e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE QUARTERLY PERIOD ENDED
AUGUST 4, 2007
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE TRANSITION PERIOD
FROM TO
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COMMISSION FILE
NO. 1-32637
GameStop Corp.
(Exact name of registrant as
specified in its Charter)
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Delaware
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20-2733559
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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625 Westport Parkway,
Grapevine, Texas
(Address of principal
executive offices)
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76051
(Zip Code)
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Registrants telephone number, including area code:
(817) 424-2000
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 is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated
filer þ Accelerated
filer o Non-accelerated
filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
Number of shares of $.001 par value Class A Common
Stock outstanding as of August 28, 2007: 159,041,082
PART I
FINANCIAL INFORMATION
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ITEM 1.
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Financial
Statements
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GAMESTOP
CORP.
CONDENSED
CONSOLIDATED BALANCE SHEETS
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August 4,
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July 29,
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February 3,
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2007
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2006
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2007
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(Unaudited)
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(Unaudited)
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(In thousands, except per share data)
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ASSETS:
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Current assets:
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Cash and cash equivalents
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$
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349,277
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$
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218,726
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$
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652,403
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Receivables, net
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29,798
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28,596
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34,268
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Merchandise inventories, net
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713,836
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574,067
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675,385
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Prepaid expenses and other current
assets
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51,951
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37,374
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37,882
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Prepaid taxes
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74,952
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79,395
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5,545
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Deferred taxes
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35,979
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46,349
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34,858
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Total current assets
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1,255,793
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984,507
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1,440,341
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Property and equipment:
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Land
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11,298
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10,073
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10,712
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Buildings and leasehold improvements
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334,904
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280,723
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305,806
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Fixtures and equipment
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477,492
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375,736
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425,841
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|
|
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823,694
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666,532
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742,359
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Less accumulated depreciation and
amortization
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349,927
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235,299
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285,896
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|
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Net property and equipment
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473,767
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431,233
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456,463
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Goodwill, net
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1,402,845
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1,392,926
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1,403,907
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Deferred financing fees
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11,406
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17,242
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14,375
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Deferred taxes
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7,677
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|
|
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5,804
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Other noncurrent assets
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30,017
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29,328
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28,694
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Total other assets
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1,451,945
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1,439,496
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1,452,780
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|
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Total assets
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$
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3,181,505
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$
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2,855,236
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$
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3,349,584
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LIABILITIES AND
STOCKHOLDERS EQUITY:
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Current liabilities:
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Accounts payable
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$
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517,233
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$
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366,221
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$
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717,868
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Accrued liabilities
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339,940
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281,969
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357,016
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Note payable, current portion
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12,173
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12,173
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12,173
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Total current liabilities
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869,346
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660,363
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1,087,057
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Deferred taxes
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|
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12,196
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|
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Senior notes payable, long-term
portion, net
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573,993
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635,431
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593,311
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Senior floating rate notes payable,
long-term portion
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120,000
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300,000
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250,000
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Note payable, long-term portion
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12,173
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|
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Deferred rent and other long-term
liabilities
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|
|
72,492
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|
|
39,380
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|
|
|
43,338
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|
|
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|
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Total long-term liabilities
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|
|
766,485
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|
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999,180
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886,649
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|
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|
|
|
|
|
|
|
|
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Total liabilities
|
|
|
1,635,831
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|
|
|
1,659,543
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|
|
|
1,973,706
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|
|
|
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Stockholders equity:
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Preferred stock
authorized 5,000 shares; no shares issued or outstanding
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Class A common
stock $.001 par value; authorized
300,000 shares; 158,993, 150,293 and 152,305 shares
issued and outstanding, respectively
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159
|
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150
|
|
|
|
152
|
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Additional
paid-in-capital
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|
1,145,706
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|
|
|
983,546
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|
|
|
1,021,903
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|
Accumulated other comprehensive
income
|
|
|
19,359
|
|
|
|
4,773
|
|
|
|
3,227
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|
Retained earnings
|
|
|
380,450
|
|
|
|
207,224
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|
|
|
350,596
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total stockholders equity
|
|
|
1,545,674
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|
|
|
1,195,693
|
|
|
|
1,375,878
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|
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|
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|
|
|
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|
|
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Total liabilities and
stockholders equity
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|
$
|
3,181,505
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|
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$
|
2,855,236
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$
|
3,349,584
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|
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|
|
|
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|
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See accompanying notes to condensed consolidated financial
statements.
2
GAMESTOP
CORP.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
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|
|
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13 Weeks Ended
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|
26 Weeks Ended
|
|
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|
August 4,
|
|
|
July 29,
|
|
|
August 4,
|
|
|
July 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share data)
|
|
|
|
(Unaudited)
|
|
|
Sales
|
|
$
|
1,338,193
|
|
|
$
|
963,347
|
|
|
$
|
2,617,176
|
|
|
$
|
2,003,374
|
|
Cost of sales
|
|
|
976,894
|
|
|
|
664,083
|
|
|
|
1,907,108
|
|
|
|
1,402,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
361,299
|
|
|
|
299,264
|
|
|
|
710,068
|
|
|
|
601,298
|
|
Selling, general and
administrative expenses
|
|
|
278,434
|
|
|
|
244,611
|
|
|
|
535,550
|
|
|
|
481,271
|
|
Depreciation and amortization
|
|
|
32,118
|
|
|
|
26,328
|
|
|
|
63,153
|
|
|
|
52,260
|
|
Merger-related expenses
|
|
|
|
|
|
|
2,572
|
|
|
|
|
|
|
|
3,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
50,747
|
|
|
|
25,753
|
|
|
|
111,365
|
|
|
|
63,869
|
|
Interest income
|
|
|
(2,736
|
)
|
|
|
(1,505
|
)
|
|
|
(6,564
|
)
|
|
|
(3,729
|
)
|
Interest expense
|
|
|
16,082
|
|
|
|
21,714
|
|
|
|
34,026
|
|
|
|
43,267
|
|
Debt extinguishment expense
|
|
|
2,027
|
|
|
|
191
|
|
|
|
8,751
|
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income tax expense
|
|
|
35,374
|
|
|
|
5,353
|
|
|
|
75,152
|
|
|
|
24,140
|
|
Income tax expense
|
|
|
13,564
|
|
|
|
2,176
|
|
|
|
28,619
|
|
|
|
9,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
21,810
|
|
|
$
|
3,177
|
|
|
$
|
46,533
|
|
|
$
|
14,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per common share-basic
|
|
$
|
0.14
|
|
|
$
|
0.02
|
|
|
$
|
0.30
|
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common
stock-basic
|
|
|
158,438
|
|
|
|
150,149
|
|
|
|
155,938
|
|
|
|
148,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net earnings per common
share-diluted
|
|
$
|
0.13
|
|
|
$
|
0.02
|
|
|
$
|
0.29
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common
stock-diluted
|
|
|
164,769
|
|
|
|
157,658
|
|
|
|
163,013
|
|
|
|
157,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial
statements.
3
GAMESTOP
CORP.
CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Common Stock
|
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|
Additional
|
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Other
|
|
|
|
|
|
|
|
|
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|
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Common
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
|
|
|
|
Shares
|
|
|
Stock
|
|
|
Capital
|
|
|
Income
|
|
|
Earnings
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
|
(Unaudited)
|
|
|
Balance at February 3, 2007
|
|
|
152,305
|
|
|
$
|
152
|
|
|
$
|
1,021,903
|
|
|
$
|
3,227
|
|
|
$
|
350,596
|
|
|
$
|
1,375,878
|
|
Cumulative effect of change in
accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,679
|
)
|
|
|
(16,679
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 4, 2007,
adjusted
|
|
|
152,305
|
|
|
|
152
|
|
|
|
1,021,903
|
|
|
|
3,227
|
|
|
|
333,917
|
|
|
|
1,359,199
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings for the 26 weeks
ended August 4, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,533
|
|
|
|
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,132
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,665
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
13,645
|
|
|
|
|
|
|
|
|
|
|
|
13,645
|
|
Exercise of stock options and
issuance of shares upon vesting of restricted stock grants
(including tax benefit of $63,382)
|
|
|
6,688
|
|
|
|
7
|
|
|
|
110,158
|
|
|
|
|
|
|
|
|
|
|
|
110,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at August 4, 2007
|
|
|
158,993
|
|
|
$
|
159
|
|
|
$
|
1,145,706
|
|
|
$
|
19,359
|
|
|
$
|
380,450
|
|
|
$
|
1,545,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial
statements.
4
GAMESTOP
CORP.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
26 Weeks Ended
|
|
|
|
August 4,
|
|
|
July 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
|
(Unaudited)
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
46,533
|
|
|
$
|
14,878
|
|
Adjustments to reconcile net
earnings to net cash flows used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
(including amounts in cost of sales)
|
|
|
63,625
|
|
|
|
52,372
|
|
Amortization and retirement of
deferred financing fees
|
|
|
3,228
|
|
|
|
1,607
|
|
Amortization and retirement of
original issue discount on senior notes
|
|
|
682
|
|
|
|
558
|
|
Stock-based compensation expense
|
|
|
13,645
|
|
|
|
10,550
|
|
Deferred taxes
|
|
|
(2,288
|
)
|
|
|
(4,808
|
)
|
Excess tax benefits realized from
exercise of stock-based awards
|
|
|
(62,555
|
)
|
|
|
(31,656
|
)
|
Loss on disposal of property and
equipment
|
|
|
1,527
|
|
|
|
2,167
|
|
Increase in deferred rent and
other long-term liabilities
|
|
|
3,668
|
|
|
|
3,652
|
|
Increase in liability to landlords
for tenant allowances, net
|
|
|
1,762
|
|
|
|
709
|
|
Change in the value of foreign
exchange contracts
|
|
|
332
|
|
|
|
710
|
|
Changes in operating assets and
liabilities, net
|
|
|
|
|
|
|
|
|
Receivables, net
|
|
|
4,470
|
|
|
|
10,142
|
|
Merchandise inventories
|
|
|
(38,451
|
)
|
|
|
29,111
|
|
Prepaid expenses and other current
assets
|
|
|
(9,956
|
)
|
|
|
(21,034
|
)
|
Prepaid taxes
|
|
|
1,840
|
|
|
|
(27,322
|
)
|
Accounts payable and accrued
liabilities
|
|
|
(220,612
|
)
|
|
|
(227,531
|
)
|
|
|
|
|
|
|
|
|
|
Net cash flows used in operating
activities
|
|
|
(192,550
|
)
|
|
|
(185,895
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(71,388
|
)
|
|
|
(49,320
|
)
|
Acquisitions, net of cash acquired
|
|
|
1,062
|
|
|
|
|
|
Sale of assets held for sale
|
|
|
|
|
|
|
19,297
|
|
|
|
|
|
|
|
|
|
|
Net cash flows used in investing
activities
|
|
|
(70,326
|
)
|
|
|
(30,023
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
Repurchase of notes payable
|
|
|
(150,000
|
)
|
|
|
(6,915
|
)
|
Repayment of other debt
|
|
|
|
|
|
|
(9,502
|
)
|
Issuance of shares relating to
stock options
|
|
|
46,782
|
|
|
|
18,727
|
|
Excess tax benefits realized from
exercise of stock-based awards
|
|
|
62,555
|
|
|
|
31,656
|
|
Net increase in other noncurrent
assets and deferred financing fees
|
|
|
(3,459
|
)
|
|
|
(747
|
)
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used
in) financing activities
|
|
|
(44,122
|
)
|
|
|
33,219
|
|
|
|
|
|
|
|
|
|
|
Exchange rate effect on cash and
cash equivalents
|
|
|
3,872
|
|
|
|
(168
|
)
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash
equivalents
|
|
|
(303,126
|
)
|
|
|
(182,867
|
)
|
Cash and cash equivalents at
beginning of period
|
|
|
652,403
|
|
|
|
401,593
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end
of period
|
|
$
|
349,277
|
|
|
$
|
218,726
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial
statements.
5
GAMESTOP
CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(Unaudited)
GameStop Corp. (the Company) is a Delaware
corporation formed for the purpose of consummating the business
combination (the merger) of GameStop Holdings Corp.,
formerly known as GameStop Corp. (Historical
GameStop), and Electronics Boutique Holdings Corp.
(EB), which was completed on October 8, 2005.
The merger of Historical GameStop and EB was treated as a
purchase business combination for accounting purposes, with
Historical GameStop designated as the acquirer. The Company is
the worlds largest retailer of video games and
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 consolidated financial statements included herein
reflect all adjustments (consisting only of normal, recurring
adjustments) which are, in the opinion of the Companys
management, necessary for a fair presentation of the information
for the periods presented. These consolidated financial
statements are condensed and, therefore, do not include all of
the information and footnotes required by generally accepted
accounting principles. These consolidated financial statements
should be read in conjunction with the Companys annual
report on
Form 10-K
for the 53 weeks ended February 3, 2007 (fiscal
2006). The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. In preparing these
financial statements, management has made its best estimates and
judgments of certain amounts included in the financial
statements, giving due consideration to materiality. Changes in
the estimates and assumptions used by management could have
significant impact on the Companys financial results.
Actual results could differ from those estimates.
Due to the seasonal nature of the business, the results of
operations for the 26 weeks ended August 4, 2007 are
not indicative of the results to be expected for the
52 weeks ending February 2, 2008 (fiscal
2007).
Certain reclassifications have been made to conform the prior
period data to the current interim period presentation.
|
|
2.
|
Business
Combinations and Goodwill
|
On January 13, 2007, the Company purchased Game Brands
Inc., a 72-store video game retailer operating under the name
Rhino Video Games, for $10,282. The acquisition was accounted
for using the purchase method of accounting, with the excess of
the purchase price over the net assets acquired, in the amount
of $7,021, recorded as goodwill. The pro forma effect assuming
the acquisition of Game Brands Inc. at the beginning of fiscal
2006 is not material to the Companys consolidated
financial statements.
|
|
3.
|
Accounting
for Stock-Based Compensation
|
Beginning January 29, 2006, the Company adopted the
provisions of Statement of Financial Accounting Standards
No. 123 (Revised 2004), Share-Based Payment
(SFAS 123(R)), using the modified
prospective application method. Under this method, the Company
records stock-based compensation expense based on the grant-date
fair value estimated in accordance with the original provisions
of Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation for all options
granted prior to, but not vested as of, the adoption date. In
addition, the Company records compensation expense in accordance
with SFAS 123(R) for the share-based awards issued after
the adoption date.
6
GAMESTOP
CORP.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 granted during the
13 weeks ended August 4, 2007 and July 29, 2006.
The options granted during the 26 weeks ended
August 4, 2007 and July 29, 2006 were 939 and 3,260,
respectively, with a weighted-average fair value estimated at
$10.16 and $8.42 per share, respectively, using the following
assumptions:
|
|
|
|
|
|
|
|
|
|
|
26 Weeks Ended
|
|
|
|
August 4,
|
|
|
July 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
Volatility
|
|
|
40.5
|
%
|
|
|
54.5
|
%
|
Risk-free interest rate
|
|
|
4.8
|
%
|
|
|
4.6
|
%
|
Expected life (years)
|
|
|
4.0
|
|
|
|
3.0
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
The options to purchase common stock are issued at fair market
value on the date of the grant. Generally, the options vest and
become exercisable ratably over a three-year period, commencing
one year after the grant date, and expire ten years from
issuance. The fair value of each option is recognized as
compensation expense on a straight-line basis between the grant
date and the date the options become fully vested. In the
13 weeks ended August 4, 2007 and July 29, 2006,
the Company included compensation expense relating to stock
option grants of $3,895 and $4,249, respectively, in selling,
general and administrative expenses in the accompanying
condensed consolidated statements of operations. In the
26 weeks ended August 4, 2007 and July 29, 2006,
the Company included compensation expense relating to stock
option grants of $8,071 and $8,454, respectively, in selling,
general and administrative expenses. As of August 4, 2007,
the unrecognized compensation expense related to the unvested
portion of our stock options was $21,466 which is expected to be
recognized over a weighted average period of 1.0 years. The
total intrinsic values of options exercised during the
13 weeks ended August 4, 2007 and July 29, 2006
were $42,933 and $6,171, respectively. The total intrinsic
values of options exercised during the 26 weeks ended
August 4, 2007 and July 29, 2006 were $177,902 and
$89,116, respectively.
There were 7 shares of restricted stock granted during the
13 weeks ended August 4, 2007 and no shares granted
during the 13 weeks ended July 29, 2006. The shares
granted during the quarter had a fair market value of $39.83 per
share and vest in equal installments over three years. During
the 26 weeks ended August 4, 2007 and July 29,
2006, the Company granted 964 shares and 515 shares,
respectively, of restricted stock. The shares had a fair market
value of $26.78 and $20.69 per share, respectively, and vest in
equal installments over three years. During the 13 weeks
ended August 4, 2007 and July 29, 2006, the Company
included compensation expense relating to the restricted share
grants in the amount of $2,789 and $1,112, respectively, in
selling, general and administrative expenses in the accompanying
condensed consolidated statements of operations. During the
26 weeks ended August 4, 2007 and July 29, 2006,
the Company included compensation expense relating to the
restricted share grants in the amount of $5,574 and $2,097,
respectively, in selling, general and administrative expenses.
