NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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1.
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Nature of Operations and Summary of Significant Accounting Policies
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Background
GameStop Corp. (“GameStop,” “we,” “us,” “our,” or the “Company”) is a global family of specialty retail brands that makes the most popular technologies affordable and simple. Within our family of brands, we are the world’s largest omnichannel video game retailer, the largest AT&T® (“AT&T”) authorized reseller, the largest Apple© (“Apple”) certified products reseller, a Cricket Wireless TM reseller (“Cricket,” an AT&T brand) and the owner of
www.thinkgeek.com
, one of the world’s largest sellers of collectible pop-culture themed products. As the world's largest omnichannel video game retailer, we sell new and pre-owned video game hardware, physical and digital video game software, video game accessories, as well as new and pre-owned mobile and consumer electronics products and other merchandise primarily through our GameStop, EB Games and Micromania stores. In July 2015, we acquired Geeknet, Inc. ("Geeknet"), an online and wholesale retailer that sells collectibles, apparel, gadgets, electronics, toys and other retail products for technology enthusiasts and general consumers under the name ThinkGeek through the
www.thinkgeek.com
website. ThinkGeek also sells certain exclusive products to wholesale channel customers. As of
April 30, 2016
, we operated
7,074
stores, in the United States, Australia, Canada and Europe, which are primarily located in major shopping malls and strip centers. We also operate electronic commerce websites
www.gamestop.com
,
www.ebgames.com.au
,
www.ebgames.co.nz
,
www.gamestop.ca
,
www.gamestop.it
,
www.gamestop.ie
,
www.gamestop.de
,
www.gamestop.co.uk
and
www.micromania.fr.
The network also includes:
www.kongregate.com
, a leading browser-based game site;
Game Informer
magazine, the world's leading print and digital video game publication; and iOS and Android mobile applications.
We operate our business in
four
Video Game Brands segments: United States, Canada, Australia and Europe; and a Technology Brands segment. Our Technology Brands segment owns and operates Spring Mobile, an authorized AT&T reseller operating AT&T branded wireless retail stores and pre-paid wireless stores under the name Cricket (an AT&T brand) in the United States, as well as a certified Apple reseller selling Apple consumer electronic products in the United States under the name Simply Mac.
Basis of Presentation and Consolidation
The unaudited condensed consolidated financial statements include our accounts and the accounts of our subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements included herein reflect all adjustments (consisting only of normal, recurring adjustments) which are, in our opinion, necessary for a fair presentation of the information as of and for the periods presented. These unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all disclosures required under GAAP for complete consolidated financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with our annual report on Form 10-K, as amended, for the
52
weeks ended
January 30, 2016
(the “2015 Annual Report on Form 10-K”). The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In preparing these financial statements, we have made our best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. Changes in the estimates and assumptions used by us could have a significant impact on our financial results. Actual results could differ from those estimates. Due to the seasonal nature of our business, the results of operations for the
13 weeks ended April 30, 2016
are not indicative of the results to be expected for the 52 weeks ending January 28, 2017 (“fiscal 2016”).
Restricted Cash
Restricted cash of
$10.5 million
,
$12.0 million
and
$9.7 million
as of
April 30, 2016
,
May 2, 2015
and
January 30, 2016
, respectively, consists primarily of bank deposits serving as collateral for bank guarantees issued on behalf of our foreign subsidiaries and is included in other noncurrent assets in our unaudited condensed consolidated balance sheets.
Recently Implemented Accounting Pronouncements
In November 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-17, Balance Sheet Classification of Deferred Taxes. The standard amends the current requirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, organizations will now be required to classify all deferred tax assets and liabilities as noncurrent. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, with early adoption permitted. The Company early adopted this standard during
GAMESTOP CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
the fourth quarter of fiscal 2015, utilizing prospective application as permitted. As such, certain prior period amounts have not been retrospectively adjusted to conform to the current presentation.
In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs. This standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 became effective for interim and annual reporting periods beginning after December 15, 2015. We adopted this guidance as of January 31, 2016, and as a result have recast the
May 2, 2015
and
January 30, 2016
condensed consolidated balance sheets to conform to the current period presentation. The adoption of this standard reduced previously presented prepaid expenses and other current assets by
$1.3 million
, other noncurrent assets by
$4.3 million
, and long-term debt by
$5.6 million
for the period ended
May 2, 2015
based upon the balance of unamortized debt financing costs relating to our Senior Notes due 2019. The adoption of this standard also reduced previously presented prepaid expenses and other current assets by
$1.3 million
, other noncurrent assets by
$3.3 million
, and long-term debt by
$4.6 million
, for the period ended
January 30, 2016
based upon the balance of unamortized debt financing costs relating to our Senior Notes due 2019.
