e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
January 31, 2009
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File
No. 1-32637
GameStop Corp.
(Exact name of registrant as
specified in its Charter)
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Delaware
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20-2733559
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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625 Westport Parkway
Grapevine, Texas
(Address of principal
executive offices)
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76051
(Zip
Code)
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Registrants telephone number, including area code:
(817) 424-2000
Securities registered pursuant to Section 12(b) of the
Act:
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(Title of Class)
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(Name of Exchange on Which Registered)
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Class A Common Stock, $.001 par value per share
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New York Stock Exchange
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Rights to Purchase Series A Junior Participating Preferred
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New York Stock Exchange
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Stock, $.001 par value per share
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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 if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants 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.
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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):
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Large accelerated
filer þ
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Accelerated filer
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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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
$6,518,000,000, based upon the closing market price of $39.83
per share of Class A Common Stock on the New York Stock
Exchange as of August 1, 2008.
Number of shares of $.001 par value Class A Common
Stock outstanding as of March 25, 2009: 164,511,988
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 2009 Annual Meeting of
Stockholders are incorporated by reference into Part III.
PART I
General
GameStop Corp. (together with its predecessor companies
,GameStop, we, us,
our, or the Company) is the worlds
largest retailer of video game products and PC entertainment
software. We sell new and used video game hardware, video game
software and accessories, as well as PC entertainment software,
and related accessories and other merchandise. As of
January 31, 2009, we operated 6,207 stores in the United
States, Australia, Canada and Europe, primarily under the names
GameStop and EB Games. We also operate the electronic commerce
website www.gamestop.com and publish Game
Informer, the industrys largest multi-platform video
game magazine in the United States based on circulation, with
approximately 3.5 million subscribers.
In the fiscal year ended January 31, 2009, we operated our
business in the following segments: United States, Canada,
Australia and Europe. Of our 6,207 stores, 4,331 stores are
included in the United States segment and 325, 350 and 1,201
stores are included in the Canadian, Australian and European
segments, respectively. Each of the segments consists primarily
of retail operations, with all stores engaged in the sale of new
and used video game systems, software and accessories, which we
refer to as video game products, and PC entertainment software
and related accessories. Our used video game products provide a
unique value proposition to our customers, and our purchasing of
used video game products provides our customers with an
opportunity to trade in their used video game products for store
credits and apply those credits towards other merchandise, which
in turn, increases sales. Our products are substantially the
same regardless of geographic location, with the primary
differences in merchandise carried being the timing of release
of new products in the various segments. Stores in all segments
are similar in size at an average of approximately
1,500 square feet. Our corporate office and one of our
distribution facilities are housed in a 510,000 square foot
facility in Grapevine, Texas.
The Company began operations in November 1996. In October 1999,
the Company was acquired by, and became a wholly-owned
subsidiary of, Barnes & Noble, Inc.
(Barnes & Noble). In February 2002,
GameStop completed an initial public offering of its
Class A common stock and was a majority-owned subsidiary of
Barnes & Noble until November 2004, when
Barnes & Noble distributed its holdings of outstanding
GameStop Class B common stock to its stockholders. In
October 2005, GameStop acquired the operations of Electronics
Boutique Holdings Corp. (EB), a 2,300-store video
game retailer in the U.S. and 12 other countries, by
merging its existing operations with EB under GameStop Corp.
(the EB merger).
On February 7, 2007, all outstanding Class B common
stock of the Company was converted into Class A common
stock of the Company on a one-for-one basis and the Company no
longer has any Class B common stock. On March 16,
2007, the Company completed a two-for-one stock split of its
Class A common stock (the Stock Split). As of
January 31, 2009, our Class A common stock traded on
the New York Stock Exchange (NYSE) under the symbol
GME.
On November 17, 2008, GameStop France SAS, a wholly-owned
subsidiary of the Company, completed the acquisition of
substantially all of the outstanding capital stock of SFMI
Micromania SAS (Micromania) for $580.4 million,
net of cash acquired (the Micromania acquisition).
Micromania is a leading retailer of video and computer games in
France with 332 locations, 328 of which were operating at the
date of acquisition. The Company funded the transaction with
cash on hand, funds drawn against its revolving credit facility
totaling $275 million, and term loans totaling
$150 million. As of January 31, 2009, all amounts
drawn against the revolving credit facility and the term loans
have been repaid. The Companys operating results for the
52 weeks ended January 31, 2009 (fiscal
2008) include 11 weeks of Micromanias 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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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:
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our reliance on suppliers and vendors for sufficient quantities
of their products and for new product releases;
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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;
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the competitive environment in the electronic game industry;
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our ability to open and operate new stores;
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alternate sources of distribution of video game software;
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our ability to attract and retain qualified personnel;
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the impact and costs of litigation and regulatory compliance;
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unanticipated litigation results;
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the risks involved with our international operations; and
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other factors described in this
Form 10-K,
including those set forth under the caption, Item 1A.
Risk Factors.
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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
industrys 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 $45 billion
in 2008 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
$22 billion market in the United States in 2008. Of this
$22 billion market, approximately $21.3 billion was
attributable to video game products, excluding sales of used
video game products, and approximately $700 million was
attributable to PC entertainment software. International
Development Group, a market research firm (IDG),
estimates that retail sales of video game hardware and software
and PC entertainment software totaled approximately
$19.8 billion in Europe in 2008. The NPD Group has reported
that video game retail sales in Canada were approximately
$2.1 billion in 2008. According to the independent market
research group GfK, the Australian market for video game
products was approximately $1.9 billion in 2008.
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:
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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 from 8-bit
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speeds in the 1980s to high speed processors in todays
gaming systems, such as the Sony PlayStation 3 launched in
November 2006 in North America and the first quarter of fiscal
2007 in Australia and Europe, the Nintendo Wii launched in
November 2006 worldwide, and Microsoft Xbox 360, launched in the
fourth quarter of 2005 in North America and Europe and the first
quarter of 2006 in Australia. In addition, portable handheld
video game devices have evolved from the 8-bit Nintendo Game Boy
to the 128-bit Nintendo DS, which was introduced in November
2004 in North America and the first quarter of 2005 in Australia
and Europe, and the Sony PlayStation Portable (the
PSP), which was introduced in 2005. Technological
developments in both chip processing speed and data storage have
provided significant improvements in advanced graphics and audio
quality, which allow software developers to create more advanced
games, encourage existing players to upgrade their hardware
platforms and attract new video game players to purchase an
initial system. As general computer technology advances, we
expect video game technology to make similar advances.
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Todays Gaming Systems Provide Multiple Capabilities
Beyond Gaming. Most current hardware platforms,
including the Sony PlayStation 2 and 3 and Microsoft Xbox and
Xbox 360, utilize a DVD software format and have the potential
to serve as multi-purpose entertainment centers by doubling as a
player for DVD movies and compact discs. In addition, the Sony
PlayStation 3 and PSP, the Nintendo DS and Wii and Microsoft
Xbox 360 all provide internet connectivity and the Sony
PlayStation 3 plays Blu-ray discs.
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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.
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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.
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Broadening Demographic Appeal. While the
typical electronic game enthusiast is male between the ages of
14 and 49, the electronic game industry is broadening its
appeal. More females are playing electronic video games, in part
due to the development of video game products that appeal to
them. According to ESA, approximately 40% of all electronic game
players are female. ESA also states the average game player is
35 years old and the average age of the most frequent game
purchaser is 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.
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Used Video Game Products. As the installed
base of video game hardware platforms has increased and new
hardware platforms are introduced, a considerable market for
used video game hardware and software has developed. Based on
reports published by NPD Group, we believe that, as of December
2008, the installed base of video game hardware systems in the
United States, based on original sales, totaled over
185 million units of handheld and console video game
systems. Of the total installed base, 80 million is
comprised of the current generation of video game platforms as
follows: 6.8 million Sony PlayStation 3 units,
17.5 million Nintendo Wii units, 13.9 million
Microsoft Xbox 360 units, 14.3 million Sony PSP units
and 27.5 million Nintendo DS units. The remainder of the
installed base consists of legacy video game platforms,
including Sony PlayStation 2, Microsoft Xbox, Nintendos
GameCube and Game Boy Advance. According to the IDG, the
installed base of hardware systems as of December 2008 in Europe
is approximately 108 million units. The Interactive
Entertainment Association of Australia reported as of the end of
2008, the installed base on the current video game platforms
stands at 1.0 million Nintendo Wii units, 0.5 million
Microsoft Xbox 360 units, and 0.4 million Sony
PlayStation 3 units. Hardware manufacturers and third-party
software publishers have produced a wide variety of software
titles for each of these hardware platforms. Based on internal
Company estimates, we believe that the installed base of
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video game software units in the United States currently exceeds
1.5 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 sold in the form of CD-ROMs and played on
multimedia PCs featuring fast processors, expanded memories, and
enhanced graphics and audio capabilities.
Business
Strategy
Our goal is to continue to be the worlds largest retailer
of new and used video game products and PC entertainment
software and strengthen that position by executing the following
strategies:
Continuing to Execute our Proven Growth
Strategies. We intend to continue to execute our
proven growth strategies, including:
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Opening new stores in our domestic and international target
markets; and
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Increasing our comparable store sales and operating earnings by
capitalizing on industry growth and increasing sales of used
video game products.
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Targeting a Broad Audience of Game Players. We
have created a store environment targeting a broad audience,
including the electronic game enthusiast, the casual gamer and
the seasonal gift giver. Our stores focus on the electronic game
enthusiast who demands the latest merchandise featuring the
hottest technology immediately on the day of release
and the value-oriented customer who wants a wide selection of
value-priced used video game products. Our stores offer the
opportunity to trade in used video game products in exchange for
store credits applicable to future purchases, which, in turn,
drives more sales.
Enhancing our Image as a Destination
Location. Our stores serve as destination
locations for game players and gift givers due to our broad
selection of products, knowledgeable sales associates,
game-oriented environment and unique pricing proposition. We
offer all major video game platforms, provide a broad assortment
of video game products and offer a larger and more current
selection of merchandise than other retailers. We provide a high
level of customer service by hiring game enthusiasts and
providing them with ongoing sales training, as well as training
in the latest technical and functional elements of our products
and services, making them the most knowledgeable associates in
the video game retail market. Our stores are equipped with
several video game sampling areas, which provide our customers
with the opportunity to play games before purchase, as well as
equipment to play video game clips.
Offering the Largest Selection of Used Video Game
Products. We believe we are the largest retailer
of used video games in the world and carry the broadest
selection of used video game products for both current and
previous generation platforms. We are one of the only retailers
that provides video game software for 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. Used video game products generate significantly
higher gross margins than new video game products.
Building the GameStop Brand. Substantially all
of GameStops U.S. and European stores are operated
under the GameStop name, with the exception of the Micromania
stores acquired in France. Building the GameStop brand has
enabled us to leverage brand awareness and to capture
advertising and marketing efficiencies. Our branding strategy is
further supported by the GameStop Edge loyalty card
and our website. The Edge card, which is obtained as
a bonus with a paid subscription to our Game Informer
magazine, offers customers discounts on selected merchandise
in our stores. Our website allows our customers to buy games
online and to learn about the latest video game products and PC
entertainment software and their availability in our stores. 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. In 2008, the Company expanded its advertising campaign to
continue to build brand awareness.
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Providing a First-to-Market Distribution
Network. We employ a variety of rapid-response
distribution methods in our efforts to be the first-to-market
for new video game products and PC entertainment software. We
strive to deliver popular new releases to selected stores within
hours of release and to all of our stores by the next morning.
This highly efficient distribution network is essential, as a
significant portion of a new titles sales will be
generated in the first few days and weeks following its release.
As the worlds 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 website 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 system enables
us to maximize sales of new release titles and avoid markdowns
as titles mature and utilizes electronic point-of-sale equipment
that provides corporate 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 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
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.
Growth
Strategy
Open New Stores. We intend to continue to open
new stores in our targeted markets. We opened 674 new stores in
fiscal 2008 and acquired 328 stores in France, a new market for
us. We opened 586 new stores in the 52 weeks ended
February 2, 2008 (fiscal 2007). We plan to open
approximately 400 new stores in the 52 weeks ending
January 30, 2010 (fiscal 2009). Our primary
growth vehicles will be the expansion of our strip center store
base in the United States and the expansion of our international
store base. Our strategy within the U.S. is to open strip
center stores in targeted major metropolitan markets and in
regional shopping centers in other markets. Our international
strategy is to continue our expansion in Europe and the opening
of new stores in advantageous markets and locations in Canada
and Australia. We analyze each market relative to target
population and other demographic indices, real estate
availability, competitive factors and past operating history, if
available. In some cases, these new stores may adversely impact
sales at existing stores, but our goal is to minimize the impact.
Increase Comparable Store Sales. We plan to
increase our comparable store sales by capitalizing on the
growth in the video game industry, expanding our sales of used
video game products and increasing awareness of the GameStop
brand.
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Capitalize on Growth in Demand. Our sales of
new video game hardware, new video game software and used video
game products grew by approximately 55%, 39% and 21%,
respectively, in fiscal 2007 primarily due to new store growth
and the increase in comparable store sales, and by 11%, 32% and
28%, respectively, in fiscal 2008, due primarily to new store
growth, the acquisition of Micromania and the increase in
comparable store sales. In fiscal 2007, our comparable store
sales increased 24.7%, driven in large measure by the popularity
of the Nintendo Wii following its worldwide launch in November
2006, the launch of the Sony PlayStation 3 in Australia and
Europe in March 2007 and the release of several strong software
titles in the fall of 2007, including Halo 3 by
Microsoft, Guitar Hero III and Call of Duty 4
by Activision, Inc. (Activision) and Rock
Band by Electronic Arts, Inc. (Electronic Arts).
Our comparable store sales increased 12.3% in fiscal 2008 due to
the continued demand for the Nintendo Wii and strong sales of
video game software titles, including Mario Kart and
Wii Fit by Nintendo, Grand Theft Auto IV by
Take Two
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Interactive Software Inc., Call of Duty World at War and
Guitar Hero World Tour by Activision and Madden NFL
2009 and Rock Band Special Edition Bundles by
Electronic Arts.
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Increase Sales of Used Video Game Products. We
will continue to expand the selection and availability of used
video game products in our stores. Our strategy consists of
increasing consumer awareness of the benefits of trading in and
buying used video game products at our stores through increased
marketing activities. We expect the continued growth of new
platform technology to drive trade-ins of previous generation
products, as well as trade-ins of next generation platform
products, thereby expanding the supply of used video game
products.
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Increase GameStop Brand Awareness. We intend
to increase customer awareness of the GameStop brand. In
connection with our brand-building efforts, in each of the last
three fiscal years, we increased the amount of media advertising
in targeted markets. In fiscal 2009, we plan to continue to
increase media advertising to increase brand awareness over a
broader demographic area, to expand our GameStop loyalty card
program, to aggressively promote trade-ins of used video game
products in our stores and to leverage our website at
www.gamestop.com.
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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 website www.gamestop.com and
Game Informer magazine. Segment results for Canada
include retail operations in stores throughout Canada and
segment results for Australia include retail operations in
Australia and New Zealand. Segment results for Europe include
retail operations in 13 European countries.
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 international 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
Managements Discussion and Analysis of Financial
Condition and Results of Operations elsewhere in this
Annual Report on
Form 10-K
and in Note 17 of Notes to Consolidated Financial
Statements.
Merchandise
Substantially all of our revenues are derived from the sale of
tangible products. Our product offerings consist of new and used
video game products, PC entertainment software, and related
products, such as trading cards and strategy guides. Our
in-store inventory generally consists of a constantly changing
selection of over 4,500 SKUs. We have buying groups in the U.S.,
Canada, Australia and Europe 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 games sales
are usually generated in the first days and weeks following its
release.
Video Game Hardware. We offer the video game
platforms of all major manufacturers, including the Sony
PlayStation 2 and 3 and PSP, Microsoft Xbox 360, the Nintendo
Wii and DS. 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
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generally driven by the introduction of new platform technology
and the reduction in price points as platforms mature. Due to
our strong relationships with the manufacturers of these
platforms, we often receive disproportionately large allocations
of new release hardware products, which is an important
component of our strategy to be the destination of choice for
electronic game players. We believe that selling video game
hardware increases store traffic and promotes customer loyalty,
leading to increased sales of video game software and
accessories, which have higher gross margins than video game
hardware.
Video Game Software. We purchase new video
game software from the leading manufacturers, including Sony,
Nintendo and Microsoft, as well as over 40 third-party game
publishers, such as Electronic Arts and Activision. We are one
of the largest customers of video game titles sold by these
publishers. We generally carry over 1,000 SKUs of new video game
software at any given time across a variety of genres, including
Sports, Action, Strategy, Adventure/Role Playing and Simulation.
Used Video Game Products. We believe we are
the largest retailer of used video games in the world. We
provide our customers with an opportunity to trade in their used
video game products in our stores in exchange for store credits
which can be applied towards the purchase of other products,
primarily new merchandise. We have the largest selection
(approximately 3,000 SKUs) of used video game titles which have
an average price of $18 as compared to an average price of $41
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 45 publishers,
including Electronic Arts, Microsoft and Vivendi Universal. We
offer PC entertainment software across a variety of genres,
including Sports, Action, Strategy, Adventure/Role Playing and
Simulation.
Accessories and Other Products. Video game
accessories consist primarily of controllers, memory cards and
other add-ons. We also carry strategy guides, magazines and
trading cards. We carry over 300 SKUs of accessories and other
products. In general, this category has higher margins than new
video game and PC entertainment products.
Store
Operations
As of January 31, 2009, we operated 6,207 stores, primarily
under the GameStop name. Each of our stores typically carries
over 4,500 SKUs. 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 1,500 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.
8
Site
Selection and Locations
Site Selection. In the U.S., we have a
dedicated staff of real estate personnel experienced in
selecting store locations. International locations are selected
by the management in each region or country. 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.
Locations. The table below sets forth the
number of our stores located in the U.S., Canada, Europe and
Australia as of January 31, 2009:
|
|
|
|
|
|
|
Number
|
|
United States
|
|
of Stores
|
|
|
Alabama
|
|
|
76
|
|
Alaska
|
|
|
5
|
|
Arizona
|
|
|
84
|
|
Arkansas
|
|
|
26
|
|
California
|
|
|
479
|
|
Colorado
|
|
|
60
|
|
Connecticut
|
|
|
61
|
|
Delaware
|
|
|
19
|
|
District of Columbia
|
|
|
2
|
|
Florida
|
|
|
318
|
|
Georgia
|
|
|
139
|
|
Guam
|
|
|
2
|
|
Hawaii
|
|
|
23
|
|
Idaho
|
|
|
11
|
|
Illinois
|
|
|
190
|
|
Indiana
|
|
|
80
|
|
Iowa
|
|
|
32
|
|
Kansas
|
|
|
33
|
|
Kentucky
|
|
|
64
|
|
Louisiana
|
|
|
67
|
|
Maine
|
|
|
10
|
|
Maryland
|
|
|
100
|
|
Massachusetts
|
|
|
93
|
|
Michigan
|
|
|
125
|
|
Minnesota
|
|
|
56
|
|
Mississippi
|
|
|
39
|
|
Missouri
|
|
|
70
|
|
Montana
|
|
|
8
|
|
Nebraska
|
|
|
21
|
|
Nevada
|
|
|
42
|
|
New Hampshire
|
|
|
25
|
|
New Jersey
|
|
|
161
|
|
New Mexico
|
|
|
25
|
|
New York
|
|
|
237
|
|
North Carolina
|
|
|
136
|
|
North Dakota
|
|
|
8
|
|
Ohio
|
|
|
184
|
|
Oklahoma
|
|
|
48
|
|
9
|
|
|
|
|
|
|
Number
|
|
United States
|
|
of Stores
|
|
|
Oregon
|
|
|
31
|
|
Pennsylvania
|
|
|
205
|
|
Puerto Rico
|
|
|
45
|
|
Rhode Island
|
|
|
15
|
|
South Carolina
|
|
|
66
|
|
South Dakota
|
|
|
4
|
|
Tennessee
|
|
|
90
|
|
Texas
|
|
|
373
|
|
Utah
|
|
|
28
|
|
Vermont
|
|
|
7
|
|
Virginia
|
|
|
145
|
|
Washington
|
|
|
77
|
|
West Virginia
|
|
|
29
|
|
Wisconsin
|
|
|
49
|
|
Wyoming
|
|
|
8
|
|
|
|
|
|
|
Sub-total for United States
|
|
|
4,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
International
|
|
of Stores
|
|
|
Canada
|
|
|
325
|
|
Australia
|
|
|
311
|
|
New Zealand
|
|
|
39
|
|
|
|
|
|
|
Sub-total for Australia
|
|
|
350
|
|
|
|
|
|
|
Austria
|
|
|
20
|
|
Denmark
|
|
|
37
|
|
Finland
|
|
|
14
|
|
France
|
|
|
332
|
|
Germany
|
|
|
179
|
|
Ireland
|
|
|
51
|
|
Italy
|
|
|
286
|
|
Norway
|
|
|
58
|
|
Portugal
|
|
|
13
|
|
Spain
|
|
|
132
|
|
Sweden
|
|
|
57
|
|
Switzerland
|
|
|
15
|
|
United Kingdom
|
|
|
7
|
|
|
|
|
|
|
Sub-total for Europe
|
|
|
1,201
|
|
|
|
|
|
|
Sub-total for International
|
|
|
1,876
|
|
|
|
|
|
|
Total stores
|
|
|
6,207
|
|
|
|
|
|
|
Game
Informer
We publish Game Informer, 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. The magazine is sold through
subscription and through displays in our stores in the United
States, Canada and Ireland.
10
Game Informer is the twelfth largest consumer publication
in the U.S. and for its February 2009 issue, the magazine
had approximately 3.5 million paid subscriptions. Game
Informer revenues are also generated through the sale of
advertising space. In addition, we offer the GameStop loyalty
card as a bonus with each paid subscription, providing our
subscribers with a discount on selected merchandise. Game
Informer operations are included in the United States
segment where the majority of subscriptions and sales are
generated.
E-Commerce
We operate an electronic commerce website at
www.gamestop.com that allows our customers to buy video
game products and other merchandise online. The site also offers
customers information and content about available games, release
dates for upcoming games, and access to store information, such
as location and product availability. In 2005, we entered into
an arrangement with Barnes & Noble under which
www.gamestop.com became the exclusive specialty video
game retailer listed on www.bn.com, Barnes &
Nobles
e-commerce
site.
E-commerce
results are included in the United States segment where the
majority of the sales originate.
Advertising
Our stores are primarily located in high traffic, high
visibility areas of regional shopping malls and strip centers.
Given the high foot traffic drawn past the stores themselves, we
use in-store marketing efforts such as window displays and
coming soon signs to attract customers, as well as
to promote used video game products. Inside the stores, we
feature selected products through the use of vendor displays,
coming soon or preview videos, signs, catalogs,
point-of-purchase materials and end-cap displays. These
advertising efforts are designed to increase the initial sales
of new titles upon their release.
On a global basis, we receive cooperative advertising and market
development funds from manufacturers, distributors, software
publishers and accessory suppliers to promote their respective
products. Generally, vendors agree to purchase advertising space
in one of our advertising vehicles. Once we run the advertising,
the vendor pays to us an agreed amount.
In the last several years, as part of our brand-building efforts
and targeted growth strategies, we expanded our advertising and
promotional activities in certain targeted markets at certain
key times of the year. In addition, we expanded our use of
television and radio advertising in certain markets to promote
brand awareness and store openings.
Information
Management
Our operating strategy involves providing a broad merchandise
selection to our customers as quickly and as cost-effectively as
possible. We use our inventory management systems to maximize
the efficiency of the flow of products to our stores, enhance
store efficiency and optimize store in-stock and overall
investment in inventory.
Distribution. We operate a 410,000 square
foot distribution center in Grapevine, Texas and a
260,000 square foot distribution center in Louisville,
Kentucky. We currently use the center in Louisville, Kentucky to
support our first-to-market distribution efforts, while our
Grapevine, Texas facility supports efforts to replenish stores.
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 the Louisville 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 at least twice a week.
The state-of-the-art facilities in Grapevine, Texas and
Louisville, Kentucky 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. 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
U.S. distribution facilities also support refurbishment of
used products to be redistributed to stores.
11
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. All
of our international distribution facilities support both new
title distribution and replenishment, which are sometimes
supported by third-party distribution networks. These facilities
are designed to support the first-to-market distribution network
and enable our stores to meet peak demand and replenish stores
at least twice a week. Our international distribution facilities
also support refurbishment of used products to be redistributed
to stores.
Management Information Systems. Our
proprietary inventory management system 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 our U.S. 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. 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 our
international operations, we use a mid-range, scalable computing
environment and a state-of-the-art storage area network.
Computing assets and our mobile workforce around the globe
access this environment via a secure, virtual private network.
Regional communication links exist to each of our distribution
centers and offices in international locations with connectivity
to our U.S. data center as required by our international,
distributed applications.
