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
|
þ
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the fiscal year ended January 29, 2011 | ||
|
OR
|
||
|
o
|
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) | (Name of Exchange on Which Registered) | |
|
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
$3,015,000,000, based upon the closing market price of $20.05
per share of Class A Common Stock on the New York Stock
Exchange as of July 30, 2010.
Number of shares of $.001 par value Class A Common
Stock outstanding as of March 23, 2011: 140,700,393
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 2011 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 multichannel 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 29, 2011, we operated 6,670 stores in the United
States, Australia, Canada and Europe, primarily under the names
GameStop, EB Games and Micromania. We also operate electronic
commerce Web sites under the names
www.gamestop.com
,
www.ebgames.com.au
,
www.gamestop.ca
,
www.gamestop.it
,
www.gamestop.es
,
www.gamestop.ie
,
www.gamestop.de
and
www.micromania.fr
. In addition, we publish
Game
Informer
magazine, the industry’s largest
multi-platform video game magazine in the United States based on
circulation, with approximately 5.7 million subscribers,
and operate the online video gaming Web site
www.kongregate.com.
In the fiscal year ended January 29, 2011, we operated our
business in the following segments: United States, Canada,
Australia and Europe. Of our 6,670 stores, 4,536 stores are
included in the United States segment and 345, 405 and 1,384
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. We also sell various types of products
that relate to the digital category, including network point
cards, prepaid digital and online timecards and digitally
downloadable software. 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, language translations and the
timing of roll-outs of newly developed technology enabling the
sale of new products, such as digital add-on content. 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 518,000 square foot
facility in Grapevine, Texas.
The Company began operations in November 1996. In February 2002,
GameStop completed an initial public offering of its
Class A common stock. 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 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 379 locations, 328 of which were operating at the
date of acquisition. The Company’s operating results for
the 52 weeks ended January 29, 2011 (“fiscal
2010”) and 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
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Table of Contents
results, performance, achievements or industry results to be
materially different from any future results, 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 in the U.S. and internationally, 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 and content; | |
| • | alternate means to play video games; | |
| • | the competitive environment in the electronic game industry; | |
| • | the growth of mobile, social and browser gaming; | |
| • | our ability to open and operate new stores; | |
| • | our ability to attract and retain qualified personnel; | |
| • | our ability to effectively integrate acquired companies, including digital gaming and technology-based companies that are outside of the Company’s historical operating expertise; | |
| • | the impact and costs of litigation and regulatory compliance; | |
| • | unanticipated litigation results, including third party litigation; | |
| • | 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 $36 billion
in 2010 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
$18.5 billion market in the United States in 2010, 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
$14.3 billion in Europe in 2010. The NPD Group has reported
that video game retail sales in Canada were approximately
$1.7 billion in 2010. According to the independent market
research firm GfK Group, the Australian market for video game
products was approximately $1.7 billion in 2010.
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Table of Contents
Based on internal estimates compiled from a variety of
third-party sources, which estimate portions of the digital
video game market, the North American market for digital mobile,
social, console and PC games was approximately $6 billion
in 2010 and the market is expected to grow to approximately
$12 billion by 2015.
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, 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 XL, which was introduced in 2010 and the Sony PlayStation Portable (the “PSP”), which was introduced in 2005. Technological developments in chip processing speed, data storage and viewing capabilities have provided significant improvements in advanced graphics, including 3-D viewing, 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 3 and Microsoft Xbox 360, have the potential to serve as multi-purpose entertainment centers by providing DVD and music playback, movie streaming and interaction with other home entertainment products. The Nintendo Wii also allows for movie streaming. In addition, the Sony PlayStation 3 and PSP, the Nintendo DSi, DSi XL 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 34 years old and the average age of the most frequent game purchaser is 40; however, the video game market also includes approximately 26% 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 the NPD Group, we believe that, as of
December 2010, the installed base of video game hardware systems
in the United States, based on original sales, totaled over
249 million units of handheld and console video game
systems. Of the total installed base, 141 million were
comprised of the current generation of video game platforms as
follows: 15.4 million Sony PlayStation 3 units,
34.2 million Nintendo Wii units, 25.4 million
Microsoft Xbox 360 units, 19 million Sony PSP units
and 47.3 million Nintendo DS units. The
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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 2010 in
Europe is approximately 153 million units. Of the total
European installed base, 114 million were comprised of the
current generation of video game platforms as follows:
14.7 million Sony PlayStation 3 units,
24.9 million Nintendo Wii units, 13.7 million
Microsoft Xbox 360 units, 14.8 million Sony PSP units
and 46 million Nintendo DS 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 1.98 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.
Casual Gaming.
The casual game market has
grown rapidly over the last few years. Casual games are
generally defined as simple, easy-to-use, free or very
low-priced games played through the internet in Web browsers, on
dedicated gaming Web sites or on mobile phones or other mobile
devices. Casual games cost less to develop and distribute than a
traditional console video game and are often supported by
in-game advertising or user-purchased premium content. The
typical casual gamer is predominantly female and older than a
traditional console video game player.
Business
and Growth Strategy
Our goal is to continue to be the world’s largest
multichannel retailer of new and used video game products and PC
entertainment software and provide the best video game content
to our customers anytime, anywhere and on any device. We plan to
strengthen that position by executing the following strategies:
Continuing to Execute our Proven
Strategies.
We intend to continue to execute our
proven strategies, including:
| • | Increase Comparable Store Sales. We plan to increase our comparable store sales by increasing market share by increasing awareness of the GameStop brand and membership in our loyalty program, expanding our sales of used video game products and capitalizing on the growth in demand. |
| • | Increase GameStop Brand Awareness and Loyalty Membership. 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 PowerUp Rewards loyalty program and our Web sites. The PowerUp Rewards loyalty program was launched in 2010 and offers our customers the ability to sign-up for a free or paid membership that offers points earned on purchases which can be redeemed for discounts or merchandise. Through PowerUp Rewards, our customers have access to unique, video-game related rewards unavailable through any other retailer. The program’s paid membership also includes a subscription to Game Informer magazine, additional discounts on used merchandise in our stores and additional credit on trade-ins of used games. Our Web sites allow our customers to buy games online, reserve or pick-up merchandise in our stores 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 the 52 weeks ending January 28, 2012 (“fiscal 2011”), we plan to continue to aggressively promote the GameStop PowerUp Rewards loyalty program and increase brand awareness over a broader demographic area in order to promote our unique buying experience in-store for new and used hardware and software, trade-ins of used video game products and to leverage our Web sites at www.gamestop.com , www.ebgames.com.au , www.gamestop.ca , www.gamestop.it , www.gamestop.es , |
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Table of Contents
| www.gamestop.ie , www.gamestop.de and www.micromania.fr and the online video gaming Web site www.kongregate.com. |
| • | 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 and the use of both broad and targeted marketing to our PowerUp Rewards members. We expect the continued sale of new platform technology and software 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. | |
| • | Capitalize on Growth in Demand. While sales of new video game hardware decreased from fiscal 2009 to fiscal 2010, our customer base has expanded. Our sales of new video game software and used video game products grew by approximately 6% and 3%, respectively, in fiscal 2010 primarily due to new store growth and the expansion of the hardware platform customer base. In addition, our other product sales increased 10% in fiscal 2010 primarily due to the strong sell-through of new PC entertainment software and the growth of online game card sales. 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. |
| • | Store Opening/Closing Strategy. The Company has an analysis-driven approach to store opening and closing decisions. We intend to continue to open new stores in targeted markets where we do not currently have a presence and can take market-share from an uncontested competitor. Likewise, we will be aggressive in the analysis of our existing store base to determine optimal levels of profitability and close stores where profitability goals are not being met or where we can attempt to transfer sales to other nearby existing stores and increase overall profits. We opened 359 new stores and closed 139 stores in fiscal 2010. We opened 388 new stores and closed 145 stores in fiscal 2009. We opened 674 new stores and closed 59 stores in fiscal 2008 and acquired 328 stores in France. On average, our new stores opened in the past three fiscal years have had a return of original investment of less than two years. We plan to open approximately 300 new stores and close approximately 200 stores in fiscal 2011. 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., Canada and Australia is to open strip center stores in targeted markets where we do not currently have a presence and close stores where we can improve profitability either by transferring sales to other nearby stores or vacating a location. Our strategy in Europe is to continue expansion in locations with a demonstrated track record of successful new store openings and increasing returns on invested capital. 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. |
Expand our Digital Growth Strategy to Protect and Expand our
Market Leadership Position.
We expect that future
growth in the video game industry will be driven by the sale of
video games delivered in digital form and the expansion of other
forms of gaming. 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 downloadable
software. We operate an online video game platform called
Kongregate.com which we acquired in August 2010. We continue to
make significant investments in
e-commerce,
digital delivery systems, online video game aggregation, 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
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these types of processes and channels to grow our digital sales
base and enhance our market leadership position in the video
game industry and in the digital aggregation and distribution
category.
Targeting a Broad Audience of Game Players.
We
have created store and online environments 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. Our online properties,
including
e-commerce
sites and Kongregate.com, continue to evolve to meet the needs
of consumers looking to research or buy traditional boxed
product video games, download the latest PC games or play
browser and casual games on their PCs or Android mobile devices.
Enhancing our Image as a Destination
Location.
Our stores and
e-commerce
sites serve as destination locations for game players and gift
givers due to our broad selection of products, compelling
PowerUp Rewards loyalty programs, 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. In our stores, 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.
Kongregate.com serves as a destination for gamers seeking the
latest in online game play with over 35,000 games from over
8,000 developers in a social environment in which gamers can
connect with their friends and compare achievements. Many of the
favorite Kongregate games are available through the Kongregate
app in the Android marketplace for use on Android mobile devices.
Consistently Achieving High New Release Market
Share.
We employ a variety of rapid-response
distribution methods in our efforts to be the
first-to-market
and consistently in stock 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.
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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
,
Game Informer
magazine, and the online video gaming Web
sites
www.kongregate.com
and
www.joltonline.com.
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; however, we also sell downloadable software
and subscription, time and points cards which do not involve
physical product. Our product offerings consist of new and used
video game products, PC entertainment software, and related
products, such as video game accessories 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 and Kinect, the
Nintendo DSi, DSi XL and Wii. 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 50 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.
In 2010, we began selling digitally downloadable add-on content
developed by publishers for existing games.
8
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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 $16 as compared to an average price of $42
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 20 publishers,
including Electronic Arts, Microsoft and Activision. We offer PC
entertainment software across a variety of genres, including
Sports, Action, Strategy, Adventure/Role Playing and Simulation.
Downloadable Content and Subscription, Time and Points
Cards.
The proliferation of online game play
through Microsoft Xbox Live, the PlayStation Network and online
PC gaming sites has led to consumer demand for subscription,
time and points cards (which we call digital currency) and
digitally downloadable content for existing video games. We sell
a wide variety of digital currency and we have developed
technology to sell downloadable content in our stores and on our
U.S. Web site. We believe we are the leading retailer for
the sale of digital currency and downloadable content for Xbox
Live and the PlayStation Network.
Accessories and Other Products.
Video game
accessories consist primarily of controllers, memory cards and
other add-ons and, since September 2010, the Sony Move motion
controller. 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 29, 2011, we operated 6,670 stores, primarily
under the names GameStop, EB Games and Micromania. 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.
9
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Locations.
The table below sets forth the
number of our stores located in the U.S., Canada, Europe and
Australia as of January 29, 2011:
|
Number
|
||||
| United States | of Stores | |||
|
Alabama
|
78 | |||
|
Alaska
|
7 | |||
|
Arizona
|
89 | |||
|
Arkansas
|
32 | |||
|
California
|
481 | |||
|
Colorado
|
66 | |||
|
Connecticut
|
61 | |||
|
Delaware
|
18 | |||
|
District of Columbia
|
3 | |||
|
Florida
|
312 | |||
|
Georgia
|
142 | |||
|
Guam
|
3 | |||
|
Hawaii
|
24 | |||
|
Idaho
|
14 | |||
|
Illinois
|
196 | |||
|
Indiana
|
94 | |||
|
Iowa
|
34 | |||
|
Kansas
|
37 | |||
|
Kentucky
|
70 | |||
|
Louisiana
|
74 | |||
|
Maine
|
13 | |||
|
Maryland
|
110 | |||
|
Massachusetts
|
105 | |||
|
Michigan
|
125 | |||
|
Minnesota
|
58 | |||
|
Mississippi
|
44 | |||
|
Missouri
|
73 | |||
|
Montana
|
9 | |||
|
Nebraska
|
21 | |||
|
Nevada
|
43 | |||
|
New Hampshire
|
27 | |||
|
New Jersey
|
163 | |||
|
New Mexico
|
27 | |||
|
New York
|
260 | |||
|
North Carolina
|
143 | |||
|
North Dakota
|
7 | |||
|
Ohio
|
194 | |||
|
Oklahoma
|
49 | |||
|
Oregon
|
36 | |||
|
Pennsylvania
|
216 | |||
|
Puerto Rico
|
45 | |||
|
Rhode Island
|
15 | |||
10
Table of Contents
|
Number
|
||||
| United States | of Stores | |||
|
South Carolina
|
75 | |||
|
South Dakota
|
5 | |||
|
Tennessee
|
96 | |||
|
Texas
|
381 | |||
|
Utah
|
27 | |||
|
Vermont
|
5 | |||
|
Virginia
|
151 | |||
|
Washington
|
82 | |||
|
West Virginia
|
31 | |||
|
Wisconsin
|
58 | |||
|
Wyoming
|
7 | |||
|
Sub-total
for United States
|
4,536 | |||
|
Number
|
||||
| International | of Stores | |||
|
Canada
|
345 | |||
|
Australia
|
365 | |||
|
New Zealand
|
40 | |||
|
Sub-total
for Australia
|
405 | |||
|
Austria
|
24 | |||
|
Denmark
|
44 | |||
|
Finland
|
17 | |||
|
France
|
379 | |||
|
Germany
|
205 | |||
|
Ireland
|
50 | |||
|
Italy
|
371 | |||
|
Norway
|
53 | |||
|
Portugal
|
13 | |||
|
Spain
|
140 | |||
|
Sweden
|
63 | |||
|
Switzerland
|
18 | |||
|
United Kingdom
|
7 | |||
|
Sub-total
for Europe
|
1,384 | |||
|
Sub-total
for International
|
2,134 | |||
|
Total stores
|
6,670 | |||
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, digitally and through
displays in our stores throughout most of the world.
Game
Informer
is the fifth largest consumer publication in the
U.S. and for its January 2011 issue, the magazine had
approximately 5.7 million paid subscriptions.
Game
Informer
is now provided to PowerUp Rewards loyalty card
members as a key feature of each paid PowerUp Rewards
membership.
Game Informer
revenues are
11
Table of Contents
also generated through the sale of advertising space. 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
,
www.gamestop.es
,
www.gamestop.ie
,
www.gamestop.de
and
www.micromania.fr
, that allow our customers to buy video
game products and other merchandise online and, in some cases,
allow customers to reserve merchandise and then pick it up in
stores. 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.
E-commerce
results are included in the geographic segment where the sales
originate.
Kongregate
In August 2010, we purchased Kongregate Inc., the operator of
online video gaming site
www.kongregate.com
, which offers
free-to-play
video games to over 13 million unique visitors per month.
Kongregate earns revenues from in-game advertising and offering
game players the opportunity to advance their game play with
in-game transactions (called micro-transactions). Kongregate has
a proprietary virtual currency called Kreds which can be
purchased and then used to pay for in-game transactions. Over
8,000 developers have used the software development kits created
by Kongregate to integrate over 35,000 games into the
Kongregate.com environment.
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 fiscal 2010, we launched our new PowerUp Rewards loyalty
program in the United States which gives our customers the
ability to
sign-up
for
a free or paid membership that offers points earned on purchases
in our stores, on our U.S. Web site and on Kongregate.com,
which can be redeemed for discounts or merchandise. The
program’s paid tier also includes a subscription to
Game
Informer
magazine, additional discounts on selected
merchandise and additional credit on trade-ins in our stores.
This program is designed to incent our customers to shop more
often at our stores and to allow us to market directly to our
customers based on their individual tastes and preferences. Our
PowerUp Rewards program provides members with the opportunity to
earn
one-of-a-kind
video game related rewards not available through any other
retailer. Vendors also participate in this program to increase
the sales of their individual products.
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. We expect our investment in
advertising, including PowerUp Rewards, to increase as we
continue to expand our membership base and build our brand.
12
Table of Contents
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
362,000 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 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.
Digital Distribution.
We have developed
proprietary technology to work in conjunction with both
Microsoft and Sony to enable us to sell digitally distributed
game content in our stores, through our in-store kiosks and on
our
e-commerce
sites. The downloadable content typically available today
consists of add-on content developed by publishers for existing
games.
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,
13
Table of Contents
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
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, four 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 15 stores. In total,
there are approximately 308 districts. Our international
operations are managed by a senior executive, with stores in
Europe managed by two senior vice presidents, one vice president
and managing directors in each region 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
and our
e-commerce
sites, 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 82% of our new product purchases in
fiscal 2010. Only Microsoft, Nintendo, Sony, Activision and
Electronic Arts (which accounted for 18%, 16%, 16%, 12%, and
10%, respectively) individually accounted for more than 10% of
our new product purchases during fiscal 2010. 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.
14
Table of Contents
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 casual and mobile games, movies,
television, theater, sporting events and family entertainment
centers.
In the U.S., we compete with Wal-Mart Stores, Inc.
(“Wal-Mart”); Target Corporation (“Target”);
and Best Buy Co., Inc. (“Best Buy”). 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 2010, we generated approximately 39% of
our sales and approximately 57% of our operating earnings during
the fourth quarter. During fiscal 2009, we generated
approximately 39% of our sales and approximately 55% of our
operating earnings during the fourth quarter.
Trademarks
We have a number of trademarks and servicemarks, including
“GameStop,” “Game Informer,” “EB
Games,” “Electronics Boutique,”
“Kongregate,” “Power to the Players,” and
“PowerUp Rewards,” 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 31,000 and 51,000 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
15
Table of Contents
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 Executive Chairman;
J. Paul Raines, our Chief Executive Officer; Tony D. Bartel, our
President; Robert A. Lloyd, our Executive Vice President and
Chief Financial Officer; and Michael Mauler, our Executive Vice
President-International. The loss of services of any of our key
personnel could have a negative impact on our business.
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 and new innovations 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 and accessories, 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 Microsoft,
Nintendo, Sony, Activision and Electronic Arts, which accounted
for 18%, 16%, 16%, 12% and 10%, respectively, of our new product
purchases in fiscal 2010. 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
16
Table of Contents
and drive sales at our stores and on our Web sites. 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. The
current generation of video game consoles were introduced in
2005 and 2006. In 2010, Microsoft introduced the Kinect, a
motion sensing accessory for the Xbox 360, and Sony introduced
the Move, a motion control accessory for the PlayStation 3.
These accessories are designed to take advantage of the
processing power in the current platforms and are believed to
extend the current video game hardware cycle beyond the
historical five-year length. If these new motion accessories
fail to appeal to consumers or 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. Some of our
competitors have longer operating histories and may have greater
financial resources than we do. In addition, video game products
and content are increasingly being digitally distributed and
other methods may emerge in the future. We also compete with
other sellers of used video game products. Additionally, we
compete with other forms of entertainment activities, including
browser, social and mobile games, movies, television, theater,
sporting events 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
natural disasters or 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; | |
| • | natural disasters; | |
| • | government instability; and | |
| • | competitors entering our current and potential markets. |
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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.
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
and downloading is constrained by bandwidth capacity, this
technology is becoming more prevalent. If advances in technology
continue to expand our customers’ ability to access and
download the current format of video games, PC entertainment
software and incremental content for their games through these
and other sources, our customers may no longer choose to
purchase video games or PC entertainment software in our stores
or reduce their purchases in favor of other forms of game
delivery. 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, including hiring employees
with experience in digital gaming and making investments in and
acquisitions of digital gaming and technology-based companies,
we can provide no assurances that these strategies 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 2010, we generated approximately 39% of
our sales and approximately 57% of our operating earnings during
the fourth quarter. Any
18
Table of Contents
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; | |
| • | the effect of changes in tax rates in the jurisdictions in which we operate; | |
| • | the mix of earnings in the countries in which we operate; 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 depends in part upon opening new stores and
operating them profitably. We opened 359 stores in fiscal 2010
and expect to open approximately 300 new stores in fiscal 2011.
Our ability to open new 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.
Failure
to execute our strategy to close stores and transfer customers
and sales to nearby stores.
Our strategy includes closing stores which are not meeting our
performance hurdles or stores at the end of their lease terms
and transferring sales to other nearby GameStop locations. We
believe that we can ultimately increase profitability by
successfully transferring customers and sales to other stores by
marketing directly to the PowerUp Rewards members who have
shopped in the stores which we plan to close. If we are
unsuccessful in marketing to customers of the stores which we
plan to close or in transferring sales to nearby stores, our
sales and profitability could be adversely affected.