As of August 4, 2007, there was $23,754 of unrecognized
compensation expense related to nonvested restricted stock
awards that is expected to be recognized over a weighted average
period of 2.4 years.
7
GAMESTOP
CORP.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
4.
|
Computation
of Net Earnings per Common Share
|
As of February 3, 2007, the Company had two classes of
common stock. On February 7, 2007, following approval by a
majority of the Class B common stockholders, all
outstanding shares of Class B common stock were converted
into shares of Class A common stock on a one-for-one basis
(the Conversion). In addition, on February 9,
2007, the board of directors of the Company authorized a
two-for-one stock split, effected by a one-for-one stock
dividend to stockholders of record at the close of business on
February 20, 2007, paid on March 16, 2007 (the
Stock Split). The effect of the Conversion and the
Stock Split has been retroactively applied to all periods
presented in the condensed consolidated financial statements and
notes thereto. The Company now has only Class A common
stock outstanding and computes earnings per share in accordance
with Statement of Financial Accounting Standard No. 128,
Earnings per Share. A reconciliation of shares used in
calculating basic and diluted net earnings per common share
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
|
26 Weeks Ended
|
|
|
|
August 4,
|
|
|
July 29,
|
|
|
August 4,
|
|
|
July 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share data)
|
|
|
Net earnings
|
|
$
|
21,810
|
|
|
$
|
3,177
|
|
|
$
|
46,533
|
|
|
$
|
14,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding
|
|
|
158,438
|
|
|
|
150,149
|
|
|
|
155,938
|
|
|
|
148,466
|
|
Dilutive effect of options and
warrants on common stock
|
|
|
6,331
|
|
|
|
7,509
|
|
|
|
7,075
|
|
|
|
8,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares and dilutive
potential common shares
|
|
|
164,769
|
|
|
|
157,658
|
|
|
|
163,013
|
|
|
|
157,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.14
|
|
|
$
|
0.02
|
|
|
$
|
0.30
|
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.13
|
|
|
$
|
0.02
|
|
|
$
|
0.29
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 August 4, 2007
|
|
|
3
|
|
|
|
|
|
|
|
2010
|
|
13 Weeks Ended July 29, 2006
|
|
|
3,291
|
|
|
$
|
17.94 - 20.69
|
|
|
|
2016
|
|
In October 2005, in connection with the merger, the Company
entered into a five-year, $400,000 Credit Agreement (the
Revolver), including a $50,000 letter of credit
sub-limit, secured by the assets of the Company and its
U.S. subsidiaries. The Revolver places certain restrictions
on the Company and its U.S. subsidiaries, including
limitations on asset sales, additional liens and the incurrence
of additional indebtedness.
In April 2007, the Company amended the Revolver to extend the
maturity date from October 11, 2010 to April 25, 2012,
reduce the LIBO interest rate margin, reduce and fix the rate of
the unused commitment fee and modify or delete certain other
covenants.
The availability under the Revolver is limited to a borrowing
base which allows the Company to borrow up to the lesser of
(x) approximately 70% of eligible inventory and
(y) 90% of the appraisal value of the inventory, in each
case plus 85% of eligible credit card receivables, net of
certain reserves. Letters of credit reduce the amount available
to borrow by their face value. The Companys ability to pay
cash dividends, redeem options and repurchase shares is
generally prohibited, except that if availability under the
Revolver is or will be after any such
8
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 interest rate on the Revolver is variable and, at the
Companys option, is calculated by applying a margin of
(1) 0.0% to 0.25% above the higher of the prime rate of the
administrative agent or the federal funds effective rate plus
0.50% or (2) 1.00% to 1.50% above the LIBO rate. The
applicable margin is determined quarterly as a function of the
Companys consolidated leverage ratio. As of August 4,
2007, the applicable margin was 0.0% for prime rate loans and
1.25% for LIBO rate loans. In addition, the Company is required
to pay a commitment fee of 0.25% for any unused portion of the
total commitment under the Revolver.
As of August 4, 2007, there were no borrowings outstanding
under the Revolver and letters of credit outstanding totaled
$5,226.
On September 28, 2005, the Company, along with GameStop,
Inc. as co-issuer (together with the Company, the
Issuers), completed the offering of
U.S. $300,000 aggregate principal amount of Senior Floating
Rate Notes due 2011 (the Senior Floating Rate Notes)
and U.S. $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 (the
Indenture), dated September 28, 2005, by and
among the Issuers, the subsidiary guarantors party thereto, and
Citibank, N.A., as trustee (the Trustee).
Concurrently with the consummation of the merger on
October 8, 2005, EB and its direct and indirect
U.S. wholly-owned subsidiaries (together, the EB
Guarantors) became subsidiaries of the Company and entered
into a First Supplemental Indenture, dated October 8, 2005,
by and among the Issuers, the EB Guarantors and the Trustee,
pursuant to which the EB Guarantors assumed all the obligations
of a subsidiary guarantor under the Notes and the Indenture. The
net proceeds of the offering were used to pay the cash portion
of the merger consideration paid to the stockholders of EB in
connection with the merger.
The offering of the Notes was conducted in a private transaction
under Rule 144A under the Securities Act of 1933, as
amended (the Securities Act), and in transactions
outside the United States in reliance upon Regulation S
under the Securities Act. In April 2006, the Company filed a
registration statement on
Form S-4
in order to register new notes (the New Notes) with
the same terms and conditions as the Notes in order to
facilitate an exchange of the New Notes for the Notes. This
registration statement on
Form S-4
was declared effective by the SEC in May 2006 and the Company
commenced an exchange offer to exchange the New Notes for the
Notes. This exchange offer was completed in June 2006 with 100%
participation.
In November 2006, Citibank, N.A. resigned as Trustee for the
Notes and Wilmington Trust Company was appointed as the new
Trustee for the Notes.
The Senior Floating Rate Notes bear interest at LIBOR plus
3.875%, mature on October 1, 2011 and were priced at 100%.
The rate of interest on the Senior Floating Rate Notes as of
August 4, 2007 was 9.2350% per annum. 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 August 4, 2007, the
unamortized original issue discount was $6,007.
The Issuers pay interest on the Senior Floating Rate Notes
quarterly, in arrears, every January 1, April 1, July
1 and October 1, to holders of record on the immediately
preceding December 15, March 15, June 15 and
September 15, and at maturity. 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
9
GAMESTOP
CORP.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 August 4, 2007, 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 Floating Rate Notes
and/or
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 Floating Rate Notes and Senior
Notes by means other than redemption, whether by tender offer,
open market purchases, negotiated transactions or otherwise, in
accordance with applicable securities laws, so long as such
acquisitions do not otherwise violate the terms of the Indenture.
In May 2006, the Company announced that its board of directors
authorized the buyback of up to an aggregate of $100,000 of its
Senior Floating Rate Notes and Senior Notes. As of July 29,
2006, the Company had repurchased $6,915 of its Senior Notes. As
of February 3, 2007, the end of its most recent fiscal
year, the Company had repurchased the maximum authorized amount,
having acquired $50,000 of its Senior Notes and $50,000 of its
Senior Floating Rate Notes, and delivered the Notes to the
Trustee for cancellation. The associated loss on retirement of
this debt was $191 for the 13 and 26 week periods ended
July 29, 2006, respectively, which consists of the premium
paid to retire the Notes and the recognition of the deferred
financing fees and the original issue discount on the Notes.
On February 9, 2007, the Company announced that its board
of directors authorized the buyback of up to an aggregate of an
additional $150,000 of its Senior Notes and Senior Floating Rate
Notes. The timing and amount of the repurchases were determined
by the Companys management based on their evaluation of
market conditions and other factors. As of August 4, 2007,
the Company repurchased $150,000 of the Notes, having acquired
$20,000 of its Senior Notes and $130,000 of its Senior Floating
Rate Notes, and delivered the Notes to the Trustee for
cancellation. The associated loss on retirement of this debt was
$2,027 and $8,751 for the 13 and 26 week periods ended
August 4, 2007, respectively, which consists of the premium
paid to retire the Notes and the recognition of the deferred
financing fees and the original issue discount on the Notes.
On June 28, 2007, the Company announced that its board of
directors authorized the redemption of the remaining $120,000 of
Senior Floating Rate Notes outstanding. On July 12, 2007,
the Issuers notified the Trustee of their intent to redeem the
Notes on October 1, 2007. Subsequently, on August 7,
2007 the Trustee notified the bondholders of the Issuers
intent to redeem the Notes on October 1, 2007 at the
redemption price specified by the Notes of 102.00%, plus
all accrued and unpaid interest through the redemption date.
Notice of redemption is irrevocable once given to bondholders.
The Company expects to incur a one-time pre-tax charge of $3,840
associated with the redemption, which represents a $2,400
redemption premium and $1,440 to recognize unamortized deferred
financing costs.
In October 2004, Historical GameStop issued a promissory note in
favor of Barnes & Noble, Inc.
(Barnes & Noble) in the principal amount
of $74,020 in connection with the repurchase of Historical
GameStops common stock held by Barnes & Noble.
Scheduled principal payments of $37,500, $12,173 and $12,173
were made in January 2005, October 2005 and October 2006,
respectively, as required by the promissory note, which also
requires a final payment of $12,173 in October 2007. The note is
unsecured and bears interest at 5.5% per annum, payable when
principal installments are due.
10
GAMESTOP
CORP.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Comprehensive income is net earnings, plus certain other items
that are recorded directly to stockholders equity and
consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
|
26 Weeks Ended
|
|
|
|
August 4,
|
|
|
July 29,
|
|
|
August 4,
|
|
|
July 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Net earnings
|
|
$
|
21,810
|
|
|
$
|
3,177
|
|
|
$
|
46,533
|
|
|
$
|
14,878
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustments
|
|
|
5,844
|
|
|
|
328
|
|
|
|
16,132
|
|
|
|
3,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
27,654
|
|
|
$
|
3,505
|
|
|
$
|
62,665
|
|
|
$
|
18,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company and its subsidiaries file income tax returns in the
U.S. federal jurisdiction and various states and foreign
jurisdictions. The Internal Revenue Service (IRS)
commenced an examination of the Companys U.S. income
tax returns for the fiscal years ended on January 29, 2005
(fiscal 2004) and January 28, 2006
(fiscal 2005) in the first quarter of fiscal 2007
that is anticipated to be completed by May 2008. The Company
does not anticipate any adjustments that would result in a
material impact on its consolidated financial statements. The
Company is no longer subject to U.S. federal income tax
examination by tax authorities for years before and including
the fiscal year ended January 31, 2004 (fiscal
2003).
With respect to state and local jurisdictions and countries
outside of the United States, the Company and its subsidiaries
are typically subject to examination for three to six years
after the income tax returns have been filed. Although the
outcome of tax audits is always uncertain, the Company believes
that adequate amounts of tax, interest and penalties have been
provided for in the accompanying financial statements for any
adjustments that might be incurred due to state, local or
foreign audits.
The Company adopted the provisions of FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes
(FIN 48), on February 4, 2007. As a
result of the implementation of FIN 48, the Company
recognized a $16,679 increase in the liability for unrecognized
tax benefits, interest and penalties which was accounted for as
a reduction of the February 3, 2007 balance of retained
earnings. As of February 4, 2007, the gross amount of
unrecognized tax benefits, interest and penalties was $25,250.
The total amount of unrecognized tax benefit that, if
recognized, would affect the effective tax rate was $22,149 as
of February 4, 2007. Additionally, adoption of FIN 48
resulted in the reclassification of certain accruals for
uncertain tax positions in the amount of $7,864 from prepaid
taxes to other long-term liabilities in our condensed
consolidated balance sheets.
For the 13 weeks and 26 weeks ended August 4,
2007, the Company recognized a decrease of $1,947 and $1,686 in
the liability for unrecognized tax benefits, respectively, and
an increase of $675 and $1,117 for interest and penalties,
respectively. As of August 4, 2007, the gross amount of
unrecognized tax benefits, interest and penalties was $24,681.
The total amount of unrecognized tax benefit that, if
recognized, would affect the effective tax rate was $20,463.
The Company has historically recognized interest relating to
income tax matters as a component of interest expense and
recognized penalties relating to income tax matters as a
component of selling, general and administrative expense. Such
interest and penalties have historically been immaterial.
Subsequent to adoption of FIN 48, the Company recognizes
accrued interest and penalties related to income tax matters in
income tax expense. The Company had $3,101 in interest and
penalties related to unrecognized tax benefits accrued at the
date of adoption and $4,218 as of August 4, 2007.
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 within the
next 12 months as a result of settling ongoing audits. At
this time, an estimate of the range of the reasonably possible
outcomes cannot be made.
11
GAMESTOP
CORP.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The tax provisions for the 13 weeks and 26 weeks ended
August 4, 2007 and July 29, 2006 are based upon
managements estimate of the Companys annualized
effective tax rate.
|
|
8.
|
Certain
Relationships and Related Transactions
|
The Company operates departments within nine bookstores operated
by Barnes & Noble, a stockholder of Historical
GameStop until November 2004 and an affiliate through a common
stockholder who is the chairman of the board of directors of
Barnes & Noble and a member of the Companys
board of directors. The Company pays a license fee to
Barnes & Noble on the gross sales of such departments.
Management deems the license fee to be reasonable and based upon
terms equivalent to those that would prevail in an arms
length transaction. These charges amounted to $255 and $191 for
the 13 weeks ended August 4, 2007 and July 29,
2006, respectively, and $487 and $398 for the 26 weeks
ended August 4, 2007 and July 29, 2006, respectively.
Until June 2005, Historical GameStop participated in
Barnes & Nobles workers compensation,
property and general liability insurance programs. The costs
incurred by Barnes & Noble under these programs were
allocated to Historical GameStop based upon total payroll
expense, property and equipment, and insurance claim history of
Historical GameStop. Management deemed the allocation
methodology to be reasonable. Although the Company secured its
own insurance coverage, costs will likely continue to be
incurred by Barnes & Noble on insurance claims which
were incurred under its programs prior to June 2005 and any such
costs applicable to insurance claims against Historical GameStop
will be allocated to the Company. During the 13 weeks ended
August 4, 2007 and July 29, 2006, these charges
amounted to $69 and $212, respectively. During the 26 weeks
ended August 4, 2007 and July 29, 2006, these charges
amounted to $135 and $390, respectively.
In October 2004, the board of directors authorized a repurchase
of the Historical GameStop common stock held by
Barnes & Noble. Historical GameStop repurchased
12,214 shares of its common stock at a price equal to $9.13
per share for aggregate consideration before expenses of
$111,520. Historical GameStop paid $37,500 in cash and issued a
promissory note in the principal amount of $74,020, which is
payable in installments and bears interest at 5.5% per annum,
payable when principal installments are due. The Companys
final scheduled principal payment of $12,173 is due in October
2007. Interest expense on the promissory note for the
13 weeks ended August 4, 2007 and July 29, 2006
totaled $169 and $339, respectively. Interest expense on the
promissory note for the 26 weeks ended August 4, 2007
and July 29, 2006 totaled $338 and $677, respectively.
In May 2005, the Company entered into an arrangement with
Barnes & Noble under which www.gamestop.com is
the exclusive specialty video game retailer listed on
www.bn.com, Barnes & Nobles
e-commerce
site. Under the terms of this agreement, the Company pays a fee
to Barnes & Noble for sales of video game or PC
entertainment products sold through www.bn.com. The fee
to Barnes & Noble was $45 and $34 for the
13 weeks ended August 4, 2007 and July 29, 2006,
respectively, and $99 and $95 for the 26 weeks ended
August 4, 2007 and July 29, 2006, respectively.
On February 14, 2005, and as amended, Steve Strickland, as
personal representative of the Estate of Arnold Strickland,
deceased, Henry Mealer, as personal representative of the Estate
of Ace Mealer, deceased, and Willie Crump, as personal
representative of the Estate of James Crump, deceased, filed a
wrongful death lawsuit against GameStop, Sony, Take-Two
Interactive, Rock Star Games and Wal-Mart (collectively, the
Defendants) and Devin Moore in the Circuit Court of
Fayette County, Alabama, 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. Plaintiffs are seeking damages of $600,000 under the
Alabama wrongful death statute and punitive damages. GameStop
and the other defendants intend to vigorously defend this
action. The Defendants filed a motion to dismiss the case on
various grounds, which was heard in November 2005 and was
denied. The Defendants appealed the denial of the motion to
dismiss and on March 24, 2006, the Alabama Supreme Court
denied the Defendants application. Discovery is
proceeding. Mr. Moore was found guilty of capital murder in
a criminal trial in Alabama and was sentenced to death
12
GAMESTOP
CORP.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
in August 2005. We do not believe there is sufficient
information to estimate the amount of the possible loss, if any,
resulting from the lawsuit.
