31, 2009, European sales
increased 66.9% compared to the 52 weeks ended
February 2, 2008. The increase in sales was primarily due
to the additional sales at the 754 stores opened since
February 3, 2007, including the 328 stores from the
Micromania acquisition and the 49 stores acquired from Free
Record Shop Norway AS, a Norwegian private limited liability
company (“FRS”), in Norway during the first quarter of
fiscal 2008 and the increase in sales at existing stores. The
increase in sales at existing stores was due to strong sales of
new video game software and the availability of the new hardware
platforms in fiscal 2008 when compared to the prior fiscal year
following the launch of the Sony PlayStation 3 in the first
quarter of fiscal 2007. In addition, the new hardware platforms
drove an increase in used product sales as the installed base of
the platforms increased and more software became available.
The segment operating income in Europe for the 52 weeks
ended January 31, 2009 increased to $65.6 million
compared to $32.6 million in the 52 weeks ended
February 2, 2008. The increase in the operating income was
driven by the increase in sales and related margin dollars
discussed above, the earnings generated by the Micromania stores
and the continued maturation of our operations in the rest of
the European market, offset by the unfavorable impact of changes
in exchange rates since the prior year. For the 52 weeks
ended January 31, 2009, changes in exchange rates when
compared to fiscal 2007 had the effect of decreasing operating
earnings by $3.3 million.
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Table of Contents
Liquidity
and Capital Resources
Cash
Flows
During fiscal 2009, cash provided by operations was
$644.2 million, compared to cash provided by operations of
$549.2 million in fiscal 2008. The increase in cash
provided by operations of $95.0 million from fiscal 2008 to
fiscal 2009 was primarily due to an increase in cash provided by
the decrease in inventory, net of the decrease in accounts
payable and accrued liabilities, the increase in income taxes
payable and deferred taxes, as well as the changes in the
adjustment related to the excess tax benefits realized from the
exercise of stock-based awards which decreased by
$34.5 million. The decrease in net inventory was primarily
due to lower overall purchases during fiscal 2009 as a result of
the continued macroeconomic weakness and our efforts to
effectively manage inventory levels. Inventory turnover also
decreased in fiscal 2009 compared to fiscal 2008, primarily due
to the growth in the international segments which have lower
inventory turns compared to the United States segment due to
their lower overall store count and multiple warehouse
facilities. The increase in cash related to income taxes payable
and deferred income taxes in fiscal 2009 compared to fiscal 2008
was primarily due to the timing of the recognition of deferred
income tax items and the timing of estimated income tax payments
at the end of fiscal 2009.
During fiscal 2008, cash provided by operations was
$549.2 million, compared to cash provided by operations of
$494.0 million in fiscal 2007. The increase in cash
provided by operations of $55.2 million from fiscal 2007 to
fiscal 2008 was primarily due to an increase in cash provided by
net earnings of $110.0 million, and a decrease in the
excess tax benefits realized from the exercise of stock-based
awards of $59.1 million. These amounts were offset by an
increase in cash used in operations related to an increase in
inventory, net of the increase in accounts payable and accrued
liabilities, and higher payments for income taxes due to the
higher net income in fiscal 2008. The increase in merchandise
inventories in fiscal 2008 was primarily due to an increase in
store count and sales levels.
Cash used in investing activities was $187.2 million in
fiscal 2009, $820.9 million during fiscal 2008 and
$176.6 million during fiscal 2007. During fiscal 2009, the
Company used $178.9 million for capital expenditures
primarily to open 388 new stores and to invest in information
systems. In addition, the Company used $8.4 million on
acquisitions. During fiscal 2008, the Company used
$580.4 million, net of cash acquired, to purchase
Micromania and $50.3 million, net of cash acquired, to
acquire FRS, The Gamesman Limited and an increased ownership
interest in GameStop Group Limited. In addition, during fiscal
2008, $190.2 million of cash was used for capital
expenditures primarily to open 674 new stores and to invest in
information systems. During fiscal 2007, $177.7 million of
cash was used for capital expenditures primarily to open 586
stores and to invest in information systems.
Cash used in financing activities was $154.4 million in
fiscal 2009. Cash provided by financing activities was
$29.6 million in fiscal 2008 and cash used in financing
activities was $124.2 million in fiscal 2007. The cash
flows used in financing activities in fiscal 2009 were primarily
for the repurchase of $100.0 million in principal amount of
the Company’s senior notes and the purchase of
$58.4 million of treasury shares pursuant to the Board of
Directors’ $300 million authorization in January 2010.
The cash flows provided by financing activities in fiscal 2008
were due to cash received related to the issuance of shares
associated with stock option exercises of $29.0 million and
for the excess tax benefits realized from the exercise of
stock-based awards of $34.2 million. These cash inflows
were offset by the repurchase of $30.0 million in principal
amount of the Company’s senior notes. In addition, the
Company borrowed $425.0 million related to the acquisition
of Micromania and subsequently repaid the balance before the end
of fiscal 2008. The cash used in financing activities for fiscal
2007 was primarily due to the repurchase of $20.0 million
and $250.0 million in principal amount of the
Company’s senior notes and senior floating rate notes,
respectively, and the $12.2 million principal payment made
in October 2007 on the Barnes & Noble promissory note.
These 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 exercise of stock-based awards.
Sources
of Liquidity
We utilize cash generated from operations and have funds
available to us under our revolving credit facility to cover
seasonal fluctuations in cash flows and to support our various
growth initiatives. Our cash and cash
39
Table of Contents
equivalents are carried at cost, which approximates market
value, and consist primarily of time deposits with highly rated
commercial banks and money market investment funds holding
direct U.S. Treasury obligations.
In October 2005, in connection with the EB 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 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 extension of the Revolver
to 2012 reduces our exposure to the current tightening in the
credit markets.
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 per annum 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
January 30, 2010, 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.
During the 2009 fiscal year, the Company borrowed and repaid
$115.0 million under the Revolver. As of January 30,
2010, there were no borrowings outstanding under the Revolver
and letters of credit outstanding totaled $8.8 million.
In September 2007, the Company’s Luxembourg subsidiary
entered into a discretionary $20.0 million Uncommitted Line
of Credit (the “Line of Credit”) with Bank of America.
There is no term associated with the Line of Credit and Bank of
America may withdraw the facility at any time without notice.
The Line of Credit will be made available to the Company’s
foreign subsidiaries for use primarily as a bank overdraft
facility for short-term liquidity needs and for the issuance of
bank guarantees and letters of credit to support operations. As
of January 30, 2010, there were no cash overdrafts
outstanding under the Line of Credit and bank guarantees
outstanding totaled $16.0 million.
In September 2005, the Company, along with GameStop, Inc. as
co-issuer (together with the Company, the “Issuers”),
completed the offering of $300 million aggregate principal
amount of Senior Floating Rate Notes due 2011 (the “Senior
Floating Rate Notes”) and $650 million aggregate
principal amount of Senior Notes due 2012 (the “Senior
Notes” and, together with the Senior Floating Rate Notes,
the “Notes”). The Notes were issued under an
Indenture, dated September 28, 2005 (the
“Indenture”), by and among the Issuers, the subsidiary
guarantors party thereto, and Citibank, N.A., as trustee (the
“Trustee”). The net proceeds of the offering were used
to pay the cash portion of the merger consideration paid to the
stockholders of EB in connection with the EB merger. In November
2006, Wilmington Trust Company was appointed as the new
Trustee for the Notes.
The Senior Notes bear interest at 8.0% per annum, mature on
October 1, 2012 and were priced at 98.688%, resulting in a
discount at the time of issue of $8.5 million. The discount
is being amortized using the effective interest method. As of
January 30, 2010, the unamortized original issue discount
was $2.7 million. The Issuers pay interest on the Senior
Notes semi-annually, in arrears, every April 1 and
October 1, to holders of record on the immediately
preceding March 15 and September 15, and at maturity.
The Indenture contains affirmative and negative covenants
customary for such financings, including, among other things,
limitations on (1) the incurrence of additional debt,
(2) restricted payments, (3) liens, (4) sale and
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Table of Contents
leaseback transactions and (5) asset sales. Events of
default provided for in the Indenture include, among other
things, failure to pay interest or principal on the Notes, other
breaches of covenants in the Indenture, and certain events of
bankruptcy and insolvency. As of January 30, 2010, the
Company was in compliance with all covenants associated with the
Revolver and the Indenture.
Under certain conditions, the Issuers may on any one or more
occasions prior to maturity redeem up to 100% of the aggregate
principal amount of Senior Notes issued under the Indenture at
redemption prices at or in excess of 100% of the principal
amount thereof plus accrued and unpaid interest, if any, to the
redemption date. The circumstances which would limit the
percentage of the Notes which may be redeemed or which would
require the Company to pay a premium in excess of 100% of the
principal amount are defined in the Indenture. Upon a Change of
Control (as defined in the Indenture), the Issuers are required
to offer to purchase all of the Notes then outstanding at 101%
of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase. The Issuers may
acquire Senior Notes by means other than redemption, whether by
tender offer, open market purchases, negotiated transactions or
otherwise, in accordance with applicable securities laws, so
long as such acquisitions do not otherwise violate the terms of
the Indenture.
In November 2008, in connection with the acquisition of
Micromania, the Company entered into a Term Loan Agreement (the
“Term Loan Agreement”) with Bank of America, N.A. and
Banc of America Securities LLC. The Term Loan Agreement provided
for term loans (“Term Loans”) in the aggregate of
$150.0 million, consisting of a $50.0 million secured
term loan (“Term Loan A”) and a $100.0 million
unsecured term loan (“Term Loan B”). The effective
interest rate on Term Loan A was 5.75% per annum and the
effective rate on Term Loan B ranged from 5.0% to 5.75% per
annum.
In addition to the $150.0 million under the Term Loans, the
Company borrowed $275.0 million under the Revolver to
complete the acquisition of Micromania in November 2008. As of
January 31, 2009, the Revolver and the Term Loans were
repaid in full.
As of January 31, 2009 and January 30, 2010, the only
long-term debt outstanding was the Senior Notes.
Uses
of Capital
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 388 stores in fiscal 2009. We expect to
open approximately 400 stores in fiscal 2010. Capital
expenditures for fiscal 2010 are projected to be approximately
$215 million, to be used primarily to fund new store
openings and invest in distribution and information systems in
support of operations.
Between May 2006 and September 2009, the Company repurchased and
redeemed the $300 million of Senior Floating Rate Notes and
$200 million of Senior Notes under previously announced
buybacks authorized by its Board of Directors. All of the
authorized amounts were repurchased or redeemed and the
repurchased Notes were delivered to the Trustee for
cancellation. The associated loss on the retirement of debt was
$5.3 million, $2.3 million and $12.6 million for
the 52 week periods ended January 30, 2010,
January 31, 2009 and February 2, 2008, respectively,
which consisted of the premium paid to retire the Notes and the
write-off of the deferred financing fees and the original issue
discount on the Notes.
The changes in the carrying amount of the Senior Notes for the
Company for the 52 weeks ended January 31, 2009 and
the 52 weeks ended January 30, 2010 were as follows,
in millions:
|
Balance at February 2, 2008
|
$ | 574.5 | ||
|
Repurchase of Senior Notes, net
|
(28.8 | ) | ||
|
Balance at January 31, 2009
|
$ | 545.7 | ||
|
Repurchase of Senior Notes, net
|
(98.4 | ) | ||
|
Balance at January 30, 2010
|
$ | 447.3 | ||
In October 2004, GameStop issued a promissory note in favor of
Barnes & Noble in the principal amount of
$74.0 million in connection with the repurchase of
GameStop’s common stock held by Barnes & Noble.
The note
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was unsecured and bore interest at 5.5% per annum, payable with
each principal installment. The final scheduled principal
payment of $12.2 million was made in October 2007,
satisfying the promissory note in full.
We used cash to expand the Company through acquisitions during
fiscal 2008. On April 5, 2008, the Company purchased all
the outstanding stock of FRS for $21.0 million, net of cash
acquired. FRS operated 49 record stores in Norway and also
operated office and warehouse facilities in Oslo, Norway. The
Company converted these stores into video game stores with an
inventory assortment similar to its other stores in Norway.
In 2003, the Company purchased a 51% controlling interest in
GameStop Group Limited which operates stores in Ireland and the
United Kingdom. Under the terms of the purchase agreement, the
minority interest owners of the remaining 49% have the ability
to require the Company to purchase their remaining shares in
incremental percentages at a price to be determined based
partially on the Company’s price to earnings ratio and
GameStop Group Limited’s earnings. In June 2008, the
minority interest owners exercised their right to sell one-third
of their shares, or approximately 16% of GameStop Group Limited,
to the Company under the terms of the original purchase
agreement for $27.4 million. In July 2009, an additional
16% was purchased for $4.7 million, bringing the
Company’s total interest in GameStop Group Limited to
approximately 84%.
On November 17, 2008, GameStop France SAS, a wholly owned
subsidiary of GameStop, completed the acquisition of
substantially all of the outstanding capital stock of SFMI
Micromania from its shareholders for approximately
$580.4 million, net of cash acquired. Micromania is a
leading retailer of video and computer games in France with 368
stores as of January 30, 2010. The Company funded the
transaction with cash on hand, a draw on the Revolver totaling
$275.0 million, and the Term Loans.
On November 4, 2009, the Company purchased a controlling
interest in Omac Global Medial Limited, an online video game
developer and operator, as part of the Company’s overall
digital growth strategy. The acquisition in the amount of
$3.8 million was accounted for using the acquisition method
of accounting, with the excess of the purchase price over the
net assets acquired, in the amount of $3.8 million,
recorded as goodwill.
On January 11, 2010, the Board of Directors of the Company
approved a $300 million share repurchase program
authorizing the Company to repurchase its common stock. For
fiscal 2009, the number of shares repurchased were
6.1 million for an average price per share of $20.12.
Approximately $64.6 million of treasury share purchases
were not settled at the end of fiscal 2009 and have been
reported in accrued liabilities. Since the end of fiscal 2009,
the Company has purchased an additional 6.5 million shares
for an average price per share of $19.03.
Based on our current operating plans, we believe that available
cash balances, cash generated from our operating activities and
funds available under the Revolver will be sufficient to fund
our operations, required payments on the Senior Notes, store
expansion and remodeling activities and corporate capital
expenditure programs for at least the next 12 months.
Contractual
Obligations
The following table sets forth our contractual obligations as of
January 30, 2010:
| Payments Due by Period | ||||||||||||||||||||
|
Less Than
|
More Than
|
|||||||||||||||||||
|
Contractual Obligations
|
Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | |||||||||||||||
| (In millions) | ||||||||||||||||||||
|
Long-Term Debt(1)
|
$ | 558.0 | $ | 36.0 | $ | 522.0 | $ | — | $ | — | ||||||||||
|
Operating Leases
|
1,265.5 | 338.7 | 511.2 | 260.7 | 154.9 | |||||||||||||||
|
Purchase Obligations(2)
|
849.5 | 849.5 | — | — | — | |||||||||||||||
|
Total
|
$ | 2,673.0 | $ | 1,224.2 | $ | 1,033.2 | $ | 260.7 | $ | 154.9 | ||||||||||
| (1) | The long-term debt consists of $450.0 million (principal value), which bears interest at 8.0% per annum. Amounts include contractual interest payments. | |
| (2) | Purchase obligations represent outstanding purchase orders for merchandise from vendors. These purchase orders are generally cancelable until shipment of the products. |
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In addition to minimum rentals, the operating leases generally
require the Company to pay all insurance, taxes and other
maintenance costs and may provide for percentage rentals.
Percentage rentals are based on sales performance in excess of
specified minimums at various stores. Leases with step rent
provisions, escalation clauses or other lease concessions are
accounted for on a straight-line basis over the lease term,
including renewal options for those leases in which it is
reasonably assured that the Company will exercise the renewal
option. The Company does not have leases with capital
improvement funding.
The Company has entered into employment agreements with R.
Richard Fontaine, Executive Chairman, Daniel A. DeMatteo, Chief
Executive Officer, J. Paul Raines, Chief Operating Officer and
Tony D. Bartel, Executive Vice President —
Merchandising and Marketing. The terms of the employment
agreements with Messrs. Fontaine and DeMatteo commenced on
April 11, 2005 and continued for a period of three years
thereafter and were automatically renewed in April 2008 and
April 2009 for an additional year each. The term of the
employment agreement for Mr. Raines commenced on
September 7, 2008 and continues for a period of three years
thereafter. The term of the employment agreement for
Mr. Bartel commenced on October 24, 2008 and continues
for a period of three years thereafter. Each of these employment
agreements contains provisions for automatic annual renewals
unless either party gives notice of non-renewal at least six
months prior to expiration. The employment agreements for
Messrs. Fontaine and DeMatteo will automatically renew in
April 2010 for a period of one year as no notice of non-renewal
was given.
Each of the employment agreements was amended and restated on
December 31, 2008 to bring them into compliance with
Section 409A of the Internal Revenue Code of 1986, as
amended, enacted as part of the American Jobs Creation Act of
2004. The minimum annual salaries during the term of employment
under the amended and restated employment agreements for
Messrs. Fontaine, DeMatteo, Raines and Bartel shall be no
less than $650,000, $535,000, $900,000 and $400,000,
respectively. The Board of Directors of the Company has set
Messrs. Fontaine’s, DeMatteo’s, Raines’ and
Bartel’s annual salaries for fiscal 2010 at $1,200,000,
$1,250,000, $950,000 and $610,000, respectively.
As of January 30, 2010, we had standby letters of credit
outstanding in the amount of $8.8 million and had bank
guarantees outstanding in the amount of $16.0 million,
$9.5 million of which are cash collateralized.
As of January 30, 2010, the Company had $35.2 million
of income tax liability, including accrued interest and
penalties related to unrecognized tax benefits in other
long-term liabilities in its consolidated balance sheet. At the
time of this filing, the settlement period for the noncurrent
portion of our income tax liability cannot be determined. In
addition, any payments related to unrecognized tax benefits
would be partially offset by reductions in payments in other
jurisdictions.
In 2003, the Company purchased a 51% controlling interest in
GameStop Group Limited, which operates stores in Ireland and the
United Kingdom. Under the terms of the purchase agreement, the
minority interest owners have the ability to require the Company
to purchase their remaining shares in incremental percentages at
a price to be determined based partially on the Company’s
price to earnings ratio and GameStop Group Limited’s
earnings. Shares representing 16% were purchased in June 2008
and an additional 16% was purchased in July 2009, bringing the
Company’s total interest in GameStop Group Limited to
approximately 84%. The Company already consolidates the results
of GameStop Group Limited; therefore, any additional amounts
acquired will not have a material effect on the Company’s
financial statements.
Off-Balance
Sheet Arrangements
As of January 30, 2010, the Company had no off-balance
sheet arrangements as defined in Item 303 of
Regulation S-K.
Impact of
Inflation
We do not believe that inflation has had a material effect on
our net sales or results of operations.
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Certain
Relationships and Related Transactions
The Company operates departments within seven bookstores
operated by Barnes & Noble, a related party through a
common stockholder who is the Chairman of the Board of Directors
of Barnes & Noble and a member of the Company’s
Board of Directors. The Company pays a license fee to
Barnes & Noble on the gross sales of such departments.
The Company deems the license fee to be reasonable and based
upon terms equivalent to those that would prevail in an
arm’s length transaction. During the 52 weeks ended
January 30, 2010, January 31, 2009 and
February 2, 2008, these charges amounted to
$1.1 million, $1.3 million and $1.2 million,
respectively.
In May 2005, the Company entered into an arrangement with
Barnes & Noble under which
www.gamestop.com
became the exclusive specialty video game retailer listed on
www.bn.com
, Barnes & Noble’s
e-commerce
site. Under the terms of this agreement, the Company pays a fee
to Barnes & Noble for sales of video game or PC
entertainment products sold through
www.bn.com.
The fee paid to Barnes &
Noble in connection with this arrangement was $0.4 million,
$0.5 million and $0.4 million for the 52 weeks
ended January 30, 2010, January 31, 2009 and
February 2, 2008, respectively.
Until June 2005, GameStop participated in Barnes &
Noble’s workers’ compensation, property and general
liability insurance programs. The costs incurred by
Barnes & Noble under these programs were allocated to
GameStop based upon total payroll expense, property and
equipment, and insurance claim history of GameStop. Management
deemed the allocation methodology to be reasonable. Although the
Company secured its own insurance coverage, costs will likely
continue to be incurred by Barnes & Noble on insurance
claims which were incurred under its programs prior to June 2005
and any such costs applicable to insurance claims against
GameStop will be allocated to the Company. During the
52 weeks ended January 30, 2010, January 31, 2009
and February 2, 2008, these allocated charges amounted to
$0.2 million, $0.2 million and $0.3 million,
respectively.
The Company had a promissory note in the favor of
Barnes & Noble in the principal amount of
$74.0 million, in connection with the repurchase of the
Company’s common stock held by Barnes & Noble in
October 2004. The note was unsecured and bore interest at 5.5%
per annum, payable with each principal installment. The final
scheduled principal payment of $12.2 million was made in
October 2007 and the note has been satisfied in full. Interest
expense on the promissory note for the 52 weeks ended
February 2, 2008 totaled $0.4 million.
Recent
Accounting Standards and Pronouncements
In June 2009, the FASB codified accounting literature into a
single source of authoritative principles, except for certain
authoritative rules and interpretive releases issued by the SEC
which are also sources of authoritative GAAP for SEC
registrants, which became effective for our Company in August
2009. Since the codification did not alter existing
U.S. GAAP, it did not have an impact on our condensed
consolidated financial statements. All references to
pre-codified U.S. GAAP have been removed from this
Form 10-K.
In March 2008, the FASB amended existing disclosure requirements
related to derivative and hedging activities, which became
effective for the Company on February 1, 2009 and are being
applied prospectively. As a result of the amended disclosure
requirements, the Company is required to provide expanded
qualitative and quantitative disclosures about derivatives and
hedging activities in each interim and annual period. The
adoption of the new disclosure requirements had no impact on our
consolidated financial statements.
In December 2007, the FASB amended its guidance on accounting
for business combinations. The new accounting guidance amends
the principles and requirements for how an acquirer recognizes
and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any noncontrolling interest
in the acquiree and the goodwill acquired. It also establishes
disclosure requirements to enable the evaluation of the nature
and financial effects of the business combination. The new
accounting guidance resulted in a change in our accounting
policy effective February 1, 2009, and is being applied
prospectively to all business combinations subsequent to the
effective date. The adoption of this new accounting policy did
not have a significant impact on our consolidated financial
statements and the impact that its adoption will have on our
consolidated financial statements in future periods will depend
on the nature and size of business combinations completed
subsequent to the date of adoption.
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In December 2007, the FASB issued new accounting and disclosure
guidance related to noncontrolling interests in subsidiaries
(previously referred to as minority interests), which resulted
in a change to our accounting policy effective February 1,
2009. The new guidance requires all entities to report
noncontrolling interests in subsidiaries as a component of
equity in the consolidated financial statements and also
establishes disclosure requirements that clearly identify and
distinguish between controlling and noncontrolling interests and
requires the separate disclosure of income attributable to
controlling and noncontrolling interests. The new accounting
guidance is being applied prospectively. The adoption of this
new accounting policy did not have a significant impact on our
consolidated financial statements.
