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GameStop Corp. · 10-Q · For 10/30/10

Filed On 12/8/10, 4:52pm ET   ·   Accession Number 950123-10-112044   ·   SEC File 1-32637

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  As Of                Filer                Filing    For/On/As Docs:Size              Issuer               Agent

12/08/10  GameStop Corp.                    10-Q       10/30/10   34:4.3M                                   RR Donnelley/FA

Quarterly Report   —   Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML    727K 
 2: EX-31.1     Certification per Sarbanes-Oxley Act (Section 302)  HTML     17K 
 3: EX-31.2     Certification per Sarbanes-Oxley Act (Section 302)  HTML     17K 
 4: EX-32.1     Certification per Sarbanes-Oxley Act (Section 906)  HTML     14K 
 5: EX-32.2     Certification per Sarbanes-Oxley Act (Section 906)  HTML     14K 
32: EXCEL       XBRL IDEA Workbook -- Financial Report (.xls)        XLS    710K 
26: XML         XBRL XML File -- Definitions and References          XML     80K 
31: XML         XBRL XML File -- Filing Summary                      XML     53K 
29: XML.R1      Document and Entity Information                      XML    204K 
30: XML.R2      Condensed Consolidated Balance Sheets                XML    534K 
18: XML.R3      Condensed Consolidated Balance Sheets                XML    114K 
                          (Parenthetical)                                        
21: XML.R4      Condensed Consolidated Statements of Operations      XML    315K 
                          (Unaudited)                                            
25: XML.R5      Condensed Consolidated Statement of Stockholders'    XML    301K 
                          Equity (Unaudited)                                     
24: XML.R6      Condensed Consolidated Statement of Stockholders'    XML     51K 
                          Equity (Unaudited) (Parenthetical)                     
33: XML.R7      Condensed Consolidated Statements of Cash Flows      XML    366K 
                          (Unaudited)                                            
15: XML.R8      Basis of Presentation                                XML     43K 
23: XML.R9      Accounting for Stock-Based Compensation              XML     48K 
14: XML.R10     Computation of Net Income per Common Share           XML     65K 
13: XML.R11     Fair Value Measurements and Financial Instruments    XML     76K 
17: XML.R12     Debt                                                 XML     47K 
27: XML.R13     Income Taxes                                         XML     39K 
19: XML.R14     Certain Relationships and Related Transactions       XML     41K 
20: XML.R15     Commitments and Contingencies                        XML     42K 
22: XML.R16     Significant Products                                 XML     98K 
34: XML.R17     Segment Information                                  XML     65K 
16: XML.R18     Supplemental Cash Flow Information                   XML     46K 
12: XML.R19     Consolidating Financial Statements                   XML    557K 
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11: EX-101.DEF  XBRL Definitions -- gme-20101030_def                 XML     48K 
 9: EX-101.LAB  XBRL Labels -- gme-20101030_lab                      XML    396K 
10: EX-101.PRE  XBRL Presentations -- gme-20101030_pre               XML    220K 
 7: EX-101.SCH  XBRL Schema -- gme-20101030                          XSD     46K 
28: ZIP         XBRL Zipped Folder -- 0000950123-10-112044-xbrl      Zip     70K 


10-Q   —   Quarterly Report
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
"Table of Contents
"Part I -- Financial Information
"Item 1
"Financial Statements
"Condensed Consolidated Balance Sheets -- October 30, 2010 (unaudited), October 31, 2009 (unaudited) and January 30, 2010
"Condensed Consolidated Statements of Operations (unaudited) -- For the 13 weeks and 39 weeks ended October 30, 2010 and October 31, 2009
"Condensed Consolidated Statement of Stockholders' Equity (unaudited) -- October 30, 2010
"Condensed Consolidated Statements of Cash Flows (unaudited) -- For the 39 weeks ended October 30, 2010 and October 31, 2009
"Notes to Condensed Consolidated Financial Statements
"Item 2
"Management's Discussion and Analysis of Financial Condition and Results of Operations
"Item 3
"Quantitative and Qualitative Disclosures About Market Risk
"Item 4
"Controls and Procedures
"Part Ii -- Other Information
"Legal Proceedings
"Item 1A
"Risk Factors
"Unregistered Sales of Equity Securities and Use of Proceeds
"Item 6
"Exhibits
"Signatures
"Exhibit Index

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  e10vq  

Table of Contents

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
 
     
þ
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    FOR THE QUARTERLY PERIOD ENDED OCTOBER 30, 2010
OR
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    FOR THE TRANSITION PERIOD FROM          TO          
 
COMMISSION FILE NO. 1-32637
 
GameStop Corp.
(Exact name of registrant as specified in its Charter)
 
 
     
Delaware
(State or other jurisdiction of
incorporation or organization)
  20-2733559
(I.R.S. Employer
Identification No.)
     
     
625 Westport Parkway,
Grapevine, Texas
(Address of principal executive offices)
  76051
(Zip Code)
 
 
Registrant’s telephone number, including area code:
(817) 424-2000
 
 
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 November 24, 2010: 151,396,983
 



 

 
TABLE OF CONTENTS
 
             
        Page No.
 
PART I — FINANCIAL INFORMATION
Item 1.   Financial Statements     2  
    Condensed Consolidated Balance Sheets — October 30, 2010 (unaudited), October 31, 2009 (unaudited) and January 30, 2010     2  
    Condensed Consolidated Statements of Operations (unaudited) — For the 13 weeks and 39 weeks ended October 30, 2010 and October 31, 2009     3  
    Condensed Consolidated Statement of Stockholders’ Equity (unaudited) — October 30, 2010     4  
    Condensed Consolidated Statements of Cash Flows (unaudited) — For the 39 weeks ended October 30, 2010 and October 31, 2009     5  
    Notes to Condensed Consolidated Financial Statements     6  
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations     22  
Item 3.   Quantitative and Qualitative Disclosures About Market Risk     33  
Item 4.   Controls and Procedures     33  
 
PART II — OTHER INFORMATION
Item 1.   Legal Proceedings     34  
Item 1A.   Risk Factors     34  
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds     35  
Item 6.   Exhibits     35  
SIGNATURES     39  
EXHIBIT INDEX     40  
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT


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Table of Contents

 
PART I — FINANCIAL INFORMATION
 
ITEM 1.   Financial Statements
 
GAMESTOP CORP.
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
                         
    October 30,
    October 31,
    January 30,
 
    2010     2009     2010  
    (Unaudited)     (Unaudited)        
    (In thousands, except per share data)  
 
ASSETS:
Current assets:
                       
Cash and cash equivalents
  $ 181,062     $ 292,027     $ 905,418  
Receivables, net
    58,845       52,543       64,006  
Merchandise inventories, net
    1,942,416       1,733,962       1,053,553  
Deferred income taxes — current
    21,808       24,503       21,229  
Prepaid taxes
    11,466       13,073        
Prepaid expenses
    70,728       61,514       59,434  
Other current assets
    13,722       16,472       23,664  
                         
Total current assets
    2,300,047       2,194,094       2,127,304  
                         
Property and equipment:
                       
Land
    24,328       11,819       11,569  
Buildings and leasehold improvements
    564,943       516,492       522,965  
Fixtures and equipment
    785,748       692,660       711,477  
                         
Total property and equipment
    1,375,019       1,220,971       1,246,011  
Less accumulated depreciation and amortization
    768,951       629,276       661,810  
                         
Net property and equipment
    606,068       591,695       584,201  
Goodwill, net
    2,004,636       1,978,987       1,946,513  
Other intangible assets
    263,218       279,567       259,860  
Other noncurrent assets
    41,096       38,980       37,449  
                         
Total noncurrent assets
    2,915,018       2,889,229       2,828,023  
                         
Total assets
  $ 5,215,065     $ 5,083,323     $ 4,955,327  
                         
 
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities:
                       
Accounts payable
  $ 1,514,627     $ 1,328,041     $ 961,673  
Accrued liabilities
    564,283       510,296       632,103  
Taxes payable
                61,900  
                         
Total current liabilities
    2,078,910       1,838,337       1,655,676  
                         
Senior notes payable, long-term portion, net
    248,903       447,121       447,343  
Deferred taxes
    17,949       6,792       25,466  
Other long-term liabilities
    100,094       104,335       103,831  
                         
Total long-term liabilities
    366,946       558,248       576,640  
                         
Total liabilities
    2,445,856       2,396,585       2,232,316  
                         
Commitments and Contingencies (Note 8)
                       
Stockholders’ equity:
                       
Preferred stock — authorized 5,000 shares; no shares issued or outstanding
                 
Class A common stock — $.001 par value; authorized 300,000 shares; 151,369, 164,752 and 158,662 shares outstanding, respectively
    151       165       159  
Additional paid-in-capital
    1,034,858       1,334,481       1,210,539  
Accumulated other comprehensive income
    167,624       170,259       114,704  
Retained earnings
    1,567,978       1,181,833       1,397,755  
                         
Equity attributable to GameStop Corp. stockholders
    2,770,611       2,686,738       2,723,157  
Equity (deficit) attributable to noncontrolling interest
    (1,402 )           (146 )
                         
Total equity
    2,769,209       2,686,738       2,723,011  
                         
Total liabilities and stockholders’ equity
  $ 5,215,065     $ 5,083,323     $ 4,955,327  
                         
 
See accompanying notes to condensed consolidated financial statements.


2



Table of Contents

GAMESTOP CORP.
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
                                 
    13 Weeks Ended     39 Weeks Ended  
    October 30,
    October 31,
    October 30,
    October 31,
 
    2010     2009     2010     2009  
    (In thousands, except per share data)
 
    (Unaudited)  
 
Sales
  $ 1,899,152     $ 1,834,727     $ 5,780,942     $ 5,553,984  
Cost of sales
    1,352,835       1,311,643       4,147,018       3,993,381  
                                 
Gross profit
    546,317       523,084       1,633,924       1,560,603  
Selling, general and administrative expenses
    408,854       391,210       1,217,654       1,151,815  
Depreciation and amortization
    44,670       41,605       129,418       119,109  
                                 
Operating earnings
    92,793       90,269       286,852       289,679  
Interest income
    (297 )     (480 )     (1,352 )     (1,459 )
Interest expense
    9,966       10,946       30,633       34,881  
Debt extinguishment expense
    5,966       2,461       5,966       5,323  
                                 
Earnings before income tax expense
    77,158       77,342       251,605       250,934  
Income tax expense
    22,846       25,117       82,626       89,591  
                                 
Consolidated net income
    54,312       52,225       168,979       161,343  
Net loss attributable to noncontrolling interests
    396             1,244        
                                 
Consolidated net income attributable to GameStop
  $ 54,708     $ 52,225     $ 170,223     $ 161,343  
                                 
Basic net income per common share(1)
  $ 0.36     $ 0.32     $ 1.12     $ 0.98  
                                 
Diluted net income per common share(1)
  $ 0.36     $ 0.31     $ 1.10     $ 0.96  
                                 
Weighted average shares of common stock — basic
    150,709       164,702       151,841       164,604  
                                 
Weighted average shares of common stock — diluted
    153,276       168,113       154,638       167,981  
                                 
 
 
(1) Basic net income per share and diluted net income per share are calculated based on consolidated net income attributable to GameStop.
 
See accompanying notes to condensed consolidated financial statements.


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Table of Contents

GAMESTOP CORP.
 