Our in-store point-of-sale system enables us to efficiently
manage in-store transactions. This proprietary point-of-sale
system has been enhanced to facilitate trade-in transactions,
including automatic
look-up of
trade-in prices and printing of machine-readable bar codes to
facilitate in-store restocking of used video games. In addition,
our central database of all used video game products allows us
to actively manage the pricing and product availability of our
used video game products across our store base and reallocate
our used video game products as necessary.
Field
Management and Staff
GameStops U.S. store operations are managed by a
centrally-located senior vice president of stores, three vice
presidents of stores and 30 regional store operations directors.
The regions are further divided into districts, each with a
district manager covering an average of 14 stores. In total,
there are approximately 300 districts. Our stores in Europe are
managed by two vice presidents and managing directors in each
country. Our stores in Australia and Canada are each managed by
a vice president. Each store 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. We also
provide our U.S. 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. We also
employ regional loss prevention managers who assist the stores
in implementing security measures to prevent theft of our
products.
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
12
the stores 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 in the
U.S., Canada, Europe and Australia, 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.
Customer
Service
Our store personnel provide value-added services to each
customer, such as maintaining lists of regular customers and
reserving new releases for customers with a down payment to
ensure product availability. In addition, our store personnel
readily provide product reviews to ensure customers are making
informed purchasing decisions and inform customers of available
resources, including Game Informer, to increase a
customers 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 80% of our new product purchases in
fiscal 2008. Only Nintendo, Sony, Microsoft, and Electronic Arts
(which accounted for 25%, 13%, 13%, and 11%, respectively)
individually accounted for more than 10% of our new product
purchases during fiscal 2008. We have established price
protections and return privileges with our primary vendors in
order to reduce our risk of inventory obsolescence. In addition,
we have few purchase contracts with trade vendors and generally
conduct business on an
order-by-order
basis, a practice that is typical throughout the industry. We
believe that maintaining and strengthening our long-term
relationships with our vendors is essential to our operations
and continued expansion. We believe that we have very good
relationships with our vendors.
Competition
The electronic game industry is intensely competitive and
subject to rapid changes in consumer preferences and frequent
new product introductions. In the U.S., we compete with mass
merchants and regional chains, including Wal-Mart Stores, Inc.
(Wal-Mart) and Target Corporation
(Target); computer product and consumer electronics
stores, including Best Buy Co., Inc. (Best Buy);
other video game and PC software specialty stores located in
malls and other locations; toy retail chains; mail-order
businesses; catalogs; direct sales by software publishers; and
online retailers and game rental companies. In addition, video
games are available for sale and rental from many video stores,
such as Movie Gallery, Inc. (Movie Gallery) and
Blockbuster, Inc. (Blockbuster). Video game products
may also be distributed through other methods which may emerge
in the future. We also compete with sellers of used video game
products. Additionally, we compete with other forms of
entertainment activities, including movies, television, theater,
sporting events and family entertainment centers.
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, which operates throughout Europe. 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 2008, we generated approximately 40% of
our sales and approximately 56% of our operating earnings during
the fourth quarter. During fiscal 2007, we generated
approximately 40% of our sales and approximately 58% of our
operating earnings during the fourth quarter.
13
Trademarks
We have a number of trademarks and servicemarks, including
GameStop, Game Informer, EB
Games, Electronics Boutique and Power to
the Players, which have been registered by us with the
United States Patent and Trademark Office. For many of our
trademarks and servicemarks, including Micromania, we also have
registered or have registrations pending with the trademark
authorities throughout the world. We maintain a policy of
pursuing registration of our principal marks and opposing any
infringement of our marks.
Employees
We have approximately 16,000 full-time salaried and hourly
employees and between 25,000 and 40,000 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. None of our U.S. employees
is represented by a labor union or is a member of a collective
bargaining unit. Some of our international employees are covered
by collective bargaining agreements.
Available
Information
We make available on our website (www.gamestop.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 SECs Public Reference
Room in Washington, D.C. can be obtained by calling the SEC
at
1-800-SEC-0330.
The SEC also maintains a website 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 Companys Code of
Standards, Ethics and Conduct is available on our website under
Investor Relations Corporate Governance
and is available to our stockholders in print, free of charge,
upon written request to the Companys Investor Relations
Department at GameStop Corp., 625 Westport Parkway,
Grapevine, Texas 76051.
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 and administrative personnel at our headquarters. We
depend upon the continued services of our key executive
officers, Daniel A. DeMatteo, our Chief Executive Officer; R.
Richard Fontaine, our Executive Chairman of the Board; J. Paul
Raines, our Chief Operating Officer; David W. Carlson, our
Executive Vice President and Chief Financial Officer; and Tony
D. Bartel, our Executive Vice President of Merchandising and
Marketing. The loss of services of any of our key personnel
could have a negative impact on our business.
We
depend upon the timely delivery of products.
We depend on major hardware manufacturers, primarily Sony,
Nintendo and Microsoft, to deliver new and existing video game
platforms on a timely basis and in anticipated quantities. In
addition, we depend on software
14
publishers to introduce new and updated software titles. Any
material delay in the introduction or delivery, or limited
allocations, of hardware platforms or software titles could
result in reduced sales in one or more fiscal quarters.
We
depend upon third parties to develop products and
software.
Our business depends upon the continued development of new and
enhanced video game platforms, PC hardware and video game and PC
entertainment software. Our business could suffer due to the
failure of manufacturers to develop new or enhanced video game
platforms, a decline in the continued technological development
and use of multimedia PCs, or the failure of software publishers
to develop popular game and entertainment titles for current or
future generation video game systems or PC hardware.
Our
ability to obtain favorable terms from our suppliers may impact
our financial results.
Our financial results depend significantly upon the business
terms we can obtain from our suppliers, including competitive
prices, unsold product return policies, advertising and market
development allowances, freight charges and payment terms. We
purchase substantially all of our products directly from
manufacturers, software publishers and, in some cases,
distributors. Our largest vendors worldwide are Nintendo, Sony,
Microsoft and Electronic Arts, which accounted for 25%, 13%, 13%
and 11%, respectively, of our new product purchases in fiscal
2008. If our suppliers do not provide us with favorable business
terms, we may not be able to offer products to our customers at
competitive prices.
If our
vendors fail to provide marketing and merchandising support at
historical levels, our sales and earnings could be negatively
impacted.
The manufacturers of video game hardware and software and PC
entertainment software have typically provided retailers with
significant marketing and merchandising support for their
products. As part of this support, we receive cooperative
advertising and market development payments from these vendors.
These cooperative advertising and market development payments
enable us to actively promote and merchandise the products we
sell and drive sales at our stores and on our website. We cannot
assure you that vendors will continue to provide this support at
historical levels. If they fail to do so, our sales and earnings
could be negatively impacted.
The
electronic game industry is cyclical, which could cause
significant fluctuation in our earnings.
The electronic game industry has been cyclical in nature in
response to the introduction and maturation of new technology.
Following the introduction of new video game platforms, sales of
these platforms and related software and accessories generally
increase due to initial demand, while sales of older platforms
and related products generally decrease as customers migrate
toward the new platforms. New video game platforms have
historically been introduced approximately every five years. If
video game platform manufacturers fail to develop new hardware
platforms, our sales of video game products could decline.
Pressure
from our competitors may force us to reduce our prices or
increase spending, which could decrease our
profitability.
The electronic game industry is intensely competitive and
subject to rapid changes in consumer preferences and frequent
new product introductions. We compete with mass merchants and
regional chains, including Wal-Mart and Target; computer product
and consumer electronics stores, including Best Buy; other
U.S. and international video game and PC software specialty
stores located in malls and other locations, such as Game Group
and Media Markt; toy retail chains; mail-order businesses;
catalogs; direct sales by software publishers; and online
retailers and game rental companies. In addition, video games
are available for sale and rental from many video stores, such
as Movie Gallery and Blockbuster. Video game products and
content may also be distributed through methods such as digital
distribution and other methods which may emerge in the future.
We also compete with an increasing number of sellers of used
video game products. Some of our competitors in the electronic
game industry have longer operating histories and may have
greater financial resources than we do. Additionally, we compete
with other forms of entertainment activities, including movies,
television, theater, sporting events and family entertainment
centers.
15
If we lose customers to our competitors, or if we reduce our
prices or increase our spending to maintain our customers, we
may be less profitable.
International
events could delay or prevent the delivery of products to our
suppliers.
Our suppliers rely on foreign sources, primarily in Asia, to
manufacture a portion of the products we purchase from them. As
a result, any event causing a disruption of imports, including
the imposition of import restrictions or trade restrictions in
the form of tariffs or quotas, could increase the cost and
reduce the supply of products available to us, which could lower
our sales and profitability.
Our
international operations expose us to numerous
risks.
We have international retail operations in Australia, Canada and
Europe. Because release schedules for hardware and software
introduction in these markets often differ from release
schedules in the United States, the timing of increases and
decreases in foreign sales may differ from the timing of
increases and decreases in domestic sales. We are also subject
to a number of other factors that may affect our current or
future international operations. These include:
|
|
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economic downturns;
|
|
|
|
currency exchange rate fluctuations;
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international incidents;
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government instability; and
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competitors entering our current and potential markets.
|
There
may be possible changes in our global tax rate.
As a result of our operations in many foreign countries, our
global tax rate is derived from a combination of applicable tax
rates in the various jurisdictions in which we operate.
Depending upon the sources of our income, any agreements we may
have with taxing authorities in various jurisdictions and the
tax filing positions we take in various jurisdictions, our
overall tax rate may be higher than other companies or higher
than our tax rates have been in the past. We base our estimate
of an annual effective tax rate at any given point in time on a
calculated mix of the tax rates applicable to our company and to
estimates of the amount of income to be derived in any given
jurisdiction. A change in the mix of our business from year to
year and from country to country, changes in rules related to
accounting for income taxes, changes in tax laws in any of the
multiple jurisdictions in which we operate or adverse outcomes
from the tax audits that regularly are in process in any
jurisdiction in which we operate could result in an unfavorable
change in our overall tax rate, which could have a material
adverse effect on our business and results of our operations.
If we
are unable to renew or enter into new leases on favorable terms,
our revenue growth may decline.
All of our retail stores are located in leased premises. If the
cost of leasing existing stores increases, we cannot assure you
that we will be able to maintain our existing store locations as
leases expire. In addition, we may not be able to enter into new
leases on favorable terms or at all, or we may not be able to
locate suitable alternative sites or additional sites for new
store expansion in a timely manner. Our revenues and earnings
may decline if we fail to maintain existing store locations,
enter into new leases, locate alternative sites or find
additional sites for new store expansion.
The
ability to download video games and PC entertainment software
and play video games on the Internet could lower our
sales.
While it is currently only possible to download a limited amount
of video game content to the next generation video game systems,
at some point in the future this technology may become more
prevalent. If advances in technology continue to expand our
customers ability to access video games, PC entertainment
software and
16
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. As a result,
sales and earnings could decline.
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.
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 2008, we generated approximately 40% of
our sales and approximately 56% of our operating earnings during
the fourth quarter. Any adverse trend in sales during the
holiday selling season could lower our results of operations for
the fourth quarter and the entire 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:
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the timing and allocations of new product releases;
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the timing of new store openings; and
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|
shifts in the timing of certain promotions.
|
These and other factors could affect our business, financial
condition and results of operations, and this makes the
prediction of our financial results on a quarterly basis
difficult. Also, it is possible that our quarterly financial
results may be below the expectations of public market analysts.
Failure to effectively manage our new store openings could
lower our sales and profitability.
Our growth strategy is largely dependent upon opening new stores
and operating them profitably. We opened 674 stores in fiscal
2008 and expect to open approximately 400 new stores in fiscal
2009. 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:
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the ability to identify new store locations, negotiate suitable
leases and build out the stores in a timely and cost efficient
manner;
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the ability to hire and train skilled associates;
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the ability to integrate new stores into our existing
operations; and
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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.
17
If our
management information systems fail to perform or are
inadequate, our ability to manage our business could be
disrupted.
We rely on computerized inventory and management systems to
coordinate and manage the activities in our distribution
centers, as well as to communicate distribution information to
the off-site, third-party operated distribution centers with
which we work. The third-party distribution centers pick up
products from our suppliers, repackage the products for each of
our stores and ship those products to our stores by package
carriers. We use inventory replenishment systems to track sales
and inventory. Our ability to rapidly process incoming shipments
of new release titles and deliver them to all of our stores,
either that day or by the next morning, enables us to meet peak
demand and replenish stores at least twice a week, to keep our
stores in stock at optimum levels and to move inventory
efficiently. If our inventory or management information systems
fail to adequately perform these functions, our business could
be adversely affected. In addition, if operations in any of our
distribution centers were to shut down or be disrupted for a
prolonged period of time or if these centers were unable to
accommodate the continued store growth in a particular region,
our business could suffer.
We may
engage in acquisitions which could negatively impact our
business if we fail to successfully complete and integrate
them.
To enhance our efforts to grow and compete, we may engage in
acquisitions. Our plans to pursue future acquisitions are
subject to our ability to identify potential acquisition
candidates and negotiate favorable terms for these acquisitions.
Accordingly, we cannot assure you that future acquisitions will
be completed. In addition, to facilitate future acquisitions, we
may take actions that could dilute the equity interests of our
stockholders, increase our debt or cause us to assume contingent
liabilities, all of which may have a detrimental effect on the
price of our common stock. Finally, if any acquisitions are not
successfully integrated with our business, our ongoing
operations could be adversely affected.
Litigation
and litigation results could negatively impact our future
financial condition and results of operations.
In the ordinary course of our business, the Company is, from
time to time, subject to various litigation and legal
proceedings. In the future, the costs or results of such legal
proceedings, individually or in the aggregate, could have a
negative impact on the Companys 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.
Risks
Relating to Our Indebtedness
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:
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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;
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economic conditions affecting the electronic game industry, the
retail industry and the banking and financial services industry;
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18
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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;
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our ability to open and operate new stores;
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our ability to attract and retain qualified personnel; and
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our dependence upon software publishers to develop popular game
and entertainment titles for video game systems and PCs.
|
If our financial condition or operating results materially
deteriorate, our relations with our creditors, including holders
of our senior notes, the lenders under our senior credit
facility and our suppliers, may be materially and adversely
impacted.
We
have significant debt that could adversely impact cash
availability for growth and operations and may increase our
vulnerability to general adverse economic and industry
conditions.
As of January 31, 2009, we had approximately
$546 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:
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our ability to obtain additional financing for working capital,
capital expenditures, acquisitions or general corporate purposes
may be impaired;
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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;
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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
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we may be more vulnerable to general economic downturns and
adverse developments in our business.
|
If our cash flows and capital resources are insufficient to fund
our debt service obligations, we may be forced to reduce or
delay capital expenditures, sell assets, seek additional capital
or restructure or refinance our indebtedness, including the
senior notes. These alternative measures may not be successful
and may not permit us to meet our scheduled debt service
obligations. Our senior credit facility and the indenture
governing the senior notes restrict our ability to dispose of
assets and use the proceeds from such dispositions. We may not
be able to consummate those dispositions, dispose of our assets
at prices that we believe are fair or use the proceeds from
asset sales to make payments on the notes and these proceeds may
not be adequate to meet any debt service obligations then due.
Because
of our floating rate credit facilities, we may be adversely
affected by interest rate changes.
Our financial position may be affected by fluctuations in
interest rates, as our senior credit facility is subject to
floating interest rates.
Interest rates are highly sensitive to many factors, including
governmental monetary policies, domestic and international
economic and political conditions and other factors beyond our
control. If we were to borrow against our senior credit
facility, a significant increase in interest rates could have an
adverse effect on our financial position and results of
operations.
19
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
GameStops restricted subsidiaries to:
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incur, assume or permit to exist additional indebtedness or
guaranty obligations;
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incur liens or agree to negative pledges in other agreements;
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engage in sale and leaseback transactions;
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make loans and investments;
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declare dividends, make payments or redeem or repurchase capital
stock;
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engage in mergers, acquisitions and other business combinations;
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prepay, redeem or purchase certain indebtedness;
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amend or otherwise alter the terms of our organizational
documents and our indebtedness, including the senior notes;
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sell assets; and
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engage in transactions with affiliates.
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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
GameStops 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.
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Item 1B.
|
Unresolved
Staff Comments
|
None.
All of our stores are leased. Store leases typically provide for
an initial lease term of three to ten years, plus renewal
options. This arrangement gives us the flexibility to pursue
extension or relocation opportunities that arise from changing
market conditions. We believe that, as current leases expire, we
will be able to obtain either renewals at present locations or
leases for equivalent locations in the same area.
20
The terms of the store leases for the 6,207 leased stores open
as of January 31, 2009 expire as follows:
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Number
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Lease Terms to Expire During
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of Stores
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(12 Months Ending on or About January 31)
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Expired and in negotiations
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68
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2010
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838
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2011
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1,066
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|
2012
|
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852
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|
2013
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|
1,175
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2014 and later
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2,208
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6,207
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The Company owns a 510,000 square foot facility in
Grapevine, Texas, which houses our corporate headquarters and
certain of our distribution operations. We also own an
additional 65,000 square foot building at the Grapevine,
Texas location which is currently being used in our refurbishing
operations. We also own the following distribution facilities:
an 80,000 square foot distribution facility in Arlov,
Sweden; a 119,000 square foot distribution facility in
Brampton, Ontario, Canada; a 120,000 square foot
distribution facility in Milan, Italy; a 67,000 square foot
distribution facility in Memmingen, Germany; and a
70,000 square foot distribution facility in Pinkenba,
Queensland, Australia.
In addition to our stores, we lease the following distribution
or office facilities: a 260,000 square foot distribution
center in Louisville, Kentucky under a lease which expires in
July 2010; a 59,000 square foot distribution and office
facility in Brampton, Ontario, Canada under a lease which
expires in December 2016; a 13,000 square foot distribution
facility in New Zealand under a lease which expires in April
2010; a 22,000 square foot distribution facility in
Valencia, Spain under a lease which expires in September 2010; a
15,000 square foot office facility in Valencia, Spain under
a lease which expires in August 2009; a 11,700 square foot
office facility in Minneapolis, Minnesota which houses the
operations of Game Informer magazine, under a lease which
expires in February 2012; a 15,000 square foot facility in
Dublin, Ireland under a lease which expires in January 2013; a
6,100 square foot office facility in West Chester,
Pennsylvania under a lease which expires in June 2011; a
55,000 square foot distribution center in Paris, France
under a lease which expires in 2016; and a 28,000 square
foot office facility in Sophia Antipolis, France under a lease
which is currently expired. This office is relocating to a
larger facility in 2009.
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Item 3.
|
Legal
Proceedings
|
On February 14, 2005, and as amended, Steve Strickland, as
personal representative of the Estate of Arnold Strickland,
deceased, Henry Mealer, as personal representative of the Estate
of Ace Mealer, deceased, and Willie Crump, as personal
representative of the Estate of James Crump, deceased, filed a
wrongful death lawsuit against GameStop, Sony, Take-Two
Interactive, Rock Star Games and Wal-Mart (collectively, the
Defendants) and Devin Moore, alleging that
Defendants actions in designing, manufacturing, marketing
and supplying Defendant Moore with violent video games were
negligent and contributed to Defendant Moore killing Arnold
Strickland, Ace Mealer and James Crump. Moore was found guilty
of capital murder in a criminal trial and was sentenced to death
in August 2005.
Plaintiffs counsel has named a new expert, a psychologist
who testified at the criminal trial on behalf of the criminal
defendant, who will opine (if allowed) that violent video games
were a substantial factor in causing the murders. This same
testimony from this same expert was excluded in the criminal
trial from the same judge hearing this case. The testimony of
plaintiffs psychologist expert was heard by the Court on
October 30, 2008, and the motion to exclude that testimony
was argued on December 12, 2008. The ruling on this motion
will have an effect on whether the case is able to proceed. The
Company is currently awaiting a ruling. There is no current
trial date. The Company does not believe there is sufficient
information to estimate the amount of the possible loss, if any,
resulting from the lawsuit.
21
In the ordinary course of the Companys business, the
Company is, from time to time, subject to various other legal
proceedings. Management does not believe that any such other
legal proceedings, individually or in the aggregate, will have a
material adverse effect on the Companys financial
condition or results of operations.
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Item 4.
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Submission
of Matters to a Vote of Security Holders
|
There were no matters submitted to a vote of security holders
during the 13 weeks ended January 31, 2009.
PART II
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Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Price
Range of Common Stock
The Companys Class A common stock is traded on the
NYSE under the symbol GME. The Companys
Class B common stock was traded on the NYSE under the
symbol GME.B until February 7, 2007 when,
immediately following approval by a majority of the Class B
common stockholders in a Special Meeting of the Companys
Class B common stockholders, all outstanding Class B
common shares were converted into Class A common shares on
a one-for-one basis.
The following table sets forth, for the periods indicated, the
high and low sales prices (as adjusted for the Stock Split) of
the Class A common stock on the NYSE Composite Tape:
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Fiscal 2008
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High
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Low
|
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Fourth Quarter
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$
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28.23
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$
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16.91
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Third Quarter
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$
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47.69
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$
|
24.09
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Second Quarter
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$
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56.00
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|
$
|
37.62
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First Quarter
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$
|
59.13
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$
|
40.78
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Fiscal 2007
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High
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Low
|
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Fourth Quarter
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$
|
63.77
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|
$
|
44.76
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Third Quarter
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$
|
60.80
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$
|
37.40
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Second Quarter
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|
$
|
44.00
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|
$
|
32.31
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First Quarter
|
|
$
|
35.85
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|
|
$
|
24.95
|
|
The following table sets forth, for the periods indicated, the
high and low sales prices of the Class B common stock on
the NYSE Composite Tape:
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Fiscal 2007
|
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High
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Low
|
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First Quarter
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$
|
53.96
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|
$
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52.25
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The high and low sales prices of the Class B shares do not
include the effects of the February 7, 2007 conversion of
all outstanding Class B common shares into Class A
common shares on a one-for-one basis (the
Conversion) or the Stock Split.
Approximate
Number of Holders of Common Equity
As of March 6, 2009, there were approximately 1,358 record
holders of the Companys Class A common stock, par
value $.001 per share.
22
Dividends
The Company has never declared or paid any dividends on its
common stock. We may consider in the future the advisability of
paying dividends. However, our payment of dividends is and will
continue to be restricted by or subject to, among other
limitations, applicable provisions of federal and state laws,
our earnings and various business considerations, including our
financial condition, results of operations, cash flow, the level
of our capital expenditures, our future business prospects, our
status as a holding company and such other matters that our
Board of Directors deems relevant. In addition, the terms of the
senior credit facility and the terms of the indenture governing
the senior notes each restrict our ability to pay dividends. See
Liquidity and Capital Resources included in
Managements Discussion and Analysis of Financial
Condition and Results of Operations in this
Form 10-K.
Securities
Authorized for Issuance under Equity Compensation
Plans
Information for our equity compensation plans in effect as of
January 31, 2009 is as follows:
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|
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Number of Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available for
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|
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|
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Weighted-Average
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Future Issuance Under
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Number of Securities to
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|
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Exercise Price of
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|
Equity Compensation
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be Issued Upon Exercise
|
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Outstanding
|
|
|
Plans (Excluding
|
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|
|
of Outstanding Options,
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Options, Warrants
|
|
|
Securities Reflected in
|
|
|
|
Warrants and Rights
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and Rights
|
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Column(a))
|
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Plan Category
|
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(a)
|
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(b)
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|
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(c)
|
|
|
Equity compensation plans approved by security holders
|
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|
10,982,000
|
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|
$
|
12.70
|
|
|
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3,938,000
|
|
Equity compensation plans not approved by security holders
|
|
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not applicable
|
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|
|
|
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|
|
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|
Total
|
|
|
10,982,000
|
|
|
$
|
12.70
|
|
|
|
3,938,000
|
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Subsequent to January 31, 2009, an additional 1,418,850
options to purchase our Class A common stock at an exercise
price of $26.02 per share and 571,080 shares of restricted
stock were granted under our Amended and Restated 2001 Incentive
Plan, as amended. These options and restricted shares vest in
equal increments over three years and the options expire on
February 4, 2019.
Purchases
of Equity Securities by the Issuer and Affiliated
Purchasers
There were no repurchases of the Companys equity
securities during the fourth quarter of fiscal 2008. As of
January 31, 2009, the Company had no amount available for
purchases under any repurchase program.
23
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 30, 2004 through January 30, 2009
(the last trading date of fiscal 2008) with the cumulative
total return on the Standard & Poors 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 30, 2004 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.
