GameStop 2012 Annual Report Download - page 67

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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 February 2, 2013, the
Company recognized a $19.8 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 February 2, 2013 was a
net liability of $5.3 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 February 2,
2013 would result in a (loss) or gain in value of the forwards, options and swaps of ($11.6) million or
$11.6 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.
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) at the reasonable assurance level. 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 designed to provide reasonable assurance of achieving their objectives and
that the Company’s disclosure controls and procedures are effective at the reasonable assurance level.
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
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