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
19
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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
have made and may make investments and 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 have made and
continue to make investments and acquisitions. These activities
include investments in and acquisitions of digital, browser,
social and mobile gaming and technology-based companies as the
delivery methods for video games continues to evolve. Our plans
to pursue future transactions are subject to our ability to
identify potential candidates and negotiate favorable terms for
these transactions. Accordingly, we cannot assure you that
future investments or acquisitions will be completed. In
addition, to facilitate future transactions, 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. Integration of digital, browser, social and
mobile gaming and technology-based companies may be particularly
challenging to us as these companies are outside of our
historical operating expertise.
We may
not compete effectively as browser, mobile and social gaming
becomes more popular.
Gaming continues to evolve. Recently, the popularity of browser,
mobile and social gaming has increased greatly and this
popularity is expected to continue to grow. Browser, mobile and
social gaming is accessed through hardware other than the
consoles we sell. If we are unable to respond to this growth in
popularity of browser, mobile and social games and transition
our business to take advantage of these new forms of gaming, our
financial position and results of operations could suffer. While
the Company has been and is currently pursuing various
strategies to integrate these new forms of gaming into the
Company’s business model, we can provide no assurances that
these strategies will be successful or profitable.
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.
20
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 outlook of the credit markets toward the video game business; | |
| • | 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 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 29, 2011, we had approximately
$249.0 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.
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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.
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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,
leases for equivalent locations in the same area, or be able to
close the stores with expiring leases and transfer enough of the
sales to other nearby stores to improve, if not at least
maintain, profitability.
The terms of the store leases for the 6,670 leased stores open
as of January 29, 2011 expire as follows:
|
Number
|
||||
| Lease Terms to Expire During | of Stores | |||
|
(12 Months Ending on or About
January 31)
|
||||
|
Expired and in negotiations
|
31 | |||
|
2012
|
1,341 | |||
|
2013
|
1,872 | |||
|
2014
|
1,384 | |||
|
2015
|
816 | |||
|
2016 and later
|
1,226 | |||
| 6,670 | ||||
At January 29, 2011, the Company owned or leased office and
distribution facilities, with lease expiration dates ranging
from 2011 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
|
518,000 | Owned | Distribution and administration | |||||
|
Grapevine, Texas, USA
|
182,000 | Owned | Manufacturing and distribution | |||||
|
Louisville, Kentucky, USA
|
260,000 | Leased | Distribution | |||||
|
Minneapolis, Minnesota, USA
|
15,000 | 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 and administration | |||||
|
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
|
24,000 | Leased | Distribution and administration | |||||
|
Paris, France
|
54,000 | Leased | Distribution | |||||
|
Sophia Antipolis, France
|
17,000 | Leased | Administration | |||||
In addition, we are constructing a 161,000 square foot
distribution and administration building in Eagle Farm,
Queensland, Australia, estimated to be completed in fiscal 2011.
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Table of Contents
| Item 3. | Legal Proceedings |
In the ordinary course of the Company’s business, the
Company is, from time to time, subject to various 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 we believe settlement is in the
best interest of the Company’s shareholders. Management
does not believe that any such existing 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. | [Removed and 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
New York Stock Exchange (“NYSE”) under the symbol
“GME.”
The following table sets forth, for the periods indicated, the
high and low sales prices of the Class A common stock on
the NYSE Composite Tape:
| Fiscal 2010 | ||||||||
| High | Low | |||||||
|
Fourth Quarter
|
$ | 23.23 | $ | 19.16 | ||||
|
Third Quarter
|
$ | 21.49 | $ | 17.70 | ||||
|
Second Quarter
|
$ | 25.31 | $ | 17.96 | ||||
|
First Quarter
|
$ | 25.75 | $ | 17.12 | ||||
| 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 | ||||
Approximate
Number of Holders of Common Equity
As of March 2, 2011, there were approximately 1,509 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
indenture governing the senior notes restrict, and the terms of
the senior credit facility may 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.
24
Table of Contents
Issuer
Purchases of Equity Securities
Purchases by the Company of its equity securities during the
fourth quarter of the fiscal year ended January 29, 2011
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 millions of dollars) | ||||||||||||||||
|
October 31 through
November 27, 2010 |
— | $ | — | — | $ | 250.6 | ||||||||||
|
November 28 through
January 1, 2011 |
— | $ | — | — | $ | 250.6 | ||||||||||
|
January 2 through
January 29, 2011 |
5,403,900 | $ | 20.77 | 5,403,900 | $ | 138.4 | ||||||||||
|
Total
|
5,403,900 | $ | 20.77 | 5,403,900 | ||||||||||||
| (1) | In September 2010, our Board of Directors approved a $300 million share repurchase program under which we purchased $161.6 million of treasury shares. On February 4, 2011, our Board of Directors replaced the $300 million share repurchase plan with a new plan authorizing $500 million to be used for share repurchases and/or retirement of the Company’s senior notes due 2012. The $500 million plan occurred subsequent to our fiscal year end and is not included in the above chart. |
25
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 27, 2006 through January 28, 2011
(the last trading date of fiscal 2010) 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 27, 2006 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.
| 1/27/2006 | 2/2/2007 | 2/1/2008 | 1/30/2009 | 1/29/2010 | 1/28/2011 | |||||||||||||||||||||||||
|
GME
|
100.00 | 137.71 | 268.37 | 126.62 | 101.02 | 107.20 | ||||||||||||||||||||||||
|
S&P 500 Index
|
100.00 | 112.83 | 108.70 | 64.33 | 83.65 | 99.43 | ||||||||||||||||||||||||
|
Dow Jones Specialty Retailers Index
|
100.00 | 109.20 | 98.44 | 61.69 | 89.16 | 118.48 | ||||||||||||||||||||||||
| Item 6. | Selected 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 29, 2011, January 30,
2010, January 31, 2009 and February 2, 2008 consisted
of 52 weeks. The “Statement of Operations Data”
for the fiscal years ended January 29, 2011,
January 30, 2010 and January 31, 2009 and the
“Balance Sheet Data” as of January 29, 2011 and
January 30, 2010 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 2, 2008 and February 3, 2007 and the
“Balance Sheet Data” as of January 31, 2009,
February 2, 2008 and February 3, 2007 are derived from
our audited financial statements which are not included
elsewhere in this
Form 10-K.
26
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
|
52 Weeks
|
53 Weeks
|
||||||||||||||||
|
Ended
|
Ended
|
Ended
|
Ended
|
Ended
|
||||||||||||||||
|
January 29,
|
January 30,
|
January 31,
|
February 2,
|
February 3,
|
||||||||||||||||
| 2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||
| (In millions, except per share data and statistical data) | ||||||||||||||||||||
|
Statement of Operations Data:
|
||||||||||||||||||||
|
Sales
|
$ | 9,473.7 | $ | 9,078.0 | $ | 8,805.9 | $ | 7,094.0 | $ | 5,318.9 | ||||||||||
|
Cost of sales
|
6,936.1 | 6,643.3 | 6,535.8 | 5,280.3 | 3,847.5 | |||||||||||||||
|
Gross profit
|
2,537.6 | 2,434.7 | 2,270.1 | 1,813.7 | 1,471.4 | |||||||||||||||
|
Selling, general and administrative expenses
|
1,700.3 | 1,635.1 | 1,445.4 | 1,182.0 | 1,021.1 | |||||||||||||||
|
Depreciation and amortization
|
174.7 | 162.6 | 145.0 | 130.3 | 109.8 | |||||||||||||||
|
Merger-related expenses(1)
|
— | — | 4.6 | — | 6.8 | |||||||||||||||
|
Operating earnings
|
662.6 | 637.0 | 675.1 | 501.4 | 333.7 | |||||||||||||||
|
Interest expense (income), net
|
35.2 | 43.2 | 38.8 | 47.7 | 73.3 | |||||||||||||||
|
Debt extinguishment expense
|
6.0 | 5.3 | 2.3 | 12.6 | 6.1 | |||||||||||||||
|
Earnings before income tax expense
|
621.4 | 588.5 | 634.0 | 441.1 | 254.3 | |||||||||||||||
|
Income tax expense
|
214.6 | 212.8 | 235.7 | 152.8 | 96.0 | |||||||||||||||
|
Consolidated net income
|
406.8 | 375.7 | 398.3 | 288.3 | 158.3 | |||||||||||||||
|
Net loss attributable to noncontrolling interests
|
1.2 | 1.6 | — | — | — | |||||||||||||||
|
Consolidated net income attributable to GameStop
|
$ | 408.0 | $ | 377.3 | $ | 398.3 | $ | 288.3 | $ | 158.3 | ||||||||||
|
Basic net income per common share(2)
|
$ | 2.69 | $ | 2.29 | $ | 2.44 | $ | 1.82 | $ | 1.06 | ||||||||||
|
Diluted net income per common share(2)
|
$ | 2.65 | $ | 2.25 | $ | 2.38 | $ | 1.75 | $ | 1.00 | ||||||||||
|
Weighted average shares outstanding — basic(2)
|
151.6 | 164.5 | 163.2 | 158.2 | 149.9 | |||||||||||||||
|
Weighted average shares outstanding — diluted(2)
|
154.0 | 167.9 | 167.7 | 164.8 | 158.3 | |||||||||||||||
|
Store Operating Data:
|
||||||||||||||||||||
|
Number of stores by segment
|
||||||||||||||||||||
|
United States
|
4,536 | 4,429 | 4,331 | 4,061 | 3,799 | |||||||||||||||
|
Canada
|
345 | 337 | 325 | 287 | 267 | |||||||||||||||
|
Australia
|
405 | 388 | 350 | 280 | 219 | |||||||||||||||
|
Europe
|
1,384 | 1,296 | 1,201 | 636 | 493 | |||||||||||||||
|
Total
|
6,670 | 6,450 | 6,207 | 5,264 | 4,778 | |||||||||||||||
|
Comparable store sales increase (decrease)(3)
|
1.1 | % | (7.9 | )% | 12.3 | % | 24.7 | % | 11.9 | % | ||||||||||
|
Inventory turnover
|
5.1 | 5.2 | 5.8 | 6.0 | 5.2 | |||||||||||||||
|
Balance Sheet Data:
|
||||||||||||||||||||
|
Working capital
|
$ | 407.0 | $ | 471.6 | $ | 255.3 | $ | 534.2 | $ | 353.3 | ||||||||||
|
Total assets
|
5,063.8 | 4,955.3 | 4,483.5 | 3,775.9 | 3,349.6 | |||||||||||||||
|
Total debt, net
|
249.0 | 447.3 | 545.7 | 574.5 | 855.5 | |||||||||||||||
|
Total liabilities
|
2,167.9 | 2,232.3 | 2,212.9 | 1,913.4 | 1,973.7 | |||||||||||||||
|
Total equity
|
2,895.9 | 2,723.0 | 2,270.6 | 1,862.4 | 1,375.9 | |||||||||||||||
| (1) | The Company’s results of operations for fiscal 2008 and the 53 weeks ended February 3, 2007 (“fiscal 2006”) include expenses believed to be of a one-time or short-term nature associated with the Micromania acquisition |
27
Table of Contents
| (fiscal 2008) and the EB merger (fiscal 2006), which included $4.6 million and $6.8 million, respectively, considered in operating earnings. 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, the $6.8 million included $1.9 million in charges associated with assets of the Company considered to be impaired as a result of the EB merger and $4.9 million in costs associated with integrating the operations of GameStop and EB. | ||
| (2) | Weighted average shares outstanding and earnings per common share have been adjusted to reflect the conversion of Class B common stock that was outstanding prior to its conversion into Class A common stock on a one-for-one basis on February 7, 2007 and a two-for-one stock split on March 16, 2007. The Company’s Class B common stock was traded on the NYSE under the symbol “GME.B” until February 7, 2007. | |
| (3) | 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 multichannel retailer of video game products and PC
entertainment software. We sell new and used video game
hardware, video game software and accessories, PC entertainment
software and other merchandise primarily through our GameStop,
EB Games and Micromania stores. As of January 29, 2011, we
operated 6,670 stores, in the United States, Australia, Canada
and Europe, which are primarily located in major shopping malls
and strip centers. We also operate electronic commerce Web sites
www.gamestop.com
,
www.ebgames.com.au
,
www.gamestop.ca
,
www.gamestop.it
,
www.gamestop.es
,
www.gamestop.ie
,
www.gamestop.de
and
www.micromania.fr.
In
addition, we publish
Game Informer
magazine, the
industry’s largest multi-platform video game magazine in
the United States based on circulation and operate the online
video gaming Web site
www.kongregate.com
.
Our fiscal year is composed of 52 or 53 weeks ending on the
Saturday closest to January 31. The fiscal years ended
January 29, 2011 (“fiscal 2010”),
January 30, 2010 (“fiscal 2009”) and
January 31, 2009 (“fiscal 2008”) consisted of
52 weeks.
The Company began operations in November 1996. In February 2002,
GameStop completed an initial public offering of its
Class A common stock. 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 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 379
locations, 328 of which were operating on the date of
acquisition (the “Micromania acquisition”). The
Company’s operating results for fiscal 2010 and 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
28
Table of Contents
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 generally 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 XL was introduced in early
2010. 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. The
revenue from the paid membership of the Company’s PowerUp
Rewards loyalty program is recognized over the one-year
membership term. Revenue 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.
The Company sells a variety of digital products which generally
allow consumers to download software or play games on the
internet. Certain of these products do not require the Company
to purchase inventory or take physical possession of, or take
title to, inventory. When purchasing these products from the
Company, consumers pay a retail price and the Company earns a
commission based on a percentage of the retail sale as
negotiated with the product publisher. The Company recognizes
this commission as revenue on the sale of these digital products.
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 29, 2011, the unrecognized compensation expense
related to the unvested portion of our stock options and
restricted stock was $9.3 million and $14.8 million,
respectively, which is expected to be recognized over a weighted
average period of 1.7 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
29
Table of Contents
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 29, 2011 have not been material.
Goodwill.
Goodwill, aggregating
$1,996.3 million, has been recorded as of January 29,
2011 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 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 2008, fiscal 2009 and fiscal 2010 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
30
Table of Contents
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 28, 2012.
Other Intangible Assets and Other Noncurrent
Assets.
Other intangible assets consist primarily
of tradenames, leasehold rights, advertising relationships and
amounts attributed to favorable leasehold interests recorded
primarily 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 acquisitions,
primarily Micromania, 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.
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 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
31
Table of Contents
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. In accordance with GAAP, we 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.
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 29,
|
January 30,
|
January 31,
|
||||||||||
| 2011 | 2010 | 2009 | ||||||||||
|
Statement of Operations Data:
|
||||||||||||
|
Sales
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
|
Cost of sales
|
73.2 | 73.2 | 74.2 | |||||||||
|
Gross profit
|
26.8 | 26.8 | 25.8 | |||||||||
|
Selling, general and administrative expenses
|
18.0 | 18.0 | 16.4 | |||||||||
|
Depreciation and amortization
|
1.8 | 1.8 | 1.6 | |||||||||
|
Merger-related expenses
|
— | — | 0.1 | |||||||||
|
Operating earnings
|
7.0 | 7.0 | 7.7 | |||||||||
|
Interest expense, net
|
0.4 | 0.4 | 0.5 | |||||||||
|
Debt extinguishment expense
|
— | 0.1 | — | |||||||||
|
Earnings before income taxes
|
6.6 | 6.5 | 7.2 | |||||||||
|
Income tax expense
|
2.3 | 2.4 | 2.7 | |||||||||
|
Consolidated net income
|
4.3 | 4.1 | 4.5 | |||||||||
|
Net loss attributable to noncontrolling interests
|
— | 0.1 | — | |||||||||
|
Consolidated net income attributable to GameStop
|
4.3 | % | 4.2 | % | 4.5 | % | ||||||
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
32
Table of Contents
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 29,
|
January 30,
|
January 31,
|
||||||||||||||||||||||
| 2011 | 2010 | 2009 | ||||||||||||||||||||||
|
Percent
|
Percent
|
Percent
|
||||||||||||||||||||||
| Sales | of Total | Sales | of Total | Sales | of Total | |||||||||||||||||||
|
Sales:
|
||||||||||||||||||||||||
|
New video game hardware
|
$ | 1,720.0 | 18.1 | % | $ | 1,756.5 | 19.3 | % | $ | 1,860.2 | 21.1 | % | ||||||||||||
|
New video game software
|
3,968.7 | 41.9 | % | 3,730.9 | 41.1 | % | 3,685.0 | 41.9 | % | |||||||||||||||
|
Used video game products
|
2,469.8 | 26.1 | % | 2,394.1 | 26.4 | % | 2,026.6 | 23.0 | % | |||||||||||||||
|
Other
|
1,315.2 | 13.9 | % | 1,196.5 | 13.2 | % | 1,234.1 | 14.0 | % | |||||||||||||||
|
Total
|
$ | 9,473.7 | 100.0 | % | $ | 9,078.0 | 100.0 | % | $ | 8,805.9 | 100.0 | % | ||||||||||||
Other products include PC entertainment and other software,
digital products and currency, accessories and magazines.
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 29,
|
January 30,
|
January 31,
|
||||||||||||||||||||||
| 2011 | 2010 | 2009 | ||||||||||||||||||||||
|
Gross
|
Gross
|
Gross
|
||||||||||||||||||||||
|
Gross
|
Profit
|
Gross
|
Profit
|
Gross
|
Profit
|
|||||||||||||||||||
| Profit | Percent | Profit | Percent | Profit | Percent | |||||||||||||||||||
|
Gross Profit:
|
||||||||||||||||||||||||
|
New video game hardware
|
$ | 124.9 | 7.3 | % | $ | 113.5 | 6.5 | % | $ | 112.6 | 6.1 | % | ||||||||||||
|
New video game software
|
819.6 | 20.7 | % | 795.0 | 21.3 | % | 768.4 | 20.9 | % | |||||||||||||||
|
Used video game products
|
1,140.5 | 46.2 | % | 1,121.2 | 46.8 | % | 974.5 | 48.1 | % | |||||||||||||||
|
Other
|
452.6 | 34.4 | % | 405.0 | 33.8 | % | 414.6 | 33.6 | % | |||||||||||||||
|
Total
|
$ | 2,537.6 | 26.8 | % | $ | 2,434.7 | 26.8 | % | $ | 2,270.1 | 25.8 | % | ||||||||||||
Fiscal
2010 Compared to Fiscal 2009
Sales increased $395.7 million, or 4.4%, to
$9,473.7 million in the 52 weeks of fiscal 2010
compared to $9,078.0 million in the 52 weeks of fiscal
2009. The increase in sales was primarily attributable to the
addition of non-comparable store sales from the 747 stores
opened since January 31, 2009, and an increase in
comparable store sales of 1.1%. The increase in comparable store
sales was primarily due to strong sales of new video game and PC
entertainment titles in fiscal 2010 compared to fiscal 2009.
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 $36.5 million, or
2.1%, from fiscal 2009 to fiscal 2010, primarily due to a
decrease in hardware unit sell-through, primarily in the
Nintendo Wii and DSi and Sony PSP, and price cuts which resulted
in lower per unit sales, partially offset by the additional
sales at new stores added since fiscal 2009. New video game
hardware sales decreased as a percentage of sales from 19.3% in
fiscal 2009 to 18.1% in fiscal 2010, 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.
33
Table of Contents
New video game software sales increased $237.8 million, or
6.4%, from fiscal 2009 to fiscal 2010, primarily due to strong
sales of new video game titles released in fiscal 2010, compared
to fiscal 2009, as well as sales from new stores added since
fiscal 2009. New video game software sales increased as a
percentage of total sales from 41.1% in fiscal 2009 to 41.9% in
fiscal 2010, primarily due to the new release sales growth and
the slow-down in hardware unit sell-through discussed above.
Used video game product sales increased $75.7 million, or
3.2%, from fiscal 2009 to fiscal 2010, primarily due to the
increase in the availability of hardware and software associated
with the current generation hardware platforms as those
platforms age and expand and the additional sales at new stores
added since fiscal 2009. As a percentage of sales, used video
game product sales decreased from 26.4% to 26.1%, primarily due
to the increase in new release video game software sales and
other product sales. Sales of other product categories,
including PC entertainment and other software and accessories,
increased 9.9%, or $118.7 million, from fiscal 2009 to
fiscal 2010, primarily due to stronger sales of newly-released
PC entertainment software titles in fiscal 2010 and an increase
in revenue associated with the Company’s loyalty program.
Cost of sales increased by $292.8 million, or 4.4%, from
$6,643.3 million in fiscal 2009 to $6,936.1 million in
fiscal 2010 as a result of the increase in sales and the changes
in gross profit discussed below.
