GameStop 2007 Annual Report Download - page 57

purchased by the Company to date. 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 February 2, 2008, the Company had no off-balance sheet arrangements as defined in Item 303 of
Regulation 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 operates departments within nine bookstores operated by Barnes & Noble, an affiliate through a
common stockholder who is chairman of the board of directors of Barnes & Noble and a member of the Company’s
Board of Directors. 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 February 2, 2008, the 53 weeks ended
February 3, 2007 and the 52 weeks ended January 28, 2006, these charges amounted to $1.2 million, $1.0 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 the Company
secured its own insurance coverage, costs will likely continue to be incurred by Barnes & Noble on insurance claims
which were incurred under its programs prior to June 2005 and any such costs applicable to insurance claims against
Historical GameStop will be allocated to the Company. During the 52 weeks ended February 2, 2008, the 53 weeks
ended February 3, 2007 and the 52 weeks ended January 28, 2006, these allocated charges amounted to $0.3 million,
$0.8 million and $1.7 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.
Historical GameStop paid $37.5 million in cash and issued a promissory note in the principal amount of
$74.0 million, which has been repaid as of October 2007. Scheduled principal payments were made of $37.5 million
in January 2005 and $12.2 million in each of October 2005, October 2006 and October 2007. Interest expense on the
promissory note for the 52 weeks ended February 2, 2008, the 53 weeks ended February 3, 2007 and the 52 weeks
ended January 28, 2006 totaled $0.4 million, $1.1 million and $1.8 million, respectively.
In May 2005, the Company entered into an arrangement with Barnes & Noble under which
www.gamestop.com became 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. The fee paid to Barnes & Noble in connection with
this arrangement was $0.4 million, $0.3 million and $0.3 million for the 52 weeks ended February 2, 2008, the
53 weeks ended February 3, 2007 and the 52 weeks ended January 28, 2006, respectively.
Recent Accounting Standards and Pronouncements
In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about
Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133 (“SFAS 161”).
SFAS 161 requires enhanced disclosures about how and why an entity uses derivative instruments, how derivative
instruments and related hedged items are accounted for and their effect on an entity’s financial position, financial
performance, and cash flows. SFAS 161 is effective for the Company on February 1, 2009. The Company is
currently evaluating the impact that the adoption of SFAS 161 will have on its consolidated financial statements.
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