|
| |
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion should be read in conjunction with the information contained in our consolidated financial statements, including the notes thereto. Statements regarding future economic performance, management’s plans and objectives, and any statements concerning assumptions related to the foregoing contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations constitute forward-looking statements. Certain factors, which may cause actual results to vary materially from these forward-looking statements, accompany such statements or appear elsewhere in thisForm 10-K, including the factors disclosed under “Item“Part I — Item 1A. — Risk Factors.”
General
General
GameStop Corp. (together with its predecessor companies, “GameStop,(“GameStop,” “we,” “us,” “our,” or the “Company”) is a global, multichannel video game, consumer electronics and wireless services retailer and is the world’s largest multichannel retailer of video game products and PC entertainment software.retailer. We sell new and usedpre-owned video game hardware, physical and digital video game software, video game accessories, as well as new and accessories, PC entertainment softwarepre-owned mobile and consumer electronics products and other merchandise primarily through our GameStop, EB Games and Micromania stores. As of January 29, 2011,February 1, 2014, we operated 6,6706,675 stores, in the United States, Australia, Canada and Europe, which are primarily located in major shopping malls and strip centers. We also operate electronic commerce Web siteswww.gamestop.com,www.ebgames.com.au,www.ebgames.co.nz, www.gamestop.ca,www.gamestop.it,www.gamestop.es,www.gamestop.ie,www.gamestop.de, www.gamestop.co.uk andwww.micromania.fr. In addition, we publish The network also includes: www.kongregate.com, a leading browser-based game site; Game Informermagazine, the industry’s largestleading multi-platform video game magazinepublication; a digital PC distribution platform available at www.gamestop.com/pcgames; iOS and Android mobile applications; and an online consumer electronics marketplace available at www.buymytronics.com. We also operate a certified Apple reseller with stores selling Apple products in the United States based on circulationunder the name Simply Mac; Spring Mobile, an authorized AT&Treseller operating AT&T branded wireless retail stores in the United States; and operatepre-paid wireless stores under the online video gaming Web sitewww.kongregate.com.
name Aio Wireless (an AT&T brand) as part of our expanding relationship with AT&T.
Our fiscal year is composed of 52 or 53 weeks ending on the Saturday closest to January 31. The fiscal yearsyear ended February 1, 2014 (“fiscal 2013”) consisted of 52 weeks. The fiscal year ended February 2, 2013 (“fiscal 2012”) consisted of 53 weeks. The fiscal year ended January 29, 201128, 2012 (“fiscal 2010”), January 30, 2010 (“fiscal 2009”) and January 31, 2009 (“fiscal 2008”2011”) consisted of 52 weeks.
The Company began operations in November 1996. In February 2002, GameStop completed an initial public offeringOn November 17, 2008, GameStop France SAS, a wholly-owned subsidiary of the Company, completed the acquisition of substantially all of the outstanding capital stock of SFMI Micromania SAS (“Micromania”) for $580.4 million, net of cash acquired in the transaction. Micromania is the leading retailer of video and computer games in France with 379 locations, 328 of which were operating on the date of acquisition (the “Micromania acquisition”). The Company’s operating results for fiscal 2010 and fiscal 2009 include Micromania’s results and the Company’s operating results for fiscal 2008 include 11 weeks of Micromania’s results.
The acquisition of Micromania is an important part of the Company’s European and overall growth strategy and gave the Company an immediate entrance into the second largest video game market in Europe. The amount the Company paid in excess of the fair value of the net assets acquired was primarily for (i) the expected future cash flows derived from the existing business and its infrastructure, (ii) the geographical benefits from adding stores in a new large, growing market without cannibalizing existing sales, (iii) expanding the Company’s expertise in the
28
European video game market as a whole, and (iv) increasing the Company’s impact on the European market, including increasing its purchasing power.
Growth in the videoelectronic game industry is generally driven by the introduction of new technology. Gaming consoles are typically launched in cycles as technological developments provide significant improvements in graphics, audio quality, game play, Internet connectivity and other entertainment capabilities beyond video gaming. The current generation of hardwareconsoles (the Sony PlayStation 4, the Microsoft Xbox One and the Nintendo Wii U) were introduced between November 2012 through November 2013. The previous generation of consoles (the Sony PlayStation 3, the Microsoft Xbox 360 and the Nintendo Wii) were introduced between 2005 and 2007. The Sony PlayStation Portable (the “PSP”)Nintendo 3DS was introduced in 2005. The Nintendo DSi XLMarch 2011, the Sony PlayStation Vita was introduced in early 2010.February 2012 and the Nintendo 2DS was introduced in October 2013. Typically, following the introduction of new video game platforms, sales of new video game hardware increase as a percentage of total sales in the first full year following introduction. As video game platforms mature, the sales mix attributable to complementary video game software and accessories, which generate higher gross margins, generally increases in the subsequent years. The net effect is generally a decline in gross marginsmargin percent in the first full year following new platform releases and an increase in gross marginsmargin percent in the years subsequent to the first full year following the launch period. The launch of the next-generation Sony PlayStation 4 and the Microsoft Xbox One should negatively impact our overall gross margin percentage in future years. Unit sales of maturing video game platforms are typically also driven by manufacturer-funded retail price reductions, further driving sales of related software and accessories. Historically, new hardware consoles are typically introduced every four to five years. We experienced declines in new hardware and software sales throughout the first few months of fiscal 2013 due to the age of the older generation of consoles. With the introduction of the new consoles in the fourth quarter, sales of new hardware have increased.
We expect that future growth in the installed baseelectronic game industry will also be driven by the sale of video games delivered in digital form and the hardware platforms listed aboveexpansion of other forms of gaming. We currently sell various types of products that relate to the digital category, including digitally downloadable content ("DLC"), Xbox LIVE, PlayStation Plus and Nintendo network points cards, as well as prepaid digital and online timecards. We expect our sales of related softwaredigital products to increase in fiscal 2014. We have made significant investments in e-commerce and in-store and Web site functionality to enable our customers to access digital content easily and facilitate the digital sales and delivery process. We plan to continue to invest in these types of processes and channels to grow our digital sales base and enhance our market leadership position in the electronic game industry and in the digital aggregation and distribution category. In fiscal 2011, we also launched our mobile business and began selling an assortment of tablets and accessories. We currently sell tablets and accessories will increasein all of our stores in the future.United States and in a majority of stores in our international markets. We also sell and accept trades of pre-owned mobile devices in our stores. In addition, we intend to continue to invest in customer loyalty programs designed to attract and retain customers.
In November 2013, we acquired Spring Mobile, an authorized AT&T reseller operating over 160 stores selling wireless services and products, and acquired Simply Mac, an authorized Apple reseller selling Apple products and services in 23 stores. We also opened 31 stores under the Aio Wireless brand. Aio Wireless is an AT&T brand selling pre-paid wireless services and products. We expect to expand the number of Spring Mobile and Simply Mac stores which we operate in future years. We also expect to expand our pre-paid stores with AT&T under either the Aio Wireless brand or the Cricket brand following AT&T’s acquisition of Leap Wireless.
Critical Accounting Policies
The Company believes that the following are its most significant accounting policies which are important in determining the reporting of transactions and events:
Use of Estimates.Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires managementus 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 haswe have made itsour 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 managementus could have a significant impact on the Company’sour financial results. Actualresults, and actual results could differ from those estimates. Our senior management has discussed the development and selection of these critical accounting policies, as well as the significant accounting policies disclosed in Note 1 to our consolidated financial statements, with the Audit Committee of our Board of Directors. We believe the following accounting policies are the most critical to aid in fully understanding and evaluating our reporting of transactions and events, and the estimates these policies involve require our most difficult, subjective or complex judgments.
Revenue Recognition. Revenue from the sales of the Company’sour products is recognized at the time of sale, and is stated net of sales discounts.discounts and net of an estimated sales return reserve, based on historical return rates, with a corresponding reduction in cost of sales. Our sales return policy is generally limited to less than 30 days and as such our sales returns are, and have historically been, immaterial. The sales of usedpre-owned video game products are recorded at the retail price charged to the customer. Sales returns (which are not significant) are recognized at the time returns are made. Subscription and advertisingAdvertising revenues for Game Informer are recorded upon release of magazines for sale to consumers. Magazine subscription revenue isSubscription revenues for our PowerUp Rewards loyalty program and magazines are recognized on a straight-line basis over the subscription period. The revenue from the paid membership of the Company’s PowerUp Rewards loyalty program is recognized over the one-year membership term. Revenue from the sales of product replacement plans is recognized on a straight-line basis over the coverage period. Gift cards sold to customers are recognized
as a liability on the consolidated balance sheet until redeemed.redeemed or until a reasonable point at which breakage related to non-redemption can be recognized.
The Company sellsWe also sell a variety of digital products which generally allow consumers to download software or play games on the internet. Certain of these products do not require the Companyus to purchase inventory or take physical possession of, or take title to, inventory. When purchasing these products from the Company,us, consumers pay a retail price and the Company earnswe earn a commission based on a percentage of the retail sale as negotiated with the product publisher. The Company recognizes this commissionWe recognize these commissions as revenue on the sale of these digital products.
Stock-Based Compensation. The Company records share-based compensation expense in earnings based on the grant-date fair value of options or restricted stock granted. As of January 29, 2011, the unrecognized compensation expense related to the unvested portion of our stock options and restricted stock was $9.3 million and $14.8 million, respectively, which is expected to be recognized over a weighted average period of 1.7 and 1.7 years, respectively. Note 1 of “Notes to Consolidated Financial Statements” provides additional information on stock-based compensation.
Merchandise Inventories. Our merchandise inventories are carried at the lower of cost or market generally using the average cost method. Under the average cost method, as new product is received from
29
vendors, its current cost is added to the existing cost of product on-hand and this amount is re-averaged over the cumulative units. UsedPre-owned video game products traded in by customers are recorded as inventory at the amount of the store credit given to the customer. In valuing inventory, management iswe are required to make assumptions regarding the necessity of reserves required to value potentially obsolete or over-valued items at the lower of cost or market. Management considersWe consider quantities on hand, recent sales, potential price protections and returns to vendors, among other factors, when making these assumptions. Our ability to gauge these factors is dependent upon our ability to forecast customer demand and to provide a well-balanced merchandise assortment. Any inability to forecast customer demand properly could lead to increased costs associated with inventory markdowns. We also adjust inventory based on anticipated physical inventory losses or shrinkage. Physical inventory counts are taken on a regular basis to ensure the reported inventory is accurate. During interim periods, estimates of shrinkage are recorded based on historical losses in the context of current period circumstances. Our reserve for merchandise inventories was $76.5 million as of February 1, 2014.
Property and Equipment. Property and equipment are carried at cost less accumulated depreciation and amortization. Depreciation on furniture, fixtures and equipment is computed using the straight-line method over estimated useful lives (ranging from two to eight years). Maintenance and repairs are expensed as incurred, while betterments and major remodeling costs are capitalized. Leasehold improvements are capitalized and amortized over the shorter of their estimated useful lives or the terms of the respective leases, including renewal options in which the exercise of the option is reasonably assured (generally ranging from three to ten years). Costs incurred to third parties in purchasing management information systems are capitalized and included in property and equipment. These costs are amortized over their estimated useful lives from the date the systems become operational. The Company periodically reviews its We had net property and equipment wheneverof $476.2 million as of February 1, 2014. We review our property and equipment for impairment when events or changes in circumstances indicate that their carrying amounts may not be recoverable or their depreciation or amortization periods should be accelerated. The Company assessesWe assess recoverability based on several factors, including management’sour intention with respect to itsour stores and those stores’the stores' projected undiscounted cash flows. AnIf the results of the recoverability test indicate that an asset or asset group is not recoverable, an impairment loss is recognized for the amount by which the carrying amount of the assetsasset exceeds theirits fair value, as approximated by the present value of their projected discounted cash flows. Write-downs incurred byWe recorded impairment losses on our property and equipment of $18.5 million, $8.8 million and $11.2 million in fiscal 2013, fiscal 2012 and fiscal 2011, respectively, based on the Company through January 29, 2011 have not been material.results of our impairment tests.
Goodwill. Goodwill, aggregating $1,996.3 We had goodwill totaling $1,414.7 million has been recorded as of January 29, 2011 related to various acquisitions. GoodwillFebruary 1, 2014. Our goodwill results from our acquisitions and represents the excess purchase price over tangiblethe net assets and identifiable intangible assets acquired. The Company isWe are required to evaluate our goodwill and other indefinite-lived intangible assets not subject to amortization for impairment at least annually.annually or whenever indicators of impairment are present. This annual test is completed atas of the beginning of the fourth fiscal quarter, each fiscal year orand interim tests are conducted when circumstances indicate the carrying value of the goodwill or other intangible assets mightmay not be impaired.recoverable. Goodwill has been assigned tois evaluated for impairment at the reporting units for the purpose of impairment testing. The Company has four businessunit level. We have five operating segments, including Video Game Brands in the United States, Australia, Canada and Europe, and Technology Brands in the United States, which also define our reporting units. Our reporting units are based upon the similar economic characteristics of operations within each segment, including the nature of products, product distribution and the type of customer and separate management within those regions. The Company estimates fair value based on the discounted cash flows of each reporting unit. The Company uses
We use a two-step process to measure any potential goodwill impairment. The first step of the goodwill impairment test involves estimating the fair value of each reporting unit based on its discounted projected future cash flows. If the fair value of the reporting unit is higher thanexceeds its carrying value, then goodwill is not impaired. Ifimpaired; however, if the carryingfair value of the reporting unit is higherless than the fairits carrying value, then the second teststep of the goodwill impairment test is needed. The second teststep compares the implied fair value of the reporting unit’s goodwill with its carrying amount. The implied fair value of goodwill is determined in step two of the goodwill impairment test by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation used in a business combination. Any residual fair value after this allocation represents the implied fair value of the reporting unit’s goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of its goodwill, then an impairment loss is recognized in the amount of the excess. If the carrying value of an individual indefinite-life intangible asset exceeds its fair value, such individual indefinite-life intangible asset is written down by the amount of the excess. The Company completed its annual impairment test of goodwill on the first day of the fourth quarter of fiscal 2008, fiscal 2009 and fiscal 2010 and concluded that none of its goodwill was impaired. Note 8 of “Notes to Consolidated Financial Statements” provides additional information concerning goodwill.
TheWe utilize a discounted cash flow method used to determine the fair value of reporting units requires managementunits. Management is required to make significant judgments based on the Company’sour projected sales and gross margin, annual business plans, futurelong-term business strategies, comparable store sales, store count, gross margins, operating expenses, working capital needs, capital expenditures and long-term growth rates, all considered in light of current and anticipated economic factors. Discount rates used in the analysis reflect the Company’sa hypothetical market participant’s weighted average cost of capital, current market rates and the risks associated with the projected
30
cash flows. Terminal growth rates were based on long-term growth rate potential and a long-term inflation forecast. The impairment testing process is subject to inherent uncertainties and subjectivity, particularly related to sales and gross marginmargins which can be impacted by various factors including the items listed in Item"Item 1A. Risk Factors.Factors" within this Form 10-K. While the fair value is determined based on the best available information at the time of assessment, any changes in business or economic conditions could materially increase or decrease the fair value of the reporting unit’s net assets and, accordingly, could materially increase or decrease any related
impairment charge. BasedWhile management does not anticipate any material changes to the projected undiscounted cash flows underlying its impairment test, many other factors impact the fair value calculation. Since we are required to determine fair value from a hypothetical market participant’s perspective, discount rates used in the analyses may change based on market conditions, regardless of whether our cost of capital has changed, which could negatively impact the fair value calculation. As we periodically reassess our fair value calculations using currently available market information and internal forecasts, of the Company’s annual results, we do not anticipatechanges in our judgments and other assumptions could result in recording anymaterial impairment charges of goodwill or other intangible assets in any of the Company’sour reporting units in the future.
We completed the annual impairment test of goodwill for our United States, Canada, Australia and Europe Video Game Brands reporting units as of the first day of the fourth quarter of fiscal 2013. The results of our test indicated that none of our goodwill was impaired. The Technology Brands reporting unit was excluded from the fiscal 2013 annual impairment test as it commenced operations during the fourth quarter and therefore was not a reporting unit subject to assessment as of our annual testing date. For our United States, Canada and Australia reporting units, the calculated fair value of each of these reporting units exceeded their respective carrying values by more than 20% and the calculated fair value of our Europe reporting unit exceeded its carrying value by more than 10%. A reduction in the terminal growth rate assumption of 0.25% or an increase in the discount rate assumption of 0.25% utilized in the test for each respective reporting unit would not have resulted in an impairment.
For fiscal 2013, there was a $10.2 million goodwill write-off in the United States Video Game Brands reporting unit as a result of abandoning our investment in Spawn Labs, which is described more fully in Note 2 to our consolidated financial statements.
During the third quarter of fiscal 2012, we determined that sufficient indicators of potential impairment existed to require an interim goodwill impairment test. As a result of the interim goodwill impairment test, we recorded non-cash, non-tax deductible goodwill impairments for the third quarter of fiscal year ending January 28, 2012.2012 of $107.1 million, $100.3 million and $419.6 million in our Australia, Canada and Europe reporting units, respectively, to reduce the carrying value of goodwill.
We completed our annual impairment test of goodwill as of the first day of the fourth quarter of fiscal 2011, fiscal 2012 and fiscal 2013 and concluded that none of our goodwill was impaired. For fiscal 2011, there was a $3.3 million goodwill write-off recorded in the United States segment as a result of the exiting of a non-core business. See Note 9 to our consolidated financial statements for additional information concerning goodwill.
Other Intangible Assets and Other Noncurrent Assets. Other intangible assets consist primarily of tradenames,trade names, dealer agreements, leasehold rights, advertising relationships and amounts attributed to favorable leasehold interests recorded primarily as a result of the Micromania acquisition and the EB merger. We record intangible assets apart from goodwill if they arise from a contractual right and are capableacquisitions of being separated from the entity and sold, transferred, licensed, rented or exchanged individually. The useful life and amortization methodology of intangible assets are amortized over the periodSpring Mobile in which they are expected to contribute directly to cash flows.
Tradenames which were recorded as a result of acquisitions, primarily Micromania, are considered indefinite life intangible assets as they are expected to contribute to cash flows indefinitely and are not subject to amortization, but they are subject to annual impairment testing. Leasehold rights which were recorded as a result of the Micromania acquisition represent the value of rights of tenancy under commercial property leases for properties located in France. Rights pertaining to individual leases can be sold by us to a new tenant or recovered by us from the landlord if the exercise of the automatic right of renewal is refused. Leasehold rights are amortized on a straight-line basis over the expected lease term not to exceed 20 years with no residual value. Favorable leasehold interests represent the value of the contractual monthly rental payments that are less than the current market rent at stores acquired as part of the Micromania acquisition or the EB merger. Favorable leasehold interests are amortized on a straight-line basis over their remaining lease term with no expected residual value. For additional information related to the Company’s intangible assets, see Note 8 of “Notes to Consolidated Financial Statements.”
Other non-current assets are made up of deposits and deferred financing fees. The deferred financing fees are associated with the Company’s revolving credit facility and the senior notes issued in October 2005 in connection with the financing of the EB merger. The deferred financing fees are being amortized over five and seven years to match the terms of the revolving credit facility and the senior notes, respectively.
Cash Consideration Received from Vendors. The Company and its vendors participate in cooperative advertising programs and other vendor marketing programs in which the vendors provide the Company with cash consideration in exchange for marketing and advertising the vendors’ products. Our accounting for cooperative advertising arrangements and other vendor marketing programs results in a portion of the consideration received from our vendors reducing the product costs in inventory. The consideration serving as a reduction in inventory is recognized in cost of sales as inventory is sold. The amount of vendor allowances recorded as a reduction of inventory is determined by calculating the ratio of vendor allowances in excess of specific, incremental and identifiable advertising and promotional costs to merchandise purchases. The Company then applies this ratio to the value of inventory in determining the amount of vendor reimbursements recorded as a reduction to inventory reflected on the balance sheet. Because of the variability in the timing of our advertising and marketing programs throughout the year, the Company uses significant estimates in determining the amount of vendor allowances recorded as a reduction of inventory in interim periods, including estimates of full year vendor allowances, specific, incremental and identifiable advertising and promotional costs, merchandise purchases and value of inventory. Estimates of full year vendor allowances and the value of inventory are dependent upon estimates of full year merchandise purchases. Determining the amount of vendor allowances recorded as a reduction of inventory at the end of the fiscal year no longer requires the use of estimates as all vendor allowances, specific, incremental and identifiable advertising and promotional costs, merchandise purchases and value of inventory are known.
Although management considers its advertising and marketing programs to be effective, we do not believe that we would be able to incur the same level of advertising expenditures if the vendors decreased or
31
discontinued their allowances. In addition, management believes that the Company’s revenues would be adversely affected if its vendors decreased or discontinued their allowances, but management is unable to quantify the impact.
Lease Accounting. The Company’s method of accounting for rent expense (and related deferred rent liability) and leasehold improvements funded by landlord incentives for allowances under operating leases (tenant improvement allowances) is in conformance with GAAP. For leases that contain predetermined fixed escalations of the minimum rent, we recognize the related rent expense on a straight-line basis and include the impact of escalating rents for periods in which we are reasonably assured of exercising lease options and we include in the lease term any period during which the Company is not obligated to pay rent while the store is being constructed, or “rent holiday.”
Income Taxes. The Company accounts for income taxes utilizing an asset and liability approach, and deferred taxes are determined based on the estimated future tax effect of differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates. As a result of our operations in many foreign countries, our global tax rate is derived from a combination of applicable tax rates in the various jurisdictions in which we operate. We base our estimate of an annual effective tax rate at any given point in time on a calculated mix of the tax rates applicable to our Company and to estimates of the amount of income to be derived in any given jurisdiction. We file our tax returns based on our understanding of the appropriate tax rules and regulations. However, complexities in the tax rules and our operations, as well as positions taken publicly by the taxing authorities, may lead us to conclude that accruals for uncertain tax positions are required. In accordance with GAAP, we maintain accruals for uncertain tax positions until examination of the tax year is completed by the taxing authority, available review periods expire or additional facts and circumstances cause us to change our assessment of the appropriate accrual amount.
Consolidated Results of Operations
The following table sets forth certain statement of operations items as a percentage of sales for the periods indicated:
| | | | | | | | | | | | |
| | 52 Weeks Ended
| | | 52 Weeks Ended
| | | 52 Weeks Ended
| |
| | January 29,
| | | January 30,
| | | January 31,
| |
| | 2011 | | | 2010 | | | 2009 | |
|
Statement of Operations Data: | | | | | | | | | | | | |
Sales | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % |
Cost of sales | | | 73.2 | | | | 73.2 | | | | 74.2 | |
| | | | | | | | | | | | |
Gross profit | | | 26.8 | | | | 26.8 | | | | 25.8 | |
Selling, general and administrative expenses | | | 18.0 | | | | 18.0 | | | | 16.4 | |
Depreciation and amortization | | | 1.8 | | | | 1.8 | | | | 1.6 | |
Merger-related expenses | | | — | | | | — | | | | 0.1 | |
| | | | | | | | | | | | |
Operating earnings | | | 7.0 | | | | 7.0 | | | | 7.7 | |
Interest expense, net | | | 0.4 | | | | 0.4 | | | | 0.5 | |
Debt extinguishment expense | | | — | | | | 0.1 | | | | — | |
| | | | | | | | | | | | |
Earnings before income taxes | | | 6.6 | | | | 6.5 | | | | 7.2 | |
Income tax expense | | | 2.3 | | | | 2.4 | | | | 2.7 | |
| | | | | | | | | | | | |
Consolidated net income | | | 4.3 | | | | 4.1 | | | | 4.5 | |
Net loss attributable to noncontrolling interests | | | — | | | | 0.1 | | | | — | |
| | | | | | | | | | | | |
Consolidated net income attributable to GameStop | | | 4.3 | % | | | 4.2 | % | | | 4.5 | % |
| | | | | | | | | | | | |
The Company includes purchasing, receiving and distribution costs in selling, general and administrative expenses, rather than cost of sales, in the statement of operations. The Company includes processing fees associated
32
with purchases made by check and credit cards in cost of sales, rather than selling, general and administrative expenses, in the statement of operations. As a result of these classifications, our gross margins are not comparable to those retailers that include purchasing, receiving and distribution costs in cost of sales and include processing fees associated with purchases made by check and credit cards in selling, general and administrative expenses. The net effect of these classifications as a percentage of sales has not historically been material.
The following table sets forth sales (in millions) by significant product category for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 52 Weeks
| | | 52 Weeks
| | | 52 Weeks
| |
| | Ended
| | | Ended
| | | Ended
| |
| | January 29,
| | | January 30,
| | | January 31,
| |
| | 2011 | | | 2010 | | | 2009 | |
| | | | | Percent
| | | | | | Percent
| | | | | | Percent
| |
| | Sales | | | of Total | | | Sales | | | of Total | | | Sales | | | of Total | |
|
Sales: | | | | | | | | | | | | | | | | | | | | | | | | |
New video game hardware | | $ | 1,720.0 | | | | 18.1 | % | | $ | 1,756.5 | | | | 19.3 | % | | $ | 1,860.2 | | | | 21.1 | % |
New video game software | | | 3,968.7 | | | | 41.9 | % | | | 3,730.9 | | | | 41.1 | % | | | 3,685.0 | | | | 41.9 | % |
Used video game products | | | 2,469.8 | | | | 26.1 | % | | | 2,394.1 | | | | 26.4 | % | | | 2,026.6 | | | | 23.0 | % |
Other | | | 1,315.2 | | | | 13.9 | % | | | 1,196.5 | | | | 13.2 | % | | | 1,234.1 | | | | 14.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 9,473.7 | | | | 100.0 | % | | $ | 9,078.0 | | | | 100.0 | % | | $ | 8,805.9 | | | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other products include PC entertainment and other software, digital products and currency, accessories and magazines.
The following table sets forth gross profit (in millions) and gross profit percentages by significant product category for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 52 Weeks
| | | 52 Weeks
| | | 52 Weeks
| |
| | Ended
| | | Ended
| | | Ended
| |
| | January 29,
| | | January 30,
| | | January 31,
| |
| | 2011 | | | 2010 | | | 2009 | |
| | | | | Gross
| | | | | | Gross
| | | | | | Gross
| |
| | Gross
| | | Profit
| | | Gross
| | | Profit
| | | Gross
| | | Profit
| |
| | Profit | | | Percent | | | Profit | | | Percent | | | Profit | | | Percent | |
|
Gross Profit: | | | | | | | | | | | | | | | | | | | | | | | | |
New video game hardware | | $ | 124.9 | | | | 7.3 | % | | $ | 113.5 | | | | 6.5 | % | | $ | 112.6 | | | | 6.1 | % |
New video game software | | | 819.6 | | | | 20.7 | % | | | 795.0 | | | | 21.3 | % | | | 768.4 | | | | 20.9 | % |
Used video game products | | | 1,140.5 | | | | 46.2 | % | | | 1,121.2 | | | | 46.8 | % | | | 974.5 | | | | 48.1 | % |
Other | | | 452.6 | | | | 34.4 | % | | | 405.0 | | | | 33.8 | % | | | 414.6 | | | | 33.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 2,537.6 | | | | 26.8 | % | | $ | 2,434.7 | | | | 26.8 | % | | $ | 2,270.1 | | | | 25.8 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Fiscal 2010 Compared to Fiscal 2009
Sales increased $395.7 million, or 4.4%, to $9,473.7 million in the 52 weeks of fiscal 2010 compared to $9,078.0 million in the 52 weeks of fiscal 2009. The increase in sales was primarily attributable to the addition of non-comparable store sales from the 747 stores opened since January 31, 2009, and an increase in comparable store sales of 1.1%. The increase in comparable store sales was primarily due to strong sales of new video game and PC entertainment titles in fiscal 2010 compared to fiscal 2009. Stores are included in our comparable store sales base beginning in the thirteenth month of operation and exclude the effect of changes in foreign exchange rates.
New video game hardware sales decreased $36.5 million, or 2.1%, from fiscal 2009 to fiscal 2010, primarily due to a decrease in hardware unit sell-through, primarily in the Nintendo Wii and DSi and Sony PSP, and price cuts which resulted in lower per unit sales, partially offset by the additional sales at new stores added since fiscal 2009. New video game hardware sales decreased as a percentage of sales from 19.3% in fiscal 2009 to 18.1% in fiscal 2010, primarily due to the slow-down in hardware unit sell-through as the new platforms mature, as well as price decreases initiated by the manufacturers in fiscal 2009.
33
New video game software sales increased $237.8 million, or 6.4%, from fiscal 2009 to fiscal 2010, primarily due to strong sales of new video game titles released in fiscal 2010, compared to fiscal 2009, as well as sales from new stores added since fiscal 2009. New video game software sales increased as a percentage of total sales from 41.1% in fiscal 2009 to 41.9% in fiscal 2010, primarily due to the new release sales growth and the slow-down in hardware unit sell-through discussed above.
Used video game product sales increased $75.7 million, or 3.2%, from fiscal 2009 to fiscal 2010, primarily due to the increase in the availability of hardware and software associated with the current generation hardware platforms as those platforms age and expand and the additional sales at new stores added since fiscal 2009. As a percentage of sales, used video game product sales decreased from 26.4% to 26.1%, primarily due to the increase in new release video game software sales and other product sales. Sales of other product categories, including PC entertainment and other software and accessories, increased 9.9%, or $118.7 million, from fiscal 2009 to fiscal 2010, primarily due to stronger sales of newly-released PC entertainment software titles in fiscal 2010 and an increase in revenue associated with the Company’s loyalty program.
Cost of sales increased by $292.8 million, or 4.4%, from $6,643.3 million in fiscal 2009 to $6,936.1 million in fiscal 2010 as a result of the increase in sales and the changes in gross profit discussed below.
Gross profit increased by $102.9 million, or 4.2%, from $2,434.7 million in fiscal 2009 to $2,537.6 million in fiscal 2010. Gross profit as a percentage of sales was 26.8% in fiscal 2009 and fiscal 2010. Gross profit as a percentage of sales on new video game hardware increased from 6.5% in fiscal 2009 to 7.3% in fiscal 2010 due primarily to an increase in product replacement plan sales. Gross profit as a percentage of sales on new video game software decreased from 21.3% in fiscal 2009 to 20.7% in fiscal 2010, primarily due to a decrease in vendor allowances received, net of advertising expenses. Advertising expenses increased, due in part to expenses associated with the Company’s new loyalty program. Gross profit as a percentage of sales on used video game products decreased from 46.8% in fiscal 2009 to 46.2% in fiscal 2010 primarily due to promotional activities in the holiday selling season and a shift in sales from older hardware and software platform sales, which generate higher gross margins as platforms age, to current generation platform sales which have lower gross margins. Gross profit as a percentage of sales on the other product sales category increased from 33.8% in fiscal 2009 to 34.4% in fiscal 2010 primarily due to a shift in sales to higher margin accessories, increases in revenue associated with the Company’s loyalty program and the increase in sales of digital online game cards, some of which are recorded on a commission basis at 100% margin.
Selling, general and administrative expenses increased by $65.2 million, or 4.0%, from $1,635.1 million in fiscal 2009 to $1,700.3 million in fiscal 2010. The increase was primarily attributable to the increase in the number of stores in operation and the related increases in store, distribution and corporate office operating expenses, as well as expenses incurred in our digital and loyalty initiatives in fiscal 2010. Selling, general and administrative expenses as a percentage of sales were 18.0% in fiscal 2009 and fiscal 2010. Selling, general and administrative expenses include $29.6 million and $37.8 million in stock-based compensation expense for fiscal 2010 and fiscal 2009, respectively. Foreign currency transaction gains and (losses) are included in selling, general and administrative expenses and amounted to $2.5 million in fiscal 2010, compared to $3.8 million in fiscal 2009.
Depreciation and amortization expense increased $12.1 million from $162.6 million in fiscal 2009 to $174.7 million in fiscal 2010. This increase was primarily due to capital expenditures associated with the opening of 359 new stores during fiscal 2010 and investments in strategic initiatives and management information systems. Depreciation and amortization expense is expected to increase from fiscal 2010 to fiscal 2011 due to continued investments in new stores, management information systems and other strategic initiatives.
Interest income resulting from the investment of excess cash balances decreased from $2.2 million in fiscal 2009 to $1.8 million in fiscal 2010 as a result of lower invested cash balances and lower interest rates during fiscal 2010. Interest expense decreased from $45.4 million in fiscal 2009 to $37.0 million in fiscal 2010, primarily due to the retirement of $200.0 million of the Company’s senior notes since January 30, 2010 and the retirement of $100.0 million of the Company’s senior notes during fiscal 2009. Debt extinguishment expense of $6.0 million and $5.3 million was recognized in fiscal 2010 and fiscal 2009, respectively, as a result of the premiums paid related to debt retirement and the recognition of deferred financing fees and unamortized original issue discount.
34
Income tax expense increased by $1.8 million, from $212.8 million in fiscal 2009 to $214.6 million in fiscal 2010. The Company’s effective tax rate decreased from 36.2% in fiscal 2009 to 34.5% in fiscal 2010 due primarily to the variability in the accounting for the Company’s uncertain tax positions. See Note 12 of “Notes to Consolidated Financial Statements” for additional information regarding income taxes.
The factors described above led to an increase in operating earnings of $25.6 million, or 4.0%, from $637.0 million in fiscal 2009 to $662.6 million in fiscal 2010 and an increase in consolidated net income of $31.1 million, or 8.3%, from $375.7 million in fiscal 2009 to $406.8 million in fiscal 2010.
In 2009, the Financial Accounting Standards Board (“FASB”) issued new guidance related to the reporting of non-controlling interests in subsidiaries. The $1.2 million and $1.6 million increase in consolidated net income attributable to GameStop shareholders for fiscal 2010 and fiscal 2009, respectively, represents the portion of the net loss of the Company’s non-wholly owned subsidiaries attributable to the minority shareholders’ interest.
Fiscal 2009 Compared to Fiscal 2008
Sales increased $272.1 million, or 3.1%, to $9,078.0 million in the 52 weeks of fiscal 2009 compared to $8,805.9 million in the 52 weeks of fiscal 2008. The increase in sales was attributable to the addition of non-comparable store sales from the 1,062 stores opened since February 2, 2008, combined with the additional sales from the Micromania acquisition for an approximate total of $896 million and increases related to changes in foreign exchange rates of $25.9 million, offset by a decrease in comparable store sales of 7.9%. The decrease in comparable store sales was due primarily to a decrease in consumer traffic worldwide as a result of the continued macroeconomic weakness and a slow-down in hardware unit sell-through.
New video game hardware sales decreased $103.7 million, or 5.6%, from fiscal 2008 to fiscal 2009, primarily due to a decrease in consumer traffic as discussed above and price cuts on hardware consoles, partially offset by the additional sales at new stores added since the prior year through growth and acquisition. New video game hardware sales decreased as a percentage of sales from 21.1% in fiscal 2008 to 19.3% in fiscal 2009, primarily due to the slow-down in hardware unit sell-through as the new platforms mature, as well as price decreases initiated by the manufacturers in fiscal 2009.
New video game software sales increased $45.9 million, or 1.2%, from fiscal 2008 to fiscal 2009, primarily due to the addition of sales at the new and acquired stores added since fiscal 2008. New video game software sales decreased as a percentage of total sales from 41.9% in fiscal 2008 to 41.1% in fiscal 2009, primarily due to the 18% growth in used video game product sales as discussed below.
Used video game product sales increased $367.5 million, or 18.1%, from fiscal 2008 to fiscal 2009, primarily due to an increase in the availability of hardware and software associated with the current generation hardware platforms as those platforms age and expand, the strong growth of used video game product sales internationally, as well as the addition of sales at the new and acquired stores added since fiscal 2008. As a percentage of sales, used video game product sales increased from 23.0% to 26.4%, primarily due to the continued expansion of the installed base of new video game consoles and the availability of used hardware and software from those consoles. Sales of other product categories, including PC entertainment and other software and accessories, decreased 3.0%, or $37.6 million, from fiscal 2008 to fiscal 2009, primarily due to stronger sales of newly released PC entertainment software titles in fiscal 2008.
Cost of sales increased by $107.5 million, or 1.6%, from $6,535.8 million in fiscal 2008 to $6,643.3 million in fiscal 2009 as a result of the increase in sales and the changes in gross profit discussed below.
Gross profit increased by $164.6 million, or 7.3%, from $2,270.1 million in fiscal 2008 to $2,434.7 million in fiscal 2009. Gross profit as a percentage of sales increased from 25.8% in fiscal 2008 to 26.8% in fiscal 2009. The gross profit percentage increase was caused primarily by the increase in sales of higher margin used video game products as a percentage of total sales in fiscal 2009. Used video game product sales carry a significantly higher margin than new video game hardware or new video game software. Gross profit as a percentage of sales on new video game hardware increased from 6.1% in fiscal 2008 to 6.5% in fiscal 2009 due primarily to an increase in product replacement plan sales. Gross profit as a percentage of sales on new video game software increased from 20.9% in fiscal 2008 to 21.3% in fiscal 2009, primarily due to the mix of software sales and margin in the various
35
countries in which we operate. Gross profit as a percentage of sales on used video game products decreased from 48.1% in fiscal 2008 to 46.8% in fiscal 2009 primarily due to increased sales of used products in the international segments as a percentage of total sales. International used product sales have a lower margin due to the immaturity of the used business model in those segments. Gross profit as a percentage of sales on the other product sales category increased slightly in fiscal 2009 when compared to fiscal 2008.
Selling, general and administrative expenses increased by $189.7 million, or 13.1%, from $1,445.4 million in fiscal 2008 to $1,635.1 million in fiscal 2009. The increase was primarily attributable to the full year effect of the acquisition of Micromania in November of fiscal 2008 and the increase in the number of stores in operation and the related increases in store, distribution and corporate office operating expenses to support the store growth. Selling, general and administrative expenses as a percentage of sales increased from 16.4% in fiscal 2008 to 18.0% in fiscal 2009. The increase in selling, general and administrative expenses as a percentage of sales was primarily due to deleveraging of fixed costs as a result of the decrease in comparable store sales in fiscal 2009. Selling, general and administrative expenses include $37.8 million and $35.4 million in stock-based compensation expense for fiscal 2009 and fiscal 2008, respectively. Foreign currency transaction gains and (losses) are included in selling, general and administrative expenses and amounted to $3.8 million in fiscal 2009, compared to ($6.4) million in fiscal 2008.
Depreciation and amortization expense increased $17.6 million from $145.0 million in fiscal 2008 to $162.6 million in fiscal 2009. This increase was primarily due to the acquisition of Micromania, capital expenditures associated with the opening of 388 new stores during fiscal 2009 and investments in management information systems.
Interest income from the investment of excess cash balances decreased from $11.6 million in fiscal 2008 to $2.2 million in fiscal 2009 as a result of lower invested cash balances due to the prior year acquisitions and lower interest rates. Interest expense decreased from $50.4 million in fiscal 2008 to $45.4 million in fiscal 2009, primarily due to the retirement of $100.0 million of the Company’s senior notes during fiscal 2009 and the retirement of $30.0 million of the Company’s senior notes during fiscal 2008. Debt extinguishment expense of $5.3 million and $2.3 million was recognized in fiscal 2009 and fiscal 2008, respectively, as a result of the premiums paid related to debt retirement and the recognition of deferred financing fees and unamortized original issue discount.
Income tax expense decreased by $22.9 million, from $235.7 million in fiscal 2008 to $212.8 million in fiscal 2009. The Company’s effective tax rate decreased from 37.2% in fiscal 2008 to 36.2% in fiscal 2009 due primarily to audit settlements and statute expirations. See Note 12 of “Notes to Consolidated Financial Statements” for additional information regarding income taxes.
The factors described above led to a decrease in operating earnings of $38.1 million, or 5.6%, from $675.1 million in fiscal 2008 to $637.0 million in fiscal 2009 and a decrease in consolidated net income of $22.6 million, or 5.7%, from $398.3 million in fiscal 2008 to $375.7 million in fiscal 2009.
The $1.6 million increase in consolidated net income attributable to GameStop shareholders for fiscal 2009 represents the portion of the net loss of the Company’s non-wholly owned subsidiaries attributable to the minority shareholders’ interest.
Segment Performance
The Company operates its business in the following segments: United States, Canada, Australia and Europe. We identified these segments based on a combination of geographic areas, the methods with which we analyze performance and how we divide management responsibility. Each of the segments consists primarily of retail operations, with all stores engaged in the sale of new and used video game systems, software and accessories (which we refer to as video game products) and PC entertainment software and related accessories. These products are substantially the same regardless of geographic location, with the primary differences in merchandise carried being the timing of the release of new products or technologies in the various segments. Stores in all segments are similar in size at an average of approximately 1,400 square feet.
As we have expanded our presence in international markets, the Company has increased its operations in foreign currencies, including the euro, Australian dollar, New Zealand dollar, Canadian dollar, British pound, Swiss franc, Danish kroner, Swedish krona, and the Norwegian kroner. The notes issued in connection with the acquisition
36
of Micromania and the EB merger are reflected in the United States segment. See Note 17 of “Notes to Consolidated Financial Statements” for more information.
Sales by operating segment in U.S. dollars were as follows (in millions):
| | | | | | | | | | | | |
| | 52 Weeks
| | | 52 Weeks
| | | 52 Weeks
| |
| | Ended
| | | Ended
| | | Ended
| |
| | January 29,
| | | January 30,
| | | January 31,
| |
| | 2011 | | | 2010 | | | 2009 | |
|
United States | | $ | 6,681.2 | | | $ | 6,275.0 | | | $ | 6,466.7 | |
Canada | | | 502.3 | | | | 491.4 | | | | 548.2 | |
Australia | | | 565.2 | | | | 530.2 | | | | 520.0 | |
Europe | | | 1,725.0 | | | | 1,781.4 | | | | 1,271.0 | |
| | | | | | | | | | | | |
Total | | $ | 9,473.7 | | | $ | 9,078.0 | | | $ | 8,805.9 | |
| | | | | | | | | | | | |
Operating earnings by operating segment, defined as income from continuing operations before intercompany royalty fees, net interest expense and income taxes, in U.S. dollars were as follows (in millions):
| | | | | | | | | | | | |
| | 52 Weeks
| | | 52 Weeks
| | | 52 Weeks
| |
| | Ended
| | | Ended
| | | Ended
| |
| | January 29,
| | | January 30,
| | | January 31,
| |
| | 2011 | | | 2010 | | | 2009 | |
|
United States | | $ | 530.8 | | | $ | 488.8 | | | $ | 530.1 | |
Canada | | | 22.6 | | | | 35.0 | | | | 32.6 | |
Australia | | | 41.0 | | | | 46.0 | | | | 46.8 | |
Europe | | | 68.2 | | | | 67.2 | | | | 65.6 | |
| | | | | | | | | | | | |
Total | | $ | 662.6 | | | $ | 637.0 | | | $ | 675.1 | |
| | | | | | | | | | | | |
Total assets by operating segment in U.S. dollars were as follows (in millions):
| | | | | | | | | | | | |
| | January 29,
| | | January 30,
| | | January 31,
| |
| | 2011 | | | 2010 | | | 2009 | |
|
United States | | $ | 2,896.7 | | | $ | 2,864.9 | | | $ | 2,592.5 | |
Canada | | | 357.6 | | | | 337.8 | | | | 288.8 | |
Australia | | | 469.4 | | | | 399.9 | | | | 290.7 | |
Europe | | | 1,340.1 | | | | 1,352.7 | | | | 1,311.5 | |
| | | | | | | | | | | | |
Total | | $ | 5,063.8 | | | $ | 4,955.3 | | | $ | 4,483.5 | |
| | | | | | | | | | | | |
Fiscal 2010 Compared to Fiscal 2009
United States
Segment results for the United States include retail operations in 50 states, the District of Columbia, Puerto Rico and Guam, the electronic commerce Web sitewww.gamestop.com,Game Informermagazine andwww.kongregate.com, an online video gaming site. As of January 29, 2011, the United States segment included 4,536 GameStop stores, compared to 4,429 stores on January 30, 2010. Sales for fiscal 2010 increased 6.5% compared to fiscal 2009 as a result of increased sales at existing stores and the additional sales at the 434 stores opened since January 31, 2009, including the 227 stores opened in fiscal 2010. Sales at existing stores increased primarily due to strong sales of new release video game software and PC entertainment software and increased market share, partially offset by a slow-down in hardware unit sales. Segment operating income for fiscal 2010 increased by 8.6% compared to fiscal 2009, driven by the increase in sales and related margin discussed above.
Canada
Segment results for Canada include retail operations and ane-commerce site in Canada. Sales in the Canadian segment in the 52 weeks ended January 29, 2011 increased 2.2% compared to the 52 weeks ended January 30, 2010.
37
The increase in sales was primarily attributable to the favorable impact of changes in exchange rates in fiscal 2010 when compared to fiscal 2009, which had the effect of increasing sales by $38.8 million. Excluding the impact of changes in exchange rates, sales in the Canadian segment decreased 5.7%. The decrease in sales was primarily due to the decrease in sales at existing stores, offset by the additional sales at the 26 stores opened since January 31, 2009. As of January 29, 2011, the Canadian segment had 345 stores compared to 337 stores as of January 30, 2010. The decrease in sales at existing stores was primarily due to weak consumer traffic and a slow-down in hardware unit sell-through and lower price points when compared to fiscal 2009. Segment operating income for fiscal 2010 decreased $12.4 million to $22.6 million compared to $35.0 million for fiscal 2009. The decrease in operating income when compared to the prior year was primarily due to the decrease in sales at existing stores and the increase in selling, general and administrative expenses associated with the increase in the number of stores in operation. The decrease in operating income was partially offset by the favorable impact of changes in exchange rates which had the effect of increasing operating earnings by $1.6 million when compared to fiscal 2009.
Australia
Segment results for Australia include retail operations ande-commerce sites in Australia and New Zealand. As of January 29, 2011, the Australian segment included 405 stores, compared to 388 stores as of January 30, 2010. Sales for the 52 weeks ended January 29, 2011 increased 6.6% compared to the 52 weeks ended January 30, 2010. The increase in sales was primarily attributable to the favorable impact of changes in exchange rates in fiscal 2010 when compared to fiscal 2009, which had the effect of increasing sales by $63.8 million. Excluding the impact of changes in exchange rates, sales in the Australian segment decreased 5.4%. The decrease in sales was primarily due to the decrease in sales at existing stores offset by the additional sales at the 59 stores opened since January 31, 2009. The decrease in sales at existing stores was primarily due to weak consumer traffic and a slow-down in hardware unit sell-through and lower price points when compared to fiscal 2009. Segment operating income in fiscal 2010 decreased by $5.0 million to $41.0 million when compared to $46.0 million in fiscal 2009. The decrease in operating earnings for fiscal 2010 was due to the decrease in sales at existing stores and the increase in selling, general and administrative expenses associated with the increase in the number of stores in operation. Selling, general and administrative expenses will rise as a percentage of sales during periods of store count growth due to the fixed nature of many store expenses compared to the immature sales at new stores. This decrease in operating earnings was offset by the favorable impact of changes in exchange rates which had the effect of increasing operating earnings by $3.8 million when compared to fiscal 2009.
Europe
Segment results for Europe include retail operations in 13 European countries ande-commerce operations in five countries. As of January 29, 2011, the European segment operated 1,384 stores, compared to 1,296 stores as of January 30, 2010. For the 52 weeks ended January 29, 2011, European sales decreased 3.2% compared to the 52 weeks ended January 30, 2010. This decrease in sales was due to the unfavorable impact of changes in exchange rates in fiscal 2010, which had the effect of decreasing sales by $106.4 million when compared to fiscal 2009, and a decrease in sales at existing stores. The decrease in sales was partially offset by additional sales at the 228 new stores opened since January 31, 2009. The decrease in sales at existing stores was primarily driven by weak consumer traffic due to the continued macroeconomic weakness and lower hardware sales as a result of a slow-down in hardware unit sell-through and lower price points when compared to fiscal 2009.
The segment operating income in Europe for fiscal 2010 increased by $1.0 million to $68.2 million compared to $67.2 million in fiscal 2009. The increase in the operating income was primarily due to an increase in gross margin, driven by an increase in used product sales, partially offset by the unfavorable impact of changes in exchange rates, which had the effect of decreasing operating earnings by $6.5 million when compared to fiscal 2009.
38
Fiscal 2009 Compared to Fiscal 2008
United States
As of January 30, 2010, the United States segment included 4,429 GameStop stores, compared to 4,331 stores on January 31, 2009. Sales for the 52 weeks ended January 30, 2010 decreased 3.0% compared to the 52 weeks ended January 31, 2009 as a result of decreased sales at existing stores offset by the opening of 514 new stores, including 207 stores in the 52 weeks ended January 30, 2010. Sales at existing stores decreased partially due to a decrease in consumer traffic as a result of the continued macroeconomic weakness and a slow-down in hardware units sales, offset by an increase in used video game product sales due to an increase in the availability of hardware and software associated with the current generation of hardware platforms as those platforms age and expand. Segment operating income for the 52 weeks ended January 30, 2010 decreased by 7.8% compared to the 52 weeks ended January 31, 2009, driven by the decrease in sales and the deleveraging of the fixed components of selling, general and administrative expenses.
Canada
Sales in the Canadian segment in the 52 weeks ended January 30, 2010 decreased 10.4% compared to the 52 weeks ended January 31, 2009. The decrease in sales was primarily attributable to decreased sales at existing stores offset by the additional sales at the 47 stores opened during fiscal 2008 and fiscal 2009. As of January 30, 2010, the Canadian segment had 337 stores compared to 325 stores as of January 31, 2009. The decrease in sales at existing stores was primarily due to weak consumer traffic and a slow-down in hardware unit sell-through. Segment operating income for the 52 weeks ended January 30, 2010 increased by 7.4% to $35.0 million compared to the 52 weeks ended January 31, 2009. The increase in operating income when compared to the prior year was primarily due to an increase in gross margin, driven by an increase in used product sales and the favorable impact of changes in exchange rates which had the effect of increasing operating earnings by $1.2 million when compared to fiscal 2008.
Australia
As of January 30, 2010, the Australian segment included 388 stores, compared to 350 stores as of January 31, 2009. Sales for the 52 weeks ended January 30, 2010 increased 2.0% compared to the 52 weeks ended January 31, 2009. The increase in sales was due to the additional sales at the 112 stores opened during fiscal 2008 and fiscal 2009 and the favorable impact of changes in exchange rates, which had the effect of increasing sales by $5.2 million, offset by a decrease in sales at existing stores. The decrease in sales at existing stores was primarily due to weak consumer traffic and a slow-down in hardware unit sell-through. Segment operating income in the 52 weeks ended January 30, 2010 decreased by 1.7% to $46.0 million when compared to the 52 weeks ended January 31, 2009. The decrease in operating earnings for the 52 weeks ended January 30, 2010 was due to the decrease in sales at existing stores and the increase in selling, general and administrative expenses associated with the increase in the number of stores in operation. Selling, general and administrative expenses will rise as a percentage of sales during periods of store count growth due to the fixed nature of many store expenses compared to the immature sales at new stores. This decrease in operating earnings was offset by the favorable impact of changes in exchange rates which had the effect of increasing operating earnings by $3.6 million when compared to fiscal 2008.
Europe
Segment results for Europe include retail operations in 13 European countries including France, in which we commenced operations on November 17, 2008 as a result of the Micromania acquisition. As of January 30, 2010, the European segment operated 1,296 stores, compared to 1,201 stores as of January 31, 2009. For the 52 weeks ended January 30, 2010, European sales increased 40.2% compared to the 52 weeks ended January 31, 2009. The increase in sales was primarily due to the additional sales at the 703 new and acquired stores opened between February 3, 2008 and January 30, 2010, including the 328 stores from the Micromania acquisition in November 2008. This increase in sales was offset by the decrease in sales at existing stores and the unfavorable impact of changes in exchange rates recognized in fiscal 2009, which had the effect of decreasing sales by $15.3 million when
39
compared to fiscal 2008. The decrease in existing store sales was primarily driven by weak consumer traffic due to the continued macroeconomic weakness and a slow-down in hardware unit sell-through.
The segment operating income in Europe for the 52 weeks ended January 30, 2010 increased by 2.4% to $67.2 million compared to $65.6 million in the 52 weeks ended January 31, 2009. The increase in the operating income was primarily due to the favorable impact of changes in exchange rates which had the effect of increasing operating earnings by $5.2 million when compared to fiscal 2008. The decrease in operating earnings excluding the exchange rate effect from fiscal 2008 was due to the decrease in sales at existing stores and the increase in selling, general and administrative expenses associated with the increase in the number of stores in operation.