In September 2006, the FASB issued new accounting guidance which
defines fair value, establishes a framework for measuring fair
value and expands disclosure requirements about fair value
measurements. However, in February 2008, the FASB delayed the
effective date of the new accounting guidance for all
nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). The
adoption of this new accounting guidance for our nonfinancial
assets and nonfinancial liabilities on February 1, 2009 did
not have a significant impact on our consolidated financial
statements.
Seasonality
Our business, like that of many retailers, is seasonal, with the
major portion of sales and operating profit realized during the
fourth quarter which includes the holiday selling season.
Results for any quarter are not necessarily indicative of the
results that may be achieved for a full fiscal year. Quarterly
results may fluctuate materially depending upon, among other
factors, the timing of new product introductions and new store
openings, sales contributed by new stores, increases or
decreases in comparable store sales, adverse weather conditions,
shifts in the timing of certain holidays or promotions and
changes in our merchandise mix.
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
Interest
Rate Exposure
We do not use derivative financial instruments to hedge interest
rate exposure. We limit our interest rate risks by investing our
excess cash balances in short-term, highly-liquid instruments
with a maturity of one year or less. In addition, the Senior
Notes outstanding carry a fixed interest rate. We do not expect
any material losses from our invested cash balances, and we
believe that our interest rate exposure is modest.
Foreign
Currency Risk
The Company uses forward exchange contracts, foreign currency
options and cross-currency swaps (together, the “Foreign
Currency Contracts”) to manage currency risk primarily
related to intercompany loans denominated in non-functional
currencies and certain foreign currency assets and liabilities.
The Foreign Currency Contracts are not designated as hedges and,
therefore, changes in the fair values of these derivatives are
recognized in earnings, thereby offsetting the current earnings
effect of the re-measurement of related intercompany loans and
foreign currency assets and liabilities. For the fiscal year
ended January 30, 2010, the Company recognized an
$8.7 million gain in selling, general and administrative
expenses related to the trading of derivative instruments. The
aggregate fair value of the Foreign Currency Contracts as of
January 30, 2010 was a net asset of $11.1 million as
measured by observable inputs obtained from market news
reporting services, such as Bloomberg and The Wall Street
Journal, and industry-standard models that consider various
assumptions, including quoted forward prices, time value,
volatility factors, and contractual prices for the underlying
instruments, as well as other relevant economic measures. A
hypothetical strengthening or weakening of 10% in the foreign
exchange rates underlying the Foreign Currency Contracts from
the market rate as of January 30, 2010 would result in a
(loss) or gain in value of the forwards, options and swaps of
($35.6) million or $35.6 million, respectively.
We do not use derivative financial instruments for trading or
speculative purposes. We are exposed to counterparty credit risk
on all of our derivative financial instruments and cash
equivalent investments. The Company manages counterparty risk
according to the guidelines and controls established under
comprehensive risk management and investment policies. We
continuously monitor our counterparty credit risk and utilize a
number of
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Table of Contents
different counterparties to minimize our exposure to potential
defaults. We do not require collateral under derivative or
investment agreements.
| Item 8. | Consolidated Financial Statements and Supplementary Data |
See Item 15(a)(1) and (2) of this
Form 10-K.
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
| Item 9A. | Controls and Procedures |
(a) Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, the
Company’s management conducted an evaluation, under the
supervision and with the participation of the principal
executive officer and principal financial officer, of the
Company’s disclosure controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act) at the reasonable assurance level. Based
on this evaluation, the principal executive officer and
principal financial officer concluded that, as of the end of the
period covered by this report, the Company’s disclosure
controls and procedures are designed to provide reasonable
assurance of achieving their objectives and that the
Company’s disclosure controls and procedures are effective
at the reasonable assurance level. Notwithstanding the
foregoing, a control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance
that it will detect or uncover failures within the Company to
disclose material information otherwise required to be set forth
in the Company’s periodic reports.
(b) Management’s Annual Report on Internal Control
Over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Exchange Act
Rules 13a-15(f)
and
15d-15(f).
Under the supervision and with the participation of our
management, including our principal executive officer and
principal financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting
based on the framework in
Internal Control —
Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our
evaluation under the framework in
Internal
Control — Integrated Framework
, our management
concluded that our internal control over financial reporting was
effective at the reasonable assurance level as of
January 30, 2010. The effectiveness of our internal control
over financial reporting as of January 30, 2010 has been
audited by BDO Seidman, LLP, an independent registered public
accounting firm, as stated in their report which is included in
this
Form 10-K.
(c) Changes in Internal Control Over Financial Reporting
The Company completed the acquisition of Micromania on
November 17, 2008 and the results of operations of
Micromania are included in the Company’s consolidated
financial statements for the period from the date of the
acquisition through January 31, 2009 and for the fiscal
year ended January 30, 2010. During fiscal year 2009,
management completed its assessment of the effectiveness of
Micromania’s internal control over financial reporting and
included the results of that assessment in its overall
assessment of its internal controls over financial reporting. In
the process of evaluating the internal controls at Micromania,
changes to certain processes, information technology systems,
and other components of internal controls resulting from this
evaluation occurred. Other than the impact of the acquisition of
Micromania, there were no other changes in the Company’s
internal control over financial reporting (as such term is
defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) during the Company’s most recently
completed fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the Company’s
internal control over financial reporting.
| Item 9B. | Other Information |
None.
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| Item 10. | Directors, Executive Officers and Corporate Governance* |
Code of
Ethics
The Company has adopted a Code of Ethics for Senior Financial
and Executive Officers that is applicable to the Company’s
Executive Chairman of the Board, Chief Executive Officer, Chief
Operating Officer, Chief Financial Officer, Chief Accounting
Officer and any Executive Vice President of the Company. This
Code of Ethics is filed as Exhibit 14.1 to this
Form 10-K.
The Company also has adopted a Code of Standards, Ethics and
Conduct applicable to all of the Company’s management-level
employees, which is filed as Exhibit 14.2 to this
Form 10-K.
In accordance with SEC rules, the Company intends to disclose
any amendment (other than any technical, administrative, or
other non-substantive amendment) to either of the above Codes,
or any waiver of any provision thereof with respect to any of
the executive officers listed in the paragraph above, on the
Company’s Web site (
www.gamestop.com
) within four
business days following such amendment or waiver.
| Item 11. | Executive Compensation* |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters* |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence* |
| Item 14. | Principal Accountant Fees and Services* |
| Item 15. | Exhibits and Financial Statement Schedules |
(a)
The following documents are filed as a part of this
Form 10-K:
(1)
Index and Consolidated Financial Statements
The list of consolidated financial statements set forth in the
accompanying Index to Consolidated Financial Statements at
page F-1
herein is incorporated herein by reference. Such consolidated
financial statements are filed as part of this report on
Form 10-K.
* The information not
otherwise provided herein that is required by Items 10, 11,
12, 13 and 14 will be set forth in the definitive proxy
statement relating to the 2010 Annual Meeting of Stockholders of
the Company, which is to be filed with the SEC pursuant to
Regulation 14A under the Securities Exchange Act of 1934,
as amended. This definitive proxy statement relates to a meeting
of stockholders involving the election of directors and the
portions therefrom required to be set forth in this
Form 10-K
by Items 10, 11, 12, 13 and 14 are incorporated herein by
reference pursuant to General Instruction G(3) to
Form 10-K.
47
Table of Contents
(2)
Financial Statement Schedules required to be filed
by Item 8 of this
Form 10-K:
The following financial statement schedule for the 52 weeks
ended January 30, 2010, January 31, 2009 and
February 2, 2008 is filed as part of this report on
Form 10-K
and should be read in conjunction with our Consolidated
Financial Statements appearing elsewhere in this
Form 10-K:
Schedule II —
Valuation and Qualifying Accounts
For the 52 weeks ended January 31, 2010,
January 31, 2009 and February 2, 2008:
|
Column A
|
Column B | Column C(1) | Column C(2) | Column D | Column E | |||||||||||||||
|
Charged
|
||||||||||||||||||||
|
to Other
|
Deductions-
|
|||||||||||||||||||
|
Balance at
|
Charged to
|
Accounts-
|
Write-Offs
|
Balance at
|
||||||||||||||||
|
Beginning
|
Costs and
|
Accounts
|
Net of
|
End of
|
||||||||||||||||
| of Period | Expenses | Payable | Recoveries | Period | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Inventory Reserve, deducted from asset accounts
|
||||||||||||||||||||
|
52 Weeks Ended January 30, 2010
|
$ | 56,567 | $ | 48,890 | $ | 34,091 | $ | 73,049 | $ | 66,499 | ||||||||||
|
52 Weeks Ended January 31, 2009
|
59,698 | 42,979 | 34,710 | 80,820 | 56,567 | |||||||||||||||
|
52 Weeks Ended February 2, 2008
|
53,816 | 51,879 | 28,262 | 74,259 | 59,698 | |||||||||||||||
Column C(2) consists primarily of amounts received from vendors
for defective allowances.
The Company does not maintain a reserve for estimated sales
returns and allowances as amounts are considered to be
immaterial. All other schedules are omitted because they are not
applicable.
(b)
Exhibits
The following exhibits are filed as part of this
Form 10-K:
|
Exhibit
|
||||
|
Number
|
Description
|
|||
| 2 | .1 | Agreement and Plan of Merger, dated as of April 17, 2005, among GameStop Corp. (f/k/a GSC Holdings Corp.), Electronics Boutique Holdings Corp., GameStop, Inc., GameStop Holdings Corp. (f/k/a GameStop Corp.), Cowboy Subsidiary LLC and Eagle Subsidiary LLC.(1) | ||
| 2 | .2 | Sale and Purchase Agreement, dated September 30, 2008, between EB International Holdings, Inc. and L Capital, LV Capital, Europ@Web and other Micromania shareholders.(13) | ||
| 2 | .3 | Amendment, dated November 17, 2008, to Sale and Purchase Agreement for Micromania Acquisition listed as Exhibit 2.2 above.(14) | ||
| 3 | .1 | Second Amended and Restated Certificate of Incorporation.(2) | ||
| 3 | .2 | Amended and Restated Bylaws.(3) | ||
| 4 | .1 | Indenture, dated September 28, 2005, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), GameStop, Inc., the subsidiary guarantors party thereto, and Citibank N.A., as trustee.(4) | ||
| 4 | .2 | First Supplemental Indenture, dated October 8, 2005, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), GameStop, Inc., the subsidiary guarantors party thereto, and Citibank N.A., as trustee.(5) | ||
| 4 | .3 | Rights Agreement, dated as of June 27, 2005, between GameStop Corp. (f/k/a GSC Holdings Corp.) and The Bank of New York, as Rights Agent.(3) | ||
| 4 | .4 | Form of Indenture.(6) | ||
| 10 | .1 | Insurance Agreement, dated as of January 1, 2002, between Barnes & Noble, Inc. and GameStop Holdings Corp. (f/k/a GameStop Corp.).(7) | ||
| 10 | .2 | Operating Agreement, dated as of January 1, 2002, between Barnes & Noble, Inc. and GameStop Holdings Corp. (f/k/a GameStop Corp.).(7) | ||
| 10 | .3 | Fourth Amended and Restated 2001 Incentive Plan.(16) | ||
| 10 | .4 | Second Amended and Restated Supplemental Compensation Plan.(8) | ||
48
Table of Contents
|
Exhibit
|
||||
|
Number
|
Description
|
|||
| 10 | .5 | Form of Option Agreement.(9) | ||
| 10 | .6 | Form of Restricted Share Agreement.(10) | ||
| 10 | .7 | Credit Agreement, dated as of October 11, 2005, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A. and the other lending institutions listed in the Agreement, Bank of America, N.A. and Citicorp North America, Inc., as Issuing Banks, Bank of America, N.A., as Administrative Agent and Collateral Agent, Citicorp North America, Inc., as Syndication Agent, and Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services Inc., as Documentation Agent.(11) | ||
| 10 | .8 | Guaranty, dated as of October 11, 2005, by GameStop Corp. (f/k/a GSC Holdings Corp.) and certain subsidiaries of GameStop Corp. in favor of the agents and lenders.(11) | ||
| 10 | .9 | Security Agreement, dated October 11, 2005, by GameStop Corp. (f/k/a GSC Holdings Corp.) and certain subsidiaries of GameStop Corp. in favor of Bank of America, N.A., as Collateral Agent for the Secured Parties.(11) | ||
| 10 | .10 | Patent and Trademark Security Agreement, dated as of October 11, 2005 by GameStop Corp. (f/k/a GSC Holdings Corp.) and certain subsidiaries of GameStop Corp. in favor of Bank of America, N.A., as Collateral Agent.(11) | ||
| 10 | .11 | Mortgage, Security Agreement, and Assignment and Deeds of Trust, dated October 11, 2005, between GameStop of Texas, L.P. and Bank of America, N.A., as Collateral Agent.(11) | ||
| 10 | .12 | Mortgage, Security Agreement, and Assignment and Deeds of Trust, dated October 11, 2005, between Electronics Boutique of America, Inc. and Bank of America, N.A., as Collateral Agent.(11) | ||
| 10 | .13 | Form of Securities Collateral Pledge Agreement, dated as of October 11, 2005.(11) | ||
| 10 | .14 | First Amendment, dated April 25, 2007, to Credit Agreement, dated as of October 11, 2005, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A. and the other lending institutions listed in the Amendment, Bank of America, N.A. and Citicorp North America, Inc., as Issuing Banks, Bank of America, N.A., as Administrative Agent and Collateral Agent, Citicorp North America, Inc., as Syndication Agent, and Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services Inc., as Documentation Agent.(12) | ||
| 10 | .15 | Second Amendment, dated as of October 23, 2008, to Credit Agreement, dated as of October 11, 2005, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A. and the other lending institutions listed in the Amendment, Bank of America, N.A. and Citicorp North America, Inc., as Issuing Banks, Bank of America, N.A., as Administrative Agent and Collateral Agent, Citicorp North America, Inc., as Syndication Agent, and GE Business Financial Services, Inc., as Documentation Agent.(14) | ||
| 10 | .16 | Term Loan Agreement, dated November 12, 2008, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A., as lender, Bank of America, N.A., as Administrative Agent and Collateral Agent, and Banc of America Securities LLC, as Sole Arranger and Bookrunner.(14) | ||
| 10 | .17 | Security Agreement, dated November 12, 2008, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A., as lender and Bank of America, N.A., as Collateral Agent.(14) | ||
| 10 | .18 | Patent and Trademark Security Agreement, dated as of November 12, 2008, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A., as lender, and Bank of America, N.A., as Collateral Agent.(14) | ||
| 10 | .19 | Securities Collateral Pledge Agreement, dated November 12, 2008, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A., as lender, and Bank of America, N.A., as Collateral Agent.(14) | ||
| 10 | .20 | Amended and Restated Executive Employment Agreement, dated December 31, 2008, between GameStop Corp. and R. Richard Fontaine.(15) | ||
| 10 | .21 | Amended and Restated Executive Employment Agreement, dated as December 31, 2008, between GameStop Corp. and Daniel A. DeMatteo.(15) | ||
49
Table of Contents
|
Exhibit
|
||||
|
Number
|
Description
|
|||
| 10 | .22 | Amended and Restated Executive Employment Agreement, dated December 31, 2008, between GameStop Corp. and Tony Bartel.(15) | ||
| 10 | .23 | Amended and Restated Executive Employment Agreement, dated December 31, 2008, between GameStop Corp. and J. Paul Raines.(15) | ||
| 12 | .1 | Computation of Ratio of Earnings to Fixed Charges. | ||
| 14 | .1 | Code of Ethics for Senior Financial and Executive Officers (17). | ||
| 14 | .2 | Code of Standards, Ethics and Conduct. | ||
| 21 | .1 | Subsidiaries. | ||
| 23 | .1 | Consent of BDO Seidman, LLP. | ||
| 31 | .1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
| 31 | .2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
| 32 | .1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
| 32 | .2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
|
101.INS
|
XBRL Instance Document | |
|
101.SCH
|
XBRL Taxonomy Extension Schema | |
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase | |
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase | |
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase | |
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase |
| (1) | Incorporated by reference to GameStop Holdings Corp.’s Form 8-K filed with the Securities and Exchange Commission on April 18, 2005. | |
| (2) | Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on February 7, 2007. | |
| (3) | Incorporated by reference to the Registrant’s Amendment No. 1 to Form S-4 filed with the Securities and Exchange Commission on July 8, 2005. | |
| (4) | Incorporated by reference to GameStop Holdings Corp.’s Form 8-K filed with the Securities and Exchange Commission on September 30, 2005. | |
| (5) | Incorporated by reference to the Registrant’s Form 10-Q for the fiscal quarter ended October 29, 2005 filed with the Securities and Exchange Commission on December 8, 2005. | |
| (6) | Incorporated by reference to the Registrant’s Form S-3ASR filed with the Securities and Exchange Commission on April 10, 2006. | |
| (7) | Incorporated by reference to GameStop Holdings Corp.’s Amendment No. 3 to Form S-1 filed with the Securities and Exchange Commission on January 24, 2002. | |
| (8) | Incorporated by reference to Appendix A to the Registrant’s Proxy Statement for 2008 Annual Meeting of Stockholders filed with the Securities and Exchange Commission on May 23, 2008. | |
| (9) | Incorporated by reference to GameStop Holdings Corp.’s Form 10-K for the fiscal year ended January 29, 2005 filed with the Securities and Exchange Commission on April 11, 2005. | |
| (10) | Incorporated by reference to GameStop Holdings Corp.’s Form 8-K filed with the Securities and Exchange Commission on September 12, 2005. | |
| (11) | Incorporated by reference to Registrant’s Form 8-K filed with the Securities and Exchange Commission on October 12, 2005. |
50
Table of Contents
| (12) | Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on April 26, 2007. | |
| (13) | Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on October 2, 2008. | |
| (14) | Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on November 18, 2008. | |
| (15) | Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on January 7, 2009. | |
| (16) | Incorporated by reference to Appendix A to the Registrant’s Proxy Statement for 2009 Annual Meeting of Stockholders filed with the Securities and Exchange Commission on May 22, 2009. | |
| (17) | Incorporated by reference to the Registrant’s Form 10-K for the fiscal year ended January 31, 2009, filed with the Securities and Exchange Commission on April 1, 2009. |
51
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this
Form 10-K
to be signed on its behalf by the undersigned, thereunto duly
authorized.
GAMESTOP CORP.
| By: |
/s/
Daniel
A. DeMatteo
|
Daniel A. DeMatteo
Chief Executive Officer
Date: March 30, 2010
Pursuant to the requirements of the Securities Exchange Act of
1934, this
Form 10-K
has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
|
Name
|
Capacity
|
Date
|
||||
|
/s/
Daniel
A. DeMatteo
|
Chief Executive Officer and Director (Principal Executive Officer) | March 30, 2010 | ||||
|
/s/
R.
Richard Fontaine
|
Executive Chairman and Director | March 30, 2010 | ||||
|
/s/
Robert
A. Lloyd
|
Interim Chief Financial Officer
(Principal Financial and Accounting Officer) |
March 30, 2010 | ||||
|
/s/
Jerome
L. Davis
|
Director | March 30, 2010 | ||||
|
/s/
Steven
R. Koonin
|
Director | March 30, 2010 | ||||
|
/s/
Leonard
Riggio
|
Director | March 30, 2010 | ||||
|
/s/
Michael
N. Rosen
|
Director | March 30, 2010 | ||||
|
/s/
Stephanie
M. Shern
|
Director | March 30, 2010 | ||||
|
/s/
Stanley
P. Steinberg
|
Director | March 30, 2010 | ||||
52
Table of Contents
|
Name
|
Capacity
|
Date
|
||||
|
/s/
Gerald
R. Szczepanski
|
Director | March 30, 2010 | ||||
|
/s/
Edward
A. Volkwein
|
Director | March 30, 2010 | ||||
|
/s/
Lawrence
S. Zilavy
|
Director | March 30, 2010 | ||||
53
Table of Contents
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
| Page | ||||
|
GameStop Corp. Consolidated Financial Statements:
|
||||
| F-2 | ||||
|
Consolidated Financial Statements:
|
||||
| F-4 | ||||
| F-5 | ||||
| F-6 | ||||
| F-7 | ||||
| F-8 | ||||
F-1
Table of Contents
Report of
Independent Registered Public Accounting Firm
Board of Directors and Stockholders
GameStop Corp.
Grapevine, Texas
We have audited the accompanying consolidated balance sheets of
GameStop Corp. as of January 30, 2010 and January 31,
2009 and the related consolidated statements of operations,
stockholders’ equity, and cash flows for the 52 week
periods ended January 30, 2010, January 31, 2009 and
February 2, 2008. In connection with our audits of the
financial statements, we have also audited the financial
statement schedule listed in Item 15(a)(2) of this
Form 10-K.
These financial statements and schedule are the responsibility
of the Company’s management. Our responsibility is to
express an opinion on these financial statements and schedule
based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements
and schedule. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of GameStop Corp. as of January 30, 2010 and
January 31, 2009, and the results of its operations and its
cash flows for the 52 week periods ended January 30,
2010, January 31, 2009 and February 2, 2008, in
conformity with accounting principles generally accepted in the
United States of America.
Also, in our opinion, the financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
As discussed in Note 1 to the consolidated financial
statements, in fiscal 2007 the Company changed its method of
accounting for uncertainty in income taxes.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
GameStop Corp.’s internal control over financial reporting
as of January 30, 2010, based on criteria established in
Internal Control — Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated March 30, 2010
expressed an unqualified opinion thereon.
/s/
BDO
SEIDMAN, LLP
BDO Seidman, LLP
Dallas, Texas
March 30, 2010
F-2
Table of Contents
Report of
Independent Registered Public Accounting Firm
Board of Directors and Stockholders
GameStop Corp.
Grapevine, Texas
We have audited GameStop Corp.’s internal control over
financial reporting as of January 30, 2010, based on
criteria established in
Internal Control —
Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria).
GameStop Corp.’s management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Item 9A
of the Annual Report on
Form 10-K,
Management’s Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the
company’s internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, GameStop Corp. maintained, in all material
respects, effective internal control over financial reporting as
of January 30, 2010, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of GameStop Corp. as of
January 30, 2010 and January 31, 2009, and the related
consolidated statements of operations, stockholders’
equity, and cash flows for the 52 week periods ended
January 30, 2010, January 31, 2009, and
February 2, 2008. Our report dated March 30, 2010
expressed an unqualified opinion on those consolidated financial
statements and schedule.