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|
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|
|
1/30/2004
|
|
|
1/28/2005
|
|
|
1/27/2006
|
|
|
2/2/2007
|
|
|
2/1/2008
|
|
|
1/30/2009
|
GME
|
|
|
100.00
|
|
|
113.25
|
|
|
235.78
|
|
|
324.70
|
|
|
632.77
|
|
|
|
298
|
.55
|
S&P 500 Index
|
|
|
100.00
|
|
|
103.56
|
|
|
113.49
|
|
|
128.05
|
|
|
123.37
|
|
|
|
73
|
.01
|
Dow Jones Specialty Retailers Index
|
|
|
100.00
|
|
|
107.52
|
|
|
124.69
|
|
|
136.16
|
|
|
122.75
|
|
|
|
76
|
.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 6.
|
Selected
Consolidated Financial Data
|
The following table sets forth our selected consolidated
financial and operating data for the periods and at the dates
indicated. Our fiscal year is composed of 52 or 53 weeks
ending on the Saturday closest to January 31. The fiscal
year ended February 3, 2007 consisted of 53 weeks and
the fiscal years ended January 31, 2009, February 2,
2008, January 28, 2006 and January 29, 2005 consisted
of 52 weeks. The Statement of Operations Data
for the fiscal years ended January 31, 2009,
February 2, 2008 and February 3, 2007 and the
Balance Sheet Data as of January 31, 2009 and
February 2, 2008 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 January 28, 2006 and January 29, 2005 and the
Balance Sheet Data as of February 3, 2007,
January 28, 2006 and January 29, 2005 are derived from
our audited financial statements which are not included
elsewhere in this
Form 10-K.
24
Our selected financial data set forth below should be read in
conjunction with Managements 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
|
|
|
53 Weeks
|
|
|
52 Weeks
|
|
|
52 Weeks
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
January 29,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006(1)
|
|
|
2005
|
|
|
|
(In thousands, except per share data and statistical data)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
8,805,897
|
|
|
$
|
7,093,962
|
|
|
$
|
5,318,900
|
|
|
$
|
3,091,783
|
|
|
$
|
1,842,806
|
|
Cost of sales
|
|
|
6,535,762
|
|
|
|
5,280,255
|
|
|
|
3,847,458
|
|
|
|
2,219,753
|
|
|
|
1,333,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,270,135
|
|
|
|
1,813,707
|
|
|
|
1,471,442
|
|
|
|
872,030
|
|
|
|
509,300
|
|
Selling, general and administrative expenses(2)
|
|
|
1,445,419
|
|
|
|
1,182,016
|
|
|
|
1,021,113
|
|
|
|
599,343
|
|
|
|
373,364
|
|
Depreciation and amortization
|
|
|
145,004
|
|
|
|
130,270
|
|
|
|
109,862
|
|
|
|
66,355
|
|
|
|
36,789
|
|
Merger-related expenses(3)
|
|
|
4,593
|
|
|
|
|
|
|
|
6,788
|
|
|
|
13,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
675,119
|
|
|
|
501,421
|
|
|
|
333,679
|
|
|
|
192,732
|
|
|
|
99,147
|
|
Interest expense (income), net
|
|
|
38,837
|
|
|
|
47,774
|
|
|
|
73,324
|
|
|
|
25,292
|
|
|
|
236
|
|
Merger-related interest expense(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,518
|
|
|
|
|
|
Debt extinguishment expense
|
|
|
2,331
|
|
|
|
12,591
|
|
|
|
6,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
633,951
|
|
|
|
441,056
|
|
|
|
254,296
|
|
|
|
159,922
|
|
|
|
98,911
|
|
Income tax expense
|
|
|
235,669
|
|
|
|
152,765
|
|
|
|
96,046
|
|
|
|
59,138
|
|
|
|
37,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
398,282
|
|
|
$
|
288,291
|
|
|
$
|
158,250
|
|
|
$
|
100,784
|
|
|
$
|
60,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per common share basic(4)
|
|
$
|
2.44
|
|
|
$
|
1.82
|
|
|
$
|
1.06
|
|
|
$
|
0.87
|
|
|
$
|
0.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic(4)
|
|
|
163,190
|
|
|
|
158,226
|
|
|
|
149,924
|
|
|
|
115,840
|
|
|
|
109,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per common share diluted(4)
|
|
$
|
2.38
|
|
|
$
|
1.75
|
|
|
$
|
1.00
|
|
|
$
|
0.81
|
|
|
$
|
0.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted(4)
|
|
|
167,671
|
|
|
|
164,844
|
|
|
|
158,284
|
|
|
|
124,972
|
|
|
|
115,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of stores by segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
4,331
|
|
|
|
4,061
|
|
|
|
3,799
|
|
|
|
3,624
|
|
|
|
1,801
|
|
Canada
|
|
|
325
|
|
|
|
287
|
|
|
|
267
|
|
|
|
261
|
|
|
|
|
|
Australia
|
|
|
350
|
|
|
|
280
|
|
|
|
219
|
|
|
|
177
|
|
|
|
|
|
Europe
|
|
|
1,201
|
|
|
|
636
|
|
|
|
493
|
|
|
|
428
|
|
|
|
25
|
|
Total
|
|
|
6,207
|
|
|
|
5,264
|
|
|
|
4,778
|
|
|
|
4,490
|
|
|
|
1,826
|
|
Comparable store sales increase (decrease)(5)
|
|
|
12.3
|
%
|
|
|
24.7
|
%
|
|
|
11.9
|
%
|
|
|
(1.4
|
)%
|
|
|
1.7
|
%
|
Inventory turnover
|
|
|
5.8
|
|
|
|
6.0
|
|
|
|
5.2
|
|
|
|
5.0
|
|
|
|
5.4
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
255,330
|
|
|
$
|
534,160
|
|
|
$
|
353,284
|
|
|
$
|
234,293
|
|
|
$
|
111,093
|
|
Total assets
|
|
|
4,512,590
|
|
|
|
3,775,891
|
|
|
|
3,349,584
|
|
|
|
3,015,821
|
|
|
|
915,983
|
|
Total debt
|
|
|
545,712
|
|
|
|
574,473
|
|
|
|
855,484
|
|
|
|
975,990
|
|
|
|
36,520
|
|
Total liabilities
|
|
|
2,212,909
|
|
|
|
1,913,445
|
|
|
|
1,973,706
|
|
|
|
1,901,108
|
|
|
|
372,972
|
|
Stockholders equity
|
|
|
2,299,681
|
|
|
|
1,862,446
|
|
|
|
1,375,878
|
|
|
|
1,114,713
|
|
|
|
543,011
|
|
|
|
|
(1) |
|
Includes the results of operations of EB from October 9,
2005, the day after completion of the EB merger, through
January 28, 2006. The addition of EBs results affects
the comparability of amounts from fiscal periods before the
52 weeks ended January 28, 2006 (fiscal
2005). |
25
|
|
|
(2) |
|
On the first day of the 53 weeks ended February 3,
2007 (fiscal 2006), the Company adopted the
provisions of Statement of Financial Accounting Standards
No. 123 (Revised 2004), Share-Based Payment,
(SFAS 123(R)) which requires companies to
expense the estimated fair value of stock options and similar
equity instruments issued to employees in its financial
statements. The implementation of SFAS 123(R) affects the
comparability of amounts from fiscal periods before fiscal 2006.
The amount of stock-based compensation included was
$35.4 million, $26.9 million and $21.0 million
for the fiscal years 2008, 2007 and 2006, respectively. |
|
(3) |
|
The Companys results of operations for fiscal 2008, fiscal
2006 and fiscal 2005 include expenses believed to be of a
one-time or short-term nature associated with the Micromania
acquisition (fiscal 2008) and the EB merger (fiscal 2006
and fiscal 2005), which included $4.6 million,
$6.8 million and $13.6 million, respectively,
considered in operating earnings and $7.5 million included
in fiscal 2005 in interest expense. In fiscal 2008, the
$4.6 million included $3.5 million related to foreign
currency losses on funds used to purchase Micromania. In fiscal
2006 and fiscal 2005, the $6.8 million and
$13.6 million, respectively, included $1.9 million and
$9.0 million in charges associated with assets of the
Company considered to be impaired as a result of the EB merger
and $4.9 million and $4.6 million, respectively, in
costs associated with integrating the operations of GameStop and
EB. Costs related to the EB merger included in interest expense
in fiscal 2005 include a fee of $7.1 million for an unused
bridge financing facility which the Company obtained as
financing insurance in connection with the EB merger. |
|
(4) |
|
Weighted average shares outstanding and earnings per common
share have been adjusted to reflect the Conversion and the Stock
Split. |
|
(5) |
|
Stores are included in our comparable store sales base beginning
in the 13th month of operation. |
|
|
Item 7.
|
Managements
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, managements plans and
objectives, and any statements concerning assumptions related to
the foregoing contained in Managements 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 worlds
largest retailer of video game products and PC entertainment
software. We sell new and used video game hardware, video game
software and accessories, as well as PC entertainment software
and other merchandise. As of January 31, 2009, we operated
6,207 stores, in the United States, Australia, Canada and
Europe, primarily under the names GameStop and EB Games. We also
operate an electronic commerce website under the name
www.gamestop.com and publish Game Informer, the
industrys largest multi-platform video game magazine in
the United States based on circulation.
Our fiscal year is composed of 52 or 53 weeks ending on the
Saturday closest to January 31. The fiscal years ended
January 31, 2009 (fiscal 2008) and
February 2, 2008 (fiscal 2007) consisted of
52 weeks. The fiscal year ended February 3, 2007
(fiscal 2006) consisted of 53 weeks.
The Company began operations in November 1996. In October 1999,
the Company was acquired by, and became a wholly-owned
subsidiary of, Barnes & Noble, Inc.
(Barnes & Noble). In February 2002,
GameStop completed an initial public offering of its
Class A common stock and was a majority-owned subsidiary of
Barnes & Noble until November 2004, when
Barnes & Noble distributed its holdings of outstanding
GameStop Class B common stock to its stockholders. In
October 2005, GameStop acquired the operations of Electronics
Boutique Holdings Corp. (EB), a 2,300-store video
game retailer in the U.S. and 12 other countries, by
merging its existing operations with EB under GameStop Corp.
(the EB merger).
On February 7, 2007, following approval by a majority of
the Class B common stockholders in a special meeting of the
Companys Class B common stockholders, all outstanding
Class B common shares were converted
26
into Class A common shares on a
one-for-one
basis (the Conversion). In addition, on
February 9, 2007, the Board of Directors of the Company
authorized a
two-for-one
stock split, effected by a
one-for-one
stock dividend to stockholders of record at the close of
business on February 20, 2007, paid on March 16, 2007
(the Stock Split). Unless otherwise indicated, all
numbers in this Managements Discussion and Analysis
of Financial Condition and Results of Operations have
been restated to reflect the Conversion and the Stock Split.
On November 17, 2008, GameStop France SAS, a wholly-owned
subsidiary of the Company, completed the acquisition of
substantially all of the outstanding capital stock of SFMI
Micromania SAS (Micromania) for $580.4 million,
net of cash acquired in the transaction. Micromania is a leading
retailer of video and computer games in France with 332
locations, 328 of which were operating on the date of
acquisition (the Micromania acquisition). The
Company funded the transaction with cash on hand, funds drawn
against its revolving credit facility totaling
$275 million, and term loans totaling $150 million. As
of January 31, 2009, amounts drawn against the revolving
credit facility and the term loans have been repaid. The
Companys operating results for fiscal 2008 include
11 weeks of Micromanias results.
Growth in the video game industry is driven by the introduction
of new technology. In 2005 in the North American markets, Sony
introduced the PlayStation Portable (the PSP) in
March and Microsoft introduced the Xbox 360 in November. In
November 2006, Nintendo introduced the Wii hardware platform
worldwide and Sony introduced the PlayStation 3 hardware
platform in the North American markets. Sony introduced the
PlayStation 3 platform in the Australian and European markets in
March 2007. 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 Companys financial results.
Actual results could differ from those estimates.
Revenue Recognition. Revenue from the sales of
the Companys products is recognized at the time of sale
and is stated net of sales discounts. The sales of used video
game products are recorded at the retail price charged to the
customer. Sales returns (which are not significant) are
recognized at the time returns are made. Subscription and
advertising revenues are recorded upon release of magazines for
sale to consumers. Magazine subscription revenue is recognized
on a straight-line basis over the subscription period. Revenue
from the sales of product replacement plans is recognized on a
straight-line basis over the coverage period. Gift cards sold to
customers are recognized as a liability on the balance sheet
until redeemed.
Stock-Based Compensation. The Company records
share-based compensation expense in earnings based on the
grant-date fair value of options or restricted stock granted. As
of January 31, 2009, the unrecognized compensation expense
related to the unvested portion of our stock options and
restricted stock was $14.3 million and $23.4 million,
respectively, which is expected to be recognized over a weighted
average
27
period of 1.9 and 1.8 years, respectively. Note 1 of
Notes to Consolidated Financial Statements provides
additional information on stock-based compensation.
Merchandise Inventories. Our merchandise
inventories are carried at the lower of cost or market generally
using the average cost method. Under the average cost method, as
new product is received from vendors, its current cost is added
to the existing cost of product on-hand and this amount is
re-averaged over the cumulative units. Used video game products
traded in by customers are recorded as inventory at the amount
of the store credit given to the customer. In valuing inventory,
management is required to make assumptions regarding the
necessity of reserves required to value potentially obsolete or
over-valued items at the lower of cost or market. Management
considers quantities on hand, recent sales, potential price
protections and returns to vendors, among other factors, when
making these assumptions. Our ability to gauge these factors is
dependent upon our ability to forecast customer demand and to
provide a well-balanced merchandise assortment. Any inability to
forecast customer demand properly could lead to increased costs
associated with inventory markdowns. We also adjust inventory
based on anticipated physical inventory losses or shrinkage.
Physical inventory counts are taken on a regular basis to ensure
the reported inventory is accurate. During interim periods,
estimates of shrinkage are recorded based on historical losses
in the context of current period circumstances.
Property and Equipment. Property and equipment
are carried at cost less accumulated depreciation and
amortization. Depreciation on furniture, fixtures and equipment
is computed using the straight-line method over estimated useful
lives (ranging from two to eight years). Maintenance and repairs
are expensed as incurred, while betterments and major remodeling
costs are capitalized. Leasehold improvements are capitalized
and amortized over the shorter of their estimated useful lives
or the terms of the respective leases, including renewal options
in which the exercise of the option is reasonably assured
(generally ranging from three to ten years). Costs incurred to
third parties in purchasing management information systems are
capitalized and included in property and equipment. These costs
are amortized over their estimated useful lives from the date
the systems become operational. The Company periodically reviews
its property and equipment whenever events or changes in
circumstances indicate that their carrying amounts may not be
recoverable or their depreciation or amortization periods should
be accelerated. The Company assesses recoverability based on
several factors, including managements 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 31, 2009 have not been material.
Goodwill. Goodwill, aggregating
$1,862.1 million, has been recorded as of January 31,
2009 related to various acquisitions. Goodwill represents the
excess purchase price over tangible net assets and identifiable
intangible assets acquired. The Company does not amortize
goodwill, instead it evaluates it for impairment on at least an
annual basis. The Company completed its annual impairment test
of goodwill as of the first day of the fourth quarter of fiscal
2006, fiscal 2007 and fiscal 2008 and concluded that none of its
goodwill was impaired. Note 7 of Notes to
Consolidated Financial Statements provides additional
information concerning goodwill.
Other Intangible Assets and Other Noncurrent
Assets. Other intangible assets consist primarily
of tradenames, leasehold rights and amounts attributed to
favorable leasehold interests recorded as a result of the
Micromania acquisition and the EB merger. Intangible assets are
recorded consistent with the provisions of Statement of
Financial Accounting Standards No. 141, Business
Combinations (SFAS 141), which requires
that intangible assets shall be recognized as an asset 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 based on the provisions of Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible
Assets, which requires that the assets should be amortized
over the period in which they are expected to contribute
directly to cash flows.
Tradenames which were recorded as a result of the Micromania
acquisition are considered indefinite life intangible assets as
they are expected to contribute to cash flows indefinitely and
are not subject to
28
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 Companys intangible assets, see Note 7
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 Companys revolving credit facility and the senior
notes issued in October 2005 in connection with the financing of
the EB merger. The deferred financing fees are being amortized
over five and seven years to match the terms of the revolving
credit facility and the senior notes, respectively. Deferred
financing fees incurred in connection with the issuance of the
senior floating rate notes in October 2005 in connection with
the EB merger were included in deferred financing fees in the
balance sheet and were being amortized over six years to match
the term of the senior floating rate notes. The remaining
balance of the deferred financing fees on the senior floating
rate notes was written off to debt extinguishment expense during
fiscal 2007 when the notes were redeemed.
Cash Consideration Received from Vendors. The
Company and its vendors participate in cooperative advertising
programs and other vendor marketing programs in which the
vendors provide the Company with cash consideration in exchange
for marketing and advertising the vendors products. Our
accounting for cooperative advertising arrangements and other
vendor marketing programs, in accordance with Financial
Accounting Standards Board (FASB) Emerging Issues
Task Force Issue
02-16,
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 discontinued their allowances. In addition,
management believes that the Companys revenues would be
adversely affected if its vendors decreased or discontinued
their allowances, but management is unable to quantify the
impact.
Lease Accounting. The Companys 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, as
clarified by the Chief Accountant of the SEC in a February 2005
letter to the American Institute of Certified Public
Accountants. 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.
29
Income Taxes. The Company accounts for income
taxes in accordance with the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for
Income Taxes (SFAS 109). SFAS 109
utilizes an asset and liability approach, and deferred taxes are
determined based on the estimated future tax effect of
differences between the financial reporting and tax bases of
assets and liabilities using enacted tax rates. As a result of
our operations in many foreign countries, our global tax rate is
derived from a combination of applicable tax rates in the
various jurisdictions in which we operate. We base our estimate
of an annual effective tax rate at any given point in time on a
calculated mix of the tax rates applicable to our company and to
estimates of the amount of income to be derived in any given
jurisdiction. We file our tax returns based on our understanding
of the appropriate tax rules and regulations. However,
complexities in the tax rules and our operations, as well as
positions taken publicly by the taxing authorities, may lead us
to conclude that accruals for uncertain tax positions are
required. We generally maintain accruals for uncertain tax
positions until examination of the tax year is completed by the
taxing authority, available review periods expire or additional
facts and circumstances cause us to change our assessment of the
appropriate accrual amount.
In July 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48), which clarifies the accounting
for uncertainty in income taxes recognized under SFAS 109.
FIN 48 addresses the recognition and measurement of tax
positions taken or expected to be taken, and also provides
guidance on derecognition, classification, interest and
penalties, accounting in interim periods and disclosure. For
additional information related to the Companys adoption of
FIN 48, see Note 12 of Notes to Consolidated
Financial Statements.
Consolidated
Results of Operations
The following table sets forth certain income statement items as
a percentage of sales for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended
|
|
|
52 Weeks Ended
|
|
|
53 Weeks Ended
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
74.2
|
|
|
|
74.4
|
|
|
|
72.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
25.8
|
|
|
|
25.6
|
|
|
|
27.7
|
|
Selling, general and administrative expenses
|
|
|
16.4
|
|
|
|
16.7
|
|
|
|
19.2
|
|
Depreciation and amortization
|
|
|
1.6
|
|
|
|
1.8
|
|
|
|
2.1
|
|
Merger-related expenses
|
|
|
0.1
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
7.7
|
|
|
|
7.1
|
|
|
|
6.3
|
|
Interest expense, net
|
|
|
0.5
|
|
|
|
0.7
|
|
|
|
1.4
|
|
Debt extinguishment expense
|
|
|
|
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
7.2
|
|
|
|
6.2
|
|
|
|
4.8
|
|
Income tax expense
|
|
|
2.7
|
|
|
|
2.1
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
4.5
|
%
|
|
|
4.1
|
%
|
|
|
3.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
fiscal years ended January 31, 2009, February 2, 2008
and February 3, 2007, these purchasing, receiving and
distribution costs amounted to $57.0 million,
$43.9 million and $35.9 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 fiscal years ended January 31, 2009,
February 2, 2008 and February 3, 2007, these
processing fees amounted to $65.5 million,
$55.2 million and $40.9 million, respectively. 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
30
cards in selling, general and administrative expenses. The
reclassifications had a net effect of 0.1%, 0.2% and 0.1% of
sales for the fiscal years ended January 31, 2009,
February 2, 2008 and February 3, 2007, respectively.
The following table sets forth sales (in millions) by
significant product category for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks
|
|
|
52 Weeks
|
|
|
53 Weeks
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
Sales
|
|
|
of Total
|
|
|
Sales
|
|
|
of Total
|
|
|
Sales
|
|
|
of Total
|
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New video game hardware
|
|
$
|
1,860.2
|
|
|
|
21.1
|
%
|
|
$
|
1,668.9
|
|
|
|
23.5
|
%
|
|
$
|
1,073.7
|
|
|
|
20.2
|
%
|
New video game software
|
|
|
3,685.0
|
|
|
|
41.9
|
%
|
|
|
2,800.7
|
|
|
|
39.5
|
%
|
|
|
2,012.5
|
|
|
|
37.8
|
%
|
Used video game products
|
|
|
2,026.6
|
|
|
|
23.0
|
%
|
|
|
1,586.7
|
|
|
|
22.4
|
%
|
|
|
1,316.0
|
|
|
|
24.8
|
%
|
Other
|
|
|
1,234.1
|
|
|
|
14.0
|
%
|
|
|
1,037.7
|
|
|
|
14.6
|
%
|
|
|
916.7
|
|
|
|
17.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,805.9
|
|
|
|
100.0
|
%
|
|
$
|
7,094.0
|
|
|
|
100.0
|
%
|
|
$
|
5,318.9
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other products include PC entertainment and other software and
accessories, magazines and character-related merchandise.
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
|
|
|
53 Weeks
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
Gross
|
|
|
Profit
|
|
|
Gross
|
|
|
Profit
|
|
|
Gross
|
|
|
Profit
|
|
|
|
Profit
|
|
|
Percent
|
|
|
Profit
|
|
|
Percent
|
|
|
Profit
|
|
|
Percent
|
|
|
Gross Profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New video game hardware
|
|
$
|
112.6
|
|
|
|
6.1
|
%
|
|
$
|
108.2
|
|
|
|
6.5
|
%
|
|
$
|
77.0
|
|
|
|
7.2
|
%
|
New video game software
|
|
|
768.4
|
|
|
|
20.9
|
%
|
|
|
581.7
|
|
|
|
20.8
|
%
|
|
|
427.3
|
|
|
|
21.2
|
%
|
Used video game products
|
|
|
974.5
|
|
|
|
48.1
|
%
|
|
|
772.2
|
|
|
|
48.7
|
%
|
|
|
651.9
|
|
|
|
49.5
|
%
|
Other
|
|
|
414.6
|
|
|
|
33.6
|
%
|
|
|
351.6
|
|
|
|
33.9
|
%
|
|
|
315.2
|
|
|
|
34.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,270.1
|
|
|
|
25.8
|
%
|
|
$
|
1,813.7
|
|
|
|
25.6
|
%
|
|
$
|
1,471.4
|
|
|
|
27.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2008 Compared to Fiscal 2007
Despite worldwide economic conditions, sales increased
$1,711.9 million, or 24.1%, to $8,805.9 million in the
52 weeks of fiscal 2008 compared to $7,094.0 million
in the 52 weeks of fiscal 2007. The increase in sales was
attributable to the comparable store sales increase of 12.3% for
fiscal 2008 when compared to fiscal 2007, the addition of
non-comparable store sales from the 1,588 stores opened since
February 3, 2007 of approximately $698.2 million and
the acquisition of Micromania, offset by decreases related to
changes in foreign exchange rates of $71.6 million. The
comparable store sales increase was driven by strong sales of
new and used video game software which is typical as the
installed base of new hardware platforms increases in the years
following their launch. Stores are included in our comparable
store sales base beginning in the thirteenth month of operation
and exclude the effect of changes in foreign exchange rates.
New video game hardware sales increased $191.3 million, or
11.5%, from fiscal 2007 to fiscal 2008, primarily due to the
continued expansion of the installed base of new hardware
platforms and the increase in store count since the end of
fiscal 2007, including the Micromania acquisition. New video
game hardware sales decreased as a percentage of sales from
23.5% in fiscal 2007 to 21.1% in fiscal 2008, primarily due to
strong sales of new video game software driven by the continued
expansion of the installed base of new video game consoles and a
strong lineup of video game titles in fiscal 2008.
31
New video game software sales increased $884.3 million, or
31.6%, from fiscal 2007 to fiscal 2008, primarily due to the
strong sales of new video game titles released in fiscal 2008
and the increased sales of software related to the new hardware
platforms, as well as the new and acquired stores added since
the end of fiscal 2007. New video game software sales increased
as a percentage of total sales from 39.5% in fiscal 2007 to
41.9% in fiscal 2008 due to the continued expansion of the
installed base of new video game consoles, as well as the
availability of several strong new titles in fiscal 2008.