Liquidity and Capital Resources
Cash Flows
During fiscal 2010, cash provided by operations was $591.2 million, compared to cash provided by operations of $644.2 million in fiscal 2009. The decrease in cash provided by operations of $53.0 million from fiscal 2009 to fiscal 2010 was primarily due to an increase in cash used for inventory, partially offset by the increase in accounts payable and accrued liabilities, the increase in prepaid expenses and other current assets and the increase in other long-term liabilities, as well as the changes in the adjustment related to the excess tax benefits realized from the exercise of stock-based awards, which decreased cash provided by operations by $18.6 million. These decreases were partially offset by an increase in cash provided by consolidated net income, including the non-cash adjustments to earnings. The increase in net inventory was primarily due to higher purchases during fiscal 2010, particularly during the holiday season primarily related to hardware units which were at lower in-stock positions at the end of fiscal 2009.
During fiscal 2009, cash provided by operations was $644.2 million, compared to cash provided by operations of $549.2 million in fiscal 2008. The increase in cash provided by operations of $95.0 million from fiscal 2008 to fiscal 2009 was primarily due to an increase in cash provided by the decrease in inventory, net of the decrease in accounts payable and accrued liabilities, the increase in income taxes payable and deferred taxes, as well as the changes in the adjustment related to the excess tax benefits realized from the exercise of stock-based awards which decreased by $34.6 million. The decrease in net inventory was primarily due to lower overall purchases during fiscal 2009 as a result of the continued macroeconomic weakness and our efforts to effectively manage inventory levels. Inventory turnover also decreased in fiscal 2009 compared to fiscal 2008, primarily due to the growth in the international segments which have lower inventory turns compared to the United States segment due to their lower overall store count and multiple warehouse facilities. The increase in cash related to income taxes payable and deferred income taxes in fiscal 2009 compared to fiscal 2008 was primarily due to the timing of the recognition of deferred income tax items and the timing of estimated income tax payments at the end of fiscal 2009.
Cash used in investing activities was $240.1 million in fiscal 2010, $187.2 million in fiscal 2009 and $820.9 million in fiscal 2008. During fiscal 2010, the Company used $202.0 million for capital expenditures primarily to open 359 stores and to invest in information systems and $38.1 million for acquisitions in support of the Company’s digital initiatives. During fiscal 2009, the Company used $178.8 million for capital expenditures primarily to open 388 new stores and to invest in information systems. In addition, the Company used $8.4 million on acquisitions. During fiscal 2008, the Company used $580.4 million, net of cash acquired, to purchase Micromania and $50.3 million, net of cash acquired, to acquire Free Record Shop Norway AS, The Gamesman Limited and an increased ownership interest in GameStop Group Limited. In addition, during fiscal 2008, $190.2 million of cash was used for capital expenditures primarily to open 674 new stores and to invest in information systems.
Cash used in financing activities was $555.6 million in fiscal 2010. Cash used in financing activities was $154.4 million in fiscal 2009 and cash provided by financing activities was $29.6 million in fiscal 2008. The cash flows used in financing activities in fiscal 2010 were primarily for the repurchase of $381.2 million of treasury shares and $200.0 million in principal of the Company’s senior notes. The cash flows used in financing activities in fiscal 2009 were primarily for the repurchase of $100.0 million in principal amount of the Company’s senior notes and the purchase of $58.4 million of treasury shares. The cash flows provided by financing activities in fiscal 2008 were due to cash received related to the issuance of shares associated with stock option exercises of $28.9 million
40
and for the excess tax benefits realized from the exercise of stock-based awards of $34.2 million. These cash inflows were offset by the repurchase of $30.0 million in principal amount of the Company’s senior notes. In addition, the Company borrowed $425.0 million related to the acquisition of Micromania and subsequently repaid the balance before the end of fiscal 2008.
Sources of Liquidity
We utilize cash generated from operations and have funds available to us under our revolving credit facility to cover seasonal fluctuations in cash flows and to support our various growth initiatives. Our cash and cash equivalents are carried at cost, which approximates market value, and consist primarily of time deposits with highly rated commercial banks and money market investment funds holding direct U.S. Treasury obligations.
On January 4, 2011, the Company entered into a $400 million credit agreement (the “Revolver”), which amends and restates, in its entirety, the Company’s prior credit agreement entered into on October 11, 2005 (the “Credit Agreement”). The Revolver provides for a five-year, $400 million asset-based facility, including a $50 million letter of credit sublimit, secured by substantially all of the Company’s and its domestic subsidiaries’ assets. The Company has the ability to increase the facility, which matures in January 2016, by $150 million under certain circumstances. The extension of the Revolver to 2016 reduces our exposure to potential tightening in the credit markets.
The availability under the Revolver is limited to a borrowing base which allows the Company to borrow up to 90% of the appraisal value of the inventory, in each case plus 90% of eligible credit card receivables, net of certain reserves. Letters of credit reduce the amount available to borrow by their face value. The Company’s ability to pay cash dividends, redeem options and repurchase shares is generally permitted, except under certain circumstances, including if Revolver excess availability is less than 20%, or is projected to be within 12 months after such payment. In addition, if Revolver usage is projected to be equal to or greater than 25% of the borrowing base during the prospective12-month period, the Company is subject to meeting a fixed charge coverage ratio of 1.1:1.0 prior to making such payments. In the event that excess availability under the Revolver is at any time less than the greater of (1) $40 million or (2) 12.5% of the lesser of the total commitment or the borrowing base, the Company will be subject to a fixed charge coverage ratio covenant of 1.1:1.0.
The Revolver places certain restrictions on the Company and its subsidiaries, including limitations on asset sales, additional liens, investments, loans, guarantees, acquisitions and the incurrence of additional indebtedness. The per annum interest rate under the Revolver is variable and is calculated by applying a margin (1) for prime rate loans of 1.25% to 1.50% above the highest of (a) the prime rate of the administrative agent, (b) the federal funds effective rate plus 0.50% and (c) the London Interbank Offered (“LIBO”) rate for a30-day interest period as determined on such day plus 1.00%, and (2) for LIBO rate loans of 2.25% to 2.50% above the LIBO rate. The applicable margin is determined quarterly as a function of the Company’s average daily excess availability under the facility and is set at 1.25% for prime rate loans and 2.25% for LIBO rate loans until the first day of the fiscal quarter of the borrowers commencing on May 1, 2011. In addition, the Company is required to pay a commitment fee of 0.375% or 0.50%, depending on facility usage, for any unused portion of the total commitment under the Revolver. As of January 29, 2011, the applicable margin was 1.25% for prime rate loans and 2.25% for LIBO rate loans, while the required commitment fee was 0.50% for the unused portion of the Revolver.
The Revolver provides for customary events of default with corresponding grace periods, including failure to pay any principal or interest when due, failure to comply with covenants, any material representation or warranty made by the Company or the borrowers proving to be false in any material respect, certain bankruptcy, insolvency or receivership events affecting the Company or its subsidiaries, defaults relating to certain other indebtedness, imposition of certain judgments and mergers or the liquidation of the Company or certain of its subsidiaries.
During fiscal 2010, the Company borrowed and repaid $120 million under the Credit Agreement. During fiscal 2009, the Company borrowed and repaid $115 million under the Credit Agreement. As of January 29, 2011, there were no borrowings outstanding under the Revolver and letters of credit outstanding totaled $8.2 million.
In September 2007, the Company’s Luxembourg subsidiary entered into a discretionary $20.0 million Uncommitted Line of Credit (the “Line of Credit”) with Bank of America. There is no term associated with
41
the Line of Credit and Bank of America may withdraw the facility at any time without notice. The Line of Credit will be made available to the Company’s foreign subsidiaries for use primarily as a bank overdraft facility for short-term liquidity needs and for the issuance of bank guarantees and letters of credit to support operations. As of January 29, 2011, there were $11.0 million of cash overdrafts outstanding under the Line of Credit and bank guarantees outstanding totaled $5.6 million.
In September 2005, the Company, along with GameStop, Inc. as co-issuer (together with the Company, the “Issuers”), completed the offering of $300 million aggregate principal amount of Senior Floating Rate Notes due 2011 (the “Senior Floating Rate Notes”) and $650 million aggregate principal amount of Senior Notes due 2012 (the “Senior Notes” and, together with the Senior Floating Rate Notes, the “Notes”). The Notes were issued under an Indenture, dated September 28, 2005 (the “Indenture”), by and among the Issuers, the subsidiary guarantors party thereto, and Citibank, N.A., as trustee (the “Trustee”). In November 2006, Wilmington Trust Company was appointed as the new Trustee for the Notes.
The Senior Notes bear interest at 8.0% per annum, mature on October 1, 2012 and were priced at 98.688%, resulting in a discount at the time of issue of $8.5 million. The discount is being amortized using the effective interest method. As of January 29, 2011, the unamortized original issue discount was $1.0 million. The Issuers pay interest on the Senior Notes semi-annually, in arrears, every April 1 and October 1, to holders of record on the immediately preceding March 15 and September 15, and at maturity.
The Indenture contains affirmative and negative covenants customary for such financings, including, among other things, limitations on (1) the incurrence of additional debt, (2) restricted payments, (3) liens, (4) sale and leaseback transactions and (5) asset sales. Events of default provided for in the Indenture include, among other things, failure to pay interest or principal on the Notes, other breaches of covenants in the Indenture, and certain events of bankruptcy and insolvency. As of January 29, 2011, the Company was in compliance with all covenants associated with the Revolver and the Indenture.
Under certain conditions, the Issuers may on any one or more occasions prior to maturity redeem up to 100% of the aggregate principal amount of Senior Notes issued under the Indenture at redemption prices at or in excess of 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the redemption date. The circumstances which would limit the percentage of the Notes which may be redeemed or which would require the Company to pay a premium in excess of 100% of the principal amount are defined in the Indenture. Upon a Change of Control (as defined in the Indenture), the Issuers are required to offer to purchase all of the Notes then outstanding at 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase. The Issuers may acquire Senior Notes by means other than redemption, whether by tender offer, open market purchases, negotiated transactions or otherwise, in accordance with applicable securities laws, so long as such acquisitions do not otherwise violate the terms of the Indenture.
In November 2008, in connection with the acquisition of Micromania, the Company entered into a Term Loan Agreement (the “Term Loan Agreement”) with Bank of America, N.A. and Banc of America Securities LLC. The Term Loan Agreement provided for term loans (“Term Loans”) in the aggregate of $150 million, consisting of a $50 million secured term loan (“Term Loan A”) and a $100 million unsecured term loan (“Term Loan B”). The effective interest rate on Term Loan A was 5.75% per annum and the effective rate on Term Loan B ranged from 5.0% to 5.75% per annum.
In addition to the $150 million under the Term Loans, the Company borrowed $275 million under the Credit Agreement to complete the acquisition of Micromania in November 2008. As of January 31, 2009, the Credit Agreement and the Term Loans were repaid in full.
As of January 30, 2010 and January 29, 2011, the only long-term debt outstanding was the Senior Notes.
The maturity on the $250 million Senior Notes, gross of the unamortized original issue discount of $1.0 million, occurs in the fiscal year ending January 2013.
42
Uses of Capital
Our future capital requirements will depend on the number of new stores we open and the timing of those openings within a given fiscal year. We opened 359 stores in fiscal 2010. We expect to open approximately 300 stores in fiscal 2011. Capital expenditures for fiscal 2011 are projected to be approximately $170 million, to be used primarily to fund continued digital initiatives, new store openings, store remodels and invest in distribution and information systems in support of operations.
Between May 2006 and October 2010, the Company repurchased and redeemed the $300 million of Senior Floating Rate Notes and $400 million of Senior Notes under previously announced buybacks authorized by its Board of Directors. All of the authorized amounts were repurchased or redeemed and the repurchased Notes were delivered to the Trustee for cancellation. The associated loss on the retirement of debt was $6.0 million, $5.3 million and $2.3 million for the 52 week periods ended January 29, 2011, January 30, 2010 and January 31, 2009, respectively, which consisted of the premium paid to retire the Notes and the write-off of the deferred financing fees and the original issue discount on the Notes.
The changes in the carrying amount of the Senior Notes for the Company for the 52 weeks ended January 30, 2010 and the 52 weeks ended January 29, 2011 were as follows, in millions:
| | | | |
Balance at January 31, 2009 | | $ | 545.7 | |
Repurchase of Senior Notes, net | | | (98.4 | ) |
| | | | |
Balance at January 30, 2010 | | $ | 447.3 | |
Repurchase of Senior Notes, net | | | (198.3 | ) |
| | | | |
Balance at January 29, 2011 | | $ | 249.0 | |
| | | | |
We used cash to expand the Company through acquisitions. On November 17, 2008, GameStop France SAS, a wholly owned subsidiary of GameStop, completed the acquisition of substantially all of the outstanding capital stock of SFMI Micromania from its shareholders for approximately $580.4 million, net of cash acquired. Micromania is a leading retailer of video and computer games in France with 379 stores as of January 29, 2011. The Company funded the transaction with cash on hand, a draw on the Credit Agreement totaling $275 million, and the Term Loans.
In addition to the Micromania acquisition, the Company completed other acquisitions in fiscal 2008 with a total consideration of $50.3 million. During fiscal 2010 and fiscal 2009, the Company used $38.1 million and $8.4 million, respectively, for acquisitions which were primarily for the Company’s overall digital growth strategy.
On January 11, 2010, the Board of Directors of the Company approved a $300 million share repurchase program authorizing the Company to repurchase its common stock. For fiscal 2009, the number of shares repurchased were 6.1 million for an average price per share of $20.12. In September 2010, the Board of Directors of the Company approved an additional $300 million share repurchase program authorizing the Company to repurchase its common stock. For fiscal 2010, the number of shares repurchased were 17.1 million for an average price per share of $19.84. On February 4, 2011, the Board of Directors of the Company authorized a $500 million repurchase fund to be used for share repurchases of its common stockand/or to retire the Company’s Senior Notes. This plan replaced the September 2010 $300 million stock repurchase plan which had $138.4 million remaining. As of March 24, 2011, the Company has purchased an additional 5.9 million shares for an average price per share of $19.88 with $382.3 million remaining under the outstanding authorization.
Based on our current operating plans, we believe that available cash balances, cash generated from our operating activities and funds available under the Revolver will be sufficient to fund our operations, required payments on the Senior Notes, digital initiatives, store expansion and remodeling activities and corporate capital expenditure programs for at least the next 12 months.
43
Contractual Obligations
The following table sets forth our contractual obligations as of January 29, 2011:
| | | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period | |
| | | | | Less Than
| | | | | | | | | More Than
| |
Contractual Obligations | | Total | | | 1 Year | | | 1-3 Years | | | 3-5 Years | | | 5 Years | |
| | (In millions) | |
|
Long-Term Debt(1) | | $ | 290.0 | | | $ | 20.0 | | | $ | 270.0 | | | $ | — | | | $ | — | |
Operating Leases | | | 1,337.6 | | | | 350.7 | | | | 492.2 | | | | 231.8 | | | | 262.9 | |
Purchase Obligations(2) | | | 903.7 | | | | 903.7 | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 2,531.3 | | | $ | 1,274.4 | | | $ | 762.2 | | | $ | 231.8 | | | $ | 262.9 | |
| | | | | | | | | | | | | | | | | | | | |
| | |
(1) | | The long-term debt consists of $250.0 million (principal value), which bears interest at 8.0% per annum. Amounts include contractual interest payments. |
|
(2) | | Purchase obligations represent outstanding purchase orders for merchandise from vendors. These purchase orders are generally cancelable until shipment of the products. |
In addition to minimum rentals, the operating leases generally require the Company to pay all insurance, taxes and other maintenance costs and may provide for percentage rentals. Percentage rentals are based on sales performance in excess of specified minimums at various stores. Leases with step rent provisions, escalation clauses or other lease concessions are accounted for on a straight-line basis over the lease term, including renewal options for those leases in which it is reasonably assured that the Company will exercise the renewal option. The Company does not have leases with capital improvement funding.
The Company has entered into employment agreements with Daniel A. DeMatteo, Executive Chairman; R. Richard Fontaine, Chairman International; J. Paul Raines, Chief Executive Officer; Tony D. Bartel, President and Robert A. Lloyd, Executive Vice President and Chief Financial Officer. The term of the employment agreement with Mr. DeMatteo commenced on April 11, 2005, when he was Chief Operating Officer of the Company, and was renewed in April 2010 with an expiration date of March 3, 2013. The term of the employment agreement with Mr. Fontaine commenced on April 11, 2005, when he was Chairman and Chief Executive Officer of the Company, and was renewed in April 2010 with an expiration date of March 3, 2013. The term of the employment agreement for Mr. Raines commenced on September 7, 2008 and continues for a period of three years thereafter. The term of the employment agreement for Mr. Bartel commenced on October 24, 2008 and continues for a period of three years thereafter. The term of the employment agreement for Mr. Lloyd commenced on June 2, 2010 and continues for a period of three years thereafter.
Each of the employment agreements was amended on February 9, 2011 to eliminate the right of each executive to terminate his employment agreement as a result of achange-in-control of the Company. The amendments also eliminated the automatic renewal provision of each agreement, except for Mr. Fontaine, whose agreement does not contain an automatic renewal provision. The minimum annual salaries during the term of employment under the amended and restated employment agreements for Messrs. DeMatteo, Fontaine, Raines, Bartel and Lloyd shall be no less than $1,250,000, $600,000, $1,000,000, $750,000 and $500,000, respectively. The Board of Directors of the Company has set the annual salaries of Messrs. DeMatteo, Raines, Bartel and Lloyd for fiscal 2011 at $1,250,000, $1,030,000, $775,000 and $550,000, respectively. The employment agreement for Mr. Fontaine stipulates that his annual salary for the period between March 27, 2011 and March 3, 2013 will be $600,000.
As of January 29, 2011, we had standby letters of credit outstanding in the amount of $8.2 million and had bank guarantees outstanding in the amount of $17.7 million, $6.1 million of which are cash collateralized.
As of January 29, 2011, the Company had $24.9 million of income tax liability, including accrued interest and penalties related to unrecognized tax benefits in other long-term liabilities in its consolidated balance sheet. At the time of this filing, the settlement period for the noncurrent portion of our income tax liability cannot be determined. In addition, any payments related to unrecognized tax benefits would be partially offset by reductions in payments in other jurisdictions.
44
In 2003, the Company purchased a 51% controlling interest in GameStop Group Limited, which operates stores in Ireland and the United Kingdom. Under the terms of the purchase agreement, the minority interest owners have the ability to require the Company to purchase their remaining shares in incremental percentages at a price to be determined based partially on the Company’s price to earnings ratio and GameStop Group Limited’s earnings. Shares representing 16% were purchased in June 2008 and an additional 16% was purchased in July 2009, bringing the Company’s total interest in GameStop Group Limited to approximately 84%. The Company already consolidates the results of GameStop Group Limited; therefore, any additional amounts acquired will not have a material effect on the Company’s financial statements.
Off-Balance Sheet Arrangements
As of January 29, 2011, the Company had no off-balance sheet arrangements as defined in Item 303 ofRegulation S-K.
Impact of Inflation
We do not believe that inflation has had a material effect on our net sales or results of operations.
Certain Relationships and Related Transactions
The Company has various relationships with Barnes & Noble, Inc. (“Barnes & Noble”), a related party through a common stockholder who is the Chairman of the Board of Directors of Barnes & Noble and a member of the Company’s Board of Directors. The Company operates departments within eight bookstores operated by Barnes & Noble, whereby the Company pays a license fee to Barnes & Noble on the gross sales of such departments. Additionally,www.gamestop.com is the exclusive specialty video game retailer listed onwww.bn.com, Barnes & Noble’se-commerce site whereby the Company pays a fee to Barnes & Noble for sales of video game or PC entertainment products sold throughwww.bn.com. The Company also continues to incur costs related to its participation in Barnes & Noble’s workers’ compensation, property and general liability insurance programs prior to June 2005. During the 52 weeks ended January 29, 2011, January 30, 2010 and January 31, 2009, the charges related to these transactions amounted to $1.4 million, $1.6 million and $1.9 million, respectively.
Recent Accounting Standards and Pronouncements
In January 2010, the FASB issued Accounting Standards Update (“ASU”) ASU2010-6,Improving Disclosures About Fair Value Measurements.On January 31, 2010, the Company adopted ASU2010-6, which requires reporting entities to make new disclosures about recurring or nonrecurring fair-value measurements, including significant transfers into and out of the standard’s Level 1 and Level 2 fair-value measurements and information on purchases, sales, issuances, and settlements on a gross basis for Level 3 fair-value measurements. ASU2010-6 is effective for annual reporting periods beginning after December 15, 2009, except for Level 3 reconciliation disclosures which are effective for annual periods beginning after December 15, 2010. The adoption of ASU2010-6 did not have a material impact on the Company’s consolidated financial statements.
On January 31, 2010, the Company adopted ASU2010-09,Subsequent Events — Amendments to Certain Recognition and Disclosure Requirements, which amends Accounting Standards Codification (“ASC”) Topic 855, Subsequent Events,so that SEC filers no longer are required to disclose the date through which subsequent events have been evaluated in originally issued and revised financial statements. The adoption of ASU2010-09 did not have a material impact on the Company’s consolidated financial statements.
In December 2010, the FASB issued ASU2010-28,Intangibles — Goodwill and Other. ASU2010-28 modifies step one of the goodwill impairment test for reporting units with zero or negative carrying amounts and offers guidance on when to perform step two of the testing. For those reporting units, an entity is required to perform step two of the goodwill impairment test if it is more likely than not that a goodwill impairment exists based upon factors such as unanticipated competition, the loss of key personnel and adverse regulatory changes. ASU2010-28 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. The adoption of ASU2010-28 is not expected to have a material effect on the Company’s consolidated financial statements.
45
In December 2010, the FASB issued ASU2010-29, which updates the guidance in ASC 805,Business Combinations, to clarify that pro forma disclosures should be presented as if a business combination occurred at the beginning of the prior annual period for purposes of preparing both the current reporting period and the prior reporting period pro forma financial information. These disclosures should be accompanied by a narrative description about the nature and amount of material, nonrecurring pro forma adjustments. ASU2010-29 is effective for business combinations consummated in periods beginning after December 15, 2010, and is required to be applied prospectively as of the date of adoption. The adoption of ASU2010-29 is not expected to have a material effect on the Company’s consolidated financial statements.
Seasonality
Our business, like that of many retailers, is seasonal, with the major portion of sales and operating profit realized during the fourth quarter which includes the holiday selling season. Results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year. Quarterly results may fluctuate materially depending upon, among other factors, the timing of new product introductions and new store openings, sales contributed by new stores, increases or decreases in comparable store sales, adverse weather conditions, shifts in the timing of certain holidays or promotions and changes in our merchandise mix.
| |
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
Interest Rate Exposure
Our Revolver’s per annum interest rate is variable and is based on one of (i) the U.S. prime rate, (ii) the LIBO rate or (iii) the U.S. federal funds rate. We do not use derivative financial instruments to hedge interest rate exposure. We limit our interest rate risks by investing our excess cash balances in short-term, highly-liquid instruments with a maturity of one year or less. In addition, the Senior Notes outstanding carry a fixed interest rate. We do not expect any material losses from our invested cash balances, and we believe that our interest rate exposure is modest.
Foreign Currency Risk
The Company uses forward exchange contracts, foreign currency options and cross-currency swaps (together, the “Foreign Currency Contracts”) to manage currency risk primarily related to intercompany loans denominated in non-functional currencies and certain foreign currency assets and liabilities. The Foreign Currency Contracts are not designated as hedges and, therefore, changes in the fair values of these derivatives are recognized in earnings, thereby offsetting the current earnings effect of the re-measurement of related intercompany loans and foreign currency assets and liabilities. For the fiscal year ended January 29, 2011, the Company recognized a $7.1 million loss in selling, general and administrative expenses related to the trading of derivative instruments. The aggregate fair value of the Foreign Currency Contracts as of January 29, 2011 was a net asset of $1.2 million as measured by observable inputs obtained from market news reporting services, such as Bloomberg and The Wall Street Journal, and industry-standard models that consider various assumptions, including quoted forward prices, time value, volatility factors, and contractual prices for the underlying instruments, as well as other relevant economic measures. A hypothetical strengthening or weakening of 10% in the foreign exchange rates underlying the Foreign Currency Contracts from the market rate as of January 29, 2011 would result in a (loss) or gain in value of the forwards, options and swaps of ($20.5) million or $20.5 million, respectively.
We do not use derivative financial instruments for trading or speculative purposes. We are exposed to counterparty credit risk on all of our derivative financial instruments and cash equivalent investments. The Company manages counterparty risk according to the guidelines and controls established under comprehensive risk management and investment policies. We continuously monitor our counterparty credit risk and utilize a number of different counterparties to minimize our exposure to potential defaults. We do not require collateral under derivative or investment agreements.
| |
Item 8. | Financial Statements and Supplementary Data |
See Item 15(a)(1) and (2) of thisForm 10-K.
46
| |
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
| |
Item 9A. | Controls and Procedures |
(a) Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company’s management conducted an evaluation, under the supervision and with the participation of the principal executive officer and principal financial officer, of the Company’s disclosure controls and procedures (as defined inRules 13a-15(e) and15d-15(e) under the Exchange Act) at the reasonable assurance level. Based on this evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and that the Company’s disclosure controls and procedures are effective at the reasonable assurance level. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports.
(b) Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange ActRules 13a-15(f) and15d-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework inInternal Control — Integrated Framework, our management concluded that our internal control over financial reporting was effective at the reasonable assurance level as of January 29, 2011. The effectiveness of our internal control over financial reporting as of January 29, 2011 has been audited by BDO USA, LLP, an independent registered public accounting firm, as stated in their report which is included in thisForm 10-K.
(c) Changes in Internal Control Over Financial Reporting
There was no change in the Company’s internal control over financial reporting (as such term is defined inRules 13a-15(f) and15d-15(f) under the Exchange Act) during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
| |
Item 9B. | Other Information |
None.
PART III
| |
Item 10. | Directors, Executive Officers and Corporate Governance* |
Code of Ethics
The Company has adopted a Code of Ethics for Senior Financial and Executive Officers that is applicable to the Company’s Executive Chairman, Chairman International, Chief Executive Officer, President, Chief Financial Officer, Chief Accounting Officer, any Executive Vice President of the Company and any Vice President of the Company employed in a finance or accounting role. This Code of Ethics is filed as Exhibit 14.1 to thisForm 10-K. The Company also has adopted a Code of Standards, Ethics and Conduct applicable to all of the Company’s management-level employees, which is filed as Exhibit 14.2 to thisForm 10-K.
In accordance with SEC rules, the Company intends to disclose any amendment (other than any technical, administrative, or other non-substantive amendment) to either of the above Codes, or any waiver of any provision
47
thereof with respect to any of the executive officers listed in the paragraph above, on the Company’s Web site (www.gamestop.com) within four business days following such amendment or waiver.
| |
Item 11. | Executive Compensation* |
| |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters* |
| |
Item 13. | Certain Relationships and Related Transactions, and Director Independence* |
| |
Item 14. | Principal Accountant Fees and Services* |
PART IV
| |
Item 15. | Exhibits and Financial Statement Schedules |
(a) The following documents are filed as a part of thisForm 10-K:
(1) Index and Consolidated Financial Statements
The list of consolidated financial statements set forth in the accompanying Index to Consolidated Financial Statements atpage F-1 herein is incorporated herein by reference. Such consolidated financial statements are filed as part of this report onForm 10-K.
(2) Financial Statement Schedules required to be filed by Item 8 of thisForm 10-K:
The following financial statement schedule for the 52 weeks ended January 29, 2011, January 30, 2010 and January 31, 2009 is filed as part of this report onForm 10-K and should be read in conjunction with our Consolidated Financial Statements appearing elsewhere in thisForm 10-K:
Schedule
Schedule II — Valuation and Qualifying Accounts
For the 52 weeks ended January 29, 2011, January 30, 2010 and January 31, 2009:
| | | | | | | | | | | | | | | | | | | | |
Column A | | Column B | | | Column C(1) | | | Column C(2) | | | Column D | | | Column E | |
| | | | | | | | Charged
| | | | | | | |
| | | | | | | | to Other
| | | Deductions-
| | | | |
| | Balance at
| | | Charged to
| | | Accounts-
| | | Write-Offs
| | | Balance at
| |
| | Beginning
| | | Costs and
| | | Accounts
| | | Net of
| | | End of
| |
| | of Period | | | Expenses | | | Payable | | | Recoveries | | | Period | |
| | (In millions) | |
|
Inventory Reserve, deducted from asset accounts | | | | | | | | | | | | | | | | | | | | |
52 Weeks Ended January 29, 2011 | | $ | 66.5 | | | $ | 27.5 | | | $ | 39.5 | | | $ | 64.0 | | | $ | 69.5 | |
52 Weeks Ended January 30, 2010 | | | 56.6 | | | | 48.9 | | | | 34.1 | | | | 73.1 | | | | 66.5 | |
52 Weeks Ended January 31, 2009 | | | 59.7 | | | | 43.0 | | | | 34.7 | | | | 80.8 | | | | 56.6 | |
Column C(2) consists primarily of amounts received from vendors for defective allowances.
The Company does not maintain a reserve for estimated sales returns and allowances as amounts are considered to be immaterial. All other schedules are omitted because they are not applicable.
* The information not otherwise provided herein that is required by Items 10, 11, 12, 13 and 14 will be set forth in the definitive proxy statement relating to the 2011 Annual Meeting of Stockholders of the Company, which is to be filed with the SEC pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. This definitive proxy statement relates to a meeting of stockholders involving the election of directors and the portions therefrom required to be set forth in thisForm 10-K by Items 10, 11, 12, 13 and 14 are incorporated herein by reference pursuant to General Instruction G(3) toForm 10-K.
48
(b) Exhibits
The following exhibits are filed as part of thisForm 10-K:
| | | | |
Exhibit
| | |
Number | | Description |
|
| 2 | .1 | | Agreement and Plan of Merger, dated as of April 17, 2005, among GameStop Corp. (f/k/a GSC Holdings Corp.), Electronics Boutique Holdings Corp., GameStop, Inc., GameStop Holdings Corp. (f/k/a GameStop Corp.), Cowboy Subsidiary LLC and Eagle Subsidiary LLC.(1) |
| 2 | .2 | | Sale and Purchase Agreement, dated September 30, 2008, between EB International Holdings, Inc. and L Capital, LV Capital, Europ@Web and other Micromania shareholders.(13) |
| 2 | .3 | | Amendment, dated November 17, 2008, to Sale and Purchase Agreement for Micromania Acquisition listed as Exhibit 2.2 above.(14) |
| 3 | .1 | | Second Amended and Restated Certificate of Incorporation.(2) |
| 3 | .2 | | Amended and Restated Bylaws.(3) |
| 3 | .3 | | Amendment to Amended and Restated Bylaws.(12) |
| 4 | .1 | | Indenture, dated September 28, 2005, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), GameStop, Inc., the subsidiary guarantors party thereto, and Citibank N.A., as trustee.(4) |
| 4 | .2 | | First Supplemental Indenture, dated October 8, 2005, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), GameStop, Inc., the subsidiary guarantors party thereto, and Citibank N.A., as trustee.(5) |
| 4 | .3 | | Rights Agreement, dated as of June 27, 2005, between GameStop Corp. (f/k/a GSC Holdings Corp.) and The Bank of New York, as Rights Agent.(3) |
| 4 | .4 | | Form of Indenture.(6) |
| 10 | .1 | | Insurance Agreement, dated as of January 1, 2002, between Barnes & Noble, Inc. and GameStop Holdings Corp. (f/k/a GameStop Corp.).(7) |
| 10 | .2 | | Operating Agreement, dated as of January 1, 2002, between Barnes & Noble, Inc. and GameStop Holdings Corp. (f/k/a GameStop Corp.).(7) |
| 10 | .3 | | Fourth Amended and Restated 2001 Incentive Plan.(16) |
| 10 | .4 | | Second Amended and Restated Supplemental Compensation Plan.(8) |
| 10 | .5 | | Form of Option Agreement.(9) |
| 10 | .6 | | Form of Restricted Share Agreement.(10) |
| 10 | .7 | | Amended and Restated Credit Agreement, dated as of January 4, 2011, among GameStop Corp., as Lead Borrower for: GameStop Corp., GameStop, Inc., Sunrise Publications, Inc., Electronics Boutique Holdings Corp., ELBO Inc., EB International Holdings, Inc., Kongregate Inc., GameStop Texas Ltd., Marketing Control Services, Inc., SOCOM LLC and Bank of America, N.A., as Issuing Bank, Bank of America, N.A., as Administrative Agent and Collateral Agent, Wells Fargo Capital Finance, LLC, as Syndication Agent, U.S. Bank National Association and Regions Bank, as Co-Documentation Agents, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Sole Lead Arranger and Sole Bookrunner.(19) |
| 10 | .8 | | Guaranty, dated as of October 11, 2005, by GameStop Corp. (f/k/a GSC Holdings Corp.) and certain subsidiaries of GameStop Corp. in favor of the agents and lenders.(11) |
| 10 | .9 | | Amended and Restated Security Agreement, dated January 4, 2011, among GameStop Corp., as Lead Borrower, the Subsidiary Borrowers party hereto, and Bank of America, N.A., as Collateral Agent.(19) |
| 10 | .10 | | Amended and Restated Patent and Trademark Security Agreement, dated January 4, 2011, among GameStop Corp., as Lead Borrower, the Subsidiary Borrowers party hereto, and Bank of America, N.A., as Collateral Agent.(19) |
| 10 | .11 | | Mortgage, Security Agreement, and Assignment and Deeds of Trust, dated October 11, 2005, between GameStop of Texas, L.P. and Bank of America, N.A., as Collateral Agent.(11) |
| 10 | .12 | | Mortgage, Security Agreement, and Assignment and Deeds of Trust, dated October 11, 2005, between Electronics Boutique of America, Inc. and Bank of America, N.A., as Collateral Agent.(11) |
49
| | | | |
Exhibit
| | |
Number | | Description |
|
| 10 | .13 | | Amended and Restated Pledge Agreement, dated January 4, 2011, by and among GameStop Corp., as Lead Borrower, the Subsidiary Borrowers party hereto, and Bank of America, N.A., as Collateral Agent.(19) |
| 10 | .14 | | Term Loan Agreement, dated November 12, 2008, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A., as lender, Bank of America, N.A., as Administrative Agent and Collateral Agent, and Banc of America Securities LLC, as Sole Arranger and Bookrunner.(14) |
| 10 | .15 | | Security Agreement, dated November 12, 2008, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A., as lender and Bank of America, N.A., as Collateral Agent.(14) |
| 10 | .16 | | Patent and Trademark Security Agreement, dated as of November 12, 2008, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A., as lender, and Bank of America, N.A., as Collateral Agent.(14) |
| 10 | .17 | | Securities Collateral Pledge Agreement, dated November 12, 2008, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A., as lender, and Bank of America, N.A., as Collateral Agent.(14) |
| 10 | .18 | | Amended and Restated Executive Employment Agreement, dated December 31, 2008, between GameStop Corp. and R. Richard Fontaine.(15) |
| 10 | .19 | | Amendment, dated as of April 5, 2010, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, between GameStop Corp. and R. Richard Fontaine.(17) |
| 10 | .20 | | Second Amendment, dated as of June 2, 2010, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, as amended by a First Amendment dated as of April 5, 2010, between GameStop Corp. and R. Richard Fontaine.(18) |
| 10 | .21 | | Third Amendment, dated as of February 9, 2011, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, as amended by a First Amendment dated as of April 5, 2010 and a Second Amendment dated as of June 2, 2010, between GameStop Corp. and R. Richard Fontaine.(20) |
| 10 | .22 | | Amended and Restated Executive Employment Agreement, dated December 31, 2008, between GameStop Corp. and Daniel A. DeMatteo.(15) |
| 10 | .23 | | Amendment, dated as of April 5, 2010, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, between GameStop Corp. and Daniel A. DeMatteo.(17) |
| 10 | .24 | | Second Amendment, dated as of June 2, 2010, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, as amended by a First Amendment dated as of April 5, 2010, between GameStop Corp. and Daniel A. DeMatteo.(18) |
| 10 | .25 | | Third Amendment, dated as of February 9, 2011, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, as amended by a First Amendment dated as of April 5, 2010 and a Second Amendment dated as of June 2, 2010, between GameStop Corp. and Daniel A. DeMatteo.(20) |
| 10 | .26 | | Amended and Restated Executive Employment Agreement, dated December 31, 2008, between GameStop Corp. and Tony Bartel.(15) |
| 10 | .27 | | Amendment, dated as of June 2, 2010, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, between GameStop Corp. and Tony Bartel.(18) |
| 10 | .28 | | Second Amendment, dated as of February 9, 2011, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, as amended by a First Amendment dated as of June 2, 2010, between GameStop Corp. and Tony Bartel.(20) |
| 10 | .29 | | Amended and Restated Executive Employment Agreement, dated December 31, 2008, between GameStop Corp. and Paul Raines.(15) |
| 10 | .30 | | Amendment, dated as of June 2, 2010, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, between GameStop Corp. and Paul Raines.(18) |
50
| | | | |
Exhibit
| | |
Number | | Description |
|
| 10 | .31 | | Second Amendment, dated as of February 9, 2011, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, as amended by a First Amendment dated as of June 2, 2010, between GameStop Corp. and Paul Raines.(20) |
| 10 | .32 | | Executive Employment Agreement, dated as of June 2, 2010, between GameStop Corp. and Robert Lloyd.(18) |
| 10 | .33 | | Amendment, dated as of February 9, 2011, to Executive Employment Agreement, dated as of June 2, 2010, between GameStop Corp. and Robert Lloyd.(20) |
| 12 | .1 | | Computation of Ratio of Earnings to Fixed Charges. |
| 14 | .1 | | Code of Ethics for Senior Financial and Executive Officers. |
| 14 | .2 | | Code of Standards, Ethics and Conduct. |
| 21 | .1 | | Subsidiaries. |
| 23 | .1 | | Consent of BDO USA, LLP. |
| 31 | .1 | | Certification of Chief Executive Officer pursuant toRule 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 toRule 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 toRule 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 toRule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | |
101.INS | | XBRL Instance Document |
101.SCH | | XBRL Taxonomy Extension Schema |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase |
101.LAB | | XBRL Taxonomy Extension Label Linkbase |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase |
| | |
(1) | | Incorporated by reference to GameStop Holdings Corp.’sForm 8-K filed with the Securities and Exchange Commission on April 18, 2005. |
|
(2) | | Incorporated by reference to the Registrant’sForm 8-K filed with the Securities and Exchange Commission on February 7, 2007. |
|
(3) | | Incorporated by reference to the Registrant’s Amendment No. 1 toForm S-4 filed with the Securities and Exchange Commission on July 8, 2005. |
|
(4) | | Incorporated by reference to GameStop Holdings Corp.’sForm 8-K filed with the Securities and Exchange Commission on September 30, 2005. |
|
(5) | | Incorporated by reference to the Registrant’sForm 10-Q for the fiscal quarter ended October 29, 2005 filed with the Securities and Exchange Commission on December 8, 2005. |
|
(6) | | Incorporated by reference to the Registrant’sForm S-3ASR filed with the Securities and Exchange Commission on April 10, 2006. |
|
(7) | | Incorporated by reference to GameStop Holdings Corp.’s Amendment No. 3 toForm S-1 filed with the Securities and Exchange Commission on January 24, 2002. |
|
(8) | | Incorporated by reference to Appendix A to the Registrant’s Proxy Statement for 2008 Annual Meeting of Stockholders filed with the Securities and Exchange Commission on May 23, 2008. |
|
(9) | | Incorporated by reference to GameStop Holdings Corp.’sForm 10-K for the fiscal year ended January 29, 2005 filed with the Securities and Exchange Commission on April 11, 2005. |
51
| | |
(10) | | Incorporated by reference to GameStop Holdings Corp.’sForm 8-K filed with the Securities and Exchange Commission on September 12, 2005. |
|
(11) | | Incorporated by reference to Registrant’sForm 8-K filed with the Securities and Exchange Commission on October 12, 2005. |
|
(12) | | Incorporated by reference to the Registrant’sForm 8-K filed with the Securities and Exchange Commission on February 8, 2011. |
|
(13) | | Incorporated by reference to the Registrant’sForm 8-K filed with the Securities and Exchange Commission on October 2, 2008. |
|
(14) | | Incorporated by reference to the Registrant’sForm 8-K filed with the Securities and Exchange Commission on November 18, 2008. |
|
(15) | | Incorporated by reference to the Registrant’sForm 8-K filed with the Securities and Exchange Commission on January 7, 2009. |
|
(16) | | Incorporated by reference to Appendix A to the Registrant’s Proxy Statement for 2009 Annual Meeting of Stockholders filed with the Securities and Exchange Commission on May 22, 2009. |
|
(17) | | Incorporated by reference to the Registrant’sForm 8-K filed with the Securities and Exchange Commission on April 9, 2010. |
|
(18) | | Incorporated by reference to the Registrant’sForm 8-K filed with the Securities and Exchange Commission on June 2, 2010. |
|
(19) | | Incorporated by reference to the Registrant’sForm 8-K filed with the Securities and Exchange Commission on January 6, 2011. |
|
(20) | | Incorporated by reference to the Registrant’sForm 8-K filed with the Securities and Exchange Commission on February 9, 2011. |
52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused thisForm 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
GAMESTOP CORP.
J. Paul Raines
Chief Executive Officer
Date: March 30, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934, thisForm 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
| | | | | | |
Name | | Capacity | | Date |
|
| | | | |
/s/ J. Paul Raines
J. Paul Raines | | Chief Executive Officer
(Principal Executive Officer) | | March 30, 2011 |
| | | | |
/s/ Daniel A. DeMatteo
Daniel A. DeMatteo | | Executive Chairman and Director | | March 30, 2011 |
| | | | |
/s/ R. Richard Fontaine
R. Richard Fontaine | | Chairman International and Director | | March 30, 2011 |
| | | | |
/s/ Robert A. Lloyd
Robert A. Lloyd | | Executive Vice President and Chief Financial Officer
(Principal Financial Officer) | | March 30, 2011 |
| | | | |
/s/ Troy W. Crawford
Troy W. Crawford | | Senior Vice President, Chief Accounting Officer
(Principal Accounting Officer) | | March 30, 2011 |
| | | | |
/s/ Jerome L. Davis
Jerome L. Davis | | Director | | March 30, 2011 |
| | | | |
/s/ Steven R. Koonin
Steven R. Koonin | | Director | | March 30, 2011 |
| | | | |
/s/ Leonard Riggio
Leonard Riggio | | Director | | March 30, 2011 |
| | | | |
/s/ Michael N. Rosen
Michael N. Rosen | | Director | | March 30, 2011 |
| | | | |
/s/ Stephanie M. Shern
Stephanie M. Shern | | Director | | March 30, 2011 |
53
| | | | | | |
Name | | Capacity | | Date |
|
| | | | |
/s/ Stanley P. Steinberg
Stanley P. Steinberg | | Director | | March 30, 2011 |
| | | | |
/s/ Gerald R. Szczepanski
Gerald R. Szczepanski | | Director | | March 30, 2011 |
| | | | |
/s/ Edward A. Volkwein
Edward A. Volkwein | | Director | | March 30, 2011 |
| | | | |
/s/ Lawrence S. Zilavy
Lawrence S. Zilavy | | Director | | March 30, 2011 |
54
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | |
| | Page |
|
GameStop Corp. Consolidated Financial Statements:
| | | | |
| | | F-2 | |
Consolidated Financial Statements: | | | | |
| | | F-4 | |
| | | F-5 | |
| | | F-6 | |
| | | F-7 | |
| | | F-8 | |
F-1
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
GameStop Corp.
Grapevine, Texas
We have audited the accompanying consolidated balance sheets of GameStop Corp. as of January 29, 2011 and January 30, 2010 and the related consolidated statements of income, stockholders’ equity, and cash flows for the 52 week periods ended January 29, 2011, January 30, 2010 and January 31, 2009. In connection with our audits of the financial statements, we have also audited the financial statement schedule listed in Item 15(a)(2) of thisForm 10-K. These financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and schedules. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of GameStop Corp. as of January 29, 2011 and January 30, 2010, and the results of its operations and its cash flows for the 52 week periods ended January 29, 2011, January 30, 2010 and January 31, 2009,in conformity with accounting principles generally accepted in the United States of America.
Also, in our opinion, the financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), GameStop Corp.’s internal control over financial reporting as of January 29, 2011, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 30, 2011 expressed an unqualified opinion thereon.
BDO USA, LLP
Dallas, Texas
March 30, 2011
F-2
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
GameStop Corp.
Grapevine, Texas
We have audited GameStop Corp.’s internal control over financial reporting as of January 29, 2011, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). GameStop Corp.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A of the Annual Report onForm 10-K, Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, GameStop Corp. maintained, in all material respects, effective internal control over financial reporting as of January 29, 2011, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of GameStop Corp. as of January 29, 2011 and January 30, 2010, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the 52 week periods ended January 29, 2011, January 30, 2010, and January 31, 2009 and our report dated March 30, 2011 expressed an unqualified opinion on those consolidated financial statements and schedule.
BDO USA, LLP
Dallas, Texas
March 30, 2011
F-3
GAMESTOP CORP.
| | | | | | | | |
| | January 29,
| | | January 30,
| |
| | 2011 | | | 2010 | |
| | (In millions) | |
|
ASSETS |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 710.8 | | | $ | 905.4 | |
Receivables, net | | | 65.5 | | | | 64.0 | |
Merchandise inventories, net | | | 1,257.5 | | | | 1,053.6 | |
Deferred income taxes — current | | | 28.8 | | | | 21.2 | |
Prepaid expenses | | | 75.7 | | | | 59.4 | |
Other current assets | | | 16.5 | | | | 23.7 | |
| | | | | | | | |
Total current assets | | | 2,154.8 | | | | 2,127.3 | |
| | | | | | | | |
Property and equipment: | | | | | | | | |
Land | | | 24.0 | | | | 11.5 | |
Buildings and leasehold improvements | | | 577.2 | | | | 523.0 | |
Fixtures and equipment | | | 817.8 | | | | 711.5 | |
| | | | | | | | |
Total property and equipment | | | 1,419.0 | | | | 1,246.0 | |
Less accumulated depreciation and amortization | | | 805.2 | | | | 661.8 | |
| | | | | | | | |
Net property and equipment | | | 613.8 | | | | 584.2 | |
Goodwill, net | | | 1,996.3 | | | | 1,946.5 | |
Other intangible assets | | | 254.6 | | | | 259.9 | |
Other noncurrent assets | | | 44.3 | | | | 37.4 | |
| | | | | | | | |
Total noncurrent assets | | | 2,909.0 | | | | 2,828.0 | |
| | | | | | | | |
Total assets | | $ | 5,063.8 | | | $ | 4,955.3 | |
| | | | | | | | |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
Current liabilities: | | | | | | | | |
Accounts payable | | $ | 1,028.1 | | | $ | 961.7 | |
Accrued liabilities | | | 657.0 | | | | 632.1 | |
Taxes payable | | | 62.7 | | | | 61.9 | |
| | | | | | | | |
Total current liabilities | | | 1,747.8 | | | | 1,655.7 | |
| | | | | | | | |
Senior notes payable, long-term portion, net | | | 249.0 | | | | 447.3 | |
Deferred taxes | | | 74.9 | | | | 25.5 | |
Other long-term liabilities | | | 96.2 | | | | 103.8 | |
| | | | | | | | |
Total long-term liabilities | | | 420.1 | | | | 576.6 | |
| | | | | | | | |
Total liabilities | | | 2,167.9 | | | | 2,232.3 | |
| | | | | | | | |
Commitments and contingencies (Notes 10 and 11) | | | | | | | | |
Stockholders’ equity: | | | | | | | | |
Preferred stock — authorized 5.0 shares; no shares issued or outstanding | | | — | | | | — | |
Class A common stock — $.001 par value; authorized 300.0 shares; 146.0 and 158.7 shares outstanding, respectively | | | 0.1 | | | | 0.2 | |
Additionalpaid-in-capital | | | 928.9 | | | | 1,210.5 | |
Accumulated other comprehensive income | | | 162.5 | | | | 114.7 | |
Retained earnings | | | 1,805.8 | | | | 1,397.8 | |
| | | | | | | | |
Equity attributable to GameStop Corp. stockholders | | | 2,897.3 | | | | 2,723.2 | |
Equity (deficit) attributable to noncontrolling interest | | | (1.4 | ) | | | (0.2 | ) |
| | | | | | | | |
Total equity | | | 2,895.9 | | | | 2,723.0 | |
| | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 5,063.8 | | | $ | 4,955.3 | |
| | | | | | | | |
See accompanying notes to consolidated financial statements.
F-4
GAMESTOP CORP.
| | | | | | | | | | | | |
| | 52 Weeks
| | | 52 Weeks
| | | 52 Weeks
| |
| | Ended
| | | Ended
| | | Ended
| |
| | January 29,
| | | January 30,
| | | January 31,
| |
| | 2011 | | | 2010 | | | 2009 | |
| | (In millions, except per share data) | |
|
Sales | | $ | 9,473.7 | | | $ | 9,078.0 | | | $ | 8,805.9 | |
Cost of sales | | | 6,936.1 | | | | 6,643.3 | | | | 6,535.8 | |
| | | | | | | | | | | | |
Gross profit | | | 2,537.6 | | | | 2,434.7 | | | | 2,270.1 | |
Selling, general and administrative expenses | | | 1,700.3 | | | | 1,635.1 | | | | 1,445.4 | |
Depreciation and amortization | | | 174.7 | | | | 162.6 | | | | 145.0 | |
Merger-related expenses | | | — | | | | — | | | | 4.6 | |
| | | | | | | | | | | | |
Operating earnings | | | 662.6 | | | | 637.0 | | | | 675.1 | |
Interest income | | | (1.8 | ) | | | (2.2 | ) | | | (11.6 | ) |
Interest expense | | | 37.0 | | | | 45.4 | | | | 50.4 | |
Debt extinguishment expense | | | 6.0 | | | | 5.3 | | | | 2.3 | |
| | | | | | | | | | | | |
Earnings before income tax expense | | | 621.4 | | | | 588.5 | | | | 634.0 | |
Income tax expense | | | 214.6 | | | | 212.8 | | | | 235.7 | |
| | | | | | | | | | | | |
Consolidated net income | | | 406.8 | | | | 375.7 | | | | 398.3 | |
Net loss attributable to noncontrolling interests | | | 1.2 | | | | 1.6 | | | | — | |
| | | | | | | | | | | | |
Consolidated net income attributable to GameStop | | $ | 408.0 | | | $ | 377.3 | | | $ | 398.3 | |
| | | | | | | | | | | | |
Basic net income per common share(1) | | $ | 2.69 | | | $ | 2.29 | | | $ | 2.44 | |
| | | | | | | | | | | | |
Diluted net income per common share(1) | | $ | 2.65 | | | $ | 2.25 | | | $ | 2.38 | |
| | | | | | | | | | | | |
Weighted average shares of common stock — basic | | | 151.6 | | | | 164.5 | | | | 163.2 | |
| | | | | | | | | | | | |
Weighted average shares of common stock — diluted | | | 154.0 | | | | 167.9 | | | | 167.7 | |
| | | | | | | | | | | | |
| | |
(1) | | Basic net income per share and diluted net income per share are calculated based on consolidated net income attributable to GameStop. |
See accompanying notes to consolidated financial statements.
