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Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,”“accelerated
filer” and “smaller reporting company” in
Rule 12b-2
of the Exchange Act. (Check one):
Large
accelerated
filer þ
Accelerated
filer o
Non-accelerated
filer o
Smaller
reporting
company o
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
Number of shares of $.001 par value Class A Common
Stock outstanding as of August 25, 2010: 150,352,480
GameStop Corp. (together with its predecessor companies,
“GameStop,”“we,”“our,” or the
“Company”), a Delaware corporation, is the
world’s largest retailer of video game products and PC
entertainment software. The unaudited consolidated financial
statements include the accounts of the Company and its
subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. All dollar
and share amounts in the consolidated financial statements and
notes to the consolidated financial statements are stated in
thousands of U.S. dollars unless otherwise indicated.
The unaudited condensed consolidated financial statements
included herein reflect all adjustments (consisting only of
normal, recurring adjustments) which are, in the opinion of the
Company’s management, necessary for a fair presentation of
the information for the periods presented. These unaudited
condensed consolidated interim financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America (“GAAP”) for
interim financial information and the instructions to Quarterly
Report on
Form 10-Q
and Article 10 of
Regulation S-X.
Accordingly, they do not include all disclosures required under
GAAP for complete financial statements. These condensed
consolidated financial statements should be read in conjunction
with the Company’s annual report on
Form 10-K
for the 52 weeks ended January 30, 2010 (“fiscal
2009”). The preparation of financial statements in
conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. In
preparing these financial statements, management has made its
best estimates and judgments of certain amounts included in the
financial statements, giving due consideration to materiality.
Changes in the estimates and assumptions used by management
could have significant impact on the Company’s financial
results. Actual results could differ from those estimates.
Due to the seasonal nature of the business, the results of
operations for the 26 weeks ended July 31, 2010 are
not indicative of the results to be expected for the
52 weeks ending January 29, 2011 (“fiscal
2010”).
Certain reclassifications have been made to conform the prior
period data to the current interim period presentation.
2.
Accounting
for Stock-Based Compensation
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, expected volatility and the
expected employee forfeiture rate. 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. There were no options to purchase common stock
granted during the 13 weeks ended July 31, 2010 and
August 1, 2009. The options to purchase common stock
granted during the 26 weeks ended July 31, 2010 and
August 1, 2009 were 1,177 and 1,419, respectively, with a
weighted-average fair value estimated at $7.88 and $9.45 per
share, respectively, using the following assumptions:
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
In the 13 weeks ended July 31, 2010 and August 1,2009, the Company included compensation expense relating to
stock option grants of $3,058 and $3,030, respectively, in
selling, general and administrative expenses in the accompanying
condensed consolidated statements of operations. In the
26 weeks ended July 31, 2010 and August 1, 2009,
the Company included compensation expense relating to stock
option grants of $6,024 and $5,442, respectively, in selling,
general and administrative expenses. As of July 31, 2010,
the unrecognized compensation expense related to the unvested
portion of our stock options was $15,416 which is expected to be
recognized over a weighted average period of 1.8 years. The
total intrinsic value of options exercised during the
13 weeks ended July 31, 2010 and August 1, 2009
were $165 and $529, respectively. The total intrinsic value of
options exercised during the 26 weeks ended July 31,2010 and August 1, 2009 were $1,233 and $2,727,
respectively.
During the 13 weeks ended July 31, 2010, the Company
granted 60 shares of restricted stock at a weighted average
grant date fair value of $21.73 which vest in equal annual
installments over three years. There were no restricted shares
granted during the 13 weeks ended August 1, 2009.
During the 26 weeks ended July 31, 2010 and
August 1, 2009, the Company granted 743 shares and
571 shares, respectively, of restricted stock. The shares
had a weighted average grant date fair market value of $20.43
and $26.02 per share, respectively, and vest in equal annual
installments over three years. During the 13 weeks ended
July 31, 2010 and August 1, 2009, the Company included
compensation expense relating to the restricted share grants in
the amount of $4,392 and $4,884, respectively, in selling,
general and administrative expenses in the accompanying
condensed consolidated statements of operations. During the
26 weeks ended July 31, 2010 and August 1, 2009,
the Company included compensation expense relating to the
restricted share grants in the amount of $8,648 and $9,808,
respectively, in selling, general and administrative expenses.
As of July 31, 2010, there was $24,200 of unrecognized
compensation expense related to nonvested restricted stock
awards that is expected to be recognized over a weighted average
period of 1.9 years.
3.
Computation
of Net Earnings per Common Share
A reconciliation of shares used in calculating basic and diluted
net earnings per common share is as follows:
Dilutive effect of options and restricted shares on common stock
2,904
3,221
2,911
3,360
Common shares and dilutive potential common shares
154,154
167,857
155,319
167,915
Net income per common share:
Basic
$
0.27
$
0.23
$
0.76
$
0.66
Diluted
$
0.26
$
0.23
$
0.74
$
0.65
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:
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
4.
Fair
Value Measurements and Financial Instruments
The Company defines fair value as the price that would be
received from selling an asset or paid to transfer a liability
in an orderly transaction between market participants at the
measurement date. Fair value accounting guidance applies to our
forward exchange contracts, foreign currency options and
cross-currency swaps (together, the “Foreign Currency
Contracts”), Company-owned life insurance policies with a
cash surrender value and certain nonqualified deferred
compensation liabilities that are measured at fair value on a
recurring basis in periods subsequent to initial recognition.
Fair value accounting guidance requires disclosures that
categorize assets and liabilities measured at fair value into
one of three different levels depending on the observability of
the inputs employed in the measurement. Level 1 inputs are
quoted prices in active markets for identical assets or
liabilities. Level 2 inputs are observable inputs other
than quoted prices included within Level 1 for the asset or
liability, either directly or indirectly through
market-corroborated inputs. Level 3 inputs are unobservable
inputs for the asset or liability reflecting our assumptions
about pricing by market participants.
We value our Foreign Currency Contracts, Company-owned life
insurance policies with cash surrender values and certain
nonqualified deferred compensation liabilities based on
Level 2 inputs using quotations provided by major market
news services, such as Bloomberg and The Wall Street Journal,
and industry-standard models that consider various assumptions,
including quoted forward prices, time value, volatility factors,
and contractual prices for the underlying instruments, as well
as other relevant economic measures. When appropriate,
valuations are adjusted to reflect credit considerations,
generally based on available market evidence.
The following table provides the fair value of our assets and
liabilities measured on a recurring basis and recorded on our
condensed consolidated balance sheets, in thousands:
The Company uses Foreign Currency Contracts to manage currency
risk primarily related to intercompany loans denominated in
non-functional currencies and certain foreign currency assets
and liabilities. These Foreign Currency Contracts are not
designated as hedges and, therefore, changes in the fair values
of these derivatives are recognized in earnings, thereby
offsetting the current earnings effect of the re-measurement of
related intercompany loans and foreign currency assets and
liabilities. We do not use derivative financial instruments for
trading or speculative purposes. We are exposed to counterparty
credit risk on all of our derivative financial instruments and
cash equivalent investments. The Company manages counterparty
risk according to the guidelines and controls established under
comprehensive risk management and investment policies. We
continuously monitor our counterparty credit risk and utilize a
number of different counterparties to minimize our exposure to
potential defaults. We do not require collateral under
derivative or investment agreements.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The fair values of derivative instruments not receiving hedge
accounting treatment in the condensed consolidated balance
sheets presented herein were as follows, in thousands:
As of July 31, 2010, the Company had a series of Forward
Currency Contracts outstanding, with a gross notional value of
$423,781 and a net notional value of $261,515. For the 13 and
26 week periods ended July 31, 2010, the Company
recognized a loss of $7,782 and a gain of $4,132, respectively,
in selling, general and administrative expenses related to the
trading of derivative instruments. As of August 1, 2009,
the Company had a series of Forward Currency Contracts
outstanding, with a gross notional value of $516,096 and a net
notional value of $257,821. For the 13 and 26 week periods
ended August 1, 2009, the Company recognized losses of
$12,255 and $12,841, respectively, in selling, general and
administrative expenses related to the trading of derivative
instruments.
The Company’s carrying value of financial instruments
approximates their fair value, except for differences with
respect to the senior notes. The fair value of the
Company’s senior notes payable in the accompanying
consolidated balance sheets is estimated based on recent quotes
from brokers. As of July 31, 2010, the senior notes payable
had a carrying value of $447,798 and a fair value of $462,938.
As of August 1, 2009, the senior notes payable had a
carrying value of $495,807 and a fair value of $506,724.
5.