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
 
                                                         
    GameStop Corp. Stockholders              
    Class A
          Accumulated
                   
    Common Stock     Additional
    Other
                   
          Common
    Paid-in
    Comprehensive
    Retained
    Noncontrolling
       
    Shares     Stock     Capital     Income     Earnings     Interest     Total  
    (In thousands)
 
    (Unaudited)  
 
Balance at January 30, 2010
    158,662     $ 159     $ 1,210,539     $ 114,704     $ 1,397,755     $ (146 )   $ 2,723,011  
Comprehensive income:
                                                       
Net income (loss) for the 39 weeks ended October 30, 2010
                            170,223       (1,244 )     168,979  
Foreign currency translation
                      52,920             (12 )     52,908  
                                                         
Total comprehensive income
                                                    221,887  
Stock-based compensation
                22,142                         22,142  
Purchase of treasury stock
    (11,660 )     (12 )     (226,378 )                       (226,390 )
Exercise of stock options and issuance of shares upon vesting of restricted stock grants (including tax benefit of $18,504)
    4,367       4       28,555                         28,559  
                                                         
Balance at October 30, 2010
    151,369     $ 151     $ 1,034,858     $ 167,624     $ 1,567,978     $ (1,402 )   $ 2,769,209  
                                                         
 
See accompanying notes to condensed consolidated financial statements.


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Table of Contents

GAMESTOP CORP.
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                 
    39 Weeks Ended  
    October 30,
    October 31,
 
    2010     2009  
    (In thousands)
 
    (Unaudited)  
 
Cash flows from operating activities:
               
Consolidated net income
  $ 168,979     $ 161,343  
Adjustments to reconcile net income to net cash flows used in operating activities:
               
Depreciation and amortization (including amounts in cost of sales)
    130,894       120,315  
Amortization and retirement of deferred financing fees and issue discounts
    4,289       4,176  
Stock-based compensation expense
    22,142       23,226  
Deferred income taxes
    (8,480 )     (5,325 )
Excess tax (benefits) expense realized from exercise of stock-based awards
    (18,432 )     453  
Loss on disposal of property and equipment
    4,452       4,713  
Changes in other long-term liabilities
    (3,521 )     5,475  
Changes in operating assets and liabilities, net
               
Receivables, net
    7,005       17,012  
Merchandise inventories
    (873,238 )     (578,288 )
Prepaid expenses and other current assets
    (2,318 )     753  
Prepaid income taxes and accrued income taxes payable
    (53,836 )     (30,159 )
Accounts payable and accrued liabilities
    537,719       201,876  
                 
Net cash flows used in operating activities
    (84,345 )     (74,430 )
                 
Cash flows from investing activities:
               
Purchase of property and equipment
    (141,525 )     (122,122 )
Acquisitions, net of cash acquired
    (38,132 )     (5,208 )
Other
    (3,891 )     (13,242 )
                 
Net cash flows used in investing activities
    (183,548 )     (140,572 )
                 
Cash flows from financing activities:
               
Repurchase of notes payable
    (200,000 )     (100,000 )
Purchase of treasury shares
    (286,825 )      
Borrowings from the revolver
          115,000  
Repayments of revolver borrowings
          (115,000 )
Issuance of shares relating to stock options
    10,054       4,208  
Excess tax benefits (expense) realized from exercise of stock-based awards
    18,432       (453 )
Other
          (57 )
                 
Net cash flows used in financing activities
    (458,339 )     (96,302 )
                 
Exchange rate effect on cash and cash equivalents
    1,876       25,190  
                 
Net decrease in cash and cash equivalents
    (724,356 )     (286,114 )
Cash and cash equivalents at beginning of period
    905,418       578,141  
                 
Cash and cash equivalents at end of period
  $ 181,062     $ 292,027  
                 
 
See accompanying notes to condensed consolidated financial statements.


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Table of Contents

GAMESTOP CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(Unaudited)
 
1.   Basis of Presentation
 
GameStop Corp. (together with its predecessor companies, “GameStop,” “we,” “our,” or the “Company”), a Delaware corporation, is the world’s largest retailer of video games 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 of the Company 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 a significant impact on the Company’s financial results. Actual results could differ from those estimates. The financial statements included herein for the 13 weeks ended October 30, 2010 include the results of Kongregate Inc., the online video gaming company acquired by the Company on August 1, 2010.
 
Due to the seasonal nature of the business, the results of operations for the 39 weeks ended October 30, 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 October 30, 2010 and October 31, 2009. The options to purchase common stock granted during the 39 weeks ended October 30, 2010 and October 31, 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:
 
                 
    39 Weeks Ended
    October 30,
  October 31,
    2010   2009
 
Volatility
    51.6 %     47.9 %
Risk-free interest rate
    1.6 %     1.5 %
Expected life (years)
    3.5       3.5  
Expected dividend yield
    0 %     0 %


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Table of Contents

GAMESTOP CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
In the 13 weeks ended October 30, 2010 and October 31, 2009, the Company included compensation expense relating to stock option grants of $3,059 and $3,030, respectively, in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations. In the 39 weeks ended October 30, 2010 and October 31, 2009, the Company included compensation expense relating to stock option grants of $9,083 and $8,472, respectively, in selling, general and administrative expenses. As of October 30, 2010, the unrecognized compensation expense related to the unvested portion of our stock options was $12,358, which is expected to be recognized over a weighted average period of 1.7 years. The total intrinsic values of options exercised during the 13 weeks ended October 30, 2010 and October 31, 2009 were $57,965 and $648, respectively. The total intrinsic values of options exercised during the 39 weeks ended October 30, 2010 and October 31, 2009 were $59,198 and $3,375, respectively.
 
During the 13 weeks ended October 30, 2010, the Company had no restricted share grants. During the 13 weeks ended October 31, 2009, the Company granted 43 shares of restricted stock which had a fair market value of $23.43 per share. The restricted shares vest in equal annual installments over three years. During the 39 weeks ended October 30, 2010 and October 31, 2009, the Company granted 743 shares and 614 shares, respectively, of restricted stock which had a weighted-average fair market value of $20.43 and $25.84 per share, respectively. The restricted shares vest in equal annual installments over three years. During the 13 weeks ended October 30, 2010 and October 31, 2009, the Company included compensation expense relating to the restricted share grants in the amount of $4,412 and $4,946, respectively, in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations. During the 39 weeks ended October 30, 2010 and October 31, 2009, the Company included compensation expense relating to the restricted share grants in the amount of $13,060 and $14,754, respectively, in selling, general and administrative expenses. As of October 30, 2010, there was $19,788 of unrecognized compensation expense related to nonvested restricted stock awards that is expected to be recognized over a weighted average period of 1.8 years.
 
3.   Computation of Net Income per Common Share
 
A reconciliation of shares used in calculating basic and diluted net income per common share is as follows:
 
                                 
    13 Weeks Ended     39 Weeks Ended  
    October 30,
    October 31,
    October 30,
    October 31,
 
    2010     2009     2010     2009  
    (In thousands, except per share data)  
 
Net income attributable to GameStop
  $ 54,708     $ 52,225     $ 170,223     $ 161,343  
                                 
Weighted average common shares outstanding
    150,709       164,702       151,841       164,604  
Dilutive effect of options and restricted shares on common stock
    2,567       3,411       2,797       3,377  
                                 
Common shares and dilutive potential common shares
    153,276       168,113       154,638       167,981  
                                 
Net income per common share:
                               
Basic
  $ 0.36     $ 0.32     $ 1.12     $ 0.98  
                                 
Diluted
  $ 0.36     $ 0.31     $ 1.10     $ 0.96  
                                 


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GAMESTOP CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The following table contains information on restricted shares and options to purchase shares of Class A common stock which were excluded from the computation of diluted earnings per share because they were anti-dilutive:
 
                         
    Anti-
  Range of
   
    Dilutive
  Exercise
  Expiration
    Shares   Prices   Dates
    (In thousands, except per share data)
 
13 Weeks Ended October 30, 2010
    5,329     $ 20.32 - 49.95       2011 - 2020  
13 Weeks Ended October 31, 2009
    3,641     $ 26.02 - 49.95       2010 - 2019  
 
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:
 
                         
    October 30, 2010     October 31, 2009     January 30, 2010  
    Level 2     Level 2     Level 2  
 
Assets
                       
Foreign Currency Contracts
  $ 12,584     $ 12,648     $ 20,062  
Company-owned life insurance
    2,894       2,530       2,584  
                         
Total assets
  $ 15,478     $ 15,178     $ 22,646  
                         
Liabilities
                       
Foreign Currency Contracts
  $ 15,494     $ 28,461     $ 8,991  
Nonqualified deferred compensation
    863       1,008       762  
                         
Total liabilities
  $ 16,357     $ 29,469     $ 9,753  
                         
 
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


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GAMESTOP CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
recognized in earnings, thereby offsetting the current earnings effect of the re-measurement of related intercompany loans and foreign currency assets and liabilities. We do not use derivative financial instruments for trading or speculative purposes. We are exposed to counterparty credit risk on all of our derivative financial instruments and cash equivalent investments. The Company manages counterparty risk according to the guidelines and controls established under comprehensive risk management and investment policies. We continuously monitor our counterparty credit risk and utilize a number of different counterparties to minimize our exposure to potential defaults. We do not require collateral under derivative or investment agreements.
 
The fair values of derivative instruments not receiving hedge accounting treatment in the condensed consolidated balance sheets presented herein were as follows, in thousands:
 
                         
    October 30, 2010     October 31, 2009     January 30, 2010  
 
Assets
                       
Foreign Currency Contracts
                       
Other current assets
  $ 10,113     $ 12,648     $ 20,062  
Other noncurrent assets
    2,471              
Liabilities
                       
Foreign Currency Contracts
                       
Accrued liabilities
    (13,949 )     (27,857 )     (8,991 )
Other long-term liabilities
    (1,545 )     (604 )      
                         
Total derivatives
  $ (2,910 )   $ (15,813 )   $ 11,071  
                         
 
As of October 30, 2010, the Company had a series of Forward Currency Contracts outstanding, with a gross notional value of $446,659 and a net notional value of $211,462. For the 13 and 39 week periods ended October 30, 2010, the Company recognized losses of $10,983 and $6,851, respectively, in selling, general and administrative expenses related to the trading of derivative instruments. As of October 31, 2009, the Company had a series of Forward Currency Contracts outstanding, with a gross notional value of $540,998 and a net notional value of $242,267. For the 13 and 39 week periods ended October 31, 2009, the Company recognized losses of $2,156 and $14,997, 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 October 30, 2010, the senior notes payable had a carrying value of $248,903 and a fair value of $255,625. As of October 31, 2009, the senior notes payable had a carrying value of $447,121 and a fair value of $463,725.
 
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.
 
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


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GAMESTOP CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
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 October 30, 2010, the applicable margin was 0.0% for prime rate loans and 1.00% for LIBO rate loans. In addition, the Company is required to pay a commitment fee of 0.25% for any unused portion of the total commitment under the Revolver. During the 39 weeks ended October 31, 2009, the Company borrowed and repaid $115,000 under the Revolver. As of October 30, 2010, there were no borrowings outstanding under the Revolver and letters of credit outstanding totaled $8,017.
 
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 October 30, 2010, there were no cash overdrafts outstanding under the Line of Credit and bank guarantees outstanding totaled $6,555.
 
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 October 30, 2010, the unamortized original issue discount was $1,097. 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 October 30, 2010, the Company was in compliance with all covenants associated with the Revolver and the Indenture.
 
Under certain conditions, the Issuers may on any one or more occasions prior to maturity redeem up to 100% of the aggregate principal amount of Senior Notes issued under the Indenture at redemption prices at or in excess of 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the redemption date. The circumstances which would limit the percentage of the Notes which may be redeemed or which would require the Company to pay a premium in excess of 100% of the principal amount are defined in the Indenture. Upon a Change of Control (as defined in the Indenture), the Issuers are required to offer to purchase all of the Notes then outstanding at 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase. The Issuers may acquire Senior Notes by means other than redemption, whether by tender offer, open market purchases,


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GAMESTOP CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
negotiated transactions or otherwise, in accordance with applicable securities laws, so long as such acquisitions do not otherwise violate the terms of the Indenture.
 