/s/
BDO
SEIDMAN, LLP
BDO Seidman, LLP
Dallas, Texas
March 30, 2010
F-3
Table of Contents
GAMESTOP
CORP.
|
January 30,
|
January 31,
|
|||||||
| 2010 | 2009 | |||||||
| (In thousands) | ||||||||
|
ASSETS
|
||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 905,418 | $ | 578,141 | ||||
|
Receivables, net
|
64,006 | 65,981 | ||||||
|
Merchandise inventories, net
|
1,053,553 | 1,075,792 | ||||||
|
Deferred income taxes — current
|
21,229 | 23,615 | ||||||
|
Prepaid expenses
|
59,434 | 59,101 | ||||||
|
Other current assets
|
23,664 | 15,411 | ||||||
|
Total current assets
|
2,127,304 | 1,818,041 | ||||||
|
Property and equipment:
|
||||||||
|
Land
|
11,569 | 10,397 | ||||||
|
Buildings and leasehold improvements
|
522,965 | 454,651 | ||||||
|
Fixtures and equipment
|
711,477 | 619,845 | ||||||
|
Total property and equipment
|
1,246,011 | 1,084,893 | ||||||
|
Less accumulated depreciation and amortization
|
661,810 | 535,639 | ||||||
|
Net property and equipment
|
584,201 | 549,254 | ||||||
|
Goodwill, net
|
1,946,513 | 1,833,011 | ||||||
|
Other intangible assets
|
259,860 | 247,790 | ||||||
|
Other noncurrent assets
|
37,449 | 35,398 | ||||||
|
Total noncurrent assets
|
2,828,023 | 2,665,453 | ||||||
|
Total assets
|
$ | 4,955,327 | $ | 4,483,494 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
|
Current liabilities:
|
||||||||
|
Accounts payable
|
$ | 961,673 | $ | 1,047,963 | ||||
|
Accrued liabilities
|
632,103 | 498,253 | ||||||
|
Taxes payable
|
61,900 | 16,495 | ||||||
|
Total current liabilities
|
1,655,676 | 1,562,711 | ||||||
|
Senior notes payable, long-term portion, net
|
447,343 | 545,712 | ||||||
|
Deferred taxes
|
25,466 | 7,523 | ||||||
|
Other long-term liabilities
|
103,831 | 96,963 | ||||||
|
Total long-term liabilities
|
576,640 | 650,198 | ||||||
|
Total liabilities
|
2,232,316 | 2,212,909 | ||||||
|
Commitments and contingencies (Notes 10 and 11)
|
||||||||
|
Stockholders’ equity:
|
||||||||
|
Preferred stock — authorized 5,000 shares; no
shares issued or outstanding
|
— | — | ||||||
|
Class A common stock — $.001 par value;
authorized 300,000 shares; 158,662 and 163,843 shares
outstanding, respectively
|
159 | 164 | ||||||
|
Additional
paid-in-capital
|
1,210,539 | 1,307,453 | ||||||
|
Accumulated other comprehensive income (loss)
|
114,704 | (57,522 | ) | |||||
|
Retained earnings
|
1,397,755 | 1,020,490 | ||||||
|
Equity attributable to GameStop Corp. stockholders
|
2,723,157 | 2,270,585 | ||||||
|
Equity attributable to noncontrolling interest
|
(146 | ) | — | |||||
|
Total equity
|
2,723,011 | 2,270,585 | ||||||
|
Total liabilities and stockholders’ equity
|
$ | 4,955,327 | $ | 4,483,494 | ||||
See accompanying notes to consolidated financial statements.
F-4
Table of Contents
GAMESTOP
CORP.
|
52 Weeks
|
52 Weeks
|
52 Weeks
|
||||||||||
|
Ended
|
Ended
|
Ended
|
||||||||||
|
January 30,
|
January 31,
|
February 2,
|
||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands, except per share data) | ||||||||||||
|
Sales
|
$ | 9,077,997 | $ | 8,805,897 | $ | 7,093,962 | ||||||
|
Cost of sales
|
6,643,345 | 6,535,762 | 5,280,255 | |||||||||
|
Gross profit
|
2,434,652 | 2,270,135 | 1,813,707 | |||||||||
|
Selling, general and administrative expenses
|
1,635,124 | 1,445,419 | 1,182,016 | |||||||||
|
Depreciation and amortization
|
162,495 | 145,004 | 130,270 | |||||||||
|
Merger-related expenses
|
— | 4,593 | — | |||||||||
|
Operating earnings
|
637,033 | 675,119 | 501,421 | |||||||||
|
Interest income
|
(2,177 | ) | (11,619 | ) | (13,779 | ) | ||||||
|
Interest expense
|
45,354 | 50,456 | 61,553 | |||||||||
|
Debt extinguishment expense
|
5,323 | 2,331 | 12,591 | |||||||||
|
Earnings before income tax expense
|
588,533 | 633,951 | 441,056 | |||||||||
|
Income tax expense
|
212,804 | 235,669 | 152,765 | |||||||||
|
Consolidated net income
|
375,729 | 398,282 | 288,291 | |||||||||
|
Net loss attributable to noncontrolling interests
|
1,536 | — | — | |||||||||
|
Consolidated net income attributable to GameStop
|
$ | 377,265 | $ | 398,282 | $ | 288,291 | ||||||
|
Basic net income per common share(1)
|
$ | 2.29 | $ | 2.44 | $ | 1.82 | ||||||
|
Diluted net income per common share(1)
|
$ | 2.25 | $ | 2.38 | $ | 1.75 | ||||||
|
Weighted average shares of common stock — basic
|
164,525 | 163,190 | 158,226 | |||||||||
|
Weighted average shares of common stock — diluted
|
167,875 | 167,671 | 164,844 | |||||||||
| (1) | Basic net income per share and diluted net income per share are calculated based on consolidated net income attributable to GameStop. |
See accompanying notes to consolidated financial statements.
F-5
Table of Contents
GAMESTOP
CORP.
| GameStop Corp Shareholders | ||||||||||||||||||||||||||||
|
Class A
|
Accumulated
|
|||||||||||||||||||||||||||
| Common Stock |
Additional
|
Other
|
||||||||||||||||||||||||||
|
Common
|
Paid-in
|
Comprehensive
|
Retained
|
Noncontrolling
|
||||||||||||||||||||||||
| Shares | Stock | Capital | Income | Earnings | Interest | Total | ||||||||||||||||||||||
|
Balance at February 3, 2007
|
152,305 | $ | 152 | $ | 1,021,903 | $ | 3,227 | $ | 350,596 | $ | — | $ | 1,375,878 | |||||||||||||||
|
Cumulative effect of change in accounting principle
|
— | — | — | — | (16,679 | ) | — | (16,679 | ) | |||||||||||||||||||
|
Balance at February 4, 2007, adjusted
|
152,305 | 152 | 1,021,903 | 3,227 | 333,917 | — | 1,359,199 | |||||||||||||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||||||||
|
Net income for the 52 weeks ended February 2, 2008
|
— | — | — | — | 288,291 | — | 288,291 | |||||||||||||||||||||
|
Foreign currency translation
|
— | — | — | 28,376 | — | — | 28,376 | |||||||||||||||||||||
|
Total comprehensive income
|
316,667 | |||||||||||||||||||||||||||
|
Stock-based compensation
|
— | — | 26,911 | — | — | — | 26,911 | |||||||||||||||||||||
|
Exercise of employee stock options and issuance of shares upon
vesting of restricted stock grants (including tax benefit of
$94,786)
|
8,702 | 9 | 159,660 | — | — | — | 159,669 | |||||||||||||||||||||
|
Balance at February 2, 2008
|
161,007 | 161 | 1,208,474 | 31,603 | 622,208 | — | 1,862,446 | |||||||||||||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||||||||
|
Net income for the 52 weeks ended January 31, 2009
|
— | — | — | — | 398,282 | — | 398,282 | |||||||||||||||||||||
|
Foreign currency translation
|
— | — | — | (89,125 | ) | — | — | (89,125 | ) | |||||||||||||||||||
|
Total comprehensive income
|
309,157 | |||||||||||||||||||||||||||
|
Stock-based compensation
|
— | — | 35,354 | — | — | — | 35,354 | |||||||||||||||||||||
|
Exercise of employee stock options and issuance of shares upon
vesting of restricted stock grants (including tax benefit of
$37,562)
|
2,836 | 3 | 63,625 | — | — | — | 63,628 | |||||||||||||||||||||
|
Balance at January 31, 2009
|
163,843 | 164 | 1,307,453 | (57,522 | ) | 1,020,490 | — | 2,270,585 | ||||||||||||||||||||
|
Purchase of subsidiary shares from noncontrolling interest
|
— | — | (5,124 | ) | — | — | 1,390 | (3,734 | ) | |||||||||||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||||||||
|
Net income (loss) for the 52 weeks ended January 30,
2010
|
— | — | — | — | 377,265 | (1,536 | ) | 375,729 | ||||||||||||||||||||
|
Foreign currency translation
|
— | — | — | 172,226 | — | — | 172,226 | |||||||||||||||||||||
|
Total comprehensive income
|
547,955 | |||||||||||||||||||||||||||
|
Stock-based compensation
|
— | — | 37,811 | — | — | — | 37,811 | |||||||||||||||||||||
|
Purchase of treasury stock
|
(6,115 | ) | (6 | ) | (122,989 | ) | — | — | — | (122,995 | ) | |||||||||||||||||
|
Exercise of employee stock options and issuance of shares upon
vesting of restricted stock grants (including tax expense of
$310)
|
934 | 1 | (6,612 | ) | — | — | — | (6,611 | ) | |||||||||||||||||||
|
Balance at January 30, 2010
|
158,662 | $ | 159 | $ | 1,210,539 | $ | 114,704 | $ | 1,397,755 | $ | (146 | ) | $ | 2,723,011 | ||||||||||||||
See accompanying notes to consolidated financial statements.
F-6
Table of Contents
GAMESTOP
CORP.
|
52 Weeks
|
52 Weeks
|
52 Weeks
|
||||||||||
|
Ended
|
Ended
|
Ended
|
||||||||||
|
January 30,
|
January 31,
|
February 2,
|
||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Cash flows from operating activities:
|
||||||||||||
|
Consolidated net income
|
$ | 375,729 | $ | 398,282 | $ | 288,291 | ||||||
|
Adjustments to reconcile net earnings to net cash flows provided
by operating activities:
|
||||||||||||
|
Depreciation and amortization (including amounts in cost of
sales)
|
164,126 | 146,363 | 131,277 | |||||||||
|
Provision for inventory reserves
|
48,890 | 42,979 | 51,879 | |||||||||
|
Amortization and retirement of deferred financing fees and issue
discounts
|
5,003 | 3,735 | 6,831 | |||||||||
|
Stock-based compensation expense
|
37,811 | 35,354 | 26,911 | |||||||||
|
Deferred income taxes
|
(1,210 | ) | (24,701 | ) | (13,151 | ) | ||||||
|
Excess tax (benefits) expense realized from exercise of
stock-based awards
|
362 | (34,174 | ) | (93,322 | ) | |||||||
|
Loss on disposal of property and equipment
|
4,377 | 5,193 | 8,205 | |||||||||
|
Changes in other long-term liabilities
|
7,573 | 8,337 | 14,021 | |||||||||
|
Change in the value of foreign exchange contracts
|
(3,891 | ) | 9,992 | (8,575 | ) | |||||||
|
Changes in operating assets and liabilities, net
|
||||||||||||
|
Receivables, net
|
4,217 | (2,901 | ) | (19,903 | ) | |||||||
|
Merchandise inventories
|
29,602 | (209,442 | ) | (143,525 | ) | |||||||
|
Prepaid expenses and other current assets
|
2,040 | (10,111 | ) | (3,590 | ) | |||||||
|
Prepaid income taxes and accrued income taxes payable
|
54,556 | 43,864 | 121,014 | |||||||||
|
Accounts payable and accrued liabilities
|
(85,012 | ) | 136,465 | 127,683 | ||||||||
|
Net cash flows provided by operating activities
|
644,173 | 549,235 | 494,046 | |||||||||
|
Cash flows from investing activities:
|
||||||||||||
|
Purchase of property and equipment
|
(163,759 | ) | (183,192 | ) | (175,569 | ) | ||||||
|
Acquisitions, net of cash acquired
|
(8,357 | ) | (630,706 | ) | 1,061 | |||||||
|
Other
|
(15,130 | ) | (6,974 | ) | (2,116 | ) | ||||||
|
Net cash flows used in investing activities
|
(187,246 | ) | (820,872 | ) | (176,624 | ) | ||||||
|
Cash flows from financing activities:
|
||||||||||||
|
Repurchase of notes payable
|
(100,000 | ) | (30,000 | ) | (270,000 | ) | ||||||
|
Purchase of treasury shares
|
(58,380 | ) | — | — | ||||||||
|
Borrowings from the revolver
|
115,000 | — | — | |||||||||
|
Repayment of revolver borrowings
|
(115,000 | ) | — | — | ||||||||
|
Borrowings for acquisition
|
— | 425,000 | — | |||||||||
|
Repayments of acquisition borrowings
|
— | (425,000 | ) | (12,173 | ) | |||||||
|
Issuance of shares relating to stock options
|
4,459 | 28,950 | 64,883 | |||||||||
|
Excess tax benefits (expense) realized from exercise of
stock-based awards
|
(362 | ) | 34,174 | 93,322 | ||||||||
|
Other
|
(134 | ) | (3,500 | ) | (263 | ) | ||||||
|
Net cash flows provided by (used in) financing activities
|
(154,417 | ) | 29,624 | (124,231 | ) | |||||||
|
Exchange rate effect on cash and cash equivalents
|
24,767 | (37,260 | ) | 11,820 | ||||||||
|
Net increase (decrease) in cash and cash equivalents
|
327,277 | (279,273 | ) | 205,011 | ||||||||
|
Cash and cash equivalents at beginning of period
|
578,141 | 857,414 | 652,403 | |||||||||
|
Cash and cash equivalents at end of period
|
$ | 905,418 | $ | 578,141 | $ | 857,414 | ||||||
See accompanying notes to consolidated financial statements.
F-7
Table of Contents
GAMESTOP
CORP.
| 1. | Summary of Significant Accounting Policies |
Background
GameStop Corp. (together with its predecessor companies,
“GameStop,” “we,” “our,” or the
“Company”) is the world’s largest retailer of
video game systems and software and PC entertainment software
and related accessories primarily through its GameStop and EB
Games stores. We also operate electronic commerce Web sites
www.gamestop.com
,
www.ebgames.com.au
,
www.gamestop.ca
,
www.gamestop.it
, and
www.micromania.fr
, and publish
Game Informer
Magazine
. The Company’s stores, which totaled 6,450 at
January 30, 2010, are located in major regional shopping
malls and strip centers. The Company operates in four business
segments, which are the United States, Australia, Canada and
Europe.
The Company is a Delaware corporation, formerly known as GSC
Holdings Corp., and has grown through a business combination
(the “EB merger”) of GameStop Holdings Corp., formerly
known as GameStop Corp., and Electronics Boutique Holdings Corp.
(“EB”), which was completed on October 8, 2005.
The Company also has grown through acquisitions, including the
purchase in November 2008 of SFMI Micromania SAS
(“Micromania”), a leading retailer of video and
computer games in France.
Basis
of Presentation and Consolidation
Our consolidated financial statements include the accounts of
the Company, its wholly-owned subsidiaries and its
majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
All dollar and share amounts in the consolidated financial
statements and notes to the consolidated financial statements
are stated in thousands unless otherwise indicated.
The Company’s fiscal year is composed of the 52 or
53 weeks ending on the Saturday closest to the last day of
January. Fiscal 2009 consisted of the 52 weeks ended on
January 30, 2010. Fiscal 2008 consisted of the
52 weeks ended on January 31, 2009. Fiscal 2007
consisted of the 52 weeks ended on February 2, 2008.
The Company’s operating results for fiscal 2009 include
52 weeks of Micromania’s results and the operating
results for fiscal 2008 include 11 weeks of
Micromania’s results.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America (“GAAP”) requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. In
preparing these financial statements, management has made its
best estimates and judgments of certain amounts included in the
financial statements, giving due consideration to materiality.
Changes in the estimates and assumptions used by management
could have significant impact on the Company’s financial
results. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to conform the prior
period data to the current year presentation.
Cash
and Cash Equivalents
The Company considers all short-term, highly-liquid instruments
purchased with an original maturity of three months or less to
be cash equivalents. The Company’s cash and cash
equivalents are carried at cost, which approximates market
value, and consist primarily of time deposits with highly rated
commercial banks. From time to time depending upon interest
rates, credit worthiness and other factors, the Company invests
in money market
F-8
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
investment funds holding direct U.S. Treasury obligations.
The Company held such cash equivalents as of January 30,
2010.
Merchandise
Inventories
The Company’s merchandise inventories are carried at the
lower of cost or market generally using the average cost method.
Under the average cost method, as new product is received from
vendors, its current cost is added to the existing cost of
product on-hand and this amount is re-averaged over the
cumulative units. Used video game products traded in by
customers are recorded as inventory at the amount of the store
credit given to the customer. In valuing inventory, management
is required to make assumptions regarding the necessity of
reserves required to value potentially obsolete or over-valued
items at the lower of cost or market. Management considers
quantities on hand, recent sales, potential price protections
and returns to vendors, among other factors, when making these
assumptions. The Company’s ability to gauge these factors
is dependent upon the Company’s ability to forecast
customer demand and to provide a well-balanced merchandise
assortment. Inventory is adjusted based on anticipated physical
inventory losses or shrinkage and actual losses resulting from
periodic physical inventory counts. Inventory reserves as of
January 30, 2010 and January 31, 2009 were $66,499 and
$56,567, respectively.
Property
and Equipment
Property and equipment are carried at cost less accumulated
depreciation and amortization. Depreciation on furniture,
fixtures and equipment is computed using the straight-line
method over their estimated useful lives ranging from two to
eight years. Maintenance and repairs are expensed as incurred,
while betterments and major remodeling costs are capitalized.
Leasehold improvements are capitalized and amortized over the
shorter of their estimated useful lives or the terms of the
respective leases, including option periods in which the
exercise of the option is reasonably assured (generally ranging
from three to ten years). Costs incurred in purchasing
management information systems are capitalized and included in
property and equipment. These costs are amortized over their
estimated useful lives from the date the systems become
operational.
The Company periodically reviews its property and equipment when
events or changes in circumstances indicate that their carrying
amounts may not be recoverable or their depreciation or
amortization periods should be accelerated. The Company assesses
recoverability based on several factors, including
management’s intention with respect to its stores and those
stores’ projected undiscounted cash flows. An impairment
loss would be recognized for the amount by which the carrying
amount of the assets exceeds their fair value, as approximated
by the present value of their projected cash flows. Write-downs
incurred by the Company through January 30, 2010 have not
been material.
Goodwill
Goodwill represents the excess purchase price over tangible net
assets and identifiable intangible assets acquired. The Company
is required to evaluate goodwill and other intangible assets not
subject to amortization for impairment at least annually. This
test is completed at the beginning of the fourth quarter each
fiscal year or when circumstances indicate the carrying value of
the goodwill or other intangible assets might be impaired.
Goodwill has been assigned to reporting units for the purpose of
impairment testing. The Company has four business segments, the
United States, Australia, Canada and Europe, which also define
our reporting units based upon the similar economic
characteristics of operations within each segment, including the
nature of products, product distribution and the type of
customer and separate management within those regions. The
Company estimates fair value based on the discounted cash flows
of each reporting unit. The Company uses a two-step process to
measure goodwill impairment. If the fair value of the reporting
unit is higher than its carrying value, then goodwill is not
impaired. If the carrying value of the reporting unit is higher
than the fair value, then the second test of goodwill impairment
is needed. The second test compares the implied fair value of
the reporting unit’s goodwill with its carrying amount. If
the carrying amount of the reporting unit’s goodwill
exceeds the implied fair value, then an impairment loss is
F-9
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
recognized in the amount of the excess. The Company completed
its annual impairment test of goodwill on the first day of the
fourth quarter of fiscal 2007, fiscal 2008 and fiscal 2009 and
concluded that none of its goodwill was impaired. Note 8
provides additional information concerning the changes in
goodwill for the consolidated financial statements presented.
Other
Intangible Assets
Other intangible assets consist primarily of tradenames,
leasehold rights and amounts attributed to favorable leasehold
interests recorded as a result of business acquisitions.
Intangible assets are recorded apart from goodwill if they arise
from a contractual right and are capable of being separated from
the entity and sold, transferred, licensed, rented or exchanged
individually. The useful life and amortization methodology of
intangible assets are determined based on the period in which
they are expected to contribute directly to cash flows.
Intangible assets that are determined to have a definite life
are amortized over that period. Intangible assets that are
determined to have an indefinite life are not amortized, but are
required to be evaluated at least annually for impairment. If
the carrying value of an individual indefinite-life intangible
asset exceeds its fair value as determined by its discounted
cash flows, such individual indefinite-life intangible asset is
written down by the amount of the excess. The Company completed
its annual impairment tests of indefinite-life intangible assets
as of the first day of the fourth quarter of fiscal 2007, fiscal
2008 and fiscal 2009 and concluded that none of its intangible
assets were impaired.
Tradenames which were recorded as a result of the Micromania
acquisition are considered indefinite life intangible assets as
they are expected to contribute to cash flows indefinitely and
are not subject to amortization, but are subject to annual
impairment testing. Leasehold rights which were recorded as a
result of the Micromania acquisition represent the value of
rights of tenancy under commercial property leases for
properties located in France. Rights pertaining to individual
leases can be sold by us to a new tenant or recovered by us from
the landlord if the exercise of the automatic right of renewal
is refused. Leasehold rights are amortized on a straight-line
basis over the expected lease term not to exceed 20 years
with no residual value. Favorable leasehold interests represent
the value of the contractual monthly rental payments that are
less than the current market rent at stores acquired as part of
the Micromania acquisition or the EB merger. Favorable leasehold
interests are amortized on a straight-line basis over their
remaining lease term with no expected residual value.
Note 8 provides additional information related to the
Company’s intangible assets.
Revenue
Recognition
Revenue from the sales of the Company’s products is
recognized at the time of sale and is stated net of sales
discounts. The sales of used video game products are recorded at
the retail price charged to the customer. Sales returns (which
are not significant) are recognized at the time returns are
made. Subscription and advertising revenues are recorded upon
release of magazines for sale to consumers. Magazine
subscription revenue is recognized on a straight-line basis over
the subscription period. Revenue from the sales of product
replacement plans is recognized on a straight-line basis over
the coverage period. The deferred revenues for magazine
subscriptions and deferred financing plans are included in
accrued liabilities (see Note 7).
Revenues do not include sales taxes or other taxes collected
from customers.
Cost
of Sales and Selling, General and Administrative Expenses
Classification
The classification of cost of sales and selling, general and
administrative expenses varies across the retail industry. The
Company includes purchasing, receiving and distribution costs in
selling, general and administrative expenses, rather than cost
of goods sold, in the statement of operations. For the
52 weeks ended January 30, 2010, January 31, 2009
and February 2, 2008, these purchasing, receiving and
distribution costs amounted to $63,589, $57,037 and $43,928,
respectively.
F-10
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The Company includes processing fees associated with purchases
made by check and credit cards in cost of sales, rather than
selling, general and administrative expenses, in the statement
of operations. For the 52 weeks ended January 30,
2010, January 31, 2009 and February 2, 2008, these
processing fees amounted to $63,059, $65,493 and $55,215,
respectively.