Recently Issued Accounting Pronouncements
In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting. The update simplifies several aspects of accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those years, with early adoption permitted. We do not anticipate that adoption of this standard will have a material impact to our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers. The standard addresses the implementation guidance on principal versus agent considerations in the new revenue recognition standard. The ASU clarifies how an entity should identify the unit of accounting (i.e. the specified good or service) for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. The ASU is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2017, with early adoption permitted. We do not anticipate that adoption of this standard will have a material impact to our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-04, Recognition of Breakage for Certain Prepaid Stored-Value Products. The standard specifies how prepaid stored-value product liabilities should be derecognized, thereby eliminating the current and potential future diversity in practice. Consistent with ASU 2014-09 related to revenue recognition, the standard requires derecognition in proportion with the rights expected to be exercised by the holder. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted. We are currently evaluating the impact that this standard will have on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases. The standard requires a lessee to recognize a liability related to lease payments and an offsetting right-of-use asset representing a right to use the underlying asset for the lease term on the balance sheet. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the impact that this standard will have on our consolidated financial statements.
In May 2014, as part of its ongoing efforts to assist in the convergence of U.S. GAAP and International Financial Reporting Standards (“IFRS”), the FASB issued ASU 2014-09 related to revenue recognition. The new guidance sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in U.S. GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. The standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in the prior accounting guidance. The ASU provides alternative methods of initial adoption and is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. In August 2015, the FASB issued ASU 2015-14 which defers the effective date of ASU 2014-09 one year making it effective for annual reporting periods beginning on or after December 15, 2017 while also providing for early adoption as of the original effective date. We anticipate that the standard will affect the way that we recognize liabilities for our customer incentives. We are currently continuing to evaluate the impact that this standard will have on our consolidated financial statements as well as the appropriate method of adoption.
GAMESTOP CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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2.
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Accounting for Stock-Based Compensation
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The following is a summary of the stock-based awards granted during the periods indicated:
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13 Weeks Ended April 30, 2016
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13 Weeks Ended May 2, 2015
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Shares
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Weighted Average
Grant Date Fair
Value
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Shares
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Weighted Average
Grant Date Fair
Value
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(In thousands, except per share data)
|
Restricted stock awards – time-vested
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550
|
|
|
$
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30.54
|
|
|
428
|
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$
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40.16
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Restricted stock awards – performance-based
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213
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30.50
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189
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40.16
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Total stock-based awards
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763
|
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|
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|
617
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For restricted stock awards and stock options granted, we record stock-based compensation expense in earnings based on the grant-date fair value. The fair value of each restricted stock award grant is based on the closing price of our Class A Common Stock on the grant date. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model.
No
stock options were granted during the
13 weeks ended April 30, 2016
or the
13 weeks ended May 2, 2015
.
Total stock-based compensation recognized in selling, general and administrative expenses during the
13 weeks ended April 30, 2016
and the
13 weeks ended May 2, 2015
was
$6.7 million
and
$10.3 million
, respectively. Upon adoption of the Company's retirement policy during the
13 weeks ended May 2, 2015
,
$3.8 million
of compensation expense was recognized related to employees whose equity based long-term incentive awards are subject to certain accelerated vesting provisions, based on age and years of service.
As of
April 30, 2016
, the unrecognized compensation expense related to the unvested portion of our stock options was
$0.7 million
, which is expected to be recognized over a weighted average period of
0.8 years
, and the unrecognized compensation expense related to unvested restricted shares was $
38.3 million
, which is expected to be recognized over a weighted average period of
2.1 years
. The total intrinsic value of options exercised during the
13 weeks ended April 30, 2016
and the
13 weeks ended May 2, 2015
was
$0.1 million
and
$3.6 million
, respectively.
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3.
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Computation of Net Income per Common Share
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Basic net income per common share is computed by dividing the net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income per common share is computed by dividing the net income available to common stockholders by the weighted average number of common shares outstanding and potentially dilutive securities outstanding during the period. Under the treasury stock method, potentially dilutive securities include stock options and unvested restricted stock outstanding during the period. Potentially dilutive securities are excluded from the computations of diluted earnings per share if their effect would be antidilutive.