Debt
In October 2005, the Company entered into a five-year $400,000
Credit Agreement (the “Revolver”), including a $50,000
letter of credit
sub-limit,
secured by the assets of the Company and its
U.S. subsidiaries. The Revolver places certain restrictions
on the Company and its subsidiaries, including limitations on
asset sales, additional liens and the incurrence of additional
indebtedness. In April 2007, the Company amended the Revolver to
extend the maturity date from October 11, 2010 to
April 25, 2012, reduce the LIBO interest rate margin,
reduce and fix the rate of the unused commitment fee and modify
or delete certain other covenants. The extension of the Revolver
to 2012 reduces our exposure to the current tightening in the
credit markets.
The availability under the Revolver is limited to a borrowing
base which allows the Company to borrow up to the lesser of
(x) approximately 70% of eligible inventory and
(y) 90% of the appraisal value of the inventory, in each
case plus 85% of eligible credit card receivables, net of
certain reserves. Letters of credit reduce the amount available
to borrow by their face value. The Company’s ability to pay
cash dividends, redeem options and repurchase shares is
generally prohibited, except that if availability under the
Revolver is, or will be after any such payment, equal to or
greater than 25% of the borrowing base, the Company may
repurchase its capital stock and pay cash dividends. In
addition, in the event that credit extensions under the Revolver
at any time exceed 80% of the lesser of the total commitment or
the borrowing base, the Company will be subject to a fixed
charge coverage ratio covenant of 1.5:1.0.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The per annum interest rate on the Revolver is variable and, at
the Company’s option, is calculated by applying a margin of
(1) 0.0% to 0.25% above the higher of the prime rate of the
administrative agent or the federal funds effective rate plus
0.50% or (2) 1.00% to 1.50% above the LIBO rate. The
applicable margin is determined quarterly as a function of the
Company’s consolidated leverage ratio. As of July 31,2010, the applicable margin was 0.0% for prime rate loans and
1.00% for LIBO rate loans. In addition, the Company is required
to pay a commitment fee of 0.25% for any unused portion of the
total commitment under the Revolver. As of July 31, 2010,
there were no borrowings outstanding under the Revolver and
letters of credit outstanding totaled $8,363.
In September 2007, the Company’s Luxembourg subsidiary
entered into a discretionary $20,000 Uncommitted Line of Credit
(the “Line of Credit”) with Bank of America. There is
no term associated with the Line of Credit and Bank of America
may withdraw the facility at any time without notice. The Line
of Credit will be made available to the Company’s foreign
subsidiaries for use primarily as a bank overdraft facility for
short-term liquidity needs and for the issuance of bank
guarantees and letters of credit to support operations. As of
July 31, 2010, there were no cash overdrafts outstanding
under the Line of Credit and bank guarantees outstanding totaled
$15,746.
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
Electronics Boutique Holdings Corp. (“EB”) in
connection with the merger of the Company and EB (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
July 31, 2010, the unamortized original issue discount was
$2,202. 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 July 31, 2010, the Company
was in compliance with all covenants associated with the
Revolver and the Indenture.
Under certain conditions, the Issuers may on any one or more
occasions prior to maturity redeem up to 100% of the aggregate
principal amount of Senior Notes issued under the Indenture at
redemption prices at or in excess of 100% of the principal
amount thereof plus accrued and unpaid interest, if any, to the
redemption date. The circumstances which would limit the
percentage of the Notes which may be redeemed or which would
require the Company to pay a premium in excess of 100% of the
principal amount are defined in the Indenture. Upon a Change of
Control (as defined in the Indenture), the Issuers are required
to offer to purchase all of the Notes then outstanding at 101%
of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase. The Issuers may
acquire Senior Notes by means other than redemption, whether by
tender offer, open market purchases, negotiated transactions or
otherwise, in accordance with applicable securities laws, so
long as such acquisitions do not otherwise violate the terms of
the Indenture.
Between May 2006 and September 2009, the Company repurchased and
redeemed the $300,000 of Senior Floating Rate Notes and $200,000
of Senior Notes under previously announced buybacks authorized
by the Company’s Board of Directors. All of the authorized
amounts were repurchased or redeemed and the repurchased
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Notes were delivered to the Trustee for cancellation. The
associated loss on the retirement of debt was $2,862 for the
26-week period ended August 1, 2009, which consisted of the
premium paid to retire the Notes and the write-off of the
deferred financing fees and the original issue discount on the
Notes.
As of August 1, 2009 and July 31, 2010, the only
long-term debt outstanding was the Senior Notes. The maturity on
the $450,000 Senior Notes, gross of the unamortized original
issue discount of $2,202, occurs in the fiscal year ending
January 2013.
6.
Income
Taxes
The Company and its subsidiaries file income tax returns in the
U.S. federal jurisdiction and various states and foreign
jurisdictions. The Company is no longer subject to
U.S. federal income tax examination by the Internal Revenue
Service (“IRS”) for years before and including the
fiscal year ended January 28, 2006. The IRS completed an
examination of EB’s U.S. income tax return for the
short year ended October 8, 2005 during fiscal 2009. EB is
no longer subject to U.S. federal income tax examination by
tax authorities for fiscal years prior to and including the
short year ended October 8, 2005.
We accrue for the effects of uncertain tax positions and the
related potential penalties and interest. There were no net
material adjustments to our recorded liability for unrecognized
tax benefits during the 13 and 26 weeks ended July 31,2010. It is reasonably possible that the amount of the
unrecognized tax benefit with respect to certain of our
unrecognized tax positions could significantly increase or
decrease during the next 12 months. At this time, an
estimate of the range of the reasonably possible outcomes cannot
be made.
The tax provisions for the 13 weeks and 26 weeks ended
July 31, 2010 and August 1, 2009 are based upon
management’s estimate of the Company’s annualized
effective tax rate.
7.
Certain
Relationships and Related Transactions
The Company operates departments within eight bookstores
operated by Barnes & Noble, Inc.
(“Barnes & Noble”), a related party through
a common stockholder who is the Chairman of the Board of
Directors of Barnes & Noble and a member of the
Company’s Board of Directors. The Company pays a license
fee to Barnes & Noble on the gross sales of such
departments. The Company deems the license fee to be reasonable
and based upon terms equivalent to those that would prevail in
an arm’s length transaction. During the 13 weeks ended
July 31, 2010 and August 1, 2009, these charges
amounted to $211 and $210, respectively. During the
26 weeks ended July 31, 2010 and August 1, 2009,
these charges amounted to $437 and $460, respectively.
In May 2005, the Company entered into an arrangement with
Barnes & Noble under which www.gamestop.com
became the exclusive specialty video game retailer listed on
www.bn.com, Barnes & Noble’s
e-commerce
site. Under the terms of this agreement, the Company pays a fee
to Barnes & Noble for sales of video game or PC
entertainment products sold through www.bn.com. The fee
to Barnes & Noble was $42 and $38 for the
13 weeks ended July 31, 2010 and August 1, 2009,
respectively, and $104 and $120 for the 26 weeks ended
July 31, 2010 and August 1, 2009, respectively.
Until June 2005, GameStop participated in Barnes &
Noble’s workers’ compensation, property and general
liability insurance programs. The costs incurred by
Barnes & Noble under these programs were allocated to
GameStop based upon total payroll expense, property and
equipment, and insurance claim history of GameStop. Although
GameStop secured its own insurance coverage, costs will likely
continue to be incurred by Barnes & Noble on insurance
claims which were incurred under its programs prior to June 2005
and any such costs applicable to insurance claims against
GameStop will be allocated to the Company. During the
13 weeks ended July 31, 2010 and August 1, 2009,
these allocated charges amounted to $19 and $43, respectively.
During the 26 weeks ended July 31, 2010 and
August 1, 2009, these allocated charges amounted to $29 and
$105, respectively.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
8.
Commitments
and 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 in the Circuit Court of Fayette, Alabama,
against GameStop, Sony, Take-Two Interactive, Rock Star Games
and Wal-Mart (collectively, the “Defendants”) and
Devin Moore, alleging that Defendants’ actions in
designing, manufacturing, marketing and supplying Defendant
Moore with violent video games were negligent and contributed to
Defendant Moore killing Arnold Strickland, Ace Mealer and James
Crump. Moore was found guilty of capital murder in a criminal
trial and was sentenced to death in August 2005.
Plaintiffs’ counsel named an expert who plaintiffs
indicated would testify that violent video games were a
substantial factor in causing the murders. The testimony of
plaintiffs’ psychologist expert was heard by the Court on
October 30, 2008, and the motion to exclude that testimony
was argued on December 12, 2008. On July 30, 2009, the
trial court entered its Order granting summary judgment for all
defendants, dismissing the case with prejudice on the grounds
that plaintiffs’ expert’s testimony did not satisfy
the Frye standard for expert admissibility. Subsequent to the
entry of the Order, the plaintiffs filed a notice of appeal. The
plaintiffs have filed their appellate brief in support of their
appeal and the defendants have filed their consolidated
appellate brief in opposition to the appeal. The matter is now
fully briefed and is before the Alabama Supreme Court.