In the ordinary course of our business, the Company is, from
time to time, subject to various other legal proceedings.
Management does not believe that any such other legal
proceedings, individually or in the aggregate, will have a
material adverse effect on the Companys financial
condition or results of operations.
|
|
10.
|
Significant
Product Information
|
The Company is principally engaged in the sale of new and used
video game systems and software, personal computer entertainment
software and related accessories. The following table sets forth
sales (in millions) by significant product category for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
|
26 Weeks Ended
|
|
|
|
August 4,
|
|
|
July 29,
|
|
|
August 4,
|
|
|
July 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
Sales
|
|
|
of Total
|
|
|
Sales
|
|
|
of Total
|
|
|
Sales
|
|
|
of Total
|
|
|
Sales
|
|
|
of Total
|
|
|
|
(Unaudited)
|
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New video game hardware
|
|
$
|
293.8
|
|
|
|
22.0
|
%
|
|
$
|
157.5
|
|
|
|
16.4
|
%
|
|
$
|
575.2
|
|
|
|
22.0
|
%
|
|
$
|
318.2
|
|
|
|
15.9
|
%
|
New video game software
|
|
|
494.2
|
|
|
|
36.9
|
%
|
|
|
330.7
|
|
|
|
34.3
|
%
|
|
|
954.8
|
|
|
|
36.5
|
%
|
|
|
737.0
|
|
|
|
36.8
|
%
|
Used video game products
|
|
|
357.3
|
|
|
|
26.7
|
%
|
|
|
308.7
|
|
|
|
32.0
|
%
|
|
|
683.7
|
|
|
|
26.1
|
%
|
|
|
584.1
|
|
|
|
29.2
|
%
|
Other
|
|
|
192.9
|
|
|
|
14.4
|
%
|
|
|
166.4
|
|
|
|
17.3
|
%
|
|
|
403.5
|
|
|
|
15.4
|
%
|
|
|
364.1
|
|
|
|
18.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,338.2
|
|
|
|
100.0
|
%
|
|
$
|
963.3
|
|
|
|
100.0
|
%
|
|
$
|
2,617.2
|
|
|
|
100.0
|
%
|
|
$
|
2,003.4
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other products include PC entertainment and other software and
accessories, magazines and character-related merchandise.
The following table sets forth gross profit (in millions) and
gross profit percentages by significant product category for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
|
26 Weeks Ended
|
|
|
|
August 4,
|
|
|
July 29,
|
|
|
August 4,
|
|
|
July 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
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
|
|
$
|
21.5
|
|
|
|
7.3
|
%
|
|
$
|
14.0
|
|
|
|
8.9
|
%
|
|
$
|
43.1
|
|
|
|
7.5
|
%
|
|
$
|
27.0
|
|
|
|
8.5
|
%
|
New video game software
|
|
|
100.2
|
|
|
|
20.3
|
%
|
|
|
72.7
|
|
|
|
22.0
|
%
|
|
|
192.0
|
|
|
|
20.1
|
%
|
|
|
154.7
|
|
|
|
21.0
|
%
|
Used video game products
|
|
|
173.2
|
|
|
|
48.5
|
%
|
|
|
153.9
|
|
|
|
49.9
|
%
|
|
|
337.5
|
|
|
|
49.4
|
%
|
|
|
295.0
|
|
|
|
50.5
|
%
|
Other
|
|
|
66.4
|
|
|
|
34.4
|
%
|
|
|
58.7
|
|
|
|
35.3
|
%
|
|
|
137.5
|
|
|
|
34.1
|
%
|
|
|
124.6
|
|
|
|
34.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
361.3
|
|
|
|
27.0
|
%
|
|
$
|
299.3
|
|
|
|
31.1
|
%
|
|
$
|
710.1
|
|
|
|
27.1
|
%
|
|
$
|
601.3
|
|
|
|
30.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 50 states,
the District of Columbia, Puerto Rico and Guam, electronic
commerce websites under the names www.gamestop.com and
www.ebgames.com and Game Informer magazine.
Segment results for Canada include retail operations in Canada
and segment results for Australia include retail operations in
Australia and New Zealand. Segment results for Europe include
retail
13
GAMESTOP
CORP.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
operations in 12 European countries. In the first quarter of
fiscal 2007, the Europe segment expanded into the Portugal
market.
The Company measures segment profit using operating earnings
which is defined as income from continuing operations before net
interest expense and income taxes and excludes unallocated
corporate overhead. The basis of segmentation and the
measurement of segment profit or loss have not changed since the
end of fiscal 2006 and there has been no material changes in
total assets by segment since February 3, 2007.
Transactions between reportable segments consist primarily of
intersegment loans and related interest. Information on segments
appears in the following tables.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
|
26 Weeks Ended
|
|
|
|
August 4,
|
|
|
July 29,
|
|
|
August 4,
|
|
|
July 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
|
(Unaudited)
|
|
|
Sales by operating segment were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,026,646
|
|
|
$
|
766,006
|
|
|
$
|
2,030,735
|
|
|
$
|
1,619,730
|
|
Canada
|
|
|
84,613
|
|
|
|
58,061
|
|
|
|
164,690
|
|
|
|
115,776
|
|
Australia
|
|
|
93,840
|
|
|
|
63,359
|
|
|
|
166,099
|
|
|
|
118,140
|
|
Europe
|
|
|
133,094
|
|
|
|
75,921
|
|
|
|
255,652
|
|
|
|
149,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,338,193
|
|
|
$
|
963,347
|
|
|
$
|
2,617,176
|
|
|
$
|
2,003,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating earnings (loss)
were as follows:
|
United States
|
|
$
|
38,077
|
|
|
$
|
26,248
|
|
|
$
|
91,684
|
|
|
$
|
62,666
|
|
Canada
|
|
|
5,523
|
|
|
|
2,424
|
|
|
|
9,175
|
|
|
|
4,522
|
|
Australia
|
|
|
8,007
|
|
|
|
4,802
|
|
|
|
12,477
|
|
|
|
8,523
|
|
Europe
|
|
|
(860
|
)
|
|
|
(7,721
|
)
|
|
|
(1,971
|
)
|
|
|
(11,842
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
50,747
|
|
|
$
|
25,753
|
|
|
$
|
111,365
|
|
|
$
|
63,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.
|
Supplemental
Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
26 Weeks Ended
|
|
|
|
August 4,
|
|
|
July 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands) (Unaudited)
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
31,497
|
|
|
$
|
40,361
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
27,863
|
|
|
$
|
37,570
|
|
|
|
|
|
|
|
|
|
|
|
|
13.
|
Consolidating
Financial Statements
|
On September 28, 2005, the Company, along with GameStop,
Inc. as co-issuer, completed the offering of the Senior Floating
Rate Notes and Senior Notes described in Note 5. The direct
and indirect U.S. wholly-owned subsidiaries of the Company,
excluding GameStop, Inc., as co-issuer, have guaranteed the
Notes on a senior unsecured basis with unconditional guarantees.
The following condensed consolidating financial statements
illustrate the composition of the Issuers and guarantors on a
combined basis (each Issuer and guarantor together with its
majority-owned subsidiaries) and all other non-guarantor
subsidiaries on a combined basis as of August 4, 2007,
July 29, 2006 and February 3, 2007 for the balance
sheet, the statements of operations for the 13 and 26 weeks
ended August 4, 2007 and July 29, 2006 and cash flows
for the 26 weeks ended August 4, 2007 and
July 29, 2006.
14
GAMESTOP
CORP.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
GameStop
Corp.
Condensed Consolidating Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuers and
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
|
|
|
Consolidated
|
|
|
|
August 4,
|
|
|
August 4,
|
|
|
|
|
|
August 4,
|
|
|
|
2007
|
|
|
2007
|
|
|
Eliminations
|
|
|
2007
|
|
|
|
(Amounts in thousands, except per share amounts)
|
|
|
|
(Unaudited)
|
|
|
ASSETS:
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
296,131
|
|
|
$
|
53,146
|
|
|
$
|
|
|
|
$
|
349,277
|
|
Receivables, net
|
|
|
150,193
|
|
|
|
9,580
|
|
|
|
(129,975
|
)
|
|
|
29,798
|
|
Merchandise inventories, net
|
|
|
491,422
|
|
|
|
222,414
|
|
|
|
|
|
|
|
713,836
|
|
Prepaid expenses and other current
assets
|
|
|
34,208
|
|
|
|
17,743
|
|
|
|
|
|
|
|
51,951
|
|
Prepaid taxes
|
|
|
68,416
|
|
|
|
6,536
|
|
|
|
|
|
|
|
74,952
|
|
Deferred taxes
|
|
|
34,065
|
|
|
|
1,914
|
|
|
|
|
|
|
|
35,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,074,435
|
|
|
|
311,333
|
|
|
|
(129,975
|
)
|
|
|
1,255,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
2,670
|
|
|
|
8,628
|
|
|
|
|
|
|
|
11,298
|
|
Buildings and leasehold improvements
|
|
|
226,956
|
|
|
|
107,948
|
|
|
|
|
|
|
|
334,904
|
|
Fixtures and equipment
|
|
|
385,307
|
|
|
|
92,185
|
|
|
|
|
|
|
|
477,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
614,933
|
|
|
|
208,761
|
|
|
|
|
|
|
|
823,694
|
|
Less accumulated depreciation and
amortization
|
|
|
283,535
|
|
|
|
66,392
|
|
|
|
|
|
|
|
349,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
|
331,398
|
|
|
|
142,369
|
|
|
|
|
|
|
|
473,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
488,069
|
|
|
|
|
|
|
|
(488,069
|
)
|
|
|
|
|
Goodwill, net
|
|
|
1,097,027
|
|
|
|
305,818
|
|
|
|
|
|
|
|
1,402,845
|
|
Deferred financing fees
|
|
|
11,387
|
|
|
|
19
|
|
|
|
|
|
|
|
11,406
|
|
Deferred taxes
|
|
|
(5,788
|
)
|
|
|
13,465
|
|
|
|
|
|
|
|
7,677
|
|
Other noncurrent assets
|
|
|
17,285
|
|
|
|
12,732
|
|
|
|
|
|
|
|
30,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
1,607,980
|
|
|
|
332,034
|
|
|
|
(488,069
|
)
|
|
|
1,451,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,013,813
|
|
|
$
|
785,736
|
|
|
$
|
(618,044
|
)
|
|
$
|
3,181,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY:
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
416,476
|
|
|
$
|
100,757
|
|
|
$
|
|
|
|
$
|
517,233
|
|
Accrued liabilities
|
|
|
280,738
|
|
|
|
189,177
|
|
|
|
(129,975
|
)
|
|
|
339,940
|
|
Note payable, current portion
|
|
|
12,173
|
|
|
|
|
|
|
|
|
|
|
|
12,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
709,387
|
|
|
|
289,934
|
|
|
|
(129,975
|
)
|
|
|
869,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior notes payable, long-term
portion, net
|
|
|
573,993
|
|
|
|
|
|
|
|
|
|
|
|
573,993
|
|
Senior floating rate notes payable,
long-term portion
|
|
|
120,000
|
|
|
|
|
|
|
|
|
|
|
|
120,000
|
|
Deferred rent and other long-term
liabilities
|
|
|
64,759
|
|
|
|
7,733
|
|
|
|
|
|
|
|
72,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
758,752
|
|
|
|
7,733
|
|
|
|
|
|
|
|
766,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,468,139
|
|
|
|
297,667
|
|
|
|
(129,975
|
)
|
|
|
1,635,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
authorized 5,000 shares; no shares issued or outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common
stock $.001 par value; authorized
300,000 shares; 158,993 shares issued and outstanding
|
|
|
159
|
|
|
|
|
|
|
|
|
|
|
|
159
|
|
Additional
paid-in-capital
|
|
|
1,145,706
|
|
|
|
391,670
|
|
|
|
(391,670
|
)
|
|
|
1,145,706
|
|
Accumulated other comprehensive
income
|
|
|
19,359
|
|
|
|
5,229
|
|
|
|
(5,229
|
)
|
|
|
19,359
|
|
Retained earnings
|
|
|
380,450
|
|
|
|
91,170
|
|
|
|
(91,170
|
)
|
|
|
380,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,545,674
|
|
|
|
488,069
|
|
|
|
(488,069
|
)
|
|
|
1,545,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
3,013,813
|
|
|
$
|
785,736
|
|
|
$
|
(618,044
|
)
|
|
$
|
3,181,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
GAMESTOP
CORP.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
GameStop
Corp.
Condensed Consolidating Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuers and
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
|
|
|
Consolidated
|
|
|
|
July 29,
|
|
|
July 29,
|
|
|
|
|
|
July 29,
|
|
|
|
2006
|
|
|
2006
|
|
|
Eliminations
|
|
|
2006
|
|
|
|
(Amounts in thousands, except per share amounts)
|
|
|
|
(Unaudited)
|
|
|
ASSETS:
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
170,793
|
|
|
$
|
47,933
|
|
|
$
|
|
|
|
$
|
218,726
|
|
Receivables, net
|
|
|
106,798
|
|
|
|
10,896
|
|
|
|
(89,098
|
)
|
|
|
28,596
|
|
Merchandise inventories, net
|
|
|
442,530
|
|
|
|
131,537
|
|
|
|
|
|
|
|
574,067
|
|
Prepaid expenses and other current
assets
|
|
|
30,352
|
|
|
|
7,022
|
|
|
|
|
|
|
|
37,374
|
|
Prepaid taxes
|
|
|
71,056
|
|
|
|
8,339
|
|
|
|
|
|
|
|
79,395
|
|
Deferred taxes
|
|
|
44,934
|
|
|
|
1,415
|
|
|
|
|
|
|
|
46,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
866,463
|
|
|
|
207,142
|
|
|
|
(89,098
|
)
|
|
|
984,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
2,000
|
|
|
|
8,073
|
|
|
|
|
|
|
|
10,073
|
|
Buildings and leasehold improvements
|
|
|
196,700
|
|
|
|
84,023
|
|
|
|
|
|
|
|
280,723
|
|
Fixtures and equipment
|
|
|
300,317
|
|
|
|
75,419
|
|
|
|
|
|
|
|
375,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
499,017
|
|
|
|
167,515
|
|
|
|
|
|
|
|
666,532
|
|
Less accumulated depreciation and
amortization
|
|
|
196,463
|
|
|
|
38,836
|
|
|
|
|
|
|
|
235,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
|
302,554
|
|
|
|
128,679
|
|
|
|
|
|
|
|
431,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
457,525
|
|
|
|
|
|
|
|
(457,525
|
)
|
|
|
|
|
Goodwill, net
|
|
|
1,091,172
|
|
|
|
301,754
|
|
|
|
|
|
|
|
1,392,926
|
|
Deferred financing fees
|
|
|
17,220
|
|
|
|
22
|
|
|
|
|
|
|
|
17,242
|
|
Other noncurrent assets
|
|
|
22,870
|
|
|
|
6,458
|
|
|
|
|
|
|
|
29,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
1,588,787
|
|
|
|
308,234
|
|
|
|
(457,525
|
)
|
|
|
1,439,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,757,804
|
|
|
$
|
644,055
|
|
|
$
|
(546,623
|
)
|
|
$
|
2,855,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY:
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
299,135
|
|
|
$
|
67,086
|
|
|
$
|
|
|
|
$
|
366,221
|
|
Accrued liabilities
|
|
|
242,163
|
|
|
|
128,904
|
|
|
|
(89,098
|
)
|
|
|
281,969
|
|
Note payable, current portion
|
|
|
12,173
|
|
|
|
|
|
|
|
|
|
|
|
12,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
553,471
|
|
|
|
195,990
|
|
|
|
(89,098
|
)
|
|
|
660,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred taxes
|
|
|
23,813
|
|
|
|
(11,617
|
)
|
|
|
|
|
|
|
12,196
|
|
Senior notes payable, long-term
portion, net
|
|
|
635,431
|
|
|
|
|
|
|
|
|
|
|
|
635,431
|
|
Senior floating rate notes payable,
long-term portion
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
|
300,000
|
|
Note payable, long-term portion
|
|
|
12,173
|
|
|
|
|
|
|
|
|
|
|
|
12,173
|
|
Deferred rent and other long-term
liabilities
|
|
|
37,223
|
|
|
|
2,157
|
|
|
|
|
|
|
|
39,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
1,008,640
|
|
|
|
(9,460
|
)
|
|
|
|
|
|
|
999,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,562,111
|
|
|
|
186,530
|
|
|
|
(89,098
|
)
|
|
|
1,659,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
authorized 5,000 shares; no shares issued or outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common
stock $.001 par value; authorized
300,000 shares; 150,293 shares issued and outstanding
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
150
|
|
Additional
paid-in-capital
|
|
|
983,546
|
|
|
|
391,610
|
|
|
|
(391,610
|
)
|
|
|
983,546
|
|
Accumulated other comprehensive
income (loss)
|
|
|
4,773
|
|
|
|
(299
|
)
|
|
|
299
|
|
|
|
4,773
|
|
Retained earnings
|
|
|
207,224
|
|
|
|
66,214
|
|
|
|
(66,214
|
)
|
|
|
207,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,195,693
|
|
|
|
457,525
|
|
|
|
(457,525
|
)
|
|
|
1,195,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
2,757,804
|
|
|
$
|
644,055
|
|
|
$
|
(546,623
|
)
|
|
$
|
2,855,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
GAMESTOP
CORP.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
GameStop
Corp.