A reconciliation of shares used in the computation of basic and diluted net income per common share is as follows:
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13 Weeks Ended
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April 30,
2016
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May 2,
2015
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(In millions, except per share data)
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Net income
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$
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65.8
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$
|
73.8
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Weighted average common shares outstanding
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103.8
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107.8
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Dilutive effect of options and restricted shares on common stock
(1)
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0.4
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0.6
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Common shares and dilutive potential common shares
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104.2
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108.4
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Net income per common share:
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Basic
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$
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0.63
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$
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0.68
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Diluted
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$
|
0.63
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$
|
0.68
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___________________
GAMESTOP CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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(1)
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Excludes
1.2 million
and
0.9 million
stock-based awards for the
13 weeks ended April 30, 2016
, and the
13 weeks ended May 2, 2015
, respectively, because their effects were antidilutive.
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4.
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Fair Value Measurements and Financial Instruments
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Recurring Fair Value Measurements and Derivative Financial Instruments
Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value accounting guidance applies to our foreign currency contracts, which include forward exchange contracts, foreign currency options and cross-currency swaps, our Company-owned life insurance policies with a cash surrender value and certain nonqualified deferred compensation liabilities that are measured at fair value on a recurring basis in periods subsequent to initial recognition.
Fair value accounting guidance requires disclosures that categorize assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar instruments in active markets, quoted prices for similar or identical instruments in markets that are not active and model-derived valuations in which all significant inputs are observable in active markets. Level 3 inputs are unobservable inputs for the asset or liability reflecting our assumptions about pricing by market participants.
We classify our foreign currency contracts, Company-owned life insurance policies with cash surrender values and certain nonqualified deferred compensation liabilities within Level 2 of the fair value hierarchy, as their fair values are derived using quotes provided by major market news services, such as Bloomberg, 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, all of which are observable in active markets. When appropriate, valuations are adjusted to reflect credit considerations, generally based on available market evidence.
The following table provides the fair value of our assets and liabilities measured at fair value on a recurring basis and recorded in our unaudited condensed consolidated balance sheets (in millions):
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April 30, 2016 Level 2
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May 2, 2015 Level 2
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January 30, 2016 Level 2
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Assets
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Foreign currency contracts
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Other current assets
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$
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21.4
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$
|
33.0
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|
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$
|
40.6
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|
Other noncurrent assets
|
|
—
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16.7
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0.1
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Company-owned life insurance
(1)
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10.3
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8.9
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|
10.1
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Total assets
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$
|
31.7
|
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$
|
58.6
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$
|
50.8
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Liabilities
|
|
|
|
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Foreign currency contracts
|
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|
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Accrued liabilities
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$
|
10.9
|
|
|
$
|
19.4
|
|
|
$
|
32.3
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Other long-term liabilities
|
|
—
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|
6.3
|
|
|
0.5
|
|
Nonqualified deferred compensation
(2)
|
|
1.2
|
|
|
1.2
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|
1.1
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Total liabilities
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$
|
12.1
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$
|
26.9
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$
|
33.9
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___________________
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(1)
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Recognized in other non-current assets in our unaudited condensed consolidated balance sheets.
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(2)
|
Recognized in accrued liabilities in our unaudited condensed consolidated balance sheets.
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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. The total gross notional value of derivatives related to our foreign currency contracts was
$804.4 million
,
$989.0 million
and
$925.3 million
as of
April 30, 2016
,
May 2, 2015
and
January 30, 2016
, respectively.
GAMESTOP CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Activity related to derivative instruments and the offsetting impact of related intercompany loans and foreign currency assets and liabilities recognized in selling, general and administrative expense is as follows (in millions):
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13 Weeks Ended
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April 30,
2016
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May 2,
2015
|
Gains on the change in fair value of derivative instruments
|
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$
|
2.1
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$
|
7.0
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Losses on the remeasurement of related intercompany loans and foreign currency assets and liabilities
|
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(0.5
|
)
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(7.0
|
)
|
Total
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$
|
1.6
|
|
|
$
|
—
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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. We manage counterparty risk according to the guidelines and controls established under our 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.
