GameStop 2005 Annual Report Download

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better together
better together
2005
annual report

Table of contents

  • Page 1
    b e tt e r t o g e t h e r 2005 annual report

  • Page 2
    ... e r NORTH AMERICA STORE COUNT w e a r e g l o b a l United States, 3,579 Canada, 261 Puerto Rico, 43 Guam, 2 EUROPE STORE COUNT Spain, 123 Italy, 102 Germany, 77 Sweden, 47 Ireland, 28 Denmark, 23 Norway, 10 Switzerland, 9 United Kingdom, 6 Austria, 2 Finland, 1 ASIA PACIFIC STORE COUNT While...

  • Page 3
    ... of new products, to our knowledgeable associates and to our value-added pre-owned products-is geared to deliver customer satisfaction. We complement our store network with GameStop.com and EBgames.com, and publish Game Informer, one of the industry's largest circulation video game magazines...

  • Page 4
    ... sales, margin, and earnings growth are the direct result of our singular focus on continuing to refine and build on our very distinctive new and used business model. It is the confidence we have in the future of this model that led to the October completion of the merger combining GameStop and EB...

  • Page 5
    ...of opportunities. Since the completion of the merger, we boosted an already strong team by naming Steve Morgan as GameStop's new President. Steve was formerly President of North American and Canadian stores for Electronics Boutique, and brings added depth and perspective to our team. In addition, we...

  • Page 6
    ...our other retail operations. Website visitors also get immediate access to the latest game information that includes regularly updated release dates, the ability to browse and contribute product reviews, purchase new games, track orders and more, making GameStop.com and EBGames.com the online gaming...

  • Page 7
    ... some of the most trusted news and reviews in the industry, its impact on the business goes significantly beyond the trading area of our stores as it gives us an additional channel to build relationships with new and existing customers. And with a paid circulation that is 233% larger than its...

  • Page 8
    ...-2005*** Growth In Video Game Software Units Sold, CY 2003-2005*** gamestop corp. growth *Before special charges of $0.12 per diluted share for California litigation settlement costs, professional fees relating to the spin-off by Barnes & Noble, Inc. of our Class B common stock and the change in...

  • Page 9
    ... No.) 625 Westport Parkway Grapevine, Texas (Address of principal executive offices) 76051 (Zip Code) Registrant's telephone number, including area code: (817) 424-2000 Securities registered pursuant to Section 12(b) of the Act: (Title of Class) (Name of Exchange on Which Registered) Class...

  • Page 10
    ... 14. PART III Directors and Executive Officers of the Registrant ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...Certain Relationships and Related Transactions ...Principal Accountant Fees and Services... 22 24 26 42 42...

  • Page 11
    ... operated 4,490 stores in the United States, Australia, Canada and Europe, primarily under the names GameStop and EB Games. We also operate electronic commerce websites under the names gamestop.com and ebgames.com and publish Game Informer, the largest circulation multi-platform video game magazine...

  • Page 12
    ...of used video game products, and approximately $1.0 billion was attributable to PC entertainment software. According to International Development Group, a market research firm, retail sales of video game hardware and software and PC entertainment software totaled approximately $9.6 billion in Europe...

  • Page 13
    ...States, based on original sales, totaled over 200 million units, including approximately 600,000 Microsoft Xbox 360 units, 3.6 million Sony PSP units, 33 million Sony PlayStation 2 units, 14 million Microsoft Xbox units, 11 million Nintendo GameCube units, 32 million Nintendo DS, Game Boy Advance SP...

  • Page 14
    ... GameStop and EB of opening new strip center stores in our target markets and new mall stores in selected mall locations. • Increasing our comparable store sales and operating earnings by capitalizing on industry growth, increasing sales of used video game products and our Game Informer magazine...

  • Page 15
    ... management system allows us to actively manage the pricing and product availability of our used video game products across our store base and to reallocate our inventory as necessary. Our systems enable each store to carry a merchandise assortment uniquely tailored to its own sales mix and customer...

