GameStop 2011 Annual Report Download - page 65

Download and view the complete annual report

Please find page 65 of the 2011 GameStop annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 116

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116

in a single continuous statement of comprehensive income or in a separate statement. This guidance will be
effective beginning in fiscal 2012. The adoption of ASU 2011-05 is not expected to have an impact on the
Company’s consolidated net earnings, cash flows or financial position, but the adoption will change the current
presentation of other comprehensive income in the Company’s consolidated financial statements.
In September 2011, the FASB issued ASU 2011-08, Intangibles — Goodwill and Other (Topic 350):
Testing Goodwill for Impairment. ASU 2011-08 modifies step one of the goodwill impairment test for reporting
units with zero or negative carrying amounts and offers guidance on when to perform step two of the testing. For
those reporting units, an entity is required to perform step two of the goodwill impairment test if it is more likely
than not that a goodwill impairment exists based upon factors such as unanticipated competition, the loss of key
personnel and adverse regulatory changes. ASU 2011-08 is effective for fiscal years, and interim periods within
those years, beginning after December 15, 2011. The adoption of ASU 2011-08 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. 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 28, 2012, the
Company recognized a $13.5 million gain 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 28, 2012 was a
net asset of $14.5 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 28,
2012 would result in a (loss) or gain in value of the forwards, options and swaps of ($21.3) million or
$21.3 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
49