Used video game product sales increased $439.9 million, or
27.7%, from fiscal 2007 to fiscal 2008, primarily due to an
increase in store count and an increase in the availability of
hardware and software associated with the new hardware platforms
as those platforms age and expand. As a percentage of sales,
used video game product sales increased from 22.4% to 23.0%
primarily due to the continued expansion of the installed base
of new video game consoles and the availability of used hardware
and software from those consoles. Sales of other product
categories, including PC entertainment and other software and
accessories, magazines and trading cards, grew 18.9%, or
$196.4 million, from fiscal 2007 to fiscal 2008, primarily
due to the increase in store count and strong sales of new PC
entertainment software and sales of accessories related to the
new hardware platforms.
Cost of sales increased by $1,255.5 million, or 23.8%, from
$5,280.3 million in fiscal 2007 to $6,535.8 million in
fiscal 2008 as a result of the increase in sales and the changes
in gross profit discussed below.
Gross profit increased by $456.4 million, or 25.2%, from
$1,813.7 million in fiscal 2007 to $2,270.1 million in
fiscal 2008. Gross profit as a percentage of sales increased
from 25.6% in fiscal 2007 to 25.8% in fiscal 2008. The gross
profit percentage increase was caused primarily by the shift in
sales from new video game hardware to new video game software
and used video game products as a percentage of total sales in
fiscal 2008 as the new platforms mature. These product
categories carry a significantly higher margin than new video
game hardware. Gross profit as a percentage of sales on new
video game hardware decreased from 6.5% in fiscal 2007 to 6.1%
in fiscal 2008 due primarily to a decrease in product
replacement plan sales. Gross profit as a percentage of sales on
new video game software and other products remained relatively
consistent from 20.8% and 33.9%, respectively, in fiscal 2007
compared to 20.9% and 33.6%, respectively, in fiscal 2008. Gross
profit as a percentage of sales on used video game products
decreased from 48.7% in fiscal 2007 to 48.1% in fiscal 2008 due
to increased promotional activities and higher refurbishment
costs associated with an increase in production of refurbished
hardware platforms during fiscal 2008.
Selling, general and administrative expenses increased by
$263.4 million, or 22.3%, from $1,182.0 million in
fiscal 2007 to $1,445.4 million in fiscal 2008. The
increase was primarily attributable to the increase in the
number of stores in operation, and the related increases in
store, distribution and corporate office operating expenses.
Selling, general and administrative expenses as a percentage of
sales decreased from 16.7% in fiscal 2007 to 16.4% in fiscal
2008. The decrease in selling, general and administrative
expenses as a percentage of sales was primarily due to
leveraging as a result of the higher sales associated with the
growth of the video game market and cost control efforts.
Selling, general and administrative expenses include
$35.4 million and $26.9 million in stock-based
compensation expense for fiscal 2008 and fiscal 2007,
respectively. Foreign currency transaction gains and (losses)
are included in selling, general and administrative expenses and
amounted to ($6.4) million in fiscal 2008, compared to
$8.6 million in fiscal 2007.
Depreciation and amortization expense increased from
$130.3 million in fiscal 2007 to $145.0 million in
fiscal 2008. This increase of $14.7 million was due
primarily to capital expenditures associated with the opening of
674 new stores during fiscal 2008. Depreciation and amortization
expense will increase from fiscal 2008 to the 52 week
period ending January 30, 2010 (fiscal 2009)
due to continued capital expenditures for new stores and
investments in management information systems.
Interest income from the investment of excess cash balances
decreased from $13.8 million in fiscal 2007 to
$11.6 million in fiscal 2008 as a result of lower invested
cash balances due to acquisitions and lower interest rates.
Interest expense decreased from $61.6 million in fiscal
2007 to $50.5 million in fiscal 2008, primarily due to the
retirement of $30.0 million of the Companys senior
notes since February 2, 2008 and the retirement of
$270.0 million in senior notes and senior floating rate
notes during fiscal 2007. Debt extinguishment expense of
$2.3 million and $12.6 million was recognized in
fiscal 2008 and fiscal 2007, respectively, as a result of the
32
premiums paid related to debt retirement and the recognition of
deferred financing fees and unamortized original issue discount.
Income tax expense increased by $82.9 million, from
$152.8 million in fiscal 2007 to $235.7 million in
fiscal 2008. The Companys effective tax rate increased
from 34.6% in fiscal 2007 to 37.2% in fiscal 2008 due to
expenses related to mergers and acquisitions and associated
corporate structuring and the deemed repatriation of earnings
from foreign subsidiaries. In addition, during fiscal 2007 there
were valuation allowances released on foreign net operating
losses. See Note 12 of Notes to Consolidated
Financial Statements for additional information regarding
income taxes.
The factors described above led to an increase in operating
earnings of $173.7 million, or 34.6%, from
$501.4 million in fiscal 2007 to $675.1 million in
fiscal 2008 and an increase in net earnings of
$110.0 million, or 38.2%, from $288.3 million in
fiscal 2007 to $398.3 million in fiscal 2008.
Fiscal
2007 Compared to Fiscal 2006
Sales increased by $1,775.1 million, or 33.4%, to
$7,094.0 million in the 52 weeks of fiscal 2007
compared to $5,318.9 million in the 53 weeks of fiscal
2006. The increase in sales was attributable to the comparable
store sales increase of 24.7% for fiscal 2007 when compared to
fiscal 2006, the addition of non-comparable store sales from the
1,007 stores opened since January 29, 2006 of approximately
$496.2 million and increases related to changes in foreign
exchange rates of $109.4 million, offset by sales of
$99.1 million for the 53rd week included in fiscal
2006. The comparable store sales increase was driven by
continued strong sales of the Nintendo Wii, Microsofts
Xbox 360 and the Sony PlayStation 3, which completed its
worldwide launch during fiscal 2007, and their related software
and accessories, including several strong video game titles,
such as Halo 3 and Guitar Hero III. The comparable
store sales increase of 24.7% was calculated by using the
52 weeks of fiscal 2007 compared to the most closely
comparable 52 weeks of fiscal 2006 with consideration given
to the timing of holidays to ensure comparability.
New video game hardware sales increased $595.2 million, or
55.4%, from fiscal 2006 to fiscal 2007, primarily due to the
sales of hardware units mentioned above, as well as the increase
in store count since January 2007, offset by the 53rd week
of sales included in fiscal 2006. New video game hardware sales
increased as a percentage of sales from 20.2% in fiscal 2006 to
23.5% in fiscal 2007, primarily due to the first full year since
the Nintendo Wii and the Sony PlayStation 3 launch as well as
increasing sales of Microsoft Xbox 360 and the Nintendo DS.
New video game software sales increased $788.2 million, or
39.2%, from fiscal 2006 to fiscal 2007, primarily due to new
stores added in fiscal 2007, sales related to the new hardware
platforms and a strong lineup of new video game titles released
during the 52 weeks ended February 2, 2008. New video
game software sales as a percentage of total sales increased
from 37.8% in fiscal 2006 to 39.5% in fiscal 2007 due to
increased sales related to the new hardware platforms and the
availability of several strong titles in fiscal 2007.
Used video game product sales increased $270.7 million, or
20.6%, from fiscal 2006 to fiscal 2007, primarily due to the
increase in new store count, an increase in overall demand for
video game products following the launch of new hardware
platforms and the strong growth of used video game product sales
internationally, offset by the 53rd week of sales in fiscal
2006. As a percentage of sales, used video game product sales
decreased from 24.8% to 22.4% primarily due to the strong sales
of new video game hardware and software. Sales of other product
categories, including PC entertainment and other software and
accessories, magazines and trading cards, grew 13.2%, or
$121.0 million, from fiscal 2006 to fiscal 2007, primarily
due to the increase in store count and the increase in new
hardware platform accessories sales, offset by the
53rd week of sales in fiscal 2006.
Cost of sales increased by $1,432.8 million, or 37.2%, from
$3,847.5 million in fiscal 2006 to $5,280.3 million in
fiscal 2007 as a result of the increase in sales and the changes
in gross profit discussed below, offset by the 53rd week of
sales in fiscal 2006.
Gross profit increased by $342.3 million, or 23.3%, from
$1,471.4 million in fiscal 2006 to $1,813.7 million in
fiscal 2007. Gross profit as a percentage of sales decreased
from 27.7% in fiscal 2006 to 25.6% in fiscal 2007. The gross
profit percentage decrease was caused primarily by the increase
in sales of new video game hardware as a percentage of total
sales in fiscal 2007. New video game hardware typically carries
a much lower margin than sales
33
in the other product categories. Gross profit as a percentage of
sales was also impacted by a decrease in the excess of vendor
allowances received over marketing and advertising expenses.
Vendor allowances received during fiscal 2006 were abnormally
high due to the launches of the Nintendo Wii and the Sony
PlayStation 3 and returned to normal levels in fiscal 2007. In
addition, net vendor allowances decreased due to higher
expenditures on marketing and advertising from fiscal 2006 to
fiscal 2007 in support of the Companys branding campaign.
These factors led to a decrease in gross profit as a percentage
of sales on new video game hardware, new video game software and
other products from 7.2%, 21.2% and 34.4% of sales,
respectively, in fiscal 2006 to 6.5%, 20.8% and 33.9% of sales,
respectively, in fiscal 2007. Gross profit as a percentage of
sales on used video game products decreased from 49.5% in fiscal
2006 to 48.7% in fiscal 2007 due to increased promotional
expenses and higher refurbishment costs associated with an
increase in production of refurbished hardware platforms during
fiscal 2007.
Selling, general and administrative expenses increased by
$160.9 million, or 15.8%, from $1,021.1 million in
fiscal 2006 to $1,182.0 million in fiscal 2007. 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,
offset by expenses from the 53rd week included in fiscal
2006. Selling, general and administrative expenses as a
percentage of sales decreased from 19.2% in fiscal 2006 to 16.7%
in fiscal 2007. The decrease in selling, general and
administrative expenses as a percentage of sales was primarily
due to leveraging as a result of the higher sales associated
with the introduction of the new video game systems and
synergies associated with the acquisition of EB. Selling,
general and administrative expenses include $26.9 million
and $21.0 million in stock-based compensation expense for
fiscal 2007 and fiscal 2006, respectively. Foreign currency
transaction gains and (losses) are included in selling, general
and administrative expenses and amounted to $8.6 million in
fiscal 2007, compared to ($1.0) million in fiscal 2006.
Depreciation and amortization expense increased from
$109.9 million in fiscal 2006 to $130.3 million in
fiscal 2007. This increase of $20.4 million was due
primarily to capital expenditures for 586 new GameStop stores.
Interest income resulting from the investment of excess cash
balances increased from $11.3 million in fiscal 2006 to
$13.8 million in fiscal 2007 due to interest earned on
invested assets. Interest expense decreased from
$84.7 million in fiscal 2006 to $61.6 million in
fiscal 2007, primarily due to the retirement of
$20.0 million of the Companys senior notes and
$250.0 million of the Companys senior floating rate
notes since February 3, 2007. Debt extinguishment expense
of $12.6 million was recognized in fiscal 2007 as a result
of the premiums paid related to debt retirement and the
recognition of deferred financing fees and unamortized original
issue discount. Debt extinguishment expense of $6.1 million
was incurred in fiscal 2006 for the loss associated with the
Companys repurchase of $50.0 million of its senior
notes payable and $50.0 million of its senior floating rate
notes payable.
Income tax expense increased by $56.8 million, from
$96.0 million in fiscal 2006 to $152.8 million in
fiscal 2007. The Companys effective tax rate decreased
from 37.8% in fiscal 2006 to 34.6% in fiscal 2007 due to the
release of foreign valuation allowances on net operating losses
and the recognition of foreign tax credits not previously
benefited. 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 $167.7 million, or 50.3%, from
$333.7 million in fiscal 2006 to $501.4 million in
fiscal 2007 and an increase in net earnings of
$130.0 million, or 82.1%, from $158.3 million in
fiscal 2006 to $288.3 million in fiscal 2007.
Segment
Performance
The Company operates its business in the following segments:
United States, Canada, Australia and Europe. We identified these
segments based on a combination of geographic areas, the methods
with which we analyze performance and how we divide management
responsibility. Each of the segments consists primarily of
retail operations, with all stores engaged in the sale of new
and used video game systems, software and accessories which we
refer to as video game products and PC entertainment software
and related accessories. These products are substantially the
same regardless of geographic location, with the primary
differences in merchandise carried being the timing of the
release of new products in the various segments. Stores in all
segments are similar in size at an average of approximately
1,500 square feet.
34
As we have expanded our presence in international markets, the
Company has increased its operations in foreign currencies,
including the euro, Australian dollar, New Zealand dollar,
Canadian dollar, British pound, Swiss franc, Danish kroner,
Swedish krona, and the Norwegian kroner. The notes issued in
connection with the acquisition of Micromania and the EB merger
are reflected in the United States segment. See Note 20 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
|
|
|
53 Weeks
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
United States
|
|
$
|
6,466.7
|
|
|
$
|
5,438.8
|
|
|
$
|
4,269.5
|
|
Canada
|
|
|
548.2
|
|
|
|
473.0
|
|
|
|
319.7
|
|
Australia
|
|
|
520.0
|
|
|
|
420.8
|
|
|
|
288.1
|
|
Europe
|
|
|
1,271.0
|
|
|
|
761.4
|
|
|
|
441.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,805.9
|
|
|
$
|
7,094.0
|
|
|
$
|
5,318.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
53 Weeks
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
United States
|
|
$
|
530.1
|
|
|
$
|
391.2
|
|
|
$
|
285.4
|
|
Canada
|
|
|
32.6
|
|
|
|
35.8
|
|
|
|
20.0
|
|
Australia
|
|
|
46.8
|
|
|
|
41.8
|
|
|
|
27.3
|
|
Europe
|
|
|
65.6
|
|
|
|
32.6
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
675.1
|
|
|
$
|
501.4
|
|
|
$
|
333.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets by operating segment in U.S. dollars were as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
United States
|
|
$
|
2,578.0
|
|
|
$
|
2,742.0
|
|
|
$
|
2,618.9
|
|
Canada
|
|
|
293.7
|
|
|
|
274.7
|
|
|
|
210.4
|
|
Australia
|
|
|
312.8
|
|
|
|
251.1
|
|
|
|
210.7
|
|
Europe
|
|
|
1,328.1
|
|
|
|
508.1
|
|
|
|
309.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,512.6
|
|
|
$
|
3,775.9
|
|
|
$
|
3,349.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2008 Compared to Fiscal 2007
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 website
www.gamestop.com and Game Informer magazine. As of
January 31, 2009, the United States segment included 4,331
GameStop stores, compared to 4,061 stores on February 2,
2008. Sales for the 52 weeks ended January 31, 2009
increased 18.9% compared to the 52 weeks ended
February 2, 2008 as a result of increased sales at existing
stores and the opening of 643 new stores since February 3,
2007, including 315 stores in the 52 weeks ended
January 31, 2009. Sales at existing stores increased due to
strong sales of new video game software and used video game
products which is typical in the years following the release of
new hardware platforms. As the installed base of the new
hardware platforms expands, more new software titles become
available and trade-ins of used video game products applied
toward the purchase of new video games lead to increased sales
of new and used video game products. Segment operating income
for the 52 weeks ended
35
January 31, 2009 increased by 35.5% compared to the
52 weeks ended February 2, 2008, driven by strong
sales of new video game software and used video game products
and their related accessories, as well as the leveraging of
selling, general and administrative expenses.
Canada
Sales in the Canadian segment in the 52 weeks ended
January 31, 2009 increased 15.9% compared to the
52 weeks ended February 2, 2008. The increase in sales
was primarily attributable to increased sales at existing stores
and the additional sales at the 58 stores opened since
February 3, 2007. As of January 31, 2009, the Canadian
segment had 325 stores compared to 287 stores as of
February 2, 2008. The increase in sales at existing stores
was driven by strong sales of new video game software related to
the continued expansion of the installed base of new hardware
platforms. Segment operating income for the 52 weeks ended
January 31, 2009 decreased by 8.9% compared to the
52 weeks ended February 2, 2008. The decrease in
operating income when compared to the prior year was due
primarily to a lower gross margin percentage driven by economic
issues and competitive issues stemming from changes in foreign
exchange rates. For the 52 weeks ended January 31,
2009, changes in exchange rates when compared to the prior year
had the effect of decreasing operating earnings by
$2.7 million.
Australia
Segment results for Australia include retail operations in
Australia and New Zealand. As of January 31, 2009, the
Australian segment included 350 stores, compared to 280 stores
as of February 2, 2008. Sales for the 52 weeks ended
January 31, 2009 increased 23.6% compared to the
52 weeks ended February 2, 2008. The increase in sales
was due to higher sales at existing stores and the additional
sales at the 133 stores opened since February 3, 2007,
including the eight New Zealand stores acquired from The
Gamesman Limited during July 2008. The increase in sales at
existing stores was due to a strong video game software title
lineup and the availability of the new hardware platforms in
fiscal 2008 when compared to the prior fiscal year following the
launch of the Sony PlayStation 3 in the first quarter of fiscal
2007. In addition, the new hardware platforms drove an increase
in used product sales as the installed base of platforms
increased and more software became available. Segment operating
income in the 52 weeks ended January 31, 2009
increased by 12.0% when compared to the 52 weeks ended
February 2, 2008. The increase in operating earnings for
the 52 weeks ended January 31, 2009 was due to the
higher sales and related gross margin offset by the higher
selling, general and administrative expenses associated with the
increase in the number of stores in operation and the
unfavorable impact of changes in exchange rates since the prior
year. For the 52 weeks ended January 31, 2009, changes
in exchange rates when compared to the prior year had the effect
of decreasing operating earnings by $4.0 million.
Europe
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 31, 2009, the
European segment operated 1,201 stores, compared to 636 stores
as of February 2, 2008. For the 52 weeks ended
January 31, 2009, European sales increased 66.9% compared
to the 52 weeks ended February 2, 2008. The increase
in sales was primarily due to the additional sales at the 754
stores opened since February 3, 2007, including the 328
stores from the Micromania acquisition and the 49 stores
acquired from Free Record Shop Norway AS, a Norwegian private
limited liability company (FRS), in Norway during
the first quarter of fiscal 2008 and the increase in sales at
existing stores. The increase in sales at existing stores was
due to strong sales of new video game software and the
availability of the new hardware platforms in fiscal 2008 when
compared to the prior fiscal year following the launch of the
Sony PlayStation 3 in the first quarter of fiscal 2007. In
addition, the new hardware platforms drove an increase in used
product sales as the installed base of the platforms increased
and more software became available.
The segment operating income in Europe for the 52 weeks
ended January 31, 2009 increased to $65.6 million
compared to $32.6 million in the 52 weeks ended
February 2, 2008. The increase in the operating income was
driven by the increase in sales and related margin dollars
discussed above, the earnings generated by the Micromania stores
and the continued maturation of our operations in the rest of
the European market, offset by the unfavorable impact
36
of changes in exchange rates since the prior year. For the
52 weeks ended January 31, 2009, changes in exchange
rates when compared to fiscal 2007 had the effect of decreasing
operating earnings by $3.3 million.
Fiscal
2007 Compared to Fiscal 2006
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 website
www.gamestop.com and Game Informer magazine. As of
February 2, 2008, the United States segment included 4,061
GameStop stores, compared to 3,799 stores on February 3,
2007, and 3,624 stores on January 28, 2006. Sales for the
52 weeks ended February 2, 2008 increased 27.4%
compared to the 53 weeks ended February 3, 2007 as a
result of increased sales at existing stores and the opening of
604 new stores since January 28, 2006, including 328 stores
in the 52 weeks ended February 2, 2008. Sales at
existing stores increased due to strong sales of new hardware
platform units, including the Nintendo Wii and the Sony
PlayStation 3 and their related software and accessories, as
well as Microsofts Xbox 360 hardware, software and
accessories, particularly new sales of Halo 3 and
Guitar Hero III released during fiscal 2007. Segment
operating income for the 52 weeks ended February 2,
2008 increased by 37.1% compared to the 53 weeks ended
February 3, 2007, driven by strong sales of the new
hardware platforms and their related software and accessories,
leveraging of selling, general and administrative expenses, and
the recognition of synergies related to the acquisition of EB,
including the shut-down in fiscal 2006 of EBs corporate
headquarters and distribution center.
Canada
Sales in the Canadian segment in the 52 weeks ended
February 2, 2008 increased 48.0% compared to the
53 weeks ended February 3, 2007. The increase in sales
was primarily attributable to increased sales at existing stores
and the additional sales at the 28 stores opened since
January 28, 2006. As of February 2, 2008, the Canadian
segment had 287 stores compared to 267 stores as of
February 3, 2007. The increase in sales at existing stores
was driven by strong sales of the new hardware platform units,
including the Nintendo Wii and the Sony PlayStation 3 and their
related software and accessories, as well as Microsofts
Xbox 360 hardware, software and accessories, particularly new
software sales of Halo 3 and Guitar Hero III
released in fiscal 2007. Segment operating income for the
52 weeks ended February 2, 2008 increased by 79.0%
compared to the 53 weeks ended February 3, 2007,
driven by the increased sales and the related margin dollars
discussed above, the leveraging of selling, general and
administrative expenses and the favorable impact of changes in
exchange rates since the prior year. For the 52 weeks ended
February 2, 2008, changes in exchange rates when compared
to the prior year had the effect of increasing operating
earnings by $1.9 million.
Australia
Segment results for Australia include retail operations in
Australia and New Zealand. As of February 2, 2008, the
Australian segment included 280 stores, compared to 219 as of
February 3, 2007. Sales for the 52 weeks ended
February 2, 2008 increased 46.1% compared to the
53 weeks ended February 3, 2007. The increase in sales
was due to higher sales at existing stores and the additional
sales at the 104 stores opened since January 28, 2006. The
increase in sales at existing stores was due to strong sales of
the Sony PlayStation 3, which launched in Australia and New
Zealand during the first quarter of fiscal 2007, as well as
strong sales of other video game hardware, including the
Nintendo Wii, and increased sales of handheld video game systems
during fiscal 2007 compared to fiscal 2006. The increased
hardware sales led to increases in sales in new video game
software, used video game products and accessories and other
products. Segment operating income in the 52 weeks ended
February 2, 2008 increased by 53.1% when compared to the
53 weeks ended February 3, 2007. The increase was
driven by the increased sales and related margin dollars
discussed above, the leveraging of selling, general and
administrative expenses and the favorable impact of changes in
exchange rates since the prior year. For the 52 weeks ended
February 2, 2008, changes in exchange rates when compared
to the prior year had the effect of increasing operating
earnings by $3.7 million.
37
Europe
Segment results for Europe include retail operations in 12
European countries including Portugal, which commenced
operations in the first quarter of fiscal 2007. As of
February 2, 2008, the European segment operated 636 stores,
compared to 493 stores as of February 3, 2007. For the
52 weeks ended February 2, 2008, European sales
increased 72.4% compared to the 53 weeks ended
February 3, 2007. The increase in sales was primarily due
to the increase in sales at existing stores and the additional
sales at the 271 stores opened since January 28, 2006. The
increase in store count was offset by store closings in the
first quarter of fiscal 2007, primarily in Spain, as part of the
implementation of the integration strategy of the acquisition of
EB. The increase in sales at existing stores was driven by
strong sales of the Sony PlayStation 3, which launched in Europe
during the first quarter of fiscal 2007, as well as strong sales
of other video game hardware, including the Nintendo Wii, and
increased sales of Microsofts Xbox 360 and handheld video
game systems during fiscal 2007 compared to fiscal 2006. The
increased hardware sales led to increases in sales in new video
game software, used video game products and accessories and
other products.
The segment operating income in Europe for the 52 weeks
ended February 2, 2008 increased to $32.6 million
compared to $1.0 million in the 53 weeks ended
February 3, 2007. The increase in the operating income was
driven by the increase in sales and related margin dollars
discussed above, the leveraging of selling, general and
administrative expenses, both of which reflect the continued
maturation of our operations in the European market, and the
favorable impact of changes in exchange rates since the prior
year. For the 52 weeks ended February 2, 2008, changes
in exchange rates when compared to fiscal 2006 had the effect of
increasing operating earnings by $2.7 million.
Liquidity
and Capital Resources
Cash
Flows
During fiscal 2008, cash provided by operations was
$549.2 million, compared to cash provided by operations of
$484.8 million in fiscal 2007. The increase in cash
provided by operations of $64.4 million from fiscal 2007 to
fiscal 2008 was primarily due to an increase in cash provided by
net earnings, including the non-cash adjustments to net
earnings, of $80.7 million and a decrease in the excess tax
benefits realized from the exercise of stock-based awards of
$59.1 million. These amounts were offset by an increase in
cash used in operations for working capital of $75.4 million
from fiscal 2007 to fiscal 2008 primarily due to an increase in
merchandise inventories resulting from an increase in store
count and sales levels.