  • Page 16
    ...PC entertainment software, and related products, such as action figures, trading cards and strategy guides. Our in-store inventory generally consists of a constantly changing selection of over 5,000 SKUs. We have buying groups in the U.S., Canada, Australia and Europe that negotiate terms, discounts...

  • Page 17
    ... action figures and trading cards. We carry over 200 SKUs of accessories and other products. In general, this category has higher margins than new video game and PC entertainment products. Store Operations As of January 28, 2006, we operated 4,490 stores, primarily under the names GameStop or EB...

  • Page 18
    ...New Jersey ...New Mexico ...New York ...North Carolina ...North Dakota ...Ohio ...Oklahoma ...Oregon ...Pennsylvania...Puerto Rico ...Rhode Island ...South Carolina ...South Dakota ...Tennessee ...Texas ...Utah ...Vermont ...Virginia ...Washington...West Virginia ...Wisconsin ...Wyoming ...Sub-total...

  • Page 19
    ... web sites at www.gamestop.com and www.ebgames.com that allow our customers to buy video game products and other merchandise on-line. The sites also offer customers information and content about available games, release dates for upcoming games, and access to store information, such as location...

  • Page 20
    ... centers in Canada, Australia, and in various locations in Europe. Management Information Systems. Our integration efforts in the first half of fiscal 2006, will focus on the conversion of the point-of-sale system used in the Historical GameStop stores to the point-of-sale technology developed by EB...

  • Page 21
    ... buying patterns of the store's local market. These communications also give field management access to relevant inventory levels and loss prevention information. We also sponsor an annual store managers' conference in the U.S., Canada, Europe and Australia, which we invite all video game software...

  • Page 22
    ...electronic commerce web sites under the names gamestop.com and ebgames.com and Game Informer magazine. Segment results for Canada include retail operations in stores throughout Canada and segment results for Australia include retail operations in Australia and New Zealand. Segment results for Europe...

  • Page 23
    ...None of our employees is represented by a labor union or is a member of a collective bargaining unit. Available Information We make available on our website (http://www.gamestop.com), under "Investor Relations - SEC Filings," free of charge, our annual reports on Form 10-K, quarterly reports on Form...

  • Page 24
    ... prices, unsold product return policies, advertising and market development allowances, freight charges and payment terms. We purchase substantially all of our products directly from manufacturers, software publishers and approximately five distributors. Our largest vendors are Sony, Microsoft...

  • Page 25
    ... Best Buy and Circuit City; other video game and PC software specialty stores located in malls and other locations; toy retail chains, including Toys "R" Us; mail-order businesses; catalogs; direct sales by software publishers; and online retailers. In addition, video games are available for...

  • Page 26
    ... in our overall tax rate, which could have a material effect on our business and results of our operations. If we are unable to renew or enter into new leases on favorable terms, our revenue growth may decline. All of our retail stores are located in leased premises. If the cost of leasing existing...

  • Page 27
    ...the mergers. Our ability to open new stores and operate them profitably depends upon a number of factors, some of which may be beyond our control. These factors include: • the ability to identify new store locations, negotiate suitable leases and build out the stores in a timely and cost efficient...

  • Page 28
    ... our prices or increase spending; • our ability to open and operate new stores; • our ability to attract and retain qualified personnel; and • our dependence upon software publishers to develop popular game and entertainment titles for video game systems and PCs. If our financial condition or...

  • Page 29
    ... conditions and other factors beyond our control. A significant increase in interest rates could have a material adverse effect on our financial position and results of operations. Our operations are substantially restricted by the indenture governing the notes and the terms of our Senior Credit...