Between May 2006 and September 2009, the Company repurchased and redeemed the $300,000 of Senior Floating Rate Notes and $200,000 of Senior Notes under previously announced buybacks authorized by the Company’s Board of Directors. All of the authorized amounts were repurchased or redeemed and the repurchased Notes were delivered to the Trustee for cancellation. The associated loss on the retirement of debt was $5,323 for the 39-week period ended October 31, 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.
 
In September 2010, the Company announced that its Board of Directors authorized the buyback of up to an aggregate of an additional $200,000 of the Senior Notes. As of October 30, 2010, the Company had repurchased or redeemed all $200,000 of the Senior Notes pursuant to this authorization. The associated loss on retirement of debt was $5,966, which consisted of the premium paid to retire the Senior Notes and the write-off of the deferred financing fees and the original issue discount on the Senior Notes.
 
As of October 31, 2009 and October 30, 2010, the only long-term debt outstanding was $450,000 and $250,000, respectively, of the Senior Notes. The maturity on the Senior Notes, gross of the unamortized original issue discount of $1,097, 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 for years before and including the fiscal year ended January 28, 2006.
 
We accrue for the effects of uncertain tax positions and the related potential penalties and interest. The net decrease to our recorded liability for unrecognized tax benefits during the 13 and 39 weeks ended October 30, 2010 was attributable to the closure of open tax years. It is reasonably possible that the amount of the unrecognized 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 39 weeks ended October 30, 2010 and October 31, 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 October 30, 2010 and October 31, 2009, these charges amounted to $200 and $227, respectively. During the 39 weeks ended October 30, 2010 and October 31, 2009, these charges amounted to $637 and $688, 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 $24 and $40 for the 13 weeks ended October 30, 2010 and October 31, 2009, respectively, and $129 and $160 for the 39 weeks ended October 30, 2010 and October 31, 2009, respectively.
 
Until June 2005, GameStop participated in Barnes & Noble’s workers’ compensation, property and general liability insurance programs. Although GameStop secured its own insurance coverage, costs will likely continue to


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GAMESTOP CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
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 October 30, 2010 and October 31, 2009, these charges amounted to $14 and $25, respectively. During the 39 weeks ended October 30, 2010 and October 31, 2009, these charges amounted to $43 and $130, respectively.
 
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 filed their appellate brief in support of their appeal and the defendants filed their consolidated appellate brief in opposition to the appeal.
 
On September 24, 2010, the Alabama Supreme Court issued an Order affirming the judgment in the Company’s favor. On October 13, 2010, the final judgment was entered by the Court and the matter is now resolved with no liability to the Company.
 
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% of GameStop Group Limited, 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.


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GAMESTOP CORP.
 
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, PC entertainment software and related accessories. The following table sets forth sales (in millions) by significant product category for the periods indicated:
 
                                                                 
    13 Weeks Ended     39 Weeks Ended  
    October 30,
    October 31,
    October 30,
    October 31,
 
    2010     2009     2010     2009  
          Percent
          Percent
          Percent
          Percent
 
    Sales     of Total     Sales     of Total     Sales     of Total     Sales     of Total  
    (Unaudited)  
 
Sales:
                                                               
New video game hardware
  $ 276.0       14.5 %   $ 321.4       17.5 %   $ 938.5       16.2 %   $ 1,018.6       18.3 %
New video game software
    839.1       44.2 %     769.4       41.9 %     2,375.3       41.1 %     2,169.7       39.1 %
Used video game products
    528.0       27.8 %     507.7       27.7 %     1,664.3       28.8 %     1,617.0       29.1 %
Other
    256.1       13.5 %     236.2       12.9 %     802.8       13.9 %     748.7       13.5 %
                                                                 
Total
  $ 1,899.2       100.0 %   $ 1,834.7       100.0 %   $ 5,780.9       100.0 %   $ 5,554.0       100.0 %
                                                                 
 
Other products include PC entertainment and other software, accessories and magazines.
 
The following table sets forth gross profit (in millions) and gross profit percentages by significant product category for the periods indicated:
 
                                                                 
    13 Weeks Ended     39 Weeks Ended  
    October 30,
    October 31,
    October 30,
    October 31,
 
    2010     2009     2010     2009  
          Gross
          Gross
          Gross
          Gross
 
    Gross
    Profit
    Gross
    Profit
    Gross
    Profit
    Gross
    Profit
 
    Profit     Percent     Profit     Percent     Profit     Percent     Profit     Percent  
    (Unaudited)  
 
Gross Profit:
                                                               
New video game hardware
  $ 21.7       7.9 %   $ 26.8       8.3 %   $ 68.7       7.3 %   $ 72.6       7.1 %
New video game software
    182.4       21.7 %     173.8       22.6 %     498.6       21.0 %     472.8       21.8 %
Used video game products
    250.2       47.4 %     240.0       47.3 %     784.7       47.1 %     760.5       47.0 %
Other
    92.0       35.9 %     82.5       34.9 %     281.9       35.1 %     254.7       34.0 %
                                                                 
Total
  $ 546.3       28.8 %   $ 523.1       28.5 %   $ 1,633.9       28.3 %   $ 1,560.6       28.1 %
                                                                 
 
10.   Segment Information
 
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 site www.gamestop.com, Game Informer magazine, and the online video gaming Web site www.kongregate.com. Segment results for Canada include retail and e-commerce operations in Canada and segment results for Australia include retail and e-commerce operations in Australia and New Zealand. Segment results for Europe include retail operations in 13 European countries and e-commerce operations in five countries. The 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 January 30, 2010. Transactions between reportable segments


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GAMESTOP CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
consist primarily of royalties, management fees, intersegment loans and related interest. Information on segments appears in the following tables:
 
                                 
    13 Weeks Ended     39 Weeks Ended  
    October 30,
    October 31,
    October 30,
    October 31,
 
    2010     2009     2010     2009  
    (In millions)
 
    (Unaudited)  
 
Sales by operating segment were as follows:
                               
United States
  $ 1,300.3     $ 1,200.9     $ 4,112.0     $ 3,857.8  
Canada
    109.5       115.4       307.4       303.3  
Australia
    117.9       114.2       344.3       328.7  
Europe
    371.5       404.2       1,017.2       1,064.2  
                                 
Total
  $ 1,899.2     $ 1,834.7     $ 5,780.9     $ 5,554.0  
                                 
Operating earnings by operating segment were as follows:
                               
United States
  $ 70.3     $ 69.0     $ 260.7     $ 245.3  
Canada
    3.8       7.8       7.6       16.0  
Australia
    6.8       6.6       14.3       21.1  
Europe
    11.9       6.9       4.3       7.3  
                                 
Total
  $ 92.8     $ 90.3     $ 286.9     $ 289.7  
                                 
 
11.   Supplemental Cash Flow Information
 
                 
    39 Weeks Ended  
    October 30,
    October 31,
 
    2010     2009  
    (In thousands)
 
    (Unaudited)  
 
Cash paid during the period for:
               
Interest
  $ 36,225     $ 43,793  
                 
Income taxes
  $ 150,912     $ 119,886  
                 
Other non-cash financing activities:
               
Treasury stock repurchases settled in Nov. 2010
  $ 4,180     $  
                 
 
12.   Consolidating Financial Statements
 
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.
 
The following condensed consolidating financial statements present the financial position of the Company as of October 30, 2010, October 31, 2009 and January 30, 2010 and results of operations for the 13 and 39 weeks ended October 30, 2010 and October 31, 2009 and cash flows for the 39 weeks ended October 30, 2010 and October 31, 2009 of the Company’s guarantor and non-guarantor subsidiaries.


14



Table of Contents

GAMESTOP CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
GameStop Corp.
Condensed Consolidating Balance Sheet
 
                                 
    Issuers and
                   
    Guarantor
    Non-Guarantor
             
    Subsidiaries
    Subsidiaries
          Consolidated
 
    October 30,
    October 30,
          October 30,
 
    2010     2010     Eliminations     2010  
    (Amounts in thousands, except per share amounts)  
          (Unaudited)        
 
ASSETS:
Current assets:
                               
Cash and cash equivalents
  $ 45,502     $ 135,560     $     $ 181,062  
Receivables, net
    122,486       631,221       (694,862 )     58,845  
Merchandise inventories, net
    1,290,253       652,163             1,942,416  
Deferred income taxes — current
    18,198       3,610             21,808  
Prepaid taxes
    (7,569 )     19,035             11,466  
Prepaid expenses
    40,452       30,276             70,728  
Other current assets
    5,869       7,853             13,722  
                                 
Total current assets
    1,515,191       1,479,718       (694,862 )     2,300,047  
                                 
Property and equipment:
                               
Land
    4,670       19,658             24,328  
Buildings and leasehold improvements
    316,723       248,220             564,943  
Fixtures and equipment
    630,086       155,662             785,748  
                                 
Total property and equipment
    951,479       423,540             1,375,019  
Less accumulated depreciation and amortization
    564,273       204,678             768,951  
                                 
Net property and equipment
    387,206       218,862             606,068  
Investment
    2,122,662       595,033       (2,717,695 )      
Goodwill, net
    1,125,109       879,527             2,004,636  
Other intangible assets
    12,024       251,194             263,218  
Other noncurrent assets
    7,024       34,072             41,096  
                                 
Total noncurrent assets
    3,654,025       1,978,688       (2,717,695 )     2,915,018  
                                 
Total assets
  $ 5,169,216     $ 3,458,406     $ (3,412,557 )   $ 5,215,065  
                                 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities:
                               
Accounts payable
  $ 1,084,593     $ 430,034     $     $ 1,514,627  
Accrued liabilities
    995,084       264,061       (694,862 )     564,283  
                                 
Total current liabilities
    2,079,677       694,095       (694,862 )     2,078,910  
                                 
Senior notes payable, long-term portion, net
    248,903                   248,903  
Deferred taxes
    (13,933 )     31,882             17,949  
Other long-term liabilities
    83,958       16,136             100,094  
                                 
Total long-term liabilities
    318,928       48,018             366,946  
                                 
Total liabilities
    2,398,605       742,113       (694,862 )     2,445,856  
                                 
Stockholders’ equity:
                               
Preferred stock — authorized 5,000 shares; no shares issued or outstanding
                       
Class A common stock — $.001 par value; authorized 300,000 shares; 151,369 shares outstanding
    151                   151  
Additional paid-in-capital
    1,034,858       2,427,336       (2,427,336 )     1,034,858  
Accumulated other comprehensive income
    167,624       42,888       (42,888 )     167,624  
Retained earnings
    1,567,978       247,471       (247,471 )     1,567,978  
                                 
Equity attributable to GameStop Corp. stockholders
    2,770,611       2,717,695       (2,717,695 )     2,770,611  
Equity (deficit) attributable to noncontrolling interest
          (1,402 )           (1,402 )
                                 
Total equity
    2,770,611       2,716,293       (2,717,695 )     2,769,209  
                                 
Total liabilities and stockholders’ equity
  $ 5,169,216     $ 3,458,406     $ (3,412,557 )   $ 5,215,065  
                                 


15



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GAMESTOP CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
GameStop Corp.
Condensed Consolidating Balance Sheet
 