Customer
Liabilities
The Company establishes a liability upon the issuance of
merchandise credits and the sale of gift cards. Revenue is
subsequently recognized when the credits and gift cards are
redeemed. In addition, income (“breakage”) is
recognized quarterly on unused customer liabilities older than
three years to the extent that the Company believes the
likelihood of redemption by the customer is remote, based on
historical redemption patterns. Breakage has historically been
immaterial. To the extent that future redemption patterns differ
from those historically experienced, there will be variations in
the recorded breakage.
Pre-Opening
Expenses
All costs associated with the opening of new stores are expensed
as incurred. Pre-opening expenses are included in selling,
general and administrative expenses in the accompanying
consolidated statements of operations.
Closed
Store Expenses
Upon a formal decision to close or relocate a store, the Company
charges unrecoverable costs to expense. Such costs include the
net book value of abandoned fixtures and leasehold improvements
and, once the store is vacated, a provision for future lease
obligations, net of expected sublease recoveries. Costs
associated with store closings are included in selling, general
and administrative expenses in the accompanying consolidated
statements of operations.
Advertising
Expenses
The Company expenses advertising costs for newspapers and other
media when the advertising takes place. Advertising expenses for
television, newspapers and other media during the 52 weeks
ended January 30, 2010, January 31, 2009 and
February 2, 2008 were $57,681, $46,708 and $26,243,
respectively. During fiscal 2007, the Company launched a new
marketing campaign for television, radio and print to promote
the GameStop brand and its brand tagline, “Power to the
Players.”
Income
Taxes
Income tax expense includes United States, state, local and
international income taxes, plus a provision for U.S. taxes
on undistributed earnings of foreign subsidiaries not deemed to
be indefinitely reinvested. Deferred tax assets and liabilities
are recognized for the tax consequences of temporary differences
between the financial reporting basis and the tax basis of
existing assets and liabilities using enacted tax rates.
Valuation allowances are recorded to reduce deferred tax assets
to the amount that will more likely than not be realized.
In July 2006, the Financial Accounting Standards Board
(“FASB”) issued accounting guidance that clarified the
accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements. This guidance prescribes
a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. It also
provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and
transition. The Company adopted the provisions of this
accounting guidance and changed our accounting policy effective
on February 4, 2007. As a result, we recorded an
approximate $16,679 increase in accrued income taxes in our
consolidated balance sheet for
F-11
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
unrecognized tax benefits, which was accounted for as a
cumulative effect adjustment to the February 4, 2007
balance of retained earnings (see Note 12).
U.S. income taxes have not been provided on $353,465 of
undistributed earnings of foreign subsidiaries as of
January 30, 2010. The Company reinvests earnings of foreign
subsidiaries in foreign operations and expects that future
earnings will also be reinvested in foreign operations
indefinitely.
Lease
Accounting
The Company’s method of accounting for rent expense (and
related deferred rent liability) and leasehold improvements
funded by landlord incentives for allowances under operating
leases (tenant improvement allowances) is in conformance with
GAAP. For leases that contain predetermined fixed escalations of
the minimum rent, the Company recognizes the related rent
expense on a straight-line basis and includes the impact of
escalating rents for periods in which it is reasonably assured
of exercising lease options and the Company includes in the
lease term any period during which the Company is not obligated
to pay rent while the store is being constructed.
Foreign
Currency Translation
GameStop has determined that the functional currencies of its
foreign subsidiaries are the subsidiaries’ local
currencies. The assets and liabilities of the subsidiaries are
translated at the applicable exchange rate as of the end of the
balance sheet date and revenue and expenses are translated at an
average rate over the period. Currency translation adjustments
are recorded as a component of other comprehensive income.
Transaction gains and (losses) are included in selling, general
and administrative expenses and amounted to $3,891, ($9,993) and
$8,575 for the 52 weeks ended January 30, 2010,
January 31, 2009 and February 2, 2008, respectively.
The foreign currency transaction gains in fiscal 2009 and fiscal
2007 are primarily due to the decrease in the value of the
U.S. dollar compared to the functional currencies in the
countries the Company operates in internationally, primarily the
euro, the Canadian dollar and the Australian dollar. The foreign
currency transaction losses in fiscal 2008 are primarily related
to the increase in the value of the U.S. dollar compared to
the functional currencies in the countries the Company operates
in internationally, primarily the euro, the Canadian dollar and
the Australian dollar. The net foreign currency transaction loss
in the 52 weeks ended January 31, 2009 included a
$3,545 net loss related to the change in foreign exchange
rates related to the funding of the Micromania acquisition
recorded in merger-related expenses.
The Company uses forward exchange contracts, foreign currency
options and cross-currency swaps, (together, the “Foreign
Currency Contracts”) to manage currency risk primarily
related to intercompany loans denominated in non-functional
currencies and certain foreign currency assets and liabilities.
These Foreign Currency Contracts are not designated as hedges
and, therefore, changes in the fair values of these derivatives
are recognized in earnings, thereby offsetting the current
earnings effect of the re-measurement of related intercompany
loans and foreign currency assets and liabilities (see
Note 5).
Net
Income Per Common Share
Basic net income per common share is computed by dividing the
net income available to common stockholders by the weighted
average number of common shares outstanding during the period.
Diluted net income per common share is computed by dividing the
net income available to common stockholders by the weighted
average number of common shares outstanding and potentially
dilutive securities outstanding during the period. Potentially
dilutive securities include stock options and unvested
restricted stock outstanding during the period, using the
treasury stock method. Potentially dilutive securities are
excluded from the computations of diluted earnings per share if
their effect would be antidilutive. Note 4 provides
additional information regarding net earnings per common share.
F-12
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Stock
Options
The Company records share-based compensation expense in earnings
based on the grant-date fair value of options granted. The fair
value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model. This valuation
model requires the use of subjective assumptions, including
expected option life and expected volatility. The Company uses
historical data to estimate the option life and the employee
forfeiture rate, and uses historical volatility when estimating
the stock price volatility. The weighted-average fair values of
the options granted during the 52 weeks ended
January 30, 2010, January 31, 2009 and
February 2, 2008 were estimated at $9.45, $15.45 and
$10.16, respectively, using the following assumptions:
|
52 Weeks
|
52 Weeks
|
52 Weeks
|
||||||||||
|
Ended
|
Ended
|
Ended
|
||||||||||
|
January 30,
|
January 31,
|
February 2,
|
||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Volatility
|
47.9 | % | 38.2 | % | 40.5 | % | ||||||
|
Risk-free interest rate
|
1.5 | % | 2.4 | % | 4.8 | % | ||||||
|
Expected life (years)
|
3.5 | 3.5 | 4.0 | |||||||||
|
Expected dividend yield
|
0 | % | 0 | % | 0 | % | ||||||
In addition to requiring companies to recognize the estimated
fair value of share-based payments in earnings, companies now
have to present tax benefits received in excess of amounts
determined based on the compensation expense recognized on the
statements of cash flows. Such tax benefits are presented as a
use of cash in the operating section and a source of cash in the
financing section of the Statement of Cash Flows. Note 13
provides additional information regarding the Company’s
stock option plan.
Fair
Values of Financial Instruments
The carrying values of cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities reported in
the accompanying consolidated balance sheets approximate fair
value due to the short-term maturities of these assets and
liabilities. The fair value of the Company’s senior notes
payable in the accompanying consolidated balance sheets is
estimated based on recent quotes from brokers. Note 5
provides additional information regarding the Company’s
fair values of our financial assets and liabilities.
Guarantees
The Company had bank guarantees relating to international store
leases totaling $15,982 as of January 30, 2010 and $12,930
as of January 31, 2009.
Vendor
Concentration
The Company’s largest vendors worldwide are Nintendo, Sony
Computer Entertainment, Microsoft, Electronic Arts, Inc. and
Activision, which accounted for 23%, 17%, 12%, 12% and 11%,
respectively, of the Company’s new product purchases in
fiscal 2009 and 25%, 13%, 13%, 11% and less than 10%,
respectively, in fiscal 2008.
Stock
Split
On February 9, 2007, the Board of Directors of the Company
authorized a
two-for-one
stock split, effected by a
one-for-one
stock dividend to stockholders of record at the close of
business on February 20, 2007, paid on March 16, 2007
(the “Stock Split”). The effect of the Stock Split has
been retroactively applied to all periods presented in the
consolidated financial statements and notes thereto.
F-13
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
New
Accounting Pronouncements
In March 2008, the FASB amended existing disclosure requirements
related to derivative and hedging activities, which became
effective for the Company on February 1, 2009 and is being
applied prospectively. As a result of the amended disclosure
requirements, the Company is required to provide expanded
qualitative and quantitative disclosures about derivatives and
hedging activities in each interim and annual period. The
adoption of the new disclosure requirements had no impact on our
consolidated financial statements.
In December 2007, the FASB amended its guidance on accounting
for business combinations. The new accounting guidance amends
the principles and requirements for how an acquirer recognizes
and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any noncontrolling interest
in the acquiree and the goodwill acquired. It also establishes
disclosure requirements to enable the evaluation of the nature
and financial effects of the business combination. The new
accounting guidance resulted in a change in our accounting
policy effective February 1, 2009, and is being applied
prospectively to all business combinations subsequent to the
effective date. The adoption of this new accounting policy did
not have a significant impact on our consolidated financial
statements and the impact that its adoption will have on our
consolidated financial statements in future periods will depend
on the nature and size of business combinations completed
subsequent to the date of adoption.
In December 2007, the FASB issued new accounting and disclosure
guidance related to noncontrolling interests in subsidiaries
(previously referred to as minority interests), which resulted
in a change to our accounting policy effective February 1,
2009. The new guidance requires all entities to report
noncontrolling interests in subsidiaries as a component of
equity in the consolidated financial statements and also
establishes disclosure requirements that clearly identify and
distinguish between controlling and noncontrolling interests and
requires the separate disclosure of income attributable to
controlling and noncontrolling interests. The new accounting
guidance is being applied prospectively. The adoption of this
new accounting policy did not have a significant impact on our
consolidated financial statements.
In September 2006, the FASB issued new accounting guidance which
defines fair value, establishes a framework for measuring fair
value and expands disclosure requirements about fair value
measurements. However, in February 2008, the FASB delayed the
effective date of the new accounting guidance for all
nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). The
adoption of this new accounting guidance for our nonfinancial
assets and nonfinancial liabilities on February 1, 2009 did
not have a significant impact on our consolidated financial
statements.
| 2. | Acquisitions |
On November 17, 2008, GameStop France SAS, a wholly-owned
subsidiary of the Company, completed the acquisition of
substantially all of the outstanding capital stock of Micromania
for $580,407, net of cash acquired. Micromania is a leading
retailer of video and computer games in France with 368
locations, 328 of which were operating upon acquisition. The
Company funded the transaction with cash on hand, funds drawn
against its existing $400,000 credit agreement (the
“Revolver”) totaling $275,000, and term loans totaling
$150,000 under a junior term loan facility (the “Term
Loans”). As of January 31, 2009, all of the borrowings
against the Revolver and the Term Loans have been repaid. The
purpose of the acquisition was to expand the Company’s
presence in Europe. The impact of the acquisition on the
Company’s results of operations, as if the acquisition had
been completed as of the beginning of the periods presented, is
not significant.
F-14
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The consolidated financial statements include the results of
Micromania from the date of acquisition and are reported in the
European segment. The purchase price has been allocated based on
estimated fair values as of the acquisition date. The purchase
price was allocated as follows as of November 17, 2008:
|
November 17,
|
||||
| 2008 | ||||
| (In thousands) | ||||
|
Current assets
|
$ | 187,662 | ||
|
Property, plant & equipment
|
34,164 | |||
|
Goodwill
|
415,258 | |||
|
Intangible assets:
|
||||
|
Tradename
|
131,560 | |||
|
Leasehold rights and interests
|
103,955 | |||
|
Total intangible assets
|
235,515 | |||
|
Other long-term assets
|
7,786 | |||
|
Current liabilities
|
(223,171 | ) | ||
|
Long-term liabilities
|
(76,807 | ) | ||
|
Total purchase price
|
$ | 580,407 | ||
In determining the purchase price allocation, management
considered, among other factors, the Company’s intention to
use the acquired assets. The total weighted-average amortization
period for the intangible assets, excluding goodwill and the
Micromania tradename, is approximately ten years. The intangible
assets are being amortized based upon the pattern in which the
economic benefits of the intangible assets are being utilized,
with no expected residual value. None of the goodwill is
deductible for income tax purposes. Note 8 provides
additional information concerning goodwill and intangible assets.
Merger-related expenses totaling $4,593 shown in the fiscal
2008 statements of operations include a net loss related to
the change in foreign exchange rates related to the funding of
the Micromania acquisition and other costs considered to be of a
one-time or short-term nature which are included in operating
earnings.
The acquisition of Micromania is an important part of the
Company’s European and overall growth strategy and gives
the Company an immediate entrance into the second largest video
game market in Europe. The amount the Company paid in excess of
the fair value of the net assets acquired was primarily for
(i) the expected future cash flows derived from the
existing business and its infrastructure, (ii) the
geographical benefits from adding stores in a new large, growing
market without cannibalizing existing sales,
(iii) expanding the Company’s expertise in the
European video game market as a whole, and (iv) increasing
the Company’s impact on the European market, including
increasing the Company’s purchasing power.
On April 5, 2008, the Company purchased all the outstanding
stock of Free Record Shop Norway AS, a Norwegian private limited
liability company (“FRS”), for $21,006, net of cash
acquired. FRS operated 49 record stores in Norway, nine of which
have been closed as of January 31, 2009. The Company has
converted the remaining stores into video game stores with an
inventory assortment similar to its other stores in Norway. The
acquisition was accounted for using the purchase method of
accounting, with the excess of the purchase price over the net
assets acquired, in the amount of $17,981, recorded as goodwill.
The Company has included the results of operations of FRS, which
were not material, in its financial statements beginning on the
closing date of the acquisition on April 5, 2008.
In 2003, the Company purchased a 51% controlling interest in
GameStop Group Limited, which operates stores in Ireland and the
United Kingdom. Under the terms of the purchase agreement, the
minority interest owners have the ability to require the Company
to purchase their remaining shares in incremental percentages at
a price to
F-15
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
be determined based partially on the Company’s price to
earnings ratio and GameStop Group Limited’s earnings.
Shares representing approximately 16% were purchased in June
2008 for $27,383 and in July 2009 an additional 16% was
purchased for $4,667, bringing the Company’s total interest
in GameStop Group Limited to approximately 84%. The Company
already consolidates the results of GameStop Group Limited;
therefore, any additional amounts acquired will not have a
material effect on the Company’s financial statements.
On November 4, 2009, the Company purchased a controlling
interest in Omac Global Medial Limited, an online video game
developer and operator, as part of the Company’s overall
digital growth strategy. The acquisition in the amount of $3,790
was accounted for using the acquisition method of accounting,
with the excess of the purchase price over the net assets
acquired, in the amount of $3,763, recorded as goodwill.
The pro forma effect assuming the above acquisitions were made
at the beginning of fiscal 2007 is not material to the
Company’s consolidated financial statements.
| 3. | Vendor Arrangements |
The Company and approximately 50 of its vendors participate in
cooperative advertising programs and other vendor marketing
programs in which the vendors provide the Company with cash
consideration in exchange for marketing and advertising the
vendors’ products. The Company’s accounting for
cooperative advertising arrangements and other vendor marketing
programs results in a portion of the consideration received from
the Company’s vendors reducing the product costs in
inventory rather than as an offset to the Company’s
marketing and advertising costs. The consideration serving as a
reduction in inventory is recognized in cost of sales as
inventory is sold. The amount of vendor allowances to be
recorded as a reduction of inventory was determined by
calculating the ratio of vendor allowances in excess of
specific, incremental and identifiable advertising and
promotional costs to merchandise purchases. The Company then
applied this ratio to the value of inventory in determining the
amount of vendor reimbursements to be recorded as a reduction to
inventory reflected on the balance sheet.
The cooperative advertising programs and other vendor marketing
programs generally cover a period from a few days up to a few
weeks and include items such as product catalog advertising,
in-store display promotions, Internet advertising, co-op print
advertising, product training and promotion at the
Company’s annual store managers conference. The allowance
for each event is negotiated with the vendor and requires
specific performance by the Company to be earned.
Specific, incremental and identifiable advertising and
promotional costs were $92,952, $92,083 and $76,074 in the
52 week periods ended January 30, 2010,
January 31, 2009 and February 2, 2008, respectively.
Vendor allowances received in excess of advertising expenses
were recorded as a reduction of cost of sales of $116,877,
$125,115 and $92,425 for the 52 week periods ended
January 30, 2010, January 31, 2009 and
February 2, 2008, respectively. The amounts deferred as a
reduction in inventory were $654 and $3,193 for the
52 weeks ended January 30, 2010 and January 31,
2009, respectively. The amount recognized as income related to
the capitalization of excess vendor allowances was $6,113 for
the 52 weeks ended February 2, 2008.
F-16
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 4. | Computation of Net Income per Common Share |
As of February 3, 2007, the Company had two classes of
common stock. Subsequent to February 3, 2007, the Company
completed the conversion of Class B common stock to
Class A common stock and the Stock Split and now has only
Class A common stock outstanding. A reconciliation of
shares used in calculating basic and diluted net income per
common share is as follows:
|
52 Weeks
|
52 Weeks
|
52 Weeks
|
||||||||||
|
Ended
|
Ended
|
Ended
|
||||||||||
|
January 30,
|
January 31,
|
February 2,
|
||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands, except per share data) | ||||||||||||
|
Net income attributable to GameStop
|
$ | 377,265 | $ | 398,282 | $ | 288,291 | ||||||
|
Weighted average common shares outstanding
|
164,525 | 163,190 | 158,226 | |||||||||
|
Dilutive effect of options and warrants on common stock
|
3,350 | 4,481 | 6,618 | |||||||||
|
Common shares and dilutive potential common shares
|
167,875 | 167,671 | 164,844 | |||||||||
|
Net income per common share:
|
||||||||||||
|
Basic
|
$ | 2.29 | $ | 2.44 | $ | 1.82 | ||||||
|
Diluted
|
$ | 2.25 | $ | 2.38 | $ | 1.75 | ||||||
The following table contains information on restricted shares
and options to purchase shares of Class A common stock
which were excluded from the computation of diluted earnings per
share because they were anti-dilutive:
|
Anti-
|
Range of
|
|||||||||||
|
Dilutive
|
Exercise
|
Expiration
|
||||||||||
| Shares | Prices | Dates | ||||||||||
| (In thousands, except per share data) | ||||||||||||
|
52 Weeks Ended January 30, 2010
|
3,218 | $ | 26.02 - 49.95 | 2011 - 2019 | ||||||||
|
52 Weeks Ended January 31, 2009
|
2,473 | $ | 26.68 - 49.95 | 2010 - 2018 | ||||||||
|
52 Weeks Ended February 2, 2008
|
— | — | — | |||||||||
| 5. | Fair Value Measurements and Financial Instruments |
The Company defines fair value as the price that would be
received from selling an asset or paid to transfer a liability
in an orderly transaction between market participants at the
measurement date. Fair value accounting guidance applies to our
forward exchange contracts, foreign currency options and
cross-currency swaps (together, the “Foreign Currency
Contracts”), Company-owned life insurance policies with a
cash surrender value and certain nonqualified deferred
compensation liabilities that are measured at fair value on a
recurring basis in periods subsequent to initial recognition.
Fair value accounting guidance requires disclosures that
categorize assets and liabilities measured at fair value into
one of three different levels depending on the observability of
the inputs employed in the measurement. Level 1 inputs are
quoted prices in active markets for identical assets or
liabilities. Level 2 inputs are observable inputs other
than quoted prices included within Level 1 for the asset or
liability, either directly or indirectly through
market-corroborated inputs. Level 3 inputs are unobservable
inputs for the asset or liability reflecting our assumptions
about pricing by market participants.
We value our Foreign Currency Contracts, Company-owned life
insurance policies with cash surrender values and certain
nonqualified deferred compensation liabilities based on
Level 2 inputs using quotations provided by major market
news services, such as Bloomberg and The Wall Street Journal,
and industry-standard models that consider various assumptions,
including quoted forward prices, time value, volatility factors,
and contractual prices
F-17
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
for the underlying instruments, as well as other relevant
economic measures. When appropriate, valuations are adjusted to
reflect credit considerations, generally based on available
market evidence.
The following table provides the fair value of our assets and
liabilities measured on a recurring basis and recorded on our
consolidated balance sheets, in thousands:
|
January 30, 2010
|
January 31, 2009
|
|||||||
| Level 2 | Level 2 | |||||||
|
Assets
|
||||||||
|
Foreign Currency Contracts
|
$ | 20,062 | $ | 12,104 | ||||
|
Company-owned life insurance
|
2,584 | 2,134 | ||||||
|
Total assets
|
$ | 22,646 | $ | 14,238 | ||||
|
Liabilities
|
||||||||
|
Foreign Currency Contracts
|
$ | 8,991 | $ | 11,766 | ||||
|
Nonqualified deferred compensation
|
762 | 905 | ||||||
|
Total liabilities
|
$ | 9,753 | $ | 12,671 | ||||
The Company uses Foreign Currency Contracts to manage currency
risk primarily related to intercompany loans denominated in
non-functional currencies and certain foreign currency assets
and liabilities. These Foreign Currency Contracts are not
designated as hedges and, therefore, changes in the fair values
of these derivatives are recognized in earnings, thereby
offsetting the current earnings effect of the re-measurement of
related intercompany loans and foreign currency assets and
liabilities. We do not use derivative financial instruments for
trading or speculative purposes. We are exposed to counterparty
credit risk on all of our derivative financial instruments and
cash equivalent investments. The Company manages counterparty
risk according to the guidelines and controls established under
comprehensive risk management and investment policies. We
continuously monitor our counterparty credit risk and utilize a
number of different counterparties to minimize our exposure to
potential defaults. We do not require collateral under
derivative or investment agreements.
The fair values of derivative instruments not receiving hedge
accounting treatment in the consolidated balance sheets
presented herein were as follows, in thousands:
| January 30, 2010 | January 31, 2009 | |||||||
|
Assets
|
||||||||
|
Foreign Currency Contracts
|
||||||||
|
Other current assets
|
$ | 20,062 | $ | 12,104 | ||||
|
Liabilities
|
||||||||
|
Foreign Currency Contracts
|
||||||||
|
Accrued liabilities
|
(8,991 | ) | (10,164 | ) | ||||
|
Other long-term liabilities
|
— | (1,602 | ) | |||||
|
Total derivatives
|
$ | 11,071 | $ | 338 | ||||
As of January 30, 2010, the Company had a series of Forward
Currency Contracts outstanding, with a gross notional value of
$643,490 and a net notional value of $356,561. For the
52 weeks ended January 30, 2010, the Company
recognized gains of $8,683 in selling, general and
administrative expenses related to the trading of derivative
instruments. As of January 31, 2009, the Company had a
series of Forward Currency Contracts outstanding, with a gross
notional value of $389,447 and a net notional value of $189,205.