  • Page 30
    ... (12 Months Ending on or About January 31) Number of Stores Expired and in negotiations ...2007 ...2008 ...2009 ...2010 ...2011 and later ... 299 320 585 899 975 1,412 4,490 In March 2004, we purchased a 480,000 square foot facility in Grapevine, Texas, which houses our headquarters operations and...

  • Page 31
    ... Securities Price Range of Common Stock The Company's Class A common stock is traded on the New York Stock Exchange ("NYSE") under the symbol "GME". The Company's Class B common stock began trading on the NYSE under the symbol "GME.B" on November 12, 2004. As such, there was no public trading market...

  • Page 32
    ... 22,500 record holders of the Company's $.001 par value per share Class B common stock. Dividends The Company has never declared or paid any dividends on its common stock. We may consider in the future the advisability of paying dividends. However, our payment of dividends is and will continue...

  • Page 33
    ... Authorized for Issuance under Equity Compensation Plans Information for our equity compensation plans in effect as of January 28, 2006, is as follows: Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (b) Number of Securities Remaining Available for Future Issuance Under...

  • Page 34
    ... Operating Data: Stores open at the end of period ...4,490 1,826 1,514 1,231 1,038 Comparable store sales increase (decrease)(4) ...(1.4)% 1.7% 0.8% 11.4% 32.0% Inventory turnover ...5.0 5.4 4.9 4.9 5.2 Balance Sheet Data: Working capital ...$ 233,591 $ 111,093 $ 188,378 $ 174,482 $ 31,107 Total...

  • Page 35
    ...490 stores, in the United States, Australia, Canada and Europe, primarily under the names GameStop and EB Games. We also operate electronic commerce web sites under the names gamestop.com and ebgames.com and publish Game Informer, the industry's largest circulation multi-platform video game magazine...

  • Page 36
    ... are carried at the lower of cost or market using the average cost method. 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...

  • Page 37
    ... the next few months. Merger-related costs include professional fees, financing costs and other costs associated with the mergers and include certain ongoing costs associated with integrating the operations of Historical GameStop and EB, including relocation costs. The Company is working to finalize...

  • Page 38
    ... GAAP, as clarified by the Chief Accountant of the SEC in a February 2005 letter to the American Institute of Certified Public Accountants. For all stores opened since the beginning of fiscal 2002, the Company had calculated straight-line rent expense using the initial lease term, but was generally...

  • Page 39
    ... 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...

  • Page 40
    ..., electronic commerce web sites under the names gamestop.com and ebgames.com and Game Informer magazine. Segment results for Canada include retail operations in Canada and segment results for Australia include retail operations in Australia and New Zealand. Segment results for Europe include retail...

  • Page 41
    ...forma basis, comparable store sales decreased 1.4% in fiscal 2005. Stores are included in our comparable store sales base beginning in the thirteenth month of operation. The mergers and the release of the Sony PSP and the Microsoft Xbox 360 led to an increase in new video game hardware sales of $294...

  • Page 42
    ... percentage of sales on used video game products increased from 45.3% in fiscal 2004 to 47.4% in fiscal 2005 due to increased efforts to monitor margin rates and, following the mergers, the application of GameStop's merchandising algorithms to EB's used video game category. The Company expects gross...

  • Page 43
    ... store growth in strip centers and the availability of used products for sale caused by trade-ins of used video game products in response to the strong new game releases. Sales of other product categories, including PC entertainment and other software and accessories, magazines and character-related...

  • Page 44
    ... interest incurred on the note payable to Barnes & Noble in connection with the repurchase of the Company's Class B common stock. Income tax expense decreased by $3.7 million, from $41.7 million in fiscal 2003 to $38.0 million in fiscal 2004. The Company's effective tax rate decreased from 39.7% in...

  • Page 45
    ...million to complete the build-out of our new corporate headquarters and distribution center facility in Grapevine, Texas. The remaining $101.0 million in capital expenditures was used to open 377 new stores, remodel existing stores and invest in information and distribution systems in support of the...