                                 
    Issuers and
                   
    Guarantor
    Non-Guarantor
             
    Subsidiaries
    Subsidiaries
          Consolidated
 
    October 31,
    October 31,
          October 31,
 
    2009     2009     Eliminations     2009  
    (Amounts in thousands, except per share amounts)  
          (Unaudited)        
 
ASSETS:
Current assets:
                               
Cash and cash equivalents
  $ 151,629     $ 140,398     $     $ 292,027  
Receivables, net
    241,452       683,089       (871,998 )     52,543  
Merchandise inventories, net
    1,049,944       684,018             1,733,962  
Deferred income taxes — current
    21,645       2,858             24,503  
Prepaid taxes
    (3,654 )     16,727             13,073  
Prepaid expenses
    39,866       21,648             61,514  
Other current assets
    1,398       15,074             16,472  
                                 
Total current assets
    1,502,280       1,563,812       (871,998 )     2,194,094  
                                 
Property and equipment:
                               
Land
    2,670       9,149             11,819  
Buildings and leasehold improvements
    290,335       226,157             516,492  
Fixtures and equipment
    548,581       144,079             692,660  
                                 
Total property and equipment
    841,586       379,385             1,220,971  
Less accumulated depreciation and amortization
    472,216       157,060             629,276  
                                 
Net property and equipment
    369,370       222,325             591,695  
Investment
    2,032,792             (2,032,792 )      
Goodwill, net
    1,096,622       882,365             1,978,987  
Other intangible assets
    4,345       275,222             279,567  
Other noncurrent assets
    10,058       28,922             38,980  
                                 
Total noncurrent assets
    3,513,187       1,408,834       (2,032,792 )     2,889,229  
                                 
Total assets
  $ 5,015,467     $ 2,972,646     $ (2,904,790 )   $ 5,083,323  
                                 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities:
                               
Accounts payable
  $ 868,770     $ 459,271     $     $ 1,328,041  
Accrued liabilities
    1,004,792       377,502       (871,998 )     510,296  
                                 
Total current liabilities
    1,873,562       836,773       (871,998 )     1,838,337  
                                 
Senior notes payable, long-term portion, net
    447,121                   447,121  
Deferred taxes
    (32,461 )     39,253             6,792  
Other long-term liabilities
    87,822       16,513             104,335  
                                 
Total long-term liabilities
    502,482       55,766             558,248  
                                 
Total liabilities
    2,376,044       892,539       (871,998 )     2,396,585  
                                 
Stockholders’ equity:
                               
Preferred stock — authorized 5,000 shares; no shares issued or outstanding
                       
Class A common stock — $.001 par value; authorized 300,000 shares; 164,752 shares issued and outstanding
    165                   165  
Additional paid-in-capital
    1,334,481       1,757,782       (1,757,782 )     1,334,481  
Accumulated other comprehensive income
    122,944       111,930       (64,615 )     170,259  
Retained earnings
    1,181,833       210,395       (210,395 )     1,181,833  
                                 
Total equity
    2,639,423       2,080,107       (2,032,792 )     2,686,738  
                                 
Total liabilities and stockholders’ equity
  $ 5,015,467     $ 2,972,646     $ (2,904,790 )   $ 5,083,323  
                                 


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Table of Contents

GAMESTOP CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
GameStop Corp.
Condensed Consolidating Balance Sheet
 
                                 
    Issuers and
                   
    Guarantor
    Non-Guarantor
             
    Subsidiaries
    Subsidiaries
          Consolidated
 
    January 30,
    January 30,
          January 30,
 
    2010     2010     Eliminations     2010  
    (Amounts in thousands, except per share amounts)  
 
ASSETS:
Current assets:
                               
Cash and cash equivalents
  $ 652,965     $ 252,453     $     $ 905,418  
Receivables, net
    203,122       627,889       (767,005 )     64,006  
Merchandise inventories, net
    570,259       483,294             1,053,553  
Deferred income taxes — current
    18,076       3,153             21,229  
Prepaid expenses
    37,750       21,684             59,434  
Other current assets
    6,007       17,657             23,664  
                                 
Total current assets
    1,488,179       1,406,130       (767,005 )     2,127,304  
                                 
Property and equipment:
                               
Land
    2,670       8,899             11,569  
Buildings and leasehold improvements
    296,348       226,617             522,965  
Fixtures and equipment
    569,924       141,553             711,477  
                                 
Total property and equipment
    868,942       377,069             1,246,011  
Less accumulated depreciation and amortization
    498,534       163,276             661,810  
                                 
Net property and equipment
    370,408       213,793             584,201  
Investment
    2,062,823       596,289       (2,659,112 )      
Goodwill, net
    1,096,622       849,891             1,946,513  
Other intangible assets
    3,376       256,484             259,860  
Other noncurrent assets
    9,466       27,983             37,449  
                                 
Total noncurrent assets
    3,542,695       1,944,440       (2,659,112 )     2,828,023  
                                 
Total assets
  $ 5,030,874     $ 3,350,570     $ (3,426,117 )   $ 4,955,327  
                                 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities:
                               
Accounts payable
  $ 684,256     $ 277,417     $     $ 961,673  
Accrued liabilities
    1,039,840       359,268       (767,005 )     632,103  
Taxes payable
    63,988       (2,088 )           61,900  
                                 
Total current liabilities
    1,788,084       634,597       (767,005 )     1,655,676  
                                 
Senior notes payable, long-term portion, net
    447,343                   447,343  
Deferred taxes
    (15,432 )     40,898             25,466  
Other long-term liabilities
    87,722       16,109             103,831  
                                 
Total long-term liabilities
    519,633       57,007             576,640  
                                 
Total liabilities
    2,307,717       691,604       (767,005 )     2,232,316  
                                 
Stockholders’ equity:
                               
Preferred stock — authorized 5,000 shares; no shares issued or outstanding
                       
Class A common stock — $.001 par value; authorized 300,000 shares; 158,662 shares outstanding
    159                   159  
Additional paid-in-capital
    1,210,539       2,391,781       (2,391,781 )     1,210,539  
Accumulated other comprehensive income (loss)
    114,704       17,754       (17,754 )     114,704  
Retained earnings
    1,397,755       249,577       (249,577 )     1,397,755  
                                 
Equity attributable to GameStop Corp. stockholders
    2,723,157       2,659,112       (2,659,112 )     2,723,157  
Equity (deficit) attributable to noncontrolling interest
          (146 )           (146 )
                                 
Total equity
    2,723,157       2,658,966       (2,659,112 )     2,723,011  
                                 
Total liabilities and stockholders’ equity
  $ 5,030,874     $ 3,350,570     $ (3,426,117 )   $ 4,955,327  
                                 


17



Table of Contents

GAMESTOP CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
GameStop Corp.
Condensed Consolidating Statement of Operations
 
                                 
    Issuers and
                   
    Guarantor
    Non-Guarantor
             
    Subsidiaries
    Subsidiaries
          Consolidated
 
    October 30,
    October 30,
          October 30,
 
For the 13 Weeks Ended October 30, 2010   2010     2010     Eliminations     2010  
    (Amounts in thousands)
 
    (Unaudited)  
 
Sales
  $ 1,300,201     $ 598,951     $     $ 1,899,152  
Cost of sales
    921,460       431,375             1,352,835  
                                 
Gross profit
    378,741       167,576             546,317  
Selling, general and administrative expenses
    277,773       131,081             408,854  
Depreciation and amortization
    29,445       15,225             44,670  
                                 
Operating earnings
    71,523       21,270             92,793  
Interest income
    (8,553 )     (4,011 )     12,267       (297 )
Interest expense
    9,709       12,524       (12,267 )     9,966  
Debt extinguishment expense
    5,966                   5,966  
                                 
Earnings before income tax expense
    64,401       12,757             77,158  
Income tax expense
    18,717       4,129             22,846  
                                 
Consolidated net income
    45,684       8,628             54,312  
Net loss attributable to noncontrolling interests
          396             396  
                                 
Consolidated net income attributable to GameStop
  $ 45,684     $ 9,024     $     $ 54,708  
                                 
 
GameStop Corp.
Condensed Consolidating Statement of Operations
 
                                 
    Issuers and
                   
    Guarantor
    Non-Guarantor
             
    Subsidiaries
    Subsidiaries
          Consolidated
 
    October 31,
    October 31,
          October 31,
 
For the 13 Weeks Ended October 31, 2009   2009     2009     Eliminations     2009  
    (Amounts in thousands)
 
    (Unaudited)  
 
Sales
  $ 1,200,873     $ 633,854     $     $ 1,834,727  
Cost of sales
    841,623       470,020             1,311,643  
                                 
Gross profit
    359,250       163,834             523,084  
Selling, general and administrative expenses
    264,599       126,611             391,210  
Depreciation and amortization
    25,586       16,019             41,605  
                                 
Operating earnings
    69,065       21,204             90,269  
Interest income
    (10,902 )     (6,274 )     16,696       (480 )
Interest expense
    10,630       17,012       (16,696 )     10,946  
Debt extinguishment expense
    2,461                   2,461  
                                 
Earnings before income tax expense
    66,876       10,466             77,342  
Income tax expense
    19,425       5,692             25,117  
                                 
Consolidated net income
    47,451       4,774             52,225  
Net loss attributable to noncontrolling interests
                       
                                 
Consolidated net income attributable to GameStop
  $ 47,451     $ 4,774     $     $ 52,225  
                                 


18



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GAMESTOP CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
GameStop Corp.
Condensed Consolidating Statement of Operations
 
                                 
    Issuers and
                   
    Guarantor
    Non-Guarantor
             
    Subsidiaries
    Subsidiaries
          Consolidated
 
    October 30,
    October 30,
          October 30,
 
For the 39 Weeks Ended October 30, 2010   2010     2010     Eliminations     2010  
    (Amounts in thousands)
 
    (Unaudited)  
 
Sales
  $ 4,111,643     $ 1,669,299     $     $ 5,780,942  
Cost of sales
    2,936,398       1,210,620             4,147,018  
                                 
Gross profit
    1,175,245       458,679             1,633,924  
Selling, general and administrative expenses
    826,161       391,493             1,217,654  
Depreciation and amortization
    84,383       45,035             129,418  
                                 
Operating earnings
    264,701       22,151             286,852  
Interest income
    (26,336 )     (11,845 )     36,829       (1,352 )
Interest expense
    29,783       37,679       (36,829 )     30,633  
Debt extinguishment expense
    5,966                   5,966  
                                 
Earnings before income tax expense
    255,288       (3,683 )           251,605  
Income tax expense
    90,813       (8,187 )           82,626  
                                 
Consolidated net income
    164,475       4,504             168,979  
Net loss attributable to noncontrolling interests
          1,244             1,244  
                                 
Consolidated net income attributable to GameStop
  $ 164,475     $ 5,748     $     $ 170,223  
                                 
 
GameStop Corp.
Condensed Consolidating Statement of Operations
 
                                 
    Issuers and
                   
    Guarantor
    Non-Guarantor
             
    Subsidiaries
    Subsidiaries
          Consolidated
 
    October 31,
    October 31,
          October 31,
 
For the 39 Weeks Ended October 31, 2009   2009     2009     Eliminations     2009  
    (Amounts in thousands)
 
    (Unaudited)  
 
Sales
  $ 3,857,808     $ 1,696,176     $     $ 5,553,984  
Cost of sales
    2,741,355       1,252,026             3,993,381  
                                 
Gross profit
    1,116,453       444,150             1,560,603  
Selling, general and administrative expenses
    795,758       356,057             1,151,815  
Depreciation and amortization
    75,337       43,772             119,109  
                                 