The Company does not believe there is sufficient information to
estimate the amount of the possible loss, if any, resulting from
the lawsuit if the plaintiffs’ appeal is successful.
In the ordinary course of the Company’s business, the
Company is, from time to time, subject to various other legal
proceedings, including matters involving wage and hour employee
class actions. The Company may enter into discussions regarding
settlement of these and other types of lawsuits, and may enter
into settlement agreements, if it believes settlement is in the
best interest of the Company’s shareholders. Management
does not believe that any such other legal proceedings or
settlements, individually or in the aggregate, will have a
material adverse effect on the Company’s financial
condition, results of operations or liquidity.
In 2003, the Company purchased a 51% controlling interest in
GameStop Group Limited, which operates stores in Ireland and the
United Kingdom. Under the terms of the purchase agreement, the
minority interest owners have the ability to require the Company
to purchase their remaining shares in incremental percentages at
a price to be determined based partially on the Company’s
price to earnings ratio and GameStop Group Limited’s
earnings. In June 2008, the Company purchased shares
representing approximately 16% of GameStop Group Limited, and in
July 2009, the Company purchased shares representing an
additional 16%, bringing the Company’s total interest in
GameStop Group Limited to approximately 84%. The Company already
consolidates the results of GameStop Group Limited; therefore,
any additional amounts acquired will not have a material effect
on the Company’s financial statements.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
9.
Significant
Products
The Company is principally engaged in the sale of new and used
video game systems and software, personal computer entertainment
software and related accessories. The following table sets forth
sales (in millions) by significant product category for the
periods indicated:
The Company operates its business in the following segments:
United States, Canada, Australia and Europe. Segment results for
the United States include retail operations in all
50 states, the District of Columbia, Guam and Puerto Rico,
the electronic commerce Web sitewww.gamestop.com and
Game Informer magazine. Segment results for Canada
include retail and
e-commerce
operations in Canada and segment results for Australia include
retail and
e-commerce
operations in Australia and New Zealand. Segment results for
Europe include retail operations in 13 European countries and
e-commerce
operations in two countries. The Company measures segment profit
using operating earnings, which is defined as income from
continuing operations before intercompany royalty fees, net
interest expense and income taxes. There has been no material
change in total assets by segment since
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
January 30, 2010. Transactions between reportable segments
consist primarily of royalties, management fees, intersegment
loans and related interest. Information on segments appears in
the following tables.
In order to finance the EB merger, as described in Note 5,
on September 28, 2005, the Company, along with GameStop,
Inc. as co-issuer, completed the offering of the Notes. The
direct and indirect U.S. wholly-owned subsidiaries of the
Company, excluding GameStop, Inc., as co-issuer, have guaranteed
the Senior Notes on a senior unsecured basis with unconditional
guarantees.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
13.
Subsequent
Events
Subsequent to July 31, 2010, as a part of our digital
initiatives the Company purchased Kongregate Inc., a leading
social gaming destination and community for core gamers in the
online
free-to-play
gaming market. Kongregate will operate as a wholly-owned
subsidiary of the Company. The transaction will be accounted for
with the acquisition method of accounting and is expected to be
immaterial to the Company’s consolidated financial
statements.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion should be read in conjunction with
the information contained in our consolidated financial
statements, including the notes thereto. Statements regarding
future economic performance, management’s plans and
objectives, and any statements concerning assumptions related to
the foregoing contained in Management’s Discussion and
Analysis of Financial Condition and Results of Operations
constitute forward-looking statements. Certain factors, which
may cause actual results to vary materially from these
forward-looking statements, accompany such statements or appear
in GameStop’s Annual Report on
Form 10-K
for the fiscal year ended January 30, 2010 filed with the
Securities and Exchange Commission (the “SEC”) on
March 30, 2010 (the
“Form 10-K”),
including the factors disclosed under “Item 1A. Risk
Factors.”
General
GameStop Corp. (together with its predecessor companies,
“GameStop,”“we,”“our,” or the
“Company”) is the world’s largest retailer of
video game products and PC entertainment software. We sell new
and used video game hardware, video game software and
accessories, as well as PC entertainment software and other
merchandise. As of July 31, 2010, we operated 6,549 stores
in the United States, Australia, Canada and Europe, primarily
under the names GameStop and EB Games. We also operate
electronic commerce Web sites under the names
www.gamestop.com, www.ebgames.com.au,www.gamestop.ca,www.gamestop.it, and
www.micromania.fr and publish Game Informer
magazine, the industry’s largest multi-platform video
game magazine in the United States based on circulation.
Our fiscal year is composed of 52 or 53 weeks ending on the
Saturday closest to January 31. The fiscal years ending
January 29, 2011 (“fiscal 2010”) and ended
January 30, 2010 (“fiscal 2009”) consist of
52 weeks.
Growth in the video game industry is driven by the introduction
of new technology. The current generation of hardware consoles
(the Sony PlayStation 3, the Microsoft Xbox 360 and the Nintendo
Wii) were introduced between 2005 and 2007. The Sony PlayStation
Portable was introduced in 2005. The Nintendo DSi was introduced
in early 2009. Typically, following the introduction of new
video game platforms, sales of new video game hardware increase
as a percentage of total sales in the first full year following
introduction. As video game platforms mature, the sales mix
attributable to complementary video game software and
accessories, which generate higher gross margins, generally
increases in the subsequent years. The net effect is generally a
decline in gross margins in the first full year following new
platform releases and an increase in gross margins in the years
subsequent to the first full year following the launch period.
Unit sales of maturing video game platforms are typically also
driven by manufacturer-funded retail price reductions, further
driving sales of related software and accessories. We expect
that the installed base of the hardware platforms listed above
and sales of related software and accessories will increase in
the future.
We expect that future growth in the video game industry will
also be driven by the sale of video games delivered in digital
form and the expansion of other forms of gaming. We currently
sell various types of products that relate to the digital
category, including Xbox Live, PlayStation and Nintendo network
point cards, as well as prepaid digital and online timecards and
digitally downloaded software. We continue to make significant
investments in
e-commerce,
online game development, digital kiosks and in-store and Web
site functionality to enable our customers to access digital
content and eliminate friction in the digital sales and delivery
process. We plan to continue to invest in these types of
processes and channels to grow our digital sales base and
enhance our market leadership position in the video game
industry and in the digital aggregation and distribution
category. We also intend to continue to invest in customer
loyalty programs designed to attract and retain customers.
Critical
Accounting Policies
Our consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States of America (“GAAP”) for interim
financial information and do not include all disclosures
required under GAAP for complete financial statements.
Preparation of these statements requires management to make
judgments and estimates. Some accounting policies have a
significant impact on amounts reported in these financial
statements. For a summary of significant accounting policies and
the means by which we
The Company includes purchasing, receiving and distribution
costs in selling, general and administrative expenses, rather
than cost of sales, in the statement of operations. The Company
includes processing fees associated with purchases made by check
and credit cards in cost of sales, rather than selling, general
and administrative expenses, in the statement of operations. As
a result of these classifications, our gross margins are not
comparable to those retailers that include purchasing, receiving
and distribution costs in cost of sales and include processing
fees associated with purchases made by check and credit cards in
selling, general and administrative expenses. The net effect of
these classifications as a percentage of sales has not
historically been material.
The following table sets forth sales (in millions) by
significant product category for the periods indicated:
Sales increased by $60.6 million, or 3.5%, from
$1,738.5 million in the 13 weeks ended August 1,2009 to $1,799.1 million in the 13 weeks ended
July 31, 2010. The increase in sales was primarily
attributable to the addition of non-comparable store sales from
the 434 stores opened since May 2, 2009 and the comparable
store sales increase of 0.9% for the second quarter of fiscal
2010, offset by a decrease in sales related to changes in
foreign exchange rates of $13.4 million when compared to
the second quarter of fiscal 2009. Stores are included in our
comparable store sales base beginning in the thirteenth month of
operation and exclude the effect of changes in foreign exchange
rates. The increase in comparable store sales was primarily
attributable to stronger sell-through of new release video game
titles and new hardware systems in the second quarter of fiscal
2010.
New video game hardware sales increased $13.0 million, or
4.3%, from $301.3 million in the 13 weeks ended
August 1, 2009 to $314.3 million in the 13 weeks
ended July 31, 2010, primarily due to the release of
updated versions of the Microsoft Xbox 360 and the Sony
PlayStation 3 hardware systems and additional sales at new
stores. New video game software sales increased
$33.4 million, or 5.3%, from $629.8 million in the
13 weeks ended August 1, 2009 to $663.2 million
in the 13 weeks ended July 31, 2010, primarily due to
the strong sales of new release video game titles in fiscal
2010, as well as the increase in sales from new stores. Used
video game product sales grew by $4.7 million, or 0.8%,
from $560.8 million in the 13 weeks ended
August 1, 2009 to $565.5 million in the 13 weeks
ended July 31, 2010. The used video game product sales
growth rate during the 13 weeks ended July 31, 2010
was negatively impacted by the 19% growth rate in used product
sales in the prior year comparative quarter and the increased
sales of new hardware during the quarter, which impacts used
hardware sales. Sales of other product categories increased
3.9%, or $9.5 million, from the 13 weeks ended
August 1, 2009 to the 13 weeks ended July 31,2010. The increase in other product sales was primarily due to
the increase in sales of new release PC entertainment software
titles and digital online game card sales when compared to the
prior year quarter.