F-5
GAMESTOP CORP.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | GameStop Corp. Shareholders | | | | | | | |
| | Class A
| | | | | | Accumulated
| | | | | | | | | | |
| | Common Stock | | | Additional
| | | Other
| | | | | | | | | | |
| | | | | Common
| | | Paid-in
| | | Comprehensive
| | | Retained
| | | Noncontrolling
| | | | |
| | Shares | | | Stock | | | Capital | | | Income | | | Earnings | | | Interest | | | Total | |
| | (In millions) | |
|
Balance at February 2, 2008 | | | 161.0 | | | $ | 0.2 | | | $ | 1,208.4 | | | $ | 31.6 | | | $ | 622.2 | | | $ | — | | | $ | 1,862.4 | |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income for the 52 weeks ended January 31, 2009 | | | — | | | | — | | | | — | | | | — | | | | 398.3 | | | | — | | | | 398.3 | |
Foreign currency translation | | | — | | | | — | | | | — | | | | (89.1 | ) | | | — | | | | — | | | | (89.1 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | 309.2 | |
Stock-based compensation | | | — | | | | — | | | | 35.4 | | | | — | | | | — | | | | — | | | | 35.4 | |
Exercise of employee stock options and issuance of shares upon vesting of restricted stock grants (including tax benefit of $37.6) | | | 2.8 | | | | — | | | | 63.6 | | | | — | | | | — | | | | — | | | | 63.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at January 31, 2009 | | | 163.8 | | | | 0.2 | | | | 1,307.4 | | | | (57.5 | ) | | | 1,020.5 | | | | — | | | | 2,270.6 | |
Purchase of subsidiary shares from noncontrolling interest | | | — | | | | — | | | | (5.1 | ) | | | — | | | | — | | | | 1.4 | | | | (3.7 | ) |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) for the 52 weeks ended January 30, 2010 | | | — | | | | — | | | | — | | | | — | | | | 377.3 | | | | (1.6 | ) | | | 375.7 | |
Foreign currency translation | | | — | | | | — | | | | — | | | | 172.2 | | | | — | | | | — | | | | 172.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | 547.9 | |
Stock-based compensation | | | — | | | | — | | | | 37.8 | | | | — | | | | — | | | | — | | | | 37.8 | |
Purchase of treasury stock | | | (6.1 | ) | | | — | | | | (123.0 | ) | | | — | | | | — | | | | — | | | | (123.0 | ) |
Exercise of employee stock options and issuance of shares upon vesting of restricted stock grants (including tax expense of $0.3) | | | 1.0 | | | | — | | | | (6.6 | ) | | | — | | | | — | | | | — | | | | (6.6 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at January 30, 2010 | | | 158.7 | | | | 0.2 | | | | 1,210.5 | | | | 114.7 | | | | 1,397.8 | | | | (0.2 | ) | | | 2,723.0 | |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) for the 52 weeks ended January 29, 2011 | | | — | | | | — | | | | — | | | | — | | | | 408.0 | | | | (1.2 | ) | | | 406.8 | |
Foreign currency translation | | | — | | | | — | | | | — | | | | 47.8 | | | | — | | | | — | | | | 47.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | 454.6 | |
Stock-based compensation | | | — | | | | — | | | | 29.5 | | | | — | | | | — | | | | — | | | | 29.5 | |
Purchase of treasury stock | | | (17.1 | ) | | | (0.1 | ) | | | (338.5 | ) | | | — | | | | — | | | | — | | | | (338.6 | ) |
Exercise of employee stock options and issuance of shares upon vesting of restricted stock grants (including tax benefit of $18.7) | | | 4.4 | | | | — | | | | 27.4 | | | | — | | | | — | | | | — | | | | 27.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at January 29, 2011 | | | 146.0 | | | $ | 0.1 | | | $ | 928.9 | | | $ | 162.5 | | | $ | 1,805.8 | | | $ | (1.4 | ) | | $ | 2,895.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
F-6
GAMESTOP CORP.
| | | | | | | | | | | | |
| | 52 Weeks
| | | 52 Weeks
| | | 52 Weeks
| |
| | Ended
| | | Ended
| | | Ended
| |
| | January 29,
| | | January 30,
| | | January 31,
| |
| | 2011 | | | 2010 | | | 2009 | |
| | (In millions) | |
|
Cash flows from operating activities: | | | | | | | | | | | | |
Consolidated net income | | $ | 406.8 | | | $ | 375.7 | | | $ | 398.3 | |
Adjustments to reconcile net earnings to net cash flows provided by operating activities: | | | | | | | | | | | | |
Depreciation and amortization (including amounts in cost of sales) | | | 176.8 | | | | 164.1 | | | | 146.4 | |
Provision for inventory reserves | | | 27.5 | | | | 48.9 | | | | 43.0 | |
Amortization and retirement of deferred financing fees and issue discounts | | | 5.0 | | | | 5.0 | | | | 3.7 | |
Stock-based compensation expense | | | 29.6 | | | | 37.8 | | | | 35.4 | |
Deferred income taxes | | | 38.2 | | | | (1.2 | ) | | | (24.7 | ) |
Excess tax (benefits) expense realized from exercise of stock-based awards | | | (18.6 | ) | | | 0.4 | | | | (34.2 | ) |
Loss on disposal of property and equipment | | | 7.6 | | | | 4.4 | | | | 5.2 | |
Changes in other long-term liabilities | | | (7.2 | ) | | | 7.6 | | | | 7.4 | |
Changes in operating assets and liabilities, net | | | | | | | | | | | | |
Receivables, net | | | 0.2 | | | | 4.2 | | | | (2.9 | ) |
Merchandise inventories | | | (227.2 | ) | | | 29.6 | | | | (209.5 | ) |
Prepaid expenses and other current assets | | | (10.5 | ) | | | 2.3 | | | | (16.4 | ) |
Prepaid income taxes and accrued income taxes payable | | | 22.3 | | | | 54.6 | | | | 43.9 | |
Accounts payable and accrued liabilities | | | 140.7 | | | | (89.2 | ) | | | 153.6 | |
| | | | | | | | | | | | |
Net cash flows provided by operating activities | | | 591.2 | | | | 644.2 | | | | 549.2 | |
| | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | | |
Purchase of property and equipment | | | (197.6 | ) | | | (163.8 | ) | | | (183.2 | ) |
Acquisitions, net of cash acquired | | | (38.1 | ) | | | (8.4 | ) | | | (630.7 | ) |
Other | | | (4.4 | ) | | | (15.0 | ) | | | (7.0 | ) |
| | | | | | | | | | | | |
Net cash flows used in investing activities | | | (240.1 | ) | | | (187.2 | ) | | | (820.9 | ) |
| | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | | |
Repurchase of notes payable | | | (200.0 | ) | | | (100.0 | ) | | | (30.0 | ) |
Purchase of treasury shares | | | (381.2 | ) | | | (58.4 | ) | | | — | |
Borrowings from the revolver | | | 120.0 | | | | 115.0 | | | | — | |
Repayment of revolver borrowings | | | (120.0 | ) | | | (115.0 | ) | | | — | |
Borrowings for acquisition | | | — | | | | — | | | | 425.0 | |
Repayments of acquisition borrowings | | | — | | | | — | | | | (425.0 | ) |
Issuance of shares relating to stock options | | | 10.8 | | | | 4.5 | | | | 28.9 | |
Excess tax benefits (expense) realized from exercise of stock-based awards | | | 18.6 | | | | (0.4 | ) | | | 34.2 | |
Other | | | (3.8 | ) | | | (0.1 | ) | | | (3.5 | ) |
| | | | | | | | | | | | |
Net cash flows provided by (used in) financing activities | | | (555.6 | ) | | | (154.4 | ) | | | 29.6 | |
| | | | | | | | | | | | |
Exchange rate effect on cash and cash equivalents | | | 9.9 | | | | 24.7 | | | | (37.2 | ) |
| | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | (194.6 | ) | | | 327.3 | | | | (279.3 | ) |
Cash and cash equivalents at beginning of period | | | 905.4 | | | | 578.1 | | | | 857.4 | |
| | | | | | | | | | | | |
Cash and cash equivalents at end of period | | $ | 710.8 | | | $ | 905.4 | | | $ | 578.1 | |
| | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
F-7
GAMESTOP CORP.
| |
1. | Summary of Significant Accounting Policies |
Background
GameStop Corp. (together with its predecessor companies, “GameStop,” “we,” “us,” “our,” or the “Company”) is the world’s largest multichannel retailer of video game products and PC entertainment software. The Company sells new and used video game hardware, video game software and accessories, PC entertainment software and other merchandise primarily through its GameStop, EB Games and Micromania stores. The Company’s stores, which totaled 6,670 at January 29, 2011, are located in major regional shopping malls and strip centers. We also operate electronic commerce Web siteswww.gamestop.com,www.ebgames.com.au,www.gamestop.ca,www.gamestop.it,www.gamestop.es,www.gamestop.ie,www.gamestop.de andwww.micromania.fr. In addition, we publishGame Informer magazine and operate the online video gaming Web sitewww.kongregate.com. The Company operates in four business segments, which are the United States, Australia, Canada and Europe.
The Company is a Delaware corporation, formerly known as GSC Holdings Corp., and has grown through a business combination (the “EB merger”) of GameStop Holdings Corp., formerly known as GameStop Corp., and Electronics Boutique Holdings Corp. (“EB”), which was completed on October 8, 2005. The Company also has grown through acquisitions, including the purchase in November 2008 of2013, SFMI Micromania SAS (“Micromania”), a leading retailer of video and computer games in France.
Basis of Presentation and Consolidation
Our consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and its majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. All dollar and share amounts (other than dollar amounts per share) in the consolidated financial statements are stated in millions unless otherwise indicated.
The Company’s fiscal year is composed of the 52 or 53 weeks ending on the Saturday closest to the last day of January. Fiscal 2010 consisted of the 52 weeks ended on January 29, 2011. Fiscal 2009 consisted of the 52 weeks ended on January 30, 2010. Fiscal 2008 consisted of the 52 weeks ended on January 31, 2009. The financial statements included herein for fiscal 2010 include the results of Kongregate Inc., the online video gaming company acquired by the Company on August 1, 2010. The Company’s operating results for fiscal 2010 and fiscal 2009 include 52 weeks of Micromania’s results and the operating results for fiscal 2008 include 11 weeks of Micromania’s results.
Use of Estimates
The preparation of financial statementsmerger with Electronics Boutique Holdings Corp. in conformity with accounting principles generally accepted in the United States of America (“GAAP”2005 (the “EB merger”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. Changes in the estimates and assumptions used by management could have significant impact on the Company’s financial results. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to conform the prior period data to the current year presentation.
F-8
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Cash and Cash Equivalents
The Company considers all short-term, highly-liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Company’s cash and cash equivalents are carried at cost, which approximates market value, and consist primarily of time deposits with highly rated commercial banks. From time to time depending upon interest rates, credit worthiness and other factors, the Company invests in money market investment funds holding direct U.S. Treasury obligations. The Company held such cash equivalents as of January 29, 2011.
Merchandise Inventories
The Company’s merchandise inventories are carried at the lower of cost or market generally using the average cost method. Under the average cost method, as new product is received from vendors, its current cost is added to the existing cost of product on-hand and this amount is re-averaged over the cumulative units. Used video game products traded in by customers are recorded as inventory at the amount of the store credit given to the customer. In valuing inventory, management is required to make assumptions regarding the necessity of reserves required to value potentially obsolete or over-valued items at the lower of cost or market. Management considers quantities on hand, recent sales, potential price protections and returns to vendors, among other factors, when making these assumptions. The Company’s ability to gauge these factors is dependent upon the Company’s ability to forecast customer demand and to provide a well-balanced merchandise assortment. Inventory is adjusted based on anticipated physical inventory losses or shrinkage and actual losses resulting from periodic physical inventory counts. Inventory reserves as of January 29, 2011 and January 30, 2010 were $69.5 million and $66.5 million, respectively.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation and amortization. Depreciation on furniture, fixtures and equipment is computed using the straight-line method over their estimated useful lives ranging from two to eight years. Maintenance and repairs are expensed as incurred, while betterments and major remodeling costs are capitalized. Leasehold improvements are capitalized and amortized over the shorter of their estimated useful lives or the terms of the respective leases, including option periods in which the exercise of the option is reasonably assured (generally ranging from three to ten years). Costs incurred in purchasing management information systems are capitalized and included in property and equipment. These costs are amortized over their estimated useful lives from the date the systems become operational.
The Company periodically reviews its property and equipment when events or changes in circumstances indicate that their carrying amounts may not be recoverable or their depreciation or amortization periods should be accelerated. The Company assesses recoverability based on several factors, including management’s intention with respect to its stores and those stores’ projected undiscounted cash flows. An impairment loss would be recognized for the amount by which the carrying amount of the assets exceeds their fair value, as approximated by the present value of their projected cash flows. Write-downs incurred by the Company through January 29, 2011 have not been material.
Goodwill
Goodwill represents the excess purchase price over tangible net assets and identifiableWe record intangible assets acquired. The Company is required to evaluate goodwill and other intangible assets not subject to amortization for impairment at least annually. This test is completed at the beginning of the fourth quarter each fiscal year or when circumstances indicate the carrying value of the goodwill or other intangible assets might be impaired. Goodwill has been assigned to reporting units for the purpose of impairment testing. The Company has four business segments, the United States, Australia, Canada and Europe, which also define our reporting units based upon the similar economic characteristics of operations within each segment, including the nature of products, product distribution
F-9
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
and the type of customer and separate management within those regions. The Company estimates fair value based on the discounted cash flows of each reporting unit. The Company uses a two-step process to measure goodwill impairment. If the fair value of the reporting unit is higher than its carrying value, then goodwill is not impaired. If the carrying value of the reporting unit is higher than the fair value, then the second test of goodwill impairment is needed. The second test compares the implied fair value of the reporting unit’s goodwill with its carrying amount. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value, then an impairment loss is recognized in the amount of the excess. The Company completed its annual impairment test of goodwill as of the first day of the fourth quarter of fiscal 2008, fiscal 2009 and fiscal 2010 and concluded that none of its goodwill was impaired. Note 8 provides additional information concerning the changes in goodwill for the consolidated financial statements presented.
Other Intangible Assets
Other intangible assets consist primarily of tradenames, leasehold rights, advertising relationships and amounts attributed to favorable leasehold interests recorded as a result of business acquisitions. Intangible assets are recorded apart from goodwill if they arise from a contractual right and are capable of being separated from the entity and sold, transferred, licensed, rented or exchanged individually. The useful life and amortization methodology of intangible assets are determined based on the period in which they are expected to contribute directly to cash flows. Intangible assets that are determined to have a definite life are amortized over that period. Intangible assets that are determined to have an indefinite life are not amortized, but are required to be evaluated at least annually for impairment. If the carrying value of an individual indefinite-life intangible asset exceeds its fair value as determined by its discounted cash flows, such individual indefinite-life intangible asset is written down by the amount of the excess. The Company completed its annual impairment tests of indefinite-life intangible assets as of the first day of the fourth quarter of fiscal 2008, fiscal 2009 and fiscal 2010 and concluded that none of its intangible assets were impaired.
TradenamesTrade names which were recorded as a result of acquisitions, primarily Micromania, are generally considered indefinite lifeindefinite-lived intangible assets as they are expected to contribute to cash flows indefinitely and are not subject to amortization, but they are subject to annual impairment testing. Dealer agreements were recorded primarily from our acquisition of Spring Mobile. Dealer agreements represent a value associated with the rights and privileges afforded the operator under the associated agreement. Our dealer agreements are not subject to amortization. Leasehold rights which were recorded as a result of the Micromania acquisition represent the value of rights of tenancy under commercial property leases for properties located in France. Rights pertaining to individual leases can be sold by us to a new tenant or recovered by us from the landlord if the exercise of the automatic right of renewal is refused. Leasehold rights are amortized on a straight-line basis over the expected lease term not to exceed 20 years with no residual value. Advertising relationships, which were recorded as a result of digital acquisitions, are relationships with existing advertisers who pay to place ads on the Company’sour digital Web sites and are amortized on a straight-line basis over 10 years. Favorable leasehold interests represent the value of the contractual monthly rental payments that are less than the current market rent at stores acquired as part of the Micromania acquisition or the EB merger. Favorable leasehold interests are amortized on a straight-line basis over their remaining lease term with no expected residual value. Note 8 provides
Indefinite-lived intangible assets are assessed for impairment at least annually and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. This test is completed as of the beginning of the fourth quarter each fiscal year or when circumstances indicate the carrying value of the intangible assets might be impaired. Similar to the test for goodwill impairment discussed above, the impairment test for indefinite-lived intangible assets consists of a comparison of the fair value of the intangible asset with its carrying amount. An impairment loss is recognized for the amount by which the carrying value exceeds the fair value of the asset. The fair value of our trade names is calculated using a relief-from-royalty approach, which assumes the value of the trade name is the discounted cash flows of the amount that would be paid by a hypothetical market participant had they not owned the trade name and instead licensed the trade name from another company. The basis for
future cash flow projections is internal revenue forecasts, which our management believes represent reasonable market participant assumptions, to which the selected royalty rate is applied. These future cash flows are discounted using the applicable discount rate, as well as any potential risk premium to reflect the inherent risk of holding a standalone intangible asset. The discount rate used in the analysis reflects a hypothetical market participant’s weighted average cost of capital, current market rates and the risks associated with the projected cash flows. The primary uncertainties in this calculation are the selection of an appropriate royalty rate and assumptions used in developing internal revenue growth forecasts, as well as the perceived risk associated with those forecasts in developing the discount rate.
During the third quarter of fiscal 2012, we determined that sufficient indicators of potential impairment existed to require an interim impairment test of our Micromania trade name. As a result of the interim impairment test of our Micromania trade name, we recorded a $44.9 million impairment charge during the third quarter of fiscal 2012. We completed our annual impairment tests of indefinite-lived intangible assets as of the first day of the fourth quarter of fiscal 2013 and fiscal 2012 and concluded that none of our intangible assets were impaired. We completed our annual impairment test of indefinite-lived intangible assets as of the first day of the fourth quarter of fiscal 2011 and concluded that our Micromania trade name was impaired due to revenue forecasts that had declined since the initial valuation. As a result, we recorded a $37.8 million impairment charge for fiscal 2011. For additional information related to our intangible assets, see Note 9 to our consolidated financial statements.
Cash Consideration Received from Vendors. We participate in cooperative advertising programs and other vendor marketing programs in which our vendors provide us with cash consideration in exchange for marketing and advertising the Company’s intangible assets.
Revenue Recognition
Revenue from the salesvendors’ products. Our accounting for cooperative advertising arrangements and other vendor marketing programs results in a significant portion of the Company’s productsconsideration received from our vendors reducing the product costs in inventory rather than as an offset to our marketing and advertising costs. The consideration serving as a reduction in inventory is recognized at the time of sale and is stated netin cost of sales discounts.as inventory is sold. The salesamount of usedvendor allowances to be recorded as a reduction of inventory was determined based on the nature of the consideration received and the merchandise inventory to which the consideration relates. We apply a sell through rate to determine the timing in which the consideration should be recognized in cost of sales. Consideration received that relates to video game products are recorded at the retail price chargedthat have not yet been released to the customer. Sales returns (whichpublic is deferred.
The cooperative advertising programs and other vendor marketing programs generally cover a period from a few days up to a few weeks and include items such as product catalog advertising, in-store display promotions, Internet advertising, co-op print advertising and other programs. The allowance for each event is negotiated with the vendor and requires specific performance by us to be earned.
Although we consider our advertising and marketing programs to be effective, we do not believe that we would be able to incur the same level of advertising expenditures if the vendors decreased or discontinued their allowances. In addition, we believe that our revenues would be adversely affected if our vendors decreased or discontinued their allowances; however, we are not significant)able to reasonably estimate or quantify the impact of such actions by our vendors.
Loyalty Program. The PowerUp Rewards loyalty program allows enrolled members to earn points on purchases in our stores and on some of our Web sites that can be redeemed for rewards that include discounts or merchandise. Management estimates the net cost of the rewards that will be issued and redeemed and records this cost and the associated balance sheet reserve as points are recognizedaccumulated by loyalty program members. The two primary estimates utilized to record the balance sheet reserve for loyalty points earned by members are the estimated redemption rate and the estimated weighted-average cost per point redeemed. Management uses historical redemption rates experienced under the loyalty program, prior experience with other customer incentives and data on other similar loyalty programs as a basis to estimate the ultimate redemption rate of points earned. A weighted-average cost per point redeemed is used to estimate future redemption costs. The weighted-average cost per point redeemed is based on our most recent actual costs incurred to fulfill points that have been redeemed by our loyalty program members and is adjusted as appropriate for recent changes in redemption costs, including the mix of rewards redeemed. We continually evaluate our reserve methodology and assumptions based on developments in redemption patterns, cost per point redeemed and other factors. Changes in the ultimate redemption rate and weighted-average cost per point redeemed have the effect of either increasing or decreasing the reserve through the current period provision by an amount estimated to cover the cost of all points previously earned but not yet redeemed by loyalty program members as of the end of the reporting period.
Lease Accounting. We lease retail stores, warehouse facilities, office space and equipment. These are generally leased under noncancelable agreements that expire at the time returnsvarious dates through 2034 with various renewal options for additional periods. The agreements, which have been classified as operating leases, generally provide for minimum and, in some cases, percentage rentals, and require us to pay all insurance, taxes and other maintenance costs. Leases with step rent provisions, escalation clauses or other lease concessions are made. Subscription and advertising revenues are recorded upon release of magazinesaccounted for sale to consumers. Magazine subscription revenue is recognized on a straight-line basis over the subscription period. The revenue fromlease term, which includes renewal option periods when we are reasonably assured of exercising the paid membership of the Company’s PowerUp Rewards loyalty program is recognized over the one-year membership term. Revenue from the sales of product replacement plans isrenewal options and includes “rent holidays” (periods in which we are not obligated to pay rent). Cash or lease incentives received upon entering into certain store leases (“tenant improvement allowances”) are recognized on a straight-line basis as a reduction to rent expense over the coverage period. Thelease term, which includes renewal option periods when we are reasonably assured of exercising the renewal options. We record the unamortized portion of tenant improvement
allowances as a part of deferred revenuesrent. We do not have leases with capital improvement funding. Percentage rentals are based on sales performance in excess of specified minimums at various stores and are accounted for magazine subscriptionsin the period in which the amount of percentage rentals can be accurately estimated.
Income Taxes. We account for income taxes utilizing an asset and liability approach, and deferred financing planstaxes are included in accrued liabilities (see Note 7). Gift cards sold to customers are recognized as a liabilitydetermined based on the balance sheetestimated future tax effect of differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates. As a result of our operations in many foreign countries, our global tax rate is derived from a combination of applicable tax rates in the various jurisdictions in which we operate. We base our estimate of an annual effective tax rate at any given point in time on a calculated mix of the tax rates applicable to our operations and to estimates of the amount of income to be derived in any given jurisdiction.
We file our tax returns based on our understanding of the appropriate tax rules and regulations. However, complexities in the tax rules and our operations, as well as positions taken publicly by the taxing authorities, may lead us to conclude that accruals for uncertain tax positions are required. In accordance with GAAP, we maintain accruals for uncertain tax positions until redeemed.
F-10
GAMESTOP CORP.
examination of the tax year is completed by the taxing authority, available review periods expire or additional facts and circumstances cause us to change our assessment of the appropriate accrual amount. Our liability for uncertain tax positions was $20.6 million as of February 1, 2014.
Additionally, a valuation allowance is recorded against a deferred tax asset if it is not more likely than not that the asset will be realized. Several factors are considered in evaluating the realizability of our deferred tax assets, including the remaining years available for carry forward, the tax laws for the applicable jurisdictions, the future profitability of the specific business units, and tax planning strategies. Our valuation allowance was $13.3 million as of February 1, 2014. See Note 13 to our consolidated financial statements for further information regarding income taxes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Consolidated Results of Operations
The Company sells a varietyfollowing table sets forth certain statement of digital products which generally allow consumers to download software or play games on the internet. Certain of these products do not require the Company to purchase inventory or take physical possession of, or take title to, inventory. When purchasing these products from the Company, consumers pay a retail price and the Company earns a commission based onoperations items as a percentage of net sales for the retail sale as negotiated with the product publisher. The Company recognizes this commission as revenue on the sale of these digital products.periods indicated:
Revenues do not |
| | | | | | | | | |
| | 52 Weeks Ended February 1, 2014 | | 53 Weeks Ended February 2, 2013 | | 52 Weeks Ended January 28, 2012 |
Statement of Operations Data: | | | | | | |
Net sales | | 100.0 | % | | 100.0 | % | | 100.0 | % |
Cost of sales | | 70.6 |
| | 70.2 |
| | 71.9 |
|
Gross profit | | 29.4 |
| | 29.8 |
| | 28.1 |
|
Selling, general and administrative expenses | | 21.0 |
| | 20.7 |
| | 19.3 |
|
Depreciation and amortization | | 1.8 |
| | 2.0 |
| | 2.0 |
|
Goodwill impairments | | 0.1 |
| | 7.0 |
| | — |
|
Asset impairments and restructuring charges | | 0.2 |
| | 0.6 |
| | 0.8 |
|
Operating earnings (loss) | | 6.3 |
| | (0.5 | ) | | 6.0 |
|
Interest expense, net | | — |
| | — |
| | 0.2 |
|
Earnings (loss) before income tax expense | | 6.3 |
| | (0.5 | ) | | 5.8 |
|
Income tax expense | | 2.4 |
| | 2.5 |
| | 2.2 |
|
Net income (loss) | | 3.9 |
| | (3.0 | ) | | 3.6 |
|
Net loss attributable to noncontrolling interests | | — |
| | — |
| | — |
|
Net income (loss) attributable to GameStop Corp. | | 3.9 | % | | (3.0 | )% | | 3.6 | % |
We include sales taxes or other taxes collected from customers.
Cost of Sales and Selling, General and Administrative Expenses Classification
The classification of cost of sales and selling, general and administrative expenses varies across the retail industry. The Company includes purchasing, receiving and distribution costs in selling, general and administrative expenses, rather than in cost of goods sold,sales, in the statement of operations. For the 52 weeks ended January 29, 2011, January 30, 2010 and January 31, 2009, these purchasing, receiving and distribution costs amounted to $64.7 million, $63.6 million and $57.0 million, respectively.
The Company includesWe include processing fees associated with purchases made by check and credit cards in cost of sales, rather than selling, general and administrative expenses, in the statement of operations. As a result of these classifications, our gross margins are not comparable to those retailers that include purchasing, receiving and distribution costs in cost of sales and include processing fees associated with purchases made by check and credit cards in selling, general and administrative expenses. The net effect of these classifications as a percentage of sales has not historically been material.
Beginning with this Form 10-K, we are expanding the categories included in our disclosures on sales and gross profit by category in order to reflect recent changes in our business, the expansion of categories previously included in "Other", and management emphasis as we operate in the future. Our previous categories of New Video Game Hardware and New Video Game Software remain unchanged.
We are expanding our previous category of Pre-owned Video Game Products to include value-priced, or closeout, product and will be calling the category Pre-owned and Value Video Game Products now and in the future. We believe there is significant opportunity to purchase closeout and overstocked inventory from publishers, distributors and other retailers which is older new product that can be acquired for less than typical new release product costs. This product can then be resold in our Video Game Brands stores and on our Web sites as value-priced product. Our limited purchases of this product in the past have yielded significantly higher margins than new video game products, yet slightly lower margins than pre-owned video game products. We have intentionally limited the amount of this product we have acquired in order to protect the typical margin range of 46% to 49% we earn from our pre-owned business. In the future, we intend to expand our selection of value product and expect that the margins for the Pre-owned and Value Video Game Product category will range from 42% to 48%.
In the past, all other products we sold were categorized into an Other category, which included video game accessories, digital products, new and pre-owned mobile products, consumer electronics, revenues from our PowerUp Rewards program and Game Informer subscription sales, strategy guides, toys and PC entertainment software. We are separating our historical Other category into the following new categories:
Video Game Accessories, which includes new accessories for use with video game consoles and hand-held devices and software, such as controllers, gaming headsets and memory cards;
Digital, which includes revenues from the sale of DLC, Xbox Live, PlayStation Plus and Nintendo network points and subscription cards, other prepaid digital currencies and time cards, Kongregate, Game Informer digital subscriptions and PC digital downloads;
Mobile and Consumer Electronics, which includes revenues from selling new and pre-owned mobile devices and consumer electronics in Video Game Brands stores and all revenues from our Technology Brands stores;
Other, which includes revenues from the sales of PC entertainment software, toys, strategy guides and revenues from PowerUp Pro loyalty members receiving Game Informer magazine in physical form.
The following table sets forth net sales (in millions) and percentage of total net sales by significant product category for the periods indicated:
|
| | | | | | | | | | | | | | | | | | | | | |
| | 52 Weeks Ended February 1, 2014 | | 53 Weeks Ended February 2, 2013 | | 52 Weeks Ended January 28, 2012 |
| | Net Sales | | Percent of Total | | Net Sales | | Percent of Total | | Net Sales | | Percent of Total |
Net Sales: | | | | | | | | | | | | |
New video game hardware | | $ | 1,730.0 |
| | 19.1 | % | | $ | 1,333.4 |
| | 15.0 | % | | $ | 1,611.6 |
| | 16.9 | % |
New video game software | | 3,480.9 |
| | 38.5 | % | | 3,582.4 |
| | 40.3 | % | | 4,048.2 |
| | 42.4 | % |
Pre-owned and value video game products | | 2,329.8 |
| | 25.8 | % | | 2,430.5 |
| | 27.4 | % | | 2,620.2 |
| | 27.4 | % |
Video game accessories | | 560.6 |
| | 6.2 | % | | 611.8 |
| | 6.9 | % | | 661.1 |
| | 6.9 | % |
Digital | | 217.7 |
| | 2.4 | % | | 208.4 |
| | 2.3 | % | | 143.0 |
| | 1.5 | % |
Mobile and consumer electronics | | 303.7 |
| | 3.4 | % | | 200.3 |
| | 2.3 | % | | 12.8 |
| | 0.1 | % |
Other | | 416.8 |
| | 4.6 | % | | 519.9 |
| | 5.8 | % | | 453.6 |
| | 4.8 | % |
Total | | $ | 9,039.5 |
| | 100.0 | % | | $ | 8,886.7 |
| | 100.0 | % | | $ | 9,550.5 |
| | 100.0 | % |
The following table sets forth gross profit (in millions) and gross profit percentages by significant product category for the periods indicated:
|
| | | | | | | | | | | | | | | | | | | | | |
| | 52 Weeks Ended February 1, 2014 | | 53 Weeks Ended February 2, 2013 | | 52 Weeks Ended January 28, 2012 |
| | Gross Profit | | Gross Profit Percent | | Gross Profit | | Gross Profit Percent | | Gross Profit | | Gross Profit Percent |
Gross Profit: | | | | | | | | | | | | |
New video game hardware | | $ | 176.5 |
| | 10.2 | % | | $ | 101.7 |
| | 7.6 | % | | $ | 113.6 |
| | 7.0 | % |
New video game software | | 805.3 |
| | 23.1 | % | | 786.3 |
| | 21.9 | % | | 839.0 |
| | 20.7 | % |
Pre-owned and value video game products | | 1,093.9 |
| | 47.0 | % | | 1,170.1 |
| | 48.1 | % | | 1,221.2 |
| | 46.6 | % |
Video game accessories | | 220.5 |
| | 39.3 | % | | 237.9 |
| | 38.9 | % | | 251.9 |
| | 38.1 | % |
Digital | | 149.2 |
| | 68.5 | % | | 120.9 |
| | 58.0 | % | | 66.5 |
| | 46.5 | % |
Mobile and consumer electronics | | 65.1 |
| | 21.4 | % | | 41.3 |
| | 20.6 | % | | 3.5 |
| | 27.3 | % |
Other | | 150.6 |
| | 36.1 | % | | 193.3 |
| | 37.2 | % | | 183.8 |
| | 40.5 | % |
Total | | $ | 2,661.1 |
| | 29.4 | % | | $ | 2,651.5 |
| | 29.8 | % | | $ | 2,679.5 |
| | 28.1 | % |
Fiscal 2013 Compared to Fiscal 2012
Net sales increased $152.8 million, or 1.7%, to $9,039.5 million in the 52 weeks of fiscal 2013 from $8,886.7 million in the 53 weeks of fiscal 2012. Sales for the 53rd week included in fiscal 2012 were $112.2 million. The increase in net sales during fiscal 2013 was primarily attributable to an increase in comparable store sales of 3.8% compared to fiscal 2012. Additionally, sales included $62.8 million from the new Technology Brands segment. These increases were partially offset by a decline in domestic sales of $185.9 million due to a 4.1% decline in domestic store count, changes in foreign exchange rates, which had the effect of decreasing sales by $23.3 million when compared to the 53 weeks of fiscal 2012, and sales from the 53rd week in fiscal 2012. The increase in comparable store sales was primarily due to strong sales performance during the second half of fiscal 2013. Refer to the note to the Selected Financial Data table in "Item 6 — Selected Financial Data" for a discussion of the calculation of comparable store sales.
New video game hardware sales increased $396.6 million, or 29.7%, from fiscal 2012 to fiscal 2013, primarily attributable to an increase in hardware unit sell-through due to the launches of the Microsoft Xbox One and the Sony PlayStation 4 in November 2013. These increases were partially offset by declines in sales of previous generation hardware. New video game software sales decreased $101.5 million, or 2.8%, from fiscal 2012 to fiscal 2013, primarily due to fewer new titles that were released during fiscal 2013 when compared to fiscal 2012 and by the additional sales for the 53rd week in fiscal 2012. Pre-owned and value video game product sales decreased $100.7 million, or 4.1%, from fiscal 2012 to fiscal 2013, primarily due to less store traffic during the majority of fiscal 2013 because of lower video game demand due to the late stages of the previous console cycle, and also due to sales for the 53rd week in fiscal 2012. Sales of video game accessories declined $51.2 million, or 8.4% from fiscal 2012 to fiscal 2013 due to the decline in demand for video game products in the late stages of the last console cycle, offset slightly by sales of accessories for use with the recently launched consoles. Digital revenues increased $9.3 million, or 4.5%, from fiscal 2012 to fiscal 2013 with growth limited due to the conversion of certain types of digital currency cards from a full retail price revenue arrangement to a commission revenue model. Mobile and consumer electronics sales increased $103.4 million, or 51.6%, from fiscal 2012 to fiscal 2013, due to increased growth of the mobile business within the Video Game Brand stores and due to the Technology Brands stores acquired or started in the fourth quarter of fiscal 2013. Sales of other product categories decreased $103.1 million, or 19.8%, from fiscal 2012 to fiscal 2013, primarily due to a decrease in sales of PC entertainment software due to strong launches of PC titles during fiscal 2012.
As a percentage of net sales, new video game hardware sales increased and sales of new video game software, pre-owned and value video game products and video game accessories decreased in fiscal 2013 compared to fiscal 2012. The change in the mix of net sales was primarily due to the launch of the new hardware consoles in the fourth quarter of fiscal 2013.
Cost of sales increased by $143.2 million, or 2.3%, from $6,235.2 million in fiscal 2012 to $6,378.4 million in fiscal 2013 primarily as a result of the increase in net sales discussed above and the changes in gross profit discussed below, partially offset by the cost of sales associated with the 53rd week in fiscal 2012.
Gross profit increased by $9.6 million, or 0.4%, from $2,651.5 million in fiscal 2012 to $2,661.1 million in fiscal 2013. Gross profit as a percentage of net sales was 29.8% in fiscal 2012 and 29.4% in fiscal 2013. The gross profit percentage decreased primarily due to an increase in sales of new video game hardware as a percentage of total net sales and the decrease in gross profit as a percentage of sales on pre-owned and value video game products. This decrease was partially offset by a $33.6 million benefit
related to a change in management estimates on the redemption rate in our PowerUp Rewards and other customer liability programs. In addition, we recorded an increase in gross profit due to a reclassification from selling, general and administrative expenses of cash consideration received from our vendors to align those funds with the specific products we sell, net of the cost of free or discounted products for our loyalty programs, in the amount of $42.5 million. Gross profit as a percentage of sales on new video game hardware increased from 7.6% in fiscal 2012 to 10.2% in fiscal 2013 due to the mix of next generation consoles at a higher margin rate, the reclassification of cash consideration received from vendors and increased sales of extended warranties. Gross profit as a percentage of sales on new video game software increased from 21.9% for fiscal 2012 to 23.1% for fiscal 2013 due to the reclassification of cash consideration received from vendors. Gross profit as a percentage of sales on pre-owned and value video game products decreased from 48.1% in fiscal 2012 to 47.0% in fiscal 2013 due to aggressive trade offers made in the current year in order to provide consumers with trade currency to help make new consoles more affordable. Gross profit as a percentage of sales on video game accessories was comparable at 38.9% in fiscal 2012 and 39.3% in fiscal 2013. Gross profit as a percentage of sales on digital sales increased from 58.0% in fiscal 2012 to 68.5% in fiscal 2013 due to conversion of full retail price revenue digital currency cards into commission only currency cards. Gross profit as a percentage of sales on mobile and consumer electronics revenues increased from 20.6% in fiscal 2012 to 21.4% in fiscal 2013 due to maturation of the mobile business within the video game stores and due to the newly acquired Technology Brands stores. Gross profit as a percentage of sales on the other product sales category decreased from 37.2% in fiscal 2012 to 36.1% in fiscal 2013.
Selling, general and administrative expenses increased by $56.5 million, or 3.1%, from $1,835.9 million in fiscal 2012 to $1,892.4 million in fiscal 2013. This increase was primarily due to higher variable costs associated with the increase in comparable store sales during the second half of 2013 and the net increase in expenses associated with the change in classification of cash consideration received from vendors and the reclassification of the cost of free or discounted products for our loyalty programs discussed above. These increases were partially offset by expenses for the 53rd week in fiscal 2012 coupled with changes in foreign exchange rates, which had the effect of decreasing fiscal 2013 selling, general and administrative expenses by $2.1 million when compared to fiscal 2012. Additionally, cost control activities during the current year associated with the decline in sales at the end of the previous console cycle helped to reduce our selling, general and administrative expenses along with lower current year store counts. Selling, general and administrative expenses as a percentage of sales increased from 20.7% in fiscal 2012 to 21.0% in fiscal 2013, primarily due to the classification of cash consideration received from vendors and loyalty costs as discussed above. Included in selling, general and administrative expenses are $19.4 million and $19.6 million in stock-based compensation expense for fiscal 2013 and fiscal 2012, respectively.
Depreciation and amortization expense decreased $10.0 million from $176.5 million in fiscal 2012 to $166.5 million in fiscal 2013. This decrease was primarily due to a decrease in capital expenditures in recent years when compared to prior years, which included significant investments in our loyalty and digital initiatives, as well as a decrease in new store openings and investments in management information systems.
During fiscal 2013, we recorded a $28.7 million impairment charge, comprised of a $10.2 million goodwill impairment, a $7.4 million impairment of technology assets and an impairment of $2.1 million of intangible assets as a result of our decision to abandon Spawn Labs. Additionally, we recognized $9.0 million of property and equipment impairments during fiscal 2013. During fiscal 2012, we recorded a $680.7 million impairment charge, comprised of $627.0 million of goodwill impairments, $44.9 million of trade name impairment and $8.8 million of property and equipment impairments. Refer to Note 2 and Note 9 to the consolidated financial statements in this Form 10-K for further information associated with these impairments.
Interest income resulting from the investment of excess cash balances was $0.9 million for both fiscal 2012 and fiscal 2013. Interest expense increased from $4.2 million in fiscal 2012 to $5.6 million in fiscal 2013, primarily due to increased average borrowings under our revolving credit facility during the year and interest expense incurred on pre-acquisition indebtedness of one of the businesses acquired, prior to paying off the debt during fiscal 2013.
Income tax expense was $224.9 million on a $44.9 million loss before income tax expense in fiscal 2012, compared to $214.6 million, or an effective tax rate of 37.7% in fiscal 2013. The difference in the effective income tax rate between fiscal 2013 and fiscal 2012 was primarily due to the recognition of the goodwill impairment charge in fiscal 2012 which is not tax deductible and the recording of valuation allowances against certain deferred tax assets in the European segment in fiscal 2012. Without the effect of the goodwill impairments and the recording of the valuation allowances, the effective income tax rate in fiscal 2012 would have been 36.6%. Refer to Note 13 to our consolidated financial statements for additional information regarding income taxes.
The factors described above led to an increase in operating earnings of $615.1 million from an operating loss of $41.6 million during fiscal 2012 to operating income of $573.5 million in fiscal 2013 and an increase in consolidated net income of $624.0 million from a $269.8 million net loss in fiscal 2012 to $354.2 million of consolidated net income in fiscal 2013. The increase in operating earnings is primarily attributable to goodwill and asset impairments recognized in fiscal 2012. Excluding the impact of the goodwill and other impairment charges of $28.7 million, operating earnings would have been $602.2 million for fiscal 2013. Excluding the
impact of goodwill and other impairment charges of $680.7 million, operating earnings would have been $639.1 million for fiscal 2012.
Fiscal 2012 Compared to Fiscal 2011
Net sales decreased $663.8 million, or 7.0%, to $8,886.7 million in the 53 weeks of fiscal 2012 compared to $9,550.5 million in the 52 weeks of fiscal 2011. Sales for the 53rd week included in fiscal 2012 were $112.2 million. The decrease in net sales was primarily attributable to a decrease in comparable store sales of 8.0% and changes in foreign exchange rates, which had the effect of decreasing sales by $90.7 million when compared to the 52 weeks of fiscal 2011, offset partially by sales from the 53rd week in fiscal 2012. The decrease in comparable store sales was primarily due to decreases in new video game hardware sales, new video game software sales, pre-owned and value video game products sales and video game accessories sales offset partially by an increase in digital, mobile and consumer electronics sales.
New video game hardware sales decreased $278.2 million, or 17.3%, from fiscal 2011 to fiscal 2012, primarily due to a decrease in hardware unit sell-through related to being in the late stages of the previous console cycle and sales from the launch of the Nintendo 3DS in the first quarter of fiscal 2011, which exceeded the sales from the launch of the Sony PlayStation Vita in the first quarter of fiscal 2012. These sales declines were offset partially by the launch of the Nintendo Wii U in the fourth quarter of fiscal 2012 and sales for the 53rd week in fiscal 2012. New video game software sales decreased $465.8 million, or 11.5%, from fiscal 2011 to fiscal 2012, primarily due to a lack of new release video game titles in fiscal 2012 when compared to fiscal 2011 and declines in sales due to the late stages of the console cycle, offset partially by sales for the 53rd week in fiscal 2012. Pre-owned and value video game products sales decreased $189.7 million, or 7.2%, from fiscal 2011 to fiscal 2012, primarily due to a decrease in store traffic related to the lack of new release video game titles in fiscal 2012 when compared to fiscal 2011 and lower video game demand due to the late stages of the previous console cycle, offset partially by sales for the 53rd week in fiscal 2012. Video game accessories’ sales followed the same trends as other video game products given the late stages of the previous console cycle, with a decline of $49.3 million, or 7.5% from fiscal 2011 to fiscal 2012. Sales of digital products increased $65.4 million, or 45.7%, due to strong growth of DLC and digital currency sales. Our mobile and consumer electronics business grew $187.5 million from its inception in late fiscal 2011 to a full year of sales in fiscal 2012. Sales of other product categories increased $66.3 million, or 14.6%, from fiscal 2011 to fiscal 2012 due to an increase in sales of PC entertainment software and toys in fiscal 2012 when compared to fiscal 2011 and sales for the 53rd week in fiscal 2012.
As a percentage of net sales, new video game hardware sales and new video game software sales decreased and several other product sales increased in fiscal 2012 compared to fiscal 2011. The change in the mix of net sales was primarily due to the increase in digital and mobile and consumer electronics sales as a result of the expansion of both the digital and mobile sales categories and in PC entertainment software and toys in the other product sales. These categories showed significant growth in fiscal 2012 while sales of new video game hardware and new video game software decreased due to fewer new software title launches compared to the same period last year and lower sales due to the late stages of the console cycle. Cost of sales decreased by $635.8 million, or 9.3%, from $6,871.0 million in fiscal 2011 to $6,235.2 million in fiscal 2012 primarily as a result of the decrease in net sales, offset partially by cost of sales related to sales for the 53rd week in fiscal 2012 and the changes in gross profit discussed below.
Gross profit decreased by $28.0 million, or 1.0%, from $2,679.5 million in fiscal 2011 to $2,651.5 million in fiscal 2012. Gross profit as a percentage of net sales was 28.1% in fiscal 2011 and 29.8% in fiscal 2012. The gross profit percentage increase was primarily due to the increase in sales of digital, mobile and consumer electronics and other products as a percentage of total net sales and the increase in gross profit as a percentage of sales on new video game hardware and software sales and pre-owned and value video game products sales. Gross profit as a percentage of sales on new video game hardware increased slightly from 7.0% in fiscal 2011 to 7.6% in fiscal 2012. Gross profit as a percentage of sales on new video game software increased from 20.7% for fiscal 2011 to 21.9% for fiscal 2012. Gross profit as a percentage of sales on pre-owned and value video game products increased from 46.6% in fiscal 2011 to 48.1% in fiscal 2012 due to a decrease in promotional activities and improvements in margin rates throughout most of our international operations when compared to the prior year. Gross profit as a percentage of sales on video game accessories increased from 38.1% in fiscal 2011 to 38.9% in fiscal 2012. Gross profit as a percentage of sales on digital revenues increased from 46.5% in fiscal 2011 to 58.0% in fiscal 2012 due to growth in the sales of DLC as a percentage of total digital sales and conversion of full retail revenue digital currency cards into commission only currency cards. Gross profit as a percentage of sales on mobile and consumer electronics sales decreased from 27.3% in fiscal 2011 to 20.6% in fiscal 2012. Gross profit as a percentage of sales on the other product sales category decreased from 40.5% in fiscal 2011 to 37.2% in fiscal 2012.
Selling, general and administrative expenses decreased by $6.2 million, or 0.3%, from $1,842.1 million in fiscal 2011 to $1,835.9 million in fiscal 2012. This decrease was primarily due to changes in foreign exchange rates which had the effect of decreasing expenses by $26.7 million when compared to fiscal 2011 offset partially by expenses for the 53rd week in fiscal 2012. Selling, general and administrative expenses as a percentage of sales increased from 19.3% in the fiscal 2011 to 20.7% in fiscal 2012. The increase in selling, general and administrative expenses as a percentage of net sales was primarily due to deleveraging
of fixed costs as a result of the decrease in comparable store sales. Included in selling, general and administrative expenses are $19.6 million and $18.8 million in stock-based compensation expense for fiscal 2012 and fiscal 2011, respectively.
Depreciation and amortization expense decreased $9.8 million from $186.3 million in fiscal 2011 to $176.5 million in fiscal 2012. This decrease was primarily due to the capital expenditures in recent years when compared to prior years, which included significant investments in our loyalty and digital initiatives, as well as a decrease in new store openings and investments in management information systems.
During fiscal 2012, we recorded a $680.7 million impairment charge, comprised of $627.0 million of goodwill impairments, $44.9 million of trade name impairment and $8.8 million of property and equipment impairments. During fiscal 2011, we recorded asset impairments and restructuring charges of $81.2 million. These charges were primarily due to impairment of our Micromania trade name in France and impairment and disposal costs related to the exit of non-core businesses, including a small retail movie chain of stores we owned until fiscal 2011. Restructuring costs include disposal and exit costs related to the exit of underperforming regions in Europe and consolidation of home office and back office functions, as well as impairment and store closure costs primarily in the international segments. See Note 9 to our consolidated financial statements for further information associated with these impairments.
Interest income resulting from the investment of excess cash balances was $0.9 million in both fiscal 2011 and fiscal 2012. Interest expense decreased from $20.7 million in fiscal 2011 to $4.2 million in fiscal 2012, primarily due to the redemption of the remaining $250.0 million of our senior notes during fiscal 2011. Debt extinguishment expense of $1.0 million was recognized in fiscal 2011 as a result of the write-off of deferred financing fees and unamortized original issue discount associated with the redemption.
Income tax expense was $210.6 million, or 38.4% of earnings before income tax expense, in fiscal 2011 compared to $224.9 million in fiscal 2012. The difference in the effective income tax rate between fiscal 2012 and fiscal 2011 was primarily due to the recognition of the goodwill impairment charge in fiscal 2012 which was not tax deductible and the recording of valuation allowances against certain deferred tax assets in the European segment in fiscal 2012. Without the effect of the goodwill impairments and the recording of the valuation allowances, the effective income tax rate in fiscal 2012 would have been 36.6%. See Note 13 to our consolidated financial statements for additional information regarding income taxes.
The factors described above led to a decrease in operating earnings of $611.5 million from $569.9 million of operating earnings in fiscal 2011 to $41.6 million of operating loss in fiscal 2012 and a decrease in consolidated net income of $608.3 million from $338.5 million of consolidated net income in fiscal 2011 to $269.8 million of consolidated net loss in fiscal 2012. The decrease in operating earnings and consolidated net income is primarily attributable to goodwill impairments recognized in fiscal 2012 offset partially by the decrease in asset impairments and restructuring charges when compared to the prior year. Excluding the impact of the goodwill and other impairment charges of $680.7 million, operating earnings would have been $639.1 million and consolidated net income would have been $403.0 million for fiscal 2012. Excluding the impact of asset impairments and restructuring charges of $81.2 million, operating earnings would have been $651.1 million and consolidated net income would have been $405.1 million for fiscal 2011.
The $0.1 million net loss attributable to noncontrolling interests for fiscal 2012 represents the portion of the minority interest stockholders’ net loss of our non-wholly owned subsidiaries included in our consolidated net income. The remaining noncontrolling interests were purchased during the second quarter of fiscal 2012.
Segment Performance
We operate our business in the following operating segments, which are also our reportable segments: Video Game Brands, which consists of four segments in the United States, Canada, Australia and Europe, and Technology Brands. We identified these segments based on a combination of geographic areas, the methods with which we analyze performance, the way in which our sales and profits are derived and how we divide management responsibility. Our sales and profits are driven through our physical stores which are highly integrated with our e-commerce, digital and mobile businesses. Due to this integration, our physical stores are the basis for our segment reporting. Each of the Video Game Brands segments consists primarily of retail operations, with all stores engaged in the sale of new and pre-owned video game systems, software and accessories (which we refer to as video game products), new and pre-owned mobile devices and related accessories. These products are substantially the same regardless of geographic location, with the primary differences in merchandise carried being the timing of the release of new products or technologies in the various segments. Stores in all Video Game Brands segments are similar in size at an average of approximately 1,400 square feet. The Technology Brands segment offers wireless services, devices and related accessories and sells Apple products.
With our presence in international markets, we have operations in several foreign currencies, including the Euro, Australian dollar, New Zealand dollar, Canadian dollar, British pound, Swiss franc, Danish kroner, Swedish krona, and the Norwegian kroner.
Net sales by reportable segment in U.S. dollars were as follows (in millions):
|
| | | | | | | | | | | | |
| | 52 Weeks Ended February 1, 2014 | | 53 Weeks Ended February 2, 2013 | | 52 Weeks Ended January 28, 2012 |
Video Game Brands: | | | | | | |
United States | | $ | 6,160.4 |
| | $ | 6,192.4 |
| | $ | 6,637.0 |
|
Canada | | 468.8 |
| | 478.4 |
| | 498.4 |
|
Australia | | 613.7 |
| | 607.3 |
| | 604.7 |
|
Europe | | 1,733.8 |
| | 1,608.6 |
| | 1,810.4 |
|
Technology Brands | | 62.8 |
| | — |
| | — |
|
Total | | $ | 9,039.5 |
| | $ | 8,886.7 |
| | $ | 9,550.5 |
|
Operating earnings (loss) by operating segment, defined as income (loss) from operations before intercompany royalty fees, net interest expense and income taxes, in U.S. dollars were as follows (in millions):
|
| | | | | | | | | | | | |
| | 52 Weeks Ended February 1, 2014 | | 53 Weeks Ended February 2, 2013 | | 52 Weeks Ended January 28, 2012 |
Video Game Brands: | | | | | | |
United States | | $ | 465.3 |
| | $ | 501.9 |
| | $ | 501.9 |
|
Canada | | 26.6 |
| | (74.4 | ) | | 12.4 |
|
Australia | | 37.5 |
| | (71.6 | ) | | 35.4 |
|
Europe | | 44.3 |
| | (397.5 | ) | | 20.2 |
|
Technology Brands | | (0.2 | ) | | — |
| | — |
|
Total | | $ | 573.5 |
| | $ | (41.6 | ) | | $ | 569.9 |
|
Goodwill impairments, asset impairments and restructuring charges reported in operating earnings by operating segment, in U.S. dollars were as follows (in millions):
|
| | | | | | | | | | | | |
| | 52 Weeks Ended February 1, 2014 | | 53 Weeks Ended February 2, 2013 | | 52 Weeks Ended January 28, 2012 |
Video Game Brands: | | | | | | |
United States | | $ | 24.0 |
| | $ | 5.7 |
| | $ | 28.9 |
|
Canada | | — |
| | 100.7 |
| | 1.3 |
|
Australia | | — |
| | 107.3 |
| | 0.6 |
|
Europe | | 4.7 |
| | 467.0 |
| | 50.4 |
|
Technology Brands | | — |
| | — |
| | — |
|
Total | | $ | 28.7 |
| | $ | 680.7 |
| | $ | 81.2 |
|
Total assets by operating segment in U.S. dollars were as follows (in millions):
|
| | | | | | | | | | | | |
| | February 1, 2014 | | February 2, 2013 | | January 28, 2012 |
Video Game Brands: | | | | | | |
United States | | $ | 2,320.7 |
| | $ | 2,404.0 |
| | $ | 2,479.0 |
|
Canada | | 228.7 |
| | 252.2 |
| | 350.8 |
|
Australia | | 389.2 |
| | 416.6 |
| | 513.3 |
|
Europe | | 972.2 |
| | 799.4 |
| | 1,265.1 |
|
Technology Brands | | 180.6 |
| | — |
| | — |
|
Total | | $ | 4,091.4 |
| | $ | 3,872.2 |
| | $ | 4,608.2 |
|
Fiscal 2013 Compared to Fiscal 2012
Video Game Brands
United States
Segment results for Video Game Brands in the United States include retail GameStop operations in 50 states, the District of Columbia, Puerto Rico and Guam, the electronic commerce Web site www.gamestop.com, Game Informer magazine,
www.kongregate.com, a digital PC game distribution platform available at www.gamestop.com/pcgames and an online consumer electronics marketplace available at www.buymytronics.com. As of February 1, 2014, the United States Video Game Brands segment included 4,249 GameStop stores, compared to 4,425 stores on February 2, 2013.
