GameStop 2007 Annual Report Download - page 59

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Foreign Currency Risk
The Company follows the provisions of Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities, (“SFAS 133”) as amended by Statement of Financial Accounting
Standards No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities. SFAS 133
requires that all derivative instruments be recorded on the balance sheet at fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive income, depending on whether the
derivative is designated as part of a hedge transaction, and if it is, depending on the type of hedge transaction.
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. These 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. The aggregate fair value of the Foreign Currency Contracts at February 2, 2008 was a
liability of $7.6 million. A hypothetical strengthening or weakening of 10% in the foreign exchange rates
underlying the Foreign Currency Contracts from the market rate as of February 2, 2008 would result in a (loss)
or gain in value of the forwards, options and swaps of ($7.0 million) or $5.7 million, respectively.
Item 8. Consolidated 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, 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 in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act). 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 effective.
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 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 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 as of February 2, 2008. The
effectiveness of our internal control over financial reporting as of February 2, 2008 has been audited by BDO Seidman,
LLP, an independent registered public accounting firm, as stated in their report which is included in this Form 10-K.
(c) Changes in Internal Controls Over Financial Reporting
There was no change in the Company’s internal control over financial reporting (as such term is defined in
Rules 13a-15(f) and 15d-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.
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