Operating earnings
    245,358       44,321             289,679  
Interest income
    (33,108 )     (7,433 )     39,082       (1,459 )
Interest expense
    34,111       39,852       (39,082 )     34,881  
Debt extinguishment expense
    5,323                   5,323  
                                 
Earnings before income tax expense
    239,032       11,902             250,934  
Income tax expense
    79,354       10,237             89,591  
                                 
Consolidated net income
    159,678       1,665             161,343  
Net loss attributable to noncontrolling interests
                       
                                 
Consolidated net income attributable to GameStop
  $ 159,678     $ 1,665     $     $ 161,343  
                                 


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GAMESTOP CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
GameStop Corp.
Condensed Consolidating Statement of Cash Flows
 
                                 
    Issuers and
                   
    Guarantor
    Non-Guarantor
             
    Subsidiaries
    Subsidiaries
          Consolidated
 
    October 30,
    October 30,
          October 30,
 
For the 39 Weeks Ended October 30, 2010   2010     2010     Eliminations     2010  
    (Amounts in thousands)
 
    (Unaudited)  
 
Cash flows from operating activities:
                               
Consolidated net income
  $ 164,475     $ 4,504     $     $ 168,979  
Adjustments to reconcile net income to net cash flows used in operating activities:
                               
Depreciation and amortization (including amounts in cost of sales)
    85,741       45,153             130,894  
Amortization and retirement of deferred financing fees and issue discounts
    4,289                   4,289  
Stock-based compensation expense
    22,142                   22,142  
Deferred income taxes
    (260 )     (8,220 )           (8,480 )
Excess tax benefits realized from exercise of stock-based awards
    (18,432 )                 (18,432 )
Loss on disposal of property and equipment
    1,952       2,500             4,452  
Changes in other long-term liabilities
    4,144       (7,665 )           (3,521 )
Changes in operating assets and liabilities, net
                               
Receivables, net
    5,787       1,218             7,005  
Merchandise inventories
    (719,994 )     (153,244 )           (873,238 )
Prepaid expenses and other current assets
    (2,563 )     245             (2,318 )
Prepaid income taxes and accrued income taxes payable
    (46,127 )     (7,709 )           (53,836 )
Accounts payable and accrued liabilities
    491,408       46,311             537,719  
                                 
Net cash flows used in operating activities
    (7,438 )     (76,907 )           (84,345 )
                                 
Cash flows from investing activities:
                               
Purchase of property and equipment
    (103,248 )     (38,277 )           (141,525 )
Acquisitions, net of cash acquired
    (38,132 )                 (38,132 )
Other
    (306 )     (3,585 )           (3,891 )
                                 
Net cash flows used in investing activities
    (141,686 )     (41,862 )           (183,548 )
                                 
Cash flows from financing activities:
                               
Repurchase of notes payable
    (200,000 )                 (200,000 )
Purchase of treasury shares
    (286,825 )                 (286,825 )
Issuance of shares relating to stock options
    10,054                   10,054  
Excess tax benefits realized from exercise of stock-based awards
    18,432                   18,432  
                                 
Net cash flows used in financing activities
    (458,339 )                 (458,339 )
                                 
Exchange rate effect on cash and cash equivalents
          1,876             1,876  
                                 
Net decrease in cash and cash equivalents
    (607,463 )     (116,893 )           (724,356 )
Cash and cash equivalents at beginning of period
    652,965       252,453             905,418  
                                 
Cash and cash equivalents at end of period
  $ 45,502     $ 135,560     $     $ 181,062  
                                 


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GAMESTOP CORP.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
GameStop Corp.
Condensed Consolidating Statement of Cash Flows
 
                                 
    Issuers and
                   
    Guarantor
    Non-Guarantor
             
    Subsidiaries
    Subsidiaries
          Consolidated
 
    October 31,
    October 31,
          October 31,
 
For the 39 Weeks Ended October 31, 2009   2009     2009     Eliminations     2009  
    (Amounts in thousands)
 
    (Unaudited)  
 
Cash flows from operating activities:
                               
Consolidated net income
  $ 159,678     $ 1,665     $     $ 161,343  
Adjustments to reconcile net income to net cash flows used in operating activities:
                               
Depreciation and amortization (including amounts in cost of sales)
    76,483       43,832             120,315  
Amortization and retirement of deferred financing fees and issue discounts
    4,176                   4,176  
Stock-based compensation expense
    23,226                   23,226  
Deferred income taxes
    (557 )     (4,768 )           (5,325 )
Excess tax expense realized from exercise of stock-based awards
    453                   453  
Loss on disposal of property and equipment
    1,936       2,777             4,713  
Changes in other long-term liabilities
    8,354       (2,879 )           5,475  
Changes in operating assets and liabilities, net
                               
Receivables, net
    12,947       4,065             17,012  
Merchandise inventories
    (412,687 )     (165,601 )           (578,288 )
Prepaid expenses and other current assets
    5,956       (5,203 )           753  
Prepaid income taxes and accrued income taxes payable
    278       (30,437 )           (30,159 )
Accounts payable and accrued liabilities
    83,111       118,765             201,876  
                                 
Net cash flows used in operating activities
    (36,646 )     (37,784 )           (74,430 )
                                 
Cash flows from investing activities:
                               
Purchase of property and equipment
    (88,388 )     (33,734 )           (122,122 )
Acquisitions, net of cash acquired
          (5,208 )           (5,208 )
Other
    (213 )     (13,029 )           (13,242 )
                                 
Net cash flows used in investing activities
    (88,601 )     (51,971 )           (140,572 )
                                 
Cash flows from financing activities:
                               
Repurchase of notes payable
    (100,000 )                 (100,000 )
Borrowings from the revolver
    115,000                   115,000  
Repayments of revolver borrowings
    (115,000 )                 (115,000 )
Issuance of shares relating to stock options
    4,208                   4,208  
Excess tax expense realized from exercise of stock-based awards
    (453 )                 (453 )
Other
    (57 )                 (57 )
                                 
Net cash flows used in financing activities
    (96,302 )                 (96,302 )
                                 
Exchange rate effect on cash and cash equivalents
          25,190             25,190  
                                 
Net decrease in cash and cash equivalents
    (221,549 )     (64,565 )           (286,114 )
Cash and cash equivalents at beginning of period
    373,178       204,963             578,141  
                                 
Cash and cash equivalents at end of period
  $ 151,629     $ 140,398     $     $ 292,027  
                                 


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ITEM 2.   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 October 30, 2010, we operated 6,606 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, www.gamestop.es, www.gamestop.ie, www.gamestop.de and www.micromania.fr. In addition, we publish Game Informer magazine, the industry’s largest multi-platform video game magazine in the United States based on circulation, and operate the online video gaming Web site www.kongregate.com.
 
Our fiscal year is composed of 52 or 53 weeks ending on the Saturday closest to January 31. The fiscal years 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 (the “PSP”) was introduced in 2005. The Nintendo DSi XL was introduced in early 2010. Typically, following the introduction of new video game platforms, sales of new video game hardware increase as a percentage of total sales in the first full year following introduction. As video game platforms mature, the sales mix attributable to complementary video game software and accessories, which generate higher gross margins, generally increases in the subsequent years. The net effect is generally a decline in gross margins in the first full year following new platform releases and an increase in gross margins in the years subsequent to the first full year following the launch period. Unit sales of maturing video game platforms are typically also driven by manufacturer-funded retail price reductions, further driving sales of related software and accessories. We expect that the installed base of the hardware platforms listed above and sales of related software and accessories will increase in the future.
 
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 operate an online video game platform called Kongregate.com which we acquired in August 2010. We continue to make significant investments in e-commerce, digital delivery systems, online video game aggregation, digital kiosks and in-store and Web site functionality to enable our customers to access digital content and eliminate friction in the digital sales and delivery process. We plan to continue to invest in 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


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develop estimates thereon, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Form 10-K.
 
Consolidated Results of Operations
 
The following table sets forth certain statement of operations items as a percentage of sales for the periods indicated:
 
                                 
    13 Weeks Ended     39 Weeks Ended  
    October 30,
    October 31,
    October 30,
    October 31,
 
    2010     2009     2010     2009  
 
Statement of Operations Data:
                               
Sales
    100.0 %     100.0 %     100.0 %     100.0 %
Cost of sales
    71.2       71.5       71.7       71.9  
                                 
Gross profit
    28.8       28.5       28.3       28.1  
Selling, general and administrative expenses
    21.5       21.3       21.1       20.7  
Depreciation and amortization
    2.4       2.3       2.2       2.2  
                                 
Operating earnings
    4.9       4.9       5.0       5.2  
Interest expense, net
    0.5       0.6       0.5       0.6  
Debt extinguishment expense
    0.3       0.1       0.1       0.1  
                                 
Earnings before income tax expense
    4.1       4.2       4.4       4.5  
Income tax expense
    1.2       1.4       1.5       1.6  
                                 
Consolidated net income
    2.9       2.8       2.9       2.9  
Net loss attributable to noncontrolling interests
                       
                                 
Consolidated net income attributable to GameStop
    2.9 %     2.8 %     2.9 %     2.9 %
                                 
 
The Company includes purchasing, receiving and distribution costs in selling, general and administrative expenses, rather than cost of goods sold, in the statement of operations. 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:
 
                                                                 
    13 Weeks Ended     39 Weeks Ended  
    October 30,
    October 31,
    October 30,
    October 31,
 
    2010     2009     2010     2009  
          Percent
          Percent
          Percent
          Percent
 
    Sales     of Total     Sales     of Total     Sales     of Total     Sales     of Total  
    (Unaudited)  
 
Sales:
                                                               
New video game hardware
  $ 276.0       14.5 %   $ 321.4       17.5 %   $ 938.5       16.2 %   $ 1,018.6       18.3 %
New video game software
    839.1       44.2 %     769.4       41.9 %     2,375.3       41.1 %     2,169.7       39.1 %
Used video game products
    528.0       27.8 %     507.7       27.7 %     1,664.3       28.8 %     1,617.0       29.1 %
Other
    256.1       13.5 %     236.2       12.9 %     802.8       13.9 %     748.7       13.5 %
                                                                 
Total
  $ 1,899.2       100.0 %   $ 1,834.7       100.0 %   $ 5,780.9       100.0 %   $ 5,554.0       100.0 %
                                                                 
 
Other products include PC entertainment and other software, accessories and magazines.


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The following table sets forth gross profit (in millions) and gross profit percentages by significant product category for the periods indicated:
 
                                                                 
    13 Weeks Ended     39 Weeks Ended  
    October 30,
    October 31,
    October 30,
    October 31,
 
    2010     2009     2010     2009  
    Gross
    Gross Profit
    Gross
    Gross Profit
    Gross
    Gross Profit
    Gross
    Gross Profit
 
    Profit     Percent     Profit     Percent     Profit     Percent     Profit     Percent  
    (Unaudited)  
 
Gross Profit:
                                                               
New video game hardware
  $ 21.7       7.9 %   $ 26.8       8.3 %   $ 68.7       7.3 %   $ 72.6       7.1 %
New video game software
    182.4       21.7 %     173.8       22.6 %     498.6       21.0 %     472.8       21.8 %
Used video game products
    250.2       47.4 %     240.0       47.3 %     784.7       47.1 %     760.5       47.0 %
Other
    92.0       35.9 %     82.5       34.9 %     281.9       35.1 %     254.7       34.0 %
                                                                 
Total
  $ 546.3       28.8 %   $ 523.1       28.5 %   $ 1,633.9       28.3 %   $ 1,560.6       28.1 %
                                                                 
 
13 weeks ended October 30, 2010 compared with the 13 weeks ended October 31, 2009
 
Sales increased by $64.5 million, or 3.5%, from $1,834.7 million in the 13 weeks ended October 31, 2009 to $1,899.2 million in the 13 weeks ended October 30, 2010. The increase in sales was primarily attributable to the addition of non-comparable store sales from the 402 stores opened since August 1, 2009 and the comparable store sales increase of 1.1% for the third quarter of fiscal 2010, offset by a decrease in sales related to changes in foreign exchange rates of $18.8 million when compared to the third 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 an increase in new video game software due to strong title releases, offset by a slow-down in hardware unit sell-through in the third quarter of fiscal 2010.
 