As a percentage of sales, video game hardware and new video game
software increased and used video game products decreased in the
13 weeks ended July 31, 2010 compared to the
13 weeks ended August 1, 2009. The change in the mix
of sales was primarily due to the strong sales of the updated
versions of the hardware units and the increase in sales of new
release video game software. As a percentage of sales, the other
video game product sales category remained the same in the
13 weeks ended July 31, 2010 compared to the
13 weeks ended August 1, 2009.
Cost of sales increased by $39.2 million, or 3.2%, from
$1,243.1 million in the 13 weeks ended August 1,2009 to $1,282.3 million in the 13 weeks ended
July 31, 2010 as a result of an increase in sales and the
changes in gross profit discussed below.
Gross profit increased by $21.4 million, or 4.3%, from
$495.4 million in the 13 weeks ended August 1,2009 to $516.8 million in the 13 weeks ended
July 31, 2010. Gross profit as a percentage of sales
increased from 28.5% in
the 13 weeks ended August 1, 2009 to 28.7% in the
13 weeks ended July 31, 2010. The gross profit
percentage increased in all product sales categories in the
13 weeks ended July 31, 2010 when compared to the
13 weeks ended August 1, 2009. Gross profit as a
percentage of sales on new video game hardware increased from
7.2% in the 13 weeks ended August 1, 2009 to 8.2% of sales
in the 13 weeks ended July 31, 2010, primarily due to
an increase in product replacement plan sales on new hardware
units when compared to the prior year. Gross profit as a
percentage of sales on new video game software increased from
21.2% in the 13 weeks ended August 1, 2009 to 21.4% in
the 13 weeks ended July 31, 2010, primarily due to
decreased promotional activities during the second quarter of
fiscal 2010 when compared to the prior year. Gross profit as a
percentage of sales on used video game products increased from
45.8% in the 13 weeks ended August 1, 2009 to 46.0% in
the 13 weeks ended July 31, 2010 due to decreased
promotional activities during the second quarter of fiscal 2010
when compared to the 13 weeks ended August 1, 2009.
Gross profit as a percentage of sales on other video game
products increased from 33.8% in the 13 weeks ended
August 1, 2009 to 34.8% in the 13 weeks ended
July 31, 2010, primarily due to a shift in sales to higher
margin accessories.
Selling, general and administrative expenses increased by
$20.2 million, or 5.2%, from $384.8 million in the
13 weeks ended August 1, 2009 to $405.0 million
in the 13 weeks ended July 31, 2010. This increase was
primarily attributable to the increase in the number of stores
in operation and the related increases in store, distribution
and corporate office operating expenses, as well as expenses
incurred in our digital and loyalty initiatives. Selling,
general and administrative expenses as a percentage of sales
increased from 22.1% in the 13 weeks ended August 1,2009 to 22.5% in the 13 weeks ended July 31, 2010. The
increase in selling, general and administrative expenses as a
percentage of sales was primarily due to the additional expenses
incurred in support of our digital and loyalty initiatives in
the second quarter of fiscal 2010. Included in selling, general
and administrative expenses are $7.5 million and
$7.9 million in stock-based compensation expense for the
13 weeks ended July 31, 2010 and August 1, 2009,
respectively.
Depreciation and amortization expense increased
$2.5 million from $39.7 million for the 13 weeks
ended August 1, 2009 to $42.2 million in the
13 weeks ended July 31, 2010. This increase was
primarily due to the capital expenditures associated with the
opening of 86 new stores during the second quarter of fiscal
2010 and investments in management information systems.
Interest income from the investment of excess cash balances
decreased from $0.5 million in the 13 weeks ended
August 1, 2009 to $0.3 million in the 13 weeks
ended July 31, 2010 due primarily to lower interest rates.
Interest expense decreased from $11.7 million in the
13 weeks ended August 1, 2009 to $10.3 million in
the 13 weeks ended July 31, 2010 primarily due to the
retirement of $49.2 million of the Company’s senior
notes since August 1, 2009.
Income tax expense for the 13 weeks ended August 1,2009 and the 13 weeks ended July 31, 2010 was based
upon management’s estimate of the Company’s annualized
effective tax rate. Income tax expense was $21.0 million,
or 35.2%, of earnings before income tax expense for the
13 weeks ended August 1, 2009 compared to
$19.8 million, or 33.2%, of earnings before income tax
expense for the 13 weeks ended July 31, 2010. The
decrease in the income tax rate was due primarily to the
variability in the accounting for the Company’s uncertain
tax positions and the mix of the tax rates in the countries in
which we operate.
The factors described above led to a decrease in operating
earnings of $1.4 million, or 2.0%, from $71.0 million
in the 13 weeks ended August 1, 2009 to
$69.6 million in the 13 weeks ended July 31,2010, and an increase in consolidated net income of
$1.1 million, or 2.8%, from $38.7 million in the
13 weeks ended August 1, 2009 to $39.8 million in
the 13 weeks ended July 31, 2010.
In 2009, the Financial Accounting Standards Board
(“FASB”) issued new guidance related to the reporting
of non-controlling interests in subsidiaries. The
$0.5 million increase in consolidated net income
attributable to GameStop shareholders represents the portion of
the minority interest shareholders’ net loss of the
Company’s non-wholly owned subsidiaries during the
13 weeks ended July 31, 2010.
Sales increased by $162.5 million, or 4.4%, from
$3,719.3 million in the 26 weeks ended August 1,2009 to $3,881.8 million in the 26 weeks ended
July 31, 2010. The increase in sales was attributable to
the addition of non-comparable store sales from the 548 stores
opened since January 31, 2009 of approximately
$125.0 million and increases related to changes in foreign
exchange rates of $47.9 million, offset by a decrease in
comparable store sales of 0.4% for the 26-week period ended
July 31, 2010 when compared to the 26-week period ended
August 1, 2009. Stores are included in our comparable store
sales base beginning in the thirteenth month of operation and
exclude the effect of changes in foreign exchange rates. The
decrease in comparable store sales was primarily due to the
decrease in new video game hardware sales related to product
shortages in the first quarter of fiscal 2010 and the decrease
in hardware price points in fiscal 2010 when compared to fiscal
2009.
New video game hardware sales decreased $34.6 million, or
5.0%, from $697.2 million in the 26 weeks ended
August 1, 2009 to $662.6 million in the 26 weeks
ended July 31, 2010, primarily due to product shortages in
the first fiscal quarter of 2010 and price cuts on new video
game consoles, partially offset by the additional sales at the
new stores added since fiscal 2009. New video game software
sales increased $135.9 million, or 9.7%, from
$1,400.3 million in the 26 weeks ended August 1,2009 to $1,536.2 million in the 26 weeks ended
July 31, 2010, primarily due to strong sales of new release
video game titles in fiscal 2010, as well as the increase in
sales from new stores. Used video game product sales increased
$27.0 million, or 2.4%, from $1,109.3 million in the
26 weeks ended August 1, 2009 to $1,136.3 million
in the 26 weeks ended July 31, 2010. Used video game
product sales increased due to the availability of hardware and
software associated with the current generation hardware
platforms, the higher growth rate of used product sales
internationally, and the increase in sales from new stores
opened since fiscal 2009. Sales of other product categories
increased by 6.7%, or $34.2 million, from the 26 weeks
ended August 1, 2009 to the 26 weeks ended
July 31, 2010. The increase in other product sales was
primarily due to the increase in sales of new release PC
entertainment software and digital online game card sales when
compared to the prior year period.
As a percentage of sales, new video game software and other
product sales increased and new video game hardware and used
video game products decreased in the 26 weeks ended
July 31, 2010 compared to the 26 weeks ended
August 1, 2009. The change in the mix of sales was
primarily due to the strong sales of new release video game and
PC entertainment software and the decrease in sales of new video
game hardware due to product shortages and price cuts on new
video game consoles during fiscal 2010 when compared to fiscal
2009.
Cost of sales increased by $112.5 million, or 4.2%, from
$2,681.7 million in the 26 weeks ended August 1,2009 to $2,794.2 million in the 26 weeks ended
July 31, 2010, primarily as a result of the increase in
sales and the changes in gross profit discussed below.