Condensed Consolidating Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuers and
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
|
|
|
Consolidated
|
|
|
|
February 3,
|
|
|
February 3,
|
|
|
|
|
|
February 3,
|
|
|
|
2007
|
|
|
2007
|
|
|
Eliminations
|
|
|
2007
|
|
|
|
(Amounts in thousands, except per share amounts)
|
|
|
ASSETS:
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
582,514
|
|
|
$
|
69,889
|
|
|
$
|
|
|
|
$
|
652,403
|
|
Receivables, net
|
|
|
51,978
|
|
|
|
9,010
|
|
|
|
(26,720
|
)
|
|
|
34,268
|
|
Merchandise inventories, net
|
|
|
495,137
|
|
|
|
180,248
|
|
|
|
|
|
|
|
675,385
|
|
Prepaid expenses and other current
assets
|
|
|
30,528
|
|
|
|
7,354
|
|
|
|
|
|
|
|
37,882
|
|
Prepaid taxes
|
|
|
11,012
|
|
|
|
(5,467
|
)
|
|
|
|
|
|
|
5,545
|
|
Deferred taxes
|
|
|
33,152
|
|
|
|
1,706
|
|
|
|
|
|
|
|
34,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,204,321
|
|
|
|
262,740
|
|
|
|
(26,720
|
)
|
|
|
1,440,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
2,670
|
|
|
|
8,042
|
|
|
|
|
|
|
|
10,712
|
|
Buildings and leasehold improvements
|
|
|
212,286
|
|
|
|
93,520
|
|
|
|
|
|
|
|
305,806
|
|
Fixtures and equipment
|
|
|
348,576
|
|
|
|
77,265
|
|
|
|
|
|
|
|
425,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563,532
|
|
|
|
178,827
|
|
|
|
|
|
|
|
742,359
|
|
Less accumulated depreciation and
amortization
|
|
|
237,838
|
|
|
|
48,058
|
|
|
|
|
|
|
|
285,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
|
325,694
|
|
|
|
130,769
|
|
|
|
|
|
|
|
456,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
517,332
|
|
|
|
|
|
|
|
(517,332
|
)
|
|
|
|
|
Goodwill, net
|
|
|
1,098,089
|
|
|
|
305,818
|
|
|
|
|
|
|
|
1,403,907
|
|
Deferred financing fees
|
|
|
14,356
|
|
|
|
19
|
|
|
|
|
|
|
|
14,375
|
|
Deferred taxes
|
|
|
(6,329
|
)
|
|
|
12,133
|
|
|
|
|
|
|
|
5,804
|
|
Other noncurrent assets
|
|
|
9,547
|
|
|
|
19,147
|
|
|
|
|
|
|
|
28,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
1,632,995
|
|
|
|
337,117
|
|
|
|
(517,332
|
)
|
|
|
1,452,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,163,010
|
|
|
$
|
730,626
|
|
|
$
|
(544,052
|
)
|
|
$
|
3,349,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY:
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
569,435
|
|
|
$
|
148,433
|
|
|
$
|
|
|
|
$
|
717,868
|
|
Accrued liabilities
|
|
|
321,944
|
|
|
|
61,792
|
|
|
|
(26,720
|
)
|
|
|
357,016
|
|
Note payable, current portion
|
|
|
12,173
|
|
|
|
|
|
|
|
|
|
|
|
12,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
903,552
|
|
|
|
210,225
|
|
|
|
(26,720
|
)
|
|
|
1,087,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior notes payable, long-term
portion, net
|
|
|
593,311
|
|
|
|
|
|
|
|
|
|
|
|
593,311
|
|
Senior floating rate notes payable,
long-term portion
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
250,000
|
|
Deferred rent and other long-term
liabilities
|
|
|
40,269
|
|
|
|
3,069
|
|
|
|
|
|
|
|
43,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
883,580
|
|
|
|
3,069
|
|
|
|
|
|
|
|
886,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,787,132
|
|
|
|
213,294
|
|
|
|
(26,720
|
)
|
|
|
1,973,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
authorized 5,000 shares; no shares issued or outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common
stock $.001 par value; authorized
300,000 shares; 152,305 shares issued and outstanding
|
|
|
152
|
|
|
|
|
|
|
|
|
|
|
|
152
|
|
Additional
paid-in-capital
|
|
|
1,021,903
|
|
|
|
427,012
|
|
|
|
(427,012
|
)
|
|
|
1,021,903
|
|
Accumulated other comprehensive
income (loss)
|
|
|
3,227
|
|
|
|
(2,738
|
)
|
|
|
2,738
|
|
|
|
3,227
|
|
Retained earnings
|
|
|
350,596
|
|
|
|
93,058
|
|
|
|
(93,058
|
)
|
|
|
350,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,375,878
|
|
|
|
517,332
|
|
|
|
(517,332
|
)
|
|
|
1,375,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
3,163,010
|
|
|
$
|
730,626
|
|
|
$
|
(544,052
|
)
|
|
$
|
3,349,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
GAMESTOP
CORP.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
GameStop
Corp.
Condensed Consolidating Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuers and
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
|
|
|
Consolidated
|
|
|
|
August 4,
|
|
|
August 4,
|
|
|
|
|
|
August 4,
|
|
For the 13 Weeks Ended August 4, 2007
|
|
2007
|
|
|
2007
|
|
|
Eliminations
|
|
|
2007
|
|
|
|
(Amounts in thousands)
|
|
|
|
(Unaudited)
|
|
|
Sales
|
|
$
|
1,026,646
|
|
|
$
|
311,547
|
|
|
$
|
|
|
|
$
|
1,338,193
|
|
Cost of sales
|
|
|
743,847
|
|
|
|
233,047
|
|
|
|
|
|
|
|
976,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
282,799
|
|
|
|
78,500
|
|
|
|
|
|
|
|
361,299
|
|
Selling, general and
administrative expenses
|
|
|
220,037
|
|
|
|
58,397
|
|
|
|
|
|
|
|
278,434
|
|
Depreciation and amortization
|
|
|
24,685
|
|
|
|
7,433
|
|
|
|
|
|
|
|
32,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
38,077
|
|
|
|
12,670
|
|
|
|
|
|
|
|
50,747
|
|
Interest income
|
|
|
(4,750
|
)
|
|
|
(4,174
|
)
|
|
|
6,188
|
|
|
|
(2,736
|
)
|
Interest expense
|
|
|
15,921
|
|
|
|
6,349
|
|
|
|
(6,188
|
)
|
|
|
16,082
|
|
Debt extinguishment expense
|
|
|
2,027
|
|
|
|
|
|
|
|
|
|
|
|
2,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income tax expense
|
|
|
24,879
|
|
|
|
10,495
|
|
|
|
|
|
|
|
35,374
|
|
Income tax expense
|
|
|
9,937
|
|
|
|
3,627
|
|
|
|
|
|
|
|
13,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
14,942
|
|
|
$
|
6,868
|
|
|
$
|
|
|
|
$
|
21,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GameStop
Corp.
Condensed Consolidating Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuers and
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
|
|
|
Consolidated
|
|
|
|
July 29,
|
|
|
July 29,
|
|
|
|
|
|
July 29,
|
|
For the 13 Weeks Ended July 29, 2006
|
|
2006
|
|
|
2006
|
|
|
Eliminations
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
|
(Unaudited)
|
|
|
Sales
|
|
$
|
766,006
|
|
|
$
|
197,341
|
|
|
$
|
|
|
|
$
|
963,347
|
|
Cost of sales
|
|
|
519,096
|
|
|
|
144,987
|
|
|
|
|
|
|
|
664,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
246,910
|
|
|
|
52,354
|
|
|
|
|
|
|
|
299,264
|
|
Selling, general and
administrative expenses
|
|
|
197,689
|
|
|
|
46,922
|
|
|
|
|
|
|
|
244,611
|
|
Depreciation and amortization
|
|
|
20,401
|
|
|
|
5,927
|
|
|
|
|
|
|
|
26,328
|
|
Merger-related expenses
|
|
|
2,572
|
|
|
|
|
|
|
|
|
|
|
|
2,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss)
|
|
|
26,248
|
|
|
|
(495
|
)
|
|
|
|
|
|
|
25,753
|
|
Interest income
|
|
|
(3,002
|
)
|
|
|
(2,305
|
)
|
|
|
3,802
|
|
|
|
(1,505
|
)
|
Interest expense
|
|
|
21,691
|
|
|
|
3,825
|
|
|
|
(3,802
|
)
|
|
|
21,714
|
|
Debt extinguishment expense
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income tax
expense (benefit)
|
|
|
7,368
|
|
|
|
(2,015
|
)
|
|
|
|
|
|
|
5,353
|
|
Income tax expense (benefit)
|
|
|
2,482
|
|
|
|
(306
|
)
|
|
|
|
|
|
|
2,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
4,886
|
|
|
$
|
(1,709
|
)
|
|
$
|
|
|
|
$
|
3,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
GAMESTOP
CORP.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
GameStop
Corp.
Condensed Consolidating Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuers and
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
|
|
|
Consolidated
|
|
|
|
August 4,
|
|
|
August 4,
|
|
|
|
|
|
August 4,
|
|
For the 26 Weeks Ended August 4, 2007
|
|
2007
|
|
|
2007
|
|
|
Eliminations
|
|
|
2007
|
|
|
|
(Amounts in thousands)
|
|
|
|
(Unaudited)
|
|
|
Sales
|
|
$
|
2,030,735
|
|
|
$
|
586,441
|
|
|
$
|
|
|
|
$
|
2,617,176
|
|
Cost of sales
|
|
|
1,467,375
|
|
|
|
439,733
|
|
|
|
|
|
|
|
1,907,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
563,360
|
|
|
|
146,708
|
|
|
|
|
|
|
|
710,068
|
|
Selling, general and
administrative expenses
|
|
|
422,717
|
|
|
|
112,833
|
|
|
|
|
|
|
|
535,550
|
|
Depreciation and amortization
|
|
|
48,959
|
|
|
|
14,194
|
|
|
|
|
|
|
|
63,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
91,684
|
|
|
|
19,681
|
|
|
|
|
|
|
|
111,365
|
|
Interest income
|
|
|
(10,113
|
)
|
|
|
(8,019
|
)
|
|
|
11,568
|
|
|
|
(6,564
|
)
|
Interest expense
|
|
|
33,831
|
|
|
|
11,763
|
|
|
|
(11,568
|
)
|
|
|
34,026
|
|
Debt extinguishment expense
|
|
|
8,751
|
|
|
|
|
|
|
|
|
|
|
|
8,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income tax expense
|
|
|
59,215
|
|
|
|
15,937
|
|
|
|
|
|
|
|
75,152
|
|
Income tax expense
|
|
|
22,924
|
|
|
|
5,695
|
|
|
|
|
|
|
|
28,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
36,291
|
|
|
$
|
10,242
|
|
|
$
|
|
|
|
$
|
46,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GameStop
Corp.
Condensed Consolidating Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuers and
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
|
|
|
Consolidated
|
|
|
|
July 29,
|
|
|
July 29,
|
|
|
|
|
|
July 29,
|
|
For the 26 Weeks Ended July 29, 2006
|
|
2006
|
|
|
2006
|
|
|
Eliminations
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
|
(Unaudited)
|
|
|
Sales
|
|
$
|
1,619,730
|
|
|
$
|
383,644
|
|
|
$
|
|
|
|
$
|
2,003,374
|
|
Cost of sales
|
|
|
1,119,956
|
|
|
|
282,120
|
|
|
|
|
|
|
|
1,402,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
499,774
|
|
|
|
101,524
|
|
|
|
|
|
|
|
601,298
|
|
Selling, general and
administrative expenses
|
|
|
392,377
|
|
|
|
88,894
|
|
|
|
|
|
|
|
481,271
|
|
Depreciation and amortization
|
|
|
40,833
|
|
|
|
11,427
|
|
|
|
|
|
|
|
52,260
|
|
Merger-related expenses
|
|
|
3,898
|
|
|
|
|
|
|
|
|
|
|
|
3,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
62,666
|
|
|
|
1,203
|
|
|
|
|
|
|
|
63,869
|
|
Interest income
|
|
|
(6,435
|
)
|
|
|
(4,219
|
)
|
|
|
6,925
|
|
|
|
(3,729
|
)
|
Interest expense
|
|
|
43,244
|
|
|
|
6,948
|
|
|
|
(6,925
|
)
|
|
|
43,267
|
|
Debt extinguishment expense
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income tax
expense (benefit)
|
|
|
25,666
|
|
|
|
(1,526
|
)
|
|
|
|
|
|
|
24,140
|
|
Income tax expense
|
|
|
9,034
|
|
|
|
228
|
|
|
|
|
|
|
|
9,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
16,632
|
|
|
$
|
(1,754
|
)
|
|
$
|
|
|
|
$
|
14,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
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
|
|
|
|
August 4,
|
|
|
August 4,
|
|
|
|
|
|
August 4,
|
|
For the 26 Weeks Ended August 4, 2007
|
|
2007
|
|
|
2007
|
|
|
Eliminations
|
|
|
2007
|
|
|
|
(Amounts in thousands)
|
|
|
|
(Unaudited)
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
36,291
|
|
|
$
|
10,242
|
|
|
$
|
|
|
|
$
|
46,533
|
|
Adjustments to reconcile net
earnings to net cash flows provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
(including amounts in cost of sales)
|
|
|
49,427
|
|
|
|
14,198
|
|
|
|
|
|
|
|
63,625
|
|
Amortization and retirement of
deferred financing fees
|
|
|
3,228
|
|
|
|
|
|
|
|
|
|
|
|
3,228
|
|
Amortization and retirement of
original issue discount on senior notes
|
|
|
682
|
|
|
|
|
|
|
|
|
|
|
|
682
|
|
Stock-based compensation expense
|
|
|
13,645
|
|
|
|
|
|
|
|
|
|
|
|
13,645
|
|
Deferred taxes
|
|
|
(748
|
)
|
|
|
(1,540
|
)
|
|
|
|
|
|
|
(2,288
|
)
|
Excess tax benefits realized from
exercise of stock-based awards
|
|
|
(62,555
|
)
|
|
|
|
|
|
|
|
|
|
|
(62,555
|
)
|
Loss on disposal of property and
equipment
|
|
|
808
|
|
|
|
719
|
|
|
|
|
|
|
|
1,527
|
|
Increase in deferred rent and other
long-term liabilities
|
|
|
2,397
|
|
|
|
1,271
|
|
|
|
|
|
|
|
3,668
|
|
Increase in liability to landlords
for tenant allowances, net
|
|
|
1,496
|
|
|
|
266
|
|
|
|
|
|
|
|
1,762
|
|
Change in the value of foreign
exchange contracts
|
|
|
2,940
|
|
|
|
(2,608
|
)
|
|
|
|
|
|
|
332
|
|
Changes in operating assets and
liabilities, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, net
|
|
|
5,040
|
|
|
|
(570
|
)
|
|
|
|
|
|
|
4,470
|
|
Merchandise inventories
|
|
|
3,715
|
|
|
|
(42,166
|
)
|
|
|
|
|
|
|
(38,451
|
)
|
Prepaid expenses and other current
assets
|
|
|
(3,371
|
)
|
|
|
(6,585
|
)
|
|
|
|
|
|
|
(9,956
|
)
|
Prepaid taxes
|
|
|
13,843
|
|
|
|
(12,003
|
)
|
|
|
|
|
|
|
1,840
|
|
Accounts payable and accrued
liabilities
|
|
|
(267,164
|
)
|
|
|
46,552
|
|
|
|
|
|
|
|
(220,612
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used
in) operating activities
|
|
|
(200,326
|
)
|
|
|
7,776
|
|
|
|
|
|
|
|
(192,550
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(55,740
|
)
|
|
|
(15,648
|
)
|
|
|
|
|
|
|
(71,388
|
)
|
Acquisitions, net of cash acquired
|
|
|
1,062
|
|
|
|
|
|
|
|
|
|
|
|
1,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows used in investing
activities
|
|
|
(54,678
|
)
|
|
|
(15,648
|
)
|
|
|
|
|
|
|
(70,326
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of notes payable
|
|
|
(150,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(150,000
|
)
|
Issuance of shares relating to
stock options
|
|
|
46,782
|
|
|
|
|
|
|
|
|
|
|
|
46,782
|
|
Excess tax benefits realized from
exercise of stock-based awards
|
|
|
62,555
|
|
|
|
|
|
|
|
|
|
|
|
62,555
|
|
Net decrease (increase) in other
noncurrent assets and deferred financing fees
|
|
|
9,284
|
|
|
|
(12,743
|
)
|
|
|
|
|
|
|
(3,459
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows used in financing
activities
|
|
|
(31,379
|
)
|
|
|
(12,743
|
)
|
|
|
|
|
|
|
(44,122
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange rate effect on cash and
cash equivalents
|
|
|
|
|
|
|
3,872
|
|
|
|
|
|
|
|
3,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash
equivalents
|
|
|
(286,383
|
)
|
|
|
(16,743
|
)
|
|
|
|
|
|
|
(303,126
|
)
|
Cash and cash equivalents at
beginning of period
|
|
|
582,514
|
|
|
|
69,889
|
|
|
|
|
|
|
|
652,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of
period
|
|
$
|
296,131
|
|
|
$
|
53,146
|
|
|
$
|
|
|
|
$
|
349,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
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
|
|
|
|
July 29,
|
|
|
July 29,
|
|
|
|
|
|
July 29,
|
|
For the 26 Weeks Ended July 29, 2006
|
|
2006
|
|
|
2006
|
|
|
Eliminations
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
|
(Unaudited)
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
16,632
|
|
|
$
|
(1,754
|
)
|
|
$
|
|
|
|
$
|
14,878
|
|
Adjustments to reconcile net
earnings (loss) to net cash flows used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
(including amounts in cost of sales)
|
|
|
40,946
|
|
|
|
11,426
|
|
|
|
|
|
|
|
52,372
|
|
Amortization and retirement of
deferred financing fees
|
|
|
1,607
|
|
|
|
|
|
|
|
|
|
|
|
1,607
|
|
Amortization and retirement of
original issue discount on senior notes
|
|
|
558
|
|
|
|
|
|
|
|
|
|
|
|
558
|
|
Stock-based compensation expense
|
|
|
10,550
|
|
|
|
|
|
|
|
|
|
|
|
10,550
|
|
Deferred taxes
|