Although net sales for fiscal 2013 decreased 0.5% compared to fiscal 2012, comparable store sales increased 3.0%. The decrease in net sales was primarily due to a $185.9 million decline in sales due to a 4.1% decrease in domestic store count and sales for the 53rd week in fiscal 2012. The increase in comparable store sales was primarily due to strong performance of new video game console and title releases during the second half of the year, which more than offset the declines that had been experienced during the first half of fiscal 2013.
Asset impairments of $24.0 million were recognized in fiscal 2013 primarily related to our decision to abandon our Spawn Labs business. Asset impairments of $5.7 million were recognized in fiscal 2012 primarily related to impairment of finite-lived assets. Segment operating income for fiscal 2013 was $465.3 million compared to $501.9 million in fiscal 2012. Excluding the impact of asset impairments, segment operating income decreased $18.3 million from $507.6 million in fiscal 2012 to $489.3 million in fiscal 2013 primarily related to the impact of a decline in sales prior to the launch of the next generation consoles and the impact of lower margin console sales as a percentage of total sales, as well as the impact of the operating earnings in the 53rd week in fiscal 2012.
Canada
Segment results for Canada include retail operations in Canada and an e-commerce site. As of February 1, 2014, the Canadian segment had 335 stores compared to 336 stores as of February 2, 2013. Net sales in the Canadian segment in the 52 weeks ended February 1, 2014 decreased 2.0% compared to the 53 weeks ended February 2, 2013. The decrease in net sales was primarily attributable to unfavorable changes in exchange rates of $22.3 million for fiscal 2013 and additional sales in the 53rd week of fiscal 2012 when compared to fiscal 2013, partially offset by an increase in sales at existing stores of 5.7%. The increase in net sales at existing stores was primarily due to the launch of the next generation consoles.
The segment operating profit for fiscal 2013 was $26.6 million compared to an operating loss of $74.4 million for fiscal 2012. The increase in operating earnings was primarily due to the goodwill and asset impairment charges of $100.7 million recognized during fiscal 2012. Excluding the impact of the goodwill and asset impairment charges, adjusted segment operating earnings were $26.3 million in fiscal 2012. The increase in adjusted segment operating earnings was due to a decrease in selling, general and administrative expenses as a result of lower sales and lower store count when compared to fiscal 2012, partially offset by a $1.4 million unfavorable change in the exchange rate.
Australia
Segment results for Australia include retail operations and e-commerce sites in Australia and New Zealand. As of February 1, 2014, the Australian segment included 418 stores, compared to 416 stores as of February 2, 2013. Net sales for the 52 weeks ended February 1, 2014 increased 1.1% compared to the 53 weeks ended February 2, 2013. The increase in net sales was primarily due to a 12.6% increase in comparable store sales, partially offset by a $58.1 million reduction in sales associated with exchange rates and the additional sales in the 53rd week of fiscal 2012. The increase in sales at existing stores was due to new video game console and title releases.
The segment operating profit for fiscal 2013 was $37.5 million compared to an operating loss of $71.6 million for fiscal 2012. The increase in operating earnings was primarily due to the goodwill and asset impairment charges of $107.3 million recognized during fiscal 2012, partially offset by a $4.8 million unfavorable change in the exchange rate. Excluding the impact of the goodwill and asset impairment charges in 2012, segment operating earnings increased $1.8 million in fiscal 2013, when compared to $35.7 million in fiscal 2012.
Europe
Segment results for Europe include retail operations in 11 European countries and e-commerce operations in six countries. As of February 1, 2014, the European segment operated 1,455 stores, compared to 1,425 stores as of February 2, 2013. For the 52 weeks ended February 1, 2014, European net sales increased 7.8% compared to the 53 weeks ended February 2, 2013. This increase in net sales was partially due to the favorable impact of changes in exchange rates in fiscal 2013, which had the effect of increasing sales by $57.0 million when compared to fiscal 2012. Excluding the impact of changes in exchange rates, sales in the European segment increased 4.2%. The increase in sales was primarily due to an increase in sales at existing stores of 3.2%, offset by additional sales in the 53rd week of fiscal 2012 when compared to fiscal 2013. The increase in net sales at existing stores was primarily due to new video game console and title launches.
The segment operating profit was $44.3 million for fiscal 2013 compared to an operating loss of $397.5 million for fiscal 2012. The increase in operating earnings was primarily due to asset impairment charges of $4.7 million recognized during fiscal 2013 compared to charges totaling $467.0 million for goodwill and asset impairments and restructuring charges during fiscal 2012. Excluding the impact of the goodwill and asset impairment and restructuring charges, segment operating earnings were $49.0 million in fiscal 2013 compared to $69.5 million in fiscal 2012. The decrease in adjusted operating earnings during fiscal 2013 included the impact of a decline in sales prior to the launch of the next generation consoles and the impact of low margin consoles as a percentage of total sales, as well as the impact of the operating earnings in the 53rd week in fiscal 2012, partially offset by a $3.1 million favorable impact of the exchange rate.
Technology Brands
Segment results for the Technology Brands segment include our Simply Mac, Spring Mobile and Aio Wireless stores. As of February 1, 2014, the Technology Brands segment operated 218 stores, all of which were acquired or opened during fiscal 2013. For the 52 weeks ended February 1, 2014, Technology Brands net sales totaled $62.8 million, with an operating loss of $0.2 million that included startup costs for new stores.
Fiscal 2012 Compared to Fiscal 2011
Video Game Brands
United States
Segment results for the United States Video Game Brands segment include retail operations in 50 states, the District of Columbia, Puerto Rico and Guam, the electronic commerce Web site www.gamestop.com, Game Informer magazine, www.kongregate.com, a digital PC game distribution platform available at www.gamestop.com/pcgames and an online consumer electronics marketplace available at www.buymytronics.com. As of February 2, 2013, the United States Video Game Brands segment included 4,425 GameStop stores, compared to 4,503 stores on January 29,28, 2012.
Net sales for fiscal 2012 decreased 6.7% compared to fiscal 2011 and comparable store sales decreased 8.7%. The decrease in comparable store sales was primarily due to decreases in new video game hardware sales, new video game software sales, pre-owned and value video game products sales, and video game accessories sales offset partially by an increase in digital, mobile and consumer electronics and other product sales and sales for the 53rd week in fiscal 2012. The decrease in new video game hardware sales was primarily due to a decrease in hardware unit sell-through related to being in the late stages of the console cycle and sales from the launch of the Nintendo 3DS in the first quarter of fiscal 2011 which exceeded the sales from the launch of the Sony PlayStation Vita in the first quarter of fiscal 2012, offset partially by the launch of the Nintendo Wii U in the fourth quarter of fiscal 2012 and sales for the 53rd week in fiscal 2012. The decrease in new video game software sales was primarily due to declines in demand due to the late stages of the console cycle and a lack of new release video game titles in fiscal 2012 when compared to fiscal 2011, offset partially by sales for the 53rd week in fiscal 2012. The decrease in pre-owned and value video game product sales was primarily due to a decrease in store traffic related to the lack of new release video game titles in fiscal 2012 when compared to fiscal 2011 and the late stages of the console cycle, offset partially by sales for the 53rd week in fiscal 2012. The increase in digital, mobile and consumer electronics and other product sales was primarily due to an increase in sales of digital products, PC entertainment software and mobile devices in fiscal 2012 when compared to fiscal 2011 and sales for the 53rd week in fiscal 2012.
Asset impairments of $5.7 million were recognized in fiscal 2012 primarily related to impairment of definite-lived assets. Asset impairments and restructuring charges of $28.9 million were recognized in fiscal 2011 primarily related to asset impairments, severance and disposal costs associated with the exit of non-core businesses. Segment operating income for both fiscal 2012 and fiscal 2011 was $501.9 million. Excluding the impact of asset impairments and restructuring charges, adjusted segment operating income decreased $23.2 million from $530.8 million in fiscal 2011 to $507.6 million in fiscal 2012 primarily related to the decrease in comparable store sales between years.
Canada
Segment results for Canada include retail operations in Canada and an e-commerce site. As of February 2, 2013, the Canadian segment had 336 stores compared to 346 stores as of January 30,28, 2012. Net sales in the Canadian segment in the 53 weeks ended February 2, 2013 decreased 4.0% compared to the 52 weeks ended January 28, 2012. The decrease in net sales was primarily attributable to a decrease in sales at existing stores of 4.6%, partially offset by the favorable impact of changes in exchange rates of $1.6 million and additional sales in the 53rd week of fiscal 2012 when compared to fiscal 2011. The decrease in net sales at existing stores was primarily due to decreases in new video game hardware sales, new video game software sales and pre-owned and value video game product sales, offset partially by an increase in digital, mobile and consumer electronics and other product sales. The decrease in new video game hardware sales was primarily due to a decrease in hardware unit sell-through related to being in the late stages of the console cycle. The decrease in new video game software sales was primarily due to lower sales of new release video game titles and the late stages of the console cycle. The decrease in pre-owned and value video game product
sales was due primarily to a decrease in store traffic related to lower sales of new release video game titles and the late stages of the current console cycle. The increase in digital, mobile and consumer electronics and other product sales was primarily due to an increase in digital products and PC entertainment software sales and sales of mobile devices.
The segment operating loss for fiscal 2012 was $74.4 million compared to operating earnings of $12.4 million for fiscal 2011. The decrease in operating earnings was primarily due to the goodwill and asset impairment charges of $100.7 million recognized during fiscal 2012 compared to $1.3 million in fiscal 2011. Excluding the impact of the goodwill and asset impairment charges, adjusted segment operating earnings were $26.3 million in fiscal 2012, compared to $13.7 million in fiscal 2011. The increase in adjusted segment operating earnings was due to an increase in gross profit dollars as a result of the shift in sales mix from hardware to higher margin categories and an increase in gross profit percent in pre-owned and value video games products. The increase in adjusted segment operating earnings was also due to a decrease in selling, general and administrative expenses as a result of lower sales and lower store count when compared to fiscal 2011.
Australia
Segment results for Australia include retail operations and e-commerce sites in Australia and New Zealand. As of February 2, 2013, the Australian segment included 416 stores, compared to 411 stores as of January 28, 2012. Net sales for the 53 weeks ended February 2, 2013 increased 0.4% compared to the 52 weeks ended January 28, 2012. The increase in net sales was primarily due to the additional sales in the 53rd week of fiscal 2012 and the impact of five new stores opened after January 28, 2012, offset by a decrease in sales at existing stores of 2.4%. The decrease in sales at existing stores was due to a decrease in new video game hardware sales, new video game software sales and pre-owned and value video game product sales, offset by an increase in digital, mobile and consumer electronics and other product sales. The decrease in new video game hardware sales is primarily due to a decrease in hardware unit sell-through related to being in the late stages of the current console cycle. The decrease in new video game software sales is primarily due to lower sales of new release video game titles and the late stages of the current console cycle. The decrease in pre-owned and value video game product sales is due primarily to a decrease in store traffic related to lower sales of new release video game titles and the late stages of the current console cycle. The increase in digital, mobile and consumer electronics and other product sales was primarily due to an increase in digital products and PC entertainment software sales and sales of mobile devices.
The segment operating loss for fiscal 2012 was $71.6 million compared to operating earnings of $35.4 million for fiscal 2011. The decrease in operating earnings was primarily due to the goodwill and asset impairment charges of $107.3 million recognized during fiscal 2012 compared to $0.6 million in fiscal 2011. Excluding the impact of the goodwill and asset impairment charges, adjusted segment operating earnings remained relatively flat at $35.7 million in fiscal 2012, when compared to $36.0 million in fiscal 2011.
Europe
Segment results for Europe include retail operations in 11 European countries and e-commerce operations in six countries. As of February 2, 2013, the European segment operated 1,425 stores, compared to 1,423 stores as of January 28, 2012. For the 53 weeks ended February 2, 2013, European net sales decreased 11.1% compared to the 52 weeks ended January 28, 2012. This decrease in net sales was partially due to the unfavorable impact of changes in exchange rates in fiscal 2012, which had the effect of decreasing sales by $95.7 million when compared to fiscal 2011. Excluding the impact of changes in exchange rates, sales in the European segment decreased 5.9%. The decrease in sales was primarily due to a decrease in sales at existing stores of 8.3%, offset by additional sales in the 53rd week of fiscal 2012 when compared to fiscal 2011. The decrease in net sales at existing stores was primarily due to decreases in new video game hardware sales, new video game software sales and pre-owned and value video game product sales, offset partially by an increase in digital, mobile and consumer electronics and other product sales. The decrease in new video game hardware sales is primarily due to a decrease in hardware unit sell-through related to being in the late stages of the console cycle. The decrease in new video game software sales is primarily due to lower sales of new release video game titles and the late stages of the console cycle. The decrease in pre-owned and value video game product sales is due primarily to a decrease in store traffic related to lower sales of new release video game titles and the late stages of the console cycle. The increase in digital, mobile and consumer electronics and other product sales is due to an increase in sales of digital products, PC entertainment software and sales of mobile devices.
The segment operating loss was $397.5 million for fiscal 2012 compared to operating earnings of $20.2 million for fiscal 2011. The decrease in operating earnings was primarily due to the goodwill and asset impairments and restructuring charges of $467.0 million recognized during fiscal 2012 compared to $50.4 million during fiscal 2011. Excluding the impact of the goodwill and asset impairment charges, adjusted segment operating earnings remained relatively flat at $69.5 million in fiscal 2012 compared to $70.6 million in fiscal 2011.
Liquidity and Capital Resources
Overview
Based on our current operating plans, we believe that available cash balances, cash generated from our operating activities and funds available under our $400 million asset-based revolving credit facility (the "Revolver") together will provide sufficient liquidity to fund our operations, store openings and remodeling activities and corporate capital expenditure programs, including the payment of dividends declared by the Board of Directors, for at least the next 12 months. On an ongoing basis, we will evaluate and consider strategic acquisitions, divestitures, repurchasing shares of our common stock or other transactions to create shareholder value and enhance financial performance. Such transactions may generate proceeds or require cash expenditures.
As of February 1, 2014, $398.9 million of our total cash on hand of $536.2 million was attributable to our foreign operations. Although we may, from time to time, evaluate strategies and alternatives with respect to the cash attributable to our foreign operations, we currently anticipate that this cash will remain in those foreign jurisdictions and it therefore may not be available for immediate use; however, we believe that our existing sources of liquidity, as described more fully above, will enable us to meet our cash requirements in the next twelve months.
We had total cash on hand of $536.2 million and an additional $391.0 million of available future borrowing capacity under the Revolver. Based on our current expectations, we believe our liquidity and capital resources will be sufficient to operate our business. However, we may, from time to time, raise additional funds through borrowings or public or private sales of debt or equity securities. The amount, nature and timing of any borrowings or sales of debt or equity securities will depend on our operating performance and other circumstances; our then-current commitments and obligations; the amount, nature and timing of our capital requirements; any limitations imposed by our current credit arrangements; and overall market conditions.
We have revised the presentation of outstanding checks in our prior period financial statements. Previously, we reduced cash and liabilities when the checks were presented for payment and cleared our bank accounts. As of February 1, 2014, we reduce cash and liabilities when the checks are released for payment.
The impact of this revision on our consolidated statements of cash flows for the 53 weeks ended February 2, 2013 and the 52 weeks ended January 28, 2012 are as follows:
|
| | | | | | | | | | | | |
| | As Previously Reported | | Revision | | As Revised |
| | (In millions) |
Consolidated Statements of Cash Flows: | | | | | | |
For the 53 weeks ended February 2, 2013 | | | | | | |
Changes in operating assets and liabilities: Accounts payable and accrued liabilities | | $ | 48.1 |
| | $ | (22.2 | ) | | $ | 25.9 |
|
Net cash flows provided by operating activities | | 632.4 |
| | (22.2 | ) | | 610.2 |
|
Cash and cash equivalents at beginning of period | | 655.0 |
| | (239.2 | ) | | 415.8 |
|
Cash and cash equivalents at end of period | | 635.8 |
| | (261.4 | ) | | 374.4 |
|
| | | | | | |
For the 52 weeks ended January 28, 2012 | | | | | | |
Changes in operating assets and liabilities: Accounts payable and accrued liabilities | | (104.5 | ) | | 17.1 |
| | (87.4 | ) |
Net cash flows provided by operating activities | | 624.7 |
| | 17.1 |
| | 641.8 |
|
Cash and cash equivalents at beginning of period | | 710.8 |
| | (256.3 | ) | | 454.5 |
|
Cash and cash equivalents at end of period | | 655.0 |
| | (239.2 | ) | | 415.8 |
|
Cash Flows
During fiscal 2013, cash provided by operations was $762.7 million, compared to cash provided by operations of $610.2 million in fiscal 2012. The increase in cash provided by operations of $152.5 million from fiscal 2012 to fiscal 2013 was primarily due to an increase in cash provided by working capital of $176.9 million, primarily driven by a change in the timing of payments of accounts payable, partially offset by higher inventory purchases in fiscal 2013. The higher inventory purchases in fiscal 2013 were primarily due to purchases to support the launch of new consoles.
During fiscal 2012, cash provided by operations was $610.2 million, compared to cash provided by operations of $641.8 million in fiscal 2011. The decrease in cash provided by operations of $31.6 million from fiscal 2011 to fiscal 2012 was due primarily to lower net income in fiscal 2012. Cash provided by working capital increased modestly between years, due primarily to a change in the timing of payments of prepaid expenses offset partially by higher inventory purchases in fiscal 2012 and the related effects on payments of accounts payable.
Cash used in investing activities was $207.5 million in fiscal 2013, $152.7 million in fiscal 2012 and $201.6 million in fiscal 2011. During fiscal 2013, we used $125.6 million for capital expenditures primarily to open 109 Video Game Brands stores in the U.S. and internationally and to invest in information systems and digital initiatives. During fiscal 2013, we also used $77.4 million of cash primarily for the acquisition of Spring Mobile and Simply Mac. During fiscal 2012, we used $139.6 million for capital expenditures primarily to invest in information systems, distribution center capacity and e-commerce, digital and loyalty program initiatives and to open 146 stores in the U.S. and internationally. During fiscal 2011, in addition to $165.1 million of cash used for capital expenditures, we also used $30.1 million for acquisitions in support of our digital initiatives.
Cash used in financing activities was $350.6 million in fiscal 2013, $498.5 million in fiscal 2012 and $492.6 million in fiscal 2011. The cash flows used in financing activities in fiscal 2013 were primarily for the repurchase of $258.3 million of treasury shares and the payment of dividends on our Class A Common Stock of $130.9 million. The cash flows used in financing activities in fiscal 2012 were primarily for the repurchase of $409.4 million of treasury shares and the payment of dividends on our Class A Common Stock of $102.0 million. The cash flows used in financing activities in fiscal 2011 were primarily for the repurchase of $262.1 million of treasury shares and repayment of $250.0 million in principal of our senior notes. The cash used in financing activities in fiscal 2013, fiscal 2012 and fiscal 2011 was also impacted by cash provided by the issuance of shares associated with stock option exercises of $58.0 million, $11.6 million and $18.1 million, respectively.
Sources of Liquidity
We utilize cash generated from operations and have funds available to us under our revolving credit facility to cover seasonal fluctuations in cash flows and to support our various growth initiatives. Our cash and cash equivalents are carried at cost, which approximates market value, and consist primarily of time deposits with highly rated commercial banks.
On January 4, 2011, we entered into a $400 million revolving credit facility (the “Revolver”), which amended and restated, in its entirety, our prior credit agreement entered into in October 2005 (the “Credit Agreement”). The Revolver provides for a five-year, $400 million asset-based facility, including a $50 million letter of credit sublimit, secured by substantially all of our and our domestic subsidiaries’ assets. We have the ability to increase the facility, which matures in January 2016, by $150 million under certain circumstances. The Revolver was further amended and restated on March 25, 2014 as described more fully below.
The availability under the Revolver is limited to a borrowing base which allows us to borrow up to 90% of the appraisal value of the inventory, in each case plus 90% of eligible credit card receivables, net of certain reserves. Letters of credit reduce the amount available to borrow by their face value. Our ability to pay cash dividends, redeem options and repurchase shares is generally permitted, except under certain circumstances, including if Revolver excess availability is less than 20%, or is projected to be so within 12 months after such payment. In addition, if Revolver usage is projected to be equal to or greater than 25% of total commitments during the prospective 12-month period, we are subject to meeting a fixed charge coverage ratio of 1.1:1.0 prior to making such payments. In the event that excess availability under the Revolver is at any time less than the greater of (1) $40 million or (2) 12.5% of the lesser of the total commitment or the borrowing base, we will be subject to a fixed charge coverage ratio covenant of 1.1:1.0.
The Revolver places certain restrictions on us and our subsidiaries, including limitations on asset sales, additional liens, investments, loans, guarantees, acquisitions and the incurrence of additional indebtedness. Absent consent from our lenders, we may not incur more than $750 million of additional unsecured indebtedness to be limited to $250 million in general unsecured obligations and $500 million in unsecured obligations to finance acquisitions valued at $500 million or more. The per annum interest rate under the Revolver is variable and is calculated by applying a margin (1) for prime rate loans of 1.25% to 1.50% above the highest of (a) the prime rate of the administrative agent, (b) the federal funds effective rate plus 0.50% or (c) the London Interbank Offered (“LIBO”) rate for a 30-day interest period as determined on such day plus 1.00%, and (2) for LIBO rate loans of 2.25% to 2.50% above the LIBO rate. The applicable margin is determined quarterly as a function of our average daily excess availability under the facility. In addition, we are required to pay a commitment fee of 0.375% or 0.50%, depending on facility usage, for any unused portion of the total commitment under the Revolver. As of February 1, 2014, the applicable margin was 1.25% for prime rate loans and 2.25% for LIBO rate loans, while the required commitment fee was 0.50% for the unused portion of the Revolver.
The Revolver provides for customary events of default with corresponding grace periods, including failure to pay any principal or interest when due, failure to comply with covenants, any material representation or warranty made by us or the borrowers proving to be false in any material respect, certain bankruptcy, insolvency or receivership events affecting us or our
subsidiaries, defaults relating to certain other indebtedness, imposition of certain judgments and mergers or our liquidation or the liquidation of certain of our subsidiaries.
During fiscal 2013, we borrowed and repaid $130.0 million under the Revolver. During fiscal 2012 and fiscal 2011, we borrowed and repaid $81.0 million and $35.0 million, respectively, under the Revolver. Average borrowings under the Revolver for the 52 weeks ended February 1, 2014 were $14.2 million. Our average interest rate on those outstanding borrowings for the 52 weeks ended February 1, 2014 was 2.8%. As of February 1, 2014, total availability under the Revolver was $391.0 million, there were no borrowings outstanding under the Revolver and letters of credit outstanding totaled $9.0 million.
On March 25, 2014, we further amended and restated our revolving credit facility. The terms of the agreement were modified to extend the maturity date for the revolving credit facility to March 25, 2019, to increase the expansion feature under the facility from $150 million to $200 million, subject to certain conditions, and to amend certain other terms, including a reduction in the fee we are required to pay on the unused portion of the total commitment amount. The five-year, asset-based revolving credit facility has a total commitment amount of $400 million, which is subject to a monthly borrowing base calculation, and is available for the issuance of letters of credit of up to $50 million. The facility is secured by substantially all of our assets and the assets of our domestic subsidiaries. We believe the extension of the maturity date of the revolving credit facility to March 2019 helps to limit our exposure to potential tightening or other adverse changes in the credit markets.
In September 2007, our Luxembourg subsidiary entered into a discretionary $20.0 million Uncommitted Line of Credit (the “Line of Credit”) with Bank of America. There is no term associated with the Line of Credit and Bank of America may withdraw the facility at any time without notice. The Line of Credit is available to our foreign subsidiaries for use primarily as a bank overdraft facility for short-term liquidity needs and for the issuance of bank guarantees and letters of credit to support operations. As of February 1, 2014, there were no cash overdrafts outstanding under the Line of Credit and bank guarantees outstanding of $4.3 million.
Uses of Capital
Our future capital requirements will depend on the number of new stores we open and the timing of those openings within a given fiscal year, as well as the investments we will make in e-commerce, digital and other strategic initiatives. We opened or acquired 327 stores in fiscal 2013, which includes the stores acquired in connection with the Spring Mobile and Simply Mac acquisitions, and we expect to open or acquire approximately 350 to 450 stores in fiscal 2014, including investments in our Technology Brands business. Capital expenditures for fiscal 2014 are projected to be approximately $160 million, to be used primarily to fund continued digital initiatives, new store openings and store remodels and invest in distribution and information systems in support of operations.
Between May 2006 and December 2011, we repurchased and redeemed $300 million of Senior Floating Rate Notes and $650 million of Senior Notes under previously announced buybacks authorized by our Board of Directors. The associated loss on the retirement of debt was $1.0 million for the 52 week period ended January 28, 2012, which consisted of the premium paid to retire the Notes and the write-off of the deferred financing fees and the original issue discount on the Notes.
We used cash to expand our operations through acquisitions. During fiscal 2013, fiscal 2012 and fiscal 2011, we used $77.4 million, $1.5 million and $30.1 million, respectively, for acquisitions which in fiscal 2013 were primarily related to the growth of our Technology Brands business.
Since January 2010, our Board of Directors has authorized several share repurchase programs authorizing management to repurchase our common stock. Since the beginning of fiscal 2011, the authorizations have been for $500 million at a time. Our typical practice is to seek Board of Directors’ approval for a new authorization before the existing one is fully used in order to make sure that we are always able to repurchase shares. For fiscal 2011, we repurchased 11.2 million shares at an average price per share of $21.38 for a total of $240.2 million, which excludes approximately $22 million of share repurchases that were executed at the end of fiscal 2010 but for which the settlement and related cash outflow did not occur until the beginning of fiscal 2011. For fiscal 2012, the number of shares repurchased was 19.9 million for an average price per share of $20.60 for a total of $409.4 million. For fiscal 2013, the number of shares repurchased was 6.3 million for an average price per share of $41.12 for a total of $258.3 million. Between February 2, 2014 and March 20, 2014, we have repurchased 0.6 million shares at an average price per share of $37.17 for a total of $20.6 million and we have $436.5 million remaining under our latest authorization from November 2013.
On February 8, 2012, our Board of Directors approved the initiation of a quarterly cash dividend to our stockholders of Class A Common Stock. We paid a total of $0.80 per share in dividends in fiscal 2012 and a total of $1.10 per share in fiscal 2013. On March 4, 2014, our Board of Directors authorized an increase in our annual cash dividend from $1.10 to $1.32 per share of Class A Common Stock and on that date we declared our first quarterly cash dividend for fiscal 2014 of $0.33 per share of Class A
Common Stock payable on March 25, 2014 to stockholders of record at the close of business on March 17, 2014. Future dividends will be subject to approval by our Board of Directors.
Contractual Obligations
The following table sets forth our contractual obligations as of February 1, 2014:
|
| | | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period |
Contractual Obligations | | Total | | Less Than 1 Year | | 1-3 Years | | 3-5 Years | | More Than 5 Years |
| | (In millions) |
Operating Leases | | $ | 1,039.4 |
| | $ | 332.5 |
| | $ | 405.8 |
| | $ | 171.1 |
| | $ | 130.0 |
|
Purchase Obligations(1) | | 538.7 |
| | 538.7 |
| | — |
| | — |
| | — |
|
Total (2) | | $ | 1,578.1 |
| | $ | 871.2 |
| | $ | 405.8 |
| | $ | 171.1 |
| | $ | 130.0 |
|
| |
(1) | Purchase obligations represent outstanding purchase orders for merchandise from vendors. These purchase orders are generally cancelable until shipment of the products. |
| |
(2) | As of February 1, 2014, we had $20.6 million of income tax liability related to unrecognized tax benefits in other long-term liabilities in our consolidated balance sheet. At the time of this filing, the settlement period for the noncurrent portion of our income tax liability (and the timing of any related payments) cannot be reasonably determined and therefore these liabilities are excluded from the table above. In addition, certain payments related to unrecognized tax benefits would be partially offset by reductions in payments in other jurisdictions. See Note 13 to our consolidated financial statements for further information regarding our uncertain tax positions. |
We lease retail stores, warehouse facilities, office space and equipment. These are generally leased under noncancelable agreements that expire at various dates through 2034 with various renewal options for additional periods. The agreements, which have been classified as operating leases, generally provide for minimum and, in some cases, percentage rentals and require us to pay all insurance, taxes and other maintenance costs. Percentage rentals are based on sales performance in excess of specified minimums at various stores. We do not have leases with capital improvement funding.
As of February 1, 2014, we had standby letters of credit outstanding in the amount of $9.0 million and had bank guarantees outstanding in the amount of $18.7 million, $13.0 million of which are cash collateralized.
Recent Accounting Standards and Pronouncements
In July 2013, accounting standards update (“ASU”) 2013-11 “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” was issued requiring an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as either a reduction to a deferred tax asset or separately as a liability depending on the existence, availability and/or use of an operating loss carryforward, a similar tax loss, or a tax credit carryforward. This ASU will be effective for us beginning the first quarter of 2014. We do not expect that this ASU will have an impact on our consolidated financial statements as we currently do not have any unrecognized tax benefits in the same jurisdictions in which we have tax loss or credit carryovers.
In March 2013, ASU 2013-05 “Foreign Currency Matters (Topic 830)” was issued providing guidance with respect to the release of cumulative translation adjustments into net income when a parent company sells either a part or all of an investment in a foreign entity. The ASU requires the release of cumulative translation adjustments when a company no longer holds a controlling financial interest in a foreign subsidiary or a group of assets that constitutes a business within a foreign entity. This ASU will be effective for us beginning the first quarter of 2014. We are evaluating the effect of this ASU, but do not expect it to have a significant impact on our consolidated financial statements.
In February 2013, ASU 2013-02 ��Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” was issued regarding disclosure of amounts reclassified out of accumulated other comprehensive income by component. An entity is required to present either on the face of the statement of operations or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income, but only if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. For amounts not reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional detail about those amounts. This ASU was effective for our annual and interim periods beginning in fiscal 2013. The ASU had no effect on our consolidated financial statements as we have a single component of other comprehensive income, currency translation adjustments, which is not reclassified to net income.
Seasonality
Our business, like that of many retailers, is seasonal, with the major portion of sales and operating profit realized during the fourth quarter which includes the holiday selling season. Results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year. Quarterly results may fluctuate materially depending upon, among other factors, the timing of new product introductions and new store openings, sales contributed by new stores, increases or decreases in comparable store sales, the nature and timing of acquisitions, adverse weather conditions, shifts in the timing of certain holidays or promotions and changes in our merchandise mix.
|
| |
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
We are exposed to market risk due to foreign currency and interest rate fluctuations, each as described more fully below.
Foreign Currency Risk
We use forward exchange contracts, foreign currency options and cross-currency swaps (together, the “foreign currency contracts”) to manage currency risk primarily related to intercompany loans denominated in non-functional currencies and certain foreign currency assets and liabilities. The foreign currency contracts are not designated as hedges and, therefore, changes in the fair values of these derivatives are recognized in earnings, thereby offsetting the current earnings effect of the re-measurement of related intercompany loans and foreign currency assets and liabilities. For the fiscal year ended February 1, 2014, we recognized a $20.3 million loss in selling, general and administrative expenses related to derivative instruments. The aggregate fair value of the foreign currency contracts as of February 1, 2014 was a net liability of $22.1 million as measured by observable inputs obtained from market news reporting services, such as Bloomberg and The Wall Street Journal, and industry-standard models that consider various assumptions, including quoted forward prices, time value, volatility factors, and contractual prices for the underlying instruments, as well as other relevant economic measures. A hypothetical strengthening or weakening of 10% in the foreign exchange rates underlying the foreign currency contracts from the market rate as of February 1, 2014 would result in a gain or loss in value of the forwards, options and swaps of $10.5 million.
We do not use derivative financial instruments for trading or speculative purposes. We are exposed to counterparty credit risk on all of our derivative financial instruments and cash equivalent investments. We manage counterparty risk according to the guidelines and controls established under comprehensive risk management and investment policies. We continuously monitor our counterparty credit risk and utilize a number of different counterparties to minimize our exposure to potential defaults. We do not require collateral under derivative or investment agreements.
Interest Rate Risk
Our Revolver’s per annum interest rate is variable and is based on one of (i) the U.S. prime rate, (ii) the LIBO rate or (iii) the U.S. federal funds rate. We do not use derivative financial instruments to hedge interest rate exposure. We limit our interest rate risks by investing our excess cash balances in short-term, highly-liquid instruments with a maturity of one year or less. We do not expect any material losses from our invested cash balances. Additionally, a hypothetical 10% adverse movement in interest rates would not have a material impact our financial condition, results of operations or cash flows and we therefore believe that we do not have significant interest rate exposure.
|
| |
Item 8. | Financial Statements and Supplementary Data |
See Item 15(a)(1) and (2) of this Form 10-K.
|
| |
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
|
| |
Item 9A. | Controls and Procedures |
| |
(a) | Evaluation of Disclosure Controls and Procedures |
As of the end of the period covered by this report, our management conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) at the reasonable assurance level. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and that our
disclosure controls and procedures are effective at the reasonable assurance level. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures to disclose material information otherwise required to be set forth in our periodic reports.
| |
(b) | Management’s Annual Report on Internal Control Over Financial Reporting |
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control — Integrated Framework, our management concluded that our internal control over financial reporting was effective at the reasonable assurance level as of February 1, 2014.
During the fourth quarter of fiscal 2013, we completed our acquisitions of Spring Mobile and the remaining equity ownership of Simply Mac that we did not previously own and began the process of integrating Spring Mobile and Simply Mac into our operations. We have excluded Spring Mobile and Simply Mac from our assessment of our internal control over financial reporting as of February 1, 2014 as we concluded there was insufficient time between the respective acquisition dates and the end of fiscal 2013 to properly plan, document, test and remediate, if necessary, the controls of Spring Mobile and Simply Mac. We will include Spring Mobile and Simply Mac in our assessment of our internal control over financial reporting as of January 31, 2009,2015 (the end of fiscal year 2014). Because Spring Mobile and Simply Mac do not constitute a significant portion of our operations on a consolidated basis, we do not currently expect these integration efforts to have a material effect on our internal control over financial reporting. In the aggregate, Spring Mobile and Simply Mac represented 4.3% of our consolidated assets and less than 1% of our consolidated net sales and consolidated net income attributable to GameStop Corp. as of and for the 52 weeks ended February 1, 2014.
The effectiveness of our internal control over financial reporting as of February 1, 2014 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included in this Form 10-K on page 52.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
GameStop Corp
Dallas, Texas
We have audited the internal control over financial reporting of GameStop Corp. (the "Company") as of February 1, 2014, based on criteria established in Internal Control - Integrated Framework (1992)issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in Management’s Annual Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Spring Communications, Inc. (“Spring Mobile”) and Simply Mac, Inc. ("Simply Mac"), which ownership interests were acquired on November 3, 2013 and November 7, 2013, respectively, and whose financial statements constitute approximately 4.3% of consolidated assets and less than 1% of consolidated net sales and consolidated net income attributable to the Company as of and for the 52 week period ended February 1, 2014. Accordingly, our audit did not include the internal control over financial reporting at Spring Mobile and Simply Mac.The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 1, 2014, based on the criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the 52 week period ended February 1, 2014 of the Company and our report dated April 2, 2014 expressed an unqualified opinion on those consolidated financial statements and financial statement schedule.
|
| |
| /s/ DELOITTE & TOUCHE LLP |
| DELOITTE & TOUCHE LLP |
Dallas, Texas
April 2, 2014
|
| |
Item 9B. | Other Information |
None.
PART III
|
| |
Item 10. | Directors, Executive Officers and Corporate Governance* |
Code of Ethics
We have adopted a Code of Ethics for Senior Financial and Executive Officers that is applicable to our Executive Chairman, Chief Executive Officer, President, Chief Financial Officer, Chief Accounting Officer, any Executive Vice President and any Vice President employed in a finance or accounting role. We have also adopted a Code of Standards, Ethics and Conduct applicable to all of our management-level employees. Each of the Code of Ethics and Code of Standards, Ethics and Conduct are available on our website at www.gamestop.com.
In accordance with SEC rules, we intend to disclose any amendment (other than any technical, administrative, or other non-substantive amendment) to either of the above Codes, or any waiver of any provision thereof with respect to any of the executive officers listed in the paragraph above, on our Web site (www.gamestop.com) within four business days following such amendment or waiver.
|
| |
Item 11. | Executive Compensation* |
|
| |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters* |
|
| |
Item 13. | Certain Relationships and Related Transactions, and Director Independence* |
|
| |
Item 14. | Principal Accountant Fees and Services* |
* The information not otherwise provided herein that is required by Items 10, 11, 12, 13 and 14 will be set forth in the definitive proxy statement relating to our 2014 Annual Meeting of Stockholders to be held on or around June 24, 2014, which is to be filed with the SEC pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. This definitive proxy statement relates to a meeting of stockholders involving the election of directors and the portions therefrom required to be set forth in this Form 10-K by Items 10, 11, 12, 13 and 14 are incorporated herein by reference pursuant to General Instruction G(3) to Form 10-K.
PART IV
|
| |
Item 15. | Exhibits and Financial Statement Schedules |
| |
(a) | The following documents are filed as a part of this Form 10-K: |
| |
(1) | Index and Consolidated Financial Statements |
The list of consolidated financial statements set forth in the accompanying Index to Consolidated Financial Statements at page F-1 herein is incorporated herein by reference. Such consolidated financial statements are filed as part of this Form 10-K.
| |
(2) | Financial Statement Schedules required to be filed by Item 8 of this Form 10-K: |
The following financial statement schedule for the 52 weeks ended February 1, 2014, the 53 weeks ended February 2, 2013 and the 52 weeks ended January 28, 2012 is filed as part of this Form 10-K and should be read in conjunction with our Consolidated Financial Statements appearing elsewhere in this Form 10-K:
Schedule II — Valuation and Qualifying Accounts
For the 52 weeks ended February 1, 2014, the 53 weeks ended February 2, 2013 and the 52 weeks ended January 28, 2012:
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | Balance at Beginning of Period | | Charged to Costs and Expenses | | Charged to Other Accounts- Accounts Payable (1) | | Deductions- Write-Offs Net of Recoveries | | Balance at End of Period |
| | (In millions) |
Inventory Reserve, deducted from asset accounts | | | | | | | | | | |
52 Weeks Ended February 1, 2014 | | $ | 83.8 |
| | $ | 40.6 |
| | $ | 32.0 |
| | $ | 79.9 |
| | $ | 76.5 |
|
53 Weeks Ended February 2, 2013 | | 67.7 |
| | 43.1 |
| | 31.6 |
| | 58.6 |
| | 83.8 |
|
52 Weeks Ended January 28, 2012 | | 69.5 |
| | 31.3 |
| | 33.5 |
| | 66.6 |
| | 67.7 |
|
(1) Consists primarily of amounts received from vendors for defective allowances.
All other schedules are omitted because they are not applicable.
The information required by this Section (b) of Item 15 is set forth on the Exhibit Index that follows the Consolidated Financial Statements and Notes to Consolidated Financial Statements appearing elsewhere in this Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| | |
| GAMESTOP CORP. |
| | |
| By: | /s/ J. PAUL RAINES |
| | J. Paul Raines |
| | Chief Executive Officer and Director |
Date: April 2, 2014
Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
| | | | |
Name | | Capacity | | Date |
| | |
/s/ J. PAUL RAINES | | Chief Executive Officer and Director | | April 2, 2014 |
J. Paul Raines | | (Principal Executive Officer) | | |
| | |
/s/ DANIEL A. DEMATTEO | | Executive Chairman and Director | �� | April 2, 2014 |
Daniel A. DeMatteo | | | | |
| | |
/s/ ROBERT A. LLOYD | | Executive Vice President and Chief | | April 2, 2014 |
Robert A. Lloyd | | Financial Officer (Principal Financial Officer) | | |
| | |
/s/ TROY W. CRAWFORD | | Senior Vice President, Chief Accounting | | April 2, 2014 |
Troy W. Crawford | | Officer (Principal Accounting Officer) | | |
| | |
/s/ JEROME L. DAVIS | | Director | | April 2, 2014 |
Jerome L. Davis | | | | |
| | |
/s/ R. RICHARD FONTAINE | | Director | | April 2, 2014 |
R. Richard Fontaine | | | | |
| | |
/s/ THOMAS N. KELLY JR. | | Director | | April 2, 2014 |
Thomas N. Kelly Jr. | | | | |
| | | | |
/s/ SHANE S. KIM | | Director | | April 2, 2014 |
Shane S. Kim | | | | |
| | |
/s/ STEVEN R. KOONIN | | Director | | April 2, 2014 |
Steven R. Koonin | | | | |
| | |
/s/ STEPHANIE M. SHERN | | Director | | April 2, 2014 |
Stephanie M. Shern | | | | |
| | |
/s/ GERALD R. SZCZEPANSKI | | Director | | April 2, 2014 |
Gerald R. Szczepanski | | | | |
| | |
/s/ KATHY P. VRABECK | | Director | | April 2, 2014 |
Kathy P. Vrabeck | | | | |
| | |
/s/ LAWRENCE S. ZILAVY | | Director | | April 2, 2014 |
Lawrence S. Zilavy | | | | |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
| |
| Page |
GameStop Corp. Consolidated Financial Statements: | |
| |
Consolidated Financial Statements: | |
| |
| |
| |
| |
| |
| |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
GameStop Corp.
Grapevine, Texas
We have audited the accompanying consolidated balance sheet of GameStop Corp. (the "Company") as of February 1, 2014, and the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for the 52 week period ended February 1, 2014. Our audit also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of GameStop Corp as of February 1, 2014, and the results of their operations and their cash flows for the 52 week period ended February 1, 2014, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of February 1, 2014, based on the criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 2, 2014 expressed an unqualified opinion on the Company's internal control over financial reporting.
|
| |
| /s/ DELOITTE & TOUCHE LLP |
| DELOITTE & TOUCHE LLP |
Dallas, Texas
April 2, 2014
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
GameStop Corp.
Grapevine, Texas
We have audited the accompanying consolidated balance sheet of GameStop Corp. as of February 2, 2013 and the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows for the 53 week period ended February 2, 2013 and the 52 week period ended January 28, 2012. In connection with our audits of the financial statements, we have also audited the financial statement schedule listed in Item 15(a)(2) of this Form 10-K. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and schedule. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of GameStop Corp. at February 2, 2013 and the results of its operations and its cash flows for the 53 week period ended February 2, 2013 and the 52 week period ended January 28, 2012, in conformity with accounting principles generally accepted in the United States of America.
Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
|
| |
| /s/ BDO USA, LLP |
| BDO USA, LLP |
Dallas, TX
April 3, 2013
GAMESTOP CORP.
CONSOLIDATED BALANCE SHEETS
|
| | | | | | | | |
| | February 1, 2014 | | February 2, 2013 |
| | (In millions, except par value per share) |
ASSETS |
Current assets: | | | | |
Cash and cash equivalents | | $ | 536.2 |
| | $ | 374.4 |
|
Receivables, net | | 84.4 |
| | 73.6 |
|
Merchandise inventories, net | | 1,198.9 |
| | 1,171.3 |
|
Deferred income taxes — current | | 51.7 |
| | 61.7 |
|
Prepaid expenses and other current assets | | 78.4 |
| | 68.5 |
|
Total current assets | | 1,949.6 |
| | 1,749.5 |
|
Property and equipment: | | | | |
Land | | 20.4 |
| | 22.5 |
|
Buildings and leasehold improvements | | 609.6 |
| | 606.4 |
|
Fixtures and equipment | | 841.8 |
| | 926.0 |
|
Total property and equipment | | 1,471.8 |
| | 1,554.9 |
|
Less accumulated depreciation and amortization | | 995.6 |
| | 1,030.1 |
|
Net property and equipment | | 476.2 |
| | 524.8 |
|
Goodwill | | 1,414.7 |
| | 1,383.1 |
|
Other intangible assets, net | | 194.3 |
| | 153.4 |
|
Other noncurrent assets | | 56.6 |
| | 61.4 |
|
Total noncurrent assets | | 2,141.8 |
| | 2,122.7 |
|
Total assets | | $ | 4,091.4 |
| | $ | 3,872.2 |
|
| | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
Current liabilities: | | | | |
Accounts payable | | $ | 783.9 |
| | $ | 611.6 |
|
Accrued liabilities | | 861.7 |
| | 738.9 |
|
Income taxes payable | | 78.0 |
| | 103.4 |
|
Notes payable | | 2.4 |
| | — |
|
Total current liabilities | | 1,726.0 |
| | 1,453.9 |
|
Deferred income taxes | | 37.4 |
| | 31.5 |
|
Other long-term liabilities | | 75.0 |
| | 100.5 |
|
Notes payable - long-term | | 1.6 |
| | — |
|
Total long-term liabilities | | 114.0 |
| | 132.0 |
|
Total liabilities | | 1,840.0 |
| | 1,585.9 |
|
Commitments and contingencies (Notes 11 and 12) | | — |
| | — |
|
Stockholders’ equity: | | | | |
Preferred stock — authorized 5.0 shares; no shares issued or outstanding | | — |
| | — |
|
Class A common stock — $.001 par value; authorized 300.0 shares; 115.3 and 128.2 shares issued, 115.3 and 118.2 shares outstanding, respectively | | 0.1 |
| | 0.1 |
|
Additional paid-in-capital | | 172.9 |
| | 348.3 |
|
Accumulated other comprehensive income | | 82.5 |
| | 164.4 |
|
Retained earnings | | 1,995.9 |
| | 1,773.5 |
|
Total stockholders' equity | | 2,251.4 |
| | 2,286.3 |
|
Total liabilities and stockholders’ equity | | $ | 4,091.4 |
| | $ | 3,872.2 |
|
See accompanying notes to consolidated financial statements.
GAMESTOP CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
| | | | | | | | | | | | |
| | 52 Weeks Ended February 1, 2014 | | 53 Weeks Ended February 2, 2013 | | 52 Weeks Ended January 28, 2012 |
| | (In millions, except per share data) |
Net sales | | $ | 9,039.5 |
| | $ | 8,886.7 |
| | $ | 9,550.5 |
|
Cost of sales | | 6,378.4 |
| | 6,235.2 |
| | 6,871.0 |
|
Gross profit | | 2,661.1 |
| | 2,651.5 |
| | 2,679.5 |
|
Selling, general and administrative expenses | | 1,892.4 |
| | 1,835.9 |
| | 1,842.1 |
|
Depreciation and amortization | | 166.5 |
| | 176.5 |
| | 186.3 |
|
Goodwill impairments | | 10.2 |
| | 627.0 |
| | — |
|
Asset impairments and restructuring charges | | 18.5 |
| | 53.7 |
| | 81.2 |
|
Operating earnings (loss) | | 573.5 |
| | (41.6 | ) | | 569.9 |
|
Interest income | | (0.9 | ) | | (0.9 | ) | | (0.9 | ) |
Interest expense | | 5.6 |
| | 4.2 |
| | 20.7 |
|
Debt extinguishment expense | | — |
| | — |
| | 1.0 |
|
Earnings (loss) before income tax expense | | 568.8 |
| | (44.9 | ) | | 549.1 |
|
Income tax expense | | 214.6 |
| | 224.9 |
| | 210.6 |
|
Net income (loss) | | 354.2 |
| | (269.8 | ) | | 338.5 |
|
Net loss attributable to noncontrolling interests | | — |
| | 0.1 |
| | 1.4 |
|
Net income (loss) attributable to GameStop Corp. | | $ | 354.2 |
| | $ | (269.7 | ) | | $ | 339.9 |
|
Basic net income (loss) per common share attributable to GameStop Corp. | | $ | 3.02 |
| | $ | (2.13 | ) | | $ | 2.43 |
|
Diluted net income (loss) per common share attributable to GameStop Corp. | | $ | 2.99 |
| | $ | (2.13 | ) | | $ | 2.41 |
|
Weighted average shares of common stock outstanding — basic | | 117.2 |
| | 126.4 |
| | 139.9 |
|
Weighted average shares of common stock outstanding — diluted | | 118.4 |
| | 126.4 |
| | 141.0 |
|
See accompanying notes to consolidated financial statements.
GAMESTOP CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
| | | | | | | | | | | | |
| | 52 Weeks Ended February 1, 2014 | | 53 Weeks Ended February 2, 2013 | | 52 Weeks Ended January 28, 2012 |
| | (In millions) |
Net income (loss) | | $ | 354.2 |
| | $ | (269.8 | ) | | $ | 338.5 |
|
Other comprehensive income (loss): | | | | | | |
Foreign currency translation adjustments | | (81.9 | ) | | (5.4 | ) | | 7.1 |
|
Total comprehensive income (loss) | | 272.3 |
| | (275.2 | ) | | 345.6 |
|
Comprehensive loss attributable to noncontrolling interests | | — |
| | 0.2 |
| | 1.5 |
|
Comprehensive income (loss) attributable to GameStop Corp. | | $ | 272.3 |
| | $ | (275.0 | ) | | $ | 347.1 |
|
See accompanying notes to consolidated financial statements.
GAMESTOP CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | GameStop Corp. Stockholders | | Noncontrolling Interest | | Total |
| | Class A Common Stock | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income | | Retained Earnings | |
| | Shares | | Common Stock | |
| | (In millions) |
Balance at January 29, 2011 | | 146.0 |
| | $ | 0.1 |
| | $ | 928.9 |
| | $ | 162.5 |
| | $ | 1,805.8 |
| | $ | (1.4 | ) | | $ | 2,895.9 |
|
Purchase of subsidiary shares from noncontrolling interest | | — |
| | — |
| | (1.1 | ) | | — |
| | — |
| | 1.0 |
| | (0.1 | ) |
Net income (loss) for the 52 weeks ended January 28, 2012 | | — |
| | — |
| | — |
| | — |
| | 339.9 |
| | (1.4 | ) | | 338.5 |
|
Foreign currency translation | | — |
| | — |
| | — |
| | 7.2 |
| | — |
| | (0.1 | ) | | 7.1 |
|
Stock-based compensation | | — |
| | — |
| | 18.8 |
| | — |
| | — |
| | — |
| | 18.8 |
|
Repurchases of common stock | | (11.2 | ) | | — |
| | (240.2 | ) | | — |
| | — |
| | — |
| | (240.2 | ) |
Exercise of employee stock options and issuance of shares upon vesting of restricted stock grants (including tax benefit of $2.1) | | 2.0 |
| | — |
| | 20.2 |
| | — |
| | — |
| | — |
| | 20.2 |
|
Balance at January 28, 2012 | | 136.8 |
| | 0.1 |
| | 726.6 |
| | 169.7 |
| | 2,145.7 |
| | (1.9 | ) | | 3,040.2 |
|
Purchase of subsidiary shares from noncontrolling interest | | — |
| | — |
| | (2.1 | ) | | — |
| | — |
| | 2.1 |
| | — |
|
Net loss for the 53 weeks ended February 2, 2013 | | — |
| | — |
| | — |
| | — |
| | (269.7 | ) | | (0.1 | ) | | (269.8 | ) |
Foreign currency translation | | — |
| | — |
| | — |
| | (5.3 | ) | | — |
| | (0.1 | ) | | (5.4 | ) |
Dividends(1) | | — |
| | — |
| | — |
| | — |
| | (102.5 | ) | | | | (102.5 | ) |
Stock-based compensation | | — |
| | — |
| | 19.6 |
| | — |
| | — |
| | — |
| | 19.6 |
|
Repurchases of common stock | | (19.9 | ) | | — |
| | (409.4 | ) | | — |
| | — |
| | — |
| | (409.4 | ) |
Exercise of employee stock options and issuance of shares upon vesting of restricted stock grants (including tax benefit of $2.0) | | 1.3 |
| | — |
| | 13.6 |
| | — |
| | — |
| | — |
| | 13.6 |
|
Balance at February 2, 2013 | | 118.2 |
| | 0.1 |
| | 348.3 |
| | 164.4 |
| | 1,773.5 |
| | — |
| | 2,286.3 |
|
Net income for the 52 weeks ended February 1, 2014 | | — |
| | — |
| | — |
| | — |
| | 354.2 |
| | — |
| | 354.2 |
|
Foreign currency translation | | — |
| | — |
| | — |
| | (81.9 | ) | | — |
| | — |
| | (81.9 | ) |
Dividends(1) | | — |
| | — |
| | — |
| | — |
| | (131.8 | ) | | — |
| | (131.8 | ) |
Stock-based compensation | | — |
| | — |
| | 19.4 |
| | — |
| | — |
| | — |
| | 19.4 |
|
Repurchases of common stock | | (6.3 | ) | | — |
| | (258.3 | ) | | — |
| | — |
| | — |
| | (258.3 | ) |
Exercise of employee stock options and issuance of shares upon vesting of restricted stock grants (including tax benefit of $11.1) | | 3.4 |
| | — |
| | 63.5 |
| | — |
| | — |
| | — |
| | 63.5 |
|
Balance at February 1, 2014 | | 115.3 |
| | $ | 0.1 |
| | $ | 172.9 |
| | $ | 82.5 |
| | $ | 1,995.9 |
| | $ | — |
| | $ | 2,251.4 |
|
| |
(1) | Dividends declared per common share were $0.80 in the 53 weeks ended February 2, 2013 and $1.10 in the 52 weeks ended February 1, 2014. |
See accompanying notes to consolidated financial statements.