During fiscal 2007, cash provided by operations was
$484.8 million, compared to cash provided by operations of
$420.1 million in fiscal 2006. The increase in cash
provided by operations of $64.7 million from fiscal 2006 to
fiscal 2007 was primarily due to an increase in the cash
provided by net earnings, including the non-cash adjustments to
net earnings, of $168.5 million offset by an increase in
the excess tax benefits realized from the exercise of
stock-based awards of $49.5 million. These amounts were
offset by a net decrease in cash provided by operations for
working capital of $54.3 million from fiscal 2006 to fiscal
2007 due primarily to an increase in merchandise inventories
resulting from an increase in store count and sales.
Cash used in investing activities was $813.9 million in
fiscal 2008, $174.5 million during fiscal 2007 and
$125.9 million during fiscal 2006. During fiscal 2008, the
Company used $580.4 million, net of cash acquired, to
purchase Micromania and $50.3 million, net of cash
acquired, to acquire FRS, The Gamesman Limited and an increased
ownership interest in GameStop Group Limited. In addition,
during fiscal 2008, $183.2 million of cash was used for
capital expenditures primarily to open 674 new stores in the
United States and internationally and to invest in information
systems. During fiscal 2007, $175.6 million of cash was
used for capital expenditures primarily to open 586 stores in
the United States and internationally and to invest in
information systems, which were offset by $1.1 million of
cash received related to the finalization of the purchase price
of Game Brands Inc. which was acquired during the fourth quarter
of fiscal 2006. During fiscal 2006, $133.9 million of cash
was used for capital expenditures primarily to invest in
information and distribution systems in support of the
integration of the operations of EB, to open new stores in the
United States and for international expansion. Also, during the
fourth quarter of fiscal 2006, the Company purchased Game Brands
Inc., a 72-store video game retailer, for $11.3 million.
38
These investing activities were offset by $19.3 million of
cash provided by the sale of the Pennsylvania corporate office
and distribution center which were acquired in the EB merger.
Cash provided by financing activities was $22.7 million in
fiscal 2008 and cash used in financing activities was
$117.1 million in fiscal 2007 and $43.3 million in
fiscal 2006. The cash flows provided by financing activities in
fiscal 2008 were due to cash received related to the issuance of
shares associated with stock option exercises of
$29.0 million and for the excess tax benefits realized from
the exercise of stock-based awards of $34.2 million. These
cash inflows were offset by the repurchase of $30.0 million
of principal value of the Companys senior notes and
increases in other non-current assets. In addition, the Company
borrowed $425.0 million related to the acquisition of
Micromania and subsequently repaid the balance before the end of
fiscal 2008. The cash used in financing activities for fiscal
2007 was primarily due to the repurchase of $20.0 million
and $250.0 million of principal value of the Companys
senior notes and senior floating rate notes, respectively, and
the $12.2 million principal payment made in October 2007 on
the Barnes & Noble promissory note. These cash
outflows were offset by $64.9 million received for the
issuance of shares relating to stock option exercises and
$93.3 million for the realization of tax benefits relating
to the exercise of stock-based awards. The cash used in
financing activities in fiscal 2006 was primarily due to the
repurchase of $50.0 million each of the senior notes and
the senior floating rate notes, the payment of the
$12.2 million principal due on the Barnes & Noble
promissory note and the repayment of the $9.1 million
mortgage on EBs Pennsylvania distribution center. The
fiscal 2006 outflows were offset by $33.9 million received
for the issuance of shares relating to stock option exercises
and $43.8 million for the realization of tax benefits
relating to the exercise of stock-based awards.
Sources
of Liquidity
We utilize cash generated from operations and have funds
available to us under our revolving credit facility to cover
seasonal fluctuations in cash flows and to support our various
growth initiatives. Our cash and cash equivalents are carried at
cost, which approximates market value, and consist primarily of
time deposits with highly rated commercial banks and money
market investment funds holding direct U.S. Treasury
obligations.
In October 2005, in connection with the EB merger, the Company
entered into a five-year, $400 million Credit Agreement
(the Revolver), including a $50 million letter
of credit
sub-limit,
secured by the assets of the Company and its
U.S. subsidiaries. The Revolver places certain restrictions
on the Company and its subsidiaries, including limitations on
asset sales, additional liens and the incurrence of additional
indebtedness. In April 2007, the Company amended the Revolver to
extend the maturity date from October 11, 2010 to
April 25, 2012, reduce the LIBO interest rate margin,
reduce and fix the rate of the unused commitment fee and modify
or delete certain other covenants.
The availability under the Revolver is limited to a borrowing
base which allows the Company to borrow up to the lesser of
(x) approximately 70% of eligible inventory and
(y) 90% of the appraisal value of the inventory, in each
case plus 85% of eligible credit card receivables, net of
certain reserves. Letters of credit reduce the amount available
to borrow by their face value. The Companys ability to pay
cash dividends, redeem options, and repurchase shares is
generally prohibited, except that if availability under the
Revolver is or will be after any such payment equal to or
greater than 25% of the borrowing base, the Company may
repurchase its capital stock and pay cash dividends. In
addition, in the event that credit extensions under the Revolver
at any time exceed 80% of the lesser of the total commitment or
the borrowing base, the Company will be subject to a fixed
charge coverage ratio covenant of 1.5:1.0.
The per annum interest rate on the Revolver is variable and, at
the Companys option, is calculated by applying a margin of
(1) 0.0% to 0.25% above the higher of the prime rate of the
administrative agent or the federal funds effective rate plus
0.50% or (2) 1.00% to 1.50% above the LIBO rate. The
applicable margin is determined quarterly as a function of the
Companys consolidated leverage ratio. As of
January 31, 2009, the applicable margin was 0.0% for prime
rate loans and 1.00% for LIBO rate loans. In addition, the
Company is required to pay a commitment fee of 0.25% for any
unused portion of the total commitment under the Revolver. As of
January 31, 2009, there were no borrowings outstanding
under the Revolver and letters of credit outstanding totaled
$7.7 million.
In October 2008, the Company amended the Revolver to permit both
the acquisition of Micromania and a committed
$150.0 million junior term loan facility (the Term
Loans). In addition, during any period for which the
39
Term Loans were outstanding, the amendment increased the
applicable margin under the Revolver (i) payable on LIBO
rate loans to a range of 1.5% to 2.0% from the current range of
1.0% to 1.5% and (ii) payable on prime rate loans to a
range of 0.5% to 0.75% from the current range of 0.0% to 0.25%.
The margins applicable prior to the entry into the amendment
apply once the Term Loans are no longer outstanding. The Term
Loans were outstanding during the fourth quarter of fiscal 2008.
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 in the aggregate of $150.0 million,
consisting of a $50.0 million secured term loan (Term
Loan A) and a $100.0 million unsecured term loan
(Term Loan B). The Term Loan Agreement provided that
the principal of Term Loan B was to be repaid in four equal
installments of $25.0 million a week for four consecutive
weeks, commencing on December 3, 2008. Term Loan A was
scheduled to mature on March 31, 2009. Amounts borrowed
under the Term Loan Agreement may not be reborrowed once repaid.
Borrowings made pursuant to the Term Loan Agreement bore
interest, payable quarterly or, if earlier, at the end of any
interest period, at a per annum rate equal to either
(a) the prime loan rate, described in the Term Loan
Agreement as the higher of (i) Bank of America N.A.s
prime rate or (ii) the federal funds rate plus 0.50%, in
each case plus 1.75%, or (b) the LIBO rate (a publicly
published rate) plus 3.75%. The effective interest rate on Term
Loan A was 5.75% per annum and the effective rate on Term Loan B
ranged from 5% to 5.75% per annum.
The Term Loan Agreement contained customary affirmative and
negative covenants, including limitations on GameStop and its
subsidiaries with respect to indebtedness, liens, investments,
distributions, mergers and acquisitions, dispositions of assets,
changes of business and transactions with affiliates. In
addition, the Company was subject to a fixed charge coverage
ratio covenant of 1.5:1.0. The covenants permitted the Company
to use proceeds of the Term Loans for working capital, capital
expenditures, payment of transaction costs and a portion of the
consideration in connection with the acquisition of Micromania
and for all other lawful corporate purposes.
In November 2008, the Company borrowed $275.0 million under
the Revolver and borrowed $150.0 million under the Term
Loans in order to complete the acquisition of Micromania. As of
January 31, 2009, the Revolver and the Term Loans were
repaid in full.
In September 2007, the Companys 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 Companys
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 31, 2009, there were $5.6 million of cash
overdrafts outstanding under the Line of Credit and bank
guarantees outstanding totaled $4.9 million.
In September 2005, the Company, along with GameStop, Inc. as
co-issuer (together with the Company, the Issuers),
completed the offering of $300 million aggregate principal
amount of Senior Floating Rate Notes due 2011 (the Senior
Floating Rate Notes) and $650 million aggregate
principal amount of Senior Notes due 2012 (the Senior
Notes and, together with the Senior Floating Rate Notes,
the Notes). The Notes were issued under an
Indenture, dated September 28, 2005 (the
Indenture), by and among the Issuers, the subsidiary
guarantors party thereto, and Citibank, N.A., as trustee (the
Trustee). The net proceeds of the offering were used
to pay the cash portion of the merger consideration paid to the
stockholders of EB in connection with the EB merger. In November
2006, Wilmington Trust Company was appointed as the new
Trustee for the Notes.
The Senior Notes bear interest at 8.0% per annum, mature on
October 1, 2012 and were priced at 98.688%, resulting in a
discount at the time of issue of $8.5 million. The discount
is being amortized using the effective interest method. As of
January 31, 2009, the unamortized original issue discount
was $4.3 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
40
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 31, 2009, 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.
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 674 stores in fiscal 2008 and purchased
328 stores through our acquisition of Micromania. We expect to
open approximately 400 stores in fiscal 2009. Capital
expenditures for fiscal 2009 are projected to be approximately
$170 million, to be used primarily to fund new store
openings and invest in distribution and information systems in
support of operations.
In May 2006, the Company announced that its Board of Directors
authorized the buyback of up to an aggregate of
$100 million of its Senior Floating Rate Notes and Senior
Notes. As of February 3, 2007, the Company had repurchased
the maximum authorized amount, having acquired $50 million
of its Senior Notes and $50 million of its Senior Floating
Rate Notes, and delivered the Notes to the Trustee for
cancellation. The associated loss on the retirement of this debt
was $6.1 million for the 53 week period ended
February 3, 2007, which consists of the premium paid to
retire the Notes and the recognition of the deferred financing
fees and the original issue discount on the Notes.
On February 9, 2007, the Company announced that its Board
of Directors authorized the buyback of up to an aggregate of an
additional $150 million of its Senior Notes and Senior
Floating Rate Notes. As of August 4, 2007, the Company had
repurchased the maximum authorized amount, having acquired
$20 million of its Senior Notes and $130 million of
its Senior Floating Rate Notes, and delivered the Notes to the
Trustee for cancellation. The associated loss on the retirement
of this debt was $8.8 million for the 52 week period
ended February 2, 2008, which consists of the premium paid
to retire the Notes and the recognition of the deferred
financing fees and the original issue discount on the Notes.
On June 28, 2007, the Company announced that its Board of
Directors authorized the redemption of the remaining
$120 million of Senior Floating Rate Notes outstanding. The
Company redeemed the Senior Floating Rate Notes on
October 1, 2007 at the redemption price specified by the
Senior Floating Rate Notes of 102.00%, plus all accrued and
unpaid interest through the redemption date. The Company
incurred a one-time pre-tax charge of $3.8 million
associated with the redemption, which represents a
$2.4 million redemption premium and $1.4 million to
recognize unamortized deferred financing costs for the
52 week period ended February 2, 2008.
On February 7, 2008, the Company announced that its Board
of Directors authorized the buyback of up to an aggregate of an
additional $130 million of its Senior Notes. The timing and
amount of the repurchases will be determined by the
Companys management based on their evaluation of market
conditions and other factors. In addition, the repurchases may
be suspended or discontinued at any time. As of January 31,
2009, the Company had repurchased $30 million of its Senior
Notes pursuant to this new authorization and delivered the
Senior Notes to the Trustee for cancellation. The associated
loss on retirement of debt is $2.3 million, which consists
of the premium paid to retire the Senior Notes and the write-off
of the deferred financing fees and the original issue discount
on the Senior Notes for the 52 week period ended
January 31, 2009.
41
In October 2004, GameStop issued a promissory note in favor of
Barnes & Noble in the principal amount of
$74.0 million in connection with the repurchase of
GameStops common stock held by Barnes & Noble.
The note was unsecured and bore interest at 5.5% per annum,
payable with each principal installment. Scheduled principal
payments of $12.2 million and $12.2 million were made
in October 2006 and October 2007, respectively, satisfying the
promissory note in full.
We used cash to expand the Company through acquisitions during
fiscal 2008. On April 5, 2008, the Company purchased all
the outstanding stock of FRS for $21.0 million, net of cash
acquired. FRS operated 49 record stores in Norway and also
operated office and warehouse facilities in Oslo, Norway. The
Company converted these stores into video game stores with an
inventory assortment similar to its other stores in Norway.
In 2003, the Company purchased a 51% controlling interest in
GameStop Group Limited which operates stores in Ireland and the
United Kingdom. Under the terms of the purchase agreement, the
minority interest owners of the remaining 49% have the ability
to require the Company to purchase their remaining shares in
incremental percentages at a price to be determined based
partially on the Companys price to earnings ratio and
GameStop Group Limiteds earnings. On May 21, 2008,
the minority interest owners exercised their right to sell
one-third of their shares, or approximately 16% of GameStop
Group Limited, to the Company under the terms of the original
purchase agreement for $27.4 million. The transaction was
completed in June 2008 and recorded in accordance with the
provisions of SFAS 141.
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 L Capital, LV Capital, Europ@web and other
shareholders of Micromania for approximately
$580.4 million, net of cash acquired. Micromania is a
leading retailer of video and computer games in France with 332
stores as of January 31, 2009. The Company funded the
transaction with cash on hand, a draw on the Revolver totaling
$275.0 million, and the Term Loans.
Based on our current operating plans, we believe that available
cash balances, cash generated from our operating activities and
funds available under the Revolver will be sufficient to fund
our operations, required payments on the Senior Notes, store
expansion and remodeling activities and corporate capital
expenditure programs for at least the next 12 months.
Contractual
Obligations
The following table sets forth our contractual obligations as of
January 31, 2009:
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Payments Due by Period
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Less Than
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More Than
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Contractual Obligations
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Total
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1 Year
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1-3 Years
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3-5 Years
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5 Years
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(In millions)
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Long-Term Debt(1)
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$
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726.0
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$
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44.0
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$
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88.0
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$
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594.0
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$
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Operating Leases
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972.8
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295.1
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387.1
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179.5
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111.1
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Purchase Obligations(2)
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734.3
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734.3
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Total
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$
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2,433.1
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$
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1,073.4
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$
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475.1
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$
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773.5
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$
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111.1
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(1) |
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The long-term debt consists of $550.0 million (principal
value), which bears interest at 8.0% per annum. Amounts include
contractual interest payments. |
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(2) |
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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.
42
The Company has entered into employment agreements with R.
Richard Fontaine, Executive Chairman, Daniel A. DeMatteo, Chief
Executive Officer, J. Paul Raines, Chief Operating Officer,
David W. Carlson, Executive Vice President and Chief Financial
Officer and Tony D. Bartel, Executive Vice President
Merchandising and Marketing. The terms of the employment
agreements with Mr. Fontaine and Mr. DeMatteo
commenced on April 11, 2005 and continued for a period of
three years thereafter and were automatically renewed in April
2008 for an additional year. 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. Carlson commenced
on April 3, 2006 and continued for a period of two years
thereafter and was automatically renewed in April 2008 for an
additional year. The term of the employment agreement for
Mr. Bartel commenced on October 24, 2008 and continues
for a period of three years thereafter. Each of these employment
agreements contains provisions for automatic annual renewals
unless either party gives notice of non-renewal at least six
months prior to expiration. The employment agreements for
Mr. Fontaine, Mr. DeMatteo and Mr. Carlson will
automatically renew in April 2009 for a period of one year as no
notice of non-renewal was given.
Each of the employment agreements was amended and restated on
December 31, 2008 to bring them into compliance with
Section 409A of the Internal Revenue Code of 1986, as
amended, enacted as part of the American Jobs Creation Act of
2004. The minimum annual salaries during the term of employment
under the amended and restated employment agreements for
Messrs. Fontaine, DeMatteo, Raines, Carlson and Bartel
shall be no less than $650,000, $535,000, $900,000, $350,000 and
$400,000, respectively. The Board of Directors of the Company
has set Messrs. Fontaines, DeMatteos,
Raines, Carlsons and Bartels annual salaries
for fiscal 2009 at $1,200,000, $1,250,000, $920,000, $500,000
and $500,000, respectively.
As of January 31, 2009, we had standby letters of credit
outstanding in the amount of $7.7 million and had bank
guarantees outstanding in the amount of $12.9 million,
$7.9 million of which are cash collateralized.
As of January 31, 2009, the Company had $32.2 million
of income tax liability, including accrued interest and
penalties related to unrecognized tax benefits in other
long-term liabilities in its consolidated balance sheet. At the
time of this filing, the settlement period for the noncurrent
portion of our income tax liability cannot be determined. In
addition, any payments related to unrecognized tax benefits
would be partially offset by reductions in payments in other
jurisdictions.
In 2003, the Company purchased a 51% controlling interest in
GameStop Group Limited. Under the terms of the purchase
agreement, the individual owners of the remaining 49% interest
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 Companys price to
earnings ratio and GameStop Group Limiteds earnings. In
June 2008, additional shares representing an interest of
approximately 16% were purchased by the Company. The Company
already consolidates the results of GameStop Group Limited;
therefore, any additional amounts acquired will not have a
material effect on the Companys financial statements.
Off-Balance
Sheet Arrangements
As of January 31, 2009, 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 operates departments within nine bookstores operated
by Barnes & Noble, a related party through a common
stockholder who is chairman of the board of directors of
Barnes & Noble and a member of the Companys
Board of Directors. The Company pays a license fee to
Barnes & Noble on the gross sales of such departments.
The Company deems the license fee to be reasonable and based
upon terms equivalent to those that would prevail in an
arms length transaction. During the 52 weeks ended
January 31, 2009 and February 2, 2008 and the
53 weeks ended February 3, 2007, these charges
amounted to $1.3 million, $1.2 million and
$1.0 million, respectively.
43
In May 2005, the Company entered into an arrangement with
Barnes & Noble under which www.gamestop.com
became the exclusive specialty video game retailer listed on
www.bn.com, Barnes & Nobles
e-commerce
site. Under the terms of this agreement, the Company pays a fee
to Barnes & Noble for sales of video game or PC
entertainment products sold through www.bn.com. The fee
paid to Barnes & Noble in connection with this
arrangement was $0.5 million, $0.4 million and
$0.3 million for the 52 weeks ended January 31,
2009, 52 weeks ended February 2, 2008 and the
53 weeks ended February 3, 2007, respectively.
Until June 2005, GameStop participated in Barnes &
Nobles workers compensation, property and general
liability insurance programs. The costs incurred by
Barnes & Noble under these programs were allocated to
GameStop based upon total payroll expense, property and
equipment, and insurance claim history of GameStop. Management
deemed the allocation methodology to be reasonable. Although the
Company secured its own insurance coverage, costs will likely
continue to be incurred by Barnes & Noble on insurance
claims which were incurred under its programs prior to June 2005
and any such costs applicable to insurance claims against
GameStop will be allocated to the Company. During the
52 weeks ended January 31, 2009 and February 2,
2008 and the 53 weeks ended February 3, 2007, these
allocated charges amounted to $0.2 million,
$0.3 million and $0.8 million, respectively.
The Company had a promissory note in the favor of
Barnes & Noble in the principal amount of
$74.0 million, in connection with the repurchase of the
Companys common stock held by Barnes & Noble in
October 2004. The note was unsecured and bore interest at 5.5%
per annum, payable with each principal installment. Scheduled
principal payments of $12.2 million were made in October
2006 and October 2007 and the note has been satisfied in full.
Interest expense on the promissory note for the 52 weeks
ended February 2, 2008 and the 53 weeks ended
February 3, 2007 totaled $0.4 million and
$1.1 million, respectively.
Recent
Accounting Standards and Pronouncements
In March 2008, the FASB issued Statement of Financial Accounting
Standards No. 161, Disclosures about Derivative
Instruments and Hedging Activities an amendment of
FASB Statement No. 133 (SFAS 161).
SFAS 161 requires enhanced disclosures about how and why an
entity uses derivative instruments, how derivative instruments
and related hedged items are accounted for and their effect on
an entitys financial position, financial performance, and
cash flows. SFAS 161 is effective for the Company on
February 1, 2009. The Company is currently evaluating the
impact that the adoption of SFAS 161 will have on its
consolidated financial statements.
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 141 (revised 2007), Business
Combinations (SFAS 141(R)).
SFAS 141(R) amends the principles and requirements for how
an acquirer recognizes and measures in its financial statements
the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill
acquired. SFAS 141(R) also establishes disclosure
requirements to enable the evaluation of the nature and
financial effects of the business combination. SFAS 141(R)
is effective for the Company on February 1, 2009, and the
Company will apply SFAS 141(R) prospectively to all
business combinations subsequent to the effective date.
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 160, Noncontrolling Interests
in Consolidated Financial Statements an amendment of
Accounting Research Bulletin No. 51
(SFAS 160). SFAS 160 establishes
accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS 160 also establishes disclosure
requirements that clearly identify and distinguish between the
controlling and noncontrolling interests and requires the
separate disclosure of income attributable to controlling and
noncontrolling interests. SFAS 160 became effective for the
Company on February 1, 2009. The Company is currently
evaluating the impact that the adoption of SFAS 160 will
have on its consolidated financial statements.
In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 157, Fair Value Measurements
(SFAS 157), which defines fair value,
establishes a framework for measuring fair value, and expands
disclosures about fair value measurements. SFAS 157 applies
to other accounting pronouncements that require or permit fair
value measurements. The Company adopted SFAS 157 on
February 3, 2008 as required for its financial assets and
liabilities. However, in February 2008, the FASB released a FASB
Staff Position, FSP
FAS 157-2,
Effective Date of FASB Statement No. 157, which
delayed the effective date of SFAS 157 for all non-
44
financial assets and non-financial liabilities, except those
that are recognized or disclosed at fair value in the financial
statements on a recurring basis. The adoption of SFAS 157
for our financial assets and liabilities did not have a material
impact on the Companys financial condition and results of
operations. We do not believe the adoption of SFAS 157 for
our non-financial assets and liabilities, effective
February 1, 2009, will have a material impact on our
consolidated financial statements.
Seasonality
Our business, like that of many retailers, is seasonal, with the
major portion of sales and operating profit realized during the
fourth quarter which includes the holiday selling season.
Results for any quarter are not necessarily indicative of the
results that may be achieved for a full fiscal year. Quarterly
results may fluctuate materially depending upon, among other
factors, the timing of new product introductions and new store
openings, sales contributed by new stores, increases or
decreases in comparable store sales, adverse weather conditions,
shifts in the timing of certain holidays or promotions and
changes in our merchandise mix.
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Item 7A.
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Quantitative
and Qualitative Disclosures About Market Risk
|
Interest
Rate Exposure
We do not use derivative financial instruments to hedge interest
rate exposure. We limit our interest rate risks by investing our
excess cash balances in short-term, highly-liquid instruments
with a maturity of one year or less. In addition, the Senior
Notes outstanding issued in connection with the EB merger 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 follows the provisions of Statement of Financial
Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities
(SFAS 133), as amended by Statement of
Financial Accounting Standards No. 138, Accounting for
Certain Derivative Instruments and Certain Hedging Activities
and Statement of Financial Accounting Standards
No. 157, Fair Value Measurements
(SFAS 157). SFAS 133 requires that all
derivative instruments be recorded on the balance sheet at fair
value, while SFAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about
fair value measurements. Changes in the fair value of
derivatives are recorded each period in current earnings or
other comprehensive income, depending on whether the derivative
is designated as part of a hedge transaction, and if it is,
depending on the type of hedge transaction.
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. The aggregate
fair value of the Foreign Currency Contracts as of
January 31, 2009 was an asset of $0.3 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 31, 2009 would result in a
(loss) or gain in value of the forwards, options and swaps of
($17.7 million) or $17.7 million, respectively.
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Item 8.
|
Consolidated
Financial Statements and Supplementary Data
|
See Item 15(a)(1) and (2) of this
Form 10-K.
45
|
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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
Companys management conducted an evaluation, under the
supervision and with the participation of the principal
executive officer and principal financial officer, of the
Companys disclosure controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act). 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
Companys disclosure controls and procedures are effective.
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 Companys periodic reports.
(b) Managements 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 as of January 31, 2009. The effectiveness of our
internal control over financial reporting as of January 31,
2009 has been audited by BDO Seidman, LLP, an independent
registered public accounting firm, as stated in their report
which is included in this
Form 10-K.