For the 52 weeks
F-18
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
ended January 31, 2009, the Company recognized gains of
$5,494 in selling, general and administrative expenses related
to the trading of derivative instruments.
The Company’s carrying value of financial instruments
approximates their fair value, except for differences with
respect to the senior notes. The fair value of the
Company’s senior notes payable in the accompanying
consolidated balance sheets is estimated based on recent quotes
from brokers. As of January 30, 2010, the senior notes
payable had a carrying value of $447,343 and a fair value of
$465,975. As of January 31, 2009, the senior notes payable
had a carrying value of $545,712 and a fair value of $547,250.
| 6. | Receivables, Net |
Receivables consist primarily of bankcard receivables and other
receivables. Other receivables include receivables from
Game
Informer Magazine
advertising customers, receivables from
landlords for tenant allowances and receivables from vendors for
merchandise returns, vendor marketing allowances and various
other programs. An allowance for doubtful accounts has been
recorded to reduce receivables to an amount expected to be
collectible. Receivables consisted of the following:
|
January 30,
|
January 31,
|
|||||||
| 2010 | 2009 | |||||||
| (In thousands) | ||||||||
|
Bankcard receivables
|
$ | 51,460 | $ | 45,650 | ||||
|
Other receivables
|
15,931 | 24,097 | ||||||
|
Allowance for doubtful accounts
|
(3,385 | ) | (3,766 | ) | ||||
|
Total receivables, net
|
$ | 64,006 | $ | 65,981 | ||||
| 7. | Accrued Liabilities |
Accrued liabilities consisted of the following:
|
January 30,
|
January 31,
|
|||||||
| 2010 | 2009 | |||||||
| (In thousands) | ||||||||
|
Customer liabilities
|
$ | 199,175 | $ | 163,904 | ||||
|
Deferred revenue
|
61,203 | 42,936 | ||||||
|
Accrued rent
|
18,690 | 20,760 | ||||||
|
Accrued interest
|
15,862 | 18,416 | ||||||
|
Employee compensation and related taxes
|
89,771 | 83,475 | ||||||
|
Other taxes
|
63,692 | 61,434 | ||||||
|
Settlement of treasury share purchases
|
64,615 | — | ||||||
|
Other accrued liabilities
|
119,095 | 107,328 | ||||||
|
Total accrued liabilities
|
$ | 632,103 | $ | 498,253 | ||||
F-19
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 8. | Goodwill, Intangible Assets and Deferred Financing Fees |
The changes in the carrying amount of goodwill for the
Company’s business segments for the 52 weeks ended
January 31, 2009 and the 52 weeks ended
January 30, 2010 were as follows:
| United States | Canada | Australia | Europe | Total | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Balance at February 2, 2008
|
$ | 1,096,622 | $ | 116,818 | $ | 147,224 | $ | 41,776 | $ | 1,402,440 | ||||||||||
|
Goodwill acquired, net
|
— | — | 423 | 459,244 | 459,667 | |||||||||||||||
|
Foreign currency translation adjustment
|
— | (4,847 | ) | (22,084 | ) | (2,165 | ) | (29,096 | ) | |||||||||||
|
Balance at January 31, 2009
|
1,096,622 | 111,971 | 125,563 | 498,855 | 1,833,011 | |||||||||||||||
|
Goodwill acquired, net
|
3,763 | — | — | 2,561 | 6,324 | |||||||||||||||
|
Foreign currency translation adjustment
|
(220 | ) | 16,589 | 48,564 | 42,245 | 107,178 | ||||||||||||||
|
Balance at January 30, 2010
|
$ | 1,100,165 | $ | 128,560 | $ | 174,127 | $ | 543,661 | $ | 1,946,513 | ||||||||||
There were no impairments to goodwill during the 52 weeks
ended January 30, 2010 and January 31, 2009.
Intangible assets consist of
point-of-sale
software and amounts attributed to favorable leasehold interests
acquired in the EB merger and Micromania acquisition and are
included in other non-current assets in the consolidated balance
sheet. The tradename acquired in the Micromania acquisition in
the amount of $133,231 has been determined to be an indefinite
lived intangible asset and is therefore not subject to
amortization. The total weighted-average amortization period for
the remaining intangible assets, excluding goodwill, is
approximately ten years. The intangible assets are being
amortized based upon the pattern in which the economic benefits
of the intangible assets are being utilized, with no expected
residual value.
The deferred financing fees associated with the Company’s
revolving credit facility and senior notes issued in connection
with the financing of the EB merger are included in other
noncurrent assets in the consolidated balance sheet. The
deferred financing fees are being amortized over five and seven
years to match the terms of the revolving credit facility and
the senior notes, respectively.
F-20
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The changes in the carrying amount of deferred financing fees
and other intangible assets for the 52 weeks ended
January 31, 2009 and January 30, 2010 were as follows:
|
Deferred
|
Other
|
|||||||
| Financing Fees | Intangible Assets | |||||||
| (In thousands) | ||||||||
|
Balance at February 2, 2008
|
$ | 8,963 | $ | 14,214 | ||||
|
Addition for revolving credit facility amendment
|
1,025 | — | ||||||
|
Addition for term loan facility fee
|
2,525 | — | ||||||
|
Write-off of deferred financing fees remaining on repurchased
senior notes (see Note 9)
|
(337 | ) | — | |||||
|
Addition of non-compete agreement
|
— | 2,987 | ||||||
|
Addition of tradename from Micromania acquisition
|
— | 133,231 | ||||||
|
Addition of leasehold rights from Micromania acquisition
|
— | 105,292 | ||||||
|
Amortization for the 52 weeks ended January 31, 2009
|
(3,256 | ) | (7,934 | ) | ||||
|
Balance at January 31, 2009
|
8,920 | 247,790 | ||||||
|
Addition for revolving credit facility amendment
|
134 | — | ||||||
|
Write-off of deferred financing fees remaining on repurchased
senior notes (see Note 9)
|
(808 | ) | — | |||||
|
Addition of leasehold rights
|
— | 7,339 | ||||||
|
Adjustment for foreign currency translation
|
— | 19,901 | ||||||
|
Amortization for the 52 weeks ended January 30, 2010
|
(2,566 | ) | (15,170 | ) | ||||
|
Balance at January 30, 2010
|
$ | 5,680 | $ | 259,860 | ||||
The gross carrying value and accumulated amortization of
deferred financing fees as of January 30, 2010 were $18,798
and $13,118, respectively.
The estimated aggregate amortization expenses for deferred
financing fees and other intangible assets for the next five
fiscal years are approximately:
|
Amortization
|
Amortization of
|
|||||||
|
of Deferred
|
Other
|
|||||||
|
Year Ended
|
Financing Fees | Intangible Assets | ||||||
| (In thousands) | ||||||||
|
January 2011
|
$ | 2,420 | $ | 13,411 | ||||
|
January 2012
|
2,420 | 11,625 | ||||||
|
January 2013
|
840 | 10,927 | ||||||
|
January 2014
|
— | 10,539 | ||||||
|
January 2015
|
— | 10,456 | ||||||
| $ | 5,680 | $ | 56,958 | |||||
| 9. | Debt |
In October 2005, the Company entered into a five-year, $400,000
Credit Agreement (the “Revolver”), including a $50,000
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 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 extension of the Revolver
to 2012 reduces our exposure to the current tightening in the
credit markets.
F-21
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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 per annum 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
January 30, 2010, 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.
During the 2009 fiscal year, the Company borrowed and repaid
$115,000 under the Revolver. As of January 30, 2010, there
were no borrowings outstanding under the Revolver and letters of
credit outstanding totaled $8,821.
In September 2007, the Company’s Luxembourg subsidiary
entered into a discretionary $20,000 Uncommitted Line of Credit
(the “Line of Credit”) with Bank of America. There is
no term associated with the Line of Credit and Bank of America
may withdraw the facility at any time without notice. The Line
of Credit will be made available to the Company’s foreign
subsidiaries for use primarily as a bank overdraft facility for
short-term liquidity needs and for the issuance of bank
guarantees and letters of credit to support operations. As of
January 30, 2010, there were no cash overdrafts outstanding
under the Line of Credit and bank guarantees outstanding totaled
$15,983.
In September 2005, the Company, along with GameStop, Inc. as
co-issuer (together with the Company, the “Issuers”),
completed the offering of $300,000 aggregate principal amount of
Senior Floating Rate Notes due 2011 (the “Senior Floating
Rate Notes”) and $650,000 aggregate principal amount of
Senior Notes due 2012 (the “Senior Notes” and,
together with the Senior Floating Rate Notes, the
“Notes”). The Notes were issued under an Indenture,
dated September 28, 2005 (the “Indenture”), by
and among the Issuers, the subsidiary guarantors party thereto,
and Citibank, N.A., as trustee (the “Trustee”). The
net proceeds of the offering were used to pay the cash portion
of the merger consideration paid to the stockholders of EB in
connection with the EB merger. In November 2006, Wilmington
Trust Company was appointed as the new Trustee for the
Notes.
The Senior Notes bear interest at 8.0% per annum, mature on
October 1, 2012 and were priced at 98.688%, resulting in a
discount at the time of issue of $8,528. The discount is being
amortized using the effective interest method. As of
January 30, 2010, the unamortized original issue discount
was $2,657. The Issuers pay interest on the Senior Notes
semi-annually, in arrears, every April 1 and October 1, to
holders of record on the immediately preceding March 15 and
September 15, and at maturity.
The Indenture contains affirmative and negative covenants
customary for such financings, including, among other things,
limitations on (1) the incurrence of additional debt,
(2) restricted payments, (3) liens, (4) sale and
leaseback transactions and (5) asset sales. Events of
default provided for in the Indenture include, among other
things, failure to pay interest or principal on the Notes, other
breaches of covenants in the Indenture, and certain events of
bankruptcy and insolvency. As of January 30, 2010, the
Company was in compliance with all covenants associated with the
Revolver and the Indenture.
Under certain conditions, the Issuers may on any one or more
occasions prior to maturity redeem up to 100% of the aggregate
principal amount of Senior Notes issued under the Indenture at
redemption prices at or in excess of 100% of the principal
amount thereof plus accrued and unpaid interest, if any, to the
redemption date. The circumstances which would limit the
percentage of the Notes which may be redeemed or which would
require the
F-22
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Company to pay a premium in excess of 100% of the principal
amount are defined in the Indenture. Upon a Change of Control
(as defined in the Indenture), the Issuers are required to offer
to purchase all of the Notes then outstanding at 101% of the
principal amount thereof plus accrued and unpaid interest, if
any, to the date of purchase. The Issuers may acquire Senior
Notes by means other than redemption, whether by tender offer,
open market purchases, negotiated transactions or otherwise, in
accordance with applicable securities laws, so long as such
acquisitions do not otherwise violate the terms of the Indenture.
Between May 2006 and September 2009, the Company repurchased and
redeemed the $300,000 of Senior Floating Rate Notes and $200,000
of Senior Notes under previously announced buybacks authorized
by the Company’s Board of Directors. All of the authorized
amounts were repurchased or redeemed and the repurchased Notes
were delivered to the Trustee for cancellation. The associated
loss on the retirement of debt was $5,323, $2,331 and $12,591
for the 52 week periods ended January 30, 2010,
January 31, 2009 and February 2, 2008, respectively,
which consisted of the premium paid to retire the Notes and the
write-off of the deferred financing fees and the original issue
discount on the Notes.
The changes in the carrying amount of the Senior Notes for the
Company for the 52 weeks ended January 31, 2009 and
the 52 weeks ended January 30, 2010 were as follows,
in thousands:
|
Balance at February 2, 2008
|
$ | 574,473 | ||
|
Repurchase of Senior Notes, net
|
(28,761 | ) | ||
|
Balance at January 31, 2009
|
$ | 545,712 | ||
|
Repurchase of Senior Notes, net
|
(98,369 | ) | ||
|
Balance at January 30, 2010
|
$ | 447,343 | ||
In November 2008, in connection with the acquisition of
Micromania, the Company entered into a Term Loan Agreement (the
“Term Loan Agreement”) with Bank of America, N.A. and
Banc of America Securities LLC. The Term Loan Agreement provided
for term loans (“Term Loans”) in the aggregate of
$150,000, consisting of a $50,000 secured term loan (“Term
Loan A”) and a $100,000 unsecured term loan (“Term
Loan B”). The effective interest rate on Term Loan A was
5.75% per annum and the effective rate on Term Loan B ranged
from 5.0% to 5.75% per annum.
In addition to the $150,000 under the Term Loans, the Company
borrowed $275,000 under the Revolver to complete the acquisition
of Micromania in November 2008. As of January 31, 2009, the
Revolver and the Term Loans were repaid in full.
In October 2004, GameStop issued a promissory note in favor of
Barnes & Noble, Inc. (“Barnes &
Noble”) in the principal amount of $74,020 in connection
with the repurchase of the Company’s common stock held by
Barnes & Noble. The note was unsecured and bore
interest at 5.5% per annum, payable with each principal
installment. The final scheduled principal payment of $12,173
was made in October 2007, satisfying the promissory note in full.
As of January 31, 2009 and January 30, 2010, the only
long-term debt outstanding was the Senior Notes.
The maturity on the $450,000 Senior Notes, gross of the
unamortized original issue discount of $2,657, occurs in the
fiscal year ending January 2013.
| 10. | Leases |
The Company leases retail stores, warehouse facilities, office
space and equipment. These are generally leased under
noncancelable agreements that expire at various dates through
2034 with various renewal options for additional periods. The
agreements, which have been classified as operating leases,
generally provide for minimum and, in some cases, percentage
rentals and require the Company to pay all insurance, taxes and
other maintenance
F-23
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
costs. Leases with step rent provisions, escalation clauses or
other lease concessions are accounted for on a straight-line
basis over the lease term, which includes renewal option periods
when the Company is reasonably assured of exercising the renewal
options and includes “rent holidays” (periods in which
the Company is not obligated to pay rent). The Company does not
have leases with capital improvement funding. Percentage rentals
are based on sales performance in excess of specified minimums
at various stores.
Approximate rental expenses under operating leases were as
follows:
|
52 Weeks
|
52 Weeks
|
52 Weeks
|
||||||||||
|
Ended
|
Ended
|
Ended
|
||||||||||
|
January 30,
|
January 31,
|
February 2,
|
||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Minimum
|
$ | 354,310 | $ | 303,727 | $ | 255,259 | ||||||
|
Percentage rentals
|
22,580 | 22,927 | 19,968 | |||||||||
| $ | 376,890 | $ | 326,654 | $ | 275,227 | |||||||
Future minimum annual rentals, excluding percentage rentals,
required under leases that had initial, noncancelable lease
terms greater than one year, as of January 30, 2010 are
approximately:
|
Year Ended
|
Amount | |||
| (In thousands) | ||||
|
January 2011
|
$ | 338,745 | ||
|
January 2012
|
282,537 | |||
|
January 2013
|
228,683 | |||
|
January 2014
|
160,224 | |||
|
January 2015
|
100,420 | |||
|
Thereafter
|
154,933 | |||
| $ | 1,265,542 | |||
| 11. | Commitments and Contingencies |
Contingencies
On February 14, 2005, and as amended, Steve Strickland, as
personal representative of the Estate of Arnold Strickland,
deceased, Henry Mealer, as personal representative of the Estate
of Ace Mealer, deceased, and Willie Crump, as personal
representative of the Estate of James Crump, deceased, filed a
wrongful death lawsuit against GameStop, Sony, Take-Two
Interactive, Rock Star Games and Wal-Mart (collectively, the
“Defendants”) and Devin Moore, alleging that
Defendants’ actions in designing, manufacturing, marketing
and supplying Defendant Moore with violent video games were
negligent and contributed to Defendant Moore killing Arnold
Strickland, Ace Mealer and James Crump. Moore was found
guilty of capital murder in a criminal trial and was sentenced
to death in August 2005.
Plaintiffs’ counsel named an expert who plaintiffs
indicated would testify that violent video games were a
substantial factor in causing the murders. The testimony of
plaintiffs’ psychologist expert was heard by the Court on
October 30, 2008, and the motion to exclude that testimony
was argued on December 12, 2008. On July 30, 2009, the
trial court entered its Order granting summary judgment for all
defendants, dismissing the case with prejudice on the grounds
that plaintiffs’ expert’s testimony did not satisfy
the Frye standard for expert admissibility. Subsequent to the
entry of the Order, the plaintiffs filed a notice of appeal.
The Company does not believe there is sufficient information to
estimate the amount of the possible loss, if any, resulting from
the lawsuit if the plaintiffs’ appeal is successful.
F-24
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
In the ordinary course of the Company’s business, the
Company is, from time to time, subject to various other legal
proceedings, including matters involving wage and hour employee
class actions. The Company may enter into discussions regarding
settlement of these and other types of lawsuits, and may enter
into settlement agreements, if it believes settlement is in the
best interest of the Company’s shareholders. Management
does not believe that any such other legal proceedings or
settlements, individually or in the aggregate, will have a
material adverse effect on the Company’s financial
condition, results of operations or liquidity.
In 2003, the Company purchased a 51% controlling interest in
GameStop Group Limited, which operates stores in Ireland and the
United Kingdom. Under the terms of the purchase agreement, the
minority interest owners have the ability to require the Company
to purchase their remaining shares in incremental percentages at
a price to be determined based partially on the Company’s
price to earnings ratio and GameStop Group Limited’s
earnings. Shares representing approximately 16% were purchased
in June 2008 and in July 2009 an additional 16% was purchased,
bringing the Company’s total interest in GameStop Group
Limited to approximately 84%. The Company already consolidates
the results of GameStop Group Limited; therefore, any additional
amounts acquired will not have a material effect on the
Company’s financial statements.
| 12. | Income Taxes |
The provision for income tax consisted of the following:
|
52 Weeks
|
52 Weeks
|
52 Weeks
|
||||||||||
|
Ended
|
Ended
|
Ended
|
||||||||||
|
January 30,
|
January 31,
|
February 2,
|
||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Current tax expense:
|
||||||||||||
|
Federal
|
$ | 162,339 | $ | 201,438 | $ | 120,606 | ||||||
|
State
|
12,119 | 18,933 | 13,436 | |||||||||
|
Foreign
|
39,556 | 39,999 | 31,874 | |||||||||
| 214,014 | 260,370 | 165,916 | ||||||||||
|
Deferred tax expense (benefit):
|
||||||||||||
|
Federal
|
219 | (15,858 | ) | (2,582 | ) | |||||||
|
State
|
1,496 | (7,468 | ) | (1,805 | ) | |||||||
|
Foreign
|
(2,925 | ) | (1,375 | ) | (8,764 | ) | ||||||
| (1,210 | ) | (24,701 | ) | (13,151 | ) | |||||||
|
Total income tax expense
|
$ | 212,804 | $ | 235,669 | $ | 152,765 | ||||||
The components of earnings before income tax expense consisted
of the following:
|
52 Weeks
|
52 Weeks
|
52 Weeks
|
||||||||||
|
Ended
|
Ended
|
Ended
|
||||||||||
|
January 30,
|
January 31,
|
February 2,
|
||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
United States
|
$ | 508,961 | $ | 532,787 | $ | 364,929 | ||||||
|
International
|
79,572 | 101,164 | 76,127 | |||||||||
|
Total
|
$ | 588,533 | $ | 633,951 | $ | 441,056 | ||||||
F-25
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The difference in income tax provided and the amounts determined
by applying the statutory rate to income before income taxes
resulted from the following:
|
52 Weeks
|
52 Weeks
|
52 Weeks
|
||||||||||
|
Ended
|
Ended
|
Ended
|
||||||||||
|
January 30,
|
January 31,
|
February 2,
|
||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Federal statutory tax rate
|
35.0 | % | 35.0 | % | 35.0 | % | ||||||
|
State income taxes, net of federal effect
|
1.5 | 1.1 | 0.5 | |||||||||
|
Foreign income taxes
|
1.5 | 0.5 | (0.8 | ) | ||||||||
|
Other (including permanent differences)
|
(1.8 | ) | 0.6 | (0.1 | ) | |||||||
| 36.2 | % | 37.2 | % | 34.6 | % | |||||||
The Company’s effective tax rate decreased from 37.2% in
the 52 weeks ended January 31, 2009 to 36.2% in the
52 weeks ended January 30, 2010, primarily due to
audit settlements and statute expirations. The Company’s
effective tax rate increased from 34.6% in the 52 weeks
ended February 2, 2008 to 37.2% in the 52 weeks ended
January 31, 2009, primarily due to expenses related to the
mergers and acquisitions and associated corporate structuring.
Valuation allowances on foreign net operating losses were
released during fiscal 2007 upon such subsidiaries attaining
profitability.
Differences between financial accounting principles and tax laws
cause differences between the bases of certain assets and
liabilities for financial reporting purposes and tax purposes.
The tax effects of these differences, to the extent they are
temporary, are recorded as deferred tax assets and liabilities
and consisted of the following components:
|
January 30,
|
January 31,
|
|||||||
| 2010 | 2009 | |||||||
| (In thousands) | ||||||||
|
Deferred tax asset:
|
||||||||
|
Fixed assets
|
$ | 29,785 | $ | 32,460 | ||||
|
Inventory obsolescence reserve
|
17,371 | 16,580 | ||||||
|
Deferred rents
|
14,738 | 13,001 | ||||||
|
Stock-based compensation
|
22,652 | 27,081 | ||||||
|
Net operating losses
|
12,250 | 15,283 | ||||||
|
Other
|
9,979 | 13,565 | ||||||
|
Total deferred tax assets
|
106,775 | 117,970 | ||||||
|
Deferred tax liabilities:
|
||||||||
|
Goodwill
|
(37,897 | ) | (34,033 | ) | ||||
|
Prepaid expenses
|
(3,956 | ) | (4,392 | ) | ||||
|
Acquired intangible assets
|
(63,466 | ) | (60,576 | ) | ||||
|
Valuation allowance
|
(2,037 | ) | — | |||||
|
Other
|
(3,656 | ) | (2,877 | ) | ||||
|
Total deferred tax liabilities
|
(111,012 | ) | (101,878 | ) | ||||
|
Net
|
$ | (4,237 | ) | $ | 16,092 | |||
|
Financial statements:
|
||||||||
|
Current deferred tax assets
|
$ | 21,229 | $ | 23,615 | ||||
|
Deferred tax liabilities
|
$ | (25,466 | ) | $ | (7,523 | ) | ||
F-26
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The Company and its subsidiaries file income tax returns in the
U.S. federal jurisdiction and various states and foreign
jurisdictions. The Internal Revenue Service (“IRS”)
commenced an examination of the Company’s U.S. income
tax returns for the fiscal years ended on February 3, 2007
and February 2, 2008 during fiscal 2009. The Company does
not anticipate any adjustments that would result in a material
impact on its consolidated financial statements as a result of
these audits. The Company is no longer subject to
U.S. federal income tax examination for years before and
including the fiscal year ended January 28, 2006. The IRS
completed an examination of EB’s U.S. income tax
return for the short year ended October 8, 2005 during
fiscal 2009. EB is no longer subject to U.S. federal income
tax examination by tax authorities for fiscal years prior to and
including the short year ended October 8, 2005.