New video game hardware sales decreased $45.4 million, or 14.1%, from $321.4 million in the 13 weeks ended October 31, 2009 to $276.0 million in the 13 weeks ended October 30, 2010, primarily due to a slow-down in hardware unit sell-through as price-cuts that were instituted in the third quarter of fiscal 2009 drove higher sales in that quarter. New video game software sales increased $69.7 million, or 9.1%, from $769.4 million in the 13 weeks ended October 31, 2009 to $839.1 million in the 13 weeks ended October 30, 2010, primarily due to the strong sales of new video game software titles in fiscal 2010 and the increases related to new store openings. Used video game product sales increased $20.3 million, or 4.0%, from $507.7 million in the 13 weeks ended October 31, 2009 to $528.0 million in the 13 weeks ended October 30, 2010. Used video game product sales increased due to the increase in the availability of hardware and software associated with the current generation hardware platforms as those platforms age and expand, as well as the addition of sales at the new stores added since fiscal 2009. Sales of other product categories increased by 8.4%, or $19.9 million, from the 13 weeks ended October 31, 2009 to the 13 weeks ended October 30, 2010. The increase in other product sales was primarily due to the launch of the Sony Move and related accessories, as well as 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, new video game hardware decreased and new video game software, used video game products and the other product category increased in the 13 weeks ended October 30, 2010 compared to the 13 weeks ended October 31, 2009. The change in the mix of sales was primarily due to the strong sales of new release video game software and the decrease in hardware unit sell-through discussed above.
 
Cost of sales increased by $41.2 million, or 3.1%, from $1,311.6 million in the 13 weeks ended October 31, 2009 to $1,352.8 million in the 13 weeks ended October 30, 2010 as a result of the increase in sales and the changes in gross profit discussed below.
 
Gross profit increased by $23.2 million, or 4.4%, from $523.1 million in the 13 weeks ended October 31, 2009 to $546.3 million in the 13 weeks ended October 30, 2010. Gross profit as a percentage of sales increased from 28.5% in the 13 weeks ended October 31, 2009 to 28.8% in the 13 weeks ended October 30, 2010. The gross profit


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percentage increase was caused primarily by the increase in higher margin used video game product sales and new video game software as a percentage of total sales in the third quarter of fiscal 2010 and the decrease in sales from new video game hardware as a percentage of total sales. Gross profit as a percentage of sales on new video game hardware and new video game software decreased from 8.3% and 22.6% in the prior year quarter to 7.9% and 21.7% of sales, respectively, this quarter, primarily due to a decrease in vendor allowances received net of advertising expenses, including expenses associated with the Company’s loyalty program during the third quarter of fiscal 2010. Gross profit as a percentage of sales on used video game products increased from 47.3% in the 13 weeks ended October 31, 2009 to 47.4% in the 13 weeks ended October 30, 2010, primarily due to efforts to improve margin in the countries in which we operate. Gross profit as a percentage of sales on other product sales increased from 34.9% in the 13 weeks ended October 31, 2009 to 35.9% in the 13 weeks ended October 30, 2010, primarily due to a shift in sales to higher margin accessories and the increase in sales of digital online game cards, some of which are recorded on a commission basis at 100% margin.
 
Selling, general and administrative expenses increased by $17.7 million, or 4.5%, from $391.2 million in the 13 weeks ended October 31, 2009 to $408.9 million in the 13 weeks ended October 30, 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 21.3% in the 13 weeks ended October 31, 2009 to 21.5% in the 13 weeks ended October 30, 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. Included in selling, general and administrative expenses are $7.5 million and $8.0 million in stock-based compensation expense for the 13 weeks ended October 30, 2010 and October 31, 2009, respectively.
 
Depreciation and amortization expense increased $3.1 million from $41.6 million in the 13 weeks ended October 31, 2009 to $44.7 million in the 13 weeks ended October 30, 2010. This increase was primarily due to the capital expenditures associated with the opening of 78 new stores during the third 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 October 31, 2009 to $0.3 million in the 13 weeks ended October 30, 2010. Interest expense decreased from $10.9 million in the 13 weeks ended October 31, 2009 to $10.0 million in the 13 weeks ended October 30, 2010, primarily due to the retirement of $50.0 million of the Company’s senior notes in the quarter ended October 31, 2009. Debt extinguishment expense of $6.0 million and $2.5 million was recognized in the 13 weeks ended October 30, 2010 and October 31, 2009, respectively, as a result of premiums paid related to debt retirement and the recognition of deferred financing fees and unamortized original issue discount.
 
Income tax expense for the 13 weeks ended October 31, 2009 and October 30, 2010 was based upon management’s estimate of the Company’s annualized effective tax rate. Income tax expense was $25.1 million, or 32.5%, of earnings before income tax expense for the 13 weeks ended October 31, 2009 compared to $22.8 million, or 29.6% for the 13 weeks ended October 30, 2010. The decrease in the effective income tax rate in the 13 weeks ended October 30, 2010 was due to variability in the accounting related to 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 an increase in operating earnings of $2.5 million, or 2.8%, from $90.3 million in the 13 weeks ended October 31, 2009 to $92.8 million in the 13 weeks ended October 30, 2010, and an increase in consolidated net income of $2.1 million, or 4.0%, from $52.2 million in the 13 weeks ended October 31, 2009 to $54.3 million in the 13 weeks ended October 30, 2010.
 
39 weeks ended October 30, 2010 compared with the 39 weeks ended October 31, 2009
 
Sales increased by $226.9 million, or 4.1%, from $5,554.0 million in the 39 weeks ended October 31, 2009 to $5,780.9 million in the 39 weeks ended October 30, 2010. The increase in sales was primarily attributable to the addition of non-comparable store sales from the 626 stores opened since January 31, 2009 and increases related to changes in foreign exchange rates of $29.1 million for the 39-week period ended October 30, 2010 when compared


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to the 39-week period ended October 31, 2009. Comparable store sales were flat during the 39-week period ended October 30, 2010 when compared to the 39-week period ended October 31, 2009.
 
New video game hardware sales decreased $80.1 million, or 7.9%, from $1,018.6 million in the 39 weeks ended October 31, 2009 to $938.5 million in the 39 weeks ended October 30, 2010, primarily due to a slow-down in hardware unit sell-through, primarily in the Nintendo Wii and DSi and Sony PSP, and price-cuts which resulted in lower per unit sales, partially offset by the additional sales at the new stores added since fiscal 2009. New video game software sales increased $205.6 million, or 9.5%, from $2,169.7 million in the 39 weeks ended October 31, 2009 to $2,375.3 million in the 39 weeks ended October 30, 2010, primarily due to strong sales of new video game titles released in fiscal 2010, compared to fiscal 2009, as well as sales from new stores added since last fiscal year. Used video game product sales increased $47.3 million, or 2.9%, from $1,617.0 million in the 39 weeks ended October 31, 2009 to $1,664.3 million in the 39 weeks ended October 30, 2010. Used video game product sales increased due to the increase in the availability of hardware and software associated with the current generation hardware platforms as those platforms age and expand and the additional sales at new stores added since last fiscal year. Sales of other product categories increased by 7.2%, or $54.1 million, from the 39 weeks ended October 31, 2009 to the 39 weeks ended October 30, 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 fiscal year period.
 
As a percentage of sales, new video game software and other product sales increased, while new video game hardware and used video game product sales decreased in the 39 weeks ended October 30, 2010 compared to the 39 weeks ended October 31, 2009. The change in the mix of sales was primarily due to the strong sales of new release video game software and the slow-down in hardware unit sell-through discussed above.
 
Cost of sales increased by $153.6 million, or 3.8%, from $3,993.4 million in the 39 weeks ended October 31, 2009 to $4,147.0 million in the 39 weeks ended October 30, 2010 primarily as a result of the increase in sales and the changes in gross profit discussed below.
 
Gross profit increased by $73.3 million, or 4.7%, from $1,560.6 million in the 39 weeks ended October 31, 2009 to $1,633.9 million in the 39 weeks ended October 30, 2010. Gross profit as a percentage of sales increased from 28.1% in the 39 weeks ended October 31, 2009 to 28.3% in the 39 weeks ended October 30, 2010. The gross profit percentage increase was caused primarily by the decrease in lower margin new video game hardware sales as a percentage of total sales in the 39 weeks ended October 30, 2010 when compared to the 39 weeks ended October 31, 2009. Gross profit as a percentage of sales on new video game hardware increased from 7.1% of sales for the 39 weeks ended October 31, 2009 to 7.3% for the 39 weeks ended October 30, 2010, primarily 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 21.8% for the 39 weeks ended October 31, 2009 to 21.0% for the 39 weeks ended October 30, 2010, primarily due to a decrease in vendor allowances received net of advertising expenses, including expenses associated with the Company’s loyalty program. Gross profit as a percentage of sales on used video game products increased slightly from 47.0% for the 39 weeks ended October 31, 2009 to 47.1% for the 39 weeks ended October 30, 2010. Gross profit as a percentage of sales on other product sales increased from 34.0% for the 39 weeks ended October 31, 2009 to 35.1% for the 39 weeks ended October 30, 2010, primarily due to a shift in sales to higher margin accessories and the increase in sales of digital online game cards, some of which are recorded on a commission basis at 100% margin.
 
Selling, general and administrative expenses increased by $65.9 million, or 5.7%, from $1,151.8 million in the 39 weeks ended October 31, 2009 to $1,217.7 million in the 39 weeks ended October 30, 2010. This increase was primarily attributable to the increase in the number of stores in operation during fiscal 2010 and 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 20.7% in the 39 weeks ended October 31, 2009 to 21.1% in the 39 weeks ended October 30, 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 fiscal 2010. Selling, general and administrative expenses include $22.1 million and $23.2 million in stock-based compensation expense for the 39 weeks ended October 30, 2010 and October 31, 2009, respectively.


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Depreciation and amortization expense increased $10.3 million from $119.1 million for the 39 weeks ended October 31, 2009 to $129.4 million in the 39 weeks ended October 30, 2010. This increase was primarily due to the capital expenditures associated with the opening of 238 new stores during the 39 weeks ended October 30, 2010 and investments in management information systems.
 
Interest income resulting from the investment of excess cash balances decreased from $1.5 million in the 39 weeks ended October 31, 2009 to $1.4 million in the 39 weeks ended October 30, 2010, due primarily to lower invested cash balances and lower interest rates during fiscal 2010. Interest expense decreased from $34.9 million in the 39 weeks ended October 31, 2009 to $30.6 million in the 39 weeks ended October 30, 2010, primarily due to the retirement of $100.0 million of the Company’s senior notes during the 39 weeks ended October 31, 2009. Debt extinguishment expense of $6.0 million and $5.3 million was recognized in the 39 weeks ended October 30, 2010 and October 31, 2009, respectively, as a result of premiums paid related to debt retirement and the recognition of deferred financing fees and unamortized original issue discount.
 