Nonrecurring Fair Value Measurements
In addition to assets and liabilities that are recorded at fair value on a recurring basis, we record certain assets and liabilities at fair value on a nonrecurring basis as required by GAAP. Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges. We did not record any significant impairment charges related to assets measured at fair value on a nonrecurring basis during the
13 weeks ended April 30, 2016
or
May 2, 2015
.
Other Fair Value Disclosures
The carrying values of our cash equivalents, receivables, net and accounts payable approximate the fair value due to their short-term maturities.
As of
April 30, 2016
, our Senior Notes due 2019 had a net carrying value of
$345.7 million
and a fair value of
$341.3 million
, and our Senior Notes 2021 had a net carrying value of
$466.7 million
and a fair value of
$465.5 million
. The fair values of the 2019 Senior Notes and the 2021 Senior Notes were determined based on quoted market prices obtained through an external pricing source which derives its price valuations from daily marketplace transactions, with adjustments to reflect the spreads of benchmark bonds, credit risk and certain other variables. We have determined these to be Level 2 measurements as all significant inputs into the quotes provided by our external pricing source are observable in active markets.
2019 Senior Notes.
On
September 24, 2014
, we issued
$350.0 million
aggregate principal amount of unsecured
5.50%
senior notes due
October 1, 2019
(the "2019 Senior Notes"). The 2019 Senior Notes bear interest at the rate of 5.50% per annum with interest payable semi-annually in arrears on April 1 and October 1 of each year beginning on April 1, 2015. The 2019 Senior Notes were sold in a private placement and will not be registered under the U.S. Securities Act of 1933 (the "Securities Act"). The 2019 Senior Notes were offered in the U.S. to “qualified institutional buyers” pursuant to the exemption from registration under Rule 144A of the Securities Act and in exempted offshore transactions pursuant to Regulation S under the Securities Act. The outstanding principal balance of the 2019 Senior Notes at
April 30, 2016
was
$350.0 million
.
2021 Senior Notes.
In
March 2016
, we issued
$475.0 million
aggregate principal amount of unsecured 6.75% senior notes due March 15, 2021 (the "2021 Senior Notes"). The 2021 Senior Notes bear interest at the rate of
6.75%
per annum with interest payable semi-annually in arrears on March 15 and September 15 of each year beginning on September 15, 2016. The net proceeds from the offering will be used for general corporate purposes, which will likely include acquisitions, and, potentially, dividends and stock buybacks. The 2021 Senior Notes were sold in a private placement and will not be registered under the Securities Act. The 2021 Senior Notes were offered in the U.S to "qualified institutional buyers" pursuant to the exemption from registration under Rule 144A of the Securities Act and in exempted offshore transactions pursuant to Regulation S under the Securities Act. The outstanding principal balance of the 2021 Senior Notes at
April 30, 2016
was
$475.0 million
.
GAMESTOP CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The indentures governing the 2019 Senior Notes and the 2021 Senior Notes (together, the "Senior Notes") do not contain financial covenants but do contain covenants which place certain restrictions on us and our subsidiaries, including limitations on asset sales, additional liens, investments, stock repurchases, the incurrence of additional debt and the repurchase of debt that is junior to the Senior Notes. In addition, the indentures restrict payments of dividends to stockholders (other than dividends payable in shares of capital stock) if one of the following conditions exist: (i) an event of default has occurred, (ii) we could not incur additional debt under the general debt covenant of the indentures or (iii) the sum of the proposed dividend and all other dividends and other restricted payments made under the indentures from the date of the indentures governing the Senior Notes exceeds the sum of
50%
of consolidated net income plus
100%
of net proceeds from capital stock sales and other amounts set forth in and determined as provided in the indentures. These restrictions are subject to exceptions and qualifications, including that we can pay up to
$175 million
in dividends to stockholders in each fiscal year and we can pay dividends and make other restricted payments in an unlimited amount if our leverage ratio on a pro forma basis after giving effect to the dividend payment and other restricted payments would be less than or equal to
1.0
:1.0.
The indentures contain customary events of default, including payment defaults, breaches of covenants, failure to pay certain judgments and certain events of bankruptcy, insolvency and reorganization. If an event of default occurs and is continuing, the principal amount of the Senior Notes, plus accrued and unpaid interest, if any, may be declared immediately due and payable. These amounts automatically become due and payable if an event of default relating to certain events of bankruptcy, insolvency or reorganization occurs.