Gross profit increased by $102.9 million, or 4.2%, from
$2,434.7 million in fiscal 2009 to $2,537.6 million in
fiscal 2010. Gross profit as a percentage of sales was 26.8% in
fiscal 2009 and fiscal 2010. Gross profit as a percentage of
sales on new video game hardware increased from 6.5% in fiscal
2009 to 7.3% in fiscal 2010 due primarily to an increase in
product replacement plan sales. Gross profit as a percentage of
sales on new video game software decreased from 21.3% in fiscal
2009 to 20.7% in fiscal 2010, primarily due to a decrease in
vendor allowances received, net of advertising expenses.
Advertising expenses increased, due in part to expenses
associated with the Company’s new loyalty program. Gross
profit as a percentage of sales on used video game products
decreased from 46.8% in fiscal 2009 to 46.2% in fiscal 2010
primarily due to promotional activities in the holiday selling
season and a shift in sales from older hardware and software
platform sales, which generate higher gross margins as platforms
age, to current generation platform sales which have lower gross
margins. Gross profit as a percentage of sales on the other
product sales category increased from 33.8% in fiscal 2009 to
34.4% in fiscal 2010 primarily due to a shift in sales to higher
margin accessories, increases in revenue associated with the
Company’s loyalty program and the increase in sales of
digital online game cards, some of which are recorded on a
commission basis at 100% margin.
Selling, general and administrative expenses increased by
$65.2 million, or 4.0%, from $1,635.1 million in
fiscal 2009 to $1,700.3 million in fiscal 2010. 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, as
well as expenses incurred in our digital and loyalty initiatives
in fiscal 2010. Selling, general and administrative expenses as
a percentage of sales were 18.0% in fiscal 2009 and fiscal 2010.
Selling, general and administrative expenses include
$29.6 million and $37.8 million in stock-based
compensation expense for fiscal 2010 and fiscal 2009,
respectively. Foreign currency transaction gains and (losses)
are included in selling, general and administrative expenses and
amounted to $2.5 million in fiscal 2010, compared to
$3.8 million in fiscal 2009.
Depreciation and amortization expense increased
$12.1 million from $162.6 million in fiscal 2009 to
$174.7 million in fiscal 2010. This increase was primarily
due to capital expenditures associated with the opening of 359
new stores during fiscal 2010 and investments in strategic
initiatives and management information systems. Depreciation and
amortization expense is expected to increase from fiscal 2010 to
fiscal 2011 due to continued investments in new stores,
management information systems and other strategic initiatives.
Interest income resulting from the investment of excess cash
balances decreased from $2.2 million in fiscal 2009 to
$1.8 million in fiscal 2010 as a result of lower invested
cash balances and lower interest rates during fiscal 2010.
Interest expense decreased from $45.4 million in fiscal
2009 to $37.0 million in fiscal 2010, primarily due to the
retirement of $200.0 million of the Company’s senior
notes since January 30, 2010 and the retirement of
$100.0 million of the Company’s senior notes during
fiscal 2009. Debt extinguishment expense of $6.0 million
and $5.3 million was recognized in fiscal 2010 and fiscal
2009, respectively, as a result of the premiums paid related to
debt retirement and the recognition of deferred financing fees
and unamortized original issue discount.
34
Table of Contents
Income tax expense increased by $1.8 million, from
$212.8 million in fiscal 2009 to $214.6 million in
fiscal 2010. The Company’s effective tax rate decreased
from 36.2% in fiscal 2009 to 34.5% in fiscal 2010 due primarily
to the variability in the accounting for the Company’s
uncertain tax positions. 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 $25.6 million, or 4.0%, from
$637.0 million in fiscal 2009 to $662.6 million in
fiscal 2010 and an increase in consolidated net income of
$31.1 million, or 8.3%, from $375.7 million in fiscal
2009 to $406.8 million in fiscal 2010.
In 2009, the Financial Accounting Standards Board
(“FASB”) issued new guidance related to the reporting
of non-controlling interests in subsidiaries. The
$1.2 million and $1.6 million increase in consolidated
net income attributable to GameStop shareholders for fiscal 2010
and fiscal 2009, respectively, represents the portion of the net
loss of the Company’s non-wholly owned subsidiaries
attributable to the minority shareholders’ interest.
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.
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 new stores added since the prior 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 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
35
Table of Contents
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
$17.6 million from $145.0 million in fiscal 2008 to
$162.6 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.
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
$50.4 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 during
fiscal 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.
The $1.6 million increase in consolidated net income
attributable to GameStop shareholders for fiscal 2009 represents
the portion of the net loss of the Company’s non-wholly
owned subsidiaries attributable to the minority
shareholders’ interest.
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 or technologies 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
36
Table of Contents
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 29,
|
January 30,
|
January 31,
|
||||||||||
| 2011 | 2010 | 2009 | ||||||||||
|
United States
|
$ | 6,681.2 | $ | 6,275.0 | $ | 6,466.7 | ||||||
|
Canada
|
502.3 | 491.4 | 548.2 | |||||||||
|
Australia
|
565.2 | 530.2 | 520.0 | |||||||||
|
Europe
|
1,725.0 | 1,781.4 | 1,271.0 | |||||||||
|
Total
|
$ | 9,473.7 | $ | 9,078.0 | $ | 8,805.9 | ||||||
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 29,
|
January 30,
|
January 31,
|
||||||||||
| 2011 | 2010 | 2009 | ||||||||||
|
United States
|
$ | 530.8 | $ | 488.8 | $ | 530.1 | ||||||
|
Canada
|
22.6 | 35.0 | 32.6 | |||||||||
|
Australia
|
41.0 | 46.0 | 46.8 | |||||||||
|
Europe
|
68.2 | 67.2 | 65.6 | |||||||||
|
Total
|
$ | 662.6 | $ | 637.0 | $ | 675.1 | ||||||
Total assets by operating segment in U.S. dollars were as
follows (in millions):
|
January 29,
|
January 30,
|
January 31,
|
||||||||||
| 2011 | 2010 | 2009 | ||||||||||
|
United States
|
$ | 2,896.7 | $ | 2,864.9 | $ | 2,592.5 | ||||||
|
Canada
|
357.6 | 337.8 | 288.8 | |||||||||
|
Australia
|
469.4 | 399.9 | 290.7 | |||||||||
|
Europe
|
1,340.1 | 1,352.7 | 1,311.5 | |||||||||
|
Total
|
$ | 5,063.8 | $ | 4,955.3 | $ | 4,483.5 | ||||||
Fiscal
2010 Compared to Fiscal 2009
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
,
Game Informer
magazine and
www.kongregate.com
, an
online video gaming site. As of January 29, 2011, the
United States segment included 4,536 GameStop stores, compared
to 4,429 stores on January 30, 2010. Sales for fiscal 2010
increased 6.5% compared to fiscal 2009 as a result of increased
sales at existing stores and the additional sales at the 434
stores opened since January 31, 2009, including the 227
stores opened in fiscal 2010. Sales at existing stores increased
primarily due to strong sales of new release video game software
and PC entertainment software and increased market share,
partially offset by a slow-down in hardware unit sales. Segment
operating income for fiscal 2010 increased by 8.6% compared to
fiscal 2009, driven by the increase in sales and related margin
discussed above.
Canada
Segment results for Canada include retail operations and an
e-commerce
site in Canada. Sales in the Canadian segment in the
52 weeks ended January 29, 2011 increased 2.2%
compared to the 52 weeks ended January 30, 2010.
37
Table of Contents
The increase in sales was primarily attributable to the
favorable impact of changes in exchange rates in fiscal 2010
when compared to fiscal 2009, which had the effect of increasing
sales by $38.8 million. Excluding the impact of changes in
exchange rates, sales in the Canadian segment decreased 5.7%.
The decrease in sales was primarily due to the decrease in sales
at existing stores, offset by the additional sales at the 26
stores opened since January 31, 2009. As of
January 29, 2011, the Canadian segment had 345 stores
compared to 337 stores as of January 30, 2010. The decrease
in sales at existing stores was primarily due to weak consumer
traffic and a slow-down in hardware unit sell-through and lower
price points when compared to fiscal 2009. Segment operating
income for fiscal 2010 decreased $12.4 million to
$22.6 million compared to $35.0 million for fiscal
2009. The decrease in operating income when compared to the
prior year was primarily 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. The decrease in operating income
was partially offset by the favorable impact of changes in
exchange rates which had the effect of increasing operating
earnings by $1.6 million when compared to fiscal 2009.
Australia
Segment results for Australia include retail operations and
e-commerce
sites in Australia and New Zealand. As of January 29, 2011,
the Australian segment included 405 stores, compared to 388
stores as of January 30, 2010. Sales for the 52 weeks
ended January 29, 2011 increased 6.6% compared to the
52 weeks ended January 30, 2010. The increase in sales
was primarily attributable to the favorable impact of changes in
exchange rates in fiscal 2010 when compared to fiscal 2009,
which had the effect of increasing sales by $63.8 million.
Excluding the impact of changes in exchange rates, sales in the
Australian segment decreased 5.4%. The decrease in sales was
primarily due to the decrease in sales at existing stores offset
by the additional sales at the 59 stores opened since
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 and lower price points when compared
to fiscal 2009. Segment operating income in fiscal 2010
decreased by $5.0 million to $41.0 million when
compared to $46.0 million in fiscal 2009. The decrease in
operating earnings for fiscal 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 $3.8 million
when compared to fiscal 2009.
Europe
Segment results for Europe include retail operations in 13
European countries and
e-commerce
operations in five countries. As of January 29, 2011, the
European segment operated 1,384 stores, compared to 1,296 stores
as of January 30, 2010. For the 52 weeks ended
January 29, 2011, European sales decreased 3.2% compared to
the 52 weeks ended January 30, 2010. This decrease in
sales was due to the unfavorable impact of changes in exchange
rates in fiscal 2010, which had the effect of decreasing sales
by $106.4 million when compared to fiscal 2009, and a
decrease in sales at existing stores. The decrease in sales was
partially offset by additional sales at the 228 new stores
opened since January 31, 2009. The decrease in sales at
existing stores was primarily driven by weak consumer traffic
due to the continued macroeconomic weakness and lower hardware
sales as a result of a slow-down in hardware unit sell-through
and lower price points when compared to fiscal 2009.
The segment operating income in Europe for fiscal 2010 increased
by $1.0 million to $68.2 million compared to
$67.2 million in fiscal 2009. The increase in the operating
income was primarily due to an increase in gross margin, driven
by an increase in used product sales, partially offset by the
unfavorable impact of changes in exchange rates, which had the
effect of decreasing operating earnings by $6.5 million
when compared to fiscal 2009.
38
Table of Contents
Fiscal
2009 Compared to Fiscal 2008
United
States
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, 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 during
fiscal 2008 and fiscal 2009. 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 an increase in
gross margin, driven by an 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.
Australia
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 during fiscal 2008 and
fiscal 2009 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 between February 3, 2008 and
January 30, 2010, 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
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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.
Liquidity
and Capital Resources
Cash
Flows
During fiscal 2010, cash provided by operations was
$591.2 million, compared to cash provided by operations of
$644.2 million in fiscal 2009. The decrease in cash
provided by operations of $53.0 million from fiscal 2009 to
fiscal 2010 was primarily due to an increase in cash used for
inventory, partially offset by the increase in accounts payable
and accrued liabilities, the increase in prepaid expenses and
other current assets and the increase in other long-term
liabilities, as well as the changes in the adjustment related to
the excess tax benefits realized from the exercise of
stock-based awards, which decreased cash provided by operations
by $18.6 million. These decreases were partially offset by
an increase in cash provided by consolidated net income,
including the non-cash adjustments to earnings. The increase in
net inventory was primarily due to higher purchases during
fiscal 2010, particularly during the holiday season primarily
related to hardware units which were at lower in-stock positions
at the end of fiscal 2009.
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
$34.6 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.
Cash used in investing activities was $240.1 million in
fiscal 2010, $187.2 million in fiscal 2009 and
$820.9 million in fiscal 2008. During fiscal 2010, the
Company used $202.0 million for capital expenditures
primarily to open 359 stores and to invest in information
systems and $38.1 million for acquisitions in support of
the Company’s digital initiatives. During fiscal 2009, the
Company used $178.8 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 Free Record Shop Norway AS, 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.
Cash used in financing activities was $555.6 million in
fiscal 2010. Cash used in financing activities was
$154.4 million in fiscal 2009 and cash provided by
financing activities was $29.6 million in fiscal 2008. The
cash flows used in financing activities in fiscal 2010 were
primarily for the repurchase of $381.2 million of treasury
shares and $200.0 million in principal of the
Company’s senior notes. 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. 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
$28.9 million
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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.
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 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.
On January 4, 2011, the Company entered into a
$400 million credit agreement (the “Revolver”),
which amends and restates, in its entirety, the Company’s
prior credit agreement entered into on October 11, 2005
(the “Credit Agreement”). The Revolver provides for a
five-year, $400 million asset-based facility, including a
$50 million letter of credit sublimit, secured by
substantially all of the Company’s and its domestic
subsidiaries’ assets. The Company has the ability to
increase the facility, which matures in January 2016, by
$150 million under certain circumstances. The extension of
the Revolver to 2016 reduces our exposure to potential
tightening in the credit markets.
The availability under the Revolver is limited to a borrowing
base which allows the Company to borrow up to 90% of the
appraisal value of the inventory, in each case plus 90% 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 permitted,
except under certain circumstances, including if Revolver excess
availability is less than 20%, or is projected to be within
12 months after such payment. In addition, if Revolver
usage is projected to be equal to or greater than 25% of the
borrowing base during the prospective
12-month
period, the Company is subject to meeting a fixed charge
coverage ratio of 1.1:1.0 prior to making such payments. In the
event that excess availability under the Revolver is at any time
less than the greater of (1) $40 million or
(2) 12.5% of the lesser of the total commitment or the
borrowing base, the Company will be subject to a fixed charge
coverage ratio covenant of 1.1:1.0.
The Revolver places certain restrictions on the Company and its
subsidiaries, including limitations on asset sales, additional
liens, investments, loans, guarantees, acquisitions and the
incurrence of additional indebtedness. The per annum interest
rate under the Revolver is variable and is calculated by
applying a margin (1) for prime rate loans of 1.25% to
1.50% above the highest of (a) the prime rate of the
administrative agent, (b) the federal funds effective rate
plus 0.50% and (c) the London Interbank Offered
(“LIBO”) rate for a
30-day
interest period as determined on such day plus 1.00%, and
(2) for LIBO rate loans of 2.25% to 2.50% above the LIBO
rate. The applicable margin is determined quarterly as a
function of the Company’s average daily excess availability
under the facility and is set at 1.25% for prime rate loans and
2.25% for LIBO rate loans until the first day of the fiscal
quarter of the borrowers commencing on May 1, 2011. In
addition, the Company is required to pay a commitment fee of
0.375% or 0.50%, depending on facility usage, for any unused
portion of the total commitment under the Revolver. As of
January 29, 2011, the applicable margin was 1.25% for prime
rate loans and 2.25% for LIBO rate loans, while the required
commitment fee was 0.50% for the unused portion of the Revolver.
The Revolver provides for customary events of default with
corresponding grace periods, including failure to pay any
principal or interest when due, failure to comply with
covenants, any material representation or warranty made by the
Company or the borrowers proving to be false in any material
respect, certain bankruptcy, insolvency or receivership events
affecting the Company or its subsidiaries, defaults relating to
certain other indebtedness, imposition of certain judgments and
mergers or the liquidation of the Company or certain of its
subsidiaries.
During fiscal 2010, the Company borrowed and repaid
$120 million under the Credit Agreement. During fiscal
2009, the Company borrowed and repaid $115 million under
the Credit Agreement. As of January 29, 2011, there were no
borrowings outstanding under the Revolver and letters of credit
outstanding totaled $8.2 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
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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 29, 2011, there
were $11.0 million of cash overdrafts outstanding under the
Line of Credit and bank guarantees outstanding totaled
$5.6 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”). 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 29, 2011, the unamortized original issue discount
was $1.0 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
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 29, 2011, 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 million, consisting of a $50 million secured term
loan (“Term Loan A”) and a $100 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 million under the Term Loans, the
Company borrowed $275 million under the Credit Agreement to
complete the acquisition of Micromania in November 2008. As of
January 31, 2009, the Credit Agreement and the Term Loans
were repaid in full.
As of January 30, 2010 and January 29, 2011, the only
long-term debt outstanding was the Senior Notes.
The maturity on the $250 million Senior Notes, gross of the
unamortized original issue discount of $1.0 million, occurs
in the fiscal year ending January 2013.
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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 359 stores in fiscal 2010. We expect to
open approximately 300 stores in fiscal 2011. Capital
expenditures for fiscal 2011 are projected to be approximately
$170 million, to be used primarily to fund continued
digital initiatives, new store openings, store remodels and
invest in distribution and information systems in support of
operations.
Between May 2006 and October 2010, the Company repurchased and
redeemed the $300 million of Senior Floating Rate Notes and
$400 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
$6.0 million, $5.3 million and $2.3 million for
the 52 week periods ended January 29, 2011,
January 30, 2010 and January 31, 2009, 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 30, 2010 and
the 52 weeks ended January 29, 2011 were as follows,
in millions:
|
Balance at January 31, 2009
|
$ | 545.7 | ||
|
Repurchase of Senior Notes, net
|
(98.4 | ) | ||
|
Balance at January 30, 2010
|
$ | 447.3 | ||
|
Repurchase of Senior Notes, net
|
(198.3 | ) | ||
|
Balance at January 29, 2011
|
$ | 249.0 | ||
We used cash to expand the Company through acquisitions. 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 379
stores as of January 29, 2011. The Company funded the
transaction with cash on hand, a draw on the Credit Agreement
totaling $275 million, and the Term Loans.
In addition to the Micromania acquisition, the Company completed
other acquisitions in fiscal 2008 with a total consideration of
$50.3 million. During fiscal 2010 and fiscal 2009, the
Company used $38.1 million and $8.4 million,
respectively, for acquisitions which were primarily for the
Company’s overall digital growth strategy.
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. In
September 2010, the Board of Directors of the Company approved
an additional $300 million share repurchase program
authorizing the Company to repurchase its common stock. For
fiscal 2010, the number of shares repurchased were
17.1 million for an average price per share of $19.84. On
February 4, 2011, the Board of Directors of the Company
authorized a $500 million repurchase fund to be used for
share repurchases of its common stock
and/or
to
retire the Company’s Senior Notes. This plan replaced the
September 2010 $300 million stock repurchase plan which had
$138.4 million remaining. As of March 24, 2011, the
Company has purchased an additional 5.9 million shares for
an average price per share of $19.88 with $382.3 million
remaining under the outstanding authorization.
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, digital
initiatives, store expansion and remodeling activities and
corporate capital expenditure programs for at least the next
12 months.
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Contractual
Obligations
The following table sets forth our contractual obligations as of
January 29, 2011:
| 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)
|
$ | 290.0 | $ | 20.0 | $ | 270.0 | $ | — | $ | — | ||||||||||
|
Operating Leases
|
1,337.6 | 350.7 | 492.2 | 231.8 | 262.9 | |||||||||||||||
|
Purchase Obligations(2)
|
903.7 | 903.7 | — | — | — | |||||||||||||||
|
Total
|
$ | 2,531.3 | $ | 1,274.4 | $ | 762.2 | $ | 231.8 | $ | 262.9 | ||||||||||
| (1) | The long-term debt consists of $250.0 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. |
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 Daniel
A. DeMatteo, Executive Chairman; R. Richard Fontaine, Chairman
International; J. Paul Raines, Chief Executive Officer; Tony D.
Bartel, President and Robert A. Lloyd, Executive Vice President
and Chief Financial Officer. The term of the employment
agreement with Mr. DeMatteo commenced on April 11,
2005, when he was Chief Operating Officer of the Company, and
was renewed in April 2010 with an expiration date of
March 3, 2013. The term of the employment agreement with
Mr. Fontaine commenced on April 11, 2005, when he was
Chairman and Chief Executive Officer of the Company, and was
renewed in April 2010 with an expiration date of March 3,
2013. 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. The term of
the employment agreement for Mr. Lloyd commenced on
June 2, 2010 and continues for a period of three years
thereafter.
Each of the employment agreements was amended on
February 9, 2011 to eliminate the right of each executive
to terminate his employment agreement as a result of a
change-in-control
of the Company. The amendments also eliminated the automatic
renewal provision of each agreement, except for
Mr. Fontaine, whose agreement does not contain an automatic
renewal provision. The minimum annual salaries during the term
of employment under the amended and restated employment
agreements for Messrs. DeMatteo, Fontaine, Raines, Bartel
and Lloyd shall be no less than $1,250,000, $600,000,
$1,000,000, $750,000 and $500,000, respectively. The Board of
Directors of the Company has set the annual salaries of
Messrs. DeMatteo, Raines, Bartel and Lloyd for fiscal 2011
at $1,250,000, $1,030,000, $775,000 and $550,000, respectively.
The employment agreement for Mr. Fontaine stipulates that
his annual salary for the period between March 27, 2011 and
March 3, 2013 will be $600,000.
As of January 29, 2011, we had standby letters of credit
outstanding in the amount of $8.2 million and had bank
guarantees outstanding in the amount of $17.7 million,
$6.1 million of which are cash collateralized.
