GameStop 2014 Annual Report Download - page 71

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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 afullfiscal year.Quarterly resultsmay 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, the nature and timing of acquisitions, adverse weather conditions, shifts in the timing of certain holidays or promotions and
changes in our merchandise mix.
52
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk due to foreign currencyand interest rate fluctuations, each as described more fully below.
Foreign Currency Risk
We use 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 31, 2015, we recognized
a$28.9 million gain in selling, general and administrative expenses related to derivative instruments. The aggregate fair value of
the foreign currency contracts as of January 31, 2015 was anet asset of $18.4 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. Ahypotheticalstrengthening or weakening of 10% in the foreign
exchange rates underlying the foreign currency contracts from the market rate as of January 31, 2015 would result in againor
loss in value of theforwards, options and swapsof$13.2 million.
We do not use derivative financial instruments for trading or speculative purposes. We areexposed to counterparty credit risk
on all of our derivative financial instruments and cash equivalent investments. We manage 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 anumberofdifferent counterparties to minimize our exposure to potential defaults. We do not
require collateral under derivative or investment agreements.
Interest Rate Risk
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. Our Senior Notes' per annum interest rate is fixed. We do notuse derivative financial instruments to hedge
interest rate exposure. We limitour interest rate risks by investing our excess cash balances in short-term, highly-liquid instruments
with amaturity of one year or less. We do notexpect any material losses from our invested cash balances.Additionally,ahypothetical
10% adverse movement in interest rates would not have amaterial impact on our financial condition, results of operations or cash
flows and we therefore believe that we do not have significant interest rate exposure.
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
Evaluation of DisclosureControlsand Procedures
As of the end of the period covered by this report, our management conducted an evaluation, under the supervision and with
the participation of our principal executive officer and principal financial officer,ofour 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,
our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report,
our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and that our