  • Page 46
    ... to exchange the Notes for the New Notes by June 23, 2006, the interest rate on the Notes will increase by 25 basis points until we complete the exchange offer. At the scheduled meetings of Historical GameStop's and EB's stockholders held on October 6, 2005, the proposal for the business combination...

  • Page 47
    ... and funds available under the Senior Credit Facility will be sufficient to fund our operations, required interest payments on the Notes and our note payable to Barnes & Noble, store expansion and remodeling activities and corporate capital expenditure programs for at least the next 12 months. 38

  • Page 48
    ..., 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...

  • Page 49
    ... totaled $1.8 million. In May 2005, we entered into an arrangement with Barnes & Noble under which www.gamestop.com is the exclusive specialty video game retailer listed on bn.com, Barnes & Noble's e-commerce site. Under the terms of this agreement, the Company pays a fee to Barnes & Noble for sales...

  • Page 50
    ... the estimated fair value of stock options and similar equity instruments issued to employees. Currently, companies are required to calculate the estimated fair value of these share-based payments and can elect to either include the estimated cost in earnings or disclose the pro forma effect in the...

  • Page 51
    ..., Electronics Boutique routinely used forward exchange contracts and cross-currency swaps to manage currency risk and had a number of open positions designated as hedge transactions as of the merger date. The Company discontinued hedge accounting treatment for all derivative instruments acquired in...

  • Page 52
    ... an opinion on the effectiveness of the internal control over financial reporting of GameStop Corp. 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...

  • Page 53
    ... and schedule. /s/ Dallas, Texas March 29, 2006 BDO SEIDMAN, LLP BDO Seidman, LLP (c) Changes in Internal Controls Over Financial Reporting EB operates on different information technology systems than the Company. The Company is currently implementing its information technology systems and...

  • Page 54
    ... Historical GameStop's initial public offering in February 2002. Mr. Fontaine is also a member of the Executive Committee. Mr. Fontaine has served as the Chief Executive Officer of our predecessor companies since November 1996. He has been an executive officer or director in the video game industry...

  • Page 55
    ... of Barnes & Noble. Jerome L. Davis is a director and a member of the Compensation Committee. Mr. Davis has served as a director since October 2005. Mr. Davis has served as Global Vice President, Service Excellence for Electronic Data Systems, a business and technology services company, since...

  • Page 56
    ... is available on the Company's website at www.gamestop.com and is available in print to any stockholder who requests it, in writing to the Company's Secretary, GameStop Corp., 625 Westport Parkway, Grapevine, Texas 76051. As required by the charter, the Audit Committee will continue to review and...

  • Page 57
    ... R. Morgan has been our President since December 2005. Mr. Morgan joined the Company upon completion of the mergers in October 2005 in his position as EB's President of Stores - North America and President of Electronics Boutique Canada Inc. He had served in that capacity since April 2002. From June...

  • Page 58
    ... forms they file. To the Company's knowledge, based solely on its review of the copies of such forms received by it, or written representations from certain reporting persons that no additional forms were required, all filing requirements applicable to the Company's executive officers, directors and...

  • Page 59
    ...(k) plan and payments for life and disability insurance coverage. (3) Mr. Morgan was appointed as President in December 2005. Mr. Morgan joined the Company upon completion of the mergers in October 2005 in his position as EB's President of Stores - North America and President of Electronics Boutique...

  • Page 60
    ... those executive officers. The values realized upon exercise in the table have been calculated using the stock price at the times of exercise. The year-end values in the table for our Class A common stock have been calculated based on the $39.14 per share closing price of our Class A common stock on...

  • Page 61
    ... Compensation Plan. Each executive shall be entitled to all benefits afforded to key management personnel or as determined by the board of directors of GameStop, including, but not limited to, stock and stock option benefits, insurance programs, pension plans, vacation, sick leave, expense accounts...