Gross profit increased by $50.1 million, or 4.8%, from
$1,037.5 million in the 26 weeks ended August 1,2009 to $1,087.6 million in the 26 weeks ended
July 31, 2010. Gross profit as a percentage of sales
increased slightly from 27.9% in the 26 weeks ended
August 1, 2009 to 28.0% in the 26 weeks ended
July 31, 2010. Gross profit as a percentage of sales on new
video game hardware increased from 6.6% of sales for the
26 weeks ended August 1, 2009 to 7.1% of sales for the
26 weeks ended July 31, 2010 due to an increase in
sales of product replacement plans during fiscal 2010. Gross
profit as a percentage of sales on new video game software
decreased from 21.4% in the 26 weeks ended August 1,2009 to 20.6% in the 26 weeks ended July 31, 2010. The
decrease in new video game software gross profit percentage was
due to a shift in sales from higher margin older platform titles
to newer platform titles which carry a lower overall margin
percentage. Gross profit as a percentage of sales on used video
game products increased slightly from 46.9% in the 26 weeks
ended August 1, 2009 to 47.0% in the 26 weeks ended
July 31, 2010. Gross profit as a percentage of sales on the
other product sales category increased from 33.6% in the
26 weeks ended August 1, 2009 to 34.7% in the
26 weeks ended July 31, 2010 due to a shift in sales
to higher margin accessories.
Selling, general and administrative expenses increased by
$48.2 million, or 6.3%, from $760.6 million in the
26 weeks ended August 1, 2009 to $808.8 million
in the 26 weeks ended July 31, 2010. This increase was
primarily attributable to the increase in the number of stores
in operation during fiscal 2010 and the related increases in
store, distribution and corporate office operating expenses, as
well as expenses incurred in our digital and loyalty
initiatives. Selling, general and administrative expenses as a
percentage of sales increased from 20.4% in the
26 weeks ended August 1, 2009 to 20.8% in the
26 weeks ended July 31, 2010. This increase was
primarily due to deleveraging of fixed costs as a result of the
decrease in comparable store sales and the additional expenses
incurred in support of our digital and loyalty initiatives in
fiscal 2010. Selling, general and administrative expenses
include $14.7 million and $15.3 million in stock-based
compensation expense for the 26 weeks ended July 31,2010 and August 1, 2009, respectively.
Depreciation and amortization expense increased
$7.2 million from $77.5 million for the 26 weeks
ended August 1, 2009 to $84.7 million in the
26 weeks ended July 31, 2010. This increase was
primarily due to capital expenditures associated with the
opening of 160 new stores during the 26 weeks ended
July 31, 2010 and investments in management information
systems.
Interest income from the investment of excess cash balances
increased slightly from $1.0 million in the 26 weeks
ended August 1, 2009 to $1.1 million in the
26 weeks ended July 31, 2010. Interest expense
decreased from $23.9 million in the 26 weeks ended
August 1, 2009 to $20.7 million in the 26 weeks
ended July 31, 2010, primarily due to the retirement of
$100.0 million of the Company’s senior notes since
January 31, 2009. Debt extinguishment expense of
$2.9 million was recognized as a result of premiums paid
related to debt retirement and the write-off of deferred
financing fees and unamortized original issue discount in the
26 weeks ended August 1, 2009.
Income tax expense for the 26 weeks ended August 1,2009 and the 26 weeks ended July 31, 2010 was based
upon management’s estimate of the Company’s annualized
effective tax rate. Income tax expense was $64.5 million,
or 37.1% of earnings before income tax expense, for the
26 weeks ended August 1, 2009 compared to
$59.8 million, or 34.3% of earnings before income tax
expense, for the 26 weeks ended July 31, 2010. The
decrease in the income tax rate was due primarily to the
variability in the accounting for the Company’s uncertain
tax positions.
The factors described above led to a decrease in operating
earnings of $5.3 million, or 2.7%, from $199.4 million
in the 26 weeks ended August 1, 2009 to
$194.1 million in the 26 weeks ended July 31,2010, and an increase in consolidated net income of
$5.6 million, or 5.1%, from $109.1 million in the
26 weeks ended August 1, 2009 to $114.7 million
in the 26 weeks ended July 31, 2010.
In 2009, the FASB issued new guidance related to the reporting
of non-controlling interests in subsidiaries. The
$0.8 million increase in consolidated net income
attributable to GameStop shareholders represents the portion of
the minority interest shareholders’ net loss of the
Company’s non-wholly owned subsidiaries during the
26 weeks ended July 31, 2010.
The Company operates its business in the following segments:
United States, Australia, Canada and Europe. The following
tables provide a summary of our sales and operating earnings
(loss) by reportable segment:
Operating earnings (loss) by operating segment are as follows:
United States
$
71.8
$
63.8
$
190.4
$
176.3
Canada
0.0
3.4
3.8
8.2
Australia
4.9
8.8
7.5
14.4
Europe
(7.1
)
(5.0
)
(7.6
)
0.5
Total
$
69.6
$
71.0
$
194.1
$
199.4
United
States
Segment results for the United States include retail operations
in all 50 states, the District of Columbia, Guam and Puerto
Rico, the electronic commerce Web sitewww.gamestop.com
and Game Informer magazine. As of July 31, 2010, the
United States segment included 4,477 GameStop stores, compared
to 4,377 on August 1, 2009. Sales for the 13 and
26 weeks ended July 31, 2010 increased 8.3% and 5.8%,
respectively, compared to the 13 and 26 weeks ended
August 1, 2009 as a result of increased sales at existing
stores and the opening of 237 new stores since May 2, 2009
and 306 stores since January 31, 2009, including 52 and 99
stores in the 13 and 26 weeks ended July 31, 2010,
respectively. Sales at existing stores increased primarily due
to strong sales of new release video game titles in fiscal 2010.
Segment operating income for the 13 and 26 weeks ended
July 31, 2010 increased by 12.5% and 8.0%, respectively,
compared to the 13 and 26 weeks ended August 1, 2009
due to the impact of higher sales for the periods presented.
Canada
Sales in the Canadian segment in the 13 and 26 weeks ended
July 31, 2010 increased 3.3% and 5.3%, respectively,
compared to the 13 and 26 weeks ended August 1, 2009.
The increase in sales was primarily attributable to the
favorable exchange rates recognized in the 13 and 26 weeks
ended July 31, 2010 compared to the prior year periods,
which had the effect of increasing sales by $7.4 million
and $25.7 million, respectively, and the additional sales
at the 17 and 23 stores opened since May 2, 2009 and
January 31, 2009, respectively. As of July 31, 2010,
the Canadian segment had 343 stores compared to 339 stores at
August 1, 2009. Excluding these effects, sales decreased at
existing stores primarily due to weak consumer traffic and lower
hardware sales as a result of lower price points when compared
to fiscal 2009. Segment operating income for the 13 and
26 weeks ended July 31, 2010 decreased by
$3.4 million and $4.4 million, respectively, compared
to the 13 and 26 weeks ended August 1, 2009 driven by
the decrease in sales at existing stores discussed above, offset
by the favorable impact of changes in exchange rates, which had
the effect of increasing operating earnings by $0.1 million
and $0.7 million, respectively, for the 13 and
26 weeks ended July 31, 2010 when compared to the
prior year periods.
Segment results for Australia include retail operations in
Australia and New Zealand and
e-commerce
operations in Australia. As of July 31, 2010, the
Australian segment included 398 stores, compared to 370 at
August 1, 2009. Sales for the 13 weeks ended
July 31, 2010 decreased 2.9% compared to the 13 weeks
ended August 1, 2009. The decrease in sales was primarily
due to lower sales in existing stores, offset by the favorable
exchange rates recognized in the 13 weeks ended
July 31, 2010 compared to the prior year period, which had
the effect of increasing sales by $10.1 million, and
increases related to the 42 stores opened since May 2,2009. Excluding the impact of changes in exchange rates, sales
in the Australian segment decreased 11.1%. The decrease in sales
at existing stores was due to weak consumer traffic and lower
hardware sales as a result of lower price points when compared
to fiscal 2009. Sales for the 26 weeks ended July 31,2010 increased 5.5% compared to the 26 weeks ended
August 1, 2009. The increase in sales was primarily due to
the favorable exchange rates recognized in the 26 weeks
ended July 31, 2010 compared to the prior year period,
which had the effect of increasing sales by $37.0 million,
and sales increases related to the 52 stores opened since
January 31, 2009. Excluding the impact of changes in
exchange rates, sales decreased 11.7%. The decrease in sales was
primarily due to the decrease in sales at existing stores as
discussed above. Segment operating income in the 13 and
26 weeks ended July 31, 2010 decreased by
$3.9 million and $6.9 million, respectively, when
compared to the 13 and 26 weeks ended August 1, 2009.
The decrease in segment operating income was due to the decrease
in sales at existing stores and the increase in selling, general
and administrative expenses associated with the increase in the
number of stores in operation. Selling, general and
administrative expenses rise as a percentage of sales during
periods of store count growth due to the fixed nature of many
store expenses compared to the immature sales at new stores.