Income tax expense for the 39 weeks ended October 31, 2009 and the 39 weeks ended October 30, 2010 was based upon management’s estimate of the Company’s annualized effective tax rate. Income tax expense was $89.6 million, or 35.7% of earnings before income tax expense, for the 39 weeks ended October 31, 2009 compared to $82.6 million, 32.8% of earnings before income tax expense, for the 39 weeks ended October 30, 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 $2.8 million, or 1.0%, from $289.7 million in the 39 weeks ended October 31, 2009 to $286.9 million in the 39 weeks ended October 30, 2010, and an increase in consolidated net income of $7.7 million, or 4.8%, from $161.3 million in the 39 weeks ended October 31, 2009 to $169.0 million in the 39 weeks ended October 30, 2010.
 
In 2009, the Financial Accounting Standards Board issued new guidance related to the reporting of non-controlling interests in subsidiaries. The $1.2 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 39 weeks ended October 30, 2010.
 
Segment Performance
 
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 by reportable segment:
 
                                 
    13 Weeks Ended     39 Weeks Ended  
    October 30,
    October 31,
    October 30,
    October 31,
 
    2010     2009     2010     2009  
    (In millions)
 
    (Unaudited)  
 
Sales by operating segment are as follows:
                               
United States
  $ 1,300.3     $ 1,200.9     $ 4,112.0     $ 3,857.8  
Canada
    109.5       115.4       307.4       303.3  
Australia
    117.9       114.2       344.3       328.7  
Europe
    371.5       404.2       1,017.2       1,064.2  
                                 
Total
  $ 1,899.2     $ 1,834.7     $ 5,780.9     $ 5,554.0  
                                 
Operating earnings by operating segment are as follows:
                               
United States
  $ 70.3     $ 69.0     $ 260.7     $ 245.3  
Canada
    3.8       7.8       7.6       16.0  
Australia
    6.8       6.6       14.3       21.1  
Europe
    11.9       6.9       4.3       7.3  
                                 
Total
  $ 92.8     $ 90.3     $ 286.9     $ 289.7  
                                 


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United States
 
Segment results for the United States include retail operations in 50 states, the District of Columbia, Guam and Puerto Rico, the electronic commerce Web site www.gamestop.com, Game Informer magazine and www.kongregate.com, an online video gaming site. As of October 30, 2010, the United States segment included 4,518 stores, compared to 4,403 stores on October 31, 2009. Sales for the 13 and 39 weeks ended October 30, 2010 increased 8.3% and 6.6%, respectively, compared to the 13 and 39 weeks ended October 31, 2009, as a result of increased sales at existing stores and the opening of 239 stores since August 1, 2009 and 363 stores since January 31, 2009, including 57 and 156 stores in the 13 and 39 weeks ended October 30, 2010, respectively. Sales at existing stores increased primarily due to strong sales of new release video game software in fiscal 2010 and increased market share, partially offset by a slow-down in hardware unit sales. Segment operating income for the 13 and 39 weeks ended October 30, 2010 increased by 1.9% and 6.3%, respectively, compared to the 13 and 39 weeks ended October 31, 2009 due to the impact of the higher sales and related margin in the current periods when compared to the prior fiscal year periods.
 
Canada
 
Segment results for Canada include retail operations and an e-commerce site in Canada. As of October 30, 2010, the Canadian segment had 345 stores compared to 340 stores as of October 31, 2009. Sales in the Canadian segment in the 13 and 39 weeks ended October 30, 2010 decreased 5.1% and increased 1.4%, respectively, compared to the 13 and 39 weeks ended October 31, 2009. The decrease in sales for the 13 weeks ended October 30, 2010 was primarily attributable to decreased sales at existing stores, partially offset by the additional sales at the 11 stores opened since August 1, 2009 and the favorable effects of exchange rates recognized in the period. The decrease in sales at existing stores was primarily due to weak consumer traffic and a slow-down in hardware unit sell-through and lower price points when compared to fiscal 2009. The decrease in sales was partially offset by the favorable impact of changes in exchange rates, which had the effect of increasing sales by $4.4 million when compared to the prior fiscal year period. The increase in sales for the 39 weeks ended October 30, 2010 was primarily due to additional sales at the 25 stores opened since January 31, 2009 and the favorable impact of changes in exchange rates, which had the effect of increasing sales by $30.1 million when compared to the prior fiscal year period. These increases in sales were largely offset by a decrease in sales at existing stores. The decrease in sales at existing stores was primarily due to weak consumer traffic and a slow-down in hardware unit sell-through and lower price points when compared to fiscal 2009.
 
Segment operating income for the 13 and 39 weeks ended October 30, 2010 decreased by $4.0 million and $8.4 million, respectively, compared to the 13 and 39 weeks ended October 31, 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 $0.2 million and $0.9 million, respectively, for the 13 and 39 weeks ended October 30, 2010 when compared to the prior fiscal year periods.
 
Australia
 
Segment results for Australia include retail operations and e-commerce sites in Australia and New Zealand. As of October 30, 2010, the Australian segment included 400 stores, compared to 379 at October 31, 2009. Sales for the 13 and 39 weeks ended October 30, 2010 increased by 3.2% and 4.7%, respectively, when compared to the 13 and 39 weeks ended October 31, 2009. The increase in sales for the 13 and 39 weeks ended October 30, 2010 was primarily due to additional sales at the 34 and 54 stores opened since August 1, 2009 and January 31, 2009, respectively, and the favorable impact of changes in exchange rates, which had the effect of increasing sales by $8.6 million and $45.6 million for the 13 and 39 weeks ended October 30, 2010, respectively, when compared to the prior fiscal year periods. Excluding the impact of changes in exchange rates, sales in the Australian segment decreased 4.3% and 9.1% for the 13 and 39 weeks ended October 30, 2010, respectively. 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. Segment operating income in the 13 weeks ended October 30, 2010 increased by $0.2 million when compared to the 13 weeks ended October 31, 2009. The increase in operating income was primarily due to the favorable impact of changes in foreign currency exchange rates, which had the effect of increasing operating income by $0.5 million. Segment operating income in the 39 weeks ended October 30, 2010


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decreased by $6.8 million when compared to the 39 weeks ended October 31, 2009. The decrease in operating earnings for the 39 weeks ended October 30, 2010 was 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 $1.5 million in the 39 weeks ended October 30, 2010 when compared to the prior fiscal year period.
 
Europe
 
Segment results for Europe include retail operations in 13 European countries and e-commerce operations in five countries. As of October 30, 2010, the European segment operated 1,343 stores compared to 1,269 stores as of October 31, 2009. For the 13 and 39 weeks ended October 30, 2010, European sales decreased 8.1% and 4.4%, respectively, compared to the 13 and 39 weeks ended October 31, 2009. The decrease in sales was primarily due to the unfavorable impact of changes in exchange rates recognized in the 13 and 39 weeks ended October 30, 2010 compared to the prior fiscal year periods, which had the effect of decreasing sales by $31.8 million and $46.6 million, respectively, and the decrease in sales at existing stores offset by the additional sales at the 118 and 184 stores opened since August 1, 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 slow-down in hardware sales as a result of lower hardware unit sell-through and lower price points when compared to fiscal 2009.
 
The segment operating income in Europe for the 13 weeks ended October 30, 2010 increased $5.0 million compared to the 13 weeks ended October 31, 2009. The increase in operating income was primarily driven by higher gross profit as a percentage of sales due to less promotional activity and lower operating expenses when compared to the prior fiscal year period. The increase in operating income was partially offset by the unfavorable impact of changes in exchange rates, which had the effect of decreasing operating income by $1.2 million when compared to the prior fiscal year period. Segment operating income for the 39 weeks ended October 30, 2010 decreased by $3.0 million compared to the 39 weeks ended October 31, 2009. The decrease in operating income was primarily due to the decrease in sales at existing stores discussed above and the unfavorable impact of changes in exchange rates when compared to the prior fiscal year period, which had the effect of decreasing operating earnings by $0.8 million.
 
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.
 
Liquidity and Capital Resources
 
Cash Flows
 
During the 39 weeks ended October 30, 2010, cash used in operations was $84.3 million, compared to cash used in operations of $74.4 million during the 39 weeks ended October 31, 2009. The increase in cash used in operations of $9.9 million was primarily due to an increase in cash used for inventory, taxes payable and the operating activities adjustment related to the excess tax benefits realized from the exercise of stock-based awards, offset by a decrease in cash used for accounts payable and accrued liabilities. The increase in cash used for inventory was due to the timing of the release of new video game software and hardware at the end of the current fiscal quarter and the beginning of the Company’s fourth quarter in fiscal 2010 when compared to the same timeframe in fiscal 2009. The increase in cash used for inventory was offset by the related increase in accounts payable and accrued liabilities as this inventory had not been paid for as of the end of the quarter. Inventory turnover was relatively consistent for the 39 weeks ended October 31, 2009 compared to the 39 weeks ended October 30, 2010 as the increase in inventory in fiscal 2010 occurred late in the current fiscal quarter and sales have increased year over year. The increase in cash used for taxes payable in the 39 weeks ended October 30, 2010 was primarily due to the timing of estimated income tax payments made during fiscal 2010 compared to fiscal 2009.
 
Cash used in investing activities was $183.5 million and $140.6 million during the 39 weeks ended October 30, 2010 and October 31, 2009, respectively. During the 39 weeks ended October 30, 2010, $141.5 million of cash was used primarily to open new stores in the U.S. and internationally and to invest in information systems and


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e-commerce, digital and loyalty program initiatives. During the 39 weeks ended October 31, 2009, $122.1 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 39 weeks ended October 30, 2010, the Company used $38.1 million in its acquisition of Kongregate Inc., an online video gaming company, as part of its ongoing digital investment strategy. During the 39 weeks ended October 31, 2009, the Company used $5.2 million for acquisitions primarily related to the purchase of an increased ownership interest in GameStop Group Limited.
 
Cash used in financing activities was $458.3 million and $96.3 million for the 39 weeks ended October 30, 2010 and October 31, 2009, respectively. The cash used in financing activities for the 39 weeks ended October 30, 2010 was primarily due to the purchase of $286.8 million of treasury shares pursuant to the Board of Directors’ $300 million authorization in January 2010 and $300 million additional authorization in September 2010. In addition, the Company repurchased $200 million of principal value of the Company’s senior notes. The cash used in financing activities for the 39 weeks ended October 31, 2009 was primarily due to the repurchase of $100 million of principal value of the Company’s senior notes. In addition, the Company borrowed $115 million against its revolver during the 39 weeks ended October 31, 2009 and subsequently repaid the borrowings before October 31, 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.
 
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 October 30, 2010, the applicable margin was 0.0% for prime rate loans and 1.00% for LIBO rate loans. In addition, the Company is required to pay a commitment fee of 0.25% for any unused portion of the total commitment under the Revolver. During the 39 weeks ended October 31, 2009, the Company borrowed and repaid $115 million under the Revolver. As of October 30, 2010, there were no borrowings outstanding under the Revolver and letters of credit outstanding totaled $8.0 million.
 
In September 2007, the Company’s Luxembourg subsidiary entered into a discretionary $20 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 October 30, 2010, there were no cash overdrafts outstanding under the Line of Credit and bank guarantees outstanding totaled $6.6 million.


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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 October 30, 2010, the unamortized original issue discount was $1.1 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 October 30, 2010, the Company was in compliance with all covenants associated with the Revolver and the Indenture.
 
Under certain conditions, the Issuers may on any one or more occasions prior to maturity redeem up to 100% of the aggregate principal amount of Senior Notes issued under the Indenture at redemption prices at or in excess of 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the redemption date. The circumstances which would limit the percentage of the Notes which may be redeemed or which would require the Company to pay a premium in excess of 100% of the principal amount are defined in the Indenture. Upon a Change of Control (as defined in the Indenture), the Issuers are required to offer to purchase all of the Notes then outstanding at 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase. The Issuers may acquire Senior Notes by means other than redemption, whether by tender offer, open market purchases, negotiated transactions or otherwise, in accordance with applicable securities laws, so long as such acquisitions do not otherwise violate the terms of the Indenture.
 