The carrying value of our long-term debt is comprised as follows (in millions):
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April 30, 2016
|
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|
May 2, 2015
|
|
|
January 30, 2016
|
|
2019 Senior Notes principal amount
|
$
|
350.0
|
|
|
$
|
350.0
|
|
|
$
|
350.0
|
|
2021 Senior Notes principal amount
|
475.0
|
|
|
—
|
|
|
—
|
|
Less: Unamortized debt financing costs
(1)
|
(12.6
|
)
|
|
(5.6
|
)
|
|
(4.6
|
)
|
Long-term debt, net
|
$
|
812.4
|
|
|
$
|
344.4
|
|
|
$
|
345.4
|
|
|
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(1)
|
Includes the reclassification of debt financing costs from "Prepaids and other current assets" and “Other noncurrent assets” as a result of the Company adopting ASU 2015-03. See Note 1.
|
Revolving Credit Facility.
On January 4, 2011, we entered into a
$400 million
credit agreement, which we amended and restated on
March 25, 2014
and further amended on September 15, 2014 (the “Revolver”). The Revolver is a
five
-year, asset-based facility that is secured by substantially all of our assets and the assets of our domestic subsidiaries. Availability under the Revolver is subject to a monthly borrowing base calculation. The Revolver includes a
$50 million
letter of credit sublimit. The amendments extended the maturity date to
March 25, 2019
; increased the expansion feature under the Revolver from
$150 million
to
$200 million
, subject to certain conditions; and revised certain other terms, including a reduction of the fee we are required to pay on the unused portion of the total commitment amount.
Borrowing availability under the Revolver is limited to a borrowing base which allows us to borrow up to
90%
of the appraisal value of the inventory, in each case plus
90%
of eligible credit card receivables, net of certain reserves. The borrowing base provides for borrowing of up to
92.5%
of the appraisal value during the fiscal months of August through October. Letters of credit reduce the amount available to borrow under the Revolver by an amount equal to the face value of the letters of credit. Our ability to pay cash dividends, redeem options and repurchase shares is generally permitted, except under certain circumstances, including if either 1) excess availability under the Revolver is less than
30%
, or is projected to be within 12 months after such payment or 2) excess availability under the Revolver is less than
15%
, or is projected to be within 12 months after such payment, and the fixed charge coverage ratio, as calculated on a pro-forma basis for the prior 12 months is
1.1
:1.0 or less. In the event that excess availability under the Revolver is at any time less than the greater of (1)
$30 million
or (2)
10%
of the lesser of the total commitment or the borrowing base, we will be subject to a fixed charge coverage ratio covenant of
1.0
:1.0.
The Revolver places certain restrictions on us and our subsidiaries, including limitations on asset sales, additional liens, investments, loans, guarantees, acquisitions and the incurrence of additional indebtedness. Absent consent from our lenders, we may not incur more than
$1 billion
of senior secured debt and
$750 million
of additional unsecured indebtedness to be limited to
$250 million
in general unsecured obligations and
$500 million
in unsecured obligations to finance acquisitions valued at
$500 million
or more.
The per annum interest rate under the Revolver is variable and is calculated by applying a margin (1) for prime rate loans of
0.25%
to
0.75%
above the highest of (a) the prime rate of the administrative agent, (b) the federal funds effective rate plus
GAMESTOP CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
0.50%
or (c) the London Interbank Offered (“LIBO”) rate for a 30-day interest period as determined on such day plus
1.00%
, and (2) for LIBO rate loans of
1.25%
to
1.75%
above the LIBO rate. The applicable margin is determined quarterly as a function of our average daily excess availability under the facility. In addition, we are required to pay a commitment fee of
0.25%
for any unused portion of the total commitment under the Revolver. As of
April 30, 2016
, the applicable margin was
0.25%
for prime rate loans and
1.25%
for LIBO rate loans.
The Revolver provides for customary events of default with corresponding grace periods, including failure to pay any principal or interest when due, failure to comply with covenants, any material representation or warranty made by us or the borrowers proving to be false in any material respect, certain bankruptcy, insolvency or receivership events affecting us or our subsidiaries, defaults relating to certain other indebtedness, imposition of certain judgments and mergers or the liquidation of the Company or certain of its subsidiaries. During the
13 weeks ended April 30, 2016
, we cumulatively borrowed
$100.0 million
and subsequently repaid
$100.0 million
under the Revolver. Average borrowings under the Revolver for the
13 weeks ended April 30, 2016
were
$19.0 million
and our average interest rate on those borrowings was
3.7%
. As of
April 30, 2016
, total availability under the Revolver was
$391.6 million
, with
no
outstanding borrowings and outstanding standby letters of credit of
$8.4 million
.