The Company completed the acquisition of Micromania on
November 17, 2008 and the results of operations of
Micromania are included in the Companys consolidated
financial statements for the period from the date of the
acquisition through January 31, 2009. Management excluded
from its assessment of the effectiveness of the Companys
internal control over financial reporting the internal controls
of Micromania. Such exclusion was in accordance with the
Securities and Exchange Commission guidance that an assessment
of a recently acquired business may be omitted from
managements report on internal control over financial
reporting in the year of the acquisition. The assets,
liabilities and results of operation for Micromania were not
significant when compared to the Companys consolidated
assets, liabilities and results of operations as of and for the
52 weeks ended January 31, 2009.
(c) Changes in Internal Control Over Financial Reporting
Micromania operates on different information technology systems
than the Company. The Company is currently evaluating the
internal control processes at Micromania and changes to certain
processes, information technology systems, and other components
of internal controls resulting from this evaluation may occur.
Other than the impact of the acquisition of Micromania, there
was no change in the Companys 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 Companys most recently
completed fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Companys
internal control over financial reporting.
|
|
Item 9B.
|
Other
Information
|
None.
46
PART III
|
|
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 Companys
Executive Chairman of the Board, Chief Executive Officer, Chief
Operating Officer, Chief Financial Officer, Chief Accounting
Officer and any Executive Vice President of the Company. This
Code of Ethics is filed as Exhibit 14.1 to this
Form 10-K.
The Company also has adopted a Code of Standards, Ethics and
Conduct applicable to all of the Companys management-level
employees, which is filed as Exhibit 14.2 to this
Form 10-K.
In accordance with SEC rules, the Company intends to disclose
any amendment (other than any technical, administrative, or
other non-substantive amendment) to either of the above Codes,
or any waiver of any provision thereof with respect to any of
the executive officers listed in the paragraph above, on the
Companys website (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*
|
PART IV
|
|
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 31, 2009 and February 2, 2008 and the
53 weeks ended February 3, 2007 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:
* 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 2009 Annual Meeting of Stockholders of
the Company, which is to be filed with the SEC pursuant to
Regulation 14A under the Securities Exchange Act of 1934,
as amended. This definitive proxy statement relates to a meeting
of stockholders involving the election of directors and the
portions therefrom required to be set forth in this
Form 10-K
by Items 10, 11, 12, 13 and 14 are incorporated herein by
reference pursuant to General Instruction G(3) to
Form 10-K.
47
Schedule II
Valuation and Qualifying Accounts
For the 52 weeks ended January 31, 2009 and
February 2, 2008 and the 53 weeks ended
February 3, 2007:
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Column A
|
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Column B
|
|
|
Column C(1)
|
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Column C(2)
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|
Column D
|
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|
Column E
|
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|
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Charged
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
to Other
|
|
|
Deductions-
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
Accounts-
|
|
|
Write-Offs
|
|
|
Balance at
|
|
|
|
Beginning
|
|
|
Costs and
|
|
|
Accounts
|
|
|
Net of
|
|
|
End of
|
|
|
|
of Period
|
|
|
Expenses
|
|
|
Payable
|
|
|
Recoveries
|
|
|
Period
|
|
|
|
(In thousands)
|
|
|
Inventory Reserve, deducted from asset accounts
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended January 31, 2009
|
|
$
|
59,698
|
|
|
$
|
42,979
|
|
|
$
|
34,710
|
|
|
$
|
80,820
|
|
|
$
|
56,567
|
|
52 Weeks Ended February 2, 2008
|
|
|
53,816
|
|
|
|
51,879
|
|
|
|
28,262
|
|
|
|
74,259
|
|
|
|
59,698
|
|
53 Weeks Ended February 3, 2007
|
|
|
53,277
|
|
|
|
50,779
|
|
|
|
27,792
|
|
|
|
78,032
|
|
|
|
53,816
|
|
The Company does not maintain a reserve for estimated sales
returns and allowances as amounts are considered to be
immaterial. All other schedules are omitted because they are not
applicable.
(b) Exhibits
The following exhibits are filed as part of this
Form 10-K:
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
2
|
.1
|
|
Agreement and Plan of Merger, dated as of April 17, 2005,
among GameStop Corp. (f/k/a GSC Holdings Corp.), Electronics
Boutique Holdings Corp., GameStop, Inc., GameStop Holdings Corp.
(f/k/a GameStop Corp.), Cowboy Subsidiary LLC and Eagle
Subsidiary LLC.(1)
|
|
2
|
.2
|
|
Sale and Purchase Agreement, dated September 30, 2008,
between EB International Holdings, Inc. and L Capital, LV
Capital, Europ@Web and other Micromania shareholders.(13)
|
|
2
|
.3
|
|
Amendment, dated November 17, 2008, to Sale and Purchase
Agreement for Micromania Acquisition listed as Exhibit 2.2
above.(14)
|
|
3
|
.1
|
|
Second Amended and Restated Certificate of Incorporation.(2)
|
|
3
|
.2
|
|
Amended and Restated Bylaws.(3)
|
|
4
|
.1
|
|
Indenture, dated September 28, 2005, by and among GameStop
Corp. (f/k/a GSC Holdings Corp.), GameStop, Inc., the subsidiary
guarantors party thereto, and Citibank N.A., as trustee.(4)
|
|
4
|
.2
|
|
First Supplemental Indenture, dated October 8, 2005, by and
among GameStop Corp. (f/k/a GSC Holdings Corp.), GameStop, Inc.,
the subsidiary guarantors party thereto, and Citibank N.A., as
trustee.(5)
|
|
4
|
.3
|
|
Rights Agreement, dated as of June 27, 2005, between
GameStop Corp. (f/k/a GSC Holdings Corp.) and The Bank of New
York, as Rights Agent.(3)
|
|
4
|
.4
|
|
Form of Indenture.(6)
|
|
10
|
.1
|
|
Insurance Agreement, dated as of January 1, 2002, between
Barnes & Noble, Inc. and GameStop Holdings Corp.
(f/k/a GameStop Corp.).(7)
|
|
10
|
.2
|
|
Operating Agreement, dated as of January 1, 2002, between
Barnes & Noble, Inc. and GameStop Holdings Corp.
(f/k/a GameStop Corp.).(7)
|
|
10
|
.3
|
|
Third Amended and Restated 2001 Incentive Plan.(15)
|
|
10
|
.4
|
|
Second Amended and Restated Supplemental Compensation Plan.(8)
|
|
10
|
.5
|
|
Form of Option Agreement.(9)
|
|
10
|
.6
|
|
Form of Restricted Share Agreement.(10)
|
|
10
|
.7
|
|
Credit Agreement, dated as of October 11, 2005, by and
among GameStop Corp. (f/k/a GSC Holdings Corp.), certain
subsidiaries of GameStop Corp., Bank of America, N.A. and the
other lending institutions listed in the Agreement, Bank of
America, N.A. and Citicorp North America, Inc., as Issuing
Banks, Bank of America, N.A., as Administrative Agent and
Collateral Agent, Citicorp North America, Inc., as Syndication
Agent, and Merrill Lynch Capital, a division of Merrill Lynch
Business Financial Services Inc., as Documentation Agent.(11)
|
48
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.8
|
|
Guaranty, dated as of October 11, 2005, by GameStop Corp.
(f/k/a GSC Holdings Corp.) and certain subsidiaries of GameStop
Corp. in favor of the agents and lenders.(11)
|
|
10
|
.9
|
|
Security Agreement, dated October 11, 2005, by GameStop
Corp. (f/k/a GSC Holdings Corp.) and certain subsidiaries of
GameStop Corp. in favor of Bank of America, N.A., as Collateral
Agent for the Secured Parties.(11)
|
|
10
|
.10
|
|
Patent and Trademark Security Agreement, dated as of
October 11, 2005 by GameStop Corp. (f/k/a GSC Holdings
Corp.) and certain subsidiaries of GameStop Corp. in favor of
Bank of America, N.A., as Collateral Agent.(11)
|
|
10
|
.11
|
|
Mortgage, Security Agreement, and Assignment and Deeds of Trust,
dated October 11, 2005, between GameStop of Texas, L.P. and
Bank of America, N.A., as Collateral Agent.(11)
|
|
10
|
.12
|
|
Mortgage, Security Agreement, and Assignment and Deeds of Trust,
dated October 11, 2005, between Electronics Boutique of
America, Inc. and Bank of America, N.A., as Collateral Agent.(11)
|
|
10
|
.13
|
|
Form of Securities Collateral Pledge Agreement, dated as of
October 11, 2005.(11)
|
|
10
|
.14
|
|
First Amendment, dated April 25, 2007, to Credit Agreement,
dated as of October 11, 2005, by and among GameStop Corp.
(f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop
Corp., Bank of America, N.A. and the other lending institutions
listed in the Amendment, Bank of America, N.A. and Citicorp
North America, Inc., as Issuing Banks, Bank of America, N.A., as
Administrative Agent and Collateral Agent, Citicorp North
America, Inc., as Syndication Agent, and Merrill Lynch Capital,
a division of Merrill Lynch Business Financial Services Inc., as
Documentation Agent.(12)
|
|
10
|
.15
|
|
Second Amendment, dated as of October 23, 2008, to Credit
Agreement, dated as of October 11, 2005, by and among
GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries
of GameStop Corp., Bank of America, N.A. and the other lending
institutions listed in the Amendment, Bank of America, N.A. and
Citicorp North America, Inc., as Issuing Banks, Bank of America,
N.A., as Administrative Agent and Collateral Agent, Citicorp
North America, Inc., as Syndication Agent, and GE Business
Financial Services, Inc., as Documentation Agent.(14)
|
|
10
|
.16
|
|
Term Loan Agreement, dated November 12, 2008, by and among
GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries
of GameStop Corp., Bank of America, N.A., as lender, Bank of
America, N.A., as Administrative Agent and Collateral Agent, and
Banc of America Securities LLC, as Sole Arranger and
Bookrunner.(14)
|
|
10
|
.17
|
|
Security Agreement, dated November 12, 2008, by and among
GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries
of GameStop Corp., Bank of America, N.A., as lender and Bank of
America, N.A., as Collateral Agent.(14)
|
|
10
|
.18
|
|
Patent and Trademark Security Agreement, dated as of
November 12, 2008, by and among GameStop Corp. (f/k/a GSC
Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of
America, N.A., as lender, and Bank of America, N.A., as
Collateral Agent.(14)
|
|
10
|
.19
|
|
Securities Collateral Pledge Agreement, dated November 12,
2008, by and among GameStop Corp. (f/k/a GSC Holdings Corp.),
certain subsidiaries of GameStop Corp., Bank of America, N.A.,
as lender, and Bank of America, N.A., as Collateral Agent.(14)
|
|
10
|
.20
|
|
Amended and Restated Executive Employment Agreement, dated
December 31, 2008, between GameStop Corp. and R. Richard
Fontaine.(15)
|
|
10
|
.21
|
|
Amended and Restated Executive Employment Agreement, dated as
December 31, 2008, between GameStop Corp. and Daniel A.
DeMatteo.(15)
|
|
10
|
.22
|
|
Amended and Restated Executive Employment Agreement, dated
December 31, 2008, between GameStop Corp. and David W.
Carlson.(15)
|
|
10
|
.23
|
|
Amended and Restated Executive Employment Agreement, dated
December 31, 2008, between GameStop Corp. and Tony
Bartel.(15)
|
|
10
|
.24
|
|
Amended and Restated Executive Employment Agreement, dated
December 31, 2008, between GameStop Corp. and J. Paul
Raines.(15)
|
|
12
|
.1
|
|
Computation of Ratio of Earnings to Fixed Charges.
|
|
14
|
.1
|
|
Code of Ethics for Senior Financial and Executive Officers.
|
49
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
14
|
.2
|
|
Code of Standards, Ethics and Conduct.
|
|
21
|
.1
|
|
Subsidiaries.
|
|
23
|
.1
|
|
Consent of BDO Seidman, LLP.
|
|
31
|
.1
|
|
Certification of Chief Executive Officer pursuant to
Rule 13a-14(a)/15d-14(a)
under the Securities Exchange Act of 1934, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
Certification of Chief Financial Officer pursuant to
Rule 13a-14(a)/15d-14(a)
under the Securities Exchange Act of 1934, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.1
|
|
Certification of Chief Executive Officer pursuant to
Rule 13a-14(b)
under the Securities Exchange Act of 1934 and 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
|
32
|
.2
|
|
Certification of Chief Financial Officer pursuant to
Rule 13a-14(b)
under the Securities Exchange Act of 1934 and 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
|
|
|
(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 Registrants
Form 8-K
filed with the Securities and Exchange Commission on
February 7, 2007. |
|
(3) |
|
Incorporated by reference to the Registrants 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 Registrants
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 Registrants
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
Registrants 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 Registrants
Form 8-K
filed with the Securities and Exchange Commission on
October 12, 2005. |
|
(12) |
|
Incorporated by reference to the Registrants
Form 8-K
filed with the Securities and Exchange Commission on
April 26, 2007. |
|
(13) |
|
Incorporated by reference to the Registrants
Form 8-K
filed with the Securities and Exchange Commission on
October 2, 2008. |
|
(14) |
|
Incorporated by reference to the Registrants
Form 8-K
filed with the Securities and Exchange Commission on
November 18, 2008. |
|
(15) |
|
Incorporated by reference to the Registrants
Form 8-K
filed with the Securities and Exchange Commission on
January 7, 2009. |
50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this
Form 10-K
to be signed on its behalf by the undersigned, thereunto duly
authorized.
GAMESTOP CORP.
|
|
|
|
By:
|
/s/ Daniel
A. DeMatteo
|
Daniel A. DeMatteo
Chief Executive Officer
Date: April 1, 2009
Pursuant to the requirements of the Securities Exchange Act of
1934, this
Form 10-K
has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
|
|
|
|
|
|
|
Name
|
|
Capacity
|
|
Date
|
|
|
|
|
|
|
/s/ Daniel
A. DeMatteo
Daniel
A. DeMatteo
|
|
Chief Executive Officer and Director (Principal Executive
Officer)
|
|
April 1, 2009
|
|
|
|
|
|
/s/ R.
Richard Fontaine
R.
Richard Fontaine
|
|
Executive Chairman and Director
|
|
April 1, 2009
|
|
|
|
|
|
/s/ David
W. Carlson
David
W. Carlson
|
|
Executive Vice President, Chief Financial Officer and Assistant
Secretary
(Principal Financial Officer)
|
|
April 1, 2009
|
|
|
|
|
|
/s/ Robert
A. Lloyd
Robert
A. Lloyd
|
|
Senior Vice President, Chief Accounting Officer (Principal
Accounting Officer)
|
|
April 1, 2009
|
|
|
|
|
|
/s/ Jerome
L. Davis
Jerome
L. Davis
|
|
Director
|
|
April 1, 2009
|
|
|
|
|
|
/s/ Steven
R. Koonin
Steven
R. Koonin
|
|
Director
|
|
April 1, 2009
|
|
|
|
|
|
/s/ Leonard
Riggio
Leonard
Riggio
|
|
Director
|
|
April 1, 2009
|
|
|
|
|
|
/s/ Michael
N. Rosen
Michael
N. Rosen
|
|
Director
|
|
April 1, 2009
|
|
|
|
|
|
/s/ Stephanie
M. Shern
Stephanie
M. Shern
|
|
Director
|
|
April 1, 2009
|
|
|
|
|
|
/s/ Stanley
P. Steinberg
Stanley
P. Steinberg
|
|
Director
|
|
April 1, 2009
|
51
|
|
|
|
|
|
|
Name
|
|
Capacity
|
|
Date
|
|
|
|
|
|
|
/s/ Gerald
R. Szczepanski
Gerald
R. Szczepanski
|
|
Director
|
|
April 1, 2009
|
|
|
|
|
|
/s/ Edward
A. Volkwein
Edward
A. Volkwein
|
|
Director
|
|
April 1, 2009
|
|
|
|
|
|
/s/ Lawrence
S. Zilavy
Lawrence
S. Zilavy
|
|
Director
|
|
April 1, 2009
|
52
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 31, 2009 and February 2,
2008 and the related consolidated statements of operations,
stockholders equity, and cash flows for the 52 week
period ended January 31, 2009, the 52 week period
ended February 2, 2008, and for the 53 week period
ended February 3, 2007. In connection with our audits of
the financial statements, we have also audited the financial
statement schedules listed in Item 15(a)(2) of this
Form 10-K.
These financial statements and schedules are the responsibility
of the Companys 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 31, 2009 and
February 2, 2008, and the results of its operations and its
cash flows for the 52 week period ended January 31,
2009, for the 52 week period ended February 2, 2008,
and for the 53 week period ended February 3, 2007, 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.
As discussed in Note 1 to the consolidated financial
statements, the Company changed its method of accounting for
uncertainty in income taxes recognized in accordance with the
provisions of FASB Interpretation No. 48 (As Amended),
Accounting for Uncertainty in Income Taxes, on
February 4, 2007.
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 31, 2009, 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 31, 2009
expressed an unqualified opinion thereon.
BDO Seidman, LLP
Dallas, Texas
March 31, 2009
F-2
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 31, 2009, 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 under Item 9A of the Annual
Report on
Form 10-K,
Managements Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the
companys 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 companys 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 companys
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
companys 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.
As indicated in Item 9A, Managements Annual Report on
Internal Control over Financial Reporting, managements
assessment of and conclusion on the effectiveness of internal
control over financial reporting did not include the internal
controls of Micromania SAS, which was acquired on
November 17, 2008, and which is included in the
consolidated balance sheet of GameStop Corp. as of
January 31, 2009, and the related consolidated statements
of operations, stockholders equity, and cash flows for the
52 week period ended January 31, 2009.
Micromanias financial statements constituted total assets
and liabilities of approximately 18.4% and 9.0%, respectively,
and revenues and operating earnings of approximately 2.8% and
3.8%, respectively, of the related consolidated financial
statement amounts as of and for the period ended
January 31, 2009. Management did not assess the
effectiveness of internal control over financial reporting of
Micromania SAS because of the timing of the acquisition which
was completed on November 17, 2008. Our audit of internal
control over financial reporting of GameStop Corp. also did not
include an evaluation of the internal control over financial
reporting of Micromania SAS.
In our opinion, GameStop Corp. maintained, in all material
respects, effective internal control over financial reporting as
of January 31, 2009, based on the COSO criteria.
F-3
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 31, 2009 and February 2, 2008, and the related
consolidated statements of operations, stockholders
equity, and cash flows for the 52 week period ended
January 31, 2009, for the 52 week period ended
February 2, 2008 and for the 53 week period ended
February 3, 2007. We have also audited the schedule listed
in Item 15(a)(2) of this
Form 10-K.
Our report dated March 31, 2009 expressed an unqualified
opinion on those consolidated financial statements and schedule.
BDO Seidman, LLP
Dallas, Texas
March 31, 2009
F-4
GAMESTOP
CORP.
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
578,141
|
|
|
$
|
857,414
|
|
Receivables, net
|
|
|
65,981
|
|
|
|
56,019
|
|
Merchandise inventories, net
|
|
|
1,075,792
|
|
|
|
801,025
|
|
Deferred income taxes current
|
|
|
23,615
|
|
|
|
27,481
|
|
Prepaid expenses
|
|
|
59,101
|
|
|
|
48,915
|
|
Other current assets
|
|
|
15,411
|
|
|
|
3,863
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,818,041
|
|
|
|
1,794,717
|
|
|
|
|
|
|
|
|
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
Land
|
|
|
10,397
|
|
|
|
11,870
|
|
Buildings and leasehold improvements
|
|
|
454,651
|
|
|
|
378,611
|
|
Fixtures and equipment
|
|
|
619,845
|
|
|
|
538,738
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
1,084,893
|
|
|
|
929,219
|
|
Less accumulated depreciation and amortization
|
|
|
535,639
|
|
|
|
417,550
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
|
549,254
|
|
|
|
511,669
|
|
Goodwill, net
|
|
|
1,862,107
|
|
|
|
1,402,440
|
|
Other intangible assets
|
|
|
247,790
|
|
|
|
14,214
|
|
Deferred taxes
|
|
|
|
|
|
|
26,332
|
|
Other noncurrent assets
|
|
|
35,398
|
|
|
|
26,519
|
|
|
|
|
|
|
|
|
|
|
Total noncurrent assets
|
|
|
2,694,549
|
|
|
|
1,981,174
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
4,512,590
|
|
|
$
|
3,775,891
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,047,963
|
|
|
$
|
844,376
|
|
Accrued liabilities
|
|
|
514,748
|
|
|
|
416,181
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,562,711
|
|
|
|
1,260,557
|
|
|
|
|
|
|
|
|
|
|
Senior notes payable, long-term portion, net
|
|
|
545,712
|
|
|
|
574,473
|
|
Other long-term liabilities
|
|
|
104,486
|
|
|
|
78,415
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
650,198
|
|
|
|
652,888
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,212,909
|
|
|
|
1,913,445
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Notes 10 and 11)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock authorized 5,000 shares; no
shares issued or outstanding
|
|
|
|
|
|
|
|
|
Class A common stock $.001 par value;
authorized 300,000 shares; 163,843 and 161,007 shares
issued and outstanding, respectively
|
|
|
164
|
|
|
|
161
|
|
Additional
paid-in-capital
|
|
|
1,307,453
|
|
|
|
1,208,474
|
|
Accumulated other comprehensive income (loss)
|
|
|
(28,426
|
)
|
|
|
31,603
|
|
Retained earnings
|
|
|
1,020,490
|
|
|
|
622,208
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
2,299,681
|
|
|
|
1,862,446
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
4,512,590
|
|
|
$
|
3,775,891
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
GAMESTOP
CORP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks
|
|
|
52 Weeks
|
|
|
53 Weeks
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
|
Sales
|
|
$
|
8,805,897
|
|
|
$
|
7,093,962
|
|
|
$
|
5,318,900
|
|
Cost of sales
|
|
|
6,535,762
|
|
|
|
5,280,255
|
|
|
|
3,847,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,270,135
|
|
|
|
1,813,707
|
|
|
|
1,471,442
|
|
Selling, general and administrative expenses
|
|
|
1,445,419
|
|
|
|
1,182,016
|
|
|
|
1,021,113
|
|
Depreciation and amortization
|
|
|
145,004
|
|
|
|
130,270
|
|
|
|
109,862
|
|
Merger-related expenses
|
|
|
4,593
|
|
|
|
|
|
|
|
6,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
675,119
|
|
|
|
501,421
|
|
|
|
333,679
|
|
Interest income
|
|
|
(11,619
|
)
|
|
|
(13,779
|
)
|
|
|
(11,338
|
)
|
Interest expense
|
|
|
50,456
|
|
|
|
61,553
|
|
|
|
84,662
|
|
Debt extinguishment expense
|
|
|
2,331
|
|
|
|
12,591
|
|
|
|
6,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income tax expense
|
|
|
633,951
|
|
|
|
441,056
|
|
|
|
254,296
|
|
Income tax expense
|
|
|
235,669
|
|
|
|
152,765
|
|
|
|
96,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
398,282
|
|
|
$
|
288,291
|
|
|
$
|
158,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per common share basic
|
|
$
|
2.44
|
|
|
$
|
1.82
|
|
|
$
|
1.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock basic
|
|
|
163,190
|
|
|
|
158,226
|
|
|
|
149,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per common share diluted
|
|
$
|
2.38
|
|
|
$
|
1.75
|
|
|
$
|
1.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock diluted
|
|
|
167,671
|
|
|
|
164,844
|
|
|
|
158,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-6
GAMESTOP
CORP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
|
|
|
|
Shares
|
|
|
Stock
|
|
|
Capital
|
|
|
Income
|
|
|
Earnings
|
|
|
Total
|
|
|
Balance at January 28, 2006
|
|
|
145,594
|
|
|
$
|
146
|
|
|
$
|
921,335
|
|
|
$
|
886
|
|
|
$
|
192,346
|
|
|
$
|
1,114,713
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings for the 53 weeks ended February 3, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158,250
|
|
|
|
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,341
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160,591
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
20,978
|
|
|
|
|
|
|
|
|
|
|
|
20,978
|
|
Exercise of employee stock options and issuance of shares upon
vesting of restricted stock grant (including tax benefit of
$45,735)
|
|
|
6,711
|
|
|
|
6
|
|
|
|
79,590
|
|
|
|
|
|
|
|
|
|
|
|
79,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 3, 2007
|
|
|
152,305
|
|
|
|
152
|
|
|
|
1,021,903
|
|
|
|
3,227
|
|
|
|
350,596
|
|
|
|
1,375,878
|
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,679
|
)
|
|
|
(16,679
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 4, 2007, adjusted
|
|
|
152,305
|
|
|
|
152
|
|
|
|
1,021,903
|
|
|
|
3,227
|
|
|
|
333,917
|
|
|
|
1,359,199
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings for the 52 weeks ended February 2, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
288,291
|
|
|
|
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,376
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
316,667
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
26,911
|
|
|
|
|
|
|
|
|
|
|
|
26,911
|
|
Exercise of employee stock options and issuance of shares upon
vesting of restricted stock grant (including tax benefit of
$94,786)
|
|
|
8,702
|
|
|
|
9
|
|
|
|
159,660
|
|
|
|
|
|
|
|
|
|
|
|
159,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 2, 2008
|
|
|
161,007
|
|
|
|
161
|
|
|
|
1,208,474
|
|
|
|
31,603
|
|
|
|
622,208
|
|
|
|
1,862,446
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings for the 52 weeks ended January 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
398,282
|
|
|
|
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(60,029
|
)
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
338,253
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
35,354
|
|
|
|
|
|
|
|
|
|
|
|
35,354
|
|
Exercise of employee stock options and issuance of shares upon
vesting of restricted stock grant (including tax benefit of
$37,562)
|
|
|
2,836
|
|
|
|
3
|
|
|
|
63,625
|
|
|
|
|
|
|
|
|
|
|
|
63,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2009
|
|
|
163,843
|
|
|
$
|
164
|
|
|
$
|
1,307,453
|
|
|
$
|
(28,426
|
)
|
|
$
|
1,020,490
|
|
|
$
|
2,299,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-7
GAMESTOP
CORP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks
|
|
|
52 Weeks
|
|
|
53 Weeks
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
398,282
|
|
|
$
|
288,291
|
|
|
$
|
158,250
|
|
Adjustments to reconcile net earnings to net cash flows provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization (including amounts in cost of
sales)
|
|
|
146,363
|
|
|
|
131,277
|
|
|
|
110,176
|
|
Provision for inventory reserves
|
|
|
42,979
|
|
|
|
51,879
|
|
|
|
50,779
|
|
Amortization and retirement of deferred financing fees
|
|
|
2,496
|
|
|
|
5,669
|
|
|
|
4,595
|
|
Amortization and retirement of original issue discount on senior
notes
|
|
|
1,239
|
|
|
|
1,162
|
|
|
|
1,523
|
|
Stock-based compensation expense
|
|
|
35,354
|
|
|
|
26,911
|
|
|
|
20,978
|
|
Deferred taxes
|
|
|
(25,535
|
)
|
|
|
(10,999
|
)
|
|
|
(2,522
|
)
|
Excess tax benefits realized from exercise of stock-based awards
|
|
|
(34,174
|
)
|
|
|
(93,322
|
)
|
|
|
(43,758
|
)
|
Loss on disposal of property and equipment
|
|
|
5,193
|
|
|
|
8,205
|
|
|
|
4,261
|
|
Increase in other long-term liabilities
|
|
|
4,071
|
|
|
|
8,946
|
|
|
|
6,775
|
|
Increase in liability to landlords for tenant allowances, net
|
|
|
4,266
|
|
|
|
5,075
|
|
|
|
1,586
|
|
Change in the value of foreign exchange contracts
|
|
|
(17,414
|
)
|
|
|
186
|
|
|
|
(8,323
|
)
|
Changes in operating assets and liabilities, net of businesses
acquired
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, net
|
|
|
(2,901
|
)
|
|
|
(19,903
|
)
|
|
|
4,891
|
|
Merchandise inventories
|
|
|
(209,442
|
)
|
|
|
(143,525
|
)
|
|
|
(115,370
|
)
|
Prepaid expenses and other current assets
|
|
|
(10,111
|
)
|
|
|
(3,590
|
)
|
|
|
(21,371
|
)
|
Prepaid taxes and taxes payable
|
|
|
44,698
|
|
|
|
118,862
|
|
|
|
54,369
|
|
Accounts payable and accrued liabilities
|
|
|
163,871
|
|
|
|
109,717
|
|
|
|
193,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by operating activities
|
|
|
549,235
|
|
|
|
484,841
|
|
|
|
420,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(183,192
|
)
|
|
|
(175,569
|
)
|
|
|
(133,930
|
)
|
Acquisitions, net of cash acquired
|
|
|
(630,706
|
)
|
|
|
1,061
|
|
|
|
(11,303
|
)
|
Sale of assets held for sale
|
|
|
|
|
|
|
|
|
|
|
19,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows used in investing activities
|
|
|
(813,898
|
)
|
|
|
(174,508
|
)
|
|
|
(125,936
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of notes payable
|
|
|
(30,000
|
)
|
|
|
(270,000
|
)
|
|
|
(100,000
|
)
|
Repayment of other debt
|
|
|
|
|
|
|
(12,173
|
)
|
|
|
(21,263
|
)
|
Borrowings for acquisition
|
|
|
425,000
|
|
|
|
|
|
|
|
|
|
Repayments of acquisition borrowings
|
|
|
(425,000
|
)
|
|
|
|
|
|
|
|
|
Issuance of shares relating to stock options
|
|
|
28,950
|
|
|
|
64,883
|
|
|
|
33,861
|
|
Excess tax benefits realized from exercise of stock-based awards
|
|
|
34,174
|
|
|
|
93,322
|
|
|
|
43,758
|
|
Net change in other noncurrent assets and other intangible assets
|
|
|
(10,474
|
)
|
|
|
6,826
|
|
|
|
385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in) financing activities
|
|
|
22,650
|
|
|
|
(117,142
|
)
|
|
|
(43,259
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange rate effect on cash and cash equivalents
|
|
|
(37,260
|
)
|
|
|
11,820
|
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(279,273
|
)
|
|
|
205,011
|
|
|
|
250,810
|
|
Cash and cash equivalents at beginning of period
|
|
|
857,414
|
|
|
|
652,403
|
|
|
|
401,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
578,141
|
|
|
$
|
857,414
|
|
|
$
|
652,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-8
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
1.