GAMESTOP CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| | | | | | | | | | | | |
| | 52 Weeks Ended February 1, 2014 | | 53 Weeks Ended February 2, 2013 | | 52 Weeks Ended January 28, 2012 |
| | (In millions) |
Cash flows from operating activities: | | | | | | |
Net income (loss) | | $ | 354.2 |
| | $ | (269.8 | ) | | $ | 338.5 |
|
Adjustments to reconcile net income (loss) to net cash flows provided by operating activities: | | | | | | |
Depreciation and amortization (including amounts in cost of sales) | | 169.2 |
| | 178.9 |
| | 188.6 |
|
Provision for inventory reserves | | 40.6 |
| | 43.1 |
| | 31.3 |
|
Goodwill impairments, asset impairments and restructuring charges | | 28.7 |
| | 680.7 |
| | 81.2 |
|
Stock-based compensation expense | | 19.4 |
| | 19.6 |
| | 18.8 |
|
Deferred income taxes | | (2.7 | ) | | (58.2 | ) | | (25.2 | ) |
Excess tax benefits related to stock-based awards | | (12.4 | ) | | (1.3 | ) | | (1.4 | ) |
Loss on disposal of property and equipment | | 7.1 |
| | 13.0 |
| | 10.9 |
|
Other | | (0.6 | ) | | 1.2 |
| | 3.1 |
|
Changes in operating assets and liabilities: | | | | | | |
Receivables, net | | (1.4 | ) | | (8.1 | ) | | 1.0 |
|
Merchandise inventories | | (86.9 | ) | | (63.8 | ) | | 64.3 |
|
Prepaid expenses and other current assets | | (9.7 | ) | | 27.8 |
| | (3.3 | ) |
Prepaid income taxes and income taxes payable | | (19.8 | ) | | 25.9 |
| | 17.6 |
|
Accounts payable and accrued liabilities | | 302.4 |
| | 25.9 |
| | (87.4 | ) |
Changes in Other long-term liabilities | | (25.4 | ) | | (4.7 | ) | | 3.8 |
|
Net cash flows provided by operating activities | | 762.7 |
| | 610.2 |
| | 641.8 |
|
Cash flows from investing activities: | | | | | | |
Purchase of property and equipment | | (125.6 | ) | | (139.6 | ) | | (165.1 | ) |
Acquisitions, net of cash acquired | | (77.4 | ) | | (1.5 | ) | | (30.1 | ) |
Other | | (4.5 | ) | | (11.6 | ) | | (6.4 | ) |
Net cash flows used in investing activities | | (207.5 | ) | | (152.7 | ) | | (201.6 | ) |
Cash flows from financing activities: | | | | | | |
Repayment of acquisition-related debt | | (31.8 | ) | | — |
| | — |
|
Repurchase of notes payable | | — |
| | — |
| | (250.0 | ) |
Repurchase of common shares | | (258.3 | ) | | (409.4 | ) | | (262.1 | ) |
Dividends paid | | (130.9 | ) | | (102.0 | ) | | — |
|
Borrowings from the revolver | | 130.0 |
| | 81.0 |
| | 35.0 |
|
Repayments of revolver borrowings | | (130.0 | ) | | (81.0 | ) | | (35.0 | ) |
Exercise of stock options, net of share repurchases for withholdings taxes | | 58.0 |
| | 11.6 |
| | 18.1 |
|
Excess tax benefits related to stock-based awards | | 12.4 |
| | 1.3 |
| | 1.4 |
|
Net cash flows used in financing activities | | (350.6 | ) | | (498.5 | ) | | (492.6 | ) |
Exchange rate effect on cash and cash equivalents | | (42.8 | ) | | (0.4 | ) | | 13.7 |
|
Increase (decrease) in cash and cash equivalents | | 161.8 |
| | (41.4 | ) | | (38.7 | ) |
Cash and cash equivalents at beginning of period | | 374.4 |
| | 415.8 |
| | 454.5 |
|
Cash and cash equivalents at end of period | | $ | 536.2 |
| | $ | 374.4 |
| | $ | 415.8 |
|
See accompanying notes to consolidated financial statements.
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| |
1. | Nature of Operations and Summary of Significant Accounting Policies |
Background
GameStop Corp. (“GameStop,” “we,” “us,” “our,” or the “Company”) is a global, multichannel video game, consumer electronics and wireless services retailer and is the world’s largest multichannel video game retailer. We sell new and pre-owned video game hardware, physical and digital video game software, video game accessories, mobile and consumer electronics as well as other merchandise primarily through our GameStop, EB Games and Micromania stores. We sell mobile and consumer electronics primarily through our Spring Mobile and Simply Mac stores. Our stores, which totaled 6,675 at February 1, 2014, are located in major regional shopping malls and strip centers. We also operate electronic commerce Web sites at www.gamestop.com, www.ebgames.com.au, www.ebgames.co.nz, www.gamestop.ca, www.gamestop.it, www.gamestop.es, www.gamestop.ie, www.gamestop.de, www.gamestop.co.uk and www.micromania.fr. In addition, we publish Game Informer magazine, operate the online video gaming Web site www.kongregate.com, a digital PC game distribution platform available at www.gamestop.com/pcgames, iOS and Android mobile applications and an online consumer electronics marketplace available at www.buymytronics.com. We operate our business in four Video Game Brands segments: United States, Canada, Australia and Europe, and a Technology Brands segment, which was added in the fourth quarter of fiscal 2013 and includes the operations of our Spring Mobile, Simply Mac, and Aio Wireless businesses.
Our largest vendors worldwide are Sony Computer Entertainment, Microsoft, Nintendo, Electronic Arts, Inc. and Activision, which accounted for 20%, 15%, 12%, 10% and 10%, respectively, of our new product purchases in fiscal 2013, 17%, 13%, 14%, 11% and 16%, respectively, in fiscal 2012 and 15%, 17%, 16%, 13% and 11%, respectively, in fiscal 2011. In addition, Take-Two Interactive accounted for 11% of our new product purchases in fiscal 2013.
Basis of Presentation and Consolidation
Our consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries and our majority-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. All dollar and share amounts (other than dollar amounts per share) in the consolidated financial statements are stated in millions unless otherwise indicated.
Our fiscal year is composed of the 52 or 53 weeks ending on the Saturday closest to the last day of January. Fiscal 2013 consisted of the 52 weeks ended on February 1, 2014. Fiscal 2012 consisted of the 53 weeks ended on February 2, 2013. Fiscal 2011 consisted of the 52 weeks ended on January 28, 2012.
We have revised the presentation of outstanding checks in our prior period financial statements. Previously, we reduced cash and liabilities when the checks were presented for payment and cleared our bank accounts. As of February 1, 2014, we reduce cash and liabilities when the checks are released for payment.
The impacts of revising our financial statements for the specified prior periods are as follows:
|
| | | | | | | | | | | | |
|
| As Previously Reported |
| Revision |
| As Revised |
|
| (In millions) |
Consolidated Balance Sheets: |
|
|
|
|
|
|
As of February 2, 2013 |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 635.8 |
|
| $ | (261.4 | ) |
| $ | 374.4 |
|
Total current assets |
| 2,010.9 |
|
| (261.4 | ) |
| 1,749.5 |
|
Total assets |
| 4,133.6 |
|
| (261.4 | ) |
| 3,872.2 |
|
Accounts payable |
| 870.9 |
|
| (259.3 | ) |
| 611.6 |
|
Accrued liabilities |
| 741.0 |
|
| (2.1 | ) |
| 738.9 |
|
Total current liabilities |
| 1,715.3 |
|
| (261.4 | ) |
| 1,453.9 |
|
Total liabilities |
| 1,847.3 |
|
| (261.4 | ) |
| 1,585.9 |
|
|
| | | | | | | | | | | | |
| | As Previously Reported | | Revision | | As Revised |
| | (In millions) |
Consolidated Statements of Cash Flows: | | | | | | |
For the 53 weeks ended February 2, 2013 | | | | | | |
Changes in operating assets and liabilities: | | | | | | |
Accounts payable and accrued liabilities | | $ | 48.1 |
| | $ | (22.2 | ) | | $ | 25.9 |
|
Net cash flows provided by operating activities | | 632.4 |
| | (22.2 | ) | | 610.2 |
|
Cash and cash equivalents at beginning of period | | 655.0 |
| | (239.2 | ) | | 415.8 |
|
Cash and cash equivalents at end of period | | 635.8 |
| | (261.4 | ) | | 374.4 |
|
| | | | | | |
For the 52 weeks ended January 28, 2012 | | | | | | |
Changes in operating assets and liabilities: | | | | | | |
Accounts payable and accrued liabilities | | (104.5 | ) | | 17.1 |
| | (87.4 | ) |
Net cash flows provided by operating activities | | 624.7 |
| | 17.1 |
| | 641.8 |
|
Cash and cash equivalents at beginning of period | | 710.8 |
| | (256.3 | ) | | 454.5 |
|
Cash and cash equivalents at end of period | | 655.0 |
| | (239.2 | ) | | 415.8 |
|
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires us 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, we have made our 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 us could have a significant impact on our financial results. Actual results could differ from those estimates.
Cash and Cash Equivalents
We consider all short-term, highly-liquid instruments purchased with an original maturity of three months or less to be cash equivalents. Our cash and cash equivalents are carried at cost, which approximates market value, and consist primarily of time deposits with highly rated commercial banks. From time to time depending upon interest rates, credit worthiness and other factors, we invest in money market investment funds holding direct U.S. Treasury obligations.
Restricted Cash
We consider bank deposits serving as collateral for bank guarantees issued on behalf of our foreign subsidiaries as restricted cash, which is included in other noncurrent assets in our consolidated balance sheets. Our restricted cash was $16.4 million and $13.4 million as of February 1, 2014 and February 2, 2013, respectively.
Merchandise Inventories
Our merchandise inventories are carried at the lower of cost or market generally using the average cost method. Under the average cost method, as new product is received from vendors, its current cost is added to the existing cost of product on-hand and this amount is re-averaged over the cumulative units. Pre-owned video game products traded in by customers are recorded as inventory at the amount of the store credit given to the customer. In valuing inventory, we are required to make assumptions regarding the necessity of reserves required to value potentially obsolete or over-valued items at the lower of cost or market. We consider quantities on hand, recent sales, potential price protections and returns to vendors, among other factors, when making these assumptions.
Our ability to assess these factors is dependent upon our ability to forecast customer demand and to provide a well-balanced merchandise assortment. Inventory is adjusted based on anticipated physical inventory losses or shrinkage and actual losses resulting from periodic physical inventory counts. Inventory reserves as of February 1, 2014 and February 2, 2013 were $76.5 million and $83.8 million, respectively.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation and amortization. Depreciation on furniture, fixtures and equipment is computed using the straight-line method over their estimated useful lives ranging from two to ten years. Maintenance and repairs are expensed as incurred, while betterments and major remodeling costs are capitalized. Leasehold improvements are capitalized and amortized over the shorter of their estimated useful lives or the terms of the respective leases, including option periods in which the exercise of the option is reasonably assured (generally ranging from three to ten years). Costs incurred in purchasing management information systems are capitalized and included in property and equipment. These costs are amortized over their estimated useful lives from the date the systems become operational. Our total depreciation expense was $152.9 million, $163.1 million and $172.2 million during fiscal 2013, fiscal 2012 and fiscal 2011, respectively.
We periodically review our property and equipment when events or changes in circumstances indicate that their carrying amounts may not be recoverable or their depreciation or amortization periods should be accelerated. We assess recoverability based on several factors, including our intention with respect to our stores and those stores’ projected undiscounted cash flows. An impairment loss would be recognized for the amount by which the carrying amount of the assets exceeds their fair value, as approximated by the present value of their projected discounted cash flows. We recorded impairment losses of $18.5 million, $8.8 million and $11.2 million in fiscal 2013, fiscal 2012 and fiscal 2011, respectively. See Note 2 for further information regarding our asset impairment charges.
Goodwill
Goodwill represents the excess purchase price over net identifiable assets acquired. Our management is required to evaluate goodwill and other intangible assets not subject to amortization for impairment at least annually. This annual test is completed as of the beginning of the fourth quarter each fiscal year or when circumstances indicate the carrying value of the goodwill or other intangible assets might be impaired. Goodwill has been assigned to reporting units for the purpose of impairment testing. We have five operating and reportable segments, including Video Game Brands in the United States, Australia, Canada and Europe, and Technology Brands in the United States, which also define our reporting units based upon the similar economic characteristics of operations within each segment, including the nature of products, product distribution and the type of customer and separate management within those regions.
We estimate the fair value of each reporting unit based on the discounted cash flows of each reporting unit. We use a two-step process to measure any potential goodwill impairment. If the fair value of the reporting unit is higher than its carrying value, then goodwill is not impaired. If the carrying value of the reporting unit is higher than the fair value, then the second step of the goodwill impairment test is needed. The second step compares the implied fair value of the reporting unit’s goodwill with its carrying amount. The implied fair value of goodwill is determined in step two of the goodwill impairment test by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation used in a business combination and the residual fair value after this allocation is the implied fair value of the reporting unit’s goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of its goodwill, then an impairment loss is recognized in the amount of the excess.
During the third quarter of fiscal 2012, our management determined that sufficient indicators of potential impairment existed to require an interim goodwill impairment test. As a result of the interim goodwill impairment test, we recorded non-cash, non-tax deductible goodwill impairments for the third quarter of fiscal 2012 of $107.1 million, $100.3 million and $419.6 million in our Australia, Canada and Europe reporting units, respectively, to reduce the carrying value of goodwill.
We completed the annual impairment test of goodwill as of the first day of the fourth quarter of fiscal 2011, fiscal 2012 and fiscal 2013 and concluded that none of our goodwill was impaired. For the fiscal 2013 annual impairment test, Technology Brands was excluded since it commenced operations during the fourth quarter and therefore was not a reporting unit subject to assessment as of our annual testing date. For our United States, Canada and Australia reporting units, the calculated fair value of each of these reporting units exceeded their carrying values by more than 20% and the calculated fair value of our Europe reporting unit exceeded its carrying value by more than 10%. For fiscal 2013, there was a $10.2 million goodwill write-off in the United States Video Game Brands segment as a result of abandoning our investment in Spawn Labs. For fiscal 2011, there was a $3.3 million goodwill write-off in the United States Video Game Brands segment as a result of the exiting of a non-core business. Note 9 provides additional information concerning the changes in goodwill for the consolidated financial statements presented.
Other Intangible Assets
Other intangible assets consist primarily of trade names, leasehold rights, advertising relationships, dealer agreements and amounts attributed to favorable leasehold interests recorded as a result of business acquisitions. Intangible assets are recorded apart from goodwill if they arise from a contractual right and are capable of being separated from the entity and sold, transferred, licensed, rented or exchanged individually. The estimated useful life and amortization methodology of intangible assets are
determined based on the period in which they are expected to contribute directly to cash flows. Intangible assets that are determined to have a definite life are amortized over that period. Leasehold rights which were recorded as a result of the purchase of SFMI Micromania SAS (“Micromania”) represent the value of rights of tenancy under commercial property leases for properties located in France. Rights pertaining to individual leases can be sold by us to a new tenant or recovered by us from the landlord if the exercise of the automatic right of renewal is refused. Leasehold rights are amortized on a straight-line basis over the expected lease term not to exceed 20 years, with no residual value. Advertising relationships, which were recorded as a result of digital acquisitions, are relationships with existing advertisers who pay to place ads on our digital Web sites and are amortized on a straight-line basis over 10 years. Favorable leasehold interests represent the value of the contractual monthly rental payments that are less than the current market rent at stores acquired as part of the Micromania acquisition or the EB merger. Favorable leasehold interests are amortized on a straight-line basis over their remaining lease term with no expected residual value.
Intangible assets that are determined to have an indefinite life are not amortized, but are required to be evaluated at least annually for impairment. Trade names which were recorded as a result of acquisitions, primarily Micromania, are considered indefinite-lived intangible assets as they are expected to contribute to cash flows indefinitely and are not subject to amortization, but are subject to annual impairment testing. If the carrying value of an individual indefinite-lived intangible asset exceeds its fair value as determined by its discounted cash flows, such individual indefinite-lived intangible asset is written down by the amount of the excess.
During the third quarter of fiscal 2012, our management determined that sufficient indicators of potential impairment existed to require an interim impairment test of our Micromania trade name. As a result of the interim impairment test of the Micromania trade name, we recorded a $44.9 million impairment charge during the third quarter of fiscal 2012. We completed the annual impairment tests of indefinite-lived intangible assets as of the first day of the fourth quarter of fiscal 2013 and fiscal 2012 and concluded that none of our intangible assets were impaired. We completed the annual impairment test of indefinite-lived intangible assets as of the first day of the fourth quarter of fiscal 2011 and concluded that the Micromania trade name was impaired due to revenue forecasts that had declined since the initial valuation. As a result, we recorded a $37.8 million impairment charge for fiscal 2011. The impairment charges are recorded in asset impairments and restructuring charges in our consolidated statements of operations and are recorded in the Europe segment. See Note 9.
Revenue Recognition
Revenue from the sales of our products is recognized at the time of sale, net of sales discounts and net of an estimated sales return reserve, based on historical return rates, with a corresponding reduction in cost of sales. Our sales return policy is generally limited to less than 30 days and as such our sales returns are, and have historically been, immaterial.
The sales of pre-owned video game products are recorded at the retail price charged to the customer. Advertising revenues for Game Informer are recorded upon release of magazines for sale to consumers. Subscription revenues for our PowerUp Rewards loyalty program and magazines are recognized on a straight-line basis over the subscription period. Revenue from the sales of product replacement plans is recognized on a straight-line basis over the coverage period. The deferred revenues for our PowerUp Rewards loyalty program, gift cards, customer credits, magazines and product replacement plans are included in accrued liabilities (see Note 8). Gift cards sold to customers are recognized as a liability on the consolidated balance sheet until redeemed or until a reasonable point at which breakage related to non-redemption can be recognized.
We also sell a variety of digital products which generally allow consumers to download software or play games on the internet. Certain of these products do not require us to purchase inventory or take physical possession of, or take title to, inventory. When purchasing these products from us, consumers pay a retail price and we earn a commission based on a percentage of the retail sale as negotiated with the product publisher. We recognize these commissions as revenue on the sale of these digital products.
Revenues do not include sales taxes or other taxes collected from customers.
Cost of Sales and Selling, General and Administrative Expenses Classification
The classification of cost of sales and selling, general and administrative expenses varies across the retail industry. We include purchasing, receiving and distribution costs in selling, general and administrative expenses, rather than cost of goods sold, in the consolidated statements of operations. For the 52 weeks ended February 1, 2014, the 53 weeks ended February 2, 2013 and the 52 weeks ended January 28, 2012, these purchasing, receiving and distribution costs amounted to $56.4 million, $58.8 million and $61.7 million, respectively.
We include processing fees associated with purchases made by check and credit cards in cost of sales, rather than selling, general and administrative expenses, in the consolidated statements of operations. For the 52 weeks ended February 1, 2014, the 53 weeks ended February 2, 2013 and the 52 weeks ended January 28, 2012, these processing fees amounted to $69.7$61.5 million, $63.1$54.2 million and $65.5$65.1 million, respectively.
Customer Liabilities
The Company establishesWe establish a liability upon the issuance of merchandise credits and the sale of gift cards. Revenue is subsequently recognized when the credits and gift cards are redeemed. In addition, income (“breakage”)breakage is recognized quarterly on unused customer liabilities older than threetwo years to the extent that the Companyour management believes the likelihood of redemption by the customer is remote, based on historical redemption patterns. Breakage has historically been immaterial. To the extent that future redemption patterns differ from those historically experienced, there will be variations in the recorded breakage.
Pre-Opening Expenses
All costs associated with the opening of new stores are expensed as incurred. Pre-opening expenses are included in selling, general and administrative expenses in the accompanying consolidated statements of operations.
Closed Store Expenses
Upon a formal decision to close or relocate a store, the Company charges unrecoverable costs to expense. Such costs include the net book value of abandoned fixtures and leasehold improvements and, once the store is vacated, a provision for future lease obligations, net of expected sublease recoveries. Costs associated with store closings are included in selling, general and administrative expenses in the accompanying consolidated statements of operations.
Advertising Expenses
The Company expensesWe expense advertising costs for newspapers and other media when the advertising takes place. Advertising expenses for television, newspapers and other media during the 52 weeks ended February 1, 2014, the 53 weeks ended February 2, 2013 and the 52 weeks ended January 29, 2011, January 30, 2010 and January 31, 200928, 2012 were $83.7$57.8 million, $57.7$63.9 million and $46.7$65.0 million, respectively.
F-11
GAMESTOP CORP.
Loyalty Expenses
The PowerUp Rewards loyalty program, introduced in May 2010, allows enrolled members to earn points on purchases that can be redeemed for rewards that include discounts or merchandise. We estimate the net cost of the rewards that will be issued and redeemed and record this cost and the associated balance sheet reserve as points are accumulated by loyalty program members. The two primary estimates utilized to record the balance sheet reserve for loyalty points earned by members are the estimated redemption rate and the estimated weighted-average cost per point redeemed. Our management uses historical redemption rates experienced under the loyalty program as a basis to estimate the ultimate redemption rate of points earned. A weighted-average cost per point redeemed is used to estimate future redemption costs. The weighted-average cost per point redeemed is based on our most recent actual costs incurred to fulfill points that have been redeemed by our loyalty program members and is adjusted as appropriate for recent changes in redemption costs, including the mix of rewards redeemed. We continually evaluate our reserve methodology and assumptions based on developments in redemption patterns, cost per point redeemed and other factors. Changes in the ultimate redemption rate and weighted-average cost per point redeemed have the effect of either increasing or decreasing the reserve through the current period provision by an amount estimated to cover the cost of all points previously earned but not yet redeemed by loyalty program members as of the end of the reporting period.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Historically, the cost was recognized in selling, general and administrative expenses and the associated liability was included in accrued liabilities. However, in the fourth quarter of 2013, we determined that the net cost of the rewards that will be issued and redeemed would be better presented as cost of sales. The cost of administering the loyalty program, including program administration fees, program communications and cost of loyalty cards, will continue to be recognized in selling, general and administrative expenses. The cost of free or discounted products recognized in cost of sales for the 52 weeks ended February 1, 2014 was $18.2 million. The cost of free or discounted products for the 53 weeks ended February 2, 2013 and the 52 weeks ended January 28, 2012 was $31.2 million and $37.8 million, respectively, all of which was recorded in selling, general and administrative expenses as discussed above. The reserve is released when loyalty program members redeem their respective points and the corresponding rewards are recorded to cost of goods sold in the period of redemption.
Income Taxes
Income tax expense includes United States,federal, state, local and international income taxes. Income taxes plus a provisionare accounted for U.S. taxes on undistributed earnings of foreign subsidiaries not deemed to be indefinitely reinvested. Deferredutilizing an asset and liability approach and deferred tax assets and liabilities are recognized for the tax consequences of temporary differences between the financial reporting basis and the tax basis of existing assets and liabilities using enacted tax rates. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. Valuation allowances are recorded to reduce deferred tax assets to the amount that will more likely than not be realized. In accordance with GAAP, we maintain accrualsliabilities for uncertain tax positions until examination of the tax year is completed by the applicable taxing authority, available review periods expire or additional facts and circumstances cause us to change our assessment of the appropriate accrual amount (see Note 12)13).
We plan on permanently reinvesting our undistributed foreign earnings outside the United States. Where foreign earnings are permanently reinvested, no provision for federal income or foreign withholding taxes is made. Should we have undistributed foreign earnings that are not permanently reinvested, United States income tax expense and foreign withholding taxes will be provided for at the time the earnings are generated.
U.S. income taxes have not been provided on $504.9 million of undistributed earnings of foreign subsidiaries as of January 29, 2011. The Company reinvests earnings of foreign subsidiaries in foreign operations and expects that future earnings will also be reinvested in foreign operations indefinitely.
Lease Accounting
We lease retail stores, warehouse facilities, office space and equipment. These are generally leased under noncancelable agreements that expire at various dates through 2034 with various renewal options for additional periods. The Company’s method of accounting for rent expense (and related deferred rent liability) and leasehold improvements funded by landlord incentives for allowances underagreements, which have been classified as operating leases, (tenant improvement allowances) isgenerally provide for minimum and, in conformancesome cases, percentage rentals and require us to pay all insurance, taxes and other maintenance costs. Leases with GAAP. For leases that contain predetermined fixed escalationsstep rent provisions, escalation clauses or other lease concessions
are accounted for on a straight-line basis andover the lease term, which includes the impact of escalating rents forrenewal option periods in which it iswhen we are reasonably assured of exercising leasethe renewal options and the Company includes “rent holidays” (periods in the lease term any period during which the Company iswe are not obligated to pay rent). Cash or lease incentives received upon entering into certain store leases (“tenant improvement allowances”) are recognized on a straight-line basis as a reduction to rent whileexpense over the store is being constructed.lease term, which includes renewal option periods when we are reasonably assured of exercising the renewal options. We record the unamortized portion of tenant improvement allowances as a part of deferred rent. We do not have leases with capital improvement funding. Percentage rentals are based on sales performance in excess of specified minimums at various stores and are accounted for in the period in which the amount of percentage rentals can be accurately estimated.
Foreign Currency Translation
GameStop hasWe have determined that the functional currencies of itsour foreign subsidiaries are the subsidiaries’ local currencies. The assets and liabilities of the subsidiaries are translated at the applicable exchange rate as of the end of the balance sheet date and revenue and expenses are translated at an average rate over the period. Currency translation adjustments are recorded as a component of other comprehensive income. Transaction and derivative net gains and (losses) are included in selling, general and administrative expenses and amounted towere $3.3 million, $2.5 million $3.9 million and ($10.0)$(0.6) million for the 52 weeks ended February 1, 2014, the 53 weeks ended February 2, 2013 and the 52 weeks ended January 29, 2011, January 30, 2010 and January 31, 2009,28, 2012, respectively. The foreign currency transaction gains and losses are primarily due to the decrease or increase in the value of the U.S. dollar compared to the functional currencies inof the countries the Company operates in which we operate internationally. In fiscal 2010, theThe foreign currency transaction gains and (losses) are primarily due to the decreasefluctuations in the value of the U.S. dollar compared to the Australian dollar, Canadian dollar and the Australian dollar. In fiscal 2009, the foreign currency transaction gains are primarily due to the decrease in the value of the U.S. dollar compared to the euro, the Canadian dollar and the Australian dollar. The foreign currency transaction losses in fiscal 2008 are primarily related to the increase in the value of the U.S. dollar compared to the euro, the Canadian dollar and the Australian dollar. The net foreign currency transaction loss in the 52 weeks ended January 31, 2009 included a $3.5 million net loss related to the change in foreign exchange rates related to the funding of the Micromania acquisition recorded in merger-related expenses.euro.
The Company usesWe use forward exchange contracts, foreign currency options and cross-currency swaps (together, the “Foreign Currency Contracts”“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 Contractsforeign currency contracts are not designated as hedges and, therefore, changes in the fair values of these derivatives are recognized in earnings, thereby offsetting the current earnings effect of the re-measurement of related intercompany loans and foreign currency assets and liabilities (see Note 5)6).
New Accounting Pronouncements
In July 2013, the Financial Accounting Standards Board ("FASB") issued an Accounting Standards Update (“ASU”) related to the presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The ASU requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as either a reduction to a deferred tax asset or separately as a liability depending on the existence, availability and/or use of an operating loss carryforward, a similar tax loss, or a tax credit carryforward. This ASU will be effective for us beginning the first quarter of 2014. We do not expect that this ASU will have an impact on our consolidated financial statements as we currently do not have any unrecognized tax benefits in the same jurisdictions in which we have tax loss or credit carryovers.
In March 2013, the FASB issued an ASU providing guidance with respect to the release of cumulative translation adjustments into net income when a parent company sells either a part or all of an investment in a foreign entity. The ASU requires the release of cumulative translation adjustments when a company no longer holds a controlling financial interest in a foreign subsidiary or a group of assets that constitutes a business within a foreign entity. This ASU will be effective for us beginning the first quarter of 2014. We are evaluating the effect of this ASU, but do not expect it to have a significant impact on our Consolidated Financial Statements.
In February 2013, the FASB issued an ASU related to the reporting and disclosure of amounts reclassified out of accumulated other comprehensive income by component. An entity is required to present either on the face of the statement of operations or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income, but only if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. For amounts not reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional detail about those amounts. This ASU was effective for our annual and interim periods beginning in fiscal 2013. The ASU had no effect on our consolidated financial statements as we have a single component of other comprehensive income, currency translation adjustments, which is not reclassified to net income.
F-12
GAMESTOP CORP.
|
| |
2. | Asset Impairments and Restructuring Charges |
Fiscal 2013
We recognized impairment charges of $9.0 million in fiscal 2013 related to our evaluation of store property, equipment and other assets in situations where the asset’s carrying value was not expected to be recovered by its future cash flows over its remaining useful life. We used a discounted cash flow method to estimate the present value of net cash flows that the fixed asset or fixed asset group is expected to generate in determining its fair value. The key inputs to the discounted cash flow model generally included our forecasts of net cash generated from revenue, expenses and other significant cash outflows, such as capital expenditures, as well as an appropriate discount rate.
Additionally, we made a decision during the fourth quarter of fiscal 2013 to abandon our Spawn Labs business and related technology assets. As a result of this decision, we recorded impairment charges of $2.1 million related to other intangible assets and $7.4 million related to certain technology assets in connection with the exit of the Spawn Labs business, which are reflected in the asset impairments and restructuring charges line item in our consolidated statements of operations. Additionally, because we never integrated Spawn Labs into our United States Video Game Brands reporting unit, our decision to exit this business triggered an interim impairment test that resulted in a goodwill impairment charge of $10.2 million, which is reflected in the goodwill impairments line item in our consolidated statements of operations.
A summary of our asset impairment charges, by reportable segment, for the 52 weeks ended February 1, 2014 is as follows:
|
| | | | | | | | | | | | |
| | United States Video Game Brands | | Europe Video Game Brands | | Total |
| | (In millions) |
Goodwill impairments | | $ | 10.2 |
| | $ | — |
| | $ | 10.2 |
|
Impairment of intangible assets | | 2.1 |
| | — |
| | 2.1 |
|
Impairment of technology assets | | 7.4 |
| | — |
| | 7.4 |
|
Impairments of property, equipment and other assets - store impairments | | 4.3 |
| | 4.7 |
| | 9.0 |
|
Total | | $ | 24.0 |
| | $ | 4.7 |
| | $ | 28.7 |
|
There were no restructuring charges for the 52 weeks ended February 1, 2014, and we did not have any amounts accrued for termination benefits as of February 1, 2014. An immaterial amount of termination benefits related to our restructuring initiatives was recorded within accrued liabilities in our consolidated balance sheet as of February 2, 2013, all of which was paid during fiscal 2013.
Fiscal 2012
During the third quarter of fiscal 2012, we recorded a $44.9 million impairment charge as a result of our interim impairment test of our Micromania trade name, which is described more fully in Note 9. The fair value of the Micromania trade name was calculated using a relief-from-royalty approach, which assumes the fair value of the trade name is the discounted cash flows of the amount that would be paid by a hypothetical market participant had they not owned the trade name and instead licensed the trade name from another company.
In fiscal 2012, we also recorded impairments of finite-lived assets of $8.8 million consisting primarily of the remaining net book value of assets for stores we are in the process of closing or that we have determined will not have sufficient cash flow on an undiscounted basis to cover the remaining net book value of assets recorded for that store.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)A summary of our asset impairment charges, by reportable segment, for the 53 weeks ended February 2, 2013 is as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| | United States Video Game Brands | | Canada Video Game Brands | | Australia Video Game Brands | | Europe Video Game Brands | | Total |
| | (In millions) |
Goodwill impairments | | $ | — |
| | $ | 100.3 |
| | $ | 107.1 |
| | $ | 419.6 |
| | $ | 627.0 |
|
Impairment of intangible assets | | — |
| | — |
| | — |
| | 44.9 |
| | 44.9 |
|
Impairments of property, equipment and other assets - store impairments | | 5.7 |
| | 0.4 |
| | 0.2 |
| | 2.5 |
| | 8.8 |
|
Total | | $ | 5.7 |
| | $ | 100.7 |
| | $ | 107.3 |
| | $ | 467.0 |
| | $ | 680.7 |
|
There were no restructuring charges during the fiscal year ended February 2, 2013.
Fiscal 2011
In the fourth quarter of fiscal 2011, we recorded total asset impairments and restructuring charges of $81.2 million, of which $37.8 million was recorded as a result of the annual impairment test of our Micromania trade name. The fair value of the Micromania trade name was calculated using a relief-from-royalty approach. See Note 9 for further information regarding the trade name impairment. In addition, $22.7 million was recorded related to the impairment of investments in non-core businesses, primarily a small retail movie chain of stores owned by us until fiscal 2011. We also incurred restructuring charges in the fourth quarter of fiscal 2011 related to the exit of certain markets in Europe and the closure of underperforming stores in the international segments, as well as the consolidation of European home office sites and back-office functions. These restructuring charges were a result of our management’s plan to rationalize the international store base and improve profitability. In addition, we recognized impairment charges related to our evaluation of store property, equipment and other assets in situations where the asset’s carrying value was not expected to be recovered by its future cash flows over its remaining useful life.
A summary of our asset impairments and restructuring charges, by reportable segment, for the 52 weeks ended January 28, 2012 is as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| | United States Video Game Brands | | Canada Video Game Brands | | Australia Video Game Brands | | Europe Video Game Brands | | Total |
| | (In millions) |
Impairment of intangible assets | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 37.8 |
| | $ | 37.8 |
|
Impairment of investments in non-core businesses | | 22.7 |
| | — |
| | — |
| | — |
| | 22.7 |
|
Impairments of property, equipment and other assets - store impairments | | 3.2 |
| | 1.1 |
| | 0.5 |
| | 6.4 |
| | 11.2 |
|
Termination benefits | | 3.0 |
| | 0.2 |
| | — |
| | 2.4 |
| | 5.6 |
|
Facility closure and other costs | | — |
| | — |
| | 0.1 |
| | 3.8 |
| | 3.9 |
|
Total | | $ | 28.9 |
| | $ | 1.3 |
| | $ | 0.6 |
| | $ | 50.4 |
| | $ | 81.2 |
|
Fiscal 2013 Acquisition Activity
Simply Mac -- In October 2012, we acquired a minority equity ownership interest in Simply Mac, which operates Apple specialist retail stores in Utah and Wyoming. The original equity investment was structured with an option whereby we could acquire the remaining ownership interest in Simply Mac's equity for a pre-negotiated price at a future point in time. Pursuant to this arrangement, in November 2013, we acquired the remaining 50.1% interest in Simply Mac for a purchase price of $9.5 million.
Spring Mobile -- In November 2013, we purchased Spring Communications, Inc. ("Spring Mobile"), a wireless retailer, for a purchase price of $62.6 million. As shown in the table below, the liabilities assumed in the acquisition included $34.5 million in term loans and a line of credit, of which $31.9 million, including interest, was repaid shortly after the acquisition date.
A summary of the fair values of the assets acquired and liabilities assumed in connection with the Spring Mobile acquisition is included in the table below. We determined the fair values based, in part, on a third-party valuation of the net assets acquired, which includes identifiable intangible assets of $39.6 million.
|
| | | | |
Assets acquired | |
|
Current assets | | $ | 19.0 |
|
Property and equipment | | 8.5 |
|
Identifiable intangible assets | | 39.6 |
|
Goodwill | | 50.2 |
|
Liabilities assumed | |
|
Current liabilities, excluding current portion of debt | | (11.4 | ) |
Debt obligations, including current portion | | (34.5 | ) |
Other long-term liabilities | | (8.8 | ) |
Total purchase price | | $ | 62.6 |
|
The excess of the net purchase price over the fair value of the net identifiable assets acquired of $50.2 million was recorded as goodwill as illustrated in the table above. The goodwill, which is not deductible for tax purposes, represents a value attributable to the position Spring Mobile holds as a top reseller of AT&T and its position in the marketplace which affords it the ability to acquire smaller retailers and grow its retail network. As of February 1, 2014, we had not completed the final fair value assignments and continue to analyze certain matters primarily related to the valuation of intangible assets.
In connection with our acquisition of Spring Mobile, we assumed a promissory note that Spring Mobile had previously entered into related to its prior purchase of certain wireless stores. The promissory note has a remaining term of approximately two years and had a carrying value of $4.0 million at February 1, 2014.
During the fourth quarter of 2014, Spring Mobile acquired four immaterial AT&T distributors for total consideration of $7.6 million.
We believe that Simply Mac and Spring Mobile represent important strategic growth opportunities for us within the specialty retail marketplace and also provide avenues for diversification relative to our core operations in the video game retail marketplace. The operating results of Simply Mac and Spring Mobile have been included in our consolidated financial statements beginning on the respective closing dates of each acquisition and are reported in our Technology Brands segment. The pro forma effect assuming these acquisitions were made at the beginning of each fiscal year presented herein is not material to our consolidated financial statements.
Acquisition Activity in Fiscal 2012 and Fiscal 2011
During fiscal 2012, we completed acquisitions with a total consideration of $1.5 million, with the excess of the purchase price over the net identifiable assets acquired, in the amount of $1.5 million recorded as goodwill. During fiscal 2011, we completed acquisitions with a total consideration of $30.1 million, with the excess of the purchase price over the net identifiable assets acquired, in the amount of $26.9 million, recorded as goodwill. We included the results of operations of the acquisitions, which were not material, in the financial statements beginning on the closing date of each respective acquisition. The pro forma effect assuming these acquisitions were made at the beginning of each fiscal year is not material to our consolidated financial statements. Note 9 provides additional information concerning goodwill and intangible assets.
Net Income Per Common ShareWe and approximately 45 of our vendors participate in cooperative advertising programs and other vendor marketing programs in which the vendors provide us with cash consideration in exchange for marketing and advertising the vendors’ products. Our accounting for cooperative advertising arrangements and other vendor marketing programs results in a significant portion of the consideration received from our vendors reducing the product costs in inventory rather than as an offset to our marketing and advertising costs. The consideration serving as a reduction in inventory is recognized in cost of sales as inventory is sold. The amount of vendor allowances to be recorded as a reduction of inventory was determined based on the nature of the consideration received and the merchandise inventory to which the consideration relates. We apply a sell through rate to determine the timing in which the consideration should be recognized in cost of sales. Consideration received that relates to video game products that have not yet been released to the public is deferred.
The cooperative advertising programs and other vendor marketing programs generally cover a period from a few days up to a few weeks and include items such as product catalog advertising, in-store display promotions, Internet advertising, co-op print advertising and other programs. The allowance for each event is negotiated with the vendor and requires specific performance by us to be earned.
For fiscal 2013, we reclassified certain costs from selling, general and administrative expenses to cost of sales related to cash consideration received from our vendors to align those funds with the specific products we sell. Vendor allowances of $221.0 million were recorded as a reduction of cost of sales for the 52 week period ended February 1, 2014. For the 53 week period ended February 2, 2013 and the 52 week period ended January 28, 2012, vendor allowances recorded as a reduction of costs of sales and selling, general and administrative expenses, were $134.8 million and $90.4 million and $99.0 million and $120.9 million, respectively.
|
| |
5. | Computation of Net Income (Loss) per Common Share |
Basic net income (loss) per common share is computed by dividing the net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income per common share is
computed by dividing the net income available to common stockholders by the weighted average number of common shares outstanding and potentially dilutive securities outstanding during the period. Potentially dilutive securities include stock options and unvested restricted stock outstanding during the period, using the treasury stock method. Potentially dilutive securities are excluded from the computations of diluted earnings per share if their effect would be antidilutive. Note 4 provides additional information regarding net earnings per common share.
Stock Options
The Company records share-based compensation expense in earnings based on the grant-date fair value of options granted. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. This valuation model requires the use of subjective assumptions, including expected option life and expected volatility. The Company uses historical data to estimate the option life and the employee forfeiture rate, and uses historical volatility when estimating the stock price volatility. The weighted-average fair values of the options granted during the 52 weeks ended January 29, 2011, January 30, 2010 and January 31, 2009 were estimated at $7.88, $9.45 and $15.45, respectively, using the following assumptions:
| | | | | | | | | | | | |
| | 52 Weeks
| | 52 Weeks
| | 52 Weeks
|
| | Ended
| | Ended
| | Ended
|
| | January 29,
| | January 30,
| | January 31,
|
| | 2011 | | 2010 | | 2009 |
|
Volatility | | | 51.6 | % | | | 47.9 | % | | | 38.2 | % |
Risk-free interest rate | | | 1.6 | % | | | 1.5 | % | | | 2.4 | % |
Expected life (years) | | | 3.5 | | | | 3.5 | | | | 3.5 | |
Expected dividend yield | | | 0 | % | | | 0 | % | | | 0 | % |
In addition to requiring companies to recognize the estimated fair value of share-based payments in earnings, companies now have to present tax benefits received in excess of amounts determined based on the compensation expense recognized on the statements of cash flows. Such tax benefits are presented as a use of cash in the operating section and a source of cash in the financing section of the Statement of Cash Flows. Note 13 provides additional information regarding the Company’s stock option plan.
Fair Values of Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities reported in the accompanying consolidated balance sheets approximate fair value due to the short-term maturities of these assets and liabilities. The fair value of the Company’s senior notes payable in the accompanying consolidated balance sheets is estimated based on recent quotes from brokers. Note 5 provides additional information regarding the Company’s fair values of our financial assets and liabilities.
Guarantees
The Company had bank guarantees relating to international store leases totaling $17.7 million as of January 29, 2011 and $16.0 million as of January 30, 2010.
Vendor Concentration
The Company’s largest vendors worldwide are Microsoft, Nintendo, Sony Computer Entertainment, Activision and Electronic Arts, Inc., which accounted for 18%, 16%, 16%, 12% and 10%, respectively, of the Company’s new product purchases in fiscal 2010 and 12%, 23%, 17%, 11% and 12%, respectively, in fiscal 2009.
F-13
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
New Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ASU2010-6,Improving Disclosures About Fair Value Measurements.On January 31, 2010, the Company adopted ASU2010-6, which requires reporting entities to make new disclosures about recurring or nonrecurring fair-value measurements, including significant transfers into and out of the standard’s Level 1 and Level 2 fair-value measurements and information on purchases, sales, issuances, and settlements on a gross basis for Level 3 fair-value measurements. ASU2010-6 is effective for annual reporting periods beginning after December 15, 2009, except for Level 3 reconciliation disclosures which are effective for annual periods beginning after December 15, 2010. The adoption of ASU2010-6 did not have a material impact on the Company’s consolidated financial statements.
On January 31, 2010, the Company adopted ASU2010-09,Subsequent Events — Amendments to Certain Recognition and Disclosure Requirements, which amends Accounting Standards Codification (“ASC”) Topic 855, Subsequent Events,so that Securities and Exchange Commission filers no longer are required to disclose the date through which subsequent events have been evaluated in originally issued and revised financial statements. The adoption of ASU2010-09 did not have a material impact on the Company’s consolidated financial statements.
In December 2010, the FASB issued ASU2010-28,Intangibles — Goodwill and Other. ASU2010-28 modifies step one of the goodwill impairment test for reporting units with zero or negative carrying amounts and offers guidance on when to perform step two of the testing. For those reporting units, an entity is required to perform step two of the goodwill impairment test if it is more likely than not that a goodwill impairment exists based upon factors such as unanticipated competition, the loss of key personnel and adverse regulatory changes. ASU2010-28 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. The adoption of ASU2010-28 is not expected to have a material effect on the Company’s consolidated financial statements.
In December 2010, the FASB issued ASU2010-29, which updates the guidance in ASC 805,Business Combinations, to clarify that pro forma disclosures should be presented as if a business combination occurred at the beginning of the prior annual period for purposes of preparing both the current reporting period and the prior reporting period pro forma financial information. These disclosures should be accompanied by a narrative description about the nature and amount of material, nonrecurring pro forma adjustments. ASU2010-29 is effective for business combinations consummated in periods beginning after December 15, 2010, and is required to be applied prospectively as of the date of adoption. The adoption of ASU2010-29 is not expected to have a material effect on the Company’s consolidated financial statements.
On November 17, 2008, GameStop France SAS, a wholly-owned subsidiary of the Company, completed the acquisition of substantially all of the outstanding capital stock of Micromania for $580.4 million, net of cash acquired. Micromania is a leading retailer of video and computer games in France with 379 locations, 328 of which were operating upon acquisition. The Company funded the transaction with cash on hand, funds drawn against its then existing $400 million revolving credit agreement totaling $275 million, and term loans totaling $150 million under a junior term loan facility (the “Term Loans”). As of January 31, 2009, all of the borrowings against the revolving credit agreement and the Term Loans had been repaid. The purpose of the acquisition was to expand the Company’s presence in Europe. The impact of the acquisition on the Company’s results of operations, as if the acquisition had been completed as of the beginning of the periods presented, is not significant.
F-14
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The consolidated financial statements include the results of Micromania from the date of acquisition and are reported in the European segment. The purchase price was allocated based on estimated fair values as of the acquisition date. The purchase price was allocated as follows as of November 17, 2008:
| | | | |
| | November 17,
| |
| | 2008 | |
| | (In millions) | |
|
Current assets | | $ | 187.7 | |
Property, plant & equipment | | | 34.2 | |
Goodwill | | | 415.2 | |
Intangible assets: | | | | |
Tradename | | | 131.5 | |
Leasehold rights and interests | | | 104.0 | |
| | | | |
Total intangible assets | | | 235.5 | |
Other long-term assets | | | 7.8 | |
Current liabilities | | | (223.2 | ) |
Long-term liabilities | | | (76.8 | ) |
| | | | |
Total purchase price | | $ | 580.4 | |
| | | | |
In determining the purchase price allocation, management considered, among other factors, the Company’s intention to use the acquired assets. The total weighted-average amortization period for the intangible assets, excluding goodwill and the Micromania tradename, is approximately ten years. The intangible assets are being amortized based upon the pattern in which the economic benefits of the intangible assets are being utilized, with no expected residual value. None of the goodwill is deductible for income tax purposes. Note 8 provides additional information concerning goodwill and intangible assets.
Merger-related expenses totaling $4.6 million shown in the fiscal 2008 statements of operations include a net loss related to the change in foreign exchange rates related to the funding of the Micromania acquisition and other costs considered to be of a one-time or short-term nature which are included in operating earnings.
The acquisition of Micromania was an important part of the Company’s European and overall growth strategy and gave the Company an immediate entrance into the second largest video game market in Europe. The amount the Company paid in excess of the fair value of the net assets acquired was primarily for (i) the expected future cash flows derived from the existing business and its infrastructure, (ii) the geographical benefits from adding stores in a new large, growing market without cannibalizing existing sales, (iii) expanding the Company’s expertise in the European video game market as a whole, and (iv) increasing the Company’s impact on the European market, including increasing the Company’s purchasing power.
In fiscal 2008, in addition to the Micromania acquisition, the Company also completed acquisitions with a total consideration of $50.3 million. The acquisitions were accounted for using the purchase method of accounting, with the excess of the purchase price over the net assets acquired, in the amount of $46.0 million for fiscal 2008, recorded as goodwill. During fiscal 2009 and fiscal 2010, the Company completed acquisitions with a total consideration of $8.4 million and $38.1 million, respectively, which were accounted for using the acquisition method of accounting, with the excess of the purchase price over the net assets acquired, in the amount of $6.3 million and $28.5 million, respectively, recorded as goodwill. The Company included the results of operations of the acquisitions, which were not material, in the financial statements beginning on the closing date of each respective acquisition. The pro forma effect assuming these acquisitions were made at the beginning of each fiscal year is not material to the Company’s consolidated financial statements.
F-15
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company and approximately 50 of its vendors participate in cooperative advertising programs and other vendor marketing programs in which the vendors provide the Company with cash consideration in exchange for marketing and advertising the vendors’ products. The Company’s accounting for cooperative advertising arrangements and other vendor marketing programs results in a portion of the consideration received from the Company’s vendors reducing the product costs in inventory rather than as an offset to the Company’s marketing and advertising costs. The consideration serving as a reduction in inventory is recognized in cost of sales as inventory is sold. The amount of vendor allowances to be recorded as a reduction of inventory was determined by calculating the ratio of vendor allowances in excess of specific, incremental and identifiable advertising and promotional costs to merchandise purchases. The Company then applied this ratio to the value of inventory in determining the amount of vendor reimbursements to be recorded as a reduction to inventory reflected on the balance sheet.
The cooperative advertising programs and other vendor marketing programs generally cover a period from a few days up to a few weeks and include items such as product catalog advertising, in-store display promotions, Internet advertising, co-op print advertising, product training and promotion at the Company’s annual store managers conference. The allowance for each event is negotiated with the vendor and requires specific performance by the Company to be earned.
Specific, incremental and identifiable advertising and promotional costs were $122.1 million, $93.0 million and $92.1 million in the 52 week periods ended January 29, 2011, January 30, 2010 and January 31, 2009, respectively. Vendor allowances received in excess of advertising expenses were recorded as a reduction of cost of sales of $83.7 million, $116.9 million and $125.1 million for the 52 week periods ended January 29, 2011, January 30, 2010 and January 31, 2009, respectively. The amount recognized as income related to the capitalization of excess vendor allowances was $2.1 million for the 52 weeks ended January 29, 2011. The amounts deferred as a reduction in inventory were $0.7 million and $3.2 million for the 52 weeks ended January 30, 2010 and January 31, 2009, respectively.
| |
4. | Computation of Net Income per Common Share |
The Company has Class A common stock outstanding. A reconciliation of shares used in calculating basic and diluted net income (loss) per common share is as follows:
| | | | | | | | | | | | |
| | 52 Weeks
| | | 52 Weeks
| | | 52 Weeks
| |
| | Ended
| | | Ended
| | | Ended
| |
| | January 29,
| | | January 30,
| | | January 31,
| |
| | 2011 | | | 2010 | | | 2009 | |
| | (In millions, except per share data) | |
|
Net income attributable to GameStop | | $ | 408.0 | | | $ | 377.3 | | | $ | 398.3 | |
| | | | | | | | | | | | |
Weighted average common shares outstanding | | | 151.6 | | | | 164.5 | | | | 163.2 | |
Dilutive effect of options and warrants on common stock | | | 2.4 | | | | 3.4 | | | | 4.5 | |
| | | | | | | | | | | | |
Common shares and dilutive potential common shares | | | 154.0 | | | | 167.9 | | | | 167.7 | |
| | | | | | | | | | | | |
Net income per common share: | | | | | | | | | | | | |
Basic | | $ | 2.69 | | | $ | 2.29 | | | $ | 2.44 | |
| | | | | | | | | | | | |
Diluted | | $ | 2.65 | | | $ | 2.25 | | | $ | 2.38 | |
| | | | | | | | | | | | |
F-16
GAMESTOP CORP.
|
| | | | | | | | | | | | |
| | 52 Weeks Ended February 1, 2014 | | 53 Weeks Ended February 2, 2013 | | 52 Weeks Ended January 28, 2012 |
| | (In millions, except per share data) |
Net income (loss) attributable to GameStop Corp. | | $ | 354.2 |
| | $ | (269.7 | ) | | $ | 339.9 |
|
Weighted average common shares outstanding | | 117.2 |
| | 126.4 |
| | 139.9 |
|
Dilutive effect of options and restricted shares on common stock | | 1.2 |
| | — |
| | 1.1 |
|
Common shares and dilutive potential common shares | | 118.4 |
| | 126.4 |
| | 141.0 |
|
Net income (loss) per common share: | | | | | | |
Basic | | $ | 3.02 |
| | $ | (2.13 | ) | | $ | 2.43 |
|
Diluted | | $ | 2.99 |
| | $ | (2.13 | ) | | $ | 2.41 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)The weighted average outstanding shares of Class A Common Stock for basic and diluted net loss per common share during the 53 weeks ended February 2, 2013 were the same as we incurred a net loss from continuing operations during that period and any effect on loss per share would have been antidilutive.