As of January 29, 2011, the Company had $24.9 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.
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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 29, 2011, 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.
Certain
Relationships and Related Transactions
The Company has various relationships with Barnes &
Noble, Inc. (“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 operates
departments within eight bookstores operated by
Barnes & Noble, whereby the Company pays a license fee
to Barnes & Noble on the gross sales of such
departments. Additionally,
www.gamestop.com
is the
exclusive specialty video game retailer listed on
www.bn.com
, Barnes & Noble’s
e-commerce
site whereby the Company pays a fee to Barnes & Noble
for sales of video game or PC entertainment products sold
through
www.bn.com.
The Company also continues to incur
costs related to its participation in Barnes &
Noble’s workers’ compensation, property and general
liability insurance programs prior to June 2005. During the
52 weeks ended January 29, 2011, January 30, 2010
and January 31, 2009, the charges related to these
transactions amounted to $1.4 million, $1.6 million
and $1.9 million, respectively.
Recent
Accounting Standards and Pronouncements
In January 2010, the FASB issued Accounting Standards Update
(“ASU”) ASU
2010-6,
Improving Disclosures About Fair Value Measurements.
On
January 31, 2010, the Company adopted ASU
2010-6,
which requires reporting entities to make new disclosures about
recurring or nonrecurring fair-value measurements, including
significant transfers into and out of the standard’s
Level 1 and Level 2 fair-value measurements and
information on purchases, sales, issuances, and settlements on a
gross basis for Level 3 fair-value measurements. ASU
2010-6
is
effective for annual reporting periods beginning after
December 15, 2009, except for Level 3 reconciliation
disclosures which are effective for annual periods beginning
after December 15, 2010. The adoption of ASU
2010-6
did
not have a material impact on the Company’s consolidated
financial statements.
On January 31, 2010, the Company adopted ASU
2010-09,
Subsequent Events — Amendments to Certain
Recognition and Disclosure Requirements
, which amends
Accounting Standards Codification (“ASC”) Topic 855,
Subsequent Events
,
so that SEC filers no longer are
required to disclose the date through which subsequent events
have been evaluated in originally issued and revised financial
statements. The adoption of ASU
2010-09
did
not have a material impact on the Company’s consolidated
financial statements.
In December 2010, the FASB issued ASU
2010-28,
Intangibles — Goodwill and Other
. ASU
2010-28
modifies step one of the goodwill impairment test for reporting
units with zero or negative carrying amounts and offers guidance
on when to perform step two of the testing. For those reporting
units, an entity is required to perform step two of the goodwill
impairment test if it is more likely than not that a goodwill
impairment exists based upon factors such as unanticipated
competition, the loss of key personnel and adverse regulatory
changes. ASU
2010-28
is
effective for fiscal years, and interim periods within those
years, beginning after December 15, 2010. The adoption of
ASU
2010-28
is not expected to have a material effect on the Company’s
consolidated financial statements.
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In December 2010, the FASB issued ASU
2010-29,
which updates the guidance in ASC 805,
Business
Combinations
, to clarify that pro forma disclosures should
be presented as if a business combination occurred at the
beginning of the prior annual period for purposes of preparing
both the current reporting period and the prior reporting period
pro forma financial information. These disclosures should be
accompanied by a narrative description about the nature and
amount of material, nonrecurring pro forma adjustments. ASU
2010-29
is
effective for business combinations consummated in periods
beginning after December 15, 2010, and is required to be
applied prospectively as of the date of adoption. The adoption
of ASU
2010-29
is
not expected to have a material effect on the Company’s
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
Our Revolver’s per annum interest rate is variable and is
based on one of (i) the U.S. prime rate, (ii) the
LIBO rate or (iii) the U.S. federal funds rate. 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 29, 2011, the Company recognized a
$7.1 million loss 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 29, 2011 was a net asset of $1.2 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 29, 2011 would result in a
(loss) or gain in value of the forwards, options and swaps of
($20.5) million or $20.5 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 different counterparties to minimize our exposure to
potential defaults. We do not require collateral under
derivative or investment agreements.
| Item 8. | Financial Statements and Supplementary Data |
See Item 15(a)(1) and (2) of this
Form 10-K.
46
Table of Contents
| 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 29, 2011. The effectiveness of our internal control
over financial reporting as of January 29, 2011 has been
audited by BDO USA, 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
There was no change 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 has materially affected, or is
reasonably likely to materially affect, the Company’s
internal control over financial reporting.
| Item 9B. | Other Information |
None.
| 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, Chairman International, Chief Executive
Officer, President, Chief Financial Officer, Chief Accounting
Officer, any Executive Vice President of the Company and any
Vice President of the Company employed in a finance or
accounting role. 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
47
Table of Contents
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.
(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 29, 2011, January 30, 2010 and
January 31, 2009 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 29, 2011,
January 30, 2010 and January 31, 2009:
| 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 millions) | ||||||||||||||||||||
|
Inventory Reserve, deducted from asset accounts
|
||||||||||||||||||||
|
52 Weeks Ended January 29, 2011
|
$ | 66.5 | $ | 27.5 | $ | 39.5 | $ | 64.0 | $ | 69.5 | ||||||||||
|
52 Weeks Ended January 30, 2010
|
56.6 | 48.9 | 34.1 | 73.1 | 66.5 | |||||||||||||||
|
52 Weeks Ended January 31, 2009
|
59.7 | 43.0 | 34.7 | 80.8 | 56.6 | |||||||||||||||
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.
* 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 2011 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.
48
Table of Contents
(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) | ||
| 3 | .3 | Amendment to Amended and Restated Bylaws.(12) | ||
| 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 | Amended and Restated Credit Agreement, dated as of January 4, 2011, among GameStop Corp., as Lead Borrower for: GameStop Corp., GameStop, Inc., Sunrise Publications, Inc., Electronics Boutique Holdings Corp., ELBO Inc., EB International Holdings, Inc., Kongregate Inc., GameStop Texas Ltd., Marketing Control Services, Inc., SOCOM LLC and Bank of America, N.A., as Issuing Bank, Bank of America, N.A., as Administrative Agent and Collateral Agent, Wells Fargo Capital Finance, LLC, as Syndication Agent, U.S. Bank National Association and Regions Bank, as Co-Documentation Agents, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Sole Lead Arranger and Sole Bookrunner.(19) | ||
| 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 | Amended and Restated Security Agreement, dated January 4, 2011, among GameStop Corp., as Lead Borrower, the Subsidiary Borrowers party hereto, and Bank of America, N.A., as Collateral Agent.(19) | ||
| 10 | .10 | Amended and Restated Patent and Trademark Security Agreement, dated January 4, 2011, among GameStop Corp., as Lead Borrower, the Subsidiary Borrowers party hereto, and Bank of America, N.A., as Collateral Agent.(19) | ||
| 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) | ||
49
Table of Contents
|
Exhibit
|
||||
| Number | Description | |||
| 10 | .13 | Amended and Restated Pledge Agreement, dated January 4, 2011, by and among GameStop Corp., as Lead Borrower, the Subsidiary Borrowers party hereto, and Bank of America, N.A., as Collateral Agent.(19) | ||
| 10 | .14 | 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 | .15 | 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 | .16 | 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 | .17 | 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 | .18 | Amended and Restated Executive Employment Agreement, dated December 31, 2008, between GameStop Corp. and R. Richard Fontaine.(15) | ||
| 10 | .19 | Amendment, dated as of April 5, 2010, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, between GameStop Corp. and R. Richard Fontaine.(17) | ||
| 10 | .20 | Second Amendment, dated as of June 2, 2010, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, as amended by a First Amendment dated as of April 5, 2010, between GameStop Corp. and R. Richard Fontaine.(18) | ||
| 10 | .21 | Third Amendment, dated as of February 9, 2011, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, as amended by a First Amendment dated as of April 5, 2010 and a Second Amendment dated as of June 2, 2010, between GameStop Corp. and R. Richard Fontaine.(20) | ||
| 10 | .22 | Amended and Restated Executive Employment Agreement, dated December 31, 2008, between GameStop Corp. and Daniel A. DeMatteo.(15) | ||
| 10 | .23 | Amendment, dated as of April 5, 2010, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, between GameStop Corp. and Daniel A. DeMatteo.(17) | ||
| 10 | .24 | Second Amendment, dated as of June 2, 2010, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, as amended by a First Amendment dated as of April 5, 2010, between GameStop Corp. and Daniel A. DeMatteo.(18) | ||
| 10 | .25 | Third Amendment, dated as of February 9, 2011, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, as amended by a First Amendment dated as of April 5, 2010 and a Second Amendment dated as of June 2, 2010, between GameStop Corp. and Daniel A. DeMatteo.(20) | ||
| 10 | .26 | Amended and Restated Executive Employment Agreement, dated December 31, 2008, between GameStop Corp. and Tony Bartel.(15) | ||
| 10 | .27 | Amendment, dated as of June 2, 2010, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, between GameStop Corp. and Tony Bartel.(18) | ||
| 10 | .28 | Second Amendment, dated as of February 9, 2011, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, as amended by a First Amendment dated as of June 2, 2010, between GameStop Corp. and Tony Bartel.(20) | ||
| 10 | .29 | Amended and Restated Executive Employment Agreement, dated December 31, 2008, between GameStop Corp. and Paul Raines.(15) | ||
| 10 | .30 | Amendment, dated as of June 2, 2010, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, between GameStop Corp. and Paul Raines.(18) | ||
50
Table of Contents
|
Exhibit
|
||||
| Number | Description | |||
| 10 | .31 | Second Amendment, dated as of February 9, 2011, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, as amended by a First Amendment dated as of June 2, 2010, between GameStop Corp. and Paul Raines.(20) | ||
| 10 | .32 | Executive Employment Agreement, dated as of June 2, 2010, between GameStop Corp. and Robert Lloyd.(18) | ||
| 10 | .33 | Amendment, dated as of February 9, 2011, to Executive Employment Agreement, dated as of June 2, 2010, between GameStop Corp. and Robert Lloyd.(20) | ||
| 12 | .1 | Computation of Ratio of Earnings to Fixed Charges. | ||
| 14 | .1 | Code of Ethics for Senior Financial and Executive Officers. | ||
| 14 | .2 | Code of Standards, Ethics and Conduct. | ||
| 21 | .1 | Subsidiaries. | ||
| 23 | .1 | Consent of BDO USA, 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. |
51
Table of Contents
| (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 February 8, 2011. | |
| (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 8-K filed with the Securities and Exchange Commission on April 9, 2010. | |
| (18) | Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on June 2, 2010. | |
| (19) | Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on January 6, 2011. | |
| (20) | Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on February 9, 2011. |
52
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/
J.
Paul Raines
|
J. Paul Raines
Chief Executive Officer
Date: March 30, 2011
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/
J.
Paul Raines
|
Chief Executive Officer
(Principal Executive Officer) |
March 30, 2011 | ||||
|
/s/
Daniel
A. DeMatteo
|
Executive Chairman and Director | March 30, 2011 | ||||
|
/s/
R.
Richard Fontaine
|
Chairman International and Director | March 30, 2011 | ||||
|
/s/
Robert
A. Lloyd
|
Executive Vice President and Chief Financial Officer
(Principal Financial Officer) |
March 30, 2011 | ||||
|
/s/
Troy
W. Crawford
|
Senior Vice President, Chief Accounting Officer
(Principal Accounting Officer) |
March 30, 2011 | ||||
|
/s/
Jerome
L. Davis
|
Director | March 30, 2011 | ||||
|
/s/
Steven
R. Koonin
|
Director | March 30, 2011 | ||||
|
/s/
Leonard
Riggio
|
Director | March 30, 2011 | ||||
|
/s/
Michael
N. Rosen
|
Director | March 30, 2011 | ||||
|
/s/
Stephanie
M. Shern
|
Director | March 30, 2011 | ||||
53
Table of Contents
| Name | Capacity | Date | ||||
|
/s/
Stanley
P. Steinberg
|
Director | March 30, 2011 | ||||
|
/s/
Gerald
R. Szczepanski
|
Director | March 30, 2011 | ||||
|
/s/
Edward
A. Volkwein
|
Director | March 30, 2011 | ||||
|
/s/
Lawrence
S. Zilavy
|
Director | March 30, 2011 | ||||
54
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 29, 2011 and January 30,
2010 and the related consolidated statements of income,
stockholders’ equity, and cash flows for the 52 week
periods ended January 29, 2011, January 30, 2010 and
January 31, 2009. 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 schedules are the responsibility
of the Company’s management. Our responsibility is to
express an opinion on these financial statements and schedules
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 schedules. 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 29, 2011 and
January 30, 2010, and the results of its operations and its
cash flows for the 52 week periods ended January 29,
2011, January 30, 2010 and January 31, 2009
,
in
conformity with accounting principles generally accepted in the
United States of America.
Also, in our opinion, the financial statement schedules, 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.
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 29, 2011, 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, 2011
expressed an unqualified opinion thereon.
/s/
BDO
USA, LLP
BDO USA, LLP
Dallas, Texas
March 30, 2011
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 29, 2011, 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 29, 2011, 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 29, 2011 and January 30, 2010, and the related
consolidated statements of operations, stockholders’
equity, and cash flows for the 52 week periods ended
January 29, 2011, January 30, 2010, and
January 31, 2009 and our report dated March 30, 2011
expressed an unqualified opinion on those consolidated financial
statements and schedule.
/s/
BDO
USA, LLP
BDO USA, LLP
Dallas, Texas
March 30, 2011
F-3
Table of Contents
GAMESTOP
CORP.
|
January 29,
|
January 30,
|
|||||||
| 2011 | 2010 | |||||||
| (In millions) | ||||||||
|
ASSETS
|
||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 710.8 | $ | 905.4 | ||||
|
Receivables, net
|
65.5 | 64.0 | ||||||
|
Merchandise inventories, net
|
1,257.5 | 1,053.6 | ||||||
|
Deferred income taxes — current
|
28.8 | 21.2 | ||||||
|
Prepaid expenses
|
75.7 | 59.4 | ||||||
|
Other current assets
|
16.5 | 23.7 | ||||||
|
Total current assets
|
2,154.8 | 2,127.3 | ||||||
|
Property and equipment:
|
||||||||
|
Land
|
24.0 | 11.5 | ||||||
|
Buildings and leasehold improvements
|
577.2 | 523.0 | ||||||
|
Fixtures and equipment
|
817.8 | 711.5 | ||||||
|
Total property and equipment
|
1,419.0 | 1,246.0 | ||||||
|
Less accumulated depreciation and amortization
|
805.2 | 661.8 | ||||||
|
Net property and equipment
|
613.8 | 584.2 | ||||||
|
Goodwill, net
|
1,996.3 | 1,946.5 | ||||||
|
Other intangible assets
|
254.6 | 259.9 | ||||||
|
Other noncurrent assets
|
44.3 | 37.4 | ||||||
|
Total noncurrent assets
|
2,909.0 | 2,828.0 | ||||||
|
Total assets
|
$ | 5,063.8 | $ | 4,955.3 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
|
Current liabilities:
|
||||||||
|
Accounts payable
|
$ | 1,028.1 | $ | 961.7 | ||||
|
Accrued liabilities
|
657.0 | 632.1 | ||||||
|
Taxes payable
|
62.7 | 61.9 | ||||||
|
Total current liabilities
|
1,747.8 | 1,655.7 | ||||||
|
Senior notes payable, long-term portion, net
|
249.0 | 447.3 | ||||||
|
Deferred taxes
|
74.9 | 25.5 | ||||||
|
Other long-term liabilities
|
96.2 | 103.8 | ||||||
|
Total long-term liabilities
|
420.1 | 576.6 | ||||||
|
Total liabilities
|
2,167.9 | 2,232.3 | ||||||
|
Commitments and contingencies (Notes 10 and 11)
|
||||||||
|
Stockholders’ equity:
|
||||||||
|
Preferred stock — authorized 5.0 shares; no
shares issued or outstanding
|
— | — | ||||||
|
Class A common stock — $.001 par value;
authorized 300.0 shares; 146.0 and 158.7 shares
outstanding, respectively
|
0.1 | 0.2 | ||||||
|
Additional
paid-in-capital
|
928.9 | 1,210.5 | ||||||
|
Accumulated other comprehensive income
|
162.5 | 114.7 | ||||||
|
Retained earnings
|
1,805.8 | 1,397.8 | ||||||
|
Equity attributable to GameStop Corp. stockholders
|
2,897.3 | 2,723.2 | ||||||
|
Equity (deficit) attributable to noncontrolling interest
|
(1.4 | ) | (0.2 | ) | ||||
|
Total equity
|
2,895.9 | 2,723.0 | ||||||
|
Total liabilities and stockholders’ equity
|
$ | 5,063.8 | $ | 4,955.3 | ||||
See accompanying notes to consolidated financial statements.
F-4
Table of Contents
GAMESTOP
CORP.
|
52 Weeks
|
52 Weeks
|
52 Weeks
|
||||||||||
|
Ended
|
Ended
|
Ended
|
||||||||||
|
January 29,
|
January 30,
|
January 31,
|
||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| (In millions, except per share data) | ||||||||||||
|
Sales
|
$ | 9,473.7 | $ | 9,078.0 | $ | 8,805.9 | ||||||
|
Cost of sales
|
6,936.1 | 6,643.3 | 6,535.8 | |||||||||
|
Gross profit
|
2,537.6 | 2,434.7 | 2,270.1 | |||||||||
|
Selling, general and administrative expenses
|
1,700.3 | 1,635.1 | 1,445.4 | |||||||||
|
Depreciation and amortization
|
174.7 | 162.6 | 145.0 | |||||||||
|
Merger-related expenses
|
— | — | 4.6 | |||||||||
|
Operating earnings
|
662.6 | 637.0 | 675.1 | |||||||||
|
Interest income
|
(1.8 | ) | (2.2 | ) | (11.6 | ) | ||||||
|
Interest expense
|
37.0 | 45.4 | 50.4 | |||||||||
|
Debt extinguishment expense
|
6.0 | 5.3 | 2.3 | |||||||||
|
Earnings before income tax expense
|
621.4 | 588.5 | 634.0 | |||||||||
|
Income tax expense
|
214.6 | 212.8 | 235.7 | |||||||||
|
Consolidated net income
|
406.8 | 375.7 | 398.3 | |||||||||
|
Net loss attributable to noncontrolling interests
|
1.2 | 1.6 | — | |||||||||
|
Consolidated net income attributable to GameStop
|
$ | 408.0 | $ | 377.3 | $ | 398.3 | ||||||
|
Basic net income per common share(1)
|
$ | 2.69 | $ | 2.29 | $ | 2.44 | ||||||
|
Diluted net income per common share(1)
|
$ | 2.65 | $ | 2.25 | $ | 2.38 | ||||||
|
Weighted average shares of common stock — basic
|
151.6 | 164.5 | 163.2 | |||||||||
|
Weighted average shares of common stock — diluted
|
154.0 | 167.9 | 167.7 | |||||||||
| (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 | ||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||
|
Balance at February 2, 2008
|
161.0 | $ | 0.2 | $ | 1,208.4 | $ | 31.6 | $ | 622.2 | $ | — | $ | 1,862.4 | |||||||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||||||||
|
Net income for the 52 weeks ended January 31, 2009
|
— | — | — | — | 398.3 | — | 398.3 | |||||||||||||||||||||
|
Foreign currency translation
|
— | — | — | (89.1 | ) | — | — | (89.1 | ) | |||||||||||||||||||
|
Total comprehensive income
|
309.2 | |||||||||||||||||||||||||||
|
Stock-based compensation
|
— | — | 35.4 | — | — | — | 35.4 | |||||||||||||||||||||
|
Exercise of employee stock options and issuance of shares upon
vesting of restricted stock grants (including tax benefit of
$37.6)
|
2.8 | — | 63.6 | — | — | — | 63.6 | |||||||||||||||||||||
|
Balance at January 31, 2009
|
163.8 | 0.2 | 1,307.4 | (57.5 | ) | 1,020.5 | — | 2,270.6 | ||||||||||||||||||||
|
Purchase of subsidiary shares from noncontrolling interest
|
— | — | (5.1 | ) | — | — | 1.4 | (3.7 | ) | |||||||||||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||||||||
|
Net income (loss) for the 52 weeks ended January 30,
2010
|
— | — | — | — | 377.3 | (1.6 | ) | 375.7 | ||||||||||||||||||||
|
Foreign currency translation
|
— | — | — | 172.2 | — | — | 172.2 | |||||||||||||||||||||
|
Total comprehensive income
|
547.9 | |||||||||||||||||||||||||||
|
Stock-based compensation
|
— | — | 37.8 | — | — | — | 37.8 | |||||||||||||||||||||
|
Purchase of treasury stock
|
(6.1 | ) | — | (123.0 | ) | — | — | — | (123.0 | ) | ||||||||||||||||||
|
Exercise of employee stock options and issuance of shares upon
vesting of restricted stock grants (including tax expense of
$0.3)
|
1.0 | — | (6.6 | ) | — | — | — | (6.6 | ) | |||||||||||||||||||
|
Balance at January 30, 2010
|
158.7 | 0.2 | 1,210.5 | 114.7 | 1,397.8 | (0.2 | ) | 2,723.0 | ||||||||||||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||||||||
|
Net income (loss) for the 52 weeks ended January 29,
2011
|
— | — | — | — | 408.0 | (1.2 | ) | 406.8 | ||||||||||||||||||||
|
Foreign currency translation
|
— | — | — | 47.8 | — | — | 47.8 | |||||||||||||||||||||
|
Total comprehensive income
|
454.6 | |||||||||||||||||||||||||||
|
Stock-based compensation
|
— | — | 29.5 | — | — | — | 29.5 | |||||||||||||||||||||
|
Purchase of treasury stock
|
(17.1 | ) | (0.1 | ) | (338.5 | ) | — | — | — | (338.6 | ) | |||||||||||||||||
|
Exercise of employee stock options and issuance of shares upon
vesting of restricted stock grants (including tax benefit of
$18.7)
|
4.4 | — | 27.4 | — | — | — | 27.4 | |||||||||||||||||||||
|
Balance at January 29, 2011
|
146.0 | $ | 0.1 | $ | 928.9 | $ | 162.5 | $ | 1,805.8 | $ | (1.4 | ) | $ | 2,895.9 | ||||||||||||||
See accompanying notes to consolidated financial statements.