  • Page 62
    ... of the Company. No member of the committee had a relationship requiring disclosure in this Form 10-K under Item 404 of SEC Regulation S-K. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The following table sets forth the number of shares of...

  • Page 63
    ... are restricted shares. (12) Of these shares, Mr. Riggio is the direct beneficial owner of 3,472,602 shares of Class B common stock. Mr. Riggio is the indirect beneficial owner of 1,126,913 shares of Class B common stock owned by Barnes & Noble College Booksellers, Inc., a New York corporation, of...

  • Page 64
    ...,400 are restricted shares. Equity Compensation Plan Information Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights (a) WeightedAverage Exercise Price of Outstanding Options, Warrants and Rights (b) Number of Securities Remaining Available for Future Issuance...

  • Page 65
    ... costs applicable to insurance claims against us will be allocated to the Company. Operating Agreement Historical GameStop entered into an "operating agreement" with Barnes & Noble, pursuant to which we operate the existing video game departments in ten Barnes & Noble stores. We pay Barnes & Noble...

  • Page 66
    ... totaled $1.8 million. In May 2005, we entered into an arrangement with Barnes & Noble under which www.gamestop.com is the exclusive specialty video game retailer listed on bn.com, Barnes & Noble's e-commerce site. Under the terms of this agreement, the Company pays a fee to Barnes & Noble for sales...

  • Page 67
    ... Form 10-Q filed with the SEC, consultation concerning financial accounting and reporting standards and for the audit of the Company's internal control over financial reporting. Included in the fees above were merger-related fees of $410,386 for the audit of the merger date opening balance sheet of...

  • Page 68
    ... are not applicable. (b) Exhibits The following exhibits are filed as part of this Form 10-K: Exhibit Number Description 2.1 3.1 3.2 3.3 4.1 4.2 4.3 10.1 10.2 10.3 10.4 Agreement and Plan of Merger, dated as of April 17, 2005, among GameStop Corp. (f/k/a GSC Holdings Corp.), Electronics Boutique...

  • Page 69
    ..., dated as of April 3, 2006, between GameStop Corp. and David W. Carlson. Code of Ethics for Senior Financial Officers.(11) Subsidiaries. Consent of BDO Seidman, LLP. Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15(d)-14(a) under the Securities Exchange Act of 1934, as adopted...

  • Page 70
    ... Registrant's Form 10-K for the fiscal year ended January 29, 2005 filed with the Securities and Exchange Commission on April 11, 2005. (5) Incorporated by reference to the Registrant's Form 8-K filed with the Securities and Exchange Commission on April 18, 2005. (6) Incorporated by reference to the...

  • Page 71
    ... Chairman of the Board and Chief Executive Officer Date: April 3, 2006 Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Name Capacity Date...

  • Page 72
    Name Capacity Date /s/ STANLEY P. STEINBERG Stanley P. Steinberg LAWRENCE S. ZILAVY Lawrence S. Zilavy Director April 3, 2006 /s/ Director April 3, 2006 /s/ JEROME L. DAVIS Jerome L. Davis Director April 3, 2006 63

  • Page 73
    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page GameStop Corp. Consolidated Financial Statements: Report of Independent Registered Public Accounting Firm...Consolidated Financial Statements: Balance Sheets ...Statements of Operations...Statements of Stockholders' Equity ...Statements of Cash Flows ...

  • Page 74
    ... of America. Also, in our opinion, the schedule presents fairly, in all material respects, the information set forth herein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of GameStop Corp.'s internal control...

  • Page 75
    ... rate notes payable, long-term portion...Note payable, long-term portion ...Deferred rent and other long-term liabilities ...Total long-term liabilities ...Total liabilities ...Commitments and contingencies (Note 11) Stockholders' equity: Preferred stock - authorized 5,000 shares; no shares issued...