With respect to state and local jurisdictions and countries
outside of the United States, the Company and its subsidiaries
are typically subject to examination for three to six years
after the income tax returns have been filed. Although the
outcome of tax audits is always uncertain, the Company believes
that adequate amounts of tax, interest and penalties have been
provided for in the accompanying financial statements for any
adjustments that might be incurred due to state, local or
foreign audits.
As of January 30, 2010, the gross amount of unrecognized
tax benefits was approximately $35,184. If the Company were to
prevail on all uncertain tax positions, the net effect would be
a benefit to the Company’s effective tax rate of
approximately $28,245, exclusive of any benefits related to
interest and penalties.
A reconciliation of the changes in the gross balances of
unrecognized tax benefits follows (in thousands):
|
January 30,
|
January 31,
|
February 2,
|
||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Beginning balance of unrecognized tax benefits
|
$ | 32,234 | $ | 24,225 | $ | 25,250 | ||||||
|
Increases related to current period tax positions
|
4,972 | 974 | 132 | |||||||||
|
Increases (decreases) related to prior period tax positions
|
8,139 | 8,667 | (116 | ) | ||||||||
|
Reductions as a result of a lapse of the applicable statute of
limitations
|
(1,542 | ) | (1,072 | ) | (1,041 | ) | ||||||
|
Reductions as a result of settlements with taxing authorities
|
(8,619 | ) | (560 | ) | — | |||||||
|
Ending balance of unrecognized tax benefits
|
$ | 35,184 | $ | 32,234 | $ | 24,225 | ||||||
The Company recognizes accrued interest and penalties related to
unrecognized tax benefits in income tax expense. As of
January 30, 2010, January 31, 2009 and
February 2, 2008 the Company had approximately $6,939,
$5,656 and $3,674, respectively, in interest and penalties
related to unrecognized tax benefits accrued of which
approximately $1,417, $2,276 and $572 of benefit was recognized
through income tax expense in the fiscal years ended
January 30, 2010, January 31, 2009 and
February 2, 2008, respectively. If the Company were to
prevail on all uncertain tax positions, the reversal of this
accrual would also be a benefit to the Company’s effective
tax rate.
It is reasonably possible that the amount of the unrecognized
benefit with respect to certain of the Company’s
unrecognized tax positions could significantly increase or
decrease within the next 12 months as a result of settling
ongoing audits. At this time, an estimate of the range of the
reasonably possible outcomes cannot be made.
| 13. | Stock Incentive Plan |
Effective June 2009, the Company’s stockholders voted to
amend the Third Amended and Restated 2001 Incentive Plan (the
“Incentive Plan”) to provide for issuance under the
Incentive Plan of the Company’s Class A common stock.
The Incentive Plan provides a maximum aggregate amount of
46,500 shares of Class A common stock with respect to
which options may be granted and provides for the granting of
incentive stock options, non-qualified stock options, and
restricted stock, which may include, without limitation,
restrictions on the right to vote such shares and restrictions
on the right to receive dividends on such shares. The options to
purchase Class A
F-27
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
common shares are issued at fair market value of the underlying
shares on the date of grant. In general, the options vest and
become exercisable ratably over a three-year period, commencing
one year after the grant date, and expire ten years from
issuance. Shares issued upon exercise of options are newly
issued shares.
Stock
Options
A summary of the status of the Company’s stock options is
presented below:
|
Weighted-
|
||||||||
|
Average
|
||||||||
|
Exercise
|
||||||||
| Shares | Price | |||||||
| (Thousands of shares) | ||||||||
|
Balance, February 3, 2007
|
18,756 | $ | 8.64 | |||||
|
Granted
|
939 | $ | 26.68 | |||||
|
Exercised
|
(8,480 | ) | $ | 7.65 | ||||
|
Forfeited
|
(350 | ) | $ | 20.16 | ||||
|
Balance, February 2, 2008
|
10,865 | $ | 10.60 | |||||
|
Granted
|
1,362 | $ | 49.95 | |||||
|
Exercised
|
(2,279 | ) | $ | 12.70 | ||||
|
Forfeited
|
(257 | ) | $ | 36.12 | ||||
|
Balance, January 31, 2009
|
9,691 | $ | 14.96 | |||||
|
Granted
|
1,419 | $ | 26.02 | |||||
|
Exercised
|
(302 | ) | $ | 14.77 | ||||
|
Forfeited
|
(226 | ) | $ | 35.61 | ||||
|
Balance, January 30, 2010
|
10,582 | $ | 16.00 | |||||
The following table summarizes information as of
January 30, 2010 concerning outstanding and exercisable
options:
| Options Outstanding | Options Exercisable | |||||||||||||||||||
|
Weighted-
|
Weighted-
|
Weighted-
|
||||||||||||||||||
|
Number
|
Average
|
Average
|
Number
|
Average
|
||||||||||||||||
|
Outstanding
|
Remaining
|
Contractual
|
Exercisable
|
Exercise
|
||||||||||||||||
|
Range of Exercise Prices
|
(000s) | Life (Years) | Price | (000s) | Price | |||||||||||||||
|
$ 1.76 - $ 2.25
|
3,507 | 1.36 | $ | 2.25 | 3,507 | $ | 2.25 | |||||||||||||
|
$ 5.90 - $ 8.24
|
235 | 3.67 | $ | 6.99 | 235 | $ | 6.99 | |||||||||||||
|
$ 9.00 - $10.63
|
2,291 | 4.24 | $ | 9.70 | 2,291 | $ | 9.70 | |||||||||||||
|
$17.94 - $20.68
|
1,477 | 5.96 | $ | 20.24 | 1,477 | $ | 20.24 | |||||||||||||
|
$26.02 - $26.68
|
1,929 | 8.40 | $ | 26.22 | 372 | $ | 26.68 | |||||||||||||
|
$49.95 - $49.95
|
1,143 | 8.02 | $ | 49.95 | 387 | $ | 49.95 | |||||||||||||
|
$ 1.76 - $49.95
|
10,582 | 4.68 | $ | 16.00 | 8,269 | $ | 11.00 | |||||||||||||
The total intrinsic value of options exercised during the fiscal
years ended January 30, 2010, January 31, 2009 and
February 2, 2008 was $3,699, $87,864, and $264,094,
respectively. The intrinsic value of options exercisable and
options outstanding was $87,945 as of January 30, 2010.
The fair value of each option is recognized as compensation
expense on a straight-line basis between the grant date and the
date the options become fully vested. During the 52 weeks
ended January 30, 2010, January 31, 2009 and
February 2, 2008, the Company included compensation expense
relating to the grant of these options in the
F-28
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
amount of $11,502, $15,423 and $15,803, respectively, in
selling, general and administrative expenses. As of
January 30, 2010, the unrecognized compensation expense
related to the unvested portion of the Company’s stock
options was $13,296 which is expected to be recognized over a
weighted average period of 1.6 years.
Subsequent to the fiscal year ended January 30, 2010, an
additional 1,177 options to purchase the Company’s
Class A common stock at an exercise price of $20.32 per
share were granted under the Incentive Plan. The options vest in
equal installments over three years and expire in February 2020.
Restricted
Stock Awards
The Company grants restricted stock awards to certain of its
employees, officers and non-employee directors. Restricted stock
awards generally vest over a three-year period on the
anniversary of the date of issuance.
The following table presents a summary of the Company’s
restricted stock awards activity:
|
Weighted-
|
||||||||
|
Average
|
||||||||
|
Grant Date
|
||||||||
| Shares | Fair Value | |||||||
| (Thousands of shares) | ||||||||
|
Nonvested shares at February 3, 2007
|
582 | $ | 20.61 | |||||
|
Granted
|
974 | $ | 27.09 | |||||
|
Vested
|
(223 | ) | $ | 20.07 | ||||
|
Forfeited
|
(32 | ) | $ | 24.28 | ||||
|
Nonvested shares at February 2, 2008
|
1,301 | $ | 25.46 | |||||
|
Granted
|
602 | $ | 49.20 | |||||
|
Vested
|
(556 | ) | $ | 16.57 | ||||
|
Forfeited
|
(56 | ) | $ | 29.53 | ||||
|
Nonvested shares at January 31, 2009
|
1,291 | $ | 35.89 | |||||
|
Granted
|
622 | $ | 25.82 | |||||
|
Vested
|
(632 | ) | $ | 31.91 | ||||
|
Forfeited
|
(26 | ) | $ | 33.78 | ||||
|
Nonvested shares at January 30, 2010
|
1,255 | $ | 32.94 | |||||
The restricted stock granted in the 52 weeks ended
January 30, 2010, January 31, 2009 and
February 2, 2008 vest in equal installments over three
years.
During the 52 weeks ended January 30, 2010,
January 31, 2009 and February 2, 2008, the Company
included compensation expense relating to the grant of these
restricted shares in the amounts of $26,309, $19,931 and
$11,108, respectively, in selling, general and administrative
expenses in the accompanying consolidated statements of
operations. As of January 30, 2010, there was $19,770 of
unrecognized compensation expense related to nonvested
restricted stock awards that is expected to be recognized over a
weighted average period of 1.7 years.
Subsequent to the fiscal year ended January 30, 2010, an
additional 683 shares of restricted stock were granted
under the Incentive Plan, which vest over three years.
| 14. | Employees’ Defined Contribution Plan |
The Company sponsors a defined contribution plan (the
“Savings Plan”) for the benefit of substantially all
of its U.S. employees who meet certain eligibility
requirements, primarily age and length of service. The Savings
Plan allows employees to invest up to 60%, up to a maximum of
$16.5 a year, of their eligible gross cash compensation
F-29
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
invested on a pre-tax basis. The Company’s optional
contributions to the Savings Plan are generally in amounts based
upon a certain percentage of the employees’ contributions.
The Company’s contributions to the Savings Plan during the
52 weeks ended January 30, 2010, January 31, 2009
and February 2, 2008, were $3,323, $2,736 and $2,235,
respectively.
| 15. | Certain Relationships and Related Transactions |
The Company operates departments within seven bookstores
operated by Barnes & Noble, a related party through a
common stockholder who is the Chairman of the Board of Directors
of Barnes & Noble and a member of the Company’s
Board of Directors. The Company pays a license fee to
Barnes & Noble on the gross sales of such departments.
The Company deems the license fee to be reasonable and based
upon terms equivalent to those that would prevail in an
arm’s length transaction. During the 52 weeks ended
January 30, 2010, January 31, 2009 and
February 2, 2008, these charges amounted to $1,077, $1,276
and $1,221, respectively.
In May 2005, the Company entered into an arrangement with
Barnes & Noble under which
www.gamestop.com
became the exclusive specialty video game retailer listed on
www.bn.com
, Barnes & Noble’s
e-commerce
site. Under the terms of this agreement, the Company pays a fee
to Barnes & Noble for sales of video game or PC
entertainment products sold through
www.bn.com.
For the
52 weeks ended January 30, 2010, January 31, 2009
and February 2, 2008, the fee to Barnes & Noble
totaled $374, $498 and $382, respectively.
Until June 2005, GameStop participated in Barnes &
Noble’s workers’ compensation, property and general
liability insurance programs. The costs incurred by
Barnes & Noble under these programs were allocated to
GameStop based upon total payroll expense, property and
equipment, and insurance claim history of GameStop. Management
deemed the allocation methodology to be reasonable. Although
GameStop secured its own insurance coverage, costs will likely
continue to be incurred by Barnes & Noble on insurance
claims which were incurred under its programs prior to June 2005
and any such costs applicable to insurance claims against
GameStop will be allocated to the Company. During the
52 weeks ended January 30, 2010, January 31, 2009
and February 2, 2008, these allocated charges amounted to
$179, $164 and $287, respectively.
The Company had a promissory note in favor of Barnes &
Noble in the principal amount of $74,020 in connection with the
repurchase of the Company’s common stock held by
Barnes & Noble in October 2004. The note was unsecured
and bore interest at 5.5% per annum, payable with each principal
installment. The final scheduled principal payment of $12,173
was made in October 2007 and the note has been satisfied in
full. Interest expense on the promissory note for the
52 weeks ended February 2, 2008 totaled $444.
| 16. | Significant Products |
The following table sets forth sales (in millions) by
significant product category for the periods indicated:
|
52 Weeks
|
52 Weeks
|
52 Weeks
|
||||||||||||||||||||||
|
Ended
|
Ended
|
Ended
|
||||||||||||||||||||||
|
January 30,
|
January 31,
|
February 2,
|
||||||||||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||||||||||||
|
Percent
|
Percent
|
Percent
|
||||||||||||||||||||||
| Sales | of Total | Sales | of Total | Sales | of Total | |||||||||||||||||||
|
Sales:
|
||||||||||||||||||||||||
|
New video game hardware
|
$ | 1,756.5 | 19.3 | % | $ | 1,860.2 | 21.1 | % | $ | 1,668.9 | 23.5 | % | ||||||||||||
|
New video game software
|
3,730.9 | 41.1 | % | 3,685.0 | 41.9 | % | 2,800.7 | 39.5 | % | |||||||||||||||
|
Used video game products
|
2,394.1 | 26.4 | % | 2,026.6 | 23.0 | % | 1,586.7 | 22.4 | % | |||||||||||||||
|
Other
|
1,196.5 | 13.2 | % | 1,234.1 | 14.0 | % | 1,037.7 | 14.6 | % | |||||||||||||||
|
Total
|
$ | 9,078.0 | 100.0 | % | $ | 8,805.9 | 100.0 | % | $ | 7,094.0 | 100.0 | % | ||||||||||||
F-30
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table sets forth gross profit (in millions) and
gross profit percentages by significant product category for the
periods indicated:
|
52 Weeks
|
52 Weeks
|
52 Weeks
|
||||||||||||||||||||||
|
Ended
|
Ended
|
Ended
|
||||||||||||||||||||||
|
January 30,
|
January 31,
|
February 2,
|
||||||||||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||||||||||||
|
Gross
|
Gross
|
Gross
|
||||||||||||||||||||||
|
Gross
|
Profit
|
Gross
|
Profit
|
Gross
|
Profit
|
|||||||||||||||||||
| Profit | Percent | Profit | Percent | Profit | Percent | |||||||||||||||||||
|
Gross Profit:
|
||||||||||||||||||||||||
|
New video game hardware
|
$ | 113.5 | 6.5 | % | $ | 112.6 | 6.1 | % | $ | 108.2 | 6.5 | % | ||||||||||||
|
New video game software
|
795.0 | 21.3 | % | 768.4 | 20.9 | % | 581.7 | 20.8 | % | |||||||||||||||
|
Used video game products
|
1,121.2 | 46.8 | % | 974.5 | 48.1 | % | 772.2 | 48.7 | % | |||||||||||||||
|
Other
|
405.0 | 33.8 | % | 414.6 | 33.6 | % | 351.6 | 33.9 | % | |||||||||||||||
|
Total
|
$ | 2,434.7 | 26.8 | % | $ | 2,270.1 | 25.8 | % | $ | 1,813.7 | 25.6 | % | ||||||||||||
| 17. | Segment Information |
The Company operates its business in the following segments:
United States, Canada, Australia and Europe. The Company
identifies segments based on a combination of geographic areas
and management responsibility. Each of the segments includes
significant retail operations with all stores engaged in the
sale of new and used video game systems and software and
personal computer entertainment software and related
accessories. Segment results for the United States include
retail operations in 50 states, the District of Columbia,
Guam and Puerto Rico, the electronic commerce Web site
www.gamestop.com
and
Game Informer Magazine
.
Segment results for Canada include retail operations in Canada
and segment results for Australia include retail operations in
Australia and New Zealand. Segment results for Europe
include retail operations in 13 European countries. The fiscal
2009 results of the European segment include Micromania’s
results. The fiscal 2008 results of the European segment include
11 weeks of Micromania’s results. The Company measures
segment profit using operating earnings, which is defined as
income from continuing operations before intercompany royalty
fees, net interest expense and income taxes. Transactions
between reportable segments consist primarily of royalties,
management fees, intersegment loans and related interest.
Information on segments and the reconciliation to earnings
before income taxes are as follows (in millions):
|
United
|
||||||||||||||||||||||||
|
Fiscal Year Ended January 30, 2010
|
States | Canada | Australia | Europe | Other | Consolidated | ||||||||||||||||||
|
Sales
|
$ | 6,275.0 | $ | 491.4 | $ | 530.2 | $ | 1,781.4 | $ | — | $ | 9,078.0 | ||||||||||||
|
Depreciation and amortization
|
102.1 | 7.4 | 9.4 | 43.6 | — | 162.5 | ||||||||||||||||||
|
Operating earnings
|
488.8 | 35.0 | 46.0 | 67.2 | — | 637.0 | ||||||||||||||||||
|
Interest income
|
(51.5 | ) | — | (1.7 | ) | (1.4 | ) | 52.4 | (2.2 | ) | ||||||||||||||
|
Interest expense
|
44.2 | — | 0.1 | 53.5 | (52.4 | ) | 45.4 | |||||||||||||||||
|
Earnings before income tax expense
|
490.8 | 35.0 | 47.5 | 15.2 | — | 588.5 | ||||||||||||||||||
|
Income tax expense
|
162.5 | 11.3 | 14.2 | 24.8 | — | 212.8 | ||||||||||||||||||
|
Goodwill
|
1,100.2 | 128.6 | 174.1 | 543.6 | — | 1,946.5 | ||||||||||||||||||
|
Other long-lived assets
|
384.1 | 29.4 | 33.6 | 434.4 | — | 881.5 | ||||||||||||||||||
|
Total assets
|
2,864.9 | 337.8 | 399.9 | 1,352.7 | — | 4,955.3 | ||||||||||||||||||
F-31
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
United
|
||||||||||||||||||||||||
|
Fiscal Year Ended January 31, 2009
|
States | Canada | Australia | Europe | Other | Consolidated | ||||||||||||||||||
|
Sales
|
$ | 6,466.7 | $ | 548.2 | $ | 520.0 | $ | 1,271.0 | $ | — | $ | 8,805.9 | ||||||||||||
|
Depreciation and amortization
|
103.6 | 8.1 | 9.7 | 23.6 | — | 145.0 | ||||||||||||||||||
|
Operating earnings
|
530.1 | 32.6 | 46.8 | 65.6 | — | 675.1 | ||||||||||||||||||
|
Interest income
|
(30.0 | ) | (0.9 | ) | (3.1 | ) | (20.0 | ) | 42.4 | (11.6 | ) | |||||||||||||
|
Interest expense
|
49.8 | — | 0.2 | 42.9 | (42.4 | ) | 50.5 | |||||||||||||||||
|
Earnings before income tax expense
|
534.4 | 22.4 | 39.9 | 37.3 | — | 634.0 | ||||||||||||||||||
|
Income tax expense
|
197.1 | 7.5 | 12.3 | 18.8 | — | 235.7 | ||||||||||||||||||
|
Goodwill
|
1,096.6 | 112.0 | 125.6 | 498.8 | — | 1,833.0 | ||||||||||||||||||
|
Other long-lived assets
|
377.8 | 28.4 | 24.6 | 401.6 | — | 832.4 | ||||||||||||||||||
|
Total assets
|
2,592.5 | 288.8 | 290.7 | 1,311.5 | — | 4,483.5 | ||||||||||||||||||
|
United
|
||||||||||||||||||||||||
|
Fiscal Year Ended February 2, 2008
|
States | Canada | Australia | Europe | Other | Consolidated | ||||||||||||||||||
|
Sales
|
$ | 5,438.8 | $ | 473.0 | $ | 420.8 | $ | 761.4 | $ | — | $ | 7,094.0 | ||||||||||||
|
Depreciation and amortization
|
100.0 | 7.9 | 8.3 | 14.1 | — | 130.3 | ||||||||||||||||||
|
Operating earnings
|
391.2 | 35.8 | 41.8 | 32.6 | — | 501.4 | ||||||||||||||||||
|
Interest income
|
(21.9 | ) | (2.0 | ) | (3.2 | ) | (12.6 | ) | 25.9 | (13.8 | ) | |||||||||||||
|
Interest expense
|
61.0 | — | 0.3 | 26.2 | (25.9 | ) | 61.6 | |||||||||||||||||
|
Earnings before income tax expense
|
364.9 | 26.9 | 35.0 | 14.3 | — | 441.1 | ||||||||||||||||||
|
Income tax expense
|
129.7 | 9.6 | 10.4 | 3.1 | — | 152.8 | ||||||||||||||||||
|
Goodwill
|
1,096.6 | 116.8 | 147.2 | 41.8 | — | 1,402.4 | ||||||||||||||||||
|
Other long-lived assets
|
377.5 | 35.8 | 34.6 | 130.8 | — | 578.7 | ||||||||||||||||||
|
Total assets
|
2,742.0 | 274.7 | 251.1 | 508.1 | — | 3,775.9 | ||||||||||||||||||
| 18. | Supplemental Cash Flow Information |
|
52 Weeks
|
52 Weeks
|
52 Weeks
|
||||||||||
|
Ended
|
Ended
|
Ended
|
||||||||||
|
January 30,
|
January 31,
|
February 2,
|
||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Cash paid during the period for:
|
||||||||||||
|
Interest
|
$ | 44,136 | $ | 45,252 | $ | 59,357 | ||||||
|
Income taxes
|
153,083 | 204,776 | 47,792 | |||||||||
|
Subsidiaries acquired:
|
||||||||||||
|
Goodwill
|
4,194 | 459,287 | (1,061 | ) | ||||||||
|
Cash received in acquisition
|
51 | 45,650 | — | |||||||||
|
Noncontrolling interests
|
4,667 | — | — | |||||||||
|
Net assets acquired (or liabilities assumed)
|
(504 | ) | 171,419 | — | ||||||||
|
Cash paid for subsidiaries
|
$ | 8,408 | $ | 676,356 | $ | (1,061 | ) | |||||
|
Other non-cash financing activities:
|
||||||||||||
|
Treasury stock repurchases settled in Feb. 2010
|
$ | 64,615 | $ | — | $ | — | ||||||
| 19. | Shareholders’ Equity |
On February 7, 2007, following approval by a majority of
the Class B common stockholders in a special meeting of the
Company’s Class B common stockholders, all outstanding
shares of Class B common stock were converted into shares
of Class A common stock on a
one-for-one
basis. In addition, on February 9, 2007, the Board
F-32
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
of Directors of the Company authorized a
two-for-one
stock split, effected by a
one-for-one
stock dividend to stockholders of record at the close of
business on February 20, 2007, paid on March 16, 2007.
The holders of Class A common stock are entitled to one
vote per share on all matters to be voted on by stockholders.
Holders of Class A common stock will share in any dividend
declared by the Board of Directors, subject to any preferential
rights of any outstanding preferred stock. In the event of the
Company’s liquidation, dissolution or winding up, all
holders of common stock are entitled to share ratably in any
assets available for distribution to holders of shares of common
stock after payment in full of any amounts required to be paid
to holders of preferred stock.