F-6
Table of Contents
GAMESTOP
CORP.
|
52 Weeks
|
52 Weeks
|
52 Weeks
|
||||||||||
|
Ended
|
Ended
|
Ended
|
||||||||||
|
January 29,
|
January 30,
|
January 31,
|
||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| (In millions) | ||||||||||||
|
Cash flows from operating activities:
|
||||||||||||
|
Consolidated net income
|
$ | 406.8 | $ | 375.7 | $ | 398.3 | ||||||
|
Adjustments to reconcile net earnings to net cash flows provided
by operating activities:
|
||||||||||||
|
Depreciation and amortization (including amounts in cost of
sales)
|
176.8 | 164.1 | 146.4 | |||||||||
|
Provision for inventory reserves
|
27.5 | 48.9 | 43.0 | |||||||||
|
Amortization and retirement of deferred financing fees and issue
discounts
|
5.0 | 5.0 | 3.7 | |||||||||
|
Stock-based compensation expense
|
29.6 | 37.8 | 35.4 | |||||||||
|
Deferred income taxes
|
38.2 | (1.2 | ) | (24.7 | ) | |||||||
|
Excess tax (benefits) expense realized from exercise of
stock-based awards
|
(18.6 | ) | 0.4 | (34.2 | ) | |||||||
|
Loss on disposal of property and equipment
|
7.6 | 4.4 | 5.2 | |||||||||
|
Changes in other long-term liabilities
|
(7.2 | ) | 7.6 | 7.4 | ||||||||
|
Changes in operating assets and liabilities, net
|
||||||||||||
|
Receivables, net
|
0.2 | 4.2 | (2.9 | ) | ||||||||
|
Merchandise inventories
|
(227.2 | ) | 29.6 | (209.5 | ) | |||||||
|
Prepaid expenses and other current assets
|
(10.5 | ) | 2.3 | (16.4 | ) | |||||||
|
Prepaid income taxes and accrued income taxes payable
|
22.3 | 54.6 | 43.9 | |||||||||
|
Accounts payable and accrued liabilities
|
140.7 | (89.2 | ) | 153.6 | ||||||||
|
Net cash flows provided by operating activities
|
591.2 | 644.2 | 549.2 | |||||||||
|
Cash flows from investing activities:
|
||||||||||||
|
Purchase of property and equipment
|
(197.6 | ) | (163.8 | ) | (183.2 | ) | ||||||
|
Acquisitions, net of cash acquired
|
(38.1 | ) | (8.4 | ) | (630.7 | ) | ||||||
|
Other
|
(4.4 | ) | (15.0 | ) | (7.0 | ) | ||||||
|
Net cash flows used in investing activities
|
(240.1 | ) | (187.2 | ) | (820.9 | ) | ||||||
|
Cash flows from financing activities:
|
||||||||||||
|
Repurchase of notes payable
|
(200.0 | ) | (100.0 | ) | (30.0 | ) | ||||||
|
Purchase of treasury shares
|
(381.2 | ) | (58.4 | ) | — | |||||||
|
Borrowings from the revolver
|
120.0 | 115.0 | — | |||||||||
|
Repayment of revolver borrowings
|
(120.0 | ) | (115.0 | ) | — | |||||||
|
Borrowings for acquisition
|
— | — | 425.0 | |||||||||
|
Repayments of acquisition borrowings
|
— | — | (425.0 | ) | ||||||||
|
Issuance of shares relating to stock options
|
10.8 | 4.5 | 28.9 | |||||||||
|
Excess tax benefits (expense) realized from exercise of
stock-based awards
|
18.6 | (0.4 | ) | 34.2 | ||||||||
|
Other
|
(3.8 | ) | (0.1 | ) | (3.5 | ) | ||||||
|
Net cash flows provided by (used in) financing activities
|
(555.6 | ) | (154.4 | ) | 29.6 | |||||||
|
Exchange rate effect on cash and cash equivalents
|
9.9 | 24.7 | (37.2 | ) | ||||||||
|
Net increase (decrease) in cash and cash equivalents
|
(194.6 | ) | 327.3 | (279.3 | ) | |||||||
|
Cash and cash equivalents at beginning of period
|
905.4 | 578.1 | 857.4 | |||||||||
|
Cash and cash equivalents at end of period
|
$ | 710.8 | $ | 905.4 | $ | 578.1 | ||||||
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,” “us,”
“our,” or the “Company”) is the world’s
largest multichannel retailer of video game products and PC
entertainment software. The Company sells new and used video
game hardware, video game software and accessories, PC
entertainment software and other merchandise primarily through
its GameStop, EB Games and Micromania stores. The Company’s
stores, which totaled 6,670 at January 29, 2011, are
located in major regional shopping malls and strip centers. We
also operate electronic commerce Web sites
www.gamestop.com
,
www.ebgames.com.au
,
www.gamestop.ca
,
www.gamestop.it
,
www.gamestop.es
,
www.gamestop.ie
,
www.gamestop.de
and
www.micromania.fr
. In
addition, we publish
Game Informer
magazine and operate
the online video gaming Web site
www.kongregate.com
. 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 (other than dollar amounts per
share) in the consolidated financial statements are stated in
millions 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 2010 consisted of the 52 weeks ended on
January 29, 2011. Fiscal 2009 consisted of the
52 weeks ended on January 30, 2010. Fiscal 2008
consisted of the 52 weeks ended on January 31, 2009.
The financial statements included herein for fiscal 2010 include
the results of Kongregate Inc., the online video gaming company
acquired by the Company on August 1, 2010. The
Company’s operating results for fiscal 2010 and 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.
F-8
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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 investment funds holding direct
U.S. Treasury obligations. The Company held such cash
equivalents as of January 29, 2011.
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 29, 2011 and January 30, 2010 were
$69.5 million and $66.5 million, 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 29, 2011 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
F-9
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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 recognized in the amount of the
excess. The Company completed its annual impairment test of
goodwill as of the first day of the fourth quarter of fiscal
2008, fiscal 2009 and fiscal 2010 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, advertising relationships 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 2008, fiscal 2009 and
fiscal 2010 and concluded that none of its intangible assets
were impaired.
Tradenames which were recorded as a result of acquisitions,
primarily Micromania, 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. Advertising
relationships, which were recorded as a result of digital
acquisitions, are relationships with existing advertisers who
pay to place ads on the Company’s digital Web sites and are
amortized on a straight-line basis over 10 years. 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. The revenue from the paid membership of
the Company’s PowerUp Rewards loyalty program is recognized
over the one-year membership term. 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). Gift cards sold to
customers are recognized as a liability on the balance sheet
until redeemed.
F-10
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The Company sells a variety of digital products which generally
allow consumers to download software or play games on the
internet. Certain of these products do not require the Company
to purchase inventory or take physical possession of, or take
title to, inventory. When purchasing these products from the
Company, consumers pay a retail price and the Company earns a
commission based on a percentage of the retail sale as
negotiated with the product publisher. The Company recognizes
this commission as revenue on the sale of these digital products.
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 29, 2011, January 30, 2010
and January 31, 2009, these purchasing, receiving and
distribution costs amounted to $64.7 million,
$63.6 million and $57.0 million, respectively.
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 29,
2011, January 30, 2010 and January 31, 2009, these
processing fees amounted to $69.7 million,
$63.1 million and $65.5 million, 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 29, 2011, January 30, 2010 and
January 31, 2009 were $83.7 million,
$57.7 million and $46.7 million, respectively.
F-11
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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
accordance with GAAP, we maintain accruals for uncertain tax
positions until examination of the tax year is completed by the
applicable taxing authority, available review periods expire or
additional facts and circumstances cause us to change our
assessment of the appropriate accrual amount (see Note 12).
U.S. income taxes have not been provided on
$504.9 million of undistributed earnings of foreign
subsidiaries as of January 29, 2011. 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 $2.5 million,
$3.9 million and ($10.0) million for the 52 weeks
ended January 29, 2011, January 30, 2010 and
January 31, 2009, respectively. The foreign currency
transaction gains and losses are primarily due to the decrease
or increase in the value of the U.S. dollar compared to the
functional currencies in the countries the Company operates in
internationally. In fiscal 2010, the foreign currency
transaction gains are primarily due to the decrease in the value
of the U.S. dollar compared to the Canadian dollar and the
Australian dollar. In fiscal 2009, the foreign currency
transaction gains are primarily due to the decrease in the value
of the U.S. dollar compared to 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
euro, the Canadian dollar and the Australian dollar. The net
foreign currency transaction loss in the 52 weeks ended
January 31, 2009 included a $3.5 million 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).
F-12
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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.
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 29, 2011, January 30, 2010 and
January 31, 2009 were estimated at $7.88, $9.45 and $15.45,
respectively, using the following assumptions:
|
52 Weeks
|
52 Weeks
|
52 Weeks
|
||||||||||
|
Ended
|
Ended
|
Ended
|
||||||||||
|
January 29,
|
January 30,
|
January 31,
|
||||||||||
| 2011 | 2010 | 2009 | ||||||||||
|
Volatility
|
51.6 | % | 47.9 | % | 38.2 | % | ||||||
|
Risk-free interest rate
|
1.6 | % | 1.5 | % | 2.4 | % | ||||||
|
Expected life (years)
|
3.5 | 3.5 | 3.5 | |||||||||
|
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 $17.7 million as of January 29, 2011
and $16.0 million as of January 30, 2010.
Vendor
Concentration
The Company’s largest vendors worldwide are Microsoft,
Nintendo, Sony Computer Entertainment, Activision and Electronic
Arts, Inc., which accounted for 18%, 16%, 16%, 12% and 10%,
respectively, of the Company’s new product purchases in
fiscal 2010 and 12%, 23%, 17%, 11% and 12%, respectively, in
fiscal 2009.
F-13
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
New
Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update
(“ASU”) ASU
2010-6,
Improving Disclosures About Fair Value Measurements.
On
January 31, 2010, the Company adopted ASU
2010-6,
which requires reporting entities to make new disclosures about
recurring or nonrecurring fair-value measurements, including
significant transfers into and out of the standard’s
Level 1 and Level 2 fair-value measurements and
information on purchases, sales, issuances, and settlements on a
gross basis for Level 3 fair-value measurements. ASU
2010-6
is
effective for annual reporting periods beginning after
December 15, 2009, except for Level 3 reconciliation
disclosures which are effective for annual periods beginning
after December 15, 2010. The adoption of ASU
2010-6
did
not have a material impact on the Company’s consolidated
financial statements.
On January 31, 2010, the Company adopted ASU
2010-09,
Subsequent Events — Amendments to Certain
Recognition and Disclosure Requirements
, which amends
Accounting Standards Codification (“ASC”) Topic 855,
Subsequent Events
,
so that Securities and Exchange
Commission filers no longer are required to disclose the date
through which subsequent events have been evaluated in
originally issued and revised financial statements. The adoption
of ASU
2010-09
did
not have a material impact on the Company’s consolidated
financial statements.
In December 2010, the FASB issued ASU
2010-28,
Intangibles — Goodwill and Other
. ASU
2010-28
modifies step one of the goodwill impairment test for reporting
units with zero or negative carrying amounts and offers guidance
on when to perform step two of the testing. For those reporting
units, an entity is required to perform step two of the goodwill
impairment test if it is more likely than not that a goodwill
impairment exists based upon factors such as unanticipated
competition, the loss of key personnel and adverse regulatory
changes. ASU
2010-28
is
effective for fiscal years, and interim periods within those
years, beginning after December 15, 2010. The adoption of
ASU
2010-28
is not expected to have a material effect on the Company’s
consolidated financial statements.
In December 2010, the FASB issued ASU
2010-29,
which updates the guidance in ASC 805,
Business
Combinations
, to clarify that pro forma disclosures should
be presented as if a business combination occurred at the
beginning of the prior annual period for purposes of preparing
both the current reporting period and the prior reporting period
pro forma financial information. These disclosures should be
accompanied by a narrative description about the nature and
amount of material, nonrecurring pro forma adjustments. ASU
2010-29
is
effective for business combinations consummated in periods
beginning after December 15, 2010, and is required to be
applied prospectively as of the date of adoption. The adoption
of ASU
2010-29
is
not expected to have a material effect on the Company’s
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 $580.4 million, net of cash acquired. Micromania is a
leading retailer of video and computer games in France with 379
locations, 328 of which were operating upon acquisition. The
Company funded the transaction with cash on hand, funds drawn
against its then existing $400 million revolving credit
agreement totaling $275 million, and term loans totaling
$150 million under a junior term loan facility (the
“Term Loans”). As of January 31, 2009, all of the
borrowings against the revolving credit agreement and the Term
Loans had 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 was 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 millions) | ||||
|
Current assets
|
$ | 187.7 | ||
|
Property, plant & equipment
|
34.2 | |||
|
Goodwill
|
415.2 | |||
|
Intangible assets:
|
||||
|
Tradename
|
131.5 | |||
|
Leasehold rights and interests
|
104.0 | |||
|
Total intangible assets
|
235.5 | |||
|
Other long-term assets
|
7.8 | |||
|
Current liabilities
|
(223.2 | ) | ||
|
Long-term liabilities
|
(76.8 | ) | ||
|
Total purchase price
|
$ | 580.4 | ||
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 $4.6 million 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 was 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 the Company’s purchasing power.
In fiscal 2008, in addition to the Micromania acquisition, the
Company also completed acquisitions with a total consideration
of $50.3 million. The acquisitions were accounted for using
the purchase method of accounting, with the excess of the
purchase price over the net assets acquired, in the amount of
$46.0 million for fiscal 2008, recorded as goodwill. During
fiscal 2009 and fiscal 2010, the Company completed acquisitions
with a total consideration of $8.4 million and
$38.1 million, respectively, which were accounted for using
the acquisition method of accounting, with the excess of the
purchase price over the net assets acquired, in the amount of
$6.3 million and $28.5 million, respectively, recorded
as goodwill. The Company included the results of operations of
the acquisitions, which were not material, in the financial
statements beginning on the closing date of each respective
acquisition. The pro forma effect assuming these acquisitions
were made at the beginning of each fiscal year is not material
to the Company’s consolidated financial statements.
F-15
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 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 $122.1 million, $93.0 million
and $92.1 million in the 52 week periods ended
January 29, 2011, January 30, 2010 and
January 31, 2009, respectively. Vendor allowances received
in excess of advertising expenses were recorded as a reduction
of cost of sales of $83.7 million, $116.9 million and
$125.1 million for the 52 week periods ended
January 29, 2011, January 30, 2010 and
January 31, 2009, respectively. The amount recognized as
income related to the capitalization of excess vendor allowances
was $2.1 million for the 52 weeks ended
January 29, 2011. The amounts deferred as a reduction in
inventory were $0.7 million and $3.2 million for the
52 weeks ended January 30, 2010 and January 31,
2009, respectively.
| 4. | Computation of Net Income per Common Share |
The Company has 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 29,
|
January 30,
|
January 31,
|
||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| (In millions, except per share data) | ||||||||||||
|
Net income attributable to GameStop
|
$ | 408.0 | $ | 377.3 | $ | 398.3 | ||||||
|
Weighted average common shares outstanding
|
151.6 | 164.5 | 163.2 | |||||||||
|
Dilutive effect of options and warrants on common stock
|
2.4 | 3.4 | 4.5 | |||||||||
|
Common shares and dilutive potential common shares
|
154.0 | 167.9 | 167.7 | |||||||||
|
Net income per common share:
|
||||||||||||
|
Basic
|
$ | 2.69 | $ | 2.29 | $ | 2.44 | ||||||
|
Diluted
|
$ | 2.65 | $ | 2.25 | $ | 2.38 | ||||||
F-16
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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 millions, except per share data) | ||||||||||||
|
52 Weeks Ended January 29, 2011
|
4.0 | $ | 20.32 - 49.95 | 2017 - 2020 | ||||||||
|
52 Weeks Ended January 30, 2010
|
3.2 | $ | 26.02 - 49.95 | 2011 - 2019 | ||||||||
|
52 Weeks Ended January 31, 2009
|
2.5 | $ | 26.68 - 49.95 | 2010 - 2018 | ||||||||
| 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
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 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 millions):
|
January 29, 2011
|
January 30, 2010
|
|||||||
| Level 2 | Level 2 | |||||||
|
Assets
|
||||||||
|
Foreign Currency Contracts
|
$ | 14.0 | $ | 20.1 | ||||
|
Company-owned life insurance
|
3.1 | 2.6 | ||||||
|
Total assets
|
$ | 17.1 | $ | 22.7 | ||||
|
Liabilities
|
||||||||
|
Foreign Currency Contracts
|
$ | 12.8 | $ | 9.0 | ||||
|
Nonqualified deferred compensation
|
0.9 | 0.8 | ||||||
|
Total liabilities
|
$ | 13.7 | $ | 9.8 | ||||
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
F-17
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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 millions):
| January 29, 2011 | January 30, 2010 | |||||||
|
Assets
|
||||||||
|
Foreign Currency Contracts
|
||||||||
|
Other current assets
|
$ | 13.0 | $ | 20.1 | ||||
|
Other noncurrent assets
|
1.0 | — | ||||||
|
Liabilities
|
||||||||
|
Foreign Currency Contracts
|
||||||||
|
Accrued liabilities
|
(11.2 | ) | (9.0 | ) | ||||
|
Other long-term liabilities
|
(1.6 | ) | — | |||||
|
Total derivatives
|
$ | 1.2 | $ | 11.1 | ||||
As of January 29, 2011, the Company had a series of Foreign
Currency Contracts outstanding, with a gross notional value of
$495.2 million and a net notional value of
$201.3 million. For the 52 weeks ended
January 29, 2011, the Company recognized losses of
$7.1 million in selling, general and administrative
expenses related to the trading of derivative instruments. As of
January 30, 2010, the Company had a series of Foreign
Currency Contracts outstanding, with a gross notional value of
$643.5 million and a net notional value of
$356.6 million. For the 52 weeks ended
January 30, 2010, the Company recognized gains of
$8.7 million 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 29, 2011, the senior notes
payable had a carrying value of $249.0 million and a fair
value of $256.6 million. As of January 30, 2010, the
senior notes payable had a carrying value of $447.3 million
and a fair value of $466.0 million.
| 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.