The following table contains information on restricted shares and options to purchase sharesshare-based awards of Class A common stockCommon Stock which were excluded from the computation of diluted earnings per share because theytheir effects were anti-dilutive:antidilutive:
|
| | | | | | | | | | | | |
| | Anti-
| | | Range of
| | | | |
| | Dilutive
| | | Exercise
| | | Expiration
| |
| | Shares | | | Prices | | | Dates | |
| | (In millions, except per share data)millions) |
52 Weeks Ended February 1, 2014 | | 1.5 |
|
53 Weeks Ended February 2, 2013 | | 3.3 |
|
52 Weeks Ended January 29, 2011 | | | 4.0 | | | $ | 20.32 - 49.95 | | | | 2017 - 2020 | |
52 Weeks Ended January 30, 2010 | | | 3.2 | | | $ | 26.02 - 49.95 | | | | 2011 - 2019 | |
52 Weeks Ended January 31, 2009 | 28, 2012 | | 2.5 | | | $ | 26.68 - 49.95 | | | | 2010 - 2018 |
|
|
| |
5. 6. | Fair Value Measurements and Financial Instruments |
The Company defines fairRecurring Fair Value Measurements and Derivative Financial Instruments
Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value accounting guidance applies to our Foreign Currency Contracts, Company-ownedforeign currency contracts, life insurance policies withwe own that have a cash surrender value and certain nonqualified deferred compensation liabilities that are measured at fair value on a recurring basis in periods subsequent to initial recognition.
Fair value accounting guidance requires disclosures that categorize assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are observable inputs other than quoted prices included within Level 1 for the asset or liability, either directly or indirectly through market-corroborated inputs. Level 3 inputs are unobservable inputs for the asset or liability reflecting our assumptions about pricing by market participants.
We value our Foreign Currency Contracts, Company-ownedforeign currency contracts, our life insurance policies with cash surrender values and certain nonqualified deferred compensation liabilities based on Level 2 inputs using quotations provided by major market news services, such as Bloomberg and The Wall Street Journal, and industry-standard models that consider various assumptions, including quoted forward prices, time value, volatility factors, and contractual prices for the underlying instruments, as well as other relevant economic measures. When appropriate, valuations are adjusted to reflect credit considerations, generally based on available market evidence.
The following table provides the fair value of our assets and liabilities measured on a recurring basis and recorded on our consolidated balance sheets (in millions):
| | | | | | | | | |
| | January 29, 2011
| | January 30, 2010
| | |
| | Level 2 | | Level 2 | | | | | | |
| | February 1, 2014 Level 2 | | February 2, 2013 Level 2 |
Assets | | | | | | | | | | | | |
Foreign Currency Contracts | | $ | 14.0 | | | $ | 20.1 | | |
Company-owned life insurance | | | 3.1 | | | | 2.6 | | |
| | | | | | |
Foreign currency contracts | | | | | |
Other current assets | | | $ | 0.9 |
| | $ | 7.3 |
|
Other noncurrent assets | | | 0.5 |
| | 0.9 |
|
Life insurance policies we own1 | | | 7.1 |
| | 3.5 |
|
Total assets | | $ | 17.1 | | | $ | 22.7 | | | $ | 8.5 |
| | $ | 11.7 |
|
| | | | | | |
Liabilities | | | | | | | | | | | | |
Foreign Currency Contracts | | $ | 12.8 | | | $ | 9.0 | | |
Nonqualified deferred compensation | | | 0.9 | | | | 0.8 | | |
| | | | | | |
Foreign currency contracts | | | | | |
Accrued liabilities | | | $ | 21.3 |
| | $ | 9.1 |
|
Other long-term liabilities | | | 2.2 |
| | 4.4 |
|
Nonqualified deferred compensation2 | | | 1.1 |
| | 0.9 |
|
Total liabilities | | $ | 13.7 | | | $ | 9.8 | | | $ | 24.6 |
| | $ | 14.4 |
|
| | | | | | |
____________________
The Company uses Foreign Currency Contracts1 Recognized in other non-current assets in our consolidated balance sheets.
2 Recognized in accrued liabilities in our consolidated balance sheets.
We use foreign currency contracts, including forward exchange contracts, foreign currency options and cross-currency swaps, to manage currency risk primarily related to intercompany loans denominated in non-functional currencies and certain foreign currency assets and liabilities. These Foreign Currency Contractsforeign currency contracts are not designated as hedges and, therefore, changes in the fair values of these derivatives are
F-17
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
recognized in earnings, thereby offsetting the current earnings effect of the re-measurement of related intercompany loans and foreign currency assets and liabilities. The total gross notional value of derivatives related to our foreign currency contracts was $640.6 million and $669.9 million as of February 1, 2014 and February 2, 2013, respectively.
Activity related to the trading of derivative instruments and the offsetting impact of related intercompany loans and foreign currency assets and liabilities recognized in selling, general and administrative expense is as follows (in millions):
|
| | | | | | | | | | | | |
| | 52 Weeks Ended February 1, 2014 | | 53 Weeks Ended February 2, 2013 | | 52 Weeks Ended January 28, 2012 |
Gains (losses) on the changes in fair value of derivative instruments | | $ | (20.3 | ) | | $ | (19.8 | ) | | $ | 13.5 |
|
Gains (losses) on the re-measurement of related intercompany loans and foreign currency assets and liabilities | | 23.6 |
| | 22.3 |
| | (14.1 | ) |
Total | | $ | 3.3 |
| | $ | 2.5 |
| | $ | (0.6 | ) |
We do not use derivative financial instruments for trading or speculative purposes. We are exposed to counterparty credit risk on all of our derivative financial instruments and cash equivalent investments. The Company managesWe manage counterparty risk according to the guidelines and controls established under comprehensive risk management and investment policies. We continuously monitor our counterparty credit risk and utilize a number of different counterparties to minimize our exposure to potential defaults. We do not require collateral under derivative or investment agreements.
Nonrecurring Fair Value Measurements
In addition to assets and liabilities that are recorded at fair value on a recurring basis, we recorded certain assets and liabilities at fair value on a nonrecurring basis as required by GAAP. Assets and liabilities that are measured at fair value on a nonrecurring basis related primarily to our tangible property and equipment, goodwill and other intangible assets.
During fiscal 2013, we recorded a $28.7 million impairment charge related to assets measured at fair value on a nonrecurring basis, comprised of $16.4 million of property and equipment impairments, $10.2 million of goodwill impairments and $2.1 million of other intangible asset impairments. During fiscal 2012, we recorded a $680.7 million impairment charge related to assets measured at fair value on a nonrecurring basis, comprised of $627 million of goodwill impairments, $44.9 million of trade name impairment and $8.8 million of property and equipment impairments. When recognizing an impairment charge, the carrying value of the asset is reduced to fair value and the difference is recorded within operating earnings in our consolidated statements of operations. The fair values of derivative instruments not receiving hedge accounting treatmentvalue measurements included in the consolidated balance sheets presented hereingoodwill, trade name and property and equipment impairments were as follows (in millions):primarily based on significant unobservable inputs (Level 3) developed using company-specific information. See Note 9 for further information associated with the goodwill and trade name impairments and Note 2 for further information associated with the property and equipment impairments.
| | | | | | | | |
| | January 29, 2011 | | | January 30, 2010 | |
|
Assets | | | | | | | | |
Foreign Currency Contracts | | | | | | | | |
Other current assets | | $ | 13.0 | | | $ | 20.1 | |
Other noncurrent assets | | | 1.0 | | | | — | |
Liabilities | | | | | | | | |
Foreign Currency Contracts | | | | | | | | |
Accrued liabilities | | | (11.2 | ) | | | (9.0 | ) |
Other long-term liabilities | | | (1.6 | ) | | | — | |
| | | | | | | | |
Total derivatives | | $ | 1.2 | | | $ | 11.1 | |
| | | | | | | | |
As of January 29, 2011,Additionally, we recorded the Company had a series of Foreign Currency Contracts outstanding, with a gross notionalfair value of $495.2 millionnet assets acquired and a net notionalliabilities assumed in connection with the Spring Mobile and Simply Mac acquisitions in the fourth quarter of 2013. The fair value of $201.3 million. Formeasurements were primarily based on significant unobservable inputs (Level 3) developed using company-specific information. See Note 3 for further information associated with the 52 weeks ended January 29, 2011,values recorded in the Company recognized losses of $7.1 million in selling, general and administrative expenses related to the trading of derivative instruments. As of January 30, 2010, the Company had a series of Foreign Currency Contracts outstanding, with a gross notional value of $643.5 million and a net notional value of $356.6 million. For the 52 weeks ended January 30, 2010, the Company recognized gains of $8.7 million in selling, general and administrative expenses related to the trading of derivative instruments.acquisitions.
Other Fair Value Disclosures
The Company’s carrying value of financial instruments such as cash and cash equivalents, receivables, net and accounts payable approximates their fair value, except for differences with respect to the senior notes. The fair value of the Company’sour senior notes payable in the accompanying consolidated balance sheets is estimated based on recent quotes from brokers.that were outstanding until December 2011. As of January 29, 2011, the28, 2012, there were no senior notes payable had a carrying value of $249.0 million and a fair value of $256.6 million. As of January 30, 2010, the senior notes payable had a carrying value of $447.3 million and a fair value of $466.0 million.payable.
Receivables consist primarily of bankcard receivables and other receivables. Other receivables include receivables fromGame Informermagazine advertising customers, receivables from landlords for tenant allowances and receivables from vendors for merchandise returns, vendor marketing allowances and various other programs.
F-18
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
An allowance for doubtful accounts has been recorded to reduce receivables to an amount expected to be collectible. Receivables consisted of the following (in millions):
|
| | | | | | | | |
| | February 1, 2014 | | February 2, 2013 |
Bankcard receivables | | $ | 42.6 |
| | $ | 35.9 |
|
Other receivables | | 45.5 |
| | 40.0 |
|
Allowance for doubtful accounts | | (3.7 | ) | | (2.3 | ) |
Total receivables, net | | $ | 84.4 |
| | $ | 73.6 |
|
| | | | | | | | |
| | January 29,
| | | January 30,
| |
| | 2011 | | | 2010 | |
|
Bankcard receivables | | $ | 47.5 | | | $ | 51.5 | |
Other receivables | | | 20.5 | | | | 15.9 | |
Allowance for doubtful accounts | | | (2.5 | ) | | | (3.4 | ) |
| | | | | | | | |
Total receivables, net | | $ | 65.5 | | | $ | 64.0 | |
| | | | | | | | |
Accrued liabilities consisted of the following (in millions):
|
| | | | | | | | |
| | February 1, 2014 | | February 2, 2013 |
Customer liabilities | | $ | 368.8 |
| | $ | 362.8 |
|
Deferred revenue | | 118.1 |
| | 93.5 |
|
Employee benefits, compensation and related taxes | | 145.3 |
| | 129.8 |
|
Other taxes | | 53.5 |
| | 60.5 |
|
Other accrued liabilities | | 176.0 |
| | 92.3 |
|
Total accrued liabilities | | $ | 861.7 |
| | $ | 738.9 |
|
| | | | | | | | |
| | January 29,
| | | January 30,
| |
| | 2011 | | | 2010 | |
|
Customer liabilities | | $ | 242.7 | | | $ | 199.2 | |
Deferred revenue | | | 74.9 | | | | 61.2 | |
Accrued rent | | | 10.4 | | | | 18.7 | |
Accrued interest | | | 10.7 | | | | 15.8 | |
Employee benefits, compensation and related taxes | | | 124.3 | | | | 109.7 | |
Other taxes | | | 60.9 | | | | 63.7 | |
Settlement of treasury share purchases | | | 22.0 | | | | 64.6 | |
Other accrued liabilities | | | 111.1 | | | | 99.2 | |
| | | | | | | | |
Total accrued liabilities | | $ | 657.0 | | | $ | 632.1 | |
| | | | | | | | |
|
| |
8. 9. | Goodwill and Intangible Assets and Deferred Financing Fees |
Goodwill
The changes in the carrying amount of goodwill, by reportable segment, for the Company’s business segments for the 5253 weeks ended January 30, 2010February 2, 2013 and the 52 weeks ended January 29, 2011February 1, 2014 were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | United States | | Canada | | Australia | | Europe | | Technology Brands | Total |
| | (In millions) |
Balance at January 28, 2012 | | $ | 1,152.0 |
| | $ | 137.4 |
| | $ | 210.0 |
| | $ | 519.6 |
| | $ | — |
| $ | 2,019.0 |
|
Acquisitions (Note 3) | | 1.5 |
| | — |
| | — |
| | — |
| | — |
| 1.5 |
|
Impairment | | — |
| | (100.3 | ) | | (107.1 | ) | | (419.6 | ) | | — |
| (627.0 | ) |
Foreign currency translation adjustment | | — |
| | 0.6 |
| | (6.3 | ) | | (4.7 | ) | | — |
| (10.4 | ) |
Balance at February 2, 2013 | | 1,153.5 |
| | 37.7 |
| | 96.6 |
| | 95.3 |
| | — |
| 1,383.1 |
|
Acquisitions (Note 3) | | — |
| | — |
| | — |
| | — |
| | 62.1 |
| 62.1 |
|
Impairment | | (10.2 | ) | | — |
| | — |
| | — |
| | — |
| (10.2 | ) |
Foreign currency translation adjustment | | — |
| | (3.9 | ) | | (15.3 | ) | | (1.1 | ) | | — |
| (20.3 | ) |
Balance at February 1, 2014 | | $ | 1,143.3 |
| | $ | 33.8 |
| | $ | 81.3 |
| | $ | 94.2 |
| | $ | 62.1 |
| $ | 1,414.7 |
|
| | | | | | | | | | | | | | | | | | | | |
| | United States | | | Canada | | | Australia | | | Europe | | | Total | |
| | (In millions) | |
|
Balance at January 31, 2009 | | $ | 1,096.6 | | | $ | 112.0 | | | $ | 125.6 | | | $ | 498.8 | | | $ | 1,833.0 | |
Goodwill acquired, net | | | 3.8 | | | | — | | | | — | | | | 2.5 | | | | 6.3 | |
Foreign currency translation adjustment | | | (0.2 | ) | | | 16.5 | | | | 48.5 | | | | 42.4 | | | | 107.2 | |
| | | | | | | | | | | | | | | | | | | | |
Balance at January 30, 2010 | | | 1,100.2 | | | | 128.5 | | | | 174.1 | | | | 543.7 | | | | 1,946.5 | |
Goodwill acquired, net | | | 28.5 | | | | — | | | | — | | | | — | | | | 28.5 | |
Foreign currency translation adjustment | | | (0.1 | ) | | | 8.9 | | | | 21.8 | | | | (9.3 | ) | | | 21.3 | |
| | | | | | | | | | | | | | | | | | | | |
Balance at January 29, 2011 | | $ | 1,128.6 | | | $ | 137.4 | | | $ | 195.9 | | | $ | 534.4 | | | $ | 1,996.3 | |
| | | | | | | | | | | | | | | | | | | | |
Goodwill represents the excess purchase price over tangible net assets and identifiable intangible assets acquired. Our management is required to evaluate goodwill and other intangible assets not subject to amortization for impairment at least annually. This annual test is completed at the beginning of the fourth quarter of each fiscal year or when circumstances indicate the carrying value of the goodwill or other intangible assets might be impaired. Goodwill has been assigned to reporting units for the purpose of impairment testing. We have five operating segments, including Video Game Brands in the United States, Australia, Canada and Europe, and Technology Brands in the United States, which also define our reporting units based upon the similar economic characteristics of operations within each segment, including the nature of products, product distribution and the type of customer and separate management within those regions.
We estimate the fair value of each reporting unit based on the discounted cash flows of each reporting unit. We use a two-step process to measure goodwill impairment. If the fair value of the reporting unit is higher than its carrying value, then goodwill is not impaired. If the carrying value of the reporting unit is higher than the fair value, then the second step of the goodwill impairment test is needed. The second step compares the implied fair value of the reporting unit’s goodwill with its carrying amount. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value, then an impairment loss is recognized in the amount of the excess.
During the third quarter of fiscal 2012, our management determined that sufficient indicators of potential impairment existed to require an interim goodwill impairment test. These indicators included the recent trading prices of our Class A Common Stock and the decrease in our market capitalization below the total amount of stockholders’ equity on our consolidated balance sheet.
To perform step one of the interim goodwill impairment test, we utilized a discounted cash flow method to determine the fair value of reporting units. Our management was required to make significant judgments based on our projected annual business plans, long-term business strategies, comparable store sales, store count, gross margins, operating expenses, working capital needs, capital expenditures and long-term growth rates, all considered in light of current and anticipated economic factors. Discount rates used in the analysis reflect a hypothetical market participant’s weighted average cost of capital, current market rates and the risks associated with the projected cash flows. Terminal growth rates were based on long-term growth rate potential and a long-term inflation forecast. Given the significant decline in our market capitalization during the second quarter of fiscal 2012, we increased the discount rates for each of our reporting units from those used in step one of our fiscal 2011 annual goodwill impairment test to better reflect the market participant’s perceived risk associated with the projected cash flows, which had the effect of decreasing the fair value of each of the reporting units. We also updated its estimated cash flows from those used in step one of the fiscal 2011 annual goodwill impairment test to reflect the most recent strategic forecast, which resulted in, among other things, a decrease in the projected growth rates in store count and modifications to the projected growth rates in same-store sales.
Upon completion of step one of the interim goodwill impairment test, our management determined that the fair values of its Australia, Canada and Europe reporting units were below their carrying values and, as a result, conducted step two of the interim goodwill impairment test to determine the implied fair value of goodwill for the Australia, Canada and Europe reporting units. The calculated fair value of the United States reporting unit significantly exceeded its carrying value. Therefore, step two of the interim goodwill impairment test was not required for the United States reporting unit.
The implied fair value of goodwill is determined in step two of the goodwill impairment test by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation used in a business combination and the residual fair value after this allocation is the implied fair value of the reporting unit’s goodwill. In the process of conducting the second step of the goodwill impairment test, we identified intangible assets consisting of trade names in our Australia, Canada and Europe reporting
units. Additionally, we identified hypothetical unrecognized fair value changes to merchandise inventories, property and equipment, unfavorable leasehold interests and deferred income taxes. The combination of these hypothetical unrecognized intangible assets and other hypothetical unrecognized fair value changes to the carrying values of other assets and liabilities, together with the lower reporting unit fair values calculated in step one, resulted in an implied fair value of goodwill below the carrying value of goodwill for the Australia, Canada and Europe reporting units. Accordingly, we recorded non-cash, non-tax deductible goodwill impairments for the third quarter of fiscal 2012 of $107.1 million, $100.3 million and $419.6 million in our Australia, Canada and Europe reporting units, respectively, to reduce the carrying value of goodwill.
There were no impairments to goodwill duringprior to the 52 weeks ended January 29,$627 million charge recorded in fiscal 2012, with the exception of a $3.3 million charge recorded in fiscal 2011 related to the exit of non-core operations. During fiscal 2013, $10.2 million of goodwill was expensed in the United States segment as a result of the exiting of an immaterial non-core business. Cumulative goodwill impairment losses were $640.5 million as of February 1, 2014, of which $13.5 million, $100.3 million, $107.1 million and January 30, 2010.$419.6 million were attributable to our United States, Canada, Australia and Europe reporting units, respectively.
Intangible Assets
Intangible assets, primarily from the EB merger and Micromania acquisition, consist of internally developed software, amounts attributed to favorable leasehold interests and advertiser relationships which are included in other intangible assets in the consolidated balance sheet. The tradenamestrade names acquired, primarily Micromania, in the aggregate amount of $133.4 million have been determined to be an indefinite livedindefinite-lived intangible assetassets and are therefore not subject to amortization. The total weighted-average amortization period for the remaining intangible assets,
F-19
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
excluding goodwill, is approximately tensix years. The intangible assets are being amortized based upon the pattern in which the economic benefits of the intangible assets are being utilized, with no expected residual value.
As a result of the impairment indicators described in the discussion above of the interim goodwill impairment test, during the third quarter of fiscal 2012, we also tested our long-lived assets for impairment and concluded that our Micromania trade name was impaired. As a result of the interim impairment test, we recorded a $44.9 million impairment charge of our Micromania trade name for the third quarter of fiscal 2012. For fiscal 2011, we recorded a $37.8 million charge as a result of our annual impairment test of our Micromania trade name. There were no trade name impairments recorded as a result of the fiscal 2013 annual impairment test. For each impairment test, the fair value of our Micromania trade name was calculated using a relief-from-royalty approach, which assumes the fair value of the trade name is the discounted cash flows of the amount that would be paid by a hypothetical market participant had they not owned the trade name and instead licensed the trade name from another company. The deferred financing feesbasis for future cash flow projections is internal revenue forecasts, which we believe represent reasonable market participant assumptions, to which the selected royalty rate is applied. These future cash flows are discounted using the applicable discount rate, as well as any potential risk premium to reflect the inherent risk of holding a standalone intangible asset. The discount rate used in the analysis reflects a hypothetical market participant’s weighted average cost of capital, current market rates and the risks associated with the Company’s revolving credit facility and senior notes issued in connection with the financing of the EB merger are included in other noncurrent assets in the consolidated balance sheet. The deferred financing fees are being amortized over five and seven years to match the terms of the revolving credit facility and the senior notes, respectively.projected cash flows.
The changes in the carrying amount of deferred financing fees and other intangible assets for the 52 weeks ended January 30, 2010 and January 29, 2011 were as follows:
| | | | | | | | |
| | Deferred
| | | Other
| |
| | Financing Fees | | | Intangible Assets | |
| | (In millions) | |
|
Balance at January 31, 2009 | | $ | 8.9 | | | $ | 247.8 | |
Addition for revolving credit facility amendment | | | 0.1 | | | | — | |
Write-off of deferred financing fees remaining on repurchased senior notes (see Note 9) | | | (0.8 | ) | | | — | |
Addition of leasehold rights | | | — | | | | 7.3 | |
Adjustment for foreign currency translation | | | — | | | | 20.0 | |
Amortization for the 52 weeks ended January 30, 2010 | | | (2.5 | ) | | | (15.2 | ) |
| | | | | | | | |
Balance at January 30, 2010 | | | 5.7 | | | | 259.9 | |
Addition for revolving credit facility amendment | | | 3.8 | | | | — | |
Write-off of deferred financing fees remaining on repurchased senior notes (see Note 9) | | | (1.0 | ) | | | — | |
Addition of acquired intangible assets | | | — | | | | 10.9 | |
Adjustment for foreign currency translation | | | — | | | | (3.5 | ) |
Amortization for the 52 weeks ended January 29, 2011 | | | (2.3 | ) | | | (12.7 | ) |
| | | | | | | | |
Balance at January 29, 2011 | | $ | 6.2 | | | $ | 254.6 | |
| | | | | | | | |
The gross carrying valueamount and accumulated amortization of deferred financing feesour intangible assets other than goodwill as of February 1, 2014 and February 2, 2013 were as follows (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | As of February 1, 2014 | | As of February 2, 2013 |
| | Gross Carrying Amount(1) | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Intangible assets with indefinite lives: | | | | | | | | | | | | |
Trade names | | $ | 54.2 |
| | $ | — |
| | $ | 54.2 |
| | $ | 54.8 |
| | $ | — |
| | $ | 54.8 |
|
Dealer agreement | | 57.2 |
| | — |
| | 57.2 |
| | — |
| | — |
| | — |
|
Intangible assets with finite lives: | | | | | | | | | | | | |
Key money | | 113.6 |
| | (44.4 | ) | | 69.2 |
| | 115.9 |
| | (39.1 | ) | | 76.8 |
|
Other | | 40.9 |
| | (27.2 | ) | | 13.7 |
| | 42.2 |
| | (20.4 | ) | | 21.8 |
|
Total | | $ | 265.9 |
| | $ | (71.6 | ) | | $ | 194.3 |
| | $ | 212.9 |
| | $ | (59.5 | ) | | $ | 153.4 |
|
(1) The majority of the change in the gross carrying amount of intangible assets is due to business acquisitions (Note 3).
Intangible asset amortization expense for the fiscal years ended February 1, 2014, February 2, 2013 and January 29, 2011 were $21.428, 2012 was $14.0 million, $14.3 million and $15.2$17.8 million, respectively.
The estimated aggregate intangible asset amortization expenses for deferred financing fees and other intangible assetsexpense for the next five fiscal years are approximately:is as follows (in millions):
|
| | | | | |
Fiscal Year Ending on or around January 31, | | | Projected Amortization Expense |
| | |
2015 | | | $ | 12.5 |
|
2016 | | | 11.9 |
|
2017 | | | 9.8 |
|
2018 | | | 9.0 |
|
2019 | | | 8.6 |
|
| | | $ | 51.8 |
|
| | | | | | | | |
| | Amortization
| | | Amortization of
| |
| | of Deferred
| | | Other
| |
Year Ended | | Financing Fees | | | Intangible Assets | |
| | (In millions) | |
|
January 2012 | | $ | 1.8 | | | $ | 13.9 | |
January 2013 | | | 1.5 | | | | 13.6 | |
January 2014 | | | 1.2 | | | | 13.0 | |
January 2015 | | | 1.2 | | | | 10.1 | |
January 2016 | | | 0.5 | | | | 7.7 | |
| | | | | | | | |
| | $ | 6.2 | | | $ | 58.3 | |
| | | | | | | | |
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
On January 4, 2011, the Companywe entered into a $400 million credit agreement (the “Revolver”), which amendsamended and restates, in its entirety, the Company’srestated our prior credit agreement entered into onin October 11, 2005 (the “Credit Agreement”). The Revolver provides for a five-year, $400 million asset-based facility, including a $50 million letter of credit sublimit, secured by substantially all of our assets and the Company’s and itsassets of our domestic subsidiaries’ assets. The Company hassubsidiaries. We have the ability to increase the facility, which matures in January 2016, by $150 million under certain circumstances. The extension of the Revolver to January 2016 reduces our exposure to potential tightening or other adverse changes in the credit markets.
The availability under the Revolver is limited to a borrowing base which allows the Companyus to borrow up to 90% of the appraisal value of the inventory, in each case plus 90% of eligible credit card receivables, net of certain reserves. Letters of credit reduce the amount available to borrow by their face value. The Company’sOur ability to pay cash dividends, redeem options and repurchase shares is generally permitted, except under certain circumstances, including if Revolver excess availability is less than 20%, or is projected to be within 12 months after such payment. In addition, if Revolver usage is projected to be equal to or greater than 25% of the borrowing basetotal commitments during the prospective12-month period, the Company iswe are subject to meeting a fixed charge coverage ratio of 1.1:1.0 prior to making such payments. In the event that excess availability under the Revolver is at any time less than the greater of (1) $40.0$40 million or (2) 12.5% of the lesser of the total commitment or the borrowing base, the Companywe will be subject to a fixed charge coverage ratio covenant of 1.1:1.0.
The Revolver places certain restrictions on the Companyus and itsour subsidiaries, including limitations on asset sales, additional liens, investments, loans, guarantees, acquisitions and the incurrence of additional indebtedness.Absent consent from our lenders, we may not incur more than $750 million of additional unsecured indebtedness to be limited to $250 million in general unsecured obligations and $500 million in unsecured obligations to finance acquisitions valued at $500 million or more. The per annum interest rate under the Revolver is variable and is calculated by applying a margin (1) for prime rate loans of 1.25% to 1.50%1.5% above the highest of (a) the prime rate of the administrative agent, (b) the federal funds effective rate plus 0.50% andor (c) the LIBOLondon Interbank Offered (“LIBO”) rate for a30-day interest period as determined on such day plus 1.00%, and (2) for LIBO rate loans of 2.25% to 2.50% above the LIBO rate. The applicable margin is determined quarterly as a function of the Company’sour average daily excess availability under the facility and is set at 1.25% for prime rate loans and 2.25% for LIBO rate loans until the first day of the fiscal quarter of the borrowers commencing on May 1, 2011.facility. In addition, the Company iswe are required to pay a commitment fee of 0.375% or 0.50%, depending on facility usage, for any unused portion of the total commitment under the Revolver. As of January 29, 2011February 1, 2014, the applicable margin was 1.25% for prime rate loans and 2.25% for LIBO rate loans, while the required commitment fee was 0.50% for the unused portion of the Revolver.
The Revolver provides for customary events of default with corresponding grace periods, including failure to pay any principal or interest when due, failure to comply with covenants, any material representation or warranty made by the Companyus or the Borrowersborrowers proving to be false in any material respect, certain bankruptcy, insolvency or receivership events affecting the Companyus or itsour subsidiaries, defaults relating to certain other indebtedness, imposition of certain judgments and our mergers or liquidation or mergers or the liquidation of the Company or certain of itsour subsidiaries.
During fiscal 2010, the Company2013, we borrowed and repaid $120.0$130.0 million under the prior Credit Agreement.Revolver. During fiscal 2009, the Company2012 and fiscal 2011, we borrowed and repaid $115.0$81.0 million and $35.0 million, respectively, under the prior Credit Agreement.
Revolver. Average borrowings under the Revolver for the 52 weeks ended February 1, 2014 were $14.2 million. Our average interest rate on those outstanding borrowings for the 52 weeks ended February 1, 2014 was 2.8%. As of January 29, 2011,February 1, 2014, total availability under the Revolver was $391 million, there were no borrowings outstanding under the Revolver and letters of credit outstanding totaled $8.2$9.0 million. We are currently in compliance with the requirements of the Revolver.
On March 25, 2014, we amended and restated our revolving credit facility. The terms of the agreement were modified to extend the maturity date for the revolving credit facility to March 25, 2019, to increase the expansion feature under the facility from $150 million to $200 million, subject to certain conditions, and to amend certain other terms, including a reduction in the
fee we are required to pay on the unused portion of the total commitment amount. The five-year, asset-based revolving credit facility has a total commitment amount of $400 million, which is subject to a monthly borrowing base calculation, and is available for the issuance of letters of credit of up to $50 million. The facility is secured by substantially all of our assets and the assets of our domestic subsidiaries. We believe the extension of the maturity date of the revolving credit facility to March 2019 helps to limit our exposure to potential tightening or other adverse changes in the credit markets.
In September 2007, the Company’sour Luxembourg subsidiary entered into a discretionary $20.0 million Uncommitted Line of Credit (the “Line of Credit”) with Bank of America. There is no term associated with the Line of Credit and Bank of America may withdraw the facility at any time without notice. The Line of Credit will be madeis available to the Company’sour foreign subsidiaries for use primarily as a bank overdraft facility for short-term liquidity needs and for the issuance of bank guarantees and letters of credit to support operations. As of January 29, 2011,February 1, 2014, there were $11.0 million ofno cash overdrafts outstanding under the Line of Credit and bank guarantees outstanding totaled $5.6$4.3 million.
F-21
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)In September 2005, the Company, along with GameStop, Inc. as co-issuer (together with the Company, the “Issuers”), completed the offering of $300 million aggregate principal amount of Senior Floating Rate Notes due 2011 (the “Senior Floating Rate Notes”) and $650 million aggregate principal amount of Senior Notes due 2012 (the “Senior Notes” and, together with the Senior Floating Rate Notes, the “Notes”). The Notes were issued under an Indenture, dated September 28, 2005 (the “Indenture”), by and among the Issuers, the subsidiary guarantors party thereto, and Citibank, N.A., as trustee (the “Trustee”). In November 2006, Wilmington Trust Company was appointed as the new Trustee for the Notes.
The Senior Notes bear interest at 8.0% per annum, mature on October 1, 2012 and were priced at 98.688%, resulting in a discount at the time of issue of $8.5 million. The discount is being amortized using the effective interest method. As of January 29, 2011, the unamortized original issue discount was $1.0 million. The Issuers pay interest on the Senior Notes semi-annually, in arrears, every April 1 and October 1, to holders of record on the immediately preceding March 15 and September 15, and at maturity.
The Indenture contains affirmative and negative covenants customary for such financings, including, among other things, limitations on (1) the incurrence of additional debt, (2) restricted payments, (3) liens, (4) sale and leaseback transactions and (5) asset sales. Events of default provided for in the Indenture include, among other things, failure to pay interest or principal on the Notes, other breaches of covenants in the Indenture, and certain events of bankruptcy and insolvency. As of January 29, 2011, the Company was in compliance with all covenants associated with the Revolver and the Indenture.
Under certain conditions, the Issuers may on any one or more occasions prior to maturity redeem up to 100% of the aggregate principal amount of Senior Notes issued under the Indenture at redemption prices at or in excess of 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the redemption date. The circumstances which would limit the percentage of the Notes which may be redeemed or which would require the Company to pay a premium in excess of 100% of the principal amount are defined in the Indenture. Upon a Change of Control (as defined in the Indenture), the Issuers are required to offer to purchase all of the Notes then outstanding at 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase. The Issuers may acquire Senior Notes by means other than redemption, whether by tender offer, open market purchases, negotiated transactions or otherwise, in accordance with applicable securities laws, so long as such acquisitions do not otherwise violate the terms of the Indenture.
Between May 2006 and October 2010, the Company repurchased and redeemed the $300 million of Senior Floating Rate Notes and $400 million of Senior Notes under previously announced buybacks authorized by the Company’s Board of Directors. All of the authorized amounts were repurchased or redeemed and the repurchased Notes were delivered to the Trustee for cancellation. The associated loss on the retirement of debt was $6.0 million, $5.3 million and $2.3 million for the 52 week periods ended January 29, 2011, January 30, 2010 and January 31, 2009, respectively, which consisted of the premium paid to retire the Notes and the write-off of the deferred financing fees and the original issue discount on the Notes.
The changes in the carrying amount of the Senior Notes for the Company for the 52 weeks ended January 30, 2010 and the 52 weeks ended January 29, 2011 were as follows (in millions):
| | | | |
Balance at January 31, 2009 | | $ | 545.7 | |
Repurchase of Senior Notes, net | | | (98.4 | ) |
| | | | |
Balance at January 30, 2010 | | $ | 447.3 | |
Repurchase of Senior Notes, net | | | (198.3 | ) |
| | | | |
Balance at January 29, 2011 | | $ | 249.0 | |
| | | | |
In November 2008, in connection with the acquisition of Micromania, the Company entered into a Term Loan Agreement (the “Term Loan Agreement”) with Bank of America, N.A. and Banc of America Securities LLC. The
F-22
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Term Loan Agreement provided for term loans (“Term Loans”) in the aggregate of $150 million, consisting of a $50 million secured term loan (“Term Loan A”) and a $100 million unsecured term loan (“Term Loan B”). The effective interest rate on Term Loan A was 5.75% per annum and the effective rate on Term Loan B ranged from 5.0% to 5.75% per annum.
In addition to the $150 million under the Term Loans, the Company borrowed $275 million under the Credit Agreement to complete the acquisition of Micromania in November 2008. As of January 31, 2009, the Credit Agreement and the Term Loans were repaid in full.
As of January 30, 2010 and January 29, 2011, the only long-term debt outstanding was the Senior Notes.
The maturity on the $250 million Senior Notes, gross of the unamortized original issue discount of $1.0 million, occurs in the fiscal year ending January 2013.
The Company leasesWe lease retail stores, warehouse facilities, office space and equipment. These are generally leased under noncancelable agreements that expire at various dates through 2034 with various renewal options for additional periods. The agreements, which have been classified as operating leases, generally provide for minimum and, in some cases, percentage rentals and require the Companyus to pay all insurance, taxes and other maintenance costs. Leases with step rent provisions, escalation clauses or other lease concessions are accounted for on a straight-line basis over the lease term, which includes renewal option periods when the Company iswe are reasonably assured of exercising the renewal options and includes “rent holidays��holidays” (periods in which the Company iswe are not obligated to pay rent). The Company doesCash or lease incentives received upon entering into certain store leases (“tenant improvement allowances”) are recognized on a straight-line basis as a reduction to rent expense over the lease term, which includes renewal option periods when we are reasonably assured of exercising the renewal options. We record the unamortized portion of tenant improvement allowances as a part of deferred rent. We do not have leases with capital improvement funding. Percentage rentals are based on sales performance in excess of specified minimums at various stores.stores and are accounted for in the period in which the amount of percentage rentals can be accurately estimated.
Approximate rental expenses under operating leases were as follows:
| | | | | | | | | | | | |
| | 52 Weeks
| | | 52 Weeks
| | | 52 Weeks
| |
| | Ended
| | | Ended
| | | Ended
| |
| | January 29,
| | | January 30,
| | | January 31,
| |
| | 2011 | | | 2010 | | | 2009 | |
| | (In millions) | |
|
Minimum | | $ | 370.8 | | | $ | 354.3 | | | $ | 303.7 | |
Percentage rentals | | | 11.1 | | | | 22.6 | | | | 23.0 | |
| | | | | | | | | | | | |
| | $ | 381.9 | | | $ | 376.9 | | | $ | 326.7 | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | | |
|
| 52 Weeks Ended February 1, 2014 |
| 53 Weeks Ended February 2, 2013 |
| 52 Weeks Ended January 28, 2012 |
|
| (In millions) |
Minimum |
| $ | 381.6 |
|
| $ | 385.4 |
|
| $ | 386.9 |
|
Percentage rentals |
| 9.4 |
|
| 9.3 |
|
| 12.3 |
|
|
| $ | 391.0 |
|
| $ | 394.7 |
|
| $ | 399.2 |
|
Future minimum annual rentals, excluding percentage rentals, required under leases that had initial, noncancelable lease terms greater than one year, as of January 29, 2011,February 1, 2014, are approximately:
|
| | | | |
Fiscal Year Ending on or around January 31, | | Amount |
| | (In millions) |
2015 | | $ | 332.5 |
|
2016 | | 243.2 |
|
2017 | | 162.6 |
|
2018 | | 103.3 |
|
2019 | | 67.8 |
|
Thereafter | | 130.0 |
|
| | $ | 1,039.4 |
|
| | | | |
Year Ended | | Amount | |
| | (In millions) | |
|
January 2012 | | $ | 350.7 | |
January 2013 | | | 285.7 | |
January 2014 | | | 206.5 | |
January 2015 | | | 138.6 | |
January 2016 | | | 93.2 | |
Thereafter | | | 262.9 | |
| | | | |
| | $ | 1,337.6 | |
| | | | |
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
| |
11. 12. | Commitments and Contingencies |
ContingenciesCommitments
We had bank guarantees relating primarily to international store leases totaling $18.7 million as of February 1, 2014 and $21 million as of February 2, 2013.
See Note 11 for information regarding commitments related to our noncancelable operating leases.
Contingencies
In the ordinary course of the Company’sour business, the Company is,we are, from time to time, subject to various legal proceedings, including matters involving wage and hour employee class actions and consumer class actions. The CompanyWe may enter into discussions regarding settlement of these and other types of lawsuits, and may enter into settlement agreements, if it believeswe believe settlement is in the best interest of the Company’s shareholders. Management doesour stockholders. We do not believe that any such existing legal proceedings or settlements, individually or in the aggregate, will have a material adverse effect on the Company’sour financial condition, results of operations or liquidity.
In 2003, the Company purchased a 51% controlling interest in GameStop Group Limited, which operates stores in Ireland and the United Kingdom. Under the terms of the purchase agreement, the minority interest owners have the ability to require the Company to purchase their remaining shares in incremental percentages at a price to be determined based partially on the Company’s price to earnings ratio and GameStop Group Limited’s earnings. Shares representing approximately 16% were purchased in June 2008 and in July 2009 an additional 16% was purchased, bringing the Company’s total interest in GameStop Group Limited to approximately 84%. The Company already consolidates the results of GameStop Group Limited; therefore, any additional amounts acquired will not have a material effect on the Company’s financial statements.The provision for income tax consisted of the following:
| | | | | | | | | | | | |
| | 52 Weeks
| | | 52 Weeks
| | | 52 Weeks
| |
| | Ended
| | | Ended
| | | Ended
| |
| | January 29,
| | | January 30,
| | | January 31,
| |
| | 2011 | | | 2010 | | | 2009 | |
| | (In millions) | |
|
Current tax expense: | | | | | | | | | | | | |
Federal | | $ | 133.3 | | | $ | 162.3 | | | $ | 201.4 | |
State | | | 13.3 | | | | 12.1 | | | | 18.9 | |
Foreign | | | 29.8 | | | | 39.6 | | | | 40.1 | |
| | | | | | | | | | | | |
| | | 176.4 | | | | 214.0 | | | | 260.4 | |
| | | | | | | | | | | | |
Deferred tax expense (benefit): | | | | | | | | | | | | |
Federal | | | 39.1 | | | | 0.2 | | | | (15.8 | ) |
State | | | 2.7 | | | | 1.5 | | | | (7.5 | ) |
Foreign | | | (3.6 | ) | | | (2.9 | ) | | | (1.4 | ) |
| | | | | | | | | | | | |
| | | 38.2 | | | | (1.2 | ) | | | (24.7 | ) |
| | | | | | | | | | | | |
Total income tax expense | | $ | 214.6 | | | $ | 212.8 | | | $ | 235.7 | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | | |
| | 52 Weeks Ended February 1, 2014 | | 53 Weeks Ended February 2, 2013 | | 52 Weeks Ended January 28, 2012 |
| | (In millions) |
Current tax expense: | | | | | | |
Federal | | $ | 158.2 |
| | $ | 229.6 |
| | $ | 193.5 |
|
State | | 24.5 |
| | 24.1 |
| | 20.9 |
|
Foreign | | 34.6 |
| | 29.4 |
| | 21.4 |
|
| | 217.3 |
| | 283.1 |
| | 235.8 |
|
Deferred tax expense (benefit): | | | | | | |
Federal | | (1.9 | ) | | (46.3 | ) | | (10.2 | ) |
State | | (0.1 | ) | | (3.5 | ) | | (0.2 | ) |
Foreign | | (0.7 | ) | | (8.4 | ) | | (14.8 | ) |
| | (2.7 | ) | | (58.2 | ) | | (25.2 | ) |
Total income tax expense | | $ | 214.6 |
| | $ | 224.9 |
| | $ | 210.6 |
|
The components of earnings (loss) before income tax expense consisted of the following:
| | | | | | | | | | | | |
| | 52 Weeks
| | | 52 Weeks
| | | 52 Weeks
| |
| | Ended
| | | Ended
| | | Ended
| |
| | January 29,
| | | January 30,
| | | January 31,
| |
| | 2011 | | | 2010 | | | 2009 | |
| | (In millions) | |
|
United States | | $ | 553.8 | | | $ | 508.9 | | | $ | 532.8 | |
International | | | 67.6 | | | | 79.6 | | | | 101.2 | |
| | | | | | | | | | | | |
Total | | $ | 621.4 | | | $ | 588.5 | | | $ | 634.0 | |
| | | | | | | | | | | | |
F-24
GAMESTOP CORP.
|
| | | | | | | | | | | | |
| | 52 Weeks Ended February 1, 2014 | | 53 Weeks Ended February 2, 2013 | | 52 Weeks Ended January 28, 2012 |
| | (In millions) |
United States | | $ | 491.6 |
| | $ | 547.2 |
| | $ | 551.9 |
|
International | | 77.2 |
| | (592.1 | ) | | (2.8 | ) |
Total | | $ | 568.8 |
| | $ | (44.9 | ) | | $ | 549.1 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The difference in income tax provided and the amounts determined by applying the statutory rate to incomeearnings (loss) before income taxes resulted from the following:
| | | | | | | | | | | | |
| | 52 Weeks
| | | 52 Weeks
| | | 52 Weeks
| |
| | Ended
| | | Ended
| | | Ended
| |
| | January 29,
| | | January 30,
| | | January 31,
| |
| | 2011 | | | 2010 | | | 2009 | |
|
Federal statutory tax rate | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % |
State income taxes, net of federal effect | | | 1.7 | | | | 1.5 | | | | 1.1 | |
Foreign income taxes | | | 0.4 | | | | 1.5 | | | | 0.5 | |
Other (including permanent differences) | | | (2.6 | ) | | | (1.8 | ) | | | 0.6 | |
| | | | | | | | | | | | |
| | | 34.5 | % | | | 36.2 | % | | | 37.2 | % |
| | | | | | | | | | | | |
|
| | | | | | | | | |
| | 52 Weeks Ended February 1, 2014 | | 53 Weeks Ended February 2, 2013 | | 52 Weeks Ended January 28, 2012 |
Federal statutory tax rate | | 35.0 | % | | 35.0 | % | | 35.0 | % |
State income taxes, net of federal benefit | | 1.9 |
| | (27.7 | ) | | 2.6 |
|
Foreign income taxes | | (0.5 | ) | | 5.6 |
| | 1.3 |
|
Nondeductible goodwill impairments | | 0.6 |
| | (488.6 | ) | | — |
|
Change in valuation allowance | | — |
| | (22.5 | ) | | 0.1 |
|
Subpart F income | | 4.8 |
| | (61.4 | ) | | 4.6 |
|
Interest income from hybrid securities | | (5.8 | ) | | 73.3 |
| | (6.1 | ) |
Other (including permanent differences) 1 | | 1.7 |
| | (14.6 | ) | | 0.9 |
|
| | 37.7 | % | | (500.9 | )% | | 38.4 | % |
The Company’s effective tax rate decreased from 36.2% in the 52 weeks ended January 30, 2010 to 34.5% in the 52 weeks ended January 29, 2011, primarily due to audit settlements and statute expirations. The Company’s effective tax rate decreased from 37.2% in the 52 weeks ended January 31, 2009 to 36.2% in the 52 weeks ended January 30, 2010, primarily due to audit settlements and statute expirations.(1) Other is comprised of numerous items, none of which is greater than 1.75% of earnings before income taxes.
Differences between financial accounting principles and tax laws cause differences between the bases of certain assets and liabilities for financial reporting purposes and tax purposes. The tax effects of these differences, to the extent they are temporary, are recorded as deferred tax assets and liabilities and consisted of the following components (in millions):
| | | | | | | | |
| | January 29,
| | | January 30,
| |
| | 2011 | | | 2010 | |
|
Deferred tax asset: | | | | | | | | |
Fixed assets | | $ | — | | | $ | 29.8 | |
Inventory obsolescence reserve | | | 19.7 | | | | 17.4 | |
Deferred rents | | | 16.4 | | | | 14.7 | |
Stock-based compensation | | | 25.8 | | | | 22.6 | |
Net operating losses | | | 15.9 | | | | 12.3 | |
Other | | | 19.7 | | | | 10.0 | |
| | | | | | | | |
Total deferred tax assets | | | 97.5 | | | | 106.8 | |
| | | | | | | | |
Deferred tax liabilities: | | | | | | | | |
Fixed Assets | | | (15.1 | ) | | | — | |
Goodwill | | | (44.5 | ) | | | (37.9 | ) |
Prepaid expenses | | | (7.5 | ) | | | (4.0 | ) |
Acquired intangible assets | | | (59.6 | ) | | | (63.5 | ) |
Valuation allowance | | | (2.7 | ) | | | (2.0 | ) |
Other | | | (14.2 | ) | | | (3.7 | ) |
| | | | | | | | |
Total deferred tax liabilities | | | (143.6 | ) | | | (111.1 | ) |
| | | | | | | | |
Net | | $ | (46.1 | ) | | $ | (4.3 | ) |
| | | | | | | | |
Financial statements: | | | | | | | | |
Current deferred tax assets | | $ | 28.8 | | | $ | 21.2 | |
| | | | | | | | |
Deferred tax liabilities | | $ | (74.9 | ) | | $ | (25.5 | ) |
| | | | | | | | |
F-25
GAMESTOP CORP.
|
| | | | | | | | |
| | February 1, 2014 | | February 2, 2013 |
Deferred tax asset: | | | | |
Inventory obsolescence reserve | | $ | 18.8 |
| | $ | 23.6 |
|
Deferred rents | | 12.4 |
| | 13.6 |
|
Stock-based compensation | | 26.4 |
| | 25.3 |
|
Net operating losses | | 16.8 |
| | 15.0 |
|
Customer liabilities | | 31.9 |
| | 38.1 |
|
Property and equipment | | 21.9 |
| | 9.3 |
|
Foreign tax credit carryover | | 1.4 |
| | — |
|
Other | | 9.4 |
| | 11.1 |
|
Total deferred tax assets | | 139.0 |
| | 136.0 |
|
Valuation allowance | | (13.3 | ) | | (13.5 | ) |
Total deferred tax assets, net | | 125.7 |
| | 122.5 |
|
Deferred tax liabilities: | | | | |
Goodwill | | (80.3 | ) | | (55.0 | ) |
Prepaid expenses | | (4.9 | ) | | (6.6 | ) |
Acquired intangible assets | | (20.6 | ) | | (24.6 | ) |
Other | | (5.6 | ) | | (6.1 | ) |
Total deferred tax liabilities | | (111.4 | ) | | (92.3 | ) |
Net | | $ | 14.3 |
| | $ | 30.2 |
|
Consolidated financial statements: | | | | |
Deferred income tax assets — current | | $ | 51.7 |
| | $ | 61.7 |
|
Deferred income tax liabilities — noncurrent | | $ | (37.4 | ) | | $ | (31.5 | ) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)In addition, the valuation allowance for deferred tax assets as of the fiscal year ended January 28, 2012 was $3.4 million.
The Company and its subsidiariesWe file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. The Internal Revenue Service (“IRS”) commenced an examination of the Company’sis currently examining our U.S. income tax returns for the fiscal years ended on February 3, 2007 and February 2, 2008 during fiscal2013, January 28, 2012, January 29, 2011, January 30, 2010 and January 31, 2009. The Company doesWe do not anticipate any adjustments that would result in a material impact on itsour consolidated financial statements as a result of these audits. The Company isWe are no longer subject to U.S. federal income tax examination for years before and including the fiscal year ended January 28, 2006. The IRS completed an examination of EB’s U.S. income tax return for the short year ended October 8, 2005 during fiscal 2009.
February 2, 2008.
With respect to state and local jurisdictions and countries outside of the United States, the Companywe and itsour 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 believeswe believe that adequate amounts of tax, interest and penalties have been provided for in the accompanying consolidated financial statements for any adjustments that might be incurred due to state, local or foreign audits.
As of January 29, 2011,February 1, 2014, the gross amount of unrecognized tax benefits was approximately $24.9$20.6 million. If the Companywe were to prevail on all uncertain tax positions, the net effect would be a benefit to the Company’sour effective tax rate of approximately $18.7$18.5 million, exclusive of any benefits related to interest and penalties.
