GameStop 2010 Annual Report Download - page 62

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Table of Contents
In December 2010, the FASB issued ASU 2010-29, which updates the guidance in ASC 805, Business Combinations, to clarify that pro forma
disclosures should be presented as if a business combination occurred at the beginning of the prior annual period for purposes of preparing both the
current reporting period and the prior reporting period pro forma financial information. These disclosures should be accompanied by a narrative
description about the nature and amount of material, nonrecurring pro forma adjustments. ASU 2010-29 is effective for business combinations
consummated in periods beginning after December 15, 2010, and is required to be applied prospectively as of the date of adoption. The adoption of
ASU 2010-29 is not expected to have a material effect on the Company's consolidated financial statements.
Seasonality
Our business, like that of many retailers, is seasonal, with the major portion of sales and operating profit realized during the fourth quarter
which includes the holiday selling season. Results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal
year. Quarterly results may fluctuate materially depending upon, among other factors, the timing of new product introductions and new store
openings, sales contributed by new stores, increases or decreases in comparable store sales, adverse weather conditions, shifts in the timing of
certain holidays or promotions and changes in our merchandise mix.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Exposure
Our Revolver's per annum interest rate is variable and is based on one of (i) the U.S. prime rate, (ii) the LIBO rate or (iii) the U.S. federal
funds rate. We do not use derivative financial instruments to hedge interest rate exposure. We limit our interest rate risks by investing our excess
cash balances in short-term, highly-liquid instruments with a maturity of one year or less. In addition, the Senior Notes outstanding carry a fixed
interest rate. We do not expect any material losses from our invested cash balances, and we believe that our interest rate exposure is modest.
Foreign Currency Risk
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. The 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. For the fiscal year ended January 29, 2011, the Company recognized a $7.1 million loss in selling, general and administrative
expenses related to the trading of derivative instruments. The aggregate fair value of the Foreign Currency Contracts as of January 29, 2011 was a
net asset of $1.2 million as measured by observable inputs obtained from market news reporting services, such as Bloomberg and The Wall Street
Journal, and industry-standard models that consider various assumptions, including quoted forward prices, time value, volatility factors, and
contractual prices for the underlying instruments, as well as other relevant economic measures. A hypothetical strengthening or weakening of 10% in
the foreign exchange rates underlying the Foreign Currency Contracts from the market rate as of January 29, 2011 would result in a (loss) or gain in
value of the forwards, options and swaps of ($20.5) million or $20.5 million, respectively.
We do not use derivative financial instruments for trading or speculative purposes. We are exposed to counterparty credit risk on all of our
derivative financial instruments and cash equivalent investments. The Company manages counterparty risk according to the guidelines and controls
established under comprehensive risk management and investment policies. We continuously monitor our counterparty credit risk and utilize a
number of different counterparties to minimize our exposure to potential defaults. We do not require collateral under derivative or investment
agreements.
Item 8. Financial Statements and Supplementary Data
See Item 15(a)(1) and (2) of this Form 10-K. 46