In 2005, the Company adopted a rights agreement under which one
right (a “Right”) is attached to each outstanding
share of the Company’s common stock. Each Right entitles
the holder to purchase from the Company one one-thousandth of a
share of a series of preferred stock, designated as
Series A Junior Participating Preferred Stock (the
“Series A Preferred Stock”), at a price of
$100.00 per one one-thousandth of a share. The Rights will be
exercisable only if a person or group acquires 15% or more of
the voting power of the Company’s outstanding common stock
or announces a tender offer or exchange offer, the consummation
of which would result in such person or group owning 15% or more
of the voting power of the Company’s outstanding common
stock.
If a person or group acquires 15% or more of the voting power of
the Company’s outstanding common stock, each Right will
entitle a holder (other than such person or any member of such
group) to purchase, at the Right’s then current exercise
price, a number of shares of common stock having a market value
of twice the exercise price of the Right. In addition, if the
Company is acquired in a merger or other business combination
transaction or 50% or more of its consolidated assets or earning
power are sold at any time after the Rights have become
exercisable, each Right will entitle its holder to purchase, at
the Right’s then current exercise price, a number of the
acquiring company’s common shares having a market value at
that time of twice the exercise price of the Right. Furthermore,
at any time after a person or group acquires 15% or more of the
voting power of the outstanding common stock of the Company but
prior to the acquisition of 50% of such voting power, the Board
of Directors may, at its option, exchange part or all of the
Rights (other than Rights held by the acquiring person or group)
at an exchange rate of one one-thousandth of a share of
Series A Preferred Stock or one share of the Company’s
common stock for each Right.
The Company will be entitled to redeem the Rights at any time
prior to the acquisition by a person or group of 15% or more of
the voting power of the outstanding common stock of the Company,
at a price of $.01 per Right. The Rights will expire on
October 28, 2014.
The Company has 5,000 shares of $.001 par value
preferred stock authorized for issuance, of which
500 shares have been designated by the Board of Directors
as Series A Preferred Stock and reserved for issuance upon
exercise of the Rights. Each such share of Series A
Preferred Stock will be nonredeemable and junior to any other
series of preferred stock the Company may issue (unless
otherwise provided in the terms of such stock) and will be
entitled to a preferred dividend equal to the greater of $1.00
or one thousand times any dividend declared on the
Company’s common stock. In the event of liquidation, the
holders of Series A Preferred Stock will receive a
preferred liquidation payment of $1,000.00 per share, plus an
amount equal to accrued and unpaid dividends and distributions
thereon. Each share of Series A Preferred Stock will have
ten thousand votes, voting together with the Company’s
common stock. However, in the event that dividends on the
Series A Preferred Stock shall be in arrears in an amount
equal to six quarterly dividends thereon, holders of the
Series A Preferred Stock shall have the right, voting as a
class, to elect two of the Company’s directors. In the
event of any merger, consolidation or other transaction in which
the Company’s common stock is exchanged, each share of
Series A Preferred Stock will be entitled to receive one
thousand times the amount and type of consideration received per
share of the Company’s common stock. At January 30,
2010, there were no shares of Series A Preferred Stock
outstanding.
F-33
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
On January 11, 2010, the Board of Directors of the Company
approved a $300,000 share repurchase program authorizing
the Company to repurchase its common stock. For fiscal 2009, the
number of shares repurchased were 6,114.5 for an average price
per share of $20.12. Approximately $64,615 of treasury share
purchases were not settled at the end of fiscal 2009 and have
been reported in accrued liabilities. Since the end of fiscal
2009, the Company has purchased an additional
6,527.7 shares for an average price per share of $19.03.
| 20. | Consolidating Financial Statements |
In order to finance the EB merger, as described in Note 9,
on September 28, 2005, the Company, along with GameStop,
Inc. as co-issuer, completed the offering of the Notes. The
direct and indirect domestic wholly-owned subsidiaries of the
Company, excluding GameStop, Inc., as co-issuer, have guaranteed
the Senior Notes on a senior unsecured basis with unconditional
guarantees.
F-34
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following consolidating financial statements present the
financial position as of January 30, 2010 and
January 31, 2009 and results of operations and cash flows
for the fiscal years ended January 30, 2010,
January 31, 2009 and February 2, 2008 of the
Company’s guarantor and non-guarantor subsidiaries.
GAMESTOP
CORP.
CONSOLIDATING
BALANCE SHEET
|
Issuers and
|
||||||||||||||||
|
Guarantor
|
Non-Guarantor
|
|||||||||||||||
|
Subsidiaries
|
Subsidiaries
|
Consolidated
|
||||||||||||||
|
January 30,
|
January 30,
|
January 30,
|
||||||||||||||
| 2010 | 2010 | Eliminations | 2010 | |||||||||||||
| (Amounts in thousands, except per share amounts) | ||||||||||||||||
|
ASSETS:
|
||||||||||||||||
|
Current assets:
|
||||||||||||||||
|
Cash and cash equivalents
|
$ | 652,965 | $ | 252,453 | $ | — | $ | 905,418 | ||||||||
|
Receivables, net
|
203,122 | 627,889 | (767,005 | ) | 64,006 | |||||||||||
|
Merchandise inventories, net
|
570,259 | 483,294 | — | 1,053,553 | ||||||||||||
|
Deferred income taxes — current
|
18,076 | 3,153 | — | 21,229 | ||||||||||||
|
Prepaid expenses
|
37,750 | 21,684 | — | 59,434 | ||||||||||||
|
Other current assets
|
6,007 | 17,657 | — | 23,664 | ||||||||||||
|
Total current assets
|
1,488,179 | 1,406,130 | (767,005 | ) | 2,127,304 | |||||||||||
|
Property and equipment:
|
||||||||||||||||
|
Land
|
2,670 | 8,899 | — | 11,569 | ||||||||||||
|
Buildings and leasehold improvements
|
296,348 | 226,617 | — | 522,965 | ||||||||||||
|
Fixtures and equipment
|
569,924 | 141,553 | — | 711,477 | ||||||||||||
|
Total property and equipment
|
868,942 | 377,069 | — | 1,246,011 | ||||||||||||
|
Less accumulated depreciation and amortization
|
498,534 | 163,276 | — | 661,810 | ||||||||||||
|
Net property and equipment
|
370,408 | 213,793 | — | 584,201 | ||||||||||||
|
Investment
|
2,062,677 | 596,435 | (2,659,112 | ) | — | |||||||||||
|
Goodwill, net
|
1,096,622 | 849,891 | — | 1,946,513 | ||||||||||||
|
Other intangible assets
|
3,376 | 256,484 | — | 259,860 | ||||||||||||
|
Other noncurrent assets
|
9,466 | 27,983 | — | 37,449 | ||||||||||||
|
Total noncurrent assets
|
3,542,549 | 1,944,586 | (2,659,112 | ) | 2,828,023 | |||||||||||
|
Total assets
|
$ | 5,030,728 | $ | 3,350,716 | $ | (3,426,117 | ) | $ | 4,955,327 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY: | ||||||||||||||||
|
Current liabilities:
|
||||||||||||||||
|
Accounts payable
|
$ | 684,256 | $ | 277,417 | $ | — | $ | 961,673 | ||||||||
|
Accrued liabilities
|
1,039,840 | 359,268 | (767,005 | ) | 632,103 | |||||||||||
|
Taxes payable
|
63,988 | (2,088 | ) | — | 61,900 | |||||||||||
|
Total current liabilities
|
1,788,084 | 634,597 | (767,005 | ) | 1,655,676 | |||||||||||
|
Senior notes payable, long-term portion, net
|
447,343 | — | — | 447,343 | ||||||||||||
|
Deferred taxes
|
(15,432 | ) | 40,898 | — | 25,466 | |||||||||||
|
Other long-term liabilities
|
87,722 | 16,109 | — | 103,831 | ||||||||||||
|
Total long-term liabilities
|
519,633 | 57,007 | — | 576,640 | ||||||||||||
|
Total liabilities
|
2,307,717 | 691,604 | (767,005 | ) | 2,232,316 | |||||||||||
|
Stockholders’ equity:
|
||||||||||||||||
|
Preferred stock — authorized 5,000 shares; no
shares issued or outstanding
|
— | — | — | — | ||||||||||||
|
Class A common stock — $.001 par value;
authorized 300,000 shares; 158,662 shares outstanding
|
159 | — | — | 159 | ||||||||||||
|
Additional
paid-in-capital
|
1,210,539 | 2,391,781 | (2,391,781 | ) | 1,210,539 | |||||||||||
|
Accumulated other comprehensive income (loss)
|
114,704 | 17,754 | (17,754 | ) | 114,704 | |||||||||||
|
Retained earnings
|
1,397,755 | 249,577 | (249,577 | ) | 1,397,755 | |||||||||||
|
Equity attributable to GameStop Corp. stockholders
|
2,723,157 | 2,659,112 | (2,659,112 | ) | 2,723,157 | |||||||||||
|
Equity (deficit) attributable to noncontrolling interest
|
(146 | ) | — | — | (146 | ) | ||||||||||
|
Total equity
|
2,723,011 | 2,659,112 | (2,659,112 | ) | 2,723,011 | |||||||||||
|
Total liabilities and stockholders’ equity
|
$ | 5,030,728 | $ | 3,350,716 | $ | (3,426,117 | ) | $ | 4,955,327 | |||||||
F-35
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
GAMESTOP
CORP.
CONSOLIDATING
BALANCE SHEET
|
Issuers and
|
||||||||||||||||
|
Guarantor
|
Non-Guarantor
|
|||||||||||||||
|
Subsidiaries
|
Subsidiaries
|
Consolidated
|
||||||||||||||
|
January 31,
|
January 31,
|
January 31,
|
||||||||||||||
| 2009 | 2009 | Eliminations | 2009 | |||||||||||||
| (Amounts in thousands, except per share amounts) | ||||||||||||||||
|
ASSETS:
|
||||||||||||||||
|
Current assets:
|
||||||||||||||||
|
Cash and cash equivalents
|
$ | 373,178 | $ | 204,963 | $ | — | $ | 578,141 | ||||||||
|
Receivables, net
|
195,677 | 678,203 | (807,899 | ) | 65,981 | |||||||||||
|
Merchandise inventories, net
|
637,257 | 438,535 | — | 1,075,792 | ||||||||||||
|
Deferred income taxes — current
|
21,088 | 2,527 | — | 23,615 | ||||||||||||
|
Prepaid expenses
|
40,957 | 18,144 | — | 59,101 | ||||||||||||
|
Other current assets
|
6,262 | 9,149 | — | 15,411 | ||||||||||||
|
Total current assets
|
1,274,419 | 1,351,521 | (807,899 | ) | 1,818,041 | |||||||||||
|
Property and equipment:
|
||||||||||||||||
|
Land
|
2,670 | 7,727 | — | 10,397 | ||||||||||||
|
Buildings and leasehold improvements
|
281,481 | 173,170 | — | 454,651 | ||||||||||||
|
Fixtures and equipment
|
509,585 | 110,260 | — | 619,845 | ||||||||||||
|
Total property and equipment
|
793,736 | 291,157 | — | 1,084,893 | ||||||||||||
|
Less accumulated depreciation and amortization
|
436,068 | 99,571 | — | 535,639 | ||||||||||||
|
Net property and equipment
|
357,668 | 191,586 | — | 549,254 | ||||||||||||
|
Investment
|
1,840,987 | — | (1,840,987 | ) | — | |||||||||||
|
Goodwill, net
|
1,096,622 | 736,389 | — | 1,833,011 | ||||||||||||
|
Other intangible assets
|
7,525 | 240,265 | — | 247,790 | ||||||||||||
|
Other noncurrent assets
|
12,546 | 22,852 | — | 35,398 | ||||||||||||
|
Total noncurrent assets
|
3,315,348 | 1,191,092 | (1,840,987 | ) | 2,665,453 | |||||||||||
|
Total assets
|
$ | 4,589,767 | $ | 2,542,613 | $ | (2,648,886 | ) | $ | 4,483,494 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY: | ||||||||||||||||
|
Current liabilities:
|
||||||||||||||||
|
Accounts payable
|
$ | 736,805 | $ | 311,158 | $ | — | $ | 1,047,963 | ||||||||
|
Accrued liabilities
|
985,240 | 320,912 | (807,899 | ) | 498,253 | |||||||||||
|
Taxes payable
|
2,971 | 13,524 | — | 16,495 | ||||||||||||
|
Total current liabilities
|
1,725,016 | 645,594 | (807,899 | ) | 1,562,711 | |||||||||||
|
Senior notes payable, long-term portion, net
|
545,712 | — | — | 545,712 | ||||||||||||
|
Deferred taxes
|
7,523 | — | — | 7,523 | ||||||||||||
|
Other long-term liabilities
|
40,931 | 56,032 | — | 96,963 | ||||||||||||
|
Total long-term liabilities
|
594,166 | 56,032 | — | 650,198 | ||||||||||||
|
Total liabilities
|
2,319,182 | 701,626 | (807,899 | ) | 2,212,909 | |||||||||||
|
Stockholders’ equity:
|
||||||||||||||||
|
Preferred stock — authorized 5,000 shares; no
shares issued or outstanding
|
— | — | — | — | ||||||||||||
|
Class A common stock — $.001 par value;
authorized 300,000 shares; 163,843 shares issued and
outstanding
|
164 | — | — | 164 | ||||||||||||
|
Additional
paid-in-capital
|
1,307,453 | 1,699,630 | (1,699,630 | ) | 1,307,453 | |||||||||||
|
Accumulated other comprehensive income (loss)
|
(57,522 | ) | (62,896 | ) | 62,896 | (57,522 | ) | |||||||||
|
Retained earnings
|
1,020,490 | 204,253 | (204,253 | ) | 1,020,490 | |||||||||||
|
Total stockholders’ equity
|
2,270,585 | 1,840,987 | (1,840,987 | ) | 2,270,585 | |||||||||||
|
Total liabilities and stockholders’ equity
|
$ | 4,589,767 | $ | 2,542,613 | $ | (2,648,886 | ) | $ | 4,483,494 | |||||||
F-36
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
GAMESTOP
CORP.
CONSOLIDATING
STATEMENT OF OPERATIONS
|
Issuers and
|
||||||||||||||||
|
Guarantor
|
Non-Guarantor
|
|||||||||||||||
|
Subsidiaries
|
Subsidiaries
|
Consolidated
|
||||||||||||||
|
January 30,
|
January 30,
|
January 30,
|
||||||||||||||
|
For the 52 Weeks Ended January 30, 2010
|
2010 | 2010 | Eliminations | 2010 | ||||||||||||
| (Amounts in thousands) | ||||||||||||||||
|
Sales
|
$ | 6,274,899 | $ | 2,803,098 | $ | — | $ | 9,077,997 | ||||||||
|
Cost of sales
|
4,554,298 | 2,089,047 | — | 6,643,345 | ||||||||||||
|
Gross profit
|
1,720,601 | 714,051 | — | 2,434,652 | ||||||||||||
|
Selling, general and administrative expenses
|
1,103,867 | 531,257 | — | 1,635,124 | ||||||||||||
|
Depreciation and amortization
|
101,984 | 60,511 | — | 162,495 | ||||||||||||
|
Operating earnings
|
514,750 | 122,283 | — | 637,033 | ||||||||||||
|
Interest income
|
(43,774 | ) | (10,915 | ) | 52,512 | (2,177 | ) | |||||||||
|
Interest expense
|
44,240 | 53,626 | (52,512 | ) | 45,354 | |||||||||||
|
Debt extinguishment expense
|
5,323 | — | — | 5,323 | ||||||||||||
|
Earnings before income tax expense
|
508,961 | 79,572 | — | 588,533 | ||||||||||||
|
Income tax expense
|
170,223 | 42,581 | — | 212,804 | ||||||||||||
|
Consolidated net income
|
338,738 | 36,991 | — | 375,729 | ||||||||||||
|
Net loss attributable to noncontrolling interests
|
— | 1,536 | — | 1,536 | ||||||||||||
|
Consolidated net income attributable to GameStop
|
$ | 338,738 | $ | 38,527 | $ | — | $ | 377,265 | ||||||||
GAMESTOP
CORP.
CONSOLIDATING
STATEMENT OF OPERATIONS
|
Issuers and
|
||||||||||||||||
|
Guarantor
|
Non-Guarantor
|
|||||||||||||||
|
Subsidiaries
|
Subsidiaries
|
Consolidated
|
||||||||||||||
|
January 31,
|
January 31,
|
January 31,
|
||||||||||||||
|
For the 52 Weeks Ended January 31, 2009
|
2009 | 2009 | Eliminations | 2009 | ||||||||||||
| (Amounts in thousands) | ||||||||||||||||
|
Sales
|
$ | 6,466,663 | $ | 2,339,234 | $ | — | $ | 8,805,897 | ||||||||
|
Cost of sales
|
4,767,229 | 1,768,533 | — | 6,535,762 | ||||||||||||
|
Gross profit
|
1,699,434 | 570,701 | — | 2,270,135 | ||||||||||||
|
Selling, general and administrative expenses
|
1,034,733 | 410,686 | — | 1,445,419 | ||||||||||||
|
Depreciation and amortization
|
103,593 | 41,411 | — | 145,004 | ||||||||||||
|
Merger-related expenses
|
4,593 | — | — | 4,593 | ||||||||||||
|
Operating earnings
|
556,515 | 118,604 | — | 675,119 | ||||||||||||
|
Interest income
|
(17,446 | ) | (36,995 | ) | 42,822 | (11,619 | ) | |||||||||
|
Interest expense
|
38,844 | 54,434 | (42,822 | ) | 50,456 | |||||||||||
|
Debt extinguishment expense
|
2,331 | — | — | 2,331 | ||||||||||||
|
Earnings before income tax expense
|
532,786 | 101,165 | — | 633,951 | ||||||||||||
|
Income tax expense
|
197,045 | 38,624 | — | 235,669 | ||||||||||||
|
Consolidated net income
|
335,741 | 62,541 | — | 398,282 | ||||||||||||
|
Net loss attributable to noncontrolling interests
|
— | — | — | — | ||||||||||||
|
Consolidated net income attributable to GameStop
|
$ | 335,741 | $ | 62,541 | $ | — | $ | 398,282 | ||||||||
F-37
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
GAMESTOP
CORP.
CONSOLIDATING
STATEMENT OF OPERATIONS
|
Issuers and
|
||||||||||||||||
|
Guarantor
|
Non-Guarantor
|
|||||||||||||||
|
Subsidiaries
|
Subsidiaries
|
Consolidated
|
||||||||||||||
|
February 2,
|
February 2,
|
February 2,
|
||||||||||||||
|
For the 52 Weeks Ended February 2, 2008
|
2008 | 2008 | Eliminations | 2008 | ||||||||||||
| (Amounts in thousands) | ||||||||||||||||
|
Sales
|
$ | 5,438,757 | $ | 1,655,205 | $ | — | $ | 7,093,962 | ||||||||
|
Cost of sales
|
4,022,955 | 1,257,300 | — | 5,280,255 | ||||||||||||
|
Gross profit
|
1,415,802 | 397,905 | — | 1,813,707 | ||||||||||||
|
Selling, general and administrative expenses
|
899,292 | 282,724 | — | 1,182,016 | ||||||||||||
|
Depreciation and amortization
|
99,966 | 30,304 | — | 130,270 | ||||||||||||
|
Operating earnings
|
416,544 | 84,877 | — | 501,421 | ||||||||||||
|
Interest income
|
(21,893 | ) | (17,754 | ) | 25,868 | (13,779 | ) | |||||||||
|
Interest expense
|
60,917 | 26,504 | (25,868 | ) | 61,553 | |||||||||||
|
Debt extinguishment expense
|
12,591 | — | — | 12,591 | ||||||||||||
|
Earnings before income tax expense
|
364,929 | 76,127 | — | 441,056 | ||||||||||||
|
Income tax expense
|
129,655 | 23,110 | — | 152,765 | ||||||||||||
|
Consolidated net income
|
235,274 | 53,017 | 288,291 | |||||||||||||
|
Net loss attributable to noncontrolling interests
|
— | — | — | — | ||||||||||||
|
Consolidated net income attributable to GameStop
|
$ | 235,274 | $ | 53,017 | $ | — | $ | 288,291 | ||||||||
F-38
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
GAMESTOP
CORP.
CONSOLIDATING
STATEMENT OF CASH FLOWS
|
Issuers and
|
||||||||||||||||
|
Guarantor
|
Non-Guarantor
|
|||||||||||||||
|
Subsidiaries
|
Subsidiaries
|
Consolidated
|
||||||||||||||
|
January 30,
|
January 30,
|
January 30,
|
||||||||||||||
|
For the 52 Weeks Ended January 30, 2010
|
2010 | 2010 | Eliminations | 2010 | ||||||||||||
| (Amounts in thousands) | ||||||||||||||||
|
Cash flows from operating activities:
|
||||||||||||||||
|
Consolidated net income
|
$ | 338,738 | $ | 36,991 | $ | — | $ | 375,729 | ||||||||
|
Adjustments to reconcile net earnings to net cash flows provided
by operating activities:
|
||||||||||||||||
|
Depreciation and amortization (including amounts in cost of
sales)
|
103,529 | 60,597 | — | 164,126 | ||||||||||||
|
Provision for inventory reserves
|
35,442 | 13,448 | — | 48,890 | ||||||||||||
|
Amortization and retirement of deferred financing fees and issue
discounts
|
5,003 | — | — | 5,003 | ||||||||||||
|
Stock-based compensation expense
|
37,811 | — | — | 37,811 | ||||||||||||
|
Deferred income taxes
|
1,715 | (2,925 | ) | — | (1,210 | ) | ||||||||||
|
Excess tax (benefits) expense realized from exercise of
stock-based awards
|
362 | — | — | 362 | ||||||||||||
|
Loss on disposal of property and equipment
|
2,107 | 2,270 | — | 4,377 | ||||||||||||
|
Changes in other long-term liabilities
|
8,638 | (1,065 | ) | — | 7,573 | |||||||||||
|
Change in the value of foreign exchange contracts
|
(3,218 | ) | (673 | ) | — | (3,891 | ) | |||||||||
|
Changes in operating assets and liabilities, net
|
||||||||||||||||
|
Receivables, net
|
1,391 | 2,826 | — | 4,217 | ||||||||||||
|
Merchandise inventories
|
31,556 | (1,954 | ) | — | 29,602 | |||||||||||
|
Prepaid expenses and other current assets
|
2,971 | (931 | ) | — | 2,040 | |||||||||||
|
Prepaid income taxes and accrued income taxes payable
|
68,819 | (14,263 | ) | — | 54,556 | |||||||||||
|
Accounts payable and accrued liabilities
|
(83,409 | ) | (1,603 | ) | — | (85,012 | ) | |||||||||
|
Net cash flows provided by operating activities
|
551,455 | 92,718 | — | 644,173 | ||||||||||||
|
Cash flows from investing activities:
|
||||||||||||||||
|
Purchase of property and equipment
|
(116,064 | ) | (47,695 | ) | — | (163,759 | ) | |||||||||
|
Acquisitions, net of cash acquired
|
— | (8,357 | ) | (8,357 | ) | |||||||||||
|
Other
|
(1,215 | ) | (13,915 | ) | — | (15,130 | ) | |||||||||
|
Net cash flows used in investing activities
|
(117,279 | ) | (69,967 | ) | — | (187,246 | ) | |||||||||
|
Cash flows from financing activities:
|
||||||||||||||||
|
Repurchase of notes payable
|
(100,000 | ) | — | — | (100,000 | ) | ||||||||||
|
Purchase of treasury shares
|
(58,380 | ) | — | — | (58,380 | ) | ||||||||||
|
Borrowings from the revolver
|
115,000 | — | — | 115,000 | ||||||||||||
|
Repayment of revolver borrowings
|
(115,000 | ) | — | — | (115,000 | ) | ||||||||||
|
Issuance of shares relating to stock options
|
4,459 | — | — | 4,459 | ||||||||||||
|
Excess tax benefits (expense) realized from exercise of
stock-based awards
|
(362 | ) | — | — | (362 | ) | ||||||||||
|
Other
|
(106 | ) | (28 | ) | — | (134 | ) | |||||||||
|
Net cash flows used in financing activities
|
(154,389 | ) | (28 | ) | — | (154,417 | ) | |||||||||
|
Exchange rate effect on cash and cash equivalents
|
— | 24,767 | — | 24,767 | ||||||||||||
|
Net increase (decrease) in cash and cash equivalents
|
279,787 | 47,490 | — | 327,277 | ||||||||||||
|
Cash and cash equivalents at beginning of period
|
373,178 | 204,963 | — | 578,141 | ||||||||||||
|
Cash and cash equivalents at end of period
|
$ | 652,965 | $ | 252,453 | $ | — | $ | 905,418 | ||||||||
F-39
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
GAMESTOP
CORP.