A reconciliation of the changes in the gross balances of unrecognized tax benefits follows (in millions):
| | | | | | | | | | | | |
| | January 29,
| | | January 30,
| | | January 31,
| |
| | 2011 | | | 2010 | | | 2009 | |
|
Beginning balance of unrecognized tax benefits | | $ | 35.2 | | | $ | 32.2 | | | $ | 24.2 | |
Increases related to current period tax positions | | | — | | | | 5.0 | | | | 1.0 | |
Increases related to prior period tax positions | | | 2.1 | | | | 8.1 | | | | 8.7 | |
Reductions as a result of a lapse of the applicable statute of limitations | | | (6.4 | ) | | | (1.5 | ) | | | (1.1 | ) |
Reductions as a result of settlements with taxing authorities | | | (6.0 | ) | | | (8.6 | ) | | | (0.6 | ) |
| | | | | | | | | | | | |
Ending balance of unrecognized tax benefits | | $ | 24.9 | | | $ | 35.2 | | | $ | 32.2 | |
| | | | | | | | | | | | |
The Company recognizes |
| | | | | | | | | | | | |
| | February 1, 2014 | | February 2, 2013 | | January 28, 2012 |
Beginning balance of unrecognized tax benefits | | $ | 28.7 |
| | $ | 25.4 |
| | $ | 24.9 |
|
Increases related to current period tax positions | | 0.5 |
| | 0.5 |
| | — |
|
Increases related to prior period tax positions | | 16.6 |
| | 6.3 |
| | 9.9 |
|
Reductions as a result of a lapse of the applicable statute of limitations | | (1.9 | ) | | (3.2 | ) | | (2.0 | ) |
Reductions as a result of settlements with taxing authorities | | (23.3 | ) | | (0.3 | ) | | (7.4 | ) |
Ending balance of unrecognized tax benefits | | $ | 20.6 |
| | $ | 28.7 |
| | $ | 25.4 |
|
We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of January 29, 2011, January 30, 2010February 1, 2014, February 2, 2013 and January 31, 2009, the Company28, 2012, we had approximately $6.2$6.1 million, $6.9$5.4 million and $5.7$3.2 million, respectively, in interest and penalties related to unrecognized tax benefits accrued, of which approximately $1.4$1.6 million of expense, $2.3 million of benefit and $2.3$2.7 million of benefit were recognized through income tax expense in the fiscal years ended January 30, 2010February 1, 2014, February 2, 2013 and January 31, 2009, respectively, with an immaterial amount recognized in income tax expense in the fiscal year ended January 29, 2011.28, 2012, respectively. If the Companywe were to prevail on all uncertain tax positions, the reversal of this accrualthese accruals would also be a benefit to the Company’sour effective tax rate.
It is reasonably possible that the amount of the unrecognized benefit with respect to certain of the Company’sour unrecognized tax positions could significantly increase or decrease within the next 12 months as a result of settling ongoing audits. At this time, an estimateHowever, as audit outcomes and the timing of audit resolutions are subject to significant uncertainty, and given the nature and complexity of the rangeissues involved, we are unable to reasonably estimate the possible amount of change in the unrecognized tax benefits, if any, that may occur within the next 12 months as a result of ongoing examinations. Nevertheless, we believe we are adequately reserved for our uncertain tax positions as of February 1, 2014.
Deferred income taxes have not been provided for on the approximately $542.1 million of undistributed earnings generated by certain foreign subsidiaries as of February 1, 2014 because we intend to permanently reinvest such earnings outside the United States. We do not currently require, nor do we have plans for, the repatriation of retained earnings from these subsidiaries. However, in the future, if we determine it is necessary to repatriate these funds, or we sell or liquidate any of these subsidiaries, we may be required to provide for income taxes on the repatriation. We may also be required to withhold foreign taxes depending on the foreign jurisdiction from which the funds are repatriated. The effective rate of tax on such repatriations may materially differ from the federal statutory tax rate, thereby having a material impact on tax expense in the year of repatriation; however, we cannot reasonably possible outcomes cannot be made.estimate the amount of such a tax event.
|
| |
13. 14. | Stock Incentive Plan |
Effective June 2009, the Company’s2013, our stockholders voted to amendadopt the Third Amended and Restated 20012011 Incentive Plan (the “Incentive“Amended 2011 Incentive Plan”) to provide for issuance under the 2011 Incentive Plan of the Company’sour Class A common stock.Common Stock. The Amended 2011 Incentive Plan provides a maximum aggregate amount of 46.59.25 million shares of Class A common stockCommon Stock with respect to which options may be granted and provides for thea grant of cash, granting of incentive stock options, non-qualified stock options, andstock appreciation rights, performance awards, restricted stock and other share-based awards, which may include, without limitation, restrictions on the right to vote such shares and restrictions on the right to receive dividends on such shares. The options to purchase Class A common shares are issued at fair market value of the underlying shares on the date of grant. In general, the
F-26
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
options vest and become exercisable in equal annual installments over a three-year period, commencing one year after the grant date, and expire ten years from issuance.the grant date. Shares issued upon exercise of options are newly issued shares. Options and restricted shares granted after June 21, 2011 are issued under the 2011 Incentive Plan.
Effective June 2009, our stockholders voted to amend the Third Amended and Restated 2001 Incentive Plan (the “2001 Incentive Plan”) to provide for issuance under the 2001 Incentive Plan of our Class A Common Stock. The 2001 Incentive Plan provided a maximum aggregate amount of 46.5 million shares of Class A Common Stock with respect to which options may have been granted and provided for the granting of incentive stock options, non-qualified stock options, and restricted stock, which may have included, without limitation, restrictions on the right to vote such shares and restrictions on the right to receive dividends on such shares. The options to purchase Class A common shares were issued at fair market value of the underlying shares on the date of grant. In general, the options vested and became exercisable in equal annual installments over a three-year period, commencing one year after the grant date, and expired ten years from the grant date. Shares issued upon exercise of options are newly issued shares. Options and restricted shares granted on or before June 21, 2011 were issued under the 2001 Incentive Plan.
Stock Options
We record stock-based compensation expense in earnings based on the grant-date fair value of options granted. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. This valuation model requires the use of subjective assumptions, including expected option life and expected volatility. We use historical data to estimate the option life and the employee forfeiture rate, and use historical volatility when estimating the stock price volatility. We have not historically experienced material forfeitures with respect to the employees who currently receive stock option grants and thus we do not expect any forfeitures related to these awards. The weighted-average fair value of the options granted during the 52 weeks ended February 1, 2014 was estimated at $7.10 based on the following assumptions:
|
| | | |
| | 52 Weeks Ended February 1, 2014 |
Volatility | | 46.4 | % |
Risk-free interest rate | | 1.0 | % |
Expected life (years) | | 5.6 |
|
Expected dividend yield | | 4.3 | % |
In addition to recognizing the estimated fair value of stock-based compensation in earnings over the required service period, we are also required to present tax benefits received in excess of amounts determined based on the compensation expense recognized on the statements of cash flows. Such tax benefits are presented as a use of cash in the operating section and a source of cash in the financing section of the consolidated statements of cash flows.
A summary of our stock option activity during the status of the Company’s stock options52 weeks ended February 1, 2014 is presented below:
| | | | | | | | |
| | | | | Weighted-
| |
| | | | | Average
| |
| | | | | Exercise
| |
| | Shares | | | Price | |
| | (Millions of shares) | |
|
Balance, February 2, 2008 | | | 10.9 | | | $ | 10.60 | |
Granted | | | 1.4 | | | $ | 49.95 | |
Exercised | | | (2.3 | ) | | $ | 12.70 | |
Forfeited | | | (0.3 | ) | | $ | 36.12 | |
| | | | | | | | |
Balance, January 31, 2009 | | | 9.7 | | | $ | 14.96 | |
| | | | | | | | |
Granted | | | 1.4 | | | $ | 26.02 | |
Exercised | | | (0.3 | ) | | $ | 14.77 | |
Forfeited | | | (0.2 | ) | | $ | 35.61 | |
| | | | | | | | |
Balance, January 30, 2010 | | | 10.6 | | | $ | 16.00 | |
| | | | | | | | |
Granted | | | 1.2 | | | $ | 20.32 | |
Exercised | | | (3.8 | ) | | $ | 2.85 | |
Forfeited | | | (0.4 | ) | | $ | 33.51 | |
| | | | | | | | |
Balance, January 29, 2011 | | | 7.6 | | | $ | 22.43 | |
| | | | | | | | |
|
| | | | | | | |
| | Shares | | Weighted- Average Exercise Price |
| | (Millions of shares) |
Balance, February 2, 2013 | | 4.6 |
| | $ | 25.04 |
|
Granted | | 0.5 |
| | $ | 24.82 |
|
Exercised | | (2.8 | ) | | $ | 20.84 |
|
Forfeited | | (0.3 | ) | | $ | 38.33 |
|
Balance, February 1, 2014 | | 2.0 |
| | $ | 29.31 |
|
The following table summarizes information as of January 29, 2011February 1, 2014 concerning outstanding and exercisable options:
| | | | | | | | | | | | | | | | | | | | |
| | Options Outstanding | | | Options Exercisable | |
| | | | | Weighted-
| | | Weighted-
| | | | | | Weighted-
| |
| | Number
| | | Average
| | | Average
| | | Number
| | | Average
| |
| | Outstanding
| | | Remaining
| | | Contractual
| | | Exercisable
| | | Exercise
| |
Range of Exercise Prices | | (Millions) | | | Life (Years) | | | Price | | | (Millions) | | | Price | |
|
$ 5.90 - $ 8.24 | | | 0.2 | | | | 2.62 | | | $ | 7.03 | | | | 0.2 | | | $ | 7.03 | |
$ 9.00 - $10.63 | | | 2.1 | | | | 3.29 | | | $ | 9.69 | | | | 2.1 | | | $ | 9.69 | |
$17.94 - $20.68 | | | 2.6 | | | | 6.78 | | | $ | 20.27 | | | | 1.4 | | | $ | 20.22 | |
$26.02 - $26.68 | | | 1.7 | | | | 7.39 | | | $ | 26.23 | | | | 1.0 | | | $ | 26.40 | |
$49.95 - $49.95 | | | 1.0 | | | | 7.03 | | | $ | 49.95 | | | | 0.6 | | | $ | 49.95 | |
| | | | | | | | | | | | | | | | | | | | |
$ 5.90 - $49.95 | | | 7.6 | | | | 5.90 | | | $ | 22.43 | | | | 5.3 | | | $ | 20.59 | |
| | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | Options Outstanding | | Options Exercisable |
Range of Exercise Prices | | Number Outstanding (Millions) | | Weighted- Average Remaining Life (Years) | | Weighted- Average Contractual Price | | Number Exercisable (Millions) | | Weighted- Average Exercise Price |
$ 9.29 - $10.13 | | 0.3 |
| | 1.09 | | $ | 10.11 |
| | 0.3 |
| | $ | 10.11 |
|
$17.94 - $20.69 | | 0.3 |
| | 4.09 | | $ | 20.18 |
| | 0.3 |
| | $ | 20.18 |
|
$24.82 - $26.68 | | 0.8 |
| | 6.95 | | $ | 25.45 |
| | 0.4 |
| | $ | 26.24 |
|
$49.95 - $49.95 | | 0.6 |
| | 4.02 | | $ | 49.95 |
| | 0.6 |
| | $ | 49.95 |
|
$ 9.29 - $49.95 | | 2.0 |
| | 4.71 | | $ | 29.31 |
| | 1.6 |
| | $ | 30.61 |
|
The total intrinsic value of options exercised during the fiscal years ended January 29, 2011, January 30, 2010February 1, 2014, February 2, 2013 and January 31, 200928, 2012 was $59.9$53.5 million, $3.7$7.7 million, and $87.9$16.0 million, respectively. The intrinsic value of options exercisable and options outstanding was $27.1$15.9 million and $27.9$20.5 million, respectively, as of January 29, 2011.
February 1, 2014.
The fair value of each option is recognized as compensation expense on a straight-line basis between the grant date and the date the options become fully vested. During the 52 weeks ended February 1, 2014, the 53 weeks ended February 2, 2013 and the 52 weeks ended January 29, 2011, January 30, 2010 and January 31, 2009, the Company28, 2012, we included compensation expense relating to the grant of these options in the
F-27
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
amount of $12.2$1.0 million, $11.5$2.1 million and $15.4$6.4 million, respectively, in selling, general and administrative expenses. As of January 29, 2011,February 1, 2014, the unrecognized compensation expense related to the unvested portion of the Company’s stock optionsour stock-based awards was $9.3 million, which is expected to be recognized over a weighted average period of 1.7 years.$2.2 million.
Restricted Stock Awards
The Company grantsWe grant restricted stock awards to certain of itsour employees, officers and non-employee directors. Restricted stock awards generally vest over a three-year period on the anniversary of the date of issuance.
The following table presents a summary of the Company’sour restricted stock awards activity:activity during the 52 weeks ended February 1, 2014:
| | | | | | | | |
| | | | | Weighted-
| |
| | | | | Average
| |
| | | | | Grant Date
| |
| | Shares | | | Fair Value | |
| | (Millions of shares) | |
|
Nonvested shares at February 2, 2008 | | | 1.3 | | | $ | 25.46 | |
Granted | | | 0.6 | | | $ | 49.20 | |
Vested | | | (0.6 | ) | | $ | 16.57 | |
Forfeited | | | — | | | $ | 29.53 | |
| | | | | | | | |
Nonvested shares at January 31, 2009 | | | 1.3 | | | $ | 35.89 | |
| | | | | | | | |
Granted | | | 0.6 | | | $ | 25.82 | |
Vested | | | (0.6 | ) | | $ | 31.91 | |
Forfeited | | | — | | | $ | 33.78 | |
| | | | | | | | |
Nonvested shares at January 30, 2010 | | | 1.3 | | | $ | 32.94 | |
| | | | | | | | |
Granted | | | 0.7 | | | $ | 20.43 | |
Vested | | | (0.6 | ) | | $ | 33.05 | |
Forfeited | | | (0.2 | ) | | $ | 23.07 | |
| | | | | | | | |
Nonvested shares at January 29, 2011 | | | 1.2 | | | $ | 26.27 | |
| | | | | | | | |
|
| | | | | | | |
| | Shares | | Weighted- Average Grant Date Fair Value |
| | (Millions of shares) |
Nonvested shares at February 2, 2013 | | 1.8 |
| | $ | 22.92 |
|
Granted | | 1.2 |
| | $ | 24.82 |
|
Vested | | (0.6 | ) | | $ | 21.99 |
|
Forfeited | | (0.1 | ) | | $ | 23.98 |
|
Nonvested shares at February 1, 2014 | | 2.3 |
| | $ | 24.10 |
|
Of the shares granted during fiscal 2013, 916 thousand shares of restricted stock were granted under the 2011 Incentive Plan, which vest in equal annual installments over three years. At the same time, an additional 262 thousand shares of restricted stock were granted under the 2011 Incentive Plan, of which 131 thousand shares vest in equal annual installments over three years based on performance targets measured at the end of fiscal 2013. The remaining 131 thousand shares of restricted stock granted are subject to performance targets which will be measured following the completion of the 52 weeks ending January 30, 2016. These grants will vest immediately upon measurement to the extent earned. Shares subject to performance measures may generally be earned in greater or lesser percentages if targets are exceeded or not achieved by specified amounts.
During the 53 weeks ended February 2, 2013, we granted 1.4 million shares of restricted stock with a weighted average grant date fair value of $23.66 per common share with fair value being determined by the quoted market price of our common stock on the date of grant. Of these shares, 783 thousand shares of restricted stock were granted under the 2011 Incentive Plan, which vest in equal annual installments over three years. At the same time, an additional 626 thousand shares of restricted stock were granted under the 2011 Incentive Plan, of which 101 thousand shares vest in equal annual installments over three years based on performance targets that were achieved and 25 thousand shares were forfeited based on fiscal 2012 performance. The remaining 500 thousand shares of restricted stock granted are subject to performance targets which will be measured following the completion of the 52 weeks ending January 31, 2015. These grants will vest immediately upon measurement to the extent earned. Shares subject to performance measures may generally be earned in greater or lesser percentages if targets are exceeded or not achieved by specified amounts. The restricted stock granted in the 52 weeks ended January 29, 2011, January 30, 2010 and January 31, 200928, 2012 vest in equal annual installments over three years.
During the 52 weeks ended February 1, 2014, the 53 weeks ended February 2, 2013 and the 52 weeks ended January 29, 2011, January 30, 2010 and January 31, 2009, the Company28, 2012, we included compensation expense relating to the grant of these restricted shares in the amounts of $17.4$18.4 million, $26.3$17.5 million and $19.9$12.4 million, respectively, in selling, general and administrative expenses in the accompanying consolidated statements of operations. As of January 29, 2011,February 1, 2014, there was $14.8$28.1 million of unrecognized compensation expense related to nonvested restricted stock awards that is expected to be recognized over a weighted average period of 1.71.8 years.
Subsequent to the fiscal year ended January 29, 2011, an additional 287February 1, 2014, we granted 588 thousand shares of restricted stock were grantedwith a grant date fair value of $38.52 per common share and 283 thousand shares of stock options under the 2011 Incentive Plan, whichPlan. Of the restricted shares, 315 thousand shares vest in equal annual installments over three years. AlsoRestricted shares and options granted are subject to continued service. Of the restricted shares granted subsequent to the fiscal year ended January 29, 2011, an additional 161February 1, 2014, 182 thousand shares are subject to a performance target which will be measured following the completion of restricted stock were granted under the Incentive Plan, of which 50% vest52 weeks ending January 31, 2015 with the portion earned vesting in equal annual installments over three years and 50%years. The remaining 91 thousand shares of restricted stock granted are subject to performance targets with such targets towhich will be measured following the completion of the 52 weeks ending January 28, 2012.2017. These grants will vest immediately upon measurement to the extent earned. Shares subject to performance measures may generally be earned in greater or lesser percentages if targets are exceeded or not achieved by specified amounts. Any shares earned will be vested in equal annual installments over three years.
F-28
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
| |
14. 15. | Employees’ Defined Contribution Plan |
The Company sponsorsWe sponsor a defined contribution plan (the “Savings Plan”) for the benefit of substantially all of itsour U.S. employees who meet certain eligibility requirements, primarily age and length of service. The Savings Plan allows employees to invest up to 60%, up tofor a maximum of $16.5$17.5 thousand a year for 2013, of their eligible gross cash compensation invested on a pre-tax basis. The Company’sOur optional contributions to the Savings Plan are generally in amounts based upon a certain percentage of the employees’ contributions. The Company’sOur contributions to the Savings Plan during the 52 weeks ended January 29, 2011, January 30, 2010February 1, 2014, the 53 weeks ended February 2, 2013 and January 31, 2009, were $3.6 million, $3.3 million and $2.7 million, respectively.
| |
15. | Certain Relationships and Related Transactions |
The Company has various relationships with Barnes & Noble, Inc. (“Barnes & Noble”), a related party through a common stockholder who is the Chairman of the Board of Directors of Barnes & Noble and a member of the Company’s Board of Directors. The Company operates departments within eight bookstores operated by Barnes & Noble, whereby the Company pays a license fee to Barnes & Noble on the gross sales of such departments. Additionally,www.gamestop.com is the exclusive specialty video game retailer listed onwww.bn.com, Barnes & Noble’se-commerce site whereby the Company pays a fee to Barnes & Noble for sales of video game or PC entertainment products sold throughwww.bn.com. The Company also continues to incur costs related to its participation in Barnes & Noble’s workers’ compensation, property and general liability insurance programs prior to June 2005. During the 52 weeks ended January 29, 2011, January 30, 2010 and January 31, 2009, the charges related to these transactions amounted to $1.428, 2012, were $4.8 million, $1.6$4.6 million and $1.9$4.1 million, respectively.
Beginning with this Form 10-K, we are expanding the categories included in our disclosures on sales and gross profit by category in order to reflect recent changes in our business, the expansion of categories previously included in other and our management emphasis as we operate in the future. Our previous categories of New Video Game Hardware and New Video Game Software remain unchanged.
We are expanding our previous category of Pre-owned Video Game Products to include value-priced, or closeout, product and will be calling the category Pre-owned and Value Video Game Products now and in the future. We believe there is significant opportunity to purchase closeout and overstocked inventory from publishers, distributors and other retailers which is older new product but can be acquired for less than typical new release product costs. This product can then be resold in our Video Game Brands stores and on our Web sites as value-priced product. Our limited purchases of this product in the past have yielded significantly higher margins than new video game products, yet slightly lower margins than pre-owned video game products.
In the past, all other products we sold were categorized into “Other”, which included video game accessories, digital products, new and pre-owned mobile products, consumer electronics, revenues from our PowerUp Rewards program and Game Informer subscription sales, strategy guides, toys and PC entertainment software. We are separating our historical Other category into the following new categories:
Video Game Accessories, which includes new accessories for use with video game consoles and hand-held devices and software, such as controllers, gaming headsets and memory cards;
Digital, which includes revenues from the sale of DLC, Xbox Live, PlayStation Plus and Nintendo network points and subscription cards, other prepaid digital currencies and time cards, Kongregate, Game Informer digital subscriptions and PC digital downloads;
Mobile and Consumer Electronics, which includes revenues from selling new and pre-owned mobile devices and consumer electronics in Video Game Brands stores and all revenues from our Technology Brands stores;
Other, which includes revenues from the sales of PC entertainment software, toys, strategy guides and revenues from PowerUp Pro loyalty members receiving Game Informer magazine in physical form.
The following table setstables set forth net sales (in millions) by significant product category for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 52 Weeks
| | | 52 Weeks
| | | 52 Weeks
| |
| | Ended
| | | Ended
| | | Ended
| |
| | January 29,
| | | January 30,
| | | January 31,
| |
| | 2011 | | | 2010 | | | 2009 | |
| | | | | Percent
| | | | | | Percent
| | | | | | Percent
| |
| | Sales | | | of Total | | | Sales | | | of Total | | | Sales | | | of Total | |
|
Sales: | | | | | | | | | | | | | | | | | | | | | | | | |
New video game hardware | | $ | 1,720.0 | | | | 18.1 | % | | $ | 1,756.5 | | | | 19.3 | % | | $ | 1,860.2 | | | | 21.1 | % |
New video game software | | | 3,968.7 | | | | 41.9 | % | | | 3,730.9 | | | | 41.1 | % | | | 3,685.0 | | | | 41.9 | % |
Used video game products | | | 2,469.8 | | | | 26.1 | % | | | 2,394.1 | | | | 26.4 | % | | | 2,026.6 | | | | 23.0 | % |
Other | | | 1,315.2 | | | | 13.9 | % | | | 1,196.5 | | | | 13.2 | % | | | 1,234.1 | | | | 14.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 9,473.7 | | | | 100.0 | % | | $ | 9,078.0 | | | | 100.0 | % | | $ | 8,805.9 | | | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
F-29
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table sets forthand gross profit (in millions) and gross profit percentages by significant product category for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 52 Weeks
| | | 52 Weeks
| | | 52 Weeks
| |
| | Ended
| | | Ended
| | | Ended
| |
| | January 29,
| | | January 30,
| | | January 31,
| |
| | 2011 | | | 2010 | | | 2009 | |
| | | | | Gross
| | | | | | Gross
| | | | | | Gross
| |
| | Gross
| | | Profit
| | | Gross
| | | Profit
| | | Gross
| | | Profit
| |
| | Profit | | | Percent | | | Profit | | | Percent | | | Profit | | | Percent | |
|
Gross Profit: | | | | | | | | | | | | | | | | | | | | | | | | |
New video game hardware | | $ | 124.9 | | | | 7.3 | % | | $ | 113.5 | | | | 6.5 | % | | $ | 112.6 | | | | 6.1 | % |
New video game software | | | 819.6 | | | | 20.7 | % | | | 795.0 | | | | 21.3 | % | | | 768.4 | | | | 20.9 | % |
Used video game products | | | 1,140.5 | | | | 46.2 | % | | | 1,121.2 | | | | 46.8 | % | | | 974.5 | | | | 48.1 | % |
Other | | | 452.6 | | | | 34.4 | % | | | 405.0 | | | | 33.8 | % | | | 414.6 | | | | 33.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 2,537.6 | | | | 26.8 | % | | $ | 2,434.7 | | | | 26.8 | % | | $ | 2,270.1 | | | | 25.8 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | 52 Weeks Ended February 1, 2014 | | 53 Weeks Ended February 2, 2013 | | 52 Weeks Ended January 28, 2012 |
| | Net Sales | | Percent of Total | | Net Sales | | Percent of Total | | Net Sales | | Percent of Total |
Net sales: | | | | | | | | | | | | |
New video game hardware | | $ | 1,730.0 |
| | 19.1 | % | | $ | 1,333.4 |
| | 15.0 | % | | $ | 1,611.6 |
| | 16.9 | % |
New video game software | | 3,480.9 |
| | 38.5 | % | | 3,582.4 |
| | 40.3 | % | | 4,048.2 |
| | 42.4 | % |
Pre-owned and value video game products | | 2,329.8 |
| | 25.8 | % | | 2,430.5 |
| | 27.4 | % | | 2,620.2 |
| | 27.4 | % |
Video game accessories | | 560.6 |
| | 6.2 | % | | 611.8 |
| | 6.9 | % | | 661.1 |
| | 6.9 | % |
Digital | | 217.7 |
| | 2.4 | % | | 208.4 |
| | 2.3 | % | | 143.0 |
| | 1.5 | % |
Mobile and consumer electronics | | 303.7 |
| | 3.4 | % | | 200.3 |
| | 2.3 | % | | 12.8 |
| | 0.1 | % |
Other | | 416.8 |
| | 4.6 | % | | 519.9 |
| | 5.8 | % | | 453.6 |
| | 4.8 | % |
Total | | $ | 9,039.5 |
| | 100.0 | % | | $ | 8,886.7 |
| | 100.0 | % | | $ | 9,550.5 |
| | 100.0 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| | 52 Weeks Ended February 1, 2014 | | 53 Weeks Ended February 2, 2013 | | 52 Weeks Ended January 28, 2012 |
| | Gross Profit | | Gross Profit Percent | | Gross Profit | | Gross Profit Percent | | Gross Profit | | Gross Profit Percent |
Gross Profit: | | | | | | | | | | | | |
New video game hardware | | $ | 176.5 |
| | 10.2 | % | | $ | 101.7 |
| | 7.6 | % | | $ | 113.6 |
| | 7.0 | % |
New video game software | | 805.3 |
| | 23.1 | % | | 786.3 |
| | 21.9 | % | | 839.0 |
| | 20.7 | % |
Pre-owned and value video game products | | 1,093.9 |
| | 47.0 | % | | 1,170.1 |
| | 48.1 | % | | 1,221.2 |
| | 46.6 | % |
Video game accessories | | 220.5 |
| | 39.3 | % | | 237.9 |
| | 38.9 | % | | 251.9 |
| | 38.1 | % |
Digital | | 149.2 |
| | 68.5 | % | | 120.9 |
| | 58.0 | % | | 66.5 |
| | 46.5 | % |
Mobile and consumer electronics | | 65.1 |
| | 21.4 | % | | 41.3 |
| | 20.6 | % | | 3.5 |
| | 27.3 | % |
Other | | 150.6 |
| | 36.1 | % | | 193.3 |
| | 37.2 | % | | 183.8 |
| | 40.5 | % |
Total | | $ | 2,661.1 |
| | 29.4 | % | | $ | 2,651.5 |
| | 29.8 | % | | $ | 2,679.5 |
| | 28.1 | % |
The Company operates itsWe operate our business in the followingfour Video Game Brands segments: United States, Canada, Australia and Europe. The Company identifiesEurope, and a Technology Brands segment, which was added in the fourth quarter of fiscal 2013 and includes the operations of our Spring Mobile, Simply Mac, and Aio Wireless businesses. We identify segments based on a combination of geographic areas and management responsibility. Each of the segments includes significant retail operations with all Video Game Brands stores engaged in the sale of new and usedpre-owned video game systems and software and personal computer entertainment softwarerelated accessories and related accessories.Technology Brand stores engaged in the sale of consumer electronics and wireless products and services. Segment results for the United States include retail operations in 50 states, the District of Columbia, Guam and Puerto Rico,Rico; the electronic commerce Web sitewww.gamestop.com,www.gamestop.com;Game Informermagazine, and magazine; the online video gaming Web sitewww.kongregate.com.www.kongregate.com; a digital PC game distribution platform available at www.gamestop.com/pcgames; and an online consumer electronics marketplace available at www.buymytronics.com. Segment results for Canada include retail ande-commerce operations in Canada and segment results for Australia include retail ande-commerce operations in Australia and New Zealand. Segment results for Europe include retail operations in 1311 European countries ande-commerce operations in fivesix countries. The fiscal 2010 and fiscal 2009 results ofTechnology Brands segment includes retail operations in the European segment include Micromania’s results. The fiscal 2008 results of the European segment include 11 weeks of Micromania’s results. The Company measuresUnited States. We measure segment profit using operating earnings, which is defined as income from continuing operations before intercompany royalty fees, net interest expense and income taxes. Transactions between reportable segments consist primarily of royalties, management fees, intersegment loans and related interest. There were no intersegment sales during the 52 weeks ended February 1, 2014, the 53 weeks ended February 2, 2013 or the 52 weeks ended January 28, 2012.
Information on segments and the reconciliation of segment profit to earnings (loss) before income taxes are as follows (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
As of and for the Fiscal Year Ended February 1, 2014 | | United States | | Canada | | Australia | | Europe | | Technology Brands | | | Consolidated |
Net sales | | $ | 6,160.4 |
| | $ | 468.8 |
| | $ | 613.7 |
| | $ | 1,733.8 |
| | $ | 62.8 |
| | | $ | 9,039.5 |
|
Segment operating earnings (loss) | | 465.3 |
| | 26.6 |
| | 37.5 |
| | 44.3 |
| | (0.2 | ) | | | 573.5 |
|
Interest income | |
|
| |
|
| |
|
| |
|
| |
|
| | | 0.9 |
|
Interest expense | |
|
| |
|
| |
|
| |
|
| |
|
| | | (5.6 | ) |
Earnings before income taxes | |
|
| |
|
| |
|
| |
|
| |
|
| | | 568.8 |
|
| | | | | | | | | | | | | |
Other Information: | | | | | | | | | | | | | |
Goodwill | | 1,143.3 |
| | 33.8 |
| | 81.3 |
| | 94.2 |
| | 62.1 |
| | | 1,414.7 |
|
Other long-lived assets | | 320.0 |
| | 20.8 |
| | 40.4 |
| | 269.3 |
| | 76.6 |
| | | 727.1 |
|
Total assets | | 2,320.7 |
| | 228.7 |
| | 389.2 |
| | 972.2 |
| | 180.6 |
| | | 4,091.4 |
|
Income tax expense | | 173.2 |
| | 11.6 |
| | 8.8 |
| | 21.0 |
| | — |
| | | 214.6 |
|
Depreciation and amortization | | 115.4 |
| | 4.4 |
| | 10.5 |
| | 35.3 |
| | 0.9 |
| | | 166.5 |
|
Capital expenditures | | 85.7 |
| | 6.9 |
| | 6.7 |
| | 21.4 |
| | 4.9 |
| | | 125.6 |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | United
| | | | | | | | | | | | | | | | |
Fiscal Year Ended January 29, 2011 | | States | | | Canada | | | Australia | | | Europe | | | Other | | | Consolidated | |
|
Sales | | $ | 6,681.2 | | | $ | 502.3 | | | $ | 565.2 | | | $ | 1,725.0 | | | $ | — | | | $ | 9,473.7 | |
Depreciation and amortization | | | 115.6 | | | | 7.4 | | | | 10.9 | | | | 40.8 | | | | — | | | | 174.7 | |
Operating earnings | | | 530.8 | | | | 22.6 | | | | 41.0 | | | | 68.2 | | | | — | | | | 662.6 | |
Interest income | | | (45.7 | ) | | | (0.2 | ) | | | (4.4 | ) | | | (0.7 | ) | | | 49.2 | | | | (1.8 | ) |
Interest expense | | | 35.7 | | | | — | | | | 0.2 | | | | 50.3 | | | | (49.2 | ) | | | 37.0 | |
Earnings before income tax expense | | | 534.9 | | | | 22.8 | | | | 45.1 | | | | 18.6 | | | | — | | | | 621.4 | |
Income tax expense | | | 180.4 | | | | 7.4 | | | | 13.7 | | | | 13.1 | | | | — | | | | 214.6 | |
Goodwill | | | 1,128.6 | | | | 137.4 | | | | 195.9 | | | | 534.4 | | | | — | | | | 1,996.3 | |
Other long-lived assets | | | 421.9 | | | | 27.2 | | | | 50.5 | | | | 413.1 | | | | — | | | | 912.7 | |
Total assets | | | 2,896.7 | | | | 357.6 | | | | 469.4 | | | | 1,340.1 | | | | — | | | | 5,063.8 | |
F-30
GAMESTOP CORP.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
As of and for the Fiscal Year Ended February 2, 2013 | | United States | | Canada | | Australia | | Europe | | Technology Brands | | | Consolidated |
Net sales | | $ | 6,192.4 |
| | $ | 478.4 |
| | $ | 607.3 |
| | $ | 1,608.6 |
| | $ | — |
| | | $ | 8,886.7 |
|
Segment operating earnings (loss) | | 501.9 |
| | (74.4 | ) | | (71.6 | ) | | (397.5 | ) | | — |
| | | (41.6 | ) |
Interest income | |
|
| |
|
| |
|
| |
|
| |
|
| | | 0.9 |
|
Interest expense | |
|
| |
|
| |
|
| |
|
| |
|
| | | (4.2 | ) |
Loss before income taxes | |
|
| |
|
| |
|
| |
|
| |
|
| | | (44.9 | ) |
| | | | | | | | | | | | | |
Other Information: | | | | | | | | | | | | | |
Goodwill | | 1,153.5 |
| | 37.7 |
| | 96.6 |
| | 95.3 |
| | — |
| | | 1,383.1 |
|
Other long-lived assets | | 375.4 |
| | 21.0 |
| | 52.1 |
| | 291.1 |
| | — |
| | | 739.6 |
|
Total assets | | 2,404.0 |
| | 252.2 |
| | 416.6 |
| | 799.4 |
| | — |
| | | 3,872.2 |
|
Income tax expense | | 199.8 |
| | 7.1 |
| | 11.6 |
| | 6.4 |
| | — |
| | | 224.9 |
|
Depreciation and amortization | | 120.7 |
| | 5.1 |
| | 13.8 |
| | 36.9 |
| | — |
| | | 176.5 |
|
Capital expenditures | | 101.8 |
| | 3.6 |
| | 9.2 |
| | 25.0 |
| | — |
| | | 139.6 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
As of and for the Fiscal Year Ended January 28, 2012 | | United States | | Canada | | Australia | | Europe | | Technology Brands | | | Consolidated |
Net sales | | $ | 6,637.0 |
| | $ | 498.4 |
| | $ | 604.7 |
| | $ | 1,810.4 |
| | $ | — |
| | | $ | 9,550.5 |
|
Segment operating earnings | | 501.9 |
| | 12.4 |
| | 35.4 |
| | 20.2 |
| | — |
| | | 569.9 |
|
Interest income | |
|
| |
|
| |
|
| |
|
| |
|
| | | 0.9 |
|
Interest expense | |
|
| |
|
| |
|
| |
|
| |
|
| | | (20.7 | ) |
Debt extinguishment expense | | | | | | | | | | | | | (1.0 | ) |
Earnings before income taxes | |
|
| |
|
| |
|
| |
|
| |
|
| | | 549.1 |
|
| | | | | | | | | | | | | |
Other Information: | | | | | | | | | | | | | |
Goodwill | | 1,152.0 |
| | 137.4 |
| | 210.0 |
| | 519.6 |
| | — |
| | | 2,019.0 |
|
Other long-lived assets | | 404.0 |
| | 23.0 |
| | 58.3 |
| | 345.8 |
| | — |
| | | 831.1 |
|
Total assets | | 2,479.0 |
| | 350.8 |
| | 513.3 |
| | 1,265.1 |
| | — |
| | | 4,608.2 |
|
Income tax expense | | 197.4 |
| | 4.2 |
| | 11.7 |
| | (2.7 | ) | | — |
| | | 210.6 |
|
Depreciation and amortization | | 126.4 |
| | 6.1 |
| | 12.4 |
| | 41.4 |
| | — |
| | | 186.3 |
|
Capital expenditures | | 108.7 |
| | 3.2 |
| | 24.4 |
| | 28.8 |
| | — |
| | | 165.1 |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | United
| | | | | | | | | | | | | | | | |
Fiscal Year Ended January 30, 2010 | | States | | | Canada | | | Australia | | | Europe | | | Other | | | Consolidated | |
|
Sales | | $ | 6,275.0 | | | $ | 491.4 | | | $ | 530.2 | | | $ | 1,781.4 | | | $ | — | | | $ | 9,078.0 | |
Depreciation and amortization | | | 102.1 | | | | 7.4 | | | | 9.4 | | | | 43.7 | | | | — | | | | 162.6 | |
Operating earnings | | | 488.8 | | | | 35.0 | | | | 46.0 | | | | 67.2 | | | | — | | | | 637.0 | |
Interest income | | | (51.5 | ) | | | — | | | | (1.7 | ) | | | (1.4 | ) | | | 52.4 | | | | (2.2 | ) |
Interest expense | | | 44.2 | | | | — | | | | 0.1 | | | | 53.5 | | | | (52.4 | ) | | | 45.4 | |
Earnings before income tax expense | | | 490.8 | | | | 35.0 | | | | 47.5 | | | | 15.2 | | | | — | | | | 588.5 | |
Income tax expense | | | 162.5 | | | | 11.3 | | | | 14.2 | | | | 24.8 | | | | — | | | | 212.8 | |
Goodwill | | | 1,100.2 | | | | 128.6 | | | | 174.1 | | | | 543.6 | | | | — | | | | 1,946.5 | |
Other long-lived assets | | | 384.1 | | | | 29.4 | | | | 33.6 | | | | 434.4 | | | | — | | | | 881.5 | |
Total assets | | | 2,864.9 | | | | 337.8 | | | | 399.9 | | | | 1,352.7 | | | | — | | | | 4,955.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | United
| | | | | | | | | | | | | | | | |
Fiscal Year Ended January 31, 2009 | | States | | | Canada | | | Australia | | | Europe | | | Other | | | Consolidated | |
|
Sales | | $ | 6,466.7 | | | $ | 548.2 | | | $ | 520.0 | | | $ | 1,271.0 | | | $ | — | | | $ | 8,805.9 | |
Depreciation and amortization | | | 103.6 | | | | 8.1 | | | | 9.7 | | | | 23.6 | | | | — | | | | 145.0 | |
Operating earnings | | | 530.1 | | | | 32.6 | | | | 46.8 | | | | 65.6 | | | | — | | | | 675.1 | |
Interest income | | | (30.0 | ) | | | (0.9 | ) | | | (3.1 | ) | | | (20.0 | ) | | | 42.4 | | | | (11.6 | ) |
Interest expense | | | 49.8 | | | | — | | | | 0.2 | | | | 42.8 | | | | (42.4 | ) | | | 50.4 | |
Earnings before income tax expense | | | 534.4 | | | | 22.4 | | | | 39.9 | | | | 37.3 | | | | — | | | | 634.0 | |
Income tax expense | | | 197.1 | | | | 7.5 | | | | 12.3 | | | | 18.8 | | | | — | | | | 235.7 | |
Goodwill | | | 1,096.6 | | | | 112.0 | | | | 125.6 | | | | 498.8 | | | | — | | | | 1,833.0 | |
Other long-lived assets | | | 377.8 | | | | 28.4 | | | | 24.6 | | | | 401.6 | | | | — | | | | 832.4 | |
Total assets | | | 2,592.5 | | | | 288.8 | | | | 290.7 | | | | 1,311.5 | | | | — | | | | 4,483.5 | |
|
| |
18. | Supplemental Cash Flow Information |
| | | | | | | | | | | | |
| | 52 Weeks
| | | 52 Weeks
| | | 52 Weeks
| |
| | Ended
| | | Ended
| | | Ended
| |
| | January 29,
| | | January 30,
| | | January 31,
| |
| | 2011 | | | 2010 | | | 2009 | |
| | (In millions) | |
|
Cash paid during the period for: | | | | | | | | | | | | |
Interest | | $ | 36.9 | | | $ | 44.1 | | | $ | 45.3 | |
| | | | | | | | | | | | |
Income taxes | | | 171.1 | | | | 153.1 | | | | 204.8 | |
| | | | | | | | | | | | |
Subsidiaries acquired: | | | | | | | | | | | | |
Goodwill | | | 28.5 | | | | 4.2 | | | | 459.3 | |
Cash received in acquisition | | | — | | | | — | | | | 45.7 | |
Noncontrolling interests | | | — | | | | 4.7 | | | | — | |
Net assets acquired (or liabilities assumed) | | | 9.6 | | | | (0.5 | ) | | | 171.4 | |
| | | | | | | | | | | | |
Cash paid for subsidiaries | | $ | 38.1 | | | $ | 8.4 | | | $ | 676.4 | |
| | | | | | | | | | | | |
Other non-cash financing activities: | | | | | | | | | | | | |
Treasury stock repurchases settled after the fiscal year ends | | $ | 22.0 | | | $ | 64.6 | | | $ | — | |
| | | | | | | | | | | | |
F-31
GAMESTOP CORP.
|
| | | | | | | | | | | | |
| | 52 Weeks Ended February 1, 2014 | | 53 Weeks Ended February 2, 2013 | | 52 Weeks Ended January 28, 2012 |
| | (In millions) |
Cash paid during the period for: | | | | | | |
Interest | | $ | 2.7 |
| | $ | 2.7 |
| | $ | 24.7 |
|
Income taxes | | 238.0 | | 246.1 | | 210.7 |
Acquisitions: | | | | | | |
Goodwill | | 62.1 |
| | 1.5 |
| | 26.9 |
|
Noncontrolling interests | | — |
| | — |
| | 0.1 |
|
Net assets acquired | | 15.3 |
| | — |
| | 3.1 |
|
Cash paid for acquisitions, net of cash acquired | | $ | 77.4 |
| | $ | 1.5 |
| | $ | 30.1 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) |
| |
19. | Shareholders’Stockholders’ Equity |
The holders of Class A common stockCommon Stock are entitled to one vote per share on all matters to be voted on by stockholders. Holders of Class A common stockCommon Stock will share in any dividend declared by the Board of Directors, subject to any preferential rights of any outstanding preferred stock. In the event of the Company’sour liquidation, dissolution or winding up, all holders of common stock are entitled to share ratably in any assets available for distribution to holders of shares of common stock after payment in full of any amounts required to be paid to holders of preferred stock.
In 2005, the Companywe adopted a rights agreement under which one right (a “Right”) is attached to each outstanding share of the Company’sour common stock. Each Right entitles the holder to purchase from the Companyus one one-thousandthten-thousandth of a share of a series of preferred stock, designated as Series A Junior Participating Preferred Stock (the “Series A Preferred Stock”), at a price of $100.00 per one one-thousandthone thousandth of a share. The Rights will be exercisable only if a person or group acquires 15% or more of the voting power of the Company’sour outstanding common stock or announces a tender offer or exchange offer, the consummation of which would result in such person or group owning 15% or more of the voting power of the Company’sour outstanding common stock.
If a person or group acquires 15% or more of the voting power of the Company’sour outstanding common stock, each Right will entitle a holder (other than such person or any member of such group) to purchase, at the Right’s then current exercise price, a number of shares of common stock having a market value of twice the exercise price of the Right. In addition, if the Company iswe are acquired in a merger or other business combination transaction or 50% or more of itsour consolidated assets or earning power are sold at any time after the Rights have become exercisable, each Right will entitle its holder to purchase, at the Right’s then current exercise price, a number of the acquiring company’s common shares having a market value at that time of twice the exercise price of the Right. Furthermore, at any time after a person or group acquires 15% or more of the voting power of theour outstanding common stock of the Company but prior to the acquisition of 50% of such voting power, the Board of Directors may, at its option, exchange part or all of the Rights (other than Rights held by the acquiring person or group) at an exchange rate of one one-thousandthone thousandth of a share of Series A Preferred Stock or one share of the Company’sour common stock for each Right.
The CompanyWe will be entitled to redeem the Rights at any time prior to the acquisition by a person or group of 15% or more of the voting power of theour outstanding common stock, of the Company, at a price of $.01$0.01 per Right. The Rights will expire on October 28, 2014.
The Company hasWe have 5 million shares of $.001$0.001 par value preferred stock authorized for issuance, of which 500 thousand shares have been designated by the Board of Directors as Series A Preferred Stock and reserved for issuance upon exercise of the Rights. Each such share of Series A Preferred Stock will be nonredeemable and junior to any other series of preferred stock the Companythat we may issue (unless otherwise provided in the terms of such stock) and will be entitled to a preferred dividend equal to the greater of $1.00 or one thousand times any dividend declared on the Company’sour common stock. In the event of liquidation, the holders of Series A Preferred Stock will receive a preferred liquidation payment of $1,000.00$1,000 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon. Each share of Series A Preferred Stock will have ten thousand votes, voting together with the Company’sour common stock. However, in the event that dividends on the Series A Preferred Stock shall be in arrears in an amount equal to six quarterly dividends thereon, holders of the Series A Preferred Stock shall have the right, voting as a class, to elect two of the Company’sour directors. In the event of any merger, consolidation or other transaction in which the Company’sour common stock is exchanged, each share of Series A Preferred Stock will be entitled to receive one thousand times the amount and type of consideration received per share of the Company’sour common stock. At January 29, 2011,February 1, 2014, there were no shares of Series A Preferred Stock outstanding.
Since January 11, 2010, theour Board of Directors of the Company approved a $300 millionhas authorized several share repurchase programprograms authorizing the Companyour management to repurchase itsour common stock. Since the beginning of fiscal 2011, the authorizations have been for $500 million at a time. Our typical practice is to seek Board of Directors’ approval for a new authorization before the existing one is fully used in order to make sure that we are always able to repurchase shares. For fiscal 2009,2011, we repurchased 11.2 million shares at an average price per share of $21.38 for a total of $240.2 million, which excludes approximately $22 million of share repurchases that were executed at the end of fiscal 2010 but for which the settlement and related cash outflow did not occur until the beginning of fiscal 2011. For fiscal 2012, the number of shares repurchased were 6.1was 19.9 million for an average price per share of $20.12. In September 2010, the Board$20.60 for a total of Directors
F-32
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
of the Company approved an additional $300 million share repurchase program authorizing the Company to repurchase its common stock.$409.4 million. For fiscal 2010,2013, the number of shares repurchased were 17.1was 6.3 million for an average price per share of $19.84. Approximately $22.0 million$41.12 for a total of treasury share purchases were not settled at the end of fiscal 2010$258.3 million. Between February 2, 2014 and were reported in accrued liabilities at January 29, 2011. Additionally, approximately $64.6 million of treasury share purchases were not settled at the end of fiscal 2009 and were reported in accrued liabilities at January 30, 2010. On February 4, 2011, the Board of Directors of the Company authorized a $500 million repurchase fund to be used for share repurchases of its common stockand/or to retire the Company’s Senior Notes. This plan replaced the $300 million share repurchase program authorized in September 2010 which had $138.4 million remaining. As of March 24, 2011, the Company has purchased an additional 5.920, 2014, we have repurchased 0.6 million shares forat an average price per share of $19.88.$37.17 for a total of $20.6 million and have $436.5 million remaining under our latest authorization from November 2013.
In February 2012, our Board of Directors approved the initiation of a quarterly cash dividend to our stockholders of Class A Common Stock. We paid a total of $0.80 per share in dividends in fiscal 2012 and a total of $1.10 per share in fiscal 2013. On March 4, 2014, our Board of Directors authorized an increase in our annual cash dividend from $1.10 to $1.32 per share of Class A Common Stock and approved our first quarterly cash dividend to our stockholders for fiscal 2014 of $0.33 per share of Class A Common Stock payable on March 25, 2014 to stockholders of record at the close of business on March 17, 2014. Future dividends will be subject to approval by our Board of Directors.
|
| |
20. | Consolidating Financial Statements |
In order to finance the EB merger, as described in Note 9, on September 28, 2005, the Company, along with GameStop, Inc. as co-issuer, completed the offering of the Notes. The direct and indirect domestic wholly-owned subsidiaries of the Company, excluding GameStop, Inc., as co-issuer, have guaranteed the Senior Notes on a senior unsecured basis with unconditional guarantees.
F-33
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following consolidating financial statements present the financial position as of January 29, 2011 and January 30, 2010 and results of operations and cash flows for the fiscal years ended January 29, 2011, January 30, 2010 and January 31, 2009 of the Company’s guarantor and non-guarantor subsidiaries.
GAMESTOP CORP.
CONSOLIDATING BALANCE SHEET
| | | | | | | | | | | | | | | | |
| | Issuers and
| | | | | | | | | | |
| | Guarantor
| | | Non-Guarantor
| | | | | | | |
| | Subsidiaries
| | | Subsidiaries
| | | | | | Consolidated
| |
| | January 29,
| | | January 29,
| | | | | | January 29,
| |
| | 2011 | | | 2011 | | | Eliminations | | | 2011 | |
| | (Amounts in millions, except per share amounts) | |
|
ASSETS: |
Current assets: | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 378.7 | | | $ | 332.1 | | | $ | — | | | $ | 710.8 | |
Receivables, net | | | 161.3 | | | | 629.8 | | | | (725.6 | ) | | | 65.5 | |
Merchandise inventories, net | | | 783.4 | | | | 474.1 | | | | — | | | | 1,257.5 | |
Deferred income taxes — current | | | 24.4 | | | | 4.4 | | | | — | | | | 28.8 | |
Prepaid expenses | | | 40.5 | | | | 35.2 | | | | — | | | | 75.7 | |
Other current assets | | | 10.1 | | | | 6.4 | | | | — | | | | 16.5 | |
| | | | | | | | | | | | | | | | |
Total current assets | | | 1,398.4 | | | | 1,482.0 | | | | (725.6 | ) | | | 2,154.8 | |
| | | | | | | | | | | | | | | | |
Property and equipment: | | | | | | | | | | | | | | | | |
Land | | | 4.7 | | | | 19.3 | | | | — | | | | 24.0 | |
Buildings and leasehold improvements | | | 323.3 | | | | 253.9 | | | | — | | | | 577.2 | |
Fixtures and equipment | | | 663.9 | | | | 153.9 | | | | — | | | | 817.8 | |
| | | | | | | | | | | | | | | | |
Total property and equipment | | | 991.9 | | | | 427.1 | | | | — | | | | 1,419.0 | |
Less accumulated depreciation and amortization | | | 595.2 | | | | 210.0 | | | | — | | | | 805.2 | |
| | | | | | | | | | | | | | | | |
Net property and equipment | | | 396.7 | | | | 217.1 | | | | — | | | | 613.8 | |
Investment | | | 2,161.4 | | | | 595.1 | | | | (2,756.5 | ) | | | — | |
Goodwill, net | | | 1,125.1 | | | | 871.2 | | | | — | | | | 1,996.3 | |
Other intangible assets | | | 11.4 | | | | 243.2 | | | | — | | | | 254.6 | |
Other noncurrent assets | | | 10.8 | | | | 33.5 | | | | — | | | | 44.3 | |
| | | | | | | | | | | | | | | | |
Total noncurrent assets | | | 3,705.4 | | | | 1,960.1 | | | | (2,756.5 | ) | | | 2,909.0 | |
| | | | | | | | | | | | | | | | |
Total assets | | $ | 5,103.8 | | | $ | 3,442.1 | | | $ | (3,482.1 | ) | | $ | 5,063.8 | |
| | | | | | | | | | | | | | | | |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY: |
Current liabilities: | | | | | | | | | | | | | | | | |
Accounts payable | | $ | 725.7 | | | $ | 302.4 | | | $ | — | | | $ | 1,028.1 | |
Accrued liabilities | | | 1,047.7 | | | | 334.9 | | | | (725.6 | ) | | | 657.0 | |
Taxes payable | | | 63.3 | | | | (0.6 | ) | | | — | | | | 62.7 | |
| | | | | | | | | | | | | | | | |
Total current liabilities | | | 1,836.7 | | | | 636.7 | | | | (725.6 | ) | | | 1,747.8 | |
| | | | | | | | | | | | | | | | |
Senior notes payable, long-term portion, net | | | 249.0 | | | | — | | | | — | | | | 249.0 | |
Deferred taxes | | | 40.5 | | | | 34.4 | | | | — | | | | 74.9 | |
Other long-term liabilities | | | 80.3 | | | | 15.9 | | | | — | | | | 96.2 | |
| | | | | | | | | | | | | | | | |
Total long-term liabilities | | | 369.8 | | | | 50.3 | | | | — | | | | 420.1 | |
| | | | | | | | | | | | | | | | |
Total liabilities | | | 2,206.5 | | | | 687.0 | | | | (725.6 | ) | | | 2,167.9 | |
| | | | | | | | | | | | | | | | |
Stockholders’ equity: | | | | | | | | | | | | | | | | |
Preferred stock — authorized 5.0 shares; no shares issued or outstanding | | | — | | | | — | | | | — | | | | — | |
Class A common stock — $.001 par value; authorized 300.0 shares; 146.0 shares outstanding | | | 0.1 | | | | — | | | | — | | | | 0.1 | |
Additionalpaid-in-capital | | | 928.9 | | | | 2,430.7 | | | | (2,430.7 | ) | | | 928.9 | |
Accumulated other comprehensive income (loss) | | | 162.5 | | | | 34.4 | | | | (34.4 | ) | | | 162.5 | |
Retained earnings | | | 1,805.8 | | | | 291.4 | | | | (291.4 | ) | | | 1,805.8 | |
| | | | | | | | | | | | | | | | |
Equity attributable to GameStop Corp. stockholders | | | 2,897.3 | | | | 2,756.5 | | | | (2,756.5 | ) | | | 2,897.3 | |
Equity (deficit) attributable to noncontrolling interest | | | — | | | | (1.4 | ) | | | — | | | | (1.4 | ) |
| | | | | | | | | | | | | | | | |
Total equity | | | 2,897.3 | | | | 2,755.1 | | | | (2,756.5 | ) | | | 2,895.9 | |
| | | | | | | | | | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 5,103.8 | | | $ | 3,442.1 | | | $ | (3,482.1 | ) | | $ | 5,063.8 | |
| | | | | | | | | | | | | | | | |
F-34
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
GAMESTOP CORP.