F-18
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
An allowance for doubtful accounts has been recorded to reduce
receivables to an amount expected to be collectible. Receivables
consisted of the following (in millions):
|
January 29,
|
January 30,
|
|||||||
| 2011 | 2010 | |||||||
|
Bankcard receivables
|
$ | 47.5 | $ | 51.5 | ||||
|
Other receivables
|
20.5 | 15.9 | ||||||
|
Allowance for doubtful accounts
|
(2.5 | ) | (3.4 | ) | ||||
|
Total receivables, net
|
$ | 65.5 | $ | 64.0 | ||||
| 7. | Accrued Liabilities |
Accrued liabilities consisted of the following (in millions):
|
January 29,
|
January 30,
|
|||||||
| 2011 | 2010 | |||||||
|
Customer liabilities
|
$ | 242.7 | $ | 199.2 | ||||
|
Deferred revenue
|
74.9 | 61.2 | ||||||
|
Accrued rent
|
10.4 | 18.7 | ||||||
|
Accrued interest
|
10.7 | 15.8 | ||||||
|
Employee benefits, compensation and related taxes
|
124.3 | 109.7 | ||||||
|
Other taxes
|
60.9 | 63.7 | ||||||
|
Settlement of treasury share purchases
|
22.0 | 64.6 | ||||||
|
Other accrued liabilities
|
111.1 | 99.2 | ||||||
|
Total accrued liabilities
|
$ | 657.0 | $ | 632.1 | ||||
| 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 30, 2010 and the 52 weeks ended
January 29, 2011 were as follows:
| United States | Canada | Australia | Europe | Total | ||||||||||||||||
| (In millions) | ||||||||||||||||||||
|
Balance at January 31, 2009
|
$ | 1,096.6 | $ | 112.0 | $ | 125.6 | $ | 498.8 | $ | 1,833.0 | ||||||||||
|
Goodwill acquired, net
|
3.8 | — | — | 2.5 | 6.3 | |||||||||||||||
|
Foreign currency translation adjustment
|
(0.2 | ) | 16.5 | 48.5 | 42.4 | 107.2 | ||||||||||||||
|
Balance at January 30, 2010
|
1,100.2 | 128.5 | 174.1 | 543.7 | 1,946.5 | |||||||||||||||
|
Goodwill acquired, net
|
28.5 | — | — | — | 28.5 | |||||||||||||||
|
Foreign currency translation adjustment
|
(0.1 | ) | 8.9 | 21.8 | (9.3 | ) | 21.3 | |||||||||||||
|
Balance at January 29, 2011
|
$ | 1,128.6 | $ | 137.4 | $ | 195.9 | $ | 534.4 | $ | 1,996.3 | ||||||||||
There were no impairments to goodwill during the 52 weeks
ended January 29, 2011 and January 30, 2010.
Intangible assets, primarily from the EB merger and Micromania
acquisition, consist of internally developed software, amounts
attributed to favorable leasehold interests and advertiser
relationships are included in other intangible assets in the
consolidated balance sheet. The tradenames acquired, primarily
Micromania, in the aggregate amount of $133.4 million have
been determined to be an indefinite lived intangible asset and
are therefore not subject to amortization. The total
weighted-average amortization period for the remaining
intangible assets,
F-19
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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.
The changes in the carrying amount of deferred financing fees
and other intangible assets for the 52 weeks ended
January 30, 2010 and January 29, 2011 were as follows:
|
Deferred
|
Other
|
|||||||
| Financing Fees | Intangible Assets | |||||||
| (In millions) | ||||||||
|
Balance at January 31, 2009
|
$ | 8.9 | $ | 247.8 | ||||
|
Addition for revolving credit facility amendment
|
0.1 | — | ||||||
|
Write-off of deferred financing fees remaining on repurchased
senior notes (see Note 9)
|
(0.8 | ) | — | |||||
|
Addition of leasehold rights
|
— | 7.3 | ||||||
|
Adjustment for foreign currency translation
|
— | 20.0 | ||||||
|
Amortization for the 52 weeks ended January 30, 2010
|
(2.5 | ) | (15.2 | ) | ||||
|
Balance at January 30, 2010
|
5.7 | 259.9 | ||||||
|
Addition for revolving credit facility amendment
|
3.8 | — | ||||||
|
Write-off of deferred financing fees remaining on repurchased
senior notes (see Note 9)
|
(1.0 | ) | — | |||||
|
Addition of acquired intangible assets
|
— | 10.9 | ||||||
|
Adjustment for foreign currency translation
|
— | (3.5 | ) | |||||
|
Amortization for the 52 weeks ended January 29, 2011
|
(2.3 | ) | (12.7 | ) | ||||
|
Balance at January 29, 2011
|
$ | 6.2 | $ | 254.6 | ||||
The gross carrying value and accumulated amortization of
deferred financing fees as of January 29, 2011 were
$21.4 million and $15.2 million, 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 millions) | ||||||||
|
January 2012
|
$ | 1.8 | $ | 13.9 | ||||
|
January 2013
|
1.5 | 13.6 | ||||||
|
January 2014
|
1.2 | 13.0 | ||||||
|
January 2015
|
1.2 | 10.1 | ||||||
|
January 2016
|
0.5 | 7.7 | ||||||
| $ | 6.2 | $ | 58.3 | |||||
F-20
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 9. | Debt |
On January 4, 2011, the Company entered into a
$400 million credit agreement (the “Revolver”),
which amends and restates, in its entirety, the Company’s
prior credit agreement entered into on October 11, 2005
(the “Credit Agreement”). The Revolver provides for a
five-year, $400 million asset-based facility, including a
$50 million letter of credit sublimit, secured by
substantially all of the Company’s and its domestic
subsidiaries’ assets. The Company has the ability to
increase the facility, which matures in January 2016, by
$150 million under certain circumstances. The extension of
the Revolver to 2016 reduces our exposure to potential
tightening in the credit markets.
The availability under the Revolver is limited to a borrowing
base which allows the Company to borrow up to 90% of the
appraisal value of the inventory, in each case plus 90% 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 permitted,
except under certain circumstances, including if Revolver excess
availability is less than 20%, or is projected to be within
12 months after such payment. In addition, if Revolver
usage is projected to be equal to or greater than 25% of the
borrowing base during the prospective
12-month
period, the Company is subject to meeting a fixed charge
coverage ratio of 1.1:1.0 prior to making such payments. In the
event that excess availability under the Revolver is at any time
less than the greater of (1) $40.0 million or
(2) 12.5% of the lesser of the total commitment or the
borrowing base, the Company will be subject to a fixed charge
coverage ratio covenant of 1.1:1.0.
The Revolver places certain restrictions on the Company and its
subsidiaries, including limitations on asset sales, additional
liens, investments, loans, guarantees, acquisitions and the
incurrence of additional indebtedness. The per annum interest
rate under the Revolver is variable and is calculated by
applying a margin (1) for prime rate loans of 1.25% to
1.50% above the highest of (a) the prime rate of the
administrative agent, (b) the federal funds effective rate
plus 0.50% and (c) the LIBO rate for a
30-day
interest period as determined on such day plus 1.00%, and
(2) for LIBO rate loans of 2.25% to 2.50% above the LIBO
rate. The applicable margin is determined quarterly as a
function of the Company’s average daily excess availability
under the facility and is set at 1.25% for prime rate loans and
2.25% for LIBO rate loans until the first day of the fiscal
quarter of the borrowers commencing on May 1, 2011. In
addition, the Company is required to pay a commitment fee of
0.375% or 0.50%, depending on facility usage, for any unused
portion of the total commitment under the Revolver. As of
January 29, 2011 the applicable margin was 1.25% for prime
rate loans and 2.25% for LIBO rate loans while the required
commitment fee was 0.50% for the unused portion of the Revolver.
The Revolver provides for customary events of default with
corresponding grace periods, including failure to pay any
principal or interest when due, failure to comply with
covenants, any material representation or warranty made by the
Company or the Borrowers proving to be false in any material
respect, certain bankruptcy, insolvency or receivership events
affecting the Company or its subsidiaries, defaults relating to
certain other indebtedness, imposition of certain judgments and
mergers or the liquidation of the Company or certain of its
subsidiaries.
During fiscal 2010, the Company borrowed and repaid
$120.0 million under the prior Credit Agreement. During
fiscal 2009, the Company borrowed and repaid $115.0 million
under the prior Credit Agreement.
As of January 29, 2011, there were no borrowings
outstanding under the Revolver and letters of credit outstanding
totaled $8.2 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 29, 2011, there were $11.0 million of cash
overdrafts outstanding under the Line of Credit and bank
guarantees outstanding totaled $5.6 million.
F-21
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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”). 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 29, 2011, the unamortized original issue discount
was $1.0 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
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 29, 2011, 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.
Between May 2006 and October 2010, the Company repurchased and
redeemed the $300 million of Senior Floating Rate Notes and
$400 million 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
$6.0 million, $5.3 million and $2.3 million for
the 52 week periods ended January 29, 2011,
January 30, 2010 and January 31, 2009, 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 30, 2010 and
the 52 weeks ended January 29, 2011 were as follows
(in millions):
|
Balance at January 31, 2009
|
$ | 545.7 | ||
|
Repurchase of Senior Notes, net
|
(98.4 | ) | ||
|
Balance at January 30, 2010
|
$ | 447.3 | ||
|
Repurchase of Senior Notes, net
|
(198.3 | ) | ||
|
Balance at January 29, 2011
|
$ | 249.0 | ||
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
F-22
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Term Loan Agreement provided for term loans (“Term
Loans”) in the aggregate of $150 million, consisting
of a $50 million secured term loan (“Term Loan
A”) and a $100 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 million under the Term Loans, the
Company borrowed $275 million under the Credit Agreement to
complete the acquisition of Micromania in November 2008. As of
January 31, 2009, the Credit Agreement and the Term Loans
were repaid in full.
As of January 30, 2010 and January 29, 2011, the only
long-term debt outstanding was the Senior Notes.
The maturity on the $250 million Senior Notes, gross of the
unamortized original issue discount of $1.0 million, 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 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 29,
|
January 30,
|
January 31,
|
||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| (In millions) | ||||||||||||
|
Minimum
|
$ | 370.8 | $ | 354.3 | $ | 303.7 | ||||||
|
Percentage rentals
|
11.1 | 22.6 | 23.0 | |||||||||
| $ | 381.9 | $ | 376.9 | $ | 326.7 | |||||||
Future minimum annual rentals, excluding percentage rentals,
required under leases that had initial, noncancelable lease
terms greater than one year, as of January 29, 2011, are
approximately:
| Year Ended | Amount | |||
| (In millions) | ||||
|
January 2012
|
$ | 350.7 | ||
|
January 2013
|
285.7 | |||
|
January 2014
|
206.5 | |||
|
January 2015
|
138.6 | |||
|
January 2016
|
93.2 | |||
|
Thereafter
|
262.9 | |||
| $ | 1,337.6 | |||
F-23
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 11. | Commitments and Contingencies |
Contingencies
In the ordinary course of the Company’s business, the
Company is, from time to time, subject to various 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 existing 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 29,
|
January 30,
|
January 31,
|
||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| (In millions) | ||||||||||||
|
Current tax expense:
|
||||||||||||
|
Federal
|
$ | 133.3 | $ | 162.3 | $ | 201.4 | ||||||
|
State
|
13.3 | 12.1 | 18.9 | |||||||||
|
Foreign
|
29.8 | 39.6 | 40.1 | |||||||||
| 176.4 | 214.0 | 260.4 | ||||||||||
|
Deferred tax expense (benefit):
|
||||||||||||
|
Federal
|
39.1 | 0.2 | (15.8 | ) | ||||||||
|
State
|
2.7 | 1.5 | (7.5 | ) | ||||||||
|
Foreign
|
(3.6 | ) | (2.9 | ) | (1.4 | ) | ||||||
| 38.2 | (1.2 | ) | (24.7 | ) | ||||||||
|
Total income tax expense
|
$ | 214.6 | $ | 212.8 | $ | 235.7 | ||||||
The components of earnings before income tax expense consisted
of the following:
|
52 Weeks
|
52 Weeks
|
52 Weeks
|
||||||||||
|
Ended
|
Ended
|
Ended
|
||||||||||
|
January 29,
|
January 30,
|
January 31,
|
||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| (In millions) | ||||||||||||
|
United States
|
$ | 553.8 | $ | 508.9 | $ | 532.8 | ||||||
|
International
|
67.6 | 79.6 | 101.2 | |||||||||
|
Total
|
$ | 621.4 | $ | 588.5 | $ | 634.0 | ||||||
F-24
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 29,
|
January 30,
|
January 31,
|
||||||||||
| 2011 | 2010 | 2009 | ||||||||||
|
Federal statutory tax rate
|
35.0 | % | 35.0 | % | 35.0 | % | ||||||
|
State income taxes, net of federal effect
|
1.7 | 1.5 | 1.1 | |||||||||
|
Foreign income taxes
|
0.4 | 1.5 | 0.5 | |||||||||
|
Other (including permanent differences)
|
(2.6 | ) | (1.8 | ) | 0.6 | |||||||
| 34.5 | % | 36.2 | % | 37.2 | % | |||||||
The Company’s effective tax rate decreased from 36.2% in
the 52 weeks ended January 30, 2010 to 34.5% in the
52 weeks ended January 29, 2011, primarily due to
audit settlements and statute expirations. 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.
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 (in millions):
|
January 29,
|
January 30,
|
|||||||
| 2011 | 2010 | |||||||
|
Deferred tax asset:
|
||||||||
|
Fixed assets
|
$ | — | $ | 29.8 | ||||
|
Inventory obsolescence reserve
|
19.7 | 17.4 | ||||||
|
Deferred rents
|
16.4 | 14.7 | ||||||
|
Stock-based compensation
|
25.8 | 22.6 | ||||||
|
Net operating losses
|
15.9 | 12.3 | ||||||
|
Other
|
19.7 | 10.0 | ||||||
|
Total deferred tax assets
|
97.5 | 106.8 | ||||||
|
Deferred tax liabilities:
|
||||||||
|
Fixed Assets
|
(15.1 | ) | — | |||||
|
Goodwill
|
(44.5 | ) | (37.9 | ) | ||||
|
Prepaid expenses
|
(7.5 | ) | (4.0 | ) | ||||
|
Acquired intangible assets
|
(59.6 | ) | (63.5 | ) | ||||
|
Valuation allowance
|
(2.7 | ) | (2.0 | ) | ||||
|
Other
|
(14.2 | ) | (3.7 | ) | ||||
|
Total deferred tax liabilities
|
(143.6 | ) | (111.1 | ) | ||||
|
Net
|
$ | (46.1 | ) | $ | (4.3 | ) | ||
|
Financial statements:
|
||||||||
|
Current deferred tax assets
|
$ | 28.8 | $ | 21.2 | ||||
|
Deferred tax liabilities
|
$ | (74.9 | ) | $ | (25.5 | ) | ||
F-25
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.
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 29, 2011, the gross amount of unrecognized
tax benefits was approximately $24.9 million. 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 $18.7 million, exclusive of any
benefits related to interest and penalties.
A reconciliation of the changes in the gross balances of
unrecognized tax benefits follows (in millions):
|
January 29,
|
January 30,
|
January 31,
|
||||||||||
| 2011 | 2010 | 2009 | ||||||||||
|
Beginning balance of unrecognized tax benefits
|
$ | 35.2 | $ | 32.2 | $ | 24.2 | ||||||
|
Increases related to current period tax positions
|
— | 5.0 | 1.0 | |||||||||
|
Increases related to prior period tax positions
|
2.1 | 8.1 | 8.7 | |||||||||
|
Reductions as a result of a lapse of the applicable statute of
limitations
|
(6.4 | ) | (1.5 | ) | (1.1 | ) | ||||||
|
Reductions as a result of settlements with taxing authorities
|
(6.0 | ) | (8.6 | ) | (0.6 | ) | ||||||
|
Ending balance of unrecognized tax benefits
|
$ | 24.9 | $ | 35.2 | $ | 32.2 | ||||||
The Company recognizes accrued interest and penalties related to
unrecognized tax benefits in income tax expense. As of
January 29, 2011, January 30, 2010 and
January 31, 2009, the Company had approximately
$6.2 million, $6.9 million and $5.7 million,
respectively, in interest and penalties related to unrecognized
tax benefits accrued of which approximately $1.4 million
and $2.3 million of benefit were recognized through income
tax expense in the fiscal years ended January 30, 2010 and
January 31, 2009, respectively, with an immaterial amount
recognized in income tax expense in the fiscal year ended
January 29, 2011. 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
46.5 million 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 common shares are issued at
fair market value of the underlying shares on the date of grant.
In general, the
F-26
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
options vest and become exercisable in equal annual installments
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 | |||||||
| (Millions of shares) | ||||||||
|
Balance, February 2, 2008
|
10.9 | $ | 10.60 | |||||
|
Granted
|
1.4 | $ | 49.95 | |||||
|
Exercised
|
(2.3 | ) | $ | 12.70 | ||||
|
Forfeited
|
(0.3 | ) | $ | 36.12 | ||||
|
Balance, January 31, 2009
|
9.7 | $ | 14.96 | |||||
|
Granted
|
1.4 | $ | 26.02 | |||||
|
Exercised
|
(0.3 | ) | $ | 14.77 | ||||
|
Forfeited
|
(0.2 | ) | $ | 35.61 | ||||
|
Balance, January 30, 2010
|
10.6 | $ | 16.00 | |||||
|
Granted
|
1.2 | $ | 20.32 | |||||
|
Exercised
|
(3.8 | ) | $ | 2.85 | ||||
|
Forfeited
|
(0.4 | ) | $ | 33.51 | ||||
|
Balance, January 29, 2011
|
7.6 | $ | 22.43 | |||||
The following table summarizes information as of
January 29, 2011 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 | (Millions) | Life (Years) | Price | (Millions) | Price | |||||||||||||||
|
$ 5.90 - $ 8.24
|
0.2 | 2.62 | $ | 7.03 | 0.2 | $ | 7.03 | |||||||||||||
|
$ 9.00 - $10.63
|
2.1 | 3.29 | $ | 9.69 | 2.1 | $ | 9.69 | |||||||||||||
|
$17.94 - $20.68
|
2.6 | 6.78 | $ | 20.27 | 1.4 | $ | 20.22 | |||||||||||||
|
$26.02 - $26.68
|
1.7 | 7.39 | $ | 26.23 | 1.0 | $ | 26.40 | |||||||||||||
|
$49.95 - $49.95
|
1.0 | 7.03 | $ | 49.95 | 0.6 | $ | 49.95 | |||||||||||||
|
$ 5.90 - $49.95
|
7.6 | 5.90 | $ | 22.43 | 5.3 | $ | 20.59 | |||||||||||||
The total intrinsic value of options exercised during the fiscal
years ended January 29, 2011, January 30, 2010 and
January 31, 2009 was $59.9 million, $3.7 million,
and $87.9 million, respectively. The intrinsic value of
options exercisable and options outstanding was
$27.1 million and $27.9 million, respectively, as of
January 29, 2011.
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 29, 2011, January 30, 2010 and
January 31, 2009, the Company included compensation expense
relating to the grant of these options in the
F-27
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
amount of $12.2 million, $11.5 million and
$15.4 million, respectively, in selling, general and
administrative expenses. As of January 29, 2011, the
unrecognized compensation expense related to the unvested
portion of the Company’s stock options was
$9.3 million, which is expected to be recognized over a
weighted average period of 1.7 years.
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 | |||||||
| (Millions of shares) | ||||||||
|
Nonvested shares at February 2, 2008
|
1.3 | $ | 25.46 | |||||
|
Granted
|
0.6 | $ | 49.20 | |||||
|
Vested
|
(0.6 | ) | $ | 16.57 | ||||
|
Forfeited
|
— | $ | 29.53 | |||||
|
Nonvested shares at January 31, 2009
|
1.3 | $ | 35.89 | |||||
|
Granted
|
0.6 | $ | 25.82 | |||||
|
Vested
|
(0.6 | ) | $ | 31.91 | ||||
|
Forfeited
|
— | $ | 33.78 | |||||
|
Nonvested shares at January 30, 2010
|
1.3 | $ | 32.94 | |||||
|
Granted
|
0.7 | $ | 20.43 | |||||
|
Vested
|
(0.6 | ) | $ | 33.05 | ||||
|
Forfeited
|
(0.2 | ) | $ | 23.07 | ||||
|
Nonvested shares at January 29, 2011
|
1.2 | $ | 26.27 | |||||
The restricted stock granted in the 52 weeks ended
January 29, 2011, January 30, 2010 and
January 31, 2009 vest in equal annual installments over
three years.
During the 52 weeks ended January 29, 2011,
January 30, 2010 and January 31, 2009, the Company
included compensation expense relating to the grant of these
restricted shares in the amounts of $17.4 million,
$26.3 million and $19.9 million, respectively, in
selling, general and administrative expenses in the accompanying
consolidated statements of operations. As of January 29,
2011, there was $14.8 million 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 29, 2011, an
additional 287 thousand shares of restricted stock were granted
under the Incentive Plan, which vest in equal annual
installments over three years. Also subsequent to the fiscal
year ended January 29, 2011, an additional 161 thousand
shares of restricted stock were granted under the Incentive
Plan, of which 50% vest in equal annual installments over three
years and 50% are subject to performance targets with such
targets to be measured following the completion of the
52 weeks ending January 28, 2012. Shares subject to
performance measures may be earned in greater or lesser
percentages if targets are exceeded or not achieved by specified
amounts. Any shares earned will be vested in equal annual
installments over three years.
F-28
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 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 thousand a year, of their eligible gross cash compensation
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 29, 2011, January 30, 2010
and January 31, 2009, were $3.6 million,
$3.3 million and $2.7 million, respectively.
| 15. | Certain Relationships and Related Transactions |
The Company has various relationships with Barnes &
Noble, Inc. (“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 operates
departments within eight bookstores operated by
Barnes & Noble, whereby the Company pays a license fee
to Barnes & Noble on the gross sales of such
departments. Additionally,
www.gamestop.com
is the
exclusive specialty video game retailer listed on
www.bn.com
, Barnes & Noble’s
e-commerce
site whereby the Company pays a fee to Barnes & Noble
for sales of video game or PC entertainment products sold
through
www.bn.com.