|
|
(4,153
|
)
|
|
|
(655
|
)
|
|
|
|
|
|
|
(4,808
|
)
|
Excess tax benefits realized from
exercise of stock-based awards
|
|
|
(31,656
|
)
|
|
|
|
|
|
|
|
|
|
|
(31,656
|
)
|
Loss on disposal of property and
equipment
|
|
|
1,242
|
|
|
|
925
|
|
|
|
|
|
|
|
2,167
|
|
Increase in deferred rent and other
long-term liabilities
|
|
|
3,123
|
|
|
|
529
|
|
|
|
|
|
|
|
3,652
|
|
Increase in liability to landlords
for tenant allowances, net
|
|
|
425
|
|
|
|
284
|
|
|
|
|
|
|
|
709
|
|
Change in the value of foreign
exchange contracts
|
|
|
736
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
710
|
|
Changes in operating assets and
liabilities, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, net
|
|
|
8,810
|
|
|
|
1,332
|
|
|
|
|
|
|
|
10,142
|
|
Merchandise inventories
|
|
|
27,483
|
|
|
|
1,628
|
|
|
|
|
|
|
|
29,111
|
|
Prepaid expenses and other current
assets
|
|
|
(19,335
|
)
|
|
|
(1,699
|
)
|
|
|
|
|
|
|
(21,034
|
)
|
Prepaid taxes
|
|
|
(18,517
|
)
|
|
|
(8,805
|
)
|
|
|
|
|
|
|
(27,322
|
)
|
Accounts payable and accrued
liabilities
|
|
|
(213,289
|
)
|
|
|
(14,242
|
)
|
|
|
|
|
|
|
(227,531
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows used in operating
activities
|
|
|
(174,838
|
)
|
|
|
(11,057
|
)
|
|
|
|
|
|
|
(185,895
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(36,080
|
)
|
|
|
(13,240
|
)
|
|
|
|
|
|
|
(49,320
|
)
|
Sale of assets held for sale
|
|
|
19,297
|
|
|
|
|
|
|
|
|
|
|
|
19,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows used in investing
activities
|
|
|
(16,783
|
)
|
|
|
(13,240
|
)
|
|
|
|
|
|
|
(30,023
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of notes payable
|
|
|
(6,915
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,915
|
)
|
Repayment of other debt
|
|
|
(9,502
|
)
|
|
|
|
|
|
|
|
|
|
|
(9,502
|
)
|
Issuance of shares relating to
stock options
|
|
|
18,727
|
|
|
|
|
|
|
|
|
|
|
|
18,727
|
|
Excess tax benefits realized from
exercise of stock-based awards
|
|
|
31,656
|
|
|
|
|
|
|
|
|
|
|
|
31,656
|
|
Net increase in other noncurrent
assets and deferred financing fees
|
|
|
(475
|
)
|
|
|
(272
|
)
|
|
|
|
|
|
|
(747
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used
in) financing activities
|
|
|
33,491
|
|
|
|
(272
|
)
|
|
|
|
|
|
|
33,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange rate effect on cash and
cash equivalents
|
|
|
|
|
|
|
(168
|
)
|
|
|
|
|
|
|
(168
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash
equivalents
|
|
|
(158,130
|
)
|
|
|
(24,737
|
)
|
|
|
|
|
|
|
(182,867
|
)
|
Cash and cash equivalents at
beginning of period
|
|
|
328,923
|
|
|
|
72,670
|
|
|
|
|
|
|
|
401,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of
period
|
|
$
|
170,793
|
|
|
$
|
47,933
|
|
|
$
|
|
|
|
$
|
218,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
ITEM 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following discussion should be read in conjunction with
the information contained in our consolidated financial
statements, including the notes thereto. Statements regarding
future economic performance, managements plans and
objectives, and any statements concerning assumptions related to
the foregoing contained in Managements Discussion and
Analysis of Financial Condition and Results of Operations
constitute forward-looking statements. Certain factors, which
may cause actual results to vary materially from these
forward-looking statements, accompany such statements or appear
in GameStops Annual Report on
Form 10-K
for the fiscal year ended February 3, 2007 filed with the
Securities and Exchange Commission (the SEC) on
April 4, 2007 (the
Form 10-K),
including the factors disclosed under Item 1A. Risk
Factors.
General
GameStop Corp. (GameStop or the Company)
is the worlds largest retailer of video game products and
PC entertainment software. We sell new and used video game
hardware, video game software and accessories, as well as PC
entertainment software and related accessories and other
merchandise. As of August 4, 2007, we operated 4,954 stores
in the United States, Australia, Canada and Europe, primarily
under the names GameStop and EB Games. We also operate
electronic commerce websites under the names
www.gamestop.com and www.ebgames.com and publish
Game Informer, the largest multi-platform video game
magazine in the United States based on circulation.
Growth in the video game industry is driven by the introduction
of new technology. In 2005 in the North American markets,
Sony introduced the PlayStation Portable (the PSP)
in March and Microsoft introduced the Xbox 360 in November. In
November 2006, Nintendo introduced the Wii hardware platform
worldwide and Sony introduced the PlayStation 3 hardware
platform in the North American markets. Sony introduced the
PlayStation 3 platform in the Australian and European markets in
March 2007. Typically, following the introduction of new video
game platforms, sales of new video game hardware increase as a
percentage of 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 second and third 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 second and third years. Unit sales of maturing video game
platforms are typically also driven by manufacturer-funded
retail price decreases, 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. The
Companys gross margin in the 13 and 26 weeks ended
August 4, 2007 was impacted by the recent launches of these
new products.
Critical
Accounting Policies
Our consolidated financial statements have been prepared in
accordance with generally accepted accounting principles.
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 develop estimates thereon, see
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations in the
Form 10-K.
Accounting for Uncertainty in Income Taxes. In
July 2006, the Financial Accounting Standards Board
(FASB) issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48), which clarifies the accounting
for uncertainty in income taxes recognized under FASB Statement
No. 109, Accounting for Income Taxes. FIN 48
addresses the recognition and measurement of tax positions taken
or expected to be taken, and also provides guidance on
derecognition, classification, interest and penalties,
accounting in interim periods and disclosure. The Company
adopted and applied FIN 48 under the transition provisions
to all of its income tax positions at the required effective
date of February 4, 2007, resulting in a $16.7 million
cumulative effect decrease to retained earnings and a
$7.9 million increase in prepaid taxes. For additional
information related to the Companys adoption of
FIN 48, see Note 7 of Notes to Condensed
Consolidated Financial Statements.
22
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
|
|
|
26 Weeks Ended
|
|
|
|
August 4,
|
|
|
July 29,
|
|
|
August 4,
|
|
|
July 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Statement of Operations
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
73.0
|
|
|
|
68.9
|
|
|
|
72.9
|
|
|
|
70.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
27.0
|
|
|
|
31.1
|
|
|
|
27.1
|
|
|
|
30.0
|
|
Selling, general and
administrative expenses
|
|
|
20.8
|
|
|
|
25.4
|
|
|
|
20.4
|
|
|
|
24.0
|
|
Depreciation and amortization
|
|
|
2.4
|
|
|
|
2.7
|
|
|
|
2.4
|
|
|
|
2.6
|
|
Merger-related expenses
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
3.8
|
|
|
|
2.7
|
|
|
|
4.3
|
|
|
|
3.2
|
|
Interest expense, net
|
|
|
1.0
|
|
|
|
2.1
|
|
|
|
1.1
|
|
|
|
2.0
|
|
Debt extinguishment expense
|
|
|
0.2
|
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income tax expense
|
|
|
2.6
|
|
|
|
0.6
|
|
|
|
2.9
|
|
|
|
1.2
|
|
Income tax expense
|
|
|
1.0
|
|
|
|
0.3
|
|
|
|
1.1
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
1.6
|
%
|
|
|
0.3
|
%
|
|
|
1.8
|
%
|
|
|
0.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company includes purchasing, receiving and distribution
costs in selling, general and administrative expenses, rather
than cost of goods sold, in the statement of operations. For the
13 weeks ended August 4, 2007 and July 29, 2006,
these purchasing, receiving and distribution costs amounted to
$10.3 million and $8.4 million, respectively. For the
26 weeks ended August 4, 2007 and July 29, 2006,
these purchasing, receiving and distribution costs amounted to
$19.2 million and $16.6 million, respectively. The
Company includes processing fees associated with purchases made
by check and credit cards in cost of sales, rather than selling,
general and administrative expenses, in the statement of
operations. For the 13 weeks ended August 4, 2007 and
July 29, 2006, these processing fees amounted to
$10.2 million and $6.5 million, respectively. For the
26 weeks ended August 4, 2007 and July 29, 2006,
these processing fees amounted to $19.2 million and
$13.5 million, respectively. As a result of these
classifications, our gross margins are not comparable to those
retailers that include purchasing, receiving and distribution
costs in cost of sales and include processing fees associated
with purchases made by check and credit cards in selling,
general and administrative expenses. The net effect of the
Companys classifications is that its cost of sales as a
percentage of sales is lower than, and its selling, general and
administrative expenses as a percentage of sales are higher
than, they would have been had the Companys treatment
conformed with 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, by
0.2% and 0.2% for the 13 and 26 weeks ended July 29,
2006, respectively. The Companys classifications had no
effect on the 13 and 26 week periods ended August 4,
2007.
23
The following table sets forth sales (in millions) by
significant product category for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
|
26 Weeks Ended
|
|
|
|
August 4, 2007
|
|
|
July 29, 2006
|
|
|
August 4, 2007
|
|
|
July 29, 2006
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
Sales
|
|
|
of Total
|
|
|
Sales
|
|
|
of Total
|
|
|
Sales
|
|
|
of Total
|
|
|
Sales
|
|
|
of Total
|
|
|
|
(Unaudited)
|
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New video game hardware
|
|
$
|
293.8
|
|
|
|
22.0
|
%
|
|
$
|
157.5
|
|
|
|
16.4
|
%
|
|
$
|
575.2
|
|
|
|
22.0
|
%
|
|
$
|
318.2
|
|
|
|
15.9
|
%
|
New video game software
|
|
|
494.2
|
|
|
|
36.9
|
%
|
|
|
330.7
|
|
|
|
34.3
|
%
|
|
|
954.8
|
|
|
|
36.5
|
%
|
|
|
737.0
|
|
|
|
36.8
|
%
|
Used video game products
|
|
|
357.3
|
|
|
|
26.7
|
%
|
|
|
308.7
|
|
|
|
32.0
|
%
|
|
|
683.7
|
|
|
|
26.1
|
%
|
|
|
584.1
|
|
|
|
29.2
|
%
|
Other
|
|
|
192.9
|
|
|
|
14.4
|
%
|
|
|
166.4
|
|
|
|
17.3
|
%
|
|
|
403.5
|
|
|
|
15.4
|
%
|
|
|
364.1
|
|
|
|
18.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,338.2
|
|
|
|
100.0
|
%
|
|
$
|
963.3
|
|
|
|
100.0
|
%
|
|
$
|
2,617.2
|
|
|
|
100.0
|
%
|
|
$
|
2,003.4
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other products include PC entertainment and other software and
accessories, magazines and character-related merchandise.
The following table sets forth gross profit (in millions) and
gross profit percentages by significant product category for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
|
26 Weeks Ended
|
|
|
|
August 4, 2007
|
|
|
July 29, 2006
|
|
|
August 4, 2007
|
|
|
July 29, 2006
|
|
|
|
|
|
|
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
|
|
$
|
21.5
|
|
|
|
7.3
|
%
|
|
$
|
14.0
|
|
|
|
8.9
|
%
|
|
$
|
43.1
|
|
|
|
7.5
|
%
|
|
$
|
27.0
|
|
|
|
8.5
|
%
|
New video game software
|
|
|
100.2
|
|
|
|
20.3
|
%
|
|
|
72.7
|
|
|
|
22.0
|
%
|
|
|
192.0
|
|
|
|
20.1
|
%
|
|
|
154.7
|
|
|
|
21.0
|
%
|
Used video game products
|
|
|
173.2
|
|
|
|
48.5
|
%
|
|
|
153.9
|
|
|
|
49.9
|
%
|
|
|
337.5
|
|
|
|
49.4
|
%
|
|
|
295.0
|
|
|
|
50.5
|
%
|
Other
|
|
|
66.4
|
|
|
|
34.4
|
%
|
|
|
58.7
|
|
|
|
35.3
|
%
|
|
|
137.5
|
|
|
|
34.1
|
%
|
|
|
124.6
|
|
|
|
34.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
361.3
|
|
|
|
27.0
|
%
|
|
$
|
299.3
|
|
|
|
31.1
|
%
|
|
$
|
710.1
|
|
|
|
27.1
|
%
|
|
$
|
601.3
|
|
|
|
30.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 weeks
ended August 4, 2007 compared with the 13 weeks ended
July 29, 2006
Sales increased by $374.9 million, or 38.9%, from
$963.3 million in the 13 weeks ended July 29,
2006 to $1,338.2 million in the 13 weeks ended
August 4, 2007. The increase in sales was attributable to
the comparable store sales increase of 29.1% for the second
quarter of fiscal 2007 and the addition of non-comparable store
sales from the 555 stores opened since April 29, 2006 of
approximately $98.8 million. Stores are included in our
comparable store sales base beginning in the thirteenth month of
operation. The comparable store sales increase was driven by
strong sales of the new hardware platform units Nintendo Wii and
Sony PlayStation 3 and their related software and accessories,
as well as Xbox 360 software and accessories.
New video game hardware sales increased $136.3 million, or
86.5%, from $157.5 million in the 13 weeks ended
July 29, 2006 to $293.8 million in the 13 weeks
ended August 4, 2007, primarily due to the sales of
hardware units mentioned above, as well as the increase in store
count since July 2006. New video game software sales increased
$163.5 million, or 49.4%, from $330.7 million in the
13 weeks ended July 29, 2006 to $494.2 million in
the 13 weeks ended August 4, 2007, primarily due to
the new stores added and sales related to the new hardware
platforms, as well as a strong lineup of new video game titles
released during the 26 weeks ended August 4, 2007.
Used video game product sales also grew due to an increase in
store count and overall demand for video game products following
the launch of the new hardware platforms, with an increase in
sales of $48.6 million, or 15.7%, from $308.7 million
in the 13 weeks ended July 29, 2006 to
$357.3 million in the 13 weeks ended August 4,
2007. Sales of other product categories grew 15.9%, or
$26.5 million, from the 13 weeks ended July 29,
2006 to the 13 weeks ended August 4, 2007, due to the
increase in store count and the increase in new hardware
platform accessories sales.
24
As a percentage of sales, used video game products and the other
product category decreased in the 13 weeks ended
August 4, 2007 compared to the 13 weeks ended
July 29, 2006. This was due to the strong sales of video
game hardware and new video game software driven by the recent
launches of the new video game consoles mentioned earlier.
Cost of sales increased by $312.8 million, or 47.1%, from
$664.1 million in the 13 weeks ended July 29,
2006 to $976.9 million in the 13 weeks ended
August 4, 2007 as a result of the increase in sales and the
changes in gross profit discussed below.