|
Summary
of Significant Accounting Policies
|
Background
GameStop Corp. (together with its predecessor companies,
GameStop, we, our, or the
Company), is the worlds largest retailer of
video game systems and software and PC entertainment software
and related accessories primarily through its GameStop and EB
Games stores. We also operate the electronic commerce website
www.gamestop.com and publish Game Informer
magazine. The Companys stores, which totaled 6,207 at
January 31, 2009, are located in major regional shopping
malls and strip centers. The Company operates in four business
segments, which are the United States, Australia, Canada and
Europe.
The Company is a Delaware corporation, formerly known as GSC
Holdings Corp., and has grown through a business combination
(the EB merger) of GameStop Holdings Corp., formerly
known as GameStop Corp., and Electronics Boutique Holdings Corp.
(EB), which was completed on October 8, 2005.
The Company also has grown through acquisitions, the most recent
of which occurred on November 17, 2008 when the Company
purchased SFMI Micromania SAS (Micromania), a
leading retailer of video and computer games in France.
Until October 2004, Barnes & Noble, Inc.
(Barnes & Noble) held 72,018 shares
of GameStops common stock. In October 2004, GameStop
repurchased 12,214 of the shares of common stock held by
Barnes & Noble and immediately retired the shares. In
November 2004, Barnes & Noble distributed to its
stockholders its remaining 59,804 shares of GameStops
common stock in a tax-free dividend.
Basis
of Presentation and Consolidation
Our consolidated financial statements include the accounts of
the Company, its wholly-owned subsidiaries and its
majority-owned subsidiary, GameStop Group Limited (formerly
Gamesworld Group Limited). All significant intercompany accounts
and transactions have been eliminated in consolidation. All
dollar and share amounts in the consolidated financial
statements and notes to the consolidated financial statements
are stated in thousands unless otherwise indicated.
The Companys fiscal year is composed of the 52 or
53 weeks ending on the Saturday closest to the last day of
January. Fiscal 2008 consisted of the 52 weeks ended on
January 31, 2009. Fiscal 2007 consisted of the
52 weeks ended on February 2, 2008. Fiscal 2006
consisted of the 53 weeks ended on February 3, 2007.
The Companys operating results for fiscal 2008 include
11 weeks of Micromanias 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 Companys financial
results. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to conform the prior
period data to the current year presentation.
Cash
and Cash Equivalents
The Company considers all short-term, highly-liquid instruments
purchased with an original maturity of three months or less to
be cash equivalents. The Companys cash and cash
equivalents are carried at cost, which
F-9
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 February 2, 2008.
Merchandise
Inventories
The Companys 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 Companys ability to gauge these factors
is dependent upon the Companys 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 31, 2009 and February 2, 2008 were $56,567 and
$59,698, 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
managements 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 31, 2009 have not
been material.
Goodwill
Goodwill represents the excess purchase price over tangible net
assets and identifiable intangible assets acquired. The Company
does not amortize goodwill, instead it evaluates it for
impairment on at least an annual basis. The Company completed
its annual impairment test of goodwill on the first day of the
fourth quarter of fiscal 2006, fiscal 2007 and fiscal 2008 and
concluded that none of its goodwill was impaired. Note 7
provides additional information concerning the changes in
goodwill for the consolidated financial statements presented.
Other
Intangible Assets
Other intangible assets consist primarily of tradenames,
leasehold rights and amounts attributed to favorable leasehold
interests recorded as a result of the Micromania acquisition and
the EB merger. Intangible assets are recorded consistent with
the provisions of Statement of Financial Accounting Standards
No. 141, Business Combinations
(SFAS 141), which requires that intangible
assets shall be recognized as an asset apart from
F-10
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 based on the
provisions of Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets, which
requires that the assets should be amortized over the period in
which they are expected to contribute directly to cash flows.
Tradenames which were recorded as a result of the Micromania
acquisition are considered indefinite life intangible assets as
they are expected to contribute to cash flows indefinitely and
are not subject to amortization, but 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. The rights to any particular lease
can be sold by us to a new tenant or recovered by us from the
landlord if the exercise of the automatic right of renewal is
refused. Leasehold rights are amortized on a straight-line basis
over the expected lease term not to exceed 20 years with no
residual value. Favorable leasehold interests represent the
value of the contractual monthly rental payments that are less
than the current market rent at stores acquired as part of the
Micromania acquisition or the EB merger. Favorable leasehold
interests are amortized on a straight-line basis over their
remaining lease term with no expected residual value.
Note 7 provides additional information related to the
Companys intangible assets.
Revenue
Recognition
Revenue from the sales of the Companys products is
recognized at the time of sale and is stated net of sales
discounts. The sales of used video game products are recorded at
the retail price charged to the customer. Sales returns (which
are not significant) are recognized at the time returns are
made. Subscription and advertising revenues are recorded upon
release of magazines for sale to consumers. Magazine
subscription revenue is recognized on a straight-line basis over
the subscription period. Revenue from the sales of product
replacement plans is recognized on a straight-line basis over
the coverage period. The deferred revenues for magazine
subscriptions and deferred financing plans are included in
accrued liabilities (see Note 6).
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 31, 2009, the 52 weeks
ended February 2, 2008 and the 53 weeks ended
February 3, 2007, these purchasing, receiving and
distribution costs amounted to $57,037, $43,928 and $35,903,
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 31,
2009, the 52 weeks ended February 2, 2008 and the
53 weeks ended February 3, 2007, these processing fees
amounted to $65,493, $55,215 and $40,877, 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.
F-11
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 31, 2009, 52 weeks ended
February 2, 2008 and the 53 weeks ended
February 3, 2007 were $46,708, $26,243 and $16,043,
respectively. During fiscal 2007, the Company launched a new
marketing campaign for television, radio and print to promote
the GameStop brand and its brand tagline, Power to the
Players.
Income
Taxes
The Company accounts for income taxes in accordance with the
provisions of Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes
(SFAS 109). SFAS 109 utilizes 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. On February 4, 2007, the Company
adopted the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, to account
for uncertainty in income taxes recognized in the Companys
financial statements (see Note 12).
U.S. income taxes have not been provided on $204,649 of
undistributed earnings of foreign subsidiaries as of
January 31, 2009. 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 Companys 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 accounts of the foreign subsidiaries are
translated in accordance with Statement of Financial Accounting
Standards No. 52, Foreign Currency Translation. 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 net income and amounted to ($9,993),
$8,575 and ($962) for the 52 weeks ended January 31,
2009, the 52 weeks ended February 2, 2008 and the
53 weeks ended
F-12
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
February 3, 2007, respectively. The foreign currency
transaction losses in fiscal 2008 are primarily related to the
increase in the value of the U.S. dollar compared to the
functional currencies in the countries the Company operates in
internationally, primarily the euro, the Canadian dollar and the
Australian dollar. The foreign currency transaction gains in
fiscal 2007 are primarily due to the decrease in the value of
the U.S. dollar compared to the functional currencies in
the countries the Company operates in internationally. The net
foreign currency transaction loss in the 52 weeks ended
January 31, 2009 included a $3,545 net loss related to
the change in foreign exchange rates related to the funding of
the Micromania acquisition recorded in merger-related expenses.
The Company follows the provisions of Statement of Financial
Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities
(SFAS 133), as amended by Statement of
Financial Accounting Standards No. 138, Accounting for
Certain Derivative Instruments and Certain Hedging
Activities. SFAS 133 requires that all derivative
instruments be recorded on the balance sheet at fair value.
Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income,
depending on whether the derivative is designated as part of a
hedge transaction, and if it is, depending on the type of hedge
transaction.
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.
Net
Earnings Per Common Share
Net earnings per common share is presented in accordance with
Statement of Financial Accounting Standards No. 128,
Earnings Per Share (SFAS 128). Basic
earnings per common share are computed by dividing the net
income available to common stockholders by the weighted average
number of common shares outstanding during the period. Diluted
earnings per common share are 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 31, 2009, the 52 weeks ended February 2,
2008 and the 53 weeks ended February 3, 2007 were
estimated at $15.45, $10.16 and $8.42, respectively, using the
following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks
|
|
|
52 Weeks
|
|
|
53 Weeks
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Volatility
|
|
|
38.2
|
%
|
|
|
40.5
|
%
|
|
|
54.5
|
%
|
Risk-free interest rate
|
|
|
2.4
|
%
|
|
|
4.8
|
%
|
|
|
4.6
|
%
|
Expected life (years)
|
|
|
3.5
|
|
|
|
4.0
|
|
|
|
3.0
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
F-13
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 Companys
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 Companys senior notes
payable in the accompanying consolidated balance sheets is
estimated based on recent quotes from brokers. As of
January 31, 2009, the senior notes payable had a carrying
value of $545,712 and a fair value of $547,250. As of
February 2, 2008, the senior notes payable had a carrying
value of $574,473 and a fair value of $591,600.
Effective February 3, 2008, the Company implemented FASB
Statement of Financial Accounting Standards No. 157,
Fair Value Measurements (SFAS 157),
which defines fair value, establishes a framework for its
measurement and expands disclosures about fair value
measurements. The Company elected to implement SFAS 157
with the one-year deferral permitted by FASB Staff Position
(FSP)
157-2 for
nonfinancial assets and nonfinancial liabilities measured at
fair value, except those that are recognized or disclosed on a
recurring basis (at least annually). We do not expect any
significant impact to our consolidated financial statements when
we implement SFAS 157 for these assets and liabilities.
Due to our election under
FSP 157-2,
for fiscal 2008, SFAS 157 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. The implementation
of SFAS 157 did not result in a significant change in the
method of calculating fair value of assets or liabilities. The
primary impact from adoption was additional disclosures.
In October 2008, the FASB issued
FSP 157-3,
Determining the Fair Value of a Financial Asset When The
Market for That Asset Is Not Active
(FSP 157-3),
to clarify how an entity would determine fair value in an
inactive market.
FSP 157-3
is effective immediately and applies to our financial statements
for the period ended November 1, 2008. The application of
the provisions of
FSP 157-3
did not materially impact our consolidated financial statements
for the period ended November 1, 2008. The Company does not
currently own any securities, including cash equivalents, for
which a dislocated market or other liquidity problems are known
to exist.
SFAS 157 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.
F-14
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table provides the fair value of our financial
assets and liabilities measured on a recurring basis and
recorded on our condensed consolidated balance sheet as of
January 31, 2009:
|
|
|
|
|
|
|
January 31, 2009
|
|
|
|
Level 2
|
|
|
|
(In thousands)
|
|
|
Assets
|
|
|
|
|
Foreign Currency Contracts
|
|
$
|
12,104
|
|
Company-owned life insurance
|
|
|
2,134
|
|
|
|
|
|
|
Total assets
|
|
$
|
14,238
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Foreign Currency Contracts
|
|
$
|
11,766
|
|
Non-qualified deferred compensation
|
|
|
905
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
12,671
|
|
|
|
|
|
|
Guarantees
The Company had bank guarantees relating to international store
leases totaling $12,930 as of January 31, 2009.
Vendor
Concentration
The Companys largest vendors worldwide are Nintendo, Sony
Computer Entertainment, Microsoft and Electronic Arts, Inc.,
which accounted for 25%, 13%, 13% and 11%, respectively, of the
Companys new product purchases in fiscal 2008, 21%, 17%,
16% and 11%, respectively, in fiscal 2007 and 11%, 13%, 14% and
10%, respectively, in fiscal 2006.
Stock
Conversion and Stock Split
On February 7, 2007, following approval by a majority of
the Class B common stockholders in a special meeting of the
Companys Class B common stockholders, all outstanding
Class B common shares were converted into Class A
common shares on a one-for-one basis (the
Conversion). In addition, on February 9, 2007,
the Board of Directors of the Company authorized a two-for-one
stock split, effected by a one-for-one stock dividend to
stockholders of record at the close of business on
February 20, 2007, paid on March 16, 2007 (the
Stock Split). The effect of the Conversion and the
Stock Split has been retroactively applied to all periods
presented in the consolidated financial statements and notes
thereto.
New
Accounting Pronouncements
In March 2008, the FASB issued Statement of Financial Accounting
Standards No. 161, Disclosures about Derivative
Instruments and Hedging Activities an amendment of
FASB Statement No. 133 (SFAS 161).
SFAS 161 requires enhanced disclosures about how and why an
entity uses derivative instruments, how derivative instruments
and related hedged items are accounted for and their effect on
an entitys financial position, financial performance, and
cash flows. SFAS 161 is effective for the Company on
February 1, 2009. The Company is currently evaluating the
impact that the adoption of SFAS 161 will have on its
consolidated financial statements.
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 141 (revised 2007), Business
Combinations (SFAS 141(R)).
SFAS 141(R) amends the principles and requirements for how
an acquirer recognizes and measures in its financial statements
the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill
acquired. SFAS 141(R) also establishes disclosure
F-15
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
requirements to enable the evaluation of the nature and
financial effects of the business combination. SFAS 141(R)
is effective for the Company on February 1, 2009, and the
Company will apply prospectively SFAS 141(R) to all
business combinations subsequent to the effective date.
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 160, Noncontrolling Interests
in Consolidated Financial Statements an amendment of
Accounting Research Bulletin No. 51
(SFAS 160). SFAS 160 establishes
accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS 160 also establishes disclosure
requirements that clearly identify and distinguish between the
controlling and noncontrolling interests and requires the
separate disclosure of income attributable to controlling and
noncontrolling interests. SFAS 160 became effective for the
Company on February 1, 2009. The Company is currently
evaluating the impact that the adoption of SFAS 160 will
have on its consolidated financial statements.
On November 17, 2008, GameStop France SAS, a wholly-owned
subsidiary of the Company, completed the acquisition of
substantially all of the outstanding capital stock of Micromania
for $580,407, net of cash acquired. Micromania is a leading
retailer of video and computer games in France with 332
locations, 328 of which were operating upon acquisition. The
Company funded the transaction with cash on hand, funds drawn
against its existing $400,000 credit agreement (the
Revolver) totaling $275,000, and term loans totaling
$150,000 under a junior term loan facility (the Term
Loans). As of January 31, 2009, all of the borrowings
against the Revolver and the Term Loans have been repaid. The
purpose of the acquisition was to expand the Companys
presence in Europe. The impact of the acquisition on the
Companys results of operations, as if the acquisition had
been completed as of the beginning of the periods presented, is
not significant.
The consolidated financial statements include the results of
Micromania from the date of acquisition and are reported in the
European segment. The purchase price has been allocated based on
estimated fair values as of the acquisition date. The purchase
price was allocated as follows as of November 17, 2008:
|
|
|
|
|
|
|
November 17,
|
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Current assets
|
|
$
|
187,877
|
|
Property, plant & equipment
|
|
|
34,164
|
|
Goodwill
|
|
|
413,318
|
|
Intangible assets:
|
|
|
|
|
Tradename
|
|
|
131,560
|
|
Leasehold rights and interests
|
|
|
102,746
|
|
|
|
|
|
|
Total intangible assets
|
|
|
234,306
|
|
Other long-term assets
|
|
|
7,786
|
|
Current liabilities
|
|
|
(220,237
|
)
|
Long-term liabilities
|
|
|
(76,807
|
)
|
|
|
|
|
|
Total purchase price
|
|
$
|
580,407
|
|
|
|
|
|
|
The purchase price allocation has been prepared on a preliminary
basis based on the information that was available to the Company
at the time the consolidated financial statements were prepared,
and revisions to the preliminary purchase price allocation are
expected as additional information becomes available.
In determining the purchase price allocation, management
considered, among other factors, the Companys intention to
use the acquired assets. The total weighted-average amortization
period for the intangible assets,
F-16
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 7 provides additional information
concerning goodwill and intangible assets.
Merger-related expenses totaling $4,593 shown in the fiscal
2008 statements of operations include a net loss related to
the change in foreign exchange rates related to the funding of
the Micromania acquisition and other costs considered to be of a
one-time or short-term nature which are included in operating
earnings.
On April 5, 2008, the Company purchased all the outstanding
stock of Free Record Shop Norway AS, a Norwegian private limited
liability company (FRS), for $21,006, net of cash
acquired. FRS operated 49 record stores in Norway, nine of which
have been closed as of January 31, 2009. The Company has
converted the remaining stores into video game stores with an
inventory assortment similar to its other stores in Norway. The
acquisition was accounted for using the purchase method of
accounting, with the excess of the purchase price over the net
assets acquired, in the amount of $17,981, recorded as goodwill.
The Company has included the results of operations of FRS, which
were not material, in its financial statements beginning on the
closing date of the acquisition on April 5, 2008.
In 2003, the Company purchased a 51% controlling interest in
GameStop Group Limited which operates stores in Ireland and the
United Kingdom. Under the terms of the purchase agreement, the
minority interest owners of the remaining 49% have the ability
to require the Company to purchase their remaining shares in
incremental percentages at a price to be determined based
partially on the Companys price to earnings ratio and
GameStop Group Limiteds earnings. On May 21, 2008,
the minority interest owners exercised their right to sell
one-third of their shares, or approximately 16% of GameStop
Group Limited, to the Company under the terms of the original
purchase agreement for $27,383. The transaction was completed in
June 2008 and recorded in accordance with the provisions of
SFAS 141.
During July 2008, the Company purchased certain assets and
website operations from The Gamesman Limited, a video game and
entertainment software retailer, including eight stores in New
Zealand, for $1,910. The acquisition was accounted for using the
purchase method of accounting, with the excess of the purchase
price over the net assets acquired, in the amount of $605,
recorded as goodwill. The Company has included the results of
operations of the eight New Zealand stores acquired from The
Gamesman Limited, which were not material, in the Companys
financial statements beginning on the closing date of the
acquisition on July 14, 2008.
On January 13, 2007, the Company purchased Game Brands Inc.
(Game Brands), a 72-store video game retailer
operating under the name Rhino Video Games, for $11,344. The
acquisition was accounted for using the purchase method of
accounting and, accordingly, the results of operations for the
period subsequent to the acquisition are included in the
consolidated financial statements. The excess of the purchase
price over the net assets acquired, in the amount of $8,083 was
recorded as goodwill in fiscal 2006. Purchase price adjustments
to reduce goodwill for Game Brands were $1,467 during fiscal
2007.
The pro forma effect assuming the above acquisitions were made
at the beginning of fiscal 2006 is not material to the
Companys consolidated financial statements.
Merger-related expenses of $6,788 shown in the statement of
operations for fiscal 2006 include costs believed to be of a
one-time or short-term nature associated with integrating the
operations of GameStop and EB during the 53 weeks ended
February 3, 2007. The Company completed all integration
activities relating to the EB merger in fiscal 2006.
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
F-17
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
marketing and advertising the vendors products. The
Companys accounting for cooperative advertising
arrangements and other vendor marketing programs, in accordance
with FASB Emerging Issues Task Force Issue
02-16,
results in a portion of the consideration received from the
Companys vendors reducing the product costs in inventory
rather than as an offset to the Companys 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
Companys annual store managers conference. The allowance
for each event is negotiated with the vendor and requires
specific performance by the Company to be earned.
Specific, incremental and identifiable advertising and
promotional costs were $92,083 and $76,074 in the 52 week
periods ended January 31, 2009 and February 2, 2008,
respectively, and $49,585 in the 53 weeks ended
February 3, 2007. Vendor allowances received in excess of
advertising expenses were recorded as a reduction of cost of
sales of $125,115 and $92,425 for the 52 week periods ended
January 31, 2009 and February 2, 2008, respectively,
and $117,082 for the 53 weeks ended February 3, 2007.
