GameStop 2005 Annual Report Download - page 49

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employment under the employment agreement shall be no less than $450,000. Mr. Carlson’s minimum annual
salary during the term of his employment under the employment agreement shall be no less than $350,000.
As of January 28, 2006, we had standby letters of credit outstanding in the amount of $2.3 million and had no
other commercial commitments such as guarantees or standby repurchase obligations outstanding.
Off-Balance Sheet Arrangements
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 currently one of the Company’s directors. If SCAC were to default on these lease obligations, the
Company would be liable to the landlords for up to $5.4 million in minimum rent and landlord charges as of
January 28, 2006. Mr. Kim has entered into an indemnification agreement with EB with respect to these leases,
therefore no accrual was recorded for this contingent obligation.
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 operates departments within 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. During the 52 weeks ended January 28, 2006, January 29, 2005 and January 31, 2004, these charges
amounted to $0.9 million, $0.9 million and $1.0 million, respectively.
Until June 2005, Historical GameStop participated in Barnes & Noble’s workers’ compensation, property and
general liability insurance programs. The costs incurred by Barnes & Noble under these programs were allocated to
Historical GameStop based upon Historical GameStop’s total payroll expense, property and equipment, and
insurance claim history. Management deemed the allocation methodology to be reasonable. During the 52 weeks
ended January 28, 2006, January 29, 2005 and January 31, 2004, these allocated charges amounted to $1.7 million,
$2.7 million and $2.4 million, respectively. Although Historical GameStop secured its own insurance coverage,
costs will likely continue to be incurred by Barnes & Noble on insurance claims which were incurred under its
programs prior to June 2005 and any such costs applicable to insurance claims against Historical GameStop will be
allocated to the Company.
In July 2003, the Company purchased an airplane from a company controlled by a member of the Board of
Directors. The purchase price was $9.5 million and was negotiated through an independent third party following an
independent appraisal.
In October 2004, the Board of Directors of Historical GameStop authorized a repurchase of Historical
GameStop’s Class B common stock held by Barnes & Noble. Historical GameStop repurchased 6,107,000 shares of
its Class B common stock at a price equal to $18.26 per share for aggregate consideration of $111.5 million. 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 $37.5 million in cash and issued a promissory note in the principal amount of $74.0 million, the
remaining balance of which is payable in installments over the next two years and bears interest at 5.5% per annum,
payable when principal installments are due. Scheduled principal payments of $37.5 million and $12.2 million were
made in January 2005 and October 2005, respectively. Interest expense on the promissory note in fiscal 2005 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 of video game or PC entertainment products sold
through bn.com. For the 52 weeks ended January 28, 2006, the fee to Barnes & Noble totaled $0.3 million.
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