Gross profit increased by $62.0 million, or 20.7%, from
$299.3 million in the 13 weeks ended July 29,
2006 to $361.3 million in the 13 weeks ended
August 4, 2007. Gross profit as a percentage of sales
decreased from 31.1% in the 13 weeks ended July 29,
2006 to 27.0% in the 13 weeks ended August 4, 2007.
The gross profit percentage decrease was caused primarily by the
increase in sales of new video game hardware as a percentage of
total sales in the second quarter of 2007. New video game
hardware typically carries a much lower margin than software and
accessories sales. Gross profit as a percentage of sales on new
video game hardware and new video game software decreased from
8.9% and 22.0%, respectively, in the prior year quarter to 7.3%
and 20.3% of sales, respectively, in the second quarter of 2007
due to lower vendor allowances applied to cost of sales as a
result of increased marketing costs incurred during the second
quarter of 2007. Gross profit as a percentage of sales on used
video game products decreased from 49.9% in the 13 weeks
ended July 29, 2006 to 48.5% in the 13 weeks ended
August 4, 2007 due to increased promotional expenses and
higher refurbishment costs associated with an increase in
production of refurbished hardware platforms during the second
quarter of 2007.
Selling, general and administrative expenses increased by
$33.8 million, or 13.8%, from $244.6 million in the
13 weeks ended July 29, 2006 to $278.4 million in
the 13 weeks ended August 4, 2007. 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. Selling, general and
administrative expenses as a percentage of sales decreased from
25.4% in the 13 weeks ended July 29, 2006 to 20.8% in
the 13 weeks ended August 4, 2007. The decrease in
selling, general and administrative expenses as a percentage of
sales was primarily due to leveraging as a result of the higher
sales associated with the introduction of the new video game
systems and synergies associated with the acquisition of EB,
including the shut-down of EBs corporate headquarters and
distribution center in the second quarter of fiscal 2006.
Selling, general and administrative expenses include
$6.7 million and $5.4 million in stock-based
compensation expense for the 13 weeks ended August 4,
2007 and July 29, 2006, respectively, in accordance with
SFAS 123(R).
Depreciation and amortization expense increased
$5.8 million from $26.3 million for the 13 weeks
ended July 29, 2006 to $32.1 million in the
13 weeks ended August 4, 2007. This increase was
primarily due to capital expenditures associated with the
opening of new stores since July 29, 2006 and investments
in management information systems.
The Companys results of operations for the 13 weeks
ended July 29, 2006 include $2.6 million in expenses
associated with the merger. The $2.6 million consisted
primarily of costs associated with integrating the operations of
Historical GameStop and EB.
Interest income increased from $1.5 million in the
13 weeks ended July 29, 2006 to $2.7 million in
the 13 weeks ended August 4, 2007 due primarily to
interest income earned on higher invested cash balances.
Interest expense decreased from $21.7 million in the
13 weeks ended July 29, 2006 to $16.1 million in
the 13 weeks ended August 4, 2007 primarily due to the
retirement of $63.1 million of the Companys senior
notes and $180.0 million of the Companys senior
floating rate notes since July 29, 2006. Debt
extinguishment expense of $2.0 million was recognized in
the 13 weeks ended August 4, 2007 as a result of
premiums paid related to debt retirement and the recognition of
deferred financing fees and unamortized original issue discount.
Debt extinguishment expense of $0.2 million was incurred in
the 13 weeks ended July 29, 2006 for the loss
associated with the repurchase of $6.9 million of senior
notes.
Income tax expense for the 13 weeks ended July 29,
2006 and the 13 weeks ended August 4, 2007 was based
upon managements estimate of the Companys annualized
effective tax rate. Income tax expense was $2.2 million for
the 13 weeks ended July 29, 2006 compared to
$13.6 million for the 13 weeks ended August 4,
2007. For the
25
13 weeks ended August 4, 2007, income tax expense
included a benefit of $1.3 million for unrecognized tax
benefit, interest and penalties associated with our uncertain
tax positions, as prescribed by FIN 48.
The factors described above led to an increase in operating
earnings of $24.9 million, or 96.5%, from
$25.8 million in the 13 weeks ended July 29, 2006
to $50.7 million in the 13 weeks ended August 4,
2007, and an increase in net earnings of $18.6 million, or
581.3%, from $3.2 million in the 13 weeks ended
July 29, 2006 to $21.8 million in the 13 weeks
ended August 4, 2007.
26 weeks
ended August 4, 2007 compared with the 26 weeks ended
July 29, 2006
Sales increased by $613.8 million, or 30.6%, from
$2,003.4 million in the 26 weeks ended July 29,
2006 to $2,617.2 million in the 26 weeks ended
August 4, 2007. The increase in sales was attributable to
the comparable store sales increase of 22.0% for the
26 week-period ended August 4, 2007 versus the prior
year 26 week-period and the addition of non-comparable
store sales from the 657 stores opened since January 29,
2006 of approximately $181.7 million. Stores are included
in our comparable store sales base beginning in the thirteenth
month of operation. The comparable store sales increase was
driven by continued strong sales of the Nintendo DS Lite and the
new hardware platform units Nintendo Wii and the Sony
PlayStation 3, which completed its worldwide launch during this
fiscal year, and their related software and accessories, as well
as Xbox 360 software and accessories.
New video game hardware sales increased $257.0 million, or
80.8%, from $318.2 million in the 26 weeks ended
July 29, 2006 to $575.2 million in the 26 weeks
ended August 4, 2007, primarily due to the sales of
hardware units mentioned above, as well as the increase in store
count since January 2006. New video game software sales
increased $217.8 million, or 29.6%, from
$737.0 million in the 26 weeks ended July 29,
2006 to $954.8 million in the 26 weeks ended
August 4, 2007, primarily due to the new stores added and
sales related to the new hardware platforms, as well as a strong
lineup of new video game titles released during the
26 weeks ended August 4, 2007. Used video game product
sales also grew due to an increase in store count and overall
demand for video game products following the launch of the new
hardware platforms, with an increase in sales of
$99.6 million, or 17.1%, from $584.1 million in the
26 weeks ended July 29, 2006 to $683.7 million in
the 26 weeks ended August 4, 2007. Sales of other
product categories grew 10.8%, or $39.4 million, from the
26 weeks ended July 29, 2006 to the 26 weeks
ended August 4, 2007, due to the increase in store count
and the increase in new hardware platform accessories sales.
As a percentage of sales, new and used video game software and
the other product category decreased in the 26 weeks ended
August 4, 2007 compared to the 26 weeks ended
July 29, 2006. This was due to the strong sales of video
game hardware driven by the recent launches of the new video
game consoles mentioned earlier.
Cost of sales increased by $505.0 million, or 36.0%, from
$1,402.1 million in the 26 weeks ended July 29,
2006 to $1,907.1 million in the 26 weeks ended
August 4, 2007 as a result of the increase in sales and the
changes in gross profit discussed below.
Gross profit increased by $108.8 million, or 18.1%, from
$601.3 million in the 26 weeks ended July 29,
2006 to $710.1 million in the 26 weeks ended
August 4, 2007. Gross profit as a percentage of sales
decreased from 30.0% in the 26 weeks ended July 29,
2006 to 27.1% in the 26 weeks ended August 4, 2007.
The gross profit percentage decrease was caused primarily by the
increase of sales of new video game hardware as a percentage of
total sales in the 26 weeks ended on August 4, 2007.
New video game hardware typically carries a much lower margin
than software and accessories sales. Gross profit as a
percentage of sales on new video game hardware and new video
game software decreased from 8.5% and 21.0%, respectively, in
the 26 weeks ended July 29, 2006 to 7.5% and 20.1% of
sales, respectively, for the 26 weeks ended August 4,
2007 due to lower vendor allowances applied to cost of sales as
a result of increased marketing costs incurred during fiscal
2007. Gross profit as a percentage of sales on used video game
products decreased from 50.5% in the 26 weeks ended
July 29, 2006 to 49.4% in the 26 weeks ended
August 4, 2007 due to increased promotional expenses and
higher refurbishment costs associated with an increase in
production of refurbished hardware platforms during fiscal 2007.
Selling, general and administrative expenses increased by
$54.3 million, or 11.3%, from $481.3 million in the
26 weeks ended July 29, 2006 to $535.6 million in
the 26 weeks ended August 4, 2007. This increase was
primarily attributable to the increase in the number of stores
in operation and the related increases in store, distribution
and
26
corporate office operating expenses. Selling, general and
administrative expenses as a percentage of sales decreased from
24.0% in the 26 weeks ended July 29, 2006 to 20.4% in
the 26 weeks ended August 4, 2007. The decrease in
selling, general and administrative expenses as a percentage of
sales was primarily due to leveraging as a result of the higher
sales associated with the introduction of the new video game
systems and synergies associated with the acquisition of EB,
including the shut-down of EBs corporate headquarters and
distribution center in the 26 weeks ended July 29,
2006. Selling, general and administrative expenses include
$13.6 million and $10.6 million in stock-based
compensation expense for the 26 weeks ended August 4,
2007 and July 29, 2006, respectively, in accordance with
SFAS 123(R).
Depreciation and amortization expense increased
$10.9 million from $52.3 million for the 26 weeks
ended July 29, 2006 to $63.2 million in the
26 weeks ended August 4, 2007. This increase was
primarily due to capital expenditures associated with the
opening of new stores since July 29, 2006 and investments
in management information systems.
The Companys results of operations for the 26 weeks
ended July 29, 2006 include $3.9 million of expenses
associated with the merger. The $3.9 million consisted
primarily of costs associated with integrating the operations of
Historical GameStop and EB.
Interest income increased from $3.7 million in the
26 weeks ended July 29, 2006 to $6.6 million in
the 26 weeks ended August 4, 2007 due primarily to
interest income earned on higher invested cash balances.
Interest expense decreased from $43.3 million in the
26 weeks ended July 29, 2006 to $34.0 million in
the 26 weeks ended August 4, 2007 primarily due to the
retirement of $63.1 million of the Companys senior
notes and $180.0 million of the Companys senior
floating rate notes since July 29, 2006. Debt
extinguishment expense of $8.8 million was recognized in
the 26 weeks ended August 4, 2007 as a result of
premiums paid related to debt retirement and the recognition of
deferred financing fees and unamortized original issue discount.
Debt extinguishment expense of $0.2 million was incurred in
the 26 weeks ended July 29, 2006 for the loss
associated with the repurchase of $6.9 million of senior
notes.
Income tax expense for the 26 weeks ended July 29,
2006 and the 26 weeks ended August 4, 2007 was based
upon managements estimate of the Companys annualized
effective tax rate. Income tax expense was $9.3 million for
the 26 weeks ended July 29, 2006 compared to
$28.6 million for the 26 weeks ended August 4,
2007. For the 26 weeks ended August 4, 2007, income
tax expense included a benefit of $0.6 million for
unrecognized tax benefit, interest and penalties associated with
our uncertain tax positions, as prescribed by FIN 48.
The factors described above led to an increase in operating
earnings of $47.5 million, or 74.3%, from
$63.9 million in the 26 weeks ended July 29, 2006
to $111.4 million in the 26 weeks ended August 4,
2007, and an increase in net earnings of $31.6 million, or
212.1%, from $14.9 million in the 26 weeks ended
July 29, 2006 to $46.5 million in the 26 weeks
ended August 4, 2007.
27
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
(loss) by reportable segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
|
26 Weeks Ended
|
|
|
|
August 4,
|
|
|
July 29,
|
|
|
August 4,
|
|
|
July 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
(In millions) (Unaudited)
|
|
|
|
|
|
Sales by operating segment are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,026.7
|
|
|
$
|
766.0
|
|
|
$
|
2,030.7
|
|
|
$
|
1,619.7
|
|
Canada
|
|
|
84.6
|
|
|
|
58.1
|
|
|
|
164.7
|
|
|
|
115.8
|
|
Australia
|
|
|
93.8
|
|
|
|
63.3
|
|
|
|
166.1
|
|
|
|
118.2
|
|
Europe
|
|
|
133.1
|
|
|
|
75.9
|
|
|
|
255.7
|
|
|
|
149.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,338.2
|
|
|
$
|
963.3
|
|
|
$
|
2,617.2
|
|
|
$
|
2,003.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss) by
operating segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
38.1
|
|
|
$
|
26.3
|
|
|
$
|
91.7
|
|
|
$
|
62.7
|
|
Canada
|
|
|
5.5
|
|
|
|
2.4
|
|
|
|
9.2
|
|
|
|
4.5
|
|
Australia
|
|
|
8.0
|
|
|
|
4.8
|
|
|
|
12.5
|
|
|
|
8.5
|
|
Europe
|
|
|
(0.8
|
)
|
|
|
(7.7
|
)
|
|
|
(2.0
|
)
|
|
|
(11.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
50.8
|
|
|
$
|
25.8
|
|
|
$
|
111.4
|
|
|
$
|
63.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
Segment results for the United States include retail operations
in 50 states, the District of Columbia, Puerto Rico and
Guam, the electronic commerce websites www.gamestop.com
and www.ebgames.com and Game Informer magazine. As
of August 4, 2007, the United States segment included 3,918
GameStop stores, compared to 3,684 on July 29, 2006. Sales
for the 13 and 26 weeks ended August 4, 2007 increased
34.0% and 25.4%, respectively, compared to the 13 and
26 weeks ended July 29, 2006 as a result of increased
sales at existing stores and the opening of 351 new stores since
April 29, 2006 and 424 stores since January 28, 2006,
including 102 and 148 stores in the 13 and 26 weeks ended
August 4, 2007, respectively. Sales at existing stores
increased due to strong sales of the new hardware platform
units, including the Nintendo Wii and the Sony PlayStation 3,
and their related software and accessories, as well as Xbox 360
software and accessories. Segment operating income for the 13
and 26 weeks ended August 4, 2007 increased by 44.9%
and 46.3%, respectively, compared to the 13 and 26 weeks
ended July 29, 2006 driven by strong sales of the new
hardware platforms and their related software and accessories,
leveraging of selling, general and administrative expenses and
the recognition of synergies related to the acquisition of EB,
including the shut-down of EBs corporate headquarters and
distribution center, when compared to 2006.
Canada
Sales in the Canadian segment in the 13 and 26 weeks ended
August 4, 2007 increased 45.6% and 42.2%, respectively,
compared to the 13 and 26 weeks ended July 29, 2006.
The increase in sales was primarily attributable to increased
sales at existing stores and the additional sales at the 12 and
13 stores opened since April 29, 2006 and January 28,
2006, respectively. As of August 4, 2007, the Canadian
segment had 272 stores compared to 261 stores at July 29,
2006. The increase in sales at existing stores was due to the
recent launch of new video game hardware systems and their
related software, as well as increased sales of handheld
systems. Segment operating income for the 13 and 26 weeks
ended August 4, 2007 increased by 129.2% and 104.4%,
respectively, compared to the 13 and 26 weeks ended
July 29, 2006 driven by the increased sales discussed above
and the leveraging of the selling, general and administrative
expenses.
28
Australia
Segment results for Australia include retail operations in
Australia and New Zealand. As of August 4, 2007, the
Australian segment included 243 stores, compared to 197 at
July 29, 2006. Sales for the 13 and 26 weeks ended
August 4, 2007 increased 48.2% and 40.5%, respectively,
compared to the 13 and 26 weeks ended July 29, 2006.
The increase in sales was due to higher sales at existing stores
and the additional sales at the 57 and 67 stores opened since
April 29, 2006 and January 28, 2006, respectively. The
increase in sales at existing stores was due to the launch of
the Sony PlayStation 3 in Australia and New Zealand during the
first quarter of fiscal 2007, as well as strong sales of other
video game hardware, including Nintendo Wii, and increased sales
of handheld units during the second quarter and full fiscal year
of 2007 compared to the same periods in 2006. The increased
hardware sales led to increases in sales in new video game
software, used video game products and accessories and other
products. Segment operating income in the 13 and 26 weeks
ended August 4, 2007 increased by 66.7% and 47.1%,
respectively, when compared to the 13 and 26 weeks ended
July 29, 2006. The increase was driven by the increased
sales discussed above and the leveraging of selling, general and
administrative expenses.
Europe
Segment results for Europe include retail operations in 12
European countries including Portugal, which commenced
operations in the first quarter of 2007. As of August 4,
2007, the European segment operated 521 stores, compared to 450
stores at July 29, 2006. For the 13 and 26 weeks ended
August 4, 2007, European sales increased 75.4% and 70.8%,
respectively, compared to the 13 and 26 weeks ended
July 29, 2006. The increase in sales was primarily due to
the increase in sales at existing stores and the additional
sales at the 135 and 153 stores opened since April 29, 2006
and January 28, 2006, respectively. These increases in
store count were offset by store closings in the first quarter
of 2007, primarily in Spain, as part of the implementation of
the integration strategy of the acquisition of EB. The increase
in sales at existing stores was driven by the launch of the Sony
PlayStation 3 in Europe during the first quarter of fiscal 2007,
as well as strong sales of other video game hardware, including
Nintendo Wii, and increased sales of handhelds and other next
generation hardware units during the second quarter and full
fiscal year of 2007 compared to the same periods in 2006. The
increased hardware sales led to increases in sales in new video
game software, used video game products and accessories and
other products.