This decrease in operating earnings includes the favorable
changes in exchange rates for the 13 and 26 weeks ended
July 31, 2010 when compared to the 13 and 26 weeks
ended August 1, 2009, which had the effect of increasing
operating earnings by $0.4 million and $1.0 million,
respectively.
Europe
Segment results for Europe include retail operations in 13
European countries and
e-commerce
operations in two countries. As of July 31, 2010, the
European segment operated 1,331 stores compared to 1,247 stores
as of August 1, 2009. For the 13 and 26 weeks ended
July 31, 2010, European sales decreased 10.8% and 2.1%,
respectively, compared to the 13 and 26 weeks ended
August 1, 2009. The decrease in sales was primarily due to
the unfavorable exchange rates recognized in the 13 and
26 weeks ended July 31, 2010 compared to the prior
year periods, which had the effect of decreasing sales by
$30.9 million and $14.9 million, respectively, as well
as a decrease in sales at existing stores offset by the increase
in sales at the 138 and 167 stores opened since May 2, 2009
and January 31, 2009, respectively. The decrease in sales
at existing stores was primarily driven by weak consumer traffic
due to continued macro-economic weakness and a slowdown in
hardware sales as a result of lower price points when compared
to fiscal 2009.
The segment operating loss in Europe was $7.1 million in
the 13 weeks ended July 31, 2010 compared to the
operating loss in the 13 weeks ended August 1, 2009 of
$5.0 million. The segment operating loss in Europe for the
26 weeks ended July 31, 2010 was $7.6 million
compared to the operating income in the 26 weeks ended
August 1, 2009 of $0.5 million. The increase in the
operating losses for the 13 and 26 week periods ended
July 31, 2010 compared to the same periods ended in
August 1, 2009 were primarily due to the weaker sales in
Europe as discussed above and the increase in selling, general
and administrative expenses associated with the increase in the
number of stores in operation. This decrease in operating
earnings includes the favorable changes in exchange rates for
the 13 and 26 weeks ended July 31, 2010 when compared
to the 13 and 26 weeks ended August 1, 2009, which had
the effect of increasing operating earnings by $0.7 million
and $0.4 million, respectively.
Seasonality
The Company’s business, like that of many retailers, is
seasonal, with the major portion of the sales and operating
profit realized during the fiscal quarter which includes the
holiday selling season.
During the 26 weeks ended July 31, 2010, cash used in
operations was $291.2 million, compared to cash used in
operations of $260.8 million during the 26 weeks ended
August 1, 2009. The increase in cash used in operations of
$30.4 million was primarily due to an increase in cash used
for inventory, taxes payable and prepaid expenses and other
current assets, offset by a decrease in cash used for accounts
payable and accrued liabilities. Cash used for accounts payable
and accrued liabilities, net of the increase in cash used for
inventory, decreased in fiscal 2010 when compared to fiscal 2009
due to the timing of payments for increased inventory purchases
made during the 26 weeks ended July 31, 2010. The
increase in cash used for taxes payable in the 26 weeks
ended July 31, 2010 was primarily due to the timing of
estimated income tax payments made during fiscal 2010 compared
to fiscal 2009. The increase in cash used for prepaid expenses
and other current assets was primarily due to an increase in
prepaid rent due to the timing of rent payments at the end of
the quarter when compared to the prior year, offset by increases
in the cash provided by net earnings and the non-cash adjustment
for depreciation and amortization totaling $12.9 million.
Cash used in investing activities was $89.5 million and
$91.9 million during the 26 weeks ended July 31,2010 and August 1, 2009, respectively. During the
26 weeks ended July 31, 2010, $80.3 million of
cash was used primarily to open new stores in the U.S. and
internationally and to invest in information systems and
e-commerce,
digital and loyalty program initiatives. During the
26 weeks ended August 1, 2009, $76.9 million of
cash was used primarily to open new stores in the U.S. and
internationally and to invest in information systems. In
addition, during the 26 weeks ended August 1, 2009,
the Company used $4.7 million to purchase an increased
ownership interest in GameStop Group Limited.
Cash used in financing activities was $243.1 million and
$48.0 million for the 26 weeks ended July 31,2010 and August 1, 2009, respectively. The cash used in
financing activities for the 26 weeks ended July 31,2010 was primarily due to the purchase of $241.6 million of
treasury shares pursuant to the Board of Directors’
$300 million authorization in January 2010. The cash used
in financing activities for the 26 weeks ended
August 1, 2009 was primarily due to the repurchase of
$50.8 million of principal value of the Company’s
senior notes. In addition, the Company borrowed
$100 million against its revolver during the 26 weeks
ended August 1, 2009 and subsequently repaid the borrowings
before August 1, 2009, with a maximum of $75 million
outstanding at any one time.
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, the Company entered into a five-year,
$400 million Credit Agreement (the “Revolver”),
including a $50 million letter of credit
sub-limit,
secured by the assets of the Company and its
U.S. subsidiaries. The Revolver places certain restrictions
on the Company and its subsidiaries, including limitations on
asset sales, additional liens and the incurrence of additional
indebtedness. In April 2007, the Company amended the Revolver to
extend the maturity date from October 11, 2010 to
April 25, 2012, reduce the LIBO interest rate margin,
reduce and fix the rate of the unused commitment fee and modify
or delete certain other covenants. The extension of the Revolver
to 2012 reduces our exposure to the current tightening in the
credit markets.
The availability under the Revolver is limited to a borrowing
base which allows the Company to borrow up to the lesser of
(x) approximately 70% of eligible inventory and
(y) 90% of the appraisal value of the inventory, in each
case plus 85% of eligible credit card receivables, net of
certain reserves. Letters of credit reduce the amount available
to borrow by their face value. The Company’s ability to pay
cash dividends, redeem options, and repurchase shares is
generally prohibited, except that if availability under the
Revolver is or will be after any such payment equal to or
greater than 25% of the borrowing base, the Company may
repurchase its capital stock and pay cash dividends. In
addition, in the event that credit extensions under the Revolver
at any time exceed 80% of the
lesser of the total commitment or the borrowing base, the
Company will be subject to a fixed charge coverage ratio
covenant of 1.5:1.0.
The per annum interest rate on the Revolver is variable and, at
the Company’s option, is calculated by applying a margin of
(1) 0.0% to 0.25% above the higher of the prime rate of the
administrative agent or the federal funds effective rate plus
0.50% or (2) 1.00% to 1.50% above the LIBO rate. The
applicable margin is determined quarterly as a function of the
Company’s consolidated leverage ratio. As of July 31,2010, the applicable margin was 0.0% for prime rate loans and
1.00% for LIBO rate loans. In addition, the Company is required
to pay a commitment fee of 0.25% for any unused portion of the
total commitment under the Revolver. During the 13 weeks
ended August 1, 2009, the Company borrowed and repaid
$100 million under the Revolver. As of July 31, 2010,
there were no borrowings outstanding under the Revolver and
letters of credit outstanding totaled $8.4 million.
In September 2007, the Company’s Luxembourg subsidiary
entered into a discretionary, $20.0 million Uncommitted
Line of Credit (the “Line of Credit”) with Bank of
America. There is no term associated with the Line of Credit and
Bank of America may withdraw the facility at any time without
notice. The Line of Credit will be made available to the
Company’s foreign subsidiaries for use primarily as a bank
overdraft facility for short-term liquidity needs and for the
issuance of bank guarantees and letters of credit to support
operations. As of July 31, 2010, there were no cash
overdrafts outstanding under the Line of Credit and bank
guarantees outstanding totaled $15.7 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 Electronics Boutique Holdings Corp.
(“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
July 31, 2010, the unamortized original issue discount was
$2.2 million. The Issuers pay interest on the Senior Notes
semi-annually, in arrears, every April 1 and October 1, to
holders of record on the immediately preceding March 15 and
September 15, and at maturity.
The Indenture contains affirmative and negative covenants
customary for such financings, including, among other things,
limitations on (1) the incurrence of additional debt,
(2) restricted payments, (3) liens, (4) sale and
leaseback transactions and (5) asset sales. Events of
default provided for in the Indenture include, among other
things, failure to pay interest or principal on the Notes, other
breaches of covenants in the Indenture, and certain events of
bankruptcy and insolvency. As of July 31, 2010, the Company
was in compliance with all covenants associated with the
Revolver and the Indenture.
Under certain conditions, the Issuers may on any one or more
occasions prior to maturity redeem up to 100% of the aggregate
principal amount of Senior Notes issued under the Indenture at
redemption prices at or in excess of 100% of the principal
amount thereof plus accrued and unpaid interest, if any, to the
redemption date. The circumstances which would limit the
percentage of the Notes which may be redeemed or which would
require the Company to pay a premium in excess of 100% of the
principal amount are defined in the Indenture. Upon a Change of
Control (as defined in the Indenture), the Issuers are required
to offer to purchase all of the Notes then outstanding at 101%
of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase. The Issuers may
acquire Senior Notes by means other than redemption, whether by
tender offer, open market purchases, negotiated transactions or
otherwise, in accordance with applicable securities laws, so
long as such acquisitions do not otherwise violate the terms of
the Indenture.