In September 2007, our Luxembourg subsidiary entered into a discretionary
$20 million
Uncommitted Line of Credit (the “Line of Credit”) with Bank of America. There is no term associated with the Line of Credit and Bank of America may withdraw the facility at any time without notice. The Line of Credit is available to our foreign subsidiaries for use primarily as a bank overdraft facility for short-term liquidity needs and for the issuance of bank guarantees and letters of credit to support operations. As of
April 30, 2016
, there were
no
cash overdrafts outstanding under the Line of Credit and bank guarantees outstanding totaled
$2.0 million
.
|
|
|
6.
|
Commitments and Contingencies
|
In the ordinary course of business, we are, from time to time, subject to various legal proceedings, including matters involving wage and hour employee class actions, shareholder actions and consumer class actions. We may enter into discussions regarding settlement of these and other types of lawsuits, and may enter into settlement agreements, if we believe settlement is in the best interest of our stockholders. We do not believe that any such existing legal proceedings or settlements, individually or in the aggregate, will have a material effect on our financial condition, results of operations or liquidity.
Certain of our French subsidiaries have been under audit by the French Tax Administration (the "FTA") for fiscal years 2008 through 2012. We received tax reassessment notices on December 23, 2015 and April 4, 2016, pursuant to which the FTA asserted that the French subsidiaries were ineligible to claim certain tax deductions from November 4, 2008, through January 31, 2013, resulting in a potential additional tax charge of approximately
€85.5 million
. We may receive additional tax reassessments in material amounts for subsequent fiscal years. We filed a response to each reassessment and intend to vigorously contest the reassessments through administrative procedures. If we are unable to resolve this matter through administrative remedies at the FTA, we plan to pursue judicial remedies. We believe our tax positions will be sustained and have not taken a reserve for any potential adjustment based on the reassessment. If we were not to prevail, then the adjustment to our income tax provision could be material.
GAMESTOP CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following tables set forth net sales (in millions), percentages of total net sales, gross profit (in millions) and gross profit percentages by significant product category for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
|
April 30, 2016
|
|
May 2, 2015
|
|
|
Net
Sales
|
|
Percent
of Total
|
|
Net
Sales
|
|
Percent
of Total
|
Net Sales:
|
|
|
|
|
|
|
|
|
New video game hardware
(1)
|
|
$
|
312.9
|
|
|
15.9
|
%
|
|
$
|
439.7
|
|
|
21.3
|
%
|
New video game software
|
|
567.2
|
|
|
28.8
|
%
|
|
613.6
|
|
|
29.8
|
%
|
Pre-owned and value video game products
|
|
560.9
|
|
|
28.5
|
%
|
|
582.4
|
|
|
28.3
|
%
|
Video game accessories
|
|
162.7
|
|
|
8.2
|
%
|
|
150.5
|
|
|
7.3
|
%
|
Digital
|
|
42.8
|
|
|
2.2
|
%
|
|
46.0
|
|
|
2.2
|
%
|
Mobile and consumer electronics
|
|
192.6
|
|
|
9.8
|
%
|
|
136.8
|
|
|
6.6
|
%
|
Collectibles
|
|
82.3
|
|
|
4.2
|
%
|
|
22.8
|
|
|
1.1
|
%
|
Other
(2)
|
|
50.1
|
|
|
2.4
|
%
|
|
68.8
|
|
|
3.4
|
%
|
Total
|
|
$
|
1,971.5
|
|
|
100.0
|
%
|
|
$
|
2,060.6
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
|
April 30, 2016
|
|
May 2, 2015
|
|
|
Gross
Profit
|
|
Gross
Profit
Percent
|
|
Gross
Profit
|
|
Gross
Profit
Percent
|
Gross Profit:
|
|
|
|
|
|
|
|
|
New video game hardware
(1)
|
|
$
|
28.3
|
|
|
9.0
|
%
|
|
$
|
37.2
|
|
|
8.5
|
%
|
New video game software
|
|
127.9
|
|
|
22.5
|
%
|
|
138.7
|
|
|
22.6
|
%
|
Pre-owned and value video game products
|
|
263.2
|
|
|
46.9
|
%
|
|
286.0
|
|
|
49.1
|
%
|
Video game accessories
|
|
57.1
|
|
|
35.1
|
%
|
|
55.8
|
|
|
37.1
|
%
|
Digital
|
|
37.0
|
|
|
86.4
|
%
|
|
35.4
|
|
|
77.0
|
%
|
Mobile and consumer electronics
|
|
117.7
|
|
|
61.1
|
%
|
|
54.5
|
|
|
39.8
|
%
|
Collectibles
|
|
28.6
|
|
|
34.8
|
%
|
|
8.9
|
|
|
39.0
|
%
|
Other
(2)
|
|
15.7
|
|
|
31.3
|
%
|
|
22.5
|
|
|
32.7
|
%
|
Total
|
|
$
|
675.5
|
|
|
34.3
|
%
|
|
$
|
639.0
|
|
|
31.0
|
%
|
___________________
|
|
(1)
|
Includes sales of hardware bundles, in which physical hardware and digital or physical software are sold together as a single SKU.
