GameStop 2006 Annual Report Download - page 57

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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 $0.1 million in minimum rent and landlord charges as of
February 3, 2007. 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 53 weeks ended February 3, 2007 and the 52 weeks ended January 28, 2006 and January 29,
2005, these charges amounted to $1.0 million, $0.9 million and $0.9 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 total payroll expense, property and equipment, and insurance claim history of
Historical GameStop. Management deemed the allocation methodology to be reasonable. 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. During the 53 weeks ended
February 3, 2007 and the 52 weeks ended January 28, 2006 and January 29, 2005, these allocated charges amounted
to $0.8 million, $1.7 million and $2.7 million, respectively.
In October 2004, the Board of Directors of Historical GameStop authorized a repurchase of Historical
GameStop common stock held by Barnes & Noble. Historical GameStop repurchased 12,214,000 shares of
common stock at a price equal to $9.13 per share for aggregate consideration before expenses 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 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 October 2007 and bears interest at 5.5% per annum, payable when the final
payment is due. Scheduled principal payments of $37.5 million, $12.2 million and $12.2 million were made in
January 2005, October 2005 and October 2006, respectively. Interest expense on the promissory note for the
53 weeks ended February 3, 2007 and the 52 weeks ended January 28, 2006 and January 29, 2005 totaled
$1.1 million, $1.8 million and $1.3 million, respectively.
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 www.bn.com, Barnes & Noble’s e-commerce site. Under the terms
of this agreement, the Company pays a fee to Barnes & Noble for sales of video game or PC entertainment products
sold through www.bn.com. For the 53 weeks ended February 3, 2007 and the 52 weeks ended January 28, 2006, the
fee to Barnes & Noble totaled $0.3 million and $0.3 million, respectively.
On November 2, 2002, EB sold its BC Sports Collectibles business to SCAC for cash and the assumption of
lease related liabilities. The purchaser, SCAC, is owned by the family of James J. Kim, Chairman of EB at the time
and currently one of the Company’s directors. As EB remains contingently liable for the BC store leases, Mr. Kim
has agreed to indemnify EB against any liabilities associated with these leases.
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