The Company also continues to incur
costs related to its participation in Barnes &
Noble’s workers’ compensation, property and general
liability insurance programs prior to June 2005. During the
52 weeks ended January 29, 2011, January 30, 2010
and January 31, 2009, the charges related to these
transactions amounted to $1.4 million, $1.6 million
and $1.9 million, respectively.
| 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 29,
|
January 30,
|
January 31,
|
||||||||||||||||||||||
| 2011 | 2010 | 2009 | ||||||||||||||||||||||
|
Percent
|
Percent
|
Percent
|
||||||||||||||||||||||
| Sales | of Total | Sales | of Total | Sales | of Total | |||||||||||||||||||
|
Sales:
|
||||||||||||||||||||||||
|
New video game hardware
|
$ | 1,720.0 | 18.1 | % | $ | 1,756.5 | 19.3 | % | $ | 1,860.2 | 21.1 | % | ||||||||||||
|
New video game software
|
3,968.7 | 41.9 | % | 3,730.9 | 41.1 | % | 3,685.0 | 41.9 | % | |||||||||||||||
|
Used video game products
|
2,469.8 | 26.1 | % | 2,394.1 | 26.4 | % | 2,026.6 | 23.0 | % | |||||||||||||||
|
Other
|
1,315.2 | 13.9 | % | 1,196.5 | 13.2 | % | 1,234.1 | 14.0 | % | |||||||||||||||
|
Total
|
$ | 9,473.7 | 100.0 | % | $ | 9,078.0 | 100.0 | % | $ | 8,805.9 | 100.0 | % | ||||||||||||
F-29
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 29,
|
January 30,
|
January 31,
|
||||||||||||||||||||||
| 2011 | 2010 | 2009 | ||||||||||||||||||||||
|
Gross
|
Gross
|
Gross
|
||||||||||||||||||||||
|
Gross
|
Profit
|
Gross
|
Profit
|
Gross
|
Profit
|
|||||||||||||||||||
| Profit | Percent | Profit | Percent | Profit | Percent | |||||||||||||||||||
|
Gross Profit:
|
||||||||||||||||||||||||
|
New video game hardware
|
$ | 124.9 | 7.3 | % | $ | 113.5 | 6.5 | % | $ | 112.6 | 6.1 | % | ||||||||||||
|
New video game software
|
819.6 | 20.7 | % | 795.0 | 21.3 | % | 768.4 | 20.9 | % | |||||||||||||||
|
Used video game products
|
1,140.5 | 46.2 | % | 1,121.2 | 46.8 | % | 974.5 | 48.1 | % | |||||||||||||||
|
Other
|
452.6 | 34.4 | % | 405.0 | 33.8 | % | 414.6 | 33.6 | % | |||||||||||||||
|
Total
|
$ | 2,537.6 | 26.8 | % | $ | 2,434.7 | 26.8 | % | $ | 2,270.1 | 25.8 | % | ||||||||||||
| 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
,
Game Informer
magazine, and the
online video gaming Web site
www.kongregate.com.
Segment
results for Canada include retail and
e-commerce
operations in Canada and segment results for Australia include
retail and
e-commerce
operations in Australia and New Zealand. Segment results for
Europe include retail operations in 13 European countries and
e-commerce
operations in five countries. The fiscal 2010 and 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 29, 2011 | States | Canada | Australia | Europe | Other | Consolidated | ||||||||||||||||||
|
Sales
|
$ | 6,681.2 | $ | 502.3 | $ | 565.2 | $ | 1,725.0 | $ | — | $ | 9,473.7 | ||||||||||||
|
Depreciation and amortization
|
115.6 | 7.4 | 10.9 | 40.8 | — | 174.7 | ||||||||||||||||||
|
Operating earnings
|
530.8 | 22.6 | 41.0 | 68.2 | — | 662.6 | ||||||||||||||||||
|
Interest income
|
(45.7 | ) | (0.2 | ) | (4.4 | ) | (0.7 | ) | 49.2 | (1.8 | ) | |||||||||||||
|
Interest expense
|
35.7 | — | 0.2 | 50.3 | (49.2 | ) | 37.0 | |||||||||||||||||
|
Earnings before income tax expense
|
534.9 | 22.8 | 45.1 | 18.6 | — | 621.4 | ||||||||||||||||||
|
Income tax expense
|
180.4 | 7.4 | 13.7 | 13.1 | — | 214.6 | ||||||||||||||||||
|
Goodwill
|
1,128.6 | 137.4 | 195.9 | 534.4 | — | 1,996.3 | ||||||||||||||||||
|
Other long-lived assets
|
421.9 | 27.2 | 50.5 | 413.1 | — | 912.7 | ||||||||||||||||||
|
Total assets
|
2,896.7 | 357.6 | 469.4 | 1,340.1 | — | 5,063.8 | ||||||||||||||||||
F-30
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
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 | 43.7 | — | 162.6 | ||||||||||||||||||
|
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 | ||||||||||||||||||
|
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 | 42.8 | (42.4 | ) | 50.4 | |||||||||||||||||
|
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 | ||||||||||||||||||
| 18. | Supplemental Cash Flow Information |
|
52 Weeks
|
52 Weeks
|
52 Weeks
|
||||||||||
|
Ended
|
Ended
|
Ended
|
||||||||||
|
January 29,
|
January 30,
|
January 31,
|
||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| (In millions) | ||||||||||||
|
Cash paid during the period for:
|
||||||||||||
|
Interest
|
$ | 36.9 | $ | 44.1 | $ | 45.3 | ||||||
|
Income taxes
|
171.1 | 153.1 | 204.8 | |||||||||
|
Subsidiaries acquired:
|
||||||||||||
|
Goodwill
|
28.5 | 4.2 | 459.3 | |||||||||
|
Cash received in acquisition
|
— | — | 45.7 | |||||||||
|
Noncontrolling interests
|
— | 4.7 | — | |||||||||
|
Net assets acquired (or liabilities assumed)
|
9.6 | (0.5 | ) | 171.4 | ||||||||
|
Cash paid for subsidiaries
|
$ | 38.1 | $ | 8.4 | $ | 676.4 | ||||||
|
Other non-cash financing activities:
|
||||||||||||
|
Treasury stock repurchases settled after the fiscal year ends
|
$ | 22.0 | $ | 64.6 | $ | — | ||||||
F-31
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 19. | Shareholders’ Equity |
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 million shares of $.001 par value
preferred stock authorized for issuance, of which 500 thousand
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 29,
2011, there were no shares of Series A Preferred Stock
outstanding.
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. In
September 2010, the Board of Directors
F-32
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
of the Company approved an additional $300 million share
repurchase program authorizing the Company to repurchase its
common stock. For fiscal 2010, the number of shares repurchased
were 17.1 million for an average price per share of $19.84.
Approximately $22.0 million of treasury share purchases
were not settled at the end of fiscal 2010 and were reported in
accrued liabilities at January 29, 2011. Additionally,
approximately $64.6 million of treasury share purchases
were not settled at the end of fiscal 2009 and were reported in
accrued liabilities at January 30, 2010. On
February 4, 2011, the Board of Directors of the Company
authorized a $500 million repurchase fund to be used for
share repurchases of its common stock
and/or
to
retire the Company’s Senior Notes. This plan replaced the
$300 million share repurchase program authorized in
September 2010 which had $138.4 million remaining. As of
March 24, 2011, the Company has purchased an additional
5.9 million shares for an average price per share of $19.88.
| 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-33
Table of Contents
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following consolidating financial statements present the
financial position as of January 29, 2011 and
January 30, 2010 and results of operations and cash flows
for the fiscal years ended January 29, 2011,
January 30, 2010 and January 31, 2009 of the
Company’s guarantor and non-guarantor subsidiaries.
GAMESTOP
CORP.
CONSOLIDATING
BALANCE SHEET
|
Issuers and
|
||||||||||||||||
|
Guarantor
|
Non-Guarantor
|
|||||||||||||||
|
Subsidiaries
|
Subsidiaries
|
Consolidated
|
||||||||||||||
|
January 29,
|
January 29,
|
January 29,
|
||||||||||||||
| 2011 | 2011 | Eliminations | 2011 | |||||||||||||
| (Amounts in millions, except per share amounts) | ||||||||||||||||
|
ASSETS:
|
||||||||||||||||
|
Current assets:
|
||||||||||||||||
|
Cash and cash equivalents
|
$ | 378.7 | $ | 332.1 | $ | — | $ | 710.8 | ||||||||
|
Receivables, net
|
161.3 | 629.8 | (725.6 | ) | 65.5 | |||||||||||
|
Merchandise inventories, net
|
783.4 | 474.1 | — | 1,257.5 | ||||||||||||
|
Deferred income taxes — current
|
24.4 | 4.4 | — | 28.8 | ||||||||||||
|
Prepaid expenses
|
40.5 | 35.2 | — | 75.7 | ||||||||||||
|
Other current assets
|
10.1 | 6.4 | — | 16.5 | ||||||||||||
|
Total current assets
|
1,398.4 | 1,482.0 | (725.6 | ) | 2,154.8 | |||||||||||
|
Property and equipment:
|
||||||||||||||||
|
Land
|
4.7 | 19.3 | — | 24.0 | ||||||||||||
|
Buildings and leasehold improvements
|
323.3 | 253.9 | — | 577.2 | ||||||||||||
|
Fixtures and equipment
|
663.9 | 153.9 | — | 817.8 | ||||||||||||
|
Total property and equipment
|
991.9 | 427.1 | — | 1,419.0 | ||||||||||||
|
Less accumulated depreciation and amortization
|
595.2 | 210.0 | — | 805.2 | ||||||||||||
|
Net property and equipment
|
396.7 | 217.1 | — | 613.8 | ||||||||||||
|
Investment
|
2,161.4 | 595.1 | (2,756.5 | ) | — | |||||||||||
|
Goodwill, net
|
1,125.1 | 871.2 | — | 1,996.3 | ||||||||||||
|
Other intangible assets
|
11.4 | 243.2 | — | 254.6 | ||||||||||||
|
Other noncurrent assets
|
10.8 | 33.5 | — | 44.3 | ||||||||||||
|
Total noncurrent assets
|
3,705.4 | 1,960.1 | (2,756.5 | ) | 2,909.0 | |||||||||||
|
Total assets
|
$ | 5,103.8 | $ | 3,442.1 | $ | (3,482.1 | ) | $ | 5,063.8 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY: | ||||||||||||||||
|
Current liabilities:
|
||||||||||||||||
|
Accounts payable
|
$ | 725.7 | $ | 302.4 | $ | — | $ | 1,028.1 | ||||||||
|
Accrued liabilities
|
1,047.7 | 334.9 | (725.6 | ) | 657.0 | |||||||||||
|
Taxes payable
|
63.3 | (0.6 | ) | — | 62.7 | |||||||||||
|
Total current liabilities
|
1,836.7 | 636.7 | (725.6 | ) | 1,747.8 | |||||||||||
|
Senior notes payable, long-term portion, net
|
249.0 | — | — | 249.0 | ||||||||||||
|
Deferred taxes
|
40.5 | 34.4 | — | 74.9 | ||||||||||||
|
Other long-term liabilities
|
80.3 | 15.9 | — | 96.2 | ||||||||||||
|
Total long-term liabilities
|
369.8 | 50.3 | — | 420.1 | ||||||||||||
|
Total liabilities
|
2,206.5 | 687.0 | (725.6 | ) | 2,167.9 | |||||||||||
|
Stockholders’ equity:
|
||||||||||||||||
|
Preferred stock — authorized 5.0 shares; no
shares issued or outstanding
|
— | — | — | — | ||||||||||||
|
Class A common stock — $.001 par value;
authorized 300.0 shares; 146.0 shares outstanding
|
0.1 | — | — | 0.1 | ||||||||||||
|
Additional
paid-in-capital
|
928.9 | 2,430.7 | (2,430.7 | ) | 928.9 | |||||||||||
|
Accumulated other comprehensive income (loss)
|
162.5 | 34.4 | (34.4 | ) | 162.5 | |||||||||||
|
Retained earnings
|
1,805.8 | 291.4 | (291.4 | ) | 1,805.8 | |||||||||||
|
Equity attributable to GameStop Corp. stockholders
|
2,897.3 | 2,756.5 | (2,756.5 | ) | 2,897.3 | |||||||||||
|
Equity (deficit) attributable to noncontrolling interest
|
— | (1.4 | ) | — | (1.4 | ) | ||||||||||
|
Total equity
|
2,897.3 | 2,755.1 | (2,756.5 | ) | 2,895.9 | |||||||||||
|
Total liabilities and stockholders’ equity
|
$ | 5,103.8 | $ | 3,442.1 | $ | (3,482.1 | ) | $ | 5,063.8 | |||||||
F-34
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 30,
|
January 30,
|
January 30,
|
||||||||||||||
| 2010 | 2010 | Eliminations | 2010 | |||||||||||||
| (Amounts in millions, except per share amounts) | ||||||||||||||||
|
ASSETS:
|
||||||||||||||||
|
Current assets:
|
||||||||||||||||
|
Cash and cash equivalents
|
$ | 653.0 | $ | 252.4 | $ | — | $ | 905.4 | ||||||||
|
Receivables, net
|
203.1 | 627.9 | (767.0 | ) | 64.0 | |||||||||||
|
Merchandise inventories, net
|
570.3 | 483.3 | — | 1,053.6 | ||||||||||||
|
Deferred income taxes — current
|
18.0 | 3.2 | — | 21.2 | ||||||||||||
|
Prepaid expenses
|
37.8 | 21.6 | — | 59.4 | ||||||||||||
|
Other current assets
|
6.0 | 17.7 | — | 23.7 | ||||||||||||
|
Total current assets
|
1,488.2 | 1,406.1 | (767.0 | ) | 2,127.3 | |||||||||||
|
Property and equipment:
|
||||||||||||||||
|
Land
|
2.7 | 8.8 | — | 11.5 | ||||||||||||
|
Buildings and leasehold improvements
|
296.3 | 226.7 | — | 523.0 | ||||||||||||
|
Fixtures and equipment
|
569.9 | 141.6 | — | 711.5 | ||||||||||||
|
Total property and equipment
|
868.9 | 377.1 | — | 1,246.0 | ||||||||||||
|
Less accumulated depreciation and amortization
|
498.5 | 163.3 | — | 661.8 | ||||||||||||
|
Net property and equipment
|
370.4 | 213.8 | — | 584.2 | ||||||||||||
|
Investment
|
2,062.7 | 596.4 | (2,659.1 | ) | — | |||||||||||
|
Goodwill, net
|
1,096.6 | 849.9 | — | 1,946.5 | ||||||||||||
|
Other intangible assets
|
3.4 | 256.5 | — | 259.9 | ||||||||||||
|
Other noncurrent assets
|
9.4 | 28.0 | — | 37.4 | ||||||||||||
|
Total noncurrent assets
|
3,542.5 | 1,944.6 | (2,659.1 | ) | 2,828.0 | |||||||||||
|
Total assets
|
$ | 5,030.7 | $ | 3,350.7 | $ | (3,426.1 | ) | $ | 4,955.3 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY: | ||||||||||||||||
|
Current liabilities:
|
||||||||||||||||
|
Accounts payable
|
$ | 684.3 | $ | 277.4 | $ | — | $ | 961.7 | ||||||||
|
Accrued liabilities
|
1,039.8 | 359.3 | (767.0 | ) | 632.1 | |||||||||||
|
Taxes payable
|
64.0 | (2.1 | ) | — | 61.9 | |||||||||||
|
Total current liabilities
|
1,788.1 | 634.6 | (767.0 | ) | 1,655.7 | |||||||||||
|
Senior notes payable, long-term portion, net
|
447.3 | — | — | 447.3 | ||||||||||||
|
Deferred taxes
|
(15.4 | ) | 40.9 | — | 25.5 | |||||||||||
|
Other long-term liabilities
|
87.7 | 16.1 | — | 103.8 | ||||||||||||
|
Total long-term liabilities
|
519.6 | 57.0 | — | 576.6 | ||||||||||||
|
Total liabilities
|
2,307.7 | 691.6 | (767.0 | ) | 2,232.3 | |||||||||||
|
Stockholders’ equity:
|
||||||||||||||||
|
Preferred stock — authorized 5.0 shares; no
shares issued or outstanding
|
— | — | — | — | ||||||||||||
|
Class A common stock — $.001 par value;
authorized 300.0 shares; 158.7 shares outstanding
|
0.2 | — | — | 0.2 | ||||||||||||
|
Additional
paid-in-capital
|
1,210.5 | 2,391.8 | (2,391.8 | ) | 1,210.5 | |||||||||||
|
Accumulated other comprehensive income (loss)
|
114.7 | 17.7 | (17.7 | ) | 114.7 | |||||||||||
|
Retained earnings
|
1,397.8 | 249.6 | (249.6 | ) | 1,397.8 | |||||||||||
|
Equity attributable to GameStop Corp. stockholders
|
2,723.2 | 2,659.1 | (2,659.1 | ) | 2,723.2 | |||||||||||
|
Equity (deficit) attributable to noncontrolling interest
|
(0.2 | ) | — | — | (0.2 | ) | ||||||||||
|
Total equity
|
2,723.0 | 2,659.1 | (2,659.1 | ) | 2,723.0 | |||||||||||
|
Total liabilities and stockholders’ equity
|
$ | 5,030.7 | $ | 3,350.7 | $ | (3,426.1 | ) | $ | 4,955.3 | |||||||
F-35
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 29,
|
January 29,
|
January 29,
|
||||||||||||||
| For the 52 Weeks Ended January 29, 2011 | 2011 | 2011 | Eliminations | 2011 | ||||||||||||
| (Amounts in millions) | ||||||||||||||||
|
Sales
|
$ | 6,680.8 | $ | 2,792.9 | $ | — | $ | 9,473.7 | ||||||||
|
Cost of sales
|
4,876.1 | 2,060.0 | — | 6,936.1 | ||||||||||||
|
Gross profit
|
1,804.7 | 732.9 | — | 2,537.6 | ||||||||||||
|
Selling, general and administrative expenses
|
1,129.3 | 571.0 | — | 1,700.3 | ||||||||||||
|
Depreciation and amortization
|
115.0 | 59.7 | — | 174.7 | ||||||||||||
|
Operating earnings
|
560.4 | 102.2 | — | 662.6 | ||||||||||||
|
Interest income
|
(45.7 | ) | (5.4 | ) | 49.3 | (1.8 | ) | |||||||||
|
Interest expense
|
46.3 | 40.0 | (49.3 | ) | 37.0 | |||||||||||
|
Debt extinguishment expense
|
6.0 | — | — | 6.0 | ||||||||||||
|
Earnings before income tax expense
|
553.8 | 67.6 | — | 621.4 | ||||||||||||
|
Income tax expense
|
188.4 | 26.2 | — | 214.6 | ||||||||||||
|
Consolidated net income
|
365.4 | 41.4 | — | 406.8 | ||||||||||||
|
Net loss attributable to noncontrolling interests
|
— | 1.2 | — | 1.2 | ||||||||||||
|
Consolidated net income attributable to GameStop
|
$ | 365.4 | $ | 42.6 | $ | — | $ | 408.0 | ||||||||
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 millions) | ||||||||||||||||
|
Sales
|
$ | 6,274.9 | $ | 2,803.1 | $ | — | $ | 9,078.0 | ||||||||
|
Cost of sales
|
4,554.3 | 2,089.0 | — | 6,643.3 | ||||||||||||
|
Gross profit
|
1,720.6 | 714.1 | — | 2,434.7 | ||||||||||||
|
Selling, general and administrative expenses
|
1,103.9 | 531.2 | — | 1,635.1 | ||||||||||||
|
Depreciation and amortization
|
101.9 | 60.7 | — | 162.6 | ||||||||||||
|
Operating earnings
|
514.8 | 122.2 | — | 637.0 | ||||||||||||
|
Interest income
|
(43.8 | ) | (10.9 | ) | 52.5 | (2.2 | ) | |||||||||
|
Interest expense
|
44.3 | 53.6 | (52.5 | ) | 45.4 | |||||||||||
|
Debt extinguishment expense
|
5.3 | — | — | 5.3 | ||||||||||||
|
Earnings before income tax expense
|
509.0 | 79.5 | — | 588.5 | ||||||||||||
|
Income tax expense
|
170.3 | 42.5 | — | 212.8 | ||||||||||||
|
Consolidated net income
|
338.7 | 37.0 | — | 375.7 | ||||||||||||
|
Net loss attributable to noncontrolling interests
|
— | 1.6 | — | 1.6 | ||||||||||||
|
Consolidated net income attributable to GameStop
|
$ | 338.7 | $ | 38.6 | $ | — | $ | 377.3 | ||||||||
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 31,
|
January 31,
|
January 31,
|
||||||||||||||
| For the 52 Weeks Ended January 31, 2009 | 2009 | 2009 | Eliminations | 2009 | ||||||||||||
| (Amounts in millions) | ||||||||||||||||
|
Sales
|
$ | 6,466.7 | $ | 2,339.2 | $ | — | $ | 8,805.9 | ||||||||
|
Cost of sales
|
4,767.3 | 1,768.5 | — | 6,535.8 | ||||||||||||
|
Gross profit
|
1,699.4 | 570.7 | — | 2,270.1 | ||||||||||||
|
Selling, general and administrative expenses
|
1,034.7 | 410.7 | — | 1,445.4 | ||||||||||||
|
Depreciation and amortization
|
103.6 | 41.4 | — | 145.0 | ||||||||||||
|
Merger-related expenses
|
4.6 | — | — | 4.6 | ||||||||||||
|
Operating earnings
|
556.5 | 118.6 | — | 675.1 | ||||||||||||
|
Interest income
|
(17.4 | ) | (37.0 | ) | 42.8 | (11.6 | ) | |||||||||
|
Interest expense
|
38.8 | 54.4 | (42.8 | ) | 50.4 | |||||||||||
|
Debt extinguishment expense
|
2.3 | — | — | 2.3 | ||||||||||||
|
Earnings before income tax expense
|
532.8 | 101.2 | — | 634.0 | ||||||||||||
|
Income tax expense
|
197.1 | 38.6 | — | 235.7 | ||||||||||||
|
Consolidated net income