The segment operating loss in Europe for the 13 and
26 weeks ended August 4, 2007 decreased 89.6% to
$0.8 million and 83.1% to $2.0 million, respectively,
compared to the operating loss in the 13 and 26 weeks ended
July 29, 2006 of $7.7 million and $11.8 million,
respectively. The decrease in the operating loss was driven by
the increase in sales and related margin dollars discussed above
and the leveraging of selling, general and administrative
expenses.
Seasonality
The Companys business, like that of many retailers, is
seasonal, with the major portion of the sales and operating
profit realized during the quarter which includes the holiday
selling season.
Liquidity
and Capital Resources
During the 26 weeks ended August 4, 2007, cash used in
operations was $192.6 million, compared to cash used in
operations of $185.9 million during the 26 weeks ended
July 29, 2006. In the 26 weeks ended August 4,
2007, cash used in operations was primarily due to a decrease in
accounts payable and accrued liabilities of $220.6 million,
which is typical in the first half of a fiscal year as payments
are made on purchases from the previous holiday selling season,
an increase in merchandise inventories of $38.5 million due
to an increase in store count, and the excess tax benefits
realized from the exercise of stock-based awards of
$62.6 million. These cash outflows were partially offset by
net income of $46.5 million, depreciation and amortization
of $63.6 million and stock-based compensation expense of
$13.6 million.
In the 26 weeks ended July 29, 2006, cash used in
operations was primarily due to a decrease in accounts payable
and accrued liabilities of $227.5 million, which is typical
in the first half of a fiscal year as stated above, an increase
in prepaid taxes of $27.3 million, the excess tax benefits
realized from the exercise of stock-based awards of
$31.7 million, and an increase in prepaid expenses of
$21.0 million due to the timing of rent payments at the end
29
of the quarter versus the end of the previous fiscal year. These
cash outflows were partially offset by a decrease in merchandise
inventories of $29.1 million, a decrease in accounts
receivable of $10.1 million, net income of
$14.9 million, depreciation and amortization of
$52.4 million and stock-based compensation expense of
$10.6 million.
Cash used in investing activities was $70.3 million and
$30.0 million during the 26 weeks ended August 4,
2007 and July 29, 2006, respectively. During the
26 weeks ended August 4, 2007, $71.4 million of
cash was used primarily to open 236 new stores and to invest in
information systems, offset by $1.1 million of cash
received related to the finalization of the purchase price of
Game Brands Inc. which was acquired during the fourth quarter of
fiscal 2006. During the 26 weeks ended July 29, 2006,
$49.3 million of capital expenditures was primarily used to
invest in information and distribution systems in support of the
integration of the operations of EB and Historical GameStop, to
open new stores in the United States and for international
expansion. These investing activities were offset by
$19.3 million of cash provided by the sale of the
Pennsylvania corporate office and distribution center which were
acquired in the merger.
Cash flows used in financing activities was $44.1 million
during the 26 weeks ended August 4, 2007 compared to
cash provided by financing activities during the 26 weeks
ended July 29, 2006 of $33.2 million. The cash used in
financing activities for the 26 weeks ended August 4,
2007 was primarily due to the repurchase of $20.0 million
and $130.0 million of principal value of the Companys
Senior Notes and Senior Floating Rate Notes, respectively. These
cash outflows were offset by $46.8 million received for the
issuance of shares relating to stock option exercises and
$62.6 million for the realization of tax benefits relating
to the stock option exercises and vested restricted stock. The
cash flows provided by financing activities during the
26 weeks ended July 29, 2006 were primarily due to
$18.7 million received for the issuance of shares relating
to stock option exercises and $31.7 million for the
realization of tax benefits relating to the stock option
exercises. These items were offset by the payoff of the
$9.2 million mortgage associated with the Pennsylvania
distribution center sold in June 2006 and the use of
approximately $6.9 million to repurchase Senior Notes.
Future capital requirements will depend on the number of new
stores opened and the timing of those openings within a given
fiscal year. The Company opened 236 stores in the 26 weeks
ended August 4, 2007 and expects to open approximately 260
to 320 additional stores in the remainder of fiscal 2007. Within
the next 12 months, the Company intends to rebrand all of
the EB stores that do not have real estate restrictions to the
GameStop brand. Capital expenditures for fiscal 2007 are
projected to be approximately $135.0 million to
$145.0 million, to be used primarily to fund new store
openings, rebrand EB stores and invest in distribution and
information systems in support of operations.
In October 2005, in connection with the merger, the Company
entered into a five-year, $400 million Credit Agreement
(the Revolver), including a $50 million letter
of credit sub-limit, secured by the assets of the Company and
its U.S. subsidiaries. The Revolver places certain
restrictions on the Company and its U.S. subsidiaries,
including limitations on asset sales, additional liens and the
incurrence of additional indebtedness.
In April 2007, the Company amended the Revolver to extend the
maturity date from October 11, 2010 to April 25, 2012,
reduce the LIBO interest rate margin, reduce and fix the rate of
the unused commitment fee and modify or delete certain other
covenants.
The availability under the Revolver is limited to a borrowing
base which allows the Company to borrow up to the lesser of
(x) approximately 70% of eligible inventory and
(y) 90% of the appraisal value of the inventory, in each
case plus 85% of eligible credit card receivables, net of
certain reserves. Letters of credit reduce the amount available
to borrow by their face value. The Companys ability to pay
cash dividends, redeem options, and repurchase shares is
generally prohibited, except that if availability under the
Revolver is or will be after any such payment equal to or
greater than 25% of the borrowing base, the Company may
repurchase its capital stock and pay cash dividends. In
addition, in the event that credit extensions under the Revolver
at any time exceed 80% of the lesser of the total commitment or
the borrowing base, the Company will be subject to a fixed
charge coverage ratio covenant of 1.5:1.0.
The interest rate on the Revolver is variable and, at the
Companys option, is calculated by applying a margin of
(1) 0.0% to 0.25% above the higher of the prime rate of the
administrative agent or the federal funds effective rate
30
plus 0.50% or (2) 1.00% to 1.50% above the LIBO rate. The
applicable margin is determined quarterly as a function of the
Companys consolidated leverage ratio. As of August 4,
2007, the applicable margin was 0.0% for prime rate loans and
1.25% for LIBO rate loans. In addition, the Company is required
to pay a commitment fee of 0.25% for any unused portion of the
total commitment under the Revolver.
As of August 4, 2007, there were no borrowings outstanding
under the Revolver and letters of credit outstanding totaled
$5.2 million.
On September 28, 2005, the Company, along with GameStop,
Inc. as co-issuer (together with the Company, the
Issuers), completed the offering of
U.S. $300 million aggregate principal amount of Senior
Floating Rate Notes due 2011 (the Senior Floating Rate
Notes) and U.S. $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
(the Indenture), dated September 28, 2005, by
and among the Issuers, the subsidiary guarantors party thereto,
and Citibank, N.A., as trustee (the Trustee).
Concurrently with the consummation of the merger on
October 8, 2005, EB and its direct and indirect
U.S. wholly-owned subsidiaries (together, the EB
Guarantors) became subsidiaries of the Company and entered
into a First Supplemental Indenture, dated October 8, 2005,
by and among the Issuers, the EB Guarantors and the Trustee,
pursuant to which the EB Guarantors assumed all the obligations
of a subsidiary guarantor under the Notes and the Indenture. The
net proceeds of the offering were used to pay the cash portion
of the merger consideration paid to the stockholders of EB in
connection with the merger.
The offering of the Notes was conducted in a private transaction
under Rule 144A under the Securities Act of 1933, as
amended (the Securities Act), and in transactions
outside the United States in reliance upon Regulation S
under the Securities Act. In April 2006, the Company filed a
registration statement on
Form S-4
in order to register new notes (the New Notes) with
the same terms and conditions as the Notes in order to
facilitate an exchange of the New Notes for the Notes. This
registration statement on
Form S-4
was declared effective by the SEC in May 2006 and the Company
commenced an exchange offer to exchange the New Notes for the
Notes. This exchange offer was completed in June 2006 with 100%
participation.
In November 2006, Citibank, N.A. resigned as Trustee for the
Notes and Wilmington Trust Company was appointed as the new
Trustee for the Notes.
The Senior Floating Rate Notes bear interest at LIBOR plus
3.875%, mature on October 1, 2011 and were priced at 100%.
The rate of interest on the Senior Floating Rate Notes as of
August 4, 2007 was 9.2350% per annum. 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 August 4, 2007,
the unamortized original issue discount was $6.0 million.
The Issuers pay interest on the Senior Floating Rate Notes
quarterly, in arrears, every January 1, April 1, July
1 and October 1, to holders of record on the immediately
preceding December 15, March 15, June 15 and
September 15, and at maturity. 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 August 4, 2007, 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 Floating Rate Notes
and/or
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
31
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 Floating Rate Notes and Senior
Notes by means other than redemption, whether by tender offer,
open market purchases, negotiated transactions or otherwise, in
accordance with applicable securities laws, so long as such
acquisitions do not otherwise violate the terms of the Indenture.
In May 2006, the Company announced that its board of directors
authorized the buyback of up to an aggregate of
$100 million of its Senior Floating Rate Notes and Senior
Notes. As of July 29, 2006, the Company had repurchased
$6.9 million of its Senior Notes. As of February 3,
2007, the end of its most recent fiscal year, the Company had
repurchased the maximum authorized amount, having acquired
$50 million of its Senior Notes and $50 million of its
Senior Floating Rate Notes, and delivered the Notes to the
Trustee for cancellation. The associated loss on retirement of
this debt was $0.2 million for the 13 and 26 week
periods ended July 29, 2006, respectively, which consists
of the premium paid to retire the Notes and the recognition of
the deferred financing fees and the original issue discount on
the Notes.
On February 9, 2007, the Company announced that its board
of directors authorized the buyback of up to an aggregate of an
additional $150 million of its Senior Notes and Senior
Floating Rate Notes. The timing and amount of the repurchases
were determined by the Companys management based on their
evaluation of market conditions and other factors. As of
August 4, 2007, the Company repurchased $150 million
of the Notes, having acquired $20 million of its Senior
Notes and $130 million of its Senior Floating Rate Notes,
and delivered the Notes to the Trustee for cancellation. The
associated loss on the retirement of this debt was
$2.0 million and $8.8 million for the 13 and
26 week periods ended August 4, 2007, respectively,
which consists of the premium paid to retire the Notes and the
recognition of the deferred financing fees and the original
issue discount on the Notes.
On June 28, 2007, the Company announced that its board of
directors authorized the redemption of the remaining
$120 million of Senior Floating Rate Notes outstanding. On
July 12, 2007, the Issuers notified the Trustee of their
intent to redeem the Notes on October 1, 2007.
Subsequently, on August 7, 2007 the Trustee notified the
bondholders of the Issuers intent to redeem the Notes on
October 1, 2007 at the redemption price specified by
the Notes of 102.00%, plus all accrued and unpaid interest
through the redemption date. Notice of redemption is irrevocable
once given to bondholders. The Company expects to incur a
one-time pre-tax charge of $3.8 million associated with the
redemption, which represents a $2.4 million redemption
premium and $1.4 million to recognize unamortized deferred
financing costs.
In October 2004, Historical GameStop issued a promissory note in
favor of Barnes & Noble, Inc. in the principal amount
of $74.0 million in connection with the repurchase of
Historical GameStops common stock held by
Barnes & Noble. Scheduled principal payments of
$37.5 million, $12.2 million and $12.2 million
were made in January 2005, October 2005 and October 2006,
respectively, as required by the promissory note, which also
requires a final payment of $12.2 million in October 2007.
The note is unsecured and bears interest at 5.5% per annum,
payable when principal installments are due.
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 Notes and our note
payable to Barnes & Noble, store expansion and
remodeling activities and corporate capital expenditure programs
for at least the next 12 months.
Recent
Accounting Policies
In September 2006, the FASB issued Statement of Financial
Accounting Standard No. 157, Fair Value Measurements
(SFAS 157), which defines fair value,
establishes a framework for measuring fair value, and expands
disclosures about fair value measurements. SFAS 157 applies
to other accounting pronouncements that require or permit fair
value measurements. The new guidance is effective for financial
statements issued for fiscal years beginning after
November 15, 2007, and for interim periods within those
fiscal years. We are currently evaluating the potential impact
of the adoption of SFAS 157 on our consolidated financial
statements.
32
In February 2007, the FASB issued Statement of Financial
Accounting Standard No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities
(SFAS No. 159). This statement permits
entities to choose to measure many financial instruments and
certain other items at fair value. Companies should report
unrealized gains and losses on items for which the fair value
option has been elected in earnings at each subsequent reporting
date. This statement is effective as of the beginning of an
entitys first fiscal year that begins after
November 15, 2007. The Company is currently assessing the
potential impact, if any, of the adoption of
SFAS No. 159 on its consolidated financial statements.
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 (the
Securities Act), and Section 21E of the
Securities Exchange Act of 1934 (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:
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our reliance on suppliers and vendors for sufficient quantities
of their products and for new product releases;
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economic conditions affecting the video game industry;
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the competitive environment in the video game industry;
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our ability to open and operate new stores;
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our ability to attract and retain qualified personnel;
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the impact and costs of litigation and regulatory compliance;
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unanticipated litigation results;
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the risks involved with our international operations;
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alternate sources of distribution of video game
software; and
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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
industrys actual results, levels of activity, performance
or achievements to be materially different from any future
results, levels of activity, performance or achievements
expressed or implied by such forward-looking statements. You
should not place undue reliance on these forward-looking
statements.
Although we believe that the expectations reflected in our
forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements.
We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new
information, future events or otherwise after the date of this
Form 10-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.
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ITEM 3.
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Quantitative
and Qualitative Disclosures About Market Risk
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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 Notes
issued in connection with the merger include both fixed rate and
floating rate notes with the intent to minimize exposure to
changes in interest rates. A hypothetical increase or (decrease)
of 10% of the effective rate on the outstanding Senior Floating
Rate Notes would result in a change in the annual interest
expense of $1.1 million. The effective rate on the Senior
Floating Rate Notes was 9.2350% on August 4, 2007. We do
not expect any material losses from our invested cash balances,
and we believe that our interest rate exposure is modest.
33
Foreign
Currency Risk
The Company follows the provisions of Statement of Financial
Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities
(SFAS 133), as amended. SFAS 133 requires
that all derivative instruments be recorded on the balance sheet
at fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive
income, depending on whether the derivative is designated as
part of a hedge transaction, and if it is, depending on the type
of hedge transaction.
The Company uses forward exchange contracts, foreign currency
options and cross-currency swaps, (together, the Foreign
Currency Contracts) to manage currency risk primarily
related to intercompany loans denominated in non-functional
currencies and certain foreign currency assets and liabilities.
These Foreign Currency Contracts are not designated as hedges
and, therefore, changes in the fair values of these derivatives
are recognized in earnings, thereby offsetting the current
earnings effect of the re-measurement of related intercompany
loans and foreign currency assets and liabilities. The aggregate
fair value of the Foreign Currency Contracts at August 4,
2007 was a liability of $2.4 million. A hypothetical
strengthening or weakening of 10% in the foreign exchange rates
underlying the Foreign Currency Contracts from the market rate
at August 4, 2007 would result in a (loss) or gain in value
of the forwards, options and swaps of ($12.4 million) or
$10.1 million, respectively.
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ITEM 4.
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Controls
and Procedures
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(a) Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company
conducted an evaluation, under the supervision and with the
participation of the principal executive officer and principal
financial officer, of the Companys disclosure controls and
procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act). Based on this evaluation, the principal
executive officer and principal financial officer concluded that
the Companys disclosure controls and procedures are
effective. Notwithstanding the foregoing, a control system, no
matter how well designed and operated, can provide only
reasonable, not absolute, assurance that it will detect or
uncover failures within the Company to disclose material
information otherwise required to be set forth in the
Companys periodic reports.
(b) Changes in Internal Controls
There was no change in the Companys internal control over
financial reporting (as such term is defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) during the Companys most recently
completed fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Companys
internal control over financial reporting.
PART II
OTHER INFORMATION
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ITEM 1.
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Legal
Proceedings
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There have been no material developments in previously reported
legal proceedings.
In addition to the other information set forth in this
Form 10-Q,
you should carefully consider the factors discussed under
Risk Factors in Item 1A. Risk
Factors in our
Form 10-K
for the fiscal year ended February 3, 2007 filed with the
SEC on April 4, 2007. These risks could materially and
adversely affect our business, financial condition and results
of operations. The risks described in our
Form 10-K
have not changed materially, however, they are not the only
risks we face. Our operations could also be affected by
additional factors that are not presently known to us or by
factors that we currently consider immaterial to our business.