CONSOLIDATING BALANCE SHEET
| | | | | | | | | | | | | | | | |
| | Issuers and
| | | | | | | | | | |
| | Guarantor
| | | Non-Guarantor
| | | | | | | |
| | Subsidiaries
| | | Subsidiaries
| | | | | | Consolidated
| |
| | January 30,
| | | January 30,
| | | | | | January 30,
| |
| | 2010 | | | 2010 | | | Eliminations | | | 2010 | |
| | (Amounts in millions, except per share amounts) | |
|
ASSETS: |
Current assets: | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 653.0 | | | $ | 252.4 | | | $ | — | | | $ | 905.4 | |
Receivables, net | | | 203.1 | | | | 627.9 | | | | (767.0 | ) | | | 64.0 | |
Merchandise inventories, net | | | 570.3 | | | | 483.3 | | | | — | | | | 1,053.6 | |
Deferred income taxes — current | | | 18.0 | | | | 3.2 | | | | — | | | | 21.2 | |
Prepaid expenses | | | 37.8 | | | | 21.6 | | | | — | | | | 59.4 | |
Other current assets | | | 6.0 | | | | 17.7 | | | | — | | | | 23.7 | |
| | | | | | | | | | | | | | | | |
Total current assets | | | 1,488.2 | | | | 1,406.1 | | | | (767.0 | ) | | | 2,127.3 | |
| | | | | | | | | | | | | | | | |
Property and equipment: | | | | | | | | | | | | | | | | |
Land | | | 2.7 | | | | 8.8 | | | | — | | | | 11.5 | |
Buildings and leasehold improvements | | | 296.3 | | | | 226.7 | | | | — | | | | 523.0 | |
Fixtures and equipment | | | 569.9 | | | | 141.6 | | | | — | | | | 711.5 | |
| | | | | | | | | | | | | | | | |
Total property and equipment | | | 868.9 | | | | 377.1 | | | | — | | | | 1,246.0 | |
Less accumulated depreciation and amortization | | | 498.5 | | | | 163.3 | | | | — | | | | 661.8 | |
| | | | | | | | | | | | | | | | |
Net property and equipment | | | 370.4 | | | | 213.8 | | | | — | | | | 584.2 | |
Investment | | | 2,062.7 | | | | 596.4 | | | | (2,659.1 | ) | | | — | |
Goodwill, net | | | 1,096.6 | | | | 849.9 | | | | — | | | | 1,946.5 | |
Other intangible assets | | | 3.4 | | | | 256.5 | | | | — | | | | 259.9 | |
Other noncurrent assets | | | 9.4 | | | | 28.0 | | | | — | | | | 37.4 | |
| | | | | | | | | | | | | | | | |
Total noncurrent assets | | | 3,542.5 | | | | 1,944.6 | | | | (2,659.1 | ) | | | 2,828.0 | |
| | | | | | | | | | | | | | | | |
Total assets | | $ | 5,030.7 | | | $ | 3,350.7 | | | $ | (3,426.1 | ) | | $ | 4,955.3 | |
| | | | | | | | | | | | | | | | |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY: |
Current liabilities: | | | | | | | | | | | | | | | | |
Accounts payable | | $ | 684.3 | | | $ | 277.4 | | | $ | — | | | $ | 961.7 | |
Accrued liabilities | | | 1,039.8 | | | | 359.3 | | | | (767.0 | ) | | | 632.1 | |
Taxes payable | | | 64.0 | | | | (2.1 | ) | | | — | | | | 61.9 | |
| | | | | | | | | | | | | | | | |
Total current liabilities | | | 1,788.1 | | | | 634.6 | | | | (767.0 | ) | | | 1,655.7 | |
| | | | | | | | | | | | | | | | |
Senior notes payable, long-term portion, net | | | 447.3 | | | | — | | | | — | | | | 447.3 | |
Deferred taxes | | | (15.4 | ) | | | 40.9 | | | | — | | | | 25.5 | |
Other long-term liabilities | | | 87.7 | | | | 16.1 | | | | — | | | | 103.8 | |
| | | | | | | | | | | | | | | | |
Total long-term liabilities | | | 519.6 | | | | 57.0 | | | | — | | | | 576.6 | |
| | | | | | | | | | | | | | | | |
Total liabilities | | | 2,307.7 | | | | 691.6 | | | | (767.0 | ) | | | 2,232.3 | |
| | | | | | | | | | | | | | | | |
Stockholders’ equity: | | | | | | | | | | | | | | | | |
Preferred stock — authorized 5.0 shares; no shares issued or outstanding | | | — | | | | — | | | | — | | | | — | |
Class A common stock — $.001 par value; authorized 300.0 shares; 158.7 shares outstanding | | | 0.2 | | | | — | | | | — | | | | 0.2 | |
Additionalpaid-in-capital | | | 1,210.5 | | | | 2,391.8 | | | | (2,391.8 | ) | | | 1,210.5 | |
Accumulated other comprehensive income (loss) | | | 114.7 | | | | 17.7 | | | | (17.7 | ) | | | 114.7 | |
Retained earnings | | | 1,397.8 | | | | 249.6 | | | | (249.6 | ) | | | 1,397.8 | |
| | | | | | | | | | | | | | | | |
Equity attributable to GameStop Corp. stockholders | | | 2,723.2 | | | | 2,659.1 | | | | (2,659.1 | ) | | | 2,723.2 | |
Equity (deficit) attributable to noncontrolling interest | | | (0.2 | ) | | | — | | | | — | | | | (0.2 | ) |
| | | | | | | | | | | | | | | | |
Total equity | | | 2,723.0 | | | | 2,659.1 | | | | (2,659.1 | ) | | | 2,723.0 | |
| | | | | | | | | | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 5,030.7 | | | $ | 3,350.7 | | | $ | (3,426.1 | ) | | $ | 4,955.3 | |
| | | | | | | | | | | | | | | | |
F-35
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
GAMESTOP CORP.
CONSOLIDATING STATEMENT OF OPERATIONS
| | | | | | | | | | | | | | | | |
| | Issuers and
| | | | | | | | | | |
| | Guarantor
| | | Non-Guarantor
| | | | | | | |
| | Subsidiaries
| | | Subsidiaries
| | | | | | Consolidated
| |
| | January 29,
| | | January 29,
| | | | | | January 29,
| |
For the 52 Weeks Ended January 29, 2011 | | 2011 | | | 2011 | | | Eliminations | | | 2011 | |
| | | | | (Amounts in millions) | | | | |
|
Sales | | $ | 6,680.8 | | | $ | 2,792.9 | | | $ | — | | | $ | 9,473.7 | |
Cost of sales | | | 4,876.1 | | | | 2,060.0 | | | | — | | | | 6,936.1 | |
| | | | | | | | | | | | | | | | |
Gross profit | | | 1,804.7 | | | | 732.9 | | | | — | | | | 2,537.6 | |
Selling, general and administrative expenses | | | 1,129.3 | | | | 571.0 | | | | — | | | | 1,700.3 | |
Depreciation and amortization | | | 115.0 | | | | 59.7 | | | | — | | | | 174.7 | |
| | | | | | | | | | | | | | | | |
Operating earnings | | | 560.4 | | | | 102.2 | | | | — | | | | 662.6 | |
Interest income | | | (45.7 | ) | | | (5.4 | ) | | | 49.3 | | | | (1.8 | ) |
Interest expense | | | 46.3 | | | | 40.0 | | | | (49.3 | ) | | | 37.0 | |
Debt extinguishment expense | | | 6.0 | | | | — | | | | — | | | | 6.0 | |
| | | | | | | | | | | | | | | | |
Earnings before income tax expense | | | 553.8 | | | | 67.6 | | | | — | | | | 621.4 | |
Income tax expense | | | 188.4 | | | | 26.2 | | | | — | | | | 214.6 | |
| | | | | | | | | | | | | | | | |
Consolidated net income | | | 365.4 | | | | 41.4 | | | | — | | | | 406.8 | |
Net loss attributable to noncontrolling interests | | | — | | | | 1.2 | | | | — | | | | 1.2 | |
| | | | | | | | | | | | | | | | |
Consolidated net income attributable to GameStop | | $ | 365.4 | | | $ | 42.6 | | | $ | — | | | $ | 408.0 | |
| | | | | | | | | | | | | | | | |
GAMESTOP CORP.
CONSOLIDATING STATEMENT OF OPERATIONS
| | | | | | | | | | | | | | | | |
| | Issuers and
| | | | | | | | | | |
| | Guarantor
| | | Non-Guarantor
| | | | | | | |
| | Subsidiaries
| | | Subsidiaries
| | | | | | Consolidated
| |
| | January 30,
| | | January 30,
| | | | | | January 30,
| |
For the 52 Weeks Ended January 30, 2010 | | 2010 | | | 2010 | | | Eliminations | | | 2010 | |
| | | | | (Amounts in millions) | | | | |
|
Sales | | $ | 6,274.9 | | | $ | 2,803.1 | | | $ | — | | | $ | 9,078.0 | |
Cost of sales | | | 4,554.3 | | | | 2,089.0 | | | | — | | | | 6,643.3 | |
| | | | | | | | | | | | | | | | |
Gross profit | | | 1,720.6 | | | | 714.1 | | | | — | | | | 2,434.7 | |
Selling, general and administrative expenses | | | 1,103.9 | | | | 531.2 | | | | — | | | | 1,635.1 | |
Depreciation and amortization | | | 101.9 | | | | 60.7 | | | | — | | | | 162.6 | |
| | | | | | | | | | | | | | | | |
Operating earnings | | | 514.8 | | | | 122.2 | | | | — | | | | 637.0 | |
Interest income | | | (43.8 | ) | | | (10.9 | ) | | | 52.5 | | | | (2.2 | ) |
Interest expense | | | 44.3 | | | | 53.6 | | | | (52.5 | ) | | | 45.4 | |
Debt extinguishment expense | | | 5.3 | | | | — | | | | — | | | | 5.3 | |
| | | | | | | | | | | | | | | | |
Earnings before income tax expense | | | 509.0 | | | | 79.5 | | | | — | | | | 588.5 | |
Income tax expense | | | 170.3 | | | | 42.5 | | | | — | | | | 212.8 | |
| | | | | | | | | | | | | | | | |
Consolidated net income | | | 338.7 | | | | 37.0 | | | | — | | | | 375.7 | |
Net loss attributable to noncontrolling interests | | | — | | | | 1.6 | | | | — | | | | 1.6 | |
| | | | | | | | | | | | | | | | |
Consolidated net income attributable to GameStop | | $ | 338.7 | | | $ | 38.6 | | | $ | — | | | $ | 377.3 | |
| | | | | | | | | | | | | | | | |
F-36
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
GAMESTOP CORP.
CONSOLIDATING STATEMENT OF OPERATIONS
| | | | | | | | | | | | | | | | |
| | Issuers and
| | | | | | | | | | |
| | Guarantor
| | | Non-Guarantor
| | | | | | | |
| | Subsidiaries
| | | Subsidiaries
| | | | | | Consolidated
| |
| | January 31,
| | | January 31,
| | | | | | January 31,
| |
For the 52 Weeks Ended January 31, 2009 | | 2009 | | | 2009 | | | Eliminations | | | 2009 | |
| | | | | (Amounts in millions) | | | | |
|
Sales | | $ | 6,466.7 | | | $ | 2,339.2 | | | $ | — | | | $ | 8,805.9 | |
Cost of sales | | | 4,767.3 | | | | 1,768.5 | | | | — | | | | 6,535.8 | |
| | | | | | | | | | | | | | | | |
Gross profit | | | 1,699.4 | | | | 570.7 | | | | — | | | | 2,270.1 | |
Selling, general and administrative expenses | | | 1,034.7 | | | | 410.7 | | | | — | | | | 1,445.4 | |
Depreciation and amortization | | | 103.6 | | | | 41.4 | | | | — | | | | 145.0 | |
Merger-related expenses | | | 4.6 | | | | — | | | | — | | | | 4.6 | |
| | | | | | | | | | | | | | | | |
Operating earnings | | | 556.5 | | | | 118.6 | | | | — | | | | 675.1 | |
Interest income | | | (17.4 | ) | | | (37.0 | ) | | | 42.8 | | | | (11.6 | ) |
Interest expense | | | 38.8 | | | | 54.4 | | | | (42.8 | ) | | | 50.4 | |
Debt extinguishment expense | | | 2.3 | | | | — | | | | — | | | | 2.3 | |
| | | | | | | | | | | | | | | | |
Earnings before income tax expense | | | 532.8 | | | | 101.2 | | | | — | | | | 634.0 | |
Income tax expense | | | 197.1 | | | | 38.6 | | | | — | | | | 235.7 | |
| | | | | | | | | | | | | | | | |
Consolidated net income | | | 335.7 | | | | 62.6 | | | | — | | | | 398.3 | |
Net loss attributable to noncontrolling interests | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Consolidated net income attributable to GameStop | | $ | 335.7 | | | $ | 62.6 | | | $ | — | | | $ | 398.3 | |
| | | | | | | | | | | | | | | | |
F-37
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
GAMESTOP CORP.
CONSOLIDATING STATEMENT OF CASH FLOWS
| | | | | | | | | | | | | | | | |
| | Issuers and
| | | | | | | | | | |
| | Guarantor
| | | Non-Guarantor
| | | | | | | |
| | Subsidiaries
| | | Subsidiaries
| | | | | | Consolidated
| |
| | January 29,
| | | January 29,
| | | | | | January 29,
| |
For the 52 Weeks Ended January 29, 2011 | | 2011 | | | 2011 | | | Eliminations | | | 2011 | |
| | | | | (Amounts in millions) | | | | |
|
Cash flows from operating activities: | | | | | | | | | | | | | | | | |
Consolidated net income | | $ | 365.4 | | | $ | 41.4 | | | $ | — | | | $ | 406.8 | |
Adjustments to reconcile net earnings to net cash flows provided by operating activities: | | | | | | | | | | | | | | | | |
Depreciation and amortization (including amounts in cost of sales) | | | 116.8 | | | | 60.0 | | | | — | | | | 176.8 | |
Provision for inventory reserves | | | 18.8 | | | | 8.7 | | | | — | | | | 27.5 | |
Amortization and retirement of deferred financing fees and issue discounts | | | 5.0 | | | | — | | | | — | | | | 5.0 | |
Stock-based compensation expense | | | 29.6 | | | | — | | | | — | | | | 29.6 | |
Deferred income taxes | | | 41.8 | | | | (3.6 | ) | | | — | | | | 38.2 | |
Excess tax (benefits) expense realized from exercise of stock-based awards | | | (18.6 | ) | | | — | | | | — | | | | (18.6 | ) |
Loss on disposal of property and equipment | | | 3.3 | | | | 4.3 | | | | — | | | | 7.6 | |
Changes in other long-term liabilities | | | (6.4 | ) | | | (0.8 | ) | | | — | | | | (7.2 | ) |
Changes in operating assets and liabilities, net | | | | | | | | | | | | | | | | |
Receivables, net | | | (4.6 | ) | | | 4.8 | | | | — | | | | 0.2 | |
Merchandise inventories | | | (231.9 | ) | | | 4.7 | | | | — | | | | (227.2 | ) |
Prepaid expenses and other current assets | | | (7.0 | ) | | | (3.5 | ) | | | — | | | | (10.5 | ) |
Prepaid income taxes and accrued income taxes payable | | | 13.9 | | | | 8.4 | | | | — | | | | 22.3 | |
Accounts payable and accrued liabilities | | | 138.7 | | | | 2.0 | | | | — | | | | 140.7 | |
| | | | | | | | | | | | | | | | |
Net cash flows provided by operating activities | | | 464.8 | | | | 126.4 | | | | — | | | | 591.2 | |
| | | | | | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | | | | | | |
Purchase of property and equipment | | | (144.7 | ) | | | (52.9 | ) | | | — | | | | (197.6 | ) |
Acquisitions, net of cash acquired | | | (38.1 | ) | | | — | | | | — | | | | (38.1 | ) |
Other | | | (0.7 | ) | | | (3.7 | ) | | | — | | | | (4.4 | ) |
| | | | | | | | | | | | | | | | |
Net cash flows used in investing activities | | | (183.5 | ) | | | (56.6 | ) | | | — | | | | (240.1 | ) |
| | | | | | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | | | | | | |
Repurchase of notes payable | | | (200.0 | ) | | | — | | | | — | | | | (200.0 | ) |
Purchase of treasury shares | | | (381.2 | ) | | | — | | | | — | | | | (381.2 | ) |
Borrowings from the revolver | | | 120.0 | | | | — | | | | — | | | | 120.0 | |
Repayment of revolver borrowings | | | (120.0 | ) | | | — | | | | — | | | | (120.0 | ) |
Issuance of shares relating to stock options | | | 10.8 | | | | — | | | | — | | | | 10.8 | |
Excess tax benefits (expense) realized from exercise of stock-based awards | | | 18.6 | | | | — | | | | — | | | | 18.6 | |
Other | | | (3.8 | ) | | | — | | | | — | | | | (3.8 | ) |
| | | | | | | | | | | | | | | | |
Net cash flows used in financing activities | | | (555.6 | ) | | | — | | | | — | | | | (555.6 | ) |
| | | | | | | | | | | | | | | | |
Exchange rate effect on cash and cash equivalents | | | — | | | | 9.9 | | | | — | | | | 9.9 | |
| | | | | | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | (274.3 | ) | | | 79.7 | | | | — | | | | (194.6 | ) |
Cash and cash equivalents at beginning of period | | | 653.0 | | | | 252.4 | | | | — | | | | 905.4 | |
| | | | | | | | | | | | | | | | |
Cash and cash equivalents at end of period | | $ | 378.7 | | | $ | 332.1 | | | $ | — | | | $ | 710.8 | |
| | | | | | | | | | | | | | | | |
F-38
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
GAMESTOP CORP.
CONSOLIDATING STATEMENT OF CASH FLOWS
| | | | | | | | | | | | | | | | |
| | Issuers and
| | | | | | | | | | |
| | Guarantor
| | | Non-Guarantor
| | | | | | | |
| | Subsidiaries
| | | Subsidiaries
| | | | | | Consolidated
| |
| | January 30,
| | | January 30,
| | | | | | January 30,
| |
For the 52 Weeks Ended January 30, 2010 | | 2010 | | | 2010 | | | Eliminations | | | 2010 | |
| | | | | (Amounts in millions) | | | | |
|
Cash flows from operating activities: | | | | | | | | | | | | | | | | |
Consolidated net income | | $ | 338.7 | | | $ | 37.0 | | | $ | — | | | $ | 375.7 | |
Adjustments to reconcile net earnings to net cash flows provided by operating activities: | | | | | | | | | | | | | | | | |
Depreciation and amortization (including amounts in cost of sales) | | | 103.5 | | | | 60.6 | | | | — | | | | 164.1 | |
Provision for inventory reserves | | | 35.4 | | | | 13.5 | | | | — | | | | 48.9 | |
Amortization and retirement of deferred financing fees and issue discounts | | | 5.0 | | | | — | | | | — | | | | 5.0 | |
Stock-based compensation expense | | | 37.8 | | | | — | | | | — | | | | 37.8 | |
Deferred income taxes | | | 1.7 | | | | (2.9 | ) | | | — | | | | (1.2 | ) |
Excess tax (benefits) expense realized from exercise of stock-based awards | | | 0.4 | | | | — | | | | — | | | | 0.4 | |
Loss on disposal of property and equipment | | | 2.1 | | | | 2.3 | | | | — | | | | 4.4 | |
Changes in other long-term liabilities | | | 8.6 | | | | (1.0 | ) | | | — | | | | 7.6 | |
Changes in operating assets and liabilities, net | | | | | | | | | | | | | | | | |
Receivables, net | | | 1.4 | | | | 2.8 | | | | — | | | | 4.2 | |
Merchandise inventories | | | 31.6 | | | | (2.0 | ) | | | — | | | | 29.6 | |
Prepaid expenses and other current assets | | | 3.4 | | | | (1.1 | ) | | | — | | | | 2.3 | |
Prepaid income taxes and accrued income taxes payable | | | 68.9 | | | | (14.3 | ) | | | — | | | | 54.6 | |
Accounts payable and accrued liabilities | | | (87.0 | ) | | | (2.2 | ) | | | — | | | | (89.2 | ) |
| | | | | | | | | | | | | | | | |
Net cash flows provided by operating activities | | | 551.5 | | | | 92.7 | | | | — | | | | 644.2 | |
| | | | | | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | | | | | | |
Purchase of property and equipment | | | (116.1 | ) | | | (47.7 | ) | | | — | | | | (163.8 | ) |
Acquisitions, net of cash acquired | | | — | | | | (8.4 | ) | | | — | | | | (8.4 | ) |
Other | | | (1.2 | ) | | | (13.8 | ) | | | — | | | | (15.0 | ) |
| | | | | | | | | | | | | | | | |
Net cash flows used in investing activities | | | (117.3 | ) | | | (69.9 | ) | | | — | | | | (187.2 | ) |
| | | | | | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | | | | | | |
Repurchase of notes payable | | | (100.0 | ) | | | — | | | | — | | | | (100.0 | ) |
Purchase of treasury shares | | | (58.4 | ) | | | — | | | | — | | | | (58.4 | ) |
Borrowings from the revolver | | | 115.0 | | | | — | | | | — | | | | 115.0 | |
Repayment of revolver borrowings | | | (115.0 | ) | | | — | | | | — | | | | (115.0 | ) |
Issuance of shares relating to stock options | | | 4.5 | | | | — | | | | — | | | | 4.5 | |
Excess tax benefits (expense) realized from exercise of stock-based awards | | | (0.4 | ) | | | — | | | | — | | | | (0.4 | ) |
Other | | | (0.1 | ) | | | — | | | | — | | | | (0.1 | ) |
| | | | | | | | | | | | | | | | |
Net cash flows used in financing activities | | | (154.4 | ) | | | — | | | | — | | | | (154.4 | ) |
| | | | | | | | | | | | | | | | |
Exchange rate effect on cash and cash equivalents | | | — | | | | 24.7 | | | | — | | | | 24.7 | |
| | | | | | | | | | | | | | | | |
Net increase in cash and cash equivalents | | | 279.8 | | | | 47.5 | | | | — | | | | 327.3 | |
Cash and cash equivalents at beginning of period | | | 373.2 | | | | 204.9 | | | | — | | | | 578.1 | |
| | | | | | | | | | | | | | | | |
Cash and cash equivalents at end of period | | $ | 653.0 | | | $ | 252.4 | | | $ | — | | | $ | 905.4 | |
| | | | | | | | | | | | | | | | |
F-39
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
GAMESTOP CORP.
CONSOLIDATING STATEMENT OF CASH FLOWS
| | | | | | | | | | | | | | | | |
| | Issuers and
| | | | | | | | | | |
| | Guarantor
| | | Non-Guarantor
| | | | | | | |
| | Subsidiaries
| | | Subsidiaries
| | | | | | Consolidated
| |
| | January 31,
| | | January 31,
| | | | | | January 31,
| |
For the 52 Weeks Ended January 31, 2009 | | 2009 | | | 2009 | | | Eliminations | | | 2009 | |
| | | | | (Amounts in millions) | | | | |
|
Cash flows from operating activities: | | | | | | | | | | | | | | | | |
Consolidated net income | | $ | 335.7 | | | $ | 62.6 | | | $ | — | | | $ | 398.3 | |
Adjustments to reconcile net earnings to net cash flows provided by (used in) operating activities: | | | | | | | | | | | | | | | | |
Depreciation and amortization (including amounts in cost of sales) | | | 104.9 | | | | 41.5 | | | | — | | | | 146.4 | |
Provision for inventory reserves | | | 34.9 | | | | 8.1 | | | | — | | | | 43.0 | |
Amortization and retirement of deferred financing fees and issue discounts | | | 3.7 | | | | — | | | | — | | | | 3.7 | |
Stock-based compensation expense | | | 35.4 | | | | — | | | | — | | | | 35.4 | |
Deferred income taxes | | | (23.3 | ) | | | (1.4 | ) | | | — | | | | (24.7 | ) |
Excess tax benefits realized from exercise of stock-based awards | | | (34.2 | ) | | | — | | | | — | | | | (34.2 | ) |
Loss on disposal of property and equipment | | | 3.0 | | | | 2.2 | | | | — | | | | 5.2 | |
Changes in other long-term liabilities | | | 1.1 | | | | 6.3 | | | | — | | | | 7.4 | |
Changes in operating assets and liabilities, net | | | | | | | | | | | | | | | | |
Receivables, net | | | 3.2 | | | | (648.5 | ) | | | 642.4 | | | | (2.9 | ) |
Merchandise inventories | | | (170.3 | ) | | | (39.2 | ) | | | — | | | | (209.5 | ) |
Prepaid expenses and other current assets | | | (10.1 | ) | | | (6.3 | ) | | | — | | | | (16.4 | ) |
Prepaid income taxes and accrued income taxes payable | | | 47.8 | | | | (3.9 | ) | | | — | | | | 43.9 | |
Accounts payable and accrued liabilities | | | 768.1 | | | | 27.9 | | | | (642.4 | ) | | | 153.6 | |
| | | | | | | | | | | | | | | | |
Net cash flows provided by (used in) operating activities | | | 1,099.9 | | | | (550.7 | ) | | | — | | | | 549.2 | |
| | | | | | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | | | | | | |
Purchase of property and equipment | | | (117.5 | ) | | | (65.7 | ) | | | — | | | | (183.2 | ) |
Acquisitions, net of cash acquired | | | — | | | | (630.7 | ) | | | — | | | | (630.7 | ) |
Other | | | (1,310.2 | ) | | | 1,303.2 | | | | — | | | | (7.0 | ) |
| | | | | | | | | | | | | | | | |
Net cash flows provided by (used in) investing activities | | | (1,427.7 | ) | | | 606.8 | | | | — | | | | (820.9 | ) |
| | | | | | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | | | | | | |
Repurchase of notes payable | | | (30.0 | ) | | | — | | | | — | | | | (30.0 | ) |
Borrowings for acquisition | | | 425.0 | | | | — | | | | — | | | | 425.0 | |
Repayments of acquisition borrowings | | | (425.0 | ) | | | — | | | | — | | | | (425.0 | ) |
Issuance of shares relating to stock options | | | 28.9 | | | | — | | | | — | | | | 28.9 | |
Excess tax benefits realized from exercise of stock-based awards | | | 34.2 | | | | — | | | | — | | | | 34.2 | |
Other | | | (3.5 | ) | | | — | | | | — | | | | (3.5 | ) |
| | | | | | | | | | | | | | | | |
Net cash flows provided by financing activities | | | 29.6 | | | | — | | | | — | | | | 29.6 | |
| | | | | | | | | | | | | | | | |
Exchange rate effect on cash and cash equivalents | | | — | | | | (37.2 | ) | | | — | | | | (37.2 | ) |
| | | | | | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | (298.2 | ) | | | 18.9 | | | | — | | | | (279.3 | ) |
Cash and cash equivalents at beginning of period | | | 671.4 | | | | 186.0 | | | | — | | | | 857.4 | |
| | | | | | | | | | | | | | | | |
Cash and cash equivalents at end of period | | $ | 373.2 | | | $ | 204.9 | | | $ | — | | | $ | 578.1 | |
| | | | | | | | | | | | | | | | |
F-40
GAMESTOP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
21. | Unaudited Quarterly Financial Information |
The following table sets forth certain unaudited quarterly consolidated statement of operations information for the fiscal years ended January 29, 2011February 1, 2014 and January 30, 2010.February 2, 2013. The unaudited quarterly information includes all normal recurring adjustments that our management considers necessary for a fair presentation of the information shown.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended January 29, 2011 | | Fiscal Year Ended January 30, 2010 |
| | 1st
| | 2nd
| | 3rd
| | 4th
| | 1st
| | 2nd
| | 3rd
| | 4th
|
| | Quarter | | Quarter | | Quarter(1) | | Quarter | | Quarter(2) | | Quarter | | Quarter(3) | | Quarter |
| | | | | | (Amounts in millions, except per share amounts) | | | | |
|
Sales | | $ | 2,082.7 | | | $ | 1,799.1 | | | $ | 1,899.2 | | | $ | 3,692.8 | | | $ | 1,980.8 | | | $ | 1,738.5 | | | $ | 1,834.7 | | | $ | 3,524.0 | |
Gross profit | | | 570.8 | | | | 516.8 | | | | 546.3 | | | | 903.7 | | | | 542.1 | | | | 495.4 | | | | 523.1 | | | | 874.0 | |
Operating earnings | | | 124.4 | | | | 69.6 | | | | 92.8 | | | | 375.7 | | | | 128.5 | | | | 71.0 | | | | 90.3 | | | | 347.4 | |
Consolidated net income attributable to GameStop | | | 75.2 | | | | 40.3 | | | | 54.7 | | | | 237.8 | | | | 70.4 | | | | 38.7 | | | | 52.2 | | | | 215.9 | |
Basic net income per common share | | | 0.49 | | | | 0.27 | | | | 0.36 | | | | 1.58 | | | | 0.43 | | | | 0.23 | | | | 0.32 | | | | 1.31 | |
Diluted net income per common share | | | 0.48 | | | | 0.26 | | | | 0.36 | | | | 1.56 | | | | 0.42 | | | | 0.23 | | | | 0.31 | | | | 1.29 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended February 1, 2014 | | Fiscal Year Ended February 2, 2013 |
| | 1st Quarter | | 2nd Quarter | | 3rd Quarter | | 4th Quarter (2) | | 1st Quarter | | 2nd Quarter | | 3rd Quarter(1) | | 4th Quarter |
| | (Amounts in millions, except per share amounts) |
Net sales | | $ | 1,865.3 |
| | $ | 1,383.7 |
| | $ | 2,106.7 |
| | $ | 3,683.8 |
| | $ | 2,002.2 |
| | $ | 1,550.2 |
| | $ | 1,772.8 |
| | $ | 3,561.5 |
|
Gross profit | | 578.3 |
| | 481.3 |
| | 598.3 |
| | 1,003.2 |
| | 599.9 |
| | 519.3 |
| | 557.4 |
| | 974.9 |
|
Operating earnings (loss) | | 87.2 |
| | 18.8 |
| | 109.1 |
| | 358.4 |
| | 115.0 |
| | 34.5 |
| | (603.5 | ) | | 412.3 |
|
Net income (loss) attributable to GameStop Corp. | | 54.6 |
| | 10.5 |
| | 68.6 |
| | 220.5 |
| | 72.5 |
| | 21.0 |
| | (624.3 | ) | | 261.1 |
|
Basic net income (loss) per common share (3) | | 0.46 |
| | 0.09 |
| | 0.59 |
| | 1.91 |
| | 0.54 |
| | 0.16 |
| | (5.08 | ) | | 2.17 |
|
Diluted net income (loss) per common share (3) | | 0.46 |
| | 0.09 |
| | 0.58 |
| | 1.89 |
| | 0.54 |
| | 0.16 |
| | (5.08 | ) | | 2.15 |
|
Dividend declared per common share | | 0.275 |
| | 0.275 |
| | 0.275 |
| | 0.275 |
| | 0.15 |
| | 0.15 |
| | 0.25 |
| | 0.25 |
|
The following footnotes are discussed as pretax expenses.
| | |
| | The following footnotes are discussed as pretax expenses. |
|
(1) | | The results of operations for the third quarter of the fiscal year ended January 29, 2011February 2, 2013 include debt extinguishment expensegoodwill impairments of $6.0$627.0 million and asset impairments of $51.8 million. |
| |
(2) | | The results of operations for the firstfourth quarter of the fiscal year ended January 30, 2010February 1, 2014 include debt extinguishment expensegoodwill impairments of $2.9$10.2 million and asset impairments of $18.5 million. Additionally, results include a $33.6 million benefit associated with changes in accounting estimates primarily related to our loyalty programs and other customer liabilities. |
| |
(3) | | The results of operationsBasic net income (loss) per common share and diluted net income (loss) per common share are calculated based on net income (loss) attributable to GameStop Corp. for the third quarterquarter. The sum of the fiscalquarters may not necessarily be equal to the full year ended January 30, 2010 include debt extinguishment expense of $2.5 million.net income (loss) per common share amount. |
F-41
EXHIBIT INDEX
| | | | |
Exhibit
| | |
Number | | Description |
|
| 2 | .1 | | Agreement and Plan of Merger, dated as of April 17, 2005, among GameStop Corp. (f/k/a GSC Holdings Corp.), Electronics Boutique Holdings Corp., GameStop, Inc., GameStop Holdings Corp. (f/k/a GameStop Corp.), Cowboy Subsidiary LLC and Eagle Subsidiary LLC.(1) |
| 2 | .2 | | Sale and Purchase Agreement, dated September 30, 2008, between EB International Holdings, Inc. and L Capital, LV Capital, Europ@Web and other Micromania shareholders.(13) |
| 2 | .3 | | Amendment, dated November 17, 2008, to Sale and Purchase Agreement for Micromania Acquisition listed as Exhibit 2.2 above.(14) |
| 3 | .1 | | Second Amended and Restated Certificate of Incorporation.(2) |
| 3 | .2 | | Amended and Restated Bylaws.(3) |
| 3 | .3 | | Amendment to Amended and Restated Bylaws.(12) |
| 4 | .1 | | Indenture, dated September 28, 2005, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), GameStop, Inc., the subsidiary guarantors party thereto, and Citibank N.A., as trustee.(4) |
| 4 | .2 | | First Supplemental Indenture, dated October 8, 2005, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), GameStop, Inc., the subsidiary guarantors party thereto, and Citibank N.A., as trustee.(5) |
| 4 | .3 | | Rights Agreement, dated as of June 27, 2005, between GameStop Corp. (f/k/a GSC Holdings Corp.) and The Bank of New York, as Rights Agent.(3) |
| 4 | .4 | | Form of Indenture.(6) |
| 10 | .1 | | Insurance Agreement, dated as of January 1, 2002, between Barnes & Noble, Inc. and GameStop Holdings Corp. (f/k/a GameStop Corp.).(7) |
| 10 | .2 | | Operating Agreement, dated as of January 1, 2002, between Barnes & Noble, Inc. and GameStop Holdings Corp. (f/k/a GameStop Corp.).(7) |
| 10 | .3 | | Fourth Amended and Restated 2001 Incentive Plan.(16) |
| 10 | .4 | | Second Amended and Restated Supplemental Compensation Plan.(8) |
| 10 | .5 | | Form of Option Agreement.(9) |
| 10 | .6 | | Form of Restricted Share Agreement.(10) |
| 10 | .7 | | Amended and Restated Credit Agreement, dated as of January 4, 2011, among GameStop Corp., as Lead Borrower for: GameStop Corp., GameStop, Inc., Sunrise Publications, Inc., Electronics Boutique Holdings Corp., ELBO Inc., EB International Holdings, Inc., Kongregate Inc., GameStop Texas Ltd., Marketing Control Services, Inc., SOCOM LLC and Bank of America, N.A., as Issuing Bank, Bank of America, N.A., as Administrative Agent and Collateral Agent, Wells Fargo Capital Finance, LLC, as Syndication Agent, U.S. Bank National Association and Regions Bank, as Co-Documentation Agents, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Sole Lead Arranger and Sole Bookrunner.(19) |
| 10 | .8 | | Guaranty, dated as of October 11, 2005, by GameStop Corp. (f/k/a GSC Holdings Corp.) and certain subsidiaries of GameStop Corp. in favor of the agents and lenders.(11) |
| 10 | .9 | | Amended and Restated Security Agreement, dated January 4, 2011, among GameStop Corp., as Lead Borrower, the Subsidiary Borrowers party hereto, and Bank of America, N.A., as Collateral Agent.(19) |
| 10 | .10 | | Amended and Restated Patent and Trademark Security Agreement, dated January 4, 2011, among GameStop Corp., as Lead Borrower, the Subsidiary Borrowers party hereto, and Bank of America, N.A., as Collateral Agent.(19) |
| 10 | .11 | | Mortgage, Security Agreement, and Assignment and Deeds of Trust, dated October 11, 2005, between GameStop of Texas, L.P. and Bank of America, N.A., as Collateral Agent.(11) |
| 10 | .12 | | Mortgage, Security Agreement, and Assignment and Deeds of Trust, dated October 11, 2005, between Electronics Boutique of America, Inc. and Bank of America, N.A., as Collateral Agent.(11) |
| 10 | .13 | | Amended and Restated Pledge Agreement, dated January 4, 2011, by and among GameStop Corp., as Lead Borrower, the Subsidiary Borrowers party hereto, and Bank of America, N.A., as Collateral Agent.(19) |
| | | | |
Exhibit
| | |
Number | | Description |
|
| 10 | .14 | | Term Loan Agreement, dated November 12, 2008, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A., as lender, Bank of America, N.A., as Administrative Agent and Collateral Agent, and Banc of America Securities LLC, as Sole Arranger and Bookrunner.(14) |
| 10 | .15 | | Security Agreement, dated November 12, 2008, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A., as lender and Bank of America, N.A., as Collateral Agent.(14) |
| 10 | .16 | | Patent and Trademark Security Agreement, dated as of November 12, 2008, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A., as lender, and Bank of America, N.A., as Collateral Agent.(14) |
| 10 | .17 | | Securities Collateral Pledge Agreement, dated November 12, 2008, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A., as lender, and Bank of America, N.A., as Collateral Agent.(14) |
| 10 | .18 | | Amended and Restated Executive Employment Agreement, dated December 31, 2008, between GameStop Corp. and R. Richard Fontaine.(15) |
| 10 | .19 | | Amendment, dated as of April 5, 2010, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, between GameStop Corp. and R. Richard Fontaine.(17) |
| 10 | .20 | | Second Amendment, dated as of June 2, 2010, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, as amended by a First Amendment dated as of April 5, 2010, between GameStop Corp. and R. Richard Fontaine.(18) |
| 10 | .21 | | Third Amendment, dated as of February 9, 2011, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, as amended by a First Amendment dated as of April 5, 2010 and a Second Amendment dated as of June 2, 2010, between GameStop Corp. and R. Richard Fontaine.(20) |
| 10 | .22 | | Amended and Restated Executive Employment Agreement, dated as December 31, 2008, between GameStop Corp. and Daniel A. DeMatteo.(15) |
| 10 | .23 | | Amendment, dated as of April 5, 2010, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, between GameStop Corp. and Daniel A. DeMatteo.(17) |
| 10 | .24 | | Second Amendment, dated as of June 2, 2010, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, as amended by a First Amendment dated as of April 5, 2010, between GameStop Corp. and Daniel A. DeMatteo.(18) |
| 10 | .25 | | Third Amendment, dated as of February 9, 2011, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, as amended by a First Amendment dated as of April 5, 2010 and a Second Amendment dated as of June 2, 2010, between GameStop Corp. and Daniel A. DeMatteo.(20) |
| 10 | .26 | | Amended and Restated Executive Employment Agreement, dated December 31, 2008, between GameStop Corp. and Tony Bartel.(15) |
| 10 | .27 | | Amendment, dated as of June 2, 2010, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, between GameStop Corp. and Tony Bartel.(18) |
| 10 | .28 | | Second Amendment, dated as of February 9, 2011, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, as amended by a First Amendment dated as of June 2, 2010, between GameStop Corp. and Tony Bartel.(20) |
| 10 | .29 | | Amended and Restated Executive Employment Agreement, dated December 31, 2008, between GameStop Corp. and Paul Raines.(15) |
| 10 | .30 | | Amendment, dated as of June 2, 2010, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, between GameStop Corp. and Paul Raines.(18) |
| 10 | .31 | | Second Amendment, dated as of February 9, 2011, to Amended and Restated Executive Employment Agreement, dated as of December 31, 2008, as amended by a First Amendment dated as of June 2, 2010, between GameStop Corp. and Paul Raines.(20) |
| | | | |
Exhibit
| | |
Number | | Description |
|
| 10 | .32 | | Executive Employment Agreement, dated as of June 2, 2010, between GameStop Corp. and Robert Lloyd.(18) |
| 10 | .33 | | Amendment, dated as of February 9, 2011, to Executive Employment Agreement, dated as of June 2, 2010, between GameStop Corp. and Robert Lloyd.(20) |
| 12 | .1 | | Computation of Ratio of Earnings to Fixed Charges. |
| 14 | .1 | | Code of Ethics for Senior Financial and Executive Officers. |
| 14 | .2 | | Code of Standards, Ethics and Conduct. |
| 21 | .1 | | Subsidiaries. |
| 23 | .1 | | Consent of BDO USA, LLP. |
| 31 | .1 | | Certification of Chief Executive Officer pursuant toRule 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 toRule 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 toRule 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 toRule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 101 | .INS | | XBRL Instance Document |
| 101 | .SCH | | XBRL Taxonomy Extension Schema |
| 101 | .CAL | | XBRL Taxonomy Extension Calculation Linkbase |
| 101 | .DEF | | XBRL Taxonomy Extension Definition Linkbase |
| 101 | .LAB | | XBRL Taxonomy Extension Label Linkbase |
| 101 | .PRE | | XBRL Taxonomy Extension Presentation Linkbase |
|
| | |
Exhibit Number | | Description |
| |
2.1 | | Agreement and Plan of Merger, dated as of April 17, 2005, among GameStop Corp. (f/k/a GSC Holdings Corp.), Electronics Boutique Holdings Corp., GameStop, Inc., GameStop Holdings Corp. (f/k/a GameStop Corp.), Cowboy Subsidiary LLC and Eagle Subsidiary LLC.(1) |
| |
2.2 | | Sale and Purchase Agreement, dated September 30, 2008, between EB International Holdings, Inc. and L Capital, LV Capital, Europ@Web and other Micromania shareholders.(2) |
| |
2.3 | | Amendment, dated November 17, 2008, to Sale and Purchase Agreement for Micromania Acquisition listed as Exhibit 2.2 above.(3) |
| |
3.1 | | Third Amended and Restated Certificate of Incorporation.(4) |
| |
3.2 | | Third Amended and Restated Bylaws.(4) |
| |
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.(5) |
| | |
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.(6) |
| |
4.3 | | Rights Agreement, dated as of June 27, 2005, between GameStop Corp. (f/k/a GSC Holdings Corp.) and The Bank of New York, as Rights Agent.(7) |
| |
4.4 | | Form of Indenture.(8) |
| |
10.1* | | Fourth Amended and Restated 2001 Incentive Plan.(9) |
| |
10.2* | | Amended and Restated 2011 Incentive Plan.(10) |
| |
10.3* | | Second Amended and Restated Supplemental Compensation Plan.(11) |
| |
10.4* | | Form of Option Agreement.(12) |
| |
10.5* | | Form of Restricted Share Agreement.(13) |
| |
10.6 | | Amended and Restated Credit Agreement, dated as of January 4, 2011, among GameStop Corp., as Lead Borrower for: GameStop Corp., GameStop, Inc., Sunrise Publications, Inc., Electronics Boutique Holdings Corp., ELBO Inc., EB International Holdings, Inc., Kongregate Inc., GameStop Texas Ltd., Marketing Control Services, Inc., SOCOM LLC and Bank of America, N.A., as Issuing Bank, Bank of America, N.A., as Administrative Agent and Collateral Agent, Wells Fargo Capital Finance, LLC, as Syndication Agent, U.S. Bank National Association and Regions Bank, as Co-Documentation Agents, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Sole Lead Arranger and Sole Bookrunner.(14) |
| |
10.7 | | 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.(15) |
| |
10.8 | | Amended and Restated Security Agreement, dated January 4, 2011, among GameStop Corp., as Lead Borrower, the Subsidiary Borrowers party hereto, and Bank of America, N.A., as Collateral Agent.(14) |
| |
10.9 | | Amended and Restated Patent and Trademark Security Agreement, dated January 4, 2011, among GameStop Corp., as Lead Borrower, the Subsidiary Borrowers party hereto, and Bank of America, N.A., as Collateral Agent.(14) |
| |
10.10 | | 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.(15) |
| |
10.11 | | 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.(15) |
| |
10.12 | | Amended and Restated Pledge Agreement, dated January 4, 2011, by and among GameStop Corp., as Lead Borrower, the Subsidiary Borrowers party hereto, and Bank of America, N.A., as Collateral Agent.(14) |
| |
10.13 | | Term Loan Agreement, dated November 12, 2008, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A., as lender, Bank of America, N.A., as Administrative Agent and Collateral Agent, and Banc of America Securities LLC, as Sole Arranger and Bookrunner.(3) |
|
| | |
| |
Exhibit Number | | Description |
| | |
10.14 | | Security Agreement, dated November 12, 2008, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A., as lender and Bank of America, N.A., as Collateral Agent.(3) |
| | |
10.15 | | Patent and Trademark Security Agreement, dated as of November 12, 2008, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A., as lender, and Bank of America, N.A., as Collateral Agent.(3) |
| |
10.16 | | Securities Collateral Pledge Agreement, dated November 12, 2008, by and among GameStop Corp. (f/k/a GSC Holdings Corp.), certain subsidiaries of GameStop Corp., Bank of America, N.A., as lender, and Bank of America, N.A., as Collateral Agent.(3) |
| |
10.17* | | Executive Employment Agreement, dated as of May 10, 2013, between GameStop Corp. and Daniel A. DeMatteo.(16) |
| |
10.18* | | Executive Employment Agreement, dated as of May 10, 2013, between GameStop Corp. and J. Paul Raines.(16) |
| |
10.19* | | Executive Employment Agreement between GameStop Corp. and J. Paul Raines, as amended on November 13, 2013.(17) |
| |
10.20* | | Executive Employment Agreement, dated as of May 10, 2013, between GameStop Corp. and Tony D. Bartel.(16) |
| |
10.21* | | Executive Employment Agreement, dated as of May 10, 2013, between GameStop Corp. and Robert A. Lloyd.(16) |
| |
10.22* | | Executive Employment Agreement, dated as of May 10, 2013, between GameStop Corp. and Michael K. Mauler.(16) |
| |
10.23* | | Executive Employment Agreement, dated as of May 10, 2013, between GameStop Corp. and Michael P. Hogan.(20) |
| | |
10.24* | | Retirement Policy. (18) |
| | |
10.25 | | Second Amended and Restated Credit Agreement, dated as of March 25, 2014, by and among GameStop Corp., certain subsidiaries of GameStop Corp., Bank of America, N.A. and the other lending institutions listed therein, Bank of America, N.A., as Issuing Bank, Bank of America, N.A., as Agent, JPMorgan Chase Bank, N.A., as Syndication Agent and Wells Fargo Capital Finance, LLC and U.S. Bank National Association, as Co-Documentation Agents. (19) |
| | |
10.26 | | Second Amended and Restated Security Agreement, dated as of March 25, 2014. (19) |
| | |
10.27 | | Second Amended and Restated Patent and Trademark Security Agreement, dated as of March 25, 2014. (19) |
| | |
10.28 | | Second Amended and Restated Pledge Agreement, dated as of March 25, 2014. (19) |
| | |
21.1 | | Subsidiaries. (20) |
| |
23.1 | | Consent of Deloitte & Touche LLP. (20) |
| | |
23.2 | | Consent of BDO USA, LLP. (20) |
| |
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. (20) |
| |
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. (20) |
| |
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. (21) |
| |
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. (21) |
| |
101.INS | | XBRL Instance Document (22) |
| |
101.SCH | | XBRL Taxonomy Extension Schema (22) |
| |
|
| | |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase (22) |
| |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase (22) |
| |
101.LAB | | XBRL Taxonomy Extension Label Linkbase (22) |
| |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase (22) |
* This exhibit is a management or compensatory contract.
| |
(1) | Incorporated by reference to GameStop Holdings Corp.’sForm 8-K filed with the Securities and Exchange Commission on April 18, 2005. |
| |
(2) | | Incorporated by reference to the Registrant’sForm 8-K filed with the Securities and Exchange Commission on February 7, 2007.October 2, 2008. |
| |
(3) | | Incorporated by reference to the Registrant’s Amendment No. 1 to FormS-4 8-K filed with the Securities and Exchange Commission on July 8, 2005.November 18, 2008. |
| |
(4) | Incorporated by reference to the Registrant’s 10-Q for the fiscal quarter ended August 3, 2013 filed with the Securities and Exchange Commission on September 11, 2013. |
| |
(5) | Incorporated by reference to GameStop Holdings Corp.’sForm 8-K filed with the Securities and Exchange Commission on September 30, 2005. |
| |
(5) | (6) | Incorporated by reference to the Registrant’sForm 10-Q for the fiscal quarter ended October 29, 2005 filed with the Securities and Exchange Commission on December 8, 2005. |
| |
(6) | (7) | Incorporated by reference to the Registrant’s Amendment No.1 to Form S-4 filed with the Securities and Exchange Commission on July 8, 2005. |
| |
(8) | Incorporated by reference to the Registrant’s Form S-3ASR filed with the Securities and Exchange Commission on April 10, 2006. |
| |
(7) | (9) | Incorporated by reference to GameStop Holdings Corp.’s Amendment No. 3Appendix A toForm S-1 the Registrant’s Proxy Statement for 2009 Annual Meeting of Stockholders filed with the Securities and Exchange Commission on January 24, 2002.May 22, 2009. |
| |
(10) | Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on June 27, 2013. |
| |
(8) | (11) | Incorporated by reference to Appendix A to the Registrant’s Proxy Statement for 2008 Annual Meeting of Stockholders filed with the Securities and Exchange Commission on May 23, 2008. |
| |
(9) | (12) | Incorporated by reference to GameStop Holdings Corp.’sForm 10-K for the fiscal year ended January 29, 2005 filed with the Securities and Exchange Commission on April 11, 2005. |
| |
(10) | (13) | Incorporated by reference to GameStop Holdings Corp.’sForm 8-K filed with the Securities and Exchange Commission on September 12, 2005. |
| |
(11) | (14) | Incorporated by reference to the Registrant’sForm 8-K filed with the Securities and Exchange Commission on January 6, 2011. |
| |
(15) | Incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on October 12, 2005. |
| | |
(12) | (16) | Incorporated by reference to the Registrant’sForm 8-K filed with the Securities and Exchange Commission on February 8, 2011.May 13, 2013. |
| |
|
(13) | (17) | Incorporated by reference to the Registrant’sForm 8-K filed with the Securities and Exchange Commission on October 2, 2008. |
|
(14) | | Incorporated by reference to the Registrant’sForm 8-K filed with the Securities and Exchange Commission on November 18, 2008.15, 2013. |
| |
|
(15) | (18) | Incorporated by reference to the Registrant’sRegistrant's Form 8-K filed with the Securities and Exchange Commission on January 7, 2009.March 11, 2014. |
| |
|
(16) | (19) | Incorporated by reference to Appendix A to the Registrant’s Proxy Statement for 2009 Annual Meeting of StockholdersRegistrant's Form 8-K filed with the Securities and Exchange Commission on May 22, 2009.March 28, 2014. |
|
(17) | | Incorporated by reference to the Registrant’sForm 8-K filed with the Securities and Exchange Commission on April 9, 2010. |
|
(18) | | Incorporated by reference to the Registrant’sForm 8-K filed with the Securities and Exchange Commission on June 2, 2010. |
|
(19) | | Incorporated by reference to the Registrant’sForm 8-K filed with the Securities and Exchange Commission on January 6, 2011. |
|
(20) | | Incorporated by reference to the Registrant’sForm 8-K filed with the Securities and Exchange Commission on February 9, 2011.Filed herewith. |
| |
(22) | Submitted electronically herewith. |