  • Page 76
    ..., except per share data) Sales ...$3,091,783 Cost of sales ...2,219,753 Gross profit ...Selling, general and administrative expenses ...Depreciation and amortization ...Merger-related expenses ...Operating earnings ...Interest income ...Interest expense ...Merger-related interest expense ...872...

  • Page 77
    ... the 52 weeks ended January 31, 2004 ...- Foreign currency translation ...- Total comprehensive income ...Exercise of employee stock options (including tax benefit of $9,702) . . 1,943 Treasury stock acquired, 2,304 shares ...- Balance at January 31, 2004 ...22,993 Comprehensive income: Net earnings...

  • Page 78
    ... used in investing activities ...Cash flows from financing activities: Issuance of senior notes payable relating to Electronics Boutique merger, net of discount ...Issuance of senior floating rate notes payable relating to Electronics Boutique merger ...Issuance of shares relating to employee stock...

  • Page 79
    ...'s largest retailer of new and used video game systems and software and personal computer entertainment software and related accessories primarily through its GameStop and EB Games trade names, web sites (gamestop.com and ebgames.com) and Game Informer magazine. The Company's stores, which totaled...

  • Page 80
    ... are carried at the lower of cost or market using the average cost method. 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...

  • Page 81
    ...Note 7 provides additional information concerning goodwill. Revenue Recognition Revenue from the sales of the Company's products is recognized at the time of sale. The sales of used video game products are recorded at the retail price charged to the customer. Sales returns (which are not significant...

  • Page 82
    ...GAAP"), as clarified by the Chief Accountant of the SEC in a February 2005 letter to the American Institute of Certified Public Accountants. For all stores opened since the beginning of fiscal 2002, the Company had calculated straight-line rent expense using the initial lease term, but was generally...

  • Page 83
    ... additional information regarding net earnings per common share. Stock Options Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation ("SFAS 123"), encourages but does not require companies to record compensation cost for stock based employee compensation plans...

  • Page 84
    ... 29, January 31, 2006 2005 2004 (In thousands, except per share data) Net earnings, as reported ...Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects ...Pro forma net earnings ...Net earnings per Class A and...

  • Page 85
    .... Foreign exchange contracts are recorded at fair market value. Guarantees The Company remains contingently liable for the BC Sports Collectibles store leases assigned to Sports Collectibles Acquisition Corporation ("SCAC"). SCAC is owned by the family of James J. Kim, Chairman of EB at the time and...

  • Page 86
    ..., 20.2 million shares of the Company's Class A common stock were issued to EB stockholders at a value of approximately $437,144 (based on the closing price of $21.61 of Historical GameStop's Class A common stock on April 15, 2005, the last trading day before the date the merger was announced). In...

  • Page 87
    ... 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, is approximately four years. The intangible assets are being amortized based upon...

  • Page 88
    ... the next few months. Merger-related costs include professional fees, financing costs and other costs associated with the merger and include certain ongoing costs associated with integrating the operations of Historical GameStop and EB, including relocation costs. The Company is working to finalize...

  • Page 89
    ...11,145 Severance and employment related costs totaling $493 and lease termination costs totaling $272 were charged to acquisition costs and paid for the Europe segment and merger costs totaling $41, $32 and $3 were charged to acquisition costs and paid for Europe, Canada and Australia, respectively...

  • Page 90
    ... thousands, except per share data) Sales ...Cost of sales ...Gross profit ...Selling, general and administrative expenses ...Depreciation and amortization ...Operating earnings ...Interest income ...Interest expense ...Earnings before income tax expense ...Income tax expense ...Net earnings ...Net...

  • Page 91
    ... receivables include receivables from Game Informer magazine advertising customers, receivables from landlords for tenant allowances and receivables from vendors for merchandise returns, vendor marketing allowances and various other programs. An allowance for doubtful accounts has been recorded to...