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ITEM 4.
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Submission
of Matters to a Vote of Security Holders
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The Companys Annual Meeting of Stockholders was held on
June 28, 2007. At the close of business on the record date
for the meeting (which was May 4, 2007), there were
157,493,978 shares of Class A common stock
34
outstanding and entitled to vote at the meeting. Holders of
137,576,368 shares of Class A common stock (with one
vote per share) were present at the meeting, either in person or
by proxy.
The Companys stockholders approved, by the following vote,
the amendment and restatement of the Amended and Restated
GameStop Corp. 2001 Incentive Plan which increases the maximum
number of shares that may be the subject of awards from
40,000,000 to 43,500,000 shares, with the additional shares
to be used only for the grant of options to purchase shares of
our common stock:
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In Favor
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Against
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Abstained
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Broker Non-Votes
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100,550,617
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21,152,083
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116,554
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15,757,114
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The following individuals were elected to the Companys
board of directors to hold office for a term of three years and
until their respective successors are duly elected and
qualified, with the vote specified below:
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Nominee
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In Favor
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Withheld
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R. Richard Fontaine
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131,563,095
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6,013,273
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Jerome L. Davis
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129,690,186
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7,886,182
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Stephanie M. Shern
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135,855,233
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1,721,135
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Steven R. Koonin
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135,868,494
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1,707,874
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The following individuals continue to serve on the
Companys board of directors until the expiration of their
terms: Daniel A. DeMatteo, Leonard Riggio, Michael N. Rosen,
Stanley (Mickey) Steinberg, Gerald R. Szczepanski,
Edward A. Volkwein and Lawrence S. Zilavy. James J. Kim chose
not to stand for re-election to the board of directors when his
term expired at the Annual Meeting of Stockholders.
The Companys stockholders also ratified the appointment of
BDO Seidman, LLP as the registered independent public accounting
firm of the Company for the fiscal year ending February 2,
2008 by the following vote:
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In Favor
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Against
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Abstained
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137,427,260
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86,372
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62,736
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Exhibits
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Exhibit
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Number
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Description
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2
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.1
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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)
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3
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.1
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Second Amended and Restated
Certificate of Incorporation.(2)
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3
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.2
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Amended and Restated Bylaws.(3)
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4
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.1
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Indenture, dated
September 28, 2005, by and among GameStop Corp. (f/k/a GSC
Holdings Corp.), GameStop, Inc., the subsidiary guarantors party
thereto, and Citibank N.A., as trustee.(4)
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4
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.2
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First Supplemental Indenture,
dated October 8, 2005, by and among GameStop Corp. (f/k/a
GSC Holdings Corp.), GameStop, Inc., the subsidiary guarantors
party thereto, and Citibank N.A., as trustee.(5)
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4
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.3
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Registration Rights Agreement,
dated September 28, 2005, by and among GameStop Corp.
(f/k/a GSC Holdings Corp.), GameStop, Inc., the subsidiary
guarantors listed on
Schedule I-A
thereto, and Citigroup Global Markets Inc., for themselves and
as representatives of the several initial purchasers listed on
Schedule II thereto.(4)
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4
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.4
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Rights Agreement, dated as of
June 27, 2005, between GameStop Corp. (f/k/a GSC Holdings
Corp.) and The Bank of New York, as Rights Agent.(3)
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4
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.5
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Form of Indenture.(6)
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10
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.1
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Separation Agreement, dated as of
January 1, 2002, between Barnes & Noble, Inc. and
GameStop Holdings Corp. (f/k/a GameStop Corp.).(7)
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10
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.2
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Tax Disaffiliation Agreement,
dated as of January 1, 2002, between Barnes &
Noble, Inc. and GameStop Holdings Corp. (f/k/a GameStop
Corp.).(8)
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35
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Exhibit
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Number
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Description
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10
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.3
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Insurance Agreement, dated as of
January 1, 2002, between Barnes & Noble, Inc. and
GameStop Holdings Corp. (f/k/a GameStop Corp.).(8)
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10
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.4
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Operating Agreement, dated as of
January 1, 2002, between Barnes & Noble, Inc. and
GameStop Holdings Corp. (f/k/a GameStop Corp.).(8)
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10
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.5
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Second Amended and Restated 2001
Incentive Plan.(9)
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10
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.6
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Amended and Restated Supplemental
Compensation Plan.(10)
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10
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.7
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Form of Option Agreement.(9)
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10
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.8
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Form of Restricted Share
Agreement.(11)
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10
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.9
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Stock Purchase Agreement, dated as
of October 1, 2004, by and among GameStop Holdings Corp.
(f/k/a GameStop Corp.), B&N GameStop Holding Corp. and
Barnes & Noble, Inc.(12)
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10
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.10
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Promissory Note, dated as of
October 1, 2004, made by GameStop Holdings Corp. (f/k/a
GameStop Corp.) in favor of B&N GameStop Holding Corp.(12)
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10
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.11
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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.(13)
|
|
10
|
.12
|
|
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.(13)
|
|
10
|
.13
|
|
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.(13)
|
|
10
|
.14
|
|
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.(13)
|
|
10
|
.15
|
|
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.(13)
|
|
10
|
.16
|
|
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.(13)
|
|
10
|
.17
|
|
Form of Securities Collateral
Pledge Agreement, dated as of October 11, 2005.(13)
|
|
10
|
.18
|
|
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.(14)
|
|
10
|
.19
|
|
Registration Rights Agreement,
dated October 8, 2005, among EB Nevada Inc., James J. Kim
and GameStop Corp. (f/k/a GSC Holdings Corp.).(13)
|
|
10
|
.20
|
|
Executive Employment Agreement,
dated as of April 11, 2005, between GameStop Holdings Corp.
(f/k/a GameStop Corp.) and R. Richard Fontaine.(15)
|
|
10
|
.21
|
|
Executive Employment Agreement,
dated as of April 11, 2005, between GameStop Holdings Corp.
(f/k/a GameStop Corp.) and Daniel A. DeMatteo.(15)
|
|
10
|
.22
|
|
Executive Employment Agreement,
dated as of December 9, 2005, between GameStop Corp. and
Steven R. Morgan.(16)
|
|
10
|
.23
|
|
Executive Employment Agreement,
dated as of April 3, 2006, between GameStop Corp. and David
W. Carlson.(17)
|
|
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.
|
36
|
|
|
(1) |
|
Incorporated by reference to GameStop Holdings Corp.s
Form 8-K
filed with the Securities and Exchange Commission on
April 18, 2005. |
|
(2) |
|
Incorporated by reference to the Registrants
Form 8-K
filed with the Securities and Exchange Commission on
February 7, 2007. |
|
(3) |
|
Incorporated by reference to the Registrants Amendment
No. 1 to
Form S-4
filed with the Securities and Exchange Commission on
July 8, 2005. |
|
(4) |
|
Incorporated by reference to GameStop Holdings Corp.s
Form 8-K
filed with the Securities and Exchange Commission on
September 30, 2005. |
|
(5) |
|
Incorporated by reference to the Registrants
Form 10-Q
for the fiscal quarter ended October 29, 2005 filed with
the Securities and Exchange Commission on December 8, 2005. |
|
(6) |
|
Incorporated by reference to the Registrants
Form S-3ASR
filed with the Securities and Exchange Commission on
April 10, 2006. |
|
(7) |
|
Incorporated by reference to GameStop Holdings Corp.s
Amendment No. 4 to Form
S-1 filed
with the Securities and Exchange Commission on February 5,
2002. |
|
(8) |
|
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. |
|
(9) |
|
Incorporated by reference to Appendix A to the
Registrants Proxy Statement for 2007 Annual Meeting of
Stockholders filed with the Securities and Exchange Commission
on May 29, 2007. |
|
(10) |
|
Incorporated by reference to the Registrants
Form 10-Q
for the fiscal quarter ended July 29, 2006 filed with the
Securities and Exchange Commission on September 5, 2006. |
|
(11) |
|
Incorporated by reference to GameStop Holdings Corp.s
Form 8-K
filed with the Securities and Exchange Commission on
September 12, 2005. |
|
(12) |
|
Incorporated by reference to GameStop Holdings Corp.s
Form 8-K
filed with the Securities and Exchange Commission on
October 5, 2004. |
|
(13) |
|
Incorporated by reference to the Registrants
Form 8-K
filed with the Securities and Exchange Commission on
October 12, 2005. |
|
(14) |
|
Incorporated by reference to the Registrants
Form 8-K
filed with the Securities and Exchange Commission on
April 26, 2007. |
|
(15) |
|
Incorporated by reference to GameStop Holdings Corp.s
Form 8-K
filed with the Securities and Exchange Commission on
April 15, 2005. |
|
(16) |
|
Incorporated by reference to the Registrants
Form 8-K
filed with the Securities and Exchange Commission on
December 13, 2005. |
|
(17) |
|
Incorporated by reference to the Registrants
Form 10-K
for the fiscal year ended January 28, 2006 filed with the
Securities and Exchange Commission on April 3, 2006. |
37
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.
David W. Carlson
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Date: September 7, 2007
GAMESTOP CORP.
Robert A. Lloyd
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)
Date: September 7, 2007
38
GAMESTOP
CORP.
|
|
|
|
|
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)
|
|
3
|
.1
|
|
Second Amended and Restated
Certificate of Incorporation.(2)
|
|
3
|
.2
|
|
Amended and Restated Bylaws.(3)
|
|
4
|
.1
|
|
Indenture, dated
September 28, 2005, by and among GameStop Corp. (f/k/a GSC
Holdings Corp.), GameStop, Inc., the subsidiary guarantors party
thereto, and Citibank N.A., as trustee.(4)
|
|
4
|
.2
|
|
First Supplemental Indenture,
dated October 8, 2005, by and among GameStop Corp. (f/k/a
GSC Holdings Corp.), GameStop, Inc., the subsidiary guarantors
party thereto, and Citibank N.A., as trustee.(5)
|
|
4
|
.3
|
|
Registration Rights Agreement,
dated September 28, 2005, by and among GameStop Corp.
(f/k/a GSC Holdings Corp.), GameStop, Inc., the subsidiary
guarantors listed on
Schedule I-A
thereto, and Citigroup Global Markets Inc., for themselves and
as representatives of the several initial purchasers listed on
Schedule II thereto.(4)
|
|
4
|
.4
|
|
Rights Agreement, dated as of
June 27, 2005, between GameStop Corp. (f/k/a GSC Holdings
Corp.) and The Bank of New York, as Rights Agent.(3)
|
|
4
|
.5
|
|
Form of Indenture.(6)
|
|
10
|
.1
|
|
Separation Agreement, dated as of
January 1, 2002, between Barnes & Noble, Inc. and
GameStop Holdings Corp. (f/k/a GameStop Corp.).(7)
|
|
10
|
.2
|
|
Tax Disaffiliation Agreement,
dated as of January 1, 2002, between Barnes &
Noble, Inc. and GameStop Holdings Corp. (f/k/a GameStop
Corp.).(8)
|
|
10
|
.3
|
|
Insurance Agreement, dated as of
January 1, 2002, between Barnes & Noble, Inc. and
GameStop Holdings Corp. (f/k/a GameStop Corp.).(8)
|
|
10
|
.4
|
|
Operating Agreement, dated as of
January 1, 2002, between Barnes & Noble, Inc. and
GameStop Holdings Corp. (f/k/a GameStop Corp.).(8)
|
|
10
|
.5
|
|
Second Amended and Restated 2001
Incentive Plan.(9)
|
|
10
|
.6
|
|
Amended and Restated Supplemental
Compensation Plan.(10)
|
|
10
|
.7
|
|
Form of Option Agreement.(9)
|
|
10
|
.8
|
|
Form of Restricted Share
Agreement.(11)
|
|
10
|
.9
|
|
Stock Purchase Agreement, dated as
of October 1, 2004, by and among GameStop Holdings Corp.
(f/k/a GameStop Corp.), B&N GameStop Holding Corp. and
Barnes & Noble, Inc.(12)
|
|
10
|
.10
|
|
Promissory Note, dated as of
October 1, 2004, made by GameStop Holdings Corp. (f/k/a
GameStop Corp.) in favor of B&N GameStop Holding Corp.(12)
|
|
10
|
.11
|
|
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.(13)
|
|
10
|
.12
|
|
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.(13)
|
|
10
|
.13
|
|
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.(13)
|
|
10
|
.14
|
|
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.(13)
|
|
10
|
.15
|
|
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.(13)
|
|
10
|
.16
|
|
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.(13)
|
|
10
|
.17
|
|
Form of Securities Collateral
Pledge Agreement, dated as of October 11, 2005.(13)
|
39
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.18
|
|
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.(14)
|
|
10
|
.19
|
|
Registration Rights Agreement,
dated October 8, 2005, among EB Nevada Inc., James J. Kim
and GameStop Corp. (f/k/a GSC Holdings Corp.).(13)
|
|
10
|
.20
|
|
Executive Employment Agreement,
dated as of April 11, 2005, between GameStop Holdings Corp.
(f/k/a GameStop Corp.) and R. Richard Fontaine.(15)
|
|
10
|
.21
|
|
Executive Employment Agreement,
dated as of April 11, 2005, between GameStop Holdings Corp.
(f/k/a GameStop Corp.) and Daniel A. DeMatteo.(15)
|
|
10
|
.22
|
|
Executive Employment Agreement,
dated as of December 9, 2005, between GameStop Corp. and
Steven R. Morgan.(16)
|
|
10
|
.23
|
|
Executive Employment Agreement,
dated as of April 3, 2006, between GameStop Corp. and
David W. Carlson.(17)
|
|
31
|
.1
|
|
Certification of Chief Executive
Officer pursuant to
Rule 13a-14(a)/15d-14(a)
under the Securities Exchange Act of 1934, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
Certification of Chief Financial
Officer pursuant to
Rule 13a-14(a)/15d-14(a)
under the Securities Exchange Act of 1934, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.1
|
|
Certification of Chief Executive
Officer pursuant to
Rule 13a-14(b)
under the Securities Exchange Act of 1934 and 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
|
32
|
.2
|
|
Certification of Chief Financial
Officer pursuant to
Rule 13a-14(b)
under the Securities Exchange Act of 1934 and 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
|
|
|
(1) |
|
Incorporated by reference to GameStop Holdings Corp.s
Form 8-K
filed with the Securities and Exchange Commission on
April 18, 2005. |
|
(2) |
|
Incorporated by reference to the Registrants
Form 8-K
filed with the Securities and Exchange Commission on
February 7, 2007. |
|
(3) |
|
Incorporated by reference to the Registrants Amendment
No. 1 to
Form S-4
filed with the Securities and Exchange Commission on
July 8, 2005. |
|
(4) |
|
Incorporated by reference to GameStop Holdings Corp.s
Form 8-K
filed with the Securities and Exchange Commission on
September 30, 2005. |
|
(5) |
|
Incorporated by reference to the Registrants
Form 10-Q
for the fiscal quarter ended October 29, 2005 filed with
the Securities and Exchange Commission on December 8, 2005. |
|
(6) |
|
Incorporated by reference to the Registrants
Form S-3ASR
filed with the Securities and Exchange Commission on
April 10, 2006. |
|
(7) |
|
Incorporated by reference to GameStop Holdings Corp.s
Amendment No. 4 to
Form S-1
filed with the Securities and Exchange Commission on
February 5, 2002. |
|
(8) |
|
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. |
|
(9) |
|
Incorporated by reference to Appendix A to the
Registrants Proxy Statement for 2007 Annual Meeting of
Stockholders filed with the Securities and Exchange Commission
on May 29, 2007. |
|
(10) |
|
Incorporated by reference to the Registrants
Form 10-Q
for the fiscal quarter ended July 29, 2006 filed with the
Securities and Exchange Commission on September 5, 2006. |
|
(11) |
|
Incorporated by reference to GameStop Holdings Corp.s
Form 8-K
filed with the Securities and Exchange Commission on
September 12, 2005. |
40
|
|
|
(12) |
|
Incorporated by reference to GameStop Holdings Corp.s
Form 8-K
filed with the Securities and Exchange Commission on
October 5, 2004. |
|
(13) |
|
Incorporated by reference to the Registrants
Form 8-K
filed with the Securities and Exchange Commission on
October 12, 2005. |
|
(14) |
|
Incorporated by reference to the Registrants
Form 8-K
filed with the Securities and Exchange Commission on
April 26, 2007. |
|
(15) |
|
Incorporated by reference to GameStop Holdings Corp.s
Form 8-K
filed with the Securities and Exchange Commission on
April 15, 2005. |
|
(16) |
|
Incorporated by reference to the Registrants
Form 8-K
filed with the Securities and Exchange Commission on
December 13, 2005. |
|
(17) |
|
Incorporated by reference to the Registrants
Form 10-K
for the fiscal year ended January 28, 2006 filed with the
Securities and Exchange Commission on April 3, 2006. |
41