|
335.7 | 62.6 | — | 398.3 | ||||||||||||
|
Net loss attributable to noncontrolling interests
|
— | — | — | — | ||||||||||||
|
Consolidated net income attributable to GameStop
|
$ | 335.7 | $ | 62.6 | $ | — | $ | 398.3 | ||||||||
F-37
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 29,
|
January 29,
|
January 29,
|
||||||||||||||
| For the 52 Weeks Ended January 29, 2011 | 2011 | 2011 | Eliminations | 2011 | ||||||||||||
| (Amounts in millions) | ||||||||||||||||
|
Cash flows from operating activities:
|
||||||||||||||||
|
Consolidated net income
|
$ | 365.4 | $ | 41.4 | $ | — | $ | 406.8 | ||||||||
|
Adjustments to reconcile net earnings to net cash flows provided
by operating activities:
|
||||||||||||||||
|
Depreciation and amortization (including amounts in cost of
sales)
|
116.8 | 60.0 | — | 176.8 | ||||||||||||
|
Provision for inventory reserves
|
18.8 | 8.7 | — | 27.5 | ||||||||||||
|
Amortization and retirement of deferred financing fees and issue
discounts
|
5.0 | — | — | 5.0 | ||||||||||||
|
Stock-based compensation expense
|
29.6 | — | — | 29.6 | ||||||||||||
|
Deferred income taxes
|
41.8 | (3.6 | ) | — | 38.2 | |||||||||||
|
Excess tax (benefits) expense realized from exercise of
stock-based awards
|
(18.6 | ) | — | — | (18.6 | ) | ||||||||||
|
Loss on disposal of property and equipment
|
3.3 | 4.3 | — | 7.6 | ||||||||||||
|
Changes in other long-term liabilities
|
(6.4 | ) | (0.8 | ) | — | (7.2 | ) | |||||||||
|
Changes in operating assets and liabilities, net
|
||||||||||||||||
|
Receivables, net
|
(4.6 | ) | 4.8 | — | 0.2 | |||||||||||
|
Merchandise inventories
|
(231.9 | ) | 4.7 | — | (227.2 | ) | ||||||||||
|
Prepaid expenses and other current assets
|
(7.0 | ) | (3.5 | ) | — | (10.5 | ) | |||||||||
|
Prepaid income taxes and accrued income taxes payable
|
13.9 | 8.4 | — | 22.3 | ||||||||||||
|
Accounts payable and accrued liabilities
|
138.7 | 2.0 | — | 140.7 | ||||||||||||
|
Net cash flows provided by operating activities
|
464.8 | 126.4 | — | 591.2 | ||||||||||||
|
Cash flows from investing activities:
|
||||||||||||||||
|
Purchase of property and equipment
|
(144.7 | ) | (52.9 | ) | — | (197.6 | ) | |||||||||
|
Acquisitions, net of cash acquired
|
(38.1 | ) | — | — | (38.1 | ) | ||||||||||
|
Other
|
(0.7 | ) | (3.7 | ) | — | (4.4 | ) | |||||||||
|
Net cash flows used in investing activities
|
(183.5 | ) | (56.6 | ) | — | (240.1 | ) | |||||||||
|
Cash flows from financing activities:
|
||||||||||||||||
|
Repurchase of notes payable
|
(200.0 | ) | — | — | (200.0 | ) | ||||||||||
|
Purchase of treasury shares
|
(381.2 | ) | — | — | (381.2 | ) | ||||||||||
|
Borrowings from the revolver
|
120.0 | — | — | 120.0 | ||||||||||||
|
Repayment of revolver borrowings
|
(120.0 | ) | — | — | (120.0 | ) | ||||||||||
|
Issuance of shares relating to stock options
|
10.8 | — | — | 10.8 | ||||||||||||
|
Excess tax benefits (expense) realized from exercise of
stock-based awards
|
18.6 | — | — | 18.6 | ||||||||||||
|
Other
|
(3.8 | ) | — | — | (3.8 | ) | ||||||||||
|
Net cash flows used in financing activities
|
(555.6 | ) | — | — | (555.6 | ) | ||||||||||
|
Exchange rate effect on cash and cash equivalents
|
— | 9.9 | — | 9.9 | ||||||||||||
|
Net increase (decrease) in cash and cash equivalents
|
(274.3 | ) | 79.7 | — | (194.6 | ) | ||||||||||
|
Cash and cash equivalents at beginning of period
|
653.0 | 252.4 | — | 905.4 | ||||||||||||
|
Cash and cash equivalents at end of period
|
$ | 378.7 | $ | 332.1 | $ | — | $ | 710.8 | ||||||||
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 millions) | ||||||||||||||||
|
Cash flows from operating activities:
|
||||||||||||||||
|
Consolidated net income
|
$ | 338.7 | $ | 37.0 | $ | — | $ | 375.7 | ||||||||
|
Adjustments to reconcile net earnings to net cash flows provided
by operating activities:
|
||||||||||||||||
|
Depreciation and amortization (including amounts in cost of
sales)
|
103.5 | 60.6 | — | 164.1 | ||||||||||||
|
Provision for inventory reserves
|
35.4 | 13.5 | — | 48.9 | ||||||||||||
|
Amortization and retirement of deferred financing fees and issue
discounts
|
5.0 | — | — | 5.0 | ||||||||||||
|
Stock-based compensation expense
|
37.8 | — | — | 37.8 | ||||||||||||
|
Deferred income taxes
|
1.7 | (2.9 | ) | — | (1.2 | ) | ||||||||||
|
Excess tax (benefits) expense realized from exercise of
stock-based awards
|
0.4 | — | — | 0.4 | ||||||||||||
|
Loss on disposal of property and equipment
|
2.1 | 2.3 | — | 4.4 | ||||||||||||
|
Changes in other long-term liabilities
|
8.6 | (1.0 | ) | — | 7.6 | |||||||||||
|
Changes in operating assets and liabilities, net
|
||||||||||||||||
|
Receivables, net
|
1.4 | 2.8 | — | 4.2 | ||||||||||||
|
Merchandise inventories
|
31.6 | (2.0 | ) | — | 29.6 | |||||||||||
|
Prepaid expenses and other current assets
|
3.4 | (1.1 | ) | — | 2.3 | |||||||||||
|
Prepaid income taxes and accrued income taxes payable
|
68.9 | (14.3 | ) | — | 54.6 | |||||||||||
|
Accounts payable and accrued liabilities
|
(87.0 | ) | (2.2 | ) | — | (89.2 | ) | |||||||||
|
Net cash flows provided by operating activities
|
551.5 | 92.7 | — | 644.2 | ||||||||||||
|
Cash flows from investing activities:
|
||||||||||||||||
|
Purchase of property and equipment
|
(116.1 | ) | (47.7 | ) | — | (163.8 | ) | |||||||||
|
Acquisitions, net of cash acquired
|
— | (8.4 | ) | — | (8.4 | ) | ||||||||||
|
Other
|
(1.2 | ) | (13.8 | ) | — | (15.0 | ) | |||||||||
|
Net cash flows used in investing activities
|
(117.3 | ) | (69.9 | ) | — | (187.2 | ) | |||||||||
|
Cash flows from financing activities:
|
||||||||||||||||
|
Repurchase of notes payable
|
(100.0 | ) | — | — | (100.0 | ) | ||||||||||
|
Purchase of treasury shares
|
(58.4 | ) | — | — | (58.4 | ) | ||||||||||
|
Borrowings from the revolver
|
115.0 | — | — | 115.0 | ||||||||||||
|
Repayment of revolver borrowings
|
(115.0 | ) | — | — | (115.0 | ) | ||||||||||
|
Issuance of shares relating to stock options
|
4.5 | — | — | 4.5 | ||||||||||||
|
Excess tax benefits (expense) realized from exercise of
stock-based awards
|
(0.4 | ) | — | — | (0.4 | ) | ||||||||||
|
Other
|
(0.1 | ) | — | — | (0.1 | ) | ||||||||||
|
Net cash flows used in financing activities
|
(154.4 | ) | — | — | (154.4 | ) | ||||||||||
|
Exchange rate effect on cash and cash equivalents
|
— | 24.7 | — | 24.7 | ||||||||||||
|
Net increase in cash and cash equivalents
|
279.8 | 47.5 | — | 327.3 | ||||||||||||
|
Cash and cash equivalents at beginning of period
|
373.2 | 204.9 | — | 578.1 | ||||||||||||
|
Cash and cash equivalents at end of period
|
$ | 653.0 | $ | 252.4 | $ | — | $ | 905.4 | ||||||||
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 millions) | ||||||||||||||||
|
Cash flows from operating activities:
|
||||||||||||||||
|
Consolidated net income
|
$ | 335.7 | $ | 62.6 | $ | — | $ | 398.3 | ||||||||
|
Adjustments to reconcile net earnings to net cash flows provided
by (used in) operating activities:
|
||||||||||||||||
|
Depreciation and amortization (including amounts in cost of
sales)
|
104.9 | 41.5 | — | 146.4 | ||||||||||||
|
Provision for inventory reserves
|
34.9 | 8.1 | — | 43.0 | ||||||||||||
|
Amortization and retirement of deferred financing fees and issue
discounts
|
3.7 | — | — | 3.7 | ||||||||||||
|
Stock-based compensation expense
|
35.4 | — | — | 35.4 | ||||||||||||
|
Deferred income taxes
|
(23.3 | ) | (1.4 | ) | — | (24.7 | ) | |||||||||
|
Excess tax benefits realized from exercise of stock-based awards
|
(34.2 | ) | — | — | (34.2 | ) | ||||||||||
|
Loss on disposal of property and equipment
|
3.0 | 2.2 | — | 5.2 | ||||||||||||
|
Changes in other long-term liabilities
|
1.1 | 6.3 | — | 7.4 | ||||||||||||
|
Changes in operating assets and liabilities, net
|
||||||||||||||||
|
Receivables, net
|
3.2 | (648.5 | ) | 642.4 | (2.9 | ) | ||||||||||
|
Merchandise inventories
|
(170.3 | ) | (39.2 | ) | — | (209.5 | ) | |||||||||
|
Prepaid expenses and other current assets
|
(10.1 | ) | (6.3 | ) | — | (16.4 | ) | |||||||||
|
Prepaid income taxes and accrued income taxes payable
|
47.8 | (3.9 | ) | — | 43.9 | |||||||||||
|
Accounts payable and accrued liabilities
|
768.1 | 27.9 | (642.4 | ) | 153.6 | |||||||||||
|
Net cash flows provided by (used in) operating activities
|
1,099.9 | (550.7 | ) | — | 549.2 | |||||||||||
|
Cash flows from investing activities:
|
||||||||||||||||
|
Purchase of property and equipment
|
(117.5 | ) | (65.7 | ) | — | (183.2 | ) | |||||||||
|
Acquisitions, net of cash acquired
|
— | (630.7 | ) | — | (630.7 | ) | ||||||||||
|
Other
|
(1,310.2 | ) | 1,303.2 | — | (7.0 | ) | ||||||||||
|
Net cash flows provided by (used in) investing activities
|
(1,427.7 | ) | 606.8 | — | (820.9 | ) | ||||||||||
|
Cash flows from financing activities:
|
||||||||||||||||
|
Repurchase of notes payable
|
(30.0 | ) | — | — | (30.0 | ) | ||||||||||
|
Borrowings for acquisition
|
425.0 | — | — | 425.0 | ||||||||||||
|
Repayments of acquisition borrowings
|
(425.0 | ) | — | — | (425.0 | ) | ||||||||||
|
Issuance of shares relating to stock options
|
28.9 | — | — | 28.9 | ||||||||||||
|
Excess tax benefits realized from exercise of stock-based awards
|
34.2 | — | — | 34.2 | ||||||||||||
|
Other
|
(3.5 | ) | — | — | (3.5 | ) | ||||||||||
|
Net cash flows provided by financing activities
|
29.6 | — | — | 29.6 | ||||||||||||
|
Exchange rate effect on cash and cash equivalents
|
— | (37.2 | ) | — | (37.2 | ) | ||||||||||
|
Net increase (decrease) in cash and cash equivalents
|
(298.2 | ) | 18.9 | — | (279.3 | ) | ||||||||||
|
Cash and cash equivalents at beginning of period
|
671.4 | 186.0 | — | 857.4 | ||||||||||||
|
Cash and cash equivalents at end of period
|
$ | 373.2 | $ | 204.9 | $ | — | $ | 578.1 | ||||||||
F-40
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 29, 2011 and January 30, 2010. 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 29, 2011 | Fiscal Year Ended January 30, 2010 | |||||||||||||||||||||||||||||||
|
1st
|
2nd
|
3rd
|
4th
|
1st
|
2nd
|
3rd
|
4th
|
|||||||||||||||||||||||||
| Quarter | Quarter | Quarter(1) | Quarter | Quarter(2) | Quarter | Quarter(3) | Quarter | |||||||||||||||||||||||||
| (Amounts in millions, except per share amounts) | ||||||||||||||||||||||||||||||||
|
Sales
|
$ | 2,082.7 | $ | 1,799.1 | $ | 1,899.2 | $ | 3,692.8 | $ | 1,980.8 | $ | 1,738.5 | $ | 1,834.7 | $ | 3,524.0 | ||||||||||||||||
|
Gross profit
|
570.8 | 516.8 | 546.3 | 903.7 | 542.1 | 495.4 | 523.1 | 874.0 | ||||||||||||||||||||||||
|
Operating earnings
|
124.4 | 69.6 | 92.8 | 375.7 | 128.5 | 71.0 | 90.3 | 347.4 | ||||||||||||||||||||||||
|
Consolidated net income attributable to GameStop
|
75.2 | 40.3 | 54.7 | 237.8 | 70.4 | 38.7 | 52.2 | 215.9 | ||||||||||||||||||||||||
|
Basic net income per common share
|
0.49 | 0.27 | 0.36 | 1.58 | 0.43 | 0.23 | 0.32 | 1.31 | ||||||||||||||||||||||||
|
Diluted net income per common share
|
0.48 | 0.26 | 0.36 | 1.56 | 0.42 | 0.23 | 0.31 | 1.29 | ||||||||||||||||||||||||
| The following footnotes are discussed as pretax expenses. | ||
| (1) | The results of operations for the third quarter of the fiscal year ended January 29, 2011 include debt extinguishment expense of $6.0 million. | |
| (2) | The results of operations for the first quarter of the fiscal year ended January 30, 2010 include debt extinguishment expense of $2.9 million. | |
| (3) | The results of operations for the third quarter of the fiscal year ended January 30, 2010 include debt extinguishment expense of $2.5 million. |
F-41
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) | ||
| 3 | .3 | Amendment to Amended and Restated Bylaws.(12) | ||
| 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 | Amended and Restated Credit Agreement, dated as of January 4, 2011, among GameStop Corp., as Lead Borrower for: GameStop Corp., GameStop, Inc., Sunrise Publications, Inc., Electronics Boutique Holdings Corp., ELBO Inc., EB International Holdings, Inc., Kongregate Inc., GameStop Texas Ltd., Marketing Control Services, Inc., SOCOM LLC and Bank of America, N.A., as Issuing Bank, Bank of America, N.A., as Administrative Agent and Collateral Agent, Wells Fargo Capital Finance, LLC, as Syndication Agent, U.S. Bank National Association and Regions Bank, as Co-Documentation Agents, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Sole Lead Arranger and Sole Bookrunner.(19) | ||
| 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 | Amended and Restated Security Agreement, dated January 4, 2011, among GameStop Corp., as Lead Borrower, the Subsidiary Borrowers party hereto, and Bank of America, N.A., as Collateral Agent.(19) | ||
| 10 | .10 | Amended and Restated Patent and Trademark Security Agreement, dated January 4, 2011, among GameStop Corp., as Lead Borrower, the Subsidiary Borrowers party hereto, and Bank of America, N.A., as Collateral Agent.(19) | ||
| 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 | Amended and Restated Pledge Agreement, dated January 4, 2011, by and among GameStop Corp., as Lead Borrower, the Subsidiary Borrowers party hereto, and Bank of America, N.A., as Collateral Agent.(19) | ||
Table of Contents
|
Exhibit
|
||||
| Number | Description | |||
| 10 | .14 | 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 | .15 | 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 | .16 | 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 | .17 | 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 | .18 | Amended and Restated Executive Employment Agreement, dated December 31, 2008, between GameStop Corp. and R. Richard Fontaine.(15) | ||
| 10 | .19 | Amendment, dated as of April 5, 2010, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, between GameStop Corp. and R. Richard Fontaine.(17) | ||
| 10 | .20 | Second Amendment, dated as of June 2, 2010, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, as amended by a First Amendment dated as of April 5, 2010, between GameStop Corp. and R. Richard Fontaine.(18) | ||
| 10 | .21 | Third Amendment, dated as of February 9, 2011, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, as amended by a First Amendment dated as of April 5, 2010 and a Second Amendment dated as of June 2, 2010, between GameStop Corp. and R. Richard Fontaine.(20) | ||
| 10 | .22 | Amended and Restated Executive Employment Agreement, dated as December 31, 2008, between GameStop Corp. and Daniel A. DeMatteo.(15) | ||
| 10 | .23 | Amendment, dated as of April 5, 2010, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, between GameStop Corp. and Daniel A. DeMatteo.(17) | ||
| 10 | .24 | Second Amendment, dated as of June 2, 2010, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, as amended by a First Amendment dated as of April 5, 2010, between GameStop Corp. and Daniel A. DeMatteo.(18) | ||
| 10 | .25 | Third Amendment, dated as of February 9, 2011, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, as amended by a First Amendment dated as of April 5, 2010 and a Second Amendment dated as of June 2, 2010, between GameStop Corp. and Daniel A. DeMatteo.(20) | ||
| 10 | .26 | Amended and Restated Executive Employment Agreement, dated December 31, 2008, between GameStop Corp. and Tony Bartel.(15) | ||
| 10 | .27 | Amendment, dated as of June 2, 2010, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, between GameStop Corp. and Tony Bartel.(18) | ||
| 10 | .28 | Second Amendment, dated as of February 9, 2011, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, as amended by a First Amendment dated as of June 2, 2010, between GameStop Corp. and Tony Bartel.(20) | ||
| 10 | .29 | Amended and Restated Executive Employment Agreement, dated December 31, 2008, between GameStop Corp. and Paul Raines.(15) | ||
| 10 | .30 | Amendment, dated as of June 2, 2010, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, between GameStop Corp. and Paul Raines.(18) | ||
| 10 | .31 | Second Amendment, dated as of February 9, 2011, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, as amended by a First Amendment dated as of June 2, 2010, between GameStop Corp. and Paul Raines.(20) | ||
Table of Contents
|
Exhibit
|
||||
| Number | Description | |||
| 10 | .32 | Executive Employment Agreement, dated as of June 2, 2010, between GameStop Corp. and Robert Lloyd.(18) | ||
| 10 | .33 | Amendment, dated as of February 9, 2011, to Executive Employment Agreement, dated as of June 2, 2010, between GameStop Corp. and Robert Lloyd.(20) | ||
| 12 | .1 | Computation of Ratio of Earnings to Fixed Charges. | ||
| 14 | .1 | Code of Ethics for Senior Financial and Executive Officers. | ||
| 14 | .2 | Code of Standards, Ethics and Conduct. | ||
| 21 | .1 | Subsidiaries. | ||
| 23 | .1 | Consent of BDO USA, 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. |
Table of Contents
| (12) | Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on February 8, 2011. | |
| (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 8-K filed with the Securities and Exchange Commission on April 9, 2010. | |
| (18) | Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on June 2, 2010. | |
| (19) | Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on January 6, 2011. | |
| (20) | Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on February 9, 2011. |
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. [removed and Reserved]Part IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. 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