Our future capital requirements will depend on the number of new
stores opened and the timing of those openings within a given
fiscal year, as well as the investments we will make in
e-commerce,
digital and other strategic initiatives. The Company opened 160
stores in the 26 weeks ended July 31, 2010 and expects
to open approximately 400 stores in total during fiscal 2010.
Capital expenditures for fiscal 2010 are projected to be
approximately $200 million, to be used primarily to fund
new store openings and invest in distribution and information
systems in support of operations. In addition, in fiscal 2010 we
have allocated approximately $100 million for acquisitions
in support of our
e-commerce
and digital initiatives.
Between May 2006 and September 2009, the Company repurchased and
redeemed $300 million of Senior Floating Rate Notes and
$200 million of Senior Notes under previously announced
buybacks authorized by the Company’s Board of Directors.
All of the authorized amounts were repurchased or redeemed and
the repurchased Notes were delivered to the Trustee for
cancellation. The associated loss on the retirement of debt was
$2.9 million for the 26 week period ended
August 1, 2009, which consisted of the premium paid to
retire the Notes and the write-off of the deferred financing
fees and the original issue discount on the Notes.
On January 11, 2010, the Board of Directors of the Company
approved a $300 million share repurchase program
authorizing the Company to repurchase its common stock. During
the fourth quarter of fiscal 2009, 6.1 million shares were
repurchased at an average price per share of $20.12. Of these
share repurchases, $64.6 million were settled at the
beginning of fiscal 2010. During the 26 weeks ended
July 31, 2010, the Company repurchased an additional
9.0 million shares at an average price per share of $19.56.
As of July 31, 2010, all authorized share repurchases have
been completed.
In 2003, the Company purchased a 51% controlling interest in
GameStop Group Limited which operates stores in Ireland and the
United Kingdom. Under the terms of the purchase agreement, the
minority interest owners of the remaining 49% have the ability
to require the Company to purchase their remaining shares in
incremental percentages at a price to be determined based
partially on the Company’s price to earnings ratio and
GameStop Group Limited’s earnings. In June 2008, the
Company purchased shares representing approximately 16% of
GameStop Group Limited. In July 2009, the Company purchased
shares representing an additional 16% for $4.7 million,
bringing the Company’s total interest in GameStop Group
Limited to approximately 84%.
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.
Disclosure
Regarding Forward-looking Statements
This report on
Form 10-Q
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, and
Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). The forward-looking
statements involve a number of risks and uncertainties. A number
of factors could cause our actual results, performance,
achievements or industry results to be materially different from
any future results, performance or achievements expressed or
implied by these forward-looking statements. These factors
include, but are not limited to:
•
our reliance on suppliers and vendors for sufficient quantities
of their products and for new product releases;
•
general economic conditions in the U.S. and internationally
and specifically, economic conditions affecting the electronic
game industry, the retail industry and the banking and financial
services market;
•
alternate sources of distribution of video game software;
•
the competitive environment in the electronic game industry;
•
our ability to open and operate new stores;
•
our ability to attract and retain qualified personnel;
our ability to effectively integrate acquired companies;
•
the impact and costs of litigation and regulatory compliance;
•
unanticipated litigation results;
•
the risks involved with our international operations; and
•
other factors described in the
Form 10-K,
including those set forth under the caption “Item 1A.
Risk Factors.”
In some cases, forward-looking statements can be identified by
the use of terms such as “anticipates,”“believes,”“continues,”“could,”“estimates,”“expects,”“intends,”“may,”“plans,”“potential,”“predicts,”“pro forma,”“should,”“seeks,”“will” or similar expressions.
These statements are only predictions based on current
expectations and assumptions and involve known and unknown
risks, uncertainties and other factors that may cause our or our
industry’s actual results, levels of activity, performance
or achievements to be materially different from any future
results, levels of activity, performance or achievements
expressed or implied by such forward-looking statements. You
should not place undue reliance on these forward-looking
statements.
Although we believe that the expectations reflected in our
forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements.
We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new
information, future events or otherwise after the date of this
Form 10-Q.
In light of these risks and uncertainties, the forward-looking
events and circumstances contained in this
Form 10-Q
may not occur, causing actual results to differ materially from
those anticipated or implied by our forward-looking statements.
ITEM 3.
Quantitative
and Qualitative Disclosures About Market Risk
Interest
Rate Exposure
We do not use derivative financial instruments to hedge interest
rate exposure. We limit our interest rate risks by investing our
excess cash balances in short-term, highly-liquid instruments
with a maturity of one year or less. In addition, the Senior
Notes outstanding carry a fixed interest rate. We do not expect
any material losses from our invested cash balances, and we
believe that our interest rate exposure is modest.
Foreign
Currency Risk
The Company uses forward exchange contracts, foreign currency
options and cross-currency swaps (together, the “Foreign
Currency Contracts”) to manage currency risk primarily
related to intercompany loans denominated in non-functional
currencies and certain foreign currency assets and liabilities.
The Foreign Currency Contracts are not designated as hedges and,
therefore, changes in the fair values of these derivatives are
recognized in earnings, thereby offsetting the current earnings
effect of the re-measurement of related intercompany loans and
foreign currency assets and liabilities. For the 13 and
26 week periods ended July 31, 2010, the Company
recognized a loss of $7.8 million and a gain of
$4.1 million, respectively, in selling, general and
administrative expenses related to the trading of derivative
instruments. The aggregate fair value of the Foreign Currency
Contracts as of July 31, 2010 was a net asset of
$11.2 million as measured by observable inputs obtained
from market news reporting services, such as Bloomberg and The
Wall Street Journal, and industry-standard models that consider
various assumptions, including quoted forward prices, time
value, volatility factors, and contractual prices for the
underlying instruments, as well as other relevant economic
measures. A hypothetical strengthening or weakening of 10% in
the foreign exchange rates underlying the Foreign Currency
Contracts from the market rate as of July 31, 2010 would
result in a (loss) or gain in value of the forwards, options and
swaps of ($26.0 million) or $26.0 million,
respectively.
We do not use derivative financial instruments for trading or
speculative purposes. We are exposed to counterparty credit risk
on all of our derivative financial instruments and cash
equivalent investments. The Company manages counterparty risk
according to the guidelines and controls established under
comprehensive risk management and investment policies. We
continuously monitor our counterparty credit risk and utilize a
number of different counterparties to minimize our exposure to
potential defaults. We do not require collateral under
derivative or investment agreements.
(a) Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, the
Company’s management conducted an evaluation, under the
supervision and with the participation of the principal
executive officer and principal financial officer, of the
Company’s disclosure controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act) at the reasonable assurance level. Based
on this evaluation, the principal executive officer and
principal financial officer concluded that, as of the end of the
period covered by this report, the Company’s disclosure
controls and procedures are designed to provide reasonable
assurance of achieving their objectives and that the
Company’s disclosure controls and procedures are effective
at the reasonable assurance level. Notwithstanding the
foregoing, a control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance
that it will detect or uncover failures within the Company to
disclose material information otherwise required to be set forth
in the Company’s periodic reports.
(b) Changes in Internal Control Over Financial Reporting
There was no change in the Company’s internal control over
financial reporting (as such term is defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) during the Company’s most recently
completed fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Company’s
internal control over financial reporting.
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 in the Circuit Court of Fayette, Alabama,
against GameStop, Sony, Take-Two Interactive, Rock Star Games
and Wal-Mart (collectively, the “Defendants”) and
Devin Moore, alleging that Defendants’ actions in
designing, manufacturing, marketing and supplying Defendant
Moore with violent video games were negligent and contributed to
Defendant Moore killing Arnold Strickland, Ace Mealer and James
Crump. Moore was found guilty of capital murder in a criminal
trial and was sentenced to death in August 2005.
Plaintiffs’ counsel named an expert who plaintiffs
indicated would testify that violent video games were a
substantial factor in causing the murders. The testimony of
plaintiffs’ psychologist expert was heard by the Court on
October 30, 2008, and the motion to exclude that testimony
was argued on December 12, 2008. On July 30, 2009, the
trial court entered its Order granting summary judgment for all
defendants, dismissing the case with prejudice on the grounds
that plaintiffs’ expert’s testimony did not satisfy
the Frye standard for expert admissibility. Subsequent to the
entry of the Order, the plaintiffs filed a notice of appeal. The
plaintiffs have filed their appellate brief in support of their
appeal and the defendants have filed their consolidated
appellate brief in opposition to the appeal. The matter is now
fully briefed and is before the Alabama Supreme Court.