The amounts deferred as a reduction in inventory were $3,193 for
the 52 weeks ended January 31, 2009 and $1,377 for the
53 weeks ended February 3, 2007. The amount recognized
as income related to the capitalization of excess vendor
allowances was $6,113 for the 52 weeks ended
February 2, 2008.
|
|
4.
|
Computation
of Net Earnings per Common Share
|
As of February 3, 2007, the Company had two classes of
common stock. Subsequent to February 3, 2007, the Company
completed the Conversion and the Stock Split and now has only
Class A common stock outstanding and computed earnings per
share in accordance with SFAS 128. A reconciliation of
shares used in calculating basic and diluted net earnings per
common share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks
|
|
|
52 Weeks
|
|
|
53 Weeks
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
|
Net earnings
|
|
$
|
398,282
|
|
|
$
|
288,291
|
|
|
$
|
158,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
163,190
|
|
|
|
158,226
|
|
|
|
149,924
|
|
Dilutive effect of options and warrants on common stock
|
|
|
4,481
|
|
|
|
6,618
|
|
|
|
8,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares and dilutive potential common shares
|
|
|
167,671
|
|
|
|
164,844
|
|
|
|
158,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.44
|
|
|
$
|
1.82
|
|
|
$
|
1.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
2.38
|
|
|
$
|
1.75
|
|
|
$
|
1.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-18
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 thousands, except per share data)
|
|
|
52 Weeks Ended January 31, 2009
|
|
|
2,473
|
|
|
$
|
26.68 - 49.95
|
|
|
|
2010 - 2018
|
|
52 Weeks Ended February 2, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
53 Weeks Ended February 3, 2007
|
|
|
16
|
|
|
|
|
|
|
|
2009
|
|
Receivables consist primarily of bankcard receivables and other
receivables. Other receivables include receivables from Game
Informer magazine advertising customers, receivables from
landlords for tenant allowances and receivables from vendors for
merchandise returns, vendor marketing allowances and various
other programs. An allowance for doubtful accounts has been
recorded to reduce receivables to an amount expected to be
collectible. Receivables consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Bankcard receivables
|
|
$
|
45,650
|
|
|
$
|
33,667
|
|
Other receivables
|
|
|
24,097
|
|
|
|
25,465
|
|
Allowance for doubtful accounts
|
|
|
(3,766
|
)
|
|
|
(3,113
|
)
|
|
|
|
|
|
|
|
|
|
Total receivables, net
|
|
$
|
65,981
|
|
|
$
|
56,019
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Customer liabilities
|
|
$
|
163,904
|
|
|
$
|
145,626
|
|
Deferred revenue
|
|
|
42,936
|
|
|
|
47,423
|
|
Accrued rent
|
|
|
20,760
|
|
|
|
22,698
|
|
Accrued interest
|
|
|
18,416
|
|
|
|
19,181
|
|
Employee compensation and related taxes
|
|
|
83,475
|
|
|
|
58,445
|
|
Income taxes payable
|
|
|
16,495
|
|
|
|
6,303
|
|
Other taxes
|
|
|
61,434
|
|
|
|
34,004
|
|
Other accrued liabilities
|
|
|
107,328
|
|
|
|
82,501
|
|
|
|
|
|
|
|
|
|
|
Total accrued liabilities
|
|
$
|
514,748
|
|
|
$
|
416,181
|
|
|
|
|
|
|
|
|
|
|
F-19
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
7.
|
Goodwill,
Intangible Assets and Deferred Financing Fees
|
The changes in the carrying amount of goodwill for the
Companys business segments for the 52 weeks ended
February 2, 2008 and the 52 weeks ended
January 31, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
Canada
|
|
|
Australia
|
|
|
Europe
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Balance at February 3, 2007
|
|
$
|
1,098,089
|
|
|
$
|
116,818
|
|
|
$
|
147,224
|
|
|
$
|
41,776
|
|
|
$
|
1,403,907
|
|
Adjustment to goodwill acquired
|
|
|
(1,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 2, 2008
|
|
$
|
1,096,622
|
|
|
$
|
116,818
|
|
|
$
|
147,224
|
|
|
$
|
41,776
|
|
|
$
|
1,402,440
|
|
Goodwill acquired, net
|
|
|
|
|
|
|
|
|
|
|
423
|
|
|
|
459,244
|
|
|
|
459,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2009
|
|
$
|
1,096,622
|
|
|
$
|
116,818
|
|
|
$
|
147,647
|
|
|
$
|
501,020
|
|
|
$
|
1,862,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no impairments to goodwill during the 52 weeks
ended January 31, 2009 and February 2, 2008.
Intangible assets consist of point-of-sale software and amounts
attributed to favorable leasehold interests acquired in the EB
merger and Micromania acquisition and are included in other
non-current assets in the consolidated balance sheet. The
tradename acquired in the Micromania acquisition in the amount
of $133,231 has been determined to be an indefinite lived
intangible asset and is therefore not subject to amortization.
The total weighted-average amortization period for the remaining
intangible assets, excluding goodwill, is approximately ten
years. The intangible assets are being amortized based upon the
pattern in which the economic benefits of the intangible assets
are being utilized, with no expected residual value.
The deferred financing fees associated with the Companys
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
February 2, 2008 and January 31, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
Other Intangible
|
|
|
|
Financing Fees
|
|
|
Assets
|
|
|
|
(In thousands)
|
|
|
Balance at February 3, 2007
|
|
$
|
14,375
|
|
|
$
|
14,545
|
|
Addition for revolving credit facility renewal and extension in
2007
|
|
|
263
|
|
|
|
|
|
Write-off of deferred financing fees remaining on repurchased
senior notes and senior floating rate notes (see Note 8)
|
|
|
(3,416
|
)
|
|
|
|
|
Addition of leasehold rights
|
|
|
|
|
|
|
5,238
|
|
Amortization for the 52 weeks ended February 2, 2008
|
|
|
(2,259
|
)
|
|
|
(5,569
|
)
|
|
|
|
|
|
|
|
|
|
Balance at February 2, 2008
|
|
|
8,963
|
|
|
|
14,214
|
|
Addition for revolving credit facility amendment
|
|
|
1,025
|
|
|
|
|
|
Addition for term loan facility fee
|
|
|
2,525
|
|
|
|
|
|
Write-off of deferred financing fees remaining on repurchased
senior notes (see Note 8)
|
|
|
(337
|
)
|
|
|
|
|
Addition of non-compete agreement
|
|
|
|
|
|
|
2,987
|
|
Addition of tradename from Micromania acquisition
|
|
|
|
|
|
|
133,231
|
|
Addition of leasehold rights from Micromania acquisition
|
|
|
|
|
|
|
105,292
|
|
Amortization for the 52 weeks ended January 31, 2009
|
|
|
(3,256
|
)
|
|
|
(7,934
|
)
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2009
|
|
$
|
8,920
|
|
|
$
|
247,790
|
|
|
|
|
|
|
|
|
|
|
F-20
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The gross carrying value and accumulated amortization of
deferred financing fees as of January 31, 2009 were $23,857
and $14,937, 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 Intangible
|
|
Year Ended
|
|
Financing Fees
|
|
|
Assets
|
|
|
|
(In thousands)
|
|
|
January 2010
|
|
$
|
2,671
|
|
|
$
|
13,709
|
|
January 2011
|
|
|
2,669
|
|
|
|
11,020
|
|
January 2012
|
|
|
2,669
|
|
|
|
9,235
|
|
January 2013
|
|
|
911
|
|
|
|
8,524
|
|
January 2014
|
|
|
|
|
|
|
8,221
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,920
|
|
|
$
|
50,709
|
|
|
|
|
|
|
|
|
|
|
In October 2005, in connection with the EB merger, the Company
entered into a five-year, $400,000 Credit Agreement (the
Revolver), including a $50,000 letter of credit
sub-limit, secured by the assets of the Company and its
U.S. subsidiaries. The Revolver places certain restrictions
on the Company and its subsidiaries, including limitations on
asset sales, additional liens and the incurrence of additional
indebtedness. In April 2007, the Company amended the Revolver to
extend the maturity date from October 11, 2010 to
April 25, 2012, reduce the LIBO interest rate margin,
reduce and fix the rate of the unused commitment fee and modify
or delete certain other covenants.
The availability under the Revolver is limited to a borrowing
base which allows the Company to borrow up to the lesser of
(x) approximately 70% of eligible inventory and
(y) 90% of the appraisal value of the inventory, in each
case plus 85% of eligible credit card receivables, net of
certain reserves. Letters of credit reduce the amount available
to borrow by their face value. The Companys ability to pay
cash dividends, redeem options and repurchase shares is
generally prohibited, except that if availability under the
Revolver is, or will be after any such payment, equal to or
greater than 25% of the borrowing base, the Company may
repurchase its capital stock and pay cash dividends. In
addition, in the event that credit extensions under the Revolver
at any time exceed 80% of the lesser of the total commitment or
the borrowing base, the Company will be subject to a fixed
charge coverage ratio covenant of 1.5:1.0.
The per annum interest rate on the Revolver is variable and, at
the Companys option, is calculated by applying a margin of
(1) 0.0% to 0.25% above the higher of the prime rate of the
administrative agent or the federal funds effective rate plus
0.50% or (2) 1.00% to 1.50% above the LIBO rate. The
applicable margin is determined quarterly as a function of the
Companys consolidated leverage ratio. As of
January 31, 2009, the applicable margin was 0.0% for prime
rate loans and 1.00% for LIBO rate loans. In addition, the
Company is required to pay a commitment fee of 0.25% for any
unused portion of the total commitment under the Revolver. As of
January 31, 2009, there were no borrowings outstanding
under the Revolver and letters of credit outstanding totaled
$7,721.
In October 2008, the Company amended the Revolver to permit both
the acquisition of Micromania and a committed $150,000 junior
term loan facility (the Term Loans). In addition,
during any period for which the Term Loans were outstanding, the
amendment increased the applicable margin under the Revolver
(i) payable on LIBO rate loans to a range of 1.5% to 2.0%
from the current range of 1.0% to 1.5% and (ii) payable on
prime rate loans to a range of 0.5% to 0.75% from the current
range of 0.0% to 0.25%. The margins applicable prior to the
entry into the amendment apply once the Term Loans are no longer
outstanding. The Term Loans were outstanding during the fourth
quarter of fiscal 2008.
F-21
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 in the aggregate of $150,000, consisting of a
$50,000 secured term loan (Term Loan A) and a
$100,000 unsecured term loan (Term Loan B). The Term
Loan Agreement provided that the principal of Term Loan B was to
be repaid in four equal installments of $25,000 a week for four
consecutive weeks, commencing on December 3, 2008. Term
Loan A was scheduled to mature on March 31, 2009. Amounts
borrowed under the Term Loan Agreement may not be reborrowed
once repaid. Borrowings made pursuant to the Term Loan Agreement
bore interest, payable quarterly or, if earlier, at the end of
any interest period, at a per annum rate equal to either
(a) the prime loan rate, described in the Term Loan
Agreement as the higher of (i) Bank of America N.A.s
prime rate or (ii) the federal funds rate plus 0.50%, in
each case plus 1.75%, or (b) the LIBO rate (a publicly
published rate) plus 3.75%. The effective interest rate on Term
Loan A was 5.75% per annum and the effective rate on Term Loan B
ranged from 5% to 5.75% per annum.
The Term Loan Agreement contained customary affirmative and
negative covenants, including limitations on GameStop and its
subsidiaries with respect to indebtedness, liens, investments,
distributions, mergers and acquisitions, dispositions of assets,
changes of business and transactions with affiliates. In
addition, the Company was subject to a fixed charge coverage
ratio covenant of 1.5:1.0. The covenants permitted the Company
to use proceeds of the Term Loans for working capital, capital
expenditures, payment of transaction costs and a portion of the
consideration in connection with the acquisition of Micromania
and for all other lawful corporate purposes.
In November 2008, the Company borrowed $275,000 under the
Revolver and borrowed $150,000 under the Term Loans in order to
complete the acquisition of Micromania. As of January 31,
2009 the Revolver and the Term Loans were repaid in full.
In September 2007, the Companys Luxembourg subsidiary
entered into a discretionary $20,000 Uncommitted Line of Credit
(the Line of Credit) with Bank of America. There is
no term associated with the Line of Credit and Bank of America
may withdraw the facility at any time without notice. The Line
of Credit will be made available to the Companys 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 31, 2009, there were $5,618 of cash overdrafts
outstanding under the Line of Credit and bank guarantees
outstanding totaled $4,948.
In September 2005, the Company, along with GameStop, Inc. as
co-issuer (together with the Company, the Issuers),
completed the offering of $300,000 aggregate principal amount of
Senior Floating Rate Notes due 2011 (the Senior Floating
Rate Notes) and $650,000 aggregate principal amount of
Senior Notes due 2012 (the Senior Notes and,
together with the Senior Floating Rate Notes, the
Notes). The Notes were issued under an Indenture,
dated September 28, 2005 (the Indenture), by
and among the Issuers, the subsidiary guarantors party thereto,
and Citibank, N.A., as trustee (the Trustee). The
net proceeds of the offering were used to pay the cash portion
of the merger consideration paid to the stockholders of EB in
connection with the EB merger. In November 2006, Wilmington
Trust Company was appointed as the new Trustee for the
Notes.
The Senior Notes bear interest at 8.0% per annum, mature on
October 1, 2012 and were priced at 98.688%, resulting in a
discount at the time of issue of $8,528. The discount is being
amortized using the effective interest method. As of
January 31, 2009, the unamortized original issue discount
was $4,288. 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 31, 2009, the
Company was in compliance with all covenants associated with the
Revolver and the Indenture.
F-22
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 May 2006, the Company announced that its Board of Directors
authorized the buyback of up to an aggregate of $100,000 of its
Senior Notes and Senior Floating Rate Notes. As of
February 3, 2007, the Company had repurchased the maximum
authorized amount, having acquired $50,000 of its Senior Notes
and $50,000 of its Senior Floating Rate Notes, and delivered the
Notes to the Trustee for cancellation. The associated loss on
the retirement of this debt was $6,788 for the 53 week
period ended February 3, 2007, which consists of the
premium paid to retire the Notes and the recognition of the
deferred financing fees and the original issue discount on the
Notes.
On February 9, 2007, the Company announced that its Board
of Directors authorized the buyback of up to an aggregate of an
additional $150,000 of its Senior Notes and Senior Floating Rate
Notes. As of August 4, 2007, the Company had repurchased
the maximum authorized amount, having acquired $20,000 of its
Senior Notes and $130,000 of its Senior Floating Rate Notes, and
delivered the Notes to the Trustee for cancellation. The
associated loss on retirement of this debt was $8,751 for the
52 week period ended February 2, 2008, which consists
of the premium paid to retire the Notes and the recognition of
the deferred financing fees and the original issue discount on
the Notes.
On June 28, 2007, the Company announced that its Board of
Directors authorized the redemption of the remaining $120,000 of
Senior Floating Rate Notes outstanding. The Company redeemed the
Senior Floating Rate Notes on October 1, 2007 at the
redemption price specified by the Senior Floating Rate Notes of
102.0%, plus all accrued and unpaid interest through the
redemption date. The Company incurred a one-time pre-tax charge
of $3,840 associated with the redemption, which represents a
$2,400 redemption premium and $1,440 to recognize unamortized
deferred financing costs.
On February 7, 2008, the Company announced that its Board
of Directors authorized the buyback of up to an aggregate of an
additional $130,000 of its Senior Notes. The timing and amount
of the repurchases will be determined by the Companys
management based on their evaluation of market conditions and
other factors. In addition, the repurchases may be suspended or
discontinued at any time. As of January 31, 2009, the
Company had repurchased $30,000 of its Senior Notes pursuant to
this new authorization and delivered the Senior Notes to the
Trustee for cancellation. The associated loss on retirement of
debt is $2,331, which consists of the premium paid to retire the
Senior Notes and the write-off of the deferred financing fees
and the original issue discount on the Senior Notes for the
52 week period ended January 31, 2009.
In October 2004, GameStop issued a promissory note in favor of
Barnes & Noble in the principal amount of $74,020 in
connection with the repurchase of the Companys common
stock held by Barnes & Noble. The note was unsecured
and bore interest at 5.5% per annum, payable with each principal
installment. Scheduled principal payments of $12,173 and $12,173
were made in October 2006 and October 2007, respectively,
satisfying the promissory note in full.
The maturity on the $550,000 Senior Notes, gross of the
unamortized original issue discount of $4,288, occurs in the
fiscal year ending January 2013.
F-23
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Comprehensive income is net earnings, plus certain other items
that are recorded directly to stockholders equity, and
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks
|
|
|
52 Weeks
|
|
|
53 Weeks
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Net earnings
|
|
$
|
398,282
|
|
|
$
|
288,291
|
|
|
$
|
158,250
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(60,029
|
)
|
|
|
28,376
|
|
|
|
2,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
338,253
|
|
|
$
|
316,667
|
|
|
$
|
160,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
53 Weeks
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Minimum
|
|
$
|
303,727
|
|
|
$
|
255,259
|
|
|
$
|
226,974
|
|
Percentage rentals
|
|
|
22,927
|
|
|
|
19,968
|
|
|
|
13,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
326,654
|
|
|
$
|
275,227
|
|
|
$
|
240,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future minimum annual rentals, excluding percentage rentals,
required under leases that had initial, noncancelable lease
terms greater than one year, as of January 31, 2009 are
approximately:
|
|
|
|
|
Year Ended
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
January 2010
|
|
$
|
295,081
|
|
January 2011
|
|
|
218,667
|
|
January 2012
|
|
|
168,419
|
|
January 2013
|
|
|
111,530
|
|
January 2014
|
|
|
67,976
|
|
Thereafter
|
|
|
111,083
|
|
|
|
|
|
|
|
|
$
|
972,756
|
|
|
|
|
|
|
F-24
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
11.
|
Commitments
and Contingencies
|
Contingencies
On February 14, 2005, and as amended, Steve Strickland, as
personal representative of the Estate of Arnold Strickland,
deceased, Henry Mealer, as personal representative of the Estate
of Ace Mealer, deceased, and Willie Crump, as personal
representative of the Estate of James Crump, deceased, filed a
wrongful death lawsuit against GameStop, Sony, Take-Two
Interactive, Rock Star Games and Wal-Mart (collectively, the
Defendants) and Devin Moore, alleging that
Defendants actions in designing, manufacturing, marketing
and supplying Defendant Moore with violent video games were
negligent and contributed to Defendant Moore killing Arnold
Strickland, Ace Mealer and James Crump. Moore was found guilty
of capital murder in a criminal trial and was sentenced to death
in August 2005.
Plaintiffs counsel has named a new expert, a psychologist
who testified at the criminal trial on behalf of the criminal
defendant, who will opine (if allowed) that violent video games
were a substantial factor in causing the murders. This same
testimony from this same expert was excluded in the criminal
trial from the same judge hearing this case. The testimony of
plaintiffs psychologist expert was heard by the Court on
October 30, 2008, and the motion to exclude that testimony
was argued on December 12, 2008. The ruling on this motion
will have an effect on whether the case is able to proceed. The
Company is currently awaiting a ruling. There is no current
trial date. The Company does not believe there is sufficient
information to estimate the amount of the possible loss, if any,
resulting from the lawsuit.
In the ordinary course of the Companys business, the
Company is, from time to time, subject to various other legal
proceedings. Management does not believe that any such other
legal proceedings, individually or in the aggregate, will have a
material adverse effect on the Companys financial
condition or results of operations.
In 2003, the Company purchased a 51% controlling interest in
GameStop Group Limited. Under the terms of the purchase
agreement, the individual owners of the remaining 49% interest
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 Companys price to
earnings ratio and GameStop Group Limiteds earnings.
Shares representing approximately 16% were purchased in June
2008 bringing the Companys interest in GameStop Group
Limited to approximately 67%. The Company already consolidates
the results of GameStop Group Limited; therefore, any additional
amounts acquired will not have a material effect on the
Companys financial statements.
F-25
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The provision for income tax consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks
|
|
|
52 Weeks
|
|
|
53 Weeks
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Current tax expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
168,935
|
|
|
$
|
34,107
|
|
|
$
|
32,127
|
|
State
|
|
|
13,874
|
|
|
|
5,149
|
|
|
|
2,370
|
|
Foreign
|
|
|
39,999
|
|
|
|
31,874
|
|
|
|
18,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
222,808
|
|
|
|
71,130
|
|
|
|
53,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(15,858
|
)
|
|
|
(2,582
|
)
|
|
|
571
|
|
State
|
|
|
(7,468
|
)
|
|
|
(1,805
|
)
|
|
|
(2,149
|
)
|
Foreign
|
|
|
(1,375
|
)
|
|
|
(8,764
|
)
|
|
|
(1,502
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,701
|
)
|
|
|
(13,151
|
)
|
|
|
(3,080
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge in lieu of income taxes, relating to the tax effect of
stock-based awards tax deduction
|
|
|
37,562
|
|
|
|
94,786
|
|
|
|
45,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
235,669
|
|
|
$
|
152,765
|
|
|
$
|
96,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of earnings before income tax expense consisted
of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks
|
|
|
52 Weeks
|
|
|
53 Weeks
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
United States
|
|
$
|
532,787
|
|
|
$
|
364,929
|
|
|
$
|
211,814
|
|
International
|
|
|
101,164
|
|
|
|
76,127
|
|
|
|
42,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
633,951
|
|
|
$
|
441,056
|
|
|
$
|
254,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
53 Weeks
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Federal statutory tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes, net of federal effect
|
|
|
1.1
|
|
|
|
0.5
|
|
|
|
2.0
|
|
Foreign income taxes
|
|
|
0.5
|
|
|
|
(0.8
|
)
|
|
|
0.7
|
|
Other (including permanent differences)
|
|
|
0.6
|
|
|
|
(0.1
|
)
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37.2
|
%
|
|
|
34.6
|
%
|
|
|
37.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys effective tax rate increased from 34.6% in
the 52 weeks ended February 2, 2008 to 37.2% in the
52 weeks ended January 31, 2009, primarily due to
expenses related to the mergers and acquisitions and associated
corporate structuring. The Companys effective tax rate
decreased from 37.8% in the 53 weeks ended February 3,
2007 to 34.6% in the 52 weeks ended February 2, 2008
primarily due to the release of valuation
F-26
GAMESTOP
CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
allowances on foreign net operating losses and the recognition
of foreign tax credits not previously benefited. Valuation
allowances were recorded in earlier years against foreign net
operating losses generated in subsidiaries for which
profitability could not be reasonably foreseen. The valuation
allowances on foreign net operating losses were released during
fiscal 2007 upon such subsidiaries attaining profitability.
Differences between financial accounting principles and tax laws
cause differences between the bases of certain assets and
liabilities for financial reporting purposes and tax purposes.
The tax effects of these differences, to the extent they are
temporary, are recorded as deferred tax assets and liabilities
under SFAS 109 and consisted of the following components:
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Deferred tax asset:
|
|
|
|
|
|
|
|
|
Fixed assets
|
|
$
|
32,460
|
|
|
$
|
21,395
|
|
Inventory obsolescence reserve
|
|
|
16,580
|
|
|
|
16,823
|
|
Deferred rents
|
|
|
13,001
|
|
|
|
11,585
|
|
Stock-based compensation
|
|
|
27,081
|
|
|
|
16,347
|
|
Net operating losses
|
|
|
15,283
|
|
|
|
17,801
|
|
Other
|
|
|
13,565
|
|
|
|
12,455
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
117,970
|
|
|
|
96,406
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
(34,033
|
)
|
|
|
(30,280
|
)
|
Prepaid expenses
|
|
|
(4,392
|
)
|
|
|
(4,110
|
)
|
Acquired intangible assets
|
|
|
(60,576
|
)
|
|
|
|
|
Other
|
|
|
(2,877
|
)
|
|
|
(8,203
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax (liabilities) assets
|
|
|
(101,878
|
)
|
|
|
(42,593
|
)
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
16,092
|
|
|
$
|
53,813
|
|
|
|
|
|
|
|
|
|
|
Financial statements:
|
|
|
|
|
|
|
|
|
Current deferred tax assets
|
|
$
|
23,615
|
|
|
$
|
27,481
|
|
|
|
|
|
|
|
|
|
|
Deferred tax (liabilities) assets
|
|
$
|
(7,523
|
)
|
|
$
|
26,332
|
|
|
|
|
|
|
|
|
|
|
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)
completed examination of the Companys U.S. income tax
returns for the fiscal years ended on January 29, 2005 and
January 28, 2006 during fiscal 2008. The Company did not
record any material adjustments to its consolidated financial
statements as a result of these audits. The Company is no longer
subject to U.S. federal income tax examination by tax
authorities for years before and including the fiscal year ended
January 28, 2006. The IRS has commenced an examination of
EBs U.S. income tax return for the short year ended
October 8, 2005. EB is no longer subject to
U.S. federal income tax examination by tax authorities for
years prior to and including the fiscal year ended
February 1, 2003.
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.
F-27