  • Page 92
    ... 28, January 29, 2006 2005 (In thousands) Customer liabilities ...Deferred revenue ...Accrued rent...Accrued interest ...Employee compensation and related taxes ...Accrued merger costs and expenses (Note 2) ...Other taxes ...Other accrued liabilities ...Total accrued liabilities ... $ 89,053 40,808...

  • Page 93
    ... or will be after any such payment equal to or greater than 25% of the borrowing base the Company may repurchase its capital stock and pay cash dividends. In addition, in the event that credit extensions under the Revolver at any time exceed 80% of the lesser of the total commitment or the borrowing...

  • Page 94
    ...and as representatives of the several initial purchasers listed on Schedule II thereto (the "Registration Rights Agreement"). The Registration Rights Agreement requires the Issuers to, among other things, (1) file a registration statement with the SEC to be used in connection with the exchange of 85

  • Page 95
    ... for the New Notes by June 23, 2006, the interest rate on the Notes will increase by 25 basis points until we complete the exchange offer. At the scheduled meetings of Historical GameStop's and Electronics Boutique's stockholders held on October 6, 2005, the proposal for the business combination was...

  • Page 96
    ... both minimum and percentage rentals and require the Company to pay all insurance, taxes and other maintenance costs. Leases with step rent provisions, escalation clauses or other lease concessions are accounted for on a straight-line basis over the lease term, which includes renewal option periods...

  • Page 97
    ... and assistant store managers in New York to certify a class under New York wage and hour laws. In August 2005, EBOA filed a motion for summary judgment as to certain claims and renewed its request that certification of the claims be denied. On October 17, 2005, the District Court issued an Order...

  • Page 98
    ...52 Weeks Ended January 31, 2004 Current tax expense (benefit): Federal ...State...Foreign...Deferred tax expense (benefit): Federal ...State...Foreign...Charge in lieu of income taxes, relating to the tax effect of stock option tax deduction...Total income tax expense ... $43,142 3,950 7,954 55,046...

  • Page 99
    ... costs ...Inventory obsolescence reserve ...Organization costs ...Accrued liabilities ...Gift certificate liability ...Deferred rents ...Deferred compensation ...Merger-related liabilities ...Foreign net operating losses ...Translation adjustment...Accrued state taxes ...Total deferred tax benefits...

  • Page 100
    ...) Total deferred tax liabilities ...Net ...Financial statements: Current deferred tax assets ...Non-current deferred tax liabilities ...13. Stock Option Plan Effective October 2005, the Company's stockholders voted to amend the Amended and Restated 2001 Incentive Plan of Historical GameStop (the...

  • Page 101
    ... ten bookstores operated by Barnes & Noble. The Company pays a license fee to Barnes & Noble in amounts equal to 7.0% of the gross sales of such departments. Management deems the license fee to be reasonable and based upon terms equivalent to those that would prevail in an arm's length transaction...

  • Page 102
    ... $111,520. The repurchase price per share was determined by using a discount of 3.5% on the last reported trade of Historical GameStop's Class A common stock on the New York Stock Exchange prior to the time of the transaction. Historical GameStop paid $37,500 in cash and issued a promissory note in...

  • Page 103
    ...States, Canada, Australia and Europe. The Company identifies segments based on a combination of geographic areas and management responsibility. Each of the segments includes significant retail operations with all stores engaged in the sale of new and used video game systems and software and personal...

  • Page 104
    ... Ended January 29, 2005 Canada Australia Europe Other Consolidated Sales ...$1,818.2 Depreciation and amortization ...36.2 Operating earnings (loss) ...102.1 Interest income ...(1.8) Interest expense ...2.0 Earnings (loss) before income tax expense (benefit) ...101.9 Goodwill ...318.0 Other...

  • Page 105
    ... 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 is acquired in a merger or other business combination transaction...

  • Page 106
    ...Rights at any time prior to the acquisition by a person or group of 15% or more of the voting power of the outstanding Common Stock of the Company, at a price of $.01 per Right. The Rights will expire on October 28, 2014. The Company has 5,000 shares of $.001 par value preferred stock authorized for...