CONSOLIDATING
STATEMENT OF CASH FLOWS
|
Issuers and
|
||||||||||||||||
|
Guarantor
|
Non-Guarantor
|
|||||||||||||||
|
Subsidiaries
|
Subsidiaries
|
Consolidated
|
||||||||||||||
|
January 31,
|
January 31,
|
January 31,
|
||||||||||||||
|
For the 52 Weeks Ended January 31, 2009
|
2009 | 2009 | Eliminations | 2009 | ||||||||||||
| (Amounts in thousands) | ||||||||||||||||
|
Cash flows from operating activities:
|
||||||||||||||||
|
Consolidated net income
|
$ | 335,741 | $ | 62,541 | $ | — | $ | 398,282 | ||||||||
|
Adjustments to reconcile net earnings to net cash flows provided
by (used in) operating activities:
|
||||||||||||||||
|
Depreciation and amortization (including amounts in cost of
sales)
|
104,880 | 41,483 | — | 146,363 | ||||||||||||
|
Provision for inventory reserves
|
34,854 | 8,125 | — | 42,979 | ||||||||||||
|
Amortization and retirement of deferred financing fees and issue
discounts
|
3,735 | — | — | 3,735 | ||||||||||||
|
Stock-based compensation expense
|
35,354 | — | — | 35,354 | ||||||||||||
|
Deferred income taxes
|
(23,326 | ) | (1,375 | ) | — | (24,701 | ) | |||||||||
|
Excess tax benefits realized from exercise of stock-based awards
|
(34,174 | ) | — | — | (34,174 | ) | ||||||||||
|
Loss on disposal of property and equipment
|
2,991 | 2,202 | — | 5,193 | ||||||||||||
|
Changes in other long-term liabilities
|
2,058 | 6,279 | — | 8,337 | ||||||||||||
|
Change in the value of foreign exchange contracts
|
9,198 | 794 | — | 9,992 | ||||||||||||
|
Changes in operating assets and liabilities, net
|
||||||||||||||||
|
Receivables, net
|
3,246 | (648,526 | ) | 642,379 | (2,901 | ) | ||||||||||
|
Merchandise inventories
|
(170,250 | ) | (39,192 | ) | — | (209,442 | ) | |||||||||
|
Prepaid expenses and other current assets
|
(3,857 | ) | (6,254 | ) | — | (10,111 | ) | |||||||||
|
Prepaid income taxes and accrued income taxes payable
|
47,799 | (3,935 | ) | — | 43,864 | |||||||||||
|
Accounts payable and accrued liabilities
|
751,651 | 27,193 | (642,379 | ) | 136,465 | |||||||||||
|
Net cash flows provided by (used in) operating activities
|
1,099,900 | (550,665 | ) | — | 549,235 | |||||||||||
|
Cash flows from investing activities:
|
||||||||||||||||
|
Purchase of property and equipment
|
(117,484 | ) | (65,708 | ) | — | (183,192 | ) | |||||||||
|
Acquisitions, net of cash acquired
|
— | (630,706 | ) | — | (630,706 | ) | ||||||||||
|
Other
|
(1,310,195 | ) | 1,303,221 | — | (6,974 | ) | ||||||||||
|
Net cash flows used in investing activities
|
(1,427,679 | ) | 606,807 | — | (820,872 | ) | ||||||||||
|
Cash flows from financing activities:
|
||||||||||||||||
|
Repurchase of notes payable
|
(30,000 | ) | — | — | (30,000 | ) | ||||||||||
|
Borrowings for acquisition
|
425,000 | — | — | 425,000 | ||||||||||||
|
Repayments of acquisition borrowings
|
(425,000 | ) | — | — | (425,000 | ) | ||||||||||
|
Issuance of shares relating to stock options
|
28,950 | — | — | 28,950 | ||||||||||||
|
Excess tax benefits realized from exercise of stock-based awards
|
34,174 | — | — | 34,174 | ||||||||||||
|
Other
|
(3,500 | ) | — | — | (3,500 | ) | ||||||||||
|
Net cash flows provided by financing activities
|
29,624 | — | — | 29,624 | ||||||||||||
|
Exchange rate effect on cash and cash equivalents
|
— | (37,260 | ) | — | (37,260 | ) | ||||||||||
|
Net increase (decrease) in cash and cash equivalents
|
(298,155 | ) | 18,882 | — | (279,273 | ) | ||||||||||
|
Cash and cash equivalents at beginning of period
|
671,333 | 186,081 | — | 857,414 | ||||||||||||
|
Cash and cash equivalents at end of period
|
$ | 373,178 | $ | 204,963 | $ | — | $ | 578,141 | ||||||||
F-40
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
GAMESTOP
CORP.
CONSOLIDATING
STATEMENT OF CASH FLOWS
|
Issuers and
|
||||||||||||||||
|
Guarantor
|
Non-Guarantor
|
|||||||||||||||
|
Subsidiaries
|
Subsidiaries
|
Consolidated
|
||||||||||||||
|
February 2,
|
February 2,
|
February 2,
|
||||||||||||||
|
For the 52 Weeks Ended February 2, 2008
|
2008 | 2008 | Eliminations | 2008 | ||||||||||||
| (Amounts in thousands) | ||||||||||||||||
|
Cash flows from operating activities:
|
||||||||||||||||
|
Consolidated net income
|
$ | 235,274 | $ | 53,017 | $ | — | $ | 288,291 | ||||||||
|
Adjustments to reconcile net earnings to net cash flows provided
by operating activities:
|
||||||||||||||||
|
Depreciation and amortization (including amounts in cost of
sales)
|
100,961 | 30,316 | — | 131,277 | ||||||||||||
|
Provision for inventory reserves
|
44,728 | 7,151 | — | 51,879 | ||||||||||||
|
Amortization and retirement of deferred financing fees and issue
discounts
|
6,831 | — | — | 6,831 | ||||||||||||
|
Stock-based compensation expense
|
26,911 | — | — | 26,911 | ||||||||||||
|
Deferred income taxes
|
(4,387 | ) | (8,764 | ) | — | (13,151 | ) | |||||||||
|
Excess tax benefits realized from exercise of stock-based awards
|
(93,322 | ) | — | — | (93,322 | ) | ||||||||||
|
Loss on disposal of property and equipment
|
1,960 | 6,245 | — | 8,205 | ||||||||||||
|
Changes in other long-term liabilities
|
9,670 | 4,351 | — | 14,021 | ||||||||||||
|
Change in the value of foreign exchange contracts
|
(6,688 | ) | (1,887 | ) | — | (8,575 | ) | |||||||||
|
Changes in operating assets and liabilities, net
|
||||||||||||||||
|
Receivables, net
|
(8,145 | ) | (11,758 | ) | — | (19,903 | ) | |||||||||
|
Merchandise inventories
|
(51,452 | ) | (92,073 | ) | — | (143,525 | ) | |||||||||
|
Prepaid expenses and other current assets
|
(6,265 | ) | 2,675 | — | (3,590 | ) | ||||||||||
|
Prepaid income taxes and accrued income taxes payable
|
104,502 | 16,512 | — | 121,014 | ||||||||||||
|
Accounts payable and accrued liabilities
|
(26,230 | ) | 153,913 | — | 127,683 | |||||||||||
|
Net cash flows provided by operating activities
|
334,348 | 159,698 | — | 494,046 | ||||||||||||
|
Cash flows from investing activities:
|
||||||||||||||||
|
Purchase of property and equipment
|
(123,258 | ) | (52,311 | ) | — | (175,569 | ) | |||||||||
|
Acquisitions, net of cash acquired
|
1,061 | — | 1,061 | |||||||||||||
|
Other
|
899 | (3,015 | ) | — | (2,116 | ) | ||||||||||
|
Net cash flows used in investing activities
|
(121,298 | ) | (55,326 | ) | — | (176,624 | ) | |||||||||
|
Cash flows from financing activities:
|
||||||||||||||||
|
Repurchase of notes payable
|
(270,000 | ) | — | — | (270,000 | ) | ||||||||||
|
Repayments of acquisition borrowings
|
(12,173 | ) | — | — | (12,173 | ) | ||||||||||
|
Issuance of shares relating to stock options
|
64,883 | — | — | 64,883 | ||||||||||||
|
Excess tax benefits realized from exercise of stock-based awards
|
93,322 | — | — | 93,322 | ||||||||||||
|
Other
|
(263 | ) | — | — | (263 | ) | ||||||||||
|
Net cash flows used in financing activities
|
(124,231 | ) | — | — | (124,231 | ) | ||||||||||
|
Exchange rate effect on cash and cash equivalents
|
— | 11,820 | — | 11,820 | ||||||||||||
|
Net increase in cash and cash equivalents
|
88,819 | 116,192 | — | 205,011 | ||||||||||||
|
Cash and cash equivalents at beginning of period
|
582,514 | 69,889 | — | 652,403 | ||||||||||||
|
Cash and cash equivalents at end of period
|
$ | 671,333 | $ | 186,081 | $ | — | $ | 857,414 | ||||||||
F-41
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 21. | Unaudited Quarterly Financial Information |
The following table sets forth certain unaudited quarterly
consolidated statement of operations information for the fiscal
years ended January 30, 2010 and January 31, 2009. The
unaudited quarterly information includes all normal recurring
adjustments that management considers necessary for a fair
presentation of the information shown.
| Fiscal Year Ended January 30, 2010 | Fiscal Year Ended January 31, 2009 | |||||||||||||||||||||||||||||||
|
1st
|
2nd
|
3rd
|
4th
|
1st
|
2nd
|
3rd
|
4th
|
|||||||||||||||||||||||||
| Quarter(1) | Quarter | Quarter(2) | Quarter | Quarter(3) | Quarter | Quarter(4) | Quarter(5) | |||||||||||||||||||||||||
| (Amounts in thousands, except per share amounts) | ||||||||||||||||||||||||||||||||
|
Sales
|
$ | 1,980,753 | $ | 1,738,504 | $ | 1,834,727 | $ | 3,524,013 | $ | 1,813,617 | $ | 1,804,420 | $ | 1,695,746 | $ | 3,492,114 | ||||||||||||||||
|
Gross profit
|
542,113 | 495,406 | 523,084 | 874,049 | 473,406 | 484,123 | 473,429 | 839,177 | ||||||||||||||||||||||||
|
Operating earnings
|
128,454 | 70,956 | 90,269 | 347,354 | 109,903 | 100,069 | 85,335 | 379,812 | ||||||||||||||||||||||||
|
Net earnings
|
70,433 | 38,685 | 52,225 | 215,922 | 62,125 | 57,163 | 46,669 | 232,325 | ||||||||||||||||||||||||
|
Net earnings per common share — basic
|
0.43 | 0.23 | 0.32 | 1.31 | 0.38 | 0.35 | 0.29 | 1.42 | ||||||||||||||||||||||||
|
Net earnings per common share — diluted
|
0.42 | 0.23 | 0.31 | 1.29 | 0.37 | 0.34 | 0.28 | 1.39 | ||||||||||||||||||||||||
| The following footnotes are discussed as pretax expenses. | ||
| (1) | The results of operations for the first quarter of the fiscal year ended January 30, 2010 include debt extinguishment expense of $2,862. | |
| (2) | The results of operations for the third quarter of the fiscal year ended January 30, 2010 include debt extinguishment expense of $2,461. | |
| (3) | The results of operations for the first quarter of the fiscal year ended January 31, 2009 include debt extinguishment expense of $2,331. | |
| (4) | The results of operations for the third quarter of the fiscal year ended January 31, 2009 include merger-related expenses of $16,605 associated with the change in foreign exchange rates related to the funding of the Micromania acquisition. | |
| (5) | The results of operations for the fourth quarter of the fiscal year ended January 31, 2009 include merger-related income of $12,012 associated with the change in foreign exchange rates related to the funding of the Micromania acquisition. |
F-42
Table of Contents
EXHIBIT INDEX
|
Exhibit
|
||||
|
Number
|
Description
|
|||
| 2 | .1 | Agreement and Plan of Merger, dated as of April 17, 2005, among GameStop Corp. (f/k/a GSC Holdings Corp.), Electronics Boutique Holdings Corp., GameStop, Inc., GameStop Holdings Corp. (f/k/a GameStop Corp.), Cowboy Subsidiary LLC and Eagle Subsidiary LLC.(1) | ||
| 2 | .2 | Sale and Purchase Agreement, dated September 30, 2008, between EB International Holdings, Inc. and L Capital, LV Capital, Europ@Web and other Micromania shareholders.(13) | ||
| 2 | .3 | Amendment, dated November 17, 2008, to Sale and Purchase Agreement for Micromania Acquisition listed as Exhibit 2.2 above.(14) | ||
| 3 | .1 | Second Amended and Restated Certificate of Incorporation.(2) | ||
| 3 | .2 | Amended and Restated Bylaws.(3) | ||
| 4 | .1 | Indenture, dated September 28, 2005, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), GameStop, Inc., the subsidiary guarantors party thereto, and Citibank N.A., as trustee.(4) | ||
| 4 | .2 | First Supplemental Indenture, dated October 8, 2005, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), GameStop, Inc., the subsidiary guarantors party thereto, and Citibank N.A., as trustee.(5) | ||
| 4 | .3 | Rights Agreement, dated as of June 27, 2005, between GameStop Corp. (f/k/a GSC Holdings Corp.) and The Bank of New York, as Rights Agent.(3) | ||
| 4 | .4 | Form of Indenture.(6) | ||
| 10 | .1 | Insurance Agreement, dated as of January 1, 2002, between Barnes & Noble, Inc. and GameStop Holdings Corp. (f/k/a GameStop Corp.).(7) | ||
| 10 | .2 | Operating Agreement, dated as of January 1, 2002, between Barnes & Noble, Inc. and GameStop Holdings Corp. (f/k/a GameStop Corp.).(7) | ||
| 10 | .3 | Fourth Amended and Restated 2001 Incentive Plan.(16) | ||
| 10 | .4 | Second Amended and Restated Supplemental Compensation Plan.(8) | ||
| 10 | .5 | Form of Option Agreement.(9) | ||
| 10 | .6 | Form of Restricted Share Agreement.(10) | ||
| 10 | .7 | Credit Agreement, dated as of October 11, 2005, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A. and the other lending institutions listed in the Agreement, Bank of America, N.A. and Citicorp North America, Inc., as Issuing Banks, Bank of America, N.A., as Administrative Agent and Collateral Agent, Citicorp North America, Inc., as Syndication Agent, and Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services Inc., as Documentation Agent.(11) | ||
| 10 | .8 | Guaranty, dated as of October 11, 2005, by GameStop Corp. (f/k/a GSC Holdings Corp.) and certain subsidiaries of GameStop Corp. in favor of the agents and lenders.(11) | ||
| 10 | .9 | Security Agreement, dated October 11, 2005, by GameStop Corp. (f/k/a GSC Holdings Corp.) and certain subsidiaries of GameStop Corp. in favor of Bank of America, N.A., as Collateral Agent for the Secured Parties.(11) | ||
| 10 | .10 | Patent and Trademark Security Agreement, dated as of October 11, 2005 by GameStop Corp. (f/k/a GSC Holdings Corp.) and certain subsidiaries of GameStop Corp. in favor of Bank of America, N.A., as Collateral Agent.(11) | ||
| 10 | .11 | Mortgage, Security Agreement, and Assignment and Deeds of Trust, dated October 11, 2005, between GameStop of Texas, L.P. and Bank of America, N.A., as Collateral Agent.(11) | ||
| 10 | .12 | Mortgage, Security Agreement, and Assignment and Deeds of Trust, dated October 11, 2005, between Electronics Boutique of America, Inc. and Bank of America, N.A., as Collateral Agent.(11) | ||
| 10 | .13 | Form of Securities Collateral Pledge Agreement, dated as of October 11, 2005.(11) | ||
| 10 | .14 | First Amendment, dated April 25, 2007, to Credit Agreement, dated as of October 11, 2005, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A. and the other lending institutions listed in the Amendment, Bank of America, N.A. and Citicorp North America, Inc., as Issuing Banks, Bank of America, N.A., as Administrative Agent and Collateral Agent, Citicorp North America, Inc., as Syndication Agent, and Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services Inc., as Documentation Agent.(12) | ||
Table of Contents
|
Exhibit
|
||||
|
Number
|
Description
|
|||
| 10 | .15 | Second Amendment, dated as of October 23, 2008, to Credit Agreement, dated as of October 11, 2005, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A. and the other lending institutions listed in the Amendment, Bank of America, N.A. and Citicorp North America, Inc., as Issuing Banks, Bank of America, N.A., as Administrative Agent and Collateral Agent, Citicorp North America, Inc., as Syndication Agent, and GE Business Financial Services, Inc., as Documentation Agent.(14) | ||
| 10 | .16 | Term Loan Agreement, dated November 12, 2008, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A., as lender, Bank of America, N.A., as Administrative Agent and Collateral Agent, and Banc of America Securities LLC, as Sole Arranger and Bookrunner.(14) | ||
| 10 | .17 | Security Agreement, dated November 12, 2008, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A., as lender and Bank of America, N.A., as Collateral Agent.(14) | ||
| 10 | .18 | Patent and Trademark Security Agreement, dated as of November 12, 2008, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A., as lender, and Bank of America, N.A., as Collateral Agent.(14) | ||
| 10 | .19 | Securities Collateral Pledge Agreement, dated November 12, 2008, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A., as lender, and Bank of America, N.A., as Collateral Agent.(14) | ||
| 10 | .20 | Amended and Restated Executive Employment Agreement, dated December 31, 2008, between GameStop Corp. and R. Richard Fontaine.(15) | ||
| 10 | .21 | Amended and Restated Executive Employment Agreement, dated as December 31, 2008, between GameStop Corp. and Daniel A. DeMatteo.(15) | ||
| 10 | .22 | Amended and Restated Executive Employment Agreement, dated December 31, 2008, between GameStop Corp. and Tony Bartel.(15) | ||
| 10 | .23 | Amended and Restated Executive Employment Agreement, dated December 31, 2008, between GameStop Corp. and J. Paul Raines.(15) | ||
| 12 | .1 | Computation of Ratio of Earnings to Fixed Charges. | ||
| 14 | .1 | Code of Ethics for Senior Financial and Executive Officers (17). | ||
| 14 | .2 | Code of Standards, Ethics and Conduct. | ||
| 21 | .1 | Subsidiaries. | ||
| 23 | .1 | Consent of BDO Seidman, LLP. | ||
| 31 | .1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
| 31 | .2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
| 32 | .1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
| 32 | .2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
| 101 | .INS | XBRL Instance Document | ||
| 101 | .SCH | XBRL Taxonomy Extension Schema | ||
| 101 | .CAL | XBRL Taxonomy Extension Calculation Linkbase | ||
| 101 | .DEF | XBRL Taxonomy Extension Definition Linkbase | ||
| 101 | .LAB | XBRL Taxonomy Extension Label Linkbase | ||
| 101 | .PRE | XBRL Taxonomy Extension Presentation Linkbase | ||
| (1) | Incorporated by reference to GameStop Holdings Corp.’s Form 8-K filed with the Securities and Exchange Commission on April 18, 2005. |
Table of Contents
| (2) | Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on February 7, 2007. | |
| (3) | Incorporated by reference to the Registrant’s Amendment No. 1 to Form S-4 filed with the Securities and Exchange Commission on July 8, 2005. | |
| (4) | Incorporated by reference to GameStop Holdings Corp.’s Form 8-K filed with the Securities and Exchange Commission on September 30, 2005. | |
| (5) | Incorporated by reference to the Registrant’s Form 10-Q for the fiscal quarter ended October 29, 2005 filed with the Securities and Exchange Commission on December 8, 2005. | |
| (6) | Incorporated by reference to the Registrant’s Form S-3ASR filed with the Securities and Exchange Commission on April 10, 2006. | |
| (7) | Incorporated by reference to GameStop Holdings Corp.’s Amendment No. 3 to Form S-1 filed with the Securities and Exchange Commission on January 24, 2002. | |
| (8) | Incorporated by reference to Appendix A to the Registrant’s Proxy Statement for 2008 Annual Meeting of Stockholders filed with the Securities and Exchange Commission on May 23, 2008. | |
| (9) | Incorporated by reference to GameStop Holdings Corp.’s Form 10-K for the fiscal year ended January 29, 2005 filed with the Securities and Exchange Commission on April 11, 2005. | |
| (10) | Incorporated by reference to GameStop Holdings Corp.’s Form 8-K filed with the Securities and Exchange Commission on September 12, 2005. | |
| (11) | Incorporated by reference to Registrant’s Form 8-K filed with the Securities and Exchange Commission on October 12, 2005. | |
| (12) | Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on April 26, 2007. | |
| (13) | Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on October 2, 2008. | |
| (14) | Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on November 18, 2008. | |
| (15) | Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on January 7, 2009. | |
| (16) | Incorporated by reference to Appendix A to the Registrant’s Proxy Statement for 2009 Annual Meeting of Stockholders filed with the Securities and Exchange Commission on May 22, 2009. | |
| (17) | Incorporated by reference to the Registrant’s Form 10-K for the fiscal year ended January 31, 2009, filed with the Securities and Exchange Commission on April 1, 2009. |
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. ReservedPart IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Consolidated Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Consolidated Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate Governance*Item 11. Executive Compensation*Item 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder Matters*Item 13. Certain Relationships and Related Transactions, and Director Independence*Item 14. Principal Accountant Fees and Services*Part IVItem 15. Exhibits and Financial Statement Schedules