As of October 31, 2009 and October 30, 2010, the only long-term debt outstanding was $450 million and $250 million, respectively, of the Senior Notes, which mature on October 1, 2012.
 
Uses of Capital
 
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 238 stores in the 39 weeks ended October 30, 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, which will 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 $5.3 million for the 39-week period ended October 31, 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.
 
In September 2010, the Company announced that its Board of Directors authorized the buyback of up to an aggregate of an additional $200 million of the Senior Notes. As of October 30, 2010, the Company had repurchased


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or redeemed all $200 million of the Senior Notes pursuant to this authorization. The associated loss on retirement of debt was $6.0 million for the 39 week period ended October 30, 2010, which consisted of the premium paid to retire the Senior Notes and the write-off of the deferred financing fees and the original issue discount on the Senior Notes.
 
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 and completed all authorized share repurchases from the January 2010 plan. On September 13, 2010, the Board of Directors of the Company approved an additional $300 million share repurchase program authorizing the Company to repurchase its common stock. During the 13 weeks ended October 30, 2010, the Company repurchased an additional 2.6 million shares at an average price per share of $18.91.
 
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, including third party litigation;
 
  •  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.”


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In some cases, forward-looking statements can be identified by the use of terms such as “anticipates,” “believes,” “continues,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “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 39 week periods ended October 30, 2010, the Company recognized a $11.0 million and $6.9 million loss, 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 October 30, 2010 was a liability of $2.9 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 October 30, 2010 would result in a (loss) or gain in value of the forwards, options and swaps of ($22.0 million) or $22.0 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.
 
ITEM 4.   Controls and Procedures
 
(a) Evaluation of Disclosure Controls and Procedures
 
As of the end of the period covered by this report, the Company’s management conducted an evaluation, under the supervision and with the participation of the principal executive officer and principal financial officer, of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange


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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.
 
PART II — OTHER INFORMATION
 
ITEM 1.   Legal Proceedings
 
On February 14, 2005, and as amended, Steve Strickland, as personal representative of the Estate of Arnold Strickland, deceased, Henry Mealer, as personal representative of the Estate of Ace Mealer, deceased, and Willie Crump, as personal representative of the Estate of James Crump, deceased, filed a wrongful death lawsuit 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 filed their appellate brief in support of their appeal and the defendants filed their consolidated appellate brief in opposition to the appeal.
 
On September 24, 2010, the Alabama Supreme Court issued an Order affirming the judgment in the Company’s favor. On October 13, 2010, the final judgment was entered by the Court and the matter is now resolved with no liability to the Company.
 
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.
 
ITEM 1A.   Risk Factors
 
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


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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 October 30, 2010 were as follows:
 
ISSUER PURCHASES OF EQUITY SECURITIES
 
                                 
                (c)
    (d)
 
    (a)
          Total Number of
    Approximate Dollar
 
    Total
    (b)
    Shares Purchased
    Value of Shares that
 
    Number of
    Average
    as Part of Publicly
    May Yet Be Purchased
 
    Shares
    Price Paid per
    Announced Plans or
    Under the Plans or
 
    Purchased     Share     Programs     Programs(1)  
                      (In thousands of dollars)  
 
August 1 through August 28, 2010
        $           $  
August 29 through October 2, 2010
        $           $  
October 3 through October 30, 2010
    2,611,993     $ 18.91       2,611,933     $ 250,615  
                                 
Total
    2,611,993     $ 18.91       2,611,933          
                                 
 
 
(1) In September 2010, our Board of Directors approved a $300 million share repurchase program that has no expiration date.
 
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)
  3 .1   Second Amended and Restated Certificate of Incorporation.(4)
  3 .2   Amended and Restated Bylaws.(5)
  4 .1   Indenture, dated September 28, 2005, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), GameStop, Inc., the subsidiary guarantors party thereto, and Citibank N.A., as trustee.(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)
  4 .4   Form of Indenture.(8)
  10 .1   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)


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Exhibit
   
Number   Description
 
  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)
  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)

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Exhibit
   
Number   Description
 
  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.
  101 .INS   XBRL Instance Document
  101 .SCH   XBRL Taxonomy Extension Schema
  101 .CAL   XBRL Taxonomy Extension Calculation Linkbase
  101 .DEF   XBRL Taxonomy Extension Definition Linkbase
  101 .LAB   XBRL Taxonomy Extension Label Linkbase
  101 .PRE   XBRL Taxonomy Extension Presentation Linkbase
 
 
(1) Incorporated by reference to GameStop Holdings Corp.’s Form 8-K filed with the Securities and Exchange Commission on April 18, 2005.
 
(2) Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on October 2, 2008.
 
(3) Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on November 18, 2008.
 
(4) Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on February 7, 2007.
 
(5) Incorporated by reference to the Registrant’s Amendment No. 1 to Form S-4 filed with the Securities and Exchange Commission on July 8, 2005.

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(6) Incorporated by reference to GameStop Holdings Corp.’s Form 8-K filed with the Securities and Exchange Commission on September 30, 2005.
 
(7) Incorporated by reference to the Registrant’s Form 10-Q for the fiscal quarter ended October 29, 2005 filed with the Securities and Exchange Commission on December 8, 2005.
 
(8) Incorporated by reference to the Registrant’s Form S-3ASR filed with the Securities and Exchange Commission on April 10, 2006.
 
(9) Incorporated by reference to GameStop Holdings Corp.’s Amendment No. 3 to Form S-1 filed with the Securities and Exchange Commission on January 24, 2002.
 
(10) 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.
 
(12) Incorporated by reference to GameStop Holdings Corp.’s Form 10-K for the fiscal year ended January 29, 2005 filed with the Securities and Exchange Commission on April 11, 2005.
 
(13) Incorporated by reference to GameStop Holdings Corp.’s Form 8-K filed with the Securities and Exchange Commission on September 12, 2005.
 
(14) Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on October 12, 2005.
 
(15) Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on April 26, 2007.
 
(16) Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on January 7, 2009.
 
(17) Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on April 9, 2010.
 
(18) Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on June 2, 2010.


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SIGNATURES
 
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
(Principal Financial Officer)
 
Date: December 8, 2010
 
GAMESTOP CORP.
 
  By: 
/s/  Troy W. Crawford
Troy W. Crawford
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)
 
Date: December 8, 2010


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GAMESTOP CORP.
 
EXHIBIT INDEX
 
         
Exhibit
   
Number   Description
 
  2 .1   Agreement and Plan of Merger, dated as of April 17, 2005, among GameStop Corp. (f/k/a GSC Holdings Corp.), Electronics Boutique Holdings Corp., GameStop, Inc., GameStop Holdings Corp. (f/k/a GameStop Corp.), Cowboy Subsidiary LLC and Eagle Subsidiary LLC.(1)
  2 .2   Sale and Purchase Agreement, dated September 30, 2008, between EB International Holdings, Inc. and L Capital, LV Capital, Europ@Web and other Micromania shareholders.(2)
  2 .3   Amendment, dated November 17, 2008, to Sale and Purchase Agreement for Micromania Acquisition listed as Exhibit 2.2 above.(3)
  3 .1   Second Amended and Restated Certificate of Incorporation.(4)
  3 .2   Amended and Restated Bylaws.(5)
  4 .1   Indenture, dated September 28, 2005, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), GameStop, Inc., the subsidiary guarantors party thereto, and Citibank N.A., as trustee.(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)
  4 .4   Form of Indenture.(8)
  10 .1   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)


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Exhibit
   
Number   Description
 
  10 .15   Second Amendment, dated as of October 23, 2008, to Credit Agreement, dated as of October 11, 2005, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A. and the other lending institutions listed in the Amendment, Bank of America, N.A. and Citicorp North America, Inc., as Issuing Banks, Bank of America, N.A., as Administrative Agent and Collateral Agent, Citicorp North America, Inc., as Syndication Agent, and GE Business Financial Services, Inc., as Documentation Agent.(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.
  31 .2   Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  32 .1   Certification of Chief Executive Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  32 .2   Certification of Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  101 .INS   XBRL Instance Document
  101 .SCH   XBRL Taxonomy Extension Schema


41



Table of Contents

         
Exhibit
   
Number   Description
 
  101 .CAL   XBRL Taxonomy Extension Calculation Linkbase
  101 .DEF   XBRL Taxonomy Extension Definition Linkbase
  101 .LAB   XBRL Taxonomy Extension Label Linkbase
  101 .PRE   XBRL Taxonomy Extension Presentation Linkbase
 
 
(1) Incorporated by reference to GameStop Holdings Corp.’s Form 8-K filed with the Securities and Exchange Commission on April 18, 2005.
 
(2) Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on October 2, 2008.
 
(3) Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on November 18, 2008.
 
(4) Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on February 7, 2007.
 
(5) Incorporated by reference to the Registrant’s Amendment No. 1 to Form S-4 filed with the Securities and Exchange Commission on July 8, 2005.
 
(6) Incorporated by reference to GameStop Holdings Corp.’s Form 8-K filed with the Securities and Exchange Commission on September 30, 2005.
 
(7) Incorporated by reference to the Registrant’s Form 10-Q for the fiscal quarter ended October 29, 2005 filed with the Securities and Exchange Commission on December 8, 2005.
 
(8) Incorporated by reference to the Registrant’s Form S-3ASR filed with the Securities and Exchange Commission on April 10, 2006.
 
(9) Incorporated by reference to GameStop Holdings Corp.’s Amendment No. 3 to Form S-1 filed with the Securities and Exchange Commission on January 24, 2002.
 
(10) 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.
 
(12) Incorporated by reference to GameStop Holdings Corp.’s Form 10-K for the fiscal year ended January 29, 2005 filed with the Securities and Exchange Commission on April 11, 2005.
 
(13) Incorporated by reference to GameStop Holdings Corp.’s Form 8-K filed with the Securities and Exchange Commission on September 12, 2005.
 
(14) Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on October 12, 2005.
 
(15) Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on April 26, 2007.
 
(16) Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on January 7, 2009.
 
(17) Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on April 9, 2010.
 
(18) Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on June 2, 2010.


42


Dates Referenced Herein   and   Documents Incorporated By Reference

This 10-Q Filing   Date   Other Filings
1/1/02
1/24/02
1/29/05
2/14/05
4/11/05
4/17/05
4/18/05
6/27/05
7/8/05S-4/A
9/12/05
9/28/05
9/30/05425
10/8/053, 3/A, 8-K/A
10/11/053, 425
10/12/058-K, S-3, SC 13D
10/29/0510-Q
12/8/0510-Q
1/28/0610-K
4/10/064, S-3ASR
2/7/078-K, DEF 14A
4/25/074
4/26/078-K
5/23/08DEF 14A
9/30/08
10/2/088-K
10/23/08
10/30/088-K
11/12/08
11/17/08
11/18/088-K
12/12/084
12/31/08
1/7/098-K
1/31/0910-K
5/22/09DEF 14A
7/30/09
8/1/0910-Q
10/31/0910-Q
1/11/10
1/30/1010-K, 5
3/30/1010-K
4/5/10
4/9/108-K
6/2/104, 8-K
7/31/1010-Q
8/1/10
8/28/10
9/13/10
9/24/10
10/2/10
10/11/10
10/13/104
For The Period Ended10/30/10
10/31/10
11/24/10
Filed On / Filed As Of12/8/10
1/29/1110-K
4/25/12
10/1/12
 
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