|
(2)
Other products include revenues from sales of PC entertainment software, interactive toys, strategy guides and revenues from PowerUp Pro loyalty members receiving
Game Informer
magazine in physical form.
We report our business in
four
Video Game Brands segments: United States, Canada, Australia and Europe; and a Technology Brands segment, which includes the operations of our Spring Mobile managed AT&T and Cricket Wireless branded stores and our Simply Mac business. We identify segments based on a combination of geographic areas and management responsibility. Each of the segments includes significant retail operations with all Video Game Brands stores engaged in the sale of new and pre-owned video game systems, software and related accessories and collectibles, and Technology Brands stores engaged in the sale of wireless
GAMESTOP CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
products and services and other consumer electronics. Segment results for the United States include retail operations in
50
states, the District of Columbia, Guam and Puerto Rico; our electronic commerce websites
www.gamestop.com
and
www.thinkgeek.com
;
Game Informer
magazine; and Kongregate, our leading web and mobile gaming platform. Segment results for Canada include retail and e-commerce operations in Canada and segment results for Australia include retail and e-commerce operations in Australia and New Zealand. Segment results for Europe include retail operations in
10
European countries and e-commerce operations in
five
countries. The Technology Brands segment includes retail operations in the United States. We measure segment profit using operating earnings, which is defined as income from continuing operations before intercompany royalty fees, net interest expense and income taxes. Transactions between reportable segments consist primarily of royalties, management fees, intersegment loans and related interest. There were
no
material intersegment sales during the
13 weeks ended April 30, 2016
and
May 2, 2015
.
The reconciliation of segment profit to earnings before income taxes for the
13 weeks ended April 30, 2016
and
May 2, 2015
, respectively, is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 weeks ended April 30, 2016
|
|
United
States
|
|
Canada
|
|
Australia
|
|
Europe
|
|
Technology Brands
|
|
Consolidated
|
Net sales
|
|
$
|
1,368.6
|
|
|
$
|
77.7
|
|
|
$
|
109.9
|
|
|
$
|
249.5
|
|
|
$
|
165.8
|
|
|
$
|
1,971.5
|
|
Segment operating earnings (loss)
|
|
94.4
|
|
|
3.8
|
|
|
0.5
|
|
|
(3.5
|
)
|
|
18.8
|
|
|
114.0
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
(11.0
|
)
|
Earnings before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
$
|
103.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 weeks ended May 2, 2015
|
|
United
States
|
|
Canada
|
|
Australia
|
|
Europe
|
|
Technology Brands
|
|
Consolidated
|
Net sales
|
|
$
|
1,492.7
|
|
|
$
|
89.7
|
|
|
$
|
112.0
|
|
|
$
|
264.0
|
|
|
$
|
102.2
|
|
|
$
|
2,060.6
|
|
Segment operating earnings (loss)
|
|
120.5
|
|
|
3.7
|
|
|
1.7
|
|
|
(5.1
|
)
|
|
3.1
|
|
|
123.9
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
(5.6
|
)
|
Earnings before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
$
|
118.5
|
|
Dividend
On
May 24, 2016
, our Board of Directors approved a quarterly cash dividend to our stockholders of
$0.37
per share of Class A Common Stock payable on
June 21, 2016
to stockholders of record at the close of business on
June 8, 2016
. Future dividends will be subject to approval by our Board of Directors.