The Company does not believe there is sufficient information to
estimate the amount of the possible loss, if any, resulting from
the lawsuit if the plaintiffs’ appeal is successful.
In the ordinary course of the Company’s business, the
Company is, from time to time, subject to various other legal
proceedings, including matters involving wage and hour employee
class actions. The Company may enter into discussions regarding
settlement of these and other types of lawsuits, and may enter
into settlement agreements, if it believes settlement is in the
best interest of the Company’s shareholders. Management
does not believe that any such other legal proceedings or
settlements, individually or in the aggregate, will have a
material adverse effect on the Company’s financial
condition, results of operations or liquidity.
There have been no other material developments in previously
reported legal proceedings during the fiscal quarter covered by
this
Form 10-Q.
In addition to the other information set forth in this
Form 10-Q,
you should carefully consider the factors discussed in
“Item 1A. Risk Factors” in our
Form 10-K
for the fiscal year ended January 30, 2010 filed with the
SEC on March 30, 2010. These risks could materially and
adversely affect our business, financial condition and results
of operations. The risks described in our
Form 10-K
have not changed materially, however, they are not the only
risks we face. Our operations could also be affected by
additional factors that are not presently known to us or by
factors that we currently consider immaterial to our business.
ITEM 2.
Unregistered
Sales of Equity Securities and Use of Proceeds
Purchases by the Company of its equity securities during the
fiscal quarter ended July 31, 2010 were as follows:
In January 2010, our Board of Directors approved a
$300 million share repurchase program. During the
13 weeks ended July 31, 2010, the Company completed
all authorized share repurchases.
ITEM 6.
Exhibits
Exhibits
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.(2)
2
.3
Amendment, dated November 17, 2008, to Sale and Purchase
Agreement for Micromania Acquisition listed as Exhibit 2.2
above.(3)
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.(6)
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.(7)
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.(5)
Insurance Agreement, dated as of January 1, 2002, between
Barnes & Noble, Inc. and GameStop Holdings Corp.
(f/k/a GameStop Corp.).(9)
10
.2
Operating Agreement, dated as of January 1, 2002, between
Barnes & Noble, Inc. and GameStop Holdings Corp.
(f/k/a GameStop Corp.).(9)
10
.3
Fourth Amended and Restated 2001 Incentive Plan.(10)
10
.4
Second Amended and Restated Supplemental Compensation Plan.(11)
10
.5
Form of Option Agreement.(12)
10
.6
Form of Restricted Share Agreement.(13)
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.(14)
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.(14)
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.(14)
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.(14)
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.(14)
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.(14)
10
.13
Form of Securities Collateral Pledge Agreement, dated as of
October 11, 2005.(14)
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.(15)
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.(3)
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.(3)
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.(3)
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.(3)
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.(3)
10
.20
Amended and Restated Executive Employment Agreement, dated
December 31, 2008, between GameStop Corp. and R. Richard
Fontaine.(16)
10
.21
Amendment, dated as of April 5, 2010, to Amended and
Restated Executive Employment Agreement, dated as of
December 31, 2008, between GameStop Corp. and R. Richard
Fontaine.(17)
10
.22
Second Amendment, dated as of June 2, 2010, to Amended and
Restated Executive Employment Agreement, dated as of
December 31, 2008, as amended by a First Amendment dated as
of April 5, 2010, between GameStop Corp. and R. Richard
Fontaine.(18)
10
.23
Amended and Restated Executive Employment Agreement, dated
December 31, 2008, between GameStop Corp. and Daniel A.
DeMatteo.(16)
10
.24
Amendment, dated as of April 5, 2010, to Amended and
Restated Executive Employment Agreement, dated as of
December 31, 2008, between GameStop Corp. and Daniel A.
DeMatteo.(17)
10
.25
Second Amendment, dated as of June 2, 2010, to Amended and
Restated Executive Employment Agreement, dated as of
December 31, 2008, as amended by a First Amendment dated as
of April 5, 2010, between GameStop Corp. and Daniel A.
DeMatteo.(18)
10
.26
Amended and Restated Executive Employment Agreement, dated
December 31, 2008, between GameStop Corp. and Tony
Bartel.(16)
10
.27
Amendment, dated as of June 2, 2010, to Amended and
Restated Executive Employment Agreement, dated as of
December 31, 2008, between GameStop Corp. and Tony
Bartel.(18)
10
.28
Amended and Restated Executive Employment Agreement, dated
December 31, 2008, between GameStop Corp. and Paul
Raines.(16)
10
.29
Amendment, dated as of June 2, 2010, to Amended and
Restated Executive Employment Agreement, dated as of
December 31, 2008, between GameStop Corp. and Paul
Raines.(18)
10
.30
Executive Employment Agreement, dated as of June 2, 2010,
between GameStop Corp. and Robert Lloyd.(18)
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.
Incorporated by reference to Appendix A to the
Registrant’s Proxy Statement for 2009 Annual Meeting of
Stockholders filed with the Securities and Exchange Commission
on May 22, 2009.
(11)
Incorporated by reference to Appendix A to the
Registrant’s Proxy Statement for 2008 Annual Meeting of
Stockholders filed with the Securities and Exchange Commission
on May 23, 2008.
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
GAMESTOP CORP.
By:
/s/ Robert
A. Lloyd
Robert A. Lloyd
Executive Vice President and Chief Financial Officer
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.(2)
2
.3
Amendment, dated November 17, 2008, to Sale and Purchase
Agreement for Micromania Acquisition listed as Exhibit 2.2
above.(3)
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.(6)
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.(7)
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.(5)
Insurance Agreement, dated as of January 1, 2002, between
Barnes & Noble, Inc. and GameStop Holdings Corp.
(f/k/a GameStop Corp.).(9)
10
.2
Operating Agreement, dated as of January 1, 2002, between
Barnes & Noble, Inc. and GameStop Holdings Corp.
(f/k/a GameStop Corp.).(9)
10
.3
Fourth Amended and Restated 2001 Incentive Plan.(10)
10
.4
Second Amended and Restated Supplemental Compensation Plan.(11)
10
.5
Form of Option Agreement.(12)
10
.6
Form of Restricted Share Agreement.(13)
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.(14)
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.(14)
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.(14)
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.(14)
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.(14)
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.(14)
10
.13
Form of Securities Collateral Pledge Agreement, dated as of
October 11, 2005.(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.(15)
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.(3)
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.(3)
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.(3)
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.(3)
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.(3)
10
.20
Amended and Restated Executive Employment Agreement, dated
December 31, 2008, between GameStop Corp. and R. Richard
Fontaine.(16)
10
.21
Amendment, dated as of April 5, 2010, to Amended and
Restated Executive Employment Agreement, dated as of
December 31, 2008, between GameStop Corp. and R. Richard
Fontaine.(17)
10
.22
Second Amendment, dated as of June 2, 2010, to Amended and
Restated Executive Employment Agreement, dated as of
December 31, 2008, as amended by a First Amendment dated as
of April 5, 2010, between GameStop Corp. and R. Richard
Fontaine.(18)
10
.23
Amended and Restated Executive Employment Agreement, dated
December 31, 2008, between GameStop Corp. and Daniel A.
DeMatteo.(16)
10
.24
Amendment, dated as of April 5, 2010, to Amended and
Restated Executive Employment Agreement, dated as of
December 31, 2008, between GameStop Corp. and Daniel A.
DeMatteo.(17)
10
.25
Second Amendment, dated as of June 2, 2010, to Amended and
Restated Executive Employment Agreement, dated as of
December 31, 2008, as amended by a First Amendment dated as
of April 5, 2010, between GameStop Corp. and Daniel A.
DeMatteo.(18)
10
.26
Amended and Restated Executive Employment Agreement, dated
December 31, 2008, between GameStop Corp. and Tony
Bartel.(16)
10
.27
Amendment, dated as of June 2, 2010, to Amended and
Restated Executive Employment Agreement, dated as of
December 31, 2008, between GameStop Corp. and Tony
Bartel.(18)
10
.28
Amended and Restated Executive Employment Agreement, dated
December 31, 2008, between GameStop Corp. and Paul
Raines.(16)
10
.29
Amendment, dated as of June 2, 2010, to Amended and
Restated Executive Employment Agreement, dated as of
December 31, 2008, between GameStop Corp. and Paul
Raines.(18)
10
.30
Executive Employment Agreement, dated as of June 2, 2010,
between GameStop Corp. and Robert Lloyd.(18)
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.
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.
Incorporated by reference to Appendix A to the
Registrant’s Proxy Statement for 2009 Annual Meeting of
Stockholders filed with the Securities and Exchange Commission
on May 22, 2009.
(11)
Incorporated by reference to Appendix A to the
Registrant’s Proxy Statement for 2008 Annual Meeting of
Stockholders filed with the Securities and Exchange Commission
on May 23, 2008.