  • Page 107
    ... rate notes payable, long-term portion ...300,000 Notes payable, long-term portion ...21,189 Other long-term liabilities ...35,522 Total long-term liabilities ...1,022,422 Total liabilities ...1,756,507 Stockholders' equity (deficit): Preferred stock - authorized 5,000 shares; no shares issued...

  • Page 108
    ... Deferred taxes ...21,257 Notes payable, long-term portion ...24,347 Deferred rent and other long-term liabilities ...13,473 Total long-term liabilities ...59,077 Total liabilities ...354,528 Stockholders' equity (deficit): Preferred stock - authorized 5,000 shares; no shares issued or outstanding...

  • Page 109
    ... Cost of sales ...1,927,765 Gross profit ...Selling, general and administrative expenses ...Depreciation and amortization ...Merger-related expenses ...Operating earnings ...Interest income ...Interest expense ...Merger-related interest expense ...Earnings (loss) before income tax expense (benefit...

  • Page 110
    ...2004 Sales ...$1,564,037 Cost of sales ...1,133,996 Gross profit ...Selling, general and administrative expenses ...Depreciation and amortization ...Operating earnings (loss) ...Interest income ...Interest expense ...Earnings (loss) before income tax expense (benefit) ...Income tax expense (benefit...

  • Page 111
    ... notes payable relating to Electronics Boutique merger, net of discount ...Issuance of senior floating rate notes payable relating to Electronics Boutique merger ...Issuance of shares relating to employee stock options ...Net increase in other noncurrent assets and deferred financing fees ...Payment...

  • Page 112
    ... in cost of sales) ...Provision for inventory reserves ...Amortization of loan cost ...Deferred taxes ...Tax benefit realized from exercise of stock options by employees ...Loss on disposal of property and equipment ...Increase in deferred rent and other long-term liabilities for scheduled rent...

  • Page 113
    ... in cost of sales) ...Provision for inventory reserves ...Amortization of loan cost ...Deferred taxes ...Tax benefit realized from exercise of stock options by employees ...Loss on disposal of property and equipment ...Increase in deferred rent and other long-term liabilities for scheduled rent...

  • Page 114
    ... to the professional fees related to the spin-off by Barnes & Noble of Historical GameStop's Class B common shares, and • $5,373 in the fourth quarter of the fiscal year ended January 29, 2005 attributable to correcting the Company's method of accounting for rent expense and depreciation expense...

  • Page 115
    ... fees related to the spin-off by Barnes & Noble of Historical GameStop's Class B common shares, and • $0.07 and $0.06 per basic and diluted share, respectively, in the fourth quarter of the fiscal year ended January 29, 2005 attributable to correcting the Company's method of accounting for rent...

  • Page 116
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  • Page 117
    ... several initial purchasers listed on Schedule II thereto.(8) 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.(6) Separation Agreement, dated as of January 1, 2002, between Barnes & Noble and GameStop Holdings...

  • Page 118
    ..., dated as of April 3, 2006, between GameStop Corp. and David W. Carlson. Code of Ethics for Senior Financial Officers.(11) Subsidiaries. Consent of BDO Seidman, LLP. Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15(d)-14(a) under the Securities Exchange Act of 1934, as adopted...

  • Page 119
    ... SHAREHOLDER INFORMATION AUDITORS BDO SEIDMAN, LLP Dallas, TX TRANSFER AGENT AND REGISTRAR THE BANK OF NEW YORK 800-524-4458 stockbny.com CORPORATE OFFICES GAMESTOP CORP. 625 Westport Parkway Grapevine, TX 76051 817-424-2000 GameStop.com LISTED ON THE NEW YORK STOCK EXCHANGE, GAMESTOP NYSE...

  • Page 120
    625 Westport Parkway Grapevine, TX 76051 (817) 424-2000